Castings P.L.C. Annual Report for the year ended 31 March 2018 Stock Code: CGS 26055.04 — 18 June 2018 9:21 AM — Proof 3 26055.04 — 18 June 2018 9:21 AM — Proof 3 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Contents Strategic Report Financial Highlights Chairman’s Statement Objectives and Strategy Business Model Business and Financial Review Principal Risks and Uncertainties Viability Statement 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 Financial Statements Five Year Financial History Parent Company Balance Sheet Parent Company Statement of Changes in Equity Notes to the Parent Company Financial Statements Company Information Notice of Meeting Directors, Officers and Advisers Shareholder Information 02 03 04 04 05 07 08 09 11 12 15 17 18 19 21 23 24 29 30 31 32 33 50 51 52 53 60 62 65 01 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018 Financial Highlights Group revenue (£m) £133m (2017: £119m) Profit before tax (£m) £12.1m (2017: £15.9m) Capital expenditure (£m) £11.2m (2017: £14.2m) 2018 2017 2016 2015 133 119 132 131 2018 2017 2016 2015 12.1 15.9 19.7 17.5 2018 2017 2016 2015 11.2 14.2 7.2 8.2 Foundry sales volume (tonnes) 49,200 (2017: 47,200) EPS (basic and diluted) 22.46p (2017: 29.80p) Dividend per share (excluding supplementary dividend) (pence) 14.50p (2017: 13.97p) 2018 2017 2016 2015 49,200 47,200 52,000 52,700 2018 2017 2016 2015 22.46 29.80 37.10 31.80 2018 2017 2016 2015 14.50 13.97 13.71 13.30 Revenue Profile Geographical revenue split Customer sector profile United Kingdom 27% Export 73% Commercial vehicle 70% Automotive 11% Other 19% 02 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Chairman’s Statement The turnover of the group increased to £133 million (£119 million last year) with a decrease in profits to £12.1 million compared to £15.9 million last year. Dividend I am pleased to report that the directors recommend an increase in the final dividend to 11.12 pence per share to be paid on 17 August 2018. This, together with the interim dividend, gives a total dividend for the year of 14.50 pence per share. Outlook It appears at the present time our order book is sound and schedules are increasing. In particular demand for commercial vehicles is currently strong and it is hoped this trend will continue. Directors As part of our on-going succession planning, it is our intention to recruit further directors to strengthen the board. I wish to thank all our employees for their continued hard work and in particular their support during a difficult supply situation. B. J. Cooke Chairman 13 June 2018 Foundry businesses The foundries have seen an increase in output and improved profitability compared to the previous year. Our recent investments, particularly in robotic handling, have enabled the rise in productivity. Further investments will continue to be made where cost savings can be identified. It is pleasing to report that William Lee has improved production and productivity. We have also strengthened the management team at William Lee. CNC Speedwell We reported at the half year that Mark Lewis had resigned from the Board and as Managing Director of CNC. In the second half year we recruited a new General Manager, Steve Barwell, and a new Technical Director, Quality Director and Financial Controller. We are confident that this team is much stronger and has brought the business under operational control. It is very disappointing to report a substantial loss at CNC for the year. One of the major issues for much of the year has been an inability to meet customer orders in a timely way, which has resulted in extra transport costs in excess of £1.2m. These costs have been necessary to prevent disruption to our customers’ production lines. I am pleased to be able to report that transport costs are now back down to historic levels. We have also carried out a review of the operations of the company and, as a result, identified certain projects that were not suitable for the group. This has cost us a further £1m in write-downs of capital and tooling equipment. The total financial impact in 2017/18 of the reorganisation of the machining business was a non-recurring cost of £3.3 million. It will take time before we see the turnaround from the changes being implemented by the new team, including the training of operatives that we have taken on, but we expect the trading results of CNC to improve during the second half of this financial year. 26055.04 — 18 June 2018 9:21 AM — Proof 3 03 Castings P.L.C. Annual Report for the year ended 31 March 2018Strategic 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. However, our focus is on core business that can be produced and machined within the group. 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 29. 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 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Business and Financial Review Overview of business segment performance The segmental revenue and results for the current and previous years are set out in note 2 on pages 36 and 37. An overview of the performance, position and future prospects of each segment, and the relevant KPIs, are set out below. Key Performance Indicators The key performance indicators considered by the group are: • Segmental revenue • Segmental profit • EPS • Net cash • Dividends per share Foundry operations The foundry businesses have experienced an increase in output of 4.2% to 49,200 tonnes and an increase in external sales revenue of 13.6% to £127.0 million. This year has seen a continuation of the sales mix change of last year with an increase in more complex, machined parts. Of the total output weight for the year, just under 53% related to machined castings compared to 49.5% in the previous year. In addition to product mix, the average price of steel scrap and other alloys has increased in the year which has increased sales revenue compared to the previous year. Furthermore, the weakened value of sterling has increased the value of reported revenue for invoices denominated in foreign currencies. The segmental profit has increased to £16.1 million, from £14.5 million in the previous year, which represents a return of 11.0% on total segmental sales (2017 – 11.3%). The reduction in percentage can largely be attributed to the impact of higher raw material prices. The aligning of production methods across the foundries and productivity improvements have continued with William Lee increasingly contributing to the overall segment profitability. The roll-out of automation within the foundry processing areas has continued with £1.8 million having been invested during the year. This is an area that will continue to be in focus during 2018/19. With customer requirements forecast to remain steady at the current levels, particularly in the commercial vehicles sector, our focus will be on our continuous efforts to improve productivity through careful investment and further developing production methods. Machining The machining business generated total sales of £24.8 million in the year compared to £23.3 million in the previous year. Of the total revenue, 25.2% was generated from external customers compared to 29.9% in 2017. Business review and performance Revenue Group revenues increased by 12.2% to £133.3 million compared to £118.8 million reported in 2017, of which 73% was exported (2017 – 72%). The revenue from the foundry operations to external customers increased 13.6% to £127.0 million (2017 – £111.8 million) with the dispatch weight of castings to third-party customers increasing 4.2% to 49,200 tonnes (2017 – 47,200 tonnes). The segmental result for the year was a loss of £3.95 million (2017 – profit of £1.52 million). Following the change of management and a full review of the machining operation, certain projects were identified that were not considered suitable for the group. The total cost of exiting these projects was just over £1 million which comprised write-downs of specific capital and tooling equipment and exiting contract commitments to purchase equipment. In addition to these project specific items, the disruption in manufacturing has resulted in higher than previously anticipated costs, particularly in relation to excessive transport, to ensure customer schedules are met. The direct additional logistics costs were £1.2 million during the year. The total financial impact in 2017/18 of the reorganisation of the machining business was a non-recurring cost of £3.3 million. Therefore, excluding these costs, the underlying machining business generated a trading loss of £0.65 million during the year. We have invested £7.1 million during the year which was primarily focused on work for the group’s traditional customer base. Whilst there will continue to be a replacement need, it is expected that the investment will be significantly reduced in 2018/19. Management are focused on ensuring an enhanced return on the capital already invested in the machining business. Revenue from the machining operation to external customers decreased by 10.2% during the year to £6.3 million (2017 – £7.0 million). Operating profit and segmental result The group operating profit for the year was £11.9 million compared to £15.7 million reported in 2017, which represents a return on sales of 9.0% (2017 – 13.2%). However, this result includes £3.3 million of non-recurring costs associated with the reorganisation of the machining segment; an adjusted return on sales figure would be 11.4%. The foundry operations returned a segmental profit of £16.1 million compared to £14.5 million in 2017. This represents a slight decrease in segmental profit as a percentage of total segment sales to 11.0% from 11.3% in 2017. The segmental result of the machining operation was a loss of £3.95 million in the year compared to a profit of £1.52 million in 2017. Icelandic bank receipts During the year we have received £0.11 million (2017 – £0.13 million) in respect of the failed Icelandic banks. Of the original balance of £5.7 million, the total received to date is £3.84 million which is £1.97 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 05 Castings P.L.C. Annual Report for the year ended 31 March 2018Strategic Report Business and Financial Review continued Finance income The reduction in the level of finance income from £0.24 million in 2017 to £0.13 million in the current year reflects the lower levels of cash held and a lower average interest rates on deposits. included investment in production processes and automation in the foundry businesses and production facilities and machining centres within the machining operation. The charge for depreciation was £8.5 million compared to £7.3 million in 2017. Balance sheet Net assets at 31 March 2018 were £128.1 million (2017 – £124.1 million). Other than the total comprehensive income for the year of £10.1 million, the only movement relates to the dividend charge of £6.1 million. Non-current assets have increased to £76.9 million (2017 – £75.4 million) primarily as a result of the investment in property, plant and equipment during the year offset by the change in the debtor due from the pension scheme of £1.1 million (2017 – £2.3 million), details of which are set out in note 6. Current assets have increased to £78.4 million (2017 – £74.5 million) mainly as a result of increases in material prices. Total liabilities have increased to £27.2 million (2017 – £25.8 million), largely as a result of an increase in trade payables. The current interest-bearing deposit of £5 million taken out in the previous year matured in November 2017. With the exception of £0.1 million which was transferred to short- term deposits, the remainder was rolled over to mature during the next financial year Repayments of £3.1 million (2017 – £3.8 million) were received from the final salary pension schemes during the year and advances were made to the schemes of £3.3 million (2017 – £2.0 million). The higher level of advances reflects the payments in respect of new pensioners and deferred members transferring out of the schemes. Dividends paid to shareholders were £6.1 million in the year compared to £19.1 million in 2017, the reduction being due to the supplementary dividend of £13.1 million paid during the previous year. The resulting net cash and cash equivalents represented a decrease of £3.1 million (2017 – £8.2 million). At 31 March 2018, the total cash and deposits position at the balance sheet date is £24.1 million (2017 – £27.2 million). Pensions The pension valuation showed an increase in the surplus, on an IAS 19 (Revised) basis, to £22.6 million compared to £16.8 million in 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. Profit before income tax Profit before taxation has decreased to £12.1 million from £15.9 million. Taxation The current year tax charge of £2.28 million (2017 – £2.91 million) is made up of a current tax charge of £2.72 million (2017 – £3.25 million) and a deferred tax credit of £0.44 million (2017 – £0.33 million). The effective rate of tax of 18.9% (2017 – 18.3%) is marginally lower than the main rate of corporation tax, reflecting the falling future UK corporation tax rate and therefore the remeasurement of deferred tax liabilities at the lower substantively enacted future rate of 17%. Earnings per share Basic earnings per share decreased 24.6% to 22.46 pence (2017 – 29.80 pence), reflecting the 24.1% decrease in profits and a slightly higher effective tax rate compared to the previous year. 