WGB.L Regulatory News (WGB)

30 June 2020

WALKER GREENBANK PLC

("Walker Greenbank" or the "Company")

Financial Results for the year ended 31 January 2020

Walker Greenbank PLC (AIM: WGB), the luxury interior furnishings group, is pleased to announce its financial results for the 12 month period ended 31 January 2020.

Financial Highlights

· Revenue of £111.5m (2019: £113.3m), reflecting growth in core licensing income, the Morris & Co. and Clarke & Clarke brands and digital fabric printing offset by a difficult marketplace in the UK

o Core licensing income was up 13.9% in both reportable and constant currency excluding the recognition of fixed minimum guaranteed licensing income under IFRS 15 and income from apparel contracts

o Northern Europe sales growth up 2.1% in constant currency, 0.8% in reportable currency, reflecting strong Morris & Co sales in Scandinavia

· Total Manufacturing sales including Group sales up 7.9% in reportable currency

o Third-party manufacturing sales were up 6.1% driven by a strong performance from overseas manufacturing sales, being up 18.9%

o Standfast & Barracks' third-party digital fabric printing sales up 14.0%

· Adjusted profit before tax £7.4m in line with management expectations (2019: £9.5m)

· Renewed five-year bank facilities to 2024 comprising £12.5m revolving credit facility and uncommitted £5m accordion. In light of the Covid-19 outbreak, an additional £2.5m overdraft facility has been agreed with lenders to enhance liquidity on a precautionary basis and to further extend headroom

o Also as a result of the impact of Covid-19, formal agreement has been reached with Barclays Bank PLC to waive the interest cover covenant condition for the tests arising through to July 2021 and to waive the leverage covenant condition through to April 2021; these have been replaced by a liquidity covenant requiring that available headroom within the £12.5m facility remains above £5m

Operational Highlights

· Strong senior executive leadership team built during the year; reshaping of Board completed with the appointment of Michael Williamson as Chief Financial Officer

· Significant progress made against the Company's strategy set out in 2019

· Morris & Co brand continues to perform strongly, reflecting sustained consumer interest in the Arts & Crafts movement

· Kravet Inc. appointed in July 2019 to represent the Clarke & Clarke and Studio G brands in the US with encouraging performance to date

· Standfast & Barracks awarded the Queen's Award for International Trade 2020

· Efficiency and cost-saving initiatives completed with £2m of annualised cost savings; approximately £1m delivered in the second half of the financial year

Response to Covid-19

· Immediate action taken to safeguard staff and mitigate impact on the business

· Fabric and wallpaper printing factories together with showrooms in the UK, New York and Paris were temporarily closed and staff furloughed. All sites are now open, with a phased return of staff as demand builds ahead of the autumn selling season

· Sales continued throughout from the Company's warehouses in Milton Keynes and New Jersey

· Re-timetabled launch of new products including Zoffany's Palladio wallpaper collection, which will take place in September 2020

· Measures taken to preserve cash including decision not to propose a final dividend, suspension of non-essential capital expenditure plus very tight controls over operating costs

Dianne Thompson, Chairman of Walker Greenbank, said: 

"Covid-19 has significantly impacted the start of the Company's current financial year. Whilst our factories were temporarily closed, our warehouses in Milton Keynes and New Jersey remained open and we have continued to fulfil customer orders throughout the year to date. With the phased reopening of our factories, and lockdowns being progressively released in our target markets, there are initial signs of trade improving, albeit at a level below last year.

"In the first five months of our financial year, product sales were approximately 35% below the same time last year. Online and international product sales channels have performed better than our UK average. Product sales in the past four weeks have been approximately 31% below the same time last year but ahead of management expectations. This reflects a steadily improving trend since the start of April."

Trading update

The Company will provide a further update on its trading performance at the Annual General Meeting which is expected to take place on 29 July 2020. Given the uncertainty generated by the Covid-19 pandemic and the longer lasting economic consequences, we are not in a position at this stage to provide specific guidance for the financial year ending 31 January 2021.

Analyst conference call

A conference call for analysts will be held at 10.00 a.m. today, 30 June 2020. Analysts who require dial-in details, please contact Buchanan at walkergreenbank@buchanan.uk.com.

* Adjusted underlying profit before tax excludes accounting charges relating to share-based incentives, defined benefit charge and non-underlying items.

** The LTIP charge for the year ended 31 January 2019 has been adjusted from a £661,000 credit to a £76,000 charge to correct the accounting for the prior year.

For further information:

Walker Greenbank PLC c/o Buchanan +44 (0) 20 7466 5000

Lisa Montague, Chief Executive Officer

Michael Williamson, Chief Financial Officer

Investec Bank plc (Nominated Adviser and Broker) +44 (0) 20 7597 5970

David Anderson / Henry Reast / Alex Wright

Buchanan +44 (0) 20 7466 5000

Mark Court / Toto Berger / Charlotte Slater

Notes for editors:

About Walker Greenbank 

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

Walker Greenbank's brands include Zoffany, Sanderson, Morris & Co, Harlequin, Scion and Clarke & Clarke.

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

Walker Greenbank employs more than 650 people and its products are sold in more than 85 countries worldwide. It has showrooms in London, New York, Chicago, Paris and Dubai. Walker Greenbank trades on the AIM market of the London Stock Exchange under the ticker symbol WGB.

Walker Greenbank trades on the AIM market of the London Stock Exchange under the ticker symbol WGB. For further information please visit: www.walkergreenbank.com

CHAIRMAN'S STATEMENT

Introduction

These annual results are my first as Chairman of Walker Greenbank and follow my appointment to the role in April last year.

Walker Greenbank is a company with excellent core strengths. In addition to a strong portfolio of market-leading brands, an extensive design archive and high quality manufacturing facilities, the Company benefits from exceptional creative talent and operational capabilities.

These core competencies form a solid platform from which to build the Company's sales and drive profitability. Much was achieved during 2019 to reset the Company for future growth through changes in senior management and a re-evaluation of strategy.

Lisa Montague was appointed Chief Executive Officer in April 2019 and, more recently, in February 2020, Michael Williamson was appointed Chief Financial Officer. These important appointments completed the reshaping of the Group's Board of Directors, who are committed to working in the interests of all stakeholders to develop the Company further.

A strategy review initiated last year was an important step in shaping the future direction of the business. Its key conclusions were aimed at sharpening the Company's strategic focus on five areas:

• Driving the individual brands

• Focusing on core products of wallpaper, fabric and paint

• Partnering with core customers

• Investing in people

• Growing key geographies - UK, Northern Europe and US

Whilst much progress was made in 2019 in creating a platform for growth, 2020 so far has been dominated by the Covid-19 pandemic which has impacted all of our lives both personally, in business and in the wider economy affecting every facet of life. The restrictions on the movement of people and on trading activity introduced by most governments to contain the spread of the disease have had an immediate and severe effect on economic activity.

