Last checked at 30 Mar 2010 07:00
LIBERTY PLC:
FINAL RESULTS FOR 12 MONTHS TO 31 DECEMBER 2009
OPERATING HIGHLIGHTS
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·; 20% revenue uplift to £59.6m against £49.9m last year.
·; Flagship store sales 18% higher at £37.3m against £31.5m a year earlier
·; Since the February 2009 "Renaissance of Liberty" launch, Liberty has produced positive EBITDA for the first time in ten years
·; Liberty accepted as showcase for established international and new design talent including Grayson Perry, Alexander McQueen, Ronnie Wood and Stella McCartney.
·; March 2010 - contracts exchanged for the sale and leaseback of the iconic flagship store for £41.5m
"Liberty has demonstrated its ability to buck economic and retail trends by returning to profitability during one of the worst downturns in recent retail history. It has created an environment that is increasingly appealing to an ever widening customer base while at the same time enhancing the brand and the values that it represents."
Geoffroy de La Bourdonnaye
Chief Executive
Liberty Plc
Contact:
| Richard Balfour-Lynn, Chairman, Liberty | Tel: 020 7706 2121 |
| Geoffroy de La Bourdonnaye, CEO, Liberty | Tel: 020 7734 1234 |
| Paul Harris, Finance Director, Liberty | Tel: 020 7734 1234 |
| Baron Phillips, Baron Phillips Associates | Tel: 020 7920 3161 |
| Nicola Marrin, Seymour Pierce | Tel: 020 7107 8018 |
| | |
CHAIRMAN'S STATEMENT
___________________________________________________________________________________
This has probably been the most exciting, and successful, year in Liberty's recent history, despite the challenging economic environment. All our principal performance indicators rose strongly as the Company is beginning to benefit from the changes introduced by the current management team and for the first time in a decade Liberty has recorded a positive EBITDA for a 12 months trading period.
At the heart of this sea change was last February's launch of the Renaissance of Liberty, which revitalised the Regent Street flagship store and attracted increasing number of customers as well as strong media attention. The result was a 18% revenue lift in the store for the year to 31 December 2009 to £37.3m against £31.5m for the previous 12-month period.
This excellent performance should be seen against a background of extremely difficult trading conditions, especially in the retail sector. Importantly the revenue uplift within the flagship store was a major contributor to the Company's overall 19% increase in like-for-like revenue over the year to £59.6m against £49.9m last time.
Once more Liberty fabrics performed strongly, generating revenue 23% higher at £21.5m compared to £17.4m in the previous year, although a major factor in the uplift in our Japanese fabrics business was currency conversion. While in Yen terms Japanese revenue increased by 9%, when converted to Sterling the rise was some 43%.
Importantly for Liberty this stronger overall performance has meant the Company has delivered positive EBITDA for the year of approximately £0.1m against a negative £3.9m for the 2008 period. Pre-tax losses after depreciation and interest reduced from £7.0m last year to £4.5m for the 2009 period, reflecting close cost control. We have also benefited from the recovering commercial property market as the Tudor Building freehold has been revalued upwards to £30.25m as at 31 December 2009 against £28.8m at June 2009, further underpinning the value of Liberty.
On 15 March 2010 we announced that contracts had been exchanged for the sale of the freehold of the Tudor Building for £41.5m, a considerable uplift over the 31 December 2009 valuation. As part of the proposed freehold sale, Liberty will lease back the Great Marlborough Street flagship store on a 30 year operating lease at an initial annual rent of £2.1m, with fixed five yearly uplifts.
While our top line performance has been strong, margins across the various divisions have come under pressure over the course of the year resulting in an overall fall in gross margin from 47% in the year to December 2008 to 45% for the year under review.
Over the course of the year we have continued to fine-tune our restructuring of the business as it constantly evolves to meet the demand of both customers and changing market conditions. Apart from the impact of the Renaissance of Liberty on the flagship store itself, we have made key changes to other parts of the business, particularly the Liberty of London brand.
As shareholders are aware, we took the decision to close the Sloane Street stand-alone Liberty of London store following an unsolicited approach from a French retailer which paid us a £0.7m premium for our lease. Since the year-end we have conducted an internal reorganisation of Liberty of London and slimmed down the operation expanding the brand across a wider product mix. We are confident that this change will enhance profitability.
Since Autumn we have embarked on a strategic review of the business with the principal aim of identifying options that would enable us to build upon Liberty's recent success and to develop and grow its business. We are examining a number of options in great detail as we seek to develop a strategy that is best for Liberty, its employees and its shareholders.
On 12 March 2010 we announced that the Company had received approaches that could lead to an offer being made for the business. We will report back to shareholders if any of the approaches we have received lead to an offer being made for the Company.
It has been an exciting year for Liberty. Increasing numbers of new customers are discovering both the flagship store and our internet-based shop for the first time. We have re-captured our reputation for offering customers cutting edge design in a unique retail environment. Our focus for the current year is to further develop that reputation and to become firmly established as London's leading iconic retail destination.
We continue to make progress and 2010 has started well. While there are some signs of a return to economic stability, the uncertainties surrounding the year ahead make it difficult to forecast performance with certainty. But we do have an excellent management team that continues to breathe new life into Liberty and develop the business in a sustainable way. To that end I am cautiously optimistic about the coming year as we build on the success of the past 12 months.
Richard Balfour-Lynn
Chairman
Liberty Plc
30 March 2010
CHIEF EXECUTIVE'S REVIEW
___________________________________________________________________________________
This has been an historic year for our iconic brand. For the first time in a decade Liberty has produced positive EBITDA against a background of possibly one of the most difficult economic environments the retail sector has experienced since the early 1990s.
As shareholders know, much of this success has been driven by the highly acclaimed Renaissance of Liberty which was launched in February 2009. Looking back at the launch, which was opened by Slumdog Millionaire actress Freida Pinto, it is clear that the Renaissance was a watershed for both the flagship store and the brand itself.
In many ways the Renaissance re-captured the original spirit of Liberty: quirkiness and cutting edge design, all set in a redesigned store. This not only brought back many of our former customers but attracted many thousands of new customers who began to explore the store and brand for the first time.
Very quickly Liberty became the watchword for new and exciting fashion with many brands being introduced by the store to London for the first time. As well as showcasing established international designers, during 2009 we did much to promote young British designers both the little known as well as the well known. These included Michael Birch, Lost Property, Alexander McQueen, Stella McCartney, Nudie, Grayson Perry, Barbour and Ronnie Wood.
Once more, Liberty was offering an exciting, eclectic but accessible fashion unavailable elsewhere in London, right across the fashion palette - from scarves to jewellery, from dresses to perfume, and bags to sunglasses. Liberty was even home to Hermès' first ever pop-up shop which was a tremendous success.
The result was an overall 20% uplift in Liberty's like-for-like revenues for 2009 to £59.6m against £49.9m during the previous year. Sales at the flagship store also rose strongly with total revenue for 2009 18% higher at £37.3m against £31.5m a year earlier.
What has been particularly pleasing is that we have maintained the momentum established at the time of the Renaissance launch not only through the 2009 Spring/Summer seasons but also through Autumn/Winter and into the first quarter of 2010.
2009 also saw the introduction of the Liberty Style Service which has attracted a new group of VIP's to the store. The Style Service offers one-to-one styling advice to individual customers that helps them to select not only the most appropriate range of garments but also the most suitable accessories that complement those choices. It enables the serious customer to access the entire Liberty range in one room and allows them to experiment in a discreet environment as well as enhancing their shopping experience.
While it is often fashion and designers that capture the headlines as well as customers hearts, Liberty has made great progress in other areas too. Our well-established fabrics business has had another record year as demand for new designs as well as the back catalogue continues unabated.
Not only have collaborations with designers such as Grayson Perry delivered great results but our fabrics have been used in some unlikely settings, such as recycled coffee bags. This eco-bag from Lost Property took the humble coffee bean bag, lined it with a Liberty print and created another fashion must-have that flew out of the door at £50 a time. We also re-introduced a collection of souvenir items such as mugs and handkerchiefs, all with Liberty prints. These instant gifts, which we brought to the store during Summer 2009, have been extremely successful and we continue to sell them today.
Additionally we have created new, and even more vibrant, prints in a range of different fabrics that have included silk and wool for the first time. This division has been supported by an expanded commercial team.
The end result has been another extremely strong contribution from our fabrics division that saw revenue rise a further 23% to £21.5m compared to £17.4m in 2008, which in itself was a record performance. As has been noted in the Chairman's Statement, the Japanese element of our Fabrics division benefited from a strong Yen in comparison to the Pound as it produced a 43% increase in revenue in our financial statements.
