James Cropper : AR 2023

About this update from James Cropper Plc

The paper selected for the cover of this annual report is just one of over 30 embossing patterns available, which include textile weaves, leathers, rippling effects and intricate geometric formations. In January 2023, the Embossing Centre of Excellence was opened. The installation of an embosser varnisher includes smart eye production technology for precision-made textured paper. This multi-million pound investment will allow James Cropper to meet growing demand for surface aesthetics in luxury packaging and creative papers, as well as best in class service for bespoke textural effects alongside the development of individual colour. Making a material difference. WE'RE A PURPOSE-DRIVEN BUSINESS BUILT ON STRONG VALUES. COMBINED WITH OUR WEALTH OF MANUFACTURING KNOWLEDGE, TECHNICAL KNOW-HOW AND PIONEERING ABILITIES WE WILL STRENGTHEN OUR POSITION ACROSS MULTIPLE SECTORS AS THE PREFERRED GLOBAL PARTNER OF CHOICE. Steve Adams, CEO Our purpose Our values PIONEERING MATERIALS FORWARD-THINKING. TO SAFEGUARD RESPONSIBLE. OUR FUTURE. CARING. 5 4 6 1 7 2 3 CONTENTS 8 9 14 15 10 11 13 12 STRATEGIC REPORT 05 16 Financial Highlights 06 Financial Summary 07 18 Chairman's Letter 08 19 Chief Executive's Review 10 20 17 The Pension Report 18 Risk Management 21 Promoting the Success of Our Group 26 - S172(1) Statement Technical Fibre Products 28 Colourform TM 32 Paper Products 34 Sustainability - ESG 37 Our People 47 22 GOVERNANCE 49 21 Board of Directors Corporate Governance Statement Compliance with the QCA Corporate Governance Code Report of the Audit Committee # Location Manufacturing R&D Sales Office Partners Report of the Nominations Committee 1 Burneside, UK Head Office • • • Report of the Remuneration Committee 2 Crewe, UK • 3 Launceston, UK • • Directors' Report 4 Oslo, Norway • 5 Helsinki, Finland • 6 Ljungby, Sweden • FINANCIAL STATEMENTS 69 7 Copenhagen, Denmark • 8 Brussels, Belgium • Statement of Directors' Responsibilities 9 Prague, Czech Republic • Group Independent Auditor's Report 10 Paris, France • 11 Strasbourg, France • Group Statement of Comprehensive Income 12 Milan, Italy • Statement of Financial Position 13 Budapest, Hungary • 14 Bucharest, Romania • Statement of Cash Flows 15 Schenectady, USA • • • Statement of Changes In Equity 16 Philadelphia, USA • 17 Dubai, UAE • Notes to the Financial Statements 18 Shanghai, China • Shareholder Information 19 Guangzhou, China • 20 Hong Kong, China • 21 Melbourne, Australia • 22 Johannesburg, South Africa • Strategic Report - Financial Highlights Strategic Report - Financial Summary FINANCIAL HIGHLIGHTS FINANCIAL SUMMARY Total revenue £129.7m 24% 2023 2023 2022 129.7 2022 104.9 2021 78.8 2021 104.7 2020 2020 2019 101.1 2019 Geographical % segmentation of revenue UK Europe Americas Asia Other Summary of results All figures in £'000 2023 2022 2021 2020 2019 Restated* Revenue 129,664 104,922 78,768 104,667 101,095 Adjusted operating profit (APM 1) 4,767 4,585 4,510 7,240 4,262 Adjusted profit before tax (APM 2) 1 3,195 4,045 4,023 6,674 3,962 Exceptional items 2 (1,095) (354) (1,502) - - Impact of IAS 19 3 (787) (914) (802) (1,215) (1,386) 10% 20% 30% 40% 50% 60% Profit before tax 1,313 2,777 1,719 5,459 2,576 Earnings per share 5.4p 14.2p 13.2p 50.6p 24.3p Adjusted profit before tax (1) £3.2m 2023 3.2 2022 4.0 2021 4.0 2020 2019 4.0 Basic and diluted EPS 5.4p 2023 5.4 2022 14.2 2021 13.2 2020 2019 24.3 Net debt (3) £16.6m 2023 2022 2021 7.5 2020 2019 8.6 Profit before tax Statement of Financial Position 21% £1.3m 53% All figures in £'000 2023 2022 2021 2020 2019 2023 1.3 Restated* 2022 2.8 Non-pension assets - excluding cash 86,754 81,568 70,780 72,084 64,871 1.7 6.7 2021 5.5 Non-pension liabilities - excluding borrowings (25,990) (24,913) (18,744) (19,032) (16,236) 2020 60,764 56,655 52,036 53,052 48,635 2019 2.6 Net IAS 19 pension deficit (after deferred tax) (12,105) (9,847) (14,933) (7,600) (18,798) 48,659 46,808 37,103 45,452 29,837 Gearing (2) Net debt (16,594) (12,294) (7,502) (11,055) (8,561) 62% 38% 10% Equity shareholders' funds 32,065 34,514 29,601 34,397 21,276 Gearing % - before IAS 19 deficit 38% 28% 17% 26% 21% 2023 Gearing % - after IAS 19 deficit 52% 36% 25% 32% 40% 38 2022 28 Capital expenditure £'000 5,779 6,761 3,127 9,195 5,229 17 50.6 2021 26 2020 * Details of the restatement are included in note 28 to the financial statements. 