Interim Results

18th Nov 2008 07:30



Issued by Citigate Dewe Rogerson Ltd, Birmingham

Date: Tuesday, 18 November 2008

Embargoed: 7.30am

James Cropper PLC

Half-year to 27 September 2008 

	Half-year to 27 September 2008	Half-year to 29 September 2007	Full year to 29 March 2008
Overall turnover up 5%	£37.7m	£35.7m	£72.7m
Group (loss)/profit before taxPrior to net IFRS pension adjustmentsAfter net IFRS pension adjustments	(£0.2m) (£0.3m)	£1.4m £1.3m	£2.0m £1.6m
(Losses)/earnings per share	(2.9p)	10.4p	14.0p
Dividend per share declared	1.1p	2.2p	7.3p
Gearing (after allowing for pension deficit)	37%	21%	23%
Technical Fibre Products' (TFPs') turnover was up 15% with profits 4% ahead of the comparable period and order in-take remains healthy
Speciality Papers' turnover increased by 7% over the comparable period
Speciality Papers severely affected by the rising cost of energy and pulp
US$ price of pulp has started to fall

"TFP enters the second half-year with a healthy order book. TFP is beginning to experience an increase in demand for materials to service the fuel cell market, particularly with regard to free-standing phosphoric acid units. These are encouraging developments".

"Given the uncertainties surrounding the forward trend in exchange rates, quoted energy prices and pulp costs, the outlook for Speciality Papers is difficult to project. The impact of the increasing cost base will be mitigated in the second half of the year by further sales price increases. It is not anticipated that losses in Speciality Papers will grow significantly over the remainder of the financial year."

"There is no doubt that the current financial year will be challenging. Nevertheless, I am confident that through our existing management approach and a combination of profitable sales growth, product development, energy savings and efficiency improvements, the Group will be well equipped to capitalise on opportunities when the economic climate becomes more favourable."

James Cropper, Chairman

Enquiries:
Alun Lewis, Chief Executive		Andrew Kitchingman,
John Denman, Group Finance Director	Keith Gabriel, Senior Account Manager	Managing Director, Corporate Finance
James Cropper PLC	Citigate Dewe Rogerson	Brewin Dolphin Investment Banking
Telephone: +44 (0)1539 722002	Telephone: +44 (0) 121 455 8370	Telephone: 0845 270 8613
www.cropper.com	Mobile: 07770 788624	Mobile: 07785 708167

 

Summary of Results	Half-year to	Half-year to	Full year to
	27 September	29 September	31 March
	2008	2007	2008
	£'000	£'000	£'000
Group turnover	37,677	35,747	72,744
Profit and Loss Summary
Trading operating profit	54	1,614	2,426
Joint venture	-	(61)	(61)
Trading profit before interest	54	1,553	2,365
Net interest	(235)	(188)	(402)
Trading (loss)/profit before tax	(181)	1,365	1,963
(After future service pension contributions paid)
Net IAS 19 pension adjustments to
Operating profit	(186)	(209)	(610)
Net interest	106	109	227
Net pension adjustment before tax	(80)	(100)	(383)
Overall Group after pension adjustments
Operating (loss)/profit	(132)	1,405	1,816
Joint venture	-	(61)	(61)
(Loss)/profit before interest	(132)	1,344	1,755
Net interest	(129)	(79)	(175)
(Loss)/profit before tax	(261)	1,265	1,580
(Losses)/earnings per share	(2.9p)	10.4p	14.0p
Dividends per share	1.1p	2.2p	7.3p
Balance Sheet Summary
Non-pension assets - excluding cash	46,604	46,016	45,616
Non-pension liabilities - excluding borrowings	(13,328)	(13,564)	(12,640)
	33,276	32,452	32,976
Net IAS 19 pension deficit (after deferred tax)	(7,185)	(2,421)	(1,299)
	26,091	30,031	31,677
Net borrowings	(7,113)	(5,292)	(6,016)
Equity shareholders' funds	18,978	24,739	25,661
Gearing - before IAS 19 deficit	27%	19%	22%
Gearing - after IAS 19 deficit	37%	21%	23%
Capital Expenditure £'000	743	1,468	2,337

  

STATEMENT BY THE CHAIRMAN, J A CROPPER

The Group recorded a loss before tax of £261,000 for the period (£181,000 prior to net IFRS pension adjustments). This compares with a profit before tax of £1,265,000 for the comparable period last year (£1,365,000 prior to net IFRS pension adjustments). 

The loss arose as a consequence of James Cropper Speciality Papers being severely affected by the rising cost of energy and pulp.

Group turnover was £37.7 million against £35.7 million for the same period last year, an increase of 5%.

Given the current unfavourable trading conditions and the wish to conserve cash to invest in the future of the business the Board has regrettably decided that it would be appropriate to reduce the interim dividend to 1.1p per share. 

