Longboat Energy Regulatory News (LBE)

RNS Number : 3958J

MWB Group Holdings PLC

30 March 2010

 

FOR IMMEDIATE RELEASE

30 March 2010

 

MWB GROUP HOLDINGS Plc

 

FINAL RESULTS FOR 12 MONTHS TO 31 DECEMBER 2009

 

 

HIGHLIGHTS

 

MWB GROUP HOLDINGS Plc

 

·; Equity attributable to shareholders of 144p per share at December 2009, from 174p per share at December 2008.

·; Property values stabilise with current year deficit only £2.1m compared with £79.2m in 2008.

·; Malmaison and Hotel du Vin trading results steady despite challenging market conditions. Operating EBITDA at £26.6m level with last year.

·; Overall record revenues of £60.8m at Liberty up 20% on 2008.

·; Significant expansion in MWB Business Exchange following acquisition of 16 former MLS Group Plc centres.

·; Overall MWB Group Holdings loss before tax increased to £15.4m from £9.9m in 2008 reflecting tougher market conditions and expenditure on the newly acquired MLS centres.

 

"I continue to believe we have the strength and depth of management as well as excellent products and services within our operating companies, that make us better placed than most to ride out whatever the economy may present us with. All our businesses have started the current year well but we are adopting a cautious approach to this year as a whole until the direction of the UK economy becomes clearer."

 

Eric Sanderson

Chairman

 

 

 

MALMAISON AND HOTEL DU VIN

 

·; Revenue increased 3% to £111m from £108m in 2008.

·; Strong performance in food and beverage now generating annual revenue of almost £50m.

·; Operating EBITDA level with previous year at £26.6m.

·; Occupancy stable for the year at 79% despite challenging economic environment.

·; Room rates reflected tougher market conditions easing from £112 to £99 at Malmaison and £120 to £111 at Hotel du Vin.

·; Full year's contribution by four new hotels opened in 2008 with an exceptionally good performance by Malmaison Aberdeen.

 

"We believe our corporate market is set to grow again although the leisure market could come under pressure in the third quarter as the impact of proposed Government changes in fiscal policy begin to bite. The lessons from 2009, together with our strong cash flow management and strategies we have put in place over the past year, have put us in an excellent position to take full advantage of market improvements as they occur."

 

Robert B. Cook

Chief Executive

Malmaison and Hotel du Vin Group

 

 

 

MWB BUSINESS EXCHANGE

 

·; Revenue down 5% to £112.4m over the previous 12 month period.

·; Significant expansion in capacity by acquisition during Spring 2009 of 16 former MLS Group PLC centres, predominantly in London.

·; Excluding start-up losses of £2.6m from the MLS centres, overall EBITDA reduced by 31% to £12.4m compared to the year to 31 December 2008.

·; Revenue Per Available Workstation (REVPAW) reduced 29% to £6,180 at 31 December 2009 from £8,700 at 31 December 2008.

·; Revenue Per Occupied Workstation (REVPOW) down 22% to £7,545 at 31 December 2009 compared to £9,650 at 31 December 2008.

·; Despite challenging market conditions occupancy of 82% at 31 December 2009 compared with 90% at the previous year end.

·; Three additional new centres in London and one in Harrogate opened in the year to 31 December 2009. Two further London centres to open in Spring 2010.

·; Special 15p per MWB Business Exchange share interim dividend paid in June 2009. (Total 2008 dividend per MWB Business Exchange share 1.93p).

 

"Already we are seeing the market for serviced offices and meeting rooms improve and demand strengthen. Early indications are that occupancy is increasing and rates are stabilising, particularly in London. Our strategy of maintaining the leading position in Central London will enable us to take full advantage of the improving market conditions forecast by the capital's leading property consultants."

 

John Spencer

Chief Executive

MWB Business Exchange Plc

 

 

 

LIBERTY PLC

 

·; Overall 20% sales uplift to £60.8m against £50.9m last year.

·; Flagship store sales 18% higher at £37.3m against £31.5m a year earlier.

·; Since the February 2009 "Renaissance of Liberty" launch, flagship store trading and margins have achieved overall positive EBITDA for the first time in the last ten years.

·; Liberty accepted as showcase for established international and home grown 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

 

 

 

CHAIRMAN'S STATEMENT

 

 

This has been a challenging year for the Group but, as the accompanying results indicate, the management teams in each of our companies have faced up to the challenges presented by the economic climate and have performed well. We believe that each of our companies have outperformed their peer group which demonstrates the quality of our people as well as their products and services.

 

There is little doubt that all three sectors in which we operate - retail, hotels, and serviced offices - have come under severe pressure as both companies and consumers have cut expenditure. However, against the backdrop of such a difficult business environment we have delivered a good performance.

 

Liberty, our iconic British brand, has enjoyed a renaissance over the past year with a 20% revenue increase to almost £61m and positive EBITDA of £0.1m, its first for more than a decade. Revenues at the flagship store rose 18% and by 23% in its fabrics division. All this has been achieved within a retail sector that, in many areas, has suffered badly as consumers cut back heavily on spending.

 

On 15 March 2010 we announced that contracts had been exchanged for the sale and leaseback of the freehold of Liberty's landmark flagship store in Great Marlborough Street, London W1, subject to approval by Shareholders in General Meeting. The price agreed was £41.5m, some £11m more than the valuation of the building at 31 December 2009. This is clearly highly beneficial. The proceeds from the sale will be used to repay all bank borrowings in Liberty and intergroup debt provided by MWB to Liberty, with the remainder providing working capital. Thereafter, Liberty is leasing the Tudor Building on a 30 year institutional lease at an annual rent of £2.1m with fixed increases every five years. 

 

We also announced on 12 March 2010 that we had received approaches that could lead to an offer being made for Liberty, the company. Discussions resulting from these approaches are continuing and we will report to shareholders when we have further news.

 

At our boutique hotel business, Malmaison and Hotel du Vin, occupancy was maintained at around 79%, slightly down on the previous year. Despite pressure on rate, total revenue was up from £108m in the previous year to £111m this year, aided by full year contributions from the four hotels that opened in the second half of 2008 and EBITDA remained level with last year at £26.6m. Our hotels' performance was further boosted, against all odds, by food and beverage revenue which is now running at almost £50m annually, equivalent to a healthy restaurant group in its own right.

 

MWB Business Exchange outperformed both its peers and market expectations with the "Business Exchange" section of the business generating EBITDA of £12.2m and pre-tax profits of £7.1m, down from £13.9m in the previous year. This is an extremely creditable performance within the context of a difficult commercial property tenant market where demand for space over the period has fallen substantially. Business Exchange made a quantum leap over the period when it took over 16 centres from a distressed competitor and became London's market leader in the provision of serviced offices, with a total of 45 centres in the capital at the date of this statement.

 

While very little capital outlay needed to be incurred in the acquisition of these centres, as expected, many required investment to bring them up to Business Exchange's exacting standards. This has had a short term impact on the enlarged Business Exchange's EBITDA as the new centres become fully integrated and occupancy levels come up to the company's targets. As a result, EBITDA for the whole of Business Exchange for 2009 was £9.8m against £18.1m for 2008. However, Business Exchange paid a special interim dividend totalling some £9.8m, of which £7m was received by the Group.

 

At Group level, EBITDA for the 12 months to 31 December 2009 was £28.8m, slightly down on the previous year's £31.1m, reflecting market conditions. Pre-tax losses for the period widened to £15.4m from £9.9m last year and losses per share amounted to 22.0p compared to 3.6p in 2008.

 

MWB has benefited from last Autumn's revival in the property investment market and our total property assets, including plant and equipment stabilised at £559.5m, with £8.2m of the first half decline in values being reversed in the second half, resulting in an overall decline of just £2.1m for the full year. After reflecting the retained loss from earnings and the fall in property values, equity attributable to MWB Group shareholders fell from £125.9m to £104.5m, which translated into 144p per share compared to 174p per share last year.

 

Towards the end of 2009 we announced a £27.5m equity raising through the placing of 91.7m new Units in MWB Group. At the same time we also announced that we had cut costs within the Group and are continuing to do so during the current year. £7.5m of the new equity was used to redeem the same amount of our Unsecured Loan Stock and the remainder, amounting to £17.1m net of fees, has been used to reduce borrowings and provide working capital. This puts us in a much stronger position going forward.

 

As part of this cost-cutting exercise Andrew Blurton, our Joint Finance Director, resigned from the Board with effect from 12 January 2010, although he continues to be involved in the Group, on a consultancy basis until the end of June 2010 to ensure an orderly handover. The Board would like to record its appreciation of Andrew's contribution to the development of the Group since its inception and wish him every success in the future.

 

Across the Group we are facing another difficult year in the UK economy. Although there are signs and indications that the worst of the recession is behind us, we believe there is still uncertainty in the future. With an imminent General Election, difficulties being experienced by members of the Eurozone, and possible changes to domestic fiscal policies, it is not sensible to predict too far into the future.

 

However, I continue to believe we have the strength and depth of management as well as excellent products and services within our operating companies, that make us better placed than most to ride out whatever the economy may present us with. All our businesses have started the current year well but we are adopting a cautious approach to this year as a whole until the direction of the UK economy becomes clearer.

 

 

Eric Sanderson

Chairman

30 March 2010

 

 

 

MALMAISON AND HOTEL DU VIN OPERATING REVIEW

 

 

It has been another challenging year for our boutique hotel business, as we have had to adapt to changing market conditions and the continuing adverse economic environment putting rates under pressure. In spite of this, occupancy remained stable throughout 2009 at around 79%.

 

At the half-year we reported that, not unexpectedly, there had been a decline in our corporate customer base and an increase in leisure business, particularly at Malmaison. This shift in our customer base continued throughout the second half of the year. Whilst occupancy remained consistent over the course of the year, we saw a 10% decline in average room rates across the group to £104 against £115. Malmaison, which is more reliant on the corporate market, bore the brunt of this rate drop with a 12% fall from £112 to £99, while Hotel du Vin ("HdV"), which is more leisure orientated, saw rates ease by a more modest 8% to £111 against £120 previously.