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 11.12 pence per share (2017 – 10.59 pence per share) to be paid on 17 August 2018. This would give a total normal distribution for the year of 14.50 pence per share (2017 – 13.97 pence per share). Cash flow The group generated cash from operating activities of £17.4 million compared to £21.5 million in 2017. In addition to the lower operating profit, the increase in payables of £2.4 million was offset by increases in inventory and receivables of £2.2 million and £3.6 million respectively. Corporation tax payments during the year totalled £3.2 million compared to £3.4 million in 2017, reflecting the timing of quarterly payments. Capital expenditure during the year amounted to £11.2 million (2017 – £14.2 million). This 06 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Principal Risks and Uncertainties Risk In common with all trading businesses, 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, damage to stocks, public and product liability and employers’ liability. The directors have carried out a robust assessment of the principal risks facing the entity. Whilst it is difficult either to 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. Information is also provided as to how the risks are, where possible, being managed or mitigated. 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. We build strong relationships with our customers to develop products to meet their specific needs. 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, being primarily euro and US dollar. Foreign exchange rate risk is sometimes partially mitigated by using forward foreign exchange contracts. Such contracts are short-term in nature, matched to contractual cash flows and non-speculative. Equipment The group operates a number of specialist pieces of equipment, including foundry furnaces, moulding lines and CNC milling machines which, due to manufacturing lead times, would be difficult to replace sufficiently quickly to prevent major interruption and possible loss of business in the event of unforeseen failure. Whilst this risk cannot be entirely mitigated without uneconomic duplication of all key equipment, all key equipment is maintained to the highest possible standards and inventories of strategic equipment spares maintained. The facilities at Brownhills and Dronfield have similar equipment and work can be transferred from one location to another very quickly. The machining business also operates from two separate locations, enabling the transfer of some production if required. Suppliers and trade credit Although the group takes care to ensure alternative sources of supply remain available for materials or services on which the group’s businesses are critically dependent, this is not always possible to guarantee without risk of short-term business disruption, additional costs and potential damage to relationships with key customers. The ability of our suppliers to maintain credit insurance on the group and its principal operating businesses is an important issue. We have excellent relationships with our suppliers and we continue to work closely with them on a normal commercial basis. A reduction in the level of cover available to suppliers may impact on our trading relationship with them and may have a significant effect on cash flows. Commodity and energy pricing The principal metal raw materials used by the group’s businesses are steel scrap and various alloys. The most important alloy raw material inputs are premium graphite, magnesium ferro-silicon, copper, nickel and molybdenum. Wherever possible, prices and quantities (except steel) are secured through long-term agreements with suppliers. In general, the risk of price inflation of these materials resides with the group’s customers through price adjustment clauses. Energy contracts are locked in for at least 12 months, although renegotiation risks remain at contract maturity dates but again this is mitigated through the application of price adjustment clauses. At 31 March 2018, the group has electricity contracts in place until 30 September 2020. Consumption levels at the balance sheet date are well within the agreed tolerance levels and this situation is not expected to change. 26055.04 — 18 June 2018 9:21 AM — Proof 3 07 Castings P.L.C. Annual Report for the year ended 31 March 2018Strategic Report Principal Risks and Uncertainties continued 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 backup 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 counterparty 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 2018 the schemes were in surplus on an IAS 19 (Revised) basis. Further details are set out in note 6 to the financial statements. 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. Viability Statement In conducting the review of the group’s long term prospects, the directors considered economic and market conditions in conjunction with the strategy and the principal risks facing the group (as set out in the Strategic Report on pages 2 to 10). This assessment considered the impact of the principal risks on the business model and on future performance, liquidity and solvency and was mindful of the limited forward visibility that the group has in respect of its major market of commercial vehicles. In preparing this statement of viability, the directors have considered the prospects of the group over the three year period immediately following the financial year ended 31 March 2018. This longer-term assessment process supports the board’s statements on both viability, as set out below, and going concern (on page 16). A three year period was determined as the most appropriate for the purpose of concluding on longer-term viability, given the limited forward visibility of the group. The directors’ viability assessment included a review of three year profit and cash flow estimates, alongside the group’s current position, and a review of the sensitivity analysis performed on the three year estimate whereby the principal risks, particularly those related to markets and customers, were applied to the plan. In making this viability statement, the directors considered the mitigating actions that would be taken by the group in the event that the principal risks of the company become realised. The directors also took into consideration the group’s strong financial position at 31 March 2018, with cash and deposits of £24 million, no debt and a history of strong cash generation. The directors have assessed the viability of the group and, based on the procedures outlined above in addition to activities undertaken by the board in its normal course of business, confirm that they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 March 2021. 08 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 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 also has in place an energy policy which requires each company to make continuing efforts to achieve the following objectives: • Ensuring that environmental issues • To monitor and record energy and water 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. 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 2018 were 58,965 tonnes of CO2 (2017 – 64,531 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 which has reduced to 0.96 (2017 – 1.11) tonnes/production tonne. The metric used for the machining operation is emissions per thousand pounds of machining revenue, emissions having decreased to 0.24 (2017 – 0.25) tonnes/£000. 26055.04 — 18 June 2018 9:21 AM — Proof 3 09 Castings P.L.C. Annual Report for the year ended 31 March 2018Strategic 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. Responsible business We are committed to conducting business with the utmost integrity and in accordance with the Bribery Act 2010 and have a clear Anti-Bribery and Corruption Policy in place, which is available on the company website. 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 board received regular updates on corporate responsibility issues including the UK Modern Slavery Act. The Strategic Report was approved by the board and signed on its behalf by A. Vicary Chief Executive Officer 13 June 2018 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 2018 was as follows: Non-executive directors Executive directors Senior managers Other employees Male Female 3 2 27 999 1,031 — — 3 137 140 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 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Board of Directors Executive directors Adam Vicary Chief Executive Officer Aged 50, he joined the company in September 2010 as joint managing director and was appointed to the main board in April 2012. He became chief executive on 31 March 2017. Mark Lewis Managing Director – CNC Speedwell On 2 October 2017, Mark Lewis resigned as a director of the company. Steve Mant Finance Director Aged 42, 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. Alec Jones Non-executive Director Aged 66, 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. Non-executive directors Brian Cooke Chairman Aged 78, 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 68, 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 and nomination committees and a member of the audit and risk committee. 26055.04 — 18 June 2018 9:21 AM — Proof 3 11 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Directors’ Report The directors submit the Annual Report and audited consolidated financial statements of Castings P.L.C. for the year ended 31 March 2018. 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 £9,798,000 (2017 – £13,004,000), full details of which are set out in the consolidated statement of comprehensive income on page 29. An interim dividend of 3.38 pence per share was paid in January 2018 in respect of the year ended 31 March 2018. The directors recommend a final dividend of 11.12 pence per share payable on 17 August 2018 to shareholders on the register on 13 July 2018, making a total distribution of 14.50 pence for the year. Share capital The company’s capital consists of 43,632,068 (2017 – 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. 12 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 A. Vicary S. J. Mant A. N. Jones 2018 Total 1,964,636 101,261 22,000 1,000 — 2017 Total 1,959,636 101,261 22,000 1,000 — M. A. Lewis had an interest in 3,025 shares as at 31 March 2017 and up to the date of his resignation on 2 October 2017. 