Shermag Reports Fiscal 2006/2007 Results



    SHERBROOKE, QC, June 14 /CNW Telbec/ - Shermag Inc. (TSX: SMG) today
announced fourth quarter and year-end results for the period ended March 30,
2007. All dollar amounts are in Canadian dollars unless otherwise indicated.
    Gross revenue for the fourth quarter was $34.1 million, down 28.7% from
consolidated sales of $47.8 million for the same quarter last year. Net
revenue decreased 29.2% to $32.6 million from last year's $46 million. Net
loss for the period was $4.1 million or $0.31 per share fully diluted,
compared to a net loss of $22.7 million or $1.70 per share for the fourth
quarter last year.
    Fourth quarter results were negatively impacted by $1.7 million in
restructuring costs. Last year's fourth quarter results also included unusual
costs, totalling $19.5 million, associated with Shermag's business
transformation process, including employee severances and impairment of
long-lived assets as well as charges arising from an annual impairment test of
goodwill associated with the acquisition of Jaymar.
    For the most current full year, gross revenue was $166 million, down
16.5% from the $198.8 million posted for the preceding year. Net revenue was
down 17.4% to $155.9 million from last year's $188.7 million. Net loss for the
fiscal year was $17.4 million or $1.30 per share fully diluted compared to
$30.6 million or $2.29 per share a year ago.
    Canadian sales declined 16% during the 2006/2007 fiscal year from
$65.6 million to $55.1 million and in US dollars, exports for the year fell
10% from US$109.2 million to US$98.1 million. The Company's Canadian dollar
revenues were additionally affected by the lower US dollar, as the majority of
sales are in the United States. The average exchange rate applied to the
2006/2007 fiscal year was CA$1.13/US$, compared to CA$1.22/US$ last year,
resulting in a negative impact of $8.8 million on annual sales.

    Full results for the fourth quarter and fiscal year ended March 30, 2007
were as follows:

    
    Comparative results - 4th Quarter
    -------------------------------------------------------------------------
    (in thousands of dollars,                                4th         4th
     except per share data)                              Quarter     Quarter
                                                       2006-2007   2005-2006
    -------------------------------------------------------------------------
    Gross revenue                                       $ 34,109    $ 47,849
    -------------------------------------------------------------------------
    Gross earnings(1)                                   $  3,053    $  3,785
    -------------------------------------------------------------------------
    Loss before income taxes                            $ (6,515)   $(24,450)
    -------------------------------------------------------------------------
    Net loss                                            $ (4,145)   $(22,730)
    -------------------------------------------------------------------------
    Loss per common share - basic                       $  (0.31)   $  (1.70)
    -------------------------------------------------------------------------
    Loss per common share - diluted                     $  (0.31)   $  (1.70)
    -------------------------------------------------------------------------
    Exports                                             $ 21,655    $ 33,004
    -------------------------------------------------------------------------
    (1) Excluding amortization


    Comparative results - Twelve months
    -------------------------------------------------------------------------
    (in thousands of dollars,
     except per share data)                            12 months   12 months
                                                       2006-2007   2005-2006
    -------------------------------------------------------------------------
    Gross revenue                                       $166,004    $198,843
    -------------------------------------------------------------------------
    Gross earnings(1)                                   $ 12,026    $ 26,094
    -------------------------------------------------------------------------
    Loss before income taxes                            $(25,726)   $(35,664)
    -------------------------------------------------------------------------
    Net loss                                            $(17,379)   $(30,624)
    -------------------------------------------------------------------------
    Loss per common share - basic                       $  (1.30)   $  (2.29)
    -------------------------------------------------------------------------
    Loss per common share - diluted                     $  (1.30)   $  (2.29)
    -------------------------------------------------------------------------
    Exports                                             $110,892    $133,230
    -------------------------------------------------------------------------
    (1) Excluding amortization


    During the year, the Company pursued its restructuring plan and
consolidation of its domestic facilities. This included the third quarter
previously announced closures of the Disraeli and St-Etienne-de-Lauzon plants
as part of the plan to transfer mass production to Asia and consolidate
domestic production facilities. Shermag is increasingly using global sourcing
as a means of creating growth opportunities and staying competitive in certain
product categories.
    Late in the fourth quarter, Ms. Melinda M. Lee, Vice-President,
Investments for Clarke Inc., a publicly traded diversified holding company
listed on TSE with investments in both public and private entities, was named
to Shermag's Board of Directors, replacing long-time Director, Mr. Arthur P.
Earle. The Company sincerely thanks Mr. Earle for his valued guidance.