2019 21 1 Alternative performance measures (APMs) are defined on page 13. 2 Exceptional items are detailed in note 26 to the financial statements. Capital expenditure 3 The IAS 19 pension adjustments are explained in detail in the Chief Executive's Review section, pages 10 to 16. The adjustment, which we 35% £5.8m 15% 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 determined by the latest triennial valuation. The Directors consider that the pension charge pre IAS 19 adjustment better reflects the actual pension costs for ongoing service. This adjustment is made internally when we assess 16.6 2023 5.8 performance and is also used in the EBITDA and EPS targets used in management incentive schemes. The IAS 19 pension adjustment of £787k (2022: £914k) comprises: 12.3 2022 6.8 2021 3.1 11.1 2020 9.2 All figures in £'000 Period ended 1 April 2023 Period ended 26 March 2022 2019 5.2 Current service charge 974 1,203 Normal contributions (532) (656) Interest charge 345 367 Non-GAAP Measures: 1 Adjusted profit before tax equates to profit before tax excluding the impact of IAS 19 and exceptional items. 2 Gearing is calculated as the proportion of net debt to Total Shareholders' Equity, excluding the IAS19 Pension deficit. 3 Net debt is calculated as total loans and borrowings less cash and cash equivalents. Included in net debt from 2020 are lease liabilities for right-of-use assets under IFRS 16. IAS 19 pension adjustment 787 914 Further details can be found on page 19 (The IAS 19 impact on profit). 06 07 Strategic Report - Chairman's Letter Strategic Report - Chairman's Letter MY GREATEST DESIRE FOR JAMES CROPPER IS THAT WHILE WE REMAIN PROUD OF OUR GREAT HERITAGE, WE ALWAYS FEEL YOUNG, AND ACHIEVE THIS BALANCE BY SEAMLESSLY COMBINING GENERATIONS OF KNOW-HOW WITH A RELENTLESS APPETITE FOR RENEWAL. Mark Cropper, Chairman CHAIRMAN'S LETTER In the same vein, we will also look to invest further in innovation to meet the anticipated demands of future markets and customers, whether technical, environmental or economic. We have ambitious plans to decarbonise the Group's operations, the first phase will be to cut natural gas use by 25% by 2025, keeping us on track to achieve net zero across our entire supply chain by 2050. This includes novel approaches to heat generation that we hope can blaze the way for other energy intensive manufacturers. We have also launched our FibreBlend Upcycled Technology programme, offering a choice of different recovered fibre categories. This builds on our award- winning CupCycling proposition which gives used coffee cups a second life as a valuable fibre source for high quality paper. At present, over 75% of our custom-made paper products contain a blended fibre source. Our plans in this area include developing a unique technique to separate cotton, recyclable into paper, from artificial fibres. Transitioning to a brighter future As ever, James Cropper continues to earn its future by building a diversified business across multiple markets and geographies and by adapting with pace when required. I am very conscious that this has included the hard choice to restructure our paper division from four machines to three with associated headcount reductions. The decision was not taken lightly but has been essential to address years of headwinds and margin pressures and create Dear Shareholders, As I look back over the last year what stands out is less the circumstances, which were as challenging as ever in some quarters, but more the broad range of positive actions we have taken to reposition the Company over the period. Our foundations for sustained growth are being strengthened in every corner, with the final result coming in ahead of revised market expectations. I must thank all our customers for their support in the year. Even then, at times it was challenging to keep up with the inflationary environment. The resulting impact was lessened by outperformance in Technical Fibre Products and its Hydrogen business unit. Overall, however, significant credit is due to our workforce who addressed