WGB.L Regulatory News (WGB)

11 Apr 2006 07:01

Walker Greenbank PLC11 April 2006 For immediate release 11 April 2006 WALKER GREENBANK PLC ("Walker Greenbank" or "the Company") Preliminary Results for the 12 months ended 31 January 2006 Walker Greenbank plc (AIM: WGB), the wallpaper, textiles and furnishingsbusiness whose brands include Sanderson, Morris & Co, Harlequin and Zoffany, ispleased to announce its preliminary results for the 12 month period ended 31January 2006. Highlights • Successful turnaround - pre-tax profit of £2.62 million (2005: loss £0.81m), marking the Company's first full year pre-tax profit since 2000 • Operating profit of £5.02 million (2005: loss £2.69m) with underlying growth - pre-exceptional operating profit for continuing operations of £0.76 million (2005: loss of £3.06m which included exceptional costs of £0.67m) • Cashflow positive - net cash inflow from operating activities of £1.64 million (2005: outflow £4.06m) • Pension deficit reduced - FRS 17 pension liability of £7.98 million at 31 January 2006 calculated after adoption of latest PA92 mortality tables (2005: £11.27m) • Brand portfolio performed strongly and all parts of the business traded profitably including UK fabric printing and wallpaper factories • Current financial year has started strongly - considerably ahead of last year and well ahead of internal projections Ian Kirkham, the Chairman of Walker Greenbank, said: "These excellent financialresults show that the restructuring of the Company is complete. The start of thecurrent financial year continues to see all parts of the Company tradingprofitably and we are confident of continuing to develop the Company into anexciting, cash generative and highly profitable business. Your Board views thefuture with increasing confidence and looks forward to delivering substantialshareholder value." A briefing for analysts will be held at 10.00am today (11 April 2006) at theoffices of Buchanan Communications, 45 Moorfields, London EC2Y 9AE. For further information: Walker Greenbank plc 01908 658078Ian Kirkham, ChairmanJohn Sach, Chief Executive Teather & Greenwood 020 7426 9000Mark DickensonRobert Naylor Buchanan Communications 020 7466 5000Mark Court/Suzanne Brocks/Elly Williamson CHAIRMAN'S STATEMENT Overview This has been a landmark year for Walker Greenbank and I am pleased to reportthat the Group has returned a full-year operating profit for the first timesince the year 2000, following the considerable losses of the past 5 years. Theencouraging return to operating profit that I reported at the half-year stagegathered momentum in the second half. This significant achievement underlinesthe Board's strategy of re-establishing the Group as a profitable and cashgenerative business with an exciting and sustainable future. The business is now fully benefiting from the total integration of Sandersonwithin the Group and the considerable investment in product that has taken placein this brand over the past two years. Profits have been further enhanced by thefull year effect of the considerable cost savings that have been achievedfollowing the amalgamation of all the Group's brands under the control of onemanagement structure and the exit of low margin non-core business. Manufacturing All parts of the Group's business have traded profitably. After a difficultstart to the year, Standfast, our fabric printing factory, recovered strongly inthe second half and posted a full-year profit. Significant progress has alsobeen made at Anstey, our wallpaper factory, following the reorganisation andcost reduction exercise that took place in the latter part of last year and therefocus of the business at the premium end of the market. This, combined withthe return to popularity of wallpaper at the premium end of the market, hasreturned Anstey to profitability for the first time in 6 years. Brands Our brands have all performed strongly. Harlequin, our mid-market brand, isgaining real momentum through increasingly rapid sales growth, gains in marketshare and more than a doubling of its profits during the year. Harlequin andSanderson are among the leading suppliers of home furnishings to the John LewisPartnership. Sanderson has taken longer to reinvigorate than we anticipated atthe time of acquisition. However, following the substantial investment inproduct of the past two years, significant profit growth has been achieved thisyear. Following the