J A M E S L A T H A M P L C ANNUAL REPORT & ACCOUNTS 2014 Contents Summary and Highlights 1 Financial Highlights and Calendar 2 Chairmans Statement Strategic Report James Latham plc and Our Objectives 4 Outline of Strategic Report 5 6 Key Performance Indicators 7 Operating Review 10 Financial Review 13 Principal Risks and Uncertainties 14 Corporate Responsibility Corporate Governance 17 Corporate Governance Report 19 Directors and Advisors 20 Directors Remuneration Report 24 Directors Report 27 Statement of Directors Responsibilities 28 Independent Auditor’s Report Financial Statements 29 Consolidated Income Statement 30 Consolidated Statement of Comprehensive Income 31 Consolidated Balance Sheet 32 Consolidated Statement of Changes in Equity 33 Consolidated Cash Flow Statement 34 Notes forming part of the Group Accounts 59 Company Balance Sheet 60 Notes to the Company Accounts 66 Notice of the Annual General Meeting 69 The Latham Group 1 3 2 4 Front cover: 1 Flexible Plywood 2 Valchromat Engineered Wood Fibreboard 3 Baüsen Hardwood Flooring 4 ATP Harlequin High-density Polyethene Financial Highlights for the year ended 31 March 2014 Financial Highlights Year to 31 March Turnover Operating profit* Operating margin* Profit before taxation* Earnings per share* Total ordinary dividend per share Equity shareholders’ funds Cash and cash equivalents * Adjusted for exceptional items 2014 £000 163,117 9,478 5.8% 8,682 36.9p 11.4p 58,108 11,234 2013 £000 143,069 7,369 5.2% 6,969 28.7p 10.2p 47,467 8,075 Increase/ (Decrease) 14.0% 28.6% 11.5% 24.6% 28.6% 11.8% 22.4% 39.1% 2012 £000 143,645 7,723 5.4% 7,186 31.9p 9.75p 46,924 7,004 Turnover (£000’s) Adjusted EPS Dividend 7 1 1 , 3 6 1 5 4 6 , 3 4 1 9 6 0 , 3 4 1 1 5 1 , 0 3 1 2 7 3 , 5 1 1 p 9 . 6 3 p 8 . 0 3 p 9 . 1 3 p 7 . 8 2 p 5 . 1 2 p 5 7 . 9 p 2 . 0 1 p 5 2 . 9 p 4 . 1 1 p 5 7 . 7 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Financial Calendar Record date for final dividend 2014 AGM Payment of final dividend Interim 2014/15 results announcement Interim dividend expected payment date Preliminary announcement of 2014/15 results AGM 2015 1 August 2014 20 August 2014 22 August 2014 27 November 2014 30 January 2015 25 June 2015 26 August 2015 JAMES L ATHAM PLC ANNUAL REPORT 2014 1 Chairman’s Statement I am pleased to report good results for the financial year to 31 March 2014. After a slow start, trading conditions gradually improved throughout the year for all areas of the business. Group revenue for the financial year to 31 March 2014 was £163.1m, 14.0% up on last year’s £143.1m. The operating profit was £11.3m, up £3.9m from £7.4m last year. Included in the operating profit this year is £1.8m of exceptional gains relating to the pension scheme, explained in more detail below. The increase in volumes traded this year has been achieved without greatly affecting costs. Finance income was £27,000 against £26,000 last year. Financial costs, which are principally interest on the pension scheme deficit as calculated under IAS19 (revised) were £823,000 against £683,000 last year. Last year’s results included a profit of £257,000 on the sale of the Ossett site. Pre-tax profit was £10.5m up from last year’s figure of £7.0m. The tax charge represents a rate of 18% and has benefited from a credit due to a reduction in rates of tax used in deferred tax calculations. Post-tax profit for the year is £8.6m, up from last year’s figure of £5.5m. Earnings per share, adjusted for the exceptional pension credit of £1.8m, were 36.9p compared to last year’s 28.7p. The unadjusted earnings per share were 44.3p (2013: 28.7p). Net assets (total equity) were £58.1m compared to £47.5m last year, helped by a reduction of £7.5m in the pension liability. At the year end the group’s cash reserves stood at £11.2m compared to £8.1m last year. Final dividend The directors recommend a final dividend of 8.0p per ordinary share (2013 7.1p). The final dividend will be paid on 22 August 2014 to shareholders on the register at the close of business on 1 August 2014. The shares will become ex-dividend on 30 July 2014. The total dividend per ordinary share of 11.4p for the year is covered 3.2 times by earnings (2013: 2.8 times). Financial year 2013/14 The group’s results are based on the trading of Lathams Limited, a specialist panel and timber distributor. Revenue continued to grow during the year, due to increased volumes both in ex-warehouse and direct business. Timber, which had a difficult March 2013 quarter grew revenues throughout the year and ended up 12% higher than the previous year. The gross margin per cent, before warehouse costs, reduced by 0.5 percentage points, due to a higher proportion of direct business, which attract lower margins, and increased competition. Timber and panel prices remained steady throughout the year. Focus panel product sales increased by 11% over the previous year, and commodity plywood sales grew significantly, closely linked to our environmental purchasing policy. Accoya modified wood and WoodEx, our brand of engineered timber for the joinery sector, were particularly successful this year. Overheads have been well controlled, and the extra volumes have largely been dealt with by improved operational efficiencies. Staff numbers have remained stable during the year, with the sales staff recruited last year, in areas of the business where we saw opportunities, proving successful. Bad debts were low during the year. 2 JAMES L ATHAM PLC ANNUAL REPORT 2014 Chairman’s Statement Directors and staff I am delighted to report that Peter Latham is making excellent progress in recovering from his accident and we are looking forward to him returning to the business. During the year Piers Latham was appointed as a main board director and I welcome the contribution that he makes to board discussions. There is a clear division of responsibilities with the main board determining strategy and exercising corporate governance and the trading board of Lathams Limited setting and monitoring operations policy. Both boards are well balanced in terms of skills and experience. Their support throughout the year has been invaluable. While the business is organised to give as much local autonomy as possible and staff are targeted at depot level, groups of senior staff meet regularly to coordinate purchasing and sales strategy for the major product groups of timber and panels. Group product champions look after key product ranges backed up by product champions in each depot. I am pleased that the efforts of those working in the group have resulted in these good results. We continue to provide a high quality of customer service as measured by our record fourth consecutive TTJ award of Timber Trader of the Year and I would like to thank everyone in the group for their individual contribution. Meryl Bushell Acting Chairman, James Latham plc 25 June 2014 Pension Scheme At 31 March 2014 the deficit of the defined benefit scheme under IAS19 (revised) was £9.3m down £7.5m compared with £16.8m last year. During the year, it was agreed that pension scheme payrises would be based upon CPI rather than RPI for all payrises after 1 January 2014. The result of this is an exceptional past service credit of £1.8m which is shown separately in the income statement. This change, along with small changes in other financial assumptions, have lead to the large reduction in the deficit this year, illustrating the volatility of the accounting for this scheme. We have commenced work on the 1 April 2014 triennial actuarial valuation and expect to report progress on this in next year’s annual report. Current financial year 2014/15 This year so far, revenues are 6% higher for April and May than the corresponding period last year, both in panels and timber. It is a steady start to the year and customers are reporting that their order books are improved and that they have more confidence. Whilst there is still some uncertainty about future economic market conditions, the signs support cautious optimism. It is pleasing to note increased demand from the joinery and shopfitting sectors for our core timber products, with the mild weather assisting our sales of decking and cladding products. The panels market remains competitive with MDF supply outweighing demand. Continued customer awareness and more specifications for legal and sustainable products have increased our sales of third party certified timber and panels. Development strategy The directors continue to identify opportunities for growth and to introduce and promote new products. Investment in the business continues and plans are being drawn up to upgrade our two older sites over the coming years. The group is in a strong financial position to take advantage of opportunities for further business growth. JAMES L ATHAM PLC ANNUAL REPORT 2014 3 Strategic Report Introduction Outline of the Strategic Report The directors present their strategic report for the year ended 31 March 2014. The Strategic Report encompasses the following information. Page 5 6 7 10 13 14 James Latham plc and Our Objectives Key Performance Indicators Operating Review Financial Review Principal Risks and Uncertainties Corporate Responsibility The Strategic Report was approved by the board of directors on 25th June 2014 and signed on its behalf by:- Nick Latham David Dunmow 1 3 2 4 1 HI-MACS® was used extensively in the recent refurbishment of the £75m Science Centre in Glasgow. 2 Valchromat has become a popular choice in the shopfitting, education and furniture making sectors. 3 UPM ProFi Decking. 4 Accoya® wood is a perfect solution for windows, where aesthetics, less frequent maintenance and insulation value are key factors. 4 JAMES L ATHAM PLC ANNUAL REPORT 2014 Strategic Report James Latham plc and Our Objectives James Latham plc aims to be the supplier of choice throughout the UK for joinery, door and kitchen manufacturers, shopfitters and a wide range of other wood based panel, natural acrylic sheets, hardwoods, high grade softwoods, flooring, cladding and decking to other market sectors. We also supply commodity and specialist products to timber and builders’ merchants. The company aims to increase the amount of legal and sustainable product supplied into its marketplace. Our core values are based on a business structure that encourages an entrepreneurial spirit at depot level while maintaining central financial control and trading policy, reaping the benefits of scale from the size of the group’s activities. The company is well respected in its industry and amongst its customers and suppliers for its principled trading policies and its integrity. The company traces its history back to James Latham who traded in exotic hardwood in Liverpool in 1757. His son had established a business in London by 1799. It was taken public in 1965 and the shares are now quoted on the AIM market. The Latham family owns over half of the company shares and six members of the Latham family, now in the 9th generation, work in the business. The company believes that to provide the service demanded, we need to be close to our customers. We offer national coverage from eleven locations, as shown in The Latham Group map on page 69. Having stock of product in the right place at the right time is important to provide this service. Commodity imports are held in ports including Tilbury, Liverpool and Grangemouth. This stock can be delivered directly to customers for multi-pack orders, or transferred to the depots for onward delivery. Around London we stock Panel Products and Timber Products in separate warehouses whereas a full range of products are held in our other locations around Great Britain. We also hold a range of specialist products in Leeds for national distribution and Leeds also offers an efficient delivery service to Ireland. The company was voted UK Timber Trader of the Year in 2000, 2002, 2004, 2008, 2010, 2011, 2012 and 2013 in a vote of readers of the Timber Trades Journal. Chris Sutton accepting the UK Timber Trader of the Year Award 2013 from Huw Edwards and Sarah Wootton. The company’s objectives are: • To maximise shareholder value over the • To increase sales of third party certified sustainable medium term; timber products; • To grow the business profitably; • To maintain its presence in timber based products but to extend the product range to the existing customer base from an extended distribution network; • To improve service levels by upgrading warehouse facilities to speed order picking and to cope with an extended product range; and • To employ well-trained, knowledgeable and helpful staff. JAMES L ATHAM PLC ANNUAL REPORT 2014 5 Strategic Report Key Performance Indicators The group monitors its performance against the following Key Performance Indicators that we believe best reflect our performance and progress. In addition to the KPI’s disclosed below, we have set out on page 15 the non-financial KPI monitoring the amount of timber certified as coming from sustainable and well-managed forests. Turnover (£000’s) Weight of product sold per working day (tonnes) Adjusted earnings per share (pence) 5 4 6 , 3 4 1 9 6 0 , 3 4 1 7 1 1 , 3 6 1 9 9 7 9 0 8 6 9 8 9 . 6 3 9 . 1 3 7 . 8 2 2012 2013 2014 2012 2013 2014 2012 2013 2014 Turnover up 14% Tonnes per working day up 10.8% Adjusted earnings per share up 28.6% Debtors days average Stock turn (times) Cash (£000’s) 8 . 2 5 9 . 2 5 6 . 2 5 2 . 6 9 . 5 6 . 6 4 3 2 , 1 1 5 7 0 , 8 4 0 0 , 7 2012 2013 2014 2012 2013 2014 2012 2013 2014 This figure is adjusted to take account of customer credit terms and is compared with our target of 53 days This figure is compared with our target of 6.7 times Cash balances up £3,159,000 6 JAMES L ATHAM PLC ANNUAL REPORT 2014 Strategic Report Operating Review Results for the year to 31 March 2014 The UK economy has shown some positive signs of recovery during the course of this year with more noticeable growth in the second half of the year. Our customers and the timber trade in general are more optimistic now than at any time since the beginning of the recession in 2008. Revenue for 2013/14 was £163.1m, £20m higher than the previous year, reflecting improving volumes in both panels and timber rather than prices that were largely static throughout the year. The gross margin, the difference between the sales values and the cost prices excluding warehouse costs, was 0.5 percentage points down on the previous year. This was due to a higher proportion of direct business, which attract lower margins, and continuing competitive pressure in our markets. Staff numbers have remained stable this year. The investment last year in specialised staff, with specific product knowledge and skills in key product areas, has paid off with improved sales this year. Overhead cost control has continued to be important and we have managed to increase turnover with limited increase in overheads aided by improved efficiency and productivity. For management purposes, the group is organised into one trading division, timber importing and distribution, carried out in each of the eleven locations trading mainly in the United Kingdom. Within this one segment performance in terms of revenue and trading margin of the main product types are considered below. Panel products (wood based sheet materials, door blanks, laminates and natural acrylic stone) Panel sales at £116.5m were 14.9% higher than last year, with volumes up 13.7%. The group’s strategy is to target markets for decorative surfaces to include veneered and melamine panels, laminates, door blanks and HI-MACS® natural acrylic stone. These products are of higher value and generate more gross profit. We have also worked to develop a range of high quality hardwood and softwood plywood in line with the requirements of the European Union Timber Regulation (“EUTR”) which became effective from 3rd March 2013. Sales to merchants and manufacturers subsequently increased during the year, helped by our strong due is pleasing to see that our diligence systems. It environmental policy, which has lost us business in the past, is now benefitting our sales. MDF still remains a very important core product for the group, although prices and volumes came under pressure during the year due to competitor activity and market conditions. Demand for Oriented Strand Board (OSB), linked to an upturn in the building sector, was well up. Promotion of new and added value products to the market has been a key focus of our marketing team and our PR agency this year. Each year we target our depots on their focus product sales and this year we have increased sales by 11%. During the year we have developed and improved showrooms and trade counters at several depots to enable us to promote new product lines to our calling customer base, architects and designers. Hemel Hempstead Showroom – Kronospan Decor display unit, and Egger VDS machine allowing designers to instantly visualise decor’s in room situations. JAMES L ATHAM PLC ANNUAL REPORT 2014 7 Strategic Report Operating Review We attended the Surface Design Show at the Business Design Centre, Islington, where we showcased several of our added value, new and niche products. This show is well attended by customers, architects and designers. We also have specialist salesmen who concentrate on visiting architect practices and design houses to enable our products to be specified in their projects. James Latham exhibiting at the Surface Design Show. Advanced Technical Panels, the group’s specialist business dealing in pre-finished panels designed for specific end uses, has significantly increased sales through our depots, as well as through our central Leeds depot, leading to increased customer awareness of their products. Importers, timber and builders merchants are a growing market for the group and some progress has been made in this area by supplying added value products and certified legal and sustainable, fit for purpose commodity plywood. Lathams Limited is the exclusive distributor of HI-MACS® acrylic stone solid surface for both the UK and Ireland. During the year, we increased sales values by 14% and gained roll out specifications with a major high street retailer. Timber (Hardwood, joinery quality softwood, cladding, decking and hardwood flooring) Timber sales, at £46.1m were 12.0% higher than last year with volumes 4.2% higher. Following the difficult March quarter last year, demand has improved during the year, with the joinery sector much stronger. Sales from our core product areas of North American, Europe and Africa were under pressure and so we have concentrated on improving the market for our focus products. Supply of product proved difficult during the year, with political unrest in parts of Africa and lead times from North America being difficult to manage. 