2 Oct 2008 07:00
| For immediate release | 2 October 2008 |
Walker Greenbank PLC
("Walker Greenbank" or "the Company")
Interim Results for the 6 months ended 31 July 2008
Walker Greenbank PLC (AIM: WGB), the luxury interior furnishings group whose brands include Sanderson, Morris & Co., Harlequin and Zoffany, is pleased to announce its interim results for the 6 month period ended 31 July 2008.
Highlights
Brands delivered strong organic growth in the first half, with revenues growing 10%
Group revenue up 7% to £33.01 million (H1 2007: £30.81 million)
Operating profit up 14% to £2.14 million (H1 2007: £1.88 million)
Interest cover increased to 5.1 times (H1 2007: 3.9 times)
Profit before taxation up 23% to £1.72 million (H1 2007: £1.40 million)
Earnings per share 1.70p (H1 2007: 2.99p). Adjusted earnings per share of 3.11p (H1 2007: 2.50p) after excluding non cash deferred tax movements
Ian Kirkham, the Chairman of Walker Greenbank, said: "These half year results represent another period of positive growth at Walker Greenbank. With the level of product and marketing investment made in our premium end brands we remain confident about the future progress of the Group. We currently expect to be in line with market expectations for the full year, dependent on the key autumn selling period."
For further information:
| Walker Greenbank PLC | 08708 300077 |
| John Sach, Chief Executive | |
| Alan Dix, Finance Director | |
| Julian Wilson, Company Secretary | |
| Landsbanki Securities (UK) Limited | 020 7426 9000 |
| Mark Dickenson / Tom Hulme | |
| Buchanan Communications | 020 7466 5000 |
| Mark Court / Suzanne Brocks / Miranda Higham |
CHAIRMAN'S STATEMENT
Overview
I am pleased to report that, despite the challenging market in which we operate, the first half results reflect the solid progress we continue to make in delivering our key strategic organic growth objectives.
Our brand sales have increased 8% in the first half in the demanding UK retail market. In Europe, retail sales have grown 16%, equivalent to 4% in local currency, and in the Rest of the World by 34%. Sales in our US retail business, a relatively small part of the Group, have fallen 4%, but were broadly flat in local currency. Within our brand segment our contract business continues to benefit from strong investment and has delivered 19% growth. Finally, our third party manufacturing sales have declined 4%, reflecting the prevailing market conditions.
Harlequin, our pre-eminent brand in the mid-market, has continued to grow its revenue. However, owing to increased investment in overhead costs in the second half of last year to support the significant growth in revenue and slightly reduced margins due to a change in product mix, the overall profits have fallen slightly on the same period last year. Continued heavy investment in product and marketing has helped Sanderson, our globally recognised brand, achieve substantial revenue growth and a significant increase in profitability. With Zoffany now firmly established as a leading brand in the premium end of the market, our focused investment in product and marketing has helped increase revenues and deliver a substantial improvement in profits. Extremely testing market conditions in the US have led to flat sales for our business in local currency in the first half. These conditions, combined with the weakness of the dollar, mean that the business continues to make a small loss. We remain confident that there is considerable medium to long term growth potential for the Group in this important market.
Anstey, our wallpaper factory in Loughborough, continues to benefit from the growing popularity of wallpaper. The limited capacity at the mid to premium end of the market and high barriers to entry, combined with our continued commitment to investment in factory efficiency and service to our customers, have helped the business grow its revenue and substantially improve profits. Standfast, our fabric printing factory based in Lancaster, continues to invest in factory efficient capital equipment. However, third party sales have fallen in the first half reflecting tougher market conditions for printed fabric, which has led to a fall in profits over the same period last year.
Financials
Revenue has increased 7% to £33,007,000 from £30,807,000 over the same period last year. The operating profit for the year has increased 14% to £2,141,000 (2007: £1,880,000). The profit before tax has increased 23% to £1,722,000 (2007: £1,402,000). Profit after tax has fallen to £936,000 (2007: £1,687,000), this is due almost entirely to non cash deferred tax movements as a direct consequence of the recognition of a deferred tax asset at the end of last year. This related predominantly to historical corporation tax losses. The profit after tax excluding these deferred tax movements has increased 21% to £1,711,000 (2007: £1,412,000).
Interest cover increased to 5.1 times compared with 3.9 times for the first half of 2007.
The earnings per share were 1.70p (2007: 2.99p). An adjusted earnings per share that excludes the deferred tax movements and reflects the cash tax of the Group is 3.11p (2007: 2.50p).