appointment of a new design director, and the refocusing ofthe Zoffany brand back to its core values, progress has been made inre-establishing the business as a leading brand at the premium end of themarket. Disposals In line with the Group's strategy of disposing of non-core assets, the sale ofBorge Holding AS was successfully completed in June 2005. Results The operating profit for the year was £5,018,000 (2005: operating loss£2,690,000). Turnover was up 0.8% from continuing operations, after the impactof the sale of the Sanderson retail activity and the exit from Anstey's lowmargin Cirka business part way through last year. The operating profit fromcontinuing operations was £758,000 (2005: operating loss £3,062,000). The profiton ordinary activities before tax was £2,625,000 (2005: loss £807,000). This wasafter charging the profit and loss in the current year with an exceptional losson the sale of Borge Holding AS of £1,281,000 which included £1,908,000 forgoodwill previously written off to reserves and after crediting the profit andloss with £4,076,000 from the successful outcome of the pension liabilityreduction exercise. Last year's pre-tax loss of £807,000 included an exceptionalprofit of £2,931,000 arising from sale of the Warner Archive and freeholdproperty in Milton Keynes. The profit per share for the year was 4.51p (2005: loss per share 1.48p). The other finance charge for the year was £174,000 (2005: £205,000) as a resultof the improved return on assets of the pension scheme. Pensions During the year the Group offered to buy out the right to non-statutory pensionincreases from its active and deferred pensioners. This proposal proved to beattractive to the members with a 70% acceptance rate. This has resulted in areduction in the FRS 17 liability in the balance sheet of £5,634,000 and abenefit of £4,076,000 in the profit and loss, disclosed as an exceptionaloperating item. Additionally the Board decided to take this opportunity to adoptthe most up to date mortality tables in the FRS 17 calculation which caused thedeficit to increase by £3,196,000. The Financial Review contains more details ofthe changes to our FRS 17 pension deficit. Since the year end additional acceptances have been received from the members ofthe pension scheme that have reduced the pension deficit by a further £800,000. Balance Sheet The net assets of the Group have increased by £1,527,000. This has beenprimarily driven by the reduction of the pension deficit following thesettlement of liabilities which improved the net assets of the Group by£4,076,000, offset by the adoption of the most up to date mortality tables, withan impact of £3,196,000. The Group also disposed of Borge Holdings AS during theyear for net proceeds of £1,498,000 and profit on sale of assets of £532,000. The Group's net indebtedness reduced during the year by £1,389,000 to £9,357,000(2005: £10,746,000). Cash inflow from operating activities was £1,643,000(2005: outflow £4,060,000) after payments to pensioners of £950,000 as part ofthe settlement of liabilities. This cash inflow from operating activities wasprincipally driven from operating profit and working capital inflows. Theproceeds of the sale of Borge Holdings AS reduced the total level of borrowings. Dividend The Directors do not recommend the payment of a dividend at this point in theGroup's recovery. People During the period Peter Harkness resigned as a Non-Executive Director after morethan four years' service. In July Alan Dix was appointed Group Finance Directorafter spending seven months as Finance Director designate. I would like to take this opportunity to thank all of our employees whoseenergy, ability and commitment have helped to restore the Group's fortunes. Outlook The reorganisation of the Group and the integration of Sanderson are now fullycomplete. Our factories have been restructured and are now both tradingprofitably. The substantial investment in product and the creativity of ourdesign teams have helped our brands to gain market share and to grow at aconsiderable pace. We have gone a long way to addressing the structural issues on the balancesheet. The pension reduction liability exercise has already reduced the deficitby a significant amount. Our funding facility with Burdale Financial Ltd, partof the Bank of Ireland, has greatly supported us in creating the headroom withinthe business to invest strongly in our brands. Our brands have