RNS Number:4388A
Home Entertainment Corporation PLC
28 August 2002
News Release - Wednesday, 28 August 2002
Home Entertainment Corporation PLC
Results for the 52 weeks ended 1 June 2002
Financial highlights (figures in #'000s)
52 weeks ended 1 June 2 June
2002 2001
Turnover 103,038 83,408 + 23.5%
Operating profit (before exceptional item) 5,411 4,953 + 9.2%
Pre-tax profit (before exceptional item) 5,366 4,905 + 9.4%
Earnings per ordinary share (pence - before-exceptional item
and prior year tax adjustments) 19.1 17.6 + 8.5%
Dividends (pence)
- interim paid 1.9 1.3
- final proposed 3.8 2.5
- total 5.7 3.8 + 50.0%
* Exceptional item consisted of flotation costs totalling #639,000
* Since successfully floating on AIM in October 2001, HEC has continued to
achieve significant growth
* Sales grew by 23.5 per cent to #103 million, reflecting continued strong
demand for games consoles and software and DVDs
* Expected change in sales mix from rental to sell-thru has reduced gross
margin offset by savings achieved by management through tight cost control
* Profit before tax and exceptional charges increased by 9.4 per cent to
#5.4 million
* Capital expenditure of #5.4 million for the year included investment in
18 new Choices Video stores, store refurbishments and 32,000 square feet of new
warehouse and office space at Peterborough
* Strong net positive cash flow of #743,000 during the period.
* Video Box Office expected to benefit in 2003 from investment in the
transition from video to DVD rental with the NAAFI contract also contributing to
profit
* Earnings per share, before exceptional costs and prior year tax
adjustments, rose by 8.5 per cent to 19.1 pence
* A proposed final dividend of 3.8 pence per share will make a total of 5.7
pence for the year
"Our trading performance for the first 8 weeks of the current year, when Group
turnover rose 16.9 per cent to #14.1 million, was satisfactory particularly
bearing in mind the negative impact of the World Cup on demand for home
entertainment. Our confidence in the prospect of further growth in DVD rental
and sell-thru and computer games is underpinned by a strong release schedule.
We approach our next financial year as an AIM-listed company with the same
prudent confidence and care that has characterised our last 15 years of
sustained growth." (Iain Muspratt, Chairman)
For further information contact:
Simon Bloomfield, Bankside Consultants: 0207 444 4140 (office) or 07771 758517 (mobile)
CHAIRMAN'S STATEMENT
I am pleased to report Home Entertainment Corporation PLC's results for the 52
week period ended 1 June 2002, the first since the Company listed on the
Alternative Investment Market ("AIM"). Since floating, we have made significant
progress, both in terms of the organic growth we have achieved and in raising
the Company's profile with customers and suppliers. Video rental activities
suffered from a comparatively poor release schedule but benefited from the
growth in Digital Versatile Discs ("DVDs"). Video sell-thru gains were a result
of DVD, although the VHS market remained more buoyant than expected. Computer
games sales and rentals showed significant improvement, driven by new games and
formats.
Results
Sales in the period increased by 23.5 per cent to #103.04 million (2001: #83.41
million). A significant part of that growth arose from the increased sales of
computer games consoles and software and the continued growth in the sale and
rental of DVDs.
Gross profit for the period was #43.29 million (2001: #37.96 million), an
increase of 14.0 per cent. Gross margin declined in the period to 42.0 per cent
(2001: 45.5 per cent) as a result of the faster rate of growth from the sale of
videos, DVDs and computer games, compared to their rental. Sell-thru activity
accounted for 50.1 per cent of the Company's turnover for the period compared to
44.3 per cent in the prior year.
Management continued to maintain tight control over net operating costs which,
before exceptional charges of #639,000 relating to flotation, were #37.88
million (2001: #33.01 million), and represented 36.8 per cent of sales (2001:
39.6 per cent).
Profit before taxation and exceptional charges increased by 9.4 per cent to
#5.37 million (2001: #4.91 million).
The Company generated positive cashflow of #743,000 in the period and net cash
at the period end was #1.27 million.
Capital expenditure during the period including investment in 18 new Choices
Video stores, store refurbishment and new warehousing and logistics at
Peterborough, was #5.37 million (2001: #5.0 million).
Basic earnings per share were 14.4 pence, and earnings per share, excluding
flotation costs of #639,000 and under-provision in respect of taxation of
#203,000 for prior periods, were 19.1 pence compared with 17.6 pence in the
previous year.
