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Annual Report 2015

Plain-text annual report

J A M E S L A T H A M P L C ANNUAL REPORT & ACCOUNTS 2015 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 12 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 Kronospan Mirror Gloss 2 Xylocleaf 3 Lifecycle Decking 4 LG HI-MACS ® Financial Highlights for the year ended 31 March 2015 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 2015 £000 2014 £000 174,855 163,117 10,564 6.0% 10,107 40.3p 12.5p 62,231 12,501 9,478 5.8% 8,682 36.9p 11.4p 58,108 11,234 Increase 7.2% 11.4% 3.4% 16.4% 9.2% 9.6% 7.1% 11.3% 2013 £000 143,069 7,369 5.2% 6,969 28.7p 10.2p 47,467 8,075 Turnover (£000’s) Adjusted EPS Dividend 5 5 8 , 4 7 1 7 1 1 , 3 6 1 5 4 6 , 3 4 1 9 6 0 , 3 4 1 1 5 1 , 0 3 1 p 3 . 0 4 p 9 . 6 3 p 8 . 0 3 p 9 . 1 3 p 7 . 8 2 p 5 . 2 1 p 4 . 1 1 p 5 2 . 9 p 5 7 . 9 p 2 . 0 1 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Financial Calendar Record date for final dividend 2015 AGM Payment of final dividend Interim 2015/16 results announcement Interim dividend expected payment date Preliminary announcement of 2015/16 results AGM 2016 6 August 2015 26 August 2015 28 August 2015 26 November 2015 29 January 2016 23 June 2016 24 August 2016 JAMES LATHAM PLC ANNUAL REPORT 2015 1 Chairman’s Statement I am pleased to report good trading results for the financial year to 31 March 2015. Group revenue for the financial year to 31 March 2015 was £174.9m, 7.2% up on last year’s £163.1m. The operating profit was £10.6m, up £1.1m from £9.5m, which, together with pre-tax profit, post-tax profit and earnings per share shown below, is adjusted to exclude £1.8m of exceptional gains relating to the pension scheme last year. The higher volume traded this year has increased costs, notably in distribution. Finance income was £46,000 against £27,000 last year. Finance costs, which are principally interest on the pension scheme deficit as calculated under IAS19 (revised) were £503,000 against £823,000 last year Pre-tax profit was £10.1m, up £1.4m from an adjusted profit of £8.7m last year. The tax charge represents a rate of 22.6% up from last year’s 18.0% which benefited from a credit due to a reduction in rates of tax used in deferred tax calculations. Post-tax profit for the year is £7.8m, up from last year’s adjusted figure of £6.8m. Earnings per share were 40.3p compared to last year’s adjusted 36.9p. Net assets (total equity) were £62.2m compared to £58.1m last year. At the year end the group’s cash reserves stood at £12.5m compared to £11.2m last year. Final dividend The directors recommend a final dividend of 8.8p per ordinary share (2014 8.0p). The final dividend will be paid on 28 August 2015 to shareholders on the register at the close of business on 7 August 2015. The shares will become ex-dividend on 6 August 2015. The total dividend per ordinary share of 12.5p for the year is covered 3.2 times by earnings (2014: 3.2 times). Financial year 2014/15 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. Year on year growth was slightly lower in the second half year, because 2013/14 had been a very strong final quarter. Both panels and timber grew revenues throughout the year. The gross margin per cent, before warehouse costs, increased by 0.4 percentage points, due to a better product mix. Timber and panel prices remained steady throughout the year. Focus panel products including Melamine Panels and Door Blanks, continued to show good growth. Accoya modified wood and WoodEx, our brand of engineered timber for the joinery sector, were particularly successful this year. Overheads have been controlled, and are within our budget forecast, but higher than last year’s due to the extra volumes, smaller order size and later order times for next day delivery. Staff numbers have increased during the year, with sales staff recruited in areas of the business where we see opportunities. Bad debts were low overall for the year, despite the relatively high level seen in the first quarter of the financial year. Pension Scheme The Company and the Trustees of the James Latham plc Pension and Assurance Scheme have approved the triennial valuation dated 31 March 2014 with the scheme Actuary. This valuation shows a shortfall of assets of £1,546,000 compared to a shortfall of £9,030,000 in the previous valuation dated 31 March 2011. The Company has agreed a recovery plan over two years with the Trustees, and will continue its previous recovery plan, paying £1,155,000 in the year to 31 March 2015 and then £420,000 in the year to 31 March 2016. 2 JAMES LATHAM PLC ANNUAL REPORT 2015 Chairman’s Statement At 31 March 2015 the deficit of the defined benefit scheme under IAS19 (revised) was £10.4m up £1.1m compared with £9.3m last year. This increase is the result of the fall in the corporate bond yield used to calculate the present value of the scheme’s liabilities and reflects the volatility of the accounting for this scheme. Current financial year 2014/15 This year so far revenues are 7% higher for April and May than the corresponding period last year, both in panels and timber. The gross margin is also higher. It is a steady start to the year and generally customers are busier than they were for the final quarter of the last financial year. The panels market remains particularly competitive, although we are seeing encouraging growth in the newer decorative products we have introduced. 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 at Yate and Wigston over the next two to three years, to emulate the success that investment in new facilities has delivered elsewhere. The group is in a strong financial position to take advantage of opportunities for further business growth, as and when they arise. Directors and staff From 1 April 2015 Andrew Wright was appointed as a main board director. After serving on the trading board, Lathams Limited, for a number of years he has responsibility for product development and brings valuable experience of our operations and markets. There is a clear division of responsibilities with the main board determining strategy and exercising corporate governance and the trading board of Lathams Limited, chaired by Chris Sutton, 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 by product champions at each depot. This year has been difficult for me personally following my serious accident in April 2014. My recovery would not have been as speedy without the support of my family and colleagues. I would particularly like to thank Meryl Bushell, who covered for me as Acting Chairman, and the rest of the board for their help and support. The company has continued to make progress during the year in what remain challenging trading conditions. We provide a high quality of customer service as measured by our record fifth consecutive TTJ award of Timber Trader of the Year and I would like to thank everyone in the group for their individual contribution. Peter Latham Chairman, James Latham plc 23 June 2015 JAMES LATHAM PLC ANNUAL REPORT 2015 3 Strategic Report Introduction Outline of the Strategic Report The directors present their strategic report for the year ended 31 March 2015. The Strategic Report encompasses the following information. Page 5 6 7 10 12 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 23rd June 2015 and signed on its behalf by:- Peter Latham David Dunmow 2 4 1 3 1 Accoya Cladding. 2 Xylocleaf. 3 Moralt Doors. 4 Decogloss. 4 JAMES LATHAM PLC ANNUAL REPORT 2015 Strategic Report James Latham plc and Our Objectives James Latham plc sets out to be the supplier of choice throughout the UK for joinery, door and kitchen manufacturers, shopfitters and other market sectors offering a wide range of wood based panels, natural acrylic stone, hardwoods, high grade softwoods, flooring, cladding and decking. 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. 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. 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 was voted UK Timber Trader of the Year in 2000, 2002, 2004, 2008, 2010, 2011, 2012, 2013 and 2014 in a vote of readers of the Timber Trades Journal. The company’s objectives are: • To increase sales of third party certified sustainable • To maximise shareholder value over the timber products; medium term; • To provide a safe working environment for • To grow the business profitably; our staff; • 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. “ Our mission is to continue to deliver improved returns by supplying quality sustainable products with excellent staff providing excellent service.” JAMES LATHAM PLC ANNUAL REPORT 2015 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 5 8 , 4 7 1 7 1 1 , 3 6 1 9 6 0 , 3 4 1 6 9 8 8 3 9 9 0 8 9 . 6 3 3 . 0 4 7 . 8 2 2013 2014 2015 2013 2014 2015 2013 2014 2015 Turnover up 7.2% Tonnes per working day up 4.7% Adjusted earnings per share up 9.2% Debtors days average Stock turn (times) Cash (£000’s) 9 . 2 5 6 . 2 5 4 . 2 5 9 . 5 6 . 6 2 . 