Scholium Group plc

Interim Report & Financial Statements

15 December 2014

Scholium Group plc (“Scholium” or the “Company” or, together with its subsidiaries, the “Group”) is pleased to present its interim report and financial statements for the six months ended 30 September 2014.  The Group is involved in the trading of rare and collectible items.

Operational Highlights

·     Important and high quality stock acquired by Shapero Rare Books to drive sales for the principal selling season in the second half of the financial year

·     Launch of Shapero Modern, the modern and contemporary prints gallery within Shapero Rare Books

·     Trade commencement and development of the Scholium Trading proposition

·     Continued performance of South Kensington Books and accelerated growth of Ultimate Library

Financial Highlights

·     Revenue of £2.80 million (2013: £2.74 million)

·     Gross Profit of £1.14 million (2013: £1.16 million)

·     EBITDA of -£0.18 million (2013: £0.27 million)

·     Stock of £6.60 million (2013: £3.9 million)

·     NAV/Share of 77.49p¹

·     Interim dividend of 0.5p per ordinary share payable to shareholders on the company’s register on 16 January 2015.

¹Based on the currently issued share capital

Commenting on the interim results Philip Blackwell, Chief Executive of the Group, noted “We have spent the first six months of our financial year acquiring new stock, using much of the sum raised on flotation in March this year and executing our strategy. Shapero has significantly increased its range of high quality stock which puts it in a strong position for the significant selling season which occurs in the second half of the financial year. The new Scholium Trading business has launched and made its first acquisitions and our Kensington operations continue to perform strongly.”

For further information, please contact:

Scholium Group plc Philip Blackwell, Chief Executive Officer Simon Southwood, Chief Financial Officer	+44 (0)20 7493 0876
WH Ireland Ltd – Nominated Adviser Chris Fielding / Mark Leonard	+44 (0)20 7220 1666
Whitman Howard Ltd – Broker Ranald McGregor-Smith / Niall Devins	+44 (0)20 7087 4550

 

Scholium Group companies are involved primarily in the trading and retailing of books and other works on paper, as well as dealing in rare and collectible items in the wider art market.

The group of businesses comprises:

•              Shapero Rare Books, a dealer in rare and antiquarian books and works on paper, located in Mayfair, London;

•              South Kensington Books, a bookshop specialising primarily in art, and its sister business, Ultimate Library, which creates bespoke libraries for luxury hotels and private residences; and

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

Revenue Streams

The Group earns revenue from:

•              the sale of rare books and works on paper through Shapero Rare Books;

•              the sale of art books and literature through South Kensington Books;

•              the sale of whole collections and libraries through Ultimate Library; and

•              the sale of other rare and collectible items through Scholium Trading.

Key objectives and key performance indicators (KPIs)

The Group’s strategy is to:

•              increase the antiquarian  stock and trade of Shapero Rare Books and broaden the product mix into Modern prints;

•              invest in developing Scholium Trading – a company created to trade alongside other dealers in high value rare and collectible items and participate in the acquisition for sale of large consignments; and

•              accelerate the growth of the South Kensington Books and Ultimate Library brands; the latter concomitant with the development of international hospitality groups and the demand for premium property in Central London.

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

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.

Overall Performance

The table below illustrates performance for the first six months of our financial year.  Overall, revenue has increased, gross margin on owned stock has increased, but due to the change in mix between commission and owned stock the gross margin of the Group has decreased.  The restocking exercise of Shapero Rare Books has been continuing apace and the business is in a good position for the second half of the financial year, which contains the main selling season.  Costs have increased – primarily to manage the enhanced stock levels and due to the increased overhead of the AIM listing.  The balance sheet remains strong with a very high level of asset backing.  Our challenge is to justify the increased overhead by converting the increased stock into profitable sales in the second half of the financial year.

