Final Results

Cropper(James) PLC 20 June 2006 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 20 June 2006 Embargoed: 7.30am James Cropper PLC Preliminary Results for the year ended 1 April 2006 Full year to Full year to 1 April 2 April 2006 2005 Turnover £64.2m £64.6m Group profit/(loss) before tax £0.3m £2.4m Prior to net IFRS pension adjustments (£0.1m) £1.6m After net IFRS pension adjustments (Losses)/Earnings per share (1.2p) 12.6p Dividend per share 4.1p 8.2p Gearing 46% 43% TFP total sales up 9%; TFP US sales up 16% Paper Mill Shop turnover up 18% with 5 new outlets opened Energy costs increased by 54% over last year 'The outlook for Speciality Papers will remain difficult for the foreseeable future given the volatile nature of energy markets. Global pulp inventories continue to decline, owing to strong demand and reduced pulp production, mostly resulting from closures in North America. As a consequence pulp is expected to advance on an upward trend in the current financial year. It should therefore be anticipated that the profitability of Speciality Papers will deteriorate further in the short term'. 'I am encouraged by the recent improvement in the performance of Technical Fibre Products. An emerging portfolio of new product developments combined with a well-managed cost base provides confidence that this improvement will continue despite the recent weakening of the US$'. 'Despite the current slow down in consumer spending across the retail sector development of The Paper Mill Shop brand will progress through new routes to market'. 'I am very disappointed that it has been necessary to reduce this year's final dividend payment. In due course management plans, backed by the Board's firm resolve, will return the Group to acceptable levels of profitability, therefore enabling our progressive dividend policy to be restored'. J A Cropper, Chairman FULL STATEMENT ATTACHED Enquiries: Alun Lewis, Chief Executive John Denman, Group Finance Director Katie Dale James Cropper PLC Citigate Dewe Rogerson Today: 020 7638 9571 (8.00am - 11.30am) Today: 020 7638 9571 Thereafter: 01539 722002 Thereafter: 0121 455 8370 www.cropper.com Mobile: 07770 788624 -2- ------------------------------------------------------------ Summary of Results IFRS basis UK GAAP basis Group 5 Year Performance 2006 2005 2005 2004 2003 2002 Group turnover £'000 64,201 64,568 64,568 58,010 56,419 55,835 ------------------------------------------------------------ Profit and Loss Summary £'000 -------------------------------------------------------------------------------------- Trading activities Paper Division (papermaking and retail) (6) 2,157 2,207 806 1,011 1,064 Converting Division 62 385 389 438 551 1,069 Technical Fibre Products 777 521 522 506 646 314 --------------------------------------------------------- 'On-going' trading operating profit 833 3,063 3,118 1,750 2,208 2,447 Profit on sale of trade investment 116 --------------------------------------------------------- Trading operating profit 949 3,063 3,118 1,750 2,208 2,447 Joint Venture (89) (114) (114) (93) (23) Other income/(expenditure) (200) (200) (50) 16 (271) --------------------------------------------------------- Trading profit before interest 860 2,749 2,804 1,607 2,201 2,176 Net interest (511) (357) (337) (355) (408) (629) --------------------------------------------------------- Trading profit before tax 349 2,392 2,467 1,252 1,793 1,547 --------------------------------------------------------- (After future service pension contributions paid) -------------------------------------------------------------------------------------- Net pension adjustments Operating profit (364) (423) (696) (467) 74 (21) Net interest (114) (330) --------------------------------------------------------- Net pension adjustment before tax (478) (753) (696) (467) 74 (21) --------------------------------------------------------- -------------------------------------------------------------------------------------- Overall Group after pension adjustments Operating profit 585 2,640 2,422 1,283 2,282 2,426 Joint Venture (89) (114) (114) (93) (23) Other (expenditure)/ income (200) (200) (50) 16 (271) --------------------------------------------------------- Profit before interest 496 2,326 2,108 1,140 2,275 2,155 Net interest (625) (687) (337) (355) (408) (629) --------------------------------------------------------- (Loss)/Profit before Tax (129) 1,639 1,771 785 1,867 1,526 --------------------------------------------------------- -------------------------------------------------------------------------------------- (Losses)/Earnings per Share (1.2p) 12.6p 13.8p 7.6p 15.1p 9.2p Dividends per Share 4.1p 8.2p 8.2p 7.8p 7.5p 7.0p --------------------------------------------------------- Balance Sheet Summary £'000 Non-pension Assets - excl. Cash 46,668 47,005 46,155 45,759 43,627 44,190 Non-pension Liabilities - excl. Borrowings (11,993) (11,524) (12,044) (11,184) (10,376) (10,864) --------------------------------------------------------- 34,675 35,481 34,111 34,575 33,251 33,326 Net pension (liabilities)/ assets (7,221) (7,495) 831 (73) 394 320 ---------------------------------------------------------- 27,454 27,986 34,942 34,502 33,645 33,646 Net Borrowings (8,595) (8,350) (7,404) (7,427) (6,526) (7,164) ---------------------------------------------------------- Equity shareholders' funds 