Clipper Logistics plc
Annual Report 2019

Plain-text annual report

Annual Report and Accounts 2019 C l i p p e r L o g i s t i c s p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 9 Continued evolution in a dynamic world Who we are. What we do. About us Logistics is crucial to your business. Nobody understands that better than us. But logistics is changing. Over the past decade the retail environment has transformed beyond recognition, and in this market place, the traditional approach to logistics is fast becoming extinct. Consumer expectations have grown, financial pressures have slowed demand and competition has increased to give consumers more choice. And these factors combine to make the retail sector more competitive and complicated than ever before. We understand just how business-critical logistics is, and that’s why we’re constantly challenging conventions to improve your business performance and help you meet the changing dynamics of retail with cutting edge logistics management solutions. What makes us different Thought leader Clipper has a strong brand, long-standing customer relationships and an experienced team, which combine to deliver thought leadership and innovation within the logistics sector. Diverse customer portfolio Our customer portfolio comprises both large omni- channel operations as well as shared-user sites with smaller retailers. We pride ourselves on being able to operate across the entire retail sector. Agile and able We have a flexible, flat organisational structure that gives customers direct access to our senior team. We have experts in warehouse design, system design and testing, project management and implementation, and the operational management to ensure rapid delivery of effective solutions. Talented people We’re experts in retail and high value logistics. We have the facilities, the processes, the experience, the fleet and, most importantly, the people to deliver on contracts of all sizes. We see the bigger picture without neglecting the day-to-day detail. Highlights Group revenue Group EBIT £460.2m £20.2m (2018: £400.1m) +15.0% (2018: £20.9m) -3.1% 4 6 0 . 2 4 0 0 . 1 3 4 0 . 1 2 9 0 . 3 2 3 4 . 8 2 0 . 9 2 0 . 2 1 7 . 9 1 4 . 7 1 0 . 9 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Group profit after tax £13.4m (2018: £14.3m) -6.1% 1 2 . 5 1 0 . 3 7 . 3 1 4 . 3 1 3 . 4 Earnings per share 13.2p (2018: 14.2p) -7.0% 1 0 . 3 7 . 3 1 4 . 2 1 3 . 2 1 2 . 5 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Cash generated from operations Dividend per share £28.3m (2018: £24.5m) +15.5% 2 5 7 . 2 4 5 . 2 8 3 . 2 0 . 5 1 2 . 6 9.7p (2018: 8.4p) +15.5% 6 0 . 4 . 8 8 4 . 7 2 . 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Contents Strategic Report 1 Highlights 8 At a Glance 10 Chairman’s Statement 12 Our Markets 16 Our Business Model 18 Our Strategy 20 Risk Management 20 Principal Risks and Uncertainties 23 Viability Statement 24 Our People 28 Sustainability 30 Operating and Financial Review Governance 36 Board of Directors 38 Corporate Governance Report 42 Nomination Committee Report 43 Audit Committee Report 46 Directors’ Remuneration Report – Implementation Report 47 on Remuneration 52 – Appendix: Directors’ Remuneration Policy 58 Directors’ Report 62 Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements Independent Auditor’s Report Group Financial Statements 63 70 Group Income Statement Group Statement of 70 Comprehensive Income Group Statement of Financial Position Group Statement of Changes in Equity 72 71 9 7 . 73 Group Statement of Cash Flows 74 Notes to the Group Financial Statements Company Financial Statements 103 Company Statement of Financial Position 104 Company Statement of Changes in Equity 105 Notes to the Company Financial Statements 121 Directors, Secretary, Registered & Head Office and Advisors 1 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019Evolving our supply chain model in a dynamic world Clicklink Consumers’ evolving demand for convenient methods of shopping has led to an increasing trend towards the use of Click and Collect services. Our launch of Clicklink offers a cost-effective sortation and delivery service guaranteeing next day, in store, time-banded delivery for collection by customers. Combined with our streamlined returns management process, Boomerang, we are able to offer a closed loop solution with choices both retailers and customers want. Clicklink revenue1 (2018: £19.7m) +14.7% £ 22.6m 1. These numbers are provided in order to give an indication of Clicklink’s size and growth. However, please note that this amount is not actually consolidated into Group revenue since it arises in a joint venture company. 2 Clipper Logistics plc £9.8bn The demand for Click and Collect services within the UK is expected to rise by 55.6% over the next five years to £9.8bn (source: GlobalData). Next day delivery, seven days a week to satisfy customer expectations in an evolving marketplace. Up and running in a matter of days, Clicklink is able to grow a business and adapt to customers’ evolving retail needs. Case study Working with John Lewis Clipper has been working in partnership with John Lewis since January 2010, providing an e-fulfilment fashion solution from our ‘Centre of E-fulfilment Excellence’ facility at Ollerton. Since 2015, John Lewis and Clipper have worked together to create a specialist click and collect service to take advantage of the ever-evolving demand from the modern online shopper and growth in alternative delivery methods for online sales; Clicklink. Evolving supply chain Recent years have seen consumers increasingly demand speed and convenience in their order, delivery and returns options. Clicklink was developed with this in mind; to provide a seven day a week retailer- focused solution. The technology and the retail logistics backbone of Clipper provided the infrastructure required, with John Lewis providing the extensive retail knowledge and expertise. The Clicklink solution provides a daily store delivery service to all retail locations, principally of orders placed online, although store replenishment can be provided too. The collaboration also set about implementing and integrating the Clipper Boomerang returns management solution to provide a rapid, end- to-end, process. By streamlining and simplifying both the Click and Collect and returns process, Clipper has helped John Lewis drastically reduce processing times for deliveries, returns and customer refunds, whilst having a positive impact on customer service. Clicklink now provides a multi-user platform for Click and Collect and returns services, with 13 customers now using the service. 3 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019Strong and strategically placed in Europe Market growth European B2C e-commerce turnover is forecast to hit €621 billion in 2019, growth of 13.6% year- on-year. Germany has the second highest penetration rate of online retail in Europe after the UK. Our European credentials In Germany, we operate from five locations from where we conduct a range of e-fulfilment and non e-fulfilment operations. Together with our newest distribution centres in Poznan´, Poland, our central European network of transport hubs and warehouses give us a sound strategic base from which to service the growing European e-fulfilment markets. Forecast European B2C e-commerce turnover (2018: €547bn) +13.6% €621bn 4 Clipper Logistics plc Clipper’s pan-European approach is particularly important to our customers, given the continued uncertainties around Brexit. Indeed, we now conduct operations for ASOS and Mountain Warehouse out of both the UK and mainland Europe from different subsidiaries, meaning that our customers’ UK-mainland Europe cross-border trading concerns can be allayed, or at least reduced. We also operate out of a facility in Dublin giving us a base from which we can serve the Irish market. Revenue generated by Clipper’s Polish subsidiary (2018: £5.4m) +131.0% £12.6m Polish turnover was £12.6 million in the year ended 30 April 2019 and, at the time of writing, we now have 164 employees. Case study New Poland operation Our German subsidiary was invited to tender for an e-fulfilment operation for Westwing, an online home furnishings retailer based in Germany. Our response contemplated a cost-effective logistics solution which would allow the customer to benefit from lower labour and property rental costs in Poland than in Germany. We identified a greenfield site, in Robakowo, Poznan´, Poland, which was designed and built by a developer. On commencement of the three year contract with Westwing, we initially committed to a five year lease for 107,000 square feet, commencing April 2017. We subsequently won a contract to perform returns work for ASOS in Poland, commencing October 2017 taking an additional 73,000 square feet in the same warehouse. The contractual scope and term of the services performed for Westwing were extended in July 2018. In order to accommodate this growth, we leased a further 375,000 square feet of new build space in an adjacent site. In March 2019, we began a new e-fulfilment operation for Mountain Warehouse, taking on a further 40,000 square feet of space in an adjacent building. Annual Report and Accounts 2019 55 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportPowerful returns management process and partnerships Technical Services Our Technical Services operation, within the Logistics segment, adds to the comprehensive range of returns management services across the whole spectrum of apparel, general merchandise and electronic & electrical equipment. We’ve delivered unique, omni-channel and tailored solutions for some of the UK’s biggest retailers. What helps set us apart from the competition is our ability to do it your way, and the strong relationships we form with our customers. Technical Services EBIT (2018: £0.7m) +52.0% £1.0m 6 Clipper Logistics plc Case study Technical Services, Northampton The Clipper Technical Services operation is the UK’s leading consumer electrical repair and refurbishment organisation. It maximises yields on returns for customers and has a host of accredited warranty repair services through to specialist e-commerce solutions. Specialising in B2B returns and B2C services, the complete service offering, backed by extensive manufacturer accreditations, is unrivalled in the UK consumer electronics service sector. Our specialist electrical returns capability perfectly complements Clipper’s market- leading returns management service, Boomerang. We have commenced an electrical returns service for John Lewis at our Northampton facility. This is a box-in-box solution where Technical Services is located in one of Clipper’s depots in Northampton, where we perform the rest of our ancillary returns and pre-retail activities for John Lewis. This includes RFID (Radio frequency identification) tagging and ensuring that John Lewis’s inbound shipments are compliant with the requirements of their automated distribution centre. We don’t only manage product returns. We identify new opportunities, reduce unwanted returns, refurbish and control reusable assets to recover maximum economic value for our customers. Annual Report and Accounts 2019 7 7 Company Financial StatementsGroup Financial StatementsGovernanceStrategic Report/ Strategic Report At a Glance Clipper is managed through two distinct operating segments: value- added logistics services (comprising e-fulfilment & returns management services and non e-fulfilment logistics); and commercial vehicles. Segment and business activity details / E-fulfilment & returns management This business activity includes the receipt, warehousing, value-added processing, stock management, picking, packing and despatch of products on behalf of customers to support their online trading activities, as well as a range of ancillary support services, including the management of the returns process for customers. At no time does Clipper take ownership of customers’ products. / Non e-fulfilment This business activity includes receipt, warehousing, value-added processing, stock management, picking, packing and distribution of products on behalf of customers. Clipper does not take ownership of customers’ products at any stage. Clipper also undertakes traditional retail support services including processing, storage and distribution of products. / Commercial vehicles The commercial vehicles business, Northern Commercials, operates Iveco and Fiat commercial vehicle dealerships from five locations, together with three sub-dealerships. It sells new and used vehicles, provides servicing and repair facilities, and sells parts. E-fulfilment & returns management revenue (2018: £159m) +46.8% £234m Non e-fulfilment logistics revenue (2018: £139m) +4.4% £145m Commercial vehicles revenue (2018: £104m) -20.3% £83m 51% 31% 18% Note: The amounts and percentages shown indicate the contribution to Group revenue by each business area disregarding inter-segment sales. 8 Clipper Logistics plc  Logistics depots Commercial vehicle sites 46 Locations 36 10.4m Square feet covered 6,698 Distribution centres Employees Ireland UK Poland Germany Our investment case 1. Sector focus / Clipper is focused on the provision of value- added logistics services to retailers. / By being thought leaders in the sector, we identify trends and opportunities ahead of the curve and develop products and services to address them. 2. Highly attractive 3. Attractive business presence in online retail model 4. Clear growth strategy / Organic growth in / The UK e-commerce market is forecast to grow by 9% in 2019 (source: IMRG). / Our Clicklink Click and Collect joint venture provides a service dedicated to the needs of retailers. / Value-added consultancy model with strategic level relationships. e-commerce related activities in UK and Europe. / Growth of Click and / High level of long-term, open book/minimum volume guarantee contracts in UK logistics. / Highly visible profit and cash flows. Collect through Clicklink. Rapidly growing presence in mainland Europe. 5. Strong financial profile / Attractive working capital profile. / Operating profit growth coupled with high cash conversion. 9 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Chairman’s Statement As Chairman of Clipper Logistics plc, I am pleased to present our 2019 financial results. Steve Parkin Executive Chairman 10 The financial year ended 30 April 2019 has seen a continuation of our historic track record of achieving significant organic revenue growth, complemented by the benefit of strategic, value- enhancing acquisitions made in previous years. The Group continues to focus on developing innovative, cost-effective solutions that address the needs of our blue-chip client base, predominantly in the retail sector. We continue to invest in quality people to implement sector- leading projects, and this, together with our ability to identify key trends and developments in the sectors we serve, means that we are confident in our ability to continue this momentum. Despite the challenging market conditions facing the retail sector, the Group has achieved another strong financial performance, growing revenue by 15.0%. We have commenced significant new contracts with high profile retailers including boohoo.com subsidiary PrettyLittleThing and Sports Direct in the UK, and Mountain Warehouse for whom we have introduced e-fulfilment activities in Europe. In addition, we have seen significant growth in activity with many of our customers including Asda, Browns, Morrisons, Halfords, New Look, Wilko and ASOS in the UK, and Westwing and s.Oliver in Europe. We will continue to identify key trends in the sectors we serve, and develop new services, processes and solutions that address the needs and challenges of our customers. Clipper’s unique understanding of the dynamics of the retail sector, and in particular the e-commerce sector including returns management and Click and Collect, provides the Group with exceptionally strong strategic positioning for the future. We are particularly pleased with the evolution of our European business, which has won significant contracts with customers including ASOS, Clipper Logistics plc The Group is well positioned to continue to deliver strong returns to our shareholders. Group revenue (2018: £400.1m) +15.0% £460.2m Westwing and Mountain Warehouse, as well as organic growth. In addition, RepairTech, which was acquired in the previous financial year, is performing well and together with Servicecare has seen new contract wins with Vestel and Tech Data. They have established a presence in Europe where we now handle electrical returns for Amazon. The commercial vehicles business had a disappointing year, with reduced dealer support being provided by the manufacturer. We believe however that this business will continue to contribute to Group profitability and cashflow. The Group is well positioned to continue to deliver strong returns to our shareholders, despite the challenges that some parts of the retail sector are experiencing. We are mindful of the wider economic climate, and in particular of the headwinds facing our customers in the retail sector. We continue to monitor the situation closely and engage with our customers to find new ways to pro- actively assist them. Group results Group revenue increased by 15.0% to £460.2 million for the year ended 30 April 2019 (2018: £400.1 million), and Group EBIT was £20.2 million (2018: £20.9 million). Group EBIT before Property-related income1 increased by 18.0% to £17.1 million (2018: £14.5 million). Property-related income reduced by £3.3 million to £3.1 million. Diluted earnings per share after the amortisation of intangible assets were 13.1 pence for the year ended 30 April 2019 (2018: 14.1 pence), a decrease of 7.0%. Basic earnings per share were 13.2 pence (2018: 14.2 pence), a decrease of 7.0%. 7 November 2018. I would personally like to thank Ron for his commitment and valuable contribution. Net debt was £45.9 million at the year end (2018: £31.7 million). We continue to invest in capital projects to support both new contracts and growth of existing contracts, much of which involves a commitment from customers to reimburse this capital over the duration of the contract. Net debt is defined as borrowings, less cash, cash equivalents and non-current financial assets (see note 20 to the Group Financial Statements). At 30 April 2019, of the headline net debt of £45.9 million, we have £34.9 million of capital to be recovered in full from open book customers over the term of the customer contracts. People and Board Clipper Logistics plc is led by an excellent management team that has been at the core of the business for many years. The team has a proven track record of identifying key trends within the sectors we serve, and developing relevant cost-effective solutions that address those needs. Further, we have a proven ability to identify strategic acquisitions that enhance Group performance and shareholder value. I would like to take this opportunity to thank all the employees of the Group for their continued commitment and contribution to the Group’s performance. Governance The executive management team comprises Tony Mannix (Chief Executive Officer), David Hodkin (Chief Financial Officer) and myself, and the Group benefits from the combined experience of Stephen Robertson (Senior Independent Director), Mike Russell and Stuart Watson, our Non-Executive Independent Directors. Ron Series stood down from the role of Senior Independent Director on Dividends The Board is recommending a final dividend of 6.5 pence per share, making a total dividend in respect of the year ended 30 April 2019 of 9.7 pence (2018: 8.4 pence), an increase of 15.5%. The proposed final dividend, if approved by shareholders, will be paid on 23 October 2019 to shareholders on the register at the close of business on 20 September 2019. Outlook The Group continues to be one of the leading providers of value-added logistics and e-fulfilment solutions to the retail sector in the UK, and is rapidly growing its operations in Europe, a significant growth area for the Group. Recent contract wins, together with a strong pipeline of new business activity and the further evolution of our Click and Collect proposition, place the Group in an excellent position to achieve further growth both in the UK and internationally. Indeed, Clipper’s approach of adopting a hands-on, long-term and pro-active relationship with its retail clients allows it to continue to support its clients during these changing retail market conditions, and the uncertain political and economic landscape. I look forward to working with all of the Group’s stakeholders as we continue to drive the Group forward. Steve Parkin Executive Chairman 1. “Property-related income” comprises profit from property-related advisory services of £3,100,000 (2018: £4.200,000) and £nil (2018: £2,151,000) of profit on disposal of a freehold property. 11 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Our Markets The Group serves markets in the UK – where 93% of Group revenue is generated – and in mainland Europe. Where we generate our revenue 1 Logistics A UK retail B Other EU Logistics 82% 92% 8% Logistics B Total 82% A 1 Commercial Vehicles 2 D Total 18% C 2 Commercial vehicles C UK vehicle sales D UK aftersales 18% 64% 36% 12 UK retail 76% of Group revenue is derived from activities in the UK retail market. Within this market, we operate across e-commerce and non e-commerce, in warehousing and transport and primarily in fashion and general merchandise. Size and growth of market The UK retail market (excluding food and automotive fuel) was worth £217.5 billion in 2018, having grown from £208.0 billion in 2017, growth of 4.6% (source: ONS). Within this, whilst traditional bricks and mortar retail stores still account for most retail sales in the UK, internet sales are growing at a much faster rate. YoY growth in UK retail sales (%) t r h w o g Y o Y 22.1 16.4 15.4 15.3 6.8 10.7 -0.6 0.5 2.8 1.0 25 20 15 10 5 0 -5 2014 2015 2016 2017 2018 Source: ONS Internet Store According to IMRG, the UK’s total e-commerce market (which includes food and travel) has grown from £0.8 billion in 2000 to £149 billion in 2017 and £167 billion in 2018 (12.9% annual growth), with a further 9% growth forecast in 2019. Q1 2019 saw online retail sales growth of 7.5%. The Group’s strength in e-commerce sees us well positioned to take advantage of this market growth. Clipper Logistics plc UK retail market – size (£bn) 220 210 200 190 180 170 160 171 196 188 185 2013 2014 2015 2016 2017 2018 Source: ONS UK retail market – size (% share of retail) 100 80 60 40 20 10 2013 2014 2015 2016 2017 2018 Source: ONS Internet Store UK e-commerce market (£bn) 200 160 120 80 40 0 9 % g r o w t h f o r e c a s t 1 2 . 9 % C A G R o f 2013 2014 2015 2016 2017 2018 2019F Source: IMRG Trend Market size Recent market trends In the last year, we have seen various changes affect the UK retail market, bringing a variety of opportunities and challenges to Clipper. 217 208 Challenges on the high street UK retail continues to experience those challenges faced in 2018, with numerous high-profile administrations and CVA restructurings impacting the high street (e.g. House of Fraser, Maplin, HMV, Arcadia, Monsoon and Debenhams). 26 large retailers went into administration in 2018, compared to 17 in 2017. Also, the number of large multi-site UK retailers (those with more than 10 stores) entering a CVA in 2018 increased significantly to 13, from just two in 2017 (source: Deloitte). The most commonly cited financial pressures are uncompetitive business rents and rates, lower consumer spending, higher regulatory compliance costs, Brexit- related pressures and uncertainties and ‘the worst festive trading performance in a decade’. Indeed, some of Clipper’s own customers (New Look, American Golf, LK Bennett, Pretty Green and Bench) have suffered well-publicised financial difficulties, but none has resulted in significant financial loss to Clipper, largely because of strong protections written into our contracts. Indeed, four of these five brands have survived through their financial pressures, and we are now experiencing improved activity levels and profitability with those customers. A thriving high street is in everybody’s interest, and the UK government is pushing the issue through various initiatives, including the Future High Streets Fund, the Future Cities Catapult and Smart Cities UK events. The collaboration of retailers is also seen as key to reinvigorating the high street. Online retail Whilst the high street has had its challenges, online continues to grow apace, with 15.4% growth achieved in 2018 (source: ONS). With Clipper’s market-leading credentials in UK e-commerce fashion logistics, this leaves Clipper in an extremely strong position to capitalise on the predicted 9% market growth in 2019 (source: IMRG). Click and Collect has a key part to play in online retail. 18% of online purchases (2018) were delivered via Click and Collect rather than those other delivery alternatives which typically prove more expensive for the retailer (source: KPMG). According to analytics firm GlobalData, UK Click and Collect is set to rise 55.6% (CAGR 9.1%) over the next five years to reach £9.8 billion, compared to overall growth in online of 34.7% (CAGR of 6.1%). Clicklink, our joint venture with John Lewis, offers a seven days a week B2B Click and Collect service, thereby creating the opportunity for retailers to capitalise on this anticipated market growth. In addition to John Lewis as anchor customer, Clicklink also has a number of third party retailers using its platform, a platform unique in that it was designed with the retailer front of mind at every stage of the process (e.g. timed delivery slots,‘retail ready’ cages, full track-and-traceability). The way people are buying online has also continued to evolve. In Q4 2018/19 (Nov 2018–Jan 2019), a major milestone was passed in UK online retail as, for the first time, shoppers spent more money through their smartphones when accessing UK retail sites than either of the other two major device types – desktop or tablet – according to quarterly data from the IMRG Capgemini e-Retail Sales Index. It is vital that retailers ensure that the online customer experience remains consistent across all platforms – mobile web browsers, tablet browsers and desktop browsers – in order not to miss out on valuable sales. Between 2011 and 2017, overall satisfaction with online delivery was steady, but this year’s annual IMRG survey revealed that it fell from 85% to 78% between 2017 and 2018 (source: IMRG). Whilst retailers have undoubtedly put more focus on online service over recent years, there is more investment needed to keep up with consumers’ ever-increasing expectations. Our Clicklink proposition addresses this need. Returns management The KPMG Annual Retail Survey 2019 found that 34% of consumers surveyed often bought multiple variants of the same item, with the intention of later returning some of them; compared to the previous year of 31.4%. The same survey found that 76% of respondents admitted to intentionally spending over the minimum purchase value threshold to qualify for free delivery and that free returns are still a major consideration for more than half (54%) of the respondents. When a retailer requires a minimum purchase value threshold to qualify for free delivery and offers a free returns service, this inadvertently encourages consumers to order more than they need, safe in the knowledge that they can return unwanted goods free of charge. When the products are returned, retailers must have the processes in place to be able to deal with this quickly and efficiently, including having the ability to be able to rapidly process refunds. Over half of the respondents surveyed (53%) said they received their money back within a week, 30% between 8 and 14 days, and some 8% 13 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Our Markets continued between three and four weeks after their items were returned (source: KPMG). In the year ended 30 April 2019, on average Clipper authorised its customers to release 75.5% of refunds to consumers within 24 hours of receipt of the returned product arriving in the warehouse. Returns present a significant cost to retailers but, still, most UK retailers offer a free returns policy. We are seeing some online retailers implementing changes to their returns policies. Next was the first to break ranks by introducing a £1 charge for certain returns. ASOS has recently extended its returns window from 28 days to 45 days, presumably to stay ahead of rivals’ offerings. However, at the same time, they announced their intention to crack down on ‘unusual’ shopping habits ‘to make sure returns remain sustainable for ASOS and for the environment’. This appears to be aimed at those ‘wear and return’ consumers, rather than those consumers who simply order different styles and sizes of the same product before settling on the most suitable. ASOS’s policy change will either result in competitors following suit or it will result in consumers finding another retailer willing to honour their ‘unusual’ shopping habits. Royal Mail intends to capitalise on the growing returns market by introducing a parcels collection service from people’s homes, including items returned after being bought online. This will make it even more convenient for customers to be able to return unwanted items. And if consumers know that there are ever-more convenient ways to be able to return parcels should they need to, they will be more inclined to make the online purchase in the first place. This additional convenience will only add to the level of online returns retailers are seeing in the market. We have seen an introduction of try before you buy schemes from some online retailers. Such schemes allow consumers to order multiple items for delivery to their home. They then try them on and simply return the ones they don’t want, with the payment only leaving consumers’ accounts for the retained items after the items returned have been processed. Whilst this will of course appeal to consumers and will be a key differentiator for retailers, it will increase the number of returns those retailers are experiencing and will mean stock is tied up in working capital for longer. It is vital, therefore, that retailers be able to quickly process the return so that: 14 / they can recognise the sale for the items retained by the consumer; and / they can get the returned stock back into saleable condition. This will allow them to: – minimise the amount of cash tied up in working capital, and – avoid having to put out-of-season stock into mark-down. For electrical retailers too, returns are increasingly important. The General Data Protection Regulation (“GDPR”) legislation came into law in May 2018, putting electrical returns into even sharper focus. With intelligent electrical devices like smart TVs and smart fridges now being the norm, as well as the retailer effecting any necessary electrical and cosmetic repairs, it is vital that all returned items be properly cleared of any consumer data before they are offered for resale. Clipper runs customer-specific returns operations – comprising fashion returns and electrical returns – for certain of its larger customers and is in the process of implementing a new non- customer-specific facility to make such a service accessible to smaller retailers. Dedicated returns centres are usually cost-prohibitive for smaller retailers to implement, so we are confident this will address a retail market need. Customer experience To address the above challenges and to capitalise on the opportunities available, omni-channel retailers need to be able to ensure a seamless customer experience for the consumer across the high street estate and online. However, recent research from Adyen claims that flawed customer experience is costing UK retail £102 billion each year. The key reasons cited (in order of consumers’ perceived importance) are: running out of stock in store, queues in store, failing to create a link between online and offline stores, not offering a variety of payment options, a lack of contextual commerce experiences, not personalizing offers and outdated payment systems. Conscious consumerism Consumers’ growing appreciation of sustainability is having more of an effect on their ultimate purchasing decisions. Ethical sourcing of packaging, sustainable fashion and eco brands are phrases now embedded in the psyche, particularly among younger cohorts; avoiding single-use plastics, sustainable clothing and employee well-being are all matters considered more important to the younger generations than they were to the generations before them. £102bn flawed customer experience is costing UK retail £102 billion each year. 73% of consumers say they would change their consumption habits to reduce their environmental impact. In a recent global online survey, 81% of respondents felt strongly that companies should help improve the environment and 73% of consumers say they would change their consumption habits to reduce their environmental impact (source: Nielsen). Within UK retail, the perception that online is more environmentally friendly than the high street, a perception that has prevailed historically, has now almost disappeared. 52% of customers still perceive online to be the greener alternative in 2018, but this proportion has steadily decreased from 73% perceiving the same in 2011 (source: IMRG). This perception is likely being influenced by the focus being put on this area by media and government, with excess packaging and unwanted goods going into landfill being prime targets for negative headlines. Indeed, with the advent of fast fashion, garment production has doubled in the past 15 years and £140m worth of clothes a year now end up in landfill (source: Guardian). Clipper is working with certain of its clothing and electrical products customers to try to identify innovative ways of improving sustainability in their reverse logistics cycle, by returning existing products to a saleable condition, enabling reuse and minimising the impact on the environment. Employee well-being, whether at home or abroad, is also becoming more important to the modern-day consumer. For example: / UK legislation has been tightened to try to further reduce the risk of modern slavery in the supply chain; / national living wage increases in the UK continue to outstrip inflation; / consumers are demanding full transparency of ethical credentials in the supply chain; Clipper Logistics plc 66% of global consumers have expressed a willingness to pay more for sustainable goods. 18% of Group revenue is derived from the UK commercial vehicles market. / guaranteeing workers a minimum number of paid hours each week; and / political and social lobbying is meaning increased pressure on retailers to recognise union rights for workers. Complying with new and strengthened legislation – and thereby protecting reputations – comes with an increased cost to retailers. However, changing consumer attitudes mean that not all of these costs need to be absorbed in retailers’ margins but can be passed back to the consumer through increased sales prices. Indeed, a recent Nielsen study found that 66% of global consumers expressed a willingness to pay more for sustainable goods. Brexit Brexit uncertainties (and the related exchange rate impact) has adversely affected some of our customers, as mentioned above. However, Clipper is largely insulated from this impact due to the open book nature of a high proportion of its contracts with customers. The logistics industry relies heavily on Eastern European labour. Brexit-related uncertainties around employment have caused shrinkage of this labour pool, causing some pressures on labour availability, particularly in those UK geographies with higher concentrations of logistics facilities. Clipper has mitigated this through various innovative HR strategies and capital projects, referred to elsewhere in this report. Brexit uncertainties have also presented some opportunities to Clipper. Hard Brexit fears have meant that some of our customers have built stocks in our warehouses in order to mitigate the impacts of such a potential outcome. Commercial vehicles 18% of Group revenue is derived from the UK commercial vehicles market. Clipper’s commercial vehicles business sells and maintains Iveco and Fiat vehicles, principally in certain geographical territories in the UK under the terms of its dealership licences. Clipper derives the majority of its commercial vehicles revenues from new and used vehicle sales. Whilst market size figures are not readily available for the specific geographical markets in which we operate, UK-wide new registration figures are readily available, and these provide a useful indicator of market growth and contraction for new vehicles. The market sectors in which the commercial vehicles division operates experienced registrations contraction of 1.7% in the calendar year 2018 compared with the prior year, as shown in Table 1 below. Since all tractor units sold by Northern Commercials come with a two year repair and maintenance contract as standard, new vehicle registrations also provide a degree of certainty over future aftersales revenue. In terms of other aftersales activity, again market data is not readily available. However, Table 2, below, shows that the number of commercial vehicles on UK roads has changed over the most recent two calendar years. The 2.3% growth in commercial vehicle numbers on the road coupled with the 1.7% contraction in the number of new vehicle registrations year-on-year implies that those vehicles that are on the road are, on average, older than in the previous year. Since most commercial vehicles on UK roads are required to be inspected every six weeks under UK law, commercial vehicle activity on the roads provides a useful proxy for the relative size of the aftersales market in the UK. Moreover, older vehicles typically require more maintenance, presenting revenue opportunities to Clipper. Table 1 Other markets Other EU logistics Omni-channel retail solutions are important in mainland Europe as they are in the UK, as retailers look to ensure global consistency across their brand. Clipper’s logistics facility for ASOS in Poland performs the same services and to the same standard prescribed by the customer as its logistics facility in the UK, just as Clipper’s logistics facility for Zara in the UK performs exactly the same services and to the same standard as Zara’s other logistics facilities around the globe. That said, there are significant differences in consumer preferences and behaviours between geographical markets, and we must remain alert to these differences: / Whilst there have been one or two casualties (e.g. Gerry Weber), Germany hasn’t seen the same level of retail store closures as the United Kingdom. High rates of employment, immigration and rising wages have all contributed to strong consumer spending. However, the economy is now slowing, prompting several retail analysts to predict a surge in store closures. Among traditional retailers, more than a third expect sales to fall this year, while another third believe sales will stagnate (source: HDE). / In Germany, only 43% of retailers offer Click and Collect compared with 64% in the UK (source: OrderDynamics), possibly owing to the more dispersed geographical spread of consumers in Germany than in the UK, and therefore greater average distances between retail outlets and the consumer, making Click and Collect less convenient to consumers. Differences such as these present logistical challenges to retailers and highlight that it is important that solutions providers such as Clipper do not adopt a ‘one size fits all’ mentality, but instead design solutions which address the specific needs of the retailer, the consumer and the market. New commercial vehicle registrations 2017 2018 % change Light commercial vehicles up to 3.5t Rigid Articulated 362,149 25,535 19,510 357,325 23,812 19,287 407,194 400,424 -1.3% -6.7% -1.1% -1.7% Source: SMMT Table 2 Commercial vehicles on UK roads 2017 2018 % change Vans Trucks Source: SMMT 4,299,828 602,799 4,407,561 605,393 4,902,627 5,012,954 +2.5% +0.4% +2.3% 15 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Our Business Model Clipper delivers a broad range of value-added logistics services tailored to the emerging and future needs of our customers. Key inputs How we create value Thought leadership & innovation Clipper has a strong brand, long- standing customer relationships and an experienced team, which combine to deliver thought leadership and innovation in the logistics sector. Enduring relationships Clipper’s focus on the provision of value-added services to retailers at a competitive cost has resulted in a number of long-standing contractual arrangements with major retailers such as Asda, ASOS, John Lewis, Morrisons and Superdry. Technologically advanced We work in trusted partnership with our customers to develop and rapidly deploy solutions to the challenges they face. Our team is focused on addressing tomorrow’s challenges today and embraces new technology. Effective financial management We seek to efficiently use funds obtained through financing or generated from operations or investments. A high degree of contractual certainty underpins financial predictability and stability. High-level contractual certainty Clipper provides customers with services. We operate open book or minimum volume guarantee contract terms for 67% of our UK Logistics customers, giving us a high level of contractual certainty. Mutually beneficial long-term relationships We also operate closed book contracts for customers, many of whom we have worked with for several years. Talent and expertise In order to ensure long-term customer relationships, we continually draw on our team’s expertise to drive innovation in our operations. This enables us to retain our market-leading cost competitive position and continue to strengthen our brand. Innovative solutions Clipper has developed specialist services (e.g. pre-retailing services and reprocessing of garments) to support our customers in their ever-complex supply chains and to ensure that product is ready for sale in the most efficient and cost- effective manner. The Clipper Way… …is how we approach all customer briefs. It translates instinct into action and brings clarity and consistency to the way we work. It’s a straightforward, insightful and effective approach, and our people are recognised and rewarded for their ability to apply and demonstrate ‘The Clipper Way’ in every area of our operation. 1 2 3 4 Opportunity How can we help? Exploration We analyse and identify  the customer’s business challenges Solution planning We design a high quality, cost-effective solution Implementation We create and implement a bespoke logistics solution 16 Clipper Logistics plc How we create value The Clipper Way… As the retail landscape changes to become more omni-channel focused, developing innovative solutions such as Clicklink and Boomerang to support our customers has led to Clipper retaining customers on a long-term basis as well as winning new business every year. Fleet procurement benefits 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. Commercial vehicle dealerships In addition, our commercial vehicles division is profitable and cash generative – its profitability driven by higher margin aftersales activity, which is underpinned by legal requirements governing the inspection of commercial vehicles. Improve – Business performance improvement and implementation – Win/win analysis Revise – Identify actions – Process improvements – Reporting and analysis Review – Daily/monthly/annually Underpinned by our values Agility Ability Credibility How the value is shared Shareholders High growth market sectors, an attractive business model and a clear growth strategy combine to give operating profit growth and good cash conversion, resulting in dividend distributions of circa 74% in 2019. Employees Over 6,600 employees have access to attractive career progression in a market-leading logistics business. The Sharesave Plan enables employees to share in the financial success of the business. Customers Blue-chip customers in logistics and commercial vehicles can rely on Clipper’s established reputation and high levels of service, particularly when they need it most through peak trading periods. Suppliers Clipper benefits from its relationships, built over many years, with large and small trusted partners and suppliers. Clipper’s diverse supply base de-risks Clipper and its customers from fluctuations in market conditions. Communities Clipper’s Corporate Social Responsibility agenda benefits local communities by providing employment opportunities, reinvesting in the local communities through sponsorship and developing green initiatives. 