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2020 ReportClipper Logistics plc 2015 Annual Report and Accounts Clipper Logistics plc Annual Report and Accounts 2015 Clipper is a retail logistics and returns management specialist, providing value-added services to its blue chip customer base. A profitable and cash generative commercial vehicles business complements the Group’s logistics activities. The Group operates from 42 locations comprising over 6.2 million square feet. It now has over 3,200 employees, excluding agency staff. It is a market leader in e-commerce (including e-fulfilment and returns management), fashion, and high value logistics. A consultancy-led approach is taken with both existing and prospective clients to develop innovative solutions. A platform has been established in Germany to enable the Group to benefit from anticipated future growth in European online retailing, and to support the ambitions of UK customers who plan to expand into Europe. E n t r e preneurial I n n o v a t i v e gile A A ble dible e r C 2 2 Clipper Logistics plc Annual Report and Accounts 2015 Financial Highlights For the year ended 30 April 2015 Group revenue Earnings per share £201.2m FY 2014 £234.8m FY 2015 16.7% increase 2.8p FY 2014 7.3p FY 2015 157.0% increase Group Adjusted EBIT1 Adjusted earnings per share2 £9.6m FY 2014 £12.0m FY 2015 24.9% increase 7.0p FY 2014 8.4p FY 2015 20.1% increase Group profit for the financial year3 Net debt £2.8m FY 2014 £7.3m FY 2015 157.3% increase £15.4m FY 2014 £13.6m FY 2015 11.6% decrease 1 Adjusted EBIT is defined as operating profit excluding discontinuing and exceptional costs. 2 Adjusted earnings per share is based on profit attributable to ordinary equity holders adjusted by adding back discontinuing and exceptional costs, and adjusting for the tax thereon. 3 Including discontinuing costs of £0.3m (2014: £2.3m) and exceptional costs of £0.9m (2014: £2.5m). Percentages are calculated based on the underlying numbers as presented in the Financial Statements, not on the rounded figures above. 3 Clipper Logistics plc Annual Report and Accounts 2015 Contents About Clipper Financial Highlights for the year ended 30 April 2015 Operational Highlights for the year ended 30 April 2015 Strategic Report Chairman’s Statement Group Structure Our Business Model Our Strategy Operating and Financial Review Risk Management Corporate Social Responsibility Governance Board of Directors Corporate Governance Report Nomination Committee Report Audit Committee Report Directors’ Remuneration Report - Implementation Report on Remuneration - Directors’ Remuneration Policy (appendix) Directors’ Report Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements Group Financial Statements Independent Auditor’s Report Group Income Statement Group Statement of Comprehensive Income Group Statement of Financial Position Group Statement of Changes in Equity Group Statement of Cash Flows Notes to the Group Financial Statements Company Financial Statements Company Balance Sheet Notes to the Company Financial Statements Directors, Secretary, Registered & Head Office, and Advisors 4 4 2 3 5 6 8 10 12 16 18 30 34 38 40 42 50 51 56 58 68 74 80 82 84 88 89 90 91 92 94 138 140 141 154 Clipper Logistics plc Annual Report and Accounts 2015 Operational Highlights For the year ended 30 April 2015 Successful Initial Public Offering (IPO) on the London Stock Exchange Acquisition and integration of Servicecare Support Services Limited, broadening the Clipper service offering to include electrical returns Significant contract wins with new customers including Pep&Co, Philip Morris and Zara Long-term extensions to contracts with existing major retail customers including Harvey Nichols, New Look and Tesco Major new contract with John Lewis to provide a range of retail support services from a new distribution centre Adoption of the ‘Boomerang’ returns management brand proposition by a number of new and existing customers, including the first in mainland Europe providing value-added returns management services to s.Oliver under a new agreement Continued strong growth in the retail e-commerce market driving volumes with existing customers, and new contract opportunities Strong new business pipeline expected to deliver continued organic growth in the 2016 financial year Subsequent to the 30 April 2015 year end, the Company has agreed terms for a Click and Collect solution in collaboration with John Lewis 5 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report 6 Clipper Logistics plc Annual Report and Accounts 2015 7 Clipper Logistics plc Annual Report and Accounts 2015 Chairman’s Statement I am pleased to write as Chairman of Clipper Logistics plc following our first anniversary of listing on the London Stock Exchange in June 2014. Our first year as a listed company has seen continued growth reflecting our ability to demonstrate real value–add services for our extensive client base, and we remain confident of our ability to maintain this momentum. The Group has seen a strong performance throughout the year under review, with a number of high profile contract wins and renewals, including those with Harvey Nichols, New Look, Pep&Co, Philip Morris, and Zara. The acquisition of Servicecare Support Services Limited in December 2014 extended our returns management capabilities to include electrical products, and the business has performed well, being immediately earnings-enhancing. Our driving force remains our ethos of constantly identifying new services, methods and technologies that address the operational challenges of our clients. Our unrivalled understanding of the e-fulfilment and returns market, coupled with our clients’ continually evolving needs in these areas, will ensure that we retain and expand our market share. We are excited about the continued opportunities for progress of the Group in the years ahead, and are proud of the range and quality of services the Group provides. We are exceptionally well-positioned to benefit from the further significant growth expected in the online retail sector, where independent market research indicates that by 2022 one-third of all retail activity in the UK will take place online. Further, our innovative value-added solutions are expected to achieve continued growth in our non e-fulfilment activities, as evidenced by recent contract wins in this business area. Steve Parkin, Executive Chairman 8 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Chairman’s Statement continued Group Results Governance Group revenues increased by 16.7% The Group is proud of its commitment to £234.8 million for the year to 30 April 2015, and Group Adjusted EBIT* increased by 24.9% to £12.0 million. Excluding the to high levels of corporate governance. Alongside the executive management team of Tony Mannix (CEO), David Hodkin impact of the Servicecare acquisition, (CFO) and Sean Fahey (CIO), the Company revenue grew by 13.8% and Group benefits from the combined experience of Group revenues increased by 16.7% to £234.8 million for the year to 30 April 2015 Group Adjusted EBIT* increased by 24.9% to £12.0 million for the year to 30 April 2015 Adjusted EBIT by 16.6%. its Non-Executive Directors: Paul Hampden Smith (Senior Independent Non-Executive Adjusted earnings per share was 8.4 pence Director), Stephen Robertson, Ron Series for the year to 30 April 2015 (2014: 7.0 and Mike Russell. pence as restated). On an unadjusted basis earnings per share Dividends was 7.3 pence (2014: 2.8 pence). The Board is recommending a final Net debt was reduced to £13.6 million at total dividend in respect of the year ended year end (2014: £15.4 million as restated), 30 April 2015 of 4.8 pence per share. This after the payment of £3.7 million in respect is reflective of the significant increase in dividend of 3.2 pence per share, making a of the acquisition of Servicecare Support underlying profits. Services Limited, and £2.1 million in respect of non-recurring IPO transaction costs. The proposed final dividend, if approved by shareholders, will be paid on 30 September 2015. People and Board Clipper Logistics plc is led by an excellent management team that has been at the Outlook core of the business for many years. The Group continues to be amongst the leading providers of value-added Having guided the Group through periods and e-fulfilment solutions to the retail of significant change in the UK retail sector in the UK. The full year benefits industry, the management team’s ability to of the Servicecare acquisition, and the continue to steer the business along its path development of Click and Collect delivery of organic growth through customer focus, technical innovation and growing brand services to store, coupled with recent contract wins, place the Group in an awareness is well established. excellent position to continue to achieve further growth in the medium term, both in I would like to take this opportunity to the UK and internationally. thank all the employees of the Group for their commitment and contribution to the I look forward to working with all of the Group’s performance. Group’s stakeholders as we continue to develop the business. *Adjusted EBIT is defined as operating profit excluding discontinuing and exceptional costs. 9 Clipper Logistics plc Annual Report and Accounts 2015 Group Structure Composition of the Group at 30 April 2015 Reporting Segments Clipper Logistics plc (“Clipper” or the The results of the Group are reported in Clipper expects to continue to experience “Company”) provides value-added logistics the following segments: rapid growth in this segment reflecting services in the UK. - Value-added logistics services, continuing migration to online retailing due The Company has the following wholly activities: the retail sector. owned subsidiaries: - E-fulfilment & returns management The results of Servicecare and Electrotec - Clipper Logistics KG (GmbH & Co.), which services; are shown in this category. comprising the following business to the structural changes taking place in provides logistics services in Germany; - Non e-fulfilment logistics; and - Central logistics overheads, being Non e-fulfilment logistics - Northern Commercials (Mirfield) Limited those costs of the business which are Non e-fulfilment logistics include receipt, (“Northern Commercials”), which is a not allocable in a meaningful way to warehousing, value-add processing, stock commercial vehicle operation engaging the above business activities, including management, picking and distribution of in the sale, servicing and repair of directorate, advertising and promotion, products on behalf of customers. Clipper commercial vehicles, and the sale of accounting and IT, and the solutions does not take ownership of customers’ parts; development team; and products at any time. - Servicecare Support Services Limited - Commercial vehicles. Within this category Clipper handles high (“Servicecare”), which provides warranty value products, including tobacco, alcohol and refurbishment work for electrical Whilst not a segment in its own right, and designer clothing, and also undertakes manufacturers and retailers; the Group also separately reports head traditional retail support services including - Electrotec International Limited Executive Chairman, Chief Financial Officer, products, particularly fashion, to high street office costs, representing the costs of the processing, storage and distribution of (“Electrotec”), a wholly owned subsidiary Deputy Chief Financial Officer, Company retailers. of Servicecare, which through its website Secretary, Non-Executive Directors and plc electrical-deals.co.uk and a number of compliance costs. Central logistics overheads other web stores operated on behalf of customers, provides a route to market for Central logistics overheads are the costs of support services specific to the value- refurbished electrical products on behalf Segment and business activity details added logistics services segment, but of manufacturers and retailers; and E-fulfilment & returns management which are impractical to allocate between services the sub-segment business activities. - Genesis Specialised Product Packing E-fulfilment & returns management services Limited (“Genesis”), which provides an include the receipt, warehousing, value- Commercial vehicles eBay store offering to enable Clipper to assist its retail customers with the sale of add processing, stock management, picking, packing and despatch of products The commercial vehicles business, Northern Commercials, operates Iveco excess and end-of-line stock. on behalf of customers to support their and Fiat commercial vehicle dealerships online trading activities, as well as a range from six locations, together with four sub- The above entities, along with a number of of ancillary support services, including the dealerships. It sells new and used vehicles, dormant subsidiaries, comprise the “Group”. management of the returns process for provides servicing and repair facilities, customers. and sells parts. At no time does Clipper take ownership Vehicles sold and serviced range from of customers’ products. The Company small light commercial vans, through to has recently introduced a new brand, articulated tractor units. ‘Boomerang’, under which returns of products are managed on behalf of retailers. 10 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements 11 Our Business Model The Group creates value for its shareholders Credibility These foundations underpin a proven and from its scalable and risk-mitigated - The ‘Clipper Way’ ensures that at robust business model business, with a high degree of contractual every level the success of project Market-leading customer proposition and certainty underpinning financial implementation and ongoing operational focus on customer service predictability and stability. Clipper focuses excellence are at the core of all activity. Clipper focuses on the provision of on customer service, and aims to create consultancy-led, value-added logistics long-term relationships with customers in - Clipper has a high profile within the services. It works closely with existing and order to become central to that customer’s industry press, including Drapers and prospective clients to develop tailored strategy, and further underpin the long-term Retail Week, and is a recognised sector solutions to meet their specific logistics success of the Group. ‘thought leader’. This further strengthens needs. Strategic-level discussions focused the relevance of Clipper to its retail clients. on providing solutions to particular Foundations of Clipper’s business model Ability – Mission Critical Experience - Highly efficient supply chains are essential for retail success. - The Clipper retail focus and multi-channel expertise provides: - targeted and relevant sector experience; - large scale transformational project skill; - best practice and innovation; - shared use approach to support customers from ‘start-ups’ to ‘blue chip’; and - a long-term consultative partner relationship. - High profile projects require knowledge, skill and a proven track record. Agility – Critical Decisions Made at Pace - The Clipper ethos is: - an entrepreneurial spirit; and - rapid decision making based on knowledge not assumption. - The Clipper skillset encompasses property, solution design and implementation - allowing all to be managed in parallel leading to a rapid go live. - Clipper’s well-known and trusted team: - are highly respected in the sector; and - have built successful relationships with key retail decision makers. - A customer who partners with Clipper gets personal accountability and a strong focus on success. 12 ABILITY AGILITY CREDIBILITY RETAIL-FOCUSED ‘KNOW HOW’ TRUSTED PARTNER APPROACH challenges ensure that Clipper is central to its clients’ strategies. The Company is focused on the fashion and non-food retail sectors, and provides services under formalised contractual arrangements to a major blue chip customer base including Asda, ASOS, John Lewis, Morrisons, SuperGroup, and Tesco. Its market-leading position in providing solutions in the e-commerce sector, including returns management, places the Company in a strategically strong position given the structural changes taking place in retailing, with an increasing proportion of retail sales represented by online sales, and the move to multi-channel and omni- channel retail distribution models: - The penetration of e-based sales in the UK is one of the highest in the world. The trend towards a greater proportion of retail activity being conducted online is expected to continue; research indicates that by 2022 one-third of all sales in the UK will be conducted online.1 1 Insider Trends Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Our Business Model continued These foundations underpin a proven and High degree of contractual certainty Servicecare has historically operated robust business model (continued) underpins financial predictability using a traditional closed book charging Market-leading customer proposition and and stability methodology, but has commenced focus on customer service (continued) 70% of the UK logistics division’s revenue trading under open book terms with one of - Returns management is expected (excluding Servicecare) in the year to 30 their key customers, and where appropriate, to become the ‘battle-ground for April 2015 was on open book contract will adopt this contract methodology for competitive advantage’ amongst terms (2014: 65%). Under the terms of these new customers. However, it is likely that retailers, with returns in the UK contracts, all costs incurred in providing many arrangements will remain on closed averaging between 25%-40% in fashion and footwear.1 Clipper’s successful introduction of its new brand, services (people, property, plant and book terms (which is normal within this equipment, packaging, etc.) are recharged sector), which will have a slight dilutive to customers together with a management effect on the total percentage of revenue ‘Boomerang’, is enabling it to capitalise fee. The contract mechanisms provide derived from open book or minimum upon this opportunity, leveraging from Clipper’s customer base with total volume guarantee contracts. its already market-leading proposition transparency, and make for solid long- in online fulfilment. The Group’s new term relationships with clients, whilst In Germany, the vast majority of business is acquisition Servicecare, and its subsidiary protecting Clipper from cost inflation, mix currently conducted on closed book terms, Electrotec, are complementary to the changes and, largely, volume downsides, although some activity for s.Oliver (a key returns management proposition, whilst allowing the Company to benefit customer) is now charged on a partially as the Group is now able to offer a wider from increasing activity levels. Gainshare open book basis. It is anticipated that as range of services, including electrical mechanisms and KPI-based incentives also e-commerce activities develop these are returns capability. allow Clipper to enhance profits, through likely to be on open book terms as such innovation and excelling in service delivery. arrangements are mutually beneficial for The Company’s focus on the retail sector The growth in the percentage of revenue both the retailer and the Group. ensures that it is able to offer best-practice, derived from open book contracts was lowest-cost services to its customer base. driven primarily by the full year effect and Within the commercial vehicles division, The Group has a track record of innovation, growth of the ASOS contract, volume growth revenues from new vehicle sales are including the development of: from contracts with John Lewis, SuperGroup, uncontracted, and can vary due to wider Tesco and Wilkinsons, and the benefit of economic conditions. However, margins on - Consolidation centres, where products new customers such as M&S and Ted Baker. new vehicle sales tend to be relatively low. destined for multiple nearby retail outlets Margins on aftersales activities (i.e. servicing are consolidated, before being delivered 12% of the UK logistics division’s revenue and parts) are higher, and so the changes to the destination. Examples include (excluding Servicecare) in the year to 30 in the sales mix can significantly affect Meadowhall Shopping Centre in Sheffield April 2015 was derived from minimum reported profit margins. and Regent Street in London; volume guarantee contracts (2014: 14%), which protect Clipper from volume Since most commercial vehicles are - Port deconsolidation supply chain downsides, whilst allowing the Company to required by law to be inspected every six models, where facilities are located benefit from growing activity levels. weeks, this gives rise to stable profit and near a port of entry for product cash streams from this part of the Group, deconsolidation and onward distribution Thus, the business model within the logistics even in the absence of formal contracts. through the supply chain; and division in the UK (excluding Servicecare) In addition, all tractor units sold by Northern - The ‘Boomerang’ brand for returns with just 18% of revenue derived from more standard repair and maintenance contract management, as noted above. traditional, closed book arrangements which further guarantees the revenue and provides a high degree of profit resilience, Commercials now come with a two year (2014: 21%). profit derived from aftersales activities. Clipper’s focus on customer service is demonstrated by its wide portfolio of blue chip customers both in the UK and Germany, many of whom have been clients for many years. 1 IMRG 13 Our Business Model continued These foundations underpin a proven embedded with those of the client. Maximising value and robust business model (continued) Clipper creates a unique solution for Clipper uses the business model above The nature of the Clipper service offering each customer, which cannot be easily to proactively offer new service offerings results in long-term, mutually beneficial or quickly replicated. Clipper’s systems will and maximise value from existing relationships with its customers become further embedded with those of customer relationships, as well as to The specialised nature of the services their customers as omni-channel retailing attract new customers. provided by Clipper, particularly in the increases, and also as more customers take e-commerce and high value product on newer service offerings such as returns Clipper will continue to develop and provide sectors, results in real long-term mutually management. beneficial relationships with customers, as innovative retail solutions, as demonstrated by the Boomerang returns solutions evidenced by the high levels of customer In addition to the above, credibility gained launched in 2014, and the Click and Collect retention experienced by the Group. in the provision of logistics services in solution which will shortly be launched in Many implementation projects involve a real barrier to entry to this segment of the capitalise on the opportunities presented to the development of bespoke software, market. integration and other solutions, resulting in the Group in assisting retailers to deal with these challenging logistical issues. relation to high value products represents collaboration with John Lewis, in order to Clipper playing a central role in the delivery This is equally true for the services of the retailer’s customer proposition - Servicecare provide, which require Clipper is also focused on maximising Clipper’s consultative approach with specialist skill, knowledge and manufacturer shareholder value through selective customers leads to its systems becoming certifications / authorisations. expansion internationally (as demonstrated CLIPPER USP BESPOKE INTEGRATION TO THE CLIENT - NO TEMPLATES CLIPPER IS AT THE HEART OF THE INTEGRATION IP OF INTEGRATION REMAINS WITH CLIPPER CLIPPER CONTROLS AND SUPPORTS THE SYSTEMS REDUCES DEMAND ON CLIENT IT BARRIER TO ENTRY CLIPPER MANAGES THE COMPLEX SYSTEMS COMMUNICATIONS by its increasing German presence, and recent expansion into Ireland), and also through selective acquisitions (as demonstrated by the acquisition of Servicecare during the year under review). The commercial vehicles division of the Group is robustly profitable and cash generative – its profitability driven by high-margin aftersales activity, which is underpinned by legal requirements governing the inspection of commercial vehicles. Whilst Northern Commercials is not heavily dependent on the logistics division of the Group, it provides Clipper with flexibility over fleet procurement, and margins on servicing activity are retained within the Group. The Group will carefully consider potential new territories for commercial vehicles, in order to further enhance Northern Commercials’ market share, and enhance profitability within that segment of the Group. 14 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements 15 Our Strategy In order to generate and preserve long- term value for shareholders, Clipper has four key growth strategies, as set out in its prospectus dated 30 May 2014 (the “Prospectus”), and detailed below. Build on market- leading customer proposition to expand customer base Develop new, complementary products and services ENHANCE SHAREHOLDER VALUE Selective acquisitions European expansion 16 1 Build on market-leading customer proposition to expand the customer base How will this be achieved? Through a continued focus on the provision of bespoke, retail-specific logistics solutions, including retail store support and high value product logistics, but particularly focused on the e-fulfilment segment of the retail market. By utilising Clipper’s best-in-class offering and extensive implementation expertise to continue to capitalise on the long-term structural growth drivers within the online retail market and the increasing logistical complexities therein. By taking advantage of selective growth opportunities in the fashion and non-food retail logistics segment, where there is the opportunity to provide innovative solutions to customers that are also profitable for the Group. Performance in the year to 30 April 2015 The full year benefit was realised of contracts that went live during the previous year with Antler, ASOS, Go Outdoors and SuperGroup. New contracts went live in the year with M&S, Philip Morris, s.Oliver (returns management services) and Ted Baker. New contracts have been secured for operations commencing in the year to 30 April 2016 with Flyers Group, Pep&Co, Zara and Ireland’s largest retailer. An agreement has been reached with John Lewis for ancillary services, which will commence during the year to 30 April 2017. Further details of the above contract wins can be found in the Operating and Financial Review on pages 18 to 29. Going forward Clipper has an extensive potential customer pipeline, and will continue to work with these potential leads to secure further new contract wins. The acquisition of Servicecare will enable the Group to leverage Servicecare’s skillset in the electrical returns sector to further enhance its customer proposition and expand the customer base. Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Our Strategy continued 2 Develop new, complementary products and services How will this be achieved? 3 Explore acquisition opportunities How will this be achieved? 4 Continue European expansion How will this be achieved? By continuing to invest in new product By considering further selective acquisitions Through development of Clipper’s and service offerings which will be value which are considered value-enhancing to operations in Germany, which currently enhancing to Clipper’s existing and future the Group’s client base, market penetration consist primarily of retail logistics and customer base. and/or service lines and where the Group transport solutions. can use its existing expertise, implementation Performance in the year to 30 April 2015 and delivery platform, scale and reach to By utilising its existing expertise in e-fulfilment Clipper’s returns management services generate synergies and increase profitability. in the more developed UK online retail brand ‘Boomerang’ saw its first full year of market, to assist both mainland European operation in the year to 30 April 2015, with approximately 95% of product successfully By considering bolt-on acquisitions which provide a platform for it to take retailers to move online, and UK retailers to expand into Europe – the latter further returned to prime stock at first pass. its core technical expertise into new, underpinned by Clipper’s strong customer Clipper has commenced work on adjacent markets. relationships and reputation with UK retailers (both pure-play e-tailers and multichannel mechanisation and semi-automation Performance in the year to 30 April 2015 high street retailers). projects to further enhance our service During the year, Clipper completed the offering. The full benefit of these will be seen acquisition of Servicecare Support Services Through considering other European in the financial year ending 30 April 2016. Limited, and its wholly owned subsidiary destinations for potential opportunities. Electrotec International Limited. During the latter part of the financial year, Performance in the year to 30 April 2015 Clipper has been working on additional This was a strategically important A new returns management contract solutions to assist retailers with the logistical acquisition, as it has enabled the Group went live with s.Oliver in Germany shortly problems surrounding Click and Collect. This to offer further services via its Boomerang before the financial year end, under the project will go live during the year to 30 April brand, through the addition of electrical Boomerang brand. 2016, in collaboration with John Lewis, with returns services, which require specialist the full benefit being realised in the following expertise. The full benefit of this contract will be seen in financial years. the year to 30 April 2016. Further details of the above projects can be found in the Operating and Financial Review on pages 18 to 29. Going forward Clipper will focus on the successful implementation of its mechanisation / semi-automation and Click and Collect projects, and on expanding these services to a wider customer base (both existing and new customers). In addition, Clipper will continue to innovate and develop new solutions for the problems that retailers face in the ever-changing retail environment. Robustly profitable in its own right, Servicecare will also further enhance Agreement was reached with Ireland’s shareholder value by increasing its own largest retailer for the provision of customer base by leveraging off its position warehousing and e-fulfilment services, which in the wider Clipper Group. will be performed in the UK and Ireland. Electrotec specialises in the online sale Shortly after the 30 April 2015 year end, of returned or refurbished stock, so will Clipper registered a branch in Ireland, complement the Group’s subsidiary to facilitate performance of the above Genesis, which provides an online route to agreement, and also to enhance its market for Clipper’s customers, particularly presence in Ireland in order to secure further in relation to sale of excess in-season stock, new business. sale of end-of-line stock, and sale of returns. Further details of the above acquisition can be found in the Operating and Financial Review on pages 18 to 29. Further details of the above contract wins can be found in the Operating and Financial Review on pages 18 to 29. Going forward Going forward Clipper will continue to seek opportunities Clipper will continue to explore acquisition with new and existing customers to provide opportunities that enhance shareholder value. services in Germany, and will also consider other strategic mainland European destinations for potential expansion. 17 Operating and Financial Review 1. Overview of results The Group made excellent progress in the financial year to 30 April 2015. Group revenue Group revenues increased by 16.7% to £234.8 million, with strong growth in all business areas including e-fulfilment & returns management services and non Revenue Year to 30 April 2015 £m Year to 30 April 2014 £m % change E-fulfilment & returns management services 60.6 46.0 +31.5% Non e-fulfilment logistics 102.1 89.6 +14.1% Total value-added logistics services 162.7 135.6 +20.0% e-fulfilment logistics: Commercial vehicles 73.6 66.8 +10.1% Inter-segment sales (1.5) (1.2) Group revenue 234.8 201.2 +16.7% Percentages are calculated based on the underlying numbers as presented in the Financial Statements, not on the rounded figures in the table above Within the value-added logistics services Revenue growth in commercial vehicles segment, the Group benefited from: was driven by: - the full-year impact of contract wins - a £5.3 million increase in new vehicle secured in the previous financial year sales. Whilst unit sales were down, the including, amongst others, Antler, ASOS, average selling price of each unit Go Outdoors and SuperGroup; increased significantly due to the mix of vehicles sold; and - the part-year impact of the acquisition of Servicecare and its subsidiary Electrotec - a £1.5 million increase in after-sales in December 2014; revenues, comprising servicing, bodyshop and parts sales. - organic growth on existing contracts, including Asda, John Lewis, Tesco, and Wilkinsons; - the market migration in the retail sector towards online trading which continues to bring particularly strong organic growth to our e-fulfilment customers; and - the part-year impact of contracts won during the year to 30 April 2015, including M&S and Ted Baker, and additional services for ASOS, as well as the s.Oliver returns contract win in Germany. The full year benefit of these contracts will be realised in the year to 30 April 2016, together with the part-year benefits of contracts either recently commenced or currently in the pipeline and due to go live during the remainder of calendar year 2015 and early calendar year 2016. 18 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 1. Overview of results (continued) Group Adjusted EBIT Adjusted EBIT is the primary Key Performance Indicator (“KPI”) by which the Adjusted EBIT management team assesses corporate performance. Adjusted EBIT is assessed against Board approved budgets. A further KPI is net debt, which is discussed on page 21. E-fulfilment & returns management services Non e-fulfilment logistics Year to 30 April 2015 £m Year to 30 April 2014 £m % change 5.5 10.1 3.7 +48.0% 9.2 +9.8% Central logistics overheads (4.1) (4.2) The Group grew Adjusted EBIT strongly in Total value-added logistics services all segments and business activities: Commercial vehicles 11.5 1.9 8.7 +33.2% 1.8 +2.1% Head office costs (1.4) (0.9) Group Adjusted EBIT 12.0 9.6 +24.9% Group Adjusted EBIT is defined as Group operating profit excluding discontinuing and exceptional costs. Percentages are calculated based on the underlying numbers as presented in the Financial Statements, not on the rounded figures in the table above. Group Adjusted EBIT increased by 24.9% Similarly, revenue derived from minimum Non e-fulfilment operations include receipt, to £12.0 million in the year to 30 April volume guarantee contracts is fixed at a warehousing, picking and distribution of 2015, and the Group is well placed to minimum level, so that a shortfall in activity products on behalf of customers. Within achieve further EBIT growth in the coming levels would give rise to a lower cost base, this sector the Group handles high value financial year due to the full year benefits and a higher reported margin. products, including tobacco, alcohol and of recent contract wins and the Servicecare designer clothing, and also undertakes acquisition, coupled with a very strong new In addition, within the commercial vehicles traditional retail support services including business pipeline. segment, the level of high value, relatively processing, storage and distribution of low margin new vehicle sales also distorts products, particularly fashion, to high Adjusted EBIT margin is not a key metric reported margins. street retailers. as the high proportion of open book and minimum volume guarantee contracts Accordingly, Adjusted EBIT is a more Central logistics overheads include the within the UK logistics division distorts relevant measure of financial performance costs of the directors of the logistics reported margins. than Adjusted EBIT margin. business, the project delivery and IT support teams, sales and marketing, accounting This is due to an element of management E-fulfilment & returns management and finance, and human resources that fees on certain contracts being fixed in the services include the receipt, warehousing, cannot be allocated in a meaningful way short term, so that an increase in revenue stock management, picking, packing to business units. Despite continuing to in periods of increased activity will not and despatch of products on behalf invest significantly in such resources during necessarily give rise to a proportionate of customers to support their online the year, particularly in operational support, increase in profit, resulting in lower reported trading activities, as well as a range of and solution design and implementation, margins. Conversely in periods of reduced ancillary support services including returns we managed to recover more of this cost activity levels, reported margins would management, branded as ‘Boomerang’, from customers in the year due to the high typically increase. under which returns of products are volume of new projects. managed on behalf of retailers. 19 Operating and Financial Review continued 1. Overview of results (continued) Group Adjusted EBIT (continued) The discontinuing costs in the year to Incremental investment will inevitably be 30 April 2015 relate to remuneration required in the logistics overheads base as of a retiring director, consultancy and the business continues to grow, including professional fees in respect of potential the impact of the full year effect of the investment opportunity appraisals, the costs infrastructure investments undertaken in of operating the Chairman’s private office, the second half of the year ended and certain advertising, sponsorship and 30 April 2015. entertaining expenditure, none of which have been borne by the Group since The commercial vehicles business, Northern Admission (“Admission” being defined as Commercials (Mirfield) Limited, operates Iveco and Fiat commercial vehicle 4 June 2014, the date on which Clipper Logistics plc was admitted to the premium dealerships from six locations, together segment of the London Stock Exchange). with four sub-dealerships. It sells new and The discontinuing costs in the year to 30 used vehicles, provides servicing and repair April 2014 also included all of the above. facilities, and sells parts. Vehicles sold and serviced range from small light commercial Of the exceptional costs of £0.9 million vans, through to articulated tractor units. (2014: £2.5 million) incurred in the year to 30 April 2015, £0.7 million (2014: £2.0 Head office costs represent the cost of the million) related to the costs of the IPO Executive Chairman, Chief Financial Officer, and £0.2 million (2014: £nil) related to Deputy Chief Financial Officer, Company professional and legal expenses incurred Secretary, Non-Executive Directors and plc on the acquisition of Servicecare. In 2014, compliance costs. there were also exceptional depot closure costs of £0.4 million, and redundancy costs Share based payment charges totalling on reorganisation of £0.1 million. £0.1 million have been charged to central logistics overheads, commercial vehicles cost and head office costs as appropriate Net interest charges in respect of the Sharesave plan and the Net interest charges for the year to 30 April Performance Share Plan (see note 22 to 2015 were £1.4 million, an increase of £0.5 the Group Financial Statements). million from the £0.9 million incurred in the The profit after tax for the year to 30 April previous year, reflecting the higher average level of net debt in the business following 2015 was £7.3 million (2014: £2.8 million), the payment of £18.5 million in dividends as set out on page 88. This is stated after and other distributions to the former parent charging £0.3 million (2014: £2.3 million) company in the prior year, related to the of discontinuing costs, and £0.9 million reorganisation of the Group in preparation (2014: £2.5 million) of exceptional costs. for the IPO. In addition, the interest charges in the year to 30 April 2015 reflect the net As such, adjusted profit after tax for the cash outflow on the Servicecare acquisition year to 30 April 2015 (which excludes the of £3.7 million. discontinuing costs, exceptional costs and the tax associated with those costs) was £8.4 million (2014: £6.9 million), an increase of 21.1%. 