28 September 2006
Lambert Howarth Group p.l.c.
Interim Results for the six months ended 30 June 2006
Summary
� A weak retail environment has led to severe and largely
unexpected downturn in trading.
� Revenue from continuing operations was �26.5 million
compared with �46.2 million last year.
� Loss before taxation was �13.0 million, after including
significant stock provisions, and:
- goodwill impairment of �5.9 million
- losses on derivative instruments of �1.0 million
� Disposal of properties will realise �3.6 million.
� Turnaround actions to date:
- significant cost savings implemented.
- new management appointed and improvements enacted at Natural World
- promising discussions with new brands and new retailers
Commenting on the results, Fred Vinton, Chairman said:
"Although significant work remains to be done, we see some signs of recovery in
our business with new orders being placed by existing customers and promising
discussions taking place with new brands and new retailers."
For further information:
Lambert Howarth Group 020 7258
p.l.c. 9988
Pamela Harper, Chief Executive Officer
John Gibson, Group Finance Director
Chairman's statement
The Group has experienced a severe and largely unexpected downturn in its
trading results for the half year ended 30 June 2006.
Reflecting in part a poor retail sales environment for clothing, accessories
and shoes, revenue on continuing operations was �26.5 million, �19.7 million
lower than for the comparable period last year. This was due to a continuing
decline in sales to Marks and Spencer and other clothing retailers as well as a
significant decline in our Homeware business in the UK.
The result for the half year was a loss before taxation of �13.0 million
compared with a profit of �5.2 million in 2005, which includes a total charge
for goodwill impairment and other expenses of �6.9 million versus a net income
of �1.0 million last year. The goodwill impairment relates to the UK Homeware
subsidiary following a decline in sales and profitability as a result of
difficult market conditions, changing trading strategies on the part of certain
multiple retailers and increasing competition from the supermarkets and other
new entrants to the sector.
The Board is not proposing the payment of an interim dividend in view of the
trading performance of the Group.
Operations
Sales to Marks and Spencer declined significantly due principally to its
decision to source direct for approximately half of its comfort range of shoes,
while margins have also suffered as result of price deflation and increased
settlement discounts, despite the success of our cost effective sourcing from
the Far East. The company has also suffered volume losses in soft accessories,
bags and jewellery.
Turmoil within the UK homeware market in which we operate has continued to
impact negatively on sales volumes within Natural World, our UK Homeware
business, whilst the clearance of high stock levels has impacted on operating
margins. The company has taken steps to provide against and to clear surplus
stock. Our Homeware business in Spain, Natural Selection, continues to do well
growing its sales in Spain and France.
Our brand business, French Connection and Lulu Guinness, is making gradual
progress both in the UK and the key international markets.
Strategic Review and Restructuring
Clearly the performance of the business towards the latter part of last year
and the first half of 2006 was unacceptable. As a result a new Chief Executive
Officer, Mrs Pamela Harper, was appointed on 2 June 2006 with a mandate to
conduct a thorough review of the company's strategy, to re-invigorate our
excellent long standing relationship with Marks and Spencer in the supply of
both shoes and accessories, to reduce the company's cost base, upgrade the
company's systems and business processes and stem the losses in the UK Homeware
business as a matter of urgency.
Although the process is not yet over, important progress has been made in the
following areas:
Strategic direction - The Group continues to have excellent skills and
experience in the design, sourcing and distribution of footwear and accessories
and we will continue to focus on these areas. We need to reduce our current
dependence on the UK market and to establish better access to international
markets and customers. We believe we are well placed to develop a larger and
successful brands business and are well advanced in our negotiations to take on
new licences. We are also actively in discussions with several major high
street retailers to supply them with footwear and accessories.
Operations - A major effort has been undertaken to reduce expenses throughout
the business. Operating expenses have been reduced by �2.2 million or 18% from
the same period last year, while headcount has fallen by 28% to 283 at 30 June
2006, with further reductions implemented after the end of the period. We are
also reviewing the company's skills base to ensure we are equipped to meet
future challenges. The new management appointed in Natural World has instigated
improvements already and a thorough review of all strategic options for the
business is taking place.
