The Directors of Smiths City Group Limited, the listed Christchurch based retailer, have announced an audited after tax profit of $5.436million for the year to 30 April 2006 compared with $8.707million for the year to 30 April 2005.
The current year result includes a tax credit (being a refund of tax paid last year) of $0.38million whilst the 2005 result included a tax credit of $3.57million (being a refund of tax paid in 2003 and 2004).
Pretax profit increased by 0.4% from $5.18million to $5.20million.
Operating revenues for the year increased from $227.5million to $243.0million. On a same stores basis revenues increased by 0.5%.
The Directors have declared an unimputed final dividend of 4.0cents per share (last year 3.5cents) to be paid on 10 August 2006. This brings the dividend for the year to an unimputed 5.5cents per share (last year 5.0cents plus a one off 1.5cent special dividend in recognition of the taxation refund received by the company). For the purposes of the dividend the share register will close at 5.00pm on Friday 4 August 2006 and reopen at 9.00am Monday 7 August 2006.
The summary of consolidated results is as follows:
Commenting on the result, Chairman Craig Boyce said “Clearly the major reason for the fall in after tax profit is the tax refund received last year. The profit before tax result is in line with the previous year. This result reflects the particularly competitive trading conditions that have been in place over the last year, with margins under pressure and higher interest rates on all our borrowings including the finance company, Smithcorp Finance”.
We have commented over the last 18 months about the more difficult trading conditions as the economy has slowed and we are unlikely to see much change as we continue into 2007.
The main focus of the company over the last 12 months has been to take advantage of our substantial carry forward tax losses by reinvesting the retained profits wisely thereby putting the company into a position where it can grow and improve shareholder value.
During the year such reinvestments were directed towards our North Island growth strategy including:
Completion of the purchase of Meikles Limited, a trading and finance operation based in the Bay of Plenty. This business offered us a strong retail brand, good quality retail stores, a finance company complete with a full credit control team and a whiteware service operation. In addition it is located close to the port of Tauranga which will enable us to import our furniture direct into the North Island rather than reshipping from the South Island. In short it was a unique opportunity to implement our North Island strategy from an already successful trading base.
Expansion of the L V Martin operations through the purchase of Star Appliances in Rotorua.
In support of our full service business model we completed the purchase, development and sale of the Watts Road, Christchurch property. This enabled us to set up an integrated and efficient trading base for Alectra, our trades based and commercial operation.
L V Martin is trading well. This combined with Meikles and the new Palmerston North store will position our North Island business to continue to contribute positively to our results.
Managing Director Rick Hellings said “Trading conditions over the last 12 months have been very competitive. In particular, the interest free terms and the period of deferred payment options offered in the market place have extended even further”. “The increasing costs of such promotions clearly have an adverse impact on margins particularly when we are in a period of rising interest rates. This, combined with the flow on effect of higher costs such as petrol and power, has resulted in reduced contributions from both the retail operations and the finance company”. The finance company was also adversely impacted by new consumer legislation introduced in April 2005 which led to some deferral of income recognition which will be picked up in the 2006/2007 year.
Property is an important part of our ongoing business. In addition to owning our Colombo Street property, Smiths City Properties looks for opportunities in the market to better position our retail tenancies.
Whilst 2006 saw tough retail trading conditions, the property market was more favourable. As a result the lower returns from our trading and finance division referred to above were offset by an improved return from the Property division. The sale of the Wellington Ngauranga Gorge property purchased in 2005 and the sale of the developed Christchurch Watts Road property yielded a combined profit on sale of $1.27million.
In November 2003 the Property division completed the $6.1million development of our Colombo Street, Christchurch property which resulted in an unrealised gain in the 2004 financial accounts of $2.106million. In January 2006 the property was valued at $20.3million by a registered valuer. This has resulted in an increase in value of $2.7million which, in accordance with our accounting policy, will not be recognised in our balance sheet until the 2007 financial year.
The company will continue to actively seek profitable property development opportunities and we are currently in the process of assessing a development which, if it goes ahead, will be completed in the 2007 year.
The big ticket retail market continues to change. In particular, the bigger players are getting stronger and we will continue to see new players enter our market. Our business model of selling branded product in a full service environment gives us a tangible point of difference to our main competition. We have made significant changes over the last 12 to 18 months to enhance our business processes and customer offering to suit these changing conditions.
Since balance date we have moved Smiths City to larger premises in Greymouth and in August will move to larger premises in Dunedin and open a store in Palmerston North. Also in August Powerstore will move to larger premises in Timaru. These moves will enable us to better service our customer base with a wider range of products and services than was possible in their current locations.
Looking ahead higher interest rates, fuel prices, power prices and the softening building market will continue to have an adverse impact on overall demand. We will continue to be competitive in the market place and ensure we maintain market share in our established markets and gain our share of the new markets we enter. In addition we will capture economies of scale in administration as we add more stores to our chain.
Rick Hellings
Managing Director
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0299833011