8 JAMES L ATHAM PLC ANNUAL REPORT 2014 The group’s strategy is to continue to develop the range of certified Forest Stewardship Council (FSC®) and Programme for the Endorsement of Forest Certification (PEFC) European and American hardwoods and softwoods. Our stock range includes FSC sapele and PEFC beech and oak. Sales of laminated timber (WoodEx) in both hardwood and softwood have grown significantly during the course of the year. WoodEx is very suitable for use in the joinery sector, offering less waste and greater dimensional stability. We have continued to develop our range throughout the year and now offer FSC Oak, Sapele, European Redwood and Eucalyptus. We are the largest distributor of Accoya in the UK, increasing sales by 90% during the year. Accoya is softwood modified by an acetylation process to improve its properties, notably durability and stability. During the year we launched Accoya-Clad, our own brand of Accoya cladding, certified by the Timber Research and Development Association (TRADA). Baüsen, our own brand solid and engineered hardwood flooring continues to be an important product. A range of 28 different floors are available in stock, with a core range held in the depots and more exotic ranges held centrally in Leeds. LDT has continued to make good progress with sales up 23% on the previous year. LDT continue to develop their product range, selling landed stock in pack quantities and on a forward basis in full loads to importers and merchants only. Sapele and Decking products continue to be their core business. Opportunities exist for LDT to export to overseas markets, and sales staff have visited key countries in order to develop these opportunities. LDT Meranti from Malaysia. Strategic Report Operating Review Market place The group’s business is widely spread throughout many sectors of the UK economy. Market sector Customer group Construction/housing Merchants Joiners Builders Kitchen manufacturers Door manufacturers Retail Shopfitters Laminators/Veneerers Furniture manufacturers Vehicle builders Exhibition fitters Transport Exhibitions Cash sales Other importers Other sectors Lathams sales value % 2013 2014 17 21 17 21 5 4 3 6 5 9 2 3 7 10 8 5 5 2 7 5 9 2 3 6 8 10 TOTAL 100 100 End products are used in both the public and private sectors. Our top ten customers account for 11% of sales and our top 25 customers represent 17% of sales. Strategy for developing the business The directors recognise that the strength of the group is as a distributor of high quality timber and timber associated products, sourced from legal and sustainable sources of supply, to existing and new customer bases. A secure supply base with long standing partners is in place across our product range. This year we held a Supplier Day for our key panel products suppliers from across the globe to reinforce our strategy. Value added products now account for a significant proportion of our sales. End user manufacturers are receptive to new products that may provide them with solutions or the ability to develop their own customer offering. Additions to the core commodity range have been made and will be further explored and developed. We will continue to look to develop new markets, including Ireland and other export markets. We will also continue to invest in our depots, with two of our older sites requiring investment or relocation. We will also consider acquisitions where opportunities arise, to enhance our product range or geographical coverage. The group is very active in marketing its products through product brochures, direct advertising, public relations, exhibitions and depot open days. Additional marketing spend has been set aside for website development. We are grateful for the marketing support provided by some of our key suppliers. James Latham Supplier Day – Kilworth House. JAMES L ATHAM PLC ANNUAL REPORT 2014 9 Strategic Report Financial Review Introduction This report provides a commentary on how the group has performed against the financial objectives during this year, together with a review of its financial risks. I believe we met our financial objectives for this year, enhancing our position in the market and maintaining a strong balance sheet. Financial objectives The board of directors remain committed to the long term improvement in shareholder value, which we believe we can achieve by: • Improving profitability by maximising gross margins. • Increasing group market share through improving facilities at our existing depots. • Identifying expansion and acquisition opportunities, where the return on capital is at least equal to that of the existing group. • Controlling cashflows to maximise cash available for the business and shareholders. • Identifying and managing risks, with particular emphasis on the pension scheme liability. • Maintaining dividend cover at between 2.5 times and 4 times earnings. Financial review A commentary on the group’s trading results is set out in the Operating Review on pages 7-9, and the key figures are considered below, with emphasis on the financial figures. Operating profit Revenues increased by 14.0% to £163.1m. A key focus of the board throughout this year has been managing margins to enable us to remain competitive in commodity products but grow margins in our focus products. Gross profit fell slightly to 17.4% from 17.6%, reflecting the mix of business between ex-warehouse and direct business and increased competition but assisted by improvements in efficiency in our warehouses. Selling and distribution costs increased by 7%. These costs include the direct cost of transport. We monitor transport costs by reviewing costs per tonne of product delivered, and during this year the cost per tonne reduced by 3.4% over last year. Investment in sales staff last year has helped improve our revenues this year. 10 JAMES L ATHAM PLC ANNUAL REPORT 2014 David Dunmow Finance Director and Company Secretary Administration costs increased by 4.3% which was in line with our budgets. Costs in each location are monitored closely by the board through the quarterly board meetings at each depot. We have separated out of administration costs an exceptional credit relating to the pension scheme valuation, which is described in more detail below. Operating profit, excluding the exceptional pension credit, increased 28.6% to £9.5m following a decrease of 2.3% last year. Group net profit before taxation increased to £10.5m from £7.0m last year. The taxation charge of £1.9m represents an effective rate of 18.0%, compared with 20.8% last year. This year’s tax rate has benefitted from a one off deferred tax credit of £323,000 due to a reduction in future corporation tax rates down from 23% to 20%. The group’s profits arise wholly in the UK and the group’s tax charge will reflect the UK corporation tax rate. Pension scheme At 31 March 2014 the deficit of the defined benefit scheme under International Financial Reporting Standards was £9.3m compared with £16.8m last year. During the year the trustees of the pension scheme agreed to use Consumer Price Index (CPI) as the measure of inflation used to increase pensions each year, rather than the Retail Prices Index (RPI). A consultation exercise took place with active members of the scheme on this change in benefits and this was introduced for all pension payrises occurring after 1 January 2014. This 1% change in inflation measure resulted in a one off credit of £1,797,000 to the income statement. Gross IAS19 deficit £000’s 2010 2011 2012 2013 2014 1 1 3 , 8 1 6 5 , 8 7 6 2 , 9 6 1 3 , 2 1 3 9 7 , 6 1 In addition there were the following actuarial gains on the change of financial assumptions:- Increase in discount rate from 4.4% to 4.5% £1,283,000 Change in RPI/CPI gap from 0.8% to 1% £1,093,000 Change in salary growth assumption to be based on CPI rather than RPI £1,925,000 This reduction is very welcome although it illustrates how actuarial assumptions and short term market conditions can have a major effect on the amount of the pension scheme liability. In note 18.2 to the accounts, we have provided some sensitivity analysis around the various assumptions used to illustrate this volatility. The next triennial valuation on 1 April 2014 has just commenced and we expect to report on the outcome in next years annual report The group is constantly assessing the risks in the pension scheme, and this year has maintained a cap on pensionable salary increases to a maximum of 1% over CPI. Cash flow and working capital At the end of the year cash balances of £11.2m were held, up from £8.1m last year. The cash is being held as short term deposits providing funds for short term working capital fluctuations and allowing us to make capital investments when opportunities arise. Part of this cash will be also used to finance the upgrades necessary at two of our older depots in the next few years. Interest rates have remained at record lows throughout the year so we have continued to use our cash to obtain cash settlement terms with most of our major suppliers allowing us to earn £746,000 of discounts received Strategic Report Financial Review compared with £659,000 last year. In addition, the level of cash has continued to give our customers, suppliers and credit ratings agencies confidence in the company. The timber importing and distribution business requires considerable working capital investment in stock and debtors. Control of cash flow from customers is closely monitored. The key performance indicator of debtors days, taking into account our credit terms, has moved from 52.9 days to 52.6 days. Bad debts this year were particularly low at 0.11% of turnover against a budget of 0.5%. I am very grateful for the work our excellent credit control team have done this year in getting right the difficult balance of dealing with our customers, dealing with our depots and collecting our debts. The company policy is that all customers with outstanding balances exceeding £40,000 are covered by credit insurance policies. Where credit insurance is unavailable, a sub-committee of the board review financial reports to approve new credit limits. The amount of debtors over £40,000 covered by credit insurance has reduced to 90% from 91% last year. This reflects an improved assessment of the risks associated with some of our customers rather than a reduction in available credit insurance. Stock turnover targets are set and monitored on a monthly basis, and senior management has access to real time stock levels. Stock turn is 6.6 times compared with 5.9 times last year. This improvement is due to stock of Cash and Cash Equivalents 5 4 5 , 0 1 3 1 1 , 7 4 0 0 , 7 5 7 0 , 8 4 3 2 , 1 1 2010 2011 2012 2013 2014 JAMES L ATHAM PLC ANNUAL REPORT 2014 11 Strategic Report Financial Review new products, held at the last year end, turning into sales this year, and also the improved market conditions allowed better stock turn on more of the niche products. Capital investment During the year, we invested £1.2m into new fixed assets. We completed our program of purchasing outright vehicles and mechanical plant rather than taking out operating leases during the year, spending £1.1m during the year. This allows us the flexibility to replace assets as required and avoid end of lease costs. We anticipate on average running the lorries on one year longer and mechanical plant two years longer than we would have leased for, but the repair and environmental costs of running the older vehicles are reviewed on an individual basis. Net assets at the year end was £58.1m (2013 £47.5m). The group’s adjusted pre-tax return on capital for the year was 15.8% (2013 12.6%), which continues to be above our weighted average cost of capital. Financial risk management In the course of our business, the group is exposed to currency risk, interest rate risk, liquidity risk and credit risk. The overall aim of the group’s financial risk management strategy is to mitigate any potential negative effects on the group’s assets and profitability. The group manages these risks in accordance with group policies, and does not take speculative positions. As the group trades predominantly in the UK, the market price of our products tends to fluctuate in line with currency spot prices. Speculative positions on currencies are not entered into. Comparing against spot prices, we had a positive tracking error of less than 0.1% during this year. Our LDT division can have stock tied up in the kilns for six to nine months and we enter into currency swaps to ensure this stock is costed at spot price when it becomes available for sale. The cash deposits and available bank facilities reduce our liquidity risk. Cash flow forecasts are monitored against actual cash flows to ensure that adequate facilities are maintained to meet the future needs of the business. The board reviews re-forecasted profits and cash flows on a quarterly basis. The bank loan was taken out at a fixed rate of interest in order to reduce the interest rate risk. Insurance products and external credit reference agencies help reduce our credit risk. The Audit Committee reviews the group’s risk register as part of its regular monitoring process. David Dunmow Finance Director Timber aisle in our Leeds depot. 12 JAMES L ATHAM PLC ANNUAL REPORT 2014 The group operates in a market and an industry which by their nature are subject to a number of inherent risks. We attempt to control these risks by adopting appropriate strategies and maintaining strong systems of internal control. These strategies however do not attempt to eliminate risk, but control the risks that we believe are appropriate to take to generate acceptable shareholder returns. Details of the group’s risk management processes are given in the Corporate Governance report on page 17. We have considered below the current risk factors that are considered by the board to be material. However in a changing world, new risks may appear or immaterial risks may become more important, and the directors will develop appropriate strategies as these risks appear. Market conditions The group’s sales are predominantly UK based so it is exposed to any slowdown in the UK economy. However the distribution of its customers across the UK economic sectors helps reduce the impact of slowdown in any one sector. Regular financial information helps the board assess current trends. An assessment of the market and competitor activity is discussed at each depot’s quarterly board meeting. This includes an assessment of our routes to market as challenges to our depot structure and operations emerge and assessment of our pricing strategies as competitive pressures increase. Cyclical nature of the timber trade Product shortages can lead to high prices and over purchasing throughout the trade, resulting in excessive stock holding. Weaker prices lead to stock reduction throughout the supply chain, which magnifies the reduction in demand and then leads to even sharper falls in price. To mitigate this risk, the group has a strict policy of stock level targets by depot. These are monitored monthly by the board which centrally controls the purchase of stocks and takes a group view on the action to be taken to limit the group’s exposure to rapidly changing price levels. The board has set strict guidelines relating to purchases where the specification is unique to a particular customer, and has policies in place to ensure that no individual can commit the group to a purchase greater than his/her authorised limit. The group’s reduced reliance on commodity items has reduced this risk of over exposure to low value, high volume and price sensitive items. Strategic Report Principal Risks and Uncertainties Political risks Although far more of the group’s purchases now come from Europe and North America, it has significant dealings with countries where the political climate is less stable. To mitigate the risk from these pressures, the groups dealings are spread across a large number of countries of supply, so no one particular country or region poses a strategic threat to the supply of product to the group. Erratic shipments can result in stock excess and shortages in specific special products. The group keeps informed of developments in higher risk producer countries through involvement in work by the Royal Institute of International Affairs (Chatham House). Reputational risk Over many years the group has built up a reputation for integrity and responsible trading and is aware that this can be easily damaged with the consequential cost to the Latham brand. To mitigate this risk policies are in place which cover standards of behaviour and good governance. On the purchasing side the group has a strong risk based responsible purchasing policy managed by our Environmental Manager to minimise possible damage to its reputation and legal risk from dealing in illegal products. Defined Benefit pension scheme funding The group is required by law to maintain a minimum funding level in relation to its obligations to provide pensions to members of the pension scheme. This level of funding is dependent on a series of external factors, such as investment performance, life expectancy and gilt yields. Significant changes in these areas can also have a significant effect on the funding levels. The sensitivity of the funding level to these factors are disclosed in note 18.2 in the notes to the accounts. The scheme has been closed to new entrants for many years. The board regularly reviews the investment strategy and performance of the pension scheme investments, and has set a cap on pensionable salaries of 1% above CPI. Information technology/business continuity The operations of the group depend to a large extent on the availability and reliability of our information technology systems. An IT steering committee reviews the performance of our IT systems and recommends development work to the board. Software maintenance contracts ensure that our business critical software is up to date, allowing us to take advantage of new technologies. The IT systems are monitored 24 hours a day and maintenance work carried out on an ongoing basis. Our main computer servers are located in a secure site away from the trading operations, as part of our business continuity planning. No individual trading location makes up more than 25% of the business, and disaster recovery plans are in place to service customers from other locations should a major event occur. JAMES L ATHAM PLC ANNUAL REPORT 2014 13 Strategic Report Corporate Responsibility At James Latham plc, we understand our corporate responsibilities to all our stakeholders and to society as a whole. Health and safety, environmental matters, staff training and equal opportunities are the key areas relevant to the group’s business. We also maintain contact with and support both the local and the wider community. A substantial amount of management time is devoted to Corporate Social Responsibility issues as we believe that these enhance our standing with customers and suppliers to the benefit of all stakeholders. Health and Safety – Providing a safe working environment The handling of timber and panel products, both manually and mechanically, and the stacking and storage of these products at height, can be dangerous activities. We are very active in assessing and minimising the risks in all areas of the business and educating the workforce to provide as safe a working environment as possible for all people that come into contact with James Latham plc. We spend an increasing amount of time and money on this activity. We employ a full-time Health and Safety Advisor who reports to the board regularly, attends board meetings twice a year and chairs regular health and safety meetings at each depot. We have a 3-year action plan and all sites are subject to regular audits. Management and employees are actively involved in improving our safety record, which is high on everyone’s agenda. All employees take a personal responsibility for making sure their actions and behaviour maintain safety for all. In addition, we recognise that safety extends beyond our warehouses. We regularly monitor vehicle accidents both in our lorries and company cars to assess whether further training is required. Our lorries all have tracking devices fitted which provide alerts and information on speed as well as the routes taken. We are currently trialing a system of cameras to be installed in each lorry to not only provide retrospective footage for training and insurance purposes, but to provide improved rear and side visibility to our drivers. Environmental The directors of James Latham plc recognise that the company has a responsibility to the environment, customers, suppliers, shareholders and staff to base its commercial activities on well-managed forests and to reduce any negative environmental impact of its trading as far as is reasonably practical. It is considered that with best practices observed, timber and wood products are the ultimate sustainable and recyclable materials, requiring low energy consumption to process and being thermally efficient in use. Timber from well-managed forests absorbs carbon in growing and locks in carbon in use. It is sustainable, producing a regular crop and puts value into growing forests so helping to reduce land clearance for other uses. A lifecycle assessment study published by Wood for Good, showed that timber has the lowest embodied carbon impact of any mainstream building material. It shows that all timber products are in fact carbon negative at the point of delivery, ie the amount of carbon dioxide absorbed by the tree by photosynthesis during growth, is greater than all the emissions associated with harvesting, processing, manufacture, transport and installation. Eucalyptus trees being felled in Uruguay to produce our PEFC certified Lumin Softwood Plywood together with saplings being grown to take their place. 