Final Results

Walker Greenbank PLC 27 May 2004 WALKER GREENBANK PLC 27 May 2004 PRELIMINARY RESULTS FOR THE YEAR TO 31 JANUARY 2004 • Reduced loss before tax of £4.1m (2003: £8.0m) with turnover in continuing operations of £46m (2003: £47m) • Reduced losses per share to 7.61p (2003: 13.04p) • Successful acquisition and integration of the Sanderson business Ian Kirkham, Chairman of Walker Greenbank PLC, said: 'The Group has traded in line with expectations during the first quarter of this year and there are some tentative signs that the pressure on sales volume experienced over the last few years is beginning to ease. The Harlequin and Zoffany brands have seen sales in line with this period last year and the manufacturing sites are benefiting from the purchase of Sanderson. The acquisition of Sanderson will make a significant contribution to the Group and the planned savings from synergies will have been completed during the first half of this year. However, the full impact of Sanderson will not be seen until the second half of this year placing the Group in a position to move towards profitability. We shall continue to evaluate acquisitions and to build our resources sufficiently to enable us to take advantage of these opportunities as they arise. The rehabilitation of the Group has been a long and painful process but there now exist some grounds for guarded optimism as the Group begins to benefit from the changes implemented over the last three years.' Enquiries: John Sach, Chief Executive Officer Walker Greenbank PLC Tel: 01908 658078 Ian Seaton, Bankside Consultants Tel: 020 7444 4157 Notes to editors: Walker Greenbank PLC designs, manufactures, markets and distributes wallcoverings, furnishing fabrics and associated products. The Zoffany and Harlequin brands are recognised worldwide, selling a full range of these items. The Group's manufacturing base includes fabric printing at Standfast and wallcoverings manufacture at Anstey. In August 2003 it bought Arthur Sanderson & Sons for £5.5 million cash. Arthur Sanderson & Sons owns the brands of Sanderson and Morris & Co which are world renowned for the design and quality of co-ordinated fabrics, wallcoverings and associated products. Chairman's Statement Overview/Strategy The task of restoring the Group to profitability remains on track as losses for the year ending 31 January 2004 show a marked reduction from previous years. The Board's strategy of improving the results of the core businesses, disposing of non-core businesses and assets and of acquiring complementary businesses from funds generated by this strategy is beginning to show through in the results. I am pleased to report that the Board has made significant progress towards this strategic goal. The highlights are as follows: • May 2003 - Sale of Riverside, non core weaving business, for £2.8m • Aug 2003 - Arthur Sanderson & Sons business bought for £5.5m • Dec 2003 - Sale of Atlanta freehold property for £0.5m • Feb 2004 - Sale of freehold property in Milton Keynes for £4.7m • Apr 2004 - Sale of Sanderson bedding concession business for £0.7m • May 2004 - Sale of Warner Archive for £2m The successful acquisition of the Sanderson business, which was made possible by this activity, has laid the foundations for returning the Group to profitability. The Group now has greater focus on high margin brands and less on manufacturing. Since acquisition, the Sanderson business has started to show a steady improvement and key synergistic savings are being secured. With a large but fragmented marketplace to operate in and with our manufacturing, information technology and distribution skills capable of handling much greater volumes we are ideally placed to act as a consolidator in the UK furnishing industry. The Board's intention is to utilise its current resources to grow the business both organically and by acquisition. Results The loss on ordinary activities before taxation for the year was £4,050,000 (2003: £7,975,000) on turnover of £47,975,000 (2003: £58,261,000). The loss per share fell to 7.61p from 13.04p in 2003. Turnover in the continuing operations, excluding acquisitions, fell to £39,819,000 from £47,071,000 in 2003. The total brand turnover declined 3%, but profit improved following cost savings made in the prior year. Despite an unprecedented fall in third party sales in the manufacturing businesses, the operations managed to reduce losses on last year, following a move