20 Operating and Financial Review Operating and Financial Review continued 1. Overview of results (continued) Strategic Report | Governance | Financial Statements Taxation Key items of capital expenditure during As detailed in note 28 to the Group The effective rate of taxation of 22.8% the year to 30 April 2015 within the value- Financial Statements, net cash paid in the (2014: 27.9%) is higher than the standard added logistics services segment were year to 30 April 2015 for the purchase of rate of corporation tax of 20.92% (2014: IT system upgrades (including enhanced Servicecare amounted to £3.7 million, 22.84%) principally due to expenditure back-up solutions), site fit out costs for disallowable for tax purposes. As the Clipper’s Harlow site which commenced The Group’s business model gives rise discontinuing head office costs include operations during the year, site fit out costs to high levels of cash generation. In the some disallowable items such as customer in Germany for the new s.Oliver contract, UK logistics business, Clipper is typically entertaining and sponsorship and the and ongoing capital expenditure relating to paid in the month in which services are headline UK tax rate reduces by 1%, the fleet renewals. Within commercial vehicles, delivered on open book and minimum effective rate of tax is expected to reduce again in the year ending 30 April 2016. capital expenditure related primarily to ongoing fleet renewals (for demonstrators volume guarantee contracts, giving rise to a typically negative investment in working and parts vans), and also an upgrade to capital, whilst in the commercial vehicles the vehicle diagnostic system used for business working capital is substantially Earnings per share Iveco vehicles. As set out in note 21 to the Group Financial Statements, during the year to 30 April 2014 funded by the manufacturer through stocking facilities for new vehicles, and trade credit terms for parts supplied. Across there was a group reorganisation involving Goodwill and other intangible assets the two years ended 30 April 2015, net both an issue and a subdivision of shares. The goodwill arising on the acquisition of cash generated from working capital was In addition, there was a large amount Other intangible assets acquired with of non-recurring cost. Consequently, the Servicecare, principally in respect of basic measure of earnings per share is customer relationships, had a fair value of Net debt Servicecare amounted to £4.2 million. £4.9 million. significantly distorted by these factors. £1.2 million giving rise to a related deferred In addition to Adjusted EBIT, net debt is Adjusting earnings to exclude discontinuing tax liability of £0.2 million. considered a Key Performance Indicator for and exceptional costs and the tax effect thereon, gives adjusted earnings of £8.4 million for the year to 30 April 2015 Cash flow the Group. As with Adjusted EBIT, net debt is assessed against Board approved budgets. (2014: £6.9 million). In the previous Annual With the Group reorganisation undertaken As shown in note 19 to the Group Financial Report the tax effect was calculated at as part of the preparation for the IPO and Statements, the Group’s net debt at 30 April standard rate. It is now calculated at the the payment of the IPO transaction costs 2015 was £13.6 million (2014: £15.4 million effective rate applicable to the specific falling in two financial years, there has been as restated). At this date, the Group had transactions. some distortion in reported cashflows. £8.0 million net bank debt, drawn against available bank facilities of £27.5 million. Adjusted earnings per share was 8.4 pence Cash generated from operations was The net debt at 30 April 2014 included for the year to 30 April 2015 (2014: 7.0 pence £12.6 million (2014: £15.8 million) after £14.2 million payable to the former as restated). paying £2.1 million of IPO transaction costs parent company. On an unadjusted basis earnings per share of £1.6 million was paid in the year to 30 The key terms of the Group’s banking was 7.3 pence (2014: 2.8 pence). April 2015, in line with the stated dividend facilities are included in note 19 to the payment policy. Prior to the IPO, a dividend Group Financial Statements. (2014: £0.6 million). An interim dividend Capital expenditure of £0.3 million was paid to the former parent company. In the year to 30 April Of total capital expenditure of £2.4 million 2014, dividends and other distributions (2014: £4.9 million), £1.9 million (2014: totalling £18.5 million were paid to the £4.0 million) related to the value-added former parent company. logistics services segment and £0.5 million (2014: £0.9 million) related to the commercial vehicles segment. 21 Clipper Logistics plc Annual Report and Accounts 2015 Operating and Financial Review continued 2. Acquisition of Servicecare Support Services Limited In December 2014, Clipper acquired the In the financial year to 30 April 2014, Clipper entire issued share capital of Servicecare launched its ‘Boomerang’ brand, which Support Services Limited (“Servicecare”) was introduced to focus on the growing and its wholly owned subsidiary Electrotec requirement for returns management International Limited (“Electrotec”) for a services by the clothing and non-electrical cash consideration of £5.7 million. Of this general merchandise sectors. As part of the consideration, £1.0 million was deferred for Group’s strategy to enhance its Boomerang six months, and a further £1.0 million was services to both new and existing customers, deferred for twelve months. In addition, a the Board has sought to identify potential further £0.2 million is payable upon receipt acquisition targets that would enable of a tax refund due to Servicecare of the same amount. the Boomerang service offering to be expanded to cover electrical goods, which require specialist expertise. With its Servicecare is a specialist provider of returns long trading history and blue chip client logistics services to consumer electronics base Servicecare is a strong fit within the manufacturers and retailers. The business, Boomerang brand and has proved to be which operates across the United Kingdom immediately earnings-enhancing to Clipper, from sites in Oldham, Greater Manchester outperforming expectations for the five and Barton, Burton-on-Trent, has been months post acquisition to the year ended trading since 1995 and has a strong client 30 April 2015. base that includes Argos, Panasonic, Shop Direct Group and Tefal. Its wholly owned Electrotec complements the Group’s subsidiary Electrotec International Limited subsidiary Genesis, which provides an online was acquired by Servicecare in 1999 route to market for Clipper’s customers, and trades as a retail supplier, selling particularly in relation to sale of excess in- refurbished consumer electrical goods, season stock, sale of end-of-line stock, and predominantly online. sale of returns. 22 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 3. Value-added logistics services Market overview, size and growth of - we are seeing continued growth in the Structural growth in online, market and market trends level of Click and Collect sales activity, multichannel retailing Traditional bricks and mortar retail still with Click and Collect comprising 16% The UK has one of the highest rates of constitutes the majority of retail sales in the of multichannel online sales in Q4 2014 internet and smartphone penetration in UK. However, the growth of online retailing compared to 12% in the same quarter of Western Europe and this level of penetration and the desire for major retail brands to 2013. Certain of our customers report that is expected to increase further in coming have as many different touch points with Click and Collect now accounts for 60- years. The proportion of online sales as a their customers as possible means that 65% of their overall online volume. Within multichannel retailing will be a dynamic the Click and Collect service proposition, percentage of total retail sales in the UK is already one of the highest in the world.4 driver of change for both the retail and time compression is a major issue and the logistics markets in the near future. An increasing number of distribution channels customer demand for next day delivery is pervading. This trend is fundamentally altering the logistical requirements of retailers, who are now required to meet the demands of the consumer, including shopping at stores, home delivery, Click and Collect as well as the return of purchased items. The fact By 2022, one third of sales in the UK are forecast to be conducted online.2 The rest of Europe is also experiencing a similar retailing (whereby customers place orders across a variety of sales channels, for example retail stores, online stores, must meet the challenges of multichannel that the penetration of internet-based sales trend. Germany is the second largest mobile stores and telephone sales), which in the UK economy is one of the highest e-commerce market in Europe after the UK. demands complex warehousing, order in the world leads the Directors to believe Here, online retail sales are forecast to reach processing and stock management systems that the UK is at the forefront of the logistics €73 billion by 2019, and Europe as a whole in order to deliver a high quality service to challenges being posed to retailers by the growth in online retail. is forecast to generate €233 billion of online retail sales by 2018.3 The UK’s e-commerce market has grown from £0.8 billion in 2000 to £104 billion in 2014 The retail sector is undergoing structural changes and, as a market leader in the provision of services to support retailers’ online and returns management challenges, the Group is strategically well placed to capitalise on the very significant growth expected in this sector of the market. According to market research1, the UK’s e-commerce market has grown from £0.8 billion in 2000 to £91 billion in 2013 and £104 billion in 2014 (14% annual increase) with double-digit growth forecast until around 2017. Within that market there are also significant changes being experienced: - orders placed via mobile channels (smartphones and tablets) accounted for 34% of UK e-retail sales in Q1 2015 compared to 20% in Q1 2014 (and only 1% during 2010); 1 IMRG 2 Insider Trends 3 Forrester Western European Online Retail Sales Forecast for 2013 to 2018 4 eMarketer December 2014 5 LCP Consulting consumers. Further, non-food retailers are expected to invest approximately £5 billion in making the transition from multichannel to ‘omni-channel’ retailing over the next five years.5 Omni-channel represents the latest evolution of multichannel retailing, whereby retailers offer consumers flexibility not only on the method of order placement (as is the case with multichannel) but also in respect of the choice of delivery destination – for example, the consumer might place an order online and choose to have the order delivered to that retailer’s high street store, or at a Click and Collect site in a third party location, rather than their home address. This development adds even greater complexities to the logistical requirements of retailers. Our customers have seen significant growth in Click and Collect in the year to 30 April 2015. One of our customers commented that, “this [2014] was the year that Click and Collect really came into play with 56% of online orders being collected in shops as opposed to home delivered”. 23 Operating and Financial Review continued 3. Value-added logistics services (continued) Returns management demands of Managing the returns process represents retailers increasingly complex a stock management and processing Returns management is an increasingly challenge for retailers, since traditional important area for retailers. A smooth returns warehouses have been designed to receive process is vital to consumers, with 57% and process bulk quantities of identical saying it is very important to their buying decision.1 It is estimated that 25% to 40% of all clothing and footwear purchases in the UK are returned.2 Historically, customers would return the product to the store where product, rather than to receive individual units of product. Equally, such returned units will inevitably require some degree of inspection, rectification, cleaning or repair before going back into available stock, the purchase was made, but as online retail has developed, customers are demanding or may even be deemed unfit for prime sale. Traditional warehouses are simply not choice in their method of return, for geared up for dealing with such a high level example posting the product back to the of intervention for single products. retailer, or taking it into a high street store or a collection point. Retailers therefore need to rework the product into a saleable state very quickly As a result, retailers are becoming to reduce working capital investment increasingly focused on consumers’ returns and maintain margins. Clipper’s returns experience, just as much as they are on proposition gets the stock back into a consumers’ purchase experience. More Distribution Centre-compliant format so now than ever before, retailers are allowing the Distribution Centre to focus on trying to ensure that returns management its core function of fulfilment. The Group is handled effectively so that their brands has a strong track record of managing this are not damaged by customers using process for customers, including managing social media to comment unfavourably the returns operation for ASOS, the UK’s on their experience. In addition, product leading online fashion retailer. rectification during the returns management process can add value and enhance Further, the power of social media and margin for the retailer. consumer review websites enhances the importance of returns management as the returns experience represents the final touch point between a retailer and the consumer – a badly handled customer experience in respect of the returns process may be quickly communicated by that customer to a large number of people, particularly via social media, which has the potential to harm a retailer’s future sales prospects. 1 Retail Week, March 2015 2 IMRG 24 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 3. Value-added logistics services (continued) Boomerang – Clipper’s returns The acquisition of Servicecare brings We also secured our inaugural reverse management solution additional returns handling capabilities to logistics contract in mainland Europe. To address the latest challenges faced by Clipper. Servicecare specialises in electrical This contract is with s.Oliver in Germany, retailers in relation to returns management reverse logistics, a solution which had, owners of a global fashion brand. Under as outlined above, Clipper has successfully until the acquisition, represented a gap in the contract, Clipper will manage s.Oliver’s introduced the ‘Boomerang’ brand and Clipper’s service offering. The Servicecare European wholesale and retail returns concept, and we are particularly pleased to proposition adds additional capability management service. The operation will report that under Boomerang approximately into our Boomerang brand. We intend to be delivered out of our existing solutions 95% of products have been successfully leverage the Boomerang brand across centres in Münchberg and Hof. This returned to prime stock at first pass. Servicecare’s existing customers and to contract win aligns to our clear strategy to broaden our service offering with existing Clipper customers with the Servicecare develop returns management capabilities in continental Europe to capitalise on our electrical returns proposition going forwards. strengths in this key area. Supplier INBOUND COMPLIANT Warehouse Courier Inbound Retailer DC INBOUND COMPLIANT ENHANCED CUSTOMER CARE BRAND PROTECTION BOOMERANG™ SOLUTION NON COMPLIANT Clipper Returns Centre 25 Operating and Financial Review continued 3. Value-added logistics services (continued) Mechanisation E-fulfilment & returns management growth Whilst we have benefited from the full Mechanisation and semi-automation Our ability and agility, particularly in respect year effect of the ASOS and Go Outdoors is becoming increasingly prevalent in of omni-channel, multi-channel, returns e-commerce contracts won in the year to the market for large volume customers. management and mechanisation noted 30 April 2014, we have also had a number Clipper’s in-house knowledge and skill allows above, have enabled the Group to make of operational successes in e-fulfilment & us to work in a collaborative way with our very significant advances in its revenues returns management services in the year customers to deliver best practice solutions. and earnings, significantly outperforming to 30 April 2015 including: the relocation Clipper is currently working on a number of market growth. Revenues from e-fulfilment of the Tesco online clothing operation from client initiatives, including: & returns management services increased our Selby site to a new site at Daventry - mechanisation of elements of the by 31.5% from £46.0 million for the year to following the securing of a five year Boomerang returns process; 30 April 2014 to £60.6 million for the year to 30 April 2015, with Adjusted EBIT growing extension to our existing contract, the additional space at Daventry allowing Tesco - automated sortation for Click and Collect by 48.0% from £3.7 million to £5.5 million to realise its growth ambitions; the securing services; over the same period. We are particularly of a new contract with ME+EM to provide pleased with this performance, as our multichannel retail logistics solutions for their - vertical carousel for pick by light small strategy has been to become a market range; and securing the s.Oliver returns item; and leader in the e-commerce sector, and management contract. Shortly before the to be a thought leader in the provision of 2015 year end, we also won the contract - automated box creation, carton packing value-added services across the sector. The to provide e-fulfilment services to Zara in and labelling. results of this sector of the business include certain European countries. Operations Servicecare’s results for the five months on this contract commenced shortly after The majority of capital costs on contracts following its acquisition in December 2014. the year end; the full year benefit of this will not be realised until the year to 30 April 2017. Shortly after the 30 April 2015 year end we also commenced warehousing and e-fulfilment services to support Ireland’s largest retailer’s online retail operations in Ireland and the UK. are typically front-loaded and occur in the run up to project ‘go live’. A number of contracts, including Zara, were secured shortly before the 2015 year end and so there were significant capital commitments outstanding at that date totalling £9.4 million (2014: £0.3 million). Customer- specific capital costs such as warehouse fit-out costs are typically recovered through depreciation and finance charges to our customers over the life of the underlying customer contract; speculative space fill capital investment such as adding new mezzanine flooring tends to be recovered from customers when the space is ultimately filled. The majority of capital expenditure is financed through hire purchase agreements. 26 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 3. Value-added logistics services (continued) Non e-fulfilment logistics is central to our - we have reached agreement with John Multi-user operations future strategy too Lewis to provide a range of retail support The Group encourages the use of multi-user The Group will continue to develop and services from a new distribution centre sites, where a multiplicity of customers is deliver truly value-added services to address close to their existing distribution centre served from a single location. the needs of retailers in traditional bricks and network. This activity will commence in the mortar logistics, including receipt of inbound year to 30 April 2017; and This facilitates the sharing of specialised product, storage, store-readiness of product, resources, and assists in optimising and and distribution to retail destinations. - we have secured a new contract with balancing demand on people and The Group will continue to innovate the fashion brand Pep&Co, to provide provide cost-effective solutions. Pepkor UK Retail Limited, the owners of facilities, in turn allowing the Group to to deliver best in class solutions for its customers. warehousing and returns management services commencing July 2015. Revenue from non e-fulfilment operations Investment in key personnel The Group differentiates itself by providing grew by 14.1% for the year ended 30 April Retail consolidation centres consultancy-led, value-added services to 2015, from £89.6 million to £102.1 million, Clipper continues to innovate in retail its actual and prospective client base. We with Adjusted EBIT increasing by 9.8%, from consolidation centres, which allow multiple have established ourselves as a thought £9.2 million to £10.1 million. deliveries to be made to retail outlets leader within the logistics sector, and from a single, localised centre, providing this is evidenced both by our customers’ Within non e-fulfilment, the full year effect benefits in: buy-in to our innovative approach, and of the Antler and SuperGroup contracts, - retail space availability, as the need for by independent brand health reviews which both commenced in the year to on-site stock rooms is obviated; conducted by an independent market 30 April 2014, contributed to the revenue research consultancy. and Adjusted EBIT growth in the year to 30 - a wider range of stock being available to April 2015. We also secured and began the end customer; and The Group is central to the achievement by operations under new long-term contracts its customers of their own objectives and with Philip Morris and Ted Baker in the - reduced emissions, of increasing goals. UK and we secured long-term contract importance in city centres in particular. extensions: with Harvey Nichols, principally Accordingly, we invest in recruiting, training for warehousing and store delivery, with Indeed, Clipper’s and Newcastle University’s and developing people who are specialists New Look to fulfil their store delivery and Smartfusion initiative to reduce the number in their relevant fields. These include collection requirements; and with Whistles of delivery vehicles on campus and to cut information technology, solution design, to continue to manage the receipt and distribution of its entire product range to the carbon footprint won two prestigious awards: the “outstanding procurement facilities specification, implementation and management, e-commerce and returns customers worldwide. team” award at the Times Higher Education management, and project management Leadership and Management Awards and implementation resource. Additionally, in the year to 30 April 2015: 2015 and the Newcastle University “Best - we have agreed a new contract with Environmental Initiative” award. Flyers Group plc, the owners of the Ben Sherman and Firetrap brands and specialists in fashion for children and teenagers, for warehousing and transport services commencing May 2015; 27 Operating and Financial Review continued 4. Commercial vehicles The commercial vehicles business delivered The business achieved a number of Adjusted EBIT of £1.9 million (2014: £1.8 important key performance measures in million), an increase of 2.1% on the the year: previous year. - Assistance Non-Stop: Northern Commercials achieved the best Having fully integrated Stormont Truck and response time of all Iveco dealers in the Van Limited into Northern Commercials in UK, averaging 39.0 minutes to arrive to the year to 30 April 2014 and rationalised provide assistance to breakdowns; the cost base of the two businesses, the year to 30 April 2015 was back to ‘business - Vehicles Off-Road: Northern Commercials as usual’. was the number one dealer, with an average of 2.4 days off-road for repairs, Northern Commercials operates from compared to an Iveco average of six dealership locations, and has four 2.7 days; sub-dealers. Dealerships are located in Brighouse, Manchester, Northampton, - MOT pass rate: 98% of vehicles achieved Dunstable, Tonbridge and Brighton. Thus, an initial pass; and the business operates across the north of England and Wales (with sub-dealers - parts service: 97% of parts required by supporting this geographic territory), through customers were delivered within 24 hours. the midlands, and into the south-east. The business sold 1,810 new vehicles in the year (2014: 2,447), and 470 used vehicles (2014: 416). New fleet sales were somewhat depressed in calendar year 2014 due to the impact of Euro 6 emissions legislation. However, due to a change in mix of vehicles sold, the average selling price of a new vehicle sold in the year to 30 April 2015 was £23,000 compared to £14,000 in the prior year, an increase of 47.4%. Servicing and parts sales saw significant increases in revenue between the year to 30 April 2014 and the year to 30 April 2015, with incremental technicians being recruited to cope with the increasing demand. Key customers of Northern Commercials include Allied Bakeries, Asda, Clancy Docwra, Dawsons, Ryder, Variety (the Children’s Charity), and many other household names. 28 Clipper Logistics plc Annual Report and Accounts 2015 Operating and Financial Review continued 5. Current trading and outlook As noted above, the Group secured a Our new Click and Collect solution, recently number of significant contract wins in the announced in collaboration with John year to 30 April 2015, the full year benefit of Lewis, is planned to go live in September which will not be realised until the years to 2015, and is expected to generate a strong 30 April 2016 and 30 April 2017. financial contribution from the year ending 30 April 2017 onwards. As we look ahead to the 2016 financial year, we have a very strong new business The commercial vehicles business is pipeline. We continue to win new contracts expected to continue to deliver steady within both e-fulfilment logistics and non growth in profitability in the year to 30 e-fulfilment logistics, both in the UK and Europe, through our focus on our retail April 2016. specialisms and provision of cost-effective, The Board is confident in the Group’s value-added solutions. We look forward prospects for the full year ahead. Current to updating shareholders on these new trading is in line with our strategic plan, and contracts when they are formalised. we are confident of achieving another period of excellent financial performance in Since the year end, we have commenced the year to 30 April 2016. operations on the new Pep&Co and Zara contracts, and have also commenced operations for Flyers and for Ireland’s largest retailer. Our returns management service, marketed under the ‘Boomerang’ brand, continues to gain traction with retailers in both the UK and Europe, particularly with the added service offering of Servicecare, and we are confident that this represents a major area of growth going forward. The full year impact of the Servicecare acquisition, completed in December 2014, will also provide revenue and Adjusted EBIT growth in the year to April 2016. 29 Risk Management The Group adopts a formal risk identification and management process designed to ensure that risks are properly identified, prioritised, evaluated and mitigated to the extent that is possible, in order that the Group can achieve its strategic objectives and enjoy long-term success. Risk management process The Group adopts the following process: The Board and senior management team are collectively responsible for managing risk across the Group. Risks are formally reviewed regularly and risk registers are updated at least four times a year. Principal risks are identified through an evaluation of likelihood of occurrence and potential impact. The senior management team (“SMT”) also reviews specific strategic, operational and financial and compliance risks in regular SMT meetings, contract and project reviews and other key executive management meetings to enable the SMT and the Board to ensure that the Group’s systems are properly aligned with strategic objectives and address the Group’s risks. 1. Identify risk: Identify key risks by category (including changes since the last review) 5. Review, monitor and report risk management process: Review and monitor risk management process, and report to Board and Audit Committee 2. Rate risk: Rate each risk (by evaluating and assigning a score to each risk) 4. Execute risk mitigation: Execute agreed risk mitigation and process improvements 3. Identify risk mitigation: Identify mitigating actions required for each risk 30 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Risk Management continued Risk management process (continued) The Group has identified the following key risks through its risk management process: Strategic: Risk Mitigation Reputation Clipper’s potential to win new business is influenced by its reputation for successfully implementing major customer projects. Reputational damage from failed project implementations may have an adverse impact on Clipper’s ability to win new business, and thus limit the Group’s long- term growth and success. People Failure to develop and retain key staff may prevent the Group from delivering its objectives. Clipper has developed effective project management and governance techniques and continues to ensure that the Company works closely with customers using highly trained and experienced internal staff, to ensure successful project delivery. All projects are reviewed and evaluated on a weekly basis by the relevant SMT members. In addition, independent ‘Brand Health’ reviews are undertaken regularly to monitor customer perception of, and satisfaction with, the Company. The Group offers comprehensive training and experiential learning which includes development, customer relationship and leadership training. The Group keeps in close contact with employees via flat structures and effective employee engagement. The Group also ensures that it has competitive terms and conditions with reward schemes which drive and reward performance and can respond flexibly to the needs of employees. 31 Risk Management continued Risk management process (continued) The Group has identified the following key risks through its risk management process (continued): Operational: Risk Mitigation Loss of operational delivery During periods of major project and merger activity, the focus could move away from operational delivery, thus harming the Group’s relationships with customers. Dedicated start-up and project teams are used in order to minimise disruption to the operation during such times. Contractual KPIs are reviewed regularly to ensure operational effectiveness at all times. Failure to achieve contractual KPIs Failure to achieve contractual KPIs may result in the loss of existing contracts. Reporting measures are in place to measure contractual KPI performance of each contract in a timely manner, to ensure compliance, or to allow immediate corrective action. Failure to maintain and enhance customer relationships Failure to maintain and enhance customer relationships may lead to the non-renewal of contracts, and/or may prevent the Group from winning new work with existing customers. Loss of an operational site through disaster Loss of an operational site as a result of fire, flood or other disaster would have the potential to seriously disrupt operations. Failure of IT system or infrastructure Any significant failure, inefficiencies or breakdown of our IT systems or infrastructure would seriously impair our ability to deliver operationally and would put contract renewals at risk. The Group holds formal monthly reviews with key customers as well as maintaining frequent close informal contact with customers. This enables corrective action to be taken quickly in response to customer feedback. In addition, regular brand health reviews are carried out which give customers the opportunity to comment anonymously on any aspect of the customer/company relationship and service delivery. The Group can then take corrective action, if required, based on this feedback. Regular safety audits and inspections and remedial action seek to limit this risk. In the event of a serious incident, each site has a business continuity plan which would come into immediate operation. Business continuity and disaster recovery plans are kept under review at all locations and our IT infrastructure is subject to ongoing review with regular testing of systems. 32 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Risk Management continued Risk management process (continued) The Group has identified the following key risks through its risk management process (continued): Legal and Regulatory: Risk Mitigation Legal and regulatory As the Group continues its expansion, particularly in the EU, exposure to greater regulatory and legal risk will increase. Financial: Risk Liquidity Inadequate cash resources could leave the Group unable to fund its growth plans, thus affecting future financial performance. Credit risk Customer default or insolvency could result in a bad debt. The Group has taken steps to improve its in-house legal and compliance resource by the recruitment of Guy Jackson as Company Secretary and Group General Counsel. Operational sites are audited on a frequent, cyclical basis to test for instances of non- compliance. External specialist advice is sought to ensure technical compliance with financial, taxation, listing and other technical legislation. Individuals responsible for compliance are identified and are specifically recruited with recognised qualifications. Employees’ technical Continuing Professional Development course costs are reimbursed by the Group. Mitigation As part of the IPO process, the Group undertook an assessment of its funding requirements in the context of its growth plans, and entered into new facilities with its bank to ensure that expected future growth plans can be funded within these new facilities. The Group will continue to undertake further reviews of funding requirements as its growth plans evolve. Credit checks are performed on all new potential customers, and credit terms and limits are set accordingly. These are reviewed regularly, and adjusted if necessary. Standard terms of trade give the Company a general lien on the customer’s stock for amounts owed. Where customer contracts negate the Company’s standard terms, protections against non-payment of amounts due are written into the contract. Fraud risk Major fraud, including the risks posed from organised crime, may result in significant financial loss. Our accounting procedures manual includes several layers of checking and control for new customers and suppliers, changes to suppliers’ bank details, and combinations of verbal and written confirmations from known contacts. Formal whistleblowing and anti-bribery policies are in place. 33 Corporate Social Responsibility The Group recognises the importance of to improve management skills, keep To encourage a greater number and higher Corporate Social Responsibility (“CSR”), and managers abreast of developments in calibre of students to enter the logistics our impact on the environment and our the industry and enhance the succession sector we have partnered with people, their development, commitment planning pipeline. Huddersfield University. and relationships with our customers, the community and other stakeholders are The Group has continued its investment As a founding member of the Novus central to our plans. in additional project delivery and senior Trust we continue to support this initiative management resource in order to deliver aimed at encouraging high calibre significant organic growth into the future. students to enter the Logistics Sector. We People development At every level we provide excellent have attended graduate recruitment fairs, participated in assessment centres, opportunities for our employees. We provide Employee engagement provided industry mentors, offered students unemployed people in local communities To encourage employees to give us their structured holiday jobs, and under this with the opportunity for training, best we aim to provide a competitive level scheme are employing our first two twelve qualifications and jobs via our Clipper of pay and other benefits relative to job and month work placements. As students Academy programmes. Existing employees skill level, including the provision of retail progress through their degree course we develop via driver CPC qualifications, discount schemes, company contribution to expect to employ our first post-initiative NVQs, apprenticeship and Potential Team a pension scheme and life/accident cover. full graduate trainees in 2017. Development Programmes. We encourage alignment with Group goals Our staff can then apply to join our via open communication and appraisals. Community events Corporate First Line and Middle We have an annual conference for our At both corporate and local level we Management Levels 2 and 3 ASPIRE senior staff, site employee forums, health actively encourage our sites to participate Programmes. Interest in the programme and safety committees, team briefs, our in good causes through direct funding, increased by 30% from the previous Company newsletter ‘Evolve’ and highly provision of resource and/or encouraging year and is recognised as an excellent visual notice boards. development tool improving skill levels and our employees to organise fundraising events. We again sponsored the Dragon creating a robust succession pool. We also We recognise employee contribution and Boat Race for Martin House, cycle rides for support relevant professional qualifications loyalty via our Employee of the Month Transaid and many site events for Children across a range of disciplines e.g. operations Scheme, Driver of the Year Award and Long in Need, Red Nose Day, Cancer Research (CILT), Finance (ACCA/CIMA) and HR (CIPD). Service awards. and local charities. In order to improve succession planning We encourage team working by involving We support various local forums and and to develop high performance teams, 2015 will see the launch of a new online employees in open days and inter-site competitions, as well as organised themed sponsor community activities such as a children’s football team. performance management system. This events on special occasions. will focus on objectives and values. It will improve the quality of management information enabling more informed Schools and universities decisions for identifying talent and targeting Many of our distribution centres network training and development opportunities. with local schools and colleges to offer 2015 will also see the launch of a new is represented on the Employer Liaison in-house Senior Leadership Development Committee of the Logistics Institute of Hull Programme. This will operate at two levels – University. site visits or support career events. Clipper providing strategic leadership capabilities whilst also providing a diverse range of other leadership development initiatives 34 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Corporate Social Responsibility continued Equal Opportunities Health and safety The Group is committed to an Equal The Group seeks to protect employees Opportunities Policy. Supported by training, from accidents and injuries at work. Our policies and our 5 Point Code of Behaviour health and safety structure is supported by we aim to ensure that no employee is IOSH/NEBOSH qualified representatives and discriminated against, directly or indirectly, Health and Safety Committees at each site. on the grounds of colour, race, ethnic and Each site receives at least two safety audits national origins, sexual orientation or gender, each year. Serious incidents are escalated marital status, disability, religion or belief, or and accident statistics are monitored. on the grounds of age. The aforementioned Accidents are reported and investigated. is included in our staff handbook, induction Health and safety matters are reported and training and various management monitored at Board level. programmes (including ASPIRE). Health and safety training is prevalent The above is reflected in our truly diverse throughout the business – from initial workforce. We are happy to consider induction training, through risk assessed requests for flexible working and wherever task training (e.g. manual handling, fork possible will agree shift patterns which lift truck and work equipment training) to facilitate a balance between work and management awareness programmes. family life. We are also a member of the training provider to deliver ‘safe to start’ The Company partners with an external Disability Forum. training at all newly opened sites to ensure staff are fully inducted and receive the aforementioned training prior to taking up their full duties. Gender breakdown as at 30 April 2015: Male Female Total Male% Female% Board of Directors Other Senior Management* Other employees 8 13 1,984 0 1 1,162 8 14 3,146 Total 2,005 1,163 3,168 100 93 63 63 0 7 37 37 * As defined by the Companies Act this category includes all employees responsible for planning, directing or controlling the activities of the Group, excluding the Company’s Directors. 