RNS Number:4085C
Home Entertainment Corporation PLC
31 August 2004
Home Entertainment Corporation
Press Release
Results for the 53 weeks ended 5 June 2004
Financial highlights (figures in #000s)
53 weeks 52 weeks
ended 5/6/2004 ended 31/5/03
(Audited) (Audited)
Turnover 128,862 + 6.8% 120,664
Operating profit before exceptional items* 4,774 -18.8% 5,882
Pre-tax profit after exceptional items* 4,701 -20.1% 5,950
Earnings per share (pence) 17.0 -18.7% 20.9
Dividend per share (pence) 6.6 + 4.8% 6.3
* Net exceptional credit of #9,000 (2003: #62,000 credit)
* Sales increased by 6.8 per cent to #128,862,000 (2003: #120,664,000)
reflecting continued buoyant demand for digital versatile discs ("DVDs") and
games software against a background of significant price deflation in DVDs.
* Rental activity during the year was adversely affected by unprecedented
hot and fine weather.
* Internet business grew by 74.4 per cent compared with last year.
* New EPOS system successfully installed in all 213 Choices stores in 20
weeks.
* Positive cash balances of #1.18 million at 5 June 2004 (2003: #2.09
million) after capital expenditure of #6.7m (2003: #7.6m).
* New warehousing and distribution premises were acquired which has
enabled the consolidation of operations within one facility from the end of
July 2004.
* #1.34 million underfunding of HEC Discretionary Pension Scheme has been
eliminated.
"We have made a good and improved start to the current year despite 'wall to
wall' sport. We face the increasingly important Autumn and Christmas periods
with confidence and determination.'
(Iain Muspratt, Chairman)
For further information contact
Iain Muspratt (Home Entertainment Corporation): 01733 363099
Simon Bloomfield or Trisha Davies
Bankside Consultants: 0207 444 4140 (office) or 07771 758517 (mobile)
CHAIRMAN'S STATEMENT
Profit before tax is as estimated in the trading update I issued on 25 June
2004.
The period ended 5 June 2004 was one during which we chose to invest in a range
of new systems, relocated our central logistics centre and launched new
activities at the same time as experiencing an unexpected downturn in rental
activity due to the unprecedentedly long hot summer. The result of that 'double
whammy' is the first setback in profits growth we have suffered since 1990.
However, the results of the current year to date indicate that the benefits of
the investments are, with one exception, proving successful and are contributing
to an improvement in year on year performance.
During the year we appointed two additional non-executive directors - Michael
Riding and John Sealey. Michael is about to retire from Lloyds TSB Bank plc
where he has been Managing Director, Corporate Banking and Chairman of Lloyds
TSB Development Capital Limited. John served as Group Finance Director of this
Company until his retirement in May 2004. We welcome the experience and value
judgments they will provide. Both will be members of the Audit and Remuneration
Committees.
Gareth Clark will be retiring from the Board on 18 October 2004 having completed
three years service as a non-executive director and we would like to thank him
for his counsel.
Results
Overall turnover growth was 6.8 per cent against a background of a reduced
number of new store openings (whilst effort was concentrated in installing our
new EPOS system) and substantial price deflation in DVDs.
Gross Profit increased by 11.4 per cent and Gross Margins by 1.7 per cent to
42.6 per cent (2003: 40.9 per cent) as our volumes on selling activities and
product ranges grew. Sales activity accounted for 55.2 per cent of the Company's
turnover compared to 53.4 per cent in the prior period. Sales activities grew by
10.4 per cent and rental activity by 2.6 per cent.
Operating Profit before exceptional items declined to #4.77 million compared to
#5.88 million in 2003.
Net cash at the end of the period was #1.18 million (2003: #2.09 million).
Capital Expenditure Incurred was #6.71 million (2003: #7.60 million) reflecting
investments in store openings and relocations, central systems and the new
logistics centre.
Basic earnings per share were 17.0p (2003: 20.9p).
Our actuaries have advised us that the underfunding of HEC Discretionary Pension
Scheme has been eliminated. Immediately prior to HEC's admission to AIM this
underfunding amounted to #1.34 million.
