Interim Results

Cropper(James) PLC 20 November 2007 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 20 November 2007 Embargoed: 7.30am James Cropper PLC 'Specialist Paper Makers' Interim Results for the half-year to 29 September 2007 Half-year to Half-year to Full-year to 29 September 30 September 31 March 2007 2006 2007 Overall turnover up 8% £35.7m £33.0m £69.1m Group profit before tax Prior to net IFRS pension adjustments £1.4m £1.0m £2.5m After net IFRS pension adjustments £1.3m £0.8m £2.1m Earnings per share 10.4p 6.4p 16.2p Dividend per share declared 2.2p 1.9p 7.0p Gearing 21% 37% 23% Encouraging growth in turnover by TFP and Speciality Papers TFP acquires US based suppliers of metal-coated carbon fibres for a combined purchase consideration of approximately £0.5 million Weakening US$ adversely impacting on margins in TFP and Converting Strong upward trend in pulp and energy costs anticipated in second-half Significant reduction in IAS19 pension deficit Transfer from Main List to AIM successfully completed on 31 August 2007 'TFP's new facility in Cheshire and its US acquisitions strengthen its long-term position in specialised non-woven insulating and composite markets. Sales performance by TFP in the current year is encouraging. However profit growth will not be at the exceptional rate achieved in the previous year'. 'Given the uncertainties surrounding the recent strong upward trend in forward quoted energy prices and in rising pulp costs, the outlook for Speciality Papers is difficult to project. It should therefore be anticipated that the profitability of Speciality Papers will slow during the course of the second half-year as a consequence of the inevitable time lag before these costs can be recovered through increasing prices to customers'. 'Overall the Group's progress in the first-half has been satisfactory and I am pleased that it has been possible to increase the interim dividend as a consequence. However, it is too early in the financial year to consider whether an adjustment to the final dividend would be appropriate'. James Cropper, Chairman Enquiries: Alun Lewis Keith Gabriel Andrew Kitchingman Chief Executive Senior Account Manager Managing Director John Denman Corporate Finance Group Finance Director James Cropper PLC Citigate Dewe Rogerson Brewin Dolphin Investment Banking Telephone: 01539 722002 Telephone: 0121 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 29 September 30 September 31 March 2007 2006 2007 Profit and loss summary £'000 -------------------------------------------------------------------------------- Group turnover 35,747 32,965 69,085 Trading operating profit 1,614 1,270 3,071 Joint venture (61) (23) (95) ----------------------------------- Trading profit before interest 1,553 1,247 2,976 Net interest (188) (229) (438) ----------------------------------- Trading profit before tax 1,365 1,018 2,538 (After future service pension contributions paid) -------------------------------------------------------------------------------- Net pension adjustments to Operating profit (209) (316) (610) Net interest 109 56 179 ----------------------------------- Net pension adjustment before tax (100) (260) (431) -------------------------------------------------------------------------------- Overall Group after pension adjustments Operating profit 1,405 954 2,461 Joint venture (61) (23) (95) ----------------------------------- Profit before interest 1,344 931 2,366 Net interest (79) (173) (259) ----------------------------------- Profit before tax 1,265 758 2,107 ----------------------------------- -------------------------------------------------------------------------------- Earnings per share 10.4p 6.4p 16.2p Dividends per share 2.2p 1.9p 7.0p -------------------------------------------------------------------------------- Balance Sheet Summary £'000 -------------------------------------------------------------------------------- Non-pension assets - excluding cash 46,016 46,388 45,758 Non-pension liabilities - excluding borrowings (13,564) (13,103) (13,505) ----------------------------------- 32,452 33,285 32,253 Net pension liabilities (2,421) (7,790) (4,306) ----------------------------------- 30,031 25,495 27,947 Net borrowings (5,292) (6,944) (5,294) ----------------------------------- Equity shareholders' funds 24,739 18,551 22,653 ----------------------------------- Gearing 21% 37% 23% Capital expenditure £'000 1,468 920 2,756 -------------------------------------------------------------------------------- STATEMENT BY THE CHAIRMAN, J A CROPPER The Group recorded a profit before tax of £1,265,000 for the period (£1,365,000 prior to net IFRS pension adjustments). This compares with a profit before tax of £758,000 for the comparable period last year (£1,018,000 prior to net IFRS pension adjustments). Group turnover was £35.7 million against £33.0 million for the same period last year, an increase of 8%. The Board has decided to increase the interim dividend from 1.9p per share to 2.2p per share. Technical Fibre Products ('TFP') TFP's turnover was up 30% with profits in-line with the comparable period last year. Sales to the US market were 29% up on