RNS Number:5618Q
Home Entertainment Corporation PLC
30 August 2005
Press Release
EMBARGOED to 0700hrs (GST), Tuesday, 30th August 2005
Preliminary results for the 52 weeks ended 4 June 2005
Financial highlights (figures in #000s) 52 weeks + / - (%) 53 weeks
ended 4/6/05 ended 5/6/04
(Audited) (Audited)
Turnover 140,467 + 9.0 128,862
EBITDA 10,898 + 11.5 9,770
Operating profit before exceptional 4,618 - 3.3 4,774
items *
Pre-tax profit after exceptional items 4,449 + 1.8 4,372
*
Earnings per share (pence)
- basic 15.6 + 2.6 15.2
- diluted 14.4 + 2.1 14.1
Dividend per share (pence) 6.8 + 3.0 6.6
* Exceptional cost of EPOS implementation in 2004 of #320,000 (2005: nil)
* Sales increase reflects the continued expansion of the Group's sales
activities in digital versatile discs ("DVDs") and games software against a
background of significant price deflation in DVDs.
* Rental has continued in its current downward cycle as a result of a
number of factors including a relatively poor release schedule and,
particularly, widespread piracy.
* Choices Video stores on a like-for-like basis showed a sales increase of
15.8 per cent and a rental decrease of 10.6 per cent.
* Internet business grew by 71.0 per cent compared with the prior year.
* Online Internet based DVD rental service MovieChoices was sold to
LOVEFiLM and the Company entered into an arrangement to take responsibility
for LOVEFiLM's stock management, procurement and logistics operation.
"Our objective is to become the UK's most convenient source of home
entertainment in whatever format and through whichever channels suit the
consumer. To this end, we will vigorously continue to develop the business,
pursuing strategies aimed at strengthening our core activities in the DVD and
computer games rental, and DVD, computer games and audio markets, selectively
expanding our "direct home" and distribution channels.
"We are embarking on a series of major initiatives for the current year, the
groundwork for which has been laid."
(Iain Muspratt, Chairman)
For further information contact
Iain Muspratt (Home Entertainment Corporation): 01733 363099
Simon Bloomfield or Samantha Kinghorn
Bankside Consultants: 0207 367 8888 (office) or 07771 758517 (mobile)
CHAIRMAN'S STATEMENT
Results
The period ended 4 June 2005 was one during which we continued to increase our
sales activities.
Overall turnover growth was 9.0 per cent against a background of substantial
price deflation in DVDs.
Gross profit increased by 6.1 per cent and gross margins decreased by 1.1 per
cent to 41.5 per cent (2004: 42.6 per cent) as our volumes on selling activities
and product ranges grew. Sales activity accounted for 61.1 per cent of the
Group's turnover compared to 55.2 per cent in the prior period. Sales activities
grew by 20.6 per cent and rental activity decreased by 5.3 per cent.
Operating profit increased to #4.62 million compared to #4.45 million in 2004.
Capital expenditure incurred was #6.54 million (2004: #6.71 million) reflecting
investments in store openings, relocations and central systems.
Basic earnings per share were 15.6p (2004: 15.2p).
Dividend
An interim dividend of 2.3 pence per share (2004: 2.2 pence) was paid on 22
April 2005 and the Board is recommending a final dividend of 4.5 pence per share
(2004: 4.4 pence) to be paid (subject to approval at the Annual General Meeting
on 29 September 2005) on 28 October 2005 to shareholders on the Register as at
16 September 2005.
Non-Executive Directors
During the year we appointed one additional non-executive director - David
Sanders. David runs his own broadcasting consultancy (Sanders & Partners
Limited) and has spent much of the last ten years working on digital projects
for clients such as S4C, ITN, RTE (Irish state broadcaster) and the Department
for Education and Skills. He is non-executive director of S4C Masnachol, the
commercial arm of the Welsh Channel 4 and of Channel Earth, an environment and
outdoor-life channel (in development), and was a Director of the Supervisory
Board of EuroNews between 1998 and 2002.
Geoffrey Hopkins was one of the founding partners of the business and is
retiring as a non-executive director at the Annual General Meeting. His wisdom
and counsel has been invaluable over the years and we look forward to our
relationship continuing in his capacity as a major shareholder.