17 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Our Strategy 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 with particular focus on the e-fulfilment & returns management services segment of the retail market. By utilising Clipper’s best-in-class offering and extensive implementation expertise to capitalise on the long-term structural growth within the online retail market and the increasing logistical complexities therein. By taking advantage of 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 The full-year benefit was realised from contracts that went live during the previous year with M&S returns operations, River Island, Edinburgh Woollen Mill and Crosswater in the UK; ASOS returns in Poland; and Urban Outfitters and Superdry in the Clicklink joint venture. New contracts went live in the year with boohoo.com subsidiary PrettyLittleThing, Ginger Ray, Levi Strauss, Vestel, the Mountain Warehouse brand Neon Sheep, Tech Data and Sports Direct in the UK, and with Mountain Warehouse itself in Poland. Further details of the above contract wins can be found in the Operating and Financial Review on pages 30 to 35. Develop new, complementary products and services Continue European expansion Explore acquisition opportunities By continuing to invest in new product and service offerings which will be value-enhancing to Clipper’s existing and future customer base. Through development of Clipper’s operations in Germany and Poland, By considering further acquisitions which are considered value- which consist of retail logistics and transport solutions with a significant enhancing to the Group’s shareholders through market penetration and growing element of e-fulfilment and returns management. and/or service lines and where the Group can use its existing expertise, By utilising its existing expertise in e-fulfilment in the more developed UK online retail market, to assist both mainland European retailers to implementation and delivery platform, scale and reach to generate synergies and increase profitability. move online, and UK retailers to expand into Europe – the latter further By considering bolt-on acquisitions which provide a platform for it to underpinned by Clipper’s strong customer relationships and reputation take its core technical expertise into new, adjacent markets. with UK retailers (both pure-play e-tailers and multi-channel high street retailers). We have commenced an electrical returns service for John Lewis. This is a box-in-box solution where our Technical Services operation is located in Clipper’s ADC depot in Northampton, where we perform the rest of our returns and pre-retail activities for John Lewis. These services now include RFID tagging and ensuring JL’s inbound shipments from suppliers are compliant with the requirements of their automated DC. We have implemented an automated and intelligent autoboxing solution for Wilko to improve productivity and reduce reliance on labour. We are trialling a goods-to-person robotic solution for Superdry in our Burton warehouse, also with the intention of reducing reliance on labour. Multiple supplier deliveries into stores is inefficient for retailers. We have introduced a John Lewis supplier consolidation programme which leverages on the existing Clicklink service, thereby reducing cost to the retailer whilst also reducing inefficiency at a store level. In the last week of the financial year, we commenced a new NDC outlets operation for M&S, adding another service to the growing M&S relationship. Brexit has presented additional warehousing and labelling challenges to certain of our customers, particularly those engaged in tobacco- related activities. We have extended our service offerings in this area to several customers. Further details of the above projects can be found in the Operating and Financial Review on pages 30 to 35. Full year-effect and improved activity levels from the Technical Services Whilst we have evaluated several potential acquisition targets in the activities in Germany, leveraging existing customers with additional year, we decided that none were sufficiently in line with Clipper’s service lines. strategic requirements at this time. The contractual scope of our Polish operation for Westwing was extended in the year, significantly increasing the amount of work we are performing for them. We commenced a new stores operation for Mountain Warehouse in newly-committed warehouse space in a building adjacent to our existing Poznan´ operations. Mountain Warehouse also owns the Neon Sheep brand, for whom we commenced a UK operation in the year, demonstrating further our cross-border credentials for multi- national customers. Further details of the above contract wins can be found in the Operating and Financial Review on pages 30 to 35. What’s next? New contracts have been secured which will commence in the year to 30 April 2020, including with Shop Direct and Amara Living. For Shop Direct, we shall be performing returns services across fashion, non-fashion and electrical goods, and pre-retail services which will facilitate the product flow into Shop Direct’s new automated DC. For Amara Living, we will be preforming e-commerce activities, storage and returns processing services out of Northampton, UK. Clipper has an extensive potential customer pipeline and will continue to work with these prospects to secure further new contract wins. We are developing collaborative trilateral solutions between various of our Clicklink customers. These collaborations will allow the customers to mutually benefit from opportunities in the Click and Collect market space. Clipper is working on other mechanisation/semi-automation projects for various existing customers and is developing a customer-agnostic returns operation for both existing and new customers. Clipper will continue to innovate and develop solutions for the problems that retailers face in the ever-changing retail environment. The Mountain Warehouse operation in Poland is set to further expand Clipper will continue to explore acquisition opportunities that enhance in the year ending 30 April 2020 with the introduction of a new shareholder value. e-com operation. In the medium term, Clipper will continue to seek opportunities with new and existing customers to provide services in Germany, Poland and Ireland, and will consider other strategic mainland European locations for potential expansion. 18 Clipper Logistics plc Through a continued focus on the provision of bespoke, retail-specific By continuing to invest in new product and service offerings which will logistics solutions, including retail store support and high value be value-enhancing to Clipper’s existing and future customer base. Build on market-leading customer proposition to expand the customer base How will this be achieved? product logistics, but with particular focus on the e-fulfilment & returns management services segment of the retail market. By utilising Clipper’s best-in-class offering and extensive implementation expertise to capitalise on the long-term structural growth within the online retail market and the increasing logistical complexities therein. By taking advantage of 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 The full-year benefit was realised from contracts that went live during We have commenced an electrical returns service for John Lewis. This is the previous year with M&S returns operations, River Island, Edinburgh a box-in-box solution where our Technical Services operation is located Woollen Mill and Crosswater in the UK; ASOS returns in Poland; and in Clipper’s ADC depot in Northampton, where we perform the rest of Urban Outfitters and Superdry in the Clicklink joint venture. our returns and pre-retail activities for John Lewis. These services now New contracts went live in the year with boohoo.com subsidiary PrettyLittleThing, Ginger Ray, Levi Strauss, Vestel, the Mountain include RFID tagging and ensuring JL’s inbound shipments from suppliers are compliant with the requirements of their automated DC. Warehouse brand Neon Sheep, Tech Data and Sports Direct in We have implemented an automated and intelligent autoboxing the UK, and with Mountain Warehouse itself in Poland. solution for Wilko to improve productivity and reduce reliance Further details of the above contract wins can be found in the Operating and Financial Review on pages 30 to 35. on labour. on labour. We are trialling a goods-to-person robotic solution for Superdry in our Burton warehouse, also with the intention of reducing reliance Multiple supplier deliveries into stores is inefficient for retailers. We have introduced a John Lewis supplier consolidation programme which leverages on the existing Clicklink service, thereby reducing cost to the retailer whilst also reducing inefficiency at a store level. In the last week of the financial year, we commenced a new NDC outlets operation for M&S, adding another service to the growing M&S relationship. Brexit has presented additional warehousing and labelling challenges to certain of our customers, particularly those engaged in tobacco- related activities. We have extended our service offerings in this area to several customers. Further details of the above projects can be found in the Operating and Financial Review on pages 30 to 35. What’s next? New contracts have been secured which will commence in the year to We are developing collaborative trilateral solutions between various of 30 April 2020, including with Shop Direct and Amara Living. our Clicklink customers. These collaborations will allow the customers For Shop Direct, we shall be performing returns services across fashion, non-fashion and electrical goods, and pre-retail services which will market space. to mutually benefit from opportunities in the Click and Collect facilitate the product flow into Shop Direct’s new automated DC. Clipper is working on other mechanisation/semi-automation projects For Amara Living, we will be preforming e-commerce activities, storage and returns processing services out of Northampton, UK. Clipper has an extensive potential customer pipeline and will continue to work with these prospects to secure further new contract wins. for various existing customers and is developing a customer-agnostic returns operation for both existing and new customers. Clipper will continue to innovate and develop solutions for the problems that retailers face in the ever-changing retail environment. Develop new, complementary products and services Continue European expansion Explore acquisition opportunities Through development of Clipper’s operations in Germany and Poland, which consist of retail logistics and transport solutions with a significant and growing element of e-fulfilment and returns management. By utilising its existing expertise in e-fulfilment in the more developed UK online retail market, to assist both mainland European retailers to move online, and UK retailers to expand into Europe – the latter further underpinned by Clipper’s strong customer relationships and reputation with UK retailers (both pure-play e-tailers and multi-channel high street retailers). By considering further acquisitions which are considered value- enhancing to the Group’s shareholders through market penetration and/or service lines and where the Group can use its existing expertise, implementation and delivery platform, scale and reach to generate synergies and increase profitability. By considering bolt-on acquisitions which provide a platform for it to take its core technical expertise into new, adjacent markets. Full year-effect and improved activity levels from the Technical Services activities in Germany, leveraging existing customers with additional service lines. Whilst we have evaluated several potential acquisition targets in the year, we decided that none were sufficiently in line with Clipper’s strategic requirements at this time. The contractual scope of our Polish operation for Westwing was extended in the year, significantly increasing the amount of work we are performing for them. We commenced a new stores operation for Mountain Warehouse in newly-committed warehouse space in a building adjacent to our existing Poznan´ operations. Mountain Warehouse also owns the Neon Sheep brand, for whom we commenced a UK operation in the year, demonstrating further our cross-border credentials for multi- national customers. Further details of the above contract wins can be found in the Operating and Financial Review on pages 30 to 35. The Mountain Warehouse operation in Poland is set to further expand in the year ending 30 April 2020 with the introduction of a new e-com operation. In the medium term, Clipper will continue to seek opportunities with new and existing customers to provide services in Germany, Poland and Ireland, and will consider other strategic mainland European locations for potential expansion. Clipper will continue to explore acquisition opportunities that enhance shareholder value. 19 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Risk Management The Group has a formal risk identification and management process. This ensures that risks are properly identified, prioritised, evaluated and mitigated, in order that the Group can achieve its strategic objectives and enjoy long-term success. Risk management process The Board is ultimately responsible for managing risk across the Group. The Board delegates responsibility for the regular review of the Group’s risk management system to the Audit Committee and Senior Management Team (“SMT”). Risks are formally reviewed regularly and risk registers are updated throughout the year. The SMT has carried out a robust and detailed assessment of the principal risks facing the Group. Principal risks are identified through an evaluation of likelihood of occurrence and potential impact. The SMT 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. The Group adopts the following process: Identify risk Identify key risks by category (including changes since the last review) Rate risk Rate each risk (by evaluating and assigning a score to each risk) Identify risk mitigation Identify mitigating actions required for each risk Execute risk mitigation Execute agreed risk mitigation and process improvements Review, monitor and report risk management process Review and monitor risk management process, and report to Board and Audit Committee Principal Risks and Uncertainties The Group has identified the following key risks through its risk management process: 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 or delayed 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. Clipper has developed effective project management and governance techniques and works closely with customers, using highly trained and experienced staff, to ensure successful project delivery. All projects are reviewed and evaluated on a weekly basis by the relevant SMT members. Independent brand health reviews are undertaken regularly to monitor customer perception of, and satisfaction with, Clipper. People Failure to recruit, develop and retain key staff may prevent the Group from delivering its objectives. The Group offers comprehensive training and experiential learning which includes development, customer relationship and leadership training. The Group keeps in close contact with employees and has a flat management structure. i c g e t a r t S The Group 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. Exit interviews are conducted to ensure that learnings from key staff departures can be incorporated into the future retention strategy. 20 Clipper Logistics plc l a n o i t a r e p O Risk Mitigation Loss of operational delivery The Group may not operate/be able to operate efficiently, thereby harming the Group’s relationships with customers. Such a situation could result, for example, from reduced management focus on day-to-day operations during periods of major project activity or due to the loss of operator licences which are required to run our transport operations. Health and 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 result in significant penalties, reputational damage and/or legal liabilities. Employees We rely heavily on agency labour, particularly in peak activity periods. Continued uncertainty around the free movement of labour ahead of Britain’s exit from the European Union could severely compromise the provision of resource available to UK logistics. Additionally, competition for labour in the vicinity of our depots can increase the demands on the local labour pool, reducing the availability of labour and pushing up the cost. Failure to maintain and enhance customer relationships Failure to maintain and enhance customer relationships through substandard operational delivery or more attractive propositions from our competitors may lead to contracts not being renewed, and/or may prevent the Group from winning new work with existing customers. Dedicated start-up and project teams are used to minimise disruption to the operation during periods of major project activity. Contractual Key Performance Indicators (“KPIs”) are reviewed regularly to ensure operational effectiveness at all times. We ensure compliance with operator licence requirements through our standard operating procedures and driver policies. These include: periodic driver CPC (certificate of professional competence) training, tachometer audits, random drug testing and regular internal transport audits. The Group has a dedicated team of health and safety professionals who maintain, audit and review detailed health and safety procedures and processes. The team reports to 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. Clipper and its customers are investing in automation to reduce reliance on manual labour. In order to maximise the labour pool, Clipper encourages local links with schools, colleges, universities and communities, including through its Fresh Start initiative, has family friendly policies and is supporting industry-led initiatives to encourage wider interest in logistics. Clipper has consciously reduced its reliance on agency labour in the year by increasing its permanent headcount. This added job security reduces the temptation for workers to move from Clipper to another role for a slightly higher hourly rate. Clipper constantly benchmarks wages and benefits against other employers in the local area to ensure remuneration packages remain competitive. Wherever practical, we try to open new sites in areas of lower employment. Any exposure to increased costs is largely mitigated by open book contract mechanisms. The Group holds formal monthly reviews with key customers as well as maintaining frequent close informal contact with customers and potential customers. This enables corrective action to be taken quickly in response to customer feedback and ensures that we remain in touch with what our competitors are doing. We strive to continually improve through sharing learnings across the business, particularly in the aftermath of new project implementations. In addition, regular brand health reviews are carried out. These give customers the opportunity to comment anonymously on any aspect of the customer/company relationship and service delivery, and how we compare to our competitors. The Group can then take corrective action, as applicable. Members of the SMT attend and speak at industry events and contribute to various industry publications to ensure we continue to be perceived as a thought leader to the retail market. 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. Regular safety audits and inspections seek to limit this risk. Where appropriate, remedial action is taken. In the event of a serious incident, each site has a business continuity plan which would come into immediate operation. Failure of IT system or infrastructure Any significant failure, inefficiency or breakdown of our IT systems or infrastructure would seriously impair our ability to deliver operationally and would put contract renewals at risk. 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, including penetration testing. 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. We implemented a new accounting system and a new HR/payroll/ time and attendance system in the prior year, readying the business for its next stage of growth and replacing previous systems. 21 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019d e u n i t n o c l a n o i t a r e p O e c n a i l p m o C & l i a c n a n i F , l a g e L / Strategic Report Principal Risks and Uncertainties continued Risk Mitigation Poor cost control on contracts Inability to control costs on: / closed book contracts adversely impacts our profitability; and / open book contracts adversely affects our reputation with customers. Weekly and monthly management accounts allow Clipper to quickly identify areas where costs may be trending out of control. Ahead of submission, tenders are reviewed by senior members of the operational and finance teams to ensure that targeted productivities and costs can be achieved. Post-implementation reviews and knowledge sharing across sites ensures that we learn from any mistakes. Brexit impact on customer behaviour Amid continued uncertainty ahead of the UK’s proposed exit from the European Union, our customers may strategically opt to reduce investment in the UK or to move operations out of the UK. Our presence in mainland Europe offers our customers a ready-made solution should customers wish to relocate their operations out of the UK. Our expertise in running multi-use sites and Clipper’s investment in a multi-user IT system reduces the initial outlay required by our customers for major capital investments. Financial resilience of customers Difficult UK retail market conditions in 2018 and 2019 have seen more retailers in financial distress. As well as the increased bad debt risk this brings to Clipper, there is also an increased risk of Clipper being burdened with onerous vehicle and property leases. Clipper benefits from a right of lien over its customers’ inventory, largely mitigating Clipper from any bad debt risk. Clipper has historically been able to fill vacant warehouse space quickly. As such, Clipper’s exposure to onerous space costs in any period following a customer default is limited. Clipper’s commercial vehicles division means Clipper has a ready made route to market for vehicle disposals, meaning that any onerous leases can be largely mitigated in the event of customer default. Risk Mitigation Legal and regulatory The Group operates in an increasingly regulated market. As the Group continues its expansion (particularly in Europe), exposure to regulatory and legal risk will increase. The introduction into law of GDPR on 25 May 2018 brings additional compliance risks for the Group. Government policy The National Living Wage (“NLW”) in the UK increases the costs of labour annually. Failure to recover these cost increases could adversely affect the profitability of the Group. Financial liquidity Inadequate cash resources could leave the Group unable to fund its growth plans, thus affecting future financial performance. The Group utilises internal and external experts where appropriate, supported by its Group General Counsel, 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. System penetration testing is undertaken by the Group to check the resilience of its IT systems. A GDPR Steering Committee was created to ensure all parts of the Group are GDPR compliant. 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. Contracts are updated to reflect the new compliance regime and appropriate limitations of liability to customers negotiated where possible. The Group’s greatest exposure to the UK NLW is in UK logistics, where we attract a higher proportion of workers at or near the current NLW level. In UK logistics, 64% of activity (by revenue) is on an open book basis, meaning such upward cost pricing pressures are passed straight through to the customer. Many of our closed book and minimum volume guarantee customer contracts include price escalators for regulatory changes and so these costs can also be passed onto customers. The Group continually assesses its funding requirements in the context of its existing operations and growth plans. In the year ended 30 April 2018, the Group entered into increased facilities with its bank to ensure that expected future growth plans can be funded within these increased facilities, and again in the current year. The current facilities run until 29 January 2021. The Group will continue to undertake reviews of funding requirements as its growth plans evolve. 22 Clipper Logistics plc i t d e u n n o c e c n a i l p m o C & l i a c n a n i F , l a g e L Risk Mitigation Insurance risk Certain risks may be uninsured or underinsured, whether arising from unforeseen gaps in insurance coverage or from conscious decisions to self-insure. Under-insurance could leave the Group with significant financial exposure. Employment liabilities Significant employment liabilities may be inherited on both acquisition of new businesses or on the winning of new contracts or from poorly-executed Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) processes. A detailed review of insurance coverage and gaps is undertaken at least once annually with expert guidance provided by our insurance broker. Members of the SMT responsible for insurance remain in regular contact with the insurance broker and regularly attend insurance training courses and seminars. Known gaps in insurance coverage are regularly presented and discussed at subsidiary board and Group Board levels, and additional insurance cover is purchased where appropriate. All senior human resources managers are recruited with relevant experience and receive an appropriate level of training on TUPE matters. Each TUPE project is given an internal project lead and project updates are regularly provided to the SMT. External legal advice is sought and expert interim staff is resourced where necessary. Our acquisition due diligence always includes a human resources element, whether conducted by external advisors or by internal staff with an appropriate level of expertise. Acquisition agreements include seller indemnities for such liabilities. Fraud risk Major fraud, including the risks posed by 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. Viability Statement In accordance with provision C.2.2 of the 2016 revision of the UK Corporate Governance Code (the “Code”), the Directors have assessed the prospect of the Company and the Group over a longer period than the 12 months required by the ‘Going Concern’ principle. Whilst the Board has no reason to believe the Group will not be viable over a longer period, the period over which the Board considers it appropriate to form a reasonable expectation as to the Group’s longer- term viability is the three year period to 30 April 2022. This period reflects the period used for the Group’s business plans – and the typical length of a customer contract – and has been selected because it gives management and the Board sufficient, realistic visibility on the future in the context of the industry and market environment. Relevant sensitivities have been used within the business plan to support the Group’s long term viability. The Board has considered whether it is aware of any specific relevant factors beyond the three year horizon and confirmed that there are none. The Board’s assessment has been made with reference to the resilience of the Group and its historical ability to deliver strong operational cash flows, the Group’s robust balance sheet, the Group’s current strategy, the Board’s attitude to risk, and the principal risks documented in the Strategic Report. The starting point for the Board’s review was the annual strategic planning process, which results in business plans for the next three financial years. These plans are subjected to risk and sensitivity analysis. The assessment considers the potential impacts these risks would have under severe but plausible scenarios on the Group’s business model, the Group’s solvency and liquidity, compliance with covenants, likely availability to the business of future bank facilities and other key financial ratios. Discussions will be held with our banks regarding renewal of facilities early in the year ending 30 April 2020. The Board considers that the Group’s broad spread of customers across independent market sectors, the majority of which are underpinned by long-term agreements with minimum volume guarantees or open book terms, acts significantly to mitigate the impact any of these risks might have on the Group. Based on this assessment, the Directors confirm that they have a reasonable expectation that the Company and the Group will be able to continue in operation and meet all their liabilities as they fall due up to 30 April 2022. 23 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019 / Strategic Report Our People The recruitment, retention and development of people are fundamental to the ongoing success and growth strategy of the Group. 46 Number of locations 24 Clipper Logistics plc 6,698 Number of employees Strategy Our recruitment strategy aims to ensure we can support Clipper’s growth plans through hiring the best people for our business; first time, every time. We will achieve this through four main avenues: People – improving and increasing the channels by which potential candidates have access to Clipper. Process – implementing uniform and transparent processes across the business to ensure we are all aligned and working together toward a common goal. Systems – investing in and implementing new technology to facilitate our ability to achieve our recruitment goals. Collaboration – internal recruitment is a new concept for Clipper. Working together, feedback and communication are key to its success. 25 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Our People continued Our Human Resources (“HR”) agenda continues to develop in line with the needs of the business and we have a well-defined people strategy that ensures we remain properly resourced in all areas, whilst seeking to develop talent and enrich career opportunities. Clipper directly employs 6,698 people across Europe. We have comprehensive HR policies in place to protect and promote employee welfare and we are committed to supporting all human rights in our business operations as well as in our relationships with our customers, suppliers and other stakeholders. Our approach To underpin our HR strategy, we have developed a comprehensive Group- wide competency framework, which defines, at all levels from apprentices up to Board level, expected levels of behaviour and outputs. This framework brings to life our values – Agility, Ability and Credibility – and provides the road- map for everyone to succeed in our organisation. Our recruitment, learning and development, succession planning and retention strategies are all built around the competency framework. Employee engagement Reward and recognition are fundamental to Clipper. Our reward strategy ensures that everyone is properly remunerated for the role they undertake, and we proactively benchmark our terms and conditions across the wider logistics industry sector. All employees with six months’ service or more are invited to participate in each iteration of the Sharesave Plan (see page 95). Open and regular communication across the Group remains high on the HR agenda as we continue to seek new and innovative ways of ensuring everyone remains up to date with what is happening. Increasingly, technology is playing a greater part in our communication strategy and, in 2018, we launched a brand new Group wide intranet to further improve communication channels within the Group. The use of social media is becoming ever-more popular and is used both internally and externally. In 2019, we also launched Perkbox, an all-employee platform for accessing discounts from well-known brands, which aims to reward, incentivise and engage employees at all levels within the Group and to improve overall employee experience. 26 To provide focus and drive a ‘one-team’ dynamic, the Team Clipper programme has been developed. Loyalty of service is a cornerstone of our people strategy and we have a well-defined award policy that recognises those who have given long and loyal service to our organisation. Clipper’s successful Fresh Start programme has been recognised by the industry through multiple Corporate social Responsibility (“CSR”) and innovation awards. We encourage team working by involving employees in work-based project teams, open days and inter- site competitions, as well as organised themed events on special occasions. Fresh Start programme Clipper remains committed to the equality of employment for everyone and recruits, develops, promotes and supports people regardless of their characteristics. To further enhance this commitment, we continue to drive our Fresh Start programme, which brings together a number of charity partners who represent different minority groups – Mencap, Reed in Partnership, Scope and Tempus Novo to name but a few. Fresh Start was rolled out across all our sites in 2018 with the aim of providing work and career opportunities for those who may otherwise have challenges entering the job market. Over the last 12 months, we have employed 500 people from various backgrounds through Fresh Start. 20% of those employed were rehabilitated offenders. As at 30 April 2019, the retention rate of Fresh Start employees was 92%. As part of our commitment to Fresh Start, we have taken several steps to ensure the success of the programme, including: / achieving Disability Confident Employer status; / auditing sites to ensure we are fit for purpose; / nominating Fresh Start champions for each site to be both a safe point of contact and an ambassador for the scheme; / mental health first aiders trained for each site; and / offering flexible and alternative shift patterns to increase access to employment. People development Learning and development are major components of our HR strategy. Underpinning our competency framework is a whole suite of people development programmes, from technical training through to management and senior executive development. In addition to comprehensive technical training, we have a full range of NVQ training, supported by the Apprenticeship programme. For middle management, our Emerging Leaders programme is an 18-month programme which engages people in a wide range of people management strategies, all aligned to the workplace. Similarly, our Agile Leaders programme for senior managers is designed to develop the talents and capabilities of people as leaders for the future. To further enhance our senior executives, in 2019 we will be offering the opportunity to complete an MBA qualification. Team Clipper To provide focus and drive a ‘one-team’ dynamic, the Team Clipper cultural programme has been developed aimed at driving performance and creating an internal branding and dialogue that enable everyone at all levels to understand their contribution to the success of the business. This initiative is supported by a number of cultural programmes, performance development reviews, the competency framework and a whole suite of programmes designed to augment continuous improvement, communication and engagement. Driver training With our ever-growing vehicle fleet, the continuous development and improvement of driver skills is paramount. Our dedicated team of driver trainers ensures that every one of our drivers Clipper Logistics plc i S t r a t e g c R e p o r t G o v e r n a n c e G r o u p F i n a n c a i l S t a t e m e n t s C o m p a n y F i n a n c a i l S t a t e m e n t s Gender Diversity Board Total 6 Male (100%) Other senior management Total 14 Male (86%) Female (14%) All employees Total 6,698 Male (57%) Female (43%) is fully trained and undertakes regular professional driver update training. Our dedicated driver training simulator has significantly enhanced driver performance and we continue to develop driver competence through classroom based and on-road learning. Schools and universities We actively promote both Clipper and the logistics sector in schools, colleges and universities and are working with the education bodies to ensure the sector is represented on the curriculum. Our Graduate Training programme continues to go from strength to strength with a number of graduates in various disciplines recruited. In 2018, we employed 17 degree apprentices, with a further 15 expected in 2019, all funded through the Apprenticeship Levy. In partnership with Sheffield Hallam University, we have developed a bespoke management degree tailored to the specific needs of our organisation, which forms part of our Management Apprenticeship programme. Current graduates also work towards a qualification in leadership and management, to further enhance the technical training graduates receive. As part of our commitment to engage with schools, we have taken ‘Business on the Move’ into both primary and secondary schools. This educational supply chain game is a versatile learning resource which helps to build interest in logistics at an early age and change the shape of logistics recruitment in the long term. Equal opportunities The Group is committed to the fair and equal treatment of everyone who works with and for us. Supported by training, policies and our five-point code of behaviour, we aim to ensure that no employee or worker is discriminated against, directly or indirectly, on the grounds of colour, race, ethnic and national origins, sexual orientation or gender, marital status, disability, religion or belief, or on the grounds of age. These principles are included in our staff handbook, induction training and management programme and their impact is reflected in our truly diverse workforce. We have comprehensive policies which embrace the challenges of modern-day living and support work/life balance. 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. As part of our commitment, we engage an independent body to audit our processes and systems to ensure we meet ethical standards. For the year ended 30 April 2019, they confirmed such processes and systems were compliant. Case study Fresh Start As Clipper Logistics continues to grow, the challenge for high quality, well-performing labour resource will be an increasing challenge to a sector that often finds resourcing difficult. On top of this, we take our CSR responsibilities seriously and we feel there is much a business the size of Clipper can do to support those who may otherwise be overlooked for, or indeed excluded from, employment opportunities. From the culmination of these two drivers our “Fresh Start” initiative was born. In July 2018 we met John (not his real name). John had been struck down with cancer three times over the past 10 years, and had struggled to gain employment as a result of the length of time he had been out of work. Working closely with Reed In Partnership, John undertook an alternative interviewing process and received pre-employment training and mentoring. We offered John a secure job at our new PrettyLittleThing operation through Clipper’s Fresh Start programme, and within three weeks his performance was so good that we promoted him to Team Leader. 27 Annual Report and Accounts 2019 / Strategic Report Sustainability The Group’s framework of policies and guidelines sets clear standards to ensure that we conduct our business ethically and responsibly. Operating in a socially responsible manner is important to us and our stakeholders and is central to our values-based culture. The environment We are committed to limiting the impact that our operations have on the environment, and we are doing this by: / sourcing all of our UK Logistics electricity requirements from sustainable sources; / adhering to relevant legislation and regulations, working to respected codes of practice, and regularly reviewing and improving how we work; / continuing with our carbon management project to reduce energy consumption and emissions of greenhouse gases (“GHGs”) from our warehouses; / investigating fuel use, route planning and optimum vehicle design, and introducing a study of business travel to become more efficient and minimise emissions; / considering the best use of raw materials and using recycled/ recyclable products where possible; / assessing and reducing water usage through efficient technology and awareness; / continuing to minimise waste through compacting and material reuse and recycling; / promoting environmental awareness at all levels of the business and encouraging appropriate actions by all staff; and / liaising with suppliers, customers and contractors to improve environmental management at all levels of the supply chain. Greenhouse gas emissions The Group records energy and fuel use for all areas of the business, based on invoices received for diesel fuel, gas oil, electricity and natural gas. Fuel used for business travel in company vehicles is also included. The Group uses the average monthly price per litre to convert the diesel fuel, heating oil and vehicle fuel costs into litres of fuel used. The kWh figures for gas and electricity used, and the figures for litres of each fuel type used, are then converted into tonnes of CO2 equivalent (“tCO2 e”) using the relevant DEFRA conversion factors. In the year ended 30 April 2019, Scope 1 emissions increased from the prior year, driven by an increase in the warehouse space occupied by the Group (which led to higher gas usage), and an increase in the transport activities within the UK logistics business (which increased the amount of diesel fuel used). However, total emissions per £ million of revenue fell by 7.3% as a result of ongoing fuel efficiency programmes and increased utilisation of space within our warehouses, which meant that revenue increased without a proportionate increase in emissions. Scope 2 emissions have increased overall due to higher kWh usage; the UK electricity factor is prone to fluctuate from year to year as the fuel mix consumed in UK power stations (and auto-generators) and the proportion of net imported electricity changes. Under the most recent update, the tCO2e factor has decreased due to a decrease in coal generation and an increase mainly in natural gas and, to a much lower extent, renewable generation. The table below shows a summary of GHG emissions for the Group: Emissions (tCO2e) Scope 1 Scope 2 30 April 2019 30 April 2018 33,535 32,070 7,994 6,866 Total emissions 41,529 38,936 Emissions per £m of revenue 90.2 97.3 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. Waste recycling The Group carefully considers which raw materials to use and uses recycled/ recyclable products where applicable. Waste is sorted into plastics, paper/ cardboard, wood and metal. It is recycled, reused or compacted on site. Our expanding returns operations sort, reprocess, repair or recycle our clients’ products which are returned from their customers. These processes help to reduce the amount of goods which may otherwise go to landfill. Solar power Through our commitment to reduce our energy consumption and GHG emissions, we now have solar panels installed at four of our UK sites. 28 Clipper Logistics plc Communities As a responsible business, we consider ourselves an integral part of the communities in which we operate. Part of this responsibility sees us, where possible, encouraging a positive impact and facilitating local initiatives in the following ways: / We support a range of charities, including those that maintain natural environments for animals and the safety of local habitats. / We provide logistical support for relief aid programmes to vulnerable areas. / We support local communities at site level through management and staff choice, e.g. providing kit to a number of amateur sports teams. / We strive to be neighbourly wherever we operate. / We recruit from within local areas and actively promote the business as an employer of choice. / We encourage and support fundraising by our employees. / We will continue to develop our CSR and environmental management processes to improve and enhance these areas of our business activities. 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 and congested city centres. To further support this initiative, we currently use two electric 7.5 tonne vehicles within our fleet. We also perform store consolidation activities for John Lewis suppliers through our Clicklink joint venture, reducing road miles. Telematics The vast majority of the commercial fleet has telematics fitted. The initial reason is road safety; however, when drivers drive more conscientiously we have seen a 10% reduction in fuel use. Longer semi-trailers We are currently utilising a number of longer semi-trailers in our trunking operations. These trailers are double decked and two metres longer than our current trailers. These will increase capacity per trailer and reduce the amount of trunks that we will need, therefore reducing costs in the operation and reducing our carbon footprint. Gas-powered vehicles During 2018, we have taken on ten gas vehicles which produce less harmful emissions and further our commitment to limit the impact on the environment. CSR policy The Group recognises the importance of environmental protection and is committed to conducting business ethically, responsibly and in compliance with laws, regulations and codes of practice applicable to our business activities. The CSR and related policies are reviewed and amended where appropriate. We actively promote the Ethical Trading Initiative Base Code and undertake independent auditing of our facilities and labour providers. Our Fresh Start programme will also ensure that we will actively promote the recruitment, engagement, development and succession of people who may otherwise face barriers to entry into employment. Anti-slavery and human trafficking We are committed to ensuring that there is no slavery or human trafficking in our supply chains or in any part of our business. Our Anti-Slavery and Human Trafficking policy reflects our commitment to acting ethically and with integrity in all our business relationships and to implementing and enforcing effective systems and controls to ensure slavery and human trafficking are not taking place anywhere in our supply chains. We believe that, in conjunction with the rigorous policies implemented by our clients and suppliers, we can drive out any aspects of human trafficking and slavery from our supply chains. Clipper places paramount importance on only working with suppliers who treat their obligations regarding modern slavery with the importance that Clipper does. We will not work with any organisation within our supply chain that is unable to demonstrate a corresponding commitment to this, irrespective of whether they are required to do so statutorily or otherwise. Where possible, we build long-standing relationships with our customers and major suppliers, making clear our expectations of business behaviour. All suppliers are notified of Clipper’s Anti-Slavery and Human Trafficking policy and are expected to comply with it. Clipper educates its employees regarding the types of factors which can indicate whether any worker (permanent or temporary) in Clipper’s supply chain may be subject to undue influence. In doing so, Clipper actively encourages employees to report any suspicious activity to the Group Human Resources Director, acting in his capacity as Compliance Manager. Clipper conducts rigorous checks to verify the identity of each worker and their right to work in the UK. Clipper audits its agency suppliers against legislative compliance, including compliance with the Modern Slavery Act 2015. It further complies with audits conducted by its customers. The Board believes that driving out slavery in any form from its supply chains is fundamental to the aims of Clipper. 