last year in £Sterling terms and 37% in US$ terms. At the average exchange rate for the period, sales to US markets represented approximately 47% of TFP's turnover in £Sterling terms. The weakening US$, which declined by 11% over the course of the previous year and a further 6% in the first six months of the current year has had an inevitable impact on TFP's margins. Sales outside of the USA were ahead by 31%. Significant growth in turnover outside the USA includes sales from TFP's new facility in Cheshire. This facility, which commenced operations in the final quarter of the previous financial year, is dedicated to converting insulating materials for TFP's main customer in this market. This is a new revenue stream resulting from the customer outsourcing responsibility for converting operations to TFP. Although margins for this activity are less than TFP's mainstream business, TFP's position in the European thermal insulation market has been strengthened as a consequence. Sales of TFP composite materials containing metal-coated carbon fibres have grown strongly in recent years, particularly into the US electronic and aerospace industries. These fibres were supplied by Diamond Fiber Composites Inc. and Electro Fiber Technologies LLC ('EFT'), the latter being the joint-venture company in which TFP had a 50% share. At the end of June 2007 TFP purchased the business assets of Diamond Fiber Composites Inc. and acquired complete control of EFT. The combined purchase consideration was approximately £0.5 million. These acquisitions provide TFP with control of quality, product development and security of supply. TFP will thus be able to service the technically demanding applications that contain these fibres with greater confidence at the increased levels of turnover expected in future years. However, it is anticipated that EFT's losses will continue at a level similar to last year in the medium term. From July 2007 these losses have been fully borne by TFP. EFT fibres could potentially provide a key functional element relating to a major US based aerospace development. A loan of US$2,500,000 has been drawn down by TFP to counter-balance the value of TFP's net assets denominated in US$s, thus creating a currency hedge on TFP's Balance Sheet. James Cropper Speciality Papers ('Speciality Papers') Profitability in Speciality Papers in the first six months was well ahead of the opening half of last year. Turnover and volume were up 6% and 7% respectively against the comparable period. This growth built on the pattern developed during the previous financial year, with a marked improvement in export sales. Pulp is expected to continue on an upward trend over the rest of the financial year as a consequence of tight supply. Northern Bleached Softwood Kraft ('NBSK') pulp, the market benchmark priced in US$s, opened the financial year at US$760 per tonne and increased progressively in price to US$830 per tonne by the end of September 2007, an increase of 9% over six months. Market forecasters currently project a further increase to US$850/tonne by the beginning of the 4th quarter. Although the average cost of natural gas in the first-half was 24p/therm, against 34p/therm in the comparable period, current forward market projections for the second half-year have increased significantly. If these projections materialise the annual cost of gas for the full year will exceed the previous year's cost by some 20%. James Cropper Converting ('Converting') Converting's overall turnover was up 6% on the comparable period. Sales of US$ denominated products in the first six months represented 20% of turnover in £ Sterling terms. The 17% decline in the value of the US$ over the past 18 months has had a significant impact on the value of Converting's worldwide sales denominated in US$s. Converting is unable to mitigate this adverse impact as it has no substantial expenditure denominated in US$ against which to offset these receipts. The continuing weakness of the US$ has, for now, outweighed the cost benefits derived from the upgraded laminating line commissioned in the second half of the previous year. The Paper Mill Shop ('TPMS') Sales in the first half were up 6% on the same period last year, however margin was lower reflecting a change in the product mix. As a consequence the operating loss was in-line with the comparable period. Depreciation of capital expenditure is accelerated over four years. This has led to the resulting depreciation charge being a significant proportion of TPMS's operating loss reflecting the number of store openings in recent years. As there were no new store openings in the period, cash out flow has been relatively low. The intention to exit a small number of under performing stores has been temporarily delayed. Encouraging early progress has been made in developing other aspects of TPMS's recovery plan. Pensions and International Accounting Standard 19 ('IAS 19') Over the course of the half-year the IAS19 deficit declined by £2,693,000 to £3,459,000 as at 29 September 2007. 