RNS Number:3364X
Home Entertainment Corporation PLC
24 January 2006
Press Release
IMMEDIATE, Tuesday, 24 January 2006
Interim results for the 28 week period ended 17 December 2005
Key points (figures in #000s)
28 weeks 28 weeks 52 weeks
ended ended ended
17.12.05 18.12.04 05.06.04
(Unaudited) (Unaudited) (Audited)
Turnover 74,175 79,169 140,467
Operating (loss)/profit before (80) 3,687 4,618
exceptional costs*
Pre-tax (loss)/profit (3,131) 3,631 4,449
Earnings per share (pence) (12.5) 12.9 15.6
- basic (12.5) 11.9 14.4
- diluted
Dividend per share (pence) nil 2.3 6.7
*Exceptional costs - #2.8 million (2004: nil)
* Successful introduction of ChoicesUK brand over all activities.
* Like-for-like growth in both DVD sell thru and computer games out
performed the market, especially over the Christmas and New Year holiday
period.
* ChoicesUK TV (Sky Channel 697) successfully launched on 15 August 2005
and already using teleshopping expertise to operate jointly the Playboy
Store on Sky Channel 287.
* Overall sales decreased by 6.3 per cent to #74,175,000 (2004:
#79,169,000).
* Operating (loss)/profit before exceptional costs was (#80,000) (2004:
#3,687,000) in line with expectations, reflecting losses from ChoicesUK
stores now restored to modest profitability following major re-organisation.
* EBITDA (excluding exceptional items) was #3,054,000 (2004: #7,196,000).
* Overhead costs reduced by #1 million on an annualized basis net of (0.5
million increase in energy costs.
"It is disappointing that we face our first full year loss since 1991 but the
nettles have been grasped and we face H2 and the future in very good shape to
take advantage of the opportunities that face us."
Iain Muspratt (Chairman)
Contact
Simon Bloomfield
Bankside Consultants (Tel: 020 7367 8888)
chairman's statement
In May 2005 we embarked on a plan to unite the business under the 'ChoicesUK'
brand and to position the Company for the future.
At the time I said that this would take 18 months and 7 months into that process
we can report positive success against a tough trading background made even more
difficult by very rapid price deflation in DVD and Computer Games Markets. This
has necessitated double digit volume growth in both sectors just to maintain
turnover.
The first twelve weeks (Periods 1-3) of the current year were extremely
difficult but the remaining sixteen weeks of our interim period which ended on
17 December 2005, have been better:
Periods 1-3 Periods Interim
#000 4-7 #000
#000
Turnover 26,633 47,542 74,175
Operating profit/(loss) (693) 739 46
Non-allocated central costs (54) (72) (126)
Interim operating loss before non-recurring (747) 667 (80)
exceptionals
For the Period as a whole the only unprofitable area was ChoicesUK stores where
a major re-organisation has taken place. This business has now returned to
modest operating profitability.
ChoicesUK Local
Our rebranding was launched at the beginning of this financial year and is now
beginning to be seen more widely in the stores we serve. The number of outlets
we supply has increased by 250 to just under 8,000 which provides us with a very
strong brand presence opportunity. Operations in Republic of Ireland, under the
brand ChoicesIE, are growing rapidly.
Operating Profit for the Period was #860,000.
ChoicesUK stores
75 stores were restyled and ranges extended in terms of both depth and products
(eg. music, posters and magazines). The majority of stores improved
like-for-like performance towards the end of the period and growth in restyled
stores was greatest. The new EPOS system we introduced in 2003 has played a
vital role in identifying problems and opportunities, thus enabling effective
management action to be taken.
The management team has been restructured and reinforced under the direction of
Anthony Skitt.
chairman's statement cont.
Over the 28 week interim period like-for-like performance on rental showed a 10
per cent decline and retail sales a 3 per cent decline. However, as the
following table shows, performance has steadily improved culminating in a
Christmas performance which, in key trading sectors, materially beat the market
as a whole:
Like-for-Like Turnover Performance
31 weeks 10 weeks 5 weeks
to to to
07.01.06 07.01.06 07.01.06
% % %
VHS/DVD rental (10.0) (8.9) (6.7)
Total retail sales (excluding rental) 1.2 8.6 15.7
Games sales 3.2 20.6 26.2
DVD/VHS sales 14.3 7.4 15.3
Mobile phones (39.4) (42.4) (37.7)
VHS/DVD rental as a proportion of total 30.8 23.6 20.2
takings
Eight loss making stores have been closed and two leases have not been renewed.
