Half-year results to 27 September 2014

11 November 2014

 

James Cropper plc

(the "Company")

 

Half -year results to 27 September 2014

 

	Half-year to 27 September 2014	Half-year to 28 September 2013	Full-year to 29 March 2014
Revenue	£40.1m	£42.3m	£84.5m
EBITDA (before net IAS19 pension adjustment)	£2.7m	£2.2m	£5.2m
Profit before tax
Trading profit after interest	£1.2m	£0.6m	£2.1m
IAS 19 pension adjustment	(£0.4m)	(£0.4m)	(£0.8m)
	£0.8m	£0.2m	£1.3m
Earnings per share - diluted	6.7p	1.8p	15.0p
Dividends per share	2.2p	2.2p	7.9p
Gearing (before IAS 19 pension deficit)	28%	37%	35%
Gearing (after IAS 19 pension deficit)	42%	55%	51%
Capital expenditure	£0.6m	£0.9m	£3.0m

 

·      Sales in TFP up 10% on comparable period, down 7% in paper.

·      EBITDA up 23% on comparable period to £2.7m.

·      Trading profit up 100% on prior year comparable period.

·      The new executive team are all in place and focused on delivering the growth plans.

·       Merger of the two paper businesses is extending commercial reach.

·       Creation of Group Operations function is delivering efficiencies across manufacturing platforms

·       New product introductions have been greeted favourably.

·       The investment in TFP's 3^rd manufacturing line is underway.

·       The Technology and Innovation directorate is making good progress with creating diversification opportunities.

 

 

It is anticipated that the Group will continue to operate in line with the Board's expectations and our ambitions beyond the immediate future remain significant. I am very pleased with the changes we have made to our team and organisational structure in recent months and years. This is allowing us to better exploit the Group's growth potential and as such I am confident that we are on track to deliver improved returns in the future. 

 

 

Mark Cropper, Chairman

 

Enquiries:
Isabelle Maddock, Group Finance Director	Robert Finlay, Nick Ellis, Corporate Finance
James Cropper PLC (AIM:CRPR.L)	Westhouse Securities Limited
Telephone: +44 (0) 1539 722002	Telephone: +44 (0) 20 7601 6100
www.cropper.com	www.westhousesecurities.com

 

Summary of Results	Half-year to	Half-year to	Full-year to
	27 September	28 September	29 March
	2014	2013	2014
Profit and Loss Summary £'000
Group turnover £'000	40,109	42,322	84,518
Trading profit	1,431	782	2,545
Add back: Depreciation	1,233	1,396	2,654
EBITDA (before IAS 19 pension adjustment)	2,664	2,178	5,199
Trading profit before interest	1,431	782	2,545
Net interest	(214)	(220)	(457)
Trading profit before tax	1,217	562	2,088
(After future service pension contributions paid)
Net IAS 19 pension adjustments to
Operating profit	(186)	(113)	(307)
Net interest	(253)	(233)	(468)
Net pension adjustment before tax	(439)	(346)	(775)
Overall Group after pension adjustments
Profit before interest	1,245	669	2,238
Net interest	(467)	(453)	(925)
Profit before tax	778	216	1,313
Earnings per Share - diluted	6.7p	1.8p	15.0p
Dividends per share	2.2p	2.2p	7.9p
Balance Sheet Summary £'000
Non-pension assets - excluding cash	50,864	48,813	51,093
Non-pension liabilities - excluding borrowings	(13,151)	(10,394)	(11,230)
	37,713	38,419	39,863
Net IAS 19 pension deficit (after deferred tax)	(9,932)	(9,375)	(9,312)
	27,781	29,044	30,551
Net borrowings	(8,178)	(10,286)	(10,277)
Equity shareholders' funds	19,603	18,758	20,274
Gearing % - before IAS 19 deficit	28%	37%	35%
Gearing % - after IAS 19 deficit	42%	55%	51%
Capital Expenditure £'000	616	941	2,958

 

 

STATEMENT BY THE CHAIRMAN, M A J CROPPER

 

Group revenue for the half year was down 5% on the comparable period at £40.1 million. A lower volume of sales in the first half of the year has been mitigated by lower input costs and enhanced product mix. 

