Interim Results

CLIPPER LOGISTICS PLC

INTERIM RESULTS FOR THE SIX MONTHS TO 31 OCTOBER 2019

Clipper Logistics plc ("Clipper", "the Group", or "the Company"), a leading provider of value-added logistics solutions and e-fulfilment and returns management services to the retail sector, is pleased to announce its unaudited results for the six months ended 31 October 2019 ("H1 FY20").

Financial Highlights

Note: IFRS 16 'Leases' was adopted using the modified retrospective approach with effect from 1 May 2019. The adoption of IFRS 16 significantly affects the Group results, including improving H1 FY20 EBIT by £4.4 million and increasing net debt at the transition date by £193.8 million. Under the modified retrospective approach, the results for the six months ended 31 October 2018 ("H1 FY19") do not get restated. Consequently, it is not possible to compare directly the results of H1 FY20 with the results of H1 FY19. To aid comparison with H1 FY19, discussion of the results is on a comparable IAS 17 basis, unless otherwise stated. Please see the Alternative Performance Measures section for further detail.

Operational Highlights

Commenting on the results, Steve Parkin, Executive Chairman of Clipper, said:

"The Group continues to see impressive revenue and EBIT performance in the first six months of the year, largely driven by the particularly strong growth in e-fulfilment and returns management and an improving contribution from our Clicklink Joint Venture."

"A number of new operations have commenced in the period with major customers including Hope & Ivy, Simba Sleep, SLG, Shop Direct and M&S. Our business continues to perform well in Europe, with revenue growth in Poland of 111.6% and Germany of 33.4%. This is supported by a solid new business pipeline in the UK where we continue to offer value-add e-commerce and logistics services, including automation programmes, as we trial robotic technologies with a number of customers."

"As retailers increasingly collaborate to minimise their route-to-market costs, Clipper, given its presence and infrastructure in retail logistics, is ideally placed to facilitate consolidation on behalf of retailers."

"Trading has continued to be positive post-period end, with the key Black Friday trading weekend seeing record daily volumes in certain sites, and we expect full year earnings to be broadly in line with the board's expectations. Notwithstanding the difficulties facing the UK high street and the uncertainties of the UK political environment in the current year, Clipper remains positive about the longer-term outlook and believe the Group is well positioned to achieve further growth in both the UK and internationally."

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.

About Clipper

Clipper Logistics plc (www.clippergroup.co.uk), which is premium listed on the Main Market of the London Stock Exchange, is a retail logistics specialist, which provides value-added, consultancy-led services to its blue chip client base. Clipper is a UK leader in its markets, with a long-standing customer base in:

A profitable and cash generative commercial vehicles business complements the Group's logistics activities.

Cautionary statement

Any forward-looking statements made in this document represent the Board's best judgment as to what may occur in the future. However, the Group's actual results for the current and future financial periods and corporate developments will depend on a number of economic, competitive and other factors, some of which may be outside the control of the Group. Such factors could cause the Group's actual results in future periods to differ materially from those expressed in any forward-looking statements included in this announcement.

PERFORMANCE AT A GLANCE

1 IFRS 16 was adopted on 1 May 2019 using the modified retrospective approach, without restating prior year figures. To aid comparability across periods the discussion of results is based on an IAS 17 basis, unless otherwise stated. Information on the impact of adopting IFRS 16 is presented in Note 21 to the interim financial statements.

ALTERNATIVE PERFORMANCE MEASURES

The Group makes use of an Alternative Performance Measure (APM) in the management of its operations and as a key component of its internal and external reporting. In accordance with FRC guidance, this is explained below.

Earnings before interest and tax (EBIT) is defined as the operating profit, including the Group's share of operating profit in equity-accounted investees, before amortisation of intangible assets arising on consolidation and, for H1 FY20, before the impact of any IFRS 16 adjustments. Due to the structure of our contractual relationships, with circa 60% of revenue in our UK logistics operations being on open book terms, EBIT is the key metric rather than EBIT margin or revenue. A reconciliation of EBIT by business area to Group operating profit and Group PBT is included in note 4.

