Full Year Financial Results

RNS Number : 3321D

Walker Greenbank PLC

26 April 2017

 

26 April 2017

WALKER GREENBANK PLC

("Walker Greenbank" or the "Company")

Financial Results for the year ended 31 January 2017

Walker Greenbank PLC (AIM: WGB), the luxury interior furnishings group is pleased to announce its financial results for the 12 month period ended 31 January 2017.

Highlights

·      Sales up 5.2% to £92.4 million (2016: £87.8 million)  

·      Adjusted underlying profit before tax* up 16.9% at £10.4 million (2016: £8.9 million)

·      Standfast & Barracks fully recovered following flood in December 2015. Financial results include insurance proceeds for loss of profits and net proceeds for asset replacement of £5.1 million for the period

·      Acquisition of Clarke & Clarke in October 2016 delivered a profit contribution of £1.0 million in the first 18 weeks of ownership with performance continuing to be in line with the Board's expectations

·      UK Licensing income gaining momentum, up 25.6% in reportable currency, 13.1% in constant currency, at £2.6 million with new distribution agreements for bedding in the US and China

·      Underlying profit from operations** up 19.5% to £9.8 million (2016: £8.2 million)

·      Total statutory profit from operations down 3.7% to £7.9 million (2016: £8.2 million) due to acquisition, restructuring and reorganisation costs
 

·      Adjusted earnings per share* up 14.6% at 13.67p per share (2016: 11.93p per share)
 

·      Final dividend up 24.9% to 3.06p per share (2016: 2.45p per share), giving a total dividend up 24.9% at 3.61p per share (2016: 2.89p per share)

* Excludes accounting charges relating to share-based incentives, defined benefit pension charge and non-underlying items.

** Excludes acquisition costs, Standfast flood related costs and restructuring and reorganisation costs.

Terry Stannard, the Chairman of Walker Greenbank, said: "Brand sales in the first quarter of the current financial year are on an improving trend though they continue to reflect the flood-constrained product launches in the Spring of last year and partially constrained Autumn launches. Consequential loss of profits continue to be mitigated by our insurance policy though, as we look ahead, the flood's impact on trading will be reduced.

"In the first 12 weeks of the current financial year, Brands sales were up 4.4% in reportable currency and up 0.9% in constant currency. Brands sales exclude Clarke & Clarke, which is trading in line with the Board's expectations and represents an exciting addition to our product portfolio. Sales in the year ahead are expected to benefit from the new collections launched this Spring, from the continued momentum of our licensing activities and from the significant contribution from Clarke & Clarke. With this backdrop, we remain confident in meeting the Board's expectations for the current financial year."

Analyst meeting

A meeting for analysts will be held at 11.00 a.m. today, 26 April 2017, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further details, contact Buchanan on 020 7466 5000.

For further information:

Walker Greenbank PLC	[phone]
John Sach, Chief Executive
Mike Gant, Chief Financial Officer
Investec Bank plc	[phone]
Garry Levin / David Anderson / Alex Wright - Corporate Finance Henry Reast - Corporate Broking
Buchanan	[phone]
Mark Court / Sophie Cowles / Catriona Flint

Notes for editors:

About Walker Greenbank

Walker Greenbank PLC is a luxury interior furnishings company that designs, manufactures and markets wallpapers, fabrics and paints. In addition, the Company derives significant licensing income from the use of its designs on a wide range of interior products such as bed linen, rugs and tableware.

Walker Greenbank's brands include Sanderson, Morris & Co, Harlequin, Zoffany, Scion and Anthology. The brand portfolio was recently extended with the acquisition in October 2016 of the Clarke & Clarke and Studio G brands.

The Company has a strong UK manufacturing base comprising a wallpaper factory in Loughborough and a fabric printing factory in Lancaster. Both factories manufacture for the Company and for other wallpaper and fabric brands.

Walker Greenbank employs more than 600 people and its products are sold in more than 85 countries worldwide. It has showrooms in London, New York, Paris, Amsterdam and Dubai along with partnership showrooms in Moscow and in Shenzhen, China.

Walker Greenbank trades on the AIM market of the London Stock Exchange under the ticker symbol WGB.

For further information please visit: www.walkergreenbank.com/

CHAIRMAN'S STATEMENT

Overview

I am pleased to report that the Group continues to make good progress and has delivered another significant increase in underlying profitability. This result was achieved despite the impact of the flood suffered at our fabric printing factory, Standfast & Barracks, in December 2015 and reflects the success of our continued strategic focus on developing our product offering, international expansion, market penetration, lifestyle product extension and investment in manufacturing.

It also reflects an initial contribution from the acquisition in October 2016 of Clarke & Clarke, a fabrics and wallcoverings business with two international brands, Clarke & Clarke and Studio G. This acquisition continues to trade in line with the Board's expectations and is expected to make a material contribution to earnings during the current financial year ending 31 January 2018. We continue to seek further acquisitions to complement our organic growth initiatives.

We were very pleased with the support from both new and existing investors for the equity fundraising of £17.0 million as part-funding for the acquisition of Clarke & Clarke.

The adjusted underlying profit before tax for the year, excluding the LTIP accounting charge and the net defined benefit charge, was £10.4 million (2016: £8.9 million), an increase of 16.9%. The reported financial results include a first-time contribution from Clarke & Clarke of £1.0 million.

The Group's results were impacted by the flood in December 2015 at Standfast & Barracks, though the financial impact has been mitigated by the Group's comprehensive insurance policy. The results include £2.8 million as a result of interim insurance payments for loss of profits.

To date, the Group has received a total of £16.9 million of flood-related insurance payments in respect of damage to business assets, reimbursement of cleaning costs and loss of profits. As previously announced, we will be seeking to negotiate a final settlement of the insurance claim with our insurers and anticipate that a settlement will be agreed in the first half of the current financial year.

The flood halted production at Standfast & Barracks for a period of 16 weeks, thereby removing the Group's internal capacity to print fabric for its own brands and third party customers. Full production was restored in October 2016 and the brands were fully restocked by the financial year end.

Total Brand sales, which include Clarke & Clarke, were up 12.8% during the year to £76.6 million, including sales of £7.3 million from the first 18 weeks' ownership of Clarke & Clarke. Like-for-like sales are down due to the flood. The impact of this has been mitigated by insurance reimbursement.

Excluding Clarke & Clarke, total Brand sales for the year were up 2.2% compared with the same period last year to £69.3 million. In the UK, our largest market, sales were down by 4.0% to £38.4 million, reflecting the impact of the flood. Overseas Brand sales were up 10.0% in reportable currency, up 0.5% in constant currency. Sales in the US, the Group's second largest market, were up 8.3% in reportable currency, down 5.2% in constant currency. In Western Europe, our third largest market, Brand sales were up 22.4% in reportable currency, up 7.9% in constant currency, with strong sales growth in most regions. Sales in the Rest of the World grew 0.3% in constant currency.

During the year we have continued to develop our product offering. We have been pleased with the performance of our Woodland Walk collection from Sanderson, which has been its best-selling collection for several years, and the success of Morris & Co Pure, a range of classic William Morris designs produced for the first time in neutral colours. 

We are particularly pleased with licensing income of £2.6 million, which was up 25.6% in reportable currency, up 13.1% in constant currency. We are continuing to pursue the extension of our product offering through new licensing agreements to take the Company's brands further into new lifestyle products and geographical territories.  We are excited about the future potential for this important contributor to our growth strategy.

