James Cropper Annual Report 2019
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ANNUAL REPORT AND ACCOUNTS 2019 WE CREATE SOME OF THE WORLD’S MOST DISTINCTIVE AND TECHNICALLY ADVANCED PAPER PRODUCTS, USING MATERIALS FROM COTTON AND WOOD TO CARBON FIBRE. WE SUPPORT INDUSTRIES FROM PACKAGING TO DIGITAL IMAGING AND AEROSPACE WITH PRODUCTS THAT ARE AT THE CUTTING EDGE OF PERFORMANCE. Introduction 1 3 14 15 2 6 13 7 4 5 8 9 10 12 11 3 Introduction 1 2 1. ColourformTM Operative, Mark Gardner 2. TFP Technology Manager, Dr Mandy Clement 3. Quality Graduate in Paper, Tom Prosser 4. Paper Finishing, Georgia Kennedy 5. TFP Customer Services, Lucy Wilson 3 6. Paperchase’s Conscious Living Collection notebooks using CupCyclingTM papers 6 4 5 2 3 Introduction CONTENTS STRATEGIC REPORT 05 FINANCIAL HIGHLIGHTS 06 FINANCIAL SUMMARY 07 CHAIRMAN’S LETTER 08 CHIEF EXECUTIVE’S REVIEW 10 FINANCE DIRECTOR’S REVIEW 13 THE PENSION REPORT 17 RISK MANAGEMENT 21 TECHNICAL FIBRE PRODUCTS 28 COLOURFORM 32 JAMES CROPPER PAPER 36 OUR VALUES 40 SUSTAINABILITY 42 PRIDE EXCELLENCE AWARDS 48 PEOPLE 50 1 2 LIVERY 54 GOVERNANCE 57 BOARD OF DIRECTORS CORPORATE GOVERNANCE STATEMENT REPORT OF THE AUDIT COMMITTEE REPORT OF THE REMUNERATION COMMITTEE QCA PRINCIPLES DIRECTORS’ REPORT FINANCIAL STATEMENTS 73 3 STATEMENT OF DIRECTORS’ RESPONSIBILITIES INDEPENDENT AUDITOR’S REPORT 1. TFP Materials Scientist, Emma Matthews GROUP STATEMENT OF COMPREHENSIVE INCOME 2. Burneside Community Energy LTD rooftop solar project STATEMENT OF FINANCIAL POSITION 3. Year Book of Type STATEMENT OF CASH FLOWS 4. Head of Health, Safety, Environment & Paper Quality, Kate Rowling with Guillotine Operator, Alan Henderson STATEMENT OF CHANGES IN EQUITY 5. Sample analysis, TFP labs NOTES TO THE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION 4 5 4 5 Strategic Report - Financial Highlights Strategic Report - Financial Summary FINANCIAL HIGHLIGHTS FINANCIAL SUMMARY TOTAL REVENUE GEOGRAPHICAL % SUMMARY OF RESULTS SEGMENTATION OF REGION £101.1m 2019 2018 2017 2016 2015 2019 UK £’000 £’000 £’000 £’000 £’000 2019 101.1 2018 Europe Revenue 101,095 96,312 92,363 87,920 83,052 2018 96.3 2017 Americas Adjusted operating profit 92.4 2017 (excluding IAS 19 impact) 4,262 6,133 6,849 6,264 3,899 2016 Asia 2016 87.9 Adjusted profit before tax 2015 83.1 2015 Other (excluding IAS 19 impact) 3,962 5,825 6,566 5,173 3,494 10% 20% 30% 40% 50% 60% Impact of IAS 19 (1,386 ) (1,284 ) (1,025 ) (1,305 ) (919 ) Profit before tax 2,576 4,541 5,541 3,868 2,575 ADJUSTED PROFIT BEFORE TAX (iii) PROFIT BEFORE TAX Earnings per share - diluted 24.3 p 43.0 p 49.0 p 31.8 p 20.1 p (excluding IAS 19 Pension adjustments) £4.0m £2.6m STATEMENT OF FINANCIAL POSITION 2019 4.0 2019 2.6 2019 2018 2017 2016 2015 2018 5.8 2018 4.5 £’000 £’000 £’000 £’000 £’000 2017 6.6 2017 5.5 Non-pension assets – excluding cash 64,871 59,899 64,304 57,470 50,810 2016 5.2 2016 3.9 Non-pension liabilities – excluding borrowings (16,236 ) (15,585 ) (19,433 ) (17,019 ) (14,289 ) 2015 3.5 2015 2.6 48,635 44,314 44,871 40,451 36,521 Net IAS 19 pension deficit (after deferred tax) (18,798 ) (16,192 ) (18,421 ) (6,453 ) (11,554 ) GEARING (i) 29,837 28,152 26,450 33,998 24,967 DILUTED EPS (excluding IAS 19 pension adjustment) 24.3p 21% Net borrowings (8,561 ) (4,806 ) (7,364 ) (7,305 ) (6,105 ) Equity shareholders’ funds 21,276 23,346 19,086 26,693 18,862 2019 24.3 2019 21 Gearing % - before IAS 19 deficit 21 % 12 % 20 % 22 % 20 % 2018 43.0 2018 12 Gearing % - after IAS 19 deficit 40 % 21 % 39 % 27 % 32 % 2017 49.0 2017 20 Capital expenditure £’000 5,229 1,935 5,315 4,086 2,619 2016 31.8 2016 22 2015 20.1 2015 20 (i) The IAS 19 pension adjustments are explained in detail in the Financial Review section, pages 13 to 19. The total amount excluded from the IAS pension Charge is £1,386,000 (2018: £1,284,000). The adjustment, which we refer to in these accounts as the “IAS 19 impact” represents the difference between the pension charge as calculated under IAS 19 and the cash contributions for the current service cost only as NET BORROWINGS (ii) CAPITAL EXPENDITURE determined by the latest triennial valuation. The Directors consider that the adjusted pension charge better reflects the actual pension costs for ongoing service compared to the IAS 19 charge. This adjustment is made internally when we assess performance and is also used in the £8.6m £5.2m EBITDA and EPS targets used in management incentive schemes. (ii) The IAS 19 pension adjustment £1,386,000 (2018: £1,284,000) comprises: 2019 8.6 2019 5.2 Period ended 30 March 2019 Period ended 31 March 2018 2018 4.8 2018 1.9 £’000 £’000 2017 7.4 2017 5.3 Current service charge 1,423 1,285 2016 7.3 2016 4.1 Normal contributions (569 ) (590 ) 2015 6.1 2015 2.6 Interest charge 532 589 IAS 19 pension adjustment 1,386 1,284 (i) Gearing is calculated as the proportion of net borrowings to Total Shareholders’ Equity, excluding the IAS 19 Pension deficit. (ii) Net borrowings, are calculated as total loans and borrowings less cash and cash equivalents. Further details can be found on page 19 (The IAS 19 impact on profits). (iii) Adjusted profit before tax equates to profit before tax excluding the IAS 19 impact. 