Specialist Paper & Advanced Materials Annual Report & Accounts 2013 James Cropper plc Vision Statement Our Company Goal Our Values pages - | 1 To prosper and grow through developing a portfolio of complementary and successful business activities - the beliefs and standards by which we will deliver our Company Goal • An absolute commitment to safety and the environment • Having integrity and high standards in everything we do • Treating everyone with dignity and respect • Valuing customers as the lifeblood of our business • Developing the potential of our employees in a stimulating and enjoyable workplace • Being enthusiastic about doing things better • Making a positive contribution to our community • Improving profitability and having the drive to succeed James Cropper plc Annual Report and Accounts 2013 pages 2 | 3 2013 Pride Awards This is the fourth year of the James Cropper PRIDE AWARDS which serve to reconfirm our commitment to our values and celebrate outstanding achievement and effort across various categories. Employees are nominated by their colleagues. Safety Improvement Our absolute commitment to safety needs passionate safety champions throughout the organisation. Winner of this award have all contributed to making the workplace safer for everyone and have been ready to challenge unsafe practices wherever they have seen them. The winner of this category is Dave Cornell (JCSP High Bay Warehouse Operator) Community The Mill has been a central part of the local community for 168 years. Many employees make a valuable contribution to the fabric of life in Burneside and South Lakeland, whether in education, sport or charitable activities. 91% of our employees live within 20 miles of Burneside. The winner of this category is Jamie Ellis (JCSP Dryerman’s Assistant) Support for Colleagues Life inevitably throws up challenges to all of us from time to time, either at work or in our private lives. This award recognises those individuals who colleagues know they can turn to for help, advice or simply someone to talk to. The joint winners of this category are Judith Burrow (TFP, Customer Services Assistant) and Julia Harrison (JC IT Support Analyst) Innovation and Creativity This award recognises those individuals who are innovative and creative, which are key elements in ensuring we maintain a competitive advantage and help our customers to become more successful. The winner of this category is Andrew Herron (JCSP Engineering Co-ordinator) Customer Service Our statement of Values recognises customers as the lifeblood of our business. The joint winners of this category are Roger Moffatt (JCSP, Embossing Operator) and Bridget Wedderburn (TFP, Materials Specialist) Taking Pride Our value statement talks about having high standards in everything we do and this category recognises those employees who set the bar when it comes to doing their job to the highest personal and professional standards. The winner of this category is Mandy Bond (JC Van Driver & Cleaner) PRIDE Winners and Commendations, can be read The full Pride Award story which relates to by scanning the QR code or visiting www.jamescropper.com/pride Dave Bridget Jamie Andrew Judith Julia Roger Mandy James Cropper plc Annual Report and Accounts 2013 Contents Summary of Results 6 | 7 Directors, Bankers and Advisors 8 | 9 Chairman’s Review 10 | 11 Financial and Operating Review 12 | 21 Report of the Directors 22 | 27 Directors’ Remuneration Report 28 | 30 Report of the Independent Auditor 31 | 31 Group Statement of Comprehensive Income 32 | 32 Statement of Financial Position 33 | 33 Statement of Cash Flows 34 | 34 Statement of Changes in Equity 35 | 36 Notes to the Financial Statements 38 | 65 Shareholder Information 66 | 66 Notice of Annual General Meeting 67 | 68 James Cropper plc Annual Report and Accounts 2013 pages 6 | 7 Summary of Results Group turnover Continuing operations The Paper Mill Shop (discontinued operation) Trading profit before interest Depreciation EBITDA (before IAS 19 pension adjustment) Trading profit before interest Continuing operations The Paper Mill Shop (discontinued operation) Trading activities Technical Fibre Products Speciality Papers Converting The Paper Mill Shop (discontinued operation) Other Group expenses Director and employee bonuses Redundancy provision Trading profit before interest Net interest Trading profit before tax (After future service pension contributions paid) Net IAS 19 pension adjustments to Net current service charge required Exceptional curtailment adjustment Operating profit Net interest Net pension adjustment before tax Overall Group after pension adjustments Operating profit Redundancy provision Profit before interest Net interest Profit before Tax Profit/(loss) before Tax Continuing operations The Paper Mill Shop (discontinued operation) Earnings/(losses) per Share - diluted Continuing operations after IAS 19 2013 £000s 79,241 - 79,241 2,535 2,818 5,353 2,535 - 2,535 1,450 697 982 - (228) 2,901 (366) - 2,535 (483) 2,052 (426) - (426) 193 (233) 2,109 - 2,109 (290) 1,819 1,819 - 1,819 16.5p 2012 £000s 78,223 - 78,223 1,207 2,675 3,882 1,207 - 1,207 629 1,430 192 - (158) 2,093 (86) (800) 1,207 (364) 843 (539) - (539) 667 128 1,468 (800) 668 303 971 971 - 971 2011 £000s 83,264 3,609 86,873 1,665 3,072 4,737 3,361 (1,696) 1,665 2,289 587 1,272 (1,696) (119) 2,333 (668) - 1,665 29 1,694 (763) 10,158 9,395 (3) 9,392 11,060 - 11,060 26 11,086 12,812 (1,726) 11,086 2010 £000s 70,714 5,516 76,230 3,568 3,138 6,706 3,942 (374) 3,568 1,327 3,437 446 (374) (393) 4,443 (875) - 3,568 (271) 3,297 (255) - (255) (626) (881) 3,313 - 3,313 (897) 2,416 2,790 (374) 2,416 2009 £000s 69,129 5,674 74,803 1,556 3,179 4,735 1,944 (388) 1,556 2,099 (310) 406 (388) (19) 1,788 (232) - 1,556 (448) 1,108 (476) - (476) 226 (250) 1,080 - 1,080 (222) 858 1,246 (388) 858 9.5p 117.4p 25.5p (1.0p) Dividends per Share 7.9p 7.9p 7.9p 7.5p 5.1p Balance Sheet Summary £'000 Non-pension assets - excluding cash Non-pension liabilities - excluding borrowings Net IAS 19 pension deficit (after deferred tax) Net borrowings Equity shareholders' funds Gearing % - before IAS 19 deficit Gearing % - after IAS 19 deficit Capital Expenditure £'000 48,426 (10,831) 37,595 (7,972) 29,623 (9,286) 20,337 33% 46% 4,072 46,278 (11,956) 34,322 (5,850) 28,472 (6,505) 21,967 23% 30% 5,934 44,000 (13,841) 30,159 (1,039) 29,120 (1,711) 27,409 6% 6% 2,276 43,852 (15,800) 28,052 (10,210) 17,842 (31) 17,811 0% 0% 1,228 43,753 (12,592) 31,161 (6,535) 24,626 (4,452) 20,174 17% 22% 1,333 Trading Profit Continuing operations Discontinuing operations £m 5 4 3 2 1 0 -1 -2 Funds and Capital Expenditure NET DEBT EBITDA CAPEX £m 10 9 8 7 6 5 4 3 2 1 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 EBITDA External Turnover - Business Segmentation Depreciation Trading Profit Speciality Papers Converting TFP £m 7 6 5 4 3 2 1 0 £m 70 60 50 40 30 20 10 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Continuing operations External Turnover - Geographical Areas Gearing UK Europe Americas Other Pre-pension deficit Post-pension deficit % 60 50 40 30 20 10 0 % 50 40 30 20 10 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Continuing operations Notes to Summary of Results All references to: 1. "Profit and Loss Account" refers to the Statement of Comprehensive Income. "Balance Sheet" refers to the Statement of Financial Position. "Reserves" refers to the Statement of Changes in Equity. Management have chosen to maintain the terminology that readers are familiar with. 2. “Trading Profit before Interest” refers to profits prior to interest on borrowings, “Net IAS 19 pension adjustment” and tax. 3. “EBITDA” refers to profits prior to interest on borrowings, “Net IAS 19 pension adjustment” depreciation, amortisation and tax. 4. “Trading Profit before Tax” refers to profits prior to “Net IAS 19 pension adjustment” and tax 5. “Net IAS 19 pension adjustment” in the Profit and Loss Account refer to the net impact on the Profit and Loss Account of the pension schemes’ operating costs and finance costs, as described in the IAS 19 section of the Financial and Operating Review. James Cropper plc Annual Report and Accounts 2013 pages 8 | 9 Directors, Bankers and Advisers Chairman Executive Directors Non Executive Directors Bankers and Advisers Mark A J Cropper, MA Born 1974. Joined the board in 2006 and became Chairman in 2010, the sixth generation of the Cropper family to hold this position. Formerly he was a corporate financier specialising in environmental investment. He remains a Director of Ellergreen Hydro Ltd, a developer and operator of hydro-electric schemes, and a partner in Turquoise Capital LLP. Chief Executive Officer Philip I Wild, BEng Born 1969. He joined the Board as CEO on 8 October 2012 having spent over 20 years with 3M where he held a number of roles and directorships. Alun I Lewis BSc, MBA Born 1957. He joined the Group in 1987 from Wiggins Teape Limited and the Board in April 1998, becoming Chief Executive in January 2001. Alun resigned from the Board on 15 August 2012. Group Finance Director John M Denman, BSc, FCA Born 1952. He joined the Group and the Board in 1995 from Cable & Wireless PLC. He is responsible for Finance, Purchasing, Information Systems and Safety and Environment. He is a former trustee of the James Cropper plc Pension Scheme, Treasurer of the Confederation of Paper Industries Limited and a former Director of the Paper Federation of Great Britain Limited. Sales and Marketing Director, James Cropper Speciality Papers Limited Nigel A Read, BA Born 1954. He joined the Group in 1981 from Robert Fletcher & Sons Limited and the Board in 1998. He is a former trustee of the James Cropper plc Pension Scheme. Operations Director, James Cropper Speciality Papers Limited Patrick J Willink, BSc, MBA Born 1964 – is also related to the founder. He joined the Group in 1990 from Aquascutum Limited and the Board in 1998. Managing Director, Technical Fibre Products Limited Martin Thompson, MBA Born 1959. Appointed as an Executive Director and Managing Director of Technical Fibre Products Ltd on 10 June 2013. He joined the Group in 2003 as General Manager of James Cropper Converting Ltd and was appointed Managing Director of James Cropper Converting Ltd in 2007. Prior to joining the Company he held a variety of roles within Arjowiggins, BASF and Inveresk. George T Quayle, BSc, C. Chem, MRSC Born 1953. He joined the Group in 1992 from Whatman PLC and the Board in 1998. George retires and resigns from the Board on 31 July 2013. Sir James A Cropper, KCVO, BA, FCA Born 1938. He joined the Group in 1966. He became Non- Executive Chairman in 2001 and resigned from this position 28 July 2010. Since then he has been a Non-Executive Director. Sir James will resign from the Board at the AGM on 31 July 2013. He will then become the first Honorary President of James Cropper plc. Sir James was H M Lord-Lieutenant of Cumbria from 1994 until 2012. David R Wilks, LLB (Hons) Born 1954. He joined the Board in April 2004. He is a Director of Wilks & Partners, a management consultancy company he founded in 2001. Prior to this, he had extensive manufacturing operations experience with H J Heinz and United Biscuits and was a Director of ER Consultants. James Sharp, BA Born 1967. He joined the Board in 2009. He is a partner of Sirius Equity LLP, an investment firm which specialises in the retail and luxury goods sectors, whose investments include L K Bennett, feelunique.com and Jeckerson. Previously he was a Director of J Henry Schroder & Co. Limited, the investment banking arm of Schroders plc. Douglas Mitchell, BSc (Hons) Born 1950. He joined the Board in January 2012. Prior to his retirement in 2010 he was Managing Director of 3M UK and Ireland following a high profile career within 3M that included many senior roles in General Management, Sales and Marketing, Logistics and Manufacturing. Company Secretary David R Carey, FCCA Born 1947. He joined the Group in 1974 as Chief Accountant. He became Company Secretary in 1996. Bankers Barclays Bank PLC HSBC Bank PLC Svenska Handelsbanken AB (publ) Independent Auditor KPMG Audit PLC, Preston Tax Advisors PricewaterhouseCoopers LLP, Newcastle upon Tyne NOMAD & Stockbrokers Westhouse Securities Limited, London Corporate Lawyers Dickinson Dees, Newcastle upon Tyne Registrars Capita Registrars, Beckenham Pension Adviser Towers Watson, Manchester Company Details James Cropper plc Burneside Mills, Kendal, Cumbria, LA9 6PZ, England Telephone 01539 722002 Fax 01539 720001 info@cropper.com www.cropper.com Company Registration No: 30226 (Limited by shares) FM 10048 OHS 93474 EMS 57536 James Cropper plc Annual Report and Accounts 2013 pages 10 | 11 Chairman’s Review capital equipment, with the focus during the period being on improved cost and environmental efficiency. Diluted Earnings per Share after the adjustment for IAS 19 curtailment was 16.5 pence compared to 9.5 pence in the previous year. Dividend The Board has decided to maintain the final dividend at 5.7 pence per share making a total dividend for the financial year of 7.9 pence (7.9 pence in 2011/12). Technical Fibre Products (“TFP”) TFP reported an operating profit for the year of £1,450,000 compared to £629,000 in 2011/12, with turnover up by 6% on the previous year at £12,599,000. TFP grew strongly in the Aerospace and Defence sectors during the year. Sales in these sectors represented 20% and 18% of total sales respectively. Sales to the USA were up by 17% and 16% in Sterling and US dollar terms respectively. Sales to the USA accounted for 55% of TFP’s turnover, compared with 50% in the previous year. Sales outside of the USA were down by 6%. As the first step in consolidating our US facilities, the Cincinnati facility was closed in April 2012. It will take until Autumn 2013 for the facility at Schenectady to attain accreditation to a number of important customer programmes which consume materials sourced from the Stratford facility. Once accreditation has been achieved the Stratford facility will also be closed. An initial investment of US$3 million at the Schenectady facility has been authorised. This will include the installation of two fibre plating lines. James Cropper Speciality Papers (“Speciality Papers”) Speciality Papers reported an operating profit for the year of £697,000 compared to £1,430,000 in 2011/12. Turnover fell by £1,892,000 to £57,699,000, a 3% decline. The economic uncertainty, which led to the loss of confidence amongst customers in many export paper markets in 2011 shows no immediate sign of lifting. However we have succeeded in winning business in new areas of the UK market which has helped to fill the capacity gap. Overall volume was down 2%, with UK volumes up by 3% whilst export volumes were down by 10%. The cost of Northern Bleached Softwood Kraft (“NBSK”) wood- pulp opened 2012 at US$840/tonne and fell to US$770/tonne at 30 June 2012 before rising to US$830/tonne by the end of the financial year. In late May 2013, the price had risen to US$855/tonne. I am pleased to report that Technical Fibre Products (“TFP”) and James Cropper Converting (“Converting”) rebounded strongly from the previous year, that Group turnover continued to grow and that importantly the Group’s profitability improved significantly on the previous period. After allowing for major project expenditure, profit before tax was £2,052,000 compared to £843,000 in 2011/12 (prior to the IAS 19 pension adjustment). Profit after the IAS 19 pension adjustment but before tax was £1,819,000 compared to £971,000 in 2011/12. Major project expenditure expensed against profit was £555,000. Other non-recurring costs borne at Group level totalled £228,000 and mainly related to executive transition costs. Group turnover for the financial year was £79,241,000, up 1% on last year with UK sales up 4% and export sales down 1%. Across the Group, sales into the USA were up 24%, whilst sales into continental Europe were down 12%. Exports represented 49% of turnover. The profitability and competitiveness of our TFP and Converting businesses was aided by the strengthening of the US dollar against Sterling during this period. However the US dollar / Sterling movement led to an increase in raw material costs for James Cropper Speciality Papers. During the course of the year the Group completed a restructuring process which reduced the size of the Group’s UK workforce by 8%, resulting in cost savings of approximately £1.0 million on an annualised basis from 2013/14 onwards. The resultant increase in productivity will improve the Group's competitive position. The capacity and capability of the Group's three businesses are unaffected by this process. During the year the Group continued its policy of continuing to invest in During the year Speciality Papers commissioned its Reclaimed Fibre facility at a cost of £5.0m. The plant uses innovative technology to extract fibre from specific paper-based consumer products which would otherwise be difficult to recycle. This fibre is extremely high quality which makes it an ideal substitute for wood-pulp and helps us to mitigate the impact of pulp price volatility. The overall cost of consumption of natural gas was £4.4 million compared to £3.9 million in the prior year, up 13%. James Cropper Converting (“Converting”) Converting reported an operating profit for the year of £982,000 compared to £192,000 in 2011/12. Turnover was up 25% to £13,707,000 with volume up by 25%. Sales denominated in US$ increased by 26% and 23% in Sterling and US dollar terms respectively. Over the course of the financial year sales in US dollars accounted for 30% of Converting’s turnover which was in line with the previous year. Sales of mount board and digital printing grades into the USA grew by 24% and 40% respectively as a consequence of a build-up in customer launch stocks. Mount board sales outside the USA, mainly into the UK market, grew by 8%. Display board sales were up 52%. Pensions & International Accounting Standard 19 (“IAS 19”) The Group operates two funded pension schemes providing defined benefits for just over 40% of its employees. The overall value of the schemes’ assets grew by 6.3% over the period, however their liabilities increased by 9.1%. The IAS19 valuations of these schemes as at 30 March 2013 revealed a combined deficit of £10,353,000, compared with £7,698,000 at the previous year end, an increase of £2,655,000. The primary reason for the increase in the schemes’ liabilities is the discount rate of 4.65% used at March 2013 compared to 4.95% at March 2012, reflecting the decline in corporate bond yields over this period. As from 1 April 2011 active members’ benefits have been reduced such that future increases in pensionable salaries are restricted to RPI up to a maximum of 2% per annum. The next “on-going” valuations, which set the funding rates, take place with effect from 1 April 2013. This will initiate a further review of the benefits provided by these schemes once the results are known. People In August 2012 Alun Lewis stepped down as CEO of James Cropper plc after 25 years’ service, 11 years of which Alun served as CEO. Alun was instrumental in the growth of James Cropper Converting as a stand alone subsidiary. As CEO he spearheaded many initiatives to grow turnover