Interim Results
Walker Greenbank PLC
26 October 2004
26 October 2004
WALKER GREENBANK PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2004
• Operating loss of £1.5M (2003: £1.3M), after exceptional Sanderson
integration costs of £0.3M
• Profit before tax £1M; first profit since 2000
• Profit before interest and tax of £1.5M (2003: £1.3M loss)
• Net cash inflow before use of liquid resources and financing of £2.4M
(2003: £2.5M)
• Acquisition of Sanderson has increased group sales 18% over the same
period last year
• Strong performance from Harlequin
• New financing agreement gives the group increased flexibility in its
facilities
Ian Kirkham, Chairman of Walker Greenbank PLC, said:
'The market place continues to be difficult and as yet there are no clear signs
of a sustained recovery. The acquisition of Sanderson has given us the
opportunity of returning the group to profitability. Following its full
integration we are already seeing a considerable improvement in the second half
results over last year. With the heavy investment in new product this autumn and
the integration in the second half of the group's brands under one management
structure, we are cautiously optimistic of a return to operating profitability
next year.'
Enquiries:
Ian Kirkham, Chairman, or Tel: 01908 658078
John Sach, Group Chief Executive
Walker Greenbank PLC
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,
Harlequin and Sanderson 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.
CHAIRMAN'S STATEMENT
Overview
During this half year the group has benefited from the acquisition of Arthur
Sanderson & Sons. The full effect is not yet showing in the results, as
exceptional costs of completing the integration have had to be absorbed. With
the integration now fully complete and the transfer of all external
manufacturing to our own in house facilities the full benefit of these actions
will be seen in the second half. We have invested considerably in stock and are
currently undertaking the biggest launch of new product that Sanderson has seen
for two years. These actions should help considerably in growing Sanderson's
sales over the coming 12 months.
The business environment remains challenging, with sales growth very difficult
to achieve. The exception to this is our Harlequin brand, which continues to
outperform the market. Zoffany, our premium brand has found difficulty in
achieving underlying sales growth in the current market place, although the
business in the USA continues to grow in local currency terms.
Following the acquisition of Sanderson we have been able to physically relocate
the Zoffany business onto the same site at Denham. This has enabled us to change
the way we conduct our brands business. All our brands have now become the
responsibility of one Managing Director reporting directly to the main board.
This integration will inevitably lead to some initial one off costs in the
second half, but will result in a considerable reduction in costs next year.
These measures will ensure that our consumer brands enter next year with a
leaner cost base, a faster decision making structure and a management team that
operates closer to the customer base.
Results
The operating loss for the period was £1,466,000 (2003:£1,295,000). This was
after incurring exceptional one off integration costs relating to the
acquisition of Sanderson of £289,000. The profit on the ordinary activities
before tax was £1,465,000 (2003: £1,295,000 loss) following the successful sale
of the Warner Archive of designs and the sale and leaseback of the group's
freehold property in Milton Keynes for an aggregate profit of £2,931,000. The
earnings per share for the period was 1.80p (2003: loss 3.08p). The directors do
not recommend the payment of an interim dividend.
Cash outflow in the period from operating activities was £3,347,000. This was
primarily due to the cyclical nature of debtor and stock build for autumn
launches most particularly at Sanderson. This was countered by the proceeds
received on the property sale and leaseback (£4,564,000), sale of the Warner
Archive (£1,672,000) and the sale of the Sanderson Retail business (£675,000)
leading to a net cash inflow for the period of £2,411,000.
The implementation of UITF 38 'Accounting for ESOP trusts' for the year to
January 2005 means that the shares held by the Walker Greenbank PLC Employee
Benefit Trust are no longer disclosed as an asset, but rather are deducted in
arriving at shareholders' funds. This has had the effect of reducing
shareholders' funds by £602,000.
Operating Review
The brands
The Harlequin brand continues to take market share from its competitors in a
very challenging market place, with sales improving on the same period last year
by over 5%. This increase in sales has been achieved by the continuing strength
of its product launches. Greater margins and reduced overheads have led to a
significant improvement in operating profit over the same period last year. The
Harris Fabrics brand, which was integrated into the Harlequin business last
year, has suffered a decline in turnover compared to the same period last year.
