Final Results
The Vitec Group PLC
03 March 2008
3 March 2008
2007 Full Year Results
A YEAR OF STRONG GROWTH
The Vitec Group plc, the international supplier of products, services and
solutions to the Broadcast, Photographic, and Entertainment industries,
announces its results for the year ended 31 December 2007.
Results from continuing operations 2007 2006 Change
Revenue £273.8m £222.3m +23%
Before significant items*
Operating profit £32.6m £25.2m +29%
Profit before tax £30.3m £24.1m +26%
Earnings per share 46.0p 35.3p +30%
After significant items*
Operating profit £27.7m £23.5m +18%
Profit before tax £25.8m £22.6m +14%
Earnings per share 44.1p 32.6p +35%
Total dividend recommended for the year 17.8p 16.5p +8%
KEY POINTS
• Revenue growth of 30% in constant currency (12% organic)
• Operating profit before significant items* up 46% in constant currency
(31% organic)
• Basic earnings per share before significant items * of 46.0p, up 30%
• Cash generated from operations of £33.8 million
• Imaging & Staging division sales up 24%
• Broadcast Systems operating margin above 10% for the full year
• Acquisition of RF Systems, performing well
*2007 significant items total a PBT charge of £4.5m and comprise amortisation of
acquired intangibles (£5.0m), offset by negative goodwill (£0.1m) and fair value
adjustments relating to volatile financial instruments (£0.4m); with an earnings
charge of £0.8m after deferred tax credits (£3.7m). 2006 significant items
totalled a PBT charge of £1.5m; with an earning charge of £1.1m, after a
deferred tax credit of £0.4m.
Commenting on the results, Gareth Rhys Williams, Chief Executive, said:
'The Vitec Group has delivered another year of strong profit growth. We
successfully positioned ourselves in markets which grew strongly, our
consolidated operations platform is working well and the acquisitions we have
made to broaden our product range and strengthen our distribution network
provided further momentum.
'We entered 2008 with a strong order book and we have noted the encouraging
forecasts of continued growth in the high end photographic market. 2008 will see
the Olympics in Beijing and we will also benefit from a full year of
contribution from RF Systems. Overall, the Board looks forward to continued
progress in 2008.'
Enquiries
The Vitec Group plc Gareth Rhys Williams, Group Chief Executive 020 8939 4650
Alastair Hewgill, Group Finance Director
Financial Dynamics Richard Mountain 020 7269 7121
Sophie Kernon
This preliminary announcement should be considered to be part of the Directors'
report to be contained in the forthcoming Annual Report and Accounts and as such
has been drawn up and presented in accordance with and in reliance upon
applicable English company law (in particular section 463 of the Companies Act
2006 and section 90A of the Financial Services and Markets Act 2000) and the
liabilities of the directors in connection with that report shall be subject to
the limitations and restrictions provided by such law.
Notes:
1. Whilst Vitec has significant production and sourcing in US dollars and
has hedging arrangements in place, movements in the $/£ and, particularly, $/€
rates can have a significant impact on reported results. After hedging, the
Group has seen an adverse effect of £3.7 million on operating profit in 2007
compared to 2006 (compared to the guidance of £3.3 million adverse given at the
Interims in September) and, if current exchange rates continue throughout 2008,
an adverse impact of some £1.9 million on 2008 operating profit compared to 2007
(compared to the guidance of £1.8 million adverse given in September and £1.5
million adverse given in January).
2. Current market exchange rates: £1 = $1.98, £1 = €1.31, €1 = $1.51.
3. 2007 average market exchange rates: £1 = $2.00, £1 = €1.47, €1 = $1.37.
4. 2006 average market exchange rates: £1 = $1.84, £1 = €1.47, €1 = $1.25.
5. Statements made in this announcement that look forward in time or that
express management's beliefs, expectations or estimates regarding future
occurrences are 'forward-looking statements' within the meaning of the United
States federal securities laws. These forward-looking statements reflect Vitec's
current expectations concerning future events and actual results may differ
materially from current expectations or historical results.
6. Vitec is an international Group, principally serving customers in the
worldwide media sector with products and services for the broadcast,
entertainment and photographic industries. Vitec is based on strong, well known,
premium brands that professionals rely on. Vitec is organised in three
divisions: Imaging & Staging, Broadcast Systems and Broadcast Services. More
information can be found at www.vitecgroup.com.
7. The Group's AGM will be held on 27 May.
CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT
We are delighted to report another year of good progress for The Vitec Group in
revenue, profits and earnings per share. We continued to see excellent revenue
growth, both organically and from acquisitions, and margins continued to
progress based on the improved operations platform.
Results
2007 revenue grew 23%, to £273.8 million (2006: £222.3 million). Before
acquisitions and adverse foreign exchange, our growth was around 12%. This was
achieved in a year with no significant sporting events and reflects Vitec's
positions in markets with positive underlying drivers. Acquisitions also
contributed to our growth, the most significant being that of RF Systems in May
2007, which performed well.
Imaging & Staging: revenue grew 24% (2006: 24%) and, in constant currency,
growth was 30%. In Imaging, there was continued strong demand for all product
categories: in the professional market place for lighting stands and high-end
camera supports, and in the 'prosumer' market where sales of the higher priced '
digital SLR' cameras continued to grow rapidly. This is the fifth year of growth
in our Imaging business. In Staging, the acquisition of Tomcat improved our
presence in the US and in the market for customised projects. The integration
process, although slightly slower than expected, is continuing but, due
principally to problems with two large contracts, the Staging business was
loss-making in the year.
Broadcast Systems: revenue grew 29%, of which constant currency organic growth
was 7%, due principally to strong global demand for camera supports offset by
adverse foreign exchange and the end of an OEM contract at our batteries
business. Teleprompting products from Autoscript, acquired in October 2006, had
a very successful first business year in the Group. RF Systems continued to grow
strongly following its acquisition, based on its success in the FCC-driven 'BAS
Relocation Project'.