Following our sales of surplus properties last year which released �4.6 million
in cash, we have entered into contracts to sell our properties in Stockport and
Burnley for a total of �3.6 million. We are also looking closely at measures
to reduce the cost of occupying the Manchester Square property following the
staff reductions in head office.
The Group is in the process of documenting agreed new committed banking
facilities, which involves security being granted to its lenders.
Board
Jo Newton, the executive director responsible for the Brands business, resigned
from the Board on 4 September 2006.
We thank Jo for her part in establishing the Brands business and wish her well
in her next venture.
Outlook
Although the retail environment in our principal markets is still highly
competitive with a number of new entrants continuing to impact our activities,
we see some signs of recovery in our business with new orders being placed by
existing customers and promising discussions taking place with new brands and
new retailers as a result of our business development efforts.
Alfred M Vinton
Chairman
28 September 2006
Consolidated interim income statement
forthe six months ended 30 June 2006
Unaudited Unaudited Audited
Half year Half year Year
30 June 30 June 31
December
2006 2005
2005
Notes �'000 �'000
�'000
Continuing operations
Revenue 26,538 46,208 88,193
Cost of sales before goodwill impairment (22,170) (29,592) (61,821)
Goodwill impairment (5,932) (1,490) (6,115)
Gross (loss) / profit (1,564) 15,126 20,257
Selling and distribution expenses (6,590) (7,379) (14,463)
Administration expenses (3,812) (5,184) (6,854)
Other (expenses) / income 4 (976) 2,499 3,267
Operating (loss) / profit (12,942) 5,062 2,207
Interest payable (160) (59) (151)
Interest receivable 61 183 327
(Loss) / profit before taxation (13,041) 5,186 2,383
Taxation 5 1,058 (1,651) (2,208)
(Loss) / profit for the period from (11,983) 3,535 175
continuing operations
Discontinued operations
(Loss) / profit for the period from 6 (25) (1,547) 164
discontinued operations
(Loss) / Profit for the financial period (12,008) 1,988 339
(Loss) / earnings per share 8
Basic (59.1)p 8.0p 1.4p
Diluted (59.1)p 7.9p 1.4p
(Loss) / earnings per share from 8
continuing operations
Basic (59.0)p 14.2p 0.7p
Diluted (59.0)p 14.0p 0.7p
Consolidated interim statement of recognised income and expense
forthe six months ended 30 June 2006
Unaudited Unaudited Audited
Half Year Half Year Year
30 June 30 June 31 December
2006 2005 2005
�'000 �'000 �'000
(Loss) / profit for the financial period (12,008) 1,988 339
Net exchange adjustments offset in 11 (151) (93)
reserves net of tax
Pension scheme
- actuarial gain / (loss) recognised in 1,136 - (1,920)
pension scheme
- deferred tax on actuarial gain / (loss) (341) - 576
Net gains / (losses) not recognised in 806 (151) (1,437)
income statement
Total recognised (loss) / income for the (11,202) 1,837 (1,098)
period
Adoption of IAS 32/39 - (1,043) (1,043)
Consolidated interim balance sheet
at30 June 2006
Restated
(see
Note2)
Unaudited Unaudited Audited
30 June 30 June 31
December
2006 2005
2005
Notes �'000 �'000
�'000
ASSETS
Non-current assets
Goodwill 9 8,892 19,449 14,824
Property, plant and equipment 5,082 7,159 5,574
Investments accounted for using equity - - -
method
Deferred income tax assets 2,547 2,549 2,515
16,521 29,157 22,913
Current assets
Inventories 13,247 20,658 14,877
Trade and other receivables 7,648 9,283 9,071
Financial assets
Derivative financial instruments - 727 740
Current tax assets 1,340 8 562
Cash and cash equivalents 585 6,839 2,808
22,820 37,515 28,058
Assets classified as held for sale and 10 1,880 550 1,433
