WGB.L Regulatory News (WGB)

10 Apr 2008 07:00

Walker Greenbank PLC10 April 2008 For immediate release 10 April 2008 A briefing for analysts will be held at 10am on the morning of the results, 10April 2008, at the offices of Buchanan Communications, 45 Moorfields, LondonEC2Y 9AE. Please phone 020 7466 5000 for further details. WALKER GREENBANK PLC ("Walker Greenbank" or "the Company") Preliminary Results for the 12 months ended 31 January 2008 Walker Greenbank plc (AIM: WGB), the luxury interior furnishings Group whosebrands include Sanderson, Morris & Co., Harlequin and Zoffany, is pleased toannounce its preliminary results for the 12 month period ended 31 January 2008. Highlights • The Group's organic growth strategy delivers another year of excellent progress • Revenue up 15% to £62.45 million (2007: £54.37 million) • Operating profit up 60% to £3.96 million (2007: £2.48 million before exceptional credit) • Profit before taxation up 119% to £3.10 million (2007: £1.42 million excluding exceptional credit of £1.28 million) • Earnings per share of 14.49p (2007: 4.67p). Adjusted earnings per share 5.44p after excluding deferred tax credit of £5.10 million (2007: 2.41p after excluding exceptional credit of £1.28 million) • Gearing reduced to 35% (2007: 66%) with Shareholders' Funds increased to £20.80 million (2007: £12.94 million) Ian Kirkham, the Chairman of Walker Greenbank, said: "We are confident that ourstrategy will deliver growth in both revenue and profits in the coming years.Two months of our current financial year are now completed, during which timethe Group has continued to trade strongly. We remain confident of a verysatisfactory outcome for the year." For further information:Walker Greenbank PLC 08708 300077John Sach, Chief ExecutiveAlan Dix, Finance DirectorJulian Wilson, Company Secretary Landsbanki Securities (UK) Limited 020 7426 9000Mark Dickenson / Tom Hulme Buchanan Communications 020 7466 5000Mark Court / Suzanne Brocks / Miranda Higham CHAIRMAN'S STATEMENT Overview It gives me great pleasure to report another year of excellent progress. Thesustained strength of our brands, the quality of our niche manufacturing andfavourable market conditions have resulted in revenue growth of 15%. Operationalgearing has translated this growth into a 60% increase in operating profit to£3,961,000 before exceptional items. We have made considerable progress in delivering our key strategic organicgrowth objectives. Our brand sales have grown 17% in the UK retail markets andhave added 17% in Europe and the Rest of the World. Our US business, which isstill a relatively small part of our Group, has grown 2%, equivalent to 13% inlocal currency. Particularly encouraging is the 58% increase achieved in ourfledgling contracts business. Finally our manufacturing units have continued togain market share, growing their third party revenues by 8%. All our brands, which include Harlequin, Sanderson (including Morris & Co.) andZoffany, have performed strongly. Our Harlequin brand has further reinforced itsposition as the pre-eminent brand in the mid-market. Continued heavy investmentin new product and marketing has helped both revenue and profits to growfurther. Sustained investment in product and marketing since we acquiredSanderson, our globally recognised brand, has helped to accelerate its revenuegrowth and achieve a substantial improvement in profits. Having successfullyre-established Zoffany as a leading brand in the premium end of the market,focused product investment in this and prior years has helped achieve strongrevenue growth and a substantial improvement in profits. Continued investment inour Manhattan-based business in the United States has helped to increaserevenues in local currency. However, the weak dollar and testing marketconditions mean that the business continues to make a small loss. We remainconfident that there is considerable medium to long term growth potential forthe Group in this important market. Anstey, our wallpaper factory in Loughborough, continues to benefit from thegrowing popularity of wallpaper. The limited manufacturing capacity at the midto premium end of the market and high barriers to entry, combined with itscontinued commitment to investment in factory efficiency and improved service toour customers, have helped the business grow its revenue and improve profitsthreefold. Standfast, our fabric printing factory based in Lancaster, continuesto invest in factory efficient capital equipment, however slightly toughermarket conditions have led to a small fall in revenue and profits over the sameperiod last year. Financials The financial results have been prepared under International Financial ReportingStandards (IFRS) and the effect on the Group's results of adopting thesestandards has been minimal. Revenues increased 15% to £62,448,000 from £54,369,000 last year. The underlyingoperating profit for the year