Broadcast Services: operating mainly in the US, saw US dollar revenues grow 7%,
despite having no demand from major sporting events in the year. Reported
revenue in sterling declined 2%.
This additional revenue and continued control of operating cost resulted in
constant currency Group operating profit improving by 46% or £11.1 million.
Excluding acquisitions, constant currency operating profit was up 31%. However
adverse currency movements, principally the fall in the US dollar, cost the
Group £3.7 million after hedging (2006: £0.7 million), resulting in reported
operating profit improving 29% or £7.4 million to £32.6 million (2006: £25.2
million).
With a higher finance charge of £2.3 million (2006: £1.1 million) arising mainly
from £0.6 million interest costs on the RF Systems acquisition, Group profit
before tax and significant items* increased 26% to £30.3 million (2006: £24.1
million).
The headline tax rate for the Group was reduced again, by 3% to 37%. As a result
of the above growth and the reduced rate, basic earnings per share, before
significant items*, rose to 46.0p (2006: 35.3p), an improvement of 30%.
Cash generated from operations was £33.8 million (2006: £28.7 million). Working
capital increased due to higher sales, although inventory days before the RF
Systems acquisition reduced to 114 (2006: 116).
2007 dividend
With these improved results, the Board is proposing a final dividend of 10.9p
per share, resulting in a full year total of 17.8p (2006: 16.5p), an increase of
8%. Subject to approval by shareholders, the final dividend will be paid on 30
May 2008 to shareholders on the register on 25 April 2008.
Using adjusted earnings per share before significant items* the dividend is
covered 2.6 times (2006: 2.1 times), whilst after significant items* it is
covered 2.5 times (2006: 2.0 times).
Outlook for 2008
We entered 2008 with a strong order book and we have noted the encouraging
forecasts of continued growth in the high end photographic market. 2008 will see
the Olympics in Beijing and we will also benefit from a full year of
contribution from RF Systems. Overall, the Board looks forward to continued
progress in 2008.
*Significant items are those items of financial performance that the directors
consider should be separately disclosed to assist in the understanding of the
underlying trading and financial performance achieved by the Group and in making
projections of future results. These items are quantified and explained in the
Financial Review and in Note 6.
OPERATING REVIEW
IMAGING & STAGING DIVISION
Products for the photographic, videography and live event markets
2007 2006
Revenue £117.3m £94.6m
Operating profit* £17.7m £16.6m
Operating margin* 15.1% 17.5%
*Before significant items. Significant items are amortisation of intangible
assets of £0.7 million (2006: £0.5 million)
Overview
The Imaging & Staging division operates in two main markets: manufacturing and
distributing products for the professional and keen amateur photographer and
videographer, such as camera supports and bags, and manufacturing lighting and
staging systems for the live entertainment market. Lighting supports ('grip')
are manufactured for both these markets and for cinematographers. It is
organised in three units: Imaging Accessories, Imaging Distribution, and Staging
Systems.
Strategy
Focusing on successful launches of innovative new products, combined with
control of the distribution of those products in the key markets of the world,
is proving to be a winning formula. Innovation is as important to the pro
photographer as it is in Staging Systems, where customers who use our stage and
lighting systems are looking for ever lighter, easier to operate and more
elegant solutions to make their events look as good as possible.
2007 performance
2007 was another successful year for the Division: revenue rose 24% to £117.3
million (2006: £94.6 million). As in 2005 and 2006, every part of business saw
revenue growth. Operating profit before significant items* rose 7% to £17.7
million (2006: £16.6 million). Adverse foreign exchange, particularly the weaker
US dollar was a significant handicap, reducing operating profit by £2.1m; in
constant currency sales and profit growth were 30% and 20% respectively.
Imaging saw good growth in both half-years, although the adverse FX conditions
kept the reported revenue in the second half very similar to the first half.
Sales of professional products remained strong and the growth in shipments of
D-SLR cameras (the lower end of which are bought by the type of 'prosumer'
customer who is likely to purchase our accessories) was 42% in 2007 according to
CIPA, the camera manufacturers' trade association, underpinning our prosumer
sales. We launched 22 new support products in the year, backed by 13 new
international patents, and more than 40 new bag products, including a whole new
mid-range collection, the 'Digital Photo Collection'. The latest Manfrotto
190XProB tripod won the coveted TIPA award for Best Accessory.
The in-house distribution business, Bogen Imaging, made several significant
steps forward in 2007: the US and European websites have been upgraded, allowing
us to reach target customers in a more exciting but easier way, the French
operation has been consolidated onto one site, with the warehousing outsourced.
The existing UK operation, Kata UK, was scaled-up in the second half, also with
outsourced warehousing, ready to bring the Manfrotto products in-house from
February 2008, away from the previous UK distributor. Bogen Imaging now operates
in six countries.
Corporate Social Responsibility is an important theme for customers like ours.
2007 saw the Italian operation awarded the ISO14001 environmental certification
and their energy in Bassano and Feltre is now provided from renewable sources.
In late 2007 the decision was taken to outsource the central warehousing in
Italy to a third party operation. This 'hub' will receive goods from the various
Imaging plants or suppliers and consolidate shipments to the European in-house
and third party distributors. The benefit of this will come from logistics
savings, space savings in the Italian plants, and from offering reduced delivery
times to customers as we will be selling from finished stock. Inventory levels
rose in the final months of 2007 as the 'hub' was prepared and will fall back in
2008 as the stock in our in-house local 'spokes' can be trimmed back.
In Staging, the acquisition of Tomcat improved our market presence in the US and
for customised projects. The integration process, although slightly slower than
expected, is continuing but, due principally to problems with two large
contracts, the Staging business was loss-making in the year. The US plant in
Texas suffered from a lack of welding labour; we are planning to increase the
size of the facility in Mexico and increase our project management strength to
resolve these problems. In early 2007 we acquired a plant in Slovakia that has
now been scaled-up, producing standard products for Europe.