29 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Operating and Financial Review Group performance for the year ended 30 April 2019 The Group continued to make good progress in the financial year ended 30 April 2019. Group revenue grew by 15.0% to £460.2 million. Group EBIT for the year was £20.2 million compared to £20.9 million in the prior year. However, EBIT before Property-related income1 increased by 18.0% to £17.1 million, with revenue and EBIT growth in e-fulfilment & returns management services. Revenue growth was very strong in e-fulfilment & returns management services, where revenue of £233.9 million was 46.8% ahead of the previous year, but we are also pleased that non e-fulfilment revenues grew by 4.4% to £145.3 million. EBIT from value-added logistics services (excluding Property-related income) increased by 22.8% to £18.0 million, however this was partially offset by performance in the commercial vehicles segment, where EBIT of £1.1m was £1.4m lower than in the previous year. Property-related income was £3.1 million in the year to 30 April 2019, £3.3 million lower than the prior year. Consequently, total EBIT was 3.1% lower than in the previous year at £20.2m. The Group entered into a series of contracts with a customer towards the end of the financial year ended 30 April 2019. On consideration of the various agreements it was determined that these agreements should be accounted for as a business combination under IFRS 3. Whether the business combination should be accounted for in the year ended 30 April 2019 or in the year ending 30 April 2020 was debated at length during the audit process. However, on balance it was determined that the business combination should be recognised in the year ending 30 April 2020. The provisional accounting for the business combination is disclosed in note 29 and any negative goodwill, currently estimated at £3.0 million, will be recognised within e-fulfilment & returns management services’ operating profit in the year ending 30 April 2020. 1. “Property-related income” comprises profit from property-related advisory services of £3,100,000 (2018: £4.200,000) and £nil (2018: £2,151,000) of profit on disposal of a freehold property. Group revenue E-fulfilment & returns management services Non e-fulfilment logistics Total value-added logistics services Commercial vehicles Inter-segment sales Group revenue Year ended 30 April 2019 £m Year ended 30 April 2018 £m 233.9 145.3 379.2 82.6 (1.5) 460.2 159.4 139.1 298.5 103.6 (2.0) 400.1 % change +46.8% +4.4% +27.0% -20.3% +15.0% Group revenue increased by 15.0% to £460.2 million, with strong growth of 27.0% in value-added logistics services revenues being partly offset by a decline in commercial vehicles revenues. Group EBIT E-fulfilment & returns management services Non e-fulfilment logistics Central logistics overheads Total value-added logistics services Commercial vehicles Head office costs EBIT before Property-related income Property-related income Group EBIT Year ended 30 April 2019 £m Year ended 30 April 2018 £m 13.6 9.9 (5.5) 18.0 1.1 (2.0) 17.1 3.1 20.2 11.3 9.0 (5.7) 14.6 2.5 (2.6) 14.5 6.4 20.9 % change +20.1% +10.4% +22.8% -53.6% +18.0% -51.2% -3.1% Percentages are calculated on the underlying numbers as presented in the Group Financial Statements, not on the rounded figures in the tables above. 30 Clipper Logistics plc E-fulfilment & returns management services revenue growth was 46.8%, significantly outperforming growth in the wider UK market. E-fulfilment & returns management services include the receipt, warehousing, stock management, picking, packing and despatch of products on behalf of customers to support their online trading activities, as well as a range of ancillary support services including returns management, branded as Boomerang, under which returns of products are managed on behalf of retailers. This business activity also includes Click and Collect activities (through the Clicklink joint venture) and Technical Services. Revenues from e-fulfilment & returns management services increased by 46.8% from £159.4 million for the year ended 30 April 2018 to £233.9 million for the year ended 30 April 2019, with EBIT before Property-related income growing by 20.1% to £13.6 million. Property-related income was £nil in the year to 30 April 2019, compared to £0.6 million in the previous year. Including the impact of reduced Property-related income EBIT was 14.2% higher than in the previous year. This growth continues the double digit percentage EBIT growth of prior years, and delivers against our stated objective of being a thought leader and a market leader in the provision of value-added services across the e-fulfilment sector. EBIT is the primary KPI by which the management team assesses corporate performance. EBIT is assessed against Board approved budgets. Another KPI we have introduced in the year is EBIT before Property-related income. The prior year included significant property-related advisory revenues and one-off profits on disposal of a freehold property. The new metric aids comparability of year-on-year profitability. A further KPI is net debt, which is discussed further below. EBIT margin (%) is not considered by the Directors to be a key metric since the high proportion of open book and minimum volume guarantee contracts within the UK logistics division distorts reported margins. This is due to an element of management fees on certain contracts being relatively fixed in the short term, so that an increase in revenue in periods of increased activity will not necessarily give rise to a proportionate increase in profit, resulting in lower reported margins. Conversely, in periods of reduced activity levels, reported margins would typically increase. Similarly, revenue derived from minimum volume guarantee contracts is fixed at a minimum level, so that a shortfall in activity levels would give rise to a lower cost base and a higher reported margin. In addition, within the commercial vehicles segment, the level of high value, relatively low margin new vehicle sales also distorts reported margins. Accordingly, EBIT is a more relevant measure of financial performance than EBIT margin (%). Segmental trading overview Clipper is managed through two distinct operating segments, being value-added logistics services and commercial vehicles. The value- added logistics services segment is further subdivided into two business activities, being e-fulfilment & returns management services and non e-fulfilment logistics. Value added logistics services Year ended 30 April 2019 £m Year ended 30 April 2018 £m % change Revenue 379.2 298.5 +27.0% EBIT* Property- related income 18.0 14.6 +22.8% 3.1 6.4 -51.2% EBIT 21.1 21.0 +0.4% EBIT* represents EBIT excluding Property- related income. Within the value-added logistics services segment, Group revenue benefited from the full-year impact of operations commenced during the year ended 30 April 2018, volume growth and extension of services on existing contracts, the part-year impact of operations commenced during the year ended 30 April 2019, and further contributions from property-related advisory services. These revenue items had a positive impact on EBIT. In addition, EBIT also benefited from improved Clicklink results, particularly throughout the second half of the year as sales price increases took effect. E-fulfilment & returns management services Year ended 30 April 2019 £m Year ended 30 April 2018 £m % change Revenue 233.9 159.4 +46.8% EBIT* Property- related income 13.6 11.3 +20.1% – 0.6 -100.0% EBIT 13.6 11.9 +14.2% EBIT* represents EBIT excluding Property- related income. 31 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Operating and Financial Review continued Group revenue (2018: £400m) +15.0% £460m Performance in e-fulfilment & returns management services benefited from: / the part-year impact of operations commenced during the year ended 30 April 2019, including: boohoo.com subsidiary PrettyLittleThing, Ginger Ray, Levi Strauss, Vestel and Tech Data in the UK, and with Mountain Warehouse in Poland. The impact of these activities will not be fully realised until the year ending 30 April 2020; / the full-year impact of operations commenced during the year ended 30 April 2018, including: our M&S returns operations, Halfords and River Island in the UK; and ASOS returns in Poland; and / volume growth and extension of services on existing contracts, including with ASOS, Wilko, Zara, Inditex and Browns in the UK, in part driven by particularly strong organic growth in the UK e-fulfilment market due to the continuing shift in retail trends towards online trading, and European growth in logistics services for Westwing, Smiffy’s and s.Oliver, and technical returns services for Amazon. Whilst we experienced some organic revenue decline with certain of our customers, overall revenue growth was strong. The strong net revenue growth translated into significant growth in EBIT and improved results from the Clicklink operation, driven by the full-year impact of Superdry and Urban Outfitters activity, and a part- year impact of price increases with major customers. However, the favourable impact of this was partly diluted because of (i) vacant warehouse space remaining underutilised and (ii) productivity inefficiencies on a new warehouse management system following the migration of one of our operations between sites. Late in the financial year under review and into the early months of the new financial year, we have streamlined the Clicklink under-the-roof operation through labour sharing initiatives with one of our Northampton depots, significantly reducing the cost base, the benefits of which will be seen in the current financial year. Since the year end, we have commenced activities with new customers including Shop Direct and Simba Sleep, we have secured a contract with Amara Living and we shall be commencing the Nutmeg online operation for Morrisons imminently. However, we have received notice that Whistles and Go Outdoors will not be renewing their contracts at the end of their current terms in the year ending 30 April 2020, both of which are due to the services we provide being combined into other operations. We have also formally notified a customer of our intention not to renew a major current contract when it reaches the end of its current term in March 2020; the effect of this will be immediately earnings-enhancing. Non e-fulfilment logistics Year ended 30 April 2019 £m Year ended 30 April 2018 £m % change Revenue 145.3 139.1 +4.4% EBIT* Property- related income EBIT 9.9 9.0 +10.4% 3.1 13.0 5.8 -46.3% 14.8 -11.8% EBIT* represents EBIT excluding Property- related income. Non e-fulfilment logistics operations include receipt of inbound product, warehousing, picking, packing and distribution of products on behalf of customers in traditional bricks and mortar retail. Within this business activity, the Group handles high value products, including tobacco, alcohol and designer clothing, and also undertakes traditional retail support services including processing, storage and distribution of products, particularly fashion, to high street retailers as well as property-related advisory services linked to optimising the Group’s warehousing arrangements. Revenue from non e-fulfilment operations grew by 4.4% for the year ended 30 April 2019, from £139.1 million to £145.3 million, a positive performance given the underlying market headwinds in this sector. EBIT excluding Property-related income increased by 10.4% to £9.9 million in the year ended 30 April 2019. Property-related income reduced from £5.8 million to £3.1 million, resulting in total EBIT from this activity reducing by 11.8% to £13.0 million. The following factors contributed positively to the revenue growth: / the full-year effect of the activities commenced in the prior year with Crosswater and Edinburgh Woollen Mill; / organic volume growth and extensions to service offerings with existing customers, including Asda, Browns, Morrisons and New Look, although this was partly offset by some organic decline with certain other retail customers driven by high street market conditions and the loss of a significant product range from our M&S activities in Peterborough; and / part-year contributions from new activities commenced in the current year, including new activities for Halfords out of the new Crick warehouse, for Sports Direct out of various UK locations, for Levi Strauss out of Northampton, for Neon Sheep out of Milton Keynes and for Ginger Ray out of Harlow. Such activities will generate a full year of contribution in the year ending 30 April 2020. 32 Clipper Logistics plc The following factors had an adverse impact on revenue year-on-year: / part-year impacts from activities ceased in the year, including those operations we performed for M&S out of our Swadlincote depot and the loss of Bench following its insolvency. Certain other of our customers have also been through high profile financial distress as a direct result of the challenges facing the UK high street, but we have remained relatively insulated from any adverse financial impact due to our robust contractual protections; and / a lower contribution to revenue and EBIT from property-related advisory services, as noted above. Whilst revenue growth had a favourable impact on EBIT, costs on one specific closed book contract resulted in an adverse contribution to EBIT, as we were unable to recover the fixed costs of the operation through unit rates. This contract has been renegotiated since the year end to give more favourable terms to Clipper going forwards. Already in the year ending 30 April 2020, we have migrated our Halfords operation from our Daventry facility to our new Crick facility. Shortly before the year end, those activities we performed for C&A out of our Milton Keynes depot were discontinued. The operation involved pre-retail activity on supplies from the Far East for C&A’s mainland Europe customers. The customer has now taken UK out of this supply chain due to Brexit fears. In addition, activities for Pep&Co will cease shortly. Central logistics overheads Year ended 30 April 2019 £m Year ended 30 April 2018 £m % change EBIT (5.5) (5.7) Central logistics overheads include the costs of the directors of the logistics business, the project delivery and IT support teams, sales and marketing, accounting and finance, and human resources, that cannot be allocated in a meaningful way to business units. Central logistics overheads reduced by £0.2 million (2.4%), from £5.7 million in the year ended 30 April 2018 to £5.5 million in the year ended 30 April 2019. Whilst we have continued to invest in the operational support and back office functions of the business to accommodate revenue growth, thereby increasing the overhead base, this has been more than offset by a favourable impact of share based payment charges year-on- year of £0.9 million (see below), which contributed a credit of £0.4 million in the year ended 30 April 2019 having contributed a charge of £0.5 million in the prior year. Overall share based payment charges Share based payment credits totalling £1.2 million have been credited (2018: £1.2 million charged) primarily to central logistics overheads and head office costs (as appropriate) in respect of the Sharesave Plan and the Performance Share Plan (“PSP”) (see note 23 to the Group Financial Statements and page 48 of the Directors Remuneration Report for further information). Commercial vehicles Year ended 30 April 2019 £m Revenue EBIT 82.6 1.1 Year ended 30 April 2018 £m 103.6 2.5 % change -20.3% -53.6% The commercial vehicles business, Northern Commercials (Mirfield) Limited, operates Iveco and Fiat commercial vehicle dealerships from five dealership locations and has three sub-dealers. Main dealerships are located in Brighouse, Manchester, Northampton, Dunstable and Tonbridge. The former Brighton dealership has been recently closed. Thus, the business operates across the north of England and into Wales, through the Midlands, and into the South-east. The UK commercial vehicles market has been challenging in the year, with new vehicle registrations 1.7% down in calendar year 2018 compared to calendar year 2017. Much of the market decline is undoubtedly due to Brexit uncertainties, whilst concerns around urban clean air zones has also curbed sales. The overall market contraction has been exacerbated for Iveco dealers specifically because of Iveco’s own UK strategy which has focused on margin preservation for Iveco, rather than growing sales and maintaining market share. As a result, our commercial vehicles segment has been unable to be competitive when pitching against other marques and, as a result, sales have declined significantly. We expect to see a strategic shift from Iveco UK in the coming months following the May 2019 appointment of a new business director for UK and Ireland. Head office costs Year ended 30 April 2019 £m Year ended 30 April 2018 £m % change EBIT (2.0) (2.6) Head office costs represent the cost of certain Executive and Non-Executive Directors, plc compliance costs and the costs of the plc head office at Central Square, Leeds. Head office costs decreased by £0.6 million (22.9%), from £2.6 million in the year ended 30 April 2018 to £2.0 million in the year ended 30 April 2019. The year-on-year decrease in head office costs is largely due to the £1.4 million impact of share- based payments (see above) – which contributed a credit of £0.8 million in the year ended 30 April 2019 having contributed a charge of £0.6 million in the prior year – although this is partly offset by the increased investment we have made in the senior management team and certain costs relating to one- off events and projects. Overview of P&L performance for the year ended 30 April 2019 The revenue and EBIT performance of the Group are as discussed above. The other aspects of the Group income statement are discussed below. Net finance costs Net finance costs for the year ended 30 April 2019 increased by 8.4% to £2.1 million (2018: £2.0 million), the increase being attributable to the increased average net debt following increases in our average debtor levels due to the revenue growth in the value-added logistics services segment, certain overdue debtors and increased accrued income. 33 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Strategic Report Operating and Financial Review continued Profit Before Tax and Amortisation (“PBTA”) PBTA is defined as profit before income tax, before amortisation of intangible assets arising on consolidation. Whilst not considered a KPI by management, this measure is used by market analysts. PBTA was £18.1 million (=£16.9m PBT plus £1.2m amortisation of other intangible assets) for the year ended 30 April 2019, a decrease of 5.0% on the year ended 30 April 2018 PBTA of £19.1 million (=£18.0m PBT plus £1.1m amortisation of other intangible assets). Taxation The effective rate of taxation of 20.8% (2018: 20.5%) is higher than the average standard UK rate of corporation tax applicable in the year of 19.0% (2018: 19.0%) principally due to certain expenditure incurred which is disallowable for tax purposes and the higher effective rate of tax to which the German and Polish businesses are subject. Profit after tax The profit after tax for the year ended 30 April 2019 was £13.4 million (2018: £14.3 million), a decrease of 6.1%. Earnings per share Earnings per share were 13.2 pence for the year ended 30 April 2019 (2018: 14.2 pence). Adjusted to remove amortisation of intangible assets arising on consolidation, earnings per share were 14.4 pence (2018: 15.2 pence). Current trading and outlook In the year ending 30 April 2020, we expect revenue to benefit from: / the full-year effects of the new operations brought on line in the logistics segment in the year ended 30 April 2019. As noted previously, the Group commenced activities on a number of new contracts in the year ended 30 April 2019; / growth with existing customers, either organically – particularly with those in e-commerce who will benefit from market growth – or through new service lines for those customers; / growth from conversion of some of the opportunities on our new business pipeline, including in mainland Europe. There is a strong new business pipeline in the Group. These opportunities will be converted through a focus on retail specialisms and provision of cost-effective, value-added solutions. Some of these new business activities will not reach full-year run-rate until the year ending 30 April 2021 and beyond; / operations which have either recently commenced after the year end or other known new activities which are at various stages of planning. The annualised impact of these activities will not be fully delivered until the year ending 30 April 2021; and / a return to steady growth in the commercial vehicles business in the year ending 30 April 2020. In addition to the revenue impacts, we expect EBIT to benefit in the year ending April 2020 from: / those contracts that were entered into in the latter part of the year ended 30 April 2019 but which fall to be accounted for in the year to 30 April 2020; and / improved profitability from Clicklink, as the joint venture benefits from the full-year revenue impact of price increases with customers secured in November 2018 and the labour sharing initiatives implemented in Spring 2019. However, as a result of the net anticipated EBIT improvements elsewhere, we expect the share-based payment P&L impact to return to a charge in the year ending 30 April 2020 and beyond, compared to a credit in the year ended 30 April 2019, partially offsetting overall profit gains elsewhere. Whilst the business is still in a robust position, we remain mindful of the political and economic uncertainty facing our core markets. The adoption of the new leasing accounting standard (IFRS 16) in the year ending 30 April 2020 will significantly reduce the Group’s future operating lease charges, will significantly increase the Group’s future depreciation and finance costs, and will also affect the deferred tax charge / credit (see page 80). Balance sheet and cash flow Capital expenditure and fixed assets We incurred expenditure of £26.4 million in the year ended 30 April 2019 (2018: £12.7 million) on intangible assets and property, plant & equipment. £25.8 million of this was incurred in the logistics services segment (2018: £12.3 million) and £0.6 million (2018: £0.7 million) in the commercial vehicles segment. Approximately £7.7 million (2018: £7.7 million) of the additions were purchased in cash and £18.7 million (2018: £5.0 million) were purchased through HP and finance leases. Noteworthy capital additions in the year were a pick tower in Poland, new site development at Crick and Peterborough, a conveyor in Ollerton and an additional mezzanine floor at Northampton. In the year ended 30 April 2019, we disposed of assets with a net book value of £0.4 million, on which we generated a profit on disposal of £0.1 million. In the prior year, we disposed of assets with a net book value of £4.5 million, on which we generated a profit on disposal of £2.2 million. Substantially all of the £4.5 million net book value related to the disposal of a freehold property which the Group had acquired earlier in the period as part of the purchase of Tesam. Clipper’s outstanding capital expenditure commitment at 30 April 2019 was £8.6 million (2017: £17.9 million), reflecting the timing of investments in new and existing customer contracts. 34 Clipper Logistics plc The adoption of the new leasing accounting standard (IFRS 16) in the year ending 30 April 2020 will significantly increase the Group’s reported total non-current assets (see page 80). Cash flow Cash generated from operations was £28.3 million (2018: £24.5 million). The business continues to be highly cash generative. Under the UK logistics business model, Clipper is typically paid in the month in which services are delivered on open book and minimum volume guarantee contracts, giving rise to a typically net favourable impact on working capital, whilst in the commercial vehicles business working capital is substantially funded by the manufacturer through stocking facilities for new vehicles and trade credit terms for parts supplied. In the year ended 30 April 2019, we generated £0.6 million of cash inflow from working capital (2018: £3.2 million outflow). There are a number of cash flows disclosed outside of cash flow from operations which occur regularly, although the magnitude of these can change significantly year-on-year. These cash flows include dividends, drawdown and repayment of bank loans, sales and purchase of fixed assets (including repayments on assets purchased under finance leases), corporation tax payments, interest payments and share issues. Taking each of these in turn: / Dividends paid in the year ended 30 April 2019 amounted to £8.9 million, an increase of 17.2% on the prior year (2018: £7.6 million), and in line with our stated dividend policy. / Cash flows arising from the drawdown and repayments of bank loans were a £7.3 million inflow in the year ended 30 April 2019 (2018: £8.2 million), the drawdown being used to fund short-term working capital requirements. / Cash purchases of fixed assets amounted to £7.7 million in the year ended 30 April 2019 (2018: £7.7 million), with a further £10.4 million cash used to repay finance leases (2018: £7.4 million). Finance leasing and hire purchase funding remains an attractive means of funding for Clipper, as the future cash outflows can be funded through future cash inflows on open book contracts. Sales of fixed assets generated £0.5 million in the year ended 30 April 2019 (2018: £6.7 million), the significant reduction being due to the inclusion of a freehold property sale in the prior year. / Corporation tax of £4.3 million was paid in the year ended 30 April 2019 (2018: £4.0 million), the increase being driven by the overall increased profitability of the Group. / Interest paid increased by £0.1 million to £2.0 million in the year ended 30 April 2019 (2018: £1.9 million), primarily due to increased borrowing levels on HP contracts and revolving credit facilities. / Cash inflows of £0.35 million were generated from shares issued in the year ended 30 April 2019, compared to £1.63 million in the prior year. In the prior year, share issues to employees generated £1.38 million. This amount was so high because it was the first vesting of Sharesave since Clipper’s listing on the London Stock Exchange, and so benefited from a high initial take up. There were also shares issued to Numis Securities Limited (Clipper’s corporate broker) in the prior year which generated £0.25 million, when it exercised a warrant in place since the Initial Public Offering (“IPO”). Whilst the timing and magnitude of dividends, tax payments and interest payments can be predicted with relative certainty, the timing of drawdowns on bank loans and fixed asset-related cash flows is much more dependent on specific one-off projects, and so can quite easily fall into one financial period or the next. Two significant one-off cash flows arose in the prior year (ended 30 April 2018): firstly, there was the acquisition of Tesam for a cash consideration of £9.6 million (net of cash acquired); and secondly, there was the acquisition of RepairTech for a cash consideration of £2.2 million (net of cash acquired). There was also £0.5 million of deferred consideration paid in respect of the latter in the year ended 30 April 2019 and a £0.5 million increase in the loan to Clicklink, disclosed as a non-current financial asset (see note 27 to the Group Financial Statements). Net debt In addition to EBIT, net debt is considered a KPI for the Group. The Group had £45.9 million of net debt outstanding at 30 April 2019 (2018: £31.7 million) (see note 20 to the Group Financial Statements), an increase of £14.3 million. The increase in net debt was driven primarily by the £18.7 million of assets acquired on HP and finance contracts in the year ended 30 April 2019, which more than offset the positive cash flows from operating activities, net of cash flows from investing activities and dividends paid. It is worth noting that where an open book customer has a strong credit rating, Clipper will often fund the initial capital requirements on the condition that the customer commits to repaying this over the term of the contract, together with finance charges and a management fee. At 30 April 2019, Clipper has £34.9 million (2018: £22.4 million) of capital contracted to be recovered from open book customers over the remaining term of the customer contracts. The adoption of the new leasing accounting standard (IFRS 16) in the year ending 30 April 2020 will significantly increase the Group’s reported net debt (see page 80). Our 2019 Strategic Report, from page 1 to page 35, has been reviewed and approved by the Board of Directors on 29 August 2019. David Hodkin Chief Financial Officer 35 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Board of Directors Steve Parkin Executive Chairman Tony Mannix Chief Executive Officer David Hodkin Chief Financial Officer Steve, a fashion logistics specialist, founded Clipper in 1992. As Executive Chairman, he is responsible for the strategic direction of the Group. Steve has extensive experience of retail logistics. He holds and pursues strategic level discussions with major retailers. In addition, he drives the Group’s acquisition strategy. Tony was appointed Chief Executive Officer of the Group in May 2014. He joined Clipper in 2006 as Managing Director of the UK logistics division. Tony has over 30 years’ experience in the logistics sector, and held a number of senior roles with Roseby’s plc (which became part of Homestyle Group plc), ultimately becoming Logistics Director. Steve is the chairman of the Nomination Committee. Tony has particular experience of operating in complex retail logistics environments, including the design and specification of both distribution centres and warehouse management systems. He began his career in logistics with the Burton Group, after working in the construction industry following his graduation with a degree in architectural engineering. David joined Clipper as Group Chief Financial Officer in 2003. He held a variety of board level roles prior to joining Clipper, including Group Finance Director of Symphony Group plc, Finance Director of Kunick Leisure Limited and held a number of senior roles in Magnet Limited. David is a member of the Chartered Institute of Management Accountants. 36 Clipper Logistics plc Stephen Robertson Senior Independent Non-Executive Director Stephen joined the Group as Non- Executive Director in 2014, and became Clipper’s Senior Independent Non- Executive Director in March 2019. He has many years of experience in the retail industry and held executive positions at Kingfisher plc, WH Smith plc and Woolworths Group plc. He was previously Director General of the British Retail Consortium and is currently chairman of Retail Economics. His current non-executive directorships include Timpson Group plc and Hargreaves Lansdown plc. Stephen is a member of the Nomination Committee, Remuneration Committee and Audit Committee. Mike Russell Independent Non-Executive Director Mike Russell was appointed Non- Executive Director of Clipper’s former parent company in 2011, and was appointed Non-Executive Director of the Company in 2014. He is a Chartered Certified Accountant and has held senior finance positions within Allied Lyons plc and Asda Stores Limited. He was appointed Group Finance Director of Nurdin & Peacock plc, a FTSE 250 company. From 1997 to 2011, he was an executive director of Prize Food Group, initially as Group Finance Director and, from 2005, as Chief Executive Officer. Mike is chairman of the Remuneration Committee and is a member of the Nomination Committee and the Audit Committee. Stuart Watson Independent Non-Executive Director Stuart Watson joined the Group as Non-Executive Director in March 2019. Stuart is a Chartered Accountant and was a partner with Ernst & Young from 1998 until retiring from the partnership in 2017. Stuart was an audit partner working mainly with listed and private equity backed companies and was the Senior Partner for Yorkshire and the North East. He is also a member of the Council of the University of Bradford and of the University’s Audit Committee. Stuart is chairman of the Audit Committee and is a member of the Nomination Committee and the Remuneration Committee. Annual Report and Accounts 2019 37 Company Financial StatementsGroup Financial StatementsGovernanceStrategic Report/ Governance Corporate Governance Report The Board recognises, understands and is committed to high standards of corporate governance across the Group. Steve Parkin Executive Chairman Chairman’s introduction Dear Shareholder, I am pleased to present the Company’s Corporate Governance Report for the year ended 30 April 2019. The Board recognises, understands and is committed to the high standards of corporate governance across the Group that are expected of all premium listed companies. During the year, the Company followed an approach which largely complied with the provisions of the UK Corporate Governance Code 2016 (the “Code”). The report which follows describes how the Company has applied the Main Principles of the Code during the year to 30 April 2019. Compliance with the Code The Board recognises the importance of high standards of corporate governance and is committed to managing the Group’s operations in accordance with the Code. A full version of the Code can be found on the Financial Reporting Council’s website www.frc.org.uk. The Company complied with the provisions of the Code throughout the year ended 30 April 2019, except for provisions A4.2 and E.1.1. For a period of four months the Company did not comply with provision A4.1. In July 2018 the Financial Reporting Council published a revised 2018 Corporate Governance Code (“2018 Code”) which will apply to premium listed companies in respect of accounting periods commencing on or after 1 January 2019. This will apply to the Company in the financial year ending 30 April 2020. This Report, which incorporates reports from the Nomination and Audit Committees on pages 42 to 45 together with the Strategic Report on pages 1 to 35, the Directors’ Remuneration Report on pages 46 to 57 and the Directors’ Report on pages 58 to 61, describes how the Company has applied the Main Principles of the Code. The role of the Board During the year the Board consisted of three Executive Directors and three Non- Executive Directors (except for the period 7 November 2018 to 26 March 2019 where there were two Non-Executive Directors). Ron Series (Senior Independent Director) stepped down from the Board with effect from 7 November 2018. On 7 March 2019 Stephen Robertson (an existing Non- Executive Director of the Company) was appointed as Senior Independent Director in his place. On 26 March 2019 Stuart Watson was appointed as a Non- Executive Director. Biographies and profiles of the current members of the Board appear on pages 36 and 37. The Board is responsible for leading and controlling the Group and has overall authority for the management and conduct of the Group’s business, strategy and development. The Board is also responsible for ensuring the maintenance of a sound system of internal control and risk management (including financial, operational and compliance controls and for reviewing the overall effectiveness of systems in place) and for the approval of any changes to the capital, corporate and/ or management structure of the Group. The Code indicates at A.4.2 that the chairman should hold meetings with non-executive directors without the executive directors present. Since Steve Parkin as Executive Chairman also has an executive function, he has not met with the Non-Executive Directors as a group without the other Executive Directors present, but the Senior Independent Director has done so. The Chairman has met with individual Non-Executive Directors on a one-to-one basis from time to time, at which meetings Board performance and other appropriate matters were discussed. The Chairman has also discussed the Board evaluation review with the Senior Independent Director without the other Executive Directors present. The Board delegates to management the day-to-day running of the business within defined risk parameters. Board meetings are scheduled to coincide with key events in the corporate calendar and this includes the interim and final results and Annual General Meeting (“AGM”). The Board has adopted a formal schedule of matters reserved for its approval and has delegated other specific responsibilities to its committees. The standing Board agenda includes regular reports from the Chief Executive Officer and the Chief Financial Officer on the operational and financial performance of the Group, together with feedback from the Non-Executive Directors on their engagement with the business. It includes a rolling agenda of reports from the Nomination Committee, the Audit Committee and the Remuneration Committee together 38 Clipper Logistics plc with various other key operational, strategic, governance and risk topics. The latter are regularly updated to ensure the Board is responsive to the operational and strategic issues affecting the business, and a Strategy Day was held for the Board to review the Group’s strategy and market position. The Board does not delegate key strategic, operational and financial issues or other matters specifically reserved to the Board. The following matters (amongst others) were considered or dealt with at Board meetings during the year: Strategy and management Financial and contracts Governance / approval and consideration of strategic initiatives and plans, including potential acquisitions; / Brexit and its continued impact; / automation and its role in the business; / learning and development; / European strategy review; / growth strategy; / health and safety record; / workforce engagement and methods of feedback to the Board in readiness for the 2018 Code coming into force; / approval of Senior Management Team (“SMT”) restructuring; / brand health; and / integration of new subsidiaries. / review of the performance and management of certain contracts; / Black Friday performance; / financial review; / review and approval of mid-year financial re-forecast; / approval of capital projects and contracts of material importance; / approval of project to migrate IT hardware and network infrastructure to a third party managed data centre; / implementation of independent IT and cyber integrity reviews and consideration of reports; and / review of insurance cover including cyber cover. / full risk review; / legal and governance updates, including forthcoming changes under the 2018 Code and forthcoming reporting obligations under The Companies (Miscellaneous) Reporting Regulations 2018, which apply to the Group from the financial year commencing 1 May 2019; / Board and committee evaluation; / update training on The Market Abuse Regulation and directors’ duties; / implementation and monitoring of actions recommended by an independent review of the Company’s corporate governance practices; and / external audit and review of agency providers and terms. 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. The Board has a full programme of Board meetings planned for the financial year ending 30 April 2020. At these meetings, the Board will review the Group’s long-term strategic direction and financial plans and monitor on a regular basis the Group’s performance against an agreed business plan. The Board will also continue to take action to ensure compliance with the new requirements under the 2018 Code and The Companies (Miscellaneous) Reporting Regulations 2018. In addition, the Board will agree key objectives for the Group on an annual basis and will monitor performance against these objectives. Meetings and attendance In the year under review, the Board held eight 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 Stephen Robertson1 Senior Independent Non-Executive Director Mike Russell Independent Non-Executive Director Stuart Watson2 Independent Non-Executive Director Ron Series3 Senior Independent Non-Executive Director 1. Became a member of the Nomination Committee in November 2018 2. Appointed 26 March 2019 3. Resigned 7 November 2018 Board meetings Audit Committee meetings Remuneration Committee meetings Nomination Committee meetings 8/8 8/8 8/8 8/8 8/8 1/1 2/2 3/3 3/3 1/1 1/1 3/3 3/3 1/1 2/2 5/5 4/4 5/5 1/1 1/1 39 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Corporate Governance Report continued The Chairman is responsible for ensuring that the Directors receive accurate, timely and clear information. Prior to each scheduled Board meeting, a Board pack is circulated. This Board pack includes an update on key performance targets, trading performance against budget and detailed financial data and analysis. Board packs are distributed in sufficient time for Directors to review their papers in advance. If Directors are unable to attend a Board meeting for any reason, they nonetheless receive the relevant papers and are consulted prior to the meeting and their views made known to the other Directors. Conflicts of interest In line with the requirements of the Companies Act 2006, each Director has notified the Board of any situation in which he has, or could have, a direct or indirect interest that conflicts, or may conflict, with the interests of the Company (a situational conflict). These were considered and approved by the Board in accordance with the Company’s Articles of Association (the “Articles”) and each Director informed of any relevant authorisation and the terms on which it was given. In furtherance of this obligation, each Director has notified the Board of all his business interests and those of his connected persons. The Register of Directors’ Interests is updated annually and as otherwise required. The Board has formal procedures to deal with Directors’ conflicts of interest. The Board reviews and, where appropriate, approves certain situational conflicts of interest reported to it by Directors, and a register of such situational conflicts is maintained and will be reviewed by the Board going forward. During the year, the Company’s then Senior Independent Director Ron Series stepped down from the Board due to a conflict arising in relation to certain new contracts and business developments within the Group. Board committees Subject to those matters reserved for its decision, the Board has delegated to its Nomination, Audit, Remuneration and Executive Committees certain authorities. There are written terms of reference for each of these Committees available on request from the Company Secretary. Separate reports for each of the Nomination, Audit and Remuneration 40 Committees are included in this Annual Report and Accounts from pages 42 to 57. Role of the executive chairman and chief executive The Board is chaired by Steve Parkin who is Executive Chairman. The Executive Chairman is responsible for the leadership and overall effectiveness of the Board and setting the Board’s agenda, having regard to the interests of all stakeholders and promoting high standards of corporate governance. Tony Mannix is the Chief Executive Officer and is responsible for implementing the Board’s strategy and leading the SMT. The role is distinct and separate to that of Executive Chairman and clear divisions of accountability and responsibility have been agreed by the Board. Role of the senior independent director The Code indicates (at A.4.1) that the board of directors of a company with a premium listing on the Official List should appoint one of the non- executive directors to be the senior independent director to provide a sounding board for the chairman and to serve as an intermediary for the other directors when necessary. