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MBL Visual

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  • two thousand& nineREPORT & ACCOUNTS

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    We have a simplephilosophy.We deliver what customerswant,when they want it, and strive to make it easy for them.

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    02 Summary of result_

    04 Chairmans statement_

    07 Operating review_

    08 Financial review_

    10 Operational team_

    12 Directors report_

    14 Statement of directors responsibilities in respect of

    01 the directors report and the financial statements_

    20 Independent auditors report to the members of MBL plc_

    23 Consolidated income statement_

    24 Consolidated statement of recognised income and expense_

    29 Consolidated balance sheet_

    34 Consolidated cash flow statements_

    40 Notes to the consolidated financial statements_

    42 Company balance sheet_

    43 Notes to the company financial statements_

    44 Notice of annual general meeting_

    50 Form of proxy_

    contents

  • We understand our customers consumers.We know what will makea good purchase.

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  • chairmans statementWhen I took over as Chairman in 2006 Istated that I was confident that themanagement team could deliver profitablegrowth of the Group. I am delighted to reporta set of results that demonstrate the growthand sustained underlying profitability of theGroup. We began the year with clarity overthe focus of the Group, having completed thedivestment of unprofitable andunderperforming business units in 2007.

    The underperforming businesses were, for themost part, inherited by the current Board.Our distribution business strengthened itsmarket position in the UK commencing supplyto several new customers this year and,against a challenging market backdrop, I lookforward to continuing with the progressachieved to date.

    We have changed our financial statements toreporting under International FinancialReporting Standards and, as part of ourannual impairment review, have reduced thecarrying value of goodwill. Due to the sizeand nature of the reduction, this amount hasbeen reflected as an exceptional item. Thewrite down has no impact on the cashposition of the Group.

    SUMMARY OF RESULTSIn order to present a balanced view of thecurrent year results it is important torecognise the impact of exceptional and non-recurring charges on the results. Theseconsisted of goodwill impairment charges of12.4 million (2007: 2.2 million) andaccelerated amortisation of other intangibleassets of nil (2007: 1.7 million). The tableon page 9 illustrates the impact of theexceptional and non-recurring charges.Adjusted operating profit increased to 5.9million (2007: 5.8 million). Operating profitdecreased by 8.4 million due to theimpairment of goodwill. An adjusted basic

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    earnings per share before exceptional itemswas 24.9p per share compared to 22.5p pershare in 2007.

    Basic earnings per share was (47.5)pcompared to (8.5)p in 2007. Adjusted basicearnings per share before exceptional itemswas 24.9 p per share compared to 22.5p pershare in 2007. Revenue from continuingoperations was 80.9 million compared to61.5 million in 2007. This represents anincrease of 31.5%. Sales in our distributionbusiness grew by 49.3% from 48.5 millionto 72.4 million while sales in our wholesalebusiness fell by 36.4% from 12.9 million to8.2 million. The growth in our distributionbusiness, which is heavily weighted towardsthe supermarket sector, reflected strongperformance in the sales of DVDs in additionto the achievement of several new customers.

    The contraction of our wholesale businesscontinued as the remaining retailers in themusic and film specialist sector continued toexperience sales and margin pressure arisingfrom the competitive efforts of supermarkets.Gross margins for the Group fell to 18.1%compared to 18.7% in 2007 (21.5% afteradjusting from the accelerated amortisationof other intangible assets). Gross marginshave been negatively impacted by thelowering of retail price points and a change inmix to higher value, lower margin products.Overheads continue to grow in line with thehigher activity levels.

    SHAREHOLDER VALUE ANDDIVIDENDSAs a result of its sustained underlyingprofitability, the Group has continued togenerate significant cash. However, thecumulative exceptional charges associatedwith goodwill balances leave the Group with asignificant deficit in distributable reserveswhich, if left unaddressed, will inhibit the

    ability to pay dividends in the future. In orderto rectify this anomaly, the Board isinvestigating ways in which the Group may beable to distribute cash to its shareholders.The Group expects to announce a proposal torestructure its share premium account andthereby position the Group with distributablereserves in due course. Should the measuresthe Directors are considering be successful,the Board will seek to embark on aprogressive dividend policy.