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 as directors for more than nine years and, being eligible, offer themselves for re-election: • B. J. Cooke – annual re-election under provision B.7.1 • A. Vicary – by rotation under the provisions of the Articles of Association • G. B. Wainwright – annual re-election under provision B.7.1 The unexpired period of the contracts of service for A. Vicary and S. J. Mant is one year. B. J. Cooke, A. N. Jones and G. B. Wainwright 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 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 As at 13 June 2018, the company had been notified, in accordance with DTR Rule 5, of the following disclosable interests, including directors, of 3% or more in its voting rights: Ruffer LLP Aberforth Partners’ Clients Henderson Group plc N.N Group NV (formerly Delta Lloyd Asset Management NV) Threadneedle Asset Management Limited B. J. Cooke Hamstall Investments Inc. Rathbone Investment Management Ltd Number 7,687,625 4,397,288 2,900,238 2,314,000 2,191,674 1,964,636 1,949,900 1,600,000 % 17.6 10.1 6.6 5.3 5.0 4.5 4.5 3.7 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 15 August 2017 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 13 August 2023 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 2017, 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 2018. 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 financial statements. Research & development Activities and likely future developments for the business are described in the Strategic Report on pages 2 to 10. 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 13 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Directors’ Report continued Independent auditors The auditors, PricewaterhouseCoopers 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 pages 15 and 16. 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 13 June 2018 14 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 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 2014 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. 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 first half of the financial year the board comprised three executive directors and three non- executive directors. In the second half of the year, the number of executive directors reduced to two. 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. Directors are expected to attend external courses and seminars to maintain and develop their board competencies. 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. 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 committee met once during the year. The terms of reference are available on the company’s website www.castings.plc.uk. 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. There have been no conflicts identified during the period. Attendance at board and board committee meetings during the year is detailed in the table shown below: Director B. J. Cooke A. Vicary S. J. Mant M. A. Lewis (resigned 2 October 2017) G. B. Wainwright A. N. Jones Board Audit and risk committee Remuneration committee Eligible to attend 8 8 8 3 8 8 Attended 8 8 8 3 7 8 Eligible to attend 4 — — — 4 4 Attended 4 — — — 3 4 Eligible to attend 2 — — — 2 2 Attended 2 — — — 2 2 Effectiveness The board undertakes an annual formal and rigorous assessment of its own performance, its committees and the directors. The executive directors are appraised annually by the chairman and the non-executive directors. The chairman is appraised annually by the non-executive directors. The chairman considers the effectiveness of each non- executive director annually. The results of these appraisals are considered by the remuneration committee for the determination of their remuneration recommendations. Relations with shareholders The company holds meetings from time to time with institutional shareholders to discuss the company’s strategy and financial performance. The board regularly receives copies of analysts’ and brokers’ briefings. The chairman is available to meet major shareholders on request to discuss governance and strategy. The independent director and other non-executive directors are also available to meet shareholders if requested. The Annual General Meeting is used to communicate with private and institutional investors. 26055.04 — 18 June 2018 9:21 AM — Proof 3 15 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Summary The board takes its responsibilities seriously even though there are a number of areas in which it does not comply fully with the 2014 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 2018 the company complied with the 2014 UK Corporate Governance Code other than the following points: • 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 finance director also performs the role of company secretary as there is no one else within the business qualified to fulfil the position. The role of company secretary is not full-time. These are considered acceptable given the size of the company and the way in which it operates. By order of the board S. J. Mant Company Secretary 13 June 2018 Corporate Governance continued 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 financial statements, 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 financial statements. 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 financial statements. The directors’ assessment of going concern, and the viability statement on page 8, included a review of the group’s financial forecasts and financial instruments for a three year period. 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. 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 financial statements. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The review covers all controls including financial, operational, compliance and risk management. The directors confirm that they have established procedures necessary to implement the internal control guidance for directors such that they fully comply with the 2014 UK Corporate Governance Code for the accounting period ended on 31 March 2018. 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 management accounts. The accounts include income statements 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. 16 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 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 provide advice on whether 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; 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 and accounting judgements 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: • 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; • • revenue recognition processes have been reviewed to ensure revenue has been recognised appropriately and consistency of policy applied across the group; and reviewed the viability statement and agreed an appropriate assessment period and the reasonableness of the profit and loss and cash flow estimates, together with an evaluation of the main risks affecting the viability of the company over that time frame. Internal control During the year the committee reviewed the effectiveness of the group’s system of internal controls and risk management, including the internal controls and financial results of the machining operations and the disclosures of the results in this annual report. 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. External auditors The committee oversees the relationship with the external auditors and monitors all services 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 2018 financial year, management was 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. PricewaterhouseCoopers LLP (“PwC”) have been the group’s external auditors since 2017. In June 2017 the committee reviewed the external audit mandate and confirmed the continuing appointment of PwC. This was on the basis the committee were satisfied that the PwC audit team remained objective and independent. The committee has recommended to the board that a resolution be put to shareholders for the appointment 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 UK Corporate Governance Code. A. N. Jones Chairman of the Audit and Risk Committee 13 June 2018 17 26055.04 — 18 June 2018 9:21 AM — Proof 3 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Directors’ Remuneration Report 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 13 June 2018 Remuneration committee This committee comprises the three non-executive directors and is chaired by G. B. Wainwright. The remuneration committee is responsible within the authority delegated by the board for determining the remuneration policy and for determining the specific remuneration packages for each of the executive directors and the chairman. The committee also monitors the structure of remuneration of senior management. 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. The remuneration committee’s terms of reference are available on the company’s website www.castings.plc.uk. Annual Statement On behalf of the board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 March 2018 which sets out the remuneration policy for the directors and the amounts earned during the current year. The remuneration policy was last submitted to shareholders in August 2017 and will expire in August 2020. 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, determining an appropriate balance between fixed and performance-related remuneration. Performance targets are stretching and designed to promote the long-term success of the company. 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 decided to award an increased bonus to the Chief Executive and Group Finance Director of £34,000 and £17,000 respectively above the level set out in the remuneration policy. The purpose was to reward effort at a critical time for the group during the reshaping and management changes at CNC Speedwell. The committee recommended the settlement payment made to Mark Lewis, following his resignation in October 2017, in accordance with his service contract. 18 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 Statement of shareholding voting The voting to approve last year’s annual report on the directors’ remuneration and the directors’ remuneration policy at the AGM held on 15 August 2017 is set out in the following table: Annual report on remuneration Directors’ remuneration policy report Votes for (including discretionary) Number % 30,358,830 99.99% 29,508,165 97.19% Votes against Number % 3,005 0.01% 852,545 2.81% Total number of votes cast 30,361,835 Number of votes withheld 3,500 30,360,710 9,155 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 15 August 2017 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. 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 healthcare, life assurance and income protection. Benefits are reviewed annually and in comparison with other companies with discretion for the provided benefits to alter. Executive director bonus is based on 1% of PBIT (before exceptional items) in excess of £10 million threshold. All executive directors receive 7% of base salary as contributions into personal pension plans or a cash equivalent. Whilst no absolute maximum exists, increases will be referenced to other salary increases across the group, although discretion may be applied. Car benefit increases 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 19 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Directors’ Remuneration Report continued Scenario charts The following charts set out the potential remuneration payments for the year ended 31 March 2019 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. • Profit for year ended 31 March 2018 – based on profit before tax for the year ending 31 March 2018. 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 (except for the Chairman) 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 2017. 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. None of the existing executive directors hold non-executive directorships with companies outside the group. Chief Executive Officer Finance Director 0 0 0 £ n o i t a r e n u m e R 300 250 200 150 100 50 0 100% 7% 93% Minimum 2017/18 result 0 0 0 £ n o i t a r e n u m e R 300 250 200 150 100 50 0 100% 9% 91% Minimum 2017/18 result 20 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 Annual Report on Directors’ Remuneration Directors’ remuneration during the year (audited) The directors’ remuneration for the year ended 31 March 2018 is set out in the table below. B. J. Cooke A. Vicary D. J. Gawthorpe^ S. J. Mant M. A. Lewis* G. B. Wainwright A. N. Jones Salary/fees Benefits Performance-related bonus Pension contributions Total remuneration 2018 £000 83 263 — 195 117 38 36 732 2017 £000 80 192 255 179 192 37 35 970 2018 £000 8 13 — 12 8 — — 41 2017 £000 7 12 13 12 12 — — 56 2018 £000 — 54 — 37 — — — 91 2017 £000 — 61 61 61 61 — — 244 2018 £000 — 11 — 11 6 — — 28 2017 £000 — 11 11 11 11 — — 44 2018 £000 91 341 — 255 131 38 36 892 2017 £000 87 276 340 263 276 37 35 1,314 ^ D. J. Gawthorpe retired on 31 March 2017. * M.A. Lewis resigned on 2 October 2017 and, in addition to the remuneration shown above, was paid £333,000 under an employment settlement agreement in October 2017. 