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2020 ReportClipper Logistics plc 2016 Annual Report and Accounts Clipper Logistics plc Annual Report and Accounts 2016 Clipper is a retail logistics and returns management specialist, providing value-added services to its blue chip customer base. 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 click and collect platform has been established to enable the Group to benefit from anticipated future growth of click and collect as a method of shopping. A profitable and cash generative commercial vehicles business complements the Group’s logistics activities. The Group operates from 41 locations comprising over 6.8 million square feet. It now has over 3,500 employees, excluding agency staff. 22 Clipper Logistics plc Annual Report and Accounts 2016 Financial Highlights For the year ended 30 April 2016 Group revenue Basic earnings per share £234.8m FY 2015 £290.3m FY 2016 23.7% increase 7.3p FY 2015 10.3p FY 2016 41.1% increase Group Adjusted EBIT1 Adjusted earnings per share2 £12.0m FY 2015 £14.5m FY 2016 21.0% increase 8.4p 10.3p FY 2015 FY 2016 22.6% increase Group profit for the financial year3 Dividend per share £7.3m FY 2015 £10.3m FY 2016 41.1% increase 4.8p FY 2015 6.0p FY 2016 25.0% Increase 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 £nil (2015: £0.3m) and exceptional costs of £nil (2015: £0.9m). Percentages are calculated based on the underlying numbers as presented in the Financial Statements, not on the rounded figures above. 3 Contents About Clipper Financial Highlights Operational Highlights Strategic Report Chairman’s Statement Group Structure Our Business Model Our Strategy Operating and Financial Review Risk Management Viability Statement 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 Accounts 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 Statement of Financial Position Company Statement of Changes in Equity Notes to the Company Financial Statements Directors, Secretary, Registered & Head Office, and Advisors 4 2 3 5 6 8 10 12 16 18 30 34 36 42 44 46 52 54 58 60 68 74 80 82 84 86 87 88 89 90 92 132 134 135 136 158 Clipper Logistics plc Annual Report and Accounts 2016 Operational Highlights For the year ended 30 April 2016 Successfully launched a Click and Collect collaboration with John Lewis, with plans to roll out across the Clipper customer base. Commenced operations on the Pep&Co, Haddad and Zara contracts secured in FY15. Secured new contract wins in the year with Browns (a Farfetch brand) and M&Co, both of which launched in FY16, and Kidly which launched in early FY17. After the year end, we also secured new contract wins with Links of London, and John Lewis for pre-retail and returns services. Implemented a significant project for a single pool of stock with SuperGroup, making all inventory available to retail and e-commerce operations. 10 Signed two new flagship 10 year leases in Northampton, one for 342,000 sq ft for exclusive use by Zara and one for 304,000 sq ft for a shared use facility with John Lewis as the anchor tenant. The John Lewis facility combines the service offerings of both Clipper and Servicecare. Good progress in Servicecare in line with expectations. New Strong performance in commercial vehicles division driven by new vehicle Managing Director appointed sales and aftersales activities. to drive future growth and development strategy 5 Secured increased space, rate and/or activity commitments with existing customers including British American Tobacco, Sainsbury’s, SuperGroup, Bench, Wilko, Mint Velvet and Philip Morris. Increased the capacity at a number of our existing sites completing mezzanine floor builds at Swadlincote and Milton Keynes, with another two to be added in FY17 at Harlow and Northampton (Zara). Strategic Report 6 Clipper Logistics plc Annual Report and Accounts 2016 We are particularly excited about the prospects for our new dedicated next day Click and Collect solution, developed in collaboration with John Lewis. This is a service designed to address the rapidly growing need for retailers to offer an effective next day service to store for orders placed online. After an initial trial period involving 115 Waitrose stores, the service will be extended to the whole Waitrose estate in late summer 2016, and we are in advanced discussions with a number of other retailers who wish to use the service. We remain confident of the Group’s ability to continue to evolve and develop, and to deliver strong returns to our shareholders. Chairman’s Statement The Group has seen a strong performance throughout the year under review, with a number of high-profile contracts starting, including those with M&Co, Zara, Haddad, and Pep&Co. In addition, our commercial vehicles business has performed very strongly. Servicecare Support Services Limited (“Servicecare”), which we acquired in December 2014, has extended our ability to offer a comprehensive returns management solution under our “Boomerang” brand, and Servicecare is delivering results in line with our expectations. Our driving force remains our focus on identifying new services, processes and solutions that address the operational needs of our customers. Our unrivalled understanding of the dynamics of e-retail and multi and omni-channel retailing, coupled with the dramatic changes taking place in these sectors, provide the Group with exceptionally strong strategic positioning for the future. Steve Parkin, Executive Chairman As Chairman of Clipper Logistics plc, I am proud to present our 2016 financial results following our second anniversary of listing on the London Stock Exchange in June 2014. During our second year as a listed company, we have seen continued growth. This growth is a result of our ability to think outside the box and deliver innovative, best- practice, low-cost solutions for our extensive blue-chip client base. Our recognised skills in delivering these solutions mean we remain confident of our ability to continue this momentum. 8 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Group revenues increased by 23.7% to £290.3 million for the year to 30 April 2016 Group Adjusted EBIT* increased by 21.0% to £14.5 million for the year to 30 April 2016 Chairman’s Statement continued Group results Governance Group revenues increased by 23.7% to The Group is proud of its commitment £290.3 million for the year to 30 April 2016, and Group Adjusted EBIT* increased by 21.0% to £14.5 million. to high levels of corporate governance. Alongside the executive management team of Tony Mannix (CEO), David Hodkin (CFO) and Sean Fahey (CIO), the Company Adjusted earnings per share were benefits from the combined experience of 10.3 pence for the year to 30 April 2016 its Non-Executive Directors: Paul Hampden (2015: 8.4 pence), an increase of 22.6%. Smith (Senior Independent Non-Executive Director), Stephen Robertson, Ron Series On an unadjusted basis earnings per share and Mike Russell. were 10.3 pence (2015: 7.3 pence). Net debt was £18.8 million at the year end, Dividends in line with our expectations, after planned The Board is recommending a final investment in capital projects to support dividend of 4.0 pence per share, making a new contracts (much of which involves a total dividend in respect of the year ended back-to-back commitment from customers 30 April 2016 of 6.0 pence per share to reimburse this capital over the duration (2015: 4.8 pence), an increase of 25.0%. of their contract), and paying £2.2 million in deferred consideration in respect of The proposed final dividend, if approved the acquisition of Servicecare. by shareholders, will be paid on 20 October 2016 to shareholders on the register at the close of business People and Board on 23 September 2016. Clipper Logistics plc is led by an excellent management team that has been at the core of the business for many years. Outlook The Group continues to be one of the The team has a well-established track leading providers of value-added logistics record of identifying areas for innovation and e-fulfilment solutions to the retail sector and value-added services within the in the UK. The development of our new sectors we serve, and for delivering on Click and Collect proposition, together with commitments to our customers. recent contract wins and a strong new business pipeline, place the Group I would like to take this opportunity to in an excellent position to continue to thank all the employees of the Group for achieve further growth, both in the UK their commitment and contribution to the and internationally. Group’s performance. I look forward to working with all of the Group’s stakeholders as we continue to develop the business. *Adjusted EBIT is defined as operating profit excluding discontinuing and exceptional costs. 9 Group Structure Composition of the Group at 30 April 2016 Reporting segments Clipper expects to continue to experience Clipper Logistics plc (“Clipper” or the The results of the Group are reported in rapid growth in this segment reflecting “Company”) provides value-added logistics the following segments: continuing migration to online retailing due services in the UK. - Value-added logistics services, to the structural changes taking place in comprising the following business the retail sector. The Company has the following wholly activities: owned subsidiaries: - E-fulfilment & returns The results of Servicecare and Electrotec - Clipper Logistics KG (GmbH & Co.), which management services; are included in this category. 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, commercial vehicle operation engaging the above business activities, including stock management, picking, packing in the sale, servicing and repair of directorate, advertising and promotion, and distribution of products on behalf of commercial vehicles, and the sale accounting and IT, and the solutions customers. Clipper does not take ownership of parts; development team; and of customers’ 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. Electrotec the Group also separately reports head traditional retail support services including International Limited (“Electrotec”) office costs, representing the costs of the processing, storage and distribution is a wholly owned subsidiary of Executive Chairman, Chief Financial Officer, of products, particularly fashion, to Servicecare, which through its website Deputy Chief Financial Officer, Company high street retailers. electrical-deals.co.uk and a number of Secretary, Non-Executive Directors and plc other web stores operated on behalf of compliance costs. Central logistics overheads customers, provides a route to market for refurbished electrical products on behalf Central logistics overheads are the costs of support services specific to the of manufacturers and retailers. On Segment and business activity details logistics services segment, but which are 30 April 2016, the trading of Electrotec E-fulfilment & returns management impractical to allocate between the sub- was absorbed into Servicecare; and services segment business activities. E-fulfilment & returns management services - Genesis Specialised Product Packing include the receipt, warehousing, value- Commercial vehicles Limited (“Genesis”), which provides an eBay store offering to enable Clipper to add processing, stock management, picking, packing and despatch of products The commercial vehicles business, Northern Commercials, operates Iveco and Fiat assist its retail customers with the sale of on behalf of customers to support their commercial vehicle dealerships from excess and end-of-line stock. online trading activities, as well as a range six locations, together with three sub- The above entities, along with a number of the management of the returns process provides servicing and repair facilities, and dormant subsidiaries, comprise the “Group”. for customers. sells parts. of ancillary support services, including dealerships. It sells new and used vehicles, At no time does Clipper take ownership of Vehicles sold and serviced range from customers’ products. The Company also small light commercial vans, through to owns the ‘Boomerang’ brand, under which articulated tractor units. returns of products are managed on behalf of retailers. 10 Clipper Logistics plc Annual Report and Accounts 2016 Our Business Model The Group creates value for its shareholders Credibility A proven and robust business model from its scalable and risk-mitigated - The ‘Clipper Way’ ensures that at Market-leading customer proposition and business, with a high degree of contractual every level the success of project focus on customer service certainty underpinning financial implementation and ongoing operational Clipper focuses on the provision of predictability and stability. Clipper focuses excellence are at the core of all activity. consultancy-led, value-added logistics on customer service, and aims to create services. It works closely with existing and long-term relationships with customers in - Clipper has a high profile within the prospective clients to develop tailored order to become central to that customer’s industry press, including Drapers and solutions to meet their specific logistics strategy, and further underpin the long-term Retail Week, and is a recognised sector needs. Strategic-level discussions focused success of the Group. ‘thought leader’. This further strengthens on providing solutions to particular the relevance of Clipper to its retail clients. challenges ensure that Clipper is central to its clients’ strategies. The Company is focused on the retail sector, and provides services under formalised contractual arrangements to a major blue chip customer base including Asda, ASOS, John Lewis, Morrisons, SuperGroup, and Zara. 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; 70% of consumers envisage that on-line will be their main shopping channel in five years’ time (Source: JDA & Centiro Customer Pulse Report 2015). ABILITY AGILITY CREDIBILITY RETAIL-FOCUSED ‘KNOW HOW’ TRUSTED PARTNER APPROACH 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: - is highly respected in the sector; and - has built successful relationships with key retail decision makers. - A customer who partners with Clipper gets personal accountability and a strong focus on success. 12 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Our Business Model continued A proven and robust business model - Consolidation centres, where products High degree of contractual certainty (continued) destined for multiple nearby retail outlets underpins financial predictability Market-leading customer proposition and are consolidated, before being delivered and stability focus on customer service (continued) to the destination. Examples include 69% of the UK logistics division’s revenue - Returns management is expected Meadowhall Shopping Centre in Sheffield (excluding Servicecare) in the year to to become the ‘battle-ground for and Regent Street in London; 30 April 2016 was on open book contract competitive advantage’ amongst terms (2015: 70%). Under the terms of these retailers, with returns in the UK averaging - Port deconsolidation supply chain contracts, all costs incurred in providing between 25%-40% in fashion and models, where facilities are located services (people, property, plant and footwear (Source: IMRG). Clipper’s near a port of entry for product equipment, packaging, etc.) are recharged successful introduction of its ‘Boomerang’ deconsolidation and onward distribution to customers together with a management brand is enabling it to capitalise upon this through the supply chain; fee. The contract mechanisms provide opportunity, leveraging from its already Clipper’s customer base with total market-leading proposition in online - The ‘Boomerang’ brand for returns transparency, and make for solid long- fulfilment. The Group’s acquisition of management, as noted above; and term relationships with clients, whilst Servicecare in 2014 is complementary protecting Clipper from cost inflation, mix to the returns management proposition, - Click and Collect services: changes and, largely, volume downsides, as the Group is now able to offer a wider - Over the past couple of years there has whilst allowing the Company to benefit range of services, including electrical been a market shift towards “Click and from increasing activity levels. Gainshare returns capability. Collect” with many retailers reporting mechanisms and KPI-based incentives also that over 60% of their online orders are allow Clipper to enhance profits, through - The returns process is of vital importance, collected by consumers rather than innovation and excelling in service delivery. as 67% of shoppers check the returns home delivered. page of a website before making a - Working in partnership with John Lewis, 13% of the UK logistics division’s revenue purchase, and 92% of consumers will buy Clipper has developed a next day, fully (excluding Servicecare) in the year to something again if the returns process integrated, retail friendly solution that 30 April 2016 was derived from minimum is easy (Source: Business 2 Community, not only creates a high quality customer volume guarantee contracts (2015: E-Commerce Product Return Statistics experience but which also allows 12%), which protect Clipper from volume & Trends, April 2016). for the ease of handling at the downsides, whilst allowing the Company receiving store. to benefit from growing activity levels. The - The JDA & Centiro Customer Pulse - The success of the early trials means slight growth in the percentage of revenue Report 2016 reported that 73% of that the service will be rolled out to the derived from minimum volume guarantee customers said that as a result of a poor whole Waitrose estate in late summer contracts was driven primarily by the full online experience, they would be likely to switch to an alternative retailer. The returns 2016, and the solution will be offered to the wider Clipper customer base year effect and growth of the Philip Morris contract which commenced in the year to process is the final touch point between from autumn 2016. 30 April 2015, and the new contract with the customer and the retailer, and - The add-on benefit of the Click M&Co which commenced during the therefore must be highly efficient. and Collect solution is the direct year to 30 April 2016. link to Boomerang. The Company’s focus on the retail sector Thus, the business model within the logistics ensures that it is able to offer best-practice, Clipper’s focus on customer service is division in the UK (excluding Servicecare) lowest-cost services to its customer base. demonstrated by its wide portfolio of provides a high degree of profit resilience, The Group has a track record of innovation, blue chip customers both in the UK and with just 18% of revenue derived from more including the development of: Germany, many of whom have been traditional, closed book arrangements clients for many years. (2015: 18%). 13 Our Business Model continued A proven and robust business model The nature of the Clipper service offering further embedded with those of their (continued) results in long-term, mutually beneficial customers as omni-channel retailing High degree of contractual certainty relationships with its customers increases, and also as more customers underpins financial predictability The specialised nature of the services take on newer service offerings such as and stability (continued) provided by Clipper, particularly in the returns management. Servicecare has historically operated e-commerce and high value product using a traditional closed book charging sectors, results in real long-term mutually In addition to the above, credibility methodology, but also trades under open beneficial relationships with customers, as gained in the provision of logistics services book terms with one of its key customers, evidenced by the high levels of customer in relation to high value products represents and where appropriate, will adopt this retention experienced by the Group. a real barrier to entry to this segment contract methodology for new customers. of the market. However, it is likely that many arrangements Many implementation projects involve will remain on closed book terms (which is the development of bespoke software, This is equally true for the services normal within this sector), which will have a integration and other solutions, resulting in Servicecare provides, which require slight dilutive effect on the total percentage Clipper playing a central role in the delivery specialist skill, knowledge and manufacturer of revenue derived from open book or of the retailer’s customer proposition - certifications/authorisations. minimum volume guarantee contracts. Clipper’s consultative approach with customers leads to its systems becoming In Germany, the vast majority of business is embedded with those of the client. currently conducted on closed book terms, Clipper creates a unique solution for each although some activity for s.Oliver (a key customer, which cannot be easily or quickly customer) is now charged on a partially replicated. Clipper’s systems will become 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 open book basis. It is anticipated that as e-commerce activities develop these are likely to be on open book terms as such arrangements are mutually beneficial for both the retailer and the Group. Within the commercial vehicles division, revenues from new vehicle sales are uncontracted, and can vary due to wider economic conditions. However, margins on new vehicle sales tend to be relatively low. Margins on aftersales activities (i.e. servicing and parts) are higher, and so the changes in the sales mix can significantly affect reported profit margins. Since most commercial vehicles are required by law to be inspected every six weeks, this gives rise to stable profit and cash streams from this part of the Group. In addition, all tractor units sold by Northern Commercials now come with a two year standard repair and maintenance contract which further underpins the revenue and profit derived from aftersales activities. 14 Clipper Logistics plc Annual Report and Accounts 2016 Maximising value Clipper uses the business model above to promote new service offerings and maximise value from existing customer relationships, as well as to attract new customers. Clipper will continue to develop and provide innovative retail solutions, as demonstrated by the Boomerang returns solutions launched in 2014, and the Click and Collect solution which will shortly be extended in collaboration with John Lewis, in order to capitalise on the opportunities presented to the Group in assisting retailers to deal with these challenging logistical issues. Clipper is also focused on maximising shareholder value through selective expansion internationally (as demonstrated by its recent expansion into Ireland), and also through selective acquisitions offering complementary logistics capabilities (as demonstrated by the acquisition of Servicecare during the prior year). The commercial vehicles division of the Group is robustly profitable and cash generative – its profitability driven by higher 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. Our Strategy In order to generate and preserve long-term value for shareholders, Clipper has four key growth strategies, as detailed below: Build on market- leading customer proposition to expand the customer base Develop new, complementary products and services ENHANCE SHAREHOLDER VALUE 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 and returns management 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 retail logistics sector, 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 2016 Explore acquisition Continue European The full year benefit was realised of contracts that opportunities expansion went live during the previous year with M&S, Ted Baker and s.Oliver, and additional services for ASOS. New contracts went live in the year with John Lewis (Click and Collect), Zara, Browns, Haddad, Pep&Co and M&Co. New contracts have been secured which will commence in the year to 30 April 2017, with customers including John Lewis (pre-retail and returns), Kidly, Flyers, Links of London and Inditex. Further details of the above contract wins can be found in the Operating and Financial Review on pages 18 to 28. 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 successful integration of Servicecare will continue to enable the Group to leverage Servicecare’s skillset in the electrical returns sector to further enhance its customer proposition and expand the customer base. 16 Clipper Logistics plc Annual Report and Accounts 2016 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 2016 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 another successful year with approximately 95% of product successfully returned to prime stock at By considering bolt-on acquisitions which provide a platform for it to take market, to assist both mainland European retailers to move online, and UK retailers to expand into Europe – the latter further first pass. its core technical expertise into new, underpinned by Clipper’s strong customer Clipper has also been developing its Click adjacent markets. relationships and reputation with UK retailers (both pure-play e-tailers and multichannel and Collect offering in collaboration with Performance in the year to 30 April 2016 high street retailers). John Lewis, as well as setting up an Ancillary Whilst no acquisitions were undertaken Distribution Centre for John Lewis to provide during the year, the Group continually Through considering other European a wider range of services. The full impact evaluates potential value-adding destinations for potential opportunities. of these projects is not anticipated to be acquisition targets. realised until the year ending 30 April 2018. Going forward Performance in the year to 30 April 2016 The Group benefited from the full year effect Clipper has commenced work on Clipper will continue to explore acquisition of the new returns management contract mechanisation and semi-automation opportunities that enhance shareholder value. that went live with s.Oliver in Germany projects to further enhance our service offering. The full benefit of these will be seen in the financial years ending 30 April 2017 and 2018. Further details of the above projects can be found in the Operating and Financial Review on pages 18 to 28. 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. in the prior financial year, under the Boomerang brand. We have focused on consolidating the activities of the prior year to create a sound platform for the future. The strong opportunities within the UK business have been the major focus of the team – as reported previously, the international business is a longer-term objective. Further details of the above contract wins can be found in the Operating and Financial Review on pages 18 to 28. Going forward In the medium term, Clipper will continue to seek opportunities with new and existing customers to provide services in Germany and Ireland, and will also consider other strategic mainland European destinations for potential expansion. 17 Operating and Financial Review 1. Overview of results The Group continued to make excellent progress in the financial year to 30 April 2016. Group revenue Group revenue increased by 23.7% to £290.3 million, with strong growth in all business areas: 18 Revenue Year to 30 April 2016 £m Year to 30 April 2015 £m % change E-fulfilment & returns management services Non e-fulfilment logistics 97.6 108.4 60.6 +61.1% 102.1 +6.1% Total value-added logistics services 206.0 162.7 +26.6% Commercial vehicles Inter-segment sales 85.6 (1.3) 73.6 +16.4% (1.5) Group revenue 290.3 234.8 +23.7% 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 logistics services segment, Revenue growth in commercial vehicles the Group benefited from: was driven by: - the full year impact of contract wins - a £10.3 million increase in new vehicle secured in the previous financial year sales. The number of new units sold including, amongst others, M&S, Ted reduced slightly by 1% year-on-year, Baker and s.Oliver, and additional services for ASOS; but the average selling price increased significantly by 26.5% due to the mix of vehicles sold; and - the full year impact of the acquisition of Servicecare and its subsidiary Electrotec - a £1.5 million increase in aftersales in December 2014; revenues, comprising servicing, body shop and parts sales. - organic growth on existing contracts, including ASOS, SuperGroup and Wilko; - the ongoing shift in retail trends towards online trading which continues to bring particularly strong organic growth to our e-fulfilment customers; and - the part-year impact of operations commenced during the year to 30 April 2016, including Pep&Co, Haddad, Zara, Browns and M&Co. The full year benefit of these operations will be realised in the year to 30 April 2017, 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 2016 and early calendar year 2017. Clipper Logistics plc Annual Report and Accounts 2016 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 management team assesses corporate Adjusted EBIT performance. Adjusted EBIT is assessed E-fulfilment & returns management services against Board approved budgets. A further KPI is net debt, which is discussed on page 21. Non e-fulfilment logistics Central logistics overheads The Group grew Adjusted EBIT strongly in all segments and business activities: Total value-added logistics services Commercial vehicles Head office costs Group Adjusted EBIT Year to 30 April 2016 £m Year to 30 April 2015 £m % change 8.1 10.7 (4.7) 14.1 2.3 (1.9) 14.5 5.5 +47.6% 10.1 +6.4% (4.1) 11.5 +22.5% 1.9 +20.8% (1.4) 12.0 +21.0% 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 21.0% to Similarly, revenue derived from minimum Non e-fulfilment operations include £14.5 million in the year to 30 April 2016, volume guarantee contracts is fixed at a receipt, warehousing, picking, packing and the Group expects to achieve further minimum level, so that a shortfall in activity and distribution of products on behalf EBIT growth in the coming financial year due levels would give rise to a lower cost base, of customers. Within this business activity to the full year benefits of contracts brought and a higher reported margin. the Group handles high value products, on line in the year to 30 April 2016, the including tobacco, alcohol and designer commencement of activities on In addition, within the commercial vehicles clothing, and also undertakes traditional further new contracts and a strong new segment, the level of high value, relatively retail support services including processing, business pipeline. low margin new vehicle sales also distorts storage and distribution of products, Adjusted EBIT margin (%) is not a key metric as the high proportion of open book and Accordingly, Adjusted EBIT is a more relevant reported margins. particularly fashion, to high street retailers. minimum volume guarantee contracts measure of financial performance than Central logistics overheads include the costs within the UK logistics division distorts Adjusted EBIT margin (%). reported margins. of the directors of the logistics business, the project delivery and IT support teams, sales E-fulfilment & returns management and marketing, accounting and finance, This is due to an element of management services include the receipt, warehousing, and human resources, that cannot be fees on certain contracts being relatively stock management, picking, packing allocated in a meaningful way to business fixed in the short term, so that an increase in and despatch of products on behalf units. In our 2015 Annual Report, we revenue in periods of increased activity will of customers to support their online stated our intention to invest more in not necessarily give rise to a proportionate trading activities, as well as a range of such resources during the year ended increase in profit, resulting in lower reported ancillary support services including returns 30 April 2016 and we have done so, margins. Conversely in periods of reduced management, branded as ‘Boomerang’, particularly in operational support and activity levels, reported margins would under which returns of products are business development. typically increase. managed on behalf of retailers. 