6th Sep 2007 07:01
Smallbone PLC06 September 2007 SMALLBONE plc ("Smallbone" or "the Group") Interim results for the six months ended 30 June 2007 Smallbone plc, the supplier of luxury kitchens, furniture and floors is pleasedto announce strong interim results for the six months ended 30 June 2007 andpayment of an interim dividend. The Group is comprised of Smallbone of Devizes and Mark Wilkinson Furniture, twoof the UK's leading designers of bespoke kitchens, bathrooms and bedroomfurniture; and Paris Ceramics, a supplier of high quality stone primarilyoperating in the US. Financial Highlights (6 months) 2007 2006 % increase £000 £000 Turnover 26,559 22,921 +16%EBITDA pre-exceptional items and share-based payment 1,403 888 +58%Operating profit 517 32 +1,615%Profit/(loss) before tax 206 (191) n/aCash generated from operations 2,700 2,203 +22%Interim dividend per share 0.6p - - Highlights • Strong overall performance with gross margin improvement to 43.9% (2006: 42.3%) • Continued investment in showroom network with new showrooms and refurbishment programme • Further international presence with Smallbone showroom in Greenwich, Connecticut and agreement signed for Chicago showroom • Creation of The Hopton Works, providing granite and wood veneer to Group brands and developing bespoke service to external clients • Particularly strong trading performance in the US Outlook • Record Group order book, up 10% to £31.6 million (2006: £28.6 million) providing strong future revenue visibility • Further showroom network expansion with leases secured for opening over the next 6 months Charlie Smallbone, Executive Chairman & Chief Executive, commented: "We are very pleased with the progress and achievements we have made in theperiod. As expected, the investment in our expanding showroom network and newranges are now beginning to be reflected in strong growth and net profitability.We expect this trend to continue and remain confident of the Group's trading forthe current year and beyond." 6 September 2007 Enquiries: Smallbone plc Tel: +44 (0)1380 729090Charles Smallbone, Chairman & Chief ExecutiveGordon Montgomery, Finance Director College Hill Tel: +44 (0)207 457 2020Kate Pope Landsbanki Securities (UK) Limited Tel: +44 (0)207 426 7702Rashmi Sinha Smallbone plc ("Smallbone" or "the Group") Chairman and Chief Executive's Statement I am pleased to report a productive and successful trading period for the sixmonths to 30 June 2007. The Group has taken significant steps both in the performance of our existingoperations and also in identifying areas where we can achieve further organicgrowth through the expansion of our showroom network. The progress achievedduring the period provides us with a strong platform and clear visibility forfurther growth. Key Achievements We continue to focus on our key strategic objectives which are providing thenecessary foundations for substantial growth over the next few years. • New showroom openings across the Group Ongoing investment in new showrooms is a key part of our growth strategy and Iam particularly pleased with the progress achieved in this area. Our strategy ofdelivering strong organic growth across the Group through steady investment inour expanding showroom network, and the constant updating of our existingshowrooms, provides us with a solid platform for further growth. In total, wenow have 34 showrooms across the Group, 8 of which have opened since ourflotation in 2004. This includes the successful opening of a Mark Wilkinsonshowroom in Weybridge, which opened in February this year. The Group currentlyinvests over £2 million annually in network expansion and refurbishment. Weexpect to continue to expand our showroom network across the Group in the nextfew years at rate of some 15% new space per year, bringing the total number ofGroup showrooms in the UK to 32 by 2009, with a further 16 in the USA. • USA expansion We are particularly pleased with the success achieved in the United States,indicating the strength of our brands and the continuing levels of demand forgenuine high end products despite the tough US markets. Paris Ceramics increasedorder intake by 25% in the period and the success of Smallbone's New Yorkflagship showroom, which has taken over $5 million in new orders in its firstyear, has been a key step in building our US presence. During the period weopened a further Smallbone showroom in Greenwich, Connecticut. Smallbone alsosigned a Head of Terms agreement for a showroom in Chicago, which is due to openby April 2008. The establishment of these showrooms is successfullyinternationalising