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 £486,000. Under IAS 19 the charge against profit before tax in the half-year was £586,000, which was £100,000 in excess of the future service contributions that were actually required. In addition, contributions totalling £438,000 were paid to the two schemes in respect of their past service deficits brought forward. Outlook TFP's new facility in Cheshire and its US acquisitions strengthen its long-term position in specialised non-woven insulating and composite markets. Sales performance by TFP in the current year is encouraging. However profit growth will not be at the exceptional rate achieved in the previous year. Given the uncertainties surrounding the recent strong upward trend in forward quoted energy prices and in rising pulp costs, the outlook for Speciality Papers is difficult to project. It should therefore be anticipated that the profitability of Speciality Papers will slow during the course of the second half-year as a consequence of the inevitable time lag before these costs can be recovered through increasing prices to customers. 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. In the second-half gearing will ease upward from 21% at the half-year end as cash outflow increases as a consequence of increased capital expenditure and higher pulp and energy costs. Overall the Group's progress in the first-half has been satisfactory and I am pleased that it has been possible to increase the interim dividend as a consequence. However, it is too early in the financial year to consider whether an adjustment to the final dividend would be appropriate. Consolidated income statement for the half-year to 29 September 2007 Unaudited Half-year to Half-year to Full year to 29 September 30 September 30 March 2007 2006 2007 £'000 £'000 £'000 Continuing operations Turnover 35,747 32,965 69,085 ------------------------------------- Operating profit 1,405 954 2,461 Interest payable and similar charges (298) (386) (783) Interest receivable and similar income 219 213 524 Share of loss of joint venture (61) (23) (95) ------------------------------------- Profit before tax 1,265 758 2,107 Taxation (380) (227) (746) ------------------------------------- Profit for the period attributable to equity holders of the company 885 531 1,361 ------------------------------------- Earnings per share - basic & diluted 10.4p 6.4p 16.2p ------------------------------------- Dividend declared in the period - pence per share 2.2p 1.9p 7.0p ------------------------------------- Consolidated balance sheet as at 29 September 2007 Unaudited 29 September 30 September 30 March 2007 2006 2007 £'000 £'000 £'000 Assets Non-current assets Intangible assets 1,589 1,287 1,351 Property, plant and equipment 21,169 23,080 21,517 Financial assets Investments in joint ventures - 95 58 Deferred tax assets 1,038 3,339 1,846 ----------------------------------------- 23,796 27,801 24,772 ----------------------------------------- Current assets Inventories 9,033 8,313 8,366 Trade and other receivables 14,210 13,611 14,462 Financial assets - Derivative financial instruments 15 2 4 Cash and cash equivalents 3,761 3,266 3,730 ---------------------------------------- 27,019 25,192 26,562 ---------------------------------------- Liabilities Current liabilities Trade and other payables (8,331) (8,594) (8,544) Financial liabilities - Borrowings (2,242) (2,384) (2,374) - Derivative financial instruments - (3) - Current tax liabilities (1,292) (590) (1,020) ---------------------------------------- (11,865) (11,571) (11,938) ---------------------------------------- Net current assets 15,154 13,621 14,624 ----------------------------------------- Non-current liabilities Financial liabilities - Borrowings (6,811) (7,826) (6,650) Retirement benefit liabilities (3,459) (11,129) (6,152) Deferred tax liabilities (3,941) (3,916) (3,941) ----------------------------------------- (14,211) (22,871) (16,743) ----------------------------------------- Net assets 24,739 18,551 22,653 ----------------------------------------- Shareholders' equity Share capital 2,118 2,090 2,118 Share premium 573 454 573 Other reserves - 61 Retained earnings 22,048 15,946 19,962 ----------------------------------------- Total shareholders' equity 24,739 18,551 22,653 ----------------------------------------- Consolidated cash flow statement for the half-year to 29 September 2007 Half-year to Half-year to Full year to Unaudited 29 September 30 September 30 March 2007 2006 2007 £'000 £'000 £'000 Cash flows from operating activities Profit before tax 1,265 758 2,107 Trading Interest income and expense 188 229 259 Depreciation/amortisation 1,627 1,632 3,315 Decrease/(increase) in working capital (638) 575 (393) Other non-cash movements - Share of loss of joint venture 61 23 95 - Past service deficit payments (438) (400) (838) - Net IFRS pension adjustments 100 260 431 - Profit on disposal of property, plant and equipment - (39) - Share-based payments 7 12 17 --------------------------------------- Cash generated from operations 2,172 3,089 4,954 Interest received 95 168 549 Interest paid (298) (360) (760) Tax paid - (95) (87) --------------------------------------- Net cash generated from operating activities 1,969 2,802 4,656 --------------------------------------- Cash