Preliminary Results

Walker Greenbank PLC 10 April 2008 For immediate release 10 April 2008 A briefing for analysts will be held at 10am on the morning of the results, 10 April 2008, at the offices of Buchanan Communications, 45 Moorfields, London EC2Y 9AE. Please phone 020 7466 5000 for further details. WALKER GREENBANK PLC ('Walker Greenbank' or 'the Company') Preliminary Results for the 12 months ended 31 January 2008 Walker Greenbank plc (AIM: WGB), the luxury interior furnishings Group whose brands include Sanderson, Morris & Co., Harlequin and Zoffany, is pleased to announce its preliminary results for the 12 month period ended 31 January 2008. Highlights • The Group's organic growth strategy delivers another year of excellent progress • Revenue up 15% to £62.45 million (2007: £54.37 million) • Operating profit up 60% to £3.96 million (2007: £2.48 million before exceptional credit) • Profit before taxation up 119% to £3.10 million (2007: £1.42 million excluding exceptional credit of £1.28 million) • Earnings per share of 14.49p (2007: 4.67p). Adjusted earnings per share 5.44p after excluding deferred tax credit of £5.10 million (2007: 2.41p after excluding exceptional credit of £1.28 million) • Gearing reduced to 35% (2007: 66%) with Shareholders' Funds increased to £20.80 million (2007: £12.94 million) Ian Kirkham, the Chairman of Walker Greenbank, said: 'We are confident that our strategy will deliver growth in both revenue and profits in the coming years. Two months of our current financial year are now completed, during which time the Group has continued to trade strongly. We remain confident of a very satisfactory outcome for the year.' For further information: Walker Greenbank PLC 08708 300077 John Sach, Chief Executive Alan Dix, Finance Director Julian Wilson, Company Secretary Landsbanki Securities (UK) Limited 020 7426 9000 Mark Dickenson / Tom Hulme Buchanan Communications 020 7466 5000 Mark Court / Suzanne Brocks / Miranda Higham CHAIRMAN'S STATEMENT Overview It gives me great pleasure to report another year of excellent progress. The sustained strength of our brands, the quality of our niche manufacturing and favourable market conditions have resulted in revenue growth of 15%. Operational gearing has translated this growth into a 60% increase in operating profit to £3,961,000 before exceptional items. We have made considerable progress in delivering our key strategic organic growth objectives. Our brand sales have grown 17% in the UK retail markets and have added 17% in Europe and the Rest of the World. Our US business, which is still a relatively small part of our Group, has grown 2%, equivalent to 13% in local currency. Particularly encouraging is the 58% increase achieved in our fledgling contracts business. Finally our manufacturing units have continued to gain market share, growing their third party revenues by 8%. All our brands, which include Harlequin, Sanderson (including Morris & Co.) and Zoffany, have performed strongly. Our Harlequin brand has further reinforced its position as the pre-eminent brand in the mid-market. Continued heavy investment in new product and marketing has helped both revenue and profits to grow further. Sustained investment in product and marketing since we acquired Sanderson, our globally recognised brand, has helped to accelerate its revenue growth and achieve a substantial improvement in profits. Having successfully re-established Zoffany as a leading brand in the premium end of the market, focused product investment in this and prior years has helped achieve strong revenue growth and a substantial improvement in profits. Continued investment in our Manhattan-based business in the United States has helped to increase revenues in local currency. However, the weak dollar and testing market conditions mean that the business continues to make a small loss. We remain confident that there is considerable medium to long term growth potential for the Group in this important market. Anstey, our wallpaper factory in Loughborough, continues to benefit from the growing popularity of wallpaper. The limited manufacturing capacity at the mid to premium end of the market and high barriers to entry, combined with its continued commitment to investment in factory efficiency and improved service to our customers, have helped the business grow its revenue and improve profits threefold. Standfast, our fabric printing factory based in Lancaster, continues to invest in factory efficient capital equipment, however slightly tougher market conditions have led to a small fall in revenue and profits over the same period last year. Financials The financial results have been prepared under International Financial Reporting Standards (IFRS) and the effect on the Group's results of adopting these standards has been minimal. Revenues increased 15% to £62,448,000 from £54,369,000 last year. The underlying operating profit for the year increased 60% to £3,961,000 (2007: £2,481,000). Profit before tax increased 15% to £3,099,000 (2007: £2,694,000). Underlying profit before tax after adjusting for an exceptional pension credit included in last year of £1,276,000 increased 119%. Profit after tax increased to £8,171,000 (2007: £2,636,000) with the inclusion of a deferred tax credit of £5,101,000 (2007: Nil). This has been recognised as the Group is now confident of utilising the historical taxable losses by delivering sustainable taxable profits into the foreseeable future. The earnings per share were 14.49p (2007: 4.67p) reflecting the recognition of the deferred tax credit. An adjusted earnings per share that excludes the benefit of the deferred tax credit would be 5.44p (2007: 2.41p). The exceptional profit from the pension deficit reduction exercise of £1,276,000 has been excluded in the adjusted 2007 earnings per share. The Group's net indebtedness at the year end was £7,289,000 (2007: £8,604,000). This represents a reduction in gearing to 35% (2007: 66%). The cash inflow from operating activities was £3,542,000 (2007: £2,276,000). Shortly before the year end, the Group purchased 1,415,093 of the Company's shares on the open market for a total amount of £612,000 in order to satisfy awards made in May 2007 under the long term incentive scheme. Dividend The Directors do not recommend the payment of a dividend at this point in time. We remain focused on further cash generation, reducing our gearing and pension deficit whilst remaining alert to both organic and acquisition growth opportunities as they arise. People On 19 September 2007 Terry Stannard joined the Board as a Non-Executive Director. His broad business experience, particularly of marketing and international business, will be of great value to the Group in future years. On 12 February 2008, Charles Gray, a Non-Executive Director, retired from the Board. I would like to thank Charles for his input to Walker Greenbank's Board and to wish him well for his retirement. I would like to thank all our employees for their continued support. Their commitment and enthusiasm have contributed significantly to the improvement in shareholder value. Outlook Our Group is now firmly established as a profitable cash generative business, with a strengthening balance sheet. Our premium end brands, supported by our niche manufacturing, contribute to our position as a market leader in the luxury interior furnishings market. We are particularly well positioned to take advantage of the growing trend towards colour and design in both fabrics and wallpaper. John Sach in his Chief Executive Review highlights the range of strategic growth opportunities the Group is pursuing to increase its presence in the world wide luxury interiors furnishings market. We are confident that our strategy will deliver growth in both revenue and profits in the coming years. Two months of our current financial year are now completed, during which time the Group has continued to trade strongly. We remain confident of a very satisfactory outcome for the year. Ian Kirkham Non-Executive Chairman 10 April 2008 CHIEF EXECUTIVE'S REVIEW I am delighted to provide a review of the Group's progress in the year to January 2008, a transformational period in the Group's development. Looking back, the year to January 2007 was a year in which we successfully achieved the Group's recovery, fully restoring its financial stability and creating a solid platform for future growth. The year to January 2008 was a year in which we built on the recovery of 2007 by making excellent progress in executing our strategy of delivering earnings growth by exploiting the organic growth and other opportunities that exist within the Group as a result of the strength of the Group's brand assets. Strategy The cornerstone of our strategy is our significant investment in the design and marketing of exciting new product for our four brands. This commitment to our brands has fuelled our sales growth to date and underpins our growth strategy, which comprises five key elements: •Organic growth - to continue to exploit the organic growth opportunities that exist for our Group in the UK retail market; •Geographic expansion - to invest in marketing and distribution in the North American market, where our Group is currently immature relative to our peers, and to focus on the distribution and marketing of our brands in Europe and the Rest of the World, where again as a Group we are presently underdeveloped; •Contract sales - to drive the expansion of our fledgling contracts business through further investment in people and contract specific product supported by the strength of our brand names and our manufacturing capability, predominantly focusing at the mid to upper end of the contract market; •Licensing income - to exploit the global recognition of the Sanderson and Morris & Co. brand names to develop further licensing arrangements; and •Acquisitions - to