the Smallbone brand and as the sales network develops, we arebeginning to see the realisation of our ambitions in these markets. • Creation of The Hopton Works Our granite, stone flooring and wood veneering operations within Paris CeramicsLimited have now developed extensive facilities and expertise as a dedicatedsupplier to Smallbone and Mark Wilkinson Furniture. We believe that its offeringcan be further enhanced by marketing its products and services to externalcustomers on top of its expanding in-house base, which will in turn create newlyincreased opportunities for growth and enhanced profitability. To this end, wehave brought together these divisions under a new name, 'The Hopton Works' andappointed a Managing Director and Sales Director to drive the growth. Adedicated website will shortly be launched and a branded showroom will be openednext to its Devizes factory by the end of this year. • Gross margin improvement Group gross margins have improved in the period, up to 43.9% (2006: 42.3%). Thisincrease has been achieved through improved economies of scale arising fromincreased production volumes and better purchasing power. Since the relocationof our manufacturing facility in the US for Paris Ceramics, we have seen atripling of our production capabilities and improved margins as a result ofbringing more of the processing functions in-house. Financial Results As required, this is the first set of results prepared and presented usingInternational Financial Reporting Standards as endorsed by the European Union ('IFRS'). The comparative figures shown for the six months ended 30 June 2006 andthe year ended 31 December 2006 are also prepared under IFRS. On 2 August 2007,we issued a 'Restatement of 2006 financial information under IFRS' (from whichthe comparative figures in this interim statement have been taken), whichreconciled the 2006 IFRS figures to the previously reported 2006 figures underUK GAAP. Group turnover increased by 16% to £26.6 million (2006: £22.9 million). Grossprofit for the Group was £11.7 million (2006: £9.7 million) reflecting anincrease in gross margins to 43.9% (2006: 42.3%. Earnings before interest, taxation, depreciation, share-based payments andexceptional items increased by 58% to £1.4 million (2006: £0.88 million) as thenew showrooms established over the last 2 years begin to mature. Profit before taxation was £206,000 (2006: loss £191,000) after net interestcharges of £311,000 and expensing £55,000 for the provision for share-basedpayments under IFRS 2. Net operating cash inflow increased by 22% to £2.7million (2006: £2.2 million). Adjusted earnings per share before exceptional items and share-based paymentswere 0.89 pence (2006: 0.01 pence) and basic earnings per share were 0.65 pence(2006: (0.84) pence). Payment of Interim Dividend The directors are recommending an interim dividend of 0.6 pence per share as aresult of their confidence in the Group's operating cash flows and alreadystated plan to implement a progressive dividend policy in the future. Subject toshareholder approval at the Annual General Meeting, the interim dividend will bepaid on 15 October 2007 to shareholders on the register at 21 September 2007. Operational Overview Smallbone of Devizes ("Smallbone") Smallbone has delivered a strong trading performance with UK operating profitsup by over 65% compared to the first six months of 2006. This demonstrates thesuccesses of both our longer established and more recently opened showrooms andthe strength of the Smallbone brand. Our most recent kitchen product offering, the Walnut and Silver Collection, isnow in 10 of our showrooms and is going from strength to strength withincreasing volumes sold. The Bedroom and Bathroom Collections, launched early in2006, have also seen strengthening sales and now account for 15.6% of totalSmallbone's sales (2006: 13%). The roll out of this offering to 3 furthershowrooms will be complete by early 2008. Our workshop output is currently atrecord levels with the correlation between volume output and improvingefficiency levels being clearly demonstrated. We now have a total of 11 Smallbone showrooms in the UK and anticipateincreasing the UK network to 15 by the end of 2009, with a lease having beensigned for a new showroom in Beaconsfield to open by the beginning of 2008. Wealso expect shortly to conclude a lease for a new showroom in Essex in thesecond half of this year. We have now completed our first 12 months trading from our flagship showroom inNew York and are pleased with its performance. With a strong forward order bookand larger order sizes