Final Results

Walker Greenbank PLC 25 April 2002 25 April 2002 Walker Greenbank PLC Preliminary results for the year ended 31 January 2002 â€¢ Poor market conditions lead to lower sales of Â£61.1 million (2001: Â£64.1 million) and a loss before exceptional operating costs of Â£3.5 million (2001: loss Â£1.9 million). â€¢ Loss before taxation increases to Â£6.1 million (2001: Â£5.2 million). â€¢ Significant cost reductions have been achieved in the group's restructuring programme. Site consolidation completed and two surplus properties sold. â€¢ Decline in results arrested and a significant improvement in the trading performance has been experienced in the new financial year. Ian Kirkham, Chairman of Walker Greenbank PLC said: 'The new management team has been in place for a year and whilst the performance of the group was clearly unsatisfactory, a substantial amount of positive change has been implemented. The trading results of the first months of this year are markedly better than the corresponding period last year.' For further information contact: David Medcalf, Chief Executive John Rudofsky Walker Greenbank PLC Helsen Communications 07718 743876 020 8786 6699 John Sach, Group Finance Director Walker Greenbank PLC 01908 658002 Walker Greenbank PLC Preliminary results for the year ended 31 January 2002 Chairman's introduction This has been a difficult year for Walker Greenbank. A great deal of work has gone into restructuring the business units while our markets have experienced inconsistent and unpredictable demand. The new management team has been in place for a year and whilst the performance of the group was clearly unsatisfactory, a substantial amount of positive change has been implemented in readiness for the coming year. I join at an interesting time. David Medcalf the Group Chief Executive and I have previously worked successfully together in similar market circumstances and I look forward to meeting the challenge of restoring the group's fortunes. Shareholders have had a poor return and our prime objective will be to build on the foundations put in place in the last year and to begin to deliver shareholder value. I am conscious of the fact that shareholders have been promised better results on a number of occasions in recent years. I am also acutely aware of the very short period of time I have been with the group. However, the trading results of the first months of this year are markedly better than the corresponding period last year. The challenge to all employees within Walker Greenbank will be to achieve consistent month by month improvements in all areas of our business and to provide a platform for profitable growth. Ian Kirkham, Chairman Chief Executive's review Overview Despite a huge effort to deliver improvement and to implement positive change it is disappointing to report an unsatisfactory set of trading results. We had achieved significant cost reductions in the previous year but these have not been sufficient to compensate for the further decline in market conditions. The task to restore the group to profitability at these lower volumes required us to make further cost reductions and structural changes. This resulted in a second year of high exceptional costs and disrupted performance. Much has been made in the public arena of the massive impact on business of the foot and mouth crisis and the catastrophic events of last September. Both of these events occurred at times which had the maximum negative impact on our results being the weeks leading up to our strong Spring and Autumn trading peaks. Our manufacturing base, which acts as a barometer of consumer demand in the marketplace, was disrupted disproportionately as customers strove to empty the supply pipeline by limiting or delaying their order commitments. Financial results The principal features of our results and of trading last year were: â€¢ Sales were down Â£3 million at Â£61.1million from Â£64.1million in 2001 â€¢ The operating loss before exceptional operating costs was Â£3.5 million (2001: Â£1.9 million). â€¢ The exceptional operating costs amounting to Â£2.6 million arose principally from redundancy costs incurred across UK operations to bring costs in line with lower turnover levels and the cost of closing the Strines factory and transferring it to Standfast. â€¢ The integration of the Strines business was completed at the end of 2001. â€¢ The consolidation of our weaving operations onto one site at Silsden and our wallcovering operations onto one site at Loughborough continued throughout the year and were completed in January 2002 with the implementation of further redundancy programmes. â€¢ Two surplus freehold properties were sold in the year generating Â£950,000 of cash and