RNS Number:4081M
ScS Upholstery PLC
21 November 2006
The following replaces ScS Preliminary results released at 0700 under RNS Number
3991m
In the Chairmans statement under the heading Outlook the first line now reads
'Total sales order intake for the first seven weeks...' and not five weeks as
previously stated.
The full amended version appears below
For Immediate Release 21 November 2006
ScS Upholstery plc
Preliminary Results for the Year Ended 30 September 2006
ScS Upholstery plc, the fully listed retailer of fabric and leather upholstered
furniture, is pleased to announce its preliminary results for the year ended 30
September 2006. The results are reported under International Financial
Reporting Standards ("IFRS") and the comparatives have been restated
accordingly.
KEY POINTS
* Revenue #195.8m (2005: #158.3m) Up 24%
* Gross margin 48.1% (2005: 48.0%)
* Trading profit before profits from property transactions #15.9m (2005: #14.4m) Up 10%
* Profit before tax and property transactions #16.8m (2005: #15.1m) Up 11%
* Profits from property transactions #0.4m (2005: #2.0m)
* Profit before tax #17.2m (2005: #17.1m)
* Earnings per share adjusted to exclude profit on property transactions net of tax 34.18p Up 8.1%
(2005 adjusted: 31.63p)
* Proposed final dividend of 12.0p per share, giving a total dividend of 19.0p (2005: 16.5p) Up 15%
* Record expansion - 21 new stores opened during the year (including one relocation)
- selling space increased by 38%
- total 87 stores trading at the year end
Net cash #19.7m after expenditure on expansion programme of #12.0m
Mike Browne, Chairman, commented:
"These strong results, which have been achieved whilst opening a record 21
stores during the year, are reflective of the successful ScS formula.
We remain confident of continuing to grow the business profitably by offering
our customers value and choice whilst maintaining margins."
For further information please contact:
ScS Upholstery plc
David Knight, Chief Executive 0191 514 6054
Buchanan Communications
Richard Oldworth / Nicola Cronk / 020 7466 5000
Susanna Gale
CHAIRMAN'S STATEMENT
I am delighted to announce another strong performance from the Group with profit
before tax and property transactions of #16.8 million for the year (2005: #15.1
million).
This result reflects the impact of the significant expansion programme
undertaken during the year having opened 21 new stores (including one
relocation). Revenue has increased significantly by 23.7% to #195.8 million
(2005: #158.3 million). Like for like sales order intake was up by 1% and gross
margin of 48.1% (2005: 48.0%) was maintained at expected levels despite a
challenging year for the retail sector.
This strong result reflects the Group's proven formula and successful expansion
strategy as we continue to strengthen our position as a major specialist sofa
retailer.
Results
Group pre-tax profits were #17.2 million (2005: #17.1 million). The results in
2005 included profits from property transactions of #2.0 million, compared to
#0.4 million in 2006. Group pre-tax profits before property transactions were
#16.8 million (2005: #15.1 million) an increase of 11.3%. The net margin on this
basis is 8.6% (2005: 9.5%). This is very much in line with our expectations and
reflects the significant expansion programme undertaken during the year having
opened 21 new stores, including one relocation (2005: nine new stores including
two relocations, and two store closures).
Earnings per share adjusted to exclude profits from property transactions
increased 8.1% to 34.18 pence (2005 adjusted: 31.63 pence).
Dividend
In line with our strong results and cash position the Board is recommending a
final dividend of 12.0 pence per ordinary share. If approved, this would make a
total dividend for the year of 19.0 pence per ordinary share (2005: 16.5 pence
per ordinary share), an increase of 15.1%.
Expansion Programme
We currently have 88 stores, after opening a new store in Cambridge in October
2006. This store adds to the East Anglia region where we already have stores in
Norwich, Colchester and Ipswich, the latter having opened on 29 September 2006.
We recently opened a new distribution centre in Thetford with 24,000 square feet
of space, to provide distribution capability for the region for the foreseeable
future.
Regarding our plans for expansion in the ten months to July 2007, the new
financial year end, we expect to open up to ten stores which is more in line
with previous years' experience.
