J A M E S L A T H A M P L C ANNUAL REPORT & ACCOUNTS 2017 Contents Summary and Highlights 1 Financial Highlights and Calendar 2 Chairman’s Statement Strategic Report James Latham plc and Our Objectives 4 Outline of the 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 29 Consolidated Statement of Comprehensive Income 30 Consolidated and Company Balance Sheet 31 Consolidated Statement of Changes in Equity 32 Company Statement of Changes in Equity 33 Consolidated and Company Cash Flow Statement 34 Notes forming part of the Group Accounts 59 Notice of the Annual General Meeting 61 The Latham Group Financial Highlights and Calendar for the year ended 31 March 2017 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 2017 £000 2016 Increase £000 (Decrease) 198,808 185,929 14,179 7.1% 13,827 56.0p 15.35p 73,258 17,246 13,241 7.1% 12,876 53.7p 14.3p 71,183 16,832 2015 £000 174,855 10,564 6.9% 7.1% ---- 6.0% 7.4% 4.3% 7.3% 2.9% 2.5% 10,107 40.3p 12.5p 62,231 12,501 Turnover (£000’s) Adjusted EPS Dividend 9 2 9 , 5 8 1 5 5 8 , 4 7 1 8 0 8 , 8 9 1 7 1 1 , 3 6 1 9 6 0 , 3 4 1 p 7 . 3 5 p 0 . 6 5 p 5 3 . 5 1 p 3 . 4 1 p 5 . 2 1 p 4 . 1 1 p 2 . 0 1 p 3 . 0 4 p 9 . 6 3 p 7 . 8 2 2013 2014 2015 2016 2017 2013 2014* 2015 2016 2017 2013 2014 2015 2016 2017 * Adjusted for an exceptional pension credit Financial Calendar Record date for final dividend 2017 AGM Payment of final dividend Interim 2017/18 results announcement Interim dividend expected payment date Preliminary announcement of 2017/18 results AGM 2018 4 August 2017 23 August 2017 25 August 2017 30 November 2017 26 January 2018 28 June 2018 22 August 2018 JAMES LATHAM PLC ANNUAL REPORT 2017 1 Chairman’s Statement I am pleased to report good trading results for the financial year to 31 March 2017. Group revenue for the financial year to 31 March 2017 was £198.8m, 6.9% up on last year’s £185.9m. The operating profit was £14.2m, up £1.0m from £13.2m. Finance income was £56,000 against £56,000 last year. Finance costs, which are principally interest on the pension scheme deficit as calculated under IAS19 (revised), were £408,000 against £421,000 last year Pre-tax profit was £13.8m, up £0.9m from £12.9m last year. Post-tax profit for the year is £11.0m, up from last year’s figure of £10.5m. Earnings per share were 56.0p compared to last year’s 53.7p. Net assets (total equity) were £73.3m compared to £71.2m last year. At the year end the Group’s cash reserves stood at £17.2m compared to £16.8m last year. Final dividend The directors recommend a final dividend of 10.85p per ordinary share (2016 10.3p). The final dividend will be paid on 25 August 2017 to shareholders on the register at the close of business on 4 August 2017. The shares will become ex-dividend on 3 August 2017. The total dividend per ordinary share of 15.35p for the year is covered 3.6 times by earnings (2016: 3.8 times). Financial year 2016/17 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 higher prices resulting from the weakness of sterling against both the dollar and the euro and to increased volumes ex-warehouse. Year on year increases in both revenue and volume for the fourth quarter was particularly encouraging. The gross margin, before warehouse costs, was down by 0.3 percentage points, due to competitive pressures and higher stock replacement costs. Panel and timber prices rose sharply during the year, due to the weakness in sterling. Focus panel products including melamine panels and door blanks, continued to show good growth. Our high quality certified sustainable hardwood for the joinery sector also showed good growth. Overheads have been well controlled in spite of higher volumes through the warehouses and bad debts were low overall for the year. Peter Latham Chairman, James Latham plc 2 JAMES LATHAM PLC ANNUAL REPORT 2017 Pension Scheme At 31 March 2017 the deficit of the defined benefit scheme under IAS19 (revised) was £16.6m up £6.9m compared with £9.7m last year, but down from £23.2m at 30 September 2016. These variations are the result of the changes in the corporate bond yield used to calculate the present value of the scheme’s liabilities, offset by the increases in the value of scheme assets, and reflects the volatility of the accounting for this scheme. Current financial year 2017/18 This year like for like revenue, both in panels and timber, is 3% higher for April and May than the corresponding period last year which had two more working days. However the gross margin is still under pressure. Development strategy The directors continue to identify opportunities for growth and to introduce and promote new products. Construction of the new, up-graded site for our Yate operation is nearing completion and the move is planned for July. Negotiations are at an advanced stage for the construction of a new site for our Wigston unit and relocation is expected by the end of the financial year. The Group is in a strong financial position to take advantage of opportunities for further business growth, as and when they arise. Chairman’s Statement Directors and staff From 23 August 2017 I will stand down as Non-Executive Chairman. Nick Latham, currently Deputy Chairman, will take over as Executive Chairman. Nick has been actively involved is establishing our successful newer branches and has been responsible for the development of our timber products. In terms of corporate structure, there is a clear division of responsibilities between the main board, which determines strategy and exercises corporate governance and the trading board of Lathams Limited, chaired by Chris Sutton, which sets and monitors 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. Group product champions look after key product ranges backed by product champions at each depot. I have been Chairman for more than 10 years and have seen a number of significant changes in how the company operates, both in terms of products sold and operating procedures. Last year the Directors carried out a detailed strategic review of how the company should progress over the next 10 years and I am confident that an excellent team is in place at all levels in the business to carry this out. I would like to thank the Directors and everyone in the group for their support over the years and for their individual contribution to the year’s successful results. Peter Latham Chairman, James Latham plc 21 June 2017 JAMES LATHAM PLC ANNUAL REPORT 2017 3 Strategic Report Introduction Outline of the Strategic Report The directors present their Strategic Report for the year ended 31 March 2017. 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 21 June 2017 and signed on its behalf by:- Peter Latham David Dunmow 1 3 2 4 1 Kronospan’s Trends 2017 Collection. 2 Super Prime Walnut in a kitchen manufactured by Chambers Furniture. 3 Egger’s new range for 2017. 4 Charred Accoya . 4 JAMES LATHAM PLC ANNUAL REPORT 2017 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 panel products, natural acrylic stone, hardwoods, high grade softwoods, flooring, cladding, decking and plastics. 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 five 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 ten locations, as shown in The Latham Group map on page 61, as well as from various port and storage locations around the UK. 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 Integrity, Shareholder Value, Empowerment, Sustainability and Customer Focus. The company is well respected in its industry and amongst its customers and suppliers for its principled trading policies and its integrity. The company’s objectives are: • To maximise shareholder value over the 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 increase sales of third party certified legal and sustainable timber products. • To improve service levels by upgrading warehouse facilities to speed order picking and to cope with an extended product range; and • To employ well-trained, knowledgeable and helpful staff. JAMES LATHAM PLC ANNUAL REPORT 2017 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) Earnings per share (pence) 9 2 9 , 5 8 1 5 5 8 , 4 7 1 8 0 8 , 8 9 1 8 3 9 2 7 9 5 9 9 7 . 3 5 0 . 6 5 3 . 0 4 2015 2016 2017 2015 2016 2017 Turnover up 6.9% Tonnes per working day up 2.4% 2015 2016 2017 Earnings per share up 4.3% Debtors days average Stock turn (times) Cash (£000’s) 4 . 2 5 3 . 1 5 0 . 1 5 2 . 6 0 . 6 5 . 5 2 3 8 , 6 1 6 4 2 , 7 1 1 0 5 , 2 1 2015 2016 2017 2015 2016 2017 2015 2016 2017 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 6.0 times and excludes stock being processed in kilns Cash balances up £414,000 6 JAMES LATHAM PLC ANNUAL REPORT 2017 Strategic Report Operating Review Results for the year to 31 March 2017 The UK economy has continued to show steady growth, although there are signs of a slow down following the verdict in the European Union referendum. Our customers though still appear busy and remain positive for the immediate future. Revenue for 2016/17 was £198.8m, £13m higher than the previous year, reflecting improving volumes in both panels and timber as well as product prices being above last year’s level. Volume growth was achieved across both commodity products and our specialised products. The gross margin, the difference between the sales values and the cost prices excluding warehouse costs, was 0.3 percentage points down on the previous year. Continuing competitive pressure in the commodity markets as well as the impact on cost prices caused by weakness in sterling, resulted in some lower margins being achieved in the second half of the year. Staff numbers have increased this year, mainly warehouse and distribution staff. This includes investment in trainees, which are important to ensure that we have new talent coming through the business. We have also continued to extend the working day by introducing longer shifts, bringing along with it more warehouse staff. This enables us to efficiently pick orders placed later in the day and allow our vehicles to be loaded overnight for prompt starts the next day. Increasingly next day delivery is expected by our customers and our operations have to adapt to deal with this. Overhead cost control though has remained important and we continually look to improve efficiency and productivity. For management purposes, the group is organised into one trading division, importing and distribution of wood based and related materials, carried out in each of the ten 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. The group’s strategy continues to be to target specific market sectors on both added value, core and premium grade products. Our extensive stock holding of melamine, laminates and veneered panels has enabled us to show good sales growth in these areas. We will continue to invest in these ranges. Plywood sales were very encouraging with merchants, contractors and specifiers continuing to support our policy of sourcing and stocking legal, certified and fit for purpose brands. We have committed to our strategic plywood suppliers in Malaysia, Indonesia, Uruguay, Finland and the Baltic States