Sales for the first half were £63.5m (2003: £29.5m) and
the Group reported a record first half pre- tax profit of £14.2m
(2003: £7.1m). The earnings per share were 12.1p (2003: 6.0p).
Whilst sales have more than doubled the gross margin has reduced reflecting
expected price pressure from customers on mature products. As is customary
in our industry we continue to focus on cost reduction through re-engineering,
component price and manufacturing cost reductions. Our overheads are
tightly controlled, resulting in our cost base as a percentage of
sales reducing to 6.8% from 11.4% a year ago.
The interim dividend is to be increased to 2.0p (2003: 1.5p) per ordinary
share to be paid on 6 April 2005 to shareholders on the register as
at 25 February 2005.
The Group balance sheet remains strong with net assets of £40.8m
(2003: £27.9m) of which £22.2m (2003: £22.6m) was
cash. Stocks, debtors and creditors were significantly higher than
a year ago, reflecting the increased level of business in the last
couple of months of the financial period and the planned build-up
of inventory ahead of Chinese New Year.
The business experienced an exceptional rise in turnover, reflecting
significant sales of PVR set top boxes (a set top box incorporating
a hard disc drive) and set top boxes to our Italian customer; neither
of these products were sold in the half year to 31 December 2003.
Deliveries of digital satellite set top boxes to our Italian broadcaster
customer commenced ahead of schedule in August 2004 and during the
half year to 31 December 2004 we shipped significant volumes to this
important new customer.
In the UK a large proportion of our orders for this financial year
for standard set top boxes and PVR boxes were shipped in the half
year to 31 December 2004, reflecting a strong demand in the run up
The Hong Kong operation, which makes direct shipments of audio products
mainly to the US market, continues to be a successful part of our
business with turnover ahead of the same period last year.
In September we launched the E3, a new generation e-mailer, at a retail
price of around £99. Although at launch its full capability
was restricted awaiting further development of new software. In addition
to e-mail, sms, internet access and other functionality available
on the previous version, the E3 has a colour screen and video phone
functionality. The in-built camera enables users to hold video calls
with other users and to send and receive picture messages with mobile
phones and PCs. Initial sales have been low and various initiatives
are planned in the second half to stimulate sales once new software
is available. The previous model, the e-mailer plus, continues to
Approximately 403k e-mailer units have now been bought and registered
since the launch of the product of which 35k units were in the last
In December 2004 the average revenue generated from the installed
base of e-mailers was £22k per day (approximate annualised rate
of £8m per annum). The majority of the revenue continues to
be derived from e-mail, surf usage and the downloading of ringtones,
which in the last couple of months has been enhanced by the addition
of polyphonic ringtones which are very popular on mobile phones.
The development and the start of shipment of the new generation e-mailer
telephone is an important milestone for the Company as the technology
contained within it is a significant leap forward for us, one on which
the Company expects to capitalise on in years to come. With the rapid
advancement in Internet Protocol telephony such as Voice over IP and
other data transfer features the Company is well poised to exploit
opportunities in both home and overseas markets catering for these
new and exciting applications.
New features will continue to be downloaded as time goes by. In the
short term the downloading and display of digital photos from the
now very popular digital cameras to the E3 e-mailer will be possible
making it a simple and fast picture viewer as well as having the ability
to send pictures by e-mail. Another major feature and advance in technology
will be the ability to operate the unit on an ADSL line for high speed
data transfer applications.
The industry is now well into the digital revolution and the transition
from analogue consumer products is rapidly gaining momentum. For Amstrad
we see the sacred treasures of our business as being advanced telephony
and digital gateways into the home such as PVR and more importantly
the transition away from the VCR to read-write DVD technology. The
Company intends to invest in development in these exciting new areas
to lay a solid foundation for the future.
For the reasons outlined previously the Group has reported an exceptional
result for the first half. Shareholders should however remember that
the second half of the financial year always reflects the normal seasonal
reduction in sales volumes.
We have a good order book for set top boxes for the rest of the financial
year and have been awarded further orders by our customers that will
secure sales well into and throughout our next financial year. As
such our expectations for this financial year's result remains positive.
Sir Alan Sugar
17 February 2005