Preliminary Results
Walker Greenbank PLC
11 April 2006
For immediate release 11 April 2006
WALKER GREENBANK PLC
('Walker Greenbank' or 'the Company')
Preliminary Results for the 12 months ended 31 January 2006
Walker Greenbank plc (AIM: WGB), the wallpaper, textiles and furnishings
business whose brands include Sanderson, Morris & Co, Harlequin and Zoffany, is
pleased to announce its preliminary results for the 12 month period ended 31
January 2006.
Highlights
• Successful turnaround - pre-tax profit of £2.62 million (2005: loss
£0.81m), marking the Company's first full year pre-tax profit since 2000
• Operating profit of £5.02 million (2005: loss £2.69m) with underlying
growth - pre-exceptional operating profit for continuing operations of £0.76
million (2005: loss of £3.06m which included exceptional costs of £0.67m)
• Cashflow positive - net cash inflow from operating activities of £1.64
million (2005: outflow £4.06m)
• Pension deficit reduced - FRS 17 pension liability of £7.98 million at 31
January 2006 calculated after adoption of latest PA92 mortality tables
(2005: £11.27m)
• Brand portfolio performed strongly and all parts of the business traded
profitably including UK fabric printing and wallpaper factories
• Current financial year has started strongly - considerably ahead of last
year and well ahead of internal projections
Ian Kirkham, the Chairman of Walker Greenbank, said: 'These excellent financial
results show that the restructuring of the Company is complete. The start of the
current financial year continues to see all parts of the Company trading
profitably and we are confident of continuing to develop the Company into an
exciting, cash generative and highly profitable business. Your Board views the
future with increasing confidence and looks forward to delivering substantial
shareholder value.'
A briefing for analysts will be held at 10.00am today (11 April 2006) at the
offices of Buchanan Communications, 45 Moorfields, London EC2Y 9AE.
For further information:
Walker Greenbank plc 01908 658078
Ian Kirkham, Chairman
John Sach, Chief Executive
Teather & Greenwood 020 7426 9000
Mark Dickenson
Robert Naylor
Buchanan Communications 020 7466 5000
Mark Court/Suzanne Brocks/Elly Williamson
CHAIRMAN'S STATEMENT
Overview
This has been a landmark year for Walker Greenbank and I am pleased to report
that the Group has returned a full-year operating profit for the first time
since the year 2000, following the considerable losses of the past 5 years. The
encouraging return to operating profit that I reported at the half-year stage
gathered momentum in the second half. This significant achievement underlines
the Board's strategy of re-establishing the Group as a profitable and cash
generative business with an exciting and sustainable future.
The business is now fully benefiting from the total integration of Sanderson
within the Group and the considerable investment in product that has taken place
in this brand over the past two years. Profits have been further enhanced by the
full year effect of the considerable cost savings that have been achieved
following the amalgamation of all the Group's brands under the control of one
management structure and the exit of low margin non-core business.
Manufacturing
All parts of the Group's business have traded profitably. After a difficult
start to the year, Standfast, our fabric printing factory, recovered strongly in
the second half and posted a full-year profit. Significant progress has also
been made at Anstey, our wallpaper factory, following the reorganisation and
cost reduction exercise that took place in the latter part of last year and the
refocus of the business at the premium end of the market. This, combined with
the return to popularity of wallpaper at the premium end of the market, has
returned Anstey to profitability for the first time in 6 years.
Brands
Our brands have all performed strongly. Harlequin, our mid-market brand, is
gaining real momentum through increasingly rapid sales growth, gains in market
share and more than a doubling of its profits during the year. Harlequin and
Sanderson are among the leading suppliers of home furnishings to the John Lewis
Partnership. Sanderson has taken longer to reinvigorate than we anticipated at
the time of acquisition. However, following the substantial investment in
product of the past two years, significant profit growth has been achieved this
year. Following the appointment of a new design director, and the refocusing of
the Zoffany brand back to its core values, progress has been made in
re-establishing the business as a leading brand at the premium end of the
market.
Disposals
In line with the Group's strategy of disposing of non-core assets, the sale of
Borge Holding AS was successfully completed in June 2005.