35 Corporate Social Responsibility continued Environment - we promote environmental awareness via We recognise the Group’s activities have training, including training van and LGV an impact on the environment but we drivers in Safe and Fuel Efficient Driving believe we can improve our environmental using the latest simulator technology, footprint and save energy. This is important which in turn avoids fuel use associated to both the Group and our stakeholders. with the training; and To reflect this we have employed a Health, Safety and Environmental Advisor to provide - we encourage employees to use ‘green’ additional resource to further develop transport. Our company car lists offer the our agenda. Our Carbon Management Reduction Programme complies with the Carbon use of newer, lower emission vehicles and our sites promote the use of car sharing. Reduction Commitment (CRC) Energy Greenhouse gas (GHG) emissions Efficiency Scheme and the Energy Savings The Group records energy and fuel use for Opportunity Scheme (ESOS) which between all areas of the business, based on invoices them aim to reduce energy consumption received for diesel, gas oil, mains electricity and emissions of greenhouse gases from and natural gas. Fuel used for business our warehouses and transport fleets. travel in company vehicles is also included. To this end: The Group uses the average monthly price - we are applying the latest environmental per litre to convert the diesel, heating oil, standards as and when we upgrade our and vehicle fuel costs into litres of fuel used. estate; - we are investing in low energy lighting and testing the advent of LED lighting; - we are investigating the use of warehouse roof space for solar panels; The kilowatt hours of gas and electricity used, and the litres of each fuel type used, are then converted into tonnes of CO2 equivalent (tCO2e) using the relevant DEFRA conversion factors. In the year to 30 April 2015, despite - we investigate fuel use, route planning increased revenue and the acquisition of and best design of vehicles across the Servicecare, the Group reduced its Scope 1 fleet to become more efficient and minimise emissions. We participate in emissions (emissions derived from the consumption of gas, oil, and vehicle fuel). the ECO Stars Fleet Recognition Scheme This was as a result of lower diesel usage which recognises fleet operators who use due to, inter alia, better utilisation of our lower polluting vehicles and effective fuel out-bases, the increased use of double management – becoming the first multi- deck trailers to reduce trunk movements, regional member of this scheme; the movement of a customer from a dedicated fleet to a shared user fleet, and ongoing fuel efficiency programmes. 36 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Corporate Social Responsibility continued Greenhouse gas (GHG) emissions (continued) The following table shows a summary of GHG emissions for the Group Emissions (tonnes CO2e) Year to 30 April 2015 Year to 30 April 2014 Scope 1 Scope 2 Total emissions Emissions per £m of revenue 24,757 9,224 33,981 144.7 24,798 7,226 32,024 159.1 Scope 1 (direct) GHG emissions are derived from the consumption of gas, oil, and vehicle fuel Scope 2 (electricity indirect) GHG emissions are derived from the consumption of purchased electricity. The 2015 figures above include emissions from Servicecare for the five month period following its acquisition. Waste recycling CSR policy The Group considers the best use of The Group recognises the importance of raw materials using recycled/recyclable environmental protection and is committed products where applicable. Waste is sorted to conducting business ethically, responsibly into plastics, paper/cardboard, wood and in compliance with laws, regulations and metal. It is then recycled, reused or and codes of practice applicable to our compacted on site. Commercial business activities. The CSR and related policies are reviewed and amended where appropriate. Wherever possible we work with our Approved by the Board and signed customers to build environmental on its behalf by: considerations into our recommended solutions. This is particularly evident with David Hodkin our pioneering retail consolidation centres Chief Financial Officer which greatly reduce final mile deliveries, 27 July 2015 congestion and associated emissions when delivering to shopping centres. To further support this initiative we have invested in three electric 7.5t vehicles. 37 Clipper Logistics plc Annual Report and Accounts 2015 Governance 38 Clipper Logistics plc Annual Report and Accounts 2015 39 Board of Directors The following table lists the names, positions and dates of birth of the current members of the Board: Name Position Steven (Steve) Nicholas Parkin Antony (Tony) Gerard Mannix David Arthur Hodkin Sean Eugene Fahey Paul Nigel Hampden Smith Stephen Peter Robertson Ronald (Ron) Charles Series Michael (Mike) John Russell Executive Chairman Chief Executive Officer Chief Financial Officer Chief Information Officer Senior Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Date of Birth 17 December 1960 1 August 1963 14 February 1961 28 March 1970 1 December 1960 17 November 1954 27 August 1951 19 January 1951 The business address of each Director is Gelderd Road, Leeds, West Yorkshire LS12 6LT. Steve Parkin, Executive Chairman Tony Mannix, Chief Executive Officer David Hodkin, Chief Financial Officer Steve, a fashion logistics specialist, founded Tony was appointed Chief Executive Officer David joined the Group as Group Chief the Group in 1992. As Executive Chairman, of the Group in May 2014. Tony joined Financial Officer in 2003. David has held a Steve is responsible for the strategic Clipper in 2006 as Managing Director of the variety of board level roles prior to joining direction of the Group. Steve has extensive UK logistics division. Tony has over 25 years’ Clipper, including Group Finance Director experience of retail logistics particularly in experience in the logistics sector, and has of Symphony Group plc, Finance Director fashion. He holds and pursues strategic held a number of senior roles with Roseby’s of Kunick Leisure Limited, and a number level discussions with major retailers. plc (which became part of Homestyle of senior roles in Magnet Limited. David In addition, Steve drives the Group’s Group plc) becoming Logistics Director. is a member of the Chartered Institute of acquisition strategy. Steve is the chairman Tony has particular experience of operating Management Accountants. of the Nomination Committee. in complex retail logistics environments, including the design and specification of both distribution centres and warehouse management systems. Tony began his career in logistics with the Burton Group, after working in the construction industry following his graduation with a degree in Architectural Engineering. Sean Fahey, Chief Information Officer Sean joined Clipper in 1992, initially as the director responsible for accounting and IT. Sean has extensive experience of designing 40 Clipper Logistics plc Annual Report and Accounts 2015 Board of Directors continued Sean Fahey, Chief Information Officer (continued) and implementing complex logistics solutions, based on many years of direct operational management experience, which complement his skills as an IT specialist. As the Group has grown, Sean has held positions of Development Director, Project Director, and now has responsibility for the IT, projects and implementation Strategic Report | Governance | Financial Statements by 3i and UK-listed companies such as Davies and Newman plc and LEP Group plc. Most recently, he has held executive positions at iSOFT Group Limited (listed on the Australian Securities Exchange), SIAC Group and Viridian Group and was involved in the successful restructuring of Nakheel PJSC, the real estate arm of Dubai World. Ron is a member of the Remuneration Committee and the Nomination Committee. functions as Chief Information Officer, Stephen Robertson, Independent Non- along with his responsibilities on the Board. Executive Director Stephen joined the Group as Non-Executive Director on 16 May 2014. Stephen has many years of experience in the retail industry and has held executive positions at Kingfisher plc, WH Smith plc and Woolworths Group plc. Stephen was previously a director of the British Retail Consortium and is currently an Advisory Board Member of Retail Week. Stephen’s current non-executive directorships include Mike Russell, Independent Non-Executive Timpson Group plc and Hargreaves Lansdown plc. Stephen is a member of the Audit Committee. Paul Hampden Smith, Senior Independent Non-Executive Director Paul joined the Group as Senior Independent Non-Executive Director on 16 May 2014. Paul retired from his role as Group Finance Director of Travis Perkins plc in 2013, following 25 years with the group. During that time, the group enjoyed tenfold growth and Paul oversaw a significant number of acquisitions ranging from £1 million to £1 billion in size. During the last ten years, Paul has held non-executive directorships on the boards of DX Services Director Mike Russell was appointed Non-Executive Director of Clipper’s former parent company with effect from 3 January 2011, and was appointed Non-Executive Director of the Company on 16 May 2014. He qualified as a Chartered Certified Accountant with a subsidiary of Imperial Chemical Industries, following which he held the position of Finance Director of a subsidiary of Allied Lyons plc. He joined Asda Stores Limited as Chief Accountant in 1986 and subsequently became Finance Director of the Stores Division. He was plc, Redrow plc, Bellway plc and Pendragon Ron Series, Independent Non-Executive appointed Group Finance Director of Nurdin plc. Paul was also appointed as Chairman Director & Peacock plc, a FTSE 250 company, in of the Audit Committee in each of these Ron joined the Group as Non-Executive early 1996 prior to the sale of the business non-executive roles. Paul is the chairman of Director on 16 May 2014. Over the past to Booker plc. From 1997 to 2011 he was the Audit Committee and is a member of 20 years, Ron has held executive and an executive director of Prize Food Group, the Remuneration Committee. non-executive positions with a number of a private equity-backed business, initially as companies with international operations in Group Finance Director and, from 2005, as transport, logistics, shipping, real estate and Chief Executive Officer. Mike is chairman information technology. Included among of the Remuneration Committee and a them are Tuffnells Parcels Express Limited member of the Audit Committee and the where he was chairman during its ownership Nomination Committee. 41 Corporate Governance Report Chairman’s introduction It was important for a solid governance continue to develop, implement and structure to be established in our first maintain good corporate governance Dear Shareholder, year as a listed Group, so that we had a practices and processes within the Group. framework of effective systems of internal The Board has considered the reporting Following the admission of the Company’s control, to support and protect our business requirement that the annual report as shares to the premium listing segment of in a practical way whilst promoting a solid a whole should be ‘fair, balanced and the Official List maintained by the Financial structure for us to report to our shareholders. understandable’ and asked the Audit Conduct Authority and to trading on the It was also important that the independent Committee to give assurance that the London Stock Exchange (IPO) on 4 June Non-Executive Directors who joined us at relevant systems and processes are in 2014, I am pleased to be able to present flotation gained an understanding of our place to support that requirement. the Company’s report on Corporate key businesses and our short and long-term Details can be found in the Audit Governance within the Group which strategic goals. Committee Report on pages 51 to 54. includes the Group’s first eleven months’ trading since Admission. An induction programme has been in Open and frequent communication with place to ensure that this is happening, our shareholders is very important to us Before completion of the IPO, we carried and a ‘strategy day’ is planned for the and, since the IPO, our investor relations out a thorough review of the existing current calendar year to provide a valuable programme has been led by me together governance structure of the Group with opportunity for Board members to further with the Chief Executive Officer and Chief various advisers including DWF LLP and review and discuss the objectives and Financial Officer with support from other Ernst & Young LLP in their role as reporting goals of the businesses directly with the members of the senior management accountant. This helped us identify any management team. This is intended to be team when needed. We have also been steps we needed to take before the IPO an annual event. to ensure the business would operate supported by the Company’s retained financial PR advisers, Bell Pottinger, and our within the applicable rules and principles. The Board, under my leadership, has corporate brokers, Numis Securities, who It also enabled the Directors to confirm played a fundamental part in deciding on help organise presentations and visits to the that the Group has procedures in place the direction of the business and in ensuring Group’s operations and sites for analysts which provide a reasonable basis for the that the Group has the appropriate and shareholders. Board to make proper judgements on a strategies, structures and processes in continuing basis as to the financial position place to ensure good governance and The Board recognises, understands and and prospects of the Group. stewardship, and to facilitate future growth. is committed to the high standards of corporate governance across the Group The establishment of the Audit, that are expected of all premium listed Remuneration and Nomination Committees companies. The report which follows (the “Committees”) at the IPO was key in this respect. Since the IPO we have also describes how, following the Group’s Admission on 4th June 2014 and for the established a Disclosure Committee and, remainder of the year ended 30 April 2015, in addition, an Executive Committee of the the Group complied with the principles and Board. We have worked hard to ensure that provisions of the UK Corporate Governance the terms of reference of the Committees Code 2012 (the “Code”). have provided strong governance structures. There is more on the Company’s principal The Group’s corporate governance risks on pages 30 to 33 and its system of structures were further strengthened in internal controls on pages 53 and 54. February of this year by the appointment of Guy Jackson (formally a partner at DWF Steve Parkin LLP) as Group General Counsel, who also Executive Chairman took on the role of Company Secretary. Amongst other things, Guy’s role is to 42 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Corporate Governance Report continued Compliance with the UK Corporate The role of the Board The Board has adopted a formal schedule Governance Code 2012 The Board consists of four Non-Executive of matters reserved for its approval and has The Board recognises the importance of Directors and four Executive Directors. delegated other specific responsibilities to high standards of corporate governance Biographies and profiles of all members of its Committees. The formal board agenda and is committed to managing the Group’s the Board appear on pages 40 and 41. currently includes regular reports from the operations in accordance with the Code Chief Executive Officer, the Chief Financial and the 2014 version of the Code which The Board is responsible for leading and Officer and the Chief Information Officer on will apply to financial years beginning on or controlling the Group and has overall the operational and financial performance after 1 October 2014 (the “2014 Code”). authority for the management and of the Group together with regular feedback A full version of the Code can be found on conduct of the Group’s business, strategy from the Non-Executive Directors on their the Financial Reporting Council’s website and development. The Board is also engagement with the business. It also www.frc.org.uk. The Company complied responsible for ensuring the maintenance includes a rolling agenda of other key with all of the provisions of the Code of a sound system of internal control and operational, strategic, governance and risk throughout the year ended 30 April 2015, risk management (including financial, topics which is regularly updated to ensure except for provisions A.2.1, A.3.1, A.4.2 operational and compliance controls and the Board is responsive to the operational and E.1.1. The Group has also adopted for reviewing the overall effectiveness of and strategic issues affecting the business. elements of the 2014 Code in relation to systems in place) and for the approval of The Board does not delegate key strategic, remuneration and the long-term success any changes to the capital, corporate and/ operational and financial issues or other of the Company, minimum number of or management structure of the Group. matters specifically reserved to the Board. shares to be held and clawback/malus. This demonstrates that the Remuneration The Code indicates at A.4.2 that the Committee supports the changes in the chairman should hold meetings with non- 2014 Code. executive directors without the executive directors present. Since Steve Parkin as This Report, which incorporates reports from Executive Chairman also has an executive the Nomination and Audit Committees on function, he has not met with the Non- pages 50 to 54 together with the Strategic Executive Directors as a group without the Report on pages 6 to 37, the Directors’ other Executive Directors present, but the Remuneration Report on pages 56 to 73 Senior Independent Director has done so. and the Directors’ Report on pages 74 to 78, The Chairman does meet with individual describes how the Company has applied Non-Executive Directors on a one to one the relevant principles of the Code. basis from time to time (including the Senior Independent Director) at which meetings Board performance and other appropriate matters are discussed. The Chairman has also discussed the Board evaluation review with the Senior Independent Director without the other Executive Directors present. The Board delegates to management the day-to-day running of the business within defined risk parameters. Board meetings are scheduled to coincide with key events in the corporate calendar and this includes the interim and final results and annual general meeting. 43 Corporate Governance Report continued The following matters (amongst others) were considered or dealt with at Board meetings during the year: Strategy and Management Financial & Contracts Governance - approve strategic initiatives and plans, including acquisitions; - competitor activity review; - European strategy review; - dividend policy; - review of contract performance; - risk review; - Black Friday performance; - legal and governance updates; - financial review; - approve capital projects and contracts of material importance; and - approving process of training of Persons Discharging Managerial Responsibility (“PDMRs”) and senior management on various regulatory matters; - growth strategy; and - review of IT support. - post-IPO review; - health & safety record. - Board and committee evaluation; - Disclosure Committee formation and terms of reference; and - formal establishment of Executive Committee and terms of reference. All Directors have access to the advice and services of the Company Secretary who has responsibility for ensuring compliance with the Board’s procedures. All Directors have the right to have their opposition to or concerns over any Board decision noted in the minutes. The Board has adopted guidelines by which Directors may take independent professional advice at the Company’s expense in the performance of their duties. 44 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Corporate Governance Report continued Information, meetings and attendance In the period between completion of the IPO and the end of this year, the Board held nine meetings and various Board committee meetings were also held with attendance as follows: Director Role Steve Parkin Executive Chairman Tony Mannix Chief Executive Officer David Hodkin Chief Financial Officer Sean Fahey Chief Information Officer Paul Hampden Smith Senior Independent Director Ron Series Non-executive Director Stephen Robertson Non-executive Director Mike Russell Non-executive Director Board Meetings Audit Committee Meetings Remuneration Committee Meetings Nominations Committee Meetings 9/9 9/9 9/9 8/9 9/9 9/9 9/9 9/9 1/1 1/1 1/1 4/4 4/4 4/4 1/1 1/1 1/1 The Board has a full programme of Board meeting for any reason, they nonetheless Board Committees meetings planned for 2015 and 2016. At receive the relevant papers and are Subject to those matters reserved for these meetings, the Board will review the consulted prior to the meeting and their its decision, the Board has delegated Group’s long-term strategic direction and views made known to the other Directors. to its Nomination, Audit, Remuneration, financial plans and monitor on a regular basis the Group’s performance against an agreed strategy and business plan. Conflicts of interests Disclosure and Executive Committees certain authorities. There are written terms of reference for each of these Committees, In line with the requirements of the available on request from the Company In addition, the Board will agree key Companies Act, each Director has notified Secretary. The Executive Committee and objectives for the Group on an annual basis and will then monitor performance against the Company of any situation in which he or she has, or could have, a direct or Disclosure Committee have only recently been formed. Separate reports for each of these objectives. indirect interest that conflicts, or possibly the other Committees are included in this may conflict, with the interests of the Annual Report and Accounts from pages The Chairman is responsible for ensuring Company (a situational conflict). These were 50 to 73. that the Directors receive accurate, considered and approved by the Board in timely and clear information. Prior to accordance with the Company’s Articles of each scheduled Board meeting, a pack Association and each Director informed of is circulated in respect of each financial the authorisation and any terms on which it period, which includes an update on key was given. The Board has formal procedures performance targets, trading performance to deal with Directors’ conflicts of interest. against budget and includes detailed The Board reviews and, where appropriate, financial data and analysis. Board packs approves certain situational conflicts of are generally distributed seven days prior to interest that were reported to it by Directors, each meeting to provide sufficient time for and a register of those situational conflicts Directors to review their papers in advance. is maintained and will be reviewed by the If Directors are unable to attend a Board Board going forward. 45 Corporate Governance Report continued Role of the Executive Chairman certain responsibilities which go beyond and Chief Executive those contemplated in the Code, notably The Board is chaired by Steve Parkin who in relation to the conduct of the Board is Executive Chairman. The Executive evaluation process. Chairman is responsible for the effective leadership of the Board, having regard for the interests of all stakeholders and Role of the Senior Independent Director promoting high standards of corporate The Code recommends that the Board of governance. Tony Mannix is the Chief Directors of a Company with a premium Executive Officer and is responsible for listing on the Official List should appoint implementing the Board’s strategy and one of the Non-Executive Directors to be leading the senior management team. the Senior Independent Director to provide The role is distinct and separate to that of a sounding board for the Chairman and Executive Chairman and clear divisions of to serve as an intermediary for the other accountability and responsibility have been Directors when necessary. The Senior agreed by the Board. Independent Director should be available to shareholders if they have concerns which The Code recommends that the roles of contact through the normal channels of the chairman and chief executive should not Chairman, CEO or other Executive Directors be exercised by the same individual. The has failed to resolve or for which such division of responsibilities between the contact is inappropriate. chairman and chief executive should be clearly established, set out in writing and Paul Hampden Smith has been appointed agreed by the board. During the year to 30 Senior Independent Director. April 2015, the Company was not compliant with the provisions of A.2.1 of the Code for The Code indicates (at E.1.1) that the the period 1 May 2014 to 30 May 2014, due Senior Independent Director should to the roles of chairman and chief executive attend meetings with a range of major both being carried out by Steve Parkin. shareholders to listen to their views in order to help develop a balanced understanding The Code also recommends that the of their issues and concerns. Whilst the chairman of the board should meet the Senior Independent Director (and the other independence criteria set out in the Code Non-Executive Directors) are available to on appointment. Steve Parkin acts as Executive Chairman and, as detailed in meet with shareholders to discuss issues and concerns, no such meetings have the Prospectus, is not independent, having been requested. Notwithstanding this, been the Executive Chairman prior to the we have maintained dialogue with our IPO. Whilst the Board recognises that this is major shareholders and, overall, the Board not in full compliance with the provisions of believes that appropriate steps have A.3.1 of the Code the Board believes that been taken throughout the year to ensure Steve Parkin’s experience and knowledge of that members of the Board, including the Group justifies his continued appointment the Non-Executive Directors, develop as Executive Chairman. Steve is responsible an understanding of the views of major for the leadership and overall effectiveness shareholders. These steps include receiving of the Board and setting the Board’s feedback on shareholder meetings and agenda. Paul Hampden Smith, our Senior analysts’ and brokers’ briefings on a Independent Director, has also had regular basis. 46 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Corporate Governance Report continued Board balance and independence to the Board on any new legal, regulatory Election of Directors The Code recommends that at least and governance developments that affect The Board can appoint any person to be half the Board of Directors of UK listed the Group and, where necessary, actions a Director, either to fill a vacancy or as an companies, excluding the chairman, are agreed. External lawyers have provided addition to the existing Board provided should comprise Non-Executive training to the executive Directors on the that the total number of Directors does not Directors determined by the Board to be Company’s share dealing code, insider exceed twelve, the maximum prescribed independent in character and judgement dealing and other regulatory matters. This in the Company’s Articles of Association. and free from relationships or circumstances is supplemented by advice and training Any Director so appointed by the Board which may affect, or could appear to provided on certain matters by the shall hold office only until the next following affect, the director’s judgement. Company Secretary. Further training and annual general meeting and shall then be updates are to be provided to the Non- eligible for election by the shareholders. The Board regards all of the Non-Executive Executive Directors in 2015. Directors as Independent Non-Executive Directors within the meaning of the Code In accordance with the Articles of Association, at every annual general and free from any business or other Board evaluation meeting of the Company one-third of the relationship that could materially interfere The effectiveness of the Board is essential to Directors or the number nearest to but not with the exercise of their independent the success of the Group. During the year less than one-third shall retire from office. judgement. The Board believes that an evaluation process was developed and The Directors to retire shall be first those the current directorate will enhance implemented. The evaluation process was who wish to retire, and then those who considerably its ability to develop the based on a series of questions devised for have been longest in office since their last Group’s operations. the purpose by the Senior Independent appointment or re-appointment. When Director and the Company Secretary and a Director retires at an Annual General circulated to the Directors. The process Meeting in accordance with the Articles, the Role of the Company Secretary reviewed issues such as: the assessment Company may, by ordinary resolution at the Guy Jackson is the Company Secretary. and monitoring of the Company’s strategy; meeting, fill the office being vacated by re- The role of the Company Secretary is to the mix of knowledge and skills on the electing the retiring Director. If the Company develop, implement and maintain good Board; succession; and the effectiveness does not fill the vacancy at the meeting, corporate governance practices. This of the Board and the Directors. Separate the retiring Director shall nevertheless be includes supporting the Chairman and questionnaires were devised for each of deemed to have been re-elected, except Non-Executive Directors as appropriate, the Audit, Remuneration and Nomination in the cases identified by the Articles. The managing Board and Board Committee Committees, and circulated to Committee Company intends to continue this practice meetings, ensuring that appropriate levels members. The results were collated by but will review it regularly. of directors’ and officers’ insurance is in the Company Secretary and considered place and that the Group is compliant with statutory and regulatory requirements. by the Senior Independent Director. The performance of the Board as a whole and David Hodkin, Mike Russell and Ron Series will be offering themselves for re-election of each of its principal Committees was at the 2015 AGM to be held at Clipper considered. The results of the evaluation will Logistics, Gelderd Road, Leeds, LS12 6LT Development form the basis of Board objectives for the on 28 September 2015 at 11.00am, There have been no new appointments year ending 30 April 2016. full details of which will be issued under to the Board since the IPO. The Group separate cover. has an induction and training process for The Board is satisfied that each Director new Directors. New Directors will receive remains competent to discharge his a detailed induction on joining the Board, responsibilities as a member of the Board. including meeting other members of the Board and the senior management team. New directors will be encouraged to visit the Group’s sites and to provide feedback to the Board. The Group’s Company Secretary and General Counsel periodically reports 47 48 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Corporate Governance Report continued External appointments and Reports from analysts and brokers are time commitment circulated to the Board. The Executive The Executive Directors may accept Chairman, Chief Executive Officer and outside appointments provided that such Chief Financial Officer meet institutional appointments do not in any way prejudice investors regularly to provide an opportunity their ability to perform their duties as to discuss, in the context of publicly Executive Directors of the Company. available information, the progress of the Group. The Company also holds investor The Non-Executive Directors’ appointment days, and held such an event in April 2015. letters are not specific about the maximum time commitment, recognising that there is The formal reporting of our full and half always the possibility of an additional time yearly results will be a combination of commitment and ad hoc matters that may presentations, group calls and one-to-one arise from time to time, particularly when the meetings in a variety of locations where Group is undergoing a period of increased we have institutional shareholders. All the activity. The average time commitment Non-Executive Directors and, in particular, inevitably increases where a Non-Executive the Chairman and Senior Independent Director assumes additional responsibilities Director, are available to meet with major such as being appointed to a Board shareholders, if they wish to raise issues Committee or as a Non-Executive Director separately from the arrangements as on the boards of any of the Company’s described above. The Company’s investor subsidiaries. website is also regularly updated with news and information, including this Annual Report and Accounts which sets out our Communications with shareholders strategy and performance together with The Board considers effective our plans for future growth. communication with its investors, whether institutional, private or employee shareholders, to be extremely important and we have set ourselves the target of providing information that is timely, clear and concise. During the year to 30 April 2015, the Company met regularly with analysts and institutional investors and such meetings will continue. The Executive Chairman, Chief Executive Officer and Chief Financial Officer have lead responsibility for investor relations. They are supported by members of the SMT where required and the Company’s retained financial PR advisers, Bell Pottinger, and corporate brokers Numis Securities who, amongst other matters, assist in organising presentations for analysts and institutional investors and ensure that procedures are in place to keep the Board regularly informed of such investors’ views. 49 Nomination Committee Report Committee Chairman’s introduction Composition Diversity The UK Corporate Governance Code Whilst the Group pursues diversity, including I am pleased to have taken on the role recommends that a majority of the gender diversity, throughout the business, of Nomination Committee Chairman as members of a nomination committee and the Board endorses the aspirations of the Company, having completed its IPO should be independent Non-Executive the Davies Review on Women on Boards, last year, continues the next phase of its Directors. The Nomination Committee the Board is not committing to any specific development. Given the relatively short is chaired by Steve Parkin and its other targets. Instead, the Board will engage period of time since the completion of members are Ron Series and Mike Russell. executive search firms who have signed up the IPO, the Committee itself has met only once in the year to discuss succession to the voluntary code of conduct setting out the seven key principles of best practice planning. Roles and responsibilities to abide by throughout the recruitment Under normal circumstances, it is intended process and will continue to follow a The Committee will be proactive in that the Nomination Committee will meet policy of appointing talented people at discharging its responsibilities, cognisant not less than twice a year to assist the Board every level to deliver high performance. of the importance of succession in discharging its responsibilities relating to It is the Company’s policy (whether it be planning and the need to align Board the composition and make-up of the Board at employee or Board level) to make all and executive leadership skills to the and any committees of the Board. It is also appointments based on the best candidate Company’s long-term strategy and I hope responsible for periodically reviewing the for the role regardless of gender or other this report gives you a helpful insight into Board’s structure and identifying potential diversity. The Board will also ensure that its how the Committee intends to carry out its candidates to be appointed as Directors own development in this area is consistent responsibilities moving forwards. or Committee members as the need with its strategic objectives and enhances may arise. The Nomination Committee is Board effectiveness. Steve Parkin responsible for evaluating the balance of Chairman, Nomination Committee skills, knowledge and experience and the size, structure and composition of the Board and Committees of the Board, retirements and appointments of additional and replacement Directors and Committee members and makes appropriate recommendations to the Board on such matters. 