Strategic Minerals Regulatory News (SML)

26 Feb 2007 07:01

Smallbone PLC26 February 2007 SMALLBONE plc ("Smallbone" or "the Group") Record preliminary results for the year ended 31 December 2006 and Maiden Dividend Smallbone plc, the supplier of luxury kitchens, furniture and floors, is pleasedto announce record preliminary results for the year ended 31 December 2006 andpayment of a maiden 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 2006 2005 % increase £000 £000Turnover 47,747 35,716 +33%EBITDA pre-exceptional items and share-based payments 3,161 1,777 +78%Operating profit 620 90 +589%Adjusted profit before tax* 1,118 489 +128%Profit/(loss) before tax 119 (214) n/aOperating cash flow 3,804 2,224 +71%Maiden dividend per share 1.0p - - *Adjusted profit before tax is before exceptional items, goodwill amortisationand share-based payments Operational Highlights • Opening of New York flagship showroom for Smallbone with strong trading • Successful re-launch of Smallbone Bedrooms and Bathrooms with 126% order increase to £3.5 million • Paris Ceramics head office and manufacturing facility successfully relocated to Virginia, USA • Excellent performance of Mark Wilkinson with order intake up 24% and strong cash generation Outlook • Record Group order book providing strong visibility up 40% to £28 million (2006: £20 million) • Investment in showroom network expected to flow through to sales and profits • Clear growth strategy through increasing showroom networks, increasing product offering and improving margins • Continued international expansion with new dealer agreements for a Smallbone showroom in Moscow and a Mark Wilkinson showroom in Dubai Charlie Smallbone, Executive Chairman & Chief Executive, commented: "2006 was a year of investment for the Group and we are delighted with theachievements made. 2007 will, we believe, start to really see some of thebenefits of this investment both to our sales and profits. The payment of amaiden dividend also clearly demonstrates our confidence and excitement aboutthe future. We will continue to increase our showrooms, expand internationally,refresh and increase our product offering and focus on improving margins. We arealso actively seeking suitable acquisition opportunities." 26 February 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 SMALLBONE plc ("Smallbone" or "the Group") Chairman and Chief Executive's Statement I am pleased to report that the Group has made significant progress during 2006and laid the necessary foundations for substantial earnings growth over the nextcouple of years and beyond. Key Strategic Achievements Some key strategic achievements were reached in 2006. These were achieved duringa period in which our substantial and ongoing investment in new showrooms, a keypart of our growth strategy, has yet to really start flowing through to oursales and profits, due to the 18 months or so gestation before such investmentsdeliver their mature performance. • Opening the flagship New York showroom for Smallbone of Devizes in July 2006 This has been a key first step to re-introducing our furniture brands into theUS, a market estimated to be over 12 times the size of our UK market. Initialtrading from the showroom has been encouraging. We have invested some £1.1million of capital cost in fitting out the showroom and, as anticipated, it hasincurred some £0.9 million of trading losses in 2006. Whilst we do not expectprofits to mature fully from the New York showroom until 2008, 2007 is expectedto show significant progress. We are now in the course of fitting out our secondshowroom for Smallbone, in Greenwich, Connecticut, due to open in June. • Re-launching Smallbone of Devizes' Bedroom and Bathroom offering in January 2006 This has been a key step in broadening our product offering. After many years ofno investment in Smallbone's bedroom and bathroom range, it had dwindled fromsome 30% of sales back in the 1980s to less than 10% for the last few years. Theinitial response to the re-launch, with a 126% increase in order intake to £3.5million, signals the potential for new product sales growth in this area. • Relocating and expanding Paris Ceramics' US headquarters andmanufacturing facility This triples our production capability in the US for Paris, which has enabled usto bring a number of previously sub-contracted stone cutting and processingfunctions in-house. This is leading to enhanced margins, which have improved bysome 3% since the move, and also enables us to protect our intellectual propertybetter by carrying out new product development processes in-house. Whilst thedisruption of the move led to reduced delivered sales in the year, the teamdeserves credit for managing to maintain