Final Results - Year Ended 31 January 2000

Walker Greenbank PLC 18 April 2000 Improved performance at Walker Greenbank Walker Greenbank PLC, the international fabrics and wallcoverings group, announces its preliminary results for the year ended 31 January 2000 * Operating profits from continuing operations increased to £1.72 million from £0.67 million (before exceptional charges) despite a 5% decline in sales * Underlying earnings per share increased from 1.30p to 3.33p this year * Overseas distribution businesses restructured * Strategic review completed leading to the acquisition of two fabrics manufacturing businesses from Courtaulds * Proposed final dividend unchanged at 2.0p per share, making the total unchanged at 2.0p per share Aidan Connolly, Chief Executive of Walker Greenbank PLC said: 'The improvement in the performance of our underlying business is very encouraging given the difficult circumstances in which we have had to operate this year. Restructuring will continue and I am confident the recovery in our performance will continue as well' For further information contact: Aidan Connolly, Chief Executive Walker Greenbank PLC Tel: 01442 234666 John Rudofsky/Patrick Toyne Sewell Citigate Dewe Rogerson Tel: 020 7638 9571 Walker Greenbank PLC Preliminary results for the year to 31 January 2000 A New Direction The welcome appointment of Viscount Thurso as Chairman has produced many new initiatives as Walker Greenbank has remained focussed on improving its business against the backdrop of difficult market conditions. It is a tribute to all our staff that, in such a poor environment, profits from continuing operations have improved so much. The strategic review of the group completed in the autumn has already begun to lead in new directions. Since the year end, the acquisition of the two fabric manufacturing businesses announced in February has been completed. The board had already started to reshape the group with a fundamental restructuring of the way it operates its various overseas businesses and this process will continue through the coming year. Results The results show a recovery in underlying performance, despite flat UK demand and another year of Sterling's strength. The recovery of profits in the continuing operations in the face of a decline in sales is particularly pleasing. Costs have been kept under control and management will continue with its prudent approach as sales recover. Group operating profit from continuing operations has increased to £1.72 million from £0.67 million last year (after adjusting for exceptional charges of £2.7 million made last year). Included in group operating profit is £0.6 million received as compensation for the problems caused by our new IT platform. Overall there has been a substantial increase in profits on sales which fell by 5% to £49.9 million. Profit before tax has been affected by several exceptional items. The fundamental restructuring of our overseas operations cost £2.5million in the year, of which £1.1million relating to the closure of our Dutch business was reported in the first half. The charge of £1.4 million in the second half, which includes £0.4 million of goodwill previously written off through reserves, relates to the closure of our French and German businesses. This charge is matched by the £1.0 million profit on the sale of our property in Sileby. Our taxation charge this year reflects the levels of tax levied in profitable overseas subsidiaries, without corresponding overseas losses being available for relief. We have made no provision for UK corporation tax as we have utilised trading losses. We will return to a tax charge more closely reflecting the basic UK corporation tax rate in future years. Earnings per share is distorted by the substantial gain made on the disposal of the commercial wallcoverings businesses and it is no surprise that the basic earnings per share has fallen from 36.92p last year to 0.25p. However, the underlying earnings per share reflects the growth in the continuing operating profits, rising from 1.30p last year to 3.33p. A final dividend of 2.0p per share is proposed (1999: 2.0p) making the total dividend for the year 2.0p (1999: 2.0p). The final dividend will be payable on 7 July 2000 to shareholders on the register on 12 June 2000. The Annual General Meeting will take place on 5th June, 2000 and a notice will be sent to