with longer lead times to deliver than we typicallyencounter in the UK, we expect to see the full results of our investment in 2008and beyond. We are excited by what we have achieved to date with the increasinginternational appeal of the Smallbone brand. To that effect, we opened oursecond showroom in Greenwich, Connecticut this month and have recently signed aHeads of Terms agreement for a showroom in Chicago. Mark Wilkinson Furniture ("MWF") MWF has also delivered a strong trading performance with operating profits up bynearly 50% reflecting good sales and margin growth. The end of 2006 saw an exceptionally strong order intake and this, combined witha showroom refurbishment programme, has impacted slightly on order intake levelsin the first six months, although the order book at the end of June is stillhigher than last year. The two new showrooms in Harrogate and Weybridge have performed extremely welland the larger displays that we have put into the new showrooms are leading toincreased average order sizes. We now have a total of 10 MWF showrooms in the UKand are seeing overall order intake performance strengthening again. We havealso signed a lease for a new showroom in Manchester to open later this year andexpect to conclude a lease shortly on a new showroom in Essex. Paris Ceramics We had a particularly strong performance in the period turning the businessround from operating losses for the first six months last year of £270,000 intooperating profits this year of £80,000 and order intake up an impressive 25%against the same period last year. The appointment of a new Sales Director atthe end of 2006 has led directly to the most successful period for order intakein the company's history. The investment in the new facility at Farmville Virginia has demonstrated itsvalue to the Group both in terms of increased sales and also in improved grossmargins. We are now achieving a level of performance we could not have reachedhad we remained in our previous facility. The Naples Florida showroom, opened atthe end of December 2006 (bringing the total number of Paris Ceramics showroomsin the US to 10), has achieved its planned order intake for the whole of 2007 inthe first 4 months of trading and our refurbished New York showroom is up 25%against 2006. The market for our products remains strong and we are delightedthat the Farmville investment is delivering an enhanced performance. Outlook Strong forward selling across the Group leaves us confident for the year as awhole. Our order book is at a record level, up 10% to £31.6 million (2006: £28.6million), providing strong future revenue visibility. We are on track to deliver five additional new showrooms which should all beopen for trading in the first half of 2008. These will be located in Chicago,Beaconsfield and Brentwood for Smallbone and Manchester and Brentwood for MarkWilkinson Furniture. Alongside these, we have new product launches plannedacross the Group in the latter part of 2007 and early 2008. Simultaneous to the increasing top line performance we will continue to exploitthe opportunities that this sales driven growth affords us to improve our grossmargins and to control and allocate our central overheads across an expandingGroup. Our strong cash generation allows us continued capital expenditureinvestment as well as enabling us to pay down existing debt and to develop aprogressive dividend policy. We are very pleased with the progress and achievements we have made in theperiod. As anticipated, the investment in our expanding showroom network and newranges are now beginning to be reflected in strong growth and net profitability.We expect this trend to continue and remain confident of the Group's trading forthe current year and beyond. Charles Smallbone Chairman and Chief Executive Consolidated income statement Unaudited Unaudited Audited Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Revenue 26,559 22,921 47,747Cost of sales (14,897) (13,231) ((26,833) Gross profit 11,662 9,690 20,914Other income 5 13 29Distribution costs (7,590) (6,490) (13,175)Administrative expenses Share-based payments 55 49 99 Depreciation 831 667 1,543 Exceptional costs of relocation and dispute - 140 230 settlement Other administrative expenses 2,674 2,325 4,606 Total administrative expenses (3,560) (3,181) (6,478) Operating profit 517 32 1,290 Finance income 2 17 3Finance costs (313) (240) (535) Profit / (loss) before taxation 206 (191) 758 Tax expense (61) 4 (394) Profit / (loss) for the period attributable to 145 (187) 364equity holders of the company Earnings / (loss) per share (see Note 