It is also pleasing to see our Internet division making solid progress over the year. Clearly the division is benefiting from the increased exposure the Liberty brand is receiving, both at home and internationally. As we expanded our on-line store it attracted a growing customer base, which was particularly evident in the run-up to Christmas as sales of seasonal gifts grew rapidly. We believe this division has a great future and will be a major component in the business as we go forward.
As shareholders know we took the strategic decision to close our Knightsbridge stand-alone Liberty of London store in the Summer of 2009. The decision was principally taken as we had received an extremely attractive offer for our lease on the shop in Sloane Street. In turn this gave us the opportunity to re-structure the division by re-modelling the brand and product offer across the Liberty range, as well as exploring other opportunities to develop Liberty of London both at home and internationally.
There is no doubt in our mind that 2009 has been a year of great progress for the business with all divisions reporting sustainable growth, at a time when there is great uncertainty in the economy and the political climate. All our operating divisions delivered EBITDA growth and it is satisfying to be able to report that our Internet business, which was only launched in July 2008 is already breaking even at the EBITDA level.
Liberty has demonstrated its ability to buck economic and retail trends by returning to profitability during one of the worst downturns in recent retail history. It has created an environment that is increasingly appealing to an ever widening customer base while at the same time enhancing the brand and the values that it represents. Once more Liberty has become an exciting, eclectic but accessible place to shop and therefore we view the future with confidence.
Geoffroy de La Bourdonnaye.
Chief Executive
30 March 2010
KEY FINANCIAL HIGHLIGHTS
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Liberty Plc is in the process of transforming itself into a dynamic retail destination, underpinned by a strong and expanding retail brand. The historical trading and balance sheet performance of Liberty Plc is summarisedbelow:-
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008* |
| Financial performance | £'000 | £'000 |
| Revenue | 59,620 | 49,889 |
| EBITDA before brand expenditure and reorganisation costs | 3,004 | 1,822 |
| EBITDA | 108 | (3,868) |
| Results from operating activities before brand expenditure, reorganisation costs | 54 | (535) |
| Brand expenditure | (2,761) | (4,344) |
| Reorganisation costs | (135) | (1,346) |
| Profit on lease surrender | 85 | - |
| Loss before taxation | (4,456) | (6,975) |
|
|
|
|
|
| 31 December | 31 December |
|
| 2009 | 2008 |
| Balance sheet composition | £'000 | £'000 |
| Intangible assets - brand and goodwill | 18,382 | 18,382 |
| Property, plant and equipment | 31,859 | 31,006 |
| Net debt | (23,543) | (19,937) |
| Net assets | 24,622 | 29,835 |
* Restated as a result of adoption of IFRIC 13: customer loyalty programmes - see note 1.
Business risks and uncertainties
The Board and the Senior Executive team identify and evaluate risks and uncertainties in the period covered by the Group Business Plan and design controls to mitigate these. Responsibility for management of each key risk is identified and delegated by the Board to specific Executive Directors and Senior Executives within each of the Group's operating businesses.
This section describes some of the specific risks that could materially affect the Group's businesses. The risks outlined below should be considered in connection with any financial and forward-looking information in the financial statements. The risks below are not the only ones that the Group faces and some that the Group does not currently believe to be material could later turn out to be material. These risks could materially affect the Group's business, its operating profits, earnings, net assets, liquidity and capital resources.
Economic, political, social and regulatory changes adversely affecting the Group's financial performance
The Group is exposed to the risks of global and regional adverse political, economic and financial market developments (including recession, inflation and currency fluctuations), that could lower the Group's revenues and operating results in the future.
The Group's results could also be adversely affected by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, epidemics, travel-related accidents or industrial action, increased transportation and fuel costs and natural disasters.
Financial market volatility adversely affecting the Group's financial performance
Most of the risks faced by the Group at the date of this report emanate from the volatility of financial markets, the resultant reduction in supply of credit and its significant increase in cost. This was accentuated during 2008, arising from the rapid deterioration in financial markets in the UK, and has continued to be a management focus during 2009. For Liberty, these risks fall into a number of categories as set out below, all of which are proactively managed by the Board.
Liquidity risk affects the Group, in that this could result in it being unable to meet its financial obligations as they fall due. The Board's approach to managing liquidity is to ensure, as far as possible, that the Group has sufficient liquidity to meet its liabilities, without incurring unacceptable losses or risking damage to the Group's reputation and business. The Group uses detailed divisional cash flow reporting to assist the Board in monitoring cash flow requirements and optimising cash returns on investments across the whole Group.
The Group's variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Investments in short-term receivables and payables are not exposed to interest rate risk.
Reliance on bank loan and support from the Group's ultimate parent
Note 1 to the consolidated financial statements summarises liquidity risks associated with the financing arrangements of the Group.
Technology and systems disruption adversely affecting the Group's efficiency
To varying degrees, the Group is reliant upon information technologies and systems for the running of its businesses, particularly those which are highly integrated with business processes. Any disruption to those technologies or systems could adversely affect the efficiency of the business.
Loss of key management personnel
The Group is reliant on its team of executives. The future success of the Group depends on the ability of its existing management team, the identification and appointment of suitable additional executives when required, and on the Group's ability to motivate and retain staff with the requisite experience.
Changes in fashion trends
Liberty is dependent upon its ability to interpret and offer fashion products that consumers wish to purchase. The Liberty printed fabric business is susceptible to industry change. Failure to be successful in this area of activity, particularly noting the long lead times before product is available for sale in the Store, would cause an adverse impact on Liberty's revenues and profitability.
Reliance on reputation of Liberty of London brand
If an event occurred that materially damaged the reputation of any of Liberty's core brands or there was a failure to sustain the appeal of Liberty's brands to its customers, this could have an adverse impact on Liberty's revenues and resultant shareholder value.
In addition, the value of Liberty's brands is influenced by a number of external factors including consumer preference and perceptions. Liberty is focused on service delivery to ensure that the product provided matches customer preferences. Strict controls are in place to help ensure adherence to all legislative aspects affecting the business and experienced executives manage these important areas of Liberty.
Potential uninsured product liability claims
Many manufacturers and retailers are potentially vulnerable to product liability claims. Liberty conducts regular reviews with its external insurance agent to assess potential insurance risk and to ensure that adequate product and public liability insurance is in place. Liberty could also face liability and/or reputational damage relating to counterfeit products. Accordingly, Liberty pursues all copyright and trademark infringement to the extent necessary to protect its intellectual property rights that would be materially affected.
Pension scheme shortfalls
The Liberty Retail Plc Pension Scheme, which is a defined benefit pension scheme, is currently showing a deficit of £2.8m. The level of deficit of the scheme has fluctuated significantly over the last 12 months. If the value of the Scheme assets were to decline materially relative to its liabilities, the pension scheme would be likely to show an increased deficit and Liberty might be required to make additional contributions to cover this shortfall. This would have an adverse impact on cash flow available to the Group, with resultant adverse effects on the cash flow and net worth of the Group.
Management and Pension Scheme Trustees meet regularly and have made major changes to the investment strategy of the Scheme over recent years, to respond to changes in the market and to underpin its financial performance. They also receive advice from external actuaries and investment advisers which assists in mitigating this risk through the Scheme's diversified investments and risk minimisation strategy.
Foreign exchange fluctuations
The Group settles a significant proportion of its merchandise purchases in foreign currency. The Group mitigates to a large extent the effect of any adverse movement in exchange rates by arranging forward exchange contracts. Consolidation of the Group's Japanese Fabric business in these Financial Statements includes the impact of the movement in the Sterling/Yen exchange rate during the year and at the year end on the results and Balance Sheet of the foreign operations. No specific hedging instruments are deployed against dividend receipts in Yen from Liberty Japan as the financial effect is considered by the directors of Liberty not to be material.
Ownership of Grade II listed building
The Group owns the freehold interest in the Tudor Building on Great Marlborough Street. The bank facility requires that drawdown on the bank debt does not exceed 67% of the value of the property. This covenant is tested quarterly. The existing use value of this property may decline, adversely impacting Shareholder value. In order to protect this the Board reviews the market value of the property at least twice a year against external professional valuations and reviews insurance cover on a regular basis throughout the year and in detail at the insurance renewal date of May in each year.
The Tudor Building is a Grade II listed building and may require significant investment to refurbish departments within the store as well as to maintain the interior and exterior fabric of the building. The board of the operational business undertakes ongoing assessments of refurbishment expenditure with internal project managers and external quantity surveyors in order to ensure, where reasonably possible, that cost is minimised and value protected.
Currently the business is heavily reliant on its principal retail trading location in the heart of London's West End. The development of a wholesale distribution network for Liberty product as well as the new transactional website is expected to help reduce the Company's reliance on the sales activity of the Tudor Building.