 

What has been incredibly encouraging and extremely positive has been the rise in customer spend on food and beverage ("F&B"). HdV saw a 13% increase in its restaurant business revenues over the year to more than £28m and F&B income now accounts for approximately 55% of total HdV business. Malmaison experienced a 10% uplift in its restaurant revenue to £20.7m which represented 34% of total revenue. Increasingly the group is maximising its position as a great restaurant business with rooms, as food and beverage is now generating annual revenue of almost £50m.

 

Total revenue across the group for the 12 months to 31 December 2009 was marginally up on the previous year at £111.0m against £107.6m. Malmaison accounted for £60.3m of the total, slightly down on the past year's £62.3m, while HdV produced a near 12% uplift at £50.8m compared to £45.3m last time. HdV benefited from a full year's contribution from three new hotels that opened in the second half of 2008: Poole, Newcastle and Edinburgh.

 

At Malmaison there was only one new hotel making a first full year contribution: Aberdeen, which opened in November 2008 and took off almost immediately, reaching 79% occupancy for the 12 months to 31 December 2009. Aberdeen has been an incredible success, outstripping its budget by some margin; it generated a 24% increase over budgeted revenue for the year and exceeded its food and beverage budget by some 70%.

 

Group EBITDA was level with last year at £26.6m. Malmaison contributed EBITDA of £15.4m, down from £16.5m, while HdV produced £11.2m against £9.9m, an increase of 13%. On a like-for-like basis HdV's revenue was slightly down at £41.7m compared to £42.5m but EBITDA was unchanged at £10.5m.

 

There was regional variation in performance, especially at Malmaison. Leeds, Manchester and Liverpool came under strong room rate pressure although restaurant revenues overall were good, especially at Manchester. Scotland performed better than the other regions, underpinned by the very strong contribution from Aberdeen. London, which had a slow first six months, produced a strong second half performance.

 

Leisure and social spending were the highlights at HdV. Our hotels at Brighton, Cambridge, Cheltenham, Devonshire Gardens and Harrogate particularly benefited from weddings and events revenue. Devonshire Gardens, for example, was the chosen venue for 84 weddings over the course of the year and advance bookings for the current year are even stronger. The extension at Brighton, comprising 12 extra rooms, completed during the year and also did well.

 

Conversely our new HdVs at Poole, Edinburgh and Newcastle endured fairly tough trading conditions and they are taking longer to establish themselves in their respective markets than originally envisaged. However, I can report that they are all now trading more strongly and are getting nearer to the revenue levels we originally anticipated.

 

Our approach to the more challenging market place has been to communicate a clear "value for money" message to existing and potential new customers. To help deliver this message, particularly during the first six months of 2009, we offered a group wide promotion of two courses and a bottle of wine for £29. In only the second month of the promotion we estimated this drove an extra 22,000 covers in all our restaurants. Interestingly, take-up of this promotion has slowed as customers traded up to the full à la carte menu.

 

The group continues to collect industry awards including the Business Traveller award for "Best Smaller Hotel Chain" in 2009 while the Aberdeen Malmaison won the "Best Architecture - Conversion of an Existing Building" award at the European Hotel Design Awards 2009.

 

We have decided to sell two of our properties: the Edinburgh Malmaison and the St Andrews hotel which was to be converted into an HdV. The Edinburgh property is our oldest Malmaison and we believe it is better to realise value from this investment and relocate our Edinburgh presence into a city centre property. At St Andrews, whilst the unbranded hotel operates successfully, we believe the cost of converting the hotel into an HdV outweighs the medium term resultant investment value of the property. We will update shareholders as these sales progress.

 

In the current climate our focus has been on controlling costs without impacting on our award winning service. In a business like ours, the big areas of expenditure are food and labour costs which we have kept under very strict control including finding new lower cost suppliers or re-negotiating existing contracts without sacrificing quality.

 

Capital expenditure has been deliberately reduced over the course of 2009. However, we have invested in new management software that enables us to monitor the room pricing of comparable hotel groups in a transparent way and allows us to adjust our room rates accordingly.

 

2010 has started with mixed fortunes. The widespread snow and ice at the start of January had an impact across the group although I am pleased to report that there has been a strong recovery and I am confident we will meet our first quarter's budget. February is already looking very positive with Malmaison recovering very quickly from the early setbacks.

 

This year's restaurant promotions, "The Three Tenners" at Malmaison and "Du Vin or not Du Vin" at HdV, are already proving to be highly successful with revenue ahead of last January, despite the adverse weather.

 

We anticipate the first part of the year, in the run-up to the General Election, to deliver results comparable to last year but post-election the future is less certain. We believe our corporate market is set to grow again although the leisure market could come under pressure in the third quarter as the impact of proposed Government changes in fiscal policy begin to bite.

 

This degree of uncertainty leads us to be cautious about the future. However, the lessons from 2009, together with our strong cash flow management and strategies we have put in place over the past year, have put us in an excellent position to take full advantage of market improvements as they occur.

 

 

Robert B. Cook

Chief Executive

Malmaison and Hotel du Vin Group

30 March 2010

 

 

 

MALMAISON AND HOTEL DU VIN - KEY FINANCIAL HIGHLIGHTS

 

The key performance indicators for the business, together with its trading and balance sheet performance for the years ended 31 December 2009 and 2008, are summarised below:-

 

		Year ended 31 December 2009	Year ended 31 December 2008
Malmaison
Total revenue	£'000	60,271	62,322
Average occupancy for year	%	78	79
Average room rate for year	£	99	112
Operating EBITDA*	£'000	15,366	16,526
Number of operating hotels at year end		12	12
Hotel du Vin
Total revenue	£'000	50,763	45,314
Average occupancy for year	%	81	81
Average room rate for year	£	111	120
Operating EBITDA*	£'000	11,221	9,927
Number of operating hotels at year end		14	14
Combined Malmaison and Hotel du Vin
Total revenue	£'000	111,034	107,636
Operating EBITDA*	£'000	26,587	26,453

 

*Operating EBITDA excludes pre-opening costs and profit on disposal of fixed assets.

 

		31 December 2009	31 December 2008
Balance sheet composition
Property, plant and equipment	£'000	483,085	493,311
Debt	£'000	(278,357)	(282,322)
Equity attributable to shareholders of
MWB Group in Malmaison and Hotel du Vin	£'000	140,331	147,703
Equity attributable to shareholders of
MWB Group in Malmaison and Hotel du Vin,
in pence per MWB Group share	Pence	194p	204p

 

 

 

MWB BUSINESS EXCHANGE PLC OPERATING REVIEW

 

 

Business Exchange experienced a successful 2009 by adhering to its well proven strategy of focusing on the London market. Expansion in this market has been our stated goal for some time as we have always believed that concentrating our centres in such a dynamic business environment will generate the most profitable returns.

 

The highlight of the year was our acquisition of 16 carefully selected centres from MLS, a rival of Business Exchange, which was going into administration. These centres are predominantly located in London. Since the year end we have secured two new Central London centres in Knightsbridge and Paddington. Both centres will open in the first half of 2010 and are in prime locations where there is very little competition.

 

As a result, Business Exchange has an increasingly dominant footprint in the capital with 47 centres. Today Business Exchange is London's largest provider of serviced offices with almost 14,000 workstations covering nearly 1.2m sq ft. These centres now account for 64% of our total portfolio of 73 centres across 1.8m sq ft, providing approximately 20,000 workstations.

 

As is well documented, the market demand for offices in the UK has been extremely weak and, as a consequence, total revenue for the year to 31 December 2009 dropped 5% to £112.4m compared to £118.5m in 2008. This reflected a 9% fall in occupancy to 82% and an 18% decline in rate in our mature centres, offset by the acquisition of the MLS centres. The resulting EBITDA was £9.8m against £18.1m while pre-tax profits declined to £4.2m from £14.0m the previous year. In June 2009 we paid a special interim dividend totalling £9.8m. Even after this, our operations continue to be underpinned by £18.1m of net assets, with no debt.

 

As a result REVPOW (annualised revenue per occupied workstations) in our mature centres eased some 14% from £9,650 to £8,265 and REVPAW (annualised revenue per available workstation) was down 20% to £6,955 from £8,700. There was also an 18% decline in revenue from our meeting and conference room division which dropped to £9.2m from £11.3m.

 

Business Exchange, London's largest provider of serviced offices, offers a powerful mix of product, price and location underpinned by robust internal cost controls that ensure the company has reasonable resilience against the current market conditions. It should be noted that the contracted nature of Business Exchange's revenue creates a lag of up to 18 months between what occurs in the market and the financial performance reflected in our results. In other words our numbers reflect price reductions that occurred in 2008 and 2009.

 

In 2009 we continued to see a demand shift in the market towards small and medium sized enterprises (SMEs) as corporates and larger clients reined back their expenditure in both serviced offices and meeting rooms. We, therefore, saw larger higher paying clients move out which were replaced by smaller clients and start-up businesses in a more competitive environment.

 

Encouragingly, our renewal rates were maintained at 70% and as the year progressed our existing clients accepted rate increases for their workstations on renewal. Equally, new workstation prices stabilised. This was in stark contrast to the end of 2008 and the first half of 2009 when incoming licencees were paying considerably less than those they replaced. The benefit to Business Exchange, therefore, of licence fees hardening will not be seen until the second half of 2011 and thereafter.

 

Our focus on the SME and business start-up market enables us to spread our risk. Although there is an initial short term revenue fall when a large client moves out there is greater long term benefit from the Group's improved resilience due to a wider and more diverse client base. At the same time, our provision of high level service and employee engagement, together with the quality of our centres, continue to attract, and, increasingly retain clients. Typically the average number of workstations licensed to a client at 31 December 2009 was six and the average length of stay 25 months (compared to eight and 23 months respectively a year ago).

 

We continue to ensure the business reflects a broad and dynamic customer base and is not dependent on any one specific sector. Just as importantly, we are constantly reviewing and improving our infrastructure. To that end, the roll out of our new IT and Telephony platform will create new revenue-generating opportunities through a broader product and service offering, as well as meeting the ever evolving demands of our wide client base.

 

The current year is one of consolidation with the focus on improving the performance of the new and existing centres by driving occupancy and revenue. Already we are seeing the market for serviced offices and meeting rooms improve and demand strengthen. Early indications are that occupancy is increasing and rates are stabilising, particularly in London. Our strategy of maintaining the leading position in Central London will enable us to take full advantage of the improving market conditions forecast by the capital's leading property consultants. London's position as a major global financial centre will be reinforced as confidence returns to the financial markets and we move towards the 2012 Olympics.

