Acquisition and Trading Update

RNS Number : 4730S

Vitec Group PLC (The)

16 November 2021

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.

16 November 2021

The Vitec Group plc

Acquisition and Trading Update

Highly complementary, bolt-on acquisition in a faster-growing segment

The Vitec Group plc ("Vitec" or "the Group"), the international provider of premium branded hardware products and software solutions to the growing content creation market, announces an acquisition for our Imaging Solutions Division and a brief update on the Group's trading for the four months to end of 31 October 2021 and FY 2021 outlook.

Key highlights

·	Agreed to acquire Savage for up to $57.3 million in cash, including retention, transaction and financing costs. Completion is expected by the end of November 2021.
·	Savage is a global market leader in backgrounds for the growing professional studio photographic market.
·	Vitec is uniquely placed to drive commercial synergies and help the Savage business grow.
·	Acquisition enhances Group adjusted operating margin, is accretive to adjusted earnings per share from FY 2022 and its return on investment will exceed Vitec's cost of capital from FY 2023 onwards.
·	For the existing Group, pre-Savage, FY 2021 adjusted profit before tax is now expected to be slightly above the current market consensus, despite some uncertainties, primarily around component shortages.

Stephen Bird, Group Chief Executive, commented:

"A key part of the Group's strategy is to invest in businesses exposed to faster-growing segments of the content creation market. Savage gives the Group a leading position in the growing global backgrounds market, which is the largest consumables product used by professional studio photographers. This gives us more frequent contact with our customers as well as more of a regular repeat purchase revenue stream.

"Vitec is the natural home for this well-respected brand as we know the market and their business extremely well. We are uniquely positioned to drive significant growth and commercial synergies by leveraging the Group's global distribution channels to develop Savage internationally, by expanding their customer base to capitalise on the fast-growing vlogger, influencer and gamer market already served by our JOBY brand, and by using our digital expertise to sell Savage products online.

"This is a hugely complementary and financially attractive, bolt-on acquisition in a classic Vitec niche. I am delighted to welcome the Savage team to the Group."

Acquisition of Savage Universal Corp. and its affiliates ("Savage")

Based in Phoenix, US, Savage is a global market leader in backgrounds for the professional studio photographic market. Trusted by creative professionals, Savage manufactures an extensive range of high quality, specialist, seamless paper backgrounds, or backdrops. Backgrounds are a key aspect of imaging production as they are the quickest and easiest way to achieve the desired look for commercial and product photography, portraits, video interviews and social media posts, and they dramatically reduce post-production time. Despite advances in technology, we believe that backgrounds will remain the preferred solution for the foreseeable future.

We know the market and the Savage business extremely well; Vitec's existing Imaging Solutions professional studio photography customers already buy backgrounds and these will be found alongside many of the Group's brands in most photographic studios and rental houses. c.65% of Savage's current revenue is in the US, where they sell direct to retail and c.35% is sold internationally to distributors, with c.40% of that business being distributed in continental Europe and the UK by Vitec Imaging Solutions under our Colorama brand.

Savage will become part of Vitec's Imaging Solutions Division. The business has 85 permanent employees. The COO Rich Reiser will join Vitec while the Chairman and CEO will leave the business at closing of the transaction.

Strategic rationale for the acquisition

A key part of Vitec's strategy is to continue to look for businesses which are exposed to faster-growing segments of the content creation market, particularly in Imaging, where, post-pandemic, we have seen growth in vlogging and influencing, and also in professional photographic studios which are exposed to growth from the internet. Savage fits this strategy:

1.  It is exposed to the growing area of professional studio photography, which is driven particularly by the global growth in demand for digital content and in retail e-commerce, where new products must be frequently photographed or videoed to quickly put fresh content online.

2.  There is the opportunity to sell Savage products to the fast-growing professional influencer and vlogger segment where we estimate that there are more than 40 million vloggers, with a following of over 1,000 people, who share and monetise their content on social media. JOBY is a market leader in this huge untapped market and JOBY revenue in FY 2021 is on track to be c.50% up on 2019.

3.  This is the first company purely focused on consumables that the Group has acquired for some time and it is the largest consumables product in the professional studio photographic market. Backgrounds are bought on a weekly or monthly basis and the acquisition gives Vitec the opportunity to have more frequent contact with our customers, as well as giving the Group more of a regular repeat purchase revenue stream.

4.  Vitec knows the market and the Savage business well and is therefore well positioned to drive commercial synergies and growth. We will expand their distribution internationally, especially in APAC, and we will use our digital expertise to market and sell Savage products online.