This trend had been anticipated, and two new collections were launched in the
period, with a further one due later in the year. Improved margins and a reduced
overhead base, following its integration into Harlequin, have led to a doubling
of its operating profit.
Zoffany experienced a sales decline compared to the same period last year, as a
direct result of licensing its carpet business, although underlying sales are
broadly in line with last year. Sales in the UK continue to be difficult whilst
export sales, most particularly in the USA, continue to grow. This change in
sales mix has led to slightly reduced margins and a reduced operating profit
compared to the same period last year. The second half of the year should show
an improvement based on a reasonably strong contract order book and a reduced
cost base following the transfer of its Leeds based design studio and
Rickmansworth head office to the site at Denham.
As anticipated in the year-end announcement, the integration and re-building of
the Sanderson brand has been a challenging process. Now, following the first
anniversary of its introduction to the group, the UK operation accounted for 21%
of the group's sales in the six months. The brand has now been fully integrated
into the group, including the transfer of manufacturing to in house facilities,
the transfer of warehousing to the group's Milton Keynes facility, changing to
the group's IT system and the integration of the operations in the USA. The full
benefit of all this integration will be seen in the second half.
The challenge now facing the brand is to rebuild its sales base, which will be
greatly enhanced by the most significant launch of new product by Sanderson for
two years. The full impact of this product launch will not be seen until the
latter part of this year and early next year.
Manufacturing
Standfast continues to benefit from the Sanderson acquisition, with sales ahead
of last year by 16%. The initial work needed to absorb Sanderson's product put
margins under pressure in the first half. This position is expected to improve
in the second half. Despite the rise in overhead costs, principally due to
significant increases in energy costs, the business has returned to profit in
the first half.
Anstey continues to suffer from a very depressed market. A reduction in third
party sales has, however, been more than compensated by the significant
additional work gained from the Sanderson acquisition. Like Standfast, margins
have been under pressure whilst the Sanderson production, together with a
significant amount of work gained from a competitor, has been fully absorbed.
Anstey has also suffered from higher energy costs but despite this it has
managed to reduce its overhead cost, leading to a reduction in losses compared
to the same period last year. Looking forward, Anstey has a reasonably strong
order book and there are tentative indications that the wallpaper market at the
premium end is starting to show signs of recovery. These factors, combined with
the closure of the loss making Cirka brand and the plan to improve factory
efficiencies and reduce waste, should lead to a significant improvement in
results over the coming year.
Overseas
USA
Sales of the Zoffany brand in the USA continue to grow year on year. Margins
have come under pressure due to the weakness of the dollar. The Sanderson brand
sales have performed in line with expectations, but also experienced weaker
gross margins. The operations in the USA have benefited from combining the two
businesses into the New Jersey office, which was completed in March 2004. The
full effect of this integration will be seen in the second half.
Europe
John O Borge, in Norway, reported a slight decrease in sales on last year, and a
small reduction in margins. Despite this, tight control over costs has led to an
improvement in profitability compared to the same period last year.
The distribution business 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.
Disposals
In February 2004, the sale and leaseback of the group's freehold property in
Milton Keynes was completed with proceeds before costs of £4,670,000. The profit
on disposal was £1,461,000.
In May 2004, the Warner Archive of designs was sold for a consideration before
costs of £2,000,000, generating a profit on disposal of £1,470,000.
Certain of the Sanderson retail concessions were sold at book value in April
2004, for a consideration of £675,000.
Funding
As disclosed in the annual report and accounts, the group has secured a new
facility with Burdale Financial Limited, replacing the previous financing
arrangements with HSBC. The facility comprises a loan of £2 million secured on
the group's freehold property, and a facility capped at £18.5 million that
fluctuates depending on the level of the UK debtors and stock against which it
is secured.
Outlook
The market place continues to be difficult and as yet there are no clear signs
of a sustained recovery. The acquisition of Sanderson has given us the
opportunity of returning the group to profitability. Following its full
integration we are already seeing a considerable improvement in the second half
results over last year. With the heavy investment in new product this autumn and
the integration in the second half of the group's brands under one management
structure, we are cautiously optimistic of a return to operating profitability
next year.
