Choicesuk Share Discussion Threads

[goonertone] 29/9/2006 08:29

JTC or anyone else

One thing I that is bugging me, is the 1% decline in sales like for like or purely 1% lower than last years 12 week period?

If just 1% period to period then that is a great result bearing in mind the reduction in high street stores.

Plus the gem that I was referring to was as JTC points out the welcome break deal which is like getting a chance to open up 26 (JTC said 71 but I think they have 26ish motorway service sites)concessions with no rent and minimal risk. Just proves again that the money is in the management and distribution of other peoples sites.

Finally was anything mentioned about Mosaic?

GT

[jtcod] 28/9/2006 22:11

The remarkable coincidence regarding Andromeda was that we had been stalking this company for some time before picking them up for a song. Nice twist that.

I forgot to say GT that all distribution is under one roof now also. It seemed pretty well laid out too.

During the AGM, there was also a question about current stock values (which developed to cover the subject of improved terms for the return of lines that don't sell well). Sounded like we now had a handle on this thorny issue though I would have liked to have known more but we moved on.

I think the highlights of the day for me were a) the new contract with Welcome Break and b) the fact that the management passed on the Argos contract when taking over andromeda. This tells me so much more about the management's standards. They are not prepared to buy business. They are not desparate for business at 'any price'. They want margin. That gives me comfort.

Looking forward to January the trading statement.

[jtcod] 28/9/2006 21:53

Orb1t
I think the prudent approach is to see how Christmas pans out first. Debt reduction is obviously the first priority. Good Christmas = probable reinstatement of Dividend next year imo.

Habayyut
If you mean shareholdings, I think it's on the web site.

Fordtin
Yes.

Edmund & Michael
You are welcome.

[michaelmouse] 28/9/2006 19:07

JTCod - Many thanks for your views following the AGM.

"The AGM statement said T/O down 1 % year on year but to my mind this tells us nothing. Comparing HET of a year ago with ChoicesUK of today is like comparing 2 different companies. We have an annual overhead cost some £3.6m lower than last year and 95 % of the lossmaking and unwanted parts of the company are now gone. The management have effectively swapped old loss making T/O for new profitable T/O. They made a profit in the second half of last year without the vast majority of these changes."

I totally agree with the views you expressed in the paragraph above. In fact their statement about revenues is a little odd in a sense. Perhaps they are merely trying to manage shareholder expectations since most of the trading statement was upbeat?
Some hefty trades (for ChoicesUK) have moved the price 4% northwards today. It will be interesting to see if we receive any RNS regarding holdings in the company.
Like yourself I am more than happy to hold these.

[edmundshaw] 28/9/2006 18:11

Thanks for the write-up JTC. Almost wish I'd gone too now!

[habayyut] 28/9/2006 17:40

jtcod

have you got a breakdown of who holds what in terms of management?

TIA

[0rb1t] 28/9/2006 17:00

JT,

Any hint of them paying a dividend this year?

[jtcod] 28/9/2006 16:17

Definately not me.

[goonertone] 28/9/2006 15:52

JTC

NIce write up. I can't see myself remembering anywhere near that amount for my trip up to AMU in a couple of weeks.

I think the Q1 numbers will crystalise the savings that are now fully in place and show where the company is now headed. The hard choices and work have been done over the last couple of years and now,hopefully, shareholders and management can reap the rewards.

GT

PS I see someone picked up 50000 shares at 62p which explains the hike in offer from 60 t0 65. It wasn't me so its either you, Peter G, Mgmt now they are out of closed period or Sporticus whose now filled the order he's being trying to get on the cheap(or someone else that just happens to like the story).

[jtcod] 28/9/2006 15:47

Wonder who bought the 50k today. Not me.

Is that you buying GT?