The Group's net indebtedness at the period end was £9,302,000 (2007: £8,482,000). The adverse movement was predominantly due to substantial increases in period end stock due to the extensive nature of the brands' autumn launch and the timing of the payments to suppliers for the product. This will reverse out into cash generation in the second half. This represents a reduction in gearing to 43% (2007: 59%).
Dividend
At the interim stage, your Board does not recommend the payment of a dividend. We will review the prospect of the payment of a final dividend once our full year end results are known.
People
On behalf of the Board, I would like to offer thanks to all our employees for their enthusiasm and commitment, which have contributed significantly to the progress of the Group during the period. We are very grateful to them for their continued support.
Outlook
Our Group has a clear strategy to deliver earnings growth. With the level of product and marketing investment we have made in our premium end brands we remain confident about the future progress of the Group.
We currently expect to be in line with market expectations for the full year, dependent on the key autumn selling period.
Ian Kirkham
Non-Executive Chairman
1 October 2008
CHIEF EXECUTIVE'S REVIEW
I am delighted to provide a review of the first half of our financial year, a period during which we have continued to benefit from our significant investment in the design and marketing of new product ranges for our four brands. Our strategy continues to be underpinned by five key elements: organic growth, geographic expansion, contract sales, licensing income and a willingness to evaluate acquisition opportunities. This strategy has delivered significant revenue growth for the Group in the first half and, against a market backdrop that has become more challenging since the period end, we believe our strategy and the strength of our brands will continue to support the growth of our business.
The Brands
The brands have all performed strongly in the first half, with revenues growing 10% over the same period last year leading to a 12% increase in operating profits.
Harlequin
It is pleasing to report that Harlequin has maintained its position as the leading mid-market contemporary brand in the UK by delivering 7% revenue growth in the first half, supported by growth in its contract revenues, up 17% on the same period last year. Growth has been led by export sales up 10% on the same period last year and growth of 4% in the UK, where the rate of growth has slowed. The export growth has been driven by new markets in the Far East, Middle East and Australia. Woven product led the revenue growth, up 12% on the same period last year. Wallpaper achieved a small year on year growth but sales in printed fabrics have declined. As just more than half of Harlequin revenues are from woven product, which is sourced primarily from Europe, the gross margins have declined slightly due to the strengthening of the Euro.
Zoffany
Zoffany is now established as a leading brand at the premium end of the market. Strong investment in new product and marketing has helped grow sales by 7% on the same period last year, supported by growth in its contract business of 20%. The growth has been led by export sales, up 15%, compared with the UK's 4%. The largest export market was Europe, where growth of 14% was achieved. This growth was driven particularly by Eastern Europe, where growth was 54%. Strong growth of 64% was also achieved in the Far East, an emerging market for Zoffany. Woven fabric, which now represents more than half of Zoffany revenues, grew 8% compared with the same period last year. Printed fabrics have grown 17% following a strong product launch in the second half of last year, whilst wallpaper revenue has remained constant.
Arthur Sanderson & Sons incorporating the Morris & Co brand
Continued strong investment in product combined with the unrivalled global recognition of the brand has helped Sanderson grow its revenues significantly over the same period last year by 25%. The growth has been broad-based with all geographic markets growing strongly; overseas markets were up 40% whilst the UK was up 19%. The growth has been led by woven fabric, up by 41%, with wallpaper up 29% and printed fabrics up 7%. Gross margins improved as the strengthening Euro benefited margins, there being a higher proportion of European sales for this brand compared with Harlequin and Zoffany.
Overseas
USA
The USA market has been extremely challenging due to the well documented economic conditions. Revenues in the US business have fallen 6% but remained broadly flat in local currency over the same period last year. The US still forms a relatively small part of overall Group revenues and despite the testing market conditions we continue to invest strongly in marketing, patterning and sample support as we firmly believe in the medium to long term potential for the Group in this market. This ongoing investment and the impact of reduced margins due to the weakness of the dollar have led to a continued loss.
Europe
The Group's distribution businesses in Rome, for Zoffany and Harlequin, and in Paris, for Zoffany and Sanderson, remain relatively small. However following the appointment of an experienced European development director last year combined revenues have increased by 17%, in local currency 1%.
Manufacturing
Manufacturing has experienced tougher market conditions, with third party sales falling 4% on the same period last year. However, stronger sales to the Group's brands, up 6%, and overall improvement in factory efficiency have led to an increase in profits over the same period last year of 9%.