14 JAMES L ATHAM PLC ANNUAL REPORT 2014 Strategic Report Corporate Responsibility from poorly managed forests destroys Timber biodiversity, leads to soil erosion and damages watercourses. It ruins the lifestyle of traditional forest dwellers. Forest burning adds to carbon emission and harms air quality in the region. Purchasing from those involved in corrupt practices undermines national governance. It is therefore essential that we ensure our timber is legally harvested and comes form well managed forests. The group recognises that the independent certification of forests and of the supply chain is the best means of providing assurance that timber comes from legal and well managed forests. Where possible it purchases material certified by the Programme for the Endorsement of Forest Certification schemes (PEFC) or the Forest Stewardship Council (FSC). As well as providing assurances on the timber itself, these schemes also provide assurances on the welfare of the forest workers and indigenous population. The group sets targets each year to increase the amount of timber and timber based products that are certified by recognised international organisations such as PEFC and FSC, as coming from sustainable and well-managed forests. The figures for the relevant calendar years are given below. Legal and sustainable 3rd party verified legal Total Panels 2012 2013 84% 95% 2014 target 96% Timber 2012 2013 58% 81% 2014 target 83% - 2% 2% 16% 10% 10% 84% 97% 98% 74% 91% 93% The European Timber Regulation (EUTR), which came into force in March 2013, places an obligation on the first placer of timber on the European market to ensure that the timber has been legally sourced and traded, to operate a risk assessment process and to take mitigating measures to minimise the risk of illegality. We are committed to only purchasing products with negligible status. We will not trade in timber species prohibited under Appendix 1 of the CITES legislation and will obtain the appropriate documents for trade in all other CITES listed timber species. For a number of years the group has had risk assessment tools in place to monitor suppliers through the Timber Trade Federation Responsible Purchasing Policy and Code of Conduct. The risk assessment will seek to provide the clearest practicable information regarding the sources of raw material used in the manufacture of wood products. We have supported the National Measurement Office, the UK competent authority charged with enforcement of the EUTR, in staff training by giving them access to our due diligence system, and have had meetings with representatives of other European agencies to share our experiences. We publish our commitment to the environment regularly in our product guide, specific literature and on our website, www.lathamtimber.co.uk. We give clear guidance to our customers about the importance of JAMES L ATHAM PLC ANNUAL REPORT 2014 15 Peter Latham standing by an indigenous family’s house in the CIB Pokola reserve in Congo Brazzaville. The group has third party audited chain of custody for timber supplied as certified by PEFC, FSC and other audited schemes. This is to ensure that claims made about certification can be proved. In some parts of the world, timber certified by one of the internationally recognised schemes is not available. The group is committed to purchasing all timber from legal sources and to seek confirmation from suppliers that they are operating in accordance with the laws of their country. Where the risk of corruption or illegal logging is high, we seek third party audited proof of legality. Strategic Report Corporate Responsibility buying timber that can be demonstrated to be legal and from well-managed forests. This is condition of contract to supply the UK Government and many environmentally aware customers. Our staff give presentations to customer trade associations and at customer premises. Informing suppliers and supporting certification Our senior staff have spoken about the importance of independent certification of forests and supply chains at EU and UK conferences for groups of suppliers in Ghana, Cameroon, Congo Brazzaville, Gabon, Peninsular Malaysia, Sarawak, Sabah and China. Group buyers have visited individual suppliers in Europe, Russia, China, Indonesia, Malaysia, the United States, Uruguay, Brazil and Argentina giving the same message. The group has been helping promote the EU Forest Law Enforcement, Governance and Trade Initiative to prevent illegal logging by giving press and film interviews. PT Kutai Flamebreak door factory in Indonesia, during an inspection visit by Chris Sutton. The group has supported and funded suppliers in Africa and China working under the EU funded Timber Trade Action Plan which is a step-by-step approach towards certification. Our Chairman contributes a considerable amount of his own time too as a director of the PEFC International Board, the Timber Trade Federation environmental committee and to promoting PEFC and FSC certified products with chain of custody certification. that alongside our Local environmental issues We also timber recognise environmental policy, we have a responsibility to minimise our local environmental footprint. We have developed an environmental management system which is accredited under ISO14001. This commits us to 16 JAMES L ATHAM PLC ANNUAL REPORT 2014 considering energy efficient options for lighting, heating and ventilation before making purchasing decisions. Vehicle procurement considerations will include reduction of emissions and improved fuel efficiency. The company seeks to minimise the use of packaging material and to recycle discarded packaging material and paper where it is practical to do so, to avoid these materials entering landfill. Our employees The group’s ability to achieve its commercial objectives and to service the needs of its customers in a profitable and competitive manner depends on the contribution of its employees. Employees are encouraged to develop their contribution to the business wherever they happen to work. The group regularly keeps employees up to date with financial and other information. Quarterly meetings are held in each location, chaired by a board member, where employees’ views concerning the performance of their profit centre are considered. To encourage the involvement of employees in the group’s performance, share option schemes are operated together with bonuses linked to performance. The group’s employment policies do not discriminate between employees, or potential employees, on the grounds of age, gender, disability, sexual orientation, colour, ethnic origin or religious belief. The sole criterion for selection or promotion is the suitability of any applicant for the job. The group’s pay policy is to ensure that every employee, other than trainees, are paid the Living Wage. It is the policy of the group to train and develop employees to ensure they are equipped to undertake the tasks for which they are employed, and to provide the opportunity for career development equally and without discrimination. Training and development is provided and is available to all levels and categories of staff. Internal courses are run on the technical aspects of our products, alongside general management and presentation skills courses. We have a successful program of introducing trainees from school or college. All depots either already have trainees or have plans in place to recruit during the year. Trainees are put through external courses obtaining qualifications, including NVQ’s in Sales and Warehousing and Institute of Wood Science exams covering the use of timber and panel products. This year Jay Foster, from our Thurrock depot, was the runner up in the Timber Trade Journal’s Career Development Award, open to Corporate Governance Corporate Responsibility / Corporate Governance Report Corporate Governance Report As an AIM company, it is not mandatory for the company to fully comply with the UK Corporate Governance Code. However, the directors have sought to comply with a number of the provisions of the Code in so far as they consider them appropriate to comply with as far as is relevant for a company of this size and nature. The directors make no statement of compliance with the Code overall and do not explain in detail any aspect of the Code with which they do not comply. The Board of Directors The company is governed by a board of directors consisting of the Chairman, Peter Latham, four other executive directors and two non-executive directors. Each director has a vote and no individual or small group of individuals dominates the board’s decision making. The board meets at least six times a year and has a formal schedule of matters referred to it for decision. Agendas and board packs are discussed and circulated in advance of the meetings to ensure that all directors have adequate time to research and take part in discussions on the key issues. The board is responsible for group strategy, corporate responsibility including health and safety and environmental issues, acquisition policy, bribery policy, approval of major capital expenditure and monitoring the key operational and financial risks. It also reviews the strategy and budgets for the trading subsidiaries and monitors the progress towards their long term objectives. All directors have access to the company secretary or to independent professional advice, if required, at the company’s expense. In addition to the scheduled meetings, the non- executives attended the group annual operational budget and strategy meeting, as well as making individual visits to operational sites. Key financial information is circulated to directors on a monthly basis outside of the board meetings. The board has decided that the directors will retire by rotation and the executive directors will be re-elected at least every three years. The manner in which the company has applied the principles of corporate governance is set out below. JAMES L ATHAM PLC ANNUAL REPORT 2014 17 Trainees, Toby Hughff and Thomas Jones inspecting Accoya in Leeds. trainees aged under 25 throughout the timber trade. This is the third year in a row that one of our trainees has been nominated for this award. As well as training sales and operations staff, it is important to have good quality financial staff, and Sheila Good in our accounts department is currently working towards the ACCA qualification. This year we have sponsored a James Latham Timber Engineering Scholar through an MSc Timber Engineering program at Edinburgh Napier University. We are very proud to see employees develop and move upwards through the business, and we see low levels of staff turnover. 36 of our staff have now done more than 20 years continuous service with the group. Details of the number of employees and their related costs can be found in note 4 to the accounts. The e-Tree Initiative James Latham plc has signed up to the e-Tree initiative organised by our registrars Computershare. e-Tree™ is a programme designed to help companies promote eCommunications their shareholders, whilst also allowing them to make a valuable contribution to the environment. to As a shareholder in James Latham plc, whenever you opt in to receive your designated communications online, eTree will make a donation to the Woodland Trust. So we are doing our bit, while you are making your life easier. To register please visit www.etreeuk.com/jameslatham. You will need your shareholder number, which is contained either on your share certificate or on your latest dividend voucher. Please help us to reduce costs and support a very worthwhile cause. Risk assessment Procedures for identifying, quantifying and managing the risks, financial or otherwise, faced by the group have been in place throughout the year under review. The processes for identifying and managing the key risks to the business are communicated regularly to all staff, who are made aware of the areas for which they are responsible. Such processes include strategic planning, maintenance and review of a risk register, the appointment of appropriately qualified staff, regular reporting and monitoring of performance against budgets and other performance targets, and effective control over capital expenditure. Whistleblowing The group has established procedures whereby employees of the group may, in confidence, raise concerns relating to matters of potential fraud or other improprieties. These procedures also cover other issues affecting employees including health and safety issues. The audit committee is confident that these ‘whistleblowing’ arrangements are satisfactory and will enable the proportionate and independent investigation of such matters and appropriate follow-up action to be taken. Review of effectiveness of financial controls The directors confirm that they have reviewed the effectiveness of the system of internal control for the year under review and to the date of approval of the Annual Report and Accounts through the monitoring process described above. Relations with shareholders to maintaining good The company communications with shareholders with any published financial statements and Stock Exchange announcements also posted on to our website, www.lathams.co.uk. is committed Corporate Governance Corporate Governance Report The Audit Committee The Audit Committee is chaired by Pippa Latham and includes Meryl Bushell and Nick Latham. David Dunmow also attends the meetings of the committee. The committee meets at least three times a year to review internal controls within the group. The duties of the audit committee include, on behalf of the board, a review of effectiveness of the group’s financial reporting and internal control policies, and procedures for the identification, assessment and reporting of risk. It also keeps under review the scope and results of the external audit, its cost effectiveness and the independence and objectivity of the external auditor, including recommending their re-appointment to the board. This includes a review of the non-audit work performed to ensure that such work would not impair their independence or objectivity in carrying out the audit. The audit committee receives a report from the external auditor following the annual audit which provides details of the significant financial reporting estimates and judgements made during the preparation of the group’s annual accounts. No matters of material significance were identified by the external auditors during the course of the audit. Once a year the auditor meets with the non-executive directors only. Financial reporting The directors have a commitment to best practice in the group’s external financial reporting in order to present a balanced and comprehensible assessment of the group’s financial position and prospects to its shareholders, employees, customers, suppliers and other third parties. This commitment encompasses all published information including but not limited to the year end and half yearly accounts, regulatory news announcements and other public information. Internal controls The board has established systems of internal control as appropriate for the size of the group. The day to day operation of the system of internal control is under the control of executive directors and senior management. The system is designed to manage rather than eliminate risk. Any system of internal control can however only provide reasonable, but not absolute, assurance against material misstatement and loss. No material breaches of internal controls were reported during the year. 18 JAMES L ATHAM PLC ANNUAL REPORT 2014 Corporate Governance Directors and Advisors Directors’ biographies Peter Latham OBE BA FIMMM Chairman Peter Latham, age 63, has worked in the company for 41 years and was appointed to the board in 1983. He is a director of Lathams Limited. He is a director of the Programme for the Endorsement of Forest Certification schemes (PEFC) International board, an independent non-governmental organisation, which has certified the largest area of world forests. He is a member and past chairman of the industry's environment committee, Forests Forever and a Trustee of the Commonwealth Forestry Association. He is a past president of the Institute of Wood Science and of the High Wycombe Furniture Manufacturers’ Society. David Dunmow BSc FCA Finance Director and Company Secretary David Dunmow, age 50, has worked in the company for 20 years and was appointed to the board as Finance Director in 2000. He is a Fellow of the Institute of Chartered Accountants in England and Wales. He is a director of Lathams Limited. He is a former treasurer of the Timber Trade Federation. Chris Sutton Executive Director Chris Sutton, age 55, has worked in the company for 36 years and was appointed to the board in 2005. He is managing director of Lathams Limited. He is Chairman of the board of the National Panel Products Division of the Timber Trade Federation and sits on the Governing Board of the Timber Trade Federation. He is also a board member of the Timber Industry Accord. Nick Latham BSc Executive Director Nick Latham, age 46 has worked in the company for 23 years and was appointed to the board in 2007. He is a director of Lathams Limited. He sits on the advisory committee of the Timber Research and Development Association. Piers Latham BSc Executive Director Piers Latham, age 43 has worked in the company for 21 years and was appointed to the board in 2014. He is a director of Lathams Limited and Chairman of the Trustees of James Latham plc Pension and Assurance Scheme. Pippa Latham MA MBA ACIS FCMA CGMA Non-Executive Director Pippa Latham, age 53, joined the company in 1990 from a previous career in investment banking and management consulting. She was Company Secretary from 1994 to 2005 and was appointed to the board as a non-executive director in 2005. She is an investment manager for the Timber Trades Benevolent Society and principal of Pippa Latham Associates, company secretary and corporate governance consultants. She is a non-executive director for W Lucy and Co Limited. Meryl Bushell BA MSc FCIPS Non-Executive Director Meryl Bushell, age 59, was appointed a non-executive director in 2008. She has many years senior management experience with BT including several years as Chief Procurement Officer for the BT Group. She is a previous member of the Board of Management of the Chartered Institute of Purchasing and Supply and a previous director of Invest in Gateway London Limited, South London Healthcare NHS Trust and of SupplierForce. Registrars Computershare Investor Services plc The Pavilions Bridgwater Road Bristol BS13 8FB Bankers Royal Bank of Scotland Major Corporate Banking 280 Bishopsgate London EC2M 4RB Clydesdale Bank St Albans Financial Solutions Centre Verulam Point 4th Floor Station Way St Albans AL1 5HE Stockbrokers and Nominated Adviser Northland Capital Partners 131 Finsbury Pavement London EC1A 1NT Pension Advisor Mercer Tower Place West London EC3R 5BU Independent Auditor Baker Tilly UK Audit LLP 25 Farringdon Street London EC4A 4AB Registered Office James Latham plc Unit 3 Swallow Park Finway Road Hemel Hempstead Herts HP2 7QU Registered Number 65619 Registered in England and Wales Peter Latham David Dunmow Chris Sutton Nick Latham Piers Latham Pippa Latham Meryl Bushell JAMES L ATHAM PLC ANNUAL REPORT 2014 19 Performance related bonuses Annual bonuses can be earned by executive directors for the achievement of specific financial performance targets set by the group’s board of directors and agreed by the remuneration committee. The criterion on which the executive directors’ bonuses were based in 2014 was the achievement of £7,780,000 operating profit, as measured in the depots management accounts. Maximum bonuses of 19.5% of basic salary are paid on achieving 120% of the target operating profit. This year 132.6% of the target operating profit was achieved earning 19.5% of basic salary. The criterion for the year ended 31 March 2015 will be based on a similar formula applying to target profits. In addition a Group Bonus scheme pays out a bonus to all eligible