included in disposal groups
24,700 38,065 29,491
LIABILITIES
Current liabilities
Financial liabilities
Borrowings 4,559 142 244
Derivative financial liabilities 545 - -
Trade and other payables 6,720 9,672 7,682
Current tax liabilities - 777 -
11,824 10,591 7,926
Net current assets 12,876 27,474 21,565
Non-current liabilities
Retirement benefit obligations 7,203 7,916 9,691
7,203 7,916 9,691
Net assets 22,194 48,715 34,787
SHAREHOLDERS' EQUITY
Capital and reserves
Share capital 2,039 2,496 2,029
Share premium account 1,307 953 1,175
Merger and other reserves 23,441 23,021 23,430
Retained (losses) / earnings (4,593) 22,245 8,153
Total shareholders' equity 22,194 48,715 34,787
Consolidated statement of changes in shareholders' equity
Other reserves
Share Share Retained Capital Group Translation Share Total
capital premium earnings redemption merger reserve based reserves
reserve reserve payments
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
At 1 January
2005 as
previously 2,474 665 21,029 93 22,638 257 127 47,283
reported
Effect of
recognition
of
cumulative
actuarial
gains and
losses - - 1,604 - - - - 1,604
immediately
instead of
adopting the
corridor
method
deferred tax - - (472) - - - - (472)
thereon
At 1 January 2,474 665 22,161 93 22,638 257 127 48,415
2005
Exchange - - - - - (151) - (151)
adjustments
net of tax
Net profit - - 1,988 - - - - 1,988
Pension
Schemes
actuarial
loss
recognised - - - - - - - -
in the
pension
schemes
deferred tax - - - - - - - -
on actuarial
loss
Share
options
proceeds 22 288 - - - - - 310
from shares
issued
value of - - (33) - - - 57 24
employee
services
Dividends - - (1,871) - - - - (1,871)
paid
At 30 June 2,496 953 22,245 93 22,638 106 184 48,715
2005
At 1 July 2,496 953 22,245 93 22,638 106 184 48,715
2005
Exchange - - - - - 58 - 58
adjustments
net of tax
Liquidation - - - - - 4 - 4
of
subsidiary
Net loss - - (1,649) - - - - (1,649)
Pension
Schemes
actuarial - - (1,920) - - - - (1,920)
loss
recognised
in the
pension
schemes
deferred tax - - 576 - - - - 576
on actuarial
loss
Share
options
proceeds 19 222 - - - - - 241
from shares
issued
value of - - (27) - - - (139) (166)
employee
services
Share
buy-back
value of (486) - (10,000) 486 - - - (10,000)
shares
cancelled
costs - - (191) - - - - (191)
Dividends - - (881) - - - - (881)
paid
At 31
December 2,029 1,175 8,153 579 22,638 168 45 34,787
2005
At 1 January 2,029 1,175 8,153 579 22,638 168 45 34,787
2006
Exchange - - - - - 11 - 11
adjustments
net of tax
Net loss - - (12,008) - - - - (12,008)
Pension
Schemes
actuarial
gain
recognised - - 1,136 - - - - 1,136
in the
pension
schemes
deferred tax - - (341) - - - - (341)
on actuarial
gain
Share
options
proceeds 10 132 - - - - - 142
from shares
issued
value of - - (4) -- - - - (4)
employee
services
Dividends - - (1,529) -- - - - (1,529)
paid
At 30 June 2,039 1,307 (4,593) 579 22,638 179 45 22,194
2006
Consolidated cash flow statement
for the six months ended 30 June 2006
Unaudited Unaudited Audited
Half year Half year Year
30 June 30 June 31
December
2006 2005
2005
�'000 �'000
�'000
Cash flows from operating activities
Cash flows from operations (4,559) (2,046) 3,640
Interest received 61 183 327
Interest paid (160) (59) (151)
Tax paid (86) (1,512) (3,089)
Net cash flows from operating activities (4,744) (3,434) 727
Cash flows from investing activities
Proceeds from sale of property, plant and 1 2,067 4,576
equipment
Purchase of property, plant and equipment (156) (116) (184)
Repayment of grants - (229) (229)
Net cash flows (used in) / from investing (155) 1,722 4,163
activities
Cash flows from financing activities
Net proceeds from issue of ordinary share 142 310 551
