Smiths City Group Limited (SCY) has provided NZX with a copy of their half year report as at 31 October 2011.

Transcription

1 SMITHS CITY GROUP LIMITED REPORT 31 OCTOBER 2011 Smiths City Group Limited (SCY) has provided NZX with a copy of their half year report as at 31 October Rick Hellings MANAGING DIRECTOR

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3 TABLE OF CONTENTS Contents...1 Company Profile Directors Report Financial Information Income Statement...6 Statement of Comprehensive Income...6 Statement of Movements in Equity...7 Balance Sheet...8 Statement of Cash Flows...9 Notes to the Financial Statements General Information...10 Basis of Preparation...10 Accounting Standards Segment Information Revenue...12 Expenses by Nature...12 Other Income...12 Property, Plant And Equipment Capital Commitments...13 Contingent Liabilities...13 Event After Balance Date...13 Company Directory...14 Store Locations...15 ï

4 COMPANY PROFILE CORPORATE STRUCTURE Smiths City Group Limited, based in Christchurch, is listed on the New Zealand Stock Exchange and has approximately 2,200 shareholders, 98% of whom are resident in New Zealand. It is the parent of a number of subsidiary companies covering the range of business activities that the Company engages in. The Group was founded in Christchurch in 1918 and continues to occupy the same site in Colombo Street. The Group is active in three complementary industry segments retail, property and consumer finance. It employs approximately 650 full-time and 70 part-time staff. RETAIL Brands The Group recognises the importance of customer loyalty and market share, and focuses on achieving these through providing quality brands and outstanding customer service in-store and in the customer s home. The Group strongly supports some of New Zealand s best known brands including Fisher & Paykel, Sleepyhead, and Cavalier Bremworth, along with international brands such as L G Electronics, Samsung, Panasonic, Sony, Hewlett Packard, Mitsubishi, Acer and Electrolux. The Group s own retail brands of Smiths City, Powerstore and L V Martin are widely recognised in the New Zealand market. The Customer Experience The customer experience is paramount in retail and the Group will continue to offer a full service retail experience by providing quality goods, outstanding in-store service from knowledgeable sales staff, home deliveries and installation, and flexible finance options provided by the Group s own finance company. Lifestyle Stores Smiths City The Smiths City chain retails kitchen appliances, consumer electronics, indoor and outdoor furniture, heating and flooring products for the home, and also includes sports departments in many of its stores. Smiths City is the largest and oldest brand in the Group. The chain comprises 17 stores in the South Island and 10 in the North Island, all trading under the Smiths City name. There are also four Clearance Centres retailing a full range of affordable new product together with used and second hand items. As a result of earthquake damage the Group s high-end furniture retail store in Christchurch trading under the brand Furniture Concepts currently shares premises with Smiths City in the Bush Inn Centre, Christchurch. An experienced and focused purchasing and marketing team has resulted in Smiths City having significant market share in a number of product categories identified as strategically important. In addition to sourcing furniture from New Zealand manufacturers and distributors, the company operates a substantial import program handling in excess of 600 containers per annum through its national Distribution Centre located in Christchurch. Specialist Appliance Chain Powerstore and L V Martin The Group has operated a chain of appliance only stores since 1997 trading under the brand Powerstore. L V Martin, a Wellington based appliance chain, was acquired from the Martin family in The appliance chain sells a full range of kitchen appliances, home entertainment and computer products specialising in well known brands including Fisher & Paykel, Sony, Samsung, L G, Panasonic, Hewlett Packard and Acer. The chain adds scale to the Group s appliance buying and provides a point of difference to the larger format department stores, who sell similar products in the midst of other product ranges. The appliance stores combine excellent store layout and staff with an outstanding level of product knowledge leading to a superior instore shopping experience. The L V Martin brand is an institution in the Wellington region having been a household name over the past 75 years. î