Anstey
With the strength of demand for wallpaper now firmly established and Anstey's recognised position as the market leader in the UK in wallpaper manufacture at the mid to premium end of the market, overall sales have grown by 6% over the same period last year. Third party sales grew by 5% and now account for 46% of overall sales whilst sales to the Group's brands grew by 6%. The continued emphasis on improved factory efficiencies combined with the additional volume has improved margins.
Standfast
As reported at the year end Standfast has continued to experience extremely challenging market conditions in the first half of the current year. Overall sales are down by 3% over the same period last year, driven by a 9% drop in third party revenues. Sales to Group brands have grown 6%. This reduced activity has put further pressure on factory throughput and operating margins leading to a decline in profits to just over breakeven. Since the half year Standfast has had a restructuring in order to adjust the business to the new, lower volumes it is experiencing. This has involved a redundancy programme and the condensing of factory activity into a shorter working week, which has reduced the cost base and will also reduce energy usage and help mitigate the substantial increases in energy prices expected in the second half of the year.
Summary
All of our brands have performed strongly in the first half and we currently remain confident about the outturn for the full year. We have invested heavily in the development of the Group over the past two years. However, we remain acutely aware of the prevailing market place in which we operate. We will benefit from improved dollar currency hedges next year and additionally we have the capacity to reduce significant discretionary costs if our volumes come under pressure, ensuring the sustainability of the Group profit.
John Sach
Group Chief Executive
1 October 2008
Walker Greenbank plc
Unaudited Consolidated Income Statement
For the six months ended 31 July 2008
| Note | 6 months to 31 July 2008 £000 | 6 months to 31 July 2007 £000 | Year to 31 Jan 2008 £000 | |
| Revenue | 2 | 33,007 | 30,807 | 62,448 |
| Profit from operations | 2,141 | 1,880 | 3,961 | |
| Net defined benefit pension (charge)/ income Net finance costs Amortisation of issue costs | 3 | (34) (373) (12) | 34 (479) (33) | 119 (906) (75) |
| Net finance costs | (419) | (478) | (862) | |
| Profit before taxation | 1,722 | 1,402 | 3,099 | |
| Current tax | (11) | 10 | (29) | |
| Deferred tax - exceptional | (320) | 275 | 5,101 | |
| Deferred tax - other | (455) | - | - | |
| Total tax (charge)/credit | 4 | (786) | 285 | 5,072 |
| Profit for the period | 936 | 1,687 | 8,171 | |
| Earnings per share - Total basic and diluted | 5 | 1.70p | 2.99p | 14.49p |
| Earnings per share - Adjusted basic and diluted | 5 | 3.11p | 2.50p | 5.44p |
Unaudited Consolidated Statement of Recognised Income and Expense
For the six months ended 31 July 2008
| 6 months to 31 July 2008 | 6 months to 31 July 2007 | Year to 31 Jan 2008 | ||
| £000 | £000 | £000 | ||
| Actuarial losses on scheme assets | - | - | (1,364) | |
| Changes in actuarial mortality assumptions | - | - | (2,868) | |
| Other actuarial gains on scheme liabilities | - | - | 4,932 | |
| Currency translation differences | 30 | 2 | 27 | |
| Cash flow hedges - net movement | 65 | - | (110) | |
| Reduction in deferred tax asset relating to pension liability due to tax rate reduction | - | (110) | (110) | |
| Reduction of deferred tax asset relating to pension scheme liability | (175) | (165) | (573) | |
| Net expense recognised directly in equity | (80) | (273) | (66) | |
| Profit for the period | 936 | 1,687 | 8,171 | |
| Total recognised income for the period | 856 | 1,414 | 8,105 |
Unaudited Consolidated Balance Sheet
As at 31 July 2008
| Note | As at 31 July 2008 £000 | As at 31 July 2007 Restated £000 | As at 31 Jan 2008 £000 | |
| Non-current assets | ||||
| Intangible assets | 5,778 | 5,878 | 5,833 | |
| Property, plant & equipment | 8,921 | 8,772 | 8,991 | |
| Deferred income tax assets | 5,105 | 1,637 | 6,055 | |