BROADCAST SYSTEMS DIVISION
Products and systems primarily for broadcast applications
2007 2006
Revenue £129.8m £100.5m
Operating profit* £13.3m £6.9m
Operating margin* 10.2% 6.9%
*Before significant items. Significant items are restructuring costs of £nil
(2006: £1.5 million), amortisation of intangible assets of £4.3 million (2006:
£0.1 million), profit on sale of property of £nil (2006: £0.4 million) and
negative goodwill of £0.1 million (2006: £nil).
Overview
The Broadcast Systems division provides equipment principally for professionals
engaged in producing live events or video content, frequently for subsequent
broadcast. The business units, Camera Dynamics, Communications, Mobile Power,
and now RF Systems, sell their products worldwide, either direct to the
end-customer or through a network of professional dealers. The division's brands
are frequently the acknowledged leaders in their fields.
Strategy
The market for broadcast equipment is benefiting from the trend to make
programmes in 'High Definition' (HD). This involves upgrading cameras and
associated ancillary equipment, much of which is provided by Vitec Group
companies. We have responded to the changed needs of the marketplace by managing
our brands within single business units, enabling us to achieve economies of
scale in manufacturing and distribution and to develop exciting new product
ranges.
2007 performance
2007 revenue increased by 29% to £129.8 million (2006: £100.5 million), with a
significant improvement in operating profit - a rise of 93% to £13.3 million
(2006: £6.9 million). It is very pleasing that the strong second half
performance has lifted operating margins above 10% for the full year.
Volumes at Camera Dynamics were up, with sales of studio products and the
recently acquired Autoscript products well ahead of 2006. They have entered 2008
with a very good order book, particularly for the Fusion robotic system.
Revenue in the Mobile Power business was down on the previous year as an OEM
contract for medical product came to an end. The new battery systems for movie
cameras have been received very well, uptake of which should resume now the
writers' strike in Hollywood has been resolved. The Elipz battery system
introduced in mid-2006 for small video cameras continues to gain momentum.
In our Communications business, more than 40 new Clear Com products were
launched in 2007, driving higher demand and establishing a much stronger
customer proposition. Significant contract wins at the Muziektheater in
Amsterdam, Norway's National Opera House, Teatro Royal in Madrid, Korea's MBC
network and China's CCTV network point to encouraging progress. Manufacturing
operations and supply chain management were largely consolidated into our new
Alameda facility in California, thereby downsizing production operations in
Cambridge and reducing our UK facility accordingly.
RF Systems is performing well, with sales and operating profit in the seven
months of Vitec ownership of £23.5 million and £3.3 million respectively. Pro
forma 12-month sales and operating profit for 2007 were £32.2 million and £5.2
million. Both RF Central and Nucomm, have launched well-received 'High
Definition' products that will maintain our competitive position. 2008 and 2009
results will be buoyed by revenue from the BAS relocation project, which is
expected to fall away by 2010.
Within the operations area the extended Camera Dynamics plant in Costa Rica has
performed well, and new investments in machining in the UK are also increasing
responsiveness and delivering savings. We have acquired the Anton/Bauer building
in Shelton, Connecticut, to gain space and flexibility in order to develop the
business for the future.
BROADCAST SERVICES DIVISION
Rental and technical support services, mainly for the broadcast market
2007 2006
Revenue £26.7m £27.2m
Operating profit £1.6m £1.7m
Operating margin 6.0% 6.3%
Overview
The Broadcast Services division provides rental equipment and technical support
for demanding outside broadcast events, mostly in the USA, from a network of ten
depots. Bexel people have a reputation for solving the most complex problems
that arise when these events are broadcast. The division also acts as an
integrator for sophisticated audio equipment and resells used equipment into the
aftermarket.
Strategy
Customers choose Bexel because of their reputation for designing creative
solutions, providing service excellence and because of their nationwide
footprint. With the most relevant equipment and the best technical back-up,
Bexel will continue to target contracts from customers looking for more than
simple equipment hire.
2007 performance
Reported revenue of £26.7 million was down 2% (2006: £27.2 million). This
business, based in the USA, grew 7% in local currency, a significant achievement
in a year with none of the major sporting events that it supports. The fall in
the US dollar, however, obscures this picture; reported profit of £1.6 million
(2006: £1.7 million) was similarly down in sterling but slightly better in US
dollars. This result, in US dollars, is the best since 2000.
With two of the 2008 Olympics contracts awarded to Bexel in 2007, investments in
new equipment were increased and this equipment allowed us to earn extra rental
income. For example the new Hercules HD fly pack, essentially a mini-studio that
can be disassembled and air-freighted, debuted to great acclaim and has been
well utilised since its introduction.
The fibre services business upgraded NFL's instant replay system to HD in 29
stadia; more work of this type is anticipated.
Operationally, the investments in IT now enable project staffing, profitability
and performance to be monitored and managed very closely, a key part of
delivering the required return on capital, which will be helped by the
conclusion of new supply agreements with some of the major equipment providers.
The Division's websites and communications have been enhanced, with all the
business streams (rental, projects, fibre, resale) now using the well-known
Bexel name, and the number of major sales events where we participated has been
dramatically increased.
Preparation for the two major Olympics contracts in the summer is already well
advanced and the Bexel team will exploit the expertise of other Vitec staff
based in Beijing to make the event run efficiently.
STRATEGY UPDATE AND FUTURE DEVELOPMENT
The Group's strategy is summarised in the phrase 'Consolidate - Leverage -
Grow'. After the initial phase, during which we consolidated multiple locations,
smaller businesses and distribution channels into a more streamlined structure
in order to extract scale economies, the focus has shifted to leveraging our
skills in product development and to expanding and exploiting our routes to
market in pursuit of growth. While continuous improvement activities are
ongoing, the emphasis is on generating growth. We continue to look for
value-adding acquisitions.