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 2018 £000 38,577 6,327 2017 £000 36,357 6,095 Change £000 2,220 232 Change % 6.1% 3.8% Chief Executive Officer remuneration The total remuneration paid to the chief executive officer for the last five years is as follows: Performance-related bonus Total remuneration 2018 £000 54 341 2017 £000 61 340 2016 £000 100 372 2015 £000 82 347 2014 £000 123 380 The total remuneration (including performance bonus) paid to the chief executive officer in the current year represents a increase of 0.3% compared to the prior year. The corresponding increase in average pay to all employees in the same period is, on average, 7.0%. 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 21 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Directors’ Remuneration Report continued 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 350 – Industrial Engineering Index, 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 P.L.C. — Total Shareholder Return 200 180 160 140 120 100 80 60 40 20 0 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17 Sep 17 Mar 18 Cas�ngs P.L.C. FTSE 350 Industrial Engineering Index 22 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 Statement of Directors’ Responsibilities In the case of each director in office at the date the Directors’ Report is approved: • so far as the director is aware, there is no relevant audit information of which the group and parent company’s auditors are unaware; and • they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group and parent company’s auditors are aware of that information. 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 regulation. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, 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 parent company and of the profit or loss of the group and parent company for that period. In preparing the financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and parent company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. The directors are also responsible for safeguarding the assets of the group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group and parent company’s performance, business model and strategy. Each of the directors, whose names and functions are listed in Board of Directors on page 11 confirm that, to the best of their knowledge: • • • the parent company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the company; the group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group; and the Business and Financial Review includes a fair review of the development and performance of the business and the position of the group and parent company, together with a description of the principal risks and uncertainties that it faces. 26055.04 — 18 June 2018 9:21 AM — Proof 3 23 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Independent Auditors’ Report to the Members of Castings P.L.C. Report on the audit of the financial statements Opinion In our opinion: in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. • Castings P.L.C.’s group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2018 and of the group’s profit and cash flows for the year then ended; • • • the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); 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. We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Parent Company Balance Sheets as at 31 March 2018; the Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement, and the Consolidated and Parent Company Statements of Changes Our audit approach Overview Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company. We have provided no non-audit services to the group or the parent company in the period from 1 April 2017 to 31 March 2018. • Overall group materiality: £783,000 (2017 – £850,000), based on 5% of average profit before tax over the last three year period. • Overall parent company materiality: £704,000 (2017 – £746,000), based on 5% of average profit before tax Materiality over the last three year period. • We performed audits of the complete financial information of all three trading entities in the group. • The three entities on which audit procedures were performed accounted for 100% of group revenue and 100% Audit scope of group profit before tax. • The area of particular focus for our work was the valuation of inventory (group and parent). Areas of focus The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We gained an understanding of the legal and regulatory framework applicable to the group and the industry in which it operates, and considered the risk of acts by the group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at group and significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the group and parent company financial statements, including, but not limited to, Companies Act 2006, the Listing Rules, Pensions legislation, UK tax legislation, and Health and safety legislation. Our tests included, but were not limited to, review of correspondence with legal advisers and 24 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 enquiries of management. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Valuation of inventory Refer to the critical accounting estimates and judgements in Note 1 and Note 13 in the group financial statements. The group holds a combination of raw materials, work in progress and finished goods in inventory. Raw materials is predominantly made up of metal used in the production of iron castings. Raw and machined castings are held in both work in progress and finished goods, based on the stage of production. The valuation of inventory involves judgement relating to the calculation of standard cost rates and subsequent update to actual cost at year end. Raw materials are valued based on actual volumes, with assumptions made regarding the density of the scrap metal, when calculating the value of inventory. Work in progress and finished goods are revalued to reflect the actual cost of production, with a number of assumptions made in the calculations. These include the time period over which actual costs are incurred and the composition of the costs that are to be absorbed. The Net Realisable Value (‘NRV’) of the products within inventory at the period end is evaluated to ensure that the valuation is appropriately stated at the lower of cost or NRV. Management will determine whether additional obsolescence or NRV provisions are required We focused on this area as the assumptions applied in the valuation of inventory are inherently judgemental. How our audit addressed the key audit matter We attended and undertook physical inventory counts at key locations validating that inventory held was in good physical condition, was accurately recorded, and that counting techniques were being applied consistently, including the application of relevant density factors for raw materials. We inspected and tested the year-end inventory costing calculations prepared by management, including their arithmetic integrity. The standard cost rates have been re-calculated based on actual costs with the approach being consistent with prior year. We have obtained justification from management on the assumptions adopted within the valuation calculations. This included obtaining justification for the time period over which costs that are deemed to make up the year-end inventory balance for work in progress and finished goods were incurred. We then evaluated the explanations obtained by performing sensitivity analysis on these assumptions and have not identified a reasonably possible change that would result in a material change to the valuation. We performed testing to ensure that the valuation of inventory is stated at the lower of cost or NRV by comparing the sales value of the products to their actual cost. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which they operate. The group financial statements are a consolidation of the group’s three trading entities, comprising the group’s operating businesses in the iron casting and machining segments. The group engagement team performed audits of the complete financial information of all three reporting units. Those entities account for 100% of group revenues and 100% of profit before tax. This provided us with the evidence we needed for our opinion on the group financial statements as a whole. 26055.04 — 18 June 2018 9:21 AM — Proof 3 25 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Independent Auditors’ Report to the Members of Castings P.L.C. continued Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Group financial statements £783,000 (2017 – £850,000). 5% of average profit before tax over the last three year period. We believe that average profit before tax over the last three year period provides a consistent basis for determining materiality as it eliminates the impact of cyclical fluctuations year on year that can have a disproportionate impact on the Consolidated Statement of Comprehensive Income. Parent company financial statements £704,000 (2017 – £746,000). 5% of average profit before tax over the last three year period. We believe that average profit before tax over the last three year period provides a consistent basis for determining materiality as it eliminates the impact of cyclical fluctuations year on year that can have a disproportionate impact on the Consolidated Statement of Comprehensive Income. For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £214,000 and £704,000. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £39,000 (group audit) (2017 – £40,000) and £35,000 (parent company audit) (2017 – £37,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Going concern In accordance with ISAs (UK) we report as follows: Reporting obligation We are required to report if we have anything material to add or draw attention to in respect of the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the group’s and the parent company’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements. We are required to report if the directors’ statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. Outcome We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and parent company’s ability to continue as a going concern. We have nothing to report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated). 26 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 March 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06) The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group We have nothing material to add or draw attention to regarding: • The directors’ confirmation on page 7 of the Annual Report that they have carried out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity. • The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. • The directors’ explanation on page 8 of the Annual Report as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal risks facing the group and statement in relation to the longer-term viability of the group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit. (Listing Rules) Other Code Provisions We have nothing to report in respect of our responsibility to report when: • The statement given by the directors, on page 14, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the group’s and parent company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the group and parent company obtained in the course of performing our audit. • The section of the Annual Report on page 17 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. • The directors’ statement relating to the parent company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06) Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities set out on page 23, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. 