capital
Purchase of ordinary share capital including - - (10,191)
costs
Dividends paid to shareholders (1,529) (1,871) (2,752)
Net cash flows used in financing activities (1,387) (1,561) (12,392)
Net decrease in cash and cash equivalents (6,286) (3,273) (7,502)
Cash and cash equivalents at beginning of 2,564 9,878 9,878
period
Effect of exchange rates (252) 92 188
Cash and cash equivalents at end of period (3,974) 6,697 2,564
Cash 585 6,839 2,808
Overdraft (4,559) (142) (244)
Net cash (3,974) 6,697 2,564
Reconciliation of net profit to cash flow from operations
Continuing operations
Net (loss) / profit (11,983) 3,535 175
Tax (1,058) 1,651 2,208
Depreciation 201 198 409
Profit on disposal of property, plant and (1) (1,425) (1,442)
equipment
Impairment of goodwill 5,932 1,490 6,115
Share compensation expense / (credit) - 57 (82)
Non cash movement on fair value hedges 1,285 (2,217) (2,230)
Interest income (61) (183) (327)
Interest expense 160 59 151
Effect of exchange rates 252 - (188)
Changes in working capital (excluding effects of acquisitions
and disposal of subsidiaries):
Decrease / (increase) in inventories 1,630 (571) 4,786
Decrease in Trade and other receivables 1,423 1,975 2,098
Decrease in Trade and other payables (952) (4,837) (6,173)
Decrease in Pension obligations (1,387) (778) (997)
Cash flows from continuing operations (4,559) (1,046) 4,503
Discontinued operations
Net loss (25) (1,547) 164
Tax (10) (230) 14
Depreciation - 39 49
Loss / (profit) on disposal of property, plant and - 11 (1,859)
equipment
Impairment of assets - 121 31
Deferred income - grants - 48 48
Changes in working capital
Decrease in Inventories - 1,124 1,612
(Increase) / decrease in Trade and other - (23) 170
receivables
Increase / (decrease) in Trade and other payables - 69 (639)
Increase / (decrease) in Pension obligations 35 (612) (453)
Cash flows from discontinued operations - (1,000) (863)
Cash flows from operating activities (4,559) (2,046) 3,640
Notes to the consolidated interim financial statements
1. General information
Lambert Howarth Group p.l.c. (the Company) and its subsidiaries (together
'Lambert Howarth' or 'the Group') is a design, resourcing and distribution
business supplying footwear, accessories and homeware of own label and branded
lines to retail customers.
The Company is a public limited company incorporated and domiciled in the
United Kingdom. The address of its registered office is 26 Manchester Square,
London W1U 3PZ.
The Company is listed on the London Stock Exchange.
These consolidated interim financial statements have been approved for issue by
the Board of Directors on 27 September 2006.
These financial statements do not constitute statutory accounts within the
meaning of the Companies Act 1985 and are unaudited. The interim report for the
six months to 30 June 2005 was published on 6 September 2005 and the accounts
for the year ended 31 December 2005 were published on 25 April 2006.
2. Basis of preparation
These financial statements have been prepared in accordance with International
Financial Reporting Standards and IFRIC interpretations endorsed by the
European Union (EU) and with those parts of the Companies Act, 1985 applicable
to companies reporting under IFRS. The financial statements have been prepared
under the historical cost convention, as modified by the revaluation of
derivative financial instruments at fair value through the income statement and
in accordance with applicable International Accounting Standards.
These financial statements have been prepared on the basis of the accounting
policies set out in the 2005 annual report and accounts.
