RNS Number:7435H
Home Entertainment Corporation PLC
25 January 2005
Home Entertainment Corporation PLC
Press Release
IMMEDIATE, Tuesday, 25 January 2005
Interim results for the 28 week period ended 18 December 2004
Financial highlights (figures in #000s)
28 weeks 28 weeks 52 weeks
ended ended ended
18.12.04 13.12.03 05.06.04
(Unaudited) (Unaudited) (Audited)
Turnover 79,169 70,422 + 12.4% 128,862
Operating profit 3,687 3,058 + 20.6% 4,774
Pre-tax profit 3,631 3,306 + 9.8% 4,701
Earnings per share (pence) 12.9 11.7 + 10.3% 17.0p
- basic 11.9 11.0 + 8.2%
- diluted
Dividend per share (pence) 2.3 2.2 + 4.5% 6.6
* Sales growth achieved despite a 6.1% decline in rental activity
resulting from a 'Summer of Sport'
* Gross margins successfully maintained.
* In Choices stores, like-for-like sales increased by 28.2 per cent
reflecting growth in games software sales (despite a substantial hardware
shortfall), DVD sell thru and mobile phones.
* Internet business grew by 67.9 per cent compared with the same period
last year.
* Online DVD rental service, Moviechoices, was sold to LOVEFiLM with HEC
entering into an agreement to provide LOVEFiLM's stock management and
procurement operation.
* Trading over the Christmas and New Year holiday period was ahead of last
year.
"It is quite clear that consumers are exercising greater caution than in
previous years, the impact of which is difficult to forecast. Our own sales
activities have remained very buoyant in both the run up to Christmas and to
date. We, therefore, face the rest of our year well positioned to create and
benefit from opportunities as they arise." (Iain Muspratt, Chairman.)
For further information contact
Simon Bloomfield, Bankside Consultants: 0207 444 4140 (office) or 07771 758517
(mobile)
CHAIRMAN'S STATEMENT
Our half year has been characterised by a number of challenges - the Euro 2004,
followed by the Olympics (the first time 'live' in UK timescales for 12 years)
absorbed our potential audiences during the first 12 weeks; price deflation on
our major sales products ranged from 5.8 per cent to 18.6 per cent year on year
in the run up to Christmas and, finally, hardware shortages at that crucial time
depressed Games activity.
We met those challenges by further expanding our product range and introducing a
range of new initiatives with the result that turnover and profit have grown
during the 28 week period and we have maintained our gross margin.
Results
Sales for the period grew by 12.4 per cent to #79.2 million compared to #70.4
million for the same period last year. Overall revenue increased in all
divisions, but rental activity declined as a proportion of total business.
Operating profit was #3,687,000. (2003: #3,058,000).
Basic earnings per share were 12.9 pence compared to 11.7 pence for the same
period last year. Net cash outflow for the period was #1.3 million. (2003: #3.0
million).
Dividend
The Board has declared an interim dividend of 2.3 pence (2003: 2.2 pence) per
share, to be paid on 22 April 2005 to shareholders on the register at 18 March
2005.
Review of Trading
In challenging conditions HEC has performed satisfactorily reflecting both the
broad range of our business and the new activities we have been able to
introduce as a result of the systems investment we made last year.
New release 'bunching' into the Christmas trading period was worse than the
previous year. Rental activity declined as a result of the 'Summer of Sport',
but this has been more than offset by growth in sales activities with the result
that gross margins have been successfully maintained.
Choices
A further 15 stores were opened (including one relocation) and one store was
closed. Rental performance suffered during the summer as a result of the sport,
then recovered well during the autumn, but declined in the run up to Christmas.
Games software sales increased substantially as did DVD sell thru and mobile
phones.
VBO
Again the driver within this division has been sell thru. In rental terms the
transition to DVD is virtually complete.
Choices Direct
The profitable growth in our 'direct to home' activities has continued with both
'our own label' Internet and traditional direct mail volumes rising
significantly (and ahead of the sector averages) during the period. Our new
logistics centre became fully operational at the end of August and enabled us to
ensure that deliveries met our customers' expectations.
Moviechoices
The arrangement we entered into with LOVEFiLM towards the end of the period
creates what we believe to be the market leader in the online rental field and
represents a valuable operational and commercial alliance between themselves and
ourselves.