5 COMPANY PROFILE Throughout its history L V Martin has built an enviable reputation for its unwavering attention to after-sales service, and they have built a strong customer base recognising the value of expert advice, trust and service. Internet The use of the internet is widely recognised as a developing medium for retail and the Group regards the web as an important tool for sales growth in the future. L V Martin and Powerstore operate websites with full sales functionality. The Smiths City website is anticipated to be completed in the first quarter of Appliance Servicing - Alectra Alectra operates from six locations across New Zealand and provides a valuable component of the full service retail model. Originally a service arm of the retail stores providing repairs and installation support for kitchen appliances, Alectra has expanded into a separate business unit and added electrical wiring, gas fitting and maintenance and installation of home heating products to its portfolio of services. Alectra has built a reputation for providing professional and quality work and services a large customer base including many outside the Group s own retail network. FINANCE The finance business of the Group is divided into three parts point-of-sale finance through secured fixed instalment or revolving credit customer accounts; the provision of unsecured personal loans to customers with a proven credit history; and a small trade finance ledger to businesses where the Group sees an opportunity to add value. As at 31 October 2011 the consumer finance ledger value was approximately $86.0million and borrowing against the portfolio was approximately $73.1million. There were approximately 70,000 active accounts at that time. The Group s management and day-to-day control of the consumer finance ledger gives the retail brands a point of difference in the market and contributes to the value added by the full service retail model. PROPERTY Prime locations and superior store presentation are critical to the success of any retail organisation. The Group places strategic importance on retaining ownership of its key Colombo Street site. Based in central Christchurch, prior to the earthquake this location housed the Group s largest retail store. The buildings were substantially damaged in the earthquake and were, for a number of weeks, inside the central city cordon. The older section of the building required demolition and redevelopment. Redevelopment of this site will be in two stages, stage one was completed in November and the company resumed trading on the site. The Group s property company is also used to undertake developments for the retail business when appropriate opportunities arise. ASSOCIATE COMPANY The Group owns the Bauer brand of bicycles. As a key part of its distribution strategy for this brand the Group also owns 30% of Adventure Brands. It is an importer and wholesaler of bicycles and fitness equipment. APPLIANCE PURCHASING The Group is a founding member of the appliance buying group NARTA. Membership of this buying group has yielded significant benefits within the highly competitive appliance market. í

6 DIRECTORS REPORT SUMMARY OF FINANCIAL PERFORMANCE The Directors of Smiths City Group Limited, the Christchurch based retailer, have announced an operating surplus after taxation for the six months to October 2011 of $1.643million compared with $0.790million last year an increase of 108%. Operating revenues for the six months increased from $109.5million to $109.9million. The summary of consolidated results is as follows: 6 MTHS MTHS % INC /DEC Operating Revenue 109, , % Operating Surplus From 1, % Trading Share Of Loss From (96) (11) Associate Operating Surplus Before 1, % Taxation Taxation - - Operating Surplus After Taxation 1, % Smiths City has available carry forward tax losses of $19.0million, hence no income tax is payable in this period. DIVIDEND The Directors have declared an unimputed half year dividend of 1.0cent per share (last year 1.0cent) to be paid on Friday 10 February For the purposes of the dividend the Share Register will close at 5.00pm on Friday 3 February 2012 and reopen at 9.00am on Tuesday 7 February TRADING Christchurch is the company s base and the ongoing issues associated with the continuing seismic activity in the region have consumed much of the Board s and management s focus during the 2011 calendar year. These issues covered areas such as staff welfare, building repairs, business interruption and material damage insurances, the Colombo Street rebuild and the maximising of sales opportunities that arose as a result of many of our competitors being closed. The Board is very pleased with what has been achieved under these circumstances. In particular: - There have been no serious staff injuries as a result of any earthquake/after shock. - Profitability in the period was twice that of the same period last year. This increase was, to a great extent, a result of the company s Risk Management program, which enabled it to recover and commence trading in Christchurch quicker than its competitors. - Careful management of the logistics, advertising and administration functions have meant that all stores both inside and outside of Christchurch have operated smoothly. As a result, on a same stores basis the Group s retail sales were 20% ahead of the same period last year. This comparison adjusts for our closed Smiths City Colombo Street and Powerstore Moorhouse Avenue stores in Christchurch. It also adjusts for the new Smiths City store in Lower Hutt which was opened in December Stage One of the Colombo Street rebuild (see Colombo Street Property below) has been successfully completed. - Of all the Christchurch trading operations, although Furniture Concepts is trading from temporary premises in the Smiths City Bush Inn store, only the Powerstore Moorhouse Avenue store remains closed. This store is covered by business interruption insurance for 18 months. The company is working closely with the landlord who has just been issued with the building consent for the work required to repair the building. Powerstore and Furniture Concepts will trade from this site as soon as repairs have been completed. Given the extent of work required this is not anticipated to be before July As noted previously the company is adequately insured for business interruption and material damage and all insurance issues have been attended to efficiently and promptly. ì

