Final Results
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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. THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.
22 February 2018 The Vitec Group plc 2017 Full Year Results Transformational year for the Group The Vitec Group plc ("Vitec" or "the Group"), the international provider of products and solutions for the broadcast and photographic markets, announces its audited results for the year ended 31 December 2017.
* In addition to statutory reporting, Vitec reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). We believe these APMs provide stakeholders with additional helpful information to better reflect the underlying business and enable a more meaningful comparison over time. A summary reconciling APMs used and their closest equivalent statutory measures is given in section 11 of the notes ** Both Vitec Broadcast Services Inc. ("Bexel") and Haigh-Farr have been classified as discontinued operations in the current year. The remaining businesses within the Group are classified as continuing operations. All comparatives are presented on the same basis. + Cash conversion is defined as the % of operating profit* that is converted into operating cash flow* ++ ROCE (Return on Capital Employed) is calculated as adjusted operating profit* for the last twelve months divided by average total assets less current liabilities excluding the current portion of interest-bearing borrowings.
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Commenting on the results, Stephen Bird, Group Chief Executive, said: "Vitec is pleased to report a record performance, with strong growth in revenue and adjusted profit before tax*. It's been a transformational year for the Group, which saw the acquisition of the JOBY and Lowepro brands. We launched a record number of market-leading new products and made significant progress refocusing our portfolio with the disposal of two non-core businesses. Our Imaging Solutions Division had a strong year and continues to outperform the market. The integration of the JOBY and Lowepro brands is going well. The Production Solutions Division benefitted from sales of new products, including the revolutionary Flowtech tripod, although the US studio market continued to experience challenging market conditions. Our Creative Solutions Division further expanded its higher technology products with the acquisition of RTMotion. SmallHD, in particular, grew strongly. We have outlined a number of initiatives for medium-term organic growth, particularly in the Independent Content Creator market and in APAC, and will continue to identify operational improvements and businesses to acquire in core and adjacent markets. Strong cash generation and a robust balance sheet will support these growth plans. Vitec has a strong position in exciting and fast changing markets. With our transformed portfolio of businesses, new structure and growth initiatives, the Board remains confident that, at current exchange rates, the Group is well positioned to deliver further progress in 2018."
Vitec will present its results to analysts at 9.30am on Thursday, 22 February 2018. An audio recording of the presentation, along with the presentation slides, will be available on our website after the meeting.Users can pre-register to access the recording and slides using the following link: www.vitecgroup.com/investors/results-reports-and-presentations/
Notes to Editors: Vitec is a leading global provider of premium branded products and solutions to the fast changing and growing "image capture and sharing" market. Vitec's customers include broadcasters, independent content creators, photographers and enterprises, and our activities comprise: design, manufacture and distribution of high performance products and solutions including camera supports, camera mounted electronic accessories, robotic camera systems, prompters, LED lights, mobile power, monitors and bags. We employ around 1,700 people across the world in ten 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 with 2017 adjusted revenue* of £378.1 million. More information can be found at: www.vitecgroup.com LEI number: 2138007H5DQ4X8YOCF14
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2017 management overview
Revenue from continuing operations increased by 10.8% to £353.3 million (2016: £318.9 million) and adjusted operating profit* from continuing operations was 9.2% higher at £45.2 million (2016: £41.4 million). At constant exchange rates, revenue from continuing operations was 6.4% higher and adjusted operating profit* from continuing operations was in line with the prior year. Lower broadcast activity in the more mature US studio markets, higher corporate costs and non-repeat of the 2016 Olympics were offset by acquisitions and growth in sales of higher technology and photographic products. Imaging Solutions' revenue grew by 16.2% to £175.9 million and adjusted operating profit* increased by 18.7% to £29.9 million. Revenue growth included a £12.6 million benefit from the acquisition of JOBY and Lowepro and £6.6 million from foreign exchange. At constant exchange rates and excluding the impact of the acquisition, revenue increased by 3.3% and adjusted operating profit* grew by 10.4% driven by higher sales of video and photo supports, as well as favourable channel mix and production efficiencies. Production Solutions' revenue from continuing operations declined by 6.1% to £114.2 million and adjusted operating profit* from continuing operations declined by 6.7% to £15.2 million. This was partly due to non-repeat of the Olympics, and the spectrum "repack" in the US which led to our key broadcast customers focusing their expenditure on transmission rather than studios. At constant exchange rates revenue from continuing operations fell by 9.6% and adjusted operating profit* from continuing operations was 21.1% lower than the prior year. Revenue in the Creative Solutions Division increased by 37.7% to £63.2 million, driven by continued strong growth in the Independent Content Creator market, a particularly strong performance for SmallHD and the acquisition of Wooden Camera in 2016. Adjusted operating profit* increased by 36.8% to £13.0 million. At constant exchange rates revenue increased by 31.9% and adjusted operating profit* grew by 31.3%. Adjusted Group gross margin* from continuing operations at 44.3% was higher than the prior year (2016: 42.6%) reflecting growth in higher technology sales and favourable sales mix. Adjusted operating expenses* from continuing operations were £16.8 million higher than 2016 at £111.3 million. This mainly reflects investments in our Creative Solutions and Imaging Solutions businesses to drive sales and future growth, including higher investment in new product development at 4.6% of Group product sales from continuing operations (2016: 4.4% on continuing operations), and higher corporate costs. This also reflects an adverse currency impact of £3.5 million. This year corporate costs of £12.9 million have been reported separately rather than being allocated to the Divisions. Adjusted profit before tax* from continuing operations of £42.4 million was £5.0 million higher than the prior year (2016: £37.4 million). There was a net foreign exchange benefit versus 2016 of £3.4 million on our adjusted profit before tax* from continuing operations mainly due to a stronger Euro and US Dollar. Adjusted earnings per share* from total operations increased by 11.1% to 68.1 pence per share (2016: 61.3 pence per share). Statutory profit before tax of £27.4 million (2016: £26.4 million) was after £15.0 million charges associated with acquisition of businesses (2016: £7.6 million) and £nil restructuring costs (2016: £3.4 million). Free cash flow* of £23.5 million (2016: £44.6 million) includes a working capital outflow of £9.4 million (2016: £12.0 million inflow). This reflects the anticipated investment in working capital following the acquisition of JOBY and Lowepro, as we have started to transition these businesses from a third party distributor model to using Vitec's own distribution business. Excluding the impact from this acquisition, working capital would have reduced. The significant reduction in working capital in 2016 was driven by the business right-sizing its inventory which, as expected, was not repeated this year. 2016 free cash flow also included £3.9 million from the sale of the Bury St. Edmunds manufacturing site as well as the benefit of the Olympics. Net debt at 31 December 2017 was £42.9 million (31 December 2016: £75.1 million). The decrease in net debt resulting from cash flows was £29.0 million (2016: £12.8 million). This was after: £12.4 million cash outflow on acquisitions being made up of net payments of £10.8 million relating to the acquisitions of JOBY and Lowepro and RTMotion and a £1.6 million earnout payment on Wooden Camera in respect of their strong 2016 performance, a net cash inflow on disposals of £32.4 million arising from the disposals of Bexel and Haigh-Farr (£32.6 million) partly offset by £0.2 million of rent payments relating to the prior disposal of IMT, £12.4 million of dividend payments (2016: £11.1 million), and a net favourable foreign exchange impact of £3.2 million principally driven by US Dollar denominated debt. Vitec repaid its $50 million private placement facility in full in the year, funded by the Revolving Credit Facility. The Group's balance sheet remains strong with a year-end net debt to adjusted EBITDA* ratio of 0.7 times (31 December 2016: 1.2 times). The Board has recommended a final dividend of 20.1 pence per share (2016: 17.3 pence per share). The final dividend, if approved by our shareholders at the 2018 AGM to be held on Tuesday, 15 May 2018, will be paid on Friday, 18 May 2018. This will bring the total dividend for 2017 to 30.5 pence per share (2016: 27.2 pence per share) and provide full year adjusted dividend cover of 2.2 times (2016: 2.3 times). The Group has sufficient distributable reserves to cover the dividends for a number of years. |
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Repositioning the Group Vitec's transformed portfolio of businesses and new operating structure has repositioned the Group to deliver future progress. Vitec operates in the fast-growing, global "image capture and sharing" market. Technology and social media continue to drive fundamental changes to this market. Vitec's unique heritage, the credibility of our premium products, and our manufacturing and distribution strengths, provide us with exciting opportunities to capitalise on those changes. These, coupled with the experience and knowledge of our people, enable us to develop ground-breaking new products. 2017 was a transformational year for Vitec as we significantly reshaped our portfolio through disposals and acquisitions. The Group sold two non-core businesses and invested in new markets, geographies and technologies. We announced that from 1 January 2018 we would move from two to three Divisions to reflect a changing customer base, to enable us to adapt quickly to market and technological changes, and to give greater focus to the fast-growing Independent Content Creator market. Our new three Divisions - Imaging Solutions, Production Solutions and Creative Solutions - are highly customer-focused and operate in a decentralised, entrepreneurial structure, yet share capabilities across the Group. Although we continued to experience challenging market conditions in the more mature US broadcast market, this was offset by growth in sales of higher technology products and acquisitions. Vitec has a clear growth strategy which is focused on organic sales growth, operational efficiencies and corporate development. 2017 saw significant progress executing our strategy which is based around five priorities. 1. Corporate development We supplement our organic growth opportunities with carefully targeted acquisitions. Our acquisition strategy focuses on finding innovative businesses operating within our core, or closely adjacent, markets which possess the right product development, growth characteristics and financial prospects. During the year, we streamlined our portfolio by disposing of the non-core Haigh-Farr and Bexel, our US Services business, for net consideration of £33.2 million. In September 2017, we acquired the JOBY and Lowepro brands for our Imaging Solutions Division, for cash consideration of £8.4 million excluding integration costs and investment in working capital. JOBY is best known for its patented GorillaPod tripod and Lowepro is the leading camera bag brand. This acquisition is an excellent strategic fit with Vitec's existing core activities and integration is going well. In September 2017, we also announced the acquisition of RTMotion for our Creative Solutions Division, for up to £3.1 million in net cash. RTMotion is a high technology business which gives the Group additional high quality camera accessories for the expanding Independent Content Creator market. This business has been successfully integrated into Creative Solutions and its products are being sold under the Teradek brand name as Teradek RT. 2. Improve the core We continue to maximise and improve our business to better deliver underlying growth, and in 2017 Vitec delivered operational efficiencies through improvements to purchasing, inventory management and manufacturing. We achieved further lean manufacturing savings in our Italian and Costa Rican facilities, and are currently moving our manufacturing operations from Shelton, US to Costa Rica. In H1 2018, the Production Solutions Division will relocate its Bury St. Edmunds, UK facility to a purpose-built manufacturing site nearby that will deliver further operational improvements. We also expect to identify additional operational synergies across the Group in the medium-term. We continue to demonstrate innovation throughout our businesses. In 2017 we launched a range of new products, including the revolutionary Flowtech carbon-fibre tripod, Internet Protocol prompters from Autoscript, Litepanels Gemini LED lights and compact tripods from Manfrotto. We also celebrated the 100-year anniversary of our Gitzo brand. In 2018 we will maintain our market leadership by focusing on maximising sales of these and other new products, and continuing to innovate with new products and new technologies. In addition, our Production Solutions Division is currently supporting the 2018 Winter Olympics in South Korea. 3. New markets and technologies We have maintained investment in new technology and markets to underpin future growth. For example, in 2017 we further expanded our product offering in Apple stores with our newly acquired JOBY brand, and the RTMotion acquisition has performed in line with expectations. We innovate quickly and we released a range of high quality products, including SmallHD Ultra Bright Monitors, a Wooden Camera Universal Follow Focus, a new Teradek Cube HEVC encoder, and Teradek Serv Pro, a dedicated iOS monitoring solution. We also launched a number of cross-Group products, developing synergies between Vitec brands. Examples include a SmallHD monitor with a built-in Teradek Bolt wireless receiver, a SmallHD Focus monitor with an Anton/Bauer battery, and a Manfrotto/Wooden Camera Directors Cage for DSLR and mirrorless cameras. We remain focused on further cross-selling of brands across the Group, especially to our Independent Content Creator customers. We also continue to identify acquisition opportunities to address new areas of the content production value chain. 4. Get closer to our customers We continue to drive initiatives to get closer to our customers by owning more of our distribution and optimising our e-commerce activities. Our end markets are changing with more independent content creators looking to purchase equipment online and we are investing in and optimising our e-commerce capabilities through working with our major customers like Amazon and other specialised e-tailers, and by further developing our own online platforms. Our Creative Solutions Division has invested in a number of "Customer Experience Centres", tying our many Creative Solutions brands together to offer bundled products as well as educational workshops. 5. Expand in APAC Finally, we continue to expand geographically, especially in APAC, leveraging our current capabilities and footprint. Our Imaging Solutions Division has an efficient and widespread distribution network throughout the region and deals directly with the leading retailers and e-tailers. The acquisition of the JOBY and Lowepro brands has brought specialist teams in Hong Kong and China. APAC is the fastest growing region for Vitec, and we see further growth opportunities in this area. We will utilise our current networks to distribute other Vitec brands with a specific focus on growing our Creative Solutions Division, initially in China. Change of method in reporting corporate costs As announced on 30 January 2018, we have changed our reporting of corporate costs and will not allocate them across the Divisions but disclose them separately. Whilst our corporate costs do not meet the definition of an operating segment under IFRS 8 "Operating Segments", the revised format is consistent with that used by the chief operating decision maker. Implications of US Tax Reform Legislation On 22 December 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act is complex and wide ranging and in these financial statements the impact has been estimated and may be further refined as more clarity and guidance becomes available. The legislation includes a reduction in the federal tax rate from 35% to 21% and also contains increased restrictions on the deductibility of interest expense. As a consequence of these changes, the re-measurement of the US deferred tax asset for both the change in tax rate and forecast utilisation of the asset has resulted in a one-off exceptional deferred tax charge of £7.9 million. The Group expects that the effective tax rate on adjusted profit before tax* will be reduced by two percentage points, from 27% in 2017, to 25% from 2018 as a result of the reduction in federal tax rate. Audit tender process We have conducted an external audit tender and are pleased to announce Deloitte LLP as our Auditors starting from our 2018 financial year (subject to approval at the 2018 AGM). The Board is grateful to KPMG LLP for their lengthy service to Vitec. |
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Imaging Solutions The Imaging Solutions Division designs, manufactures and distributes premium branded equipment for photographic and video cameras and provides dedicated solutions to professional and non-professional image makers. This consists primarily of camera supports and heads, camera bags, lighting supports, LED lights, lighting controls and filters. It also supplies an expanding range of premium accessories for smartphones, action cameras and drones.