50 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Audit Committee Report Committee Chairman’s introduction Composition - considering the appointment of the The Code recommends that an Audit Group’s auditors and their remuneration The Audit Committee was established by Committee should comprise at least three, including reviewing and monitoring a resolution of the Board dated 16 May or in the case of smaller companies, two independence and objectivity and 2014, at which meeting terms of reference independent Non-Executive Directors (other agreeing and monitoring the extent were considered and adopted. The Board than the chairman) and that at least one of the non-audit work that may be further resolved to appoint Mike Russell member should have recent and relevant undertaken; and and Stephen Robertson to the Audit financial experience. The Audit Committee Committee under my chairmanship. Under is chaired by Paul Hampden Smith and - reviewing and monitoring the adequacy its terms of reference, the Audit Committee its other members are Mike Russell and and effectiveness of the internal control is required to meet at least three times Stephen Robertson. By virtue of their former and risk management policies. in each year at appropriate times in the executive roles, details of which are set reporting and auditing cycle. In the year out on page 41, the Directors consider The Audit Committee gives due ended 30 April 2015, the Audit Committee that Paul Hampden Smith and Mike Russell consideration to laws and regulations, has met four times. have recent and relevant financial the provisions of the Code and the experience. The Company is therefore requirements of the Listing Rules. The primary function of the Audit compliant with the Code in this regard. The ultimate responsibility for reviewing and Committee is to assist the Board in fulfilling Other directors or senior financial approving the Annual Report and Financial its responsibilities to protect the interests management attend meetings of the Audit Statements and the half-yearly reports of the shareholders with regard to the Committee by invitation. remains with the Board. integrity of the financial reporting, audit, risk management and internal controls. Roles and responsibilities Committee advise them in ensuring The Board has requested that the Audit In this report, I explain how the Audit The Audit Committee assists the Board in that the Financial Statements, when Committee has discharged these discharging its responsibilities with regard to: taken as a whole, are fair, balanced responsibilities, with specific reference - agreeing the scope of the annual audit and understandable and provide the to the requirement of the UK Corporate and the annual audit plan and monitoring information necessary for shareholders to Governance Code, (the “Code”) to the same; assess the Group’s performance, business address significant financial statement model and strategy. reporting issues and to explain how the - monitoring, making judgements and Audit Committee assessed external audit recommendations on the financial effectiveness and safeguards in relation to reporting process and the integrity and the provision by the auditor of non-audit clarity of the Group’s Financial Statements; services. Paul Hampden Smith Chairman, Audit Committee 51 Audit Committee Report continued Activities during the year ended management, using their experience to Assessment of effectiveness of external 30 April 2015 assess whether the Annual Report taken as a audit During the period, the Audit Committee whole is fair, balanced and understandable. The Audit Committee oversees the met four times. A summary of the main This additional review by the Audit relationship with the external auditors and areas dealt with by the Committee is set out Committee, supplemented by advice considers the re-appointment of the Group’s below: received from external advisors during auditors, Ernst & Young LLP, before making a - discussion with the external auditor the drafting process assisted the Board in recommendation to the Board to be put to over the audit planning, with particular determining that the report is fair, balanced shareholders. reference to significant risks highlighted and understandable at the time that it is in the planning documents, together approved. The Audit Committee considers Prior to recommending the appointment with the audit scope and timetable. the appropriateness of preparing the of Ernst & Young LLP at the forthcoming Due to the timing of the formation of the Financial Statements on a going concern AGM to the Board, the Audit Committee Committee, planning for both the year basis, including consideration of forecast conducted a review of the external auditor’s ended 30 April 2015 and the prior year fell plans and supporting assumptions. performance and ongoing independence within the period of this report; taking into consideration input from management, consideration of responses - review and approval for consideration by Significant issues considered in relation to questions from the Audit Committee the Board the financial results for the year to the Financial Statements and the audit findings reported to the Audit ended 30 April 2014; The Audit Committee, together with the Committee. Based on this information, Board, considered what were the significant the Audit Committee concluded that the - findings from the external audit for the risks and issues in relation to the Financial external audit process had been efficiently year ended 30 April 2014; Statements and how these would run and that Ernst & Young LLP continued to be addressed. prove effective in its role as external auditor. - approval of the Auditors’ remuneration in respect of the year ended 30 April 2014; Revenue Recognition - discussion around the UK Corporate contract mechanisms. As a result there In accordance with best practice and Governance Code on risk management, could be a risk of misstatement of professional standards, external auditors - The Group has a multiplicity of complex Independence safeguards internal control and going concern; revenue. are required to adhere to a rotation policy whereby the audit engagement partner is - Auditors’ confirmation of independence; - To mitigate this risk, the revenue rotated after five years. The current audit and recognition methodology adopted is engagement partner was appointed in kept under regular review to ensure that it 2014. The external auditors are also required - review of Auditors’ effectiveness. remains appropriate. periodically to assess whether, in their professional opinion, they are independent As part of their review process, the members Accounting for the acquisition of and those views are shared with the of the Audit Committee are provided with Servicecare Support Services Limited Audit Committee. a draft of the full Annual Report enabling - Under International Financial Reporting them to ensure that the numbers therein Standards, the Group is required to assess The Audit Committee has authority to are consistent with those in the Financial the fair value of assets acquired and take independent advice as it deems Statements or are sourced from appropriate liabilities assumed and specifically to appropriate in order to resolve issues on data. More importantly, the Audit identify any intangible assets. auditor independence. No such advice has Committee assesses whether the words to date been required. used are consistent with its understanding - The accounting and related disclosures of the Group’s business obtained through were therefore subject to additional review Board and Audit Committee meetings by the Audit Committee. and other interaction they have had with 52 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Audit Committee Report continued Independence assessment by the Internal audit Detailed policies ensure the accuracy and Audit Committee The Board has considered the benefits that reliability of financial reporting and the Based on the fact that the audit an internal audit function might bring to the preparation of the Financial Statements, engagement partner rotation policy has Group. They have concluded that, due to including the consolidation process. The key been complied with, and separate external the tight financial controls in place across elements of the Group’s ongoing processes firms are engaged for taxation advisory the Group, and the close management of for the provision of effective internal control services, the Audit Committee is satisfied financial matters by the Executive Directors, and risk management systems, in place that the independence of Ernst & Young LLP an internal audit function would not currently throughout the year and at the date of this is not impaired. provide additional assurance. report, include: Furthermore, Ernst & Young LLP have In terms of operational matters, the matters reserved for the Directors’ provided an independence report to specialised nature of the Group’s activities consideration; the Audit Committee, in which they have means that a non-specialist internal audit confirmed that they are independent, function would not provide additional - regular management reporting, providing that their objectivity is not compromised, comfort over the Group’s operational a balanced assessment of key risks and and that they have complied with the management. The Board will continue controls; Auditing Practices Board’s Ethical Standards to evaluate this matter, and the Audit (including in relation to the supply of non- Committee will formally consider the - an annual Board review of corporate - regular Board meetings to consider audit services). issue annually. The Audit Committee noted that Ernst & Young LLP had been appointed Internal control and risk management strategy, including a review of material business risks and uncertainties facing the business; as Reporting Accountants for the IPO The Board is responsible for the overall - established organisational structure with transaction prior to their appointment as system of internal controls for the Group and clearly defined lines of responsibility and external auditor for the Group. Since the IPO, for reviewing its effectiveness. It carries out levels of authority; Ernst & Young LLP have performed no further such a review at least annually, covering non-audit work for the Group. all material controls including financial, - documented policies and procedures; The Audit Committee has assessed the risk management systems. operational and compliance controls and and performance and independence of the - regular review by the Board of financial external Auditor and recommended to the The system of internal controls is designed budgets, forecasts and covenants with Board the re-appointment of Ernst & Young to manage rather than eliminate the risk performance reported to the Board LLP as auditor until the conclusion of the of failure to achieve business objectives monthly. AGM in 2016. and can only provide reasonable and not absolute assurance against material misstatement or loss. Operating policies and controls are in place and have been in place throughout the financial year under review, and cover a wide range of issues including financial reporting, capital expenditure, information technology, business continuity and management of employees. 53 Audit Committee Report continued Internal control and risk management The Board, with advice from the Audit Accountability (continued) Committee, is satisfied that effective The Board is required to present a fair, In reviewing the effectiveness of the system systems for internal control and risk balanced and understandable assessment of internal controls, the Audit Committee management are in place which enable of the Company and Group’s financial receives self-assurance statements from the Group to identify, evaluate and position and prospects. The responsibilities of the Operational Directors and senior manage key risks, and which accord with the Directors and external auditor are set out managers responsible for the principal the guidance of the Turnbull Committee on pages 80 and 84 respectively. business units confirming that controls and on internal control updated by the FRC risk management processes in their business in 2005. These processes have been units have been operated satisfactorily. in place throughout the financial year These returns are reviewed by the Audit and up to the date of approval of the Committee and challenged where Financial Statements. Further details of risk appropriate. The CFO is responsible for management frameworks and specific compiling and maintaining a risk register to material risks and uncertainties facing the monitor all of the risks facing the business. business can be found on pages 30 to 33. The key risks are then summarised for review and approval by the Audit Committee for inclusion in the Annual Report. In addition, Whistleblowing the Audit Committee also reviews the The Group has in place a Whistleblowing financial and accounting controls. Policy which encourages employees to report any malpractice or illegal acts or In respect of the Group’s financial reporting, omissions or matters of similar concern by the finance department is responsible for other employees or former employees, preparing the Group Financial Statements contractors, suppliers or advisors using using a well-established consolidation a prescribed reporting procedure. The process and ensuring that accounting Whistleblowing Policy is complemented by policies are in accordance with an Anti-bribery and Corruption Policy, and a International Financial Reporting Standards. Gifts and Entertainment Policy. All financial information published by the Group is subject to the approval of the Audit These policies facilitate the reporting of Committee. any ethical wrongdoing or malpractice or suspicion which may constitute ethical There have been no changes in the Group’s wrongdoing or malpractice. Examples internal controls during the financial year under review that have materially affected, include bribery, corruption, fraud, dishonesty and illegal practices which may endanger or are reasonably likely to materially affect, employees or third parties. the Group’s control over financial reporting. There have been no instances of whistleblowing during the year under review. 54 Clipper Logistics plc Annual Report and Accounts 2015 55 Clipper Logistics plc Annual Report and Accounts 2015 Directors’ Remuneration Report Committee Chairman’s introduction Although this performance was very positive resolution received 81.86% support. and the Group is in a position to realise As a Remuneration Committee, we were On behalf of the Board, I am pleased to further strong growth going forwards, the disappointed by the voting result for this present the Directors’ Remuneration Report Annual Incentive Plan (“AIP”) outcomes for resolution, particularly as the proposed for the year to 30 April 2015. our Executive Directors and senior managers inclusion of these executives within our This report contains the material required were modest. new share plans was an important part of our Directors’ Remuneration Policy which to be set out as the directors’ remuneration At our 2014 AGM, our first as a listed had received very strong support from report for the purposes of Part 4 of The company, we received strong support for our shareholders. We understand that Large and Medium-sized Companies the resolutions regarding remuneration the reasons for this level of vote against and Groups (Accounts and Reports) matters which were proposed for the “Concert Party” resolution was the (Amendment) Regulations 2013, which shareholders’ approval: concern raised by certain governance amended The Large and Medium-sized - Our Directors’ Remuneration Policy and bodies regarding whether, in particular, the Companies and Groups (Accounts our Directors’ Remuneration Report Executive Chairman should participate in and Reports) Regulations 2008 (“the received approval at a 99.67% and a PSP given his existing shareholding in the DRR regulations”). The auditors have 100% level respectively. Company. reported on certain parts of the Directors’ Remuneration Report and stated whether, - Our new Sharesave plan and our new At the 2015 AGM we will be proposing two in their opinion, those parts have been Performance Share Plan (“PSP”) received remuneration related resolutions: properly prepared in accordance with approval at a 100% and a 99.67% level - A vote to approve the Directors’ the Companies Act 2006. Those parts of respectively. Remuneration Report. the Directors’ Remuneration Report which have been subject to audit are clearly Having had our Directors’ Remuneration - A vote to authorise the participation indicated. Policy approved at the 2014 AGM, we are of Steve Parkin (Executive Chairman), not including our Policy in the main section David Hodkin (Chief Financial Officer) The financial year ending 30 April 2015 of this year’s Directors’ Remuneration Report, Sean Fahey (Chief Information Officer) was a significant one for Clipper. The although we have included the “Policy and Guy Jackson (Company Secretary Group performed strongly, with Group Table” as an appendix to the Directors’ and General Counsel) in the PSP in revenue increasing by 16.7% to £234.8m, Remuneration Report for ease of reference. accordance with the requirements of the and Adjusted EBIT growing by 24.9% to Takeover Panel for “Concert Parties”, and £12.0m. Due to our shareholding structure, we were to give the same approval in respect of additionally required to seek shareholders’ the participation in the Sharesave Plan by approval to permit the Executive Chairman, Guy Jackson. the Chief Financial Officer and the Chief Information Officer to participate in the first awards under Sharesave and PSP in accordance with the requirements of the Takeover Panel for “Concert Parties”. This 56 Directors’ Remuneration Report continued Committee Chairman’s introduction (continued) As in 2014, the inclusion of the “Concert Party” executives within the PSP should be viewed in the context of the entire Directors’ Remuneration Policy: - Overall incentive pay at Clipper remains relatively modest, with maximum annual bonuses being capped at 50% of base salary for the Executive Directors and with a policy to make annual PSP awards to Executive Directors at 100% of base salary. - Most importantly, the key ethos behind the Directors’ Remuneration Policy is to continue to promote the strong team culture amongst the entire senior management team which has served the Company so well to date. Accordingly, the Remuneration Committee views it as very important that there is consistency in how packages are structured across the whole senior management team, with the intention being that all Executive Directors and senior managers should participate in the same annual incentive plan and long-term incentive plan, and with all of the team being incentivised on the same performance measures. The Remuneration Committee hopes that you will continue to support our approach on remuneration matters. The Remuneration Committee is confident that the approach we are following is the correct one for the Group and hopes that it can rely on the support of shareholders for all of the remuneration-related resolutions at the 2015 AGM. Mike Russell Chairman, Remuneration Committee 57 Implementation Report on Remuneration Audited Information Single Figure Table Salary year ended 30 April: Benefits year ended 30 April: Annual bonus year ended 30 April: Long-term incentives year ended 30 April: Pension contributions year ended 30 April: Total year ended 30 April: £’000 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Steve Parkin 405 380 Tony Mannix 208 177 David Hodkin 180 157 Sean Fahey 150 150 56 25 2 11 120 42 24 1 23 23 19 16 - - - - nil nil nil nil N/A N/A N/A N/A 15 39 23 15 15 36 23 15 518 515 295 237 224 181 192 188 1 Benefits comprise a car allowance or company car, fuel allowance, private family medical cover, insurance benefits and loans. All Director loan accounts were repaid by 30 April 2014. 2 No bonus was paid in the year ended 30 April 2014. This decision was made following consideration of the process towards IPO. Details of the annual incentive plan for the financial year ending 30 April 2015 are set out below. 3 No long term incentive plan (“LTIP”) was in operation for the financial year ended 30 April 2014. No LTIP awards vested in the financial year ending 30 April 2015. For details of the LTIP in operation for the financial year ending 30 April 2015 refer to page 60 below. 4 David Hodkin’s pension entitlement is paid by way of an additional allowance, taxed as salary. 5 The above table excludes remuneration of Executive Directors who resigned prior to the IPO. Their remuneration is included in the totals shown in note 5 to the Group Financial Statements. Annual Bonus Outcomes for the year Performance for the AIP was measured ended 30 April 2015 against Adjusted EBIT for the year to 30 The Single Figure Table above shows AIP April 2015. The Adjusted EBIT performance outcomes for Executive Directors at 10.4% targets for the 2014/15 AIP are regarded of base salary, representing 20.8% of the as commercially sensitive by the Board 50% of base salary maximum available and are accordingly not disclosed on under the AIP. this occasion. Non-Executive Directors’ Fees Fees year ended 30 April: Benefits year ended 30 April: Total year ended 30 April: £’000 2015 2014 2015 2014 2015 2014 Paul Hampden Smith Stephen Robertson Mike Russell Ron Series 55 37 39 37 - - 25 - - 1 2 1 - - - - 55 38 41 38 - - 25 - 1 Mike Russell was a Non-Executive Director of the former parent company for the year ended 30 April 2014 and his remuneration was paid by the Company. Since the 30 April 2014 year end, the Company has appointed three additional Non-Executive Directors, whose fee details are set out in the Implementation of Policy in the year to 30 April 2015 section. 2 In addition, Mike Russell received £242,000 from the former parent company in compensation for waiving share options in that company prior to Clipper Logistics plc’s IPO. Since Admission, Mike has not participated in any incentive arrangements with the Company. 3 Benefits amounts reported relate to expenses such as travel and accommodation expenditure incurred on Group business. Whilst these payments are the reimbursement of expenses and not benefits per se, they are included as being a payment which is subject to tax. 58 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Implementation Report Implementation Report on Remuneration on Remuneration continued Audited Information (continued) Directors’ Interests The interests (all being beneficial) of the Directors in the Company’s ordinary shares as at 30 April 2015 are set out below: Steve Parkin Tony Mannix David Hodkin Sean Fahey Paul Hampden Smith Stephen Robertson Ron Series Mike Russell Ordinary Shares 34,797,100 1,358,613 1,358,613 7,834,397 100,000 - 10,000 - 1 All shares are wholly owned by Directors or connected persons (i.e. none are subject to performance conditions and none are previously vested but as of yet unexercised share options). As at the last practicable date prior to publication of this report, there had been no changes to the above shareholdings. 59 Implementation Report on Remuneration continued Audited Information (continued) Share Plan Interests Performance Share Plan Options held at 1 May 2014 Options lapsed Options granted Options exercised Options held at 30 April 2015 Option price (p) Earliest exercise date Latest exercise date – – – – – – – – 229,682 127,601 102,081 85,067 – – – – 229,682 127,601 102,081 85,067 Nil Nil Nil Nil 14/01/2018 14/01/2025 14/01/2018 14/01/2025 14/01/2018 14/01/2025 14/01/2018 14/01/2025 Options held at 1 May 2014 Options lapsed Options granted Options exercised Options held at 30 April 2015 Option price (p) Earliest exercise date Latest exercise date – – – – – – – – 12,820 6,410 12,820 12,820 – – – – 12,820 140.40 01/04/2018 30/09/2018 6,410 140.40 01/04/2018 30/09/2018 12,820 140.40 01/04/2018 30/09/2018 12,820 140.40 01/04/2018 30/09/2018 Steve Parkin Tony Mannix David Hodkin Sean Fahey Sharesave Plan Steve Parkin Tony Mannix David Hodkin Sean Fahey 1 The range of market price of shares in Clipper Logistics plc during the year ended 30 April 2015 was 100p to 190p. The closing price on 30 April 2015 was 190p. 2 None of the directors paid for the award of options. 3 Options granted in the year under the PSP represent awards with a face value of 100% of base salary for all Executive Directors. This has been calculated using the average mid-market price of the three days preceding the date of grant, being 176.33p for the options granted on 14 January 2015. 4 The threshold level of vesting for the PSP options granted in the year is 25% of the total number of options granted. 5 The performance conditions attached to the PSP awards granted during the year are set out below. 6 The market value of shares on the date of grant of Sharesave options was 174.75p. The face value of the options was therefore £22,402.95 for Steve Parkin, David Hodkin and Sean Fahey, and £11,201.48 for Tony Mannix. 7 The exercise price for Sharesave options was set at 80% of the three day average market price of shares before invitations to participate in the Sharesave Plan were made, in accordance with HMRC rules. 8 The Sharesave options were granted under a HMRC tax-advantaged plan and are therefore not subject to performance conditions. Performance conditions for PSP awards The performance measures and targets EPS - Financial year ending 30 April 2017 PSP Award for the PSP awards made in the year to 30 April 2015 were based on Adjusted EPS 12p performance for the financial year ending 30 April 2017, summarised as follows: Between 10p and 12p 100% Pro-rata on straight-line basis between 25% and 100% 10p Less than 10p 25% 0% 60 Clipper Logistics plc Annual Report and Accounts 2015 61 Implementation Report on Remuneration continued Unaudited Information Remuneration Committee Advisors In anticipation of Admission, the Company FIT Remuneration Consultants LLP, signatories established the Remuneration Committee. to the Remuneration Consultants Group’s The members of the Remuneration Code of Conduct, were appointed by Committee are: - Mike Russell (Chairman); the Remuneration Committee following a competitive tender process. FIT provides advice to the Remuneration Committee - Paul Hampden Smith; and on all matters relating to remuneration, - Ron Series. The Remuneration Committee’s principal responsibilities are: including best practice. FIT provided no other services to the Group and accordingly the Remuneration Committee was satisfied that the advice provided by FIT was objective and independent. FIT’s fees in - recommending to the Board the respect of the year ended 30 April 2015 remuneration strategy and framework were £37,000. FIT’s fees were charged on for the Executive Directors and senior the basis of the firm’s standard terms of managers; business for advice provided. - determining, within that framework, the individual remuneration arrangements for the Executive Directors and senior managers; and - overseeing any major changes in employee benefit structures throughout the Group. The Executive Chairman is invited to attend meetings of the Remuneration Committee, except when his own remuneration is being discussed, and the Chief Financial Officer and other Executives attend meetings as required. 62 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Implementation Report on Remuneration continued Unaudited Information (continued) Implementation of Policy in the year ending 30 April 2016 Executive Directors Base Salary the specific performance targets for the Non-Executive Directors AIP are considered to be commercially Fees - Base salaries are as follows: £405,000 for sensitive and accordingly are not - The base fee payable to each Steve Parkin, £225,000 for Tony Mannix, disclosed. Following the conclusion of the Non-Executive Director is as follows: £180,000 for David Hodkin and £150,000 current financial year, the Remuneration Paul Hampden Smith (Senior Independent for Sean Fahey. These are unchanged Committee will consider whether it is Director and Chair of the Audit from the financial year ended 30 April feasible to disclose the performance Committee) - £60,000; 2015, although Tony Mannix surrendered targets for the current financial year on Stephen Robertson - £40,000; part of his salary in return for additional a retrospective basis. employer’s pension contributions. Ron Series - £40,000; and Mike Russell - £40,000. Pension Performance Share Plan for the year ending 30 April 2016 - Contribution rates for Executive Directors - Award levels are proposed at 100% of are as follows (expressed as percentages base salary for each Executive Director. of base salary): Steve Parkin - 6%, Tony This is unchanged from the financial year Mannix - 10%, David Hodkin - 15%. Sean ended 30 April 2015. Fahey - 10%. These are unchanged from the financial year ended 30 April - The performance measures and targets 2015, although Tony Mannix surrendered for this award will be based on Adjusted part of his salary in return for additional EPS performance for the financial year employer’s pension contributions. ending 30 April 2018, summarised as follows: Benefits - Details of the benefits received by Executive Directors are set out in note 1 to the single figure table on page 58. EPS - Financial year ending 30 April 2018 PSP Award 14.7p 100% - There is no intention to introduce Between 12p and 14.7p additional benefits in the financial year ending 30 April 2016. Annual Incentive Plan for the year ending 30 April 2016 - The AIP maximum is 50% of base salary. 12p Less than 12p This is unchanged from the financial year - The Remuneration Committee selected ended 30 April 2015. this performance condition as it provides a significant level of growth in earnings - Performance measures for the AIP in which is a key measure of success for the year to 30 April 2016 will be based the Group. Pro-rata on straight-line basis between 25% and 100% 25% 0% on Adjusted EBIT. The Remuneration Committee selected Adjusted EBIT as the performance measure for the AIP for the year ending 30 April 2016 as it is regarded as a key performance indicator for the Group and focuses on the underlying operating profitability of the business by removing non-recurring items. Given the competitive nature of the Group’s sectors, 63 Implementation Report on Remuneration continued Unaudited Information (continued) Relative importance of spend on pay The table opposite shows the Group’s expenditure on remuneration paid to all employees against distributions to shareholders. As the Company was only admitted on 4 June 2014, the dividend paid by the Company during the year to 30 April 2014, and part of the dividend paid by the Company during the year to 30 April 2015 was to the Company’s former parent; therefore comparison of profit distributed by way of dividend to overall expenditure on pay is invalidated for the years to 30 April 2015 and 30 April 2014. Comparative Total Shareholder Return (“TSR”) The DRR regulations require a line graph showing the TSR on a holding of shares in the Company since Admission to the financial year end following Admission, as well as the TSR for a hypothetical holding of shares in a broad equity market index for the same period. The graph opposite compares the Company’s TSR to the TSR of the FTSE Small Cap (ex IT) over this period. The FTSE Small Cap (ex IT) was chosen as a comparator as it is most closely aligned with Clipper’s activity. The DRR regulations also require a table setting out selected details of the remuneration of the Executive Chairman over the same period as shown on the TSR graph. We have additionally included for comparison details for the financial year ending 30 April 2014: Year ended 30 April 2015: Steve Parkin Year ended 30 April 2014: Steve Parkin £’000 2015 2014 % change Remuneration paid to all employees of the Group1 66,539 58,496 +13.7% Distributions to shareholders 1,935 6,349 N/A 1Total remuneration reflects overall employee costs. See note 5 to the Group Financial statements for further information. Total Shareholder Return Index (30 May 2014 = 100) 200 180 160 140 120 100 80 30 May 2014 30 April 2015 Clipper Logistics plc FTSE SmallCap Index Source: Thomson Reuters ex Investment Trusts Single figure of total remuneration (£’000) Annual variable element award rates against Long-term incentive vesting rates against maximum opportunity maximum opportunity 518 515 20.8% 0.0% N/A N/A Up until 30 May 2014 Steve Parkin performed the roles of Chief Executive and Chairman, prior to becoming Executive Chairman only from 30 May 2014. 64 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Implementation Report on Remuneration continued Unaudited Information (continued) Executive Chairman’s relative pay In accordance with the DRR regulations, we present in the table opposite the percentage change in the prescribed pay elements (salary, taxable benefits, and annual bonus outcome) of the Executive Chairman and the average percentage change for all Group staff between the year ended 30 April 2014 and the year ended 30 April 2015. Year-on-year % change Salary Taxable Benefits Annual Bonus Executive Chairman All-employees +6.6% +2.2% -53.3% N/A +11.2% +36.1% AGM voting results Details of the votes on remuneration matters held at the 2014 AGM are as follows: Resolution Votes for % For Votes against % Against Total votes Withheld Approve Directors’ Remuneration Policy 90,046,475 99.67% 300,000 0.33% 90,346,475 0 Approve Directors’ Remuneration Report 90,046,475 100.00% Approve Sharesave Plan 90,346,475 100.00% 0 0 0.00% 90,046,475 300,000 0.00% 90,346,475 Approve PSP 90,046,475 99.67% 300,000 0.33% 90,346,475 Approve Participation by “Concert Party” in PSP and Sharesave 37,946,177 81.86% 8,410,188 18.14% 46,356,365 As explained in the Committee Chairman’s However, this participation in PSP was letter at the beginning of this report, the consistent with the importance of a Committee understands that the reason continued team ethic within the Clipper for the voting outcome in relation to the senior management team which forms “Concert Party” resolution was a concern raised by certain governance bodies a key part of the Directors’ Remuneration Policy which received strong shareholder in relation to the Executive Chairman’s support. participation in PSP given the level of his existing shareholding in the Company. 0 0 0 65 Implementation Report on Remuneration continued Unaudited Information (continued) Service Contracts summary Policy Report Each Executive Director has a service Remuneration Policy – Executive Directors contract of indefinite duration with a notice The Directors’ Remuneration Policy was period of twelve months which may be approved by the Company’s shareholders given by the Company or the individual. at the Company’s Annual General Meeting The date of each Executive Director’s for all payments made to Directors from on 29 September 2014 and has effect contract is: Steve Parkin Tony Mannix David Hodkin Sean Fahey 30 May 2014 30 May 2014 30 May 2014 30 May 2014 Non-Executive Directors that date. The Company’s Directors’ Remuneration Policy is available for inspection in the Company’s 2014 Annual Report and Accounts via its website at: http://www.clippergroup.co.uk/report- accounts/. For ease of reference, the summary “Policy Table” from the Directors’ Remuneration Policy which was approved Each Non-Executive Director is engaged at the 2014 Annual General Meeting is for an initial period of three years. These included as an appendix to this report. appointments can be renewed following the initial three year term. These engagements This report was reviewed and approved by can be terminated by either party on three the Board on 27 July 2015 and signed on its months’ notice. behalf by order of the Board. The Non-Executive Directors cannot Mike Russell participate in the Company’s share Chairman, Remuneration Committee schemes from Admission, are not entitled to any pension benefits and are not entitled to any payment in compensation for early termination of their appointment. For each Non-Executive Director the effective date of their latest letter of appointment is: Paul Hampden Smith Stephen Robertson Ron Series Mike Russell 16 May 2014 16 May 2014 16 May 2014 16 May 2014 66 Clipper Logistics plc Annual Report and Accounts 2015 67 Directors’ Remuneration Policy Appendix The following material is the Policy Table from the Directors’ Remuneration Policy approved at the 2014 AGM. It is included in this year’s report for information only and does not form part of the Directors’ Remuneration Report which is subject to approval by shareholders at the 2015 AGM. Element and purpose Policy and operation Maximum Performance measures N/A Base salaries will be reviewed each year by the Remuneration Committee. The Remuneration Committee does not strictly follow data but uses it as a reference point in considering, in its judgment, the appropriate level of salary having regard to other relevant factors including corporate and individual performance and any changes in an individual’s role and responsibilities. Base salary is paid monthly in cash. In the normal course of events, the Executive Directors’ salaries would not normally be increased by more than the average awarded to staff generally. However, given the need for a formal cap under the DRR regulations, the Remuneration Committee has further limited the maximum salary which it may award to £450,000 for the Executive Chairman, and for all other Executive Directors to the median salary level plus 10% for that role in the FTSE SmallCap. N/A The Executive Directors may receive a car allowance or company car, fuel allowance, private family medical cover and insurance benefits. The Remuneration Committee reserves discretion to introduce new benefits where it concludes that it is appropriate to do so, having regard to the particular circumstances and to market practice. Where appropriate, the Group will meet certain costs relating to Executive Director relocations. It is not possible to prescribe the likely change in the cost of insured benefits or the cost of some of the other reported benefits year-to-year, but the provision of benefits will operate within an annual limit of £100,000 (plus a further 100% of base salary in the case of relocations). The Remuneration Committee will monitor the costs in practice and ensure that the overall costs do not increase by more than the Remuneration Committee considers appropriate in all the circumstances. Base salary This is the core element of pay and reflects the individual’s role and position within the Group with some adjustment to reflect their capability and contribution. Benefits To provide benefits valued by recipients. 68 Clipper Logistics plc Annual Report and Accounts 2015 69 Directors’ Remuneration Policy continued Appendix (continued) Element and purpose Policy and operation Maximum Performance measures Pension To provide retirement benefits. Annual Incentive Plan (“AIP”) To motivate executives and incentivise delivery of performance over a one-year operating cycle, focusing on the short to medium term elements of our strategic aims. Executive Directors can receive pension contributions to personal pension arrangements, or if a Director is impacted by annual or lifetime limits on contribution levels to qualifying pension plans, the balance can be paid as a cash supplement. AIP levels and the appropriateness of measures are reviewed annually at the commencement of each financial year to ensure they continue to support our strategy. Once set, performance measures and targets will generally remain unchanged for the year, except to reflect events such as corporate acquisitions or other major transactions where the Remuneration Committee considers it to be necessary in its opinion to make appropriate adjustments. AIP outcomes are paid in cash following the determination of achievement against performance measures and targets. Malus and clawback provisions apply to the AIP as explained in more detail in the notes to this table. 1 Now included at page 58 above 70 The maximum employer’s contribution is limited to 15% of base salary. N/A The maximum level of AIP outcomes is 50% of base salary p.a. for the duration of this Policy. The performance measures applied may be financial or non-financial and corporate, divisional or individual and in such proportions as the Remuneration Committee considers appropriate. Details of the proposed performance measures for the year ending 30 April 2015 are set out in the notes to this table.1 Attaining the threshold level of performance for any measure will not produce a pay-out of more than 20% of the maximum portion of overall AIP attributable to that measure, with a sliding scale to full pay-out for maximum performance. However, the AIP remains a discretionary arrangement and the Remuneration Committee retains a standard power to apply its judgment to adjust the outcome of the AIP for any performance measure (from zero to any cap) should it consider that to be appropriate. Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Directors’ Remuneration Policy continued Appendix (continued) Element and purpose Policy and operation Maximum Long-Term Incentives (“LTI”) To motivate and incentivise delivery of sustained performance over the long-term, and to promote alignment with shareholders’ interests, the Group intends to operate a Performance Share Plan (“PSP”). Shareholders’ approval for the PSP is being sought at the 2014 AGM. The PSP allows for awards over shares with a maximum value of 150% of base salary per financial year. The Remuneration Committee expressly reserves discretion to make such awards as it considers appropriate within these limits. Awards under the PSP may be granted as nil-cost options or conditional awards of shares which vest to the extent performance conditions are satisfied over a period of at least three years. Under the PSP rules, vested awards may also be settled in cash. The PSP rules allow that the number of shares subject to vested PSP awards may be increased to reflect the value of dividends that would have been paid in respect of any dividend dates falling between the grant of awards and the vesting of awards. Whilst this feature will not operate for awards to be made in 2014, the Remuneration Committee retains discretion to introduce this feature during the period of this policy. Malus and clawback provisions apply to PSP awards and are explained in more detail in the notes to this table. Performance measures The Remuneration Committee may set such performance conditions on PSP awards as it considers appropriate (whether financial or non- financial and whether corporate, divisional or individual). Details of the proposed performance measures for the initial awards are set out in the notes to this table.1 Once set, performance measures and targets will generally remain unaltered unless events occur which, in the Remuneration Committee’s opinion, make it appropriate to substitute, vary or waive the performance conditions in such manner as the Remuneration Committee thinks fit. Performance periods may be over such periods as the Remuneration Committee selects at grant, which will not be less than (but may be longer than) three years. No more than 25% of awards vest for attaining the threshold level of performance conditions. Share Ownership Guidelines To further align the interests of Executive Directors with those of shareholders. 1 Now included at page 60 above Executive Directors are expected to retain all of the ordinary shares vesting under the PSP, after any disposals for the payment of applicable taxes, until they have achieved the required level of shareholding. 100% of salary for all Executive Directors. N/A The Remuneration Committee reserves the power to amend (but not reduce) these levels in future years. 