Preliminary Results

Clipper Logistics plc

Preliminary Results for the year ended 30 April 2018

Clipper Logistics plc ("Clipper", the "Group", or the "Company"), a leading provider of value-added logistics solutions, e-fulfilment and returns management services to the retail sector, is pleased to announce its Preliminary Results for the year ended 30 April 2018.

Financial Highlights for the year ended 30 April 2018

1. Group EBIT is defined as operating profit, including the Group's share of operating profit in equity-accounted investees, before amortisation of intangible assets arising on consolidation.

Percentages are calculated based on the underlying numbers as presented in the preliminary results, not on the rounded figures above.

Operational Highlights for the year ended 30 April 2018

Post Year End Highlights

Steve Parkin, Executive Chairman of Clipper commented:

"The Group is proud of its historical track record of delivering significant organic revenue growth and integrating strategic, value-additive acquisitions. Our latest set of full year results show continued strong EBIT growth, growth achieved through remaining true to each of our core strategic principles: expanding the customer base, developing complementary services for customers, continuing to expand in Europe and identifying and seeking targeted, complementary acquisitions. We are excited by the new people initiatives we have launched in the year, including Team Clipper and Fresh Start, the former demonstrating our commitment to our people and the latter demonstrating our commitment to Corporate Social Responsibility. We are conscious of the wider forces affecting the UK retail sector; whilst this means that we have to bring an element of caution into our planning, recent contract wins, together with a strong pipeline of new business activity and the further evolution of our Click and Collect proposition, leave the Group well positioned to achieve further growth both in the UK and internationally."

Forward looking statements

This announcement contains forward looking statements. These have been made by the Directors in good faith using information available up to the date on which they approved this report. The Directors can give no assurance that these expectations will prove to be correct. Due to the inherent uncertainties, including both business and economic risk factors underlying such forward looking statements, actual results may differ materially from those expressed or implied by these forward looking statements. Except as required by law or regulation, the Directors undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

ENQUIRIES

Chairman's Statement

As Chairman of Clipper Logistics plc, I am pleased to present our 2018 financial results following the fourth anniversary of our listing on the Main Market of the London Stock Exchange in June 2014.

The financial year ended 30 April 2018 has seen a continuation of our historic track record of achieving significant organic revenue growth, complemented by the addition of strategic, value-enhancing acquisitions.

The Group is focused on developing innovative, cost-effective solutions that address the needs of our blue-chip client base, predominantly in the retail sector. We continue to invest in quality people to implement sector-leading projects, and this, together with our ability to identify key trends and developments in the sectors we serve, means that we are confident in our ability to continue this momentum.

The Group has achieved another strong financial performance in the year under review, and has commenced significant new contracts with high profile retailers including Edinburgh Woollen Mill, River Island, M&S and ASOS, for whom we have introduced returns management services in Poland. In addition, we have seen significant growth in activity with many of our customers including Asda, Morrisons, Philip Morris, Wilko, Zara and s.Oliver. Further, our commercial vehicles business continues to perform strongly.

During the year, we announced the acquisition of Tesam Distribution Limited in May 2017, and the acquisition of RepairTech Limited in June 2017. Both of these acquisitions have been immediately earnings-enhancing. These acquisitions demonstrate our ability to identify complementary businesses that extend the breadth of both our customer base and our service offerings, and enhance returns to shareholders. I would like to welcome the colleagues and management of both businesses to the Group.

We will continue to identify key trends in the sectors we serve, and develop new services, processes and solutions that address the needs and challenges of our customers. Clipper's unique understanding of the dynamics of the retail sector, and in particular the e-commerce sector including returns management and click and collect, provides the Group with exceptionally strong strategic positioning for the future.

In the logistics sector, we have a high proportion of revenue from open book or minimum volume guarantee contracts, whilst in the commercial vehicles sector much of our profit and cash streams come from servicing and parts activities which are extremely stable. These contract mechanics provide a good degree of protection to the Group's earnings and cashflows.

Consequently, the Group is well positioned to continue to deliver strong returns to our shareholders, despite the challenges that some parts of the retail sector are experiencing.

We are mindful of the wider economic climate, and in particular of the headwinds facing our customers in the retail sector. We continue to monitor the situation closely and engage with our customers to find new ways to pro-actively assist them.

Group results

Group revenue increased by 17.6% to £400.1 million for the year ended 30 April 2018 (2017: £340.1 million), and Group EBIT increased by 16.3% to £20.9 million (2017: £17.9 million).

Diluted earnings per share were 14.1 pence for the year ended 30 April 2018 (2017: 12.3 pence), an increase of 14.6%.

Basic earnings per share were 14.2 pence (2017: 12.5 pence), an increase of 13.6%.

Net debt was £31.7 million at the year end (2017: £25.1 million), in line with our expectations. We continue to invest in capital projects to support both new contracts and growth of existing contracts, much of which involves a commitment from customers to reimburse this capital over the duration of the contract. Net debt is defined as borrowings, less cash, cash equivalents and non-current financial assets (see note 20).

People and Board

Clipper Logistics plc is led by an excellent management team that has been at the core of the business for many years.