evaluate acquisition opportunities that may fit with our current brand portfolio and potentially provide synergistic and earnings enhancing opportunities. The Brands Harlequin The Harlequin brand has continued its impressive financial performance, growing its sales in the year by 16%, the third successive year of double digit sales growth, further re-enforcing its position as the pre-eminent brand in the UK mid-market. The sales growth was driven by woven product, up 24%, and wallpaper, up 6%; printed fabric sales have remained essentially flat year-on-year. Sales growth was broadly similar in both the home and export markets. Following the launch of an extensive range of product specifically for the contract market, and supported by the expansion of the contracts business, contract sales have grown 92% in the year. Harlequin continues to increase its product offer through the continual launch of new and innovative product. It is also investing significantly in marketing and advertising to promote the product. This investment combined with the sales growth and maintained margins helped improve operating profit by 15%. Zoffany As reported in the first half, the focusing of the brand on its core and traditional design values is now essentially complete. The brand has re-established itself within the design community and its newly launched ranges are performing strongly. The renewed recognition of the brand by the design community has re-invigorated the sales of older collections, which, combined with the strength of the new collections, has helped grow sales year on year by 24%. The growth has been led by wallpaper and woven fabric, both up 27%, with printed fabric up only 1%. Sales in the UK were up 27% and export sales were up 20%, both helped by the Group's focus on contract sales, which were up 25%. The sales growth and improving margins, combined with significant investment in product development and marketing, has helped Zoffany improve from a break even position last year to a 5% operating profit for the year to January 2008. Arthur Sanderson & Sons incorporating the Morris & Co. brand Following significant investment in product, sales of the Sanderson brand have gathered momentum, underpinned by the brand's unrivalled global recognition. Sales have grown 22% with growth across all product categories led by woven fabric, up 49%, wallpaper up 17% and printed fabric up 9%. Geographically sales were up equally in the UK and export markets, with both markets helped by a 31% increase in contract sales. New licence arrangements have been signed in tableware and stationery. However, licence income during the year fell due to tougher trading conditions in Australasia and a lower sterling return from Japan due to the weakness of the Yen. Overall, sales growth at Sanderson and Morris & Co., along with significantly increased product development and marketing and improving margins have helped to deliver a more than six-fold increase in operating profit. Manufacturing We have two freehold printing facilities in the UK: Anstey, our wallpaper factory in Loughborough; and Standfast, our fabric printing factory in Lancaster. Both factories offer highly specialised printing, and their UK location brings benefits including the ability to print very short runs and easy accessibility for UK designers to visit the factories' during print work. In addition to printing the wallpaper and fabrics for the Group's own brands, the factories print for third party customers. Anstey Anstey has further consolidated its position as market leader in UK wallpaper manufacture in the mid to premium end of the market. Its continued commitment to investment in factory efficiency and improved service to its customers, combined with limited competition and high barriers to entry, have helped grow Anstey's overall sales 19%. Third party sales grew 38%, as more customers seek to satisfy mounting consumer demand for wallpaper. Group sales grew 5% and third party sales now account for half of Anstey's overall turnover. The growing turnover, improved factory efficiencies and tight overhead cost control helped Anstey more than treble its operating profit. Standfast Standfast has experienced challenging market conditions during the year. The move in fashion trends in the interior design market towards colour and design have not yet fed through into the print market. Fewer print collections this year than last led to a reduction in Group revenue of 2%. Third party sales also declined by 4%, giving an overall reduction in total sales of 3%. The lower activity this year put pressure on factory throughput and led to a reduction in margins and a subsequent decline in overall profits year on year. Whilst this market remains difficult at the moment we are confident that fashion trends will eventually redress this situation and we continue to invest in capital equipment to improve factory efficiency. Overseas USA Overall