Final Results
Walker Greenbank PLC
26 May 2005
WALKER GREENBANK PLC
26 May 2005
PRELIMINARY RESULTS FOR THE YEAR TO 31 JANUARY 2005
Reduced loss before tax £0.8m (2004: £4.1m)
Operating loss before exceptional items £2.1m (2004: £3.2m)
Reduced losses per share 1.48p (2004: 7.61p)
Net debt reduced to £10.7m (2004: £11.6m)
Brands performing strongly in an extremely challenging marketplace
Group traded profitably in first quarter of the new year, for the first time in
6 years
Ian Kirkham, Chairman of Walker Greenbank PLC, said:
'I am pleased to announce that the Group has traded profitably in the first
quarter of the new year for the first time in 6 years. This is a very
encouraging step forward as the Group begins its rehabilitation to a profitable
and cash generative business. Provided our markets remain stable we are
confident of returning the Group to a full year operating profit'.
Enquiries:
Ian Kirkham, Chairman, or
John Sach, Group Chief Executive Tel: 01908 658078
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 Brands business, which consists of Zoffany, Harlequin and Sanderson brands,
is recognised worldwide, selling a full range of these items. The manufacturing
business consists of fabric printing at Standfast and wallcoverings manufacture
at Anstey which is undertaken for both the brands business and third party
customers.
CHAIRMAN'S STATEMENT
Overview
This year considerable progress has been made towards returning the Group to
profitability, although the overall result for the year is disappointing.
Following the full integration of the Sanderson brand during the first half of
the year, which included the transfer of all external manufacturing, warehousing
and computer systems to in-house facilities, and the amalgamation of the
Sanderson and Zoffany brands to one site in America, considerable benefits have
been seen in the second half. Overall the Group has performed significantly
better in the last 5 months of the year compared to the same period last year.
The Sanderson brand has taken longer to reinvigorate, following its purchase
from receivership, than we had first hoped. We have, however, invested
considerably in stock and have launched a significant amount of new product. The
majority of those product launches took place in the latter part of the year,
culminating in the introduction in January 2005 of Sanderson's 'Options'
collection, the flagship range that historically has been re-launched every
three years. We are currently seeing the full impact of those new launches in
the early part of the new year.
Despite this progress, the continuing difficult market conditions led the Group
to take further action in the second half of the year with the aim of
accelerating the drive to Group profitability in 2005/06.
These measures have included bringing all the Group's brands under the
leadership of one Managing Director who has joined the Board. This has allowed
for reorganisation and resulted in significant cost reduction, the full benefit
of which we are now experiencing. Further benefits from this leaner structure
have been the reduction of central costs within the Group.
Additionally, a reorganisation at Anstey, our wallpaper factory, has reduced the
cost base to a level at which the business can perform economically as a
producer at the premium end of the market, an area that shows signs of recovery
after many years of decline.
Results
The operating loss for the year was £2,722,000 (2004: £3,159,000). This was
after incurring exceptional one-off final integration costs relating to the
acquisition of Sanderson of £670,000 .The loss on the ordinary activities before
tax was £807,000 (2004 : £4,050,000) 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 loss per share for
the year fell to 1.48p from 7.61p in 2004.
Turnover increased 6% to £50,611,000 from £47,795,000 in 2004 following the full
year benefit of the Sanderson acquisition.
The other finance charge for the year was £205,000 (2004: £402,000) following a
reduction in the pension deficit between 31 January 2003 (£11,839,000) and 31
January 2004 (£10,768,000).
Balance Sheet
During the year the Group realised £4,564,000 from the sale and leaseback of its
Milton Keynes site, together with £1,672,000 and £675,000 respectively from the
sale of the Warner Archive of designs and the sale of Sanderson's in store
retail concessions.
The Group's net indebtedness finished the year at £10,746,000 (2004:
£11,633,000). The cash outflow from operating activities was £4,060,000 (2004:
£917,000). This was principally driven by the operating loss and significant
investment in new product in Sanderson in the latter part of the year. With a
return to operating profit combined with the Group's significant depreciation
charge and considerable investment having taken place in product during the
year, the Group should now be in a position to start to generate free cash flow
in the future.