The team has a proven track record of identifying key trends within the sectors we serve, and developing relevant cost-effective solutions that address those needs.

Further, we have a proven ability to identify strategic acquisitions that enhance Group performance and shareholder value.

I would like to take this opportunity to thank all the employees of the Group for their continued commitment and contribution to the Group's performance.

Governance

The executive management team comprises Tony Mannix (Chief Executive Officer), David Hodkin (Chief Financial Officer) and myself, and the Group benefits from the combined experience of Ron Series (Senior Independent Director), Stephen Robertson and Mike Russell, our Non-Executive Independent Directors.

Paul Hampden Smith stood down from the role of Senior Independent Director on 12 July 2017.

Dividends

The Board is recommending a final dividend of 5.6 pence per share, making a total dividend in respect of the year ended 30 April 2018 of 8.4 pence (2017: 7.2 pence), an increase of 16.7%.

The proposed final dividend, if approved by shareholders, will be paid on 1 October 2018 to shareholders on the register at the close of business on 7 September 2018.

Outlook

The Group continues to be one of the leading providers of value-added logistics and e-fulfilment solutions to the retail sector in the UK. Recent contract wins, together with a strong pipeline of new business activity and the further evolution of our Click and Collect proposition, place the Group in an excellent position to achieve further growth both in the UK and internationally. Indeed, Clipper's approach of adopting a hands-on, long-term and pro-active relationship with its retail clients allows it to continue to grow during these changing retail market conditions.

I look forward to working with all of the Group's stakeholders as we continue to drive the Group forward.

Steve Parkin

Executive Chairman

Operating and Financial Review

Overview of Group performance for the year ended 30 April 2018

The Group continued to make good progress in the financial year ended 30 April 2018.

Group revenue

Group revenue increased by 17.6% to £400.1 million, with strong growth in all business areas:

Percentages are calculated on the underlying numbers as presented in the preliminary results, not on the rounded figures in the table above.

Within the value-added logistics services segment, the Group benefited from:

Revenue growth in commercial vehicles was driven by:

Group EBIT

The Group grew EBIT strongly in all segments and business activities:

Percentages are calculated on the underlying numbers as presented in the Preliminary results, not on the rounded figures in the table above.

EBIT is the primary Key Performance Indicator ("KPI") by which the management team assesses corporate performance. EBIT is assessed against Board approved budgets. A further KPI is net debt, which is discussed further below.

EBIT margin (%) is not considered by the Directors to be a key metric since the high proportion of open book and minimum volume guarantee contracts within the UK logistics division distorts reported margins. This is due to an element of management fees on certain contracts being relatively fixed in the short term, so that an increase in revenue in periods of increased activity will not necessarily give rise to a proportionate increase in profit, resulting in lower reported margins. Conversely, in periods of reduced activity levels, reported margins would typically increase. Similarly, revenue derived from minimum volume guarantee contracts is fixed at a minimum level, so that a shortfall in activity levels would give rise to a lower cost base and a higher reported margin. In addition, within the commercial vehicles segment, the level of high value, relatively low margin new vehicle sales also distorts reported margins. Accordingly, EBIT is a more relevant measure of financial performance than EBIT margin (%).

Group EBIT increased by 16.3% to £20.9 million for the year ended 30 April 2018, primarily as a result of the revenue drivers mentioned above. EBIT grew in all business areas.

A more detailed discussion by operating segment is included later in this narrative.

Net interest charges

Net interest charges for the year ended 30 April 2018 increased by 20.8% to £2.0 million (2017: £1.6 million), the increase being attributable to the increased average net debt following the two acquisitions earlier in the year.

PBTA

PBTA is defined as profit before income tax, before amortisation of intangible assets arising on consolidation. Whilst not considered a KPI by management, this measure is used by market analysts. PBTA was £19.1 million for the year ended 30 April 2018, an increase of 17.4% (2017: £16.2 million).

Taxation

The effective rate of taxation of 20.5% (2017: 22.3%) is higher than the average standard UK rate of corporation tax applicable in the year of 19.0% (2017: 19.9%) principally due to certain expenditure incurred which is disallowable for tax purposes and the higher effective rate of tax to which the German and Polish businesses are subject.

Profit after tax

The profit after tax for the year ended 30 April 2018 was £14.3 million (2017: £12.5 million), an increase of 14.6%.

Earnings per share

Earnings per share were 14.2 pence for the year ended 30 April 2018 (2017: 12.5 pence). Adjusted to remove amortisation of intangible assets arising on consolidation, earnings per share were 15.2 pence (2017: 12.6 pence).

Current trading and outlook

In the year ending 30 April 2019, we expect:

The organisational structure of the Group has recently been revised, allowing the Group to proactively and reactively scale up its activities as necessary. The recent management changes have already seen us able to cross-fertilise Clipper's, Servicecare's and Germany's customers and activities and will allow us to generate further synergistic opportunities in the future.

The recent acquisitions of Tesam and RepairTech have been immediately earnings-enhancing. Across the two acquisitions, there is significant customer overlap with the existing Clipper Group portfolio and so the Group expects to enhance its reputation with these customers, and also to leverage existing customers with additional service lines.

