Disastrous financial results for Renaissance
Renaissance has today announced a surprise financial result for the six months until 31st March 2013. In the prior corresponding period the company produced a profit of $1.8 million, this year the result has swung to a $3 million loss.
While most of the profit from the prior corresponding period came from insurance payouts, the company is extremely disappointed with its current operating earnings.
The company says:
"We thought we were sailing into clear air after the agonies of the earthquake and the sale of distribution in July last year. That has not been the case. Our retail operation has been extremely disappointing and our constant action on overheads never seems to be enough and trails behind the level of activity. Overheads remain too high for the remaining businesses. The bright spot has been education which continues to perform well despite the appreciating $NZ and a slow international student market."
In the statement made to the NZX, the company has seen its margin on Apple products sold in its retail operations drop from 11 to 8%. It also has seen a revenue decrease of 26% on Apple products during the same period.
Read the rest of the statement below:
Retail
Retail has been the main reason for the poor performance in the first half of 2013. In the half year to March 31 retail made an operating EBIT loss, before impairment of goodwill, of $511,000. This compares with a profit of $164,000 in the same period last year.
There have been issues, a combination of management and overall Apple supply and demand.
Before Christmas we were severely constrained for Apple stock. This was a worldwide phenomenon for Apple. After Christmas we have not had the benefit of new models to boost sales. Nonetheless we have lifted unit sales in all categories except iPhone.
Notwithstanding this, Apple revenue for the period is down 26%. We have achieved lower per unit sale prices in all our Apple product lines and unit sale prices of the iPad, since the advent of the 'mini' are down 28%. When Apple announced their results for the quarter to March 31 we noted that revenue in "the rest of Asia" was down 20% on the immediately preceding quarter. Unfortunately Apple does not share their results for New Zealand so a direct comparison is not possible. When Apple sales are down, sales of third party products follow.
Our average gross margin on Apple product declined from 11% in the first half of 2012 to 8% in the first half of 2013. Apple dropped its margins on mini iPads when they were introduced so that has contributed to the gross margin decline. On top of that, many of our competitors use Apple product as a loss leader to attract customers to their store. It has been a tough environment.
Over the period we have consistently missed budgeted revenues. We re-forecasted after December and we have missed those numbers. Retail has our full attention and we are working through solutions. The simplest analysis is that the overheads management needs to run the retail business are too high by comparison with our Apple-only international peers.
Our retail division is work in progress and we are working systematically through options. We decided that we should write off the goodwill attributable to the retail division because the forecasts that had sustained that value at the full year have clearly not been met.
Education
By comparison Education is going well. While we are struggling along with everyone else for international students, EBIT in the first half was $854,000 and we remain on target for an EBIT contribution of about $2.2m for the full year.
We have probably grown as big as we can domestically because Equivalent Full Time Students (EFTS) are capped. The industry is demanding Yoobee graduates and we are filling every available role. Our employment outcomes are some of the best of any private college in New Zealand. Unfortunately demand for our domestic graduates does not necessarily translate into opportunities for Yoobee because of the government cap on student numbers.
In this period we have shifted into the new campus in Auckland and the uplift in morale amongst staff and students can be felt. It is a great facility. All the costs of the shift except fit out have been expensed in this period.
We have nearly concluded arrangements with the Open Polytechnic to offer a degree program, which we aim to deliver on the Auckland campus in July. We already have an internship program running. This is running successfully with 6 Yoobee interns employed to work 20hours per week, aiming to complete their degree in one year.
Our online learning project is in the home straight. Our first four courses have been developed and one has been tested in the market with great feedback. Promotional videos have been developed. A marketing strategy has been scoped. The first courses will be offered in June. All the costs of development have been charged against profits as we have incurred them. We see synergies between our online project, marketing, short courses and publishing and our Sydney campus. The outlook for education is really encouraging.
Overheads
With the sale of Distribution in July last year and retail shrinking we have been in what seems a continuing attempt to right size our overheads. The table below shows our efforts on overheads related to Retail and our Corporate overheads. In the year to September 2012 our overhead in retail was $2.0m. We are currently running at about $1.4m on an annual rate and by the next financial year they should be about $1m. Our Corporate overhead was $2.4m in the year to September 2012 and is currently running at about $1.1m per annum. In the next financial year it should be about $0.9m.