    Outlook

    "The industry has experienced a general softness in the US home
furnishings retail market, and this is having a clear impact on our sales.
This challenge is exaggerated by further significant weakening of the US
dollar during the past few weeks.
    Shermag ends the year with much progress, including 36% of the Company's
revenue being produced outside of Canada. During the past two years our
workforce has been reduced by half and there has been a significant
consolidation in Company facilities. Shermag currently employs approximately
1200 workers and operates 9 factories, down from 2400 employees and 16 plants
in 2005. Notwithstanding these measures, further consolidation will likely be
required. The current conditions of market and currency mean that we must
further reduce our expense base to bring costs in line with revenues.
Shermag's Asian production will continue to increase," commented Shermag
President and CEO, Jeff Casselman

    Profile

    Shermag Inc. (SMG), headquartered in Sherbrooke, Québec, is a leader in
the design, production, marketing and distribution of high-quality residential
furniture. The Company employs about 1200 people and is a vertically
integrated manufacturer and importer with its own cutting rights, sawmill,
veneer plant, manufacturing operations and global sourcing division.

    Disclaimer

    This news release, in particular the section under the heading "Outlook",
contains forward-looking statements about the Company's operations,
objectives, strategies, financial situation and performance. These statements
are made based on assumptions and management's best estimates with regard to
future events. However, the business of the Company is subject to risks and
uncertainties that could cause actual results to differ from expected results.
Important factors that could cause such differences are changes in pricing
pressure being exerted by competitors, particularly Asian-based companies,
significant movement in the Canadian/US dollar exchange rate, and
unanticipated problems in implementing the Company's Business Transformation
Plan. This is not an exhaustive list. A broader discussion of risk factors
that could affect future performance can be found in the Company's Annual MD&A
and Annual Information Form, filed with Canadian securities regulatory
authorities. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual
results. The Company disclaims any intention or obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

    -------------------------------------------------------------------------
    Information for shareholders

    Shermag Inc. will hold a conference call to discuss these results today
    Thursday, June 14, 2007 at 10:00 a.m., Eastern Time. Interested parties
    can join the call by dialing (416) 340-2216 for all Toronto area callers
    or 1-866-898-9626 for all other North American callers.

    If you are unable to call in at this time, you may access a recording of
    the conference by calling (416) 695-5800 for Toronto area or
    1-800-408-3053 for others and entering the passcode 3225716#
    on your phone. This recording will be available as of 11:30 a.m. on
    Thursday, June 14, until midnight on Friday, June 22.

    An archive webcasting of this call will be made available on June 14,
    2007, as of 11:30 a.m. at www.viavid.net or in our website, in the news
    section: www.shermag.com.
    -------------------------------------------------------------------------


    SHERMAG INC.
    CONSOLIDATED EARNINGS


    (audited)
    in thousands of dollars,
     except per share data
    -------------------------------------------------------------------------
                                     Three-month             Twelve-month
                                     period ended            period ended
                                March 30    March 31    March 30    March 31
                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
    -------------------------------------------------------------------------
                                       $           $           $           $

    Gross revenue                 34,109      47,849     166,004     198,843
    Less : returns, allowances
     and discounts                 1,558       1,879      10,085      10,134
    -------------------------------------------------------------------------
    Net revenue                   32,551      45,970     155,919     188,709
    Cost of sales                 29,498      42,185     143,893     162,615
    -------------------------------------------------------------------------

    Gross profit excluding
     amortization                  3,053       3,785      12,026      26,094
    -------------------------------------------------------------------------

    Selling and administrative
     expenses                      6,486       7,093      26,528      29,640
    Interest expenses                470         473       1,649       1,743
    Exchange gain                   (555)       (279)       (476)     (1,174)
    Amortization                   1,137       1,487       4,547       5,743
    Maintenance expenses for
     assets held for sale            295                     295
    Unusual items (note 1)         1,735      19,461       5,209      25,806
    -------------------------------------------------------------------------
                                   9,568      28,235      37,752      61,758
    -------------------------------------------------------------------------
    Loss before income taxes      (6,515)    (24,450)    (25,726)    (35,664)
    Income taxes                  (2,370)     (1,720)     (8,347)     (5,040)
    -------------------------------------------------------------------------