Changes in tax legislation materially changing the tax paid by the Group
The Group is exposed to financial risks from increases in tax rates and changes in the basis of taxation, including corporation tax and VAT. The engagement of experienced executives within the Group and by its parent undertaking to handle these matters enhances the protection to the Group in this area of its activities. The Group and its parent undertaking also maintain a regular monitoring of legislative proposals and undertakes detailed analysis and review with external (non-audit related) advisers to evaluate and, if possible, mitigate the impact of the changes.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2009
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|
|
| Year ended | Year ended |
|
|
| 31 December | 31 December |
|
|
| 2009 | 2008 * |
|
| Notes | £'000 | £'000 |
| Revenue | 2 | 59,620 | 49,889 |
| Cost of sales |
| (33,650) | (27,561) |
| Gross profit |
| 25,970 | 22,328 |
| Selling and distribution costs |
| (25,138) | (24,310) |
| Administrative expenses |
| (4,828) | (4,934) |
| Other operating income |
| 1,154 | 691 |
| Results from operating activities |
| (2,842) | (6,225) |
| Gain on lease surrender | 7 | 85 | - |
| Finance income |
| 853 | 1,439 |
| Finance expenses |
| (2,552) | (2,189) |
| Loss before taxation |
| (4,456) | (6,975) |
| Taxation | 4 | (690) | (395) |
| Loss for the year |
| (5,146) | (7,370) |
| Attributable to: |
|
|
|
| Equity shareholders of the Company |
| (5,200) | (7,424) |
| Minority interests |
| 54 | 54 |
| Loss for the year |
| (5,146) | (7,370) |
| Loss per share (basic and diluted) | 5 | (23.0p) | (32.8p) |
All results relate to continuing operations. The notes form part of these financial statements.
* Restated as a result of adoption of IFRIC 13: customer loyalty programmes - see note 1.
CONSOLIDATED BALANCE SHEET
at 31 December 2009
___________________________________________________________________________________
|
|
| 31 December | 31 December |
|
|
| 2009 | 2008 |
|
| Notes | £'000 | £'000 |
| Non-current assets |
|
|
|
| Intangible assets and goodwill | 6 | 18,382 | 18,382 |
| Property, plant and equipment | 7 | 31,859 | 31,006 |
|
|
| 50,241 | 49,388 |
| Current assets |
|
|
|
| Inventories |
| 12,017 | 9,190 |
| Trade and other receivables | 8 | 9,507 | 10,108 |
| Cash and cash equivalents | 9 | 1,943 | 1,903 |
| Derivative financial instruments | 12 | - | 341 |
|
|
| 23,467 | 21,542 |
| Total assets |
| 73,708 | 70,930 |
| Current liabilities |
|
|
|
| Derivative financial instruments | 12 | (1) | - |
| Trade and other payables | 11 | (31,871) | (23,689) |
| Tax payable |
| (393) | (157) |
|
|
| (32,265) | (23,846) |
| Non-current liabilities |
|
|
|
| Loans and borrowings | 10 | (12,542) | (14,633) |
| Employee benefits |
| (2,814) | (2,066) |
| Provisions |
| (1,465) | (550) |
|
|
| (16,821) | (17,249) |
| Total liabilities |
| (49,086) | (41,095) |
| Net assets |
| 24,622 | 29,835 |
| Equity |
|
|
|
| Share capital |
| 6,036 | 6,036 |
| Other reserves |
| 69,221 | 68,271 |
| Retained earnings |
| (51,459) | (45,242) |
| Total equity attributable to shareholders of the Company |
| 23,798 | 29,065 |
| Minority interests |
| 824 | 770 |
| Total equity |
| 24,622 | 29,835 |
The notes form part of these financial statements. Approved by the Board of Directors on 30 March 2010 and signed on its behalf by:
| Richard Balfour-Lynn | Geoffroy de La Bourdonnaye |
| Chairman | Chief Executive |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2009
__________________________________________________________________________________________________________________
|
|
|
|
|
|
| Total equity |
|
|
|
| Share | Merger | Revaluation | Translation | Retained | Attributable to | Minority | Total |
|
| capital | reserve | reserve | reserve | earnings | Shareholders | interest | equity |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
|
|
|
|
|
|
|
|
|
|
| Balance at 1 January 2009 | 6,036 | 61,503[2] | 6,768[2] | 1,113[1] | (46,355)[1] | 29,065 | 770 | 29,835 |
| Foreign exchange translation differences for foreign operations | - | - | - | (251) | - | (251) | - | (251) |
|
|
|
|
|
|
|
|
|
|
| Revaluation of property, plant and equipment | - | - | 950 | - | - | 950 | - | 950 |
|
|
|
|
|
|
|
|
|
|
| Defined benefit pension scheme actuarial gains, net of tax | - | - | - | - | (966) | (966) | - | (966) |
|
|
|
|
|
|
|
|
|
|
| Loss for the year | - | - | - | - | (5,200) | (5,200) | 54 | (5,146) |
|
|
|
|
|
|
|
|
|
|
| Share based payments | - | - | - | - | 200 | 200 | - | 200 |
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|
|
| Balance at 31 December 2009 | 6,036 | 61,503[2] | 7,718[2] | 862[1] | (52,321)[1] | 23,798 | 824 | 24,622 |
[1] Disclosed as 'Retained earnings' in consolidated balance sheet.
[2] Disclosed as 'Other Reserves' at 31 December 2009 totalling £69,221,000 in consolidated balance sheet.
Translation reserve: The translation reserve represents the movement on the translation of assets and liabilities held or recorded in foreign currencies other than Sterling at the balance sheet date. Exchange differences arising in the ordinary course of trading are included in the Income Statement.
Merger Reserve: This arose when the Company acquired its subsidiaries in 2000 at a premium to the nominal value of the shares issued on acquisition.
Revaluation Reserve: Freehold property is included in the Consolidated Balance Sheet at its market value at the Balance Sheet date, on the basis of an annual external valuation. Surpluses or deficits arising on valuation are transferred to the revaluation reserve to the extent that a credit balance exists in the valuation reserve in respect of the property concerned.
Minority Interests: This represents the 9 ½% preference shares in the Company's wholly owned subsidiary Liberty Retail Plc.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2008
_________________________________________________________________________________________________________________
|
|
|
|
|
|
| Total equity |
|
|
|
| Share | Merger | Revaluation | Translation | Retained | Attributable to | Minority | Total |
|
| capital | reserve | reserve | reserve | earnings | Shareholders | interest | equity |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
|
|
|
|
|
|
|
|
|
|
| Balance at 1 January 2008 | 6,036 | 61,503[2] | 10,288[2] | 43[1] | (36,912)[1] | 40,958 | 578 | 41,536 |
| Foreign exchange translation differences for foreign operations | - | - | - | 1,070 | - | 1,070 | - | 1,070 |
|
|
|
|
|
|
|
|
|
|
| Revaluation of property, plant and equipment | - | - | (3,520) | - | - | (3,520) | - | (3,520) |
|
|
|
|
|
|
|
|
|
|
| Defined benefit pension scheme actuarial gains, net of tax | - | - | - | - | (2,019) | (2,019) | - | (2,019) |
|
|
|
|
|
|
|
|
|
|
| Loss for the year | - | - | - | - | (7,424) | (7,424) | 192 | (7,232) |
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| Balance at 31 December 2008 | 6,036 | 61,503[2] | 6,768[2] | 1,113[1] | (46,355)[1] | 29,065 | 770 | 29,835 |
[1] Disclosed as 'Retained earnings' in consolidated balance sheet.
[2] Disclosed as 'Other Reserves' at 31 December 2008 totalling £68,271,000 in consolidated balance sheet.
Translation reserve: The translation reserve represents the movement on the translation of assets and liabilities held or recorded in foreign currencies other than Sterling at the balance sheet date. Exchange differences arising in the ordinary course of trading are included in the Income Statement.
Merger Reserve: This arose when the Company acquired its subsidiaries in 2000 at a premium to the nominal value of the shares issued on acquisition.
Revaluation Reserve: Freehold property is included in the Consolidated Balance Sheet at its market value at the Balance Sheet date, on the basis of an annual external valuation. Surpluses or deficits arising on valuation are transferred to the revaluation reserve to the extent that a credit balance exists in the valuation reserve in respect of the property concerned.
