Walker Greenbank : Interim Results 2019

RNS Number : 8427P

Walker Greenbank PLC

15 October 2019

For immediate release

15 October 2019

WALKER GREENBANK PLC

("Walker Greenbank", the "Company" or the "Group")

InterimResults for the six months ended 31 July 2019

Walker Greenbank PLC (AIM: WGB), the luxury interior design and furnishings group, announces its interim results for the six- month period ended 31 July 2019, which are in line with the Board's expectations.

Financial Highlights
Six months ended 31 July 2019	2019	2018	Change
Revenue	£55.9m	£54.7m	+2.2%
Adjusted underlying profit before tax*	£4.9m	£4.3m	+14.0%
Adjusted underlying EPS*	5.54p	4.73p	+17.1%
Statutory profit before tax	£3.5m	£3.9m	(10.3)%
Basic EPS	3.70p	4.35p	(14.9)%
Interim dividend per share	0.52p	0.69p	(24.6)%

• Total Brand product sales up 1.2% in reportable currency, up 0.1% in constant currency reflecting International sales offset by challenging trading conditions in the UK. On a like-for-like basis**, international brand sales were down 1.3% in constant currency
• Licence income up 60.0% in both reportable and constant currency, largely driven by the IFRS 15 recognition of future guaranteed licensing income but also reflecting core licensing growth over the period. Excluding the recognition of fixed minimum guaranteed licensing income under IFRS 15 and income from apparel contracts, core licensing income was up approximately 12.2% in reportable currency (up 12.4% in constant currency)
• Total Manufacturing sales including Group sales up 5.1% in reportable currency. Total third-party manufacturing sales down 4.7% driven by lower UK sales but offset in part by strong overseas manufacturing sales up 16.6%
• Net debt down following the adoption of IFRS 16 'Leases' £7.7 million (31 January 2019: £9.2 million on an equivalent basis).
  Excluding impact of IFRS 16 net funds of £0.9 million (31 January 2019: net funds of £0.4 million)
• New five year bank facilities to 2024 comprising £12.5 million rolling credit facility and £5 million accordion
• Interim dividend of 0.52p per share (H1 2018: 0.69p) with full year dividend pay-out ratio expected to be maintained

Operational Highlights

• Significant progress made on the review of the Company's strategy
• Morris & Co brand continues to perform strongly, reflecting sustained consumer interest in the Arts & Crafts movement
• Kravet Inc. appointed in July 2019 to represent the Clarke & Clarke and Studio G brands in the US with encouraging performance seen to date
• Efficiency and cost-saving initiatives expected to deliver £2 million of annualised cost savings of which approximately £1 million will be delivered in the second half of the current financial year

*Excludes accounting charges relating to the LTIP, defined benefit pension charge and non-underlying items, see note 7 to the financial statements below.

**Reflecting a temporary change to the Company's US operating model for Clarke and Clarke sales whereby revenue in the half year was recorded on an agency basis whereby sales in the prior half year were recorded on a distribution basis

Dianne Thompson, Non-executive Chairman of Walker Greenbank, said: "Trading in the first half of the year was in line with the Board's expectations and continues to reflect the challenges affecting the consumer sector both in the UK and internationally. We have made significant progress with our strategy review and have begun taking steps to increase the focus of the business going forwards to drive sales and increase efficiency. At this stage of the year, as we enter the autumn selling period, we continue to expect the full year out-turnto meet the Board's expectations."

Analyst meeting

A meeting for analysts will be held at 10.00 a.m. today, 15 October 2019, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further details, contact Buchanan on 020 7466 5000 or email [e-mail].

For further information:
Walker Greenbank PLC	c/o +44	(0)	20 7466 5000
Lisa Montague, Chief Executive Officer
Mike Gant, Chief Financial Officer
Caroline Geary, Company Secretary
Investec Bank plc (Nominated Adviser and Broker)	+44	(0)	20 7597 5970
David Anderson / Alex Wright
Henry Reast
Buchanan	+44	(0)	20 7466 5000
Mark Court / Sophie Wills

Notes for editors:

About Walker Greenbank

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

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

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

Walker Greenbank employs more than 650 people and its products are sold in more than 85 countries worldwide. It has showrooms in London, New York, Chicago, Paris, Amsterdam, Moscow and Dubai.

Walker Greenbank trades on the AIM market of the London Stock Exchange under the ticker symbol WGB.