19 Operating and Financial Review continued 1. Overview of results (continued) Group Adjusted EBIT (continued) London Stock Exchange in the year ended Taxation Additionally, the central logistics overheads 30 April 2015, the Group invites certain The effective rate of taxation of 21.2% have increased in the year due to share employees to participate in an annual (2015: 22.8%) is higher than the standard based payment charges. In the year, iteration of the PSP and all employees to UK rate of corporation tax of 20.0% we have restructured the reporting within participate in an annual iteration of the (2015: 20.9%) principally due to certain the central logistics management team, Sharesave Plan. Each scheme vests over expenditure incurred which is disallowable preparing the business for future growth. a three year period. As a result, the year for tax purposes and the higher rate of tax Whilst incremental investment is likely to be ended 30 April 2016 included a full year of to which our German business is subject. required in the logistics overheads base as charges in respect of options granted in the The reduction in the year-on-year effective the business continues to grow, we do not year ended 30 April 2015, together with a rate of taxation stems from the reduction in expect further significant stepped increases in the overheads base in the foreseeable part year of charges in respect of options granted in the year ended 30 April 2016; the headline rate in the UK, together with a reduction in the quantum of disallowable future, other than in respect of share based the prior year only incurred a part year of items, some of which related to the payment charges (see below). charges in respect of options granted in the exceptional and discontinuing items in the year ended 30 April 2015. year ended 30 April 2015. The commercial vehicles business, Northern Commercials (Mirfield) Limited, operates The profit after tax for the year to 30 April Iveco and Fiat commercial vehicle 2016 was £10.3 million (2015: £7.3 million). Earnings per share dealerships from six locations, together In the year ended 30 April 2016, there were As discussed above, there were no with three sub-dealerships. It sells new and no discontinuing costs (2015: £0.3 million) non-recurring costs in the year ended used vehicles, provides servicing and repair and no exceptional costs (2015: £0.9 30 April 2016 (2015: £1.2 million). facilities, and sells parts. Vehicles sold and million) expensed in arriving at this figure. serviced range from small light commercial Earnings per share were 10.3 pence for vans, through to articulated tractor units. As such, adjusted profit after tax (which the year to 30 April 2016 (2015: 8.4 pence excludes the discontinuing costs, adjusted, 7.3 pence unadjusted). Head office costs represent the cost of the exceptional costs and the tax associated Executive Chairman, Chief Financial Officer, with those costs) for the year to 30 April 2016 Deputy Chief Financial Officer, Group was also £10.3 million (2015: £8.4 million), Capital expenditure General Counsel, Non-Executive Directors an increase of 23.6%. Of total capital expenditure of £16.2 million and plc compliance costs. The year-on-year (2015: £7.8 million), £15.5 million increase in head office costs is attributable Of the exceptional costs of £0.9 million (2015: £7.3 million) related to the logistics to full year costs of the Group General incurred in the year to 30 April 2015, £0.7 services segment and £0.7 million Counsel and Deputy Chief Financial Officer both appointed during the year ended million related to the costs of the IPO and £0.2 million related to legal and professional (2015: £0.5 million) related to the commercial vehicles segment. Of the 30 April 2015 to strengthen the senior expenses incurred on the acquisition £15.5 million attributable to the logistics management structure of the Group post- of Servicecare. IPO, and incremental Non-Executive Director costs and share based payment charges services segment, approximately £10.7 million is backed by customer commitments to repay Clipper over the following the Group’s listing on the London Net interest charges term of the customer contracts. Stock Exchange. Net interest charges for the year to 30 April 2016 were £1.4 million, in line with Share based payment charges totalling the charge incurred in the previous year. £0.5 million (2015: £0.1 million) have been charged to central logistics overheads, commercial vehicles and head office costs as appropriate in respect of the Sharesave Plan and the Performance Share Plan (“PSP”) (see note 22 to the Group Financial Statements). Since listing on the 20 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 1. Overview of results (continued) Capital expenditure (continued) whilst in the commercial vehicles business Net debt Clipper has committed to spending a working capital is substantially funded by the In addition to Adjusted EBIT, net debt is significant sum on capital expenditure manufacturer through stocking facilities for considered a Key Performance Indicator for in the year ended 30 April 2017, with new vehicles, and trade credit terms for parts the Group. As with Adjusted EBIT, net debt is £9.5 million contracted at 30 April 2016 supplied. Net cash used in working capital assessed against Board approved budgets. and £2.8 million in the course of was broadly neutral in each of the two years construction (2015: £0.8 million and £nil). ended 30 April 2016 and 30 April 2015. The Group had £18.8 million of net debt £9.5 million of the total relates to the new outstanding at 30 April 2016 (2015: Northampton shared-use facility where Net cash paid in the year to 30 April 2015 for £13.6 million), broadly in line with John Lewis is the core client. Where a the purchase of Servicecare amounted to expectations. The increase in net customer has a strong credit rating, we will often fund the initial capital requirements £3.7 million. A further £2.2 million was paid in deferred consideration in the year ended debt compared to the prior year was driven primarily by the need to invest in and customers will commit to repay us 30 April 2016. over the term of the contract, together with capital assets to service significant new contracts, largely backed by contractual finance charges and a management fee. There has been significant investment in commitments from customers to repay that the fixed assets base this year, as noted capital expenditure over the term of the above. However, providing the terms are contract, together with both finance and Goodwill and other intangible assets commercially acceptable, we typically management fees. The goodwill recognised on the acquisition fund a significant proportion of such capital of Servicecare in the year ended expenditure using hire purchase and The Group renegotiated its principal bank 30 April 2015 amounted to £4.2 million, finance leases, and so not all of the fixed facilities in the year ended 30 April 2016. and the contracts and licences, principally asset investment actually results in a cash Before the modification, the Group had in respect of customer relationships, were outflow. Cash capital expenditure, including principal bank facilities comprising a valued at £1.2 million. We have not revised intangible assets, for the year ended Medium Term Loan of £8.75 million, a the acquisition fair values of the acquired 30 April 2016 was £5.9 million compared to committed Revolving Credit Facility of assets in the twelve months’ post-acquisition £0.3 million in the year ended 30 April 2015. £12.5 million maturing in April 2019 and and so the gross value of the goodwill and an overdraft facility of £5.0 million, renewed contracts and licences recognised on The Group repaid £10.1 million of bank annually. After the modification, the Group’s 30 April 2016 remain at the same values as loans in the year, including £10.0 million principal bank facility is a £30.0 million they were on 30 April 2015. The amortisation of Medium Term Loans, £8.75 million of Revolving Credit Facility committed until recognised through the income statement which was repaid on the renegotiation of its January 2021, from which an overdraft of in the year ended 30 April 2016 in respect of principal bank facilities with Santander (see £8.0 million and bonds and guarantee this acquisition amounted to £156,000. ‘Net debt’ section below). £6.4 million of new loans, including £5.5 million of the Revolving facilities of £2.4 million have since been carved out (£2.3 million of bonds and Credit Facility under the modified principal guarantee facilities were in place at Cash flow bank facilities, have been drawn in the year. 30 April 2016, with a further £0.1 million Cash generated from operations was carved out subsequent to the year £20.5 million (2015: £12.6 million, after In line with the stated dividend payment end). Additionally, the interest margin paying £2.1 million of IPO transaction costs, policy, a final dividend for the year ended and the covenant requirements are so £14.7 million before taking account of 30 April 2015 of £3.2 million (3.2 pence per more favourable to Clipper under the such costs), an increase of 39.8%. share) and an interim dividend of renegotiated facility than under the £2.0 million (2.0 pence per share) for facilities it replaced. The Group’s business model gives rise to the year ended 30 April 2016 were paid in high levels of cash generation. In the UK the year to 30 April 2016. This compares to logistics business, Clipper is typically paid in the maiden interim dividend of £1.6 million the month in which services are delivered (1.6 pence per share) and the dividend on open book and minimum volume of £0.3 million paid to the former parent guarantee contracts, giving rise to a typically company prior to IPO in the year to negative investment in working capital, 30 April 2015. 21 Operating and Financial Review continued 2. Value-added logistics services Market overview, size and growth According to market research (Source: There are significant challenges faced of market and market trends IMRG), the UK’s e-commerce market has by retailers with such a high volume of Traditional bricks and mortar retail still grown from £0.8 billion in 2000 to heavily-discounted sales concentrated constitutes the majority of retail sales in £104 billion in 2014 and £114 billion in 2015 over such a short period, including stock the UK. However, in fashion the growth of (10% annual increase), with a further 11% management, margin preservation and online retailing and the desire for major growth forecast in 2016. Within that market adverse media exposure as a result retail brands to have as many different there are also significant changes of poor customer experiences in the touch points with their customers as possible taking place: scramble to secure the best deals. means that multi-channel retailing will be a - orders placed via mobile channels dynamic driver of change for both the retail (smartphones and tablets) accounted In 2015, 12.5% of sales in the UK were online and logistics markets in the near future. An increasing number of distribution channels for 51% of UK e-retail sales in Q4 2015 compared to 34% of UK e-retail sales (Source: ONS); by 2022, one third of sales in the UK are forecast to be conducted online are now required to meet the demands of in Q1 2015 (and only 1% during 2010) (Source: Insider Trends). The rest of Europe is the consumer, including shopping at stores, (Source: IMRG). In fashion, one of also experiencing a similar trend. Germany home delivery, Click and Collect as well as Clipper’s core sectors, mobile is is the second largest e-commerce market the return of purchased items. The fact that estimated to account for as much in Europe after the UK. Here, online retail the penetration of internet-based sales in as two thirds of fashion e-commerce sales are forecast to reach €73 billion by the UK economy (12.5% of total retail sales traffic (Source: Fashion Focus 2016, 2019, and Europe as a whole is forecast to in 2015 (Source: ONS)) is one of the highest Affiliate Window); in the world leads the Directors to believe generate €233 billion of online retail sales by 2018 (Source: Forrester Western European that the UK is at the forefront of the logistics - UK consumers have embraced Click and Online Retail Sales Forecast for 2013 to challenges being posed to retailers by the Collect (buying online and picking up 2018). growth in online retail. in store) and it is growing in importance rapidly. In their latest financial results, The retail sector is undergoing structural Halfords reported 91% of online orders Structural growth in online,multi-channel changes and, as a market leader in the were through Click and Collect, making up and omni-channel retailing provision of services to support retailers’ 12% of total revenue. Argos, where 54% The UK has one of the highest rates of online and returns management challenges, of total revenue is generated online, drove internet and smartphone penetration in the Group is strategically well-placed to 34% of online orders with collection Western Europe and this level of penetration capitalise on the very significant growth in-store. For John Lewis, 54% of online is expected to increase further in coming expected in this sector of the market. orders are Click and Collect, 66% of years. The proportion of online sales as a which are collected in Waitrose stores. percentage of total retail sales in the UK (Source: Retail Economics, March 2016); is already one of the highest in the world (Source: eMarketer December 2014). - whilst Black Friday has been a mainstay for bricks and mortar retailers in the UK This trend has fundamentally altered the for a number of years, the growth in the logistical requirements of retailers, who Black Friday-Cyber Monday weekend in must meet the challenges of multi-channel e-commerce is even greater. Whilst multi- retailing (whereby customers place orders channel retailers recorded a 4% increase across a variety of sales channels, for in November 2015 sales compared to example retail stores, online stores, mobile November 2014, online-only retailers stores and telephone sales), which demands recorded a 24% increase (Source: IMRG). complex warehousing, order processing Indeed, Black Friday 2015 was the first and stock management systems in order to £1 billion online shopping day in the deliver a high quality service to consumers. UK, and the Black Friday-Cyber Monday weekend in 2016 is anticipated to result Omni-channel represents the latest evolution in a record-breaking £5 billion spent of multi-channel retailing, whereby retailers online (Source: Salmon, May 2016). offer consumers flexibility not only on the The UK’s e-commerce market has grown from £104 billion in 2014 to £114 billion in 2015 (10% annual increase) 22 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 2. Value-added logistics services (continued) Structural growth in online, multi-channel involved, returns rates can vary from less or a collection point. As well as providing and omni-channel retailing (continued) than 10% to over 35% (Source: Metapack). this range of returns methodologies from method of order placement (as is the case A recent market study highlighted that which consumers can choose, it is good with multi-channel) but also in respect of the 83% of consumers would stay loyal to practice for the retailer, particularly e-tailers, choice of delivery destination – for example, a retailer if it could provide a reliable to also provide returns ready packaging and the consumer might place an order online and effective returns service (Source: ready-printed returns labels not requiring and choose to have the order delivered to Metapack). Retailers are therefore focusing pre-authorisation, and for the consumer to that retailer’s high street store, or at a Click more and more on consumers’ returns receive credit for any goods returned as and Collect site in a third party location, experience, just as much as they are on soon as possible. rather than their home address. Retailers consumers’ purchase experience. Retailers are embracing the trend towards Click and Collect as it brings customers in-store are increasingly focusing on ensuring that returns management is handled effectively This developing returns culture has several implications for retailers. Returns cost money inspiring impulse purchases and building so that their brands are not damaged by so many retailers bear the cost to ensure brand loyalty. This development adds customers using social media to comment that they don’t risk alienating their customers. even greater complexities to the logistical unfavourably on their experience. Free returns as part of an offer in fashion requirements of retailers. for example are used as a sales generator Where historically customers would return to help with conversion. By focusing on the product to the store where the purchase improving the returns process, retailers can Returns management demands was made, more recently as online retail reduce the adverse impact on their bottom of retailers increasingly complex has developed, customers are demanding lines. In addition, product cleaning and Returns management continues to be an choice in their method of return, for rectification during the returns management ever-increasing area of importance for example posting the product back to the process can maximise the saleable value to retailers. Depending upon the category retailer, or taking it into a high street store the retailer of returned goods. Supplier Inbound INBOUND COMPLIANT Warehouse Retailer DC INBOUND COMPLIANT ENHANCED CUSTOMER CARE BRAND PROTECTION BOOMERANG™ SOLUTION NON COMPLIANT Clipper Returns Centre 23 Operating and Financial Review continued 2. Value-added logistics services (continued) Returns management demands of retailers concept, and we are particularly pleased to - the installation of a switch sorter which increasingly complex (continued) report that under Boomerang approximately routes parcels automatically for specific Managing the returns process also 95% of products have been successfully couriers; and represents a stock management and returned to prime stock at first pass. processing challenge for retailers, since - automated box creation, carton packing traditional distribution centres are designed Servicecare brings additional returns and labelling. to receive and process bulk quantities of handling capabilities to Clipper. Servicecare identical product, rather than to receive specialises in electrical reverse logistics, a The majority of capital costs on contracts individual units of product. Equally, such solution which had, until the acquisition, are typically front-loaded and occur in returned units will inevitably require some represented a gap in Clipper’s service the run up to project ‘go live’. A number of degree of inspection, rectification, cleaning or repair before going back into available offering. The Servicecare proposition adds additional capability into our Boomerang contracts, including the new Northampton logistics facility initially providing ancillary stock, or may even be deemed unfit for brand. We are promoting the Boomerang services for John Lewis and Clipper’s Click prime sale. Traditional warehouses are simply brand across Servicecare’s existing and Collect offering, have significant not geared up for dealing with such a high customers and are broadening our service capital commitments authorised at level of intervention for single products. offering with existing Clipper customers with 30 April 2016 totalling £16.7 million the Servicecare electrical returns proposition, (2015: £9.4 million). Customer-specific Retailers therefore need to rework the as evidenced by our securing of the capital costs such as warehouse fit-out costs product into a saleable state very quickly contract with John Lewis which includes an are typically recovered through depreciation to reduce working capital investment electrical returns aspect. and maintain margins. Clipper’s returns and finance charges to our customers over the life of the underlying customer contract; proposition gets the stock back into a Our inaugural reverse logistics contract speculative space fill capital investment distribution centre compliant format allowing in mainland Europe commenced in the such as adding new mezzanine flooring the distribution centre to focus on its core year ended 30 April 2015 with s.Oliver in tends to be recovered from customers when function of fulfilment. The Group has a strong Germany, owners of a global fashion brand. the space is ultimately filled. The majority of track record of managing these processes Under the contract, Clipper manages capital expenditure is financed through hire for customers, including managing the s.Oliver’s European wholesale and retail purchase agreements. returns operation for ASOS, the UK’s leading returns management service. online fashion retailer, and for s.Oliver, one of the largest fashion and lifestyle companies E-fulfilment & returns management growth in Europe. Mechanisation and technology Our ability and agility, particularly in respect Mechanisation and semi-automation is of omni-channel, multi-channel, returns Further, the power of social media and consumer review websites enhances the becoming increasingly prevalent in the market for large volume customers. Clipper’s management and mechanisation noted above, have enabled the Group to make importance of returns management as the in-house knowledge and skill allows us substantial advances in its revenues and returns experience represents the final to work in a collaborative way with our earnings, significantly outperforming market touch point between a retailer and the customers to deliver best practice solutions. growth. Revenues from e-fulfilment & returns consumer – a badly handled customer Clipper has recently completed a number management services increased by 61.1% experience in respect of the returns process of client initiatives in the year just ended from £60.6 million for the year to may be quickly communicated by that and is working on a number of other such 30 April 2015 to £97.6 million for the year customer to a large number of people, projects in the current year, including: to 30 April 2016, with Adjusted EBIT growing particularly via social media, which has the - automated sortation: one automated by 47.6% from £5.5 million to £8.1 million potential to harm a retailer’s future sales sorter is currently in operation in Ollerton over the same period. prospects. and we have two others used for Click and Collect services, one of which To address the latest challenges faced by is in operation in Swadlincote and retailers in relation to returns management another of which is under construction in as outlined above, Clipper has successfully Northampton; introduced the ‘Boomerang’ brand and 24 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 2. Value-added logistics services (continued) E-fulfilment & returns management growth Despite the increasingly challenging logistics In April 2016 we appointed a new Managing (continued) demands of the Black Friday-Cyber Monday Director at Servicecare to drive the future This is a particularly pleasing performance, weekend in the UK outlined previously, growth and development strategy of the as one of our core strategies has been Clipper delivered a very successful 2015 business. The new Managing Director to become a market leader in the Black Friday-Cyber Monday trading period brings a wealth of experience in electrical e-commerce sector, and to be a thought for its clients and maintained excellent returns, having previously held senior roles leader in the provision of value-added service levels throughout. at Panasonic and Comet. He is working services across the sector. alongside the UK Logistics team to broaden Clipper had been providing e-commerce the service offering to existing customers Organic growth in activities with SuperGroup, fulfilment services to Tesco in a property to also include electrical returns. ASOS, Wilko, John Lewis and Tesco, the full year impact of the s.Oliver operations leased by Tesco in Daventry. As a result of underutilised space elsewhere in its property commenced in the year ended portfolio, Tesco has opted not to renew its Non e-fulfilment logistics is central 30 April 2015, and the new operations Daventry lease and intends to relocate into to our future strategy too commenced with Zara, Browns and Ireland’s its Fenny Lock property from August 2016. The Group will continue to develop and largest retailer in the year ended 30 April The compensation for this early termination deliver truly value-added services to address 2016 have all contributed favourably to the means Clipper’s profit and loss account for the needs of retailers in traditional bricks and growth in this business activity year-on-year. the year ended 30 April 2017 will not mortar logistics, including receipt of inbound be adversely impacted by this. product, storage, store-readiness of product, The results of this business activity include a and distribution to retail destinations. This full year contribution from Servicecare in the In this business activity, since the year end business activity also includes our transport year ended 30 April 2016 compared to only on 30 April 2016: and high value logistics activities. five months in the year ended 30 April 2015 - we have commenced activity in the new following its acquisition in December 2014. pre-retail and returns facility for John Lewis Revenue from non e-fulfilment operations In addition to the full year effect, Servicecare in Northampton; also delivered significant organic growth grew by 6.1% for the year ended 30 April 2016, from £102.1 million to year-on-year, and profitability is in line - we have commenced operations with £108.4 million, with Adjusted EBIT increasing with our expectations at the time Kidly, a start-up business which exclusively by 6.4%, from £10.1 million to £10.7 million. of the acquisition. sells baby products through its website; Within non e-fulfilment, the full year effect This business activity saw the launch of a - we have secured a new contract with of the contracts secured in the prior year collaboration with John Lewis in Links of London to provide warehousing, with Philip Morris and Ted Baker in the UK September 2015. This collaboration initially involved providing John Lewis with a Click e-commerce and ancillary services from our Milton Keynes facility, the contributed to revenue and EBIT growth, as did organic growth on existing contracts and Collect service, comprising automated capacity of which has recently been with Sainsbury’s, British American Tobacco, parcel sortation and transport distribution increased through the addition of a SuperGroup and Bench. Our transport services, to 115 stores in the Waitrose mezzanine floor; and portfolio, 33% of the total Waitrose store operations at Rotherham and Harlow and our tobacco contract packing operations estate. The remainder of the Waitrose store - we have seen further growth as a result at Brighouse also performed particularly estate will be added from August 2016. of Zara transferring additional logistics strongly, but this was partly offset by the We are also in advanced discussions with activities to Clipper. We have also secured cessation of the Aurora and Michael Lewis other Clipper customers who wish to use this new activity with Inditex post year-end in contracts during the year. network. This collaboration with John Lewis non-Zara brands. leaves Clipper extremely well-positioned to exploit this strategically important growth area of the market. In the year just ended, we implemented a complex operational change to the SuperGroup activity in Burton whereby the e-commerce and non e-commerce activities could both be serviced from a common pool of stock. 25 Operating and Financial Review continued 2. Value-added logistics services (continued) Non e-fulfilment logistics is central to our Multi-user operations future strategy too (continued) The Group encourages the use of multi-user The Group will continue to innovate to deliver sites, where a multiplicity of customers is best in class solutions for its customers. served from a single location. Additionally, in the year to 30 April 2016 we This facilitates the sharing of specialised commenced operating under new long- resources, and assists in optimising and term contracts with: balancing demand on people and facilities, - Haddad, specialists in fashion for children in turn allowing the Group to provide cost- and teenagers, for warehousing and effective solutions. transport services; - Pepkor UK Retail Limited, the owners of Investment in key personnel the fashion brand Pep&Co, to provide The Group differentiates itself by providing warehousing and returns management consultancy-led, value-added services to services; and its actual and prospective client base. We have established ourselves as a thought - M&Co, to provide transport services. leader within the logistics sector, and this is evidenced both by our customers’ buy- In this business activity, since the year end on in to our innovative approach, and by 30 April 2016: brand health reviews conducted by an - we began operating a forward orders independent market research consultancy. service line and transferred the pre-retail service line formerly performed in Enfield The Group is central to the achievement to the new Ancillary Distribution Centre for by its customers of their own objectives John Lewis; and goals. - we have leveraged our relationship with Accordingly, we invest in recruiting, training Haddad to secure additional activity on and developing people who are specialists Flyers and others of their brands; in their relevant fields. These include information technology, solution design, - we have been notified that the Ted Baker facilities specification, implementation and and Hobbycraft contracts will not be renewed on expiry in January 2017 and management, e-commerce and returns management, and project management. September 2016 respectively. We are confident that the business development The Group has a Senior Leadership pipeline, together with the new long-term Development Programme to enhance the contracts discussed above will provide skills of its senior team, and to assist with continued earnings growth in this sector succession planning. into the next financial year and beyond; and - we have commenced additional packing activity for certain of our tobacco customers. 26 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Operating and Financial Review continued 3. Commercial vehicles The commercial vehicles business delivered The business achieved a number of EBIT of £2.3 million in the year to important key performance measures 30 April 2016 (2015: £1.9 million), an in the year: increase of 20.8% on the previous year. - Assistance Non-Stop: Northern Commercials achieved the best Northern Commercials operates from six response time of all Iveco dealers in the dealership locations and has three sub- UK, averaging 46.1 minutes to arrive to dealers. Main dealerships are located provide assistance to breakdowns; in Brighouse, Manchester, Northampton, Dunstable, Tonbridge and Brighton, and - Vehicles Off-Road: Northern Commercials in the year ended 30 April 2016 Northern Commercials added an Iveco sales office was the number one dealer, with an average of 1.9 days off-road for repairs; on the sub-dealer’s site in Liverpool. Thus, the business operates across the north - MOT pass rate at our dedicated Test of England and Wales (with sub-dealers station in Brighouse of 100%; and supporting this geographic territory), through the midlands, and into the south-east. - parts service: 97% of parts required by customers were delivered within 24 hours. The business sold 1,792 new vehicles in the year to 30 April 2016 (2015: 1,810), and 443 used vehicles (2015: 470). However, due to a change in mix of vehicles sold, the average selling price of a new vehicle in the year to 30 April 2016 was £29,000 compared to £23,000 in the prior year, an increase of 26.1%, and the average selling price of a used vehicle was £11,000 compared to £9,000 in the prior year, an increase of 15.8%. Servicing saw increases in revenue between the year ended 30 April 2015 and the year ended 30 April 2016, with a 7.2% increase in the number of hours sold, and parts sales increased by 4.1%. Key customers of Northern Commercials include Allied Bakeries, Asda, Clancy Docwra, Dawson Rental, Ryder, Variety Club (the Children’s Charity), and many other household names. 27 Operating and Financial Review continued 4. Current trading and outlook As noted previously, the Group secured a Following the UK referendum decision to exit number of significant contract wins in the the European Union, we do not anticipate two years ended 30 April 2016, the full year any immediate impact on our activities. benefit of which will not be realised until the We believe our business model, whereby years to 30 April 2017 and 30 April 2018. the majority of our contracts are on an open-book or minimum volume basis, As we look ahead to the 2017 financial coupled with fuel price escalators in our year, we have a strong new business other contracts, means we will be able to pipeline. Since the year end we have won mitigate the effect of short term economic new contracts within both e-fulfilment & uncertainty. We will continue to monitor and returns management services and non e-fulfilment logistics, both in the UK and react accordingly to the development of the new trading environment as the details Europe, through our focus on our retail of the exit process become clearer. specialisms and provision of cost-effective, value-added solutions. These contract wins The Board is confident in the Group’s will more than compensate for the contract prospects for the full year ahead. Current losses mentioned earlier in this report. We trading is in line with our strategic plan, look forward to updating shareholders on and we are confident of achieving another the progress of these new contracts. period of excellent financial performance in the year to 30 April 2017. The structural management changes we have made in central logistics, and key personnel changes in Servicecare, leave us ideally positioned to proactively and reactively scale-up our activities as necessary. These changes will enable us to cross-fertilise Clipper’s and Servicecare’s activities and customers and will allow us to deliver further growth. Our new Click and Collect solution in collaboration with John Lewis, soon to experience an increase in level of activity when the second sorter hub goes live in Northampton in August 2016, is expected to generate a strong financial contribution from the year ending 30 April 2017 onwards. The commercial vehicles business is expected to continue to deliver steady growth in profitability in the year to 30 April 2017. 28 Clipper Logistics plc Annual Report and Accounts 2016 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 Board and Senior Management Team (“SMT”) are collectively responsible for managing risk across the Group. Risks are formally reviewed regularly and risk registers are updated throughout the year. The Company has carried out a robust assessment of the principal risks facing the Group. Principal risks are identified through an evaluation of likelihood of occurrence and potential impact. The SMT also reviews specific strategic, operational, 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. The Group adopts the following process: 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 2016 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 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. The Group has a team of dedicated health and safety professionals who maintain, audit and review detailed health and safety procedures and processes. The team advises the board and SMT. It also provides leadership and training to encourage a culture which values the early identification of situations that could lead to accidents. 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. The Group maintains an extensive IT team supported where appropriate by external expertise. Particular focus is given to recovery processes and procedures, infrastructure resilience, innovation and security. 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. Health & safety Our activities are conducted in a variety of operating environments. A failure to monitor or manage health and safety risks appropriately can not only lead to an unsafe working environment for our people and others who interact with us but may cause significant reputational damage and legal liabilities. 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. 32 Clipper Logistics plc Annual Report and Accounts 2016 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 European Union, 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 employs internal and external experts where appropriate, supported by its Group General Counsel and external law firms, to set policy and monitor its application. Data control is a major area of client and regulatory focus. The Group’s IT management systems and processes are designed to ensure controls over system access and data flow movements are carefully monitored. The Group undertakes appropriate staff training to ensure legal compliance. 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 In the year just ended, the Group undertook an assessment of its funding requirements in the context of its growth plans, and entered into modified facilities with its bank to ensure that expected future growth plans can be funded within these increased facilities, as it did in the prior year following IPO. 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 and changes to suppliers’ bank details, including combinations of oral and written confirmations from known contacts. Formal whistleblowing and anti-bribery policies are in place. 33 Viability Statement In accordance with provision C.2.2 of The Board’s assessment has been made Based on this assessment, the Directors the 2014 revision of the UK Corporate with reference to the resilience of the Group confirm that they have a reasonable Governance Code (the “Code”), the and its historical ability to deliver strong expectation that the Company and the Directors have assessed the prospect of operational cash flows, the Group’s robust Group will be able to continue in operation the Company and the Group over a longer balance sheet, the Group’s current strategy, and meet all their liabilities as they fall due period than the 12 months required by the the Board’s attitude to risk, and the principal up to 30 April 2019. ‘Going Concern’ principle. risks documented in the Strategic Report. The starting point for the Board’s review Whilst the Board has no reason to believe was the annual strategic planning process, the Group will not be viable over a which results in business plans for the next longer period, the period over which the three financial years. These plans are then Board considers it appropriate to form a subjected to risk and sensitivity analysis. The reasonable expectation as to the Group’s assessment considers the potential impacts longer term viability, is the three-year these risks would have under severe period to 30 April 2019. This period reflects but plausible scenarios on the Group’s the period used for the Group’s business business model, the Group’s solvency and plans and the typical length of a customer liquidity, compliance with covenants, likely contract, and has been selected because availability to the business of future bank it gives management and the Board facilities and other key financial ratios. The sufficient, realistic visibility on the future Board considers that the Group’s broad in the context of the industry and market spread of customers across independent environment. The Board has considered market sectors, the majority of which are whether it is aware of any specific relevant underpinned by long-term agreements with factors beyond the three year horizon and minimum volume guarantees or confirmed that there are none. open-book terms, acts significantly to mitigate the impact any of these risks might have on the Group. 