Cropper (J) Regulatory News (CRPR)

12 November 2013

James Cropper plc

the niche specialist paper and materials group, is pleased to announce its

Half-year results to 28 September 2013

"The resurgence of sales in Speciality Papers and further sales growth in Converting is very encouraging. I am looking to sustain this growth in our paper based businesses in the second half. This year the imposition of additional "green" levies, higher energy costs and the rising price of pulp will have a negative effect on the profitability of Speciality Papers. These costs will be partly mitigated by the increasing use of fibre from our new Reclaimed Fibre facility.

"The short fall in TFP sales in the first half was expected, however sales are expected to increase in the final quarter.

"At the Group level, restructuring will be largely complete in the current financial year and will cost in the region of £0.4 million.It is anticipated that Group operating profitability for the second half of the year will be significantly higher than that achieved in the first, however the impact of inflated input costs - namely higher than anticipated rises in NBSK and gas - will not be fully recovered in the second half. I therefore feel that at the present time it is prudent to anticipate an out turn for the full financial year in line with last year's PBT.

"I am very pleased with the progress of our restructuring and investment plans. These are providing us with a strong platform for near and long term growth and our ambitions remain significant. The Group has made a number of significant investments in the current period across all aspects of the business and whilst these have combined with higher input costs to impact the current year's profitability we are confident that they provide a stronger platform to future growth."

Mark Cropper, Chairman

STATEMENT BY THE CHAIRMAN, M A J CROPPER

Group turnover for the half year was up 8% on the comparable period at £42.3 million. Despite increased revenues the first half of the year saw a fall in Group profits before tax (but after IAS19 pension adjustment), of approximately £800,000 to £216,000. Prior to the IAS19 pension adjustment profit before tax was £562,000 against £1,185,000 last year.

The reduction in profitability was largely anticipated due to higher input costs that the Group was unable to pass through to its customers and an increase in green levies. The higher input costs were partially mitigated by the Group's Reclaimed Fibre plant. This will make a greater contribution going forward as we expect to be able to increase the proportion of recycled feedstock into end product.

Technical Fibre Products ("TFP")

In line with management expectations TFP's first half sales were down 5% overall on last year as a consequence of the ordering pattern of a number of major customers in the Defence sector. Aerospace sales were up 52%. Significantly, TFP is at an advanced stage of qualification to supply material for a major new airliner programme which, on commercialisation will lead to a long term revenue flow. Sales into the fuel cell market were up 100% driven by demand for TFP's material in the construction of phosphoric acid fuel cell standby plants.

All US activities have now been relocated to our new facility inSchenectady, New York State. TFP has recently commissioned a £1.5 million nano-carbon coating line at Schenectady encouraged by the requirements of existing and potential new customers. We believe this investment will place TFP in a leading position with regard to the development of this new technology and will be of long term benefit.

James Cropper Speciality Papers ("Speciality Papers")

In Speciality Papers total sales in the opening half were up 10% on the comparable period. Export sales increased by 17% whilst UK sales were up 5%. Overall volume was up 12%, with export volumes up 16%.

We are beginning to see benefits flowing from our increased market focus. In the first six months we have secured major business with a number of global luxury brands and premier wallpaper companies that will materialise as sales in the second half.

The cost of Northern Bleached Softwood Kraft ("NBSK") pulp opened at US$830/tonne and increased to US$870/tonne at the close of the period and has continued on a rising trend. Pulp costs were up some £0.5 million on the first half of the past financial year.

Considerable progress has been made with regard to pulp substitution by fibre produced from our new Reclaimed Fibre plant, with levels of substitution expected to be of the order of 12% by the end of the financial year. The plant uses innovative technology to extract fibre from specific paper-based consumer products, such as disposable coffee cups, which would otherwise be difficult to recycle. This fibre is extremely high quality which makes it an ideal substitute for wood-pulp and helps us to mitigate the impact of pulp price volatility.

The unit commodity cost of natural gas in the first half was up 17% with the overall cost of consumption being £2.3 million compared to £1.9 million in the comparable period.