order intake, ending the year slightlyahead of 2005. • Post-acquisition performance of Mark Wilkinson Furniture ("MWF") In its first full financial year as part of the Group, MWF has posted anespecially good performance with order intake 24% up on 2005 and net cashgeneration largely recouping the cash paid at acquisition. Financial Results Group turnover increased by 33.7% to £47.7 million (2005: £35.7 million)primarily as a result of a full year's contribution from Mark WilkinsonFurniture and the turnover contribution from the new stores opened in both 2005and 2006. Gross profit for the Group was £20.9 million (2005: £15.2 million)reflecting an increase in gross margins from 42.5% to 43.8% as a result of theproductivity improvements and the extra margin being made through our graniteworktops division. Earnings before interest, taxation, depreciation, share-based payments,exceptional items and taxation increased to £3.16 million (2005: £1.77 million)despite absorbing the start-up losses relating to the Smallbone New Yorkshowroom of £900,000. Profit before taxation before exceptional items, share-based payments andamortisation was £1.12 million (2005: £489,000). The profit before taxation was£119,000 (2005: Loss £214,000) after net interest charges of £501,000, goodwillamortisation of £670,000, exceptional costs of £230,000 primarily relating tothe re-location of the Paris Ceramics USA operations to Virginia and expensing£99,000 for the provision for share-based payments under FRS 20, as required bynew accounting standards. Adjusted earnings per share before exceptional items, share-based payments andamortisation were 3.24 pence (2005: 4.44 pence) and basic loss per share was1.23 pence (2005: 1.01 pence positive). This negative swing mainly reflects theutilisation in 2006 of the large deferred tax credit relating to MarkWilkinson's previous tax losses that was bought forward from last year. Net operating cash inflow increased to £3.8 million (2005: £2.2 million) and at31 December 2006 the Group had net debt of £7.4 million (2005: £7.0 million). Payment of Maiden Dividend The directors are recommending a maiden final dividend of 1.0 pence per share asa result of their confidence in the Group's operating cash flows and plan toimplement a progressive dividend policy in the future. Subject to shareholderapproval at the Annual General Meeting, the final dividend will be paid on 11April 2007 to shareholders on the register at 16 March 2007. Growth Strategy and Outlook The focused objective is to increase the Group's adjusted earnings per sharefourfold over the next 3 years by capitalising on the domestic and internationalexpansion potential of the existing Group brands and acquiring well-establishedbrands with development potential in the luxury home improvements market. Weanticipate that this growth will focus on the following five key areas: • Increasing the showroom networks Since our flotation in 2004, we have now opened 5 new showrooms in the UK and 2showrooms in the US and the investment already made since flotation in newshowrooms, of over £3.5m, should start to impact in a substantially positive wayduring 2007, 2008 and 2009. We anticipate opening a further 4 Smallboneshowrooms and 5 Mark Wilkinson showrooms in the UK by 2009, bringing the totalnumber of showrooms in the UK to 30. • International expansion International expansion is a key part of our growth strategy. On the back of thesuccess of the flagship Smallbone showroom in New York, we anticipate opening afurther 4 Smallbone showrooms in the US by 2009. We have also signed a majordealership agreement for Smallbone's first showroom in Russia with IDAAssociates, part of the Gazprom Group, which is due to be opened in Moscow bythe summer. In addition, Mark Wilkinson Furniture has signed a dealershipagreement for its first showroom in Dubai which is also due to open this summer.We will be seeking further partnerships, outside our core markets of the UK andUS, to progress the development of both Smallbone and Mark Wilkinsoninternationally during 2007. • Increasing and refreshing the product offering In order to remain at the forefront of kitchen design and quality and tomaintain our brand leadership, we continue to broaden the product offering andincrease our average order size. The average order size of Smallbone has grownfrom £30,000 in 2004 to £40,000 in 2006 and the average order size of MarkWilkinson has grown from £29,900 in 2005 to £32,300 in 2006. In 2007 and 2008 wewill launch new kitchens collections from both Smallbone and Mark Wilkinson. • Improving margins Economies of scale have been achieved through increased production volumes andpurchasing power. Margins have also increased