Interim Results

Walker Greenbank PLC 22 October 2002 22 October 2002 Walker Greenbank PLC Interim results for the six months ended 31 July 2002 Results significantly improved despite difficult trading conditions • Sales maintained at £30 million (2001: £31 million) and losses before taxation reduced to £1.12 million (2001: £3.34* million) with loss per share at 0.68p (2001: 5.98p) • Positive cash flow from operating activities and EBITDA of £939,000 • Harlequin and Zoffany slow to recover from the economic upheaval of last year • Following restructuring all manufacturing sites are operating more efficiently but in a continually difficult marketplace *after exceptional operating costs of £1.58 million Ian Kirkham, Chairman of Walker Greenbank PLC said: 'The process of recovery and restructuring continues against the background of an increasingly weak marketplace, which may have a negative effect on the pace of improvement planned for the second half of the year. Some of the businesses have adjusted well to the necessary restructuring whilst others are capable of further improvement in the coming months. Total indebtedness is expected to reduce in the second half and to reduce it further will remain one of the primary objectives of the board. Although these results remain unsatisfactory, progress is being made towards the dual goals of a return to profitability and of unlocking the group's shareholder value.' Enquiries: David Medcalf, Chief Executive Walker Greenbank PLC Tel: 01509 225 209 John Sach, Group Finance Director Walker Greenbank PLC Tel: 08708 300 365 Ian Seaton, Bankside Consultants Tel: 020 7444 4157 Notes to editors Walker Greenbank PLC designs, manufactures, markets and distributes wallcoverings, furnishing fabrics and complimentary products.The Zoffany and Harlequin brands are recognised worldwide selling a full range of these items. The group's manufacturing base includes fabric printing at Standfast, fabric weaving by the combined Contract Fabrics and Weavestyle businesses and wallcoverings manufacture by Anstey. Chairman's Statement Overview I am pleased to report that despite very difficult trading conditions we have achieved a significant improvement in the results for the first six months of the year, following the profit improvement plan which has been implemented over the last two years. Equally important, a cash inflow from operating activities of £220,000 was achieved, representing the first cash inflow in the first half since 31 July 1999. The emphasis now is to grow our business and to take advantage of the lower fixed cost base and improving efficiencies. We have recently invested in our branded businesses with new products and increased consumer advertising. This expenditure is at a higher level than for some years and we anticipate a return from it in the next six to twelve months. The combination of current market conditions and the fragmented nature of our industry will undoubtedly produce opportunities both for consolidation and disposals as the inevitable rationalisation takes place. The board will aim to take advantage of this process both by unlocking some of its latent asset value and concentrating resources on the most rewarding parts of its portfolio of businesses. Results The loss on ordinary activities before taxation for the period was £1,121,000 (2001: £3,336,000 after including exceptional operating costs of £1,577,000) on turnover of £30.0 million (2001: £31.1 million). During the period outstanding tax issues from prior years were resolved and have resulted in a tax credit of £841,000. This helped reduce both the loss for the period and the loss per share, which is 0.68p (2001: loss per share 5.98p). As last year, there will be no interim dividend. The results for 2001 have been restated to include the full impact of adopting Financial Reporting Standard Number 17, which changes the way in which retirement benefits are recognised. The balance sheet at 31 July 2002 reflects a pension liability of £3,561,000. This has been established with reference to pension scheme asset values and scheme liabilities as at 31 January 2002. Since that date, the volatility of world equity markets will have impacted on the value of scheme assets. The scheme assets and liabilities will be recalculated at 31 January 2003 under the rules of this standard for inclusion in the accounts at that date. Cash management has improved during the period. Even though the launch by our brands of a greater number of collections, as compared to the same period last year, has led to a comparatively higher level of stock at the end of July, this position is being reversed in the second half. After adjusting for the impact of this investment in the brands, the underlying cash flow is positive. The group's EBITDA for the six month period was £939,000. Capital expenditure is now at much reduced levels as compared to previous years when the group's factories were being relocated and re-equipped. The net gearing at 31 July 2002 was 31% and the balance sheet continues to be underpinned by approximately £10.0 million of freehold property and substantial other tangible and current assets. Operating Review The Brands Sales of the Zoffany brand worldwide were 4% down on the first half of last