2):Basic (pence per share) 0.65 (0.84) 1.63Diluted (pence per share) 0.60 (0.84) 1.52 All amounts relate to continuing activities Consolidated statement of recognised income and expense Unaudited Unaudited Audited Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Profit / (loss) for the period 145 (187) 364 Foreign exchange losses arising on translation of the (17) (8) (75)Group's net investment in overseas subsidiaries Total income and expense for the period (all 128 (195) 289attributable to the equity holders of the company) Consolidated balance sheets Unaudited Unaudited Audited At At At 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000Non-current assetsProperty, plant and equipment 9,882 8,549 8,806Goodwill 11,982 11,892 11,982Deferred tax assets 635 552 457 22,499 20,993 21,245Current AssetsInventories 5,200 4,649 5,400Trade and other receivables 4,023 3,682 3,548Current tax asset - - 21Cash and cash equivalents 2,033 1,691 1,608 11,256 10,022 10,577Current liabilitiesShort-term borrowings (1,951) (1,081) (1,633)Current portion of long-term borrowings (1,845) (1,486) (1,033)Trade and other payables (4,229) (5,512) (5,371)Current tax liability (99) - -Payments received on account (10,936) (9,509) (8,544)Accruals and deferred income (2,548) (852) (2,243) (21,608) (18,440) (18,854) Net current liabilities (10,352) (8,418) (8,277) Non-current liabilitiesLong-term borrowings (5,132) (6,478) (6,133)Deferred tax liabilities (373) (173) (373) (5,505) (6,651) (6,506) Total net assets 6,642 5,924 6,462 Equity (all attributable to the equityholders of the holding company)Share capital 1,118 1,115 1,115Share premium 1,869 1,818 1,818Other reserves 3,604 3,604 3,604Foreign currency translation reserve (92) (8) (75)Retained earnings 143 (605) - Total equity 6,642 5,924 6,462 Consolidated cash flow statement Unaudited Unaudited Audited Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Cash flow from operating activitiesProfit / (loss) before taxation 206 (191) 758Finance income (2) (17) (3)Finance costs 313 240 535Share-based payments 55 49 99Depreciation 831 667 1,543Profit on disposal of fixed assets (46) (20) (26) Operating cash flow before changes in working capital 1,357 728 2,906Decrease / (increase) in inventories 200 (231) (982)Increase in trade receivables and other current assets (475) (213) (297)Decrease in trade and other payables (1,077) (182) (350)Increase in payments received on account 2,391 2,680 1,715Increase / (decrease) in accruals and deferred income 304 (579) 812 Cash generated from operations 2,700 2,203 3,804Income taxes received / (paid) 48 (9) (4)Net cash from operating activities 2,748 2,194 3,800 Cash flow from investing activitiesFurther consideration paid in respect of prior period - (23) (23)acquisitionsPurchase of property, plant and equipment (1,681) (2,503) (3,996)Proceeds from sale of plant and equipment 79 20 454Interest received 2 17 3Net cash used in investing activities (1,600) (2,489) (3,562) Cash flow from financing activitiesProceeds from the issue of shares 54 - -Proceeds from long-term loans 879 5,500 6,266Repayment of long-term loans (1,000) (5,429) (6,056)Net (payment) / receipt of finance lease liabilities (405) 814 (197)Interest paid (313) (240) (535)Dividends paid (224) - -Net cash (used in) / from financing activities (1,009) 645 (522) Net increase / (decrease) in cash and cash 139 350 (284) equivalents Cash and cash equivalents at 1 January 1,608 446 446Bank overdraft at 1 January (1,663) (186) (186)Total cash and cash equivalents at 1 January (55) 260 260 Effects of exchange rate changes (2) - (31) Cash and cash equivalents at end period 2,033 1,691 1,608Bank overdrafts at end of period (1,951) (1,081) (1,663) Total cash and cash equivalents at end of period 82 610 (55) Notes to the preliminary financial information 1. Basis of preparation The consolidated interim financial statements have been prepared under thehistorical cost convention and in accordance with International FinancialReporting Standards as endorsed by the European Union ('IFRS') and expected tobe effective at the company's year end of 31 December 2007, which are mandatoryfor accounting periods beginning on or after 1 January 2007. Comparativeinformation for the six months ended 30 June 2006 and the year ended 31 December2006 has been restated on an IFRS basis. The comparative information has beentaken from the "Restatement of 2006 financial information under IFRS" statement("the Restatement for IFRS") issued by the company on 2 August 2007, which showsthe reconciliation between the figures under IFRS and