Trading
The year was characterised by continued growth in DVD sales volumes accompanied
by very substantial price deflation, particularly in catalogue product and the
continued decline in rental activity.
Online Internet based DVD rental service, MovieChoices was sold to LOVEFiLM and
the Company entered into an arrangement to take responsibility for LOVEFiLMs
stock management, procurement and logistics operation towards the end of the
financial year.
The process of concentrating all our trading activities under the 'ChoicesUK'
brand name was started together with the initial work relating to our new
entertainment programme based TV shopping channel - ChoicesUK TV.
Piracy has become a very major problem. The growth and extent is alarming and we
are playing a leading role in industry-wide initiatives to contain it. Piracy is
a serious criminal offence and it is very clear that much is orchestrated from
supply chains dominated by organised crime, which uses illegal immigrants as
distributors. In recent weeks a much needed increase in enforcement activity by
Trading Standards Officers and Police has begun and it is vital for this to
continue.
Choices Video opened a net 15 new stores during the year making a total of 228
at the year end. There were 20 openings, one relocation and five closures. Total
capital expenditure was #3.67 million (2004: #2.59 million excluding the new
EPOS system). On a like for like basis sales and rental activities showed like
for like increases/(decreases) of 15.8 per cent and 10.6 per cent respectively.
Video Box Office rental revenues continued to decline slightly during the year
but this was offset by a higher rate of increase in sales activity. DVD is now
well established in all VBO outlets and, as with ChoicesUK, a range of new
activities (and customers) were introduced towards the start of the year and
continue to be developed.
Choices Direct grew both its Internet and paper-based mail order businesses.
Margins came under pressure during the year as a result of price deflation in
traditional retail outlets. This division also manages and fulfils DVD and video
sales for many of the large mail order catalogue companies in the United Kingdom
where sales declined slightly for reasons outside our control.
Mosaic Entertainment turnover decreased by 3.9 per cent during the year.
MovieChoices (initially launched as 'ChoicesErental') was sold to LOVEFiLM for
net proceeds of #385,000.
ChoicesUK TV was licensed to operate a TV shopping channel by OFCOM and launched
on 15 August 2005.
The financial period ended 4 June 2005 has not been easy but we have made
progress. I should like to thank my colleagues and staff for the determined way
they have reacted to the challenges it has presented.
Current Year Plans
Our objective is to become the UK's most convenient source of home entertainment
in whatever format and through whichever channels best suit the consumer. To
this end, we will vigorously continue to develop the business, pursuing
strategies aimed at strengthening our core activities in the DVD and computer
games rental, and DVD, computer games and audio markets, selectively expanding
our "direct home" and distribution channels.
We are embarking on a series of major initiatives for the current year, the
groundwork for which has been laid.
Firstly, carrying out all our activities under the "ChoicesUK" brand will give
us the widest possible exposure throughout the markets we service:
ChoicesUK (formerly Choices Video) will expand its sales ranges in time for the
pre-Christmas trading period.
ChoicesUK Local (formerly Video Box Office) will continue to expand the outlets
it services together with its sales ranges and build upon its presence in the
Republic of Ireland where it has made an encouraging start.
ChoicesUK.com and ChoicesUK Direct (formerly Choices Direct) will introduce
enhanced services and product ranges in time for the key Christmas trading
period.
ChoicesUK TV launched ahead of schedule on August 15 at Channel 697 on the Sky
platform. Initially, it is offering DVDs, computer games and entertainment
gadgets for sale and related viewer involvements.
Historically, HEC has operated as a very divisionalised business and the changes
we are making will streamline the organisation giving much greater efficiency.
The whole exercise requires revenue investment and the consequent exceptional
costs will amount to a maximum of #1.7 million in the current year, including
establishment costs for ChoicesUK TV.
All these plans are designed to increase our sales business, take maximum
advantage of the two million or so customers we directly or indirectly service
and add more.
Whilst we are perceived by many to be wholly video rental orientated we have
been very successful in building a sales business which now accounts for 65 per
cent of turnover on an annualised basis. We aim to increase this proportion
materially.
Investment in all we are undertaking is concentrated in the period up to the end
October and will be completed by that time.