| Trade and other receivables | 17 | 259 | 253 | |
| 19,821 | 16,546 | 21,132 | ||
| Current assets | ||||
| Inventories | 13,910 | 12,818 | 12,546 | |
| Trade and other receivables | 13,908 | 12,685 | 13,475 | |
| Cash and cash equivalents | 3,203 | 1,879 | 2,017 | |
| 31,021 | 27,382 | 28,038 | ||
| Total assets | 50,842 | 43,928 | 49,170 | |
| Current liabilities | ||||
| Borrowings | (400) | (400) | (400) | |
| Trade and other payables | (13,730) | (14,232) | (15,546) | |
| Derivative financial instruments | (45) | - | (110) | |
| (14,175) | (14,632) | (16,056) | ||
| Net current assets | 16,846 | 12,750 | 11,982 | |
| Non-current liabilities | ||||
| Borrowings | (12,105) | (9,961) | (8,906) | |
| Retirement benefit obligation | 8 | (2,783) | (4,866) | (3,409) |
| (14,888) | (14,827) | (12,315) | ||
| Total liabilities | (29,063) | (29,459) | (28,371) | |
| Net assets | 21,779 | 14,469 | 20,799 | |
| Equity | ||||
| Share capital | 590 | 590 | 590 | |
| Share premium account | 457 | 457 | 457 | |
| Foreign currency translation reserve | 40 | (15) | 10 | |
| Retained earnings | (19,770) | (27,070) | (20,655) | |
| Other reserves | 40,462 | 40,507 | 40,397 | |
| Total equity | 9 | 21,779 | 14,469 | 20,799 |
Unaudited Consolidated Cash Flow Statement
For the six months ended 31 July 2008
| Note | 6 months to 31 July 2008 £000 | 6 months to 31 July 2007 £000 | Year to 31 Jan 2008 £000 | |
| Cash flows from operating activities | ||||
| Cash (utilised)/ generated from operations | 7 | (691) | 1,417 | 4,623 |
| Debt issue costs | (12) | (71) | (123) | |
| Interest paid | (395) | (549) | (956) | |
| Interest received | 28 | 4 | 5 | |
| Income tax paid | (11) | (32) | (7) | |
| (1,081) | 769 | 3,542 | ||
| Cash flows from investing activities | ||||
| Purchase of intangible fixed assets | (210) | (166) | (365) | |
| Purchase of property, plant & equipment | (647) | (569) | (1,309) | |
| Proceeds on sale of property, plant and equipment | - | - | 3 | |
| (857) | (735) | (1,671) | ||
| Cash flows from financing activities | ||||
| Purchase of treasury shares | (83) | - | (612) | |
| Proceeds from new borrowings | - | 11,296 | 11,296 | |
| Repayment of borrowings | - | (11,296) | (11,296) | |
| Net drawdown/ (repayment) of borrowings | 3,199 | (218) | (1,315) | |
| 3,116 | (218) | (1,927) | ||
| Net increase/ (decrease) in cash, cash equivalents and bank overdrafts | 1,178 | (184) | (56) | |
| Cash, cash equivalents and bank overdrafts at beginning of period | 2,017 | 2,065 | 2,065 | |
| Effect of foreign exchange rate movements | 8 | (2) | 8 | |
| Cash, cash equivalents and bank overdrafts at the end of the period | 3,203 | 1,879 | 2,017 |
Notes to the Accounts
| 1 | Basis of preparation of interim statements |
The interim financial statements have been prepared in accordance with the accounting policies that the Group expects to apply in its annual financial statements for the year ending 31 January 2009. The Group's accounting policies are based on International Financial Reporting Standards ("IFRS") adopted for use by the European Union ("EU") and interpretive guidance from the International Financial Reporting Interpretations Committee ("IFRIC"). These standards and interpretations are subject to ongoing review and endorsement by the EU or possible amendment by further interpretive guidance from IFRIC and are therefore still subject to change.
The Group has chosen not to adopt IAS 34 'Interim financial statements' in preparing these interim financial statements for the period to 31 July 2008 as it is not mandatory for AIM listed companies.
Comparative period information as at 31 July 2007 has been restated to reflect a change in accounting policy, implemented since July 2007, with respect to marketing materials. The Group's policy is to classify marketing materials on the balance sheet within trade and other receivables; previously marketing materials were included in inventory. The change has resulted in an increase in trade and other receivables and a decrease in inventories of £1,341,000 as at 31 July 2007.
