CALGARY, Feb. 16 /CNW/ - SMED International Inc. (NASDAQ: SMEDF, TSE: SM)
today announced their unaudited financial statements for the three months
ending December 31, 1998. Following is the summary of those financial
statements.
<<
Highlights Three Months Ended Six Months Ended
($ 000's, except per share Dec. 31 Dec. 31
amounts) 1998 1997 1998 1997
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Sales $42,378 $45,342 $87,080 $86,622
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Earnings before interest,
taxes, depreciation and
amortization (''EBITDA'') 12 4,679 757 8,151
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Pre-tax earnings (loss) (4,360) 3,065 (7,542) 5,053
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Net earnings (loss) for the
period (2,686) 1,834 (4,672) 2,938
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Earnings (loss) per share $(0.31) $0.27 $(0.55) $0.43
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>>
Sales for the second quarter were $42.4 million, a decrease of 6.5% over
the sales from the prior year's second quarter. Despite strong growth in the
Company's sales of architectural products, revenues decreased due to the
significant decline in sales of office furniture.
<<
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Product Segment Q2 1998 Q2 1997 % Growth
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Office Furniture 25,933 32,862 (21.1%)
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Architectural Products 16,445 12,480 31.8%
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Total 42,378 45,342 (6.5%)
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>>
Note: ''Architectural Products'' includes sales of SMED's lifeSPACE(TM)
movable wall, Cablefloor(R) by SMED and Chinook(TM) ceiling product solutions.
Office Furniture includes systems furniture, seating and ancillary products.
This sales outcome resulted from a continued focus on the operational
challenges associated with the move into the new head office facility and
factory; the sales force adapting to SMED's Constructive Solutions(TM) selling
approach; and general economic uncertainty in the latter part of calendar
1998. The Company is addressing the softening of furniture sales by increasing
its marketing activities, both in the field and in Calgary and emphasizing the
benefits of the Constructive Solutions(TM) approach to its sales force.
Management is increasingly confident that the current marketing approach will
position the Company to develop relationships with clients early in the sales
cycle resulting in increased sales of all product lines. Seating sales have
shown considerable growth in the current quarter, increasing 40% over the
prior year. The growth is the result of continuing market acceptance of the
new H2O(TM) and Spa Collection(TM) seating lines, which were introduced in the
third quarter of fiscal 1998.
Gross margins in the second quarter were 33.9% compared to 34.3% in the
prior year period. The margin in this period has continued to be negatively
impacted by lower sales volumes, which have an unfavourable effect on the
fixed components of production overheads. The workforce reduction at the end
of the first quarter had a negative impact on the margin in October but
resulted in strong margin improvements in November as the workforce adapted to
new roles in the leaner manufacturing environment. These improvements in
labour efficiency and reduced production overheads resulting from actions
taken by management led to 2.9% margin growth when compared to the first
quarter of the current fiscal year.
Marketing, selling, general and administrative expenses at 33.9% of sales
were 10% higher than the prior year as a percentage of sales. Approximately
2% of the variance is the result of a foreign exchange loss compared to a gain
in the prior year with the balance the result of increased marketing efforts.
The costs associated with these marketing efforts had an unfavourable impact
in this period, but will contribute to third and fourth quarter sales upon the
completion of the regular sales cycle.
''The past six months have definitely been challenging for us'', said
Mogens Smed, Chief Executive Officer, ''but we are starting to see vivid
evidence that the investments we have made in building a platform for
profitable long-term growth and uniquely positioning our products and services
to serve a broader market than just office furniture will build profits and
shareholder value. By focusing on all of the elements in an interior working
environment that impact business results - from initial construction or
renovation and cabling costs to downstream operational savings - we are
providing real value to the marketplace that currently has no peer in our
industry. This approach, together with the strength of our people, should
ensure sustained growth in sales and profitability of all of our products,
including office furniture.''
The Company introduced its new Paradocs(TM) metal filing product line to
broaden the Company's product range into new areas of the office furniture
industry. Marketing of the new product line has commenced and has been
favourably received in the marketplace with firm orders already booked for the
product.