and contain our cost base. Alun was succeeded by Phil Wild in October 2012. Phil has a strong commercial and manufacturing background with over 20 years' experience with 3M in industrial, healthcare and security markets. Most recently he was the Managing Director for 3M Security Printing and Systems Ltd, Business Director of 3M Cogent Systems GmbH and EMEA Business Director for 3M Security Systems Division. In these roles he delivered accelerated growth in niche global markets through core business change as well as the successful integration of acquisitions. George Quayle retires from the Board on 31 July 2013, having joined the Group in 1992 and the Board in 1998. As Managing Director of TFP, George has built a business that now has manufacturing facilities on both sides of the Atlantic. George retires leaving TFP on the springboard of expansion. Martin Thompson succeeds George as Managing Director of TFP and joined the Board of James Cropper plc on 10 June 2013. Martin was previously the Managing Director of James Cropper Converting. Prior to joining James Cropper plc in 2003 he was a main board Director of Inveresk PLC. Martin has also held a variety of roles with Arjowiggins and BASF. Sir James Cropper has recently advised the Board that he will retire as a Director of James Cropper plc on 31 July 2013. In recognition of his remarkable stewardship and leadership spanning six decades, steering the Group from a provincial manufacturer to a globally renowned player in numerous markets, the Board of Directors have invited him to be the Group's first Honorary President. Thus while he will relinquish official duties and responsibility on 31July 2013 he will remain the figurehead of James Cropper plc. I am grateful to all employees past and present for their unstinting commitment and drive to build and strengthen the Group. Cash and borrowings Capital expenditure during the year was £4.1 million (£5.9 million in 2011/12). At 30 March 2013, gross drawn down loans totalled £11.5 million, with £2.2 million held as cash at bank. In addition the Group had un-drawn overdraft facilities of £3.3 million, US$1.0 million and €1.0 million. Gearing at the financial year end, after deduction of the IAS 19 pension deficit, was 46%. Working capital will remain under tight control. Outlook The recovery of TFP and Converting in the past year was very pleasing and is expected to be sustained as the current financial year progresses. I anticipate that we will make further gains in Speciality Papers’ home market and non-European export markets in the coming year to offset reduced sales into continental Europe. Recent investments and the completion of the restructuring process are also expected to impact favourably on the profitability of Speciality Papers in the current financial year. During the course of the current year we intend to strengthen the sales and marketing capability of each of our businesses through selective recruitment in order to deliver the growth plans being formulated under Phil Wild’s leadership. Mark Cropper Chairman James Cropper plc Annual Report and Accounts 2013 Financial and Operating Review Overall Performance • Trading Profit before Interest for the year was £2,535,000 • A tax charge of £374,000 arose; an effective rate of 21%. compared to £1,207,000 in the previous year. • The net IAS 19 pension adjustment was a charge of £233,000. • Post net IAS 19 pension adjustment the Group recorded an overall profit before tax of £1,819,000 for the year. • The profit after tax was therefore £1,445,000. • Post net IAS 19 pension adjustment diluted earnings per share were 16.5p; 9.5p in the prior year. • The IAS 19 pension deficit increased by £2,655,000 to £10,353,000 as a consequence of the Bank of England’s Quantitative Easing measures • Shareholders’ funds at the year-end were £20,337,000, with net debt of £9,286,000, resulting in a gearing ratio of 46% post IAS 19 deficit. All references to: “Profit and Loss Account” refers to the Statement of Comprehensive Income. “Balance Sheet” refers to the Statement of Financial Position. “Reserves” refers to the Statement of Changes in Equity. pages 12 | 13 Change £'000s Change % 6 (3) 25 2 11 1 (5) 13 (1) 5 (2) (137) - 110 Trading Profit and Loss Account Turnover Technical Fibre Products Speciality Papers Converting Less inter-segmental sales Expenses Raw materials and consumables used Energy costs Employee benefit costs* Depreciation and amortisation Other expenses Other income and changes in inventory 2013 £'000 12,599 57,699 13,707 84,005 (4,764) 79,241 (33,754) (5,217) (19,870) (2,818) (14,737) (310) (76,706) 2012 £'000 11,942 59,591 10,997 82,530 (4,307) 78,223 (35,433) (4,616) (20,140) (2,675) (14,987) 835 (77,016) 657 (1,892) 2,710 1,475 (457) 1,018 1,679 (601) 270 (143) 250 (1,145) 310 Trading Profit before Interest* 2,535 1,207 1,328 Trading profit Depreciation EBITDA (before IAS 19 pension adjustment) Profit and Loss Summary Trading activities Technical Fibre Products Speciality Papers Converting Other Group expenses Director and employee bonuses Redundancy provision Trading Profit before Interest Net interest Trading profit before tax (After future service pension contributions paid) Net pension adjustments Group operating profit Net interest Net pension adjustment before tax Overall Group after pension adjustments Profit before interest Net interest Profit before Tax Balance Sheet Summary Non-pension Assets - excluding Cash Non-pension Liabilities - excluding Borrowings Net pension liabilities Net Borrowings Equity shareholders' funds Gearing % - before IAS 19 deficit Gearing % - after IAS 19 deficit * Before net pension adjustments 1,328 143 1,471 821 (733) 790 (70) 808 (280) 800 1,328 (119) 1,209 113 (474) (361) 1,441 (593) 848 2,148 1,125 3,273 (2,122) 1,151 (2,781) (1,630) 2,535 2,818 5,353 1,450 697 982 (228) 2,901 (366) - 2,535 (483) 2,052 (426) 193 (233) 2,109 (290) 1,819 48,426 (10,831) 37,595 (7,972) 29,623 (9,286) 20,337 33% 46% 1,207 2,675 3,882 629 1,430 192 (158) 2,093 (86) (800) 1,207 (364) 843 (539) 667 128 668 303 971 46,278 (11,956) 34,322 (5,850) 28,472 (6,505) 21,967 23% 30% James Cropper plc Annual Report and Accounts 2013 pages 14 | 15 Financial and Operating Review continued Trading Profit and Loss Account in summary Group turnover was £79,241,000 compared to £78,223,000 last year, up £1,018,000. Overall turnover grew by 1%. Overall Group raw material and consumable costs, excluding energy, were £33,754,000 down 5% on last year. The cost of energy consumption increased over the previous year by £601,000 to £5,217,000, up 13%. Prior to the net IAS 19 pension adjustment employment costs were £19,870,000 compared to £20,140,000 in the previous year. During the course of the year the Group completed a restructuring process which reduced the size of the Group’s UK workforce by 8% resulting in cost savings of approximately £1.0 million on an annualised basis from 2013/14 onwards. A provision for redundancy of £800,000 was charged in the previous year in anticipation of the restructuring process. This was fully utilised. The average number of people employed decreased from 527 to 505 over the year. For greater analysis of employment costs see Table G. Other external charges fell by £250,000 from £14,987,000 to £14,737,000. Foreign Currency The majority of exports into continental Europe are invoiced in €s. €s are used to purchase € priced pulp and other raw materials sourced from Europe in €s. Similarly, export sales outside Europe are invoiced in US$ and the receipts fund the purchase of US$ priced pulp. These steps reduce exposure to foreign currency rate fluctuations. The situation is monitored to ensure that whenever possible currency receipts and payments are matched. Table A compares the opening and closing exchange rates for the financial year. Table A Currency Opening rate April 2012 v. £ Closing rate March 2013 v. £ Exchange rate movement Strengthen/(Weaken) v. £ % US$ 1.60 1.52 5.0 € 1.20 1.18 1.3 Currency transactions in year Sales receipts Purchase payments Surplus/(deficit) '000 ‘000 '000 22,135 (18,336) 17,584 (19,380) 3,799 (1,796) £ @ Opening rate £ @ Closing rate Gain/(loss) £'000 £'000 £'000 2,371 2,495 124 (1,496) (1,517) (21) Potential foreign currency surpluses or deficits are dealt with by a combination of foreign currency forward selling and forward purchasing contracts. No forward contracts are in place at the balance sheet date. TFP and Converting generate surplus US$s. Speciality Papers absorb these US$ funds. A strengthening US$ will have a favourable impact on the £ value of TFP and Converting sales and a broadly adverse impact on Speciality Papers. Technical Fibre Products 2013 £'000 2012 Change Change % £'000 £'000 Turnover Operating profit 12,599 11,942 629 1,450 657 821 6 TFP grew strongly in the Aerospace and Defence sectors during the year. Sales in the USA were up by 17% and 16% in £Sterling and US$ terms respectively. Sales to the USA accounted for 55% of TFP’s turnover compared with 50% in the previous year. Sales outside of the USA were down by 6%. The Cincinnati facility was closed in April 2012 as the first step in consolidating US facilities on to the Schenectady site. It will take until Autumn 2013 for the facility at Schenectady to attain accreditation to a number of important customer programmes which consume materials sourced from the Stratford facility. Once accreditation has been achieved the Stratford facility will also be closed. Speciality Papers 2013 £'000 2012 Change Change % £'000 £'000 Currency Index Turnover Operating profit/(loss) 57,699 59,591 1,430 697 (1,892) (733) (3) $/£ €/£ $/€ The economic uncertainty, which led to the loss of confidence amongst customers in many export paper markets in 2011 shows no immediate sign of lifting. However progress has been made in winning business in new areas in the UK market which has helped to fill the capacity gap. Overall volume was down 2%, with UK volumes up by 3% whilst export volumes were down by 10%. The cost of Northern Bleached Softwood Kraft (“NBSK”) pulp opened at US$840/tonne and fell to US$770/tonne at the close of the first half but then rose to US$830/tonne by the end of the financial year end and was US$855/tonne in late May 2013. The overall cost of consumption of natural gas at commodity prices was £4.4 million compared to £3.9 million in the prior year, up 13%. Converting 2013 £'000 2012 Change Change % £'000 £'000 Turnover Operating profit 13,707 982 10,997 192 2,710 790 25 Turnover was up 25% to £13,707,000 with volume up by 25%. Sales denominated in US$ increased by 26% and 23% in £Sterling and US$ terms respectively. Over the course of the financial year sales in US$ accounted for 30% of Converting’s turnover which was in line with the previous year. Sales of mount board and digital printing grades into the USA grew by 24% and 40% respectively as consequence of a build in customer launch stocks. Mount board sales outside the USA, mainly into the UK market, grew by 8%. Display board sales were up 52%. 150 140 130 120 110 100 90 80 70 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar 08 03 06 05 04 07 11 10 09 12 13 Pulp Index in Denominated Currencies Softwoods Hardwoods £/tonne £/tonne $/tonne €/tonne 200 190 180 170 160 150 140 130 120 110 100 90 80 70 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar 08 03 10 09 13 05 04 06 07 11 12 Gas Cost (pence per therm) 10/11 11/12 12/13 90 80 70 60 50 40 30 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar James Cropper plc Annual Report and Accounts 2013 pages 16 | 17 Financial and Operating Review continued Taxation Table B Corporation Tax Deferred tax Effective tax rate - % Prior years £000 608 (162) 446 Current year £000 (81) 115 34 Future years £000 - (106) (106) Total change £000 527 (153) 374 21% The adjustment in respect of future years reflects the reduction in the Corporation Tax rate from 24% to 23% as from the start of the new financial year. Balance Sheet Shareholders’ Funds fell by £1,630,000 from £21,967,000 at the previous year-end to £20,337,000 as at 30 March 2013 primarily as a consequence of an increase in the IAS 19 pension deficit. The overall IAS 19 pension deficit increased by £2,655,000 to £10,353,000. This was off-set by a £533,000 increase in the Deferred Tax Asset to £2,381,000. The IAS 19 pension deficit net of Deferred Tax increased by £2,121,000 over the year. For greater analysis of IAS 19 see Table F. Net borrowings increased by £2,781,000, whilst other liabilities excluding pensions fell by £1,125,000. Capital expenditure was £4,072,000 (£5,934,000 in the previous year). Net current assets fell by £3,056,000 over the year from £19,598,000 to £16,542,000 with working capital (stocks, debtors, net of creditors) increasing by £2,077,000 and net cash decreasing by £5,133,000. Working capital movements included; • A £1,646,000 increase in trade and other debtors and a £1,190,000 decrease in trade and other creditors offset by • A £513,000 decrease in stocks and a £244,000 decrease in current tax liabilities Over the year bank loans falling due after more than a year decreased by £2,352,000 from £9,874,000 to £7,522,000. Cash Flow Summarised cash flow is shown in table C. Table C Cash Flow Net cash inflow from operating activities Net cash outflow from investing activities Net cash flow from financing activities Net increase in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents 2013 £'000 1,814 (4,063) (2,249) (940) (3,189) 5,438 2,249 2012 £'000 2,028 (5,928) (3,900) 5,056 1,156 4,282 5,438 Change £'000 (214) 1,865 1,651 (5,996) (4,345) 1,156 (3,189) Net cash inflow from operating activities in the year was after deducting past service pension deficit payments of £960,000. Net cash outflow from investing activities in the year includes capital expenditure totalling £4,072,000. Total cash and borrowing changes over the year and facilities available are shown in table D. Table D Net debt Cash and cash equivalents Borrowings: repayable within one year Net cash Borrowings: non-current Net debt Facilities Borrowings: repayable within one year Borrowings: non-current Facilities drawn down Undrawn facilities Facilities Funds available Cash and cash equivalents Undrawn facilities Funds available at year end Borrowings: repayable within one year Funds available in excess of one year 2013 £'000 2,249 (4,013) (1,764) (7,522) (9,286) 4,013 7,522 11,535 4,753 16,288 2,249 4,753 7,002 (4,013) 2,989 2012 £'000 5,438 (2,069) 3,369 (9,874) (6,505) 2,069 9,874 11,943 4,959 16,902 5,438 4,959 10,397 (2,069) 8,328 Change £'000 (3,189) (1,944) (5,133) 2,352 (2,781) 1,944 (2,352) (408) (206) (614) (3,189) (206) (3,395) (1,944) (5,339) At 30 March 2013 the Group had un-drawn overdraft facilities of £3.3 million, US$1.0 million and €1.0 million. At this date these facilities, which are renewable annually, were valued in total at £4,753,000. Pensions The Group operates two funded pension schemes providing defined benefits for just over 40% of its employees including Executive Directors. Membership of the Schemes has been closed to new members for a number of years in order to contain the Group’s exposure to rising pension costs. Since 2001 all new employees have been able to join a defined contribution Group Personal Pension Plan (“GPP”). The Group exposure to employee’s GPP plans is limited to a fixed percentage of contractual pay. The latest actuarial “on-going” valuations of the James Cropper plc Pension Scheme (the “Staff Scheme”) and the James Cropper plc Works Pension Plan (the “Works Scheme”) were conducted as at April 2010. As from 1 April 2011 active members’ benefits have been reduced such that future increases in pensionable salaries are restricted to RPI up to a maximum of 2% per annum. Thus the Staff and Works Schemes will remain defined benefit schemes but they will no longer be “final salary” schemes. Table E reflects the “on-going” valuations as at April 2010 based upon these reduced benefits. James Cropper plc Annual Report and Accounts 2013 pages 18 | 19 Financial and Operating Review continued Pensions continued Table E Discount rate Assets Liabilities (Deficit) Staff 5.60% £'000 Works 5.60% £'000 Total £'000 28,877 33,301 62,178 (31,794) (35,642) (67,436) (2,917) (2,341) (5,258) Funding level % 91% 93% 92% The Group intends to continue paying deficit contributions on an equal monthly basis, totalling £876,000 per annum, with the aim of removing the combined deficit in accordance with the Schemes’ agreed Schedules of Contributions. The next actuarial “on-going” valuations of the Staff Scheme and the Works Scheme will be conducted as at April 2013. IAS 19 IAS 19 requires that actuaries calculate the assets and liabilities of companies’ pension schemes based on values and interest rates at their annual balance sheet date. Under IAS 19 pension scheme liabilities are measured on an actuarial basis using the projected unit method. Pension liabilities are discounted at the current rate of return on an AA rated quality corporate bond of equivalent currency and term. The pension scheme assets are measured at fair value at the Balance Sheet date. The net of these two figures gives the scheme surplus or deficit. As market values of the scheme assets and the discount factors applied to the scheme liabilities will fluctuate, this method of valuation will often lead to large variations in the “pension balance” year on year. An “on-going” valuation takes account of the projected growth in the pension schemes’ assets by asset type over the projected life of the scheme. The assumptions used by the actuaries for their IAS 19 valuations are likely to be very different from those that they used with regard to their “on-going” valuations. IAS 19 regards a sponsoring company and its pension schemes as a single accounting entity rather than two or more separate legal entities. The actuarial valuation is the starting point for the creation of the IAS 19 accounting entity. The valuation determines the net position of a pension scheme, i.e. the difference between its assets and liabilities. On the introduction of IAS 19 the net position, surplus or deficit, is brought onto the sponsoring company’s Balance Sheet such that Reserves are immediately adjusted by the net position reduced by deferred tax. This obviously results in either an increase or decrease in the net asset value of the sponsoring company. Upon valuation at subsequent year-ends the movement in value from the previous valuation is expressed in the following component parts: Those which affect Profit Operating costs • Current service charge, being the cost of benefits earned in the current period shown net of employees’ contributions. • Past service costs, being the costs of benefit improvements. • Curtailment and settlement costs. Finance costs, being the net of • Expected return on pension scheme assets. • Interest cost on the accrued pension scheme liabilities. Those which do not affect Profit • Actuarial gains and losses arising from variances against previous actuarial assumptions. The above items are offset in the year-to-year movement by actual contributions paid by the employer in the period. Table F shows the results of the IAS 19 valuations. Table F IAS19 DEFICIT Current Service