Strategic Minerals Regulatory News (SML)

28 Mar 2006 07:01

Smallbone PLC28 March 2006 SMALLBONE PLC Record preliminary results for the year to 31 December 2005 Smallbone plc, the supplier of luxury kitchens and floors is pleased to announcerecord results for the financial year ended 31 December 2005. 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 • Turnover up 50% to £35.7 million (2004: £23.6 million)• EBITDA up 18% to £1.66 million (2004: £1.4 million)• Operating profit of £190,000 (2004: £554,000) reflecting substantial investment made in new showrooms and product ranges• Strong positive cash generation from operations of £2.2 million (2004: £590,000 negative) Operational Highlights • Successful acquisition and integration of Mark Wilkinson Furniture Limited• Substantial broadening of distribution with 2 new showrooms opened• New product ranges launched to considerable acclaim• Operating profits doubled at Paris Ceramics US operation• New US manufacturing facilities benefiting margins Outlook • Smallbone flagship showroom to be opened in New York• Substantial growth expected from new Bedrooms and Bathrooms ranges• Re-launch of Paris Ceramics with added "100% Mark Wilkinson" Accessories range• Potential for over 30 showrooms in the UK for Smallbone and MWF brands in total• Further plans for international expansion across US• Group order book of £20 million, up 40% on last year Charlie Smallbone, Chairman & Chief Executive, commented: "Smallbone has had a tremendous year. We have acquired Mark WilkinsonFurniture, broadened our distribution and launched some fantastic new productranges. With our strong order book 2006 looks to have started well and we areparticularly excited about our expansion plans into the North American market. " 28 March 2006 Enquiries: SMALLBONE plc Tel: +44 (0)1380 729090Charles Smallbone, Chairman & Chief ExecutiveGordon Montgomery, Finance Director COLLEGE HILL Tel: +44 (0)207 457 2020Kate Pope / Nick Elwes Smallbone plc Chairman's statement I am pleased to report that 2005 was a year of growth for the Group, withconsiderable achievements in new product launches, new showroom openings andproduction improvements. 2005 also saw the opportunity to acquire Smallbone of Devizes' largestcompetitor, Mark Wilkinson Furniture ("MWF"). The acquisition was completed inJune and, as a Group, we now control some 15% of the luxury end of the UKkitchen furniture market with two of the leading brands. Both Smallbone and MWFhave considerable market presence with their own distinctive qualities. Ourstrategy is to build on their individual brand qualities and invest in buildingdistribution capabilities and product range. Financial results Turnover increased to £35.7 million (2004: £23.6 million) largely due to thecontribution from the MWF acquisition (consolidated for just over half a year)and gross profits rose to £15.2 million (2004: £10.4 million). We are alsopleased to report that our new showroom performance has been ahead of ourexpectations. Earnings before interest, tax, depreciation and amortisation ("EBITDA") increased 18% to £1.66m (2004: £1.4m) and net interest chargesincreased to £304,000 (2004: £168,000) reflecting the extra borrowing costsresulting from the MWF acquisition. Operating profit reduced to £190,000 (2004:£554,000) primarily due to the losses incurred in the start-up phase of newshowrooms, new product launch costs and the full year costs of being a publiccompany. However, profits after tax remained constant at £307,000 (2004:£303,000) due to a large tax credit that reflects the benefits that weanticipate deriving in the coming year from being able to utilise some of thehistoric tax losses that we are carrying as a group. Adjusted earnings pershare, before goodwill amortisation and exceptional items, was down to 4.44pence (2004: 5.25 pence) due to the additional shares issued in the year as partconsideration for the acquisition of MWF and to raise additional working capitalto assist growth. The Directors are not recommending payment of a dividend forthe financial year. Given our business model of receiving advance order deposits from customersseveral months before our products are delivered (and therefore counted as asale), the substantial increase in our operating cash generation of £2.2m (2004:£0.6m negative) is one of the best indicators of the health of our underlyinglevel of business. Operational review Smallbone & Co (Devizes) Limited ("Smallbone of Devizes") Smallbone of Devizes has a tremendous brand and reputation for bespoke qualitykitchens at the top end of the market. Our strategy is to grow the business inthree key areas: widening geographical distribution with more showrooms;broadening the product range with the addition of new ranges