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Walker Greenbank PLC  -  WGB   

Full Year Financial Results

Released 07:00 26-Apr-2017

RNS Number : 3321D
Walker Greenbank PLC
26 April 2017
 

26 April 2017

 

 

WALKER GREENBANK PLC

("Walker Greenbank" or the "Company")

 

Financial Results for the year ended 31 January 2017

 

 

Walker Greenbank PLC (AIM: WGB), the luxury interior furnishings group is pleased to announce its financial results for the 12 month period ended 31 January 2017.

 

Highlights

 

·      Sales up 5.2% to £92.4 million (2016: £87.8 million)  

·      Adjusted underlying profit before tax* up 16.9% at £10.4 million (2016: £8.9 million)

 

·      Standfast & Barracks fully recovered following flood in December 2015. Financial results include insurance proceeds for loss of profits and net proceeds for asset replacement of £5.1 million for the period

 

·      Acquisition of Clarke & Clarke in October 2016 delivered a profit contribution of £1.0 million in the first 18 weeks of ownership with performance continuing to be in line with the Board's expectations

 

·      UK Licensing income gaining momentum, up 25.6% in reportable currency, 13.1% in constant currency, at £2.6 million with new distribution agreements for bedding in the US and China

 

·      Underlying profit from operations** up 19.5% to £9.8 million (2016: £8.2 million)

 

·      Total statutory profit from operations down 3.7% to £7.9 million (2016: £8.2 million) due to acquisition, restructuring and reorganisation costs
 

·      Adjusted earnings per share* up 14.6% at 13.67p per share (2016: 11.93p per share)
 

·      Final dividend up 24.9% to 3.06p per share (2016: 2.45p per share), giving a total dividend up 24.9% at 3.61p per share (2016: 2.89p per share)

 

* Excludes accounting charges relating to share-based incentives, defined benefit pension charge and non-underlying items.

** Excludes acquisition costs, Standfast flood related costs and restructuring and reorganisation costs.

 

Terry Stannard, the Chairman of Walker Greenbank, said: "Brand sales in the first quarter of the current financial year are on an improving trend though they continue to reflect the flood-constrained product launches in the Spring of last year and partially constrained Autumn launches. Consequential loss of profits continue to be mitigated by our insurance policy though, as we look ahead, the flood's impact on trading will be reduced.

"In the first 12 weeks of the current financial year, Brands sales were up 4.4% in reportable currency and up 0.9% in constant currency. Brands sales exclude Clarke & Clarke, which is trading in line with the Board's expectations and represents an exciting addition to our product portfolio. Sales in the year ahead are expected to benefit from the new collections launched this Spring, from the continued momentum of our licensing activities and from the significant contribution from Clarke & Clarke. With this backdrop, we remain confident in meeting the Board's expectations for the current financial year."

 



 

Analyst meeting

 

A meeting for analysts will be held at 11.00 a.m. today, 26 April 2017, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further details, contact Buchanan on 020 7466 5000.

 

 

For further information:

 

Walker Greenbank PLC

+44 (0) 844 543 4668

John Sach, Chief Executive


Mike Gant, Chief Financial Officer




Investec Bank plc

+44 (0) 20 7597 5970

Garry Levin / David Anderson / Alex Wright - Corporate Finance

Henry Reast - Corporate Broking




Buchanan

+44 (0) 20 7466 5000

Mark Court / Sophie Cowles / Catriona Flint


 

 

Notes for editors:

 

About Walker Greenbank

 

Walker Greenbank PLC is a luxury interior furnishings company that designs, manufactures and markets wallpapers, fabrics and paints. In addition, the Company derives significant licensing income from the use of its designs on a wide range of interior products such as bed linen, rugs and tableware.

 

Walker Greenbank's brands include Sanderson, Morris & Co, Harlequin, Zoffany, Scion and Anthology. The brand portfolio was recently extended with the acquisition in October 2016 of the Clarke & Clarke and Studio G brands.

 

The Company has a strong UK manufacturing base comprising a wallpaper factory in Loughborough and a fabric printing factory in Lancaster. Both factories manufacture for the Company and for other wallpaper and fabric brands.

 

Walker Greenbank employs more than 600 people and its products are sold in more than 85 countries worldwide. It has showrooms in London, New York, Paris, Amsterdam and Dubai along with partnership showrooms in Moscow and in Shenzhen, China.

 

Walker Greenbank trades on the AIM market of the London Stock Exchange under the ticker symbol WGB.

 

For further information please visit: www.walkergreenbank.com/

 

 

 

 



 

CHAIRMAN'S STATEMENT

 

Overview

 

I am pleased to report that the Group continues to make good progress and has delivered another significant increase in underlying profitability. This result was achieved despite the impact of the flood suffered at our fabric printing factory, Standfast & Barracks, in December 2015 and reflects the success of our continued strategic focus on developing our product offering, international expansion, market penetration, lifestyle product extension and investment in manufacturing.

 

It also reflects an initial contribution from the acquisition in October 2016 of Clarke & Clarke, a fabrics and wallcoverings business with two international brands, Clarke & Clarke and Studio G. This acquisition continues to trade in line with the Board's expectations and is expected to make a material contribution to earnings during the current financial year ending 31 January 2018. We continue to seek further acquisitions to complement our organic growth initiatives.

 

We were very pleased with the support from both new and existing investors for the equity fundraising of £17.0 million as part-funding for the acquisition of Clarke & Clarke.

 

The adjusted underlying profit before tax for the year, excluding the LTIP accounting charge and the net defined benefit charge, was £10.4 million (2016: £8.9 million), an increase of 16.9%. The reported financial results include a first-time contribution from Clarke & Clarke of £1.0 million.

 

The Group's results were impacted by the flood in December 2015 at Standfast & Barracks, though the financial impact has been mitigated by the Group's comprehensive insurance policy. The results include £2.8 million as a result of interim insurance payments for loss of profits.

 

To date, the Group has received a total of £16.9 million of flood-related insurance payments in respect of damage to business assets, reimbursement of cleaning costs and loss of profits. As previously announced, we will be seeking to negotiate a final settlement of the insurance claim with our insurers and anticipate that a settlement will be agreed in the first half of the current financial year.

 

The flood halted production at Standfast & Barracks for a period of 16 weeks, thereby removing the Group's internal capacity to print fabric for its own brands and third party customers. Full production was restored in October 2016 and the brands were fully restocked by the financial year end.

 

Total Brand sales, which include Clarke & Clarke, were up 12.8% during the year to £76.6 million, including sales of £7.3 million from the first 18 weeks' ownership of Clarke & Clarke. Like-for-like sales are down due to the flood. The impact of this has been mitigated by insurance reimbursement.

 

Excluding Clarke & Clarke, total Brand sales for the year were up 2.2% compared with the same period last year to £69.3 million. In the UK, our largest market, sales were down by 4.0% to £38.4 million, reflecting the impact of the flood. Overseas Brand sales were up 10.0% in reportable currency, up 0.5% in constant currency. Sales in the US, the Group's second largest market, were up 8.3% in reportable currency, down 5.2% in constant currency. In Western Europe, our third largest market, Brand sales were up 22.4% in reportable currency, up 7.9% in constant currency, with strong sales growth in most regions. Sales in the Rest of the World grew 0.3% in constant currency.

 

During the year we have continued to develop our product offering. We have been pleased with the performance of our Woodland Walk collection from Sanderson, which has been its best-selling collection for several years, and the success of Morris & Co Pure, a range of classic William Morris designs produced for the first time in neutral colours. 