Outlook
Total sales order intake for the first seven weeks of the current financial
period is substantially higher than the same period last year. Like for like
sales order intake for the first seven weeks of the current financial year is,
as expected, down by 7%. This is mainly due to the strong comparatives
following the very successful launch of the four new stores opened in October
2005. If the like for like impact of the stores opened in October 2005 is
excluded, then like for like sales order intake is down by only 3% which is a
very good performance given that existing stores last year traded 14% up for the
same period on a like for like basis. We remain confident therefore, that the
success of our ongoing expansion strategy and our proven formula will enable us
to continue to grow the business profitably.
M F Browne
Chairman
The Preliminary Announcement was approved by
the Board of Directors
20 November 2006
BUSINESS REVIEW
REVIEW OF OPERATIONS
Successful Formula
ScS is a national retailer and specialises in selling lounge room sofas and
chairs. We have deliberately positioned ourselves in the middle-market of the
upholstery retail sector offering excellent value, choice and service to our
customers.
We operate from 88 stores nationwide, 83 of which are in prime out of town
retail park locations with a high quality fit out and mezzanine floor. Our
branch network has developed through regional clusters supported by 11
distribution centres, which yields cost synergies in distribution and through
effective use of national media.
We do not manufacture but source our product from 15-20 principal suppliers with
whom we have developed very good working relationships, a critical success
factor.
Our excellent people, with a customer service and profit minded culture, have
successfully implemented our strategy, consistently producing high margin
results.
Market
Verdict Research recently reported that consumer expenditure on upholstered
furniture amounted to #3.7 billion in 2005. It also stated that over the past
five years the sales performance of the furniture sector has been less volatile
and more consistent with retail as a whole reflecting a more stable economic
backdrop. It would appear that our sector continues to benefit from house price
inflation through mortgage equity withdrawal with much of the spending being
channelled into big ticket items. In addition, media coverage and home
improvement programmes have raised awareness of the fashionability and
aspirational appeal of sofas, which in turn has shortened replacement cycles.
The last few years have seen leather sofa sales overtake fabric sofa sales and
approximately 60% of ScS sales are leather. This popularity is driven by the
affordable price of good quality leather sofas, which has decreased to levels
similar to fabric products.
The sofa market is very fragmented with the three major specialists, including
ScS, accounting for circa 25% of sales. We continue to see our share of the
sector increase both as a consequence of our successful formula and as weaker
competitors leave the market.
Business Risks
The principal risk to the business is management of the supply chain process.
This involves the manufacture of quality product and delivery by suppliers to
our distribution centres in the requisite timeframe, the delivery of the product
to our customers in a professional manner and at prearranged dates and the
provision of an excellent after sales service. Centralised buying, very good
working relationships with a wide range of suppliers and our in house
distribution capability enable us to manage this risk effectively (see Suppliers
and Product Range and Distribution Network).
All risks are monitored on an ongoing basis by the Executive Directors and
strategies are developed as appropriate to mitigate against such risks and
minimise their impact.
Store Format and Expansion Programme
The Group's expansion programme remains based upon a format which comprises a
prime retail park location with a unique mezzanine floor layout, designed to
encourage customers to circulate around the store. Displays are set in
attractive, well-lit, open room settings and attention is paid to creating a
relaxing homelike environment.
We continue to invest in the enhancement and quality of the visual merchandising
of each store and believe that the retail standards in our stores are amongst
the highest in the sector. After a store has been open for more than five years
we refurbish it to ensure we maintain these high standards of modern display,
replacing carpets, signage and fully decorating the store. We have carried out
major refurbishments at ten stores during the year.
We have increased our selling space by 38% this year with the opening of a
record 21 stores in Durham, Team Valley Retail World near Gateshead,
Chesterfield, Dartford, Leicester, Lincoln, Gloucester, Preston, Harlow,
Nottingham (a relocation to a better site on the same retail park), Wrexham,
Cribbs Causeway Retail Park in Bristol, Mansfield, Silverlink Trading Estate
near Newcastle, Colchester, Basildon, Wolverhampton, Wigan, Kilmarnock, Bridgend
and Ipswich, the Ipswich store having opened on 29 September 2006. We opened in
Cambridge in October 2006, which adds to the Norwich, Colchester and Ipswich
stores in that region. The continued expansion within existing regions yields
cost synergies through the benefit of shared advertising and distribution.