away from non-profitable business and cost reductions in the factories. The Riverside disposal was successfully completed on 20 May 2003, with £2,801,000 received in cash. The loss on disposal was fully anticipated by the creation of a provision in 2003 of £3,507,000 which was released in full at completion. Owing to the pension deficit at 31 January 2003 of £11,839,000 against the prior year amount of £3,643,000, the net finance income dropped from income of £188,000 to a charge of £402,000 this year. The charge for the year ending 31 January 2005 should be lower owing to the deficit falling by £1,071,000 to £10,768,000 as reported at the year end. Acquisition On 29 August 2003, the Group acquired the trade and certain assets of Arthur Sanderson & Sons for £5,500,000 paid in cash at completion. The assets included the stocks and fixed assets and two subsidiaries in the USA and France. The acquisition also included the valuable archive of Arthur Sanderson and William Morris designs, which attract a significant licence income. Balance Sheet During the year, the Group has realised £3,831,000 of cash from both the sale of freehold properties and the current and prior year disposals of the Riverside and TWIL businesses. Although the Group's indebtedness finished the year at £11,633,000 (2003: £7,273,000) this was after having acquired the Sanderson business for £5,736,000 cash at completion (including related costs) and a further investment in its working capital of £1,318,000. When excluding the cash outflow from discontinued operations of £627,000 and the investment in Sanderson's working capital, the Group reported an underlying operating cash inflow of £1,028,000. This continues the trend set in the previous year of positive cash flows from operations and has been achieved through tight working capital management. Since the year end there has been a further cash inflow of £4,670,000 from the sale and leaseback of the Milton Keynes freehold property and £2,000,000 from the sale of the Warner archive of designs. Dividends In view of the financial performance of the Group no dividend will be proposed. People David Medcalf, our Chief Executive, left us last year and we wish him well in his future activities. David was the architect of many of the initial strategies that are now beginning to bear fruit. Joining us more recently as Deputy Chairman is Peter Gyllenhammar, whose experience and complementary vision of how the Group can prosper makes him a welcome addition to the Board. Despite the changes implemented throughout the Group and the tough marketplace in which we operate, our employees have responded well to these additional demands of the business. I would like to thank all our employees and through their efforts we now rightly expect success and rewards for all stakeholders. Outlook The Group has traded in line with expectations during the first quarter of this year and there are some tentative signs that the pressure on sales volume experienced over the last few years is beginning to ease. The Harlequin and Zoffany brands have seen sales in line with this period last year and the manufacturing sites are benefiting from the purchase of Sanderson. The acquisition of Sanderson will make a significant contribution to the Group and the planned savings from synergies will have been completed during the first half of this year. However, the full impact of Sanderson will not be seen until the second half of this year placing the Group in a position to move towards profitability. We shall continue to evaluate acquisitions and to build our resources sufficiently to enable us to take advantage of these opportunities as they arise. The rehabilitation of the Group has been a long and painful process but there now exist some grounds for guarded optimism as the Group begins to benefit from the changes implemented over the last three years. IAN KIRKHAM CHAIRMAN Operating Review The brands Zoffany Zoffany has seen a year on year decline in sales of 6% due to the continued weakness in the market. However, following the significant cost savings made in the second half of last year, the brand has reported a threefold increase in profit. Investment was made in the second half of the year to enhance brand recognition and create greater customer awareness. This greater awareness combined with the continued strength of the product offer and strengthening of the management team, has put the business