Company Announcements

NOTES TO THE CONDENSED CONSOLIDATED HALF YEAR STATEMENTS

1    BASIS OF PREPARATION

James Cropper Plc (the Company) is a public limited company incorporated and domiciled in the United Kingdom and listed on the Alternative Investment Market (AIM). The condensed consolidated half year financial statements of the Company for the twenty six weeks ended 28 September 2019, which have not been audited or reviewed, comprise the Company and its subsidiaries (together referred to as the Group).

Basis of preparation

The condensed consolidated financial statements for the 26 week periods ending 28 September 2019 and 29 September 2018 are unaudited and were approved by the Directors on 18 November 2019. They do not constitute statutory accounts as defined in s434 of the Companies Act 2006. The financial statements for the year ended 30 March 2019 were prepared in accordance with International Financial Reporting Standards (IFRS) and have been delivered to the Registrar of Companies. The report of the auditor on those financial statements was unqualified and did not draw attention to any matters by way of emphasis of matter. The Group's financial statements consolidate the financial statements of James cropper Plc and its subsidiaries.

Applicable standards

These unaudited consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, under the historical cost convention.  They have not been prepared in accordance with IAs 34, the application of which is not required to the interim financial statements of companies trading on the Alternative Investment Market (AIM companies). The interim financial statements have been prepared in accordance with the accounting policies applied in the preparation of the Group's published consolidated financial statements for the 52 week period ended 30 march 2019, with the exception of the changes due to the adoption of IFRs 16, which are discussed in the new standards adopted section and note 9 below.

The consolidated financial statements of the Group for the 52 week period ended 30 March 2019 are available upon request from the Company's registered office Burneside Mills, Kendal, Cumbria, LA9 6PZ or at www.jamescropper.com.

The half year financial information is presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

Going concern

The Directors have performed a robust assessment, including review of the forecast for the 52 week period ending 28 March 2020 and longer term strategic forecasts and plans, including consideration of the principal risks faced by the Group and the Company, as detailed in the Group's Annual Report 2019. Following this review the Directors are satisfied that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the condensed consolidated financial statements.

Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the 52 week period ended 30 March 2019.

New and amended standards adopted by the Group

In the current year, the Group for the first time, has applied IFRS 16 - Leases.  The Group has adopted IFRS 16 - Leases using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised as an adjustment to the opening balance of retained earnings at 31 March 2019 with no restatement of comparative information.

For contracts in place at the date of adoption, the Group recognised liabilities in relation to leases which had previously been classified as operating leases under the principles of IAS 17- Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the borrowing rate as of 31 March 2019. For leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets (less than $5,000), the Group has applied the optional exemptions to not recognise the right of use assets but to account for the lease expense on a straight line basis over the remaining lease term.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 3.6%.

The following is a reconciliation of total operating lease commitments at 30 March 2019 to the lease liabilities recognised at 31 March 2019:

For any new contracts entered into on or after 31 March 2019, the Group considered whether a contract is, or contains a lease. A lease is defined as a contract, or part of a contract, that conveys the right to use of an asset for a period of time in exchange for consideration. To apply this definition the Group assess whether the contract meets three key evaluations which are whether:

·      the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group;

·      the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and

·      the Group has the right to direct the use of the identified asset throughout the period of use. The group assesses whether it has the right to direct the use of the identified assets throughout the period of use. The Group assesses whether it has a right to direct how and for what purpose the asset is used throughout the period of use.

Measurement and recognition of leases

At the lease commencement date, the group recognises a right of use asset and a lease liability on the balance sheet. The right of use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date. The Group depreciates the right of use assets on a straight line basis from the lease commencement date to the earlier of the end of the useful life of the right to use asset or the end of the lease term. The Group also assesses the right of use asset for impairment where such indicators exist.

Lease payments included in the measurement of the lease liability are made up of fixed payments, variable payments based on an index or rate, amounts expected to be payable under a residual guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right of use asset, or profit and loss if the right of use asset is already reduced to zero.

The Group has elected to account for short term leases and leases of low value assets using the practical expedients. Instead of recognising a right of use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight line basis over the term of the lease.  

Where fixed assets are financed by leasing arrangements, which gives rights approximating to ownership, the assets are treated as if they had been purchased and the capital element of the leasing commitments are shown as obligations under finance leases. Assets acquired under finance leases are initially recognised at the present value of the minimum lease payments. The rentals payable are apportioned between interest, which is charged to the income statement, and liability, which reduces the outstanding obligation so as to give a constant rate of charge on the outstanding lease obligations.