IFRS 16 'Leases' was adopted with effect from 1 May 2019. To aid comparison with the prior year, the alternative performance measures for H1 FY20 set out in this report are provided on an IAS 17 basis, unless otherwise stated. These measures have been used by the Board throughout the period for evaluating performance of the business. As a result of adopting IFRS 16, operating lease rental costs have been replaced by depreciation of right of use assets and interest on lease liabilities. This has resulted in an increase in underlying operating profit of £4,429,000 compared to that reported on the previous IAS 17 basis. Net financing costs have increased by £4,204,000 leaving underlying profit before tax £225,000 higher and profit after tax £187,000 higher for H1 FY20 under IFRS 16 versus the equivalent measure on an IAS 17 basis. On adoption of IFRS 16, Right of use assets of £164.6 million were recognised, new lease liabilities of £193.8 million were recognised, deferred tax assets of £4.1 million were recognised and other IAS 17 net liabilities of £5.0 million were derecognised, together reducing retained earnings and reserves by £20.1 million. We will continue to present the results on the comparable IAS 17 basis in the Annual Report for the year ending 30 April 2020. IFRS 16 has no impact on overall cash flows but there are significant changes to where cash flows are disclosed: Net cash flows from operating activities are favourably impacted by £12.5 million, net cash flows from investing activities are adversely impacted by £2.0 million and net cash flows from financing activities are adversely impacted by £10.5 million.

Profit before tax and amortisation is defined as the profit before tax, before amortisation of intangible assets arising on consolidation and, for H1 FY20, before the impact of any IFRS 16 adjustments.

OPERATING AND FINANCIAL REVIEW

Note: discussion of the results is on a comparable IAS 17 basis, unless otherwise stated.

Group summary

Revenue

Group revenue increased by 11.7% to £254.6 million (H1 FY19: £227.9 million).

Group revenue growth of £26.7 million was largely attributable to growth in the e-fulfilment and returns management business activity. Approximately half of this growth was due to the full six months impact of new contracts won in H1 FY19, approximately a quarter was due to revenue growth in continental Europe and the remainder was due to new contracts won in the second six months of the prior year ('H2 FY19') and H1 FY20; and growth in existing customers in the UK.

New contracts which commenced in FY19 include: PrettyLittleThing, Mountain Warehouse, Brissi, Neon Sheep, Levi Strauss, Sports Direct, Vestel and Ginger Ray. New contracts commenced in FY20 include: Hope & Ivy, Simba Sleep, SLG, Amara, Shop Direct and a new M&S National Distribution Centre operation. Against this, the following customers have been lost: Bench and Links of London (due to liquidation); C&A (due to a Brexit-related relocation); consolidation activities at Meadowhall (due to the commercial unsustainability of the facility); M&S warehousing at Swadlincote (which has been taken back in-house); and Go Outdoors, Haddad, Pepkor and Whistles (contracts which were not renewed on reaching the end of the term).

There is no property-related consultancy revenue in H1 FY20 (H1 FY19: £2.8 million).

Please refer to the Segmental Review section for a more detailed discussion on each operating segment.

EBIT

Group EBIT increased by £1.4 million, or 13.5%, to £12.1 million (H1 FY19: £10.7 million), in part due to the strong revenue growth of 11.7% discussed above. In addition to these revenue drivers, there are several other material Non-underlying factors impacting EBIT. Of the £1.4 million increase:

Excluding these items, underlying EBIT increased by £1.9 million (26.0%) in H1 FY20 compared to H1 FY19, £0.3 million of which is attributable to improved contribution to Group EBIT from Clicklink.

By segment:

Please refer to the Segmental Review section for a more detailed discussion on each operating segment.

The "statutory" measure of EBIT includes the impact of IFRS 16 for the first time in H1 FY20, the Group having transitioned to IFRS 16 on 1 May 2019. Those costs which would have been reported as straight line operating lease rentals in prior periods are now replaced by straight line depreciation and reducing balance interest components. Consequently, results for H1 FY20 on a statutory basis are not directly comparable with those reported for prior periods. Operating lease rentals of £17.2 million have been added back and depreciation of £12.8 million has been deducted, together improving "statutory" EBIT by £4.4 million. Please refer to note 21.2 for details of the IFRS 16 impacts on the Condensed Financial Statements.