34 Clipper Logistics plc Annual Report and Accounts 2016 Corporate Social Responsibility The Group recognises the importance of Development at senior level is Schools and universities Corporate Social Responsibility (“CSR”), supported by a Senior Leadership To encourage a greater number and and our impact on the environment Development Programme. and our people, their development, higher calibre of students to enter the logistics sector we have partnered with commitment and relationships with our The Group has continued its investment Huddersfield University. customers, the community and other in additional project delivery and senior stakeholders are central to our plans. management resource in order to deliver As a founding member of the Novus Trust significant organic growth into the future. we continue to support this initiative aimed People development at encouraging high calibre students to enter the logistics sector. We have attended At every level we provide excellent Employee engagement graduate recruitment fairs, participated opportunities for our employees. We provide To encourage employees to give us their in assessment centres, provided industry unemployed people in local communities best we aim to provide a competitive level mentors, offered students structured holiday with the opportunity for training, of pay and other benefits relative to job jobs, and under this scheme are employing qualifications and jobs via our Clipper and skill level, including the provision of retail our first two twelve month work placements. Academy programmes. Existing employees discount schemes, company contribution As students progress through their degree develop via driver CPC qualifications, NVQs, to a pension scheme and life/accident course we expect to employ our first post- apprenticeships and Potential Team Leader cover. All employees with six months or initiative full graduate trainees in 2017. Development Programmes. more service are invited to participate in each iteration of the Sharesave Plan Our staff can then apply to join our (see page 71). Corporate First Line and Middle Management Levels 2 and 3 ASPIRE We encourage alignment with Group goals Programmes. Interest in the programme via open communication and appraisals. continues to increase as we open new sites, We have an annual conference for our employ new staff and promote existing senior staff, site employee forums, health staff, and is recognised as an excellent and safety committees, team briefs, our development tool improving skill levels Company newsletter ‘Evolve’ and highly and creating a robust succession pool. visual notice boards. As reported last year, and supported by investment in an open learning portal, 2016 We recognise employee contribution and saw the programme extended to senior loyalty by celebrating achievements, for management with the piloting of Levels 4 example via our Employee of the Month and 5. We also support relevant professional qualifications across a range of disciplines Scheme, and Long Service awards. e.g. operations (CILT), finance (ACCA/CIMA), We encourage team working by involving HR (CIPD), and health and safety employees in work based project teams, (IOSH/NEBOSH). open days and inter-site competitions, as well as organised themed events on special In order to improve succession planning occasions. and to develop high performance teams, 2016 saw the launch of a new online performance management system, which focuses on objectives and values. It will improve the quality of management information enabling more informed decisions for identifying talent and targeting training and development opportunities. 36 Clipper Logistics plc Annual Report and Accounts 2016 Corporate Social Responsibility continued Community events Equal opportunities At both corporate and local level we The Group is committed to an Equal actively encourage our sites to participate Opportunities Policy. Supported by training, in good causes through direct funding, policies and our 5 Point Code of Behaviour provision of resource and/or encouraging we aim to ensure that no employee is our employees to organise fundraising discriminated against, directly or indirectly, events. We again sponsored the Dragon on the grounds of colour, race, ethnic and Boat Race for Martin House, cycle rides for national origins, sexual orientation or gender, Transaid and many site events for Children marital status, disability, religion or belief, or in Need, Red Nose Day, Cancer Research on the grounds of age. The aforementioned and local charities. is included in our staff handbook, induction We support various local forums and programmes (including ASPIRE). sponsor community activities such as a children’s football team. The above is reflected in our truly diverse training and various management workforce. We are happy to consider requests for flexible working and wherever possible will agree shift patterns which facilitate a balance between work and family life. We are also a member of the Disability Forum. Gender breakdown as at 30 April 2016: Male Female Total Male% Female% Board of Directors Other Senior Management* Other employees 8 12 2,148 0 0 1,265 8 12 3,413 Total 2,168 1,265 3,433 100 100 63 63 0 0 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. 38 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Corporate Social Responsibility continued Health and safety Our Carbon Management Reduction Greenhouse gas (GHG) emissions The Group seeks to protect employees Programme complies with the Carbon The Group records energy and fuel use for from accidents and injuries at work. Our Reduction Commitment (CRC) Energy all areas of the business, based on invoices health and safety structure is supported by Efficiency Scheme and the Energy Savings received for diesel, gas oil, mains electricity IOSH/NEBOSH qualified representatives and Opportunity Scheme (ESOS) which between and natural gas. Fuel used for business Health and Safety Committees at each site. them aim to reduce energy consumption travel in company vehicles is also included. Each site receives at least two safety audits and emissions of greenhouse gases from each year. Serious incidents are escalated our warehouses and transport fleets. The Group uses the average monthly price and accident statistics are monitored. Accidents are reported and investigated. To this end: per litre to convert the diesel, heating oil, and vehicle fuel costs into litres of fuel used. Health and safety matters are reported - we are applying the latest environmental and monitored at Board level. standards as and when we upgrade The kilowatt hours of gas and electricity Health and safety training is prevalent our estate; used, and the litres of each fuel type used, are then converted into tonnes of CO2 throughout the business – from initial - we are investing in low energy lighting equivalent (tCO2e) using the relevant DEFRA induction training, through risk assessed and testing the advent of LED lighting; conversion factors. task training (e.g. manual handling, fork lift truck and work equipment training) to - we now have solar panels installed In the year to 30 April 2016, both Scope 1 management awareness programmes. on the warehouse roof at our Ollerton, and Scope 2 emissions increased from Gelderd Road and Burton sites, and will the prior year, driven by an increase in the The Company partners with an external continue to investigate the possibility of warehouse space occupied by the Group training provider to deliver ‘safe to start’ installing solar panels at our other sites (which led to higher gas and electricity training at all newly opened sites to ensure where appropriate; staff are fully inducted and receive the usage), and an increase in the transport activities within the UK logistics business aforementioned training prior to taking - we investigate fuel use, route planning (which increased the amount of diesel up their full duties. and best design of vehicles across used). However, emissions per £ million the fleet to become more efficient of revenue fell by 11%, as a result of and minimise emissions. We continue ongoing fuel efficiency programmes and Environment to participate in the ECO Stars Fleet increased utilisation of space within our We recognise the Group’s activities have Recognition Scheme which recognises warehouses, which meant that revenue an impact on the environment but we fleet operators who use lower polluting increased without a proportionate increase believe we can improve our environmental vehicles and effective fuel management, in emissions. footprint and save energy. This is important thereby becoming the first multi-regional to both the Group and our stakeholders. Last year we employed a Health, Safety and member of this scheme; Environmental Advisor to provide additional - we promote environmental awareness resource to further develop our agenda, via training; and and we have expanded our network of site based health and safety managers - we encourage employees to use ‘green’ to ensure compliance as we grow transport. Our company car lists offer the our operations. use of newer, lower emission vehicles and our sites promote the use of car sharing. 39 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 2016 Year to 30 April 2015 Scope 1 Scope 2 Total emissions Emissions per £m of revenue 27,089 10,125 37,214 128.2 24,757 9,224 33,981 144.7 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. business activities. The CSR and related policies are reviewed and amended Our expanding returns operations sort, where appropriate. reprocess, repair or recycle our clients’ products which are returned from their Approved by the Board and signed customers. These processes help to on its behalf by: David Hodkin Chief Financial Officer 1 August 2016 reduce the amount of goods which may otherwise go to landfill. Commercial Wherever possible we work with our customers to build environmental considerations into our recommended solutions. This is particularly evident with our pioneering retail consolidation centres which greatly reduce final mile deliveries, congestion and associated emissions when delivering to shopping centres. To further support this initiative we have invested in three electric 7.5 tonne vehicles. 40 Clipper Logistics plc Annual Report and Accounts 2016 Governance 42 Clipper Logistics plc Annual Report and Accounts 2016 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 The business address of each Director is Gelderd Road, Leeds, West Yorkshire, LS12 6LT. 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 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 of the Nomination Committee. Tony has particular experience of operating in complex retail logistics environments, Management Accountants. 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 44 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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 functions as Chief Information Officer, Stephen Robertson, Independent along with his responsibilities on the Board. Non-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 Director General of the British Retail Consortium and is currently an Advisory Board Member of Retail Week. Stephen’s current non-executive Paul Hampden Smith, Senior Independent directorships include Timpson Group plc 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. Mike Russell, Independent Non-Executive Director Mike Russell was appointed Non-Executive Director and Hargreaves Lansdown plc. Stephen is Non-Executive Director of Clipper’s Paul joined the Group as Senior a member of the Audit Committee. 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. Paul is currently non-executive director and chairman of the audit committee at Ron Series, Independent Grafton Group plc and a non-executive Non-Executive Director 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 appointed Group Finance Director of Nurdin & Peacock plc, a FTSE director at Bellway plc. Ron joined the Group as Non-Executive 250 company, in early 1996 prior to the Director on 16 May 2014. Over the past sale of the business to Booker plc. From During the last ten years, Paul has held non- 20 years, Ron has held executive and 1997 to 2011 he was an executive executive directorships on the boards of DX non-executive positions with a number of director of Prize Food Group, a private Services plc, Redrow plc and Pendragon companies with international operations in equity-backed business, initially as Group plc. Paul was also appointed as chairman transport, logistics, shipping, real estate and Finance Director and, from 2005, as of the audit committee in each of these information technology. Included among Chief Executive Officer. Mike is chairman non-executive roles. Paul is the chairman of them are Tuffnells Parcels Express Limited of the Remuneration Committee and a the Audit Committee and is a member of where he was chairman during its ownership member of the Audit Committee and the the Remuneration Committee. Nomination Committee. 45 Corporate Governance Report Chairman’s introduction Compliance with the Code any changes to the capital, corporate and/ The Board recognises the importance of or management structure of the Group. Dear Shareholder, high standards of corporate governance and is committed to managing the Group’s The Code indicates at A.4.2 that the I am pleased to present the Company’s operations in accordance with the Code. chairman should hold meetings with non- Corporate Governance Report for the A full version of the Code can be found on executive directors without the executive year ended 30 April 2016. The Board the Financial Reporting Council’s website directors present. Since Steve Parkin as recognises, understands and is committed www.frc.org.uk. The Company complied Executive Chairman also has an executive to the high standards of corporate with all of the provisions of the Code function, he has not met with the Non- governance across the Group that are throughout the year ended 30 April 2016, Executive Directors as a group without the expected of all premium listed companies except for provisions A.4.2 and E.1.1. other Executive Directors present, but the and follows an approach which complies Senior Independent Director has done so. with the provisions of the UK Corporate In April 2016 the Financial Reporting Council The Chairman does meet with individual Governance Code dated September published a revised 2016 UK Corporate Non-Executive Directors on a one to one 2014 (the “Code”). The report which follows Governance Code (“2016 Code”) which basis from time to time at which meetings describes how, for the year ended 30 April will apply to premium listed companies Board performance and other appropriate 2016, the Group has complied with the in respect of accounting periods matters are discussed. The Chairman also main provisions of the Code. commencing on or after June 2016. discusses the Board evaluation review with This will apply to the Company in the the Senior Independent Director without the year ending 30 April 2018. other Executive Directors present. This Report, which incorporates reports from The Board delegates to management the the Nomination and Audit Committees on day-to-day running of the business within pages 52 to 57 together with the Strategic defined risk parameters. Board meetings Report on pages 6 to 40, the Directors’ are scheduled to coincide with key events Remuneration Report on pages 58 to 72 in the corporate calendar and this includes and the Directors’ Report on pages 74 the interim and final results and annual to 78, describes how the Company has general meeting. applied the relevant principles of the Code. The Board has adopted a formal schedule of matters reserved for its approval and has The role of the Board delegated other specific responsibilities The Board consists of four Non-Executive to its Committees. The formal board Directors and four Executive Directors. Biographies and profiles of all members of agenda currently includes regular reports from the Chief Executive Officer, the Chief the Board appear on pages 44 and 45. Financial Officer and the Chief Information Officer on the operational and financial The Board is responsible for leading and performance of the Group together with controlling the Group and has overall feedback from the Non-Executive Directors authority for the management and on their engagement with the business. It conduct of the Group’s business, strategy also includes a rolling agenda of other key and development. The Board is also operational, strategic, governance and risk responsible for ensuring the maintenance topics which is regularly updated to ensure of a sound system of internal control and the Board is responsive to the operational risk management (including financial, and strategic issues affecting the business. operational and compliance controls and The Board does not delegate key strategic, for reviewing the overall effectiveness of operational and financial issues or other systems in place) and for the approval of matters specifically reserved to the Board. Steve Parkin Executive Chairman 46 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Corporate Governance Report continued The following matters (amongst others) were considered or dealt with at Board meetings during the year: Strategy and management Financial and contracts Governance - approve and consider strategic - review of contract performance; - risk review; initiatives and plans, including potential acquisitions; - Black Friday performance; - legal and governance updates; - competitor activity review; - financial review; - European strategy review; - approve capital projects and contracts - dividend policy; - growth strategy; of material importance; - review of IT support; and - introduction and impact of Living - health & safety record; and Wage. - approval of SMT reorganisation. - approving process of training of Persons Discharging Managerial Responsibility (“PDMRs”) and senior management on various regulatory matters including the new Market Abuse Regulation which became effective on 3 July 2016; - the introduction of class leading bespoke insider management software; and - Board and committee evaluation. 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. 47 Corporate Governance Report continued Information, meetings and attendance In the year under review, 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 Stephen Robertson Non-executive Director Mike Russell Non-executive Director Ron Series Non-executive Director Board Meetings Audit Committee Meetings Remuneration Committee Meetings Nomination Committee Meetings 9/9 9/9 9/9 9/9 9/9 9/9 9/9 9/9 2/2 2/2 2/2 3/3 3/3 3/3 1/1 1/1 1/1 The Board has a full programme of Board relevant papers and are consulted prior to Board Committees meetings planned for 2016 and 2017. At the meeting and their views made known Subject to those matters reserved for its these meetings, the Board will review the to the other Directors. Group’s long-term strategic direction and financial plans and monitor on a regular decision, the Board has delegated to its Nomination, Audit, Remuneration and Executive Committees certain authorities. basis the Group’s performance against an Conflicts of interests There are written terms of reference for each agreed strategy and business plan. In line with the requirements of the of these Committees, available on request Companies Act, each Director has notified from the Company Secretary. Separate In addition, the Board will agree key the Company of any situation in which reports for each of the Nomination, Audit objectives for the Group on an annual basis he or she has, or could have, a direct or and Remuneration Committees are and will then monitor performance against indirect interest that conflicts, or possibly included in this Annual Report and these objectives. may conflict, with the interests of the Accounts from pages 52 to 72. Company (a situational conflict). These were The Chairman is responsible for ensuring that the Directors receive accurate, timely and considered and approved by the Board in accordance with the Company’s Articles of clear information. Prior to each scheduled Association and each Director informed of Board meeting, a pack is circulated in the authorisation and any terms on which it respect of each financial period, which was given. The Board has formal procedures includes an update on key performance to deal with Directors’ conflicts of interest. targets, trading performance against budget and includes detailed financial The Board reviews and, where appropriate, data and analysis. Board packs are approves certain situational conflicts of generally distributed prior to each meeting interest that were reported to it by Directors, to provide sufficient time for Directors to and a register of those situational conflicts review their papers in advance. If Directors is maintained and will be reviewed by the are unable to attend a Board meeting for Board going forward. any reason, they nonetheless receive the 48 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Corporate Governance Report continued Role of the Executive Chairman been requested. Notwithstanding this, we Development and Chief Executive have maintained dialogue with our major There have been no new appointments to The Board is chaired by Steve Parkin who shareholders and, overall, the Board believes the Board since the last AGM. The Group is Executive Chairman. The Executive that appropriate steps have been taken has an induction and training process for Chairman is responsible for the leadership throughout the year to ensure that members new Directors. New Directors will receive and overall effectiveness of the Board and of the Board, including the Non-Executive a detailed induction on joining the Board, setting the Board’s agenda, having regard Directors, develop an understanding of the including meeting other members of the for the interests of all stakeholders and views of major shareholders. These steps Board and the Senior Management Team. promoting high standards of corporate include attending the AGM, receiving New directors will be encouraged to visit the governance. Tony Mannix is the Chief feedback on other shareholder meetings Group’s sites and to provide feedback to Executive Officer and is responsible for and analysts’ and brokers’ briefings on the Board. The Group’s Company Secretary implementing the Board’s strategy and a regular basis. leading the Senior Management Team. The role is distinct and separate to that of and General Counsel periodically reports to the Board on any new legal, regulatory and governance developments that Executive Chairman and clear divisions of Board balance and independence affect the Group and, where necessary, accountability and responsibility have been The Code recommends that at least half the actions are agreed. External lawyers have agreed by the Board. board of directors of UK listed companies, provided updated training to the Directors excluding the chairman, should comprise and Senior Management Team on the non-executive directors determined by the changes to the Company’s share dealing Role of the Senior Independent Director board to be independent in character and code, insider dealing and other regulatory The Code recommends that the board of judgement and free from relationships or matters to ensure compliance with the directors of a company with a premium circumstances which may affect, or could new EU regulation on Market Abuse. This listing on the Official List should appoint appear to affect, the director’s judgement. is supplemented by advice and training one of the non-executive directors to be provided on certain matters by the the senior independent director to provide The Board regards all of the Non-Executive Company Secretary. a sounding board for the chairman and Directors as Independent Non-Executive to serve as an intermediary for the other Directors within the meaning of the Code directors when necessary. The senior and free from any business or other independent director should be available relationship that could materially interfere to shareholders if they have concerns which with the exercise of their independent contact through the normal channels of the judgement. The Board believes that chairman, chief executive officer or other the current directorate will enhance executive directors has failed to resolve or considerably its ability to develop the for which such contact is inappropriate. Group’s operations. Paul Hampden Smith has been appointed Senior Independent Director. Role of the Company Secretary Guy Jackson is the Company Secretary. The Code indicates (at E.1.1) that the The role of the Company Secretary is to Senior Independent Director should develop, implement and maintain good attend meetings with a range of major corporate governance practices. This shareholders to listen to their views in order includes supporting the Chairman and to help develop a balanced understanding Non-Executive Directors as appropriate, of their issues and concerns. Whilst the managing Board and Board Committee Senior Independent Director (and the other meetings, ensuring that appropriate levels Non-Executive Directors) are available to of directors’ and officers’ insurance is in meet with shareholders to discuss issues place and that the Group is compliant and concerns, no such meetings have with statutory and regulatory requirements. 49 Corporate Governance Report continued Board evaluation or re-appointment. When a Director retires at Communications with shareholders The effectiveness of the Board is essential to an Annual General Meeting in accordance The Board considers effective the success of the Group. During the year with the Articles, the Company may, by communication with its investors, an evaluation process was developed and ordinary resolution at the meeting, fill the whether institutional, private or employee implemented. The evaluation process was office being vacated by re-electing the shareholders, to be extremely important and based on a series of questions devised for retiring Director. If the Company does not we have set ourselves the target of providing the purpose by the Senior Independent fill the vacancy at the meeting, the retiring information that is timely, clear and concise. Director and the Company Secretary and Director shall nevertheless be deemed to circulated to the Directors. The process have been re-elected, except in the cases During the year to 30 April 2016, the reviewed issues such as: the assessment identified by the Articles. The Company Company met regularly with analysts and and monitoring of the Company’s strategy; intends to continue this practice but will institutional investors and such meetings will the mix of knowledge and skills on the review it regularly. Board; succession; and the effectiveness continue. The Executive Chairman, Chief Executive Officer and Chief Financial Officer of the Board and the Directors. Separate Sean Fahey, Mike Russell and Ron Series have lead responsibility for investor relations. questionnaires were devised for each of will be offering themselves for re-election They are supported by members of the the Audit, Remuneration and Nomination at the 2016 AGM to be held at Clipper SMT where required and the Company’s Committees, and circulated to Committee Logistics, Gelderd Road, Leeds, LS12 6LT on retained financial PR advisers, Bell Pottinger, members. The results were collated by 17 October 2016 at 11.00am, full details of and corporate brokers Numis Securities who, the Company Secretary and considered which will be issued under separate cover. amongst other matters, assist in organising by the Senior Independent Director. The performance of the Board as a whole and of each of its principal Committees External appointments presentations for analysts and institutional investors and ensure that procedures are in place to keep the Board regularly informed was considered. and time commitment of such investors’ views. The Board is satisfied that each Director outside appointments provided that such Reports from analysts and brokers are remains competent to discharge his appointments do not in any way prejudice circulated to the Board. The Executive responsibilities as a member of the Board. their ability to perform their duties as Chairman, Chief Executive Officer and Chief The Executive Directors may accept Executive Directors of the Company. Financial Officer meet institutional investors regularly to provide an opportunity to Election of Directors The Non-Executive Directors’ appointment discuss, in the context of publicly available The Board can appoint any person to be letters are not specific about the maximum information, the progress of the Group. a Director, either to fill a vacancy or as an time commitment, recognising that there is addition to the existing Board provided always the possibility of an additional time The formal reporting of our full and half that the total number of Directors does not exceed twelve, the maximum prescribed commitment and ad hoc matters that may arise from time to time, particularly when the yearly results will be a combination of presentations, group calls and one-to-one in the Company’s Articles of Association. Group is undergoing a period of increased meetings in a variety of locations where Any Director so appointed by the Board activity. The average time commitment we have institutional shareholders. All the shall hold office only until the next following inevitably increases where a Non-Executive Non-Executive Directors and, in particular, annual general meeting and shall then be Director assumes additional responsibilities the Chairman and Senior Independent eligible for election by the shareholders. such as being appointed to a Board Director, are available to meet with major In accordance with the Articles of Director on the boards of any of the separately from the arrangements as Committee or as a Non-Executive shareholders, if they wish to raise issues Association, at every annual general Company’s subsidiaries. meeting of the Company one-third of the Directors or the number nearest to but not less than one-third shall retire from office. The Directors to retire shall be first those who wish to retire, and then those who have been longest in office since their last appointment 50 described above. The Company’s investor website is also regularly updated with news and information, including this Annual Report and Accounts which sets out our strategy and performance together with our plans for future growth. Clipper Logistics plc Annual Report and Accounts 2016 Nomination Committee Report Committee Chairman’s introduction Composition Diversity The UK Corporate Governance Code Whilst the Group pursues diversity, including As Chairman of the Nomination Committee recommends that a majority of the gender diversity, throughout the business, (the “Committee”), I am pleased to present members of a nomination committee and the Board endorses the aspirations of the report of the Committee for the year should be independent Non-Executive the Davies Review on Women on Boards, ended 30 April 2016. The Committee is a Directors. The Nomination Committee the Board is not committing to any specific key committee of the Board whose role is chaired by Steve Parkin and its other targets. Instead, the Board will engage is to keep the composition and structure members are Ron Series and Mike Russell. executive search firms who have signed up of the Board and its committees under review. The Committee’s role also includes to the voluntary code of conduct setting out the seven key principles of best practice enhancing the quality of nominees to the Roles and responsibilities to abide by throughout the recruitment Board and ensuring that the recruitment Under normal circumstances, it is intended process and will continue to follow a and appointment process is conducted that the Nomination Committee will meet policy of appointing talented people at with rigour and integrity. not less than twice a year to assist the Board every level to deliver high performance. in discharging its responsibilities relating to It is the Company’s policy (whether it be The Committee will be proactive in the composition and make-up of the Board at employee or Board level) to make all discharging its responsibilities, cognisant and any committees of the Board. It is also appointments based on the best candidate of the importance of succession responsible for periodically reviewing the for the role regardless of gender or other planning and the need to align Board Board’s structure and identifying potential diversity. The Board will also ensure that its and executive leadership skills to the candidates to be appointed as Directors own development in this area is consistent Company’s long-term strategy and I hope or Committee members as the need with its strategic objectives and enhances this report gives you a helpful insight into may arise. The Nomination Committee is Board effectiveness. how the Committee intends to carry out its responsible for evaluating the balance of responsibilities moving forwards. skills, knowledge and experience and the Steve Parkin and Committees of the Board, retirements Committee in 2016 Chairman, Nomination Committee and appointments of additional and The Committee met twice during the size, structure and composition of the Board Activities of the Nomination replacement Directors and Committee financial year and considered the members and makes appropriate succession plans for both executive recommendations to the Board on appointments to the Board and the Senior such matters. Management Team, taking into account the strategic objectives of the Group and in that regard considered a reorganisation of the Senior Management Team below board level proposed by the CEO. Earlier in the year Dave Aspin (Managing Director of Servicecare Support Services Limited), a member of the Senior Management Team, indicated that he wished to retire during 2016. As a result a search for a replacement was initiated. After careful consideration of a number of potential candidates it was recommended to the Board that Simon Parkinson be appointed as Managing Director of Servicecare Support Services Limited. Simon Parkinson was until recently Marketing Director (UK and Ireland) at Panasonic. The Board approved such recommendation and Simon Parkinson started with the Group on 18 April 2016. 52 Clipper Logistics plc Annual Report and Accounts 2016 Audit Committee Report Committee Chairman’s introduction Composition The Audit Committee gives due The Code recommends that an audit consideration to laws and regulations, The Audit Committee was established committee should comprise at least three, the provisions of the Code and the by a resolution of the Board dated or in the case of smaller companies, two requirements of the Listing Rules. 