Hot summer melts Home Entertainment's profits

British video rental group Home Entertainment Corporation today said last year’s hot summer had caused its first profits fall since 1990.

The Peterborough-based group, which owns the Choices video shop chain, said pre-tax profits had dropped 20% to £4.7m (€6.9m) in the 53 weeks to June 5.

It blamed the decline on an “unexpected downturn” in rental activity due to the “unprecedented hot and fine weather” in 2003.

HEC also attributed it to a period of upheaval that included the relocation of its central logistics centre, the launch of new activities and investment in new systems.

Chairman Iain Muspratt said: “The result of that double whammy is the first setback in profits growth we have suffered since 1990.

“However, the results of the current year to date indicate that the benefits of the investments are, with one exception, proving successful.”

The company’s Choices chain has more than 200 shops around the country and is second in the market behind Blockbuster.

HEC also rents DVDs and videos at convenience stores and newsagents through its Video Box Office business.

Operating profits before one-off items declined to £4.8m (€7.1m) compared to £5.9m (€8.7m) last time.

HEC said the year was characterised by rapid growth in sales volumes of DVDs coupled with very substantial price deflation.

Results in Choices Video for the first two periods of the current financial year had much improved compared with 2003, despite the adverse effect of the Euro 2004 football.

Five new stores had been opened and were trading as expected and the firm’s new IT system was producing considerable benefits.

Video Box Office broadly maintained year-on-year performance during the period, but was more vulnerable to external factors over which the group had no control, although further new initiatives are planned in the run-up to Christmas.

The group’s online rental business Movie Choices has grown, but continued to lose money.

It said: “We are monitoring performance of both that sector, which is a very small part of the overall rental business, and our part in it with care.”

Mr Muspratt said the group had made a good and improved start to the current year despite “wall-to-wall” sports coverage on TV.

“We face the increasingly important autumn and Christmas periods with confidence and determination,” he said.