26055.04 — 18 June 2018 9:21 AM — Proof 3 27 Corporate GovernanceCastings P.L.C. Annual Report for the year ended 31 March 2018 Independent Auditors’ Report to the Members of Castings P.L.C. continued Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • 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 • certain disclosures of directors’ remuneration specified by law are A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. not made; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the audit committee, we were appointed by the directors on 6 March 2017 to audit the financial statements for the year ended 31 March 2017 and subsequent financial periods. The period of total uninterrupted engagement is 2 years, covering the years ended 31 March 2017 to 31 March 2018. Andrew Hammond (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Birmingham 13 June 2018 28 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C.Castings P.L.C. Annual Report for the year ended 31 March 2018 Consolidated Statement of Comprehensive Income for the year ended 31 March 2018 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Excluding exceptional items Exceptional items 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/(losses) 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 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 Other comprehensive income 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 financial statements are on pages 33 to 49. Notes 2 4 3 7 8 6 2018 £000 133,276 (103,674) 29,602 (3,818) (13,949) 109 (13,840) 11,944 133 12,077 (2,279) 9,798 352 352 (72) 15 (57) 295 2017 £000 118,822 (88,634) 30,188 (1,939) (12,701) 130 (12,571) 15,678 237 15,915 (2,911) 13,004 235 235 54 (10) 44 279 10,093 13,283 10 22.46p 29.80p 26055.04 — 18 June 2018 9:21 AM — Proof 3 29 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Consolidated Balance Sheet as at 31 March 2018 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 2018 £000 2017 £000 11 12 14 13 14 19 15 16 17 75,448 336 1,135 76,919 16,284 38,090 4,900 19,174 78,448 72,762 408 2,269 75,439 14,063 33,189 5,000 22,228 74,480 155,367 149,919 22,242 1,380 23,622 3,603 27,225 128,142 4,363 874 13 122,892 128,142 19,866 1,855 21,721 4,054 25,775 124,144 4,363 874 13 118,894 124,144 The financial statements on pages 29 to 49 were approved and authorised for issue by the board of directors on 13 June 2018, and were signed on its behalf by: B. J. Cooke Chairman S. J. Mant Finance Director Notes to the financial statements are on pages 33 to 49. 30 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Consolidated Cash Flow Statement for the year ended 31 March 2018 Cash flows from operating activities Profit before income tax Adjustments for: Depreciation Loss/(profit) on disposal of property, plant and equipment Finance income Pension administrative costs Increase in inventories Increase in receivables Increase in payables Cash generated from operating activities Tax paid Interest received Net cash generated from operating activities Cash flows from investing activities Dividends received from listed investments Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Transfer from other current interest-bearing deposits Repayments from pension schemes Advances to the pension schemes Net cash used in investing activities Cash flow from financing activities Dividends paid to shareholders Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents: Short-term deposits Cash available on demand Notes to the financial statements are on pages 33 to 49. 26055.04 — 18 June 2018 9:21 AM — Proof 3 Notes 2018 £000 2017 £000 11 3 7 6 7 7 6 6 9 19 12,077 15,915 8,525 9 7,276 (24) (133) (237) 352 (2,221) (3,568) 2,376 17,417 (3,190) 111 14,338 22 (11,223) 3 100 3,122 (3,321) (11,297) (6,095) (6,095) (3,054) 22,228 19,174 16,846 2,328 19,174 235 (2,071) (2,661) 3,098 21,531 (3,419) 213 18,325 24 (14,214) 23 5,000 3,761 (2,004) (7,410) (19,072) (19,072) (8,157) 30,385 22,228 21,362 866 22,228 31 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Consolidated Statement of Changes in Equity for the year ended 31 March 2018 Equity attributable to equity holders of the parent Share capitala) £000 4,363 — Share premiumb) £000 874 — Other reservec) £000 13 — Retained earningsd) £000 118,894 9,798 — — — — — — — — — — — — — — — 13 352 (72) 15 10,093 (6,095) 122,892 Equity attributable to equity holders of the parent Share capitala) £000 4,363 Share premiumb) £000 874 Other reservec) £000 13 Total equity £000 124,144 9,798 352 (72) 15 10,093 (6,095) 128,142 Total equity £000 129,933 13,004 235 54 (10) Retained earningsd) £000 124,683 13,004 235 54 (10) — — — — — — 13 13,283 (19,072) 118,894 13,283 (19,072) 124,144 At 1 April 2017 Profit for the year Other comprehensive income/(losses): Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses Change in fair value of available for sale assets Tax effect of items taken directly to reserves Total comprehensive income for the year ended 31 March 2018 Dividends (see note 9) At 31 March 2018 4,363 874 At 1 April 2016 Profit for the year Other comprehensive income/(losses): Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses Change in fair value of available for sale assets Tax effect of items taken directly to reserves Total comprehensive income for the year ended 31 March 2017 Dividends (see note 9) — — — — — — — — — — — — At 31 March 2017 4,363 874 a) Share capital (note 17) — 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. 32 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Notes to the Financial Statements 1 Accounting policies General information Castings Public Limited Company (the “company”, “Castings P.L.C.”) is incorporated and registered in England as a public company limited by shares. The company’s registered office is at Lichfield Road, Brownhills, West Midlands, WS8 6JZ, United Kingdom. The Company’s ordinary shares are traded on the London Stock Exchange’s Regulated Market (Premium Listing). There has been no change in this information since the annual report for the year ended 31 March 2017. Basis of preparation The group financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards (“IAS”) and Interpretations issued by the IFRS Interpretations Committee (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 2017 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 financial statements are prepared on a going concern basis and 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. The presentation currency used is sterling and the amounts have been presented in round thousands (“£000”). New standards effective and adopted by the group in the year There have been no new standards, or amendments to standards, that have been applied in the year. Basis of consolidation The consolidated statement of comprehensive income and balance sheet include the financial statements 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, controlled by the company and are based in the UK. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. 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. 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 33 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements continued 1 Accounting policies continued 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 and leasehold land and buildings over 50 years or the period of the lease, whichever is less. ii. Plant and equipment over a period of 3 to 15 years. 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. 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. These derivative financial instruments are accounted for at fair value through the consolidated statement of income where material to the financial statements. 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. 34 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 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. Finance income and expense Finance income and expense is recognised in the consolidated statement of comprehensive income as it accrues. 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: IFRS 9 Financial Instruments addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The standard is effective for accounting periods beginning on or after 1 January 2018. The group has reviewed the impact of IFRS 9 on its consolidated financial statements with one area being identified for detailed review. The Group carries trade and other receivables as a normal part of its business operations. IFRS 9 clarifies the requirement to provide for expected losses on under-performing receivables. The Group has considered the impact on IFRS 9 on its provisioning policy and does not believe there will be a material change in the level of provisioning required as a result. The group does not believe that IFRS 9 will have a material impact. IFRS 15 Revenue from Contracts with Customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and has thus the ability to direct the use and obtain the benefits from the goods or service. The standard replaces IAS 18 ‘Revenue’. The standard is effective for accounting periods beginning on or after 1 January 2018. The group has assessed the impact of IFRS 15. The group sells tangible products on a point in time basis and as such it is generally straightforward to recognise when a sale has been completed. As such, the group does not believe there will be a material impact on its financial statements as a result of the introduction of IFRS 15. IFRS 16 Leases addresses the definition of a lease, recognition and measurement of leases and establishes principles for reporting useful information to users of the financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17 ‘Leases’ and is effective for accounting periods beginning on or after 1 January 2019. The group’s strategy of seeking to own assets outright means that there will be minimal impact from this new standard. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the group. 26055.04 — 18 June 2018 9:21 AM — Proof 3 35 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements 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. Inventory valuation The valuation of inventory involves judgement relating to the calculation of standard cost rates and the subsequent update to actual costs at the year end. 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. Inter-segment transactions are entered into under the normal commercial terms and conditions that would be available to third parties. The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2018: 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 Total liabilities All non-current assets are based in the United Kingdom. Foundry operations £000 127,007 19,024 Machining operations £000 6,269 18,571 Elimination £000 — — Total £000 133,276 37,595 16,051 (3,950) 86 12,187 135,669 4,134 3,921 (27,008) 36,258 7,089 4,604 (11,581) (16,560) — — 11,364 109 (352) 133 12,077 155,367 11,223 8,525 (27,225) 36 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2017: 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 Total liabilities All non-current assets are based in the United Kingdom. Foundry operations £000 111,838 16,826 Machining operations £000 6,984 16,347 Elimination £000 — — Total £000 118,822 33,173 14,506 1,519 (242) 15,783 126,095 7,945 3,543 (24,620) 33,464 5,145 3,733 (5,529) 130 (235) 237 15,915 149,919 13,090 7,276 (25,775) 2017 £000 32,889 32,985 17,801 31,813 2,879 455 (9,640) — — 4,374 2018 £000 36,542 36,787 22,070 33,452 3,735 690 133,276 118,822 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 All revenue arises in the United Kingdom from the group’s continuing activities. Information about major customers Included in revenues arising from Foundry operations are revenues of approximately £40,312,000, £17,410,000 and £13,319,000 from three ultimate customer groups (2017 – £33,521,000, £16,084,000 and £11,518,000 respectively). 