6 7 Strategic Report - Chairman’s Letter Strategic Report - Chairman’s Letter A positive sense of the progress of the Group Nevertheless, we continue to see great OUTLOOK can also be gained from a walk around our potential, not least in the beauty and cosmetics Burneside site, home to the majority of market. The target is for the business to be cash For all the headwinds of the last two years, operations. In the last year we have increased flow neutral in the current financial year and it not to mention the uncertainty surrounding 3DP capacity by 50% and commenced will grow to become a significant division for Brexit, I am pleased to say our long-term construction of a new TFP machine house, the Group. aspirations are undiminished. With an eye to the most significant addition to our operations the long-term, we believe we can be the best TFP continues to advance in aerospace and in 25 years. Both have required reorganisation in the world at what we do and have kept automotive fuel cell markets with new major of other areas, furthering the overall level investment and related recruitment plans on contracts agreed and research into lightweight of activity. There are also more mundane track, in support of this, the latter closely tied solutions and emerging technologies high on indicators, such as growth in parking provision to apprenticeship and graduate programmes. the agenda. We continue to invest in our US and a fleet of new trucks in our distinctive and UK research facilities, enhancing TFP’s There is also much more we can do. green livery. Burneside truly feels like a place global reputation for quality and technical on the move. Our most valuable asset is our people. expertise, and its unique ability to understand, Everyone matters in this business and we Rather harder to gauge are all the internal interpret and deliver on customer needs. TFP is will only truly succeed if we support each changes in hand, both commercial and well positioned to continue to grow robustly. other – and the communities that sustain us – operational. Based on the numerous plans in every day. Our work over the last year place, I am confident Paper will be restored DIVIDEND PER SHARE on the importance of mental health is but to profitability in the current financial year one example of this. We have much more The Board is recommending a final dividend and advance thereafter. As well as working to do but our people show us the way. of 11.0 pence per share, bringing the total carefully with our long term customers to As I witnessed at our annual Pride Awards dividend for the financial period of 13.5 pence recover margin, Paper is also winning earlier this year, every thought and idea, per share. new contracts at improved margins, not however small, can make a difference. least to meet the retail packaging needs of Basic earnings per share in the period fell Likewise, albeit on a different note, we will global brands. by 44% to 24.3 pence per share with diluted only secure our future as a business if we earnings per share falling by 43% to 24.3 Our sustainability credentials are helping in balance our outputs with the impacts that pence per share. CHAIRMAN’S LETTER this regard, not least our CupCyclingTM papers. we – together with the rest of mankind Coffee cup waste continues to grow as a source The recommendation to maintain the – are having on our planet. We are justly of fibre, and greater use is forecast, supported dividend directly reflects the confidence the proud of the contribution made by initiatives by internal investment as well as initiatives led Board continues to have in the company’s such as ColourformTM and CupCyclingTM. by retailers and waste management companies. prospects in the coming years. However, if we are to truly respond to the DIVIDEND PER SHARE 2019 Dear Shareholders, This is just a start, our Technology & emergency represented by climate change Innovation department is leading a forensic and declining biodiversity we must do much, This has been another challenging year for the I am particularly pleased to report increased “ AS WE ENTER OUR investigation of other sources of waste and 2019 13.5p much more.