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  News – 22 September 2005  
     
  Amstrad Plc
Preliminary Announcement
Year Ended 30 June 2005


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  Chairman's Statement

 
  Financial Review

The Group reported a profit before tax of £19.1m (2004: £15.6m ) on sales of £102.5m (2004: £57.4m). The earnings per share were 16.9p (2004: 14.6p).

Sales have almost doubled this year but the gross margin reduced reflecting our competitive pricing to secure large volume orders. There were also exceptional stock provisions of £5.7m (2004: £nil).

As is customary in the consumer electronics industry, there is consistent demand for price reduction as existing models mature. Our experienced team continue to focus on cost reduction through re-engineering, component price and manufacturing cost reductions. Our overhead base remains tightly controlled which is evidenced by the fact that our costs as a percentage of sales have reduced to 7.9 % from 11.7% a year ago.

The Board of Directors recommend an increased final dividend of 4.5p (2004: 3.5p) per ordinary share to be paid on 6 December 2005 to shareholders on the register on 30 September 2005 which together with the interim dividend of 2.0p (2004: 1.5p) paid on 6 April 2005, makes a total distribution of 6.5p (2004: 5.0p) per ordinary share in respect of the year ended 30 June 2005.

Net assets increased by 26 % during the year to £41.0m (2004: £32.5m). The Group was strongly cash generative in the year with net cash increasing by £17.6m to £39.4m (2004: £21.8m).

Operating Review

This financial year has seen an exceptional increase in turnover reflecting a full year of personal video recorder ("PVR") set top box sales (a set top box incorporating a hard disc drive) and significant sales of set top boxes to the Italian market.

In August 2004 we started shipping , ahead of schedule, set top boxes to our Italian broadcasting customer, Sky Italia, who had an urgent requirement to upgrade existing boxes with new digital ones. In meeting this challenge set by our customer, shipments were very much weighted towards the first half of the financial year.

In the UK we sold a similar number of standard set top boxes as in the previous year and a significant number of PVR set top boxes, which reflects the success of this product category as one of the best innovations in the recent history of consumer electronics. Sales of both products were heavily weighted towards the first half of the financial year due to strong consumer demand in the run up to Christmas.

The Hong Kong business, which designs, manufactures and sells audio products to the US and European markets, has had another successful year with sales ahead of last year assisted by the launch of a new innovative 10CD player in the last quarter of the financial year.

A new generation e-m@iler, the E3, was launched in September 2004. 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 capability. The in-built camera enables users to hold video calls with other E3 users and to send and receive picture messages with mobile phones and PCs. The product was launched at a retail price of around £99 which was reduced to around £49 at Easter. Despite the aggressive pricing of this product, sales have been disappointing in what is currently the worst high street retail market for many years. During the year we have continued to sell the earlier model, the e-m@iler plus, which sold well in the run up to Christmas but since then has seen a slowdown in sales largely due to the availability of the E3.

In the year to 30 June 2005 61k e-m@iler units were purchased and registered by consumers bringing the total number of units sold and registered since launch of the product to 429k.

In view of the low level of sales in the second half of the financial year and the increasingly tough high street environment, the Board feels it prudent to write down the book value of e-m@iler stocks by £5.7m to their anticipated net realisable value.

Installed and registered e-m@ilers will continue to generate significant usage revenue for the business which, based on June 2005 usage revenue, amounts to an annualised figure of £7.3m. This usage revenue continues to be derived mainly from e-mail usage which provides some stability and predictability to this important revenue stream. We expect that despite customer churn, which is to be expected in this industry, this revenue stream will be a significant contributor to paying for our overheads for some years ahead.

Outlook

Although sales of the E3 have been disappointing the videophone technology contained within the product is a significant leap forward for the Group and we are currently in early discussions with a number of European telephone companies about opportunities to exploit this technology. Any future videophone products are likely to be sold to major national telecom providers on a contract basis similar to our set top box business model. This should result in a hardware margin for the Group rather than sales being made through retail channels on an upfront subsidy and future revenue share basis.

We continue to invest development resource in alternative delivery platforms such as internet protocol television (IPTV). We were able to enter this field from experience gained in developing the E3. Apart from IPTV, the broadcast industry is moving into new technological ways to broadcast and high definition television (HDTV) is the future direction that most broadcasters will go. We have started designs for our customers based on new advanced technical solutions to provide HDTV set top boxes and HDTV PVR boxes in the future. Existing standard definition technology will remain until the price of HDTV boxes nears levels seen on standard definition boxes at which time they will become the mainstream core product required by broadcasters.

Apart from our HDTV and IPTV development, on 19 September 2005 we announced that we had agreed with BSkyB to develop and supply a new PVR set top box. As part of this agreement we will sell significant volumes of this new product in the financial year to 30 June 2007.

On 20 September 2005 we moved into a new consumer product category in the health care market and launched a new product, the Integra face care system , and at the same time introduced a new exciting way of selling directly to consumers. The product will be sold on-line through a dedicated website (www.integra-skincare.com). This new but controlled venture takes the Group into the growing consumer electronic healthcare market, one which dependent on the success of this venture has a lot of potential for the introduction of other products. The product has been designed and produced to take into account other World markets. Dependent on the success of the UK launch, we plan to roll the product out to other European and World markets.

Perhaps most importantly this venture experiments with a whole new sales strategy for our business, one that could be applied to any consumer product we may introduce for sales direct to consumers. We have called this sales strategy the "Sir Alan Sugar Enterprise Scheme" (SASES) which has been developed, administered and is owned by Amstrad plc. Further information on this scheme can be seen on our website (www.amstrad.com/sases). The sales method is very innovative and is geared to stimulate sales through existing purchasers who in turn will be able to earn a commission every time they encourage someone else to purchase a unit. We will carefully monitor this venture and be ready to exploit it if and when it shows potential.

In conclusion, as outlined above, this year has seen very significant sales of standard and PVR set top boxes. We have a good order book for our current financial year and encouragingly orders beyond that into the financial year to 30 June 2007 when we also expect to sell PVR products in other markets. In view of the transition from standard definition to HDTV, sales in the current financial year will be made up mainly of existing mature models that, as is customary, are under price pressure. Although we anticipate a good performance in the current financial year, shareholders should not expect the same level of result as we have reported for the year to 30 June 2005. However, the subsequent financial year looks positive and we are excited by the potential of the new orders and new range of products which should underpin prospects for future financial years.

Sir Alan Sugar
Chairman

22 September 2005
 
     
 
Amstrad plc
Register No. 955321
Brentwood House
169 Kings Road
Brentwood
Essex CM14 4EF
Press Enquiries:
Andrew Bloch - Frank PR
Tel: 020 7693 6999
E-mail: andrew@frankpr.it

 

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