a profit on disposal of Â£320,000. â€¢ The opportunity was taken in July 2001 to buy the trade and assets of the Brushstrokes stencils and accessories business from the receiver for Â£250,000. â€¢ The loss before tax after interest and other items amounted to Â£6.7 million compared to Â£5.5 million in 2001. The basic loss per share was 11.76p (2001: 9.60p). â€¢ Cash outflow from operating activities during the period amounted to Â£1.4 million compared with Â£0.9 million for the previous year. â€¢ Net assets were 55p per share at the balance sheet date and the net gearing level was 25%. The balance sheet continues to be underpinned by approximately Â£10.0 million of freehold properties and substantial other tangible and current assets. â€¢ In view of the financial performance no dividend will be proposed. The dividend will be restored following a return to profitability. Divisional review The group's top-end brand Zoffany, reported a small increase in world-wide sales compared to the previous year despite the economic difficulties cited above. Profitability has also improved significantly following the redundancy programme in January 2001 and further cost savings in the year. We have also now untangled the combination of Cole and Sons, Warner Fabrics and Zoffany, which was managed on a unified basis by the Zoffany management team. This proved ineffective and the disposal of Warner in September 2001 completed this change of strategy. Since the change, the focus on the Zoffany brand has improved considerably and following recent launches of their new collections in the US and the UK we have seen an uplift in sales. The group's other core brand, Harlequin saw sales fall year on year, being more exposed than Zoffany to weaker levels of confidence in the middle marketplace. The strategy for Europe was also adjusted in the year following lower than expected sales in this important territory. This change along with a now more established management team, and coupled with tight control of costs, stronger product offerings and investment in marketing and promotions, has led to a strong start to the new year. A complete review was carried out in the early part of last year on the direct costs of the business and this combined with better margins has produced a significant turnaround in profitability compared to the previous year. This improvement is expected to continue going forward. Cirka had a more testing year with sales lower than in the previous year and profits down significantly following intensive pressure from the multiple DIY customers that represent the majority of the sales of this brand. New management was appointed during the year and a new strategy has been adopted, the benefits of which, will not be experienced until next year. To complement the Cirka brand, the Brushstrokes stencils and accessories business was acquired in July 2001. The full benefit of this purchase could not be harnessed until the business was moved from Oxford into our Loughborough premises, which took place in December. Having now completed this process, overheads have been reduced and we anticipate a solid return on our investment. Manufacturing We now believe that all of the synergistic benefit from combining Weavestyle, which was acquired last year and our contract fabrics business, has been achieved. Unfortunately, this came too late to improve the results in the year. In January 2002, following a consultancy project to maximise factory efficiency a redundancy programme was carried out. This has left the combined operation on a firm footing to go forward and take maximum benefit from the expected increase in sales next year, following a period when the contract textiles business serviced by this company was so dramatically affected by the events of last September. The core Standfast business saw a significant downturn in the market at the end of the previous year that continued throughout the year. The market it serves has seen a substantial reduction in demand, which has prompted consolidation across the industry. We have taken advantage of this situation and following the acquisition of Strines Textiles in June 2001, our factory output has risen well above the breakeven levels previously difficult to achieve and maintain. Consequently, Standfast is now one of a small number of Vat fabric printers remaining in the UK, and has also become a registered supplier of camouflage fabrics. The large orders in this area of the market expected at acquisition were starting to be printed at the end of the year and have continued into the early part of the new year. The greatest area of difficulty for the group last year was the Anstey wallcoverings factory. Unfortunately, the redundancy programme