The Company implemented the first phase of our new Enterprise Resource
Planning system (''ERP'') on schedule. The first phase of the project
targeted our lifeSPACE(TM) moveable wall systems encompassing all aspects of
order management, product configuration, and production control. The
remainder of the ERP project is being phased into the live environment over
the next two years with an expected completion by the spring of 2001.
Management is confident that the key benefits of the first phase will be
achieved over the next three to four months.
Management is continuing to address process issues in order to promote
efficiencies and improve customer service. Management believes there is a
significant opportunity to increase productivity through this effort.
Sales in the final two quarters of the year will improve significantly,
particularly in the office furniture segment. The average daily order entry
for office furniture since the New Year has improved approximately 41% over
the average for the first six months of the year. SMED's lifeSPACE(TM) and
Cablefloor(R) by SMED products are expected to remain at sales levels
consistent with that experienced during the second quarter of the fiscal year.
Improvements in gross margins will be achieved in the third quarter, as
the Company continues to improve productivity and see the benefit of certain
cost saving initiatives. The growth in sales volumes will promote efficient
use of our capacity, which will generate margin expansion.
''Although our bottom line results in the quarter were discouraging for
us in many respects, we did see several extremely positive trends that bode
well for our future'', said Andrew Moor, President. ''Our architectural
products, namely our lifeSPACE(TM) movable walls and Cablefloor(R) low profile
raised flooring system, continued their strong growth. Perhaps more
importantly, our manufacturing operations provided concrete proof of the level
of labour efficiencies achievable in our new plant. We are looking forward to
showing our clients and the financial community what we can achieve in the
last half of our fiscal year.''
This second interim report contains statements concerning results
expected from the Company's Constructive Solutions(TM) marketing approach,
expected sales and margin growth during the third and fourth quarters of this
fiscal year and beyond, anticipated savings resulting from the Company's cost
savings measures, expected productivity improvements, the expected realization
of key benefits from the first phase of the ERP implementation, the expected
date for completion of the ERP implementation project and expectations for
further opportunities to increase operating efficiencies in the future, all of
which may be ''forward-looking statements'' within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to
be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. The Company
undertakes no obligation to update forward-looking statements should
circumstances or management's estimates or expectations change.
Additional information on these and other factors are contained in the
Company's 1998 Annual Report, the 1998 Annual Information Form, the Company's
prospectus dated April 29, 1998 and the 1st Interim Report for the three
months ending September 30, 1998, all on file with the US Securities and
Exchange Commission and the Securities Commissions in each of the Provinces of
Canada.
<<
SMED International Inc.
Consolidated Balance Sheets
As at December 31, 1998 and December 31, 1997
(Presented in Cdn $ thousands)
(unaudited)
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1998 1997
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Assets
Current assets:
Cash and short term investments 3,442 24,360
Accounts receivable 45,406 42,724
Inventory 13,580 10,813
Prepaid expenses and deposits 3,455 2,216
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65,883 80,113
Capital assets 134,509 77,928
Goodwill and other assets 10,908 6,846
Future income taxes 283 -
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211,583 164,887
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Liabilities and Shareholders' Equity
Current Liabilities:
Bank advances 14,479 -
Customer deposits 3,418 5,543
Accounts payable 14,731 18,883
Accrued liabilities 12,750 15,568
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45,378 39,994
Long-term debt 65,046 60,737
Future income taxes - 2,895
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110,424 103,626
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Shareholders' Equity:
Capital stock 90,543 51,204
Retained earnings 10,616 10,057
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101,159 61,261
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211,583 164,887
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SMED International Inc.