Results
The operating profit for the year was £5,018,000 (2005: operating loss
£2,690,000). Turnover was up 0.8% from continuing operations, after the impact
of the sale of the Sanderson retail activity and the exit from Anstey's low
margin Cirka business part way through last year. The operating profit from
continuing operations was £758,000 (2005: operating loss £3,062,000). The profit
on ordinary activities before tax was £2,625,000 (2005: loss £807,000). This was
after charging the profit and loss in the current year with an exceptional loss
on the sale of Borge Holding AS of £1,281,000 which included £1,908,000 for
goodwill previously written off to reserves and after crediting the profit and
loss with £4,076,000 from the successful outcome of the pension liability
reduction exercise. Last year's pre-tax loss of £807,000 included an exceptional
profit of £2,931,000 arising from sale of the Warner Archive and freehold
property in Milton Keynes.
The profit per share for the year was 4.51p (2005: loss per share 1.48p).
The other finance charge for the year was £174,000 (2005: £205,000) as a result
of the improved return on assets of the pension scheme.
Pensions
During the year the Group offered to buy out the right to non-statutory pension
increases from its active and deferred pensioners. This proposal proved to be
attractive to the members with a 70% acceptance rate. This has resulted in a
reduction in the FRS 17 liability in the balance sheet of £5,634,000 and a
benefit of £4,076,000 in the profit and loss, disclosed as an exceptional
operating item. Additionally the Board decided to take this opportunity to adopt
the most up to date mortality tables in the FRS 17 calculation which caused the
deficit to increase by £3,196,000. The Financial Review contains more details of
the changes to our FRS 17 pension deficit.
Since the year end additional acceptances have been received from the members of
the pension scheme that have reduced the pension deficit by a further £800,000.
Balance Sheet
The net assets of the Group have increased by £1,527,000. This has been
primarily driven by the reduction of the pension deficit following the
settlement of liabilities which improved the net assets of the Group by
£4,076,000, offset by the adoption of the most up to date mortality tables, with
an impact of £3,196,000. The Group also disposed of Borge Holdings AS during the
year for net proceeds of £1,498,000 and profit on sale of assets of £532,000.
The Group's net indebtedness reduced during the year by £1,389,000 to £9,357,000
(2005: £10,746,000). Cash inflow from operating activities was £1,643,000
(2005: outflow £4,060,000) after payments to pensioners of £950,000 as part of
the settlement of liabilities. This cash inflow from operating activities was
principally driven from operating profit and working capital inflows. The
proceeds of the sale of Borge Holdings AS reduced the total level of borrowings.
Dividend
The Directors do not recommend the payment of a dividend at this point in the
Group's recovery.
People
During the period Peter Harkness resigned as a Non-Executive Director after more
than four years' service. In July Alan Dix was appointed Group Finance Director
after spending seven months as Finance Director designate.
I would like to take this opportunity to thank all of our employees whose
energy, ability and commitment have helped to restore the Group's fortunes.
Outlook
The reorganisation of the Group and the integration of Sanderson are now fully
complete. Our factories have been restructured and are now both trading
profitably. The substantial investment in product and the creativity of our
design teams have helped our brands to gain market share and to grow at a
considerable pace.
We have gone a long way to addressing the structural issues on the balance
sheet. The pension reduction liability exercise has already reduced the deficit
by a significant amount. Our funding facility with Burdale Financial Ltd, part
of the Bank of Ireland, has greatly supported us in creating the headroom within
the business to invest strongly in our brands.
Our brands have gathered real momentum and are all at an exciting point in their
development. There are many opportunities for continuing to leverage our brand
portfolio through additional organic growth, expansion through investment in the
contract and commercial markets and further exposure to the large North American
market. The Group is also alert to the acquisition opportunities that can arise
in a large, fragmented market that is ripe for consolidation.
The start of the current financial year continues to see all parts of the
business trading profitably, considerably ahead of last year and well ahead of
our own internal projections. We are confident of continuing to develop the
Group into an exciting, cash generative and highly profitable business. Your
Board views the future with increasing confidence and looks forward to
delivering substantial shareholder value.