Minority Interests: This represents the 9 ½% preference shares in the Company's wholly owned subsidiary Liberty Retail Plc.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2009
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Loss for the year | (5,146) | (7,370) |
| Adjustments |
|
|
| Taxation | 690 | 395 |
| Finance income | (853) | (1,439) |
| Finance expenses | 2,552 | 2,189 |
| Gain on lease surrender | (85) | - |
| Depreciation of property, plant and equipment | 2,278 | 2,357 |
| Equity-settled share based payments | 200 | - |
| Cash flows from operations before changes in working capital | (364) | (3,868) |
| Change in inventories | (2,827) | (1,595) |
| Change in trade and other receivables | 601 | (3,296) |
| Change in trade and other payables | 2,655 | 1,789 |
| Change in provisions and employee benefits | 555 | - |
| Cash generated from / (used in) operating activities | 620 | (6,970) |
| Interest paid | (292) | (877) |
| Taxation paid | (386) | (303) |
| Net cash used in operating activities | (58) | (8,150) |
| Cash flows from investing activities |
|
|
| Interest received | 2 | - |
| Proceeds from sale of lease | 593 | - |
| Purchase of property, plant and equipment | (2,768) | (2,483) |
| Net cash used in investing activities | (2,173) | (2,483) |
| Cash flows from financing activities |
|
|
| Proceeds from drawdown of borrowings | (2,091) | 1,633 |
| Proceeds from drawdown from related parties | 4,361 | 6,543 |
| Proceeds from settlement of derivatives | 121 | - |
| Net cash from financing activities | 2,391 | 8,176 |
| Net increase / (decrease) in cash and cash equivalents | 160 | (2,457) |
| Opening cash and cash equivalents | 1,903 | 4,296 |
| Currency translation differences | (120) | 64 |
| Closing cash and cash equivalents | 1,943 | 1,903 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2009
1. ACCOUNTING POLICIES
Reporting Entity
Liberty Plc (the "Company") is a company domiciled in the United Kingdom. The address of the Company's registered office is 179 Great Portland Street, London W1W 5LS. The consolidated financial statements of the Company at, and for the year ended, 31 December 2009 comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities"). The Group is primarily involved in the operation of a retail luxury goods store and the manufacture of fabric and luxury goods.
Basis of preparation
The Group financial statements for the year ended 31 December 2009 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS"). The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.
These financial statements incorporate the results of Liberty Plc and its subsidiary undertakings. The results have been prepared on the basis of the accounting policies adopted in the financial statements of the Group for the year ended 31 December 2009, consistently applied in all material respects.
The Group is dependent for its future working capital, and ongoing investment in Liberty of London and the flagship store, on cash generated from its operations, cash holdings of £1.9m at 31 December 2009, funds provided to it through a £20m revolving credit and ancillary facilities with Bank of Scotland (the 'bank facility') and a £16.5m facility provided by MWB Group Holdings Plc ('MWB'), the Company's ultimate parent company.
On 12 March 2010 the Group exchanged contracts for the sale of the freehold interest in the Tudor Property for £41.5m to Sirosa Liberty Ltd (see note 14). Under the terms of the proposed deal, the Group will take an institutional 30 year lease on the building at an initial annual rent of £2.1m. (The sale is conditional on approval by the shareholders of Liberty's 68% shareholder, MWB Group Holdings Plc, which is expected to be sought during April 2010.) Management intend that the proceeds from the sale of the property will be used to repay the bank facility and the facility provided by MWB as well as fund future working capital.
The Group reported an operating loss of £2.8m for the year ended 31 December 2009. At 31 December 2009, the Group had net assets of £24.6m, net current liabilities of £8.8m (which included a loan of £12.9m from MWB provided under a facility expiring in 31 December 2010), and further net debt of £10.6m (which included an amount drawn down under the bank facility of £12.5m, the term of which runs to 31 December 2011). The availability of additional drawings from MWB up to the facility limit of £16.5m is subject to the financial position of MWB. Having made appropriate enquiries about MWB's financial position, the Directors are confident that the full MWB facility will be available to the Group throughout its term.
The nature of the Group's business is such that there can be unpredictable variations in the timing of cash inflows and performance. This is amplified in the business risks and uncertainties section in the Report of the Directors. The Directors recognise that, in the current economic environment, risks may exist regarding the achievability of forecast sales and margins within different parts of the Group and the timing of cash flows. The Directors have prepared projected cash flow information for the period to 31 December 2011 (the 'Projections'). The Projections are based on reasonable assumptions and show that the Group is capable of operating within the facilities currently available and meeting the financial covenant tests for the full term covered by the Projections.
The Group has three covenant tests in relation to its bank facility, namely Loan to Value Security Cover, Debt Service Cover and Senior Interest Cover, with Liberty of London brand costs and other one-off costs excluded from the test of the latter two. Security Cover requires the loan to be no more than 67% of the Realisation Value of the Tudor Building. At 31 December 2009, the Tudor Building was valued at £30.25m, and £12.5m of facilities were utilised. Accordingly, the Loan to Value Security Cover was only 41% at that date, demonstrating significant headroom. Sufficient headroom is also forecast over the period covered by the Projections. Debt Service Cover requires the ratio of EBITDA to Total Debt Service to be not less than 1.25:1. This covenant was met for the year ended 31 December 2009 with continuing headroom forecast over the period covered by the Projections. Senior Interest Cover requires the ratio of EBIT to Senior Interest to be not less than 1.5:1. This covenant was first tested at 31 December 2009 and was met with continuing headroom forecast over the period covered by the projections. Liberty trading results for the first part of 2010 have been strong, and demonstrate sales levels well ahead of 2008 levels, thus underpinning the Projections. The Directors continue to monitor adherence to these covenants carefully and to take reasonable steps to ensure adherence at all times. The bank facility also permits the Group to cash cure any breach that might occur within 14 days of the relevant test date.
The Directors have tested the impact of variations from the Projections by assessing adequacy of the Group's funds, and the ability of the Group to operate within the financial covenants, under a combination of different scenarios constructed to reflect reasonable possible downside risks to the assumptions contained within the Projections. In such downside scenarios, the ability to continue to operate within the facilities available and maintain compliance with the financial covenants would be dependent on implementing various cost saving initiatives and mitigating actions referred to below within the timescales required, should these downside scenarios crystallise. These cost saving initiatives and mitigating actions, all of which are already formulated, are under the control of the Board and can be implemented as required.
After making enquiries, and considering the uncertainties as described above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Directors consider it appropriate to prepare the financial statements on a going concern basis.
The consolidated financial statements are prepared on the historical cost basis except for the freehold property and derivative financial instruments which are measured at fair value.
These consolidated financial statements are presented in UK Sterling, which is the Company's functional currency. All financial information has been rounded to the nearest thousand pounds.
Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes:
·; Note 6 - the assumptions used to assess value in use for impairment testing of the Group's brand.
·; Note 7 - the valuation of the Group's property
Basis of consolidation
Where necessary, adjustments are made to the information included in the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group and so reflect that information on a consistent basis with the rest of the Group.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Dilution gains and losses on increases in minority interests, where no change of control results, are recognised directly in equity. Where necessary, accounting policies of subsidiaries are changed on acquisition to align them with the policies adopted by the Group.
Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures.
Goodwill represents the excess of the cost of the acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in the income statement.
Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange.
Goodwill is measured at cost less impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment.
Brands
In accordance with IFRS 3, brands acquired by the Group are initially included in the financial statements at their fair value. The Directors consider that the Group's brand has an indefinite useful life due to the durability of its underlying businesses which has been demonstrated over many years. An annual assessment of the useful life is performed at the end of each financial year.
Accordingly, the brand has not been amortised but has instead been subject to an impairment assessment conducted at each financial year end. Where this reveals a surplus, the value of the brand is retained, where it reveals a deficit, the brand is written down and the deficit is charged to the income statement. Subsequent expenditure on the brand is recognised in the income statement when incurred.
Subsidiary companies
The subsidiary undertakings of the Company are all engaged in retail activities, wholesale distribution or licensing activities, or act as intermediary holding companies for such operations.
Property, plant and equipment
Property is land and buildings held for use in the production or supply of goods or services, or for administrative purposes, and are stated in the balance sheet at their revalued amounts, being the fair value, determined from market-based evidence and appraisals undertaken by professional valuers at the balance sheet date.
Any revaluation increase arising on the revaluation of such land and buildings is credited to the revaluation reserve within equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such land and buildings is charged as an expense in the income statement to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to previous revaluations of that asset.
The gain or loss on disposal or retirement of property, plant and equipment is determined by comparing the sale proceeds with the carrying amount of the asset at the date of disposal or retirement, and is recognised in the income statement. When revalued assets are sold, the amounts included in the revaluation reserve relating to those assets are transferred directly to retained earnings.
Depreciation is charged so as to write off the cost or valuation of property, plant and equipment, other than land and property under construction and less residual amounts, using the straight line method, over their following estimated useful lives:-
| Freehold property | 100 years |
| Air conditioning and lifts or plant forming part of the property | 15 years |
| Fixtures and equipment | 5 to 10 years |
| IT equipment | 3 to 7 years |
Freehold land is not depreciated.