16 May 2014, at which meeting terms of independent non-executive directors (other reference were considered and adopted. than the chairman) and that at least one The ultimate responsibility for reviewing and The Board further resolved to appoint Mike member should have recent and relevant approving the Annual Report and Accounts Russell and Stephen Robertson to the Audit financial experience. Clipper’s Audit and the half-yearly reports remains with the Committee under my chairmanship. Under Committee is chaired by Paul Hampden Board. its terms of reference, the Audit Committee Smith and its other members are Mike is required to meet at least three times Russell and Stephen Robertson. By virtue The Board has requested that the Audit in each year at appropriate times in the of their former executive roles, details of Committee advise them in ensuring that reporting and auditing cycle. In the year which are set out on page 45, the Directors the Financial Statements, when taken ended 30 April 2016, the Audit Committee consider that Paul Hampden Smith and as a whole, are fair, balanced and has met three times. Mike Russell have recent and relevant understandable and provide the information The primary function of the Audit therefore compliant with the Code in this Group’s position and performance, business Committee is to assist the Board in fulfilling regard. Other directors or senior financial model and strategy. financial experience. The Company is necessary for shareholders to assess the its responsibilities to protect the interests management attend meetings of the Audit of the shareholders with regard to the Committee by invitation. integrity of the financial reporting, audit, risk management and internal controls. Roles and responsibilities In this report, I explain how the Audit The Audit Committee assists the Board in Committee has discharged these discharging its responsibilities with regard to: responsibilities, with specific reference - agreeing the scope of the annual audit to the requirement of the UK Corporate and the annual audit plan and monitoring Governance Code, (the “Code”) to the same; address significant financial statement reporting issues and to explain how - monitoring, making judgements and the Audit Committee assessed external recommendations on the financial audit effectiveness and safeguards in reporting process and the integrity and relation to the provision by the auditor clarity of the Group’s Financial Statements; - considering the appointment of the Group’s auditors and their remuneration including reviewing and monitoring independence and objectivity and agreeing and monitoring the extent of the non-audit work that may be undertaken; and - reviewing and monitoring the adequacy and effectiveness of the internal control and risk management policies. of non-audit services. Paul Hampden Smith Chairman, Audit Committee 54 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Audit Committee Report continued Activities during the year ended the numbers therein are consistent with Change of auditor 30 April 2016 those in the Financial Statements or are Following the conclusion of the audit for During the year, the Audit Committee sourced from appropriate data. More the year ended 30 April 2015, with the met three times. A summary of the main importantly, the Audit Committee assesses Audit Committee’s approval, management areas dealt with by the Committee whether the words used are consistent conducted a competitive bid process is set out below: with its understanding of the Group’s for the Group’s audit. The incumbent - review and approval for consideration by business obtained through Board and Audit auditors, Ernst & Young LLP were invited the Board of the financial results for the Committee meetings and other interaction to participate and submitted a bid. After year ended 30 April 2015; they have had with management, using due consideration of four audit firms, their experience to assess whether the management recommended that KPMG - findings from the external audit for the Annual Report taken as a whole is fair, LLP be appointed. The Audit Committee year ended 30 April 2015; balanced and understandable. This reviewed management’s proposal and - approval of the auditors’ remuneration in supplemented by advice received from once Ernst & Young LLP’s resignation had additional review by the Audit Committee, approved the appointment, to take place respect of the year ended 30 April 2015; external advisors during the drafting process taken effect. - discussion around the UK Corporate report is fair, balanced and understandable assists the Board in determining that the Governance Code on risk management, at the time that it is approved. The Audit Assessment of effectiveness internal control, viability and Committee considers the appropriateness of external audit going concern; of preparing the Financial Statements The Audit Committee oversees the - auditors’ confirmation of independence; consideration of forecast plans and considers the re-appointment of the Group’s supporting assumptions. auditors, before making a recommendation - review of auditors’ effectiveness; to the Board to be put to shareholders. on a going concern basis, including relationship with the external auditors and - approving management’s Significant issues considered in relation Prior to recommending the appointment of recommendation for a change to the Financial Statements KPMG LLP at the forthcoming AGM to the in auditors, following a competitive The Audit Committee, together with Board, the Audit Committee conducted a tender process; and the Board, considered what were the review of the external auditor’s performance significant risks and issues in relation to the and ongoing independence taking into - discussion with the external auditor Financial Statements and how these would consideration input from management, over the audit planning, with particular be addressed. The most significant risk consideration of responses to questions reference to significant risks highlighted identified is set out below: from the Audit Committee and the audit in the planning documents, together with the audit scope and timetable. Revenue recognition findings reported to the Audit Committee. Based on this information, the Audit - The Group has a multiplicity of complex Committee concluded that the external Since the year end, the Audit Committee contract mechanisms. As a result there audit process had been efficiently run and has also reviewed and approved for could be a risk of misstatement that KPMG LLP proved effective in its role as consideration by the Board this Annual of revenue. external auditor. Report and reviewed the findings from the external audit for the year ended - To mitigate this risk, the revenue 30 April 2016. recognition methodology adopted is Independence safeguards kept under regular review to ensure that it In accordance with best practice and As part of their review process, the members remains appropriate. of the Audit Committee are provided with a draft of the full Annual Report and Accounts enabling them to ensure that professional standards, external auditors are required to adhere to a rotation policy whereby the audit engagement partner is rotated after five years. Following the 55 Audit Committee Report continued Independence safeguards (continued) Internal audit The key elements of the Group’s ongoing change in auditor, the current audit The Board has considered the benefits that processes for the provision of effective engagement partner was appointed in the an internal audit function might bring to internal control and risk management year just ended. The external auditors are the Group. It has concluded that, due to systems, in place throughout the year also required periodically to assess whether, the tight financial controls in place across and at the date of this report, include: in their professional opinion, they are the Group, and the close management of - regular Board meetings to independent and those views are shared financial matters by the Executive Directors, consider matters reserved for with the Audit Committee. an internal audit function would not currently the Directors’ consideration; provide additional assurance. The Audit Committee has authority to - regular management reporting, providing take independent advice as it deems In terms of operational matters, the a balanced assessment of key risks appropriate in order to resolve issues on specialised nature of the Group’s activities and controls; auditor independence. No such advice means that a non-specialist internal audit has to date been required. function would not provide additional - an annual Board review of corporate comfort over the Group’s operational strategy, including a review of material management. The Board will continue business risks and uncertainties facing Independence assessment by the Audit to evaluate this matter, and the Audit the business; Committee Committee will formally consider the As required, the external auditor provided issue annually, in accordance with Code - established organisational structure with the Audit Committee with information for provision C.3.2. review about policies and procedures for maintaining its independence and clearly defined lines of responsibility and levels of authority; compliance regarding the rotation of audit Internal control and risk management - documented policies and partners and staff. Separate external firms The Board is responsible for the overall procedures; and are engaged for taxation advisory services. system of internal controls for the Group and The Audit Committee is satisfied that the for reviewing its effectiveness. It carries out - regular review by the Board of financial independence of KPMG LLP is not impaired. such a review at least annually, covering budgets, forecasts and covenants all material controls including financial, with performance reported to the Furthermore, KPMG LLP has provided operational and compliance controls and Board monthly. an independence report to the Audit risk management systems. Committee, in which they have confirmed In reviewing the effectiveness of the system that they are independent, that their The system of internal controls is designed of internal controls, the Audit Committee objectivity is not compromised, and that to manage rather than eliminate the risk receives self-assurance statements from they have complied with the Auditing Practices Board’s Ethical Standards of failure to achieve business objectives and can only provide reasonable and the members of the Senior Management Team who are responsible for the principal (including in relation to the supply of non- not absolute assurance against material business units, confirming that controls and audit services). misstatement or loss. risk management processes in their business units have been operated satisfactorily. KPMG LLP has performed no non-audit Operating policies and controls are in place These returns are reviewed by the Audit work for the Group in the two years ended and have been in place throughout the Committee and challenged where 30 April 2016. Since the completion of the financial year under review, and cover a appropriate. The Chief Financial Officer IPO in the year ended 30 April 2015, wide range of issues including financial is responsible for compiling and maintaining Ernst & Young LLP have performed no reporting, capital expenditure, information a risk register to monitor all of the risks further non-audit work for the Group. technology, business continuity and facing the business. The key risks are then The Audit Committee has assessed the the Audit Committee for inclusion in the performance and independence of the Detailed policies ensure the accuracy and Annual Report. In addition, the Audit external auditor and recommended to the reliability of financial reporting and the Committee also reviews the financial and management of employees. summarised for review and approval by Board the re-appointment of KPMG LLP as preparation of the Financial Statements, accounting controls. auditor until the conclusion of the AGM including the consolidation process. in 2017. 56 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Audit Committee Report continued Internal control and risk management Whistleblowing (continued) The Group has in place a Whistleblowing In respect of the Group’s financial reporting, Policy which encourages employees to the finance department is responsible for report any malpractice or illegal acts or preparing the Group Financial Statements omissions or matters of similar concern by using a well-established consolidation other employees or former employees, process and ensuring that accounting contractors, suppliers or advisors using policies are in accordance with a prescribed reporting procedure. The International Financial Reporting Standards. Whistleblowing Policy is complemented by All financial information published by the an Anti-bribery and Corruption Policy, and Group is subject to the approval of the a Gifts and Entertainment Policy. Audit Committee. These policies facilitate the reporting of There have been no changes in the Group’s any ethical wrongdoing or malpractice internal controls during the financial year or suspicion which may constitute ethical under review that have materially affected, wrongdoing or malpractice. Examples or are reasonably likely to materially affect, include bribery, corruption, fraud, dishonesty the Group’s control over financial reporting. and illegal practices which may endanger The Board, with advice from the Audit Committee, is satisfied that effective There have been no instances of systems for internal control and risk whistleblowing during the year under review. employees or third parties. management are in place which enable the Group to identify, evaluate and manage key risks, and which accord with Accountability the guidance of the Turnbull Committee The Board is required to present a fair, on internal control updated by the FRC balanced and understandable assessment in 2005. These processes have been of the Company and Group’s financial in place throughout the financial year position, performance, business model and and up to the date of approval of the strategy. The responsibilities of the Directors Financial Statements. Further details of risk and external auditor are set out on pages management frameworks and specific 80 and 85 respectively. material risks and uncertainties facing the business can be found on pages 30 to 33. 57 Directors’ Remuneration Report Committee Chairman’s introduction Although this performance was very Similar resolutions were proposed at our positive and the Group is in a position to 2014 and 2015 AGMs and, whilst both On behalf of the Board, I am pleased to realise further strong growth going forwards, resolutions were approved, around 20% present the Directors’ Remuneration Report considering both the reported Adjusted of the votes cast on these resolutions were for the year to 30 April 2016. EBIT for the financial year and the very “votes against”. Accordingly in 2016 the stretching targets set by the Committee Company is engaging with its leading This report contains the material required and management at the commencement shareholders and with leading proxy voting to be set out as the directors’ remuneration of the year, the Committee determined agencies to emphasise the importance report for the purposes of Part 4 of The that no bonuses should be paid under the of the strong team culture amongst the Large and Medium-sized Companies Annual Incentive Plan (“AIP”) to our Executive entire Senior Management Team which and Groups (Accounts and Reports) Directors for the year ended 30 April 2016. has served the Company so well to date (Amendment) Regulations 2013, which and how, as part of that team culture, it amended The Large and Medium-sized Due to our shareholding structure, we are is integral that all Executive Directors and Companies and Groups (Accounts required to seek specific shareholders’ senior managers should participate and Reports) Regulations 2008 (“the approval to permit the Executive Chairman, in the same annual incentive plan and DRR regulations”). The auditors have the Chief Financial Officer, the Chief long-term incentive plan, with all of the reported on certain parts of the Directors’ Information Officer and the Company wider team being incentivised on the Remuneration Report and stated whether, Secretary and General Counsel to same performance measures. in their opinion, those parts have been participate in awards under our Sharesave properly prepared in accordance with and Performance Share Plan (“PSP”). The Remuneration Committee hopes that the Companies Act 2006. Those parts you will continue to support our approach of the Directors’ Remuneration Report At the 2016 AGM we will be proposing two on remuneration matters. The Remuneration which have been subject to audit are remuneration related resolutions: Committee is confident that the approach clearly indicated. - a vote to approve the Directors’ we are following is the correct one for The financial year ended 30 April 2016 was the support of shareholders for all of the a significant one for Clipper. The Group - a vote to authorise the participation remuneration related resolutions at the Remuneration Report; and the Group and hopes that it can rely on performed strongly, with Group revenue of Steve Parkin (Executive Chairman), 2016 AGM. increasing by 23.7% to £290.3 million, David Hodkin (Chief Financial Officer) and Adjusted EBIT growing by 21.0% Sean Fahey (Chief Information Officer) Mike Russell to £14.5 million. and Guy Jackson (Company Secretary Chairman, Remuneration Committee and General Counsel) in the PSP in accordance with the requirements of the Takeover Panel for “Concert Parties”. 58 Clipper Logistics plc Annual Report and Accounts 2016 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 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Steve Parkin 384 405 Tony Mannix 213 208 David Hodkin 180 180 Sean Fahey 150 150 67 27 2 27 56 25 2 11 nil nil nil nil 42 23 19 16 nil nil nil nil nil nil nil nil 35 36 23 15 15 39 23 15 486 518 276 295 205 224 192 192 1 Benefits comprise a car allowance or company car, fuel allowance, private family medical cover, and insurance benefits. The increase in the value of benefits for the Executive Chairman in the year principally represents an increased car value within the Company’s policy. 2 Details of the annual incentive plan for the financial year ending 30 April 2016 are set out below. 3 No LTIP awards vested in the financial year ending 30 April 2016. For details of the LTIP in operation for the financial year ending 30 April 2016 refer to page 62 below. 4 David Hodkin’s pension entitlement is paid by way of an additional allowance, taxed as salary. 5 Base salaries for Steve Parkin and Tony Mannix in the years ended 30 April 2015 and 2016 were £405,000 and £225,000 respectively. In the year ended 30 April 2016 both Steve and Tony surrendered part of their salaries in return for additional employer’s pension contributions. Tony also surrendered part of his salary in the prior year in return for additional employer’s pension contributions. Annual bonus outcomes for the year ended 30 April 2016 Performance for the Annual Incentive Plan for the AIP and accordingly this level of (“AIP”) was measured against Adjusted EBIT Adjusted EBIT did not allow for the payment for the year to 30 April 2016. The Adjusted of any bonuses for Executive Directors when EBIT achieved for the year was £14.5 million. compared to the £14.8 million Adjusted EBIT For the financial year ended 30 April 2016, target set for the AIP. very demanding targets had been set Non-Executive Directors’ fees Fees year ended 30 April: Benefits year ended 30 April: Total year ended 30 April: £’000 2016 2015 2016 2015 2016 2015 Paul Hampden Smith Stephen Robertson Mike Russell Ron Series 60 40 40 40 55 37 39 37 1 3 - 2 - 1 2 1 61 43 40 42 55 38 41 38 1 As the Non-Executive Directors were appointed in May 2014 the prior year figures represent remuneration for only 11 months. 2 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. 60 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Implementation Report 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 2016 are set out below: Steve Parkin Tony Mannix David Hodkin Sean Fahey Paul Hampden Smith Stephen Robertson Mike Russell Ron Series Ordinary shares Number 30,797,100 1,358,613 1,358,613 7,834,397 100,000 9,410 - 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. 61 Implementation Report on Remuneration continued Audited information (continued) Share plan interests Performance Share Plan: Options held at 1 May 2015 Options lapsed Options granted Options exercised Option grant price (p) Options held at 30 April 2016 Earliest exercise date Latest exercise date Steve Parkin 229,682 Tony Mannix 127,601 David Hodkin 102,081 Sean Fahey 85,067 Sharesave Plan: - - - - 135,374 75,208 60,166 50,138 - - - - nil nil nil nil 365,056 14/01/2018 14/01/2026 202,809 14/01/2018 14/01/2026 162,247 14/01/2018 14/01/2026 135,205 14/01/2018 14/01/2026 Options held at 1 May 2015 12,820 6,410 12,820 12,820 Options lapsed Options granted Options exercised - - - - - 3,760 - - - - - - Option grant price (p) Options held at 30 April 2016 Earliest exercise date Latest exercise date n/a 12,820 01/04/2018 30/09/2018 239.34 10,170 01/04/2018 30/09/2019 n/a n/a 12,820 01/04/2018 30/09/2018 12,820 01/04/2018 30/09/2018 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 2016 was 188p to 305p. The closing price on 30 April 2016 was 270p. 4 The threshold level of vesting for the PSP options granted in the year is 25% of the total number of options granted. 2 None of the Directors paid for the award of options. 5 The performance conditions attached to the PSP awards granted during the year are set out below. 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 299.17p for the options granted on 14 January 2016. 6 The market value of shares on the date of grant of Sharesave options in the year (9 February 2016) was 267.25p. The face value of the options was therefore £10,048.60 for Tony Mannix. The option price for options granted on 9 February 2016 was 239.34p as shown above. 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 2018 PSP Award for the PSP awards made in the year to 30 April 2016 are based on Adjusted EPS 14.7p performance for the financial year ending 30 April 2018, summarised as follows: Between 12p and 14.7p 100% Pro-rata on straight-line basis between 25% and 100% 12p Less than 12p 25% 0% 62 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Implementation Report on Remuneration continued Unaudited information Remuneration Committee Advisors The members of the Remuneration FIT Remuneration Consultants LLP, signatories Committee are: to the Remuneration Consultants Group’s - Mike Russell (Chairman); Code of Conduct, were appointed by - Paul Hampden Smith; and competitive tender process. FIT provides the Remuneration Committee following a - Ron Series. advice to the Remuneration Committee on all matters relating to remuneration, including best practice. FIT provided no The Remuneration Committee’s principal other services to the Group and accordingly responsibilities are: - recommending to the Board the the Remuneration Committee was satisfied that the advice provided by FIT was remuneration strategy and framework objective and independent. FIT’s fees in for the Executive Directors and respect of the year ended 30 April 2016 senior managers; were £29,000. FIT’s fees were charged on the basis of the firm’s standard terms of - determining, within that framework, the business for advice provided. 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. 63 Implementation Report on Remuneration continued Unaudited information (continued) Implementation of Policy in the year ending 30 April 2017 Executive Directors Base salary sensitive and accordingly are not Non-Executive Directors disclosed. Following the conclusion of the Fees - Base salaries for the year ending current financial year, the Remuneration - The base fee payable to each 30 April 2017 are as follows: £411,075 Committee will consider whether it is Non-Executive Director is as follows: for Steve Parkin, £228,375 for Tony Mannix, feasible to disclose the performance - Paul Hampden Smith (Senior £182,700 for David Hodkin and £152,250 targets for the current financial year on Independent Director and Chair of the for Sean Fahey. These salaries represent a retrospective basis. a 1.5% increase from the financial year Audit Committee) - £60,000; - Stephen Robertson - £40,000; ended 30 April 2016, in line with increases Performance Share Plan for the year - Mike Russell - £40,000; and - Ron Series - £40,000. made for central functions staff. Pension ending 30 April 2017 - Award levels are proposed at 100% of base salary for each Executive Director. - Contribution rates for Executive Directors This is unchanged from the financial year are as follows (expressed as percentages ended 30 April 2016. of base salary): Steve Parkin - 6%, Tony Mannix - 10%, David Hodkin - 15%. - The performance measures and targets Sean Fahey - 10%. These are unchanged for this award will be based on Adjusted from the financial year ended 30 April EPS performance for the financial year 2016, although Steve Parkin and Tony ending 30 April 2019. Mannix surrendered part of their salaries in return for additional employer’s - The Remuneration Committee selected pension contributions. Benefits - Details of the benefits received by this performance measure because growth in earnings is a key measure of success for the Group. Executive Directors are set out in note 1 to - The performance targets for the Adjusted the single figure table on page 60. EPS measure will be set by the Committee shortly before the awards are made, it - There is no intention to introduce being the Company’s practice to make additional benefits in the financial year the awards following the announcement ending 30 April 2017. Annual Incentive Plan for the year ending of its half-yearly results. Accordingly, this allows the Committee to ensure that the targets applied are both 30 April 2017 appropriately stretching, and relevant to - The AIP maximum is 50% of base salary. participants. The Company will disclose This is unchanged from the financial year the performance targets for the Adjusted ended 30 April 2016. EPS measure in next year’s Directors’ Remuneration Report. - Performance measures for the AIP in the year to 30 April 2017 will be based on EBIT. The Remuneration Committee selected EBIT as the performance measure for the AIP for the year ending 30 April 2017 as it is regarded as a key performance indicator for the Group. Given the competitive nature of the Group’s sectors, the specific performance targets for the AIP are considered to be commercially 64 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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, part of the dividend paid by the Company during the year to 30 April 2015 was to the Company’s £’000 2016 2015 % change Remuneration paid to all employees of the Group1 81,253 66,539 +22.1% Distributions to shareholders 5,200 1,935 +168.7% 1 Total remuneration reflects overall employee costs. See note 5 to the Group Financial Statements for further information. 2 Distributions to shareholders in the year ended 30 April 2015 include £335,000 paid to the Company’s former former parent; therefore comparison of parent company. profit distributed by way of dividend to overall expenditure on pay is invalidated for the years to 30 April 2016 and 30 April 2015. Comparative Total Shareholder Return (“TSR”) The DRR regulations require a line graph Total Shareholder Return Index (30 May 2014 = 100) showing the TSR on a holding of shares in the Company since Admission to the financial year end, 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: 300 250 200 150 100 50 0 30 May 2014 30 April 2015 30 April 2016 Clipper Logistics plc FTSE SmallCap Index Source: Thomson Reuters ex Investment Trusts Single figure of total remuneration (£’000) Annual variable element award rates against maximum opportunity Long-term incentive vesting rates against maximum opportunity Year ended 30 April 2016: Steve Parkin Year ended 30 April 2015: Steve Parkin 486 518 0.0% 20.8% n/a n/a 65 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 Year-on-year % change Salary Taxable benefits Annual bonus percentage change in the prescribed pay Executive Chairman -5.1% +19.1% -100.0% elements (salary, taxable benefits, and annual bonus outcome) of the Executive All-employees +1.9% +6.3% -6.1% Chairman and the average percentage change for all Group staff between the year ended 30 April 2015 and the year ended 30 April 2016. In the year ended 30 April 2016 the Executive Chairman surrendered part of his salary for additional employer’s pension contributions. Subsequently a decrease in salary from the prior year is shown above, but this is offset by an equal and opposite increase in employer’s pension contributions. The increase in the value of benefits for the Executive Chairman in the year principally represents an increased car value within the Company’s policy. AGM voting results Details of the votes on remuneration matters held at the 2015 AGM are as follows: Resolution Votes for % for Votes against % against Total votes Withheld Approve Directors’ Remuneration Report 89,072,202 100.00% 0 0.00% 89,072,202 Approve participation by “Concert Party” in PSP and Sharesave 36,402,635 80.75% 8,679,457 19.25% 45,082,092 0 0 As explained in the Committee Chairman’s However, this participation in the PSP letter at the beginning of this report, the was 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 a key part of the Directors’ Remuneration raised by certain governance bodies Policy which received strong shareholder in relation to the Executive Chairman’s support at the 2014 AGM. participation in the PSP given the level of his existing shareholding in the Company. 66 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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 1 August 2016 and signed on months’ notice. its 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 Mike Russell Ron Series 16 May 2014 16 May 2014 16 May 2014 16 May 2014 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 2016 AGM. Element and purpose Policy and operation Maximum Performance measures 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. N/A 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 judgement, 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. 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. 68 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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 53 of the Company’s 2014 Annual Report and Accounts. 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 judgement to adjust the outcome of the AIP for any performance measure (from zero to any cap) should it consider that to be appropriate. 69 Directors’ Remuneration Policy continued Appendix (continued) Element and purpose Policy and operation Maximum Performance measures 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. 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. 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. 1 Now included at page 53 of the Company’s 2014 Annual Report and Accounts. 70 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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. 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. The Sharesave Plan is an all-employee share plan established under the HMRC tax-advantaged regime and follows the usual form for such plans. Shareholders’ approval is being sought at the 2014 AGM for the Clipper Sharesave Plan (“Sharesave Plan”). Executive Directors are able to participate in all-employee share plans on the same terms as other Group employees. 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%. 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. Non-Executive Director fees To enable the Group to recruit and retain Non-Executive Directors of the highest calibre, at the appropriate cost. 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. 71 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 of the Remuneration Committee expressly 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. 