 

Prior to the IAS19 pension adjustment the Group has grown trading profit to £1,200,000 against £600,000 last year. The profits before tax after IAS19 pension adjustment has risen to £800,000 from £200,000 at the comparable period last year.

 

The increase in profitability is largely due to lower input costs, reduced production costs (helped by the newly combined operations team) and an improved product mix. Merging the two paper businesses has generated a greater number of commercial opportunities. The new management team in Technical Fibre Products is delivering growth in sales which includes newly developed products and additional geographical markets.   

 

Technical Fibre Products ("TFP")

 

TFP's first half sales were up 10% overall on last year and the improved profitability is in line with management expectations. There has been a strong programme of commercial activities focused on increasing market awareness and promoting new product developments. We have seen sales grow in defence, energy and consumer electronics markets. We made our first sales into China and for a specific programme here in the UK in the wind turbine industry.

 

Work has started on a third manufacturing line at Burneside, which will double capacity for our specialist non-woven materials. This investment is a key step, not just to support growth within our existing customer base, but also to create the capacity to support our ambitious growth plans over coming years.

 

James Cropper ("James Cropper Paper Products")

 

James Cropper sales in the opening half were down 7% on the comparable period. This reduction includes the planned exit of low margin declining businesses and dips in some key account demand cycles.  Profits relative to the comparable period are holding up.

 

Production efficiencies, product mix enhancements, and lower input costs, together combined to more than offset lower sale volumes. Gas prices in the UK proved favourable to us in the first half of this year. Northern Bleached Softwood Kraft ("NBSK") prices rose in the period and have been dampened by exchange rates. Pulp substitution by fibre produced from the reclaimed fibre plant continues to mitigate the impact of pulp volatility.

 

Earlier in the year we took the decision to exit from some non-strategic, unprofitable display board business and the financial results include some one-off costs incurred in making this change.

 

The new commercial team is shifting focus to higher margin products and markets. A tangible example of this is the "Khora" digital inkjet product, a printable canvas that folds to form instant wall art. This builds on the success of our highly popular inkjet board range. Khora was launched at the recent Photokina imaging fair in Cologne, and was well received as a true innovation in this sector, which will compete strongly against the existing block canvas market.

 

We recently launched 5 new branded ranges at the Packaging Innovations trade event in London. One of these is our new Coffee range, a range of papers that demonstrates the highest standards in sustainable, luxury paper production. This utilises materials from our pioneering reclaimed fibre facility, which was the first in the world to be able to recycle coffee cups. Papers in the Coffee range comprise of 50% reclaimed fibres (RCF) that were once 'single use' coffee cups, offering customers an opportunity to embrace responsible values alongside product and brand values. 

 

Cash and borrowings

 

At 27 September 2014 gross drawn down loans and leases totalled £9.8 million, with £1.6 million held as cash at bank. The Group has un-drawn overdraft facilities of £3.5 million, US$1.0 million and €1.0 million.

 

Gearing at the half year end, after deduction of the IAS 19 pension deficit, was 42% (28% prior to IAS 19).

 

Pensions and International Accounting Standard 19 ("IAS 19")

 

The Group operates two funded pension schemes providing defined benefits for just over 40% of its employees. The IAS19 valuations of these schemes as at 27 Sept 2014 revealed a combined deficit of £12,415,000, compared with £11,640,000 at 29 March 2014, an increase of £775,000. The primary reason for the increase in the schemes' liabilities is the discount rate of 4.10% used at Sept 2014 compared to 4.50% at March 2014.

 

In April 2011, future increases in pensionable pay were capped at a maximum of 2% per annum. At this time the combined deficit, net of deferred tax, was £1,039,000. At September 2014 this has increased by £8,893,000 to a combined deficit, net of deferred tax of £9,932,000. This deterioration is largely due to the negative impact of low yields on corporate bonds, driven by low interest rates.

 

In accordance with IAS 19 the expected return on assets is restricted to the discount rate used for valuing liabilities. This does not therefore reflect our expectations of actual asset performance.  In previous years it was possible to take credit for the expected return on plan assets in excess of the discount rate. The result of this change is to increase the cost shown in the Profit and Loss Account, with a corresponding decrease in losses recognised in Other Comprehensive Income. The net adverse impact of IAS 19 on profit for the six months is £439,000, compared to £346,000 for the comparable period. Finance costs were £253,000 compared to £233,000 adverse in the comparable period.