The plan for this new financial period is to open up to ten new stores. Two
stores are due to open on Boxing Day at Greenock in Scotland and Huddersfield
and a further three stores are planned to open in March 2007.
We will continue our strategy of locating new branches on prime retail parks
adjacent to competitors, where returns on investment are greater due to
increased footfall of customers shopping for furniture.
Suppliers and Product Range
The Group does not manufacture any of the products it sells but purchases from a
selection of 15-20 different suppliers, of which approximately 60% are UK based,
with the balance of supply from Europe. Centralised buying is critical to our
success and we concentrate on developing and maintaining effective, long term
working relationships with suppliers. This strategy has enabled the Group to
secure attractive purchase terms and support from suppliers and to negotiate
exclusivity on all current product lines.
The Group offers its customers a wide range of sofas. Each store typically
displays a range of models, of which approximately 40% are fabric and 60%
leather. Our average order value remains at circa. #1,500 (2005: circa.
#1,500). All prices are determined centrally with no regional variations.
Marketing and Advertising
As the business has developed, our advertising strategy has been based upon
employing Regional TV (ITV1) with National press (primarily The Sun, supported
by The Daily Mail and Daily Express) and local and regional publications for a
more local presence, all of which are fronted by the face of ScS, celebrity
Martin Kemp.
Our budget for this area is circa 6% of revenue. The budget is spent around key
trading periods, such as the Autumn campaign and January sale, with the
remaining spend supporting, in the main, all Bank Holiday periods.
As the business has grown, with stores added to existing regions and advertising
underpinned by regional TV, this has enabled us to make better use of national
press, increasing our presence in more upmarket national publications, including
colour supplements. We have also expanded our advertising coverage into other TV
media, including Satellite and Channel 4. This attracts a new audience to our
offer and is helping us build a national brand. Further progress will be made
in this area over the coming year as the business continues to expand, but
maintaining spend at circa 6% of revenue.
Distribution Network
Delivery to customers is made by the Group's own network of localised
distribution centres. Each centre supports several stores in its locality thus
providing the Group with benefits from economies of scale. This in-house
delivery service enables the Group to retain control of final delivery, which is
a very important event for each of our customers. Distribution cost was 4.7% of
revenue (2005: 4.8%).
The Group now operates 11 distribution centres throughout the UK mainland having
recently opened a 24,000 sq ft warehouse in Thetford to support the three stores
currently in East Anglia and anticipated expansion within that region.
IT Systems
Over the past 12 months we have conducted an exhaustive review of our existing
systems, as a result of which we have decided to invest #1.3 million in the
current financial period to further strengthen our IT capability to support
future growth. This will be progressively implemented through 2007.
People
In March of this year The Sunday Times reported the results of their survey into
the Top 100 Companies to Work For. The random survey of employees of those
companies selected by The Sunday Times in the mid-sized company section resulted
in ScS achieving the position of 45th. This is an excellent achievement, and
demonstrates that at ScS, our people are at the heart of our business and are
key to the success of the Group's strategy of establishing ScS as a major
national retailer.
The Group's policy is to involve employees in the business and to ensure that
matters of concern to them, including the Group's aims and objectives, are
communicated in an open and regular manner. We achieve this principally through
the annual sales conference supported by other regular senior management
meetings and briefings.
The Board is fully committed to delivering the highest standards of health,
safety and welfare for all employees and acknowledges its responsibility for
other persons who may be affected by the Group's activities.
The Group prides itself on being able to offer career development opportunities
for all of our people through training, coaching and promotion within the Group.
We are an equal opportunities employer and have accreditation for the
Investors in People standard.
We are committed to employing the right people and to training them well. We
have developed a new national training centre at our Sunderland head office,
which is complemented by a training centre in the Midlands and by satellite
training centres throughout the UK. We have invested in all areas of learning
and ensure that our people are given access to local, regional and national
training opportunities. We believe that well trained and motivated people are
key to our customer driven and profit orientated culture and fundamental to the
long-term success of the business and have planned a major commitment in this
area for 2007 and the future.
