Category Archives: AIM Rule 26

Scholium Group plc 

(“Scholium”, the “Company” or, together with its subsidiaries, the “Group”)

Preliminary Results for the 12 months ended 31 March 2015

The board of Scholium, the fine art and collectibles trading company, presents its preliminary results for the 12 months ended 31 March 2015.

SUMMARY INFORMATION 

Shapero Rare Books, the main operating brand, trades in rare books and other works on paper from Mayfair and through international fine art fairs. It also trades in modern and contemporary prints through its subsidiary trading brand, Shapero Modern. 

The Group also trades alongside other third party dealers in the broader art and collectibles business via its brand, Scholium Trading.  

On 2 April 2015 the Group announced the sale of its South Kensington operations, South Kensington Books and the Ultimate Library. 

The Company’s shares are admitted to trading on AIM, a market operated and regulated by the London Stock Exchange. 

Operational Highlights in the year ending 31 March 2015

·   Building valuable stock in Shapero Rare Books following extensive buying programme and launch of Shapero Modern.

·   Challenging market conditions, particularly in Shapero Rare Books’ Russian and Eastern European department.

·   Scholium Trading – trading in the first year completed profitably – initially lower than expected margins, but faster stock turnover than expected.

 

Financial Highlights

	31 March 2015	31 March 2014
Revenue from continuing operations	£5.16m	£6.08m
Gross Profit from continuing operations	£1.89m	£2.44m
Inventory	£7.5m	£4.67m
Total Assets	£11.82m	£14.44m
Net Assets	£10.16m	£10.78m
NAV/Share	74.7p	79.3p
Dividend per ordinary share	0.5p	1.0p

 

Current Trading & Prospects

Revenue and gross profit for the first quarter of the current financial year (continuing operations) are ahead of the previous year. Both turnover and gross profits in June were greater than any other month since the Company’s shares were admitted to trading on AIM.  Nonetheless, the volatility of revenue that characterised the second half of our 2014/15 financial year in Shapero Rare Books remains – whilst we have had encouraging responses to new offerings of stock in the analytic tradition (Economics & Social Sciences) and modern literature, the antiquarian book markets are not yet showing the consistent vitality of 2013/14.

Jasper Allen, Chairman of Scholium, said “We have built up excellent stock at Shapero Rare Books and have a strong balance sheet.  This places us on a firm footing to explore alternatives for taking our company forward both within the business and externally.  The slow-down in our Russian and Eastern European book department has been a setback.  Nonetheless, we have started to reposition our stock and, whilst trading remains volatile, we are starting to see initial returns.”

 

 

For further information please contact:

 

Scholium Group plc	+44(0)20 7493 0876
Jasper Allen (Chairman)
Simon Southwood (Chief financial officer)
W H Ireland Limited (Nominated advisor)	+44(0)20 7220 1666
Chris Fielding/Mark Leonard
Whitman Howard Limited (Broker)	+44(0)20 7659 1234
Ranald McGregor-Smith/Niall Devins

 

 

  

CHAIRMAN’S STATEMENT

Whilst I am pleased to present the annual report and financial statements, they represent a year in which there was some uncertainty both within our company and within the markets in which we trade.  We are working towards placing the business on a more stable and conservative footing where it is able to deploy its expertise in markets where there is less political uncertainty.

Business Review

During the year the Scholium group of companies traded under the following brands:

·     Shapero Rare Books, the principal trading brand, which deals in rare and antiquarian books and works on paper;

·     Shapero Modern, a unit within Shapero Rare books which deals in modern and contemporary prints;

·     Scholium Trading, which trades with third party dealers in the broader rare and collectible goods markets;

·     South Kensington Books, a local book store in South Kensington; and

·     Ultimate Library, a provider of libraries to hotels, guesthouses and exclusive private residences.

South Kensington Books and the Ultimate Library were sold just after the year ended 31 March 2015.

Summary

In the first half of the year under review our businesses sought to deploy the capital raised in the fundraising in areas expected to be profitable.  Shapero Rare Books quickly built its stock up to c. £7 million (31 March 2014: £4.6 million) at which point the board felt it should be constrained pending proof of performance. Trading in the second half of the year was not as brisk as we anticipated; particularly due to a slow-down in our Russian and Eastern European department.

Our South Kensington Operations, whilst small in the context of the group, traded steadily.

Scholium Trading took a little time to gain traction.  Nonetheless it engaged in a number of profitable transactions – access to capital is a major differentiator in this market.