* For Imaging Solutions, before charges associated with acquisition of businesses of £3.8m (2016: £0.8m) and £nil restructuring costs (2016: £1.8m). Imaging Solutions had a strong year, growing revenue by 16.2% to £175.9 million. This included £12.6 million of revenue from the transformational acquisition of JOBY and Lowepro which completed in September 2017 and gives Vitec a leading global position in the new and fast growing iPhoneography and vlogging accessories market, as well as the photographic bags market. The integration of these brands is going well. Excluding the favourable impact of foreign exchange, as well as the impact from JOBY and Lowepro, revenue was 3.3% higher. Camera and Imaging Productions Association (CIPA) data has shown a slightly positive trend for full year shipments of interchangeable lens cameras (ILC). Our sales outperformed CIPA trends, particularly in APAC where we focused on delivering growth. Revenue growth has been achieved through investing in and launching new products and continued development of our key distribution channels. We grew our sales of video and photo supports and filters and successfully launched a number of innovative products including the Manfrotto BeFree Advanced tripod and the Manfrotto Nitrotech head. Gitzo, our premium brand, celebrated its 100 year anniversary and continues to be the favoured choice for professional photographers. Our decision to move production of the Manfrotto BeFree range of tripods, which were previously part manufactured in China, back to an automated production facility in Italy has been well received by our customers, with the "Made in Italy" stamp helping to differentiate us from our competitors. We significantly increased our presence in Apple stores globally through the acquisition of JOBY. We also developed our relationship with Amazon, with double digit sales growth for the year, driven by strong performance in the US. Our owned distribution business continued to perform well and is a key asset in ensuring that we remain close to our end customers. Statutory operating profit increased by 15.5% to £26.1 million. Adjusted operating profit* margin increased by 0.4% pts to 17.0%. This reflects the higher volumes as well as the favourable product mix from higher sales of video supports, favourable channel mix from higher e-commerce sales and production efficiencies. Production Solutions The Production Solutions Division designs, manufactures, distributes and provides premium branded products and solutions for broadcasters, film and video production companies, independent content creators and enterprises. Products include video heads, tripods, lights, batteries and speciality camera systems.
* For Production Solutions' continuing operations, before charges associated with acquisition of businesses of £1.1m (2016: £1.1m) and £nil restructuring costs (2016: £1.5m). Non-repeat of the 2016 Olympics and continued challenging market conditions in the US studio market led to a fall in Production Solutions' revenue from continuing operations of £7.4 million to £114.2 million. This included £4.5 million from favourable foreign exchange. The business remains market leader in the core broadcast studio market. Whilst we saw an improvement in our US studio business in the second half compared with the first half, overall sales of large supports declined in the year. This included the impact of the spectrum "repack" in the US. This was partly offset by stronger market conditions in Europe and the Middle East and higher sales of robotics and LED lighting products. We launched a number of new products during the year, mainly focusing on the non-studio applications for broadcasters and on independent content creators. These included Flowtech (Sachtler and Vinten versions), a revolutionary tripod which utilises state-of-the-art carbon fibre technology developed in-house enabling very rapid deployment, and Litepanels Gemini to exploit growth in the LED lighting market. We also launched Autoscript's Intelligent Prompting, a fully Internet Protocol-enabled teleprompting solution. These products were well received by the market. We continue to improve the core business by driving operational efficiencies. We are in the process of moving our manufacturing operations from Shelton, US to our facility in Costa Rica and in H1 2018 the manufacturing operations in Bury St. Edmunds, UK will relocate to a new purpose built site in the same area which will lead to further operational improvements. Statutory operating profit increased by £0.4 million to £14.1 million and adjusted operating profit margin* reduced by 0.1% pt to 13.3% driven by an improvement in gross margin from favourable product mix and operational efficiencies offset by lower volumes. Creative Solutions |
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The Creative Solutions Division designs, manufactures and distributes premium branded products and solutions for independent content creators, enterprises, broadcasters, and film and video production companies. It is made up of a number of brands that Vitec has built through acquisitions and includes Teradek, SmallHD, Wooden Camera, Paralinx and RTMotion.
* For Creative Solutions, before charges associated with acquisition of businesses of £10.1m (2016: £5.7m) and £nil restructuring costs (2016: £0.1m). Creative Solutions further expanded its offering of higher technology products to the independent content creator segment in 2017. This market has shown continued strong growth with drivers including the proliferation of online platforms such as Netflix which have generated a need for original content. Revenue for 2017 was £63.2 million, an increase of 37.7% on the prior year. At constant exchange rates, and after excluding the impact from acquisitions including the 2016 acquisition of Wooden Camera, revenue grew by 20.0%. We have continued to invest in new product development in line with the changing nature of the image capture and sharing market. New products launched in the year include HEVC encoders, daylight viewable on-camera monitors and Serv Pro, a dedicated iOS monitoring solution. Our businesses have also worked together during the year to develop new products, including a SmallHD monitor with built-in Teradek Bolt wireless receiver, a SmallHD Focus monitor with an Anton/Bauer battery for DSLR cameras, and a Manfrotto/Wooden Camera Directors Cage for DSLR and mirrorless cameras. Our higher technology offering was further enhanced by the acquisition of RTMotion in September 2017. This complements our existing activities and provides the Division with additional high quality camera accessories for the expanding Independent Content Creator market. The business has been integrated into Teradek and is performing in line with expectations. Creative Solutions now has "Customer Experience Centres" in Los Angeles and Irvine, California and Brooklyn, New York where our knowledgeable sales people demonstrate and sell our latest products across the brands. These centres help us to refine our products to improve user experience, particularly when brands are used together. Statutory operating profit decreased by 21.6% to £2.9 million and adjusted operating profit margin* decreased by 0.1% pts to 20.6%. This reflects higher volumes offset by increased investment in sales and marketing to drive sales of our legacy products and increased investment to develop new products which has positioned us well for the future. Discontinued operations
* For discontinued operations, before amortisation of acquired intangible assets of £1.2m (2016: £2.1m), £nil restructuring costs (2016: £1.8m) and £nil impairment of goodwill (2016: £12.1m) Revenue from discontinued operations was £24.8 million (2016: £57.3 million) and adjusted operating loss* from discontinued operations was £0.4 million (2016: £0.1 million profit). The movement was due to these businesses being sold part way through 2017, as well as lower sales at Haigh-Farr and lower activity in Bexel's US asset rentals in a non-Olympic year. Bexel in particular had a significant negative impact on the Group's financial performance in recent years being capital intensive, low margin and loss making. The disposals of Haigh-Farr and Bexel make strategic and financial sense for Vitec, allowing us to focus on core image capturing and sharing products and solutions. Corporate costs Corporate costs include payroll and bonus costs for the Directors and head office team, Long Term Incentive Plan costs for key individuals across the Group, professional fees, property costs, travel costs and IT costs.