David Knight
Chief Executive
The Preliminary Announcement was approved by
the Board of Directors on 20 November 2006
FINANCIAL REVIEW
Revenue
Revenue increased by 23.7% on the previous financial year to #195.8 million
(2005: #158.3 million) reflecting the impact of the significant expansion
programme undertaken during the year, with 21 new stores opened, including one
relocation.
The like for like sales order intake, calculated on the basis of all stores open
for 12 months or longer, is 1% up for the 52 week period. This is an excellent
performance given the strong trading comparables last year and the difficult
trading environment which our sector has experienced during the year.
Gross Profit
Gross profit increased by 23.9% on the previous financial year to #94.2 million
(2005: #76.0 million) and gross margin is 48.1% (2005: 48.0%).
Group Trading Profit
Group trading profit is #15.9 million (2005: #14.4 million), an increase of
10.4%.
The trading profit margin of 8.1% (2005: 9.1%) is very much in line with our
expectations as it is stated after absorbing the costs of the significant
expansion programme during the year. The additional costs associated with staff
recruitment, induction and training, together with pre-opening and launch costs
for the stores, means that there is an initial negative impact on profitability.
Also, given our policy of recognising sales when the goods have been
delivered, and with normal lead times from suppliers of six to 12 weeks, new
stores have a significant period when costs are incurred but revenue is not
earned.
Profit Before Taxation
Profit before taxation is #17.2 million (2005: #17.1 million). Excluding
profits from property transactions, profit before taxation was #16.8 million
(2005: #15.1 million), an increase of 11.0%. This is an excellent result given
the impact of the significant expansion programme.
Taxation
The effective rate of tax on profit for the year is 31.5% (2005: 29.8%). This is
higher than the standard rate of corporation tax in the UK of 30%, primarily due
to the accounting depreciation not eligible for tax purposes.
Balance Sheet and Cash Flow
The balance sheet remains very strong with net assets of #37.6 million (2005:
#30.2 million) and no borrowings.
Additions to fixed assets during the year totalled #14.3 million (2005: #6.6
million). New store leasehold improvements and fixtures and fittings amounted
to #12.0 million (2005: #5.3 million). Expenditure on refurbishments amounted
to #1.2 million (2005: #0.7 million) during the year. Net book value of
leasehold improvements and fixtures and fittings at our stores account for #33.8
million (2005: #23.8 million) of the Group's net asset value as disclosed in the
balance sheet.
The continued profitability and strong operating cashflow of the business has
resulted in cash balances of #19.7 million at the end of the financial year
(2005: #20.2 million). This is after payments on account of corporation tax
liabilities of #4.8 million (2005: #5.0 million), dividend payments of #5.8
million (2005: #5.0 million) and total capital expenditure of #14.8 million
(2005: #6.6 million).
The strong balance sheet and significant operating cash flow generation of the
business optimises our ability to continue the expansion strategy and sustain a
sensible growth in dividends, financed from our own resources.
Earnings Per Share and Dividends
Basic earnings per share are 35.12 pence (2005: 36.24 pence), reflecting the
reduction year on year in profit on property transactions. Adjusted earnings
per share, which excludes profit on property transactions is 34.18 pence (2005:
31.63 pence), an increase of 8.1 %.
The final dividend proposed of 12.0 pence per ordinary share, if approved, would
make a total dividend for the year of 19.0 pence per ordinary share (2005: 16.5
pence per ordinary share), an increase of 15.2% which reflects our strong cash
position.
International Financial Reporting Standards (IFRS)
The consolidated financial statements are prepared under IFRS and the
comparatives have been restated accordingly. A full reconciliation was issued
in our transition document, included in the interim report to 31 March 2006, and
can be found on our website www.scssofas.co.uk.
There is no impact of the move to IFRS on the cash flows or operations of the
business.
Change of Financial Year End
As reported in the Interim Announcement on 15 May 2006, the Group will be
changing its accounting reference date from 30 September to 31 July for the
2006-2007 financial year. The Group will next report unaudited interim results
for the six months ending 31 March 2007 and audited results for the ten months
ending 31 July 2007. The unaudited results for the two months of August and
September 2006 have been included in this preliminary report for information
purposes only.