Assets held under operating leases are not recognised as assets of the Group. Rentals payable are recognised in the Income Statement on a straight-line basis over the term of the lease.
Impairment
The carrying amounts of the Group's non-financial assets other than inventories are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For intangible assets that have an indefinite useful life, the recoverable amount is estimated at each balance sheet date.
The recoverable amount of an asset or cash generating unit is the higher of its value in use and its fair value, less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money, and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash generating unit").
For the purpose of impairment testing the brand, the cash generating unit comprises all the businesses in the Group, as all these revenues are dependent on the brand.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit/group of units exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any intangible asset allocated to the unit and then to reduce the carrying amount of other assets in the unit on a pro-rata basis.
Impairment losses, on assets other than goodwill, recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised. Impairment losses in respect of goodwill are not reversed.
Inventories
Inventories are measured at the lower of cost and net realisable value. Cost is based on the first in, first out principle and comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing inventories to their existing location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on transactions are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at a foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the balance sheet date. The income and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from the translation of foreign operations are taken directly to the translation reserve.
Financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Non-derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the statement of cash flows.
The Group's activities expose it primarily to the financial risk of changes in exchange rates and foreign exchange rates on its trading operations with overseas suppliers and customers. The Group uses an extendable forward plus financial instrument to reduce the exposure of the business to foreign currency risk.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the income statement as incurred. Subsequent to initial recognition, derivatives are measured at fair value.
Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges are recognised directly in equity to the extent that the hedge is effective. To the extent the ineffective changes impair value, they are recognised in the income statement. If the cash flow hedge of a firm commitment or a forecast transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net income.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.
Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
Derivatives
The fair value of forward exchange contracts is based on their listed market price, if available. If a listed price is not available then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk free interest rate based on government bonds.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, the risks specific to the liability.
Retirement benefits
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Obligations for contributions to defined contribution pension schemes are recognised as an expense in the Income Statement.
The Group's net obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value at the date of the financial statements. Any unrecognised past service costs and the fair value of any scheme assets is deducted in calculating the Group's net obligation to the scheme for the retirement benefits to be provided. The discount rate used is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the term of the Group's obligations under the scheme, and which are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the scheme or reductions in future contributions to the scheme.
When the benefits of a scheme are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement.
Revenue
Revenue is measured at the fair value of consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of staff discounts and the costs of loyalty scheme rewards and is stated net of value added tax and other sales-related taxes. Revenue on Flagship and Liberty of London store sales of goods and commission on concession sales are recognised when goods are sold to the customer. Internet and Fabric sales are recognised when the goods are delivered to the customer. Revenue from gift vouchers and gift coins sold by the Group is recognised on redemption of the gift voucher or gift coin. It is the Group's policy to sell its products to the end customer with a right of return. Accumulated experience is used to consider the need for a provision for such returns on an annual basis.
Based on past experience, it is not possible to make a reliable estimate of the amount of goods that will be returned and therefore no deferred revenue is recognised in relation to the right of return offered to customers.
Cost of sales
Cost of sales comprises the cost of goods sold, together with the direct costs incurred in managing and operating the Group's operating activities.
Share-based payment transactions
The share option programme allows certain employees to acquire shares in the Group.
The fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.
Dividends
Dividends that have been approved by shareholders at previous Annual General Meetings are included within liabilities. Dividends proposed at the balance sheet date that are subject to approval by shareholders at the annual general meeting are not included as a liability in the current period's financial statements. Dividend income is recognised in the income statement on the date the Group entity's right to receive the income is established.
Finance income and expenses
Finance income comprises interest receivable on funds invested and dividend income. Interest income is recognised in the income statement as it accrues, using the effective interest rate method. All interest payable is charged to the Income Statement.
Finance expenses comprise interest paid or payable that are recognised in the Income Statement.
Taxation
The income tax expense in the Consolidated Income Statement comprises current and deferred tax. Income tax expense is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are only offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities but they intend to settle current tax liabilities and assets on a net basis, or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes which arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.
Debt/equity
Under IAS 32, preference shares are classed as equity instruments in the financial statements of Liberty Retail Plc, and in the consolidated financial statements of Liberty Plc as:
·; the preference shares include no contractual obligation to deliver cash or another financial asset to another entity; and
·; they include no contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer.
Adoptions of standards and interpretations during the year
Revised IAS 1 Presentation of Financial Statements (2007) introduces the term "Total Comprehensive Income", which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total Comprehensive Income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. Revised IAS 1, which is mandatory for the Group's 2009 consolidated financial statements, is expected to have a significant impact on the presentation of consolidated financial statements.
The Group has applied revised IAS1 Presentation of financial statements, which became effective on 1 January 2009. This presentation has been applied in this Financial Report for the year ended 31 December 2009. Comparative information has been re-presented so that it is also in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on the previously disclosed pre-tax profit of the Group.
Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations clarifies the definition of vesting conditions, introduces the concept of non-vesting conditions, requires non-vesting conditions to be reflected in grant-date fair value and provides the accounting treatment for non-vesting conditions and cancellations. The amendments to IFRS 2 are mandatory for the Group's 2009 consolidated financial statements, with retrospective application. The Group has not yet determined the potential effect of the amendment, although the Directors do not consider it will be material in the context of the Company's consolidated financial statements as a whole.
IFRS 8 The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. This new accounting policy in respect of segment operating disclosures has not led to a change in the number and/or definition of segments previously presented, on the basis that the information disclosed is consistent to that provided to the Board of Liberty Plc, led by the Chief Executive, who is the Group's chief operating decision maker.
IFRIC 14 and IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction. IFRIC 14 provides additional guidance on assessing the amount that can be recognised as an asset of a defined benefit pension surplus and as a consequence the amount of deferred tax on that surplus. The Group has assessed the impact of IFRIC 14 and IAS 19 at 31 December 2009. The adoption of IFRIC 14 at 31 December 2009 had no impact on the balance sheet of the Group at 31 December 2008. Had IFRIC 14 been applied at 1 January 2008, the net liability on the balance sheet at that date would have been £1.5 million.
Revised IAS 23 Borrowing Costs requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset and removes the option to expense the related borrowing costs. The revised IAS 23 is mandatory for the Group's 2009 consolidated financial statements and accords with the policy already adopted by the Group. In accordance with the transitional provisions, the Group will apply the revised IAS 23 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date. Therefore there is no impact on prior periods in the Group's 2009 consolidated financial statements.
IFRIC 13 The Group has applied in its Financial Statements IFRIC 13 which clarifies the accounting treatment for customer loyalty programmes. This standard has been applied retrospectively in accordance with IAS8 and comparatives have been restated accordingly.
As a result of the Group's adoption of IFRIC 13; customer loyalty programmes, the Directors have reviewed the accounting policy in respect of the treatment of the Liberty Card reward programme. As a result of this amendment, the Directors believe that it is more appropriate to deduct these costs from revenue as opposed to charging them as a marketing expense as was the case in previous years. The Group therefore adopted a revised accounting policy for such costs in line with IFRIC 13 and will recognise all costs related to the programme within revenue.
The effect of this change was to reduce revenue in the year ended 31 December 2008 by £270,000, and to reduce selling and distribution costs by the same amounts. Accordingly, this has no effect on the pre-tax profits as previously reported by the Group.
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations have been issued recently but are not effective for the financial year ended 31 December 2009. Accordingly, they have not been applied in preparing these financial statements. Their adoption is not expected to have a material affect on the financial statements. The main standards that may affect future financial statements of the Group are:-
·; IFRS 3 (Revised) 'Business Combinations' (effective from 1 July 2009) broadens the definition of a business, requires contingent consideration to be fair valued, transaction costs other than share and debt issue costs to be expensed as incurred, any pre-existing interest in an acquiree to be measured at fair value with the gain or loss recognised in profit or loss and minority interests to be either measured at its fair value or at its proportionate interest in the identifiable assets and liabilities of the acquiree on a transaction by transaction basis. The Group has not yet determined the potential effect of this standard, although the Directors do not consider it will be material to the consolidated financial statements as a whole.
·; IAS 27 'Consolidated and Separate Financial Statements'(effective 1 July 2009) requires accounting for ownership changes in a subsidiary while maintaining control to be recognised as an equity transaction. If control of a subsidiary is lost, any interest retained is to be measured at its fair value and the gain or loss recognised in profit or loss. The Group has not yet determined the potential effect of this standard, although the Directors do not consider it will be material to the consolidated financial statements as a whole.
2. SEGMENT REPORTING
___________________________________________________________________________________
Segment information is presented in respect of the Group's businesses and geographical segments. The primary format is based on the Group's management and internal reporting structure.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Inter-segment pricing is determined on an arm's length basis. Unallocated items comprise mainly central loans and borrowings and related expenses, corporate assets (primarily the Company's head office operations) and tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment.