Our top priority at the Company remains the health and wellbeing of our colleagues, our customers, and the many suppliers who work alongside us from around the world.

From the outset of the pandemic, we have been closely following government initiatives that support businesses and the public. We have been following the guidance regarding self‐isolation, social distancing and personal hygiene in order to keep everyone safe and well.

The majority of the Company's employees were furloughed in April 2020 under the Government's Coronavirus Job Retention Scheme and similar grant-based programmes overseas. Those furloughed, the Board, management team and others working from home, all accepted a temporary salary reduction of 20%, further reducing the Group's cash burn. We are proud to have continued to serve customers in all key territories throughout the pandemic from our warehouses in Milton Keynes and in the US. Both of our factories have now re-opened and our office-based staff are also progressively returning to work. Our superb warehouse teams have adapted to completely new ways of working to ensure they abide by social distancing and other safety procedures.

I would like to pay tribute on behalf of the Board to every one of our employees for their hard work and determination in these exceptionally difficult times. So many have gone beyond the ordinary call of duty.

Financial results

A generally difficult marketplace in the financial year ended 31 January 2020 resulted in the Group delivering a performance below that of the prior year, but in line with Board expectations, with adjusted underlying profit from operations of £7.4 million (financial year ended 31 January 2019 ('FY19'): £9.5 million). Within these results, our Morris & Co and Clarke & Clarke brands, core licensing and digital fabric printing all performed ahead of last year.

Board changes

During the year there was a significant reshaping of the Board. On 1 February 2019, I was appointed as Chairman Designate, with my role as Non-executive Chairman effective from 10 April 2019. On the same day, Lisa Montague became Chief Executive Officer, having been appointed as an Executive Director on 11 March 2019. Christopher Rogers, who had been Interim Executive Chairman since 10 October 2018, returned to his role as Non-executive Director on Lisa Montague's appointment.

On 18 December 2019, Mike Gant stood down as Chief Financial Officer after almost six years with the Company. On behalf of the Board, I would like to thank Mike for his significant contribution to the Company and wish him every success in the future. Michael Williamson joined the Company and Board in the role of Interim Chief Financial Officer on 18 December 2019 and was appointed Chief Financial Officer on 26 February 2020.

The reshaping of the Board is now complete.

Dividend

The Covid-19 health emergency is having a major impact on businesses worldwide. The outlook for the global economy, and the effects that this will have on the Company, remain unclear. As previously announced, the Board has, therefore, decided that it would be prudent not to recommend the payment of a final dividend for the year ending 31 January 2020 to ensure that financial resources are retained within the Company. The Board remains committed to future dividend payments to the Company's shareholders as soon as conditions allow.

People

The success of any business is built on its people and on behalf of the Board I would like to thank all of our colleagues for their continued hard work and dedication both during the year ended 31 January 2020 and in the exceptional circumstances that have characterised the start of this financial year.

Current trading and outlook

Covid-19 has significantly impacted the start of the Company's current financial year. Whilst our factories were temporarily closed, our warehouses in Milton Keynes and New Jersey have remained open and we have continued to fulfil customer orders throughout the year to date. With the phased reopening of our factories, and lockdowns being progressively released in our target markets, there are signs of further improvement in trade, albeit at a level below last year.

In the first five months of our financial year, product sales have been approximately 35% below the same time last year. Online and international product sales channels have performed better than our UK average. Product sales in the past four weeks have been approximately 31% below the same time last year but ahead of management expectations. This reflects a steadily improving trend since the start of April.

The Company will provide a further update on its trading performance at the Annual General Meeting which is expected to take place on 29 July 2020. Given the uncertainty generated by the Covid-19 pandemic and the longer lasting economic consequences, we are not in a position at this stage to provide specific guidance for the financial year ending 31 January 2021.

Dianne Thompson

Non-executive Chairman

29 June 2020

CHIEF EXECUTIVE'S STRATEGIC AND OPERATING REVIEW

Today's full-year results are my first as Chief Executive Officer following my appointment to the role on the day of the full-year results in April last year. I would like to discuss the progress made on strategy during the past year and also review the Company's operational performance. First, I would like to say a few words about Covid-19, particularly the effect it has had on our business and people, and why I believe that the Company is positioned to emerge strongly when the impact of the pandemic recedes.

As previously announced, the Board and executive management team moved swiftly to protect the business and its employees in light of Covid-19, including the temporary closure of the fabric and wallpaper factories in the UK and showrooms in the UK, USA and France. Measures were taken to preserve cash and, wherever possible, the Group has accessed government support mechanisms, both in the UK and overseas. The majority of employees were furloughed in April 2020 under the Government's Coronavirus Job Retention Scheme and similar grant-based programmes overseas. Following UK government guidance on safely resuming operations, both of our factories have re-opened and our office-based staff are also progressively returning to work.

I would like to say a huge thank you to the Company's employees, who have all shown dedication and resilience; and to customers, who we have continued to serve in all key territories from our UK and US warehouses and for whom we intend to offer an enhanced service as their businesses re-start and establish a new, post-coronavirus equilibrium.

The Company has the opportunity to emerge strongly from the pandemic because we are making sure that we can resume operations swiftly, but in line with demand. We have been careful to enhance our liquidity on a precautionary basis by obtaining a temporary overdraft facility of £2.5 million to complement the headroom in our existing £12.5 million revolving credit facility.

One of my key priorities on joining Walker Greenbank was to conduct a strategic review on behalf of the Board to ensure that the Company has the correct strategy to return the Group to growth and then to exploit fully the potential of our valuable brands. We announced the main findings from the review in October last year in our half-year results announcement and I will also summarise them here.

Driving the brands: The Group has a strong and broad portfolio of powerful brands, each with clear market positioning. Our intention is to focus precisely on the individuality of each brand, giving each its own market, channel, product and communications strategy; thereby strengthening their appeal to drive demand in their respective marketplaces.

Focusing on core products: Walker Greenbank has two strong manufacturing arms that benefit the brands' business. Our short- and medium-term strategy is to focus on our core products of wallpaper, fabric and paint and to build our finished-goods offer with our licensing partners.

Partnering with core customers: The strategic focus on the individuality of each brand, and our tailored service, will help cement relationships with key customers, while enhanced communication will drive demand for both heritage and contemporary brands from consumers, to drive the sale back through our interior design partners, retail channels and hospitality partners. We will continue to deepen our relationships with existing licensing partners and seek new opportunities.

Investing in people: People, and creativity, are at the heart of our business. In our industry, Walker Greenbank is the favoured destination for emerging new designers and we will benefit from doing even more to bring in new design and other talent, nurture it and create a high performance culture. The commitment, flexibility and agility demonstrated during the pandemic gives us confidence in achieving the step change to a more responsive organisation with a strong, aligned team.

Growing key geographies: Our brands have significant international market potential, reflected in their being sold in more than 85 countries worldwide. To ensure focus, we are concentrating our efforts on building market share in three key geographies: the UK, Northern Europe and the US. Our approach is tailored to each individual region.