reported sales increased year on year by only 5%. However, when adjusting for the currency movement due to the weakness of the dollar sales were up 13%. This improvement was driven predominantly by Harlequin. The second half of the year proved more difficult than the first, due to the well documented economic conditions in the US. The US still forms a relatively small part of the overall Group and despite testing market conditions we continue to invest strongly in marketing, patterning and sample support, as we firmly believe in the medium to long term potential of this market. This continued investment means that we still continue to lose money in the US. However, it is important to recognise that overall, with the sales from the UK to the US subsidiary and the downstream manufacturing, the US business is still an important profit contributor to the Group. Europe The Group's distribution businesses in Rome and Paris grew their combined revenue 4% and returned a small operating profit. During the year, we employed an experienced European development director and are currently strategically reviewing the way we do business in this important marketplace. Relative to our peer group our overall sales are low and we strongly believe that this market offers great potential for the Group in the future. Summary All of our brands continue to perform strongly. The considerable investment we have made in product and marketing in recent years places us in a strong position to exploit both the continuing and new business opportunities that exist within the Group. We remain confident about the future progress the Group will make. John Sach Group Chief Executive 10 April 2008 FINANCIAL REVIEW (Extracted from the Finance Review) Income Statement and Exceptional Items The Chairman's Statement and Chief Executive Review provide an analysis of the key factors contributing to the continued improvements in operating profit and profit before taxation. In addition to the information on our brands and production facilities included in these reports, the Group has included in note 2 of this announcement, information on our business segments, as required by International Financial Reporting Standards (IFRS). Both the 2008 and 2007 results are impacted by exceptional items. In the year to January 2008 the Group has recognised a deferred tax asset of £5,101,000 as the Group is confident of utilising historical corporation tax losses as a result of foreseeable sustainable future profits. Last year there was an exceptional profit of £1,276,000 arising from the pension deficit reduction exercise. Both items have enhanced the basic earnings per share (EPS), but are removed in the analysis of adjusted EPS discussed below, to enable better comparison of the underlying performance of the Group. Earnings per share ('EPS') The basic and diluted EPS was 14.49p (2007: 4.67p). The underlying EPS was 5.44p for the current year (2007: 2.41p), and is reconciled to basic and diluted as follows: 2008 2007 £000 £000 Profit after tax per the accounts 8,171 2,636 Exclude exceptional benefit pension deficit reduction exercise - (1,276) Exclude the recognition of deferred tax (5,101) - Adjusted Profit after tax 3,070 1,360 Adjusted EPS 5.44p 2.41p The number of shares in issue remained constant, however, on 16 January 2008 700,000 shares were purchased and brought into Treasury and on 17 January 2008 715,093 shares were purchased and also brought into Treasury. The weighted average number of shares reduced to 56,397,000 for the year ended 31 January 2008 from 56,457,000 in the year ended 31 January 2007. Disposals There were no major disposals during the year. Interest The interest charge for the year was £981,000 (2007: £964,000) including amortisation of debt issue costs capitalised. Net pension related income during the year was £119,000 (2007: charge £99,000). This is a consequence of the significant reduction in the gross pension liability compared with the previous year. Current Taxation There is a small corporation tax charge arising from the taxable profits at the Italian subsidiary. The Group continues to review the overseas tax position to ensure every opportunity is considered to minimise the amount incurred. Deferred Taxation During the year the Group has recognised a deferred tax credit of £5,101,000 predominantly arising from corporation tax losses incurred in prior years. The asset has been recognised this year as the Group is now confident of a sustainable future profit stream. Due to the substantial nature of these corporation tax losses (£23 million) the Group does not anticipate incurring or paying UK corporation tax for the immediate future. However, as the majority of the corporation tax losses have now been recognised as a deferred tax asset in future years there will be a deferred tax charge in the Income Statement until such time as the deferred tax asset has been fully utilised at which point the