The management team will review the overhead base of the business over the first half of calendar year 2020.

Net finance costs

Net finance costs have increased by 32.5% to £1.3 million (H1 FY19: £1.0 million), largely as a result of increased lease liability interest costs following significant capital expenditure in the year ended 30 April 2019, and to a lesser extent increased interest costs on the commercial vehicles stocking lines.

After accounting for IFRS 16 in H1 FY20, "statutory" Net finance costs were increased from £1.3 million to £5.5 million compared to the IAS 17 equivalent cost.

Profit before tax and amortisation and Profit before tax

As a result of the above, Group profit before tax and amortisation increased by 10.4% to £10.9 million (H1 FY19: £9.9 million) and Group profit before tax increased by 9.5% to £10.1 million (H1 FY19: £9.3 million).

Taxation

The tax charge on profit before tax was £2.2 million (H1 FY19: £1.9 million). The effective tax rate in H1 FY20 is 21.8% (H1 FY19: 21.0%), the increase being due to a higher proportion of Group profit being generated in Poland. The headline rate of corporation tax in the UK is 19%, unchanged from the prior year. The headline tax rate in Poland is also 19% but calculated off a different taxable income base. The effective rate of tax on profit in Poland for H1 FY20 is 36%.

Earnings Per Share (EPS)

EPS was 7.8p in H1 FY20, 8.3% up on the same period of the prior year (H1 FY19: 7.2p).

On an IFRS 16 basis EPS was 8.0p in H1 FY20.

Dividend

In line with Clipper's dividend policy and reflecting the Group's earnings growth, the Board is pleased to announce an interim dividend of 3.5 pence per share, which will be paid on 6 January 2020 to shareholders on the register at 13 December 2019. This represents an increase of 9.4% (0.3 pence per share) compared to the interim dividend of 3.2 pence paid in January 2019.

Cashflow

Cash generated from operations in H1 FY20 was £2.2 million (H1 FY19: £10.1 million), the £7.9 million reduction compared to H1 FY19 as a result of a higher working capital outflow: In H1 FY20, the working capital outflow was £12.1 million compared to £4.4 million in H1 FY19, primarily as a result of increased volumes of activity in UK Logistics and the introduction of new customers. We expect much of this to reverse by the end of the financial year as short-term working capital impacts unwind.

Capital spend across tangible and intangible fixed assets has decreased by £4.3 million to £6.8 million in H1 FY20 compared to £11.1 million in H1 FY19. The main items of capital expenditure in H1 FY20 have been on improvements to one of the Peterborough warehouses and on an additional mezzanine floor in the Northampton ADC to facilitate new customers and customer growth. Clipper has invested significantly in its facilities and we expect capital expenditure to be materially lower going forwards.

Income tax payments are £1.2 million higher than the first six months of the prior year as a result of higher payments on account in the UK and Poland, and interest payments are £0.3 million adverse, largely due to an increase in lease liability interest (see above). There was a £2.9 million cash outflow in H1 FY20 relating to a business combination (see note 18), compared to a £0.5 million cash outflow in H1 FY19 for deferred consideration on another. Dividend payments are £6.6 million, a £0.9 million increase on H1 FY19.

Net finance lease repayments and drawdowns are largely in line with H1 FY19 in H1 FY20.

The additional working capital investment has been funded through drawings on the revolving credit facility, which have increased by £17.0 million in H1 FY20 compared to £9.0 million in H1 FY19.

Net debt

(On a pre-IFRS 16 basis) Net debt at the end of H1 FY20 is £64.4 million, compared to £42.1 million at the end of H1 FY19. Net debt was £46.0 million at 30 April 2019, the increase since the year end being largely due to the working capital outflow, capital expenditure and dividends discussed above. Much of our net debt relates to capital to be recovered from open book customers over the term of the customer contracts.

After taking account of IFRS 16, net debt is £247.8 million, following the recognition of £183.4 million of incremental lease liabilities (relating to £154.0 million of right of use assets).

OUTLOOK

The key Black Friday trading weekend occurred shortly after the end of H1 FY20. In this period, the Group processed record daily volumes on certain sites and is pleased to report that early customer feedback has been very positive.