 

 

John Spencer

Chief Executive

MWB Business Exchange Plc

30 March 2010

 

 

 

MWB BUSINESS EXCHANGE PLC - KEY FINANCIAL HIGHLIGHTS

 

 

The key performance indicators for this business and the trading performance and balance sheets for the years ended 31 December 2009 and 2008, are summarised below:-

 

		Year ended 31 December 2009	Year ended 31 December 2008
Operating statistics
Revenue	£'000	112,416	118,544
Occupancy at year end*	%	82	90
Annualised revenue per available workstation
("REVPAW") at year end*	£	6,180	8,700
Annualised revenue per occupied workstation
("REVPOW") at year end*	£	7,545	9,650
EBITDA	£'000	9,806	18,088
Leased centres at year end	Number	50	38
Number of Operating and Management Agreement	Number	8	4
centres at year end
Management contract centres at year end	Number	15	13
*Leased centres only
Financial performance
Profit before tax	£'000	4,209	14,003
		31 December 2009	31 December 2008
Balance sheet composition
Property, plant and equipment	£'000	44,464	41,535
Net cash	£'000	6,241	16,404
Equity attributable to shareholders of
MWB Group in MWB Business Exchange Plc	£'000	11,234	24,339
Equity attributable to shareholders of
MWB Group in MWB Business Exchange Plc,
in pence per MWB Group share	Pence	15p	34p

 

 

 

LIBERTY PLC OPERATING 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 1990's.

 

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 ones 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 and 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 almost £61m against £51m 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 season 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 VIPs 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. 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 Sterling 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

Liberty Plc

30 March 2010

 

 

 

LIBERTY PLC - KEY FINANCIAL HIGHLIGHTS

 

 

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 summarised below:-

 

		Year ended 31 December 2009	Year ended 31 December 2008
Financial performance
Total revenue	£'000	60,774	50,850
Operating EBITDA before brand expenditure and
reorganization costs	£'000	3,004	1,815
Operating profit/(loss) before brand expenditure
and reorganisation costs	£'000	1,025	(435)
Brand expenditure	£'000	(2,761)	(4,344)
Reorganisation costs	£'000	(135)	(1,346)
Loss before taxation	£'000	(3,392)	(6,651)
		31 December 2009	31 December 2008
Balance sheet composition
Intangible asset - brand	£'000	18,200	18,200
Property, plant and equipment	£'000	31,858	31,006
Net debt	£'000	(10,601)	(12,390)
Equity attributable to shareholders of
MWB Group in Liberty Plc	£'000	28,795	27,004
Equity attributable to shareholders of
MWB Group in Liberty Plc, in pence per
MWB Group share	Pence	40p	37p

 

 

 

FINANCIAL REVIEW

for the year ended 31 December 2009

 

 

INTRODUCTION

 

The Chairman's Statement and Operating Reviews provide information on the Group's principal operations and the Board's expectations for the future. This Financial Review covers in greater depth the more significant features of the financial statements for the year ended 31 December 2009, which include an independent valuation of the Group's properties at that date.

 

 

OBJECTIVES

 

The strategy of the Company, led by the activities of the Board, is to realise the Group's assets in cash or cash equivalents, repay the related debt and return surplus proceeds to Shareholders. This emanates from the Cash Distribution Programme proposals approved by Shareholders as set out in the May 2002 Circular. Since this date approximately £80.4m in cash has been returned to Shareholders in the form of buy back of shares.

 

This Cash Distribution Programme was originally targeted to be completed by the end of December 2005 but has been extended at various times due to prevailing market conditions. In the current adverse economic environment, the Board considers that it is not viable to retain a short term target date by which such realisations will be completed. Accordingly, and as outlined in the Prospectus issued to Shareholders in December 2009, the Cash Distribution Programme has now been extended to 31 December 2016.

 

The policy to realise the Company's assets in cash or cash equivalents by the disposal of the businesses provides a clear focus. Within the Group, each of MWB's three businesses has its own business plan which is operated and managed by the Directors of each separate business.

 

As a result, each of the operating divisions can go forward and maximise its performance whilst MWB is well placed to realise cash and cash equivalents which can be distributed to Shareholders following a sufficient improvement in market values.

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF MWB GROUP HOLDINGS PLC

 

During the year ended 31 December 2009, there was a net decrease in equity attributable to shareholders of MWB Group Holdings Plc of £21.4m, from £125.9m to £104.5m, or 30p per share from 174p to 144p per share.

 

The movement in equity attributable to shareholders of MWB during the year is summarised in the following table:-

 

	Year ended
	31 December 2009
		Pence
	£'000	per share
Equity attributable to shareholders of MWB Group Holdings Plc
at 1 January 2009	125,881	174p
Movements during the year:
Revaluation of property, plant and equipment, net of tax	(1,901)	(3p)
Retained loss	(15,948)	(22p)
MWB Business Exchange Plc purchase of ordinary shares	(1,701)	(2p)
Effective portion of changes in fair value of derivative financial hedges	(2,713)	(4p)
Defined benefit pension scheme actuarial losses, net of tax	(680)	(1p)
Other movements	1,598	2p
Equity attributable to shareholders of MWB Group Holdings Plc
at 31 December 2009	104,536	144p

 

 

 

NET ASSET VALUE

 

The net assets of the Group are financed by equity attributable to shareholders of MWB Group Holdings Plc and minority interests. The sources of finance of the Group at 31 December 2009 in the consolidated balance sheet and at the previous year end were as follows:-

 

	31 December 2009 £'000	31 December 2008 £'000
Total equity attributable to shareholders of
MWB Group Holdings Plc	104,536	125,881
Minority interests	71,713	77,918
Net assets at year end	176,249	203,799

 

The analysis of net assets in the Consolidated Statement of Financial Position across the Group's operations at 31 December 2009, and at the previous year end, is as follows:-

 

At 31 December 2009	Net assets before  debt and cash £'000	(Debt)/ cash £'000	Net assets £'000	Less minority interests £'000	Total equity attributable to shareholders of MWB Group Holdings Plc £'000
Malmaison and Hotel du Vin	473,153	(278,357)	194,796	(54,465)	140,331
MWB Business Exchange Plc	11,835	6,241	18,076	(6,842)	11,234
Liberty Plc	48,167	(10,601)	37,566	(8,771)	28,795
Group debt, less cash and other assets	5,858	(80,047)	(74,189)	(1,635)	(75,824)
	539,013	(362,764)	176,249	(71,713)	104,536
Equity attributable to shareholders
of MWB Group Holdings Plc in
pence per share					144p

 

 

At 31 December 2008	Net assets before  debt and cash £'000	(Debt)/ cash £'000	Net assets £'000	Less minority interests £'000	Total equity attributable to shareholders of MWB Group Holdings Plc £'000
Malmaison and Hotel du Vin	484,555	(282,322)	202,233	(54,530)	147,703
MWB Business Exchange Plc	19,249	16,404	35,653	(11,314)	24,339
Liberty Plc	49,763	(12,390)	37,373	(10,369)	27,004
Group debt, less cash and
other assets	7,982	(79,442)	(71,460)	(1,705)	(73,165)
	561,549	(357,750)	203,799	(77,918)	125,881
Equity attributable to shareholders
of MWB Group Holdings Plc in
pence per share					174p

 

 

 

REVIEW OF PROPERTY, PLANT AND EQUIPMENT

 

Valuation surplus on property portfolio at 31 December 2009

 

A valuation of the Group's freehold and long leasehold property interests was undertaken at 30 June 2009 and at 31 December 2009. The valuation was performed by DTZ and was performed on the basis of Existing Use Value. The net deficit over previous book values before minority interests for the year ended 31 December 2009 totalled £2.1m, which has been included in these financial statements.

 

In accordance with normal valuation practice, the valuations of the Group's hotel interests include value ascribed for plant, machinery and fixtures and fittings forming part of the service installations of the building. They therefore represent a valuation of the total interest of the Group in those properties. The valuations exclude the value of any goodwill that may arise from the present occupation of the properties and this is not recorded separately in the financial statements of the Group.

 

In accordance with normal valuation practice, the valuation of the Group's retail interests includes value ascribed to plant, machinery and fittings forming part of the services and installation of the building, but excludes moveable shop fittings. All property interests owned by MWB Business Exchange Plc are short leasehold interests; these interests are not revalued under Adopted IFRSs at each period end and are recorded at the lower of cost and net realisable value.

 

Surpluses or deficits arising on valuation of the Group's operational properties are transferred to revaluation reserve, while impairment of operational properties to below their historical cost is charged directly to the Income Statement.

 

Operational properties in the course of construction are recorded at the lower of cost and net realisable value and are therefore not revalued upwards in the Group financial statements.