to the kitchenproduct and the return to Bedrooms and Bathrooms; and finally, enlarging thepotential revenue of each sale and margin improvement through the establishmentof the stone package. I am pleased to report that all three of these elementsare beginning to impact positively. The widening of the showroom base is set to deliver the largest element ofgrowth in sales and profitability. Since our flotation in July 2004, we haveopened 3 new UK showrooms in Sunningdale (September 2004), St. John's Wood (May2005) and Glasgow (July 2005). A new showroom is expected to achieve an averageof £1.5m of sales and contribute over £400,000 of profit per annum once it isfully operational, normally in its third year. We are therefore delighted thatthe rate of return, in particular at our Sunningdale showroom, has been ahead ofour expectations. Smallbone of Devizes now has 11 showrooms in the UK and webelieve that there is the potential to grow the number of showrooms in the UK to15 outlets. The broadening of our product range is also beginning to deliver results withnew designs being integral to our growth. The launch of the new "Walnut & Silver" range, in January 2005, from our Knightsbridge showroom, has been extremelywell received. We have since installed displays in our Glasgow and Harrogateshowrooms. In the last quarter of 2005, the Walnut and Silver range representednearly 25% by value of the order intake of Smallbone of Devizes. We estimatethat it takes between 2 and 3 years for a new range to fully impact upon resultsand we are delighted by the initial response. As a result of this response wehave allocated further capital expenditure to roll out Walnut & Silver displaysto other regional Smallbone showrooms. We have worked consciously to take Smallbone in a more contemporary direction inour range development. In January, we re-launched our totally refurbished andexpanded our Bedroom and Bathroom showroom in Knightsbridge with two brand newranges on display. These ranges are our most radical work to date, usingspecially sourced products. Bedrooms and Bathrooms used to represent some 30% ofsales in the 1980s. Since then, as a result of no investment, it has declined toless than 10%. We believe this is a significant area that can deliver strongorganic growth and initial responses have been encouraging. In mid-2004, we launched Smallbone Stone, offering high-quality stone flooringto our kitchen and bathroom customers. Our 2005 sales of stone flooring haveexceeded our budgets and we are now introducing a similar offering of MarkWilkinson Stone through the MWF showrooms. In 2004, we also set up our owngranite workshop in order to satisfy customers' demands in-house rather thanthrough subcontractors. This has allowed better coordination of total customerservice and, importantly, improved margin. The proportion of in-house workshopcontracts is set to build steadily in 2006 with further margin improvement. The launch of Smallbone in the US with a new flagship showroom in Manhattan is amajor international step for the Group. Opening in June 2006 with over 4,000sq.ft of display space, it is set to be a fantastic showcase for our productrange, including our new bedrooms and bathrooms. We believe that the Americanmarket offers a significant opportunity for future growth; the Smallbone brand(having been in the US in the late 1980s and early 1990s) is still very wellknown and respected. We have established Smallbone USA Inc., through which allour future Smallbone US showrooms will operate. Mark Wilkinson Furniture Limited ("MWF") The Group acquired MWF on 15 June 2005 and these financial results include theMWF results for the last 61/2 months of the financial year. For the period underreview, we have consolidated £11.2 million of turnover and £205,000 of tradingprofits. For the full financial year of 2005, MWF's turnover was £19.2 million,but in order to bring its accounting policies in line with the Group,substantial asset write-downs and stock provisions have been made, which willmean that it will report a loss in its own accounts for 2005. These adjustmentswere anticipated at the time of acquisition. MWF has now been successfully integrated into the Group, in line with our plans.Shortly after the acquisition, we appointed Mike Hemming, the MWF ProductionDirector, as Production Director for both MWF and Smallbone of Devizes. Whilsteach company's workshop remains separate, Mike Hemming is tasked withimplementing best practice across the Group's production function. One of theresults has been that, due to production efficiencies, MWF have reduced theirfactory labour force over the last year by 25% whilst maintaining productionlevels and quality. This has started to come through in improved margins, whichwill