Technical Fibre Products ("TFP")

TFP's turnover was up 15% with profits 4% ahead of the comparable period last year. Sales to the US market were 20% up on last year in £Sterling terms and 17% in US$ terms. Sales to US markets represented approximately 49% of TFP's turnover in £Sterling terms. The US$ strengthened by 9% over the course of the first six months of the current year thus leading to improved margins. Sales outside of the USA were ahead by 12%.

James Cropper Speciality Papers ("Speciality Papers")

Turnover was up 7% with volume down 3% and the average selling price up by 11% against the comparable period. However, despite this improvement in turnover the performance of Speciality Papers was dominated by severe increases in the cost of gas and pulp maintaining its high price. As a consequence, Speciality Papers traded at a loss during the opening half-year. 

I signalled at the AGM on 30th July 2008 that the Group was facing severe increases in energy costs. This is demonstrated by the cost of gas, which in the first half was 150% up on the previous year. Based upon current market projections the total cost of gas consumption in the current financial year could exceed £5.5 million, compared with £2.7 million in the previous financial year.

Northern Bleached Softwood Kraft ("NBSK") pulp opened the financial year at US$880 per tonne and increased by an additional US$20/tonne before plateauing at US$900/tonne for four months. By the end of the first half-year the price of NBSK had fallen to $890/tonne. Market forecasters anticipate further falls as a result of the prevailing economic slow-down. However, the £Sterling cost of pulp is being maintained at a high level because of the weakness of the £ in particular against the US$.

James Cropper Converting ("Converting")

Converting's overall turnover was down 5% on the comparable period. This resulted from subdued activity in the UK display-board market and significant de-stocking by Converting's US mount-board customer. Both these trends are expected to reverse in the second half-year.

The Paper Mill Shop ("TPMS")

TPMS traded at a loss in the opening six months. Sales were down 7% on the same period last year. A programme of redundancies at outlet level was completed in the first half. 

Pensions and International Accounting Standard 19 ("IAS 19")

Over the course of the first half-year the gross IAS19 deficit increased by £8,176,000 to £9,980,000 as at 27th September 2008 reflecting the dramatic changes to financial markets in recent months thus reversing the gains of the past two years. This has had a significant impact on the IFRS gearing ratio, which has risen from 23% to 37% over the six-month period.

Outlook

TFP enters the second half-year with a healthy order book. TFP is beginning to experience an increase in demand for materials to service the fuel cell market, particularly with regard to free-standing phosphoric acid units. These are encouraging developments.

Given the uncertainties surrounding the forward trend in exchange rates, quoted energy prices and pulp costs, the outlook for Speciality Papers is difficult to project. The impact of the increasing cost base will be mitigated in the second half-year by further sales price increases. It is not anticipated that losses in Speciality Papers will grow significantly over the remainder of the financial year.

As with all retailers, the pre-Christmas period is vital to The Paper Mill Shop. Given the prevailing trading climate it is expected that the subsidiary will incur a loss for the full year similar to that of last year. It is intended to exit a small number of under performing stores as their leases expire unless it is more economic to do so earlier. 

At 27th September 2008 gross drawn down loans totalled £8.3 million, with £1.2 million held as cash at bank. In addition the Group had undrawn overdraft facilities of £3.4 million, US$1.0 million and €1.0 million. In the second half-year, borrowing will ease upward as cash outflow increases as a consequence of increased capital expenditure and higher energy costs. Investment over the remainder of the financial year will continue to be focused on energy and operating efficiencies. Working capital is under tight control. 

There is no doubt that the current financial year will be challenging. Nevertheless, I am confident that through our existing management approach and a combination of profitable sales growth, product development, energy savings and efficiency improvements, the Group will be well equipped to capitalise on opportunities when the economic climate becomes more favourable.

  

Consolidated income statement for the half-year to 27 September 2008
Unaudited
		Half-year to		Half-year to		Full-year to
		27 September 2008		29 September 2007		29 March 2008
		£'000		£'000		£'000
Continuing operations
Turnover		37,677		35,747		72,744
Operating (loss) / profit		(132)		1,405		1,816
Interest payable and similar charges		(269)		(298)		(942)
Interest receivable and similar income		140		219		767
Share of loss of joint venture		-		(61)		(61)
(Loss) / profit before tax		(261)		1,265		1,580
Taxation		13		(380)		(390)
(Loss)/ profit for the period attributable to equity holders of the company		(248)		885		1,190
(Losses) / earnings per share - basic & diluted		(2.9p)		10.4p		14.0p
Dividend declared in the period - pence per share		1.1p		2.2p		7.3p

