Introduction – Walker Greenbank (LON:WGB) describes itself as an “international luxury interior furnishing groups that designs, manufactures and markets wallcoverings, fabrics and complementary products”. The majority of its revenues and profits is achieved through its “brands” division which includes Harlequin, Arthur Sanderson, Morris & Co and Zoffany. The “manufacturing” division includes Anstey and Standfast. The company’s sales, interestingly, aren’t overly concentrated in one section of the world. Western Europe produces the most sales but is only 10% of total sales.
The market cap is just under £30m, with sales of around £70m and profits of £3m in the last fiscal year. Looking at the summary above, we can see that the profits in the annual reports isn’t the number I have come up with. The reason for this is that WGB has a vast array of items below the operating line. Some of these aren’t too important but the company does have a fairly significant pension deficit of some £6m which it is being very proactive in charging off. The operating metrics below uses, what I think to be, the most effective measure of operating profit. Another factor to consider is that some amount of sales growth was achieved through marketing related to 150th anniversary for Sanderson which may prove to be one-time.
Operating Metrics – The company has a fairly rocky history with the company taking heavy losses between 2001 and 2005. This was driven partly by poor sales growth but more important was the increase in cost of goods which destroyed margins.
I couldn’t find a definition of COGS (the company’s breakdown of costs is quite confusing) but the vast majority appears as “raw materials and consumables used”. As we can see, the improvement in profit was driven by an improvement in COGS after 2002. More recently, the COGS have moved back into the danger zone matched with a continued rise in admin costs. In the previous five years, the CAGR of revenue was 4.33% against 9.86% for admin costs. Looking at how margins have changed with changes in sales (i.e fixed/variable costs), this picture gets worse as years of fast sales growth have been accompanied by even…