7 DIRECTORS REPORT FINANCE COMPANY Smithcorp Finance Limited is a key part of the Group s promotional activity and customer loyalty program. It is funded through a bulk funding facility with Fisher & Paykel Finance Limited and, consequently, does not raise money from the general public. Whilst the finance company profit in the six months has been adversely affected by higher finance costs it continues to trade well and contributed positively to the half year result. COLOMBO STREET PROPERTY The Colombo Street property is a major asset to the Group and is valued in the balance sheet at $20.5million. The older section of the building suffered severe damage in the Christchurch earthquake and, consequently, required demolition and redevelopment. Plans were prepared for the redevelopment to be completed in two stages. The first was designed to get the company trading from the least damaged portion of the site as soon as possible and the second will see the whole site redeveloped into a modern, vibrant retail operation. The costs of the rebuilding of Colombo Street are fully covered under the Group s insurance policy. Stage One has been completed and in November the company resumed trading on site. The company is very pleased with trading to date. The plans for Stage Two will be completed in the first quarter of The property is valued in the October financial statements at the pre-earthquake independent valuation. Having given careful consideration to various factors in regard to the carrying value of the asset and, in particular, to our intention to rebuild the store on site, the Directors have concluded that this valuation remains the most appropriate indicator of fair value. This is analysed in more detail in note 8 to the financial statements on page 12. SHAREHOLDER MATTERS As announced by the Chairman at the August 2011 Annual Meeting, the Directors of Smiths City Group Limited have written to all shareholders holding below the minimum shareholding of 1,000, as required by Rule of the NZX Listing Rules, requesting they either increase their parcel to over 1,000 or sell their smaller parcel. Whilst this is an NZX requirement and not a company requirement the company will work with all shareholders affected to ensure the process is made as easy as possible. OUR PEOPLE; OUR SUPPLIERS; OUR CUSTOMERS We wish to record our appreciation of the Smiths City staff, suppliers, insurance representatives and, not least, our customers for their support of each other and the company during these difficult times. OUTLOOK Looking ahead, the ongoing issues in Christchurch will continue to be managed carefully. Whilst the wider market is expected to remain subdued the company s increased presence in the Wellington region and the rebuild of Christchurch offer positive sales and profit opportunities in both the long and short term. Dated 18 January 2012 C D BOYCE CHAIRMAN J A DOBSON DEPUTY CHAIRMAN ë

8 FINANCIAL INFORMATION SMITHS CITY GROUP LIMITED CONSOLIDATED INCOME STATEMENT FOR THE ENDED 31 OCTOBER 2011 CURRENT PRIOR AUDITED FULL YEAR Revenue 109, , ,700 Trading Profit 2,371 1,659 3,607 Other Income Group Interest Paid (Excluding Smithcorp) (670) (885) (1,757) Results From Operating Activities 1, ,880 Share of Profit/(Loss) of Equity Accounted Entities (96) (11) 12 Profit Before Tax 1, ,892 Taxation Profit for the Period 1, ,892 Earnings Per Share For Profit Attributable To Equity Holders Basic And Diluted Earnings Per Share (Cents) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE ENDED 31 OCTOBER 2011 CURRENT PRIOR AUDITED FULL YEAR Profit For Period 1, ,892 Other Comprehensive Income Cash Flow Hedges Fair Value Gains (Losses) Taken To Cash Flow Hedge Reserve 257 (15) (186) Total Comprehensive Income (Loss) For The Period 1, ,706 ê