year. However, the UK has seen a reduction of 11% highlighting the fragile nature of the marketplace. In particular, contract customers were slow to restart investing in major refurbishments following the economic upheaval of last year. This now appears to be behind us and the brand has progressively improved with first half sales up 2% over the second half of last year. In the UK Harlequin has managed a 4% growth in sales against the same period last year despite experiencing a contracting and competitive marketplace. This has been achieved by the introduction of improved collections and the constant investment in securing the brand's position. Overseas, Harlequin's sales have reduced as against the comparable period. Manufacturing Turnover at Standfast has risen as compared to the same period last year following the acquisition of Strines Textiles in the prior year. Since this acquisition the factory has improved utilisation from its stronger order book. Following the integration onto one site, management has sought to improve productivity which is expected to deliver benefits in the second half. The combined operations of Contract Fabrics and Weavestyle reported a decline in sales on the same period last year. A lower level of refurbishments in the contract market reduced Contract Fabrics' sales as compared to the same period last year. Despite sales at Weavestyle increasing by 5%, profits overall were reduced on account of the higher proportion of lower margin business to the retail market. This performance was only partly compensated for by the successful implementation at the end of last year of plans to reduce overheads and improve productivity. The combined operations remain robust and are expected to deliver a satisfactory performance in the second half. The plan to improve the manufacturing efficiencies at Anstey was successfully executed at the start of the year and the factory is now achieving gross margin levels in excess of those experienced before the move to Loughborough. Unfortunately, the decline in overall volumes of the wallpaper market has had a material impact on the recovery plans. This business is under close scrutiny by the board and although unprofitable at the moment it continues to generate cash and is well placed to benefit from any change in market conditions. Overseas The profits of the group's US subsidiary increased threefold over the same period last year. The Zoffany brand has driven this excellent performance, gaining market share with sales up 20%. This performance follows the refocusing of the channels of distribution made last year and particularly strong collections. The overseas operations in Norway and Italy also reported increased profits. Outlook The process of recovery and restructuring continues against the background of an increasingly weak marketplace, which may have a negative effect on the pace of improvement planned for the second half of the year. Some of the businesses have adjusted well to the necessary restructuring whilst others are capable of further improvement in the coming months. Total indebtedness is expected to reduce in the second half and to reduce it further will remain one of the primary objectives of the board. Although these results remain unsatisfactory, progress is being made towards the dual goals of a return to profitability and of unlocking the group's shareholder value. Walker Greenbank PLC Unaudited Consolidated Profit and Loss Account For the six months ended 31 July 2002 6 months Year to to 31 July 31 Jan 2001 2002 6 months to restated restated 31 July 2002 (note 12) (note 12) note £000 £000 £000 Turnover 1 29,961 31,128 61,115 Operating loss 2 (1,225) (3,295) (6,542) Profit on sale of property 3 175 272 320 Loss on disposal of operations - - (140) Amounts written off investments 4 - (237) (237) Loss on ordinary activities before interest (1,050) (3,260) (6,599) Interest payable 6 (304) (327) (528) Other finance income 233 251 494 Loss on ordinary activities before taxation (1,121) (3,336) (6,633) Taxation 5 739 (41) 31 Loss on ordinary activities after taxation (382) (3,377) (6,602) Dividends 7 - - - Deficit for the period (382) (3,377) (6,602) Loss per share - Basic and diluted 8 (0.68p) (5.98p) (11.69p) Dividend per ordinary share 7 - - - Unaudited Consolidated Balance Sheet As at 31 July 2002 As at As at 31 July 2001 31 Jan 2002 As at restated restated 31 July 2002 (note 12) (note 12) Note £000 £000 £000 Fixed assets Goodwill 1,348 1,566 1,454 Tangible assets 20,553 23,095 21,666 Walker Greenbank PLC shares 809 809 809 22,710 25,470 23,929 Current assets Stocks 14,887 14,543 15,445 Debtors 14,765 16,572 15,091 Cash at bank and in hand 1,304 1,669 2,234 30,956 32,784 32,770 Creditors: amounts falling due within one year (20,911) (20,607) (22,734) Net current assets 10,045 12,177 10,036 Total assets less current liabilities 32,755 37,647 33,965 Creditors: amounts falling due after more than one year (1,757) (3,007) (2,445) Provisions for liabilities and charges (214) (308) (456) Net assets excluding pension liability 11 30,784 34,332 31,064 Pension liability (3,561) (1,779) (3,643) Net assets 27,223 32,553 27,421 Capital and reserves Share capital 590 590 590 Share premium account 12 457 457 457 Profit and