 

We are particularly pleased with licensing income of £2.6 million, which was up 25.6% in reportable currency, up 13.1% in constant currency. We are continuing to pursue the extension of our product offering through new licensing agreements to take the Company's brands further into new lifestyle products and geographical territories.  We are excited about the future potential for this important contributor to our growth strategy.

 

Walker Greenbank's vertically integrated high quality UK manufacturing base, comprising our Loughborough-based wallpaper printing business, Anstey Wallpaper Company, and Lancaster-based fabric printing business Standfast & Barracks, differentiates us from others in our industry.

 

The flood at Standfast & Barracks resulted in reduced sales and profitability, with total manufacturing sales down 6.7% compared with the same period last year. The insurance-funded replacement of flood-damaged printing equipment means that the factory is now operating with the latest machinery, increasing our production capacity and capabilities.

 

Financials

 

Total sales increased 5.2% to £92.4 million (2016: £87.8 million) including Clarke & Clarke sales of £7.3 million.

 

Although statutory profit from operations is down 3.7% to £7.9 million (2016: £8.2 million) due to acquisition, restructuring and reorganisation costs, the underlying profit from operations has increased 19.5% to £9.8 million (2016: £8.2 million).  

 

The total statutory profit after tax was £5.4 million (2016: £5.9 million), and basic adjusted earnings per share were up 14.6% after removing the LTIP accounting charge, net defined benefit charge and non-underlying items.

 

Dividend

 

The Directors recommend the payment of a final dividend of 3.06p per share (2016: 2.45p), which will be payable on 11 August 2017 to shareholders on the register on 21 July 2017. This brings the total dividend for the year to 3.61p per share (2016: 2.89p) an increase of 24.9%, reflecting the Board's confidence in the future prospects and the financial strength of the Group.

 

People

 

On behalf of the Board, I would like to thank all of our management and employees for their contribution to another successful year.

 

I was delighted to welcome Fiona Holmes to the Walker Greebank Board as Managing Director of Brands during the year. Fiona brings a wealth of brand, digital and multi-channel retail experience to the Company. I would like to say a particular thank you to Fiona's predecessor, David Smallridge, for his invaluable contribution during his 15 years of service. I would also like to thank all of the team members at Standfast & Barracks for their huge part in bringing the factory back to full production.

 

During the year, we continued to strengthen the operational management and organisational structure of the Group, including the appointment of an MD of Manufacturing and a Group HR Director.

 

Outlook

 

We began the new financial year with Standfast & Barracks back to full production capacity and our warehouse fully restocked, giving us a strong platform for the year ahead. In addition, we are excited by our recent acquisition of Clarke & Clarke, which marks the next step in our growth strategy. 

 

Brand sales in the first quarter are on an improving trend though they continue to reflect the flood-constrained product launches in the Spring of last year and partially constrained Autumn launches. Consequential loss of profits continue to be mitigated by our insurance policy though, as we look ahead, the flood's impact on trading will be reduced. In the first 12 weeks of the current financial year, Brands sales were up 4.4% in reportable currency and up 0.9% in constant currency. Brands sales exclude Clarke & Clarke, which is trading in line with the Board's expectations and is an exciting addition to our product portfolio.

 

Sales in the year ahead are expected to benefit from the new collections launched this Spring, from the continued momentum of our licensing activities and from the significant contribution from Clarke & Clarke. With this backdrop, we remain confident in meeting the Board's expectations for the current financial year.

 

 

Terry Stannard

Non-Executive Chairman

26 April 2017



 

CHIEF EXECUTIVE'S STRATEGIC REVIEW

 

We are pleased to report that, in a challenging year for the Group due to the significant business interruption suffered as a result of the flood at Standfast and Barracks in December 2015, we have continued to make good progress with the implementation of our strategy, which comprises:

 

International expansion;

 

Market penetration;

 

Lifestyle product extension;

 

British manufacturing capability; and

 

Acquisitions.

 

The Brands

 

This segment incorporates global trading from our internationally recognised brands and includes our overseas subsidiaries in the US and France. In addition to Sanderson, Morris & Co., Harlequin, Zoffany, Scion and Anthology, the Brands now include Clarke & Clarke and Studio G, which were acquired by the Company in October 2016.

 

Fiona Holmes joined the Company in October 2016 as Managing Director of Brands, a role in which she has responsibility for all of the brands apart from Clarke & Clarke and Studio G, which operate on a standalone basis. Fiona is playing a key role in further developing and delivering our strategic ambitions.

 

Total Brands sales increased during the year despite the impact of the flood at Standfast & Barracks. Total Brands sales increased by 12.8% compared with last year to £76.6 million. This included an 18 week contribution from Clarke & Clarke of £7.3 million. Underlying Brands profit from operations increased by 14.3% to £9.2 million.

 

Excluding Clarke & Clarke, total Brand sales were up 2.2% during the year at £69.3 million. In the UK, Brands sales decreased 4.0% to £38.4 million, reflecting the flood along with challenging UK trading conditions.   

 

Sales in the US grew by 8.3% in reportable currency, down 5.2% in constant currency, to £9.2 million and were impacted by the flood. The US is our second largest market and is strategically important, meriting our recent investment in more directly employed sales representatives and an intended investment in our second directly controlled showroom, in Chicago, to add to our recent investment in our flagship showroom in New York.  

 

Brand sales in Western Europe were up 22.4% in reportable currency, up 7.9% in constant currency, to £8.5 million with most regions performing strongly particularly the Republic of Ireland, up 7.9% in constant currency to £1.9m. Other highlights include sales in Scandinavia, up 15.8% in constant currency to £2.5 million, and growth in Eastern Europe, up 3.6% in constant currency to £2.3 million.

 

Global licensing income is a key part of our strategy and an important developing income stream for the Group. It extends our lifestyle offering and gives our brands greater consumer awareness both in the UK and internationally. Income was up 25.6% in reportable currency, 13.1% in constant currency, to £2.6 million. Substantial growth has been achieved by our bedlinen and blinds partners in particular, with range extensions into new product areas and new licensing agreements in the US and China.

 

Harlequin incorporating Scion & Anthology

Harlequin remains the UK's leading mid-market contemporary brand. Its worldwide sales reduced 1.3% to £31.3 million in reportable currency compared with the same period last year. Sales in the UK decreased by 7.2% and were particularly impacted by the flood at Standfast & Barracks. In the US, sales were up 5.3% in reportable currency, down 8.2% in constant currency, and sales in Western Europe have grown 30.6% year on year in reportable currency, 14.9% in constant currency.

 

The Scion brand has recently celebrated its fifth anniversary and continues to grow well with its fifth collection, Lokho, and its first children's collection, Guess Who, both having been well received. This cutting edge, accessibly priced brand continues to be a success with young, aspirational and fashion-aware customers. Scion has also quickly become established as a valuable brand for licensing partners where the contemporary and graphic nature of the designs translates particularly well.

 

The Anthology brand, launched in April 2014, also continues to show strong growth. The range now includes five innovative collections of wallcoverings complemented by a growing range of fabrics, which are design-led and aspirational whilst remaining inherently suitable for contract applications.

 

Arthur Sanderson & Sons incorporating the Morris & Co brand

Sales were up 4.7% at £22.5 million in reportable currency compared with the same period last year. The flood at Standfast & Barracks continued to impact UK sales, which saw a decline of 1.2% compared with the same period last year. However, sales in the US saw significant growth, up 18.9% in reportable currency, 4.1% in constant currency and sales in Western Europe were up 16.8% in reportable currency, up 3.1% in constant currency. Sanderson's Woodland Walk collection has been the brand's best-selling collection for several years now and has been universally appreciated as quintessential Sanderson.