We are finalising the disposal of a further ten new retail leases which are
surplus to our requirements. This will relieve us of property costs of #500,000
on an annualised basis.
The proportion of turnover from VHS/DVD rental continues to fall although it
remains an important element of our business.
Operating loss for the Period was #1,539,000.
ChoicesUK Direct
Our non-Internet business continued to grow very satisfactorily, but our
Internet business was adversely affected by the delay in launching our new
ChoicesUK.com website and associated systems. Implementation was due for end
September, but is now scheduled for end February thus we lost its value during
the key Christmas trading period.
Once our new system is satisfactorily launched we expect to move back into
overall growth and to expand on third party arrangements which have been agreed
in principle.
Overall Operating Profit for the Period was #670,000.
Mosaic Entertainment
We have successfully continued to concentrate on exploiting the value of
existing rights.
Operating Profit for the Period was #55,000.
chairman's statement cont.
ChoicesUK TV
We launched our TV shopping channel earlier than planned. All costs have been
kept below budget and continue to be very carefully controlled.
Our initial (and current) position on the Sky Guide is separated from all longer
established shopping channels - a major disadvantage which Sky originally
planned to adjust in November. This change will now take place on 28 February
2006 and we expect this to enable the operation to move towards break even and
profit in 2006/7.
Last week we launched an Internet based extension of the service which will be
further developed in conjunction with the new ChoicesUK.com web system.
Since launch we have established a valuable relationship with Playboy UK for
producing 'Playboy Store' on Sky Channel 287. This is a business model we look
to replicate with others. These include One Stop Phone Shop (a division of
Carphone Warehouse) and Unique Distribution, both of which will start operations
shortly.
The aggregate start up loss for the period (#833,000) has been treated as an
exceptional cost.
Overheads
We have initiated cost savings at every level. The benefit of these in H2 will
be around #500,000 and in 2006/7 will be in the region of #1 million net of an
increase in energy costs of around #500,000. These cost savings take into
account the benefit of consolidating our administrative function under one roof
and the end of leases on existing Head Office property.
Exceptional Costs
Non-recurring costs associated with re-organisation and restructuring amounting
to #234,000 have been incurred within the period.
In addition the review and re-organisation in our trading divisions (principally
our retail division) revealed overstocks certain of which had become obsolete or
less desirable and as we have always adopted very prudent accounting policies
these were written off or down by #1.8 million. As noted above the aggregate
loss for the ChoicesUK TV division has been treated as exceptional.
Dividend
In the light of the Interim trading results the Directors are not recommending
the payment of an Interim Dividend but, subject to trading conditions and
continuing positive progress, intend to propose the payment of a final dividend
for the year.
Cash
The expansion of our sales business has increased our working capital
requirement. The only significant capital expenditure has been for our new
Internet system and rebranding of 75 retail stores. Those investments having
been largely made, our cash flow in H2 will be positive and is planned to remain
so for 2006/07.
chairman's statement cont.
Piracy
There is no question that our Industry and, therefore, our business has been
adversely affected by piracy which accounts for 30 per cent of the legitimate
market. At last there are indications that Government and enforcement
authorities are beginning to take action. We have played a major role in
encouraging this course and hope that it will be effective.
Staff
Our staff at all levels have worked extremely hard and loyally and I would like
to formally place on record our appreciation of their efforts and initiative.
FRS Adjustments
The treatment of dividends and freehold property has been restated for prior
periods to comply with the adoption of FRS 21 and our accounting policies.
Chairman and Chief Executive
As a result of reaching my normal retirement date, after 21 years with the
Company, I will step down as Executive Chairman with effect from 7 April 2006.
As planned, at the same time Managing Director, Anthony Skitt, will become Chief
Executive. Since he joined the Board in 1999 and his subsequent appointment as
Managing Director in 2004, Anthony has played a major role in responding to the
challenges we have faced as well as in developing the business for the future. I
am delighted, therefore that he has agreed to take on this new responsibility.
At the request of the Board, I will remain as Non-Executive Chairman and, in
that capacity, look forward to playing my part in restoring profitability.
Outlook
This has been a challenging and difficult period during which we have made
considerable progress. There remains much to be done, but the foundations are
successfully laid. It is disappointing that we face our first full year loss
since 1991 but the nettles have been grasped and we face H2 and the future in
very good shape to take advantage of the opportunities that face us.