Change in accounting policies
There was a change in the Group accounting policy in respect of employee
benefits following the issue of June 2005 interim report. The Group adopted the
corridor method for accounting for actuarial gains and losses in its June 2005
interim report. In the annual report for the year ended 31 December 2005, it
adopted the alternative method of immediate recognition of the movement in the
actuarial gains and losses. The retained earnings at 1 January 2005 in the 2006
interim report have therefore been restated to account for the immediate
recognition of the cumulative actuarial gains and losses and deferred tax on
actuarial gains and losses.
3. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment or more
frequently if events or changes in circumstances indicate a potential
impairment, in accordance with its accounting policy. The recoverable amounts
of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of estimates (see Note 9).
If the actual gross margin had been higher or the pre-tax discount rate lower
than management's estimates, the Group would not be able to reverse any
impairment losses that arose on goodwill.
Notes to the consolidated interim financial statements (continued)
4. Other expenses / (income)
Half Half Year
year year
31
30 30 December
June June
2005
2006 2005
�'000
�'000 �'000
Profit on sale of surplus land (see below) - 1,437 1,437
(Expense) / income arising from the cash flow hedging of
foreign currency purchases during the period
(431) 335 1,090
Recognition of financial (liabilities) / assets:
derivative financial instruments
(545) 727 740
(976) 2,499 3,267
On 10 January 2005, the Group sold its vacant land in Northamptonshire for the
sum of �2,000,000 the carrying value of which at 31 December 2004 was �542,000,
incidental costs of disposal amounted to �21,000.
5. Taxation
Half Half Year
year year
31
30 June 30 June December
2006 2005 2005
Analysis of (credit) / charge in period
�'000 �'000 �'000
Current tax - continuing operations
- Current year (141) 797 1,027
- Adjustments in respect of prior year (630) (31) 125
- Double tax relief - - (12)
Total UK current taxation (771) 766 1,140
Overseas current tax - continuing operations
- Current year - - (73)
- Adjustments in respect of prior year 79 (17) (11)
Total overseas current taxation 79 (17) (84)
Total current taxation (credit) / charged to (692) 749 1,056
income statement
UK deferred tax - continuing operations
Originating and reversal of timing differences (366) 902 1,234
Adjustments in respect of prior year - - (82)
Total UK deferred taxation charged to income (366) 902 1,152
statement
(1,058) 1,651 2,208
Half Half Year
year year
31
30 June 30 June December
2006 2005 2005
Tax on items charged / (credit) to equity
�'000 �'000 �'000
Deferred tax charge / (credit) on actuarial gains 341 - (576)
/ (losses)
Deferred tax charge on share options 4 - 60
Total current tax (credit) / charge (692) 749 1,056
Total deferred tax (credit) / charge (21) 902 636
Taxation for the half year to 30 June 2006 has been provided at the average
rate estimated to be applicable for the full year.
Notes to the consolidated interim financial statements (continued)
6. Discontinued operations
Closure of manufacturing operations
The directors decided in 2005 to close its manufacturing operations on the Isle
of Man, carried on by Ronaldsway Shoe Co. Limited. The company continued to
trade throughout the year and ceased trading in December 2005.
Closure of Portuguese warehouse operations
The directors have taken the decision to change the sourcing of product from
Europe to China and the Group's subsidiary Lambert Howarth Portugal Productos
Em Pele, Ceramicas, Vidro E Texteis Lda has been liquidated.
Closure of retail operations
The directors closed the retail operations of Orient Sourcing Services Limited
in 2005.
Half year Half year Year
30 June 30 June 31 December
Cash flows from discontinued operations 2006 2005 2005
�'000 �'000 �'000
Net cash flows from operating activities - (1,000) (790)
Net cash flows from investing activities - (159) 2,345
Net decrease in cash and cash equivalents - (1,159) 1,555
7. Dividends
No interim dividend (2005: 3.5p per share) which will absorb �nil (2005: �
868,000) has been declared.