IAN KIRKHAM
CHAIRMAN
10 April 2006
Chief Executive's Review
The Brands
Harlequin
Harlequin has continued to strengthen its position as the leading mid-market
contemporary brand in the UK and has reinforced its position as one of the
leading home furnishings suppliers to the John Lewis Partnership. It continues
to expand its launches across a broad range of excellent products and take
market share from its competitors. This year has seen strong growth in its
wallpaper sales for the first time in a number of years as the fashion trend for
wallpaper at the premium end of the market feeds down into the mid-market.
Decadence, a wallpaper collection launched at the start of the year has become
the single best selling range within the brand's portfolio. With its
increasingly strong product offering, Harlequin was re-launched in the US at the
start of the year in a limited number of targeted States. The growth in the US
is ahead of our expectations and on the back of this we will continue to further
expand in the US in the current year. Overall sales gathered real momentum in
the second half leading to year on year growth of 13%. Margins have improved and
costs have been tightly controlled leading to more than a doubling of profits
this year.
Zoffany
Zoffany overall has maintained its sales in line with last year. Sales in the UK
have reduced very slightly compared with last year whilst export sales have
continued to grow. Despite the flat sales, margins are slightly up and following
the amalgamation of its back office functions with Sanderson at a single site in
Denham, the business has benefited from the full year effect of considerable
cost savings which has helped profit improve significantly over last year. With
the appointment of a new design team at Zoffany in the second half of the year
to January 2005, the business has been put onto a sound footing to refocus the
brand back to its core values. The new collections for 2006 have been well
received but with most markets remaining tight, we see the current year as a
year of consolidation before Zoffany returns to any significant upward trend in
sales.
Arthur Sanderson & Sons incorporating the Morris & Co brand
This has been a very encouraging year for Sanderson. The considerable investment
that has taken place over the last 2 years has started to drive sales. The sales
growth seen in the first half aided by the launch in the early part of the year
of Options 9, Sanderson's flagship collection, has continued in the second half,
helping Sanderson to gain year on year sales growth of 10%. Sales in the UK led
the improvement in the year and export markets are now showing similar growth.
Licensing revenues have grown 16% driven by considerable growth from our bedding
licencee, a partnership that was established during the previous year, and
healthy growth from our established agreements in the Far East and Australasia.
This progress has been augmented by new licence arrangements with a furniture
and blind manufacturer. Margins have improved, so with the benefits of the
restructuring that took place at the end of last year and the merging of the
back office activities with Zoffany, a more than doubling of profits has been
achieved. The brand continues to gain momentum and we are confident that it will
deliver continued profit growth in the future.
Manufacturing
Anstey
Anstey has achieved the transformation into a profit making business after 6
years of significant losses. This has been the direct result of refocusing the
business to a producer at the mid to premium end of the market, significantly
improving factory efficiencies and further cost reductions. There has been a 4%
decline in headline revenues but this is due to the exiting of lower margin
business. Overall underlying sales for the year have remained static. However,
sales in the second half have increased by 7% as Anstey starts to benefit from
the considerable revival in trend for wallpaper at the upper end of the market.
This move in fashion is now starting to filter down into the mid-market as
demonstrated by Harlequin's recent wallpaper revival and this augurs well for
the continued revival of Anstey.
Standfast
Sales at Standfast have increased year on year by 4%. The difficult trading
conditions of the first quarter were not repeated during the remainder of the
year and the ground lost in that period was more than made up in the second
half. Margins have been broadly maintained despite significantly higher energy
costs. Overhead costs have been tightly controlled leading to an overall
improvement in profitability.
Overseas
USA
Sales have reduced 5% in local currency year on year, following the cessation of
low margin third party distribution business. As a consequence of this, margins
have risen and this, combined with the full year effect of the overhead
reduction following the amalgamation of the Sanderson and Zoffany businesses
last year, returned the business to profitability. Sales have benefited from the
re-launch of the Harlequin brand in a limited number of States. This re-launch
has performed ahead of our expectations and will be further extended in the
coming year.
