Smiths City looks at expanding profitable finance unit

Smiths City Group sees a "significant opportunity" in building out its high margin finance business and is weighing up options to expand its offering, says chief executive Roy Campbell.

The Christchurch-based retailer hired John Mander in June to head the finance division, which the company views as a key advantage over rivals which don't operate their own consumer loan books. Campbell told shareholders at today's annual meeting in Christchurch the finance unit has helped the retailer maintain "closer personal relationships with customers" and accompanying earnings. The finance arm's net receivables were valued at $63.1 million as at April 30 compared to $66.6 million a year earlier.

"We have a significant opportunity to build on this and we are now in the fortunate position of considering what the finance business could become," Campbell said in speech notes published on the NZX. Mander as the general manager of finance "is in the process of redefining the look, feel and offer of our finance products and evaluating what other opportunities there may be to widen our finance portfolio."

Smiths City's finance division delivered the lion's share of the company's earnings in the year ended April 30, with profit rising to $3.7 million from $3 million a year earlier, even as revenue shrank 11 percent to $9.2 million. In contrast, the retail division's earnings fell to $700,000 from $900,000 a year earlier, while revenue rose 3.1 percent to $218.2 million.

The retailer is into the third year of a five-year transformation programme to drop low margin business, improve inventory management, expand its presence in Auckland, creating a national chain with a broader customer base.

Campbell said change to differentiate Smiths City from its rivals is coming together "slowly but surely" in a retail environment that "is not going to get any easier or simpler".

Chairman Craig Boyce told shareholders same-store sales fell 5 percent in the three months ended July 31, continuing a softening trend through the second half of the 2017 financial year.

"We have seen some early signs of improvement in August, but our base case is for these challenging conditions to persist at least until the results of the September general election are known," Boyce said. "Such trading volatility is the nature of markets and the nature of retailing. It is a cycle that Smiths has successfully negotiated over many years."

The company will hold a special shareholders meeting later this year to get approval for a planned $5.7 million, or 11 cents per share, share buy-back, which Boyce said will "put in place a capital structure that ensures shareholders benefit over the long-term from the changes we are making to the business."

The shares were unchanged at 70 cents today, and have increased 1.5 percent so far this year, lagging behind the 12 percent gain on the S&P/NZX All Index.

(BusinessDesk)