Since the Group's previous annual financial report for the year ended 31 January 2008 the following pronouncements are now effective and have been adopted by the Group:
IFRIC 11 'Group and treasury transactions' (this has had no impact on these consolidated interim financial statements)
In preparing these interim financial statements, the Group has not applied the following pronouncements:
(i) Standards, amendments and interpretations effective for the year ending 31 January 2009 but which have not yet been endorsed by the EU:
IFRIC 12 'Service concession agreements'
IFRIC 14 'The limit on a defined benefit asset, minimum funding requirements and their interaction'
(ii) Standards, amendments and interpretations which have been endorsed by the EU but are not yet mandatory and have not been early adopted for the year ending 31 January 2009:
IFRS 8 'Operating segments'
(iii) Standards, amendments and interpretations which have not yet been endorsed by the EU and which are not yet effective for the year ending 31 January 2009:
IAS 1 (revised) 'Presentation of financial statements'
IAS 23 (revised 2007) 'Borrowing costs'
IAS 27 (revised) 'Consolidated and separate financial statements'
Amendment to IAS 32 'Financial Instruments: Presentation' and IAS1 'Presentation of financial statements - Puttable financial instruments and obligations arising on liquidation'
IAS 39 'Financial Instruments: recognition and measurement - amendment regarding eligible hedged items'
Amendment to IFRS 1 'First time adoption of IFRS' and IAS 27 'Consolidated and separate financial statements'
IFRS 2 'Share based payments amendments - Vesting conditions and cancellations'
IFRS 3 (Revised) 'Business combinations'
Notes to the Accounts (continued)
| 1 | Basis of preparation of interim statements (continued) |
IFRIC 13 'Customer loyalty programmes relating to IAS 18, Revenue'
IFRIC 15 'Agreements for construction of real estates'
IFRIC 16 'Hedges of a net investment in a foreign operation'
The Group is still assessing the potential impact of the above pronouncements, but does not expect any of them to have a material impact on the measurement of profit from existing operations to be reported in future periods.
The interim financial statements are not statutory accounts for the purposes of S240 of the Companies Act 1985. The Financial Information for the year ended 31 January 2008 is based on the statutory accounts for the financial year ended 31 January 2008, on which the auditors issued an unqualified opinion, and have been delivered to the Registrar of Companies. The half-year figures, which are for the 6 month period ended 31 July 2008, have not been audited, but have been reviewed by the auditors. The auditors' review report is included with the interim financial statements.
The Board approved the interim financial statements on 1 October 2008.
| 2 | Segmental analysis |
Walker Greenbank is a designer, manufacturer and distributor of luxury interior furnishings, fabrics and wallpaper. The Group predominantly manages its operations as two segments which are the brands and manufacturing. Segmental information is also presented in respect of the Group's geographical segments. Unallocated expenses, predominantly related to corporate head office costs, include long term incentive plan costs. This is the basis on which the Group presents its results.
| a. | Business Segment | ||||||
| 6 months to 31 July 2008 | Brands | Manufacturing | Eliminations and unallocated | Total | |||
| £000 | £000 | £000 | £000 | ||||
| Revenue - External | 26,324 | 6,683 | - | 33,007 | |||
| Revenue - Internal | - | 6,090 | (6,090) | - | |||
| Total Revenue | 26,324 | 12,773 | (6,090) | 33,007 | |||
| Operating profit | 2,971 | 672 | (1,502) | 2,141 |
| Financial costs | (385) | (385) | ||
| Net pension charge | (34) | (34) | ||
| Profit before tax | 2,971 | 672 | (1,921) | 1,722 |
| Tax | (786) | (786) | ||
| Profit for the period | 2,971 | 672 | (2,707) | 936 |
| 2 | Segmental analysis (continued) |
| a. | Business Segment (continued) |
| 6 months to 31 July 2007 | Brands | Manufacturing | Eliminations and unallocated | Total |
| £000 | £000 | £000 | £000 | |
| Revenue - External | 23,875 | 6,932 | - | 30,807 |
| Revenue - Internal | - | 5,754 | (5,754) | - |
| Total Revenue | 23,875 | 12,686 | (5,754) | 30,807 |