 

The valuation deficit debited to the revaluation reserve during the six months ended 30 June 2009 totalled £8.4m and arose as follows:-

 

Six months to 30 June 2009	Gross valuation	Less previous book value	Gross deficit	Less minority interests	Debited to revaluation reserve
	£'000	£'000	£'000	£'000	£'000
Malmaison	275,573	275,706	(133)	23	(110)
Hotel du Vin	205,649	215,061	(9,412)	1,647	(7,765)
Liberty Plc	28,800	29,547	(747)	237	(510)
	510,022	520,314	(10,292)	1,907	(8,385)

 

The uncertainties in the financial markets caused property prices in the market to decline in the first six months of the year under review. This was reflected in the £10.3m decline in the Group property portfolio value recorded in June 2009. However, this decline has decelerated in the second half of the year as £8.2m of the first half year decline was reversed reducing the overall fall in value to £2.1m for the year. The Group share of the valuation surplus credited to the revaluation reserve during this second six months of the year to 31 December 2009 amounted to £6.5m and arose as follows:-

 

Six months to 31 December 2009	Gross valuation	Less previous book value	Gross surplus	Less minority interests	Credited to revaluation reserve
	£'000	£'000	£'000	£'000	£'000
Malmaison	273,790	272,553	1,237	(216)	1,021
Hotel du Vin	209,460	204,242	5,218	(914)	4,304
Liberty Plc	30,250	28,554	1,696	(537)	1,159
	513,500	505,349	8,151	(1,667)	6,484

 

The valuation deficit debited to the revaluation reserve for the year ended 31 December 2009 (being the deficit of £8.4m in the first half and surplus of £6.5m in the second half summarised in the tables above) amounted to £1.9m and arose as follows:-

 

Year to 31 December 2009	Gross valuation	Less previous book value	Gross surplus/ (deficit)	Less minority interests	Credited/ (Debited) to revaluation reserve
	£'000	£'000	£'000	£'000	£'000
Malmaison	273,790	272,686	1,104	(193)	911
Hotel du Vin	209,460	213,654	(4,194)	733	(3,461)
Liberty Plc	30,250	29,301	949	(300)	649
	513,500	515,641	(2,141)	240	(1,901)

 

 

Portfolio analysis by division

 

At 31 December 2009, the Group's interests are disclosed in the Consolidated Statement of Financial Position as follows:-

 

	31 December 2009	31 December 2008
	£'000	£'000
Non current assets
Operational properties	499,414	502,644
Operational properties in the course of construction	1,929	1,691
Plant and equipment	58,123	61,597
Total property interests at year end	559,466	565,932

 

The above interests are analysed as follows:-

 

		Percentage at		Percentage at
	31 December	31 December	31 December	31 December
	2009	2009	2008	2008
	£'000	%	£'000	%
Hotels
Malmaison	271,457	48	275,450	49
Hotel du Vin	211,628	38	217,861	38
	483,085	86	493,311	87
MWB Business Exchange Plc	44,464	8	41,535	7
Liberty Plc	31,858	6	31,006	6
Other	59	-	80	-
Total property interests at
year end	559,466	100	565,932	100

 

INTANGIBLE ASSETS

 

Intangible assets comprise the goodwill on the acquisition of Liberty in 2000, Stanhope Business Centres in 2007 and the MLS business centres in 2009.

 

During the year ended 30 June 2000, £18.2m of goodwill arose on the acquisition of the Liberty group and brand. An impairment review of the carrying value of this brand was undertaken by the Directors on 31 December 2009 by comparing the carrying amount with the value in use. At 31 December 2009, the value in use was determined by the Company by discounting future cash flows generated from continuing use of the cash generating unit. This is based on projected cash flows in Liberty's 5 year business plan and further projections for years 6 to 10 to produce a 10 year cash flow model. Based on this review, the Directors concluded that there had been no impairment of the Liberty brand value during the year ended 31 December 2009.

 

An impairment review of the Stanhope Business Centres goodwill was undertaken by the Directors on 31 December 2009 comparing the carrying value of goodwill with the anticipated recoverable amount of the two business centres owned by Stanhope Business Centres. The recoverable amount of the cash-generating unit is based on value in use, which is calculated from cash flow projections for the lifetimes of the underlying leases, using data from Board approved budgets covering the period to 31 December 2011. Based on this review, the Directors concluded that there had been no impairment to the Stanhope Business Centres goodwill during the year ended 31 December 2009.

 

Further goodwill of £2.8m arose during 2009 when the Group acquired 16 former MLS Group PLC ("MLS") business centres. These centres are complementary to MWB Business Exchange's portfolio and in line with its stated strategy of focusing on London and the surrounding area. The centres are held in a newly incorporated sub-group headed by MWB Executive Centres (Holdings) Ltd, of which the Group owns 65%. The goodwill recognised arises from the synergies forecast to be gained from the assimilation of the new centres into the Group's network and the strengthening of its brands to become the dominant provider of serviced office accommodation in the London region. An impairment review of the goodwill arising on the acquisition of the MLS centres was undertaken by the Directors at 31 December 2009 comparing the carrying value of goodwill with the recoverable amount of the cash-generating units to which goodwill was allocated. As a result of this review, the Directors have determined that there has been no impairment to goodwill during the year ended 31 December 2009.

 

 

 

REVIEW OF LOAN FACILITIES

 

Net debt

 

The Group's loans, borrowings and cash are included in the Consolidated Statement of Financial Position at 31 December 2009 as follows:-

 

Composition at year end	31 December 2009	31 December 2008
	£'000	£'000
Loans and borrowings	376,004	387,193
Long leasehold obligations	697	699
Hire purchase and leasing contracts	192	-
Fair value of derivative financial instruments	5,526	1,894
Total loans and borrowings	382,419	389,786
Less net cash and cash equivalents	(19,655)	(32,036)
Total net debt at year end	362,764	357,750
Analysis of debt/(cash) by operating business
Malmaison and Hotel du Vin	278,357	282,322
MWB Business Exchange Plc	(6,241)	(16,404)
Liberty Plc	10,601	12,390
Central debt	80,047	79,442
	362,764	357,750

 

Net cash

 

The Group's cash and overdrafts are held in the following operating divisions in the Group:-

 

	31 December 2009 £'000	31 December 2008 £'000
Malmaison and Hotel du Vin	9,011	4,860
MWB Business Exchange Plc	6,433	23,333
Liberty Plc	1,943	1,903
Central	2,268	1,940
	19,655	32,036

 

Cash balances are held within the above divisions for utilisation within their businesses. Generally only cash within the Central division and the financing facilities available to the Company are available for use in the Company's own activities.

 

Movement in net debt during the year

 

The movement in total net debt during the year ended 31 December 2009 arose as follows:-

 

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£'000
Total net debt at start of the year	357,750	308,012
Debt (amortised)/drawn Malmaison and Hotel du Vin	(1,431)	38,150
Buy back of ordinary shares	1,701	10,078
Dividends paid to subsidiary minority interests	2,808	-
Net cash outflow from other Group operations during the year	1,936	1,510
Total net debt at year end	362,764	357,750
Average cost of borrowings at year end, inclusive of margin	5.6%	7.4%

 

Net debt relating to Equity attributable to shareholders of MWB

 

The net debt relating to equity attributable to shareholders of MWB Group Holdings Plc at 31 December 2009 amounted to £312m (2008: £310m), calculated as follows:-

 

	31 December 2009 £'000	31 December 2008 £'000
Total net debt as above	362,764	357,750
Less net debt attributable to minority interests	(50,292)	(48,118)
Total net debt attributable to equity attributable to
shareholders of MWB Group Holdings Plc	312,472	309,632

 

Review of available bank facilities

 

On 27 April 2009, the Group extended £348m of its banking facilities provided by Bank of Scotland and Royal Bank of Scotland. The terms of these facilities, comprising three separate loans to Malmaison and Hotel du Vin, MWB Business Exchange and MWB itself, previously ran to the end of 2009, but have now been extended to 31 December 2011. In December 2009 the Liberty facility was also extended to 31 December 2011. This significant extension has however not been achieved without cost but the Directors strongly believe it is in the Group's long term interests to extend these facilities given the current level of illiquidity in the financial markets.

 

The Board's approach to managing liquidity is to ensure, as far as possible, that the Group will always have sufficient funds to meet its liabilities as they fall due, without incurring unacceptable losses or risking damage to the Group's reputation in its business sectors. 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 typically ensures it has sufficient forecast cash and available facilities to meet expected cash outflows for a forward period of 18 months. The Group meets its day to day working capital requirements through cash generated in its operating businesses, Liberty, Malmaison and Hotel du Vin and Business Exchange, and from its loan and overdraft facilities. The Group's facilities include interest cover and gearing covenants with which the Group is in compliance at 31 December 2009.

 

On 17 December 2009 the Group announced a Placing of 91,666,667 New Units at 30 pence per New Unit. This Placing was successfully completed on 12 January 2010 following a General Meeting of the Company. The Placing raised £27.5m in gross proceeds, of which £7.5m was applied to purchase for cancellation £7.5m of the Loan Stock and £2.9m was paid in fees. The net proceeds received by the Company after the Placing amounted to £24.6m.

 

Review of available bank facilities

 

In addition to the cash raised, amendments to the Loan Stock gearing covenant were also implemented at a meeting of Loan Stockholders on 11 January 2010. Previously the Group's borrowings could not exceed four times Shareholders' funds excluding intangible assets and goodwill. The Loan Stock gearing covenant has now been amended in line with the Company's Articles of Association, such that the Group's borrowings must not exceed five times Shareholders' funds with the inclusion of intangible assets and goodwill.

 

Loan covenants

 

The Malmaison and Hotel du Vin division has four covenant tests in its banking facility, being EBITDA to Interest Cover, Cashflow Cover, Loan to Value Cover and Debt to EBITDA Cover. All loan covenants were met for the year ended 31 December 2009. The Malmaison and Hotel du Vin Loan to Value Covenant requires the loan to be no more than 72.5% of the value of the secured property. At 31 December 2009, the Loan to Value percentage amounted to 58.8% of the secured property value of £483m. Accordingly, the portfolio value would have to decrease by approximately £92m or more before this covenant would not be satisfied. Given the continued strong performance of Malmaison and Hotel du Vin, and the revenue and cost saving initiatives the Directors have at their disposal, the Directors, after taking advice from the Company's property valuers DTZ, consider it unlikely that this portfolio would suffer such a high level of decline in property value over the period covered by their cash flow projections.

 

Business Exchange has three covenant tests in relation to its bank facility, namely Debt Service Cover, Senior Interest Cover and EBITDA to Debt Cover. Debt Service Cover requires the ratio of Net Cash to Senior Interest to be not less than 1:1; Senior Interest Cover requires the ratio of EBIT to Senior Interest to be not less than 4:1; and EBITDA to Debt Cover requires the ratio of EBITDA to Debt to be not less than 1:1. These covenants were all met for the year ended 31 December 2009. At 31 December 2009, the Business Exchange loan was not drawn down. The Directors monitor adherence to these covenants carefully and take steps to ensure adherence at all times. In addition to this, Management has put in place revenue preservation and cost savings plans which are anticipated to further benefit EBITDA and cash flow for 2010 and future years. On 17 December 2009 the facility was further amended to, amongst other things, permit Business Exchange to cash cure any potential breaches of financial covenants that might occur with 14 days of the relevant test date provided that the maximum amount of cash cure in any six consecutive test periods is £2.0m.