by purchasing from them on a rolling agreement basis. Garnica high quality poplar plywood was added to our range towards the end of the year and sales to date have been very encouraging. MDF supplies were affected by an accident on one of the production lines of a key supplier, but through our contacts in the industry we made sure that the effect of this on our customers was minimal. In spite of the difficult supply position, we once again grew MDF volumes. The demand for OSB increased significantly during the year and we expect this will continue. OSB is a certified and fit for purpose product that is able to be used in structural and non-structural applications. Door blank sales for our Flamebreak, Moralt and Halspan brands have all grown. We offer a solution for applications such as fire, thermal and acoustic blanks. The Advanced Technical Panels team, with their wealth of experience and knowledge, together with their extensive product range had a strong year showing sales and volume growth. Branded products include Buffalo Board®, which continues to be specified. Kydex® has been successful, being sold into new markets in the commercial sector. Good growth has been achieved in the WISA range of coated Birch Plywood. Additional sales resources were allocated to the team to ensure that we could target and develop new customers and markets. The market for Hi-Macs® natural acrylic stone has been extremely competitive leading to static values and margins being under pressure. We continue to work on gaining specifications with contractors, architects and designers. Strong sales have been achieved in Florian Prime European Oak. This product is of a consistently high quality which has proved successful in the joinery sector. African volumes are ahead of last year but margins in particular on Sapele, came under pressure. Our policy remains to source certified products although they are more expensive. Demand for Accoya modified wood has been good this year, in line with our expectations. Our focus is on developing new users for the product following the investment by our supplier in increased production facilities. Sales of Accoya and Cedar cladding have grown and we are winning more specifications. The latest addition to our cladding range is Shou Sugi Ban Charred Accoya which has been well received by architects and designers visiting our showroom at the Business Design Centre. JAMES LATHAM PLC ANNUAL REPORT 2017 7 Strategic Report Operating Review Composite decking sales have grown significantly as our brand has gained more awareness. During the year we visited key strategic suppliers in North America, Malaysia, Indonesia, Finland, China, Eastern and Western Europe. This was to further develop personal and business relationships and to carry out product and environmental audits. LDT, our bulk timber pack operation, have made a very useful contribution to group profits, despite finding the importer and merchant market for hardwoods very competitive. We have made some progress in developing overseas markets in Europe and have also invested in staff to explore export markets in the Middle East for our full range of products. As part of their ongoing development, LDT will look to increase their product offering to the importer and merchant sectors, whilst maintaining their strict environmental policy. 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 (RPP). Any supplier who does not meet this criteria will not be considered. Product of Verified Legal Origin (VLO) is also purchased. additions to suppliers ranges. This year we showed new lines from both Egger and Kronospan. As well as this show, we undertake extensive marketing of our products, and through various publications and on-line advertising, has seen our name reach over 4.2 million people. We continue to develop our on line marketing, social media and direct product campaigns. Strategy for developing the business The directors recognise that the strength of the group is as a distributor of fit-for-purpose, high quality timber and associated products purchased 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 as we are viewed as a good route to market by current and prospective suppliers. Our customers expect us to continue to bring new and fit for purpose products to the market. Andrew Wright is responsible for identifying these opportunities. Our aim is to provide a true one stop shop to our key target markets. We once again exhibited at the Surface Design Show generating in excess of 550 leads. This show is a great opportunity to promote new product launches and Our speciality division, Advanced Technical Panels, will continue to develop its product offering and will add another leading brand of thermoformed plastics to its range. Our showroom at the Business Design Centre. 8 JAMES LATHAM PLC ANNUAL REPORT 2017 Strategic Report Operating Review Our staff are a major asset for the company, and we continue to invest in training to ensure that we have the best operations, sales and technical teams in the industry. Marketing of our products through brochures, direct advertising, public relations, social media and exhibitions is key to our success, and we will use multiple channels to communicate clearly with our existing and potential customers. Our Architect and Design showroom at the Business Design Centre in Islington has opened up our product offering to a large number of professional specifiers. This has already proved to be beneficial, gaining orders and specifications for a wide range of products on display from our key strategic suppliers. We have put in place a programme of presentations to architects for their Continual Professional Development. Visitor numbers will continue to increase and we expect to gain more specifications for our products through this facility. ABET lockers & panels. Commodity product remains very important to the group and more emphasis will be placed on stocking and marketing MDF, OSB, Plywood and North American, European and African hardwoods. A strategic part of our sales development will be in Laminates and we have secured UK distributorship for ABET, a high quality branded laminate. We have also appointed our first national Laminate product manager. 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, delivered in a timely manner. The melamine range of products will continue to develop, with more stock lines of the Kronospan and Egger range being held at our depots. Market place The group’s business is widely spread throughout many sectors of the UK economy. We have appointed a technical timber sales development manager who will be focussing on added value timber including Accoya, WoodEx®, decking and cladding. Our Leeds depot acts as the central distribution point for ATP, HiMacs®, Composite Decking, Kydex, Laminates, Valchromat and other niche products. These are available on a national basis for prompt delivery to our customer base, and it is our intention to continue to develop and improve this service. All depots have a three year rolling business plan to ensure that they monitor opportunities and threats throughout the year, and review their practices to continually improve service levels to our customers. 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 relocation of our Yate site during the coming summer and the new Wigston depot expected to be substantially complete by the end of 2017. Both these new depots will have an enhanced product offering across the full range of our products. We will also consider acquisitions where opportunities arise, to enhance our product range or geographical coverage. Market sector Customer group Lathams sales value % 2017 2016 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 23 17 23 5 5 4 5 5 7 1 2 7 8 4 5 4 5 5 7 2 2 7 9 TOTAL 11 10 100 100 End products are used in both the public and private sectors. Our top ten customers account for 10% of sales and our top 25 customers represent 15% of sales. JAMES LATHAM PLC ANNUAL REPORT 2017 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 again out-performed our financial objectives for this year, strengthening our position in the market, maintaining a strong balance sheet and putting plans in place to invest in the future. 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, whilst remaining competitive. • 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 6.9% to £198.8m. 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 in which we can provide a value added service. This has been especially important with the increases in costs in some of our products caused by the weakening of sterling from the middle of 2016. Gross profit reduced to 18.2% from 18.6%. At the half year stage we were achieving margins of 18.7%, illustrating the effect of increased product cost in the second half of the year. In addition warehouse costs, which are included in the calculation of gross profit, have remained under control, with warehouse cost per tonne of product delivered increasing by just 1.8%. This is despite continued investment in manpower to extend the working day to meet customer demands. Most depots have 10 JAMES LATHAM PLC ANNUAL REPORT 2017 David Dunmow Finance Director and Company Secretary increased the number of hours in their working day, with two operating a 24 hour system in order to provide the service that our customers demand. Selling and distribution costs increased by 2.2%. 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 only slightly by 0.7% over last year, mainly down to increased fuel costs with some efficiencies due to increasing our lorry fleet and reducing hauliers. Costs in each location are monitored closely by the board through the quarterly meetings at each depot. Operating profit increased 7.1% to £14.2m. Group net profit before taxation increased to £13.8m from £12.9m last year. The taxation charge of £2.8m represents an effective rate of 20.6%, compared with 18.7% last year. 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 2017 the deficit of the defined benefit scheme under International Financial Reporting Standards was £16.6m compared with £9.7m last year. Discount rates, represented by yields on corporate bonds, fell sharply to 2.5% from 3.5% last year. The increase in liabilities that this produces has been offset to a degree by an increase in asset values, mainly in the equity portfolio. In note 17.2 to the accounts, we have provided some sensitivity analysis around the various assumptions used to illustrate this volatility. Under the recovery plan agreed following the triennial valuation at 31 March 2014 there will be no deficit recovery payments made in the year to 31 March 2018. The triennial valuation for 31 March 2017 will be concluded during the course of the next financial year and in anticipation of this needing deficit recovery payments to restart in the year to 31 March 2019, the board agreed to pay £1m in this year, with a further £1m to follow in the year to 31 March 2018 as a special contribution. 