ScS Upholstery PLC - Final Results
November 30 1999 - 2:04AM
UK Regulatory
RNS Number:6488B
ScS Upholstery PLC
30 November 1999
SCS UPHOLSTERY PLC
Record Results - Pre-Tax Profits Up 10%
ScS Upholstery plc, the specialist retailer of fabric and
leather upholstered furniture, is pleased to announce record
preliminary results for the year ended 30 September 1999.
Highlights
Profit before tax increased 10% to #4.5 million (1998: #4.1
million excluding flotation costs)
Turnover up 7% to #31.4 million (1998: #29.3 million)
* Gross profit increased 15% over the same period last year
with gross margin improving by 3.3 percentage points to 49.3%
(1998: 46.0%)
* Operating margin up 0.3 percentage points to 13.4% (1998:
13.1% excluding flotation costs)
* Earnings per share increased 9% to 9.73p (1998: 8.91p
excluding flotation costs)
* Dividend for the year increased 14% to 4.0p (1998: 3.5p)
* Special dividend for year of 5.0p
* Four new branches opened in the year; total selling space
now 75% greater than at flotation in December 1997
* Like for like sales order intake in the first nine weeks of
the current financial year is 6% greater than the same period
last year with total sales order intake significantly up
Chairman, Tony McCann commented:
"This has been another record year for the Company with a 10%
increase in pre-tax profit. We are making great strides with
our roll out programme, having opened four new stores in the
year, and we intend to double this in the current financial
year. Total sales order intake for the first nine weeks of the
current financial year is significantly greater than the same
period last year, with like for like sales order intake up
6%."
Contacts:
ScS Upholstery plc 0191 514 6055
Mike Browne, Chief Executive
or
Buchanan Communications 0171 466 5000
Richard Oldworth/Tom Gadsby
CHAIRMAN'S STATEMENT
I am very pleased to report that the year ended 30 September
1999 has been another record year in line with the Group's
strong strategic growth objectives, particularly in what has
been a difficult market.
Results
Group pre tax profits were #4.5 million compared to #4.1
million (excluding flotation costs) for 1998, an increase of
10%. Turnover in the year increased by over 7% to #31.4
million. Earnings for the year were 9.73 pence per ordinary
share (1998: 8.91p excluding flotation costs) an increase of
9.1%.
Final Dividend
The Board is recommending a final dividend of 2.79 pence per
ordinary share, which if approved, would make a total dividend
of 4 pence for the year. In line with our progressive dividend
policy, this would give an increase of 14.3% over the 1998
dividend of 3.5 pence.
Special Dividend
Having regard to the strong cash position, highly cash
generative business and anticipated capital expenditure, the
Board has concluded that our free cash resources are in excess
of our operating and development requirements. Accordingly the
Board is recommending, in addition, a special dividend of 5
pence per share.
Turnover
We opened 4 new stores during the year in our new format style
making a total of 20 stores. Within our #31.4 million turnover
like for like sales were down 13.9%, which was principally due
to our policy of not chasing sales by reducing margins.
Profitability
Operating margin increased from 13.1% (excluding flotation
costs) in 1998 to 13.4% in 1999. Gross profit margin increased
to 49.3% (1998: 46.0%). This was achieved via the Group's
culture of "Managing for Profit". This demonstrates how the
Group has been able to deliver excellent results in difficult
trading conditions.
Cash Flow
The Group remained cash positive at the end of the year. Net
cash and liquid resources stood at #5.0 million at the year
end (1998: #5.9 million) despite capital expenditure of #1.5
million and the repayment of Primback monies (as announced in
December 1998) of #1.0 million. The Group continues to manage
a very strong balance sheet, which contains no borrowings, so
that we remain well placed to take advantage of any
opportunities which may arise to accelerate the rate of
expansion.
Board Changes
I announced in my interim report that Irvin Bamford, Finance
Director, would be leaving the Group and handing over to Sacha
Beere in due course. I can confirm that the transition has
been very smooth and that Sacha is now our Financial Director.
I also recently announced that Neville Peppiatt, Sales
Director, would be retiring from the Group in March 2000. We
thank both Irvin and Neville for their outstanding
contributions to the Group and our best wishes go to them both
for the future. Following these changes I announced the
promotion of David Knight to the new position of Managing
Director.
People
As the name and profile of ScS continues to grow and expand
geographically, so we are able to offer our management new and
increased responsibilities as well as attracting high calibre
staff from outside the Group. In October 1999 we promoted
three experienced managers to the subsidiary board. These are
essential ingredients in the continuation and development of
our customer driven and profit orientated culture. On behalf
of the Board I would like to thank every one of our staff for
their dedication and enthusiasm which has helped to produce
another year of excellent progress.