Group will incur and pay UK corporation tax. The Group also continues to recognise the deferred tax asset arising from the Pension Deficit. As the Pension Deficit has reduced during the year the reduction of the associated deferred tax asset has been recognised. Operating Cash Flow The Group generated net cash inflow from operating activities during the year of £3,542,000 (2007: £2,276,000). It paid interest of £956,000 (2007: £913,000) and capital expenditure of £1,674,000 (2007: £1,444,000). The depreciation and amortisation charge during the period continued to be greater than required capital expenditure. The Group made additional payments to the Pension schemes of £1,059,000 (2007: £898,000) to reduce the deficit, part of the ongoing planned reduction. The Group purchased 1,415,093 shares at a cost of £612,000 in order to satisfy awards made in May 2007 under the Long Term Incentive Plan. Net debt in the Group has reduced by £1,315,000 to £7,289,000 (2007: £8,604,000). Pension Deficit The pension deficit has reduced further this year. The key factors affecting the movement in the deficit have been; firstly ongoing contributions of £1,290,000 from the Company to reduce the deficit; secondly a reduction in the liabilities of the scheme arising from the increase in discount rates during the year and lastly the adoption of PA92 with medium cohort mortality tables which has increased the deficit. The impact of these factors is shown as follows: 2008 £000 Deficit at beginning of period (5,518) Current service cost (231) Other finance income 350 Contributions 1,290 Impact of mortality tables (2,868) Actuarial gains primarily from the change in discount factor 3,568 Gross deficit at the end of the year (3,409) Long-Term Incentive Plan A conditional award of shares was granted to the executive Directors and certain employees under the Long-Term Incentive Plan ('LTIP') on 28 May 2007. There has been a charge of £429,000 (2007: £143,000) in the Income Statement for this and previous awards. Gearing The gearing level for the Group fell during the year to 35% at 31 January 2008 (2007: 66%). Funding The Group utilises facilities provided by Barclays Bank Plc. The facilities were put in place on 17 July 2007 replacing previous facilities from another provider. There is a property facility available over a ten year period. There is also a facility linked to working capital 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. This facility has an initial 3 year term. The total facilities have a limit of £17.0m. All of the Group bank facilities remain secured by first fixed and floating charges over the Group's assets. IFRS The Group has adopted IFRS for the year ended 31 January 2008 and restated the comparative results for the prior year. The impact of adopting IFRS has been limited. A Restatement document was issued on 28 September 2007 giving full details of the impact of the adoption. Alan Dix Group Finance Director 10 April 2008 Unaudited Consolidated Income Statement For the year ended 31 January 2008 Note 2008 2007 £000 £000 Revenue 62,448 54,369 Profit from operations - before exceptional items 3 3,961 2,481 - exceptional items 4 - 1,276 Operating profit 3,961 3,757 Net pension income / (charge) 6 119 (99) Net finance costs 5 (906) (898) Amortisation of issue costs 5 (75) (66) (862) (1,063) Profit before taxation 3,099 2,694 Deferred tax - exceptional 7 5,101 - Current taxation 7 (29) (58) Total tax credit/(charge) 5,072 (58) Profit for the year 8,171 2,636 Earnings per share - Basic and diluted 9 14.49p 4.67p Unaudited Consolidated Balance Sheet As at 31 January 2008 Note 31 January 31 January 2008 2007 £000 £000 Non-current assets Intangible assets 5,833 5,969 Property, plant & equipment 8,991 8,864 Deferred income tax assets 8 6,055 1,637 Trade and other receivables 253 265 21,132 16,735 Current assets Inventories 12,546 12,135 Trade and other receivables 13,475 11,251 Cash and cash equivalents 10 2,017 2,065 28,038 25,451 Total assets 49,170 42,186 Current liabilities Borrowings 10 (400) (596) Derivative financial instruments (110) - Trade and other payables (15,546) (13,056) (16,056) (13,652) Net current assets 11,982 11,799 Non-current liabilities Borrowings 10 (8,906) (10,073) Retirement benefit obligation 12 (3,409) (5,518) (12,315) (15,591) Total liabilities (28,371) (29,243) Net assets 20,799 12,943 Equity Share capital 13 590 590 Share premium account 13 457 457 Foreign currency translation reserve 13 10 (17) Retained earnings 13 (20,655) (28,594) Other reserves 13 40,397 40,507 Total Equity 20,799 12,943 Unaudited Consolidated Cash Flow Statement For the year ended 31 January 2008 Note Year to Year to 31 Jan 2008 31 Jan 2007 £000 £000 Cash flows from operating activities Cash generated from operations 11 4,623 3,219 Interest paid (956) (913) Debt issue costs (123) - Interest received 5 20 Income tax paid (7) (50) 3,542 2,276 Cash flows from investing activities