During the year the pension deficit has risen to £11,269,000 (2004:
£10,768,000). This is due principally to the increase in scheme liabilities
following a reduction in long term interest rates and the use of revised
mortality assumptions. We continue to examine ways of reducing this deficit and
the consequent impact that it has on the net assets of the Group.
Dividend
In view of the financial performance of the Group the directors do not recommend
the payment of a dividend.
People
John Sach who took on the role of Acting Chief Executive in November 2003, was
formally appointed to the role of Chief Executive in May 2004.
Deputy Chairman Peter Gyllenhammar resigned from the Board in November 2004.
Charles Gray, who brings to the Group considerable manufacturing experience was
appointed as a director in December 2004.
Following his appointment as Managing Director of the Group's three brands,
David Smallridge was appointed to the Board as Brands Director in December 2004.
David has been with the Group for three years and has been responsible for
turning Harlequin into a highly successful mid-market brand.
Outlook
Our brands are performing strongly in a marketplace that continues to be
extremely challenging. Anstey, our wallpaper factory, has made significant
progress since it has restructured itself into a producer at the premium end of
the market, an area that we consider has further potential as the minimalist
fashion trend of recent years at last shows signs of slowing. Standfast, our
fabric printing factory, is suffering from a declining market place together
with considerably increased energy costs.
Following the full integration of the Sanderson business within the Group, the
heavy investment in new product and the considerable cost savings that have been
achieved through combining our three brands into one reporting structure, I am
pleased to announce that the Group has traded profitably in the first quarter of
the new year for the first time in 6 years. This is a very encouraging step
forward as the Group begins its rehabilitation to a profitable and cash
generative business. Provided our markets remain stable we are confident of
returning the Group to a full year operating profit.
There remains much work to do. We are attempting to lessen the impact of the
Group's pension liabilities during the current year and continue the upward
trend in our results. This will then position the Group with a sustainable and
exciting future.
On 24 May 2005, the Board announced that it had entered into a letter of intent
for the potential sale, subject to due diligence, of its wholly owned Norwegian
subsidiaries Borge Holdings AS and John O Borge AS, and that an application had
been made by the potential acquirer for Competition Authority clearance for the
transaction to proceed.
IAN KIRKHAM
CHAIRMAN
Operating Review
The Brands
During the second half of the year the Group's brands were brought under the
leadership of one Managing Director who has joined the Board. This has involved
transferring Zoffany's Leeds based design studio and Rickmansworth back office
to the same site as Sanderson at Denham.
Following the transfer, significant cost savings have been made by creating one
back office and one management structure. The Brands maintain clear distinction
by continuing to have separate design studios and frontline sales forces.
Harlequin
Harlequin has continued with the success of last year, broadening its product
offer through the launch of many successful new weave collections and the
targeting of new and competitive price points. The brand has consistently taken
market share from its competitors in a challenging marketplace and sales have
grown year on year by 5%. Margins have increased and costs have reduced leading
to a significant growth in profit this year. Harlequin has cemented its position
as one of the best performing mid-market brands in the UK and its re-launch in
America at the start of the new year will further consolidate its continuing
growth in profits.
Zoffany
Zoffany has had a difficult year with underlying sales falling 2%. Sales in the
UK continue to be difficult whilst export sales, most particularly in America
but also in the majority of other key markets, continue to grow. Zoffany's
traditional market sector has undoubtedly suffered from the trend towards
minimalism of recent years but there are increasing signs that this trend is
starting to lose ground. There is also an ever increasing return of interest in
wallpaper, an area of the market in which Zoffany has traditionally been very
strong. Despite margins remaining stable year on year, Zoffany has suffered a
decline in profits this year. The design area has been strengthened with the
appointment of a new design director. This combined with other key management
changes will help improve the brand's profitability next year.
Arthur Sanderson & Sons
This has been a year of significant change for Sanderson as the process of
integration into the Group has been completed. In May the warehousing activity
was transferred from a third party to the Group's in house facility at Milton
Keynes. The transfer also necessitated the migration of all business systems
from an outsourced supplier to the Group's IT system. This was achieved
seamlessly with minimum disruption to the business. This has led to significant
cost reductions, the full year effect of which will be seen in the current year.