in a good position to improve profitability further. This will be enhanced if the overall market shows signs of improvement. Harlequin Following the appointment of a new management team in the prior year, Harlequin has successfully introduced a range of excellent new collections over the last 18 months. This has positioned Harlequin as one of the best performing mid-market brands in the UK and allowed it to gain market share from its competitors. This, combined with better management of stocks and direct costs, has led to a significant improvement in operating profit. At the start of the year, Harris Fabrics was successfully integrated into Harlequin. Following this change this business has reported a strong return to profit and has resulted in a broader product offer for the combined businesses, with Harlequin using Harris Fabrics to increase its exposure to the contract market. Arthur Sanderson & Sons At the point of acquisition, the stocks of the best selling collections of the Sanderson business had fallen dramatically, leading to poor service levels and a loss of customer confidence. The first priority was, therefore, to rationalise the range and invest in stocks. However, owing to manufacturing lead times, this exercise has only recently been completed. The acquisition offered significant synergy savings, including commencing 'in house' manufacturing of a large proportion of its products, the transfer of the warehouse to the Group's Milton Keynes facility, changing to the Group's IT system and the integration of the US operations. These projects will be completed by the end of the first half of the forthcoming year, offering significant benefits, in particular, to the second half. Following completion of the re-stocking exercise the marketing activity has been accelerated. Whilst we accept that the re-building of the Sanderson brand and customer confidence will be a challenging process, underlying sales are growing steadily and we expect to see the full benefit from this marketing in the second half of the forthcoming year. Manufacturing Anstey Anstey has had a difficult year with demand for wallcoverings continuing to remain at a historically low level during the year. The decision, taken during the year, not to invest in buying space at the DIY multiples for the Cirka brand, significantly reduced the total sales for this operation. However, as costs were tightly controlled, losses did not increase. In the latter part of the year, substantial progress was made following the acquisition of Sanderson which has added approximately £1 million of turnover and the successful tender for the manufacture of a large competitor's wallpaper requirement. Looking forward, in the first quarter of this year the early signs of a growing interest in quality wallpaper from consumers is starting to emerge. This all augurs well for the future performance of this business. Standfast Following the redundancy programme in the second half of the prior year, which was made in anticipation of a significant decline in sales for the year, the business has returned to profit. Costs were also tightly controlled with major steps being taken to increase efficiency and avoid additional costs associated with manufacturing quality. Following this improvement in manufacturing efficiencies combined with approximately £1.7 million of new business from the acquisition of Sanderson, profit should further increase next year. Overseas USA The Group's distribution business in Atlanta, USA reported another solid performance with the Zoffany part of the business growing marginally on the previous year despite a very competitive marketplace. Following the acquisition of Sanderson, which had a business in New Jersey in the USA, the combination of the Group's US operations was completed at the end of March 2004. This will provide substantial cost savings for the combined operation and will result in a significant increase in profit next year. Europe John O Borge, in Norway, returned another strong performance despite sales slipping 9%. The market for wallcoverings remains difficult, however, John O Borge has continued to command a strong position. Costs are maintained at a low level by its experienced management team. The distribution businesses for Zoffany in Rome and for Sanderson in Paris both performed in line with expectations, although they do not represent a large part of the Group. Group Profit and Loss Account Year