the previously reportedfigures under UK Generally Accepted Accounting Practice ("UK GAAP"). The accounting policies applied are consistent with those set out in thefinancial statements of Smallbone plc for the year ended 31 December 2006 asamended in the Restatement for IFRS referred to above. The interim financialstatements are unaudited and do not constitute accounts within the meaning ofsection 240 of the Companies Act 1985. The financial information for the yearended 31 December 2006 has been extracted from the Group's statutory accountsfor that period (which have been delivered to the Registrar of Companies) asamended by the Restatement for IFRS. The auditors' report on the statutoryaccounts was unqualified, did not include references to any matters to which theauditors drew attention by way of emphasis without qualifying their report anddid not contain any statement under section 237 of the Companies Act 1985. Theauditors also prepared a special purpose audit report on the information for theyear ended 31 December 2006 as part of the Restatement for IFRS. The specialpurpose audit report was unqualified but did emphasise two matters that may beuseful to readers of this interim statement:- • the information may require further adjustment if additional applicable IFRS standards or interpretations thereof come into force prior to 31 December 2007; and • as allowed by IFRS 1, the opening balance sheet for IFRS at 1 January 2006 was not amended for the following items: firstly, all foreign currency translation differences arising from the Group's net investment in overseas subsidiaries prior to 1 January 2006 have been left in retained earnings and not separated out into the foreign currency translation reserve, and secondly, we have elected not to apply IFRS retrospectively for business combinations completed prior to 1 January 2006 and have frozen goodwill at the figure at 1 January 2006 under UK GAAP, subjecting this to impairment reviews at the date of transition (1 January 2006) and at the end of each financial year thereafter. 2. Earnings per share Earnings per share ("EPS") have been calculated on the result after tax and onthe weighted average number of shares in issue and under option during theperiod, as set out below: 6 months ended 30 6 months ended 30 Year ended June 2007 June 2006 31 December 2006 Shares used for calculation of basic EPS 22,353,831 22,305,593 22,305,593Exercise of options 1,650,432 1,869,377 1,572,140 Shares used for calculation of diluted EPS 24,004,263 24,174,970 23,877,733 An adjusted earnings per share is also shown on the next page, calculated byreference to earnings before exceptional items and share-based payments. TheDirectors consider that this gives a more useful indication of underlyingperformance. 2. Earnings per share (continued) All figures are stated in pence per share 6 months ended 30 6 months ended 30 Year ended June 2007 June 2006 31 December 2006 Adjusted earnings per share beforeexceptional costs and share-based paymentsAdjusted basic (pence per share) 0.89 0.01 3.10Adjusted diluted (pence per share) 0.83 0.01 2.89 The earnings used in the adjusted earnings per share calculation are shown below: 6 months ended 6 months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Profit / (loss) for the period 145 (187) 364Exceptional items - 140 230Share-based payments 55 49 99 Earnings used for adjusted EPS 200 2 693 3. Reconciliation of net cash flow to net debt 6 months ended 30 6 months ended 30 Year ended 31 June 2007 June 2006 December 2006 £'000 £'000 £'000 Increase / (decrease) in net cash and cash 139 350 (284)equivalentsDecrease / (increase) in debt and finance 526 (885) 18leases Decrease / (increase) in net debt from cash 665 (535) (266)flowsNew finance leases (360) - (208)Non cash flow movements 21 (15) 57 Decrease / (increase) in net debt 326 (550) (417)Net debt at beginning of period (7,221) (6,804) (6,804) Net debt at end of period (6,895) (7,354) (7,221) 4. Dividends The final dividend for 2006 of 1p per share was approved by shareholders duringthe period and a charge of £224,000 (2005: Nil) was taken to reserves. The Directors propose an interim dividend for 2007 of 0.6p per share (2006:Nil). No charge has been made yet for this dividend in accordance with IAS 10(Events after the Balance Sheet Date). 5. Availability of interims Copies of this interim statement are available from the Company's RegisteredOffice at The Hopton Workshop, Devizes, Wiltshire, SN10 2EU. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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