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. Gross IAS19 deficit £000’s 2013 2014 2015 2016 2017 7 6 2 , 9 0 3 4 , 0 1 7 5 6 , 9 5 2 6 , 6 1 3 9 7 , 6 1 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 16000 2 3 8 , 6 1 6 4 2 , 7 1 1000 2000 3000 4000 5000 Cash flow and working capital 6000 7000 8000 At the end of the year cash balances of £17.2m were held, 9000 10000 up from £16.8m last year. The cash is being held as short 11000 12000 term deposits providing funds for short term working 13000 14000 capital fluctuations and allowing us to make capital 15000 16000 investments when opportunities arise. This cash is being held to finance the relocations of Yate and Wigston. During the year we invested £4.6m on the new Yate site with a further £1.5m to spend this year. Practical completion has now taken place and we expect to move into the new site during July. We have also moved forward with the Wigston relocation and it is anticipated that this site will cost £6.5m and be substantially completed by March 2018, later than originally anticipated. We will endeavour to dispose of the old sites as soon as possible after the 2015 relocations are complete. 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 £1,002,000 of discounts received compared with £940,000 last year. I am particularly grateful to my bought ledger team for their hard and efficient work in processing suppliers invoices so that these discounts are not missed. 1 0 5 . 2 1 4 3 2 , 1 1 5 7 0 , 8 2017 2013 2014 2016 Strategic Report Financial Review The timber importing and distribution business requires considerable working capital investment in stock and debtors. Control of cash flow from customers is closely monitored. The key performance indicator of debtors days, taking into account our credit terms, has moved from 51.3 days to 51.0 days. Bad debts this year ended up at 0.04% of turnover against a budget of 0.4%, and last year of 0.11%. I am very grateful for the work my 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. They also work very closely with our credit insurers to ensure that as many of our major accounts as possible are covered. At the year end we had 96% of accounts owing over £40,000 covered by credit insurance. In addition, the amount of outstanding debt being dealt with by our solicitors has remained low all year. Stock turnover targets are set and monitored on a monthly basis, and senior management has access to real time stock levels. At 31 March 2017 stock turn is 5.5 times compared with our target of 6.0 times. As our target is measured using cost prices then the increase in product 2015 cost has had an effect on the stock turn, and there were also some commodity product ranges that are temporarily overstocked due to shipment timings. 2017 2016 2014 2013 7 6 2 , 9 0 3 4 , 0 1 7 5 6 , 9 Good stock and debtor control has allowed 86% of profit before tax to be available as free cash for investment and distribution. 5 2 6 , 6 1 3 9 7 , 6 1 Cash and Cash Equivalents 6 4 2 , 7 1 2 3 8 , 6 1 1 0 5 . 2 1 4 3 2 , 1 1 5 7 0 , 8 2013 2014 2015 2016 2017 JAMES LATHAM PLC ANNUAL REPORT 2017 11 Strategic Report Financial Review The new Yate site under development. Capital investment Other than the investment in the new Yate site, the majority of the capital expenditure this year was due to the asset replacement policy on our lorries and mobile plant. Net assets at the year end were £73.3m (2016 £71.2m). The group’s pre-tax return on capital for the year was 19.0% (2016 19.7%), 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. currency spot prices. Speculative positions on currencies are not entered into. Comparing against spot prices, we had a positive tracking error of 0.3% 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. 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. 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. As the group trades predominantly in the UK, the market price of our products tends to fluctuate in line with David Dunmow Finance Director 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 2017 Market Conditions Competition from new and existing businesses Inventory levels move out of line with sales requirements and market prices Strategic Report Principal Risks and Uncertainties Inherent risk Risk Description Risk Mitigation 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. 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. Competitive pressures from existing businesses and new entrants to the market could reduce prices, margins and profitability. 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. 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. To mitigate this risk, the group has a strict policy of stock level targets by product group and 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 17.2 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 in a separate data centre to provide extra resilience. Should there be any failure in the systems in the main datacentre, then the back ups held in the secondary data centre can be made operational. 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 2017 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, with their audit scores and trends being monitored at management meetings. 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 have introduced the FORS (Fleet Operator Recognition Scheme), achieving Bronze status and aim to improve this in the future. Our lorries all have tracking devices fitted which provide alerts and information on speed as well as the route taken, as well as cameras 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 or social impact of its trading as far as is reasonably practical. 14 JAMES LATHAM PLC ANNUAL REPORT 2017 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 biodiversity, leads to soil erosion and damages watercourses. It ruins the lifestyle of traditional forest dwellers. Forest burning adds to carbon emission and harms air quality in the region. Purchasing from those involved in corrupt practices undermines national governance. It is therefore essential that we ensure our timber is legally harvested and comes from well managed forests. The group recognises that the independent certification of forests and of the supply chain is the best means of providing assurances of this. 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. WWF award up to three “trees” to show companies progress towards this goal, and we have achieved the top score. We are sponsoring the PEFC UK 2017 stakeholder event which aims to demonstrate the positive impacts of forest certification on the ground. 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 that suppliers 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. The group sets targets each year to increase the amount of timber and timber based products that are certified by recognised international organisations such as PEFC and FSC, as coming from sustainable and well-managed forests. The figures for the relevant calendar years are given below. FSC PEFC 3rd party verified legal TOTAL Panels 2015 2016 2017 Target Timber 2015 2016 2017 Target 71% 69% 70% 39% 43% 20% 23% 23% 17% 17% 6% 6% 5% 33% 32% 43% 18% 32% 97% 98% 98% 89% 92% 93% The European Timber Regulation (EUTR), which came into force in March 2013, places an obligation on the first placer of timber on the European market to ensure that the timber has been legally sourced and traded, to operate a risk assessment process and to take mitigating measures to minimise the risk of illegality. We 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. Part of the EUTR process to ensure that only legal timber enters the EU is the signing of bilateral agreements with producer countries. This involves the issuing of FLEGT (Forest Law Enforcement, Governance and Trade) licences for all timber traded for that source. We are proud, after many years of work, to have received plywood and door blanks in the first FLEGT certified container of wood from Indonesia, which will go a long way to improving sustainability in this environmentally sensitive part of the world. Strategic Report Corporate Responsibility Piers Latham and Indonesian Ambassador Dr Rizmal Sukma, inspecting the first shipment of FLEGT wood. 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 buying timber that can be demonstrated to be legal and from well- managed forests. This is condition of contract to supply the UK Government and many environmentally aware customers. 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, Congo Brazzaville, 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 FLEGT Initiative to prevent illegal logging by giving press and film interviews and speaking at the FLEGT review meeting in Brussels. JAMES LATHAM PLC ANNUAL REPORT 2017 15 Strategic Report Corporate Responsibility 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 Chairman of the PEFC International Board, the Timber Trade Federation environmental committee and to promoting PEFC and FSC certified products with chain of custody certification. Supply chain transparency – Modern Slavery Act 2015 We are dedicated to promoting ethical values and integrity in our business behavior by implementing controls through ISO management and due diligence systems. We aim to ensure that trading and operational purchases are free from human trafficking and slavery. We are committed to transparency within our supply chains and are alert to the potential risks. Where risks are identified, adequate mitigation measures will be implemented and monitored. Local environmental issues We also recognize that alongside our timber environmental policy, we have a responsibility to minimise our local environmental footprint. We have developed an environmental management system which is accredited under ISO14001. This commits us to considering energy efficient options for lighting, heating and ventilation before making purchasing decisions. Vehicle procurement considerations include reduction of emissions and improved fuel efficiency. The company seeks to minimise the use of packaging material and to recycle discarded packaging material and paper where it is practicable to do so, to avoid these materials entering landfill. We have launched this year our inter depot Environmental and Health and Safety Awards to encourage best practice around the group but also to encourage each depot to come up with initiatives for reducing our carbon footprint. We give support, both in staff time and financially, to community projects local to our depots through schools, sports teams and charities. We support the National Forest project in Central England, which started with the planting of 250 trees to celebrate the company’s 250 year anniversary in 2007 and continues with further plantings and woodland management activities for customers, suppliers and staff. 16 JAMES LATHAM PLC ANNUAL REPORT 2017 Piers Latham presenting the prize to Chanti Barnes. We sponsored the Innovative Timber Engineering prize at Brighton School of Architecture and Design. Piers Latham presented the prize to Chanti Barnes for her creative and innovative development of a charcoal and resin composite in her building proposition. 