Ron Turnbull
Finance Director
The Preliminary Announcement was approved by
the Board of Directors on 20 November 2006
ScS Upholstery plc
Consolidated Income Statement
For the year ended 30 September 2006
Audited Audited Unaudited
Two Months
Year ended Year ended August &
30 September 30 September September 2006
2006 2005
Notes #'000 #'000 #'000
Revenue 195,828 158,295 38,220
Cost of sales (101,615) (82,260) (19,842)
Gross profit 94,213 76,035 18,378
Distribution costs (9,223) (7,552) (1,703)
Administration costs (69,103) (54,095) (9,838)
(78,326) (61,647) (11,541)
Group trading profit 15,887 14,388 6,837
Other income - profit on disposal of property 2 445 2,002 -
interests
Group operating profit from continuing operations 16,332 16,390 6,837
Finance revenue 906 741 121
Profit from continuing operations before taxation 17,238 17,131 6,958
Tax expense 3 (5,430) (5,112)
Profit attributable to equity shareholders of the 11,808 12,019
parent
Earnings per share - Basic - (pence) 4 35.12 36.24
Earnings per share - Adjusted - (pence) 4 34.18 31.63
Earnings per share - Diluted - (pence) 4 35.04 36.00
Dividend paid per share (pence) 5 17.5 15.0
Dividend proposed per share (pence) 5 12.0 10.5
ScS Upholstery plc
Consolidated Balance Sheet
As at 30 September 2006
Audited Audited
As at As at
30 September 30 September
2006 2005
#'000 #'000
Non-current assets
Property, plant and equipment 36,113 25,321
Intangible assets 527 314
Other receivables 823 -
Deferred tax asset 99 326
37,562 25,961
Current assets
Trade and other receivables 9,652 8,334
Inventories 11,546 9,576
Cash and cash equivalents 19,671 20,168
40,869 38,078
Total assets 78,431 64,039
Current liabilities
Trade and other payables (31,713) (26,292)
Income tax payables (1,984) (1,764)
(33,697) (28,056)
Non-current liabilities
Trade and other payables (7,178) (5,799)
Total liabilities (40,875) (33,855)
Net assets 37,556 30,184
Equity
Share capital 340 336
Share premium account 2,971 1,920
Capital redemption reserve 195 195
Treasury shares (1,172) (1,472)
Retained earnings 35,222 29,205
Total equity 37,556 30,184
ScS Upholstery plc
Consolidated Cash Flow Statement
For the year ended 30 September 2006
Audited Audited Unaudited
Year ended Year ended Two months
30 September 30 September August &
September
2006 2005 2006
(Restated)
#'000 #'000 #'000
Cash flows from operating activities
Group operating profit 16,332 16,390 6,837
Depreciation 3,358 2,563 648
Depreciation of non current other receivables 39 - 9
Profit on disposal of property, plant and equipment - (260) -
Amortisation of other intangibles 258 416 51
Share based payments 271 101 2
(Increase)/decrease in inventories (1,970) 275 (1,275)
Increase in trade and other receivables (2,178) (2,507) (2,030)
Increase in trade and other payables 6,843 4,541 6,049
Cash generated from operations 22,953 21,519 10,291
Income taxes paid (4,760) (4,998) -
Net cash flow from operating activities 18,193 16,521 10,291
Cash flows from investing activities
Interest received 906 741 121
Payments to acquire intangible fixed assets (471) (97) (107)
Purchase of property, plant and equipment (14,356) (5,998) (2,890)
Proceeds on disposal of property, plant and equipment 161 1,726 -
Net cash flows from investing activities (13,760) (3,628) (2,876)
Cash flows from financing activities
Net proceeds from issue of ordinary shares 1,055 1,185 34
Payment to acquire own shares (187) (971) -
Dividends paid to equity shareholders of the parent (5,798) (5,011) -
Net cash flows from financing activities (4,930) (4,797) 34
(Decrease)/Increase in cash and cash
equivalents
Net (decrease)/increase in cash and cash equivalents (497) 8,096 7,449
Cash and cash equivalents at the beginning of the year 20,168 12,072 12,222
Cash and cash equivalents at the end of the year 19,671 20,168 19,671
ScS Upholstery plc
Consolidated Statement of Changes in Equity
For the year ended 30 September 2006
Equity Share Capital
share premium redemption Treasury Retained Total
capital account reserve shares earnings equity
#'000 #'000 #'000 #'000 #'000 #'000
At 30 September 2004 326 745 195 (501) 21,879 22,644
Profit for the year - - - - 12,019 12,019
Equity dividends - - - - (5,011) (5,011)
Items recognised directly in
equity:
Share based payments - - - - 101 101
Income tax - - - - 217 217
Acquisition of treasury shares - - (971) (971)
Employee share options exercised 10 1,175 - - - 1,185
At 30 September 2005 336 1,920 195 (1,472) 29,205 30,184
Profit for the year - - - - 11,808 11,808
Equity dividends - - - - (5,798) (5,798)
Items recognised directly in
equity:
Share based payments - - - - 271 271
Income tax - - - - 223 223
Acquisition of treasury shares - - - (187) - (187)
Employee share options exercised 4 1,051 - - - 1,055
Transfer re. treasury shares - - - 487 (487) -
At 30 September 2006 340 2,971 195 (1,172) 35,222 37,556
ScS Upholstery plc
Notes to the Preliminary Report
This preliminary report was approved by the Directors on 20 November 2006. This
announcement is being sent to shareholders and will be made available at the
Company's registered office at 45-49 Villiers Street, Sunderland, SR1 1HA.