| Operating profit | 2,641 | 618 | (1,379) | 1,880 |
| Financial costs | (512) | (512) | ||
| Net pension income | 34 | 34 | ||
| Profit before tax | 2,641 | 618 | (1,857) | 1,402 |
| Tax | 285 | 285 | ||
| Profit for the period | 2,641 | 618 | (1,572) | 1,687 |
| 12 months to 31 January 2008 | Brands | Manufacturing | Eliminations and unallocated | Total |
| £000 | £000 | £000 | £000 | |
| Revenue - External | 48,206 | 14,242 | - | 62,448 |
| Revenue - Internal | - | 10,570 | (10,570) | - |
| Total Revenue | 48,206 | 24,812 | (10,570) | 62,448 |
| Operating profit | 4,624 | 1,486 | (2,149) | 3,961 |
| Financial costs | - | - | (981) | (981) |
| Net pension income | - | - | 119 | 119 |
| Profit before tax | 4,624 | 1,486 | (3,011) | 3,099 |
| Tax | - | - | 5,072 | 5,072 |
| Profit for the year | 4,624 | 1,486 | 2,061 | 8,171 |
| b. | Geographical Segments | 6 months to 31 July 2008 | 6 months to 31 July 2007 | 12 months to 31 January 2008 | ||
| Revenue by geographical location of customers | £000 | £000 | £000 | |||
| United Kingdom | 21,196 | 20,118 | 41,540 | |||
| Continental Europe | 5,674 | 4,992 | 9,132 | |||
| North America | 4,207 | 4,375 | 8,113 | |||
| Rest of the World | 1,930 | 1,322 | 3,663 | |||
| 33,007 | 30,807 | 62,448 | ||||
Notes to the Accounts (continued)
| 3 | Net defined benefit pension costs | |||||
| 6 months to 31 July 2008 | 6 months to 31 July 2007 | 12 months to 31 January 2008 | ||||
| £000 | £000 | £000 | ||||
| Expected return on pension scheme assets | 1,430 | 1,340 | 2,721 | |||
| Interest on pension scheme liabilities | (1,326) | (1,173) | (2,371) | |||
| Scheme expenses | (138) | (133) | (231) | |||
| (34) | 34 | 119 | ||||
| 4 | Taxation | ||||||
| 6 months to 31 July 2008 | 6 months to 31 July 2007 | 12 months to 31 January 2008 | |||||
| £000 | £000 | £000 | |||||
| UK Corporation tax at 28% (2007:30%) | - current year | - | - | - | |||
| Overseas taxation | - current year | (11) | - | (29) | |||
| - prior year | - | 10 | - | ||||
| Deferred tax | - current year | (455) | - | - | |||
| - exceptional | (320) | 275 | 5,101 | ||||
| Tax (charge)/credit on profit on ordinary activities | (786) | 285 | 5,072 | ||||
The deferred tax credit of £275,000 for the six months to 31 July 2007 arose from the partial recognition of a deferred tax asset relating to losses incurred by the Group in prior years. These losses were recognised at 31 July 2007 due to the reduction in the deferred tax asset relating to the pension liability. The credit recognised in the income statement for the six months to 31 July 2007 was equal to the charge recognised in the statement of recognised income and expense, reflecting the fact there was no overall change in the amount of deferred tax asset being recognised. Due to the availability of substantial brought forward tax losses for offset against current tax year taxable profits, there was no further taxation charge in the period to 31 July 2007.
Other than overseas taxation, there was no current tax arising in the year to 31 January 2008, as taxable profits arising in the year were offset against available losses from prior years. A substantial portion of the remaining losses at the year end were then recognised as deferred tax assets, and together with temporary differences recognised, resulted in the recognition of a deferred tax credit of £5,101,000 for the year ended 31 January 2008. The recognition of this deferred tax asset reflected the Group's confidence of a sustainable future profit stream. Because of the nature and size of the deferred tax credit it was disclosed as an exceptional item.
Because of the previous recognition of deferred tax assets relating to losses of prior years, the Group's taxable profits earned in the six months to 31 July 2008, and in future periods, will result in deferred tax charges being recognised as losses are utilised and as temporary differences originate and reverse. A deferred tax charge of £455,000 arose in the period to 31 July 2008. In addition, the phasing out of IBAs, as enacted in the 2008 Finance Bill, and as highlighted in the 2008 Annual Report and Accounts, has resulted in a deferred tax charge of £320,000. Due to the nature and size of this item it has been disclosed as an exceptional charge. The tax at the half year has been based on a forecast full year effective tax rate.