 

The Morris & Co brand enjoyed a very positive sales performance last year driven by the launch of the Pure Morris collection. This collection interprets William Morris' iconic designs in a new neutral colour palette. This has broadened the brand's appeal, making it more accessible to a wider audience, working equally well in both traditional and contemporary settings.

 

Zoffany

Zoffany is positioned at the upper end of the premium market. Total sales grew by 3.5% compared with the same period last year to £12.2 million in reportable currency. This growth has been driven by sales of recent collections which reflect the focus on design strategy and direction to position the brand for sustained growth. Sales in the US were up 11.9% in reportable currency, down 1.9% in constant currency, and sales in Western Europe were up 12.8% in reportable currency, down 0.4% in constant currency.

 

Clarke & Clarke

Clarke & Clarke's two brands, Clarke & Clarke and Studio G, are at the more affordable end of the market, complementing the Group's existing brands. Studio G launched its first collection in Spring 2016, comprising of four books in a variety of modern styles of which the highlight was Lustro, a book of three glamorous velvet designs, which are practical, competitively priced and widely appealing. Total sales for the first 18 weeks of ownership grew by 6.8% compared with the same period last year to £7.3 million in reportable currency, with performance in line with the Board's expectations. 

 

Manufacturing

 

Our manufacturing capabilities are one of the Group's key assets and differentiates us from our peer group. They are an integral part of our growth strategy. The flood at Standfast & Barracks had a significant impact on our manufacturing activities, with the result that total manufacturing sales fell 6.7% to £32.0 million leading to a decrease in profits of 58.7% to £1.0 million.

 

This shortfall has been mitigated by interim insurance payments. The factory has recovered from the flood and is back in full production and the Company's Milton Keynes warehouse was fully stocked with the Company's printed textiles by the financial year end. The construction of flood defences to protect the Standfast & Barracks factory has also been completed.

 

Anstey Wallpaper Company

Sales at Anstey, our wallpaper printing business, fell 9.1% to £16.9 million. Third party sales in the UK were down 23.3% and third party export sales were down 6.2%. Internal sales to our own Group brands grew by 9.7% reflecting a higher level of new product launches compared with the prior year. Sales were impacted by the consequences of the Standfast & Barracks flood but, as the weakness of sterling feeds through, we see a great opportunity to grow sales overseas.

 

Standfast & Barracks

Standfast, our fabric printing factory, saw a decrease in sales of 3.7% to £15.1 million as a direct result of the flood in December 2015. Third party sales in the UK fell by 28.9% whilst sales to our own Group brands increased by 17.7%.

 

As a result of the flood, Standfast has experienced a period of significantly disrupted production and loss of stock, machinery and profits. To date we have received £16.9 million in insurance receipts covering costs plus business interruption losses and interim cashflow requirements, with further business interruption reimbursements expected.

 

During the period, two of the digital printing machines were replaced with next-generation digital printers with higher throughput and additional capabilities.

 

Summary

 

Despite the significant challenges faced as a result of the flood in 2015, I am pleased that we have been able to continue to invest in our brands both in the UK and internationally.

 

We have also made significant progress in growing our licensing income, boosting our lifestyle product extension and greater consumer awareness. We have successfully completed our first significant acquisition since 2003 with the purchase of Clarke & Clarke, which will accelerate the Group's market penetration and extend our reach in the US. Furthermore, we have made some key senior appointments which, combined with our ongoing investment in our key UK manufacturing, will help to drive growth in 2017 and help to further develop and deliver our strategic objectives.

 

 

John Sach

Group Chief Executive

26 April 2017



 

CHIEF FINANCIAL OFFICER'S REVIEW

 

Income Statement

The Chairman's Statement and Chief Executive's Review provide an analysis of the key factors impacting revenue and operating profit. In addition to the information on our Brands and Manufacturing divisions included in these reports, the Group has included in note 3 to the accounts further information on our reporting segments. This is the basis on which the Group presents its operating results to the Board of Directors which is considered to be the Chief Operating Decision Maker ('CODM') for the purposes of IFRS 8.

 

Non-underlying

Statutory profit before tax of £6,965,000 (2016: £7,338,000) included non-underlying charges of £2,164,000 (2016: £nil). These charges are analysed below.

 


2017

£000

2016

£000

Statutory profit before tax

6,965

7,338




Acquisition related costs

2,955

-

Unwind of discount on contingent consideration

181

-

Total acquisition related costs

3,136

-




Standfast flood related costs

7,165

3,276

Standfast flood insurance reimbursements

(9,413)

(3,276)

Standfast net other income

(2,248)

-




Restructuring and reorganisation costs

1,276

-

Total non-underlying charges included in profit before tax

2,164

-




Underlying profit before tax

9,129

7,338




LTIP accounting charge

756

924

Net defined benefit pension charge

527

685

Adjusted profit before tax

10,412

8,947

 

Acquisition related costs incurred were in respect of the acquisition of Clarke & Clarke. These include professional fees of £1,552,000; amortisation of intangible assets of £342,000 and a cost of £1,061,000 associated with the fair value adjustment recognised on the inventory as at the date of acquisition. A charge of £181,000 has been recognised in respect of the unwind of the contingent consideration payable for Clarke & Clarke.

 

Standfast net other income comprises of proceeds of £2,780,000 from the reimbursement of costs to replace impaired plant and equipment, less flood defence costs of £253,000 and additional insurance costs of £279,000 not reimbursed.

 

Restructuring and reorganisation costs of £1,276,000 reflect the rationalisation of certain operational and support functions. These costs mainly comprise professional fees, employee severance and property costs associated with the reorganisation process. 

 

Net other income

The substantial flooding at Standfast & Barracks resulted in extensive stock and machinery damage as well a period of disrupted printing resulting in lost sales revenue. Our Brands business was also impacted by the lack of printing capacity at Standfast resulting in a loss of profits. We have recovered the costs of machinery loss and other incremental costs together with interim business interruption losses from our insurance providers for the period to 31 January 2017. The insurance claim in respect of losses for future financial years is ongoing.

 

To date £16,933,000 cash has been received, as interim payments from our insurers of which £518,000 has been recognised and included within accruals and deferred income as at 31 January 2017. In the Income Statement, in addition to the non-underlying net other income described above, a further £2,837,000 has been recognised in underlying net other income which represents business interruption losses for the period to 31 January 2017.

 

Clarke & Clarke acquisition

The acquisition of 100% of the issued share capital of Clarke & Clarke was completed during the year, for an initial cash consideration of £25,000,000 and a contingent consideration of up to £17,500,000, in aggregate, payable in the Company's shares and linked to the performance of the acquired business over a four year period, giving a total potential consideration of up to £42,500,000 excluding working capital adjustments.

 

In order to finance the initial cash consideration, a placing of a total of 8,947,369 new ordinary shares of 1p each in the Company was also undertaken. These shares were placed at a price of 190.0 pence per share, raising gross proceeds of approximately £17,000,000.

 

Long Term Incentive Plan ('LTIP')

There was a new award of shares during the financial year under the Long Term Incentive Plan ("LTIP") with vesting conditions half based on Total Shareholder Return ("TSR") with an adjusted profit before tax floor and half based on Earnings Per Share ("EPS") growth. There was a charge of £756,000 (2016: £924,000) in the Income Statement relating to LTIP awards. The charge in the year is lower than last year driven by a reduction in the expected number of shares that will vest in future awards compared with the prior year.

 

Interest

The net underlying interest charge for the year was £186,000 (2016: £179,000) including amortisation of capitalised debt issue costs reflecting higher borrowings as a result of utilisation of £5,000,000 of the Group's existing accordion tranche of its bank facilities following the acquisition of Clarke & Clarke.