Copies of this report will also be available on the Group's website at
www.scssofas.co.uk.
1. Basis of preparation
This preliminary report has been prepared under IFRS. These standards are
subject to ongoing review and endorsement by the European Union or possible
amendment by interpretative guidance from the International Accounting Standards
Board and the International Financial Reporting Interpretations Committee and
are, therefore, still subject to change. Further details of the restatement and
reconciliations to the UK GAAP financial information for the year ended 30
September 2005 can be obtained from the Group's website, www.scssofas.co.uk.
The financial information contained above does not constitute statutory
financial statements as defined in section 240 of the Companies Act 1985, for
the years ended 30 September 2005 and 2006. The financial information is based
on the audited statutory accounts for both years, upon which the auditors have
issued unqualified audit opinions. The statutory financial statements for the
year to 30 September 2005 have been filed with the Registrar of Companies. The
unaudited results for the two months of August and September 2006, included in
this preliminary report, are not included in the audited statutory accounts for
the year ended 30 September 2006.
2. Other income
Audited Audited
Year ended Year ended
30 September 2006 30 September 2005
#'000 #'000
Profit on disposal of property interests 445 2,002
Other income in 2005 represented net income received as compensation for early
termination of leases on distribution and retail sites and the profit on
disposal of a freehold property.
Other income in 2006 represents net income on the early termination of a
property lease.
3. Taxation
Audited Audited
Year ended Year ended
30 September 2006 30 September 2005
#'000 #'000
UK Corporation tax:
Current income tax charge 5,328 4,842
Amounts under/(over) provided in previous years 4 (105)
Total current income tax 5,332 4,737
Deferred tax:
Origination and reversal of timing differences 98 375
Total deferred tax 98 375
Tax charge in the income statement 5,430 5,112
Tax relating to items charged or credited to equity
Current income tax:
UK Corporation tax (352) (670)
Deferred tax:
Share based payments 129 453
Tax credit in the statement of changes in equity (223) (217)
UK corporation tax is calculated at 30% (2005: 30%) of the estimated assessable
profit.
A net deferred tax asset of #99,000 (2005: #326,000) has been recognised in the
balance sheet.
4. Earnings per share
The calculation of basic earnings per share is based on the profit for the
financial year and a weighted average of 33,624,005 shares in issue during the
year (2005: 33,162,741). The diluted earnings per share is based on the profit
for the financial year and a weighted average of 33,697,001 shares in issue and
under option during the year (2005: 33,387,086).
The adjusted earnings per share is calculated excluding the impact on the Group
of profits on property transactions (net of tax).
5. Dividends paid and proposed
Audited Audited
Year ended Year ended
30 September 2006 30 September 2006
#'000 #'000
Equity dividend paid: final 2005 3,519 3,006
Equity dividend paid: interim 2006 2,279 2,005
5,798 5,011
Equity dividend proposed: final 2006 4,047 3,511
6. Annual General Meeting
The Annual General Meeting will be held on 19 February 2007.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DGMZMNMLGVZG
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