Final Results

RNS Number:0530P
Home Entertainment Corporation PLC
27 August 2003


Press Release

IMMEDIATE, Wednesday, 27 August 2003


Preliminary results for the 52 weeks ended 31 May 2003

Financial highlights (figures in #000s)

                                           52 weeks                   52 weeks
                                      ended 31/5/03               ended 1/6/02
                                          (Audited)                  (Audited)

Turnover                                    120,664    + 17.1%         103,038
Operating profit before exceptional           5,882     + 8.7%           5,411
items *
Pre-tax profit after exceptional              5,950    + 25.9%           4,727
items *
Earnings per share (pence)
- Adjusted basic                               20.5     + 8.5%            18.9
- Basic                                        20.9    + 45.1%            14.4
Dividend per share (pence)                      6.3    + 10.5%             5.7

* 2003 exceptional credit - #62,000 (2002 - #639,000 costs of flotation)


* Sales growth reflects buoyant demand for digital versatile discs
("DVDs") and computer games software, despite a relatively lacklustre video
release schedule in the first quarter and the negative impact of the World Cup
in June 2002.

* On a like-for-like basis, Choices Video stores increased rental and
total sales by 6.9 per cent and 7.7 per cent respectively, Video Box Office
increased total revenues by 13.3 per cent, and Choices Direct profitably grew
sales by 29.4 per cent.

* Sell-thru accounted for 53.4 per cent of turnover (2002 - 50.1 per
cent).

* Capital expenditure for the year, with investment in 23 (net) new
Choices Video stores, store refurbishment and new finance and EPOS systems, was
#7.6 million (2002 - #5.39 million).

* Positive cashflow for the year was #821,000 (2002 - #743,000) and
cash at the period end was #2.09 million.

"Our confidence in the prospects for DVD rental and sell-thru growth is
underpinned by a stronger release schedule during the period June to December
2003 although, as with computer games, considerable emphasis is placed on the
Christmas sales period. Despite the unprecedented hot weather during most of the
summer, overall turnover rose during the first eight weeks and showed year-on
year growth of 11.5% although the higher margin rental business suffered. We
approach our next financial year as an AIM listed company with the same prudent
confidence and care that has characterised our last 17 years of sustained
growth, but suspect that 2004 will be more challenging than 2003. The investment
we have made in systems and superstores equips us well to meet that challenge."


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 that Home Entertainment Corporation PLC achieved
satisfactory results for the 52 week period ended 31 May 2003. Rental activities
suffered from a comparatively poor release schedule in the first quarter but
benefited from the growth in digital versatile discs ("DVDs"). Sell-thru gains
were principally a result of DVD sales, although the VHS and computer games
software market remained more buoyant than expected.


At the end of the period, Diane Gardner, one of the three founding directors of
Home Entertainment Corporation PLC retired from the Company. Diane is a
long-standing colleague and friend who has played a crucial role in the
development of the Company and I would like to extend my sincere thanks for
Diane's valuable contribution over the past 18 years and wish her well for the
future. Steve Barker, Development Director was appointed during the period and
is responsible for Choices Direct, Group Head Office Logistics, Head Office
Property and Group Personnel. Steve joins the Company after ten years at
Columbia Tristar as Sales Director.

Results

Sales in the period increased by 17.1 per cent to #120.66 million (2002: #103.04
million). A significant part of that growth arose from the increased sales of
DVDs. On a like-for-like basis Choices Video stores increased rental and total
sales in the period by 6.9 per cent and 7.7 per cent respectively.

Gross profit for the period was #49.30 million (2002: #43.29 million), an
increase of 13.9 per cent. As anticipated gross margin declined in the period to
40.9 per cent (2002: 42.0 per cent) as a result of the faster rate of growth
coming from the sale of DVDs, videos and computer games, compared with their
rental. Sell-thru activity accounted for 53.4 per cent of the Company's turnover
for the period compared to 50.1 per cent in the prior period.

Profit before taxation and exceptional item increased by 9.7 per cent to #5.89
million (2002: #5.37 million).

The Company generated a positive cashflow of #821,000 (2002: #743,000) and net
cash at the period end was #2.09 million.