Financial aspects of the acquisition ⁽¹⁾

Savage's pro forma results for the year to 31 December 2020 were $24.0 million (£17.9 million) revenue, $4.7 million (£3.5 million) EBITDA and $3.8 million (£2.8 million) profit before tax. The business has grown both revenues and EBITDA materially in 2021 year-to-date. Given the timing, the acquisition  will have a negligible  effect on Vitec's revenue and adjusted profit before tax for FY 2021.  

At 31 December 2020, the gross assets of Savage, subject to the transaction, were $10.1 million (£7.5 million). At 30 September 2021, the net operating assets of Savage to be acquired were c.$7.2 million (£5.4 million). Upon completion of the acquisition, Vitec will recognise around $9.3 million (£6.9 million) IFRS16 lease liabilities and right-of-use assets.

The consideration payable at completion is $53.8 million (£40.1 million) on a cash/debt free basis, plus transaction and financing costs, and will be subject to customary working capital adjustments. Completion is expected by the end of November 2021. Up to a further $1.5 million (£1.1 million) cash retention award will be payable to the COO of Savage, Rich Reiser, half in December 2022 and half in December 2023, based on him remaining in the business and managing the transition for at least two years post acquisition. 

The financial impacts of the acquisition and the benefits to Vitec include:

i.	The acquisition will enhance the Group adjusted operating margin from FY 2022 and contributes to our ambition to reach mid-teen operating margin;
ii.	The acquisition is accretive to adjusted earnings per share from FY 2022;
iii.	The return on investment of the acquisition will exceed the Group's weighted average cost of capital from FY 2023 onwards;
iv.	The Group's return on capital employed (ROCE) at the end of FY 2022 will remain broadly unchanged following the acquisition and is in line with our goal to achieve at least 20% ROCE in the medium term;
v.	Group FY 2021 covenant net debt to EBITDA (under IFRS16) is expected to increase by 0.5x to 2.0x but is then expected to decline significantly during FY 2022.

The acquisition will be funded by a new committed acquisition facility of $53.0 million (£39.6 million) from our existing banks. The total one-off financing costs will be $1.2 million (£0.9 million) and the annual interest expense of this facility will be $1.1 million (£0.8 million) at current interest rates. The term of the facility is three years, with the first repayment due on 30 June 2022.

Trading Update

For the four months to end 31 October 2021, Vitec continued to see strong order intake and revenue, above 2019 levels, albeit with some component shortages, particularly in the Creative Solutions Division, holding revenue back. The Group now expects FY 2021 adjusted profit before tax to be slightly above current market consensus.

For further information please contact:
The Vitec Group plc	Telephone: [phone]
Stephen Bird, Group Chief Executive
Martin Green, Group Finance Director Jennifer Shaw, Group Communications Director

Notes to Editors :

About The Vitec Group plc

Vitec is a leading global provider of premium branded hardware products and software solutions to the growing content creation market.

Vitec's customers include broadcasters, film studios, production and rental companies, photographers, independent content creators, gamers and enterprises. Our product portfolio includes camera supports, video transmission systems and monitors, live streaming solutions, smartphone accessories, robotic camera systems, prompters, LED lighting, mobile power, bags and motion control, audio capture and noise reduction equipment.

We employ around 1,800 people across the world in 11 different countries and are organised in three Divisions: Imaging Solutions, Production Solutions and Creative Solutions.

The Vitec Group plc is listed on the London Stock Exchange.

More information can be found at: www.vitecgroup.com

LEI number: 2138007H5DQ4X8YOCF14

About Savage Universal

From its beginning in 1937 as a manufacturer of quality board and paper products, Savage has provided photographers the essential elements for success. Family-run from the start, Savage has a commitment to quality and innovation that defined the company in the beginning and continues to define it today. Products such as photographic backgrounds continue to be a key focus of Savage's manufacturing efforts, but there's much more to the Savage story. The company continues to develop innovative products, especially in the digital arena, to meet the needs of today's more diverse photography community - professionals and semi-professionals alike. All paper is FSC (Forest Stewardship Council) certified and 100% recyclable and Savage's main paper mill supplier is net zero on electricity, having its own hydroelectric dam which covers all of its electricity requirements.

In 2019, Savage acquired Superior Specialties Inc., which continues to trade under the name of Superior Paper Specialties, LLC.  

More information can be found at:  www.savageuniversal.com  and  www.superspec.com  

Notes

1	Figures shown for Savage are stated at local GAAP and before the effect of IFRS16 Leases. Pro forma results for Savage have been normalised for the annual effect of the current cost base.
2	Pound sterling figures relating to the acquisition of Savage have been translated from US dollars at the current exchange rate of: £1 = $1.34
3	Current company compiled consensus for FY2021: Adjusted profit before tax £40.8m.
4	This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of The Vitec Group plc is Jon Bolton, Group Company Secretary.

 

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