For further information please visit: www.walkergreenbank.com/

CHIEF EXECUTIVE'S STRATEGIC AND OPERATIONAL REVIEW

Introduction

These interim results, for the six months ended 31 July 2019, mark my first as Chief Executive Officer of Walker Greenbank. I was very pleased to be appointed to the role in April this year and I am excited by the potential of the Company, which has a compelling core asset in its brands and the strength of design that runs throughout the business supported by an extensive and valuable design archive.

Strategy review

As previously announced, I have been leading a review of the Company's strategy on behalf of the Board. I am pleased to provide today an overview of our planned changes in strategic emphasis, which seek to build upon our compelling market proposition by sharpening the focus of the Company to drive future growth.

Walker Greenbank benefits from a strong and broad portfolio of brands, each with clear market positions, customers and price points. Each of these brands has a defined identity and unique attributes. To drive sales growth, we intend to focus precisely on the individuality of each brand, giving them their own market, product and launch strategies thereby strengthening their positions in their respective marketplaces and cementing relationships with key customers and expanding those relationships further.

Walker Greenbank is a business-to-business company and, whilst there are changes in our broader marketplace as a result of e- commerce in particular, our short and medium term strategy is to focus on our core products of wallpaper, fabric and paint and to build deeper relationships with our core trade customers. We have already identified, through independent market research, a number of straightforward initiatives to improve our customer service. Licensing, or other forms of collaboration, will continue to underpin the brands' use in homeware, finished goods and other products.

People, and creativity, are at the heart of our business. In our industry, Walker Greenbank is the favoured destination for emerging new designers and we will benefit from doing even more to bring in new design talent. We are also strengthening our senior leadership team with three important appointments: Mauricio Solodujin has already started in the new position of Global Commercial Director to work across all brands, markets and channels. Both a Group Marketing & Digital Director and a Group Operations Director have been recruited to join the Company before the end of the current financial year to drive brand initiatives and operational efficiencies throughout our international organisation.

Our brands continue to have significant international potential, reflected in their being sold in more than 85 countries worldwide. The

sales in many of these countries are small and in future we will focus our efforts on developing three key geographies: the UK, Northern Europe and the US. Our approach will be tailored to each individual region. For example, in the US, which has the potential to be a major market for the Company, we will, over time and leveraging our understanding and experience in the US market, develop our presence on the ground.

In summary, the Company's strategy going forwards will be a sharp focus on driving the brands; on core products of wallpaper, fabric and paint and core customers; investing in people; and three key geographies of the UK, Northern Europe and the US. This strategy will be supported by our UK manufacturing base, which remains an important asset and differentiator for the business.

In addition, we will continue to identify cost savings and improve the efficiency, agility and productivity of the business where possible, for example through innovation in product marketing and optimising the numbers of products launched to deliver our internal hurdle rates of return on creation costs.

I look forward to providing a comprehensive update on progress with this strategy at the time of our full year results announcement next year.

Operational review

Interim results

As set out in the half year trading update released on 6 August 2019, trading conditions in the six months to 31 July 2019 continued to be challenging, although our performance in the half year was in line with the Board's expectations.

Total sales in the six months to 31 July 2019 were up 2.2% at £55.9 million (H1 2018: £54.7 million). The adjusted underlying profit

before tax* for the first six months was £4.9 million (H1 2018: £4.3 million), an increase of 14.0% on the same period last year, reflecting the recognition of fixed minimum guaranteed licensing income under IFRS 15 offset by the performance of the portfolio of brands within the Brands division.

During the first half, the Company progressed a number of efficiency and cost-saving initiatives, including the integration of Clarke & Clarke's support functions, resulting in expected annual savings of approximately £2 million, of which approximately £1 million will be delivered in the second half of the current financial year.

The interim results reflect the Group's adoption of IFRS 16 'Leases' from the start of the financial year on a modified retrospective basis. Accordingly, the prior half-year comparative numbers have not been restated.

Segmental review

The Brands

			Half year	ended 31	Change
			July
			2019	2018	Reported	Constant	Like-for-like**
						currency
Total Brand sales		£46.3m	£44.6m	+3.8%	+0.8%	n/a
Comprising:
Licensing		£3.2m	£2.0m	+60.0%	+60.0%	n/a
UK Brand product sales	£22.2m	£23.1m	(3.9%)	n/a	n/a
International	Brand	£20.9m	£19.5m	+7.2%	+4.8%	(1.3)%
product sales
-	US		£8.0m	£6.9m	+15.9%	+9.7%	(6.2%)
-	Western Europe	£6.1m	£5.8m	+5.2%	+5.4%	n/a
-	Rest of the World	£6.8m	£6.8m	-	+1.0%	n/a
Total Brand product sales	£43.1m	£42.6m	+1.2%	+0.1%	(2.7%)

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

Total Brand sales increased in the first half by 3.8% in reportable currency, compared with the same period last year, to £46.3 million, up 0.8% in constant currency. Total Brand product sales excluding licensing were up 1.2% in reportable currency, compared with the same period last year, at £43.1 million.