    Net loss                      (4,145)    (22,730)    (17,379)    (30,624)
    -------------------------------------------------------------------------
                              -----------------------------------------------
    Loss per common
     share - basic (note 2)        (0.31)      (1.70)      (1.30)      (2.29)
    -------------------------------------------------------------------------
                              -----------------------------------------------
    Loss per common
     share - diluted (note 2)      (0.31)      (1.70)      (1.30)      (2.29)
    -------------------------------------------------------------------------
                              -----------------------------------------------


    SHERMAG INC.
    CONSOLIDATED RETAINED EARNINGS

    (audited)
    in thousands of dollars
    -------------------------------------------------------------------------
                                                          Twelve-     Twelve-
                                                           month       month
                                                          period      period
                                                           ended       ended
                                                        March 30,   March 31,
                                                            2007        2006
    -------------------------------------------------------------------------
                                                               $           $

    Balance, beginning of period                          51,802      82,426
    Net loss                                             (17,379)    (30,624)
    -------------------------------------------------------------------------

    Balance, end of period                                34,423      51,802
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED BALANCE SHEETS

    in thousands of dollars
    -------------------------------------------------------------------------
                                                           As at       As at
                                                        March 30,   March 31,
                                                            2007        2006
                                                        (audited)   (audited)
    -------------------------------------------------------------------------
                                                               $           $
    Assets
      Current assets
        Cash and cash equivalents                             21         229
        Accounts receivable                               23,726      33,402
        Assets held for sale                                           1,445
        Income taxes receivable                            6,331       5,774
        Inventories                                       42,546      45,128
        Prepaid expenses                                     981         800
    -------------------------------------------------------------------------
                                                          73,605      86,778

      Advance to a company subject to significant
       influence, without interest                                     1,139
      Property, plant and equipment                       34,531      41,439
      Assets held for sale                                 8,514       6,342
      Goodwill                                             2,872       2,872
      Other assets                                         2,356       2,258
      Future income taxes                                     76         225
    -------------------------------------------------------------------------

                                                         121,954     141,053
    -------------------------------------------------------------------------
                                                     ------------------------

    Liabilities
      Current liabilities
        Accounts payable and accrued liabilities          16,526      20,442
        Installments on long-term debt                     1,271       1,024
    -------------------------------------------------------------------------
                                                          17,797      21,466
      Long-term debt (note 3)                             24,640      20,511
      Deferred credits                                     3,066       2,993
      Future income taxes                                  2,951       5,308
    -------------------------------------------------------------------------
                                                          48,454      50,278
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
      Capital stock                                       38,735      38,735
      Contributed surplus                                    342         238
      Retained earnings                                   34,423      51,802
    -------------------------------------------------------------------------
                                                          73,500      90,775
    -------------------------------------------------------------------------

                                                         121,954     141,053
    -------------------------------------------------------------------------
                                                     ------------------------