 

Liberty 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. Senior Interest Cover requires the ratio of EBIT to Senior Interest to be not less than 1.5:1. These covenants were met for the year ended 31 December 2009. 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 provided that the maximum amount of cash cure in any two consecutive periods is £2.0m.

 

MWB Group Holdings Plc itself has two covenants in relation to its bank facility. These covenants require consolidated EBITDA to be 125% or more of consolidated interest expense, and for the MWB Group Holdings Plc debt, excluding the Company's Unsecured Loan Stock, to be capped at 150% of consolidated EBITDA. MWB Group Holdings is forecast to meet its covenants with headroom during the eighteen months covered by the Group cash flow forecasts. The covenant in relation to MWB Group Holdings' Unsecured Loan Stock includes a gearing covenant restricting net debt attributable to shareholders to a maximum of four times adjusted shareholders' funds. This covenant was met at 31 December 2009 with headroom of £15m in adjusted shareholders' funds. On 11 January 2010 Loan Stockholders approved resolutions amending the gearing covenant such that net debt attributable to Shareholders must not exceed five times rather than four Shareholders' funds and that the definition of Shareholders' funds now includes intangibles and goodwill whereas these were previously excluded. If this covenant had been tested on the new basis at 31 December 2009 the headroom in adjusted shareholders' funds would be £44m.

 

Further information relating to the basis of preparation of the financial statements and the Group's forecast loan covenant compliance is set out in note 1 to the financial statements.

 

Gearing

 

At 31 December 2009, gearing was 206%, calculated as follows:-

 

	31 December 2009	31 December 2008
	£'000	£'000
Total net debt	362,764	357,750
Net assets	176,249	203,799
Gearing - total net debt divided by net assets	206%	176%

 

 

 

REVIEW OF EARNINGS

 

Results

 

The total comprehensive income and expense for the year ended 31 December 2009, analysed between the share attributable to shareholders of MWB Group Holdings Plc and the share attributable to minority interests, is as follows:-

 

			Equity
			Shareholders of
	Total for	Minority	MWB Group
	the year	interests	Holdings Plc
Year ended 31 December 2009	£'000	£'000	£'000
Income statement
Loss for the year	(16,077)	(129)	(15,948)
Charged to equity through reserves
Foreign exchange translation differences for foreign
operations	(222)	(70)	(152)
Revaluation of property, plant and equipment	(2,141)	(240)	(1,901)
Effective portion of changes in fair value of
cash flow hedges	(3,290)	(577)	(2,713)
Defined benefit pension scheme actuarial losses	(995)	(315)	(680)
Total comprehensive income and expense
for the year	(22,725)	(1,331)	(21,394)

 

			Equity
			Shareholders of
	Total for	Minority	MWB Group
	the year	interests	Holdings Plc
Year ended 31 December 2008	£'000	£'000	£'000
Income statement
Profit/(loss) for the year	289	3,007	(2,718)
Credited/(charged) to equity through reserves
Foreign exchange translation differences for foreign
operations	1,076	351	725
Revaluation of property, plant and equipment	(79,231)	(14,364)	(64,867)
Effective portion of changes in fair value of
cash flow hedges	(2,243)	(393)	(1,850)
Defined benefit pension scheme actuarial losses	(2,019)	(640)	(1,379)
Total comprehensive income and expense
for the year	(82,128)	(12,039)	(70,089)

 

A segmental analysis of the Revenue, EBITDA, EBIT and Profit Before Tax for the current and previous year under review can be found in note 2 of these financial statements.

 

Taxation

 

The net amount of tax borne by equity shareholders of MWB Group for the year ended 31 December 2009 amounted to £0.4m (2008: £10.3m credited to equity shareholders) and arose as follows:-

 

	Year ended	Year ended
	31 December	31 December
	2009	2008
	£'000	£'000
Corporation tax (charge)/credit	(7)	16,402
Foreign tax	(690)	(395)
Deferred tax credit/(charge)	42	(5,792)
Net tax (charge)/credit per Consolidated Income Statement	(655)	10,215
28% minority interest in tax credit/(charge) of
MWB Business Exchange Plc	3	(25)
32% minority interest in tax charge of Liberty Plc	221	126
Net tax amount (borne by)/credited to equity shareholders of
MWB Group Holdings Plc	(431)	10,316

 

Loss per share

 

The loss per share figures have been calculated as follows:-

 

		Year ended 31 December 2009	Year ended 31 December 2008
Loss per Consolidated Income Statement attributable
to shareholders of MWB Group Holdings Plc	£'000	(15,948)	(2,718)
Weighted average number of shares in issue during
Year	'000	72,371	76,291
Loss per share based on Consolidated Income
Statement	Pence	(22.0p)	(3.6p)

 

Dividend

 

The Board is continuing to implement the Cash Distribution Programme and to direct disposal proceeds to the repayment of net debt and the return of funds to Shareholders. Accordingly, no dividends have been declared in relation to the year ended 31 December 2009.

 

Whilst the payment of dividends remains an option, once surplus funds have been realised, the Directors envisage distributing further funds to shareholders by means of buy-backs of ordinary shares, tender offers to shareholders, cash distributions, demergers, distributions of assets and similar value distribution programmes during the remainder of the Cash Distribution Programme to December 2016.

 

Cash flow

 

The consolidated cash flow statement shows the funds generated by the Group, those raised from external sources, the investments made and the effect thereof on the Group's cash and cash equivalents.

 

This can be summarised as follows:-

 

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£'000
Net cash inflow from operating activities	19,076	14,294
Net cash outflow from investing activities	(15,161)	(51,637)
Net cash (used in)/received from financing activities	(16,296)	46,494
Net (decrease)/increase in cash and cash equivalents	(12,381)	9,151
Opening cash and cash equivalents	32,036	22,885
Closing cash and cash equivalents	19,655	32,036

 

Post balance sheet events

 

On 11 January 2010, the Company raised £27.5m through the issue of 91,666,667 New Units at 30 pence each. As a result, Units in issue after the Placing at the date of these financial statements amounted to 164,038,149. These monies had been raised in order to provide the Company with a stronger financial base increasing headroom and flexibility in relation to banking covenants and ongoing funding requirements.

 

The monies raised were applied as follows: the cancellation of £7.5m of Unsecured Loan Stock, transaction fees of £2.9m, termination payments amounting to £1.65m to Andrew Blurton, the former Joint Finance Director, the repayment of a £4.0m intra-group loan from MWB Business Exchange, with the remaining balance of £11.4m being available for working capital and bank loan repayment.

 

Despite the current market uncertainties, on 12 March the Company announced that it had received approaches that could lead to an offer being made for Liberty, the Group's retail operator. At the date of these financial statements discussions in relation to these approaches are continuing and the Company will report to Shareholders when there is further news. In addition, on 15 March 2010, the Company announced that contracts had been exchanged for the sale and leaseback of the freehold of the Liberty flagship store for £41.5m, subject to Shareholder approval in General Meeting. The proceeds from this sale will be used to repay all bank borrowings in Liberty and inter-group debt previously provided by MWB, with the remainder available as working capital.

 

Conclusion

 

MWB has three good operating businesses. They are all well managed, have a strong financial base and provide excellent products and services. Each business has demonstrated its ability to deliver creditable results, even in these tough market conditions.

 

 

 

 

Jagtar Singh

Finance Director

 

30 March 2010

 

 

 

BUSINESS RISKS AND UNCERTAINTIES

 

 

Risk factors relating to the Group as a whole

 

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 of the report describes some of the specific risks that could materially affect the Group's business, its operating profits, earnings, net assets, liquidity and capital resources. 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.

 

Continuing adverse economic conditions may have a material adverse effect on the Group's results

 

The Group's operating and financial performance is affected by the economic conditions both in the United Kingdom (from where 92.9% of the Group's revenue was derived in the year ended 31 December 2009) where the effects of a severe economic recession are currently being experienced, and worldwide. The current challenging economic conditions in the United Kingdom and worldwide, including factors relating to the prevailing levels of employment, real disposable income, salaries, wage rates, market rent levels, availability of funding, business and consumer confidence, consumer demand, tourism and business and consumer perception of economic conditions, could result in further reductions in asset values (including the Group's properties) and the Group's business volumes and have a material adverse effect on the Group's business, financial condition and operating results. A further worsening of economic conditions in the UK is likely to have a further material adverse effect on the Group.

 

The Group's longer term ability to refinance its debt facilities upon maturity may be restricted

 

The Malmaison and Hotel du Vin, Business Exchange, Liberty and MWB bank finance facilities mature in December 2011 (£284m, £8m, £15m and £53m respectively). The longer term ability of the Group to repay and/or refinance its existing debt facilities is dependent on its future performance, which will be affected by a number of factors, including general, economic, political, debt and equity capital market conditions, credit availability and the willingness of lending banks to lend to the hotel, serviced office and retail sectors. If the Group were to be unable in the longer term to service its borrowings and/or repay its borrowings when due, it might not be able to refinance its debt or ensure its debt continues to be available to it, or the Group might only be able to secure its funding at a significantly increased cost. There is also a risk that funding will not be made available to the Group in the longer term or that the cost of accessing and servicing the funding may be prohibitive. The Group could therefore be forced to sell its assets in order to comply with its obligations under its existing debt facilities, and sales in such circumstances may not deliver the level of proceeds that may otherwise be expected. This may have a material adverse effect on the Group's business, results of operations and overall financial condition.

 

MWB's financial indebtedness and the covenants contained in the Group's debt facilities could restrict the Group's flexibility and limit its ability to withstand adverse trading conditions

 

The existing level of MWB's financial indebtedness and gearing, combined with the financial covenants that are contained in its principal debt facility agreements, could restrict the operational flexibility and management decisions of the Group, place the Group at a disadvantage in relation to competitors that have less debt and increase the Group's vulnerability to, and limit its ability to withstand, any continuation of adverse economic and sector conditions. The above factors could have a material adverse effect on the Group business, results of operations and overall financial condition.

 

The Group may be affected adversely in the longer term by further declines in property values

 

The Group owns freehold and long leasehold interests in properties located in the UK. These properties are used by the Group from which to operate the Malmaison and Hotel Du Vin and Liberty businesses and are the principal assets in the Consolidated Statement of Financial Position of the Group. At 31 December 2009 these had a book value, reflecting a professional external open market value at that date, of £559.5m. This reflects a cumulative unrealised valuation surplus of £150.1m.

