RNS Number:6541U
Home Entertainment Corporation PLC
27 January 2004
Press Release
IMMEDIATE, Tuesday, 27 January 2004
Interim results for the 28 week period ended 13 December 2003
Financial highlights (figures in #000s)
28 weeks ended 28 weeks ended 52 weeks ended
13.12.03 14.12.02 31.5.03
(Unaudited) (Unaudited) (Audited)
Turnover 70,422 66,222 + 6.3% 120,664
Operating profit before 3,378 3,914 - 15.3% 5,914
exceptional items *
Pre-tax profit after 3,306 3,905 - 15.3% 5,950
exceptional items *
Earnings per share
(pence)
- Basic 11.7 13.9 - 15.8% 20.9
- Diluted 11.0 13.3 - 15.0% 20.0
Dividend per share 2.2 2.1 + 4.8% 6.3
(pence)
* Exceptional cost of EPOS implementation - #320,000 (2002 - nil); exceptional
gain on property disposal - #329,000 (2002 - nil)
* Rental activity during the first 20 weeks of the period was
adversely affected by unprecedented hot and fine weather.
* In Choices stores, rental activity showed a like for like increase
of 3.3 per cent and overall sales showed a like for like decrease of 0.5 per
cent largely accounted for by a reduction in low margin console sales.
* Internet business grew by 114.6 per cent compared with the same
period last year.
* New EPOS system successfully installed in all 213 Choices stores
in 20 weeks.
* Online internet based DVD rental service launched
(choiceserental.com) in association with Book Club Associates (part of
DirectGroup Bertelsmann).
* Trading over the Christmas and New Year holiday period was
satisfactory and results were comparable with the previous year.
* Acquired new Head Office premises which will enable all operations
to be under one roof.
* Net asset value per share increased from 85.2 pence at 31 May 2003
to 94.8 pence - an increase of 11.1 per cent.
Iain Muspratt, Chairman, said: "We believe that underlying demand for both DVD
sell thru and rental remains strong although there is no question that consumers
are exercising more caution. We face the future with confidence, determination
and a range of initiatives but we would benefit from the weather in our favour
(i.e. rain) during the critical trading weeks around Easter and Whitsun"
For further information contact
Simon Bloomfield, Bankside Consultants: 0207 444 4140 (office) or 07771 758517
(mobile)
CHAIRMAN'S STATEMENT
My prognosis that the current financial year would prove more challenging than
the previous year has proved to be justified. As anticipated we were not able to
replace the rental revenue lost as a result of the unprecedented hot and fine
weather which lasted much longer than expected and resulted in depressed rental
activity, particularly in Choices stores.
Given that rental business is our most profitable and given the margin effect, I
believe that our unique mix of business has enabled us to deliver creditable
results in the circumstances. We have also laid important foundations on which
to base future activity and growth.
Results
Sales for the period grew by 6.3 per cent to #70.4 million compared to #66.2
million for the same period last year. Overall revenue increased in all
divisions notwithstanding the weather effect. Like for like rental activity in
Choices stores grew by 3.3 per cent and although like for like total sales fell
by 0.5 per cent this decline is mainly accounted for by low margin console
sales. DVD has now replaced VHS for the majority of consumers, but the latter
still achieves significant revenue.
Operating profit before EPOS exceptional costs was #3,378,000 (2002 :
#3,914,000).
Basic earnings per share were 11.7 pence compared to 13.9 pence for the same
period last year.
Net cash outflow for the period was #3.0 million. This reflects the increase in
inventories as a result of the growth in sales activity and the costs of our new
EPOS system.
Dividend
The Board has declared an interim dividend of 2.2 pence (2002: 2.1 pence) per
share, to be paid on 16 April 2004 to shareholders on the register at 16
February 2004.
Review of Trading
HEC has invested great effort and resource in successfully laying important
foundations for the future during a period when trade has been adversely
affected by the weather and also the 'bunching' of new releases into the last
six weeks of the period. Price deflation in DVD and games consoles has presented
a further challenge. Significantly gross margin rose notwithstanding lower than
hoped for rental activity.
Choices
A further seven stores were opened, two of which were relocations. Rental
performance was better than the industry average. Games software sales increased
by 6.9 per cent. Overall sales increased by 4.6 per cent against a background of
significant price deflation on DVD product. The new EPOS system was successfully
installed in all Choices stores in 20 weeks and provides us with much better
stock control. One immediate advantage for customers is that they can use their
membership card in any Choices store. So far as we are aware this is a world
first.
VBO
The transition to DVD is now much more advanced but still lags behind that of
Choices. Sell thru activities have again grown and have enabled this part of HEC
to achieve real overall growth.
Choices Direct
Trading, particularly in the run up to Christmas, has been satisfactory with
particularly strong growth (67 per cent like for like) being achieved in the
first 28 weeks by our own mail order operation - both traditional and Internet
based. The latter performed very well and ahead of the sector of the market with
which it directly competes.
choicesErental
This new activity was soft launched in October, and in early December we entered
into a collaborative relationship with Book Club Associates, part of DirectGroup
Bertelsmann. The subscriber base is growing satisfactorily but we do not expect
this venture to contribute to profits in the current year.