71 Directors’ Remuneration Policy continued Appendix (continued) Element and purpose Policy and operation Maximum Performance measures Consistent with normal practice, such awards are not subject to performance conditions. The Sharesave Plan is an all-employee share plan established under the HMRC tax-advantaged regime and follows the usual form for such plans. The exercise price of the options is usually equal to the market price of the shares at the date of invitation to participate less a maximum discount of 20%. Executive Directors are able to participate in all-employee share plans on the same terms as other Group employees. The maximum amount that can be invested in the plan will not exceed the statutory limit from time to time (currently £500 pcm). The options vest on the third anniversary of the commencement of the savings period. Fees are paid monthly in cash. N/A Any increases made will be appropriately disclosed. The fees paid to Non-Executive Directors aim to be competitive with other fully listed companies of equivalent size and complexity. The fees payable to the Non-Executive Directors are determined by the Board. Non-Executive Directors will not participate in any new share incentive arrangements from Admission, although commitments made under pre- Admission plans will continue to be honoured. All-employee share plans To encourage share ownership by employees, thereby allowing them to share in the long-term success of the Group and align their interests with those of the shareholders. Shareholders’ approval is being sought at the 2014 AGM for the Clipper Sharesave Plan (“Sharesave Plan”). Non-Executive Director fees To enable the Group to recruit and retain Non-Executive Directors of the highest calibre, at the appropriate cost. 72 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Directors’ Remuneration Policy continued Appendix (continued) Notes to the Policy Table 1. Malus and Clawback. 3. Travel and hospitality While the Remuneration Committee does Malus (being the forfeiture of unvested not consider it to form part of benefits in awards) and clawback (being the ability the normal usage of that term, it has been of the Company to claim repayment of advised that corporate hospitality (whether paid amounts as a debt) provisions apply paid for by the Group or another company) to the AIP and PSP if, in the opinion of the and business travel for Directors (and Remuneration Committee, any of the exceptionally their families) may technically following has occurred: come within the applicable rules and so - There has been a material misstatement the Remuneration Committee expressly of the Group’s financial results which has led to an overpayment; reserves the right for the Remuneration Committee to authorise such activities within its agreed policies. - The assessment of performance targets is based on an error or inaccurate or 4. Differences between the policy on misleading information or assumptions; remuneration for Directors from the policy on remuneration of other employees - Circumstances warranting summary Where the Group’s pay policy for Directors dismissal in the relevant period; or differs to its pay policies for groups of employees, this reflects the appropriate - Any other act or omission that has had market rate position for the relevant roles. a sufficiently significant impact on the The Company takes into account pay levels, reputation of the Group to justify the bonus opportunity and share awards applied operation of malus/clawback. across the Group as a whole when setting the Directors’ Remuneration Policy. Amounts in respect of awards under both plans may be subject to clawback for up to three years post payment or vesting as appropriate. 2. Stating maximum amounts for the Remuneration Policy The DRR regulations and related investor guidance encourages companies to disclose a cap within which each element of the Directors’ Remuneration Policy will operate. Where maximum amounts for elements of remuneration have been set within the Directors’ Remuneration Policy, these will operate simply as caps and are not indicative of any aspiration. 73 Directors’ Report The Directors are pleased to present information on the Group’s exposures to Directors’ share interests their report and the audited Financial market risk, including foreign currency, Details of the Directors interests in the Statements of Clipper Logistics plc for interest rate, inflation and equity price Company’s shares are included in the the year ended 30 April 2015. risks; details of its financial instruments and Directors’ Remuneration Report on page The Corporate Governance Report on credit risk and liquidity risk. (being the latest practicable date before hedging activities; and its exposures to 59. Between 30 April 2015 and 24 July 2015 pages 42 to 49 and the Corporate Social Responsibility Report (with regard publication) there had been no change in Directors’ interests as set out on page 59. to information about the employment of Results and dividends disabled persons, employee involvement The consolidated profit for the Group for and greenhouse gas emissions) are also the year after taxation was £7.3 million Directors’ indemnities incorporated into this report by reference. (2014: £2.8 million). The results are discussed The Company provided indemnities to each in greater detail in the Operating and of its Directors during the year ending 30 The Company has chosen, in accordance Financial Review on pages 18 to 29 and April 2015 in accordance with the provisions with section 414C (11) of the Companies set out in the Group Income Statement on of the Company’s Articles of Association, Act 2006 to include the disclosure of page 88. particulars of likely future developments in allowing the indemnification of Directors out of the assets of the Company to the the Strategic Report (see pages 6 to 37). The Directors are recommending the extent permitted by law. These indemnities payment on 30 September 2015 of a final constitute qualifying indemnities for the dividend of 3.2 pence per ordinary share purposes of the Companies Act 2006 and Financial risk management to shareholders on the register at the close remain in force at the date of approval The Group’s business activities, together of business on 4 September 2015 which, of this report without any payment having with the factors likely to affect its future together with the net interim dividend of been made under them. development, performance and position 1.6 pence per ordinary share paid on are set out in the Operating and Financial 31 December 2014, results in a total net Review on pages 18 to 29, along with the dividend for the year of 4.8 pence per share financial position of the Group, its cash flows (2014: not applicable). and liquidity. In addition, note 26 to the Group Financial Directors Statements includes the Group’s objectives, The names and biographies of the current policies and processes for capital and Directors of the Company are set out on financial risk management, including pages 40 and 41 of this Annual Report. The following Directors are current Directors or served the Company during the year ended 30 April 2015: Name Position Steven (Steve) Nicholas Parkin Antony (Tony) Gerard Mannix David Arthur Hodkin Sean Eugene Fahey Paul Nigel Hampden Smith Stephen Peter Robertson Ronald (Ron) Charles Series Michael (Mike) John Russell Nigel John Hinds Michael (Mike) David Badrock 74 Executive Chairman Chief Executive Officer Chief Financial Officer Chief Information Officer Senior Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Operations Director Non-Executive Director Notes - - - - Appointed 16 May 2014 Appointed 16 May 2014 Appointed 16 May 2014 Appointed 16 May 2014 Resigned 13 May 2014 Resigned 13 May 2014 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Directors’ Report continued Related party transactions Share capital structure Variation of rights attaching to shares The only material transactions with related Details of the Company’s share capital The Articles provide that rights attached parties during the year were: are set out in note 21 to the Group Financial to any class of shares may be varied with - the Relationship Agreement (referred to Statements on page 126. The Company the written consent of the holders of not later in this report) entered into between has a single class of share capital divided less than three-quarters in nominal value the Company and Steve Parkin and into Ordinary Shares of 0.05p each. of the issued shares, or with the sanction of Carlton Court Investments Limited; and The Ordinary Shares are listed on the a special resolution passed at a separate London Stock Exchange. The rights and general meeting of the holders of those - the Placing Agreement (referred to later obligations attaching to these shares are shares. At every such separate general in this report) dated 30 May 2014 and governed by UK law and the Company’s meeting, the quorum shall be two persons entered into between the Company, the Articles of Association. Directors and the Selling Shareholders (as defined in the Prospectus). holding or representing by proxy at least one-third in nominal value of the issued shares (calculated excluding any shares Voting rights attaching to shares held in treasury). The rights conferred upon Ordinary shareholders are entitled to receive the holders of any shares shall not, unless Compensation for loss of office notice and to attend and speak at any otherwise expressly provided in the rights There are no agreements between the general meeting of the Company. On a attaching to those shares, be deemed to Company and its Directors or employees show of hands every shareholder present in be varied by the creation or issue of further providing for compensation for loss of office person or by proxy (or being a corporation shares ranking pari passu with them. or employment that occurs as a result of a represented by a duly authorised takeover bid. Further details of the Directors’ representative) shall have one vote, and on service contracts can be found in the a poll every shareholder who is present in Restrictions on the transfer of shares Directors’ Remuneration Report on pages person or by proxy shall have one vote for There are no restrictions on the transfer of 56 to 73. every share of which he is the holder. The the Ordinary Shares other than: Notice of Annual General Meeting specifies - the standard restrictions for a UK-quoted deadlines for exercising voting rights and company where any amount is unpaid on Directors’ and Officers’ liability insurance appointing a proxy or proxies. a share; Directors’ and Officers’ liability Insurance cover is in place at the date of this report, - where, from time to time, certain having been purchased prior to the IPO. The Deadlines for exercising voting rights restrictions may become imposed by Board remains satisfied that an appropriate attaching to shares laws and regulations (for example, insider level of cover is in place and a review of The Articles provide a deadline for the trading laws and marketing requirements cover will take place on an annual basis. submission of proxy forms (whether by relating to close periods); and an instrument in writing or electronically) of not less than 48 hours before the time - pursuant to the Listing Rules of the Articles of Association appointed for the holding of the meeting or Financial Conduct Authority whereby The Articles of Association (adopted by the adjourned meeting. special resolution on 15 May 2014) may only be amended by special resolution of certain Directors, officers or employees of the Company require the approval of the Company to deal in the Ordinary Shares. the shareholders. A copy of the Articles is Shares in uncertificated form available on request from the Company Directors may determine that shares may Secretary. Change of name On 14 May 2014 the Company changed its name from Clipper Logistics Group Limited to Clipper Logistics Limited, and on 15 May 2014 re-registered as a plc. be held in uncertificated form and title to such shares may be transferred by means of a relevant system or that shares should cease to be so held and transferred. 75 Directors’ Report continued Restrictions on the transfer of shares Authority to purchase own shares the voting rights over the Company’s issued (continued) A resolution to authorise the Company to shares. Where any Controlling Shareholder On 30 May 2014, the Company entered purchase up to 10% of the Company’s has already been nominated to the board into a placing agreement with, amongst issued Ordinary Share capital will be as a Director himself such appointment others, the Directors, certain selling proposed at the 2015 AGM. will reduce the number of persons which shareholders and Numis Securities Limited the Controlling Shareholders are entitled (“Numis”) in accordance with which subject As at 24 July 2015, being the latest to nominate for appointment by one. to certain customary exceptions: practicable date prior to the publication of Any person appointed by the Controlling - the Company agreed not to issue or this report, the Company did not hold any Shareholders to the board may be dispose of any Ordinary Shares in the shares in treasury. removed by the Principal Shareholders by Company for a period of 365 days following the date of Admission without notice in writing. the prior written consent of Numis; and Appointment and replacement of Directors Relationship agreement with controlling - the Directors and those selling Unless determined by ordinary resolution of shareholders shareholders who have retained Ordinary the Company, the number of Directors shall Carlton Court Investments Limited (“Carlton”) Shares after Admission agreed not to not be less than two or more than twelve holds 34.8% of the issued share capital dispose of any Ordinary Shares in the in number. A Director is not required to hold of the Company. As such Carlton is a Company for a period of 365 days any shares in the Company by way Controlling Shareholder as defined in following the date of Admission without of qualification. the prior written consent of Numis. the Listing Rules. Carlton is controlled by Steve Parkin. Steve Parkin and Carlton The Board may appoint any person to be have entered into, and the Company’s On 30th May 2014 each of the Executive a Director and such Director shall hold relationship with them is governed by Directors (save for Steve Parkin) and office only until the next AGM, when he or the terms of, the Relationship Agreement certain persons who held Ordinary Shares she shall be eligible for appointment by referred to above, the principal purpose after the Company’s Admission or whose the shareholders. The articles provide that of which is to ensure that the Company associates held such shares entered into at each AGM, one-third of the Directors for and the Group is capable of carrying on its an agreement with Steve Parkin agreeing to the time being (or, if their number is not a business independently of the Controlling certain restrictions on their ability (and that multiple of three, then the number nearest Shareholders and that any transactions of their family) to dispose of Ordinary Shares to but not exceeding one-third) shall retire and relationships with the Controlling in which they are interested for a period of from office. A Director who retires at any Shareholders are conducted at arm’s length five years from the date of Admission. Under AGM shall be eligible for re-appointment. and on normal commercial terms. the terms of the agreement, the obligors In addition, any Director appointed by the may not dispose of any interest in the Ordinary Shares held by them at Admission Board shall hold office only until the next following AGM and shall then be eligible The Controlling Shareholders have agreed to procure that their associates also comply until the fourth year of the five year period. for appointment. During the fourth year of the period, each with the Relationship Agreement. The Relationship Agreement will continue for obligor may dispose of up to one third of On 30th May 2014 the Company entered so long as the Company is listed on the the Ordinary Shares in which he is interested into an agreement (“Relationship Agreement”) main market for listed securities of London at Admission. During the fifth year of the five with Steve Parkin and his nominee company Stock Exchange plc and the Controlling year period, each obligor may dispose of Carlton Court Investments Limited (the Shareholders and their associates own or up to two thirds of the Ordinary Shares in “Controlling Shareholders”). Pursuant tothat control at least 25% of the Company’s which he is interested at Admission (less a agreement the Company has agreed issued share capital or voting rights. number equal to those Ordinary Shares sold with the Controlling Shareholders that the during the prior year (if any)). Controlling Shareholders shall be entitled The Listing Rules require premium listed to appoint and remove one Director companies with controlling shareholders to the Board so long as the Controlling to provide a confirmation in their annual Shareholders (and/or any of their associates) reports that all of the independence when taken together, hold 25% or more of provisions contained in their relationship 76 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Directors’ Report continued Relationship agreement with controlling Greenhouse gas emissions Significant Agreements shareholders (continued) The Group’s disclosures on greenhouse gas There are a number of agreements agreements have been complied with. emissions can be found in the Corporate which, subject to any discussions with In line with this requirement, the Board has Social Responsibility section of the Strategic relevant parties, would terminate upon assessed the Controlling Shareholders’ and Review on pages 36 and 37 and form part a change of control of the Company Company’s compliance with the of the Directors’ Report. Relationship Agreement’s independence requirements and has assessed compliance with these requirements Employment Policies such as commercial contracts, bank loan agreements, property lease arrangements and employees’ share plans. None of these individually is considered to be significant in during the period under review. As such, Arrangements for consulting and involving terms of their likely impact on the business of the Board can confirm that since the entry Group employees on matters affecting the Group as a whole. into the Relationship Agreement on 30 May their interests at work, and informing them 2014 until 24 July 2015, being the latest of the performance of their employing Branches practicable date prior to the publication of business and the Group, are developed Shortly after the 30 April 2015 year end, this Annual Report and Accounts: in ways appropriate to each business. A Clipper registered a branch in Ireland, (i) the Company has complied with the variety of approaches is adopted aimed in order to facilitate performance of a independence provisions included in the at encouraging the involvement of contract with Ireland’s largest retailer, and Relationship Agreement; employees in effective communication also to enhance its presence in Ireland in and consultation, and the contribution of order to secure further new business. (ii) so far as the Company is aware, the productive ideas at all levels. independence provisions included in the Relationship Agreement have been Employment policies are designed to Political donations complied with by each of the Controlling provide equal opportunities irrespective The Company has made no political Shareholders and their associates and of race, caste, national origin, religion, donations since Admission on 4 June 2014 also by the Company; and age, disability, gender, marital status, and intends to continue its policy of not sexual orientation or political affiliation. doing so for the foreseeable future. (iii) so far as the Company is aware, the Group policy is to ensure that disabled procurement obligation included in applicants for employment are given the Relationship Agreement has been full and fair consideration having regard Charitable donations complied with by each of the Controlling to their particular aptitudes and abilities, During the year to 30 April 2015, the Group Shareholders. and that existing disabled employees are made charitable donations totalling given equal access to training, career £52,000 (2014: £38,000). development and promotion opportunities. Power of Directors Subject to the Articles, the Companies In the event of existing employees becoming disabled, all reasonable means Act and any directions given by special would be explored to achieve retention in resolution, the business of the Company employment in the same or an alternative shall be managed by the Board who may capacity, including arranging appropriate exercise all the powers of the Company training. Further details in relation to the to, for example, borrow money; mortgage Group’s employment policy are set out in or charge any of its undertaking, property the Corporate Social Responsibility section and uncalled capital; and issue debentures of the Strategic Report on page 35. and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company. 77 Directors’ Report continued Major interests in shares As at 15 July 2015, being the last practicable date prior to publication of this report, the Company had been advised, in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, of the following notifiable interests (whether directly or indirectly held) in 3% or more of its voting rights: Notification received from Number of voting rights % Carlton Court Investments Limited1 SOMLIE Limited2 The Chima Settlement Unicorn Asset Management Liontrust Asset Management Franklin Templeton Fund Management Legal and General Investment Management Artemis Investment Management Hargreave Hale 1 Ultimately controlled by Steve Parkin, Executive Chairman. 2 Nominee for Sean Fahey, Chief Information Officer. 34,797,100 7,834,397 6,999,999 6,799,990 5,360,188 4,175,000 3,985,000 3,950,406 3,233,000 34.80 7.83 7.00 6.80 5.36 4.18 3.99 3.95 3.23 Going concern - he has taken all the reasonable steps The Directors consider that all of the After making enquiries, the Directors have a that he ought to have taken as a Director proposed resolutions are in the best interests reasonable expectation that the Company to make himself aware of any relevant of the Company and its shareholders as a has adequate resources to continue in audit information and to establish that whole. It is the Directors’ recommendation operational existence for the foreseeable the Group’s auditors are aware of the that you support the proposed resolutions future. In making this assessment they have information. and vote in favour of them, as each of the considered the Company and Group Directors intends to do. budgets and cash flow forecasts for the The confirmation is given and should period to 30 April 2017. The Company has be interpreted in accordance with the The Directors’ Report has been approved by considerable financial resources, negligible provisions of section 418 of the Companies the Board of Directors of Clipper Logistics plc. liquidity risk and is operating within a sector Act 2006. that is experiencing growing demand for its services. The Directors therefore Signed on behalf of the Board. have a reasonable expectation that the Auditors Guy Jackson Company and the Group have adequate The auditors, Ernst & Young LLP have Company Secretary resources to continue in operational indicated their willingness to continue in 27 July 2015 existence for the foreseeable future. Thus office and a resolution seeking to reappoint they continue to adopt the going concern them will be proposed at the Annual Clipper Logistics plc basis of accounting in preparing the annual General Meeting. Financial Statements. Further information is disclosed in note 2.2 to the Group Financial Registered Office: Gelderd Road Leeds LS12 6LT Statements. Annual general meeting Company No. 03042024 Audit information The Company’s Annual General Meeting will be held at Clipper Logistics, Gelderd Road, Leeds, LS12 6LT on 28 September 2015 at Each of the Directors at the date of the 11:00. Details of the meeting venue and approval of this report confirms that: the resolutions to be proposed are set out in - so far as he is aware, there is no relevant a separate Notice of Meeting which will be audit information of which the Group’s issued under separate cover. auditors are unaware; and 78 Clipper Logistics plc Annual Report and Accounts 2015 79 Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements The Directors are responsible for preparing - present information, including Directors’ Responsibility Statement the Annual Report and the Group and accounting policies, in a manner that Each of the Directors, whose names and Parent Company Financial Statements provides relevant, reliable, comparable functions are listed on pages 40 and in accordance with applicable law information; and 41, confirm that, to the best of his or her and regulations. knowledge: - prepare the Financial Statements on - the Financial Statements, prepared in Company law requires the Directors to the going concern basis unless it is accordance with IFRS as adopted by the prepare group and parent company inappropriate to presume that the Group European Union, give a true and fair view financial statements for each financial and the Parent Company will continue of the assets, liabilities, financial position year. Under that law the Directors have in business. prepared the Group’s Financial Statements and profit or loss of the Group and the undertakings included in the consolidation in accordance with International Financial The Directors are responsible for keeping as a whole; Reporting Standards (IFRSs) as adopted adequate accounting records that disclose by the European Union, and the Parent with reasonable accuracy at any time the - the Strategic Report and Directors’ Report Company Financial Statements in financial position of the Group and Parent include a fair review of the development accordance with United Kingdom Generally Company and which enable them to and performance of the business and Accepted Accounting Practice (United ensure that its Financial Statements and the the position of the Group and the Kingdom Accounting Standards and Directors’ Remuneration Report comply with undertakings included in the consolidation applicable law). the Companies Act 2006 and, as regards as a whole, together with a description of the Group Financial Statements, Article 4 of the principal risks and uncertainties that Under company law the Directors must not the IAS Regulation. They also have general they face; and approve the Financial Statements unless responsibility for taking such steps as are they are satisfied that they give a true and reasonably open to them to safeguard - the Annual Report and Financial fair view of the state of affairs of the Group the assets of the Group and the Parent Statements, taken as a whole, are fair, and Parent Company and of their profit or Company and to prevent and detect fraud balanced, and understandable and loss for that period. In preparing each of and other irregularities. the Group and Parent Company Financial provides the information necessary for shareholders to assess the Group’s Statements, the Directors are required to: Under applicable law and regulations, the performance, business model and - select suitable accounting policies and Directors are also responsible for preparing a strategy. then apply them consistently; Strategic Report, Directors’ Report, Directors’ Remuneration Report, and Corporate - make judgements and estimates that are Governance Statement that complies with Approved by the Board and signed reasonable and prudent; that law and those regulations. on its behalf by: - for the Group Financial Statements, state The Directors are responsible for the Steve Parkin whether they have been prepared in maintenance and integrity of the corporate Executive Chairman accordance with IFRSs as adopted by and financial information included on 27 July 2015 the EU, subject to any material departures the Company’s website. Legislation in disclosed and explained in the Group the UK governing the preparation and David Hodkin Financial Statements; dissemination of financial statements may Chief Financial Officer differ from legislation in other jurisdictions. 27 July 2015 - for the Parent Company Financial Statements state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company Financial Statements; 80 Clipper Logistics plc Annual Report and Accounts 2015 81 Clipper Logistics plc Annual Report and Accounts 2015 Group Financial Statements for the year ended 30 April 2015 82 Clipper Logistics plc Annual Report and Accounts 2015 83 Independent Auditor’s Report Independent Auditor’s report to the members of Clipper Logistics plc Opinion on the Financial Statements This report is made solely to the Company’s the Financial Statements. In addition, we read In our opinion: members, as a body, in accordance with all the financial and non-financial information - the Financial Statements give a true and fair Chapter 3 of part 16 of the Companies Act in the Annual Report to identify material view of the state of the Group’s and of the 2006. Our audit work has been undertaken inconsistencies with the audited Financial Parent Company’s affairs as at 30 April 2015 so that we might state to the Company’s Statements and to identify any information and of the Group’s profit for the year then members those matters we are required that is apparently materially incorrect based ended; to state to them in an auditor’s report and on, or materially inconsistent with, the for no other purpose. To the fullest extent knowledge acquired by us in the course of - the Group Financial Statements have been permitted by law, we do not accept or performing the audit. If we become aware properly prepared in accordance with assume responsibility to anyone other than the of any apparent material misstatements or International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; Company and the Company’s members as a body, for our audit work, for this report, or for inconsistencies we consider the implications for our report. - the Parent Company Financial Statements have been properly prepared in the opinions we have formed. Our assessment of risks of material accordance with United Kingdom Generally Respective responsibilities of Directors and misstatement and responses Accepted Accounting Practice; and auditor The following table shows the risks we identified As explained more fully in the Statement of that have had the greatest effect on the - the Financial Statements have been Directors’ Responsibilities set out on page overall audit strategy; the allocation of prepared in accordance with the 80, the Directors are responsible for the resources in the audit; and directing the efforts requirements of the Companies Act 2006; preparation of the Financial Statements and of the engagement team, together with our and, as regards the Group Financial for being satisfied that they give a true and audit response to the risk. Statements, Article 4 of the IAS Regulation. fair view. What we have audited Our responsibility is to audit and express an opinion on the Financial Statements We have audited the Financial Statements in accordance with applicable law and of Clipper Logistics plc for the year ended International Standards on Auditing (UK and 30 April 2015 which comprise the Group Ireland). Those standards require us to comply Income Statement and the Group with the Auditing Practices Board’s Ethical Statement of Comprehensive Income, the Standards for Auditors. Group Statement of Financial Position, the Group Statement of Changes in Equity, the Group Statement of Cash Flows, the Scope of the audit of the Financial Parent Company Balance Sheet and the Statements related notes 1 to 28 for the Group, and A An audit involves obtaining evidence about to V for the Parent Company. The financial the amounts and disclosures in the financial reporting framework that has been applied statements sufficient to give reasonable in the preparation of the Group Financial assurance that the financial statements are Statements is applicable law and IFRSs as free from material misstatement, whether adopted by the European Union. The financial caused by fraud or error. This includes an reporting framework that has been applied assessment of: whether the accounting in the preparation of the Parent Company policies are appropriate to the Group’s Financial Statements is applicable law and and the Parent Company’s circumstances United Kingdom Accounting Standards (United and have been consistently applied and Kingdom Generally Accepted Accounting adequately disclosed; the reasonableness Practice). 84 of significant accounting estimates made by the Directors; and the overall presentation of Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Independent Auditor’s Report continued Independent Auditor’s report to the members of Clipper Logistics plc (continued) Our assessment of risks of material misstatement and responses (continued) Risk of material misstatement Audit response to identified risk Revenue recognition in relation to logistics sales contracts and in relation to sales of vehicles, parts and servicing Within the value added logistics segment there are several types of logistics contracts with individually negotiated terms which means each contract can have different points of revenue recognition, therefore there is a risk that revenue is accounted for incorrectly. Within the commercial vehicles segment sales are generally straightforward, requiring minimal judgment to be exercised. For all revenue streams an area of particular focus is the risk that revenue may be inaccurately recorded and/or recorded in the incorrect period. Refer also to page 52 (Audit Committee Report). Accounting for acquisitions As disclosed in note 28 to the Group Financial Statements the Group acquired a new subsidiary, Servicecare Support Services Limited, during the year. There is a risk that the accounting for acquisitions, including the allocation of the purchase price and the recognition of intangible assets and goodwill is not performed in accordance with IFRS 3. Refer also to page 52 (Audit Committee Report). At each of the Group’s locations we performed the following audit procedures around revenue recognition: - We performed detailed cut-off testing for a sample of transactions around the year end date in order to corroborate that transactions made around the year-end date were recognised appropriately. - Detailed analytical review procedures were performed to identify significant fluctuations and trends. Where items were noted which were not in line with our expectations, we obtained explanations and evidence from management and assessed whether, in our professional judgement, such items were appropriate. - We completed journals testing, applying particular professional scepticism to revenue transactions. - Furthermore, for the value added logistics segment, a sample of contracts were reviewed for key and unusual terms. Where these terms impact the application of revenue recognition we have reviewed this to ensure that the judgements made were appropriate and revenue has been recognised in line with the contract terms. We also ensured that policies for revenue recognition and other Financial Statement disclosures were in accordance with accounting standards. For the acquisition in the period we obtained and understood the sales and purchase agreement. We ensured the appropriateness of the allocation of the purchase price and the recognition of intangible assets. In particular we reviewed the judgements made by management in identifying and valuing the intangible assets acquired. We challenged the most significant assumptions used to determine the valuation, which included the discount rate and customer churn. We have also read the share purchase agreement to ensure that the deferred consideration has been accounted for correctly and has no contingent element. 85 Independent Auditor’s Report continued Independent Auditor’s report to the members of Clipper Logistics plc (continued) Our application of materiality An overview of the scope of our audit business units of the Group and account for We apply the concept of materiality both in We adopted a risk-based approach in 100% of the Group’s revenue, 100% of the planning and performing our audit, and in determining our audit strategy. This approach Group’s profit before tax, and 100% of the evaluating the effect of misstatements on focuses audit effort towards higher risk Group’s total assets. The chart below shows our audit and on the Financial Statements. areas, such as management judgements how the audit coverage is split between full For the purposes of determining whether the and estimates and operating units that are and specific scope. Financial Statements are free from material considered significant based upon size, misstatement we define materiality as the complexity and risk. Our Group audit scope Audits of these operating units are performed magnitude of misstatement that makes it focused on two operating units, which were at a performance materiality level calculated probable that the economic decisions of a subject to a full scope audit for the year with reference to a proportion of the Group reasonably knowledgeable person, relying on the Financial Statements, would be changed ended 30 April 2015 performed by the Group audit team. An additional two operating materiality appropriate to the relative scale and risk associated with each operating unit. or influenced. units were selected for specific scope audit They are also selected to provide a basis for procedures where the extent of audit work undertaking audit work to address the risks We determined materiality for the Group to was based on our assessment of the risks of of material misstatement identified above. be £0.5 million, which is approximately 5% material misstatement and of the materiality This percentage is based on the size of the of pre-tax profit for the year, adjusted for of those operating units to the Group’s component relative to the Group as a whole exceptional items. This provided a basis for business operations. Together with the Group and our assessment of the risk of misstatement determining the nature, timing and extent of functions which were also subject to a full at that component. In the current year the risk assessment procedures, identifying and scope audit for the year ended 30 April 2015, range of performance materiality allocated assessing the risk of material misstatement these operating units represent the principal to components was £0.03 million to £0.20 million. Full scope Specific scope 9% 17% 83% 91% Profit before tax £9.5 million Revenue £234.8 million and determining the nature, timing and extent of further audit procedures. On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement is that performance materiality (that is our tolerance for misstatement in an individual account or balance) was 50% of our materiality, namely £0.26 million. Our objective in adopting this approach was to ensure that uncorrected and undetected audit differences in the Financial Statements as a whole did not exceed our planning materiality level. We agreed with the Audit Committee that we would report to the Committee all corrected and uncorrected audit differences in excess of £26,000, as well as differences below that threshold that in our view warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in the light of other relevant qualitative considerations. 86 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Independent Auditor’s Report continued Independent Auditor’s report to the members of Clipper Logistics plc (continued) Opinions on other matters prescribed by the In particular, we are required to consider Other matters Companies Act 2006 In our opinion: whether we have identified any The maintenance and integrity of the Clipper inconsistencies between our knowledge Logistics plc web site is the responsibility of the - the part of the Directors’ Remuneration acquired during the audit and the Directors’ Directors; the work carried out by the Auditors Report to be audited has been properly Responsibility Statement that they consider does not involve consideration of these prepared in accordance with the the Annual Report is fair, balanced and matters and, accordingly, the Auditors accept Companies Act 2006; understandable and whether the Annual no responsibility for any changes that may - the information given in the Strategic Report Report appropriately discloses those matters have occurred to the Financial Statements and the Directors’ Report for the financial that we communicated to the Audit since they were initially presented on the year for which the Financial Statements are Committee which we consider should have web site. prepared is consistent with the Financial Statements; and been disclosed. Legislation in the United Kingdom governing - the information given in the Corporate Under the Companies Act 2006 we are the preparation and dissemination of financial Governance Report set out pages 42 to required to report to you if, in our opinion: statements may differ from legislation in 49 with respect to internal control and - adequate accounting records have not other jurisdictions. risk management systems in relation to been kept by the Parent Company, or financial reporting processes and about returns adequate for our audit have not share capital structures is consistent with been received from branches not visited by Stuart Watson (Senior statutory auditor) the Financial Statements. us; or for and on behalf of Ernst & Young LLP, - the Parent Company Financial Statements Statutory Auditor, Leeds and the part of the Directors’ Remuneration 27 July 2015 Matters on which we are required to report Report to be audited are not in agreement by exception with the accounting records and returns; or We have nothing to report in respect of the - certain disclosures of Directors’ remuneration following: specified by law are not made; or Under the ISAs (UK and Ireland), we are - we have not received all the information required to report to you if, in our opinion, and explanations we require for our audit; or information in the Annual Report is: - a Corporate Governance Statement has - materially inconsistent with the information in not been prepared by the Company. the audited Financial Statements; or - apparently materially incorrect based on, or Under the Listing Rules we are required to materially inconsistent with, our knowledge review: of the Group acquired in the course of performing our audit; or - is otherwise misleading. - the Directors’ Responsibility Statement, set out on page 80, in relation to going concern; and - the part of the Corporate Governance Report relating to the Company’s compliance with the ten provisions of the UK Corporate Governance Code specified for our review. 