Notes to the Accounts (continued)
| 5 | Earnings per share |
| The basic and diluted earnings per share are based on a profit after taxation of £936,000 (2007: £1,687,000) and 54,995,000 ordinary shares (2007: 56,457,000), being the weighted average number of the shares in issue during the period, excluding those held in the Employee Share Trust and in treasury, which are treated as cancelled. The basic and diluted earnings per share for the year ended 31 January 2008 were based on a profit for the year, amounting to £8,171,000 and the weighted average of 56,397,000 ordinary shares in issue during the year. The adjusted earnings per share has been disclosed as in the opinion of the Directors this provides additional information to shareholders on the results of the Group's activities. Adjusted earnings per share has been calculated to remove any charge or credit arising from deferred tax in the current period and comparative periods. The deferred tax during these periods has changed significantly, from a partial recognition of corporation tax losses at 31 July 2007 creating a deferred tax credit of £275,000, to a significant recognition of the historic corporation tax losses at 31 January 2008, being a credit of £5,101,000, and to a charge of £775,000 for the period to 31 July 2008, as the corporation tax losses are utilised and the impact of the removal of IBAs in the 2008 Finance Bill takes effect. The exclusion of the deferred tax charges or credits creates a more comparable earnings base on which to assess the performance of the Group. The adjusted earnings per share can be reconciled to the basic earnings per share as follows: |
Notes to the Accounts (continued)
| 5 | Earnings per share (continued) |
| 6 months to 31 July 2008 | 6 months to 31 July 2007 | |||||||
| Earnings £000 | Weighted Average number of shares (000's) | Per share amount pence | Earnings £000 | Weighted Average number of shares (000's) | Per share amount pence | |||
| Basic and diluted EPS: | ||||||||
| Earnings attributable to ordinary equity shareholders | 936 | 54,995 | 1.70 | 1,687 | 56,457 | 2.99 | ||
| Adjusted EPS: | ||||||||
| Earnings attributable to ordinary equity shareholders | 936 | 54,995 | 1.70 | 1,687 | 56,457 | 2.99 | ||
| Deferred tax - Exceptional | 320 | 0.58 | (275) | (0.49) | ||||
| Deferred tax - Other | 455 | 0.83 | - | - | ||||
| Adjusted earnings per share | 1,711 | 54,995 | 3.11 | 1,412 | 56,457 | 2.50 | ||
| 12 months to 31 January 2008 | ||||||||
| Earnings £000 | Weighted Average number of shares (000's) | Per share amount pence | ||||||
| Basic and diluted EPS: | ||||||||
| Earnings attributable to ordinary equity shareholders | 8,171 | 56,397 | 14.49 | |||||
| Adjusted EPS: | ||||||||
| Earnings attributable to ordinary equity shareholders | 8,171 | 56,397 | 14.49 | |||||
| Deferred tax - Exceptional | (5,101) | (9.05) | ||||||
| Deferred tax - Other | - | - | ||||||
| Adjusted earnings per share | 3,070 | 56,397 | 5.44 | |||||
| 6 | Analysis of net debt | |||||
| 1 February 2008 £000 | Cash flow £000 | Exchange movement £000 | 31 July 2008 £000 | |||
| Cash at bank and in hand | 2,017 | 1,178 | 8 | 3,203 | ||
| Borrowings due within 1 year | (400) | - | - | (400) | ||
| Borrowings due after 1 year | (8,906) | (3,199) | - | (12,105) | ||
| (9,306) | (3,199) | - | (12,505) | |||
| Net debt | (7,289) | (2,021) | 8 | (9,302) |
Notes to the Accounts (continued)
| 7 | Cash generated from operations | |||||
| 6 months to 31 July 2008 £000 | 6 months to 31 July 2008 £000 | 6 months to 31 July 2007 £000 | 6 months to 31 July 2007 £000 | |||
| Operating profit | 2,141 | 1,880 | ||||
| Depreciation | 709 | 661 | ||||
| Amortisation | 265 | 257 | ||||
| Charge for long-term incentive plan | 207 | 112 | ||||
| Changes in working capital | ||||||
| Increase in inventories | (1,364) | (794) | ||||
| Increase in trade and other receivables | (197) | (1,317) | ||||
| (Decrease)/ Increase in trade and other payables | (1,792) | 1,236 | ||||
| Pension cash contributions | (660) | (618) | ||||
| (2,832) | (463) | |||||
| Cash (utilised)/ generated from operating activities | (691) | 1,417 | ||||
| 8 | Retirement benefit obligations |
The Group operates the following funded pension schemes in the UK: the Walker Greenbank Pension Plan, the Abaris Holdings Limited Pension Scheme and the WG Senior Management Pension Scheme. The Walker Greenbank Pension Plan is the biggest scheme. All schemes contain defined benefits sections, which are closed to new members and the accrual of future benefits, however the Abaris Holdings Limited Pension Scheme also contains a defined contribution section, although this section is relatively small.
The pension costs relating to the UK defined benefit schemes are assessed in accordance with the advice of an independent qualified actuary using the projected unit method. These schemes are subject to triennial actuarial reviews with the most recent ones having been April 2006. An updated valuation for IAS 19 financial reporting purposes was completed for the previous annual financial statements to 31 January 2008.