Walker Greenbank PLC
Unaudited Consolidated Profit and Loss Account
For the six months ended 31 July 2004
note 6 months to 6 months to 31 Year to
July
31 July 2003 31 Jan
2004 £000 2004
£000 £000
------ --------- --------- -------
Turnover 1 26,463 22,381 47,975
------ --------- --------- -------
Operating loss (1,466) (1,295) (3,159)
------- --------- --------- -------
Profit on sale of Warner
Archive 2 1,470 - -
Profit on sale of
property 3 1,461 - 96
Profit on disposal of
discontinued operations - - 85
------ --------- --------- -------
Profit/(loss) on ordinary
activities before
interest 1,465 (1,295) (2,978)
----------------------------- ------ --------- --------- -------
Net interest payable 4 (368) (230) (670)
Other finance charge (108) (167) (402)
----------------------------- ------ --------- --------- -------
Profit/(loss) on ordinary
activities before
taxation 989 (1,692) (4,050)
Taxation 5 25 (48) (246)
----------------------------- ------ --------- --------- -------
Profit/(loss) on ordinary
activities after taxation 1,014 (1,740) (4,296)
Dividends 6 - - -
----------------------------- ------ --------- --------- -------
Retained profit/(deficit)
for the period 1,014 (1,740) (4,296)
----------------------------- ------ --------- --------- -------
Earnings/(loss) per share
- Basic and diluted 7 1.80p (3.08p) (7.61p)
Dividend per ordinary
share 6 - - -
Unaudited Consolidated Balance Sheet
As at 31 July 2004
Note As at As at As at
31 July 2004 31 July 2003 31 Jan 2004
£000 £000 £000
(restated) (restated)
----------------------------- -------- -------- --------
Fixed assets
Intangible assets 4,468 857 4,182
Tangible assets 12,096 16,249 12,877
----------------------------- -------- -------- --------
16,564 17,106 17,059
Current assets
Assets held for resale 325 320 3,428
Stocks 12,634 9,370 12,018
Debtors 12,430 10,047 11,447
Cash at bank and in hand 498 938 619
----------------------------- -------- -------- --------
25,887 20,675 27,512
Creditors: amounts falling
due within one year (20,010) (14,701) (24,371)
----------------------------- -------- -------- --------
Net current assets 5,877 5,974 3,141
----------------------------- -------- -------- --------
Total assets less current
liabilities 22,441 23,080 20,200
Creditors: amounts falling
due after more than one year (1,700) (802) (444)
Provisions for liabilities
and charges (235) (106) (308)
----------------------------- -------- -------- --------
Net assets excluding pension
liability 11 20,506 22,172 19,448
Pension liability (10,642) (11,861) (10,768)
----------------------------- -------- -------- --------
Net assets 9,864 10,311 8,680
----------------------------- -------- -------- --------
Capital and reserves
Share capital 590 590 590
Share premium account 8 457 457 457
Profit and loss account 8 (31,690) (31,243) (32,874)
Other reserves 8 40,507 40,507 40,507
----------------------------- -------- -------- --------
Shareholders' funds 9,864 10,311 8,680
----------------------------- -------- -------- --------
Unaudited Group Cash Flow Statement
For the six months ended 31 July 2004
Note 6 months to 6 months to Year to
31 July 2004 31 July 2003 31 Jan 2004
£000 £000 £000
----------------------------- ------ -------- -------- --------
Net cash (outflow)/inflow
from operating activities 10 (3,347) 436 (917)
Returns on investment and
servicing of finance
Net bank interest paid (345) (192) (587)
Interest element of finance
lease payments (23) (42) (92)
----------------------------- ------ -------- -------- --------
(368) (234) (679)
----------------------------- ------ -------- -------- --------
Taxation (82) (94) (267)
Capital expenditure
Purchase of tangible fixed
assets (703) (216) (569)
Proceeds from assets held for
resale 4,564 - 416
Proceeds from disposal of
tangible fixed assets - - 137
----------------------------- ------ -------- -------- --------
3,861 (216) (16)
----------------------------- ------ -------- -------- --------
Acquisitions and disposals
Disposal of Warner Archive 1,672 - -
Sale of Sanderson retail
division 675 - -
Purchase of Arthur Sanderson
& Sons - - (5,736)
Cash acquired on purchase of
Arthur Sanderson & Sons - - 193