Dividend
An interim dividend of 2.2 pence per share (2003: 2.1 pence) was paid on 16
April 2004 and the Board is recommending a final dividend of 4.4 pence per share
(2003: 4.2 pence) to be paid, subject to approval at the Annual General Meeting
on 30 September 2004, on 29 October 2004 to shareholders on the Register as at
17 September 2004.
Trading
The year was characterised by rapid growth in DVD sales volumes accompanied by
very substantial price deflation, particularly in catalogue product. Christmas
trading was generally satisfactory. Fine weather at key periods adversely
affected rental activities.
Huge effort was invested in our new EPOS system which enabled us to start to
successfully introduce new activities in store towards the end of the financial
period. These are already producing incremental profits.
Work started on fitting out our new logistics centre and some of our activities
were located there by the period end. The final moves took place at the end of
July 2004.
During the year we launched our new Internet based rental service in association
with Book Club Associates - part of the DirectGroup Bertlesmann. This venture
incurred losses contributing further to the fall in profitability.
Trading Divisions
Choices Video opened a net three new stores during the year making a total of
213 at the period end. There were 11 openings, two relocations and eight
closures. Total Capital Expenditure (excluding the new EPOS system) was #2.59
million (2003: #4.12 million). On a like for like basis rental and sales
activities increased by 7.1 per cent and 6.1 per cent respectfully.
Video Box Office rental revenues declined 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 Choices Video, a range of new
activities (and customers) were introduced towards the end of the year and
continue to be developed.
Choices Direct grew both its Internet and paper-based mail order businesses but
the fulfillment business declined slightly for reasons outside our control. This
was a one off situation which has now been rectified. Margins came under
pressure during the year as a result of price deflation in traditional retail
outlets. Overall revenues grew by 14 per cent.
Mosaic Entertainment achieved a 93 per cent increase in turnover as a result of
adding a wider range of sell thru product to the titles that have been licensed.
The division was profitable.
MovieChoices (initially launched as 'ChoicesErental') commenced trading and has
grown its subscriber base albeit at a slower rate than originally anticipated.
As with many new activities it was loss making.
The financial period ended 5 June 2004 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.
Outlook
We believe that our future lies in our ability to innovate our entertainment
offerings both in how we deal with our customers and in what we offer them.
In every trading division we have introduced a combination of new activities and
new (related) products or laid the foundation to do so.
The area to develop most initially has been Choices Video where results for the
first two periods of our current financial year have much improved compared with
2003 - notwithstanding the adverse effect of Euro 2004. Five new stores have
been opened and are trading as expected and the new EPOS system is producing
considerable benefit.
Video Box Office has broadly maintained year on year performance during that
time but is more susceptible to external factors over which we have no control.
Further new initiatives are planned during the run up to Christmas.
Choices Direct is also broadly in line with the previous year which we consider
to be a creditable performance given the relative paucity of major releases. All
platforms and associations for the run up to Christmas are in place and with an
unprecedentedly heavy release line up there is no reason to believe that this
crucial period should not meet our expectations provided consumer confidence is
not dented.
Mosaic Entertainment has released less than it did during the same period last
year but has its best ever line up for Christmas and beyond.
Our new MovieChoices business has grown but continues to lose money. We are
monitoring performance of both that sector (a very small part of the overall
rental business) and our part in it with care.
We have made a good and improved start to the current year despite 'wall to
wall' sport. We face the increasingly important Autumn and Christmas periods
with confidence and determination.
Iain Muspratt, Chairman
27 August 2004
INDEPENDENT AUDITORS' REPORT
to the members of Home Entertainment Corporation PLC
We have audited the accounts for the 53 week period ended 5 June 2004 which
comprise the Profit and Loss Account, Balance Sheet, Statement of Cash Flows 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' responsibilities for preparing the Annual Report and the accounts
in accordance with applicable United Kingdom law and accounting standards are
set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the accounts in accordance with relevant legal
and regulatory requirements and United Kingdom Auditing Standards.