9 SMITHS CITY GROUP LIMITED CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY FOR THE ENDED 31 OCTOBER 2011 BALANCE 1 MAY ,652 9,178 (469) 94 26,245 45,700 Profit For The Period Cash Flow Hedges - Fair Value Gain (Loss) Taken to Cash Hedge Reserve - - (15) - - (15) Total Comprehensive Income For Period - - (15) Subtotal 10,652 9,178 (484) 94 27,035 46,475 Dividends Paid (531) (531) BALANCE 31 OCTOBER ,652 9,178 (484) 94 26,504 45,944 Profit For The Period ,102 1,102 Cash Flow Hedges - Fair Value Gain (Loss) Taken to Cash Hedge Reserve - - (171) - - (171) Total Comprehensive Income For Period - - (171) - 1, Subtotal 10,652 9,178 (655) 94 27,606 46,875 Dividends Paid (528) (528) BALANCE 30 APRIL ,652 9,178 (655) 94 27,078 46,347 Profit For The Period ,643 1,643 Cash Flow Hedges - Fair Value Gain (Loss) Taken to Cash Hedge Reserve Total Comprehensive Income For Period ,643 1,900 Subtotal 10,652 9,178 (398) 94 28,721 48,247 Dividends Paid (530) (530) BALANCE 31 OCTOBER ,652 9,178 (398) 94 28,191 47,717 é

10 SMITHS CITY GROUP LIMITED CONSOLIDATED BALANCE SHEET FOR THE ENDED 31 OCTOBER 2011 CURRENT PRIOR AUDITED FULL YEAR CURRENT ASSETS Cash and Cash Equivalents 2,148 1,795 2,149 Trade and Other Receivables 10,210 10,474 9,678 Property Intended For Sale Inventories 39,241 39,997 36,151 TOTAL CURRENT ASSETS (excluding Smithcorp) 51,599 52,940 47,978 SMITHCORP ASSETS Smithcorp Cash and Cash Equivalents 1,542 1, Smithcorp Receivables Current Portion 51,783 53,853 54,148 Smithcorp Receivables Term Portion 34,279 33,390 33,767 TOTAL SMITHCORP ASSETS 87,604 88,577 88,715 OTHER ASSETS Property Plant and Equipment 23,267 24,211 23,642 Intangible Assets 2,842 3,206 3,032 Investment Properties 870 1, Investments in Equity Accounted Entities Deferred Taxation 3,793 3,793 3,793 TOTAL OTHER ASSETS 31,372 33,103 32,033 TOTAL ASSETS 170, , ,726 CURRENT LIABILITIES Bank Overdraft Short Term Loan on Property Intended for Sale Secured Borrowings 10,801 13,734 8,022 Trade Payables 23,139 24,868 25,639 Other Payables and Provisions Including Derivatives TOTAL CURRENT LIABILITIES 35,156 39,626 34,119 SMITHCORP BORROWINGS 74,993 75,280 75,210 NON CURRENT LIABILITIES Secured Borrowings 12,709 13,770 13,050 TOTAL LIABILITIES 122, , ,379 NET ASSETS 47,717 45,944 46,347 SHAREHOLDERS FUNDS Share Capital Reserves 10,652 10,652 10,652 Revaluation Reserve 9,178 9,178 9,178 Other Reserves (304) (390) (561) Retained Earnings 28,191 26,504 27,078 TOTAL EQUITY 47,717 45,944 46,347 Net Tangible Assets Per Share (Cents) è