increased 60% to £3,961,000 (2007: £2,481,000).Profit before tax increased 15% to £3,099,000 (2007: £2,694,000). Underlyingprofit before tax after adjusting for an exceptional pension credit included inlast year of £1,276,000 increased 119%. Profit after tax increased to £8,171,000(2007: £2,636,000) with the inclusion of a deferred tax credit of £5,101,000(2007: Nil). This has been recognised as the Group is now confident of utilisingthe historical taxable losses by delivering sustainable taxable profits into theforeseeable future. The earnings per share were 14.49p (2007: 4.67p) reflecting the recognition ofthe deferred tax credit. An adjusted earnings per share that excludes thebenefit of the deferred tax credit would be 5.44p (2007: 2.41p). The exceptionalprofit from the pension deficit reduction exercise of £1,276,000 has beenexcluded in the adjusted 2007 earnings per share. The Group's net indebtedness at the year end was £7,289,000 (2007: £8,604,000).This represents a reduction in gearing to 35% (2007: 66%). The cash inflow fromoperating activities was £3,542,000 (2007: £2,276,000). Shortly before the yearend, the Group purchased 1,415,093 of the Company's shares on the open marketfor a total amount of £612,000 in order to satisfy awards made in May 2007 underthe long term incentive scheme. Dividend The Directors do not recommend the payment of a dividend at this point in time.We remain focused on further cash generation, reducing our gearing and pensiondeficit whilst remaining alert to both organic and acquisition growthopportunities as they arise. People On 19 September 2007 Terry Stannard joined the Board as a Non-ExecutiveDirector. His broad business experience, particularly of marketing andinternational business, will be of great value to the Group in future years. On 12 February 2008, Charles Gray, a Non-Executive Director, retired from theBoard. I would like to thank Charles for his input to Walker Greenbank's Boardand to wish him well for his retirement. I would like to thank all our employees for their continued support. Theircommitment and enthusiasm have contributed significantly to the improvement inshareholder value. Outlook Our Group is now firmly established as a profitable cash generative business,with a strengthening balance sheet. Our premium end brands, supported by ourniche manufacturing, contribute to our position as a market leader in the luxuryinterior furnishings market. We are particularly well positioned to takeadvantage of the growing trend towards colour and design in both fabrics andwallpaper. John Sach in his Chief Executive Review highlights the range of strategic growthopportunities the Group is pursuing to increase its presence in the world wideluxury interiors furnishings market. We are confident that our strategy willdeliver growth in both revenue and profits in the coming years. Two months ofour current financial year are now completed, during which time the Group hascontinued to trade strongly. We remain confident of a very satisfactory outcomefor the year. Ian KirkhamNon-Executive Chairman10 April 2008 CHIEF EXECUTIVE'S REVIEW I am delighted to provide a review of the Group's progress in the year toJanuary 2008, a transformational period in the Group's development. Lookingback, the year to January 2007 was a year in which we successfully achieved theGroup's recovery, fully restoring its financial stability and creating a solidplatform for future growth. The year to January 2008 was a year in which webuilt on the recovery of 2007 by making excellent progress in executing ourstrategy of delivering earnings growth by exploiting the organic growth andother opportunities that exist within the Group as a result of the strength ofthe Group's brand assets. Strategy The cornerstone of our strategy is our significant investment in the design andmarketing of exciting new product for our four brands. This commitment to ourbrands has fuelled our sales growth to date and underpins our growth strategy,which comprises five key elements: •Organic growth - to continue to exploit the organic growth opportunities that exist for our Group in the UK retail market; •Geographic expansion - to invest in marketing and distribution in the North American market, where our Group is currently immature relative to our peers, and to focus on the distribution and marketing of our brands in Europe and the Rest of the World, where again as a Group we are presently underdeveloped; •Contract sales - to drive the expansion of our fledgling contracts business through further investment in people and contract specific product supported by the strength of our brand names and our manufacturing capability, predominantly focusing at the mid to upper end of the contract market; •Licensing income - to exploit the global recognition of the Sanderson and Morris & Co. brand names to develop further licensing arrangements; and •Acquisitions - to evaluate acquisition opportunities that may fit with our current brand portfolio and potentially provide synergistic and earnings enhancing opportunities. The Brands Harlequin The Harlequin brand has continued its impressive financial performance, growingits sales in the year by 16%, the third successive year of double digit salesgrowth, further re-enforcing its position as the pre-eminent brand in the UKmid-market. The sales growth was driven by woven product, up 24%, and wallpaper,up 6%; printed fabric sales have remained essentially flat year-on-year. Salesgrowth was broadly similar in both the home and export markets. Following the launch of an extensive range of product specifically for thecontract market, and supported by the expansion of the contracts business,contract sales have grown 92% in the year. Harlequin continues to increase itsproduct offer through the continual launch of new and innovative product. It isalso investing significantly in marketing and advertising to promote theproduct. This investment combined with the sales growth and maintained marginshelped improve operating profit by 15%. Zoffany As reported in the first half, the focusing of the brand on its core andtraditional design values is now essentially complete. The brand hasre-established itself within the design community and its newly launched rangesare performing strongly. The renewed recognition of the brand by the designcommunity has re-invigorated the sales of older collections, which, combinedwith the strength of the new collections, has helped grow sales year on year by24%. The growth has been led by wallpaper and woven fabric, both up 27%, withprinted fabric up only 1%. Sales in the UK were up 27% and export sales were up20%, both helped by the Group's focus on contract sales, which were up 25%. Thesales growth and improving margins, combined with significant investment inproduct development and marketing, has helped Zoffany improve from a break evenposition last year to a 5% operating profit for the year to January 2008. Arthur Sanderson & Sons incorporating the Morris & Co. brand Following significant investment in product, sales of the Sanderson brand havegathered momentum, underpinned by the brand's unrivalled global recognition.Sales have grown 22% with growth across all product categories led by wovenfabric, up 49%, wallpaper up 17% and printed fabric up 9%. Geographically saleswere up equally in the UK and export markets, with both markets helped by a 31%increase in contract sales. New licence arrangements have been signed intableware and stationery. However, licence income during the year fell due totougher trading conditions in Australasia and a lower sterling return from Japandue to the weakness of the Yen. Overall, sales growth at Sanderson and Morris &Co., along with significantly increased product development and marketing andimproving margins have helped to deliver a more than six-fold increase inoperating profit. Manufacturing We have two freehold printing facilities in the UK: Anstey, our wallpaperfactory in Loughborough; and Standfast, our fabric printing factory inLancaster. Both factories offer highly specialised printing, and their UKlocation brings benefits including the ability to print very short runs and easyaccessibility for UK designers to visit the factories' during print work. Inaddition to printing the wallpaper and fabrics for the Group's own brands, thefactories print for third party customers. Anstey Anstey has further consolidated its position as market leader in UK wallpapermanufacture in the mid to premium end of the market. Its continued commitment toinvestment in factory efficiency and improved service to its customers, combinedwith limited competition and high barriers to entry, have helped grow Anstey'soverall sales 19%. Third party sales grew 38%, as more customers seek to satisfymounting consumer demand for wallpaper. Group sales grew 5% and third partysales now account for half of Anstey's overall turnover. The growing turnover,improved factory efficiencies and tight overhead cost control helped Anstey morethan treble its operating profit. Standfast Standfast has experienced challenging market conditions during the year. Themove in fashion trends in the interior design market towards colour and designhave not yet fed through into the print market. Fewer print collections thisyear than last led to a reduction in Group revenue of 2%. Third party sales alsodeclined by 4%, giving an overall reduction in total sales of 3%. The loweractivity this year put pressure on factory throughput and led to a reduction inmargins and a subsequent decline in overall profits year on year. Whilst thismarket remains difficult at the moment we are confident that fashion trends willeventually redress this situation and we continue to invest in capital equipmentto improve factory efficiency. Overseas USA Overall reported