Walker Greenbank's vertically integrated high quality UK manufacturing base, comprising our Loughborough-based wallpaper printing business, Anstey Wallpaper Company, and Lancaster-based fabric printing business Standfast & Barracks, differentiates us from others in our industry.

The flood at Standfast & Barracks resulted in reduced sales and profitability, with total manufacturing sales down 6.7% compared with the same period last year. The insurance-funded replacement of flood-damaged printing equipment means that the factory is now operating with the latest machinery, increasing our production capacity and capabilities.

Financials

Total sales increased 5.2% to £92.4 million (2016: £87.8 million) including Clarke & Clarke sales of £7.3 million.

Although statutory profit from operations is down 3.7% to £7.9 million (2016: £8.2 million) due to acquisition, restructuring and reorganisation costs, the underlying profit from operations has increased 19.5% to £9.8 million (2016: £8.2 million).  

The total statutory profit after tax was £5.4 million (2016: £5.9 million), and basic adjusted earnings per share were up 14.6% after removing the LTIP accounting charge, net defined benefit charge and non-underlying items.

Dividend

The Directors recommend the payment of a final dividend of 3.06p per share (2016: 2.45p), which will be payable on 11 August 2017 to shareholders on the register on 21 July 2017. This brings the total dividend for the year to 3.61p per share (2016: 2.89p) an increase of 24.9%, reflecting the Board's confidence in the future prospects and the financial strength of the Group.

People

On behalf of the Board, I would like to thank all of our management and employees for their contribution to another successful year.

I was delighted to welcome Fiona Holmes to the Walker Greebank Board as Managing Director of Brands during the year. Fiona brings a wealth of brand, digital and multi-channel retail experience to the Company. I would like to say a particular thank you to Fiona's predecessor, David Smallridge, for his invaluable contribution during his 15 years of service. I would also like to thank all of the team members at Standfast & Barracks for their huge part in bringing the factory back to full production.

During the year, we continued to strengthen the operational management and organisational structure of the Group, including the appointment of an MD of Manufacturing and a Group HR Director.

Outlook

We began the new financial year with Standfast & Barracks back to full production capacity and our warehouse fully restocked, giving us a strong platform for the year ahead. In addition, we are excited by our recent acquisition of Clarke & Clarke, which marks the next step in our growth strategy. 

Brand sales in the first quarter are on an improving trend though they continue to reflect the flood-constrained product launches in the Spring of last year and partially constrained Autumn launches. Consequential loss of profits continue to be mitigated by our insurance policy though, as we look ahead, the flood's impact on trading will be reduced. In the first 12 weeks of the current financial year, Brands sales were up 4.4% in reportable currency and up 0.9% in constant currency. Brands sales exclude Clarke & Clarke, which is trading in line with the Board's expectations and is an exciting addition to our product portfolio.

Sales in the year ahead are expected to benefit from the new collections launched this Spring, from the continued momentum of our licensing activities and from the significant contribution from Clarke & Clarke. With this backdrop, we remain confident in meeting the Board's expectations for the current financial year.

Terry Stannard

Non-Executive Chairman

26 April 2017

CHIEF EXECUTIVE'S STRATEGIC REVIEW

We are pleased to report that, in a challenging year for the Group due to the significant business interruption suffered as a result of the flood at Standfast and Barracks in December 2015, we have continued to make good progress with the implementation of our strategy, which comprises:

International expansion;

Market penetration;

Lifestyle product extension;

British manufacturing capability; and

Acquisitions.

The Brands

This segment incorporates global trading from our internationally recognised brands and includes our overseas subsidiaries in the US and France. In addition to Sanderson, Morris & Co., Harlequin, Zoffany, Scion and Anthology, the Brands now include Clarke & Clarke and Studio G, which were acquired by the Company in October 2016.

Fiona Holmes joined the Company in October 2016 as Managing Director of Brands, a role in which she has responsibility for all of the brands apart from Clarke & Clarke and Studio G, which operate on a standalone basis. Fiona is playing a key role in further developing and delivering our strategic ambitions.

Total Brands sales increased during the year despite the impact of the flood at Standfast & Barracks. Total Brands sales increased by 12.8% compared with last year to £76.6 million. This included an 18 week contribution from Clarke & Clarke of £7.3 million. Underlying Brands profit from operations increased by 14.3% to £9.2 million.

Excluding Clarke & Clarke, total Brand sales were up 2.2% during the year at £69.3 million. In the UK, Brands sales decreased 4.0% to £38.4 million, reflecting the flood along with challenging UK trading conditions.   

Sales in the US grew by 8.3% in reportable currency, down 5.2% in constant currency, to £9.2 million and were impacted by the flood. The US is our second largest market and is strategically important, meriting our recent investment in more directly employed sales representatives and an intended investment in our second directly controlled showroom, in Chicago, to add to our recent investment in our flagship showroom in New York.  

Brand sales in Western Europe were up 22.4% in reportable currency, up 7.9% in constant currency, to £8.5 million with most regions performing strongly particularly the Republic of Ireland, up 7.9% in constant currency to £1.9m. Other highlights include sales in Scandinavia, up 15.8% in constant currency to £2.5 million, and growth in Eastern Europe, up 3.6% in constant currency to £2.3 million.

Global licensing income is a key part of our strategy and an important developing income stream for the Group. It extends our lifestyle offering and gives our brands greater consumer awareness both in the UK and internationally. Income was up 25.6% in reportable currency, 13.1% in constant currency, to £2.6 million. Substantial growth has been achieved by our bedlinen and blinds partners in particular, with range extensions into new product areas and new licensing agreements in the US and China.

Harlequin incorporating Scion & Anthology

Harlequin remains the UK's leading mid-market contemporary brand. Its worldwide sales reduced 1.3% to £31.3 million in reportable currency compared with the same period last year. Sales in the UK decreased by 7.2% and were particularly impacted by the flood at Standfast & Barracks. In the US, sales were up 5.3% in reportable currency, down 8.2% in constant currency, and sales in Western Europe have grown 30.6% year on year in reportable currency, 14.9% in constant currency.

The Scion brand has recently celebrated its fifth anniversary and continues to grow well with its fifth collection, Lokho, and its first children's collection, Guess Who, both having been well received. This cutting edge, accessibly priced brand continues to be a success with young, aspirational and fashion-aware customers. Scion has also quickly become established as a valuable brand for licensing partners where the contemporary and graphic nature of the designs translates particularly well.

The Anthology brand, launched in April 2014, also continues to show strong growth. The range now includes five innovative collections of wallcoverings complemented by a growing range of fabrics, which are design-led and aspirational whilst remaining inherently suitable for contract applications.

Arthur Sanderson & Sons incorporating the Morris & Co brand

Sales were up 4.7% at £22.5 million in reportable currency compared with the same period last year. The flood at Standfast & Barracks continued to impact UK sales, which saw a decline of 1.2% compared with the same period last year. However, sales in the US saw significant growth, up 18.9% in reportable currency, 4.1% in constant currency and sales in Western Europe were up 16.8% in reportable currency, up 3.1% in constant currency. Sanderson's Woodland Walk collection has been the brand's best-selling collection for several years now and has been universally appreciated as quintessential Sanderson.

The Morris & Co brand enjoyed a very positive sales performance last year driven by the launch of the Pure Morris collection. This collection interprets William Morris' iconic designs in a new neutral colour palette. This has broadened the brand's appeal, making it more accessible to a wider audience, working equally well in both traditional and contemporary settings.