The increase in corporate costs includes higher Long Term Incentive Plan accruals linked to strong financial performance. Financial detail Adjusted operating profit* for total operations in 2017 was £3.3 million higher than the prior year. This reflects an increase in adjusted gross profit* of £5.5 million, favourable foreign exchange impact of £3.8 million and a £3.3 million contribution from acquisitions. This was partly offset by investment in operating expenses of £8.8 million to drive sales and future growth in our higher technology and photographic businesses as well as higher corporate costs linked to our strong financial performance, and £0.5 million lower adjusted operating profit* from discontinued operations. The statutory operating profit for continuing operations of £30.2 million was £0.2 million lower than prior year. Management's estimate of these drivers is summarised in the following table:
* Before charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, and material non-operating events as defined in section 11 of the notes Net financial expense Net financial expense of £2.8 million was lower than the prior year (2016: £4.0 million) mainly due to lower overall debt levels, the benefit from repaying the $50 million private placement in May 2017 and lower rates of interest on the debt facility that was put in place in July 2016. Interest payable was £2.6 million (2016: £4.2 million) and was covered 23 times (2016: 14 times) by adjusted EBITDA. Profit before tax Adjusted profit before tax* for total operations increased by £4.5 million to £42.0 million (2016: £37.5 million). Statutory profit before tax for continuing operations increased from £26.4 million to £27.4 million. Taxation The effective taxation rate on adjusted profit before tax* was 27% in 2017 (2016: 27%). Vitec's tax charge is higher than the UK statutory rate because the majority of our profits arise in overseas jurisdictions with higher tax rates than the UK. Earnings per share Adjusted earnings per share* for total operations was 68.1 pence per share (2016: 61.3 pence per share). Basic earnings per share for total operations was 61.4 pence per share (2016: 20.2 pence per share). Acquisitions On 22 September 2017, the Group acquired the trade and certain assets (primarily comprising the JOBY and Lowepro brands) of the DayMen Group S.a.r.l. including 100% of the share capital of the subsidiary companies in Hong Kong and China ("JOBY and Lowepro"), through a business combination for a cash consideration of £8.4 million, expected integration and deal costs of £4.4 million and expected investment in working capital of £10.9 million. The fair value of the net assets acquired was £4.4 million resulting in goodwill of £4.0 million. JOBY and Lowepro products are designed and developed in Hong Kong and California respectively. JOBY's patented GorillaPod has transformed the camera accessories market while Lowepro has been a market leader in bags designed to protect electronic and photographic devices since its inception in 1967. The acquisition is an excellent strategic fit with the Group's existing core activities and gives the Group greater access to the fast growing iPhoneography and vlogging consumer accessories market. On 20 September 2017, the Group acquired 100% of the issued share capital of RT Motion Systems Ltd ("RTMotion"), a private company based in the UK, for a cash consideration of £2.5 million (£1.9 million net of cash acquired). The fair value of the net assets acquired was £1.6 million resulting in goodwill of £0.9 million. Under the terms of the acquisition, there is a potential deferred payment of up to £1.2 million payable in cash. This is dependent on the achievement of non-financial targets, including integration milestones, being met over the period to 31 December 2019, and is not contingent consideration. In 2017 an amount of £0.2 million was provided for and charged to the Income Statement in relating to milestones met in 2017. RTMotion is a high technology business which provides wireless motor lens control systems for broadcast, cine and video cameras. The acquisition complements the Group's existing activities in the expanding Independent Content Creator market and its products will be marketed through the Group's global distribution network. Disposals On 9 May 2017, the Group sold Haigh-Farr Inc ("Haigh-Farr"), a defence antennas business based in the US for a cash consideration of $15.8 million (£12.2 million), of which $0.8 million (£0.6 million) is deferred for twelve months from disposal date. A profit of £3.2 million arose on disposal after taking into account £0.5 million costs of disposal, £17.3 million net assets disposed and the previously recorded foreign exchange gain of £8.8 million that has been recycled to the Income Statement. On 1 August 2017, the Group sold Bexel for a net cash consideration of $32.1 million (£24.3 million). A profit of £11.3 million arose on disposal after taking into account £2.8 million costs of disposal, £18.7 million net assets disposed and the previously recorded foreign exchange gain of £8.5 million that has been recycled to the Income Statement. Restructuring costs In 2017 the restructuring charge was £nil (2016: £5.2 million). The prior year charge relates to actions to streamline operations with lower growth prospects and was mostly made up of redundancy costs. Charges associated with acquisition of businesses The 2017 charges relate to the Group's acquisition activities and amortisation of previously acquired intangible assets. The amortisation of acquired intangible assets for continuing operations of £7.4 million (2016: £5.8 million) relates to the JOBY and Lowepro and RTMotion acquisitions in 2017, and other businesses acquired by the Group since 2011. Transaction costs of £1.3 million (2016: £0.6 million) and integration costs of £2.2 million (2016: £nil) were incurred in relation to acquisitions. Earnout payments of £4.1 million were accrued during the year (2016: £1.2 million). £3.9 million related to Wooden Camera on its strong performance in 2017 following its acquisition in the prior year and £0.2 million related to RTMotion following its acquisition in the current year. Impairment of goodwill There was £nil impairment of goodwill in the year (2016: £12.1 million). Cash flow and net debt Cash generated from operating activities for total operations was £48.7 million (2016: £64.8 million). The Group uses a number of key performance indicators to manage cash including cash conversion+, the percentage of working capital to sales, inventory days, trade receivable days and trade payable days. Inventory, trade receivable and trade payable days are stated at year end balances; inventory and trade payable days are based on Q4 cost of sales (excluding exchange gains/losses) while trade receivable days are based on Q4 revenue. Cash conversion+ was 90% for 2017 (2016: 155%). This includes the impact of working capital investment following the acquisition of JOBY and Lowepro to move from a third party distributor model to using Vitec's own distribution business. After excluding the impact of the JOBY and Lowepro acquisition, cash conversion was 119%. The working capital to sales metric was in line with prior year at 15.7% and overall working capital increased by £9.4 million (2016: £12.0 million decrease). Trade receivable days increased slightly to 45 days (2016: 43 days) and remain well controlled with a good ageing profile. On a cash flow basis, trade and other receivables increased by £5.6 million (2016: £4.5 million). The reported carrying value of trade receivables at year end of £52.5 million includes £1.5 million favourable foreign exchange compared to the prior year. On a cash flow basis, inventory increased by £9.9 million (2016: £11.2 million decrease). The reported carrying value of inventory at year end includes £2.5 million favourable foreign exchange compared to the prior year. Inventory days increased to 106 days (2016: 83 days) partly driven by the buy-back of inventory in November 2017 relating to the acquisition of JOBY and Lowepro. Trade payable days increased to 54 days (2016: 38 days). On a cash flow basis, there was a £6.1 million increase in trade and other payables (2016: £5.3 million) including bonus and commission accruals and timing of payments. The reported carrying value of trade payables at year end of £35.1 million includes £0.1 million adverse foreign exchange compared to the prior year. Capital expenditure for total operations, including £4.3 million of software and capitalised development costs (2016: £3.4 million) totals £15.1 million (2016: £16.8 million). Overall capital expenditure was equivalent to 1.1 times depreciation (2016: 0.9 times). We monitor Return on Capital Employed (ROCE), calculated as adjusted operating profit* divided by average total assets less current liabilities excluding the current portion of interest-bearing borrowings. This has increased from 17.5% in 2016 to 19.6% in 2017 for total operations. The net tax paid in 2017 of £11.0 million was £3.8 million higher than the amount paid in 2016 due to the timing of tax payments. As a result free cash inflow* was £23.5 million (2016: £44.6 million).
* Before charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, and material non-operating events as defined in section 11 of the notes. (1) Includes depreciation, amortisation of software and capitalised development costs and impairment losses on property, plant and equipment (2) Includes change in provisions, share based payments charge, gain on disposal of property, plant and equipment, fair value derivatives, integration costs and transaction costs relating to acquisitions There was a £12.4 million net cash outflow relating to acquisitions during the year (2016: £20.3 million). There was a £32.4 million net cash inflow from disposals, which mainly related to the disposals of Haigh-Farr and Bexel during the year (2016: £1.5 million outflow). Dividends paid to shareholders totalled £12.4 million (2016: £11.1 million) and there was a net cash outflow in respect of shares purchased and issued of £2.1 million (2016: £1.1 million net inflow). The net cash inflow for the Group was £29.0 million (2016: £12.8 million) which, after £3.2 million favourable foreign exchange (2016: £11.6 million adverse), decreased net debt to £42.9 million (2016: £75.1 million). Treasury Vitec manages its financing, hedging and tax planning activities centrally to ensure that the Group has an appropriate structure to support its geographically diverse business. It has clearly defined policies and procedures with any substantial changes to the financial structure of the Group, or to its treasury practice, referred to the Board for approval. The Group operates strict controls over all treasury transactions including clearly defined currency hedging processes to reduce risks from volatility in exchange rates. The Group is hedging a portion of its forecast future foreign currency transactions to reduce the volatility from changes in exchange rates. Our main exposure relates to the US Dollar and the table below summarises the contracts held as at 31 December 2017:
The Group does not hedge the translation of its foreign currency profits. A portion of the Group's foreign currency net assets are hedged using the Group's borrowing facilities. Financing activities In July 2016, a five year £125.0 million committed multi-currency Revolving Credit Facility with five relationship banks was renegotiated. This is due to expire on 5 July 2021. At the end of December 2017, £53.4 million (2016: £48.9 million) of the facility was utilised. In May 2017 the Group repaid its US$50 million private placement facility in full. The average cost of borrowing for the year which includes interest payable, commitment fees and amortisation of set-up charges was 3.2% (2016: 3.9%) reflecting an interest cost of £2.6 million (2016: £4.2 million). The Board has maintained an appropriate capital structure without exposing the Group to unnecessary levels of risk and Vitec has operated comfortably within its loan covenants during 2017. Foreign exchange 2017 adjusted operating profit* included a £3.8 million net favourable foreign exchange effect after hedging, mainly due to favourable £/€ and £/$ rates when compared to 2016. Should exchange rates remain at current levels ($1.40, €1.13), we would expect a headwind from foreign exchange in 2018 in the order of £0.8 million. Dividend The Directors have recommended a final dividend of 20.1 pence per share amounting to £9.0 million (2016: 17.3 pence per share, amounting to £7.7 million). The final dividend, subject to shareholder approval at the 2018 Annual General Meeting, will be paid on Friday, 18 May 2018 to shareholders on the register at the close of business on Friday, 20 April 2018. This will bring the total dividend for the year to 30.5 pence per share (up 12.1%). A dividend reinvestment alternative is available with details available from our registrars, Link Asset Services. |
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Principal risks and uncertainties Vitec is exposed to a number of risk factors which may affect its performance. The Group has a well-established framework for reviewing and assessing these risks on a regular basis, and has put in place appropriate processes and procedures to mitigate against them. However, no system of control or mitigation can completely eliminate all risks. The Board has determined that the following are the principal risks facing the Group. Demand for Vitec's products Demand for our products may be adversely affected by many factors, including changes in customer and consumer preferences and our ability to deliver appropriate products or to support changes in technology. The Group increasingly produces and sells products that are more technologically advanced, including encoders, transmitters and on-camera monitors. These products have a shorter life cycle than our historical products, and continuous investment in new product development is needed to keep up with the changing demand. Demand may also be impacted by competitor activity, particularly from low-cost countries. We value our relationships with our customers and to mitigate this risk we monitor closely our target markets and user requirements. We maintain good relationships with our key customers and make significant investments in product development and marketing activities to ensure that we remain competitive in these markets. In support of our new product launches, we have completed appropriate market analyses before developing new products to ensure that they are appropriately designed for our target markets. We monitor closely the demand for new products and phase out old product lines. We are actively pursuing growth in selected emerging markets. New markets and channels of distribution As we enter new markets and channels of distribution we may achieve lower than anticipated trading volumes and pricing levels or higher costs and resource requirements. This may impact the levels of profitability and cash flows delivered. We continue to increase our online presence and our investment in new innovative products which address the needs of independent content creators. We are also increasing our presence and investment in APAC. To mitigate these risks, we have a thorough process for assessing and planning the entry into new markets and related opportunities. This includes marketing and advertising strategies for our products and services. We continuously assess our performance and the related opportunities and risks in these markets. We adapt our approach taking into account our actual and anticipated performance. We review our channels of distribution to make sure that they remain appropriate. Our increased online presence creates IT security and compliance challenges which the Group is continually addressing. Acquisitions In pursuing our business strategy we continuously explore opportunities to enhance our business through development activities such as strategic acquisitions. This involves a number of calculated