in January 2001 proved insufficient to bring the business back to profitability following a continued decline in its core markets. New management was appointed in the latter part of the year and further redundancies were made in January 2002. A clear plan has been devised to maximise the potential from the factory and in early 2002 we are finally seeing margins improve on levels previously achieved. Unfortunately, there are no signs of a significant recovery in the world-wide market for wallcoverings and this may result in this part of the group failing to show a positive contribution in the coming year. Every effort is being taken to explore new avenues and markets. Overseas Despite the difficulties in the US market following the events of last September we have managed to secure growth in the last quarter. The benefits of improved management and stronger product ranges have combined to generate a strong improvement in trading which has continued into the new year. Consequently, we expect to significantly increase profitability going forward. Our operations in Norway and Italy have continued to perform well and made a positive contribution to the group. Outlook Whilst 2001 was probably the most challenging year in the group's history, I believe we have now adjusted to the fundamental shift in market conditions we have witnessed over the past two years. Although the process has been costly and disruptive, the group has now arrested the decline in its results. After only two months into the new financial year we can clearly see a significant improvement in performance and I firmly believe that the right strategy and people are in place to ensure this continues. David Medcalf, Chief Executive Group Profit and Loss Account Year ended 31 January 2002 Before Exceptional Total 2002 Total 2001 exceptional items items Â£000 Â£000 Â£000 Â£000 Turnover 61,115 - 61,115 64,067 Operating loss (3,487) (2,600) (6,087) (5,269) Profit on sale of properties - 320 320 - (Loss)/profit on disposal of operations - (140) (140) 680 Fundamental restructuring of overseas operations - - - (123) Amounts written off investments - (237) (237) (527) Loss on ordinary activities before interest (3,487) (2,657) (6,144) (5,239) Net interest payable (528) - (528) (248) Loss on ordinary activities before taxation (4,015) (2,657) (6,672) (5,487) Tax on loss on ordinary activities 31 - 31 67 Loss on ordinary activities after taxation (3,984) (2,657) (6,641) (5,420) Dividends - - - (533) Deficit for the year (3,984) (2,657) (6,641) (5,953) Loss per share - Basic and diluted (11.76p) (9.60p) Dividend per ordinary share - 1.00p Balance Sheet At 31 January 2002 2002 2001 Â£000 Â£000 Fixed assets Goodwill 1,454 1,201 Tangible assets 21,666 24,036 Investment in - own shares 809 1,046 - in subsidiaries - - 23,929 26,283 Current assets Asset held for resale - 292 Stocks 15,445 15,245 Debtors 15,091 16,935 Cash at bank and in hand 2,234 2,402 32,770 34,874 Creditors: due within one year (22,734) (19,234) Net current assets 10,036 15,640 Total assets less current liabilities 33,965 41,923 Creditors: due after more than one year (2,445) (3,840) Provisions for liabilities and charges (456) (352) Net assets 31,064 37,731 Capital and reserves Share capital 590 590 Share premium account 457 457 Profit and loss account (10,490) (3,823) Other reserves 40,507 40,507 Equity shareholders' funds 31,064 37,731 Group Cash Flow Statement Year ended 31 January 2002 2002 2002 2001 2001 Â£000 Â£000 Â£000 Â£000 Net cash outflow from operating activities (1,436) (931) Returns on investment and servicing of finance Interest received 105 216 Interest paid (338) (251) Interest element of finance lease payments (256) (196) Dividend income (Employee share Option Plan) - 57 (489) (174) Taxation 96 164 Capital expenditure Purchase of tangible fixed assets (1,388) (6,113) Proceeds from assets held for resale 593 - Proceeds from disposal of property 360 - Proceeds from disposal of tangible fixed assets 22 9 (413) (6,104) Acquisitions, disposals and fundamental restructuring Acquisitions (575) (10,522) Net proceeds from disposal of operations 307 2,689 Fundamental restructuring costs - (523) (268) (8,356) Equity dividends paid (590) (1,180) Cash outflow before use of liquid resources and financing (3,100) (16,581) Management of liquid resources - - Financing Proceeds from new loans 624 1,507 Proceeds from finance leases - 3,400 Principal repayments of finance lease obligations (1,063) (819) Repayment of borrowings (314) (31) (753) 4,057 Decrease in cash (3,853) (12,524) Statement of Total Recognised Gains and Losses Year ended 31 January 2002 2002 2001 Â£000 Â£000 Loss for the financial year (6,641) (5,420) Reversal of surplus on revaluation of