Zoffany

Zoffany is positioned at the upper end of the premium market. Total sales grew by 3.5% compared with the same period last year to £12.2 million in reportable currency. This growth has been driven by sales of recent collections which reflect the focus on design strategy and direction to position the brand for sustained growth. Sales in the US were up 11.9% in reportable currency, down 1.9% in constant currency, and sales in Western Europe were up 12.8% in reportable currency, down 0.4% in constant currency.

Clarke & Clarke

Clarke & Clarke's two brands, Clarke & Clarke and Studio G, are at the more affordable end of the market, complementing the Group's existing brands. Studio G launched its first collection in Spring 2016, comprising of four books in a variety of modern styles of which the highlight was Lustro, a book of three glamorous velvet designs, which are practical, competitively priced and widely appealing. Total sales for the first 18 weeks of ownership grew by 6.8% compared with the same period last year to £7.3 million in reportable currency, with performance in line with the Board's expectations. 

Manufacturing

Our manufacturing capabilities are one of the Group's key assets and differentiates us from our peer group. They are an integral part of our growth strategy. The flood at Standfast & Barracks had a significant impact on our manufacturing activities, with the result that total manufacturing sales fell 6.7% to £32.0 million leading to a decrease in profits of 58.7% to £1.0 million.

This shortfall has been mitigated by interim insurance payments. The factory has recovered from the flood and is back in full production and the Company's Milton Keynes warehouse was fully stocked with the Company's printed textiles by the financial year end. The construction of flood defences to protect the Standfast & Barracks factory has also been completed.

Anstey Wallpaper Company

Sales at Anstey, our wallpaper printing business, fell 9.1% to £16.9 million. Third party sales in the UK were down 23.3% and third party export sales were down 6.2%. Internal sales to our own Group brands grew by 9.7% reflecting a higher level of new product launches compared with the prior year. Sales were impacted by the consequences of the Standfast & Barracks flood but, as the weakness of sterling feeds through, we see a great opportunity to grow sales overseas.

Standfast & Barracks

Standfast, our fabric printing factory, saw a decrease in sales of 3.7% to £15.1 million as a direct result of the flood in December 2015. Third party sales in the UK fell by 28.9% whilst sales to our own Group brands increased by 17.7%.

As a result of the flood, Standfast has experienced a period of significantly disrupted production and loss of stock, machinery and profits. To date we have received £16.9 million in insurance receipts covering costs plus business interruption losses and interim cashflow requirements, with further business interruption reimbursements expected.

During the period, two of the digital printing machines were replaced with next-generation digital printers with higher throughput and additional capabilities.

Summary

Despite the significant challenges faced as a result of the flood in 2015, I am pleased that we have been able to continue to invest in our brands both in the UK and internationally.

We have also made significant progress in growing our licensing income, boosting our lifestyle product extension and greater consumer awareness. We have successfully completed our first significant acquisition since 2003 with the purchase of Clarke & Clarke, which will accelerate the Group's market penetration and extend our reach in the US. Furthermore, we have made some key senior appointments which, combined with our ongoing investment in our key UK manufacturing, will help to drive growth in 2017 and help to further develop and deliver our strategic objectives.

John Sach

Group Chief Executive

26 April 2017

CHIEF FINANCIAL OFFICER'S REVIEW

Income Statement

The Chairman's Statement and Chief Executive's Review provide an analysis of the key factors impacting revenue and operating profit. In addition to the information on our Brands and Manufacturing divisions included in these reports, the Group has included in note 3 to the accounts further information on our reporting segments. This is the basis on which the Group presents its operating results to the Board of Directors which is considered to be the Chief Operating Decision Maker ('CODM') for the purposes of IFRS 8.

Non-underlying

Statutory profit before tax of £6,965,000 (2016: £7,338,000) included non-underlying charges of £2,164,000 (2016: £nil). These charges are analysed below.

	2017 £000	2016 £000
Statutory profit before tax	6,965	7,338
Acquisition related costs	2,955	-
Unwind of discount on contingent consideration	181	-
Total acquisition related costs	3,136	-
Standfast flood related costs	7,165	3,276
Standfast flood insurance reimbursements	(9,413)	(3,276)
Standfast net other income	(2,248)	-
Restructuring and reorganisation costs	1,276	-
Total non-underlying charges included in profit before tax	2,164	-
Underlying profit before tax	9,129	7,338
LTIP accounting charge	756	924
Net defined benefit pension charge	527	685
Adjusted profit before tax	10,412	8,947

Acquisition related costs incurred were in respect of the acquisition of Clarke & Clarke. These include professional fees of £1,552,000; amortisation of intangible assets of £342,000 and a cost of £1,061,000 associated with the fair value adjustment recognised on the inventory as at the date of acquisition. A charge of £181,000 has been recognised in respect of the unwind of the contingent consideration payable for Clarke & Clarke.

Standfast net other income comprises of proceeds of £2,780,000 from the reimbursement of costs to replace impaired plant and equipment, less flood defence costs of £253,000 and additional insurance costs of £279,000 not reimbursed.

Restructuring and reorganisation costs of £1,276,000 reflect the rationalisation of certain operational and support functions. These costs mainly comprise professional fees, employee severance and property costs associated with the reorganisation process. 

Net other income

The substantial flooding at Standfast & Barracks resulted in extensive stock and machinery damage as well a period of disrupted printing resulting in lost sales revenue. Our Brands business was also impacted by the lack of printing capacity at Standfast resulting in a loss of profits. We have recovered the costs of machinery loss and other incremental costs together with interim business interruption losses from our insurance providers for the period to 31 January 2017. The insurance claim in respect of losses for future financial years is ongoing.

To date £16,933,000 cash has been received, as interim payments from our insurers of which £518,000 has been recognised and included within accruals and deferred income as at 31 January 2017. In the Income Statement, in addition to the non-underlying net other income described above, a further £2,837,000 has been recognised in underlying net other income which represents business interruption losses for the period to 31 January 2017.

Clarke & Clarke acquisition

The acquisition of 100% of the issued share capital of Clarke & Clarke was completed during the year, for an initial cash consideration of £25,000,000 and a contingent consideration of up to £17,500,000, in aggregate, payable in the Company's shares and linked to the performance of the acquired business over a four year period, giving a total potential consideration of up to £42,500,000 excluding working capital adjustments.

In order to finance the initial cash consideration, a placing of a total of 8,947,369 new ordinary shares of 1p each in the Company was also undertaken. These shares were placed at a price of 190.0 pence per share, raising gross proceeds of approximately £17,000,000.

Long Term Incentive Plan ('LTIP')

There was a new award of shares during the financial year under the Long Term Incentive Plan ("LTIP") with vesting conditions half based on Total Shareholder Return ("TSR") with an adjusted profit before tax floor and half based on Earnings Per Share ("EPS") growth. There was a charge of £756,000 (2016: £924,000) in the Income Statement relating to LTIP awards. The charge in the year is lower than last year driven by a reduction in the expected number of shares that will vest in future awards compared with the prior year.

Interest

The net underlying interest charge for the year was £186,000 (2016: £179,000) including amortisation of capitalised debt issue costs reflecting higher borrowings as a result of utilisation of £5,000,000 of the Group's existing accordion tranche of its bank facilities following the acquisition of Clarke & Clarke.