members of staff, subject to achieving a minimum level of group profits. This year the scheme is paying 3.56% of basic salary to 314 eligible employees. Service Contracts Following a review by the board of directors in 1996, the service contracts of executive directors were amended to incorporate a rolling 2 year notice period. This was considered by the board of directors to be a significant but reasonable reduction in their original 5 year contracts. In 2004, the board of directors agreed that any new service contracts issued to new directors would incorporate a fixed 2 year period, subject to a minimum 6 month notice period. Executive director’s contracts have no provisions for pre-determined compensation on termination that exceeds two years salary and benefits in kind. Remuneration of the non-executive directors The remuneration of the non-executive directors is determined by the board. The non-executive directors do not receive a pension or other benefits from the group. Corporate Governance Directors Remuneration Report This report has been compiled by the company’s Remuneration and Nominations Committee and sets out the company’s remuneration policies for its key directors. Remuneration and Nominations Committee During the the year ended 31 March 2014, Remuneration and Nominations Committee comprised two non-executive directors, Meryl Bushell as chairman and Pippa Latham. The meetings were attended by Peter Latham and David Dunmow to provide information to the Committee when required. The main function of the Committee is to make recommendations to the board regarding the group’s policy on the remuneration and conditions of employment of the executive directors of the group, and, where appropriate, senior management, and includes considering nominations to the board. Over the course of the year the committee has also taken an in talent development, succession active planning and group diversity. interest This year the Committee recommended to the board that Piers Latham be appointed an executive director. Piers is currently Chairman of the Trustees of the James Latham plc Pension and Assurance Scheme, and is responsible for Panel Products purchasing and the group’s quality processes. Piers’ skills enhance the board, and his appointment forms part of our long term succession plans. The Committee has access to professional remuneration advice from outside of the company. Remuneration Policy The remuneration policy aims to ensure that executive directors are fairly rewarded for their individual contributions to the performance of the group, with due regard for the interests of shareholders. The remuneration package consists of basic salary, benefits (comprising car and private medical provision), pensions, annual bonus schemes and share option schemes. Pay rises are considered once a year, to apply from 1 December. Pay rises are based on cost of living increases plus awards for promotion where relevant. The executive directors have their pay rises based on the same criteria as all other employees. 20 JAMES L ATHAM PLC ANNUAL REPORT 2014 Corporate Governance Directors Remuneration Report Review of past performance The graph below shows the company’s total shareholder return performance against the total shareholder return performance of the AIM All Share Index for the five years ended 31 March 2014. James Latham plc total shareholder return 400 350 300 250 200 150 100 50 0 James Latham – TOT Return Ind FTSE AIM All-Share – TOT Return Index March 09 March 10 March 11 March 12 March 13 March 14 The Remuneration Committee consider this to be the most appropriate graph against which to compare the company’s performance. Directors’ emoluments Details of the individual directors’ emoluments for the year were as follows: Executive P.D.L. Latham C.D. Sutton D.A. Dunmow 2014 2013 2014 2013 2014 2013 2014 2013 P.F. Latham 2014 (appointed 1 January 2014) 2013 N.C. Latham Non-executive P.A.J. Latham M.A. Bushell Total 2013 2014 2013 2014 2013 Salary and fees Benefits Bonus Total emoluments excluding pensions Share based payments Pension contributions £000 £000 £000 £000 £000 £000 TOTAL £000 185 180 137 130 130 124 99 94 21 - 29 28 29 28 630 584 9 9 11 11 8 8 - - - - - - - - 28 28 45 20 33 14 33 14 24 19 5 - - - - - 140 67 239 209 181 155 171 146 123 113 26 - 29 28 29 28 798 679 2 2 15 17 15 16 2 2 1 - - - - - 35 37 40 39 29 28 27 26 21 20 5 - - - - - 122 113 281 250 225 200 213 188 146 135 32 - 29 28 29 28 955 829 JAMES L ATHAM PLC ANNUAL REPORT 2014 21 Corporate Governance Directors Remuneration Report Directors’ shareholdings There were no contracts with the company or its subsidiaries during the year in which any of the directors had a material interest, other than their service contracts. The directors’ holdings of the share capital at the end of the financial year were as follows: Directors P.D.L. Latham D.A. Dunmow C.D. Sutton N.C. Latham P.F. Latham P.A.J. Latham M.A. Bushell 31 March 2014 31 March 2013 Ordinary shares Preference shares Ordinary shares Preference shares Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner 1,119,058 98,775 34,344 610,928 608,592 369,905 3,400 Nil Nil Nil Nil 567 Nil Nil 1,112,861 88,404 23,035 604,768 602,493 365,093 3,400 Nil Nil Nil Nil 567 Nil Nil Directors’ share option schemes Save as You Earn Scheme Participation by the directors in the James Latham plc Save as You Earn Scheme is as follows: P.D.L. Latham D.A. Dunmow N.C. Latham P.F. Latham 31 March 2014 31 March 2013 3,658 3,658 3,658 3,658 3,658 3,658 3,658 3,658 These options are exercisable on 29 February 2016 at £2.46 a share. There are no performance conditions attached to these options. Company Share Option Scheme Participation by the directors in the James Latham plc Approved Company Share Option Scheme 2008 is as follows: P.D.L. Latham D.A. Dunmow Outstanding 1 April 2013 Granted during the year Exercised Outstanding 31 March 2014 Exercise price 4,310 4,242 2,532 1,742 1,834 - 4,310 4,242 2,532 1,742 1,834 - - - - - - 1,262 - - - - - 1,262 (4,310) - - - - - (863) - - - - - - 4,242 2,532 1,742 1,834 1,262 3,447 4,242 2,532 1,742 1,834 1,262 £1.16 £1.65 £1.98 £2.295 £2.725 £3.96 £1.16 £1.65 £1.98 £2.295 £2.725 £3.96 Exercise period 16.12.13 to 15.12.18 26.11.14 to 25.11.19 15.12.15 to 14.12.20 29.11.16 to 28.11.21 05.12.17 to 04.12.22 16.12.18 to 15.12.23 16.12.13 to 15.12.18 26.11.14 to 25.11.19 15.12.15 to 14.12.20 29.11.16 to 28.11.21 05.12.17 to 04.12.22 16.12.18 to 15.12.23 Continued on page 23 22 JAMES L ATHAM PLC ANNUAL REPORT 2014 Corporate Governance Directors Remuneration Report Company Share Option Scheme (continued) Participation by the directors in the James Latham plc Approved Company Share Option Scheme 2008 is as follows: C.D. Sutton N.C. Latham P.F. Latham Outstanding 1 April 2013 Granted during the year Exercised Outstanding 31 March 2014 Exercise price 4,310 4,242 2,532 1,742 1,834 - 4,310 4,242 2,532 1,742 1,834 - 4,310 4,242 2,532 1,742 1,834 - - - - - - 1,262 - - - - - 1,262 - - - - - 1,262 (863) - - - - - (4,310) - - - - - (4,310) - - - - - 3,447 4,242 2,532 1,742 1,834 1,262 - 4,242 2,532 1,742 1,834 1,262 - 4,242 2,532 1,742 1,834 1,262 £1.16 £1.65 £1.98 £2.295 £2.725 £3.96 £1.16 £1.65 £1.98 £2.295 £2.725 £3.96 £1.16 £1.65 £1.98 £2.295 £2.725 £3.96 Exercise period 16.12.13 to 15.12.18 26.11.14 to 25.11.19 15.12.15 to 14.12.20 29.11.16 to 28.11.21 05.12.17 to 04.12.22 16.12.18 to 15.12.23 16.12.13 to 15.12.18 26.11.14 to 25.11.19 15.12.15 to 14.12.20 29.11.16 to 28.11.21 05.12.17 to 04.12.22 16.12.18 to 15.12.23 16.12.13 to 15.12.18 26.11.14 to 25.11.19 15.12.15 to 14.12.20 29.11.16 to 28.11.21 05.12.17 to 04.12.22 16.12.18 to 15.12.23 No performance conditions attach to these options. Mr P.D.L. Latham, Mr N.C. Latham and Mr P.F. Latham made a gain of £12,068, and Mr D.A. Dunmow and Mr C.D. Sutton made a gain of £2,416 on options exercised during the year. Deferred Share Bonus Plan Participation by the directors in the James Latham plc Deferred Share Bonus Plan is as follows: Outstanding 1 April 2013 Awarded during the year Excercised during the year Outstanding 31 March 2014 Exercise price Award price Vesting date D.A. Dunmow C.D. Sutton 8,739 5,246 5,056 8,739 5,246 5,056 171 145 139 171 145 139 (8,910) - - (8,910) - - - 5,391 5,195 - 5,391 5,195 nil nil nil nil nil nil £1.975 £2.295 £2.74 £1.975 £2.295 £2.74 15.12.13 29.11.14 06.12.15 15.12.13 29.11.14 06.12.15 No performance conditions or voting rights apply to these shares, but dividends will be reinvested into additional shares in the plan. Mr D.A. Dunmow and Mr C.D. Sutton made a gain of £35,284 on options exercised during the year. MA Bushell, Chairman of the Remuneration Committee 25 June 2014 JAMES L ATHAM PLC ANNUAL REPORT 2014 23 Corporate Governance Directors Report The directors have pleasure in presenting their annual report and the audited accounts for the year ended 31 March 2014. In accordance with section 414c(11) of the Companies Act 2006, included in the Strategic Report is the review of business, principal risks and uncertainties and key performance indicators. This information would have been required by section 7 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 to be contained in the Directors Report. Results and dividends Group results for the year ended 31 March 2014 are set out on page 29. The directors recommend the following dividends:- Ordinary dividends Interim dividend paid, 3.4 pence per ordinary share Final dividend proposed, 8.0 pence per ordinary share Total ordinary dividends, 11.4 pence per ordinary share £000 659 1,555 2,214 The directors recommend payment of the final dividend on 22 August 2014 to shareholders on the register of members at the close of business on 1 August 2014. Balance sheet and post balance sheet events The balance sheet on page 31 shows the group’s financial position. No significant events have occurred since the balance sheet date. Directors The directors of the company, whose biographical details are shown on page 19, were directors throughout the year, other than Piers Latham who was appointed on 1 January 2014. In compliance with the Articles of Association, Peter Latham, Chris Sutton, Pippa Latham and Meryl Bushell will retire by rotation and, being eligible, offer themselves for re-election. Piers Latham, who was appointed during the year, will be proposed for election at the Annual General Meeting. Other than their service contracts, no director has a material interest in any contract with the company. Pippa Latham and Meryl Bushell, as non-executive directors, do not have a service contract with the 24 JAMES L ATHAM PLC ANNUAL REPORT 2014 company, but each has received a letter of appointment for a two year period. Details of directors’ emoluments, pension rights, service contracts and the directors’ interests in the ordinary shares of the company are included in the Directors’ Remuneration Report on pages 20 to 23. Article 168 of the company’s Articles of Association gives the directors and officers of the company a right to be indemnified out of the assets of the company in respect of any liability incurred in relation to the affairs of the group to the extent the law allows. The company has undertaken to comply with best practice on approval of directors’ conflicts of interest. Under the Companies Act 2006 a director must avoid a situation where there is, or can be, an interest that may conflict with the company’s interests. None of the directors had an interest in any contract to which the group was a party during the year. The company maintained directors’ and officers’ liability insurance cover throughout the year. Share capital Resolutions concerning the ability of the board to purchase the company’s own shares and to allot shares and to dis-apply pre-emption rights are again being proposed at the Annual General Meeting. The company holds 719,200 shares as treasury shares, with a view to being used for employee share schemes or cancelled. the James Latham Employee Benefits Trust holds 67,080 shares with a view to being used for employee share schemes. the Trustees of In addition Share option schemes On 29 August 2007, the shareholders approved by ordinary resolution the extension of the Save as You Earn scheme for a further 10 years. A 3 year scheme commenced on 1 March 2013 with 188,284 options being issued at an option price of £2.46. On 21 August 2008, the shareholders approved by special resolution the establishment of the Company Share Option Scheme. During the year 25,394 options were issued at an option price of £3.96. In addition 39,261 options were exercised after being held for five years, at an option price of £1.16. Corporate Governance Directors Report Substantial shareholdings At 25 June 2014, the company had received notification under the Disclosure Transparency Rules that the holdings and voting rights exceeding the 3% notification threshold were as follows: Sir Robert McAlpine Enterprises Ltd Peter Latham International Plywood (Importers) Ltd Nick Latham Piers Latham Number 1,352,000 1,119,058 963,746 610,928 608,592 % 6.95 5.76 4.96 3.14 3.13 Payments to suppliers Operating businesses are responsible for agreeing the terms and conditions under which business transactions with their suppliers are conducted. The group’s policy is to pay suppliers in accordance with these terms. The group’s creditor days at 31 March 2014 were 36 days (2013: 38 days). existence for the foreseeable future. The directors confirm that the business is a going concern and that their assessment of the going concern position has been prepared in accordance with Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009, published by the Financial Reporting Council in October 2009. Political and charitable donations During the year the group made no political contributions but made direct donations to various charitable organisations amounting to £8,265 (2013: £6,577). The group also made small donations of our products to a number of good causes and was involved in fund raising activities for the Timber Trades Benevolent Society. Close company status The close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the company. Going concern After making appropriate enquiries, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational Financial instruments A summary of the group financial instruments and related disclosures are set out in note 28 to the group accounts and in the Financial Review on pages 10-12. The Gateshead warehouse team. JAMES L ATHAM PLC ANNUAL REPORT 2014 25 Annual General Meeting special business The Annual General Meeting of the company will be held at Unit 3, Swallow Park, Finway Road, Hemel Hempstead, Hertfordshire, HP2 7QU on 20 August 2014 at 12.30pm. The following items are to be proposed as special business, and the shareholders vote in favour of all resolutions put before the meeting. the board recommends that Resolution 9. Directors authority to allot shares. This gives the board the power to allot ordinary shares or other securities, up to an aggregate nominal amount of £1,680,000 (or one third of the current ordinary shares). Resolution 10. Dis-application of pre-emption rights. The Companies Act 2006 provides that when ordinary shares are being issued for cash, these shares must first be offered to existing shareholders on a pro rata basis. This resolution empowers the board to allot shares not exceeding 5% of the issued share capital, without offering to existing shareholders. The board only anticipates using this power in conjunction with the employee share schemes. Resolution 11. Authority for the company to purchase its own shares. This gives the board the power to purchase up to 10% of the company’s shares at a price not more than 105% of the average of the mid market price for the ten business days preceding the date of the purchase. On behalf of the Board of Directors Meryl Bushell Acting Chairman 25 June 2014 Corporate Governance Directors Report Provision of information to the auditor In the case of each of the directors who are directors of the company at the date when this report was approved: • So far as each of the directors is aware, there is no relevant audit information of which the company’s auditor is unaware; and • Each of the directors has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the company’s auditor is aware of that information. Auditor A resolution to reappoint Baker Tilly UK Audit LLP as the company’s auditor and to authorise the directors to fix their remuneration will be proposed at the Annual General Meeting. Baker Tilly UK Audit LLP has indicated its willingness to continue in office. 26 JAMES L ATHAM PLC ANNUAL REPORT 2014 Corporate Governance Statement of Directors Responsibilities The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and to enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the company 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 James Latham plc website, the www.lathams.co.uk. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board of Directors Meryl Bushell Acting Chairman 25 June 2014 The directors are responsible for preparing the Strategic Report, Directors Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and company financial statements for each financial year. The directors are required by the AIM Rules of the London Stock Exchange to prepare group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union “EU” and have elected under company law to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the group; the Companies in relation to such financial Act 2006 provides statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. 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 the company and of the profit or loss of the group for that period. In preparing each of the group and company financial statements, the directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgements and accounting estimates that are reasonable and prudent; c. for the group financial statements, state whether they have been prepared in accordance with IFRS’s adopted by the EU; and for the company financial statements state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the company financial statements; d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. JAMES L ATHAM PLC ANNUAL REPORT 2014 27 Corporate Governance Independent Auditor’s Report To the members of James Latham plc We have audited the group and parent company financial statements (“the financial statements”) on pages 29 to 65. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As more fully explained in the Statement of Directors’ Responsibilities set out on page 27, 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 (APB’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 http://www.frc.org.uk/auditscopeukprivate Opinion on the financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 March 2014 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union • the parent financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • 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 Strategic Report and 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 matters where the Companies Act 2006 requires us 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 • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Paul Watts Senior Statutory Auditor For and on behalf of BAKER TILLY UK AUDIT LLP Statutory Auditor, Chartered Accountants 25 Farringdon Street London EC4A 4AB 25 June 2014 28 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Consolidated Income Statement For the year ended 31 March 2014 £’000s Notes 2014 2013 (as restated) Revenue Cost of sales (including warehouse costs) 3, 4, 12 163,117 (134,688) Gross profit Selling and distribution costs Administrative expenses Exceptional adjustment to defined benefit pension cost Other income Operating profit Profit on disposal of property Finance income Finance costs Profit before tax Tax expense Profit after tax attributable to owners of the parent company Earnings per ordinary share (basic) Earnings per ordinary share (diluted) Earnings per ordinary share (basic, excluding exceptional adjustment net of tax) Earnings per ordinary share (diluted, excluding exceptional adjustment net of tax) 4, 12 4, 12 18.3 5 6 7 3 8 10 10 10 10 28,429 (12,941) (6,016) 1,797 6 (17,154) 11,275 - 27 (823) 10,479 (1,888) 8,591 44.3p 43.9p 36.9p 36.6p 143,069 (117,847) 25,222 (12,093) (5,766) - 6 (17,853) 7,369 257 26 (683) 6,969 (1,448) 5,521 28.7p 28.5p 28.7p 28.5p JAMES L ATHAM PLC ANNUAL REPORT 2014 29 Financial Statements Consolidated Statement of Comprehensive Income For the year ended 31 March 2014 £’000s Notes 2014 2013 (as restated) 8,591 5,521 5,543 (1,508) (4,919) 1,350 4,035 12,626 (3,569) 1,952 Profit after tax Other comprehensive income: Actuarial gain/(loss) on defined benefit pension scheme Deferred tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income attributable to the owners of the parent company 30 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Consolidated Balance Sheet Notes 2014 2013 13 11 12 20 14 15 16 17 17 18 19 20 21 22 23 237 108 22,647 - 22,992 27,937 32,842 11,234 72,013 95,005 23,191 238 1,017 24,446 1,890 9,267 520 774 12,451 36,897 58,108 5,040 123 (175) 3 53,117 58,108 237 115 22,965 803 24,120 26,222 28,877 8,075 63,174 87,294 19,561 229 537 20,327 2,128 16,793 579 - 19,500 39,827 47,467 5,040 91 (218) 3 42,551 47,467 At 31 March 2014 £’000s Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Interest bearing loans and borrowings Tax payable Total current liabilities Non-current liabilities Interest bearing loans and borrowings Retirement and other benefit obligation Other payables Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Capital and reserves Issued capital Share-based payment reserve Own shares Capital reserve Retained earnings Total equity attributable to shareholders of the parent company These accounts were approved and authorised for issue by the Board of Directors on 25 June 2014 and signed on its behalf by: N.C. Latham D.A. Dunmow } Directors The consolidated notes on pages 34 to 58 form part of these accounts. JAMES L ATHAM PLC ANNUAL REPORT 2014 31 Financial Statements Consolidated Statement of Changes in Equity Issued capital £’000 5,040 - Balance at 1 April 2012 Profit for the year Other comprehensive income: Actuarial loss on defined benefit pension scheme Deferred tax relating to components of other comprehensive income Total comprehensive income for the year Transactions with owners: Dividends Transfer of treasury shares Write down on conversion of ESOP shares Conversions of ESOP shares Exercise of options Change in investment in ESOP shares Share-based payment expense Total transactions with owners - - - - - - - - - - - Attributable to owners of the parent company Share-based payment reserve £’000 144 - - - - - - - - (120) - 67 (53) Own shares £’000 (356) - Capital reserve £’000 Retained earnings (as restated) £’000 3 - 42,093 5,521 Total equity £’000 46,924 5,521 - - (4,919) (4,919) - - - (562) 293 365 - 42 - 138 - - - - - - - - - - 1,350 1,952 (1,883) 562 (293) - 120 - - 1,350 1,952 (1,883) - - 365 - 42 67 (1,494) (1,409) Balance at 31 March 2013 5,040 91 (218) 3 42,551 47,467 Profit for the year Other comprehensive income: Actuarial gain on defined benefit pension scheme Deferred tax relating to components of other comprehensive income Total comprehensive income for the year Transactions with owners: Dividends Exercise of options Write down on conversion of ESOP shares Change in investment in ESOP shares Share-based payment expense Total transactions with owners - - - - - - - - - - - - - - - (48) - - 80 32 - - - - - - 77 (34) - 43 - - - - - - - - - - 8,591 8,591 5,543 5,543 (1,508) (1,508) 12,626 12,626 (2,031) 48 (77) - - (2,031) - - (34) 80 (2,060) (1,985) Balance at 31 March 2014 5,040 123 (175) 3 53,117 58,108 32 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Consolidated Cash Flow Statement For the year ended 31 March 2014 £’000s Notes 2014 Net cash flow from operating activities Cash generated from operations Interest paid Income tax paid Net cash inflow from operating activities 24 Cash flows from investing activities Interest received and similar income Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Net cash outflow from investing activities Net cash outflow from financing activities Borrowings repaid during the year Equity dividends paid Preference dividend paid Sale of Own Shares Net cash outflow from financing activities Increase in cash and cash equivalents for the year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 8,036 (45) (1,339) 6,652 27 (1,181) - (1,154) (229) (2,031) (79) - (2,339) 3,159 8,075 11,234 2013 5,829 (64) (1,469) 4,296 26 (1,517) 1,070 (421) (1,207) (1,883) (79) 365 (2,804) 1,071 7,004 8,075 JAMES L ATHAM PLC ANNUAL REPORT 2014 33 Financial Statements Notes forming part of the Group Accounts General information James Latham plc is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act 2006 and is listed on the AIM market. The nature of the group’s operations and its principal activities are set out in the Strategic Report. The address of the registered office is Unit 3 Swallow Park, Finway Road, Hemel Hempstead, Herts HP2 7QU. 1. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated accounts are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation These consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The company has elected to prepare its parent company accounts in accordance with UK Generally Accepted Accounting Practice (GAAP). These are presented on pages 59 to 65. The accounts have been prepared under the historic cost convention except for forward contract financial instruments measured at fair value. The directors have prepared the financial statements on the going concern basis for the reasons set out on page 25. A summary of the more important group accounting policies, which have been applied consistently across the group, is set out below. In the current year, the group has adopted IAS19 (revised) retrospectively and in accordance with the transitional provisions. As the group has always recognised actuarial gains and losses immediately, there is no effect on the prior year defined benefit obligation and balance sheet disclosure arising from this change. IAS19 (revised) requires interest cost and return on scheme assets calculated under the previous version of IAS19 to be replaced with a net interest amount calculated by applying a discount rate to the net defined liability or asset. The impact of this revision is shown in note 3.2. At the date of authorisation of these financial statements, the following standards and interpretations which are issued but not yet effective or endorsed (unless otherwise stated), have not been applied: - IFRS 9 – Financial Instruments - IFRS 10 – Consolidated Financial Statements - IFRS 11 – Joint Arrangements - IFRS 12 – Disclosure of Interests in Other Entities - IFRS 14 – Regulatory Deferral Accounts - IFRS 15 – Revenue from Contracts with Customers - IAS 27 (revised) – Separate Financial Statements - IAS 28 (revised) – Interests in Associates and Joint Ventures - Amendments to IAS 16 – Property, Plant and Equipment - Amendments to IAS 24 – Related Party Disclosures - Amendments to IAS 32 – Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 38 – Intangible Assets - Amendments to IFRS 3 – Business Combinations - Amendments to IFRS 8 – Operating Segments The directors anticipate that the adoption of these standards and interpretations as appropriate in future periods will have no material impact on the financial statements of the group when the relevant standards come into effect for periods commencing after 1 April 2014. (b) Basis of consolidation The consolidated accounts include the company and all its subsidiary undertakings (from the date of acquisition or to the date of disposal where applicable). Intra group sales and profits are eliminated on consolidation. The accounts of all subsidiary undertakings are made up to 31 March. A subsidiary is an entity controlled, either directly or indirectly, by the company, where control is the power to govern the financial and operating policies of the entity so as to obtain benefit from its activities. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition costs are expenses in the period in which they are incurred. 1.1 Revenue recognition Revenue comprises net sales to external customers exclusive of Value Added Tax. Revenue is recognised upon delivery to, or collection by, the customer. Revenue is shown net of returns and rebates and after eliminating sales within the group. 1.2 Segmental reporting IFRS 8 “Operating Segments” requires operating segments to be identified on the basis of internal reporting of components of the group that are regularly reviewed by the chief operating decision maker, which the group considers to be the Chairman, to allocate resources to the segments and to assess their performance. Further information is available in note 2. 34 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 1.3 Operating profit Operating profit consists of revenues and other operating income less operating expenses. Operating profit excludes net finance costs. items of items are those 1.4 Exceptional items Exceptional income and expenditure that by reference to the group are material in size and nature or incidence, that in the judgement of the directors, should be disclosed seperately on the face of the financial statements to ensure both that the reader has a proper understanding of the group's financial performance and that there is comparability of financial performance between periods. 1.5 Foreign currency translation The functional and presentational currency of the parent company and its subsidiaries is UK Pounds Sterling. Transactions in currencies other than the functional currency are translated at the rate ruling at the date of the transaction. At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Any gains or losses arising from the transactions are taken to the income statement. In order to help manage its exposure to certain foreign exchange risks, the group enters into forward contracts. Gains and losses on forward contracts are recognised at fair value through the income statement. 1.6 Property, plant and equipment Property, plant and equipment is stated at cost less depreciation. Depreciation on property, plant and equipment is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected life. It is calculated at the following rates: Freehold buildings Leasehold improvements Fixtures and fittings Plant, equipment and vehicles - over 50 years - over 5 to 15 years - over 4 to 10 years - over 5 to 20 years Freehold land is not depreciated. Estimated residual values and useful lives are reviewed annually and adjusted where necessary. 1.7 Impairment of non-current assets Goodwill is reviewed annually for impairment. The carrying amounts of the group’s other intangible assets and property, plant and equipment are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such an indication exists, the asset’s recoverable amount is estimated and compared to its carrying value. Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where the carrying value exceeds the recoverable amount, a provision for the impairment loss is established with a charge being made to the income statement. 1.8 Goodwill Goodwill on consolidation, being the excess of the purchase price over the fair value of the net assets of subsidiary undertakings at the date of acquisition is capitalised in accordance with IFRS 3 (revised) “Business combinations”. Goodwill is tested annually for impairment, or more frequently when there is an indication that goodwill may be impaired. Goodwill is carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed in a subsequent period. 1.9 Intangible assets – trademark Acquired trademarks are shown at historical cost. Trademarks are considered to have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the estimated useful life of 20 years. 1.10 Inventories Inventories are stated at the lower of cost (including an appropriate proportion of attributable supplier rebates and discounts) and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provision is made for obsolete or slow moving inventories where appropriate. The cost of inventories is based on the weighted average principle. 1.11 Financial instruments Financial assets and financial liabilities are recognised on the group’s balance sheet when the group has become party to the contractual provisions of the instrument. 1.11.1 Trade receivables Trade receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently measured at their amortised cost using the effective interest method less any provision for impairment. A provision for impairment is made where there is objective evidence (including customers with financial difficulties or in default JAMES L ATHAM PLC ANNUAL REPORT 2014 35 Financial Statements Notes forming part of the Group Accounts on payments), that amounts will not be recovered in accordance with original terms of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using the effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in the income statement. 1.11.2 Cash and cash equivalents Cash and cash equivalents comprise cash in hand and at bank and other short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. The carrying amount of these assets approximates their fair value. 1.11.3 Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. 1.11.4 Bank borrowings Interest-bearing bank loans are recorded initially at their fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in the income statement over the term of the instrument using an effective rate of interest. 1.11.5 Trade payables Trade payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method. 1.11.6 Equity instruments Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs. 1.11.7 Derivative financial instruments The group’s activities expose the entity primarily to foreign currency and interest rate risk. The group uses foreign exchange forward contracts and fixed rate bank loans to help manage these exposures. The group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Foreign currency forward contracts and fixed rate bank loans are not designated effective hedges and so are marked to market at the balance sheet date, with any gains or losses being taken through the income statement. 1.12 Current and deferred income tax Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years. Deferred tax expected to be payable or recoverable on differences at the balance sheet date between the tax bases and liabilities and their carrying amounts for financial reporting purposes is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible differences can be utilised. Deferred tax is calculated at the rates of taxation which are expected to apply when the deferred tax asset or liability is realised or settled, based on the rates of taxation enacted or substantively enacted at the balance sheet date. 1.13 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. 1.14 Dividend distribution Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the company's shareholders. 1.15 Retirement benefit costs Retirement benefit costs are accounted for in accordance with IAS 19 (revised) “Employee benefits”. Full details of the basis of calculation of the net pension liability disclosed in the balance sheet at 31 March 2014, and of the amounts charged/credited to the income statement and equity, are set out in note 18 to the accounts. The cost of the defined benefit scheme is determined using the projected unit credit method with actuarial valuations being carried out at the end of each reporting period. The current service cost represents the increase in the present value of the plan liabilities expected to arise from employee service in the current period. Past service costs resulting 36 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts from enhanced benefits are recognised in the income statement on a straight-line basis over the vesting period, or immediately if the benefits have vested. Interest cost represents a net interest cost on the net defined benefit liability. Gains and losses on curtailments or settlements are recognised in the income statement in the period in which the curtailment or settlement occurs. Actuarial gains and losses, which represent differences between the expected and actuarial returns on the plan assets and the effect of changes in actuarial assumptions, are recognised in the statement of recognised income and expense in the period in which they occur. 1.19 Employee Share Ownership Plan (ESOP) Own shares represent the company’s own shares that are held by the group sponsored ESOP trust in relation to the group’s employees share schemes. Own shares are deducted at cost in arriving at shareholders’ equity and gains and losses on their sale or transfer are recognised directly in equity. ESOP is treated separately and consolidated in the group and company accounts. 1.20 Accounting estimates and judgements The directors consider the critical accounting estimates and judgements used in the financial statements and concluded that the main areas of judgements are: The defined benefit liability recognised in the balance sheet comprises the present value of the benefit obligation, minus any past service costs not yet recognised minus the fair value of the plan assets, if any, at the balance sheet date. The deficit is classified as a non-current liability. Pension payments to the group’s defined contribution schemes are charged to the income statement as they arise. 1.16 Finance leases Assets held under finance leases are recognised as assets of the group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and the reduction of lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. 1.17 Share-based payment The group has applied the requirements of IFRS 2 “Share- based payment” which requires the fair value of share-based payments to be recognised as an expense. Certain employees receive remuneration in the form of share options. The fair value of the equity instruments granted is measured on the date at which they are granted by using the Black-Scholes model, and is based on the group’s estimate of the number of options that will eventually vest. The fair value is expensed in the income statement over the vesting period. 1.18 Treasury shares Treasury shares are shown at historical cost, and deducted from retained earnings directly in equity. i. Post-employment benefits ii. Stock obsolescence provision iii. Provisions for receivables impairment These estimates are based on historical experience and various other assumptions that management and the board of directors believe are reasonable under the circumstances and are discussed in more detail under their respective notes. For post-employment benefits, the directors take advice from a qualified actuary. Due to the inherent uncertainty involved in making assumptions and estimates, actual outcomes could differ from those assumptions and estimates. 