By the year end 95% of the entire brand's wallpaper and print requirements had
been transferred to the Group's in house manufacturing facilities. The brand has
taken longer to rebuild than had been hoped at the point of receivership. This
was due to the lack of any product development within the brand in the year
before receivership. We have now invested significantly in new product, with
almost two years worth of collections being launched in the second half of the
year culminating in the launch during January 2005 of Sanderson's 'Options'
collection, the flagship range that has historically been launched every three
years. The brand is gaining momentum and we are confident that it will deliver
significant profit growth in the future.
We are continuing to develop and grow significant licensing opportunities
presented by the exploitation of the unique Sanderson and Morris archive. We
have already developed exciting new product initiatives with existing partners
and see considerable further potential from concepts currently being developed
with new commercial partners worldwide.
Manufacturing
Anstey
Anstey has suffered from a general decline in third party sales. This has been
more than compensated by significant volumes being gained from the acquisition
of Sanderson and also from another major third party customer. Margins have been
squeezed in a very competitive market place. During the second half of the year
Anstey has restructured itself into a producer at the premium end of the market,
an area that shows signs of recovery after many years of decline. Overall,
losses have been significantly reduced and we are confident that this recovery
will continue.
Standfast
Standfast sales have increased year on year by 10% following the full year
effect of the Sanderson acquisition. Margins have been squeezed, however, in an
ever more challenging market place and the business has suffered significantly
higher energy costs. Despite these pressures the overall profitability of the
business has been maintained. Having overcome so many hurdles, the final quarter
saw demand begin to weaken and this has continued into the new year. This will
remain a major focus for the Board.
Overseas
USA
Sales have grown by 27% following the full year effect of the acquisition of
Sanderson. However, the business has suffered a small loss this year due to
reduced margins caused by the weakness of the dollar and one-off integration
costs incurred as a result of amalgamating the Sanderson and Zoffany businesses
onto one site. This included the closure of Zoffany's Atlanta based head office
and warehouse and the transfer of all business activities to Sanderson's
facility in New Jersey. Following recent significant price rises and the full
year effect of the cost saving achieved following the integration, we are
confident that the US will return to profitability in the current year.
Europe
John O'Borge in Norway saw volumes decline year on year, but margins remained
robust and with other operating efficiencies, the year on year profit
contribution improved. Despite its continued profitability, the business remains
a non core activity of the Group.
The distribution businesses for Zoffany in Rome and Sanderson in Paris both
performed in line with expectations, although they do not represent a large part
of the Group.
JOHN SACH
GROUP CHIEF EXECTUVE
Group Profit and Loss Account
Year ended 31 January 2005
Before
Exceptional Exceptional Total
items items 2005 2004
Note £000 £000 £000 £000
Turnover 1,2 50,611 - 50,611 47,975
Operating loss 2 (2,052) (670) (2,722) (3,159)
Profit on sale of properties 3 - 1,461 1,461 96
Profit on sale of Warner Archive 4 - 1,470 1,470 -
Profit on disposal of operations 4 - - - 85
(Loss)/Profit on ordinary activities before interest (2,052) 2,261 209 (2,978)
Net interest payable (811) (670)
Other finance charge (205) (402)
Loss on ordinary activities before taxation 1 (807) (4,050)
Tax on loss on ordinary activities (27) (246)
Loss on ordinary activities after taxation (834) (4,296)
Dividends - -
Loss for the year (834) (4,296)
Loss per share - Basic and diluted 5 (1.48)p (7.61)p
Dividend per ordinary share - -
All results are in relation to continuing activities of the Group.
There is no material difference between the loss on ordinary activities above
and their historical cost equivalent.