The withdrawal from a third party distribution arrangement with a furniture
manufacturer has allowed us to amalgamate our Zoffany and Sanderson showrooms
into a single prestigious 6,000ft showroom promoting all our brands within the D
&D building in Manhattan, New York. This combined with continued investment in
the American market will present the business with considerable growth
opportunities in the future.
Europe
Borge Holding AS in Norway was sold during the year generating a profit on sale
of £532,000 and a release of the FRS17 pension provision of £95,000. Goodwill
previously written off to reserves of £1,908,000 was charged through the profit
& loss account. Borge Holding AS had contributed £184,000 operating profit
during the year.
Our distribution businesses for Zoffany in Rome and Sanderson in Paris broadly
broke even in line with expectations, although they do not represent a large
part of the Group.
Summary
The restructuring of the Group and successful turnaround of a loss making
business is now complete. This has helped to deliver a better quality of
earnings on a stable turnover together with significant cost reductions leading
to a corporate profit for the first time in 5 years.
All parts of the Group are now trading profitably and there are considerable
growth opportunities for the Group to exploit in the future.
JOHN SACH
GROUP CHIEF EXECTUVE
10 April 2006
Financial Review
Profit and Loss
The profit and loss account has been set out in a columnar format this year.
This presentation has been adopted in order to reflect more clearly the
successful impact of the pension deficit reduction exercise and disposal during
the year of Borge Holdings AS. More importantly this disclosure clearly
demonstrates the improvement in the profitability of the continuing business
over last year. Full details of the pension deficit reduction and Borge Holdings
AS disposal are disclosed in note 3 and note 4 respectively.
Disposals
During the year the Group sold the non-core business of Borge Holding AS and its
subsidiary John O Borge AS. There was a profit on disposal after related costs
of £532,000. Under FRS 17 the Group accounts showed a pension liability
associated with the John O Borge business, although under Norwegian accounting
rules there was a small pension surplus. As a consequence of the sale this
liability, £95,000 is no longer required and has been released. Goodwill
previously written off to reserves was expensed in the profit and loss as
required by FRS 10. The goodwill was directly credited back to reserves as seen
in the Reconciliation of Movements in Shareholder's Funds.
Operating Cash Flow
There has been a cash inflow from operating activities during the period of
£1,643,000 due to the operating profit, the depreciation charge during the
period continuing to be greater than required capital expenditure and a
reduction in working capital.
Net cash receipts from the sale of Borge Holding AS and its subsidiary John O
Borge AS of £1,498,000 have helped to reduce the Group's borrowings.
The Group made payments to the Pension schemes of £799,000 to reduce the deficit
and this is part of the ongoing planned reduction. There were also payments made
to the majority of active and deferred pensioners of £950,000 as these
pensioners accepted an offer from the Group to buy out the right to non
statutory pension increases. At the year end there were liabilities of £608,000
associated with the pension reduction exercise. These covered the tax that had
been held on payments made to pensioners during the year awaiting tax clearance,
and acceptances received in January 2006 and paid in February together with
associated fees. Since the year end tax clearance has been received and payments
made of tax withheld.
As a consequence net debt in the Group has reduced by £1,389,000 to £9,357,000
(2005: £10,746,000).
Pension Deficit
The pension deficit has reduced significantly this year. The major factor was
the reduction arising from the settlement of liabilities of £5,634,000.
Contributions from the company further reduced the liability by £799,000. The
Group has adopted the PA92 mortality tables when computing the FRS 17 liability
and this has lead to an increase in the deficit of £3,196,000.
2006
£000
Deficit at beginning of period (11,269)
Current Service Cost (167)
Other Finance Cost (174)
Contributions 799
Reduction of deficit following settlement of 5,634
liabilities
Release due to sale of subsidiary 95
Impact of PA 92 mortality tables (3,196)
Actuarial loss 297
Deficit at end of period (7,981)
Gearing
The gearing level for the Group remained similar to last year being 56.4% at
January 2006 compared to 58.4% at January 2005, after adjusting for the pension
liability. The Group's balance sheet remains underpinned by freehold properties
valued at £5 million.
Funding
The Group utilises a facility provided by Burdale Financial Ltd part of the Bank
of Ireland. It is a 3 year facility which commenced on 23 July 2004 with a limit
of £18.5m. A significant element of the facility is linked to working capital
levels which allows the Group to manage its cash more effectively during the
seasonal fluctuations in working capital associated with the industry in which
the Group operates.
