Chairman's report

 

The Directors of Smiths City Group Limited, the listed Christchurch based retailer, have announced an operating surplus from trading of $4.10 million down from $5.04 million last year - a decrease of 18.6%.

After tax profit of $4.142 million for the year to 30 April 2007 compared with $5.436 million for the year to 30 April 2006. The 2006 year included a tax credit of $0.383 million.

Operating revenues for the year increased from $243.0 million to $274.3 million - 12.9%. On a same stores basis revenues increased by 3.1%.

The trading result does not include a $3.538million gain on the Colombo Street, Christchurch property which was revalued at 30 April 2007 in line with the Group's accounting policy. This gain was taken to unrealised revaluation reserves. Inclusive of this gain total equity of the Group increased from $40.992 million at 30 April 2006 to $45.779 million at 30 April 2007 - an increase of 11.8%.

The Directors have declared an unimputed final dividend of 4.0cents per share (last year 4.0cents) to be paid on 13 August 2007. This brings the dividend for the year to an unimputed 5.5cents per share (last year 5.5 cents). For the purposes of the dividend the share register will close at 5.00pm on Friday 3 August 2007 and reopen at 9.00am Monday 6 August 2007.

The summary of consolidated results is as follows:

CONSOLIDATED ACTUAL 12 MTHS TO 30.4.07
$000S CONSOLIDATED ACTUAL 12 MTHS TO 30.4.06
$000S
TOTAL OPERATING REVENUE 274,333 243,039 +12.9%

Operating Surplus From Trading 4,106 5,045 -18.6%
Share of Earnings From Associate 94 164

PROFIT BEFORE TAXATION 4,200 5,209 -19.4%

Add/Less Taxation Refund/(Provision) 0 383
SURPLUS AFTER TAXATION 4,200 5,592 -24.9%
Less Minority Interest (58) (156)
NET SURPLUS 4,142 5,436 -23.8%

Commenting on the result, Chairman Craig Boyce said "While the profit is down on last year, the revaluation of the Colombo Street property does add considerable value to the Group net asset backing which now stands at 86 cents per share.

The trading result reflects increased costs in all businesses, the impact of strong competition on margins and a reduced contribution from the property division. Last year we had a $1.27 million profit on sale of two development properties. This was only partially offset in the current year with a $0.36 million gain in valuation of the investment properties held in Christchurch. In May, the company completed the sale of a property development in Southland yielding a profit of approximately $0.5million. This will be recognised in the 2008 financial year.

In terms of the company's growth strategy the Directors are pleased with progress so far. Certainly the sales result confirms the strength of the retail brands in the market.

In regard to the North Island expansion all Meikles branches are now operating on the Smiths City systems and trading under the Smiths City brand. When combined with the new Smiths City stores in Palmerston North and Gisborne the Board is confident that there is a firm base in place from which the North Island business can add value to the always strong South Island business.

For the future the Group must concentrate on its core operations of "big ticket retail" - appliances, furniture and sporting goods - plus finance and property. The focus is on improving our customer offering and reducing costs per transaction through better use of technology.

To this end the Group has committed to a new point of sale system which is currently being rolled out to all stores. This process will be completed by September and give management the tools it needs to improve stock turns, manage costs and improve store performance."

Managing Director Rick Hellings said "the last financial year has certainly had its challenges. During the year we saw trading conditions get ever more competitive particularly in the appliance and building supplies businesses. In addition we have faced increasing costs in the areas of labour, occupancy, fuel, power and interest. The bedding down of the Meikles acquisition took longer than expected. This was principally due to continuing longer than planned with the original systems while the systems team in Christchurch focussed on the point of sale project. This is now complete and from 1 May the Meikles stores are fully managed from Christchurch.

From a store development perspective the year, whilst demanding, was very satisfying. In the South Island we moved the Greymouth store to larger premises, closed the Mosgiel store in Dunedin and opened in much larger premises in Andersons Bay Road, closed the Welles Street store in Christchurch and opened a larger Outlet store in Moorhouse Avenue. The Queenstown store was relocated to larger premises in the Remarkables retail area in Frankton. We also completed the purchase of the trading assets of Selectrix in Dunedin allowing us to move the Powerstore Dunedin operation to superior premises in Princes Street.

In the North Island we opened Smiths City stores in Palmerston North and Gisborne and LV Martin purchased the trading assets of Star Appliances in Rotorua giving them their first store outside of the Greater Wellington region.

Going forward management's focus is to improve profitability by maximising the benefits that will roll from the point of sale system and having the benefit of a full year of both new and improved stores. In addition management will continue to focus on maximising margins in those specialist products where we have a point of difference which we can use to offset the effects of intense retail competition."

ENDS

RICK HELLINGS
MANAGING DIRECTOR
039833011
0299833011