Consolidated balance sheet as at 27 September 2008
Unaudited
		27 September 2008		29 September 2007		29 March 2008
		£'000		£'000		£'000
Assets
Non-current assets
Intangible assets		1,598		1,589		1,572
Property, plant and equipment		19,409		21,169		20,308
Financial assets
Investments in joint ventures		-		-		-
Deferred tax assets		2,795		1,038		505
		23,802		23,796		22,385
Current assets
Inventories		10,129		9,033		9,640
Trade and other receivables		15,468		14,210		14,096
Financial assets
- Derivative financial instruments		-		15		-
Cash and cash equivalents		1,229		3,761		1,917
		26,826		27,019		25,653
Liabilities
Current liabilities
Trade and other payables		(9,149)		(8,331)		(8,124)
Financial liabilities
- Borrowings		(2,490)		(2,242)		(2,170)
- Derivative financial instruments		-		-		-
Current tax liabilities		(370)		(1,292)		(720)
		(12,009)		(11,865)		(11,014)
Net current assets		14,817		15,154		14,639
Non-current liabilities
Financial liabilities
- Borrowings		(5,852)		(6,811)		(5,763)
Retirement benefit liabilities		(9,980)		(3,459)		(1,804)
Deferred tax liabilities		(3,809)		(3,941)		(3,796)
		(19,641)		(14,211)		(11,363)
Net assets		18,978		24,739		25,661
Shareholders' equity
Share capital		2,118		2,118		2,118
Share premium		573		573		573
Translation reserve		112		(22)		22
Retained earnings		16,175		22,070		22,948
Total shareholders' equity		18,978		24,739		25,661

Consolidated cash flow statement for the half-year to 27 September 2008
Unaudited
		Half-year to	Half-year to	Full-year to
		27 September 2008	29 September 2007	29 March 2008
		£'000	£'000	£'000
Cash flows from operating activities
(Loss) / profit before tax		(261)	1,265	1,580
Trading Interest income and expense		235	188	402
Depreciation/amortisation		1,616	1,627	3,280
Increase in working capital		(867)	(638)	(1,369)
Other non-cash movements
- Share of loss of joint venture		-	61	61
- Past service deficit payments		(465)	(438)	(876)
- Net IFRS pension adjustments		80	100	383
- Profit on disposal of property, plant and equipment		-	-	(103)
- Share-based payments		78	7	85
Cash generated from operations		416	2,172	3,443
Interest received		38	95	493
Interest paid		(258)	(298)	(854)
Tax paid		(226)	-	(649)
Net cash generated from operating activities		(30)	1,969	2,433
Cash flows from investing activities
Investment in joint venture		-	(50)	(50)
Purchase of intangible assets		(133)	(355)	(213)
Purchase of property, plant and equipment		(610)	(1,113)	(2,124)
Proceeds from sale of property, plant and equipment		-	-	196
Purchase of LTIP investments		-	-	(368)
Net cash used in investing activities		(743)	(1,518)	(2,559)
Cash flows from financing activities
Net proceeds from issue of new loans		1,392	1,228	1,259
Net proceeds from issue of ordinary share capital		-	-	-
Finance lease payments		(70)	-	-
Repayment of bank loans		(915)	(1,198)	(2,349)
Dividends paid to shareholders		(434)	(432)	(618)
Net cash used in financing activities		(27)	(402)	(1,708)
Effects of exchange rate changes		112	(18)	21
Net increase in cash and cash equivalents in the period		(688)	31	(1,813)
Cash and cash equivalents at the start of the period		1,917	3,730	3,730
Cash and cash equivalents at the end of the period		1,229	3,761	1,917
Cash and cash equivalents consists of:
Cash at bank and in hand		1,229	3,761	1,917

Consolidated statement of recognised income and expense
for the half-year to 27 September 2008
Unaudited
	Half-year to	Half-year to	Full-year to
	27 September 2008	29 September 2007	29 March 2008
	£'000	£'000	£'000
(Loss) / profit for the period	(248)	885	1,190
Currency translation differences on foreign currency investment	85	(22)	21
Retirement benefit liabilities - actuarial (losses) / gains	(8,561)	2,355	3,855
Deferred tax on actuarial (losses) / gains on retirement benefit liabilities	2,397	(707)	(1,157)
	(6,079)	1,626	2,719
Total recognised (expense / income for the period	(6,327)	2,511	3,909
Consolidated statement of changes in equity
for the half-year to 27 September 2008
Unaudited
	Half-year to	Half-year to	Full-year to
	27 September 2008	29 September 2007	29 March 2008
	£'000	£'000	£'000
Opening shareholders' funds	25,661	22,653	22,653
Total recognised (expense) / income for the period	(6,327)	2,511	3,909
Share-based payments	78	7	85
Dividends paid	(434)	(432)	(618)
Consideration paid on purchase of own shares	-	-	(368)
Closing shareholders' funds	18,978	24,739	25,661

Notes to the Unaudited Interim Results

1 Basis of the preparation of IFRS financial information

These interim results have been prepared in accordance with the historical cost convention, as modified by the revaluation of land and buildings, and derivative financial instruments, and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (with the exception of IAS 34, Interim Financial Reporting) and International Financial Reporting Interpretations Committee ("IFRIC") interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS.