properties reclassified as asset held for - (222) resale Currency translation differences (26) 74 Total recognised gains and losses relating to the year (6,667) (5,568) Note of Historical Cost Profit and Losses Year ended 31 January 2002 2002 2001 Â£000 Â£000 Loss on ordinary activities before taxation (6,672) (5,487) Difference between historical cost depreciation charge and actual depreciation - 4 charge Historical cost loss on ordinary activities before taxation (6,672) (5,483) Historical cost loss for the year after taxation and dividends (6,641) (5,949) Reconciliation of Movements in Shareholders' Funds Year ended 31 January 2002 2002 2001 Â£000 Â£000 Loss for the financial year (6,641) (5,420) Dividends - (533) Deficit for the year (6,641) (5,953) Currency translation differences (26) 74 Revaluation reserve reversed on transfer of property for resale to current assets - (222) Goodwill transferred to profit and loss account - 1,390 Net reduction to shareholders' funds (6,667) (4,711) Opening shareholders' funds 37,731 42,442 Closing shareholders' funds 31,064 37,731 Notes to the accounts 1 SEGMENTAL ANALYSIS Turnover 2002 2001 (a) Classes of business Â£000 Â£000 Fabrics 34,978 35,678 Wallcoverings 24,352 26,819 Other 1,785 1,570 61,115 64,067 Non-interest bearing Turnover Loss before Operating net assets taxation 2002 2001 2002 2001 2002 2001 (b) Geographical segments Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 By origin: United Kingdom 49,357 50,948 (7,071) (6,054) 37,462 41,833 Continental Europe 5,350 6,472 275 224 1,181 1,019 North America 6,408 6,647 124 343 1,429 1,148 61,115 64,067 (6,672) (5,487) 40,072 44,000 Turnover 2002 2001 Â£000 Â£000 By destination: United Kingdom 43,011 44,002 Continental Europe 9,393 11,203 North America 8,002 7,469 Rest of the World 709 1,393 61,115 64,067 Non-interest bearing operating net assets are defined as tangible assets plus net current assets, but excluding cash, borrowings, tax and dividends. The businesses acquired in the year have not been analysed separately on the grounds of materiality. 2 ANALYSIS OF OPERATING LOSS Total Total 2002 2001 Â£000 Â£000 Turnover 61,115 64,067 Cost of sales (34,949) (34,638) Gross profit 26,166 29,429 Net operating expenses Distribution costs (11,172) (11,752) Administrative expenses (21,035) (23,010) Other operating (costs) / income (46) 64 Operating loss (6,087) (5,269) The operating loss included Â£2,600,000 of exceptional items. This comprised Â£1,183,000 for the costs of closing the Strines factory and transferring the business to the group's existing factory operated by Standfast including Â£480,000 of redundancy costs; Â£996,000 of further redundancies in the year, of which, Â£247,000 was paid to a past director as compensation for loss of office, Â£211,000 of professional fees in connection with the previously announced proposed offer for the company, Â£95,000 of costs resulting from moving the Anstey factory and Â£115,000 for the provision for vacant leasehold property. In the previous year the operating loss included Â£3,334,000 of exceptional items. This comprised Â£1,193,000 of redundancies, Â£711,000 relating to inefficiencies arising from the consolidation of the Anstey and Sileby manufacturing operations onto one site, Â£541,000 of costs incurred as a result of problems with the group's new I.T. system, Â£589,000 of costs incurred directly as a result of the move of the Anstey and Sileby operations and Â£300,000 of legal and professional fees incurred defending an action brought by a telecoms provider and professional advice received in respect of the proposed offer for the company. 3 PROFIT ON SALE OF PROPERTIES During the year the group's property in Anstey, Leicestershire was sold for Â£643,000, net of expenses, generating an exceptional profit of Â£351,000. Later in the year the property in Cowling, West Yorkshire was sold for Â£360,000 net of expenses with a loss on disposal of Â£31,000. There is no tax effect on these disposals. 4 (LOSS)/PROFIT ON DISPOSAL OF OPERATIONS On 3 September 2001, the trade and certain of the assets of the businesses trading as Warner Fabrics were sold. The proceeds were agreed at Â£453,000, of which Â£337,000 had been received in cash at 31 January 2002. After accounting for related costs the exceptional loss on disposal was Â£140,000. In the previous year, the businesses trading as Cole & Son and John Perry were sold for Â£3,000,000 which after accounting for related costs and goodwill resulted in a profit on disposal of Â£555,000. A further Â£125,000 was recognised for deferred consideration from a previous disposal where the recoverability was originally uncertain. There is no tax effect on the disposals in both years due to capital losses brought forward from previous periods. The businesses disposed of have not been classed as discontinued operations on the grounds of materiality. 