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. Employment would continue for any employees that become disabled. 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 at or above 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. Corporate Governance Corporate Responsibility / Corporate Governance Report We have a successful program of introducing trainees from school or college. All depots have trainees and we have plans to recruit more 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. 9 of our trainees studied for the TFT Woodexperts Ltd Level 4 Certificate in Wood Science and Timber Technology. We were pleased that all 9 passed, with Dean Taylor achieving a Distinction. In addition we have set up a Timber Academy for 11 of our staff, who will have work placements with our key suppliers around the globe in order to expand their knowledge of timber. Knowledge gained from this will help our future sales and product development. Details of the number of employees and their related costs can be found in note 4 to the accounts. Toby Hughff, timber trainee at our Leeds branch. The e-Tree Initiative James Latham plc has signed up to the e-Tree initiative organised by our registrars Computershare. e-Tree™ is a programme designed to help companies promote eCommunications 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 visit www.investorcentre.co.uk/etreeuk/ 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 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. We aim 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, five executive directors and two other non-executive directors. Each director has a vote and no individual or small group of individuals dominates the board’s decision making. 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 2017, the board met six times, with all directors attending each meeting. In addition conference calls are held where matters which cannot wait for the next board meeting can be discussed. 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. 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. JAMES LATHAM PLC ANNUAL REPORT 2017 17 Corporate Governance Corporate Governance Report The Audit Committee The Audit Committee is chaired by Fabian French, and includes Meryl Bushell and Nick Latham. Andrew Wright will replace Nick Latham on the Audit Committee from 1 April 2017. 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, and receive reports from the auditors. 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. 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 shareholders with any published financial statements and Stock Exchange announcements also posted on to our Investors website, www.lathams.co.uk. The executive directors also allocate three days a year for Investor Roadshows organised by our broker, Northland Capital Partners. 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. 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. Internal controls The board has established systems of internal control as appropriate for the size of the group. The day to day operation of the system of internal control is under the control of executive directors and senior management. The system is designed to manage rather than eliminate risk. Any system of internal control can however only provide reasonable, but not absolute, assurance against material misstatement and loss. No material breaches of internal controls were reported during the year. 18 JAMES LATHAM PLC ANNUAL REPORT 2017 Corporate Governance Directors and Advisors Directors’ biographies Peter Latham OBE BA FIMMM Non-executive Chairman Peter Latham, age 66, has worked in the company for 44 years and was appointed to the board in 1983, and became a non-executive on 1 January 2016. He is a former director of Lathams Limited, and attends the Remuneration and Nominations Committees. He is Chairman of the Programme for the Endorsement of Forest Certification schemes (PEFC) International board, an independent non- governmental organisation, which has certified the largest area of world forests. He is 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 53, has worked in the company for 23 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. He is a Trustee of the James Latham plc Pension and Assurance Scheme. Chris Sutton Executive Director Chris Sutton, age 58, has worked in the company for 39 years and was appointed to the board in 2005. He is Managing Director, chairing the Lathams Limited board. He is a director of the Timber Trade Federation. Nick Latham BSc Executive Director Nick Latham, age 49 has worked in the company for 26 years and was appointed to the board in 2007. He is a director of Lathams Limited, and member of the Audit Committee, and provides advice to the Remuneration Committee. He sits on the main board of the Timber Research and Development Association. Piers Latham BSc Executive Director Piers Latham, age 46 has worked in the company for 24 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. Andrew Wright Executive Director Andrew Wright, age 52, has worked in the company for 16 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. Fabian French MA Non-Executive Director Fabian French, age 58, was appointed a non- executive director in 2015. He chairs the Audit Committee. He is a qualified solicitor and worked in corporate finance for major investment banks. He is currently Chief Executive of UK Community Foundations and is a director of CRGH Investment LLP, Goodenough College Charity, Trebartha Hydro Ltd, and is a previous director of Inspiration in Sport and Mithras Investment Trust Plc. Meryl Bushell PhD FCIPS Non-Executive Director Meryl Bushell, age 62, 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 Nomination Committees and is a member of the Audit Committee. 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 60 Gresham Street, London EC2V 7BB Pension Advisor Mercer Tower Place West London EC3R 5BU Independent Auditor RSM UK Audit LLP 25 Farringdon Street London EC4A 4AB Registered Office James Latham plc Unit 3 Swallow Park Finway Road Hemel Hempstead Herts HP2 7QU Registered Number 65619 Registered in England and Wales Peter Latham David Dunmow Chris Sutton Nick Latham Piers Latham Andrew Wright Fabian French Meryl Bushell JAMES LATHAM PLC ANNUAL REPORT 2017 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 2017, the Remuneration and Nominations Committee comprised two non-executive directors, Meryl Bushell as Chairman and Fabian French, who both served throughout the year. The meetings were attended by Peter Latham, Nick 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. The Committee has access to professional remuneration advice from outside of the company. Remuneration Policy The remuneration policy aims to ensure that executive directors are fairly rewarded for their individual contributions to the performance of the group, with due regard for the interests of shareholders. The remuneration package consists of basic salary, benefits (comprising car and private medical provision), pensions, annual bonus schemes, 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. 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 2017 was the achievement of £11,485,000 operating profit, as measured in the depots management accounts, an increase of 9.1% over the previous year’s 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 135.9% of the target operating profit was achieved earning 19.5% of basic salary. The criterion for the year ended 31 March 2018 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 4.93% of basic salary to 357 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. 20 JAMES LATHAM PLC ANNUAL REPORT 2017 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 2017. James Latham plc total shareholder return 250 200 150 100 50 0 2012 2013 2014 2015 2016 2017 Directors’ emoluments Details of the individual directors’ emoluments for the year were as follows: James Latham Plc FTSE AIM All Share Index The Remuneration Committee consider this to be the most appropriate graph against which to compare the company’s performance. Salary and fees Benefits Bonus Total emoluments excluding pensions Share based payments Pension contributions £000 £000 £000 £000 £000 £000 Executive N.C. Latham D.A. Dunmow C.D. Sutton P.F. Latham A.G. Wright 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Non-executive P.D.L. Latham (from 1 January 2016) M.A. Bushell 2017 2016 2017 2016 2017 P.L.F. French 2016 (appointed 1 October 2015) 2017 P.A.J. Latham (resigned 30 September 2015) 2016 Total 2016 165 131 159 152 158 148 105 95 108 100 71 179 32 31 32 15 - 15 830 866 1 1 13 13 12 10 11 10 10 9 - 4 - - - - - - 47 47 41 39 40 38 40 38 29 24 29 26 - - - - - - - - 207 171 212 203 210 196 145 129 147 135 71 183 32 31 32 15 - 15 179 165 1,056 1,078 2 2 2 5 2 4 2 2 1 1 - 1 - - - - - - 9 15 TOTAL £000 232 195 245 239 241 229 166 150 169 157 71 184 32 31 32 15 - 15 23 22 31 31 29 29 19 19 21 21 - - - - - - - - 123 122 1,188 1,215 JAMES LATHAM PLC ANNUAL REPORT 2017 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 N.C. Latham D.A. Dunmow C.D. Sutton P.F. Latham A.G. Wright M.A. Bushell P.L.F. French Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner Beneficial owner 31 March 2017 31 March 2016 Ordinary shares Preference shares Ordinary shares Preference shares 1,134,636 627,352 125,819 51,300 624,743 22,366 9,394 370,052 Nil Nil Nil Nil 567 Nil Nil Nil 1,132,372 624,231 120,236 48,540 621,757 20,114 9,400 370,052 Nil Nil Nil Nil 567 Nil 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: N.C. Latham D.A. Dunmow C.D. Sutton P.F. Latham A.G. Wright 31 March 2017 31 March 2016 3,185 3,185 3,185 3,185 1,592 - - - - - Options were granted on 1 September 2016 at 565p per share, and the options are exercisable on 31 August 2019. 