2     Accounting estimates and judgements

The preparation of half year financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the 52 week period ended 30 March 2019.

3    Risks and uncertainties

The principal risks and uncertainties which may have the largest impact on performance in the second half of the year are the same as disclosed in the 2019 Annual Report on pages 21-25. The principal risks set out in the 2019 Annual Report were:

Employee health & safety; Energy price volatility; Pulp price volatility and sustainability; Exchange rate volatility; Pension; Brexit and Information security and cyber risk.

The Board considers that the principal risks and uncertainties set out in the 2019 Annual report have not changed and remain relevant for the second half of the financial year.

4    Alternative performance measures

The Company uses alternative performance measures to allow users of the financial statements to gain a clearer understanding of the underlying performance of the business.

Profit before tax represents the Group's overall performance and financial position, however it contains significant non-operational items relating to IAS 19 that the directors believe obscure an understanding of the key performance trend.

Measures used to evaluate business performance are 'Adjusted operating profit' (operating profit excluding the impact of IAS 19), and 'Adjusted profit before tax' (profit before tax excluding the impact of IAS 19). The alternative performance measures are reconciled in note 8.

The adjustment, which we refer to in these accounts as the "IAS 19 impact" represents the difference between the pension charge as calculated under IAS 19 and the cash contributions for the current service cost only as determined by the latest triennial valuation. The Directors consider that the adjusted pension charge better reflects the actual pension costs for ongoing service compared to the IAS 19 charge. This adjustment is made internally when we assess performance and is also used in the EBITDA and EPS targets used in management incentive schemes.

5    Earnings per share

6    Dividends

The proposed interim dividend of 2.5p (2018: 2.5p) per 25p ordinary share is payable on 10 January 2020 to those shareholders on the register of the Company at the close of business on 29 November 2019, with the last day for DRIP elections being 13 December 2019. The dividend recognised in the condensed consolidated statement of changes in equity is the final dividend for the 52 week period ended 30 March 2019 of 11.0p which was paid on 9 August 2019.

7    Retirement benefit obligations

Movements during the period in the Group's defined benefit pension schemes are set out below:

8    Alternative performance measures

9   IFRS 16 - Right of use assets and leases

Right of use assets

Right of use leases

Amounts recognised in profit and loss

The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expenses on a straight line basis. During the six months to 28 September 2019, in relation to leases under IFRS 16 the Group recognised the following amounts in the consolidated income statement:

The principal operating lease agreements in place that now fall under IFRS16 include the following:

Factory and offices USA:

The Group entered into a building lease agreement for a non-cancellable term of 10 years from September 2011, with an option to extend for a further 5 years. In June 2018, the Group re-negotiated the lease term to extend the lease until September 2031, with an option to extend for a further 5 years.

Factory and offices in Crewe:

The Group entered into a building lease agreement for a term of 6 years from December 2018. The lease agreement may be terminated after December 2021 by giving the landlord not less than six months' previous written notice on 6 June 2021.

Warehouse in Milnthorpe:

The Group entered into a building lease agreement for a term of 10 years from May 2015. The lease agreement may be terminated from May 2020 subject to not less than six months' prior written notice.

Warehouse in Milnthorpe:

The Group entered into a building lease agreement for a term of 5 years from February 2019.The lease agreement may be terminated from February 2021 subject to not less than six months' prior written notice.

Company cars:

The Group has entered into a number of lease agreements for company cars with terms varying from 3 years to 5 years.

10  Related parties

There have been no significant changes in the nature of related party transactions in the period ended 28 September 2019 from that disclosed in the 2019 Annual report.

Statement of Directors' responsibilities

The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

(i)           An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(ii)          Material related party transactions in the first six months and any material changes in the related party transactions described in the last Annual report.

During the period since approval of the Annual Report for the 52 weeks ended 30 March 2019, David Wilks retired as a Non-Executive Director on 31 July 2019 and Lyndsey Scott was appointed as a Non-Executive Director on 1 August 2019.

The Directors of James Cropper Plc are detailed on our Group website www.jamescropper.com

Forward-looking statements

Sections of this half-yearly financial report may contain forward-looking statements with respect to the Group's plans and expectations relating to its future performance, results, strategic initiatives, objectives and financial position, including liquidity and capital resources. These forward-looking statements are not guarantees of future performance. By their very nature, all forward-looking statements involve risks and uncertainties because they relate to events that may or may not occur in the future and are or may be beyond the Group's control. Accordingly, the Group's actual results and financial condition may differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements in this half-yearly financial report are current only as of the date on which such statements are made. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this announcement shall be construed as a profit forecast.