In the UK, our largest market, sales decreased by 3.9% compared with the same period last year to £22.2 million, impacted by the weaker UK consumer environment. Within the Brands, Clarke & Clarke has continued to perform strongly as a result of being positioned at the more affordable end of our premium target markets and boosted by the growth of homeware ranges, which are a relatively new category for the business.

Morris & Co. has also continued to perform well, reflecting the sustained revival of consumer interest in the Arts & Crafts movement.

International Brand product sales were up 7.2% in reportable currency, up 4.8% in constant currency, to £20.9 million. The international performance in the half year primarily reflects a temporary change in the US operating model relating to the distribution of the Clarke & Clarke and Studio G brands in which revenue due to a third party is included in the Company's reported Brands revenue. This change in operating model ceased to be in effect on 31 July 2019. On a like-for-like basis**, international brand sales were down 1.3%.

Starting on 1 August 2019, we appointed Kravet Inc., the industry leader in the to the trade home furnishings industry, to distribute the Clarke & Clarke and Studio G brands in the US. Kravet Inc, has a substantial footprint in the US and we are pleased by the progress made to date.

Sales in the US, our second largest market after the UK, were up 15.9% in reportable currency, up 9.7% in constant currency, compared with the same period last year, to £8.0 million. On a like-for-like basis**, sales in the US were down approximately 6.2%, reflecting the impact of the disruption to Clarke & Clarke distribution following the Robert Allen Duralee Group entering into Chapter 11.

Brand product sales in Western Europe were up 5.2% in reportable currency, up 5.4% in constant currency, compared with the same period last year at £6.1 million and sales in the Rest of the World were up 1.0% in constant currency.

Licensing

Licensing income in the first six months was up 60.0% in reportable currency, 60.0% in constant currency, to £3.2 million, largely as a result of the recognition of fixed minimum guaranteed licensing income together with a strong performance from our core bedding, blinds and Japanese licensees. During the first half, approximately 30% of licensing income was generated in overseas markets. Excluding the recognition of fixed minimum guaranteed licensing income under IFRS 15 and income from apparel contracts, core licensing income was up approximately 12.2% in reportable currency (up 12.4% in constant currency), compared with the corresponding period last year.

Manufacturing

Total manufacturing sales grew 5.1% over the first six months to £17.1 million compared with the same period last year. Third-party sales were down 4.7% in the first half, primarily due to a contraction in orders from UK customers driven by economic uncertainty. During the period, both factories continued to grow exports as a result of their digital printing capabilities and of the weakness of Sterling. Third-party export sales grew by 16.6% year-on-year over the same period.

Export sales at Anstey, our wallpaper printing factory, delivered a strong performance in the first half of the year as it took advantage of a third new digital printer installed in quarter one. Digital printing sales grew by 42% compared with the first half last year and digital grew significantly as a proportion of factory output from 8.7% to 12.3%.

At Standfast, our fabric printing factory, its 55%:45% digital to traditional print mix remained unchanged as conventional fabrics benefited from renewed interest from home and abroad. We expect to increase both digital and conventional print volumes further with the launch of a new outdoor range of digitally printed pigment products and leverage technical innovation in conventional fabrics.

Impact of the UK's exit process from the European Union

The negotiation of the UK's exit terms from the European Union continues to present significant uncertainties owing to the potential impact of a disorderly exit on supply chains, tariffs, exchange rates and consumer demand. As disclosed at the time of our results in April 2019, we are building stocks of key raw materials that could be affected by disruption to the flow of goods into the UK.

*Excluding the Long-TermIncentive Plan ("LTIP") accounting charge, the net defined benefit charge and non-underlying items

**Reflecting a temporary change to the Company's US operating model for Clarke and Clarke sales whereby revenue in the half year was recorded on an agency basis whereby sales in the prior half year were recorded on a distribution basis

FINANCIAL REVIEW

Newly adopted accounting standards

The Group has adopted IFRS 16 'Leases' from 1 February 2019. This has resulted in changes in accounting policies. In accordance with the transition provisions in IFRS 16, the Group has adopted the new rules on a modified retrospective basis and therefore not restated comparatives for the financial year. Note 1 to the financial statements below describes the impact of the Group adopting IFRS 16.