 

Net Defined Benefit Pension

The Group operates two defined benefit schemes in the UK for its employees. These comprise the Walker Greenbank Pension Plan and the Abaris Holdings Limited Pension Scheme which are both closed to new members and to future service accrual from 30 June 2002 and 1 July 2005 respectively.

 

The charge during the year was £527,000 (2016: £685,000). The decrease reflects an increase to the expected return on pension scheme assets.

 

Current Taxation

There was a corporation tax charge of £1,445,000 (2016: £1,410,000) which has been impacted by the Clarke & Clarke transaction costs not being eligible for tax relief. The effective tax rate has increased to 23.0% (2016: 20.0%) due to transaction costs and the amortisation of acquired intangible assets being non-deductible for UK corporation tax.

 

Deferred Taxation

There was a deferred tax charge of £155,000 (2016: £56,000) driven by the intangible assets recognised in respect of the Clarke & Clarke acquisition.

 

The Group also continues to recognise the deferred tax asset arising from the pension deficit and LTIP.

 

Earnings per share ("EPS")

Basic reported EPS for the year was 8.55p (2016: 9.79p). The Group also reports an adjusted EPS which removes the impact of the LTIP accounting charge, net defined benefit pension charge and other non-underlying items as these can fluctuate due to external factors outside of the control of the Group. A better understanding of the underlying performance of the business is given after adjusting for these items. The adjusted basic EPS for the year was 13.67p (2016: 11.93p).

Operating Cash Flow and Net Debt

The Group generated net cash inflow from operating activities during the year of £9,925,000 (2016: £6,324,000) driven by a reduction to the insurance reimbursement debtor compared with the prior year.

 

Capital expenditure was £6,768,000 (2016: £2,510,000) and includes investment in new next-generation digital printers and other equipment at Standfast & Barracks amounting to £4,627,000 and development costs relating to the design of new collections for the Brands. The depreciation and amortisation charge during the period was £3,191,000 (2016 £2,638,000). During the prior year there was also a property, plant and equipment impairment in respect of the flood of £988,000.

 

The defined benefit scheme's triennial valuation was formally completed during the financial year. This is based on continuing the current level of deficit repayments but has resulted in a modest extension of one year in the recovery plan. 

 

The Group made additional payments to the pension schemes of £1,374,000 (2016: £1,307,000) to reduce the deficit, part of the ongoing planned reduction, along with £392,000 (2016: £380,000) of pension fund scheme expenses.

 

Income tax and national insurance of £664,000 (2016: £967,000) that arose on the vesting of an LTIP award was paid during the year.

 

The Group had net debt at the year end of £5,309,000 (2016: net funds £2,306,000). Average debt during the year varies due to the timing and seasonality of revenues and investment in product. The average monthly net debt decreased by £881,000 to £3,040,000 (2016: £3,921,000) as a result of the Group starting the financial year with net funds which reduced the need to utilise the bank facilities.

 

The Group utilises facilities provided by Barclays Bank Plc. There is a term property facility of £200,000 (2016: £600,000) at the year end expiring in July 2017. In December 2015, the Group entered into a new £12.5 million multi-currency revolving credit facility with Barclays Bank PLC for a five year period and cancelled the existing receivables facilities. The agreement also includes a £10 million accordion facility option to further increase available funds which provides substantial headroom for future growth. There were £7,500,000 borrowings at the end of the year for the revolving facility (2016: £nil). Under these facilities there was borrowing headroom of £12,391,000 (2016: £15,405,000). The total facilities have a current limit of £22.70 million (2016: £23.10 million).

 

All of the Group's bank facilities remain secured by first fixed and floating charges over the Group's assets.

 

Pension Deficit

The pension deficit has increased this year. The increase in liabilities is a result of a lower discount rate being applied due to a reduction in the bond rates. The impact of these factors is shown as follows:

 


2017


£000

Deficit at beginning of the year

(4,313)

Scheme expenses

(392)

Interest cost

(2,199)

Expected return on plan assets

2,064

Contributions

1,766

Return on scheme assets

8,107

Actuarial loss from the change in discount factor

(12,615)

Experience adjustments on benefit obligation

169

Gross deficit at the end of the year

(7,413)

 



 

Dividends

During the year, the Group paid a final dividend for the year ended 31 January 2016 of 2.45p per share and an interim dividend of 0.55p per share.

 

The Directors have recommended the payment of a final dividend of 3.06p per share (2016: 2.45p) which will be payable on 11 August 2017 to shareholders on the register on 21 July 2017. This brings the total dividend for the year to 3.61p per share (2016: 2.89p), an increase of 24.9%.

 

Going Concern

The Directors are confident, after having made appropriate enquiries that the Group and Company have adequate resources to continue trading for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

 

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 unmatched exposures are covered using forward contracts and working capital exposures are hedged using currency swaps where deemed appropriate.

 

The Group does not trade in financial instruments and hedges are used for highly probable future cash flows and to hedge working capital exposures. There is no hedging liability (2016: £26,000 liability) at the end of the year in relation to US dollar forward contracts. There is no liability (2016: £nil) arising from US dollar and Euro swaps used to hedge working capital exposures.

 

Credit Risk

The Group no longer seeks credit insurance as this is not a commercial solution to reducing credit risk. The Board reviews the internal credit limits of all major customers and reviews the credit risk regularly. The aging profile of trade debtors shows that payments from customers are close to terms, however, there have been specific expenses during the year. The current economic environment still presents a level of risk and in addition to specific provisioning against individual receivables, a provision has been required of £65,000 (2016: £241,000) which is a collective assessment of the risk against non-specific receivables. 

 

 

Mike Gant

Chief Financial Officer

26 April 2017



 

Consolidated Income Statement

Year ended 31 January 2017

 


Note

2017


2016



Underlying

£000

Non-underlying

(note 5)

£000

 

 

Total

£000


Underlying

£000

Non-underlying

(note 5)

£000

 

 

Total

£000

Revenue

3

92,373

-

92,373


87,839

-

87,839

Cost of sales


(36,223)

(1,061)

(37,284)


(35,875)

-

(35,875)

Gross profit / (loss)

 

56,150

(1,061)

55,089

 

51,964

-

51,964

Net operating expenses:

 

 

 

 

 

 

 

 

Distribution and selling expenses

 

(12,421)

-

(12,421)

 

(13,125)

-

(13,125)

Administration expenses

 

(36,724)

(3,170)

(39,894)

 

(32,044)

-

(32,044)

Net other income

4,5

2,837

2,248

5,085

 

1,407

-

1,407

Profit / (loss) from operations

 

9,842

(1,983)

7,859

 

8,202

-

8,202

 

 

 

 

 

 

 

 

 

Net defined benefit pension charge

6

(527)

-

(527)

 

(685)

-

(685)

Finance costs

7

(186)

(181)

(367)

 

(179)

-

(179)

Total finance costs

 

(713)

(181)

(894)

 

(864)

-

(864)

 

 

 

 

 

 

 

 

 

Profit / (loss) before tax  

 

9,129

(2,164)

6,965

 

7,338

-

7,338

Tax (expense) / income

8

(1,609)

9

(1,600)

 

(1,466)

-

(1,466)

Profit / (loss) for the year attributable to owners of the parent

 

7,520

(2,155)

5,365

 

5,872

-

5,872

 

 

 

 

 

 

 

 

 

Earnings per share - Basic

10

 

 

8.55p

 

 

 

9.79p

Earnings per share - Diluted

10

 

 

8.08p

 

 

 

9.52p

Adjusted earnings per share - Basic

10

 

 

13.67p

 

 

 

11.93p

Adjusted earnings per share - Diluted

10

 

 

12.92p

 

 

 

11.61p

 









All of the activities of the Group are continuing operations.



