NZX ANNOUNCEMENT FULL YEAR RESULT – 24.06.16

REVITALISED SMITHS CITY ANNOUNCES UNDERLYING PROFIT AND SALES INCREASE
Highlights:
• Sales on a same store basis increased 2.4 per cent on the prior year to $201M
• Total dividend declared of 2.5cps (unimputed)
NPAT of $5.6M compared to $8.0M in the prior corresponding period.
(Note that the prior period includes proceeds from insurance.)

A revitalised Smiths City Group today reported a strong annual result having reduced debt as it looks to a further push into new North Island locations.

The board’s appointment of Roy Campbell as Chief Executive on 1 May 2015 drove Smith City’s emphasis on improving core operations and real expansion of the group.

Over the last 12 months and under his guidance, Smiths City has refreshed its management team and rid itself of bank debt to create a strong foundation for further growth and potential acquisition opportunities.
Last year the 98-year old Christchurch-based company with 29 Smiths City-branded stores and staffing levels of around 570, made its first moves into the Auckland market to help reinforce its presence as a national retail leader.

The purchase of the three store Auckland-based Furniture City business – a brand well recognised in New Zealand’s largest urban centre – will give Smiths City a solid beachhead into what can be a very tough market for new entrants.

Commenting on the annual 2015/16 result Chairman Craig Boyce says significant change has occurred throughout the company, including eliminating loss-making parts of the business such as the appliance retail stores and exiting non-core business activity such as the Alectra appliance service operation. Inventory levels during the year in review reduced by $7 million or 17 per cent, without impact on the company’s ability to deliver revenue.

“We’ve reduced costs and improved our retail performance. The changes have successfully unified the company under the core brand and re-energised the business,” Boyce said.
The improvement in trading results accelerated during the financial year to 30 April 2016, with a doubling of trading profit (excluding abnormals) in the second half, as restructuring initiatives positively impacted the company’s operation.

The group reported an operating surplus after taxation for the 12 months to 30 April 2016 of $5.6 million.

Chief executive Roy Campbell said the year under review saw major changes to Smiths City operations.

“We have challenged every aspect of the way we do business in line with our desire to revitalise this near century-old New Zealand retail chain.”
“Our staff are invigorated by what is a totally new era for Smiths City and it is their efforts that make the company special every day to our customers. We also want to thank those customers both loyal and new for their support,” Campbell said.

A focus on providing the most sought after products for customers also contributed to an improvement in sales. Operating revenues on a same store basis for the 12 months were $201 million, up from $196 million the previous year. Delivered margin improved by 1.19 per cent year on year.

Efforts in making the group changes were set against the background of a tougher New Zealand rural economy, and sustained aggressive discounting policies by competitors in the same retail space.
The purchase of the long-established Furniture City operation had proved a success both in terms continued profitability and the addition of its warehouse and store network. A new Taupo Smiths City operation was performing well and confirmation of a truly national footprint, Campbell said.

To further increase revenue streams, there would be a renewed focus on the group’s finance business, based on providing better financing options to online and in-store customers.
Commenting further on the result, Boyce said the company transformation had included some store closures, outsourcing appliance servicing, and restructuring and establishment of the management team. These changes incurred $2.5 million of “one off costs”.

During 2015 Smiths City sold and leased back its Colombo St property, helping reduce group debt.
“We see considerable opportunity for growth but will take careful steps to ensure that profitability is enhanced as a result,” Boyce said.
Campbell and Boyce said efforts over the past year were only the beginning of the journey for the national retailer. There would be a reshaping of store, online and logistics operations to reflect the changing face of retail and customer expectations.

The directors have declared an unimputed final dividend of 2.5 cents (last year 2.5 cents) to be paid on August 12 2016. The dividend will be paid to those shareholders on the Share Register at 5.00pm on August 5 2016. This brings the dividend to 3.5 cents for the full year (last year 3.5 cents).