2. Business and geographical segments For management purposes, the group is organised into one trading division, that of timber importing and distribution, carried out in each of the eleven locations trading wholly in the United Kingdom. In each location, turnover and gross margin is reviewed separately for Panel Products (including ATP) and Timber (including Flooring and LDT). Most locations sell both products groups, except in the London region where for operational efficiency Panel Products and Timber are sold from separate locations. Resources are allocated and employees incentivised on the basis of the results of their individual location and not on the basis of a product group. Whilst there are regional differences in the relative importance of product groups and classes of customer, each location is considered to have similar economic characteristics and so can be aggregated into one segment. We therefore consider there is one business segment and one geographic segment. JAMES L ATHAM PLC ANNUAL REPORT 2014 37 Financial Statements Notes forming part of the Group Accounts 3. Profit before tax 2014 2013 3.1 Profit for the year has been arrived at after £’000 £’000 £’000 £’000 taking into account the following: Net foreign exchange gains Cost of inventories recognised as an expense and included in ‘cost of sales’ in the consolidated income statement Depreciation of property, plant and equipment – owned Loss/(profit) on disposal of property, plant and equipment Amortisation Operating lease rentals - vehicles and plant - property Fees payable to the company’s auditor for the audit of the consolidated and parent company accounts: Fees payable to the company’s auditor and its associates for other services: The audit of the company’s subsidiary pursuant to legislation Tax services Fees in relation to the audit of the James Latham plc Pension and Assurance Scheme 3.2 Prior period restatement 134 130,607 1,496 3 7 35 112,236 1,200 (287) 8 570 539 867 539 1,109 1,406 9 58 11 7 9 56 7 6 IAS 19 (revised 2011) has amended the allocation of costs for the group’s defined benefit pension scheme (see note 18.2). This replaces the combined interest cost on liabilites and expected return on plan assets with a net interest charge on the net defined benefit liability. Prior year comparatives have been restated and this has had the following impact on the income statement. Year ended 31 March 2013 As previously stated £’000 Prior period adjustment £’000 As restated £’000 Revenue Cost of sales (including warehouse costs) Gross profit Selling and distribution costs Administrative expenses Other income Operating profit Profit on disposal of property Finance income Finance costs Profit before tax Tax expense Profit after tax 143,069 (117,831) 25,238 (12,051) (5,647) 6 7,546 257 26 (947) 6,882 (1,428) 5,454 The impact on the consolidated statement of comprehensive income is as follows Profit after tax Actuarial losses on defined benefit pension scheme Deferred taxation 5,454 (4,832) 1,330 1,952 This change had no effect on either the net assets as at 31 March 2013 or cash flow statement. 38 JAMES L ATHAM PLC ANNUAL REPORT 2014 - (16) 143,069 (117,847) 25,222 (16) (42) (12,093) (119) (5,766) 6 - (177) - - 264 87 (20) 67 67 (87) 20 - 7,369 257 26 (683) 6,969 (1,448) 5,521 5,521 (4,919) 1,350 1,952 Financial Statements Notes forming part of the Group Accounts 4. Information regarding employees The monthly average number of persons, including directors, employed by the group during the year was as follows: Management and administration Warehousing Selling Distribution 2014 Number 58 94 115 63 330 The aggregate payroll costs of these employees were as follows: £’000 Wages and salaries Social security costs Pension costs Past service on pension cost Share-based payment 10,607 1,076 1,370 (1,797) 80 11,336 2013 Number 59 96 115 61 331 £’000 as restated 9,966 986 1,127 - 68 12,147 Of the above payroll costs, £2,634,000 (2013: £2,510,000) is included in cost of sales, £6,697,000 (2013: £6,264,000) is included in selling and distribution costs, and £2,005,000 (2013: £3,373,000) is included in administrative expenses in the income statement. 5. Other income Rent receivable 6. Finance income Interest receivable The interest received is on bank deposits. 7. Finance costs On bank loans and overdrafts Finance cost generated by financial liabilities held at fair value through profit and loss On pension liability On 8% Cumulative Preference shares 2014 £’000 6 2014 £’000 27 2014 £’000 45 - 699 79 823 2013 £’000 6 2013 £’000 26 2013 as restated £’000 64 (45) 585 79 683 The interest payable on overdrafts is payable on balances with a maturity analysis of less than 6 months at the balance sheet date and interest on bank loans and all other interest payments are based on balances with a maturity analysis of over five years at the balance sheet date. JAMES L ATHAM PLC ANNUAL REPORT 2014 39 Financial Statements Notes forming part of the Group Accounts 8. Tax expense The charge for taxation on profit comprises: 2014 £’000 2013 as restated £’000 Current year: 1,322 UK corporation tax at 23% (2013: 24%) 1,832 (75) Adjustment in respect of prior year (13) 102 397 Deferred taxation - pension (30) - IBAs derecognised in current year (29) - change in tax rates (323) 27 - on trading losses carried forward 203 155 (53) - other (179) Profit before taxation Tax at 23% (2013: 24%) 1,888 10,479 2,410 Tax effect of expenses/credits that are not deductible/taxable in determining taxable profit Property sales IBAs derecognised in current year Change in tax rates Other Adjustment in respect of prior year (60) - (29) (323) (97) (13) Total tax charge 1,888 1,448 6,969 1,672 (66) (53) (30) - - (75) 1,448 There are tax trading losses of £439,000 (2013: £1,283,000) carried forward in the accounts of Lathams Limited for the trade transferred from DLH UK Ltd for offset against future trading profits of that trade. The directors consider that the utilisation of these losses against future profits is suitably foreseeable based on current year profits and future budgets for the business to enable a deferred tax asset to be recognised. A deferred tax asset of £92,000 (2013: £295,000) is recognised based on the trading losses and these are included in the deferred tax note 20. 9. Dividends Ordinary dividends: 2014 2013 £’000 £’000 £’000 £’000 Final 7.1p per share paid 23 August 2013 (2012: 6.75p) Interim 3.4p per share paid 31 January 2014 (2013: 3.1p) 1,372 659 1,284 599 2,031 1,883 The Directors propose a final dividend for 2014 of 8.0p per share, that, subject to approval by the shareholders, will be paid on 22 August 2014 to shareholders on the register on 1 August 2014. Based on the number of shares currently in issue, the final dividend for 2014 is expected to absorb £1,555,000. 40 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 10. Earnings per ordinary share Earnings per ordinary share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Net profit attributable to ordinary shareholders Net profit attributable to ordinary shareholders less exceptional adjustment to defined benefit pension cost net of tax Issued ordinary share capital Less: weighted average number of own shares held in treasury investment Less: weighted average number of own shares held in ESOP Trust Weighted average share capital Add: dilutive effects of share options issued Weighted average share capital for diluted earnings per ordinary share calculation 2014 £’000 8,591 7,153 Number ’000 20,160 (719) (56) 19,385 182 19,567 11. Intangible assets Cost: At 1 April 2012 Additions At 1 April 2013 Additions At 31 March 2014 Amortisation At 1 April 2012 Charge for the year At 1 April 2013 Charge for the year At 31 March 2014 Net book value At 31 March 2014 At 31 March 2013 At 31 March 2012 2013 as restated £’000 5,521 5,521 Number ’000 20,160 (819) (124) 19,217 141 19,358 Trademark £’000 155 - 155 - 155 32 8 40 7 47 108 115 123 The amortisation charge is included in the income statement under administrative expenses. The registered trademarks of the group are Baüsen® Flooring and Buffalo® Board. JAMES L ATHAM PLC ANNUAL REPORT 2014 41 Financial Statements Notes forming part of the Group Accounts 12. Property, plant and equipment Cost: At 1 April 2012 Additions Disposals At 1 April 2013 Additions Disposals At 31 March 2014 Depreciation: At 1 April 2012 Disposals Charge for the year At 1 April 2013 Disposals Charge for the year At 31 March 2014 Net book value At 31 March 2014 At 31 March 2013 At 31 March 2012 Freehold property £’000 18,646 82 - 18,728 14 Short leasehold property improvements £’000 Plant, equipment and vehicles £’000 613 - - 613 - - 8,222 1,435 (278) 9,379 1,167 Total £’000 27,481 1,517 (278) 28,720 1,181 (30) - (30) 18,742 613 10,516 29,871 1,672 - 247 1,919 140 - 37 177 - - 247 2,166 16,576 16,809 16,974 37 214 399 436 473 2,996 (253) 916 4,808 (253) 1,200 3,659 5,755 (27) 1,212 1,496 (27) 4,844 7,224 5,672 5,720 5,226 22,647 22,965 22,673 Included in freehold property is land with a book value of £6,311,000 (2012: £6,311,000) which is not depreciated. The depreciation charge is included in the income statement as follows: Cost of sales Selling and distribution costs Administrative expenses 2014 £’000 806 591 99 1,496 2013 £’000 694 408 98 1,200 42 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 13. Goodwill Cost: At 1 April 2012 and 31 March 2014 Impairment At 1 April 2012 and 31 March 2014 Net book value At 31 March 2014, 2013 and 2012 Goodwill £’000 362 125 237 The goodwill arose upon the acquisition of part of the trade and net assets of F.H. Thompson Limited in the year ended 31 March 2005. In accordance with the group’s accounting policy the carrying value of goodwill is reviewed annually for impairment. The review entails an assessment of the present value of projected return from an asset over a period of 5 years. The discount rate used in the group's estimated weighted average cost of capital is currently 6%. The review performed at the year end did not result in the impairment of goodwill as the estimated recoverable amount exceeded the carrying value. The recoverable amount of the cash generating unit to which the goodwill has been allocated is determined based on value-in-use calculations. 14. Inventories Finished goods and goods for resale Less: provisions for slow moving and obsolete stock 2014 £’000 28,603 (666) 27,937 2013 £’000 26,936 (714) 26,222 The inventories impairment charge for the year ended 31 March 2014 was £341,000 (2013: 420,000). Impairment charges reversed during the year were £389,000 (2013: £430,000). The reversal of inventories arises from sales in the year of the slow moving and obsolete stock previously provided. Inventories are pledged as securities against bank overdrafts (see note 17). JAMES L ATHAM PLC ANNUAL REPORT 2014 43 Financial Statements Notes forming part of the Group Accounts 15. Trade and other receivables Trade receivables Other receivables: Other receivables Prepayments and accrued income 2014 £’000 30,281 1,060 1,501 2,561 32,842 2013 £’000 26,548 815 1,514 2,329 28,877 The directors consider that the carrying amount of trade and other receivables approximates their fair value. Trade receivables amounted to £30,281,000 (2013: £26,548,000), net of a provision of £136,000 (2013: £246,000) for impairment. Movements on the group provisions for impairment were as follows: At 1 April 2013 Provisions for receivables impairment Receivables written off during the year as uncollectible At 31 March 2014 2014 £’000 246 197 (307) 136 2013 £’000 232 447 (433) 246 The average credit period on sale of goods is 53 days (2013: 53 days). The following table provides analysis of trade and other receivables that were past due at 31 March 2014 but not impaired. The group believes that the balances are ultimately recoverable based on a review of past payment history and the current financial status of the customers. 0-30 days 31-60 days 61-90 days 2014 £’000 919 111 20 1,050 2013 £’000 1,095 19 27 1,141 There are no significant credit risks arising from financial assets that are neither past due nor impaired. At 31 March 2014, £32,559,000 (2013: £28,475,000) of trade and other receivables were denominated in sterling, £157,000 (2013: £114,000) were denominated in Euros and £126,000 (2013: £288,000) were denominated in US dollars. 44 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 16. Trade and other payables Trade payables Other taxation and social security Other payables Accruals and deferred income 2014 £’000 16,744 3,697 1,228 1,522 23,191 2013 £’000 15,260 2,634 582 1,085 19,561 Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 36 days (2013: 38 days). The directors consider that the carrying amount of trade payables approximates to their fair value. At 31 March 2014, £21,478,000 (2013: £16,576,000) of trade and other payables were denominated in sterling, £1,075,000 (2013: £1,989,000) in US dollars and £638,000 (2013: £996,000) in Euros. Based on the balance sheet value of trade and other payables, as shown above, a 10% change in the currency exchange rate would lead to an increase or decrease in income and equity of £171,000 (2013: £299,000). 17. Interest bearing loans and borrowings Current liabilities Bank loans Non-current liabilities Bank loans Cumulative preference shares of £1 each (note 21) Total 2014 £’000 238 903 987 1,890 2,128 2013 £’000 229 1,141 987 2,128 2,357 The loans and borrowings were all denominated in sterling. Bank loans are secured by a legal charge over a freehold property. The group would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows as discussed above through effective cash management. In addition, the group maintains uncommitted undrawn bank facilities of £2,000,000 (2013: £2,000,000) which can be accessed as considered necessary. The facilities bear interest at 2% above base rate and are secured by fixed and floating charges over the assets of the company and its subsidiaries. This facility is renewed annually. The cumulative preference shares are held on an ongoing basis and pay dividends at 8% per annum. JAMES L ATHAM PLC ANNUAL REPORT 2014 45 Financial Statements Notes forming part of the Group Accounts 17. Interest bearing loans and borrowings (continued) Bank loans Bank loans 2014 2013 Current £’000 238 Non-current £’000 903 Current £’000 229 Non-Current £’000 1,141 The weighted average interest rates paid were: Bank loans 2013 3.59% 2012 3.59% The weighted average period until maturity was 4.4 years (2013: 5.4 years). 18. Retirement and other benefit obligations Retirement benefit obligations (note 18.2) 2014 £’000 9,267 2013 £’000 16,793 18.1. Group pension schemes James Latham plc operates a group contributory defined benefit pension scheme. The scheme is a funded scheme. Benefits are provided based on earnings in the last twelve months before retirement, plus average bonuses received over the last three years. The assets of the scheme are held separately from those of the company. 60% of the assets are invested in equities, with 53% under passive management by Blackrock and 7% in a Fund of Hedge funds managed by Mesirow. 32% are held in bonds and gilts, with 19% managed by Mercers, 6% in an Absolute Return Fund managed by Wellington and 7% in an Index Linked fund managed by Blackrock, with the remaining 7% in a HLV Property Fund managed by Aviva and 1% in cash. The group contributory defined benefit pension scheme is closed to new entrants, and a defined contribution group scheme has been established for the pension provision of all other employees, including those contibuting through auto enrolment. The pension charge for the year for all schemes, excluding the exceptional adjustment (see note 18.3) was £1,370,000 (2013: £1,127,000). Of the charge, £113,000 (2013: £100,000) is included in cost of sales, £356,000 (2013: £269,000) is included in selling and distribution costs, and £901,000 (2013: £758,000) is included in administrative expenses in the income statement. Contributions are determined by a qualified actuary on a basis of triennial valuations using the projected unit funding method. The most recent available valuation was at 31 March 2011. The assumptions which have the most significant effect on the results of the valuation are those relating to the rate of return on investments and the rates of increase in salaries and pensions. It was assumed that the investment return would be 6.9% per annum pre-retirement and 5.0% per annum post- retirement, that the salary increases would average 4.6% per annum and that the present and future pensions would increase at the rate of 3% per annum in respect of service to 1 January 1991. Pensions accruing between 1 January 1991 and 28 February 1999 are required to increase at the greater of: (a) 4%, and (b) 3% on the GMP and 5% on the excess over the GMP. Pensions accruing after 1 March 1999 increase at Limited Price Indexation which has been assumed to average 3.5% in the future. Limited Price Indexation was replaced by the Consumer Price Index (CPI) for payrises occurring after 1 January 2014. 46 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 18.2. Group defined benefit pension scheme IAS19 (revised 2011) and the related consequential amendments have impacted the classification of costs for the group’s defined benefit pension scheme by replacing the combined interest cost on liabilities and expected return on plan assets with a net interest charge on the net defined benefit liability. Prior year comparatives have been restated as set out in note 3.2. The group operates a defined benefit scheme. The current practice of increasing pensions in line with inflation is included in the measurement of the defined benefit obligation. The retirement benefit liability recognised in the balance sheet is the present value of the defined benefit obligations, less the fair value of the scheme assets, adjusted for past service costs. Actuarial gains and losses are immediately recognised in the statement of other comprehensive income. 2014 £’000 2013 as restated £’000 Change in benefit obligation 62,770 Benefit obligation at beginning of year Service cost 823 Exceptional past service cost (1,797) 2,725 Interest cost 5 Plan members’ contribution (4,604) Actuarial (gain)/loss (1,670) Benefits paid (15) Premiums paid Benefit obligation at end of year Analysis of defined benefit obligation Schemes that are wholly or partly funded Change in scheme assets Fair value of scheme assets at beginning of year Interest income Return on plan assets (excluding interest income) Employers contributions (incl. employer direct benefit payments) Member contributions Benefits paid from plan Expenses paid Fair value of scheme assets at end of year Amounts recognised in the balance sheet Present value of funded obligations Fair value of scheme assets Net liability 58,237 58,237 45,977 2,026 939 1,834 5 (1,670) (141) 48,970 58,237 48,970 9,267 53,010 699 - 2,664 5 7,962 (1,525) (45) 62,770 62,770 40,694 2,079 3,043 1,869 5 (1,525) (188) 45,977 62,770 45,977 16,793 JAMES L ATHAM PLC ANNUAL REPORT 2014 47 Financial Statements Notes forming part of the Group Accounts 18.2. Group defined benefit pension scheme (continued) 2014 £’000 2013 as restated £’000 Components of pension expense Current service cost 823 Exceptional past service cost (1,797) 2,725 Interest cost (2,026) Income on plan assets 126 Expenses paid Total pension (credit)/expense recognised in the income statement (149) Actuarial (gain)/loss immediately recognised (5,543) Total recognised in the statement of other comprehensive income Cumulative amount of actuarial loss immediately recognised Plan assets The weighted-average asset allocations at the year end were as follows: Equities Bonds Property Other Amounts included in the fair value of assets for Equity instruments Bond instruments Property occupied Other assets used (5,543) 9,565 2014 59.8% 32.0% 7.4% 0.8% 100.0% 2014 £’000 29,271 15,694 3,608 397 48,970 699 - 2,664 (2,079) 143 1,427 4,919 4,919 15,108 2013 57.8% 33.1% 7.6% 1.5% 100.0% 2013 £’000 26,581 15,192 3,512 692 45,977 48 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 18.2. Group defined benefit pension scheme (continued) Weighted average assumptions used to determine benefit obligations: Discount rate Rate of compensation increase Inflation (RPI) Inflation (CPI) Rate of pension increases (CPI capped at 5% [RPI in 2013]) Weighted average life expectancy for mortality tables used to determine benefit obligations: Male member age 65 (current life expectancy) Female member age 65 (current life expectancy) Male member age 40 (life expectancy at age 65) Female member age 40 (life expectancy at age 65) Weighted average assumptions used to determine pension expense: Discount rate Rate of compensation increase 2014 4.50% 3.35% 3.35% 2.35% 2.35% 24.3 26.7 26.1 28.7 4.40% 4.40% 2013 4.40% 4.40% 3.40% 2.60% 3.30% 24.2 26.6 26.0 28.6 5.10% 4.30% Sensitivity analysis of the key assumptions The valuation of the scheme’s liabilities is dependant on the assumptions used. The sensitivity of the valuation of the liability to changes in the assumptions is shown in the table below: Impact on deficit (Decrease)/increase £’000 (3,000) Discount rate increases by 0.25% Inflation rate increases by 0.25% 1,407 Life expectancy increases by one year 1,703 History of plan assets and defined benefit obligation Present value of defined benefit obligation Fair value of plan assets Net liability 2014 £’000 58,237 48,970 9,267 2013 £’000 62,770 45,977 16,793 2012 £’000 53,010 40,694 2011 £’000 47,031 38,470 12,316 8,561 2010 £’000 44,587 36,276 8,311 Contributions The group expects to contribute £1,776,000 to the pension scheme for the year ending 31 March 2015. 