 

The disruption in the financial markets over the last two years and the severe economic recession as described in the paragraph headed "Continuing adverse economic conditions may have a material adverse effect on the Group's results" have adversely affected and may continue to adversely affect the Group's property values. In the year ended 31 December 2009 the Group's property values reduced by £2.1m, of which £1.9m was attributable to Shareholders. Reduction in value of the Group's properties through revaluations, impacts both Shareholders' funds and also gearing and loan to value covenants in Malmaison and Hotel du Vin's and Liberty's respective banking facilities and in the Loan Stock Trust Deed.

 

Further reductions in property values could in the longer term have a material adverse effect on the Group's businesses, financial condition or operating results.

 

Effects of downturn in travel may adversely affect the Group

 

The Group is dependent for part of its revenue on tourists and business travellers. The Group's results could be adversely affected by events that reduce travel including adverse economic conditions, such as those currently being experienced, a decrease in travel to London where Liberty operates or travel to areas where Malmaison and Hotel du Vin operates hotels. Additional causes of reduced travel may include actual or threatened acts of terrorism or war, epidemics, travel-related accidents or industrial action, increased transportation and fuel costs and natural disasters. Any of these factors could have a material adverse effect on the Group's businesses, financial condition or results of operations.

 

The Group may be adversely affected by an increase in operating costs

 

The Group's operating and other expenses could increase without a corresponding increase in turnover. Factors which could increase operating and other expenses include increases in the rate of cost inflation (including energy costs), increases in payroll (including any increases in the minimum wage), taxes and other statutory charges, insurance premia, rent, rates and the costs of maintenance of properties and failure to perform by third parties and sub-contractors leading to increases in operating costs. Such increases could have a material adverse effect on the Group's business, financial conditions or results of operations.

 

The Company's ability to make distributions to Shareholders in the future is dependent on the realisation of assets

 

The ability of the Company to make distributions in the future to Shareholders by means of buy-backs of Units, tender offers to Shareholders, cash distributions, demergers, distributions of assets and similar value distribution programmes in accordance with its strategy is dependent upon it having sufficient cash resources, or assets (in the case of distributions in kind), out of which any proposed distributions may be made. There are risks and uncertainties which could adversely affect the net assets available for distribution to Shareholders. Such risks include, but are not restricted to, the ability of the Group to realise its assets in the manner and amount currently envisaged and distribution of funds to Shareholders in an efficient manner as well as all the other risks referred to in this section of the document which could materially adversely affect the Group's businesses, financial condition or results of operations.

 

The Group is exposed to interest rate and counterparty credit risks

 

The Group borrows from banks at floating rates of interest, although the £284m facility advanced to Malmaison and Hotel du Vin has been swapped by the Group into fixed rates to the end of its term in December 2011 using financial derivative instruments. Upon any refinancing the Group might use fixed and/or floating rate borrowings designed to protect the Group in the drawings of its cash requirements. Fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. Variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. If interest rates rise then the Group's cost of variable rate borrowings would increase.

 

The Group is reliant in part on the reputation of its brands

 

The Group operates under four core brands, namely Liberty, Malmaison, Hotel du Vin and MWB Business Exchange. If an event occurred that materially damaged the reputation of any of these core brands or there was a failure to sustain the appeal of the Group's brands to its customers, this could have an adverse impact on the Group's earnings and assets and resultant Shareholder value.

 

Unfavourable publicity concerning any of the Group's brands or substantial erosion in the reputation of, or value associated with, the Group's brands could have an adverse effect on the Group's businesses, financial condition or results of operations.

 

Loss of Executive Directors and other key personnel may adversely affect the Group

 

The Group is highly dependent on its team of Executive Directors and senior executives who have extensive experience and knowledge of the relevant industry in which they work. The future success of the Group is, in part, dependent upon the ability of its existing management team and on the Group's ability to motivate and retain staff with the requisite experience. However, there can be no assurance that the Executive Directors or Group's other key personnel will continue to be employed by the Group, that the Executive Directors and senior executives will be suitably incentivised or that it will be able to attract and retain qualified personnel in the future. The loss of services of Executive Directors or key personnel, or a failure to attract and retain these and other qualified new personnel, could have a material adverse effect on the Group's businesses, financial condition or results of operations.

 

Influence of the 1997 Concert Party

 

The 1997 Concert Party owns 33.51 per cent of the Enlarged Issued Share Capital. As a consequence, the 1997 Concert Party is able to exercise a significant amount of control over the voting of Shareholders in the Company. For example, where the consent of 75% or more of Shareholders is required in general meeting, it will not be possible to obtain that majority unless the 1997 Concert Party votes in favour or abstains from voting. Where the consent of 50% or more of Shareholders is required in general meeting, it will usually be possible for the 1997 Concert Party to obtain that majority unless other Shareholders join together to vote against the relevant resolution.

 

Conflicts of interest may arise by reason of certain of the interests of the Executive Directors outside the Group

 

The Executive Directors have material business interests outside the Group. Despite the existence of the Conflicts Committee and anti-conflicts procedures in the governance of the Group, the interests of the Executive Directors outside the Group could give rise to actual or potential conflicts of interest between their roles as Directors of and Shareholders in the Company and of other companies in the Group, and their roles and interests outside the Group, which could affect the business of the Group. This is particularly the case with Malmaison and Hotel du Vin where the outside hotel interests of the Executive Directors could in future be in competition with the Group.

 

The Group could suffer material losses in excess of insurance proceeds

 

Any of the Group's properties or other assets could suffer physical damage caused by fire or other causes, resulting in losses that may not be fully compensated by insurance. In addition, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods, hurricanes, terrorism or acts of war, which may be uninsurable on economic terms or at all. Inflation, changes in building codes and ordinances, environmental considerations, and other factors might also result in losses that may not be fully compensated by insurance proceeds. Should an uninsured loss or a loss in excess of insured limits occur, the Group would lose capital and anticipated future revenue. In addition, the Group may incur further costs to repair damage caused by uninsured risks. The Group would also remain liable for any debt or other financial obligation related to that part of the business in which the uninsured risk has occurred.

 

Technology and systems disruption may adversely affect the Group's efficiency

 

To varying degrees, the Group is reliant upon 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.

 

The Group may have to make substantial additional investments in new technologies or systems to remain competitive. Failing to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. The technologies or systems that the Group chooses may not be commercially successful or the technology or system strategy employed may not be sufficiently aligned with the needs of the business or responsive to changes in business strategy. As a result, the Group could lose customers, fail to attract new customers or incur substantial costs or face other losses.

 

The Group's operations are subject to health and safety and other regulations

 

The Group needs to comply with regulations relating to, amongst others, planning, land use, building regulation standards, health and safety, environmental matters and employment. Significant events or breaches or violations of applicable laws or regulations could result in restrictions on operations, damages, fines, litigation and/or other sanctions and/or result in MWB incurring liabilities which, in turn, could have a material adverse effect on the Group's businesses, results of operations and overall financial condition or adversely affect the value of the Group's assets. Changes in the legal framework in particular concerning planning, land use and building regulations, may negatively influence property values. From time to time, regulations are introduced which can impact on the costs of the Group's businesses and affect returns. In recent years these have included building regulations for the containment and management of asbestos and the measurement and reporting of energy efficiency of buildings. Such changes in the future could have an adverse impact on the value of the Group's businesses, financial condition or results of operations.

 

The Group may incur environmental liabilities resulting from ownership of property

 

The Board views the assessment of environmental risk as an important element of its due diligence process when it acquires its properties. However, there can be no guarantee that the Group will not incur unexpected liabilities such as clean-up costs and fines for environmental pollution in respect of properties owned by the Group.

 

The costs of any required clean-up of or fines for environmental pollution may be substantial regardless of whether the Group originally caused the relevant contamination. The presence of hazardous or toxic substances, or the failure to remedy the situation properly, may also adversely affect the value of the relevant property or the Group's ability to sell, let or regenerate that property or to borrow using the property as security. The Group could be required to remove or remediate any hazardous substances that it has caused or knowingly permitted to be located at any property that it has owned or occupied in the past or which it may own in the future.

 

The Group may be affected by political, legal and regulatory developments

 

Future political, legal or regulatory developments concerning the businesses of the Group and the industry sectors in which they operate may affect their ability to operate and trade profitably. Political risks include the imposition of trade barriers, changes of regulatory developments and the volatility of input costs, selling prices, taxes and currencies. Changes in the future could have an adverse impact on the value of the Group's business, financial condition or results of operations.

 

Changes in tax legislation may materially change the tax payable 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, National Insurance and VAT. In particular, any increase in the rate of VAT could have an adverse effect on the revenues and net operating profits of the Group's businesses. Provision has been made in the financial statements for current and deferred taxation in accordance with the Group's accounting policy on taxation which is summarised in note 1. Should the amount of tax provided prove to be insufficient to meet agreed or potential liabilities, further provision may be necessary, which would reduce Equity Attributable to Shareholders.

 

Additional risks relating to Malmaison and Hotel du Vin

 

Malmaison and Hotel du Vin is susceptible to economic downturn in the hotel industry and may be adversely affected by factors common to the hotel industry

 

Malmaison and Hotel du Vin's hotel revenue is dependent on the business, leisure and tourist markets. Therefore, a downturn in these sectors could have a material adverse effect on the revenues and profitability of Malmaison and Hotel du Vin's hotels. Reductions in room rates and occupancy levels could have a material adverse effect on Malmaison and Hotel du Vin's financial condition and results of operations, and could reduce Malmaison and Hotel du Vin's income available for distribution to its shareholders, principally MWB, and the value of MWB's investment in Malmaison and Hotel du Vin.

 

The revenue receivable by Malmaison and Hotel du Vin could be adversely affected by various operating risks common to the UK hotel industry, many of which are beyond Malmaison and Hotel Du Vin's control, including the cyclical nature of the hotel industry; a decrease in travel to and within the UK as a result of adverse economic conditions; increases in fuel costs and other expenses which may affect travel patterns and reduce the number of business and leisure and tourist travellers; a decrease in travel to areas where Malmaison and Hotel du Vin operates hotels caused by any epidemic or other disaster, natural or otherwise; increasing threats of terrorism, terrorist events, airline strikes, changes in airport security policies and other similar factors that may affect travel patterns and reduce the number of business and commercial travellers and tourists; and any other factors that may lead to reduced occupancy and room rates.