gathered real momentum and are all at an exciting point in theirdevelopment. There are many opportunities for continuing to leverage our brandportfolio through additional organic growth, expansion through investment in thecontract and commercial markets and further exposure to the large North Americanmarket. The Group is also alert to the acquisition opportunities that can arisein a large, fragmented market that is ripe for consolidation. The start of the current financial year continues to see all parts of thebusiness trading profitably, considerably ahead of last year and well ahead ofour own internal projections. We are confident of continuing to develop theGroup into an exciting, cash generative and highly profitable business. YourBoard views the future with increasing confidence and looks forward todelivering substantial shareholder value. IAN KIRKHAM CHAIRMAN 10 April 2006 Chief Executive's Review The Brands Harlequin Harlequin has continued to strengthen its position as the leading mid-marketcontemporary brand in the UK and has reinforced its position as one of theleading home furnishings suppliers to the John Lewis Partnership. It continuesto expand its launches across a broad range of excellent products and takemarket share from its competitors. This year has seen strong growth in itswallpaper sales for the first time in a number of years as the fashion trend forwallpaper at the premium end of the market feeds down into the mid-market.Decadence, a wallpaper collection launched at the start of the year has becomethe single best selling range within the brand's portfolio. With itsincreasingly strong product offering, Harlequin was re-launched in the US at thestart of the year in a limited number of targeted States. The growth in the USis ahead of our expectations and on the back of this we will continue to furtherexpand in the US in the current year. Overall sales gathered real momentum inthe second half leading to year on year growth of 13%. Margins have improved andcosts have been tightly controlled leading to more than a doubling of profitsthis year. Zoffany Zoffany overall has maintained its sales in line with last year. Sales in the UKhave reduced very slightly compared with last year whilst export sales havecontinued to grow. Despite the flat sales, margins are slightly up and followingthe amalgamation of its back office functions with Sanderson at a single site inDenham, the business has benefited from the full year effect of considerablecost savings which has helped profit improve significantly over last year. Withthe appointment of a new design team at Zoffany in the second half of the yearto January 2005, the business has been put onto a sound footing to refocus thebrand back to its core values. The new collections for 2006 have been wellreceived but with most markets remaining tight, we see the current year as ayear of consolidation before Zoffany returns to any significant upward trend insales. Arthur Sanderson & Sons incorporating the Morris & Co brand This has been a very encouraging year for Sanderson. The considerable investmentthat has taken place over the last 2 years has started to drive sales. The salesgrowth seen in the first half aided by the launch in the early part of the yearof Options 9, Sanderson's flagship collection, has continued in the second half,helping Sanderson to gain year on year sales growth of 10%. Sales in the UK ledthe improvement in the year and export markets are now showing similar growth.Licensing revenues have grown 16% driven by considerable growth from our beddinglicencee, a partnership that was established during the previous year, andhealthy growth from our established agreements in the Far East and Australasia.This progress has been augmented by new licence arrangements with a furnitureand blind manufacturer. Margins have improved, so with the benefits of therestructuring that took place at the end of last year and the merging of theback office activities with Zoffany, a more than doubling of profits has beenachieved. The brand continues to gain momentum and we are confident that it willdeliver continued profit growth in the future. Manufacturing Anstey Anstey has achieved the transformation into a profit making business after 6years of significant losses. This has been the direct result of refocusing thebusiness to a producer at the mid to premium end of the market, significantlyimproving factory