6 1 0 5 , 2 1 4 3 2 , 1 1 5 7 0 , 8 2013 2014 2015 2013 2014 2015 2013 2014 2015 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 and excludes stock being processed in kilns Cash balances up £1,267,000 6 JAMES LATHAM PLC ANNUAL REPORT 2015 Strategic Report Operating Review borne fruits, with all bar one showing significant growth in the last 12 months. Our range of hardwood and softwood plywood has gained market share based on quality, performance and environmental credentials, attracting new and regenerating old customers. Turnover of MDF was steady throughout the year showing a small volume increase in a static market. One encouraging area has been a large increase in sales of Medite Tricoya Extreme Durable MDF. Development of added value OSB and its competitiveness versus plywood has enabled us to grow sales into merchants and manufacturers. During the year we launched LuminFirePro, our high quality fire retardant (FR) plywood. More FR products will be launched in the new financial year. A strategic PR, advertising and marketing plan is put in place for each year, covering group and depot activities. A more coordinated marketing approach saw our name reach over 4,000,000 readers. Each year we target our depots on their focus product sales and they achieved more than £1m extra sales above their target. Our policy of promoting our range to Architects, Designers and Specifiers has seen us gain specification for many products, including Koski Décor Eco, HI-MACS® acrylic stone surfaces, Moralt door blanks and Valchromat, a coloured throughout MDF. New and improved showrooms displaying our wide range of products continues to attract existing and new customers, plus trade associations such as ASDMA and IOM3. Results for the year to 31 March 2015 The UK economy has continued to show the steady growth started at the end of 2013 with demand remaining good throughout the year. Our customers and the timber trade in general remain optimistic for continued steady growth. Revenue for 2014/15 was £174.9m, £12m higher than the previous year, reflecting improving volumes in both panels and timber with some gently increasing prices. The gross margin, the difference between the sales values and the cost prices excluding warehouse costs, was 0.4 percentage points up on the previous year. Margins on our specialised products improved, although continuing competitive pressure in our markets made margin improvement in other products difficult to achieve. Staff numbers have increased this year, mainly in selling and warehouse staff. We invested in additional sales staff, with specific product knowledge and skills in key product areas, in order to develop the markets for our more specialised products, spending an increasing amount of time with architects and designers. We have also found this year that average order sizes are reducing, with customers continuing to demand just in time supplies. With the increase in business, this put pressure on our operations team, and so more depots are introducing longer shift systems, resulting in an increase in manpower. Overhead cost control though has continued to be important and we continually look to improve 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 and natural acrylic stone) Panel sales at £124.9m were 7.3% higher than last year, with volumes up 4.9%. The group’s strategy continues to be to target markets for decorative surfaces to include veneered and melamine panels, laminates and HI-MACS® natural acrylic stone plus flexible panels. We continue to add new product lines to our decorative range. These products are of higher value and generate more gross profit. The decision to hold a strategic supplier meeting with key panel suppliers in spring 2014 has We sponsored these amazing Observatory style artist’s studios supplying home grown and imported Larch which was charred to clad the exterior as well as Accoya, Medite Tricoya Extreme and Smartply which was used on the interiors. JAMES LATHAM PLC ANNUAL REPORT 2015 7 Strategic Report Operating Review The Surface Design Show exhibition was a success for us, generating a lot of interest in new product launches that included additions to the Kronospan and Egger surfaces range. Our product specialists converted interest into real demand following the show. Our HI-MACS® team was strengthened and now totals 13 people, giving us greater coverage across the UK and Ireland. Sales showed a small growth in the year, but we have in place a team to build on this during the current year. The Advanced Technical Panels team is the most experienced in the market, with excellent product knowledge, offering customers technical advice and the widest offering of prefinished panels. Harlequin, a multi- layered acrylic sheet, after a slow start, has developed a small niche market. Sales to importers, timber and builders merchants showed good growth during the year. A wide range of core fit-for-purpose and added value products, supplied ex stock, has enabled our customers in this sector to grow their sales. During the course of the year, several of our team made overseas visits to key suppliers in Indonesia, Malaysia, Russia, Latvia and Finland, plus Spain, Belgium and other European countries. It is important that we continue to develop our relationships with our supply base. Timber (Hardwood, modified softwood, joinery quality softwood, cladding, decking and hardwood flooring) Timber sales, at £50.0m were 7.3% higher than last year with volumes 1.9% higher. Joinery, kitchen and shopfitting sectors have all provided us with sales and volume growth. Our core business for African, European and North American hardwood was reviewed during the year, with a more strategic product and purchasing policy being put into place. Supply issues in parts of Africa eased leading to a large influx of product into the market during the second half of the year, which impacted on sales and margins. 8 JAMES LATHAM PLC ANNUAL REPORT 2015 We continue to develop our range of certified Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC) products. Our supplier procurement strategy is largely based on the Timber Trade Federation (TTF) Responsible Purchasing Policy. Any supplier who does not meet this criteria will not be considered. Product of Verified Legal Origin (VLO) is also purchased. The WoodEx brand, our own engineered hardwood and softwood, continued to make significant inroads into the joinery sector. Grandis 690+, made of laminated eucalyptus, was launched in the second half of the year and sales have been very good. The established range of Sapele, Redwood and European Oak has also seen good sales growth. The largest growth area for our timber business has been in Accoya Modified Wood. Very strong sales have been achieved into the external joinery sector. Latham Accoya-Clad has also been specified and used on some prestigious contracts. Profi-Deck and Lifecycle wood plastic composite decking sales into merchants and to contractors have shown very good growth. These products are considered to be high quality and market leading. We have redefined our range of Bausen flooring, removing some lines of solid flooring and replacing with new engineered floors including the Henshaw Range. LDT have made a very useful contribution to group profits. New sales staff and a restructuring of the team has proven to be beneficial. Very strong in the African and decking sectors, LDT have seen improvement in sales of North American hardwood. LDT during the year targeted some export markets and gained useful business. As part of their ongoing development, LDT will look to increase their product offering to the importer and merchant sectors. We supplied White Oak, Walnut, Tulipwood and Cherry to ten up and coming furniture designers for a unique design initiative by the American Hardwood Export Council (AHEC) and Benchmark Furniture for the London Design Festival. Strategy for developing the business The directors recognise that the strength of the group is as a distributor of high quality timber and associated products sourced using the TTF RPP from legal and sustainable sources of supply to existing and new customer bases. Our supply base has strengthened during the course of the year with many of our partners agreeing to a 3 year development plan. 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. Development of our product offering is key to our future success. The introduction of Xylocleaf, a high definition melamine panel for shopfitting, furniture, kitchens and bedrooms, plus Kydex, a thermoformable plastic product for shopfitting, doors and the transport sector, give our customers new and innovative products. Strategic Report Operating Review The group has invested in staff training with our aim being to have the best sales and technical team in the industry. Marketing of our products through brochures, direct advertising, public relations, social media and exhibitions is key to our success. In the latter part of last year we re-launched our website www.lathamtimber.co.uk. Working with our staff and suppliers we aim to offer our existing and potential customer base a first class service of fit for purpose, legal and sustainable products. Market place The group’s business is widely spread throughout many sectors of the UK economy. Market sector Customer group Lathams sales value % 2015 2014 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 17 22 17 21 5 4 3 5 5 8 2 3 7 5 4 3 6 5 9 2 3 7 10 9 10 8 100 100 Martin Cassidy, Melamine Product Champion at our Scotland depot. TOTAL 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. Our core commodity range of panels and timber is constantly reviewed with new lines being stocked if we believe they will meet our customer’s requirements. Our Leeds depot acts as a central warehouse for a large range of Egger and Kronospan laminates, totalling nearly 400 decors. These are available on a national basis for next day delivery to our customer base. We will continue to develop our laminate offering during the year. 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 advanced plans drawn up for relocating our Yate and Wigston depots over the next two years, as well as improvements to racking systems in our Thurrock, Hemel Hempstead and Purfleet depots. We will also consider acquisitions where opportunities arise, to enhance our product range or geographical coverage. JAMES LATHAM PLC ANNUAL REPORT 2015 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 7.2% to £174.9m. 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 improved slightly to 17.7% from 17.4%, reflecting this although we have seen increases in our warehouse costs per tonne of product delivered. Increases in volumes through the warehouse, reduced order values and more demanding lead times from our customers, have resulted in higher warehouse costs. Two of our depots have moved to 24 hour working and others introduced longer shifts as we aim to maintain service levels in the most efficient manner. 10 JAMES LATHAM PLC ANNUAL REPORT 2015 David Dunmow Finance Director and Company Secretary Selling and distribution costs increased by 8.8%. 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 increased by 4.7% over last year, despite the reduction in fuel prices. Whilst the costs of running our own fleet of vehicles reduced this year, costs of hauliers have increased. Increased sales staff, in both specialised product areas and trainees, are expected to produce improved revenues and profits in the years to come. Costs in each location are monitored closely by the board through the quarterly board meetings at each depot. Operating profit, excluding the exceptional pension credit last year, increased 11.4% to £10.6m. Group net profit before taxation, excluding the exceptional pension credit last year, increased to £10.1m from £8.7m last year. The taxation charge of £2.3m represents an effective rate of 22.6%, compared with 18.0% last year, which benefitted from a one-off deferred tax credit. 