Interim Results

Walker Greenbank PLC 17 October 2000 Walker Greenbank PLC Interim results for the six months to 31 July 2000 * Sales increased by 2.6% to £25.9 million (1999: £25.3 million) * Operating loss before exceptional operating items of £14,000 compared to an operating profit of £843,000 reflects the disruption caused by the amalgamation of wallpaper manufacturing on one site and the initial problems with the newly-installed IT systems * New acquisitions performing ahead of expectations * Zoffany and Harlequin brands held up despite problems, but weaker UK sales climate could lead to pressure on second half results * Excellent results in USA and from Cirka brand * Site reorganisation programmes progressing but expected to continue to impact results in the second half * An approach recently received. Early stage discussions may or may not lead to an offer being made for the Company Viscount Thurso, chairman of Walker Greenbank said: 'The Board believes the business strategy is well-founded. However, the major transitional projects being carried out will continue to affect earnings for another 18 months.' For further information Aidan Connolly Walker Greenbank PLC Tel: 01442 234666 / 07836 206600 John Rudofsky Helsen Communications Tel: 020 8481 7681 / 07767 823676 Walker Greenbank PLC Chairman's statement Overview Results for the half-year ended 31 July 2000 show a small operating loss before exceptional operating items and a reversal in the operating profits of our continuing businesses of £1.25 million. Whilst disappointing, this result stems largely from the impact on trading of our restructuring programme. This programme has seen the amalgamation of our wallpaper manufacturing businesses onto one site in Loughborough and will bring long term benefits to the business. In the short term, as well as the cost of the move itself, efficiency levels were affected with staff and machinery split across two sites. Our recent fabrics manufacturing acquisitions from Courtaulds are performing well and integration with the other group businesses has started. They have already produced significantly better results in their four months as part of Walker Greenbank than in the whole of their previous financial year. As we forecast these acquisitions have been immediately earnings enhancing. Results Sales of the continuing businesses increased 2.6% during the period to £25.9 million (1999: £25.3 million). This was achieved despite the effects of the software problems at the end of last year and the disruption caused by the manufacturing moves. There was an operating loss for the period before exceptional items of £14,000 (1999:profit £843,000). Exceptional costs of £ 1.03 million include costs associated with our IT problems of £350,000 and a further £680,000 arising from the Loughborough amalgamation. The loss per share for the period was 1.41p (1999: earnings per share 0.13p). As last year, there will be no interim dividend. The balance sheet remains strong with net assets of over 70p per share. As expected the cost of the recent acquisitions, capital expenditure at Loughborough and the impact of additional charges on the business in this period have eliminated our cash reserves. Net gearing at the end of the first half was 18% but this date is always the highest level of working capital for the year, ahead of the Autumn season. Trading review The integration project of the wallpaper manufacturing businesses at Loughborough will be completed by the end of March 2001. Investment in upgraded and new equipment has now largely been made and our staff are working hard to ensure that fulfilment of customers' orders is maximised during the final equipment transfer. We are merging our existing Contract Fabrics businesses with the newly acquired Weavestyle. This will take place in the winter and we shall begin the new financial year with an integrated operation that is better able to face the challenges of an uncertain marketplace. Standfast has had an outstanding period since acquisition and has fully lived up to our expectations. Zoffany remains our largest selling brand and held its sales levels despite the impact of the IT problems at the start of the period. Warner Fabrics experienced a sales decline of over 20% in the period but we believe it still offers significant growth opportunities, especially in the US. We have recruited a new manager for that business and we are confident it will recover lost ground in sales over the next two to three years. Harlequin operates in one of the toughest areas of the market and was the hardest hit by our IT problems. Nevertheless, it restricted its sales decline to just 4%. The business has begun to focus its efforts on improving sales, with the appointments of new senior sales and marketing directors. Our Cirka brand achieved a fourfold increase in sales during the period. Walker Greenbank in the US is the strongest of our overseas businesses with sales up almost 13% and profits ahead strongly. We are looking to accelerate growth in the US; we are abandoning the Whittaker & Woods concept with the main business now trading as Zoffany, supported by a major marketing initiative. Our Norwegian business, Borge, improved profitability in the period. In flat market