11 SMITHS CITY GROUP LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE ENDED 31 OCTOBER 2011 CURRENT PRIOR AUDITED FULL YEAR CASH FLOWS FROM OPERATING ACTIVITIES CASH WAS PROVIDED FROM: Receipts From Customers 100,687 97, ,264 Receipt From Sale Of Properties Interest Received Smithcorp 3,280 3,637 6,137 Interest Received Other Total Cash Flows From Operating Activities 104, , ,188 CASH WAS APPLIED TO: Payments To Suppliers And Employees (103,406) (94,159) (196,182) Purchase Properties Subsequently Sold - (55) - Interest Paid Smithcorp (2,986) (2,840) (5,716) Interest Paid Other (670) (885) (1,757) Total Cash Flows Applied To Operating Activities (107,062) (97,939) (203,655) NET CASH INFLOW FROM OPERATING ACTIVITIES (3,057) 2,811 11,533 CASH FLOWS FROM INVESTING ACTIVITIES CASH WAS PROVIDED FROM: Repayments of Advances by Customers 1,853 2,238 1,566 Sale of Property, Plant and Equipment Total Cash Flows From Investing Activities 1,853 2,238 1,566 CASH WAS APPLIED TO: Advances to Customers Purchase of Property, Plant & Intangibles (569) (404) (1,039) Total Cash Flows Applied to Investing Activities (569) (404) (1,039) NET CASH INFLOW (OUTFLOW) FROM INVESTING ACTIVITIES 1,284 1, CASH FLOWS FROM FINANCING ACTIVITIES CASH WAS PROVIDED FROM: Receipts of Advances to Fund Finance Receivables Receipt of Loan 2,438 1,470 - Total Cash Flows From Financing Activities 2,438 1,470 - CASH WAS APPLIED TO: Repayments of Advances to Fund Finance Receivables (217) (4,080) (4,150) Temporary Reduction of Borrowings to Fund Working Capital - - (5,527) Pay Dividend (530) (531) (1,059) Total Cash Flows Applied to Financing Activities (747) (4,611) (10,736) NET CASH FLOWS USED IN FINANCING ACTIVITIES 1,691 (3,141) (10,736) Net Increase (Decrease) in Cash Held (82) 1,504 1,324 Cash at Beginning of Period 2,949 1,625 1,625 Cash at End of Period 2,867 3,129 2,949 RECONCILIATION OF NET PROFIT WITH CASH FLOW FROM OPERATING ACTIVITIES Profit Per Accounts After Earnings From Associate 1, ,892 Add (Deduct) Share of Loss (Earnings) From Equity Accounted Entities (12) Less Revaluation Of Investment Properties - - (350) Add Insurance Proceeds For Investment Properties Add Depreciation and Amortisation 1,134 1,219 2,597 2,873 2,020 4,477 ADD/(DEDUCT) MOVEMENTS IN WORKING CAPITAL: Add Decrease (Deduct Increase) Receivables (532) (3,044) (1,898) Add Decrease (Deduct Increase) Property Held For Sale - (55) 619 Add Decrease (Deduct Increase) Inventories (3,090) 180 4,026 Add Increase (Deduct Decrease) Accounts Payable & Provisions (2,308) 3,710 4,309 Movements in Working Capital (5,930) 791 7,056 NET CASH INFLOW FROM OPERATIONS (3,057) 2,811 11,533 ç

12 NOTES TO THE FINANCIAL STATEMENTS 1) GENERAL INFORMATION Smiths City Group Limited ( the Company ) is a company domiciled in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand Stock Exchange ( NZX ). The company is an issuer in terms of the Financial Reporting Act The consolidated financial statements of Smiths City Group Limited for the six months ended 31 October 2011 comprise the Company and its subsidiaries (together referred to as the Group ) and the Group s interest in associates. Smiths City Group Limited is primarily involved in the retailing of consumer electronics products, kitchen appliances, home heating solutions, home furnishings and sporting goods together with the provision of finance to support the retailing operations. In addition the Group also develops and owns retail property. 2) BASIS OF PREPARATION a) Statement of Compliance These financial statement shave been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZGAAP). They comply with the New Zealand equivalent to Internal Financial Reporting Standards (NZIFRS) and other applicable Financial Reporting Standards, as appropriate of profit oriented entities. The financial statements also comply with International Financial Reporting Standards (IFRS). b) Summary of Significant Accounting Policies These general purpose financial statements for the interim six month reporting period ended 31 October 2011 have been prepared in accordance with accounting standard NZIAS 34 and IAS34 Interim Financial Reporting. They do not include all the notes included in the full annual financial statements and are to be read in conjunction with the Annual Report for the year ended 30 April c) Functional and Presentation Currency The financial statements are presented in New Zealand dollars ($) which is the Company s functional currency. All financial information presented in New Zealand dollars has been rounded to the nearest thousand unless otherwise stated. d) Changes in Accounting Policies There have been no changes to accounting policies during the period. Accounting policies have been applied on a basis consistent with the prior half year and annual financial statements. e) Use of Estimates and Judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. There have been no changes to the areas of estimation uncertainty and critical judgement in applying accounting policies that have the most significant effect on the amount recognised in the financial statements from those appearing in the Annual Report for the year ended 30 April Refer Note 8 for further information in relation to the valuation of land and buildings. 3) ACCOUNTING STANDARDS Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the period ended 31 October 2011, as described in those annual financial statements. The following new standards and amendments to standards were applied during the period: NZIAS 24: Related Party (Revised) The revised standard clarifies and simplifies the definition of a related party which may result in additional related parties being identified. Management have reviewed the clarification and no further related parties have been identified for the Group. ïð