The commercial vehicles business is expected to continue its steady growth in profitability in the year ending 30 April 2019.

The Board is confident of continued progress in the year ending 30 April 2019. It notes weaker economic conditions, particularly in certain parts of the retail sector where there are widely reported headwinds. However, the Group expects to achieve another year of positive momentum with overall growth in revenues and earnings.

Operating segment and business activity overview

Logistics

E-fulfilment & returns management services

E-fulfilment & returns management services 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 including returns management, branded as Boomerang, under which returns of products are managed on behalf of retailers. This business activity also includes:

Clipper's ability and agility, particularly in respect of omni-channel, multi-channel, returns management, Click and Collect and mechanisation already mentioned in this preliminary statement, have enabled the Group to significantly grow revenues and earnings, and to once again outperform market growth (the UK e-commerce market grew by 12% in the calendar year 2017).

Revenues from e-fulfilment & returns management services increased by 22.7% from £129.9 million for the year ended 30 April 2017 to £159.4 million for the year ended 30 April 2018, with EBIT growing by 16.0% from £10.2 million to £11.9 million over the same period. This is a particularly pleasing performance as two of the principles underpinning the Group's core strategies are to be a market leader in e-fulfilment, and to be a thought leader in the provision of value-added services across the sector.

The financial growth in the year ended 30 April 2018 in e-fulfilment & returns management services has been achieved across many service lines and with many customers, for a number of reasons:

Since the year end, a new operation has commenced with Pretty Little Thing, albeit slightly later than expected, another is due to commence with Westwing shortly and Zara has announced its intention to transfer a significant additional activity into Clipper.

Non e-fulfilment logistics

Non e-fulfilment logistics operations include receipt of inbound product, warehousing, picking, packing and distribution of products on behalf of customers in traditional bricks and mortar retail. Within this business activity, the Group handles high value products, including tobacco, alcohol and designer clothing, and also undertakes traditional retail support services including processing, storage and distribution of products, particularly fashion, to high street retailers as well as property-related advisory services linked to optimising the Group's warehousing arrangements. Non e-fulfilment aspects of the Tesam operation are consolidated into the non e-fulfilment business activity from the date of acquisition, 24 May 2017. The integration of Tesam into Clipper has now been completed and it is now managed in exactly the same way as any other site within the logistics division.

Revenue from non e-fulfilment operations grew by 14.1% for the year ended 30 April 2018, from £121.9 million to £139.1 million, with EBIT increasing by 18.9%, from £12.4 million to £14.8 million. This growth has been achieved as result of:

The growth has been partly offset by:

Already in the year ending 30 April 2019, we have secured an extension to our contract with Halfords in terms of both contract length and the scope of activities. We shall be performing these new activities from a newly-leased warehouse facility in Crick, UK.

Central logistics overheads

Central logistics overheads include the costs of the directors of the logistics business, the project delivery and IT support teams, sales and marketing, accounting and finance, and human resources, that cannot be allocated in a meaningful way to business units.

Central logistics overheads grew by £0.9 million (17.7%), from £4.8 million in the year ended 30 April 2017 to £5.7 million in the year ended 30 April 2018.

We have directed additional strategic investment to the logistics overheads base in the year ended 30 April 2018, particularly in solutions delivery. Also, the central logistics overheads have risen in the year due to increased share based payment charges (see below). In the prior year the reporting structure within the central logistics management team was strengthened, preparing the business for future growth, and so there is a full-year impact of this cost in the current year; organisational improvements have continued in the current year with the streamlining of the Technical Services division and the restructuring of the Business Solutions team. Whilst some incremental investment is likely to be required in the logistics overheads base as the business continues to grow, we do not expect significant stepped increases in the overheads base in the foreseeable future, and we expect those stepped increases in share based payment charges experienced in recent years to slow as a result of these costs having now reached full run-rate (see further below).

Commercial vehicles

The commercial vehicles business, Northern Commercials (Mirfield) Limited, operates Iveco and Fiat commercial vehicle dealerships from six dealership locations and has three sub-dealers. Main dealerships are located in Brighouse, Manchester, Northampton, Dunstable, Tonbridge and Brighton. Thus, the business operates across the north of England and into Wales, through the midlands, and into the south-east.

It sells new and used vehicles, provides servicing and repair facilities, and sells parts. Vehicles sold and serviced range from small light commercial vans through to articulated tractor units.

Key customers of Northern Commercials include Access Hire Nationwide, Allied Bakeries, Clancy Docwra, Dawson Rental, Leeds Commercial, Ryder, Variety Club (the Children's Charity) and many other household names.

The business is measured by manufacturers on certain key performance measures throughout the year:

The commercial vehicles business delivered EBIT of £2.5 million in the year ended 30 April 2018 (2017: £2.3 million), an increase of 4.6% on the previous year.