Mosaic Entertainment
Activity was in line with the previous year.
Christmas Trading
When Christmas Day and Boxing Day fall on a Saturday and Sunday (our busiest
rental days), we lose our rental business with a consequent loss of
profitability. Sales activity however has been ahead of last year in all sectors
of the business.
Outlook
It is quite clear that consumers are exercising greater caution than in previous
years, the impact of which is difficult to forecast. Historically, this has
benefited higher margin rental activities, but the consequences of sales price
deflation may, to some extent, negate this in future. Our own sales activities
have remained very buoyant in both the run up to Christmas and to date. We,
therefore, face the rest of our year well positioned to create and benefit from
opportunities as they arise.
Key film releases during the second half of year include: 'Collateral, Bourne
Supremacy, The Village, Dodge Ball, The Terminal, Shark Tale, Wimbledon, Saw,
The Grudge, Bridget Jones Edge of Reason, Alfie, Aliens vs Predator, Layer Cake,
Incredibles, Blade Trinity, National Treasure and The Aviator'. Overall this is
an improved line-up for our mix of business.
We plan to open eight new Choices stores in the second half year and close two.
We shall further develop our 'direct to home' business.
As usual for our business we hope to benefit from favourable (i.e. rain!)
weather during the critical trading weeks at Easter and Whitsun.
Iain Muspratt
Chairman
24 January 2005
GROUP PROFIT AND LOSS ACCOUNT
for the 28 week period ended 18 December 2004
Note 28 weeks ended 28 weeks ended 53 weeks ended
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
#000 #000 #000
TURNOVER 2 79,169 70,422 128,862
Operating profit
before exceptional
costs 3,687 3,378 4,774
Exceptional costs -
EPOS implementation - (320) (320)
OPERATING PROFIT 3,687 3,058 4,454
Exceptional gain on
disposal of tangible
fixed asset - 329 329
Net interest (payable) (56) (81) (82)
PROFIT ON ORDINARY
ACTIVITIES BEFORE
TAXATION 3,631 3,306 4,701
Taxation 3 (1,307) (1,190) (1,638)
PROFIT FOR THE PERIOD 2,324 2,116 3,063
Dividends 4 (414) (397) (1,191)
PROFIT TRANSFERRED TO
RESERVES 1,910 1,719 1,872
EARNINGS PER SHARE:
Adjusted basic (excluding
exceptional costs) 5 12.9p 11.7p 16.9p
Basic 5 12.9p 11.7p 17.0p
Diluted 5 11.9p 11.0p 15.8p
Dividends per
ordinary share 2.3p 2.2p 6.6p
--------------------------- ----- ------- ------- -------
GROUP BALANCE SHEET
as at 18 December 2004
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
#000 #000 #000
FIXED ASSETS
Tangible
Assets 15,772 14,852 15,676
CURRENT ASSETS
Stocks 19,966 16,442 12,200
Debtors 17,148 14,998 6,550
Cash 84 80 1,183
37,198 31,520 19,933
CREDITORS Amounts falling
due within one year (33,473) (28,957) (18,022)
NET CURRENT ASSETS 3,725 2,563 1,911
TOTAL ASSETS LESS CURRENT
LIABILITIES 19,497 17,415 17,587
DEFERRED TAXATION (310) (304) (310)
NET ASSETS 19,187 17,111 17,277
CAPITAL AND RESERVES
Called up share capital 903 902 903
Share premium account 968 954 968
Other reserves 1,061 1,061 1,061
Profit and loss account 16,255 14,194 14,345
EQUITY SHAREHOLDERS'
FUNDS 19,187 17,111 17,277
------------------------ --------- --------- --------
GROUP CASH FLOW STATEMENT
for the 28 week period ended 18 December 2004
Note 28 weeks ended 28 weeks ended 53 weeks ended
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
#000 #000 #000
NET CASH INFLOW FROM
OPERATING ACTIVITIES 6 3,851 1,970 8,625
RETURNS ON INVESTMENTS &
SERVICING OF FINANCE
Interest paid (56) (81) (82)
NET CASH OUTFLOW FROM
RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE (56) (81) (82)
TAXATION
Corporation tax paid (675) (1,135) (2,110)
CAPITAL EXPENDITURE
Proceeds from sale of
tangible fixed assets - 48 466
Payments to acquire
tangible fixed assets (3,605) (3,134) (6,711)
(3,605) (3,086) (6,245)
EQUITY DIVIDENDS PAID (794) (757) (1,154)
NET CASH OUTFLOW BEFORE
FINANCING (1,279) (3,089) (966)
FINANCING
Issue of ordinary shares - 47 61
DECREASE IN CASH (1,279) (3,042) (905)