Purchase of intangible fixed assets (365) (276) Purchase of property, plant & equipment (1,309) (1,168) Proceeds on sale of property, plant and equipment 3 - (1,671) (1,444) Cash flows from financing activities Purchase of treasury shares (612) - Proceeds from borrowings 11,296 - Repayment of borrowings (11,296) - Net repayment of borrowings (1,315) (282) (1,927) (282) Net (decrease)/increase in cash, cash equivalents and bank overdrafts (56) 550 Cash, cash equivalents and bank overdrafts at beginning of year 2,065 1,528 Exchange losses on cash and bank overdrafts 8 (13) Cash, cash equivalents and bank overdrafts at end of year 2,017 2,065 Unaudited Consolidated Statement of Recognised Income and Expense For the year ended 31 January 2008 Year to Year to 31 Jan 2008 31 Jan 2007 £000 £000 Actuarial losses on scheme assets (note 12) (1,364) (1,310) Changes in actuarial mortality assumptions (note 12) (2,868) - Other actuarial gains on scheme liabilities (note 12) 4,932 1,284 Currency translation differences 27 (17) Cash flow hedges (110) - Reduction in deferred tax relating to pension liability due to rate reduction (110) - (Reduction)/recognition of deferred tax asset relating to pension scheme liability (573) 1,637 Net (expense) / income recognised directly in equity (66) 1,594 Profit for the year 8,171 2,636 Total recognised income for the year 8,105 4,230 Notes to the Accounts 1. Basis of preparation In previous years the Group prepared its consolidated financial statements under UK GAAP. For the year ended 31 January 2008 the Group is required to prepare its annual consolidated financial statements in accordance with International Financial Reporting Standards adopted for use in the European Union (IFRS). The Group has previously explained the effect of the transition to IFRS as set out in the 'Restatement of Financial Information under International Financial Reporting Standards' (IFRS), which was issued on 28 September 2007 and can be found on the Group's website. The 'Restatement of Financial Information under IFRS' includes a reconciliation of equity at 31 January 2007 under UK GAAP to equity under IFRS and a reconciliation of the profit for the year to 31 January 2007 under UK GAAP to the profit for the period under IFRS. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS this announcement does not itself contain sufficient information to comply with IFRS. The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the year ended 31 January 2008. The audit of the statutory accounts for the year ended 31 January 2008 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminaryannouncement and will be delivered to the Registrar of Companies following the Company's annual general meeting. 2. Segmental Analysis Walker Greenbank is a luxury interior furnishing Group. The Group manages its operations as two segments which are the brands and manufacturing. Segmental information is also presented in respect of the Group's geographical segment. This is the basis on which the Group presents its results: Year ended 31 January 2008 Brands Manufacturing Eliminations & Total unallocated £000 £000 £000 £000 Revenue - External 48,206 14,242 - 62,448 Revenue - Internal 2,101 10,570 (12,671) - Total Revenue 50,307 24,812 (12,671) 62,448 Operating profit 4,624 1,486 (2,149) 3,961 Financial costs - - (981) (981) Net pension income - - 119 119 Profit before tax 4,624 1,486 (3,011) 3,099 Tax - - 5,072 5,072 Profit for the year 4,624 1,486 2,061 8,171 Notes to the Accounts continued 2. Segmental Analysis continued Year ended 31 January 2007 Brands Manufacturing Eliminations & Total unallocated £000 £000 £000 £000 Revenue - External 41,217 13,152 - 54,369 Revenue - Internal 1,974 10,367 (12,341) - Total Revenue 43,191 23,519 (12,341) 54,369 Operating profit 2,930 1,334 (1,783) 2,481 Exceptional Pension credit 1,276 1,276 Financial costs - - (964) (964) Net pension costs - - (99) (99) Profit before tax 2,930 1,334 (1,570) 2,694 Tax - - (58) (58) Profit for the year 2,930 1,334 (1,628) 2,636 Revenue by destination: 2008 2007 £000 £000 United Kingdom 41,540 35,995 Continental Europe 9,132 7,750 North America 8,113 7,503 Rest of the World 3,663 3,121 62,448 54,369 3. Analysis of Operating Profit Year to Year to 31 Jan 2008 31 Jan 2007 £000 £000 Turnover 62,448 54,369 Cost of sales (25,362) (23,006) Gross profit 37,086 31,363 Net operating expenses: Distribution costs (16,265) (13,272) Administrative expenses (16,464) (15,565) Other operating costs (396) (45) Operating profit before exceptionals 3,961 2,481 Reduction of pension deficit following settlement of liabilities - 1,276 Operating profit 3,961 3,757 Notes to the Accounts continued 4. Exceptional items During the year ended 31 January 2007 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 IAS 19 liability in the balance sheet of £1,562,000 and a benefit of £1,276,000 in the Income Statement. 