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 N.C. Latham Outstanding 1 April 2016 Granted during the year Exercised Outstanding 31 March 2017 Exercise price 1,742 1,834 1,742 1,834 1,262 707 586 - - - - - - - - 636 (1,742) - (1,742) - - - - - - 1,834 - 1,834 1,262 707 586 636 £2.295 £2.725 £2.295 £2.725 £3.96 £5.65 £6.825 £7.075 Exercise period 29.11.16 to 28.11.21 05.12.17 to 04.12.22 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 18.12.20 to 17.12.25 06.12.21 to 05.12.26 Continued on page 23 22 JAMES LATHAM PLC ANNUAL REPORT 2017 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 2016 Granted during the year Exercised Outstanding 31 March 2017 Exercise price D.A. Dunmow C.D. Sutton P.F. Latham A.G. Wright 2,532 1,742 1,834 1,262 707 586 - 1,818 2,532 1,742 1,834 1,262 707 586 1,742 1,834 1,262 707 586 - 2,025 1,742 1,834 1,262 707 586 - - - - - - - 636 - - - - - - - - - - - - 636 - - - - - - 636 (2,532) (1,742) - - - - - - (2,532) - - - - - (1,742) - - - - - (2,025) - - - - - - - - 1,834 1,262 707 586 636 1,818 - 1,742 1,834 1,262 707 586 - 1,834 1,262 707 586 636 - 1,742 1,834 1,262 707 586 636 £1.975 £2.295 £2.725 £3.96 £5.65 £6.825 £7.075 £1.65 £1.975 £2.295 £2.725 £3.96 £5.65 £6.825 £2.295 £2.725 £3.96 £5.65 £6.825 £7.075 £1.975 £2.295 £2.725 £3.96 £5.65 £6.825 £7.075 Exercise period 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 18.12.20 to 17.12.25 06.12.21 to 05.12.26 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 18.12.20 to 17.12.25 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 18.12.20 to 17.12.25 06.12.21 to 05.12.26 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 18.12.20 to 17.12.25 06.12.21 to 05.12.26 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 £8,542, Mr D.A. Dunmow made a gain of £20,000, Mr C.D. Sutton made a gain of £12,091 and Mr A.G. Wright made a gain of £10,581 on options exercised during the year. MA Bushell, Chairman of the Remuneration Committee 21 June 2017 JAMES LATHAM PLC ANNUAL REPORT 2017 23 Corporate Governance Directors’ Report The directors have pleasure in presenting their annual report and the audited accounts for the year ended 31 March 2017. In accordance with section 414c(11) of the Companies Act 2006, included in the Strategic Review is the review of financial risk management and employee policies. 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 2017 are set out on page 29. The directors recommend the following dividends:- Ordinary dividends Interim dividend paid, 4.5 pence per ordinary share Final dividend proposed, 10.85 pence per ordinary share Total ordinary dividends, 15.35 pence per ordinary share £000 833 2,127 2,960 The directors recommend payment of the final dividend on 25 August 2017 to shareholders on the register of members at the close of business on 4 August 2017. Balance sheet and post balance sheet events The balance sheet on page 30 shows the group’s financial position. Since the year end we have completed on the purchase of the new Yate site which is expected to cost a further £1.5m. See note 27 on page 55. Directors The directors of the company, whose biographical details are shown on page 19, were directors throughout the year. In compliance with the Articles of Association, Meryl Bushell, Fabian French, Chris Sutton and Piers Latham will retire by rotation and, being eligible, offer themselves for re-election. Other than their service contracts, no director has a material interest in any contract with the company. Peter Latham, Meryl Bushell and Fabian French, 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. 24 JAMES LATHAM PLC ANNUAL REPORT 2017 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 519,200 ordinary shares as treasury shares, with a view to being used for employee share schemes. The company also holds 150 preference shares in treasury. In addition the Trustees of the James Latham Employee Benefits Trust holds 19,741 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, and a resolution to extend this for a further ten years will be proposed at the Annual General Meeting. A 3 year scheme commenced on 1 September 2016 with 183,484 options being issued at an option price of £5.65. On 21 August 2008, the shareholders approved by special resolution the establishment of the Company Share Option Scheme. During the year 14,799 options were issued at an option price of £7.075. In addition 36,285 options were exercised after being held for five years, 4,242 at an option price of £1.65, 9,620 at an option price of £1.975 and 22,423 at an option price of £2.295. Employees The strategic report on page 16 sets out the group’s communication policies with their employees and its policy toward disability. Corporate Governance Directors’ Report St Thomas’ Hospital Birch canopies. Own Shares The investment in own shares is detailed in note 23 on page 53. The investment at 31 March 2017 represents 19,741 25p ordinary shares held on behalf of the James Latham plc Employee Benefit Trust. At 31 March 2017 519,000 25p ordinary shares were held by the company as Treasury shares. Substantial shareholdings At 21 June 2017, 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 Robert Latham Nick Latham Piers Latham Number 1,134,636 680,787 627,352 624,743 % 5.78 3.47 3.19 3.18 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 2017 were 34 days (2016: 34 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 the Guidance on the Going Concern Basis of Accounting and Reporting On Solvency and Liquidity Risks published by the Financial Reporting Council in April 2016. Political and charitable donations During the year the group made no political contributions but made direct donations to various charitable organisations amounting to £3,758 (2016: £4,940). 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. JAMES LATHAM PLC ANNUAL REPORT 2017 25 Corporate Governance Directors’ Report Chris Kelly, one of our trainees in Scotland. 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 to 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 RSM 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. RSM UK Audit LLP has indicated its willingness to continue in office. 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. Annual General Meeting special business The Annual General Meeting of the company will be held at Gallery Level, Business Design Centre, 52 Upper Street, London, N1 0QH on 23 August 2017 at 12.30pm. On behalf of the Board of Directors Peter Latham Chairman 21 June 2017 26 JAMES LATHAM PLC ANNUAL REPORT 2017 Corporate Governance Statement of Directors’ Responsibilities 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 to prepare the company financial statements in accordance with IFRS as adopted by the EU. The group and company 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. state whether they have been prepared in accordance with IFRS’s adopted by the EU, 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. 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 21 June 2017 Timber drying sheds. Trainees in our Timber Academy learning about timber grading. JAMES LATHAM PLC ANNUAL REPORT 2017 27 Corporate Governance Independent Auditor’s Report Opinion on financial statements We have audited the group and parent company financial statements (“the financial statements”) on pages 29 to 58 The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion • the financial statements give a true and fair view of the state of the group’s and the parent’s affairs as at 31 March 2017 and of the group’s profit for the year then ended; • the group’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • the parent company’s financial statements have been • we have not received all the information and properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on 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 and, based on the work undertaken in the course of our audit, the Strategic report and the Directors’ Report have been prepared in accordance with applicable legal requirements. explanations we require for our audit. 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. 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. David Clark Senior Statutory Auditor For and on behalf of RSM UK Audit LLP Statutory Auditor, Chartered Accountants 25 Farringdon Street London EC4A 4AB 21 June 2017 28 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Consolidated Income Statement For the year ended 31 March 2017 £’000s Notes 2017 2016 Continuing operations Revenue 185,929 Cost of sales (including warehouse costs) 3, 4, 11 (162,709) (151,389) 198,808 Gross profit Selling and distribution costs Administrative expenses 36,099 34,540 4, 11 (15,457) (15,129) 4, 11 (6,463) (6,170) Operating profit Finance income Finance costs Profit before tax Tax expense 14,179 56 13,241 5 56 6 (408) (421) 3 12,876 7 (2,846) (2,410) 13,827 Profit after tax attributable to owners of the parent company Earnings per ordinary share (basic) Earnings per ordinary share (diluted) 9 9 10,981 56.0p 55.8p 10,466 53.7p 53.5p Consolidated Statement of Comprehensive Income For the year ended 31 March 2017 £’000s Notes 2017 Profit after tax attributable to owners of the parent company Other comprehensive income: Actuarial (loss)/gain on defined benefit pension scheme Deferred tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax 10,981 17 (7,543) 825 19 1,362 (219) Total comprehensive income attributable to the owners of the parent company (6,181) 4,800 2016 10,466 606 11,072 JAMES LATHAM PLC ANNUAL REPORT 2017 29 Financial Statements Consolidated and Company Balance Sheet As at 31 March 2017 £’000s Assets Non-current assets Investments Goodwill Other intangible assets Property, plant and equipment Deferred tax asset Company Registration Number 65619 Group Company Notes 2017 2016 2017 2016 22 12 10 11 19 - 237 1 26,312 2,904 - 237 93 22,111 1,802 9,613 - - 9,613 - - 20 24 79 65 Total non-current assets 29,454 24,243 9,712 9,702 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 13 14 15 16 16 17 18 19 35,508 40,076 17,246 33,403 - 35,288 1,585 7,993 16,832 - 3,322 14,924 92,830 85,523 9,578 18,246 122,284 109,766 19,290 27,948 27,063 - 1,517 23,471 - 1,376 28,580 24,847 1,036 1,778 - 2,814 852 9,132 - 9,984 987 16,625 987 9,657 349 406 2,686 2,485 987 - 987 - 221 254 - - Total non-current liabilities 20,446 13,736 1,208 1,241 Total liabilities Net assets Capital and reserves Issued capital Share-based payment reserve Own shares Capital reserve Retained earnings 49,026 38,583 4,022 11,225 73,258 71,183 15,268 16,723 5,040 56 5,040 108 5,040 20 21 108 56 23 (291) (441) (291) (441) - 12,068 3 68,398 - 10,411 3 66,525 5,040 Total equity attributable to shareholders of the parent company 73,258 71,183 15,268 16,723 The Company’s profit for the year and total comprehensive income for the year were £1,266,000 (2016: loss of £551,000) and £1,270,000 (2016: loss of £631,000) respectively. These accounts were approved and authorised for issue by the Board of Directors on 21 June 2017 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. 