On 20 November 2019, the Board of Clipper Logistics plc announced that it had received a preliminary approach from Sun European Partners, LLP in relation to the potential acquisition of the entire issued, and to be issued, share capital of the Group. There can be no certainty any offer will be made, nor as to the terms of any such offer, and a further update will be provided in due course.

SEGMENTAL REVIEW

Overview

Group revenue increased by 11.7% to £254.6 million (H1 FY19: £227.9 million), with revenue by segment as set out in the table below:

Group EBIT increased by £1.4 million, or 13.5%, to £12.1 million (H1 FY19: £10.7 million), with EBIT by segment as set out in the table below:

1 IFRS 16 was adopted on 1 May 2019 using the modified retrospective approach, without restating prior year figures. To aid comparability across periods the discussion of results is based on an IAS 17 basis, unless otherwise stated. Information on the impact of adopting IFRS 16 is presented in Note 21 to the condensed financial statements for the 6 months to 31 October 2019.

E-fulfilment and returns management services

E-fulfilment operations include the receipt, warehousing, stock management, picking, packing and despatch of products on behalf of customers to support their online trading activities, as well as a range of ancillary support services. At no time does Clipper take ownership of customers' products.

We continue to manage the return of products on behalf of retailers, particularly those sold online, through our Boomerang brand.

Revenue

Revenue from E-fulfilment and returns management services grew by £29.4 million (27.5%) from £107.1 million in H1 FY19 to £136.5 million in H1 FY20.

This revenue growth was achieved in certain operations which were still in the start-up phase in H1 FY19 such as the services we perform for PrettyLittleThing in the UK and Vestel in Clipper Technical Services. These contributed a full six months' revenue to the results for H1 FY20, having only contributed in part to the results of H1 FY19.

Growth has also been derived from the Shop Direct, Hope & Ivy, Simba Sleep and Amara activities which commenced in H1 FY20. These activities did not contribute to revenue for H1 FY19 and only contribute for part of H1 FY20. As such, these will not generate a full contribution to the Group's annual revenue and profits until the year ending 30 April 2021.

Operations which did not commence until H2 FY19, including Mountain Warehouse in Poznan, Poland, generated no contribution to the results for H1 FY19 but contribute a full six months to the revenue and profit of H1 FY20.

We also saw significant organic revenue growth with certain customers, especially in Poland, and organic decline with certain others. Repairtech, within Technical Services, delivered its record month of output in October after five consecutive months of growth.

Brissi, a customer for whom we commenced an operation in H1 FY19, ceased trading in H1 FY20 due to financial distress.

The activities we previously provided to Go Outdoors from our Swadlincote facility have now been transferred from Clipper and consolidated with their other activities, albeit we will still generate some revenue for a period, as the space commitment is contracted until March 2020.

EBIT

EBIT from E-fulfilment and returns management services grew by £2.1 million (34.2%) from £6.2 million in H1 FY19 to £8.4 million in H1 FY20.

In addition to the significant revenue drivers noted above, EBIT in H1 FY20 also benefited from a negative goodwill credit of £1.7 million (the £3.5 million credit was split evenly across E-fulfilment & returns management services and Non e-fulfilment logistics) arising on a business combination and benefited from an improvement in the contribution from the Clicklink operation, following sales price increases to customers in November 2018. We expect Clicklink to be profitable for the full year FY20, but due to its seasonality - with over 40% of annual revenues being generated in the Nov-Jan quarter - this significant improvement does not show in the H1 FY20 results.

Several new customers have also been brought onstream in the Clicklink joint venture operation in H1 FY20 including Cotswold Outdoors and Cotton Traders. The revenue of joint ventures is not directly consolidated into Group revenue so these wins have no impact on Group revenue, but they do have an impact on the joint venture's profitability, 50% of which gets consolidated into Group EBIT. In H1 FY20, Clicklink has commenced a new operation with John Lewis and Boden; the John Lewis Partnership is embracing increased collaboration by retailers with Waitrose stores now being used as collection points for select third party retailers' click and collect volume, beginning with Boden. We expect Clicklink to be profitable for the full year.