--------------------------- ----- ------- ------- -------
NOTES TO THE ACCOUNTS
for the 28 week period ended 18 December 2004
1. Basis of preparation
The interim accounts cover the 28 weeks to 18 December 2004. They have been
prepared under the accounting policies set out in the Company's statutory
accounts for the 53 weeks to 5 June 2004, 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 53 weeks is based on statutory accounts for the 53 weeks ended 5 June
2004 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 53 weeks ended
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
#000 #000 #000
Rental 29,165 30,565 57,695
Sales - Games 11,795 10,035 18,553
Sales - DVD,
mobile phones etc 38,209 29,822 52,614
79,169 70,422 128,862
Group 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 ended 28 weeks ended 53 weeks ended
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
#000 #000 #000
The Tax charge represents:
UK corporation tax 1,307 1,190 1,650
Under-provisions in respect
of prior periods - - (18)
1,307 1,190 1,632
Total deferred tax - - 6
TAX ON PROFIT ON ORDINARY
ACTIVITIES 1,307 1,190 1,638
NOTES TO THE ACCOUNTS
for the 28 week period ended 18 December 2004
4. Dividends
28 weeks ended 28 weeks ended 53 weeks ended
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
#000 #000 #000
Interim dividend -
proposed 414 397 397
Final dividend - - 794
414 397 1,191
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 53 weeks ended
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
Diluted Basic Diluted Basic Diluted Basic
Earnings #2,323,765 #2,323,765 #2,116,035 #2,116,035 #3,063,379 #3,063,379
Weighted
average
number 19,506,834 18,052,100 19,193,484 18,019,839 19,371,188 18,033,361
of shares
Earnings
per 11.9p 12.9p 11.0p 11.7p 15.8p 17.0p
share
Adjusted
earnings
per 11.9p 12.9p 11.0p 11.7p 15.8p 16.9p
share
Calculation
of numbers
of shares:
At 5 June 18,052,100 18,052,100 18,015,975 18,015,975 18,015,975 18,015,975
2004
Shares - - 27,500 27,500 36,125 36,125
issued
Dilutive
effect of
share
option 1,442,150 - 1,530,275 - 1,482,150 -
schemes
19,494,250 18,052,100 19,573,750 18,043,475 19,534,250 18,052,100
Adjusted earnings per share for the 28 weeks ended 13 December 2003 and for the
53 weeks ended 5 June 2004 exclude 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 Group.
NOTES TO THE ACCOUNTS
for the 28 week period ended 18 December 2004
6. Reconciliation of operating profits to net cash flow from operating activities
28 weeks ended 28 weeks ended 53 weeks ended
18.12.04 13.12.03 05.06.04
(unaudited) (unaudited) (audited)
#000 #000 #000
Operating profit before
exceptional costs 3,687 3,378 4,774
Exceptional costs - EPOS
implementation - (320) (320)
OPERATING PROFIT 3,687 3,058 4,454
Depreciation 3,509 2,701 5,316
(Increase) in stocks (7,766) (5,928) (1,686)
(Increase) / decrease
in debtors (10,598) (7,556) 611
Increase / (decrease)
in creditors 15,019 9,695 (70)
NET CASH INFLOW FROM
OPERATING ACTIVITIES 3,851 1,970 8,625
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 (Southgate House, Southgate Way, Orton
Southgate, Peterborough, PE2 6YG) 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 18 December 2004 which comprises the Group Profit and Loss
Account, Group Balance Sheet, Group 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
18 December 2004.
Ernst & Young LLP
Cambridge
24 January 2005
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 226 (December 2003 - 213) 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'), selected
'hi-tech' products and ice cream and confectionery. www.choicesgroup.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 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
This business was sold to Online Rentals Limited (LOVEFiLM) on 9th December 2004
and now the Moviechoices division services the stock management and procurement
operation on behalf of LOVEFiLM.
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
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