18,859 19,636 27,538 27,075 27,119 26,482 ---------------------------------------------------------- Gearing % 46 43 27 27 24 27 ---------------------------------------------------------- Capital Expenditure £'000 2,889 3,228 3,228 3,101 2,299 2,750 ---------------------------------------------------------- -3- STATEMENT BY THE CHAIRMAN, J A CROPPER I am disappointed to report that the Group recorded a small loss before tax of £129,000 for the year (a profit of £349,000 prior to net IFRS pension adjustments). This compares with a profit before tax of £1,639,000 for the previous year (a profit of £2,392,000 prior to net IFRS pension adjustments). In my thirty-five years as Chairman I have never previously experienced a year during which the papermaking business has had to absorb such dramatic and rapid increases in its cost base. At the AGM on 3 August 2005 I drew attention to the adverse impact that the rising cost of energy would have on the profitability of the Group and James Cropper Speciality Papers in particular. In fact the Group's cost of energy consumption increased over the previous year by £1,443,000 to £4,139,000, up 54%. In such difficult trading conditions, Speciality Papers did well to limit its loss to such a low level. Our policy of diversification proved its worth in the year. In contrast to the difficulties that confronted Speciality Papers, I am pleased to report that Technical Fibre Products delivered a significant improvement in profitability during the year. Since 1989 the Group has held a 35% holding in Pacofa S.A., a converting company located in northern France. Over recent years the performance of this business has been disappointing. This holding was sold during the year giving rise to a gain of £116,000 compared to the written down value of the investment. Dividends In view of the difficult trading climate, the Board is proposing a final dividend payment of 2.2p, making a total dividend for the full year of 4.1p compared to 8.2p in 2005, an overall decrease of 50%. James Cropper Speciality Papers ('Speciality Papers') The operating profit of Speciality Papers fell from £1,787,000 to a loss of £247,000 over the year. Sales were down by 3.6%. The financial results amply demonstrate an extremely difficult year. Subdued markets combined with very significant cost increases, particularly in the second half, had a dramatic impact on profitability. The scale of cost increases relating to energy, effluent charges and pulp, totalling in excess of £2.5m compared to the previous year, were such that initiatives to mitigate their impact were only partially successful during the year. Although price increases were achieved, the competitive nature of both UK and export markets limited the full recovery of the dramatic increase in the cost base. Despite these subdued markets however, steady progress was made in developing new business opportunities in the UK and export markets. Speciality Papers' prime source of energy is natural gas. Increasing unit costs, driven by falling North Sea production, low UK storage capacity, major distortions in the European natural gas market and international events, had a significant impact on profitability in the year. Expenditure on gas totalled £3.2m for the year against £2.0m in the previous year, an increase of 60% with unit costs averaging 50p per therm for the 12 months. The average cost of natural gas in the first half was 30p per therm. However prices climbed dramatically during the course of November to peak at an average of 82p per therm in December 2005. After falling in January and February 2006, prices again climbed in March 2006 averaging 75p per therm for the month. continued... -4- Although the € was relatively stable against £Sterling throughout the year, the US$ fluctuated against both currencies. This affected the relative prices of Northern Bleached Softwood Kraft ('NBSK') pulp, the market benchmark priced in US$s and hardwoods priced in €. NBSK opened the financial year at US$645 per tonne and fell to US$585 per tonne by the end of September 2005. Thereafter the cost of NBSK progressively increased to US$630 per tonne at the end of the financial year. In the second half of the year a similar pattern emerged for € priced hardwoods. Pulp costs in the year as a whole, were over £0.8m higher than in the previous 12 months. In recent years, Speciality Papers has been subjected to significant increases in the cost of waste water treatment by our local water services utility company. OfWat, the UK water regulator, has granted these increases to allow the utility company to raise revenue to fund general investment. The increases, which do not relate to the actual cost of treatment, have been imposed on users on a mandatory basis. The cost of water treatment charges rose by 19% in the financial year to £830,000. During the year an automated reel and sheet packaging line was commissioned. This £1,000,000 investment characterises the innovative technical solutions required by the business to maintain flexibility whilst improving throughput, product presentation and productivity. The Paper Mill Shop Despite an impressive growth record over recent years, The Paper Mill Shop was not immune to the general slowdown in the retail economy during the course of the financial year. Turnover was £6,159,000, up 18% on the previous year, with five new