3 Net operating costs Raw materials and consumables Changes in inventories of finished goods and work in progress Staff costs (note 5) Depreciation of property, plant and equipment Light, heat and power Outside processing Carriage Loss/(profit) on disposal of property, plant and equipment Other costs Total cost of sales, distribution costs and administrative expenses 26055.04 — 18 June 2018 9:21 AM — Proof 3 2018 £000 30,425 (1,330) 42,924 8,525 9,973 14,068 3,818 9 12,920 121,332 2017 £000 22,858 (1,877) 40,308 7,276 9,707 12,237 1,939 (24) 10,719 103,144 37 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements continued 3 Net operating costs continued During the year the group obtained the following services from the company’s auditors: Fees payable to the company’s auditors for the audit of the parent company and group financial statements Fees payable to the company’s auditors for other services: — The audit of the company’s subsidiaries — Tax compliance services 4 Exceptional items Recovery of past provision for losses on deposits with Icelandic banks 2018 £000 53 41 — 2018 £000 (109) (109) 2017 £000 50 40 — 2017 £000 (130) (130) 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 £3.8 million has been received of the original balance of £5.7 million with the excess over the £1.97 million being shown as an exceptional credit. 5 Employee information Average monthly number of employees during the year was: Production Management and administration Staff costs (including directors) comprise: Wages and salaries Social security costs Other pension costs – defined contribution plans Other pension costs – defined benefit plans (note 6) 2018 985 115 1,100 2018 £000 37,760 3,995 817 352 42,924 2017 992 114 1,106 2017 £000 35,530 3,716 827 235 40,308 In addition to the wages and salaries disclosed above, the group incurred costs of £178,000 (2017 – £179,000) in respect of agency workers. The directors represent the key management personnel. Details of their compensation are given in the Directors’ 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 Trustee board is appointed by both the company and the members of the schemes and acts in the interest of the schemes and all relevant stakeholders, including the members and the company. The Trustees are responsible for the investment of the assets of the schemes. The latest actuarial valuation was performed with an effective date of 6 April 2017 using the defined accrued benefit method. It assumed that the rate of return on investments was 2.1% per annum for pre-retirement and 2.1% for post-retirement and price inflation was 3.5% under RPI and 2.8% under CPI. The demographic assumptions are based on S2PA (YoB) tables with an age rating of -1 year being applied to the tables for the staff scheme. The future mortality improvements were based on CMI 2015 projections with a 1.5% per annum long-term improvement rate. The next actuarial valuation will be performed with an effective date of 6 April 2020. In order to help optimise the return on assets held by the pension schemes, the pension payments and administration costs incurred by the schemes are paid by the company. The net amount due from the schemes (being pension payments made plus administrative costs 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 financial statements (notes 14 and 8 respectively). The amounts are recorded as payables by the schemes and 38 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 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 £3,321,000 (2017 – £2,004,000) was paid by the company on behalf of the schemes in respect of pension payments and administration costs. 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. The pension schemes made repayments to the company during the year of £3,122,000 (2017 – £3,761,000). At 31 March 2018 the outstanding balance due from the schemes to the company was £5,590,000 (2017 – £5,391,000) 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. Related risks Through its defined benefit pension plans, the group is exposed to a number of risks that are inherent in such plans and arrangements. The risks are summarised below and there are no unusual, entity-specific or plan-specific risks and no significant concentration risks. The main risks can be summarised as follows: • asset value volatility, with the associated impact on the assets held in connection with the funding of pension obligations and the related cash flows; • changes in bond yields, with any reduction resulting in an increase in the present value of pension obligations, mitigated by an increase in the value of some of the plan assets; inflation, as pension obligations are linked to inflation; and life expectancy, as pension benefits are generally provided for the life of beneficiaries and their dependants. • • 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 2017and updated to 31 March 2018 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 Interest cost on defined benefit obligation Actuarial (gains)/losses arising from changes in financial assumptions Actuarial losses arising from changes in demographic assumptions Other experience gains 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 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 26055.04 — 18 June 2018 9:21 AM — Proof 3 2018 2.30% 2.60% 3.00% 2.30% 2018 £000 61,419 1,498 (2,046) 148 (3,080) (2,968) 54,971 78,263 1,915 744 (352) (2,968) 77,602 22,631 (22,631) — 2017 2.45% 2.50% 3.10% 2.40% 2017 £000 50,271 1,729 11,187 — — (1,768) 61,419 64,965 2,239 13,062 (235) (1,768) 78,263 16,844 (16,844) — 39 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements 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 Interest cost on defined benefit obligation Interest income on plan assets Interest expense on effect of asset ceiling on unrecognised surplus Administrative expenses Total pension cost recognised within administrative expenses (note 5) (Gain)/loss arising from changes in financial assumptions Loss arising from changes in demographic assumptions Experience gain Return on plan assets greater than discount rate Changes in asset ceiling on unrecognised surplus Pension gain 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 2018 £000 Year to 31 March 2017 £000 — 1,498 (1,915) 417 352 352 (2,046) 148 (3,080) (744) 5,370 (352) — — 1,729 (2,239) 510 235 235 11,187 — — (13,062) 1,640 (235) — 31 March 2018 £000 31 March 2017 £000 — 28,038 26,933 54,971 — 35,749 25,670 61,419 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 Cash and cash equivalents Equities Bonds Real estate Amounts repayable to the group Plan assets at 31 March 2018 £000 Plan assets at 31 March 2017 £000 3,338 33,226 43,821 2,807 83,192 (5,590) 77,602 2,809 54,562 23,689 2,594 83,654 (5,391) 78,263 The equities are invested in UK equity index (38%) and World equity index (62%). Of the bonds, 72% of the value is invested in gilts as part of a liability driven investment strategy, 20% in active corporate bonds over 10 years and 8% in other stock active corporate bonds. 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 2019 is £360,000. 40 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 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) 2018 2017 Male Staff/ Shopfloor Female Staff/ Shopfloor Male Staff/ Shopfloor Female Staff/ Shopfloor 23.5/22.7 25.6/24.8 23.4/22.6 25.5/24.6 25.7/24.9 28.0/27.1 25.3/24.4 27.4/26.5 * Mortality tables S2PA CMI 2015 projections with a 1.5% long-term rate of improvement have been used for both schemes, with a -1 age rating applied for the staff scheme. Sensitivities The calculations of the defined benefit obligations are sensitive to the assumptions set out on pages 38 to 41. The following table sets out the estimated impact of a change in the assumptions on the defined benefit obligation at 31 March 2018, 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 2,556 1,880 1,842 31 March 2018 £000 31 March 2017 £000 1,623 1,695 1,813 1,872 1,951 10,894 1,796 1,824 1,853 1,882 1,911 10,013 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 2018 £000 111 22 133 2017 £000 213 24 237 41 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements continued 8 Income tax expense Corporation tax based on a rate of 19% (2017 – 20%) 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 Adjustment to deferred tax charge in respect of prior periods Taxation on profit Profit before income tax Tax on profit at the standard rate of corporation tax in the UK of 19% (2017 – 20%) 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 Pension adjustments Total tax charge for the year Effective rate of tax (%) 2018 £000 2,759 (44) 2,715 (95) (341) (436) 2,279 2017 £000 3,389 (144) 3,245 (20) (314) (334) 2,911 12,077 15,915 2,295 3,183 302 (44) (341) 67 2,279 18.9 139 (144) (314) 47 2,911 18.3 The main rate of corporation tax was reduced from 20% to 19% with effect from 1 April 2017. The Finance Act 2016, substantively enacted on 7 September 2016, reduced the main tax rate to 17% from 1 April 2020. 9 Dividends Final paid of 10.59p per share for the year ended 31 March 2017 (2016 – 10.33p) Interim paid of 3.38p per share (2017 – 3.38p) Supplementary dividend of 30.00p per share for the year ended 31 March 2016 2018 £000 4,620 1,475 — 6,095 2017 £000 4,507 1,475 13,090 19,072 The directors are proposing a final dividend of 11.12 pence (2017 – 10.59 pence) per share totalling £4,851,886 (2017 – £4,620,636). 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 £9,798,000 (2017 – £13,004,000) and on the weighted average number of shares in issue at the end of the year of 43,632,068 (2017 – 43,632,068). There are no potentially dilutive shares, hence the diluted earnings per share is the same as above. 42 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 11 Property, plant and equipment Cost At 1 April 2017 Additions during the year Disposals At 31 March 2018 Accumulated depreciation At 1 April 2017 Charge for year Disposals At 31 March 2018 Net book values At 31 March 2018 At 31 March 2017 Cost At 1 April 2016 Adjustment to opening balance Additions during year Disposals At 31 March 2017 Accumulated depreciation At 1 April 2016 Adjustment to opening balance Charge for year Disposals At 31 March 2017 Net book values At 31 March 2017 At 31 March 2016 Freehold and leasehold land and buildings £000 Plant and equipment £000 40,235 846 — 125,863 10,377 (691) Total £000 166,098 11,223 (691) 41,081 135,549 176,630 8,014 1,164 — 9,178 31,903 32,221 85,322 7,361 (679) 92,004 43,545 40,541 93,336 8,525 (679) 101,182 75,448 72,762 34,579 120,978 155,557 (5) 5,661 — 40,235 6,986 — 1,028 — 8,014 32,221 27,593 84 7,429 (2,628) 79 13,090 (2,628) 125,863 166,098 81,623 79 6,248 (2,628) 85,322 40,541 39,355 88,609 79 7,276 (2,628) 93,336 72,762 66,948 The net book value of land and buildings includes £2,527,000 (2017 – £2,527,000) for land which is not depreciated and assets in the course of construction with a net book value of £nil (2017 – £1,004,000 and 2016 – £1,971,000) which are not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2017 – £359,000). Included within plant and equipment are assets in the course of construction with a net book value of £158,000 (2017 – £995,000) and assets not fully in production with a net book value of £1,618,000 (2017 – £4,492,000 and 2016 – £3,004,000) which are not being depreciated. 26055.04 — 18 June 2018 9:21 AM — Proof 3 43 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements continued 12 Financial assets Available-for-sale assets At 1 April 2017 Net (losses)/gains transferred to statement of comprehensive income At 31 March 2018 2018 £000 336 2018 £000 408 (72) 336 2017 £000 408 2017 £000 354 54 408 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 quoted prices in an active market. 2018 £000 3,853 5,690 6,741 16,284 2018 £000 28,506 2,058 4,455 3,071 38,090 2018 £000 1,135 1,135 2018 £000 13,333 1,911 527 6,471 22,242 2017 £000 2,890 4,337 6,836 14,063 2017 £000 24,716 1,275 3,122 4,076 33,189 2017 £000 2,269 2,269 2017 £000 11,687 1,553 429 6,197 19,866 13 Inventories Raw materials Work in progress Finished goods Inventories are net of impairment provisions of £791,000 (2017 – £84,000). 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 Included within accruals is a warranty provision that is not material to the financial statements. 