Interim Results
Walker Greenbank PLC
25 October 2001
25 October 2001
Walker Greenbank PLC
Interim results for the six months to 31 July 2001
Chairman's statement
Overview
Market conditions in the six months to 31 July 2001 continued to be difficult.
Therefore, despite a significant reduction in the cost base at the end of last
year, this proved insufficient to return the group to profitability and
further actions including additional redundancies have had to be taken. The
continued slowdown in the marketplace in the first half combined with customer
destocking has particularly affected the group's manufacturing businesses.
The slowdown has resulted in sales being 10% lower than the same period last
year in the core brands. However, total sales for the group are broadly in
line with last year due to the inclusion of a full six months of the
acquisitions made in March 2000. The pre-exceptional operating loss in the
period is £1,495,000 compared to a pre-exceptional operating loss of £14,000
last year.
On 27 March 2001, I announced a change to the composition of the board.
Despite the poor trading results, I am pleased that the new management team
has started to make a positive impact on the group, which has reduced the
effect of adverse trading conditions.
Results
Sales in the first half were £31.1 million compared to £31.8 million in the
same period last year. The operating loss in the period of £1,495,000 is
before exceptional operating costs of £1,577,000. The exceptional operating
costs arose principally from the cost of closing the Strines factory prior to
transferring the business into Standfast and redundancy payments made to
reduce further the group's fixed cost base. During the period the sale of the
Anstey factory was also completed realising £588,000 of cash and a profit on
disposal of £272,000. The loss per share for the period was 6.03p (2000: loss
per share 1.41p). As last year, there will be no interim dividend.
Tight cash control has been maintained during the period and despite a loss
before interest and taxation of £3,037,000 the cash outflow from operating
activities was only £45,000. Capital expenditure has also reduced following
the significant investment made in previous years and we are now in a position
where depreciation significantly outweighs capital spending.
The balance sheet remains strong with net assets of 61p per share and net
gearing of only 18%.
Operating Review
The brands
Despite the fall in sales at Harlequin and Zoffany, the reductions made last
year to their cost bases have resulted in profitability being maintained at
similar levels to the first half of last year. The strength of the designs and
market presence has continued to build and the launch of Zoffany's new
furniture range has been very well received. The group has also continued to
extend its Cirka brand, complimented by the acquisition of the Brushstrokes
stencil and accessories business.
Manufacturing
The acquisition of Weavestyle last year has helped the Contract Fabrics
business maintain a good return on sales and following the consolidation onto
one site, manufacturing efficiencies have started to come through. The
synergies expected from the consolidation will help to reduce the ongoing cost
of production.
Standfast has had a particularly difficult six months following the sharp
slowdown across the industry. Management has continued to take advantage of
the closure and sale of many of its competitors. A significant amount of
business was purchased through the Strines Textiles acquisition. This not only
brings the volumes up to a profitable level in the factory now that they are
on one site but has also opened new markets.
Poor market conditions have led to a significant fall in sales at Anstey, our
wallpaper manufacturing business. The reduced volumes have led to lower
margins despite the cost reductions made at the end of last year and are
disappointing after the group's substantial investment in new plant. The
marketplace continues to be extremely difficult, however, new management has
been appointed and we expect new marketing initiatives will increase prospects
of an improved performance.
Overseas
The well publicised downturn in the US economy has adversely affected our
growth plans in this market. Sales are slightly up year on year, but we have
not yet seen the return on the investment made in the business that we had
hoped. As reported at the year end, the company has been re-focused putting it
in a good position to resume growth, provided we see no further deterioration
in economic conditions.
Acquisitions and disposals
The acquisition of Strines Textiles represented an opportunity to consolidate
capacity in the printed fabric market and provides Standfast with valuable
volume that will significantly improve production efficiency and increase
profitability. It also brings new expertise and customers that give Standfast
new leads in apparel and camouflage printing. In the period £718,000 has been
recognised for trading losses incurred whilst closing the Strines factory and
making the staff redundant that did not relocate to Standfast. Other than
these closure costs, consideration of approximately £1 million will be paid
for goodwill, stock and fixed assets. Royalties may also be paid over a three
year period depending on the performance of the business.
