Last checked at 2 Sep 2008 07:10
SMALLBONE plc
("Smallbone" or "the Group")
Interim results for the six months ended 30 June 2008
Smallbone, the international group of unique luxury lifestyle brands, today announces record interims results for the six months ended 30 June 2008.
Financial Highlights
| 2008 £000 | 2007 £000 | % increase | |
| Revenue | 30,432 | 26,559 | +14.6% |
| EBITDA* | 1,959 | 1,403 | +39.6% |
| Operating profit | 903 | 517 | +74.7% |
| Profit before tax | 620 | 206 | +201% |
| Cash generated from operations | 2,453 | 2,700 | -9.1% |
| Interim dividend per share | 0.6p | 0.6p | - |
*EBITDA = Earnings before interest, tax, depreciation and amortisation, and share-based payments
Highlights
Substantially increased profitability and continued gross margin improvement to 44.7% (2007: 43.9%)
Order intake during the period remained strong, up 8.2% to £34 million
New York showroom starting to deliver sales volume
Launch of new designs in the Group to critical acclaim: the Smallbone "Macassar Collection" and the "Shangara" range by Mark Wilkinson ("MWF")
New showrooms opened in Manchester and Brentwood for MWF and in Beaconsfield for Smallbone
Outlook
Record Group order book up 7.6% to £34 million providing good future revenue visibility
MWF Belgravia showroom opening in October; Smallbone showroom opening in Chicago in February 2009
Strategic decision to enhance cross-selling opportunities in Smallbone of Devizes via re-launch of Bedrooms and Bathrooms offering is producing more bigger, multiple room projects, resulting in longer contract lead times and profits being transferred to later in the cycle, a trend likely to continue into 2009 and beyond
Remain cautious of rapidly changing economic outlook and slow down in new orders; beginning to be seen specifically in the UK operations of the Smallbone of Devizes brand, predominately outside London, and in PCI in US, though not in rest of Group operations, resulting in amended expectations for 2008 and 2009
Earnings enhancing acquisition of Christopher Peacock Cabinetry with contracts exchanged, which has been announced today, extends Group's foundations and growth opportunities in the US market (see separate announcement)
Charles Smallbone, Executive Chairman & Chief Executive, commented:
"The first half has seen further growth and increased profitability as our group strategy continues to deliver. It is particularly pleasing to see that order intake has shown year-on-year growth.
"Notwithstanding our strong reported performance for the first half of this year, we are cautious about the Group's performance in the short term given the challenging economic environment. However, we have world-class brands and a robust business with solid foundations from which to make the most of opportunities as they arise. As a result, we remain confident in the Group's future performance in the medium to longer term.
"We are delighted to be announcing today the acquisition of Christopher Peacock Cabinetry. By acquiring one of the premier luxury brands in that market, we have transformed our position in the US. We now have the opportunity to pursue significantly enhanced growth and profitability for the Group."
2 September 2008
Chairman and Chief Executive's Statement
I am pleased to announce continued growth and increased profitability in the six months to 30 June 2008. It is particularly pleasing to see that our order intake has shown year-on-year growth in the first half, especially in light of the challenging economic environment.
Financial Results
Significantly, the investment made over the past few years is showing clear benefits as the new showrooms contribute to enhanced profitability. Profit before tax for the Group was up 201% to a record £620,000 (2007: £206,000). Group revenue increased by 14.6% to £30.4 million (2007: £26.5 million) and EBITDA increased 39.6% to £1.9 million (2007: £1.4 million) (EBITDA being earnings before interest and tax (£903,000), depreciation and amortisation (£1,038,000) and share-based payments (£18,000)).
Our determination to improve our gross margin is reflected in the increase to 44.7% (2007: 43.9%). This has been achieved through improved economies of scale arising from increased production volumes and better purchasing power. Gross margin remains a key area of focus for the Group and we anticipate further improvement.
Net cash generated from operations decreased by 9.1% to £2.45 million (2007: £2.7 million). This slight reduction in cash is as a result of some delays, on a small number of Smallbone of Devizes orders, where we expect the profits will now transfer into 2009. We remain a strongly cash generative business.
Adjusted earnings per share before share-based payments were 1.96 pence (2007: 0.89 pence) and basic earnings per share were 1.88 pence (2007: 0.65 pence).
Dividend Payment
The Board is pleased to recommend an interim dividend of 0.6 pence per share (2007: 0.6 pence). We have decided to hold the interim dividend at the same level as 2007.