Charge PPF Levy IAS19 impact on Operating Profit Future service contributions paid Net impact on Operating Profit Finance costs Net impact on Profit and Loss Account Past service deficit contributions paid Actuarial (losses)/gains Opening deficit Closing deficit Deferred Taxation Net deficit Assets Liabilities Closing deficit Assets Equities Managed growth (including equities) Nominal Liability Strategy Gilts and Corporate Bonds Property Annuities Cash Asset - % Equities Managed growth (including equities) Nominal Liability Strategy Gilts and Corporate Bonds Property Annuities Cash Staff 2013 £'000 (465) (19) (484) 372 (112) 111 (1) 432 (722) (2,583) (2,874) 661 Works 2013 £'000 (641) (38) (679) 365 (314) 82 (232) 528 (2,660) (5,115) (7,479) 1,720 Total 2013 £'000 (1,106) (57) (1,163) 737 (426) 193 (233) 960 (3,382) (7,698) (10,353) 2,381 Total Change Change 2012 £'000 £'000 % (923) (377) (1,300) 761 (539) 667 128 996 (7,418) (1,404) (7,698) 1,848 (183) 320 137 (24) 113 (474) (361) (36) 4,036 (6,294) (2,655) 533 (2,213) (5,759) (7,972) (5,850) (2,122) 37,211 (40,085) 37,548 (45,027) 74,759 (85,112) 70,307 (78,005) 4,452 (7,107) 6.3% 9.1% (2,874) (7,479) (10,353) (7,698) (2,655) 34.5% - 26,553 8,366 - - 2,076 216 - 30,004 7,432 - - - 112 - 56,557 15,798 - - 2,076 328 36,406 - - 29,029 285 2,058 2,529 (36,406) 56,557 15,798 (29,029) (285) 18 (2,201) 37,211 37,548 74,759 70,307 4,452 - 71.3 22.5 - - 5.6 0.6 - 79.9 19.8 - - - 0.3 - 75.7 21.1 - - 2.8 0.4 51.8 - - 41.3 0.4 2.9 3.6 100.0 100.0 100.0 100.0 The overall value of the schemes’ assets grew by 6.3% over the period, however their liabilities increased by 9.1%. The IAS19 valuations of these schemes as at 30 March 2013 revealed a combined deficit of £10,353,000, compared with £7,698,000 at the previous year end, an increase of £2,655,000. The primary reason for the increase in the schemes’ liabilities is the discount rate of 4.65% used at March 2013 compared to 4.95% at March 2012, reflecting the decline in corporate bond yields over this period as a consequence of the Bank of England’s “Quantitative Easing” programme. James Cropper plc Annual Report and Accounts 2013 pages 20 | 21 Financial and Operating Review continued IAS 19 continued Actual future service pension contributions paid in the period by the Group to its two final salary schemes in accordance with the actuaries’ recommendations, resulting from their 2010 “on-going” valuations, were £737,000. Under IAS 19 the charge against operating profit in the year was £1,163,000. This sum includes an excess charge required by IAS 19 over and above the future service contributions. Table G analyses employment costs charged against Operating Profit. Table G Total adjusted employment costs Wages and salaries Director and employee bonuses Social security costs Pension costs - Future service pension contributions paid Other pension costs Total employment costs Provision for redundancy costs Chargeable against Trading Operating Profit Wages and salaries Director and employee bonuses Social security costs Pension costs - IAS19 impact on Operating Profit Other pension costs Total employment costs Provision for redundancy costs Chargeable against Group Operating Profit Difference being: Net IAS 19 pension adjustment against operating profit Average monthly number of employees 2013 £'000 16,460 366 1,502 737 805 19,870 - 19,870 16,460 366 1,502 1,163 805 20,296 - 20,296 426 505 2012 £'000 16,461 86 1,484 761 548 19,340 800 20,140 16,461 86 1,484 1,300 548 19,879 800 20,679 539 527 Change £'000 1 (280) (18) 24 (257) (530) 800 270 1 (280) (18) 137 (257) (417) 800 383 113 22 Climate Change Regulations EUETS, a mandatory scheme for greenhouse gas emission allowance trading within the EU, has been introduced in phases from 2005. It is one of the policies introduced by the EU to tackle emissions of carbon dioxide and other greenhouse gases from a number of specific industrial activities. The Group’s combustion facilities became subject to this scheme as from 1 January 2008 under Phase 2. Under the Scheme the Group was allocated carbon allowances to emit 41,000 tonnes per annum. Any emissions above 41,000 tonnes had to be covered by additional allowances that had been purchased, banked from earlier years or bought forward from future years. The chart displays the Group’s actual performance. Under Phase 3, as from 1 January 2013, it has been indicated by the EU that our annual allowances will be reduced to 17,000 tonnes per annum. EUETS Performance (‘000 tonnes of CO2) Free allowances Actual emissions - 12m moving total 44 40 36 32 28 24 20 16 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar 13 08 12 12 11 11 09 10 09 09 09 10 10 10 11 11 12 12 From 1 April 2013 the Group will also be subject to the Carbon Price Floor. This levy is a UK inspired “green” tax. It therefore places UK producers at a competitive disadvantage compared with competitors in the rest of EU as well as those in the rest of the world. The Group operates a combined heat and power plant (CHP) that is classified under the government’s CHPQA programme as “Good Quality”. By virtue of this classification the Group receives: • exemption from the Climate Change Levy for the vast majority of its natural gas consumption • relief from government duty for any gas oil used in the CHP as secondary standby fuel Forestry James Cropper plc continued its policy of purchasing only from those suppliers who demonstrate practical application of sound environmental management. Annually James Cropper Speciality Papers purchases some 40,000 tonnes of virgin wood pulp of the highest environmental pedigree, which is largely sourced from long established suppliers based in Sweden, Finland, Spain and Portugal. All suppliers are committed to sustainable forest management and comply fully with their local national standards and legislation. The Group has accreditation to International Standards ISO 9000 and ISO 14001 relating to quality and environmental management procedures respectively. James Cropper Speciality Papers also holds dual accreditation to FSC (Forest Stewardship Council) and PEFC (Programme for the Endorsement of Forest Certification) standards. Certification imposes strict controls, including an auditable chain of custody for pulp sourced by the mill. This enables the subsidiary to satisfy the increasing demand from customers and end consumers for creditable certification of the source of fibre used in the products they purchase. Health and Safety The Group’s Safety Strategy embraces the need to create well- developed safety management processes and a sound safety culture. The aim of the Strategy is to achieve zero Lost Time Accidents (“LTAs”). By adopting the principle that all LTAs are preventable, management are accepting that it is their responsibility to achieve this aim. There were 9 LTAs in the past financial year compared to 5 in the previous year. Total Lost Time Accidents 16 14 12 10 8 6 4 2 0 • exemption from Business Rates otherwise chargeable on our 08/09 09/10 10/11 11/12 12/13 Environmental Management Over the next few years it is anticipated that there will be a significant increase in output from our manufacturing facility in Burneside. As a consequence there will be a corresponding increase in energy consumption, water abstraction and waste generation, balanced wherever possible by in-house conservation and minimisation activities. This expansion will take place against the background of increasingly tighter regulatory control by Government agencies, most notably through the terms and conditions of the Group’s EPR Environmental Permit to Operate, Climate Change Agreement and the European Union Emission Trading Scheme (“EUETS”). The Group’s location on the edge of the Lake District National Park and on the River Kent, a Site of Special Scientific Interest and a European Site, Special Area of Conservation, will ensure that its activities will come under close scrutiny. In addition the rapid increase in energy costs in recent years brings consumption and conservation of energy into sharp business focus particularly when weighed against the background of increasing manufacturing output. Unless managed effectively, a number of energy and environmental issues could constrain the Group from meeting its strategic objectives. CHP plant. The Group is a signatory to the paper sector Climate Change Agreement (“CCA”) negotiated with HM Government by the Confederation of Paper Industries, the industry’s trade association. Under the Agreement • a 90% discount against the Levy attributable to imported electricity and • a 65% discount against the Levy due against any natural gas that is not exempted via the CHPQA scheme In return, the Group is committed to a series of increasingly stringent energy use targets that take effect over milestone target periods, every other year, for the 10 year term of the CCA. James Cropper plc Annual Report and Accounts 2013 pages 22 | 23 Report of the Directors e Directors have pleasure in submitting to the members their Annual Report and the audited accounts of the Group for the 52 weeks ended 30 March 2013. The Annual General Meeting of the Group will be held at the Bryce Institute, Burneside on Wednesday, 31 July 2013 at 11.00am. Review of the Business The Group’s principal activities comprise the manufacture of specialist paper and advanced materials. The Chairman’s Review includes a review of business activities during the year and comments on future developments and prospects. Details of the Group’s activities are included in the Divisional Reviews. Results The profit attributable to equity holders of the Company for the 52 weeks ended 30 March 2013 is set out in the Statement of Comprehensive Income. The dividends paid during the year, and the proposed final dividend, are set out in the Notes to the financial statements. Research and Development The Group continues to invest in research and development to ensure that the range and quality of products are continually updated. Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements The Directors are responsible for preparing the Annual Report and the Group and Parent 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. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements on the same basis. 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 and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. 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 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. 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. Corporate Governance (i) Directors’ Responsibilities The Board is accountable to the Group’s shareholders for corporate governance. Whilst there is no requirement to comply with the Combined Code, the Group is committed to a high standard of corporate governance and this section describes how the relevant principles of governance are applied to the Group. (ii) The Board The Group Board considers that it is well balanced and operates in an effective manner and is collectively responsible for the success of the Company. It comprises five Executive Directors and five Non-Executive Directors. Phil Wild joined the Company in October 2012 as Chief Executive. Sir James Cropper retires as a Non-Executive Director of the Company on 31 July 2013. In recognition of his remarkable stewardship and leadership spanning six decades, steering the Company from a provincial manufacturer to a globally renowned player in numerous markets, the Board of Directors have invited him to be the Company’s first Honorary President. George Quayle retires from the Company on 31 July 2013 and will cease to be an Executive Director and Managing Director of Technical Fibre Products Ltd on that date. Martin Thompson was appointed an Executive Director of the Company on 10 June 2013 and takes over from George Quayle as Managing Director of Technical Fibre Products Ltd. Martin was formerly Managing Director of James Cropper Converting Ltd. Despite two directors not being independent under the Combined Code, the Board deems all the Non-Executive Directors to be independent even though Mark Cropper and James Cropper have close family ties. They display independence of character and judgment and provide unequivocal counsel and advice to the Board. Mark Cropper is the Chairman of the Company and is responsible for the running of the Board. Phil Wild is the Chief Executive and is responsible for the running of the Company’s business. David Wilks is the senior independent Non-Executive Director. The Group Board met ten times during the year, with prepared agendas for discussion and formal schedules of items to be approved covering structure and strategy, management, financial reporting and controls, board membership and committees, and corporate governance. There is a schedule of matters reserved for the Board’s decision. The Executive Committee, under the chairmanship of the Chief Executive, met twelve times during the year with prepared agendas for discussion. All Directors have access to the advice and services of the Company Secretary. The Board has also established a formal procedure whereby Directors, wishing to do so in the furtherance of their duties, may take independent professional advice, if necessary, at the Company’s expense. All Directors are aware of their responsibility to regularly update their skills and knowledge. (iii) Board Committees There are four sub-committees reporting to the Group Board: • Executive Committee • Remuneration & Management Development Committee • Audit Committee • Nomination Committee The Executive Committee comprises the executive directors and one senior executive. The Committee’s terms of reference include the development and implementation of strategies, operational plans, and the assessment and control of risk. Phil Wild, the Company’s Chief Executive, is Chairman of the Committee. The Audit Committee, the Remuneration & Management Development Committee, and the Nomination Committee comprise the Non-Executive Directors of the Company. Jim Sharp is Chairman of the Audit Committee, David Wilks is Chairman of the Remuneration & Management Development Committee, and Mark Cropper is Chairman of the Nomination Committee. These committees do not consist solely of directors deemed independent under the Combined Code. The Board is satisfied that the Audit Committee has at least two members who have relevant financial experience. The Committees’ terms of reference are displayed on the Company’s website. (iv) Re-election The Directors are subject to retirement on a periodic basis and re-election by the shareholders in accordance with the Articles of Association whereby a director shall retire from office at the first AGM after their appointment and thereafter shall retire at every third AGM after the AGM at which last appointed. Phil Wild was appointed as Chief Executive in October 2012 and Martin Thompson was appointed a director of the Company on 10 June 2013 and both individuals offer themselves for re-election. Mark Cropper and Jim Sharp retire by rotation in accordance with the Articles of Association and, being eligible, offer themselves up for re-election. Resolutions 3 to 6 at the Annual General Meeting deal with the proposed re-election of directors. (v) Performance Evaluation The Chairman undertakes an annual Group Board appraisal with each Executive Director. The performance evaluation process includes the Chairman reviewing and monitoring the Chief Executive’s performance on an annual basis and the Chief Executive reviewing and monitoring the Executive Directors. The high level individual objectives agreed at the reviews are communicated to the Remuneration & Management Development Committee. The Chairman reviews the non-executive directors’ performance annually on an individual basis. The Chairman’s performance is appraised by the senior independent director and the other non-executive directors without the Chairman being present, and the comments fed back to him for discussion. (vi) Financial Policies and Internal Controls The Board is committed to presenting a full, balanced and understandable assessment of the Company’s position and prospects, both in the Annual Report and at other times as appropriate throughout the year. The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. James Cropper plc Annual Report and Accounts 2013 pages 24 | 25 Report of the Directors continued The Directors are responsible for preparing financial statements for each financial year which give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to:- • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether the financial statements comply with IFRSs as adopted by the European Union; The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Board is responsible for and sets appropriate policies on internal control and seeks regular assurance, at least annually, that enables it to satisfy itself that processes are functioning effectively. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide reasonable, but not absolute, assurance against material misstatement or loss. If a failure is discovered the Board will take remedial action. There is no internal audit function within the Company and the Board consider that this is appropriate given the nature of the Group’s activities. The letter from the external auditors’ confirming their independence and objectivity was reviewed by the Audit Committee. KPMG Audit Plc have confirmed their independence and the Directors believe KPMG Audit Plc to be independent and objective. The Audit Committee monitors and reviews the effectiveness of the Company’s financial accounting process. The Key Performance Indicators (KPIs) and principal risks and uncertainties affecting the Group are considered in the Chairman’s Review and the Financial Review. (vii) Risk Management The Directors continually review the effectiveness of the Group’s system of internal controls. The Board has overall ownership of the risk management strategy and process and coordinates activity across the Group. There is an ongoing process for identifying, evaluating and managing significant risks faced by the Group, which has been in place for the year under review and up to the date of approval of this Annual Report. The principal risk that the Group and the Entity faces is the pension deficit. Full details of this risk can be found in Pension section of the Financial and Operating Review of the Annual Report. The Group manages risk by a combination of insurance and self-insurance. Self-insurance refers to actions taken internally or in conjunction with other third parties. In broad terms, high risks in financial and operational areas are more dependent on insurance than risks in commercial and personnel areas, which because of their nature are more likely to be managed by self- insurance. Each subsidiary company has a strategy and process for highlighting the key risk areas of their business, and explaining the control measures and risk exposure. It then takes appropriate steps to manage the risk exposure taking into consideration the likelihood, impact and cost/benefit of each of the risks, In addition to the Audit Committee, which is a mandatory requirement under the Combined Code, the Board has Steering Groups with risk management briefs. These include: • Health & Safety • Environment • Insurance • Foreign Currency • Human Resources • Purchasing • Pensions • Information Systems (viii) Relations with Shareholders The Finance Director, the Chairman and the Chief Executive maintain contact with institutional investors as appropriate and any presentations made to them can be found on the Company’s website. The Non-Executive Directors attend the Annual General Meeting and are available for discussions with shareholders. Currently the Company makes available its financial results on the website www.cropper.com and issues printed copies of the Annual Report to shareholders. (ix) Going Concern The Directors consider that the risks noted in (vii) above are the most significant to the Group but these do not necessarily comprise all risks to which the Group is exposed. In particular, the Group’s performance could be adversely affected by poor economic conditions. Additional risks and uncertainties currently unknown to the Directors, or which the Directors currently believe are immaterial, may also have a material adverse effect on its business, financial condition or prospects. At 30 March 2013 the Group’s available borrowing facilities were £7,002,000, of which £4,753,000 was undrawn. Having taken account of current borrowings to be repaid within 12 months of the balance sheet date, £2,989,000 was available to the Group beyond 12 months. The Directors having considered the current trading prospects, identifiable risks, working capital requirements and the availability of finance are of the opinion that the Group and Company are going concerns. The accounts have been prepared on this basis. At the Annual General Meeting the Chairman will give an update on the current trading position and invites shareholders to table any questions and encourages their participation. Payment of Creditors The Company had 35 days (2012: 30 days) purchases outstanding at 30 March 2013. It is the Group’s policy to agree terms of payment with its suppliers when agreeing the terms of a business transaction or transactions. All suppliers are aware of this procedure and the Group abides by the agreed payment terms subject to the terms and conditions being met by the supplier. Employee Involvement Regular Consultative Meetings are held with the employee trade union representatives to advise them on all aspects of company developments. A monthly briefing on Group performance is carried out for all employees and they have access to a copy of the Annual Report. As a matter of policy, plans are formally discussed with those who will use new equipment, plant and computer systems before designs are finalised. Safety Improvement teams deal with day-to-day aspects of safety improvement. The Group operates an Employee Profit Sharing Scheme which is made up of three elements – financial performance, safety performance, and attendance performance. A Save as You Earn Share Option Scheme is also available to encourage employee involvement. Independent to the assets on the Group Balance Sheet there is an Employee Share Trust which currently holds approx 122,000 shares in James Cropper plc for the benefit of all employees so that their interests are linked to the Company’s future growth. The Trust was set up in 1997 and the initial finance came from savings achieved through the introduction of a Profit Related Pay salary replacement scheme. The trustees confirm that they apply the assets for purely benevolent purposes. Employment of Disabled People It is the Group’s policy to give equality of opportunity when considering applications from disabled people where the job requirements are considered to be within their ability. When existing employees become disabled they are retained wherever reasonable and practicable. The Group tries to provide equal promotion opportunities wherever possible. Donations for Political and Charitable Purposes It is the Company’s policy not to make donations to, or incur expenditure on behalf of political parties, other political organisations or independent election candidates and the Board does not intend to change this policy. Donations totalling £5,000 (2012: £6,000) were made for various local charitable purposes. Directors’ Authority to Allot Shares Resolution 10 which will be proposed as a special resolution renews an existing authority which expires this year and gives the Directors authority to exercise the powers of the Company to allot un-issued shares. The Directors have no present intention of exercising the allotment authority proposed by the resolution other than pursuant to existing rights under employee share schemes. To ensure compliance with institutional guidelines and market practice, it is proposed that the authority will:- • be limited to £283,413, being less than one-third of the Company’s issued share capital; and • expire at the conclusion of the next Annual General Meeting or, if earlier, 15 months from the forthcoming Annual General Meeting except insofar as commitments to allot shares have been entered into before that date. It is the intention of the Directors to seek a similar authority annually. James Cropper plc Annual Report and Accounts 2013 pages 26 | 27 Report of the Directors continued Directors’ Power to Disapply Pre-emption Rights Resolution 11 is being proposed as a special resolution granting the Directors authority for the ensuing year to allot shares by way of rights to shareholders and to issue a maximum of £221,659 of the nominal share capital of the Company for cash without first offering the shares to the existing shareholders pursuant to Section 570 of the Companies Act 2006. The resolution also disapplies pre- exemption rights in the event of the sale of treasury shares. Other than in the case of rights issues, the amount of the general authority to the Directors is limited to allotments of shares for cash up to a total nominal value of £221,659 which represents approximately 10% of the issued ordinary share capital. The authority will terminate at the next Annual General meeting or 15 months after the forthcoming Annual General Meeting, whichever comes first. The Directors propose to renew this authority annually. Company’s Authority to Purchase Shares Resolution 12 will be proposed as a special resolution to renew an existing authority which expires at the Annual General Meeting and gives the Company authority to make market purchases of its own shares. The Directors would only exercise this power when it would be in the interests of the Group’s shareholders as a whole to do so, having regard to the effect on both earnings and net asset values per share. Currently there is no intention of making repurchases. If such repurchases were made, the Directors would have to agree whether the shares are to be cancelled or to be held in treasury so as to be available for sale at a later date. The amount of the general authority to the Directors represents approximately 15% of the issued ordinary share capital. The authority will terminate at the next Annual General Meeting or 15 months after the forthcoming Annual General Meeting, whichever comes first. The Directors intend to renew this authority annually. Substantial Interests Shareholdings in excess of 3% of the issued capital at 1 June 2013 were as follows: - Name of shareholding Number of shares % Note no. holding M A J Cropper Directors’ Beneficial Interest 1,206,540 13.6 P J Willink Directors’ Non-beneficial Interest 1,132,408 J A Cropper 1974 Settlement Giltspur Nominees Ltd J A Cropper Directors’ Beneficial Interest J A Cropper Directors’ Non-beneficial Interest BBHISL Nominees Ltd HSBC Global Custody Nominees UK Ltd Notes on Shareholding Table 1,062,974 576,907 568,337 382,084 352,138 343,162 1 2 5 3 4 12.8 12.0 6.5 6.4 4.3 4.0 3.9 1. Included in this percentage is 12.0% disclosed in the shareholding of J A Cropper 1974 Settlement. 2. Included in this percentage is 6.0% disclosed in the shareholding of M A J Cropper – Directors’ Beneficial Interest. 3. Included in this percentage is 3.2% disclosed in the shareholding of M A J Cropper – Directors’ Beneficial Interest. 4. Included in this percentage is 4.0% disclosed in the shareholding of M A J Cropper – Directors’ Beneficial Interest. 5. Included in this percentage is 0.1% disclosed in the shareholding of J A Cropper – Directors’ Beneficial Interest. Auditor and Disclosure of Information to Auditor Each Director, as at the date of this report, has confirmed that insofar as they are aware there is no relevant audit information (that is, information needed by the Company's auditor in connection with preparing their report) of which the Company's auditor is unaware, and they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information. KPMG Audit plc have notified the Company that they are not seeking reappointment. It is proposed in Resolution 7 that KPMG LLP be and are hereby appointed auditors of the Company and will hold office from the conclusion of this year’s Annual General Meeting until the conclusion of next year’s Annual General Meeting at which accounts are laid before the Company, and that their remuneration be fixed by the Directors. Details of Directors’ Interests Director M A J Cropper J A Cropper P I Wild J M Denman N A Read P J Willink G T Quayle D R Wilks J E Sharp D.Mitchell Interest Beneficial Non-beneficial Beneficial Non-beneficial Beneficial Beneficial Beneficial Beneficial Non-beneficial Beneficial Non-beneficial Beneficial Non-beneficial Beneficial Non-beneficial Beneficial Non-beneficial At 30 March 2013 At 31 March 2012 Ordinary Options on Ordinary Shares Shares Ordinary Options on Ordinary Shares Shares 1,206,540 60,000 568,337 382,084 1,000 21,960 29,533 49,745 1,132,408 30,571 28,084 9,112 60,000 7,950 60,000 1,000 60,000 - - - - 1,206,540 114,000 568,337 454,418 19,324 48,000 48,000 48,000 - 48,000 - - - - - - - - 11,716 19,289 36,306 1,132,408 20,327 28,084 7,445 114,000 7,950 114,000 1,000 114,000 - - - - - 52,000 52,000 52,000 - 52,000 - - - - - - - Details of Directors’ Interests The Directors who served throughout the period are detailed in the Directors’ Remuneration Report, and details of their interests in shares of the Company are listed above. Any material related party transactions between the Directors and the Company are set out in the Notes to the Accounts. Further information relating to the interests of the Directors regarding options on ordinary shares is given in the Directors’ Remuneration Report. Non-beneficial interests include shares held jointly as trustee with other Directors. There have been no material changes between the year end and 24 June 2013. Approved by the Board of Directors on 24 June 2013 and were signed on its behalf by M A J Cropper Chairman Burneside Mills Kendal James Cropper plc Annual Report and Accounts 2013 pages 28 | 29 Directors’ Remuneration Report This Report provides details of Directors’ remuneration. Service Contracts The Chief Executive is employed on a rolling six month contract. Other Executive Directors are employed on rolling one year contracts. The Chairman is employed on a rolling one year contract. Other Non-Executive Directors are employed on contracts of one month’s notice by either side and they are typically expected to serve two three-year terms of office, with additional terms of office agreed on an annual basis. Salaries and Fees The remuneration and emoluments of Executive Directors are determined by the Remuneration Committee. The remuneration of the Non-Executive Directors is agreed by the Group Board and they are not entitled to participate in pension schemes, bonus arrangements or share schemes. The basic salaries of the Executive Directors are reviewed annually and take into consideration cost of living and overall accountability. Also considered is remuneration paid to senior executives in comparable public companies. This information is checked by reference to published surveys, but no formula is in place to determine any specific relationship. The remuneration of senior management is discussed by the Chairman of the Remuneration Committee and the Chief Executive and their recommendations endorsed by the Remuneration Committee. No Director can take part in the decision on his own salary or reward. Annual Bonus The Group operates an Executive Directors’ Reward Scheme which is structured to reward the Executive Directors if targets are achieved on group profitability, return on investment, safety, productivity improvements and a discretionary element agreed by the Remuneration Committee. The total bonus payable to a director is capped at 25% of their contractual salary and is not pensionable. Employee Share Schemes The Group operates a Long Term Incentive Plan (LTIP) Scheme for the Executive Directors, of which details of the options granted and awarded are shown later in this Report. Comparison of Five Year Cumulative Total Shareholder Return (TSR) To enable shareholders to assess the Company’s performance against the London Stock Exchange, the cumulative TSR for the period ended 30 March 2013 is shown in the graph below. The FTSE All Share is deemed to be the most appropriate comparison in terms of performance. TSR is the total return to shareholders in terms of capital growth and dividends reinvested. Total Shareholder Return James Cropper plc FTSE AIM All share FTSE All share Rebased 300 250 200 150 100 50 0 Mar 13 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Details of Directors’ Remuneration The financial details within this report have been audited. The following table brings together the various elements of remuneration of each Director for the financial year period ended 30 March 2013: - Salary & Fees Compensation Benefits Annual Bonus Pension Costs Total for Loss of Office 2013 2012 £’000 £’000 2013 2012 £’000 £’000 2013 2012 £’000 £’000 2013 2012 £’000 £’000 2013 2012 £’000 £’000 2013 2012 £’000 £’000 Executive P I Wild (appointed October 2012) 120 J M Denman N A Read P J Willink G T Quayle A I Lewis (resigned August 2012) Non-Executive M A J Cropper J A Cropper D R Wilks J E Sharp D Mitchell (appointed January 2012) 96 91 91 96 58 82 19 22 19 25 - 93 89 88 93 117 165 - 46 18 22 18 6 18 20 19 19 19 9 - 17 17 19 19 19 - - - - - 4 8 5 5 8 - - - - - - 719 590 165 - 104 91 30 - - - - - - - - - - - - 5 45 23 24 24 13 - - - - - - 36 15 15 15 20 - - - - - 147 169 138 139 147 245 82 19 22 19 25 - 146 121 122 127 156 46 18 22 18 6 134 101 1,152 782 Highest paid Director Aggregate emoluments Pension cost Long term incentive scheme 2013 £’000 232 13 - 2012 £’000 136 20 3 Directors’ Pensions The Chief Executive is a member of the Company’s defined contribution scheme. Other Executive Directors are members of the Company’s defined benefit scheme. Non-Executive Directors are not in any of the Company pension schemes. The annual cost borne by the Company is shown above in the Directors’ Remuneration table. James Cropper plc Annual Report and Accounts 2013 pages 30 | 31 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Directors’ Remuneration Report continued Directors’ Remuneration Report continued Long Term Incentive Plans Awards were made during the year under the Long Term Incentive Plan were as follows: P I Wild A I Lewis J M Denman N A Read P J Willink G T Quayle Number at 31 March 2012 Mid market Number price £ of granted in period awards granted Number exercised in period Options Number at 30 March lapsed 2013 in period - 19,324 £1.7465 - - 19,324 63,000 - 52,000 16,000 52,000 16,000 52,000 16,000 52,000 16,000 - 25,000 38,000 £1.84 £1.84 £1.84 £1.84 20,000 20,000 20,000 20,000 - - - - - 48,000 48,000 48,000 48,000 The maximum number of shares that can be awarded to any participant in a financial year under the Long Term Incentive Scheme, determined by reference to average mid market prices at the time of the award, is limited to 50% of the participant’s basic salary. The exercise of the LTIP options is subject to the achievement of pre-determined performance conditions. The performance conditions are specific to each of the awards granted and relate to earnings per share exceeding the retail price index, or EBITDA targets being achieved. The market price of the shares at the period end was £2.415 and the high and low for the period was £2.415 and £1.665 respectively. D R Wilks Chairman of the Remuneration Committee 24 June 2013 Report of the Independent Auditor We have audited the financial statements of James Cropper plc for the period ended 30 March 2013 set out on pages 32 to 65. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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, in respect of the separate opinion in relation to the Directors’ Remuneration Report and reporting on corporate governance, those matters that we have agreed to state to them in our 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. Respective responsibilities of Directors and Auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 22, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate Opinion on financial statements 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 March 2013 and of the Group’s profit for the period then ended; • the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 and under the terms of our engagement we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of Directors’ Remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Michael Frankish for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants Edward VII Quay Navigation Way Preston PR2 2YF • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; 24 June 2013 James Cropper plc Annual Report and Accounts 2013 pages 32 | 33 Group Statement of Comprehensive Income Statement of Financial Position Continuing operations Revenue Other income Changes in inventories of finished goods and work in progress Raw materials and consumables used Energy costs Employee benefit costs Depreciation and amortisation Other expenses Operating Profit Interest payable and similar charges Interest receivable and similar income Profit before taxation Tax expense Profit for the period Other comprehensive income Foreign currency translation Retirement benefit liabilities – actuarial losses Deferred tax on actuarial losses on retirement benefit liabilities Income tax on other comprehensive income Total comprehensive income for the period attributable to equity holders of the Company Earnings per share - basic Earnings per share - diluted Dividend declared in the period - pence per share Note 2 20 4 2 3 3 4 5 17 18 6 6 52 week period to 30 March 2013 £'000 52 week period to 31 March 2012 £'000 Group As at 30 March 2013 £'000 Group Company Company As at As at 31 March 30 March 2012 2013 £'000 £'000 As at 31 March 2012 £'000 Note 79,241 225 (535) (33,754) (5,217) (20,296) (2,818) (14,737) 2,109 (492) 202 1,819 (374) 1,445 (17) (3,382) 533 176 (1,245) 16.8p 16.5p 7.9p 78,223 187 648 (35,433) (4,616) (20,679) (2,675) (14,987) 668 (369) 672 971 (134) 837 4 (7,418) 1,483 292 (4,802) 9.9p 9.5p 7.9p Assets IIntangible assets Property, plant and equipment Investments in subsidiary undertakings Deferred tax assets Total non-current assets Inventories Trade and other receivables Cash and cash equivalents Current tax assets Total current assets Total assets Liabilities Trade and other payables Other financial liabilities Loans and borrowings Current tax liabilities Total current liabilities Long-term borrowings Retirement benefit liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Equity Share capital Share premium Translation reserve Reserve for own shares Retained earnings Total shareholders' equity Total equity and liabilities 8 9 10 18 11 12 13 14 15 15 17 18 19 515 21,219 - - 21,734 11,848 14,844 2,249 - 28,941 943 19,748 - - 20,691 12,361 13,198 5,438 28 31,025 293 3,167 7,350 2,007 723 2,875 7,350 1,437 12,817 12,385 - 28,216 1,209 - 29,425 - 30,945 3,608 - 34,553 50,675 51,716 42,242 46,938 8,138 32 4,013 216 9,328 30 2,069 - 12,399 11,427 7,522 10,353 64 17,939 9,874 7,698 750 18,322 11,138 32 1,418 54 12,642 3,001 10,353 - 13,354 14,445 30 1,773 54 16,302 6,600 7,698 - 14,298 30,338 29,749 25,996 30,600 2,217 814 256 (102) 17,152 20,337 2,119 575 273 (226) 19,226 21,967 2,217 814 - - 13,215 16,246 2,119 575 - - 13,644 16,338 50,675 51,716 42,242 46,938 The financial statements on pages 32 to 65 were approved by the Board of Directors on 24 June 2013 and were signed on its behalf by: M A J Cropper Chairman Company Registration No: 30226 James Cropper plc Annual Report and Accounts 2013 pages 34 | 35 Statement of Changes in Equity Group 2013 £'000 Group 2012 £'000 Company 2013 £'000 Company 2012 £'000 1,445 837 3,091 (746) Group At 2 April 2011 Profit for the period Share capital premium £'000 Share Translation reserve £'000 £'000 Own Retained earnings £'000 shares £'000 Total £'000 2,118 573 269 (222) 24,671 27,409 Statement of Cash Flows for the period ended 30 March 2013 (2012: for the period ended 31 March 2012) Cash flows from operating activities Net Profit / (loss) Adjustments for: Tax Depreciation and amortisation Net IAS 19 pension adjustments within SCI Past service pension deficit payments Foreign exchange differences Loss / (profit) on disposal of property, plant and equipment Net bank interest income & expense Share based payments Dividends received from Subsidiary Companies Impairment of Intercompany loan Changes in working capital: Decrease / (increase) in inventories (Increase) / decrease in trade and other receivables (Decrease) / increase in trade and other payables Interest received Interest paid Tax paid Net cash generated from / (used by) operating activities Cash flows from investing activities Purchase of intangible assets Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Dividends received Net cash (used in) / generated from investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Proceeds from issue of new loans Repayment of borrowings Issue / (repayment) of inter-company loans Purchase of LTIP investments Dividends paid to shareholders Net cash (used in) / generated from financing activities Net (decrease) / increase in cash and cash equivalents Effect of exchange rate fluctuations on cash held Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period Cash and cash equivalents consists of: Cash at bank and in hand 374 2,818 233 (960) (55) 12 483 67 - - 519 (1,546) (972) 9 (506) (107) 1,814 (157) (3,915) 9 - (4,063) 337 5,844 (6,385) - (112) (677) (993) (3,242) 53 (3,189) 5,438 2,249 134 2,675 (128) (996) 196 (2) 364 145 - - (406) 1,181 (657) 5 (355) (965) 2,028 (14) (5,920) 6 - (5,928) 3 7,609 (1,636) - (131) (657) 5,188 1,288 (132) 1,156 4,282 5,438 138 529 233 (960) - - (1,352) 67 (3,000) - - 611 (3,040) 1,504 (165) - (2,344) (123) (525) - 3,000 2,352 337 1,564 (5,518) 1,880 - (677) (2,414) (2,406) 7 (2,399) 3,608 1,209 283 521 (128) (996) 85 - (589) 145 (400) 208 - 2,359 2,605 767 (164) - 3,950 - (963) - 400 (563) 3 5,625 (1,560) (6,099) - (657) (2,688) 699 (92) 607 3,001 3,608 2,249 5,438 1,209 3,608 Exchange differences Actuarial gains on retirement benefit liabilities (net of deferred tax) Other comprehensive income tax Total other comprehensive income Dividends paid Share based payment charge Proceeds from issue of ordinary shares Distribution of own shares Consideration paid for own shares At 31 March 2012 Profit for the period Exchange differences - - - - - - - 2 - - 2 - 4 - - 4 - - - - - - - - - - - - - - 127 (131) (4) 837 837 - 4 (5,935) (5,935) 292 292 (5,643) (5,639) (657) 145 - (127) - (639) (657) 145 3 - (131) (640) - - - - - - - 1 - - - - Total contributions by and distributions to owners of the Group 1 2,119 575 273 (226) 19,226 21,967 Actuarial gains on retirement benefit liabilities (net of deferred tax) - Other comprehensive income tax Total other comprehensive income Dividends paid Share based payment charge Proceeds from issue of ordinary shares Distribution of own shares Consideration paid for own shares - - - - 98 - - Total contributions by and distributions to owners of the Group 98 239 - - - - - - - 239 - - - (17) - - (17) - - - - - - - - - - - - - 236 (112) 124 1,445 1,445 - (17) (2,849) (2,849) 176 176 (2,673) (2,690) (677) 67 - (236) - (846) (677) 67 337 - (112) (385) At 30 March 2013 2,217 814 256 (102) 17,152 20,337 James Cropper plc Annual Report and Accounts 2013 Statement of Changes in Equity continued Company At 2 April 2011 Profit for the period Actuarial gains on retirement benefit liabilities (net of deferred tax) Other comprehensive income tax Total other comprehensive income Dividends paid Share based payment charge Proceeds from issue of ordinary shares Distribution of own shares Total contributions by and distributions to owners of the Group At 31 March 2012 Profit for the period Actuarial gains on retirement benefit liabilities (net of deferred tax) Other comprehensive income tax Total other comprehensive income Dividends paid Share based payment charge Proceeds from issue of ordinary shares Distribution of own shares Total contributions by and distributions to owners of the Group Retained Share Share capital premium earnings £'000 £'000 £'000 Total £'000 2,118 573 20,672 23,363 - - - - - - 1 - 1 - - - - - - 2 - 2 (746) (746) (5,935) (5,935) 292 292 (5,643) (5,643) (657) 145 - (127) (639) (657) 145 3 (127) (636) 2,119 575 13,644 16,338 - - - - - - 98 - 98 - - - - - - 239 - 239 3,090 3,090 (2,849) (2,849) 176 176 (2,673) (2,673) (677) 67 - (236) (846) (677) 67 337 (236) (509) At 30 March 2013 2,217 814 13,215 16,246 James Cropper plc Annual Report and Accounts 2013 pages 38 | 39 Notes to the Financial Statements 1. Accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The accounting “year” for the Group is a 52 week accounting period ending 30 March 2013, (2012: 52 week accounting period ended 31 March 2012). Throughout these notes, the following references apply: The Statement of Comprehensive Income is referenced as “SCI” The Statement of Financial Position is referenced as “SFP” Both the parent company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). On publishing the parent company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual Statement of Comprehensive Income and related notes that form a part of these approved financial statements. Use of estimates and judgments The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The following are the policies and accompanying notes are where the assumptions and judgments made by management could have an impact on the Group’s consolidated financial statements. Note 9 Property, plant and equipment It is the Group’s policy to depreciate categories within property, plant and equipment on a straight line basis over their estimated useful lives. A key element of this policy is the estimate of the useful life applied to each category of asset which in turn determines the annual depreciation charge. Variations in asset lives could affect Group profit through an increase or decrease in the depreciation charge. Note 11 Inventories In the course of normal trading activities management uses it’s judgment to establish the net realisable value of it’s stocks. Provisions are established for obsolete or slow moving stocks, based on past practice, current conditions and aged inventory facts available to management. Note 12 Trade receivables In estimating the collectability of trade receivables judgment is required and the policies in regard to credit risk are further described in note 16.2. Note 17 Retirement benefits Assumptions used in the calculation of the Group’s retirement liability have the biggest impact on these financial statements and are detailed in note 17. Impairment of assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes an estimate of recoverable amount. Where the carrying value of an asset exceeds its recoverable amount the asset is written down to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use and is deemed for an individual asset. If the asset does not generate cash flows that are largely independent of those from other assets or groups of assets, the recoverable amount of the cash generating unit to which the asset belongs is determined. Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation. Basis of consolidation The financial statements of the Group consolidate the accounts of the Company and those of its subsidiary undertakings. No subsidiaries are excluded from consolidation. The results and cash flows of subsidiary undertakings acquired are included from the effective date of acquisition. Intragroup balances and any unrealised income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Revenue recognition Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer. For the majority of customers this is when delivery has been made or specifically when title has passed, the point at which title passes varying in accordance with the terms and conditions of trade. Revenue is recognised when the amount of the revenue and related costs can be measured reliably and the collectability of the related receivables is reasonably assured. Revenue is measured at the fair value of the amount received or receivable which is arrived at after deducting trade rebates, customer returns and value added tax. Shipping and handling costs, such as freight to our customers’ destination are included in cost of sales. These costs, when included in the sales price charged for our products are recognised in net sales. Operating segments IFRS 8 Operating Segments has been adopted by the Group and requires that entities reflect the ‘management approach’ to reporting the financial performance of its operating segments. Management has determined the segments that are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, identified as the Executive Committee that makes strategic decisions. The committee considers the business principally via the four main operating segments, on the basis of its statutory structure. Operating segments are those components of the Group that are engaged in providing a group of related products that are subject to risks and returns that are different to other operating segments. Geographical areas are components where the eventual product destination is in a particular geographic environment which is subject to risks and returns that are different from other such areas. Costs are allocated to segments based on the segment to which they relate. Central costs are recharged on an appropriate basis. Foreign currencies Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Statement of Financial Position date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The assets and liabilities of foreign operations are translated at foreign exchange rates ruling at the Statement of Financial Position date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from translation of foreign operations are taken directly to the translation reserve; they are released into the Statement of Comprehensive Income upon disposal. The portion of gain or loss on foreign currency borrowings that are used to hedge a net investment in a foreign operation, that is determined to be an effective hedge, is included as a movement in the cumulative translation reserve. On subsequent disposal such gains or losses will form part of the profit/loss on disposal within the Statement of Comprehensive Income. Any ineffective portion is recognised immediately in the Statement of Comprehensive Income. This Policy was adopted for the first time in the period ended 27 March 2010. Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the IAS38 conditions are met. Other development expenditures are recognised as an expense as incurred. Development costs with a finite useful life that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding 5 years. Retirement benefits The Group operates various pension schemes. The schemes are generally funded through payments to trustee-administered funds, determined by periodic actuarial valuations. The Group has both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement. A defined contribution plan is a pension plan under which the Group pays fixed contributions. The liability recognised in the Statement of Financial Position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the Statement of Financial Position date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur outside of Statement of Comprehensive Income in the Statement of Changes in Equity. Past service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period. James Cropper plc Annual Report and Accounts 2013 pages 40 | 41 Notes to the Financial Statements continued For defined contribution plans, the Group pays agreed contributions to the schemes. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Share based payments Options granted to employees are recognised as employee expenses based on fair value at grant date, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. The Group has a wholly owned subsidiary EBT Limited, which is a trustee of an Employee Benefit Trust in favour of former, current and future employees of James Cropper plc and its subsidiaries. Its purpose is to acquire market shares in James Cropper plc, with the intention that these should be made available to such employees on such terms or basis as the trustee of the Employee Trust so decides, and includes the granting of awards under a long term incentive plan. Intangible fixed assets Intangible assets are stated at cost less accumulated amortisation and accumulated impairments losses, if any. The following useful lives have been determined for intangible assets. Trade secrets such as processes or unique recipes 10 years Computer software 3 - 10 years Emission Allowances (refer to note below on Emissions trading scheme for policy) 0 years Property plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided on all property, plant and equipment, other than freehold land, at rates calculated to write off the cost less residual value of each asset evenly over its expected useful life, as follows: Freehold land and buildings Plant and machinery 14 - 40 years 4 - 20 years Residual values and useful lives are reviewed annually. Inventories Inventories are stated at the lower of cost and net realisable value. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Engineering spares are included within inventories. Emissions trading scheme The Group’s power generation facilities became subject to phase 2 of the European Union Emission Trading Scheme (“EUETS”) as from 1 January 2008. The Group was permitted to emit 41,000 tonnes of carbon dioxide in a calendar year until 31 December 2012. Credits for this quantum were issued to the Group free of charge by HM Government. From 1 January 2013 the Group became subject to phase 3 of EUETS. The credits for the calendar year ended 31 December 2013 have yet to be finalised and are expected to be in the region of 17,000 tonnes. The Group has adopted an accounting policy which recognises the emission allowances as an intangible asset and an associated liability. The intangible asset is valued at the market price on the date of issue. The liability is valued at the market price on the date of issue up to the level of allocated allowances held. Should emissions exceed the annual allowance any excess of liability above the level of the allowances held is valued at the market price ruling at the Statement of Financial Position date and charged against operating profit. Un-utilised allowances are maintained against a potential future shortall. When allowances are utilised both the intangible asset and liability are amortised to the Statement of Comprehensive Income. Up until the 31 December 2012 the Group’s emissions were in line with its permitted EUETS allowance and hence there is no impact on profit. After entering phase 3 of the EUETS annual emissions in a calendar year are now expected to exceed allowances received and the impact is taken to the Statement of Comprehensive Income under “Energy Costs”. At 30 March 2013 the intangible asset was valued at £nil (2012: £256,000) and the associated liability at £14,000 (2012: £256,000). The liability is categorised under current liabilities. Grants Capital grants are credited to a deferral account and released to income over the expected useful lives of the relevant assets. Grants of a revenue nature are credited to the Statement of Comprehensive Income in the period to which they relate. Leasing Leases are classified as finance leases at inception where substantially all of the risks and rewards of ownership are transferred to the Group. Assets classified as finance leases are capitalised on the Statement of Financial Position and are depreciated over the expected useful life of the asset. The interest element of the rental obligation is charged to the Statement of Comprehensive Income over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding. Operating lease payments are charged to the Statement of Comprehensive Income in the appropriate period. Taxation Tax on the Statement of Comprehensive Income for the year comprises current and deferred tax. Tax is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the Statement of Financial Position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re- measured at their fair value at each Statement of Financial Position date. The resulting gain or loss on re-measurement is recognised in the Statement of Comprehensive Income, unless hedge accounting is applicable. There were no material balances at the year end. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except those with maturities greater than twelve months after the Statement of Financial Position date, which are classified as non-current assets. Loans and receivables are included within trade and other receivables in the Statement of Financial Position. The fair value of financial instruments traded in active markets is based on quoted market prices at the Statement of Financial Position date. Investments Trade investments are stated at cost less any impairment in value. The Group’s share of the profit is included in the Statement of Comprehensive Income on the equity accounting basis. 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 as borrowings within current liabilities on the Statement of Financial Position. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the Statement of Cash Flows. Borrowing costs 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 Statement of Comprehensive Income over the period of the borrowings using the effective interest method. Interest Interest is recognised in the Statement of Comprehensive Income on an accruals basis using the effective interest method. Trade receivables Trade receivables are recorded at their initial fair value after appropriate revision of impairment. Trade payables Trade payables are stated at their fair value. Capital Management Group and Company’s capital includes share capital, reserves and retained earnings. The Group and Company’s policy is to maintain the ability to continue as a going concern, in order to provide returns to the shareholder and benefits to other stakeholders. The Group, and Company, invest in financial assets that will provide an adequate level of return to the shareholder commensurate with the level of risk. The Group and Company manages the capital structure and adjusts this in light of the changes in the economic conditions and risk associated with the underlying assets. In order to maintain or adjust the capital structure, the Group and Company may adjust the amount of any dividend paid to the shareholder, return capital to the shareholder, issues new shares, or sell assets to reduce debt. Details borrowings can be seen in note 15 and share holdings can be referred to in note 19. The Group, and Company, are not subject to any externally imposed capital requirements. There have been no material changes in the management of capital during the period. Going Concern The Directors have prepared the accounts for James Cropper plc on a going concern basis. See the Report of the Directors section (ix) for the basis of the going concern assumption. James Cropper plc Annual Report and Accounts 2013 pages 42 | 43 Notes to the Financial Statements continued New standards and interpretation not applied A number of new standards, amendments to standards and interpretations have been issued during the year ended 30 March 2013 but are not yet effective, and therefore have not yet been adopted by the Group. Amendment to IFRS 1 'Presentation of Items of Other Comprehensive Income (OCI)' is effective for accounting periods beginning July 2012. The amendment requires an entity to separate items included in OCI between those that may be reclassified to profit and loss in the future from those that would never be reclassified to profit and loss. This standard is not expected to have a significant impact on the consolidated results or financial position of the Group. Amendments to IFRS 7 'Offsetting Financial Assets and Financial Liabilities' is applicable from January 2013. This amendment introduces new disclosure required for financial assets and liabilities which have been offset in the statement of financial position and/or are subject to master netting arrangements or similar agreements, but is not anticipated to have a significant impact on the financial statements. Amendments to IAS 32 'Offsetting Financial Assets and Financial Liabilities' is applicable from January 2014. This amendment clarifies the application of the offsetting rules, however this is not anticipated to have a significant impact on the financial statements. IFRS 9 'Financial Instruments' is applicable from 2015. If endorsed, this standard will simplify the classification of financial assets for measurement purposes, but is not anticipated to have a significant impact on the financial statements. IFRS 17 'Leases' may be introduced with a proposed guide date of 2015. If endorsed, this standard will significantly affect the presentation of the Group financial statements with all leases apart from short term leases being recognised as either finance leases or 'other than finance' leases with a corresponding liability being the present value of the lease payments. Amendments to IAS 19 ‘Employee benefits’ is applicable from January 2013. The amendments require that for defined benefit pension schemes the net interest income or expense is calculated using the discount rate used to measure the defined benefit obligation. This is likely to result in an increase in the pension expense reported in the Statement of Comprehensive Income, however on the basis of the 30 March 2013 year end figures it is not anticipated that this will have a material impact. The Group continues to monitor the potential impact of other new standards and interpretations which may be endorsed by the European Union and require adoption by the Group in future reporting periods. The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements. 2. Segmental reporting IFRS 8 Operating Segments - requires that entities adopt the ‘management approach’ to reporting the financial performance of it’s operating segments. Management has determined the segments that are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker, identified as the Executive Committee that makes strategic decisions. The committee considers the business principally via the four main business segments, on the basis of it’s statutory structure, principally based in the UK: • JC Speciality Papers – relates to James Cropper Speciality Papers a manufacturer of specialist paper and boards. • JC Converting – relates to James Cropper Converting - a converter of paper. • Technical Fibre Products – a manufacturer of advanced materials. • Group Services – comprises central functions providing services to the subsidiary companies. “Eliminations” refers to the elimination of inter-segment revenues, profits and investments. “Trading Operating Profit before Interest” refers to profits prior to other income and expenditure and the IAS 19 pension adjustment. The “IAS 19 pension adjustment” refers to the impact on operating profits of the pension schemes’ operating costs, as described in the IAS 19 section of the Financial Review. “Interest Expense” incorporates the IAS 19 pension impact of the pension schemes’ finance costs, as described in the IAS 19 section of the Financial Review. The net IAS 19 pension adjustments to Operating profit and interest can be seen in the Summary of Results “Profit before tax” is consistent with that reported in the Statement of Comprehensive Income. Inter segment transactions are performed in the normal course of business and at arms length. 2. Segmental reporting continued Operating Segments Period ended 30 March 2013 Speciality Papers Converting £'000 £'000 Technical Fibre Products £'000 Group Services £'000 Continuing Eliminations Operations £'000 £'000 Other £'000 54,140 3,559 12,502 1,205 12,599 - 57,699 13,707 12,599 - - - 697 - 697 982 1,450 (594) - 982 - (426) 1,450 (1,020) Revenue - External - Inter-segment Segment Profit Trading Operating Profit before Interest IAS 19 Pension adjustments to profit Operating Profit Interest Expense Interest Income Profit before tax Tax on profit for year Profit for the year - - - - - - - (4,764) 79,241 - (4,764) 79,241 - - - 2,535 (426) 2,109 (492) 202 1,819 (374) 1,445 Total Assets Total Liabilities 34,592 (27,521) 11,557 (8,750) 22,037 (20,196) 40,236 (23,990) 1,749 (101) (59,496) 50,220 50,675 (30,338) Period ended 31 March 2012 Revenue - External - Inter-segment Segment Profit Trading Operating Profit before Interest IAS 19 Pension adjustments to profit Operating Profit Interest Expense Interest Income Profit before tax Tax on profit for year Profit for the year Speciality Papers £'000 Converting £'000 Technical Fibre Products £'000 Group Services £'000 Continuing Other Eliminations Operations £'000 £'000 £'000 56,188 3,403 59,591 10,093 11,942 904 - 10,997 11,942 - - - 1,430 - 1,430 192 - 192 629 (1,044) - 629 (539) (1,583) - - - - - - - 78,223 (4,307) (4,307) - 78,223 - - - 1,207 (539) 668 (369) 672 971 (134) 837 Total Assets Total Liabilities 34,681 (26,636) 10,688 (7,908) 19,725 (17,203) 45,501 (29,163) 1,874 (226) (60,753) 51,387 51,716 (29,749) James Cropper plc Annual Report and Accounts 2013 pages 44 | 45 Notes to the Financial Statements continued 2. Segmental reporting continued Geographical segments The Group’s manufacturing operations are principally based in the UK. The sales analysis in the table below is based on the location of the customer. UK 40,060 38,548 Europe 17,306 19,774 Asia 6,885 7,095 Americas Australasia 1,206 1,553 13,357 10,745 Africa 427 508 The Continuing operations 79,241 78,223 Period ended 30 March 2013 Period ended 31 March 2012 3. Finance Costs Interest expense Interest payable on bank borrowings Interest payable on finance leases Other interest payable Total interest expense Interest income Interest receivable on bank borrowings Other interest received Expected return on pension scheme assets Interest on pension scheme liabilities Total interest income Finance costs - net 2013 £'000 354 138 - 492 8 1 4,020 (3,827) 202 290 2012 £'000 284 80 5 369 5 - 4,456 (3,789) 672 (303) 4. Profit before tax The following items have been charged/(credited) in arriving at profit before tax: Staff costs Depreciation of property, plant and equipment - owned assets - leased assets -amortisation of intangibles Profit / (loss) on disposal of fixed assets Other operating lease rentals payable -Plant & machinery Repairs and maintenance expenditure on property, plant and equipment Government grants received Research and development expenditure Foreign exchange differences Trade receivables impairment Government grants relate to assistance received for research projects and the development of new technology. Services Provided by the Group's Auditor and network firms During the year the Group obtained the following services from the Group's auditor at costs as detailed below: Audit Services Fees payable to the Company's auditor for the audit of Parent Company and consolidated accounts Other services Remuneration payable to the Company's auditor for the auditing of subsidiary accounts and associates of the Company pursuant to legislation (including that of countries and territories outside Great Britain Fees in respect of other accountancy matters Fees in respect of other assurance services Tax advisory services 2013 £'000 20,296 2,113 369 336 12 368 3,760 (185) 934 (178) 99 2012 £'000 20,679 2,162 178 335 (2) 707 3,779 (145) 1,108 343 9 2013 £'000 2012 £'000 17 41 5 20 4 87 17 37 6 - 8 68 James Cropper plc Annual Report and Accounts 2013 pages 46 | 47 Note 18 Notes to the Financial Statements continued 5. Taxation Analysis of charge in the period Continuing operations Current tax Adjustments in respect of prior period current tax Foreign tax Total current tax Deferred tax Adjustments in respect of prior period deferred tax Effects of changes in tax rate Total deferred tax Taxation Tax on items charged to equity Deferred tax on actuarial gains on retirement benefit liabilities Income tax charged to OCI The tax for the period is lower (2012: lower) from the standard rate of corporation tax in the UK of 24% (2012: 26%). The differences are explained below: Profit before tax Profit on ordinary activities multiplied by rate of corporation tax in the UK of 24% (2012: 26%) Effects of: Adjustments to tax in respect of prior period Overseas tax Expenses not deductible for tax purposes Rate change on deferred tax Other Small companies rate relief Total tax charge for the period 2013 £'000 608 (81) - 527 (162) 115 (106) (153) 374 533 176 2013 £’000 1,819 437 34 111 (102) (106) - - 374 2012 £'000 481 (45) 15 451 (70) (28) (219) (317) 134 1,483 292 2012 £'000 971 252 (73) 109 60 (219) 9 (4) 134 6. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares outstanding during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one class of dilutive potential ordinary shares - those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below. Group 2013 Earnings £’000 Weighted average number of shares ’000 Per-share amount Earnings pence £’000 Basic EPS Earnings attributable to ordinary shareholders 1,445 Effect of dilutive securities - Options Diluted EPS - 1,445 8,619 142 8,761 16.8 - 16.5 7. Dividends Final paid for the period ended 31 March 2012 / period ended 2 April 2011 Interim paid for the period ended 30 March 2013 / period ended 31 March 2012 Final dividend payment paid pence per share for the period ended 31 March 2012 / period ended 2 April 2011 Interim dividend payment paid pence per share for the period ended 30 March 2013 / period ended 31 March 2012 837 - 837 2013 £'000 483 193 5.7 2.2 2012 Weighted average number of shares ’000 8,473 333 8,806 Per-share amount pence 9.9 - 9.5 2012 £'000 474 183 5.7 2.2 In addition, the Directors are proposing a final dividend in respect of the financial period ended 30 March 2013 of 5.7p per share (2012: 5.7p per share) which will absorb an estimated £502,000 (2012: £483,000) of shareholders’ funds. If approved by members at the Annual General Meeting, it will be paid on 9 August 2013 to shareholders who are on the register of members at 12 July 2013. There are no tax implications in respect of this proposed dividend. The proposed dividend is not accounted for until it is formally approved at the Annual General Meeting. James Cropper plc Annual Report and Accounts 2013 pages 48 | 49 Notes to the Financial Statements continued 8. Intangible assets Group Computer Software £'000 Trade Secrets £'000 Emission Allowances £'000 Cost At 31 March 2012 Additions – externally generated Effects of movements in foreign exchange 3,550 157 7 At 30 March 2013 Aggregate amortisation At 31 March 2012 Charge for Period At 30 March 2013 Net book value at 30 March 2013 Net book value at 31 March 2012 3,714 3,003 311 3,314 400 547 308 - - 308 168 25 193 115 140 - 515 256 943 - 293 257 723 Group Computer Software £'000 Trade Secrets £'000 Emission Allowances £'000 Company Computer Emission Software Allowances £'000 £'000 Total £'000 6,258 157 7 6,422 5,315 592 5,907 Total £'000 5,939 319 - 6,258 4,553 762 5,315 2,400 - - 2,400 2,144 256 2,400 2,095 305 - 2,400 1,717 427 2,144 Company Computer Emission Software Allowances £'000 £'000 Total £'000 5,861 123 - 5,984 5,138 553 5,691 Total £'000 5,556 305 - 5,861 4,416 722 5,138 2,400 - - 2,400 2,143 257 2,400 2,095 305 - 2,400 1,717 426 2,143 3,461 123 - 3,584 2,995 296 3,291 293 466 3,461 - - 3,461 2,699 296 2,995 466 762 256 943 378 1,386 257 723 378 1,140 Cost At 2 April 2011 Additions – externally generated Effects of movements in foreign exchange 3,536 14 - At 31 March 2012 Aggregate amortisation At 2 April 2011 Charge for Period At 31 March 2012 Net book value at 31 March 2012 Net book value at 2 April 2011 3,550 2,699 304 3,003 547 837 308 - - 308 137 31 168 140 171 The computer software capitalised principally relates to the ongoing development of the Group's Enterprise Resource Planning and Financial systems. The remaining amortisation period of the assets at the period end is 2 years (2012: 3 years). There is a separate Enterprise Resource Planning system for the Technical Fibre Products Business segment and the remaining amortisation period of this asset at the period end is 8 years. The trade secrets relate to certain recipes and know how acquired within the TFP division. The remaining amortisation period of the assets at the period end is 6 years. The Emission Allowances relate to the allowances received through the European Emissions Trading Scheme (EUETS) and are valued at market value at the date of initial recognition. The allocated allowances are held throughout each compliance period and are used to meet the Group’s emissions obligations. 9 Property plant and equipment Group Cost Brought forward at 31 March 2012 Additions at cost Disposals Effects of movements in foreign exchange At 30 March 2013 Accumulated Depreciation Brought forward at 31 March 2012 Charge for Period Disposals At 30 March 2013 Net book value at 30 March 2013 Net book value at 31 March 2012 Cost Brought forward at 2 April 2011 Additions at cost Disposals Effects of movements in foreign exchange At 31 March 2012 Accumulated Depreciation Brought forward at 2 April 2011 Charge for Period Disposals At 31 March 2012 Net book value at 31 March 2012 Net book value at 2 April 2011 Freehold land & buildings £'000 Plant & machinery £'000 10,319 523 - - 10,842 5,499 255 - 5,754 5,088 4,820 71,596 3,392 (1,220) 59 73,827 56,668 2,227 (1,199) 57,696 16,131 14,928 Freehold land & buildings £'000 Plant & machinery £'000 10,229 90 - - 10,319 5,248 251 - 5,499 4,820 4,981 65,866 5,830 (96) (4) 71,596 54,670 2,089 (91) 56,668 14,928 11,196 Total £'000 81,915 3,915 (1,220) 59 84,669 62,167 2,482 (1,199) 63,450 21,219 19,748 Total £'000 76,095 5,920 (96) (4) 81,915 59,918 2,340 (91) 62,167 19,748 16,177 Assets held under finance leases, capitalised and included in tangible fixed assets: Brought forward Net book value Additions in period Depreciation in period Net book value Group Company 2013 £'000 2,893 4,277 (369) 6,801 2012 £'000 1,585 1,486 (178) 2,893 2013 £'000 2,185 - (136) 2,049 2012 £'000 1,368 943 (126) 2,185 James Cropper plc Annual Report and Accounts 2013 pages 50 | 51 Notes to the Financial Statements continued 9. Property plant and equipment continued Company Cost Brought forward at 31 March 2012 Transfers Additions at cost Disposals At 30 March 2013 Accumulated Depreciation Brought forward at 31 March 2012 Charge for Period Transfers Disposals At 30 March 2013 Net book value at 30 March 2013 Net book value at 31 March 2012 Cost Brought forward at 2 April 2011 Transfers Additions at cost Disposals At 31 March 2012 Accumulated Depreciation Brought forward at 2 April 2011 Charge for Period Transfers Disposals At 31 March 2012 Net book value at 31 March 2012 Net book value at 2 April 2011 Freehold land & buildings £'000 Plant & machinery £'000 863 - 504 - 1,367 321 13 - - 334 1,033 542 4,794 - 21 (479) 4,336 2,461 220 - (479) 2,202 2,134 2,333 Freehold land & buildings £'000 Plant & machinery £'000 863 - - - 863 307 14 - - 321 542 556 3,829 931 34 - 4,794 2,248 211 2 - 2,461 2,333 1,581 Total £'000 5,657 - 525 (479) 5,703 2,782 233 - (479) 2,536 3,167 2,875 Total £'000 4,692 931 34 - 5,657 2,555 225 2 - 2,782 2,875 2,137 10. Investments Investments in subsidiary undertakings At 30 March 2013 and 31 March 2012 Group 2013 £'000 - 2012 £'000 - Company 2013 £'000 7,350 2012 £'000 7,350 Investments in subsidiary undertakings are stated at cost. A list of principal subsidiary undertakings is given below: Country of incorporation % holding (of ordinary shares) James Cropper Speciality Papers Limited James Cropper Converting Limited Technical Fibre Products Limited Tech Fibers Inc. Technical Fibre Products Inc. Metal Coated Fibers Inc. Electro Fiber Technologies LLC James Cropper EBT Limited Melmore Limited Papermilldirect.com Limited The Paper Mill Shop Company Limited England England England USA USA USA USA England England England England 100 100 100 100 100 100 100 100 100 100 100 Manufacture of specialist paper and boards Nature of business Paper converter Manufacture of advanced materials Holding Company Sales and marketing organisation Manufacturer of metal coated carbon fibres Manufacturer of metal coated fibres Trustee of an employee benefit trust Dormant Company Dormant Company Dormant Company 11. Inventories Materials Work in progress Finished goods Group 2013 £'000 6,826 1,174 3,848 2012 £'000 6,908 1,334 4,119 11,848 12,361 Inventories are stated after a provision for impairment of £110,000 (2012: £100,000). The cost of inventories recognised as expenses and included in cost of sales for the year ended 30 March 2013 was £64,260,000 (2012: £62,458,000). The Company does not have inventories. 