be further evidenced in 2006. We have also negotiated better agreementswith suppliers to reflect the volume of our combined purchases. In other areas,we have sought to align the management information and reporting structures toachieve comparability across the Group. Mark and Cynthia Wilkinson, founders of MWF, have joined the Group's Board andCynthia Wilkinson continues to be Managing Director of MWF with the whole ofMWF's top management team remaining and taking an equity stake in the Group. Weaim to champion and expand the Mark Wilkinson brand and showroom network, whilstpreserving its unique designs and qualities. Although MWF addresses the samemarket sector as Smallbone of Devizes, our research has shown that individualbuyer's tastes gravitate their choice to one or other brand. Our "lost leads"analysis indicates that less than 5% of lost sales actually go to the otherbrand. MWF will be opening a new showroom in April 2006 in Harrogate, Yorkshire andanother new showroom is planned for later in the year in Weybridge, Surrey.These will be MWF's first new showroom openings for over 5 years, taking thebusiness to a total of 10 showrooms in the UK. As with Smallbone of Devizes, webelieve that there is the potential to increase to 15 MWF showrooms in the UK tomeet demand. Paris Ceramics, Inc. ("PCI") PCI, in the US, has continued to make strong progress with sales rising 18% to$11.2 million (2004: $9.5 million) and operating profits before extraordinaryitems more than doubling to $463,000 (2004: $217,000). PCI currently operates from 9 showrooms across America and we are opening ourtenth in Naples, Florida, in April 2006, which is within a brand new DesignCentre building. The successful relocation and expansion of our San Franciscoshowroom in late 2004 has resulted in its 2005 order intake being some 50% aheadof the prior year. In October 2005, we relocated and expanded our Bostonshowroom and early indications show improving sales levels. We are currentlyrefurbishing our New York showroom, with the same aim, and will have extensiveParis Ceramics displays in the new Smallbone showroom when it opens in June2006. As a result of the faster returns achieved by the refurbished showrooms and thepotential for combining PCI's products to the wider Smallbone offering, we havedecided not to plan any more new showrooms for PCI over the next couple ofyears. Instead, we believe that sales and profitability will be maximised byupgrading existing locations to compliment the opening of new Smallboneshowrooms. The biggest development for PCI has been the move of its warehouse andheadquarters from Connecticut to Virginia. Virginia is one of the key centres inthe US for raw lumber and furniture manufacturing and, over the last decade, theregion has suffered from much of the manufacturing base being moved to China.The State of Virginia originally approached Smallbone with a view to attractingus to re-locate our operations to Virginia to support our planned growth. Wehave moved from some 14,000 sq,ft. of leased space in Connecticut to 52,000sq.ft. of new purpose-built space in Farmville, Virginia. We are buying thepremises over a 10-year period with annual payments that are less than theannual lease costs of our previous premises. 17,000 sq.ft. of the new buildinghas been set aside as the initial foothold to support Smallbone's distributionoperations in the US. The additional space has allowed PCI to install the lateststone cutting, processing and treatment equipment, which will lead to improvedmargins, improved quality control and better protection of our intellectualproperty in new product development. The site came into operation with effectfrom 6 February 2006 and we expect its benefits to flow through to margins bythe second half of this year. Paris Ceramics Limited ("PCL") With the start of Smallbone of Devizes' own stone flooring department in 2004,we dramatically reduced PCL's operations. However, with MWF now being part ofthe Group, our strategy is to combine our stone knowledge base back into PCLwith effect from 1 January 2006. PCL will now source and supply all stoneflooring and produce all granite worktops sold through Smallbone Stone and MarkWilkinson Stone. This will enhance the coordination and accountability of theseactivities across the Group and should become a substantial profit centre. The refurbished Kings Road showroom, to be re-launched this month, is giving theGroup the opportunity to explore new product avenues. This has resulted in thelaunch of a small Design Collection allowing us, for the first time, to marketindividual items of bespoke, made to order, fine furniture manufactured in ourSmallbone and MWF workshops. Items will include dining room tables and chairs,sideboards and dressing