87 Group Income Statement For the year ended 30 April Revenue Cost of sales Gross profit Other net gains Administration and other expenses Operating profit before non-recurring items Discontinuing costs Exceptional costs Operating profit Finance costs Finance income Profit before income tax Income tax expense Note 3 6 4 6 6 9 10 11 2015 Group £’000 2014 Group £’000 234,778 (165,590) 201,248 (141,514) 69,188 364 (57,547) 59,734 285 (50,406) 12,005 (278) (863) 10,864 (1,388) 9 9,485 (2,161) 9,613 (2,297) (2,516) 4,800 (952) 101 3,949 (1,103) Profit for the financial year 7,324 2,846 Attributable to: Equity holders of the Company Non-controlling interest Profit for the financial year Basic earnings per share Fully diluted earnings per share Adjusted basic and diluted earnings per share* 7,324 - 2,826 20 7,324 2,846 7.3p 7.3p 8.4p 2.8p 2.8p 7.0p 7 7 7 *Earnings per share adjusted for discontinuing and exceptional costs as described in note 7. 88 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Group Statement of Comprehensive Income For the year ended 30 April Profit for the financial year Other comprehensive income for the year, net of tax: To be reclassified to the income statement in subsequent periods: Exchange differences on retranslation of foreign operations Note 2015 Group £’000 2014 Group £’000 7,324 2,846 (5) (1) Total comprehensive income for the financial year 7,319 2,845 Attributable to: Equity holders of the Company Non-controlling interest Total comprehensive income for the financial year 7,319 - 2,825 20 7,319 2,845 89 Group Statement of Financial Position At 30 April Assets: Non-current assets Property, plant and equipment Goodwill Other intangible assets Intangible assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities: Current liabilities Trade and other payables Financial liabilities: borrowings Derivative financial instruments Short term provisions Current income tax liabilities Total current liabilities Non-current liabilities Borrowings Long term provisions Deferred tax liabilities Total non-current liabilities Total liabilities Equity shareholders’ funds Share capital Share premium Currency translation reserve Other reserve Merger reserve Share based payment reserve Retained earnings Total equity attributable to the owners of the Company Total equity and liabilities *2014 restated (see note 2.3) Approved by the Board on 27 July 2015 and signed on its behalf by: D A Hodkin – Chief Financial Officer 90 Note 2015 Group £’000 2014 Group * £’000 12 14,615 15,843 23,252 1,567 19,018 549 13 24,819 19,567 39,434 35,410 15 16 17 18 19 20 11 19 20 11 21 23 21,677 33,443 1,854 19,025 28,332 5,360 56,974 52,717 96,408 88,127 61,708 5,196 70 108 731 54,410 16,455 - 147 318 67,813 71,330 10,226 732 642 4,260 699 366 11,600 5,325 79,413 76,655 50 48 31 84 6,006 139 10,637 50 48 36 84 6,006 - 5,248 16,995 11,472 96,408 88,127 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Group Statement of Changes in Equity For the year ended 30 April Balance at 1 May 2013 Profit for the year Other comprehensive income/(expense) Share issue - for cash - on acquisition of minority interest Increase in ownership interest of subsidiary Equity settled transactions Dividends Investment in subsidiaries charged to merger Balance at 30 April 2014 Profit for the year Other comprehensive income/(expense) Equity settled transactions Dividends Share capital £’000 Share premium £’000 Currency translation reserve £’000 Other reserve £’000 Merger reserve £’000 Carried forward £’000 8 - - 42 - - - - - 50 - - - - 48 36 51 18,168 18,311 - - - - - - - - 48 - - - - - - - - - - - - 36 - (5) - - - - - 800 (767) - - - - - - - - - - (12,162) - - 42 800 (767) - - (12,162) 84 6,006 6,224 - - - - - - - - - (5) - - Balance at 30 April 2015 50 48 31 84 6,006 6,219 Balance at 1 May 2013 Profit for the year Other comprehensive income/(expense) Share issue - for cash - on acquisition of minority interest Increase in ownership interest of subsidiary Equity settled transactions Dividends Investment in subsidiaries charged to merger reserve Balance at 30 April 2014 Profit for the year Other comprehensive income/(expense) Equity settled transactions Dividends Brought forward £’000 18,311 - - 42 800 (767) - - (12,162) 6,224 - (5) - - Share based payment reserve £’000 Retained earnings £’000 Non- controlling interest £’000 - - - - - - - - - - - - 139 - 8,592 2,826 (1) - - - 180 (6,349) - 5,248 7,324 - - (1,935) 13 20 - - - (33) - - - - - - - - - Balance at 30 April 2015 6,219 139 10,637 Total £’000 26,916 2,846 (1) 42 800 (800) 180 (6,349) (12,162) 11,472 7,324 (5) 139 (1,935) 16,995 91 Group Statement of Cash Flows For the year ended 30 April Note 6 6 6 6 9 & 10 6 6 22 Profit before tax from operating activities Adjustments to reconcile profit before tax to net cash flows: - Depreciation and impairment of property, plant and equipment - Amortisation and impairment of intangible assets - Gain on disposal of property, plant and equipment - IPO transaction costs charged - IPO transaction costs paid - Exchange differences - Finance costs - Movement in derivative financial instruments - Amortisation of grants - Share based payments charge Working capital adjustments: - (Increase)/decrease in trade and other receivables and prepayments - (Increase)/decrease in inventories - Increase/(decrease) in trade and other payables Operating activities: - Cash generated from operations - Interest received - Interest paid - Income tax paid Net cash flows from operating activities Investing activities: - Purchase of property, plant and equipment - Proceeds from sale of property, plant & equipment - Purchase of intangible assets - Transfer of subsidiaries from former parent company - Acquisition of subsidiary undertaking net of cash acquired 28 Net cash flows from investing activities *2014 restated (see note 2.3) 2015 Group £’000 9,485 3,358 292 (38) 671 (2,065) 118 1,379 (98) (1) 124 (3,073) (2,270) 4,716 2014 Group £’000* 3,949 3,685 219 (26) 1,981 (587) 10 851 - - 180 (4,498) 861 9,205 12,598 9 (1,248) (1,728) 15,830 101 (962) (1,644) 9,631 13,325 (197) 292 (87) - (3,699) (2,557) 172 (176) (12,162) (64) (3,691) (14,787) 92 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Group Statement of Cash Flows For the year ended 30 April (continued) Financing activities: - Net (repayment to)/advance from former parent company - Receipt in respect of derivative financial instrument - New bank loans - Debt issue costs paid - Finance leases advanced - Repayment of bank loans - Shares issued - Dividends paid - Repayment of capital on finance leases Note 8 2015 Group £’000 (14,181) 168 12,762 (370) 91 (2,920) - (1,935) (2,976) 2014 Group £’000 * 11,846 - 146 - 1,941 (266) 42 (6,349) (2,903) Net cash flows from financing activities (9,361) 4,457 Net (decrease)/increase in cash and cash equivalents (3,421) 2,995 Cash and cash equivalents at start of year 5,275 2,280 Cash and cash equivalents at end of year 17 1,854 5,275 *2014 restated (see note 2.3) 93 Notes to the Group Financial Statements 1. General information 2.1 Basis of preparation The accounting policies which follow set out The Group Financial Statements for the year Clipper Logistics plc (“the Company”), a those policies which apply in preparing the ended 30 April 2015 were authorised for public limited company incorporated and Financial Statements for the year ended 30 issue by the Board of Directors on 27 July domiciled in the United Kingdom, acts as April 2015. 2015 and the Group Statement of Financial parent undertaking for the Clipper group of Position was signed on the Board’s behalf by companies. The Company has independent The Group’s Financial Statements have David Hodkin. operations in its own right and owns 100% been prepared on a historical cost basis, of the share capital and voting rights of the except for derivative financial instruments Clipper Logistics plc (the “Company”) and following principal trading entities: which have been measured at fair value. its subsidiaries (together the “Group”) provide - Northern Commercials (Mirfield) Limited The Financial Statements are presented in value-added logistics and other services Pounds Sterling and all values are rounded to predominantly the retail sector and - Clipper Logistics KG (GmbH & Co.) to the nearest thousand (£’000) unless also operate as distributors of commercial (Germany) otherwise indicated. vehicles. - Servicecare Support Services Limited (see The Company is limited by share capital, note 28) incorporated and domiciled in the United 2.2 Going concern The Financial Statements have been Kingdom. The address of its registered office - Electrotec International Limited prepared on a going concern basis. In is Clipper Logistics, Gelderd Road, Leeds, determining the appropriate basis of LS12 6LT. In addition, the Group has a number of preparation of the Financial Statements, the other subsidiaries as set out in note E to the Directors are required to consider whether The Group’s Financial Statements have Company Financial Statements. the Group can continue in operational been prepared in accordance with note existence for the foreseeable future. 2.1 Basis of preparation, and note 2.4 Basis The Group’s Financial Statements have been of consolidation. The principal accounting prepared in accordance with International Further information in relation to the Group’s policies adopted by the Group are set out Financial Reporting Standards as adopted business activities, together with the factors in note 2. by the European Union (IFRS) and also likely to affect its future development, in accordance with the provisions of the performance and position is set out in the Companies Act 2006. Strategic Report section of this report on 2. Summary of significant accounting policies The preparation of the financial information pages 6 to 37. The principal accounting policies applied under IFRSs requires management to make Note 26 to the Group Financial Statements in the preparation of these consolidated judgments, estimates and assumptions includes the Group’s objectives, policies Financial Statements are set out below. These policies have been consistently that affect the application of policies and reported amounts of assets and liabilities, and processes for managing its capital, its financial risk management objectives and applied to all years presented, unless income and expenses. The estimates and its exposure to foreign exchange, credit and otherwise stated. associated assumptions are based on interest rate risk. Further details of the Group’s historical experience and other factors that net debt at 30 April 2015 are included in are believed to be reasonable under the note 19 of the Group Financial Statements. circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates 94 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.2 Going concern (continued) 2.3 Restatement of prior year figures 2.4 Basis of consolidation The Group statement of financial position Inventories of commercial vehicles are (a) Group reorganisation shows total current assets of £56,974,000 usually funded under stocking finance plans The restructuring noted in note 2.4 (b) below and total current liabilities of £67,813,000. offered by either the manufacturer’s own is a combination of entities under common Net current liabilities at 30 April 2015 finance arm, or third party funders. In the control. IFRS 3 states that it does not apply were therefore £10,839,000 (2014: financial statements for the year ended to a combination of entities or businesses £18,613,000). At the year end, the Group 30 April 2014, amounts outstanding to the under common control. All of the entities had a committed Revolving Credit Facility manufacturer’s finance arm were included that make up the Clipper Group have of £12,504,000 and an overdraft facility of in trade payables, whereas amounts remained under common control, in both £5,000,000, both of which were undrawn. outstanding to third party stocking finance of the years disclosed. Accordingly, the The Directors have assessed the future providers were included as stocking loans consolidated financial information of the funding requirements of the Group and within borrowings. the Company and compared them to the Clipper Group has been prepared to reflect the combination of the restructured Clipper bank facilities which are now available. As the relevant characteristics of the stocking Group as if it had occurred from 1 May The assessment included a detailed review finance facilities are the same, regardless 2010, being the earliest comparative period of financial and cash flow forecasts for at of the funder, the Group believes it is reported by the restructured group. least the 12 month period from the date more appropriate to disclose all amounts of signing the Annual Report. The Directors outstanding in the same way, in order The comparative financial information of the considered a range of potential scenarios to give a consistent view of the working Clipper Group for the year ended 30 April within the key markets the Group serves and capital requirements. Consequently, in the 2014 has been prepared on a basis that how these might impact on the Group’s restated 30 April 2014 Group statement of combines the results and assets and liabilities cash flow. The Directors also considered financial position, trade & other payables of all entities within the Clipper Group. Prior what mitigating actions the Group could have been increased by £2,686,000 (1 to 16 April 2014 the Clipper Group did not take to limit any adverse consequences. May 2013: £978,000) and borrowings have constitute a separate legal group. been reduced by the same figure. In the The Group’s forecasts and projections Group statement of cash flows for the year (b) Merger reserve show that the Group should be able to ended 30 April 2014, cash generated At 30 April 2014 the Company was a wholly operate without the need for any increase in from operations has been increased by owned subsidiary of Clipper Group Holdings borrowing facilities. £1,708,000 and stocking loans advanced Limited. In April 2014 the Group undertook a Having undertaken this work, the Directors the change not been made, the amount acquired fellow subsidiaries from Clipper are of the opinion that the Company of stocking finance which would have been Group Holdings Limited which comprised and the Group have adequate resources included in borrowings at 30 April 2015 100% of the issued share capital of Northern has been reduced by the same figure. Had restructuring. On 16 April 2014 the Company to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements. would have been £5,799,000. Commercials (Mirfield) Limited and Genesis Specialised Product Packing Limited and, on 23 April 2014, 75% of the capital of Clipper Logistics GmbH and its subsidiary R. Geist Spedition GmbH & Co. KG (collectively “the Clipper Group”). On 30 April 2014 the Group acquired the remaining 25% of share capital of Clipper Logistics GmbH. There were no remaining non-controlling interests from this date. On 4 June 2014 Clipper Logistics plc was admitted to the premium segment of the London Stock Exchange and Clipper Group Holdings Limited was no longer the parent company. 95 Notes to the Group Financial Statements continued 2.4 Basis of consolidation (continued) - Rights arising from other contractual The purchase method of accounting is used As described above, the group arrangements reorganisation is a combination of entities to account for the acquisition of subsidiaries by the Group other than those included under common control; and consolidated - The Group’s voting rights and potential in the restructuring referred to above. The using a pooling of interests basis. This treats voting rights the restructured group as if it was formed in cost of an acquisition is measured as the fair value of the assets given, equity May 2010 and a merger reserve has been The Group re-assesses whether or not instruments issued and liabilities incurred included to reflect this, with a balance of it controls an investee if facts and or assumed at the date of exchange, plus £18,168,000 at this date. In the year ended circumstances indicate that there are costs directly attributable to the acquisition. 30 April 2014 a charge of £12,162,000 changes to one or more of the three Identifiable assets acquired and liabilities was made to the reserve to reflect the elements of control. Consolidation of a and contingent liabilities assumed in a acquisition of the fellow subsidiaries from subsidiary begins when the Group obtains business combination are measured initially Clipper Group Holdings Limited as part of the control over the subsidiary and ceases when at their fair values at the acquisition date, group reorganisation. the Group loses control of the subsidiary. irrespective of the extent of any minority Assets, liabilities, income and expenses of interest. The excess of the cost of acquisition (c) Consolidations a subsidiary acquired or disposed of during over the fair value of the Group’s share of the The consolidated financial statements the year are included in the consolidated identifiable net assets acquired is recorded comprise the financial statements of the financial statements from the date the as goodwill. If the cost of acquisition is Group and its subsidiaries as at 30 April Group gains control until the date the Group less than the fair value of the net assets of 2015. Control is achieved when the Group ceases to control the subsidiary. the subsidiary acquired, the difference is is exposed, or has rights, to variable returns recognised directly in the income statement. from its involvement with the investee and Profit or loss and each component of other has the ability to affect those returns through comprehensive income are attributed to its power over the investee. Specifically, the the equity holders of the parent of the Group 2.5 Segment reporting Group controls an investee if, and only if, the and to any non-controlling interests, even Operating segments are reported in Group has: if this results in the non-controlling interests a manner consistent with the internal - Power over the investee (i.e., existing rights having a deficit balance. When necessary, reporting provided to the Company’s that give it the current ability to direct the adjustments are made to the financial Board of Directors, collectively the Group’s relevant activities of the investee) statements of subsidiaries to bring their chief operating decision maker, to assess accounting policies into line with the Group’s performance and allocate capital or - Exposure, or rights, to variable returns from accounting policies. All intra-group assets resources. its involvement with the investee and liabilities, equity, income, expenses and cash flows relating to transactions between - The ability to use its power over the investee to affect its returns members of the Group are eliminated in full on consolidation The financial statements 2.6 Foreign currency translation (a) Functional and presentation currency of subsidiaries used in the preparation of Items included in the financial statements of Generally, there is a presumption that a the consolidated Financial Statements are each of the Group’s entities are measured majority of voting rights result in control. prepared on the same reporting year as the using the currency of the primary economic To support this presumption and when parent company. the Group has less than a majority of the environment in which the entity operates (‘the functional currency’). The combined voting or similar rights of an investee, the A change in the ownership interest of Financial Statements are presented in Group considers all relevant facts and a subsidiary without loss of control is Pounds Sterling, which is the Company’s circumstances in assessing whether it has accounted for as an equity transaction. If functional and presentation currency. power over an investee, including: the Group loses control over a subsidiary, it - The contractual arrangement with the derecognises the related assets (including other vote holders of the investee goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. 96 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.6 Foreign currency translation 2.7 Property, plant and equipment 2.8 Intangible assets (continued) Property, plant and equipment is stated (a) Goodwill (b) Transactions and balances at historical cost less depreciation and Goodwill represents the excess of the cost Foreign currency transactions are translated impairment. Historical cost includes of an acquisition over the fair value of the into the functional currency using the expenditure that is directly attributable to the Group’s share of the net identifiable assets exchange rates prevailing at the dates of acquisition of the items. the transactions. Foreign exchange gains of the acquired subsidiary at the date of acquisition. If the cost of acquisition is and losses resulting from the settlement of Subsequent costs are included in the less than the fair value of the net assets of such transactions and from the translation asset’s carrying amount or recognised the subsidiary acquired, the difference is at year-end exchange rates of monetary as a separate asset, as appropriate, only ‘negative goodwill’ and is recognised in the assets and liabilities denominated in foreign when it is probable that future economic income statement immediately. currencies are recognised in the income benefits associated with the item will flow to statement. Non-monetary items that are the Group and the cost of the item can be Goodwill on acquisitions of subsidiaries is measured in terms of historical cost in a measured reliably. The carrying amount of included in ‘intangible assets’. Separately foreign currency are translated using the any replaced part is derecognised. All other recognised goodwill is tested annually exchange rates at the dates of the initial repairs and maintenance are charged to for impairment and carried at cost transactions. Non-monetary items measured the income statement during the financial less accumulated impairment losses. at fair value in a foreign currency are period in which they are incurred. Impairment losses on goodwill are not translated using the exchange rates at the reversed. Gains and losses on the disposal date when the fair value is determined. The Depreciation is calculated using the straight- of an entity include the carrying amount of gain or loss arising on translation of non- line method to allocate their cost to their goodwill relating to the entity sold. Goodwill monetary items measured at fair value is residual values over their estimated useful is allocated to cash-generating units for treated in line with the recognition of the lives, as follows: the purpose of impairment testing. The gain or loss on the change in fair value of - Leasehold property over the length of the allocation is made to those cash-generating the item (i.e., translation differences on items lease; whose fair value gain or loss is recognised in units or groups of cash-generating units that are expected to benefit from the business other comprehensive income or profit or loss - Plant and machinery 2 - 20 years; and combination in which the goodwill arose. are also recognised in other comprehensive income or profit or loss, respectively). - Motor vehicles 4 - 8 years. (b) Contracts and licences Intangible assets acquired separately are (c) Translation of foreign operations Residual values and useful lives are measured on initial recognition at cost. On consolidation, the assets and liabilities of reviewed, and adjusted if appropriate, at The cost of intangible assets acquired in foreign operations are translated into Pounds each balance sheet date. a business combination is their fair value Sterling at the rate of exchange prevailing at the reporting date and their statements An asset’s carrying amount is written down at the date of acquisition. Following initial recognition, intangible assets are carried at of profit or loss are translated at the immediately to its recoverable amount if the cost less any accumulated amortisation and average exchange rates for the year. The asset’s carrying amount is greater than its accumulated impairment losses. Internally exchange differences arising on translation estimated recoverable amount. generated intangibles, excluding capitalised for consolidation are recognised in other development costs, are not capitalised and comprehensive income. An item of property, plant and equipment the related expenditure is reflected in profit and any significant part initially recognised or loss in the period in which the expenditure Any goodwill arising on the acquisition of is derecognised upon disposal or when no is incurred. a foreign operation and any fair value future economic benefits are expected from adjustments to the carrying amounts of its use or disposal. Any gain or loss arising Intangible assets are amortised over the assets and liabilities arising on the acquisition on derecognition of the asset (calculated useful economic life (five to ten years) and are treated as assets and liabilities of the as the difference between the net disposal assessed for impairment whenever there is foreign operation and translated at the spot proceeds and the carrying amount of the an indication that the intangible asset may rate of exchange at the reporting date. asset) is included within ‘other net gains’ in be impaired. the income statement when the asset is derecognised. 97 Notes to the Group Financial Statements continued 2.8 Intangible assets (continued) When the carrying amount of an asset or 2.10 Financial assets (c) Computer software CGU exceeds its recoverable amount, the The Group classifies its financial assets in the Acquired computer software licences are asset is considered impaired and is written following categories: at fair value through capitalised on the basis of the costs incurred down to its recoverable amount. profit or loss and available for sale. The to acquire and bring to use the specific classification depends on the purpose for software. These costs are amortised over In assessing value in use, the estimated which the financial assets were acquired. their estimated useful lives (three to five future cash flows are discounted to their Management determines the classification of years). present value using a pre-tax discount rate its financial assets at initial recognition. At 30 that reflects current market assessments April 2015 the Group held no financial assets Costs associated with developing or of the time value of money and the risks available for sale. maintaining computer software programmes specific to the asset. In determining fair are recognised as an expense as incurred. value less costs to sell, recent market Financial assets at fair value through profit Costs that are directly associated with the transactions are taken into account. If no or loss development of identifiable and unique such transactions can be identified, an Financial assets at fair value through profit software products controlled by the Group, appropriate valuation model is used. These or loss are financial assets held for trading. and that will probably generate economic calculations are corroborated by valuation A financial asset is classified in this category benefits exceeding costs beyond one multiples, quoted share prices for publicly if acquired principally for the purpose of year, are recognised as intangible assets. traded companies or other available fair selling in the short term. Derivatives are also Costs include the software development value indicators. employee costs and overheads directly categorised as held for trading unless they are designated as hedges. Assets in this attributable to bringing the asset in to use. An impairment loss is recognised as an category are classified as current assets. expense immediately. Where an impairment Computer software development costs loss subsequently reverses, the carrying Investments are initially recognised at fair recognised as assets are amortised over amount of the asset (or CGU) is increased value plus transaction costs for all financial their estimated useful lives (not exceeding to the revised estimate of its recoverable assets not carried at fair value through profit three years). amount, but so that the increased carrying or loss. Financial assets carried at fair value amount does not exceed the carrying through profit or loss are initially recognised at amount that would have been determined fair value and transaction costs are expensed 2.9 Impairment of non-financial assets had no impairment loss been recognised for in the income statement. Financial assets The Group assesses, at each reporting date, the asset (or CGU) in prior years. A reversal of are derecognised when the rights to receive whether there is an indication that an asset an impairment loss is recognised as income cash flows from the investments have expired may be impaired. If any indication exists, or immediately. when annual impairment testing for an asset or have been transferred and the Group has transferred substantially all risks and rewards of is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable The Group bases its impairment calculation on detailed budgets and forecast ownership. amount is the higher of an asset’s or cash- calculations, which are prepared separately Available-for-sale financial assets and generating unit’s (“CGU”) fair value less costs for each of the Group’s CGUs to which financial assets at fair value through profit or to sell and its value in use. the individual assets are allocated. These loss are subsequently carried at fair value. budgets and forecast calculations generally Where the asset does not generate cash cover a minimum period of two years. For Gains or losses arising from changes in the flows that are independent from other longer periods, a long-term growth rate is fair value of the ‘financial assets at fair value assets, the Group estimates the recoverable calculated and applied to project future through profit or loss’ category are presented amount of the CGU to which the asset cash flows after the second year. in the income statement within ‘other net belongs. gains’ in the period in which they arise. 98 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.10 Financial assets (continued) Significant financial difficulties of the 2.16 Consignment inventory payables Dividend income from financial assets at fair debtor, probability that the debtor will enter Inventories of commercial vehicles are value through profit or loss is recognised in the bankruptcy or financial reorganisation, and usually funded under stocking finance plans income statement as part of other income default or delinquency in payments (more offered by either the manufacturer’s own when the Group’s right to receive payments than 30 days overdue) are considered finance arm, or third party funders. Amounts is established. indicators that the trade receivable may outstanding are included in trade and other The Group assesses at each balance sheet the difference between the asset’s carrying date whether there is objective evidence amount and the present value of estimated that a financial asset or a Group of financial future cash flows, discounted at the original 2.17 Borrowings be impaired. The amount of the provision is payables. assets is impaired. effective interest rate. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings Impairment testing of trade receivables is The carrying amount of the asset is reduced are subsequently stated at amortised cost; described in note 2.13. through the use of an allowance account, any difference between the proceeds (net and the amount of the loss is recognised in of transaction costs) and the redemption the income statement within ‘administration value is recognised in the income statement 2.11 Inventories expenses’. over the period of the borrowings using the Inventories are stated at the lower of cost effective interest method. and net realisable value. Cost includes all When a trade receivable is uncollectible, it costs incurred in bringing each product to is written off against the allowance account Borrowings are classified as current liabilities its present location and condition. Cost is for trade receivables. Subsequent recoveries unless the Group has an unconditional right to determined using the first-in, first-out (“FIFO”) of amounts previously written off are credited defer settlement of the liability for at least 12 method. Net realisable value is the estimated against ‘administration expenses’ in the months after the balance sheet date. selling price in the ordinary course of business, income statement. less applicable variable selling expenses. 2.14 Cash and cash equivalents Current tax assets and liabilities are 2.18 Income tax 2.12 Vehicles on consignment Cash and cash equivalents includes cash measured at the amount expected to be Vehicles held on consignment from in hand, deposits held at call with banks, recovered from or paid to the taxation manufacturers are included in the statement other short-term highly liquid investments with authorities, based on tax rates and laws that of financial position where it is considered that original maturities of three months or less, are enacted or substantively enacted by the the Group enjoys the benefits and carries the and bank overdrafts. Bank overdrafts are balance sheet date. risks of ownership. shown within borrowings in current liabilities on the statement of financial position. Cash and cash equivalents are stated net of bank Deferred income tax is provided in full, using the liability method, on temporary 2.13 Trade receivables overdrafts in the cash flow statement. differences arising between the tax bases Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest 2.15 Trade payables of assets and liabilities and their carrying amounts in the Financial Statements. method, less provision for impairment. A Trade payables are recognised initially at However, the deferred income tax is provision for impairment of trade receivables fair value and subsequently measured at not accounted for, if it arises from initial is established when there is objective amortised cost using the effective interest recognition of goodwill or an asset or liability evidence that the Group will not be able to method. collect all amounts due according to the original terms of the receivables. in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profits or losses. 99 Notes to the Group Financial Statements continued 2.18 Income tax (continued) (b) Profit-sharing and bonus plans 2.20 Provisions Deferred income tax is determined using tax The Group recognises a liability and an Provisions for items such as dilapidations rates (and laws) that have been enacted or expense for bonuses and profit-sharing, and legal claims are recognised when: the substantially enacted by the balance sheet based on a formula that takes into Group has a present legal or constructive date and are expected to apply when the consideration the profit attributable to the obligation as a result of past events; it is related deferred income tax asset is realised Company’s shareholders after certain probable that an outflow of resources will or the deferred income tax liability is settled. adjustments. The Group recognises a be required to settle the obligation; and the Deferred income tax assets are recognised provision where contractually obliged or amount has been reliably estimated. to the extent that it is probable that future where there is a past practice that has taxable profit will be available against which created a constructive obligation. Where there are a number of similar the temporary differences can be utilised. obligations, the likelihood that an outflow (c) Share based payments will be required in settlement is determined Deferred income tax is provided on IFRS 2 requires the recognition of equity by considering the class of obligations as temporary differences arising on investments settled share based payments at fair value a whole. A provision is recognised even if in subsidiaries and associates, except where at the date of the grant. All equity settled the likelihood of an outflow with respect to the timing of the reversal of the temporary share based payments are ultimately any one item included in the same class of difference is controlled by the Group and it is recognised as an expense in the profit and obligations may be small. probable that the temporary difference will loss account with a corresponding credit to not reverse in the foreseeable future. share based payment reserve. Provisions are measured at the present value of the expenditures expected to be required Deferred income tax assets and liabilities are If vesting periods or other non-market vesting to settle the obligation using a pre-tax rate offset, only if a legally enforceable right exists conditions apply, the expense is allocated that reflects current market assessments to set off current tax assets against current over the vesting period based on the best of the time value of money and the risks tax liabilities, the deferred income taxes available estimate of the number of shares specific to the obligation. The increase in relate to the same taxation authority and expected to vest. Estimates are revised the provision due to passage of time is that authority permits the Group to make a subsequently if there is any indication recognised as interest expense. single net payment. that the number of shares expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is 2.21 Revenue recognition 2.19 Employee benefits (a) Pension obligations recognised in the current period. Upon Revenue is measured at the fair value of the exercise of share options, the proceeds consideration received or receivable for the Group companies operate various pension received net of attributable transaction costs sale of goods and services in the ordinary schemes. The schemes are generally are credited to share capital and where course of the Group’s activities. Revenue appropriate, share premium. funded through payments to insurance companies. The Group has only defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. For defined contribution plans, the Group pays contributions to privately administered pension insurance plans on a contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. 