 

Outlook

 

The new commercial team in James Cropper Paper are focused on improving the product mix and driving targeted growth areas. This includes a re-focus on export markets and increasing our presence in the luxury packaging and food packaging markets. Combining the two sales teams gives greater scope to cross sell a wider range of products to a bigger target market.  The development of a range of branded and stocked items will generate stable returns over the medium term.  The outlook in the short term faces headwinds from the slow European economies, but the actions in place will deliver improved results over the coming period.

 

Strong sales in the first half and a robust order book going into the second half leaves TFP well placed to deliver on expectations for the full year.   

 

It is anticipated that the Group will continue to operate in line with the Board's expectations and our ambitions beyond the immediate future remain significant. I am very pleased with the changes we have made to our team and organisational structure in recent months and years. This is allowing us to better exploit the Group's growth potential and as such I am confident that we are on track to deliver improved returns in the future. 

 

 

Mark Cropper

Chairman

11 November 2014

 

 

 

James Cropper Plc
Un-audited Statement of Comprehensive Income for the period
	26 weeks to	26 weeks to	52 weeks to
	27 September	28 September	29 March
	2014	2013	2014
	£'000	£'000	£'000
Continuing operations
Revenue	40,109	42,322	84,518
Operating profit	1,245	669	2,238
Finance Costs
Interest payable and similar charges	(467)	(454)	(927)
Interest receivable and similar income	-	1	2
Profit before taxation	778	216	1,313
Taxation	(168)	(50)	58
Profit for the period	610	166	1,371
Other comprehensive income:
Foreign currency translation	(12)	42	55
Retirement benefit liabilities - actuarial losses	(1,055)	(1,633)	(1,365)
Deferred tax on actuarial losses on retirement benefit liabilities	211	343	(53)
Deferred tax on share options	-	-	361
Income tax on other comprehensive income	-	-	67
Total comprehensive income for the period attributable to equity holders of the Company	(246)	(1,082)	436
Earnings per share - basic	6.8p	1.9p	15.4p
Earnings per share -diluted	6.7p	1.8p	15.0p
Dividend declared in the period - pence per share	2.2p	2.2p	7.9p

 

James Cropper Plc
Un-audited Statement of Financial Position at
	27 September 2014		28 September 2013	29 March 2014
	£'000		£'000	£'000
Assets
Intangible assets	419		399	480
Property, plant and equipment	20,790		20,741	21,294
Deferred tax assets	974		47	820
Total non- current assets	22,183		21,187	22,594
Inventories	14,383		12,697	13,300
Trade and other receivables	15,272		14,836	16,019
Cash and cash equivalents	1,629		1,208	692
Current tax assets	-		140	-
Total current assets	31,284		28,881	30,011
Total assets	53,467		50,068	52,605
Liabilities
Trade and other payables	11,541		7,921	9,509
Other financial liabilities	4		28	11
Loans and borrowings	2,884		2,401	3,040
Current tax liabilities	97		-	202
Total current liabilities	14,526		10,350	12,762
Long-term borrowings	6,923		9,093	7,929
Retirement benefit liabilities	12,415		11,867	11,640
Deferred tax liabilities	-		-	-
Total non-current liabilities	19,338		20,960	19,569
Total liabilities	33,864		31,310	32,331
Equity
Share capital	2,244		2,220	2,243
Share premium	918		822	915
Translation reserve	299		298	311
Reserve for own shares	(102)		(102)	(102)
Retained earnings	16,244		15,520	16,907
Total shareholders' equity	19,603		18,758	20,274
Total equity and liabilities	53,467		50,068	52,605