Balance Sheet
At 31 January 2005
Group Group Company Company
2005 2004 2005 2004
(restated) (restated)
Note £000 £000 £000 £000
Fixed assets
Intangible assets 4,898 4,182 - -
Tangible assets 11,376 12,877 4,692 4,790
Investment in subsidiaries - - 19,000 19,000
16,274 17,059 23,692 23,790
Current assets
Assets held for resale - 3,428 - 3,428
Stocks 12,879 12,018 - -
Debtors 11,346 11,447 30,655 30,070
Cash at bank and in hand 1,149 619 - -
25,374 27,512 30,655 33,498
Creditors: amounts falling due within one year (11,657) (24,371) (7,886) (13,597)
Net current assets 13,717 3,141 22,769 19,901
Total assets less current liabilities 29,991 20,200 46,461 43,691
Creditors: amounts falling due after more than one year (11,310) (444) (1,500) (89)
Provisions for liabilities and charges (342) (308) (44) (151)
Net assets excluding pension liability 18,339 19,448 44,917 43,451
Pension Liability 10 (11,269) (10,768) - -
Net assets 7,070 8,680 44,917 43,451
Capital and reserves
Share capital 590 590 590 590
Share premium account 457 457 457 457
Profit and loss account (34,484) (32,874) 1,982 516
Other reserves 40,507 40,507 41,888 41,888
Equity shareholders' funds 7,070 8,680 44,917 43,451
Group Cash Flow Statement
Year ended 31 January 2005
Note 2005 2005 2004 2004
£000 £000 £000 £000
Net cash outflow from operating activities 7 (4,060) (917)
Returns on investment and servicing of
finance
Interest received 4 12
Interest paid (772) (599)
Interest element of finance lease payments (43) (92)
(811) (679)
Taxation (278) (267)
Capital expenditure
Purchase of tangible fixed assets (1,187) (569)
Proceeds from assets held for resale 325 416
Proceeds from disposal of property 4,564 -
Proceeds from disposal of tangible fixed - 137
assets
3,702 (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 - (319)
year
Net proceeds from disposal of TWIL in the prior year - 740
2,347 (2,447)
Equity dividends paid - -
Cash inflow/(outflow) before use of liquid 900 (4,326)
resources and financing
Management of liquid resources - -
ianFinancing
Proceeds from new loans 11,744 6,000
Principal repayments of finance lease obligations (463) (585)
Repayment of borrowings (4,487) (2,325)
6,794 3,090
Increase/(decrease) in cash 8 7,694 (1,236)
Statement of Total Recognised Gains and Losses
Year ended 31 January 2005
Group Group
2005 2004
£000 £000
Loss for the financial year (834) (4,296)
Actual less expected return on pension scheme assets 822 1,446
Experience losses arising on pension scheme liabilities (1,932) (501)
Currency translation differences 132 (109)
Total recognised gains and losses since the last annual report (1,812) (3,460)
Reconciliation of Movements in Shareholders' Funds
Year ended 31 January 2005
Group Group
2005 2004
(restated)
£000 £000
Loss for the financial year (834) (4,296)
Dividends - -
Loss for the year (834) (4,296)
Other recognised gains and losses relating to the year (978) 836
Goodwill previously set off to reserves in respect of the disposal of operations 202 -
Net reduction to shareholders' funds (1,610) (3,460)
Opening shareholders' funds 8,680 12,742
Prior year adjustment (UITF 38) - (602)
Closing shareholders' funds 7,070 8,680
Interest in own shares have been reclassified from fixed asset investments to
the profit and loss reserve following the adoption of UITF Abstract 38 '
Accounting for ESOP Trusts'. The impact is to reduce profit and loss reserves by
£602,000 as a prior year adjustment in 2004.
Notes to the Accounts
1 Segmental Analysis
(a) Classes of business
Turnover
2005 2004
£000 £000
Fabrics 29,499 28,797
Wallcoverings 18,095 17,030
Other 3,017 2,148
50,611 47,975
(b) Geographical Segments
Turnover (Loss)/profit before Net assets
taxation
2005 2004 2005 2004 2005 2004
(restated)
£000 £000 £000 £000 £000 £000
By origin:
United Kingdom 38,498 37,222 (993) (4,496) 6,045 7,536
Continental Europe 5,614 5,619 210 192 936 832
North America 6,499 5,134 (24) 254 89 312
50,611 47,975 (807) (4,050) 7,070 8,680
By destination:
United Kingdom 30,887 30,458
Continental Europe 10,185 9,538
North America 8,024 7,175
Rest of the World 1,515 804
50,611 47,975
2 Analysis of Operating Loss
2005 2004
£000 £000
Turnover 50,611 47,975
Cost of sales (23,969) (23,373)
Gross Profit 26,642 24,602
Net operating expenses:
Distribution costs (8,992) (9,109)
Administrative expenses (21,356) (19,237)
Other operating income 984 585
Operating loss (2,722) (3,159)
The operating loss included £670,000 of items of a one-off non recurring nature
relating to the integration of the Sanderson business within the Group. This
comprised £191,000 redundancy costs incurred in combining the Zoffany and
Sanderson US operations, £295,000 redundancy costs relating to the combining of
the Sanderson and Zoffany UK divisions onto one site, £127,000 removal costs and
costs of terminating a property lease at the Zoffany UK site, and £57,000 of
cost incurred in transferring Sanderson stock to the Group's warehouse at
Tilbrook.