Outlook
Total sales order intake for the first nine weeks of the
current financial year is significantly greater than the same
period last year, with like for like sales order intake up 6%.
In addition, we are expecting to open up to eight new stores
in the current financial year which would double the rate of
last year's opening programme. As a result your Board remains
confident that the Group will continue to make very
satisfactory progress as we roll out our successful formula.
A J McCann
Chairman
The Preliminary Announcement was approved by
the Board of Directors on 30 November 1999
OPERATING AND FINANCIAL REVIEW
I am proud to report another record year with an excellent
increase in profits and improvement in operating margin
which, having been achieved during a period of very
difficult trading conditions, has shown ScS to have, once
again, "bucked" the trend in the sector. During the year
four new stores were opened making a significant addition
to the branch network. The Group continues to be highly
focused on its proven business strategy and its goal of
establishing ScS as a major national retailer of
upholstered furniture.
Profitability
Profit before tax increased 10% to #4.5 million (1998: #4.1
million before flotation costs).
Gross profit margin increased by 3.3 percentage points on
that achieved in the previous financial year, to 49.3%.
This was accomplished by our continued focus on a number of
key factors which determine the final result. During the
year the Group continued its policy of avoiding the
promotional use of long term interest free customer loan
finance which now accounts for less than 2% of Group
turnover. The improvement in gross profit margin percentage
combined with increased turnover has resulted in an overall
15% increase in the amount of gross profit generated in the
financial year compared with last year.
Operating profit margin for the year increased by 0.3
percentage points to 13.4% (1998: 13.1% before flotation
costs). Overhead spend and overall business efficiency
continue to be closely monitored. Advertising cost - a
major variable overhead in our sector - is vigorously
managed producing one of the lowest percentage rates on
sales in the industry. We continue to resist the temptation
to chase turnover at the expense of margins. As a result we
believe we have achieved the best operating margin in the
sector, by a significant amount.
This year's record profit before tax was achieved after
absorbing the cost of opening three new branches in the
final two months of the financial year. The Group's
conservative accounting policy is only to record sales when
goods have been delivered to our customers. Since the
normal lead time from our suppliers is around eight weeks
it means that this initial period for a new store is one
when overhead is incurred but no revenue is declared.
Furthermore, all pre-opening and launch costs are written
off as they are incurred and no interest is capitalised on
store developments. This prudent accounting policy had the
effect of reducing profit before tax by #260,000 as a
result of opening three new stores late in the financial
year.
The specific timing of new store openings is largely
outside of the Group's control. Although it is recognised
that such events taking place near the end of a financial
year can have an adverse impact on results, the Board
remains committed to its policies of conservative
accounting practice and expanding the store network as
opportunities arise without limiting the future prospects
for the business by short term considerations.
Final Dividend
In line with our progressive dividend policy the Board is
recommending a increased final dividend of 2.79 pence which
would make a total dividend of 4 pence for the year. This
would represent an increase of 14.3% over the 1998 dividend
of 3.5 pence. Subject to approval at the Annual General
Meeting the final dividend will be paid on 31 January 2000
to those shareholders whose names are on the register on 6
January 2000.
Special Dividend
The Board is very mindful of its duty to pursue every
opportunity in its power to maximise shareholder return and
value in the short, medium and long term. The Group is
highly cash generative and has maintained a strong cash
position since flotation. Having regard to future
developments of the Group the Board is confident it can
achieve an exciting and manageable rate of expansion which
can be funded out of future cash flow. The Board therefore
proposes a special dividend of 5 pence per share which will
be paid on 31 January 2000 to those shareholders whose
names are on the register on 6 January 2000.
Turnover
Turnover increased by 7% on the previous financial year to
#31.4 million (1998: #29.3 million). Like for like sales
for the financial year were down 13.9%. Throughout the year
we maintained our pricing policy therefore resisting the
temptation to increase turnover at the expense of margins.
Total sales volume achieved in the year (i.e. deliveries to
customers) benefited from the previous year's expansion of
the branch network.
Balance Sheet
The Group balance sheet remains very strong with no
borrowings and a substantial cash balance of #5.0 million
(1998: #5.9 million). The cash position was affected during
the year by three one-off events. In last year's Annual
Report it was stated that #964,000 relating to reclaimed
VAT, arising from the case of Primback Limited versus
Commissioners of Customs and Excise, was repaid in October
1998. Also in October 1998, the Group settled the
outstanding balance of the bank creditor in the amount of
#281,000. This financial year was the first under the new
self assessment Corporation Tax system whereby companies
assess their current liability to tax and make quarterly
payments representing a proportion of the calculated tax
liability in the year in which it arises. Thus, during the
year, the Group has not only settled last year's
Corporation Tax liability but also paid part of the current
year's liability in the amount of #359,000.