outlets opened in Mansfield, Hatfield, Portsmouth, Fleetwood and Braintree, taking the number of outlets to 23 across the UK. However operating profit was £241,000 compared to £370,000 in the previous year. Like-for-like sales were down by 3.7%. During the course of the previous year warehousing and distribution activities were relocated to a larger facility in order to manage the expansion of this business. The full year cost effect of this move was therefore felt in the financial year. Technical Fibre Products ('TFP') Operating profit for the year was £777,000 against £521,000 with turnover up 8.7% on the previous year at £6,700,000. TFP's sales in the first six months were broadly in line with the same period last year. Sales moved ahead of the comparable period in the second half year. This reflected growth in sales of higher margin products and a modest strengthening of the US$. Sales into the US market grew by 16% in £Sterling terms and by 11% in US$ terms. Growth was largely attributable to composite materials containing metal-coated carbon fibres. The majority of these fibres are now supplied by Electro Fiber Technologies LLC ('EFT'), the joint venture company in which TFP has a 50% share. EFT incurred a small loss in the period. At the average exchange rate for the year, sales to the US market represented approximately 44% of TFP's turnover in £Sterling terms. James Cropper Converting ('Converting') Converting's turnover fell by 4.2% to £10,887,000 while operating profit declined from £385,000 to £62,000. The strengthening of the US$ eased margin pressure on mountboard sales to the USA by Converting. However sales of displayboard have been lower than the high levels seen last year as a result of reduced activity in the retail sector. Nevertheless the Division continued to maintain its position as the leading UK manufacturer of display board. Planned investment and product rationalisation over the coming months will allow the decommissioning of older equipment with significant increases in capability, output and productivity of the remaining machines. Converting's reported profit is after a deduction of £250,000 relating to accelerated depreciation attributable to equipment due to be decommissioned. continued... -5- Pensions and International Accounting Standard 19 ('IAS 19') 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 £1,028,000. Under IAS 19 the charge against profit in the year was £1,506,000, which was £478,000 in excess of the future service contributions that were actually required. In addition, contributions totalling £914,000 were paid to the two schemes in respect of their past service deficits brought forward. Environment I am pleased to report that Speciality Papers has recently gained dual certification to FSC (Forest Stewardship Council) and PEFC (Programme for the Endorsement of Forest Certification) standards. This development enables Speciality Papers to satisfy the increasing demand from major customers and end consumers for creditable certification of the source of fibre used in the products they purchase. Outlook The three manufacturing subsidiaries will continue their drive to grow sales of higher margin products, while developing and implementing plans to improve profitability through operational efficiencies and business optimisation. Cash management is under firm control in order to conserve resources. Investment over the next two years will be prioritised on projects to minimise energy costs, improve efficiencies and reduce our dependence on external waste water treatment. The recent weakening of the US$ against £Sterling and the € is expected to have a broadly neutral effect on the Group overall resulting from our internal currency matching policy. The outlook for Speciality Papers will remain difficult for the foreseeable future given the volatile nature of energy markets. Global pulp inventories continue to decline, owing to strong demand and reduced pulp production, mostly resulting from closures in North America. As a consequence pulp is expected to advance on an upward trend in the current financial year. It should therefore be anticipated that the profitability of Speciality Papers will deteriorate further in the short term. I am encouraged by the recent improvement in the performance of Technical Fibre Products. An emerging portfolio of new product developments combined with a well-managed cost base provides confidence that this improvement will continue despite the recent weakening of the US$. I anticipate that Converting will reverse its decline in the coming financial year. Despite the current slow down in consumer spending across the retail sector development of The Paper Mill Shop brand will progress through new routes to market. I am very disappointed that it has been necessary to reduce this year's final dividend payment. In due course management plans, backed by the Board's firm resolve, will return the Group to acceptable levels of profitability, therefore enabling our progressive dividend policy to be restored. -6- James Cropper PLC Preliminary Results Group Profit and Loss Account for the period ended 1 April 2006 2006 2005 £'000 £'000 ------------------------------------------------------------------------------- Continuing operations Turnover 64,201 64,568 Other income 247 235 Changes in inventories of finished goods and work in progress 