    DIRECTORATEAfter close to six years working with theCompany, Alex Sorrell, Group FinancialDirector, has indicated his intention to taketime out of the business to travel and pursuenon work related interests. We would like tothank Alex for his contribution to thedevelopment of the business during his periodof tenure and we also wish him well on histravels. Alex will leave the Board withimmediate effect.

    It is intended that Lisa Clarke, the presentGroup Financial Controller, who has been withthe Group since August 2006, will beappointed to Group Financial Director shortlyand is currently acting as Group FinancialDirector Designate.

    CURRENT TRADING ANDOUTLOOKWe have made a good start to the financialyear and continue to strengthen our positionin the markets in which we operate, despitedifficult trading conditions in the retail sectorin general, while margins remain at a similarlevel to last year. The economic climatecontinues to challenge us but we areoptimistic that we will be in a position toreport a good result for the interim period.Post year-end event.

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    On 28 February 2008 the Companyannounced that it was in discussions whichmay or may not lead to an offer being madefor the Company. On 24 June 2008 theCompany announced that talks regarding apossible offer for the Company have beendiscontinued.

    Peter Cowgill Non-Executive Chairman9 July 2008.

    Turnover

    Reported operating (loss)/prot

    Adjustments: Goodwill impairment charge Accelerated amortisation of other intangible assets

    Adjusted operating prot

    Net interest

    Reported (loss)/prot before tax Adjusted prot before tax

    Basic EPS (pence) Exceptional and non-recurring charges (pence)

    Adjusted basic EPS (pence)

    31 March2008

    millionContinuing

    activities

    80.9

    (6.5)

    12.4

    5.9

    (0.2)

    (6.7) 5.7

    (47.5)p72.4p

    24.9p

    31 March2007

    millionContinuing

    activities

    61.5

    1.9

    2.21.7

    5.8

    (0.4)

    1.55.4

    (8.5)p31.0p

    22.5p

    SUMMARY OF RESULTS

    I am delighted to report a setof results that demonstratethe growth and sustainedunderlying profitability of theGroup.

    Peter CowgillNon-Executive Chairman

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    We are driven byideas and by working

    with customers.Our aim is to help customers

    grow their sales.

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    operating review

    DISTRIBUTIONMusic Box Leisure (MBL )MBL is central to the Group. MBLs customersare exclusively in what the industry terms thenon traditional sector, for examplesupermarkets, discount retailers, motorwayservice stations and garden centres, ratherthan conventional high street CD and DVDshops. The emphasis with customers is ondelivering strong sales and margins throughtargeted promotions. MBL has its own in-house merchandising team which allows it todirectly manage the quality of its customersin-store operations. It combines its customerssales data with strong buying skills to delivergood retail margins.

    The key focus of the year was to successfullyintegrate new customers into our existingbusiness model and to strengthen ouremployee base in order to manage currentgrowth. Sales at MBL grew by 49.3% from48.5 million to 72.4 million. Of this growth,8.3 million was attributed to new customers.The customer base in MBL remains heavilyweighted towards the supermarket sector,which the management team believes offersgood short to medium term prospects. MBLcontinues to be affected by the creditinsurance industrys lack of confidence in thesector. Credit limits from some of our keysuppliers have been significantly reduced andwe have secured product supply throughdiscretionary uninsured trading limitssupported by substantial advance paymentson account.

    WHOLESALEESD Wholesale (ESD)ESD is a wholesaler primarily to independentand internet retailers. The independent retailsector continues to experience a difficulttime. As a supplier, ESD has experienced theproblems associated with the credit insurers

    The added value we provideto customers in the non-traditional retail sector is ourkey point of differencecompared to ourcompetitors and consequentlywe achieve our best results bytargeting this sector.

    Trevor AllanChief Executive

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    views on the market wh