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 2015 the deficit of the defined benefit scheme under International Financial Reporting Standards was £10.4m compared with £9.3m last year. Discount rates, represented by yields on corporate bonds, continue to fall, reducing from 4.5% to 3.2% during this year, which on its own added over £11m to the liabilities. Investment returns outperformed the actuarial expectations, and Gross IAS19 deficit £000’s 2011 2012 2013 2014 2015 1 6 5 , 8 6 1 3 , 2 1 3 9 7 , 6 1 7 6 2 , 9 0 3 4 , 0 1 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 16000 there were benefits to changes in some demographic assumptions. In note 18.2 to the accounts, we have provided some sensitivity analysis around the various assumptions used to illustrate this volatility. 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 16000 This year, the triennial valuation to 31 March 2014 was completed. This resulted in a much reduced deficit of £1.5m. A deficit recovery plan was agreed with the pension scheme trustees to pay £1.1m in the year to 31 March 2015 with a further £0.4m in the year to 31 March 2016. 1 0 5 . 2 1 4 3 2 , 1 1 3 1 1 , 7 4 0 0 , 7 5 7 0 , 8 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. 2011 2013 2014 2015 2012 Cash flow and working capital At the end of the year cash balances of £12.5m were held, up from £11.2m 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. The lowest amount of cash held during the year was £5.9m. Part of this cash will be also used to finance the relocations of Yate and Wigston during the next two 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 £864,000 of discounts received compared with £746,000 last year. The timber importing and distribution business requires considerable working capital investment in stock and debtors. Strategic Report Financial Review 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 52.6 days to 52.4 days. Bad debts this year, despite the difficult first quarter, ended up at 0.15% of turnover against a budget of 0.4%, and last year of 0.11%. 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. At the year end, the amount of outstanding debt being dealt with by our solicitors was at an all time low. 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 improved to 95% from 90% last year. 2012 2011 2014 2015 Stock turnover targets are set and monitored on a monthly basis, and senior management has access to 2013 real time stock levels. Stock turn is 6.2 times compared with 6.6 times last year. Whilst stockturn has improved on some of our specialist products, we suffered from some erratic shipments of commodity product in the final quarter of the year, resulting in some over stocking which we are currently working through. 0 3 4 , 0 1 6 1 3 , 2 1 3 9 7 , 6 1 1 6 5 , 8 7 6 2 , 9 Cash and Cash Equivalents 1 0 5 . 2 1 4 3 2 , 1 1 3 1 1 , 7 4 0 0 , 7 5 7 0 , 8 2011 2012 2013 2014 2015 JAMES LATHAM PLC ANNUAL REPORT 2015 11 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 Strategic Report Financial Review Capital investment During the year, we invested £0.4m into new fixed assets. We now own all our lorries and mechanical plant and this year have benefitted from the ability to run this equipment on for longer than we would previously have done under leasing arrangements. We expect that next years capital expenditure on lorries and plant will return to normal levels, as older equipment is replaced. Net assets at the year end were £62.2m (2014 £58.1m). The group’s adjusted pre-tax return on capital for the year was 16.6% (2014 15.8%), 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 kilns for six to nine months, and we enter into currency swaps to ensure that this stock is costed at spot price when it becomes available for sale. Principal Risks and Uncertainties 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 opposite 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. 12 JAMES LATHAM PLC ANNUAL REPORT 2015 Strategic Report Principal Risks and Uncertainties Inherent risk Risk Description Risk Mitigation Market Conditions Competition from new and existing businesses Inventory levels move out of line with sales requirements and market prices. The group’s sales are predominantly UK based so it is exposed to any slowdown in the UK economy. Negative or uncertain economic conditions could affect our customers business resulting in them reducing purchases from our group. Competitive pressures from existing businesses and new entrants to the market could reduce prices, margins and profitability. 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. Erratic shipments can result in stock excess and shortages in specific special products. The market for certain product lines changes, resulting in them becoming overvalued and slow moving. Supplier political risks or failure could result in shortages of product 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, resulting in a strategic threat to the supply of product to the group. The group is reliant on certain suppliers for certain product ranges and their inability to meet our demand due to financial or production difficulties could result in stock shortages. The distribution of our 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. 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. Live stock level reports and predictive tools are available for our managers to monitor current and future levels. The group’s reduced reliance on commodity items has reduced this risk of over exposure to low value, high volume and price sensitive items, although as an important area for us, this risk cannot be completely removed. 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. Slow moving stocks are monitored regularly and action taken to mitigate the risk. To mitigate the risk from these pressures, the groups dealings are spread across a large number of countries of supply. The group keeps informed of developments in higher risk producer countries through involvement in work by the Royal Institute of International Affairs (Chatham House). We maintain close relationships with our suppliers to ensure that we are pre-warned of difficulties of supply. We maintain relationships with suppliers of alternative products. 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. 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 could increase 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 is disclosed in note 18.2 in the notes to the accounts. Information technology failures impact our ability to trade The operations of the group depend to a large extent on the availability and reliability of our information technology systems. A failure of systems, either of hardware, software or communications, for an extended period of time could impact our ability to trade. 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. Our main computer servers are located in a secure site away from the trading operations, hosted in an external data centre. The systems are monitored 24 hours a day and maintenance work carried out on an ongoing basis. Back ups are held offsite, and shortly a system will be introduced to mirror our systems in a separate data centre to provide extra resilience. Software maintenance contracts ensure that our business critical software is up to date, allowing software problems to be resolved quickly. Inability to trade from a depot Inability to trade from a depot due to an incident, internally or externally, could cause loss of revenue and profits. Disaster recovery plans are in place at group and depot levels. These are reviewed by the Audit Committee and the board, as well as discussed at depot level. Insurance policies are in place to cover increased cost of working. Our distribution network, as well as our inventories held at various ports, allow us to manage customers requirements from a different location. JAMES LATHAM PLC ANNUAL REPORT 2015 13 Strategic Report Corporate Responsibility At James Latham plc, we are conscious of our corporate responsibilities to all our stakeholders and to society as a whole. Health and safety, environmental matters, staff training and equal opportunities are 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 all depots. 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 in our lorries and company cars to assess whether further training is required. We operate a programme of lorry driver mentoring and are introducing the FORS (Fleet Operator Recognition Scheme). Our lorries all have tracking devices fitted which provide alerts and information on speed as well as the route taken. We are introducing a system of cameras installed in each lorry to not only provide retrospective footage for training and insurance purposes, but also 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. With best practices observed, timber products are the ultimate sustainable and recyclable materials, requiring low energy 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, i.e. 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. Timber from poorly managed forests destroys biodiver- sity, leads to soil erosion and damages watercourses. As part of the FSC forestry management criteria, FSC suppliers support the local community. Piers Latham visited the Bao Jin village school in China to present prizes, and Latham tee-shirts, to the scholars. 14 JAMES LATHAM PLC ANNUAL REPORT 2015 Strategic Report Corporate Responsibility 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. 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. It is therefore essential that we ensure our timber is legally harvested and comes from 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 checks on the welfare of the forest workers and indigenous population. The group has third party audited chain of custody for timber supplied as certified by PEFC, FSC and other schemes. This is to ensure that claims made about certification can be proved. The group has signed up to the WWF UK ‘Forest Campaign’ committing to purchasing only certified legal and sustainable timber products by 2020 and to publically showing progress towards this target. We jointly sponsored WWF’s Forest Reception to promote this scheme at the House of Commons in March 2015. 