tables. Whilst we have reacted in the past to specificcustomer requests, we have never formally offered such individual items but webelieve that there is a demand at the top end of the market for such a service.Additionally, over the last 3 years, Mark Wilkinson has designed and created acollection of stunningly beautiful ornamental and practical Accessories, such asjewellery boxes, humidors and fruit bowls, which he has brought together underthe "100% Mark Wilkinson" label. This range will be sold through our Kings Roadshowroom. Current trading and outlook Our Group order book was some £20 million at 31 December 2005, 40% up on 2004'scomparative. This, together with the considerable activity we have planned forthis year, gives us confidence that 2006 will see further growth benefits fromthe foundations that we have laid over the last 18 months. The coming year will see further store roll-out in the UK, additional productranges and the launch of the individual Design Collection. All will provideenhanced growth and brand value. We are particularly excited about the launch of Smallbone of Devizes in the US.This market is several times larger than the UK and we have every expectation ofachieving significant growth in the US over the next five years. Given thesuccess that we have achieved in the US with Paris Ceramics, we believe that wecan also create a successful US based business with Smallbone as weprogressively roll out our brands across the Northern American market. Finally, I would like to thank my fellow Directors on the Board and all thesenior management of our operating subsidiaries for the way that they have risento the growth challenges that we have faced over the last year. We are veryfortunate to have such talent and commitment in the Group. Charles Smallbone 28 March 2006 Consolidated profit and loss account for the year ended 31 December 2005 Continuing Operations Note Existing Acquisitions 2005 2004 Unaudited Audited £'000 £'000 £'000 £'000Turnover 2 24,477 11,239 35,716 23,563Cost of Sales (13,964) (6,559) (20,523) (13,119)Gross Profit 10,513 4,680 15,193 10,444Distribution (6,980) (2,604) (9,584) (6,317)expensesAdministrative (3,586) (1,946) (5,532) (3,585)expensesOther operating 38 75 113 12income Operating profit 2 (15) 205 190 554 Interest receivable 15 64and similar incomeInterest payable and (319) (232)similar charges (Loss)/profit on 2, 3 (114) 386ordinary activitiesbefore taxation Taxation on (loss) / 4 421 (83)profit on ordinaryactivities Retained profit for 307 303the financial year Earnings per share 5 Basic (pence per share) 1.50p 1.84pDiluted (pence per share) 1.40p 1.79p Consolidated statement of total recognised gains and losses for the year ended31 December 2005 2005 2004 Unaudited Audited £'000 £'000 Profit for the financial year 307 303Foreign exchange (losses) / gains (34) 19 Total recognised gains for the financial year 273 322 Consolidated balance sheet at 31 December 2005 Note 2005 2005 2004 2004 Unaudited Unaudited Audited Audited £'000 £'000 £'000 £'000Fixed assetsIntangible assets 11,864 5,804Tangible assets 7,023 2,345 18,887 8,149 Current assetsStocks 4,418 2,582Debtors 3,807 1,615Cash at bank and in hand 446 735 8,671 4,932 Creditors: amounts falling due (16,122) (8,589)within one year Net current liabilities (7,451) (3,657) Total assets less current 11,436 4,492liabilities Creditors: amounts falling due (5,640) (1,332)after more than one year 5,796 3,160Capital and reserves Share capital 1,115 920Share premium 1,818 1,296Other reserve 3,604 1,958Profit and loss account (741) (1,014) Shareholders' funds 6 5,796 3,160 Consolidated cash flow statement for the year ended 31 December 2005 Note 2005 2005 2004 2004 Unaudited Unaudited Audited Audited £'000 £'000 £'000 £'000Net cash inflow / (outflow) from 7 2,224 (590)operating activities Returns on investments andservicing of financeInterest received 15 64Interest paid (262) (195)Interest element of finance (57) (1)lease rentalNet cash outflow from returns on (304) (132)investments and servicing offinance TaxationCorporation tax paid (92) (29) Capital expenditure andfinancial investmentPayments to acquire tangible (3,351) (960)fixed assetProceeds of disposals of 75 -tangible fixed assets (3,276) (960) AcquisitionsPurchase of subsidiary 10 (3,537) -undertakingNet debt acquired with 10 (712) -subsidiary undertakingFurther consideration paid in - (21)respect of prior periodacquisitions (4,249) (21) Cash outflow before financing (5,697) (1,732) FinancingShare capital issued (net of 563 1,465issue costs)New loans 4,293 -Loans repaid (707) (1,526)Net Capital raised / (repaid) on 1,073 (6)finance leases Net cash inflow / (outflow) from 5,222 (67)financing Decrease in cash 8 (475) (1,799) Notes to the preliminary