44 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 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 17% (2017 – 19% and 17%). The movement on the deferred tax account is shown below: Deferred tax – net At 1 April 2017 (Credited)/charged to other comprehensive income Credited to profit At 31 March 2018 The movement in deferred tax assets and liabilities during the year is shown below: Deferred tax – liabilities At 1 April 2017 Credited/(charged) to profit Credited to other comprehensive income At 31 March 2018 Accelerated tax depreciation £000 4,059 (452) — 3,607 2018 £000 4,054 (15) (436) 3,603 Other £000 (5) 16 (15) (4) 2017 £000 4,378 10 (334) 4,054 Total £000 4,054 (436) (15) 3,603 Of the deferred tax liabilities, £106,000 (2017 – £199,000) is expected to be recovered within 12 months with £3,497,000 (2017 – £3,855,000) expected to be recovered after more than 12 months. The movement in the deferred tax assets and liabilities during the prior year is shown below: At 1 April 2016 Credited to profit Charged to other comprehensive income At 31 March 2017 The deferred tax charged/(credited) to other comprehensive income during the year is as follows: Accelerated tax depreciation £000 4,365 (306) — 4,059 Tax on change in fair value of available-for-sale financial assets 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 13 (28) 10 (5) 2018 £000 (15) (15) 2018 £000 5,000 4,363 Total £000 4,378 (334) 10 4,054 2017 £000 10 10 2017 £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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 45 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements continued 18 Commitments and contingencies Capital commitments contracted for by the group but not provided for in the financial statements 2018 £000 752 2017 £000 4,406 As set out on page 7, the group does not insure against the potential cost of product warranty or recall. Accordingly, there is always the possibility of claims against the group for quality related issues on parts supplied to customers. As at 31 March 2018, the directors do not consider any significant liability will arise in respect of any such claims (2017 – £nil). 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 years 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 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 financial assets Other receivables Total non-current financial assets Total financial assets The maximum exposure to credit risks is detailed in the above table. Financial assets 2018 £000 28,506 6,513 19,174 4,900 59,093 336 1,135 1,471 60,564 2017 £000 24,716 4,397 22,228 5,000 56,341 408 2,269 2,677 59,018 46 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Current financial liabilities Trade payables Other payables Accruals Total current financial liabilities Financial liabilities measured at amortised cost 2018 £000 13,333 527 6,471 20,789 2017 £000 11,687 429 6,197 18,313 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 2018, trade receivables of £27,402,000 (2017 – £24,105,000) 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 (e.g. 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. Proforma invoicing is sometimes used for new customers, or customers with a poor payment history, until creditworthiness can be proven or re-established. Management teams at each subsidiary receive regular ageing reports, and these are used to chase relevant customers for outstanding balances. Impairment provisions are made against trade receivables when considered appropriate based upon objective evidence. No major renegotiation of terms has taken place during the year. The 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 credit quality of trade receivables that are neither past due nor impaired are all assessed to be fully recoverable (2017 – fully recoverable). At 31 March 2018 trade receivables of £695,000 (2017 – £291,000) were past due but not impaired. They relate to customers with no default history. The ageing of these receivables is as follows: 30–60 days 60–90 days 90+ days 2018 £000 183 349 163 695 2017 £000 15 36 240 291 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 Increase in provisions Written off against provisions Closing balance 2018 £000 362 47 — 409 Impairment losses on trade receivables of £47,000 (2017 – receivables of £194,000) were recognised in administrative expenses. 2017 £000 168 209 (15) 362 47 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Financial Statements 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 (2017 – £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 did not have any forward contracts in place to sell euros (2017 – £nil). At the balance sheet date foreign exchange facilities of £1,900,000 million (2017 – £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 48 Floating rate assets 2018 £000 5 217 1,994 2,216 Floating rate assets 2017 £000 5 36 930 971 Fixed rate assets 2018 £000 21,717 — 141 21,858 Interest-free assets 2018 £000 25,871 581 10,038 36,490 Fixed rate assets 2017 £000 25,931 — 326 26,257 Interest-free assets 2017 £000 24,825 389 6,576 31,790 Total 2018 £000 47,593 798 12,173 60,564 Total 2017 £000 50,761 425 7,832 59,018 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Sterling US$ Euro Interest-free liabilities 2018 £000 20,286 4 499 20,789 Interest-free liabilities 2017 £000 17,263 931 119 18,313 Fixed rate assets attracted interest rates between 0.15% to 0.65% (2017 – 0.35% to 1.00%) 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 £60,000/(£60,000) (2017 – £83,000/(£83,000)). 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 £478,000/(£528,000) (2017 – £313,000/(£346,000)). Other interest-bearing deposits Other interest-bearing deposits comprise short-term deposits that have fixed interest rates and a maturity date of 14 June 2018. Fair value Unless otherwise indicated, the carrying amounts of the group’s financial instruments are a reasonable approximation of their fair values. 20 Related party transactions The group has a related party relationship with its directors; details of salaries and other benefits paid to directors are disclosed in the Directors’ Remuneration Report on pages 18 to 22. Transactions with the group’s pension schemes and balances owed to the company by the schemes are disclosed in note 6. Controlling party The company’s shares are listed on the London Stock Exchange’s Regulated Market (Premium Listing) and are widely held. There is no one controlling party or group of related parties who have control of the group. 26055.04 — 18 June 2018 9:21 AM — Proof 3 49 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial 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 Current assets Total liabilities Dividends and earnings Pence per share declared Number of times covered (dividend paid, excluding special) Earnings per share — basic and diluted 2018 £000 133,276 12,077 9,798 6,095 4,363 123,779 128,142 75,448 336 1,135 76,919 78,448 (27,225) 128,142 14.50 1.6 22.46p 2017 £000 118,822 15,915 13,004 19,072 4,363 119,781 124,144 72,762 408 2,269 75,439 74,480 (25,775) 124,144 2016 £000 132,448 19,676 16,187 5,873 4,363 125,570 129,933 66,948 354 3,383 70,685 82,424 (23,176) 129,933 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 13.97 2.2 29.80p 13.71 2.8 37.10p 13.30 2.4 31.80p 12.96 3.2 39.55p 50 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Parent Company Balance Sheet as at 31 March 2018 ASSETS Non-current assets Property, plant and equipment Investments 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 the equity holders of the company Share capital Share premium account Other reserve Retained earnings Total shareholders’ funds Notes 2018 £000 2017 £000 5 6 7 9 8 9 10 11 12 21,809 4,995 336 1,135 28,275 11,400 33,912 4,900 14,103 64,315 92,590 14,233 896 15,129 759 15,888 76,702 4,363 874 13 71,452 76,702 21,858 4,995 408 2,269 29,530 9,810 23,588 3,000 18,243 54,641 84,171 12,377 1,531 13,908 933 14,841 69,330 4,363 874 13 64,080 69,330 The company’s profit for the financial year was £13,524,000 (2017 – £16,421,000). The parent company financial statements on pages 51 to 59 were approved and authorised for issue by the board of directors on 13 June 2018, and were signed on its behalf by: B. J. Cooke Chairman S. J. Mant Finance Director Notes to the financial statements are on pages 53 to 59. Registered number — 91580. 26055.04 — 18 June 2018 9:21 AM — Proof 3 51 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Parent Company Statement of Changes in Equity for the year ended 31 March 2018 At 1 April 2017 Profit for the year Other comprehensive income/(losses): Change in fair value of available for sale assets Tax effect of items taken directly to reserves Total comprehensive income for the year ended 31 March 2018 Dividends (see note 4) At 31 March 2018 At 1 April 2016 Profit for the year Other comprehensive income/(losses): Change in fair value of available for sale assets Tax effect of items taken directly to reserves Total comprehensive income for the year ended 31 March 2017 Dividends (see note 4) Equity attributable to equity holders of the parent Share capitala) £000 4,363 — — — — — 4,363 Share premiumb) £000 874 — — — — — 874 Other reservec) £000 13 — Retained earningsd) £000 64,080 13,524 — — — — 13 (72) 15 13,467 (6,095) 71,452 Equity attributable to equity holders of the parent Share capitala) £000 4,363 Share premiumb) £000 874 Other reservec) £000 13 — — — — — — — — — — Retained earningsd) £000 66,687 16,421 54 (10) 16,465 (19,072) 64,080 — — — — — 13 Total equity £000 69,330 13,524 (72) 15 13,467 (6,095) 76,702 Total equity £000 71,937 16,421 54 (10) 16,465 (19,072) 69,330 At 31 March 2017 4,363 874 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. 52 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Notes to the Parent Company Financial Statements The Directors’ Report is on pages 12 to 14 of the Annual Report and Financial Statements 1 Accounting policies General information Castings Public Limited Company (the “company”, “Castings P.L.C.”) is incorporated and registered in England as a public company limited by shares. The company’s registered office is at Lichfield Road, Brownhills, West Midlands, WS8 6JZ, United Kingdom. The Company’s ordinary shares are traded on the London Stock Exchange’s Regulated Market (Premium Listing). There has been no change in this information since the annual report for the year ended 31 March 2017. Basis of preparation The financial statements have been prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all years presented, unless otherwise stated. The financial statements have been prepared on a going concern basis and under the historical cost convention, except for the revaluation of certain financial instruments. As permitted by FRS 101, the company has taken advantage of certain disclosure exemptions available under that standard and, therefore, these financial statements do not include: • certain comparative information otherwise required by EU endorsed IFRS; • certain disclosures regarding the company’s capital; • a statement of cash flows; • • the effect of future accounting standards not yet adopted; the disclosure of the remuneration of key management personnel; and • disclosure of related party transactions with other wholly owned members of the group headed by the company. In addition, and in accordance with FRS 101, further disclosure exemptions have been adopted because equivalent disclosures are included in the group financial statements. Therefore, these financial statements do not include certain disclosures in respect of business combinations, financial instruments (other than certain disclosures required as a result of recording instruments at fair value), impairment of assets and pension schemes. Revenue Revenue 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. Revenue 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. Post-retirement benefits For defined benefit schemes, current service costs and curtailment gains are charged to operating profit, 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 company cannot benefit from a scheme surplus, in the form of refunds from the plans or reduction in future contributions, any asset resulting from the above policy is restricted accordingly. Contributions to defined contribution pension schemes are charged to the income statement 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: • Freehold and leasehold land and buildings over 50 years • Plant and equipment over a period of 3 to 15 years Inventories The company’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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 53 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Parent Company Financial Statements continued The Directors’ Report is on pages 12 to 14 of the Annual Report and Financial Statements 1 Accounting policies continued 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 statement of comprehensive income. Financial instruments a) Financial assets The company’s financial assets relate to loans and receivables and available-for-sale financial assets. 