ended 31 January 2004 Note 2004 2003 £000 £000 Turnover Continuing operations 39,819 47,071 Acquisition 6,363 - ________ ________ 46,182 47,071 Discontinued operations 1,793 11,190 ________ ________ 47,975 58,261 Operating loss 1 Continuing operations (3,283) (3,946) Acquisition 54 - ________ ________ (3,229) (3,946) Discontinued operations 70 144 ________ ________ (3,159) (3,802) Profit on sale of properties 2 96 175 Profit/(loss) on disposal of operations 3 85 (3,825) Amounts written off investments - (207) ________ ________ Loss on ordinary activities before interest (2,978) (7,659) Net interest payable (670) (504) Other finance (charge)/income (402) 188 ________ ________ Loss on ordinary activities before taxation (4,050) (7,975) Tax on loss on ordinary activities (246) 614 ________ ________ Loss on ordinary activities after taxation (4,296) (7,361) Dividends - - ________ ________ Deficit for the year (4,296) (7,361) ________ ________ Loss per share - Basic and diluted 4 (7.61p) (13.04p) Dividend per ordinary share - - Balance Sheets At 31 January 2004 Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Fixed assets Intangible assets 4,182 969 - - Tangible assets 12,877 17,239 4,790 7,964 Investment in - own shares 602 602 602 602 - in subsidiaries - - 19,000 32,963 _________ _________ ________ ________ 17,661 18,810 24,392 41,529 Current assets Asset held for resale 3,428 2,044 3,428 1,724 Stocks 12,018 11,045 - - Debtors 11,447 12,162 30,070 24,010 Cash at bank and in hand 619 496 - 2 _________ _________ ________ ________ 27,512 25,747 33,498 25,736 Creditors: amounts falling due within one year (24,371) (18,577) (13,597) (11,952) _________ _________ ________ ________ Net current assets 3,141 7,170 19,901 13,784 _________ _________ ________ ________ Total assets less current liabilities 20,802 25,980 44,293 55,313 Creditors: amounts falling due after more than one (444) (1,278) (89) (405) year Provisions for liabilities and charges (308) (121) (151) (126) _________ _________ ________ ________ Net assets excluding pension liability 20,050 24,581 44,053 54,782 Pension liability (10,768) (11,839) - - _________ _________ ________ ________ Net assets 9,282 12,742 44,053 54,782 _________ _________ ________ ________ Capital and reserves Share capital 590 590 590 590 Share premium account 457 457 457 457 Profit and loss account (32,272) (28,812) 1,118 11,847 Other reserves 40,507 40,507 41,888 41,888 _________ _________ ________ ________ Equity shareholders' funds 9,282 12,742 44,053 54,782 _________ _________ ________ ________ Group Cash Flow Statement Year ended 31 January 2004 2004 2004 2003 2003 Note £000 £000 £000 £000 Net cash (outflow)/inflow from operating activities 7 (917) 2,289 Returns on investment and servicing of finance Interest received 12 54 Interest paid (599) (425) Interest element of finance lease payments (92) (150) _______ ________ _______ ________ (679) (521) ________ ________ Taxation (267) (138) Capital expenditure Purchase of tangible fixed assets (569) (1,208) Proceeds from assets held for resale 416 - Proceeds from disposal of property - 175 Proceeds from disposal of tangible fixed assets 137 25 _______ ________ _______ ________ (16) (1,008) ________ ________ Acquisitions and disposals Purchase of Arthur Sanderson & Sons 5 (5,736) - Cash acquired on purchase of Arthur Sanderson & Sons 5 193 - Net proceeds from sale of Riverside 6 2,675 - Acquisitions of Strines Textiles in the prior year (319) (307) Net proceeds from disposal of TWIL in the prior year 740 81 _______ ________ _______ ________ (2,447) (226) ________ ________ Equity dividends paid - - ________ ________ Cash (outflow)/inflow before use of liquid resources and (4,326) 396 financing Management of liquid resources - - Financing Proceeds from new loans 6,000 - Principal repayments of finance lease obligations (585) (1,151) Repayment of borrowings (2,325) (1,225) _______ ________ _______ ________ 3,090 (2,376) ________ ________ Decrease in cash 8 (1,236) (1,980) ________ ________ Statement of Total Recognised Gains and Losses Year ended 31 January 2004 2004 2003 £000 £000 Loss for the financial year (4,296) (7,361) Actual less expected return on pension scheme assets 1,446 (7,741) Experience losses arising on pension scheme liabilities (501) (577) Currency translation differences (109) 181 ________ ________ Total recognised gains and losses relating to the year (3,460) (15,498) Prior year adjustment (in respect of the adoption of FRS17) - (3,643) ________ ________ Total recognised losses since the last annual report (3,460) (19,141) ________ ________ Reconciliation of Movements in Shareholders' Funds Year ended 31 January 2004 2004 2003 £000 £000 Loss for the financial year (4,296) (7,361) Dividends - - ________ ________ Deficit for the year (4,296) (7,361) Other recognised gains and losses relating to the year 836 (8,137) Goodwill previously set off to reserves in respect of the disposal of operations - 819 ________ ________ Net reduction to shareholders' funds (3,460) (14,679) Opening shareholders' funds 12,742 27,421 ________ ________ Closing shareholders' funds 9,282 12,742 ________ ________ Notes to the accounts 1 ANALYSIS OF OPERATING LOSS 2004 2004 2004 2003 2003 2003 Continuing Discontinued Total Continuing Discontinued Total £000 £000 £000 £000 £000 £000 Turnover 46,182 1,793 47,975 47,071 11,190 58,261 Cost of sales (22,204) (1,169) (23,373) (23,890) (7,855) (31,745) _________ ___________ _______ _________ ___________ _______ Gross profit 23,978 624 24,602 23,181 3,335 26,516 _________ ___________ _______ _________ ___________ _______ Net operating expenses: Distribution costs (8,973) (136) (9,109) (10,110) (1,059) (11,169) Administrative expenses (18,819) (418) (19,237) (17,066) (2,132) (19,198) Other operating income 585 - 585 49 - 49 _________ ___________ _______ _________ ___________ _______ Operating (loss)/profit (3,229) 70 (3,159) (3,946) 144 (3,802) _________ ___________ _______ _________ ___________ _______ In the period, the acquisition had a turnover of £6,363,000, cost of sales of £2,432,000, gross profit, including manufacturing contribution, of £3,931,000, distribution expenses of £988,000, administrative expenses of £3,316,000 and other operating income of £427,000 resulting in an operating profit of £54,000. 2 PROFIT ON SALE OF PROPERTIES On 31 December 2003, the group's freehold property in Atlanta, USA was sold for £437,000 generating a profit on disposal of £96,000 after related costs. The tax effect of this disposal was a charge of £26,000. In the prior year, an additional £175,000 was received after achieving certain conditions regarding planning permission specified in the contract, for the disposal of the group's property in Anstey, Leicestershire. 3 PROFIT/(LOSS) ON DISPOSAL OF OPERATIONS 2004 £000 2003 £000 a) Disposal of Riverside - (3,507) b) Loss on disposal of TWIL business - (204) c) Loss on disposal of Warner Fabrics - (14) d) Release/(provision) against deferred consideration outstanding for the 85 (100) disposal of Cole & Sons _______ _______ 85 (3,825) _______ _______ a) On 20 May 2003, the trade and assets of the business trading as Riverside was sold for £2,801,000. The loss on disposal was £3,507,000 which was fully provided in the prior year. b) In the prior year, the trade and assets of Textile Wallcoverings International Limited (' TWIL') was sold for a consideration of £878,000, resulting in a loss of £204,000. c) In the previous year, £14,000 of the consideration was waived from the disposal of the business trading as Warner Fabrics that was sold in 2002. d) In the previous year, a further provision of £100,000 was made against the deferred consideration that remained outstanding on the sale of Cole & Sons in a prior year. During the year, settlement of this dispute was reached with £85,000 paid by the purchaser. There is no tax effect on the disposals in either year due to capital losses brought forward from previous periods. 4 LOSS PER SHARE The basic loss per share and diluted loss per share are both based on the loss on ordinary activities after taxation, amounting to £4,296,000 (2003: £7,361,000 loss) and the weighted average of 56,457,016 (2003: 56,457,016) ordinary shares in issue during the year. 5 ACQUISTION OF ARTHUR SANDERSON & SONS On 29 August 2003, the trade and assets of Arthur Sanderson & Sons were purchased for £5,500,000 paid in cash on completion. In its unaudited management accounts for the financial year to 31 December 2002, the business made a loss before taxation of £502,000. In the eight months prior to acquisition, the management accounts showed a turnover of £14,503,000 and a loss before taxation of £396,000. Book Value Fair Value Provisional Adjustments Fair Value £000 £000 £000 Net assets acquired Intangible assets - 3,449 3,449 Fixed assets 1,741 (889) 852 Stock 2,500 (301) 2,199 Debtors 174 (67) 