5. Finance costs 2008 2007 £000 £000 Interest expense: Interest payable on bank borrowings (875) (901) Interest and similar charges payable (36) (17) Total interest expense (911) (918) Interest income: Interest receivable on bank deposits 5 20 Net finance costs (906) (898) Amortisation of issue costs of bank loan (75) (66) Total finance costs (981) (964) 6. Net pension costs 2008 2007 £000 £000 Expected return on pension scheme assets 2,721 2,408 Interest on pension scheme liabilities (2,371) (2,327) Service costs (231) (180) Net income/(charge) 119 (99) Notes to the Accounts continued 7. Tax 2008 2007 £000 £000 Overseas tax - current tax (29) (58) (29) (58) Deferred tax - exceptional 5,101 - 5,072 (58) 2008 2007 £000 £000 Profit on ordinary activities before tax 3,099 2,694 Tax on profit on ordinary activities at standard rate 30% (2007: 30%) (930) (808) Non deductible expenditure (73) (146) Utilisation of losses and origination and reversal of temporary differences during the year 974 896 Recognition of deferred tax asset at end of year 5,101 - Tax credit/(charge) for year 5,072 (58) Factors affecting current and future tax charges The deferred tax credit of £5.1 million arises from the recognition of deferred tax on losses incurred by the Group in prior years and temporary differences. Because of the nature and size of this item it has been disclosed as an exceptional item. A reduction in the mainstream UK tax rate to 28% from 1 April 2008 should result in a reduction in the Group's future effective tax rate. Following the recognition of deferred tax assets arising from losses and temporary differences the future effective tax rate will also be influenced by changes in deferred tax positions. The Group does not anticipate the UK corporation tax will become payable on profits within the immediate future due to the availability of tax losses of approximately £23 million. The reduction in the mainstream UK tax rate to 28% from 1 April 2008 has been taken into account in calculating the deferred tax balances, with the impact of the change in tax rate recognised in the income statement or statement of recognised income and expenses as appropriate. The Finance Bill 2008 announced the phasing out of the relief for Industrial Building Allowances by 31 March 2011. However, this has not yet been substantively enacted therefore no accounting entries have been made in respect of this potential change. An additional deferred tax liability of approximately £0.3 million is likely to be recognised once this legislative change is substantively enacted. Notes to the Accounts continued 8. Deferred income tax A net deferred tax asset of £6,055,000 (2007: £1,637,000) had been recognised in respect of tax losses and other temporary differences and £5,101,000 has been credited to the income statement during the year, as follows: 2008 2007 £000 £000 Taxable temporary differences on property, plant and equipment (533) - Taxable temporary differences on intangible assets (106) - Tax losses 5,740 - 5,101 - Pension scheme obligations 954 1,637 6,055 1,637 The movements in the deferred tax asset on pension scheme obligations are recognised in the Statement of Recognised Income and Expense. At the balance sheet date the Group has unused tax losses of £23 million (2007: £25 million) available for offset against future profits. A deferred asset has been recognised in respect of £20 million (2007: £nil) of such losses as the Group believes that realisation of the related tax benefit through future taxable profit is probable and can be readily accessed under existing tax legislation. No deferred tax has been recognised on the remaining £3 million (2007 : £25 million) as these losses are not readily available for offset against the Group's future profits under existing tax legislation and therefore the realisation of these losses is not considered probable. The recognition of deferred tax assets on losses will be assessed at each reporting date. Potential deferred tax assets at 31 January 2008 of £1,068,000 (2007: £6,752,000) relating to tax losses and deductible temporary differences have not been recognised as it is not considered probable that recovery of the potential deferred tax asset will arise under existing tax legislation. 