risks including: acquiring desired businesses on economically acceptable terms; integrating new businesses, employees, business systems and technology; and realising satisfactory post-acquisition performance. In 2017, we acquired the JOBY and Lowepro brands and RTMotion. These acquisitions are performing at least to plan. We mitigate these risks by having a clear acquisition strategy with a robust valuation model. Thorough due diligence processes are completed including the use of external advisers where appropriate. The post-acquisition performance of each business is closely monitored and a plan is developed to integrate the acquired businesses in an effective way. Pricing pressure Vitec provides premium branded products and faces a number of competitors. The strength of this competition varies by product and geographical market. We continue to face price pressure from new market entrants, which we are responding to through the launch of new competitive product ranges. We continually review our production activities for cost saving opportunities. We have also faced issues relating to parallel trades / price arbitrage particularly in our Imaging Solutions business which led us to enforce "Minimum Advertised Price" where this is permitted. Price competition from Chinese low-cost producers is becoming stronger in some of the more technologically advanced segments, particularly in respect of wireless transmitters. To mitigate this risk, we ensure that our product and service offering remains competitive by investing in new product development and in appropriate marketing and product support, and by improving the management of supply chain costs. This, and working closely with our suppliers and managing our expenses and cost base appropriately, allows us to support price increases when required. We are rationalising our product range to reduce complexity which will also allow us to achieve some cost savings on production. Most of our products and services have a premium or niche differentiation which commands a price point that is higher than that of the competition. With the recent currency fluctuations, we continue to monitor our pricing across the main currencies. Dependence on key suppliers We source materials and components from many suppliers in various locations and in some instances are more dependent on a limited number of suppliers for particular items. If any of these suppliers or subcontractors fail to meet the Group's requirements, we may not have readily available alternatives, thereby impacting our ability to provide an appropriate level of customer service. Our overall dependence on key suppliers has increased as a result of the Group's decision to reduce its costs by outsourcing some manufacturing and assembly activities. For several of our products we are heavily dependent on a specific supplier for the provision of core elements of the products; such vendors may decide to compete with Vitec. The recent acquisition of JOBY and Lowepro has further increased the dependence on external sourcing. To address this risk we aim to secure multiple sources of supply for all materials and components and develop strong relationships with our major suppliers. We review the performance of strategically important suppliers and outsourced providers globally on an ongoing basis. Where economical we look to source materials closer to the manufacturing facilities to reduce lead times and improve control over the supply chain. Dependence on key customers While the Group has a wide customer base, the loss of a key customer, or a significant worsening in their success or financial performance, could result in a material impact on the Group's results. Vitec's largest customer accounted for 11.9% of revenue from continuing operations which is marginally higher than in previous years. The business also works with a variety of customers on large sporting events and the extent of these activities varies year-on-year. We mitigate this risk by monitoring closely our performance with all customers through developing strong relationships, and we monitor the financial performance of our key customers. We continue to expand our customer base including entering into new channels of distribution to expand our portfolio of customers. People We employ around 1,700 people and are exposed to a risk of being unable to retain or recruit suitable diverse talent to support the business. We manufacture and supply products from a number of locations and it is important that our people operate in a professional and safe environment. We recognise that it is important to motivate and retain capable people across our businesses to ensure we are not exposed to risk of unplanned employee turnover. We fairly reward our people and have appropriate recruitment, appraisal, talent management and succession planning strategies to ensure we recruit and retain good quality people and leadership across the business. We take our employees' health and safety very seriously and have appropriate processes in place to allow us to monitor and address any issues appropriately. Laws and regulations We are subject to a comprehensive range of legal obligations in all countries in which we operate. As a result, we are exposed to many forms of legal risk. These include, without limitation, regulations relating to government contracting rules, taxation, data protection regimes, anti-bribery provisions, competition, and health and safety laws in numerous jurisdictions around the world. Failure to comply with such laws could significantly impact the Group's reputation and could expose the Group to fines and penalties. We may also incur additional cost from any legal action that is required to protect our intellectual property. Recent political developments in the US and Europe may have implications for several areas of regulations including but not limited to: the customs and import tariffs our businesses will be subject to; corporation tax rates; employment laws and regulations; and other business regulation. More specifically, the UK's exit from the European Union may have a significant impact on rates of duties and other taxes applied to our UK entities' exports and imports, which would have a material effect on the Group's results. There may be other legal, regulatory and commercial ramifications, the likely impact of which are difficult to measure given the uncertainties surrounding the outcome of the current negotiations between the UK Government and the EU. We address this risk by having resources dedicated to legal and regulatory compliance supported by external advice where necessary. We monitor and respond to developments in the regulatory environment in which our companies operate, including the effect of tax changes. We enhance our controls, processes and employee knowledge to maintain good governance and to comply with laws and regulations. The Group has processes in place, including senior management training, to ensure that its worldwide business units understand and apply the Group's culture and processes to their own operations. We actively protect our intellectual property, and will legally pursue any party that infringes our intellectual property rights. With regards to Brexit, we have established an executive-led steering group to develop contingency plans whilst closely monitoring developments in the negotiations between the UK Government and the EU. Reputation of the Vitec Group Damage to our reputation and our brand names can arise from a range of events such as poor product performance, unsatisfactory customer service, and other events either within or outside our control. We manage this risk by recognising the importance of our reputation and attempting to identify any potential issues quickly and address them appropriately. We recognise the importance of providing high quality products, good customer service and managing our business in a safe and professional manner. This requires all employees to commit to, and comply with, the Code of Conduct. Exchange rates The global nature of the Group's business means it is exposed to volatility in currency exchange rates in respect of foreign currency denominated transactions, and the translation of net assets and income statements of foreign subsidiaries and equity accounted investments. The Group is exposed to a number of foreign currencies, the most significant being the US Dollar, Euro and Japanese Yen. The uncertain outcome of Brexit negotiations may increase Sterling's volatility in the next few years, which in turn may a material impact on the Group's translated results. We regularly review and assess our exposure to changes in exchange rates. We reduce the impact of sudden movements in exchange rates with the use of appropriate hedging activities on forecast foreign exchange net exposures. We do not hedge the translation effect of exchange rate movements on the Income Statement or Balance Sheet of overseas subsidiaries. However, the Group does finance overseas investments partly through the use of foreign currency borrowings in order to provide a net investment hedge over the foreign currency risk that arises on translation of its foreign currency subsidiaries. Business continuity There are risks relating to business continuity resulting from specific events such as natural disasters including earthquakes, floods or fires. These may impact our manufacturing plants or supply chain, particularly where these account for a significant amount of our trading activity. We are also dependent on our IT platforms continuing to work effectively in supporting our business and therefore there is a cyber- security risk for the Group. We address this risk with Business Continuity Plans and Disaster Recovery Plans at our key sites, and by carrying out periodic IT and cyber security vulnerability assessments. We have global insurance schemes in place which provide cover for business interruption. We review coverage annually to determine whether adjustments are needed. Effectiveness and impact of restructuring projects In 2015/16 we conducted a number of restructuring projects to streamline the business, and to deliver cost savings. There is a risk that the restructuring activity could have been poorly executed and that the objectives might not be achieved. The main restructuring projects are now substantially complete, and have already started to generate year-on-year savings. We have also sold our Bury St Edmunds site and will move these activities to a lean, modern manufacturing facility in H1 2018. In addition, we continually aim to identify and implement operational synergies between the different business units. Forward-looking statements This announcement contains forward-looking statements with respect to the financial condition, performance, position, strategy, results and plans of the Group based on Management's current expectations or beliefs as well as assumptions about future events. These forward-looking statements are not guarantees of future performance. Undue reliance should not be placed on forward-looking statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. The Company undertakes no obligation to publically revise or update any forward-looking statements or adjust them for future events or developments. Nothing in this announcement should be construed as a profit forecast. The information in this announcement does not constitute an offer to sell or an invitation to buy shares in the Company in any jurisdiction or an invitation or inducement to engage in any other investment activities. The release or publication of this announcement in certain jurisdictions may be restricted by law. Persons who are not resident in the United Kingdom or who are subject to other jurisdictions should inform themselves of, and observe, any applicable requirements. This announcement contains brands and products that are protected in accordance with applicable trademark and patent laws by virtue of their registration. Board changes Mark Rollins will be leaving the Board as an independent non-executive director and senior independent director on 2 April 2018 to focus on his Chairman's role at Carclo plc. Mark has been a valuable member of the Board since joining in October 2013 and the Board wishes him well for the future. To ensure that we have a strong independent non-executive presence on the Board we have searched for a replacement to Mark and we are pleased to report that Richard Tyson will join the Board on 2 April 2018 as an independent non-executive director. Richard is Chief Executive Officer of TT Electronics plc, holding that position since 2014. He was formerly President of the Aerospace and Security Division of Cobham plc from 2008 to 2014 and a member of their Executive Committee. Christopher Humphrey will become Senior Independent Director in addition to his role as Chairman of the Audit Committee with effect from Mark ceasing to be a director. In connection with Richard's appointment there are no further matters to be disclosed in accordance with paragraph 9.6.13 of the Listing Rules of the UK Listing Authority. In accordance with section 430(2B) of the Companies Act 2006, the Company confirms that Mark Rollins will receive his annual fee as a non-executive director of the Company of £45,255 per annum and as Senior Independent Director of £6,000 per annum up to the date of ceasing to be a director of the Company. No other amounts will be payable to Mark Rollins. Outlook We have outlined a number of initiatives for medium-term organic growth, particularly in the Independent Content Creator market and in APAC, and will continue to identify operational improvements and businesses to acquire in core and adjacent markets. Strong cash generation and a robust balance sheet will support these growth plans. Vitec has a strong position in exciting and fast changing markets. With our transformed portfolio of businesses, new structure and growth initiatives, the Board is confident that, at current exchange rates, the Group remains well positioned to deliver further progress in 2018. Going concern and viability The Directors have made appropriate enquiries and consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements. The Directors have also assessed the long-term viability of the Group over a three year period, taking account of the Group's current position and prospects, its strategic plan, risk appetite and the principal risks and how these are managed. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over this period.
For and on behalf of the Board
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Consolidated Income Statement |
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For the year ended 31 December 2017 |
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2017 |
2016 |
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Notes |
£m |
£m |
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Revenue |
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353.3 |
318.9 |
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Cost of sales |
|
(196.8) |
(183.2) |
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Gross profit |
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156.5 |
135.7 |
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Operating expenses |
|
(126.3) |
(105.3) |
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Operating profit |
|
30.2 |
30.4 |
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Comprising |
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- Adjusted operating profit |
2 |
45.2 |
41.4 |
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- Charges associated with acquisition of businesses |
2 |
(15.0) |
(7.6) |
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- Restructuring costs |
2 |
- |
(3.4) |
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|
|
30.2 |
30.4 |
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Net finance expense |
3 |
(2.8) |
(4.0) |
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Profit before tax |
|
27.4 |
26.4 |
|
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Comprising |