Consolidated Statement of Comprehensive Income

Year ended 31 January 2017

 



2017

£000

 

2016

£000

 

Profit for the year


5,365

5,872

 




Other Comprehensive Income:




Items that will not be reclassified to profit or loss




Remeasurements of defined benefit pension schemes


(4,339)

5,037

Corporation tax credits recognised in equity


270

184

Increase / (reduction) of deferred tax asset relating to pension scheme liability


484

(1,114)

Total items that will not be reclassified to profit or loss


(3,585)

4,107

Items that may be reclassified subsequently to profit or loss




Currency translation gains


128

(191)

Cash flow hedge gains


26

169

Total items that may be reclassified subsequently to profit or loss


154

(22)

 




Other comprehensive (expense) / income for the year, net of tax


(3,431)

4,085





Total comprehensive income for the year attributable to

the owners of the parent


1,934

9,957

 

 



Consolidated Balance Sheet

At 31 January 2017


 

Note

2017

£000

2016

£000

Non-current assets




Intangible assets


31,606

7,104

Property, plant and equipment


15,845

11,687

Deferred income tax assets

9

-

108



47,451

18,899

Current assets




Inventories


30,305

18,104

Trade and other receivables

11

19,508

19,280

Cash and cash equivalents

12

1,516

2,902



51,329

40,286

Total assets


98,780

59,185

Current liabilities




Trade and other payables


(25,347)

(18,966)

Derivative financial instruments


-

(26)

Borrowings

12

(6,825)

(400)

Provision for other liabilities and charges

15

(2,652)

-



(34,824)

(19,392)

Net current assets


16,505

20,894

Non-current liabilities




Borrowings

12

-

(196)

Deferred income tax liabilities

9

(2,573)

-

Retirement benefit obligation

14

(7,413)

(4,313)

Provision for other liabilities and charges

15

(2,677)

-



(12,663)

(4,509)

Total liabilities


(47,487)

(23,901)

Net assets


51,293

35,284





Equity




Share capital


696

602

Share premium account


16,390

457

Foreign currency translation reserve


(428)

(556)

Accumulated losses


(5,872)

(5,700)

Other reserves


40,507

40,481

Total equity


51,293

35,284

 

 



 

Consolidated Cash Flow Statement

Year ended 31 January 2017


Note

 

2017

£000

 

2016

£000

Cash flows from operating activities




Cash generated from operations

13

12,381

7,103

Interest paid


(162)

(149)

Corporation tax paid


(2,294)

(630)

Net cash generated from operating activities


9,925

6,324

Cash flows from investing activities




Acquisition of subsidiary, net of cash acquired

16

(27,073)

-

Purchase of intangible assets


(792)

(548)

Purchase of property, plant and equipment


(5,976)

(1,962)

Proceeds from disposal of property, plant and equipment


89

-

Insurance proceeds relating to investing activities


2,268

-

Net cash used in investing activities


(31,484)

(2,510)

Cash flows from financing activities




Proceeds from issuance of ordinary shares


16,022

-

Debt issue costs


(40)

(100)

Repayment of term loan


(400)

(400)

Dividends paid to Company's shareholders


(1,818)

(1,444)

Net cash generated from / (used in) financing activities


13,764

(1,944)

Net (decrease) / increase in cash and cash equivalents


(7,795)

1,870


2,902

971

Effect of exchange rate fluctuations on cash held


(217)

61

Cash and cash equivalents and bank overdraft at end of year

12

(5,110)

2,902

 

 



 

Consolidated Statement of Changes in Equity

Year ended 31 January 2017

 


Attributable to owners of the parent





Other Reserves




Share capital

£000

Share premium account

£000

Accumulated losses

£000

Capital reserve

£000

Merger reserve

£000

Hedge reserve

£000

Foreign currency

translation

reserve

£000

Total equity

£000

Balance at 1 February 2015

598

457

(14,065)

43,457

(2,950)

(195)

(365)

26,937

Profit for the year

-

-

5,872

-

-

-

-

5,872

Other comprehensive Income:









Remeasurements of defined benefit pension schemes

-

-

5,037

-

-

-

-

5,037

Corporation tax credits recognised in equity

-

-

184

-

-

-

-

184

Deferred tax relating to pension scheme liability

-

-

(1,114)

-

-

-

-

(1,114)

Currency translation differences

-

-

-

-

-

-

(191)

(191)

Cash flow hedge

-

-

-

-

-

169

-

169

Total comprehensive income

-

-

9,979

-

-

169

(191)

9,957

Transactions with owners, recognised directly in equity:









Dividends

-

-

(1,444)

-

-

-

-

(1,444)

Allotment of share capital

4

-

(4)

-

-

-

-

-

Long-term incentive plan charge

-

-

790

-

-

-

-

790

Long-term incentive plan vesting

-

-

(967)

-

-

-

-

(967)

Related tax movements on long-term incentive plan

-

-

11

-

-

-

-

11

Balance at 31 January 2016

602

457

(5,700)

43,457

(2,950)

(26)

(556)

35,284

 

 



Consolidated Statement of Changes in Equity continued

Year ended 31 January 2017

 


Attributable to owners of the parent





Other Reserves




Share capital

£000

Share premium account

£000

Accumulated losses

£000

Capital reserve

£000

Merger reserve

£000

Hedge reserve

£000

Foreign currency

translation

reserve

£000

Total equity

£000

Balance at 1 February 2016

602

457

(5,700)

43,457

(2,950)

(26)

(556)

35,284

Profit for the year

-

-

5,365

-

-

-

-

5,365

Other comprehensive Income:









Remeasurements of defined benefit pension schemes

-

-

(4,339)

-

-

-

-

(4,339)

Corporation tax credits recognised in equity

-

-

270

-

-

-

-

270

Deferred tax relating to pension scheme liability

-

-

484

-

-

-

-

484

Currency translation differences

-

-

-

-

-

-

128

128

Cash flow hedge

-

-

-

-

-

26

-

26

Total comprehensive income

-

-

1,780

-

-

26

128

1,934

Transactions with owners, recognised directly in equity:









Dividends

-

-

(1,818)

-

-

-

-

(1,818)

Allotment of share capital

94

15,933

(4)

-

-

-

-

16,023

Long-term incentive plan charge

-

-

658

-

-

-

-

658

Long-term incentive plan vesting

-

-

(664)

-

-

-

-

(664)

Related tax movements on long-term incentive plan

-

-

(124)

-

-

-

-

(124)

Balance at 31 January 2017

696

16,390

(5,872)

43,457

(2,950)

-

(428)

51,293

 

 



Notes to the Accounts

 

1.  Accounting policies and general information

 

Basis of preparation

The Group has prepared its consolidated financial statements in accordance with International Financial Reporting Standards adopted for use in the European Union (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 2017. The financial information is prepared in accordance with IFRSs as adopted by the European Union and IFRSs as issued by the International Accounting Standards Board, and with the accounting policies set out in the Group's 2016 Annual Report and Financial Statements and as updated by the 2016 Interim Statement.

 

These financial statements will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting. The statutory accounts for the year ended 31 January 2016 have been filed with the Registrar of Companies and contained an auditor's report which was (i) unqualified and (ii) did not contain a reference to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their report, and (iii) did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

 

This preliminary announcement was approved for release by the Board on 25 April 2017.