By running our brands within consolidated businesses we are able to deliver both
cost efficiencies through better scale and maintain the individuality and energy
of those brands, backed by higher levels of innovation.
We aim to grow ever closer to our end-customers, providing them with better
tools and services to do their jobs, while at the same time looking for
complementary areas into which the Group can expand and utilise its
industry-leading expertise.
Research, development & engineering
As in previous years, we have maintained our emphasis on continuous innovation,
bringing large numbers of new products to market and simultaneously widening our
service offering.
Within Imaging & Staging and Broadcast Systems the Group spends approximately 4%
of revenue on new product development, £10.4 million in 2007 (2006: £8.7
million). While Vitec's businesses are known for the quality and reliability of
their products, there is an exciting pipeline of new ideas for the future. In
2007 we again received a large number of awards for innovation, a sign that the
Group's products remain very relevant to our customers. Around 35% of sales in
2007 (2006: 25%) were derived from products launched in the last three years;
this is a very high level of innovation and a source of significant competitive
advantage.
Within Broadcast Services we continue to expand our range of services; this year
we completed a large fibre networking project for the NFL and a number of
agreements have been concluded with major equipment vendors that improve our
flexibility and cost when handling large projects. The long-term rental
programme with National City Commercial Capital has produced several projects
and led to relationships with many new customers, who have subsequently used
Bexel's rental services.
Acquisitions
During the year we bought three businesses: RF Central, Nucomm and MSC
(Microwave Service Corporation). All three are based on the East Coast of the
USA and principally serve US broadcast customers. These businesses between them
provide leading products, system integration, installation and maintenance
services. The US market for microwave equipment will be very strong in 2007 to
2009 because part of the microwave spectrum that the broadcasters use (for 'ENG'
or 'electronics news gathering' video signals that are sent to the studio) is
being converted from analogue to digital technology under the FCC-mandated 'BAS
Relocation Project'. We believe that our three companies can grow market share
during the BAS project which will leave them well-positioned afterwards when
broadcasters have to consider how to upgrade their other networks. Vitec can
also help them grow outside the USA by leveraging our network of sales offices.
In February 2007 we acquired a manufacturing plant in Slovakia that had been
operating as a subcontract supplier for Litec, the Italian staging business.
This plant has now been expanded to take more of our in-house production from
the other plants in Europe.
FINANCIAL REVIEW
Revenue
Revenue increased by £51.5 million to £273.8 million, or 23.2% in the year.
After adding back £11.3 million (6.6%) for adverse foreign exchange, there was a
£24.7 million (11.7%) organic increase and £38.1 million (18.1%) due to
acquisitions (including £14.6 million due to acquisitions made partway through
2006). Revenue growth, before acquisitions, was particularly strong in Asia, the
UK and the rest of Europe.
Operating profit
The table below sets out an analysis of the causes of the increase in operating
profit before significant items* between 2006 and 2007. The variances are based
on management's best estimates and are not a statutory presentation.
Operating profit before significant items*
2006-07 Variance Analysis (£m)
2006 Operating profit* 25.2
Gross margin effects:
- Volume and mix 10.7
- Sales price less cost inflation 1.3
Operating expenses (4.7)
7.3
Acquisitions 3.8
Foreign exchange effects:
- Translation (1.3)
- Transaction after hedging (2.4)
(3.7)
2007 Operating profit* 32.6
*2007 significant items in operating profit total a cost of £4.9m and comprise
amortisation of acquired intangibles (£5.0m) offset by negative goodwill
(£0.1m). 2006 significant items in operating profit totalled a cost of £2.1m.
Operating profit before significant items* was £32.6 million, £7.4 million or
29.4% greater than 2006. The Group's operating profit* margin increased from
11.3% to 11.9%. Despite hedging its foreign exchange transaction exposure, the
Group suffered from the weaker US dollar. Before adverse foreign currency
effects of £3.7 million, the increase in operating profit was £11.1 million or
46.4%.
Net financial expense
Net financial expense before significant items* totalled £2.3 million (2006:
£1.1 million) and increased principally because of the RF Systems acquisition.
Taxation
The effective taxation rate on operating profit after net finance expense but
before significant items* was 37% (2006: 40%). The Group's tax charge is
relatively high because the majority of its profits arise in high tax overseas
jurisdictions.
Significant items
No restructuring costs (2006: £1.5 million) are included in significant items*.
There was no operating profit on the sale of buildings (2006: £0.4 million).
Amortisation of acquired intangibles increased to £5.0 million (2006: £0.6
million) due to recent acquisitions, particularly RF Systems, and has been
included in significant items*. Note: acquisition goodwill arising during the
year was £12.1m, including £4.8m estimated earnout, and is not amortised.
Intangible assets acquired in RF Systems amounted to £14.2 million and will be
largely amortised during the BAS project years of 2007, 2008 and 2009.
Finance income included in significant items* consisted of a £0.4 million gain
(2006: £0.2 million gain) due to currency movements on loans not accounted for
as net investment hedges.
The tax credit of £3.7 million relates to deferred tax. £1.7 million is deferred
tax credits relating to tax relief on the amortisation of intangible assets,
particularly in the USA. The Group has significant UK tax losses brought forward
and is paying no cash taxes in the UK. £2.0 million represents the credit for
the establishment of a deferred tax asset which was created in the year then
charged against profit before significant items.
Acquisitions
Acquisitions totalled £25.9 million, consisting of the cash outflow £15.0
million (2006: £15.8 million), debt acquired £4.3 million, new shares issued
£1.8 million and estimated earnout of £4.8 million. There is a maximum potential
earnout of £18.8 million relating to RF Systems and £0.1 million relating to
Staging SK. The Group completed four acquisitions in 2007: Nucomm Inc, RF
Central LLC and Microwave Services (together 'RF Systems'), involved in the
manufacture, sale and service of microwave systems primarily for broadcast use,
and Staging SK, a manufacturer of staging trusses, located in Slovakia.