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- Adjusted profit before tax |
2 |
42.4 |
37.4 |
|
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- Charges associated with acquisition of businesses |
2 |
(15.0) |
(7.6) |
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- Restructuring costs |
2 |
- |
(3.4) |
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|
|
27.4 |
26.4 |
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Taxation |
4 |
(16.9) |
(1.5) |
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Profit from continuing operations |
|
10.5 |
24.9 |
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Profit/(loss) after tax from discontinued operations |
5 |
17.0 |
(15.9) |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Profit attributable to owners of the parent |
|
27.5 |
9.0 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjusted earnings per share from continuing operations (see note 7) |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Basic earnings per share |
|
70.5p |
61.0p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Diluted earnings per share |
|
70.0p |
60.9p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Earnings per share from continuing operations (see note 7) |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Basic earnings per share |
|
23.4p |
55.9p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Diluted earnings per share |
|
23.3p |
55.7p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Adjusted earnings per share from continuing and discontinued operations (see note 7) |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Basic earnings per share |
|
68.1p |
61.3p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Diluted earnings per share |
|
67.6p |
61.2p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Earnings per share from continuing and discontinued operations (see note 7) |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Basic earnings per share |
|
61.4p |
20.2p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Diluted earnings per share |
|
61.0p |
20.1p |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Dividends per ordinary share (see note 8) |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Prior year final paid |
|
£7.7m |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Current year interim |
|
£4.7m |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Current year final proposed |
|
£9.0m |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Average exchange rates |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Euro |
|
1.14 |
1.22 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
US$ |
|
1.29 |
1.35 |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Consolidated Statement of Comprehensive Income |
|
|
|||
|
For the year ended 31 December 2017 |
|
|
|||
|
|
2017 |
2016 |
|||
|
|
£m |
£m |
|||
|
Profit for the year |
27.5 |
9.0 |
|||
|
Other comprehensive income: |
|
|
|||
|
Items that will not be reclassified to profit or loss: |
|
|
|||
|
Remeasurements of defined benefit pension obligation |
0.6 |
(6.4) |
|||
|
Related tax |
(0.1) |
1.0 |
|||
|
Items that are or may be reclassified to profit or loss: |
|
|
|||
|
Foreign exchange gain recycled to the Income Statement on disposal of businesses |
(17.3) |
- |
|||
|
Currency translation differences on foreign currency subsidiaries |
(10.8) |
37.7 |
|||
|
Net investment hedges - net gain/(loss) |
2.7 |
(16.6) |
|||
|
Cash flow hedges - reclassified to the Income Statement, net of tax |
3.3 |
0.8 |
|||
|
Cash flow hedges - effective portion of changes in fair value |
2.5 |
(4.6) |
|||
|
Related tax |
(0.6) |
0.9 |
|||
|
Other comprehensive (expense)/income, net of tax |
(19.7) |
12.8 |
|||
|
Total comprehensive income for the year attributable to owners of the parent |
7.8 |
21.8 |
|||
|
|
|
|
|
||
|
Consolidated Balance Sheet |
|
|
|
|
As at 31 December 2017 |
|
|
|
|
|
2017 |
2016 |
|
|
|
£m |
£m |
|
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Intangible assets |
|
88.4 |
99.0 |
|
Property, plant and equipment |
|
31.0 |
54.0 |
|
Trade and other receivables |
|
0.9 |
0.9 |
|
Derivative financial instruments |
|
0.4 |
0.2 |
|
Deferred tax assets |
|
17.7 |
26.6 |
|
|
|
138.4 |
180.7 |
|
Current assets |
|
|
|
|
Inventories |
|
69.8 |
57.9 |
|
Trade and other receivables |
|
65.8 |
66.2 |
|
Derivative financial instruments |
|
1.9 |
0.2 |
|
Current tax assets |
|
1.2 |
0.7 |
|
Cash and cash equivalents |
|
12.6 |
17.1 |
|
|
|
151.3 |
142.1 |
|
Total assets |
|
289.7 |
322.8 |
|
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Bank overdrafts |
|
- |
0.3 |
|
Interest-bearing loans and borrowings |
|
0.5 |
40.9 |
|
Trade and other payables |
|
67.4 |
55.3 |
|
Derivative financial instruments |
|
0.4 |
4.8 |
|
Current tax liabilities |
|
4.4 |
8.1 |
|
Provisions |
|
9.3 |
4.9 |
|
|
|
82.0 |
114.3 |
|
Non-current liabilities |
|
|
|
|
Interest-bearing loans and borrowings |
|
55.0 |
51.0 |
|
Derivative financial instruments |
|
0.1 |
1.2 |
|
Post-employment obligations |
|
12.6 |
13.0 |
|
Provisions |
|
1.7 |
1.1 |
|
Deferred tax liabilities |
|
2.7 |
2.4 |
|
|
|
72.1 |
68.7 |
|
Total liabilities |
|
154.1 |
183.0 |
|
Net assets |
|
135.6 |
139.8 |
|
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
|
9.0 |
9.0 |
|
Share premium |
|
16.8 |
15.4 |
|
Translation reserve |
|
(8.6) |
16.8 |
|
Capital redemption reserve |
|
1.6 |
1.6 |
|
Cash flow hedging reserve |
|
1.3 |
(3.9) |
|
Retained earnings |
|
115.5 |
100.9 |
|
Total equity |
|
135.6 |
139.8 |
|
|
|
|
|
|
Balance Sheet exchange rates |
|
|
|
|
Euro |
|
1.13 |
1.17 |
|
US$ |
|
1.35 |
1.24 |
|
Consolidated Statement of Changes in Equity |
|||||||
|
|
Share capital |
Share premium |
Translation reserve |
Capital redemption reserve |
Cash flow hedging reserve |
Retained earnings |
Total equity |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Balance at 1 January 2017 |
9.0 |
15.4 |
16.8 |
1.6 |
(3.9) |
100.9 |
139.8 |
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
27.5 |
27.5 |
|
Other comprehensive income/(expense) for the year |
- |
- |
(25.4) |
- |
5.2 |
0.5 |
(19.7) |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
Dividends paid |
- |
- |
- |
- |
- |
(12.4) |
(12.4) |
|
Own shares purchased |
- |
- |
- |
- |
- |
(3.5) |
(3.5) |
|
Share-based payment charge |
- |
- |
- |
- |
- |
2.2 |
2.2 |
|
Tax on share-based payment charge |
- |
- |
- |
- |
- |
0.3 |
0.3 |
|
New shares issued |
- |
1.4 |
- |
- |
- |
- |
1.4 |
|
Balance at 31 December 2017 |
9.0 |
16.8 |
(8.6) |
1.6 |
1.3 |
115.5 |
135.6 |
|
|
|||||||
|
|
Share capital |
Share premium |
Translation reserve |
Capital redemption reserve |
Cash flow hedging reserve |
Retained earnings |
Total equity |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Balance at 1 January 2016 |
8.9 |
14.3 |
(4.3) |
1.6 |
(1.0) |
106.8 |
126.3 |
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
9.0 |
9.0 |
|
Other comprehensive income/(expense) for the year |
- |
- |
21.1 |
- |
(2.9) |
(5.4) |
12.8 |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
Dividends paid |
- |
- |
- |
- |
- |
(11.1) |
(11.1) |
|
Own shares purchased |
- |
- |
- |
- |
- |
(0.1) |
(0.1) |
|
Share-based payment charge |
- |
- |
- |
- |
- |
1.6 |
1.6 |
|
Tax on share-based payment charge |
- |
- |
- |
- |
- |
0.1 |
0.1 |
|
New shares issued |
0.1 |
1.1 |
- |
- |
- |
- |
1.2 |
|
Balance at 31 December 2016 |
9.0 |
15.4 |
16.8 |
1.6 |
(3.9) |
100.9 |
139.8 |
|
Consolidated Statement of Cash Flows |
|
|
|
|
For the year ended 31 December 2017 |
|
|
|
|
|
|
2017 |
2016 |
|
|
Notes |
£m |
£m |
|
Cash flows from operating activities |
|
|
|
|
Profit for the year |
|
27.5 |
9.0 |
|
Adjustments for: |
|
|
|
|
Taxation |
|
13.3 |
1.5 |
|
Depreciation |
|
10.3 |
15.3 |
|
Amortisation of intangible assets |
|
12.2 |
11.0 |
|
Impairment losses on property, plant and equipment |
|
0.2 |
- |
|
Impairment of intangible assets |
|
- |
12.1 |
|
Net gain on disposal of property, plant and equipment and software |
|
(0.7) |
(1.5) |
|
Fair value (gains)/losses on derivative financial instruments |
|
(0.6) |
0.4 |
|
Share-based payment charge |
|
2.2 |
1.6 |
|
Earnout, deferred payments and purchase price adjustment |
|
4.1 |
1.2 |
|
Profit on disposal of businesses, before tax |
5 |
(15.0) |
- |
|
Net finance expense |
|
2.8 |
4.0 |
|
Operating profit before changes in working capital and provisions |
|
56.3 |
54.6 |
|
(Increase)/decrease in inventories |
|
(9.9) |
11.2 |
|
Increase in receivables |
|
(5.6) |
(4.5) |
|
Increase in payables |
|
6.1 |
5.3 |
|
Increase/(decrease) in provisions |
|
1.8 |
(1.8) |
|
Cash generated from operating activities |
|
48.7 |
64.8 |
|
Interest paid |
|
(2.6) |
(5.2) |
|
Tax paid |
|
(11.0) |
(7.2) |
|
Net cash from operating activities |
|
35.1 |
52.4 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Proceeds from sale of property, plant and equipment and software |
|
3.5 |
9.0 |
|
Purchase of property, plant and equipment |
|
(10.8) |
(13.4) |
|
Capitalisation of software and development costs |
|
(4.3) |
(3.4) |
|
Acquisition of businesses, net of cash acquired |
6 |
(12.4) |
(20.3) |
|
Disposal of businesses |
5 |
32.6 |
- |
|
Cash outflow on previous disposal |
|
(0.2) |
(1.5) |
|
Net cash from/(used in) investing activities |
|
8.4 |
(29.6) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from the issue of shares |
|
1.4 |
1.2 |
|
Own shares purchased |
|
(3.5) |
(0.1) |
|
Repayment of interest-bearing loans and borrowings |
|
(144.5) |
(84.9) |
|
Borrowings from interest-bearing loans and borrowings |
|
110.7 |
71.3 |
|
Dividends paid |
|
(12.4) |
(11.1) |
|
Net cash used in financing activities |
|
(48.3) |
(23.6) |
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
(4.8) |
(0.8) |
|
Cash and cash equivalents at 1 January |
|
16.8 |
12.5 |
|
Effect of exchange rate fluctuations on cash held |
|
0.6 |
5.1 |
|
Cash and cash equivalents at 31 December |
9 |
12.6 |
16.8 |
|
Segment reporting |
|
In the year, the Group reorganised its business into three Divisions (Imaging Solutions, Production Solutions and Creative Solutions) to reflect a changing customer base, to enable the Group to adapt quickly to market and technological challenges, and to give greater focus to the fast-growing Independent Content Creator market. These reportable segments reflect the internal reporting provided to the Chief Operating Decision Maker on a regular basis to assist in making decisions on capital allocated to each segment and to assess performance. |
|
The US broadcast services business and the Haigh-Farr defence antennas business, both part of the previous Broadcast Division, have been classified as discontinued operations in the current year. Their performance in this year and the comparative year is therefore part of discontinued operations as presented in note 5 "Disposals and discontinued operations" and is excluded from segmental performances below. |
|
From continuing operations: |
Imaging Solutions (1) |
Production Solutions (2) |
Creative Solutions (2) |
Corporate and unallocated |
Consolidated |
||||||
|
|
2017 |
2016 |
2017 |
2016 |
2017 |
2016 |
2017 |
2016 |
2017 |
2016 |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
Total Revenue from external customers |
175.9 |
151.4 |
114.2 |
121.6 |
63.2 |
45.9 |
- |
- |
353.3 |
318.9 |
|
|
Inter-segment revenue (3) |
0.6 |
0.6 |
1.0 |
1.1 |
0.2 |
- |
(1.8) |
(1.7) |
- |
- |
|
|
Total revenue |
176.5 |
152.0 |
115.2 |
122.7 |
63.4 |
45.9 |
(1.8) |
(1.7) |
353.3 |
318.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit |
29.9 |
25.2 |
15.2 |
16.3 |
13.0 |
9.5 |
(12.9) |
(9.6) |
45.2 |
41.4 |
|
|
Earnout, deferred payments and purchase price adjustment |
- |
0.1 |
- |
0.2 |
(4.1) |
(1.5) |
- |
- |
(4.1) |
(1.2) |
|
|
Transaction costs relating to acquisition of businesses |
(1.2) |
(0.1) |
- |
- |
(0.1) |
(0.5) |
- |
- |
(1.3) |
(0.6) |
|
|
Integration costs |
(2.2) |
- |
- |
- |
- |
- |
- |
- |
(2.2) |
- |
|
|
Amortisation of acquired intangible assets |
(0.4) |
(0.8) |
(1.1) |
(1.3) |
(5.9) |
(3.7) |
- |
- |
(7.4) |
(5.8) |
|
|
Restructuring costs |
- |
(1.8) |
- |
(1.5) |
- |
(0.1) |
- |
- |
- |
(3.4) |
|
|
Operating profit |
26.1 |
22.6 |
14.1 |
13.7 |
2.9 |
3.7 |
(12.9) |
(9.6) |
30.2 |
30.4 |
|
|
Net finance expense |
|
|
|
|
|
|
|
|
(2.8) |
(4.0) |
|
|
Taxation |
|
|
|
|
|
|
|
|
(16.9) |
(1.5) |
|
|
Profit for the year |
|
|
|
|
|
|
|
|
10.5 |
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
124.9 |
94.8 |
87.6 |
88.3 |
41.4 |
45.0 |
4.3 |
1.5 |
258.2 |
229.6 |
|
|
Unallocated assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
12.6 |
17.1 |
12.6 |
17.1 |
|
|
Current tax assets |
|
|
|
|
|
|
1.2 |
0.7 |
1.2 |
0.7 |
|
|
Deferred tax assets |
|
|
|
|
|
|
17.7 |
26.6 |
17.7 |
26.6 |
|
|
Total assets |
|
|
|
|
|
|
|
|
289.7 |
274.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
44.6 |
31.3 |
31.0 |
26.9 |
7.2 |
5.9 |
8.7 |
10.8 |
91.5 |
74.9 |
|
|
Unallocated liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdrafts |
|
|
|
|
|
|
- |
0.3 |
- |
0.3 |
|
|
Interest-bearing loans and borrowings |
|
|
|
|
|
|
55.5 |
91.9 |
55.5 |
91.9 |
|
|
Current tax liabilities |
|
|
|
|
|
|
4.4 |
8.1 |
4.4 |
8.1 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
2.7 |
2.4 |
2.7 |
2.4 |
|
|
Total liabilities |
|
|
|
|
|
|
|
|
154.1 |
177.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
13.8 |
23.3 |
19.5 |
24.5 |
11.7 |
6.3 |
(13.2) |
(10.3) |
31.8 |
43.8 |
|
|
Cash flows from investing activities |
(13.5) |
(4.3) |
(6.9) |
(1.3) |
(4.9) |
(20.4) |
- |
(0.1) |
(25.3) |
(26.1) |
|
|
Cash flows from financing activities |
- |
- |
- |
- |
- |
- |
(48.3) |
(23.6) |
(48.3) |
(23.6) |
|
|
Capital expenditure |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
4.2 |
2.6 |
4.9 |
2.9 |
0.2 |
0.7 |
- |
- |
9.3 |
6.2 |
|
|
Software and development costs |
2.0 |
1.5 |
1.6 |
1.1 |
0.6 |
0.4 |
- |
0.1 |
4.2 |
3.1 |
|
|
|
|||||||||||
|
(1) Imaging Solutions Division was previously called Photographic Division. |
|||||||||||
|
(2) Production Solutions and Creative Solutions Divisions were previously presented within the Broadcast Division. |
|||||||||||
|
(3) Inter-segment pricing is determined on an arm's length basis. |
|||||||||||
|
One customer (2016: nil) accounted for more than 10% of external revenue. In 2017, the total revenue from this customer, which was recognised in all three segments, was £42.1 million. |
|||||||||||
|
Geographical segments |
|
|
|
||||||||
|
|
2017 |
2016 |
|
||||||||
|
|
£m |
£m |
|
||||||||
|
Continuing operations - analysis of revenue from external customers, by location of customer |
|
|
|||||||||
|
United Kingdom |
40.3 |
34.8 |
|
||||||||
|
The rest of Europe |
83.1 |
75.4 |
|
||||||||
|
North America |
144.3 |
129.6 |
|
||||||||
|
Asia Pacific |
73.5 |
69.0 |
|
||||||||
|
The rest of the World |
12.1 |
10.1 |
|
||||||||
|
Total revenue from external customers |
353.3 |
318.9 |
|
||||||||
|
The Group's operations are located in several geographical locations, and sell products and services on to external customers in all parts of the world. |
|
||||||||||
|
1 Accounting policies |
|
Basis of consolidation |
|
Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists when the Group has the rights to variable returns from its involvement with an entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries sold or acquired during the year are included in the accounts up to, or from, the date that control exists. |
|
In reporting financial information, the Group presents alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards, as adopted by the EU ("IFRS"). The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information to better reflect the underlying business and enable more meaningful comparison over time. Note 11 "Glossary on Alternative Performance Measures" provides a comprehensive list of APMs that the Group uses, including an explanation of how they are calculated, why they are used and how they can be reconciled to a statutory measure where relevant. |
|
New standards and interpretations not yet adopted |
|
The following standards, amendments to standards and interpretations will become effective for the Group in future years.