We report to you our opinion as to whether the accounts give a true and fair
view and are 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 Company 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 regarding Directors' remuneration and
transactions with the Company is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited accounts. This other information comprises the
Chairman's Statement, the 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 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 judgments made by
the Directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the Company'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 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 as at 5 June 2004 and of the profit of the Company for the period
then ended and have been properly prepared in accordance with the Companies Act
1985.
Ernst & Young LLP
Registered Auditor
Cambridge
27 August 2004
PROFIT AND LOSS ACCOUNT
for the 53 week period ended 5 June 2004
Notes 2004 2003
(53 weeks) (52 weeks)
#000 #000
TURNOVER 1 128,862 120,664
Cost of sales (73,937) (71,366)
Gross profit 54,925 49,298
Net operating costs 3 (50,471) (43,354)
OPERATING PROFIT 2 4,454 5,944
Analysis of Operating Profit:
Operating profit before exceptional items 4,774 5,882
Exceptional item - credit in
respect of flotation costs - 62
Exceptional item - EPOS implementation (320) -
OPERATING PROFIT 4,454 5,944
Exceptional gain on disposal of tangible fixed
asset 329 -
Net interest (payable) / receivable (82) 6
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,701 5,950
Tax on profit on ordinary activities (1,638) (2,184)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 3,063 3,766
Dividends (including non-equity dividends) 3 (1,191) (1,135)
RETAINED PROFIT FOR THE PERIOD 1,872 2,631
Earnings per Share:
Basic 4 17.0p 20.9p
Diluted 4 15.8p 20.0p
Adjusted basic earnings per
share (excluding exceptional
items and over-provision in
respect of prior periods'
taxation) 4 16.9p 20.5p
Dividends per Ordinary share 3 6.6p 6.3p
There are no recognised gains or losses other than the profit attributable to
shareholders of the Company of #3,063,000 in the 53 week period ended 5 June
2004 and of #3,766,000 in the 52 week period ended 31 May 2003.
BALANCE SHEET
at 5 June 2004
Notes 2004 2003
#000 #000
FIXED ASSETS
Tangible assets 15,676 14,418
CURRENT ASSETS
Stocks 12,200 10,514
Debtors 6,550 7,161
Cash at bank and in hand 1,183 2,088
19,933 19,763
CREDITORS: amounts falling due within one year (18,022) (18,533)
NET CURRENT ASSETS 1,911 1,230
TOTAL ASSETS LESS CURRENT LIABILITIES 17,587 15,648
PROVISIONS FOR LIABILITIES AND CHARGES:
Deferred taxation (310) (304)
17,277 15,344
CAPITAL AND RESERVES
Called up share capital 903 901
Share premium account 968 909
Capital redemption reserve 1,061 1,061
Profit and loss account 14,345 12,473
SHAREHOLDERS' FUNDS - EQUITY 17,277 15,344
I D Muspratt )
) Directors
C J White )
27 August 2004
STATEMENT OF CASH FLOWS
for the 53 week period ended 5 June 2004
Notes 2004 2003
#000 #000
NET CASH INFLOW FROM OPERATING ACTIVITIES 2 8,625 11,412
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest (paid) / received (82) 6
TAXATION
Corporation tax paid (2,110) (1,934)
CAPITAL EXPENDITURE
Proceeds from sale of tangible fixed assets 466 -
Payments to acquire tangible fixed assets (6,711) (7,600)
(6,245) (7,600)
EQUITY DIVIDENDS PAID (1,154) (1,063)
NET CASH (OUTFLOW) / INFLOW BEFORE FINANCING (966) 821
FINANCING
Issue of Ordinary share capital 61 -
(DECREASE) / INCREASE IN CASH (905) 821
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2004 2003
#000 #000
(Decrease) / Increase in cash in period (905) 821
Net funds at 31 May 2003 2,088 1,267
Net funds at 5 June 2004 1,183 2,088
NOTES TO THE ACCOUNTS
at 5 June 2004
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:
2004 2003
(53 Weeks) (52 Weeks)
#000 #000
Geographical Analysis
United Kingdom 127,509 119,466
Rest of Europe 787 680
Other 566 518
128,862 120,664
Segmental Analysis
Rental 57,695 56,227
Sales - Games 18,553 19,139
Sales - Others 52,614 45,298
128,862 120,664
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
Reconciliation of operating profit to net cash inflow from operating activities:
2004 2003
(53 Weeks) (52 Weeks)
#000 #000
Operating profit 4,454 5,944
Depreciation 5,316 4,703
Decrease/(Increase) in debtors 611 (1,795)
Increase in stocks (1,686) (842)
(Decrease)/Increase in creditors (70) 3,402
Net cash inflow from operating activities 8,625 11,412
Net cash inflow from operating activities includes an outflow of #320,000 in
2004 in respect of exceptional EPOS implementation costs, and includes an inflow
of #62,000 in 2003 in respect of flotation costs. Proceeds from sale of tangible
fixed assets in the Statement of Cash Flows in 2004 includes #466,000 from the
exceptional sale of tangible fixed assets.