30 JAMES LATHAM PLC ANNUAL REPORT 2017 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 £’000 143 (177) - - Capital reserve £’000 3 - Retained earnings £’000 57,222 10,466 Total equity £’000 62,231 10,466 - - 825 825 Balance at 1 April 2015 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 Transfer of treasury shares Conversions of ESOP shares Change in investment in ESOP shares Share-based payment expense - - - - - - - - - - - (149) - - - - - - - 819 - - (1,385) - 507 - (205) - 62 - (219) (219) - 11,072 11,072 - (2,484) (2,484) - - (819) - - 149 - - 1,385 - 507 - - (205) - 62 - - Total transactions with owners - (87) (264) - (1,769) (2,120) Balance at 31 March 2016 5,040 56 (441) 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 - - - (19) - - - - 71 - - - 52 98 - 3 - 66,525 71,183 10,981 10,981 - (7,543) (7,543) - - 1,362 1,362 4,800 4,800 - (2,894) (2,894) - 19 - - (52) - 98 - - 71 - - Total transactions with owners - 52 150 - (2,927) (2,725) Balance at 31 March 2017 5,040 108 (291) 3 68,398 73,258 JAMES LATHAM PLC ANNUAL REPORT 2017 31 Financial Statements Company Statement of Changes in Equity Attributable to owners of the parent company Balance at 1 April 2015 Loss for the year 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 Transfer of treasury shares Conversions of ESOP shares Change in investment in ESOP shares Share-based payment expense Issued capital £’000 5,040 - - - Share-based payment reserve £’000 Own shares £’000 Retained earnings £’000 Total equity £’000 143 (177) 14,468 19,474 - (551) (551) - - - (80) (80) - - (631) (631) - - (2,484) (2,484) - - 819 (819) - - - 149 - (149) - - 1,385 - 507 - - (205) - 62 - - - - (1,385) - 507 - (205) - 62 Total transactions with owners - (87) (264) (1,769) (2,120) Balance at 31 March 2016 5,040 56 (441) 12,068 16,723 Profit for the year 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 - - - - - 1,266 1,266 - - 4 4 - - 1,270 1,270 - - (19) - - - - 71 - - - (2,894) (2,894) - - 98 71 19 52 (52) - - 98 - - Total transactions with owners - 52 150 (2,927) (2,725) Balance at 31 March 2017 5,040 108 (291) 10,411 15,268 32 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Consolidated and Company Cash Flow Statement For the year ended 31 March 2017 Group Company £’000s Notes 2017 2016 2017 2016 Net cash flow from operating activities Cash generated from operations Interest paid Income tax (paid)/received 24 11,902 1,010 (109) (2) (23) (102) (196) 50 75 (2,646) (2,016) 11,704 Net cash inflow/(outflow) from operating activities 9,254 9,665 958 (230) Cash flows from investing activities Interest received and similar income Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment 113 (6,045) (2,056) - (6) 56 35 56 Net cash (outflow)/inflow from investing activities (5,867) (1,864) 122 136 - 35 - 107 Cash flows from financing activities - Borrowings repaid during the year 5,000 Group investments repaid in the year Dividend received - Equity dividends paid (2,894) (2,484) (2,894) (2,484) (79) (79) (79) (79) Preference dividend paid - (907) - - - - - - 2,403 Net cash (outflow)/inflow from financing activities (2,973) (3,470) (570) 2,437 414 4,331 423 2,314 Increase in cash and cash equivalents for the year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 17,246 16,832 16,832 12,501 5,792 6,215 3,478 5,792 Balance sheet cash and cash equivalents Bank overdraft in current liabilities (note 16) 17,246 - 16,832 14,924 7,993 - (1,778) (9,132) Cash and cash equivalents at end of year 17,246 16,832 6,215 5,792 JAMES LATHAM PLC ANNUAL REPORT 2017 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 and company 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 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: Annual Improvements to IFRSs 2014-16 Cycle - IFRS 2 - IFRS 4 - IFRS 9 - IFRS 15 Classification and Measurement of Share-Based Payment Transactions Financial Instruments with IFRS 4 Insurance Contracts Financial instruments – Classification and Measurement Revenue from contracts with customers (EU endorsed) - IFRS 15 Clarifications - IFRS 16 Leases (EU endorsed) - IAS 7 - IAS 12 Discosure Initiative Recognition of Deferred Tax Assets for Unrealised Losses Investments in Associates and Joint Ventures - IAS 28 Transfers of Investment Property - IAS 40 - IFRIC 22 Foreign Currency Transactions and Advance Consideration 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 2017. (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 separately 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 2017 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: Freehold buildings Leasehold improvements Fixtures and fittings Plant, equipment and vehicles - over 50 years - over 5 to 15 years - over 4 to 10 years - over 5 to 20 years Freehold land and assets under construction are not depreciated. Estimated residual values and useful lives are reviewed annually and adjusted where necessary. 1.7 Impairment of non-current assets Goodwill is reviewed annually for impairment. The carrying amounts of the group’s other intangible assets and property, plant and equipment are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such an indication exists, the asset’s recoverable amount is estimated and compared to its carrying value. Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where the carrying value exceeds the recoverable amount, a provision for the impairment loss is established with a charge being made to the income statement. 1.9 Intangible assets – trademark Acquired trademarks are shown at historical cost. Trademarks are considered to have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the estimated useful life of 20 years. 1.10 Inventories Inventories are stated at the lower of cost (including an appropriate proportion of attributable supplier rebates and discounts) and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provision is made for obsolete or slow moving inventories where appropriate. The cost of inventories is based on the weighted average principle. 1.11 Financial instruments Financial assets and financial liabilities are recognised on the group’s balance sheet when the group has become party to the contractual provisions of the instrument. 1.11.1 Trade receivables Trade receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently measured at their amortised cost using the effective interest method less any provision for impairment. A provision for impairment is made where there is objective evidence (including customers with financial difficulties or in default 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 2017 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 2017, and of the amounts charged/credited to the income statement and equity, are set out in note 17 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 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. 36 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group 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 predominantly 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. 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 comprehensive income 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. JAMES LATHAM PLC ANNUAL REPORT 2017 37 Financial Statements Notes forming part of the Group Accounts 3. Profit before tax 2017 2016 Profit for the year has been arrived at after taking into account the following: Net foreign exchange gains/(losses) 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 on disposal of property, plant and equipment Amortisation Loss on disposal of intangible asset 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 £’000 193 (13) 157,375 1,667 145,914 1,507 (95) (97) 8 - 5 86 570 539 576 539 1,109 1,115 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 63 61 12 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 The aggregate payroll costs of these employees were as follows: Wages and salaries Social security costs Pension costs Share-based payment Group Company 2017 Number 2016 Number 2017 Number 2016 Number 57 117 127 69 370 £’000 12,554 1,278 1,341 71 15,244 55 111 128 62 356 £’000 11,964 1,196 1,279 62 14,501 26 1 - - 27 £’000 1,328 149 916 71 2,464 Of the above group payroll costs, £3,475,000 (2016: £3,218,000) is included in cost of sales, £8,028,000 (2016: £7,789,000) is included in selling and distribution costs, and £3,741,000 (2016: £3,494,000) is included in administrative expenses in the income statement. 5. Finance income Interest receivable The interest received is on bank deposits. 38 JAMES LATHAM PLC ANNUAL REPORT 2017 2017 £’000 56 24 1 - - 25 £’000 1,230 143 225 62 1,660 2016 £’000 56 Financial Statements Notes forming part of the Group Accounts 2017 £’000 2016 £’000 2 23 327 319 79 79 6. Finance costs On bank loans and overdrafts On pension liability On 8% Cumulative Preference shares 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. 408 421 7. Tax expense The charge for taxation on profit comprises: 2017 £’000 2016 £’000 Current year: 2,456 UK corporation tax at 20% (2016: 20%) - (11) Adjustment in respect of prior year 103 (9) Deferred taxation - pension - IBAs derecognised in current year (18) (22) - change in tax rates 44 (28) - other (70) 24 2,787 Profit before taxation Tax at 20% (2016: 20%) 2,846 13,827 2,765 2,410 12,876 2,575 Tax effect of expenses/credits that are not taxable in determining taxable profit 125 (124) IBAs derecognised in current year (18) (22) 44 (28) Change in tax rates 20 Other (70) Adjustment in respect of prior year - (11) Total tax charge 2,846 2,410 8. Dividends 2017 2016 Ordinary dividends: £’000 £’000 £’000 £’000 Final 10.3p per share paid 26 August 2016 (2015: 8.8p) Interim 4.5p per share paid 27 January 2017 (2016: 4.0p) 2,011 883 1,707 777 2,894 2,484 The Directors propose a final dividend for 2017 of 10.85p per share, that, subject to approval by the shareholders, will be paid on 25 August 2017 to shareholders on the register on 4 August 2017. Based on the number of shares currently in issue, the final dividend for 2017 is expected to absorb £2,127,000. JAMES LATHAM PLC ANNUAL REPORT 2017 39 Financial Statements Notes forming part of the Group Accounts 9. 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 2017 £’000 10,981 Number ’000 2016 £’000 10,466 Number ’000 Issued ordinary share capital 20,160 Less: weighted average number of own shares held in treasury investment (519) (619) Less: weighted average number of own shares held in ESOP Trust (40) (48) 20,160 Weighted average share capital Add: dilutive effects of share options issued Weighted average share capital for diluted earnings per ordinary share calculation 19,601 82 19,683 19,493 65 19,558 10. Intangible assets – Group Cost: At 1 April 2015 Additions At 1 April 2016 Additions Write-down At 31 March 2017 Amortisation At 1 April 2015 Charge for the year At 1 April 2016 Charge for the year Write-down At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 31 March 2015 Trademark £’000 155 - 155 - (154) 1 54 8 62 5 (67) - 1 93 101 The amortisation charge is included in the income statement under administrative expenses. The registered trademarks of the company are Bausen® Flooring and Buffalo® Board. Due to a change in trading strategy, the board have decided to write down the remaining value of the Bausen® Flooring trade Mark. 40 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts 11. Property, plant and equipment 11.1 Group Group Short leasehold property improvements £’000 Plant, equipment and vehicles £’000 Freehold property £’000 Total £’000 Cost: At 1 April 2015 Additions Disposals At 1 April 2016 Additions Disposals At 31 March 2017 Depreciation: At 1 April 2015 Disposals Charge for the year At 1 April 2016 Disposals Charge for the year At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 31 March 2015 18,742 64 (1) 30,234 2,056 - (603) (604) 10,879 1,992 613 - 18,805 4,573 31,686 6,045 (15) - (564) (579) 12,268 1,470 613 2 23,363 615 13,174 37,152 2,413 - 249 251 8,633 - (565) (565) 1,507 5,969 1,221 37 2,662 9,575 - - (552) (552) 37 1,518 1,817 6,625 262 288 2,924 325 7,591 10,840 20,439 290 5,583 16,143 16,329 325 362 5,643 4,910 26,312 22,111 21,601 Included in freehold property is land with a book value of £7,892,000 (2016: £6,311,000) which is not depreciated. Also included in freehold property is an asset under construction with a book value of £2,992,000, which has not been depreciated. The depreciation charge is included in the income statement as follows: Cost of sales Selling and distribution costs Administrative expenses 2017 £’000 1,113 610 94 1,817 2016 £’000 888 513 106 1,507 JAMES LATHAM PLC ANNUAL REPORT 2017 41 Financial Statements Notes forming part of the Group Accounts 11.2 Company Cost: At 1 April 2015 Additions At 1 April 2016 Additions Disposals At 31 March 2017 Depreciation: At 1 April 2015 Charge for the year At 1 April 2016 Charge for the year At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 31 March 2015 12. Goodwill Cost: At 1 April 2015 and 31 March 2017 Impairment At 1 April 2015 and 31 March 2017 Net book value At 31 March 2017, 2016 and 2015 Plant, equipment and vehicles £’000 355 6 361 - - 361 333 4 337 4 341 20 24 22 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. 