Operating segments
The Group has three reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different products and services, and are managed separately. For each of the strategic business units, the Group's CEO reviews internal management reports on a monthly basis. The following summary describes the operations in each of the Group's reportable segments:
·; Retail including Liberty of London retail and Internet; the UK retail operations at Regent Street and the transactional internet site;
·; Wholesale Fabric; the results of the UK and Japanese fabric businesses.
·; Liberty of London Wholesale; our branded product that is distributed globally.
The Retail business purchases stock from both the Wholesale Fabric business and Liberty of London Wholesale. In addition the Liberty of London Wholesale business purchases stock from Wholesale Fabric.
Information regarding the results of each reportable segment is included below. Performance is measured on Revenue, Profit/(Loss) and EBITDA as included in the internal management reports that are reviewed by the Group's CEO. EBITDA is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within the Retail and Wholesale industry. Inter-segment pricing is determined on an arm's length basis.
Cash balances and bank loans are allocated to Retail as this division utilises the cash balances and buildings against which debt is secured.
The primary format of the segmental information in respect of the Group's business is based on its internalreporting structure. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Inter-segment pricing is determined on an arms length basis.
Revenue from no single customer represents more than 10% of the Group's total external revenues.
Geographical segments
In presenting information on the basis of geographical segments, segmental revenue and assets are based on the geographical location of the assets.
The Group operates substantially from the UK although its Wholesale Fabric and Liberty of London businesses have a global outreach through a sales team and agents' network. In addition the Wholesale Fabric business operates a fully owned Japanese subsidiary.
|
| Year ended 31 December 2009 | Year ended 31 December 2008 | ||||
|
| External | Internal | Total | External | Internal | Total |
|
| 2009 | 2009 | 2009 | 2008 * | 2008 * | 2008 * |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Revenue by business division |
|
|
|
|
|
|
| Retail including Liberty of London retail and Internet | 37,311 | - | 37,311 | 31,497 | - | 31,497 |
| Wholesale fabric | 21,484 | 953 | 22,437 | 17,426 | 700 | 18,126 |
| Liberty of London wholesale | 825 | 2,663 | 3,488 | 966 | 2,219 | 3,185 |
|
| 59,620 | 3,616 | 63,236 | 49,889 | 2,919 | 52,808 |
| Revenue by geographical origin |
|
|
|
|
|
|
| United Kingdom | 49,555 | 3,616 | 53,171 | 42,832 | 2,919 | 45,751 |
| Japan | 10,065 | - | 10,065 | 7,057 | - | 7,057 |
|
| 59,620 | 3,616 | 63,236 | 49,889 | 2,919 | 52,808 |
* Restated as a result of adoption of IFRIC 13: customer loyalty programmes - see note 1.
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 * |
|
| £'000 | £'000 |
| Revenue by geographical destination |
|
|
| United Kingdom | 39,441 | 33,342 |
| Japan | 10,211 | 7,124 |
| Other | 9,968 | 9,423 |
|
| 59,620 | 49,889 |
* Restated as a result of adoption of IFRIC 13: customer loyalty programmes - see note 1.
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| (Loss) / profit by business division |
|
|
| Retail including Liberty of London retail and Internet | (4,897) | (7,067) |
| Wholesale fabric | 3,775 | 3,738 |
| Liberty of London wholesale (including brand expenditure) | (1,478) | (2,552) |
| Provision for unrealised profit | (242) | (344) |
| Results from operating activities | (2,842) | (6,225) |
| Gain on Lease surrender | 85 | - |
| Net finance expenses | (1,699) | (750) |
| Taxation | (690) | (395) |
| Loss for the year | (5,146) | (7,370) |
| (Loss) / profit for the year by geographical origin |
|
|
| United Kingdom | (4,354) | (7,124) |
| Japan | 1,512 | 899 |
| Operating loss | (2,842) | (6,225) |
| Gain on lease surrender | 85 | - |
| Net finance expenses | (1,699) | (750) |
| Taxation | (690) | (395) |
| Loss for the year | (5,146) | (7,370) |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
| Net assets | £'000 | £'000 |
| By business division |
|
|
| Retail including Liberty of London retail and Internet | 20,172 | 10,159 |
| Wholesale fabric | 16,597 | 14,112 |
| Liberty of London wholesale | (12,147) | 5,564 |
|
| 24,622 | 29,835 |
| By geographical origin: |
|
|
| United Kingdom | 21,635 | 27,071 |
| Japan | 2,987 | 2,764 |
|
| 24,622 | 29,835 |
| EBITDA | £'000 | £'000 |
| By business division |
|
|
| Retail including Liberty of London retail and Internet | 4,693 | 1,651 |
| Wholesale fabric | 4,238 | 4,206 |
| Liberty of London wholesale | (2,213) | (2,715) |
| Reorganisation | (135) | (1,346) |
| Support Costs | (6,475) | (5,664) |
|
| 108 | (3,868) |
Concession revenue
Sales from concession departments are included on a commission only basis within revenue above. Gross revenue of concession departments was as follows:
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Gross revenue of concession departments | 11,145 | 9,379 |
3. EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION AND AMORTISATION ("EBITDA")
___________________________________________________________________________________
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
| The EBITDA of the Group is calculated as follows: | £'000 | £'000 |
| Results from operating activities | (2,842) | (6,225) |
| Add depreciation of property, plant and equipment for the year | 2,278 | 2,357 |
| Operating EBITDA | (564) | (3,868) |
| Gain on lease surrender | 85 | - |
| Write down of fixtures charged against lease surrender (note 7) | 587 | - |
| Total EBITDA for the year | 108 | (3,868) |
4. TAXATION
__________________________________________________________________________________
The taxation charge for the year in the Income Statement arose as follows:
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Foreign tax |
|
|
| Tax on Japanese profits for the year | (690) | (395) |
No tax was recognised directly in equity during the year ended 31 December 2009 or during the previous year.
The taxation charge has been reduced from the amount that would arise from applying the prevailing corporation tax rate to the loss before taxation in the Consolidated Income Statement, as follows:
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| UK corporation tax credit at 28% (2008: 28.5%) on Group loss before tax | 1,248 | 1,988 |
| Excess of depreciation charged over capital allowances claimed | (638) | (672) |
| Accounting profit on disposal greater than chargeable gains | (142) | - |
| Expenditure permanently disallowed for taxation purposes and unrelieved tax losses | (1,060) | (1,573) |
| Taxation on overseas earnings at higher rate than UK corporation tax | (264) | (138) |
| Tax losses brought forward utilised | 166 | - |
| Taxation charge for the year | (690) | (395) |
5. LOSS PER SHARE
__________________________________________________________________________________
The loss per share figures are calculated by dividing the loss attributable to equity shareholders of the Company for the year, by the weighted average number of ordinary shares in issue during the year, as follows:-
|
|
| Year ended | Year ended |
|
|
| 31 December | 31 December |
|
|
| 2009 | 2008 |
| Loss for the year attributable to equity shareholders of the Company | £'000 | (5,200) | (7,424) |
| Weighted average number of ordinary shares in issue during the year | '000 | 22,603 | 22,603 |
| Loss per share (basic and diluted) | Pence | (23.0p) | (32.8p) |
As the basic EPS is negative, in line with IAS 33 Earning per Share, share options are not considered dilutive.
6. INTANGIBLE ASSETS AND GOODWILL
_________________________________________________________________________________
|
| Goodwill | Brand | Total |
|
| £'000 | £'000 | £'000 |
| Balance at 1 January 2008 and 1 January 2009 | 182 | 18,200 | 18,382 |
| Balance at 31 December 2008 and 31 December 2009 | 182 | 18,200 | 18,382 |
Assessment of the useful life and impairment testing on the carrying value of the Brand
The Directors consider that the Group's brand has an indefinite life due to the durability of the underlying business. This has been demonstrated over many years. Accordingly the brand has not been amortised but has instead been subject to an annual impairment review. An external professional valuation of the Liberty brand was undertaken by Equilibrium Consulting at 31 December 2007. The principal assumptions in the 2007 valuation included a discount rate of 10.2% and a long term growth assumption of 2% into perpetuity. At 31 December 2009, the value in use was determined by discounting future cash flows generated from continuing use of the cash generating unit. This is based on projected cash flows in the Company's 5 year business plan and further projections for years 6 to 10 to produce a 10 year cash flow model. A 2% growth assumption has been applied to cash flows at the end of year 10. Forecast annual revenue growth included in the projections is 5.8% in 2010, 3.4% by year 5 reflecting the 5 year business plan and 3.2% by year 10. The cash flows generated from the business plan project net outflows in 2009 and 2010 with net cash inflows beginning in 2011. A pre-tax discount rate of 10% was applied to resultant cash flows to determine present day value in use, reflecting current market assessments of risk specific to the asset. The values assigned also represent assessments of future trends in the retail industry and are based on both external sources and internal historical data. The above calculation of value in use is particularly sensitive in two areas: a movement of 1% in the discount rate would affect the calculated value of the brand by £5m, and a movement of 1% in future planned net cash inflows before capital expenditure, central costs and working capital movements would affect the calculated value of the brand by approximately £7m. The impairment review at 31 December 2009 supported the value in use of the Liberty brand at more than the book value of £18.2m at which it has been included in the financial statements of the Group throughout the year accordingly the brand has been retained at a value of £18.2m in these financial statements.