All of the bank's facilities remain secured by first fixed and floating charges
over the Group's assets.
Interest
The Group has continued to maintain its debt in floating rate instruments in
order to benefit from the lower rates available. This policy remains constantly
under review to ensure interest rate risk is minimised.
Taxation
The Group tax charge continues to reflect the amounts borne in foreign
territories. This is constantly under review to ensure every opportunity is
considered to minimise the amount incurred. In the UK, the Group has substantial
brought forward tax trading losses and as a consequence, does not anticipate
paying UK corporation tax in the foreseeable future. It will be the Group's
intention to reflect a deferred tax asset in the future as the Group
demonstrates its continuing improving profitability.
Treasury Policy
The Group's treasury policy is controlled centrally in accordance with
procedures approved by the Board. It is run prudently as a central Group
function, providing services to the other Group companies and adopts a risk
adverse strategy.
The main risks covered by this policy are interest rate risk, foreign currency
risk and liquidity risk.
Interest rate risk
During the year, the Group has reduced its fixed rate finance lease borrowings
from £251,000 to nil, thereby eliminating the proportion of fixed rate
borrowings used by the Group. All other borrowings are on a floating rate. The
viability of hedging instruments that would limit the impact of interest rate
movements will continue to be reviewed based on the Board's perception of future
rate increases.
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 any unmatched
exposures are covered by forward contracts wherever economically practical.
The Group does not trade in financial instruments and hedges are only used for
known cash flows. This has resulted in there being no significant gains and
losses.
Liquidity Risk
The Group ensures that it has adequate facilities available to cover both its
short term and medium term commitments.
Going Concern
The Directors are confident, after having made appropriate enquiries, that the
Group and Company have adequate resources to continue in the foreseeable future.
For this reason, they continue to adopt the going concern basis in preparing the
accounts.
Restatement
In prior year, the Group had charged amortisation of issue costs of finance of
£32,000 against operating profit. In the year, this has been reclassified to net
interest payable requiring restatement of the prior year comparatives.
IFRS
The Group will adopt IFRS for the year ending 31 January 2008, and its first
reporting under the new accounting rules will be for the interim period ending
31 July 2007. The Board commenced a project during the year to ensure the
successful implementation of IFRS accounting rules for the year ending 31
January 2008.
ALAN DIX
GROUP FINANCE DIRECTOR
10 April 2006
Group Profit and Loss Account
Year ended 31 January 2006
Before
Exceptional Exceptional Total 2005
items items 2006 (restated)
Note £000 £000 £000 £000
Turnover
Continuing operations 1,2 46,361 - 46,361 46,013
Discontinued operations 1,2 2,031 - 2,031 4,598
48,392 - 48,392 50,611
Operating profit/(loss)
Continuing operations 2 758 4,076 4,834 (3,062)
Discontinued operations 2 184 - 184 372
942 4,076 5,018 (2,690)
Profit on sale of subsidiary 3 - 532 532 -
Pension provision (FRS17) release - 95 95 -
on sale of subsidiary
Goodwill previously written off - (1,908) (1,908) -
to reserves
Net loss on sale of subsidiary - (1,281) (1,281) -
Profit on sale of properties 4 - - - 1,461
Profit on sale of Warner Archive 5 - - - 1,470
Profit on ordinary activities 942 2,795 3,737 241
before interest
Net interest payable
Interest payable (872) (811)
Amortisation of issue costs (66) (32)
(938) (843)
Other finance charge (174) (205)
Profit/(Loss)on ordinary 1 2,625 (807)
activities before taxation
Tax on profit/(loss) on ordinary (80) (27)
activities
Profit/(loss) on ordinary 2,545 (834)
activities after taxation
Dividends - -
Profit/(loss) for the year 2,545 (834)
Profit/(loss) per share - Basic 6 4.51p (1.48)p
and diluted
Profit/(loss) per share - Basic 6 6.46p (1.77)p
and diluted from continuing
operations
Dividend per ordinary share - -
There is no material difference between the loss on ordinary activities above
and their historical cost equivalent.