shareholders in due course. Last year we highlighted our concerns over our business in mainland Europe and flagged anticipated exceptional costs relating to changes we needed to make. Another year of strong Sterling, with the pound reaching new heights against the Euro, has exacerbated the problems we faced in our operations. We also flagged the mistake that we had made previously in buying up distribution rights in Europe, which was expensive and added only losses. Even without the strategic review, correcting these elementary errors in our approach was obvious and this year, with the introduction of our new IT system, it became possible to streamline the process of managing our brands in Europe. We have now moved to a structure where brands are managed across Europe by the same team and we have abandoned the umbrella brand concept of 'Whittaker & Woods' which was hindering our progress. In the first half of the year, we closed our Dutch business at a cost of £1.1 million. By the end of the year, we had also announced the closure of our French/German businesses at an estimated cost of £1.4 million. Included in these losses is a combined write back of goodwill previously written off of £975,000. These businesses accounted for sales of £3.8 million this year and have generated significant losses in recent years. Corporate Governance One major initiative taken concerns corporate governance. We believe that the effects of good corporate governance can be seen in the results of companies that consistently apply it. The new Chairman immediately instigated a separation of roles by resigning the Chairmanships of the major board committees - the Audit and the Remuneration Committees - and asked Sir Malcolm Field to head both. We have also introduced a Nominations Committee to oversee the appointment of senior officers within the group. Our board now complies with many areas of best practice in corporate governance, including one year contracts for executive directors, separation of roles on the board and independent chairmanship of the key board committees. These, together with our commitment to performance related pay and the management of benefits in kind, demonstrate our commitment to modern management disciplines. Operations The manufacturing businesses had a tough sales year but broadly maintained their profitability with lower profits at Anstey partly compensated by an improved performance from Contract Fabrics. Zoffany became the group's largest selling brand worldwide, overtaking Harlequin for the first time. It achieved sales growth of 5% in tough market conditions and took greater market share in the UK. Harlequin returned to profitability after the previous year's problems despite the difficult trading background. Group sales in the US grew by 11% to £6.7 million with strong performances in all areas of our US distribution business. Strategic Review Another important initiative has been a fundamental review of group strategy, undertaken by the full board and its advisers during the second half of the year. This is the first time in some years that the group has had a developed and articulated strategy. The first fruits of this strategy have been the improvement in underlying performance and the recent acquisitions of the Standfast/Barracks and Weavestyle businesses from Courtaulds. In producing and presenting our strategy, we have been able to meet many of our leading shareholders and gained a clear view of their demands for the business. Their support has been gratifying and the board is confident that it will be able to deliver their expectations. We are mindful that there are many ways of delivering value to shareholders and the board is clear in its purpose in this regard. Trading Prospects Since the turn of the year, we have seen more confidence in our markets, especially the UK. We approach the new financial year, for the first time in many, with no loss-making subsidiaries in our group. There is more work to be done in reshaping the group. This year, we began to integrate our wallpaper manufacturing operations. This is a substantial undertaking and it will continue through the coming year. The risks we face in the coming year are: * As last year, Sterling's strength looks likely to continue. The introduction of the Euro has failed to dent Sterling's attraction as an investment haven. Some 42% of our turnover comes