The business sold 1,786 new vehicles in the year ended 30 April 2018, 226 fewer than in the prior year (2017: 2,012), and 358 used vehicles (2017: 393), 35 fewer than in the prior year. However, due to a change in mix of vehicles sold, there was a 37% increase in the average selling price of new vehicles in the year ended 30 April 2018, being £38,799 compared with £28,225 in the prior year. Likewise, the average selling price of a used vehicle was £11,497 compared with £10,794 in the prior year, an increase of 7%. Servicing saw a 2% increase in revenue from the year ended 30 April 2017 to the year ended 30 April 2018, bodyshop revenues were down 3% and parts revenues were down 6%.

Head office costs

Head office costs represent the cost of the Executive Chairman, Chief Financial Officer, Deputy Chief Financial Officer, Group General Counsel, Non-Executive Directors and plc compliance costs, together with the costs of the new Group office at Central Square, Leeds.

Head office costs grew by £0.3 million (14.4%), from £2.2 million in the year ended 30 April 2017 to £2.6 million in the year ended 30 April 2018. The year-on-year increase in head office costs is attributable to three main factors: the overhead of the new Central Square office, share based payment charges (see below) and the costs associated with the acquisition of the two new subsidiaries.

Share based payment charges

Share based payment charges totalling £1.2 million (2017: £0.8 million) have been charged to central logistics overheads, commercial vehicles and head office costs (as appropriate) in respect of the Sharesave Plan and the Performance Share Plan ("PSP") (see note 23). Since listing on the London Stock Exchange in June 2014, the Group invites certain employees to participate in an annual iteration of the PSP and all employees to participate in an annual iteration of the Sharesave Plan. Each scheme vests over a three year period.

As a result, the year ended 30 April 2018 share based payment charges include:

The prior year share based payment charge was not at full run-rate as it only effectively included 27 months of charges, being:

Balance sheet and cash flow

Capital expenditure and fixed assets

Of total tangible and intangible fixed asset additions of £13.0 million (2017: £20.2 million), £12.3 million (2017: £19.4 million) related to the logistics services segment, and £0.7 million (2017: £0.9 million) related to the commercial vehicles segment. Approximately £7.7 million of the additions were purchased in cash and £5.3 million through finance leases. Notable asset purchases in the year ended 30 April 2018 included new mezzanine floors at Ollerton and Northampton, site set up costs in Poland, the fit out of the new Central Square office and investments in the accounting and multi-user warehouse management systems. A large proportion of expenditure in the year ended 30 April 2017 was incurred at the Northampton shared-use facility.

In the year ended 30 April 2018, we disposed of assets with a net book value of £4.5 million, on which we generated a profit on disposal of £2.2 million. Substantially all of the £4.5 million net book value related to the disposal of a freehold property which the Group had acquired earlier in the period as part of the purchase of Tesam. In the prior year, £1.2 million of the £2.3 million proceeds from sale of non-current assets related to sales from Clipper to Clicklink on formation of the joint venture entity.

Clipper's outstanding capital expenditure commitment at 30 April 2018 was £17.9 million, significantly increased from the equivalent figure of the prior year (2017: £4.7 million), reflecting the continued growth in new and existing customer contracts.

Cash flow

Cash generated from operations was £24.5 million (2017: £25.7 million).

The business continues to be highly cash generative. Under the UK logistics business model, Clipper is typically paid in the month in which services are delivered on open book and minimum volume guarantee contracts, giving rise to a typically negative investment in working capital, whilst in the commercial vehicles business working capital is substantially funded by the manufacturer through stocking facilities for new vehicles and trade credit terms for parts supplied. Net cash invested in working capital in the year ended 30 April 2018 was £3.2 million (2017: net cash generated from working capital of £2.0 million).

There are a number of cash flows disclosed outside of cash flow from operations which occur regularly, although the magnitude of these can change significantly year-on-year. These cash flows include dividends, drawdown and repayment of bank loans, sales and purchase of fixed assets (including repayments on assets purchased under finance leases), corporation tax payments and interest payments. Taking each of these in turn:

Whilst the timing and magnitude of dividends, tax payments and interest payments can be predicted with relative certainty, the timing of drawdowns on bank loans and fixed asset-related cash flows is much more dependent on specific one-off projects, and so can quite easily fall into one financial period or the next.

Overall cash flow for the year ended 30 April 2018 was also impacted by three significant non-ordinary course cash flows: firstly, there was the acquisition of Tesam for a cash consideration of £9.6 million (net of cash acquired); secondly, there was the acquisition of RepairTech for a cash consideration of £2.2 million (net of cash acquired); and thirdly, there was the raising of £1.6 million of cash from share issues in the year ended 30 April 2018:

Significant one-off cash flows which arose in the prior year (ended 30 April 2017) but which did not recur in the year ended 30 April 2018 included £1.95 million subscribed for share capital on the formation of the Clicklink joint venture and a £1.45 million loan advanced to Clicklink on its formation. The loan was increased by £0.5 million in the year ended 30 April 2018 to support the working capital growth requirements of Clicklink. This loan is disclosed as a non-current financial asset (see note 27).

Net debt

In addition to EBIT, net debt is considered a KPI for the Group. As with EBIT, net debt is assessed against Board-approved budgets.