sales increased year on year by only 5%. However, whenadjusting for the currency movement due to the weakness of the dollar sales wereup 13%. This improvement was driven predominantly by Harlequin. The second halfof the year proved more difficult than the first, due to the well documentedeconomic conditions in the US. The US still forms a relatively small part of theoverall Group and despite testing market conditions we continue to investstrongly in marketing, patterning and sample support, as we firmly believe inthe medium to long term potential of this market. This continued investmentmeans that we still continue to lose money in the US. However, it is importantto recognise that overall, with the sales from the UK to the US subsidiary andthe downstream manufacturing, the US business is still an important profitcontributor to the Group. Europe The Group's distribution businesses in Rome and Paris grew their combinedrevenue 4% and returned a small operating profit. During the year, we employedan experienced European development director and are currently strategicallyreviewing the way we do business in this important marketplace. Relative to ourpeer group our overall sales are low and we strongly believe that this marketoffers great potential for the Group in the future. Summary All of our brands continue to perform strongly. The considerable investment wehave made in product and marketing in recent years places us in a strongposition to exploit both the continuing and new business opportunities thatexist within the Group. We remain confident about the future progress the Groupwill make. John SachGroup Chief Executive10 April 2008 FINANCIAL REVIEW (Extracted from the Finance Review) Income Statement and Exceptional Items The Chairman's Statement and Chief Executive Review provide an analysis of thekey factors contributing to the continued improvements in operating profit andprofit before taxation. In addition to the information on our brands andproduction facilities included in these reports, the Group has included in note2 of this announcement, information on our business segments, as required byInternational Financial Reporting Standards (IFRS). Both the 2008 and 2007 results are impacted by exceptional items. In the year toJanuary 2008 the Group has recognised a deferred tax asset of £5,101,000 as theGroup is confident of utilising historical corporation tax losses as a result offoreseeable sustainable future profits. Last year there was an exceptionalprofit of £1,276,000 arising from the pension deficit reduction exercise. Bothitems have enhanced the basic earnings per share (EPS), but are removed in theanalysis of adjusted EPS discussed below, to enable better comparison of theunderlying performance of the Group. Earnings per share ('EPS') The basic and diluted EPS was 14.49p (2007: 4.67p). The underlying EPS was 5.44pfor the current year (2007: 2.41p), and is reconciled to basic and diluted asfollows: 2008 2007 £000 £000 Profit after tax per the accounts 8,171 2,636Exclude exceptional benefit pension deficit reduction exercise - (1,276)Exclude the recognition of deferred tax (5,101) -Adjusted Profit after tax 3,070 1,360 Adjusted EPS 5.44p 2.41p The number of shares in issue remained constant, however, on 16 January 2008700,000 shares were purchased and brought into Treasury and on 17 January 2008715,093 shares were purchased and also brought into Treasury. The weightedaverage number of shares reduced to 56,397,000 for the year ended 31 January2008 from 56,457,000 in the year ended 31 January 2007. Disposals There were no major disposals during the year. Interest The interest charge for the year was £981,000 (2007: £964,000) includingamortisation of debt issue costs capitalised. Net pension related income during the year was £119,000 (2007: charge £99,000).This is a consequence of the significant reduction in the gross pensionliability compared with the previous year. Current Taxation There is a small corporation tax charge arising from the taxable profits at theItalian subsidiary. The Group continues to review the overseas tax position toensure every opportunity is considered to minimise the amount incurred. Deferred Taxation During the year the Group has recognised a deferred tax credit of £5,101,000predominantly arising from corporation tax losses incurred in prior years. Theasset has been recognised this year as the Group is now confident of asustainable future profit stream. Due to the substantial nature of these corporation tax losses (£23 million) theGroup does not anticipate incurring or paying UK corporation tax for theimmediate future. However, as the majority of the corporation tax losses havenow been recognised as a deferred tax asset in future years there will be adeferred tax charge in the Income Statement until such time as the deferred taxasset has been fully utilised at which point the Group will incur and