 

 

2.  Critical accounting estimates and judgements

 

Business combinations

The Group applies judgement in determining whether a transaction is a business combination, which includes consideration as to whether the Group has acquired a business or a group of assets. For business combinations, the Group estimates the fair value of the consideration transferred, which includes assumptions about the future performance of the business acquired and an appropriate discount rate to determine the fair value of any contingent consideration. There is some sensitivity in determining this accounting estimate as there is a range of outcomes. If the EBITDA of the acquired business increases by 10%, then the contingent consideration would be £127,000 higher and if it decreased by 10%, it would be £127,000 lower. Judgement is also applied in determining whether any future payments should be classified as contingent consideration or as remuneration for future services. The Group estimates the fair value of assets acquired and liabilities assumed in the business combination, including any separately identifiable intangible assets and considering contingent liabilities. These estimates also require inputs and assumptions including future earnings, customer attrition rates and discount rates. The Group engages external experts to support the valuation process, where appropriate.

 

The fair value of the contingent consideration recognised in business combinations is reassessed at each reporting date, using updated inputs and assumptions based on the latest financial forecasts for the relevant business. Judgement is applied as to whether changes should be applied at the acquisition date or as post-acquisition changes. Fair value movements and the unwinding of the discounting is recognised within finance costs in the Income Statement.

 



 

3.  Segmental analysis

 

The Group is a designer, manufacturer and distributor of luxury interior furnishings, fabrics and wallpaper. The reportable segments of the Group are aggregated as follows:

 

·      Brands  - comprising the design, marketing, sales and distribution, and licensing activities of Sanderson, Morris & Co, Harlequin, Zoffany, Anthology, Scion, Clarke & Clarke and Studio G brands operated from the UK and its foreign subsidiaries in the US and France.

·      Manufacturing - comprising the wallcovering and printed fabric manufacturing businesses operated by Anstey and Standfast respectively.

 

This is the basis on which the Group presents its operating results to the Board of Directors, which is considered to be the CODM for the purposes of IFRS 8. Additional revenue-only data is also reported to the CODM and is disclosed on the basis explained below. Other group-wide activities and expenses, predominantly related to corporate head office costs, defined benefit pension costs, long-term incentive plan expenses, taxation and eliminations of intersegment items, are presented within 'Eliminations and unallocated'.

 

a)  Reportable segment information

 

Year ended 31 January 2017



Brands

£000

Manufacturing £000

Eliminations and unallocated £000

Total

£000

UK revenue


42,531

12,227

-

54,758

International revenue


31,552

3,497

-

35,049

Licence revenue


2,566

-

-

2,566

Revenue - External


76,649

15,724

-

92,373

Revenue - Internal


-

16,320

(16,320)

-

Total revenue


76,649

32,044

(16,320)

92,373







Profit / (loss) from operations


9,239

1,026

(2,406)

7,859

Net defined benefit pension charge


-

-

(527)

(527)

Net finance costs


-

-

(367)

(367)

Profit / (loss) before tax


9,239

1,026

(3,300)

6,965

Tax charge


-

-

(1,600)

(1,600)

Profit / (loss) for the year


9,239

1,026

(4,900)

5,365

 



3.  Segmental analysis continued

 

Year ended 31 January 2016

 



Brands

£000

Manufacturing

 £000

Eliminations and unallocated

£000

Total

£000

UK revenue


39,971

16,528

-

56,499

International revenue


25,888

3,409

-

29,297

Licence revenue


2,043

-

-

2,043

Revenue - External


67,902

19,937

-

87,839

Revenue - Internal


-

14,392

(14,392)

-

Total revenue


67,902

34,329

(14,392)

87,839







Profit / (loss) from operations


8,080

2,482

(2,360)

8,202

Net defined benefit pension charge


-

-

(685)

(685)

Net finance costs


-

-

(179)

(179)

Profit / (loss) before tax


8,080

2,482

(3,224)

7,338

Tax charge


-

-

(1,466)

(1,466)

Profit / (loss) for the year


8,080

2,482

(4,690)

5,872

 

Business interruption reimbursements to cover loss of profits of £2,837,000 (£2016: £1,407,000) are included within 'Eliminations and unallocated'.

 

The segmental revenues of the Group are reported to the CODM in more detail. One of the analysis presented is revenue by export market for Brands.

 

 

Brands international revenue by export market:

2017

£000

2016

£000

Western Europe

9,594

6,982

Scandinavia

2,557

1,959

Eastern Europe

2,374

2,105

Europe Total

14,525

11,046

Middle East

1,345

1,161

Far East

3,308

3,207

USA

10,310

8,459

South America

458

394

Australasia

1,004

1,031

Other

602

590


31,552

25,888

 



 

3.  Segmental analysis continued

 

Revenue of the Brands reportable segment - revenue from operations in all territories where the sale is sourced from the Brands operations, together with contract and licence revenue:

 

Brand Revenue Analysis:

2017

£000

2016

£000

Harlequin, incorporating Anthology & Scion

31,270

31,676

Sanderson, incorporating Morris & Co

22,516

21,503

Zoffany

12,162

11,749

Clarke & Clarke, incorporating Studio G

7,267

-

Other brands

868

931

Licensing

2,566

2,043


76,649

67,902

 

 

Revenue of the Manufacturing reportable segment - including revenues from internal sales to the Group's Brands:

 

Manufacturing Revenue Analysis:

2017

£000

2016

£000

Standfast

15,097

15,681

Anstey

16,947

18,648


32,044

34,329

 

 

b)  Additional entity-wide disclosures

 

Revenue by geographical location of customers:

2017

£000

2016

£000

United Kingdom

56,064

57,509

Continental Europe

15,917

12,551

USA

12,237

10,099

Rest of the World

8,155

7,680


92,373

87,839

 

 

4.  Net other income

 

Net other income arising as a result of the flood at Standfast, the Group's fabric printing factory in December 2015, is £2,837,000 (2016: £1,407,000) and represents business interruption reimbursements to cover loss of profits.

 



 

5.  Non-statutory profit measures

 

Underlying profit measures

The Group seeks to present a measure of underlying performance which is not impacted by material non-recurring items or items considered non-operational in nature. This measure of profit is described as 'underlying' and is used by management to measure and monitor performance. The excluded items are referred to as 'non-underlying' items.

 

Non-underlying items

The non-underlying items included in profit before tax are as follows:


Note

2017

£000

2016

£000





(i) Acquisition related:




Transaction costs

(a)

(1,552)

-

Amortisation of acquired intangible assets

(b)

(342)

-

Unwind of the fair value uplift adjustment on inventory

16(c)

(1,061)

-

Unwind of discount on contingent consideration

(c)

(181)

-



(3,136)

-





(ii) Standfast flood:




Incremental costs, inventory loss and property, plant and equipment impairments


(7,165)

(3,276)

Insurance reimbursements


9,413

3,276


(d)

2,248

-





(iii) Restructuring and reorganisation costs

(e)

(1,276)

-





Total non-underlying items included in profit before tax


(2,164)

-

Tax on non-underlying items


9

-

Total impact of non-underlying items on profit after tax


(2,155)

-

 

Costs detailed in (a) - (c) below relate to costs incurred in the period to 31 January 2017 on the acquisition of Clarke & Clarke, which completed on 31 October 2016 (see note 16).

 

(a) Transaction costs comprise legal and professional fees in relation to the acquisition. In addition, share issue costs of £978,000 relating to the acquisition have been offset against the share premium account.

 

(b) Details of acquired intangible assets are included in note 16.

 

(c) A charge of £181,000 (2016: £nil) has been recognised in respect of unwind of the contingent consideration on acquisition (note 16).

 

(d) The net other income balance of £2,248,000 (2016: £nil) comprises of proceeds arising from reimbursement of costs to replace impaired plant and equipment of £2,780,000 less flood defence costs of £253,000 and additional insurance costs of £279,000.