7. PROPERTY, PLANT AND EQUIPMENT
__________________________________________________________________________________
|
| Freehold | Plant, machinery, fixtures |
|
|
| property | & equipment | Total |
|
| £'000 | £'000 | £'000 |
| Cost or valuation |
|
|
|
| At 1 January 2009 | 25,595 | 16,428 | 42,023 |
| Additions | - | 2,768 | 2,768 |
| Disposals |
| (724) | (724) |
| Revaluation | 612 | - | 612 |
| At 31 December 2009 | 26,207 | 18,472 | 44,679 |
| Depreciation |
|
|
|
| At 1 January 2009 | - | (11,017) | (11,017) |
| Charge for the year | (338) | (1,940) | (2,278) |
| Disposals | - | 137 | 137 |
| Revaluation | 338 | - | 338 |
| At 31 December 2009 | - | (12,820) | (12,820) |
| Net book value at 31 December 2009 | 26,207 | 5,652 | 31,859 |
On 19 June 2009 Liberty surrendered the lease on its Sloane Street store for a cash premium of £700,000. As a result, Liberty released a rent-free provision with residual value of £79,000 previously held as a liability and incurred costs of £107,000. In addition, fixtures and fittings relating to the shop with a net book value of £587,000 were deemed to have no further value in use and written off, giving rise to a net gain on lease surrender of £85,000.
Valuation
The Group's property, plant and equipment is primarily located in the United Kingdom, with a minor amount located in Japan. The Group's property was valued at 31 December 2009 by qualified professional valuers working for the company of DTZ, Chartered Surveyors, ("DTZ"), acting in the capacity of External Valuers. All such valuers are Chartered Surveyors, being members of the Royal Institution of Chartered Surveyors ("RICS").
DTZ act as valuers to the Group and undertake half year and year end valuations for accounting purposes. DTZ has been carrying out this valuation instruction for the Group for a continuous period since 1999 and Paul Wolfenden has been the signatory of Valuation Reports provided to the Group for the same period. In addition, DTZ provide ad-hoc valuation advice to the Group. DTZ is a wholly owned subsidiary of DTZ Holdings plc. In the financial year to 30 April 2009, the proportion of total fees payable by the Group to the total fee income of DTZ Holdings plc was less than 5%. It is not anticipated that this situation will vary in terms of the financial year of DTZ to 30 April 2010. DTZ has not received any introductory fees or acquisition fees in respect of the property owned by the Liberty Group within the 12 months prior to the date of valuation.
The valuation was carried out in accordance with the RICS Appraisal and Valuation Standards 6th Edition ("the Manual") and the property was valued on the basis of Existing Use Value. Existing Use Value is defined in the Manual as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing, wherein the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the property required by the business and disregarding potential alternative uses and any other characteristics of the property that would cause its Market Value to differ from that needed to replace the remaining service potential.
The valuation includes the land and buildings; the trade fixtures, fittings, furniture, furnishings and equipment; and the market's perception of the trading potential excluding personal goodwill; together with an assumed ability to renew existing licences, consents, certificates and permits. The value excludes consumables and stock in trade. The valuation excludes any goodwill associated with the management by the Company or its subsidiaries.
The valuation of the Tudor property and fixtures totalled £30.3m, including fixtures and equipment with a net book value of £4.0m at 31 December 2009. The historic cost of the Group's property at 31 December 2009 includes capitalised interest of £0.2m (2008: £0.2m).
8. TRADE AND OTHER RECEIVABLES
___________________________________________________________________________________
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Trade receivables | 7,996 | 7,772 |
| Amount due from related parties (note 13) | - | 12 |
| Other receivables | 565 | 1,211 |
| Prepayments and accrued income | 946 | 1,113 |
|
| 9,507 | 10,108 |
9. CASH AND CASH EQUIVALENTS
__________________________________________________________________________________
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Cash and cash equivalents | 1,943 | 1,931 |
| Less bank overdraft | - | (28) |
| Net cash and cash equivalents per consolidated cash flow statement | 1,943 | 1,903 |
10. LOANS AND BORROWINGS
The Group's interest-bearing loans and borrowings are measured at amortised cost. Details of the Group's exposure to interest rate, foreign currency and liquidity risk are set out in note 12.
The Group utilises a financing facility provided by Bank of Scotland ("BOS") for a loan facility of £20m which comprises a revolving credit facility of £15m and an ancillary facility of £5m. At 31 December 2009, the Group has drawn £12.5m(2008: £14.6m) of the £15m revolving credit facility and £0.9m (2008: £0.2m) of the ancillary facility.
Terms and debt repayment schedule
The Group's loans are denominated in Sterling and no foreign exchange risk existed on its debt arrangements during the year ended 31 December 2009 or during the previous year. The Group's loans bear variable rates of interest which are set by reference to Bank of Scotland base rate as follows:-
|
|
|
| 31 December 2009 | 31 December 2008 | ||
|
| Nominal interest rate per annum | Latest year of maturity | Face value | Carrying amount | Face value | Carrying amount |
|
|
|
| £'000 | £'000 | £'000 | £'000 |
|
|
|
|
|
|
|
|
| Secured bank loan | 2.5% | 2011 | 12,542 | 12,542 | 14,633 | 14,633 |
The facility has a term that runs until December 2011, at which time, or prior to which, discussions will be held with BOS with regard to refinancing, repayment or extending the loan repayment date.
The bank loan is secured on freehold property with a carrying amount of £30.3m (2008:£28.8m) (see note 7), a debenture and corporate guarantee provided by Liberty Plc in favour of BOS.
Net debt
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Current liabilities |
|
|
| Cash and cash equivalents | 1,943 | 1,903 |
| Derivative financial instruments | (1) | 341 |
| Related party balances (note 13) | (12,943) | (7,548) |
| Non-current liabilities |
|
|
| Secured bank loan | (12,542) | (14,633) |
| Net debt | (23,543) | (19,937) |
Undrawn facilities
At 31 December 2009, the Group had £2.5m (2008: £0.4m) of undrawn credit financing facilities available for use by the Group.
Funding financial risk
The Group's funding financial risk centres on the total interest cost incurred on the Group's short and medium term loans, which at 31 December 2009 included bank borrowings of £12.5m (2008: £14.6m). The Board has currently chosen to retain the bank borrowings at variable rates due to the low level of current interest rates. The Board reviews this policy on a regular basis to ensure good management of its exposure to interest rate fluctuations.
11. TRADE AND OTHER PAYABLES
___________________________________________________________________________________
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
| Trade payables | 12,169 | 9,349 |
| Amounts due to related parties (note 13) | 12,943 | 7,548 |
| Other payables | 487 | 1,436 |
| PAYE, NIC and VAT | 1,579 | 1,157 |
| Accruals and deferred income | 4,693 | 4,199 |
|
| 31,871 | 23,689 |
The Group's exposure to currency and liquidity risk related to trade and other payables is disclosed in note 12.
Amounts due to related parties relate to amounts due to MWB Group Holdings Plc. The loan was provided under a facility that had a term that ran to December 2010. Subsequent to the year end, this facility was extended to 30 June 2011. Drawings under this facility incur interest at a rate of 9% per annum.
12. FINANCIAL INSTRUMENTS
Overall summary
The Group has exposure to the following principal risks in the operation and management of its business:-
(i) Liquidity risk;
(ii) Market risk;
(iii) Interest rate risk;
(iv) Currency risk; and
(v) Credit risk.
Set out below is information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
The Directors have overall responsibility for the establishment and oversight of the Group's risk management framework.
The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies to provide protection for the Group's activities are reviewed during the year to reflect changes in market conditions. The Group, through its management standards and procedures, aims to develop a disciplined and constructive control environment in which employees understand their roles and obligations. This is managed and controlled through a detailed funding policy and capital management strategy, details of which are set out below.
The Group borrows from banks at variable rates of interest. The Group does not use hedging arrangements to speculate on interest rate movements.