The Group had £31.7 million of net debt outstanding at 30 April 2018 (2017: £25.1 million) (see note 20), an increase of £6.6 million, in line with the Board's expectations. The increase in net debt was driven primarily by the acquisitions of Tesam and RepairTech which together required £11.8 million (net of cash acquired), although this was partly offset by £6.7 million of proceeds from the sale of fixed assets.

It is also worth noting that where an open book customer has a strong credit rating, Clipper will often fund the initial capital requirements on the condition that the customer commits to repaying this over the term of the contract, together with finance charges and a management fee. At 30 April 2018, Clipper has £22.4 million of capital contracted to be recovered from open book customers over the remaining term of the customer contracts.

David Hodkin

Chief Financial Officer

Director's Statement on the Basis of Preparation - Preliminary Announcement

Whilst the financial information included in this preliminary statement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the European Union and effective at 30 April 2018, this statement does not itself contain sufficient information to comply with IFRS.

These financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group Income Statement, Group Statement of Comprehensive Income, Group Statement of Financial Position, Group Statement of Changes in Equity, and Group Statement of Cash Flows, and selected notes for the year ended 30 April 2018 have been extracted from the Group's draft Financial Statements for the year then ended.

The financial information contained within the preliminary announcement for the year ended 30 April 2018 was approved by the Board on 29 July 2018 and has been agreed with the Company's auditor for release.

Group Income Statement

For the year ended 30 April

Group Statement of Comprehensive Income

For the year ended 30 April

Group Statement of Financial Position

At 30 April

Group Statement of Changes in Equity

For the year ended 30 April

.

Group Statement of Cash Flows

For the year ended 30 April

Notes to the UNAUDITED PRELIMINARY RESULTS

1. General information

The results comprise those of Clipper Logistics plc and its subsidiaries for the year ended 30 April 2018 and does not constitute the Group's statutory accounts for the years ended 30 April 2018 or 2017,

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 April 2018 or 2017. The financial information for 2017 is derived from statutory accounts for the year ended 30 April 2017 which have been delivered to the registrar of companies. The auditor has reported on the 2017 accounts: their report was (i) unqualified; (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their audit report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The statutory accounts for the year ended 30 April 2018, will be finalised on the basis of the financial information presented by the Directors in this unaudited preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Clipper Logistics plc (the "Company") and its subsidiaries (together the "Group") provide value-added logistics and other services to predominantly the retail sector and also operate as distributors of commercial vehicles.

The Company is limited by share capital, incorporated and domiciled in the United Kingdom. The address of its registered office is Clipper Logistics, Gelderd Road, Leeds, LS12 6LT.

2. Summary of significant accounting policies

The results for the year have been prepared on a basis consistent with the accounting policies set out in Clipper's Annual Report and Accounts for the year ended 30 April 2017.

In the current year, amendments to IAS7 and 12 and those arising from the annual improvements to IFRSs 2014-2016 cycles have been adopted. There has been no material impact, although there have been some minor changes to disclosure.

3. Revenue

Revenue recognised in the income statement is analysed as follows:

Non e-fulfilment logistics revenue includes £4,200,000 (2017: £nil) in respect of property-related advisory services.

Geographical information - revenue from external customers:

Geography is determined by the location of the end customer. In the year ended 30 April 2018 the Group had no customers that accounted for greater than 10% of the total Group revenue (2017: one).

The revenue all arose in the value-added logistics services segment as follows:

4. Segment information

For the Group, the chief operating decision maker ("CODM") is the main Board of Directors. The CODM monitors the operating results of each business unit separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss, both before and after exceptional or discontinuing items. This measurement basis excludes Group-wide central services and financing costs which are not allocated to operating segments.

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

Within the value-added logistics services segment, the CODM also reviews performance of three separate business activities:

These three separate business activities comprise one segment.

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 tables present profit information for continuing operations regarding the Group's business segments for the two years ended 30 April 2018:

Earnings before interest & tax ("EBIT"):

Amortisation of other intangible assets:

Share of tax and finance costs of equity-accounted investees:

Operating profit and profit before income tax:

The segment assets and liabilities at the balance sheet date are as follows:

Capital expenditure, depreciation and amortisation by segment in the year ended 30 April was as follows:

Capital expenditure:

Capital expenditure comprises additions to property, plant and equipment (note 14) and intangible assets (note 12).

Depreciation:

Amortisation:

Non-current assets held by each geographical area are made up as follows:

5. Staff costs

The average monthly number of employees during the year was made up as follows:

Key management compensation (including Executive Directors):

Directors' emoluments:

The number of Directors who were accruing benefits under a Group pension scheme is as follows:

6. Operating profit

This is stated after charging:

Operating lease rentals:

Auditor's remuneration:

Operating profit is stated after crediting:

7. Dividends

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these preliminary results. The proposed dividend is payable to all shareholders on the Register of Members on 7 September 2018. The payment of this dividend will not have any tax consequences for the Group.

8. Finance costs

9. Finance income

10. Income tax expense

10.1 Tax charged in the income statement:

10.2 Tax relating to items charged or credited to other comprehensive income:

There are no tax consequences of any of the items included in other comprehensive income.