through the consolidation ofproduction in Paris Ceramics with its new manufacturing facility in the US.Higher furniture content in bedrooms and US sales should improve overall marginsand increased production volumes are expected to further increase economies ofscale. • Acquisitions We are actively seeking suitable acquisition opportunities that are inbusinesses related to our existing activities and markets, have awell-established brand in the luxury home interiors field and have good earningsgrowth potential. With a Group order book of £28 million providing strong visibility and 40% up onthe previous year, we start 2007 with confidence despite allowing for longerlead times for US furniture deliveries than we had anticipated from ourexperience in the UK and taking a more cautious view on the continued strengthof the UK economy. As a result of the growth strategy initiatives outlined, the Board remainsconfident of the Group's trading prospects for the current year and believesthat they will underpin significant further growth in 2008, 2009 and beyond. SMALLBONE plc ("Smallbone" or "the Group") Business Review The Group's business is presently comprised of three, long established, topbrands all of which sell into the luxury end of the consumer market from retailshowrooms located in towns and cities in the UK and US where there arehigh-densities of high-value homes. Smallbone of Devizes ("Smallbone") 2006 saw growth in order intake up by 26%. Sales for the period were £20.6million (43% of Group sales) with operating profit of £1.3 million in the UKbefore a £0.9 million start-up loss in the US. Smallbone now has a total of 11UK showrooms as well as the recently launched flagship store in New York. Thenew Walnut & Silver design received further acclaim and sales have grown from 5%of total sales in 2005 to 17% in 2006. Smallbone also launched 2 new bedroom andbathroom designs in January 2006 and refurbished and extended the dedicatedbedroom and bathroom showroom in Knightsbridge. This has led to a 126% increasein the value of orders taken for bedrooms and bathrooms representing some 13% ofSmallbone's 2006 order intake. The roll-out of the new Smallbone bedroom andbathroom designs will continue to include 6 more of the UK showrooms in 2007. Mark Wilkinson Furniture ("MWF") MWF has grown from £19.2 million of sales in 2004 to sales of £21.5 million (45%of Group sales) and £1.8 million of operating profit in 2006. Order intake grew24% in 2006, the first full financial year that it has been part of the Group.The first new showroom in 4 years was opened in Harrogate, Yorkshire in April2006, bringing the total showrooms in the UK to 9. A further showroom was openedin Weybridge, Surrey in February 2007. Mark Wilkinson also started to promotethe Paris Ceramic floors through its showrooms. Paris Ceramics External sales have grown to £5.6 million (12% of Group sales) with operatingloss of £356,000 in the period primarily due to the disruption of the move ofthe US factory and head offices to Virginia. Order intake grew by 3% during2006. Since completion of the move, gross margins have improved by more than 3%,as the business re-established itself in its new home. During this period, wecompletely refurbished Paris Ceramics' flagship New York showroom and opened anew showroom in Naples, Florida in December 2006 bringing the total to 10showrooms in the US. We also refreshed the Paris Ceramics showroom on the KingsRoad in London. We are currently moving Paris Ceramics' showroom in Greenwich,Connecticut into a combined environment with the new Smallbone showroom, due tore-open in June 2007. The UK and US Markets Mintel estimated that in 2005 the UK retail kitchen furniture market was£1.29bn, with another £704m for appliances, £505m for installation costs, £263mfor worktops and £178m for sinks and taps: £2.94bn in total. They also estimatedthat 70% of the UK kitchen furniture market is represented by the self-assembled/ flat-pack sector leaving 30% for the ready-assembled sector that the Group'sbrands address - some £380m of furniture value. Mintel forecast that the UKmarket for kitchen furniture will grow steadily between 2005 and 2010 atapproximately 4% per annum. With the furniture element representing about 64% ofour £32.5m of Group UK kitchen sales in 2006 (i.e. £21m), this would indicatethat our Group accounted for about 5.3% of the UK market for ready-assembledkitchen furniture in 2006. Our growth plans to 2009 would imply that we grow ourmarket share to 6.5% assuming Mintel's market growth estimates. We aim toachieve this by establishing a wider distribution base; by 2009, we plan to have30 showrooms in the UK. The market opportunity in the US is estimated to be