Business Division Acquisition Acquisition Bank loans & Issue of Estimated Total Earnout
date consideration other new potential estimated period
(1) borrowings ordinary earnout consideration
acquired shares
£m £m £m £m £m
2007 acquisitions
Staging SK Imaging & 1 Feb 07 0.3 - - 0.1 0.4 2007-08
Staging
RF Systems Broadcast 30 May 07/ 12.3 4.3 1.8 4.7 23.1 2007-10
Systems 27 Jun 07
Total cost of 2007 acquisitions 12.6 4.3 1.8 4.8 23.5
Earnout payments for previous
acquisitions
Petrol Broadcast 16 Jan 06 1.2 n/a n/a n/a n/a 2006
(re 2006) Systems
Kata Imaging & 31 May 05 1.2 n/a n/a n/a n/a 2005-07
(re 2006) Staging
Total acquisition cost in 2007 15.0 n/a n/a n/a n/a
(1) Including acquisition expenses and cash acquired
In addition, the Group invested a further £0.6 million (2006: £0.7 million) in
Media Numerics Ltd, a company that has developed a digital network product
targeted at the live entertainment industry. As at 31 December 2007 the Group
holds a 29% shareholding in Media Numerics.
Cash flow and net debt
£m 2003 2004 2005 2006 2007
Net Debt 10.4 11.3 5.4 18.9 38.4
Free Cash Flow(2) 2.9 11.1 17.3 10.5 4.7
(2) Free cash flow is the cash generated from operations less interest, tax
and capital expenditure on property, plant & equipment and capitalised IT costs.
Net debt increased to £38.4 million (2006: £18.9 million) mainly because of the
RF Systems acquisition.
Despite higher profits, free cash flow reduced to £4.7 million (2006: £10.5
million) as a result of higher capital expenditure, increased working capital
and higher tax payments.
Cash generated from operations was £33.8 million (2006: £28.7 million). Capital
expenditure and financial investments totalled £19.0 million (2006: £13.9
million), of which £6.4 million (2006: £4.1 million) related to rental assets,
partly financed by the proceeds from rental asset disposals of £1.4 million
(2006: £1.4 million), and £3.4 million related to the acquisition of the Anton/
Bauer building in Shelton, Connecticut.
Whilst working capital increased, as a percentage of revenue (before
acquisitions) it was 24.0% (2006: 22.0%) at the year end, and averaged 24.1% in
2007 (2006: 23.1%). Inventory increased by £24.5 million to £65.6 million,
reflecting higher revenue, the new acquisitions and deliberately increased
inventory levels in Imaging. Nonetheless inventory days, before RF Systems,
reduced to 114 (2006: 116 days). Trade receivables rose with the higher revenue
and were £40.1 million (2006: £31.2 million), which resulted in debtor days,
before the acquisition of RF Systems, of 52 (2006: 51 days).
Tax paid in 2007 of £9.5 million was significantly greater than 2006 (£5.5
million), with more taxes paid on profits in Italy and the USA.
Treasury
Financing, currency hedging and tax planning are managed centrally. Hedging
activities are designed to protect profits, not to speculate. Substantial
changes to the financial structure of the Group or treasury practice are
referred to the Board.
The Group operates strict controls over all treasury transactions involving dual
signatures and appropriate authorisation limits.
As in previous years, a portion of the transactions of subsidiaries in foreign
currencies is hedged 12 months forward, as set out below.
Currency millions December 2007 Average rate December 2006 Average rate
US dollars sold for Euros
Forward contracts - - $9.6 1.23
Options(3) $30.1 1.40 $23.6 1.25
US dollars sold for Sterling
Forward contracts $14.7 1.97 $17.3 1.85
Options $4.9 2.03 - -
(3)Includes cylinder options, where the mid-point of range is taken
The Group does not hedge its foreign currency profits. A proportion of the
Group's foreign currency net assets are hedged using normal Group borrowings and
forward contracts.
Financing activities
The Group's principal financing facility is a five-year £100 million committed
multicurrency revolving loan agreement involving five banks, expiring on 24
January 2010. At the end of December £43.4 million (2006: £26.3 million) of the
facility was utilised.
The average cost of borrowing for the year was 6.1% (2006: 5.4%) reflecting the
worldwide upward movement in interest rates. Net interest cost (consisting of
net interest payable and commitment fees) was £2.6 million (2006: £1.4 million),
reflecting principally the acquisition of RF Systems. Net interest cover (using
operating profit before significant items*) remained high at 13 times (2006: 18
times).
With regard to the management of capital, the Group's primary objective is to
ensure its continuance as a going concern. In respect of gearing, the Board
seeks to maintain an efficient capital structure without exposing the Group to
unnecessary levels of risk; the Group has operated comfortably within its loan
covenant during 2007. The Board believes the current capital structure is
appropriate for the Group, bearing in mind its current strong cash generation,
dividend policy and its typical ongoing level of acquisition activity.
UK pensions
At the end of 2003 the Group closed both of its UK defined benefit schemes to
new members. Since 2004 a Group personal pension plan has been made available
for new employees with Standard Life. In November 2005 the defined benefit
schemes were merged. As at 31 December 2007 the number of active members in the
merged scheme was 8% lower at 176 (2006: 192). Total scheme members were 655
(2006: 662).
A triennial actuarial valuation was undertaken as at 5 April 2007. The Trustees'
actuary has recently sent this to the Group and we are currently in discussion
about the assumptions, funding position and impact on future contributions.
Following the funding actions set out above, the Group's UK defined benefit
pension liabilities under IAS 19 (amended) as at 31 December 2007 were estimated
by the Group's actuaries to be £43.2 million (2006: £43.5 million) with a
surplus of £1.2 million (2006: £1.0 million deficit). The surplus has
principally arisen because of an increase in the corporate bond interest rate
used to calculate the present value of future liabilities. The principal
assumptions used for recent valuations are set out below.