The Board's policy continues to be to maintain a strong
balance sheet in order to allow the Group to continue, and
accelerate where appropriate, its expansion programme.
Fixed Assets
Additions to fixed assets during the period totalled #2.1
million (1998: #1.8 million). New store leasehold
improvements and fixtures and fittings amounted to #1.43
million (1998: #1.6 million) and computer equipment
#634,000 (1998: #263,000).
Store Formats
The Group's expansion programme is based on 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. This format was
first introduced at our very successful store at Metro
Retail Park, Metro Centre, Gateshead, which has produced
excellent results over many years. Old format stores are
all in the North East and are located in secondary trading
positions. Whilst these stores do not have mezzanine floors
they carry the same merchandise which is displayed to the
same high standard. They can never be converted to new
format due to their varying shapes and locations. However,
they continue to make a valuable contribution to the
Group's overall results.
Product Range
ScS offers its customers a wide range of upholstered
furniture products. Each store typically displays a range
of models, of which approximately 70% are fabric and 30%
leather. Although the price per suite ranges from #800 to
#4,000, the average selling price tends to be in the region
of #1,400. All prices are determined centrally with no
regional variations.
Suppliers
ScS does not manufacture any of the products it sells. The
Group purchases from a selection of around 25 to 30
different manufacturers, of which approximately 90% are
based in the UK. Buying is organised on a Group-wide basis
to achieve a consistent and co-ordinated product range. The
Board firmly believes that effective buying is crucial to
the success of a retail business and has worked at
maximising its bargaining position by developing good
working relationships with suppliers. This policy has
enabled the Group to secure good purchase terms and to
negotiate regional exclusivity (within 25 miles of stores)
on currently 80% of product lines. These relationships also
assist the Group to keep ahead of changes in fashion in
upholstery, which is important in order to avoid being left
with slow moving stock.
Branch Network
Selling space expanded by 27% during the year with the
opening of four new stores at: Nottingham (December 1998);
Dunstable (August 1999); Milton Keynes (August 1999) and
Reading (September 1999). At the end of the financial year
the Group operated twenty stores, eight stores located in
the North East, nine in the Midlands and three in the Home
Counties. Whilst sales order intake at these new stores has
been in line with expectation, branches opened in August
and September have made no material contribution to the
Group's turnover for the year.
Our plan for the current financial year is to continue the
expansion of the Group by opening up to eight further
stores, which is three more than previously announced. The
first two of these will be opened on Boxing Day 1999 at
Chester and Warrington. To illustrate the rapid expansion
of the Group, total selling space at 30 September 1999 was
242,000 square feet (1998: 190,000 square feet) and is
projected to be 346,000 square feet at the end of the
current financial year. This would mean that our selling
space at the end of the current financial year would be
21/2 times the size of the space we had at the time of
flotation in December 1997.
Distribution
Delivery to customers is made via our network of localised
distribution centres. Each centre supports several stores
in its locality and thereby enables the Group to benefit
from economies of scale. The in-house delivery service
enables the Group to maintain full control of each stage in
the progress of a customer's order. In particular, we
retain control of final delivery, which is a very important
event for each of our customers.
The Group operated four distribution centres during the
year; two in the Midlands and two in the North East. A
further distribution centre was opened in October 1999 at
Arlesey (near Letchworth).
Staff
The development and maintenance of motivated and effective
staff is fundamental to the Group's business strategy and
long term goal of establishing ScS as a major national
retailer of upholstered furniture. The Group continues to
offer all staff opportunities to advance their careers by
means of training and promotion from within the Group to
all senior positions. Two examples of this are the recent
promotion of David Knight, who has been with the Group for
10 years, to the new position of Managing Director, as well
as the promotion of three experienced managers to an
enlarged subsidiary board.
An important element of the Group's strategy is to employ
only well trained professional sales staff in our branches.
This requires a continuous commitment to sales training and
product knowledge development. In planning the future
growth of the business we have invested in three new
training centres which are located in our existing premises
at Newcastle upon Tyne, Longton and Coventry. These
developments confirm the Group's belief in the power of its
customer driven and profit oriented culture and its
importance to the long term success of the business. The
results achieved this year are particularly noteworthy
given the background of poor trading conditions in the
sector throughout the year. Such results are only
achievable by outstanding leadership and a total commitment
to professionalism in every part of the business - this is
the ScS way. I extend my congratulations to all of our
staff who have striven so hard and who have achieved so
much this year.