    SHERMAG INC.
    CONSOLIDATED CASH FLOWS

    (audited)
    in thousands of dollars
    -------------------------------------------------------------------------
                                     Three-month             Twelve-month
                                     period ended            period ended
                                March 30    March 31    March 30    March 31
                                    2007        2006        2007        2006
                               (13 weeks)  (13 weeks)  (52 weeks)  (52 weeks)
    -------------------------------------------------------------------------
                                       $           $           $           $
    Operating activities
      Net loss                    (4,145)    (22,730)    (17,379)    (30,624)
      Non-cash items
        Amortization               1,137       1,487       4,547       5,743
        Impairment of
         long-lived assets                       382       3,474       2,197
        Goodwill depreciation                 17,305                  17,305
        Amortization of
         deferred credits           (395)        (39)       (527)       (170)
        Loss (gain) on disposal
         of assets                  (690)         50        (890)         70
        Future income taxes         (980)        193      (2,208)       (381)
        Stock-based compensation      27          32         104         133
        Loss on advance to a
         company subject to
         significant influence                               693
        Changes in working
         capital items             5,917       3,871       8,294      14,258
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                      871         551      (3,892)      8,531
    ------------------------- - - - - - - - - - - - - - - - - - - - - - - - -
    Investing activities
      Advance to a company
       subject to significant
       influence                                             446
      Property, plant and
       equipment                    (445)       (423)     (1,862)     (1,500)
      Disposal of property,
       plant and equipment             1          12       1,887         476
      Deferred credits                            (1)                    241
      Deferred charges              (383)       (339)     (1,332)       (894)
    -------------------------------------------------------------------------
    Cash flows from investing
     activities                     (827)       (751)       (861)     (1,677)
    ------------------------- - - - - - - - - - - - - - - - - - - - - - - - -
    Financing activities
      Net change in long-term
       revolving credits              66                  16,723      (9,014)
      Long-term loans and credits   (569)                 10,031
      Installments on long-term
       loans                        (319)     (1,071)    (22,378)     (7,288)
      Deferred credits               600                     600
      Deferred financing expenses   (431)       (799)       (431)       (799)
    -------------------------------------------------------------------------
    Cash flows from financing
     activities                     (653)     (1,870)      4,545     (17,101)
    -------------------------------------------------------------------------
    Net decrease in cash and
     cash equivalents               (609)     (2,070)       (208)    (10,247)
    Cash and cash equivalents,
     beginning of year               630       2,299         229      10,476
    -------------------------------------------------------------------------

    Cash and cash equivalents,
     end of year                      21         229          21         229
    -------------------------------------------------------------------------
                              -----------------------------------------------


    Shermag Inc.
    Notes to interim consolidated financial statements
    March 30, 2007  and March 31, 2006
    (The amounts in the tables are in thousands of dollars except for per
     share amounts)


    1 - UNUSUAL ITEMS

    The following table shows the incurred and recorded costs as at March 30,
2007, as well as provision payable variance:

                  -----------------------------------------------------------
                  Goodwill
                    impair-
                      ment            Restructuring costs              Total
                           ----------------------------------------
                              Impair-   Employ-
                                ment      ment  Installa-
                             of long-    termi-    tions
                               lived    nation   consoli-
                              assets  payments    dation     Total
                  --------- --------- --------- --------- --------- ---------
                         $         $         $         $         $         $
    Fiscal Year
     2006
    Balance
     payable as
     at April 2,
     2005                                  215                 215       215
    Costs
     incurred       17,305     2,197     2,274     4,030     8,501    25,806
    Amounts paid                        (1,458)   (3,794)   (5,252)   (5,252)
    Recorded
     losses        (17,305)   (2,197)                       (2,197)  (19,502)
                  --------- --------- --------- --------- --------- ---------
    Balance
     payable as
     at March 31,
     2006                -         -     1,031       236     1,267     1,267

    Fiscal year
     2007
    Costs
     incurred                  3,474       960       775     5,209     5,209
    Amounts paid                          (772)     (990)   (1,762)   (1,762)
    Recorded
     losses                   (3,474)                       (3,474)   (3,474)
                  --------- --------- --------- --------- --------- ---------
    Balance
     payable as
     at March 30,
     2007                -         -     1,219        21     1,240     1,240
                  --------- --------- --------- --------- --------- ---------
                  --------- --------- --------- --------- --------- ---------


    Goodwill

    The Company proceeded to the annual goodwill impairment test, and recorded
a decrease in value of $17,305,000 in 2006 ($28,436,000 cumulative loss) for
its subsidiary Jaymar Furniture Corp., since carrying amount was estimated to
be higher than its fair value, as a result of difficult overall market
conditions.

    Restructuring expenses

    On February 10, 2005, the Company announced the beginning of a business
transformation process, including a complete revision of its operations and
cost structure. The resulting restructuring plan was mainly aimed at
optimizing the manufacturing and distribution operations.The first phase of
the plan resulted in a decrease in the number of production facilities and the
number of employees.
    The second phase of the restructuring plan was set in place during the
fiscal year 2006. Related costs of approximately $8.5 million were recorded
when liabilities related to these measures were incurred. This second phase
also resulted in a decrease in the number of employees and production
facilities. In addition, the Company proceeded to consolidate certain of the
remaining installations.
    During the current fiscal year, the Company continued its restructuring
plan aiming the transfer of mass production to Asia and the consolidation of
domestic production installations, which resulted in a $5.2 million expense.