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. Chinese FSC certified Eucalyptus forest, visited by Piers Latham. The figures for the relevant calendar years are given below. FSC PEFC 3rd party verified legal Negligible Panels 2013 71% 17% 3% 2014 69% 20% 4% Timber 2013 36% 18% 35% 2014 40% 16% 33% TOTAL 2015 target 66% 20% - 9% 7% 11% 11% - 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 have a rigorous system for assessing our supply chains and are committed to only purchasing product with negligible risk status. We will not trade in timber species prohibited under Appendix 1 of CITES legislation and obtain the appropriate documents for the very limited trade we do in all other CITES listed timber species. For a number of years the company 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 seeks 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 having 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 LATHAM PLC ANNUAL REPORT 2015 15 Strategic Report Corporate Responsibility buying timber that can be demonstrated to be legal and from well-managed forests. This is a condition of contract to supply the UK Government and many environmentally aware customers. Company 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. Company buyers have visited individual suppliers in Europe, Russia, China, Indonesia, Malaysia, the United States, Uruguay, Brazil and Argentina giving the same message. Group buyers have visited individual suppliers auditing the source of logs. 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 and speaking at the FLEGT review meeting in Brussels. 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. recognize that alongside our Local environmental issues timber We also environmental policy, we have a responsibility to minimise our local environment footprint. We have developed an environmental management system which is accredited under ISO14001. This commits us to considering energy efficient options for lighting, heating and ventilation before making purchasing decisions. Vehicle procurement considerations include reduction of emissions and improved fuel efficiency. Our employees The group’s ability to achieve its commercial objectives and to serve 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 that 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, along side general management, sales and presentation skills courses. The company seeks to minimise the use of packaging material and to recycle discarded packaging material and paper where it is practicable to do so, to avoid these materials entering landfill. We give support, both in staff time and financially, to community projects local to our depots through schools, sports teams and charities. We also have entered into a three year agreement to give financial support to the National Forest project. Luke Bell at our Fareham depot. 16 JAMES LATHAM PLC ANNUAL REPORT 2015 Corporate Governance Corporate Responsibility / Corporate Governance Report We have a successful program of introducing trainees from school or college. All depots either have trainees or have plans in place to recruit during the year. Trainees are put through external courses obtaining qualifications, including NVQs in Sales and Warehousing and the Wood Society exams covering the properties and uses of timber and panel products. This year Carley Willams and Dan Mahoney, from our Thurrock depot, were runners up in the Timber Trades Journal Career Development Award, open to trainees under 25 throughout the timber trade. Jacob Sheen, from our Leeds branch, was also nominated. This is the fourth year in a row that our trainees have been nominated for this award. In the current financial year we are planning again to sponsor a James Latham Timber Engineering Scholar through an MSc Timber Engineering program at Edinburgh Napier University. 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 TM is a programme designed to help companies promote eCommunications to their shareholders, whilst also allowing them to make a valuable contribution to the environment. 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. Corporate Governance Report The directors believe that good corporate governance, involving risk appraisal and management, prudent decision making, open communication and business efficiency, is important for the long term benefit of the stakeholders in our group. This year we have agreed to comply with the 12 principles contained within the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies 2013, and will show below how we have applied this code. 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. Andrew Wright became a fifth executive director on 1 April 2015. Each director has a vote and no individual or small group of individuals dominates the board’s decision making. Between April and August 2014, following Peter Latham’s absence from the business, Meryl Bushell took over as acting Chairman. The board has a formal schedule of matters referred to it for decision, with at least one specific strategy meeting being held each year. 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, as well as giving the non-executive directors time to add matters of their particular interest to the agenda. In the year to 31 March 2015, the board met five times, with all directors attending each meeting other than Peter Latham, who missed two meetings through illness. 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. New directors receive training from the company NOMAD on their responsibilities under the AIM rules. 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. JAMES LATHAM PLC ANNUAL REPORT 2015 17 Corporate Governance Corporate Governance Report 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 board regularly reviews the skills and experience of the directors and assesses the effectiveness of individual directors and the board as a whole. 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. The Remuneration and Nominations Committee report is contained on page 20. 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. 18 JAMES LATHAM PLC ANNUAL REPORT 2015 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. 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 The company is committed to maintaining good communications with any published financial statements and Stock Exchange announcements also posted on to our investors website, www.lathams.co.uk. shareholders with Corporate Governance Directors and Advisors Piers Latham BSc Executive Director Piers Latham, age 44, has worked in the company for 22 years and was appointed to the board in 2014. He is a director of Lathams Limited and Chairman of the Trustees of the James Latham plc Pension and Assurance Scheme. He is also Chairman of the Wood Industry Board and a Trustee of ProSkills UK, an organisation promoting the development of industrial skills and apprenticeships. Andrew Wright Executive Director Andrew Wright, age 50, has worked in the company for 14 years and was appointed to the board in 2015. He is a director of Lathams Limited and is a board member of the North West Timber Trade Association. Pippa Latham MA MBA ACIS FCMA CGMA Non-Executive Director Pippa Latham, age 54, 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 chairs the Audit Commitee and is a member of the Remuneration and Nominations Committee. 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 60, 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 chairs the Remuneration and Nominations Committee and is a member of the Audit Commitee. 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 Directors’ biographies to for Peter Latham OBE BA FIMMM Chairman Peter Latham, age 64, has worked in the company for 42 years and was appointed to the board in 1983. He is a director of Lathams Limited and provides advice the Audit and Remuneration and Nominations Committees. He is a director of the Programme 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 51, has worked in the company for 21 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 and provides advice to the Audit and Remuneration Committees. He is a former treasurer of the Timber Trade Federation. Chris Sutton Executive Director Chris Sutton, age 56, has worked in the company for 37 years and was appointed to the board in 2005. He is Chairman of Lathams Limited. He is a former director of the Timber Trade Federation. Nick Latham BSc Executive Director Nick Latham, age 47, has worked in the company for 24 years and was appointed to the board in 2007. He is a director of Lathams Limited and member of the Audit Committee. He sits on the advisory committee of the Timber Research and Development Association. Peter Latham David Dunmow Chris Sutton Nick Latham Piers Latham Andrew Wright Pippa Latham Meryl Bushell JAMES LATHAM PLC ANNUAL REPORT 2015 19 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 year ended 31 March 2015, the 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 active interest in talent development, succession planning and group diversity. This year the Committee recommended to the board that Andrew Wright be appointed an executive director on 1 April 2015. Andrew is currently responsible for the group’s northern depots in Leeds, Gateshead and Scotland. He also has responsibility for identifying, assessing and introducing new product ranges into the group’s portfolio of products. Andrews’ 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 individual contributions to the performance of the group, with due regard for the interests of shareholders. fairly rewarded for their The remuneration package consists of basic salary, benefits (comprising car and private medical provision), pensions, annual bonus schemes, share option schemes and life assurance cover of 4 times gross salary. 