efficiencies and further cost reductions. There has been a 4%decline in headline revenues but this is due to the exiting of lower marginbusiness. Overall underlying sales for the year have remained static. However,sales in the second half have increased by 7% as Anstey starts to benefit fromthe considerable revival in trend for wallpaper at the upper end of the market.This move in fashion is now starting to filter down into the mid-market asdemonstrated by Harlequin's recent wallpaper revival and this augurs well forthe continued revival of Anstey. Standfast Sales at Standfast have increased year on year by 4%. The difficult tradingconditions of the first quarter were not repeated during the remainder of theyear and the ground lost in that period was more than made up in the secondhalf. Margins have been broadly maintained despite significantly higher energycosts. Overhead costs have been tightly controlled leading to an overallimprovement in profitability. Overseas USA Sales have reduced 5% in local currency year on year, following the cessation oflow margin third party distribution business. As a consequence of this, marginshave risen and this, combined with the full year effect of the overheadreduction following the amalgamation of the Sanderson and Zoffany businesseslast year, returned the business to profitability. Sales have benefited from there-launch of the Harlequin brand in a limited number of States. This re-launchhas performed ahead of our expectations and will be further extended in thecoming year. The withdrawal from a third party distribution arrangement with a furnituremanufacturer has allowed us to amalgamate our Zoffany and Sanderson showroomsinto a single prestigious 6,000ft showroom promoting all our brands within the D&D building in Manhattan, New York. This combined with continued investment inthe American market will present the business with considerable growthopportunities in the future. Europe Borge Holding AS in Norway was sold during the year generating a profit on saleof £532,000 and a release of the FRS17 pension provision of £95,000. Goodwillpreviously written off to reserves of £1,908,000 was charged through the profit& loss account. Borge Holding AS had contributed £184,000 operating profitduring the year. Our distribution businesses for Zoffany in Rome and Sanderson in Paris broadlybroke even in line with expectations, although they do not represent a largepart of the Group. Summary The restructuring of the Group and successful turnaround of a loss makingbusiness is now complete. This has helped to deliver a better quality ofearnings on a stable turnover together with significant cost reductions leadingto a corporate profit for the first time in 5 years. All parts of the Group are now trading profitably and there are considerablegrowth opportunities for the Group to exploit in the future. JOHN SACH GROUP CHIEF EXECTUVE 10 April 2006 Financial Review Profit and Loss The profit and loss account has been set out in a columnar format this year.This presentation has been adopted in order to reflect more clearly thesuccessful impact of the pension deficit reduction exercise and disposal duringthe year of Borge Holdings AS. More importantly this disclosure clearlydemonstrates the improvement in the profitability of the continuing businessover last year. Full details of the pension deficit reduction and Borge HoldingsAS disposal are disclosed in note 3 and note 4 respectively. Disposals During the year the Group sold the non-core business of Borge Holding AS and itssubsidiary John O Borge AS. There was a profit on disposal after related costsof £532,000. Under FRS 17 the Group accounts showed a pension liabilityassociated with the John O Borge business, although under Norwegian accountingrules there was a small pension surplus. As a consequence of the sale thisliability, £95,000 is no longer required and has been released. Goodwillpreviously written off to reserves was expensed in the profit and loss asrequired by FRS 10. The goodwill was directly credited back to reserves as seenin the Reconciliation of Movements in Shareholder's Funds. Operating Cash Flow There has been a cash inflow from operating activities during the period of£1,643,000 due to the operating profit, the depreciation charge during theperiod continuing to be greater than required capital expenditure and areduction in working capital. Net cash receipts from the sale