Net Defined Benefit Pension

The Group operates two defined benefit schemes in the UK for its employees. These comprise the Walker Greenbank Pension Plan and the Abaris Holdings Limited Pension Scheme which are both closed to new members and to future service accrual from 30 June 2002 and 1 July 2005 respectively.

The charge during the year was £527,000 (2016: £685,000). The decrease reflects an increase to the expected return on pension scheme assets.

Current Taxation

There was a corporation tax charge of £1,445,000 (2016: £1,410,000) which has been impacted by the Clarke & Clarke transaction costs not being eligible for tax relief. The effective tax rate has increased to 23.0% (2016: 20.0%) due to transaction costs and the amortisation of acquired intangible assets being non-deductible for UK corporation tax.

Deferred Taxation

There was a deferred tax charge of £155,000 (2016: £56,000) driven by the intangible assets recognised in respect of the Clarke & Clarke acquisition.

The Group also continues to recognise the deferred tax asset arising from the pension deficit and LTIP.

Earnings per share ("EPS")

Basic reported EPS for the year was 8.55p (2016: 9.79p). The Group also reports an adjusted EPS which removes the impact of the LTIP accounting charge, net defined benefit pension charge and other non-underlying items as these can fluctuate due to external factors outside of the control of the Group. A better understanding of the underlying performance of the business is given after adjusting for these items. The adjusted basic EPS for the year was 13.67p (2016: 11.93p).

Operating Cash Flow and Net Debt

The Group generated net cash inflow from operating activities during the year of £9,925,000 (2016: £6,324,000) driven by a reduction to the insurance reimbursement debtor compared with the prior year.

Capital expenditure was £6,768,000 (2016: £2,510,000) and includes investment in new next-generation digital printers and other equipment at Standfast & Barracks amounting to £4,627,000 and development costs relating to the design of new collections for the Brands. The depreciation and amortisation charge during the period was £3,191,000 (2016 £2,638,000). During the prior year there was also a property, plant and equipment impairment in respect of the flood of £988,000.

The defined benefit scheme's triennial valuation was formally completed during the financial year. This is based on continuing the current level of deficit repayments but has resulted in a modest extension of one year in the recovery plan. 

The Group made additional payments to the pension schemes of £1,374,000 (2016: £1,307,000) to reduce the deficit, part of the ongoing planned reduction, along with £392,000 (2016: £380,000) of pension fund scheme expenses.

Income tax and national insurance of £664,000 (2016: £967,000) that arose on the vesting of an LTIP award was paid during the year.

The Group had net debt at the year end of £5,309,000 (2016: net funds £2,306,000). Average debt during the year varies due to the timing and seasonality of revenues and investment in product. The average monthly net debt decreased by £881,000 to £3,040,000 (2016: £3,921,000) as a result of the Group starting the financial year with net funds which reduced the need to utilise the bank facilities.

The Group utilises facilities provided by Barclays Bank Plc. There is a term property facility of £200,000 (2016: £600,000) at the year end expiring in July 2017. In December 2015, the Group entered into a new £12.5 million multi-currency revolving credit facility with Barclays Bank PLC for a five year period and cancelled the existing receivables facilities. The agreement also includes a £10 million accordion facility option to further increase available funds which provides substantial headroom for future growth. There were £7,500,000 borrowings at the end of the year for the revolving facility (2016: £nil). Under these facilities there was borrowing headroom of £12,391,000 (2016: £15,405,000). The total facilities have a current limit of £22.70 million (2016: £23.10 million).

All of the Group's bank facilities remain secured by first fixed and floating charges over the Group's assets.

Pension Deficit

The pension deficit has increased this year. The increase in liabilities is a result of a lower discount rate being applied due to a reduction in the bond rates. The impact of these factors is shown as follows:

	2017
	£000
Deficit at beginning of the year	(4,313)
Scheme expenses	(392)
Interest cost	(2,199)
Expected return on plan assets	2,064
Contributions	1,766
Return on scheme assets	8,107
Actuarial loss from the change in discount factor	(12,615)
Experience adjustments on benefit obligation	169
Gross deficit at the end of the year	(7,413)

Dividends

During the year, the Group paid a final dividend for the year ended 31 January 2016 of 2.45p per share and an interim dividend of 0.55p per share.

The Directors have recommended the payment of a final dividend of 3.06p per share (2016: 2.45p) which will be payable on 11 August 2017 to shareholders on the register on 21 July 2017. This brings the total dividend for the year to 3.61p per share (2016: 2.89p), an increase of 24.9%.

Going Concern

The Directors are confident, after having made appropriate enquiries that the Group and Company have adequate resources to continue trading for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Foreign Currency Risk

All foreign currencies are bought and sold centrally on behalf of the Group. Regular reviews take place of the foreign currency cash flows and unmatched exposures are covered using forward contracts and working capital exposures are hedged using currency swaps where deemed appropriate.

The Group does not trade in financial instruments and hedges are used for highly probable future cash flows and to hedge working capital exposures. There is no hedging liability (2016: £26,000 liability) at the end of the year in relation to US dollar forward contracts. There is no liability (2016: £nil) arising from US dollar and Euro swaps used to hedge working capital exposures.

Credit Risk

The Group no longer seeks credit insurance as this is not a commercial solution to reducing credit risk. The Board reviews the internal credit limits of all major customers and reviews the credit risk regularly. The aging profile of trade debtors shows that payments from customers are close to terms, however, there have been specific expenses during the year. The current economic environment still presents a level of risk and in addition to specific provisioning against individual receivables, a provision has been required of £65,000 (2016: £241,000) which is a collective assessment of the risk against non-specific receivables. 

Mike Gant

Chief Financial Officer

26 April 2017

Consolidated Income Statement

Year ended 31 January 2017

	Note	2017				2016
		Underlying £000	Non-underlying (note 5) £000	Total £000		Underlying £000	Non-underlying (note 5) £000	Total £000
Revenue	3	92,373	-	92,373		87,839	-	87,839
Cost of sales		(36,223)	(1,061)	(37,284)		(35,875)	-	(35,875)
Gross profit / (loss)		56,150	(1,061)	55,089		51,964	-	51,964
Net operating expenses:
Distribution and selling expenses		(12,421)	-	(12,421)		(13,125)	-	(13,125)
Administration expenses		(36,724)	(3,170)	(39,894)		(32,044)	-	(32,044)
Net other income	4,5	2,837	2,248	5,085		1,407	-	1,407
Profit / (loss) from operations		9,842	(1,983)	7,859		8,202	-	8,202
Net defined benefit pension charge	6	(527)	-	(527)		(685)	-	(685)
Finance costs	7	(186)	(181)	(367)		(179)	-	(179)
Total finance costs		(713)	(181)	(894)		(864)	-	(864)
Profit / (loss) before tax		9,129	(2,164)	6,965		7,338	-	7,338
Tax (expense) / income	8	(1,609)	9	(1,600)		(1,466)	-	(1,466)
Profit / (loss) for the year attributable to owners of the parent		7,520	(2,155)	5,365		5,872	-	5,872
Earnings per share - Basic	10			8.55p				9.79p
Earnings per share - Diluted	10			8.08p				9.52p
Adjusted earnings per share - Basic	10			13.67p				11.93p
Adjusted earnings per share - Diluted	10			12.92p				11.61p

All of the activities of the Group are continuing operations.