IFRS 9 "Financial Instruments" is effective from 1 January 2018. The initial application of IFRS 9 is not expected to have a material impact on these results or the Balance Sheet reported in the consolidated financial statements.
IFRS 15 "Revenue from Contracts with Customers" is effective from 1 January 2018. This standard requires the separation of performance obligations within contracts with customers and the contractual value to be allocated to each of the performance obligations. Revenue is then recognised as each performance obligation is satisfied. This standard will replace existing revenue recognition standards. The Group will apply the standard from the transition date using the cumulative effect method. The Directors do not consider that the application of IFRS 15 will have a material impact on these results or the Balance Sheet reported in the consolidated financial statements. For the sale of goods, where revenue is currently recognised when both the significant risks and rewards of ownership have been transferred to the customer, and for the rental of assets, where revenue is recognised over the duration of the rental contract on a straight line basis at the amount billed to the customer, no adjustments are expected under IFRS 15. For goods sold with a right to return, and service warranties over an extended period, the adjustments are not material.
IFRS 16 "Leases" was revised on 13 January 2016 and is effective from 1 January 2019 and will require all leases to be recognised on the Balance Sheet. Currently, IAS 17 "Leases" only requires those categorised as finance leases to be recognised on the Balance Sheet, with leases categorised as operating leases not recognised and expensed through the Income Statement. The impact of IFRS 16 will be to recognise a lease liability and a corresponding asset in the Balance Sheet for leases currently classified as operating leases. The Directors are continuing to evaluate the full impact of the adoption of this standard. The actual impact in the period of initial application will depend on the composition of the Group's lease portfolio at that date, the Group's latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and exemptions. The Group expects to disclose its transition approach and quantitative information before adoption. |
|
Other standards |
|
Other amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements. |
|
2 Charges associated with acquisition of businesses, impairment of goodwill and restructuring costs |
|
Charges associated with acquisition of businesses, impairment of goodwill, restructuring costs and material non-operating events are excluded from key performance measures in order to more accurately show the underlying current business performance of the Group in a consistent manner. This also reflects how the business is managed and measured on a day-to-day basis. Charges associated with acquisition of businesses include non-cash charges such as amortisation of acquired intangible assets and cash charges such as transaction costs, earnout and deferred payments and significant costs relating to the integration of acquired businesses. Restructuring costs comprise employment termination and other site rationalisation costs. |
|
2017 |
2016 |
|
|
£m |
£m |
|
|
From continuing operations: |
|
|
|
|
|
|
|
Earnout, deferred payments and purchase price adjustment (1) |
(4.1) |
(1.2) |
|
Transaction costs relating to acquisition of businesses (2) |
(1.3) |
(0.6) |
|
Integration costs (3) |
(2.2) |
- |
|
Amortisation of acquired intangible assets |
(7.4) |
(5.8) |
|
Charges associated with acquisition of businesses |
(15.0) |
(7.6) |
|
|
|
|
|
Restructuring costs |
- |
(3.4) |
|
From discontinued operations: |
|
|
|
Amortisation of acquired intangible assets |
(1.2) |
(2.1) |
|
Impairment of goodwill |
- |
(12.1) |
|
Restructuring costs |
- |
(1.8) |
|
Total |
(1.2) |
(16.0) |
|
|
|
|
|
(1) The charge of £4.1 million comprises an earnout payable of £3.9 million (US$5.0 million) in relation to Wooden Camera which was as a result of its performance for the year ending 31 December 2017, and an amount of £0.2 million relating to RTMotion, as a result of certain non-financial targets having been met in 2017. |
||
|
(2) Transaction costs of £1.3 million (2016: £0.6 million) were incurred in relation to acquisitions in the year. See note 6 "Acquisitions". |
||
|
(3) Integration costs of £2.2 million relate to the integration of JOBY and Lowepro into the Group and mainly comprise employment termination costs and costs to terminate agreements with third part distributors. See note 6 "Acquisitions". |
||
|
3 Net finance expense |
|
|
|
|
2017 |
2016 |
|
|
£m |
£m |
|
Finance income |
|
|
|
Net currency translation gains |
0.1 |
0.4 |
|
|
|
|
|
Finance expense |
|
|
|
Interest payable on interest-bearing loans and borrowings |
(2.6) |
(4.2) |
|
Net interest expense on net defined benefit pension scheme |
(0.3) |
(0.2) |
|
|
(2.9) |
(4.4) |
|
Net finance expense |
(2.8) |
(4.0) |
|
4 Taxation |
|
|
|
US Tax Reform |
|
|
|
On 22 December 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act is complex and wide ranging and in these financial statements the impact has been estimated and may be further refined as more clarity and guidance becomes available. |
||
|
The legislation includes a reduction in the federal tax rate from 35% to 21% and also contains increased restrictions on the deductibility of interest expense. As a consequence of these changes, the remeasurement of the deferred tax asset for both the change in tax rate and forecast utilisation of the deferred tax asset has resulted in a one-off deferred tax charge of £7.9 million which is excluded from adjusted earnings. |
||
|
The Group expects that the effective tax rate on adjusted profits will be reduced by two percentage points, from 27% to 25%, in 2018 as a result of the reduction in federal tax rate. |
||
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£m |
£m |
|
|
The total taxation charge/(credit) in the Income Statement is analysed as follows: |
|
||
|
|
|
|
|
|
Summarised in the Income Statement as follows |
|
|
|
|
Continuing operations |
|
|
|
|
Current tax |
6.2 |
8.4 |
|
|
Deferred tax |
10.7 |
(6.9) |
|
|
|
16.9 |
1.5 |
|
|
Discontinued operations |
|
|
|
|
Current tax |
0.4 |
- |
|
|
Deferred tax |
(4.0) |
- |
|
|
|
(3.6) |
- |
|
|
Continuing and discontinued operations |
|
|
|
|
Current tax |
6.6 |
8.4 |
|
|
Deferred tax |
6.7 |
(6.9) |
|
|
|
13.3 |
1.5 |
|
|
Charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, profit on disposal of businesses and material non-operating events |
|||
|
Continuing operations |
|
|
|
|
Current tax (1) |
(0.2) |
(4.9) |
|
|
Deferred tax (2) |
6.3 |
(3.8) |
|
|
|
6.1 |
(8.7) |
|
|
Discontinued operations |
|
|
|
|
Current tax (1) |
0.4 |
- |
|
|
Deferred tax (2) |
(4.7) |
- |
|
|
|
(4.3) |
- |
|
|
Continuing and discontinued operations |
|
|
|
|
Current tax (1) |
0.2 |
(4.9) |
|
|
Deferred tax (2) |
1.6 |
(3.8) |
|
|
|
1.8 |
(8.7) |
|
|
Before charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, profit on disposal of businesses and material non-operating events |
|||
|
Continuing operations |
|
|
|
|
Current tax |
6.4 |
13.3 |
|
|
Deferred tax |
4.4 |
(3.1) |
|
|
|
10.8 |
10.2 |
|
|
Discontinued operations |
|
|
|
|
Current tax |
- |
- |
|
|
Deferred tax |
0.7 |
- |
|
|
|
0.7 |
- |
|
|
Continuing and discontinued operations |
|
|
|
|
Current tax |
6.4 |
13.3 |
|
|
Deferred tax |
5.1 |
(3.1) |
|
|
|
11.5 |
10.2 |
|
|
(1) Current tax expense of £0.2 million (2016: £4.9 million credit) was recognised in the year of which £0.1 million credit (2016: £nil) relates to integration costs, £0.1 million credit (2016: £4.2 million credit) to amortisation of intangible assets and £0.4 million (2016: £nil) to tax on the disposal of businesses. |
|||
|
(2) Deferred tax expense of £1.6 million (2016: £3.8 million credit) was recognised in the year of which £0.2 million credit (2016: £nil) relates to integration costs, £1.8 million credit (2016: £0.7 million credit) to acquisitions, £0.4 million (2016: £2.0 million credit) to amortisation of intangible assets, £4.7 million credit (2016: £nil) to the disposal of businesses and £7.9 million (2016: £nil) to the impact of US tax reform. |
|||
|
5 Disposals and discontinued operations |
|
On 9 May 2017 the Group sold Haigh-Farr, Inc. ("Haigh-Farr"), a defence antennae business based in the US for a cash consideration of $15.8 million (£12.2 million), of which $0.8 million (£0.6 million) is deferred for twelve months from disposal date. A profit of £3.2 million arose on disposal after taking into account £0.5 million costs of disposal, £17.3 million net assets disposed and the previously recorded foreign exchange gain of £8.8 million that has been recycled to the Income Statement |
|
On 1 August 2017 the Group sold its US broadcast services business based in the US for a net cash consideration of $32.1 million (£24.3 million). A profit of £11.3 million arose on disposal after taking into account £2.8 million costs of disposal, £18.7 million net assets disposed and the previously recorded foreign exchange gain of £8.5 million that has been recycled to the Income Statement |
|
The property lease of the IMT business which was disposed in 2014 came to an end in the year. At 31 December 2016 there was a provision of £0.7 million in relation to onerous lease contracts and potential exit costs. The Group made a payment of £0.2 million and the remaining provision of £0.5 million was released to the Income Statement. |
|
Both Haigh-Farr and the US broadcast services business, which were included in the previous Broadcast Division, have been classified as discontinued operations in the current year in accordance with IFRS 5 "Non-current assets held for sale and discontinued operations". The disposals enable management to place greater focus on opportunities in its core activities. |
|
The table below shows the results of the discontinued operations which are included in the Group Income Statement and Group Statement of Cash Flows respectively.