Dividend
An interim dividend of 1.9 pence per share was paid on 16 April 2002 and the
Board has recommended a final dividend of 3.8 pence per share to be paid on 22
October 2002 to shareholders on the Register at 6 September 2002.
Flotation
Dealings in Home Entertainment Corporation PLC shares commenced on 25 October
2001 when the Company was successfully floated on AIM. 6,976,712 existing
Ordinary shares were placed with a range of institutional and other investors at
a price of #1.70 each, representing 39.2 per cent of the issued share capital.
Share options amounting to approximately 2 1/2 per cent of the issued share
capital of the Company, were granted to 187 employees at the placing price.
Trading
Overall growth in video, DVD and computer games rental sales was achieved
despite a relatively lacklustre new video release schedule and unusually
unfavourable weather conditions during the crucial Easter holiday period.
Substantial growth in turnover was powered by DVD, Playstation 2 computer games
sales and from the launch in May 2002 of Microsoft X-Box and Nintendo Gamecube
computer games. As a result of this strong demand, stocks increased by #1.47
million to #9.67 million during the year. A further 32,000 square feet of
leasehold warehouse and office space, adjacent to our existing facilities at
Manasty Road, Peterborough, were acquired in the year to handle the additional
volumes. Fitting out will be completed in September 2002 at a total cost of
approximately #675,000.
Trading Divisions:
Choices Video opened 18 new stores during the year, making a total of 187 at
year end. This, together with the cost of store re-fits, resulted in capital
expenditure of #3.12 million (2001 : #3.16 million). It is planned to continue
opening new stores at a similar rate in the foreseeable future. On a 'like for
like' basis, rental and total sales in the year increased by 9.7 per cent and
22.8 per cent respectively.
Video Box Office rental and total sales on a 'like for like' basis increased by
4.6 per cent and 15.6 per cent respectively, reflecting the rapid growth in the
'Collections' sell-thru offerings to customers. The transition from video
rental product to DVD rental for VBO customers commenced in November 2001 and is
now well under way, with DVD now accounting for approximately 20 per cent of
rental turnover. The benefit of this DVD investment is expected in early 2003.
During the year we completed installations in the UK and overseas for the NAAFI
contract and, having incurred extra costs in 2002, the Company expects this
contract to contribute to profit in 2003.
Choices Direct achieved profitable sales growth in both mail order and
fulfilment with 'like for like' sales increasing by 19.2 per cent. A new
website was launched in June 2002 supported by a major logistical upgrade in
order to exploit a substantial opportunity for Internet sales growth.
Mosaic Entertainment's profitability was assisted by the successful release of
the feature film 'Ginger Snaps'.
Outlook
Our trading performance for the first 8 weeks of the current year, when Group
turnover rose 16.9 per cent to #14.1 million, was satisfactory particularly
bearing in mind the negative impact of the World Cup on demand for home
entertainment. During the same period, sell-thru accounted for 47.3 per cent of
sales and DVD for 39.5 per cent of video rental in Choices stores.
In broad terms we expect the Company to benefit from the continuing consumer
take-up of DVD players and computer games consoles.
By the end of June 2002, the installed base of DVD players exceeded 4 million
and the British Video Association estimates that the total sales will reach 6.5
million by the end of the year. Current estimates are that just under 20 per
cent of households had DVD players at the end of May 2002 when DVD was
accounting for 38 per cent of video rental activity in Choices stores.
On the basis that these trends continue, the Board believes that there is scope
for considerable further growth in the overall rental market after taking into
account that VHS rental will continue to decline.
Our confidence in the prospect for DVD rental and sell-thru growth in the
current year is underpinned by a strong release schedule which includes 'Lord of
the Rings', 'A Beautiful Mind', 'Blade 2', 'Monsters Inc', 'Ocean's 11' and '
Minority Report'.
The enormous volume of new computer games software scheduled for release in the
run up to Christmas should ensure that this segment of our business continues to
grow. Releases for the current year include 'Getaway' (PS2), 'Grand Theft Auto'
(PS2), 'Harry Potter - Chamber of Secrets' (all formats), 'Lord of the Rings -
Two Towers' (all formats), 'Mario Sunshine' (GameCube) and 'Tomb Raider - Angel
of Darkness' (PS2).