	Six months ended September
	2014	2013	Variance
Revenue	2,798	2,739	2.2%
Gross Profit	1,142	1,161	-1.6%
Gross Margin	41%	42%	-2.4%
Direct Costs	(168)	(159)	5.7%
Administration Costs	(1,184)	(767)	54.4%
EBITDA	(184)	269	-168.4%
Stock	6,605	3,880	70.2%
Cash	2,754	50
Net Asset Value	10,538	1,274
NAV/Share	77.49p

Shapero Rare Books

Whilst activity at Shapero Rare Books in the first six months of the financial year has been slightly quieter than anticipated, the focus of the business has been to position itself strongly for the major selling season which runs in the second half of the financial year, culminating with The European Fine Art Fair in March.  Consistent with these goals, Shapero Rare Books has increased its stock significantly to approximately £6.3 million at 30 September 2014 (2013: £3.8 million) with a number of noteworthy acquisitions.  As expected with the move to more expensive, higher quality stock, the margin on sales of owned stock increased to approximately 37.6% (2013: 34.8%). Shapero Rare Books has also become more active in the sale of modern prints.

	Six months ended September		Variance
Revenue	2014	2013
Own Stock	2,370	2,207	7.4%
Commission	25	240	-89.6%
	2,395	2,447	-2.1%
Gross Profit
Own Stock	890	769	15.7%
Commission	25	240	-89.6%
	915	1,009	-9.3 %
Gross Margin
Own Stock	37.6%	34.8%
Own stock + Commission	38.2%	41.2%
EBITDA	-1	239	–100.4%
Stock Value	6,274	3,779	66.0%

The most significant variance during the period under review was the absence of a one-off commission that the business earned during the first half of the financial year of 2013 on the final sale of a large consignment of books.  The cost base of Shapero Rare Books has increased to reflect the increased purchasing activity and anticipated sales activity in the second half of the financial year.

Whilst stock turnover for the period is lower, this is in large part due to the rapid growth in stock; and positions the business strongly for the second half of the financial year.

South Kensington Operations

Our South Kensington operations have shown accelerated growth in sales, margin and profitability and are strongly cash positive. Increased footfall has helped retail sales and some high profile hotel contract wins, both in London and overseas, have also driven sales.

South Kensington Operations	Six months ended September		Growth
Revenue	2014	2013
South Kensington Bookshop	276	259	6.6%
Ultimate Library	116	33	251.5%
	392	292	34.2%
Gross Profit	217	149	45.6%
Gross Margin	55%	51%
EBITDA	60	30	100%

Trade in the bookshop showed 6% year-on-year growth and we were most encouraged by growth in orders to Ultimate Library.

Scholium Trading

The first half of the year was productive for Scholium Trading. Although this activity began more slowly than anticipated, it has been pleasing to note that the stock turn on trades completed has been better than expected. Scholium Trading earned its first profit in the period under review, with a return of 10% over a period of 2 months. Since the period end, two further profitable sales have been completed. Having spent considerable time developing relationships with dealers, we are seeing increased activity in the second half of the year with some material propositions for acquiring significant collections.

Financial Position and Cashflow

On 30 September 2014 the Group had a strong balance sheet – £2.75 million of cash (30 September 2013: £0.05 million) and a further £6.6 million of stock (30 September 2014: £3.9 million) supported Gross Assets of £11.5 million (30 September 2013: £5.6 million).  The company had no debt; all working capital facilities provided by the group’s shareholders in 2012 and 2013 were repaid over the period (a total amount of £0.53 million).

Outlook

Whilst sales to date have been slightly lower than hoped for, the overall result for our financial year is heavily influenced by the outcome of sales in the final quarter, which culminates in The European Fine Art Fair, where, traditionally, a significant proportion of the Group’s sales are made. Given the high levels of quality stock and a firm pipeline of selling opportunities, the Directors are confident, if certain high value items are successfully sold before the end of March 2015, that market forecasts will be achieved.

Dividend

Based on the directors’ assessment of the prospects for the year as a whole, the Company will pay an interim dividend of 0.5p to shareholders on the Company’s register on 16 January 2015.

Key Risks

Like all businesses, the Group faces risks and uncertainties that could impact on the Group’s strategy. The Board recognizes that the nature and scope of these risks can change and regularly reviews the risks faced by the Group and the systems and processes to mitigate such risks.

The principal risks and uncertainties affecting the continuing business activities of the Group were outlined in detail in the Strategic Report section of the annual report covering the year ended 31March 2014.

In preparing this interim report for the six months ended 30 September 2014, the Board has reviewed these risks and uncertainties and considers that there have been no changes since the publication of the 2014 Annual Report.

Philip Blackwell

12 December 2014