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of the chairman, chief executive officer or other executive directors has failed to resolve or for which such contact is inappropriate. Ron Series served as Senior Independent Director until November 2018, when he stepped down from the Board as a result of a conflict arising in relation to certain new contracts and business developments. The Nomination Committee commenced a process to recruit a replacement Senior Independent Director, and in March 2019 Stephen Robertson (an existing Independent Non-Executive Director) was appointed to the role of Senior Independent Director. As a result of this sequence of events, there was a period of four months when the Company did not comply with provision A.4.1 of the Code. The Code indicates (at E.1.1) that the senior independent director should attend meetings with a range of major shareholders to listen to their views in order to help develop a balanced understanding of their issues and concerns. Whilst the Senior Independent Director (and the other Non-Executive Directors) are available to meet with shareholders to discuss issues and concerns, no such meetings have been requested by shareholders. Notwithstanding this, we have maintained dialogue with our major shareholders and, overall, the Board believes that appropriate steps have been taken throughout the year to ensure that members of the Board, including the Non-Executive Directors, develop an understanding of the views of major shareholders. These steps include attending the AGM, receiving feedback on other shareholder meetings and analysts’ and brokers’ briefings on a regular basis. Board balance and independence The Code recommends that at least half the board of directors of UK listed companies, excluding the chairman, should comprise non-executive directors determined by the board to be independent in character and judgment and free from relationships or circumstances which may affect, or could appear to affect, the directors’ judgment. The Board regards all of the Non- Executive Directors as Independent Non-Executive Directors within the meaning of the Code and free from any business or other relationship that could materially interfere with the exercise of their independent judgment. The Board believes that the current directorate supports its ability to develop the Group’s operations. Role of the company secretary Marianne Hodgkiss is the Company Secretary. The role of the Company Secretary, under the direction of the Executive Chairman, is to develop, implement and maintain good corporate governance practices. This includes supporting the Executive Chairman and Non-Executive Directors as appropriate, managing Board and Nomination Committee meetings, ensuring that appropriate levels of directors’ and officers’ insurance is in place and that the Group is compliant with statutory and regulatory requirements. Development There has been one appointment to the Board since the last AGM: Stuart Watson as Independent Non- Executive Director. The Group has an induction and training process for new directors. New directors receive a detailed induction on joining the Board, including meeting other members of Clipper Logistics plc the Board and the SMT. New directors are encouraged to visit the Group’s sites and to provide feedback to the Board. The Group’s Company Secretary periodically reports to the Board on any new legal, regulatory and governance developments that affect the Group and, where necessary, actions are agreed. External lawyers have provided updated training to the Directors and SMT on insider dealing and The Market Abuse Regulation, and have also provided training on the 2018 Code and The Companies (Miscellaneous) Reporting Regulations 2018 (with a specific focus on directors’ duties), which will apply to the Group for the financial year ending 30 April 2020, as well as other regulatory matters. This is supplemented by advice and training provided, where required, by the Company Secretary. Board evaluation The Code indicates (at B.6) that the board should undertake a formal and rigorous annual evaluation of its performance. The Board is committed to and is fully aligned with the benefits to be derived from a regular board evaluation which is viewed as a critical component of the Board’s agenda for continuing improvement of its corporate governance. The effectiveness of the Board is essential to the success of the Group. During the year an internal evaluation process was undertaken. The evaluation process was based on a series of questions devised for the purpose by the Senior Independent Director and the Company Secretary and circulated to the Directors. The process reviewed issues such as: the assessment and monitoring of the Company’s strategy; the mix of knowledge and skills on the Board; succession; and the effectiveness of the Board and the Directors. Separate questionnaires were devised for each of the Audit, Remuneration and Nomination Committees, and circulated to Committee members. The results were collated by the Company Secretary and considered by the Senior Independent Director who discussed the results with the Executive Chairman. The performance of the Board as a whole and of each of its principal Committees was considered. The full (anonymised) results of the evaluation were shared with the Board, and key actions to undertake to enhance or maintain performance of the Board and Committees have been agreed and will be monitored throughout the current financial year. The Board is satisfied that each Director remains competent to discharge his responsibilities as a member of the Board. Election of directors The Board can appoint any person to be a Director, either to fill a vacancy or as an addition to the existing Board provided that the total number of Directors does not exceed 12, the maximum prescribed in the Company’s Articles. Any Director so appointed by the Board shall hold office only until the following AGM and shall then be eligible for election by the shareholders. In accordance with the Articles, at every AGM 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 or re-appointment. When a Director retires at an AGM in accordance with the Articles, the Company may, by ordinary resolution at the meeting, fill the office being vacated by re-electing the retiring Director. If the Company does not fill the vacancy at the meeting, the retiring Director shall nevertheless be deemed to have been re-elected, except in the cases identified by the Articles. As recommended by the 2018 Code, notwithstanding the Company’s articles, the Directors have determined that all Directors shall retire from office annually at the AGM (with effect from the 2019 AGM), and shall be eligible for re-appointment at that same AGM. The Company intends to continue this practice but will review it regularly. At the 2019 AGM Steve Parkin, Tony Mannix, David Hodkin, Stephen Robertson and Mike Russell will be offering themselves for re-election, and Stuart Watson will be offering himself for election. The 2019 AGM is to be held at the Novotel Leeds Centre, 4 Whitehall, Whitehall Quay, Leeds, LS1 4HR on 21 October 2019 at 11.00am, full details of which will be issued under separate cover. External appointments and time commitment The Executive Directors may accept outside appointments provided that such appointments do not in any way prejudice their ability to perform their duties as Executive Directors of the Company. Stephen Robertson and Mike Russell (Non-Executive Directors) were re-appointed for new three year terms commencing on 1 May 2017. Stuart Watson (Non-Executive Director) was appointed for a three year term commencing 26 March 2019. Appointment letters are not specific about the maximum time commitment, recognising that there is always the possibility of an additional time commitment and ad hoc matters that may arise from time to time, particularly when the Group is undergoing a period of increased activity. The average time commitment inevitably increases where a Non-Executive Director assumes additional responsibilities such as being appointed to a Board Committee or as a Non-Executive Director on the boards of any of the Company’s subsidiaries. Communication with shareholders The Board considers effective communication with its investors, whether institutional, private or employee shareholders, to be extremely important and we have set ourselves the target of providing information that is timely, clear and concise. During the year to 30 April 2019, the Company met regularly with analysts and institutional investors and such meetings will continue. The Executive Chairman, Chief Executive Officer and Chief Financial Officer have responsibility for investor relations and they meet institutional investors regularly to provide an opportunity to discuss, in the context of publicly available information, the progress of the Group. They are supported by members of the SMT, where required, and the Company’s retained financial PR advisors, Buchanan, and joint corporate brokers, Numis Securities and Berenberg, who, amongst other matters, assist in organising presentations for analysts and institutional investors and ensure that procedures are in place to keep the Board regularly informed of such investors’ views. Reports from analysts and brokers are circulated to the Board. The formal reporting of our full and half year results will be a combination of presentations, group calls and one-to-one meetings in a variety of locations where we have institutional shareholders. All the Non-Executive Directors and the Executive Chairman are available to meet with major shareholders if they wish to raise issues separately from the arrangements as described above. The Company’s investor website is regularly updated with news and information, including this Annual Report and Accounts, which sets out our strategy and performance together with our plans for growth. 41 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Nomination Committee Report I am pleased to present the report of the Nomination Committee for the year ended 30 April 2019. Steve Parkin Chairman, Nomination Committee Committee Chairman’s introduction The Nomination Committee (the “Committee”) is a key committee of the Board whose role is to keep the composition and structure of the Board and its committees under review. The Committee’s role also includes enhancing the quality of nominees to the Board and ensuring that the recruitment and appointment process is conducted with rigour and integrity. The Committee is proactive in discharging its responsibilities, cognisant of the importance of succession planning and the need to align Board and executive leadership skills to the Company’s long-term strategy. I hope this report gives you a helpful insight into how the Committee intends to carry out its responsibilities in the year ahead. Composition The Code recommends that a majority of the members of a nomination committee should be independent non-executive directors. The Nomination Committee is chaired by Steve Parkin and its other members are Stephen Robertson, Mike Russell and Stuart Watson. Roles and responsibilities It is intended that the Committee will meet as often as required but not less than once a year to assist the Board in discharging its responsibilities relating to the composition and make-up of the Board and any committees of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as directors or committee members as the need may arise. 42 The Committee is responsible for evaluating and making recommendations to the Board on: the balance of skills, knowledge and experience and the size, structure and composition of the Board and committees of the Board, and retirements and appointments of additional and replacement directors and committee members. Diversity Whilst the Group pursues diversity, including gender diversity, throughout the business, and the Board endorses the aspirations of the Davies Review on Women on Boards, the Board is not committing to any specific targets. Instead, the Board will engage executive search firms which have signed up to the voluntary code of conduct setting out the seven key principles of best practice to abide by throughout the recruitment process and will continue to follow a policy of appointing talented people at every level to deliver high performance. It is Group policy to make all appointments based on the best candidate for the role regardless of gender or other diversity. The Board will also ensure that its own development in this area is consistent with its strategic objectives and enhances Board effectiveness. Activities of the Nomination Committee in the year ended 30 April 2019 The Committee met five times during the financial year and considered, inter alia, the following matters: / the splitting of the Company Secretary and Group Legal Counsel role, to increase the capacity for ensuring high standards of corporate governance; / succession planning for the executive director roles; / the replacement of the Senior Independent Director and recruitment of a third non-executive director, following the departure of Ron Series; / the size and composition of the Board, with regard to the changes under the 2018 Code which mean that the requirement for at least half of the Board to be independent non-executive directors will apply to all companies, not just FTSE 350; / the restructure of the SMT; / a review of job descriptions for all Board roles and certain SMT roles in light of the above restructure; / the Board Evaluation process; and / changes to Committee memberships and chairmanships. With effect from 7 November 2018 Ron Series stepped down as Senior Independent Non-Executive Director. He was replaced by Stephen Robertson (formerly an Independent Non-Executive Director) with effect from 7 March 2019. With effect from November 2018, Stephen Robertson became a member of the Nomination Committee. With effect from 7 March 2019, Mike Russell, Independent Non-Executive Director, took over from Stephen Robertson as chairman of the Remuneration Committee. On 26 March 2019, Stuart Watson was appointed Independent Non- Executive Director, and took over from Mike Russell as chairman of the Audit Committee. Clipper Logistics plc Audit Committee Report In this report, I explain how the Committee has discharged its responsibilities to protect shareholders. Stuart Watson Chairman, Audit Committee Committee Chairman’s introduction In the year under review, Mike Russell chaired the Audit Committee (the “Committee”) until my appointment on 26 March 2019. He and Stephen Robertson have served on the Committee throughout the year under review. Ron Series served on the Committee until his resignation on 7 November 2018. Under its terms of reference, the Committee is required to meet at least three times in each year at appropriate times in the reporting and auditing cycle. The requirement to hold three meetings was originally proposed in order to address three formal matters: (i) to review and approve the auditor’s proposed audit approach; (ii) to consider the half year report; and (iii) to consider any findings from the year end audit. In the year ended 30 April 2019, the Committee met three times. The primary function of the Committee is to assist the Board in fulfilling its responsibilities to protect the interests of shareholders with regard to the integrity of the financial reporting, audit, risk management and internal controls. In this report, I explain how the Committee has discharged these responsibilities, with specific reference to the requirement of the Code, to address significant financial statement reporting issues and to explain how the Committee assessed external audit effectiveness and safeguards in relation to the provision by the auditor of non- audit services. Composition The Code recommends that an audit committee should comprise at least three, or in the case of smaller companies, two independent non- executive directors (other than the chairman) and that at least one member should have recent and relevant financial experience. Clipper’s Audit Committee is chaired by Stuart Watson and its other members are Mike Russell and Stephen Robertson. By virtue of their former executive roles, the Directors consider that Stuart Watson and Mike Russell have recent and relevant financial experience. The Company is therefore compliant with the Code in this regard. Other Directors or senior financial management attend meetings of the Committee by invitation. Roles and responsibilities The Committee assists the Board in discharging its responsibilities with regard to: / agreeing the scope of the annual audit and the annual audit plan and monitoring the same; / monitoring, making judgments and recommendations on the financial reporting process and the integrity and clarity of the Group Financial Statements; / considering the appointment of the Group’s auditor and its 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. The Committee gives due consideration to laws and regulations, the provisions of the Code and the requirements of the Listing Rules. The ultimate responsibility for reviewing and approving the Annual Report and Accounts and the half year reports remains with the Board. The Board has requested that the Committee advise them in ensuring that the Financial Statements, when taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Activities during the year ended 30 April 2019 During the year, the Committee met three times. A summary of the main areas dealt with by the Committee is set out below: / review and approval for consideration by the Board of the financial results for the year ended 30 April 2018; / findings from the external audit for the year ended 30 April 2018; / approval of the auditor’s remuneration in respect of the year ended 30 April 2018; / discussion around the Code on risk management, internal control, viability and going concern; / auditor’s confirmation of independence; / review of auditor’s effectiveness; and / discussion with the external auditor over the audit planning, with particular reference to significant risks highlighted in the planning documents, together with the audit scope and timetable. 43 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Audit Committee Report continued Since the year end, the Committee has reviewed and approved for consideration by the Board this Annual Report and reviewed the findings from the external audit for the year ended 30 April 2019. As part of their review process, the members of the Committee are provided with a draft of the full Annual Report and Accounts, enabling them to ensure that the figures are consistent with those in the Financial Statements or are sourced from appropriate data. As important, the Committee assesses whether the words used are consistent with its understanding of the Group’s business obtained through Board and Committee meetings and other interaction it has had with management, using its experience to assess whether the Annual Report taken as a whole is fair, balanced and understandable. This additional review by the Committee, supplemented by advice from external advisors during the drafting process, assists the Board in determining that the report is fair, balanced and understandable at the time that it is approved. The Committee considers the appropriateness of preparing the Financial Statements on a going concern basis, including consideration of forecast plans and supporting assumptions. Significant issues considered in relation to the Financial Statements The Committee, together with the Board, considered what the significant risks and issues in relation to the Financial Statements were and how these would be addressed. The most significant risks identified are set out below: Revenue recognition / The Group has a multiplicity of complex contract mechanisms. As a result, there could be a risk of misstatement of revenue. / To mitigate this risk, the revenue recognition methodology adopted is kept under regular review to ensure that it remains appropriate. / In the current year, on adoption of IFRS 15, a detailed review of revenue contracts has been undertaken and accounting policies updated. For more information see page 78. 44 Management override of controls / Management are in a unique position and could override controls that otherwise operate effectively. / To mitigate this risk, the Board is made aware of any non-recurring material transactions. Related party transactions / There is a risk that not all related party transactions are appropriately identified, accounted for and disclosed in the Financial Statements. Related party relationships may present a greater opportunity for management to override controls that otherwise operate effectively. / To mitigate these risks, during the year the Board has implemented new controls and procedures around related party transactions, which were recommended as part of a wider independent review of the Company’s corporate governance practices. Accounting for a business combination / During the year the Company entered into contracts that constituted a business combination; i.e. with the three elements of a business as defined in IFRS 3: inputs and processes that have the ability to create outputs. / Under International Financial Reporting Standards, the Group is required to assess the fair value of assets and liabilities acquired and liabilities assumed and specifically to identify any intangible assets. / The Committee offered insight into the timing of when the Group effectively took control following the business combination and, ultimately, agreed the it should be accounted for in the year ending 30 April 2020. External auditor The Committee oversees the relationship with the external auditor and considers the re-appointment of the Group’s auditor, before making a recommendation to the Board to be put to shareholders. The Committee conducted a review of the external auditor’s performance and ongoing independence taking into consideration input from management, responses to questions from the Committee and the audit findings reported to the Committee. Based on this information, the Committee concluded that the external audit process had been efficiently run and that KPMG LLP proved effective in its role as external auditor. In accordance with best practice and professional standards, the external auditor is required to adhere to a rotation policy whereby the audit engagement partner is rotated after five years. The current audit engagement partner has now served for four years. The external auditor is also required periodically to assess whether, in its professional opinion, it is independent and those views are shared with the Committee. The Committee has authority to take independent advice as it deems appropriate in order to resolve issues on auditor independence. No such advice has, to date, been required. As required, the external auditor provided the Committee with information for review about policies and procedures for maintaining its independence and compliance regarding the rotation of audit partners and staff. Separate external firms are engaged for taxation advisory services. The Committee is satisfied that the independence of KPMG LLP is not impaired. Furthermore, KPMG LLP has provided an independence report to the Committee, in which it has confirmed that it is independent, that its objectivity is not compromised, and that it has complied with the Auditing Practices Board’s ethical standards (including in relation to the supply of non- audit services). KPMG LLP received £nil in respect of non-audit work for the Group in the year ended 30 April 2019 (2018: £nil). The Company intends to hold a tender for audit services in 2019 ahead of the half year results. Internal audit The Board has considered the benefits that an internal audit function might bring to the Group. It has concluded that, due to the nature of those control weaknesses identified by the external auditor, tight financial controls in place across the Group and the close management of financial matters by the Executive Directors, an internal audit function would not currently provide additional assurance. In terms of operational matters, the specialised nature of the Group’s activities means that a non-specialist internal audit function would not provide additional comfort over the Group’s operational management. The Board will continue to evaluate Clipper Logistics plc this matter, and the Committee will formally consider the issue annually, in accordance with Code provision C.3.2. Internal control and risk management The Board is responsible for the overall system of internal controls for the Group and for reviewing its effectiveness. It carries out such a review at least annually, covering all material controls including financial, operational and compliance controls and risk management systems. The system of internal controls is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. Operating policies and controls are in place and have been in place throughout the financial year under review, and cover a wide range of issues including financial reporting, capital expenditure, IT, business continuity and management of employees. Detailed policies ensure the accuracy and reliability of financial reporting and the preparation of the Financial Statements, including the consolidation process. The key elements of the Group’s ongoing processes for the provision of effective internal control and risk management systems, in place throughout the year and at the date of this report, include: / regular Board meetings to consider matters reserved for the Directors’ consideration; / regular management reporting, providing a balanced assessment of key risks and controls; / an annual Board review of corporate strategy, including a review of material business risks and uncertainties facing the business; / established organisational structure with clearly defined lines of responsibility and levels of authority; / documented policies and procedures; and / regular review by the Board of financial budgets, forecasts and covenants. In reviewing the effectiveness of the system of internal controls, the Committee receives self-assurance statements from the members of the SMT, who are responsible for the principal business units, confirming that controls and risk management processes in their business units have been operated satisfactorily. These returns are reviewed by the Committee and challenged where appropriate. Whistleblowing The Group has a Whistleblowing Policy which encourages employees to report any malpractice or illegal acts or omissions or matters of similar concern by other employees or former employees, contractors, suppliers or advisors using a prescribed reporting procedure. The Whistleblowing Policy is complemented by an Anti-bribery and Corruption Policy, and a Gifts and Entertainment Policy. The Deputy Chief Financial Officer is responsible for compiling and maintaining a risk register to monitor all of the risks facing the business. These policies facilitate the reporting of any ethical wrongdoing or malpractice, or suspicion which may constitute ethical wrongdoing or malpractice. Examples include bribery, corruption, fraud, dishonesty and illegal practices which may endanger employees or third parties. There have been no instances of whistleblowing during the year under review and we are not aware of any instances of non-compliance with our Anti-bribery and Corruption Policy or our Gifts and Entertainment Policy. Accountability The Board is required to present a fair, balanced and understandable assessment of the Company and Group’s financial position, performance, business model and strategy. The Board, with the advice of the Committee, is satisfied that this has been achieved. The responsibilities of the Directors and external auditor are set out on pages 62 and 68 respectively. The key risks are summarised for review and approval by the Committee for inclusion in the Annual Report. In addition, the Committee reviews the financial and accounting controls. In respect of the Group’s financial reporting, the finance department is responsible for preparing the Group Financial Statements using a well- established consolidation process and ensuring that accounting policies are in accordance with International Financial Reporting Standards. All financial information published by the Group is subject to the approval of the Committee. There have been no changes in the Group’s internal controls during the financial year under review that have materially affected, or are reasonably likely to materially affect, the Group’s control over financial reporting. The Board, with advice from the Committee, is satisfied that effective systems for internal control and risk management are in place which enable the Group to identify, evaluate and manage key risks, and which accord with the guidance of the Turnbull Committee on internal control updated by the Financial Reporting Council in 2005. These processes have been in place throughout the financial year and up to the date of approval of the Financial Statements. Further details of risk management frameworks and specific material risks and uncertainties facing the business can be found on pages 20 to 23. 45 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Directors’ Remuneration Report The Committee hopes it can rely on the support of shareholders to approve our Directors’ Remuneration Report. Mike Russell Chairman, Remuneration Committee Committee Chairman’s introduction On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 30 April 2019. As was announced earlier this year, from 7 March 2019 Stephen Robertson became our Senior Independent Director and I became the Chairman of the Remuneration Committee (the “Committee”) again. I would like to thank Stephen for his work in the role of Committee Chairman from August 2017. We are pleased that Stuart Watson has joined the Committee following his appointment to the Board on 26 March 2019. Also, I would like to thank our shareholders for the continued support which they showed for the Committee at our 2018 AGM when our Directors’ Remuneration Report was approved by 100% of shareholders’ voting. Pay for performance in the year ended 30 April 2019 Reported EBIT fell by 3.1% to £20.0 million in the financial year ended 30 April 2019. Consequently, the threshold level of target for our Annual Incentive Plan (“AIP”) was not considered achieved by the Committee. Accordingly, no annual bonuses will be paid to our Executive Directors in respect of the year ended 30 April 2019. During the year, the Committee determined that it would not be appropriate for the January 2016 Performance Share Plan (“PSP”) awards to vest. In deciding this, the Committee exercised judgment having considered the performance of the business in the performance period for the PSP, and also the shareholder experience in 2018. This resulted in a credit within the income statement. With regard to our January 2017 PSP awards (for which the three financial year performance period ended on April 2019), the minimum performance threshold was not achieved and the awards will not vest in January 2020. Remuneration actions for the year ending 30 April 2020 Although as noted above we were very pleased at the 100% level of support for the resolution to approve our Directors’ Remuneration Report at the 2018 AGM, we were disappointed to receive an almost 25% ‘vote against’ result on the resolution at our 2018 AGM to disapply Rule 9 of the Takeover Code which allows our “Concert Party” (the Executive Chairman, Chief Financial Officer and the Group General Counsel) to participate in our annual share plans. Since the Initial Public Offering (“IPO”), we have proposed this resolution as an annual matter, and only our independent shareholders vote on this resolution (the votes of the Concert Party are excluded). In the year ending 30 April 2020 it is proposed not to make any new PSP awards. This reflects: / The concerns raised by a number of our independent shareholders as noted above; / An appreciation of the wider shareholder experience during the financial year ended 30 April 2019; and / Our obligation to review our Directors’ remuneration policy during the year ending 30 April 2020 ahead of its three-yearly renewal at our 2020 AGM. This review will also include consideration of the matters relating to Executive Directors’ remuneration included within the 2018 Code, although the Committee has already determined that any newly appointed executive director will now be offered the same level of pension contribution available to the majority of UK staff. 2019 AGM At our 2019 AGM there will be the normal annual resolution to approve our Directors’ Remuneration Report. The Committee hopes that you will continue to support our approach on remuneration matters and hopes that it can rely on the support of shareholders for the resolution to approve our Directors’ Remuneration Report at the 2019 AGM. 46 Clipper Logistics plc This report contains the material required to be set out as the Directors’ Remuneration Report for the purposes of Part 4 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, which amended the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the “DRR regulations”). The auditor has reported on certain parts of the Directors’ Remuneration Report and stated whether, in its opinion, those parts have been properly prepared in accordance with the Companies Act 2006. Those parts of the Directors’ Remuneration Report which have been subject to audit are clearly indicated. Part A: Implementation Report on Remuneration Audited information Single figure table Salary year ended 30 April Benefits1 year ended 30 April Annual bonus2 year ended 30 April Long-term incentives3, 4 year ended 30 April Pension contributions year ended 30 April Total year ended 30 April £’000 Steve Parkin Tony Mannix5 David Hodkin5 2019 411 282 222 2018 411 260 206 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 70 18 2 72 24 2 nil nil nil nil nil nil nil nil nil nil nil nil 10 28 33 10 29 29 491 328 257 493 313 237 1. Benefits comprise a car allowance or company car, fuel allowance, private family medical cover and insurance benefits. 2. Details of the AIP for the financial year ended 30 April 2019 are set out below. 3. The 2019 values for long-term incentives reflect a nil vesting for PSP awards granted in January 2017 (performance period of financial years ending 30 April 2017 to 30 April 2019), which are due to vest in January 2020. The performance conditions required Basic EPS, after adjustment, for the year ended 30 April 2019 of between 14.7 pence and 18.0 pence, and the minimum level was not achieved. 4. The 2018 values for long-term incentives have been restated from last year’s Annual Report to reflect the confirmed nil vesting of 2016’s PSP awards on 14 January 2019. The equivalent value in last year’s Annual Report reflected an initial assumption of full vesting and the average share price for the three months ended 30 April 2018 (401.07 pence). The Remuneration Committee determined that it was not appropriate for these awards to vest having considered business performance and shareholder experience in the period to January 2019. 5. David Hodkin’s and Tony Mannix’s pension entitlement is paid by way of an additional allowance, taxed as salary. No Director participated in a defined benefit pension. AIP outcomes for the year ended 30 April 2019 Performance for the AIP was measured against EBIT1 for the year ended 30 April 2019. Performance measure Threshold performance level for 2019 AIP Maximum performance level for 2019 AIP EBIT1 for financial year to 30 April 2019 £22.68m £25.06m Performance level attained for 2019 AIP AIP attained as a % of base salary Below threshold nil 1. As adjusted for certain matters in the Committee’s judgment. Non-Executive Directors’ fees £’000 Stephen Robertson Mike Russell Stuart Watson2 Ron Series3 Fees year ended 30 April: 2018 2019 Benefits1 year ended 30 April: 2018 2019 Total year ended 30 April: 2018 2019 50 48 5 50 48 48 – 65 3 – – – 3 – – – 53 48 5 50 51 48 – 65 1. 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. 2. Stuart Watson was appointed to the Board on 26 March 2019. 3. Ron Series resigned as a Director on 7 November 2018. Directors’ interests The interests (all being beneficial) of the Directors in the Company’s ordinary shares are set out below: Ordinary shares number1 Steve Parkin Tony Mannix David Hodkin Stephen Robertson Stuart Watson Mike Russell At 29 August 2019 At 30 April 2019 25,140,820 25,140,820 946,786 946,786 1,113,196 1,113,196 9,410 4,000 – 9,410 4,000 – 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 yet unexercised share options). 47 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Directors’ Remuneration Report continued Share plan interests Performance Share Plan: Steve Parkin Tony Mannix David Hodkin Sharesave Plan: Steve Parkin Tony Mannix David Hodkin Options held at 1 May 2018 Options granted Options lapsed Options exercised Option grant price (p) Options held at 30 April 2019 Earliest exercise date Latest exercise date 559,670 173,499 135,374 320,961 116,489 256,178 92,009 75,208 60,166 nil nil nil nil nil nil 597,795 14/01/2018 15/01/2029 362,242 14/01/2018 15/01/2029 288,021 14/01/2018 15/01/2029 Options held at 1 May 2018 4,740 – 6,130 4,740 4,655 – Options granted Options lapsed Options exercised Option grant price (p) Options held at 30 April 2019 Earliest exercise date Latest exercise date – – – – 379.74 4,740 01/04/2021 30/09/2021 193.34 239.34 and 379.74 3,760 7,025 01/04/2021 30/09/2022 – 379.74 4,740 01/04/2021 30/09/2021 1. The range of market prices of shares in Clipper Logistics plc during the year ended 30 April 2019 was 212 pence to 450 pence. The closing price on 30 April 2019 was 288 pence. 2. None of the Directors paid for the award of options. 3. Options granted in the year under the PSP represent awards with a face value of 100% of base salary for all Executive Directors. This has been calculated using the average mid-market price of the three days preceding the date of grant, being 241.67 pence for the options which were granted on 16 January 2019. 4. The threshold level of vesting for the PSP options granted in the year is 25% of the total number of options granted. 5. Subsequent to the 30 April 2019 year end, the Committee determined that the PSP awards granted in January 2017 (performance period of financial years ending 30 April 2017 to 30 April 2019), which were due to vest in January 2020 would not vest. The performance conditions required Basic EPS, after adjustment, for the year ended 30 April 2019 of between 14.7 pence and 18.0 pence, and the minimum level was not achieved. As a result, the PSP options held at 29 August 2019 were as follows: Steve Parkin: 489,783, Tony Mannix: 302,235, and David Hodkin: 240,016. 6. The performance conditions attached to the PSP awards granted during the year are set out below. 7. The exercise price for options under the Sharesave Plan was set at 80% of the three day average market price of shares before invitations to participate were made, in accordance with HMRC rules. 8. The options under the Sharesave Plan were granted under an HMRC tax-advantaged plan and are therefore not subject to performance conditions. 9. The Sharesave options exercised in the year were granted in February 2016 at an option price of 239.34 pence. Performance conditions for PSP awards The performance measures and targets for the PSP awards made in the year ended 30 April 2019 are based on EPS performance measured until 30 April 2021, summarised as follows: EPS – 3 year CAGR to 30 April 2021 16.75% PSP award 100% Between 9.2% and 16.75% Pro-rata between 25% and 100% (straight-line) 9.2% Less than 9.2% For these purposes: 25% 0% 1. EPS will be measured using the adjusted diluted earnings per share of the Company (and subject to such further adjustments as the Committee shall determine appropriate). As in past years, the adjustments may include adjustments to ensure that only the profits generated from our core business activities will be credited towards the attainment of these targets. 2. As an underpin, no part of a PSP award shall vest unless the Committee is satisfied as to the Company’s overall performance during the three year period ending on the Normal Vesting Date for PSP awards. 3. The EPS base from which the above performance condition will be measured to 30 April 2021 will be 12.3 pence, being equivalent to the Diluted EPS for the year ended 30 April 2017. This base point was considered appropriate for the performance period, and consistent with the negative adjustment from reported EPS resulting in the non-vesting of the 2016 awards, which sought to measure only profits derived from core business activities for the PSP. 48 Clipper Logistics plc Unaudited information Remuneration Committee The members of the Committee during the year were: / Mike Russell (Chairman from 7 March 2019); / Stephen Robertson (Chairman until 7 March 2019); / Stuart Watson (from 26 March 2019); and / Ron Series (until 7 November 2018). The Committee’s principal responsibilities are: / recommending to the Board the remuneration strategy and framework for the Executive Directors and senior managers; / determining, within that framework, the individual remuneration arrangements for the Executive Directors and senior managers; and / overseeing any major changes in employee benefit structures throughout the Group. The Executive Chairman is invited to attend meetings of the Committee, except when his own remuneration is being discussed, and the Chief Financial Officer and other executives attend meetings as required. Advisors FIT Remuneration Consultants LLP (“FIT”), signatory to the Remuneration Consultants Group’s Code of Conduct, was appointed by the Committee following a competitive tender process. FIT provides advice to the Committee on all matters relating to remuneration, including best practice. FIT provided no other services to the Group and accordingly the Committee was satisfied that the advice provided by FIT was objective and independent. FIT’s fees in respect of the year ended 30 April 2019 were £50,000. FIT’s fees were charged on the basis of the firm’s standard terms of business for advice provided. Implementation of Policy in the year ending 30 April 2020 Executive Directors Base salary / Steve Parkin’s base salary for the year ending 30 April 2020 is £421,352 (2019: £411,075, 2.5% increase). Tony Mannix’s base salary for the year ending 30 April 2020 is £288,558 (2019: £281,520, 2.5% increase), and David Hodkin’s base salary for the year ending 30 April 2020 is £227,919 (2019: £222,360, 2.5% increase). The 2.5% increase is in line with increases for staff generally. Pension / Contribution rates for Executive Directors are as follows (expressed as percentages of base salary): Tony Mannix – 10% and David Hodkin – 15%. Steve Parkin will receive a contribution of £10,000. These are unchanged from the financial year ended 30 April 2019. Benefits / Details of the benefits received by Executive Directors are set out in note 1 to the single figure table on page 47. / There is no intention to introduce additional benefits in the financial year ending 30 April 2020. Annual Incentive Plan for the year ending 30 April 2020 / The AIP maximum is 50% of base salary. This is unchanged from the financial year ended 30 April 2019. / Performance measures for the AIP in the year to 30 April 2020 will be based on EBIT (adjusted for certain matters in the Committee’s judgment). The Committee selected EBIT (adjusted, where necessary) as the performance measure for the AIP for the year ending 30 April 2020 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 sensitive and accordingly are not disclosed. Following the conclusion of the current financial year, the Committee’s intention is to disclose the performance targets for the current financial year on a retrospective basis. Performance Share Plan for the year ending 30 April 2020 / As explained in the Committee Chairman’s introductory statement, it is intended that no new PSP awards will be made in the year ending 30 April 2020. Non-Executive Directors Fees The base fee payable to each Non-Executive Director is as follows: / Stephen Robertson – £65,000 (Senior Independent Director); / Mike Russell – £47,500; and / Stuart Watson – £47,500. Relative importance of spend on pay The table below shows the Group’s expenditure on remuneration paid to all employees against distributions to shareholders: £’000 Remuneration paid to all employees of the Group1 Distributions to shareholders 2019 2018 % change 138,400 114,872 8,934 7,622 +20.5% +17.2% 1. Total remuneration reflects overall employee costs. See note 5 to the Group Financial Statements for further information. 49 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Directors’ Remuneration Report continued Comparative Total Shareholder Return (“TSR”) The DRR regulations require a line graph showing the TSR on a holding of shares in the Company since admission to the London Stock Exchange (“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 below compares the Company’s TSR to the TSR of the FTSE SmallCap Index (excluding investment trusts) over this period. The FTSE SmallCap Index (excluding investment trusts) was chosen as a comparator as the Company is a constituent of this index. Total Shareholder Return Index (30 May 2014 = 100) 500 400 300 200 100 0 30 May 2014 30 April 2015 30 April 2016 30 April 2017 30 April 2018 30 April 2019 Source: Thomson Reuters Clipper Logistics plc FTSE SmallCap Index excluding Investment Trusts 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: Year ended 30 April 2019: Steve Parkin Year ended 30 April 2018: Steve Parkin Year ended 30 April 2017: Steve Parkin Year ended 30 April 2016: Steve Parkin Year ended 30 April 2015: Steve Parkin Annual variable element award rates against maximum opportunity Long-term incentive vesting rates against maximum opportunity Single figure of total remuneration (£’000) 491 4931 1,574 486 518 0.0% 0.0% 0.0%2 0.0% 20.8% 0.0% 0.0% 100.0% n/a n/a 1. Figure conformed to total stated in single figure table after re-calculation for non-vesting of LTIPs. 