[jtcod] 28/9/2006 15:17

Well, I attended the AGM and these are my findings:

1) Many of the Andromeda clients were already on our books before we bought the business. This made integration of the games business pretty easy. We are looking at maintaining Turnover of £25m pa from the Andromeda business with approx. 8-10 % GP margins. We passed on Andomeda's biggest contract with Argos though. It occupied the lions share of Andromeda's t/o but was not worth the margin and the business terms of that deal left us with most of the risks against little to no positive upside. There have been positive knock-on effects from Andromeda's business (in games) throughout the rest of the Choices business.
2) 17 more shop leases are now gone, (all loss making shops). Incredibly, these leases have been negotiated ''mainly at a premium''. Just 3 more leases to go. Head count has reduced by a further 83 to approx. 400. There are further smaller savings to come as the sprawling head office site is reduced piece by piece into a much reduced footprint. This will happen over approx. 15 mths before the remaining non-required leases are gone. The purchasing team has already been unified though. Now ''one team''.
3) Rental business still declining but some change has been observed more recently, allied to more active law enforcement measures. Still a long way short of the law enforcement approach enjoyed by our counterparts in the US but it's a start.
4) PS3 launch delayed till Spring 2007 but Nintendo Wii will be launched for the xmas market 2006. A little note here: Wii may be bigger than people expect because it's the 'only' box of the big 3 that genuinely seems to provide an entirely new gaming experience. It sounds fun. I am sold on the theory at least and will be checking it out. Launch price just £179
5) Debt position still comfortably within bank guidelines, though obviously higher as we run into Christmas than it will be after Christmas. The coming trading period is crucial to the eoy results and the management are very focussed on that fact. My overriding impression was of a growing ''cautious confidence'' on behalf of the management. They feel they have the right product mix and strength of offer this year. Together with being far better prepared/organised this time around. FWIW, I agree with that sentiment.
6) Ireland going well. Now up to 170 outlets and project 200 by eoy. Strangely, they are finding that Ireland is similar to the mainland 5 years ago, regarding demand for rental business in particular.
7) The Welcome Break contract sounds encouraging too. Welcome Break boasts 71 sites (locations) and 93m customer transactions pa. The original pilot showed positive increase in sales of between 50-60 %. A second trial in another part of the country produced an uplift in sales of 100 %. They didn't need much persuading after that and the contract calls for full switch to Choices on 1/11/2006.

Comment:
The AGM statement said T/O down 1 % year on year but to my mind this tells us nothing. Comparing HET of a year ago with ChoicesUK of today is like comparing 2 different companies. We have an annual overhead cost some £3.6m lower than last year and 95 % of the lossmaking and unwanted parts of the company are now gone. The management have effectively swapped old loss making T/O for new profitable T/O. They made a profit in the second half of last year without the vast majority of these changes. There will be some who will want to wait before they invest (which is fair enough) and some that already see a successful turnaround (of which I am one). I cannot see any other outcome for the company.

As ever all IMHO and DYOR.
JT

PS: I met each member of the management team. Each was helpful in answering my questions in an honest and frank manner. I warmed to them I must say.

Over the years, I have invested in many a company like ChoicesUK, who have hit problems resulting in a full review of operations in order to survive. I have seen some management teams that looked almost lost and frightened. I can only say that this team looks like they are in control and more importantly, they appear to 'know' they are in control.

[goonertone] 28/9/2006 15:15

edmund

I can understand your view however having read this a couple of times there are some gems in it that I didn't really digest first time round. 1st couple of paragraphs negative the remainder as I see it positive.

Anyway someone likes it as the share price has turned round and all of a sudden you can only buy 3000 online at full price and sell 20000 @61

GT

[edmundshaw] 28/9/2006 08:06

Still watching after coming out, but this is an unconvincing statement.

I agree glass is 50% replete; but I'd rather see more positive progress before dipping my toe back in here (I feel sure good news will not results in a share price rocket, so watching and waiting seems safest).

Good luck.

[michaelmouse] 28/9/2006 08:00

GT - I agree.

"The consolidation of the Purchasing team has enabled a tighter control of
stock, this in conjunction with reduced capital expenditure has resulted in our
cash position being significantly better than budgeted."