Current Trading
Poor releases and the June heatwave have not helped our start to the year and,
as is well documented, retail trading conditions remain difficult.
I have already drawn attention to the level of exceptional expenditure. Our aim
will be to maintain operating profits at last year's level, but much will depend
on the economic climate during the increasingly important Christmas trading
period.
Finally, as a Board, we are committed to the continued progressive increase of
our dividend payments.
Iain Muspratt
Chairman
Independent auditors' report
to the members of Home Entertainment Corporation PLC
We have audited the accounts for the 52 week period ended 4 June 2005 which
comprise the Group Profit and Loss Account, Group Balance Sheet, Company Balance
Sheet, Group Statement of Cash Flows, Group Statement of Total Recognised Gains
and Losses and the related notes 1 to 22. These accounts have been prepared on
the basis of the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the Company's members those matters we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
The directors are responsible for preparing the Annual Report, including the
accounts which are required to be prepared in accordance with applicable United
Kingdom law and accounting standards as set out in the Statement of Directors'
Responsibilities in relation to the accounts.
Our responsibility is to audit the accounts in accordance with relevant legal
and regulatory requirements, United Kingdom Auditing Standards and the Listing
Rules of the Financial Services Authority.
We report to you our opinion as to whether the accounts give a true and fair
view and whether the accounts have been properly prepared in accordance with the
Companies Act 1985. We also report to you if, in our opinion, the Directors'
Report is not consistent with the accounts, if the Group has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law or the Listing
Rules regarding directors' remuneration and transactions with the Group is not
disclosed.
We are not required to consider whether the Board's statements on internal
control cover all risks and controls, or form an opinion on the effectiveness of
the group's corporate governance procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited accounts. This other information comprises the
Highlights, Chairman's Statement, Directors' Report, Corporate Governance
Statement and Report on Remuneration. We consider the implications for our
report if we become aware of any apparent misstatements or material
inconsistencies with the accounts. Our responsibilities do not extend to any
other information.
Basis of Audit Opinion
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the accounts. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the Group's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts to be audited
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the accounts.
Opinion
In our opinion the accounts give a true and fair view of the state of affairs of
the Company and of the Group as at 4 June 2005 and of the profit of the Group
for the period then ended and have been properly prepared in accordance with the
Companies Act 1985.
Ernst & Young LLP
Registered Auditor
Cambridge
26 August 2005
Group profit & loss account
for the 52 week period ended 4 June 2005
Notes 2005 2004
(52 weeks) (53 weeks)
#000 #000
(as restated)
TURNOVER 1 140,467 128,862
Cost of sales (82,198) (73,937)
Gross profit 58,269 54,925
Net operating costs (53,651) (50,471)
OPERATING PROFIT 2 4,618 4,454
Analysis of Operating Profit:
Operating profit before exceptional items 4,618 4,774
Exceptional item - EPOS implementation - (320)
OPERATING PROFIT 4,618 4,454
Net interest payable (169) (82)
PROFIT ON ORDINARY ACTIVITIES BEFORE 4,449 4,372
TAXATION
Tax on profit on ordinary activities (1,633) (1,638)
PROFIT ON ORDINARY ACTIVITIES AFTER 2,816 2,734
TAXATION
Dividends 3 (1,228) (1,191)
RETAINED PROFIT FOR THE PERIOD 1,588 1,543
Earnings per Share:
Basic 4 15.6p 15.2p
Diluted 4 14.4p 14.1p
Dividends per Ordinary share 3 6.8p 6.6p
Group balance sheet
at 4 June 2005
2005 2004
#000 #000
(as restated)
FIXED ASSETS
Tangible assets 16,748 16,320
CURRENT ASSETS
Stocks 16,633 12,200
Debtors 8,152 6,550