18.3. Exceptional adjustment to defined benefit pension cost During the year, the trustees of the defined benefit pension scheme amended the index used to measure inflation from the Retail Price Index (RPI) to the Consumer Price Index (CPI). This followed research by the government and the Office of National Statistics which concluded that RPI overstated the true level of price inflation. This affected all pensioner pay rises with effect from 1 January 2014. The effect of this change is to produce an exceptional credit of £1,797,000 to the service cost for the year. JAMES L ATHAM PLC ANNUAL REPORT 2014 49 Financial Statements Notes forming part of the Group Accounts 18.4. Defined Contribution pension payments The group operates a defined contribution scheme managed by Aegon. The group has agreed to match contributions by employees up to a maximum of 7.5%. In February 2014 the group reached its staging date for auto enrolment where eligible employees are enrolled with a minimum of 3% matching contributions. Pension contributions paid to the defined contribution schemes for the year totalled £369,000 (2013: £275,000). 19. Other payables (non-current liabilities) Accruals and deferred income 2014 £’000 520 2013 £’000 579 20. Deferred tax The net deferred tax asset/(liability) is made up of the following elements: As at 1 April 2012 (Charge)/credit to the income statement Credit direct to equity At 31 March 2013 asset/(liability) (Charge)/credit to the income statement (Charge)/credit direct to equity Post- employment benefits £’000 Revalued properties £’000 2,813 (158) 1,259 3,914 (438) (1,520) (181) 8 71 (102) - 12 At 31 March 2014 asset/(liability) 1,956 (90) Credit direct to equity £’000 (2,227) 93 - (2,134) 278 - (1,856) Other (*) £’000 Total £’000 (750) (345) (125) (182) 1,330 - (875) 91 - 803 (69) (1,508) (784) (774) * Includes accelerated capital allowances, share-based payments, industrial buildings allowances and trading losses. Deferred tax has been calculated using rates that are expected to apply when the asset or liability is expected to be realised or settled, based on rates that were substantively enacted at the balance sheet date. 50 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 21. Share capital Ordinary shares Ordinary shares of 25 pence each 2014 and 2013 Authorised Issued Number 28,000,000 £’000 7,000 Number 20,160,000 £’000 5,040 Preference shares Authorised Issued 8% Cumulative Preference Shares of £1 each Number 1,500,000 £’000 1,500 Number 987,000 £’000 987 2014 and 2013 Preference shares are included in non-current liabilities (as interest bearing loans and borrowings). See note 17. The Cumulative Preference shares carry the right to receive the 8% dividend in priority to all other shares and the right of a return on assets in priority to all other shares. They do not carry the right to further participate in profits or assets, nor to vote at a General Meeting unless the resolution directly or adversely varies any of their rights or privileges. There were no movements in the share capital of the company in either the year ended 31 March 2014 or 2013. 22. Share-based payment Equity-settled share option schemes Details of the share options outstanding during the year are as follows: Number of share options 2014 Weighted average exercise price (£) Nil price share options Number of share options 2013 Weighted average exercise price (£) Nil price share options Outstanding at beginning of year Granted during the year Forfeited during the year (19,373) 2.24 Exercised during the year 2.14 38,082 3.96 746 - (39,261) 1.16 (17,820) 400,168 25,394 1.42 39,820 479,180 2.50 11,538 224,222 - 1.49 (13,464) (13,276) (289,770) 1.26 Outstanding at the end of the year 366,928 2.37 21,008 400,168 2.14 38,082 The weighted average share price for options exercised during the year was £3.96. JAMES L ATHAM PLC ANNUAL REPORT 2014 51 Financial Statements Notes forming part of the Group Accounts 22. Share-based payment (continued) Details of the options outstanding at 31 March 2014 are shown below. 12,894 of these options were exercisable at the year end. 2014 2013 Range of exercise prices Number of shares Weighted average expected remaining life (years) Nil price share options CSOP SAYE Nil price share options CSOP SAYE £1.16 - £3.96 £2.46 192,323 174,605 21,008 Nil £1.16-£2.73 £2.46 Nil 211,884 188,284 38,082 3.0 1.9 1.1 3.0 2.9 1.2 The Black-Scholes option model is used to calculate the fair value of the options and the amount to be expensed. No performance conditions apply to any of the share option schemes. The inputs into the Black-Scholes model, expressed as weighted averages for options granted during the year are as follows: 2014 CSOP SAYE Nil price share options CSOP £3.96 £3.96 24% 5 years 2.9% £1.07 - - - - - - - £2.73 - £2.73 24% - 5 years - 1.7% - £0.67 - 2013 SAYE £2.73 £2.46 24% 3 years 1.9% £0.65 Nil price share options £2.74 Nil 24% 3 years 1.7% £2.74 Share price at grant date Option exercise price Expected volatility Option life Risk free interest rate Fair value Expected volatility was determined by calculating the historical volatility of the group’s share price over the previous 5 years. The option life is based on options being exercised in accordance with usual patterns. Options are forfeited if the employee leaves the group before options vest. For the CSOP scheme, the options can be exercised up to 5 years after the vesting date, and with the SAYE scheme, this period is 6 months. The risk free interest rate is based on 10 year UK Government Bonds. For the nil price share options, dividends will be reinvested into additional shares in the plan. The group recognised total expenses of £80,000 (2013: £67,000) related to equity settled share-based payment transactions in the year. Share Incentive Plan The Company also runs an approved Share Incentive Plan in which eligible employees can buy Partnership Shares at mid-market price on the date of the grant. The shares are held in the employee benefits trust for a 5-year period. The number of shares held in trust of this plan at 31 March 2014 was 180,217 (2013: 182,082). 52 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 23. Own shares At 1 April 2012 Cost Movement in the year At 31 March 2013 Movement in the year At 31 March 2014 £’000 356 (138) 218 (43) 175 The investment in own shares represents 67,080 25p Ordinary shares (2013: 104,409 25p Ordinary shares) held on behalf of the James Latham plc Employee Benefits Trust, a discretionary trust. This represents 0.33% (2013: 0.52%) of the issued share capital. The maximum number of shares held during the year was 116,868 (0.58%). Dividends have been waived and all income and expenditure of the trust has been dealt with through the group's income statement. None of these shares have been allocated to employees. At 31 March 2014 719,200 (2013: 719,200) 25p Ordinary shares were held by the company as Treasury Shares. These shares will be either used to meet existing employee share option plan requirements or will be cancelled. 24. Cash generated from operations 2014 £’000 10,479 Profit before tax 796 Adjustment for finance income and expense 1,503 Depreciation and amortisation Loss/(profit) on disposal of property, plant and equipment 3 Increase in inventories (1,715) (3,965) (Increase)/decrease in receivables Increase/(decrease) in payables 3,571 Retirement benefits non cash amounts (2,682) 80 Share-based payments non cash amounts (34) Own shares non cash amounts Cash generated from operations 8,036 2013 £’000 6,969 657 1,208 (287) (1,393) 256 (663) (1,027) 67 42 5,829 25. Leasing commitments Future aggregate minimum payments under various operating lease contracts for vehicles, plant and property payable by the group are as follows: 2014 £’000 2013 £’000 Vehicles and Plant No later than one year Later than one year but no later than five years Property: No later than one year Later than one year but no later than five years Later than five years The average period of leasing for vehicles and plant is four to five years. 478 505 983 595 2,383 2,640 5,618 439 643 1,082 595 2,383 3,235 6,213 JAMES L ATHAM PLC ANNUAL REPORT 2014 53 Financial Statements Notes forming part of the Group Accounts 26. Related party transactions The group has a related party relationship with its subsidiaries and with its directors. Transactions between group companies, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The remuneration of the key management of the group, who are the Company’s directors, is set out below. Salaries and other short-term employee benefits Social security costs Pension costs Share-based payments 2014 £’000 798 97 122 35 1,052 2013 £’000 679 89 113 37 918 There are 5 directors to whom retirement benefits are accruing under defined benefit schemes, and 5 directors that exercised share options during the year. Emoluments for the highest paid director totalled £239,000 (2013: £209,000). The highest paid director also exercised 4,310 Company Share Option Plan share options during the year at a gain of £12,068. The highest paid director had an accrued defined benefit pension of £108,000 (2013: £97,000) at the balance sheet date. 27. Capital commitments At 31 March 2014, there were capital commitments contracted for but not provided in the accounts of £76,000 (2013: £531,000). 54 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 28. Financial instruments The group’s activities expose the group to a number of risks including market risk (foreign currency risk and interest rate risk), credit risk and liquidity risk. The group manages these risks through an effective risk management programme. Further details are set out in the financial review on pages 10-12. Maturity analysis The table below analyses the group’s financial liabilities on a contractual gross undiscounted cash flow basis into maturity groupings based on period outstanding at the balance sheet date up to the contractual maturity date. Less than 6 months £’000 Between 6 months and 1 year £’000 Between 1 and 5 years £’000 More than 5 years £’000 2014 Bank loans Trade payables Accruals Other payables Cumulative preference shares of £1 each Total 2013 Bank loans Trade payables Accruals Other payables Cumulative preference shares of £1 each Total 118 16,744 1,490 1,228 - 19,580 112 15,260 1,053 582 - 17,007 120 - - - - 120 117 - - - - 117 903 - - - - 903 1,005 - - - - - - - - 987 987 136 - - - 987 1,005 1,123 Total £’000 1,141 16,744 1,490 1,228 987 21,590 1,370 15,260 1,053 582 987 19,252 Foreign currency risk Approximately 30% of the group’s purchases are denominated in foreign currencies, principally the US dollar and the Euro. Forward contracts are used where we have agreed exchange rates with our customers and we also use other currency derivatives to help manage our short term exposure on a weakening sterling from time to time. However, no more than 25 percent of the currency requirements will be covered by forward contracts or other currency derivatives. Whilst purchases in foreign currencies are a significant figure, fluctuations in currency exchange rates do not have a major impact on the results. As the group trades mainly in the UK, the market price of our products tends to fluctuate in line with spot prices. Included in group cash and cash equivalents at 31 March 2014 was £390,000 in US Dollars (2013: £252,000) and £184,000 in Euros (2013: £27,000), at variable interest rates. Based on the balance sheet value of cash and cash equivalents, as shown above, a 10% change in the currency exchange rate would lead to an increase or decrease in income and equity of £57,000 (2013: £28,000). Interest rate risk The group’s interest rate exposure arises mainly from its interest bearing deposits. Deposits held at floating rates expose the entity to cash flow risk whilst deposits held at fixed rate expose the entity to fair value risk. The table below shows the group’s financial assets and liabilities split by those bearing fixed and floating rates and those that are non-interest bearing. JAMES L ATHAM PLC ANNUAL REPORT 2014 55 Financial Statements Notes forming part of the Group Accounts 28. Financial instruments (continued) The table below shows the group’s financial assets and liabilities split by those bearing fixed and floating rates and those that are non-interest bearing. Financial assets 2014 Cash and cash equivalents Trade and other receivables 2013 Cash and cash equivalents Trade and other receivables Financial liabilities 2014 Trade payables Accruals Other payables Bank loan Cumulative preference shares of £1 each 2013 Trade payables Accruals Other payables Bank loan Cumulative preference shares of £1 each Fixed rate £’000 - - - Fixed rate £’000 - - - Fixed rate £’000 - - - 1,141 987 2,128 Fixed rate £’000 - - - 1,370 987 2,357 Floating rate £’000 11,234 - Non- interest bearing £’000 - 31,341 11,234 31,341 Floating rate £’000 8,075 - 8,075 Floating rate £’000 - - - - - - Floating rate £’000 - - - - - - Non- interest bearing £’000 - 27,363 27,363 Non- interest bearing £’000 16,744 1,490 1,228 - - 19,462 Non- interest bearing £’000 15,260 1,053 582 - - 16,895 Total £’000 11,234 31,341 42,575 Total £’000 8,075 27,363 35,438 Total £’000 16,744 1,490 1,228 1,141 987 21,590 Total £’000 15,260 1,053 582 1,370 987 19,252 Interest rate risk is limited to the cash and cash equivalents and bank loans. Based on the balance sheet value of cash and cash equivalents and bank loans, as shown above, a 1% change in interest base rates would lead to an increase or decrease in income and equity of £112,000 (2013: £81,000). 56 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes forming part of the Group Accounts 28. Financial instruments (continued) Credit risk exposure Credit risk arises on our financial asset investments, trade receivables and cash and cash equivalents. Credit exposure is managed on a group basis and appropriate credit limits are set for each customer taking into account credit reports received from outside agencies, and previous credit history. Credit insurance is taken out to cover approved individual debtors with balances over £40,000. Where limits are required above £40,000 that cannot be backed by insurance, a sub-committee of the board will review reports on the customer, and agree additional limits if appropriate. Bad debts are 0.1% of sales this year, compared with our target of 0.5%. The carrying amount of financial assets recorded in the accounts, which is net of impairment losses, represents the groups maximum exposure to credit risk. Liquidity risk The group closely monitors its cash position to ensure that it has sufficient funds to meet the obligations of the group as they fall due. Short term bank deposits are executed only with organisations with a long term rating of at least A- from the major rating agencies. Capital management The group manages its capital risk by ensuring that its capital, which represents share capital, retained earnings, investments in own shares and cash, is sufficient to support the ongoing needs of the business, and is organised to try and minimise the cost of capital over the medium term. The group’s current strategy is to maintain sufficient cash balances to satisfy ongoing needs. Finance income An analysis of finance income is set out in note 6 to the consolidated accounts. Finance costs An analysis of finance costs is set out in note 7 to the consolidated accounts. Financial instruments recognised in the balance sheet 2014 Current assets Trade receivables Other receivables Cash and cash equivalents Total current assets Current liabilities Trade payables Other payables Accruals Bank loans Total current liabilities Non-current liabilities Bank loans Total non-current liabilities Loans and receivables £’000 30,281 1,060 11,234 42,575 Total 16,744 1,228 1,490 238 Financial liabilities measured at amortised cost 16,744 1,228 1,490 238 19,700 19,700 903 903 903 903 JAMES L ATHAM PLC ANNUAL REPORT 2014 57 Loans and receivables £’000 26,548 815 8,075 35,438 Financial liabilities measured at amortised cost Total 15,260 582 1,053 229 15,260 582 1,053 229 17,124 17,124 1,141 1,141 1,141 1,141 Financial Statements Notes forming part of the Group Accounts 28. Financial instruments (continued) Financial instruments recognised in the balance sheet (continued) 2013 Current assets Trade receivables Other receivables Cash and cash equivalents Total current assets Current liabilities Trade payables Other payables Accruals Bank loans Total current liabilities Non-current liabilities Bank loans Total non-current liabilities 58 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Company Balance Sheet Company number: 65619 At 31 March 2014 £’000s Fixed assets Tangible fixed assets Investments Current assets Debtors: amounts falling due within one year Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Represented by: Capital and reserves Called up share capital Investment in own shares Share-based payment reserve Profit and loss account Equity Shareholders Funds Notes 2014 2013 2 3 4 5 6 8 9 10 10 3,819 9,137 12,956 (4,214) 23 14,613 14,636 8,742 23,378 (1,305) 22,073 5,040 (175) 123 17,085 22,073 6,560 6,808 13,368 (2,816) 17 14,613 14,630 10,552 25,182 (1,338) 23,844 5,040 (218) 91 18,931 23,844 These accounts were approved and authorised for issue by the Board of Directors on 25 June 2014 and signed on its behalf by: N.C. Latham D.A. Dunmow } Directors The notes on pages 60 to 65 form part of these company accounts. JAMES L ATHAM PLC ANNUAL REPORT 2014 59 Financial Statements Notes to the Company Accounts 1. Principal accounting policies The parent company accounts have been prepared in accordance with applicable Accounting Standards in the United Kingdom (UK GAAP). A summary of the company accounting policies, which have been applied consistently, is set out below. (a) Basis of accounting The accounts have been prepared under the historical cost convention. The directors have prepared the financial statements on the going concern basis for the reasons set out on page 25. The company does not present its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The company profit is disclosed in note 11 to the company accounts. (b) Fixed assets less depreciation. Fixed assets are stated at cost Depreciation is provided to write off the cost or valuation over the estimated useful lives of the assets on a straight line basis, as follows: Plant and machinery 4 to 20 years (c) Deferred taxation Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in future or a right to pay less tax in future have occurred at the balance sheet date. Deferred taxation assets are recognised to the extent that it is regarded as more likely than not that they will be recoverable against suitable taxable profits in the future. Discounting has been applied using appropriate post-tax discount rates. (d) Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease rentals are charged to the profit and loss account in the year in which they fall due, except where provision has been made for future rents on unoccupied properties. (e) Pension scheme costs The James Latham Plc defined benefit pension scheme is a multi-employer scheme due to the historic complexities of the group structure and thus no separate actuarial information is available in respect of the employees of the parent company. Full details of the basis of calculation of the net pension liability is disclosed in the group balance sheet at 31 March 2014, and of the amounts charged/credited to the group income statement and group equity are set out in note 18 to the group accounts. In the company accounts, contributions to the defined benefit scheme have been charged to the profit and loss account as incurred. Pension payments made into the group’s defined contribution schemes are charged to the profit and loss account as they arise. (f) Share-based payments The accounting for share-based payments mirrors that of the group’s accounting policy under IFRS2 as detailed in note 1.17 to the group accounts. Details of the share-based payments are set out in note 22 to the group accounts. (g) Investments Fixed asset investments in subsidiaries are shown at cost less provision for impairment. The carrying values of fixed asset investments are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such indication exists, the carrying value is written down to its estimated recoverable amount. (i) Treasury shares Treasury shares are valued on a cost basis. Any treasury share balance at the balance sheet date has been transferred as a deduction to accumulated profits. (j) Employee Share Ownership Plan (ESOP) Own shares represent the company’s shares that are held by the company sponsored ESOP trust in relation to the group’s employees share scheme. Own shares are deducted at cost in arriving at shareholders’ equity and gains and losses on their sale or transfer are recognised directly in equity. ESOP is treated seperately and consolidated in the company accounts. (k) Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities. (l) Bank borrowings Interest-bearing bank loans are recorded initially at their fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in the income statement over the term of the instrument using an effective rate of interest. 