over twelve times the sizeof the UK. The US market for kitchen furniture was estimated (by independentmarket research organization CsiL) to be $36 billion (some £18.4 billion) in2006 with another $10.8 billion (£5.5 billion) in installation charges. Theyalso estimate an annual growth rate up to 2010 of between 4% and 5% per year.The custom-made furniture element, that the Group's brands address, is estimatedto represent 20% of the market in the US: $7.2 billion. The Group plans toestablish our business primarily through East Coast showrooms such as our firstshowroom in New York and our second in Connecticut. These two states alonerepresent some 8% of total US furniture demand (source: CsiL). Our growth plansimply that, by 2009, our market share in New York State would amount to about1.3% of the custom-made furniture market. Ultimately, if we can capture asimilar share of the US market to our current share of the UK market (some 5%),it would indicate an opportunity to achieve US furniture sales of $360 million(about £180 million) at current market size. Hence the importance ofestablishing our flagship showroom in New York and research into establishing amanufacturing base to satisfy potential US demand. Consolidated profit and loss account for the year ended 31 December 2006 Note 2006 2005 Unaudited Audited As restated (see note 1) £'000 £'000 Turnover 2 47,747 35,716 Cost of Sales -26,833 -20,523 Gross Profit 20,914 15,193 Distribution expenses -13,175 -9,584Administrative expenses -7,148 -5,632Other operating income 29 113 Operating profit 2 620 90 Interest receivable and similar income 3 15Interest payable and similar charges -504 -319 Profit / (loss) on ordinary activities 2, 3 119 -214before taxation Taxation on profit / (loss) on 4 -394 421ordinary activities Retained profit for the financial year -275 207 (Loss) / Earnings per share 5 Basic (pence per share) -1.23p 1.01pDiluted (pence per share) -1.15p 0.94p Consolidated statement of total recognised gains and losses for the year ended 31 December 2006 2006 2005 Unaudited Audited £'000 As restated (see note 1) £'000 Profit for the financial year -275 207Foreign exchange (losses) / gains -75 -34 Total recognised gains for the financial year -350 173 Consolidated balance sheet at 31 December 2006 Note 2006 2006 2005 2005 Unaudited Unaudited Audited Audited £'000 £'000 £'000 £'000 Fixed assetsIntangible assets 11,312 11,864Tangible assets 8,993 7,023 20,305 18,887 Current assetsStocks 5,400 4,418Debtors 3,727 3,807Cash at bank and in hand 1,608 446 10,735 8,671 Creditors: amounts falling duewithin one year -19,235 -16,122 Net current liabilities -8,500 -7,451 Total assets less currentliabilities 11,805 11,436 Creditors: amounts falling dueafter more than one year -6,260 -5,640 5,545 5,796 Capital and reserves Share capital 1,115 1,115Share premium 1,818 1,818Other reserve 3,604 3,604Profit and loss account -992 -741 Shareholders' funds 6 5,545 5,796 Consolidated cash flow statement for the year ended 31 December 2006 Note 2006 2006 2005 2005 Unaudited Unaudited Audited Audited £'000 £'000 £'000 £'000 Net cash inflow from operating 7 3,804 2,224activities Returns on investments and servicing of financeInterest received 3 15Interest paid -434 -262Interest element of financelease rental -70 -57 Net cash outflow from returns on -501 -304investments and servicing offinance TaxationCorporation tax paid -4 -92 Capital expenditure andfinancial investmentPayments to acquire tangiblefixed asset -3,996 -3,351Proceeds of disposals oftangible fixed assets 454 75 -3,542 -3,276 AcquisitionsPurchase of subsidiaryundertaking - -4,037Net debt acquired withsubsidiary undertaking - -712Further consideration paid inrespect of prior periodacquisitions -23 - -23 -4,749 Cash outflow before financing -266 -6,197 FinancingShare capital issued (net ofissue costs) - 563New loans 6,266 4,793Loans repaid -6,056 -707Net Capital (repaid) / raised onfinance leases -228 1,073 Net cash inflow from financing -18 5,722 Decrease in cash 8 -284 -475 Notes to the preliminary financial information 1 Basis of preparation The accounting policies applied are consistent with those set out in thefinancial statements of Smallbone plc for the year ended 31 December 2005 withexception that the Group has adopted FRS 20 (Share-based payment) in the currentyear leading to a prior period charge of £100,000 and a charge in the currentyear of £99,000. The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2006 or 2005. The financialinformation for the year ended 31 December 2005 is derived from the company'sstatutory accounts for that year and those statutory accounts have beendelivered to the Registrar of Companies. The auditors have reported on thoseaccounts; their report was unqualified and did not contain statements under theCompanies Act 1985, s237(2) or (3). The statutory accounts for the year ended 31December 2006 will be finalised on the basis of the financial informationpresented in this preliminary announcement and will be delivered to theRegistrar of Companies following the company's annual general meeting. 