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| Chairman's Statement |
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Against a difficult trading environment, we have managed substantial change across the Group as a whole. Profit before tax and exceptional items increased to £14.9m from £7.3m in the prior year. Adjusted profit (which is before tax, exceptional items, adjustment for fixed rental uplifts and amortisation of certain intangible assets) increased from £21.8 million to £28.3 million for the 52 weeks to 2 February 2008.
We are pleased to report that the retail business returned to profitability this year. Whilst like-for-like sales were down 3.2 per cent, gross margin improved by 101 basis points and costs were contained below the rate of retail cost inflation. The business did benefit by £10.9 million (2007: £5.8 million) from the full year effect of relifing certain fixed assets; and from property profits, some £5.0 million higher than last year. Nonetheless, adjusted profit improved by £16.3 million to £3.4 million.
For the Entertainment Wholesale business, it was a year of major change. Over a period of 18 months we have gone from a business with one dominant third party customer, the main contract with whom terminated in May 2007, to one with six significant third party customers. At the same time we have become far less dependent on the CD market and more exposed to the growing books and computer games markets. Sales increased by 36.6 per cent to £1,176.6 million and adjusted profit was broadly unchanged.
2 entertain, our joint venture with BBC Worldwide had an outstanding year. Adjusted attributable profit increased by £6.7 million due to a number of successful releases, most notably “Planet Earth” in America.
In January 2008 we announced that we had completed a refinancing of the Group. The new £350 million asset based lending facility and the £35 million 2nd lien loan provide us with long term finance, the level of which flexes with our working capital requirements.
The Board has taken the decision to cut the dividend. Taking into account the Group’s plans, the Board is recommending a final dividend of 0.17 pence per share. At this lower level the full year dividend of 0.6 pence per share is covered 2.4 times by adjusted earnings and provides a base from which to grow it as performance improves. The Board believes that payment of a dividend at this level represents an appropriate balance between providing a return to shareholders and preserving the financial flexibility necessary to support the plans and ongoing development of the business over both the short and longer term.
On behalf of the Board I would like to thank our colleagues in the business for their sheer enthusiasm, hard work and dedication. It is evident that they are committed to the future success of the business.
Richard North
Chairman
2 April 2008
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