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 LATHAM PLC ANNUAL REPORT 2015 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 2015 was the achievement of £8,660,000 operating profit, as measured in the depots management accounts, an increase of 11.3% over the previous years targets. Maximum bonuses of 19.5% of basic salary are paid on achieving 120% of the target operating profit. The minimum bonus level is 1.3% paid on achieving 90% of target operating profit. This year 131.6% of the target operating profit was achieved earning 19.5% of basic salary. The criterion for the year ended 31 March 2016 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 3.62% of basic salary to 328 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 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 2015. James Latham plc total shareholder return 600 500 400 300 200 100 0 James Latham – TOT Return Ind FTSE AIM All-Share – TOT Return Index 2009 2010 2011 2012 2013 2014 2015 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: Salary and fees Benefits Bonus Total emoluments excluding pensions Share based payments Pension contributions £000 £000 £000 £000 £000 £000 Executive P.D.L. Latham C.D. Sutton D.A. Dunmow 2015 2014 2015 2014 2015 2014 2015 2014 P.F. Latham 2015 (appointed 1 January 2014) 2014 N.C. Latham Non-executive P.A.J. Latham M.A. Bushell Total 2014 2015 2014 2015 2014 207 185 145 137 140 130 109 99 88 21 30 29 35 29 754 630 6 9 10 11 9 8 - - 10 - - - - - 35 28 47 45 35 33 34 33 27 24 22 5 - - - - 165 140 260 239 190 181 183 171 136 123 120 26 30 29 35 29 954 798 1 2 10 15 9 15 2 2 2 1 - - - - 24 35 TOTAL £000 261 281 230 225 220 213 160 146 141 32 30 29 35 29 - 40 30 29 28 27 22 21 19 5 - - - - 99 122 1,077 955 JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 31 March 2014 Ordinary shares Preference shares Ordinary shares Preference shares Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner 1,124,937 110,778 42,959 616,782 614,370 369,998 9,400 Nil Nil Nil Nil 567 Nil Nil 1,119,058 98,775 34,344 610,928 608,592 369,505 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 2015 31 March 2014 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 2014 Granted during the year Exercised Outstanding 31 March 2015 Exercise price 4,242 2,532 1,742 1,834 3,447 4,242 2,532 1,742 1,834 1,262 - - - - - - - - - - - 707 (4,242) - - - (3,447) (4,242) - - - - - - 2,532 1,742 1,834 - - 2,532 1,742 1,834 1,262 707 £1.65 £1.98 £2.295 £2.725 £1.16 £1.65 £1.98 £2.295 £2.725 £3.96 £5.65 Exercise period 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 16.12.13 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 05.01.20 to 04.01.25 Continued on page 23 22 JAMES LATHAM PLC ANNUAL REPORT 2015 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: Outstanding 1 April 2014 Granted during the year Exercised Outstanding 31 March 2015 Exercise price C.D. Sutton N.C. Latham P.F. Latham 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 - - - - - - - 707 - - - - - 707 - - - - - 707 (3,447) - - - - - - (4,242) - - - - - (4,242) - - - - - - 4,242 2,532 1,742 1,834 1,262 707 - 2,532 1,742 1,834 1,262 707 - 2,532 1,742 1,834 1,262 707 £1.16 £1.65 £1.98 £2.295 £2.725 £3.96 £5.65 £1.65 £1.98 £2.295 £2.725 £3.96 £5.65 £1.65 £1.98 £2.295 £2.725 £3.96 £5.65 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 05.01.20 to 04.01.25 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 05.01.20 to 04.01.25 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 05.01.20 to 04.01.25 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 £17,286, Mr D.A. Dunmow made a gain of £29,833 and Mr C.D. Sutton made a gain of £12,547 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 2014 Awarded during the year Excercised during the year Outstanding 31 March 2015 Exercise price Award price Vesting date D.A. Dunmow C.D. Sutton 5,391 5,195 5,391 5,195 85 113 85 113 (5,476) - (5,476) - - 5,308 - 5,308 nil nil nil nil £2.295 £2.74 £2.295 £2.74 29.11.14 06.12.15 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 each made a gain of £29,297 on options exercised during the year. MA Bushell, Chairman of the Remuneration Committee 23 June 2015 JAMES LATHAM PLC ANNUAL REPORT 2015 23 Corporate Governance Directors Report The directors have pleasure in presenting their annual report and the audited accounts for the year ended 31 March 2015. In accordance with section 414c(11) of the Companies Act 2006, included in the Strategic Review 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 2015 are set out on page 29. The directors recommend the following dividends:- Ordinary dividends Interim dividend paid, 3.7 pence per ordinary share Final dividend proposed, 8.8 pence per ordinary share Total ordinary dividends, 12.5 pence per ordinary share £000 718 1,711 2,429 The directors recommend payment of the final dividend on 28 August 2015 to shareholders on the register of members at the close of business on 7 August 2015. 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 Andrew Wright who was appointed on 1 April 2015. In compliance with the Articles of Association, David Dunmow, Pippa Latham and Meryl Bushell will retire by rotation and, being eligible, offer themselves for re-election. Andrew Wright, 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 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. In addition the Trustees of the James Latham Employee Benefits Trust holds 36,879 shares with a view to being used for employee share schemes. 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. A resolution is being put to the shareholders at the Annual General Meeting to increase the maximum amount that can be saved under this scheme from £250 a month to the maximum allowed under the relevant legislation (currently £500 a month). On 21 August 2008, the shareholders approved by special resolution the establishment of the Company Share Option Scheme. During the year 16,262 options 24 JAMES LATHAM PLC ANNUAL REPORT 2015 Corporate Governance Directors Report were issued at an option price of £5.65. In addition 51,550 options were exercised after being held for five years, 10,342 at an option price of £1.16 and 41,208 at an option price of £1.65. Substantial shareholdings At 23 June 2015, the company had received notification under the Disclosure Transparency Rules that the holdings and voting rights exceeding the 3% notification threshold were as follows: Peter Latham International Plywood (Importers) Ltd Robert Latham Nick Latham Piers Latham % Number 1,124,937 5.79 963,746 4.96 680,787 3.50 616,782 3.17 614,370 3.16 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 2015 were 35 days (2014: 36 days). 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 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 £7,040 (2014: £8,265). 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. new image and caption to come Dan May inspecting Tulipwood at our Fareham depot. JAMES LATHAM PLC ANNUAL REPORT 2015 25 Corporate Governance Directors Report 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. 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. 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 26 August 2015 at 12.30pm. The following items are to be proposed as special business, and the board recommends that the shareholders vote in favour of all resolutions put before the meeting. 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 Peter Latham Chairman 23 June 2015 26 JAMES LATHAM PLC ANNUAL REPORT 2015 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 the James Latham plc investors website, 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 Peter Latham Chairman 23 June 2015 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 Act 2006 provides in relation to such financial 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 LATHAM PLC ANNUAL REPORT 2015 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 Directors’ Responsibilities Statement 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 of the parent company’s affairs as at 31 March 2015 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 company 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: Under the the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • 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 23 June 2015 28 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Consolidated Income Statement For the year ended 31 March 2015 £’000s Notes 2015 2014 Continuing operations Revenue 163,117 Cost of sales (including warehouse costs) 3, 4, 12 (143,978) (134,688) 174,855 Gross profit Selling and distribution costs Administrative expenses Exceptional adjustment to defined benefit pension cost Other income Operating profit Finance income Finance costs Profit before tax Tax expense 30,877 28,429 4, 12 (14,082) (12,941) 4, 12 (6,237) (6,016) 18.4 5 - 6 1,797 6 10,564 46 11,275 27 6 7 (503) (823) 3 10,479 8 (2,285) (1,888) 10,107 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) 10 10 10 10 7,822 40.3p 40.0p 40.3p 40.0p 8,591 44.3p 43.9p 36.9p 36.6p JAMES LATHAM PLC ANNUAL REPORT 2015 29 Financial Statements Consolidated Statement of Comprehensive Income For the year ended 31 March 2015 £’000s Notes 2015 Profit after tax Other comprehensive income: Actuarial (loss)/gain on defined benefit pension scheme (1,849) Deferred tax relating to components of other comprehensive income 434 7,822 5,543 (1,508) 2014 8,591 Other comprehensive income for the year, net of tax (1,415) 4,035 Total comprehensive income attributable to the owners of the parent company 6,407 12,626 30 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Consolidated Balance Sheet Notes 2015 2014 13 11 12 14 15 237 101 21,601 21,939 31,906 34,213 12,501 78,620 100,559 16 17 23,893 907 947 17 18 19 20 25,747 987 10,430 464 700 12,581 38,328 62,231 237 108 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 5,040 143 5,040 21 123 22 23 (177) (175) 3 53,117 3 57,222 At 31 March 2015 £’000s Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment 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 62,231 58,108 These accounts were approved and authorised for issue by the Board of Directors on 23 June 2015 and signed on its behalf by: P.D.L. Latham D.A. Dunmow } Directors The consolidated notes on pages 34 to 58 form part of these accounts. JAMES LATHAM PLC ANNUAL REPORT 2015 31 Financial Statements Consolidated Statement of Changes in Equity Attributable to owners of the parent company Issued capital £’000 5,040 - Share-based payment reserve £’000 Own shares £’000 91 (218) - - Capital reserve £’000 3 - Retained earnings £’000 42,551 8,591 Total equity £’000 47,467 8,591 - - 5,543 5,543 Balance at 1 April 2013 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 Write down on conversion of ESOP shares Exercise of options Change in investment in ESOP shares Share-based payment expense - - - - - - - - - - - - - (48) - - - 77 - - (34) - 80 - (1,508) (1,508) - 12,626 12,626 - (2,031) (2,031) - - (77) - 48 - - (34) - 80 - - Total transactions with owners - 32 43 - (2,060) (1,985) Balance at 31 March 2014 5,040 123 (175) 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 Exercise of options Write down on conversion of ESOP shares Change in investment in ESOP shares Share-based payment expense - - - - - (47) 82 - - - (84) - - - 67 3 - 53,117 58,108 7,822 7,822 - (1,849) (1,849) - 434 434 - 6,407 6,407 - (2,267) (2,267) - - 47 - - (82) - (84) - - - 67 Total transactions with owners - 20 (2) - (2,302) (2,284) Balance at 31 March 2015 5,040 143 (177) 3 57,222 62,231 32 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Consolidated Cash Flow Statement For the year ended 31 March 2015 £’000s Notes 2015 2014 Net cash flow from operating activities Cash generated from operations Interest paid Income tax paid 24 6,218 8,036 (44) (45) (1,996) (1,339) Net cash inflow from operating activities 4,178 6,652 Cash flows from investing activities Interest received and similar income Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment (383) (1,181) 46 27 6 - Net cash outflow from investing activities (331) (1,154) Cash flows from financing activities Borrowings repaid during the year Equity dividends paid Preference dividend paid (234) (229) (2,267) (2,031) (79) (79) Net cash outflow from financing activities (2,580) (2,339) Increase in cash and cash equivalents for the year 1,267 3,159 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 11,234 12,501 8,075 11,234 JAMES LATHAM PLC ANNUAL REPORT 2015 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 Review. 