Consolidated Statement of Comprehensive Income

Year ended 31 January 2017

		2017 £000	2016 £000
Profit for the year		5,365	5,872
Other Comprehensive Income:
Items that will not be reclassified to profit or loss
Remeasurements of defined benefit pension schemes		(4,339)	5,037
Corporation tax credits recognised in equity		270	184
Increase / (reduction) of deferred tax asset relating to pension scheme liability		484	(1,114)
Total items that will not be reclassified to profit or loss		(3,585)	4,107
Items that may be reclassified subsequently to profit or loss
Currency translation gains		128	(191)
Cash flow hedge gains		26	169
Total items that may be reclassified subsequently to profit or loss		154	(22)
Other comprehensive (expense) / income for the year, net of tax		(3,431)	4,085
Total comprehensive income for the year attributable to the owners of the parent		1,934	9,957

Consolidated Balance Sheet

At 31 January 2017

	Note	2017 £000	2016 £000
Non-current assets
Intangible assets		31,606	7,104
Property, plant and equipment		15,845	11,687
Deferred income tax assets	9	-	108
		47,451	18,899
Current assets
Inventories		30,305	18,104
Trade and other receivables	11	19,508	19,280
Cash and cash equivalents	12	1,516	2,902
		51,329	40,286
Total assets		98,780	59,185
Current liabilities
Trade and other payables		(25,347)	(18,966)
Derivative financial instruments		-	(26)
Borrowings	12	(6,825)	(400)
Provision for other liabilities and charges	15	(2,652)	-
		(34,824)	(19,392)
Net current assets		16,505	20,894
Non-current liabilities
Borrowings	12	-	(196)
Deferred income tax liabilities	9	(2,573)	-
Retirement benefit obligation	14	(7,413)	(4,313)
Provision for other liabilities and charges	15	(2,677)	-
		(12,663)	(4,509)
Total liabilities		(47,487)	(23,901)
Net assets		51,293	35,284
Equity
Share capital		696	602
Share premium account		16,390	457
Foreign currency translation reserve		(428)	(556)
Accumulated losses		(5,872)	(5,700)
Other reserves		40,507	40,481
Total equity		51,293	35,284

Consolidated Cash Flow Statement

Year ended 31 January 2017

	Note	2017 £000	2016 £000
Cash flows from operating activities
Cash generated from operations	13	12,381	7,103
Interest paid		(162)	(149)
Corporation tax paid		(2,294)	(630)
Net cash generated from operating activities		9,925	6,324
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired	16	(27,073)	-
Purchase of intangible assets		(792)	(548)
Purchase of property, plant and equipment		(5,976)	(1,962)
Proceeds from disposal of property, plant and equipment		89	-
Insurance proceeds relating to investing activities		2,268	-
Net cash used in investing activities		(31,484)	(2,510)
Cash flows from financing activities
Proceeds from issuance of ordinary shares		16,022	-
Debt issue costs		(40)	(100)
Repayment of term loan		(400)	(400)
Dividends paid to Company's shareholders		(1,818)	(1,444)
Net cash generated from / (used in) financing activities		13,764	(1,944)
Net (decrease) / increase in cash and cash equivalents		(7,795)	1,870
Cash and cash equivalents and bank overdraft at beginning of year		2,902	971
Effect of exchange rate fluctuations on cash held		(217)	61
Cash and cash equivalents and bank overdraft at end of year	12	(5,110)	2,902

Consolidated Statement of Changes in Equity

Year ended 31 January 2017

	Attributable to owners of the parent
					Other Reserves
	Share capital £000	Share premium account £000	Accumulated losses £000		Capital reserve £000		Merger reserve £000		Hedge reserve £000		Foreign currency translation reserve £000		Total equity £000
Balance at 1 February 2015	598	457	(14,065)		43,457		(2,950)		(195)		(365)		26,937
Profit for the year	-	-	5,872		-		-		-		-		5,872
Other comprehensive Income:
Remeasurements of defined benefit pension schemes	-	-	5,037		-		-		-		-		5,037
Corporation tax credits recognised in equity	-	-	184		-		-		-		-		184
Deferred tax relating to pension scheme liability	-	-	(1,114)		-		-		-		-		(1,114)
Currency translation differences	-	-	-		-		-		-		(191)		(191)
Cash flow hedge	-	-	-		-		-		169		-		169
Total comprehensive income	-	-	9,979		-		-		169		(191)		9,957
Transactions with owners, recognised directly in equity:
Dividends	-	-	(1,444)		-		-		-		-		(1,444)
Allotment of share capital	4	-	(4)		-		-		-		-		-
Long-term incentive plan charge	-	-	790		-		-		-		-		790
Long-term incentive plan vesting	-	-	(967)		-		-		-		-		(967)
Related tax movements on long-term incentive plan	-	-	11		-		-		-		-		11
Balance at 31 January 2016	602	457	(5,700)	43,457		(2,950)		(26)		(556)		35,284

Consolidated Statement of Changes in Equity continued

Year ended 31 January 2017

	Attributable to owners of the parent
				Other Reserves
	Share capital £000	Share premium account £000	Accumulated losses £000	Capital reserve £000	Merger reserve £000	Hedge reserve £000	Foreign currency translation reserve £000	Total equity £000
Balance at 1 February 2016	602	457	(5,700)	43,457	(2,950)	(26)	(556)	35,284
Profit for the year	-	-	5,365	-	-	-	-	5,365
Other comprehensive Income:
Remeasurements of defined benefit pension schemes	-	-	(4,339)	-	-	-	-	(4,339)
Corporation tax credits recognised in equity	-	-	270	-	-	-	-	270
Deferred tax relating to pension scheme liability	-	-	484	-	-	-	-	484
Currency translation differences	-	-	-	-	-	-	128	128
Cash flow hedge	-	-	-	-	-	26	-	26
Total comprehensive income	-	-	1,780	-	-	26	128	1,934
Transactions with owners, recognised directly in equity:
Dividends	-	-	(1,818)	-	-	-	-	(1,818)
Allotment of share capital	94	15,933	(4)	-	-	-	-	16,023
Long-term incentive plan charge	-	-	658	-	-	-	-	658
Long-term incentive plan vesting	-	-	(664)	-	-	-	-	(664)
Related tax movements on long-term incentive plan	-	-	(124)	-	-	-	-	(124)
Balance at 31 January 2017	696	16,390	(5,872)	43,457	(2,950)	-	(428)	51,293

Notes to the Accounts

1.  Accounting policies and general information

Basis of preparation

The Group has prepared its consolidated financial statements in accordance with International Financial Reporting Standards adopted for use in the European Union (IFRS).

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS this announcement does not itself contain sufficient information to comply with IFRS. The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the year ended 31 January 2017. The financial information is prepared in accordance with IFRSs as adopted by the European Union and IFRSs as issued by the International Accounting Standards Board, and with the accounting policies set out in the Group's 2016 Annual Report and Financial Statements and as updated by the 2016 Interim Statement.

These financial statements will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting. The statutory accounts for the year ended 31 January 2016 have been filed with the Registrar of Companies and contained an auditor's report which was (i) unqualified and (ii) did not contain a reference to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their report, and (iii) did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

This preliminary announcement was approved for release by the Board on 25 April 2017.