2007 2006 2005
Inflation rate 3.3% 3.0% 2.8%
Expected rate of increase in:
- Salaries 5.3% 5.0% 4.8%
- Pensions and deferred pensions 3.3% 3.0% 2.8%
Discount rate 5.8% 5.2% 4.8%
Long term rates of return
- Equities 8.0% 7.8% 7.8%
- Bonds 4.8% 4.7% 4.3%
- Property 6.7% 6.2% 6.3%
Longevity
- Pensioners currently aged 65 86/89(4) 86/89(4) 84/87(4)
- Non-pensioners currently aged 45 88/91(4) 88/91(4) 86/89(4)
Pension charge
- Operating profit 1.5 1.5 1.5
- Finance income (0.7) (0.6) (0.3)
Net charge 0.8 0.9 1.2
(4)male/female
2006 Companies Act
The 2006 Companies Act has introduced multiple, albeit individually small,
changes. New Articles of Association reflecting these requirements are being
drawn up for consideration at the AGM on 27 May 2008.
Post balance sheet events
There have been no significant post balance sheet events.
PRINCIPAL RISKS AND UNCERTAINTIES
US market
Fifty one per cent of 2007 revenue was from the Americas, principally the USA,
so the Group remains susceptible to any major deterioration in demand for its
products and services from US customers. It is difficult to mitigate this risk
but the Group seeks to reduce its dependence on the US by actively widening its
sales and distribution activities, particularly into Asia.
Foreign exchange
The great majority of the Group's profit is earned in overseas currencies and is
therefore subject to translation risk if sterling strengthens. To mitigate this,
a proportion of the Group's foreign currency net assets are hedged using normal
Group borrowings and forward contracts.
Also, many of the Group's businesses sell worldwide from various countries of
manufacture, so the Group is subject to transaction risk, particularly that of a
weaker US dollar. The Group partially hedges its major foreign exchange receipts
by selling currency 12-18 months forward on a rolling basis. In addition the
Group seeks to outsource parts, where appropriate, to low-cost countries, which
are frequently dollar-denominated.
Broadcast market
The Group's two broadcast divisions are at risk from a reduction in the capital
expenditure requirements of its broadcast customers and, in the US, their rental
requirements. This dependence is changing as broadcasting moves from TV to
delivery by other modes such as internet and mobile services. To mitigate this,
the Group markets its products and services to all of these producers of
broadcast video material, as well as to the religious, corporate and government
sectors.
With the acquisition of RF Systems, the Group is benefiting from the BAS
Relocation Project, which entails the conversion of part of the microwave
spectrum that broadcasters use from analogue to digital technology. There will
be significant revenue from this project, which is expected to peak in 2008 and
2009, after which time the business will need to win other business in the US
and abroad to replace these sales.
Low-cost competition
The Group is at risk from low-cost competitors who may sell similar products at
lower prices, particularly for higher volume items such as the simpler
photographic tripods. While the Group also sources those cheaper products from
lower-cost countries, it combats this threat by patenting its technologies
wherever possible and taking action against any infringement, continuously
innovating its products and employing its significant marketing and distribution
capabilities.
Cautionary statement
This announcement contains forward looking statements that are subject to risk
factors associated with, amongst other things, the economic and business
circumstances occurring from time to time in the countries and sectors in which
the Group operates. It is believed that the expectations reflected in these
statements are reasonable but they may be affected by a wide range of variables
which could cause actual results to differ materially from those currently
anticipated.
Consolidated Income Statement
For the year ended 31 December 2007
2007 2006
Before Significant Total Before Significant Total
significant items(1) significant items(1)
items items
£m £m £m £m £m £m
Revenue
Continuing operations 250.3 250.3 222.3 222.3
Acquisitions 23.5 23.5
273.8 273.8 222.3 222.3
Cost of sales (162.5) (162.5) (129.1) (129.1)
Gross profit 111.3 111.3 93.2 93.2
Other operating income - - - - 0.4 0.4
Operating expenses (78.7) (4.9) (83.6) (68.0) (2.1) (70.1)
Operating profit
Continuing operations 29.3 (1.0) 28.3 25.2 (1.7) 23.5
Acquisitions 3.3 (3.9) (0.6)
32.6 (4.9) 27.7 25.2 (1.7) 23.5
Interest payable on bank (2.8) (2.8) (1.5) (1.5)
borrowings
Interest income 0.2 0.2 0.1 0.1
Pension scheme:
Interest charge (2.3) (2.3) (2.1) (2.1)
Expected return on assets 2.9 2.9 2.6 2.6
Other financial income/(expense) (0.3) 0.4 0.1 (0.2) 0.2 -
Net financial expense (2.3) 0.4 (1.9) (1.1) 0.2 (0.9)
Profit before tax 30.3 (4.5) 25.8 24.1 (1.5) 22.6
Taxation (11.2) 3.7 (7.5) (9.6) 0.4 (9.2)
Profit for the period 19.1 (0.8) 18.3 14.5 (1.1) 13.4
(attributable to Equity
Shareholders)
Earnings per share
Basic earnings per share 44.1p 32.6p
Diluted earnings per share 43.5p 32.2p
Dividends per ordinary share
Prior year final paid 10.1p £4.2m
Current year interim paid 6.9p £2.8m
Current year final proposed 10.9p £4.5m
(1) See Note 6
Consolidated statement of recognised income and expense
For the year ended 31 December 2007
2007 2006
£m £m
Actuarial gain/(loss) on pension obligations 2.5 2.2
Currency translation differences on foreign net investments 2.3 (7.0)
Net gain/(loss) on hedge of net investment in foreign (0.6) 1.3
subsidiaries
Cash flow hedging reserve:
Amounts released to income statement (1.3) 0.6