Operating Overview
Smallbone of Devizes ("Smallbone")
Smallbone had a robust performance in the first half of 2008 increasing revenue by 6.5% in the UK. We were particularly pleased with the continuing performance of our central London flagship showroom and the successful opening of a new showroom in Beaconsfield added to the strength of our distribution in the core market for our products which surrounds London. We now have a total of 12 Smallbone showrooms in the UK and continue to review opportunities for new showroom locations.
We also launched a new kitchen design, the "Macassar Collection", in the period and this has already received much critical acclaim.
Internationally, Smallbone has performed particularly well in the USA. We have seen the maturation of the New York showroom which is now delivering to customers the forward sales made last year. For Smallbone Inc, year-on-year delivered sales are 260% up on 2007, and order intake 45% up, assisted by the opening last year of our Greenwich showroom and despite a very challenging economic environment. This performance has been especially noteworthy with the winning of 3 substantial sales projects with high end property developers (2 of which were announced earlier in the year), clearly demonstrating the evolving strength and awareness of the Smallbone brand in the US market. The expansion of Smallbone in the US continues with the opening of a third showroom in Chicago in February 2009. We continue to seek and have negotiations on further locations in key East Coast cities there with the target of having 5 Smallbone showrooms in the US by the end of 2010.
Mark Wilkinson Furniture ("MWF")
MWF again delivered a very strong trading performance with revenues up 10.8% in the first half of 2008. We have continued to invest in the expansion of the MWF showroom network. In the first half of the year we opened new showrooms in Manchester and Brentwood Essex, taking the total number of MWF showrooms in the UK to 12. MWF's third London showroom, in Belgravia, is due to open in October 2008.
We launched a new design, the "Shangara" range in June to much critical acclaim and, during the period, the company also won the 'Medium National Employer of the Year' award in the Learning & Skills Council's Apprenticeship Awards 2008. MWF also received the 'Customer Service' award at the annual KBB Review Awards in March 2008.
MWF's order intake and sales are benefiting from the investment made by the Group into the building of its showroom network. The strength of the sales performance has also been translated into an improving profit performance, delivered by a committed management team.
Paris Ceramics
Paris Ceramics, which operates predominately in the US, had a good first half for revenue, up 12%. However, a very challenging sales environment has seen our order intake decrease by 21.7% in the first half of 2008. This has led us to review the sales management structure of the company and to develop a stronger infrastructure, which is now starting to have a positive impact. We have been recruiting additional selling staff and have established a new level of sales management in order to deliver better levels of performance going forward. We anticipate that we will start to see the benefit of these moves in 2009 trading.
At the same time, the improving efficiency of our Farmville, Virginia production and distribution facility has continued. Gross margins have improved in a testing environment, especially in light of the way currency exchange rates continued to move against us during the period. This facility is proving to have been an excellent investment for both Paris Ceramics and the Group as a whole.
Outlook
We have seen a strong and robust first half in 2008 for the Group and we continue to build our order book to record levels, up 7.6% to £34 million (2007: £31.6 million), providing good future revenue visibility.
However, we fully recognise that the trading environment is one that is changing rapidly and we are beginning to see some effects of these changes.
Firstly, the strategic decision to enhance the cross-selling opportunities in Smallbone of Devizes via the re-launch in 2006 of the Bedrooms and Bathrooms offering is now producing more bigger, multiple room projects. This has resulted in longer lead times in contracts and, as a result, profitability is being transferred to later in the cycle. This will impact Group profitability in the second half, as profits from these longer lead time contracts will transfer into 2009. We believe that this is a trend that is likely to continue into 2009 and beyond.
Secondly, we remain cautious of the rapidly changing economic outlook and a subsequent slow down in new orders. We are beginning to see elements of this, specifically in the Smallbone of Devizes brand and predominately outside London, as well as in PCI in the US. However, to date we have not seen this trend extending to other parts of the Group, in particular Mark Wilkinson Furniture, Smallbone USA Inc. and The Hopton Works. However we remain extremely watchful of this movement and, as such, have amended expectations for the Group for 2008 and 2009.
Encouragingly, 2009 currently already has a larger order book across the Group compared to last year. Whilst the affluence of our typical customer shields us from a lot of the uncertainties of the mass market, we are, as stated above, cautious. We are keeping tight control of costs and implementing best practice initiatives to ensure that the Group continues to grow despite tougher conditions. We have world-class brands and a robust business with solid foundations from which to make the most of opportunities as they arise. As a result, we remain confident in the Group's future performance in the medium to longer term.