On 18 July 2001, Brushtrokes was acquired from the receiver for £250,000. The
business is the market leader in the UK in stencil design and manufacture for
the home decor market. This business will be moved into the Loughborough
factory in the autumn and is expected to make a significant contribution to
the overheads of that site. It also broadens the product range of our
successful Cirka wallpaper brand and provides openings to significant new
customers and product opportunities.
On 3 September 2001, the group completed its sale of the Warner Fabrics
business for a cash consideration of £453,000. This allows the Zoffany
management to focus on developing the Zoffany brand and avoids the need for
substantial investment in Warner, which would have been inevitable if
retained. It has been agreed to continue distributing the Warner brand through
our overseas subsidiaries and the Warner archive of historic fabrics has been
retained by the group.
Outlook
Since the end of the half year, trading conditions have continued to be
difficult and the economic outlook remains uncertain. However, we have taken
some important steps to improve the performance of the business. We have
significantly reduced the cost base and taken the opportunity to acquire more
volume to utilise our manufacturing capacity. Our strong brands combined with
our design expertise and manufacturing capability will ensure we take full
advantage of any uplift in the marketplace and return the group to
profitability.
The Viscount Thurso
25 October 2001
For further information contact:
Walker Greenbank PLC Helsen Communications
David Medcalf, Chief Executive John Rudofsky
01509 225209 020 8786 6699
John Sach, Group Finance Director
01442 234666
Walker Greenbank PLC
Unaudited Consolidated Profit and Loss Account
For the six months ended 31 July 2001
6 months
to 31 July
2001
before Exceptional 6 6 Year to
exceptional operating months months 31 Jan
operating items to 31 to 31 2001
note items £000 July July £000
£000 2001 2000
£000 £000
Turnover 1 31,128 - 31,128 31,803 64,067
Operating 2 (1,495) (1,577) (3,072) (1,041) (5,269)
loss
Profit on
sale of
property 3 - 272 272 - -
Profit on
disposal of
operations
(including
goodwill
previously
written off
of £1,390,000) - - - - 680
Fundamental
restructuring
of overseas
operations - - - - (123)
Amounts
written off
investments 4 - (237) (237) - (527)
Loss on
ordinary
activities
before
interest (1,495) (1,542) (3,037) (1,041) (5,239)
Interest
payable (327) - (327) (22) (248)
Loss on (1,822) (1,542) (3,364) (1,063) (5,487)
ordinary
activities
before
taxation
Taxation 5 (41) - (41) 269 67
Loss after (1,863) (1,542) (3,405) (794) (5,420)
taxation
Dividends - - - - (533)
Retained
loss for the
period (1,863) (1,542) (3,405) (794) (5,953)
Loss per share
- Basic and
diluted 7 (6.03p) (1.41p) (9.60p)
Dividend per
ordinary share 6 - - 1.00p
Walker Greenbank PLC
Unaudited Consolidated Balance Sheet
As at 31 July 2001
As at As at As at
31 July 2001 31 July 2000 31 Jan 2001
£000 £000 £000
Note
Fixed assets
Goodwill 8 1,566 1,139 1,201
Tangible assets 23,095 25,206 24,036
Walker Greenbank PLC shares 809 1,573 1,046
25,470 27,918 26,283
Current assets
Assets held for resale - - 292
Stocks 14,543 16,627 15,245
Debtors 16,572 20,524 16,935
Cash at bank and in hand 11 1,669 1,836 2,402
32,784 38,987 34,874
Creditors: amounts falling due (20,607) (23,517) (19,234)
within one year
Net current assets 12,177 15,470 15,640
Total assets less current 37,647 43,388 41,923
liabilities
Creditors: amounts falling due after (3,007) (1,434) (3,840)
more than one year
Provisions for liabilities and (308) (258) (352)
charges
Net assets 34,332 41,696 37,731
Capital and reserves
Share capital 590 590 590
Share premium account 457 457 457