10.3 Reconciliation of income tax charge:

The income tax expense in the income statement for the year differs from the standard rate of corporation tax in the UK.The differences are reconciled below:

10.4 Deferred tax in the statement of financial position:

The UK corporation tax rate reduced from 20% to 19% with effect from 1 April 2017 and will reduce further to 17% with effect from 1 April 2020. A rate of 17% (2017: 17%) has been applied in the measurement of the Group's UK deferred tax assets and liabilities in the year.

11. Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. 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 ordinary shares outstanding during the year 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 earnings per share computation:

12. Intangible assets

The average remaining useful life of contracts and licences at 30 April 2018 is 8.5 years (2017: 5.4 years).

13. Impairment test for goodwill

The carrying amount of goodwill has been allocated to each CGU as follows:

A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of a CGU is determined based on value-in-use calculations.

The value-in-use calculations have used pre-tax cash flow projections based on the Board approved business plans for the three years ending 30 April 2021.

The business plans for the value-added logistics services segment take into account the annualised impact of contract wins in the year ended 30 April 2018 as well as confirmed new and ceasing contracts. The key judgment is the assumed new contract wins during the business plan period, which has been based on historical experience.

Subsequent cash flows are extrapolated using an estimated long-term growth rate of 3.3% (2017: 2.5%) to 2028 (2017: 2027). The cash flows have then been discounted using a pre-tax risk adjusted discount rate of between 8.5% and 10.3% (2017: 9% and 11%). The forecasts of foreign operations are translated at the exchange rate ruling at the year end.

The Directors have concluded that no reasonably foreseeable change in the key assumptions would give rise to an impairment.

14. Property, plant and equipment

Included within property, plant and equipment are amounts held under finance lease contracts. At 30 April 2018, the net book value of these assets was £28,257,000 (2017: £27,314,000). Total additions include £5,129,000 (2017: £13,697,000) under finance lease contracts.

Additions to plant, machinery, fixtures & fittings include £1,587,000 (2017: £1,824,000) in respect of assets in the course of construction.

15. Investment in equity-accounted investees

The Company owns 50% of the issued capital and voting rights of Clicklink Logistics Limited ("Clicklink"), a company incorporated in Great Britain and registered in England and Wales. Clicklink provides services in respect of the sortation, fulfilment and delivery of one-man orders to click and collect customer collection points in the United Kingdom. On 1 November 2016 the Company subscribed for 1,000,000 A ordinary shares of £1 each in Clicklink, for aggregate consideration of £1,950,000. Clicklink commenced trading on 1 November 2016 and has a 31 January financial period end.

Summarised financial information from Clicklink's audited accounts for the year ended 31 January 2018 is setout below:

16. Inventories

See below for the movements in the provision for obsolescence:

The cost of inventories recognised as an expense amounted to £108,599,000 (2017: £91,072,000).

Included within commercial vehicles is £941,000 (2017: £768,000) relating to assets held under hire purchase agreements.

17. Trade and other receivables

See note 26 on credit risk of trade receivables, which explains how the Group manages and measures credit quality of trade receivables that are neither past due nor impaired.

See below for the movements in the provision for impairment:

Concentrations of credit risk with respect to trade receivables are limited due to the Group's customer base being large, unrelated and blue chip. Due to this, management believes there is no further credit risk provision required in excess of normal provision for doubtful receivables. The average credit period taken on sale of goods or services is 31 days (2017: 22 days).

An impairment review has been undertaken at the balance sheet date to assess whether the carrying amount of financial assets is deemed recoverable. The primary credit risk relates to customers which have amounts due outside of their credit period. A provision for impairment is made when there is objective evidence of impairment which is usually indicated by a delay in the expected cash flows or non-payment from customers.

The ageing analysis of trade receivables was as follows:

18. Cash and cash equivalents

19. Trade and other payables

20. Financial liabilities: borrowings

The maturity analysis of the bank loans at 30 April is as follows:

The principal lender has security over all assets of the Group's UK operations. The Group's principal bank facilities were increased in October 2017 and now total £40,000,000 consisting of:

In addition to the Revolving Credit Facility above, other items included within bank loans at 30 April 2018 are as follows:

The amounts which are repayable under hire purchase or finance lease instalments are shown below:

It is the Group's policy to acquire certain of its property, plant and equipment and inventories under finance leases or hire purchase agreements. The average contract term is 4.7 (2017: 4.5) years. At 30 April 2018 £22,756,000 (2017: £23,636,000) of the Group total of such obligations is denominated in Pounds Sterling and the remainder is denominated in Euros. The interest on the variable rate leases is based on a margin above Bank Base Rate or LIBOR. The Group's obligations under finance leases are secured by the lessor's charge over the assets.

Changes in liabilities from financing activities:

21. Provisions

Provisions have been analysed between current and non-current as follows:

Onerous contracts

Following a reorganisation of the commercial vehicles business in the year ended 30 April 2013, which included the closure of a depot, the Group was unsuccessful in its efforts to sub-let the closed premises. The Directors therefore made a provision in the year ended 30 April 2014 for the rent that will be payable until the expiry of the lease in September 2018.