We remain committed to expanding our international showroom network as it remains a key driver of our strategy. The new Smallbone of Devizes showroom will open in Chicago in early 2009 and a new Belgravia showroom for MWF opens in October. We also continue to explore other opportunities and locations, specifically Boston, Massachusetts for Smallbone of Devizes and Litchfield for MWF. We are also looking to focus our attentions on maximising the returns from the space we already have and are working across the Group to ensure that our existing showroom space delivers to the fullest extent on our unique product collections.
Acquisition of Christopher Peacock Cabinetry
Today has seen the announcement of contracts exchanged on the acquisition of Christopher Peacock Cabinetry with completion expected by 5 September 2008 (please see separate announcement). This is an exciting acquisition as it is both earnings enhancing for the Group and gives our furniture activities real critical mass in the US market, which is some 12 times the size of the UK market. The acquisition is transformational to our market presence in the US and instantly creates a far bigger opportunity for the growth and profitability of the Smallbone Group.
Charles Smallbone
Chairman and Chief Executive
| Enquiries: | |
| Smallbone plc | Tel: +44 (0)1380 729090 |
| Charles Smallbone, Chairman & Chief Executive | |
| Gordon Montgomery, COO & Finance Director | |
| College Hill | Tel: +44 (0)207 457 2020 |
| Kate Rock / Anna Czerny |
Consolidated income statement
| Unaudited | Unaudited | Audited | ||
| Six months | Six months | Year to | ||
| to 30 June | to 30 June | 31-Dec | ||
| 2008 | 2007 | 2007 | ||
|
| Note | £'000 |
| £'000 |
| Revenue |
| 30,432 | 26,559 | 56,013 |
| Cost of sales |
| (16,834) | (14,897) | (30,442) |
| Gross profit | 13,598 | 11,662 | 25,571 | |
| Other income | 28 | 5 | 8 | |
| Distribution costs | (8,500) | (7,590) | (15,042) | |
| Administrative expenses | ||||
| Share-based payments |
| 18 | 55 | 80 |
| Depreciation | 1,038 | 831 | 1,859 | |
| Exceptional costs | - | - | 45 | |
| Other administrative expenses |
| 3,167 | 2,674 | 5,317 |
| Total administrative expenses | (4,223) | (3,560) | (7,301) | |
| Operating profit |
| 903 | 517 | 3,236 |
| Finance income | 3 | 2 | 3 | |
| Finance costs | (286) | (313) | (624) | |
| Profit before taxation |
| 620 | 206 | 2,615 |
| Tax expense | (197) | (61) | (788) | |
| Retained profit for the financial year |
| 423 | 145 | 1,827 |
| Earnings per share | 2 | |||
| Basic (pence per share) | 1.88p | 0.65p | 8.16p | |
| Diluted (pence per share) |
| 1.71p | 0.60p | 7.47p |
Consolidated statement of changes in equity
| Share | Share | Treasury | Merger | Foreign | Retained | Total | ||
| Capital | Premium | Shares Reserve | Reserve | Currency Reserve | Earnings | Equity | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Audited | ||||||||
| Balance at 1 January 2007 | 1,115 | 1,818 | - | 3,604 | (75) | - | 6,462 | |
| Currency translation differences | (17) | (17) | ||||||
| Deferred tax on share options | 167 | 167 | ||||||
| Net income / (expense) recognised directly in equity | (17) | 167 | 150 | |||||
| Profit for the period | 145 | 145 | ||||||
| Total recognised income and expense for the year | (17) | 312 | 295 | |||||
| Dividends | (224) | (224) | ||||||
| Issue of share capital | 3 | 51 | 54 | |||||
| Share-based payments | 55 | 55 | ||||||
| Balance at 30 June 2007 | 1,118 | 1,869 | - | 3,604 | (92) | 143 | 6,642 |
| Currency translation differences | 16 | 16 | ||||||
| Deferred tax on share options | 33 | 33 | ||||||
| Net income / (expense) recognised directly in equity | 16 | 33 | 49 | |||||
| Profit for the period | 1,682 | 1,682 | ||||||
| Total recognised income and expense for the year | 16 | 1,715 | 1,731 | |||||
| Dividends | (134) | (134) | ||||||
| Issue of share capital | 6 | 59 | 65 | |||||
| Share-based payments | 25 | 25 | ||||||