from our export efforts. We believe that the closures of our mainland European businesses have eliminated many of our problems, but this has only been achieved at significant cost. The impact on our margins is substantial and it is inevitable that our profitability will continue to be damaged while Sterling remains at these high levels. * We have installed a new IT system throughout the group. The problems caused by its introduction have impacted on our business by damaging sales and increasing our costs in the short term. The introduction of the new system was planned to bring about cost savings. To the extent that these costs continue and we fail to realise planned savings in the current year, profitability will suffer. * The US has proved our most successful avenue for growth in the last two years. There is some risk that if the current economic buoyancy deflates, we will suffer lower than expected growth from that area. 13% of our continuing sales are derived from the US. Our prospects are always closely tied to the achievement of sales, the maintenance of margins and to tight cost control. We have noted the risks that may affect business improvement in the current year. We can demonstrate a clear track record in maintaining our margins and curbing our costs. We aim to extend that record. As forecast last year, we achieved a considerable recovery in our continuing operations. We plan to continue that recovery as we implement our new strategy. However, it is unlikely that achievable increases in our business in the coming year will deliver matching increases in our market capitalisation. The board is alert to this problem, which affects many smaller companies. We believe that market appreciation of our strategy will deliver the inherent value of the business to the shareholders in due course. Aidan Connolly Chief Executive Walker Greenbank PLC GROUP PROFIT AND LOSS ACCOUNT Year ended 31 January 2000 Total Total 2000 1999 note £000 £000 Turnover - Continuing operations 1 49,937 52,450 - Discontinued operations 1 - 21,910 ---- ---- 49,937 74,360 Group operating profit - Continuing operations 1,719 (2,046) - Discontinued operations - 2,212 ---- ---- 1,719 166 Share of associated undertaking's operating loss (56) (19) ---- ---- Operating profit 7 1,663 147 Profit on sale of property 3 1,036 - Fundamental restructuring of overseas operations (including goodwill previously written off of £975,000) 4 (2,533) - Profit on sale of discontinued operations (including goodwill previously written off of £4,789,000) 5 - 32,896 Amounts written off investments 6 (450) (317) ---- ---- (Loss)/profit on ordinary activities before interest (284) 32,726 Net interest receivable 670 396 ---- ---- Profit on ordinary activities before taxation 386 33,122 Taxation on profit on ordinary activities (247) (556) ---- ---- Profit after taxation 139 32,566 Dividends (including non-equity) (1,123) (1,140) ---- ---- (Deficit)/profit for the period (984) 31,426 ---- ---- Earnings per share - Basic and diluted 0.25p 36.92p - Underlying before non-operating items 3.33p 1.30p Dividend per ordinary share 2.00p 2.00p Walker Greenbank PLC BALANCE SHEETS At 31 January 2000 Group Group 2000 1999 £000 £000 Fixed assets Goodwill 169 - Tangible assets 15,381 12,073 Investment in own shares 1,573 2,023 Investment in associated undertaking - 169 ---- ---- 17,123 14,265 ---- ---- Current assets Stocks 12,605 12,212 Debtors 14,351 12,793 Cash at bank and in hand 12,818 19,140 ---- ---- 39,774 44,145 Creditors: due within one year (12,872) (14,209) ---- ---- Net current assets 26,902 29,936 ---- ---- Total assets less current liabilities 44,025 44,201 Creditors: due after more than one year (799) (1,153) Provisions for liabilities and charges (784) (261) ---- ---- Net assets 42,442 42,787 ---- ---- Capital and reserves (including non-equity interests) Share capital 590 1,593 Share premium account 457 457 Profit and loss account 662 388 Other reserves 40,733 40,349 ---- ---- Shareholders' funds 42,442 42,787 ---- ---- Walker Greenbank PLC GROUP CASH FLOW STATEMENT Year ended 31 January 2000 2000 2000 1999 1999 £000 £000 £000 £000 Net cash inflow from operating activities 1,517 3,845 Returns on investment and servicing of finance Interest received 1,005 977 Interest paid (256) (577) Interest element of finance lease payments (66) (19) Dividends paid on non-equity shares - (64) Dividend income (Employee Share Option Plan) 57 107 ---- ---- 740 424 Taxation (658) (1,979) Capital expenditure and financial investment Purchase of tangible fixed assets (6,283) (3,725) Purchase of own shares - (520) Proceeds from share repurchase (Employee Share Option Plan) - 1,250 Proceeds from disposal of property 2,104 - Proceeds from disposal of tangible fixed assets 73 54 ---- ---- (4,106) (2,941) Acquisitions, disposals and fundamental restructuring Fundamental restructuring costs (454) - Costs incurred prior to the year end in respect of the post year end acquisition (302) - Loan guarantee payment on liquidation of associated undertaking (118) - Proceeds from sale of discontinued operation less exceptional disposal costs - 63,547 Purchase of investment in associated undertaking - (201) ---- ---- (874) 63,346 Equity dividends paid (1,180) (2,909) ---- ---- Cash (outflow)/ inflow before use of liquid resources and financing (4,561) 59,786 Management of liquid resources Bills of exchange receivable 343 19 Financing Repayment of borrowings (1,495) (815) Principal repayments of finance lease obligations (214) (50) Repurchase of share capital - (40,885) Issue of ordinary share capital - 77 Proceeds from finance leases - 1,200 ---- ---- (1,709) (40,473) ---- ---- (Decrease)/increase in cash (5,927) 19,332 ---- ---- Walker Greenbank PLC STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended 31 January 2000 2000 1999 £000 £000 Profit for the financial year 139 32,566 Currency translation differences (336) 3 ---- ---- Total recognised gains and losses relating to the year (197) 32,569 ---- ---- NOTE OF HISTORICAL COST PROFIT AND LOSSES Year ended 31 January 2000 2000 1999 £000 £000 Profit on ordinary activities before taxation 386 33,122 Realisation of property revaluations 606 - Difference between historical cost depreciation charge and actual depreciation charge 13 13 ---- ---- Historical cost profit on ordinary activities before taxation 1,005 33,135 ---- ---- Historical cost (loss)/profit for the year retained after taxation and dividends (365) 31,439 ---- ---- RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Year ended 31 January 2000 2000 1999 £000 £000 Profit for the financial year 139 32,566 Dividends (1,123) (1,140) ---- ---- (Deficit)/retained profit for the year (984) 31,426 Currency translation differences (336) 3 Redemption of 'B' shares - (40,885) New share capital subscribed - 77 Goodwill transferred to profit and loss account 975 4,769 ---- ---- Net reduction to shareholders' funds (345) (4,610) Opening shareholders' funds 42,787 47,397 ---- ---- Closing shareholders' funds 42,442 42,787 ---- ---- Walker Greenbank PLC 1 SEGMENTAL ANALYSIS Turnover 2000 1999 (a) Classes of Business £000 £000 Continuing operations: Fabrics 21,090 22,266 Wallcoverings 27,012 28,191 Other 1,835 1,993 ---- ---- 49,937 52,450 ---- ---- Discontinued operations: Wallcoverings - 21,910 ---- ---- Group 49,937 74,360 ---- ---- Non-interest bearing operating Turnover Operating profit/ net (loss) assets/(liabilities) 2000 1999 2000 1999 2000 1999 (b) Geographical £000 £000 £000 £000 £000 000 Segments By origin on continuing operations: United Kingdom 34,772 36,252 1,833 (1,519) 29,214 26,723 Continental Europe 9,496 11,359 (533) (476) 2,110 104 North America 5,669 4,839 419 (51) 1,184 1,101 ---- ---- ---- ---- ---- ---- 49,937 52,450 1,719 (2,046) 32,508 27,928 ---- ---- ---- ---- ---- ---- By origin on discontinued operations: United Kingdom - 19,281 - 2,139 - (209) Continental Europe - 2,629 - 73 - 63 ---- ---- ---- ---- ---- ---- - 21,910 - 2,212 - (146) ---- ---- ---- ---- ---- ---- Group 49,937 74,360 1,719 166 32,508 27,782 ---- ---- ---- ---- ---- ---- By destination on continuing operations: United Kingdom 28,947 29,432 Continental Europe 12,809 15,021 North America 6,683 5,995 Rest of the World 1,498 2,002 ---- ---- 49,937 52,450 ---- ---- By destination on discontinued operations: United Kingdom - 16,529 Continental Europe - 3,308 North America - 237 Rest of the World - 1,836 ---- ---- - 21,910 ---- ---- Group 49,937 74,360 ---- ---- Non-interest bearing operating net assets are defined as tangible assets plus net current assets, but excluding cash, borrowings, tax and dividends. Walker Greenbank PLC 2 ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS Continuing Continuing Discontinued Operations