Uninsured losses

The uninsured losses provision is in respect of the cost of claims (generally for commercial vehicles and employment related) which are either not insured externally or fall below the excess on the Group's insurance policies.

Dilapidations

Provisions are established over the life of leases to cover remedial work necessary at termination under the terms of those leases. Two warehouses have leases that expire 19 and 15 years from the balance sheet date and an office lease expires 13 years from the balance sheet date. All other leases expire in 10 years or less.

During the prior year the Company took assignment of a property lease with seven years remaining and received compensation from the previous tenant, reflecting the agreed value of accrued dilapidation remedial works at the date of handover.

22. Share capital

During the year the Company issued 1,087,555 ordinary shares to satisfy employee share options, for aggregate consideration of £1,381,000; and 250,000 ordinary shares at a price of 100 pence per share to satisfy an option dated 30 May 2014 which was entered into by the Company and the Company's broker Numis Securities Limited. The new shares rank pari passu with all existing ordinary shares in issue. See also note 23.

23. Share based payments

The Clipper Performance Share Plan ("PSP") was approved by shareholders on 29 September 2014. The PSP enables selected directors and employees of the Group to be granted awards in respect of ordinary shares. Share awards under the PSP will ordinarily be structured as nil-cost share options with the vesting of share awards being subject to performance conditions measured over a period of at least three years.

The Clipper Sharesave Plan is a share plan for all UK employees in the Group, and offers them the opportunity to acquire an interest in shares in the Company on favourable terms within the long-standing regime allowed by HMRC legislation. All UK staff are invited to participate on the same terms, and employees who choose to participate are granted an option over shares in the Company, with the exercise of that option being funded by the proceeds of a savings contract taken out by the relevant employee, under which the employee saves a set amount each month over a set period. The options granted in the year were offered with a three-year savings contract, under which the employee could elect to save between £5 and £500 per month.

Option movements and weighted average exercise prices ("WAEP") during the year were as follows:

At 30 April 2018, PSP options over 572,532 (2017: nil) and Sharesave options over 85,783 (2017: 4,509) of the above shares were exercisable.

The fair value of the share options is measured at the grant date, using the Black-Scholes model and taking into account the terms and conditions upon which the instruments were granted.

The key inputs to the model are:

The expected life of the options has been estimated as six months beyond vesting date. Volatility has been calculated on a rolling three year period up to the week prior to grant. The dividend yield is calculated by applying dividends paid in the preceding 12 months to the share price at the grant date.

The cost of the options is recognised over the expected vesting period. The total charge for the year ended 30 April 2018 relating to employee share based payment plans was £1,219,000 (2017: £832,000). The fair value of share options at 30 April 2018 to be amortised in future years was £2,830,000 (2017: £2,052,000).

All share based payments in both years are equity settled.

24. Commitments and contingencies

Operating lease commitments - land and buildings:

Operating lease commitments - vehicles, plant and equipment:

25. Capital commitments

26. Financial instruments and financial risk management objectives and policies

In accordance with IAS 39 'Financial Instruments: Recognition and Measurement' the Group has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements. The Group did not identify any such derivatives.

The Group is exposed to a number of different market risks in the normal course of business including credit, interest rate and foreign currency risks.

Credit risk

Credit risk predominantly arises from trade receivables and cash and cash equivalents. The Group has a customer credit policy in place and the exposure to credit risk is monitored on an ongoing basis. External credit ratings are generally obtained for customers; Group policy is to assess the credit quality of each customer before accepting any terms of trade.

Internal procedures take into account customers' financial positions as well as their reputation within the industry and past payment experience. Cash and cash equivalents and derivative financial instruments are held with AAA or AA rated banks. Financial instruments classified as fair value through profit and loss and available for sale are all publicly traded on the London Stock Exchange. Given the high credit quality of counterparties with which the Group has investments, the Directors do not expect any counterparty to fail to meet its obligations.

At 30 April 2018 there were no significant concentrations of credit risk (2017: none). The Group's maximum exposure to credit risk, gross of any collateral held, relating to its financial assets is equivalent to their carrying value. All financial assets have a fair value which is equal to their carrying value, as a consequence of their short maturity. The Group did not have any financial instruments that would mitigate the credit exposure arising from the financial assets designated at fair value through profit or loss in either the current or the preceding financial year.

Interest rate risk

The Group adopts a policy of ensuring that there is an appropriate mix of fixed and floating rates in managing its exposure to changes in interest rates on borrowings. Interest rate swaps are entered into, where necessary, to achieve this appropriate mix.

The interest rate swap taken on by the Company, as part of the novation of bank facilities from the former parent on 2 May 2014, expired on 31 October 2016.

Interest rate sensitivity

The Group's borrowings are largely denominated in Pounds Sterling and the Group is therefore exposed to a change in the relevant interest rate. With all other variables held constant, the impact of a reasonably possible increase in interest rates of 50 basis points (2017: 50 basis points) on that portion of borrowings affected would be to reduce the Group's profit before tax by £132,000 (2017: £93,000).

Foreign currency risk

The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in currencies other than Pounds Sterling. The currencies giving rise to this risk are primarily the Euro, Polish Zloty and US dollar. The volume of transactions denominated in foreign currencies is not significant to the Group.

