Inscape Corporation
TSX : INQ

Inscape Corporation

June 28, 2012 17:05 ET

Inscape Corporation Announces Fiscal 2012 Fourth Quarter & Annual Results

HOLLAND LANDING, ONTARIO--(Marketwire - June 28, 2012) - Mr. Rod Turgeon, President and Chief Executive Officer of Inscape (TSX:INQ) -- a leading designer, manufacturer and marketer of systems, storage and wall solutions for commercial office environments -- announces the following financial results for the fourth quarter and fiscal year ended April 30, 2012:

Inscape Corporation
Summary of Consolidated Financial Results
(Unaudited) (in thousands except EPS)
Three Months Ended April 30,
2012 2011 Change
Sales $ 17,549 $ 19,855 -11.6 %
Gross margin 3,539 5,247 -32.6 %
Selling, general & administrative expenses 5,042 5,526 -8.8 %
Loss on disposals of property, plant and equipment 261 -
Unrealized loss on foreign exchange 128 57
Unrealized gain on derivatives (547 ) (408 )
Investment income (28 ) (171 )
(Loss) Income before taxes (1,317 ) 243
Income tax (recovery) expense (596 ) 77
Net (loss) income $ (721 ) $ 166
Basic and diluted earnings per share $ (0.05 ) $ 0.01
Weighted average number of shares (in thousands)
for basic EPS calculation 14,385 14,609
for diluted EPS calculation 14,420 14,798
Years Ended April 30,
2012 2011 Change
Sales $ 78,944 $ 87,405 -9.7 %
Gross margin 17,997 25,682 -29.9 %
Selling, general & administrative expenses 21,670 21,913 -1.1 %
Loss on disposals of property, plant and equipment 424 -
Unrealized (gain) loss on foreign exchange (301 ) 102
Unrealized gain on derivatives (146 ) (1,081 )
Investment income (414 ) (525 )
(Loss) Income before taxes (3,236 ) 5,273
Income tax (recovery) expense (1,247 ) 1,698
Net (loss) income $ (1,989 ) $ 3,575
Basic and diluted earnings per share $ (0.14 ) $ 0.24
Weighted average number of shares (in thousands)
for basic EPS calculation 14,461 14,721
for diluted EPS calculation 14,537 14,791

COMMENTARY

"The Company had a disappointing final quarter. Sales revenue declined by 5.4% in constant currency, yielding a full year annual sales revenue decline of 1.8%. Furniture sales revenue grew for the year, while wall division sales declined. To meet our targets, the Company must increase revenue faster than the rate of industry growth.

We have already introduced significant changes in our go-to-market strategy. Our strategic intent over the next few years is to establish a clear and compelling market position as the leading provider of application based solutions to deliver smart workspaces. Going into fiscal 2013, the Company is implementing three business initiatives that will support our objectives of revenue growth and improved profitability. These initiatives are:

  • implement a two-pronged business approach which includes an Inscape branded integrated application business and an Office Specialty branded smart storage product business
  • execute a market coverage staffing approach to deploy a greater number of targeted sales resources to high potential markets
  • undertake a targeted approach to creating and developing distribution that matches the Company's application business and smart storage product business

The effective deployment of these market focused strategies will be complemented by ongoing improvements in business operations. The combined positive impact of revenue growth and continual improvement in business efficiencies will, we believe, deliver profitability in a par dollar currency environment. We believe that the Company is well positioned to capitalize on our strengths moving forward." said Rod Turgeon, President and Chief Executive Officer.

OPERATING PERFORMANCE

Fourth Quarter Results

The fourth quarter of fiscal year 2012 had a net loss of $0.7 million or 5 cents per share, compared to a net income of $0.2 million or 1 cent per share in the same quarter of last year.

Sales in the fourth quarter ended April 30, 2012 were 11.6% less than the same quarter of last year. The current quarter's sales included U.S. currency hedge gains of $0.3 million versus hedge gains of $1.8 million in last year's fourth quarter. On a normalized currency basis, the current quarter's sales were 5.4% lower. The growth in the furniture division was offset by lower sales recorded in the walls division.