operations operations Total 2000 1999 1999 1999 £000 £000 £000 £000 Turnover 49,937 52,450 21,910 74,360 Cost of sales (23,073) (24,876) (8,058) (32,934) ---- ---- ---- ---- Gross profit 26,864 27,574 13,852 41,426 Net operating expenses Distribution costs (10,591) (11,196) (6,702) (17,898) Administrative expenses (15,181) (18,447) (4,938) (23,385) Other operating income 627 23 - 23 ---- ---- ---- ---- Group operating profit/(loss) 1,719 (2,046) 2,212 166 ---- ---- ---- ---- Other operating income in the year includes an exceptional credit of £600,000 representing compensation for the problems caused by the company's new IT platform. The continuing operations' operating loss in 1999 included £903,000 of non operating income representing management charges made to the discontinued businesses. It also included £2,719,000 of exceptional costs. These comprised: £1,399,000 as a result of a permanent diminution in the carrying value of the visualiser project; £500,000 incurred when Cole & Son and Warner Fabrics were brought under the management of Zoffany; £51,000 for the initial costs in rationalising the John Perry factory; £208,000 incurred as a result of the first steps in the re-organisation of the group's European subsidiaries; and a £561,000 provision made against the carrying value of stock previously under the management of the discontinued businesses, before it was transferred to the commercial fabrics business on 1 February 1998. The discontinued operations' operating profit in 1999 included £100,000 of exceptional costs incurred in a legal dispute. The tax effect of these exceptional costs in 1999 was to decrease the tax charge by £768,000. 3 PROFIT ON SALE OF PROPERTY IN CONTINUING OPERATIONS On 31 January 2000, the sale of the group's property in Sileby, Leicestershire was completed for a cash consideration of £2,104,000. The net profit on disposal of £1,036,000 is after writing off the net book value of the property and associated costs of the sale. 4 FUNDAMENTAL RESTRUCTURING During the year, a fundamental restructuring of the group's overseas distribution businesses trading as Whittaker & Woods was undertaken. This resulted in the decision to close the remaining parts of the group's operations in Holland, Germany and France and some restructuring in the USA. The group continues to supply these territories but not under the Whittaker & Woods brand, and accordingly these operations have been classified as continuing. The exceptional costs relating to this closure comprise redundancy costs, write off of unrealisable net assets, professional fees and other related costs totalling £1,558,000. The profit and loss account also includes a charge of £975,000 in respect of goodwill previously written off direct to reserves. The taxation effect of this restructuring was to reduce the tax charge by £204,000. 5 PROFIT ON SALE OF DISCONTINUED OPERATIONS In 1999, the trade and certain of the assets and liabilities of the group's commercial wallcoverings businesses, trading as Muraspec and Brymor, were sold. After accounting for related costs and goodwill the exceptional profit on disposal was £32,896,000. The taxation effect of this disposal was to decrease the taxation charge in 1999 by £293,000. 6 AMOUNTS WRITTEN OFF INVESTMENTS As a result of the sale of the Muraspec and Brymor businesses in 1999, a considerable number of option holders have left the group and their options begun to lapse. Following these option lapses, the directors believe there is likely to be a short fall between the cost of shares held by the ESOP and anticipated future proceeds. The directors have accordingly decided to recognise this anticipated shortfall and have written off an amount of £450,000 (1999: £317,000) against the investment in own shares. Walker Greenbank PLC 7 OPERATING PROFIT 2000 1999 £000 £000 Operating profit is stated after charging: Auditors' remuneration: Audit fees - group auditors 98 93 - other auditors 24 21 Other services - group auditors 17 156 Depreciation of owned assets 1,900 3,557 Depreciation of assets held under finance leases and hire purchase contracts 30 35 Hire of motor vehicles and plant and machinery 483 845 Other operating leases 549 964 ---- ---- Auditors' remuneration for audit services to the group includes £30,000 (1999: £30,000) in respect of the company.

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