Effective portion of changes in fair value 0.3 1.4
Net income/(expense) recognised directly in equity 3.2 (1.5)
Profit for the year 18.3 13.4
Total recognised income for the year 21.5 11.9
Consolidated Balance Sheet
As at 31 December 2007
2007 2006
£m £m
Assets
Non-current assets
Property, plant and equipment 45.6 35.1
Intangible assets 55.5 34.1
Investments - 0.7
Investment in equity-accounted investee 1.3 -
Deferred tax assets 13.7 4.7
116.1 74.6
Current assets
Inventories 65.6 41.1
Trade and other receivables 50.7 38.6
Derivative financial instruments 1.2 2.3
Current tax assets 2.1 -
Cash and cash equivalents 8.4 9.4
128.0 91.4
Total assets 244.1 166.0
Liabilities
Current liabilities
Bank overdrafts 1.1 1.9
Bank loans - 0.1
Trade and other payables 74.4 37.1
Derivative financial instruments 0.5 -
Current tax liabilities 10.2 9.9
Provisions 4.1 5.0
90.3 54.0
Non-current liabilities
Bank loans 45.7 26.3
Other payables 0.1 0.2
Post-employment obligations 2.8 5.0
Provisions 5.7 3.0
Deferred tax liabilities 2.2 0.7
56.5 35.2
Total liabilities 146.8 89.2
Net assets 97.3 76.8
Equity
Share capital 8.4 8.2
Share premium 7.0 3.2
Translation reserve (5.8) (7.5)
Other reserves 1.9 2.9
Retained earnings 85.8 70.0
Total equity 97.3 76.8
Consolidated Cash Flow Statement
For the year ended 31 December June 2007
2007 2006
£m £m
Cash flows from operating activities
Profit for the year 18.3 13.4
Adjustments for :
Taxation 7.5 9.2
Depreciation 9.1 8.9
Impairment losses on property, plant and equipment 0.2 -
Amortisation of acquired intangible assets 5.0 0.6
Amortisation of capitalised software and development costs 1.3 1.1
Negative goodwill (0.1) -
Net gain on disposal of property, plant and equipment (1.2) (1.5)
Fair value (profits)/losses on derivative financial instruments 0.1 (0.2)
Cost of equity-settled employee share schemes 1.4 1.2
Financial income (3.1) (2.7)
Financial expense 5.0 3.6
Operating profit before changes in working capital and provisions 43.5 33.6
Decrease/(increase) in inventories (0.7) (9.2)
Increase in receivables (6.3) (2.1)
Increase/(decrease) in payables (2.5) 4.4
Increase/(decrease) in provisions (0.2) 2.1
Adjustments for foreign exchange losses - (0.1)
Cash generated from operations 33.8 28.7
Interest paid (3.2) (1.7)
Tax paid (9.5) (5.5)
Net cash flow from operating activities 21.1 21.5
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 1.8 2.0
Purchase of property, plant and equipment (17.3) (12.0)
Software & development costs capitalised as intangible assets (1.1) (1.2)
Interest received 0.2 0.2
Acquisition of investment - 0.7
Acquisition of investment resulting in significant influence (0.6) -
Acquisition of subsidiaries, net of cash acquired (15.0) (15.8)
Net cash flow from investing activities (32.0) (27.5)
Cash flows from financing activities
Proceeds from the issue of shares(2) 2.2 0.5
Transfer/(purchase) of own shares 0.6 (0.9)
Borrowing/(repayment) of bank loans 13.5 9.1
Dividends paid (7.0) (6.5)
Net cash flow from financing activities 9.3 2.2
Decrease in cash and cash equivalents (1.6) (3.8)
Cash and cash equivalents at 1January 7.5 11.8
Exchange rate movements(1) 1.4 (0.5)
Cash and cash equivalents at 31 December 7.3 7.5
(1) Exchange rate movements result from the adjustment of opening balances and
cash flows in the year to closing exchange rates.
(2) The initial consideration for the acquisition of RF Systems was satisfied
in part by the issue of 285,776 new Vitec ordinary shares worth US$3.5 million
(£1.8 million). This is excluded from the £2.2 million of proceeds from the
issue of shares.
Segment reporting
Primary format - by business segments
Imaging & Broadcast Broadcast Corporate & Consolidated
Staging Systems Services unallocated
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m £m £m
Revenue from external
customers:
Sale of goods 117.3 94.6 129.8 100.5 3.8 4.0 - - 250.9 199.1
Services - - - - 22.9 23.2 - - 22.9 23.2
Total revenue from external 117.3 94.6 129.8 100.5 26.7 27.2 - - 273.8 222.3
customers
Inter-segment revenue (1) 1.2 1.1 1.7 1.7 - - (2.9) (2.8) - -
Total revenue 118.5 95.7 131.5 102.2 26.7 27.2 (2.9) (2.8) 273.8 222.3
Operating profit before 17.7 16.6 13.3 6.9 1.6 1.7 - - 32.6 25.2
significant items
Amortisation of acquired (0.7) (0.5) (4.3) (0.1) - - - - (5.0) (0.6)
intangibles
Negative goodwill - - 0.1 - - - - - 0.1 -
Profit on the sale of property - - - 0.4 - - - - - 0.4
Restructuring costs - - - (1.5) - - - - - (1.5)
Segment result 17.0 16.1 9.1 5.7 1.6 1.7 - - 27.7 23.5
Net financial expense (1.9) (0.9)
Taxation (7.5) (9.2)
Profit for the period 18.3 13.4
Segment assets 80.0 67.6 116.3 63.3 20.7 18.1 2.9 2.9 219.9 151.9
Unallocated assets
Cash and cash equivalents 8.4 9.4 8.4 9.4
Current tax assets 2.1 - 2.1 -
Deferred tax assets 13.7 4.7 13.7 4.7
Total assets 244.1 166.0
Segment liabilities 26.2 24.2 55.4 19.2 2.8 3.7 3.2 3.2 87.6 50.3
Unallocated liabilities
Bank overdrafts 1.1 1.9 1.1 1.9
Bank loans 45.7 26.4 45.7 26.4
Current tax liabilities 10.2 9.9 10.2 9.9
Deferred tax liabilities 2.2 0.7 2.2 0.7
Total liabilities 146.8 89.2
Cash flows from operating 4.9 9.5 8.7 4.4 2.2 3.3 5.3 4.3 21.1 21.5
activities(2)
Cash flows from investing (6.1) (6.1) (2.3) (4.0) (5.0) (2.6) (18.7) (14.8) (32.1) (27.5)
activities
Cash flows from financing - (0.7) (2.0) - - - 11.3 2.9 9.3 2.2
activities
Capital expenditure (including
assets acquired within
acquisitions)
Property, plant & equipment 4.4 5.8 8.4 3.0 6.4 4.0 - 0.1 19.2 12.9
Intangible assets 0.9 4.2 14.3 2.2 - 0.1 0.1 - 15.3 6.5
(1) Inter-segment pricing is determined on an arm's length basis.