We have built a strong leadership team during the year with three important new roles: Mauricio Solodujin as Global Commercial Director; Nigel Hunt as Group Marketing & Digital Director and Ben Naylor as Group Operations Director. Together with Michael Williamson, our recently appointed Chief Financial Officer, and myself as Chief Executive Officer, we now have a strong and committed team of key executives to drive growth and operational efficiency within the business, aligned to our strategic vision.

Lee Clarke left the business in August 2019, following the Group's acquisition of Clarke & Clarke, and Steve Forder left in January 2020. Mark Kennedy, who has been with the Clarke & Clarke business for 10 years, has been appointed Clarke & Clarke's General Manager, reporting to Mauricio Solodujin.

In the US, Beth Holman joined in October 2019 as President of WG Inc operations in North America to deliver our ambitious goals in the American and Canadian markets.

During the past few months, in order to focus on the individual brand assets, we have de-emphasised Style Library, which was formerly used as an umbrella brand. This change in emphasis has contributed to the brands' social media followers increasing by more than 20% in the past six months, November to May, from 262,000 to 316,000.

We are continually exploring how we can further elevate each brand's DNA. Some examples of successful initiatives include a pop-up for the Sanderson brand in the Design Centre Chelsea Harbour and an innovative launch event for Clarke & Clarke's new collection, Wilderie, designed in collaboration with Emma J Shipley. Clarke & Clarke's first collection with Emma J Shipley, Animalia, performed strongly. Clarke & Clarke also launched Tess Daly's first home collection under licence with a high-level event at White City House, and received strong initial demand in March 2020 prior to the Covid-19 lockdown.

During the first half of the last financial year, we identified a number of straightforward initiatives to improve our customer service. These included an exclusive Morris & Co. compilation for Brewers and a Morris & Co. pop-up with John Lewis. We also identified the need to be closer to key customers, which is starting to show benefits. During the year, we grew sales to all of our top 10 customers.

At the same time, we are focusing on cost savings and improving the efficiency, agility and productivity of the business where possible. Initiatives include: innovation in marketing, reduction in number of launches, and reviewing staffing levels; all to rightsize activity to achieve our ambitious goals.

On average during the past few years, around 55 new collections have been launched each year. We intended to reduce that to about 37 collections this year and, in light of the pandemic, this will be even fewer, at around 21.

Our first step in changing the patterning process to be more efficient has led to the inaugural Digital Design Book launched to customers at the beginning of this month as a presentation of the Sanderson National Trust collection, offering new tools and demonstrating our move towards digitalisation to aid and inspire our customers.

As a manufacturing company, it is imperative that we take our Environmental, Social and Governance particularly seriously. At our Standfast & Barracks site we have established a team of Mental Health First Aiders to ensure we are considering both the physical and mental wellbeing of our teams, which has been positively welcomed at the site. Last year we began working with Planet First, the provider of Planet Mark sustainability certification. Our target is to reduce the carbon footprint of the business by at least 5% in the next year, with a longer-term target of 10-15%. A recent example of initiatives to date is in our collaboration between the Sanderson brand and the National Trust, which was announced in January this year and is using Better Cotton Initiative ('BCI') sustainable cotton for its printed fabrics.

Cost reduction initiatives last year resulted in savings of approximately £1 million, from measures including the combination of Clarke & Clarke's support functions into those of the Group. We expect ongoing annualised savings of £2 million from these initiatives. Following the completion of the back office relocation and warehouse integration, Clarke & Clarke's sales and marketing functions have moved a short distance from Haslingden to Westhoughton in Lancashire.

Operational review

Overall, trading during the year reflected a generally difficult marketplace offset by continued strong performances from the Morris & Co. and Clarke & Clarke brands, core licensing and digital fabric printing.

The strength of our brands, even in a difficult marketplace, is underlined by the quality of partners with whom we signed licensing deals. Since the beginning of this financial year our Sanderson brand has launched a collaboration with the National Trust; our Clarke & Clarke brand with Tess Daly; and our Scion brand has signed a new agreement with Next plc with collections being launched online first and a feature capsule expected to launch in store in September 2020.

Total sales for the year ended 31 January 2020 decreased 1.6% to £111.5 million (FY19: £113.3 million) with adjusted underlying profit from operations decreasing by 22.1% to £7.4 million (FY19: £9.5 million). An improved gross margin for the year of 61.1% (2019: 59.6%) was a result of product sales mix as well as procurement efficiencies delivered in the year.

(i) The Brands

*Includes one-off H&M apparel collaboration in 2019 of £2.7m

Total Brands comprise Sanderson, Morris & Co., Harlequin, Zoffany, Scion, Anthology, Clarke & Clarke and Studio G. The Brands segment includes the licensing income derived from the brands as well as global trading from our brands, including our overseas subsidiaries in the US, France, Russia and Germany.

Total Brand sales were down 3.3% in reportable currency during the year to £90.2 million. In the UK, our largest market, sales were down 3.0% to £44.9 million as a result of the weak UK consumer environment.

International Brand sales were down 1.7% in reportable currency, down 2.6% in constant currency, to £39.8 million. Sales in North America, the Group's second largest market, were down 3.4% in reportable currency, down 7.1% in constant currency, compared with the same period last year, to £14.4 million. In July 2019, Kravet Inc., the premier US home furnishings resource available exclusively to trade, was appointed to represent the Clarke & Clarke and Studio G brands in the US and performance has been encouraging. The agreement was extended in November 2019 to include Canada.

Brand sales in Northern Europe at £13.0 million were up 0.8% in reportable currency, up 2.1% in constant currency, compared with the same period last year reflecting in particular strong sales of Morris & Co. in Scandinavia. Sales in the Rest of the World at Total £12.3 million were down 2.4% in reportable currency, down 1.8% in constant currency driven by market conditions.

Harlequin incorporating Scion and Anthology

Harlequin remains the UK's leading contemporary brand, however, its worldwide sales reduced 9.1% to £25.3 million in reportable currency compared with the same period last year. Sales in the UK decreased by 13.9%. In North America, sales were down 3.6% in constant currency; sales in Northern Europe fell 9.3% in constant currency.

Harlequin signed an exciting collaboration with Thomas Sanderson, the in-home curtain maker, which featured strongly in television adverts. This nationwide visibility for Harlequin supported the brand's ambition to be the house of colour, with plans in development to re-establish Harlequin's broad reach and reputation as the UK destination for stand-out, modern design.

Scion is an upbeat brand conveying fresh ideas for modern living. In addition to wallpaper and fabric, Scion is a valuable brand for licensing, where the contemporary and graphic nature of the designs have stretched very successfully to a wide range of products, ranging from bedding and bathroom products to window furnishings, gifting, tableware and stationery. In March this year, Scion announced a homewares collection with the major retailer Next plc, underscoring the strength of the brand's licensing potential.