The assumptions applied for valuation of the defined benefit schemes are fully disclosed in the annual financial statements for the year ended 31 January 2008 and continue to be applied in the half year to 31 July 2008. The net defined benefit pension charge recognised in the half year represents the relevant proportion of the annual amounts expected to be recognised for the year ending 31 January 2009, and are based on previous actuarial estimates. The net retirement benefit obligation recognised at 31 July 2008 is based on the actuarial valuation under IAS 19 at 31 January 2008 updated for movements in net defined benefit pension income and contributions paid during the half year period. The deferred tax effect of movements in the net retirement benefit obligation has also been recognised in the half year. A full valuation for IAS 19 financial reporting purposes will be completed for the next annual financial statements for the year ending 31 January 2009, at which time any actuarial gains and losses arising due to the recent market volatility since the half year end date will also be recognised.
Notes to the Accounts (continued)
| 9 | Consolidated statement of changes in equity | ||||||||
| Other reserves | |||||||||
| Share Capital £000 | Share Premium £000 | Retained Earnings £000 | Translation Reserve £000 | Capital Reserve £000 | Merger Reserve £000 | Hedge Reserve £000 | Total £000 | ||
| Balance at 1 February 2008 | 590 | 457 | (20,655) | 10 | 43,457 | (2,950) | (110) | 20,799 | |
| Deferred tax | - | - | (175) | - | - | - | - | (175) | |
| Currency translation differences | - | - | - | 30 | - | - | - | 30 | |
| Hedging reserve net movement | - | - | - | - | - | - | 65 | 65 | |
| Net income/(expense) recognised directly in equity | - | - | (175) | 30 | - | - | 65 | (80) | |
| Reserve for long term incentive plan | - | - | 207 | - | - | - | - | 207 | |
| Purchase of treasury shares | - | - | (83) | - | - | - | - | (83) | |
| Profit for the period | - | - | 936 | - | - | - | - | 936 | |
| Balance as at 31 July 2008 | 590 | 457 | (19,770) | 40 | 43,457 | (2,950) | (45) | 21,779 | |
| Other reserves | |||||||||
| Share Capital £000 | Share Premium £000 | Retained Earnings £000 | Translation Reserve £000 | Capital Reserve £000 | Merger Reserve £000 | Hedge Reserve £000 | Total £000 | ||
| Balance at 1 February 2007 | 590 | 457 | (28,594) | (17) | 43,457 | (2,950) | - | 12,943 | |
| Currency translation differences | - | - | - | 2 | - | - | - | 2 | |
| Deferred tax | - | - | (275) | - | - | - | - | (275) | |
| Net income/(expense) recognised directly in equity | - | - | (275) | 2 | - | - | - | (273) | |
| Reserve for long term incentive plan | - | - | 112 | - | - | - | - | 112 | |
| Profit for the period | - | - | 1,687 | - | - | - | - | 1,687 | |
| Balance as at 31 July 2007 | 590 | 457 | (27,070) | (15) | 43,457 | (2,950) | - | 14,469 | |
Notes to the Accounts (continued)
| 9 | Consolidated statement of changes in equity (continued) | ||||||||
| Other reserves | |||||||||
| Share Capital £000 | Share Premium £000 | Retained Earnings £000 | Translation Reserve £000 | Capital Reserve £000 | Merger Reserve £000 | Hedge Reserve £000 | Total £000 | ||
| Balance at 1 February 2007 | 590 | 457 | (28,594) | (17) | 43,457 | (2,950) | - | 12,943 | |
| Actuarial losses on scheme assets | - | - | (1,364) | - | - | - | - | (1,364) | |
| Changes in actuarial mortality assumptions | - | - | (2,868) | - | - | - | - | (2,868) | |
| Other actuarial gains on scheme liabilities | - | - | 4,932 | - | - | - | - | 4,932 | |
| Deferred tax | - | - | (683) | - | - | - | - | (683) | |
| Currency translation differences | - | - | - | 27 | - | - | - | 27 | |
| Hedging reserve net movement | - | - | - | - | - | - | (110) | (110) | |
| Net income/(expense) recognised directly in equity | - | - | 17 | 27 | - | - | (110) | (66) | |
| Reserve for long term incentive plan | - | - | 363 | - | - | - | - | 363 | |
| Purchase of treasury shares | - | - | (612) | - | - | - | - | (612) | |
| Profit for the year | - | - | 8,171 | - | - | - | - | 8,171 | |
| Balance as at 31 January 2008 | 590 | 457 | (20,655) | 10 | 43,457 | (2,950) | (110) | 20,799 | |