As at 31 March 2015, the Group had net assets of £10.2 million (2014: £10.8 million) including cash of £2.1 million (2014: £7.6 million) and stock of £7.5 million (2014: £4.7 million).

Performance

Shapero Rare Books

In the first half of the financial year we allocated approximately £3m of the capital raised at the time of our IPO to Shapero Rare Books.  This was used to acquire high quality stock, which is now one of the highest calibre stocks of rare books in London.

Unfortunately the market for rare books proved tricky.  The major point of concern has been that our trade in Russian and Eastern European materials has been slower than anticipated – whereas this department made up 35% of gross profit in the year to March 2014, in the year to March 2015, the department made up only 19% of gross profit; a material decline.  Whilst the overall number of clients of this department has increased, the average spend per customer through the business has declined to approximately £64,000 (2014: £94,000) with much of the business transacted on commission.  We remain in touch with customers. The other departments of Shapero Rare Books performed satisfactorily – gross profit per customer increased to approximately £3,267 (2014: £3,060).

The decline in performance of the books business was offset by a contribution from Shapero Modern, our modern and contemporary prints department, which was launched during the year.

Revenue for the year from the Group’s continuing operations amounted to £5.16 million (2014: £6.08 million in total), and a pre-tax loss of £0.5 million was incurred (2014: a loss of £0.37 million).

Scholium Trading

Trading by the Group alongside other dealers in the broader arts and collectibles market has developed, been profitable and now represents c. 12% of Group revenue.  Whilst gross margins are in the region of 13%, stock turnover is higher than originally anticipated; the value-weighted average holding period of stock acquired for sale is approximately 65 days.  During the year we traded alongside dealers in coins, sculpture, old master paintings, antiquarian books and oriental urns.

Revenue for the year from Scholium Trading amounted to £0.72 million generating gross profit of £0.09 million with an average holding period of 65 days.

South Kensington Operations

During the year South Kensington Operations (South Kensington & Ultimate Library) contributed net profits of £0.024 million (2014: £0.024 million) and were sold for £145,802 just after the year end.

Staff

As ever, our dedicated employees have contributed significantly to the development of the Group throughout the year and I would like to take this opportunity of thanking them again for their hard work and effort in what has been a challenging year.   Philip Blackwell was instrumental in the listing of our group on AIM and we are delighted he has remained on the board of Scholium as a non-executive director.

Current Trading & Prospects

The group is well capitalised with good quality stock.  Revenue and gross profit for the first quarter of the current financial year (continuing operations) are ahead of the previous year. Both turnover and gross profits in June were greater than any other month since the Company’s shares were admitted to trading on AIM.  Nonetheless, the volatility of revenue that characterised the second half of our 2014/15 financial year in Shapero Rare Books remains – whilst we have had encouraging responses to new offerings of stock in the analytic tradition (Economics & Social Sciences) and modern literature, the antiquarian book markets are not yet showing the consistent vitality of 2013/14.

Scholium Trading continues to be shown interesting opportunities, some of which we have participated in.  We will pursue these on a case by case basis subject to the overall cash resources available to the business.

Our board remains committed to running the business on a profitable basis – we realise that, at current levels of activity, we are sub-scale for AIM and are actively seeking to stabilise and grow the business.  This is being done both by managing the cost base and actively seeking opportunities to diversify and enhance the business in the markets in which we operate.

Jasper Allen

Chairman

1 July 2015

STRATEGIC REPORT

This report provides an overview of our strategy and of our business model; gives a review of the performance of the business and of our financial position at the year-end; and sets out the principal risks to which the Group is exposed. In addition it comments on the future prospects of the business.

Principal activities and review of the business

Scholium Group plc is the holding company of a group of businesses involved primarily in the trading and retailing of rare and collectible goods.

The group comprises:

·     Shapero Rare Books, a dealer in rare and antiquarian books and works on paper, and its subsidiary brand, Shapero Modern which trades in modern and contemporary prints, both located in Mayfair, London; and

·     Scholium Trading, a company set up to trade in conjunction with other dealers in high value rare and collectible goods.

Strategy

The Company seeks to create exposure to organisations that are engaged in the business of fine art and collectibles.  It does this through its rare books and print dealers, Shapero Rare Books and Shapero Modern respectively; and through Scholium Trading which trades alongside other dealers in the broader art and collectibles market. It is seeking to grow its businesses organically through reinvestment of profits in high quality stock; and by diversification into new market areas through acquisition of companies and/or teams of expert dealers seeking a well-capitalised vehicle.

