SMITHS CITY GROUP REPORTS AN INCREASE IN HALF YEAR PROFIT AFTER TAX – 22-12-14

The Directors of Smiths City Group Limited, the Christchurch based retailers, have announced an operating surplus after taxation for the six months to 31 October 2014 of $4.266million compared with $1.903million last year – an increase of 124.1%.

Operating revenues for the six months were $109.473million – up 0.9% on previous year of $108.504million.

The Directors have declared an unimputed half year dividend of 1.0cent per share (last year 1.0cent) to be paid on Friday 13 February 2015.  For the purposes of the dividend the share register will close at 5.00pm on Thursday 5 February and reopen at 9.00am on the Monday 9 February 2015.

The summary of consolidated results is as follows:

*The deferred tax charge for the current period takes into account temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes as well as the movement in the company’s estimates of future taxable profits on the basis these can be offset against the tax losses available.  Smiths City has available carry forward tax losses of $11.5million, hence no income tax is payable.

**Other income includes insurance proceeds of $2.875million received for the Colombo Street property.  The costs associated with the Stage 2 rebuild have been added to the value of the property.  This treatment is consistent with that applied last year.

Commenting on the result Chairman Craig Boyce said “The Board was particularly pleased to complete the rebuild and successful opening of our “flagship” Colombo Street store in October.  This store is now the largest furniture, bedding and appliance store in Christchurch and brings our business there up to full strength.

The company also relocated both the Rotorua and Palmerston North stores to more prominent locations in their respective cities.  All three operations are trading well as we enter the important Christmas trading period.

Trading conditions through the second quarter and into November were very competitive, however, the run up towards Christmas has been stronger with the traditional spending pattern emerging.

Prior to the 2011 earthquakes the Colombo Street, Christchurch property housed the company’s largest retail operation as well as its main Administration Centre.

The property was substantially damaged in the earthquakes and the administration functions were shifted to the company’s disaster recovery centre at Watts Road. In November 2011 the company reopened that portion of the retail showroom which could be temporarily repaired.  At 30 April 2012 the property was revalued from $21million to $14million to reflect the damage.

The final repairs to the Colombo Street retail store, which was effectively a rebuild of that part of the original store which sustained the most damage, were completed in late October 2014.  This is now of a shape and layout far superior to that prior to the rebuild.   Additional parking has been provided on the southern side of the building which makes parking for those coming from the eastern and southern sides of the city much more customer friendly.

The costs of these repairs have been added to the valuation and increased the book value as at 31 October to $16.6million. These costs were covered by insurance proceeds which have been credited to other income and explains the figure of $2.875million included in the Revenue Statement.

The Board has received an independent valuation of the property of $17.8million which reflects the quality of the building as it currently stands. The company is currently finalising the last of the costs associated with the repairs and is in negotiation with the insurer to determine it’s options for the remaining work to be done on-site including but not limited to whether to rebuild the Group administration centre.

Whilst any outstanding costs will be of a minor nature the Board will be in a much better position to determine the ongoing fair value of the property as at year end and will adjust the Balance Sheet valuation as at that date.

In November the company completed its search for a replacement for Ms Sarah Ottrey, who resigned in March 2014, and was delighted to announce the appointment to the Board of Ms Sheena Henderson.

The company also announced in November that long serving CEO/Managing Director Rick Hellings would stand down from his CEO position in 2015.

By announcing this during November it meant that the company could undertake an orderly search for a replacement and subsequently appointed recruitment specialists EQI Global Executive Search and Recruitment Company to undertake this task.

Mr Hellings will remain with the company through the transition to a new appointment.

The overall economic outlook is uncertain. Whilst Canterbury continues to show some growth the fall in the Fonterra pay-out may have some impact on demand in the rural sector although we have not seen that yet and our feeling is that large segments of the rural sector are better placed to handle these conditions than may have been the case in the past.

On behalf of the Board of Directors I would like to acknowledge the efforts of all our staff, our suppliers, insurance representatives and, not least, our customers and shareholders for their continued support of the company.

C D BOYCE – CHAIRMAN