2 Interim Statement

a)  The summarised results for the half-year to 27 September 2008, which have not been audited or reviewed, have been prepared in accordance with the accounting policies adopted in the accounts for the year ended 29 March 2008.

b)  The financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 1985. The figures for the year to 29 March 2008 are an extract of the full accounts for that year, which have been filed with the Registrar of Companies and on which the auditors gave an unqualified opinion.

c)  A copy of the interim statement is being sent to all shareholders and is available from the Company's registered office or from our website (www.cropper.com).

3 Earnings per share

Basic and diluted earnings per share for the half year to 27 September 2008 have been calculated by dividing the losses attributable to ordinary shareholders by 8,472,368 (2007: 8,472,368) ordinary shares, being the weighted average number of ordinary shares during the period.

4 Dividend

An interim dividend of 1.1p per Ordinary Share (2007: 2.2p per share) is proposed and will be paid on 9 January 2009 to holders on the register at the close of business on 19 December 2008. The dividend relating to the year to 29 March 2008 was made up of an interim dividend of 2.2p per share and a final dividend of 5.1p per share, totalling £618,000.

5 Pensions

IAS 19 regards a sponsoring company and its pension schemes as a single accounting entity rather than two or more separate legal entities. The actuarial valuation is the starting point for the creation of the IAS 19 accounting entity. The valuation determines the net position of a pension scheme, i.e. the difference between its assets and liabilities. The net position, surplus or deficit, is brought onto the sponsoring company's Balance Sheet such that Reserves are immediately adjusted by the net position reduced by deferred tax. This obviously results in either an increase or decrease in the net asset value of the sponsoring company. At subsequent period-ends the movement in value from the previous valuation is expressed in the following component parts:

Income Statement

Operating costs

Current service charge, being the cost of benefits earned in the current period shown net of employees' contributions.

Past service costs, being the costs of benefit improvements.

Curtailment and settlement costs.

Finance costs, being the net of

Expected return on pension scheme assets.

Interest cost on the accrued pension scheme liabilities.

Statement of Recognised Income and Expense

Actuarial gains and losses arising from variances against previous actuarial assumptions.

The above items are offset by actual contributions paid by the employer in the period.

IAS19 deficits are shown below at the corresponding Balance Sheet dates.

	Half-year to	Half-year to	Full year to
	27 September	29 September	29 March
	2008	2007	2008
IAS19 DEFICIT	£'000	£'000	£'000
Current service charge	(641)	(695)	(1,544)
Future service contributions paid	455	486	934
Net impact on operating (loss) / profit	(186)	(209)	(610)
Finance costs	106	109	227
Net impact on (loss) / profit before tax	(80)	(100)	(383)
Past service deficit contributions paid	465	438	876
Actuarial (losses) or gains	(8,561)	2,355	3,855
Opening deficit	(1,804)	(6,152)	(6,152)
Closing deficit	(9,980)	(3,459)	(1,804)
Deferred taxation	2,795	1,038	505
Net - Deficit	(7,185)	(2,421)	(1,299)

It should be noted that the assumptions underlying the IAS 19 valuation are based on financial conditions at the Balance Sheet date. As market values of the scheme assets and the discount factors applied to the scheme liabilities will fluctuate, this method of valuation will often lead to large variations in the "pension balance" from period to period. Pension liabilities are discounted at the current rate of return on an AA rated quality corporate bond of equivalent currency and term. The actual contributions paid by the Group to its two final salary schemes are determined by the actuaries' "on-going" valuation. The assumptions used by the actuaries for their IAS 19 valuations are more conservative than those that they used with regard to their "on-going" valuations. 

Actual future service pension contributions paid in the period by the Group to its two final salary schemes in accordance with the actuaries' recommendations, resulting from their latest "on-going" valuations, were £455,000. 

  

	Half-year to	Half-year to	Full year to
	27 September	29 September	29 March
	2008	2007	2008
Profit before tax	£'000	£'000	£'000
Trading (loss) / profit	(181)	1,365	1,963
Net pension adjustment
Current service charge	(641)	(695)	(1,544)
Future service contributions paid	455	486	934
Net impact on operating profit	(186)	(209)	(610)
Finance costs	106	109	227
Net impact on (loss) profit before tax	(80)	(100)	(383)
As reported	(261)	1,265	1,580

ENDIR FFMFWWSASEEF

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Cropper (J)