13. Inventories 2017 £’000 2016 £’000 33,982 Finished goods and goods for resale Less: provisions for slow moving and obsolete stock (551) (579) 36,059 35,508 33,403 The inventories impairment charge for the year ended 31 March 2017 was £340,000 (2016: £406,000). Impairment charges reversed during the year were £368,000 (2016: £539,000). 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 16). 42 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts 14. Trade and other receivables Group Company Trade receivables Other receivables: Other receivables Amounts owed by subsidiaries Tax receivable Prepayments 2017 £’000 36,098 1,445 - - 2,533 3,978 2016 £’000 32,472 1,073 - - 1,743 2,816 2017 £’000 5 3 284 1,270 23 1,580 40,076 35,288 1,585 2016 £’000 15 - 2,220 1,058 29 3,307 3,322 The directors consider that the carrying amount of trade and other receivables approximates their fair value. Trade receivables amounted to £36,098,000 (2016: £32,472,000), net of a provision of £59,000 (2016: £106,000) for impairment. Movements on the group provisions for impairment were as follows: At 1 April 2016 Provisions for receivables impairment Receivables written off during the year as uncollectible At 31 March 2017 Group 2017 £’000 2016 £’000 126 106 206 81 (128) (226) 59 106 The average credit period on sale of goods is 51 days (2016: 51 days). The following table provides analysis of trade and other receivables that were past due at 31 March 2017 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 Group 2017 £’000 588 39 6 633 2016 £’000 517 96 51 664 There are no significant credit risks arising from financial assets that are neither past due nor impaired. At 31 March 2017, £39,408,000 (2016: £34,788,000) of trade and other receivables were denominated in sterling, £394,000 (2016: £247,000) were denominated in Euros and £274,000 (2016: £253,000) were denominated in US dollars. JAMES LATHAM PLC ANNUAL REPORT 2017 43 Financial Statements Notes forming part of the Group Accounts 15. Trade and other payables Trade payables Other taxation and social security Other payables Accruals and deferred income Group Company 2017 £’000 19,516 4,326 1,473 1,748 2016 £’000 17,222 3,301 1,253 1,695 2017 £’000 26 588 276 146 27,063 23,471 1,036 2016 £’000 50 477 203 122 852 Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 34 days (2016: 34 days). The directors consider that the carrying amount of trade payables approximates to their fair value. At 31 March 2017, £25,300,000 (2016: £21,413,000) of trade and other payables were denominated in sterling, £969,000 (2016: £1,374,000) in US dollars, £717,000 (2016: £647,000) in Euros and £77,000 (2016: £37,000) in Canadian dollars. 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 £176,000 (2016: £206,000). 16. Interest bearing loans and borrowings Current liabilities Bank overdraft Non-current liabilities Cumulative preference shares of £1 each (note 20) Group Company 2017 £’000 - - 2016 £’000 - - 2017 £’000 1,778 1,778 987 987 987 2016 £’000 9,132 9,132 987 Total 987 987 2,765 10,119 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 (2016: £1,000,000) 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. 44 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts 17. Retirement and other benefit obligation Group Retirement benefit obligations (note 17.2) 17.1. Group pension schemes 2017 £’000 16,625 2016 £’000 9,657 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. 33% are held in bonds and gilts, with 19% in a Buy and Maintain Fund managed by Mercers, 5% in an Absolute Return Fund managed by Wellington and 9% in an Index Linked fund managed by Blackrock, with the remaining 9% in a HLV Property Fund managed by Aviva. 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 contributing through auto enrolment. The pension charge for the year for all schemes was £1,341,000 (2016: £1,279,000). Of the charge, £171,000 (2016: £169,000) is included in cost of sales, £596,000 (2016: £597,000) is included in selling and distribution costs, and £574,000 (2016: £513,000) 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. JAMES LATHAM PLC ANNUAL REPORT 2017 45 Financial Statements Notes forming part of the Group Accounts 17.2. 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. 2017 £’000 2016 £’000 Change in benefit obligation 64,421 Benefit obligation at beginning of year 616 Service cost 2,014 Interest cost 5 Plan members’ contribution Actuarial loss/(gain) 12,321 (3,686) Benefits paid (2,070) (3,192) Premiums paid (13) (14) 60,164 521 2,069 - Benefit obligation at end of year Analysis of defined benefit obligation Schemes that are wholly or partly funded 72,992 72,992 60,164 60,164 Change in scheme assets 53,991 Fair value of scheme assets at beginning of year Interest income 1,695 Return on plan assets (excluding interest income) 4,778 (2,861) Employers contributions (incl. employer direct benefit payments) 876 5 Member contributions Benefits paid from plan (2,070) (3,192) Expenses paid (13) (7) 50,507 1,742 1,423 - 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 56,367 72,992 56,367 16,625 50,507 60,164 50,507 9,657 46 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts 17.2. Group defined benefit pension scheme (continued) 2017 £’000 2016 £’000 Components of pension expense 616 Current service cost Interest cost 2,014 Income on plan assets (1,742) (1,695) Expenses paid - (7) 521 2,069 Total pension expense recognised in the income statement 848 928 Actuarial (gain)/loss immediately recognised 7,543 (825) Total recognised in the statement of other Comprehensive income 7,543 (825) Cumulative amount of actuarial loss immediately recognised 18,132 10,589 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 2017 57.5% 32.1% 9.0% 1.4% 100.0% 2017 £’000 32,406 18,114 5,051 796 56,367 2016 55.2% 34.4% 9.8% 0.6% 100.0% 2016 £’000 27,901 17,355 4,928 323 50,507 JAMES LATHAM PLC ANNUAL REPORT 2017 47 Financial Statements Notes forming part of the Group Accounts 17.2. Group defined benefit pension scheme (continued) Weighted average assumptions used to determine benefit obligations: Discount rate Rate of compensation increase Inflation (RPI) Inflation (CPI) Rate of pension increases (CPI capped at 5%) 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 2017 2.50% 3.15% 3.15% 2.15% 2.20% 24.1 26.0 25.6 28.3 3.50% 2.90% 2016 3.50% 2.90% 2.90% 1.90% 2.00% 24.2 26.1 26.2 28.2 3.20% 2.95% 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 (3,438) Discount rate increases by 0.25% Inflation rate increases by 0.25% 2,430 Life expectancy increases by one year 2,584 History of plan assets and defined benefit obligation Present value of defined benefit obligation Fair value of plan assets Net liability 2017 £’000 72,992 56,367 16,625 2016 £’000 60,164 50,507 2015 £’000 64,421 53,991 2014 £’000 58,237 48,970 2013 £’000 62,770 45,977 9,657 10,430 9,267 16,793 Contributions The group expects to contribute £1,433,000 to the pension scheme for the year ending 31 March 2018. 17.3. Defined contribution pension payments The group operates a defined contribution scheme managed by Aviva. The group has agreed to match contributions by eligible employees up to a maximum of 7.5%. Pension contributions paid to the defined contribution scheme for the year totalled £809,000 (2016: £701,000). 48 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts Group Company 2017 £’000 349 2016 £’000 406 2017 £’000 221 2016 £’000 254 18. Other payables (non-current liabilities) Accruals and deferred income 19. Deferred tax 19.1 Group 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 2015 asset As at 1 April 2015 liability (Charge)/credit to the income statement (229) (228) Credit direct to equity - (2,259) - - (90) (1,856) (1,013) (2,959) 186 35 - (219) - 2,259 - 9 78 - At 31 March 2016 asset At 31 March 2016 liability 1,802 - - 1,802 - (81) (1,670) (935) (2,686) - (Charge)/credit to the income statement Credit direct to equity (260) 1,362 At 31 March 2017 asset 2,904 - - - 93 - 108 (59) 1,362 - - - 2,904 At 31 March 2017 liability - (81) (1,577) (827) (2,485) * Includes accelerated capital allowances, share-based payments, industrial buildings allowances and trading losses. 19.2 Company The deferred tax asset is made up as follows: As at 1 April 2015 Charge for the year At 31 March 2016 Charge for the year At 31 March 2017 Post- employment benefits £’000 Accelerated capital allowances £’000 Total £’000 5 170 (102) (3) (105) 165 63 14 2 - 77 2 65 14 79 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. JAMES LATHAM PLC ANNUAL REPORT 2017 49 Financial Statements Notes forming part of the Group Accounts 20. Share capital Ordinary shares Authorised Issued and fully paid Ordinary shares of 25 pence each Number 28,000,000 £’000 7,000 Number 20,160,000 £’000 5,040 2017, 2016 and 2015 Preference shares 8% Cumulative Preference Shares of £1 each 2017, 2016 and 2015 Authorised Issued and fully paid Number 1,500,000 £’000 1,500 Number 987,000 £’000 987 Preference shares are included in non-current liabilities (as interest bearing loans and borrowings). See note 16. 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 2017 or 2016. 21. Share-based payment Equity-settled share option schemes Details of the share options outstanding during the year are as follows: 2017 Weighted average exercise price (£) Number of share options Nil price share options Number of share options 2016 Weighted average exercise price (£) Nil price share options Outstanding at beginning of year 132,863 3.52 10,616 Granted during the year 198,092 5.76 - 14,349 6.75 136 - Forfeited during the year (2,828) 3.78 - (14,637) 2.74 Exercised during the year (36,285) 2.14 - (188,330) 2.38 (10,752) 321,481 2.67 - Outstanding at the end of the year 291,842 5.21 - 132,863 3.52 - The weighted average share price for options exercised during the year was £7.23 (2016: £6.66). 