loss account 12 (14,331) (9,001) (14,133) Other reserves 12 40,507 40,507 40,507 Shareholders' funds 27,223 32,553 27,421 Unaudited Group Cash Flow Statement For the six months ended 31 July 2002 6 months to 6 months to Year to 31 July 2002 31 July 2001 31 Jan 2002 Note £000 £000 £000 Net cash inflow/(outflow) from operating activities 10 220 (45) (1,436) Returns on investment and servicing of finance Net bank interest paid (209) (200) (233) Interest element of finance lease payments (95) (123) (256) (304) (323) (489) Taxation (54) (98) 96 Capital expenditure Purchase of tangible fixed assets (574) (641) (1,388) Proceeds from disposal of properties 175 588 953 Proceeds from disposal of tangible fixed assets - 1 22 (399) (52) (413) Acquisitions and disposals Acquisitions (250) (375) (575) Net proceeds from disposal of operations 62 - 307 (188) (375) (268) Equity dividends paid - (590) (590) Cash outflow before use of liquid resources and financing (725) (1,483) (3,100) Financing Proceeds from new loans 1,500 - 624 Principal repayments of finance lease obligations (279) (522) (1,063) Repayment of loans (773) (15) (314) 448 (537) (753) Decrease in cash 9 (277) (2,020) (3,853) Statement of Total Recognised Gains and Losses For the six months ended 31 July 2002 31 January 2002 31 July 31 July restated 2002 2001 (note 12) Note £000 £000 £000 Loss for the financial period (382) (3,377) (6,602) Currency translation differences 184 6 (26) Actual less expected return on pension scheme assets - (3,568) (5,838) Losses on scheme liabilities - (439) (44) Total recognised losses relating to the period (198) (7,378) (12,510) Prior year adjustment 12 (3,643) Total recognised losses since the last annual report (3,841) Notes to the Accounts 1 SEGMENTAL ANALYSIS Turnover Turnover 6 months to 6 months to 31 July 2002 31 July 2001 (a) Classes of Business £000 £000 Fabrics 17,343 17,980 Wallcoverings 10,766 12,323 Others 1,852 825 29,961 31,128 (b) Geographical Segments - by destination United Kingdom 21,157 21,904 Continental Europe 4,036 4,798 North America 4,418 4,012 Rest of the World 350 414 29,961 31,128 2 EXCEPTIONAL OPERATING ITEMS In the six months to 31 July 2001, exceptional operating costs of £1,577,000 were incurred comprising £718,000 for the initial cost of closing the Strines' factory and transferring the business to the group's existing factory operated by Standfast (including £470,000 of redundancy costs); £573,000 for further redundancies, of which £227,000 was paid to a past director as compensation for loss of office; £200,000 of professional fees in connection with the previously reported proposed offer for the company and £86,000 of costs resulting from moving the Anstey factory. 3 PROFIT ON SALE OF PROPERTY An additional £175,000 was received in the period for the disposal of the group's property at Anstey, Leicestershire. The property was sold for an initial consideration of £588,000 in the period ended 31 July 2001 that generated a profit on disposal of £272,000. 4 AMOUNTS WRITTEN OFF INVESTMENTS No further provision has been made in the period. In the previous year, an amount of £237,000 was written off representing the likely shortfall between the cost of the shares held by the ESOP and anticipated future proceeds from the exercise of options. Notes to the Accounts Continued 5 TAXATION 6 months to 6 months to 31 July 2002 31 July 2001 £000 £000 UK Corporation tax at 30% (2001 : 30%) - current year - - - prior years (622) - Overseas taxation - current year 102 48 - prior years - - Total current tax (520) 48 Deferred tax - current year - - - prior years (219) (7) Total deferred tax (219) (7) Tax on loss on ordinary activities (739) 41 A number of outstanding issues from prior years were agreed with the Inland Revenue during the period resulting in the release of provisions brought forward at the start of the year. 6 OTHER FINANCE INCOME 6 months to 6 months to 31 July 2002 31 July 2001 £000 £000 Expected return on pension scheme assets 1,252 1,241 Interest on pension scheme liabilities (1,019) (990) 233 251 7 DIVIDENDS The directors do not recommend the payment of an interim dividend in the period (2001: £nil). 8 EARNINGS PER SHARE The basic earnings per share and diluted earnings per share are based on a loss after taxation of £382,000 (2001: loss of £3,377,000 as restated) and 56,457,016 ordinary shares (2001: 56,457,016), being the weighted average number of the shares in issue during the period. The basic loss per share and diluted loss per share for the year ended 31 January 2002 were based on a loss on ordinary activities after taxation, amounting to £6,602,000, as restated and the weighted average of 56,457,016 ordinary shares in issue during the year. Notes to the Accounts Continued 9 ANALYSIS OF NET DEBT Other 1 February non-cash Exchange 31July 2002 Cash flow changes movement 2002 £000 £000 £000 £000 £000 Cash at bank and in hand 2,234 (1,000) - 70 1,304 Overdrafts (5,707) 723 - 44 (4,940) (3,473) (277) - 114 (3,636) Debt due within 1 year (1,222) (727) (70) 60 (1,959) Debt due after 1 year (716) - 70 76 (570) Finance leases (2,454) 279 - - (2,175) (4,392) (448) - 136 (4,704) (7,865) (725) - 250 (8,340) 10 RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 2001 2001 2002 