 

(e) Restructuring and reorganisation costs relate to the reorganisation of the Group and comprise of the rationalisation of certain operational and support functions. These costs mainly comprise professional fees, employee severance and property costs associated with the reorganisation process.

 

In addition to the non-underlying items detailed above, an adjustment is made for the LTIP accounting charge and net defined benefit pension charge in arriving at the 'Adjusted profit' and 'Adjusted earnings per share'.

 



 

6.  Net defined benefit pension charge


2017

2016


£000

£000

Expected return on pension scheme assets

2,064

1,829

Interest on pension scheme liabilities

(2,199)

(2,134)

Scheme expenses met by the Group

(392)

(380)

Net charge

(527)

(685)

 

 

7.  Net finance costs


2017

£000

2016

£000

Interest income:



Interest received on bank deposits

1

-

Interest expense:



Interest payable on bank borrowings

(161)

(152)

Amortisation of issue costs of bank loans

(26)

(27)

Total finance costs

(187)

(179)

Net finance costs excluding non-underlying items

(186)

(179)




Unwind of discount on contingent consideration (note 5)

(181)

-

Net finance costs including non-underlying items

(367)

(179)

 

 

8.  Tax expense


2017

£000

2016

£000

Current tax:



 - UK current tax

1,367

1,278

 - UK adjustments in respect of prior years

78

130

 - overseas, current tax

-

2

Corporation tax

1,445

1,410

Deferred tax:



 - current year

271

253

-       adjustments in respect of prior years

(12)

(84)

-       effect of changes in corporation tax rates

(104)

(113)

Deferred tax

155

56




Total tax charge for the year

1,600

1,466

 



 

8.   Tax expense continued

 


2017

£000

2016

£000

Reconciliation of total tax charge for the year



Profit on ordinary activities before tax

6,965

7,338




Tax on profit on ordinary activities at 20% (2016: 20.16%)

1,393

1,480

Non-deductible expenditure

418

23

Parent and overseas losses and temporary timing differences not recognised

(99)

(10)

Permanent differences in respect of share options

11

40

Adjustments in respect of prior years

66

46

Adjustments in respect of pre-acquisition period

(85)

-

Effect of changes in corporation tax rates

(104)

(113)

Total tax charge for year

1,600

1,466

 

Factors affecting current and future tax charges

No overseas taxation is anticipated to become payable within the immediate future due to the availability of gross tax losses of approximately £2.8 million (2016: £1.3 million).

 

 

9.  Deferred income tax

 

A net deferred tax liability of £2,573,000 (2016: asset of £108,000) is recognised in respect of future deductions for LTIP payments and other temporary differences.


2017

£000

2016

£000

Taxable temporary differences on property, plant and equipment

(1,361)

(967)

Taxable temporary differences on intangible assets

(2,591)

(178)

Other temporary differences

(141)

42

Temporary differences on LTIP payments

260

435


(3,833)

(668)

Retirement benefit obligations

1,260

776


(2,573)

108

 

 

The gross movement on the deferred income tax account is as follows:

Net deferred tax asset/ (liability)

2017

£000

2016

£000

At 1 February

108

1,591

Acquisition of subsidiary (note 16)

(2,885)

-

Income Statement charge

(155)

(56)

Tax credit/(charge) relating to components of other comprehensive income

484

(1,114)

Tax charged directly to equity

(125)

(313)

At 31 January

(2,573)

108

 



 

10.        Earnings per share

 

Basic earnings per share ('EPS') 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 Benefit Trust ('EBT') and those held in treasury, which are treated as cancelled. The adjusted basic earnings per share is calculated by dividing the adjusted earnings by the weighted average number of shares. As a consequence of the improved profitability of the Group, PBT performance criteria within LTIPs 8, 9 and 10 are now being met and as a consequence these LTIP awards are now dilutive.



2017




2016



Earnings

£000

Weighted average number of shares

(000s)

Per Share Amount

Pence


Earnings

£000

Weighted average number of shares

(000s)

Per Share Amount

Pence









Basic earnings per share

5,365

62,732

8.55


5,872

59,997

9.79

Effect of dilutive securities:








Shares under LTIP


3,645




1,675


Diluted earnings per share

5,365

66,377

8.08


5,872

61,672

9.52









Adjusted basic and diluted earnings per share:








Add back LTIP accounting charge

756




924



Add back net defined benefit pension charge

527




685



Non-underlying items (note 5)

2,164




-



Tax effect of non-underlying items

and other add backs

(235)




(321)



Adjusted basic earnings per share

8,577

62,732

13.67


7,160

59,997

11.93

Adjusted diluted earnings per share

8,577

66,377

12.92


7,160

61,672

11.61

 

As detailed in note 16, in order to finance the initial cash consideration to acquire 100% of the issued share capital of Clarke & Clarke, a placing of a total of 8,947,369 new ordinary shares of 1p each in the Company was announced on 12 October 2016. These shares, which represented approximately 12.9% of the Company's issued ordinary share capital on admission to trading on AIM (excluding treasury shares), were placed at a price of 190.0 pence per share raising proceeds of approximately £17,000,000.

 

On 16 May 2016, 773,393 shares vested under the Company's Long Term Incentive Plan. To satisfy the vesting, 431,788 shares of 1 pence each were allotted at par value.

 

Following these transactions Walker Greenbank's issued ordinary share capital with voting rights consists of 69,551,678 (2016: 60,172,521) ordinary shares of which no (2016: nil) ordinary shares are held in treasury and 4,909 (2016: nil) ordinary shares are held by the Walker Greenbank PLC EBT. Shares held in treasury or by the EBT are treated as cancelled when calculating EPS.

 

On 18 May 2015, 1,090,326 shares vested under the Company's LTIP of which 188,272 shares were issued from the Walker Greenbank PLC EBT.

 

The market value of shares held by the EBT at 31 January 2017 was £9,941 (2016: nil). The total number of shares held in the EBT at the year end represented 0.01% (2016: 0%) of the issued shares.

 



 

11.        Trade and other receivables

Current

2017

£000

2016

£000

Trade receivables

13,302

10,463

Less: Provision for impairment of trade receivables

(198)

(398)

Net trade receivables

13,104

10,065

Corporation tax

609

-

Other taxes and social security

39

-

Other receivables

2,066

4,897

Marketing materials

1,249

1,346

Prepayments

2,441

2,972


19,508

19,280

 

Other receivables include the recognition of £1,500,000 (2016: £4,683,000) relating to insurance reimbursement in respect of the Standfast flood received after the year end.

 

 

12.        Analysis of net funds


1 February

2016

£000

Cash and cash equivalents acquired

(note 16)

£000

Cash flow

£000

Current portion

of term loan

£000

Other non-cash changes

£000

31 January

2017

£000

Cash and cash equivalents

2,902

2,663

(4,049)

-

-

1,516

Bank overdraft

-

-

(6,626)

-

-

(6,626)

Cash and cash equivalents

and bank overdraft

2,902

2,663

(10,675)

-

-

(5,110)








Term loan due within one year

(400)

-

400

(200)

1

(199)

Term loan due after one year

(196)

-

-

200

(4)

-


(596)

-

400

-

(3)

(199)








Net funds / (debt)

2,306

2,663

(10,275)

-

(3)

(5,309)

 

Other non-cash changes are capitalisation and amortisation of the issue costs relating to the borrowings.