The exposure to a short-term fluctuation in exchange rates on the investment in foreign subsidiaries is not expected to have a material impact on the results of the Group.

Capital management

The Group's main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade profitably in the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to minimise its cost of capital.

The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its gearing ratio on a regular basis and adjusting the level of dividends paid to ordinary shareholders.

The Group considers its capital to include equity and net debt. Net debt includes short and long-term borrowings (including overdrafts and lease obligations) net of cash and cash equivalents.

The Group has not made any changes to its capital management during the year. The Group has no long-term gearing ratio target. Borrowings are taken out to invest in the acquisition of subsidiaries, new sites or depots and are considered as part of that investment appraisal. Key measures monitored by the Group are interest cover and net debt compared to earnings before interest, tax, depreciation and amortisation.

In order to achieve the overall objective, the Group's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the borrowings. The Group has satisfied all such financial covenants in both years.

Liquidity risk

Management closely monitors available bank and other credit facilities in comparison to the Group's outstanding commitments on a regular basis to ensure that the Group has sufficient funds to meet the obligations of the Group as they fall due.

The Board receives regular cash forecasts which estimate the cash inflows and outflows over the next 24-36 months, so that management can ensure that sufficient financing can be arranged as it is required. The Group would normally expect that sufficient cash is generated in the operating cycle to meet the contractual cash flows as disclosed above through effective cash management.

Maturity of financial liabilities:

Estimation of fair values

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 year.

27. Related party disclosures

Clicklink Logistics Limited (see note 15) is a supplier of logistics services to the Group. The Group provides certain resources to Clicklink, principally people and vehicles, under the terms of the joint venture agreement. Amounts charged for these resources are included in revenue.

Branton Court Stud LLP, in which Steve Parkin is a partner, receives management and administration services from the Group.

Guiseley Association Football Club, which shares a common director with Clipper Logistics plc, receives sponsorship income from the Group.

Harrogate Road Restaurants Limited, a company which shares a common director with Clipper Logistics plc, receives management and administration services from the Group.

Hamsard 3476 Limited, a company controlled by Steve Parkin, receives property-related services from the Group.

Knaresborough Investments Limited, a company controlled by Steve Parkin, receives management and administration services from the Group.

Knaresborough Real Estate Limited, a company owned by Steve Parkin, is the landlord of one of the Group's leasehold properties.

Roydhouse Properties Limited is the landlord of two of the Company's leasehold properties and has common directors with Clipper Logistics plc.

Southerns Office Interiors Limited supplies office furniture to the Group and is a customer of the commercial vehicles segment. A company owned by Steve Parkin is registered as a person with significant control over Southerns Limited, the ultimate parent of Southerns Office Interiors Limited.

Trust Electric Heating Limited, a supplier to the Group, shares a common director with Clipper Logistics plc.

In the prior year, the Group chartered an aircraft from South Acre Aviation Limited, a company owned by Steve Parkin.

Key management compensation is disclosed in note 5.

Balances owing to or from these related parties at 30 April were as follows:

The shareholders in Clicklink Logistics Limited have jointly made available to that company a term loan facility of £3,900,000 of which the Company's 50% share is £1,950,000. The facility has been fully drawn in two loans. Interest on each loan is calculated at a margin above 12 month LIBOR and is payable annually. All loans drawn under the facility are repayable in November 2019.

Transactions with these related parties in the year ended 30 April were as follows:

28. Business combinations (unaudited)

28.1 Tesam Distribution Limited

On 24 May 2017 the Company acquired the entire issued share capital of Tesam Distribution Limited ("Tesam") in exchange for cash consideration. Tesam operated as a provider of a variety of warehousing and distribution services to the retail sector. With effect from 30 April 2018 the Tesam operations have been hived-up into Clipper Logistics plc.

Purchase consideration and cash flows:

Acquisition:

The goodwill of £1,320,000 comprises the value of expected synergies arising from the acquisition. Goodwill is allocated entirely to the value-added logistics services segment.

None of the goodwill recognised is expected to be deductible for income tax purposes.

From the date of acquisition, Tesam has contributed £14,810,000 of revenue and £4,871,000 to the profit before tax from continuing operations of the Group.

Professional fees and costs in relation to the acquisition were £159,000 and have been charged to the income statement.

28.2 RepairTech Limited

On 15 June 2017 the Company acquired the entire issued share capital of RepairTech Limited ("RepairTech") in exchange for cash consideration. RepairTech is a specialist provider of consumer electronic repair services based in Southam, Warwickshire.

Purchase consideration:

Acquisition:

The goodwill of £1,379,000 comprises the value of expected synergies arising from the acquisition. Goodwill is allocated entirely to the value-added logistics services segment.

None of the goodwill recognised is expected to be deductible for income tax purposes.

Other intangible assets recognised consist of the acquired order book.

From the date of acquisition, RepairTech has contributed £3,183,000 of revenue and £396,000 to the profit before tax from continuing operations of the Group.

Professional fees and costs in relation to the acquisition were £62,000 and have been charged to the income statement.