of Borge Holding AS and its subsidiary John OBorge AS of £1,498,000 have helped to reduce the Group's borrowings. The Group made payments to the Pension schemes of £799,000 to reduce the deficitand this is part of the ongoing planned reduction. There were also payments madeto the majority of active and deferred pensioners of £950,000 as thesepensioners accepted an offer from the Group to buy out the right to nonstatutory pension increases. At the year end there were liabilities of £608,000associated with the pension reduction exercise. These covered the tax that hadbeen held on payments made to pensioners during the year awaiting tax clearance,and acceptances received in January 2006 and paid in February together withassociated fees. Since the year end tax clearance has been received and paymentsmade of tax withheld. As a consequence net debt in the Group has reduced by £1,389,000 to £9,357,000(2005: £10,746,000). Pension Deficit The pension deficit has reduced significantly this year. The major factor wasthe reduction arising from the settlement of liabilities of £5,634,000.Contributions from the company further reduced the liability by £799,000. TheGroup has adopted the PA92 mortality tables when computing the FRS 17 liabilityand this has lead to an increase in the deficit of £3,196,000. 2006 £000Deficit at beginning of period (11,269)Current Service Cost (167)Other Finance Cost (174)Contributions 799Reduction of deficit following settlement of 5,634liabilities Release due to sale of subsidiary 95Impact of PA 92 mortality tables (3,196)Actuarial loss 297Deficit at end of period (7,981) Gearing The gearing level for the Group remained similar to last year being 56.4% atJanuary 2006 compared to 58.4% at January 2005, after adjusting for the pensionliability. The Group's balance sheet remains underpinned by freehold propertiesvalued at £5 million. Funding The Group utilises a facility provided by Burdale Financial Ltd part of the Bankof Ireland. It is a 3 year facility which commenced on 23 July 2004 with a limitof £18.5m. A significant element of the facility is linked to working capitallevels which allows the Group to manage its cash more effectively during theseasonal fluctuations in working capital associated with the industry in whichthe Group operates. All of the bank's facilities remain secured by first fixed and floating chargesover the Group's assets. Interest The Group has continued to maintain its debt in floating rate instruments inorder to benefit from the lower rates available. This policy remains constantlyunder review to ensure interest rate risk is minimised. Taxation The Group tax charge continues to reflect the amounts borne in foreignterritories. This is constantly under review to ensure every opportunity isconsidered to minimise the amount incurred. In the UK, the Group has substantialbrought forward tax trading losses and as a consequence, does not anticipatepaying UK corporation tax in the foreseeable future. It will be the Group'sintention to reflect a deferred tax asset in the future as the Groupdemonstrates its continuing improving profitability. Treasury Policy The Group's treasury policy is controlled centrally in accordance withprocedures approved by the Board. It is run prudently as a central Groupfunction, providing services to the other Group companies and adopts a riskadverse strategy. The main risks covered by this policy are interest rate risk, foreign currencyrisk and liquidity risk. Interest rate risk During the year, the Group has reduced its fixed rate finance lease borrowingsfrom £251,000 to nil, thereby eliminating the proportion of fixed rateborrowings used by the Group. All other borrowings are on a floating rate. Theviability of hedging instruments that would limit the impact of interest ratemovements will continue to be reviewed based on the Board's perception of futurerate increases. 