Profit and loss account (7,222) (84) (3,823)
Other reserves 40,507 40,733 40,507
Shareholders' funds 34,332 41,696 37,731
Walker Greenbank PLC
Unaudited Group Cash Flow Statement
For the six months ended 31 July 2001
6 months 6 months Year
to to to
31 July 31 July 31 Jan
2001 2000 2001
Note £000 £000 £000
Net cash outflow from operating 12 (45) (2,188) (931)
activities
Returns on investment and servicing
of finance
Net interest (paid)/received (200) 22 (35)
Interest element of finance lease (123) (60) (196)
payments
Dividend income (Employee Share - - 57
Option Plan)
(323) (38) (174)
Taxation (98) 106 164
Capital expenditure
Purchase of tangible fixed assets (641) (5,193) (6,113)
Proceeds from disposal of assets held 588 - -
for resale
Proceeds from disposal of tangible 1 - 9
fixed assets
(52) (5,193) (6,104)
Acquisitions, disposals and
fundamental restructuring
Acquisitions 9,10 (375) (10,459) (10,522)
Net proceeds from disposal of - - 2,689
operations
Fundamental restructuring costs - (325) (523)
(375) (10,784) (8,356)
Equity dividends paid (590) (1,180) (1,180)
Cash outflow before use of financing (1,483) (19,277) (16,581)
Financing
Proceeds from finance leases - 1,400 3,400
Principal repayments of finance lease (522) (322) (819)
obligations
Proceeds of medium term loan - - 1,507
Repayment of borrowings (15) (15) (31)
(537) 1,063 4,057
Decrease in cash and cash equivalents 11 (2,020) (18,214) (12,524)
Walker Greenbank PLC
Notes to the Accounts
1 SEGMENTAL ANALYSIS
Turnover Turnover
6 months to 31 July 6 months to 31 July
2001 2000
(a) Classes of Business £000 £000
Fabrics 17,980 16,689
Wallcoverings 12,323 14,246
Others 825 868
31,128 31,803
(b) Geographical Segments - by destination
United Kingdom 21,904 21,224
Continental Europe 4,798 6,219
North America 4,012 3,802
Rest of the World 414 558
31,128 31,803
2 EXCEPTIONAL OPERATING ITEMS
The exceptional operating costs of £1,577,000 in the period include: £718,000
for the initial cost of closing the Strines' factory and transferring the
business to the group's existing factory operated by Standfast including £
470,000 of redundancy costs; £573,000 for further redundancies in the period,
of which, £227,000 was paid to a past director as compensation for loss of
office; £200,000 of professional fees in connection with the previously
reported proposed offer for the company and £86,000 of costs resulting from
moving the Anstey factory.
In the six months to 31 July 2000 exceptional costs of £1,027,000 were
incurred comprising £678,000 of removal and integration costs incurred with
respect to the new manufacturing plant at Loughborough and £349,000 of
additional operational costs incurred as a result of problems with the
group's new I.T. platform.
3 PROFIT ON SALE OF PROPERTY
During the period the group's property in Anstey, Leicestershire was sold for
£588,000 generating an exceptional profit on disposal of £272,000.
4 AMOUNTS WRITTEN OFF INVESTMENTS
The directors believe there is likely to be a shortfall between the cost of
the shares held by the ESOP and anticipated future proceeds from the exercise
of options and have decided to recognise this shortfall with an amount of £
237,000 written off in the period.
5 TAXATION
The tax charge in the period relates to the overseas operations and is based
on an effective rate equivalent to the corporation tax rate ruling in those
territories. In the UK, unrecognised tax losses result in a £nil charge in
the period.
In the six months ended 31 July 2000 the group received tax refunds in the UK
following the successful resolution of some outstanding tax issues from prior
years.
6 DIVIDENDS
The directors do not recommend the payment of an interim dividend in the
period (2000: £nil).