2. Steve Parkin waived his entitlement to his bonus for the year ended 30 April 2017. Executive Chairman’s relative pay In accordance with the DRR regulations, we present in the table below the percentage change in the prescribed pay elements (salary, taxable benefits and annual bonus outcome) of the Executive Chairman and the average percentage change for all Group staff between the year ended 30 April 2018 and the year ended 30 April 2019. Salary 0% 4.7% Taxable benefits Annual bonus -2.8% 7.1% n/a 31.2% Year-on-year % change Executive Chairman All employees 50 Clipper Logistics plc AGM voting results Details of the votes on remuneration matters held at the 2018 AGM (and 2017 AGM in respect of the Remuneration Policy) are as follows: Resolution Votes for % for Votes against % against Total votes Withheld Approve Directors’ Remuneration Report 87,967,391 100.00% 0 0.00% 87,967,391 0 Approve participation by Concert Party in PSP and Sharesave Plan Approve Remuneration Policy (2017 AGM) 36,496,501 75.29% 11,975,141 24.71% 48,471,642 33,800 87,807,973 99.03% 858,214 0.97% 88,666,187 0 The Committee understands that the reason for the voting outcome in relation to the Concert Party resolution is a concern raised by certain governance bodies in relation to the Executive Chairman’s participation in the PSP given the level of his existing shareholding in the Company, which is an issue with perceived creeping control rather than a remuneration issue. The Committee is giving this matter further consideration as described on page 46. Service contracts summary Each Executive Director has a service contract of indefinite duration with a notice period of twelve months, which may be given by the Company or the individual. The date of each Executive Director’s contract is: Steve Parkin: 30 May 2014 Tony Mannix: 30 May 2014 David Hodkin: 30 May 2014 Non-Executive Directors Each Non-Executive Director is engaged for an initial period of three years. The appointments can be renewed following the initial three year term. The engagements can be terminated by either party on three months’ notice. The Non-Executive Directors cannot participate in the Company’s share schemes, are not entitled to pension benefits and are not entitled to payment in compensation for early termination of their appointment. For each Non-Executive Director the effective date of their latest letter of appointment is: Stephen Robertson: 1 May 2017 Mike Russell: 1 May 2017 Stuart Watson: 21 March 2019 Part B: Policy Report The Directors’ Remuneration Policy was approved by the Company’s shareholders at the Company’s AGM on 25 September 2017 and has effect for all payments made to Directors from that date. The Company’s Directors’ Remuneration Policy is available for inspection in the Company’s 2017 Annual Report and Accounts via its website at: www.clippergroup.co.uk/ report-accounts/. For ease of reference, the Directors’ Remuneration Policy which was approved at the 2017 AGM is included as an appendix to this report, although the scenario charts have been updated to reflect up-to-date salaries. This report was reviewed and approved by the Board on 29 August 2019 and signed on its behalf by: Mike Russell Chairman, Remuneration Committee 51 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Directors’ Remuneration Report continued Appendix: Directors’ Remuneration Policy The following material is the Directors’ Remuneration Policy approved at the 2017 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 2019 AGM. Element and purpose Policy and operation Maximum Performance measures N/A N/A 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 Executive Directors to the median salary level plus 10% for that role in the top half of the FTSE SmallCap. 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. The maximum employer’s contribution is limited to 15% of base salary. N/A Base salaries will be reviewed each year by the Remuneration Committee. The Remuneration Committee does not strictly follow data but uses it as a reference point in considering, in its judgment, the appropriate level of salary having regard to other relevant factors including corporate and individual performance and any changes in an individual’s role and responsibilities. Base salary is paid monthly in cash. 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. 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. 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. Pension To provide retirement benefits. 52 Clipper Logistics plc Element and purpose Policy and operation Maximum Performance measures 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. 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 operates a Performance Share Plan (“PSP”). The maximum level of AIP outcomes is 50% of base salary p.a. for the duration of this Policy. 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. 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. 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 does not currently operate for awards, 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 performance measures applied may be financial or non-financial and corporate, divisional or individual and in such proportions as the Remuneration Committee considers appropriate. Attaining the threshold level of performance for any measure will not produce a pay-out of more than 20% of the maximum portion of overall AIP attributable to that measure, with a sliding scale to full pay- out for maximum performance. However, the AIP remains a discretionary arrangement and the Remuneration Committee retains a standard power to apply its judgment to adjust the outcome of the AIP for any performance measure (from zero to any cap) should it consider that to be appropriate. 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). 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. 53 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Directors’ Remuneration Report continued Element and purpose Policy and operation Maximum Performance measures 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. 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. 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%. Consistent with normal practice, such awards are not subject to performance conditions. Executive Directors are able to participate in all- employee share plans on the same terms as other Group employees. The maximum amount that can be invested in the plan will not exceed the statutory limit from time to time (currently £500 pcm). The options vest on the third anniversary of the commencement of the savings period. 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. Fees are paid monthly in cash. N/A Any increases made will be appropriately disclosed. The fees payable to the Non-Executive Directors are determined by the Board. Notes to the Policy Table 1. Malus and clawback Malus (being the forfeiture of unvested awards) and clawback (being the ability of the Company to claim repayment of paid amounts as a debt) provisions apply to the AIP and PSP if, in the opinion of the Remuneration Committee, any of the following has occurred: / there has been a material misstatement of the Group’s financial results which has led to an overpayment; / the assessment of performance targets is based on an error or inaccurate or misleading information or assumptions; / circumstances warranting summary dismissal; or / any other act or omission that has had a sufficiently significant impact on the reputation of the Group to justify the operation of malus/clawback. 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. 3. Travel and hospitality While the Remuneration Committee does not consider it to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for by the Group or another company) and business travel for Directors (and exceptionally their families) may technically come within the applicable rules and so the Remuneration Committee expressly reserves the right for the Remuneration Committee to authorise such activities within its agreed policies. 54 Clipper Logistics plc 4. Differences between the policy on remuneration for Directors from the policy on remuneration of other employees Where the Group’s pay policy for Directors differs to its pay policies for groups of employees, this reflects the appropriate market rate position for the relevant roles. The Company takes into account pay levels, bonus opportunity and share awards applied across the Group as a whole when setting the Directors’ Remuneration Policy. 5. Discretions reserved in operating incentive plans The Committee will operate the AIP and PSP according to their respective rules and the above Directors’ Remuneration Policy table. The Committee retains certain discretions, consistent with market practice, in relation to the operation and administration of these plans including: / the timing of awards and payments; / the size of awards, within the overall limits disclosed in the policy table; / the determination of performance measures and targets and resultant vesting and pay-out levels; / (as described in the termination payment policy section below) determination of the treatment of individuals who leave employment, based on the rules of the incentive plans, and the treatment of the incentive plans on exceptional events, such as a change of control of the Company; and / the ability to make adjustments to existing awards made under the incentive plans in certain circumstances (e.g. rights issues, corporate restructurings or special dividends). While performance conditions will generally remain unchanged once set, the Committee has the usual discretions to amend the measures, weightings and targets in exceptional circumstances (such as a major transaction) where the original conditions would cease to operate as intended. Any such changes would be explained in the subsequent Directors’ Remuneration Report and, if appropriate, be the subject of consultation with the Company’s major shareholders. 6. Previous Policies The Company will honour all pre-existing commitments made under previous policies in accordance with the terms of such commitments. Recruitment remuneration policy In terms of the principles for setting a package for a new Executive Director, the starting point for the Committee will be to apply the general policy for Executive Directors as set out above and structure a package in accordance with that policy. Consistent with the DRR regulations, the caps contained within the policy for fixed pay do not apply to new recruits, although the Committee would not envisage exceeding these caps in practice. The AIP and PSP will operate (including the maximum award levels) as detailed in the general policy in relation to any newly appointed Executive Director. For an internal appointment, any variable pay element awarded in respect of the prior role may either continue on its original terms or be adjusted to reflect the new appointment as appropriate. For external and internal appointments, the Committee may agree that the Company will meet certain relocation expenses as it considers appropriate. For external candidates, it may be necessary to make additional awards to buy-out awards forfeited by the individual on leaving a previous employer. For the avoidance of doubt, buy-out awards are not subject to a formal cap. Details of any buy-out awards will be appropriately disclosed. For any buy-outs the Company will not pay more than is, in the view of the Committee, necessary and will in all cases seek, in the first instance, to deliver any such awards under the terms of the existing AIP and PSP. It may, however, be necessary in some cases to make buy-out awards on terms that are more bespoke than the existing AIP and PSP (including in reliance on UKLA Listing Rule 9.4.2). All buy-outs, whether under the AIP, PSP or otherwise, will take account of the service obligations and performance requirements for any remuneration relinquished by the individual when leaving a previous employer. The Committee will seek to make buy-outs subject to what are, in its opinion, comparable requirements in respect of service and performance. However, the Committee may choose to relax this requirement in certain cases (such as where the service and/or performance requirements are materially completed, or where such factors are, in the view of the Committee, reflected in some other way, such as a significant discount to the face value of the awards forfeited) and where the Committee considers it to be in the interests of shareholders. A new Non-Executive Director would be recruited on the terms explained above in respect of the main policy for such Directors. 55 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Directors’ Remuneration Report continued Termination policy summary It is appropriate for the Committee to consider treatments on a termination having regard to all of the relevant facts and circumstances available at that time. This policy applies both to any negotiations linked to notice periods on a termination and to any treatments that the Committee may choose to apply under the discretions available to it under the terms of the AIP and PSP plans. The potential treatments on termination under these plans are summarised below: Incentives Annual Incentive Plan Performance Share Plan If a leaver is deemed to be a ‘good leaver’; for example, leaving through death or otherwise at the discretion of the Committee If a leaver is deemed to be a ‘bad leaver’; for example, leaving for disciplinary reasons or to join a competitor Committee has discretion to determine AIP. No awards made. Other exceptional cases; e.g. change in control Committee has discretion to determine AIP. All awards will normally lapse. Will receive a pro- rated award subject to the application of the performance conditions at the date of the event, subject to standard Committee discretions to vary time pro-rating. Will receive a pro-rated award subject to the application of the performance conditions at the end of the normal performance period. Committee retains standard discretions to either vary time pro-rating or to allow vesting after the date of cessation (determining the performance conditions at that time). The Company has the power to enter into settlement agreements with executives and to pay compensation to settle potential legal claims. In addition, and consistent with market practice, in the event of termination of an Executive Director, the Company may pay a contribution towards the individual’s legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees would be disclosed as part of the detail of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on the cost of termination payments. In the event of cessation of a Non-Executive Director’s appointment, they would be entitled to a three month notice period. External appointments Where Executive Directors serve on the boards of other companies in either an executive or non-executive role, the individuals are permitted to retain any income earned for acting as director. Statement of consideration of employment conditions elsewhere in the Group Pay and employment conditions generally in the Group are taken into account when setting Executive Directors’ remuneration. The Committee receives regular updates on overall pay and conditions in the Group, including (but not limited to) changes in base pay and any staff bonus pools in operation. There is also oversight of the all-employee Sharesave Plan which Executive Directors and all other Group employees can participate in on the same terms and conditions. The Company did not consult with employees in drawing up this Remuneration Report. Statement of consideration of shareholder views The Committee welcomes feedback from all shareholders and from shareholder representative bodies. As explained in the Committee Chairman’s introductory statement, in 2016 the Committee engaged with shareholder and representative bodies to discuss the continued operation of our current policy, including the inclusion of our Executive Chairman and other Concert Party individuals in our PSP. 56 Clipper Logistics plc Illustrations of application of remuneration policy (£’000) Executive Chairman – Steve Parkin CEO – Tony Mannix CFO – David Hodkin £1,134 37% 19% £733 15% 17% £500 100% 68% 44% 1,200 1,000 800 600 400 200 0 £767 38% 19% £493 14% 18% £333 £607 38% 19% £391 15% 17% £264 100% 68% 43% 100% 68% 43% Minimum In line with expectation Maximum Minimum In line with expectation Maximum Minimum In line with expectation Maximum Total fixed pay Annual Incentive Plan Long-term Incentives The charts above aim to show how the remuneration policy set out above for Executive Directors is applied using the following assumptions: / Consists of base salary, benefits and pension. / Base salary is the salary to be paid in the year ending 30 April 2020. / Benefits measured as benefits paid in the year ended 30 April 2019 as set out in the single figure table. / Pension measured as the defined contribution or cash allowance in lieu of Company contributions, Minimum as a percentage of salary (£10,000 for Steve Parkin, 10% for Tony Mannix and 15% in the case of David Hodkin). £’000 Steve Parkin Tony Mannix David Hodkin Base Salary Benefits Pension Total Fixed 421 288 228 69 16 2 10 29 34 500 333 264 In line with expectations Based on what the Director would receive if performance was on target (excluding share price appreciation and dividends): / STI: consists of the on-target bonus of 30% of salary. / LTI: consists of the threshold level of vesting (25% vesting), plus the fair value of full investment in the Sharesave Plan (£1,200). Based on the maximum remuneration receivable (excluding share price appreciation and dividends): Maximum / STI: consists of maximum bonus of 50% of base salary. / LTI: consists of the face value of awards (100% of salary), plus the fair value of full investment in the Sharesave Plan (£1,200). 57 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Directors’ Report The Directors are pleased to present their report and the audited Financial Statements of Clipper Logistics plc for the year ended 30 April 2019. The Corporate Governance Report on pages 38 to 41 and the ‘Our People’ and ‘Sustainability’ sections of the Strategic Report (with regard to information about the employment of disabled persons, employee involvement and greenhouse gas emissions) are also incorporated into this report by reference. The Company has chosen, in accordance with section 414C (11) of the Companies Act 2006 to include the disclosure of particulars of likely future developments in the Strategic Report (see pages 1 to 35). Financial risk management The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating and Financial Review on pages 30 to 35, along with the financial position of the Group, its cash flows and liquidity. In addition, note 26 to the Group Financial Statements includes the Group’s objectives, policies and processes for capital and financial risk management, including information on the Group’s exposures to market risk, including foreign currency, interest rate, inflation and equity price risks; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. Results and dividends The consolidated profit for the Group for the year after taxation was £13.4 million (2018: £14.3 million). The results are discussed in greater detail in the Operating and Financial Review on pages 30 to 35 and set out in the Group Income Statement on page 70. The Directors are recommending the payment on 23 October 2019 of a final dividend of 6.5 pence per ordinary share to shareholders on the register at the close of business on 20 September 2019 which, together with the interim dividend of 3.2 pence per ordinary share paid on 7 January 2019, results in a total dividend for the year of 9.7 pence per share (2018: 8.4 pence). Directors The names and biographies of the current Directors of the Company are set out on pages 36 and 37 of this Annual Report. The following Directors served the Company during the year ended 30 April 2019: Name Position Steven (Steve) Nicholas Parkin Executive Chairman Antony (Tony) Gerard Mannix Chief Executive Officer David Arthur Hodkin Chief Financial Officer Stephen Peter Robertson1 Senior Independent Non-Executive Director Michael (Mike) John Russell Independent Non-Executive Director Stuart William Watson2 Independent Non-Executive Director Ronald (Ron) Charles Series3 Senior Independent Non-Executive Director 1. Stephen Robertson became Senior Independent Non-Executive Director with effect from 7 March 2019 (formerly Independent Non-Executive Director). 2. Stuart Watson was appointed on 26 March 2019. 3. Ron Series stepped down from the Board on 7 November 2018 due to a conflict arising in relation to certain new contracts and business developments within Clipper. Articles of Association The Articles of Association (adopted by special resolution on 15 May 2014) (the “Articles”) may only be amended by special resolution of the shareholders. A copy of the Articles is available on request from the Company Secretary. Directors’ share interests Details of the Directors’ interests in the Company’s shares are included in the Directors’ Remuneration Report on page 47. Directors’ indemnities The Company provided indemnities to each of its Directors during the year ended 30 April 2019 in accordance with the provisions of the Company’s Articles, allowing the indemnification of Directors out of the assets of the Company to the extent permitted by law. These indemnities constitute qualifying indemnities for the purposes of the Companies Act 2006 and remain in force at the date of approval of this report without any payment having been made under them. Directors’ and officers’ liability insurance Directors’ and officers’ liability insurance cover is in place at the date of this report. The Board remains satisfied that an appropriate level of cover is in place and a review of cover will take place on an annual basis. Compensation for loss of office There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs as a result of a takeover bid. Further details of the Directors’ service contracts can be found in the Directors’ Remuneration Report on pages 46 to 57. Significant contracts The only significant contract involving any Director or controlling shareholder of the Company during the year was the Relationship Agreement (referred to later in this report) entered into between the Company and Steve Parkin and Carlton Court Investments Limited. Share capital structure Details of the Company’s share capital are set out in note 22 to the Group Financial Statements on page 94. During the year the Company issued: / 189,035 new ordinary shares of 0.05 pence 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; and / 64,964 new ordinary shares of 0.05 pence each pursuant to the exercise of options granted to certain employees of the Group under the Company’s PSP approved by shareholders at the 2014 AGM. 58 Clipper Logistics plc The Company has a single class of share capital divided into ordinary shares of 0.05 pence each. The ordinary shares are listed on the London Stock Exchange. The rights and obligations attaching to these shares are governed by UK law and the Company’s Articles. Voting rights attaching to shares Ordinary shareholders are entitled to receive notice and to attend and speak at any general meeting of the Company. On a show of hands, every shareholder present in person or by proxy (or being a corporation represented by a duly authorised representative) shall have one vote, and on a poll every shareholder who is present in person or by proxy shall have one vote for every share of which he or she is the holder. The Notice of Annual General Meeting specifies deadlines for exercising voting rights and appointing a proxy or proxies. Deadlines for exercising voting rights attaching to shares The Articles provide a deadline for the submission of proxy forms (whether by an instrument in writing or electronically) of not less than 48 hours before the time appointed for the holding of the meeting or the adjourned meeting. Shares in uncertificated form Directors may determine that shares may be held in uncertificated form and title to such shares may be transferred by means of a relevant system or that shares should cease to be so held and transferred. Variation of rights attaching to shares The Articles provide that rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares, or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every such separate general meeting, the quorum shall be two persons holding or representing by proxy at least one-third in nominal value of the issued shares (calculated excluding any shares held in treasury). The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them. Restrictions on the transfer of shares There are no restrictions on the transfer of the ordinary shares other than: / the standard restrictions for a UK-quoted company where any amount is unpaid on a share; / where, from time to time, certain restrictions may become imposed by laws and regulations (for example, insider trading laws and market regulations relating to close periods); and / pursuant to the Listing Rules of the Financial Conduct Authority whereby certain Directors, officers or employees of the Company require the approval of the Company to deal in the ordinary shares. On 30 May 2014 each of the Executive Directors (save for Steve Parkin) and certain persons who held ordinary shares after the Company’s Admission or whose associates held such shares entered into an agreement with Steve Parkin agreeing to certain restrictions on their ability (and that of their family) to dispose of ordinary shares in which they are interested for a period of five years from the date of Admission. Under the terms of the agreement, the obligors may not dispose of any interest in the ordinary shares held by them at Admission until the fourth year of the five year period. During the fourth year of the period, each obligor may dispose of up to one third of the ordinary shares in which he is interested at Admission. During the fifth year of the five year period, each obligor may dispose of up to two thirds of the ordinary shares in which he is interested at Admission (less a number equal to those ordinary shares sold during the prior year (if any)). Authority to purchase own shares As at 28 August 2019, being the latest practicable date prior to the publication of this report, the Company did not hold any shares in treasury. Appointment and replacement of Directors Unless determined by ordinary resolution of the Company, the number of Directors shall not be less than two or more than 12 in number. A Director is not required to hold any shares in the Company by way of qualification. The Board may appoint any person to be a Director and such Director shall hold office only until the next AGM, when he or she shall be eligible for appointment by the shareholders. The articles provide that at each AGM, one-third of the Directors for the time being (or, if their number is not a multiple of three, then the number nearest to but not less than one-third) shall retire from office. A Director who retires at any AGM shall be eligible for re-appointment. In addition, any Director appointed by the Board shall hold office only until the next AGM and shall then be eligible for appointment. As recommended by the 2018 Code, notwithstanding the Company’s Articles, the Directors have determined that all Directors shall retire from office annually at the AGM, and shall be eligible for re-appointment at that same AGM. On 30 May 2014, the Company entered into an agreement (the “Relationship Agreement”) with Steve Parkin and his nominee company Carlton Court Investments Limited (the “Controlling Shareholders”). Pursuant to that agreement the Company has agreed with the Controlling Shareholders that the Controlling Shareholders shall be entitled to appoint and remove one Director to the Board so long as the Controlling Shareholders (and/or any of their associates), when taken together, hold 25% or more of the voting rights over the Company’s issued shares. Where any Controlling Shareholder has already been nominated to the Board as a Director himself such appointment will reduce the number of persons which the Controlling Shareholders are entitled to nominate for appointment by one. Any person appointed by the Controlling Shareholders to the Board may be removed by the Controlling Shareholders by notice in writing. 59 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019out in the ‘Our People’ section of the Strategic Report on pages 24 to 27. Significant agreements There are a number of agreements which, subject to any discussions with relevant parties, could terminate upon a change of control of the Company such as commercial contracts, bank loan agreements, property lease arrangements and employees’ share plans. None of these individually is considered to be significant in terms of their likely impact on the business of the Group as a whole. Political donations The Company has made no political donations since Admission on 4 June 2014 and intends to continue its policy of not doing so. Charitable donations During the year to 30 April 2019, the Group made charitable donations totalling £68,000 (2018: £48,000). Audit information Each of the Directors at the date of the approval of this report confirms that: / so far as he is aware, there is no relevant audit information of which the Group’s auditor is unaware; and / he has taken all the reasonable steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Group’s auditor is aware of the information. The confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. Auditor The auditor, KPMG LLP, has indicated its willingness to continue in office and a resolution seeking to re-appoint KPMG LLP will be proposed at the AGM. The Group intends to hold a tender for audit services in 2019 ahead of the half year results. / Governance Directors’ Report continued Relationship Agreement with Controlling Shareholders Carlton Court Investments Limited (“Carlton”) holds 24.73% of the issued share capital of the Company and, together with its concert parties, controls 38.82% of the issued share capital of the Company. As such Carlton is a Controlling Shareholder as defined in the Listing Rules. Carlton is controlled by Steve Parkin. Steve Parkin and Carlton have entered into, and the Company’s relationship with them is governed by the terms of, the Relationship Agreement referred to above, the principal purpose of which is to ensure that the Company and the Group are capable of carrying on their business independently of the Controlling Shareholders and that any transactions and relationships with the Controlling Shareholders are conducted at arm’s length and on normal commercial terms. The Controlling Shareholders have agreed to procure that their associates also comply with the Relationship Agreement. The Relationship Agreement will continue for so long as the Company is listed on the main market for listed securities of the London Stock Exchange and the Controlling Shareholders and their associates own or control at least 25% of the Company’s issued share capital or voting rights. The Listing Rules require premium listed companies with controlling shareholders to provide a confirmation in their annual reports that all of the independence provisions contained in their agreements have been complied with. In line with this requirement, the Board has assessed the Controlling Shareholders’ and Company’s compliance with the Relationship Agreement’s independence requirements and has assessed compliance with these requirements during the period under review. As such, the Board can confirm that since the entry into the Relationship Agreement on 30 May 2014 until 28 August 2019, being the latest practicable date prior to the publication of this Annual Report and Accounts: / the Company has complied with the independence provisions included in the Relationship Agreement; / so far as the Company is aware, the independence provisions included in the Relationship Agreement have been complied with by each of the Controlling Shareholders and their associates and also by the Company; and / so far as the Company is aware, the procurement obligation included in the Relationship Agreement has been complied with by each of the Controlling Shareholders. Power of Directors Subject to the Articles, the Companies Act 2006 and any directions given by special resolution, the business of the Company shall be managed by the Board which may exercise all the powers of the Company to, for example, borrow money; mortgage or charge any of its undertaking, property and uncalled capital; and issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company. Greenhouse gas emissions The Group’s disclosures on greenhouse gas emissions can be found in the Sustainability section of the Strategic Report on pages 28 and 29 and form part of the Directors’ Report. Employment policies Arrangements for consulting and involving Group employees on matters affecting their interests at work, and informing them of the performance of their employing business and the Group, are developed in ways appropriate to each business. Various approaches are adopted aimed at encouraging the involvement of employees in effective communication and consultation, and the contribution of productive ideas at all levels. The Company has commenced a workforce engagement programme in line with the 2018 Code. Employment policies are designed to provide equal opportunities irrespective of race, caste, national origin, religion, age, disability, gender, marital status, sexual orientation or political affiliation. Group policy is to ensure that disabled applicants for employment are given full and fair consideration having regard to their particular aptitudes and abilities, and that existing disabled employees are given equal access to training, career development and promotion opportunities. In the event of existing employees becoming disabled, all reasonable means will be explored to achieve retention in employment in the same or an alternative capacity, including arranging appropriate training. Further details in relation to the Group’s employment policy are set 60 Clipper Logistics plc Major interests in shares As at 28 August 2019, 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 Carlton Court Investments Limited1 Liontrust Asset Management SOMLIE Limited Unicorn Asset Management Global Alpha Capital Management Franklin Templeton Fund Management Summit Limited Royal London Asset Management 1. Ultimately controlled by Steve Parkin, Executive Chairman. Going concern After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. In making this assessment they have considered the Company and Group budgets and cash flow forecasts for the period to 30 April 2022. The Company has considerable financial resources, negligible liquidity risk and is operating within a sector that is experiencing growing demand for its services. The Directors therefore have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual Financial Statements. Further information is disclosed in the Viability Statement on page 23 and note 2.2 to the Group Financial Statements. Annual General Meeting The Company’s AGM will be held at the Novotel Leeds Centre, 4 Whitehall, Whitehall Quay, Leeds, LS1 4HR on 21 October 2019 at 11.00am. Details of the meeting venue and the resolutions to be proposed are set out in a Notice of Meeting which will be issued under separate cover. The Directors consider that all of the proposed resolutions are in the best interests of the Company and its shareholders as a whole. It is the Directors’ recommendation that shareholders support the proposed resolutions and vote in favour of them, as each of the Directors intends to do. The Directors’ Report has been approved by the Board of Directors of Clipper Logistics plc. Signed on behalf of the Board by: Marianne Hodgkiss Company Secretary 29 August 2019 Number of voting rights 25,128,000 17,150,370 6,424,945 6,500,000 5,894,305 5,437,000 5,000,000 4,557,069 % 24.72 16.87 6.32 6.39 5.80 5.35 4.92 4.48 61 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Governance Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements We consider the Annual Report and the Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Approved by the Board and signed on its behalf by: Steve Parkin Executive Chairman 29 August 2019 David Hodkin Chief Financial Officer 29 August 2019 The Directors are responsible for preparing the Annual Report and the Group and Company Financial Statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent company financial statements in accordance with UK accounting standards, including FRS 101 ‘Reduced Disclosure Framework’. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to: / select suitable accounting policies and then apply them consistently; / make judgments and estimates that are reasonable, relevant, reliable and prudent; / for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; / for the parent company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; / assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and / use the going concern basis of accounting unless they either intend to liquidate the group or the parent company or to cease operations or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors’ report, directors’ remuneration report and corporate governance statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement of the Directors in respect of the Annual Report and the Financial Statements We confirm that to the best of our knowledge: / the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and / the Strategic Report and Directors’ Report include a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 62 Clipper Logistics plc / Group Financial Statements Independent Auditor’s Report to the members of Clipper Logistics plc 1. Our opinion is unmodified We have audited the Financial Statements of Clipper Logistics plc (the “Company”) for the year ended 30 April 2019 which comprise the Group Income Statement, Group Statement of Comprehensive Income, Group Statement of Financial Position, Group Statement of Changes in Equity, Group Statement of Cash Flows, Company Statement of Financial Position, Company Statement of Changes in Equity and the related notes, including the accounting policies in notes 2 and B. In our opinion: / the Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 April 2019 and of the Group’s profit for the year then ended; Overview / the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; / the Parent Company Financial Statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and / the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were first appointed as auditor by the shareholders on 31 March 2016. The period of total uninterrupted engagement is for the four financial years ended 30 April 2019. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. Materiality: Group Financial Statements as a whole £0.892m (2018: £0.822m) Coverage Key audit matters Recurring risks Event driven 5.3% (2018: 4.6%) of Group profit before tax 92.8% (2018: 93.5%) of Group profit before tax vs 2018 Group and Parent Company: Accuracy of revenue recognition in Clipper Logistics plc and Clipper Logistics KG (GmbH & Co.)  