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 and any unmatchedexposures are covered by forward contracts wherever economically practical. The Group does not trade in financial instruments and hedges are only used forknown cash flows. This has resulted in there being no significant gains andlosses. Liquidity Risk The Group ensures that it has adequate facilities available to cover both itsshort term and medium term commitments. Going Concern The Directors are confident, after having made appropriate enquiries, that theGroup and Company have adequate resources to continue in the foreseeable future.For this reason, they continue to adopt the going concern basis in preparing theaccounts. Restatement In prior year, the Group had charged amortisation of issue costs of finance of£32,000 against operating profit. In the year, this has been reclassified to netinterest payable requiring restatement of the prior year comparatives. IFRS The Group will adopt IFRS for the year ending 31 January 2008, and its firstreporting under the new accounting rules will be for the interim period ending31 July 2007. The Board commenced a project during the year to ensure thesuccessful implementation of IFRS accounting rules for the year ending 31January 2008. ALAN DIX GROUP FINANCE DIRECTOR 10 April 2006 Group Profit and Loss AccountYear ended 31 January 2006 Before Exceptional Exceptional Total 2005 items items 2006 (restated) Note £000 £000 £000 £000 Turnover Continuing operations 1,2 46,361 - 46,361 46,013Discontinued operations 1,2 2,031 - 2,031 4,598 48,392 - 48,392 50,611Operating profit/(loss) Continuing operations 2 758 4,076 4,834 (3,062)Discontinued operations 2 184 - 184 372 942 4,076 5,018 (2,690)Profit on sale of subsidiary 3 - 532 532 -Pension provision (FRS17) release - 95 95 -on sale of subsidiary Goodwill previously written off - (1,908) (1,908) -to reserves Net loss on sale of subsidiary - (1,281) (1,281) -Profit on sale of properties 4 - - - 1,461Profit on sale of Warner Archive 5 - - - 1,470Profit on ordinary activities 942 2,795 3,737 241before interest Net interest payable Interest payable (872) (811)Amortisation of issue costs (66) (32) (938) (843)Other finance charge (174) (205)Profit/(Loss)on ordinary 1 2,625 (807)activities before taxation Tax on profit/(loss) on ordinary (80) (27)activities Profit/(loss) on ordinary 2,545 (834)activities after taxation Dividends - -Profit/(loss) for the year 2,545 (834)Profit/(loss) per share - Basic 6 4.51p (1.48)pand diluted Profit/(loss) per share - Basic 6 6.46p (1.77)pand diluted from continuing operations Dividend per ordinary share - - There is no material difference between the loss on ordinary activities aboveand their historical cost equivalent. Balance SheetAt 31 January 2006 Group Group Company Company 2006 2005 2006 2005 Note £000 £000 £000 £000 Fixed assets Intangible assets 4,859 4,898 - - Tangible assets 10,205 11,376 4,595 4,692 Investment in subsidiaries - - 33,250 19,000 15,064 16,274 37,845 23,692 Current assets Stocks 11,539 12,879 - - Debtors 9,137 11,346 15,823 30,655 Cash at bank and in hand 1,530 1,149 77 - 22,206 25,374 15,900 30,655 Creditors: amounts falling due within (10,403) (11,657) (9,440) (7,886) one year Net current assets 11,803 13,717 6,460 22,769 Total assets less current liabilities 26,867 29,991 44,305 46,461 Creditors: amounts falling due after (10,289) (11,310) (1,225) (1,500) more than one year Provisions for liabilities and charges - (342) - (44) Net assets excluding pension liability 16,578 18,339 43,080 44,917 Pension liability 10 (7,981) (11,269) - - Net assets 8,597 7,070 43,080 44,917 Capital and reserves Share capital 590 590 590 590 Share premium account 457 457 457 457 Profit and loss account (32,957) (34,484) 145 1,982 Other reserves 40,507 40,507 41,888 41,888 Equity shareholders' funds 8,597 7,070 43,080 44,917 Group Cash Flow StatementYear ended 31 January 2006 Note 2006 2006 2005 2005 £000 £000 £000 £000 Net cash inflow/(outflow) from 7 1,643 (4,060) operating activities Returns on investment and servicing of finance Interest received 12 4 Interest paid (878) (772) Interest element of finance lease - (43) payments (866) (811) Taxation (184) (278) Capital expenditure Purchase of tangible fixed assets (710) (1,187) Proceeds from assets held for - 325 resale Proceeds from disposal of - 4,564 property (710) 3,702 Acquisitions and disposals Net proceeds from disposal of 1,498 - subsidiary Disposal of Warner Archive - 1,672 Sale of Sanderson retail division - 675 1,498 2,347 Equity dividends paid - - Cash inflow before use of liquid 1,381 900 resources and financing Management of liquid resources - - Financing Proceeds from new loans 655 11,744 Principal repayments of finance lease (251) (463) obligations Repayment of borrowings (1,414) (4,487) (1,010) 6,794 Increase in cash 8,9 371 7,694 Statement of Total Recognised Gains and LossesYear ended 31 January 2006 Group Group 2006 2005 £000 £000 