Balance Sheet
At 31 January 2006
Group Group Company Company
2006 2005 2006 2005
Note £000 £000 £000 £000
Fixed assets
Intangible assets 4,859 4,898 - -
Tangible assets 10,205 11,376 4,595 4,692
Investment in subsidiaries - - 33,250 19,000
15,064 16,274 37,845 23,692
Current assets
Stocks 11,539 12,879 - -
Debtors 9,137 11,346 15,823 30,655
Cash at bank and in hand 1,530 1,149 77 -
22,206 25,374 15,900 30,655
Creditors: amounts falling due within (10,403) (11,657) (9,440) (7,886)
one year
Net current assets 11,803 13,717 6,460 22,769
Total assets less current liabilities 26,867 29,991 44,305 46,461
Creditors: amounts falling due after (10,289) (11,310) (1,225) (1,500)
more than one year
Provisions for liabilities and charges - (342) - (44)
Net assets excluding pension liability 16,578 18,339 43,080 44,917
Pension liability 10 (7,981) (11,269) - -
Net assets 8,597 7,070 43,080 44,917
Capital and reserves
Share capital 590 590 590 590
Share premium account 457 457 457 457
Profit and loss account (32,957) (34,484) 145 1,982
Other reserves 40,507 40,507 41,888 41,888
Equity shareholders' funds 8,597 7,070 43,080 44,917
Group Cash Flow Statement
Year ended 31 January 2006
Note 2006 2006 2005 2005
£000 £000 £000 £000
Net cash inflow/(outflow) from 7 1,643 (4,060)
operating activities
Returns on investment and
servicing of finance
Interest received 12 4
Interest paid (878) (772)
Interest element of finance lease - (43)
payments
(866) (811)
Taxation (184) (278)
Capital expenditure
Purchase of tangible fixed assets (710) (1,187)
Proceeds from assets held for - 325
resale
Proceeds from disposal of - 4,564
property
(710) 3,702
Acquisitions and disposals
Net proceeds from disposal of 1,498 -
subsidiary
Disposal of Warner Archive - 1,672
Sale of Sanderson retail division - 675
1,498 2,347
Equity dividends paid - -
Cash inflow before use of liquid 1,381 900
resources and financing
Management of liquid resources - -
Financing
Proceeds from new loans 655 11,744
Principal repayments of finance lease (251) (463)
obligations
Repayment of borrowings (1,414) (4,487)
(1,010) 6,794
Increase in cash 8,9 371 7,694
Statement of Total Recognised Gains and Losses
Year ended 31 January 2006
Group Group
2006 2005
£000 £000
Profit/(Loss) for the financial year 2,545 (834)
Actual less expected return on pension scheme assets 3,817 822
Experience gains and losses arising on pension scheme 425 (531)
liabilities
Change in actuarial assumptions (7,141) (1,401)
Currency translation differences (27) 132
Total recognised gains and losses since the last annual (381) (1,812)
report
Reconciliation of Movements in Shareholders' Funds
Year ended 31 January 2006
Group Group
2006 2005
£000 £000
Profit/(loss) for the financial year 2,545 (834)
Dividends - -
Profit /(loss) for the year 2,545 (834)
Other recognised gains and losses relating to the (2,926) (978)
year
Goodwill previously set off to reserves in respect of 1,908 202
the disposal of operations
Net increase/(reduction) to shareholders' funds 1,527 (1,610)
Opening shareholders' funds 7,070 8,680
Closing shareholders' funds 8,597 7,070
Notes to the Accounts
1 Segmental Analysis
(a) Classes of business
Turnover
2006 2005
£000 £000
(restated)
Continuing operations:
Fabrics 30,062 29,969
Wallcoverings 12,415 12,492
Other 3,884 3,552
46,361 46,013
Discontinued operations:
Fabrics 511 1,157
Wallcoverings 1,520 3,441
2,031 4,598
Group 48,392 50,611
The other category includes furniture, paint and trimmings.