3 Profit on Sale of Properties
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. The tax effect of the disposal was nil. In the prior year, 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.
4 Profit on sale of Warner Archive/Profit on Disposal of Operations
2005 2004
£000 £000
a) Profit on sale of Warner Archive 1,470 -
b) Release of provision against deferred consideration - 85
outstanding for the disposal of Cole & Sons
1,470 85
a) 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.
b) During the year ended January 2003, 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 prior year, settlement of this dispute was
reached with £85,000 paid by the purchaser.
5 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 £834,000 (2004: £4,296,000
loss) and the weighted average of 56,457,016 (2004: 56,457,016) ordinary shares
in issue during the year.
6 Acquisition of Arthur Sanderson & Sons
On 29 August 2003, the trade and certain assets of Arthur Sanderson & Sons were
purchased for £5,500,000 paid in cash on completion.
2004 2005 2005
Provisional Adjustments to Final
Fair Value
Fair Value Fair Value
£000
£000 £000
Net assets acquired:
Intangible assets 3,449 851 4,300
Fixed Assets 852 53 905
Stock 2,199 - 2,199
Debtors 107 - 107
Cash 193 - 193
Creditors and accruals (864) - (864)
Provisions (200) (904) (1,104)
5,736 - 5,736
Goodwill - - -
Net cash outflow from acquisition 5,736 5,736
Satisfied by:
Cash 5,500 5,500
Acquisition expenses 236 236
Net cash outflow 5,736 5,736
The adjustments to provisional fair values include additional provisions for an
onerous contract, an adjustment for the excess consideration received for the
Brookmill property sold in the year, and a legal claim.
7 Reconciliation of Operating Loss to Net Cash Outflow from Operating Activities
2005 2005 2004 2004
£000 £000 £000 £000
Operating loss (2,722) (3,159)
Depreciation and amortisation 2,368 2,645
Difference between pension charge and cash contributions (814) (528)
Profit on disposal of fixed assets - (12)
(Increase)/decrease in stocks (1,301) 746
Decrease/(increase) in debtors 148 (2,391)
(Decrease)/increase in creditors (1,011) 1,797
Increase/(decrease) in provisions 123 (15)
Fair value adjustment (851) -
(1,338) 2,242
Net cash outflow from operating activities (4,060) (917)
8 Analysis of Net Debt
1 February Other Exchange 31 January
2004 movements movement 2005
Cash flow
£000 £000 £000 £000
£000
Cash at bank and in hand 619 541 - (11) 1,149
Overdrafts (7,153) 7,153 - - -
(6,534) 7,694 - (11) 1,149
Debt due within one year (4,298) 3,898 - - (400)
Debt due after one year (89) (11,155) - - (11,244)
Finance leases (712) 463 - (2) (251)
(5,099) (6,794) - (2) (11,895)
(11,633) 900 - (13) (10,746)
9 Reconciliation of Net Cash Flow to Movement in Net Debt
2005 2004
£000 £000
Increase/(decrease) in cash in the year 7,694 (1,236)
Increase in debt and lease financing (6,794) (3,090)
Cash inflow/(outflow) from cash flows 900 (4,326)
Exchange movement (13) (34)
Movement in the year 887 (4,360)
Net debt at 1 February 2004 (11,633) (7,273)
Net debt at 31 January 2005 (10,746) (11,633)
10 Pensions
Movement in deficit during the period
2005 2004
Group Group
£000 £000
Deficit at beginning of period (10,768) (11,839)
Movement in the period:
Current service cost (226) (395)
Contributions 1,040 923
Other finance charge (205) (402)
Actuarial (loss)/gain (1,110) 945
Deficit at end of period (11,269) (10,768)
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