Un-audited Consolidated Statement of Cash Flows
	26 weeks to	26 weeks to	52 weeks to
	27 September	28 September	29 March
	2014	2013	2014
	£'000	£'000	£'000
Cash flows from operating activities
Net Profit	610	166	1,371
Adjustments for:
Tax	168	50	(58)
Depreciation	1,233	1,396	2,654
Net IAS 19 pension adjustments within SCI	439	346	775
Past service pension deficit payments	(720)	(465)	(853)
Foreign exchange differences	7	191	109
Loss on disposal of property, plant and equipment	-	37	27
Net bank interest expense	212	220	457
Share based payments	78	(7)	71
Changes in working capital:
(Increase) in inventories	(1,079)	(856)	(1,462)
Decrease / (increase) in trade and other receivables	585	(2,340)	(1,143)
Increase in trade and other payables	2,221	1,958	1,228
Interest received	-	5	2
Interest paid	(215)	(233)	(462)
Tax paid	(217)	(174)	(346)
Net cash generated from operating activities	3,322	294	2,370
Cash flows from investing activities
Purchase of intangible assets	-	(122)	(336)
Purchases of property, plant and equipment	(616)	(819)	(2,622)
Proceeds from sale of property, plant and equipment	-	3	13
Net cash (used in) investing activities	(616)	(938)	(2,945)
Cash flows from financing activities
Proceeds from issue of ordinary shares	4	11	127
Proceeds from issue of new loans	-	1,372	2,238
Repayment of borrowings	(1,234)	(1,212)	(2,502)
Dividends paid to shareholders	(508)	(501)	(697)
Net cash (used in) from financing activities	(1,738)	(330)	(834)
Net Increase / (decrease) in cash and cash equivalents	968	(974)	(1,409)
Effect of exchange rate fluctuations on cash held	(31)	(67)	(148)
Net Increase / (decrease) in cash and cash equivalents	937	(1,041)	(1,557)
Cash and cash equivalents at the start of the period	692	2,249	2,249
Cash and cash equivalents at the end of the period	1,629	1,208	692
Cash and cash equivalents consists of:
Cash at bank and in hand	1,629	1,208	692

 

 

 

 

Statement of Changes in Equity
Group	Share capital	Share premium	Translation reserve	Own Shares	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 30 March 2013	2,217	814	256	(102)	17,152	20,337
Profit for the period	-	-	-	-	1,371	1,371
Exchange differences	-	-	55	-	-	55
Actuarial losses on retirement benefit liabilities (net of deferred tax)	-	-	-	-	(1,418)	(1,418)
Tax on share options	-	-	-	-	361	361
Other comprehensive income tax	-	-	-	-	67	67
Total other comprehensive income	-	-	55	-	(990)	(935)
Dividends paid	-	-	-	-	(697)	(697)
Share based payment charge	-	-	-		71	71
Proceeds from issue of ordinary shares	26	101	-	-	-	127
Total contributions by and distributions to owners of the Group	26	101	-	-	(626)	(499)
At 29 March 2014	2,243	915	311	(102)	16,907	20,274
Profit for the period	-	-	-	-	610	610
Exchange differences	-	-	(12)	-	-	(12)
Actuarial losses on retirement benefit liabilities (net of deferred tax)	-	-	-	-	(844)	(844)
Total other comprehensive income	-	-	(12)	-	(844)	(856)
Dividends paid	-	-	-	-	(508)	(508)
Share based payment charge	-	-	-		78	78
Proceeds from issue of ordinary shares	1	3	-	-	-	4
Total contributions by and distributions to owners of the Group	1	3	-	-	(430)	(426)
At 27 September 2014	2,244	918	299	(102)	16,244	19,603

 

 

Notes to the Un-audited Interim Results

 

1.      Basis of the preparation of IFRS financial information

 

a.      These interim results have been prepared in accordance with the historical cost convention, as modified by the revaluation of land and buildings, and derivative financial instruments, and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (with the exception of IAS 34, Interim Financial Reporting) and International Financial Reporting Interpretations Committee ("IFRIC") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

Management has chosen to maintain the terminology that readers are familiar with, all references to:

 

i.    "Profit and Loss Account" refers to the Statement of Comprehensive Income.

ii.   "Balance Sheet" refers to the Statement of Financial Position.

iii.  "Trading Profit" refers to profits prior to income from joint ventures, other income and expenditure,  interest on borrowings and "Net IAS 19 pension adjustment"

iv.  "Trading Profit before Tax" refers to profits prior to "Net IAS 19 pension adjustment".

v.   EBITDA refers to Earnings before interest, tax, depreciation and amortisation.

vi.  "Net IAS 19 pension adjustment" in the Profit and Loss Account refer to the net impact on the Profit and Loss Account of the pension schemes' operating costs and finance costs.

 

b.      The Group's policy is to maintain the ability to continue as a going concern, in order to provide returns to the shareholder and benefits to other stakeholders. Accordingly the going concern basis has been adopted in preparing these interim results.