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. 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 11 – Joint Arrangements - IFRS 14 – Regulatory Deferral Accounts - Amendments to IAS 1 – Presentation of Financial Statements - Amendments to IAS 16 – Property, Plant and Equipment - Amendments to IAS 19 – Employee Benefits - Amendments to IAS 28 – Investments in Associates and Joint Ventures - Amendments to IAS 38 – Intangible Assets - Amendments to IFRS 10 – Consolidated Financial Statements - Amendments to IFRS 12 – Disclosure of Interests in Other Entities 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 2015. (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 expensed 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. 1.3 Operating profit Operating profit consists of revenues and other operating income less operating expenses. Operating profit excludes net finance costs. 1.4 Exceptional items Exceptional items are those items of 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. 34 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes forming part of the Group Accounts 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. 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. 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: 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. 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 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. 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. 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 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. JAMES LATHAM PLC ANNUAL REPORT 2015 35 Financial Statements Notes forming part of the Group Accounts 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 2015, 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 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 36 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes forming part of the Group Accounts 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. 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 contributions 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. 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: 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 LATHAM PLC ANNUAL REPORT 2015 37 Financial Statements Notes forming part of the Group Accounts 3. Profit before tax 2015 2014 Profit for the year has been arrived at after 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 (Profit)/loss 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 £’000 £’000 £’000 £’000 105 134 141,508 1,428 130,607 1,496 (5) 3 7 7 559 539 570 539 1,098 1,109 9 9 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 59 58 15 11 7 7 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 2015 Number 54 102 124 61 341 The aggregate payroll costs of these employees were as follows: £’000 2014 Number 54 93 117 62 326 £’000 Wages and salaries Social security costs Pension costs Past service on pension cost Share-based payment 11,265 1,138 1,224 10,607 1,076 1,370 - (1,797) 80 67 Of the above payroll costs, £2,897,000 (2014: £2,634,000) is included in cost of sales, £7,090,000 (2014: £6,697,000) is included in selling and distribution costs, and £3,707,000 (2014: £2,005,000) is included in administrative expenses in the income statement. 13,694 11,336 38 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes forming part of the Group Accounts 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 On pension liability On 8% Cumulative Preference shares 2015 £’000 6 2015 £’000 46 2015 £’000 2014 £’000 6 2014 £’000 27 2014 £’000 44 45 380 699 79 79 The interest payable on bank loans and overdrafts is payable on balances with a maturity analysis of less than 6 months at the balance sheet date and interest on all other interest payments are based on balances with a maturity analysis of over five years at the balance sheet date. 503 823 JAMES LATHAM PLC ANNUAL REPORT 2015 39 Financial Statements Notes forming part of the Group Accounts 8. Tax expense The charge for taxation on profit comprises: 2015 £’000 2014 £’000 Current year: UK corporation tax at 21% (2014: 23%) 1,832 Adjustment in respect of prior year (21) (13) Deferred taxation - pension 137 397 - IBAs derecognised in current year (21) (29) - change in tax rates - (323) - on trading losses carried forward 92 203 - other 151 (179) 1,947 Profit before taxation Tax at 21% (2014: 23%) 2,285 10,107 2,122 1,888 10,479 2,410 Tax effect of expenses/credits that are not deductible/taxable in determining taxable profit (1) (60) IBAs derecognised in current year (21) (29) Change in tax rates - (323) Other 206 (97) Adjustment in respect of prior year (21) (13) Total tax charge 2,285 1,888 There are tax trading losses of £nil (2014: £439,000) carried forward in the accounts of Lathams Limited for the trade transferred from DLH UK Ltd. 9. Dividends 2015 2014 Ordinary dividends: £’000 £’000 £’000 £’000 Final 8.0p per share paid 22 August 2014 (2013: 7.1p) Interim 3.7p per share paid 30 January 2015 (2014: 3.4p) 1,549 718 1,372 659 2,267 2,031 The Directors propose a final dividend for 2015 of 8.8p per share, that, subject to approval by the shareholders, will be paid on 28 August 2015 to shareholders on the register on 7 August 2015. Based on the number of shares currently in issue, the final dividend for 2015 is expected to absorb £1,711,000. 40 JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 £’000 7,822 7,822 Number ’000 2014 £’000 8,591 7,153 Number ’000 Issued ordinary share capital 20,160 Less: weighted average number of own shares held in treasury investment (719) (719) Less: weighted average number of own shares held in ESOP Trust (52) (56) 20,160 Weighted average share capital Add: dilutive effects of share options issued Weighted average share capital for diluted earnings per ordinary share calculation 19,389 169 19,558 11. Intangible assets Cost: At 1 April 2013 Additions At 1 April 2014 Additions At 31 March 2015 Amortisation At 1 April 2013 Charge for the year At 1 April 2014 Charge for the year At 31 March 2015 Net book value At 31 March 2015 At 31 March 2014 At 31 March 2013 19,385 182 19,567 Trademark £’000 155 - 155 - 155 40 7 47 7 54 101 108 115 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 LATHAM PLC ANNUAL REPORT 2015 41 Financial Statements Notes forming part of the Group Accounts 12. Property, plant and equipment Cost: At 1 April 2013 Additions Disposals At 1 April 2014 Additions Disposals At 31 March 2015 Depreciation: At 1 April 2013 Disposals Charge for the year At 1 April 2014 Disposals Charge for the year At 31 March 2015 Net book value At 31 March 2015 At 31 March 2014 At 31 March 2013 Short leasehold property improvements £’000 Plant, equipment and vehicles £’000 Total £’000 28,720 1,181 - (30) (30) 9,379 1,167 613 - Freehold property £’000 18,728 14 - 18,742 - 29,871 383 - - (20) (20) 10,516 383 613 - 18,742 613 10,879 30,234 1,919 - 247 177 5,755 - (27) (27) 1,212 1,496 3,659 37 2,166 7,224 - - (19) (19) 37 1,144 1,428 4,844 247 214 2,413 251 5,969 8,633 16,329 362 4,910 16,576 16,809 399 436 5,672 5,720 21,601 22,647 22,965 Included in freehold property is land with a book value of £6,311,000 (2014: £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 2015 £’000 800 519 109 1,428 2014 £’000 806 591 99 1,496 42 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes forming part of the Group Accounts 13. Goodwill Cost: At 1 April 2013 and 31 March 2015 Impairment At 1 April 2013 and 31 March 2015 Net book value At 31 March 2015, 2014 and 2013 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 2015 £’000 2014 £’000 Finished goods and goods for resale 28,603 Less: provisions for slow moving and obsolete stock (714) (666) 32,620 31,906 27,937 The inventories impairment charge for the year ended 31 March 2015 was 461,000 (2014: 341,000). Impairment charges reversed during the year were £413,000 (2014: £389,000). 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 LATHAM PLC ANNUAL REPORT 2015 43 Financial Statements Notes forming part of the Group Accounts 15. Trade and other receivables Trade receivables Other receivables: Other receivables Prepayments 2015 £’000 31,428 1,123 1,662 2,785 34,213 2014 £’000 30,281 1,060 1,501 2,561 32,842 The directors consider that the carrying amount of trade and other receivables approximates their fair value. Trade receivables amounted to £31,428,000 (2014: £30,281,000), net of a provision of £126,000 (2014: £136,000) for impairment. Movements on the group provisions for impairment were as follows: 246 At 1 April 2014 Provisions for receivables impairment 197 Receivables written off during the year as uncollectible (291) (307) 136 281 At 31 March 2015 126 136 2015 £’000 2014 £’000 The average credit period on sale of goods is 52 days (2014: 53 days). The following table provides analysis of trade and other receivables that were past due at 31 March 2015 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 2015 £’000 611 35 29 675 2014 £’000 919 111 20 1,050 There are no significant credit risks arising from financial assets that are neither past due nor impaired. At 31 March 2015, £33,846,000 (2014: £32,559,000) of trade and other receivables were denominated in sterling, £165,000 (2014: £157,000) were denominated in Euros and £202,000 (2014: £126,000) were denominated in US dollars. 