Mosaic Entertainment
An increase in releases and growing sales enabled Mosaic to grow both turnover
and profit during the period.
Christmas Trading
During the four weeks ended 10 January 2004 overall sales were broadly in line
with the previous year. The improvement in gross margin achieved during the
interim period was maintained.
Outlook
We believe that underlying demand for both DVD sell thru and rental remains
strong although there is no question that consumers are exercising more caution
and prudence than in recent years.
Key film releases in the second half of the year include Jeepers Creepers 2,
American Pie - The Wedding, Tomb Raider 2, Dreamcatcher, Calendar Girls, League
of Extraordinary Gentlemen, Finding Nemo, Bad Boys 2, Italian Job, SWAT, Love
Actually and Matrix Revolutions. Overall this is a better line-up than last
year.
We plan to open six new Choices stores (including relocations) in the second
half year. We shall also close some smaller stores which do not now suit our
trading profile.
We face the future with confidence, determination and a range of initiatives but
we would benefit from the weather in our favour (i.e. rain) during the critical
trading weeks around Easter and Whitsun.
Iain Muspratt
Chairman
26 January 2004
PROFIT AND LOSS ACCOUNT
for the 28 week period ended 13 December 2003
Note 28 weeks ended 28 weeks ended 52 weeks ended
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
#000 #000 #000
TURNOVER 2 70,422 66,222 120,664
Operating profit before 3,378 3,914 5,944
exceptional costs
Exceptional costs - EPOS (320) - -
implementation
OPERATING PROFIT 3,058 3,914 5,944
Exceptional gain on 329 - -
disposal of tangible fixed
asset
Net interest (payable) / (81) (9) 6
receivable
PROFIT ON ORDINARY 3,306 3,905 5,950
ACTIVITIES BEFORE
TAXATION
Taxation 3 (1,190) (1,406) (2,184)
PROFIT FOR THE PERIOD 2,116 2,499 3,766
Dividends 4 (397) (378) (1,135)
PROFIT TRANSFERRED TO 1,719 2,121 2,631
RESERVES
EARNINGS PER SHARE:
Adjusted basic (excluding 5 11.7p 13.9p 20.9p
exceptional costs)
Basic 5 11.7p 13.9p 20.9p
Diluted 5 11.0p 13.3p 20.0p
Dividends per ordinary 2.2p 2.1p 6.3p
share
BALANCE SHEET
as at 13 December 2003
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
#000 #000 #000
FIXED ASSETS
Tangible Assets 14,852 12,273 14,418
CURRENT ASSETS
Stocks 16,442 13,285 10,514
Debtors 14,998 13,449 7,161
Cash 80 3,252 2,088
31,520 29,986 19,763
CREDITORS Amounts falling due within one (28,957) (27,259) (18,531)
year
NET CURRENT ASSETS 2,563 2,727 1,232
TOTAL ASSETS LESS CURRENT LIABILITIES 17,415 15,000 15,650
DEFERRED TAXATION (304) (166) (304)
NET ASSETS 17,111 14,834 15,346
CAPITAL AND RESERVES
Called up share capital 902 901 901
Share premium account 954 909 909
Other reserves 1,061 1,061 1,061
Profit and loss account 14,194 11,963 12,475
EQUITY SHAREHOLDERS' FUNDS 17,111 14,834 15,346
CASH FLOW STATEMENT
for the 28 week period ended 13 December 2003
Note 28 weeks ended 28 weeks ended 52 weeks ended
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
#000 #000 #000
NET CASH INFLOW FROM 6 1,970 6,604 11,412
OPERATING ACTIVITIES
RETURNS ON INVESTMENTS &
SERVICING OF FINANCE
Interest (paid) / (81) (9) 6
received
NET CASH (OUTFLOW) / INFLOW (81) (9) 6
FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE
TAXATION
Corporation tax paid (1,135) (793) (1,934)
CAPITAL EXPENDITURE
Proceeds from sale of 48 - -
tangible fixed assets
Payments to acquire (3,134) (3,133) (7,600)
tangible fixed assets
(3,086) (3,133) (7,600)
EQUITY DIVIDENDS PAID (757) (684) (1,063)
NET CASH (OUTFLOW) / INFLOW (3,089) 1,985 821
BEFORE FINANCING
FINANCING
Issue of ordinary shares 47 - -
(DECREASE) / INCREASE IN (3,042) 1,985 821
CASH
NOTES TO THE ACCOUNTS
for the 28 week period ended 13 December 2003
1. Basis of preparation
The interim accounts cover the 28 weeks to 13 December 2003. They have been
prepared under the accounting policies set out in the Company's statutory
accounts for the 52 weeks to 31 May 2003, and are unaudited. The taxation charge
is calculated by applying the forecast annual tax rate to the profit for the
period.
The financial information does not constitute statutory accounts as defined in
Section 240 of the Companies Act 1985. The financial information for the full
preceding 52 weeks is based on statutory accounts for the 52 weeks ended 31 May
2003 which have been delivered to the Registrar of Companies. These statutory
accounts were audited by Ernst & Young LLP and their report thereon was
unqualified.