Net proceeds from sale of
Riverside - - 2,675
Acquisition of Strines
Textiles in the prior year - (319) (319)
Net proceeds from disposal of
operations - 2,889 740
----------------------------- ------ -------- -------- --------
2,347 2,570 (2,447)
----------------------------- ------ -------- -------- --------
Equity dividends paid - - -
----------------------------- ------ -------- -------- --------
Cash inflow/(outflow) before
use of liquid resources and
financing 2,411 2,462 (4,326)
Financing
Proceeds from new loans 2,000 - 6,000
Proceeds from new finance
leases - 40 -
Principal repayments of
finance (227) (339) (585)
lease obligations
Repayment of loans (4,387) (159) (2,325)
----------------------------- ------ -------- -------- --------
(2,614) (458) 3,090
----------------------------- ------ -------- -------- --------
(Decrease)/increase in cash 9 (203) 2,004 (1,236)
----------------------------- ------ -------- -------- --------
Unaudited Statement of Total Recognised Gains and Losses
For the six months ended 31 July 2004
6 months to 6 months to Year to
31 July 31 July 31 Jan
2004 2003 2004
£000 £000 £000
---------------------------- -------- -------- --------
Profit/(loss) for the financial period 1,014 (1,740) (4,296)
Currency translation differences (32) (89) (109)
---------------------------- -------- -------- --------
Actual less expected return on pension
scheme assets - - 1,446
Experience losses arising on pension
scheme liabilities - - (501)
---------------------------- -------- -------- --------
Total recognised profits/( losses) since
the last annual report 982 (1,829) (3,460)
---------------------------- -------- -------- --------
Notes to the Accounts
1 SEGMENTAL ANALYSIS
Turnover Turnover
6 months to 6 months to
31 July 2004 31 July 2003
(a) Classes of Business £000 £000
--------------------------------- ---------- ----------
Fabrics 13,617 13,057
Wallcoverings 10,160 7,571
Others 2,686 1,753
--------------------------------- ---------- ----------
26,463 22,381
--------------------------------- ---------- ----------
(b) Geographical Segments - by destination
--------------------------------- ---------- ----------
United Kingdom 16,363 14,703
Continental Europe 4,989 4,003
North America 3,972 3,303
Rest of the World 1,139 372
--------------------------------- ---------- ----------
26,463 22,381
--------------------------------- ---------- ----------
2 PROFIT ON SALE OF WARNER ARCHIVE
In May 2004, the Warner Archive of designs was sold for a consideration
before costs of £2,000,000, generating a profit on disposal of £1,470,000.
3 PROFIT ON SALE OF PROPERTY
In February 2004, the land and buildings at Bradbourne Drive, Tilbrook,
Milton Keynes, were sold under a sale and leaseback agreement. A
consideration before costs of £4,670,000 was received, and a profit of
£1,461,000 was generated on the sale.
4 OTHER FINANCE CHARGE
6 months to 6 months to
31 July 2004 31 July 2003
£000 £000
--------------------------------- ---------- ----------
Expected return on pension scheme assets 1,073 946
Interest on pension scheme liabilities (1,181) (1,113)
--------------------------------- ---------- ----------
(108) (167)
---------- ----------
Notes to the Accounts Continued
5 TAXATION
6 months to 6 months to
31 July 2004 31 July 2003
£000 £000
---------------------- ----------- ------------- ----------
UK Corporation tax at 30% - current - -
(2003: 30%) year
Overseas taxation - current (25) 48
year
---------------------- ----------- ------------- ----------
Tax on profit/(loss) on
ordinary activities (25) 48
---------------------- ----------- ------------- ----------
6 DIVIDENDS
The directors do not recommend the payment of an interim dividend in the
period (2003: £nil).
7 EARNINGS PER SHARE
The basic earnings per share and diluted earnings per share are based on a
profit after taxation of £1,014,000 (2003: loss of £1,740,000) and
56,457,016 ordinary shares (2003: 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 2004 were based on a loss on ordinary activities after taxation,
amounting to £4,296,000 and the weighted average of 56,457,016 ordinary
shares in issue during the year.