2 Segmental analysis i) By class of business Turnover Pre-tax (loss) / profit 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Kitchens, bedrooms and bathrooms 42,157 28,889 1,797 739Stone products 5,590 6,827 -356 10Group overheads -821 -659 47,747 35,716 620 90 Net interest -501 -304 Profit / (loss) on ordinary activitiesbefore taxation 119 -214 ii) By geographical market Turnover Pre-tax (loss) / profit 2006 2005 2006 2005 £'000 £'000 £'000 £'000By origin United Kingdom 42,802 29,401 1,690 -26North America 4,945 6,315 -1,070 116 47,747 35,716 620 90 Net interest -501 -304 Profit / (loss) on ordinary activitiesbefore taxation 119 -214 3 Exceptional costs and share-based payments The profit / (loss) before tax is stated after charging the following exceptional items and share-based payments: 2006 2005 £'000 £'000Incentives received by Paris Ceramics Inc. for move to Virginia - -29Costs related to Paris Ceramics Inc.'s move to Virginia 169 30Product liability provision / settlement in Paris Ceramics Inc. 61 97Costs of capital reduction scheme in Smallbone & Co. (Devizes) Ltd. - 19Share-based payments 99 100 4 Taxation on profit / (loss) on ordinary activities The tax assessed for the period is higher than the standard rate of corporation tax in the UK applied to the result before tax primarily due to the reversal of a deferred tax asset as a result of utilising the tax losses held by group companies against this year's profits. 5 (Loss) / Earnings per share The loss per ordinary share has been calculated using the weighted average number of shares in issue during the year of 22,305,593 (2005: 20,465,123), and the loss, being the loss after tax, is £275,000 (2005: earnings of £207,000). The shares used in the calculation of diluted earnings per share are as follows: 2006 2005 Number Number Shares used for calculation of basis EPS 22,305,593 20,465,123Exercise of options 1,572,140 1,539,662 23,877,733 22,004,785 An adjusted earnings per share is also shown below, calculated by reference toearnings before exceptional items, share-based payments and goodwillamortisation. The Directors consider that this gives a useful indication ofunderlying performance. The effect of adjusting earnings for goodwillamortisation, exceptional items and share-based payments is shown below: 2006 2005 £'000 Basic Diluted £'000 Basic DilutedProfit for the year -275 -1.23p -1.15p 207 1.01p 0.94pGoodwill amortisation 670 3.00p 2.81p 486 2.37p 2.21pExceptional items 230 1.03p 0.96p 117 0.57p 0.53pShare-based payments 99 0.44p 0.41p 100 0.49p 0.46p 724 3.24p 3.03p 910 4.44p 4.14p 6 Reconciliation of movements in shareholders' funds 2006 2005 £'000 £'000Profit for the period -275 207Foreign exchange differences -75 -34Share-based payments 99 100Proceeds from issue of shares - 2,366Costs attributable to share issue - -3 Net additions /(deductions) to / (from) -251 2,636shareholders' funds Opening shareholders' funds 5,796 3,160 Closing shareholder's funds 5,545 5,796 7 Reconciliation of operating loss to net cash outflow from operating activities 2006 2005 £'000 £'000 Operating profit 620 90Amortisation of goodwill 670 486Share-based payments 99 100Depreciation of tangible fixed assets 1,543 984Profit on disposal of tangible fixed assets -26 -65(Increase) / decrease in stocks -982 1,403Increase in debtors -297 -1,111Increase in creditors 2,177 337 Net cash inflow from operating activities 3,804 2,224 8 Reconciliation of net cash flow to movements in net debt 2006 2005 £'000 £'000 Decrease in cash -284 -475 Cash outflow / (inflow) from changes in debt 18 -5,158 Movement in net debt arising from cashflows -266 -5,633New finance leases -208 -33Exchange movements 113 -Opening net debt -7,016 -1,350 Closing net debt -7,377 -7,016 9 Analysis of net debt At 1 January 2006 Cash flow Non-cash At 31 movements December 2006 £'000 £'000 £'000 £'000 Cash at bank and in hand 446 1,193 -31 1,608Overdrafts -186 -1,477 - -1,663 260 -284 -31 -55 Bank loans due within one year -886 4,591 -4,517 -812Bank loans due after one year -4,632 -5,339 4,535 -5,436Loan notes due within one year -500 500 - -Other loans due within one year -38 38 - -Finance lease and hire purchase liabilities -1,220 228 -82 -1,074 Total -7,016 -266 -95 -7,377 This information is provided by RNS The company news service from the London Stock Exchange