2. Turnover
28 weeks ended 28 weeks ended 52 weeks ended
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
#000 #000 #000
Rental 30,565 29,397 56,227
Sales - Games 10,035 8,780 19,139
Sales - Other 29,822 28,045 45,298
70,422 66,222 120,664
Turnover comprised income from the rental of pre-recorded digital versatile
discs, video cassettes and computer games and sale of pre-recorded digital
versatile discs, video cassettes, computer games, mobile telephones and
'top-ups' and other related products.
3. Taxation
28 weeks 28 weeks 52 weeks
ended ended ended
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
#000 #000 #000
THE TAX CHARGE REPRESENTS:
UK corporation tax 1,190 1,406 2,061
Under-provisions in respect of - - (15)
prior periods
1,190 1,406 2,046
Total deferred tax - - 138
TAX ON PROFIT ON ORDINARY 1,190 1,406 2,184
ACTIVITIES
4. Dividends
28 weeks ended 28 weeks ended 52 weeks ended
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
#000 #000 #000
Interim dividend - proposed 397 378 378
Final dividend - - 757
397 378 1,135
5. Earnings per share
The earnings and number of shares in issue or to be issued used in calculating
the earnings and diluted earnings per share were as follows:
28 weeks ended 28 weeks ended 52 weeks ended
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
Diluted Basic Diluted Basic Diluted Basic
Earnings #2,116,035 #2,116,035 #2,498,970 #2,498,970 #3,766,584 #3,766,584
Weighted 19,193,484 18,019,839 18,751,167 18,015,975 18,877,500 18,015,975
average
number of
shares
Earnings 11.0p 11.7p 13.3p 13.9p 20.0p 20.9p
per
share
Adjusted 11.0p 11.7p 13.3p 13.9p 20.0p 20.9p
earnings
per
share
Calculation of numbers of shares:
At 18,015,975 18,015,975 18,015,975 18,015,975 18,015,975 18,015,975
31.05.03
Shares 27,500 27,500 - - - -
issued
Dilutive 1,530,275 - 975,150 - 1,011,025 -
effect of
share
option
schemes
19,573,750 18,043,475 18,991,125 18,015,975 19,027,000 18,015,975
Adjusted earnings per share for the 28 weeks ended 13 December 2003 excludes the
effects of exceptional EPOS costs of #320,000 and an exceptional gain of
#329,000 on the disposal of a tangible fixed asset. Adjusted earnings per share
is presented in order to show the true underlying performance of the Company.
6. Reconciliation of operating profits to net cash flow from operating
activities
28 weeks ended 28 weeks ended 52 weeks ended
13.12.03 14.12.02 31.05.03
(unaudited) (unaudited) (audited)
#000 #000 #000
Operating profit before exceptional 3,378 3,914 5,944
costs
Exceptional costs - EPOS (320) - -
implementation
OPERATING PROFIT 3,058 3,914 5,944
Depreciation 2,701 2,380 4,703
Increase in stocks (5,928) (3,613) (842)
Increase in debtors (7,556) (8,082) (1,795)
Increase in creditors 9,695 12,005 3,402
NET CASH INFLOW FROM OPERATING 1,970 6,604 11,412
ACTIVITIES
7. Copies of the interim statement
Copies of the interim report are available free of charge on any week day from
the date of this announcement and for a period of one month thereafter from the
registered office of the Company (19 - 24 Manasty Road, Orton Southgate,
Peterborough, PE2 6UP) or the offices of the Company's Nominated Advisers,
Teather & Greenwood Limited (Beaufort House, 15 St Botolph Street, London, EC3A
7QR) and at all times from the company's website - www.hecplc.com.
INDEPENDENT REVIEW REPORT TO
Home Entertainment Corporation PLC
We have been instructed by the Company to review the financial information for
the 28 weeks ended 13 December 2003 which comprises the Profit and Loss Account,
Balance Sheet, Cash Flow Statement and the related notes 1 to 6. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the company having regard to guidance contained in
Bulletin 1999/4 'Review of interim financial information' issued by the Auditing
Practices Board. To the fullest extent permitted by the law, we do not accept or
assume responsibility to anyone other than the company, for our work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report as required by the AIM Rules
issued by the London Stock Exchange.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of management and applying analytical procedures to the financial information
and underlying financial data, and based thereon, assessing whether the
accounting policies and presentation have been consistently applied, unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom Auditing Standards and therefore provides a lower level of assurance
than an audit. Accordingly we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 28 weeks ended
13 December 2003.
Ernst & Young LLP
Cambridge
26 January 2004
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
Operated through 213 (December 2002 - 198) 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 and '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 at
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 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.
choicesErental
'choicesErental' (a new activity launched in October 2003) offers the rental of
DVDs via the Internet utilising Home Entertainment Corporation's vast experience
in this area. The present range of 14,500 titles is being extended daily and
provides our customers with a valued service.
www.choiceserental.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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