New: The impact of uncertainties due to the UK exiting the European Union on our audit New: Group and Parent Company: Going concern New: Management override of internal controls and related party transactions    2. Key audit matters: including our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the Financial Statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. The impact of uncertainties due to the UK exiting the European Union on our audit Refer to page 20 (principal risks), page 23 (viability statement) and page 43 (Audit Committee Report). The risk Unprecedented levels of uncertainty All audits assess and challenge the reasonableness of estimates, in particular as described in ‘accuracy of revenue recognition in Clipper Logistics plc and Clipper Logistics KG (GmbH & Co.)’ below, and related disclosures and the appropriateness of the going concern basis of preparation of the Financial Statements (see below). All of these depend on assessments of the future economic environment and the Group’s future prospects and performance. In addition, we are required to consider the other information presented in the Annual Report including the principal risks disclosure and the viability statement and to consider the Directors’ statement that the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Brexit is one of the most significant economic events for the UK and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. Our response We developed a standardised firm- wide approach to the consideration of the uncertainties arising from Brexit in planning and performing our audits. Our procedures included: 63 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Independent Auditor’s Report continued / Our Brexit knowledge: We considered the Directors’ assessment of Brexit-related sources of risk for the Group’s business and financial resources compared with our own understanding of the risks. We considered the Directors’ plans to take action to mitigate the risks; / Sensitivity analysis: When addressing going concern and other areas that depend on forecasts, we compared the Directors’ analysis to our assessment of the full range of reasonably possible scenarios resulting from Brexit uncertainty; and / Assessing transparency: As well as assessing individual disclosures as part of our procedures on going concern we considered all of the Brexit related disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks. Our results As reported under the impact of uncertainties due to the UK exiting the European Union on our audit, we found the resulting estimates and related disclosures of Brexit and disclosures in relation to going concern to be acceptable. However, no audit should be expected to predict the unknowable factors or all possible future implications for a Company and this is particularly the case in relation to Brexit. Group and Parent Company: Going concern Refer to page 20 (principal risks), page 23 (viability statement), page 43 (Audit Committee Report) and page 74 and 105 (accounting policy). The risk Disclosure quality The Financial Statements explain how the Board has formed a judgment that it is appropriate to adopt the going concern basis of preparation for the Group and Parent Company. That judgment is based on an evaluation of the inherent risks to the Group’s and Company’s business model and how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over a period of at least a year from the date of approval of the Financial Statements. The risks most likely to adversely affect the Group’s and Company’s available financial resources over this period were: / The impact of Brexit on the availability or cost of warehousing and transport labour. There are also less predictable but realistic second order impacts, such as: / The impact of Brexit and the erosion of customer or supplier confidence, which could result in a rapid reduction of available financial resources; and / Reduction in investment in the UK by customers, resulting in relocation of operations outside of the UK. The risk for our audit was whether or not those risks were such that they amounted to a material uncertainty that may have cast significant doubt about the ability to continue as a going concern. Had they been such, then that fact would have been required to have been disclosed. Our response Our procedures included: / Funding assessment: We assessed the committed level of financing available to the Group for at least the next 12 months through consideration of the facility agreement. We challenged the Directors’ assumptions by considering our own expectations based on our knowledge of the entity and experience of the industry in which it operates; / Historical comparisons: We considered the Group’s historical budgeting accuracy, by assessing actual performance against budget; / Benchmarking assumptions: We benchmarked the assumptions behind the cash flow forecasts to third party evidence where available; / Sensitivity analysis: We considered sensitivities over the level of available financial resources indicated by the Group’s financial forecasts taking account of reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively; and / Assessing transparency: We assessed the completeness and accuracy of the matters covered in the going concern disclosure by assessing the reasonableness of risks and uncertainties specified by the disclosure against our findings from our evaluation of management’s assessment of going concern. Our results We found the going concern disclosure without any material uncertainty to be acceptable. Group and Parent Company: Accuracy of revenue recognition in Clipper Logistics plc and Clipper Logistics KG (GmBH & Co.) Refer to page 44 (Audit Committee Report), pages 78-79 (accounting policy) and page 81 (financial disclosures). The risk Calculation and revenue recognition Contract and billing terms with customers across Clipper Logistics plc and Clipper KG (GmBH & Co.) vary significantly and include different and complex mechanisms for calculating the amount receivable in respect of services delivered. These mechanisms take into account delivery against service level agreements and require agreement of the level of costs incurred in delivering the services with customers. Failure to meet the terms of the service level agreements could result in potential penalties. The varied terms, costs and performance requirements used to determine revenue can lead to complexity around the calculation of contract assets and liabilities, and assessing that revenue is recognised in the correct period. Our response Our procedures included: / Tests of details: We inspected the contract terms and billing schedule of a sample of key customer contracts to form an expectation of whether the year end balance sheet position would include contract assets or liabilities, which we then compared to the actual year end balances; 64 Clipper Logistics plc / Re-performance: We recalculated a sample of contract liability balances using confirmation of services provided to customers or contracts detailing the specific calculation mechanisms where available. We also agreed the sample to invoices raised before the year end and cash receipt where possible; / Tests of details: We agreed a sample of year end contract asset balances to subsequent cash receipts where available or alternative evidence, including third party confirmations of services provided to customers in the year; / Tests of details: For a sample of invoices raised around the year end date, we considered the nature and timings of the services provided to understand if revenue had been accrued or deferred as expected. We also agreed amounts to subsequent cash receipts where available or alternative third party audit evidence including customer confirmation of services received in the year. This led to the identification of transactions which the Company has adjusted for; and / Assessing transparency: We assessed the adequacy of the Group’s disclosures in respect of the accounting policies on revenue recognition set out in note 2 to the Group Financial Statements. Our results The results of our procedures were satisfactory and we considered the amount of revenue recognised to be acceptable (2018 result: acceptable). We consider the Group’s disclosures in respect of the accounting policies on revenue recognition to be acceptable (2018 result: acceptable). Related Party Transactions Refer to page 44 (Audit Committee Report) and pages 98-99 (financial disclosures). The risk Management override of internal controls and completeness of disclosure Various related party transactions have occurred with companies in which the Group, or key management personnel of the Group, have interests and/or are directors. There is a risk that not all related party transactions are appropriately identified, accounted for and disclosed in the Financial Statements, and therefore that insufficient information is provided to understand the nature and effect of the various related party relationships and transactions, affecting the fair presentation of the Financial Statements. There is additional risk in relation to the fact that related party relationships may present a greater opportunity for collusion, concealment or manipulation by the Directors. The risk is considered to be limited to the Clipper Logistics plc parent entity, where transactions with related parties in which key management personnel and/or shareholders are more common. Our response Our procedures included: / Control observation: We evaluated the entity’s controls in relation to the assessment and approval of related party transactions; / Tests of details: We obtained a list of related parties from the Directors and gained an understanding of the entity’s related party relationships, including changes from the prior period. We understood the nature of transactions with related parties, including the terms and business purposes (or the lack thereof) of the transactions involving related parties; / Tests of details: We inspected minutes of meetings of shareholders and of those charged with governance, and shareholder registers that identify the entity’s principal shareholders, for indications of the existence of related party relationships or transactions that the Directors had not previously identified or disclosed to us; / Comparisons: We assessed the Directors’ evaluation that the transactions are on an arm’s length basis comparing the related party transaction price to those quoted by comparable unrelated companies, where possible; / Tests of details: For significant related party transactions outside the entity’s normal course of business, and for related party transactions identified during our testing that were not previously brought to our attention, we inspected the underlying contracts or agreements where available, and evaluated whether the business rationale (or lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets. We determined whether the terms of the transactions were consistent with the Directors’ explanations; and the transactions had been appropriately accounted for and disclosed in accordance with the relevant financial reporting framework. We obtained audit evidence that the transactions have been appropriately authorised and approved, where available; / Enquiry of key management personnel: We obtained self- certifications from the Directors that they have disclosed to us the identity of their related parties and all the related party relationships and transactions of which they are aware; and they have appropriately accounted for and disclosed such relationships and transactions in accordance with the requirements of the relevant framework; / Extended scope: For each Director we ran a search for any companies controlled by those individuals (the search was performed via Companies House records). We compared the results of the searches made with the list of entities provided to us by the Directors and investigated the differences between the listings; / Extended scope: We inspected bank statements, transaction listings, sales and purchase ledgers and/or relevant agreements for arrangements or other information that may have indicated the existence of related party relationships or transactions that the Group had not previously identified or disclosed; and / Assessing transparency: For each class of related party transaction we compared the Financial Statements disclosures against the underlying transactions and the accounting requirements, assessing the adequacy of the Group’s disclosures in respect of related party transactions. Our results We found the disclosure of related party transactions to be satisfactory. 65 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Independent Auditor’s Report continued We continue to perform procedures over revenue recognition. However, given no acquisitions have occurred during the year, we have not assessed acquisition accounting as a significant risk in our current year audit and, therefore, it is not separately identified in our report this year. 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group Financial Statements as a whole was set at £892,000 (2018: £822,000), determined with reference to a benchmark of Group profit before income tax, of which it represents 5.3% (2018: 4.6%). Materiality for the Parent Company Financial Statements as a whole was set at £775,000 (2018: £557,000), determined with reference to a benchmark of Company profit before income tax, of which it represents 4.9% (2018: 5.0%).  We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £44,600 (2018: £41,100), in addition to other identified misstatements that warranted reporting on qualitative grounds.  Of the Group’s nine (2018: ten) reporting components we subjected four (2018: five) to full-scope audits for Group reporting purposes. These procedures covered 97.4% of total Group revenue (2018: 98.6%), 92.8% of Group profit before income tax (2018: 93.5%) and 94.4% of total Group assets (2018: 97.6%).  The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the following component materiality, having regard to the mix of size and risk profile of the Group across the components:  / Clipper Logistics KG (GmbH & Co.): €490,000 (2018: €430,000) The work on one of the four components (2018: one of the five components) was performed by the component auditor and the rest, including the audit of the Parent Company, was performed by the Group team. The Group team visited no locations (2018: no component locations), to assess the audit risk and strategy. Telephone conference meetings were held with the component auditor. At these meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. The remaining 2.6% (2018: 1.4%) of total Group revenue, 7.2% (2018: 6.5%) of absolute Group profit before tax and 5.6% (2018: 2.4%) of total Group assets is represented by five (2018: five) of the reporting components, none of which individually represented more than 4.2% (2018: 2.2%) of any of total Group revenue, Group profit before tax or total Group assets. For these residual components, we performed analysis at an aggregated Group level to re- examine our assessment that there were no significant risks of material misstatement within these. Group profit before income tax £16.930m (2018: £17.966m) Group materiality £892k (2018: £822k) £892k Whole Financial Statements materiality (2018: £822k) £775k Range of materiality at 4 components (£105k – £775k) (2018: £136k to £557k) £44.6k Misstatements reported to the Audit Committee (2018: £41.1k) Group profit before income tax Group materiality 66 Clipper Logistics plc Group revenue Group profit before tax Group total assets 2019 2018 97% (2018: 99%) 98.6 97.4 2019 2018 93% (2018: 94%) 2019 2018 94% (2018: 98%) 93.5 92.8 97.6 94.4 Full scope for Group audit purposes 2019 Full scope for Group audit purposes 2018 Residual components 4. We have nothing to report on going concern The Directors have prepared the Financial Statements on the going concern basis as they do not intend to liquidate the Company or the Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the Financial Statements (‘the going concern period’). Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the Group and the Company will continue in operation. We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our response to that key audit matter, we are required to report to you if: / we have anything material to add or draw attention to in relation to the Directors’ statement in Note 2 to the Financial Statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’s use of that basis for a period of at least twelve months from the date of approval of the Financial Statements; or / the related statement under the Listing Rules set out on page 61 is materially inconsistent with our audit knowledge. We have nothing to report in these respects. 5. We have nothing to report on the other information in the Annual Report The Directors are responsible for the other information presented in the Annual Report together with the Financial Statements. Our opinion on the Financial Statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic Report and Directors’ Report Based solely on our work on the other information: / we have not identified material misstatements in the Strategic Report and the Directors’ Report; / in our opinion the information given in those reports for the financial year is consistent with the Financial Statements; and / in our opinion those reports have been prepared in accordance with the Companies Act 2006. Directors’ Remuneration Report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of principal risks and longer-term viability Based on the knowledge we acquired during our Financial Statements audit, we have nothing material to add or draw attention to in relation to: / the Directors’ confirmation within the Viability Statement page 23 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; / the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; and 67 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Independent Auditor’s Report continued / the Directors’ explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Under the Listing Rules we are required to review the Viability Statement. We have nothing to report in this respect. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and Company’s longer-term viability. Corporate governance disclosures We are required to report to you if: We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in these respects. Based solely on our work on the other information described above: / with respect to the Corporate Governance Statement disclosures about internal control and risk management systems in relation to financial reporting processes and about share capital structures: – we have not identified material misstatements therein; and – the information therein is consistent with the Financial Statements; and / in our opinion, the Corporate Governance Statement has been prepared in accordance with relevant rules of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. 6. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: / we have identified material / adequate accounting records have inconsistencies between the knowledge we acquired during our Financial Statements audit and the Directors’ statement that they consider that the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or / the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or / a Corporate Governance Statement has not been prepared by the Company. not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or / the Parent Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or / certain disclosures of Directors’ remuneration specified by law are not made; or / we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. 7. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 62, the Directors are responsible for: the preparation of the Financial Statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. Irregularities – ability to detect We identified areas of laws and regulations that could reasonably be expected to have a material effect on the Financial Statements from our general commercial and sector experience, and through discussion with the Directors and other management (as required by auditing standards), and discussed with the Directors and other management the policies and procedures regarding 68 Clipper Logistics plc compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group to component audit teams of relevant laws and regulations identified at Group level. The potential effect of these laws and regulations on the Financial Statements varies considerably. Firstly, the Group is subject to laws and regulations that directly affect the Financial Statements including financial reporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related Financial Statement items. Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the Financial Statements, for instance through the imposition of fines or litigation or the loss of the Group’s licence to operate. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, employment law, transport law and certain aspects of Company legislation recognising the financial and regulated nature of the Group’s activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence, if any. Through these procedures, we became aware of actual or suspected non- compliance and considered the effect as part of our procedures on the related Financial Statement items. The identified actual or suspected non-compliance was not sufficiently significant to our audit to result in our response being identified as a key audit matter. Transactions with Directors were identified during the course of the audit. These transactions were unlawful as they were entered into in contravention of the provisions of the Companies Act 2006 relating to ‘quasi loans’ to directors. As a result we inspected bank statements to identify any similar transactions and credit card statements at the balance sheet date to identify any quasi loans that remained outstanding. The in-year transactions had all been settled and the amounts outstanding at the balance sheet date were settled once the non-compliance was identified. We inspected the legal advice sought by the Group and assessed the adequacy of the disclosure of these transactions in the Financial Statements. Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the Financial Statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the Financial Statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non- detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non- compliance and cannot be expected to detect non-compliance with all laws and regulations. 8. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Johnathan Pass (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 Sovereign Square Sovereign Street Leeds LS1 4DA 29 August 2019 69 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019 / Group Financial Statements Group Income Statement For the year ended 30 April Revenue Cost of sales Gross profit Other net losses or gains Administration and other expenses Operating profit before share of equity-accounted investees, net of tax Share of equity-accounted investees, net of tax Operating profit EBIT Less: amortisation of other intangible assets share of tax and finance costs of equity-accounted investees 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 2019 Group £’000 460,171 (331,879) 128,292 (327) (108,481) 19,484 (413) 19,071 20,213 (1,185) 43 19,071 (2,199) 58 16,930 (3,524) 13,406 13.2p 13.1p 2018 Group £’000 400,115 (283,324) 116,791 2,398 (98,358) 20,831 (889) 19,942 20,854 (1,094) 182 19,942 (2,014) 38 17,966 (3,685) 14,281 14.2p 14.1p Note 3 6 4 6 4 4 6 8 9 10 11 11 Group Statement of Comprehensive Income For the year ended 30 April Profit for the financial year Other comprehensive income/(expense) for the year, net of tax: To be reclassified to the income statement in subsequent periods: Exchange differences on retranslation of foreign operations Total comprehensive income for the financial year Note 2019 Group £’000 2018 Group £’000 13,406 14,281 31 13,437 (106) 14,175 70 Clipper Logistics plc Group Statement of Financial Position At 30 April Assets: Non-current assets Goodwill Other intangible assets Intangible assets Property, plant and equipment Interest in equity-accounted investees Non-current financial assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities: Current liabilities Trade and other payables Financial liabilities: borrowings 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 2019 Group £’000 2018 Group £’000 Note 12 14 15 27 16 17 18 19 20 21 20 21 10 22 25,951 11,390 37,341 61,470 865 1,950 101,626 24,049 96,347 3,517 123,913 25,951 11,267 37,218 44,998 1,278 1,950 85,444 22,099 73,430 2,275 97,804 225,539 183,248 125,982 12,285 214 803 139,284 39,110 1,610 2,320 43,040 102,402 9,219 78 2,540 114,239 26,664 1,486 1,541 29,691 182,324 143,930 51 2,060 (108) 84 6,006 1,643 33,479 43,215 51 1,710 (139) 84 6,006 2,745 28,861 39,318 Total equity and liabilities 225,539 183,248 The accompanying notes on pages 74 to 102 form part of these Financial Statements. Approved by the Board on 29 August 2019 and signed on its behalf by: DA Hodkin Chief Financial Officer Clipper Logistics plc Company No. 03042024 71 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Group Statement of Changes in Equity For the year ended 30 April Balance at 1 May 2017 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Balance at 30 April 2018 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Share capital Group £’000  Share premium Group £’000 Currency translation reserve Group £’000 Other reserve Group £’000 Carried forward Group £’000 50 – – – 1 – 51 – – – – – 80 – – – 1,630 – 1,710 – – – 350 – (33) – (106) – – – (139) – 31 – – – 84 – – – – – 84 – – – – – 181 – (106) – 1,631 – 1,706 – 31 – 350 – Balance at 30 April 2019 51 2,060 (108) 84 2,087 Balance at 1 May 2017 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share Issue Dividends Balance at 30 April 2018 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Brought forward Group £’000 181 – (106) – 1,631 – 1,706 – 31 – 350 - Merger reserve Group £’000 Share based payment reserve Group £’000 6,006 – – – – – 6,006 – – – – – 2,038 – – 707 – – 2,745 – – (1,102) – – Retained earnings Group £’000 21,845 14,281 – 357 – (7,622) 28,861 13,406 – 146 – (8,934) Total Group £’000 30,070 14,281 (106) 1,064 1,631 (7,622) 39,318 13,406 31 (956) 350 (8,934) Balance at 30 April 2019 2,087 6,006 1,643 33,479 43,215 72 Clipper Logistics plc 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 / Share of equity-accounted investees, net of tax / Exchange differences / Finance costs / Share based payments charge Working capital adjustments: / (Increase)/decrease in trade and other receivables / (Increase)/decrease in inventories / Increase/(decrease) in trade and other payables Operating activities: / Cash generated from operations / Interest received / Interest paid / Income tax paid Net cash flows from operating activities Investing activities: / Purchase of property, plant and equipment1 / Proceeds from sale of property, plant and equipment / Purchase of intangible assets1 / Proceeds from sale of intangible assets / Acquisition of subsidiary undertakings net of cash acquired Net cash flows from investing activities Net cash flows from operating and investing activities Financing activities: / Drawdown of bank loans / Debt issue costs paid / Shares issued / Dividends paid / Non-current financial assets advanced / Repayment of bank loans / Finance leases advanced in respect of purchases of property, plant and equipment and intangible assets1 / Repayment of capital on finance leases Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 2019 Group £’000 2018 Group £’000 16,930 17,966 7,426 1,973 (124) 413 104 2,141 (1,178) (22,915) (773) 24,298 28,295 55 (2,027) (4,276) 22,047 (24,320) 490 (2,096) – (500) 6,394 1,621 (2,203) 889 (198) 1,976 1,219 (23,785) 8,816 11,801 24,496 38 (1,932) (3,968) 18,634 (11,599) 6,658 (1,060) 3 (11,773) (26,426) (17,771) (4,379) 863 8,000 (20) 350 (8,934) – (747) 18,698 (10,389) 6,958 2,579 938 3,517 9,017 (101) 1,631 (7,622) (500) (812) 4,966 (7,366) (787) 76 862 938 Note 6 6 6 15 8 & 9 23 28 22 7 18 1. The cashflows for the year ended 30 April 2018 for these items have been re-presented for ease of comparability with the presentation convention adopted in the year ended 30 April 2019. Purchases of property, plant and equipment and intangible assets are now presented gross of the related finance lease drawdown in this year’s Group Financial Statements, having previously been presented net of the related finance lease drawdown. In the prior year, purchase of property, plant and equipment was reported as £(6,849,000), purchase of intangible assets was reported as £(844,000) and finance leases advanced in respect of purchases of property, plant and equipment and intangible assets was reported as £nil. 73 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements 1. General information The Group Financial Statements for the year ended 30 April 2019 were authorised for issue by the Board of Directors on 29 August 2019 and the Group Statement of Financial Position was signed on the Board’s behalf by David Hodkin. Clipper Logistics plc (the “Company”) and its subsidiaries (together the “Group”) provide value-added logistics and other services to predominantly the retail sector and also operate as distributors of commercial vehicles. The Company is limited by share capital, incorporated and domiciled in the United Kingdom. The address of its registered office is Clipper Logistics Group, Gelderd Road, Leeds, LS12 6LT. The Group’s Financial Statements have been prepared in accordance with note 2.1 Basis of preparation, and note 2.3 Basis of consolidation. The principal accounting policies adopted by the Group are set out in note 2. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated Financial Statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1 Basis of preparation The Company acts as Parent undertaking for the Clipper Group of companies. The Company has independent operations in its own right and owns 100% of the share capital and voting rights of the following principal trading entities: / Clipper Logistics KG (GmbH & Co.) (Germany) / Clipper Logistics Sp.z o.o (Poland) / Servicecare Support Services Limited / Northern Commercials (Mirfield) Limited During the year ended 30 April 2018, the Company acquired the entire issued share capital of Tesam Distribution Limited and RepairTech Limited (see note 28). The Company also owns 50% of the share capital and voting rights of Clicklink Logistics Limited (see note 15). In addition, the Group has a number of other subsidiaries as set out in note F to the Company Financial Statements. The Group’s Financial Statements have been prepared in accordance 74 with International Financial Reporting Standards as adopted by the European Union (IFRS) and also in accordance with the provisions of the Companies Act 2006. The preparation of the financial information under IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The accounting policies which follow set out those policies which apply in preparing the Financial Statements for the year ended 30 April 2019. The Group’s Financial Statements have been prepared on a historical cost basis. The Financial Statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£’000) unless otherwise indicated. 2.2 Going concern The Financial Statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the Financial Statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future, being at least twelve months from the date of approval of the Financial Statements. Note 26 to the Group Financial Statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to foreign exchange, credit and interest rate risk. Further details of the Group’s net debt at 30 April 2019 are included in note 20 to the Group Financial Statements. The Group Statement of Financial Position shows total current assets of £123,913,000 and total current liabilities of £139,284,000. Net current liabilities at 30 April 2019 were therefore £15,371,000 (2018: £16,435,000). At the year end, the Group had a committed Revolving Credit Facility of £35,000,000 (of which £17,000,000 was drawn) and an overdraft facility of £8,000,000 (none of which was drawn). The net current liability position arises due to a significant proportion of invoicing being raised in advance creating a significant contract liability which is unwound to revenue in line with the Group’s revenue recognition policies. The Directors have assessed the future funding requirements of the Group and the Company and compared them to the bank facilities which are available. The assessment included a detailed review of financial and cash flow forecasts for at least 12 months from the date of approval of the Financial Statements. The Directors considered a range of potential scenarios within the key markets the Group serves and 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. The Group’s forecasts and projections show that the Group should be able to operate without the need for any increase in borrowing facilities. Having undertaken this work, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements. 2.3 Basis of consolidation a. Group reorganisation and merger reserve At 30 April 2014 the Company was a wholly owned subsidiary of Clipper Group Holdings Limited. In April 2014 the Group undertook a restructuring, whereby the Company acquired certain fellow subsidiaries from Clipper Group Holdings Limited and the remaining 25% ownership interest of the Group’s German operations from the minority shareholders. On 4 June 2014 Clipper Logistics plc was admitted to the premium segment of the London Stock Exchange and Clipper Group Holdings Limited was no longer the parent company. Clipper Logistics plc IFRS 3 states that it does not apply to a combination of entities or businesses under common control. Accordingly, the consolidated information of the Clipper Group has been prepared to reflect the combination of the restructured Clipper Group as if it had occurred from 1 May 2010, being the earliest comparative period reported by the restructured Group. The Group reorganisation is a combination of entities under common control; and consolidated using a pooling of interests basis. This treats the restructured group as if it was formed in May 2010 and a merger reserve has been included to reflect this, with a balance of £6,006,000 after the acquisition of the fellow subsidiaries from Clipper Group Holdings Limited as part of the Group reorganisation. b. Consolidations The consolidated Financial Statements comprise the Financial Statements of the Group and its subsidiaries as at 30 April 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: / power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee); / exposure, or rights, to variable returns from its involvement with the investee; and / the ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: / the contractual arrangement with the other vote holders of the investee; / rights arising from other contractual arrangements; and / the Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated Financial Statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to any non- controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra- group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. The Financial Statements of subsidiaries used in the preparation of the consolidated Financial Statements are prepared on the same reporting year as the Parent Company. A change in the ownership interest of a subsidiary without loss of control is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group other than those included in the restructuring referred to above. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. c. Equity-accounted investees An investment in an entity over which the Group has significant influence, but is not a subsidiary, is accounted for under the equity method of accounting. Equity-accounted investees could comprise associates or joint ventures. An associate is an entity in which the Group has significant influence over the financial and operating policy decisions of the investee but not control or joint control over those policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Under the equity method, an investment is initially recognised at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the investee, until the date on which significant influence or joint control ceases. 2.4 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Company’s Board of Directors, collectively the Group’s chief operating decision maker, to assess performance and allocate capital or resources. 2.5 Foreign currency translation a. Functional and presentation currency Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The combined Financial Statements are presented in Pounds Sterling, which is the Company’s functional and presentation currency. b. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). 75 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 2. Summary of significant accounting policies continued 2.5 Foreign currency translation continued c. Translation of foreign operations On consolidation, the assets and liabilities of foreign operations are translated into Pounds Sterling at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at the average exchange rates for the year. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. 2.6 Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate assets’ cost to their residual values over their estimated useful lives, as follows: / leasehold property: over the length of the lease; / plant and machinery: 2–20 years; and / motor vehicles: 4–8 years. Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. An item of property, plant and equipment and any significant part initially recognised is derecognised upon 76 disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included within ‘other net gains or losses’ in the income statement when the asset is derecognised. 2.7 Intangible assets a. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired entity or operation at the date of acquisition. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is ‘negative goodwill’ and is recognised in the income statement immediately. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash- generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. b. Contracts and licences Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. Intangible assets are amortised over the useful economic life (five to ten years) and assessed for impairment whenever there is an indication that the intangible asset may be impaired. c. Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs include the software development employee costs and overheads directly attributable to bringing the asset into use. Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding five years). 2.8 Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its value in use. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset Clipper Logistics plc (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised as income immediately. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a minimum period of two years. For longer periods, a long-term growth rate is calculated and applied to projected future cash flows after the second year. 2.9 Financial assets The Group classifies its financial assets in the following categories: amortised cost, at fair value through profit or loss and fair value through other comprehensive income. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. At 30 April 2019 the Group held no financial assets categorised as fair value through other comprehensive income. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through other comprehensive and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘other net gains’ in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group’s right to receive payments is established. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a Group of financial assets is impaired. Impairment testing of trade receivables is described in note 2.12. 2.10 Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present location and condition. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. 2.11 Vehicles on consignment Vehicles held on consignment from manufacturers are included in the statement of financial position where it is considered that the Group enjoys the benefits and carries the risks of ownership. 2.12 Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The Group applies the simplified approach permitted by IFRS 9, which requires the application of a lifetime expected loss provision to trade receivables. The provision calculations are based on historic credit losses applied to older balances. This approach is followed for all receivables unless there are specific circumstances which would render the receivable irrecoverable and therefore require a specific provision. A provision is made against trade receivables until such time as the Group believes the amount to be irrecoverable, after which the trade receivable balance is written off. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within ‘administration expenses’. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘administration expenses’ in the income statement. 2.13 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. Cash and cash equivalents are stated net of bank overdrafts in the cash flow statement. 2.14 Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 2.15 Consignment inventory payables Inventories of commercial vehicles are usually funded under stocking finance plans offered by either the manufacturer’s own finance arm, or third party funders. Amounts outstanding are included in trade and other payables. 2.16 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 2.17 Income tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. 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. However, the deferred income tax is not accounted for, if it arises from initial recognition of goodwill or an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profits or losses. 77 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued c. Share based payments IFRS 2 requires the recognition of equity settled share based payments at fair value at the date of the grant. All equity settled share based payments are ultimately recognised as an expense in the income statement with a corresponding credit to share based payment reserve. If vesting periods or other non- market vesting conditions apply, the expense is allocated over the vesting period based on the best available estimate of the number of shares expected to vest. Estimates are revised subsequently if there is any indication that the number of shares expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital and, where appropriate, share premium. 2.19 Provisions Provisions for items such as dilapidations and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 2.20 Revenue recognition The Group has applied IFRS 15 ‘Revenue from Contracts with Customers’ using the cumulative effect method. Comparative information in both the income statement and the statement of financial position has not been restated and continues to be reported under IAS 18 ‘Revenue’ as there was no material adjustment on transition. The Group recognises revenue from contracts with customers as the performance obligations to deliver products and services under these contracts are satisfied. The Group’s contracts are typically for the provision of warehouse or transport services and normally comprise a single performance obligation being a series of goods or services satisfied over time. Revenue is recognised based on the amount of consideration expected to be received in exchange for satisfying the performance obligations. a. Sale of goods Revenue from the sale of goods is recognised when control of the goods has passed from the Group to the buyer. The transfer of control is at a point in time or over a period of time. For vehicles, this is generally on registration; for other goods, it is when despatched, or packaged and made available for collection. b. Services other than repair and maintenance contracts Revenue relating to costs to serve the customer are invoiced in line with the customer receiving and consuming benefits under the contract via the ‘open book’ charging mechanism with either a fixed or variable management fee and is recognised in the period in which it is earned. Performance obligations are satisfied over time and measured against minimum service level agreements. There has been no change in the timing of revenue recognition on application of IFRS 15. In ‘closed book’ contracts, revenue is typically recognised based on a pre-agreed price and is typically per unit/parcel/delivery or pallet etc. Revenue based on a pre-agreed rate-card is recognised as services are provided, in line with the customer receiving and consuming benefits under the contract. There has been no change in the timing of revenue recognition on application of IFRS 15. 2. Summary of significant accounting policies continued 2.17 Income tax continued Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the Group to make a single net payment. 2.18 Employee benefits a. Pension obligations Group companies operate various pension schemes. The schemes are generally funded through payments to insurance companies. The Group has only defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. For defined contribution plans, the Group pays contributions to privately administered pension insurance plans on a contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. b. Profit-sharing and bonus plans The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. 78 Clipper Logistics plc Fixed management fees are recognised over the contract term. Performance obligations are satisfied over time. There has been no change in the timing of revenue recognition on application of IFRS 15. Variable management fees (a fixed percentage of costs) are recognised as the corresponding costs are incurred i.e. where the Group has the right to invoice the customer at an amount that corresponds directly with performance to date, the practical expedient is applied to recognise revenue at that amount. Invoicing varies by contract but is typically either in line with work performed or initially on a budgeted volume basis with later adjustment to reflect actual activity. Where a contract contains elements of variable consideration, the Group will estimate the amount or revenue to which it will be entitled under the contract. Variable consideration can arise as a result of incentives, performance bonuses, penalties or other similar items. Variable revenue is recognised to the extent it is highly probable a significant revenue reversal will not occur in the future. There has been no change in the timing of revenue recognition on application of IFRS 15. The Group does not expect to have any contracts which include a significant financing arrangement and therefore does not adjust its transaction price for the time value of money. Where payments are received in advance of revenue being recognised they are included as contract liabilities. Where revenue is recognised in advance of amounts being invoiced, it is reported as a contract receivable. Calculation of contract assets and contract liabilities is therefore necessary at period ends, with client billing arrangements not always coinciding with the Group’s reporting periods. Revenue from open book contracts includes contributions to the capital cost of items used in the delivery of services, together with a finance charge. Judgment is required when determining the appropriate timing and amount of revenue that can be recognised, due to the different contractual arrangements in place. c. Repair and maintenance contracts Revenue is recognised over the life of the contract in proportion to the costs of providing the services. d. Sales of services – property At certain sites where the Group has entered into leases, arrangements have been entered into with third and/or related parties, under which the Group receives fees for property-related advisory services. Revenue earned from property-related advisory services is recognised in the consolidated income statement at fair value of the consideration receivable, net of VAT. Management assesses the fees that are applicable to each specific transaction and recognises revenue in the income statement at the time of the underlying transaction. In forming the judgment, the Group considers whether the leases it has entered into are operating leases, whether the future rentals are at market value and accordingly whether the fees can be attributed to delivered property-related advisory services. Property-related advisory fees are recognised as services are provided. There has been no change in the timing of revenue recognition on the application of IFRS 15. 2.21 Supplier bonuses Cost of sales are recognised net of vehicle manufacturers’ bonuses. These are recognised when the Group has met the relevant conditions. There is little judgment or estimation involved in computing the amounts. 2.22 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. The impact of IFRS 16 on operating leases is described in note 2.26. Assets held under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease, with a corresponding liability being recognised for the lower of the fair value of the leased asset and the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a constant rate of interest on the remaining balance of the liability. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the estimated useful life of the asset and the lease term; where the lease contains an option to purchase which is expected to be exercised, the asset is depreciated over the useful life of the asset. The accounting policy adopted for finance leases is also applied to hire purchase agreements. 2.23 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial Statements in the period in which the dividends are approved by the Company’s shareholders. 2.24 Exceptional items Items that are both material and non-recurring are presented as exceptional items within their relevant consolidated income statement category. The separate reporting of exceptional items helps provide a clearer indication of the Group’s underlying business performance. Items which may give rise to classification as exceptional include, but are not limited to, restructuring of the business or depot network, asset impairments and litigation settlements. 2.25 Critical accounting estimates and judgments The Group makes estimates and judgments concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Revenue recognition Judgment is required when determining the appropriate timing and amount of revenue to be recognised in the value- added logistics segment. This is due to the various contractual arrangements in place, each with bespoke terms which can lead to different revenue recognition requirements. Business combinations In April 2019, the Group entered into a series of contracts, which when combined represented a business combination in accordance with IFRS 3 ‘Business combinations’. The timing of when control passed was a significant judgment. See note 29 for further details. 