72 Clipper Logistics plc Annual Report and Accounts 2016 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 the interest rate, inflation and equity price Company’s shares are included in the year ended 30 April 2016. risks; details of its financial instruments Directors’ Remuneration Report on and hedging activities; and its exposures page 61. Between 30 April 2016 and The Corporate Governance Report on to credit risk and liquidity risk. 29 July 2016 (being the latest practicable pages 46 to 50 and the Corporate Social Responsibility Report (with regard date before publication) there had been no change in Directors’ interests as set out to information about the employment of Results and dividends on page 61. disabled persons, employee involvement The consolidated profit for the Group for and greenhouse gas emissions) are also the year after taxation was £10.3 million incorporated into this report by reference. (2015: £7.3 million). The results are discussed Directors’ indemnities in greater detail in the Operating and The Company provided indemnities to each The Company has chosen, in accordance Financial Review on pages 18 to 28 and of its Directors during the year ending with section 414C (11) of the Companies set out in the Group Income Statement on 30 April 2016 in accordance with the Act 2006 to include the disclosure of page 86. particulars of likely future developments in provisions of the Company’s Articles of Association, allowing the indemnification of the Strategic Report (see pages 6 to 40). The Directors are recommending the Directors out of the assets of the Company payment on 20 October 2016 of a final to the extent permitted by law. These dividend of 4.0 pence per ordinary share indemnities constitute qualifying indemnities Financial risk management to shareholders on the register at the close for the purposes of the Companies Act The Group’s business activities, together of business on 23 September 2016 which, 2006 and remain in force at the date of with the factors likely to affect its future together with the net interim dividend of approval of this report without any payment development, performance and position 2.0 pence per ordinary share paid on having been made under them. are set out in the Operating and Financial 31 December 2015, results in a total net Review on pages 18 to 28, along with the dividend for the year of 6.0 pence per share financial position of the Group, its cash flows (2015: 4.8 pence). and liquidity. In addition, note 25 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 44 and 45 of this Annual Report. The following Directors are current Directors or served the Company during the year ended 30 April 2016: Name Position Steven (Steve) Nicholas Parkin Antony (Tony) Gerard Mannix David Arthur Hodkin Sean Eugene Fahey Paul Nigel Hampden Smith Stephen Peter Robertson Michael (Mike) John Russell Ronald (Ron) Charles Series 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 74 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Directors’ Report continued Significant contracts The Company has a single class of share Variation of rights attaching to shares The only significant contract involving capital divided into ordinary shares of 0.05p The Articles provide that rights attached any Director or controlling shareholder of each. The ordinary shares are listed on the to any class of shares may be varied with the Company during the year was the London Stock Exchange. The rights and the written consent of the holders of not Relationship Agreement (referred to later obligations attaching to these shares are less than three-quarters in nominal value in this report) entered into between the governed by UK law and the Company’s of the issued shares, or with the sanction of Company and Steve Parkin and Carlton Articles of Association. Court Investments Limited. a special resolution passed at a separate general meeting of the holders of those shares. At every such separate general Voting rights attaching to shares meeting, the quorum shall be two persons Compensation for loss of office Ordinary shareholders are entitled to receive holding or representing by proxy at least There are no agreements between the notice and to attend and speak at any one-third in nominal value of the issued Company and its Directors or employees general meeting of the Company. On a shares (calculated excluding any shares providing for compensation for loss of office show of hands every shareholder present in held in treasury). The rights conferred upon or employment that occurs as a result of a person or by proxy (or being a corporation the holders of any shares shall not, unless takeover bid. Further details of the Directors’ represented by a duly authorised otherwise expressly provided in the rights service contracts can be found in the representative) shall have one vote, and on attaching to those shares, be deemed to Directors’ Remuneration Report on pages a poll every shareholder who is present in be varied by the creation or issue of further 58 to 72. person or by proxy shall have one vote for shares ranking pari passu with them. every share of which he is the holder. The Notice of Annual General Meeting specifies Directors’ and Officers’ liability insurance deadlines for exercising voting rights and Restrictions on the transfer of shares Directors’ and Officers’ liability insurance appointing a proxy or proxies. There are no restrictions on the transfer of cover is in place at the date of this report, having been purchased prior to the IPO. The the ordinary shares other than: - the standard restrictions for a UK-quoted Board remains satisfied that an appropriate Deadlines for exercising voting rights company where any amount is unpaid on level of cover is in place and a review of attaching to shares a share; cover will take place on an annual basis. The Articles provide a deadline for the submission of proxy forms (whether by - where, from time to time, certain an instrument in writing or electronically) restrictions may become imposed by Articles of Association of not less than 48 hours before the time laws and regulations (for example, insider The Articles of Association (adopted by appointed for the holding of the meeting or trading laws and marketing requirements special resolution on 15 May 2014) may the adjourned meeting. relating to close periods); and only be amended by special resolution of the shareholders. A copy of the Articles - pursuant to the Listing Rules of the is available on request from the Shares in uncertificated form Financial Conduct Authority whereby Company Secretary. Directors may determine that shares may certain Directors, officers or employees of be held in uncertificated form and title to the Company require the approval of the such shares may be transferred by means Company to deal in the ordinary shares. Share capital structure of a relevant system or that shares should Details of the Company’s share capital are cease to be so held and transferred. set out in note 21 to the Group Financial Statements on page 123. During the year the Company issued 5,341 new ordinary shares of 0.05p each pursuant to the exercise of options granted to certain employees of the Company under the Company’s Sharesave Plan approved by shareholders at the 2014 AGM. 75 Directors’ Report continued Restrictions on the transfer of shares Appointment and replacement Relationship agreement with controlling (continued) of Directors shareholders On 30th May 2014 each of the Executive Unless determined by ordinary resolution of Carlton Court Investments Limited (“Carlton”) Directors (save for Steve Parkin) and the Company, the number of Directors shall holds 30.0% of the issued share capital certain persons who held ordinary shares not be less than two or more than twelve in of the Company. As such Carlton is a after the Company’s Admission or whose number. A Director is not required to hold Controlling Shareholder as defined in associates held such shares entered into any shares in the Company by the Listing Rules. Carlton is controlled by an agreement with Steve Parkin agreeing to way of qualification. certain restrictions on their ability (and that Steve Parkin. Steve Parkin and Carlton have entered into, and the Company’s of their family) to dispose of ordinary shares The Board may appoint any person to be relationship with them is governed by in which they are interested for a period of a Director and such Director shall hold the terms of, the Relationship Agreement five years from the date of Admission. Under office only until the next AGM, when he or referred to above, the principal purpose the terms of the agreement, the obligors she shall be eligible for appointment by of which is to ensure that the Company may not dispose of any interest in the the shareholders. The articles provide that and the Group is capable of carrying on its ordinary shares held by them at Admission at each AGM, one-third of the Directors for business independently of the Controlling until the fourth year of the five year period. the time being (or, if their number is not a Shareholders and that any transactions During the fourth year of the period, each multiple of three, then the number nearest and relationships with the Controlling obligor may dispose of up to one third of to but not less than one-third) shall retire Shareholders are conducted at arm’s length the ordinary shares in which he is interested from office. A Director who retires at any and on normal commercial terms. at Admission. During the fifth year of the AGM shall be eligible for re-appointment. five year period, each obligor may dispose In addition, any Director appointed by the The Controlling Shareholders have agreed of up to two thirds of the ordinary shares in Board shall hold office only until the next to procure that their associates also comply which he is interested at Admission (less a following AGM and shall then be eligible with the Relationship Agreement. The number equal to those ordinary shares sold for appointment. during the prior year (if any)). Relationship Agreement will continue for so long as the Company is listed on the On 30th May 2014 the Company main market for listed securities of London entered into an agreement (“Relationship Stock Exchange plc and the Controlling Authority to purchase own shares Agreement”) with Steve Parkin and Shareholders and their associates own or A resolution to authorise the Company to his nominee company Carlton Court control at least 25% of the Company’s purchase up to 10% of the Company’s Investments Limited (the “Controlling issued share capital or voting rights. issued ordinary share capital will be Shareholders”). Pursuant to that agreement proposed at the 2016 AGM. the Company has agreed with the The Listing Rules require premium listed Controlling Shareholders that the Controlling companies with controlling shareholders to As at 29 July 2016, being the latest practicable date prior to the publication of Shareholders shall be entitled to appoint and remove one Director to the Board so provide a confirmation in their annual reports that all of the independence this report, the Company did not hold any long as the Controlling Shareholders (and/or provisions contained in their agreements shares in treasury. any of their associates) when taken together, have been complied with. hold 25% or more of the voting rights over the Company’s issued shares. Where any In line with this requirement, the Board has Controlling Shareholder has already been assessed the Controlling Shareholders’ nominated to the board as a Director and Company’s compliance with the himself such appointment will reduce the Relationship Agreement’s independence number of persons which the Controlling requirements and has assessed compliance Shareholders are entitled to nominate for with these requirements during the period appointment by one. under review. Any person appointed by the Controlling Shareholders to the board may be removed by the Controlling Shareholders by notice in writing. 76 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Directors’ Report continued Relationship agreement with controlling Employment policies Branches shareholders (continued) Arrangements for consulting and involving During the year ended 30 April 2016, As such, the Board can confirm that since Group employees on matters affecting Clipper registered a branch in Ireland, the entry into the Relationship Agreement their interests at work, and informing them in order to facilitate performance of a on 30 May 2014 until 29 July 2016, of the performance of their employing contract with Ireland’s largest retailer, and being the latest practicable date prior business and the Group, are developed also to enhance its presence in Ireland in to the publication of this Annual Report in ways appropriate to each business. A order to secure further new business. and Accounts: variety of approaches is adopted aimed (i) the Company has complied with the at encouraging the involvement of independence provisions included employees in effective communication Political donations in the Relationship Agreement; and consultation, and the contribution of The Company has made no political (ii) so far as the Company is aware, the and intends to continue its policy of not independence provisions included in Employment policies are designed to doing so for the foreseeable future. productive ideas at all levels. donations since Admission on 4 June 2014 the Relationship Agreement have been provide equal opportunities irrespective complied with by each of the Controlling of race, caste, national origin, religion, Shareholders and their associates and age, disability, gender, marital status, Charitable donations also by the Company; and sexual orientation or political affiliation. During the year to 30 April 2016, the Group Group policy is to ensure that disabled made charitable donations totalling (iii) so far as the Company is aware, the applicants for employment are given £72,000 (2015: £52,000). procurement obligation included in full and fair consideration having regard the Relationship Agreement has been to their particular aptitudes and abilities, complied with by each of the and that existing disabled employees are Controlling Shareholders. given equal access to training, career development and promotion opportunities. In the event of existing employees Power of Directors becoming disabled, all reasonable means Subject to the Articles, the Companies would be explored to achieve retention in Act and any directions given by special employment in the same or an alternative resolution, the business of the Company capacity, including arranging appropriate shall be managed by the Board who may training. Further details in relation to the exercise all the powers of the Company Group’s employment policy are set out in to, for example, borrow money; mortgage the Corporate Social Responsibility section or charge any of its undertaking, property and uncalled capital; and issue debentures and other securities, whether outright or as of the Strategic Report on page 38. collateral security for any debt, liability or Significant agreements obligation of the Company. There are a number of agreements which, subject to any discussions with relevant parties, would terminate upon Greenhouse gas emissions a change of control of the Company The Group’s disclosures on greenhouse gas such as commercial contracts, bank loan emissions can be found in the Corporate agreements, property lease arrangements Social Responsibility section of the Strategic and employees’ share plans. None of these Review on pages 39 and 40 and form part individually is considered to be significant in of the Directors’ Report. terms of their likely impact on the business of the Group as a whole. 77 Directors’ Report continued Major interests in shares As at 15 July 2016, 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 Hargreave Hale Liontrust Asset Management Franklin Templeton Fund Management Legal and General Investment Management 1 Ultimately controlled by Steve Parkin, Executive Chairman. 2 Ultimately controlled by Sean Fahey, Chief Information Officer. 30,000,000 7,834,397 6,999,999 6,433,002 5,245,140 4,963,416 4,300,000 3,163,436 30.00 7.83 7.00 6.43 5.24 4.96 4.30 3.16 Going concern Audit information Annual General Meeting After making enquiries, the Directors have a Each of the Directors at the date of the The Company’s Annual General Meeting will reasonable expectation that the Company approval of this report confirms that: be held at Clipper Logistics, Gelderd Road, and Group have adequate resources - so far as he is aware, there is no relevant Leeds, LS12 6LT on 17 October 2016 at to continue in operational existence for audit information of which the Group’s 11:00. Details of the meeting venue and the the foreseeable future. In making this auditors are unaware; and resolutions to be proposed are set out in a assessment they have considered the Notice of Meeting which will be issued under Company and Group budgets and - he has taken all the reasonable steps separate cover. cash flow forecasts for the period to that he ought to have taken as a Director 30 April 2019. The Company has to make himself aware of any relevant The Directors consider that all of the considerable financial resources, negligible audit information and to establish that proposed resolutions are in the best interests liquidity risk and is operating within a sector the Group’s auditors are aware of the Company and its shareholders as a that is experiencing growing demand of the information. for its services. The Directors therefore whole. It is the Directors’ recommendation that you support the proposed resolutions have a reasonable expectation that the Company and the Group have adequate The confirmation is given and should be interpreted in accordance with the and vote in favour of them, as each of the Directors intends to do. resources to continue in operational provisions of section 418 of the Companies existence for the foreseeable future. Thus Act 2006. they continue to adopt the going concern basis of accounting in preparing the annual The Directors’ Report has been approved by the Board of Directors of Clipper Logistics plc. Financial Statements. Further information Auditors Signed on behalf of the Board. is disclosed in the Viability Statement The auditors, KPMG LLP have indicated on page 34 and note 2.2 to the their willingness to continue in office and a Guy Jackson Group Financial Statements. resolution seeking to reappoint them will be Company Secretary proposed at the Annual General Meeting. 1 August 2016 Clipper Logistics plc Registered Office: Gelderd Road Leeds LS12 6LT Company No. 03042024 78 Clipper Logistics plc Annual Report and Accounts 2016 Statement of Directors’ Responsibilities in respect of the Annual Report and Accounts The Directors are responsible for preparing - for the Parent Company Financial Responsibility statement of the the Annual Report and the Group and Statements, state whether applicable Directors in respect of the Annual Parent Company Financial Statements UK Accounting Standards have been Report and Accounts in accordance with applicable law followed, subject to any material We confirm that to the best of and regulations. departures disclosed and explained our knowledge: in the Parent Company Financial - the Financial Statements, prepared in Company law requires the Directors to Statements; and prepare Group and Parent Company accordance with the applicable set of accounting standards, give a true and Financial Statements for each financial - prepare the Financial Statements on fair view of the assets, liabilities, financial year. Under that law they are required to the going concern basis unless it is position and profit or loss of the Company prepare the Group Financial Statements inappropriate to presume that the Group and the undertakings included in the in accordance with IFRSs as adopted and the Parent Company will continue consolidation taken as a whole; and by the EU and applicable law and have in business. elected to prepare the Parent Company - the Strategic Report and Directors’ Report Financial Statements in accordance with The Directors are responsible for keeping includes a fair review of the development UK Accounting Standards, including FRS 101 adequate accounting records that are and performance of the business and the Reduced Disclosure Framework. sufficient to show and explain the Parent position of the issuer and the undertakings Under company law the Directors must not reasonable accuracy at any time the whole, together with a description of the approve the Financial Statements unless financial position of the Parent Company principal risks and uncertainties that Company’s transactions and disclose with included in the consolidation taken as a they are satisfied that they give a true and and enable them to ensure that its Financial they face. fair view of the state of affairs of the Group Statements comply with the Companies Act and Parent Company and of their profit or 2006. They have general responsibility for We consider the Annual Report and loss for that period. In preparing each of taking such steps as are reasonably open to Accounts, taken as a whole, is fair, the Group and Parent Company Financial them to safeguard the assets of the Group balanced and understandable Statements, the Directors are required to: and to prevent and detect fraud and and provides the information necessary - select suitable accounting policies and other irregularities. then apply them consistently; for shareholders to assess the Group’s position and performance, business Under applicable law and regulations, the model and strategy. - make judgements and estimates that are Directors are also responsible for preparing reasonable and prudent; a strategic report, directors’ report, directors’ remuneration report and corporate Approved by the Board and signed - for the Group Financial Statements, state governance statement that complies with on its behalf by: whether they have been prepared in accordance with IFRSs as adopted by that law and those regulations. the EU; The Directors are responsible for the Steve Parkin maintenance and integrity of the corporate Executive Chairman and financial information included on 1 August 2016 the Company’s website. Legislation in the UK governing the preparation and David Hodkin dissemination of financial statements may Chief Financial Officer differ from legislation in other jurisdictions. 1 August 2016 80 Clipper Logistics plc Annual Report and Accounts 2016 Group Financial Statements for the year ended 30 April 2016 82 Clipper Logistics plc Annual Report and Accounts 2016 Independent Auditor’s Report to the members of Clipper Logistics plc only Opinions and conclusions arising from our audit Our opinion on the Financial Statements is each with bespoke billing terms which can Our application of materiality and an unmodified lead to complexity around the calculation overview of the scope of our audit We have audited the Financial Statements of of revenue and any deferred and accrued The materiality for the Group Financial Clipper Logistics plc for the year ended revenue, in the value-added logistics services Statements as a whole has been set at 30 April 2016 set out on pages 86 to 157. segment (including Clipper Logistics £650,000 determined by reference to a In our opinion: and Servicecare). - the Financial Statements give a true and fair view of the state of the Group’s and of the Our response: benchmark of Group profit before taxation (of which it represents approximately 5%). Parent Company’s affairs as at 30 April 2016 Our procedures included: We report to the Audit Committee any and of the Group’s profit for the year - checking of the reconciliation of cash corrected and uncorrected misstatements then ended; receipts and movements in opening and closing related balance sheet captions to (including disclosure misstatements) exceeding £32,500, in addition to other - the Group Financial Statements have been total revenue for the value-added logistics identified misstatements that warranted properly prepared in accordance with services segment; reporting on qualitative grounds. International Financial Reporting Standards as adopted by the European Union; - inspecting contracts with key customers Of the Group’s seven reporting components, in the value-added logistics services we subjected six to audits for Group reporting - the Parent Company Financial Statements segment to determine whether, based on purposes; the remainder was not individually have been properly prepared in the contract terms and billing schedule, financially significant enough to require an accordance with UK Accounting Standards, the Directors have appropriately captured audit for Group reporting purposes. including FRS 101 Reduced Disclosure these contracts as part of the calculation Framework; and of revenue and any accrued or deferred The components, subjected to audits for - the Financial Statements have been cent of Group revenue, 100% per cent of prepared in accordance with the - assessing accuracy of accrued and Group profit before tax and 95% per cent of requirements of the Companies Act 2006; deferred income in the value-added Group total assets. income at the year end; Group reporting purposes covered 95% per and, as regards the Group Financial logistics services segment by agreeing a Statements, Article 4 of the IAS Regulation. sample of balances to invoices raised pre or post year end and recalculating the amount accrued or deferred based on Our assessment of risks of material contract terms and costs incurred in the misstatement period up to year end; In arriving at our audit opinion above on the Financial Statements the risk of material - assessing completeness of accrued and misstatement that has the greatest effect on deferred revenue by testing a sample of our audit was as follows: - Revenue recognition – £290.3m transactions around the year end date, in order to assess whether the associated - Refer to page 55 (Audit Committee revenue was recognised in the correct Report) and pages 97 to 98 period; and (accounting policy). The Risk: - assessing the adequacy of the Group’s disclosures in respect of the accounting Accuracy and timing of revenue recognition policies on revenue recognition set out is one of the key judgemental areas for our in note 2.20. audit, particularly in respect of the different revenue streams around the Group. These include the various contractual arrangements, 84 Turnover, 95% PBT, 100% Total assets,95% Analysis at aggregated Group level Audited for Group reporting purposes Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Independent Auditor’s Report to the members of Clipper Logistics plc only continued Opinions and conclusions arising from our audit (continued) Our application of materiality and We have nothing to report in respect of the Under the Listing Rules we are required to an overview of the scope of our audit matters on which we are required to report review: (continued) by exception - the Directors’ statements, set out on pages For the remaining component, we Under ISAs (UK and Ireland) we are required to 34 and 78, in relation to going concern performed analysis at a Group level to re- report to you if, based on the knowledge we and longer-term viability; and examine our assessment that there were no acquired during our audit, we have identified significant risks of material misstatement within other information in the Annual Report that - the part of the Corporate Governance this component. contains a material inconsistency with either statement on page 46 in the Corporate The Group audit team performed and a material misstatement of fact, or that is Company’s compliance with the eleven that knowledge or the Financial Statements, Governance Report relating to the reviewed all of the work discussed above. otherwise misleading. provisions of the 2014 UK Corporate Governance Code specified for our review. Our opinion on other matters prescribed by - we have identified material inconsistencies We have nothing to report in respect of the the Companies Act 2006 is unmodified between the knowledge we acquired above responsibilities. In particular, we are required to report to you if: In our opinion: during our audit and the Directors’ - the part of the Directors’ Remuneration statement that they consider that the Report to be audited has been properly Annual Report and Accounts taken as a Scope and responsibilities prepared in accordance with the whole is fair, balanced and understandable As explained more fully in the Statement of Companies Act 2006; and and provides the information necessary for Directors’ Responsibilities set out on page shareholders to assess the Group’s position 80, the Directors are responsible for the - the information given in the Strategic Report and performance, business model and preparation of the Financial Statements and and the Directors’ Report for the financial strategy; or year for which the Financial Statements for being satisfied that they give a true and fair view. A description of the scope of an are prepared is consistent with the - the Audit Committee Report does audit of financial statements is provided on Financial Statements. not appropriately address matters the Financial Reporting Council’s website at We have nothing to report on the disclosures communicated by us to the www.frc.org.uk/auditscopeukprivate. This report Audit Committee. is made solely to the Company’s members as a body and is subject to important of principal risks Under the Companies Act 2006 we are explanations and disclaimers regarding our Based on the knowledge we acquired during required to report to you if, in our opinion: responsibilities, published on our website at our audit, we have nothing material to add or - adequate accounting records have not www.kpmg.com/uk/auditscopeukco2014a, draw attention to in relation to: - the Viability Statement on page 34, concerning the principal risks, their management, and, based on that, the Directors’ assessment and expectations of been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. the Group continuing in operation over the - the Parent Company Financial Statements three years to 30 April 2019; or and the part of the Directors’ Remuneration - the disclosures in note 2 of the Group with the accounting records and returns; or for and on behalf of KPMG LLP, Financial Statements concerning the use of Statutory Auditor the going concern basis of accounting. - certain disclosures of Directors’ remuneration Chartered Accountants Report to be audited are not in agreement Johnathan Pass (Senior Statutory Auditor) specified by law are not made; or 1 Sovereign Square Sovereign Street - we have not received all the information and explanations we require for our audit. Leeds LS1 4DA 1 August 2016 85 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 Profit for the financial year Basic earnings per share Diluted earnings per share Adjusted basic earnings per share* 2016 Group £’000 2015 Group £’000 290,325 (205,742) 234,778 (165,590) 84,583 263 (70,315) 14,531 - - 14,531 (1,413) 4 13,122 (2,786) 69,188 364 (57,547) 12,005 (278) (863) 10,864 (1,388) 9 9,485 (2,161) 10,336 7,324 10.3p 10.3p 10.3p 7.3p 7.3p 8.4p Note 3 6 4 6 6 8 9 10 11 11 11 *Earnings per share adjusted for discontinuing and exceptional costs as described in note 11. The accompanying notes on pages 92 to 131 form part of these Financial Statements. 86 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Group Statement of Comprehensive Income For the year ended 30 April Profit for the financial year Other comprehensive expense for the year, net of tax: To be reclassified to the income statement in subsequent periods: Exchange differences on retranslation of foreign operations Note 2016 Group £’000 2015 Group £’000 10,336 7,324 (6) (5) Total comprehensive income for the financial year 10,330 7,319 The accompanying notes on pages 92 to 131 form part of these Financial Statements. 87 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 Current tax assets 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 Financial 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 2016 Group £’000 2015 Group £’000 Note 12 25,564 14,615 13 15 16 17 18 19 20 19 20 10 21 23,252 1,646 24,898 50,462 26,252 39,816 36 715 66,819 117,281 72,183 6,553 10 109 1,747 80,602 12,931 769 202 13,902 94,504 50 56 24 84 6,006 783 15,774 22,777 23,252 1,567 24,819 39,434 21,677 33,443 - 1,854 56,974 96,408 61,708 5,196 70 108 731 67,813 10,226 732 642 11,600 79,413 50 48 31 84 6,006 139 10,637 16,995 96,408 Total equity and liabilities 117,281 The accompanying notes on pages 92 to 131 form part of these Financial Statements. Approved by the Board on 1 August 2016 and signed on its behalf by: D A Hodkin – Chief Financial Officer Company No. 03042024 88 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Group Statement of Changes in Equity For the year ended 30 April Share capital Group £’000 Share premium Group £’000 Currency translation reserve Group £’000 Other reserve Group £’000 Carried forward Group £’000 Balance at 1 May 2014 Profit for the year Other comprehensive income/(expense) Equity settled transactions Dividends Balance at 30 April 2015 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Balance at 30 April 2016 Balance at 1 May 2014 Profit for the year Other comprehensive income/(expense) Equity settled transactions Dividends Balance at 30 April 2015 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends 50 - - - - 50 - - - - - 50 Brought forward Group £’000 218 - (5) - - 213 - (7) - 8 - 48 - - - - 48 - - - 8 - 56 Merger reserve Group £’000 6,006 - - - - 6,006 - - - - - Balance at 30 April 2016 214 6,006 The accompanying notes on pages 92 to 131 form part of these Financial Statements. 36 - (5) - - 31 - (7) - - - 24 Share based payment reserve Group £’000 - - - 139 - 139 - - 644 - - 783 84 - - - - 84 - - - - - 218 - (5) - - 213 - (7) - 8 - 84 214 Retained earnings Group £’000 5,248 7,324 - - (1,935) Total Group £’000 11,472 7,324 (5) 139 (1,935) 10,637 16,995 10,336 1 - - (5,200) 10,336 (6) 644 8 (5,200) 15,774 22,777 89 Group Statement of Cash Flows For the year ended 30 April 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 Note 6 6 6 6 8 & 9 6 6 22 2016 Group £’000 13,122 4,580 466 (37) - - (82) 1,409 (60) (1) 454 (6,372) (3,677) 10,694 20,496 4 (1,362) (2,063) 2015 Group £’000 9,485 3,358 292 (38) 671 (2,065) 118 1,379 (98) (1) 124 (3,073) (2,270) 4,716 12,598 9 (1,248) (1,728) Net cash flows from operating activities 17,075 9,631 Investing activities: - Purchase of property, plant and equipment - Proceeds from sale of property, plant & equipment - Purchase of intangible assets - Acquisition of subsidiary undertaking net of cash acquired Net cash flows from investing activities 27 (5,383) 238 (546) (2,212) (197) 292 (87) (3,699) (7,903) (3,691) 90 Clipper Logistics plc Annual Report and Accounts 2016 Group Statement of Cash Flows For the year ended 30 April (continued) Financing activities: - Drawdown of bank loans - Debt issue costs paid - Finance leases advanced - Shares issued - Dividends paid - Repayment of bank loans - Repayment of capital on finance leases - Net (repayment to)/advance from former parent company - Receipt in respect of derivative financial instrument Strategic Report | Governance | Financial Statements Note 21 7 2016 Group £’000 6,442 (232) 207 8 (5,200) (10,141) (3,212) - - 2015 Group £’000 12,762 (370) 91 - (1,935) (2,920) (2,976) (14,181) 168 Net cash flows from financing activities (12,128) (9,361) Net (decrease)/increase in cash and cash equivalents (2,956) (3,421) Cash and cash equivalents at start of year 1,854 5,275 Cash and cash equivalents at end of year 17 (1,102) 1,854 The accompanying notes on pages 92 to 131 form part of these Financial Statements. 91 Notes to the Group Financial Statements 1. General information - Clipper Logistics KG (GmbH & Co.) 2.2. Going concern The Group Financial Statements for the (Germany) The Financial Statements have been year ended 30 April 2016 were authorised - Servicecare Support Services Limited prepared on a going concern basis. In for issue by the Board of Directors on (see note 27) determining the appropriate basis of 1 August 2016 and the Group Statement of - Electrotec International Limited preparation of the Financial Statements, the Financial Position was signed on the Board’s Directors are required to consider whether behalf by David Hodkin. In addition, the Group has a number of the Group can continue in operational other subsidiaries as set out in note E to the existence for the foreseeable future. Clipper Logistics plc (the “Company”) and Company Financial Statements. its subsidiaries (together the “Group”) provide Further information in relation to the Group’s value-added logistics and other services The Group’s Financial Statements have been business activities, together with the factors to predominantly the retail sector and prepared in accordance with International likely to affect its future development, also operate as distributors of Financial Reporting Standards as adopted performance and position is set out in the commercial vehicles. by the European Union (IFRS) and also Strategic Report section of this report on in accordance with the provisions of the pages 6 to 40. The Company is limited by share capital, Companies Act 2006. incorporated and domiciled in the United Note 25 to the Group Financial Statements Kingdom. The address of its registered office The preparation of the financial information includes the Group’s objectives, policies is Clipper Logistics, Gelderd Road, Leeds, under IFRSs requires management to make and processes for managing its capital, its LS12 6LT. judgements, estimates and assumptions financial risk management objectives and that affect the application of policies and its exposure to foreign exchange, credit and The Group’s Financial Statements have reported amounts of assets and liabilities, interest rate risk. Further details of the Group’s been prepared in accordance with note income and expenses. The estimates and net debt at 30 April 2016 are included in 2.1 Basis of preparation, and note 2.3 Basis associated assumptions are based on note 19 of the Group Financial Statements. of consolidation. The principal accounting historical experience and other factors that policies adopted by the Group are set out are believed to be reasonable under the The Group Statement of Financial Position in note 2. circumstances, the results of which form shows total current assets of £66,819,000 the basis of making the judgements about and total current liabilities of £80,602,000. carrying values of assets and liabilities Net current liabilities at 30 April 2016 2. Summary of significant accounting that are not readily apparent from other were therefore £13,783,000 (2015: policies sources. Actual results may differ from £10,839,000). At the year end, the Group The principal accounting policies applied these estimates. in the preparation of these consolidated had a committed Revolving Credit Facility of £19,744,000 of which £5,500,000 Financial Statements are set out below. These policies have been consistently The accounting policies which follow set out those policies which apply in preparing the was drawn and an overdraft facility of £8,000,000, of which £1,817,000 was applied to all years presented, unless Financial Statements for the year ended drawn. The Directors have assessed the otherwise stated. 30 April 2016. future funding requirements of the Group and the Company and compared them to The Group’s Financial Statements have the bank facilities which are now available. 2.1. Basis of preparation been prepared on a historical cost basis, The assessment included a detailed review Clipper Logistics plc (“the Company”), a except for derivative financial instruments of financial and cash flow forecasts for at public limited company incorporated and which have been measured at fair value. least the 12 month period from the date domiciled in the United Kingdom, acts as The Financial Statements are presented in of signing the Annual Report. The Directors parent undertaking for the Clipper group of Pounds Sterling and all values are rounded considered a range of potential scenarios companies. The Company has independent to the nearest thousand (£’000) unless within the key markets the Group serves and operations in its own right and owns 100% otherwise indicated. of the share capital and voting rights of the following principal trading entities: - Northern Commercials (Mirfield) Limited how these might impact on the Group’s cash flow. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences. 