Capital expenditure during the period including investment in a net 23 new
Choices Video stores, store refurbishment and new finance and EPOS systems was
#7.60 million (2002: #5.39 million).


Basic earnings per share were 20.9 pence (2002: 14.4 pence), and earnings per
share, excluding the exceptional item of #62,000 credit (2002: #639,000 charge)
and over-provision in respect of taxation of #15,000 (2002: #167,000
under-provision), were 20.5 pence compared with 18.9 pence in the previous
period.


Dividend

An interim dividend of 2.1 pence per share (2002: 1.9 pence) was paid on 16
April 2003 and the Board is recommending a final dividend of 4.2 pence per share
(2002: 3.8 pence) to be paid, subject to approval at the Annual General Meeting
on 25 September 2003, on 21 October 2003 to shareholders on the Register as at 5
September 2003.


Trading

Overall growth in DVD, video and computer games rental sales was achieved
despite a relatively lacklustre new video release schedule in the first quarter,
and the negative impact of the World Cup on demand for home entertainment in
June 2002. Christmas trading was particularly buoyant.


Substantial growth in turnover was powered by DVD, Playstation 2 computer games
sales and from the launch in May 2002 of Microsoft X-Box. A further 32,000
square feet of leasehold warehouse and office space, adjacent to our existing
facilities at Manasty Road, Peterborough, were acquired to handle the additional
volumes. Fitting out was completed in September 2002. Further enhancements of
these facilities are planned.


Releases for the latter part of the year were much improved, and that continues
for the first half of 2003/2004.


Trading Divisions

Choices Video opened a net 23 new stores during the year, making a total of 210
at year end. This, together with the cost of store re-fits, resulted in capital
expenditure of #4.12 million (2002: #3.12 million). A new EPOS system is
currently being 'rolled out' to all stores and as a consequence the rate of new
store openings has been reduced during July and August 2003.

VBO total revenues on a 'like for like' basis increased by 13.3 per cent
reflecting the rapid growth in the 'Collections' sell-thru offerings to
customers, although rental takings were static. The transition from VHS rental
product to DVD for VBO customers is now well under way, with DVD now accounting
for approximately 50 per cent of rental turnover.


Choices Direct achieved profitable sales growth in both mail order and
fulfilment with 'like for like' sales increasing by 29.4 per cent. A new website
was launched in June 2002 (www.choicesdirect.com) supported by a major
logistical upgrade in order to exploit opportunities in this area.


Mosaic Entertainment will continue its strategy of acquiring a limited number of
titles and exploiting them at lowest risk, but is placing more emphasis on
sell-thru markets.


Outlook

By the end of July 2003, the installed base of DVD players exceeded 7.2 million
and the British Video Association estimates that the total will reach over 9
million by the end of the calendar year. Current estimates are that
approximately 30 per cent of households had DVD players at the end of May 2003
when DVD was accounting for 62 per cent of video rental activity in Choices
stores.


On the basis that these trends continue, the Board believes that there is scope
for 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 stronger release schedule during the period
June - December 2003 although, as with computer games, considerable emphasis is
placed on the Christmas sales period. Video releases include Johnny English,
Lord of the Rings: The Two Towers, Two Weeks Notice, Matrix Reloaded, How to
Lose a Guy in 10 Days, Terminator 3: The Rise of the Machines and X-Men 2. Key
computer games titles include Lord of the Rings: Return of the King, Fifa 2004,
Harry Potter Quidditch, Tony Hawks Underground, Medal of Honor: Rising Sun and
True Crime: Streets of LA.

Price deflation for VHS and DVD is currently stimulating demand and we expect
that to continue. This should ensure that the Company is better placed than many
to withstand a downturn in consumer spending, as DVD and video rental would
become a relatively more attractive and cost-effective form of entertainment.


Despite the unprecedented hot weather during most of the summer, which has led
to reduced demand for rentals, overall turnover rose during the first eight
weeks and showed a year-on-year growth of 11.5%, although the change in sales
mix has resulted in lower gross margins. Interestingly, rental revenues achieved
new record levels during the two weeks in July, when the weather was poor. At
this stage, we would presume that lost rental revenues cannot be replaced, and
this will affect current year growth rates.