pay UKcorporation tax. The Group also continues to recognise the deferred tax asset arising from thePension Deficit. As the Pension Deficit has reduced during the year thereduction of the associated deferred tax asset has been recognised. Operating Cash Flow The Group generated net cash inflow from operating activities during the year of£3,542,000 (2007: £2,276,000). It paid interest of £956,000 (2007: £913,000) andcapital expenditure of £1,674,000 (2007: £1,444,000). The depreciation andamortisation charge during the period continued to be greater than requiredcapital expenditure. The Group made additional payments to the Pension schemes of £1,059,000 (2007:£898,000) to reduce the deficit, part of the ongoing planned reduction. The Group purchased 1,415,093 shares at a cost of £612,000 in order to satisfyawards made in May 2007 under the Long Term Incentive Plan. Net debt in the Group has reduced by £1,315,000 to £7,289,000 (2007:£8,604,000). Pension Deficit The pension deficit has reduced further this year. The key factors affecting themovement in the deficit have been; firstly ongoing contributions of £1,290,000from the Company to reduce the deficit; secondly a reduction in the liabilitiesof the scheme arising from the increase in discount rates during the year andlastly the adoption of PA92 with medium cohort mortality tables which hasincreased the deficit. The impact of these factors is shown as follows: 2008 £000Deficit at beginning of period (5,518)Current service cost (231)Other finance income 350Contributions 1,290Impact of mortality tables (2,868)Actuarial gains primarily from the change in discount factor 3,568Gross deficit at the end of the year (3,409) Long-Term Incentive Plan A conditional award of shares was granted to the executive Directors and certainemployees under the Long-Term Incentive Plan ("LTIP") on 28 May 2007. There hasbeen a charge of £429,000 (2007: £143,000) in the Income Statement for this andprevious awards. Gearing The gearing level for the Group fell during the year to 35% at 31 January 2008(2007: 66%). Funding The Group utilises facilities provided by Barclays Bank Plc. The facilities wereput in place on 17 July 2007 replacing previous facilities from anotherprovider. There is a property facility available over a ten year period. Thereis also a facility linked to working capital which allows the Group to manageits cash more effectively during the seasonal fluctuations in working capitalassociated with the industry in which the Group operates. This facility has aninitial 3 year term. The total facilities have a limit of £17.0m. All of the Group bank facilities remain secured by first fixed and floatingcharges over the Group's assets. IFRS The Group has adopted IFRS for the year ended 31 January 2008 and restated thecomparative results for the prior year. The impact of adopting IFRS has beenlimited. A Restatement document was issued on 28 September 2007 giving fulldetails of the impact of the adoption. Alan Dix Group Finance Director 10 April 2008 Unaudited Consolidated Income Statement For the year ended 31 January 2008 Note 2008 2007 £000 £000 Revenue 62,448 54,369Profit from operations - before exceptional items 3 3,961 2,481- exceptional items 4 - 1,276Operating profit 3,961 3,757 Net pension income / (charge) 6 119 (99)Net finance costs 5 (906) (898)Amortisation of issue costs 5 (75) (66) (862) (1,063)Profit before taxation 3,099 2,694Deferred tax - exceptional 7 5,101 -Current taxation 7 (29) (58)Total tax credit/(charge) 5,072 (58)Profit for the year 8,171 2,636Earnings per share - Basic and diluted 9 14.49p 4.67p Unaudited Consolidated Balance Sheet As at 31 January 2008 Note 31 January 31 January 2008 2007 £000 £000 Non-current assetsIntangible assets 5,833 5,969Property, plant & equipment 8,991 8,864Deferred income tax assets 8 6,055 1,637Trade and other receivables 253 265 21,132 16,735Current assetsInventories 12,546 12,135Trade and other receivables 13,475 11,251Cash and cash equivalents 10 2,017 2,065 28,038 25,451Total assets 49,170 42,186Current liabilitiesBorrowings 10 (400) (596)Derivative financial instruments (110) -Trade and other payables (15,546) (13,056) (16,056) (13,652)Net current assets 11,982 11,799Non-current liabilitiesBorrowings 10 (8,906) (10,073)Retirement benefit obligation 12 (3,409) (5,518) (12,315) (15,591)Total liabilities (28,371) (29,243)Net assets 20,799 12,943EquityShare capital 13 590 590Share premium account 13 457 457Foreign currency translation reserve 13 10 (17)Retained earnings 13 (20,655) (28,594)Other reserves 13 40,397 40,507Total Equity 20,799 12,943 Unaudited Consolidated Cash Flow Statement For the year ended 31 January 2008 Note Year to Year to 31 Jan 2008 31 Jan 2007 £000 £000 Cash flows from operating activitiesCash generated from operations 11 4,623 3,219Interest paid (956) (913)Debt issue costs (123) -Interest received 5 20Income tax paid (7) (50) 3,542 2,276Cash flows from investing activitiesPurchase of intangible fixed assets (365) (276)Purchase of property, plant & equipment (1,309) (1,168)Proceeds on sale of property, plant and equipment 3 - (1,671) (1,444)Cash flows from financing activitiesPurchase of treasury shares (612) -Proceeds from borrowings 11,296 -Repayment of borrowings (11,296) -Net repayment of borrowings (1,315) (282) (1,927) (282)Net (decrease)/increase in cash, cash equivalents and bank overdrafts (56) 550Cash, cash equivalents and bank overdrafts at beginning of year 2,065 1,528Exchange losses on cash and bank overdrafts 8 (13)Cash, cash equivalents and bank overdrafts at end of year 2,017 2,065 Unaudited Consolidated Statement of Recognised Income and Expense For the year ended 31 January 2008 Year to Year to 31 Jan 2008 31 Jan 2007 £000 £000 Actuarial losses on scheme assets (note 12) (1,364) (1,310)Changes in actuarial mortality assumptions (note 12) (2,868) -Other actuarial gains on scheme liabilities (note 12) 4,932 1,284Currency translation differences 27 (17)Cash flow hedges (110) -Reduction in deferred tax relating to pension liability due to rate reduction (110) -(Reduction)/recognition of deferred tax asset relating to pension scheme liability (573) 1,637Net (expense) / income recognised directly in equity (66) 1,594Profit for the year 8,171 2,636Total recognised income for the year 8,105 4,230 Notes to the Accounts 1. Basis of preparation In previous years the Group prepared its consolidated financial statements under UK GAAP. For the year ended 31 January 2008 the Group is required to prepare its annual consolidated financial statements in accordance with International Financial Reporting Standards adopted for use in the European Union (IFRS). The Group has previously explained the effect of the transition to IFRS as set out in the "Restatement of Financial Information under International Financial Reporting Standards" (IFRS), which was issued on 28 September 2007 and can be found on the Group's website. The "Restatement of Financial Informationunder IFRS" includes a reconciliation of equity at 31 January 2007 under UK GAAP to equity under IFRS and a reconciliation of the profit for the year to 31 January 2007 under UK GAAP to the profit for the period under 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 announcementdoes not constitute the Company's statutory accounts for the year ended 31 January 2008. The audit of the statutory accounts for the year ended 31 January 2008 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminaryannouncement and will be delivered to the Registrar of Companies following the Company's annual general meeting. 2. Segmental Analysis Walker Greenbank is a luxury interior furnishing Group. The Group manages itsoperations as two segments which are the brands and manufacturing. Segmentalinformation is also presented in respect of the Group's geographical segment.This is the basis on which the Group presents its results: Year ended 31 January 2008 Brands Manufacturing Eliminations & Total unallocated £000 £000 £000 £000 Revenue - External 48,206 14,242 - 62,448Revenue - Internal 2,101 10,570 (12,671) -Total Revenue 50,307 24,812 (12,671) 62,448 Operating profit 4,624 1,486 (2,149) 3,961Financial costs - - (981) (981)Net pension income - - 119 119Profit before tax 4,624 1,486 (3,011) 3,099Tax - - 5,072 5,072Profit for the year 4,624 1,486 2,061 8,171 Notes to the Accounts continued 2. Segmental Analysis continued Year ended 31 January 2007 Brands Manufacturing Eliminations & Total unallocated £000 £000 £000 £000 Revenue - External 41,217 13,152 - 54,369Revenue - Internal 1,974 10,367 (12,341) -Total Revenue 43,191 23,519 (12,341) 54,369 Operating profit 2,930 1,334 (1,783) 2,481Exceptional Pension credit 1,276 1,276Financial costs - - (964) (964)Net pension costs - - (99) (99)Profit before tax 2,930 1,334 (1,570) 2,694Tax - - (58) (58)Profit for the year 2,930 1,334 (1,628) 2,636 Revenue by destination: 2008 2007 £000 £000 United Kingdom 41,540 35,995Continental Europe 9,132 7,750North America 8,113 7,503Rest of the World 3,663 3,121 62,448 54,369 3. Analysis of Operating Profit Year to Year to 31 Jan 2008 31 Jan 2007 £000 £000 Turnover 62,448 54,369Cost of sales (25,362) (23,006)Gross profit 37,086 31,363Net operating expenses:Distribution costs (16,265) (13,272)Administrative expenses (16,464) (15,565)Other operating costs (396) (45)Operating profit before exceptionals 3,961 2,481Reduction of pension deficit following settlement of liabilities - 1,276Operating profit 3,961 3,757 Notes to the Accounts continued 4. Exceptional items During the year ended 31 January 2007 the Group bought out the right to nonstatutory pension increases from its active and deferred pensioners. This hasresulted in a reduction of the IAS 19 liability in the balance sheet of £1,562,000and a benefit of £1,276,000 in the Income Statement. 