79 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 2. Summary of significant accounting policies continued 2.26 Adoption of new and revised reporting standards The Group has applied all accounting standards and interpretations issued by the IASB and IFRIC except for the following standards and interpretations which were in issue but not yet effective: Effective date (annual periods beginning on or after) 1 January 2021 1 January 2020 1 January 2020 1 January 2020 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 Title IFRS 17 ‘Insurance Contracts’ Amendments to References to the Conceptual Framework in IFRS Standards Amendment to IFRS 3 Business Combinations Amendments to IAS 1 and IAS 8: Definition of Material Annual Improvements to IFRS Standards 2015–2017 Cycle Amendments to IAS 19: Plan Amendment, Curtailment or Settlement Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures IFRIC 23 Uncertainty over Income Tax Treatments Amendments to IFRS 9: Prepayment Features with Negative Compensation IFRS 16 ‘Leases’ The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial information in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to them having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group’s discretion to early adopt standards. IFRS 15 ‘Revenue from contracts with customers’ requires revenue to be recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. It replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The Group has amended its accounting policy appropriately (see note 2.20) but the impact of the new standard on the Group’s revenue and profit is not material. This reflects the relatively non-complex and largely standardised terms and conditions applicable to the Group’s revenue contracts. Accordingly, the Group has adopted IFRS 15 from 1 May 2018 and no adjustment has been recognised in opening equity at the date of initial application. 80 IFRS 9 ‘Financial Instruments’ replaced the classification and measurement models for financial instruments in IAS 39 with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. Consistent with the non-complex nature of the Group’s financial instruments, the impact of the new standard is not material and therefore the Group adopted IFRS 9 from 1 May 2018 and no adjustment has been recognised in opening equity at the date of initial application. The Group has amended its accounting policy (see note 2.12) for the establishment of provisions against trade receivables to reflect the lifetime expected loss model (consistent with the simplified approach permitted under IFRS 9). IFRS 16 ‘Leases’ (“IFRS 16”) was issued in January 2016, replacing IAS 17 ‘Leases’ and associated interpretations IFRIC 4, SIC 15 and SIC 27. IFRS 16 will apply to annual periods beginning on or after 1 January 2019. IFRS 16 will primarily change lease accounting for lessees. Lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability replacing rental costs charged on a straight-line basis. Under the transition rules, the Group will apply IFRS 16 using the modified retrospective approach with the cumulative effect of applying the standard recognised in retained earnings on 1 May 2019 with no restatement of comparative information. The Group will be taking available exemptions for short-term leases and low value leases (<£5,000). The Group held a significant number of operating leases at 30 April 2019 for which the future minimum lease payments amount to £194m as disclosed in note 24 to the Group Financial Statements. On adoption of IFRS 16, there will be a material impact on the balance sheet: (i) recognition of: a right of use asset of between £121m and £149m, a financial liability of between £153m and £175m, and a deferred tax asset of between £3m and £5m, (ii) derecognition of rent-related assets and liabilities of £4m, together resulting in a decrease to retained earnings of between £19m and £23m. In the year ending 30 April 2020, IFRS 16 is expected to increase operating profit by between £7m and £8m, finance costs by between £7m and £8m, all resulting in a reduction in profit before tax of between £0.5m and £1m, partially offset by deferred tax. The Group will continue to implement and refine procedures and processes to apply the new requirements of IFRS 16. As a result of this ongoing work, it is possible that there may be some changes to the adoption impact outlined above before the 30 April 2020 results are issued. However, at this time these are not expected to be material. Clipper Logistics plc For arrangements previously classified as finance leases, where the Group is a lessee, as the Group already recognised an asset and a related finance lease liability for the lease arrangement, the Directors do not anticipate that the application of IFRS 16 will have a significant impact on the amounts recognised in the Group Financial Statements at 30 April 2019. There is no cash impact of adopting IFRS 16, with the repayment of the principal portion of the lease liability being classified as financing instead of operating cash flows. The covenant requirements for the Group’s committed financing facilities are based on ‘Frozen GAAP’ and therefore are not impacted by the transition to IFRS 16. 3. Revenue The Group has applied IFRS 15 ‘Revenue from Contracts with Customers’ with effect from 1 May 2018, using the cumulative effect method. Comparative information has not been restated and continues to be reported under IAS 18. The following practical expedients have been applied: / where the Group has a right to invoice the customer at an amount that corresponds directly with performance to date, for example according to an agreed rate-card, revenue is recognised at that amount; and / incremental costs of obtaining a contract have not been capitalised where the amortisation period for the asset is one year or less. On adoption of IFRS 15, the Group has assessed its customer contracts and concluded that some of its activity within Technical Services is that of an agent rather than a principal and therefore it is more appropriate to recognise the commission element as revenue. The impact of this is a £5m reclassification between revenue and cost of sales. Other than this there has been no material impact on the adoption of IFRS 15. Revenue is disaggregated into two distinct operating segments. This is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8 ‘Operating Segments’, as reported in note 4 to the Group Financial Statements. 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 Revenue from external customers 2019 Group £’000 233,872 145,286 2018 Group £’000 159,350 139,144 379,158 298,494 82,552 (1,539) 103,598 (1,977) 460,171 400,115 Non e-fulfilment logistics revenue includes £3,100,000 (2018: £4,200,000) in respect of property-related advisory services. Geographical information – revenue from external customers: UK Germany Rest of Europe Revenue from external customers 2019 Group £’000 389,028 25,044 46,099 2018 Group £’000 351,409 21,059 27,647 460,171 400,115 Geography is determined by the location of the end customer. The Group has no customers that in the years ended 30 April 2019 or 30 April 2018 accounted for greater than 10% of the total Group revenue. Contract balances The following table provides information about receivables, contract assets and contract liabilities from contracts. Receivables, which are included in ‘Trade and other receivables’ Contract assets,which are included in ‘Trade and other receivables’ Contract liabilities,which are included in ‘Trade and other payables’ 30 April 2019 £’000 1 May 2018 £’000 57,372 16,111 24,557 43,314 5,991 16,016 The contract assets primarily relate to the Group’s right to consideration for work completed but not billed as at 30 April 2019. The contract assets are transferred to receivables when the rights become unconditional. The contract liabilities primarily relate to the advance consideration received from customers. The amount recognised in revenue in the year ended 30 April 2019 from performance obligations satisfied in previous periods is £16,016.000. The amount of contract assets at 1 May 2018 transferred to trade receivables in 2019 amounted to £5,991,000. 81 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 4. Segment information For the Group, the Chief Operating Decision Maker (“CODM”) is the main Board of Directors. The CODM monitors the operating results of each business unit separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss, both before and after exceptional or discontinuing items. This measurement basis excludes Group-wide central services and financing costs which are not allocated to operating segments. For management purposes, the Group is organised into two main reportable segments: / value-added logistics services; and / commercial vehicles, including sales, servicing and repairs. Within the value-added logistics services segment, the CODM also reviews performance of three separate business activities: / e-fulfilment & returns management services;  / non e-fulfilment logistics; and / 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. These three separate business activities comprise one segment, having similar economic characteristics in terms of profitability and costs, customers and operating environment. Inter-segment transactions are entered into under normal commercial terms and conditions and on an arm’s length basis that would also be available to unrelated third parties. The following tables present profit information for continuing operations regarding the Group’s business segments for the two years ended 30 April 2019: Earnings before interest & tax (“EBIT”): E-fulfilment & returns management services Non e-fulfilment logistics Central logistics overheads Value-added logistics services Commercial vehicles Head office costs Group EBIT Amortisation of other intangible assets: E-fulfilment & returns management services Non e-fulfilment logistics Central logistics overheads Value-added logistics services Commercial vehicles Head office costs Group total Share of tax and finance costs of equity-accounted investees: Net finance costs Income tax credit Group total  82 2019 Group £’000 13,560 13,048 (5,551) 21,057 1,137 (1,981) 2018 Group £’000 11,874 14,786 (5,688) 20,972 2,450 (2,568) 20,213 20,854 2019 Group £’000 (510) (675) – (1,185) – – (1,185) 2019 Group £’000 (50) 93 43 2018 Group £’000 (462) (632) – (1,094) – – (1,094) 2018 Group £’000 (35) 217 182 Clipper Logistics plc 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 Head office costs Group operating profit before share of equity-accounted investees Share of equity-accounted investees, net of tax Operating profit Finance costs Finance income Profit before income tax The segment assets and liabilities at the balance sheet date are as follows: At 30 April 2019: Value-added logistics services Commercial vehicles Segment assets/(liabilities) Unallocated assets/(liabilities): / Cash and cash equivalents / Financial liabilities / Deferred tax / Income tax assets/(liabilities) Total assets/(liabilities) At 30 April 2018: Value-added logistics services Commercial vehicles Segment assets/(liabilities) Unallocated assets/(liabilities): / Cash and cash equivalents / Financial liabilities / Deferred tax / Income tax assets/(liabilities) Total assets/(liabilities) 2019 Group £’000 13,506 12,373 (5,551) 20,328 1,137 (1,981) 19,484 (413) 19,071 (2,199) 58 16,930 2018 Group £’000 12,483 14,154 (5,688) 20,949 2,450 (2,568) 20,831 (889) 19,942 (2,014) 38 17,966 Segment assets £’000 182,388 39,634 Segment liabilities £’000 (93,207) (34,599) 222,022 (127,806) 3,517 – – – – (51,395) (2,320) (803) 225,539 (182,324) Segment assets £’000 142,765 38,208 Segment liabilities £’000 (69,601) (34,365) 180,973 (103,966) 2,275 – – – – (35,883) (1,541) (2,540) 183,248 (143,930) Capital expenditure, depreciation and amortisation by segment in the year ended 30 April were as follows: Capital expenditure: Value-added logistics services Commercial vehicles Total 2019 Group £’000 25,802 614 26,416 2018 Group £’000 12,313 725 13,038 Capital expenditure comprises additions to property, plant and equipment (note 14) and intangible assets (note 12). 83 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 4. Segment information continued Depreciation: Value-added logistics services Commercial vehicles Total Amortisation: Value-added logistics services Commercial vehicles Total Non-current assets held by each geographical area are made up as follows: United Kingdom Germany Rest of Europe Total 5. Staff costs Wages and salaries Social security costs Pension costs for the defined contribution scheme Share based payments Total The average monthly number of employees during the year was made up as follows: Warehousing Distribution Service and maintenance Administration Total Key management compensation (including Executive Directors): Wages and salaries Social security costs Pension costs for the defined contribution scheme Share based payments Total 84 2019 Group £’000 6,691 735 7,426 2019 Group £’000 1,972 1 1,973 2019 Group £’000 92,373 3,890 5,363 101,626 2019 Group £’000 125,089 11,840 2,649 (1,178) 138,400 2019 Group Number 3,828 505 252 1,055 5,640 2019 Group £’000 3,102 425 178 (1,291) 2,414 2018 Group £’000 5,701 693 6,394 2018 Group £’000 1,616 5 1,621 2018 Group £’000 80,789 4,103 552 85,444 2018 Group £’000 102,032 9,853 1,768 1,219 114,872 2018 Group Number 3,056 468 447 560 4,531 2018 Group £’000 2,873 396 328 1,026 4,623 Clipper Logistics plc Directors’ emoluments: Aggregate emoluments excluding share based payments on unvested awards Value of share options vested during the year 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 6. Group operating profit This is stated after charging: Depreciation of property, plant and equipment – owned assets Depreciation of property, plant and equipment – leased assets Amortisation of intangible assets (included within administration and other expenses) Total depreciation and amortisation expense Operating lease rentals: / Vehicles, plant and equipment / Land and buildings Auditor’s remuneration: / Audit of the Group Financial Statements / Audit of the subsidiaries / Non-audit fees Total fees paid to the Group’s auditors Operating profit is stated after (charging) or crediting: Other net losses or net gains: / Profit on sales of property, plant and equipment / Dealership contributions / Rental income / Net costs of non-recurring event Total net losses or net gains 2019 Group £’000 1,220 – 10 1,230 2018 Group £’000 1,214 72 21 1,307 2019 Group Number 2 2018 Group Number 2 2019 Group £’000 2,938 4,488 1,973 9,399 2018 Group £’000 2,976 3,418 1,621 8,015 10,306 25,847 10,338 20,940 149 111 – 260 2019 Group £’000 124 98 51 (600) (327) Profit on sales of property, plant and equipment includes £nil (2018: £2,151,000) of profit realised on the sale of a freehold property. 7. Dividends  Final dividend for the prior year of 5.6 pence (2018: 4.8 pence) per share Interim dividend for the year of 3.2 pence (2018: 2.8 pence) per share Total dividends paid 2019 Group £’000 5,685 3,249 8,934 Proposed final dividend for the year ended 30 April 2019 of 6.5 pence (2018: 5.6 pence) per share 6,605 5,681 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 20 September 2019. The payment of this dividend will not have any tax consequences for the Group. 85 69 99 – 168 2018 Group £’000 2,203 136 59 – 2,398 2018 Group £’000 4,814 2,808 7,622 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 8. Finance costs On bank loans and overdrafts On hire purchase agreements Amortisation of debt issue costs Commercial vehicle stocking interest Invoice discounting Other interest payable 2019 Group £’000 691 953 130 316 94 15 2018 Group £’000 547 926 114 339 62 26 Total interest expense for financial liabilities measured at amortised cost 2,199 2,014 9. Finance income Bank interest Other interest Amounts receivable from related parties Total interest income for financial assets measured at amortised cost 10. Income tax expense a. Tax charged in the income statement: Current income tax: UK and 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 2019 Group £’000 – 6 52 58 2019 Group £’000 3,263 (724) 2,539 280 775 (70) 985 2018 Group £’000 2 1 35 38 2018 Group £’000 4,249 (230) 4,019 (355) (2) 23 (334) Tax expense in the income statement on continuing operations 3,524 3,685 The adjustment to the amounts provided in the previous year relates to a greater proportion of capital expenditure being treated as eligible for capital allowances and the election of ‘roll-over’ relief against a chargeable gain arising on a property disposal. 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 Share of equity-accounted investees, already net of tax Expenses not allowable for tax purposes Tax (over)/under provided in previous years Difference in tax rates overseas Deferred tax rate difference Total tax expense reported in the income statement 86 2019 Group £’000 16,930 19.00% 3,217 78 235 51 13 (70) 3,524 2018 Group £’000 17,966 19.00% 3,414 169 194 (232) 117 23 3,685 Clipper Logistics plc d. Deferred tax in the statement of financial position: (Charged)/ credited to income statement Foreign currency adjustment Brought forward (Charged)/ credited to share based payment reserve Acquisitions Tax effect of temporary differences due to: Share based payments Other timing differences Deferred tax asset Intangible assets Accelerated capital allowances Other timing differences Deferred tax liability Net deferred tax 581 401 982 (1,737) (739) (47) (2,523) (1,541) (216) 127 (89) 180 (1,082) 6 (896) (985) – (8) (8) – – – – 214 – 214 – – – – (8) 214 – – – – – – – – Tax effect of temporary differences due to: Share based payments Other timing differences Deferred tax asset Intangible assets Accelerated capital allowances Other timing differences Deferred tax liability Net deferred tax (Charged)/ credited to income statement Foreign currency adjustment Brought forward (Charged)/ credited to share based payment reserve Acquisitions 873 196 1,069 (150) (512) (54) (716) 353 (137) 131 (6) 231 102 7 340 334 – 4 4 – – – – 4 (155) – (155) – – – – – 70 70 (1,818) (329) – (2,147) (155) (2,077) At 30 April 2019 £’000 579 520 1,099 (1,557) (1,821) (41) (3,419) (2,320) At 30 April 2018 £’000 581 401 982 (1,737) (739) (47) (2,523) (1,541) Legislation to reduce the UK corporation tax rate from 19% to 17% with effect from 1 April 2020 was substantively enacted at 30 April 2018. A rate of 17% (2018: 17%) has been applied in the measurement of the Group’s UK deferred tax assets and liabilities in the year. 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 earnings per share computation: Profit attributable to ordinary equity holders of the Company Basic weighted average number of shares (thousands) Basic earnings per share Diluted weighted average number of shares (thousands) Diluted earnings per share 2019 Group £’000 2018 Group £’000 13,406 14,281 2019 Group 101,512 13.2p 102,061 13.1p 2018 Group 100,338 14.2p 101,358 14.1p 87 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 12. Intangible assets Cost: At 1 May 2017 Additions Disposals Acquisitions Foreign currency adjustment At 30 April 2018 Additions Disposals Foreign currency adjustment At 30 April 2019 Accumulated amortisation: At 1 May 2017 Charge for the year Disposals Foreign currency adjustment At 30 April 2018 Charge for the year Disposals Foreign currency adjustment At 30 April 2019 Net book value: At 1 May 2017 At 30 April 2018 At 30 April 2019 Contracts, customer relationships and licences Group £’000 Goodwill Group £’000 Computer software Group £’000 23,252 – – 2,699 – 25,951 – – – 2,038 – – 9,580 5 11,623 – – – 25,951 11,623 1,153 1,094 – 5 2,252 1,185 – – – – – – – – – – – 2,271 1,060 (3) 740 21 4,089 2,096 – (12) 6,173 1,658 527 – 8 2,193 788 – (12) 3,437 2,969 23,252 25,951 25,951 885 9,371 8,186 613 1,896 3,204 Total Group £’000 27,561 1,060 (3) 13,019 26 41,663 2,096 – (12) 43,747 2,811 1,621 – 13 4,445 1,973 – (12) 6,406 24,750 37,218 37,341 The average remaining useful life of contracts and licences at 30 April 2019 is 7.5 years (2018: 8.5 years). 13. Impairment test for goodwill The carrying amount of goodwill has been allocated to each CGU as follows: Value-added logistics services Commercial vehicles Total 2019 Group £’000 20,025 5,926 25,951 2018 Group £’000 20,025 5,926 25,951 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 2022. The Board approved business plans for the value-added logistics services segment take into account the annualised impact of contract wins in the year ended 30 April 2019 as well as confirmed new and ceasing contracts. The key judgment 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 between 3.0% and 5.0% (2018: 3.3%) to perpetuity (2018: 2028). The cash flows have then been discounted using a pre-tax risk adjusted discount rate of between 8.5% and 10.3% (2018: 8.5% and 10.3%). 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. 88 Clipper Logistics plc 14. Property, plant and equipment Cost: At 1 May 2017 Additions Acquisitions Disposals Foreign currency adjustment At 30 April 2018 Additions Acquisitions Disposals Foreign currency adjustment At 30 April 2019 Accumulated depreciation: At 1 May 2017 Charge for the year Disposals Foreign currency adjustment At 30 April 2018 Charge for the year Disposals Foreign currency adjustment At 30 April 2019 Net book value: At 1 May 2017 At 30 April 2018 At 30 April 2019 Freehold property Group £’000 Leasehold property Group £’000 Motor vehicles Group £’000 Plant, machinery, fixtures & fittings Group £’000 55,037 7,852 771 (651) 180 63,189 19,673 – (742) (98) Total Group £’000 64,212 11,978 4,813 (5,279) 270 75,994 24,320 – (1,707) (137) 4,293 3,640 102 – 7 8,042 3,999 – (212) (4) 4,882 486 80 (768) 83 4,763 648 – (753) (35) 11,825 4,623 82,022 98,470 2,277 499 – 3 2,779 883 (212) (2) 2,388 844 (620) 23 2,635 791 (602) (17) 20,648 5,017 (170) 87 25,582 5,752 (527) (62) 25,313 6,394 (824) 113 30,996 7,426 (1,341) (81) 3,448 2,807 30,745 37,000 2,016 5,263 8,377 2,494 2,128 1,816 34,389 37,607 51,277 38,899 44,998 61,470 – – 3,860 (3,860) – – – – – – – – 34 (34) – – – – – – – – – Included within property, plant and equipment are amounts held under finance lease contracts. At 30 April 2019, the net book value of these assets was £39,681,000 (2018: £28,257,000). Total additions include £18,698,000 (2018: £5,129,000) under finance lease contracts or specific bank loans. Additions to plant, machinery, fixtures & fittings include £2,843,000 (2018: £1,587,000) in respect of assets in the course of construction. 15. Interest in equity-accounted investees Brought forward Share of (loss) after tax for the period Carried forward 2019 Group £’000 1,278 (413) 865 2018 Group £’000 2,167 (889) 1,278 The Company owns 50% of the issued capital and voting rights of Clicklink Logistics Limited (“Clicklink”), a company incorporated in Great Britain and registered in England and Wales. Clicklink provides services in respect of the sortation, fulfilment and delivery of one-man orders to Click and Collect customer collection points in the UK. On 1 November 2016 the Company subscribed for 1,000,000 A ordinary shares of £1 each in Clicklink, for aggregate consideration of £1,950,000. Clicklink commenced trading on 1 November 2016 and has a 31 January financial period end. Share of loss after tax for the period arises from nine months audited accounts and three months unaudited management accounts. 89 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 15. Interest in equity-accounted investees continued Summarised financial information from Clicklink’s audited accounts for the year ended 31 January 2019 is set out below: Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to owners of the company Revenue Operating (loss)/profit Interest payable and similar charges Income tax credit/(expense) (Loss)/profit for the period 16. Inventories Component parts and consumable stores Commercial vehicles Commercial vehicles on consignment Total inventories net of provision for obsolescence See below for the movements in the provision for obsolescence: At 1 May 2017 Charged for the year Utilised At 30 April 2018 Charged for the year Utilised At 30 April 2019 31 January 2019 £’000 31 January 2018 £’000 6,818 4,349 (5,611) (4,015) 1,541 6,331 4,359 (5,001) (2,962) 2,727 Year ended 31 January 2019 £’000 Year ended 31 January 2018 £’000 22,616 (1,381) (91) 286 (1,186) 2019 Group £’000 5,271 4,195 14,583 24,049 19,730 (1,933) (70) 396 (1,607) 2018 Group £’000 4,901 3,199 13,999 22,099 Group £’000 87 128 (103) 112 82 (35) 159 The cost of inventories recognised as an expense amounted to £89,917,000 (2018: £108,599,000). Included within commercial vehicles is £1,001,000 (2018: £941,000) relating to assets held under hire purchase agreements. 90 Clipper Logistics plc 17. Trade and other receivables Trade receivables Less: provision for impairment of receivables Trade receivables – net Other receivables Amounts receivable from related parties (see note 27) Contract assets Prepayments Total trade and other receivables 2019 Group £’000 57,688 (316) 57,372 4,328 2,089 16,111 16,447 96,347 2018 Group £’000 43,769 (455) 43,314 3,461 5,785 5,991 14,879 73,430 The contract asset receivables relate to the Group’s rights to consideration for work completed but not billed at the reporting date. They are transferred to receivables when the amounts are invoiced. See note 26 on credit risk of trade receivables, which explains how the Group manages and measures credit quality of trade receivables that are neither past due nor impaired. See below for the movements in the provision for impairment: At 1 May 2017 Charged for the year Foreign currency adjustment Utilised At 30 April 2018 Charged for the year Foreign currency adjustment Utilised At 30 April 2019 Group £’000 340 328 3 (216) 455 43 – (182) 316 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 31 days (2018: 31 days). The Group applies the simplified approach permitted by IFRS 9, which requires the application of a lifetime expected loss provision to trade receivables. The provision calculations are based on historic credit losses applied to older balances. This approach is followed for all receivables unless there are specific circumstances which would render the receivable irrecoverable and therefore require a specific provision. A provision is made against trade receivables until such time as the Group believes the amount to be irrecoverable, after which the trade receivable or contract receivables balance is written off. The ageing analysis of trade receivables was as follows: 30 April 2019 30 April 2018 Neither past due nor impaired £’000 Past due but not impaired 30-60 days £’000 60-90 days £’000 > 90 days £’000 49,284 40,748 4,044 1,560 1,215 595 2,829 411 Total £’000 57,372 43,314 91 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 18. Cash and cash equivalents Cash and cash equivalents Bank overdraft Total cash and cash equivalents 19. Trade and other payables Trade payables Consignment inventory payables Amounts payable to related parties (see note 27) Other taxes and social security Other payables Deferred consideration for acquisitions Contract liabilities Accruals Total trade and other payables 2019 Group £’000 3,517 – 3,517 2019 Group £’000 40,221 21,422 227 11,148 5,762 – 24,557 22,645 2018 Group £’000 2,275 (1,337) 938 2018 Group £’000 33,825 18,687 233 9,520 5,012 500 16,016 18,609 125,982 102,402 The contract liabilities primarily relate to the consideration invoiced to customers in advance of the work being completed. 20. Financial liabilities: borrowings Non-current: Bank loans Obligations under finance leases or hire purchase agreements Total non-current Current: Bank loans Bank overdraft Obligations under finance leases or hire purchase agreements Total current Total borrowings Less: Cash and cash equivalents Non-current financial assets (see note 26) Net debt The maturity analysis of the bank loans at 30 April is as follows: In one year or less Between one and five years After five years Total bank loans 2019 Group £’000 17,307 21,803 39,110 785 – 11,500 12,285 51,395 3,517 1,950 45,928 2019 Group £’000 785 17,307 – 18,092 2018 Group £’000 9,841 16,823 26,664 887 1,337 6,995 9,219 35,883 2,275 1,950 31,658 2018 Group £’000 887 9,841 – 10,728 The principal lender has security over all assets of the Group’s UK operations. The Group’s principal bank facilities were increased in January 2019 and now total £45,000,000 consisting of: / a Revolving Credit Facility of £35,000,000 repayable in January 2021; interest rate 1.75% above LIBOR. The amount drawn at 30 April 2019 was £17,000,000 (2018: £9,000,000); / a committed overdraft of £8,000,000. The amount drawn at 30 April 2019 was £nil (2018: £1,337,000); and / bonds and guarantees of £2,000,000. 92 Clipper Logistics plc In addition to the Revolving Credit Facility above, other items included within bank loans at 30 April 2019 are as follows: / other bank loans – £1,334,000 repayable in monthly instalments over periods between 4 and 48 months; interest rates fixed at between 3.72% and 4.80%; and / unamortised debt issue costs of £242,000 in relation to the principal facilities, which have been deducted from the total outstanding bank loans. 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 Total 2019 Group £’000 2018 Group £’000 11,990 22,622 – 34,612 (1,205) (1,585) – (2,790) 10,785 21,037 – 31,822 715 766 – 1,481 33,303 6,822 16,922 – 23,744 (738) (853) – (1,591) 6,084 16,069 – 22,153 911 754 – 1,665 23,818 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 4.8 (2018: 4.7) years. At 30 April 2019 £30,380,000 (2018 £22,756,000) 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. Changes in liabilities from financing activities: At 1 May 2018 Charges from financing cash flows Drawdown of bank loans Repayment of bank loans New finance leases in respect of additions to property, plant and equipment Payment of finance lease liabilities Debt issue costs paid Total changes from financing cash flows Changes arising from obtaining or losing control of subsidiaries or other business The effect of changes in foreign exchange rates Other changes New finance leases in respect of commercial vehicle inventories Finance costs Total other changes At 30 April 2019 Bank loans £’000 Finance leases £’000 10,728 23,818 8,000 (747) – – (20) 7,233 – 1 – 130 130 – – 18,698 (10,389) – 8,309 – – 1,176 – 1,176 18,092 33,303 93 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 21. Provisions At 1 May 2017 Utilised Charged in year At 30 April 2018 Utilised Charged in year At 30 April 2019 Onerous contracts Group £’000 Uninsured losses Group £’000 Dilapidations Group £’000 99 (92) 10 17 (17) – – – (213) 213 – (168) 168 1,395 (206) 358 1,547 (84) 361 Total Group £’000 1,494 (511) 581 1,564 (269) 529 – 1,824 1,824 2019 Group £’000 214 1,610 1,824 2018 Group £’000 78 1,486 1,564 Provisions have been analysed between current and non-current as follows: Current Non-current Total 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 was 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 warehouses have leases that expire 18 and 14 years from the balance sheet date and an office lease expires 12 years from the balance sheet date. All other leases expire in 10 years or less. 22. Share capital Allotted, called up and fully paid: 101,614,522 (2018: 101,360,523) ordinary shares of 0.05p each 2019 Company £’000 2018 Company £’000 51 51 During the year the Company issued 253,999 ordinary shares to satisfy employee share options, for aggregate consideration of £350,000. The new shares rank pari passu with all existing ordinary shares in issue. See also note 23 below. 94 Clipper Logistics plc 23. 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 three years. A summary of the principal terms of the PSP, including vesting conditions, is contained in the Directors’ Remuneration Report on pages 46 to 57. 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 three year savings contract, under which the employee could elect to save between £5 and £500 per month. Option movements and weighted average exercise prices (“WAEP”) during the year were as follows: Date Outstanding 1 May 2017 Granted during the year Forfeited during the year Exercised during the year Outstanding 30 April 2018 Granted during the year Forfeited during the year Exercised during the year Outstanding 30 April 2019 PSP Number 1,594,139 336,293 (176,429) (106,338) 1,647,665 671,645 (441,859) (64,964) 1,812,487 WAEP nil nil nil nil nil nil nil nil nil Sharesave Number  1,671,471 561,980 (86,400) (981,217) WAEP 185.44p 379.74p 255.16p 140.64p 1,165,834 311.64p 2,007,277 (603,320) (189,035) 193.34p 346.10p 185.11p 2,380,756 213.21p At 30 April 2019, the range of exercise prices for the various schemes were 193.34p – 379.74p (2018: 140.40p – 379.74p). At 30 April 2019, the weighted average remaining contractual life was 2.7 years (2018: 2.0 years). At 30 April 2019, PSP options over 507,568 (2018: 572,532) and Sharesave options over 105,776 (2018: 85,783) of the above shares were exercisable. The fair value of the share options is measured at the grant date, using the Black-Scholes model and taking into account the terms and conditions upon which the instruments were granted. The key inputs to the model are: Share price at: 16 January 2019 18 February 2019 Expected life of option Volatility Dividend yield 2019 242.00p 222.00p 3.5 years 37–38% 3.64–3.96% The expected life of the options has been estimated as six months beyond vesting date. Volatility has been calculated on a rolling three year period up to the week prior to grant. 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 credit for the year ended 30 April 2019 relating to employee share based payment plans was £1,178,000 (2018: charge of £1,219,000). The fair value of share options at 30 April 2019 to be amortised in future years was £1,538,000 (2018: £2,830,000). All share based payments in both years are equity settled. 95 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 24. Commitments and contingencies Operating lease commitments – land and buildings: Within one year Between one and five years After more than five years Total minimum lease payments Operating lease commitments – vehicles, plant and equipment: Within one year Between one and five years After more than five years Total minimum lease payments 25. Capital commitments Authorised and contracted for Authorised, but not contracted for Total capital commitments 2019 Group £’000 24,186 83,496 74,188 2018 Group £’000 20,807 59,529 56,754 181,870 137,090 2019 Group £’000 5,776 6,339 – 2018 Group £’000 6,597 9,243 2 12,115 15,842 2019 Group £’000 2,002 6,567 8,569 2018 Group £’000 5,500 12,359 17,859 26. Financial instruments and financial risk management objectives and policies The Group is exposed to a number of different market risks in the normal course of business including credit, interest rate and foreign currency risks. Credit risk Credit risk predominantly arises from trade receivables and cash and cash equivalents. The Group has a customer credit policy in place and the exposure to credit risk is monitored on an ongoing basis. External credit ratings are generally obtained for customers; Group policy is to assess the credit quality of each customer before accepting any terms of trade. Internal procedures take into account customers’ financial positions as well as their reputation within the industry and past payment experience. Cash and cash equivalents and derivative financial instruments are held with AAA or AA rated banks. Financial instruments classified as fair value through profit and loss fair value through other comprehensive income are all publicly traded on the UK London Stock Exchange. Given the high credit quality of counterparties with whom the Group has investments, the Directors do not expect any counterparty to fail to meet its obligations. At 30 April 2019 there were no significant concentrations of credit risk (2018: £nil). The Group’s maximum exposure to credit risk, gross of any collateral held, relating to its financial assets is equivalent to their carrying value. All financial assets have a fair value which is equal to their carrying value, as a consequence of their short maturity. The Group did not have any financial instruments that would mitigate the credit exposure arising from the financial assets designated at fair value through profit or loss in either the current or the preceding financial year. Interest rate risk The Group adopts a policy of ensuring that there is an appropriate mix of fixed and floating rates in managing its exposure to changes in interest rates on borrowings. Interest rate swaps are entered into, where necessary, to achieve this appropriate mix. Interest rate sensitivity The Group’s borrowings are largely denominated in Pounds Sterling and the Group is therefore exposed to a change in the relevant interest rate. With all other variables held constant, the impact of a reasonably possible increase in interest rates of 50 basis points (2018: 50 points) on that portion of borrowings affected would be to reduce the Group’s profit before tax by £189,000 (2018: £132,000). Foreign currency risk The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in currencies other than Pounds Sterling. The currencies giving rise to this risk are primarily the Euro and US dollar. The volume of transactions denominated in foreign currencies is not significant to the Group. The exposure to a short-term fluctuation in exchange rates on the investment in foreign subsidiaries is not expected to have a material impact on the results of the Group. 96 Clipper Logistics plc Capital management The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade profitably in the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to minimise its cost of capital. The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its gearing ratio on a regular basis and adjusting the level of dividends paid to ordinary shareholders. The Group considers its capital to include equity and net debt. Net debt includes short and long-term borrowings (including overdrafts and lease obligations) net of cash and cash equivalents. The Group has not made any changes to its capital management during the year. The Group has no long-term gearing ratio target. Borrowings are taken out to invest in the acquisition of subsidiaries, new sites or depots and are considered as part of that investment appraisal. Key measures monitored by the Group are interest cover and net debt compared to earnings before interest, tax, depreciation and amortisation. In order to achieve the overall objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the borrowings. The Group has satisfied all such financial covenants in both years. EBIT Finance costs (net) Interest cover EBIT Depreciation and impairment of property, plant and equipment Amortisation and impairment of computer software Earnings before interest, tax, depreciation and amortisation (EBITDA) Net debt (note 20) Net debt/EBITDA 2019 Group £’000 20,213 2,141 9.4 2019 Group £’000 20,213 7,426 788 28,427 45,928 1.62 2018 Group £’000 20,854 1,976 10.6 2018 Group £’000 20,854 6,394 527 27,775 31,658 1.14 Liquidity risk 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. Estimation of fair values The main methods and assumptions used in estimating the fair values of financial instruments are as follows: / 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. 2019 Book value £’000 2019 Fair value £’000 2018 Book value £’000 2018 Fair value £’000 Non-current financial assets 1,950 1,950 1,950 1,907 Current financial assets: Cash and cash equivalents Trade and other receivables Liabilities: Bank overdraft Short-term borrowings Trade and other payables Long-term borrowings 3,517 96,347 3,517 96,347 2,275 73,430 2,275 73,430 – (12,285) (125,982) (39,110) – (12,285) (125,982) (38,830) (1,337) (7,882) (102,402) (26,664) (1,337) (7,882) (102,402) (25,919) Long-term borrowings 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. 97 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 27. Related party disclosures Clicklink Logistics Limited (see note 15) is a supplier of logistics services to the Group. The Group provides certain resources to Clicklink, principally people and vehicles, under the terms of the joint venture agreement. Amounts charged for these resources are included in revenue. Branton Court Stud LLP, in which Steve Parkin is a partner, receives management, recharge of expenditure and administration services from the Group. Additionally, in the current year, the Group recognised a credit from Branton Court Stud LLP of £977,000 in respect of Branton Court’s contribution to costs incurred by the Group in respect of of a one-off event. Guiseley Association Football Club shares a common director with Clipper Logistics plc. Hamsard 3476 Limited, a company controlled by Steve Parkin, receives property-related services from the Group. Knaresborough Investments Limited, a company controlled by Steve Parkin, receives management and administration services from the Group.  Knaresborough Real Estate Limited, a company owned by Steve Parkin, is the landlord of one of the Group’s leasehold properties. Roydhouse Properties Limited is the landlord of two of the Company’s leasehold properties and has common directors with Clipper Logistics plc. Southerns Office Interiors Limited supplies office furniture to the Group and is a customer of the commercial vehicles segment. A company owned by Steve Parkin is registered as a person with significant control over Southerns Limited, the ultimate parent of Southerns Office Interiors Limited. Trust Electric Heating Limited, a supplier to the Group, shares a common director with Clipper Logistics plc. Key management compensation is disclosed in note 5. During the year, the Group paid Branton Court Stud LLP £120,000 received in relation to horse race winnings. These monies were not intended for the Group and were paid to Branton Court on the same day. During the year, the Group entered into a framework agreement with Styles & Wood Limited, a company which shares common directors. A payment of £2.0 million was advanced in relation to the agreed works on 27 June 2018. The agreement was subsequently cancelled and the payment was returned by the 20 August 2018. During the year, £46,000 was received from Steve Parkin in relation to repaying Clipper for personal expenditure incurred on a company credit card. At 30 April 2019 £4,000 was outstanding and this was settled on 26 July 2019 The Group advanced two petty cash amounts totalling £27,000 to David Hodkin in the year in exchange for personal cheques from David Hodkin. In both cases, there was a short period of time elapsing between David’s withdrawal of the cash and Clipper’s subsequent cashing of the cheque. As at 30 April 2019, £nil was outstanding. During the year £590,000 was recharged to Branton Court Stud LLP for management time of Directors and other key management personnel in proportion to the time spent on non-Clipper related activities. (2018: £285,000 charged to Branton Court LLP and £285,000 charged to Knaresborough Investments Limited). 98 Clipper Logistics plc Balances owing to or from these related parties at 30 April were as follows: Non-current financial assets: Clicklink Logistics Limited – interest bearing loan Trade and other receivables: Clicklink Logistics Limited – trading balance Knaresborough Investments Limited  Branton Court Stud LLP Hamsard 3476 Limited Southerns Office Interiors Limited Trade and other payables: Clicklink Logistics Limited Southerns Office Interiors Limited Trust Electric Heating Limited 2019 Group £’000 1,950 1,626 – 461 – 2 227 – – 2018 Group £’000 1,950 1,491 – 93 4,200 1 168 63 2 The shareholders in Clicklink Logistics Limited have jointly made available to that company a term loan facility of £3,900,000 of which the Company’s 50% share is £1,950,000. Interest on each loan is calculated at a margin above 12 month LIBOR and is payable annually. All loans drawn under the facility are repayable in November 2022. Transactions with these related parties in the year ended 30 April were as follows: Items credited to the income statement: Clicklink Logistics Limited – revenue Clicklink Logistics Limited – finance income Branton Court Stud LLP1 Hamsard 3476 Limited Knaresborough Investments Limited Southerns Office Interiors Limited Items charged to the income statement: Hamsard 3476 Limited Clicklink Logistics Limited Guiseley Association Football Club Branton Court Stud LLP Knaresborough Investments Limited Knaresborough Real Estate Limited  Roydhouse Properties Limited  Southerns Office Interiors Limited  Trust Electric Heating Limited Purchase of non-current assets: Southerns Office Interiors Limited Sale of non-current assets: Clicklink Logistics Limited – items procured but not capitalised by the Company 1. Amounts charged to Branton Court Stud LLP represent recharges of costs with no element of mark up. 2019 Group £’000 20,392 52 2,097 3,100 174 7 145 2,750 25 129 176 360 910 17 – – – 2018 Group £’000 15,738 35 437 4,200 285 23 – 1,682 67 – 8 361 865 33 4 70 277 99 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 28. Business combinations 28.1 Tesam Distribution Limited On 24 May 2017 the Company acquired the entire issued share capital of Tesam Distribution Limited (“Tesam”) in exchange for cash consideration. Tesam operated as a provider of a variety of warehousing and distribution services to the retail sector. With effect from 30 April 2018 the Tesam operations have been hived-up into Clipper Logistics plc. Purchase consideration and cash flows: Cash consideration paid Total consideration payable Analysis of cash flows: Cash consideration paid in the year Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash flow on the acquisition Acquisition: Assets: Property, plant and equipment Customer relationships Software Trade and other receivables Cash and cash equivalents Liabilities: Trade and other payables Current tax liabilities Current provisions Deferred tax liabilities Total identifiable net assets at fair value Goodwill arising on acquisition Total consideration £’000 11,750 11,750 11,750 2,177 (9,573) Fair value £’000 4,655 8,173 740 1,157 2,177 (3,488) (147) (1,036) (1,801) 10,430 1,320 11,750 The goodwill of £1,320,000 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. Professional fees and costs in relation to the acquisition were £159,000 and have been charged to the income statement. 