The Directors intend to provide an attractive level of dividends to shareholders along with stable asset-backed growth driven by opportunities in the markets in which the Group operates.

Our business model

Shapero Rare Books

Shapero Rare Books trades in rare and antiquarian books and works on paper.  The items for sale typically range in value from £100 up to £1.5 million with an average sale price during the year of £4,816 (2014: £4,270). Shapero Rare Books specialises in natural history, travel and Russian materials. During the year it created a modern prints department, Shapero Modern, which has shown encouraging performance.

Scholium Trading

Scholium Trading trades in conjunction with dealers in high value rare and collectible goods. It acquires items or collections either as principal or in consortia with dealers who are expert in their own subject area in the broader collectibles market.

Revenue Streams

The Group earns revenue from:

·     The sale of rare books and works on paper through Shapero Rare Books;

·     The sale of modern and contemporary prints through Shapero Modern; and

·     The sale of other rare and collectible items through Scholium Trading.

Key objectives and key performance indicators (KPIs)

Our key objectives are to:

·     Increase the profitable trade of Shapero Rare Books and Shapero Modern through increased sales and selective purchasing; and

·     Develop Scholium Trading to be the ‘first call’ for dealers in high value rare and collectible items seeking support in their trading items which exceed their immediate financial capacity.

Our current principal KPIs are:

·     Gross margin, EBITDA, earnings per share;

·     The breadth and distribution of the stock of assets held by the Group;

·     Stock turnover of assets; and

·     Various key risk indicators including capital resources, portfolio allocation and cash.

Years ending March 31 Continuing operations	2015	2014
Revenue (millions)	5.16	6.08
Gross Profit (millions)	1.89	2.44
Gross Margin	36%	40%
Stock Turnover	22 months	11 months

Review of the year from continuing operations

Overall performance

Revenue has reduced to £5.16 million (2014: £6.08 million), primarily due to a lower level of activity in the Russian and Eastern European department of Shapero Rare Books. Gross margins are slightly reduced at 36% (2014: 40%) due to a different product mix of book sales revenue, commission income, and trade through Scholium Trading.

The year has also seen a marked increase in the stock holding of the group to £7.47 million (2014: £4.67 million) as the proceeds of the fundraising undertaken in March 2014 have been used to acquire new stock in Shapero Rare Books, Shapero Modern and Scholium Trading.

Stock turnover in the year slowed to 22 months as newly acquired stock was not readily converted into sales.

Financial Position and Cash

As at 31 March 2015 our gross stock levels were £7.47 million (2014: £4.67 million) and net assets were £10.2 million (2014: £10.7 million).  The increase in stock levels is largely due to the Group’s policy of measured investment in stock to drive turnover and return on capital. The reduction in net assets arises from the losses incurred in the year. The results and assets of the discontinued operations are disclosed in note 20.

Analysis of Profit by Department

12 months ending 31 March 2015 (continuing operations, all figures £m)

	Shapero Rare	Scholium	Central	Continuing
	Books	Trading		Operations
Revenue	4.44	0.72	0.00	5.16
Cost of goods sold	(2.64)	(0.63)	0.00	(3.27)
Gross Profit	1.80	0.09	0.00	1.89
Pre Tax Profit	(0.13)	0.09	(0.49)	(0.53)

The table above shows the performance of each revenue and cost department of the Group as it will be continuing in 2015.  Administrative costs for the group, including distribution costs, were £2.4 million (2014: £1.9 million), reflecting the increased overheads required for an AIM listing.

Shapero Rare Books

Shapero Rare Books achieved a turnover of £4.44 million (2014:£6.08 million), excluding its South Kensington Operations which were sold shortly after the year end. The decline in performance, as compared to prior years, was predominantly due to a material slow-down in trade in the Russian and Eastern European department.  In the year under review, the Russian and Eastern European department represented 19% of gross profit (2014: 35%).  Shapero Modern has performed well in its first year, representing approximately 7.7% of Shapero Rare Books’ turnover.

Scholium Trading

Trading by the Group alongside other dealers in the broader arts and collectibles market has developed, been profitable and now represents c. 12% of Group revenue.  Whilst gross margins are in the region of 13%, stock turnover is higher than originally anticipated; the value-weighted average holding period of stock acquired for sale is approximately 65 days.  We remain encouraged by these returns and are actively seeking further profitable trades with third party dealers.