8 RESERVES
Other Reserves
Share premium Profit and loss Capital reserve Merger reserve Total
account account
£000 £000 £000 £000 £000
----------------- --------- --------- --------- --------- ---------
1 February 2004
(as previously
reported) 457 (32,272) 43,457 (2,950) 40,507
Prior year
adjustment in
respect of UITF
38 - (602) - - -
----------------- --------- --------- --------- --------- ---------
1 February 2004
(as restated) 457 (32,874) 43,457 (2,950) 40,507
Profit for the
period - 1,014 - - -
Currency
translation
movements - (32)
Goodwill
previously set
off to reserves - 202 - - -
----------------- --------- --------- --------- --------- ---------
31 July 2004 457 (31,690) 43,457 (2,950) 40,507
----------------- --------- --------- --------- --------- ---------
Notes to the Accounts Continued
9 ANALYSIS OF NET DEBT
--------------------
1 February Cash flow Other Exchange 31July
2004 £000 non-cash Movement 2004
£000 changes £000 £000
£000
-------- -------- -------- -------- -------
Cash at bank and in hand 619 (117) - (4) 498
Overdrafts (7,153) (86) - - (7,239)
-------- -------- -------- -------- -------
(6,534) (203) - (4) (6,741)
-------- -------- -------- -------- -------
Debt due within 1 year (4,298) 3.998 - - (300)
Debt due after 1 year (89) (1,611) - - (1,700)
Finance leases (712) 227 - - (485)
-------- -------- -------- -------- -------
(5,099) 2,614 - - (2,485)
-------- -------- -------- -------- -------
(11,633) 2,411 - (4) (9,226)
-------- -------- -------- -------- -------
10 RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATING ACTIVITIES
6 months to 6 months to 6 months to 6 months to
31 July 2004 31 July 2004 31 July 2003 31 July 2003
£000 £000 £000 £000
--------- -------- -------- --------
Operating loss (1,466) (1,295)
Depreciation and
amortisation 1,198 1,298
Difference between
pension charge
and cash contributions (234) (145)
Loss on disposal of fixed
assets - 4
(Increase)/Decrease in
stocks (1,109) 1,306
Increase in debtors (985) (517)
--------- -------- -------- --------
Decrease in creditors (298) (200)
Decrease in provisions (453) (15)
--------- -------- -------- --------
(1,881) 1,731
--------- -------- -------- --------
Net cash (outflow)/inflow
from operating activities (3,347) 436
--------- -------- -------- --------
Notes to the Accounts Continued
11 PENSIONS
The Company operates the following funded pension schemes in the UK: the
Walker Greenbank Pension Plan, the Abaris Holdings Limited Pension Scheme
and the WG Senior Management Pension Scheme. It also operates a defined
benefits scheme in Norway. The Walker Greenbank Pension Plan is the biggest
scheme. All schemes contain defined benefits sections however, the Abaris
Holdings Limited Pension Scheme also contains a defined contribution
section, although this section is relatively small.
The pension costs relating to the UK defined benefit schemes are assessed
in accordance with the advice of an independent qualified actuary using the
projected unit method. These schemes are subject to triennial actuarial
reviews with the most recent ones having been at 6 April 2003 for both the
Walker Greenbank Pension Plan and the Abaris Holdings Limited Pension
Scheme. A valuation was undertaken at 31 January 2004 for the purposes of
the Financial Reporting Standard no. 17.
The assumptions applied when valuing the defined benefit schemes and the
composition of the net deficit in these schemes is fully disclosed in the
statutory accounts for the year ended 31 January 2004.
12 POST BALANCE SHEET EVENT
On 29 September 2004, the property at Brookmill, Darwen was sold for
£405,000. The property had been acquired as part of the assets of Arthur
Sanderson & Sons and was held on the balance sheet as an asset for resale.
The profit on disposal after costs was £70,000.
13 ADOPTION OF NEW ACCOUNTING REQUIREMENTS
The group has adopted UITF 38 'Accounting for ESOP trusts'. The adoption of
the new accounting requirements represents a change in accounting policy,
requiring previously reported figures to be restated in this year's interim
financial information. Shares with a value of £602,000, previously treated
as a fixed asset have been restated as a deduction in arriving at
shareholders' funds.
14 PREPARATION OF INTERIM FINANCIAL INFORMATION
Other than the adoption of the new accounting requirements in relation to
accounting for ESOP trusts, (per note 13 above), 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 2004.
The consolidated results for the year ended 31 January 2004 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 2004 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.
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