Our new website (www.choicesdirect.co.uk ) was launched recently and is proving
popular with customers. Still a relatively modest part of our mail order
business we are confident in its ability to grow.
Mosaic Entertainment will continue its strategy of acquiring a limited number of
titles and exploiting them at least risk.
However, our success is dependent upon consumer confidence and, in the present
uncertain economic environment, there is the risk of consumers limiting their
spending. Should that happen the Board believes that the Company is better
placed than many to withstand a downturn, as video and DVD rental would become a
relatively attractive and cost-effective form of entertainment.
We approach our next financial year as an AIM listed Company with the same
prudent confidence and care that has characterised our last 15 years of
sustained growth.
Iain Muspratt
Chairman
Home Entertainment Corporation PLC
_______________________________________________________
PROFIT AND LOSS ACCOUNT
for the 52 week period ended 1 June 2002
Notes 2002 2001
#000 #000
TURNOVER 1 103,038 83,408
Costs of Sales (59,751) (45,447)
________ ________
Gross profit 43,287 37,961
Net operating costs (38,515) (33,008)
________ ________
OPERATING PROFIT 2 4,772 4,953
Analysis of Operating Profit:
Operating profit before exceptional item 5,411 4,953
Exceptional item - costs of flotation (639) -
OPERATING PROFIT 4,772 4,953
Interest payable (45) (48)
________ ________
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,727 4,905
Tax on profit on ordinary activities (2,157) (1,874)
________ ________
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 2,570 3,031
Dividends (including non-equity dividends) (1,047) (922)
________ ________
RETAINED PROFIT FOR THE 52 WEEK PERIOD 1,523 2,109
======= =======
Earnings per Share: 3
Basic 14.4p 17.0p
Diluted 13.9p 16.8p
Adjusted basic earnings per share (excluding exceptional costs
and under-provision in respect of prior periods' taxation) 19.1p 17.6p
Dividends per Ordinary share 5.7p 3.8p
There are no recognised gains or losses other than the profit attributable to
shareholders of the Company of #2,570,000 in the 52 week period ended 1 June
2002 and of #3,031,000 in the 52 week period ended 2 June 2001.
BALANCE SHEET
at 1 June 2002
Notes 2002 2001
#000 #000
FIXED ASSETS
Tangible assets 11,521 10,254
________ ________
CURRENT ASSETS
Stocks 9,672 8,201
Debtors 5,366 5,069
Cash at bank and in hand 1,267 524
________ ________
16,305 13,794
CREDITORS: amounts falling due within one year (14,947) (12,865)
________ ________
NET CURRENT ASSETS 1,358 929
________ ________
TOTAL ASSETS LESS CURRENT LIABILITIES 12,879 11,183
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation (166) (109)
________ ________
12,713 11,074
======= =======
CAPITAL AND RESERVES
Called up share capital 901 890
Share premium account 909 804
Capital redemption reserve fund 1,061 1,061
Profit and loss account 9,842 8,319
________ ________
Shareholders' funds:
Equity 12,713 10,794
Non-equity - 280
________ ________
12,713 11,074
======= =======
STATEMENT OF CASH FLOWS
for the 52 week period ended 1 June 2002
Notes 2002 2001
#000 #000
NET CASH INFLOW FROM OPERATING ACTIVITIES 2 9,335 7,329
________ ________
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (45) (48)
Non-equity dividends paid (243) (466)
________ ________
(288) (514)
________ ________
TAXATION
Corporation tax paid (2,394) (1,493)
________ ________
CAPITAL EXPENDITURE
Proceeds from sale of tangible fixed asset 18 -
Payments to acquire tangible fixed assets (5,393) (5,002)
________ ________
(5,375) (5,002)
EQUITY DIVIDENDS PAID (651) (467)
________ ________
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 627 (147)
FINANCING
Issue of ordinary share capital 116 -
________ ________
INCREASE/(DECREASE) IN CASH 4 743 (147)
======= =======
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2002 2001
#000 #000
Increase/(decrease) in cash in period 4 743 (147)
Net funds at 2 June 2001 524 671
________ ________
Net funds at 1 June 2002 1,267 524
======= =======
NOTES TO THE ACCOUNTS
1. TURNOVER
Turnover, which is stated net of credits, allowances, trade discounts and VAT,
represented amounts invoiced to, or received from, third parties.
Turnover comprised income from the rental of pre-recorded video cassettes,
digital versatile discs and computer games and sale of pre-recorded video
cassettes, digital versatile discs, computer games, mobile telephones and
vouchers and other related products.