(b) Geographical Segments
Turnover Profit/(loss) Net assets
before taxation
2006 2006 2006 2005 2006 2005
£000 £000 £000 £000 £000 £000
By origin on
continuing:
United Kingdom 38,902 38,498 2,377 (993) 9,414 6,045
Continental Europe 1,198 1,016 (86) (29) (1,003) (920)
North America 6,261 6,499 154 (24) 186 89
46,361 46,013 2,445 (1,046) 8,597 5,214
By origin on
discontinued
operations:
Continental Europe 2,031 4,598 180 239 - 1,856
By origin Group 48,392 50,611 2,625 (807) 8,597 7,070
operations:
By destination on
continuing
operations:
United Kingdom 29,476 30,887
Continental Europe 6,145 5,587
North America 7,937 8,024
Rest of the World 2,803 1,515
46,361 46,013
By destination on
discontinued
operations:
Continental Europe 2,031 4,598
By destination Group 48,392 50,611
operations:
2 Analysis of Operating Profit/(loss)
2006 2006 2006 2005 2005 2005
Continuing Discontinued Total Continuing Discontinued Total
£000 £000 £000 £000 £000 £000
Turnover 46,361 2,031 48,392 46,013 4,598 50,611
Cost of sales (20,562) (957) (21,519) (21,711) (2,258) (23,969)
Gross Profit 25,799 1,074 26,873 24,302 2,340 26,642
Net operating
expenses:
Distribution (11,650) (305) (11,955) (11,465) (601) (12,066)
costs
Administrative (14,489) (583) (15,072) (16,878) (1,372) (18,250)
expenses
Other 1,098 (2) 1,096 979 5 984
operating
income
Operating 758 184 942 (3,062) 372 (2,690)
profit/(loss)
before
exceptionals
Reduction of 4,076 - 4,076 - - -
pension
deficit
following
settlement of
liabilities
Operating 4,834 184 5,018 (3,062) 372 (2,690)
profit/(loss)
The comparative analysis of administration and distribution has been restated to
better reflect the costs of the business.
Exceptional Items
During the year the Group bought out the right to non statutory pension
increases from its active and deferred pensioners. This has resulted in a
reduction of the FRS 17 liability in the balance sheet of £5,634,000 and a
benefit of £4,076,000 in the profit and loss account.
The operating loss in the year ended January 2005 included £670,000 of items of
a one-off non recurring nature relating to the integration of the Sanderson
business within the Group. This comprised £191,000 redundancy costs incurred in
combining the Zoffany and Sanderson US operations, £295,000 redundancy costs
relating to the combining of the Sanderson and Zoffany UK divisions onto one
site, £127,000 removal costs and costs of terminating a property lease at the
Zoffany UK site, and £57,000 of cost incurred in transferring Sanderson stock to
the Group's warehouse at Tilbrook.
3 Loss on the sale of Borge Holdings AS and John O Borge AS
In June 2005, the wholly owned Norwegian subsidiaries Borge Holding AS and John
O Borge AS were sold for a consideration before costs of £1,881,000. A profit of
£532,000 was generated on the sale before goodwill previously written off to
reserves and the adjustment to FRS 17 provision. Goodwill previously written off
to reserves of £1,908,000 was charged through the profit and loss account. A net
loss on sale of £1,281,000 has been recorded. Net proceeds of £1,498,000 were
received as detailed in the table below:
2006
£000
Sale of Borge Holdings AS and John O Borge AS
The disposal compromised the following:
Tangible fixed assets 60
Stock 681
Debtors 745
Creditors (520)
Profit on disposal 532
Net cash inflow from the disposal of Borge Holdings AS and 1,498
John O Borge AS
4 Profit on Sale of Properties
In February 2004, the land and buildings at Bradbourne Drive, Tilbrook, Milton
Keynes, were sold under a sale and leaseback agreement. A consideration before
costs of £4,670,000 was received, and a profit of £1,461,000 was generated on
the sale. The tax effect of the disposal was nil.
5 Profit on sale of Warner Archive
2006 2005
£000 £000
Profit on sale of Warner Archive - 1,470
In May 2004, the Warner Archive of designs was sold for a consideration before
costs of £2,000,000, generating a profit on disposal of £1,470,000.