This is the highlight for me.

[goonertone] 28/9/2006 07:57

Well there was something for both camps in the AGM statement ie those of both the half glass full and the glass half empty.

However I would have to say that for a world cup period and a very hot summer they held up a lot better than I thought.

I'll leave it for others to cut and paste there high/low lights but I'm happy with my position for the long term based on this.

GT

[goonertone] 28/9/2006 07:53

AGM Statement

RNS Number:5926J
ChoicesUK PLC
28 September 2006



Press Release


IMMEDIATE - THURSDAY, 28 September 2006

ChoicesUK plc - 2006 AGM statement

At the annual general meeting of ChoicesUK plc being held today, Chairman Iain
Muspratt will make the following statement to shareholders:

"During the past year, substantial progress has been made in restoring
profitability to the business and this was reflected in the second half
performance of the year.

"In the period of the first 12 weeks of the current year Rental revenues have
remained in decline, Management has responded by continuing to restructure the
business and seek opportunities to generate new sell-thru activities.

"Total revenues for the period are down 1%, reflecting a poor rental performance
during the World Cup which was largely offset by the increase in sell-thru
revenues. Rental activities recovered in August during very favourable (i.e.
wet) weather conditions.

"The disposal of loss-making (and non-trading) stores remains a key focus with a
further 17 lease disposals during the period. Operating the business more
efficiently through a reduction in headcount, along with a range of other cost
saving initiatives, has delivered year on year savings of over #900,000.

"The consolidation of the Purchasing team has enabled a tighter control of
stock, this in conjunction with reduced capital expenditure has resulted in our
cash position being significantly better than budgeted.

"The integration of our Games Fulfilment operation with our Direct business is
on track and is delivering significant incremental revenue to the business.

"Our Local business remains buoyant with strong growth in the Republic of
Ireland under our brand ChoicesIE. In the UK, I am delighted to announce that we
have won a contract to supply Welcome Break. This leading service station
operator is keen to develop its Entertainment offering as part of a major
re-branding exercise.

"As a result of increased sell-thru activities our business now benefits far
more from the Christmas trading period. The product line up looks favourable
with DVD releases anchored by a #50m box office performance from Disney's
Pirates of the Caribbean and a wide range of genres from Pixar's Cars to Sony's
Da Vinci Code. In Games the launch of Playstation 3 falls out of Christmas, but
currently remains within our financial year. Nintendo's revolutionary Wii
product, planned for release in early December, will provide a substantial boost
to the Games business and we are well placed to capitalise on this opportunity.

"In addition to a strong product line up we believe the work undertaken in
reconfiguring many of our stores, the introduction of a Games Fulfilment
business and our increased distribution via third party retailers, will enable
us to trade effectively through the Christmas period.

"Through the remainder of the year we will maintain tight control on stocks and
margins and seek further additional revenue streams that can be operated within
our existing structure.

"The whole team remains totally committed to seeing this business succeed in an
extremely challenging market, and I would like to thank them for their continued
efforts to return ChoicesUK to profitability."

END

Contact

Simon Bloomfield or Andrew Harris
Bankside Consultants (Tel: [phone])

[jtcod] 22/9/2006 08:41

I think you have an agenda Sporticus. I think you know very little about this company apart from a couple of friends in IT that got the tin tac for not delivering on time.

Your last forecasts of doom were unfounded in the Prelims with eoy trading far better than you were claiming.

That's my opinion FWIW.

[goonertone] 22/9/2006 08:28

Still talking in riddles Sporticus.

Not sure about "prime Time Tv" maybe 10 years ago.

Any meat to your doom and gloom or something more concrete. You have in the past had some seemingly insiderish comments to make so I tend to listen to you a bit more than some others but you always seem to come up short when asked for a it of substance.

Prove me wrong and give us your reasoning. I appreciate all info good or bad.