The balance sheet at 31 July 2019 recognises new 'right-of-use assets' of £8.8 million and new lease liabilities totalling £8.7 million. In the Income Statement operating lease costs (save for low-value and short-term leases) have been replaced by a depreciation charge on each right-of-use asset and an interest charge that reduces over the lease term. Total expenses (depreciation for 'right of use' assets and interest on lease liabilities) are higher in the earlier years of a typical lease and lower in the later years, in comparison with former accounting for operating leases. The main impact on the Statement of Cash Flows is higher cash flows from operating activities, since cash payments for the principal part of the lease liability are classified in the net cash flow from financing activities.

Overview

Statutory profit before tax of £3.5 million (H1 2018: £3.9 million) included non-underlying charges of £1.06 million (H1 2018: non- underlying charges of £0.04 million). These are analysed below:

	H1 2019	H1 2018
	£000	£000
Statutory profit before tax	3,515	3,867
Amortisation of acquired intangible assets	508	508
Restructuring and reorganisation costs	694	95
Ansteyfire insurance reimbursements	(144)	(650)
Ansteyfire-related costs	-	85

Ansteynet other income	(144)	(565)
Total non-underlying charges included in profit before tax	1,058	38
Underlying profit before tax	4,573	3,905
LTIP accounting charge	-	68
Net defined benefit pension charge	359	323
Adjusted underlying profit before tax	4,932	4,296

Acquisition related costs incurred were in respect of the acquisition of Clarke & Clarke, which completed on 31 October 2016. This comprises the amortisation of intangible assets of £0.5 million.

Restructuring and reorganisation costs of £0.7 million reflect the rationalisation of certain operational and support functions relating to the integration of the warehouse and back offices of Clarke & Clarke into Style Library. These costs mainly comprise professional fees, employee severance and property costs associated with the reorganisation process.

Anstey net other income comprises proceeds of £0.14 million from the insurance reimbursement of plant and equipment repair and related costs following the machine fire in 2017.

In addition to the non-underlying net other income described above, a further £0.05 million was recognised during the year in underlying net other income, which represents business interruption losses for the period to 31 July 2019.

The net underlying interest charge increased to £0.21 million as a result of the impact of IFRS 16. The defined benefit pension charge increased marginally to £0.36 million driven by an increase in the interest on pension scheme liabilities as a result of the increase in the pension deficit.

Adjusted underlying profit before tax, excluding the LTIP accounting charge, defined benefit charge and non-underlying items, increased 14.0% to £4.9 million (H1 2018: £4.3 million).

Adjusted earnings per share were up 17.1% at 5.54 pence (H1 2018: 4.73 pence), after removing the LTIP accounting charge, defined benefit charge and other non-underlying items.

Statutory profit after tax was £2.6 million (H1 2018: £3.1 million) and basic earnings per share were down 15.2% at 3.69 pence (H1

2018: 4.35 pence).

Cash flow

A working capital outflow during the period of £3.0 million (H1 2018: £1.0 million) reflected:

• an increase in accrued accelerated licensing income:
• the half year movement in stock driven by higher levels of stock in Brands and Anstey to mitigate potential supply chain disruption due to Brexit; and
• the £0.19m insurance reimbursement proceeds received in respect of the Anstey machine fire.

Capital expenditure in the period was £1.2 million which includes the purchase of a digital pigment printer at our fabric printing factory in line with the Group's strategy to continue to invest in innovative printing techniques, cementing its position as the UK's leading manufacturer to the industry.

The Group's reported net debt (post IFRS 16) at the half year increased to £7.7 million. Excluding the impact of IFRS 16, the Group had net funds at the end of July 2019 of £0.9 million (H1 2018: £3.4 million).

Dividend

The Board has declared an interim dividend of 0.52p per share (H1 2018: 0.69p) with the previous year's dividend pay-out ratio expected to be maintained for the current financial year. The interim dividend will be payable on 22 November 2019 to shareholders on the register as at 25 October 2019.

People

On behalf of the Board, I would like to thank all of our management and employees for their contribution during the first half.

Current Trading and Outlook

Trading in the first half of the year was in line with the Board's expectations and continues to reflect the challenges affecting the consumer sector both in the UK and internationally. We have made good progress with our strategy review and have begun taking steps to increase the focus of the business going forwards to drive sales and increase efficiency. At this stage of the year as we enter the autumn selling period, we continue to expect the full year out-turn to meet the Board's expectations.

Lisa Montague

Chief Executive Officer

14 October 2019