5 FUNDAMENTAL RESTRUCTURING Costs of Â£123,000 were incurred in the prior year over and above those amounts provided at 31 January 2000 relating to the fundamental restructuring of the group's overseas distribution businesses in Holland, Germany and France. There was no tax effect from this restructuring. 6 AMOUNTS WRITTEN OFF INVESTMENTS The directors believe there is likely to be a shortfall between the cost of the shares held by the ESOP and anticipated future proceeds and have decided to recognise this shortfall with an amount of Â£237,000 written off in the year (2001: Â£527,000). 7 TAXATION 2002 2001 Â£000 Â£000 UK corporation tax at 30% - current year - - (2001:30%) - prior years - (319) Overseas taxation - current year 126 284 - prior years (183) - Total current tax (57) (35) Deferred tax - current year 32 37 - prior years (6) (69) Total deferred tax 26 (32) Tax on loss on ordinary activities (31) (67) The difference between the loss on ordinary activities at the corporation tax rate of 30% ruling in the UK and the actual current tax shown above is explained below: 2002 2001 Â£000 Â£000 Loss on ordinary activities before taxation (6,672) (5,487) Loss on ordinary activities multiplied by standard rate of corporation tax (2001) (1,646) in the UK of 30% (2001:30%) Adjustments in respect to prior years (183) (319) Expenses not deductible for tax purposes 220 740 Utilisation of prior year losses (57) (757) Capital allowances in excess of depreciation (27) (10) Losses not recognised 1,996 1,984' Other timing differences (5) (27) Total current tax (57) (35) 8 LOSS PER SHARE The basic loss per share and diluted loss per share are based on the loss on ordinary activities after taxation, amounting to Â£6,641,000 (2001: Â£5,420,000) and the weighted average of 56,457,016 (2001: 56,457,016) ordinary shares in issue during the year. 9 DISPOSAL OF WARNER FABRICS Â£000 Proceeds from sale 453 Deferred proceeds (116) Professional fees and other related costs (30) Net cash inflow 307 The disposal comprised the following: Tangible fixed assets 10 Stock 553 563 Loss on disposal (140) Deferred proceeds (116) Net cash inflow 307 On 3 September 2001, the group sold the trade and assets of the Warner Fabrics business. 10 ACQUISITION OF STRINES TEXTILES Fair Provisional Book value fair value adjustment value Â£000 Â£000 Â£000 Assets acquired comprised: Tangible fixed assets 125 - 125 Stock 450 - 450 575 - 575 Goodwill 426 Cost of acquisition 1,001 Satisfied by: Cash 325 Deferred consideration 676 1,001 On 11 June 2001, the group completed its purchase of the trade and certain of the assets of Strines Textiles, a fabric printing business based in the UK. 11 ACQUISITION OF BRUSHSTROKES Fair Provisional Book value fair value adjustment value Â£000 Â£000 Â£000 Assets acquired comprised: Tangible fixed assets 8 - 8 Stock 242 - 242 Cash cost of acquisition 250 - 250 On 18 July 2001, the group purchased the trade and certain of the assets of Brushstrokes, the UK's leading manufacturer of stencils for the DIY decorative market. No goodwill was recognised on this acquisition. 12 RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2002 2002 2001 2001 Â£000 Â£000 Â£000 Â£000 Operating loss (6,087) (5,269) Depreciation and amortisation 3,694 3,458 Loss on disposal of fixed assets 20 52 Increase in stocks (25) (481) Decrease in debtors 2,009 779 (Decrease)/increase in creditors (1,047) 530 4,651 4,338 Net cash outflow from operating (1,436) (931) activities 13 ANALYSIS OF NET DEBT 1 February Other Exchange 31 January 2001 Cash flow movements movement 2002 Â£000 Â£000 Â£000 Â£000 Â£000 Cash at bank and in hand 2,402 (185) - 17 2,234 Overdrafts (2,031) (3,668) - (8) (5,707) 371 (3,853) - 9 (3,473) Debt due within one year (304) (310) (597) (11) (1,222) Debt due after one year (1,269) - 597 (44) (716) Finance leases (3,517) 1,063 - - (2,454) (5,090) 753 - (55) (4,392) (4,719) (3,100) - (46) (7,865) 14 CONTINGENT LIABILITY In 1996, the company entered into an agreement with a communications conglomerate to supply the group with data transmission services over its wide area network in the UK and Europe. The company received a claim in the year ended 31 January 2001 under this contract relating to services purportedly supplied in 1998 amounting to Â£1,800,000. The directors continue to refute the claim and intend to defend it vigorously and continue to believe that there is no need to make a provision. This information is provided by RNS The company news service from the London Stock Exchange

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