The Group's treasury policies are designed to ensure that sufficient committed loan facilities are available to support current and future business requirements. Cash and loan management is a core feature of the Board's business model and two year rolling cash flow forecasts, updated on a monthly basis, are controlled by the Executive Directors to manage these requirements.
Liquidity risk
Note 1 to the financial statements refers to liquidity risks associated with the financing arrangements of the Group.
Market risk
Market risk that affects the Group is the risk that changes in market prices, such as interest rates, foreign currency rates and equity prices, will affect the Group's income or the value of its holdings of financial instruments. The objective of the Group's market risk management is to manage and control market risk exposures within acceptable parameters, while seeking to optimise returns to shareholders.
The Group buys derivatives for its financial liabilities, and also incurs financial liabilities, in order to manage market risks. The Group does not enter into hedge contracts on a speculative or trading basis.
Equity price risk arises generally from available-for-sale equity securities held within the Liberty Retail Plc pension scheme. These investments are held to meet the funded and unfunded portion of the Group's defined benefit pension obligations. Group Management monitors the mix of debt and equity securities in this investment portfolio using pro-active third party advice. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Trustees of the pension scheme, in conjunction with Senior Executives of the Group. The investment portfolio of the pension scheme at its most recent year end of 2 June 2008 totalled £16.0 million and the current value of pension scheme liabilities, which are valued principally by reference to investment bond yields, totalled £18.9 million.
The primary goal of the Group's available-for-sale equity securities investment strategy is to maximise investment returns commensurate with acceptable levels of risk, in order to meet as much as possible the Group's defined scheme pension obligations. Management is assisted in this regard by professional external advisors.
Interest rate risk
The Group's variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. The Group may hold financial instruments to hedge financial risk on finance drawn for its operations, or for the temporary investment of short-term funds, and to manage the interest rate risks arising from its operations and sources of finance. In addition, various financial amounts - for example trade debtors and trade creditors - arise directly from the Group's normal trading operations.
The Group's interest rate is set at a margin above the Bank of Scotland's base rate. If the base rate had increased by 1% point during the year the Group would have incurred an extra interest cost of £0.1m.
Currency risk
Substantially all Group revenue is denominated in Sterling, the Group's functional currency. The Group is currently mainly exposed to currency risk on sales and purchases that are denominated in Euros and US dollars. Payments in Euros accounted for 17% (2008: 14%) and payments in US dollars accounted for 5% (2008: 3%) of total payments in the year to 31 December 2009. The Group uses forward exchange contracts to hedge its currency risk, most of which have a maturity of less than one year from the balance sheet date. The Group does not have any loans taken out by any Group entities, in any currency other than Sterling.
As 88% (2008: 91%) of the Group's net assets are denominated in Sterling, the Group did not have a material exposure to foreign currency risk at 31 December 2009 or at the previous year end. The remaining 12% (2008: 9%) of Group assets are denominated in Japanese Yen. Accordingly, strengthening of Sterling against the Yen would not have had a material effect on the Group at 31 December 2009 or at the previous year end.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The risk to the Group arises principally from the Group's receivables from customers.
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the general default risk in the principal sectors in which the Group operates, has less of an influence on credit risk. The Group maintains credit insurance which protects against any bad debt that may arise, with an excess of £1,000 payable per claim.
For many years, losses from impairment of the Group's customer receivables have been minimal and this continued during the year ended 31 December 2009. Customers that are graded as high risk are placed on a restricted customer list, and future sales are only made on a restricted basis.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
|
|
| 31 December 2009 | 31 December 2008 |
|
|
| £'000 | £'000 |
| Trade receivables |
| 7,996 | 7,772 |
| Cash and cash equivalents |
| 1,943 | 1,903 |
|
|
| 9,939 | 9,675 |
The ageing of trade receivables at 31 December 2009 was as follows:-
|
| Gross | Impairment | Gross | Impairment |
|
| 31 December | provision | 31 December | provision |
|
| 2009 | 31 December | 2008 | 31 December |
|
|
| 2009 |
| 2008 |
|
| £'000 | £'000 | £'000 | £'000 |
| Not overdue | 3,635 | - | 4,210 | - |
| 0-30 days overdue | 1,646 | - | 695 | - |
| 31-120 days overdue | 2,248 | - | 2,628 | (67) |
| 120 days to one year overdue | 548 | (107) | 359 | (93) |
| More than one year overdue | 166 | (140) | 94 | (54) |
|
| 8,243 | (247) | 7,986 | (214) |
The impairment provision at 31 December 2009 of £247,000 relates to debts mainly from overseas customers that are not covered by insurance.
Based on historic default rates, the Board believes that no material amount of impairment allowance is necessary in respect of trade receivables not past due or past due by up to 120 days. The majority of the balance relates to customers that have good financial track records with the Group.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Balance at start of year | (214) | (100) |
| Impairment loss provided | (33) | (114) |
| Balance at end of year | (247) | (214) |
The allowance account in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable and is written off against the financial asset directly.
| Liquidity risk - maturity analysis |
|
|
|
|
|
|
| Non derivative financial liabilities | < 1 year | Between 1 & 2 years |
|
| £'000 | £'000 |
| Trade and other payables | (18,928) |
|
| Amounts due to related parties | (12,943) |
|
| Secured bank loan |
| (12,542) |
Determination of fair values
The following tables show the carrying amounts and fair values of the Group's financial instruments at 31 December 2009 and at the previous year end. The carrying amounts are included in the Group balance sheet. The fair values of the financial instruments are the amounts at which the instruments could be exchanged in a current transaction between willing parties.
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Balance at start of year | 341 | - |
| Fair Value changes through Income Statement | (219) | 341 |
| Fair Value of contracts settled | (123) | - |
| Balance at end of year | (1) | 341 |
The carrying amounts of financial assets and liabilities, together with their fair values at 31 December 2009 and at the previous year end, were as follows:-
|
| 31 December 2009 | 31 December 2008 | ||
|
| Carrying amount | Fair value | Carrying amount | Fair Value |
|
| £'000 | £'000 | £'000 | £'000 |
|
|
|
|
|
|
| Amounts due to related party | (12,943) | (12,943) | (7,548) | (7,548) |
| Trade and other receivables | 9,507 | 9,507 | 10,108 | 10,108 |
| Cash and cash equivalents | 1,943 | 1,943 | 1,903 | 1,903 |
| Secured bank loan and overdraft | (12,542) | (12,542) | (14,633) | (14,633) |
| Trade payables | (12,169) | (12,169) | (9,349) | (9,349) |
| Other payables | (487) | (487) | (1,436) | (1,436) |
|
| (26,691) | (26,691) | (20,955) | (20,955) |
Fair value hierarchy: Financial instruments carried at fair value are defined as Level 2 under IFRS 7.
13. RELATED PARTY BALANCES AND TRANSACTIONS
__________________________________________________________________________________
|
| 31 December | 31 December |
|
| 2009 | 2008 |
| Trade and other receivables (note 8) | £'000 | £'000 |
| Amounts due from related parties |
|
|
| Wholly owned subsidiaries of a fellow subsidiary, MWB Business Exchange Plc | - | 12 |
|
| - | 12 |
| Current liabilities Trade and other payables (note 11) |
|
|
| MWB Group Holdings Plc |
|
|
| Loan | 10,904 | 6,543 |
| Other | 2,039 | 1,005 |
|
| 12,943 | 7,548 |
| Related party transactions during the year |
|
|
| Wholly owned subsidiaries of MWB Group Holdings Plc for administrative fees paid during the year | - | 56 |
14. POST BALANCE SHEET EVENT
__________________________________________________________________________________
On 12 March 2010 the Group exchanged contracts for the sale of the freehold interest in the Tudor Property for £41.5m to Sirosa Liberty Ltd. Under the terms of the proposed deal, the Group will take a 30 year operating lease on the building at an initial annual rent of £2.1m, with fixed five yearly uplifts
The sale is conditional on approval by the shareholders of Liberty's 68% shareholder, MWB Group Holdings Plc, which is expected to be sought during April 2010. The Board of MWB Group Holdings Plc which owns 15.8% of its issued share capital of MWB Group Holdings Plc has confirmed its approval of the sale, and shareholders associated with the Board owning a further 17.5% have also confirmed their approval to the sale.
15. ACCOUNTS AND FINANCIAL INFORMATION
__________________________________________________________________________________
The financial information for the years ended 31 December 2009 and 31 December 2008 contained in this preliminary announcement was approved by the Board on 29 March 2010. This announcement does not constitute statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on both these sets of accounts. Their reports were not qualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985 in respect of the year ended 31 December 2008 and section 498(2) or (3) of the Companies Act 2006 in respect of the year ended 31 December 2009.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and the group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
• the directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
| Richard Balfour-Lynn | Geoffroy de La Bourdonnaye |
| Chairman | Chief Executive |