2008 2007 £000 £000 Tax losses 893 6,482 Other deductible temporary differences 175 270 1,068 6,752 9. Earnings 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 and those held in treasury, which are treated as cancelled. Notes to the Accounts continued 9. Earnings per share continued 2008 2007 Earnings Earnings £000 Weighted Per £000 Weighted Per average Share average Share number Amount number Amount of of shares Pence shares Pence (000s) (000s) Basic: Basic earnings per share 8,171 56,397 14.49 2,636 56,457 4.67 Adjusted: Earnings attributable to ordinary shareholders 8,171 56,397 14.49 2,636 56,457 4.67 Exceptional items: Deferred tax (5,101) - (9.05) - - - Exceptional items: Pension reduction exercise - - - (1,276) - (2.26) Adjusted earnings per share 3,070 56,397 5.44 1,360 56,457 2.41 On 16 January 2008 Walker Greenbank PLC purchased 700,000 ordinary shares of 1p each in the Company at 42.25p per ordinary share and on the 17 January 2008 Walker Greenbank PLC purchased 715,093 ordinary shares of 1p each in the Company at 43.5p per ordinary share. Following these transactions Walker Greenbank's issued ordinary share capital with voting rights consists of 59,006,162 Ordinary Shares of which 1,415,093 Ordinary Shares are held in treasury, and a further 2,549,146 Ordinary Shares are held by the Walker Greenbank PLC Employee Benefit Trust . At 31 January 2007 the market value of the treasury shares was £576,650. Adjusted earnings per share have been calculated, as the Directors believe the exceptional items of deferred tax in the year ended 31 January 2008 and the benefit of the pension reduction exercise in the year ended 31 January 2007, make it difficult to make a fair comparison between the basic earnings per share. 10. Analysis of net debt 1 February Cash flow Other Exchange 31 January 2007 movement 2008 £000 non-cash £000 changes £000 £000 £000 Cash at bank and in hand 2,065 (56) - 8 2,017 Borrowings due within 1 year (596) 196 - - (400) Borrowings due after 1 year (10,073) 1,119 48 - (8,906) (10,669) 1,315 48 - (9,306) Net debt (8,604) 1,259 48 8 (7,289) Other non-cash changes are amortisation of issue costs relating to the loan financing. Notes to the Accounts continued 11. Cash generated from operations 31 January 31 January 2008 2007 31 January 31 January 2008 £000 £000 2007 £000 £000 Operating profit 3,961 3,757 Depreciation 1,321 1,386 Amortisation 501 456 Charge for long-term incentive plan 363 112 Exceptional pension credit - (1,276) (Profit )/Loss on disposal of property, plant and equipment (3) 11 Changes in working capital Increase in inventories (410) (1,898) Increase in trade and other receivables (2,212) (1,198) Increase in trade and other payables 2,392 3,841 Pension cash contributions (1,290) (1,078) Settlement of retirement - (894) benefit obligation 662 (538) Cash generated from operating 4,623 3,219 activities 12. Retirement benefit obligations The Company operates the following funded defined benefit pension schemes in the UK which offer pensions in retirement and death benefits to members: the Walker Greenbank Pension Plan, the Abaris Holdings Limited Pension Scheme and the WG Senior Management Pension Scheme. Pension benefits are related to the members' salary at retirement and their length of service. The schemes are closed to new members and the future accrual of benefits. This disclosure excludes any defined contribution assets and liabilities. The Company's contributions to the schemes for the year beginning 1 February 2008 are expected to be £1,290,000. 2008 2007 Notes to the Accounts continued £000 £000 Deficit at beginning of year (5,518) (8,033) Current service cost (231) (180) Other net finance income 350 81 Contributions payable 1,290 1,078 Reduction of pension deficit following settlement of liabilities - 1,562 Actuarial losses on scheme assets (1,364) (1,310) Changes in actuarial mortality assumptions (2,868) - Other actuarial gains on scheme liabilities 4,932 1,284 Deficit at end of year (3,409) (5,518) 13. Consolidated Statement of changes in equity Other Reserves Share Retained Hedge Total premium earnings Share account Capital Merger reserve Translation £000 capital £000 reserve reserve £000 £000 reserve £000 £000 £000 £000 1 February 2006 590 457 (32,953) 43,457 (2,950) - - 8,601 Actuarial losses on scheme assets (1,310) (1,310) Other actuarial gains on scheme liabilities 1,284 1,284 Deferred tax 1,637 1,637 Currency translation differences (17) (17) Net income/ (expense) - - 1,611 - - - (17) 1,594 recognised directly in equity Profit for the year 2,636 2,636 Reserve for long-term incentive plan 112 112 31 January 2007 590 457 (28,594) 43,457 (2,950) - (17) 12,943 Notes to the Accounts continued 13. Consolidated Statement of changes in equity continued Other Reserves Share Retained Hedge Total premium earnings Reserve Share account Capital Merger Translation £000 capital £000 reserve reserve £000 £000 reserve £000 £000 £000 £000 1 February 2007 590 457 (28,594) 43,457 (2,950) - (17) 12,943 Actuarial losses on scheme assets (1,364) (1,364) Changes in actuarial mortality assumptions (2,868) (2,868) Other actuarial gains on scheme liabilities 4,932 4,932 Deferred tax (683) (683) Currency translation differences 27 27 Hedging reserve (110) (110) Net income/ (expense) recognised directly in equity - - 17 - - (110) 27 (66) Profit for the year 8,171 8,171 Reserve for long-term incentive plan 363 363 Purchase of treasury shares (612) (612) 31 January 2008 590 457 (20,655) 43,457 (2,950) (110) 10 20,799 This information is provided by RNS The company news service from the London Stock Exchange

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