5. Finance costs 2008 2007 £000 £000Interest expense:Interest payable on bank borrowings (875) (901)Interest and similar charges payable (36) (17)Total interest expense (911) (918)Interest income:Interest receivable on bank deposits 5 20Net finance costs (906) (898) Amortisation of issue costs of bank loan (75) (66)Total finance costs (981) (964) 6. Net pension costs 2008 2007 £000 £000 Expected return on pension scheme assets 2,721 2,408Interest on pension scheme liabilities (2,371) (2,327)Service costs (231) (180)Net income/(charge) 119 (99) Notes to the Accounts continued 7. Tax 2008 2007 £000 £000 Overseas tax - current tax (29) (58) (29) (58) Deferred tax - exceptional 5,101 - 5,072 (58) 2008 2007 £000 £000 Profit on ordinary activities before tax 3,099 2,694 Tax on profit on ordinary activities at standard rate 30% (2007: 30%) (930) (808)Non deductible expenditure (73) (146)Utilisation of losses and origination and reversal of temporary differences during the year 974 896Recognition of deferred tax asset at end of year 5,101 -Tax credit/(charge) for year 5,072 (58) Factors affecting current and future tax charges The deferred tax credit of £5.1 million arises from the recognition of deferredtax on losses incurred by the Group in prior years and temporary differences.Because of the nature and size of this item it has been disclosed as anexceptional item. A reduction in the mainstream UK tax rate to 28% from 1 April 2008 should resultin a reduction in the Group's future effective tax rate. Following therecognition of deferred tax assets arising from losses and temporary differencesthe future effective tax rate will also be influenced by changes in deferred taxpositions. The Group does not anticipate the UK corporation tax will become payable onprofits within the immediate future due to the availability of tax losses ofapproximately £23 million. The reduction in the mainstream UK tax rate to 28% from 1 April 2008 has beentaken into account in calculating the deferred tax balances, with the impact ofthe change in tax rate recognised in the income statement or statement ofrecognised income and expenses as appropriate. The Finance Bill 2008 announced the phasing out of the relief for IndustrialBuilding Allowances by 31 March 2011. However, this has not yet beensubstantively enacted therefore no accounting entries have been made in respectof this potential change. An additional deferred tax liability of approximately£0.3 million is likely to be recognised once this legislative change issubstantively enacted. Notes to the Accounts continued 8. Deferred income tax A net deferred tax asset of £6,055,000 (2007: £1,637,000) had been recognised inrespect of tax losses and other temporary differences and £5,101,000 has beencredited to the income statement during the year, as follows: 2008 2007 £000 £000 Taxable temporary differences on property, plant and equipment (533) -Taxable temporary differences on intangible assets (106) -Tax losses 5,740 - 5,101 -Pension scheme obligations 954 1,637 6,055 1,637 The movements in the deferred tax asset on pension scheme obligations arerecognised in the Statement of Recognised Income and Expense. At the balance sheet date the Group has unused tax losses of £23 million (2007:£25 million) available for offset against future profits. A deferred asset hasbeen recognised in respect of £20 million (2007: £nil) of such losses as theGroup believes that realisation of the related tax benefit through futuretaxable profit is probable and can be readily accessed under existing taxlegislation. No deferred tax has been recognised on the remaining £3 million(2007 : £25 million) as these losses are not readily available for offsetagainst the Group's future profits under existing tax legislation and thereforethe realisation of these losses is not considered probable. The recognition ofdeferred tax assets on losses will be assessed at each reporting date. Potential deferred tax assets at 31 January 2008 of £1,068,000 (2007:£6,752,000) relating to tax losses and deductible temporary differences have notbeen recognised as it is not considered probable that recovery of the potentialdeferred tax asset will arise under existing tax legislation. 