Iain Muspratt
Chairman
23 January 2006
group profit & loss account As As
restated restated
28 weeks 28 weeks 52 weeks
ended ended ended
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
Note #000 #000 #000
TURNOVER 2 74,175 79,169 140,467
Operating (loss)/profit before exceptional (80) 3,687 4,618
costs
Exceptional costs - Stock mark downs (1,771) - -
Reorganisation costs (234) - -
ChoicesUK TV (833) - -
(2,838) - -
OPERATING (loss)/PROFIT (2,918) 3,687 4,618
Net interest payable (213) (56) (169)
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE (3,131) 3,631 4,449
TAXATION
Taxation 3 883 (1,307) (1,633)
(LOSS)/PROFIT FOR THE PERIOD (2,248) 2,324 2,816
Dividends 4 (813) (794) (1,209)
(LOSS)/PROFIT TRANSFERRED (FROM)/TO RESERVES (3,061) 1,530 1,607
EARNINGS PER SHARE:
Adjusted basic earnings per share (excluding 3.3p 12.9p 15.6p
exceptional items)
Basic 5 (12.5p) 12.9p 15.6p
Diluted 5 (12.5p) 11.9p 14.4p
Dividends paid per ordinary share 4.5p 4.4p 6.7p
group balance sheet As restated As restated
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
#000 #000 #000
FIXED ASSETS
Tangible assets 16,460 16,424 16,748
CURRENT ASSETS
Stocks 23,638 19,966 16,633
Debtors 16,088 17,148 8,152
Cash 104 84 77
39,830 37,198 24,862
CREDITORS Amounts falling due within (38,735) (33,059) (20,955)
one year
NET CURRENT ASSETS 1,095 4,139 3,907
TOTAL ASSETS LESS CURRENT 17,555 20,563 20,655
LIABILITIES
DEFERRED TAXATION (135) (310) (135)
NET ASSETS 17,420 20,253 20,520
CAPITAL AND RESERVES
Called up share capital 902 903 904
Share premium account 997 968 997
Capital redemption reserve 1,063 1,061 1,061
Revaluation reserve 777 625 777
Profit and loss account 13,681 16,696 16,781
EQUITY SHAREHOLDERS' FUNDS 17,420 20,253 20,520
group cash flow statement
Note 28 weeks 28 weeks 52 weeks
ended ended ended
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
#000 #000 #000
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 6 (6,852) 3,851 8,317
RETURNS ON INVESTMENTS & SERVICING OF FINANCE
Interest paid (213) (56) (169)
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING (213) (56) (169)
OF FINANCE
TAXATION
Corporation tax paid (836) (675) (1,626)
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets (2,844) (3,605) (6,502)
ACQUISITIONS AND DISPOSALS
Purchase of the business and certain assets of In-Store - - (331)
Movies PLC
Sale of business - - 385
- - 54
EQUITY DIVIDENDS PAID (813) (794) (1,210)
NET CASH OUTFLOW BEFORE FINANCING (11,558) (1,279) (1,136)
FINANCING
Redemption of ordinary shares (43) - -
Issue of ordinary shares - - 30
DECREASE IN CASH AT BANK (11,601) (1,279) (1,106)
notes to the accounts
for the 28 week period ended 17 December 2005
1. Basis of preparation
The interim accounts cover the 28 weeks to 17 December 2005. They have been
prepared under the accounting policies set out in the Company's statutory
accounts and the changes set out below for the 52 weeks to 4 June 2005, and are
unaudited.
Accounting Policies
Change in accounting policy for dividends
The Group has changed its accounting policy for dividends following the
implementation of a new accounting standard FRS 21 'Events after the Balance
Sheet date'. Previously the Group recognised the dividends proposed in respect
of the financial year to which they related. Under the new standard, the Group
will recognise dividends on approval in the Annual General Meeting. The Group
has made a prior period adjustment to account for this change, which reduces the
profit transferred to reserves for the 28 weeks to 18 December 2004 from #1,910
to #1,530.
Change in accounting policy for freehold land and buildings
The Group showed a prior period adjustment in its accounts to 4 June 2005 for a
change of accounting policy for freehold land and buildings. This prior period
adjustment was made to carry freehold land and buildings at valuation, rather
than historical cost. Therefore as at 18 December 2004 the effect of these
changes on the value of freehold land and buildings and shareholder's funds is
summarised in the table below:
Land and Shareholders' Funds
buildings
New Old New Old Change
policy policy policy policy #000
#000 #000 #000 #000
Prior year adjustment as at 5 June 2004 1,509 865 17,921 17,277 644
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 4 June
2005 which have been delivered to the Registrar of Companies. These statutory
accounts were audited by Ernst & Young LLP and their report thereon was
unqualified.
notes to the accounts
for the 28 week period ended 17 December 2005
2. Turnover As restated As restated
28 weeks 28 weeks 52 weeks
ended ended ended
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
#000 #000 #000
Rental - DVD and VHS 23,722 26,411 49,869
Sales and Rental - 13,269 14,549 25,224
games
Sales - DVD, mobile 37,184 38,209 65,374
phones etc
74,175 79,169 140,467
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, books, mobile
telephones and 'top-ups' and other related products.