(2) Prior year cash flows from operating activities have been restated to
include Corporate allocations
Segment reporting (continued)
Secondary format - by geographical segments
United The rest of The The rest of the Corporate and Consolidated
Kingdom Europe Americas World unallocated
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m £m £m £m £m
Revenue from
external
customers:
By location of 17.8 13.1 76.8 69.6 138.3 107.0 40.9 32.6 - - 273.8 222.3
customer
Segment assets 37.6 30.6 50.9 45.8 112.2 55.9 16.3 15.1 2.9 4.5 219.9 151.9
Unallocated assets
Cash and cash 8.4 9.4 8.4 9.4
equivalents
Current tax assets 2.1 - 2.1 -
Deferred tax 13.7 4.7 13.7 4.7
assets
Total assets 244.1 166.0
Cash flows from (0.8) 2.1 12.7 10.9 3.4 5.7 0.5 (1.5) 5.3 4.3 21.1 21.5
operating
activities(1)
Cash flows from (2.1) 0.1 (4.5) (4.9) (4.2) (3.7) (2.6) (4.2) (18.7) (14.8) (32.1) (27.5)
investing
activities
Cash flows from - (0.2) - - (2.0) (0.5) - - 11.3 2.9 9.3 2.2
financing
activities
Capital
expenditure
(including assets
acquired within
acquisitions)
Property, plant & 2.0 2.9 4.1 4.8 13.0 4.8 0.1 0.3 - 0.1 19.2 12.9
equipment
Intangible assets 0.1 2.0 0.5 0.4 14.5 3.0 0.1 1.1 0.1 - 15.3 6.5
(1) Prior year cash flows from operating activities have been restated to
include Corporate allocations
1. Basis of Preparation
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) adopted for use in the EU in accordance
with EU law.
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2007 or 2006. Statutory
accounts for 2006 have been delivered to the registrar of companies, and those
for 2007 will be delivered in due course. The auditors have reported on those
accounts; their reports were (i) unqualified, (ii) did not include references to
any matters to which the auditors drew attention by way of emphasis without
qualifying their reports and (iii) did not contain statements under section 237
(2) or (3) of the Companies Act 1985
2. Basis of Segmentation
Segmental data in this statement is analysed on the basis of the divisional
management structure (Imaging & Staging, Broadcast Systems, Broadcast Services)
that the Group operates under.
3. Earnings per share
Basic earnings per share of 44.1 pence (2006: 32.6 pence) is based on profit for
the year attributable to equity shareholders of £18.3 million (2006: £13.4
million) and the weighted average number of shares of 41,532,930 (2006:
41,107,593). Basic earnings per share before significant items of 46.0 pence
(2006: 35.3 pence) is based on profit for the year attributable to equity
shareholders but before the impact of significant items of £19.1 million (2006:
£14.5 million).
4. Dividend
The directors have declared a final dividend of 10.9 pence per share, which will
absorb £4.5 million (2006: 10.1 pence absorbing £4.2 million). The dividend will
be paid on 30 May 2008 to shareholders on the register at the close of business
on 25 April 2008.
5. Key Exchange Rates
Weighted average Year end
2007 2006 2007 2006
EUR / USD 1.37 1.25 1.46 1.32
GBP / USD 2.00 1.84 1.99 1.96
GBP / EUR 1.47 1.47 1.36 1.48
6. Significant items
Significant items are those items of financial performance that the directors
consider should be separately disclosed to assist in the understanding of the
underlying trading and financial performance achieved by the Group and in making
projections of future results.
Significant items comprise the following:
2007 2006
£m £m
(a) Other operating income
Profit on sale of property fixed assets - 0.4
(b) Operating expenses
Restructuring costs - 1.5
Amortisation of intangible assets 5.0 0.6
Negative goodwill (0.1) -
4.9 2.1
(c) Other financial income
Currency translation gains 0.4 0.2
Currency translation differences, which arise on long-term intra-group funding
loans that are similar in nature to equity, are charged/credited to reserves.
The currency translation differences which arise on certain other intra-group
funding balances that do not meet this strict criteria but are very similar in
nature, are recorded in significant items within other financial income.
2007 2006
£m £m
(d) Taxation
Current tax credit - 0.4
Deferred tax credit 3.7 -
3.7 0.4
The Group is paying no cash taxes in the UK, due to brought forward losses. A UK
deferred tax asset of £2.0 million has been recognised in 2007, with a credit of
£2.0 million to significant items. The £2.0 million deferred tax asset has then
been amortised as a charge to profit before significant items in the year,
reducing the overall tax on UK profits to £nil.
A deferred tax credit of £1.7 million to significant items, represents the
amortisation of intangible assets acquired on the acquisition of RF Systems in
the US, Bogen Imaging KK in Japan and Kata in Israel.
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