During the year we traded alongside dealers in coins, sculpture, old master paintings, antiquarian books and oriental urns.  We anticipate that, as this business develops, margins will increase along with the average holding period as dealers start to understand our offer better.

Dividend

The Board does not propose to declare a final dividend for the current year.

Principal risks and uncertainties

Supply of antiquarian books and other items

By definition, rare and antiquarian books and other works on paper are rare. The availability of fresh stock of such items is often driven by major life events, such as inheritance, unrecovered debt, divorce or downsizing due to economic malaise. The business of Shapero Rare Books is reliant upon individual works and collections of works coming onto the market and upon the Group being able to access those business opportunities. There is no guarantee that fresh stock will come onto the market in sufficient quantities to meet the Group’s plans for continued growth.

When works become available for sale or purchase, such sales are often dealt with privately and discretely and, accordingly, there is no guarantee that the Group’s employees will be able to access such business opportunities or to negotiate successfully the purchase of fresh stock coming onto the market.

Reliance on key international trade fairs

A significant proportion of the Group’s sales are made at international trade fairs, and in particular The European Fine Art Fair. If this fair were to be discontinued it would have a material effect on the ability of the Group to sell goods. There are a limited number of stands at international trade fairs and as a result places are highly sought after. Whilst members of the Group have been exhibiting at these fairs for many years, there can be no certainty that it will continue to secure a place in the future.

Competition

The market in the books and other items in which the Group trades is competitive. In the market for antiquarian books and other items in which Shapero Rare Books trades, the Group faces various competitive pressures including from the major auctioneers, Sotheby’s, Christie’s and Bonhams, as well as smaller auctioneers and a large number of dealers and smaller operators.

The Group is likely to face continued and/or increased competition in the future both from established competitors and/or from new entrants to the market. The Group’s competitors include businesses with greater financial and other resources than the Group. Such competitors may be in a better position than the Group to compete for future business opportunities. If the Group is unable to compete effectively in any of the markets in which it operates, it could lead to material adverse effect on the Group’s business, financial condition, and operating.

Co-owned rare and collectible goods

In the case of high value items or collections, the Group will often acquire the items jointly with another bookseller and if not expressly provided for there is a risk that the Group will not be able to sell the entire asset without the agreement of all joint-owners. In this and other respects the Group relies on the honesty and integrity of other dealers. Whilst the Group takes care to deal only with established counterparties and experienced dealers who are well known to senior management and/or the Directors, there can be no guarantee that co-owners will comply with the agreed terms (including, for example not charging the items) or that such co-owners will not enter into administration or other insolvency procedure, and in the event there is a loss of the co-owned goods it is not certain that the Group could claim under its insurance policy in relation thereto.

Stock valuation and liquidity

The Group will trade in rare and collectible items, which may be highly illiquid. The value of goods acquired is difficult to assess and it may not be possible for management to sell the assets at or above the price for which they were acquired. The value of assets in the balance sheet may not represent the actual resale value achievable.

Theft, loss or damage

Rare and collectible items are highly mobile goods. Furthermore such goods are frequently transported internationally for trade shows or other marketing opportunities. Whilst precautions are taken to ensure safe passage, the Group’s assets may be lost, damaged or stolen. While the Group carries specialist insurance, there is no guarantee that the Group’s insurance cover will be adequate in all circumstances. Assets of the Group will be placed with third parties for sale on commission. While the Group intends to take appropriate precautions when placing assets with third parties, there is a risk that these assets outside of the Group’s direct control may be stolen or replaced by unscrupulous third parties with fakes or forgeries.

Authenticity and export authority

The Directors of the Company will ensure that due diligence is undertaken on the authenticity of the assets acquired for sale. Nonetheless fakes and forgeries do exist in the market and the Group may acquire these believing them to be authentic. Further, the attribution of works to a particular writer or artist is not an exact science, and there can be no guarantee that assets of the Group will not have been mistakenly attributed in this way. Lack of authenticity is not covered by the Group’s insurance. Whilst the Group takes appropriate care when acquiring works which may be of material importance in the state of origin, there can be no guarantee that works acquired by the Group are not subject to restrictions on export or sale.