100 Clipper Logistics plc 28.2 RepairTech Limited On 15 June 2017 the Company acquired the entire issued share capital of RepairTech Limited (“RepairTech”) in exchange for cash consideration. RepairTech is a specialist provider of consumer electronic repair services based in Southam, Warwickshire. Purchase consideration: Cash consideration paid in the year ended 30 April 2018 Deferred consideration paid June 2018 Total consideration payable Analysis of cash flows: Cash consideration paid in the year ended 30 April 2018 Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash flow on the acquisition Acquisition: Assets: Property, plant and equipment Customer relationships Other intangible assets Inventories Trade and other receivables Cash and cash equivalents Liabilities: Trade and other payables Current tax liabilities Deferred tax liabilities Total identifiable net assets at fair value Goodwill arising on acquisition Total consideration £’000 2,500 500 3,000 2,500 300 (2,200) Fair value £’000 159 1,384 23 34 760 300 (611) (153) (275) 1,621 1,379 3,000 The goodwill of £1,379,000 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. Other intangible assets recognised consist of the acquired order book. Professional fees and costs in relation to the acquisition were £62,000 and have been charged to the income statement. 101 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Group Financial Statements Notes to the Group Financial Statements continued 29. Subsequent events In April 2019, the Group entered into a series of contracts with a customer, which when combined represented a business combination in accordance with IFRS 3 ‘Business Combinations’. The acquisition consists of premises, assets and a workforce, together carrying out a logistics service business that will be outsourced to the Group. The business acquired is an unincorporated entity. Several areas required significant judgment by management, in particular that the transfer of employees under TUPE and the lease of the premises commenced only after the year end, limiting the ability of the Group to control the relevant activities of the acquired business. On balance the Group has concluded that the effective date of the business combination is 1 July 2019 and that this series of transactions should be reflected within the first half of the year ending 30 April 2020. This is when management have concluded that control has passed to the Group. The Group has carried out a provisional fair value exercise of the business combination, which will give rise to provisional ‘negative goodwill’ of £2,951,000. The ‘negative goodwill’ will be recognised within the Group income statement in the first half of the year ending 30 April 2020. The provisional fair value table for the business combination is shown below. Purchase consideration and cash flows: Cash consideration payable Cash consideration receivable Total net consideration payable Acquisition: Assets: Property, plant and equipment Customer relationship Liabilities: Current provisions Deferred tax liabilities Total identifiable net assets at fair value ‘Negative goodwill’ arising on acquisition Total consideration £’000 2,899 (2,765) 134 Provisional fair values £’000 2,899 2,428 (1,600) (642) 3,085 (2,951) 134 As part of the series of transactions, the customer paid the Group consideration in return for the Group assuming certain potential liabilities. This resulted in the net consideration payable being less than the provisional fair value of net assets acquired, principally the customer relationship, which gave rise to ‘negative goodwill’. Professional fees and costs in relation to the acquisition are expected to not exceed £50,000. 102 Clipper Logistics plc / Company Financial Statements Company Statement of Financial Position At 30 April Assets: Non-current assets Goodwill; Other intangible assets Intangible assets Property, plant and equipment Investment in subsidiaries Other investments Non-current financial assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities: Current liabilities Trade and other payables Financial liabilities: borrowings 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 Share based payment reserve Retained earnings Total equity attributable to the owners of the Company Total equity and liabilities Approved by the Board on 29 August 2019 and signed on its behalf by: DA Hodkin Chief Financial Officer Company No. 03042024 2019 Company £’000 2018 Company £’000 Note D E F F S G H J I J M J M N O 5,712 9,495 15,207 51,074 28,917 1,950 1,950 99,098 670 79,987 378 81,035 5,712 8,968 14,680 39,381 24,605 1,950 1,950 82,566 466 62,770 892 64,128 180,133 146,694 86,849 16,893 100 835 104,677 38,010 1,971 2,562 42,543 67,675 18,637 61 2,136 88,509 25,246 1,430 1,599 28,275 147,220 116,784 51 2,060 (5) 851 1,643 28,313 32,913 51 1,710 (39) 851 2,745 24,592 29,910 180,133 146,694 103 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Company Statement of Changes in Equity For the year ended 30 April Balance at 1 May 2017 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Balance at 30 April 2018 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Share capital Company £’000 50 – – – 1 – 51 – – – – – Share premium Company £’000 80 – – – 1,630 – 1,710 – – – 350 – Balance at 30 April 2019 51 2,060 Currency translation reserve Company £’000 Other reserve Company £’000 40 – (79) – – – (39) – 34 – – – (5) Carried forward Company £’000 1,021 – (79) – 1,631 – 2,573 – 34 – 350 – 851 – – – – – 851 – – – – – 851 2,957 Retained earnings Company £’000 Total Company £’000 17,391 14,466 – 357 – (7,622) 24,592 12,509 – 146 – (8,934) 20,450 14,466 (79) 1,064 1,631 (7,622) 29,910 12,509 34 (956) 350 (8,934) Balance at 1 May 2017 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share Issue Dividends Balance at 30 April 2018 Profit for the year Other comprehensive income/(expense) Equity settled transactions Share issue Dividends Brought forward Company Share based payment reserve Company £’000 1,021 – (79) – 1,631 – 2,573 – 34 – 350 – £’000 2,038 – – 707 – – 2,745 – – (1,102) – – Balance at 30 April 2019 2,957 1,643 28,313 32,913 104 Clipper Logistics plc Notes to the Company Financial Statements A. Authorisation of Financial Statements and statement of compliance with UK GAAP The Parent Company Financial Statements of Clipper Logistics plc (the “Company”) for the year ended 30 April 2019 were authorised for issue by the Board of Directors on 29 August 2019 and the Company Statement of Financial Position was signed on the Board’s behalf by David Hodkin. Clipper Logistics plc is a public limited company incorporated and domiciled in England and Wales. The Company’s ordinary shares are traded on the London Stock Exchange. The Financial Statements are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). The Financial Statements are prepared under the historical cost convention. No profit and loss account is presented by the Company as permitted by Section 408 of the Companies Act 2006. The profit after tax attributable to the members of the Company and other comprehensive income are shown in the Statement of Changes in Equity. The results of Clipper Logistics plc are included in the consolidated Financial Statements of Clipper Logistics plc which are available from the Company Secretary at Gelderd Road, Leeds, LS12 6LT. The accounting policies which follow set out those policies which apply in preparing the Financial Statements for the year ended 30 April 2019. The Financial Statements are prepared in Pounds Sterling and are rounded to the nearest thousand pounds (£’000). B. Accounting policies The Financial Statements have been prepared in accordance with the Companies Act 2006 and with applicable accounting standards in the UK. B.1 Basis of preparation The Company has taken advantage of the following disclosure exemptions under FRS 101: (a) the requirements of paragraphs 45(b) and 46–52 of IFRS 2 ‘Share based Payment’; (b) the requirements of paragraphs 62, B64(d), B64(e), B64(g), B64(h), B64(j) to B64(m), B64(n)(ii), B64 (o)(ii), B64(p), B64(q)(ii), B66 and B67 of IFRS 3 ‘Business Combinations’; (c) the requirements of IFRS 7 ‘Financial Instruments: Disclosures’; (d) the requirements of paragraphs 91–99 of IFRS 13 ‘Fair Value Measurement’; (e) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of: i. paragraph 79(a)(iv) of IAS 1; ii. paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’; iii. paragraph 118(e) of IAS 38 ‘Intangible Assets’; iv. paragraphs 76 and 79(d) of IAS 40 ‘Investment Property’; and v. paragraph 50 of IAS 41 ‘Agriculture’. (f) the requirements of paragraphs 10(d), 10(f), 39(c) and 134–136 of IAS 1 ‘Presentation of Financial Statements’; (g) the requirements of IAS 7 ‘Statement of Cash Flows’; (h) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’; (i) the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’; the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and (j) the requirements of paragraphs 134(d)-–34(f) and 135(c)–135(e) of IAS 36 ‘Impairment of Assets’. B.2 Going concern The Financial Statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the Financial Statements, the Directors are required to consider whether the Company and the Group can continue in operational existence for the foreseeable future. Note 26 to the Group Financial Statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to foreign exchange, credit and interest rate risk. The Company Statement of Financial Position at 30 April 2019 shows current assets of £81,035,000 (2018: £64,128,000) and current liabilities of £104,677,000 (2018: £88,509,000). Net current liabilities are therefore £23,642,000 (2018: £24,381,000). The Group has access to a non-amortising Revolving Credit Facility of £35,000,000 repayable in 2021 of which £17,000,000 was drawn at 30 April 2019 and an overdraft facility of £8,000,000 (see note 20 to the Group Financial Statements). The Company’s bank overdraft shown in Note J was covered by cash balances held by other UK entities of the Group. The Directors have assessed the future funding requirements of the Group and the Company and compared them to the bank facilities which are now available. The assessment included a detailed review of financial and cash flow forecasts for at least the 12 month period from the date of signing the Annual Report. The Directors considered a range of potential scenarios within the key markets the Group serves and 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. 105 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Notes to the Company Financial Statements continued B. Accounting policies continued B.2 Going concern continued The Group’s forecasts and projections show that the Group should be able to operate without the need for any increase in borrowing facilities. Having undertaken this work, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements. B.3 Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: / leasehold property over the length of the lease; / plant and machinery 2–20 years; and / motor vehicles 4–8 years. Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included within ‘other net gains’ in the income statement when the asset is derecognised. B.4 Investments Non-current investments are shown at cost less provision for impairment. B.5 Intangible assets (a) Contracts and licences Intangible assets recognised in relation to contracts or licences are amortised over the length of the relevant agreement. (b) Goodwill Goodwill representing the excess of the purchase price compared with the fair value of net assets acquired is capitalised and included in intangible assets. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. This is not in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 which requires that all goodwill be amortised. The Directors consider that this would fail to give a true and fair view of the profit for the year and that the economic measure of performance in any period is properly made by reference only to any impairment that may have arisen. It is not practicable to quantify the effect on the Financial Statements of this departure. (c) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the Company, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs include the software development employee costs and overheads directly attributable to bringing the asset into use. Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding five years). B.6 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Assets held under finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease, with a corresponding liability being recognised for the lower of the fair value of the leased asset and the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a constant rate of interest on the remaining balance of the liability. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the estimated useful life of the asset and the lease term; where the lease contains an option to purchase which is expected to be exercised, the asset is depreciated over the useful life of the asset. The accounting policy adopted for finance leases is also applied to hire purchase agreements. 106 Clipper Logistics plc IFRS 16 ‘Leases’ (“IFRS 16”) was issued in January 2016, replacing IAS 17 Leases (IAS 17) and associated interpretations IFRIC 4, SIC 15 and SIC 27. IFRS 16 will apply to annual periods beginning on or after 1 January 2019. IFRS 16 will primarily change lease accounting for lessees. Lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability replacing rental costs charged on a straight-line basis. Under the transition rules, the Company will apply IFRS 16 using the modified retrospective approach with the cumulative effect of applying the standard recognised in retained earnings on 1 May 2019 with no restatement of comparative information. The Company will be taking available exemptions for short-term leases and low value leases (<£5,000). The Company held a significant number of operating leases at 30 April 2019 for which the future minimum lease payments amount to £181.3m as disclosed in note Q to the Company Financial Statements. On the adoption of IFRS 16, the expected effect on the balance sheet is the recognition of an asset in the range of £114m to £139m, a liability in the range of £143m to £164m, a deferred tax asset of between £3m and £5m, a derecognition of rent- related assets of liabilities of £4m and an increase in retained earnings in the range of £18m to £21m. In the year ending 30 April 2020, IFRS 16 is expected to increase operating profit by between £6m and £7m, finance costs by between £6m and £7m, both partly offset by deferred tax, all resulting in a reduction in profit before tax of between £0.5m and £1m. The Group will continue to implement and refine procedures and processes to apply the new requirements of IFRS 16. As a result of this ongoing work, it is possible that there may be some changes to the adoption impact outlined above before the 30 April 2020 results are issued. However, at this time these are not expected to be material. B.7 Inventories – component parts and consumable stores Inventories of component parts and consumable stores are valued at the lower of cost and net realisable value on a line by line basis. Provision is made for obsolete and slow-moving items. B.8 Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The Company applies the simplified approach permitted by IFRS 9, which requires the application of a lifetime expected loss provision to trade receivables. The provision calculations are based on historic credit losses applied to older balances. This approach is followed for all receivables unless there are specific circumstances which would render the receivable irrecoverable and therefore require a specific provision. A provision is made against trade receivables until such time as the Company believes the amount to be irrecoverable, after which the trade receivable balance is written off. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within ‘administration expenses’. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘administration expenses’ in the income statement. B.9 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Company Statement of Financial Position. B.10 Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. B.11 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 107 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Notes to the Company Financial Statements continued B. Accounting policies continued B.12 Income tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. 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. However, the deferred income tax is not accounted for, if it arises from initial recognition of goodwill or an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profits or losses. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset, only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the Company to make a single net payment. B.13 Employee benefits (a) Pension obligations The Company operates various pension schemes. The schemes are generally funded through payments to insurance companies. The Company has only defined contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. For defined contribution plans, the Company pays contributions to privately administered pension insurance plans on a contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. (b) Post-retirement benefits The Company provides no other post- retirement benefits to its employees. (c) Profit-sharing and bonus plans The Company recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Company recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (d) Share based payments IFRS 2 requires the recognition of equity settled share based payments at fair value at the date of the grant. All equity settled share based payments are ultimately recognised as an expense in the income statement with a corresponding credit to share based payment reserve. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period based on the best available estimate of the number of shares expected to vest. Estimates are revised subsequently if there is any indication that the number of shares expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. The financial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings are charged to the employing entity. Amounts recharged by the Company are recognised as an intra-Group receivable with a corresponding credit to equity. Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital and, where appropriate, share premium. B.14 Provisions Provisions for items such as dilapidations and legal claims are recognised when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 108 Clipper Logistics plc B.15 Foreign currency translation The Company’s functional currency and presentation currency is Pounds Sterling. Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-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. The Company does not apply hedge accounting of foreign exchange risks in its Company Financial Statements. B.16 Revenue recognition The Company has applied IFRS 15 ‘Revenue from Contracts with Customers’ using the cumulative effect method. Comparative information in both the Income Statement and the Balance Sheet has not been restated and continues to be reported under IAS 18 ‘Revenue’ as there was no material adjustment on transition. The Company recognises revenue from contracts with customers as the performance obligations to deliver products and services under these contracts are satisfied. The Group’s contracts are typically for the provision of warehouse or transport services and normally comprise a single performance obligation being a series of goods or services satisfied over time. Revenue is recognised based on the amount of consideration expected to be received in exchange for satisfying the performance obligations. Revenue relating to costs to serve the customer are invoiced in line with the customer receiving and consuming benefits under the contract via the ‘open book’ charging mechanism with either a fixed or variable management fee and is recognised in the period in which it is earned. Performance obligations are satisfied over time and measured against minimum service level agreements. There has been no change in the timing of revenue recognition on application of IFRS 15. In ‘closed book’ contracts, revenue is typically recognised based on a pre-agreed price and is typically per unit/parcel/delivery or pallet etc. Revenue based on a pre-agreed rate-card is recognised as services are provided, in line with the customer receiving and consuming benefits under the contract. There has been no change in the timing of revenue recognition on application of IFRS 15. Fixed management fees are recognised over the contract term. Performance obligations are satisfied over time. There has been no change in the timing of revenue recognition on application of IFRS 15. Variable management fees (a fixed percentage of costs) are recognised as the corresponding costs are incurred i.e. where we have the right to invoice the customer at an amount that corresponds directly with performance to date, we apply the practical expedient to recognise revenue at that amount. Invoicing varies by contract but is typically either in line with work performed or initially on a budgeted volume basis with later adjustment to reflect actual activity. Where a contract contains elements of variable consideration, the Company will estimate the amount or revenue to which it will be entitled under the contract. Variable consideration can arise as a result of incentives, performance bonuses, penalties or other similar items. Variable revenue is recognised to the extent it is highly probable a significant revenue reversal will not occur in the future. There has been no change in the timing of revenue recognition on application of IFRS 15. 109 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Notes to the Company Financial Statements continued B.17 Intra-Group guarantees Where the Company enters into contracts to guarantee the indebtedness of other companies within the Group, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. B.18 Judgments and key sources of estimation uncertainty The preparation of the financial information under FRS 101 requires management to make judgments, estimates and assumptions concerning the future. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Revenue recognition Judgment is required when determining the appropriate timing and amount of revenue that can be recognised, due to the various contractual arrangements in place, each with bespoke terms which can lead to different revenue recognition requirements. B. Accounting policies continued B.16 Revenue recognition continued The Company does not expect to have any contracts which include a significant financing arrangement and therefore does not adjust its transaction price for the time value of money. Where payments are received in advance of revenue being recognised they are included as contract liabilities. Where revenue is recognised in advance of amounts being invoiced, it is reported as a contract receivable. Calculation of contract assets and contract liabilities is therefore necessary at period ends, with client billing arrangements not always coinciding with the Company’s reporting periods. Revenue from open book contracts includes contributions to the capital cost of items used in the delivery of services, together with a finance charge. Judgment is required when determining the appropriate timing and amount of revenue that can be recognised, due to the different contractual arrangements in place. At certain sites where the Company has entered into leases, arrangements have been entered into with third and/or related parties, under which the Company receives fees for property- related advisory services. Revenue earned from property-related advisory services is recognised in the consolidated income statement at fair value of the consideration receivable, net of VAT. Management assesses the fees that are applicable to each specific transaction and recognises revenue in the income statement at the time of the underlying transaction. In forming the judgment, the Company considers whether the leases it has entered into are operating leases, whether the future rentals are at market value and accordingly whether the fees can be attributed to delivered property-related advisory services. Property-related advisory fees are recognised as services are provided. There has been no change in the timing of revenue recognition on the application of IFRS 15. 110 Clipper Logistics plc C. Auditor’s remuneration Remuneration payable to the Company’s auditor is shown in note 6 to the Group Financial Statements. D. Intangible assets Cost: At 1 May 2017 Additions Acquisition At 30 April 2018 Additions Acquisition At 30 April 2019 Accumulated amortisation: At 1 May 2017 Charge for the year Disposals At 30 April 2018 Charge for the year At 30 April 2019 Net book value: At 1 May 2017 At 30 April 2018 At 30 April 2019 Goodwill Company £’000 Contracts and licences Company £’000 Computer software Company £’000 Total Company £’000 8,312 – – 8,312 – – 723 – 7,410 8,133 – – 8,312 8,133 2,600 – – 2,600 – 723 – – 723 818 2,600 1,541 5,712 5,712 5,712 – 7,410 6,592 1,451 920 601 2,972 1,889 – 4,861 1,257 157 – 1,414 544 1,958 194 1,558 2,903 10,486 920 8,011 19,417 1,889 – 21,306 4,580 157 – 4,737 1,362 6,099 5,906 14,680 15,207 On 30 April 2018 the Company acquired the entire trade, assets and undertaking of its subsidiary, Tesam Distribution Limited at market value. For further detail, see note T. 111 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Notes to the Company Financial Statements continued E. Property, plant and equipment  Leasehold property Company £’000 Motor vehicles Company £’000 Cost: At 1 May 2017 Additions Acquisitions Disposals At 30 April 2018 Additions Acquisitions Disposals At 30 April 2019 Accumulated depreciation: At 1 May 2017 Charge for the year Disposals At 30 April 2018 Charge for the year Disposals At 30 April 2019 Net book value: At 1 May 2017 At 30 April 2018 At 30 April 2019 Plant, machinery, fixtures & fittings Company £’000 49,234 6,712 555 – 56,501 14,068 – (219) Total Company £’000 53,295 9,856 625 (50) 63,726 17,788 – (453) 1,388 6 58 (50) 1,402 170 – (234) 1,338 70,350 81,061 1,098 138 (46) 1,190 100 (187) 17,425 4,148 – 21,573 5,075 (12) 19,773 4,618 (46) 24,345 5,841 (199) 2,673 3,138 12 – 5,823 3,550 – – 9,373 1,250 332 – 1,582 666 – 2,248 1,103 26,636 29,987 1,423 4,241 7,125 290 212 235 31,809 34,928 43,714 33,522 39,381 51,074 Included within property, plant and equipment are amounts held under finance lease contracts. At 30 April 2019, the net book value of these assets was £33,952,000 (2018: £25,825,000). The depreciation charged to the accounts in the year in respect of such assets amounted to £3,849,000 (2018: £2,782,000). Additions to plant, machinery, fixtures & fittings include £3,365,000 (2018: £1,517,000) in respect of assets in the course of construction. 112 Clipper Logistics plc F. Investments Cost: At 1 May 2017 Additions At 30 April 2018 Additions At 30 April 2019 Provision for impairment: At 1 May 2017 Write down in the year (see note T) At 30 April 2018 Write down in the year At 30 April 2019 Net book value: At 1 May 2017 At 30 April 2018 At 30 April 2019 Subsidiary undertakings £’000 20,443 15,787 36,230 4,312 40,542 215 11,410 11,625 – 11,625 20,228 24,605 28,917 Other £’000 1,950 – 1,950 – 1,950 – – – – – 1,950 1,950 1,950 113 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Notes to the Company Financial Statements continued F. Investments continued During the year ended 30 April 2019, the Company capitalised an intercompany loan balance of 5,000,000 euros with Clipper Logistics KG (GmbH & Co.) in exchange for further share capital. In the year ended 30 April 2018, the Company acquired the entire share capital of Tesam Distribution Limited and RepairTech Limited (see note 28 to the Group Financial Statements) and subscribed for further share capital in Clipper Logistics Sp. z o.o. 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. All the following subsidiaries are consolidated in the Group Financial Statements. Company Nature of business during the year Servicecare Support Services Limited1 Returns management services and on-line retail Clipper Logistics KG (GmbH & Co.) (Germany)2 Contract distribution and warehousing Clipper Logistics Sp. z o.o.(Poland)3 Contract distribution and warehousing RepairTech Limited4 Technical services Northern Commercials (Mirfield) Limited5 Sale, servicing and repair of commercial vehicles Stormont Truck and Van Limited* Agency for leasing commitments Clipper Verwaltungs GmbH (Germany)*2 Agency for leasing commitments Electrotec International Limited*1 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 Genesis Specialised Product Packing Limited Guardex Security Services Limited Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Tesam Distribution Limited Agency for contractual commitments Transference Technology Limited (90% owned)* Northern Commercial Trailers (Mirfield) Limited* Dormant Dormant * Shareholding held indirectly. See note 28 to the Group Financial Statements for additions during the year ended 30 April 2018. The registered office of each subsidiary is Clipper Logistics Group, Gelderd Road, Leeds LS12 6LT except for: 1. Hollinwood Works, Manchester Road, Hollinwood, Oldham, Lancashire OL9 7AA 2. Steinweg 2, 95213, Münchberg, Germany 3. 3 ul. Zernicka, 22, Robakowo, 62-023, Poznan´, Poland 4. 4b Westfield Road, Kineton Industrial Estate, Southam, Warwickshire CV47 0JH 5. Armytage Road, Wakefield Road Industrial Estate, Brighouse, West Yorkshire HD6 1PG G. Inventories Component parts and consumable stores 2019 Company £’000 2018 Company £’000 670 466 114 Clipper Logistics plc H. Trade and other receivables Amounts falling due within one year: Trade receivables Less: Provision for impairment of receivables Trade receivables - net Other receivables Contract assets Prepayments Amounts receivable from related parties (see note S) Amounts owed by fellow Group companies Amounts falling due after more than one year: Amounts owed by fellow Group companies Total 2019 Company £’000 2018 Company £’000 45,203 (27) 33,457 (100) 45,176 302 14,951 15,002 2,087 2,403 79,921 66 79,987 33,357 105 5,914 12,630 5,691 533 58,230 4,540 62,770 The contract assets relate to the Group’s rights to consideration for work completed but not billed at the reporting date. They are transferred to receivables when the amounts are invoiced. I. Trade and other payables Trade payables Other taxes and social security Other payables Contract liabilities Accruals Amounts payable to related parties (see note S) Amounts payable to fellow Group companies Total trade and other payables 2019 Company £’000 2018 Company £’000 30,339 9,790 578 23,159 17,449 227 5,307 86,849 21,840 7,727 2,688 16,012 13,939 233 5,236 67,675 The contract liabilities primarily relate to the consideration invoiced to customers in advance of the work being completed. 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 Less: Cash and cash equivalents Non-current financial assets (see note S) Net debt 2019 Company £’000 2018 Company £’000 17,307 20,703 38,010 7,918 781 8,194 16,893 54,903 378 1,950 52,575 9,837 15,409 25,246 12,112 860 5,665 18,637 43,883 892 1,950 41,041 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 2019 is £nil (2018: £1,337,000). Obligations under finance leases or hire purchase agreements are secured by related assets. 115 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019 / Company Financial Statements Notes to the Company Financial Statements continued 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 Total 2019 Company £’000 781 17,307 – 18,088 2018 Company £’000 860 9,837 – 10,697 See note 20 to the Group Financial Statements for the principal features of the bank loans. L. Finance leases and hire purchase agreements The Company uses finance leases and hire purchase agreements to acquire property, plant and equipment. 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 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 M. Provisions At 1 May 2017 Utilised Charged in year At 30 April 2018 Utilised Charged in year At 30 April 2019 Provisions have been analysed between current and non-current as follows: Current Non-current Total 116 2019 Company £’000 2018 Company £’000 9,386 22,280 31,666 (1,192) (1,577) (2,769) 8,194 20,703 28,897 – 6,372 16,245 22,617 (707) (836) (1,543) 5,665 15,409 21,074 – 28,897 21,074 Uninsured losses Company £’000 Dilapidations Company £’000 Total Company £’000 – (213) 213 – (168) 168 1,322 (206) 375 1,491 (84) 664 1,322 (419) 588 1,491 (252) 832 – 2,071 2,071 2019 Company £’000 2018 Company £’000 100 1,971 2,071 61 1,430 1,491 Clipper Logistics plc 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 a lease that expires 18 and 14 years from the balance sheet date and an office lease expires 12 years from the balance sheet date. All other leases expire in 10 years or less. N. Deferred tax Deferred tax balances in the Statement of Financial Position are as follows: Tax effect of temporary differences due to: Share based payments Other timing differences Deferred tax asset Intangible assets Accelerated capital allowances Other timing differences Deferred tax liability Net deferred tax Brought forward 554 65 619 (1,362) (856) – (2,218) (1,599) (Charged)/ credited to income statement (Charged)/ credited to share based payment reserve (205) (32) (237) 164 (1,104) – (940) (1,177) 214 – 214 – – – – At 30 April 2019 £’000 563 33 596 (1,198) (1,960) – (3,158) 214 (2,562) Legislation to reduce the UK corporation tax rate from 19% to 17% with effect from 1 April 2020 was substantively enacted at 30 April 2018. A rate of 17% (2018: 17%) has been applied in the measurement of the Group’s UK deferred tax assets and liabilities in the year. O. Share capital Allotted, called up and fully paid: 101,614,522 (2018: 101,360,523) ordinary shares of 0.05p each 2019 Company £’000 2018 Company £’000 51 51 During the year the Company issued 253,999 ordinary shares to satisfy employee share options, for aggregate consideration of £350,000. The new shares rank pari passu with all existing ordinary shares in issue. See also note 23 to the Group Financial Statements. P. Share based payments Further details of the share option schemes are set out in note 23 to the Group Financial Statements. The credit to the Company’s income statement for equity settled transactions in the year ended 30 April 2019 was £1,152,000 (2018: charge of £1,146,000). Q. Commitments and contingencies Operating lease commitments – land and buildings: Within one year Between one and five years After more than five years Total minimum lease payments Operating lease commitments – vehicles, plant and equipment: Within one year Between one and five years After more than five years Total minimum lease payments 2019 Company £’000 21,543 75,633 72,841 2018 Company £’000 17,103 54,601 55,585 170,017 127,289 2019 Company £’000 2018 Company £’000 5,384 5,860 – 6,457 9,073 2 11,244 15,532 117 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Notes to the Company Financial Statements continued R. Capital commitments Authorised and contracted for Authorised, but not contracted for Total capital commitments 2019 Company £’000 1,979 6,567 8,546 2018 Company £’000 5,350 12,359 17,709 S. Related party disclosures Clicklink Logistics Limited (see note 15 to the Group Financial Statements) is a supplier of logistics services to the Company. The Company provides certain resources to Clicklink, principally people and vehicles, under the terms of the joint venture agreement. Amounts charged for these resources are included in revenue. Branton Court Stud LLP, in which Steve Parkin is a partner, receives management and administration services from the Company. Additionally, in the current year, the Company recognised a credit from Branton Court Stud LLP of £977,000 in respect of Branton Court’s contribution to costs incurred by the Company in respect of of a one-off event. During the year, the Group entered into a framework agreement with Styles & Wood Limited, a company which shares common directors. A payment of £2.0 million was advanced in relation to the agreed works on 27 June 2018. The agreement was subsequently cancelled and the payment was returned by the 20 August 2018. During the year, £46,000 was received from Steve Parkin in relation to repaying Clipper for personal expenditure incurred on a company credit card. At 30 April 2019 £4,000 was outstanding and this was settled on 26 July 2019. The Company advanced two petty cash amounts totalling £27,000 to David Hodkin in the year in exchange for personal cheques from David Hodkin. In both cases, there was a short period of time elapsing between David’s withdrawal of the cash and Clipper’s subsequent cashing of the cheque. As at 30 April 2019, £nil was outstanding. Guiseley Association Football Club shares a common director with the Company.  Hamsard 3476 Limited, a company controlled by Steve Parkin, receives property-related services from the Company. Knaresborough Investments Limited, a company controlled by Steve Parkin, receives management and administration services from the Company.  Roydhouse Properties Limited is the landlord of two of the Company’s leasehold properties and has common directors with Clipper Logistics plc. Southerns Office Interiors Limited supplies office furniture to the Company. A company owned by Steve Parkin is registered as a person with significant control over Southerns Limited, the ultimate parent of Southerns Office Interiors Limited. Trust Electric Heating Limited, a supplier to the Company, shares a common director with Clipper Logistics plc. Key management compensation is disclosed in note 5 to the Group Financial Statements. During the year, £590,000 was recharged to Branton Court Stud LLP for management time of Directors and other key management personnel in proportion to the time spent on non-Clipper related activities. (2018: £285,000 charged Branton Court LLP and £285,000 charged to Knaresborough Investments Limited). Balances owing to or from these related parties at 30 April were as follows: Non-current financial assets: Clicklink Logistics Limited – interest bearing loan Trade and other receivables: Clicklink Logistics Limited – trading balance Hamsard 3476 Limited Branton Court Stud LLP Trade and other payables: Clicklink Logistics Limited Southerns Office Interiors Limited Trust Electric Heating Limited 2019 Company £’000 2018 Company £’000 1,950 1,626 – 461 227 – – 1,950 1,491 4,200 – 168 63 2 The shareholders in Clicklink Logistics Limited have jointly made available to that company a term loan facility of £3,900,000 of which the Company’s 50% share is £1,950,000. Interest on each loan is calculated at a margin above 12 month LIBOR and is payable annually. All loans drawn under the facility are repayable in November 2022. 118 Clipper Logistics plc Transactions with these related parties in the year ended 30 April were as follows: Items credited to the income statement: Clicklink Logistics Limited – revenue Clicklink Logistics Limited – finance income Hamsard 3476 Ltd Knaresborough Investments Limited Branton Court Stud LLP1 Southerns Office Interiors Limited Items charged to the income statement: Clicklink Logistics Limited Knaresborough Investments Limited Hamsard 3476 Ltd Roydhouse Properties Limited  Branton Court Stud LLP Southerns Office Interiors Limited  Guiseley Association Football Club Trust Electric Heating Limited Purchase of non-current assets Southerns Office Interiors Limited Sale of non-current assets Clicklink Logistics Limited – items procured but not capitalised by the Company 2019 Company £’000 2018 Company £’000 20,392 52 3,100 30 2,095 – 2,750 29 145 910 129 – 25 – – – 15,738 35 4,200 285 359 18 1,682 8 – 865 – 28 67 4 70 277 1. Amounts charged to Branton Court Stud LLP represent recharges of costs with no element of mark up. T. Business combinations Tesam Distribution Limited On 24 May 2017 the Company acquired the entire issued share capital of Tesam Distribution Limited (“Tesam”) in exchange for cash consideration. Tesam operated as a provider of a variety of warehousing and distribution services to the retail sector. With effect from 30 April 2018 the trade, assets and undertaking of Tesam have been hived-up into Clipper Logistics plc. Acquisition: Assets: Property, plant and equipment Intangible assets Trade and other receivables Cash and cash equivalents Liabilities: Trade and other payables Short term borrowings Current tax liabilities Deferred tax liabilities Total identifiable net assets at fair value Goodwill arising on acquisition Total consideration Intangible assets recognised, consist of customer relationships and internally generated software. Return on investment: Original cost of investment Residual asset value Investment write-down Dividends received Net earnings in the year ended 30 April 2018 Fair value £’000 625 8,011 1,002 3,405 (2,920) (899) (777) (1,459) 6,988 – 6,988 £’000 11,750 340 (11,410) 12,847 1,437 119 Company Financial StatementsGroup Financial StatementsGovernanceStrategic ReportAnnual Report and Accounts 2019/ Company Financial Statements Notes to the Company Financial Statements continued U. Subsequent events In April 2019, the Company entered into a series of contracts with a customer, which when combined represented a business combination in accordance with IFRS 3 ‘Business Combinations’. The acquisition consists of premises, assets and a workforce, together carrying out a logistics service business that will be outsourced to the Company. The business acquired is an unincorporated entity. Several areas required significant judgment by management, in particular that the transfer of employees under TUPE and the lease of the premises commenced only after the year end limiting the ability of the Company to control the relevant activities of the acquired business. On balance the Company has concluded that the effective date of the business combination is 1 July 2019 and that this series of transactions should be reflected within the first half of the year ending 30 April 2020. This is when management have concluded that control has passed to the Company. The Company has carried out a provisional fair value exercise of the business combination, which will give rise to provisional ‘negative goodwill’ of £2,951,000. The ‘negative goodwill’ will be recognised within the Company income statement in the first half of the year ending 30 April 2020. The provisional fair value table for the business combination is shown below. Purchase consideration and cash flows: Cash consideration payable Cash consideration receivable Total net consideration payable Acquisition: Assets: Property, plant and equipment Customer relationship Liabilities: Current provisions Deferred tax liabilities Total identifiable net assets at fair value ‘Negative goodwill’ arising on acquisition Total consideration £’000 2,899 (2,765) 134 Provisional fair values £’000 2,899 3,387 (1,600) (808) 3,878 (3,744) 134 As part of the series of transactions, the customer paid the Company consideration in return for the Company assuming certain potential liabilities. This resulted in the net consideration payable being less than the provisional fair value of net assets acquired, principally the customer relationship, which gave rise to ‘negative goodwill’. Professional fees and costs in relation to the acquisition are expected to not exceed £50,000. 120 Clipper Logistics plc Directors, Secretary, Registered & Head Office and Advisors Directors: Steve Parkin, Executive Chairman Tony Mannix, Chief Executive Officer David Hodkin, Chief Financial Officer Stephen Robertson, Senior Independent Non-Executive Director Stuart Watson, Independent Non-Executive Director Mike Russell, Independent Non-Executive Director Company Secretary: Marianne Hodgkiss Registered Office and Head Office of the Company: Registered number: Sponsor, financial advisor, sole bookrunner and joint broker: Joint broker: Legal advisors: Auditor: Registrars: Gelderd Road Leeds LS12 6LT 03042024 Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Joh. Berenberg, Gossler & Co. KG 60 Threadneedle Street London EC2R 8HP 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 Financial public relations advisors to the Company: Buchanan Communications Limited 107 Cheapside London EC2V 6DN 121 Annual Report and Accounts 2019 C l i p p e r L o g i s t i c s p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 9 Clipper Logistics plc Gelderd Road Leeds LS12 6LT Tel: 0113 204 2050 Email: info@clippergroup.co.uk Web: www.clippergroup.co.uk 

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