7 EARNINGS PER SHARE
The basic earnings per share and diluted earnings per share are based on a
loss after taxation of £3,405,000(2000: loss of £794,000) and 56,457,016
ordinary shares (2000: 56,457,016), being the weighted average number of the
shares in issue during the period.
The basic loss per share and diluted loss per share for the year ended 31
January 2001 were based on a loss on ordinary activities after taxation,
amounting to £5,420,000 and the weighted average of 56,457,016 ordinary
shares in issue during the year.
8 GOODWILL
£000
Cost
At 1 February 2001 1,323
Goodwill on acquisitions (note 9) 426
At 31 July 2001 1,749
Amortisation
At 1 February 2001 122
Amortisation for the period 61
At 31 July 2001 183
Net book amount at 31 July 2001 1,566
Net book amount at 1 February 2001 1,201
9 ACQUISITION OF STRINES TEXTILES
£000
Provisional fair value of assets acquired comprised:
Tangible Fixed Assets 125
Stock 450
575
Goodwill 426
Cost of acquisition 1,001
Satisfied by:
Cash 125
Deferred consideration 876
1,001
On 11 June 2001 the group completed its purchase of the trade and certain of
the assets of Strines Textiles, a fabric printing business based in the UK.
10 ACQUISITION OF BRUSHSTROKES
£000
Provisional fair value of assets acquired comprised:
Tangible Fixed Assets 8
Stock 242
Cash cost of acquisition 250
On 18 July 2001 the group purchased the trade and certain of the assets of
Brushstrokes, the UK's leading manufacturer of stencils for the DIY
decorative market.
11 ANALYSIS OF NET DEBT
Other Exchange
1 Cash non-cash movement 31 July
February flow changes £000 2001
2001 £000 £000 £000
£000
Cash at 2,402 (731) - (2) 1,669
bank and
in hand
Overdrafts (2,031) (1,289) - - (3,320)
371 (2,020) - (2) (1,651)
Debt due (304) 15 (294) (7) (590)
within 1
year
Debt due (1,269) - 294 (25) (1,000)
after 1
year
Finance (3,517) 522 - - (2,995)
leases
(5,090) 537 - (32) (4,585)
(4,719) (1,483) - (34) (6,236)
12 RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
2001 2001 2000 2000
£000 £000 £000 £000
Operating loss - (3,072) - (1,041)
Depreciation 1,838 - 1,595 -
Loss on disposal of 32 - 3 -
fixed assets
Decrease/(increase) 1,594 - (1,443) -
in stocks
Decrease/(increase) 252 - (3,192) -
in debtors
(Decrease)/increase (689) - 1,890 -
in creditors
3,027 (1,147)
Net cash outflow (45) (2,188)
from operating
activities
13 POST BALANCE SHEET EVENT
On 3 September 2001, the group sold the Warner Fabrics business for £453,000
of which £275,000 was payable on completion and the balance in instalments
up until August 2002.
14 CONTINGENT LIABILITY
In 1996, the company entered into an agreement with a communications
conglomerate to supply the group with data transmission services over its
wide area network in the UK and Europe. The company received a claim in the
year ended 31 January 2001 under this contract relating to services
purportedly supplied in 1998 amounting in all to some £1,800,000. The
directors continue to refute the claim and defend it vigorously and continue
to believe that there is no need to make a provision.
15 PREPARATION OF INTERIM FINANCIAL INFORMATION
The interim financial statements have been prepared on a basis consistent
with the accounting policies disclosed in the Annual Report and Accounts for
the year ended 31 January 2001.
The consolidated results for the year ended 31 January 2001 have been
extracted from the financial statements for that year and do not constitute
full statutory accounts for the group. The group accounts for the year ended
31 January 2001 received an unqualified audit report and did not include a
statement under section 237 (2) or (3) of the Companies Act 1985 and have
been filed with the Registrar of Companies.
16 INTERIM FINANCIAL STATEMENTS
Further copies of this interim statement are available from the registered
office of Walker Greenbank PLC at 4 Brunel Court, Cornerhall, Hemel
Hempstead, Hertfordshire HP3 9XX.
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