Anthology, aimed at the Contract market with its creative finishes, subtle textures and sophisticated complexity remains popular with interior designers and hotel groups worldwide.

Arthur Sanderson & Sons incorporating the Morris & Co. brand

Worldwide sales were up 4.3% at £24.1 million in reportable currency compared with the same period last year. Sales in the UK increased by 1.6%, sales in North America were up 4.9% in constant currency and sales in Northern Europe increased by 12.7% in constant currency.

The Morris & Co. brand enjoyed a very positive sales performance, up 22.3% during the year, reflecting sustained consumer interest in the Arts & Crafts movement, particularly in Scandinavia and the UK as commented by the Financial Times feature on heritage interiors. As an autumn launch this year, we have an exciting collaboration with Ben Pentreath, the highly-regarded designer, who has created his own edit from our rich archive with a new colour palette to appeal to his audience.

As one of the oldest surviving English soft furnishing brands, with its Royal Warrant, Sanderson is famous today for a signature style that is informed by heritage and designed for modern living.

We are excited by Sanderson's collaboration with the National Trust, which was announced in January this year and has seen the launch of a unique collection of fabrics that celebrate the countryside, coastline and nature conservation during an anniversary year in which the National Trust celebrates its 125th year and Sanderson its 160th. Sanderson has a series of initiatives planned for the year, which began with a pop-up in spring at the Design Centre Chelsea Harbour and will continue now through the autumn season, given that footfall was low at the end of March 2020 due to Covid-19. We believe that, with the renewed interest in all things decorative resulting from lockdown, Sanderson has significant potential. The Woodland Chorus print from the successful Woodland Walk collection, was the single most popular Instagram post from the Group ever.

Zoffany

Zoffany, positioned at the upper end of the premium market, is a fusion of luxury and art and is the lead brand for the Group in North America. Total worldwide sales fell by 12.6% in a difficult market to £9.5 million in reportable currency. Sales in the UK decreased by 8.9%, sales in North America were down 23.4% in constant currency and sales in Northern Europe were down 11.5% in constant currency. Palladio is an artistic collaboration concept that originated in the 1950s refreshed with a special design from Royal College designer Sam Wilde. Palladio was due to launch in April in Milan, has been featured in the press and will be promoted strongly later in the year to promote Zoffany's strong connection to the arts.

Clarke & Clarke

Clarke & Clarke's two brands, Clarke & Clarke and Studio G, are positioned at the more affordable end of our premium target markets. During the year, this business was boosted by the growth of homewares ranges, which are a relatively new category for the brands. Total sales were up 4.1% at £25.3 million compared with the same period last year. Sales in the UK increased by 6.4%, sales in North America were down 4.7% in constant currency and sales in Northern Europe were up 2.2% in constant currency.

Clarke & Clarke is a collaborative brand. In addition to its work with designer Emma J Shipley, in February this year it announced a collaboration with Tess Daly, the television personality, who launched her first collection of bedlinens and other homewares. Initial sales by Next plc in March 2020, prior to lockdown, exceeded our launch forecasts and since then the collection has featured strongly online at John Lewis and House of Fraser.

Licensing

In our full-year trading update, we referred for the first time to 'core licensing income', which excludes the recognition of fixed minimum guaranteed licensing income under IFRS 15 and income from seasonal apparel collaborations. The use of the term 'core licensing income' seeks to improve transparency by giving shareholders an insight into underlying performance. It excludes apparel collaborations as, whilst potentially very lucrative, they tend to be one-off in nature and short lived. IFRS 15 requires that fixed, guaranteed minimum payments, due usually over several years, are all accounted for in the year that a deal is signed, so they also are excluded from core licensing income owing to their non-cash element and the lumpy aspect that they bring to the Company's licensing stream.

Licensing income is without doubt a very dynamic and high margin revenue stream for the Company with further potential for growth.

Core licensing income, excluding the recognition of fixed minimum guaranteed licensing income under IFRS 15 and income from apparel contracts was up 13.9% in reportable currency and in constant currency, to £3.2 million, largely as a result of a strong performance from our core bedding, blinds and Japanese licensees. During the year, approximately 30% of licensing income was generated in overseas markets. Reported licensing income was down 15.4% in reportable currency (down 14.9% in constant currency), to £5.5 million compared to £6.5 million in 2019, the year in which the Morris & Co. brand had a significant, one-off agreement with fashion retailer H&M.

Core licensing income includes bedding with Bedeck, window-coverings with Blinds2Go and a number of important strategic partners across the homewares sector in Japan, including bedding with Nishikawa, textiles with Kawashima and wall-coverings with Sangetsu.

Manufacturing

Total Manufacturing sales, including revenues from internal sales to the Group's Brands grew 7.9% to £35.5 million compared with the same period last year. Third-party sales were up 6.1% to £21.3 million during the year, primarily due to strong export sales which offset slower growth in orders from UK customers driven by economic uncertainty. During the year, both factories continued to grow exports as a result of their digital printing capabilities, helped also by exchange rates. Third-party export sales grew by 18.9% year-on-year.

Owning the production capabilities at Standfast & Barracks and Anstey has enabled the Group's Brands to secure supply and printing during the Covid-19 pandemic. Our unique integrated vertical supply chain is an important pillar in our strategy.

Standfast & Barracks ('Standfast')

Standfast, our fabric printing factory, is widely regarded, internationally, as the destination for creative, innovative and high quality fabric printing. It has achieved a major landmark in returning to profitability after three years of operating losses following the flood at the factory in December 2015. Standfast, in common with Anstey, attracts international orders and there has been significant sales growth from countries including the USA.

Standfast continues to exploit its extensive archive and original artwork, with a talented design studio that reinterprets antique, heritage and classic design into prints relevant for today.

Standfast saw an increase in sales during the year of 16.5% to £17.1 million. Third-party sales in the UK grew 8.4%; third-party export sales grew strongly by 31.0%; whilst sales to our own Group brands increased by 18.3%. Standfast's mix of digital print, which generates a higher margin, as a proportion of total sales value, decreased to 52% by value compared with 58% in FY19 despite an increase in total sales, as sales to Group brands have tended to rely on more conventional printing. The transition is underway in Sanderson and Morris & Co. to reproduce best-selling prints in digital, as long as it preserves the integrity of the designs.

In April this financial year, Standfast was awarded the prestigious Queen's Award for Enterprise 2020 in the International Trade category, recognising the factory's impressive overseas sales growth in the past three years.

Anstey Wallpaper Company ('Anstey')

Anstey, our wallpaper printing and paint-tinting business, is an unrivalled factory in its range of wallpaper printing techniques on one site. We continue to invest in new technology to extend the potential of the factory and to build on its unique capabilities. During the year, we commissioned a third digital printer. Digital printing sales grew by 35.2% compared with last year and, as a proportion of factory output, digital grew from 9.3% to 12.4%. Third-party customers reference the unique ability of Anstey to work consistently across the range of techniques and to blend them.