210 1 Raw materials and consumables used (27,720) (27,500) Energy costs (4,139) (2,696) Employee benefit costs (16,906) (16,316) Depreciation and amortisation (3,715) (3,498) Other expenses (11,709) (12,154) Profit on sale of trade investment 116 - ------------------------------------------------------------------------------- Operating profit 585 2,640 Interest expense (888) (823) Interest income 263 136 Share of post tax loss from joint ventures (89) (114) Amounts written off investments - (200) ------------------------------------------------------------------------------- (Loss)/profit before tax (129) 1,639 Taxation 27 (584) ------------------------------------------------------------------------------- (Loss)/profit for the period attributable to equity holders of the company (102) 1,055 ------------------------------------------------------------------------------- (Loss)/earnings per share expressed in pence per share - Basic (1.2p) 12.6p - Diluted (1.2p) 12.6p ------------------------------------------------------------------------------- Dividends per share expressed in pence per share - 2006 interim dividend paid 1.9p 1.9p - 2006 final dividend proposed 2.2p 6.3p ------------------------------------------------------------------------------- -7- James Cropper PLC Preliminary Results Balance Sheets at 1 April 2006 Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Assets Non-current assets Intangible assets 1,316 1,292 1,316 1,292 Property, plant and equipment 23,763 24,613 1,295 1,254 Investment in subsidiaries - - 7,350 7,350 Investments in joint ventures 77 83 - - Financial assets - Trade investments - 195 - 195 Deferred tax assets 3,095 3,212 2,938 3,212 -------------------------------------------------------------------------------- 28,251 29,395 12,899 13,303 -------------------------------------------------------------------------------- Current assets Inventories 8,267 7,663 - - Trade and other receivables 13,399 13,205 28,839 26,830 Financial assets - Derivative financial instruments 2 - 2 - Cash and cash equivalents 1,762 88 1,087 7 -------------------------------------------------------------------------------- 23,430 20,956 29,928 26,837 -------------------------------------------------------------------------------- Liabilities Current liabilities Trade and other payables (7,727) (6,785) (4,516) (1,664) Financial liabilities - Borrowings (2,244) (1,890) (2,244) (3,121) - Derivative financial instruments - (7) - (7) Current tax liabilities (465) (489) (104) (227) -------------------------------------------------------------------------------- (10,436) (9,171) (6,864) (5,019) -------------------------------------------------------------------------------- Net current assets 12,994 11,785 23,064 21,818 -------------------------------------------------------------------------------- Non-current liabilities Financial liabilities - Borrowings (8,113) (6,548) (8,113) (6,548) Retirement benefit liabilities (10,315) (10,707) (10,315) (10,707) Deferred tax liabilities (3,958) (4,289) (401) (621) -------------------------------------------------------------------------------- (22,386) (21,544) (18,829) (17,876) -------------------------------------------------------------------------------- Net assets 18,859 19,636 17,134 17,245 -------------------------------------------------------------------------------- Shareholders' equity Ordinary share capital 2,090 2,090 2,090 2,090 Share premium 454 454 454 454 Translation reserve 10 (6) - - Other reserves 61 100 14 23 Retained earnings 16,244 16,998 14,576 14,678 -------------------------------------------------------------------------------- Total shareholders' equity 18,859 19,636 17,134 17,245 -------------------------------------------------------------------------------- -8- James Cropper PLC Preliminary Results Cash flow statements for the period ended 1 April 2006 Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 -------------------------------------------------------------------------------- Cash flows from operating activities Cash generated from/(used by) operations 3,876 4,378 393 (950) Interest received 262 125 1,623 1,971 Interest paid (854) (840) (753) (958) Tax (paid)/received (198) 384 (76) 406 -------------------------------------------------------------------------------- Net cash from operating activities 3,086 4,047 1,187 469 -------------------------------------------------------------------------------- Cash flow from investing activities Investment in joint venture (67) (85) - - Purchase of intangible assets (206) (277) (206) (277) Purchase of property, plant and equipment (2,683) (2,951) (214) (78) Proceeds from sale of trade investment 311 - 311 - Proceeds from sale of property, plant and equipment - 5 - - -------------------------------------------------------------------------------- Net cash used in investing activities (2,645) (3,308) (109) (355) -------------------------------------------------------------------------------- Cash flows from financing activities Net proceeds from issue of new bank loan 4,000 1,600 4,000 1,600 Finance lease capital payments (96) (265) - - Repayment of borrowings (1,843) (1,948) (1,843) (1,948) Dividends paid to shareholders (686) (652) (686) (652) -------------------------------------------------------------------------------- Net cash generated from/(used in) financing activities 