Profit/(Loss) for the financial year 2,545 (834) Actual less expected return on pension scheme assets 3,817 822 Experience gains and losses arising on pension scheme 425 (531) liabilities Change in actuarial assumptions (7,141) (1,401) Currency translation differences (27) 132 Total recognised gains and losses since the last annual (381) (1,812) report Reconciliation of Movements in Shareholders' FundsYear ended 31 January 2006 Group Group 2006 2005 £000 £000 Profit/(loss) for the financial year 2,545 (834) Dividends - - Profit /(loss) for the year 2,545 (834) Other recognised gains and losses relating to the (2,926) (978) year Goodwill previously set off to reserves in respect of 1,908 202 the disposal of operations Net increase/(reduction) to shareholders' funds 1,527 (1,610) Opening shareholders' funds 7,070 8,680 Closing shareholders' funds 8,597 7,070 Notes to the Accounts 1 Segmental Analysis (a) Classes of business Turnover 2006 2005 £000 £000 (restated) Continuing operations: Fabrics 30,062 29,969 Wallcoverings 12,415 12,492 Other 3,884 3,552 46,361 46,013 Discontinued operations: Fabrics 511 1,157 Wallcoverings 1,520 3,441 2,031 4,598 Group 48,392 50,611 The other category includes furniture, paint and trimmings. (b) Geographical Segments Turnover Profit/(loss) Net assets before taxation 2006 2006 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000By origin on continuing: United Kingdom 38,902 38,498 2,377 (993) 9,414 6,045Continental Europe 1,198 1,016 (86) (29) (1,003) (920)North America 6,261 6,499 154 (24) 186 89 46,361 46,013 2,445 (1,046) 8,597 5,214By origin on discontinued operations: Continental Europe 2,031 4,598 180 239 - 1,856 By origin Group 48,392 50,611 2,625 (807) 8,597 7,070operations: By destination on continuing operations: United Kingdom 29,476 30,887 Continental Europe 6,145 5,587 North America 7,937 8,024 Rest of the World 2,803 1,515 46,361 46,013 By destination on discontinued operations: Continental Europe 2,031 4,598 By destination Group 48,392 50,611 operations: 2 Analysis of Operating Profit/(loss) 2006 2006 2006 2005 2005 2005 Continuing Discontinued Total Continuing Discontinued Total £000 £000 £000 £000 £000 £000 Turnover 46,361 2,031 48,392 46,013 4,598 50,611Cost of sales (20,562) (957) (21,519) (21,711) (2,258) (23,969)Gross Profit 25,799 1,074 26,873 24,302 2,340 26,642 Net operating expenses: Distribution (11,650) (305) (11,955) (11,465) (601) (12,066)costs Administrative (14,489) (583) (15,072) (16,878) (1,372) (18,250)expenses Other 1,098 (2) 1,096 979 5 984operating income Operating 758 184 942 (3,062) 372 (2,690)profit/(loss) before exceptionals Reduction of 4,076 - 4,076 - - -pension deficit following settlement of liabilities Operating 4,834 184 5,018 (3,062) 372 (2,690)profit/(loss) The comparative analysis of administration and distribution has been restated tobetter reflect the costs of the business. Exceptional Items During the year the Group bought out the right to non statutory pensionincreases from its active and deferred pensioners. This has resulted in areduction of the FRS 17 liability in the balance sheet of £5,634,000 and abenefit of £4,076,000 in the profit and loss account. The operating loss in the year ended January 2005 included £670,000 of items ofa one-off non recurring nature relating to the integration of the Sandersonbusiness within the Group. This comprised £191,000 redundancy costs incurred incombining the Zoffany and Sanderson US operations, £295,000 redundancy costsrelating to the combining of the Sanderson and Zoffany UK divisions onto onesite, £127,000 removal costs and costs of terminating a property lease at theZoffany UK site, and £57,000 of cost incurred in transferring Sanderson stock tothe Group's warehouse at Tilbrook. 