2008 2007 £000 £000 Tax losses 893 6,482Other deductible temporary differences 175 270 1,068 6,752 9. Earnings per share Basic earnings per share 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 share trust and those held in treasury, which are treated as cancelled. Notes to the Accounts continued 9. Earnings per share continued 2008 2007 Earnings Earnings £000 Weighted Per £000 Weighted Per average Share average Share number Amount number Amount of of shares Pence shares Pence (000s) (000s)Basic:Basic earnings per share 8,171 56,397 14.49 2,636 56,457 4.67 Adjusted:Earnings attributable to ordinary shareholders 8,171 56,397 14.49 2,636 56,457 4.67Exceptional items: Deferred tax (5,101) - (9.05) - - -Exceptional items: Pension reduction exercise - - - (1,276) - (2.26)Adjusted earnings per share 3,070 56,397 5.44 1,360 56,457 2.41 On 16 January 2008 Walker Greenbank PLC purchased 700,000 ordinary shares of 1peach in the Company at 42.25p per ordinary share and on the 17 January 2008Walker Greenbank PLC purchased 715,093 ordinary shares of 1p each in the Companyat 43.5p per ordinary share. Following these transactions Walker Greenbank'sissued ordinary share capital with voting rights consists of 59,006,162 OrdinaryShares of which 1,415,093 Ordinary Shares are held in treasury, and a further2,549,146 Ordinary Shares are held by the Walker Greenbank PLC Employee BenefitTrust . At 31 January 2007 the market value of the treasury shares was £576,650. Adjusted earnings per share have been calculated, as the Directors believe theexceptional items of deferred tax in the year ended 31 January 2008 and thebenefit of the pension reduction exercise in the year ended 31 January 2007,make it difficult to make a fair comparison between the basic earnings pershare. 10. Analysis of net debt 1 February Cash flow Other Exchange 31 January 2007 movement 2008 £000 non-cash £000 changes £000 £000 £000Cash at bank and in hand 2,065 (56) - 8 2,017 Borrowings due within 1 year (596) 196 - - (400)Borrowings due after 1 year (10,073) 1,119 48 - (8,906) (10,669) 1,315 48 - (9,306) Net debt (8,604) 1,259 48 8 (7,289) Other non-cash changes are amortisation of issue costs relating to the loanfinancing. Notes to the Accounts continued 11. Cash generated from operations 31 January 31 January 2008 2007 31 January 31 January 2008 £000 £000 2007 £000 £000 Operating profit 3,961 3,757Depreciation 1,321 1,386Amortisation 501 456Charge for long-term incentive plan 363 112Exceptional pension credit - (1,276)(Profit )/Loss on disposal of property, plant and equipment (3) 11Changes in working capitalIncrease in inventories (410) (1,898)Increase in trade and other receivables (2,212) (1,198)Increase in trade and other payables 2,392 3,841Pension cash contributions (1,290) (1,078)Settlement of retirement - (894)benefit obligation 662 (538)Cash generated from operating 4,623 3,219activities 12. Retirement benefit obligations The Company operates the following funded defined benefit pension schemes in the UKwhich offer pensions in retirement and death benefits to members: the WalkerGreenbank Pension Plan, the Abaris Holdings Limited Pension Scheme and the WG SeniorManagement Pension Scheme. Pension benefits are related to the members' salary atretirement and their length of service. The schemes are closed to new members and thefuture accrual of benefits. This disclosure excludes any defined contribution assetsand liabilities. The Company's contributions to the schemes for the year beginning 1February 2008 are expected to be £1,290,000. 2008 2007 Notes to the Accounts continued £000 £000 Deficit at beginning of year (5,518) (8,033)Current service cost (231) (180)Other net finance income 350 81Contributions payable 1,290 1,078Reduction of pension deficit following settlement of liabilities - 1,562Actuarial losses on scheme assets (1,364) (1,310)Changes in actuarial mortality assumptions (2,868) -Other actuarial gains on scheme liabilities 4,932 1,284Deficit at end of year (3,409) (5,518) 13. Consolidated Statement of changes in equity Other Reserves Share Retained Hedge Total premium earnings Share account Capital Merger reserve Translation £000 capital £000 reserve reserve £000 £000 reserve £000 £000 £000 £000 1 February 2006 590 457 (32,953) 43,457 (2,950) - - 8,601Actuarial losses on scheme assets (1,310) (1,310)Other actuarial gains on schemeliabilities 1,284 1,284Deferred tax 1,637 1,637Currency translationdifferences (17) (17)Net income/ (expense) - - 1,611 - - - (17) 1,594recognised directlyin equityProfit for the year 2,636 2,636Reserve for long-term incentiveplan 112 11231 January 2007 590 457 (28,594) 43,457 (2,950) - (17) 12,943 Notes to the Accounts continued 13. Consolidated Statement of changes in equity continued Other Reserves Share Retained Hedge Total premium earnings Reserve Share account Capital Merger Translation £000 capital £000 reserve reserve £000 £000 reserve £000 £000 £000 £000 1 February 2007 590 457 (28,594) 43,457 (2,950) - (17) 12,943Actuarial losses on scheme assets (1,364) (1,364)Changes in actuarial mortalityassumptions (2,868) (2,868)Other actuarial gains on schemeliabilities 4,932 4,932Deferred tax (683) (683)Currency translationdifferences 27 27Hedging reserve (110) (110)Net income/ (expense)recognised directlyin equity - - 17 - - (110) 27 (66)Profit for the year 8,171 8,171Reserve for long-term incentiveplan 363 363Purchase of treasury shares (612) (612)31 January 2008 590 457 (20,655) 43,457 (2,950) (110) 10 20,799 This information is provided by RNS The company news service from the London Stock Exchange