Cash at bank and in hand 77 1,183
24,862 19,933
CREDITORS: amounts falling due within one year (21,768) (18,022)
NET CURRENT ASSETS 3,094 1,911
TOTAL ASSETS LESS CURRENT LIABILITIES 19,842 18,231
PROVISIONS FOR LIABILITIES AND CHARGES:
Deferred taxation (135) (310)
19,707 17,921
CAPITAL AND RESERVES
Called up share capital 904 903
Share premium account 997 968
Capital redemption reserve 1,061 1,061
Revaluation reserve 777 625
Profit and loss account 15,968 14,364
SHAREHOLDERS' FUNDS - EQUITY 19,707 17,921
Group statement of cash flows
for the 52 week period ended 4 June 2005
Notes 2005 2004
#000 #000
NET CASH INFLOW FROM OPERATING ACTIVITIES 2(b) 8,317 8,625
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (169) (82)
TAXATION
Corporation tax paid (1,626) (2,110)
CAPITAL EXPENDITURE
Proceeds from sale of tangible fixed assets - 466
Payments to acquire tangible fixed assets (6,502) (6,711)
(6,502) (6,245)
ACQUISITIONS AND DISPOSALS
Purchase of the business and certain assets of
In-Store (331) -
Movies PLC
Sale of business 385 -
54 -
DIVIDENDS PAID (1,210) (1,154)
NET CASH OUTFLOW BEFORE FINANCING (1,136) (966)
FINANCING
Issue of Ordinary share capital 30 61
DECREASE IN CASH (1,106) (905)
Reconciliation of net cash flow to movement in net funds
2005 2004
#000 #000
Decrease in cash in period (1,106) (905)
Net funds at beginning of period 1,183 2,088
Net funds at end of period 77 1,183
Group statement of total recognised gains and losses
for the 52 week period ended 4 June 2005
2005 2004
(52 weeks) (53 weeks)
#000 #000
(as restated)
Profit for the financial year 2,816 2,734
Unrealised surplus on revaluation 168 -
Realised surplus on revaluation - 329
Total recognised gains and losses for year 2,984 3,063
Prior year adjustment 644 -
Total recognised gains and losses since last Annual
Report 3,628 3,063
Note of group historical profits and losses
for the 52 week period ended 4 June 2005
2005 2004
(52 weeks) (53 weeks)
#000 #000
Reported profit on ordinary activities before
taxation 4,449 4,372
Realised surplus on revaluation - 329
Difference between historical cost depreciation
charge and the actual depreciation charge of the
period calculated on the revalued amount 16 19
Historical cost profit on ordinary activities before
taxation 4,465 4,720
Historical cost profit for the period retained after
tax and dividends 1,604 1,891
NOTES TO ACCOUNTS
1. Turnover
Turnover, which is stated net of credits, allowances, trade discounts and
VAT, represents amounts invoiced to, or received from, third parties.
Turnover comprises income from the rental of pre-recorded DVDs, video
cassettes and computer games and sale of pre-recorded DVDs, video
cassettes, computer games, mobile telephones and 'E-Top-Ups' and other
related products.
An analysis of turnover by geographical market and segment is given below:
2005 2004
(52 Weeks) (53 Weeks)
#000 #000
Geographical Analysis
United Kingdom 139,189 127,509
Rest of Europe 690 787
Other 588 566
140,467 128,862
Segmental Analysis
Rental 54,629 57,695
Sales - Games 20,464 18,553
Sales - Others 65,374 52,614
140,467 128,862
The directors consider it to be seriously prejudicial to the commercial
interests of the business to analyse operating profit and net assets
geographically or by sector.
2. Operating Profit
(a) This is stated after charging:
2005 2004
(52 weeks) (53 weeks)
#000 #000
Depreciation 6,275 5,316
Directors' remuneration (note 5) 1,021 954
Auditors' remuneration - audit services 71 62
- non-audit services 14 10
Operating lease rentals - land and buildings 8,196 6,996
- other 524 581
(b) Reconciliation of operating profit to net cash inflow from operating
activities:
2005 2004
(52 weeks) (53 weeks)
#000 #000
Operating profit 4,618 4,454
Amortisation 5 -
Depreciation 6,275 5,316
Profit on sale of business (385) -
(Increase)/decrease in debtors (1,602) 611
(Increase) in stocks (4,140) (1,686)
Increase/(decrease) in creditors 3,546 (70)
Net cash inflow from operating activities 8,317 8,625
Net cash inflow from operating activities includes an outflow of #320,000
in 2004 in respect of exceptional EPOS implementation costs. Proceeds from
sale of tangible fixed assets in the Statement of Cash Flows in 2004
included #466,000 from the sale of tangible fixed assets.