 

Additional risks relating to Business Exchange

 

Business Exchange may suffer an increase in defaults affecting its financial performance

 

The risk to Business Exchange arises principally from the Group's receivables from customers. The demographics of the Group's customer base, including the general default risk in the principal sectors in which the Group operates, have less of an influence on credit risk. Geographically there is a concentration of credit risk in London, where the Group has 45 serviced offices. Total revenue in London was approximately £86.5 million for the year ended 31 December 2009. The Group has established credit policies for dealing with new customers, their creditworthiness, payment and delivery terms.

 

Reliance on key business centres and the London market

 

Business Exchange's portfolio is deliberately London biased as the Board considers that this market shows the best demand characteristics for the service provided by Business Exchange. The 45 London centres operated by Business Exchange account for 66% of its total workstations and 77% of total revenue. Dedicated marketing and sales resources are deployed to these key locations to ensure occupancy and revenues are maintained, and to satisfy levels of existing and prospective client demand. Business Exchange's buildings are well maintained and are considered by the Board to be well protected against this type of risk.

 

Reliance on key clients

 

MWB Business Exchange has concentrated on increasing the number of SMEs and smaller corporate clients, thereby preventing a reliance on a small number of larger clients. However, if Business Exchange were to lose one or more significant clients which were not quickly replaced at a similar level of REVPOW, revenue would be impacted. As a business strategy, the number of clients who occupy more than 15% of any one business centre in the Group has been significantly reduced in recent years. As a result, there are now only 44 clients out of approximately 2,000 who occupy such an amount, and no single client occupies more than 2% of the entire portfolio.

 

Changes in the office market

 

If the conventional property market changes significantly and landlords offer variations to existing leases such as shorter leases, more flexible lease terms, giving significant rent reductions, or providing significant rent free periods, the Group's business centres may become less attractive to both existing and potential clients.

 

Long-term cost base does not match short-term revenue profile

 

MWB Business Exchange currently leases the majority of its properties; the remainder are operated under management agreements. The length of the leases and the time at which it may exercise any break option in such leases is nearly always longer than the duration of the period of occupation by clients. If revenues decline, Business Exchange may not be able to reduce significantly its property related cost base throughout the remaining period of these leases.

 

Most of its business centres are profitable and the strong profitability of the network largely negates this impact. Whilst Business Exchange cannot assign a lease without landlord consent, it could sublet which would substantially reduce the liability. Operating and Management Agreements and management contracts are also used to mitigate the risk from leases as such agreements normally generate a revenue stream to the Group regardless of occupancy and market conditions.

 

Additional risks relating to Liberty

 

The sector in which Liberty operates is highly competitive

 

The retail industry is highly competitive, particularly with respect to merchandise selection and quality, store location and design, inventory, price, customer service, credit availability and advertising. Liberty competes with a wide variety of retailers of varying sizes covering different product categories. Some of Liberty's competitors are general retailers that compete with it in a number of product groups while others are specialist retailers that compete with it only in certain product categories.

 

Liberty faces a variety of competitive challenges including anticipating and quickly responding to changing consumer demands; maintaining favourable brand recognition and effectively marketing its products to consumers in diverse market segments; developing and sourcing innovative, high-quality fashion products in styles that appeal to consumers of varying age groups and tastes; sourcing merchandise efficiently; pricing its products competitively; and changes in consumer behaviour and spending patterns, particularly as a result of changes in general economic conditions.

 

Actions taken by Liberty's competitors, as well as actions taken by it to maintain its competitiveness and reputation, have placed and will continue to place pressure on its pricing strategy, margins and profitability. Some of Liberty's competitors may have greater financial resources, greater purchasing economies of scale and/or lower cost bases, any of which may give them a competitive advantage over Liberty. These factors could have a material adverse effect on Liberty's business, results of operations and financial condition.

 

Liberty could be adversely affected by changes in fashion trends

 

Liberty is dependent upon its ability to interpret and offer fashion products that consumers wish to purchase. The availability of new products and changes in customer preferences make it difficult to predict demand accurately. Liberty's success depends, in part, on its ability to predict and respond to changing consumer demands and preferences, and to translate market trends into appropriate saleable merchandise offerings.

 

In some instances Liberty must enter into contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season. The long lead times between ordering and delivery make it important to predict accurately the demand for items. There can be no assurance that Liberty's orders will match actual demand. If Liberty is unable to predict or respond to demand or to changing styles or trends successfully, its revenue will be lower and it may be forced to rely on additional markdowns or promotional sales to dispose of excess or slow-moving inventory or it may experience inventory shortfalls on popular merchandise. Any of these factors could have a material adverse effect on its business, financial condition and results of operations.

 

In addition, Liberty's ability to anticipate and respond to changing customer preferences and tastes depends, in part, on its ability to attract and retain key personnel in its buying, design, merchandising, marketing and other functions. There is competition for such personnel and Liberty may not be able to attract and retain a sufficient number of qualified personnel in future periods.

 

Any disruption or other adverse event affecting Liberty's relationship with any of its major suppliers could adversely affect its business

 

Any significant disruption or adverse event affecting Liberty's relationship with any of its major suppliers could have a material adverse affect on its business, financial condition and results of operations. If Liberty needs to replace any of its major suppliers, it may face risks and costs associated with a transfer of operations. A failure to replace any of its major suppliers or store card providers on commercially reasonable terms, or at all, could also have a material adverse effect on Liberty's business, financial condition or results of operations.

 

Liberty is susceptible to economic downturn in the retail industry and may be adversely affected by factors common to the retail industry

 

Liberty's income is dependent to a large extent on the general economic conditions prevailing at any given time and notably their impact on consumer confidence and levels of discretionary expenditure. Economic downturns where consumer confidence tends to be negatively impacted can have a material adverse effect.

 

The revenue received by Liberty could be adversely affected by various operating risks common to the UK retail industry, many of which are beyond Liberty's control, including adverse seasonal weather conditions; a decrease in consumer spending; a decrease in overseas travel to the UK as a result of the global recession; a decrease in travel within Central London caused by any epidemic or other disaster, natural or otherwise; increasing threats of terrorism, terrorist events, airline strikes, changes in airport security policies, or factors that affect travel patterns and reduce the number of customers visiting Liberty; and increases in fuel costs and other expenses affecting travel, which may affect travel patterns and reduce travel.

 

All of these factors could be exacerbated due to the seasonal nature of the UK retail industry. Liberty's revenue is not equally weighted throughout the calendar year. Historically, its most important trading period in terms of revenue, operating results and cash flow has been the Christmas season, with approximately 21% of annual revenue generated in the final six weeks of the calendar year. If revenue during Liberty's peak seasons, particularly the Christmas season, are significantly lower than it expects for any reason, it may be left with a substantial amount of unsold inventory. In that event, Liberty may be forced to rely on markdowns or promotional sales to dispose of excess inventory, which could have a material adverse effect on its business, financial condition and results of operations. At the same time, if it fails to purchase a sufficient quantity of merchandise, it may not have an adequate supply of products to meet consumer demand causing lost revenue and associated margins.

 

Liberty could face uninsured product liability claims

 

Liberty is potentially vulnerable to product liability claims and it could also face liability and/or reputational damage relating to counterfeit products.

 

Defaults by concession partners could have an adverse impact on Liberty's business

 

16% of Liberty's total revenue was derived from concessions during the year ended 31 December 2009 (2008: 16%). Due to the current economic climate, some concession operators within the industry have experienced disappointing financial results. Defaults by Liberty's concession partners of the terms of those concession partners' agreements with Liberty may have an adverse effect on Liberty's business, financial condition and operating results.

 

Defaults by customers of Liberty's wholesale Art Fabrics business could have an adverse impact on Liberty's business

 

Liberty of London's wholesale distribution business supplies Liberty Art Fabrics to a number of wholesale customers. If customers of the wholesale business default Liberty could suffer financial loss, which could have a material adverse effect on Liberty's business, financial condition or results of operations.

 

The Liberty Pension Scheme's deficit could have an adverse impact on Liberty

 

The Liberty Pension Scheme, which is closed to new entrants, had a deficit of £2.8m at 31 December 2009 under the basis of accounting required by International Accounting Standard 19. The contributions made by Liberty during the year ended 31 December 2009 amounted to £0.4m, of which £0.1m covers the management and administration of the scheme and £0.3m is used to reduce the funding deficit of the scheme. The level of deficit of the Liberty Pension Scheme has fluctuated over the latest three years due to volatility in the financial markets. If the value of the Liberty Pension Scheme assets were to decline relative to its liabilities, the pension scheme would show an increased deficit which would result in a reduction in Liberty's net asset value and/or Liberty might be required to make additional contributions to cover this shortfall. Any change in assumptions used to calculate the value of the Liberty Pension Scheme's assets or liabilities could result in an increased deficit in the scheme and/or Liberty being required to make additional contributions to the Liberty Pension Scheme. If increased contributions were required, this would have an adverse impact on cash flow and net worth of Liberty, with resultant adverse effects on the cash flow and net worth of the Group.

 

Liberty may be adversely affected by foreign exchange fluctuations

 

Liberty settles a proportion of its merchandise purchases in foreign currency. Liberty's business is therefore subject to risks due to fluctuations in currency exchange rates. Liberty's currency hedging strategies may not adequately protect its operating results from the effects of exchange rate fluctuations or may limit any benefit that it might otherwise receive from favourable movements in exchange rates. The results of Liberty's Japanese subsidiary in the Group's consolidated results are affected by movement in the Sterling/Yen exchange rate during any period and at the relevant period end. No specific hedging instruments are deployed against dividend receipts in Yen from Liberty's business in Japan.