100 is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. In practice this means that revenue is generally recognised as follows: Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.21 Revenue recognition (continued) Assets held under finance leases, which 2.26 Financial risk management a) Sale of goods transfer to the Group substantially all the risks The Group carries out treasury hedging Revenue from the sale of goods is and benefits incidental to ownership of the activities to manage exposures to interest recognised when the Group has transferred leased item, are capitalised at the inception rate movements on its core borrowings using to the buyer the significant risks and rewards of the lease, with a corresponding liability interest rate swaps. of ownership of the goods. For vehicles this is being recognised for the lower of the fair generally on registration; for other goods it is value of the leased asset and the present The Group only uses derivatives for hedging when despatched, or packaged and made value of the minimum lease payments. purposes and they are recognised at fair available for collection. Lease payments are apportioned between value and are re-measured to fair value at the reduction of the lease liability and each balance sheet date. Where an interest b) Services other than repair and finance charges in the income statement rate swap qualifies as an effective hedge maintenance contracts so as to achieve a constant rate of interest under IAS 39, movements in fair value are Revenue is recognised when the service is on the remaining balance of the liability. The shown as an adjustment to the net interest rendered property, plant and equipment acquired charge being hedged. under finance leases is depreciated over c) Repair and maintenance contracts the shorter of the estimated useful life of Movements in fair value of derivatives that Revenue is recognised over the life of the asset and the lease term; where the do not qualify as an effective hedge under the contract in proportion to the costs of lease contains an option to purchase which IAS 39 are shown in ‘other net gains’ within providing the services. is expected to be exercised, the asset is the income statement. The Group identifies, 2.22 Supplier bonuses leases is also applied to hire purchase covering specific areas, such as interest rate Cost of sales are recognised net of agreements. risk, foreign exchange risk and credit risk. depreciated over the useful life of the asset. evaluates and hedges financial risks centrally The accounting policy adopted for finance under policies approved by the Board vehicle manufacturers’ bonuses. These are recognised when the Group has met the relevant conditions. There is little judgement 2.24 Dividend distribution 2.27 Critical accounting estimates or estimation involved in computing the Dividend distribution to the Company’s and assumptions amounts. shareholders is recognised as a liability in the The Group makes estimates and Group’s Financial Statements in the period assumptions concerning the future. The in which the dividends are approved by the resulting accounting estimates will, by 2.23 Leases Company’s shareholders. Leases in which a significant portion of the risks and rewards of ownership are retained definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material by the lessor are classified as operating leases. Payments made under operating 2.25 Exceptional items Items that are both material and non- adjustment to the carrying amounts of assets and liabilities within the next financial year leases (net of any incentives received from recurring are presented as exceptional items are discussed below. the lessor) are charged to the income within their relevant consolidated income statement on a straight-line basis over the statement category. The separate reporting (a) Estimated impairment of goodwill period of the lease. of exceptional items helps provide a clearer The Group annually tests whether goodwill indication of the Group’s underlying business has suffered any impairment, in accordance performance. with the accounting policy stated above. The recoverable amounts of cash- Items which may give rise to classification generating units have been determined as exceptional include, but are not limited based on value-in-use calculations. These to, restructuring of the business or depot calculations require the use of estimates, network, asset impairments and litigation both in arriving at the expected future cash settlements. As shown in note 4, the Group flows and the application of a suitable has also identified certion discontinuing costs discount rate in order to calculate the and disclosed them separately alongside present value of these flows. exceptional costs. 101 Notes to the Group Financial Statements continued 2.27 Critical accounting estimates ordinary course of business. The Group 2.28 Borrowing costs and assumptions (continued) recognises liabilities for anticipated tax All borrowing costs are expensed in the (b) Fair value of intangible assets audit issues based on estimates of whether period they occur. Borrowing costs consist of acquired in business combinations additional taxes will be due. Where the final interest and other costs that an entity incurs As there is no ready market for intangible tax outcome of these matters is different in connection with the borrowing of funds. assets such as customer relationships and from the amounts that were initially recorded, brands, judgement is required in assessing such differences will impact the income tax fair value when accounting for a business and deferred tax provisions in the period in 2.29 Adoption of new and revised combination. which such determination is made. reporting standards (c) Income taxes Estimates and judgements are continually standards and interpretations issued by Significant judgement is required in evaluated by management, on a case-by- the IASB and IFRIC except for the following determining the provision for income case basis, based on historical experience standards and interpretations which were in taxes. There are many transactions and and other factors, including expectations issue but not yet effective: The Group has applied all accounting calculations for which the ultimate tax of future events that are believed to be determination is uncertain during the reasonable under the circumstances. Amendments to IAS 19 Defined Benefit Plans: Employee Contributions IFRS 14 Regulatory Deferral Accounts Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IFRS 11- Accounting for Acquisition of Interests in Joint Operations Amendments to IAS 16 and IAS 41- Agriculture: Bearer Plants IFRS 15 Revenue from Contracts with Customers IFRS 9 Financial Instruments (issued in 2014) Amendments to IAS 27- Equity Method in Separate Financial Statements Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Applying the Consolidation Exception Amendments to IAS 1 – Disclosure Initiative Annual Improvements to IFRSs 2010-2012 Cycle Annual Improvements to IFRSs 2011-2013 Cycle Annual Improvements to IFRSs 2012-2014 Cycle Effective date (annual periods beginning on or after) 1 July 2014 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2017 1 January 2018 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 July 2014 1 July 2014 1 January 2016 The effective dates stated above are those Endorsement mechanism. In the majority on the Group’s historical financial information given in the original IASB/IFRIC standards and of cases this will result in an effective date in the period of initial application. interpretations. consistent with that given in the original standard or interpretation but the need for In the current year, amendments to IFRS As the Group prepares its financial endorsement restricts the Group’s discretion 10, 11 and 12 have been adopted. information in accordance with IFRS to early adopt standards. as adopted by the European Union, There has been no material impact, although there have been some minor the application of new standards and The Directors do not anticipate that the changes to disclosure. interpretations will be subject to them having adoption of the remaining standards and been endorsed for use in the EU via the EU interpretations will have a material impact 102 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 3. Revenue Revenue recognised in the income statement is analysed as follows: E-fulfilment & returns management services Non e-fulfilment logistics Value-added logistics services Commercial vehicles Inter-segment sales 2015 Group £’000 60,563 102,155 162,718 73,561 (1,501) 2014 Group £’000 46,046 89,557 135,603 66,796 (1,151) Revenue from external customers 234,778 201,248 Geographical information - revenues from external customers: United Kingdom Germany Rest of Europe Total Geography is determined by the location of the end customer 2015 Group £’000 218,997 14,167 1,614 2014 Group £’000 186,462 13,112 1,674 234,778 201,248 103 Notes to the Group Financial Statements continued 4. Segment information Within the value-added logistics services For the Group, the Chief Operating Decision segment, the CODM also reviews Maker (“CODM”) is the main Board of performance of three separate business Directors. The CODM monitors the operating activities: results of each business unit separately for - E-fulfilment & returns management the purposes of making decisions about services (following the acquisition of resource allocation and performance Servicecare (see note 28) the definition of assessment. Segment performance is this activity has been amended from that evaluated based on operating profit or shown in the previous Annual Report) loss, both before and after exceptional or discontinuing items. This measurement basis - Non e-fulfilment logistics excludes Group-wide central services and financing costs which are not allocated to - Central logistics overheads, being the operating segments. costs of support services specific to the value-added logistics services segment, For management purposes, the Group but which are impractical to allocate is organised into two main reportable between the sub-segment activities segments: - Value-added logistics services Inter-segment transactions are entered - Commercial vehicles, including sales, conditions and on an arm’s length basis servicing and repairs that would also be available to unrelated into under normal commercial terms and third parties. The Group has no customers that account for greater than 10% of the total Group revenue. The following tables present profit information for continuing operations regarding the Group’s business segments for the two years ended 30 April 2015: Operating profit before non-recurring items: E-fulfilment & returns management services Non e-fulfilment logistics Central logistics overheads Value-added logistics services Commercial vehicles Head office costs – continuing 2015 Group £’000 5,512 10,062 (4,038) 11,536 1,874 (1,405) 2014 Group £’000 3,724 9,163 (4,228) 8,659 1,836 (882) Group operating profit before non-recurring items 12,005 9,613 104 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 4. Segment information (continued) Exceptional and discontinuing costs: E-fulfilment & returns management services Non e-fulfilment logistics Central logistics overheads Value-added logistics services Commercial vehicles 2015 Group £’000 (192) - - (192) - 2014 Group £’000 (10) - (30) (40) (495) Segment total exceptional items (192) (535) IPO costs1 Head office costs – discontinuing2 (671) (278) (1,981) (2,297) Group total exceptional and discontinuing costs (1,141) (4,813) Operating profit and profit before income tax: Operating profit: E-fulfilment & returns management services Non e-fulfilment logistics Central logistics overheads Value-added logistics services Commercial vehicles IPO costs1 Head office costs2 2015 Group £’000 5,320 10,062 (4,038) 11,344 1,874 (671) (1,683) 2014 Group £’000 3,714 9,163 (4,258) 8,619 1,341 (1,981) (3,179) Group operating profit 10,864 4,800 Finance costs Finance income (1,388) 9 (952) 101 Profit before income tax 9,485 3,949 1 Professional fees and other costs paid in relation to the Initial Public Offering. 2 Head office costs include a number of items which are not being borne by the Group post-Admission. These consist of certain advertising, sponsorship and corporate entertaining expenses, remuneration of a retiring Director, consultancy and professional fees in respect of potential investment opportunity appraisals and the costs of operating the Chairman’s private office. 105 Notes to the Group Financial Statements continued 4. Segment information (continued) The segment assets and liabilities at the balance sheet date are as follows: At 30 April 2015: Value-added logistics services Commercial vehicles Segment assets £’000 53,619 40,935 Segment liabilities £’000 (33,307) (29,241) Segment assets/(liabilities) 94,554 (62,548) Unallocated assets/(liabilities): - Cash and cash equivalents - Financial liabilities - Deferred tax - Income tax assets/(liabilities) 1,854 - - - - (15,492) (642) (731) Total assets/(liabilities) 96,408 (79,413) At 30 April 2014: Value-added logistics services Commercial vehicles Segment assets £’000 44,376 38,391 Segment liabilities £’000 (27,249) (28,007) Segment assets/(liabilities) 82,767 (55,256) Unallocated assets/(liabilities): - Cash and cash equivalents - Financial liabilities - Deferred tax - Income tax assets/(liabilities) 5,360 - - - - (20,715) (366) (318) Total assets/(liabilities) 88,127 (76,655) 106 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 4. Segment information (continued) Capital expenditure, depreciation and amortisation by segment in the year ended 30 April was as follows: Capital expenditure: Value-added logistics services Commercial vehicles 2015 Group £’000 7,297 502 2014 Group £’000 4,203 936 Total 7,799 5,139 Capital expenditure comprises additions to property, plant and equipment (note 12) and intangible assets (note 13). Depreciation: Value-added logistics services Commercial vehicles Total Amortisation: Value-added logistics services Commercial vehicles Total United Kingdom Germany Total 2015 Group £’000 2,694 664 2014 Group £’000 3,100 585 3,358 3,685 2015 Group £’000 266 26 292 2015 Group £’000 36,772 2,662 2014 Group £’000 212 7 219 2014 Group £’000 32,621 2,789 Non-current assets held by each geographical area are made up as follows: 39,434 35,410 107 Notes to the Group Financial Statements continued 5. Staff costs Wages and salaries Social security costs Pension costs for the defined contribution scheme Share based payments 2015 Group £’000 59,734 5,492 1,189 124 2014 Group £’000 52,594 4,839 883 180 Total 66,539 58,496 The average monthly number of employees during the year was made up as follows: Warehousing Distribution Service and maintenance Administration 2015 Group Number 1,789 387 346 442 2014 Group Number 1,433 379 237 334 Total 2,964 2,383 Key management compensation (including Executive Directors): Wages and salaries Social security costs Pension costs for the defined contribution scheme Share based payments 2015 Group £’000 2,695 351 357 93 2014 Group £’000 2,411 333 389 180 Total 3,496 3,313 108 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 5. Staff costs (continued) Directors’ emoluments: Aggregate emoluments Pension costs for the defined contribution scheme 2015 Group £’000 1,416 73 2014 Group £’000 1,300 139 Total 1,489 1,439 The number of Directors who were accruing benefits under a Group Pension Scheme is as follows: Defined contribution plans More detail is set out in the Directors’ Remuneration Report on pages 56 to 73. 2015 Group Number 2014 Group Number 4 5 109 Notes to the Group Financial Statements continued 6. Group operating profit This is stated after charging/(crediting): Depreciation of property, plant and equipment - owned assets Depreciation of property, plant and equipment - leased assets Amortisation of intangible assets (included within administration & other expenses) Total depreciation and amortisation expense Operating lease rentals: - Vehicles, plant and equipment - Land and buildings Auditors’ remuneration: Ernst & Young LLP: - Group audit fees - Tax services - Corporate finance services Baker Tilly UK Audit LLP & Associates: - Group audit fees - Tax services Total auditors’ remuneration: - Audit of the Group Financial Statements - Audit of the subsidiaries - Non-audit fees Total fees paid to the Group’s auditors Exceptional items: - IPO transaction costs - Fees & other costs in relation to the acquisition of subsidiaries - Closure of depots - Redundancy costs on reorganisation - Aborted contract exit costs Total exceptional items Other net gains: - Profit on sale of property, plant and equipment - Dealership contributions - Fair value adjustment to derivative financial instruments - Amortisation of grants Total net gains 110 2015 Group £’000 2,260 1,098 292 3,650 6,936 13,062 144 - 47 - - 51 93 47 191 671 192 - - - 863 38 227 98 1 364 2014 Group £’000 1,760 1,925 219 3,904 6,672 12,658 135 - 565 6 24 50 91 589 730 1,981 - 363 162 10 2,516 26 259 - - 285 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 7. Earnings per share profit attributable to ordinary equity holders Basic earnings per share amounts are of the Company by the weighted average calculated by dividing profit for the year number of ordinary shares outstanding attributable to ordinary equity holders of during the year plus the weighted average the Company by the weighted average number of ordinary shares that would be number of ordinary shares outstanding issued on conversion of all the potentially during the year. Diluted earnings per share dilutive instruments into ordinary shares. amounts are calculated by dividing the The following reflects the income and share data used in the basic earnings per share computation: Profit attributable to ordinary equity holders of the Company 2015 Group £’000 7,324 2014 Group £’000 2,826 2015 2014 Basic weighted average number of shares (thousands) 100,000 99,160 Basic earnings per share 7.3p 2.8p Fully diluted weighted average number of shares (thousands) 100,052 99,160 Fully diluted earnings per share 7.3p 2.8p The weighted average number of shares has been calculated assuming all shares were converted from £1 to 0.05p shares as from 1 May 2013 in accordance with IAS 33.28. 111 Notes to the Group Financial Statements continued 7. Earnings per share (continued) In addition, in both years there was a Adjusted earnings per share large amount of non-recurring costs. As set out in note 21, during the year Consequently, the basic measure of ended 30 April 2014 there was a group earnings per share is significantly distorted reorganisation involving both an issue and a by these factors. subdivision of shares. Adjusted earnings per share: Profit attributable to ordinary equity holders of the Company Discontinuing costs Exceptional costs Tax effect* Adjusted earnings 2015 Group £’000 7,324 278 863 (102) 8,363 2014 Group £’000 2,826 2,297 2,516 (735) 6,904 2015 2014 Basic weighted average number of shares (thousands) 100,000 99,160 Adjusted basic earnings per share 8.4p 7.0p *in the previous Annual Report the tax effect was calculated at standard rate. It is now calculated at the effective rate applicable to the specific transactions. 112 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 8. Dividends and other distributions Interim dividend for the year ended 30 April 2015 of 1.6p per share Dividends declared and paid by the Company during the year to former parent company Dividends declared and paid by other Group members Payments charged to merger reserve in respect of the transfer of subsidiaries Total distributions 2015 Group £’000 1,600 335 - - 2014 Group £’000 - 2,500 3,849 12,162 1,935 18,511 Proposed final dividend for the year ended 30 April 2015 of 3.2 pence (2014: nil) per share 3,200 - The proposed final dividend is subject to payable to all shareholders on the Register approval by shareholders at the Annual of Members on 4 September 2015. The General Meeting and has not been payment of this dividend will not have any included as a liability in these financial tax consequences for the Group. statements. The proposed dividend is 9. Finance costs On bank loans and overdrafts On hire purchase agreements Amortisation of debt issue costs Commercial vehicle stocking interest Other interest payable Amounts payable to former parent company Total interest expense for financial liabilities measured at amortised cost 10. Finance income Bank interest Other interest Amounts receivable from former parent company Total interest income for financial assets measured at amortised cost 2015 Group £’000 720 308 64 270 26 - 1,388 2015 Group £’000 7 - 2 9 2014 Group £’000 19 292 - 305 38 298 952 2014 Group £’000 - 1 100 101 113 Notes to the Group Financial Statements continued 11. Income tax expense a) Tax charged in the income statement: Current income tax: UK & foreign corporation tax Amounts under/(over) provided in previous years Total income tax on continuing operations Deferred tax: Origination and reversal of temporary differences Amounts under/(over) provided in previous years Impact of change in tax laws and rates Total deferred tax 2015 Group £’000 2014 Group £’000 2,220 (74) 1,408 3 2,146 1,411 (47) 62 - 15 (267) 4 (45) (308) Tax expense in the income statement on continuing operations 2,161 1,103 (b) Tax relating to items charged or credited to other comprehensive income: There are no tax consequences of any of the items included in other comprehensive income. (c) Reconciliation of income tax charge: The income tax expense in the income statement for the year differs from the standard rate of corporation tax in the UK. The differences are reconciled below: Profit before taxation from continuing operations Standard rate of corporation tax in UK Tax on profit on ordinary activities at standard rate Expenses not allowable for tax purposes Tax under (over) provided in previous years Difference in tax rates overseas Utilisation of previously unrecognised tax losses Deferred tax rate difference 2015 Group £’000 2014 Group £’000 9,485 3,949 20.92% 1,984 22.84% 902 248 (12) 45 (104) - 223 7 16 - (45) Total tax expense reported in the income statement 2,161 1,103 114 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 11. Income tax expense (continued) d) Deferred tax in the income statement: Deferred tax on accelerated capital allowances Deferred tax on other temporary differences Total 2015 Group £’000 (31) 46 15 2014 Group £’000 (261) (47) (308) The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015. As this was substantively enacted at 30 April 2014, this rate has been applied in the measurement of the Group’s deferred tax assets and liabilities in both years. e) Deferred tax in the statement of financial position: Deferred tax liabilities: Accelerated capital allowances Other timing differences Deferred tax asset: Provisions & other timing differences Net deferred tax liability f) Deferred tax movement: At 1 May 2013 Credited to income statement Foreign currency adjustment At 30 April 2014 Acquisitions Charged to income statement Credited to share based payment reserve Foreign currency adjustment At 30 April 2015 2015 Group £’000 (479) (218) 55 (642) 2014 Group £’000 (466) - 100 (366) Group £’000 (672) 308 (2) (366) (275) (15) 15 (1) (642) 115 Notes to the Group Financial Statements continued 12. Property, plant and equipment Group: Cost: At 1 May 2013 Acquisitions Additions Disposals Foreign currency adjustment At 30 April 2014 Acquisitions Additions Disposals Foreign currency adjustment Leasehold property £’000 Motor vehicles £’000 Plant, machinery, fixtures & fittings £’000 3,439 37 586 (58) (1) 4,003 38 52 (236) (6) 2,931 12 1,215 (528) (10) 3,620 - 870 (571) (83) 22,723 78 2,929 (159) (34) 25,537 261 1,345 (653) (266) Total £’000 29,093 127 4,730 (745) (45) 33,160 299 2,267 (1,460) (355) At 30 April 2015 3,851 3,836 26,224 33,911 Accumulated depreciation: At 1 May 2013 Charge for the year Disposals Foreign currency adjustment At 30 April 2014 Charge for the year Disposals Foreign currency adjustment 1,510 250 (58) (1) 1,701 298 (236) (4) 1,401 596 (383) (6) 1,608 737 (350) (30) 11,347 2,839 (159) (19) 14,008 2,323 (620) (139) 14,258 3,685 (600) (26) 17,317 3,358 (1,206) (173) At 30 April 2015 1,759 1,965 15,572 19,296 Net book value: At 1 May 2013 At 30 April 2014 At 30 April 2015 1,929 2,302 2,092 1,530 2,012 1,871 11,376 11,529 10,652 14,835 15,843 14,615 Included within property, plant and equipment are amounts held under finance lease contracts. At 30 April 2015 the net book value of these assets was £5,231,000 (30 April 2014 £4,767,000). 116 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 13. Intangible assets Group: Cost: At 1 May 2013 Acquisitions Additions Disposals At 30 April 2014 Acquisitions Additions Disposals Foreign currency adjustment At 30 April 2015 Accumulated amortisation: At 1 May 2013 Charge for the year At 30 April 2014 Charge for the year Disposals Foreign currency adjustment At 30 April 2015 Net book value: At 1 May 2013 At 30 April 2014 At 30 April 2015 The average remaining useful life of contracts & licences at 30 April 2015 is 7.6 years (2014: 0.0 years) Goodwill £’000 Contracts and licenses £’000 Computer software £’000 18,785 233 - - 19,018 4,234 - - - 23,252 - - - - - - 18,785 19,018 723 - - - 723 1,210 - - - 1,933 723 - 723 63 - 786 - - 23,252 1,147 Total £’000 20,921 233 176 - 21,330 5,456 87 (173) (1) 1,413 - 176 - 1,589 12 87 (173) (1) 1,514 26,699 821 219 1,040 229 (173) (2) 1,094 592 549 420 1,544 219 1,763 292 (173) (2) 1,880 19,377 19,567 24,819 117 Notes to the Group Financial Statements continued 14. Impairment test for goodwill The carrying amount of goodwill has been allocated to cash generating units (“CGU”s) as follows: 2015 Group £’000 2014 Group £’000 Value-added logistics services excluding Servicecare group Servicecare group 13,092 4,234 13,092 - Commercial vehicles Total 5,926 5,926 23,252 19,018 A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of a CGU is determined based on value-in-use calculations. The value-in-use calculations have used pre-tax cash flow projections based on the Board approved business plans for the two years ending 30 April 2017. Subsequent cash flows are extrapolated using an estimated long term growth rate of 2.5% (2014: 2.5%) to 2025 (2014: 2024). The cash flows have then been discounted using a pre- tax risk adjusted discount rate of 10% (2014: 10%). The forecasts of foreign operations are translated at the exchange rate ruling at the year end The pre-tax adjusted discount rate has been estimated based on other similar sized companies in similar industries. The Directors have concluded that no reasonably foreseeable change in the key assumptions would give rise to an impairment. 118 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 15. Inventories Component parts and consumable stores Commercial vehicles Commercial vehicles on consignment 2015 Group £’000 4,063 2,993 14,621 2014 Group £’000 3,427 2,669 12,929 Total inventories net of provision for obsolescence 21,677 19,025 See below for the movements in the provision for obsolescence: At 1 May 2013 Charged for the year Utilised At 30 April 2014 Credited for the year Utilised At 30 April 2015 Group £’000 104 127 (99) 132 (9) (106) 17 The cost of inventories recognised as an expense amounted to £69,720,000 (2014:£61,789,000). Included within commercial vehicles is £1,141,000 (2014: £1,071,000) relating to assets held under hire purchase agreements. 119 Notes to the Group Financial Statements continued 16. Trade and other receivables Trade receivables Less: provision for impairment of receivables 2015 Group £’000 17,562 (256) 2014 Group £’000 16,378 (349) Trade receivables - net 17,306 16,029 Other receivables Prepayments and accrued income 3,494 12,643 2,636 9,667 Total trade and other receivables 33,443 28,332 See note 26 on credit risk of trade receivables, which explains how the Group manages and measures credit quality of trade receivables that are neither past due nor impaired. See below for the movements in the provision for impairment: At 1 May 2013 Charged for the year Utilised At 30 April 2014 Charged for the year Utilised At 30 April 2015 Group £’000 172 331 (154) 349 34 (127) 256 Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large, unrelated and blue chip. Due to this, management believe there is no further credit risk provision required in excess of normal provision for doubtful receivables. The average credit period taken on sale of goods or services is 23 days (2014: 25 days). An impairment review has been undertaken at the balance sheet date to assess whether the carrying amount of financial assets is deemed recoverable. The primary credit risk relates to customers which have amounts due outside of their credit period. A provision for impairment is made when there is objective evidence of impairment which is usually indicated by a delay in the expected cash flows or non-payment from customers. 120 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 16. Trade and other receivables (continued) The ageing analysis of trade receivables was as follows: 30 April 2015 30 April 2014 17. Cash and cash equivalents Cash and cash equivalents Bank overdraft Neither past due nor impaired £’000 16,126 15,032 2015 Group £’000 1,854 - Past due but not impaired 30-60 days £’000 60-90 days £’000 > 90 days £’000 764 455 149 190 267 352 2014 Group £’000 5,360 (85) Total cash and cash equivalents 1,854 5,275 18. Trade and other payables Trade creditors Stocking finance Other taxes and social security Other creditors Accruals and deferred income 2015 Group £’000 25,272 14,176 4,507 6,096 11,657 2014 Group £’000* 21,352 17,210 4,915 3,265 7,668 Total trade and other payables 61,708 54,410 *2014 restated (see note 2.3) 121 Notes to the Group Financial Statements continued 19. Financial liabilities: borrowings Non-current: Bank loans Obligations under finance leases or hire purchase agreements Total non-current Current: Bank overdrafts Bank loans Obligations under finance leases or hire purchase agreements Total current Total external borrowings Add cash and cash equivalents Net external debt 2015 Group £’000 2014 Group £’000* (7,291) (2,935) (216) (4,044) (10,226) (4,260) - (2,604) (2,592) (85) (177) (2,012) (5,196) (2,274) (15,422) (6,534) 1,854 5,360 (13,568) (1,174) Net former parent company balance - (14,181) Net debt *2014 restated (see note 2.3) (13,568) (15,355) Current financial liabilities: parent company to fund the group activities. Prior to the reorganisation, the former parent Therefore the amounts owed to and from company arranged a proportion of external the former parent company have been borrowings used to finance the group. disclosed in financial liabilities. Balances were lent to and from the former 2015 Group £’000 - - - 2014 Group £’000* (15,267) 1,086 (14,181) (5,196) (2,274) (5,196) (16,455) Amounts owed to former parent company Amounts owed by former parent company Net former parent company balance Current external financial liabilities Current financial liabilities *2014 restated (see note 2.3) 122 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 19. Financial liabilities: borrowings (continued) The maturity analysis of the bank loans at 30 April is as follows: In one year or less Between one and five years After five years Total bank loans 2015 Group £’000 2,604 7,291 - 9,895 2014 Group £’000 177 216 - 393 The principal lender has security over all assets of the Group’s UK operations. The principal features of the bank loans are as follows: - Medium term loan from principal lender - £10,000,000 repayable in quarterly instalments of £625,000 to 30 April 2019; interest rate 3.25% above LIBOR. - Other bank loans - £201,000 repayable in monthly or quarterly instalments over periods between 3 and 50 months; interest rates fixed at between 3.90% and 4.80%. - Unamortised debt issue costs of £306,000 have been deducted from the total outstanding bank loans 123 Notes to the Group Financial Statements continued 19. Financial liabilities: borrowings (continued) The amounts which are repayable under hire purchase or finance lease instalments are shown below: Fixed rate leases: Minimum lease payments: In one year or less Between one and five years After five years Interest: In one year or less Between one and five years After five years Principal of fixed rate leases: In one year or less Between one and five years After five years Variable rate leases: In one year or less Between one and five years After five years 2015 Group £’000 1,561 2,112 - 3,673 (151) (105) - (256) 1,410 2,007 - 3,417 1,182 928 - 2,110 2014 Group £’000 1,451 2,676 - 4,127 (192) (182) - (374) 1,259 2,494 - 3,753 753 1,550 - 2,303 Total 5,527 6,056 It is the Group’s policy to acquire certain of its property, plant and equipment and inventories under finance leases or hire purchase agreements. The average contract term is 3.5 (2014: 3.5) years. At 30 April 2015 £5,234,000 (2014 £5,998,000) of the Group total of such obligations is denominated in sterling and the remainder is denominated in Euros. The interest on the variable rate leases is based on a margin above Bank Base Rate, FHBR or LIBOR. The Group’s obligations under finance leases are secured by the lessor’s charge over the assets. 124 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 20. Provisions At 1 May 2013 Acquisitions Utilised Charged in year At 30 April 2014 Acquisitions Utilised Charged in year At 30 April 2015 Onerous contracts Uninsured losses Dilapidations - 60 (79) 331 312 - (78) - 234 350 - (155) (195) - - (79) 79 - 705 - (264) 93 534 48 (82) 106 606 Total 1,055 60 (498) 229 846 48 (239) 185 840 Provisions have been analysed between current and non-current as follows: Current Non-current 2015 Group £’000 108 732 840 2014 Group £’000 147 699 846 Onerous contracts Uninsured losses As part of the consideration for the The uninsured losses provision is in respect acquisition of R. Geist Spedition GmbH of the cost of claims (generally for & Co. KG in 2013, the Group took commercial vehicles and employment on contracts for some staff, vehicles related) which are either not insured and premises that were surplus to the externally or fall below the excess on the immediate requirements of the business. Group’s insurance policies. The onerous element of those contracts has been recognised within the fair value of Dilapidations assets and liabilities acquired. The provision Provisions are established over the life of was fully utilised by 30 April 2014. leases to cover remedial work necessary at termination under the terms of those leases. Following a reorganisation of the Three key sites have leases that expire 22, commercial vehicles business in the year 13 and 11 years from the balance sheet ended 30 April 2013, which included date. All other leases expire in 10 years the closure of a depot, the Group was or less. unsuccessful in its efforts to sub-let the closed premises. The Directors therefore made a provision in the year ended 30 April 2014 for the rent that will be payable until the expiry of the lease in September 2018. 125 Notes to the Group Financial Statements continued 21. Share capital Allotted, called up and fully paid: 100,000,000 ordinary shares of 0.05p each 2015 Company £’000 2014 Company £’000 50 50 On 30 April 2014 the following transactions c) 800,000 ordinary shares of 0.05p each occurred: were allotted in exchange for the a) 3,852 ‘A’ ordinary and 3,851 ‘B’ ordinary minority shareholding in Clipper Logistics shares of £1 each were re-designated GmbH. The fair value of the shares as 15,406,000 ordinary shares of 0.05p each. issued was estimated at £800,000 and consequently £800,000 was credited to other reserves. b) 83,794,000 ordinary shares of 0.05p each were allotted to the then parent company for cash consideration of £42,000. 22. Share based payments Year ended 30 April 2015 The Clipper Sharesave Plan is a share plan for all UK employees in the Group, and The Clipper Performance Share Plan (“PSP”) offers them the opportunity to acquire was approved by shareholders on 29 an interest in shares in the Company on September 2014. The PSP enables selected favourable terms within the long-standing directors and employees of the Group to regime allowed by HMRC legislation. All be granted awards in respect of ordinary UK staff are invited to participate on the shares. Share Awards under the PSP will same terms, and employees who choose ordinarily be structured as nil cost share to participate are granted an option over options with the vesting of Share Awards shares in the Company, with the exercise of being subject to performance conditions that option being funded by the proceeds measured over a period of at least 3 years. of a savings contract taken out by the A summary of the principal terms of the PSP, relevant employee, under which the including vesting conditions, is contained employee saves a set amount each month in the Directors’ Remuneration Report on over a set period. The options granted in pages 56 to 73. the year were offered with a 3-year savings contract, under which the employee could elect to save between £10 and £500 per month. 126 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Exercise price Vesting period Years Expiry period Years Notes to the Group Financial Statements continued 22. Share based payments (continued) Options granted during the year were as follows: PSP: 14 January 2015 26 March 2015 Sharesave: 10 February 2015 At 30 April 2015 Number granted 826,493 19,402 £nil £nil 1,352,846 £1.404 2,198,741 At 30 April 2015 no options were exercisable. The fair value of the share options is measured at the grant date, using the Black- Scholes model and taking into account the terms and conditions upon which the instruments were granted. The key inputs to the model are: Share price at: 14 January 2015 10 February 2015 26 March 2015 Bid price discount Expected life of option Volatility Dividend yield 2015 1.7425 1.7475 1.7000 25% 3.5 years 35% 2.75% The expected life of the options has been estimated as 6 months beyond vesting date. As there is little historical data the volatility has been estimated at 35% based on similar quoted companies. The dividend yield is calculated from the Company’s stated dividend policy applied to the share price at the grant date. The cost of the options is recognised over the expected vesting period. The total charge for the year ended 30 April 2015 relating to employee share based payment plans was £124,000. The fair value of share options at 30 April 2015 to be amortised in future years was £1,188,000. All share based payments in both years are equity settled. Year ended 30 April 2014 The charge for share based payments in the year ended 30 April 2014 related to options granted over shares in the former parent company. All such options were exercised or cancelled in May 2014. The total charge for the year ended 30 April 2014 relating to employee share based payment plans was £180,000. 3 3 3 10 10 3.5 127 Notes to the Group Financial Statements continued 23. Merger reserve To reflect the group reorganisation a merger reserve with a balance of £18,168,000 was included in the Group statement of financial position at 1 May 2010. In the year ended 30 April 2014 a charge of £12,162,000 was made to the reserve to reflect the acquisition of the fellow subsidiaries from Clipper Group Holdings Limited as part of the group reorganisation. 24. Commitments and contingencies Operating lease commitments – land and buildings: Less than one year Between one and five years More than five years 2015 Group £’000 11,391 43,269 59,327 2014 Group £’000 9,660 35,952 57,816 Total minimum lease payments 113,987 103,428 Operating lease commitments – vehicles, plant and equipment: 2015 Group £’000 Less than one year 2,364 Between one and five years 3,503 More than five years 84 2014 Group £’000 2,615 3,750 293 Total minimum lease payments 5,951 6,658 25. Capital commitments Authorised and contracted for Authorised, but not contracted for 2015 Group £’000 797 8,569 9,366 2014 Group £’000 295 - 295 128 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 26. Financial instruments and financial risk At 30 April 2015 there were no significant Interest rate sensitivity management objectives and policies concentrations of credit risk (2014: £nil). The Group’s borrowings are largely In accordance with IAS 39 (Financial The Group’s maximum exposure to credit denominated in Pounds Sterling and the Instruments: Recognition and Measurement) risk, gross of any collateral held, relating Group is therefore exposed to a change the Group has reviewed all contracts for to its financial assets is equivalent to their in the relevant interest rate. With all other embedded derivatives that are required to carrying value. All financial assets have a variables held constant, the impact of a be separately accounted for if they do not fair value which is equal to their carrying reasonably possible increase in interest meet certain requirements. The Group did value, as a consequence of their short rates of 50 basis points (2014: 50 points) on not identify any such derivatives. maturity. The Group did not have any that portion of borrowings affected, would financial instruments that would mitigate the be to reduce the Group’s profit before tax The Group is exposed to a number of credit exposure arising from the financial by £77,000 (2014: £23,000). different market risks in the normal course of business including credit, interest rate and assets designated at fair value through profit or loss in either the current or the Foreign currency risk foreign currency risks. preceding financial year. The Group is exposed to foreign currency Credit risk Interest rate risk risk on sales, purchases and borrowings that are denominated in currencies other than Credit risk predominantly arises from The Group adopts a policy of ensuring that Pounds Sterling. The currencies giving rise to trade receivables and cash and cash there is an appropriate mix of fixed and this risk are primarily the Euro and US dollar. equivalents. The Group has a customer floating rates in managing its exposure to The volume of transactions denominated credit policy in place and the exposure changes in interest rates on borrowings. in foreign currencies is not significant to the to credit risk is monitored on an ongoing Interest rate swaps are entered into, where Group. basis. External credit ratings are generally necessary, to achieve this appropriate mix. obtained for customers; Group policy is to The exposure to a short-term fluctuation in assess the credit quality of each customer As part of the novation of bank facilities exchange rates on the investment in foreign before accepting any terms of trade. from the former parent on 2 May 2014, the subsidiaries is not expected to have a Company took on an existing interest rate material impact on the results of the Group. Internal procedures take into account swap. The notional principal at 30 April 2015 the customers’ financial positions as well is £2,700,000 which reduces by £450,000 as their reputation within the industry and on a quarterly basis. The Company pays past payment experience. Cash and a fixed rate of 3.68% and receives a cash equivalents and derivative financial variable LIBOR rate on the notional amount. instruments are held with AAA or AA rated The fair value of the interest rate swap is banks. Financial instruments classified as fair determined by reference to market value and at 30 April 2015 was £70,000. value through profit and loss and available for sale are all publicly traded on the UK London Stock Exchange. Given the high credit quality of counterparties with whom the Group has investments, the Directors do not expect any counterparty to fail to meet its obligations. 