3 Loss on the sale of Borge Holdings AS and John O Borge AS In June 2005, the wholly owned Norwegian subsidiaries Borge Holding AS and JohnO Borge AS were sold for a consideration before costs of £1,881,000. A profit of£532,000 was generated on the sale before goodwill previously written off toreserves and the adjustment to FRS 17 provision. Goodwill previously written offto reserves of £1,908,000 was charged through the profit and loss account. A netloss on sale of £1,281,000 has been recorded. Net proceeds of £1,498,000 werereceived as detailed in the table below: 2006 £000Sale of Borge Holdings AS and John O Borge AS The disposal compromised the following: Tangible fixed assets 60Stock 681Debtors 745Creditors (520)Profit on disposal 532 Net cash inflow from the disposal of Borge Holdings AS and 1,498John O Borge AS 4 Profit on Sale of Properties In February 2004, the land and buildings at Bradbourne Drive, Tilbrook, MiltonKeynes, were sold under a sale and leaseback agreement. A consideration beforecosts of £4,670,000 was received, and a profit of £1,461,000 was generated onthe sale. The tax effect of the disposal was nil. 5 Profit on sale of Warner Archive 2006 2005 £000 £000 Profit on sale of Warner Archive - 1,470 In May 2004, the Warner Archive of designs was sold for a consideration beforecosts of £2,000,000, generating a profit on disposal of £1,470,000. 6 Profit Per Share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares outstandingduring the year, excluding those held in the employee share trust, which aretreated as cancelled. 2006 2006 2006 2005 2005 2005 Earnings Weighted Per Earnings Weighted Per £000 average share £000 average share number Amount number Amount of pence of pence shares shares (000's) (000's) Basic & Diluted EPS: Earnings attributable to 2,545 56,457 4.51 (834) 56,457 (1.48)ordinary shareholders Earnings per share from continuing operations: Basic & Diluted EPS 2,545 56,457 4.51 (834) 56,457 (1.48)Loss on sale of subsidiary 1,281 - 2.27 - - -Pre tax profit from (180) - (0.32) (239) - (0.42)discontinued operation Tax relating to discontinued - - - 75 - 0.13operations Basic and diluted EPS from 3,646 56,457 6.46 (998) 56,457 (1.77)continuing operations Earnings per share from discontinued operations: Basic & diluted EPS Loss on sale of subsidiary (1,281) 56,457 (2.27) - 56,457 -Pre tax profit from 180 - 0.32 239 - 0.42discontinued operation Tax relating to discontinued - - - (75) - (0.13)subsidiary Basic and diluted EPS from (1,101) 56,457 (1.95) 164 56,457 0.29discontinued operations 7 Reconciliation of Operating Profit/(loss) to Net Cash Inflow/(outflow)from Operating Activities 2006 2006 2005 2005 £000 £000 £000 £000 Continuing operations: Operating profit/(loss) 4,834 (3,094)Depreciation and amortisation 1,894 2,302 Difference between pension charge and (5,316) (814) cash contributions Settlement of pension liabilities (950) - Proceeds on disposal of fixed assets 3 - Decrease/(increase) in stocks 525 (1,316) Decrease/(increase) in debtors 1,624 (21) Decrease in creditors (642) (884) (Decrease)/increase in provisions (323) 123 Fair value adjustment - (851) (3,185) (1,461)Net cash inflow/(outflow) from continuing 1,649 (4,555)operating activities 2006 2006 2005 2005 £000 £000 £000 £000 Discontinued operations: Operating profit 184 372Depreciation and amortisation 9 66 Decrease in stocks 134 15 (Increase)/decrease in debtors (125) 169 Decrease in creditors (208) (127) (190) 123Net cash (outflow)/inflow from operating (6) 495activities Total net cash inflow/(outflow) from 1,643 (4,060)operating activities Last year comparatives have not been restated for the impact of FRS 4. Theoperating loss in the profit and loss account is after the FRS 4reclassification of £32,000. 8 Analysis of Net Debt 1 February Cash Other Exchange 31 2005 flow movements movement January 2006 £000 £000 £000 £000 £000 Cash at bank and in 1,149 373 - 8 1,530 hand Overdrafts - (2) - - (2) 1,149 371 - 8 1,528 Debt due within one (400) (196) - - (596) year Debt due after one (11,244) 856 99 - (10,289) year Finance leases (251) 251 - - - (11,895) 911 99 (10,885) (10,746) 1,282 99 8 (9,357) 9 Reconciliation of Net Cash Flow to Movement in Net Debt 2006 2005 £000 £000 Increase in cash in the year 371 7,694Decrease/(increase) in debt and lease financing 911 (6,794)Cash inflow from cash flows 1,282 900Other movements 99 -Exchange movement 8 (13)Movement in the year 1,389 887Net debt at 1 February 2005 (10,746) (11,633)Net debt at 31 January 2006 (9,357) (10,746) 10 Pensions Movement in deficit during the period 2006 2005 Group Group £000 £000 Deficit at beginning of period (11,269) (10,768)Movement in the period: Current service cost (167) (226)Contributions 799 1,040Reduction of pension deficit following 5,634 -settlement of liabilities Release due to sale of subsidiary 95 -Other finance charge (174) (205)Adoption of PA92 mortality tables (3,196) -Actuarial gain/(loss) 297 (1,110)Deficit at end of period (7,981) (11,269) This information is provided by RNS The company news service from the London Stock Exchange