    2 - EARNINGS PER SHARE

    As at March 30, 2007 and March 31, 2006, the basic or diluted weighted
average number of common shares outstanding is 13,348,724 shares. The basic
and diluted loss per share is $1.30 in 2007 and $2.29 in 2006. Stock options
were not included in the diluted earnings per common share calculation since
the Company incurred a loss, and inclusion would have created an anti-dilutive
effect.


    3 - LONG-TERM DEBT

                                                      2007-03-30  2006-03-31
                                                      ----------- -----------
                                                               $           $

    Revolving credit, lender's prime rate (6%)(*)         16,723

    Term loan, lender's prime rate (6%), payable
     in monthly capital installments of $104,167,
     maturing in June 2014(*)                              9,147

    Term loan, lender's prime rate plus 2%
     (7.25% in 2006)                                                  21,438

    Loan, secured by rolling stock, 1.9%, payable
     in monthly blended instalments of $894,
     maturing in March 2010                                   31

    Non-interest bearing loans from a government
     agency, payable in monthly and annual
     installments, maturing in 2007                           10          97
                                                      ----------- -----------
                                                          25,911      21,535
    Installments due within one year                       1,271       1,024
                                                      ----------- -----------
                                                          24,640      20,511
                                                      ----------- -----------
                                                      ----------- -----------

    (*) In accordance with this agreement, the Company is able to avail
        itself of a $55 million revolving credit in CA dollars or its
        equivalent in US dollars, as well as a $10 million CA term loan.
        Following an initial term maturing in June 2011, the revolving credit
        will subsequently be automatically renewed every year unless
        otherwise advised by either of the two parties involved. Both credit
        facilities are secured by a first rank mortage on the universality of
        all present and future movable and immovable, tangible and intangible
        assets.


    The installments on long-term debt for the next five years are $1,270,616
in 2008, $1,260,421 in 2009, $ 1,260,621 in 2010, and $1,250,000 in 2011 and
2012, nonwithstanding the revolving credit.


    4 - CAPITAL STOCK

    Authorized

    Unlimited number of common shares, without par value, voting and
participating
    Unlimited number of preferred shares of first and second rank, without par
value, which can be issued in one or more series, for which the directors will
determine their number, designation, rights, privileges, conditions and
restrictions

    Preferred shares of second rank, series 1, annual and non-cumulative
    $0.06 dividend per share, non-voting, non-participating, redeemable at
    the Company's option at the paid-up capital amount

                                          2007-03-30              2006-03-31
                              ----------------------- -----------------------
                               Number of               Number of
                                  shares      Amount      shares      Amount
                              ----------- ----------- ----------- -----------
                                                   $                       $
    Issued and fully paid

    Common shares
      Balance, beginning
       and end of year        13,348,724      38,286  13,348,724      38,286
    Preferred shares of
     second rank, series 1
      Balance, beginning
       and end of year           700,000         449     700,000         449
                                          -----------             -----------
                                              38,735                  38,735
                                          -----------             -----------
                                          -----------             -----------
    


    5 - ECONOMIC DEPENDANCE

    The income derived from a retail client amounts to $33,200,000
($41,757,000 in 2006) and represents 20% (21% in 2006) of the total gross
revenue for the year.


    6 - INSURANCE CLAIM

    On March 28, 2006, a fire at the Scierie Montauban Inc. subsidiary
destroyed assets. The Company's insurance program provides coverage for damage
to property destroyed, profit recovery and expenditure to minimize the total
cost of disruption to operations. As at March 31, 2006, the Company recorded a
$1,099,000 claim receivable equival to the book value of the assets destroyed.
During the year, an additional amount of $1,370,000 was recorded. As at March
30, 2007, the insurance claim totals $1,969,000 net of a $500,000 advance
cashed. Any additional recovery will be recorded at such time as the insurance
claim is settled and the amounts are received.




For further information:

For further information: Investor Relations: Maison Brison, Rick
Leckner, (514) 731-0000; Shermag Inc.: Jeff Casselman, President and CEO,
(819) 566-1515

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