| Offset of investment in shares of company held by Smallbone Trustees Ltd. | (97) | (97) | ||||||
| Balance at 31 December 2007 | 1,124 | 1,928 | (97) | 3,604 | (76) | 1,749 | 8,232 |
Unaudited
| Balance at 1 January 2008 | 1,124 | 1,928 | (97) | 3,604 | (76) | 1,749 | 8,232 | |
| Currency translation differences | 19 | 19 | ||||||
| Deferred tax on share options | 144 | 144 | ||||||
| Net income / (expense) recognised directly in equity | 19 | 144 | 163 | |||||
| Profit for the period | 423 | 423 | ||||||
| Total recognised income and expense for the year | 19 | 567 | 586 | |||||
| Dividends | (270) | (270) | ||||||
| Issue of share capital | 6 | 115 | 121 | |||||
| Share-based payments | 18 | 18 | ||||||
| Offset of investment in shares of company held by Smallbone Trustees Ltd. | (45) | (45) | ||||||
| Balance at 30 June 2008 | 1,130 | 2,043 | (142) | 3,604 | (57) | 2,064 | 8,642 |
Consolidated balance sheet
| Unaudited | Unaudited | Audited | |||
| At | At | At | |||
| 30 June | 30 June | 31 December | |||
| 2008 | 2007 | 2007 | |||
| £'000 | £'000 | £'000 | |||
| Non-current assets | |||||
| Property, plant and equipment | 11,463 | 9,882 | 10,393 | ||
| Intangible assets | 12,704 | 11,982 | 12,679 | ||
| Deferred tax assets | 745 | 635 | 601 | ||
| Total non-current assets | 24,912 | 22,499 | 23,673 | ||
| Current assets | |||||
| Inventories | 6,516 | 5,200 | 5,811 | ||
| Trade and other receivables | 3,713 | 4,023 | 3,512 | ||
| Cash and cash equivalents | 1,148 | 2,033 | 1,015 | ||
| Total current assets | 11,377 | 11,256 | 10,338 | ||
| Current liabilities | |||||
| Short-term borrowings | (2,593) | (1,951) | (2,049) | ||
| Current portion of long-term borrowings | (1,219) | (1,845) | (1,675) | ||
| Trade and other payables | (5,259) | (4,229) | (5,306) | ||
| Current tax liability | (901) | (99) | (670) | ||
| Payments received on account | (9,405) | (10,936) | (8,530) | ||
| Accruals & provisions | (2,666) | (2,548) | (2,072) | ||
| Total current liabilities | (22,043) | (21,608) | (20,302) | ||
| Net current liabilities | (10,666) | (10,352) | (9,964) | ||
| Non-current liabilities | |||||
| Long-term borrowings | (5,151) | (5,132) | (5,024) | ||
| Deferred tax liabilities | (453) | (373) | (453) | ||
| Total non-current liabilities | (5,604) | (5,505) | (5,477) | ||
| Total net assets | 8,642 | 6,642 | 8,232 | ||
| Capital and reserves attributable to equity holders of the company | |||||
| Share capital | 1,130 | 1,118 | 1,124 | ||
| Share premium | 2,043 | 1,869 | 1,928 | ||
| Treasury shares reserve | (142) | (-) | (97) | ||
| Merger reserve | 3,604 | 3,604 | 3,604 | ||
| Foreign currency reserve | (57) | (92) | (76) | ||
| Retained earnings | 2,064 | 143 | 1,749 | ||
| Total Equity | 8,642 | 6,642 | 8,232 |
Consolidated cash flow statement
| Unaudited | Unaudited | Audited | |||
| Six months | Six months | Year to | |||
| to 30 June | to 30 June | 31 December | |||
| 2008 | 2007 | 2007 | |||
| Note | £'000 | £'000 | £'000 | ||
| Cash flow from operating activities | |||||
| Profit before taxation | 620 | 206 | 2,615 | ||
| Finance income | (3) | (2) | (3) | ||
| Finance costs | 286 | 313 | 624 | ||
| Share-based payments | 18 | 55 | 80 | ||
| Depreciation | 1,038 | 831 | 1,859 | ||
| Profit on disposal of property, plant and equipment | (48) | (46) | (79) | ||
| Operating cash flow before changes in working capital | 1,911 | 1,357 | 5,096 | ||
| (Increase) / decrease in inventories | (705) | 200 | (411) | ||
| (Increase)/ decrease in trade and other receivables | (201) | (475) | 36 | ||
| Decrease in trade and other payables | (21) | (1,077) | (52) | ||
| Increase/ (decrease) in payments on account | 875 | 2,391 | (14) | ||
| Increase/ (decrease) in accruals and provisions | 594 | 304 | (171) | ||
| Cash generated from operations | 2,453 | 2,700 | 4,484 | ||
| Income taxes received / (paid) | 33 | 48 | 39 | ||
| Net cash from operating activities | 2,486 | 2,748 | 4,523 | ||
| Cash flow from investing activities | |||||