Sales at Anstey grew 1.0% to £18.5 million. Third-party sales in the UK were down 5.3%, third-party export sales were up 5.6% and internal wallcovering sales to our own Group brands increased by 5.9%. Export sales to the USA and Europe have benefited from an increase in the number of overseas customers, and the recognition of Anstey's premium print technologies, world-class excellence in manufacturing, customer service, quality and innovation.

Summary

My confidence in the Company's brands and my belief in the Company's people have grown significantly during my first year as Chief Executive Officer. Covid-19 has brought challenges and our workforce has responded with fortitude and resilience, for which I am immensely grateful. Having established the Company's strategy in autumn last year, Covid-19 has meant we have been even more focused on taking action and ensuring the business is fit for the future. We have continued to form new collaborations and to launch new initiatives so that the Company is positioned to emerge strongly to combat the impact of Covid-19 as the pandemic recedes.

Lisa Montague

Chief Executive Officer

29 June 2020

CHIEF FINANCIAL OFFICER'S REVIEW

Income statement

The Chairman's Statement and Chief Executive's Strategic and Operating Review provide an analysis of the key factors impacting our revenue and profit. In addition to the information on our Brands and Manufacturing divisions included in these reports, the Group has included in note 4 to the accounts further information on our reporting segments.

Operating profit fell by 18.3% to £4.8 million (2019: £5.8 million) due to challenging market conditions in our UK market as explained in the Chief Executive's Strategic and Operating Review. Underlying earnings before interest, taxes, depreciation and amortisation increased 3.1% to £13.1 million (2019: £12.7 million).

Newly adopted accounting standards

The Group has adopted IFRS 16 'Leases' from 1 February 2019. This has resulted in changes in accounting policies. In accordance with the transition provisions in IFRS 16, the Group has adopted the new rules on a modified retrospective basis and, therefore, not restated comparatives for the financial year. Note 1 to the financial statements describes the impact of the Group adopting IFRS 16. The Balance Sheet at 31 January 2020 recognises new 'right-of-use assets' of £8.4 million and new lease liabilities totalling £8.4 million. In the Income Statement operating lease costs (save for low-value and short-term leases) have been replaced by a depreciation charge on each right-of-use asset and an interest charge that reduces over the lease term. Total expenses (depreciation for 'right of use' assets and interest on lease liabilities) are higher in the earlier years of a typical lease and lower in the later years, in comparison with former accounting for operating leases. The main impact on the Statement of Cash Flows is higher cash flows from operating activities, since cash payments for the principal part of the lease liability are classified in the net cash flow from financing activities.

Underlying profit before tax

Statutory profit before tax of £4.4 million (2019: £5.6 million*) includes non-underlying charges of £2.0 million (2019: £3.3 million) as set out below.

Year ended 31 January

\* The LTIP charge for the year ended 31 January 2019 has been adjusted from a £661,000 credit to a £76,000 charge to correct the accounting for the prior year. 

Acquisition-related costs incurred were in respect of the acquisition of Clarke & Clarke, which completed on 31 October 2016. This comprises the amortisation of intangible assets of £1.0 million.

Restructuring and reorganisation costs of £1.0 million reflect the rationalisation of certain operational and support functions. These costs mainly comprise professional fees, employee severance, property termination and asset write down costs associated with the reorganisation process.

Anstey net other income comprises proceeds of £144,000 from the reimbursement of plant and equipment repair and related costs following a machine fire in 2017.

Long-Term Incentive Plan ('LTIP')

There was a new award of shares during the financial year under the LTIP with a quarter of the award based on vesting conditions that are market based and with a further quarter based on each of the absolute adjusted EPS, revenue and free cash flow respectively. There was a charge of £0.4 million (2019: £0.1 million) in the Income Statement relating to LTIP awards. The relatively low charge in the year is driven by a reduction to the Company's share price and a reduction in the vesting assumption for future awards.

Net defined benefit pension

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

The charge during the year was £0.6 million (2019: £0.6 million). In the prior year there is an additional non-underlying charge of £1.1 million as a result of equalising Guaranteed Minimum Pensions ('GMP') in the Group's pension schemes following a ruling in the High Court which has been recognised as a past-service charge.

Pension deficit

The pension deficit decreased during the year driven by strong asset performance. The impact of these factors is shown as follows:

In 2019 when the pension deficit was significantly higher, the Company agreed a Recovery Plan to pay contributions of between £1.7 million and £1.9 million per year to eliminate the funding shortfall by October 2026.

Current taxation

There was a corporation tax charge of £1.3 million (2019: £1.7 million) which has been driven by the decrease in underlying profit.

Deferred taxation

There was a deferred tax credit of £0.7 million (2019: credit £0.5 million) driven by the reversal of the deferred tax recognised in respect of the Clarke & Clarke acquisition and the pension deficit. The Group also continues to recognise the deferred tax asset arising from the LTIP.

Earnings per share

Basic reported EPS for the year was 5.24p (2019: 6.15p*). The Group also reports an adjusted EPS which removes the impact of the LTIP accounting charge, net defined benefit pension charge and other non-underlying items, as these can fluctuate due to external factors outside of the control of the Group. A better understanding of the underlying performance of the business is given after adjusting for these items. The adjusted basic EPS for the year was 9.26p (2019: 10.80p).

Operating cash flow and net funds

The Group generated net cash inflow from operating activities during the year of £8.2 million (2019: £11.5 million).

Working capital outflow of £1.6 million is driven by an increase in accrued accelerated licensing income and additional pattern book stock ahead of new collection launches.

Capital expenditure was £2.5 million (2019: £3.0 million) and includes the purchase of a digital printer at our wallpaper printing factory in line with the Group's strategy to continue to invest in innovative printing techniques and development costs relating to the design of new collections for the Brands.

The depreciation, impairment and amortisation charge during the period was £7.4 million (2019: £4.5 million) with the increase driven by the impact of IFRS 16.

The Group made additional payments to the pension schemes of £1.9 million (2019: £1.6 million) to reduce the deficit, part of the ongoing planned reduction, along with £0.4 million (2019: £0.4 million) of pension fund scheme expenses.

Overall tax paid during the year was £0.8 million (2019: £0.8 million). The effective tax rate ('ETR') has fallen to 15.0% from 19.1% driven by deferred tax adjustments relating to prior years.

The Group had net funds, excluding impact of IFRS 16 'Leases' as at 31 January 2020 of £1.3 million (2019: £0.4 million). Average debt during the year varies due to the timing and seasonality of revenues and investment in products. The average monthly net debt decreased by £4.4 million to £3.8 million (2019: £8.2 million) as a result of the Group utilising less of its bank facilities.