Gross margin percentage in the fourth quarter was 20.2%, compared with 26.4% of last year's fourth quarter. The drop of 6.2 percentage points consists mainly of 5.5 percentage points from the lower U.S. currency hedge gains. The quarter's gross margin percentage was also reduced by pressure on realized selling prices, which was mitigated to some extent by improvements in manufacturing costs during the quarter.

Selling, general and administrative expenses ("SG&A") in the fourth quarter were 28.7% of sales, compared to 27.8% in the fourth quarter of last year. In terms of dollar amounts, SG&A expense during the current quarter was $0.5 million less than the same quarter of last year, mainly consisting of lower accruals for bonuses and other fixed overheads.

Investment income in the fourth quarter was net of the amortization of premiums paid on several fixed income securities that were redeemed on their maturities during the quarter.

The decrease of $0.9 million in the quarter's financial results compared to the same quarter of last year was mainly attributable to lower gross margin offset by lower SG&A and income tax expense,

Annual Results

On an annual basis, fiscal year 2012 had a net loss of $2.0 million, or 14 cents per share, compared to a net income of $3.6 million or 24 cents per share in fiscal year 2011.

The sales of fiscal year 2012 were 9.7% lower than the same period of last year. The decline in sales was attributable to substantial decrease in U.S. currency hedge gains and fewer large project sales for the moveable walls division.

The current year's sales included U.S. currency hedge gains of $1.5 million, compared to hedge gains of $7.3 million in fiscal year 2011. With the exclusion of the U.S. currency hedge gains and the adverse impacts of lower average U.S. spot rate during fiscal year 2012, the current year's sales on a normalized currency basis were 1.8% less than fiscal year 2011. While the furniture divisions of the business recorded an average growth of about 12%, the walls division experienced significant decline in sales because of fewer large projects sales during the year.

The gross margin as a percentage of sales of 22.8% was 6.6 percentage points lower than the 29.4% of last year of which approximately 6 percentage points were attributable to the significant reduction in the U.S. currency hedge gains. The balance of the decline in gross margin percentage was evenly split among unfavourable overhead absorption, lower realized selling prices and manufacturing costs.

The SG&A expense was 27.4% of sales in fiscal 2012 versus 25.1% in fiscal 2011. The dollar amount spent was $0.2 million less than last year. This slight reduction was a combination of reduction in the accruals for performance-based bonuses, a drop in the fair value of share-based compensation, offset by increased fixed selling and showroom expenses. Variable selling expense was at roughly the same level as last year despite the decrease in overall sales because the base of commissionable sales was comparable to fiscal year 2011.

Financial Statements

To view the Financial Statements and notes, please visit the following link: http://media3.marketwire.com/docs/F2012_Qt4_statements_and_notes.pdf.

CONFERENCE CALL

Inscape will host a conference call at 8:30 a.m. on Friday, June 29, 2012 to discuss the Company's quarterly and annual results. To participate, please call 1-877-809-2333 A replay of the conference call will also be available from Friday, June 29, 2012 after 10:30 a.m. until midnight on July 6, 2012. To access the rebroadcast, please dial 1-800-558-5253 (Reservation Number 21593693)

FORWARD-LOOKING STATEMENTS

Certain of the above statements are forward-looking statements that involve risks and uncertainties. Actual results could differ materially as a result of many factors including, but not limited to, further changes in market conditions and changes or delays in anticipated product demand. In addition, future results may also differ materially as a result of many factors, including: fluctuations in the Company's operating results due to product demand arising from competitive and general economic and business conditions in North America; length of sales cycles; significant fluctuations in international exchange rates, particularly the U.S. dollar exchange rate; restrictions in access to the U.S. market; changes in the Company's markets, including technology changes and competitive new product introductions; pricing pressures; dependence on key personnel; and other factors set forth in the Company's Ontario Securities Commission reports and filings.

ABOUT INSCAPE

Inscape has offices and production facilities in Canada and the United States totalling approximately 438,000 square feet and serves customers through a network of authorized dealers.

Inscape makes smart workspaces - thoughtfully designed spaces that perform beyond expectations. For over a century, we have collaborated with our clients to provide customized solutions based on their individual needs. Our meticulously engineered system, storage and wall products provide unparalleled flexibility to create unique applications at a lower cost of ownership. Easy reconfiguration and seamless integration with other products means our smart applications will work today and tomorrow. For more information, please visit www.inscapesolutions.com.

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