92 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.2. Going concern (continued) with a balance of £6,006,000 after the control over the subsidiary and ceases when The Group’s forecasts and projections acquisition of the fellow subsidiaries from the Group loses control of the subsidiary. show that the Group should be able to Clipper Group Holdings Limited as part Assets, liabilities, income and expenses of operate without the need for any increase in of the group reorganisation. a subsidiary acquired or disposed of during borrowing facilities. (b) Consolidations the year are included in the consolidated financial statements from the date the Having undertaken this work, the Directors The consolidated financial statements Group gains control until the date the are of the opinion that the Company comprise the financial statements of the Group ceases to control the subsidiary. and the Group have adequate resources Group and its subsidiaries as at to continue in operational existence for 30 April 2016. Control is achieved when Profit or loss and each component of other the foreseeable future. Accordingly, they the Group is exposed, or has rights, to comprehensive income are attributed to continue to adopt the going concern basis variable returns from its involvement with the the equity holders of the parent of the Group in preparing the Financial Statements. investee and has the ability to affect those and to any non-controlling interests, even returns through its power over the investee. if this results in the non-controlling interests Specifically, the Group controls an investee if, having a deficit balance. When necessary, 2.3. Basis of consolidation and only if, the Group has: adjustments are made to the financial (a) Group reorganisation and merger - power over the investee (i.e., existing rights statements of subsidiaries to bring their reserve that give it the current ability to direct the accounting policies into line with the Group’s relevant activities of the investee); accounting policies. All intra-group assets At 30 April 2014 the Company was a wholly and liabilities, equity, income, expenses and owned subsidiary of Clipper Group Holdings - exposure, or rights, to variable returns from cash flows relating to transactions between Limited. In April 2014 the Group undertook its involvement with the investee; and members of the Group are eliminated in full a restructuring, whereby the Company on consolidation The financial statements acquired certain fellow subsidiaries from - the ability to use its power over the of subsidiaries used in the preparation of Clipper Group Holdings Limited and the investee to affect its returns. the consolidated Financial Statements are remaining 25% ownership interest of the prepared on the same reporting year as the Group’s German operations from the Generally, there is a presumption that a parent company. minority shareholders. On 4 June 2014 majority of voting rights result in control. Clipper Logistics plc was admitted to the To support this presumption and when A change in the ownership interest of premium segment of the London Stock the Group has less than a majority of the a subsidiary without loss of control is Exchange and Clipper Group Holdings voting or similar rights of an investee, the accounted for as an equity transaction. If Limited was no longer the parent company. Group considers all relevant facts and the Group loses control over a subsidiary, it circumstances in assessing whether it has derecognises the related assets (including IFRS 3 states that it does not apply to a combination of entities or businesses power over an investee, including: - the contractual arrangement with the goodwill), liabilities, non-controlling interest and other components of equity while any under common control. Accordingly, the other vote holders of the investee; resultant gain or loss is recognised in profit or consolidated information of the Clipper loss. Any investment retained is recognised Group has been prepared to reflect the - rights arising from other contractual at fair value. combination of the restructured Clipper arrangements; and Group as if it had occurred from The purchase method of accounting is used 1 May 2010, being the earliest comparative - the Group’s voting rights and potential to account for the acquisition of subsidiaries period reported by the restructured group. voting rights. by the Group other than those included in the restructuring referred to above. The cost The group reorganisation is a combination The Group re-assesses whether or not of an acquisition is measured as the fair of entities under common control; and it controls an investee if facts and value of the assets given, equity instruments consolidated using a pooling of interests circumstances indicate that there are issued and liabilities incurred or assumed basis. This treats the restructured group as changes to one or more of the three at the date of exchange, plus costs directly if it was formed in May 2010 and a merger elements of control. Consolidation of a attributable to the acquisition. Identifiable reserve has been included to reflect this, subsidiary begins when the Group obtains assets acquired and liabilities and 93 Notes to the Group Financial Statements continued 2.3. Basis of consolidation (continued) foreign currency are translated using the the Group and the cost of the item can be (b) Consolidations (continued) exchange rates at the dates of the initial measured reliably. The carrying amount of contingent liabilities assumed in a business transactions. Non-monetary items measured any replaced part is derecognised. All other combination are measured initially at at fair value in a foreign currency are repairs and maintenance are charged to their fair values at the acquisition date, translated using the exchange rates at the the income statement during the financial irrespective of the extent of any minority date when the fair value is determined. The period in which they are incurred. interest. The excess of the cost of acquisition gain or loss arising on translation of non- over the fair value of the Group’s share of the monetary items measured at fair value is Depreciation is calculated using the straight- identifiable net assets acquired is recorded treated in line with the recognition of the line method to allocate their cost to their as goodwill. If the cost of acquisition is gain or loss on the change in fair value of residual values over their estimated useful less than the fair value of the net assets of the item (i.e., translation differences on items lives, as follows: the subsidiary acquired, the difference is whose fair value gain or loss is recognised in - Leasehold property over the length of the recognised directly in the income statement. other comprehensive income or profit or loss lease; are also recognised in other comprehensive income or profit or loss, respectively). - Plant and machinery 2 - 20 years; and 2.4. Segment reporting Operating segments are reported in (c) Translation of foreign operations - Motor vehicles 4 - 8 years. a manner consistent with the internal On consolidation, the assets and liabilities of reporting provided to the Company’s foreign operations are translated into Pounds Residual values and useful lives are Board of Directors, collectively the Group’s Sterling at the rate of exchange prevailing reviewed, and adjusted if appropriate, chief operating decision maker, to assess at the reporting date and their statements at each balance sheet date. performance and allocate capital of profit or loss are translated at the or resources. average exchange rates for the year. The An asset’s carrying amount is written down exchange differences arising on translation immediately to its recoverable amount if the for consolidation are recognised in other asset’s carrying amount is greater than its 2.5. Foreign currency translation comprehensive income. estimated recoverable amount. (a) Functional and presentation currency Items included in the financial statements of Any goodwill arising on the acquisition of An item of property, plant and equipment each of the Group’s entities are measured a foreign operation and any fair value and any significant part initially recognised using the currency of the primary economic adjustments to the carrying amounts of is derecognised upon disposal or when no environment in which the entity operates assets and liabilities arising on the acquisition future economic benefits are expected from (‘the functional currency’). The combined are treated as assets and liabilities of the its use or disposal. Any gain or loss arising Financial Statements are presented in foreign operation and translated at the spot on derecognition of the asset (calculated Pounds Sterling, which is the Company’s functional and presentation currency. rate of exchange at the reporting date. as the difference between the net disposal proceeds and the carrying amount of the asset) is included within ‘other net gains’ in (b) Transactions and balances 2.6. Property, plant and equipment the income statement when the asset Foreign currency transactions are translated Property, plant and equipment is stated is derecognised. into the functional currency using the at historical cost less depreciation and exchange rates prevailing at the dates of impairment. Historical cost includes the transactions. Foreign exchange gains expenditure that is directly attributable 2.7. Intangible assets and losses resulting from the settlement of to the acquisition of the items. (a) Goodwill such transactions and from the translation Goodwill represents the excess of the cost at year-end exchange rates of monetary Subsequent costs are included in the of an acquisition over the fair value of the assets and liabilities denominated in foreign asset’s carrying amount or recognised Group’s share of the net identifiable assets currencies are recognised in the income as a separate asset, as appropriate, only of the acquired subsidiary at the date of statement. Non-monetary items that are when it is probable that future economic acquisition. If the cost of acquisition is less measured in terms of historical cost in a benefits associated with the item will flow to than the fair value of the net assets of 94 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.7. Intangible assets (continued) Costs associated with developing or If no such transactions can be identified, (a) Goodwill (continued) maintaining computer software programmes an appropriate valuation model is used. the subsidiary acquired, the difference is are recognised as an expense as incurred. These calculations are corroborated by ‘negative goodwill’ and is recognised in the Costs that are directly associated with the valuation multiples, quoted share prices income statement immediately. development of identifiable and unique for publicly traded companies or other Goodwill on acquisitions of subsidiaries is software products controlled by the Group, available fair value indicators. included in ‘intangible assets’. Separately and that will probably generate economic recognised goodwill is tested annually benefits exceeding costs beyond one An impairment loss is recognised as an for impairment and carried at cost year, are recognised as intangible assets. expense immediately. Where an impairment less accumulated impairment losses. Costs include the software development loss subsequently reverses, the carrying Impairment losses on goodwill are not employee costs and overheads directly amount of the asset (or CGU) is increased reversed. Gains and losses on the disposal attributable to bringing the asset in to use. to the revised estimate of its recoverable of an entity include the carrying amount of amount, but so that the increased carrying goodwill relating to the entity sold. Goodwill Computer software development costs amount does not exceed the carrying is allocated to cash-generating units for recognised as assets are amortised over amount that would have been determined the purpose of impairment testing. The their estimated useful lives (not exceeding had no impairment loss been recognised for allocation is made to those cash-generating three years). units or groups of cash-generating units that are expected to benefit from the business the asset (or CGU) in prior years. A reversal of an impairment loss is recognised as income immediately. combination in which the goodwill arose. 2.8. Impairment of non-financial assets The Group assesses, at each reporting date, The Group bases its impairment calculation (b) Contracts and licences whether there is an indication that an asset on detailed budgets and forecast Intangible assets acquired separately are may be impaired. If any indication exists, or calculations, which are prepared separately measured on initial recognition at cost. when annual impairment testing for an asset for each of the Group’s CGUs to which The cost of intangible assets acquired in is required, the Group estimates the asset’s the individual assets are allocated. These a business combination is their fair value recoverable amount. An asset’s recoverable budgets and forecast calculations generally at the date of acquisition. Following initial amount is the higher of an asset’s or cash- cover a minimum period of two years. For recognition, intangible assets are carried at generating unit’s (“CGU”) fair value less costs longer periods, a long-term growth rate is cost less any accumulated amortisation and to sell and its value in use. calculated and applied to project future accumulated impairment losses. Internally cash flows after the second year. generated intangibles, excluding capitalised Where the asset does not generate cash development costs, are not capitalised and flows that are independent from other the related expenditure is reflected in profit assets, the Group estimates the recoverable 2.9. Financial assets or loss in the period in which the expenditure is incurred. amount of the CGU to which the asset belongs. The Group classifies its financial assets in the following categories: at fair value through profit or loss and available for sale. The Intangible assets are amortised over the When the carrying amount of an asset or classification depends on the purpose for useful economic life (five to ten years) and CGU exceeds its recoverable amount, the which the financial assets were acquired. assessed for impairment whenever there is asset is considered impaired and is written Management determines the classification an indication that the intangible asset may down to its recoverable amount. of its financial assets at initial recognition. At be impaired. 30 April 2016 the Group held no financial In assessing value in use, the estimated assets available for sale. (c) Computer software future cash flows are discounted to their Acquired computer software licences are present value using a pre-tax discount rate Financial assets at fair value through capitalised on the basis of the costs incurred that reflects current market assessments profit or loss to acquire and bring to use the specific of the time value of money and the risks Financial assets at fair value through profit software. These costs are amortised over specific to the asset. In determining fair or loss are financial assets held for trading. A their estimated useful lives (three to value less costs to sell, recent market financial asset is classified in this category if five years). transactions are taken into account. acquired principally for the purpose of 95 Notes to the Group Financial Statements continued 2.9. Financial assets (continued) to its present location and condition. Cost against ‘administration expenses’ in selling in the short term. Derivatives are also is determined using the first-in, first-out the income statement. categorised as held for trading unless they (“FIFO”) method. Net realisable value is the are designated as hedges. Assets in this estimated selling price in the ordinary course category are classified as current assets. of business, less applicable variable selling 2.13. Cash and cash equivalents Investments are initially recognised at fair value plus transaction costs for all financial expenses. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with assets not carried at fair value through profit 2.11. Vehicles on consignment original maturities of three months or less, or loss. Financial assets carried at fair value Vehicles held on consignment from and bank overdrafts. Bank overdrafts are through profit or loss are initially recognised manufacturers are included in the statement shown within borrowings in current liabilities at fair value and transaction costs are of financial position where it is considered on the statement of financial position. Cash expensed in the income statement. that the Group enjoys the benefits and and cash equivalents are stated net of bank Financial assets are derecognised when carries the risks of ownership. overdrafts in the cash flow statement. the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred 2.12. Trade receivables 2.14. Trade payables substantially all risks and rewards of Trade receivables are recognised initially at Trade payables are recognised initially ownership. fair value and subsequently measured at at fair value and subsequently measured amortised cost using the effective interest at amortised cost using the effective Available-for-sale financial assets and method, less provision for impairment. A interest method. financial assets at fair value through profit or provision for impairment of trade receivables loss are subsequently carried at fair value. is established when there is objective evidence that the Group will not be able to 2.15. Consignment inventory payables Gains or losses arising from changes in the collect all amounts due according to the Inventories of commercial vehicles are fair value of the ‘financial assets at fair value original terms of the receivables. usually funded under stocking finance plans through profit or loss’ category are presented offered by either the manufacturer’s own in the income statement within ‘other net Significant financial difficulties of the finance arm, or third party funders. gains’ in the period in which they arise. debtor, probability that the debtor will enter Amounts outstanding are included in bankruptcy or financial reorganisation, and trade and other payables. Dividend income from financial assets at default or delinquency in payments (more fair value through profit or loss is recognised than 30 days overdue) are considered in the income statement as part of other indicators that the trade receivable may 2.16. Borrowings income when the Group’s right to receive payments is established. be impaired. The amount of the provision is the difference between the asset’s carrying Borrowings are recognised initially at fair value, net of transaction costs incurred. amount and the present value of estimated Borrowings are subsequently stated at The Group assesses at each balance sheet future cash flows, discounted at the original amortised cost; any difference between date whether there is objective evidence effective interest rate. that a financial asset or a Group of financial the proceeds (net of transaction costs) and the redemption value is recognised assets is impaired. The carrying amount of the asset is in the income statement over the period reduced through the use of an allowance of the borrowings using the effective Impairment testing of trade receivables is account, and the amount of the loss is interest method. described in note 2.12. recognised in the income statement within ‘administration expenses’. Borrowings are classified as current liabilities unless the Group has an unconditional right 2.10. Inventories When a trade receivable is uncollectable, it to defer settlement of the liability for at least Inventories are stated at the lower of cost is written off against the allowance account 12 months after the balance sheet date. and net realisable value. Cost includes all for trade receivables. Subsequent recoveries costs incurred in bringing each product of amounts previously written off are credited 96 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.17. Income tax 2.18. Employee benefits Any cumulative adjustment prior to vesting Current tax assets and liabilities are (a) Pension obligations is recognised in the current period. Upon measured at the amount expected to be Group companies operate various pension exercise of share options, the proceeds recovered from or paid to the taxation schemes. The schemes are generally received net of attributable transaction costs authorities, based on tax rates and laws that funded through payments to insurance are credited to share capital and where are enacted or substantively enacted by the companies. The Group has only defined appropriate, share premium. balance sheet date. contribution plans. A defined contribution plan is a pension plan under which the Deferred income tax is provided in full, Group pays fixed contributions into a 2.19. Provisions using the liability method, on temporary separate entity. differences arising between the tax bases Provisions for items such as dilapidations and legal claims are recognised when: the of assets and liabilities and their carrying For defined contribution plans, the Group Group has a present legal or constructive amounts in the Financial Statements. pays contributions to privately administered obligation as a result of past events; it is pension insurance plans on a contractual probable that an outflow of resources will However, the deferred income tax is or voluntary basis. The Group has no further be required to settle the obligation; and the not accounted for, if it arises from initial payment obligations once the contributions amount has been reliably estimated. recognition of goodwill or an asset or liability have been paid. The contributions are in a transaction other than a business recognised as employee benefit expense Where there are a number of similar combination that at the time of the when they are due. transaction affects neither accounting nor obligations, the likelihood that an outflow will be required in settlement is determined taxable profits or losses. (b) Profit-sharing and bonus plans by considering the class of obligations as The Group recognises a liability and an a whole. A provision is recognised even if Deferred income tax is determined using tax expense for bonuses and profit-sharing, the likelihood of an outflow with respect to rates (and laws) that have been enacted or based on a formula that takes into any one item included in the same class of substantially enacted by the balance sheet consideration the profit attributable to the obligations may be small. date and are expected to apply when the Company’s shareholders after certain related deferred income tax asset is realised adjustments. The Group recognises a Provisions are measured at the present value or the deferred income tax liability is settled. provision where contractually obliged or of the expenditures expected to be required Deferred income tax assets are recognised where there is a past practice that has to settle the obligation using a pre-tax rate to the extent that it is probable that future created a constructive obligation. that reflects current market assessments taxable profit will be available against which of the time value of money and the risks the temporary differences can be utilised. (c) Share based payments specific to the obligation. The increase in IFRS 2 requires the recognition of equity the provision due to passage of time is Deferred income tax is provided on temporary differences arising on investments settled share based payments at fair value at the date of the grant. All equity settled in subsidiaries and associates, except where share based payments are ultimately recognised as interest expense. the timing of the reversal of the temporary recognised as an expense in the income 2.20. Revenue recognition difference is controlled by the Group and it is statement with a corresponding credit to Revenue is measured at the fair value of the probable that the temporary difference will share based payment reserve. consideration received or receivable for the not reverse in the foreseeable future. sale of goods and services in the ordinary If vesting periods or other non-market vesting course of the Group’s activities. Revenue Deferred income tax assets and liabilities are conditions apply, the expense is allocated is shown net of value-added tax, returns, offset, only if a legally enforceable right exists over the vesting period based on the best rebates and discounts and after eliminating to set off current tax assets against current available estimate of the number of shares sales within the Group. tax liabilities, the deferred income taxes expected to vest. Estimates are revised relate to the same taxation authority and subsequently if there is any indication that The Group recognises revenue when that authority permits the Group to make a the number of shares expected to vest the amount of revenue can be reliably single net payment. differs from previous estimates. measured, it is probable that future 97 Notes to the Group Financial Statements continued 2.20. Revenue recognition (continued) 2.22. Leases provide a clearer indication of the Group’s economic benefits will flow to the entity and Leases in which a significant portion of the underlying business performance. when specific criteria have been met for risks and rewards of ownership are retained each of the Group’s activities. The amount by the lessor are classified as operating Items which may give rise to classification of revenue is not considered to be reliably leases. Payments made under operating as exceptional include, but are not limited measurable until all contingencies relating to leases (net of any incentives received from to, restructuring of the business or depot the sale have been resolved. In practice this the lessor) are charged to the income network, asset impairments and litigation means that revenue is generally recognised statement on a straight-line basis over the settlements. As shown in note 4, the Group as follows: period of the lease. has also identified certain discontinuing costs and disclosed them separately alongside a) Sale of goods Assets held under finance leases, which exceptional costs. Revenue from the sale of goods is transfer to the Group substantially all the risks recognised when the Group has transferred and benefits incidental to ownership of the to the buyer the significant risks and rewards leased item, are capitalised at the inception 2.25. Financial risk management of ownership of the goods. For vehicles this is of the lease, with a corresponding liability The Group carries out treasury hedging generally on registration; for other goods it is being recognised for the lower of the fair activities to manage exposures to interest when despatched, or packaged and made value of the leased asset and the present rate movements on its core borrowings using available for collection. value of the minimum lease payments. interest rate swaps. Lease payments are apportioned between b) Services other than repair and the reduction of the lease liability and The Group only uses derivatives for hedging maintenance contracts finance charges in the income statement purposes and they are recognised at fair Revenue is recognised when the service is so as to achieve a constant rate of interest value and are re-measured to fair value at rendered. Invoicing varies by contract, but on the remaining balance of the liability. The each balance sheet date. Where an interest is typically either in line with work performed property, plant and equipment acquired rate swap qualifies as an effective hedge or initially on a budgeted volume basis with under finance leases is depreciated over under IAS 39, movements in fair value are later adjustment to reflect actual activity. the shorter of the estimated useful life of shown as an adjustment to the net interest Calculation of accrued and deferred the asset and the lease term; where the charge being hedged. income is therefore necessary at period lease contains an option to purchase which ends, with client billing arrangements is expected to be exercised, the asset is Movements in fair value of derivatives that not always coinciding with the Group’s depreciated over the useful life of the asset. do not qualify as an effective hedge under reporting periods. Judgement is required The accounting policy adopted for finance IAS 39 are shown in ‘other net gains’ within when determining the appropriate timing leases is also applied to hire purchase the income statement. The Group identifies, and amount of revenue that can be agreements. recognised, due to the different contractual arrangements in place. evaluates and hedges financial risks centrally under policies approved by the Board covering specific areas, such as interest rate 2.23. Dividend distribution risk, foreign exchange risk and credit risk. c) Repair and maintenance contracts Dividend distribution to the Company’s Revenue is recognised over the life of shareholders is recognised as a liability in the the contract in proportion to the costs Group’s Financial Statements in the period 2.26. Critical accounting estimates of providing the services. in which the dividends are approved by the and assumptions Company’s shareholders. The Group makes estimates and 2.21. Supplier bonuses assumptions concerning the future. The resulting accounting estimates will, by Cost of sales are recognised net of 2.24. Exceptional items definition, seldom equal the related actual vehicle manufacturers’ bonuses. These are Items that are both material and results. The estimates and assumptions that recognised when the Group has met the non-recurring are presented as exceptional have a significant risk of causing a material relevant conditions. There is little judgement items within their relevant consolidated adjustment to the carrying amounts of assets or estimation involved in computing the income statement category. The separate and liabilities within the next financial year amounts. reporting of exceptional items helps are discussed below. 98 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 2.26. Critical accounting estimates The recoverable amounts of cash- Estimates and judgements are continually and assumptions (continued) generating units have been determined evaluated by management, on a case-by- (a) Revenue recognition based on value-in-use calculations. These case basis, based on historical experience Judgement is required when determining calculations require the use of estimates, and other factors, including expectations the appropriate timing and amount of both in arriving at the expected future cash of future events that are believed to be revenue to be recognised in the value- flows and the application of a suitable reasonable under the circumstances. added logistics segment. This is due to the discount rate in order to calculate the various contractual arrangements in place, present value of these flows. each with bespoke terms which can lead to 2.27. Adoption of new and revised different revenue recognition requirements. (c) Fair value of intangible assets acquired reporting standards in business combinations The Group has applied all accounting (b) Estimated impairment of goodwill As there is no ready market for intangible standards and interpretations issued by The Group annually tests whether goodwill assets such as customer relationships the IASB and IFRIC except for the following has suffered any impairment, in accordance and brands, judgement is required in standards and interpretations which were in with the accounting policy stated above. assessing fair value when accounting issue but not yet effective: for a business combination. Title 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 IFRS 16 Leases Annual Improvements to IFRSs 2012-2014 Cycle Effective date (annual periods beginning on or after) 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2018 1 January 2018 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2019 1 January 2016 The effective dates stated above are those standard or interpretation but the need for financial information in the period of given in the original IASB/IFRIC standards endorsement restricts the Group’s discretion initial application. and interpretations. to early adopt standards. As the Group prepares its financial Adoption of IFRS 16 is likely to have a 19 and those arising from the annual information in accordance with IFRS material impact on the Group’s non-current improvements to IFRSs 2010-2012 as adopted by the European Union, assets and borrowings. It is not yet practical & 2011-2013 cycles have been adopted. the application of new standards and to provide a reasonable estimate of the There has been no material impact, interpretations will be subject to them having effect until a detailed review has been although there have been some minor been endorsed for use in the EU via the EU completed. The Directors do not anticipate changes to disclosure. In the current year, amendments to IAS Endorsement mechanism. In the majority that the adoption of the remaining of cases this will result in an effective date standards and interpretations will have a consistent with that given in the original material impact on the Group’s historical 99 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 2016 Group £’000 97,598 108,390 205,988 85,642 (1,305) 2015 Group £’000 60,563 102,155 162,718 73,561 (1,501) Revenue from external customers 290,325 234,778 Geographical information - revenue from external customers: United Kingdom Germany Rest of Europe 2016 Group £’000 264,219 14,234 11,872 2015 Group £’000 218,997 14,167 1,614 Revenue from external customers 290,325 234,778 Geography is determined by the location of the end customer 4. Segment information For the Group, the Chief Operating Decision For management purposes, the Group These three separate business activities are Maker (“CODM”) is the main Board of is organised into two main reportable aggregated into one reportable segment, Directors. The CODM monitors the operating segments: having similar economic characteristics in results of each business unit separately for - Value-added logistics services; and terms of profitability and costs, customers the purposes of making decisions about and operating environment. resource allocation and performance - Commercial vehicles, including sales, assessment. Segment performance is servicing and repairs. evaluated based on operating profit or Inter-segment transactions are entered into under normal commercial terms and loss, both before and after exceptional or Within the value-added logistics services conditions and on an arm’s length basis discontinuing items. This measurement basis segment, the CODM also reviews that would also be available to unrelated excludes Group-wide central services and performance of three separate business third parties. financing costs which are not allocated to activities: operating segments. - E-fulfilment & returns management services; The Group has no customers that account for greater than 10% - Non e-fulfilment logistics; and of the total Group revenue. - Central logistics overheads, being the costs of support services specific to the value- added logistics services segment, but which are impractical to allocate between the sub-segment activities. 100 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 4. Segment information (continued) The following tables present profit information for continuing operations regarding the Group’s business segments for the two years ended 30 April 2016: 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 2016 Group £’000 8,135 10,711 (4,718) 14,128 2,263 (1,860) 2015 Group £’000 5,512 10,062 (4,038) 11,536 1,874 (1,405) Group operating profit before non-recurring items 14,531 12,005 Exceptional and discontinuing costs: E-fulfilment & returns management services Non e-fulfilment logistics Central logistics overheads Value-added logistics services Commercial vehicles Segment total exceptional items IPO costs1 Head office costs – discontinuing2 Group total exceptional and discontinuing costs 2016 Group £’000 2015 Group £’000 - - - - - - - - - (192) - - (192) - (192) (671) (278) (1,141) 101 Notes to the Group Financial Statements continued 4. Segment information (continued) 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 2016 Group £’000 8,135 10,711 (4,718) 14,128 2,263 - (1,860) 2015 Group £’000 5,320 10,062 (4,038) 11,344 1,874 (671) (1,683) Group operating profit 14,531 10,864 Finance costs Finance income (1,413) 4 (1,388) 9 Profit before income tax 13,122 9,485 1 Professional fees and other costs paid in relation to the Initial Public Offering. The majority of IPO costs were incurred in the year ended 30 April 2014. 