The Group utilises facilities provided by Barclays Bank PLC. In October 2019, the Group renewed its £12.5 million multi-currency revolving committed credit facility with Barclays Bank PLC for a further five-year period. The agreement also includes a £5 million uncommitted accordion facility option to further increase available credit which provides substantial headroom for future growth. Under these facilities there was borrowing headroom of £13.8 million (2019: £17.9 million) against committed facilities at 31 January 2020. Following the Covid-19 pandemic, the Group obtained a temporary overdraft facility of £2.5 million to April 2021, to complement the headroom in our existing £12.5 million revolving credit facility. Agreement was reached with Barclays Bank PLC during June 2020 to waive the interest cover covenant condition for the tests arising through to July 2021 and to waive the leverage covenant condition through to April 2021. The leverage covenant condition latter has been replaced by a liquidity covenant requiring that available headroom within the £12.5 million facility remains above £5 million through to April 2021. All of the Group's bank facilities remain secured by first fixed and floating charges over the Group's assets.

Dividends

During the year, the Group paid a final dividend for the year ended 31 January 2019 of 2.55p per share and an interim dividend of 0.52p per share.

In light of the Covid-19 pandemic to further preserve cash, the Board does not intend to propose payment of a final dividend for the year ended 31 January 2020.

Going concern

The Directors consider that, having considered forecasts prepared by the management team which have been stress tested, that the Group and Company have adequate resources to continue trading for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Foreign currency risk

All foreign currencies are bought and sold centrally on behalf of the Group. Regular reviews take place of the foreign currency cash flows, unmatched exposures are covered using forward contracts and working capital exposures are hedged using currency swaps where deemed appropriate. The Group does not trade in financial instruments and hedges are used for highly probable future cash flows and to hedge working capital exposures.

Credit risk

Generally the Group no longer seeks credit insurance as this is not a commercial solution to reducing credit risk. The Board reviews the internal credit limits of all major customers and reviews the credit risk regularly. The ageing profile of trade debtors shows that payments from customers are close to terms; however, there have been specific expenses during the year. The current economic environment still presents a level of risk and in addition to specific provisioning against individual receivables, a provision has been required of £0.4 million (2019: £0.5 million), which is a collective assessment of the risk against non-specific receivables. 

Michael Williamson

Chief Financial Officer

29 June 2020

Consolidated Income Statement

Year ended 31 January 2020

*See note 16 for explanation of adjustment for the year ended 31 January 2019.

All of the activities of the Group are continuing operations.

Consolidated Statement of Comprehensive Income

Year ended 31 January 2020

*See note 16 for explanation of adjustment for the year ended 31 January 2019.

Consolidated Balance Sheet

At 31 January 2020

Consolidated Cash Flow Statement

Year ended 31 January 2020

Year ended 31 January 2020

*See note 16 for explanation of adjustment for the year ended 31 January 2019.

Consolidated Statement of Changes in Equity continued

Year ended 31 January 2020

Notes to the Accounts

1. Accounting policies and general information

Basis of preparation

The Group has prepared its consolidated financial statements in accordance with International Financial Reporting Standards adopted for use in the European Union (IFRS).

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS this announcement does not itself contain sufficient information to comply with IFRS. The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the year ended 31 January 2020. The financial information is prepared in accordance with IFRSs as adopted by the European Union and IFRSs as issued by the International Accounting Standards Board, and with the accounting policies set out in the Group's 2019 Annual Report and Financial Statements and as updated by the 2019 Interim Statement.

These financial statements will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting. The statutory accounts for the year ended 31 January 2019 have been filed with the Registrar of Companies and contained an auditor's report which was (i) unqualified and (ii) did not contain a reference to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their report, and (iii) did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

This preliminary announcement was approved for release by the Board on 29 June 2020.

Adoption of new and revised accounting standards and interpretations

Since the Group's previous annual financial statements for the year ended 31 January 2019, the Group has applied IFRS 16 'Leases'.

IFRS 16 - Leases

IFRS 16 supersedes IAS 17 'Leases' and IFRIC 4 'Determining whether an Arrangement contains a Lease'. IFRS 16 introduced a single, on-balance sheet accounting model for leases. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. As a result, the Group, as a lessee, has recognised right-of-use assets representing its right to use the underlying leased assets and lease liabilities representing its obligation to make lease payments. The Group has applied IFRS 16 using the modified retrospective transition approach, whereby the initial right-of-use asset values were equal to the present value of the remaining lease payments, discounted at the rate implicit in each lease, or the Group's incremental borrowing rate if this was not readily determinable. The Group has applied a single discount rate to a portfolio of leases with reasonably similar characteristics. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 February 2019 was 2.57%.

Nature of the effect of adoption of IFRS 16

The Group has lease contracts for various items of property, vehicles, plant and machinery. Prior to the adoption of IFRS 16, leases of property, plant and machinery were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were previously charged to the Income Statement on a straight-line basis over the period of the lease.

Upon adoption of IFRS 16, the Group elected to apply the practical expedient allowing the standard to be applied only to contracts that were previously identified as leases under IAS17 and IFRIC 4. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or amended on or after 31 January 2019. The Group also elected to use the recognition exemptions for lease contracts that, at the date of transition, have a lease term of 12 months or less and do not contain a purchase option, and lease contracts for which the underlying asset is of low value (

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease. The right-of-use assets are measured at cost, less accumulated depreciation and impairment losses and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, adjusted for any lease payments made at or before the transition date, less any lease incentives received. Right-of-use assets are depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis, and are subject to and reviewed regularly for impairment.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of the lease payments to be made over the lease term. Lease payments include fixed payments (including any initial direct costs incurred) less any lease incentives receivable and variable lease payments that depend on an index or rate. Any variable or lease payments that do not depend on an index or rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs. After the commencement date, the lease liability is increased to reflect the accretion of interest and reduced for lease payments made. Additionally, the carrying amount of lease liabilities is re-measured if there is any relevant contractual change made to the lease such as changes to the lease term or payment profile. Interest charges are included within finance costs within the Income Statement.

Notes to the Accounts (continued)

1. Basis of preparation continued

Lease term

Extension and termination options are included in a number of property and vehicle leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

Accounting impact on the Consolidated Balance Sheet

The impact of IFRS 16 on the Consolidated Balance Sheet as at 1 February 2019 (the date of transition) is the recognition of the following items:

The following table provides a reconciliation from the total operating lease commitment as disclosed at 31 January 2019 to the total lease liabilities recognised in the Consolidated Balance Sheet in the financial statements immediately following transition:

* Plant and machinery and motor vehicles were classified as 'other' within note 29b of the 2019 Annual Report

Accounting impact on the Consolidated Income Statement

Save for short-term and low value leases, the Group has recognised depreciation and interest costs in respect of leases that were previously classified in the Consolidated Income Statement for the period, rather than rental charges. The accounting impact on the Consolidated Income Statement was as follows:

Notes to the Accounts (continued)

1. Basis of preparation continued

Accounting impact on the Consolidated Cash Flow Statement

The adjustments to the Consolidated Income Statement and Balance Sheets described above do not affect the cash balances. However, under IFRS 16 the Group separates the total amount paid for leases within the Consolidated Cash Flow Statement into a capital payment (presented within investing activities) and interest (presented within operating activities). Under IAS 17 operating lease payments were all shown under operating activities. Consequently, there is no change to the Group's net cashflow.