13 The Group has elected not to early adopt the following standards which have been issued but are not yet effective: - NZIFRS9 Financial Instruments approved in November 2009 and effective for annual reporting periods beginning on or after 1 January Amendment to NZIFRS7 Financial Instruments: Disclosures Transfers of Financial Assets approved in November 2010 and effective for reporting periods beginning after 1 July NZIFRS10 Consolidated Financial Statements approved in May 2011 and effective for annual reporting beginning after 1 January IFRS12 Disclosure of Interests In Other Entities approved in May 2011 and effective for annual reporting beginning after 1 January IFRS13 Fair Value Measurement approved in May 2011 and effective for annual reporting beginning after 1 January FRS-44 New Zealand Additional Disclosures approved in June 2011 and effective for reporting periods beginning after 1 July IFRS11 Joint Arrangements approved in May 2011 and effective for annual reporting beginning on or after 1 January The Group will adopt the above standards on their effective dates. This is not expected to have a material impact on the Group s Financial Statements. 4) SEGMENT INFORMATION The Group has three reportable operating segments that are defined by the sectors within the Group which operates namely retail, the financing of retail sales, and property. This reflects the provision of flexible branded finance options to the Group s retail customers as being considered a key and integral part of the full service offering of all the trading operations of the Group. The following is an analysis of the Group s revenue and results by operating segment. Revenue reported below represents revenue generated from external customers. Inter segment revenue is recognised on the basis of arms length transactions. The accounting policies of the reportable segments are the same as the Group s accounting policies. Segment Revenue and Profit Analysis REVENUE FROM EXTERNAL CUSTOMERS INTER SEGMENT REVENUE TOTAL SEGMENT REVENUE SEGMENT PROFIT (LOSS) CURRENT Retail Activities 103, ,817 (484) Finance Business 5,695-5,695 1,441 Property Activities Parent Company (422) Total For Reportable Segments 109,539 1, , Share Of Losses Of Equity Accounted Entities (11) Consolidated Profit Before Taxation 109,539 1, , CURRENT Retail Activities 104, ,499 1,399 Finance Business 5,360-5, Property Activities Parent Company (575) Total For Reportable Segments 109,867 1, ,141 1,739 Share Of Losses Of Equity Accounted Entities (96) Consolidated Profit Before Taxation 109,867 1, ,141 1,643 ïï