2 Head office costs in previous years included 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. 102 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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 2016: Value-added logistics services Commercial vehicles Segment assets £’000 73,858 42,672 Segment liabilities £’000 (39,288) (33,773) Segment assets/(liabilities) 116,530 (73,061) Unallocated assets/(liabilities): - Cash and cash equivalents - Financial liabilities - Deferred tax - Income tax assets/(liabilities) 715 - - 36 (1,817) (17,677) (202) (1,747) Total assets/(liabilities) 117,281 (94,504) 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) 103 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 2016 Group £’000 15,500 661 2015 Group £’000 7,297 502 Total 16,161 7,799 Capital expenditure comprises additions to property, plant and equipment (note 12) and intangible assets (note 13). Depreciation: 2016 Group £’000 3,883 697 2015 Group £’000 2,694 664 4,580 3,358 2016 Group £’000 447 19 466 2016 Group £’000 46,194 4,268 2015 Group £’000 266 26 292 2015 Group £’000 36,772 2,662 50,462 39,434 Value-added logistics services Commercial vehicles Total Amortisation: Value-added logistics services Commercial vehicles Total United Kingdom Germany Total 104 Non-current assets held by each geographical area are made up as follows: Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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 2016 Group £’000 72,662 6,766 1,371 454 2015 Group £’000 59,734 5,492 1,189 124 Total 81,253 66,539 The average monthly number of employees during the year was made up as follows: 2016 Group Number 2015 Group Number Warehousing Distribution Service and maintenance Administration Total 2,097 406 387 490 3,380 Key management compensation (including Executive Directors): Wages and salaries Social security costs Pension costs for the defined contribution scheme Share based payments Total 2016 Group £’000 2,589 378 398 381 3,746 1,789 387 346 442 2,964 2015 Group £’000 2,695 351 357 93 3,496 105 Notes to the Group Financial Statements continued 5. Staff costs (continued) Directors’ emoluments: Aggregate emoluments excluding share based payments on unvested awards Pension costs for the defined contribution scheme Total 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 58 to 72. 2016 Group £’000 1,259 86 2015 Group £’000 1,356 73 1,345 1,429 2016 Group Number 2015 Group Number 3 4 106 Clipper Logistics plc Annual Report and Accounts 2016 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 Auditor’s remuneration: Ernst & Young LLP: - Group audit fees - Corporate finance services KPMG LLP: - Group audit fees - Other services Total auditor’s 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 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 Strategic Report | Governance | Financial Statements 2016 Group £’000 2,484 2,096 466 5,046 7,808 15,474 30 - 125 - 60 95 - 155 - - - 37 165 60 1 263 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 1 364 107 Notes to the Group Financial Statements continued 7. Dividends Dividends declared and paid by the Company during the year to former parent company Final dividend for the prior year of 3.2 pence (2015: nil) per share Interim dividend for the year of 2.0 pence (2015:1.6 pence) per share Total dividends paid 2016 Group £’000 - 3,200 2,000 5,200 Proposed final dividend for the year ended 30 April 2016 of 4.0 pence (2015: 3.2 pence) per share 4,000 2015 Group £’000 335 - 1,600 1,935 3,200 The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements. The proposed dividend is payable to all shareholders on the Register of Members on 23 September 2016. The payment of this dividend will not have any tax consequences for the Group. 8. Finance costs On bank loans and overdrafts On hire purchase agreements Amortisation of debt issue costs Commercial vehicle stocking interest Other interest payable 2016 Group £’000 533 394 78 370 38 2015 Group £’000 720 308 64 270 26 Total interest expense for financial liabilities measured at amortised cost 1,413 1,388 9. Finance income Bank interest Other interest Amounts receivable from former parent company Total interest income for financial assets measured at amortised cost 2016 Group £’000 2015 Group £’000 3 1 - 4 7 - 2 9 108 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 10. 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 2016 Group £’000 2015 Group £’000 3,066 (28) 2,220 (74) 3,038 2,146 (231) 21 (42) (252) (47) 62 - 15 Tax expense in the income statement on continuing operations 2,786 2,161 (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 2016 Group £’000 2015 Group £’000 13,122 9,485 20.00% 2,624 20.92% 1,984 169 (7) 42 - (42) 248 (12) 45 (104) - Total tax expense reported in the income statement 2,786 2,161 109 Notes to the Group Financial Statements continued 10. Income tax expense (continued) (d) Deferred tax in the income statement: Deferred tax on accelerated capital allowances Deferred tax on other temporary differences Total 2016 Group £’000 (123) (129) (252) 2015 Group £’000 (31) 46 15 The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015. Legislation to reduce the rate to 19% with effect from 1 April 2017 and to 18% with effect from 1 April 2020 was substantively enacted at 30 April 2016. Legislation to further reduce these rates (to 18% and 17% respectively) was progressing, but not substantively enacted at 30 April 2016. A rate of 18% (2015: 20%) has been applied in the measurement of the Group’s deferred tax assets and liabilities in the year. (e) Deferred tax in the statement of financial position: Deferred tax liabilities: Accelerated capital allowances Other timing differences Deferred tax asset: Share based payments Provisions & other timing differences 2016 Group £’000 2015 Group £’000 (356) (213) 309 58 (479) (218) 40 15 Net deferred tax liability (202) (642) (f) Deferred tax movement: At 1 May 2014 Acquisitions Charged to income statement Credited to share based payment reserve Foreign currency adjustment At 30 April 2015 Credited to income statement Credited to share based payment reserve Foreign currency adjustment At 30 April 2016 110 Group £’000 (366) (275) (15) 15 (1) (642) 252 190 (2) (202) Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 11. Earnings per share Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the potentially dilutive instruments into ordinary shares. 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 10,336 2016 Group £’000 2015 Group £’000 7,324 2016 Group 2015 Group Basic weighted average number of shares (thousands) 100,000 100,000 Basic earnings per share 10.3p 7.3p Diluted weighted average number of shares (thousands) 100,823 100,052 Diluted earnings per share 10.3p 7.3p 111 Notes to the Group Financial Statements continued 11. Earnings per share (continued) Adjusted earnings per share As set out in note 4, during the year ended 30 April 2015 there were a number of non-recurring costs. Consequently, the basic measure of earnings per share is distorted by this. Adjusted earnings per share: Profit attributable to ordinary equity holders of the Company Discontinuing costs Exceptional costs Tax effect Adjusted earnings 2016 Group £’000 10,336 - - - 10,336 2015 Group £’000 7,324 278 863 (102) 8,363 2016 Group 2015 Group Basic weighted average number of shares (thousands) 100,000 100,000 Adjusted basic earnings per share 10.3p 8.4p 112 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 12. Property, plant and equipment Leasehold property Group £’000 Motor vehicles Group £’000 Plant, machinery, fixtures & fittings Group £’000 Cost: At 1 May 2014 Acquisitions Additions Disposals Foreign currency adjustment At 30 April 2015 Additions Disposals Foreign currency adjustment At 30 April 2016 Accumulated depreciation: At 1 May 2014 Charge for the year Disposals Foreign currency adjustment At 30 April 2015 Charge for the year Disposals Foreign currency adjustment At 30 April 2016 Net book value: At 1 May 2014 At 30 April 2015 At 30 April 2016 4,003 38 52 (236) (6) 3,851 391 (16) 5 4,231 1,701 298 (236) (4) 1,759 313 (16) 5 2,061 2,302 2,092 2,170 3,620 - 870 (571) (83) 3,836 1,875 (680) 68 5,099 1,608 737 (350) (30) 1,965 784 (488) 34 2,295 2,012 1,871 2,804 Total Group £’000 33,160 299 2,267 (1,460) (355) 33,911 15,615 (955) 282 48,853 17,317 3,358 (1,206) (173) 19,296 4,580 (754) 167 25,537 261 1,345 (653) (266) 26,224 13,349 (259) 209 39,523 14,008 2,323 (620) (139) 15,572 3,483 (250) 128 18,933 23,289 11,529 10,652 20,590 15,843 14,615 25,564 Included within property, plant and equipment are amounts held under finance lease contracts. At 30 April 2016 the net book value of these assets was £10,638,000 (30 April 2015: £5,231,000). Total additions include £8,172,000 (2015: £2,070,000) under finance lease contracts. Additions to plant, machinery, fixtures & fittings include £2,823,000 (2015: £nil) in respect of assets in the course of construction. 113 Notes to the Group Financial Statements continued 13. Intangible assets Cost: At 1 May 2014 Acquisitions Additions Disposals Foreign currency adjustment At 30 April 2015 Additions Disposals Foreign currency adjustment Goodwill Group £’000 19,018 4,234 - - - 23,252 - - - Contracts and licenses Group £’000 Computer software Group £’000 723 1,210 - - - 1,933 98 - - 1,589 12 87 (173) (1) 1,514 448 - 5 Total Group £’000 21,330 5,456 87 (173) (1) 26,699 546 - 5 At 30 April 2016 23,252 2,031 1,967 27,250 Accumulated amortisation: At 1 May 2014 Charge for the year Disposals Foreign currency adjustment At 30 April 2015 Charge for the year Disposals Foreign currency adjustment At 30 April 2016 Net book value: At 1 May 2014 At 30 April 2015 At 30 April 2016 - - - - - - - - - 19,018 23,252 23,252 723 63 - - 786 187 - 1 974 - 1,147 1,057 1,040 229 (173) (2) 1,094 279 - 5 1,763 292 (173) (2) 1,880 466 - 6 1,378 2,352 549 420 589 19,567 24,819 24,898 The average remaining useful life of contracts & licences at 30 April 2016 is 6.5 years (2015: 7.6 years) 114 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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: Value-added logistics services excluding Servicecare group Servicecare group Commercial vehicles Total 2016 Group £’000 13,092 4,234 2015 Group £’000 13,092 4,234 5,926 5,926 23,252 23,252 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 three years ending 30 April 2019. The business plans for the value-added logistics services segment take into account the annualised impact of contract wins in the year ended 30 April 2016 as well as confirmed new and ceasing contracts. The key judgement is the assumed new contract wins during the business plan period, which has been based on historical experience. Subsequent cash flows are extrapolated using an estimated long term growth rate of 2.5% (2015: 2.5%) to 2026 (2015: 2025). The cash flows have then been discounted using a pre-tax risk adjusted discount rate of between 9 and 11% (2015: 10%). The forecasts of foreign operations are translated at the exchange rate ruling at the year end. The Directors have concluded that no reasonably foreseeable change in the key assumptions would give rise to an impairment. 115 Notes to the Group Financial Statements continued 15. Inventories Component parts and consumable stores Commercial vehicles Commercial vehicles on consignment 2016 Group £’000 4,319 3,768 18,165 2015 Group £’000 4,063 2,993 14,621 Total inventories net of provision for obsolescence 26,252 21,677 See below for the movements in the provision for obsolescence: At 1 May 2014 Credited for the year Utilised At 30 April 2015 Charged for the year Utilised At 30 April 2016 The cost of inventories recognised as an expense amounted to £82,398,000 (2015:£ 69,720,000). Included within commercial vehicles is £930,000 (2015: £1,141,000) relating to assets held under hire purchase agreements. Group £’000 132 (9) (106) 17 39 (47) 9 116 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 16. Trade and other receivables Trade receivables Less: provision for impairment of receivables 2016 Group £’000 19,316 (328) 2015 Group £’000 17,562 (256) Trade receivables - net 18,988 17,306 Other receivables Prepayments and accrued income 2,971 17,857 3,494 12,643 Total trade and other receivables 39,816 33,443 See note 25 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 2014 Charged for the year Utilised At 30 April 2015 Charged for the year Foreign currency adjustment Utilised At 30 April 2016 Group £’000 349 34 (127) 256 124 2 (54) 328 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 believes 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 20 days (2015: 23 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. 117 Past due but not impaired 30-60 days £’000 60-90 days £’000 > 90 days £’000 231 149 535 267 1,006 764 2015 Group £’000 1,854 - 1,854 2015 Group £’000 25,272 14,176 4,507 6,096 11,657 61,708 Notes to the Group Financial Statements continued 16. Trade and other receivables (continued) The ageing analysis of trade receivables was as follows: Neither past due nor impaired £’000 17,216 16,126 2016 Group £’000 715 (1,817) (1,102) 2016 Group £’000 25,984 22,859 3,364 4,338 15,638 72,183 30 April 2016 30 April 2015 17. Cash and cash equivalents Cash and cash equivalents Bank overdraft Total cash and cash equivalents 18. Trade and other payables Trade creditors Consignment inventory payables Other taxes and social security Other creditors Accruals and deferred income Total trade and other payables 118 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 19. Financial liabilities: borrowings Non-current: Bank loans Obligations under finance leases or hire purchase agreements 2016 Group £’000 5,113 7,818 2015 Group £’000 7,291 2,935 Total non-current 12,931 10,226 Current: Bank overdrafts Bank loans Obligations under finance leases or hire purchase agreements Total current Total borrowings Less cash and cash equivalents Net debt 1,817 944 3,792 6,553 - 2,604 2,592 5,196 19,484 15,422 715 1,854 18,769 13,568 119 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 2016 Group £’000 944 5,113 - 2015 Group £’000 2,604 7,291 - Total bank loans 6,057 9,895 The principal lender has security over all assets of the Group’s UK operations. The Group’s principal bank facilities were increased to £30,000,000 and rescheduled in January 2016. The facilities now consist of: - a Revolving Credit Facility of £19,744,000 repayable in January 2021; interest rate 1.75% above LIBOR. The amount drawn at 30 April 2016 was £5,500,000; - a committed overdraft of £8,000,000. The amount drawn at 30 April 2016 was £1,817,000; and - bonds and guarantees of £2,256,000. In addition to the Revolving Credit Facility above, other items included within bank loans at 30 April 2016 are as follows: - other bank loans - £179,000 repayable in monthly or quarterly instalments over periods between 4 and 38 months; interest rates fixed at between 0% and 4.80%; - pre-inception capital funding of £839,000; finance leases of 3-5 years will be incepted in the year ending 30 April 2017 when the relevant capital projects are complete; and - unamortised debt issue costs of £461,000 have been deducted from the total outstanding bank loans. 120 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements 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 2016 Group £’000 3,241 7,244 - 10,485 (366) (483) - (849) 2,875 6,761 - 9,636 917 1,057 - 1,974 2015 Group £’000 1,561 2,112 - 3,673 (151) (105) - (256) 1,410 2,007 - 3,417 1,182 928 - 2,110 Total 11,610 5,527 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 4.0 (2015: 3.5) years. At 30 April 2016 £10,878,000 (2015 £5,234,000) of the Group total of such obligations is denominated in Pounds Sterling and the remainder is denominated in Euros. The interest on the variable rate leases is based on a margin above Bank Base Rate or LIBOR. The Group’s obligations under finance leases are secured by the lessor’s charge over the assets. 121 Total Group £’000 846 48 (239) 185 840 (244) 282 878 Onerous contracts Group £’000 Uninsured losses Group £’000 Dilapidations Group £’000 312 - (78) - 234 (92) 30 172 534 48 (82) 106 606 (92) 192 706 - - (79) 79 - (60) 60 - 2015 Group £’000 108 732 840 Notes to the Group Financial Statements continued 20. Provisions At 1 May 2014 Acquisitions Utilised Charged in year At 30 April 2015 Utilised Charged in year At 30 April 2016 Provisions have been analysed between current and non-current as follows: Current Non-current Total 2016 Group £’000 109 769 878 Onerous contracts Following a reorganisation of the commercial vehicles business in the year ended 30 April 2013, which included the closure of a depot, the Group was 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. Uninsured losses The uninsured losses provision is in respect of the cost of claims (generally for commercial vehicles and employment related) which are either not insured externally or fall below the excess on the Group’s insurance policies. Dilapidations 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 21 and 12 years from the balance sheet date. All other leases expire in 10 years or less. 122 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 21. Share capital 2016 Company £’000 2015 Company £’000 Allotted, called up and fully paid: 100,005,341 (2015: 100,000,000) ordinary shares of 0.05p each 50 50 During the year the Company issued 5,341 ordinary shares at a price of 140.4p per share to satisfy share options. See note 22 below. 22. Share based payments The Clipper Performance Share Plan (“PSP”) was approved by shareholders on 29 September 2014. The PSP enables selected directors and employees of the Group to be granted awards in respect of ordinary shares. Share Awards under the PSP will ordinarily be structured as nil cost share options with the vesting of Share Awards being subject to performance conditions measured over a period of at least 3 years. A summary of the principal terms of the PSP, including vesting conditions, is contained in the Directors’ Remuneration Report on pages 58 to 72. The Clipper Sharesave Plan is a share plan for all UK employees in the Group, and offers them the opportunity to acquire an interest in shares in the Company on favourable terms within the long-standing regime allowed by HMRC legislation. All UK staff are invited to participate on the same terms, and employees who choose to participate are granted an option over shares in the Company, with the exercise of that option being funded by the proceeds of a savings contract taken out by the relevant employee, under which the employee saves a set amount each month over a set period. The options granted in the year were offered with a 3-year savings contract, under which the employee could elect to save between £10 and £500 per month. 123 Notes to the Group Financial Statements continued 22. Share based payments (continued) Option movements and weighted average exercise prices (“WAEP”) during the year were as follows: Date Outstanding 1 May 2014 Granted during the year Forfeited during the year Outstanding 30 April 2015 Granted during the year Forfeited during the year Exercised during the year PSP Number - 845,895 - 845,895 519,551 - - Outstanding 30 April 2016 1,365,446 At 30 April 2016, 6,671 (2015: nil) options were exercisable. WAEP - nil - nil nil - - nil Sharesave Number - 1.352,846 - 1,352,846 299,609 (127,245) (5,341) WAEP - 140.40p - 140.40p 239.34p 148.70p 140.40p 1,519,869 159.21p 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 2016 9 February 2016 29 March 2016 Expected life of option Volatility Dividend yield 2016 301.00p 267.25p 278.00p 3.5 years 35% 1.73% - 1.95% 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 by applying dividends paid in the preceding 12 months 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 2016 relating to employee share based payment plans was £454,000 (2015: £124,000). The fair value of share options at 30 April 2016 to be amortised in future years was £1,958,000 (2015: £1,188,000). All share based payments in both years are equity settled. 124 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 23. Commitments and contingencies Operating lease commitments – land and buildings: Less than one year Between one and five years More than five years 2016 Group £’000 14,981 60,549 83,541 2015 Group £’000 11,391 43,269 59,327 Total minimum lease payments 159,071 113,987 Operating lease commitments – vehicles, plant and equipment: Less than one year Between one and five years More than five years 2016 Group £’000 4,697 9,148 99 2015 Group £’000 2,364 3,503 84 Total minimum lease payments 13,944 5,951 24. Capital commitments Authorised and contracted for Authorised, but not contracted for 2016 Group £’000 9,467 7,279 2015 Group £’000 797 8,569 16,746 9,366 125 Notes to the Group Financial Statements continued 25. Financial instruments and financial risk maturity. The Group did not have any The exposure to a short-term fluctuation in management objectives and policies financial instruments that would mitigate exchange rates on the investment in foreign In accordance with IAS 39 (Financial the credit exposure arising from the subsidiaries is not expected to have a Instruments: Recognition and Measurement) financial assets designated at fair value material impact on the results of the Group. the Group has reviewed all contracts for through profit or loss in either the current embedded derivatives that are required to or the preceding financial year. Capital management be separately accounted for if they do not meet certain requirements. The Group did Interest rate risk The Group’s main objective when managing capital is to protect returns not identify any such derivatives. The Group adopts a policy of ensuring that to shareholders by ensuring the Group there is an appropriate mix of fixed and will continue to trade profitably in the The Group is exposed to a number of floating rates in managing its exposure to foreseeable future. The Group also aims to different market risks in the normal course of changes in interest rates on borrowings. maximise its capital structure of debt and business including credit, interest rate and Interest rate swaps are entered into, where equity so as to minimise its cost of capital. foreign currency risks. necessary, to achieve this appropriate mix. The Group manages its capital with regard Credit risk As part of the novation of bank facilities to the risks inherent in the business and Credit risk predominantly arises from from the former parent on 2 May 2014, the the sector within which it operates by trade receivables and cash and cash Company took on an existing interest rate monitoring its gearing ratio on a regular equivalents. The Group has a customer swap. The notional principal at 30 April 2016 basis and adjusting the level of dividends credit policy in place and the exposure is £900,000 which reduces by £450,000 paid to ordinary shareholders. to credit risk is monitored on an ongoing on a quarterly basis. The Company pays basis. External credit ratings are generally a fixed rate of 3.68% and receives a The Group considers its capital to include obtained for customers; Group policy is to variable LIBOR rate on the notional amount. equity and net debt. Net debt includes assess the credit quality of each customer The fair value of the interest rate swap is short and long-term borrowings (including before accepting any terms of trade. determined by reference to market value overdrafts and lease obligations) net of and at 30 April 2016 was a loss of £10,000. cash and cash equivalents. Internal procedures take into account the customers’ financial positions as well Interest rate sensitivity The Group has not made any changes to as their reputation within the industry and The Group’s borrowings are largely its capital management during the year. past payment experience. Cash and denominated in Pounds Sterling and the The Group has no long-term gearing ratio cash equivalents and derivative financial Group is therefore exposed to a change target. Borrowings are taken out to invest instruments are held with AAA or AA rated in the relevant interest rate. With all other in the acquisition of subsidiaries, new sites banks. Financial instruments classified as fair variables held constant, the impact of a or depots and are considered as part of value through profit and loss and available for sale are all publicly traded on the UK reasonably possible increase in interest rates of 50 basis points (2015: 50 points) on that investment appraisal. Key measures monitored by the Group are interest cover London Stock Exchange. Given the high that portion of borrowings affected, would and net debt compared to earnings before credit quality of counterparties with whom be to reduce the Group’s profit before tax interest, tax, depreciation and amortisation. the Group has investments, the Directors do by £99,000 (2015: £77,000). not expect any counterparty to fail to meet In order to achieve the overall objective, its obligations. Foreign currency risk the Group’s capital management, amongst The Group is exposed to foreign currency other things, aims to ensure that it meets At 30 April 2016 there were no significant risk on sales, purchases and borrowings that financial covenants attached to the concentrations of credit risk (2015: £nil). are denominated in currencies other than borrowings. The Group has satisfied all The Group’s maximum exposure to credit Pounds Sterling. The currencies giving rise to such financial covenants in both years. risk, gross of any collateral held, relating this risk are primarily the Euro and US dollar. to its financial assets is equivalent to their The volume of transactions denominated carrying value. All financial assets have a in foreign currencies is not significant fair value which is equal to their carrying to the Group. value, as a consequence of their short 126 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 25. Financial instruments and financial risk management objectives and policies (continued) 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 Liquidity risk 2016 Group £’000 14,531 1,409 2015 Group £’000 12,005 1,379 10.3 8.7 2016 Group £’000 14,531 4,580 466 19,577 18,769 2015 Group £’000 12,005 3,358 292 15,655 13,568 0.96 0.87 Management closely monitors available bank and other credit facilities in comparison to the Group’s outstanding commitments on a regular basis to ensure that the Group has sufficient funds to meet the obligations of the Group as they fall due. The Board receives regular cash forecasts which estimate the cash inflows and outflows over the next 24-36 months, so that management can ensure that sufficient financing can be arranged as it is required. The Group would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows as disclosed above through effective cash management. 127 Notes to the Group Financial Statements continued 25. Financial instruments and financial risk management objectives and policies (continued) Maturity of financial liabilities: 30 April 2015 Fixed rate borrowings Floating rate borrowings Total borrowings Trade and other payables Total financial liabilities 30 April 2016 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 3,314 1,882 5,196 60,237 65,433 2,980 3,573 6,553 70,388 76,941 2,163 2,320 4,483 - 4,483 2,457 674 3,131 - 3,131 841 5,208 6,049 - 6,049 5,279 4,982 10,261 - 10,261 Total £’000 6,318 9,410 15,728 60,237 75,965 10,716 9,229 19,945 70,388 90,333 Estimation of fair values The main methods and assumptions used in estimating the fair values of financial instruments are as follows: - derivatives: interest rate swaps are marked to market using listed market prices; - interest-bearing loans and borrowings: fair value is calculated based on discounted expected future principal and interest cash flows; and - trade and other receivables/payables: the notional amount for trade receivables/ payables with a remaining life of less than one year are deemed 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 2016 Book value £’000 2016 Fair value £’000 2015 Book value £’000 2015 Fair value £’000 715 39,816 (1,817) (4,736) (72,183) (10) (12,931) 715 39,816 (1,817) (4,736) (72,183) (10) (12,588) 1,854 33,443 - (5,196) (61,708) (70) (10,226) 1,854 33,443 - (5,196) (61,708) (70) (10,106) 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. 128 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 26. Related party disclosures 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. Knaresborough Real Estate Limited, a company owned by Steve Parkin, is the landlord of one of the Group’s leasehold properties. Rent payable under the current lease is at the same rate as that with the previous landlord. Guiseley Association Football Club shares a common director with Clipper Logistics plc. The Group rents an aircraft from South Acre Aviation Limited, a company owned by Steve Parkin. Charges are on an arm’s length basis. During the prior year the Company leased racehorses which are beneficially owned by Steve Parkin. These horses ran in the Company name and in Company colours. Under the terms of the lease, the Company was responsible for all expenditure in connection with the horses but could retain any monies received for a win or placing up to the value of the costs incurred for that horse. The rights and liabilities arising under this arrangement ceased on 31 May 2014. Key management compensation is disclosed in note 5. There were no balances owing to or from these related parties at 30 April 2016 or 30 April 2015. The dividends paid to the former parent company can be found in note 7. Interest receivable from the former parent company can be found in note 9. Items charged to the income statement: Roydhouse Properties Limited – rent payable Knaresborough Real Estate Limited – rent payable Guiseley Association Football Club – advertising and sponsorship South Acre Aviation Limited – aircraft rental costs Horse costs 2016 Group £’000 2015 Group £’000 885 298 50 19 - 877 157 25 7 56 129 Notes to the Group Financial Statements continued 27. Business combinations Servicecare Support Services Limited On 3 December 2014, the Group acquired 100% of the voting shares of Servicecare Support Services Limited (“Servicecare”) and its subsidiary, Electrotec International Limited (together, the “Servicecare group”), in exchange for cash consideration. Both are unlisted companies based in the UK. The Servicecare group specialises in providing returns logistics services to consumer electronics manufacturers and retailers. The Group acquired Servicecare to enhance its returns management service offering. Purchase consideration: Cash paid on completion Deferred consideration paid in the year ended 30 April 2016 Additional consideration paid following receipt of an 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 prior year £’000 6,475 2,000 212 8,687 £’000 6,475 (2,776) 3,699 130 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Group Financial Statements continued 27. Business combinations (continued) Servicecare Support Services Limited (continued) 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. 