financial information 1 Basis of preparation The accounting policies adopted in this preliminary announcement are consistentwith those in the most recent set of annual financial statements. The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2005 or 2004. The financialinformation for the year ended 31 December 2004 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 2005 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 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Kitchens, bedrooms and bathrooms 28,889 17,313 234 1,063Stone products 6,827 6,250 (44) (509) 35,716 23,563 190 554Net interest (304) (168)(Loss) / profit on ordinary activities before (114) 386taxation ii) By geographical market Turnover Pre-tax (loss) / profit 2005 2004 2005 2004 £'000 £'000 £'000 £'000By origin United Kingdom 29,401 18,358 58 303North America 6,315 5,205 132 251 35,716 23,563 190 554 Net interest (304) (168) (Loss) / profit on ordinary activities before (114) 386taxation 3 Exceptional costs The (loss) / profit before tax is stated after charging the followingexceptional items: 2005 2004 £'000 £'000Incentives received by Paris Ceramics Inc. for move to Virginia (29) -Costs related to Paris Ceramics Inc.'s move to Virginia 30 -Product liability provision / settlement in Paris Ceramics Inc. 97 125Penalties and interest on late payment of USA sales taxes - 111Costs of capital reduction scheme in Smallbone & Co. (Devizes) Ltd. 19 - 4 Taxation on (loss) / profit on ordinary activities The tax assessed for the period is lower than the standard rate ofcorporation tax in the UK applied to the result before tax primarily due to thebenefit of a deferred tax asset resulting from the likelihood of being able touse the tax losses held by group companies against expected future profits. 5 Earnings per share Earnings per ordinary share have been calculated using the weightedaverage number of shares in issue during the year of 20,465,123 (2004:16,479,043), and the earnings, being the profit after tax, are £307,000 (2004:£303,000 profit). The shares used in the calculation of diluted earnings per share areas follows: 2005 2004 Number NumberShares used for calculation of basis EPS 20,465,123 16,479,043Exercise of options 1,539,662 372,838 22,004,785 16,851,881 An adjusted earnings per share is also shown below, calculated byreference to earnings before exceptional items and goodwill amortisation. TheDirectors consider that this gives a useful indication of underlyingperformance. The effect of adjusting earnings for goodwill amortisation andexceptional items is shown below: 2005 2004 £'000 Basic Diluted £'000 Basic DilutedProfit for the year 307 1.50p 1.40p 303 1.84p 1.79pGoodwill amortisation 486 2.37p 2.21p 327 1.98p 1.94pExceptional items 117 0.57p 0.53p 236 1.43p 1.40p 910 4.44p 4.14p 866 5.25p 5.13p 6 Reconciliation of movements in shareholders' funds 2005 2004 £'000 £'000Profit for the period 307 303Foreign exchange differences (34) 19Issue of shares 2,366 2,008Costs attributable to share issue (3) (543) Net additions /(deductions) to / (from) 2,636 1,787shareholders' fundsOpening shareholders' funds 3,160 1,373Closing shareholder's funds 5,796 3,160 7 Reconciliation of operating loss to net cash outflow from operatingactivities 2005 2004 £'000 £'000Operating profit 190 554Foreign exchange translation differences (34) -Elimination of unrealised exchange gains (40) -Amortisation of goodwill 486 327Depreciation of tangible fixed assets 984 512Profit on disposal of tangible fixed assets (65) -Decrease / (increase) in stocks 1,403 (87)Decrease / (increase) in debtors (1,111) 652Increase / (decrease) in creditors 411 (2,548) Net cash outflow from operating activities 2,224 (590) 8 Reconciliation of net cash flow to movements in net debt 2005 2004 £'000 £'000Decrease in cash (475) (1,799)Cash outflow / (inflow) from changes in debt (4,658) 1,532 Movement in net debt arising from cashflows (5,133) (267)Net debt acquired with subsidiary undertaking - -Net debt arising on acquisition of subsidiaryundertaking (500) -New finance leases (33) (121)Opening net debt (1,350) (962)Closing net debt (7,016) (1,350) 9 Analysis of net debt At 1 January 2005 Cash flow Acquired with At 31 subsidiary December undertaking 2005 £'000 £'000 £'000 £'000 Cash at bank and in hand 735 (289) - 446Overdrafts - (186) - (186) 735 (475) - 260 Bank loans due within one year (276) (610) - (886)Bank loans due after one year (1,258) (3,374) - (4,632)Loan notes due within one year (398) 398 (500) (500)Other loans due within one year (38) - - (38)Finance lease and hire purchase liabilities (115) (1,072) (33) (1,220) Total (1,350) (5,133) (533) (7,016) This information is provided by RNS The company news service from the London Stock Exchange