We approach our next financial year as an AIM listed Company with the same
prudent confidence and care that has characterised our last 17 years of
sustained growth, but suspect that 2004 will be more challenging than 2003. The
investment we have made in systems and superstores equips us well to meet that
challenge.


Iain Muspratt
Chairman


PROFIT AND LOSS ACCOUNT
for the 52 week period ended 31 May 2003
                                                     Notes        2003      2002
                                                                  #000      #000

TURNOVER                                                 1     120,664   103,038
----------------------------------                     -----   -------   -------
Cost of Sales                                                 (71,366)  (59,751)
----------------------------------                     -----   -------   -------
Gross profit                                                    49,298    43,287
---------------------------------                      -----   -------   -------
Net operating costs                                           (43,354)  (38,515)
---------------------------------                      -----   -------   -------
OPERATING PROFIT                                         2       5,944     4,772
---------------------------------                      -----   -------   -------
Analysis of Operating Profit:
---------------------------------                      -----   -------   -------
Operating profit before exceptional item                         5,882     5,411
---------------------------------                      -----   -------   -------
Exceptional item - costs of flotation                               62     (639)
---------------------------------                      -----   -------   -------
OPERATING PROFIT                                                 5,944     4,772
---------------------------------                      -----   -------   -------
Interest receivable / (payable)                                      6      (45)
---------------------------------                      -----   -------   -------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION                    5,950     4,727
---------------------------------                      -----   -------   -------
Tax on profit on ordinary activities                           (2,184)   (2,157)
---------------------------------                      -----   -------   -------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION                     3,766     2,570
---------------------------------                      -----   -------   -------
Dividends (including non-equity dividends)                     (1,135)   (1,047)
---------------------------------                      -----   -------   -------
RETAINED PROFIT FOR THE 52 WEEK PERIOD                           2,631     1,523
---------------------------------                      -----   -------   -------
Earnings per Share:                                      3
---------------------------------                      -----   -------   -------
Basic                                                           20.9p     14.4p
---------------------------------                      -----   -------   -------
Diluted                                                         20.0p     13.9p
---------------------------------                      -----   -------   -------
Adjusted basic earnings per share (excluding                    20.5p     18.9p
exceptional items and under-provision in respect of    -----   -------   -------
prior periods' taxation)
---------------------------------
Dividends per Ordinary share                                     6.3p      5.7p

There are no recognised gains or losses other than the profit attributable to
shareholders of the Company of #3,766,000 in the 52 week period ended 31 May
2003 and of #2,570,000 in the 52 week period ended 1 June 2002.


BALANCE SHEET
at 31 May 2003
                                                   Notes       2003       2002
                                                               #000       #000
FIXED ASSETS
Tangible assets                                              14,418     11,521

CURRENT ASSETS
Stocks                                                       10,514      9,672
Debtors                                                       7,161      5,366
Cash at bank and in hand                               4      2,088      1,267
                                                             19,763     16,305
CREDITORS: amounts falling due within one year              (18,533)   (14,947)
NET CURRENT ASSETS                                            1,230      1,358
TOTAL ASSETS LESS CURRENT LIABILITIES                        15,648     12,879

PROVISIONS FOR LIABILITIES AND CHARGES:
Deferred taxation                                              (304)      (166)
                                                             15,344     12,713
CAPITAL AND RESERVES
Called up share capital                                         901        901
Share premium account                                           909        909
Capital redemption reserve                                    1,061      1,061
Profit and loss account                                      12,473      9,842
SHAREHOLDERS' FUNDS - EQUITY                                 15,344     12,713


STATEMENT OF CASH FLOWS
for the 52 week period ended 31 May 2003
                                                     Notes      2003      2002
                                                                #000      #000

NET CASH INFLOW FROM OPERATING ACTIVITIES                     11,412     9,335

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received/(paid)                                           6       (45)
Non-equity dividends paid                                          -      (243)
                                                                   6      (288)