1,375 (1,265) 1,471 (1,000) -------------------------------------------------------------------------------- Net increase/(decrease) in cash and cash equivalents 1,816 (526) 2,549 (886) Cash and cash equivalents at the start of the period (54) 472 (1,462) (576) -------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period 1,762 (54) 1,087 (1,462) -------------------------------------------------------------------------------- Cash and cash equivalents consists of: Cash at bank and in hand 1,762 88 1,087 7 Overdrafts included in borrowings - (142) - (1,469) -------------------------------------------------------------------------------- 1,762 (54) 1,087 (1,462) -------------------------------------------------------------------------------- -9- James Cropper PLC Preliminary Results Statements of recognised income and expense for the period ended 1 April 2006 Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 (Loss)/profit for the financial period (102) 1,055 580 394 Currency translation differences on foreign currency investment 16 (6) - - Retirement benefit liabilities - actuarial (losses)/gains (44) 2,221 (44) 2,221 Deferred tax on actuarial (losses)/gains on retirement benefit liabilities 13 (666) 13 (666) ------------------------------------------------------------------------------- Total recognised (expense)/income for the period (117) 2,604 549 1,949 ------------------------------------------------------------------------------- Pensions IAS 19 requires that actuaries calculate the assets and liabilities of companies' pension schemes based on values and interest rates at their annual balance sheet date. Surpluses or deficits revealed by these valuations are included on the sponsoring company's balance sheets, either directly against Reserves or via the Profit and Loss Account. Under IAS 19 pension scheme liabilities are measured on an actuarial basis using the projected unit method. Pension liabilities are discounted at the current rate of return on an AA rated quality corporate bond of equivalent currency and term. The pension scheme assets are measured at fair value at the Balance Sheet date. The net of these two figures gives the scheme surplus or deficit. 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' year on year. 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. On the introduction of IAS 19 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. Upon valuation at subsequent year-ends the movement in value from the previous valuation is expressed in the following component parts: Profit and Loss Account 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 Total Recognised Gains and Losses •Actuarial gains and losses arising from variances against previous actuarial assumptions. -10- James Cropper PLC Preliminary Results The above items are offset in the year-to-year movement by actual contributions paid by the employer in the period. The following table shows the results of the IAS 19 valuations. 2006 2005 IAS19 Deficit £'000 £'000 Current Service Charge (1,392) (1,551) Finance costs (114) (330) Future service contributions paid 1,028 1,128 ----------------------- Net impact on Profit and Loss Account (478) (753) Past service deficit contributions paid 914 1,600 Actuarial gains or losses (44) 2,221 Opening deficit (10,707) (13,775) ----------------------- Closing deficit (10,315) (10,707) Deferred Taxation @ 30% 3,095 3,212 ----------------------- Net - Deficit (7,221) (7,495) ----------------------- 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 £1,028,000. Under IAS 19 the charge against profit in the year was £1,506,000, which was £478,000 in excess of the future service contributions that were actually required. 2006 2005 Profit before Tax £'000 £'000 As reported (129) 1,639 Current Service Charge (1,392) (1,551) Finance costs (114) (330) ------------------------ (1,506) (1,881) Future service contributions paid 1,028 1,128 ------------------------ Net pension adjustment (478) (753) ------------------------ Trading profit 349 2,392 ------------------------ -11- James Cropper PLC Preliminary Results For the year ended 1 April 2006 1. Basic earnings per share have been calculated on the loss after taxation of £102,000 (2005: profit £1,055,000) divided by the weighted average number of Ordinary shares in issue during the period of 8,359,114 (2005: 8,359,114). 2. The dividend will, if approved, be paid on 11 August 2006 to all shareholders on the Register on 21 July 2006. 3. The financial information set out above does not constitute the statutory accounts for the years ended 1 April 2006 and 2 April 2005. Statutory accounts for 2005 have been delivered to the Registrar of Companies and those for 2006 will be delivered following the Company's Annual General Meeting. The auditors have reported on these accounts, their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. 4. The Annual Report and Accounts for 2006 will be posted to shareholders by 12 July 2006 and will also be available on request from the Company's registered office, Burneside Mills, Kendal, Cumbria LA9 6PZ. 5. The Annual General Meeting of the Company will be held at 10.30am on Thursday 3 August 2006 at the Bryce Institute, Burneside, Kendal, Cumbria This information is provided by RNS The company news service from the London Stock Exchange

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