2. Critical accounting estimates and judgements

Business combinations

The Group applies judgement in determining whether a transaction is a business combination, which includes consideration as to whether the Group has acquired a business or a group of assets. For business combinations, the Group estimates the fair value of the consideration transferred, which includes assumptions about the future performance of the business acquired and an appropriate discount rate to determine the fair value of any contingent consideration. Judgement is also applied in determining whether any future payments should be classified as contingent consideration or as remuneration for future services. The Group estimates the fair value of assets acquired and liabilities assumed in the business combination, including any separately identifiable intangible assets and considering contingent liabilities. These estimates also require inputs and assumptions including future earnings, customer attrition rates and discount rates. The Group engages external experts to support the valuation process, where appropriate.

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

Going concern

A key accounting judgement for the year ended 31 January 2020 is the adoption of the going concern basis of preparation.

In assessing going concern to take account of the uncertainties caused by Covid-19, Management has modelled a Management Base Case (MBC) trading scenario on a "bottom up" basis with input from senior managers and the Executive Directors, which shows sales for the year ending 31 January 2021 reducing by some 30% compared to the sales achieved in the year ended 31 January 2020, with a gradual pick up as the current year progresses and into 2021/2022. Given the continuing uncertainty regarding the impact of Covid-19 (including potential further waves of the Pandemic) on the economy, consumer behaviour and ultimately on the Company's performance, the Company has also modelled increasingly stressed scenarios compared to MBC (which assume 10% ("Mid Case") and 20% ("Low Case") sales reductions, respectively, from MBC, along with increasingly conservative assumptions in these scenarios regarding cash collections from debtors). Under the low point in these stress tested scenarios, the Company retains headroom of at least c.£7.5 million against its Banking Facilities for the next 13 months to July 2021 (see next paragraph).

The Company has been in regular dialogue with its Bankers, Barclays Bank Plc, as its scenario plans have developed. It has pro-actively and transparently shared the afore-mentioned scenario models with Barclays. While they show headroom of c.£7.5 million at the lowest point in the Low Case scenario for the next 13 months, they do indicate Bank covenant breaches at various testing points in the next 13 months due to the impact of Covid-19 on sales and profits in the scenarios modelled. Given the Company's track record and the steps taken in response to Covid-19, the Bank has been very supportive and formal agreement has been reached with Barclays to waive the breaches shown by the scenario modelling, being the interest cover covenant condition (ratio of operating profit to interest) for the tests arising in July 2020, October 2020, January 2021, April 2021 and July 2021 and the leverage covenant condition (ratio of total net debt to EBITDA) for October 2020, January 2021 and April 2021. As part of this agreement with Barclays, it has been agreed that the Company will maintain headroom in its Banking Facilities of at least £5 million, between 1 November 2020 and 31 July 2021. As noted above, the Company's scenario modelling shows headroom of around £7.5 million at the lowest point during our key trading period, in the Low Case scenario between now and 31 July 2021.

Notes to the Accounts (continued)

2. Critical accounting estimates and judgements continued

In addition to the above scenarios, Management has run a further sensitivity, in accordance with requests from its external auditors that further sensitises the Low Case (i.e. sustained lockdown in the UK for the next 12 months leading to sales remaining at the levels seen in May 2020), which equates to 50% sales reductions from MBC. Management has also identified a number of mitigating actions that the Company would take to stay above the £5 million headroom throughout the period of the £5 million liquidity covenant in this scenario and shared these with the auditors.

Given the unprecedented nature of the Covid-19 events, it is impossible to predict future trading and cashflows with any certainty. The actual scenarios which materialise in the period ahead will undoubtedly be different to the scenarios modelled and could be worse than modelled by even the Low Case. In that event, it is implausible that Management would not act decisively to try to protect the business, particularly its cash position, as it has done in the past 3 months, even though the actual impact of such actions cannot be predicted with certainty at this point. Having taken into account all of the afore-mentioned comments, actions and factors in relation to going concern and the potential impact of Covid-19, the Directors consider that the Group and Company have adequate resources to continue trading for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Other critical accounting estimates include retirement benefit pension obligations, impairment of non-financial assets, deferred tax recognition, Covid-19 and long term incentive plan payment awards.

3. Segmental analysis

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

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

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

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

Following the acquisition of Clarke & Clarke the Board of Directors have also monitored the performance of this division for the purposes of the earn-out.

a) Reportable segment information

Year ended 31 January 2020

Notes to the Accounts (continued)

3. Segmental analysis continued

Year ended 31 January 2019

*See note 16 for explanation of adjustment for the year ended 31 January 2019.

Business interruption reimbursements to cover loss of profits of £54,000 (£2019: nil) are included within 'Eliminations and unallocated'.

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

\* The geographical segments for the year ended 31 January 2019 have been redefined in line with the Group's strategy.

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

Notes to the Accounts (continued)

3. Segmental analysis continued

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

b) Additional entity-wide disclosures

4. Net other income

Net other income comprises consideration received from the sale of marketing materials and additional services of £5,268,000 (2019: £5,611,000), and business interruption reimbursements to cover loss of profits of £54,000 (2019: £nil). In addition, there was non-underlying net other income of £90,000 (2019: £nil as per note 5).

Notes to the Accounts (continued)

5. Non-statutory profit measures

Underlying profit measures

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

Non-underlying items

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

a) Restructuring and reorganisation costs relate to the reorganisation of the Group and comprise of the rationalisation of certain operational and support functions. These costs mainly comprise employee severance and professional fees associated with the reorganisation process of £702,000 (2019: £355,000); compensation for loss of office and associated costs to the former Chief Financial Officer of £330,000 (2019: £nil) and former Chief Executive Officer of £nil (2019: £407,000) as well as a further £27,000 (2019: £961,000) in respect of property termination and asset impairment costs associated with the Clarke & Clarke Haslingden site exit.

b) Anstey fire-related net other income of £90,000 (2019: £565,000) comprise of proceeds arising from reimbursement of repair costs in respect of plant and equipment and related costs following a minor fire, less repair costs £54,000 (2019: £85,000).

c) Following a High Court judgement in October 2018, the estimated costs of equalising UK pension benefits for men and women in relation to Guaranteed Minimum Pension ('GMP') was recognised as a past-service charge.

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

6. Net Finance costs

Notes to the Accounts (continued)

7. Tax expense

Reconciliation of total tax charge for the year

*See note 16 for explanation of adjustment for the year ended 31 January 2019.

Factors affecting current and future tax charges

No overseas taxation is anticipated to become payable within the immediate future due to the availability of gross tax losses of approximately £3.2 million (2019: £3.2 million).