TAXATION
Corporation tax paid                                          (1,934)   (2,394)

CAPITAL EXPENDITURE
Proceeds from sale of tangible fixed asset                         -        18
Payments to acquire tangible fixed assets                     (7,600)   (5,393)
                                                              (7,600)   (5,375)

EQUITY DIVIDENDS PAID                                         (1,063)     (651)
NET CASH INFLOW BEFORE FINANCING                                 821       627

FINANCING
Issue of ordinary share capital                                    -       116
INCREASE IN CASH                                         4       821       743


RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS

                                                          2003            2002
                                                          #000            #000

Increase in cash in period                                 821             743
Net funds at 1 June 2002                                 1,267             524
Net funds at 31 May 2003                                 2,088           1,267



NOTES TO THE ACCOUNTS
at 31 May 2003

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 DVDs, video cassettes
and computer games and sale of pre-recorded DVDs, video cassettes, computer
games, mobile telephones and 'e-top-ups' and other related products.

An analysis of turnover by geographical market and segment is given below:

                                                    2003               2002
                                                    #000               #000

Geographical Analysis
United Kingdom                                   119,466            102,077
Rest of Europe                                       680                419
Other                                                518                542
                                                 120,664            103,038

Segmental Analysis
Rental                                            56,227             51,414
Sales - Games                                     19,139             16,049
Sales - Others                                    45,298             35,575
                                                 120,664            103,038
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:

                                                             2003         2002
                                                             #000         #000

Operating profit                                            5,944        4,772
Depreciation                                                4,703        4,108
Increase in debtors                                        (1,795)        (297)
Increase in stocks                                           (842)      (1,471)
Increase in creditors                                       3,402        2,223
Net cash inflow from operating activities                  11,412        9,335



NOTES TO THE ACCOUNTS
at 31 May 2003

3. EARNINGS PER SHARE
                               52 weeks ended              52 weeks ended
                                31 May 2003                 1 June 2002
                             Diluted         Basic       Diluted         Basic

Earnings                  #3,766,584    #3,766,584    #2,570,438    #2,570,438
Number of shares at       18,015,975    18,015,975    17,791,852    17,791,852
start of period
Shares issued                      -             -       224,123       224,123
Dilutive effect of share   1,011,025             -       633,900             -
option schemes
                          19,027,000    18,015,975    18,649,875    18,015,975

Weighted average number   18,877,500    18,015,975    18,451,083    17,890,284
of shares

Earnings per share              20.0p         20.9p         13.9p         14.4p
Adjusted earnings per           19.5p         20.5p         18.3p         18.9p
share

Adjusted earnings per share excluded the effects of exceptional (flotation)
items of #62,000 credit (2002: #639,000 charge) and an over-provision in respect
of prior periods' taxation of #15,000 (2002: #167,000 under-provision) and is
presented in order to show the underlying performance of the Company.

4. ANALYSIS OF CHANGES IN NET FUNDS
                                        At 1 June        Cash        At 31 May
                                             2002       Flows             2003
                                             #000        #000             #000

Cash at bank and in hand                    1,267         821            2,088


5. ANNUAL GENERAL MEETING

The 2003 Annual General Meeting of Home Entertainment Corporation PLC will be
held at 19-24 Manasty Road, Orton Southgate, Peterborough, PE2 6UP, on Thursday
25 September 2003 at 10.00am.

6. COPIES OF ANNUAL REPORT

Copies of the annual report for the 52 weeks ended 31 May 2003 are available,
free of charge, to the public on any week day, 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 one month thereafter. Alternatively, the annual
report can be accessed by visiting the Company's website at www.hecplc.com.


NOTES TO THE ACCOUNTS
at 31 May 2003

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 31 May 2003
have been delivered to the Registrar of Companies. The auditor's report on those
accounts was unqualified and contained no statement under section 237 (2) or (3)
of the Companies Act 1985.

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 Video

Operated through 210 (1 June 2002: 187) Company owned retail outlets in England
and Wales, offering DVDs, videos and computer games rental and sales, games
consoles for sale, the sales of 'SIM Free' mobile telephones, 'e-top-ups', 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.

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.


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








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