8. Earnings per share
The earnings per share has been calculated by dividing the loss for the period
by the average number of shares in issue during the period of 20,319,000 shares
(June 2005: 24,834,000 shares, December 2005: 24,526,000).
The Company has share options which are potentially ordinary shares. However,
the impact on the net loss of these potential ordinary shares is anti-dilutive.
Notes to the consolidated interim financial statements (continued)
9. Goodwill
Six months ended 30 June 2006
Opening net amount at 1 January 2006 14,824
Impairment (see below) (5,932)
Net book amount 8,892
At 30 June 2006
Cost 32,792
Accumulated amortisation and impairment (23,900)
Net book amount 8,892
The carrying amount of goodwill has been reduced to its recoverable amount
through the recognition of impairment losses against goodwill. These losses
have been included in cost of goods in the income statement.
The goodwill impairment arose from the difficult trading conditions which have
faced the UK Homeware Accessories marketplace.
The recoverable amount for the cash-generating unit has been measured based on
a value in use calculation. A pre-tax discount rate of 14% was used in the
value in use calculation.
The carrying amounts of goodwill by segment are as follows:
Footwear HomewareAccessories June Footwear Homeware June Footwear Homeware December
and 2006 and Accessories 2005 and Accessories 2005
Accessories Accessories Accessories
Group Group Group
�'000 �'000 �'000 �'000
�'000 �'000 �'000 �'000 �'000
UK 8,663 - 8,663 8,663 10,557 19,220 8,663 5,932 14,595
Spain - 229 229 - 229 229 - 229 229
8,663 229 8,892 8,663 10,786 19,449 8,663 6,161 14,824
HomewareAccessories
The key assumptions in the value in use calculations were:
� Budgeted revenue growth - to cap turnover at 75% levels.
Management believe the assumed improvements are reasonably achievable through
re-establishing market share lost.
� The relative risk adjustment (or 'beta') applied discount rates to
reflect the risk inherent in Homeware companies. In determining the risk
adjusted discount rate, management have applied an adjustment for risk of such
companies relative to all other sectors on average determined using an average
of the beta's of comparable Homeware companies listed in the UK. The beta used
is 0.7 (which implies a risk adjusted pre-tax discount rate of 14%).
As noted earlier, there has been an impairment charged in the accounts in
respect of the Homeware Accessories division. As a result, the group is
required to disclose the key assumptions where it is believed that there may be
the possibility of a change that could cause a further impairment. The carrying
value of goodwill for UK Homeware Accessories has been fully written down at 30
June 2006 and no further impairment review will be required.
10. Assets classified as held for sale and included in disposal groups
On 21 August 2006, the Group sold its freehold property in Stockport for the
sum of �2,500,000, the carrying value of which at 30 June 2006 was �1,433,000.
On 13 February 2004, the Group entered into a contract to sell its properties
at Burnley for the sum of �1,100,000, the carrying value as at 30 June 2006 was
�447,000. The contractual completion date is expected to be 31 January 2007.
11. Reconciliation of amounts highlighted in these financial statements
(a) (Loss) / profit before taxation and goodwill impairment
Half Half Year
year year
31
30 June 30 June December
2006 2005 2005
�'000 �'000 �'000
(Loss) / profit before taxation (13,041) 5,186 2,383
Goodwill impairment 5,932 1,490 6,115
(Loss) / profit before taxation and goodwill (7,109) 6,676 8,498
impairment
(b) Total charge for goodwill impairment and other expenses / (income)
Half Half
year year
30 June 30 June
2006 2005
�'000 �'000
Goodwill impairment 5,932 1,490
Other expenses / (income) 976 (2,499)
Total charge for goodwill impairment and other 6,908 (1,009)
expenses / (income)
12. This report has been sent to all shareholders. Further copies will be
available to shareholders and members of the public from the Company's
registered office at 26 Manchester Square, London W1U 3PZ. Telephone number 020
7258 9988.
END
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