107 Cash 193 - 193 Creditors and accruals (348) (516) (864) Provision for onerous contract - (200) (200) __________ __________ __________ 4,260 1,476 5,736 __________ __________ __________ Goodwill - __________ Net cash outflow from acquisition 5,736 __________ Satisfied by: Cash 5,500 Acquisition expenses 236 __________ Net cash outflow 5,736 __________ The book value of the assets and liabilities have been taken from the management accounts of Arthur Sanderson & Sons at 29 August 2003. The fair value adjustments contain some provisional amounts, which will be finalised in the 2005 financial statements when the detailed acquisition investigation has been completed. The fair value adjustments comprise £3,449,000 in relation to the acquired Arthur Sanderson and William Morris archive, £889,000 provision against leasehold improvements, £301,000 provision against obsolete stock, £67,000 increase in doubtful debt provision, £516,000 accrued for settlement of claims and other related costs and £200,000 provided for an onerous contract. 6 DISPOSAL OF RIVERSIDE On 20 May 2003, the group sold the trade and assets of the Riverside business for £2,801,000 paid in cash on completion. £000 Net assets disposed of: Goodwill 267 Tangible fixed assets 584 Property 1,724 Stock 2,156 Debtors 2,458 Creditors (1,826) __________ 5,363 Goodwill previously set off to reserves 819 __________ Total net assets 6,182 Loss on disposal (fully provided in 2003) (3,507) __________ Proceeds from disposal 2,675 __________ Satisfied by: Cash received at acquisition 2,801 Fees and related costs (126) __________ Net consideration 2,675 __________ 7 RECONCILIATION OF OPERATING LOSS TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 2004 2004 2003 2003 £000 £000 £000 £000 Operating loss (3,159) (3,802) Depreciation and amortisation 2,645 3,111 Difference between pension charge and (528) 66 cash contribution (Profit)/loss on disposal of fixed assets (12) 2 Decrease in stocks 746 2,136 (Increase)/decrease in debtors (2,391) 3,253 Increase/(decrease) in creditors 1,797 (2,477) Decrease in provisions (15) - __________ __________ __________ _________ 2,242 6,091 __________ _________ Net cash (outflow)/inflow from operating (917) 2,289 activities __________ _________ The cash outflow from operating activities in the discontinued operation was £627,000 in the year (2003: £505,000 inflow). The cash outflow from operating activities in the Sanderson business since acquisition was £1,318,000 in the year. 8 ANALYSIS OF NET DEBT 31 January Cash flow Other Exchange 31 January 2003 £000 movements movement 2004 £000 £000 £000 £000 Cash at bank and in hand 496 163 - (40) 619 Overdrafts (5,754) (1,399) - - (7,153) __________ ________ __________ _________ _________ (5,258) (1,236) - (40) (6,534) __________ ________ __________ _________ _________ Debt due within one year (307) (3,991) - - (4,298) Debt due after one year (405) 316 - - (89) Finance leases (1,303) 585 - 6 (712) __________ ________ __________ _________ _________ (2,015) (3,090) - 6 (5,099) __________ ________ __________ _________ _________ (7,273) (4,326) - (34) (11,633) __________ ________ __________ _________ _________ 9 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2004 2003 £000 £000 Decrease in cash in the year (1,236) (1,980) Decrease in debt and lease financing (3,090) 2,376 __________ _________ Cash (outflow)/inflow from cash flows (4,326) 396 Exchange movement (34) 196 __________ _________ Movement in the year (4,360) 592 Net debt at 1 February 2003 (7,273) (7,865) __________ _________ Net debt at 31 January 2004 (11,633) (7,273) __________ _________ 10 POST BALANCE SHEET EVENTS On 20 February 2004, the sale and leaseback of the group's freehold property in Milton Keynes was completed with proceeds of £4,670,000. The profit on disposal after related costs and expenses is £1,461,000. On 5 April 2004, certain of the retail concessions in the group's Sanderson business were sold for an initial consideration of £675,000, subject to a working capital adjustment. There will be a loss on disposal of approximately £50,000. On 20 May 2004, the Warner archive of designs was sold for £2,000,000. The profit on disposal was £1,500,000 after related costs and expenses and £202,000 of goodwill previously set off to reserves. This information is provided by RNS The company news service from the London Stock Exchange

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