Non e-fulfilment logistics

Non e-fulfilment operations include receipt, warehousing, stock management, picking and distribution of products on behalf of customers. Clipper does not take ownership of customers' products at any time.

Within this sector, Clipper handles high value products, including tobacco, electrical products and high value clothing, whilst also undertaking traditional retail support services including processing, storage and distribution of products, particularly fashion, to high street retailers.

Revenue

Revenue from Non e-fulfilment logistics declined slightly in H1 FY20 compared to H1 FY19. Revenue was £76.1 million in H1 FY19 and was £74.8 million in H1 FY20, although the six months of the prior year benefited from £2.8 million of property-related consultancy revenue. Underlying growth of Non e-fulfilment logistics activity was therefore 2.1%.

A number of new activities which commenced in H1 FY19, including Neon Sheep, Levi Strauss and Ginger Ray, contribute revenue for the full six months in H1 FY20, having only contributed in part to the revenue for H1 FY19.

We commenced services for Sports Direct in H2 FY19. Consequently, this activity contributed nothing to the revenues and profits for H1 FY19, but contributes a full six months of revenue and profits to H1 FY20.

Various contracts ceased in H2 FY19, including: Bench (due to liquidation); C&A (due to a Brexit-related relocation); Meadowhall consolidation activities (due to commercial unviability of the operation) and M&S Swadlincote activities (due to the activities being taken in house by M&S).

New activities with SLG and providing services to the M&S National Distribution Centres commenced in H1 FY20. Against this, H1 FY20 also saw an end to services for Haddad, Pepkor and Whistles, as the contracts were not renewed, and for Links of London (due to financial distress).

EBIT

EBIT from Non e-fulfilment logistics grew by £0.6 million (8.8%) from £7.3 million in H1 FY19 to £7.9 million in H1 FY20.

EBIT in this operating segment also benefited from a £1.7 million contribution from negative goodwill in H1 FY20. However, H1 FY19 benefited from a one-off benefit too: £2.8 million of property-related consultancy.

Comparisons of EBIT in this business operation are also affected by a change in accounting classification in H1 FY20 compared to H1 FY19. In H1 FY19, overheads costs of £0.6 million relating to our German operations were included in (and therefore adversely impacted) Non e-fulfilment logistics EBIT. In H1 FY20, these costs, again £0.6 million, are categorised within Central Logistics costs.

The table below normalises the effect of these impacts:

After adjusting for these impacts, normalised EBIT is up 20.9%.

Central logistics overheads

Central logistics overheads represent the costs of support services specific to the logistics operations, but which cannot be allocated in a meaningful way to the sub-segment activities.

Such costs include directorate, advertising and promotion, accounting and IT, and the costs of the solutions development team.

Central logistics overheads of £3.4 million are 33.8% adverse to the prior year (H1 FY19: £2.5 million).

As noted above, the change in accounting classification of the German overheads adds £0.6 million into reported Central logistics overhead costs in H1 FY20 compared to H1 FY19. In addition, there was a £0.2 million share based payment charge in H1 FY20 compared to a £0.3 million credit in H1 FY19. Adjusting for the one-off impact of these, Central Logistics overheads were largely flat compared to H1 FY19.

To support the growth in E-fulfilment and returns management services and Non e-fulfilment logistics, Clipper has continued to invest in the Logistics overhead base, particularly in developing innovative business solutions for retail, for both current customers and future customers.

Commercial vehicles

The commercial vehicles business, Northern Commercials, operates Iveco and Fiat commercial vehicle dealerships from five locations, together with three sub-dealerships. It sells new and used vehicles, provides servicing and repair facilities, and sells parts.

Main dealerships are located in Brighouse, Manchester, Northampton, Dunstable and Tonbridge. Thus, the business operates across the north of England and into Wales, through the Midlands, and into the South-east.

Revenue

Commercial vehicles revenue decreased £1.8 million (3.9%) from £45.4 million in H1 FY19 to £43.6 million in H1 FY20, the reduction substantially all due to new vehicle sales. 743 new vehicles were sold generating £26.9 million of revenue in H1 FY20, compared to 851 sold in H1 FY19 generating £27.9 million of revenue. Parts sales are also down for the first half of the year.