 



 

13.        Cash generated from operations


2017

£000

Restated

2016

£000

Profit before tax:

6,965

7,338

Defined benefit pension charge

527

685

Net borrowing costs

367

179

Depreciation and impairment of property, plant and equipment

2,172

3,024

Insurance reimbursements

(12,250)

(4,683)

Amortisation

1,019

602

(Gain) / loss on disposal of property, plant and equipment

-

3

Charge for LTIP recognised in equity

658

790

LTIP vesting

(664)

(967)

Unrealised foreign exchange losses/(gains) included in operating profit

56

(227)

Defined benefit pension cash contributions

(1,766)

(1,687)

Cash (used in) / generated from operating activities pre insurance proceeds

(2,916)

5,057

Insurance proceeds relating to operating activities

13,165

-

Cash generated from operating activities post insurance proceeds

10,249

5,057

Changes in working capital



(Increase)/decrease in inventories

(5,976)

3,900

Decrease/(increase) in trade and other receivables

2,728

(279)

Increase/(decrease) in trade and other payables

5,380

(1,575)

Cash generated from operations

12,381

7,103

 

The 2016 cash generated from operations has been restated to show non-cash insurance reimbursements included within other receivables.

 



 

14.        Retirement benefit obligation

 

Defined benefit schemes

The Group operates two defined benefit schemes in the UK which both offer pensions in retirement and death benefits to members:  the Walker Greenbank Pension Plan and the Abaris Holdings Limited Pension Scheme. Pension benefits are related to the members' final salary at retirement and their length of service. The schemes are closed to new members and to future accrual of benefits.  This disclosure excludes any defined contribution assets and liabilities.

 

The Group's contributions to the schemes for the year beginning 1 February 2017 are expected to be £1,907,000.

 


2017

£000

2016

£000

Deficit at beginning of the year

(4,313)

(10,352)

Scheme expenses

(392)

(380)

Interest cost

(2,199)

(305)

Expected return on plan assets

2,064

-

Contributions

1,766

1,687

Return on scheme assets

8,107

(3,623)

Actuarial loss from the change in discount factor

(12,615)

5,448

Experience adjustments on benefit obligation

169

3,212

Gross deficit at the end of the year

(7,413)

(4,313)

 

 

15.        Provision for other liabilities and charges

Contingent liability arising on business combination:

2017

£000

2016

£000

At 1 February

-

-

Provision on acquisition of Clarke and Clarke (note 16)

5,148

-

Unwind of discount (note 5)

181

-

At 31 January

5,329

-

 

 

Analysis of total contingent liability:

2017

£000

2016

£000

Non-current

2,677

-

Current

2,652

-

Total

5,329

-

 

 



 

16.        Business combinations

 

On 12 October 2016, the Group conditionally acquired 100% of the issued share capital of Globaltex 2015 Limited, a company registered in the UK, for an initial cash consideration of £25,000,000 and a contingent consideration of up to £17,500,000, in aggregate, payable in the Company's shares linked to the performance of the acquired business over a four year period, giving a total potential consideration of up to £42,500,000 excluding working capital adjustments. The completion date for the transaction was 31 October 2016.

 

Globaltex 2015 Limited is the parent entity and owns 100% of the issued share capital of Globaltex Limited, trading as Clarke & Clarke, which is a UK based designer and worldwide distributor of interior fabrics and wallpapers.

 

In order to finance the initial cash consideration, a placing of a total of 8,947,369 new ordinary shares of 1p each in the Company was announced on 12 October 2016. These shares, which represented approximately 12.9% of the Company's issued ordinary share capital on admission to trading on AIM (excluding treasury shares), were placed at a price of 190.0 pence per share raising proceeds of approximately £17,000,000. The remaining portion of the cash consideration is being funded from the Company's existing accordion tranche of its bank facilities and from the Company's existing cash resources.

 

The following tables summarise the consideration for Clarke & Clarke, the fair value of assets acquired and liabilities assumed at the acquisition date.



£000

Initial cash consideration


25,000

Working capital adjustments to purchase consideration


5,400

Total cash consideration


30,400

Contingent consideration


5,148

Total consideration


35,548

 

 

Fair value of assets acquired and liabilities assumed:


Note

£000

Brand


5,566

Customer relationships


4,427

Total acquired identifiable intangible assets

(b)

9,993

Property, plant and equipment


322

Inventories

(c)

5,936

Trade and other receivables

(d)

6,450

Cash and cash equivalents


2,663

Trade and other payables


(1,667)

Deferred tax liabilities


(2,885)

Net identifiable assets acquired


20,812

Goodwill

(e)

14,736

Total consideration


35,548

 

(a) Acquisition related costs charged to the income statement for the year ended 31 January 2017 are detailed in note 5.

 

(b) The fair value of the acquired identifiable intangible assets of £9,993,000 is provisional pending receipt of the final valuations of those assets.

 



 

16.  Business combinations continued

 

(c) In accordance with IFRS, the inventory value was uplifted to fair value at the date of the acquisition by £1,243,000 and this adjustment increased cost of sales in the post-acquisition period. The £1,061,000 cost in respect of unwind of the fair value uplift adjustment is considered an exceptional cost of sale (note 5). The balance of the fair value uplift which is still to be unwound included within inventories as at 31 January 2017 was £182,000.

 

(d) Included in trade and other receivables were trade receivables with a carrying value of £3,524,000 expected to be recoverable in full. The fair value of trade receivables acquired approximates their carrying value.

 

(e) Goodwill is mainly attributable to growth opportunities identified for the acquired business, both in the UK and globally, plus cost synergies expected to arise. None of the goodwill recognised is expected to be deductible for income tax purposes.

 

(f)  No contingent liabilities other than the contingent consideration of £5,148,000 at the acquisition date were recognised as a result of the business combination. The contingent consideration arrangement requires the Group to pay, in shares, to the former owners of Clarke & Clarke, for four years from 2017-2020 based on a target EBITDA number up to a maximum undiscounted amount of £17,500,000 in Group shares.

 

The fair value of the contingent consideration arrangement of £5,148,000 was estimated by applying the income approach. The fair value estimates are based on a discount rate of 10.9% and assumed probability-adjusted profit in Clarke & Clarke of £22,100,000 to £22,600,000. This is a level 3 fair value measurement. The key unobservable assumptions in calculating this profit are: the EBITDA projections of the Clarke & Clarke business for the four years from 2017-2020 and the discount rate applied (10.9%).

 

As of 31 January 2017, there was an increase of £181,000 recognised in the income statement for the contingent consideration arrangement, as the assumed probability adjusted contingent consideration was recalculated to be approximately £5,329,000. Assuming all other variables are held constant; an increase of 10% in EBITDA projections would result in an increase in contingent consideration of £127,000 and a decrease of 1% in the discount rate would result in an increase in contingent consideration of £74,000. An increase of 10% in revenue would result in an increase in contingent consideration of £317,000.

 

(g) The revenue included in the consolidated statement of comprehensive income since 12 October 2016 contributed by Clarke & Clarke was £7,276,000. Clarke & Clarke also contributed a profit before tax of £1,014,000 over the same period.

 

(h) Had Clarke & Clarke been consolidated from 1 February 2016, the consolidated statement of income would show pro-forma revenue of £21,509,000 and profit before tax of £3,462,000.

 

 

Net cash outflow arising on acquisition:



£000

Total cash consideration paid


29,736

Less: cash and cash equivalents acquired


(2,663)

Net cash outflow


27,073

 

 

17.        Events after the reporting period

 

Following the flooding at Standfast, the Group experienced a period of disrupted production and a loss of stock, machinery and profits. After the reporting period the Group has been reimbursed £1,500,000 as an interim payment which has been recognised and included within other receivables as at 31 January 2017, bringing the total cash received to date to £16,933,000 to cover the costs of stock and machinery loss and other incremental costs, along with business interruption losses. Further business interruption reimbursements are expected to cover future loss of profits up to a period of two years following the flood.

 


This information is provided by RNS
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