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 The goodwill of £4,234,000 comprises the value of expected synergies arising from the acquisition. Goodwill is allocated entirely to the value-added logistics services segment. None of the goodwill recognised is expected to be deductible for income tax purposes. Intangible assets recognised consist of brands, customer relationships and the acquired order book. 131 Clipper Logistics plc Annual Report and Accounts 2016 Company Financial Statements for the year ended 30 April 2016 132 Clipper Logistics plc Annual Report and Accounts 2016 Company Statement of Financial Position At 30 April 2016 Company £’000 2015 Company £’000 Note 20,279 19,973 5,712 414 6,126 10,554 19,973 5,770 322 6,092 46,378 36,619 500 27,518 - 212 28,230 74,608 37,429 11,854 10 26 1,118 50,437 11,292 616 55 11,963 62,400 50 56 25 851 783 10,443 12,208 74,608 463 19,030 - 52 19,545 56,164 31,854 6,631 70 25 208 38,788 8,845 531 420 9,796 48,584 50 48 - 851 110 6,521 7,580 56,164 Assets: Non-current assets Property, plant and equipment Investment in subsidiaries Goodwill Other intangible assets Intangible assets Total non-current assets Current assets Inventories Trade and other receivables Current income tax assets 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 Share based payment reserve Retained earnings D E F G H J I J M N J N O P Total equity attributable to the owners of the Company Total equity and liabilities Approved by the Board on 1 August 2016 and signed on its behalf by: D A Hodkin – Chief Financial Officer Company No. 03042024 134 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Company Statement of Changes in Equity For the year ended 30 April Share capital Company £’000 Share premium Company £’000 Currency translation reserve Company £’000 Other reserve Company £’000 Carried forward Company £’000 50 - - - - 50 - - - - - 50 48 - - - - 48 - - - 8 - 56 - - - - - - - 25 - - - 25 851 - - - - 851 - - - - - 851 949 - - - - 949 - 25 - 8 - 982 Brought forward Company £’000 Share based payment reserve Company £’000 Retained earnings Company £’000 Total Company £’000 949 - - - - 949 - 25 - 8 - 982 - - - 110 - 110 - - 673 - - 783 3,207 5,249 - - (1,935) 6,521 9,122 - - - (5,200) 4,156 5,249 - 110 (1,935) 7,580 9,122 25 673 8 (5,200) 10,443 12,208 Balance at 1 May 2014 Profit for the year Other comprehensive income/(expense) Equity settled transactions Dividends Balance at 30 April 2015 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Balance at 30 April 2016 Balance at 1 May 2014 Profit for the year Other comprehensive income/(expense) Equity settled transactions Dividends Balance at 30 April 2015 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Balance at 30 April 2016 135 Notes to the Company Financial Statements A. Authorisation of financial statements B. Accounting policies (h) the requirements of paragraphs 30 and statement of compliance with The Financial Statements have been and 31 of IAS 8 Accounting Policies, UK GAAP prepared in accordance with the Changes in Accounting Estimates The Parent Company Financial Statements Companies Act 2006 and with applicable and Errors; of Clipper Logistics plc (the “Company”) accounting standards in the (i) the requirements of paragraph 17 of for the year ended 30 April 2016 were United Kingdom. authorised for issue by the Board of Directors on 1 August 2016 and the Company IAS 24 Related Party Disclosures; the requirements in IAS 24 Related Party Disclosures to disclose related party Statement of Financial Position was signed B.1. Basis of preparation transactions entered into between two on the Board’s behalf by David Hodkin. The Company has transitioned to FRS or more members of a group, provided Clipper Logistics plc is a public limited 101 from previously extant UK Generally that any subsidiary which is a party to company incorporated and domiciled Accepted Accounting Practice for all the transaction is wholly owned by such in England and Wales. The Company’s periods presented. Transition tables showing a member; and ordinary shares are traded on the London all material adjustments are disclosed in (j) the requirements of paragraphs 134(d)- Stock Exchange. note U. 134(f) and 135(c)-135(e) of IAS 36 Impairment of Assets The Financial Statements are prepared The Company has taken advantage in accordance with Financial Reporting of the following disclosure exemptions The Company proposes to continue to Standard 101 Reduced Disclosure under FRS 101: adopt the reduced disclosure framework of Framework (FRS 101). The Financial (a) the requirements of paragraphs 45(b) FRS 101 in its next financial statements. Statements are prepared under the and 46-52 of IFRS 2 Share based historical cost convention. Payment; (b) the requirements of paragraphs 62, B.2. Going concern No profit and loss account is presented B64(d), B64(e), B64(g), B64(h), B64(j) The Financial Statements have been by the Company as permitted by Section to B64(m), B64(n)(ii), B64 (o)(ii), B64(p), prepared on a going concern basis. In 408 of the Companies Act 2006. The profit B64(q)(ii), B66 and B67of IFRS 3 determining the appropriate basis of after tax attributable to the members of Business Combinations; preparation of the Financial Statements, the Company and other comprehensive (c) the requirements of IFRS 7 Financial the Directors are required to consider income are shown in the Statement of Instruments: Disclosures; whether the Company and the Group can Changes in Equity. (d) the requirements of paragraphs 91-99 continue in operational existence for the of IFRS 13 Fair Value Measurement; foreseeable future. The results of Clipper Logistics plc are (e) the requirement in paragraph 38 of IAS included in the consolidated financial 1 ‘Presentation of Financial Statements’ Further information in relation to the Group’s statements of Clipper Logistics plc which are available from Gelderd Road, to present comparative information in respect of: business activities, together with the factors likely to affect its future development, Leeds, LS12 6LT. i. paragraph 79(a)(iv) of IAS 1; performance and position is set out in the ii. paragraph 73(e) of IAS 16 Property, Strategic Report section of this report on The accounting policies which follow set out Plant and Equipment; pages 6 to 40. those policies which apply in preparing the iii. paragraph 118(e) of IAS 38 Financial Statements for the year ended Intangible Assets; Note 25 to the Group Financial Statements 30 April 2016. The Financial Statements iv. paragraphs 76 and 79(d) of IAS 40 includes the Group’s objectives, policies are prepared in Pounds Sterling and are Investment Property; and and processes for managing its capital, its rounded to the nearest thousand v. paragraph 50 of IAS 41 Agriculture. financial risk management objectives and pounds (£’000). (f) the requirements of paragraphs 10(d), its exposure to foreign exchange, credit and 10(f), 39(c) and 134-136 of IAS 1 interest rate risk. Presentation of Financial Statements; (g) the requirements of IAS 7 Statement of Cash Flows; 136 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued B.2. Going concern (continued) B.3. Property, plant and equipment B.4. Investments in subsidiary undertakings The Company Statement of Financial Property, plant and equipment is stated Non-current investments are shown at cost Position at 30 April 2016 shows current at historical cost less depreciation and less provision for impairment. assets of £28,230,000 (2015: £19,545,000) impairment. Historical cost includes and current liabilities of £50,437,000 expenditure that is directly attributable to (2015: £38,788,000). Net current the acquisition of the items. B.5. Intangible assets liabilities are therefore £22,207,000 Subsequent costs are included in the (a) Contracts and licences (2015: £19,243,000). Following the asset’s carrying amount or recognised as a Intangible assets recognised in relation to renegotiation of the bank facilities in separate asset, as appropriate, only when contracts or licences are amortised over January 2016 the Group has access to a it is probable that future economic benefits the length of the relevant agreement. five year, non-amortising, Revolving Credit associated with the item will flow to the Facility of £19,744,000 and an overdraft Company and the cost of the item can be (b) Goodwill facility of £8,000,000 of which £5,500,000 measured reliably. The carrying amount of Goodwill representing the excess of the and £1,817,000 were drawn down at any replaced part is derecognised. All other purchase price compared with the fair 30 April 2016 (see note 19 to the Group repairs and maintenance are charged to value of net assets acquired is capitalised Financial Statements). the income statement during the financial and included in intangible assets. period in which they are incurred. The Directors have assessed the future Separately recognised goodwill is tested funding requirements of the Group and Depreciation is calculated using the straight- annually for impairment and carried at the Company and compared them to the line method to allocate their cost to their cost less accumulated impairment losses. bank facilities which are now available. residual values over their estimated useful This is not in accordance with The Large The assessment included a detailed review lives, as follows: and Medium-sized Companies and of financial and cash flow forecasts for at - Leasehold property over the length Groups (Accounts and Reports) Regulations least the 12 month period from the date of the lease; of signing the Annual Report. The Directors 2008 which requires that all goodwill be amortised. The directors consider that this considered a range of potential scenarios - Plant and machinery 2 - 20 years; and would fail to give a true and fair view of the within the key markets the Group serves and profit for the year and that the economic how these might impact on the Group’s - Motor vehicles 4 - 8 years. measure of performance in any period is cash flow. The Directors also considered properly made by reference only to any what mitigating actions the Group could Residual values and useful lives are impairment that may have arisen. It is not take to limit any adverse consequences. reviewed, and adjusted if appropriate, at practicable to quantify the effect on the The Group’s forecasts and projections show each balance sheet date. Financial Statements of this departure. that the Group should be able to operate without the need for any increase in borrowing facilities. An asset’s carrying amount is written down immediately to its recoverable amount if (c) Computer software Acquired computer software licences the asset’s carrying amount is greater than are capitalised on the basis of the costs Having undertaken this work, the Directors its estimated recoverable amount. incurred to acquire and bring to use the are of the opinion that the Company specific software. These costs are amortised and the Group have adequate resources An item of property, plant and equipment over their estimated useful lives (three to continue in operational existence for and any significant part initially recognised to five years). the foreseeable future. Accordingly, they is derecognised upon disposal or when no continue to adopt the going concern basis future economic benefits are expected Costs associated with developing in preparing the Financial Statements. from its use or disposal. Any gain or loss or maintaining computer software arising on derecognition of the asset programmes are recognised as an (calculated as the difference between the expense as incurred. Costs that are directly net disposal proceeds and the carrying associated with the development of amount of the asset) is included within ‘other identifiable and unique software products net gains’ in the income statement when controlled by the Company, and that will the asset is derecognised. probably generate economic benefits exceeding costs beyond one year, are 137 Notes to the Company Financial Statements continued B.5. Intangible assets (continued) B.7. Inventories - component parts and B.9. Cash and cash equivalents (c) Computer software (continued) consumable stores Cash and cash equivalents includes recognised as intangible assets. Costs Inventories of component parts and cash in hand, deposits held at call with include the software development consumable stores are valued at the lower banks, other short-term highly liquid employee costs and overheads directly of cost and net realisable value on a line by investments with original maturities of three attributable to bringing the asset in to use. line basis. Provision is made for obsolete and months or less, and bank overdrafts. Bank Computer software development costs recognised as assets are amortised over slow-moving items. overdrafts are shown within borrowings in current liabilities on the Company Statement of Financial Position. their estimated useful lives (not exceeding B.8. Trade receivables three years). Trade receivables are recognised initially at fair value and subsequently measured at B.10. Trade payables amortised cost using the effective interest Trade payables are recognised initially B.6. Leases method, less provision for impairment. at fair value and subsequently measured Leases in which a significant portion of the A provision for impairment of trade at amortised cost using the effective risks and rewards of ownership are retained receivables is established when there is interest method. by the lessor are classified as operating objective evidence that the Company leases. Payments made under operating will not be able to collect all amounts due leases (net of any incentives received from according to the original terms B.11. Borrowings the lessor) are charged to the income of the receivables. statement on a straight-line basis over the Borrowings are recognised initially at fair value, net of transaction costs incurred. period of the lease. Significant financial difficulties of the Borrowings are subsequently stated at debtor, probability that the debtor will enter amortised cost; any difference between Assets held under finance leases, which bankruptcy or financial reorganisation, and the proceeds (net of transaction costs) transfer to the Company substantially all the default or delinquency in payments (more and the redemption value is recognised risks and benefits incidental to ownership than 30 days overdue) are considered in the income statement over the period of the leased item, are capitalised at the indicators that the trade receivable may of the borrowings using the effective inception of the lease, with a corresponding be impaired. The amount of the provision is interest method. liability being recognised for the lower the difference between the asset’s carrying of the fair value of the leased asset amount and the present value of estimated Borrowings are classified as current liabilities and the present value of the minimum future cash flows, discounted at the original unless the Company has an unconditional lease payments. Lease payments are effective interest rate. apportioned between the reduction of right to defer settlement of the liability for at least 12 months after the balance the lease liability and finance charges in the income statement so as to achieve a The carrying amount of the asset is reduced through the use of an allowance account, sheet date. constant rate of interest on the remaining and the amount of the loss is recognised balance of the liability. The property, plant in the income statement within B.12. Income tax and equipment acquired under finance ‘administration expenses’. Current tax assets and liabilities are leases is depreciated over the shorter of measured at the amount expected to be the estimated useful life of the asset and When a trade receivable is uncollectable, it recovered from or paid to the taxation the lease term; where the lease contains is written off against the allowance account authorities, based on tax rates and laws that an option to purchase which is expected to for trade receivables. Subsequent recoveries are enacted or substantively enacted by be exercised, the asset is depreciated over of amounts previously written off are the balance sheet date. the useful life of the asset. The accounting credited against ‘administration expenses’ policy adopted for finance leases is also in the income statement. applied to hire purchase agreements. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. 138 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued B.12. Income tax (continued) (b) Post-retirement benefits B.14. Provisions However, the deferred income tax is The Company provides no other post- Provisions for items such as dilapidations not accounted for, if it arises from initial retirement benefits to its employees. and legal claims are recognised when: recognition of goodwill or an asset or liability the Company has a present legal or in a transaction other than a business (c) Profit-sharing and bonus plans constructive obligation as a result of past combination that at the time of the The Company recognises a liability and events; it is probable that an outflow of transaction affects neither accounting nor an expense for bonuses and profit- resources will be required to settle the taxable profits or losses. sharing, based on a formula that takes obligation; and the amount has been into consideration the profit attributable to reliably estimated. Deferred income tax is determined using tax the Company’s shareholders after certain rates (and laws) that have been enacted or adjustments. The Company recognises Where there are a number of similar substantially enacted by the balance sheet a provision where contractually obliged obligations, the likelihood that an outflow date and are expected to apply when the or where there is a past practice that has will be required in settlement is determined related deferred income tax asset is realised created a constructive obligation. by considering the class of obligations as or the deferred income tax liability is settled. a whole. A provision is recognised even if Deferred income tax assets are recognised (d) Share based payments the likelihood of an outflow with respect to to the extent that it is probable that future IFRS 2 requires the recognition of equity any one item included in the same class of taxable profit will be available against which settled share based payments at fair value obligations may be small. the temporary differences can be utilised. at the date of the grant. All equity settled share based payments are ultimately Provisions are measured at the present Deferred income tax assets and liabilities recognised as an expense in the income value of the expenditures expected to are offset, only if a legally enforceable right statement with a corresponding credit to be required to settle the obligation using exists to set off current tax assets against share based payment reserve. a pre-tax rate that reflects current market current tax liabilities, the deferred income assessments of the time value of money taxes relate to the same taxation authority If vesting periods or other non-market and the risks specific to the obligation. The and that authority permits the Company to vesting conditions apply, the expense is increase in the provision due to passage of make a single net payment. allocated over the vesting period based time is recognised as interest expense. on the best available estimate of the number of shares expected to vest. B.13. Employee benefits (a) Pension obligations Estimates are revised subsequently if there B.15. Foreign currency translation is any indication that the number of shares The Company’s functional currency and The Company operates various pension expected to vest differs from previous presentation currency is Pounds Sterling. schemes. The schemes are generally estimates. Any cumulative adjustment Transactions in foreign currencies are initially funded through payments to insurance companies. The Company has only defined prior to vesting is recognised in the current period. The financial effect of awards by the recorded in the functional currency by applying the spot exchange rate ruling contribution plans. A defined contribution Company of options over its equity shares at the date of the transaction. Monetary plan is a pension plan under which the to employees of subsidiary undertakings are assets and liabilities denominated in foreign Company pays fixed contributions into a charged to the employing entity. Amounts currencies are retranslated at the functional separate entity. recharged by the Company are recognised currency rate of exchange ruling at the as an intra-Group receivable with a balance sheet date. All differences are For defined contribution plans, the corresponding credit to equity. taken to the income statement. Company pays contributions to privately administered pension insurance plans Upon exercise of share options, the Non-monetary items that are measured in on a contractual or voluntary basis. proceeds received net of attributable terms of historical cost in a foreign currency The Company has no further payment transaction costs are credited to share are translated using the exchange rates as obligations once the contributions have capital and where appropriate, at the dates of the initial transactions. Non- been paid. The contributions are recognised share premium. as employee benefit expense when they are due. monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 139 Notes to the Company Financial Statements continued B.15. Foreign currency translation B.18. Judgements and key sources (continued) of estimation uncertainty The Company does not apply hedge The preparation of the financial information accounting of foreign exchange risks under FRS 101 requires management in its Company Financial Statements. to make judgements, estimates and assumptions concerning the future. The estimates and associated assumptions B.16. Revenue recognition are based on historical experience and Revenue is measured at the fair value of other factors that are believed to be the consideration received or receivable reasonable under the circumstances, the for the sale of goods and services in the results of which form the basis of making the ordinary course of the Company’s activities. judgements about carrying values of assets Revenue is shown net of value-added tax, and liabilities that are not readily apparent returns, rebates and discounts. from other sources. The resulting accounting estimates will, by definition, seldom equal The Company recognises revenue when the related actual results. The estimates the amount of revenue can be reliably and assumptions that have a significant measured, it is probable that future risk of causing a material adjustment economic benefits will flow to the entity to the carrying amounts of assets and and when specific criteria have been met liabilities within the next financial year for each of the Company’s activities. The are discussed below. amount of revenue is not considered to be reliably measurable until all contingencies (a) Revenue recognition relating to the sale have been resolved. Judgement is required when determining In practice this means that revenue is the appropriate timing and amount of generally recognised when the service is revenue that can be recognised, due to the rendered. Invoicing varies by contract, but various contractual arrangements in place, is typically either in line with work performed each with bespoke terms which can lead to or initially on a budgeted volume basis with different revenue recognition requirements. later adjustment to reflect actual activity. Calculation of accrued and deferred (b) Estimated impairment of goodwill income is therefore necessary at period The Company annually tests whether ends, with client billing arrangements not goodwill has suffered any impairment, always coinciding with the Company’s reporting periods. Judgement is required in accordance with the accounting policy stated above. The recoverable when determining the appropriate timing amounts of cash-generating units have and amount of revenue that can be been determined based on value-in-use recognised, due to the different contractual calculations. These calculations require arrangements in place. the use of estimates, both in arriving at the expected future cash flows and the application of a suitable discount rate in B.17. Intra-Group guarantees order to calculate the present value of Where the Company enters into contracts these flows. to guarantee the indebtedness of other companies within the Group, the Company treats the guarantee contract C. Auditor’s remuneration as a contingent liability until such time as it Remuneration payable to the Company’s becomes probable that the Company will auditor is shown in note 6 to the Group be required to make a payment under the Financial Statements. guarantee. 140 Clipper Logistics plc Annual Report and Accounts 2016 Notes to the Company Financial Statements continued D. Property, plant and equipment Cost: At 1 May 2014 Additions Disposals At 30 April 2015 Additions Disposals At 30 April 2016 Accumulated depreciation: At 1 May 2014 Charge for the year Disposals At 30 April 2015 Charge for the year Disposals At 30 April 2016 Net book value: At 1 May 2014 At 30 April 2015 At 30 April 2016 Leasehold property Company £’000 Motor vehicles Company £’000 Plant, machinery, fixtures & fittings Company £’000 Total Company £’000 2,630 25 (106) 2,549 261 (16) 2,794 899 195 (106) 988 194 (16) 1,166 1,731 1,561 1,628 1,324 178 (188) 1,314 268 (213) 1,369 1,030 125 (170) 985 152 (170) 967 294 329 402 22,295 734 (506) 22,523 12,445 (146) 34,822 12,706 1,630 (477) 13,859 2,860 (146) 26,249 937 (800) 26,386 12,974 (375) 38,985 14,635 1,950 (753) 15,832 3,206 (332) 16,573 18,706 9,589 8,664 18,249 11,614 10,554 20,279 Included within property, plant and equipment are amounts held under finance lease contracts. At 30 April 2016 the net book value of these assets was £8,948,000 (2015:£3,447,000). The depreciation charged to the accounts in the year in respect of such assets amounted to £1,647,000 (2015: £606,000). Additions to plant, machinery, fixtures & fittings include £2,823,000 (2015: £nil) in respect of assets in the course of construction. 142 Clipper Logistics plc Annual Report and Accounts 2016 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 and 30 April 2016 Provision for impairment: Company £’000 11,501 8,687 20,188 At 1 May 2014, 30 April 2015 and 30 April 2016 215 Net book value: At 1 May 2014 At 30 April 2015 At 30 April 2016 11,286 19,973 19,973 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 27 to the Group Financial Statements). 143 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 Clipper Logistics KG (GmbH & Co.) (Germany) Northern Commercials (Mirfield) Limited Electrotec International Limited* Genesis Specialised Product Packing Limited Stormont Truck and Van Limited* Clipper Verwaltungs GmbH (Germany)* 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 Returns management & reverse logistics services Contract distribution & warehousing Sale, servicing and repair of commercial vehicles On-line retail and distribution On-line retail and distribution Agency for leasing commitments Agency for leasing commitments Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant 144 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued F. Intangible assets Cost: At 1 May 2014 Additions Disposals At 30 April 2015 Additions Disposals At 30 April 2016 Accumulated amortisation or impairment: At 1 May 2014 Charge for year/impairment Disposals At 30 April 2015 Charge for year/impairment Disposals At 30 April 2016 Net book value: At 1 May 2014 At 30 April 2015 At 30 April 2016 Goodwill Company £’000 Contracts and licenses Company £’000 Computer software Company £’000 Total Company £’000 8,312 - - 8,312 - - 8,312 2,535 7 - 2,542 58 - 2,600 5,777 5,770 5,712 723 - - 723 - - 723 723 - - 723 - - 723 - - - 1,381 24 (85) 1,320 287 - 1,607 897 186 (85) 998 195 - 1,193 484 322 414 10,416 24 (85) 10,355 287 - 10,642 4,155 193 (85) 4,263 253 - 4,516 6,261 6,092 6,126 145 Notes to the Company Financial Statements continued G. Inventories Component parts and consumable stores 500 463 2016 Company £’000 2015 Company £’000 H. Trade and other receivables Amounts falling due within one year: Trade receivables Other receivables Prepayments and accrued income Amounts owed by fellow Group companies Amounts falling due after more than one year: Amounts owed by fellow Group companies I. Trade and other payables Trade payables Other taxes and social security Other payables Accruals and deferred income Amounts owed to fellow Group companies 2016 Company £’000 2015 Company £’000 9,490 117 15,986 48 6,303 100 10,885 1,742 25,641 19,030 1,877 - 27,518 19,030 2016 Company £’000 2015 Company £’000 16,379 2,506 1,405 13,490 3,649 14,021 3,661 3,475 8,831 1,866 37,429 31,854 146 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued J. 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 borrowings 2016 Company £’000 2015 Company £’000 5,060 6,232 11,292 8,510 896 2,448 11,854 7,199 1,646 8,845 2,903 2,533 1,195 6,631 23,146 15,476 Less cash and cash equivalents 212 52 Net debt 22,934 15,424 Bank loans and overdrafts are secured by a charge over the Group’s assets. The Company’s overdraft is offset by cash balances in subsidiary companies. The net Group overdraft at 30 April 2016 is £1,817,000 (2015: £nil). Obligations under finance leases or hire purchase agreements are secured by related assets. K. Bank loans Bank loans repayable, included within borrowings are analysed as follows: In one year or less Between one and five years After five years 2016 Company £’000 2015 Company £’000 896 5,060 - 5,956 2,533 7,199 - 9,732 See note 19 to the Group Financial Statements for the principal features of the bank loans. 147 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 property, plant and equipment. 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 2016 Company £’000 2015 Company £’000 2,775 6,686 9,461 (327) (454) (781) 2,448 6,232 8,680 - 1,322 1,721 3,043 (127) (75) (202) 1,195 1,646 2,841 - 8,680 2,841 M. Derivative financial instruments As part of the novation of bank facilities from the former parent on 2 May 2014, the Company took on an existing interest rate swap. The notional principal at 30 April 2016 is £900,000 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 is determined by reference to market value and at 30 April 2016 was a loss of £10,000 (2015: £70,000). 148 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued N. Provisions At 1 May 2015 Utilised (Credited)/charged in year At 30 April 2016 2016 Company £’000 2015 Company £’000 556 (151) 237 642 534 (81) 103 556 Provisions have been analysed between current and non-current as follows: Current Non-current Total 2016 Company £’000 2015 Company £’000 26 616 642 25 531 556 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 21 and 12 years from the balance sheet date. All other leases expire in 10 years or less. O. Deferred tax Deferred tax balances in the Statement of Financial Position are as follows: Deferred tax liability: Accelerated capital allowances Deferred tax asset: Share based payment Provisions & other timing differences Net deferred tax liability 2016 Company £’000 2015 Company £’000 (397) (464) 300 42 22 22 (55) (420) 149 Notes to the Company Financial Statements continued O. Deferred tax (continued) The movement in deferred tax balances is as follows: At 1 May 2015 Credited/(charged) in year Credited to share based payment reserve At 30 April 2016 2016 Company £’000 2015 Company £’000 (420) 160 205 (55) (455) 35 - (420) The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015. Legislation to reduce the rate to 19% with effect from 1 April 2017 and to 18% with effect from 1 April 2020 was substantively enacted at 30 April 2016. Legislation to further reduce these rates (to 18% and 17% respectively) was progressing, but not substantively enacted at 30 April 2016. A rate of 18% (2015: 20%) has been applied in the measurement of the Company’s deferred tax assets and liabilities in the year. P. Share capital 2016 Company £’000 2015 Company £’000 Allotted, called up and fully paid: 100,005,341 (2015: 100,000,000) ordinary shares of 0.05p each 50 50 During the year the Company issued 5,341 ordinary shares at a price of 140.4p per share to satisfy share options. See note 22 to the Group Financial Statements. 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 income statement for equity settled transactions in the year ended 30 April 2016 was £417,000 (2015: £110,000). 150 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued R. Commitments and contingencies Operating lease commitments – land and buildings: Within one year Between one and five years After more than five years Operating lease commitments – vehicles, plant and equipment: Within one year Between one and five years After more than five years S. Capital commitments Authorised and contracted for Authorised, but not contracted for 2016 Company £’000 2015 Company £’000 12,457 52,343 79,732 9,258 35,880 54,262 144,532 99,400 2016 Company £’000 2015 Company £’000 3,867 8,769 99 1,915 3,147 84 12,735 5,146 2016 Company £’000 2015 Company £’000 9,467 7,279 16,746 797 8,569 9,366 151 Notes to the Company Financial Statements continued T. Related party disclosures 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. Guiseley Association Football Club shares a common director with Clipper Logistics plc. The Group rents an aircraft from South Acre Aviation Limited, a company owned by Steve Parkin. Charges are on an arm’s length basis. During the prior year the Company leased racehorses which are beneficially owned by Steve Parkin. These horses ran in the Company name and in Company colours. Under the terms of the lease, the Company was responsible for all expenditure in connection with the horses but could retain any monies received for a win or placing up to the value of the costs incurred for that horse. The rights and liabilities arising under this arrangement ceased on 31 May 2014. The dividends paid to the former parent company can be found in note 7 to the Group Financial Statements. Directors’ remuneration can be found in note 5 to the Group Financial Statements. There were no balances owing to or from these related parties at 30 April 2016 or 30 April 2015. Items charged to the income statement: Roydhouse Properties Limited – rent payable Guiseley Association Football Club – advertising and sponsorship South Acre Aviation Limited – aircraft rental costs Horse costs 2016 Company £’000 2015 Company £’000 885 50 19 - 877 25 7 56 152 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued U. Transition to FRS 101 Following the publication of FRS 100 ‘Application of Financial Reporting Requirements’ by the Financial Reporting Council, Clipper Logistics plc was required to change its accounting framework for its entity financial statements, for its financial year ended 30 April 2016. For all periods up to and including the year ended 30 April 2015, the Company prepared its financial statements in accordance with previously extant United Kingdom generally accepted accounting practice (UK GAAP). These financial statements, for the year ended 30 April 2016, are the first the Company has prepared in accordance with FRS 101. Accordingly, the Company has prepared individual financial statements which comply with FRS 101 applicable for periods beginning on or after 1 May 2014 and the significant accounting policies meeting those requirements are described in the relevant notes. In preparing these financial statements, the Company has started from an opening balance sheet as at 1 May 2014, the Company’s date of transition to FRS101, and made those changes in accounting policies and other restatements required for the first-time adoption of FRS 101. As such, this note explains the principal adjustments made by the Company in restating its balance sheet as at 1 May 2014 prepared under previously extant UK GAAP and its previously published UK GAAP financial statements for the year ended 30 April 2015. On transition to FRS 101, the company has applied the requirements of paragraphs 6-33 of IFRS 1 “First time adoption of International Financial Reporting Standards”. 153 Notes to the Company Financial Statements continued U. Transition to FRS 101 (continued) Reconciliation of equity at 1 May 2014: Fixed assets Tangible assets/Property, plant and equipment Investment in subsidiaries Intangible assets Total fixed/non-current assets Current assets Stock/Inventories Debtors/Trade and other receivables Current income tax assets Cash at bank and in hand Total current assets Creditors: amounts falling due within one year Trade and other payables Financial liabilities: borrowings Short term provisions Note U.1 U.2 Previous UK GAAP Company £’000 Re-classifications/ Re-measurements Company £’000 FRS 101 Company £’000 12,026 11,286 5,778 29,090 543 16,743 - 3,302 20,588 42,240 - - - (412) - 484 72 - (121) 121 - - (42,240) 40,842 1,335 63 11,614 11,286 6,262 29,162 543 16,622 121 3,302 20,588 - 40,842 1,335 63 Net current liabilities (21,652) - (21,652) Total assets less current liabilities Creditors: amounts falling due after more than one year Non-current borrowings Provisions for liabilities/Long term provisions Deferred tax liabilities Net assets Equity shareholders’ funds Share capital Share premium Other reserve Share based payment reserve Profit and loss account/Retained earnings Total equity U.3 U.4 7,438 2,438 - 902 - 4,098 50 48 851 - 3,149 4,098 72 (2,438) 2,438 (431) 445 58 - - - - 58 58 7,510 - 2,438 471 445 4,156 50 48 851 - 3,207 4,156 154 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued U. Transition to FRS 101 (continued) Reconciliation of equity at 30 April 2015: Fixed assets Tangible assets/Property, plant and equipment Investment in subsidiaries Intangible assets Total fixed/non-current assets Current assets Stock/Inventories Debtors/Trade and other receivables Cash at bank and in hand Total current assets Creditors: amounts falling due within one year Trade and other payables Financial liabilities: borrowings Derivative financial instruments Short term provisions Current income tax liabilities Note U.1 U.2 Previous UK GAAP Company £’000 Re-classifications/ Re-measurements Company £’000 FRS 101 Company £’000 10,734 19,973 5,362 36,069 463 19,030 52 19,545 38,788 - - - - - (180) - 730 550 - - - - (38,788) 31,854 6,631 70 25 208 10,554 19,973 6,092 36,619 463 19,030 52 19,545 - 31,854 6,631 70 25 208 Net current liabilities (19,243) - (19,243) Total assets less current liabilities Creditors: amounts falling due after more than one year Non-current borrowings Provisions for liabilities/Long term provisions Deferred tax liabilities Net assets Equity shareholders’ funds Share capital Share premium Other reserve Share based payment reserve Profit and loss account/Retained earnings Total equity U.3 U.4 16,826 8,845 - 923 - 7,058 50 48 851 110 5,999 7,058 550 (8,845) 8,845 (392) 420 522 - - - - 522 522 17,376 - 8,845 531 420 7,580 50 48 851 110 6,521 7,580 155 Notes to the Company Financial Statements continued U.1. Tangible fixed assets/Property, plant and equipment (a) The Company has reviewed the useful life and residual value of plant, machinery, fixtures & fittings, resulting in adjustment of accumulated depreciation as follows: Brought forward Charge for the year Carried forward (b) Re-classification of computer software to intangible assets Net re-classification/re-measurement U.2. Intangible assets (a) Previously under UK GAAP, purchased goodwill was amortised over its useful life, estimated at 20 years. Under FRS101 goodwill is reviewed annually for any impairment. The review concluded that there was no impairment and so amounts previously charged have been adjusted as follows: Brought forward Charge for the year Carried forward (b) Re-classification of computer software to intangible assets Net re-classification/re-measurement 30 April 2015 Company £’000 1 May 2014 Company £’000 72 70 142 (322) (180) - 72 72 (484) (412) 30 April 2015 Company £’000 1 May 2014 Company £’000 - 408 408 322 730 - - - 484 484 156 Clipper Logistics plc Annual Report and Accounts 2016 Strategic Report | Governance | Financial Statements Notes to the Company Financial Statements continued U.3. Provisions for liabilities Deferred taxation Under previous UK GAAP Arising on adjustments above Under FRS 101 U.4. Profit and loss account/Retained earnings Under previous UK GAAP Tangible fixed assets Intangible asset amortisation Deferred taxation Under FRS 101 30 April 2015 Company £’000 1 May 2014 Company £’000 392 28 420 431 14 445 30 April 2015 Company £’000 1 May 2014 Company £’000 5,999 142 408 (28) 6,521 3,149 72 - (14) 3,207 157 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: Auditor: Registrars: Financial public relations advisors to the Company: 158 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 Stephen Robertson, Independent Non-Executive Director Mike Russell, 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 KPMG LLP 1 Sovereign Square Sovereign Street Leeds LS1 4DA 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 2016 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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