2.  Critical accounting estimates and judgements

Business combinations

The Group applies judgement in determining whether a transaction is a business combination, which includes consideration as to whether the Group has acquired a business or a group of assets. For business combinations, the Group estimates the fair value of the consideration transferred, which includes assumptions about the future performance of the business acquired and an appropriate discount rate to determine the fair value of any contingent consideration. There is some sensitivity in determining this accounting estimate as there is a range of outcomes. If the EBITDA of the acquired business increases by 10%, then the contingent consideration would be £127,000 higher and if it decreased by 10%, it would be £127,000 lower. Judgement is also applied in determining whether any future payments should be classified as contingent consideration or as remuneration for future services. The Group estimates the fair value of assets acquired and liabilities assumed in the business combination, including any separately identifiable intangible assets and considering contingent liabilities. These estimates also require inputs and assumptions including future earnings, customer attrition rates and discount rates. The Group engages external experts to support the valuation process, where appropriate.

The fair value of the contingent consideration recognised in business combinations is reassessed at each reporting date, using updated inputs and assumptions based on the latest financial forecasts for the relevant business. Judgement is applied as to whether changes should be applied at the acquisition date or as post-acquisition changes. Fair value movements and the unwinding of the discounting is recognised within finance costs in the Income Statement.

3.  Segmental analysis

The Group is a designer, manufacturer and distributor of luxury interior furnishings, fabrics and wallpaper. The reportable segments of the Group are aggregated as follows:

·      Brands  - comprising the design, marketing, sales and distribution, and licensing activities of Sanderson, Morris & Co, Harlequin, Zoffany, Anthology, Scion, Clarke & Clarke and Studio G brands operated from the UK and its foreign subsidiaries in the US and France.

·      Manufacturing - comprising the wallcovering and printed fabric manufacturing businesses operated by Anstey and Standfast respectively.

This is the basis on which the Group presents its operating results to the Board of Directors, which is considered to be the CODM for the purposes of IFRS 8. Additional revenue-only data is also reported to the CODM and is disclosed on the basis explained below. Other group-wide activities and expenses, predominantly related to corporate head office costs, defined benefit pension costs, long-term incentive plan expenses, taxation and eliminations of intersegment items, are presented within 'Eliminations and unallocated'.

a)  Reportable segment information

Year ended 31 January 2017

		Brands £000	Manufacturing £000	Eliminations and unallocated £000	Total £000
UK revenue		42,531	12,227	-	54,758
International revenue		31,552	3,497	-	35,049
Licence revenue		2,566	-	-	2,566
Revenue - External		76,649	15,724	-	92,373
Revenue - Internal		-	16,320	(16,320)	-
Total revenue		76,649	32,044	(16,320)	92,373
Profit / (loss) from operations		9,239	1,026	(2,406)	7,859
Net defined benefit pension charge		-	-	(527)	(527)
Net finance costs		-	-	(367)	(367)
Profit / (loss) before tax		9,239	1,026	(3,300)	6,965
Tax charge		-	-	(1,600)	(1,600)
Profit / (loss) for the year		9,239	1,026	(4,900)	5,365

3.  Segmental analysis continued

Year ended 31 January 2016

		Brands £000	Manufacturing  £000	Eliminations and unallocated £000	Total £000
UK revenue		39,971	16,528	-	56,499
International revenue		25,888	3,409	-	29,297
Licence revenue		2,043	-	-	2,043
Revenue - External		67,902	19,937	-	87,839
Revenue - Internal		-	14,392	(14,392)	-
Total revenue		67,902	34,329	(14,392)	87,839
Profit / (loss) from operations		8,080	2,482	(2,360)	8,202
Net defined benefit pension charge		-	-	(685)	(685)
Net finance costs		-	-	(179)	(179)
Profit / (loss) before tax		8,080	2,482	(3,224)	7,338
Tax charge		-	-	(1,466)	(1,466)
Profit / (loss) for the year		8,080	2,482	(4,690)	5,872

Business interruption reimbursements to cover loss of profits of £2,837,000 (£2016: £1,407,000) are included within 'Eliminations and unallocated'.

The segmental revenues of the Group are reported to the CODM in more detail. One of the analysis presented is revenue by export market for Brands.

Brands international revenue by export market:	2017 £000	2016 £000
Western Europe	9,594	6,982
Scandinavia	2,557	1,959
Eastern Europe	2,374	2,105
Europe Total	14,525	11,046
Middle East	1,345	1,161
Far East	3,308	3,207
USA	10,310	8,459
South America	458	394
Australasia	1,004	1,031
Other	602	590
	31,552	25,888

3.  Segmental analysis continued

Revenue of the Brands reportable segment - revenue from operations in all territories where the sale is sourced from the Brands operations, together with contract and licence revenue:

Brand Revenue Analysis:	2017 £000	2016 £000
Harlequin, incorporating Anthology & Scion	31,270	31,676
Sanderson, incorporating Morris & Co	22,516	21,503
Zoffany	12,162	11,749
Clarke & Clarke, incorporating Studio G	7,267	-
Other brands	868	931
Licensing	2,566	2,043
	76,649	67,902

Revenue of the Manufacturing reportable segment - including revenues from internal sales to the Group's Brands:

Manufacturing Revenue Analysis:	2017 £000	2016 £000
Standfast	15,097	15,681
Anstey	16,947	18,648
	32,044	34,329

b)  Additional entity-wide disclosures

Revenue by geographical location of customers:	2017 £000	2016 £000
United Kingdom	56,064	57,509
Continental Europe	15,917	12,551
USA	12,237	10,099
Rest of the World	8,155	7,680
	92,373	87,839

4.  Net other income

Net other income arising as a result of the flood at Standfast, the Group's fabric printing factory in December 2015, is £2,837,000 (2016: £1,407,000) and represents business interruption reimbursements to cover loss of profits.

5.  Non-statutory profit measures

Underlying profit measures

The Group seeks to present a measure of underlying performance which is not impacted by material non-recurring items or items considered non-operational in nature. This measure of profit is described as 'underlying' and is used by management to measure and monitor performance. The excluded items are referred to as 'non-underlying' items.

Non-underlying items

The non-underlying items included in profit before tax are as follows:

	Note	2017 £000	2016 £000
(i) Acquisition related:
Transaction costs	(a)	(1,552)	-
Amortisation of acquired intangible assets	(b)	(342)	-
Unwind of the fair value uplift adjustment on inventory	16(c)	(1,061)	-
Unwind of discount on contingent consideration	(c)	(181)	-
		(3,136)	-
(ii) Standfast flood:
Incremental costs, inventory loss and property, plant and equipment impairments		(7,165)	(3,276)
Insurance reimbursements		9,413	3,276
	(d)	2,248	-
(iii) Restructuring and reorganisation costs	(e)	(1,276)	-
Total non-underlying items included in profit before tax		(2,164)	-
Tax on non-underlying items		9	-
Total impact of non-underlying items on profit after tax		(2,155)	-

Costs detailed in (a) - (c) below relate to costs incurred in the period to 31 January 2017 on the acquisition of Clarke & Clarke, which completed on 31 October 2016 (see note 16).

(a) Transaction costs comprise legal and professional fees in relation to the acquisition. In addition, share issue costs of £978,000 relating to the acquisition have been offset against the share premium account.

(b) Details of acquired intangible assets are included in note 16.

(c) A charge of £181,000 (2016: £nil) has been recognised in respect of unwind of the contingent consideration on acquisition (note 16).

(d) The net other income balance of £2,248,000 (2016: £nil) comprises of proceeds arising from reimbursement of costs to replace impaired plant and equipment of £2,780,000 less flood defence costs of £253,000 and additional insurance costs of £279,000.

(e) Restructuring and reorganisation costs relate to the reorganisation of the Group and comprise of the rationalisation of certain operational and support functions. These costs mainly comprise professional fees, employee severance and property costs associated with the reorganisation process.