EBIT

Whilst underlying trading slightly is down year-on-year, dealer support bonuses have increased and, as a result, EBIT is largely flat for H1 FY20 compared to H1 FY19.

Head office costs

Head office costs represent the cost of certain Executive and Non-Executive Directors, plc compliance costs and the costs of the plc head office at Central Square, Leeds.

We incurred Head office costs of £1.6 million in H1 FY20 (H1 FY19: £1.2 million). The £0.4 million adverse variance between H1 FY19 and H1 FY20 was driven by: share based payments, which contributed a £0.1 million charge in H1 FY20 compared to a £0.5 million credit in H1 FY19 (£0.6 million adverse impact); Employer's NI thereon, which contributed no charge in H1 FY20 compared to a credit of £0.2 million in H1 FY19 (£0.2 million adverse impact); and H1 FY20 project legal fees (£0.2 million adverse impact); and was partly offset by: a favourable variance due to the non-recurrence in H1 FY20 of those costs incurred in H1 FY19 in respect of Clipper's 25th birthday celebration costs (£0.6 million favourable impact).

STRATEGY

The Group's direction continues to be shaped by the same four key strategic pillars of earlier years, namely:

There have been significant developments in each of these areas in H1 FY20.

In terms of expanding the customer base, please refer to commentary provided elsewhere in this report.

New products and services have been developed and continue to be developed both for existing customers and with a view to attracting new customers. These include:

In Europe, the Westwing operation has grown significantly, the profits of the transport business are much improved and the new Mountain Warehouse business has left the start-up phase and is now operating "business as usual". We continue to explore business development opportunities in Europe, both in terms of new customers and locations for our existing European business, and in terms of identifying strategic acquisition targets.

We continue to seek out value-additive acquisition opportunities in the UK, Europe (see above) and beyond. We have identified and analysed several potential targets in H1 FY20, but none that have resulted in any firm offer being made.

RISK MANAGEMENT

There are a number of risks and uncertainties facing the business in the second half of the financial year. A risk management process is used by the Group to identify, monitor and manage such risks. The principal risks and uncertainties facing the business are unchanged from those identified in the 2019 Annual Report. The key such risks are outlined below:

The Group has in place mitigation strategies to deal with these risks. Further details can be found on pages 20 to 23 in the 2019 Annual Report.

CONDENSED FINANCIAL STATEMENTS FOR THE 6 MONTHS TO 31 OCTOBER 2019

Interim Group Income Statement (unaudited)

1 IFRS 16 was adopted on 1 May 2019 using the modified retrospective approach, without restating prior year figures. Information on the impact of adopting IFRS 16 is presented in Note 21 to the condensed financial statements for the 6 months to 31 October 2019.

Interim Group Statement of Comprehensive Income (unaudited)

Interim Group Statement of Financial Position (unaudited)

1 IFRS 16 was adopted on 1 May 2019 using the modified retrospective approach, without restating prior year figures. Information on the impact of adopting IFRS 16 is presented in Note 21 to the condensed financial statements for the 6 months to 31 October 2019.

Interim Group Statement of Changes in Equity (unaudited)

Interim Group Statement of Cash Flows (unaudited)

1 IFRS 16 was adopted on 1 May 2019 using the modified retrospective approach, without restating prior year figures. Information on the impact of adopting IFRS 16 is presented in Note 21 to the condensed financial statements for the 6 months to 31 October 2019.

2 The cashflows for the six months ended 31 October 2018 for these items have been re-presented for ease of comparability with the presentation convention adopted in the six months ended 31 October 2019 and the year ended 30 April 2019. Purchases of property, plant and equipment and intangible assets are now presented gross of the related finance lease drawdown, having previously been presented net of the related finance lease drawdown. In the six months ended 31 October 2018, purchase of property, plant and equipment was reported as £(6,253,000), purchase of intangible assets was reported as £(1,332,000) and finance leases advanced in respect of purchases of property, plant and equipment and intangible assets was reported as £nil.