flows from investing activities Investment in joint venture (50) (47) (87) Purchase of intangible assets (355) (73) (254) Purchase of property, plant and equipment (1,113) (847) (2,502) Proceeds from sale of property, plant and equipment - - 1,691 --------------------------------------- Net cash used in investing activities (1,518) (967) (1,152) --------------------------------------- Cash flows from financing activities Net proceeds from issue of new bank loans 1,228 1,000 1,000 Net proceeds from issue of ordinary share capital 147 Repayment of bank loans (1,198) (1,147) (2,333) Dividends paid to shareholders (432) (184) (343) --------------------------------------- Net cash used in financing activities (402) (331) (1,529) --------------------------------------- Effects of exchange rate changes (18) - (7) Net increase in cash and cash equivalents in the period 31 1,504 1,968 Cash and cash equivalents at the start of the period 3,730 1,762 1,762 --------------------------------------- Cash and cash equivalents at the end of the period 3,761 3,266 3,730 --------------------------------------- Cash and cash equivalents consists of: Cash at bank and in hand 3,761 3,266 3,730 --------------------------------------- 3,761 3,266 3,730 --------------------------------------- Consolidated statement of recognised income and expense for the half-year to 29 September 2007 Unaudited Half-year to Half-year to Full year to 29 September 30 September 30 March 2007 2006 2007 £'000 £'000 £'000 Profit for the period 885 531 1,361 Currency translation differences on foreign currency investment (22) 1 (18) Retirement benefit liabilities - actuarial gains/(losses) 2,355 (954) 3,756 Deferred tax on actuarial gains/(losses) on retirement benefit liabilities (707) 286 (1,127) -------------------------------------- Total recognised (expense)/income for the period 2,511 (136) 3,972 -------------------------------------- Consolidated statement of changes in equity for the half-year to 29 September 2007 Unaudited Half-year to Half-year to Full year to 29 September 30 September 30 March 2007 2006 2007 £'000 £'000 £'000 Opening shareholders' funds 22,653 18,859 18,859 Total recognised (expense)/income for the period 2,511 (136) 3,972 Share-based payments 7 12 18 Dividends paid (432) (184) (343) Proceeds from shares issue 147 -------------------------------------- Closing shareholders' funds 24,739 18,551 22,653 ----------- --------------------------- 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 29 September 2007, which have not been audited or reviewed, have been prepared in accordance with the accounting policies adopted in the accounts for the year ended 31 March 2007. 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 31 March 2007 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 29 September 2007 have been calculated on the profit available for distribution and on 8,472,368 (2006: 8,359,114) Ordinary Shares, being the weighted average number of shares in issue during the period. 4 Dividend An interim dividend of 2.2 per Ordinary Share (2006: 1.9p per share) is proposed and will be paid on 11 January 2008 to holders on the register at the close of business on 14 December 2007. The dividend relating to the year to 31 March 2007 was made up of an interim payment of £159,000 (1.9p per share) and a final dividend of £432,000 (5.1p per share). 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 29 September 30 September 31 March 2007 2006 2007 IAS19 DEFICIT £'000 £'000 £'000 Current Service Charge (695) (822) (1,598) Future service contributions paid 486 506 988 ---------------------------------------- Net impact on Operating Profit (209) (316) (610) Finance costs 109 56 179 ---------------------------------------- Net impact on Profit and Loss Account (100) (260) (431) Past service deficit contributions paid 438 400 838 Actuarial gains or losses 2,355 (954) 3,756 Opening deficit (6,152) (10,315) (10,315) ---------------------------------------- Closing deficit (3,459) (11,129) (6,152) Deferred Taxation 1,038 3,339 1,846 ---------------------------------------- Net - Deficit (2,421) (7,790) (4,306) ---------------------------------------- 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. An 'on-going' valuation takes account of the projected growth in the pension schemes' assets by asset type over the projected life of the scheme. The combined 'on-going' deficits as at April 2005 were valued at £6,867,000 prior to deferred tax. 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 £486,000. Half-year to Half-year to Full-year to 29 September 30 September 31 March 2007 2006 2007 £'000 £'000 £'000 Trading profit before tax 1,365 1,018 2,538 Current Service Charge (695) (822) (1,598) Future service contributions paid 486 506 988 --------------------------------------- Net impact on Operating Profit (209) (316) (610) Finance costs 109 56 179 --------------------------------------- Net pension adjustment (100) (260) (431) As reported 1,265 758 2,107 This information is provided by RNS The company news service from the London Stock Exchange

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