14 Other Segment Information RETAIL ACTIVITIES FINANCE PROPERTY ACTIVITIES ACTIVITIES CURRENT Assets 65,306 87,243 22,071 Liabilities (38,393) (75,682) (14,601) Equity (26,913) (11,561) (7,470) Acquisitions Of Property, Plant, Equipment, Intangibles And Investments Depreciation And Amortisation 1, CURRENT Assets 58,917 89,789 21,869 Liabilities (32,580) (76,731) (13,547) Equity (26,337) (13,058) (8,322) Acquisitions Of Property, Plant, Equipment, Intangibles And Investments Depreciation And Amortisation 1, ) REVENUE CURRENT PRIOR Retail Sales 104, ,817 Interest Income On Smithcorp Finance Receivables Measured At Amortised Cost 5,101 5,408 Other Finance Income Interest Income On Bank Deposits ) EXPENSES BY NATURE 109, ,512 Cost Of Goods Sold (77,012) (75,339) Operating Lease Rental Expense (6,544) (6,323) Employee Benefits (15,217) (14,817) 7) OTHER INCOME Rental Income From Investment Properties ) PROPERTY, PLANT AND EQUIPMENT Land and buildings are included in the financial statements at 31 October 2011 at independent valuation dated 30 April 2010 prepared by Fright Aubrey, Registered Valuers (now Colliers Valuation). The earthquake could represent an indication of impairment which, therefore, requires the completion of an impairment assessment. The Directors consider there has been indication of impairment post the February 2011 earthquake and have undertaken an impairment review. After careful consideration to various options in regard to the value of the asset, the Directors consider that the key inputs to the fair value model should be consistent with the independent valuation obtained in 2010 as the most appropriate indicator of value. Having given careful consideration to various options in regard to the carrying value of the asset it was concluded that this value in use assessment remains the most appropriate indicator of fair value after consideration of the following factors: - The company has moved back into the Colombo Street site. The development will be in two stages and it is anticipated that the redeveloped site will have a similar level of retail space to that previously in place. Stage One of the development has been completed. ïî

15 - At present little redevelopment has been completed within the four avenues in Christchurch. Only seven months have passed since February. Given that estimates of the time for such work vary up to 15 years, trying to make forecasts of property values at this early stage will involve unacceptable levels of estimation. - The South City area of which the Colombo Street property is part, is not included in the closed off CBD red zone, and has the major retail complexes of South City Mall and Pak N Save adjacent, and both now fully operational. - The City Council has stated that there is no intention to significantly alter the city roading layout which, based on the best evidence currently available, will result in the Colombo Street site continuing to be part of a successful retail hub within the four avenues. - The 2010 valuation was completed on the basis of capitalised market rentals. At this stage there is no evidence of permanent adjustment to market rentals in the South City area. - The ongoing costs associated with the store are covered by business interruption insurance cover. 9) CAPITAL COMMITMENTS The value of capital commitments at 31 October 2011 is $Nil (2010 $60,000). Note that the costs of the rebuilding of Colombo Street are fully covered under the Group s Insurance Policy. 10) CONTINGENT LIABILITIES The Group has contingent liabilities of $nil at 31 October 2011 (2010 $nil). Smiths City Group Limited has guaranteed the borrowings from Fisher & Paykel Finance Limited which are secured against the finance receivables of Smithcorp Finance Limited. The parent company has, under certain conditions, guaranteed up to $550,000 of borrowings by Adventure Brands Limited, a 30% owned associate, from the National Bank of New Zealand. 11) EVENTS AFTER BALANCE DATE On 21 st December 2011 the Directors announced to the NZX that they propose to pay a dividend of 1.0cent per share with no imputation credits on 10 February 2012 ( cent). ïí

16 COMPANY DIRECTORY SMITHS CITY GROUP LIMITED DIRECTORS AND OFFICERS CHAIRMAN DEPUTY CHAIRMAN DIRECTORS MANAGING DIRECTOR Craig David Boyce John Allen Dobson John William Holdsworth Richard Hellings Sarah Christine Ottrey Gary Raymond Rohloff Richard Hellings REGISTERED OFFICE 550 Colombo Street Christchurch 8011 BANKERS ANZ National Bank of New Zealand P O Box 220 Christchurch 8011 AUDITORS KPMG Level 3, 62 Worcester Street P O Box 1739 Christchurch 8011 SHARE REGISTRARS Link Market Services P O Box 384 Ashburton 7700 Telephone ADDRESS FOR COMMUNICATIONS POSTAL P O Box 2343, Christchurch TELEPHONE FACSIMILE WEBSITE group@smithscity.co.nz ïì

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