60 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes to the Company Accounts Plant, equipment and vehicles £’000 343 10 353 326 4 330 23 17 2. Tangible fixed assets Cost: At 1 April 2013 Additions At 31 March 2014 Depreciation: At 1 April 2013 Provision for the year At 31 March 2014 Net book value At 31 March 2014 At 31 March 2013 3. Fixed asset investments Subsidiary undertakings Shares: At 1 April 2013 and 31 March 2014 Loans: At 1 April 2013 and 31 March 2014 Total at 31 March 2014 and 2013 £’000 9,613 5,000 14,613 The loan to Lathams Limited has no fixed repayment terms and interest is charged at a rate of 1.25% above base rate per annum. Details of subsidiary companies are given in note 12 to the company accounts. 4. Debtors: amounts falling due within one year Trade debtors Amounts owed by subsidiary undertakings Other debtors Corporation tax Deferred taxation (note 7) Prepayments and accrued income 2014 £’000 23 2,985 1 785 6 19 3,819 2013 £’000 14 5,464 - 1,059 8 15 6,560 JAMES L ATHAM PLC ANNUAL REPORT 2014 61 Financial Statements Notes to the Company Accounts 5. Creditors: amounts falling due within one year Bank overdraft Trade creditors Other taxation and social security Other creditors Accruals and deferred income 6. Creditors: amounts falling due after more than one year Accruals and deferred income 8% Cumulative Preference Shares of £1 each (note 8) 2014 £’000 3,390 35 466 236 87 4,214 2014 £’000 318 987 1,305 2013 £’000 2,203 32 413 112 56 2,816 2013 £’000 351 987 1,338 Bank loans and overdrafts are secured by fixed and floating charges over the assets of the company and its subsidiaries. 7. Deferred taxation Included in debtors (note 4) is a deferred taxation asset of £6,000 (2013: £8,000) 2014 £’000 The deferred taxation provision comprises: Accelerated capital allowances (6) - Timing differences on pension adjustments Undiscounted provision for deferred tax Discount Discounted provision for deferred tax (6) - (6) Deferred taxation is provided at a rate of 20% (2013: 23%). Some or all of the deferred taxation debtor may be recoverable after more than one year. 8. Share capital Details of the share capital of the company are set out in note 21 to the consolidated accounts. 2013 £’000 (8) - (8) - (8) 62 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes to the Company Accounts 9. Investment in own shares Shares: At 1 April 2013 Movements during the year Total at 31 March 2014 Total at 31 March 2013 £’000 218 (43) 175 218 The investment in own shares represents 67,080 25p ordinary shares (2013: 104,409 25p ordinary shares) held on behalf of the James Latham plc Employee Benefits Trust, a discretionary trust. Dividends have been waived and all income and expenditure of the trust has been dealt with through the group's income statement. None of these shares have been allocated to employees. 10. Reserves Profit and loss account £’000 Share-based payment reserve £’000 Total £’000 18,931 At April 2013 214 Profit for the year Dividends (2,031) Exercise of options 48 (77) Conversions of ESOP shares - Share-based payment expense 91 - - 19,022 214 (2,031) (48) - (77) 80 - 80 At 31 March 2014 17,085 123 17,208 At 31 March 2014 719,200 (2013: 719,200) 25p Ordinary shares were held by the company as Treasury Shares. These shares will be either used to meet existing employee share option plan requirements or will be cancelled. 11. Reconciliation of movements in shareholders’ funds Profit for the financial year Dividends 2014 £’000 214 (2,031) (1,817) Change in investment in ESOP shares (34) 80 Movement in share based payment reserve Reduction in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds (1,771) 23,844 22,073 JAMES L ATHAM PLC ANNUAL REPORT 2014 63 Financial Statements Notes to the Company Accounts 12. Principal subsidiary undertakings Name Country of incorporation Class of shares Percentage of ownership Principal activity Lathams Limited England and Wales £1 Ordinary 100% James Latham Trustee Limited England and Wales £1 Ordinary 100% Importing and distribution of timber and panel products Corporate Trustee Company LDT Westerham Limited England and Wales £1 Ordinary Baüsen Limited England and Wales £1 Ordinary James Latham (Midland and Western) Limited* England and Wales £1 Ordinary Advanced Technical Panels Limited* England and Wales £1 Ordinary Latham Timber Centres (Bridgwater) Limited England and Wales £1 Ordinary James Latham (Warehousing) Limited England and Wales £1 Ordinary 100% 100% 100% 100% 100% 100% Dormant Dormant Dormant Dormant Dormant Dormant * Indirectly held All companies operate within the United Kingdom. 13. Leasing commitments Leasing commitments under various operating lease contracts for vehicles, plant and property payable by the company. Vehicles and plant: Leases expiring within one year Leases expiring within two to five years Property: Leases expiring after more than five years 14. Related party transactions 2014 £’000 2 23 25 87 2013 £’000 3 26 29 87 The company has taken advantage of the exemption in FRS8 Related Parties not to disclose transactions with the active subsidiary company. 64 JAMES L ATHAM PLC ANNUAL REPORT 2014 Financial Statements Notes to the Company Accounts 15. Financial instruments Risk management disclosures as applicable to the group as a whole are set out in note 28 to the consolidated financial statements. The company’s financial instruments comprise cash, bank loans and bank overdrafts, other creditors and various items arising directly from its operations, such as trade debtors and trade creditors. Trade debtors, trade creditors, group balances and other items arising directly from operations have been excluded from the following disclosures. The main purpose of these financial instruments is to provide working capital and to assist with the purchase of capital assets for the company. The company’s policy is to obtain the highest rate of return on its cash balances, subject to having sufficient resources to manage the business on a day to day basis and not exposing the company to unnecessary risk of default. The company’s cash at bank is all in sterling accounts. The total borrowing facilities available to the company which were undrawn as at 31 March 2014 were: Repayable on demand The carrying value of all financial instruments is not materially different from their fair value. £ 2,000,000 16. Dividends 2014 2013 Ordinary dividends: Final 7.1p per share paid 23 August 2013 (2012: 6.75p) Interim 3.4p per share paid 31 January 2014 (2013: 3.1p) £’000 1,372 659 £’000 2,031 £’000 1,284 599 £’000 1,883 The Directors propose a final dividend for 2014 of 8.0p per share, that, subject to approval by the shareholders, will be paid on 22 August 2014 to shareholders on the register on 1 August 2014. Based on the number of shares currently in issue, the final dividend for 2014 is expected to absorb £1,555,000. JAMES L ATHAM PLC ANNUAL REPORT 2014 65 Notice of Annual General Meeting Notice is hereby given that the one hundred and fifteenth Annual General Meeting of the Company will be held at Unit 3, Swallow Park, Finway Road, Hemel Hempstead, Hertfordshire, HP2 7QU on Wednesday 20 August 2014 at 12.30pm. Resolutions 1 to 9 inclusive will be proposed as ordinary resolutions, and resolutions 10 and 11 will be proposed as special resolutions. Ordinary business 1. To receive and adopt the Directors’ Report and Accounts for the year ended 31 March 2014 together with the Independent Auditors report thereon. 2. To declare the final dividend recommended by the directors on the ordinary shares of the Company. 3. To re-elect Pippa Latham as a director, who retires by rotation. 4. To re-elect Meryl Bushell as a director, who retires by rotation. 5. To re-elect Peter Latham as a director, who retires by rotation. 6. To re-elect Chris Sutton as a director, who retires by rotation. 7. To elect Piers Latham as a director, who was appointed during the year. 8. To re-appoint Baker Tilly UK Audit LLP, Chartered Accountants, as auditors to hold office from the conclusion of the meeting to the conclusion of the next meeting at which accounts are laid before the Company, at a remuneration to be determined by the directors. Special business 9. Directors authority to allot shares: To consider, and if thought fit, pass the following resolution: “THAT in substitution for all existing authorities, to the extent unused, the directors be and they are generally and unconditionally authorised for the purposes of section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot equity securities up to an aggregate nominal amount of £1,680,000 provided that this authority shall expire at the earlier of the conclusion of the Company’s next Annual General Meeting or 15 months from the date of the passing of this resolution and that the Company may before such expiry make offers or agreements which would or might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such offers or agreements notwithstanding that the authority conferred has ‘equity securities’ and expired. The expression ‘allotment’ shall bear the same meanings respectively given to the same in section 560 Companies Act 2006.” 10. Disapplication of pre-emption rights: To consider, and if thought fit, pass the following resolution: “THAT subject to the passing of the previous Resolution 9, pursuant to section 571 of the Companies Act 2006, section 561 of the Companies Act 2006 shall not apply to any allotment or agreement to allot equity securities pursuant to the authority conferred by Resolution 9: (a) this power shall be limited to: (i) the allotment of equity securities in connection with or subject to an offer or invitation, open for acceptance for a period fixed by the Directors, to the holders of Ordinary Shares on the register on a fixed record date in proportion (as nearly as maybe) to their respective holdings or in accordance with the rights attached thereto (including equity securities which, in connection with such offer or invitation, are the subject of such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with the fractional entitlements which would legal or practical otherwise arise or with problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory or otherwise how so ever); and (ii) other than pursuant to paragraph (a)(i) of this Resolution, the allotments of equity securities for cash up to an aggregate nominal amount of £252,000; and (b) this power shall expire at the earlier of the conclusion of the next Annual General Meeting of the Company or 15 months from the date after passing of this Resolution except that the Directors may allot equity securities under this power after that date to satisfy an offer or agreement made before this power expired.” 66 JAMES L ATHAM PLC ANNUAL REPORT 2014 Notice of Annual General Meeting 11. Authority of the Company to purchase its own shares: To consider and, if thought fit, pass the following resolution: “THAT the Company be and is generally and unconditionally authorised to make one or more market purchases (within the meaning of section 693 (4) of the Companies Act 2006) of its Ordinary Shares of 25p each provided that: (a) the maximum aggregate number of Ordinary Shares which may be purchased is 2,016,000 (representing 10% of the issued share capital of the Company); (b) the price at which Ordinary Shares may be purchased shall not be more than 105% of the average of the closing middle market price for the Ordinary Shares as derived from the AIM section of the London Stock Exchange Daily Official List for the five business days preceding the date of purchase and shall not be less than 25p per Ordinary Share (in both cases exclusive of expenses); and (c) this power shall expire at the earlier of the conclusion of the next Annual General Meeting of the Company or 15 months from the date of the passing of this resolution.” By Order of the Board D.A. Dunmow Company Secretary Registered Office: Unit 3, Swallow Park, Finway Road Hemel Hempstead, Hertfordshire HP2 7QU 25 June 2014 Notes: The Report and Accounts are sent to all members of the Company. Holders of preference shares are not entitled to be present, either personally or by proxy, or to vote at any general meeting so long as the dividends on such preference shares are regularly paid or unless a resolution is to be proposed for winding up the Company, reducing its capital or selling its undertaking or adversely affecting the rights of the holders of preference shares. A member entitled to attend and vote at the above Meeting is entitled to appoint one or more proxies to attend, speak and vote on his/her behalf. A proxy need not be a member of the Company. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. A proxy form is enclosed. To be valid, it must be lodged with the Company's Registrars at Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY, not later than 48 hours before the fixed time for the Meeting. Copies of directors' contracts of service, the register of interests of directors, the Company's memorandum of association and the articles of association will be available for inspection at the Registered Office during normal business hours from the date of the above notice until the close of the meeting. In accordance with Regulation 41 of the Uncertified Securities Regulations 2001, only those members eligible to vote and entered on the Company's register of members as at 12.30pm on Monday 18 August 2014 are entitled to attend and vote at the meeting; or, if the meeting is adjourned, shareholders entered on the Company’s register of members not later than 48 hours before the time fixed for the adjourned meeting shall be entitled to attend and vote at the adjourned meeting. At 25th June 2014, the Company’s issued share capital consisted of 20,160,000 shares of which 719,200 shares are held in Treasury. Each share not held in Treasury carries one vote. The total number of voting rights are therefore 19,440,800. JAMES L ATHAM PLC ANNUAL REPORT 2014 67 Notice of Annual General Meeting Share dealing service for shareholders We continue to operate a telephone share dealing service with our registrar, Computershare Investor Services PLC, which provides shareholders with a simple way of buying or selling James Latham plc ordinary shares on the London Stock Exchange. The commission is 1%, subject to a minimum charge of £25. There are no forms to complete and the share price at which you deal will generally be confirmed to you whilst you are still on the telephone. The service is available from 8am to 4.30pm Monday to Friday excluding bank holidays on telephone number 0870 703 0084. Please ensure you have your Shareholder Reference Number (SRN) ready when making the call. The SRN appears on your share certificate. In addition an internet share dealing service is available by logging into your account on www-uk.computershare.com/investor. The fee for this service will be 0.5% of the value of each sale or purchase of shares, subject to a minimum of £15. There are no additional charges for limit orders (available for sales only). No stamp duty is currently payable on share transfers. Detailed terms and conditions are available on request, please phone 0870 707 1093. This is not a recommendation to buy, sell or hold shares in James Latham plc. If you are unsure of what action to take contact a financial adviser authorised under the Financial Services and Markets Act 2000. Please note that share values may go down as well as up, which may result in you receiving less than you originally invested. In so far as this statement constitutes a financial promotion for the share dealing service provided by Computershare Investor Services it has been approved by Computershare Investor Services PLC for the purpose of Section 21(2)(b) of the Financial Services and Markets Act 2000 only. Computershare Investor Services PLC is regulated by the Financial Services Authority. Where this has been received in a country where the provision of such a service would be contrary to local laws or regulations, this should be treated as information only. 68 JAMES L ATHAM PLC ANNUAL REPORT 2014 James Latham Importing and Distribution companies PEFC/16-37-046 Purfleet serves timber customers across the Thurrock, Hemel Hempstead and part of the Fareham panels sales areas. Leeds Speciality Products Advanced Technical Panels – Northern Depot Topcliffe Close, Off Topcliffe Lane Capitol Park East, Tingley, Leeds West Yorkshire WF3 1DR Tel 0113 387 0850 Fax 0113 387 0855 Email: atp@lathams.co.uk Southern Depot Unit 2 Swallow Park Finway Road Hemel Hempstead Herts HP2 7QU Tel 01442 849009 Fax 01442 239287 Email: atp@lathams.co.uk www.advancedtechnicalpanels.co.uk Flooring Products Thurrock, Essex Unit 4 Dolphin Way Purfleet Essex RM19 1NZ Tel 01708 681700 Fax 01708 252381 Email: flooring@lathams.co.uk Timber Products Purfleet, Essex Units 22/24 Purfleet Industrial Park Juliette Way Aveley South Ockendon Essex RM15 4YD Tel 01708 864477 Fax 01708 862727 Email: timber.purfleet@lathams.co.uk Panel and Timber Products Dudley, West Midlands Unit 3, Yorks Park Blowers Green Road, Dudley West Midlands DY2 8UL Tel 01384 234444 Fax 01384 233121 Email: panels.dudley@lathams.co.uk Email: timber.dudley@lathams.co.uk Fareham, Hants Unit 6, Matrix Park Talbot Road, Fareham Hants PO15 5AP Tel 01329 854800 Fax 01329 849585 Email: panels.fareham@lathams.co.uk Email: timber.fareham@lathams.co.uk Gateshead, Tyne & Wear Nest Road Felling Industrial Estate Gateshead Tyne & Wear NE10 OLU Tel 0191 469 4211 Fax 0191 469 2615 Email: panels.gateshead@lathams.co.uk Leeds, West Yorkshire Topcliffe Close, Off Topcliffe Lane Capitol Park East Tingley, Leeds West Yorkshire WF3 1DR Tel 0113 387 0830 Fax 0113 387 0855 Email: panels.leeds@lathams.co.uk Email: timber.leeds@lathams.co.uk Wigston, Leicester Chartwell Drive, Off West Avenue Wigston, Leicester LE18 2FN Tel 0116 288 9161 Fax 0116 281 3806 Email: panels.wigston@lathams.co.uk Email: timber.wigston@lathams.co.uk Yate, Bristol Badminton Road Trading Estate Yate, Bristol BS37 5JX Tel 01454 315421 Fax 01454 323488 Email: panels.yate@lathams.co.uk Email: timber.yate@lathams.co.uk Eurocentral, Scotland Pharos, Brittain Way Eurocentral, Motherwell Lanarkshire ML1 4XJ Tel 01698 838777 Fax 01698 831452 Email: scotland@lathams.co.uk Panel Products Hemel Hempstead, Herts Unit 2, Swallow Park Finway Road Hemel Hempstead Herts HP2 7QU Tel 01442 849000 Fax 01442 239287 Email: panels.hemel@lathams.co.uk Thurrock, Essex Unit 4, Dolphin Way Purfleet, Essex RM19 1NZ Tel 01708 869800 Fax 01708 860900 Email: panels.thurrock@lathams.co.uk Accounts/Credit Control/Administration James Latham Unit 3 Swallow Park Finway Road Hemel Hempstead Herts HP2 7QU Tel 01442 849100 Fax 01442 267241 Marketing Tel 0116 257 3415 Email marketing@lathams.co.uk Website www.lathamtimber.co.uk (Trading) www.lathams.co.uk (Plc) Designed by and printed on: Gentry Design Associates Regency Satin Howard Smith paper Group Cover: 300gsm Text: 150gsm JAMES LATHAM PLC Unit 3 Swallow Park Finway Road Hemel Hempstead Herts HP2 7QU Telephone 01442 849100 Fax 01442 267241 Email: plc@lathams.co.uk www.lathams.co.uk