In addition to the non-underlying items detailed above, an adjustment is made for the LTIP accounting charge and net defined benefit pension charge in arriving at the 'Adjusted profit' and 'Adjusted earnings per share'.

6.  Net defined benefit pension charge

	2017	2016
	£000	£000
Expected return on pension scheme assets	2,064	1,829
Interest on pension scheme liabilities	(2,199)	(2,134)
Scheme expenses met by the Group	(392)	(380)
Net charge	(527)	(685)

7.  Net finance costs

	2017 £000	2016 £000
Interest income:
Interest received on bank deposits	1	-
Interest expense:
Interest payable on bank borrowings	(161)	(152)
Amortisation of issue costs of bank loans	(26)	(27)
Total finance costs	(187)	(179)
Net finance costs excluding non-underlying items	(186)	(179)
Unwind of discount on contingent consideration (note 5)	(181)	-
Net finance costs including non-underlying items	(367)	(179)

8.  Tax expense

	2017 £000	2016 £000
Current tax:
- UK current tax	1,367	1,278
- UK adjustments in respect of prior years	78	130
- overseas, current tax	-	2
Corporation tax	1,445	1,410
Deferred tax:
- current year	271	253
-       adjustments in respect of prior years	(12)	(84)
-       effect of changes in corporation tax rates	(104)	(113)
Deferred tax	155	56
Total tax charge for the year	1,600	1,466

8.   Tax expense continued

	2017 £000	2016 £000
Reconciliation of total tax charge for the year
Profit on ordinary activities before tax	6,965	7,338
Tax on profit on ordinary activities at 20% (2016: 20.16%)	1,393	1,480
Non-deductible expenditure	418	23
Parent and overseas losses and temporary timing differences not recognised	(99)	(10)
Permanent differences in respect of share options	11	40
Adjustments in respect of prior years	66	46
Adjustments in respect of pre-acquisition period	(85)	-
Effect of changes in corporation tax rates	(104)	(113)
Total tax charge for year	1,600	1,466

Factors affecting current and future tax charges

No overseas taxation is anticipated to become payable within the immediate future due to the availability of gross tax losses of approximately £2.8 million (2016: £1.3 million).

9.  Deferred income tax

A net deferred tax liability of £2,573,000 (2016: asset of £108,000) is recognised in respect of future deductions for LTIP payments and other temporary differences.

	2017 £000	2016 £000
Taxable temporary differences on property, plant and equipment	(1,361)	(967)
Taxable temporary differences on intangible assets	(2,591)	(178)
Other temporary differences	(141)	42
Temporary differences on LTIP payments	260	435
	(3,833)	(668)
Retirement benefit obligations	1,260	776
	(2,573)	108

The gross movement on the deferred income tax account is as follows:

Net deferred tax asset/ (liability)	2017 £000	2016 £000
At 1 February	108	1,591
Acquisition of subsidiary (note 16)	(2,885)	-
Income Statement charge	(155)	(56)
Tax credit/(charge) relating to components of other comprehensive income	484	(1,114)
Tax charged directly to equity	(125)	(313)
At 31 January	(2,573)	108

10.        Earnings per share

Basic earnings per share ('EPS') is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares outstanding during the year, excluding those held in the Employee Benefit Trust ('EBT') and those held in treasury, which are treated as cancelled. The adjusted basic earnings per share is calculated by dividing the adjusted earnings by the weighted average number of shares. As a consequence of the improved profitability of the Group, PBT performance criteria within LTIPs 8, 9 and 10 are now being met and as a consequence these LTIP awards are now dilutive.

		2017				2016
	Earnings £000	Weighted average number of shares (000s)	Per Share Amount Pence		Earnings £000	Weighted average number of shares (000s)	Per Share Amount Pence
Basic earnings per share	5,365	62,732	8.55		5,872	59,997	9.79
Effect of dilutive securities:
Shares under LTIP		3,645				1,675
Diluted earnings per share	5,365	66,377	8.08		5,872	61,672	9.52
Adjusted basic and diluted earnings per share:
Add back LTIP accounting charge	756				924
Add back net defined benefit pension charge	527				685
Non-underlying items (note 5)	2,164				-
Tax effect of non-underlying items and other add backs	(235)				(321)
Adjusted basic earnings per share	8,577	62,732	13.67		7,160	59,997	11.93
Adjusted diluted earnings per share	8,577	66,377	12.92		7,160	61,672	11.61

As detailed in note 16, in order to finance the initial cash consideration to acquire 100% of the issued share capital of Clarke & Clarke, a placing of a total of 8,947,369 new ordinary shares of 1p each in the Company was announced on 12 October 2016. These shares, which represented approximately 12.9% of the Company's issued ordinary share capital on admission to trading on AIM (excluding treasury shares), were placed at a price of 190.0 pence per share raising proceeds of approximately £17,000,000.

On 16 May 2016, 773,393 shares vested under the Company's Long Term Incentive Plan. To satisfy the vesting, 431,788 shares of 1 pence each were allotted at par value.

Following these transactions Walker Greenbank's issued ordinary share capital with voting rights consists of 69,551,678 (2016: 60,172,521) ordinary shares of which no (2016: nil) ordinary shares are held in treasury and 4,909 (2016: nil) ordinary shares are held by the Walker Greenbank PLC EBT. Shares held in treasury or by the EBT are treated as cancelled when calculating EPS.

On 18 May 2015, 1,090,326 shares vested under the Company's LTIP of which 188,272 shares were issued from the Walker Greenbank PLC EBT.

The market value of shares held by the EBT at 31 January 2017 was £9,941 (2016: nil). The total number of shares held in the EBT at the year end represented 0.01% (2016: 0%) of the issued shares.

11.        Trade and other receivables

Current	2017 £000	2016 £000
Trade receivables	13,302	10,463
Less: Provision for impairment of trade receivables	(198)	(398)
Net trade receivables	13,104	10,065
Corporation tax	609	-
Other taxes and social security	39	-
Other receivables	2,066	4,897
Marketing materials	1,249	1,346
Prepayments	2,441	2,972
	19,508	19,280

Other receivables include the recognition of £1,500,000 (2016: £4,683,000) relating to insurance reimbursement in respect of the Standfast flood received after the year end.

12.        Analysis of net funds

	1 February 2016 £000	Cash and cash equivalents acquired (note 16) £000	Cash flow £000	Current portion of term loan £000	Other non-cash changes £000	31 January 2017 £000
Cash and cash equivalents	2,902	2,663	(4,049)	-	-	1,516
Bank overdraft	-	-	(6,626)	-	-	(6,626)
Cash and cash equivalents and bank overdraft	2,902	2,663	(10,675)	-	-	(5,110)
Term loan due within one year	(400)	-	400	(200)	1	(199)
Term loan due after one year	(196)	-	-	200	(4)	-
	(596)	-	400	-	(3)	(199)
Net funds / (debt)	2,306	2,663	(10,275)	-	(3)	(5,309)

Other non-cash changes are capitalisation and amortisation of the issue costs relating to the borrowings.