129 Notes to the Group Financial Statements continued 26. Financial instruments and financial short and long-term borrowings (including risk management objectives and policies overdrafts and lease obligations) net of (continued) Capital management cash and cash equivalents. The Group’s main objective when The Group has not made any changes to managing capital is to protect returns its capital management during the year. to shareholders by ensuring the Group The Group has no long-term gearing ratio will continue to trade profitably in the target. Borrowings are taken out to invest foreseeable future. The Group also aims to in the acquisition of subsidiaries, new sites maximise its capital structure of debt and or depots and are considered as part of equity so as to minimise its cost of capital. that investment appraisal. Key measures The Group manages its capital with regard and net debt compared to earnings before to the risks inherent in the business and interest, tax, depreciation and amortisation. monitored by the Group are interest cover the sector within which it operates by monitoring its gearing ratio on a regular In order to achieve the overall objective, basis and adjusting the level of dividends the Group’s capital management, amongst paid to ordinary shareholders. other things, aims to ensure that it meets The Group considers its capital to include borrowings. The Group has satisfied all such equity and net debt. Net debt includes financial covenants in both years. financial covenants attached to the Adjusted EBIT Finance costs (net) Interest cover Adjusted EBIT Depreciation and impairment of property, plant and equipment Amortisation and impairment of intangible assets Earnings before interest, tax, depreciation and amortisation (“EBITDA”) Net debt (note 19) Net debt/EBITDA 2015 Group £’000 12,005 1,379 2014 Group £’000 9,613 851 8.7 11.3 2015 Group £’000 12,005 3,358 292 15,655 13,568 2014 Group £’000 9,613 3,685 219 13,517 15,355 0.87 1.14 130 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 26. Financial instruments and financial The Board receives regular cash risk management objectives and forecasts which estimate the cash policies (continued) Liquidity risk inflows and outflows over the next 24-36 months, so that management can Management closely monitors available ensure that sufficient financing can be bank and other credit facilities in arranged as it is required. The Group comparison to the Group’s outstanding would normally expect that sufficient commitments on a regular basis to cash is generated in the operating cycle ensure that the Group has sufficient funds to meet the contractual cash flows as to meet the obligations of the Group as disclosed above through effective cash they fall due. management. 30 April 2014 Fixed rate borrowings Floating rate borrowings Total borrowings Trade and other payables Total financial liabilities 30 April 2015 Fixed rate borrowings Floating rate borrowings Total borrowings Trade and other payables Total financial liabilities Due within one year £’000 Due between one and two years £’000 Due between two and five years £’000 1,436 15,019 16,455 54,158 70,613 3,314 1,882 5,196 60,237 65,433 1,242 978 2,220 - 2,220 2,163 2,320 4,483 - 4,483 1,469 571 2,040 - 2,040 841 5,208 6,049 - 6,049 Total £’000 4,147 16,568 20,715 54,158 74,873 6,318 9,410 15,728 60,237 75,965 131 Notes to the Group Financial Statements continued 26. Financial instruments and financial - interest-bearing loans and borrowings: risk management objectives and fair value is calculated based on policies (continued) Estimation of fair values The main methods and assumptions discounted expected future principal and interest cash flows; and used in estimating the fair values of - trade and other receivables/payables: financial instruments are as follows: the notional amount for trade - derivatives: interest rate swaps are receivables/ payables with a remaining marked to market using listed market life of less than one year are deemed prices; to reflect their fair value. Current financial assets: Cash and cash equivalents Trade and other receivables Liabilities: Bank overdraft Short term borrowings Trade and other payables Derivative financial instruments Long term borrowings 2015 Book value £’000 2015 Fair value £’000 2014 Book value £’000 2014 Fair value £’000 1,854 33,443 1,854 33,443 - (5,196) (61,708) (70) (10,226) - (5,196) (61,708) (70) (10,106) 5,360 28,332 (85) (16,370) (54,410) - (4,260) 5,360 28,332 (85) (16,370) (54,410) - (4,103) Long-term borrowings are classified as Level 2 (items with significant observable inputs) financial liabilities under IFRS 13. Derivative financial instruments consist of interest rate swaps and are classified as Level 2 (items with significant observable inputs) financial liabilities under IFRS 13. There have been no transfers between Level 1 and Level 2 financial instruments during the year. 132 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 27. Related party disclosures Knaresborough Real Estate Ltd, a company The Group rented an aircraft from South owned by Steve Parkin, is the landlord of Acre Aviation Limited, a company owned one of the Group’s leasehold properties. by Steve Parkin. Charges are on an arm’s Rent payable under the current lease is length basis and the Group had advanced at the same rate as that with the previous a loan to South Acre Aviation Limited. landlord. The loan was repaid to the Company in April 2014 and bore interest at 3.25% per Guiseley Association Football Club shares a annum. The rental agreement terminated common director with Clipper Logistics plc. on 30 May 2014. The dividends paid to the former parent During the year the Company leased company can be found in note 8. racehorses which are beneficially owned by Steve Parkin. These horses ran in the Key management compensation is Company name and in Company colours. disclosed in note 5. Under the terms of the lease, the Company was responsible for all expenditure in There were no balances owing to or from connection with the horses but could retain these related parties at 30 April 2015. any monies received for a win or placing Balances due to and from the former up to the value of the costs incurred for parent company at 30 April 2014 can that horse. The rights and liabilities arising be found in note 19. Interest receivable under this arrangement ceased on from and payable to the former parent 31 May 2014. company can be found in notes 9 and 10. Roydhouse Properties Limited is the landlord of two of the Company’s leasehold properties and is classed as a related party due to the company having common directors with Clipper Logistics plc. Items charged to the income statement: South Acre Aviation Limited – aircraft rental costs Horse costs Roydhouse Properties Limited – rent payable Knaresborough Real Estate Limited – rent payable Guiseley Association Football Club – advertising and sponsorship 2015 Group £’000 2014 Group £’000 7 56 877 157 25 69 414 819 - 275 133 Notes to the Group Financial Statements continued 28. Business combinations in exchange for cash consideration. Both 28.1. Servicecare Support Services Limited are unlisted companies based in the UK. The On 3 December 2014, the Group acquired Servicecare group specialises in providing 100% of the voting shares of Servicecare returns logistics services to consumer Support Services Limited (“Servicecare”) electronics manufacturers and retailers. The and its subsidiary, Electrotec International Group acquired Servicecare to enhance its Limited (together, the “Servicecare group”), returns management service offering. Purchase consideration: Cash paid Deferred consideration payable in the year ending 30 April 2016 Additional consideration payable on receipt of equivalent tax refund Total consideration payable Analysis of cash flows on acquisition: Cash paid Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash flow on acquisition in the year Acquisition: Assets: Property, plant and equipment Intangible assets Cash and cash equivalents Inventories Trade receivables (at cost and fair value) Other receivables Current tax asset Liabilities: Trade payables Other payables Borrowings Current tax liability Deferred tax liability Total identifiable net assets (liabilities) at fair value Goodwill arising on acquisition Total consideration The fair values above are considered to be final. 134 £’000 6,475 2,000 212 8,687 6,475 (2,776) 3,699 Fair value recognised on acquisition £’000 299 1,222 2,776 219 1,801 260 49 (1,125) (622) (151) - (275) 4,453 4,234 8,687 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 28. Business combinations (continued) From the date of acquisition, Servicecare 28.1. Servicecare Support Services Limited has contributed £5,706,000 of revenue (continued) and £794,000 to the profit before tax from The goodwill of £4,234,000 comprises the continuing operations of the Group. If value of expected synergies arising from the the combination had taken place at the acquisition. Goodwill is allocated entirely to beginning of the year, Group revenue from the value-added logistics services segment. continuing operations would have been None of the goodwill recognised is continuing operations for the Group would expected to be deductible for income have been £10,531,000. £242,698,000 and the profit before tax from tax purposes. Intangible assets recognised, consist of acquisition were £192,000 and have been brands, customer relationships and the charged to the income statement. Professional fees and costs in relation to the acquired order book. 135 Notes to the Group Financial Statements continued 28. Business combinations (continued) specialising in value-added logistics services, 28.2. R. Geist Spedition GmbH & Co. KG in exchange for cash consideration. On 1 October 2013, the Group acquired The Group acquired Geist to increase its 100% of the voting shares of R. Geist presence in mainland Europe and therefore Spedition GmbH & Co. KG (“Geist”), an assist the Group’s UK customers with their unlisted company based in Germany and expansion plans. Purchase consideration: Cash paid Total consideration Analysis of cash flows on acquisition: Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash flow on acquisition Acquisition: Assets: Property, plant and equipment Cash and cash equivalents Inventories Trade receivables Other receivables Liabilities: Trade payables Other payables Borrowings Current tax liability Deferred tax liability Total identifiable net assets (liabilities) at fair value Goodwill arising on acquisition Total consideration 136 £’000 224 224 (160) (64) Fair value recognised on acquisition £’000 127 160 49 841 48 (418) (475) (317) (24) - (9) 233 224 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 28. Business combinations (continued) 28.3. Clipper Logistics GmbH 28.2. R. Geist Spedition GmbH & Co. KG On 23 April 2014, the Company acquired, (continued) at book value, the former parent The fair value of the trade receivables company’s 75% shareholding in Clipper amounts to £841,000. The gross amount Logistics GmbH. of trade receivables is £878,000. An impairment provision of £37,000 has On 30 April 2014 the Company acquired been made. the remaining 25% from the minority shareholders, in exchange for the allotment The goodwill of £233,000 comprises the of 800,000 ordinary shares of 0.05p each. value of expected synergies arising from the As this is an increase in the Company’s acquisition and a customer list, which is not ownership interest that does not result in a separately recognised. Goodwill is allocated change of control, this is accounted for as entirely to the value-added logistics services an equity transaction through other reserves. Acquisition of minority shareholding in Clipper Logistics GmbH: segment. Due to the contractual terms imposed on acquisition, the customer list is not separable. Therefore, it does not meet the criteria for recognition as an intangible asset under IAS 38. None of the goodwill recognised is expected to be deductible for Fair value of shares issued Book value of non-controlling interests acquired income tax purposes. Difference accounted for through equity In the year ended 30 April 2014 the Geist business was merged with Clipper Logistics GmbH. Following a further change of name the combined entity now trades as Clipper Logistics KG (GmbH & Co.). £’000 800 (33) 767 137 Clipper Logistics plc Annual Report and Accounts 2015 Company Financial Statements for the year ended 30 April 2015 138 138 Clipper Logistics plc Annual Report and Accounts 2015 139 Company Balance Sheet At 30 April Fixed assets Tangible assets Investment in subsidiaries Intangible assets Total fixed assets Current assets Stock Debtors Cash at bank and in hand Total current assets Note 2015 Company £’000 2014 Company £’000 D E F G H 10,734 19,973 5,362 12,026 11,286 5,778 36,069 29,090 463 19,030 52 543 16,743 3,302 19,545 20,588 Creditors: amounts falling due within one year I 38,788 42,240 Net current liabilities (19,243) (21,652) Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities Net assets Capital and reserves Called up share capital Share premium Other reserve Share based payment reserve Profit and loss account Total equity J N P R R R R 16,826 8,845 923 7,058 50 48 851 110 5,999 7,058 7,438 2,438 902 4,098 50 48 851 - 3,149 4,098 Approved by the Board on 27 July 2015 and signed on its behalf by: D A Hodkin – Chief Financial Officer 140 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements A. Authorisation of financial statements B. Accounting policies performance and position is set out in the and statement of compliance with UK The Financial Statements have been Strategic Report section of this report on GAAP prepared in accordance with the pages 6 to 37. The parent company financial statements of Companies Act 2006 and with applicable Clipper Logistics plc (the “Company”) for the accounting standards in the United Note 26 to the Group Financial Statements year ended 30 April 2015 were authorised Kingdom. for issue by the Board of Directors on 27 July 2015 and the balance sheet was signed on includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives and the Board’s behalf by David Hodkin. Clipper B.1. Basis of preparation its exposure to foreign exchange, credit and Logistics plc is a public limited company A summary of the principal accounting interest rate risk. incorporated and domiciled in England and policies applied by the Company is set Wales. The Company’s ordinary shares are out below. These have been applied on a The Company Balance Sheet at 30 traded on the London Stock Exchange. consistent basis unless otherwise indicated. April 2015 shows net current liabilities of £19,243,000 (2014:£21,652,000). Following These financial statements are prepared The Company has taken advantage of the restructuring of the bank facilities in under the historical cost convention. the exemptions in FRS 1 from preparing May and June 2014 the Group has access a statement of cash flows as the Group’s to a five year, non-amortising, revolving No profit and loss account is presented consolidated Financial Statements, in credit facility of £12,504,000 and an by the Company as permitted by Section which the company is included, provide overdraft facility of £5,000,000 neither of 408 of the Companies Act 2006. The profit equivalent disclosures. The Company has which were drawn down at 30 April 2015. after tax attributable to the members of taken advantage of the exemption in FRS The Company’s overdraft at 30 April 2015, the Company was £4,785,000 (2014: 8 from disclosing related party transactions shown in note I, was covered by cash at £784,000). There were no other recognised with Group companies. bank in other Group companies. gains or losses in either year. The Directors have assessed the future The results of Clipper Logistics plc are B.2. Judgements and key sources of funding requirements of the Group and included in the consolidated financial estimation uncertainty the Company and compared them to the statements of Clipper Logistics plc which The preparation of financial statements bank facilities which are now available. are available from Gelderd Road, Leeds requires management to make The assessment included a detailed review LS12 6LT. judgements, estimates and assumptions of financial and cash flow forecasts for at that affect the amounts reported for assets least the 12 month period from the date The accounting policies which follow set and liabilities as at the balance sheet date of signing the Annual Report. The Directors out those policies which apply in preparing and the amounts reported for revenues considered a range of potential scenarios the financial statements for the year ended 30 April 2015. The financial statements and expenses during the year. However, the nature of estimation means that actual within the key markets the Group serves and how these might impact on the Group’s are prepared in Pounds Sterling and are outcomes could differ from those estimates. cash flow. The Directors also considered rounded to the nearest thousand pounds (£000). what mitigating actions the Group could take to limit any adverse consequences. B.3. Basis of accounting The Group’s forecasts and projections The Financial Statements have been show that the Group should be able to prepared on a going concern basis. In operate without the need for any increase in determining the appropriate basis of borrowing facilities. preparation of the Financial Statements, the Directors are required to consider whether Having undertaken this work, the Directors the Group can continue in operational are of the opinion that the Company existence for the foreseeable future. and the Group have adequate resources to continue in operational existence for Further information in relation to the Group’s the foreseeable future. Accordingly, they business activities, together with the factors continue to adopt the going concern basis likely to affect its future development, in preparing the Financial Statements. 141 Notes to the Company Financial Statements continued B.4. Tangible fixed assets B.6. Intangible assets B.8. Stock - component parts and The cost of tangible fixed assets is their (a) Contracts and licences consumable stores purchase cost, together with any incidental Intangible assets recognised in relation to Stocks of component parts and expenses of acquisition. contracts or licences are amortised over the consumable stores are valued at the lower Depreciation is calculated so as to write line basis. Provision is made for obsolete and off the cost of tangible fixed assets, less (b) Goodwill slow- moving items. length of the relevant agreement. of cost and net realisable value on a line by their estimated residual value, on a straight Goodwill representing the excess of the line or reducing balance basis over their purchase price compared with the fair estimated economic lives. The estimated value of net assets acquired is capitalised B.9. Trade and other debtors economic lives used for the separate and included in intangible assets. Trade debtors, which generally have 30-90 categories of fixed assets for this purpose Separately recognised goodwill is amortised day terms, are recognised and carried at are: over its estimated useful life of 20 years, the lower of their original invoiced value - Leasehold property – over the length of unless the Directors consider that a shorter and recoverable amount. Where the time the lease period is more appropriate. value of money is material, receivables are - Plant and machinery - 2 to 20 years carried at amortised cost. Provision is made when there is objective evidence that - Motor vehicles - 4 to 8 years Leasing agreements and hire purchase balances in full. Balances are written off B.7. Lease assets and obligations the Company will not be able to recover contracts which transfer to the Company when the probability of recovery is assessed The carrying values of tangible fixed assets substantially all the benefits and risks of as being remote. are reviewed for impairment if events or ownership of an asset (“finance leases”) are changes in circumstances indicate the treated as if the asset had been purchased carrying value may not be recoverable, outright. Assets held under such agreements B.10. Provisions for liabilities and are written down immediately to their are included in fixed assets and the capital A provision is recognised when the recoverable amount. Useful lives and element of commitments is shown as Company has a legal or constructive residual values are reviewed annually and obligations under finance leases. Payments obligation as a result of a past event; it where adjustments are required these are under such agreements are treated as is probable that an outflow of economic made prospectively. consisting of capital and interest elements. benefits will be required to settle the The interest element is charged to the profit obligation; and a reliable estimate can be An item of property, plant and equipment and loss account over the primary lease made of the amount of the obligation. is derecognised upon disposal or when no period in proportion to the reducing capital future economic benefits are expected to element outstanding. Assets held under Where the effect of the time value of arise from the continued use of the asset. Any gain or loss arising on the derecognition finance leases are depreciated over the shorter of the lease terms and the useful money is material provisions are discounted. of the asset is included in the profit and loss lives of equivalent owned assets. Where the company expects some or account in the period of derecognition. all of a provision to be reimbursed, the All other leases are treated as operating reimbursement is recognised as a separate leases, the costs of which are charged on a asset but only when recovery is virtually B.5. Investments in subsidiary undertakings straight line basis over the lease term. Lease certain. Fixed asset investments are shown at cost incentives are recognised over the shorter less provision for impairment. of the lease term or the period to the next rent review. 142 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued B.11. Taxation Non-monetary items that are measured in At each balance sheet date before vesting, The charge for taxation is based on the terms of historical cost in a foreign currency the cumulative expense is calculated, result for the year. Deferred tax is provided are translated using the exchange rates as representing the extent to which the vesting in full on timing differences that result in an at the dates of the initial transactions. Non- period has expired and management’s obligation at the balance sheet date to monetary items measured at fair value in best estimate of the achievement or pay more tax, or a right to pay less tax, at a foreign currency are translated using the otherwise of non-market vesting conditions a future date at rates expected to apply exchange rates at the date when the fair and of the number of equity instruments when they crystallise, based on current tax value was determined. rates and laws. Deferred tax is not provided that will ultimately vest or in the case of an instrument subject to a market condition on timing differences arising from the The company does not apply hedge or a non-vesting condition, be treated as revaluation of fixed assets where there is no accounting of foreign exchange risks in its vesting as described above. The movement binding contract to dispose of these assets. company financial statements. in cumulative expense since the previous Deferred tax assets are only recognised to the extent that it is regarded as more balance sheet date is recognised in the income statement, with a corresponding likely than not that they will be recovered. B.15. Share based payments entry in equity. Deferred tax assets and liabilities recognised Equity-settled transactions have not been discounted. The cost of equity-settled transactions with The former parent company issued equity- employees of the Company is measured settled share based payments to certain by reference to the fair value at the date at employees. The charge in the prior year B.12. Pensions which they are granted and is recognised represents the fair value at the date of Contributions are made to the personal as an expense over the vesting period, grant of the equity-settled share based pension plans of certain employees. which ends on the date on which the payments, expensed on a straight-line basis The assets of the scheme are held relevant employees become fully entitled to over the vesting period based on the former separately from those of the Company. The the award. expenditure is charged to the profit and loss parent company’s estimate of shares that would eventually vest. All such options were account as incurred. Fair value is determined by using an exercised or cancelled in May 2014 appropriate pricing model. In valuing equity-settled transactions, no account B.13. Post-retirement benefits is taken of any service and performance B.16. Interest-bearing loans and The Company provides no other post- (vesting conditions), other than performance borrowings retirement benefits to its employees. conditions linked to the price of the shares All loans and borrowings are initially of the Company (market conditions). Any recognised at fair value less directly other conditions which are required to be attributable transaction costs. After initial B.14. Foreign currencies The Company’s functional currency and met in order for an employee to become fully entitled to an award are considered to recognition, interest-bearing loans and borrowings are subsequently measured presentation currency is pounds sterling. be non-vesting conditions. at amortised cost using the effective Transactions in foreign currencies are initially interest method. Gains and losses arising recorded in the functional currency by No expense is recognised for awards that on the repurchase, settlement or otherwise applying the spot exchange rate ruling do not ultimately vest, except for awards cancellation of liabilities are recognised at the date of the transaction. Monetary where vesting is conditional upon a market respectively in interest income and assets and liabilities denominated in foreign vesting condition or a non-vesting condition, interest expense. currencies are retranslated at the functional which are treated as vesting irrespective of currency rate of exchange ruling at the whether or not the market vesting condition balance sheet date. All differences are or non-vesting condition is satisfied, C. Auditors remuneration taken to the profit and loss account. provided that all other non-market vesting Remuneration payable to the Company’s conditions are satisfied. auditors is shown in note 6 to the Group Financial Statements. 143 Notes to the Company Financial Statements continued D. Tangible fixed assets Cost: At 1 May 2014 Additions Disposals At 30 April 2015 Accumulated depreciation: At 30 April 2014 Charge for the year Disposals At 30 April 2015 Net book value: At 30 April 2014 At 30 April 2015 Leasehold property £’000 Motor vehicles £’000 Plant, machinery, fixtures & fittings £’000 2,630 25 (106) 2,549 899 195 (106) 988 1,731 1,561 1,324 178 (188) 1,314 1,030 125 (170) 985 294 329 23,677 758 (592) 23,843 13,676 1,886 (563) 14,999 10,001 8,844 Total £’000 27,631 961 (886) 27,706 15,605 2,206 (839) 16,972 12,026 10,734 Included within tangible fixed assets are amounts held under finance lease contracts. At 30 April 2015 the net book value of these assets was £3,447,000 (2014:£3,560,000).The depreciation charged to the accounts in the year in respect of such assets amounted to £606,000 (2014:£1,612,000). 144 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued E. Investment in subsidiaries Cost: At 1 May 2014 Additions At 30 April 2015 Provision for impairment: At 1 May 2014 and 30 April 2015 Net book value: At 30 April 2014 At 30 April 2015 On 3 December 2014 the company acquired the entire issued share capital of Servicecare Support Services Limited and its subsidiary, Electrotec International Limited (see note 28 to the Group Financial Statements). Company £’000 11,501 8,687 20,188 215 11,286 19,973 145 Notes to the Company Financial Statements continued E. Investment in subsidiaries (continued) Subsidiary undertakings Except where indicated, the subsidiary undertakings are incorporated and operate in Great Britain, registered in England and Wales and the Company or Group owns 100% of the issued ordinary share capital and voting rights. The subsidiary undertakings of the Company are as follows: Company Nature of business during the year Servicecare Support Services Limited Returns management & reverse logistics services Clipper Logistics KG (GmbH & Co.) (Germany) Contract distribution & warehousing Northern Commercials (Mirfield) Limited Electrotec International Limited* Sale, servicing and repair of commercial vehicles On-line retail and distribution Genesis Specialised Product Packing Limited On-line retail and distribution Stormont Truck and Van Limited* Agency for leasing commitments Clipper Verwaltungs GmbH (Germany)* Agency for leasing commitments Gagewell Transport Limited Clipper e-commerce Limited Clipper Logistics (Processing) Limited Clipper Logistics (Warehousing) Limited Clipper Secure Logistics Limited Clipper Logistics BV (Netherlands) DTS Logistics Limited Guardex Security Services Limited Transference Technology Limited (90% owned)* Northern Commercial Trailers (Mirfield) Limited* * shareholding held indirectly Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant 146 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued F. Intangible assets Cost: Goodwill £’000 Contracts and licenses £’000 Total £’000 At 1 May 2014 and 30 April 2015 8,312 723 9,035 Accumulated amortisation: At 1 May 2014 Charge for the year At 30 April 2015 Net book value: At 30 April 2014 At 30 April 2015 G. Stock 2,534 416 2,950 5,778 5,362 723 - 723 - - 3,257 416 3,673 5,778 5,362 Component parts and consumable stores 463 543 2015 Company £’000 2014 Company £’000 H. Debtors Trade debtors Corporation tax Other debtors Prepayments and accrued income Amounts owed by fellow Group companies 2015 Company £’000 6,303 - 100 10,885 1,742 2014 Company £’000 6,412 121 146 8,232 1,832 19,030 16,743 147 Notes to the Company Financial Statements continued I. Creditors: amounts falling due within one year 2015 Company £’000 2014 Company £’000 2,533 2,904 1,195 14,021 3,661 3,475 207 8,926 1,866 - 86 85 1,164 13,999 3,667 1,021 - 6,600 351 15,267 38,788 42,240 2015 Company £’000 2014 Company £’000 7,199 1,646 40 2,398 8,845 2,438 2015 Company £’000 2014 Company £’000 2,533 7,199 - 86 40 - 9,732 126 Bank loans (note K) Bank overdrafts Obligations under finance leases or hire purchase agreements (note L) Trade creditors Other taxes and social security Other creditors Corporation tax payable Accruals and deferred income Amounts owed to fellow Group companies Amounts owed to former parent company Bank loans and overdrafts are secured by a charge over the Group’s assets Obligations under finance leases or hire purchase agreements are secured by related assets. J. Creditors: amounts falling due after more than one year Bank loans (note K) Obligations under finance leases or hire purchase agreements (note L) K. Bank loans Bank loans repayable, included within creditors are analysed as follows: In one year or less Between one and five years After five years The principal features of the bank loans are as follows: - Medium term loan from principal lender - £10,000,000 repayable in quarterly instalments of £625,000 to 30 April 2019; interest rate 3.25% above LIBOR - Other bank loans - £38,000 repayable in monthly or quarterly instalments over periods between 3 and 18 months; interest rates fixed at between 3.90% and 4.80% - Unamortised debt issue costs of £306,000 have been deducted from the total outstanding bank loans 148 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued L. Finance leases and hire purchase agreements The Company uses finance leases and hire purchase agreements to acquire tangible fixed assets. Future minimum amounts repayable are shown below: Fixed rate leases: Minimum lease payments: In one year or less Between one and five years Interest: In one year or less Between one and five years Principal of fixed rate leases: In one year or less Between one and five years Variable rate leases: TOTAL 2015 Company £’000 2014 Company £’000 1,322 1,721 3,043 (127) (75) (202) 1,195 1,646 2,841 - 1,345 2,571 3,916 (181) (173) (354) 1,164 2,398 3,562 - 2,841 3,562 M. Derivative financial instruments As part of the novation of bank facilities from the former parent, the Company took on an existing interest rate swap. The notional principal at 30 April 2015 is £2,700,000 which reduces by £450,000 on a quarterly basis. The Company pays a fixed rate of 3.68% and receives a variable LIBOR rate on the notional amount. The fair value of the interest rate swap at 30 April 2015, determined by reference to market value, is £70,000 (2014: not applicable). 149 Notes to the Company Financial Statements continued N. Provisions for liabilities At 1 May 2014 Utilised (Credited)/charged in year At 30 April 2015 Other provisions Deferred taxation £’000 Other provisions £’000 431 - (39) 392 471 (43) 103 531 Total £’000 902 (43) 64 923 Provisions are established over the life of leases to cover remedial work necessary at termination under the terms of those leases. Two key sites have leases that expire 22 and 13 years from the balance sheet date. All other leases expire in 10 years or less. O. Deferred tax Deferred tax liability: Accelerated capital allowances Deferred tax asset: Share based payment Provisions & other timing differences Net deferred tax liability 2015 Company £’000 2014 Company £’000 (436) (444) 22 22 (392) - 13 (431) A reduction in the UK corporation tax rate from 21% to 20% was substantively enacted at 30 April 2014 and is effective from 1 April 2015. Accordingly, the rate applied in the measurement of the Company’s deferred tax assets and liabilities as at 30 April 2014 and 2015 was 20%. P. Share capital Allotted, called up and fully paid: 100,000,000 ordinary shares of 0.05p each 2015 Company £’000 2014 Company £’000 50 50 Q. Share based payments Further details of the share option schemes are set out in note 22 to the Group Financial Statements. The charge to the Company’s profit and loss account for equity settled transactions in the year ended 30 April 2015 was £110,000 (2014: £175,000) 150 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued R. Capital and reserves Balance at 1 May 2013 Profit for the year Share issue - for cash - on acquisition of minority interest Equity settled transactions Dividends Balance at 30 April 2014 Profit for the year Equity settled transactions Dividends Share capital £’000 Share premium £’000 Other reserve £’000 8 - 42 - - - 50 - - - 48 - - - - - 48 - - - 51 - - 800 - - 851 - - - Share based payment reserve £’000 - - - - - - - Profit and loss account £’000 4,690 784 - - 175 (2,500) Total £’000 4,797 784 42 800 175 (2,500) 3,149 4,098 - 110 - 4,785 - (1,935) 4,785 110 (1,935) Balance at 30 April 2015 50 48 851 110 5,999 7,058 S. Commitments and contingencies The Company has annual commitments under non-cancellable operating leases as follows: Operating lease commitments – land and buildings: Operating leases which expire: Within one year Between one and five years After more than five years 2015 Company £’000 2014 Company £’000 182 2,598 6,478 9,258 509 1,905 4,964 7,378 Operating lease commitments – vehicles, plant and machinery: Operating leases which expire: Within one year Between one and five years After more than five years 2015 Company £’000 2014 Company £’000 453 1,311 151 1,915 582 1,358 215 2,155 151 Notes to the Company Financial Statements continued T. Capital commitments Authorised and contracted for Authorised, but not contracted for 2015 Company £’000 2014 Company £’000 797 8,569 9,366 295 - 295 U. Related party disclosures Roydhouse Properties Limited is the landlord The Company rented an aircraft from South Acre Aviation Limited, a company of two of the Company’s leasehold properties and is classed as a related party owned by Steve Parkin. Charges are on due to the company having common an arm’s length basis and the Company directors with Clipper Logistics plc. had advanced a loan to South Acre Aviation Limited. The loan was repaid to the Guiseley Association Football Club shares a Company in April 2014 and bore interest at common director with Clipper Logistics plc. 3.25% per annum. The rental agreement terminated on 30 May 2014. The dividends paid to the former parent company can be found in note 8 to the During the year the Company leased Group Financial Statements. racehorses which are beneficially owned by Steve Parkin. These horses ran in the Directors’ remuneration can be found in Company name and in Company colours. note 5 to the Group Financial Statements. Under the terms of the lease, the Company was responsible for all expenditure in There were no balances owing to or from connection with the horses but could retain these related parties at 30 April 2015. any monies received for a win or placing Balances due to and from the former up to the value of the costs incurred for that parent company at 30 April 2014 can be horse. The rights and liabilities arising under found in note I. this arrangement ceased on 31 May 2014. Items charged to the profit & loss account: South Acre Aviation Limited – aircraft rental costs Horse Costs Roydhouse Properties Limited – rent payable Guiseley Association Football Club – advertising and sponsorship 2015 Company £’000 2014 Company £’000 7 56 877 25 69 414 819 275 152 Clipper Logistics plc Annual Report and Accounts 2015 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued V. Transition to FRS 101 Following the publication of FRS 100 The Board considers that it is in the best ‘Application of Financial Reporting interests of the Group for Clipper Logistics Requirements’ by the Financial Reporting plc to adopt FRS101 ‘Reduced Disclosure Council, Clipper Logistics plc is required to Framework’. No disclosures in the current change its accounting framework for its UK GAAP financial statements would be entity financial statements, for its financial omitted on adoption of FRS 101. year commencing 1 May 2015. 153 Directors, Secretary, Registered & Head Office and Advisors Directors: Company Secretary: Registered Office and Head Office of the Company: Registered number: Sponsor, financial advisor, sole bookrunner and broker: Legal advisors: Reporting accountant and auditors: Registrars: Financial public relations advisors to the Company: 154 Steve Parkin, Executive Chairman Tony Mannix, Chief Executive Officer David Hodkin, Chief Financial Officer Sean Fahey, Chief Information Officer Paul Hampden Smith, Senior Independent Non-Executive Director Mike Russell, Independent Non-Executive Director Stephen Robertson, Independent Non-Executive Director Ron Series, Independent Non-Executive Director Guy Jackson Gelderd Road Leeds LS12 6LT 03042024 Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Squire Patton Boggs (UK) LLP 2 Park Lane Leeds LS3 1ES Pinsent Masons LLP 1 Park Row Leeds LS1 5AB Ernst & Young LLP 1 Bridgewater Place Water Lane Leeds LS11 5QR Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Bell Pottinger Holborn Gate 330 High Holborn London WC1V 7QD Clipper Logistics plc Annual Report and Accounts 2015 155 Clipper Logistics plc Gelderd Road Leeds LS12 6LT 0113 204 2050 Tel: Email: info@clippergroup.co.uk Web: www.clippergroup.co.uk
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