12. Trade and other receivables Trade receivables Less: Provision for impairment of receivables Trade receivables - net Amounts owed by Group undertakings Other receivables Prepayments Group 2013 £'000 2012 £'000 13,473 12,381 (200) (100) 13,273 12,281 - 701 870 - 229 688 Company 2013 £'000 2012 £'000 - - - - - - 27,014 30,349 701 501 208 388 14,844 13,198 28,216 30,945 Management believe there is no further credit risk provision required in excess of normal provision for doubtful receivables. The adoption of IFRS 7 “Financial Instruments: Disclosure” has resulted in additional disclosures on credit risk which can be viewed in note 16. James Cropper plc Annual Report and Accounts 2013 pages 52 | 53 Notes to the Financial Statements continued 13. Trade and other Payables Trade payables Amounts owed to Group undertakings Other tax and social security payable Other payables Accruals Total contractual cash flows Group 2013 £'000 2,499 - 410 238 4,991 8,138 2012 £'000 2,611 - 404 706 5,607 9,328 Company 2013 £'000 446 2012 £'000 2,000 9,696 10,380 67 204 725 73 591 1,401 11,138 14,445 For Group and Company at 31 March 2012 was a provision for redundancy costs of £800,000 included within “Accruals”. 14. Other Financial Liabilities Group and Company Interest rate swap 2013 £'000 32 2012 £'000 30 The Group uses an interest rate swap to hedge the risk associated with interest rate increases against a proportion of its existing borrowings. The loss arising in the Income Statement on fair value hedging instruments was £2,000 (2012: £30,000). 15. Borrowings Current Bank loans and overdrafts due within one year or on demand: Unsecured bank loans Secured finance lease Non-current loans Unsecured bank loans Secured finance lease Group 2013 £'000 2012 £'000 Note Company 2013 £'000 2012 £'000 2,979 1,034 4,013 3,491 4,031 7,522 1,357 712 2,069 8,598 1,276 9,874 16.3 1,100 1,215 318 558 1,418 1,773 2,650 5,931 351 669 3,001 6,600 Bank loans bear interest at rates between 1% and 4.5% above UK bank base rates. 15. Borrowings continued The future minimum lease payments under finance leases held, together with the value of principal are as follows: Group Within one year Greater than one year and less than five years Greater than 5 years Company Within one year Greater than one year and less than five years Greater than 5 years Minimum lease payments 2013 £’000 1,226 4,002 439 Minimum lease payments 2013 £’000 Minimum lease Interest Principal payments 2012 £’000 2013 £’000 2013 £’000 192 404 6 1,034 812 3,598 1,367 433 63 Minimum lease Interest Principal payments 2012 £’000 2013 £’000 2013 £’000 Interest Principal 2012 £’000 2012 £’000 100 152 2 712 1,215 61 Interest Principal 2012 £’000 2012 £’000 351 379 21 33 49 - 318 330 21 611 751 - 53 82 - 558 669 - 16. Financial Instruments and Risk The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Currency risk • Interest rate risk This note presents information about the fair value of the Group’s financial instruments, the Group’s exposure to each of the risks noted and the Group’s objectives, policies and processes for measuring and managing risk. The Board has overall responsibility of the risk management strategy and coordinates activity across the Group. This responsibility is discussed further in the Directors’ Report. Exposure to the financial risks noted, arise in the normal course of the Group’s business. James Cropper plc Annual Report and Accounts 2013 pages 54 | 55 Notes to the Financial Statements continued 16.1 Categories of non-derivative financial assets and liabilities and fair values 16.2 Credit risk The fair values of the financial assets and liabilities of the Group together with their book values are as follows: Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations. Credit risk arising from the Group’s normal commercial activities are controlled by individual business units operating in accordance with Group policies and procedures. Exposure to credit risk arises from the potential of a customer defaulting on their invoiced sales. Some of the Group’s businesses have credit insurance in place. For un-insured customers, the financial strength and credit worthiness of the customer is assessed from a variety of internal and external information, and specific credit risk controls that match the risk profile of those customers are applied. Trade receivables recorded by business held at the 30 March 2013 were: Group Book value Fair value 2013 £'000 2013 £'000 Group Book value Fair value 2012 £'000 2012 £'000 13,473 2,249 13,473 2,249 15,722 15,722 12,381 5,438 12,381 5,438 17,819 17,819 Note 12 13 15 JC Speciality Papers JC Converting Technical Fibre Products 2,499 4,013 6,512 2,499 4,013 6,512 2,611 2,069 4,680 2,611 2,069 4,680 The Company does not have trade receivables. The ageing of trade receivables at the reporting date was: 15 7,522 7,522 9,874 9,874 Company Book value Fair value 2013 £'000 2013 £'000 Note Company Book value Fair value 2012 £'000 2012 £'000 Not past due Past due 0 - 30 days Past due 31 - 60 days Over 61 days Less impairment 2013 £'000 8,501 2,681 2,091 13,273 2013 £'000 13,233 201 12 27 13,473 (200) 13,273 2012 £'000 8,650 1,933 1,698 12,281 2012 £'000 10,134 2,196 50 1 12,381 (100) 12,281 1,209 1,209 1,209 1,209 3,608 3,608 3,608 3,608 7,350 7,350 7,350 7,350 446 1,418 1,864 446 1,418 1,864 2,000 1,773 3,773 2,000 1,773 3,773 10 13 15 15 3,001 3,001 6,600 6,600 At the end of each reporting period a review of the provision for bad and doubtful debts is performed. It is an assessment of the potential amount of trade debtors which will not be paid by customers after the balance sheet date. This amount is calculated by reference to the age, status and risk of each receivable. Provision for doubtful debts. Group Balance at start of period Created / (released) during the period Utilised during the period Balance at end of period 2013 £'000 100 118 (18) 200 2012 £'000 147 (13) (34) 100 Included in the outstanding trade receivables balance are debtors with an overdue amount of £40,000 (2012: £2,147,000) that the Group has not provided for. The Directors believe that these amounts are still considered recoverable from customers for whom there is no recent history of default. The fair values are stated at the reporting date and may be different from the amounts which will be actually paid or received on settlement of the instruments. The fair values are based on book values as the Directors do not consider that there is a material difference between the book values and the fair values. Financial assets Current Trade receivables Cash and cash equivalents Financial liabilities Current Trade payables Short term borrowings Non-current Long term borrowings Financial assets Current Cash and cash equivalents Non-current Investments in subsidiary undertakings Financial liabilities Current Trade payables Short term borrowings Non-current Long term borrowings James Cropper plc Annual Report and Accounts 2013 pages 56 | 57 Notes to the Financial Statements continued 16.3 Liquidity risk Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities. The Group’s policy is to maintain a mix of short, medium and long term borrowings with a number of banks. Short term flexibility is achieved through overdraft facilities. In addition, it is the Group’s policy to maintain undrawn committed borrowing facilities in order to provide flexibility in the management of liquidity. Current and non-current financial liabilities The maturity profile of the carrying amount of the current and non-current financial liabilities, at 30 March 2013, was as follows: Group In less than one year In more than one year but not more than two years In more than two years but not more than five years In more than five years Finance lease Debt obligations 2013 2013 £'000 £'000 2,979 1,941 1,550 - 1,227 988 3,013 439 Total 2013 £’000 4,206 2,929 4,563 439 6,470 5,667 12,137 Finance lease Debt obligations 2012 2012 £'000 £’000 Total 2012 £'000 2,169 3,239 4,012 2,777 812 536 798 96 2,242 12,197 1,357 2,703 3,214 2,681 9,955 Company In less than one year In more than one year but not more than two years In more than two years but not more than five years In more than five years Trade payables Trade payables at the reporting date was Total contractual cash flows Finance lease Debt obligations 2013 2013 £'000 £'000 1,100 1,100 1,550 - 3,750 350 128 252 21 751 Total 2013 £’000 1,450 1,228 1,802 21 4,501 Finance lease Debt obligations 2012 2012 £'000 £’000 1,214 1,000 2,250 2,681 7,145 611 353 302 96 1,362 Total 2012 £'000 1,825 1,353 2,552 2,777 8,507 Group 2013 £'000 2,499 2012 £'000 2,611 2,499 2,611 Company 2013 £'000 446 446 2012 £'000 2,000 2,000 Borrowing facilities The Group has the following undrawn committed borrowing facilities available at 30 March 2013: Expiring within one year (renewable annually) at 30 March 2013 Floating rate £'000 4,753 at 31 March 2012 Floating rate £'000 4,959 The Group’s expiry profile of the drawn down facilities is as follows: October 2012 May 2013 December 2014 September 2015 April 2017 March 2018 March 2020 Group at 30 March 2013 £'000 at 31 March 2012 £'000 Company at 30 March at 31 March 2012 £'000 2013 £'000 - 1,642 1,078 1,650 2,100 - - 6,470 215 1,561 1,248 2,250 2,000 - 2,681 9,955 - - - 1,650 1,600 500 - 3,750 214 - - 2,250 2,000 - 2,681 7,145 16.4 Currency risk The Group publishes its consolidated financial statements in sterling but also conducts business in foreign currencies. As a result it is subject to foreign currency exchange risk arising from exchange rate movements which will be reflected in the Group’s transaction costs or in the underlying foreign currency assets of its foreign operations. The Group has operations in the US. The Group is exposed to foreign exchange risks primarily with respect to US Dollars and the Euro. Where possible, the Group maintains a policy of balancing sales and purchases denominated in foreign currencies. Where an imbalance remains, the Group has also entered into certain forward exchange contracts. No material contracts were outstanding at the year end. The management of foreign currency is described in further detail in the Financial Review. Represented below is the net exposure to foreign currencies, reported in pounds Sterling, and arising from all Group activities, as at 30 March 2013. Trade Receivables Cash and cash equivalents Trade Payables Unsecured current loans Finance lease current Unsecured non-current loans Finance lease non-current Net exposure USD £'000 2,904 699 (264) (1,879) - (841) - Euro £'000 2,483 49 (507) - - - - 619 2,025 At the 31 March 2012 the Group's exposure to foreign currency risk was as follows: Trade Receivables Cash and cash equivalents Trade Payables Unsecured current loans Finance lease current Unsecured non-current loans Finance lease non-current Net exposure USD £'000 1,841 1,800 (281) (142) - (2,667) - 551 Euro £'000 2,102 1,052 (286) - - - - 2,868 GBP £'000 7,886 1,501 (1,728) (1,100) (1,034) (2,650) (4,031) (1,156) GBP £'000 8,338 2,586 (2,044) (1,215) (712) (5,931) (1,276) (254) Total £'000 13,273 2,249 (2,499) (2,979) (1,034) (3,491) (4,031) 1,488 Total £'000 12,281 5,438 (2,611) (1,357) (712) (8,598) (1,276) 3,165 This represents the net exposure to foreign currencies, reported in pounds Sterling, and arising from all Group activities. James Cropper plc Annual Report and Accounts 2013 pages 58 | 59 pages 38 | 39 Notes to the Financial Statements continued 16.4 Currency risk continued At the 30 March 2013 the Company's exposure to foreign currency risk was as follows: Cash and cash equivalents Trade Payables Unsecured current loans Finance lease current Unsecured non-current loans Finance lease non-current Net exposure At the 31 March 2012 the Company's exposure to foreign currency risk was as follows: Cash and cash equivalents Trade Payables Unsecured current loans Finance lease current Unsecured non-current loans Finance lease non-current Net exposure USD £'000 18 (3) - - - - Euro £'000 26 - - - - - GBP £'000 1,165 (443) Total £'000 1,209 (446) (1,100) (1,100) (318) (318) (2,650) (2,650) (351) (351) 15 26 (3,697) (3,656) USD £'000 1 (233) Euro £'000 1,050 (98) - - - - - - - - GBP £'000 2,557 (1,669) (1,215) (558) Total £'000 3,608 (2,000) (1,215) (558) (5,931) (5,931) (669) (669) (232) 952 (7,485) (6,765) 16.5 Interest rate risk Interest rate risk derives from the Group’s exposure to changes in value of an asset or liability or future cash flow through changes in interest rates. The Group finances its operations through a mixture of retained profits and bank borrowings. The Group borrows in the desired currencies at fixed or floating rates of interest. As part of the Group’s interest rate management strategy the Company entered into an interest rate swap which will mature in January 2015. Under the swap the maximum base rate the Group will pay on bank borrowings of up to £3m is 0.96%. The exposure is measured on variable rate debt and instruments. The net exposure to interest rates at the Statement of Financial Position date can be summarised as follows: Group Company Interest bearing liabilities - floating Borrowings Finance lease Interest bearing liabilities - fixed Finance lease 2013 £'000 6,470 3,382 9,852 2012 £'000 9,955 439 10,394 2013 £'000 3,750 92 3,842 2012 £'000 7,145 439 7,584 1,683 1,549 577 789 Interest bearing liabilities 11,535 11,943 4,419 8,373 The effective interest rates at the balance sheet date were as follows: Bank overdraft Borrowings 2013 % 1.5 3.9 2012 % 1.5 3.9 The sensitivity analysis below assumes a 100 basis point change in interest rates from their levels at the reporting date, with all other variables held constant. A 1% rise in interest rates would result in an additional £47,000 for the Group and £27,000 for the Company in interest expense being incurred per year. The impact of a decrease in rates would be an identical reduction in the annual charge. Group Company SCI £’000 SCI £’000 69 47 8 27 A one percent strengthening of the pound against the Euro and the US Dollar at 30 March 2013 would have had the following impact on equity and profit by the amounts shown below: 31 March 2013 31 March 2012 Group 30 March 2013 30 March 2013 31 March 2012 31 March 2012 Company 30 March 2013 30 March 2013 31 March 2012 31 March 2012 USD Euro USD Euro USD Euro USD Euro Equity £'000 SCI £'000 (6) (20) (5) (28) (26) (20) (15) (18) Equity £'000 SCI £'000 Nil Nil 2 (9) Nil Nil 2 1 17. Retirement benefits The Group operates a number of pension schemes. Two of these schemes, the James Cropper plc Works Pension Plan (“Works Scheme”) and the James Cropper plc Pension Scheme (“Staff Scheme”) are funded schemes of the defined benefit type. The Group also operates a defined contribution scheme and makes contributions to personal pension plans for its employees in the USA. Pension costs for the defined contribution scheme and personal pension contributions are as follows: Defined contribution schemes Personal pension contributions Group 2013 £’000 318 21 2012 £’000 279 18 Other pension costs totalled £467,000 (2012: £251,000) and represent life assurance charges and government pension protection fund levies. This sensitivity analysis is indicative only and it should be noted that the Group’s exposure to such market rate changes is continually changing. The calculations assume all other variables, in particular interest rates, remain constant. James Cropper plc Annual Report and Accounts 2013 Notes to the Financial Statements continued 17. Retirement benefits continued Defined benefit plans As from 1 April 2011 active members’ benefits have been reduced such that future increases in pensionable salaries are restricted to RPI up to a maximum of 2% per annum. Thus the Staff and Works Schemes will remain defined benefit schemes but they will no longer be “final salary” schemes. The most recent actuarial valuations of the Staff Scheme and the Works Scheme have been updated to 30 March 2013 by qualified independent actuaries. The major assumptions used by the actuary for each scheme were as noted below. The expected return on plan assets is calculated by using a weighted average across each category of asset: Staff Scheme Works Scheme 2012 % 2012 % 2013 % 2013 % Inflation assumption Rate of increase in pensionable salaries Discount rate Allowance for pension in payment increases of RPI or 5% p.a. if less (subject to minimum of 3% p.a) Allowance for revaluation of deferred pensions of CPI or 5% p.a if less on the Staff scheme or RPI or 2.5% p.a. if less on the Works scheme Expected return on plan assets 3.3 2.0 4.7 3.5 3.2 2.0 5.0 3.4 2.65 5.0 2.65 5.6 3.3 2.0 4.7 3.5 2.5 5.0 3.2 2.0 5.0 3.4 2.5 5.9 In respect of mortality for the Works members the PA92 series table has been used with the medium cohort projections applied, and a plus three year age rating. For the Staff members the PNA00 tables with a 120% rating has been used with the long cohort projections and a 1% underpin. The different tables and methods applied to each Scheme reflect the different characteristics of the members within these Schemes. The long-term expected rate of return on cash is determined by reference to bank base rates at the SFP dates. The long-term expected return on bonds is determined by reference to UK long dated government and corporate bond yields at the SFP date. The long-term expected rate of return on equities is based on the rate of return on bonds with an allowance for out-performance. Following the Government's change in the statutory inflation measure for pension increases and legal advice provided to the Trustees of the Schemes, allowance has been made for the rate of increase in some scheme benefits to be linked to the CPI measure of inflation in the future. This has been allowed for as a change in assumptions within Other Comprehensive Income. The amounts recognised in the Statement of Financial Position are determined as follows: Present value of scheme liabilities Fair value of plan assets Net liability recognised in the SFP 2013 £’000 (85,112) 74,759 (10,353) 2012 £’000 2011 £’000 2010 £’000 2009 £’000 (78,005) 70,307 (69,593) 68,189 (78,130) 63,950 (57,333) 48,257 (7,698) (1,404) (14,180) (9,076) The fair value of the plan assets comprises the following categories of asset in the stated proportions: Staff Scheme Works Scheme 2012 % 2012 % 2013 % 2013 % Equities Bonds Annuities Cash Corporate Bonds Property Nominal Liability Strategy 71 - 6 1 - - 22 49 16 6 3 26 - - 80 - - - - - 20 54 40 - 5 - 1 - The pension plan assets do not include any investments in the shares of the Company (2012 nil). The amounts recognised in the Statement of Comprehensive Income are as follows: Total included within employee benefit costs – current service cost Expected return on plan assets Interest on pension scheme liabilities Total included within interest Total Analysis of the movement in the Statement of Financial Position liability At brought forward Total expense as above Contributions paid Gains on curtailment Actuarial losses recognised in SCI At 30 March 2013 pages 60 | 61 2013 £'000 1,163 (4,020) 3,827 (193) 2012 £'000 1,300 (4,456) 3,789 (667) 970 633 2013 £'000 2012 £'000 (7,698) (1,404) (970) 1,697 - (3,382) (10,353) (633) 1,757 - (7,418) (7,698) The actual return on plan assets was £5,302,000 (2012: £2,697,000). The Company expects to pay £749,000 (2012: £792,000) in contributions to the Staff Scheme and £829,000 (2012: £971,000) in contributions to the Works Scheme in the next financial period. The cumulative amount of gains/losses recognised in the Statement of Comprehensive Income since the adoption of IAS 19 are losses of £11,207,000 (2012: losses of £7,825,000). Works Scheme Staff Scheme Works Scheme Staff Scheme Brought forward 35,922 (41,037) 34,385 (36,968) 35,445 (36,288) Assets 2013 £'000 DBO 2013 £'000 Assets 2013 £'000 DBO 2013 £'000 Assets 2012 £'000 DBO 2012 £'000 Expected return on assets 2,101 - 1,919 - 2,326 Current service costs Benefits paid Contributions by plan participants Employer contributions Interest cost Actuarial (losses)/gains - (679) - (1,505) 1,505 (1,587) 334 893 - (197) (334) - (2,019) (2,463) 211 804 - 1,479 (484) 1,587 (211) - (1,808) (2,201) Assets 2012 £'000 32,744 2,130 - - (851) - (1,695) 1,695 (1,203) 344 940 - (1,438) (344) - (1,977) (3,272) 218 817 - (321) DBO 2012 £'000 (33,305) - (449) 1,203 (218) - (1,812) (2,387) At 30 March 2013 / 31 March 2012 37,548 (45,027) 37,211 (40,085) 35,922 (41,037) 34,385 (36,968) Experience adjustments Arising on plan assets Percentage of scheme assets Arising on plan liabilities Percentage of scheme liabilities 2013 £’000 1,282 1.71% (143) (0.17%) 2012 £’000 (1,759) (2.50%) - - 2011 £’000 2010 £’000 2009 £’000 112 12,544 (14,718) 0.20% 2,717 3.90% 19.60% (30.50%) (15) - 152 0.30% James Cropper plc Annual Report and Accounts 2013 pages 62 | 63 Notes to the Financial Statements continued 18. Deferred taxation The movement on the deferred tax account is shown below: At 31 March 2012 Deferred tax on actuarial gains on retirement liabilities SCI credit At 30 March 2013 Group 2013 £'000 2012 £'000 (750) (2,550) 533 153 (64) 1,483 317 (750) Company 2013 £'000 1,437 533 37 2012 £'000 (108) 1,483 62 2,007 1,437 Deferred tax assets have been recognised in respect of all temporary differences giving rise to deferred tax assets because it is probable that these assets will be recovered. No deferred tax is recognised on the un-remitted earnings of overseas subsidiaries. Based on the combined distributable reserves in the US Companies of £1,152,000 (2012: £646,000), tax at 24% of £276,000 could be receivable, before any application for double tax relief, which could be expected to reduce the UK liability to nil. Deferred tax liabilities At 31 March 2012 SCI credit At 30 March 2013 Deferred tax assets At 31 March 2012 Deferred tax on actuarial gains on retirement liabilities At 30 March 2013 Net deferred tax liability Accelerated capital allowances £'000 (2,901) 47 (2,854) Other £'000 303 106 409 Pension £'000 1,848 533 2,381 Total £'000 (2,598) 153 (2,445) Total £'000 1,848 533 2,381 Total £'000 (64) On 21 March 2012 the Chancellor announced that the main rate of UK corporation tax will reduce from 24% to 23% with effect from 1 April 2013. This change became substantively enacted on 3 July 2012 and therefore the effect of the rate reduction on the deferred tax balances has been included in the figures above. On the 20 March 2013 the Chancellor has also proposed changes to further reduce the main rate of UK corporation tax by to 20% by 1 April 2015. These reductions have not been substantively enacted and the changes are not reflected in the above figures. 19. Called up equity share capital Group and Company Authorised 10,000,000 (2012: 10,000,000) ordinary shares of 25p each Issued and fully paid At 31 March 2012 Issued during the period At 30 March 2013 2013 £’000 2,500 2012 £’000 2,500 Number of Ordinary shares 8,475,667 390,680 £’000 2,119 98 8,866,347 2,217 Potential issue of ordinary shares Under the Group’s long-term incentive plan for Executive Directors and Senior Executives, such individuals hold rights over ordinary shares that may result in the issue of up to 204,324 25p ordinary shares by 2016 (2012: 314,000 25p ordinary shares by 2015). There were 120,000 share options exercised in the period (2012: 120,000 were exercised). Further information on Directors share options can be seen in the Directors Remuneration Report. The Save As You Earn (SAYE) schemes were introduced in August 2009 and September 2010 and run for either a three or five year period. Options were valued using a Black-Scholes option pricing model. The fair value per option and assumptions used in the calculation are as follows: Fair value per option Date of grant Exercise Price Market Price at date of grant Volatility Net dividend yield Term of option Risk free rate of interest Aug 09 5 year scheme 23p Sep 10 3 year scheme 42p Sep 10 5 year scheme 46p 18 August 2009 30 September 2010 30 September 2010 85p 112p 27% 6% 130p 163p 35% 4% 130p 163p 35% 4% 5.25 years 2.8% 3.25 years 0.9% 5.25 years 1.6% During the period 390,680 options were exercised (2012: 3,299 options were exercised). 20. Employees and Directors Staff costs during the period Wages and salaries Social Security costs Pension costs Note 17 Group Company 2013 £'000 16,826 1,502 1,968 2012 £'000 17,347 1,484 1,848 20,296 20,679 2013 £'000 2,180 214 705 3,099 2012 £'000 2,630 220 772 3,622 James Cropper plc Annual Report and Accounts 2013 pages 64 | 65 Notes to the Financial Statements continued 20. Employees and Directors continued The average monthly number of people (including Executive Directors) employed in the Group during the year, analysed by division was as follows: Continuing operations JC Speciality Papers JC Converting Technical Fibre Products JC plc Company 21. Commitments under operating leases Group Commitments under non-cancellable operating leases expiring: Within one year Later than one year and less than five years After five years Company Commitments under non-cancellable operating leases expiring: Within one year Later than one year and less than five years 2013 Number 2012 Number 300 54 91 60 505 312 58 95 62 527 2013 Property 2013 2012 Plant & Property machinery £'000 £'000 12 191 1,468 1,671 154 471 - 625 £'000 56 214 1,546 1,816 2012 Plant & machinery £'000 - 767 - 767 2013 Property 2013 2012 Plant & Property machinery £'000 £'000 £'000 2012 Plant & machinery £'000 - 118 118 - 471 471 20 214 234 - 407 407 22. Capital commitments Contracts placed for future capital expenditure not provided in the financial statements 90 23. Contingent liabilities 2013 £’000 Group Company 2012 £’000 1,298 2013 £’000 - 2012 £’000 - There were no contingent liabilities at the period end for the Group. The Company is included in a cross guarantee between itself and its subsidiaries. 24. Related party transactions Group The Group has taken advantage of the exemption not to disclose intra-group transactions that are eliminated on consolidation. Company The Company pays £35,000 (2012: £35,000) annually to Mr J A Cropper for the use of reservoirs to supply water to the factory premises. The contract is based on a twenty year repairing lease with rent reviews every five years. The rent is negotiated through independent advisers representing each party. The Company paid £21,166 (2012: £11,529) to Ellergreen Hydro, a company in which M A J Cropper is Managing Director, in the period for a maintenance project. The Company also has the following transactions with related entities: 2013 James Cropper Speciality Papers Limited James Cropper Converting Limited Technical Fibre Products Limited James Cropper EBT Limited 2012 James Cropper Speciality Papers Limited James Cropper Converting Limited Technical Fibre Products Limited James Cropper EBT Limited Management charges £'000 3,519 711 834 - 5,064 Receivable / (Payable) £'000 1,518 205 190 - 1,913 Management charges £'000 Receivable / (Payable) £'000 3,596 730 870 - 5,196 4,846 209 1,069 - 6,124 Loans and net intercompany funding £'000 13,880 4,787 (3,363) 101 15,405 Loans and net intercompany funding £'000 13,486 4,068 (3,935) 226 13,845 James Cropper plc Annual Report and Accounts 2013 pages 66 | 67 2012 - 2013 Shareholder Information Notice of Annual General Meeting Reporting Interim Results announced and sent to Ordinary Shareholders Final results announced Annual Report issued by 13 November 2012 25 June 2013 8 July 2013 Annual General Meeting - at The Bryce Institute, Burneside, Kendal Wednesday 31 July 2013 at 11.00am. Dividends on ordinary shares Interim dividend paid on 11 January 2013 to Ordinary Shareholders registered on 14 December 2012. Final dividend to be paid on 9 August 2013 to Ordinary Shareholders registered on 12 July 2013. Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel 0871 664 0300 www.capitaregistrars.com Notice is hereby given that the one hundred and twenty-fourth annual general meeting of James Cropper plc (the “Company”) will be held at The Bryce Institute, Burneside, Kendal, Cumbria at 11.00am on Wednesday 31 July 2013 to consider and, if thought fit, pass the following resolutions of which resolutions 1 to 9 are being proposed as ordinary resolutions and resolutions 10 to 12 are being proposed as special resolutions:- 1. 2. 3. 4. 5. 6. To receive and consider the statement of accounts and reports of the Directors and the auditors for the 52 weeks ended 30 March 2013. To declare a final dividend of 5.7p per share in respect of the ordinary shares in the Company payable on 9 August 2013 to all ordinary shareholders on the register at the close of business on 12 July 2013. To re-elect Philip I Wild as a Director of the Company. To re-elect Martin Thompson as a Director of the Company. To re-elect Mark A J Cropper as a Director of the Company. To re-elect James E Sharp as a Director of the Company. 7. KPMG Audit PLC have notified the Company that they will not be seeking reappointment. It is proposed that KPMG LLP be and are hereby appointed auditors of the Company and will hold office from the conclusion of this meeting until the conclusion of the next annual general meeting at which the accounts are laid before the Company, and that their remuneration be fixed by the Directors. 8. 9. To authorise the Directors to agree the remuneration of the auditors of the Company. To consider and approve the Directors’ Remuneration Report for the 52 weeks ended 30 March 2013. 10. That the Directors be authorised for the purpose of Section 551 of the Companies Act 2006 to allot shares in the Company or grant rights to subscribe for, or to convert any security into, shares in the Company up to an aggregate nominal amount of £283,413 provided that:- 10.1 except as provided in paragraph 11.2 below this authority shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution, or 15 months from the date of this resolution (whichever is earlier) but may be previously revoked or varied by an ordinary resolution of the Company; and 10.2 the Company may before such expiry make an offer or agreement which would or might require the allotment of shares in the Company or the grant of rights to subscribe for, or to convert any security into, shares in the Company after such expiry and the Directors may allot shares in the Company, or grant rights to subscribe for, or convert any security into, shares in the Company, in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. 11. That subject to the passing of and pursuant to the general authority conferred by the resolution numbered 11 in the notice convening this meeting the Directors be empowered pursuant to Section 570 of the Companies Act 2006 (the “Act”) to allot equity securities (as defined in Section 560 of the Act) for cash, either pursuant to the authority so conferred or where the equity securities are held by the Company as treasury shares (within the meaning of Section 724(5) of the Act), as if Section 560 of the Act did not apply to any such allotment, provided that this power shall be limited to:- 11.1 the allotment of equity securities in connection with any rights or other pre-emptive issue in favour of the ordinary shareholders where the equity securities respectively attributable to the interests of all ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them on a fixed record date (but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange in any territory or any other matter whatsoever); and 11.2 otherwise than pursuant to paragraph (a) of this resolution, the allotment of equity securities up to an aggregate nominal amount of £221,659, James Cropper plc Annual Report and Accounts 2013 pages 68 | 69 Notice of Annual General Meeting continued 11. continued and shall expire on the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or 15 months from the date of this resolution (whichever is earlier) except that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement as if the power conferred by this resolution had not expired. 12. That the Company be generally and unconditionally authorised for the purposes of Section 701 of the Companies Act 2006 (“the Act”) to make market purchases (within the meaning of Section 693(4) of the Act) on the London Stock Exchange of ordinary shares of 25p each in the capital of the Company either for cancellation or to hold as treasury shares (within the meaning of Section 724(5) of the Act) provided that:- 12.1 the maximum aggregate number of ordinary shares hereby authorised to be purchased is 1,329,952; 12.2 the maximum number of shares held in treasury will never exceed 10% of the issued share capital of the Company; 12.3 the minimum price which may be paid for such shares is 25p per ordinary share; 12.4 the maximum price which may be paid for such ordinary shares shall not be more than 5% above the average of the market values for an ordinary share as derived from the AIM appendix to the London Stock Exchange’s Daily Official List for the five business days immediately preceding the date on which the ordinary shares are purchased; 12.5 unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of the Company’s next Annual General Meeting or 15 months from the date of this resolution (whichever is earlier); and 12.6 the Company may make a contract or contracts to purchase ordinary shares under the authority conferred by this resolution prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of ordinary shares in pursuance of any such contract or contracts. By order of the Board D R Carey Secretary 8 July 2013 Registered office: Burneside Mills, Kendal, Cumbria LA9 6PZ Registered in England and Wales No. 30226 Notes The following notes explain your general rights as a shareholder and 7. In order for a proxy appointment or instruction made using the your right to attend and vote at this meeting or to appoint someone else CREST service to be valid, the appropriate CREST message (a “CREST to vote on your behalf. 1. Only those members registered in the Register of Members of the Company as at 6.00pm on 29 July 2013 shall be entitled to attend and vote at the meeting convened above in respect of the number of shares registered in their names at that time. 2. A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint another person as his proxy to exercise all or any of his rights to attend and to speak and vote at a meeting of the Company. Any such member may appoint more than one proxy provided that each proxy is appointed to exercise the rights attached to a different share or shares held by such member. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, please photocopy the form of proxy and indicate in the box next to the proxy’s name the number of shares in relation to which he or she is authorised to act as your proxy. Please also indicate by ticking the box provided if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. A proxy need not be a member of the Company. Appointing a proxy will not prevent a shareholder from attending in person and voting at the meeting. If you wish your proxy to speak on your behalf at the meeting you will need to appoint your own choice of proxy (not the Chairman of the meeting) and give your instructions directly to that person. 3. A form of appointment of proxy is enclosed. If you return more than one proxy appointment, that received last by the registrar before the latest time for the receipt of proxies will take precedence. Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications, and must contain the information required for such instruction, as described in the CREST Manual (available via www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA10 no later than 48 hours before the time set for the Meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 8. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are 4. The form of proxy includes a vote withheld option. Please note that a referred, in particular, to those Sections of the CREST Manual vote withheld is not a vote in law and will not be counted in the concerning practical limitations of the CREST system and timings. calculation of the proportion of votes for and against any particular resolution. 9. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated 5. The appointment of a proxy and the original or duly certified copy of Securities Regulations 2001. the power of attorney or other authority (if any) under which it is signed or authenticated should be deposited with the Company’s registrar at the address shown on the proxy form not later than 11.00am on 29 July 2013 or 48 hours before the time for holding any adjourned meeting. 10. As at 9.00am on 5 June 2013, being the last practicable day prior to the publication of this notice, the Company’s issued share capital comprised 8,866,347 ordinary shares of 25p each. Each ordinary share carries the right to one vote at a general meeting of the Company and, 6. CREST members who wish to appoint a proxy or proxies through the therefore, the total number of voting rights in the Company as at 9.00am CREST electronic proxy appointment service may do so by using the on 5 June 2013, being the last practicable date prior to the publication procedures described in the CREST Manual. CREST Personal of this notice is 8,866,347. Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 11. Copies of the contracts of service for Directors, the rules of the James Cropper plc Savings-related Option Scheme, and a statement of Directors’ interests are available for inspection during normal business hours at the registered office of the Company and they may be inspected at the place of the Annual General Meeting for at least 15 minutes prior to the meeting and at the meeting. James Cropper plc Annual Report and Accounts 2013 Image Information The full page images used throughout the Annual Report are representative of the advanced materials created by TFP, Speciality Papers and Converting. Technical Fibre Products Powder coating of a carbon veil James Cropper Speciality Papers Ltd Mixing of pigment dispersions James Cropper Converting Ltd Preparation of a technical coating Paper All the paper used in this report has been produced by James Cropper plc Cover . Colorplan Bitter Chocolate 350gsm Inset . Kendal Ivory Board 160gsm Colorplan is made exclusively for GF Smith & Son (London) Ltd All photography by stevecrookphotography.com Printed by Dixons Printing Company Ltd Design by RJ Design UK