50 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts 21. Share-based payment (continued) Details of the options outstanding at 31 March 2017 are shown below. 10,000 (2016: 17,000) of these options were exercisable at the year end. Range of exercise prices Number of shares Weighted average expected remaining life (years) 2017 2016 CSOP SAYE CSOP SAYE £1.65-£7.08 107,920 £2.46-£5.65 183,922 £1.65-£6.75 132,234 £2.46 629 3.0 2.4 3.0 - 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: 2017 2016 CSOP SAYE Nil price share options CSOP SAYE Share price at grant date £7.08 Option exercise price £7.08 Expected volatility 22.5% 5 years Option life 1.4% Risk free interest rate £1.61 Fair value £5.65 £5.65 14.3% 3 years 0.7% £1.48 - £6.75 - £6.75 - 14.5% 5 years - 1.8% - £1.17 - - - - - - - Nil price share options - - - - - - Expected volatility was determined by calculating the historical volatility of the group’s share price over the previous 3 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 £71,000 (2016: £62,000) 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 2017 was 180,925 (2016: 175,354). JAMES LATHAM PLC ANNUAL REPORT 2017 51 Financial Statements Notes forming part of the Group Accounts 22. Fixed asset investments – Company Shares: At 1 April 2015 and 31 March 2017 Loans: At 1 April 2015 Repayments At 31 March 2016 Repayments At 31 March 2017 Total at 31 March 2015 Total 31 March 2016 and 31 March 2017 Subsidiary undertakings £’000 9,613 5,000 (5,000) - - - 14,613 9,613 The loan to Lathams Limited was repaid in the year ended 31 March 2016, interest was charged at a rate of 1.25% above base rate per annum. Details of subsidiary companies are given below: Name Country of incorporation Class of shares Percentage Principal activity of ownership 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 Baüsen Limited England and Wales £1 Ordinary 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. All companies operate within the United Kingdom and their registered office is at Unit 3, Swallow Park, Finway Road, Hemel Hempstead, Herts, HP2 7QU. 52 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts 23. Own shares At 1 April 2015 Cost Movement in the year At 31 March 2016 Movement in the year At 31 March 2017 £’000 177 264 441 (150) 291 The investment in own shares represents 19,741 25p Ordinary shares (2016: 59,247 25p Ordinary shares) held on behalf of the James Latham plc Employee Benefits Trust, a discretionary trust. This represents 0.10% (2016: 0.29%) of the issued share capital. The maximum number of shares held during the year was 59,247 (0.29%). 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 2017 519,200 (2016: 519,200) 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 Group Company 2017 £’000 2016 £’000 2017 £’000 2016 £’000 Profit before tax 13,827 12,876 (1,195) (690) Adjustment for finance income and cost Depreciation and amortisation 352 1,822 365 (67) 4 1,515 162 4 - Profit on disposal of property, plant and equipment (95) (97) - Write down of intangible asset - - Increase in inventories (2,105) (1,497) (Increase)/decrease in receivables (4,788) (1,075) 94 Increase/(decrease) in payables 3,536 (480) 150 (43) - Retirement benefits non cash amounts (902) (267) 86 - - - 1,949 - Share-based payments non cash amounts Own shares non cash amounts 71 62 98 302 71 98 62 302 Cash generated from operations 11,902 11,704 1,010 (109) JAMES LATHAM PLC ANNUAL REPORT 2017 53 Financial Statements Notes forming part of the Group Accounts 25. Leasing commitments Future aggregate minimum payments under various operating lease contracts for vehicles, plant and property payable by the group are as follows: Group Company 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 2017 £’000 459 625 1,084 595 2,383 852 3,830 2016 £’000 442 672 1,114 595 2,383 1,448 4,426 2017 £’000 12 15 27 221 884 626 2016 £’000 13 7 20 221 884 848 1,731 1,953 54 JAMES LATHAM PLC ANNUAL REPORT 2017 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 Companies directors, is set out below. Salaries and other short-term employee benefits Social security costs Pension costs Share-based payments 2017 £’000 1,056 134 123 9 1,322 2016 £’000 1,078 143 122 15 1,358 There are 5 (2016: 5) directors to whom retirement benefits are accruing under defined benefit schemes, and 6 (2016: 6) directors that exercised share options during the year. The gains on these exercises can be found on page 23. Emoluments for the highest paid director totalled £212,000 (2016: £203,000). The highest paid director also exercised 4,274 CSOP share options during the year at a gain of £20,000.The highest paid director had an accrued defined benefit pension of £56,000 (2016: £56,000) at the balance sheet date. The company undertakes the following transactions with the active subsidiary company: • Paying interest totalling £101,000 (2016: £257,000). • Receiving an annual management charge to cover services provided of £1,911,000 (2016: £1,849,000). Details of balances outstanding with subsidiary companies are shown in Note 14. Other than the payment of remuneration, there have been no related party transactions with the directors. 27. Capital commitments At 31 March 2017, there were capital commitments contracted for but not provided in the accounts of £6,495,000 (2016: £583,000). JAMES LATHAM PLC ANNUAL REPORT 2017 55 Financial Statements Notes forming part of the Group Accounts 28. Financial instruments The group and company’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. These risks are managed through an effective risk management programme. Further details are set out in the Financial Review on pages 10 to 12. Maturity analysis The table below analyses the 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. GROUP 2017 Trade payables Accruals Other payables Cumulative preference shares of £1 each Total 2016 Trade payables Accruals Other payables Cumulative preference shares of £1 each Total Less than 6 months £’000 Between 6 months and 1 year £’000 Between 1 and 5 years £’000 More than 5 years £’000 Total £’000 19,516 1,716 1,473 - 22,705 17,222 1,663 1,253 - 20,138 - - - - - - - - - - - - - - - - - - - - - - - 987 19,516 1,716 1,473 987 987 23,692 - - - 987 17,222 1,663 1,253 987 987 21,125 COMPANY 2017 Trade payables Accruals Other payables Cumulative preference shares of £1 each Total 2016 Trade payables Accruals Other payables Cumulative preference shares of £1 each Total Less than 6 months £’000 Between 6 months and 1 year £’000 Between 1 and 5 years £’000 More than 5 years £’000 26 114 276 - 416 50 90 203 - 343 - - - - - - - - - - - - - - - - - - - - - - - 987 987 - - - 987 987 Total £’000 26 114 276 987 1,403 50 90 203 987 1,330 56 JAMES LATHAM PLC ANNUAL REPORT 2017 Financial Statements Notes forming part of the Group Accounts 28. Financial instruments (continued) Foreign currency risk Approximately 41% 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 2017 was £249,000 in US Dollars (2016: £113,000), £83,000 in Euros (2016: £154,000) and £84,000 in Canadian dollars (2016: nil), 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 £42,000 (2016: £27,000). There is no foreign currency held in the company accounts. Interest rate risk The 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. At the reporting date, the interest rate profile of the group’s interest-bearing financial instruments was: Group Company 2017 £’000 2016 £’000 2017 £’000 2016 £’000 Fixed rate instruments Cumulative preference shares of £1 each (987) (987) (987) (987) Variable rate instruments Cash and cash equivalents Bank overdraft 17,246 - 16,832 14,924 - (1,778) (9,132) 7,993 Interest rate risk is limited to the cash and cash equivalents, bank overdraft and bank loans. Based on the balance sheet value of cash and cash equivalents, bank overdraft 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 £172,000 (2016: £168,000) in the group and £62,000 (2016: £57,000) in the company. JAMES LATHAM PLC ANNUAL REPORT 2017 57 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 0.11% 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 maximum exposure to credit risk. The maximum exposure to credit risk at the reporting date was: Trade receivables Other receivables Cash and cash equivalents Total Group Company 2017 £’000 36,098 1,445 17,246 54,789 2016 £’000 32,472 1,073 16,832 50,377 2017 £’000 5 - 7,993 7,998 2016 £’000 15 - 14,924 14,939 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. The following table shows the financial liabilities measured at amortised cost: Trade payables Other payables Accruals Bank overdraft Total Group Company 2017 £’000 19,516 1,473 1,716 - 22,705 2016 £’000 17,222 1,253 1,663 - 20,138 2017 £’000 26 276 114 1,778 2,194 2016 £’000 50 203 90 9,132 9,475 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 5 to the consolidated accounts. Finance costs An analysis of finance costs is set out in note 6 to the consolidated accounts. 58 JAMES LATHAM PLC ANNUAL REPORT 2017 Notice of Annual General Meeting Notice is hereby given that the one hundred and eighteenth Annual General Meeting of the Company will be held at Gallery Level, Business Design Centre, 52 Upper Street, London, N1 0QH on Wednesday 23rd August 2017 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 2017 together with the Independent Auditor’s report thereon. 2. To declare the final dividend recommended by the directors on the ordinary shares of the Company. 3. To re-elect Fabian French as a director, who retires by rotation. 4. To re-elect Meryl Bushell as a director, who retires by rotation. 5. To re-elect Chris Sutton as a director, who retires by rotation. 6. To re-elect Piers Latham as a director, who retires by rotation. 7. To re-appoint RSM 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 extend the rules of the James Latham plc Savings Related Share Option Scheme for a further period of ten years from the date of this meeting. 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. 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 21 June 2017 JAMES LATHAM PLC ANNUAL REPORT 2017 59 Notice of Annual General Meeting 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 21 August 2017 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 21st June 2017, the Company’s issued share capital consisted of 20,160,000 shares of which 519,200 shares are held in Treasury. Each share not held in Treasury carries one vote. The total number of voting rights are therefore 19,640,800. 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 0370 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 0370 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 Conduct 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 Conduct and Markets Act 2000 only. Computershare Investor Services PLC is regulated by the Financial Conduct 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. 60 JAMES LATHAM PLC ANNUAL REPORT 2017 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 Timber and Flooring 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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