Insurance

The Group carries a specialist insurance policy under the Antiquarian Booksellers Association Insurance Scheme which covers each of the businesses. The Directors believe that the Group carries appropriate insurance for a business of its size and nature but there can be no guarantee that the extent or value of the cover will be sufficient, in particular in relation to stock in transit or on consignment. The Directors review the Group’s insurance arrangements on an annual basis and endeavour to insure its stock adequately, but there is no certainty that future claims will not fall within the exclusions under the policy or that the insurer will pay out any claim if made. Further, there can be no guarantee that the necessary insurance will be available to the Group in the future at an acceptable cost or at all.

Premises

Like many of the established dealers in the market, the Group has a publicly accessible gallery in Mayfair, London from where Shapero Rare Books operates. The Directors believe that the location is highly desirable and an important factor in the success of the business as a whole.  Since the year-end the Group has renewed its lease in Mayfair for a further 9 months and is actively investigating new premises in central London.

Terms of sale

To date, the contractual arrangements which the Group has entered into with clients, customers and other dealers have not always included (amongst other things) terms dealing specifically with

(i)           transfer of ownership and risk,

(ii)          contract formation,

(iii)         price and payment,

(iv)         limitations and exclusions of liability, and

(v)          governing law and jurisdiction.

In light of the foregoing, there can be no guarantee that the Group’s arrangements with its customers will not be terminated on short notice or that the Group will not at some future time face challenges or disputes in relation to the contractual or other arrangements with its clients.

If the Group became involved in a contractual dispute and/or a third party was successful in any contractual dispute with the Group, any resultant loss of revenues or exposure to litigation costs or other claims could have a material adverse effect on the Group’s reputation, business, financial condition and/or operations or financial results. The Group is revising its standard terms of sale to seek to ensure that, going forward, the arrangements with clients, customers, dealers and others will include terms dealing with each of the aforementioned areas.

Currency risk

The Directors anticipate that the Group will conduct certain of its transactions other than in Pounds Sterling, the Company’s functional currency. As a result, movements in foreign exchange rates may impact the Group’s performance. The Group does not contract any hedging arrangements in respect of currency positions.

On behalf of the Board:

Simon Southwood

Chief Financial Officer

1 July 2015

Consolidated statement of comprehensive income

			Year  Ended 31 March	Year  Ended 31 March
				Restated
			2015	2014
	Continuing operations	Note	£’000	£000
	Revenue	3	5,166	6,083
	Cost of sales		(3,273)	(3,641)
	Gross profit		1,893	2,442
	Distribution expenses		(268)	(420)
	Administrative expenses		(2,148)	(1,492)
	Exceptional items:
	Replacement share-based payment scheme	7	–	(385)
	IPO expenses	7	–	(228)
	Total administrative expenses		(2,148)	(2,105)
	(Loss) from operations		(523)	(83)
	Financial income		–	1
	Financial expenses	8	(6)	(290)
	(Loss)/profit before taxation	6	(529)	(372)
	Income tax credit	9	29	251
	Loss for the year from continuing operations		(500)	(121)
	Discontinued operations
	Profit for the year from discontinued operations	20	24	24
	(Loss)/profit  for the year and total comprehensive income attributable to equity holders of the parent company		(476)	(97)
	Basic and diluted loss per share:
	From continued operations – pence	10	(3.71)	(45.50)
	From discontinued operations – pence	10	0.18	9.00
	From loss for the year – pence	10	(3.53)	(36.50)

There were no other recognised gains and losses in the year.

	Consolidated statement of financial position		Registered company number:  08833975
					31 March	31 March
					2015	2014
		Note			£000	£000
	Assets
	Non-current assets
	Property, plant and equipment	11			92	104
	Intangible assets	12			–	16
	Deferred taxation	17			280	258
					372	378
	Current assets
	Inventories	13			7,471	4,667
	Trade and other receivables	14			1,694	1,816
	Cash and cash equivalents				2,122	7,578
					11,287	14,061
	Assets of disposal group classified as held for sale	20			162	–
					11,449
	Total assets				11,821	14,439
	Current liabilities
	Trade and other payables	15			1,634	3,111
	Loans and borrowings	16			–	533
	Current corporation tax liabilities				–	14
	Total current liabilities				1,634	3,658
	Liabilities of disposal group classified as held for sale	20			24
	Total liabilities				1,658
	Net assets				10,163	10,781
	Equity and liabilities
	Equity attributable to owners of the Company
	Ordinary shares	18			136	132
	Share Premium				9,516	9,458
	Merger reserve				82	82
	Retained earnings				429	1,109
	Total equity				10,163	10,781

The financial statements were approved by the Board of Directors and authorised for issue on 1 July 2015.

S Southwood

Director