Mike Browne
Chief Executive
The Preliminary Announcement was approved by
the Board of Directors on 30 November 1999
GROUP PROFIT AND LOSS ACCOUNT (UNAUDITED)
for the year ended 30 September 1999
1999 1998
#'000 #'000
TURNOVER 31,445 29,255
Cost of sales (15,952)(15,797)
GROSS PROFIT 15,493 13,458
Distribution costs (1,581) (1,307)
Administration expenses (9,685) (9,071)
OPERATING PROFIT BEFORE EXCEPTIONAL ITEM 4,227 3,830
Exceptional item - (750)
OPERATING PROFIT 4,227 3,080
Interest receivable and similar income 301 315
4,528 3,395
Interest payable and similar charges (2) (32)
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 4,526 3,363
Tax on profit on ordinary activities (1,431) (1,280)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 3,095 2,083
Dividends (including non equity dividends) (2,864) (1,331)
RETAINED PROFIT FOR THE FINANCIAL YEAR 231 752
Earnings per ordinary share - basic 9.73p 6.55p
- diluted 9.73p 6.53p
Earnings per ordinary
share before exceptional item 9.73p 8.91p
There were no recognised gains or losses other than the
profit on ordinary activities after taxation for the year.
The exceptional item comprises the costs of flotation.
GROUP BALANCE SHEET (UNAUDITED)
at 30 September 1999
1999 1998
#'000 #'000
FIXED ASSETS
Tangible assets 6,367 5,001
CURRENT ASSETS
Stocks 2,665 2,196
Debtors 1,863 2,124
Cash at bank and in hand 4,956 5,923
9,484 10,243
CREDITORS: amounts
falling due within one year (10,359) (9,829)
NET CURRENT LIABILITIES (875) 414
TOTAL ASSETS LESS CURRENT LIABILITIES 5,492 5,415
CREDITORS: amounts falling due after
more than one year (244) (432)
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation (105) (71)
NET ASSETS 5,143 4,912
CAPITAL AND RESERVES
Called up share capital 318 318
Capital redemption reserve 195 195
Profit and loss account 4,630 4,399
EQUITY SHAREHOLDERS' FUNDS 5,143 4,912
GROUP STATEMENT OF CASH FLOWS (UNAUDITED)
for the year ended 30 September 1999
Notes 1999 1998
#'000 #'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 3,483 4,144
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 313 350
Interest paid (7) (33)
Dividends paid to preference shareholders - (4)
NET CASH INFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE 306 313
TAXATION
Corporation tax paid (including
advance corporation tax)
(1,812) (797)
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets (1,514) (1,737)
EQUITY DIVIDENDS PAID (1,149) (425)
NET CASH (OUTFLOW)/INFLOW BEFORE USE
OF LIQUID RESOURCES AND FINANCING (686) 1,498
MANAGEMENT OF LIQUID RESOURCES
Net withdrawals/(investments)
in short term deposits
986 (783)
FINANCING
Repurchase of ordinary shares -
Repurchase of preference shares (75)
Repayment of bank loan (281) (125)
NET CASH OUTFLOW FROM FINANCING (281) (200)
INCREASE IN CASH IN THE YEAR 19 515
NOTES TO THE ACCOUNTS
1. Annual Accounts
The financial information set out above is unaudited and
does not constitute the Group's statutory accounts for the
years ended 30 September 1998 and 30 September 1999.
Statutory accounts for the year will be delivered by the
end of December 1999. The financial information for the
preceding financial year is based upon the statutory
accounts for the year ended 30 September 1998. Those
accounts, upon which the auditors issued an unqualified
opinion, have been delivered to the Registrar of
Companies.
2. Dividends
The Directors are recommending a final ordinary dividend of
2.79p per ordinary share and a special dividend of 5.0p per
ordinary share. Subject to the approval of the Directors'
recommendation at the Annual General Meeting, both
dividends will be paid on 31 January 2000 to shareholders
on the register at 6 January 2000.
1999 1998
#'000 #'000
Pre flotation dividend on ordinary shares - 75
Stock dividend - 142
Equity dividends on ordinary
shares: interim (1.21p)
385 350
final (2.79p) 888 764
special (5.00p) 1,591 -
2,864 1,331
3. Annual General Meeting
The Annual General Meeting will be held on 24 January 2000.
END
FR AKAWKKSKAUAA
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