|
|
a) Income Statement - discontinued operations |
2017 |
2016 |
|
|
£m |
£m |
|
Revenue |
24.8 |
57.3 |
|
Expenses |
(26.4) |
(73.2) |
|
Operating loss |
(1.6) |
(15.9) |
|
Comprising |
||
|
- Operating (loss)/profit before amortisation of acquired intangible assets, impairment of goodwill and restructuring costs |
(0.4) |
0.1 |
|
- Amortisation of acquired intangible assets |
(1.2) |
(2.1) |
|
- Impairment of goodwill |
- |
(12.1) |
|
- Restructuring costs |
- |
(1.8) |
|
|
(1.6) |
(15.9) |
|
Taxation |
(0.7) |
- |
|
Loss after tax from discontinued operations |
(2.3) |
(15.9) |
|
|
|
|
|
Gain on disposal of discontinued operations before tax |
15.0 |
- |
|
Taxation |
4.3 |
- |
|
Gain on disposal of discontinued operations after tax |
19.3 |
- |
|
|
|
|
|
Profit/(loss) after tax from discontinued operations attributable to owners of parent |
17.0 |
(15.9) |
|
|
|
|
|
b) Statement of Cash Flows - discontinued operations |
2017 |
2016 |
|
|
£m |
£m |
|
Net cash from operating activities |
3.3 |
8.6 |
|
Net cash from/(used in) investing activities (1) |
33.7 |
(3.5) |
|
Net cash from discontinued operations |
37.0 |
5.1 |
|
(1) 2017 includes net proceeds of £32.6 million from the disposal of businesses. |
|
|
|
6 Acquisitions |
|
Acquisitions are accounted for under the acquisition method of accounting. As part of the acquisition accounting the Group has adopted a process to identify the fair values of the assets and liabilities acquired, including contingent considerations assumed. This includes the separate identification of intangible assets and the allocation of the consideration paid. This process continues as information is finalised, and accordingly the fair value adjustments presented in the tables below are provisional. In accordance with IFRS 3 until the assessment is complete the allocation period will remain open up to a maximum of 12 months from the acquisition date so long as information remains outstanding. Acquisition-related costs are recognised in the Income Statement as incurred in accordance with IFRS 3. |
|
Acquisition of JOBY and Lowepro |
|
On 22 September 2017, the Imaging Solutions Division of the Group acquired the trade and certain assets (primarily comprising the JOBY and Lowepro brands) of the DayMen Group S.a.r.l. including 100% of the share capital of the subsidiary companies in Hong Kong and China ("JOBY and Lowepro"), through a business combination for a cash consideration of £8.4 million. The fair value of the net assets acquired was £4.4 million resulting in goodwill of £4.0 million. |
|
JOBY and Lowepro products are designed and developed in Hong Kong and California respectively. JOBY's patented GorillaPod has transformed the camera accessories market while Lowepro has been a market leader in bags designed to protect electronic and photographic devices since its inception in 1967. The acquisition is an excellent strategic fit with the Group's existing core activities and gives the Group greater access to the fast growing iPhoneography and vlogging consumer accessories market.
|
|
A summary of the effect of the acquisition of JOBY and Lowepro is detailed below:
|
|
|
Book value at acquisition |
Provisional fair value adjustments |
Fair value of net assets acquired |
|
|
£m |
£m |
£m |
|
Net Assets acquired |
|
|
|
|
Intangible assets |
- |
7.4 |
7.4 |
|
Property, plant and equipment |
0.4 |
- |
0.4 |
|
Inventories |
7.5 |
(0.4) |
7.1 |
|
Trade and other receivables |
4.7 |
(2.4) |
2.3 |
|
Trade and other payables |
(11.2) |
0.1 |
(11.1) |
|
Provisions |
- |
(1.7) |
(1.7) |
|
|
1.4 |
3.0 |
4.4 |
|
Goodwill |
|
|
4.0 |
|
Consideration satisfied from existing cash resources |
|
|
8.4 |
|
The trade receivables acquired had a fair value and a gross contractual value of £1.8 million. |
|||
|
|
|||
|
Acquisition of RTMotion |
||||
|
On 20 September 2017, the Group acquired 100% of the issued share capital of RT Motion Systems Ltd ("RTMotion"), a private company based in the UK, for a cash consideration of £2.5 million (£1.9 million net of cash acquired). The fair value of the net assets acquired was £1.6 million resulting in goodwill of £0.9 million.
|
||||
|
Under the terms of the acquisition, there is a potential deferred payment of up to £1.2 million payable in cash. This is dependent on the achievement of non-financial targets, including integration milestones, being met over the period to 31 December 2019 and is not a contingent consideration. In 2017 an amount of £0.2 million was provided for and charged to the Income Statement in relation to milestones met in 2017. |
||||
|
RTMotion is a high technology business which provides wireless motor lens control systems for broadcast, cine and video cameras. The acquisition complements the Group's existing activities in the expanding Independent Content Creator market and its products will be marketed through the Group's global distribution network. RTMotion operates within the Creative Solutions Division.
|
||||
|
A summary of the effect of the acquisition of RTMotion is detailed below: |
||||
|
|
Book value at acquisition |
Provisional fair value adjustments |
Fair value of net assets acquired |
|
|
|
£m |
£m |
£m |
|
|
Net Assets acquired |
|
|
|
|
|
Intangible assets |
- |
1.1 |
1.1 |
|
|
Inventories |
0.1 |
- |
0.1 |
|
|
Trade and other receivables |
0.1 |
- |
0.1 |
|
|
Trade and other payables |
(0.1) |
- |
(0.1) |
|
|
Cash |
0.6 |
- |
0.6 |
|
|
Deferred tax |
- |
(0.1) |
(0.1) |
|
|
Current tax |
(0.1) |
- |
(0.1) |
|
|
|
0.6 |
1.0 |
1.6 |
|
|
Goodwill |
|
|
0.9 |
|
|
Consideration satisfied from existing cash resources |
|
|
2.5 |
|
|
The trade receivables acquired had a fair value of £0.1 million and a gross contractual value of £0.3 million. |
||||
|
|
|
|
|
|
|
The results of the acquisitions made during the year comprise the following: |
||||
|
|
|
JOBY and Lowepro |
RTMotion |
|
|
|
|
£m |
£m |
|
|
Revenue |
|
12.6 |
0.3 |
|
|
Operating loss |
|
(1.7) |
- |
|
|
Due to a material difference in the post-acquisition operating model of certain businesses, the Directors consider that it is impracticable to disclose the results of the combined entity as though all the acquisitions were effected 1 January 2017. |
||||
|
|
||||
|
The level of profitability is stated after integration costs and amortisation of intangible assets. |
||||
|
|
||||
|
An analysis of the cash flows relating to the acquisitions is provided below: |
||||
|
|
2017 |
|||
|
|
|
|
£m |
|
|
Net outflow of cash in respect of acquisitions |
|
|||
|
Cash consideration |
10.9 |
|||
|
Transaction costs |
1.3 |
|||
|
Payment into escrow to be released to vendors in 2019, subject to 2018 milestones being met |
0.5 |
|||
|
Cash acquired |
(0.6) |
|||
|
Net cash outflow in respect of 2017 acquisitions |
12.1 |
|||
|
Cash paid in respect of contingent consideration for Wooden Camera (acquired in 2016) |
1.6 |
|||
|
Net cash outflow in respect of acquisitions (1) |
13.7 |
|||
|
|
|
|
|
|
|
(1) Of the £13.7 million net cash outflow in respect of acquisitions, transaction costs of £1.3 million are included in cash flows from operating activities and the remaining net cash outflow of £12.4 million is included in cash flows from investing activities. |
||||
|
7 Earnings per share |
|
Earnings per share ("EPS") is the amount of post-tax profit attributable to each share. |
|
Basic EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue during the year. |
|
Diluted EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue during the year, but adjusted for the effects of dilutive share options. |
|
The Adjusted EPS measure is used by management to assess the underlying performance of the ongoing businesses, and therefore excludes charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, material non-operating events and profit on disposal of businesses, all net of tax.
|
|
|
|
The calculation of basic, diluted and adjusted EPS is set out below: |
||||||
|
|
2017 |
2016 |
||||
|
|
£m |
£m |
||||
|
Profit/(loss) for the financial year |
|
|
||||
|
Continuing operations |
10.5 |
24.9 |
||||
|
Discontinued operations |
17.0 |
(15.9) |
||||
|
|
27.5 |
9.0 |
||||
|
Add back charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, material non-operating events and profit on disposal of businesses, all net of tax |
|
|
||||
|
Continuing operations |
21.1 |
2.3 |
||||
|
Discontinued operations |
(18.1) |
16.0 |
||||
|
|
3.0 |
18.3 |
||||
|
Adjusted profit after tax |
|
|
||||
|
Continuing operations |
31.6 |
27.2 |
||||
|
Discontinued operations |
(1.1) |
0.1 |
||||
|
|
30.5 |
27.3 |
||||
|
|
||||||
|
|
Weighted average number of shares '000 |
Adjusted earnings per share |
Earnings per share |
|||
|
|
2017 |
2016 |
2017 |
2016 |
2017 |
2016 |
|
|
Number |
Number |
pence |
pence |
pence |
pence |
|
From continuing and discontinued operations |
|
|
|
|
|
|
|
Basic |
44,798 |
44,568 |
68.1 |
61.3 |
61.4 |
20.2 |
|
Dilutive potential ordinary shares |
319 |
96 |
(0.5) |
(0.1) |
(0.4) |
(0.1) |
|
Diluted |
45,117 |
44,664 |
67.6 |
61.2 |
61.0 |
20.1 |
|
|
|
|
|
|
|
|
|
From continuing operations |
|
|
|
|
|
|
|
Basic |
44,798 |
44,568 |
70.5 |
61.0 |
23.4 |
55.9 |
|
Dilutive potential ordinary shares |
319 |
96 |
(0.5) |
(0.1) |
(0.1) |
(0.2) |
|
Diluted |
45,117 |
44,664 |
70.0 |
60.9 |
23.3 |
55.7 |
|
|
|
|
|
|
|
|
|
From discontinued operations |
|
|
|
|
|
|
|
Basic |
44,798 |
44,568 |
(2.4) |
0.3 |
38.0 |
(35.7) |
|
Dilutive potential ordinary shares |
319 |
96 |
- |
- |
(0.3) |
0.1 |
|
Diluted |
45,117 |
44,664 |
(2.4) |
0.3 |
37.7 |
(35.6) |
|
8 Dividends |
||
|
The proposed final dividend for the year ended 31 December 2017 was recommended by the Directors. This is subject to approval by shareholders at the AGM on Tuesday 15 May 2018 and, if approved, will be paid on Friday 18 May 2018. The dividend has not been included as a liability in these financial statements. |
||
|
|
2017 |
2016 |
|
|
£m |
£m |
|
Amounts arising in respect of the year |
|
|
|
Interim dividend for the year ended 31 December 2017 of 10.4p (2016: 9.9p) per ordinary share |
4.7 |
4.4 |
|
Proposed final dividend for the year ended 31 December 2017 of 20.1p (2016: 17.3p) per ordinary share |
9.0 |
7.7 |
|
|
13.7 |
12.1 |
|
|
|
|
|
The aggregate amount of dividends paid in the year |
|
|
|
Final dividend for the year ended 31 December 2016 of 17.3p (2015: 15.1p) per ordinary share |
7.7 |
6.7 |
|
Interim dividend for the year ended 31 December 2017 of 10.4p (2016: 9.9p) per ordinary share |
4.7 |
4.4 |
|
|
12.4 |
11.1 |
|
9 Analysis of net debt |
|
|
||
|
The table below analyses the Group's components of net debt and their movements in the year: |
||||
|
|
2017 |
2016 |
||
|
|
£m |
£m |
||
|
Decrease in cash and cash equivalents |
(4.8) |
(0.8) |
||
|
Repayment of interest-bearing loans and borrowings |
144.5 |
84.9 |
||
|
Borrowings from interest-bearing loans and borrowings |
(110.7) |
(71.3) |
||
|
Decrease in net debt resulting from cash flows |
29.0 |
12.8 |
||
|
Effect of exchange rate fluctuations on cash held |
0.6 |
5.1 |
||
|
Effect of exchange rate fluctuations on debt held |
2.6 |
(16.7) |
||
|
Effect of exchange rate fluctuations on net debt |
3.2 |
(11.6) |
||
|
Movements in net debt in the year |
32.2 |
1.2 |
||
|
Net debt at 1 January |
(75.1) |
(76.3) |
||
|
Net debt at 31 December |
(42.9) |
(75.1) |
||
|
|
|
|
||
|
Cash and cash equivalents in the Balance Sheet |
12.6 |
17.1 |
||
|
Bank overdrafts |
- |
(0.3) |
||
|
Cash and cash equivalents in the Statement of Cash Flows |
12.6 |
16.8 |
||
|
Interest-bearing loans and borrowings |
(55.5) |
(91.9) |
||
|
Net debt at 31 December |
(42.9) |
(75.1) |
||
|
10 Financial instruments |
|
This provides details on: |
|
- Financial risk management |
|
- Derivative financial instruments |
|
- Fair value hierarchy |
|
- Interest rate profile |
|
- Maturity profile of financial liabilities |
|
|
|
Financial risk management |
|
|
The Group's multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the Group is exposed to foreign currency risk, interest rate risk, liquidity risk and credit risk. |
|
|
Financial risk management is an integral part of the way the Group is managed. Financial risk management policies are set by the Board of Directors. These policies are implemented by a central treasury department that has formal procedures to manage foreign currency risk, interest rate risk and liquidity risk, including, where appropriate, the use of derivative financial instruments. The Group has clearly defined authority and approval limits built into these procedures. |