(c) Reconciliation of operating profit to EBITDA:
2005 2004
(52 weeks) (53 weeks)
#000 #000
(as restated)
Operating profit 4,618 4,454
Depreciation and amortisation 6,280 5,316
EBITDA 10,898 9,770
3. Dividends
2005 2004
(52 weeks) (53 weeks)
#000 #000
Equity dividends on Ordinary shares:
Interim 2.3p - paid (2004: 2.2p) 415 397
Final 4.5p - proposed (2004: 4.4p) 813 794
1,228 1,191
4. Earnings Per Share
52 weeks ended 53 weeks ended
4 June 2005 5 June 2004
(as restated)
Diluted Basic Diluted Basic
Earnings #2,815,676 #2,815,676 #2,734,379 #2,734,379
Number of shares at start
of period 18,052,100 18,052,100 18,015,975 18,015,975
Shares issued 17,647 17,647 36,125 36,125
Dilutive effect of share
option schemes 1,397,628 - 1,482,150 -
19,467,375 18,069,747 19,534,250 18,052,100
Weighted average number of
shares 19,500,367 18,059,453 19,371,188 18,033,361
Earnings per share 14.4p 15.6p 14.1p 15.2p
TRADING DIVISIONS
ChoicesUK Local (formerly Video Box Office)
Provides a service throughout the United Kingdom to convenience stores and other
established retailers, enabling them to add DVD and video sales and rental,
computer games software sales and music sales to the range of products offered
to their customers.
www.ChoicesUKLocal.com
ChoicesUK (formerly Choices Video)
Operated through 228 (5 June 2004: 213) Company owned retail outlets in England
and Wales, offering DVDs, videos and computer games rental and sales, games
consoles for sale, the sale of 'Pay As You Go', 'Network Branded' and 'SIM Free'
mobile telephones, 'top-ups' (including 'E-Top-Ups') and ice cream and
confectionery.
www.ChoicesUK.com
ChoicesUK Direct (formerly Choices Direct)
ChoicesUK.Direct offers DVDs, videos, computer games and talking tapes released
in the United Kingdom for sale through its Internet site (ChoicesUK.com) and
through it's mail order business. In addition ChoicesUK.Direct manages and
fulfils DVD and video sales for many of the large mail order catalogue companies
in the United Kingdom, including SDG, Freemans, Littlewoods and Book Club
Associates. The service offered is comprehensive, ranging from title selection
advice and compilation, through to fulfilment of customers' orders.
www.ChoicesUKdirect.com
Mosaic Entertainment
Mosaic Entertainment invests in and acquires the rights to a range of feature
films and television programmes and then releases them to the general consumer
DVD, video and TV markets in the United Kingdom and the Republic of Ireland
(including arm's length sales to other divisions of the Company).
www.mosaic-entertainment.co.uk
ChoicesUK TV
ChoicesUK TV was licensed to operate a TV shopping channel by OFCOM and was
successfully launched on 15 August 2005.
www.ChoicesUK.com
ANNUAL GENERAL MEETING
The 2005 Annual General Meeting of Home Entertainment Corporation PLC will be
held at Unit 11, Manasty Road, Orton Southgate, Peterborough, PE2 6UP on
Thursday 29 September 2005 at 10.00 am for the following purposes:
COPIES OF ANNUAL REPORT
Copies of the annual report for the 52 weeks ended 4 June 2005 are available,
free of charge, to the public on any week day, at the registered office of the
Company (19-24 Manasty Road, Orton Southgate, Peterborough, PE2 6UP) and at the
offices of the Company's nominated advisers, Teather & Greenwood Limited
(Beaufort House, 15 St Botolph Street, London, EC3A 7QR) from the date of this
announcement and for a period of one month thereafter. Alternatively, the annual
report can be accessed by visiting the Company's website at www.hecplc.com.
NATURE OF FINANCIAL INFORMATION
The financial information set out above does not comprise the Company's
statutory accounts. Statutory accounts for the 52 week period ended 4 June 2005
will be delivered to the Registrar of Companies after the Annual General
Meeting. The auditor's report on those accounts was unqualified and contained no
statement under section 237 (2) or (3) of the Companies Act 1985.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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