GT

[sporticus] 21/9/2006 19:45

fraid not and very glad I bottled.
here is a clue from a well known prime time tv program.
The mounty always gets his man.
Big time very very big time

[dadesarno_d] 21/9/2006 19:38

So what causes a stock to quickly appreciate in value? Fundamentals? News? Management? Well yes, to a degree. But what REALLY moves a stock price northward that you just purchased?
Answer: A Huge volume of buyers having been directed to the emergence of that stock by a qualified service which has a reputation for doing so. THIS service does:

[jtcod] 21/9/2006 18:42

Lets hope so GT.

About time the rest of the market got the message.

[goonertone] 21/9/2006 08:56

Very quiet on here at the moment.

If things go the way of the previous years we should get a trading statement on the day of the AGM next week. Should determine the direction for the next few months.


GT

[jtcod] 04/9/2006 09:04

GT
I see where I have misunderstood the statement now. I missed the 'in the period' part. So they improved on the May trading statement. Thanks for pointing it out.

I have edited my original post.

29/8/2006
'Central overheads' have been reduced by '£1.2 million in the period', net of energy costs which increased by £620,000. The benefit of these savings in 2006/07 will be approximately £3.0 million.

8/5/2006
The latest phase of its 'central overhead' reduction programme has resulted in 'annualised savings of approximately £2 million'. In addition, the company is in the process of disposing of the leases of a number of unopened non-trading stores, expecting, in due course, to achieve a further annualised saving of approximately £600,000.

[goonertone] 04/9/2006 01:09

Well you may of guessed by my purchases on Friday that I have had a chance to have a proper look at the results and liked what I saw.

Firstly I would just point out that with rental declining by 13% in the year and severe price erosion on DVD's the fact that turnover only declined in total by 4.5% is testatment to the repositioning that the management has undertaken throughout the year.

As for the future then for 2007 I see it like this:

ChoicesUK Stores

"Is now cash generative" I take this to mean that it is profitable before non cash items ie Depreciation therefore not necessarily pofitable at an operating level. They have and continue to take action where necessary and hopefully with the disposal of the loss making stores will head towards operating profitability during the year.

Say loss of £500k

Choices Local

In previous posts I have allocated £20k per annum per store and £22k was acheived. With revcamping of the product mix to include games etc then this should increase to say £25k. With the increase in Choices local IE and the push to find new retail outlets then we can expect an increase of 500 outlets in the year. These new outlets would average out at 250 full units so 8350 @ £25k = £2.1 mill.

Choices direct.

No real input fromn the website during the year and the Andromeda connection was only there from April so only gave 1 months contribution. It made £1.7 million in the year so what would it make with the website and the games up and running properly. This dept is the leap of faith one, it increased by 115% in the year but we can't expect that rate of increase again, can we?
I'll go for a more conservative 20% which will give £2.1 million.

I'll ignore mosaic and I think that all exceptionals are now out of the way.

Therefore we have £3.7 mill profit plus a further £1.8 million in central overhead savings gives £5.4 mill profit less interest at £750k = £4.65mill less tax = £3.25 mill. This equates to 17p eps or pe of 3.5.

Anthony Skitt stated in the Telegraph he was happy with the second half (£1 million profit) and with the way that the second half had started so it would appear that the world cup and heatwave was not to devastating.

One unknown to add into the mix is the fact that the website has now got a "music section coming soon" banner on it. I'm not a great one for music cd's but until we see whether it is in house or third party I will withold my judgement. Third party would mean some form of profit sharing for use of the site whereas if they are going to enter into the music arena either on line or in store as well then this should push turnover up and if managed properly contribute towards profits.

GT

PS Your dissapointment at the £1.2 million versus £2million costs savings. Is that not down to the strategic updates saying they had identified £2 million savings in the current year whereas the accounts said £1.2 million after increases to energy costs of £620k.

In fact looking at it the outlook says £3 million savings net of a "further" increase in energy costs of £620k so in fact the savings obtained are in fact £3.6 million.