||News – 22 September 2005
Year Ended 30 June 2005
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|| Chairman's Statement
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).
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.
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
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.
22 September 2005
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