Phase 3 of EUETS, a mandatory EU scheme relating to carbon dioxide emissions, was introduced as from 1 January 2013. Under Phase 3 our annual allowances were reduced from 41,000 tonnes to 17,000 tonnes per annum. Given that our annual emissions are in the region of 39,000 tonnes we have had to purchase further allowances for the balance of 22,000 tonnes. In addition, as from 1 April 2013 the Group was also subject to the Carbon Price Floor. This levy is a UK Government "green" tax, which places UK producers at a competitive disadvantage compared with competitors in the rest of EU as well as those in the rest of the world. These two measures will add £0.4 million to Speciality Papers' cost base in the current financial year.

Despite the award of a Regional Growth Fund ("RGF") grant in October 2012 the Board has decided not to proceed with an investment in a steam raising boiler. It was our intention that the plant would be fuelled by a mixture of solid recovered fuel produced from municipal waste and the Group's own paper-making effluent residues. Our decision has been principally influenced by restrictions imposed by EU State Aid rules requiring that the boiler be fuelled by waste wood for a number of years in order to receive the full grant. This fuel option is high risk, even with a RGF grant of £2.9 million, because it would necessitate us having to invest a significant sum of capital to allow us to substitute one expensive source of energy, gas, for another expensive source of energy, waste wood.

James Cropper Converting ("Converting")

Converting traded ahead of the first half of last year. Sales were up 15% primarily due to sales of higher margin products.

Restructuring and Investment

Our restructuring continues with the impending creation of Operations and Technology & Innovation Directorates. Dave Watson will join the Group as Chief Operating Officer in January 2014 being responsible for all global manufacturing activities. It is also anticipated that he will be appointed to the Board of the Company. Dave has a strong manufacturing background with more than 25 years' experience in the Industrial, Automotive, Healthcare and Security markets. He is currently the Site Manager for 3M Personal Safety Division at Aycliffe.

January will also see the appointment of Patrick Willink, currently Operations Director for Speciality Papers, as Chief Technology Officer with a brief to explore, develop and deploy new products and technologies to support both the Group's existing businesses and any future investment in new business opportunities.

We also continue to strengthen the sales and marketing capability of each of our businesses through selective recruitment in order to deliver our growth plans. To increase market awareness of our capability we have staged a number of high profile events in the UK and abroad.

By the latter part of the current financial year Speciality Papers will have established a subsidiary company in mainland China for the purpose of selling and marketing within China. This will allow customers to retain full chain of custody over products supplied and to be invoiced in local currency. The subsidiary will be staffed by Chinese nationals.

Restructuring will be largely complete within the current financial year and will cost in the region of £0.4 million.

In addition we continue to progress our programme of investment to enhance our capacities and capabilities and to improve energy and raw material efficiencies. Total expenditure in the full year is anticipated to be in the region of £2.5 million, including TFP's nano-carbon coating line.

Pensions and International Accounting Standard 19 ("IAS 19")

In accordance with IAS 19 for accounting periods beginning on or after 1 January 2013, the expected return on assets has to be restricted to the discount rate used for valuing liabilities. This does not therefore reflect actual asset performance.

The expected rate of return on assets for the period ending 30 March 2013 was 5.63% p.a. However, for the period commencing 31 March 2013 the return on assets has been restricted to the discount rate of 4.65% p.a. This results in a lower expected return on assets for the period ending 28 September 2013 and therefore a higher finance cost. Thus although the overall liabilities of the Group's two defined benefit pension schemes decreased by 1.0% over the six months, the asset value of the schemes declined by 3.0%. As a result the schemes' combined deficit rose by £1,514,000 to £11,867,000 since the previous year end.

The net adverse impact of IAS 19 on profit for the six months is £346,000, compared to £156,000 for the comparable period. Finance costs were £233,000 adverse compared to £89,000 favourable in the comparable period.