2002 restated restated £000 £000 £000 £000 Operating loss (1,225) (3,295) Depreciation and amortisation 1,756 1,838 Difference between pension charge and cash 151 223 contributions Loss on disposal of fixed assets - 32 Decrease in stocks 564 1,594 Decrease in debtors 269 252 Decrease in creditors (1,272) (652) Decrease in provisions (23) (37) 1,445 3,250 Net cash inflow/(outflow) from operating 220 (45) activities Notes to the Accounts Continued 11 PENSIONS The group operates defined benefits and defined contribution schemes in the UK for all qualifying employees. The major scheme is of the defined benefit type and the assets of each of the schemes are held in separate trustee administered funds. In addition, there are defined schemes for all qualifying employees of Abaris Holdings Limited and John O Borge a.s. The pension costs relating to the UK defined benefit schemes are assessed in accordance with the advice of an independent qualified actuary using the projected unit method. These schemes are subject to triennial actuarial reviews with the most recent ones having been at 6 April 2001 for both the major scheme and the Abaris Holdings Limited Pension Scheme. The John O Borge a.s scheme was valued in accordance with the Norwegian Financial Accounting Standard for Pension Benefits at 31 December 2001. These valuations were rolled forward to 31 January 2002 for the purposes of the Financial Reporting Standard no. 17 ('FRS 17') used in the disclosure below. The pension cost charged for the United Kingdom defined benefits pension schemes amounted to £271,000 in the period (2001: £348,000) for current service. The amount charged for past service in the period was £nil (2001: £nil). Financial assumptions applied when valuing the defined benefit schemes 31 January 31 July 31 January 2002 2001 2001 Valuation method Projected Unit Projected Unit Projected Unit Discount rate 5.75% 6.0% 6.0% Inflation rate 2.5% 2.75% 2.75% Increase to deferred benefits during deferment 2.5% 2.75% 2.75% Increases to pensions in payment 2.5% 2.75% 2.75% Salary increases 3.0% 3.25% 3.25% Consolidated net deficit in the pension schemes and the expected rates of return 31 January 31 July 31 January 2002 2001 2002 Group Group Group £000 £000 £000 Equities 7.9% 22,788 7.9% 23,693 7.9% 25,451 Bonds 5.5% 9,383 5.5% 9,756 5.5% 10,479 Cash 4% 1,341 4% 1,394 4% 1,498 Total market value of assets 33,512 34,843 37,428 Present value of scheme (37,155) (36,622) (35,228) liabilities (Deficit)/surplus in the (3,643) (1,779) 2,200 schemes A new valuation has not been prepared for these interim accounts, however, a valuation was prepared at 31 July 2001 to take account of the redundancy programme at the start of that period. The deficit at 31 July 2002 has been calculated by adjusting the position at 31 January 2002 for cash movements in the period. The deficit of £3,643,000 exceeds the amount previously disclosed of £2,305,000 due to an error in the actuarial calculations relied upon when preparing the accounts. Notes to the Accounts Continued 11 PENSIONS continued Movement in (deficit)/surplus during the period 31 July 31 July 2002 2001 Group Group £000 £000 (Deficit)/surplus at beginning of period (3,643) 2,200 Movement in period: Current service cost (271) (348) Contributions 120 125 Other finance income 233 251 Actuarial loss - (4,007) Deficit at end of period (3,561) (1,779) A deferred tax asset has not been offset against this potential liability because of carried forward tax losses that are not expected to be fully utilised in the foreseeable future. 12 RESERVES Share Profit Other reserves premium and loss Capital Merger account account reserve reserve Total £000 £000 £000 £000 £000 Group At 1 February 2002 - as previously stated 457 (10,490) 43,457 (2,950) 40,507 Prior year adjustment - (3,643) - - - At 1 February 2002 - as restated 457 (14,133) 43,457 (2,950) 40,507 Loss for the period - (382) - - - Currency translation movements - 184 - - - 31 July 2002 457 (14,331) 43,457 (2,950) 40,507 The prior year adjustment relates to the full adoption of Financial Reporting Standard No. 17 ' Retirement Benefits'. The effect of applying this standard is to increase the profit before taxation in the period ended 31 July 2001 by £28,000 and by £39,000 for the year ended 31 January 2002. If FRS 17 had not been adopted in the period ended 31 July 2002, the profit before taxation would have been £130,000 lower. 13 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 in all to some £1,800,000. The directors continue to refute the claim and believe that there is no need to make a provision. Notes to the Accounts Continued 14 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 2002 with the exception of the accounting for retirement benefits detailed in note 12. The consolidated results for the year ended 31 January 2002 have been extracted from the financial statements for that year, have been adjusted for the change in policy and do not constitute full statutory accounts for the group. The group accounts for the year ended 31 January 2002 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. This information is provided by RNS The company news service from the London Stock Exchange

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