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. 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 by 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. 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 recognised when approved by the shareholders at an Annual General Meeting. 54 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Investments Investments in subsidiaries are held at cost and reviewed for impairment annually. Critical accounting estimates and judgements The company 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 set out on page 34 of the group financial statements. New standards, amendments and IFRIC interpretations No new accounting standards, or amendments to accounting standards, or IFRIC interpretations that are effective for the year ended 31 March 2018, have had a material impact on the company. Whilst there is not anticipated to be significant impact from the adoption of IFRS 15 or IFRS 16, in line with the comments on page 35 of the group accounts, there will be a potentially material impact on the adoption of IFRS 9. Under IFRS 9, consideration will need to be given to the recoverability of inter-company balances based on an assessment of the receiving company being able to repay the balance on demand. This day one impact would be charged to equity (net of tax) and represents an accounting adjustment only. 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 financial statements. The company’s profit for the financial year was £13,524,000 (2017 – £16,421,000). The profit and loss account includes £53,000 (2017 – £50,000) for audit fees. The cost of inventories recognised as an expense during the year was £43,570,000 (2017 – £41,182,000). 3 Employee information Average monthly number of employees during the year was: Production Management and administration Staff costs (including directors) comprise: Wages and salaries Social security costs Pension costs – defined contribution plans 2018 2017 378 26 404 2018 £000 16,165 1,726 462 18,353 395 27 422 2017 £000 15,953 1,721 525 18,199 The directors represent the key management personnel. Details of their compensation are given in the Directors’ Remuneration Report on page 21. 4 Dividends Final paid of 10.59p per share for the year ended 31 March 2017 (2016 – 10.33p) Interim paid of 3.38p per share (2017 – 3.38p) Supplementary dividend of 30.00p for the year ended 31 March 2016 2018 £000 4,620 1,475 — 6,095 2017 £000 4,507 1,475 13,090 19,072 The directors are proposing a final dividend of 11.12 pence (2017 – 10.59 pence) per share totalling £4,851,886 (2017 – £4,620,636). This dividend has not been accrued at the balance sheet date. 26055.04 — 18 June 2018 9:21 AM — Proof 3 55 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Parent Company Financial Statements continued The Directors’ Report is on pages 12 to 14 of the Annual Report and Financial Statements 5 Property, plant and equipment Cost At 1 April 2017 Additions during year Disposals At 31 March 2018 Accumulated depreciation At 1 April 2017 Charge for year Disposals At 31 March 2018 Net book values At 31 March 2018 At 31 March 2017 Freehold and leasehold land and buildings £000 Plant and equipment £000 21,460 497 — 21,957 3,844 396 — 4,240 17,717 17,616 29,862 917 (691) 30,088 25,620 1,055 (679) 25,996 4,092 4,242 Total £000 51,322 1,414 (691) 52,045 29,464 1,451 (679) 30,236 21,809 21,858 The net book value of land and buildings includes £2,127,000 (2017 – £2,127,000) for land which is not depreciated. Included within plant and other equipment are assets in the course of construction with a net book value of £nil (2017 – £995,000 and 2016 – £nil) which are not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2017 – £359,000). 6 Investments Subsidiary companies At cost At 1 April 2017 Impairment losses At 31 March 2018 2018 £000 4,995 4,995 2018 £000 4,995 — 4,995 2017 £000 4,995 4,995 2017 £000 4,995 — 4,995 The company owns 100% of the issued share capital of William Lee Limited, CNC Speedwell Limited, W. H. Booth & Co. Limited and Castings Property Limited, companies which operate in the United Kingdom. William Lee Limited supplies spheroidal graphite iron castings and CNC Speedwell Limited is a machinist operation. W. H. Booth & Co. Limited and Castings Property Limited do not trade and are dormant. The registered office of William Lee Limited is Callywhite Lane, Dronfield, Sheffield, S18 2XU. The registered office for all other subsidiaries is Lichfield Road, Brownhills, West Midlands, WS8 6JZ. 7 Financial assets Available-for-sale assets At 1 April 2017 Net (losses)/gains transferred to the statement of comprehensive income At 31 March 2018 2018 £000 336 2018 £000 408 (72) 336 2017 £000 408 2017 £000 354 54 408 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. 56 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 8 Inventories Raw materials Work in progress Finished goods Inventories are net of impairment provisions of £107,000 (2017 – £73,000). 9 Trade and other receivables Due within one year: Trade receivables Amounts receivable from subsidiary companies Other receivables Receivable from pension schemes (see note 6 of group financial statements) Prepayments Due after more than one year: Receivable from pension schemes (see note 6 of group financial statements) Trade receivables are net of impairment provisions of £189,000 (2017 – £221,000). 10 Trade and other payables Current trade and other payables Trade payables Amounts owed to subsidiary companies Social security Other payables Accruals 26055.04 — 18 June 2018 9:21 AM — Proof 3 2018 £000 1,696 4,433 5,271 11,400 2018 £000 19,731 6,848 2,053 4,455 825 33,912 2018 £000 1,135 1,135 2018 £000 6,970 3,517 764 303 2,679 14,233 2017 £000 1,423 3,525 4,862 9,810 2017 £000 17,892 681 1,233 3,122 660 23,588 2017 £000 2,269 2,269 2017 £000 6,012 2,880 753 214 2,518 12,377 57 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notes to the Parent Company Financial Statements continued The Directors’ Report is on pages 12 to 14 of the Annual Report and Financial Statements 11 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 17% (2017 – 19% and 17%). The movement on the deferred tax account is shown below: Deferred tax liabilities At 1 April 2017 (Credited)/charged to other comprehensive income Credited to profit At 31 March 2018 The movement in deferred tax liabilities during the year is shown below: Deferred tax liabilities At 1 April 2017 (Credited)/charged to profit Credited to other comprehensive income At 31 March 2018 The movement in the deferred tax liabilities during the prior year is shown below: At 1 April 2016 (Credited)/charged to profit Charged to other comprehensive income At 31 March 2017 Accelerated tax depreciation £000 888 (159) — 729 Accelerated tax depreciation £000 1,204 (316) — 888 The deferred tax charged/(credited) to other comprehensive income during the year is as follows: Tax on change in fair value of available-for-sale financial assets Tax on items taken directly to other comprehensive income 12 Share capital Allotted and fully paid 43,632,068 (2017 – 43,632,068) 10p ordinary shares 2018 £000 933 (15) (159) 759 Other £000 45 — (15) 30 Other £000 30 5 10 45 2018 £000 (15) (15) 2018 £000 4,363 2017 £000 1,234 10 (311) 933 Total £000 933 (159) (15) 759 Total £000 1,234 (311) 10 933 2017 £000 10 10 2017 £000 4,363 58 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. 13 Pensions Castings P.L.C. has no contractual agreement or stated policy for charging its subsidiary entities for the net defined benefit cost on an IAS 19 Employee Benefits measurement basis. Legally, Castings P.L.C. is the sponsoring employer for the plan, so it recognises the full defined benefit cost or asset (where recoverable) in its financial statements. The last valuation was performed with the effective date of 6 April 2014. Further details of the schemes are contained in note 6 to the group financial statements. 14 Capital commitments and contingencies Authorised, but not provided in the financial statements 2018 £000 449 2017 £000 83 The company does not insure against the potential cost of product warranty or recall. Accordingly, there is always the possibility of claims against the company for quality-related issues on parts supplied to customers. As at 31 March 2018, the directors do not consider any significant liability will arise in respect of any such claims (2017 – £nil). 26055.04 — 18 June 2018 9:21 AM — Proof 3 59 Castings P.L.C. Annual Report for the year ended 31 March 2018Financial Statements Notice of Meeting Notice is hereby given that the one hundred and eleventh Annual General Meeting of Castings P.L.C. (the “company”) will be held at Fairlawns Hotel & Spa, Little Aston Road, Aldridge, West Midlands, WS9 0NU on 14 August 2018 at 3.30 pm for the following purposes: As ordinary business 1 To receive and adopt the Directors’ Report and audited financial statements for the year ended 31 March 2018. 2 To declare a final dividend. 3 To re-elect B. J. Cooke 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 2018. 7 To reappoint PricewaterhouseCoopers 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 13 August 2023 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 15 August 2017, 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. 60 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Company Information 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 2018; (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 13 July 2018. Assuming the final dividend is approved by the members, the dividend will be paid on 17 August 2018. 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 10 August 2018. 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 13 June 2018 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: Link 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 the close of business 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 the close of business on the day two days before the date of any adjournment shall be entitled to attend and vote at the meeting. 26055.04 — 18 June 2018 9:21 AM — Proof 3 61 Castings P.L.C. Annual Report for the year ended 31 March 2018 Directors, Officers and Advisers Directors B. J. Cooke, AdvDipNFC, FICME Non-executive Chairman A. Vicary, BEng, MSc, FICME Chief Executive Officer S. J. Mant, BSocSc (Hons) FCA Finance Director G. B. Wainwright, MCMI, MIEx, FRSA Senior Independent 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 PricewaterhouseCoopers LLP Cornwall Court 19 Cornwall Street, Birmingham, B3 2DT 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 49 Market Street, Lichfield, Staffordshire, WS13 6LB Arden Partners plc Arden House, Highfield Road, Edgbaston, Birmingham, B15 3DU Registered No. 91580 62 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Shareholder Notes Company Information 26055.04 — 18 June 2018 9:21 AM — Proof 3 63 Castings P.L.C. Annual Report for the year ended 31 March 2018 Shareholder Notes 64 26055.04 — 18 June 2018 9:21 AM — Proof 3 Castings P.L.C. Annual Report for the year ended 31 March 2018Castings P.L.C. Shareholder Information Company Information 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. 26055.04 — 18 June 2018 9:21 AM — Proof 3 26055.04 — 18 June 2018 9:21 AM — Proof 3 65 Castings P.L.C. Annual Report for the year ended 31 March 2018 Castings P.L.C. Lichfield Road Brownhills West Midlands WS8 6JZ 26055.04 — 18 June 2018 9:21 AM — Proof 3 26055.04 — 18 June 2018 9:21 AM — Proof 3