Games rental turnover has been reclassified from the separate rental
classification and included in sales and rental games category to reflect it's
different nature.
3. Taxation
28 weeks ended 28 weeks ended 52 weeks ended
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
#000 #000 #000
THE TAX (CREDIT)/CHARGE
REPRESENTS
UK corporation tax (859) 1,307 1,787
Over-provisions in respect of (24) - (24)
prior periods
Foreign tax - - 45
(883) 1,307 1,808
Total deferred tax - - (175)
TAX ON PROFIT ON ORDINARY (883) 1,307 1,633
ACTIVITIES
The taxation credit has been calculated by our tax advisers on the allowable
losses and a claim for repayment submitted to Her Majesty's Revenue and Customs.
notes to the accounts
for the 28 week period ended 17 December 2005
4. Dividends
As restated As restated
28 weeks 28 weeks 52 weeks
ended ended ended
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
#000 #000 #000
Interim - - 415
dividend
Final 813 794 794
dividend
813 794 1,209
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
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
Diluted Basic Diluted Basic Diluted Basic
Earnings (#2,247,543) (#2,247,543) #2,323,765 #2,323,765 #2,815,676 #2,815,676
Weighted average 18,036,413 18,036,413 19,506,834 18,052,100 19,500,367 18,059,453
number
of shares
Earnings per (12.5p) (12.5p) 11.9p 12.9p 14.4p 15.6p
share
Adjusted 3.3p 3.3p - - - -
earnings per
share
Calculation of
numbers of
shares:
At 4 June 2005 18,069,747 18,069,747 18,052,100 18,052,100 18,052,100 18,052,100
Shares issued - - - - 17,647 17,647
Shares (35,000) (35,000) - - - -
cancelled
Dilutive effect - - 1,442,150 - 1,397,628 -
of share option
schemes
18,034,747 18,034,747 19,494,250 18,052,100 19,467,375 18,069,747
Adjusted earnings per share excludes the effects of exceptional costs of
#2,838,000 (2004 : Nil) and is presented in order to show the underlying
performance of the Company.
notes to the accounts
for the 28 week period ended 17 December 2005
6. Reconciliation of operating profits to net cash flow from operating
activities
28 weeks 28 weeks 52 weeks
ended ended Ended
17.12.05 18.12.04 04.06.05
(unaudited) (unaudited) (audited)
#000 #000 #000
Operating (loss)/profit before (80) 3,687 4,618
exceptional costs
Exceptional costs - stock mark (1,771) - -
downs
Reorganisation costs (234) - -
ChoicesUK TV (833) - -
OPERATING (LOSS)/PROFIT (2,918) 3,687 4,618
Amortisation - - 5
Depreciation 3,134 3,509 6,275
Profit on sale of business - - (385)
(Increase) in stocks (7,005) (7,766) (4,140)
(Increase) in debtors (7,074) (10,598) (1,602)
Increase in creditors 7,011 15,019 3,546
NET CASH (OUTFLOW)/INFLOW FROM (6,852) 3,851 8,317
OPERATING ACTIVITIES
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 17 December 2005 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
17 December 2005.
Ernst & Young LLP
Cambridge
23 January 2006
trading divisions
ChoicesUK Local
Provides a service throughout the United Kingdom and Republic of Ireland to
convenience stores and other established retailers, enabling them to add DVD and
video sales and rental, computer games software sales, books and music sales to
the range of products offered to their customers.
www.ChoicesUKLocal.com
www.Choicesie.com
ChoicesUK
Operated through 220 (December 2004 - 226) 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.ChoicesUK.com
ChoicesUK Direct
ChoicesUK 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 ChoicesUK
Direct's website at
www.ChoicesUK.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.
ChoicesUK TV
ChoicesUK TV operates a TV shopping channel on Sky Channel 697 and provides
teleshopping expertise to third parties (i.e Playboy Store).
www.ChoicesUK.tv
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 Republic of Ireland
(including arm's length sales to other divisions of the Company).
www.mosaic-entertainment.co.uk
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)
* 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 our corporate website - www.hecplc.com
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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