13.        Cash generated from operations

	2017 £000	Restated 2016 £000
Profit before tax:	6,965	7,338
Defined benefit pension charge	527	685
Net borrowing costs	367	179
Depreciation and impairment of property, plant and equipment	2,172	3,024
Insurance reimbursements	(12,250)	(4,683)
Amortisation	1,019	602
(Gain) / loss on disposal of property, plant and equipment	-	3
Charge for LTIP recognised in equity	658	790
LTIP vesting	(664)	(967)
Unrealised foreign exchange losses/(gains) included in operating profit	56	(227)
Defined benefit pension cash contributions	(1,766)	(1,687)
Cash (used in) / generated from operating activities pre insurance proceeds	(2,916)	5,057
Insurance proceeds relating to operating activities	13,165	-
Cash generated from operating activities post insurance proceeds	10,249	5,057
Changes in working capital
(Increase)/decrease in inventories	(5,976)	3,900
Decrease/(increase) in trade and other receivables	2,728	(279)
Increase/(decrease) in trade and other payables	5,380	(1,575)
Cash generated from operations	12,381	7,103

The 2016 cash generated from operations has been restated to show non-cash insurance reimbursements included within other receivables.

14.        Retirement benefit obligation

Defined benefit schemes

The Group operates two defined benefit schemes in the UK which both offer pensions in retirement and death benefits to members:  the Walker Greenbank Pension Plan and the Abaris Holdings Limited Pension Scheme. Pension benefits are related to the members' final salary at retirement and their length of service. The schemes are closed to new members and to future accrual of benefits.  This disclosure excludes any defined contribution assets and liabilities.

The Group's contributions to the schemes for the year beginning 1 February 2017 are expected to be £1,907,000.

	2017 £000	2016 £000
Deficit at beginning of the year	(4,313)	(10,352)
Scheme expenses	(392)	(380)
Interest cost	(2,199)	(305)
Expected return on plan assets	2,064	-
Contributions	1,766	1,687
Return on scheme assets	8,107	(3,623)
Actuarial loss from the change in discount factor	(12,615)	5,448
Experience adjustments on benefit obligation	169	3,212
Gross deficit at the end of the year	(7,413)	(4,313)

15.        Provision for other liabilities and charges

Contingent liability arising on business combination:	2017 £000	2016 £000
At 1 February	-	-
Provision on acquisition of Clarke and Clarke (note 16)	5,148	-
Unwind of discount (note 5)	181	-
At 31 January	5,329	-

Analysis of total contingent liability:	2017 £000	2016 £000
Non-current	2,677	-
Current	2,652	-
Total	5,329	-

16.        Business combinations

On 12 October 2016, the Group conditionally acquired 100% of the issued share capital of Globaltex 2015 Limited, a company registered in the UK, for an initial cash consideration of £25,000,000 and a contingent consideration of up to £17,500,000, in aggregate, payable in the Company's shares linked to the performance of the acquired business over a four year period, giving a total potential consideration of up to £42,500,000 excluding working capital adjustments. The completion date for the transaction was 31 October 2016.

Globaltex 2015 Limited is the parent entity and owns 100% of the issued share capital of Globaltex Limited, trading as Clarke & Clarke, which is a UK based designer and worldwide distributor of interior fabrics and wallpapers.

In order to finance the initial cash consideration, a placing of a total of 8,947,369 new ordinary shares of 1p each in the Company was announced on 12 October 2016. These shares, which represented approximately 12.9% of the Company's issued ordinary share capital on admission to trading on AIM (excluding treasury shares), were placed at a price of 190.0 pence per share raising proceeds of approximately £17,000,000. The remaining portion of the cash consideration is being funded from the Company's existing accordion tranche of its bank facilities and from the Company's existing cash resources.

The following tables summarise the consideration for Clarke & Clarke, the fair value of assets acquired and liabilities assumed at the acquisition date.

		£000
Initial cash consideration		25,000
Working capital adjustments to purchase consideration		5,400
Total cash consideration		30,400
Contingent consideration		5,148
Total consideration		35,548

Fair value of assets acquired and liabilities assumed:

	Note	£000
Brand		5,566
Customer relationships		4,427
Total acquired identifiable intangible assets	(b)	9,993
Property, plant and equipment		322
Inventories	(c)	5,936
Trade and other receivables	(d)	6,450
Cash and cash equivalents		2,663
Trade and other payables		(1,667)
Deferred tax liabilities		(2,885)
Net identifiable assets acquired		20,812
Goodwill	(e)	14,736
Total consideration		35,548

(a) Acquisition related costs charged to the income statement for the year ended 31 January 2017 are detailed in note 5.

(b) The fair value of the acquired identifiable intangible assets of £9,993,000 is provisional pending receipt of the final valuations of those assets.

16.  Business combinations continued

(c) In accordance with IFRS, the inventory value was uplifted to fair value at the date of the acquisition by £1,243,000 and this adjustment increased cost of sales in the post-acquisition period. The £1,061,000 cost in respect of unwind of the fair value uplift adjustment is considered an exceptional cost of sale (note 5). The balance of the fair value uplift which is still to be unwound included within inventories as at 31 January 2017 was £182,000.

(d) Included in trade and other receivables were trade receivables with a carrying value of £3,524,000 expected to be recoverable in full. The fair value of trade receivables acquired approximates their carrying value.

(e) Goodwill is mainly attributable to growth opportunities identified for the acquired business, both in the UK and globally, plus cost synergies expected to arise. None of the goodwill recognised is expected to be deductible for income tax purposes.

(f)  No contingent liabilities other than the contingent consideration of £5,148,000 at the acquisition date were recognised as a result of the business combination. The contingent consideration arrangement requires the Group to pay, in shares, to the former owners of Clarke & Clarke, for four years from 2017-2020 based on a target EBITDA number up to a maximum undiscounted amount of £17,500,000 in Group shares.

The fair value of the contingent consideration arrangement of £5,148,000 was estimated by applying the income approach. The fair value estimates are based on a discount rate of 10.9% and assumed probability-adjusted profit in Clarke & Clarke of £22,100,000 to £22,600,000. This is a level 3 fair value measurement. The key unobservable assumptions in calculating this profit are: the EBITDA projections of the Clarke & Clarke business for the four years from 2017-2020 and the discount rate applied (10.9%).

As of 31 January 2017, there was an increase of £181,000 recognised in the income statement for the contingent consideration arrangement, as the assumed probability adjusted contingent consideration was recalculated to be approximately £5,329,000. Assuming all other variables are held constant; an increase of 10% in EBITDA projections would result in an increase in contingent consideration of £127,000 and a decrease of 1% in the discount rate would result in an increase in contingent consideration of £74,000. An increase of 10% in revenue would result in an increase in contingent consideration of £317,000.

(g) The revenue included in the consolidated statement of comprehensive income since 12 October 2016 contributed by Clarke & Clarke was £7,276,000. Clarke & Clarke also contributed a profit before tax of £1,014,000 over the same period.

(h) Had Clarke & Clarke been consolidated from 1 February 2016, the consolidated statement of income would show pro-forma revenue of £21,509,000 and profit before tax of £3,462,000.

Net cash outflow arising on acquisition:

		£000
Total cash consideration paid		29,736
Less: cash and cash equivalents acquired		(2,663)
Net cash outflow		27,073

17.        Events after the reporting period

Following the flooding at Standfast, the Group experienced a period of disrupted production and a loss of stock, machinery and profits. After the reporting period the Group has been reimbursed £1,500,000 as an interim payment which has been recognised and included within other receivables as at 31 January 2017, bringing the total cash received to date to £16,933,000 to cover the costs of stock and machinery loss and other incremental costs, along with business interruption losses. Further business interruption reimbursements are expected to cover future loss of profits up to a period of two years following the flood.

 

END

 

 

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