An analysis of turnover by geographical market and segment is given below:
Geographical Analysis 2002 2001
#000 #000
United Kingdom 102,077 82,846
Rest of Europe 419 146
Other 542 416
________ ________
103,038 83,408
======= =======
Segmental Analysis 2002 2001
#000 #000
Rental 51,414 46,448
Sales - Games 16,049 8,751
Sales - Others 35,575 28,209
________ ________
103,038 83,408
======= =======
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:
2002 2001
#000 #000
Operating profit 4,772 4,953
Depreciation 4,108 3,608
Increase in debtors (297) (1,825)
Increase in stocks (1,471) (2,718)
Increase in creditors 2,223 3,311
________ ________
Net cash inflow from operating activities 9,335 7,329
======== ========
Net cash inflow from operating activities included cash outflows of #639,000
relating to flotation costs.
3. EARNINGS PER SHARE
52 weeks ended 52 weeks ended
1 June 2002 2 June 2001
Diluted Basic Diluted Basic
Earnings #2,570,438 #2,570,438 #3,031,230 #3,031,230
__________ __________ __________ __________
Number of shares at 2 June 2001 17,791,852 17,791,852 17,791,852 17,791,852
Shares issued 224,123 224,123 - -
Dilutive effect of share option schemes 633,900 - 287,523 -
__________ __________ __________ __________
18,649,875 18,015,975 18,079,375 17,791,852
========= ========= ========= =========
Weighted average number of shares 18,451,083 17,890,284 18,079,375 17,791,852
__________ __________ __________ __________
Earnings per share 13.9p 14.4p 16.8p 17.0p
Adjusted earnings per share 18.5p 19.1p 17.3p 17.6p
Adjusted earnings per share excluded the effects of exceptional (flotation)
costs of #639,000 (2001 - #Nil) and an under-provision in respect of prior
periods' taxation of #203,000 (2001 - #100,000) and is presented in order to
show the underlying performance of the Company.
4. ANALYSIS OF CHANGES IN NET FUNDS
At 2 Cash At 1
June Flows June
2001 2002
#000 #000 #000
Cash at bank and in hand 524 743 1,267
====== ====== ======
Cash outflows included an exceptional amount of #639,000 relating to flotation
costs.
5. ANNUAL GENERAL MEETING
The 2002 Annual General Meeting of Home Entertainment Corporation PLC will be
held at19 - 24 Manasty Road, Orton Southgate, Peterborough, PE2 6UP, on Thursday
26th September 2002 at 10:00am.
6. COPIES OF ANNUAL REPORT
Copies of the annual report for the 52 weeks ended 1 June 2002 are available,
free of charge, to the public on any week day (excluding Saturdays), 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 1 month thereafter.
7. 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 2 June 2001
have been delivered to the Registrar of Companies. The auditors' report on
those accounts was unqualified and contained no statement under section 237(2)
or (3) of the Companies Act 1985.
TRADING DIVISIONS
The trading division of HEC are as follows:
Video Box Office (at www.vbo.co.uk )
Provides a service throughout the United Kingdom to convenience stores and other
retailers, enabling them to add video and DVD sales and rental and computer
games software sales to the range of products offered to their customers.
Choices Video (at www.choicesvideo.co.uk )
Operated through 187 (2 June 2001 - 169) retail outlets in England and Wales,
offering videos, DVDs and computer games rental and sales, games consoles for
sale, the sales of 'Pay As You Go' mobile telephones and 'Top-Ups' (including '
E-Top-Ups') and ice cream and confectionery.
Choices Direct (at www.choicesdirect.co.uk )
Choices Direct offers video and DVD, as well as providing talking tapes released
in the United Kingdom on audio cassette and compact disc, for sale through mail
order. Customers can access the Choices Direct service by mail, by 'phone or
via Choices Direct's website.
Choices Direct also manages and fulfils video and DVD sales for many of the
large mail order catalogue companies in the United Kingdom, including GUS,
Freemans, Littlewoods and Book Club Associates. The service offered is
comprehensive, ranging from title selection advice and compilation, through to
fulfilment of customers' orders.
Mosaic Entertainment (at www.mosaic-entertainment.co.uk )
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
video and DVD market in the United Kingdom and the Republic of Ireland
(including arm's length sales to other divisions of the Company).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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