6 Profit Per Share
Basic earnings per share 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 share trust, which are
treated as cancelled.
2006 2006 2006 2005 2005 2005
Earnings Weighted Per Earnings Weighted Per
£000 average share £000 average share
number Amount number Amount
of pence of pence
shares shares
(000's) (000's)
Basic & Diluted EPS:
Earnings attributable to 2,545 56,457 4.51 (834) 56,457 (1.48)
ordinary shareholders
Earnings per share from continuing
operations:
Basic & Diluted EPS 2,545 56,457 4.51 (834) 56,457 (1.48)
Loss on sale of subsidiary 1,281 - 2.27 - - -
Pre tax profit from (180) - (0.32) (239) - (0.42)
discontinued operation
Tax relating to discontinued - - - 75 - 0.13
operations
Basic and diluted EPS from 3,646 56,457 6.46 (998) 56,457 (1.77)
continuing operations
Earnings per share from discontinued
operations:
Basic & diluted EPS
Loss on sale of subsidiary (1,281) 56,457 (2.27) - 56,457 -
Pre tax profit from 180 - 0.32 239 - 0.42
discontinued operation
Tax relating to discontinued - - - (75) - (0.13)
subsidiary
Basic and diluted EPS from (1,101) 56,457 (1.95) 164 56,457 0.29
discontinued operations
7 Reconciliation of Operating Profit/(loss) to Net Cash Inflow/(outflow)
from Operating Activities
2006 2006 2005 2005
£000 £000 £000 £000
Continuing operations:
Operating profit/(loss) 4,834 (3,094)
Depreciation and amortisation 1,894 2,302
Difference between pension charge and (5,316) (814)
cash contributions
Settlement of pension liabilities (950) -
Proceeds on disposal of fixed assets 3 -
Decrease/(increase) in stocks 525 (1,316)
Decrease/(increase) in debtors 1,624 (21)
Decrease in creditors (642) (884)
(Decrease)/increase in provisions (323) 123
Fair value adjustment - (851)
(3,185) (1,461)
Net cash inflow/(outflow) from continuing 1,649 (4,555)
operating activities
2006 2006 2005 2005
£000 £000 £000 £000
Discontinued operations:
Operating profit 184 372
Depreciation and amortisation 9 66
Decrease in stocks 134 15
(Increase)/decrease in debtors (125) 169
Decrease in creditors (208) (127)
(190) 123
Net cash (outflow)/inflow from operating (6) 495
activities
Total net cash inflow/(outflow) from 1,643 (4,060)
operating activities
Last year comparatives have not been restated for the impact of FRS 4. The
operating loss in the profit and loss account is after the FRS 4
reclassification of £32,000.
8 Analysis of Net Debt
1 February Cash Other Exchange 31
2005 flow movements movement January
2006
£000 £000 £000 £000 £000
Cash at bank and in 1,149 373 - 8 1,530
hand
Overdrafts - (2) - - (2)
1,149 371 - 8 1,528
Debt due within one (400) (196) - - (596)
year
Debt due after one (11,244) 856 99 - (10,289)
year
Finance leases (251) 251 - - -
(11,895) 911 99 (10,885)
(10,746) 1,282 99 8 (9,357)
9 Reconciliation of Net Cash Flow to Movement in Net Debt
2006 2005
£000 £000
Increase in cash in the year 371 7,694
Decrease/(increase) in debt and lease financing 911 (6,794)
Cash inflow from cash flows 1,282 900
Other movements 99 -
Exchange movement 8 (13)
Movement in the year 1,389 887
Net debt at 1 February 2005 (10,746) (11,633)
Net debt at 31 January 2006 (9,357) (10,746)
10 Pensions
Movement in deficit during the period
2006 2005
Group Group
£000 £000
Deficit at beginning of period (11,269) (10,768)
Movement in the period:
Current service cost (167) (226)
Contributions 799 1,040
Reduction of pension deficit following 5,634 -
settlement of liabilities
Release due to sale of subsidiary 95 -
Other finance charge (174) (205)
Adoption of PA92 mortality tables (3,196) -
Actuarial gain/(loss) 297 (1,110)
Deficit at end of period (7,981) (11,269)
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