Q. A.

WILink has plenty of cash. When will it pay dividends? Although the Company has net cash, and continues to be cash generative, the Prospectus in June 2000 did not indicate any intention to pay a dividend. The Board regularly considers whether to bring forward proposals for dividend payments, but has recently concluded that our best course of action continues to be to use cash not otherwise needed to fund the continued expansion of the business to fund the buy back of shares, thereby increasing earnings per shares (EPS)

Q. A.

What is goodwill, and why is the figure so large? Goodwill in essence reflects the difference between the price paid for a business and the value of the assets acquired.  This “difference” then has to be amortised, resulting in a charge to the profit and loss account each year.  However, this charge does not incur any cash cost, and therefore many investors prefer to look at the profit before goodwill amortisation when comparing the profitability of different companies. In 2003 the level of goodwill amortisation increased as a result of the final payment for the A&N acquisition being higher than expected due to better than expected profits for 2003. Thus, perversely, the increased operating profits of A&N resulted in a loss being reported by the Group

Q. A.

What is goodwill impairment? Each year a goodwill impairment review has to be undertaken using a clearly defined methodology laid down in FRS11.  If the value of the goodwill calculated in this way is below the value in the accounts, then the accounting value has to be reduced accordingly, as was done in the accounts for 2001.  Although this has an effect on the accounting profit of the business, it does not have any impact on the level of cash held by or generated by the business, and therefore is often ignored by investors when valuing a Company or its shares

Q. A.

Why do the HIGHLIGHTS of the results show a profit before tax, but the accounts show a loss? The principal difference is due to goodwill amortisation.  The highlights indicate the ‘pro-forma’ profit before tax excluding amortisation of goodwill, and exceptional charges in 2000 and 2001, whereas the profit and loss account includes the goodwill charge and exceptional costs in the operating profit/loss line

Q. A.

Why do the HIGHLIGHTS of the results show “pro-forma” profit before tax? The “pro-forma” highlights in the accounts aim to assist the reader to understand the track record of the WILink business over several years. However, the formal accounts can only show what the Company actually consisted of both before and after the acquisition of W-I-Link.com Inc. in July 2000. Thus in 2000 the audited accounts show 12 months of the leather goods business plus 6 months of the WILink business, whilst the 2001 audited accounts show one month of the leather goods business plus 12 months of the WILink business, making comparisons difficult and almost meaningless, albeit compliant with statutory reporting requirements. The actual and pro-forma results for 2002 and 2003 differ only in respect of goodwill amortisation

Q. A.

Why is the tax charge different from the standard UK rate? There are several reasons for this. Firstly, the part of WILink is US based is subject to US tax, which is typically closer to 40% than the 30% standard UK rate.  Second, the tax charge in Sweden is calculated after deduction of goodwill amortisation, resulting in no tax payable for 2001 to 2005. The tax authorities in the UK ignore the charge for goodwill amortisation when computing taxable profits. Third, certain costs such as fees for advice related to acquisitions, are not tax deductible.  Overall therefore the tax charge is calculated on something approximating to the “pro-forma” profits before goodwill amortisation but after any exceptional costs

Q. A.

Why does the company pay tax despite reporting a loss? There are several reasons for this. Firstly, tax on each of the subsidiaries is calculated separately. Although the subsidiaries which have made losses would not typically pay tax, other subsidiaries that have made profits would have to do so. If all of the subsidiaries were based in the same country, then it would be possible to offset these profits and losses to minimise the tax charge. However, as some of our subsidiaries are outside the UK (in the US and Sweden) it is not possible to do this in our case. Second, corporate tax calculations require complex adjustments for deductions and allowances, and therefore in any one year the tax charge is likely to be materially different from the headline rate, as outlined in the response to the previous question