conditions, management has turned a 3% fall in sales into a significant recovery in operating profits as a result of tight margin and cost control. Sale of the hand block wallpaper businesses Since the period end, we have announced the sale of the Cole & Son and John Perry businesses for £3 million. We bought these businesses in 1995 for a total consideration of £1.5 million. As a result of the sale, we expect to record an exceptional profit in the current year of £0.5 million. These businesses are in a specialised area of our market and as such are unlikely to grow sufficiently for our purposes. Approach to the Company Recently, the Board has received an approach with a view to acquiring the Company and we are in the early stages of discussions that may or may not lead to an offer being made for the Company. Outlook The one-off costs arising from the installation of our new IT system are now behind us, the new acquisitions are performing well and we have continued to release cash tied up in under-performing assets. We continue to execute our strategy of bringing together design excellence in fabrics and wallpapers with efficient and effective manufacturing and distribution to our key target markets. We are investing in several major projects that will bring future benefits: * This winter we will merge our two weaving businesses in Yorkshire * We are starting a major marketing initiative to promote our Zoffany brand in the USA * We will rationalise our warehousing to maximise our distribution efficiencies to meet higher sales growth This year's operating earnings will be affected by the factors that impacted on the first half performance although overall earnings will be assisted by the profit on the sale of the hand block wallpaper businesses and the absence of a UK tax charge. However, we believe that the sales growth we have enjoyed in the continuing businesses in the first half will be difficult to maintain and could leave us below last year's levels, putting further pressure on those businesses in the second half of the year. The Board believes the business strategy is well-founded. However, the major transitional projects being carried out will continue to affect earnings for another 18 months. Viscount Thurso Chairman Walker Greenbank PLC Unaudited Consolidated Profit and Loss Account For the six months ended 31 July 2000 6 months to 31 July 2000 before exceptional operating items £000 Exceptional operating items 6 months 6 months Year to 31 to 31 to £000 July July 2000 1999 31 note Jan £000 £000 2000 £000 Turnover Continuing 25,929 - 25,929 25,265 49,937 operations Acquisitions 5,874 - 5,874 - - 1 31,803 - 31,803 25,265 49,937 Group operating (loss)/profit Continuing 2 (338) (1,027) (1,365) 908 1,719 operations Acquisitions 324 - 324 - - (14) (1,027) (1,041) 908 1,719 Share of associated undertaking's - - - (65) (56) operating loss Operating (14) (1,027) (1,041) 843 1,663 (loss)/profit Profit on sale - - - - 1,036 of property Fundamental restructuring of overseas 3 - - - (1,084) (2,533) operations Amounts written - - - - (450) off investments Loss on (14) (1,027) (1,041) (241) (284) ordinary activities before interest Net interest (22) - (22) 398 670 (payable)/ receivable (Loss)/profit on ordinary activities (36) (1,027) (1,063) 157 386 before taxation Taxation 4 269 - 269 (81) (247) (Loss)/profit 233 (1,027) (794) 76 139 after taxation Dividends - - - - (1,123) Retained (loss) 233 (1,027) (794) 76 (984) /profit for the period Earnings per share - Basic and 6 (1.41)p 0.13p 0.25p diluted Dividend per 5 - - 2.00p ordinary share Walker Greenbank PLC Unaudited Consolidated Balance Sheet As at 31 July 2000 As at 31 July As at 31 July As at 31 Jan 2000 £000 1999 £000 2000 £000 Note Fixed assets Goodwill 7 1,139 198 169 Tangible assets 25,206 12,547 15,381 Walker Greenbank PLC shares 1,573 2,023 1,573 27,918 14,768 17,123 Current assets Stocks 16,627 13,307 12,605 Debtors 20,524 12,198 14,351 Cash at bank and in hand 8 1,836 15,958 12,818 38,987 41,463 39,774 Creditors: amounts falling due (23,517) (11,608) (12,872) within one year Net current assets 15,470 29,855 26,902 Total assets less current 43,388 44,623 44,025 liabilities Creditors: amounts falling due (1,434) (1,033) (799) after more than one year Provisions for liabilities and (258) (243) (784) charges Net assets 41,696 43,347 42,442 Capital and reserves Share capital 590 590 590 Share premium account 457 457 457 Profit and loss account (84) 948 662 Other reserves 40,733 41,352 40,733 Shareholders' funds 41,696 43,347 42,442 Walker Greenbank PLC Unaudited Group Cash Flow Statement For the six months ended 31 July 2000 6 months to 31 July 1999 6 months to 31 Year to 31 July 2000 £000 £000 Jan 2000 £000 Note Net cash (outflow)/inflow from (2,188) 235 1,517 operating activities Returns on investment and servicing of finance Net interest received 22 302 749 Interest element of finance (60) (35) (66) lease payments Dividend income (Employee - - 57 Share Option Plan) (38) 267 740 Taxation 106 (96) (658) Capital expenditure Purchase of tangible fixed (5,193) (1,803) (6,283) assets Proceeds from disposal of - - 2,104 property Proceeds from disposal of - 56 73 tangible fixed assets (5,193) (1,747) (4,106) Acquisitions, disposals and