Notes to the Accounts (continued)

8. Deferred income tax

A net deferred tax liability of £802,000 (2019: £970,000) is recognised in respect of future deductions for LTIP payments and other temporary differences.

Movements on the deferred income tax account are as follows:

9. Earnings per share

Basic earnings per share ('EPS') is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares outstanding during the year, excluding those held in the Employee Benefit Trust ('EBT') and those held in treasury (note 24), which are treated as cancelled. The adjusted basic earnings per share is calculated by dividing the adjusted earnings by the weighted average number of shares. As a consequence of the difficult marketplace impacting the profitability of the Group, PBT performance criteria within LTIP 11 are not being met and as a consequence these Long-Term Incentive Plan ('LTIP') awards are not dilutive.

*See note 16 for explanation of adjustment for the year ended 31 January 2019.

Notes to the Accounts (continued)

9. Earnings per share continued

On 29 May 2018, 142,238 shares vested under the Company's LTIP. To satisfy the vesting, 87,994 shares of 1 pence each were allotted at par value.

Following this transaction Walker Greenbank Plc's issued ordinary share capital with voting rights consists of 70,983,505 (2019: 70,983,505) ordinary shares of which no (2019: nil) ordinary shares are held in treasury and no (2019: nil) ordinary shares are held by the Walker Greenbank PLC EBT. Shares held in treasury or by the EBT are treated as cancelled when calculating EPS.

The market value of shares held by the EBT at 31 January 2020 was £nil (2019: £nil). The total number of shares held in the EBT at the year end represented 0% (2019: 0%) of the issued shares.

10. Trade and other receivables

11. Analysis of net funds

Other non-cash changes are exchange gains/(losses) from the retranslation of bank balances held in non-sterling bank accounts

Notes to the Accounts (continued)

12. Cash generated from operations 

*See note 16 for explanation of adjustment for the year ended 31 January 2019.

13. Retirement benefit obligation

Defined benefit schemes

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

The Group's contributions to the schemes for the year beginning 1 February 2020 are expected to be £2,184,000.

Notes to the Accounts (continued)

14. Business combinations

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

On 26 June 2017, the Group issued 1,116,586 ordinary shares of 1 pence each in the Company (the 'Consideration Shares') in respect of the first tranche of the performance-related earn-out consideration. This first tranche of Consideration Shares has been issued following Clarke & Clarke achieving its variable EBITDA target for the period ended 31 January 2017. The Consideration Shares have been issued at an issue price of 206.25 pence per share (being the average closing price for the Company's ordinary shares 10 business days preceding 16 June 2017) and are subject to a 12-month lock-in period.

In accordance with IFRS 3 'Business Combinations', the Directors made an initial assessment of the fair values of the acquired assets and liabilities and contingent consideration, resulting in goodwill of £14,736,000 being created in the Balance Sheet.

Also, following finalisation of the Group's tax computations for the year ended 31 January 2017, the purchase consideration for Clarke & Clarke was reassessed in respect of tax reliefs relating to the acquiree's pre-acquisition position resulting in an increase of £338,000.

Net adjustments amounting to £955,000 have been made to increase the contingent consideration, other payables and respective goodwill and the Balance Sheet at 31 January 2017 has been restated accordingly. The net assets are unaffected by these adjustments.

The Group remeasures the contingent consideration at fair value at each Balance Sheet date. As a result of the challenging performance targets and prevailing market conditions, the performance target for the period ended 31 January 2018 and 31 January 2019 have not been achieved. It is not considered likely that the performance target for the remaining one year will be achieved; therefore, there has been a remeasurement of the fair value of this contingent consideration resulting in a £4,047,000 credit to the Income Statement in the period ended 31 January 2018. There was also a charge of £405,000 recognised in respect of the unwind of the contingent consideration payable for Clarke & Clarke in the period ended 31 January 2018. Therefore the estimated fair value of the assumed probability adjusted contingent consideration at 31 January 2020 was £nil (2019: £nil), which is classified as Level 3 in the fair value hierarchy.

15. Events after the reporting period

On 26 February 2020, the Group appointed Michael Williamson as Chief Financial Officer.

The impact of the Covid-19 pandemic on the Group's operations is discussed within the Chief Executive's Strategic and Operational Review as well as the Principal risks and uncertainties. Subsequent to the balance sheet date, the Group has monitored trade performance, internal actions, as well as other relevant external factors (such as changes in any of the government restrictions). No adjustments to the key estimates and judgements that impact the balance sheet as at 31 January 2020 have been identified.

The following non-adjusting events have occurred since 31 January 2020:

• Use of the UK Government Coronavirus Job Retention Scheme to furlough c.500 colleagues across our wallpaper and fabric printing factories, distribution centre and retail operations, which should generate cash savings of c.£2,000,000 up to 31 July 2020;

• We enhanced our liquidity on a precautionary basis by obtaining a temporary overdraft facility of £2,500,000 to complement the headroom in our existing £12,500,000 revolving committed credit facility;

• Formal agreements has been reached with Barclays Bank PLC to waive the interest cover covenant condition for the tests arising in July 2020, October 2020, January 2021, April 2021 and July 2021 and to waive the leverage covenant for October 2020, January 2021 and April 2021. This has been replaced by a liquidity covenant requirement that available headroom in the facility needs to remain above £5,000,000 between 1 November 2020 and 31 July 2021;

• The Group has agreed extended payment terms totalling £1m with suppliers and business partners including landlords, leasing companies, pension scheme and HMRC;

• Cancelled the final dividend payment for the year ended 31 January 2020 to further conserve cash.

Review of the key financial assumptions relating to inventory provisions subsequent to the balance sheet date, would suggest that an additional c.£870,000 provision may be required to reflect the impact of Covid-19, with reduced sales volumes which in turn will increase the expected time to turnover the inventory, but a proportion of this provision is expected to unwind by the year end as the inventory is sold, given that the inventory provisioning is based on a rolling 12 month sales turn and age since launch.

The Group has undertaken a cost and efficiency exercise to address the economic threats arising from Covid-19 events. The objective is to create a cost-effective, lean structure that provides simplification, removes unnecessary complexities and layering within the business which will ensure that the Group is set up to deliver improved performance and ultimately in a more agile working environment.

Notes to the Accounts (continued)

16. Explanation of adjustment for the year ended 31 January 2019

The LTIP charge for the year ended 31 January 2019 has been adjusted from a £661,000 credit to a £76,000 charge to correct the accounting for the prior year, with totals and subtotals amended for this change. Amounts impacted have been identified throughout the financial statements through the use of an asterisk on the financial statement line and a footnote reference to this note. This was due to an error in the LTIP calculation for LTIPs 9, 10 and 11. The statutory profit has been reduced by £737,000, reducing basic and diluted EPS from 7.19p to 6.15p. The overall retained earnings position at 31 January 2019 has not been impacted.