Notes to the Interim Financial Statements

1. Accounting policies

Basis of preparation

Clipper Logistics plc ("the Company") is a public limited company incorporated and domiciled in the United Kingdom. The condensed interim financial statements have been prepared in accordance with the Disclosure and Transparency rules of the Financial Conduct Authority ("FCA") and where applicable IAS 34 "Interim Financial Reporting (as adopted by the EU)".

As required by the Disclosure and Transparency rules of the FCA, the condensed interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 30 April 2019, other than in relation to the adoption of IFRS 16 'Leases' (see below). These statements do not include all the information required for full annual financial statements and should be read in conjunction with the full annual report for the year ended 30 April 2019. The financial information for the half year ended 31 October 2019 and for the equivalent period in 2018 has not been audited or reviewed.

The information for the year ended 30 April 2019 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The financial statements are prepared on the going concern basis.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described above. The Group has considerable financial resources together with strong trading relationships with its key customers and suppliers. As a consequence, the Directors believe that the Group is well placed to manage its business risk successfully.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

New standards and interpretations

IFRS 16 'Leases' became effective, and was adopted by the Group, for the current reporting period.

IFRS 16 'Leases' ("IFRS 16") was issued in January 2016, replacing IAS 17 'Leases' and associated interpretations IFRIC 4, SIC 15 and SIC 27. IFRS 16 applies to annual periods beginning on or after 1 January 2019. IFRS 16 primarily changes lease accounting for lessees. Lease agreements give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs are recognised in the form of depreciation of the right of use asset and interest on the lease liability replacing rental costs charged on a straight-line basis.

Under the transition rules, the Group has applied IFRS 16 using the modified retrospective approach with the cumulative effect of applying the standard recognised in retained earnings on 1 May 2019 with no restatement of comparative information. The Group has taken available exemptions for short-term leases and low value leases (

The effect on the Group's results for the six months to 31 October 2019 compared to those that would have been reported under IAS 17 are shown in Note 21.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

2. Financial risks, estimates, assumptions and judgements

The preparation of the condensed interim financial information requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The adoption of IFRS 16 (see note 21) involved exercising judgment to determine the incremental rate of borrowing where the interest rate implicit in the lease is not readily determinable. Judgment was also required to determine the length of leases where an extension or termination option exists. It has been assumed any early termination options within property leases would not be exercised and that the group would take advantage of all extension options available.

Other than in relation to IFRS 16, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty in preparing these condensed interim financial statements were the same as those that applied to the consolidated financial statements for the year ended 30 April 2019.

3. Revenue

The Group has applied IFRS 15 in all periods.

Disaggregation of revenue

Revenue has been disaggregated in the table below in line with how management reviews the performance of the Group.

Revenue recognised in the income statement is analysed as follows:

Note 1: The terms of a particular customer contract mean that IFRS 16 also results in an adjustment to revenue.

No property-related advisory services revenue is included in the six months ended 31 October 2019. In the six months ended 31 October 2018, non e-fulfilment logistics revenue included £2,800,000 in respect of such services. A further £300,000 was included in the remainder of that year, bringing the total for the year ended 30 April 2019 to £3,100,000.

4. Segment information

For management purposes, the Group is organised into two main reportable segments:

Within the value-added logistics services segment, the Chief Operating Decision Maker also reviews performance of three separate business activities:

Inter-segment transactions are entered into under normal commercial terms and conditions and on an arm's length basis that would also be available to unrelated third parties.

The following table presents profit information for continuing operations regarding the Group's business segments:

5. Other net gains or losses

Other net gains or losses comprises the following amounts

6. Staff costs

Directors' remuneration is in line with the disclosures set out in the 2019 Annual Report.

7. Finance costs

8. Finance income

9. Taxation

Tax has been provided on the profit before taxation, at the estimated effective rate for the full year of 21.7% (Year ended 30 April 2019: 20.8%). 

10. Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted average number of shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the potentially dilutive instruments into ordinary shares.

The following reflects the income and share data used in the basic earnings per share computation:

11. Dividends

An interim dividend for the current year of £3,558,000 at 3.5p per share was approved by the board on 4 December 2019. The dividend will be payable on 6 January 2020 to shareholders on the register at the close of business on 13 December 2019.