44 JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 £’000 17,784 3,282 1,201 1,626 23,893 2014 £’000 16,744 3,697 1,228 1,522 23,191 Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 35 days (2014: 36 days). The directors consider that the carrying amount of trade payables approximates to their fair value. At 31 March 2015, £21,923,000 (2014: £21,478,000) of trade and other payables were denominated in sterling, £1,513,000 (2014: £1,075,000) in US dollars and £457,000 (2014: £638,000) 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 £197,000 (2014: £171,000). 17. Interest bearing loans and borrowings Current liabilities Bank loans Non-current liabilities Bank loans Cumulative preference shares of £1 each (note 21) Total 2015 £’000 907 - 987 987 1,894 2014 £’000 238 903 987 1,890 2,128 The loans and borrowings were all denominated in sterling. Bank loans are secured by a legal charge over a freehold property. The bank loan was repaid on 1 June 2015 and the charge released. 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 £1,000,000 (2014: £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 LATHAM PLC ANNUAL REPORT 2015 45 Financial Statements Notes forming part of the Group Accounts 17. Interest bearing loans and borrowings (continued) Bank loans Bank loans 2015 2014 Current £’000 907 Non-current £’000 Current £’000 Non-Current £’000 - 238 903 The weighted average interest rates paid were: Bank loans 2015 2014 3.59% 3.59% The weighted average period until maturity was 0.2 years (2014: 4.4 years). 18. Retirement and other benefit obligations Retirement benefit obligations (note 18.2) 2015 £’000 10,430 2014 £’000 9,267 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. 58% of the assets are invested in equities, with 52% under passive management by Blackrock and 6% in a Fund of Hedge funds managed by Mesirow. 32% are held in bonds and gilts, with 19% in a Buy and Maintain Fund 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 9% 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 was £1,224,000 (2014: £1,370,000). Of the charge, £102,000 (2014: £113,000) is included in cost of sales, £352,000 (2014: £356,000) is included in selling and distribution costs, and £770,000 (2014: £901,000) 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 2014. 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 6.0% per annum pre-retirement and 4.5% per annum post- retirement, that the salary increases would average 3.6% 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 2.6% in the future. Limited Price Indexation was replaced by the Consumer Price Index (CPI) for payrises occurring after 1 January 2014. 46 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes forming part of the Group Accounts 18.2. Group defined benefit pension scheme 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. 2015 £’000 2014 £’000 Change in benefit obligation 62,770 Benefit obligation at beginning of year Service cost 823 Exceptional past service cost (see note 18.4) - (1,797) 2,725 Interest cost 5 Plan members’ contribution Actuarial loss (gain) 4,842 (4,604) Benefits paid (1,820) (1,670) Premiums paid (17) (15) 58,237 594 2,580 5 Benefit obligation at end of year Analysis of defined benefit obligation Schemes that are wholly or partly funded 64,421 64,421 58,237 58,237 Change in scheme assets 45,977 Fair value of scheme assets at beginning of year 2,026 Interest income 939 Return on plan assets (excluding interest income) 1,834 Employers contributions (incl. employer direct benefit payments) 5 Member contributions Benefits paid from plan (1,820) (1,670) Expenses paid (133) (141) 48,970 2,200 2,993 1,776 5 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 53,991 64,421 53,991 10,430 48,970 58,237 48,970 9,267 JAMES LATHAM PLC ANNUAL REPORT 2015 47 Financial Statements Notes forming part of the Group Accounts 18.2. Group defined benefit pension scheme (continued) 2015 £’000 2014 £’000 Components of pension expense Current service cost 823 Past service cost - (1,797) Interest cost 2,725 Income on plan assets (2,200) (2,026) 126 Expenses paid 116 2,580 594 Total pension expense recognised in the income statement 1,090 (149) Actuarial loss (gain) immediately recognised 1,849 (5,543) Total recognised in the statement of other comprehensive income 1,849 (5,543) Cumulative amount of actuarial loss immediately recognised 11,414 9,565 Plan assets The 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 2015 58.5% 31.9% 8.9% 0.7% 100.0% 2015 £’000 31,560 17,248 4,788 395 53,991 2014 59.8% 32.0% 7.4% 0.8% 100.0% 2014 £’000 29,271 15,694 3,608 397 48,970 48 JAMES LATHAM PLC ANNUAL REPORT 2015 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 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 45 (life expectancy at age 65) Female member age 45 (life expectancy at age 65) Weighted average assumptions used to determine pension expense: Discount rate Rate of compensation increase 2015 3.20% 2.95% 2.95% 1.95% 2.05% 24.1 26.1 26.0 28.1 4.50% 3.35% 2014 4.50% 3.35% 3.35% 2.35% 2.35% 24.3 26.7 26.1 28.7 4.40% 4.40% 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 (3,209) Discount rate increases by 0.25% Inflation rate increases by 0.25% 1,625 Life expectancy increases by one year 2,055 History of plan assets and defined benefit obligation Present value of defined benefit obligation Fair value of plan assets Net liability 2015 £’000 64,421 53,991 10,430 2014 £’000 58,237 48,970 9,267 2013 £’000 62,770 45,977 2012 £’000 53,010 40,694 16,793 12,316 2011 £’000 47,031 38,470 8,561 Contributions The group expects to contribute £876,000 to the pension scheme for the year ending 31 March 2016. 18.3. Defined contribution pension payments The group operates an executive defined contribution scheme managed by Aegon. The group has agreed to match contributions by eligible employees up to a maximum of 7.5%. In addition Aegon also manage our auto-enrolment scheme where employees are enrolled with a minimum of 3% matching contributions up to a maximum of 5%. Pension contributions paid to the defined contribution scheme for the year totalled £590,000 (2014: £369,000). JAMES LATHAM PLC ANNUAL REPORT 2015 49 Financial Statements Notes forming part of the Group Accounts 18.4. Exceptional adjustment to defined benefit pension cost During the previous 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 previous year. 19. Other payables (non-current liabilities) Accruals and deferred income 2015 £’000 464 2014 £’000 520 20. Deferred tax The net deferred tax asset/(liability) is made up of the following elements: Post- employment benefits £’000 Revalued properties £’000 Roll over gains on assets £’000 Other (*) £’000 Total £’000 As at 1 April 2013 (Charge)/credit to the income statement (438) (1,520) Credit direct to equity 3,914 (102) (2,134) (875) 803 - 12 278 91 (69) - (1,508) - At 31 March 2014 asset/(liability) (Charge)/credit to the income statement Credit direct to equity 1,956 (90) (1,856) (784) (774) - (229) (222) 7 296 - - 296 - - At 31 March 2015 asset/(liability) 2,259 (90) (1,856) (1,013) (700) * 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 LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes forming part of the Group Accounts 21. Share capital Ordinary shares Authorised Issued Ordinary shares of 25 pence each Number 28,000,000 £’000 7,000 Number 20,160,000 £’000 5,040 2015 and 2014 Preference shares Authorised Issued 8% Cumulative Preference Shares of £1 each Number 1,500,000 £’000 1,500 Number 987,000 £’000 987 2015 and 2014 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 2015 or 2014. 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 2015 Weighted average exercise price (£) Nil price share options Number of share options 2014 Weighted average exercise price (£) Nil price share options Outstanding at beginning of year 366,928 2.37 21,008 400,168 2.14 38,082 Granted during the year 16,262 5.65 560 25,394 3.96 746 - Forfeited during the year (10,159) 2.20 - (19,373) 2.24 Exercised during the year (51,550) 1.55 (10,952) (39,261) 1.16 (17,820) Outstanding at the end of the year 321,481 2.67 10,616 366,928 2.37 21,008 The weighted average share price for options exercised during the year was £5.55 (2014: £3.96). JAMES LATHAM PLC ANNUAL REPORT 2015 51 Financial Statements Notes forming part of the Group Accounts 22. Share-based payment (continued) Details of the options outstanding at 31 March 2015 are shown below. 19,000 (2014: 12,894) of these options were exercisable at the year end. 2015 2014 CSOP SAYE Nil price share options CSOP SAYE Nil price share options Range of exercise prices £1.65-£5.65 £2.46 Nil £1.16-£3.96 £2.46 Nil Number of shares 153,094 168,387 10,616 192,323 174,605 21,008 Weighted average expected remaining life (years) 3.0 0.9 0.2 3.0 1.9 1.1 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: 2015 2014 CSOP SAYE Nil price share options CSOP SAYE Share price at grant date £5.65 Option exercise price £5.65 24% Expected volatility 5 years Option life 1.7% Risk free interest rate £1.39 Fair value - - - - - - - £3.96 - £3.96 24% - 5 years - 2.9% - £1.07 - - - - - - - Nil price share options - - - - - - 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 £67,000 (2014: £80,000) 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 2015 was 191,115 (2014: 180,217). 52 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes forming part of the Group Accounts 23. Own shares At 1 April 2013 Cost Movement in the year At 31 March 2014 Movement in the year At 31 March 2015 £’000 218 (43) 175 2 177 The investment in own shares represents 36,879 25p Ordinary shares (2014: 67,080 25p Ordinary shares) held on behalf of the James Latham plc Employee Benefits Trust, a discretionary trust. This represents 0.18% (2014: 0.33%) of the issued share capital. The maximum number of shares held during the year was 82,900 (0.41%). 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 2015 719,200 (2014: 719,200) 25p Ordinary shares were held by the company as Treasury Shares. These shares are held with a view to being used for employee share schemes. 