 

2.      Interim Statement

 

a.      The summarised results for the half-year to 27 September 2014, which have not been audited or reviewed, have been prepared in accordance with the accounting policies adopted in the accounts for the 52 week year ended 29 March 2014.

b.      The financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 2006. The figures for the 52 week year ended 29 March 2014 are an extract of the full accounts for that year, which have been filed with the Registrar of Companies and on which the auditors gave an unqualified opinion.

c.      A copy of the interim statement is available on our website (www.cropper.com).

 

3.      Earnings per share

 

Basic earnings per share for the half year to 27 September 2014 have been calculated by dividing the profits attributable to ordinary shareholders by 8,973,980 (2013: 8,872,629) ordinary shares, being the weighted average number of ordinary shares during the period.

 

4.            Dividend

 

A net interim dividend of 2.2p per Ordinary Share (2013: 2.2p per share) is proposed and will be paid on 9 January 2015 to holders on the register at the close of business on 12 December 2014. The dividend relating to the 52 week year to 29 March 2014 was made up of an interim payment of £196,000 (2.2p per share) and a final dividend payment of £508,000 (5.7p per share). The dividend is payable in cash. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in the Company through a Dividend Reinvestment Plan.

 

5.      Pensions

 

IAS 19 regards a sponsoring company and its pension schemes as a single accounting entity rather than two or more separate legal entities. The actuarial valuation is the starting point for the creation of the IAS 19 accounting entity. The valuation determines the net position of a pension scheme, i.e. the difference between its assets and liabilities. The net position, surplus or deficit, is brought onto the sponsoring company's Balance Sheet such that Reserves are immediately adjusted by the net position reduced by deferred tax. This obviously results in either an increase or decrease in the net asset value of the sponsoring company. At subsequent period-ends the movement in value from the previous valuation is expressed in the following component parts:

Income Statement

Operating costs

 

Current service charge, being the cost of benefits earned in the current period shown net of employees' contributions.

 

§ Past service costs, being the costs of benefit improvements.

§ Curtailment and settlement costs.

 

Finance costs, being the net of

 

§ Expected return on pension scheme assets.

§ Interest cost on the accrued pension scheme liabilities.

 

Statement of Recognised Income and Expense

Actuarial gains and losses arising from variances against previous actuarial assumptions.

 

The above items are offset by actual contributions paid by the employer in the period.

 

IAS19 deficits are shown below at the corresponding Balance Sheet dates.

 

	Half-year to	Half-year to	Full-year to
	27 September	28 September	29 March
	2014	2013	2014
IAS19 DEFICIT	£'000	£'000	£'000
Current Service Charge	(459)	(453)	(969)
Future service contributions paid	273	340	662
Net impact on Operating Profit	(186)	(113)	(307)
Finance costs	(253)	(233)	468
Net impact on Profit and Loss Account	(439)	(346)	(775)
Past service deficit contributions paid	719	465	853
Actuarial gains or losses	(1,055)	(1,633)	(1,365)
Opening deficit	(11,640)	(10,353)	(10,353)
Closing deficit	(12,415)	(11,867)	(11,640)
Deferred Taxation	2,483	2,492	2,328
Net - Deficit	(9,932)	(9,375)	(9,312)

It should be noted that the assumptions underlying the IAS 19 valuation are based on financial conditions at the Balance Sheet date. As market values of the scheme assets and the discount factors applied to the scheme liabilities will fluctuate, this method of valuation will often lead to large variations in the "pension balance" from period to period. Pension liabilities are discounted at the current rate of return on an AA rated quality corporate bond of equivalent currency and term. The actual contributions paid by the Group to its two final salary schemes are determined by the actuaries' "on-going" valuation.

 

	Half-year to	Half-year to	Full-year to
	27 September	28 September	29 March
	2014	2013	2014
Profit before Tax	£'000	£'000	£'000
Trading profit	1,217	562	2,088
Net pension adjustment
Current Service Charge	(459)	(453)	(969)
Future service contributions paid	273	340	662
Net impact on Operating Profit	(186)	(113)	(307)
Finance costs	(253)	(233)	(468)
Net impact on Profit before Tax	(439)	(346)	(775)
As reported	778	216	1,313