| Purchase of property, plant and equipment | (2,148) | (1,681) | (3,497) | ||
| Proceeds from sale of plant and equipment | 120 | 79 | 148 | ||
| Purchase of intangible assets | (65) | - | (534) | ||
| Interest received | 3 | 2 | 3 | ||
| Net cash used in investing activities | (2,090) | (1,600) | (3,880) | ||
| Cash flow from financing activities | |||||
| Proceeds from the issue of shares | 121 | 54 | 119 | ||
| Purchase of treasury shares | (45) | - | (97) | ||
| Proceeds from long-term loans | 500 | 879 | 601 | ||
| Repayment of long-term loans | (640) | (1,000) | (1,132) | ||
| Net (payment)/ receipt of finance lease liabilities | (187) | (405) | (130) | ||
| Interest paid | (286) | (313) | (624) | ||
| Dividends paid | (270) | (224) | (358) | ||
| Net cash used in financing activities | (807) | (1,009) | (1,621) | ||
| Net (decrease) / increase in cash and cash equivalents | 3 | (411) | 139 | (978) |
Notes to the preliminary financial information
1. Basis of preparation
This unaudited consolidated interim financial information has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively EU IFRSs). The principal accounting policies used in preparing the interim results are those it expects to apply in its financial statement for the year ended 31 December 2008 and are unchanged from those disclosed in the group's Annual Report for the year ended 31 December 2007.
The financial information for the six months ended 30 June 2008 and 30 June 2007 is unreviewed and unaudited and does not constitute the group's statutory financial statements for those periods. The comparative financial information for the full year ended 30 December 2007 has, however, been derived from the audited statutory financial statement for that period. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 237(2)-(3) of the Companies Act 1985.
2. Earnings per share
Earnings per share ("EPS") have been calculated on the result after tax and on the weighted average number of shares in issue and under option during the period, as set out below:
| 6 months ended | 6 months ended | Year ended | |
| 30 June 2008 | 30 June 2007 | 31 December 2007 | |
| Shares used for calculation of basic EPS | 22,518,000 | 22,353,831 | 22,395,310 |
| Exercise of options | 2,202,984 | 1,650,432 | 2,058,296 |
| _________ | _________ | _________ | |
| Shares used for calculation of diluted EPS | 24,720,984 | 24,004,263 | 24,453,606 |
| _________ | _________ | _________ |
An adjusted earnings per share is also shown below, calculated by reference to earnings before exceptional items and share-based payments. The Directors consider that this gives a more useful indication of underlying performance.
| All figures are stated in pence per share | 6 months ended | 6 months ended | Year ended |
| 30 June 2008 | 30 June 2007 | 31 December 2007 | |
| Adjusted earnings per share before | |||
| exceptional costs and share-based payments | |||
| Adjusted basic (pence per share) | 1.96 | 0.89 | 8.72 |
| Adjusted diluted (pence per share) | 1.78 | 0.83 | 7.98 |
The earnings used in the adjusted earnings per share calculation are shown below:
| 6 months ended | 6 months ended | Year ended | |
| 30 June 2008 | 30 June 2007 | 31 December2007 | |
| £'000 | £'000 | £'000 | |
| Profit for the period | 423 | 145 | 1,827 |
| Exceptional items | - | - | 45 |
| Share-based payments | 18 | 55 | 80 |
| ___ | ___ | ___ | |
| Earnings used for adjusted EPS | 441 | 200 | 693 |
3. Dividends
The final dividend for 2007 of 1.2p per share was approved by shareholders during the period and a charge of £270,000 (2006: £226,000) was taken to reserves.
The Directors propose an interim dividend for 2008 of 0.6p per share (2007: 0.6p). No charge has been made yet for this dividend in accordance with IAS 10 (Events after the Balance Sheet Date).
4. Availability of interims
Copies of this interim statement are available from the Company's Registered Office at The Hopton Workshop, Devizes, Wiltshire, SN10 2EU.