fundamental restructuring Acquisitions 9 (10,459) - (302) Fundamental restructuring (325) - (454) costs Loan guarantee payment on liquidation of associated - - (118) undertaking (10,784) - (874) Equity dividends paid (1,180) (1,180) (1,180) Cash outflow before use of (19,277) (2,521) (4,561) liquid resources and financing Management of liquid resources Bills of exchange receivable - 47 343 Financing Proceeds from finance leases 1,400 - - Principal repayments of (322) (105) (214) finance lease obligations Repayment of borrowings (15) (262) (1,495) 1,063 (367) (1,709) Decrease in cash and cash 8 (18,214) (2,841) (5,927) equivalents Walker Greenbank PLC Notes to the Accounts 1 SEGMENTAL ANALYSIS Turnover Continuing operations Turnover Turnover Turnover Acquisitions 6 Group 6 months to months to 31 July Group 31 July 2000 2000 6 months 6 months to 31 July to 31 July 1999 2000 (a) Classes of £000 £000 £000 £000 Business Fabrics 10,815 5,874 16,689 10,783 Wallcoverings 14,246 - 14,246 13,647 Others 868 - 868 835 25,929 5,874 31,803 25,265 (b) Geographical Segments - by destination United Kingdom 15,365 5,859 21,224 14,467 Continental 6,219 - 6,219 6,547 Europe North America 3,787 15 3,802 3,429 Rest of the World 558 - 558 822 25,929 5,874 31,803 25,265 2 EXCEPTIONAL OPERATING ITEMS The exceptional cost of £1,027,000 comprises £678,000 of removal and integration costs incurred with respect to the new manufacturing plant at Loughborough and £349,000 of additional operational costs incurred as a result of problems with the group's new I.T. platform. 3 FUNDAMENTAL RESTRUCTURING In the six months to 31 July 1999 a cost of £1,084,000 was incurred representing the estimated cost of closing part of the group's overseas operations. This amount includes £570,000 of goodwill previously written off direct to reserves. This exceptional cost had the effect of reducing the group's tax charge by £278,000. 4 TAXATION In the six months ended 31 July 2000 the group received tax refunds in the UK following the successful resolution of some outstanding tax issues from prior years. Tax was charged in the overseas operations at an effective rate equivalent to the corporation tax rate ruling in these countries. In the prior year the tax charge represents a rate of 29% calculated on the full year after adjusting for exceptional items. 5 DIVIDENDS The directors do not recommend the payment of an interim dividend in the period (1999: £nil). 6 EARNINGS PER SHARE The basic earnings per share and diluted earnings per share are based on a loss after taxation of £794,000 (1999: profit of £76,000) and 56,457,016 ordinary shares (1999: 56,457,016), being the weighted average number of the shares in issue during the period. The basic earnings per share and diluted earnings per share for the year ended 31 January 2000 were based on earnings of £139,000 and the weighted average of 56,457,016 ordinary shares in issue during the year. Notes to the Accounts 7 GOODWILL £000 Cost At 1 February 2000 210 Goodwill on acquisitions (note 9) 1,003 At 31 July 2000 1,213 Amortisation At 1 February 2000 41 Amortisation for the period 33 At 31 July 2000 74 Net book amount at 31 July 2000 1,139 Net book amount at 1 February 2000 169 8 ANALYSIS OF NET DEBT Other Exchange 31July 1 February movement 2000 2000 non-cash £000 £000 changes £000 £000 Cash flow £000 Cash at bank and in 12,818 (11,013) - 31 1,836 hand Overdrafts - (7,201) - - (7,201) 12,818 (18,214) - 31 (5,365) Debt due within 1 (28) 15 (15) (2) (30) year Debt due after 1 year (59) - 15 (5) (49) Finance leases (936) (1,078) - - (2,014) (1,023) (1,063) - (7) (2,093) Current asset - - - - - investments 11,795 (19,277) - 24 (7,458) 9 ACQUISTION OF STANDFAST DYERS AND PRINTERS AND WEAVESTYLE Book Fair value Provisional fair value adjustment value £000 £000 £000 Assets acquired comprised: Tangible fixed assets 6,499 - 6,499 Current assets 6,363 - 6,363 Creditors: due within one (3,006) (83) (3,089) year Creditors: due after more (15) - (15) than one year 9,841 (83) 9,758 Goodwill 1,003 Cash cost of acquisition 10,761 On 31 March 2000 the group completed its purchase of the trade and certain of the assets and liabilities of two businesses trading as Standfast Dyers and Printers and Weavestyle. Notes to the Accounts 10 POST BALANCE SHEET EVENT On 29 September 2000 the trade and certain of the assets of the businesses trading as Cole & Son and John Perry were sold for £3 million, of which £2.8 million has been paid in cash. 11 PREPARATION OF INTERIM FINANCIAL INFORMATION The interim financial statements have been prepared on a basis consistent with the accounting policies disclosed in the Annual Report and Accounts for the year ended 31 January 2000. The consolidated results for the year ended 31 January 2000 have been extracted from the financial statement for that year and do not constitute full statutory accounts for the group. The group accounts for the year ended 31 January 2000 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. 12 INTERIM FINANCIAL STATEMENTS Further copies of this interim statement are available from the registered office of Walker Greenbank PLC at 4 Brunel Court, Cornerhall, Hemel Hempstead, Hertfordshire HP3 9XX.

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