Consolidated Statements of Earnings (Loss)
Six months ended December 31, 1998 and December 31, 1997
(Presented in Cdn $ thousands, except for net earnings per share)
(unaudited)
Three months Six months
ended December 31, ended December 31,
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1998 1997 1998 1997
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Sales 42,378 45,342 87,080 86,622
Cost of sales 28,012 29,802 59,027 56,748
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Gross margin 14,366 15,540 28,053 29,874
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Expenses:
Marketing, selling, general
and administrative 14,355 10,861 26,413 21,723
Depreciation and amortization 2,940 1,571 5,524 3,032
Interest on long-term debt 1,253 - 2,506 -
Interest on short-term debt 179 43 269 66
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18,727 12,475 34,712 24,821
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Earnings (loss) before
undernoted items (4,361) 3,065 (6,659) 5,053
Termination costs - - 875 -
Share of earnings (loss) of
an affiliated company 1 - (8) -
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Earnings (loss) before income
taxes (4,360) 3,065 (7,542) 5,053
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Provision (recovery) for income
taxes
Current 327 (390) 870 (8)
Future (2,001) 1,621 (3,740) 2,123
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(1,674) 1,231 (2,870) 2,115
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Net earnings (loss) for the
period (2,686) 1,834 (4,672) 2,938
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Net earnings (loss) per share $ (0.31) $ 0.27 $ (0.55) $ 0.43
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Fully diluted net earnings
(loss) per share $ (0.31) $ 0.26 $ (0.55) $ 0.41
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SMED International Inc.
Consolidated Statements of Retained Earnings
Six months ended December 31, 1998 and December 31, 1997
(Presented in Cdn $ thousands) (unaudited)
Three months Six months
ended December 31, ended December 31,
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1998 1997 1998 1997
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Retained earnings, beginning
of period 13,302 8,223 15,288 7,119
Net earnings (loss) for the
period (2,686) 1,834 (4,672) 2,938
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Retained earnings, end of
period 10,616 10,057 10,616 10,057
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Note:
1. The statement included here has been prepared in accordance with
Canadian generally accepted accounting principles (''Canadian GAAP'').
As they relate to the Consolidated Statement of Earnings for the period,
these principles conform in all material respects to accounting
principles generally accepted in the United States (''U.S. GAAP'') except
with respect to the treatment of forward foreign exchange contracts which
are not accounted for as a hedge under SFAS No 52. Net loss according to
U.S. GAAP for the three months ended, December 31, 1998 was $1,393,000,
and loss per share was $0.16 and for the six month period ended December
31, 1998 net loss was $9,728,000 and loss per share was $1.15.
2. Comparative figures have been reclassified to conform with current
period's presentation.
SMED International Inc.
Consolidated Statement of Cash Flows
Six months end December 31, 1998 and December 31, 1997
(Presented in Cdn $000s)
(unaudited)
Three months Six months
ended December 31, ended December 31,
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1998 1997 1998 1997
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Cash flows from operating
activities:
Net earnings (loss) for the
period (2,686) 1,834 (4,672) 2,938
Adjustments to reconcile net
earnings to net cash from
operating activities
Depreciation and amortization 2,940 1,571 5,524 3,032
Future income taxes (2,001) 1,621 (3,740) 2,123
Foreign exchange loss 25 232 (21) 203
Share of earnings (loss) of an
affiliated company 1 - (8) -
Gain (loss) on disposal of capital
assets 11 (4) 47 (7)
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(1,734) 5,262 (2,948) 8,303
Changes in non cash current assets
and liabilities:
Accounts receivable 723 (4,417) (1,184) (9,223)
Inventories (429) (1,050) (636) (1,855)
Prepaid expenses and deposits (150) 250 (584) (40)
Customer deposits 906 (41) 1,432 3,214
Accounts payable and accrued
liabilities (2,622) 732 (7,045) 6,718
Income taxes payable - 39 (492) (308)
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Net cash from operating activities (3,306) 775 (11,457) 6,809
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Cash flows from financing
activities:
Increase in bank advances 10,919 - 14,479 -
Proceeds from long-term debt - - - 30,906
Issuance of common shares - 48 - 48
Repayment of long-term debt - - - (48)
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Net cash from financing activities 10,919 48 14,479 30,906
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Cash flows from investing
activities:
Proceeds from sale of capital
assets - - 2,613 -
Capital asset purchases (6,924) (21,309) (18,094) (38,827)
Investment in affiliated
company (376) (1,060) (376) (1,060)
Other (204) 1 (381) (106)
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Net cash used in investing
activities (7,504) (22,368) (16,238) (39,993)
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Effect of exchange rate changes on
cash and short term investments 4 34 45 36
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Net increase (decrease) in cash
and short term investments 113 (21,511) (13,171) (2,242)
Cash and short term investments,
beginning of period 3,329 45,871 16,613 26,602
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Cash and short term investments,
end of period 3,442 24,360 3,442 24,360
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