12. Property, plant and equipment

During the six months ended 31 October 2019, the Group acquired assets with a cost of £6,447,000 (six months ended 31 October 2018: £9,759,000. Of the assets acquired, £4,499,000 (2018: £3,225,000) was funded by leasing arrangements in the period and £nil (2018: £281,000) was funded by bank loans secured on the specific assets. Included in the additions during the period are assets in the course of construction amounting to £nil (2018: £4,848,000) and assets acquired as part of a business combination of £2,899,000 (2018: £nil) (see note 18).

13. Right of use assets

14. Cash and cash equivalents

15. Financial liabilities - Borrowings

The principal lender has security over all assets of the Group's UK operations.

The Group's obligations under leases are secured by the lender's charge over the relevant assets.

The maturity analysis of the bank loans and revolving credit advances is as follows:

The Group has access to a committed overdraft of £8,000,000 and a non-amortising revolving credit facility of £35,000,000 repayable in January 2021. At 31 October 2019 £34,000,000 (2018: £18,000,000) of the revolving credit facility was drawn.

16. Financial instruments

Fair value of financial instruments

The book value of trade and other receivables, trade and other payables, cash and cash equivalents & current borrowings equates to fair value.

The table below sets out the book value and fair value of the Group's other financial assets and liabilities:

The main methods and assumptions used in estimating the fair values of financial instruments are as follows:

Long term borrowings are classified as Level 2 (items with significant observable inputs) financial liabilities under IFRS 13. There have been no transfers between Level 1 and Level 2 financial instruments during the period.

17. Share based payments

There have been no options granted in the six months ended 31 October 2019. Details of grants in prior periods are set out in the 2019 Annual Report. During the six months ended 31 October 2019, the Company issued 47,893 (2018: 170,247) ordinary shares for aggregate consideration of £115,000 (2018: £149,000) to satisfy share options. At 31 October 2019 options over 507,568 ordinary shares (2018: 507,824) were exercisable.

The charge for share based payments in the six months ended 31 October 2019 is £392,000 (2018: credit of £721,000).

The increase in deferred tax liability during the period in relation to share based payments amounted to £125,000, which has been recognised in the share based payment reserve.

18. Business combinations

In April 2019, the Group entered into a series of contracts with a customer, which when combined represented a business combination in accordance with IFRS 3 'Business Combinations'. The acquisition consists of premises, assets and a workforce, together carrying out a logistics service business that will be outsourced to the Group. The business acquired is an unincorporated entity. Several areas required significant judgment by management, in particular that the transfer of employees under TUPE and the lease of the premises commenced only after the year end, limiting the ability of the Group to control the relevant activities of the acquired business. On balance the Group has concluded that the effective date of the business combination is 1 July 2019 and that this series of transactions should be reflected within the year ending 30 April 2020. This is when management have concluded that control has passed to the Group. The Group has carried out a provisional fair value exercise of the business combination, which will give rise to provisional 'negative goodwill' of £3,499,000. The 'negative goodwill' has been recognised within the Group income statement in the six months ended 31 October 2019.

The provisional fair value table for the business combination is shown below.

Purchase consideration and cash flows:

Acquisition:

As part of the series of transactions, the customer will pay the Group consideration in return for the Group assuming certain potential liabilities. This resulted in the net consideration payable being less than the provisional fair value of net assets acquired, principally the customer relationship, which gave rise to 'negative goodwill'.

Professional fees and costs in relation to the acquisition are expected to not exceed £50,000.

19. Related party disclosures

The company owns 50% of the issued capital and voting rights of Clicklink Logistics Limited ("Clicklink"), a customer of the Group and a provider of services to the Group.

The condensed financial statements include the following in respect of Clicklink:

Other related party transactions are in line with the disclosures set out in the 2019 Annual Report.

20. Subsequent events

On 20 November 2019, the Board of Clipper Logistics plc announced that there had been a preliminary approach from Sun European Partners, LLP in relation to the potential acquisition of the entire issued, and to be issued, share capital of the Group. There can be no certainty any offer will be made, nor as to the terms of any such offer, and a further update will be provided in due course.

21. Impact of IFRS 16

21.1. On the transition statement of financial position

The below table sets out the impact IFRS 16 has had on the statement of financial position at the point of transition.