Smiths City expects better second half

Press, 29 September 1988, Page 35

Smiths City expects better second half

Smiths City Group’s first half result will be affected by one-off costs, according to the company’s annual report. The chairman, Mr Kevin Smith, said that the group’s cost reduction programme would not be reflected in the halfyearly result because of the costs, such as redundancy payments. In August, Smiths announced that it had cut its staff by 140 nationwide, after earlier in the same month reporting a net trading loss of slightly more than $1 million, the first trading loss since the company was listed in 1972. The directors were determined that the second half would reflect a return to profitability, Mr Smith said. The group had found that big ticket items, furniture, floorcoverings, and large home appliances, previously called “durables,” because of their extended life after purchase, were now being called “deferrables” by economists. These were a small, but essential, part of the group’s traditional sales. As the recession had deepened and unemployment had grown, people had deferred big spending, particularly when it involved borrowing. This had been shown in the

significant decline in hire purchase sales, he said. A recovery in demand was not expected in the current year, and a cost reduction programme had been started to match present sales volumes. In the last year, the group acquired Smith and Brown from Feltex International (now Feltrax), which at that time had 49 stores, more than 600 employees and about SI2SM in sales. The first decision was to reduce the overlap between the Smith and Brown and Smiths City stores. Seventeen stores were closed and the remaining 60 divided into six regional, largely auto-

nomous, groups. In the appliance sector, the achievement of the same market share in the North Island that the group had in the South Island would more than double the present appliance sales. After the merger with Smith and Brown, the group had achieved the largest national market share in floorcoverings, several times greater than the nearest competitor. Although this enabled the group to price competitively, the reality was that floorcoverings had experienced the greatest decline of any homeware products since the introduction of the goods and services tax, Mr Smith said. Because of the rationalisation of stores and warehouses after the Smith and Brown merger the group had a number of unoccupied properties. The majority of these would have been sold or leased before the October sharemarket crash, but because of the present economy it was expected to take some time before all surplus properties were sold or tenanted. As reported, the total profit fell 67.8 per cent to $2,079,000 in the year ended April 30, compared with the previous corresponding period. Included in the result were

extraordinary gains of $2,992,000 (nil previously), the effect of tax rate changes on deferred tax liabilities. Turnover rose 36.8% to $272.3M, but the pre-tax gross profit was behind 32.4% to $15.9M. Expenses increased 54% to $20.3M, leaving a pre-tax trading loss of $4.3M ($10.5M profit). A tax credit of $3.3M (S4M provision) reduced the loss, and equity profits were $123,000 (nil). No final dividend is recommended because the directors declared a second interim dividend of 1c a share ahead of the tax changes coming into force on October 1. The two interim dividends give an annual rate of 2.5 c a share (12.5%), down on the previous rate of 3.6 c a share. The dividends require $3.5M if the bonus shares in lieu of dividend scheme is included. Shareholders’ funds improved 512.1 M to $69.2M, including ordinary capital up SS.IM to $17,580,000 because of issues for cash, conversion of preference shares and the bonus share scheme. Working capital fell. S7.BM to $36.3M, and the current ratio slipped from 2.0 to 1.4 to one. The net asset backing a 20c ordinary share eased from 89c to 79c a share.