the unfolding situation with exceptional urgency and dedication. Adapting to circumstance always leads to change and accordingly within the year we have comprehensively reviewed our growth plans and the foundations required to ensure we maximise opportunities and minimise risks as these roll forwards. This has enabled us to bring to life our strategy in realigning the business to be centred around our customers. Our products and markets will remain broadly the same, but we will start the journey to reposition ourselves operating as one company. To move from three separate divisions (James Cropper Paper, Technical Fibre Products and Colourform TM ) into four market-facing segments, all unified under the Group name, James Cropper. Creative Papers Luxury Packaging Technical Fibres Future Energy My greatest desire for James Cropper is that while we remain proud of our great heritage, we always feel young, and achieve this balance by seamlessly combining generations of know-how with a relentless appetite for renewal. The reorganisation truly encapsulates this blend from our historic roots in papermaking to cutting edge materials and components in renewable energy. Importantly, across this range it is no longer accurate to refer to us as a paper-mill or paper business, as has been the norm since our outset in 1845. Today, James Cropper is successfully transitioning to an advanced materials and paper products group across everything it does, committed to pioneering innovation in traditional markets alongside breakthrough areas. We are determined to stay modern and relevant, which will lead us to spend more over the coming years as we invest in our processes and systems. This will enable smarter access to data, leaner working practices and cost savings. We are also investing to enhance our position in hydrogen electrolysis, fuel cells, carbon capture and other fast growing markets. The growth potential is significant, but we will only earn a share through step changes in performance and cost reduction. This will involve both technology advances and operational investments. For example we have recently commissioned a hydrogen component line in the United States, taking production closer to a large share of our customer base whilst at the same time cutting freight and duty costs. Our paper and packaging partnerships within luxury and premium retail sectors remain strong, whether designing new tailor-made papers or Colourform TM products or offering customers more sustainable options and recycled fibres. On this note, we are proud to have been involved in the recent creation of the first-ever 100% plastic-free remembrance poppy for the British Legion, whom we have proudly partnered with since 1978. Dividend In financial terms, the Group reported a profit before tax of £1.3m for the period ended 1 April 2023. This was down by 53% versus the prior period with the Group revenue rising by 24% split between Paper (+25%), Colourform TM (+29%) and Technical Fibre Products (+19%). In line with expectations, the Board is recommending a final dividend of 4.0 pence per share, making a total dividend for the year of 6.0 pence per share. Board changes This year has seen several changes to our leadership team. In August 2022, Steve Adams was appointed CEO, following the departure of Phil Wild. Since the year end, we have also seen the departure of Isabelle Maddock, our CFO, who resigned in June 2023. I would like to personally thank both Phil and Isabelle for their dedicated service to James Cropper. a more resilient, profitable business. Overall, we are blessed with a talented team and a range of materials and products that have never been more relevant in a world that rapidly needs to learn to live in greater balance with nature. Common to all our activities is the opportunity to accelerate the transition to greener economies and societies, and grow a vibrant group around this. I am hopeful these actions will position us better than ever to truly deliver on this. Everyone in the Company is playing a part in this journey and I would like to thank all who work for us and with us for their continued commitment to James Cropper. Chairman 23 August 2023 08 09

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