Since 1 April 2011, when future increases in pensionable pay were capped at a maximum of 2% per annum, the combined deficit, net of deferred tax, has increased by £8,336,000 from £1,039,000 to £9,375,000. This deterioration is entirely due to the negative impact of Quantitative Easing, low interest rates and the change of accounting basis relating to expected return on assets.

Cash and borrowings

At 28 September 2013 gross drawn down loans and leases totalled £11.5 million, with £1.2 million held as cash at bank. In addition the Group had un-drawn overdraft facilities of £3.4 million, US$1.0 million and €1.0 million.

Gearing at the half year end, after deduction of the IAS 19 pension deficit, was 55% (before 37%).

Working capital continued to remain under tight control. In the second half gearing will ease upward as a consequence of increased expenditure on major revenue and capital projects.

Outlook

The resurgence of sales in Speciality Papers and further sales growth in Converting is very encouraging. I am looking to sustain this growth in our paper based businesses in the second half. This year the imposition of additional "green" levies, higher energy costs and the rising price of pulp will have a negative effect on the profitability of Speciality Papers. These costs will be partly mitigated by the increasing use of fibre from our new Reclaimed Fibre facility.

The short fall in TFP sales in the first half was expected, however sales are expected to increase in the final quarter.

At the Group level, restructuring will be largely complete in the current financial year and will cost in the region of £0.4 million.It is anticipated that Group operating profitability for the second half of the year will be significantly higher than that achieved in the first, however the impact of inflated input costs - namely higher than anticipated rises in NBSK and gas - will not be fully recovered in the second half. I therefore feel that at the present time it is prudent to anticipate an out turn for the full financial year in line with last year's PBT.

I am very pleased with the progress of our restructuring and investment plans. These are providing us with a strong platform for near and long term growth and our ambitions remain significant. The Group has made a number of significant investments in the current period across all aspects of the business and whilst these have combined with higher input costs to impact the current year's profitability we are confident that they provide a stronger platform to future growth.

Mark Cropper

Chairman

12 November

Notes to the Un-audited Interim Results

1. Basis of the preparation of IFRS financial information

a. 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 2006 applicable to companies reporting under IFRS.

Management has chosen to maintain the terminology that readers are familiar with, all references to:

i. "Profit and Loss Account" refers to the Statement of Comprehensive Income.

ii. "Balance Sheet" refers to the Statement of Financial Position.

iii. "Trading Operating Profit" refers to profits prior to income from joint ventures, other income and expenditure, interest on borrowings and "Net IAS 19 pension adjustment"

iv. "Trading Profit before Tax" refers to profits prior to "Net IAS 19 pension adjustment".

v. "Net IAS 19 pension adjustment" in the Profit and Loss Account refer to the net impact on the Profit and Loss Account of the pension schemes' operating costs and finance costs, as described in the IAS 19 section of the Financial Review.

b. The Group's policy is to maintain the ability to continue as a going concern, in order to provide returns to the shareholder and benefits to other stakeholders. Accordingly the going concern basis has been adopted in preparing these interim results.

2. Interim Statement

a. The summarised results for the half-year to 28 September 2013, which have not been audited or reviewed, have been prepared in accordance with the accounting policies adopted in the accounts for the 52 week year ended 30 March 2013.

b. The financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 2006. The figures for the 52 week year ended 30 March 2013 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 available on our website (www.cropper.com).

3. Earnings per share

Basic and diluted earnings per share for the half year to 28 September 2013 have been calculated by dividing the profits attributable to ordinary shareholders by 8,872,629 (2012: 8,475,667) ordinary shares, being the weighted average number of ordinary shares during the period.

4. Dividend

A net interim dividend of 2.2p per Ordinary Share (2012: 2.2p per share) is proposed and will be paid on 10 January 2014 to holders on the register at the close of business on 13 December 2013. The dividend relating to the 52 week year to 30 March 2013 was made up of an interim payment of £193,000 (2.2p per share) and a final dividend payment of £483,000 (5.7p per share). The dividend is payable in cash. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in the Company through a Dividend Reinvestment Plan.

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.

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.

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.