24. Cash generated from operations 2015 £’000 2014 £’000 10,479 Profit before tax 457 796 Adjustment for finance income and expense Depreciation and amortisation 1,503 (Profit)/loss on disposal of property, plant and equipment (5) 3 Increase in inventories (3,969) (1,715) Increase in receivables (1,371) (3,965) Increase in payables 647 3,571 Retirement benefits non cash amounts (1,066) (2,682) Share-based payments non cash amounts 67 80 Own shares non cash amounts (84) (34) 10,107 1,435 Cash generated from operations 6,218 8,036 25. Leasing commitments Future aggregate minimum payments under various operating lease contracts for vehicles, plant and property payable by the group are as follows: 2015 £’000 2014 £’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 years. 427 486 913 595 2,383 2,044 5,022 478 505 983 595 2,383 2,640 5,618 JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 £’000 954 123 99 24 1,200 2014 £’000 798 97 122 35 1,052 There are 4 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 £260,000 (2014: £239,000). The highest paid director also exercised 4,242 Company Share Option Plan share options during the year at a gain of £17,286. The highest paid director had an accrued defined benefit pension of £109,000 (2014: £108,000) at the balance sheet date. 27. Capital commitments At 31 March 2015, there were capital commitments contracted for but not provided in the accounts of £413,000 (2014: £76,000). 54 JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 Bank loans Trade payables Accruals Other payables Cumulative preference shares of £1 each Total 2014 Bank loans Trade payables Accruals Other payables Cumulative preference shares of £1 each Total 907 17,784 1,594 1,201 - 21,486 118 16,744 1,490 1,228 - 19,580 - - - - - - 120 - - - - 120 - - - - - - 903 - - - - 903 Total £’000 907 17,784 1,594 1,201 987 - - - - 987 987 21,590 - - - - 987 1,141 16,744 1,490 1,228 987 987 21,590 Foreign currency risk Approximately 42% 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 2015 was £37,000 in US Dollars (2014: £390,000) and £46,000 in Euros (2014: £184,000), 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 £8,000 (2014: £57,000). 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. JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 Cash and cash equivalents Trade and other receivables 2014 Cash and cash equivalents Trade and other receivables Financial liabilities 2015 Trade payables Accruals Other payables Bank loan Cumulative preference shares of £1 each 2014 Trade payables Accruals Other payables Bank loan Cumulative preference shares of £1 each Fixed rate £’000 - - - Fixed rate £’000 - - - Fixed rate £’000 - - - 907 987 1,894 Fixed rate £’000 - - - 1,141 987 2,128 Floating rate £’000 12,501 - Non- interest bearing £’000 - 32,551 Total £’000 12,501 32,551 12,501 32,551 45,052 Floating rate £’000 11,234 - Non- interest bearing £’000 - 31,341 Total £’000 11,234 31,341 11,234 31,341 42,575 Floating rate £’000 - - - - - - Floating rate £’000 - - - - - - Non- interest bearing £’000 17,784 1,594 1,201 - - Total £’000 17,784 1,594 1,201 907 987 20,579 22,473 Non- interest bearing £’000 16,744 1,490 1,228 - - Total £’000 16,744 1,490 1,228 1,141 987 19,462 21,590 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 £125,000 (2014: £112,000). 56 JAMES LATHAM PLC ANNUAL REPORT 2015 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 0.15% of sales this year, compared with our target of 0.4%. 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 2015 Current assets Trade receivables Other receivables Cash and cash equivalents Total current assets Current liabilities Trade payables Other payables Accruals Bank loans Loans and receivables £’000 31,428 1,123 12,501 42,052 Financial liabilities measured at amortised cost 17,784 1,201 1,594 907 Total 17,784 1,201 1,594 907 Total current liabilities 21,486 21,486 Non-current liabilities Bank loans Total non-current liabilities - - - - JAMES LATHAM PLC ANNUAL REPORT 2015 57 Loans and receivables £’000 30,281 1,060 11,234 42,575 Financial liabilities measured at amortised cost Total 16,744 1,228 1,490 238 16,744 1,228 1,490 238 19,700 19,700 903 903 903 903 Financial Statements Notes forming part of the Group Accounts 28. Financial instruments (continued) Financial instruments recognised in the balance sheet (continued) 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 58 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Company Balance Sheet Company number: 65619 Notes 2015 2014 2 3 22 14,613 14,635 23 14,613 14,636 At 31 March 2015 £’000s Fixed assets Tangible fixed assets Investments Current assets Debtors: amounts falling due within one year 4 Cash at bank and in hand 3,333 11,041 14,374 3,819 9,137 12,956 Creditors: amounts falling due within one year 5 (8,402) (4,214) Net current assets 5,972 Total assets less current liabilities Creditors: amounts falling due after more than one year 6 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 8 9 10 10 20,607 (1,273) 19,334 5,040 (177) 143 14,328 19,334 8,742 23,378 (1,305) 22,073 5,040 (175) 123 17,085 22,073 These accounts were approved and authorised for issue by the Board of Directors on 23 June 2015 and signed on its behalf by: P.D.L. Latham } Directors D.A. Dunmow The notes on pages 60 to 65 form part of these company accounts. JAMES LATHAM PLC ANNUAL REPORT 2015 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 Fixed assets are stated at cost less depreciation. 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 2015, 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 of 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 LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes to the Company Accounts Plant, equipment and vehicles £’000 353 2 355 330 3 333 22 23 2. Tangible fixed assets Cost: At 1 April 2014 Additions At 31 March 2015 Depreciation: At 1 April 2014 Provision for the year At 31 March 2014 Net book value At 31 March 2015 At 31 March 2014 3. Fixed asset investments Subsidiary undertakings Shares: At 1 April 2014 and 31 March 2015 Loans: At 1 April 2014 and 31 March 2015 Total at 31 March 2015 and 31 March 2014 £’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 2015 £’000 7 2,328 2 970 5 21 3,333 2014 £’000 23 2,985 1 785 6 19 3,819 JAMES LATHAM PLC ANNUAL REPORT 2015 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) 2015 £’000 7,563 21 497 237 84 8,402 2015 £’000 286 987 1,273 2014 £’000 3,390 35 466 236 87 4,214 2014 £’000 318 987 1,305 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 £5,000 (2014: £6,000) 2015 £’000 2014 £’000 The deferred taxation provision comprises: Accelerated capital allowances (5) (6) Timing differences on pension adjustments - - Undiscounted provision for deferred tax (5) (6) - Discount - Discounted provision for deferred tax (5) (6) Deferred taxation is provided at a rate of 20% (2014: 20%). 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 22 to the consolidated accounts. 62 JAMES LATHAM PLC ANNUAL REPORT 2015 Financial Statements Notes to the Company Accounts 9. Investment in own shares Shares: At 1 April 2014 Movements during the year Total at 31 March 2015 Total at 31 March 2014 £’000 175 2 177 175 The investment in own shares represents 36,879 25p ordinary shares (2014: 67,080 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 17,208 17,085 At April 2014 - (455) Profit for the year (455) Dividends (2,267) - (2,267) Exercise of options 47 (47) - Conversions of ESOP shares (82) - (82) - Share-based payment expense 67 67 123 At 31 March 2015 14,328 143 14,471 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 Loss for the financial year Dividends 2015 £’000 (455) (2,267) (2,722) Change in investment in ESOP shares (84) Movement in share based payment reserve 67 Reduction in shareholders’ funds (2,739) Opening shareholders’ funds Closing shareholders’ funds 22,073 19,334 JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 £’000 3 20 23 87 2014 £’000 2 23 25 87 The company has taken advantage of the exemption in FRS8 Related Parties not to disclose transactions with the active subsidiary company. 64 JAMES LATHAM PLC ANNUAL REPORT 2015 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 2015 were: Repayable on demand The carrying value of all financial instruments is not materially different from their fair value. £ 1,000,000 16. Dividends 2015 2014 Ordinary dividends: Final 8.0p per share paid 22 August 2014 (2013: 7.1p) Interim 3.7p per share paid 30 January 2015 (2014: 3.4p) 1,549 718 1,372 659 £’000 £’000 £’000 £’000 2,267 2,031 The Directors propose a final dividend for 2015 of 8.8p per share, that, subject to approval by the shareholders, will be paid on 28 August 2015 to shareholders on the register on 7 August 2015. Based on the number of shares currently in issue, the final dividend for 2015 is expected to absorb £1,711,000. JAMES LATHAM PLC ANNUAL REPORT 2015 65 Notice of Annual General Meeting Notice is hereby given that the one hundred and sixteenth Annual General Meeting of the Company will be held at Unit 3, Swallow Park, Finway Road, Hemel Hempstead, Hertfordshire, HP2 7QU on Wednesday 26th August 2015 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 2015 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 David Dunmow as a director, who retires by rotation. 6. To elect Andrew Wright as a director, who was appointed during the year. 7. 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. 8. To amend the rules of the James Latham PLC Savings Related Share Option Scheme to state that the maximum monthly contribution from each eligible employee is to be increased to the maximum allowed under the Income Tax (Earnings and Pensions) Act 2003 or superceding legislation. 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 expired. The expression ‘equity securities’ and ‘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 otherwise arise or with legal or practical 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 LATHAM PLC ANNUAL REPORT 2015 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 23 June 2015 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 24 August 2015 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 23rd June 2015, 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 LATHAM PLC ANNUAL REPORT 2015 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 £35. 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 1% of the value of each sale or purchase of shares, subject to a minimum of £30. 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 LATHAM PLC ANNUAL REPORT 2015 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 GDA Design and printed on: 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 

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