 

 

 

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2009

 

		Year ended 31 December 2009	Year ended 31 December 2008
	Notes	£'000	£'000
Revenue	2	284,299	277,876
Cost of sales		(259,134)	(239,291)
Gross profit		25,165	38,585
Administrative expenses		(14,771)	(21,482)
Net gain on sale of property, plant and
equipment		-	635
Net gain on lease surrender		85	-
Capital reorganisation costs		-	(2,462)
Results from operating activities		10,479	15,276
Finance income	4	310	1,694
Finance expenses	4	(26,211)	(26,896)
Loss before taxation		(15,422)	(9,926)
Taxation	5	(655)	10,215
(Loss)/profit for the year		(16,077)	289
Attributable to:
Equity shareholders of the Company		(15,948)	(2,718)
Minority interests	15	(129)	3,007
(Loss)/profit for the year		(16,077)	289
Loss per share (basic and diluted)	6	(22.0p)	(3.6p)

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

for the year ended 31 December 2009

 

	Year ended 31 December 2009 £'000	Year ended 31 December 2008 £'000
(Loss)/profit for the year	(16,077)	289
Other comprehensive income and expense for the year
net of tax:
Foreign exchange translation differences for foreign
operations	(222)	1,076
Revaluation of property, plant and equipment	(2,141)	(79,231)
Effective portion of changes in fair value of cash flow
hedges	(3,290)	(2,243)
Defined benefit pension scheme actuarial losses	(995)	(2,019)
Other comprehensive loss for the year net of tax	(6,648)	(82,417)
Total comprehensive income and expense for the year	(22,725)	(82,128)
Attributable to:
Equity shareholders of the Company	(21,394)	(70,089)
Minority interests	(1,331)	(12,039)
Total comprehensive income and expense for the year	(22,725)	(82,128)

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2009

 

		31 December 2009	31 December 2008
	Notes	£'000	£'000
Non-current assets
Intangible assets and goodwill	7	28,794	25,969
Operational properties	8	499,414	502,644
Operational properties in the course of construction	8	1,929	1,691
Plant and equipment	8	58,123	61,597
Deferred tax asset	14	10,542	10,500
Financial instruments	13	-	341
		598,802	602,742
Current assets
Inventories		14,306	11,705
Trade and other receivables:
Due after more than one year	9	2,569	2,660
Due within one year	9	31,844	35,677
Cash and cash equivalents	10	19,655	32,064
		68,374	82,106
Total assets		667,176	684,848
Current liabilities
Bank overdrafts	10	-	(28)
Loans and borrowings	11	(11,424)	(342,632)
Derivative financial instruments	13	(5,526)	(2,235)
Trade and other payables	12	(86,988)	(74,324)
Tax payable		(393)	(157)
		(104,331)	(419,376)
Non-current liabilities
Loans and borrowings	11	(364,580)	(44,561)
Employee benefits		(2,814)	(2,066)
Trade and other payables	12	(19,202)	(15,046)
		(386,596)	(61,673)
Total liabilities		(490,927)	(481,049)
Net assets		176,249	203,799
Equity
Share capital		217	217
Other reserves		125,715	131,152
Retained earnings		(21,396)	(5,488)
Total equity attributable to shareholders of the Company	16	104,536	125,881
Minority interests	15	71,713	77,918
Total equity		176,249	203,799
Equity attributable to shareholders of the Company
in pence per share	16	144p	174p

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

	Share capital	Capital redemption  reserve	Revaluation reserve	Hedging reserve	Translation reserve
Year ended 31 December 2009	£'000	£'000	£'000	£'000	£'000
At 1 January 2009	217	25	121,234	(1,845)	794
Total comprehensive income for the year:
Loss for the year	-	-	-	-	-
Revaluation of property, plant and equipment	-	-	(1,901)	-	-
Defined benefit pension scheme actuarial loss	-	-	-	-	-
Effective portion of changes in fair value of cash flow hedges	-	-	-	(2,713)	-
Transfer of depreciation on revalued properties	-	-	(671)	-	-
Foreign exchange translation differences for foreign operations	-	-	-	-	(152)
Total comprehensive income for the year	-	-	(2,572)	(2,713)	(152)
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Dividend paid to external shareholders of MWB Business Exchange Plc	-	-	-	-	-
Transfer on increase in minority interests in MWB Malmaison Holdings Ltd
and MWB Business Exchange Plc	-	-	-	-	-
Payment to minority	-	-	-	-	-
Issue and purchase of Ordinary Shares	-	-	-	-	-
Write back of option cost through equity	-	-	-	-	-
Total transactions with owners	-	-	-	-	-
Share capital and reserves at 31 December 2009	217	25*	118,662*	(4,558)*	642*

 

* = Disclosed as 'Other reserves' at 31 December 2009 totalling £125,715,000 in the Consolidated Statement of Financial Position.

 

	Merger reserve	Other reserve	Retained earnings	Total equity attributable to shareholders	Minority interests	Total equity
Year ended 31 December 2009	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2009	9,161	1,783	(5,488)	125,881	77,918	203,799
Total comprehensive income for the year:
Loss for the year	-	-	(15,948)	(15,948)	(129)	(16,077)
Revaluation of property, plant and equipment	-	-	-	(1,901)	(240)	(2,141)
Defined benefit pension scheme actuarial loss	-	-	(680)	(680)	(315)	(995)
Effective portion of changes in fair value of cash flow hedges	-	-	-	(2,713)	(577)	(3,290)
Transfer of depreciation on revalued properties	-	-	671	-	-	-
Foreign exchange translation differences for foreign operations	-	-	-	(152)	(70)	(222)
Total comprehensive income for the year	-	-	(15,957)	(21,394)	(1,331)	(22,725)
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Dividend paid to external shareholders of MWB Business Exchange Plc	-	-	(2,803)	(2,803)	-	(2,803)
Transfer on increase in minority interests in Malmaison Holdings Ltd
and MWB Business Exchange Plc	-	-	4,226	4,226	(4,226)	-
Payment to minority	-	-	-	-	(117)	(117)
Issue and purchase of Ordinary Shares	-	-	(1,701)	(1,701)	(678)	(2,379)
Write back of option cost through equity	-	-	327	327	147	474
Total transactions with owners	-	-	49	49	(4,874)	(4,825)
Share capital and reserves at 31 December 2009	9,161*	1,783*	(21,396)	104,536	71,713	176,249
Retained earnings at 31 December 2009 comprise the following:-

 

Scheme of Arrangement April 2008	(10,396)
Increase in retained earnings due to capital reduction	160,883
Accumulated net loss in Consolidated Income Statements to 31 December 2009	(91,468)
Purchase by the Company of its own ordinary shares and Units that have subsequently been cancelled	(80,415)
Retained earnings at 31 December 2009	(21,396)

 

 

	Share capital	Share premium	Capital redemption  reserve	Revaluation reserve	Hedging reserve	Translation reserve
Year ended 31 December 2008	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	40,261	79,563	30,663	187,151	5	69
Scheme of Arrangement April 2008	120,864	(79,563)	(30,663)	-	-	-
At 1 January 2008 restated for effect of Scheme of Arrangement	161,125	-	-	187,151	5	69
Total comprehensive income for the year:
Profit for the year	-	-	-	-	-	-
Revaluation of property, plant and equipment	-	-	-	(64,867)	-	-
Defined benefit pension scheme actuarial loss	-	-	-	-	-	-
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	(1,850)	-
Transfer of depreciation on revalued properties	-	-	-	(1,050)	-	-
Foreign exchange translation differences for foreign operations	-	-	-	-	-	725
Total comprehensive income for the year	-	-	-	(65,917)	(1,850)	725
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Capital reduction	(160,883)	-	-	-	-	-
Dividend paid to external shareholders of MWB Business Exchange Plc	-	-	-	-	-	-
Transfer on increase in minority interests in MWB Malmaison Holdings Ltd
and MWB Business Exchange Plc	-	-	-	-	-	-
Issue and purchase of Ordinary Shares	(25)	-	25	-	-	-
Write back of option cost through equity	-	-	-	-	-	-
Total transactions with owners	(160,908)	-	25	-	-	-
Share capital and reserves at 31 December 2008	217	-	25*	121,234*	(1,845)*	794*

 

* = Disclosed as 'Other reserves' at 31 December 2008 totalling £131,152,000 in the Consolidated Statement of Financial Position.

 

 

	Merger reserve	Other reserve	Retained earnings	Total equity attributable to shareholders	Minority interests	Total equity
Year ended 31 December 2008	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	9,403	1,783	(144,521)	204,377	91,783	296,160
Scheme of Arrangement April 2008	(242)	-	(10,396)	-	-	-
At 1 January 2008 restated for effect of Scheme of Arrangement	9,161	1,783	(154,917)	204,377	91,783	296,160
Total comprehensive income for the year:
Profit for the year	-	-	(2,718)	(2,718)	3,007	289
Revaluation of property, plant and equipment	-	-	-	(64,867)	(14,364)	(79,231)
Defined benefit pension scheme actuarial loss	-	-	(1,379)	(1,379)	(640)	(2,019)
Effective portion of changes in fair value of cash flow hedges	-	-	-	(1,850)	(393)	(2,243)
Transfer of depreciation on revalued properties	-	-	1,050	-	-	-
Foreign exchange translation differences for foreign operations	-	-	-	725	351	1,076
Total comprehensive income for the year	-	-	(3,047)	(70,089)	(12,039)	(82.128)
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Capital reduction	-	-	160,883	-	-	-
Dividend paid to external shareholders of MWB Business Exchange Plc	-	-	(427)	(427)	-	(427)
Transfer on increase in minority interests in MWB Malmaison
Holdings Ltd and MWB Business Exchange Plc	-	-	1,809	1,809	(1,809)	-
Issue and purchase of ordinary shares	-	-	(9,987)	(9,987)	(91)	(10,078)
Write back of option cost through equity	-	-	198	198	74	272
Total transactions with owners	-	-	152,476	(8,407)	(1,826)	(10,233)
Share capital and reserves at 31 December 2008	9,161*	1,783*	(5,488)	125,881	77,918	203,799
Retained earnings at 31 December 2008 comprise the following:-

 

Scheme of Arrangement April 2008	(10,396)
Increase in retained earnings due to capital reduction	160,883
Accumulated net loss in Consolidated Income Statements to 31 December 2008	(75,560)
Purchase by the Company of its own ordinary shares and Units that have subsequently been cancelled	(80,415)
Retained earnings at 31 December 2008	(5,488)