3. DIVIDENDS
2004 2003
(53 Weeks) (52 Weeks)
#000 #000
Equity dividends on Ordinary shares:
Interim 2.2p - paid (2003: 2.1p) 397 378
Final 4.4p - proposed (2003: 4.2p) 794 757
1,191 1,135
4. EARNINGS PER SHARE
53 weeks ended 52 weeks ended
5 June 2004 31 May 2003
Diluted Basic Diluted Basic
Earnings #3,063,379 #3,063,379 #3,766,584 #3,766,584
Number of shares at
start of period 18,015,975 18,015,975 18,015,975 18,015,975
Shares issued 36,125 36,125 - -
Dilutive effect of
share option schemes 1,482,150 - 1,011,025 -
19,534,250 18,052,100 19,027,000 18,015,975
Weighted average
number of shares 19,371,188 18,033,361 18,877,500 18,015,975
Earnings per share 15.8p 17.0p 20.0p 20.9p
Adjusted earnings per
share 15.8p 16.9p 19.5p 20.5p
Adjusted earnings per share excludes the effects of exceptional EPOS
implementation costs of #320,000 and exceptional gain on disposal of tangible
fixed asset of #329,000 (2003: #62,000 flotation credit and #15,000
over-provision in respect of prior period's taxation) and is presented in order
to show the underlying performance of the Company.
5. ANNUAL GENERAL MEETING
The 2004 Annual General Meeting of Home Entertainment Corporation PLC will be
held at 19-24 Manasty Road, Orton Southgate, Peterborough, PE2 6UP, on Thursday
30 September 2004 at 10.00am.
6. COPIES OF ANNUAL REPORT
Copies of the annual report for the 53 weeks ended 5 June 2004 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.
7. NATURE OF FINANCIAL INFORMATION
The financial information set out above does not comprise the Company's
statutory accounts. Statutory accounts for the 53 week period ended 5 June 2004
have been delivered to the Registrar of Companies. The auditor's report on those
accounts was unqualified and contained no statement under section 237 (2) or (3)
of the Companies Act 1985.
8. TRADING DIVISIONS
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.vbo.co.uk
Choices Video
Operated through 213 (31 May 2003: 210) Company owned retail outlets in England
and Wales, offering DVDs, videos and computer games rental and sales, games
consoles for sale, the sales of 'Pay As You Go', 'Network Branded' and 'SIM
Free' mobile telephones, 'top-ups' (including 'E-Top-Ups') and ice cream and
confectionery.
www.choicesvideo.co.uk
Choices Direct
Choices Direct offers DVDs, videos, computer games and talking tapes released in
the United Kingdom for sale through mail order. Customers can access the Choices
Direct service by mail, by telephone or over the Internet via Choices Direct's
website.
www.choicesdirect.com
Choices Direct also 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.
Moviechoices
Moviechoices was relaunched in June this year (formerly choicesErental) and
offers the rental of DVDs via the Internet utilising Home Entertainment
Corporation's vast experience in this area. The present range of 20,000 titles
is being extended daily and provides our customers with a valued service.
www.moviechoices.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
This information is provided by RNS
The company news service from the London Stock Exchange
END
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