|
|
|
|
|
Foreign currency risk |
|
|
Foreign currency risk arises both where sale or purchase transactions are undertaken in currencies other than the respective functional currencies of Group companies (transactional exposures) and where the results of overseas companies are consolidated into the Group's reporting currency of Sterling (translational exposures). |
|
|
The Group has businesses that operate around the world and accordingly record their results in a number of different functional currencies. Some of these operations also have some customers or suppliers that transact in a foreign currency. The Group's results which are reported in Sterling are therefore exposed to changes in foreign currency exchange rates across a number of different currencies with the most significant exposures relating to the US Dollar (USD), Euro (EUR) and Japanese Yen (JPY). The Group proactively manages a proportion of its short-term transactional foreign currency exposures using derivative financial instruments, but remains exposed to the underlying translational movements which remain outside the control of the Group. |
|
|
The Group manages its transactional exposures to foreign currency risks through the use of forward exchange contracts including the US Dollar, Euro and Japanese Yen. Forward exchange contracts are typically used to hedge approximately 75% of the Group's forecasted foreign currency exposure in respect of forecast cash transactions for the following 12 months. Forward exchange contracts may also be used to hedge a proportion of the forecast cash transactions for the following 13 to 24 months. The forward exchange contracts currently have maturities of less than two years at the Balance Sheet date. |
|
|
The Group's translational exposures to foreign currency risks relate to both the Income Statement and net assets of overseas subsidiaries which are converted into Sterling on consolidation. The Group does not seek to hedge the translational exposure that arises primarily from changes in the exchange rates of the US Dollar, Euro and Japanese Yen against Sterling. However the Group does finance overseas investments partly through the use of foreign currency borrowings in order to provide a net investment hedge over the foreign currency risk that arises on translation of its foreign currency subsidiaries. |
|
|
The Group ensures that its net exposure to foreign denominated cash balances is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. In addition the Group manages the denomination of surplus cash balances across the overseas subsidiaries to allow natural hedging where effective in any particular country. |
|
|
It is estimated that the Group's adjusted operating profit for the year ended 31 December 2017 would have increased/decreased by approximately £1.6 million from a ten cent stronger/weaker US Dollar against Sterling, by approximately £1.9 million from a ten cent stronger/weaker Euro against Sterling and by approximately £0.4 million from a ten Yen stronger/weaker Japanese Yen against Sterling. This reflects the impact of the sensitivities to the translational exposures and to the proportion of the transactional exposures that is not hedged. The Group, in accordance with its policy, does not use derivatives to manage translational risks. During 2017 the Group's operating profit included a net loss of £2.3 million (2016: £5.0 million) in relation to the crystallisation of forward exchange contracts as described later in this note.
It is estimated that the statutory operating profit for the year ended 31 December 2017 would have increased/decreased by approximately £0.7 million from a ten cent stronger/weaker US Dollar against Sterling, by approximately £1.7 million from a ten cent stronger/weaker Euro against Sterling and by approximately £0.4 million from a ten Yen stronger/weaker Japanese Yen against Sterling. |
|
|
Interest rate risk |
|
|
Interest rate risk comprises the interest cash flow risk that results from borrowing at variable rates. |
|
|
For the year ended 31 December 2017, it is estimated that a general increase/decrease of one percentage point in interest rates, would decrease/increase the Group's profit before tax by approximately £0.8 million. |
|
|
Liquidity risk |
|
|
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. |
|
|
In 2011, the Group drew down US$50 million from a Private Placement shelf facility. This was repaid on 11 May 2017 funded by the Multicurrency Revolving Credit Facility. The Group has a five year £125 million Multicurrency Revolving Credit Facility Agreement with a syndicate comprising five banks: two UK banks, two American banks, and one European bank, that expires in July 2021. The Group was utilising 43% of the £125 million Multicurrency Revolving Credit Facility at 31 December 2017. |
|
|
Credit risk |
|
|
Credit risk arises because counterparty may fail to meet its obligations. The Group is exposed to credit risk on financial assets such as trade receivables, cash balances and derivative financial instruments. The Group's maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the Group Balance Sheet. |
|
|
a) Trade receivables |
|
|
The Group's credit risk is primarily attributable to its trade receivables. Trade receivables are subject to credit limits, and control and approval procedures in the operating companies. Due to its large geographic base and number of customers, the Group is not exposed to material concentrations of credit risk on its trade receivables. |
|
|
b) Cash balances and derivative financial instruments |
|
|
Credit risk associated with cash balances is managed by transacting with a number of major financial institutions worldwide and periodically reviewing their credit worthiness. Transactions involving derivative financial instruments are managed centrally. These are only with banks that are part of the Group's £125 million Multicurrency Revolving Credit Facility Agreement. Accordingly, the Group's associated credit risk is limited. The Group has no significant concentration of credit risk. |
|
|
Derivative financial instruments |
|
|
This is a summary of the derivative financial instruments that the Group holds and uses to manage transactional exposure. The value of these derivatives changes over time in response to underlying variables such as exchange rates. They are carried in the Balance Sheet at fair value. |
|
|
The fair value of forward exchange contracts is determined by estimating the market value of that contract at the reporting date. Derivatives with a positive fair value are recorded as assets and negative fair values as liabilities, and presented as current or non-current based on their contracted maturity dates. |
|
|
Accounting policies |
|
|
Derivative financial instruments |
|
|
In accordance with Board approved policies, the Group uses derivative financial instruments such as forward foreign exchange contracts to hedge its exposure to fluctuations in foreign exchange rates arising from operational activities. These are designated as cash flow hedges. It does not hold or use derivative financial instruments for trading or speculative purposes. |
|
|
Cash flow hedge accounting |
|
|
Cash flow hedges are used to hedge the variability in cash flows of highly probable forecast transactions caused by changes in exchange rates. |
|
|
Where a derivative financial instrument is designated in a cash flow hedge relationship with a highly probable forecast transaction, the effective part of any change in fair value arising is deferred in the cash flow hedging reserve within equity, via the Statement of Comprehensive Income. The gain or loss relating to the ineffective part is recognised in the Income Statement within net finance expense. Amounts deferred in the cash flow hedging reserve are reflected in the Income Statement in the periods when the hedged item is recognised in the Income Statement. |
|
|
If a hedging instrument expires or is sold but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the Income Statement. |
|
|
If a derivative financial instrument is not formally designated in a cash flow hedge relationship, any change in fair value is recognised in the Income Statement. |
|
|
Forward exchange contracts |
|
|
The following table shows the forward exchange contracts in place at the Balance Sheet date. These contracts mature in the next 24 months, therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 24 months. |
|
|
|
As at 31 December |
Average exchange rate of contracts |
As at 31 December |
Average exchange rate of contracts |
|
|
|
2017 |
2016 |
|||
|
|
Currency |
millions |
millions |
||
|
Cash flow hedging contracts |
|
|
|
|
|
|
USD / GBP forward exchange contracts |
USD |
9.0 |
1.30 |
17.1 |
1.37 |
|
USD / EUR forward exchange contracts |
USD |
25.2 |
1.14 |
42.3 |
1.13 |
|
EUR / GBP forward exchange contracts |
EUR |
17.6 |
1.15 |
25.9 |
1.25 |
|
JPY / GBP forward exchange contracts |
JPY |
508.8 |
143.0 |
769.1 |
159.2 |
|
JPY / EUR forward exchange contracts |
JPY |
946.6 |
123.7 |
1,233.4 |
124.1 |
|
A net loss of £2.3 million (2016: £5.0 million) relating to forward exchange contracts was reclassified to the Income Statement, to match the crystallisation of the hedged forecast cash flows which affect the Income Statement. |
|
Fair value hierarchy |
|
The following summarises financial instruments carried at fair values and the major methods and assumptions used in estimating these fair values. |
|
The different levels of fair value hierarchy have been defined as follows: |
|
Level 1 |
|
Fair value measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|
Level 2 |
|
Fair values measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). |
|
Level 3 |
|
Fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
|
The table below shows the carrying values and fair values of financial assets and liabilities: |
|
|
Carrying value |
Fair value |
Carrying value |
Fair value |
|
|
2017 |
2017 |
2016 |
2016 |
|
|
£m |
£m |
£m |
£m |
|
Forward exchange contracts - Assets |
2.3 |
2.3 |
0.4 |
0.4 |
|
Forward exchange contracts - Liabilities |
(0.5) |
(0.5) |
(6.0) |
(6.0) |
|
Cash at bank and in hand |
12.6 |
12.6 |
17.1 |
17.1 |
|
Net trade receivables |
52.5 |
52.5 |
50.9 |
50.9 |
|
Trade payables |
(35.1) |
(35.1) |
(26.8) |
(26.8) |
|
Accruals |
(12.4) |
(12.4) |
(12.7) |
(12.7) |
|
Fixed rate borrowings |
(2.1) |
(2.1) |
(43.0) |
(43.7) |
|
Floating rate borrowings |
(53.4) |
(53.4) |
(49.2) |
(49.2) |
|
|
(36.1) |
(36.1) |
(69.3) |
(70.0) |
|
The fair value of floating rate borrowings approximates to the carrying value because interest rates are at floating rates where payments are reset to market rates at intervals of less than one year. |
|
The fair value of fixed rate borrowings is estimated by discounting the future contracted cash flow, using appropriate yield curves, to the net present values. |
|
All financial instruments are deemed Level 2. |
|
Interest rate profile |
|
The table below analyses the Group's interest rate exposure arising from bank loans by currency. |
|
Accounting policies |
|
Net investment hedge accounting |
|
The Group uses US Dollar, Euro and Japanese Yen denominated borrowings as a hedge against the translation exposure on the Group's net investment in overseas companies. |
|
Where the hedge is fully effective at hedging the variability in the net assets of such companies caused by changes in exchange rates, the changes in value of the borrowings are recognised in the translation reserve within equity, via the Statement of Comprehensive Income. The ineffective part of any change in value caused by changes in exchange rates is recognised in the Income Statement. |
|
The effective portion will be recycled into the Income Statement on the sale of the foreign operation. |
|
Interest-bearing loans and borrowings |
|
The table below analyses the Group's interest-bearing loans and borrowings including bank overdrafts, by currency: |
|
|
Total |
Fixed rate borrowings |
Floating rate borrowings |
|
Currency |
£m |
£m |
£m |
|
US Dollar |
21.4 |
- |
21.4 |
|
GB Pound |
30.0 |
- |
30.0 |
|
Euro |
2.1 |
2.1 |
- |
|
Japanese Yen |
2.0 |
- |
2.0 |
|
At 31 December 2017 |
55.5 |
2.1 |
53.4 |
|
US Dollar |
73.7 |
40.5 |
33.2 |
|
Euro |
16.4 |
2.5 |
13.9 |
|
Japanese Yen |
2.1 |
- |
2.1 |
|
At 31 December 2016 |
92.2 |
43.0 |
49.2 |
|
|
|||
|
The floating rate borrowings comprise borrowings bearing interest at rates based on LIBOR. |
|||
|
Maturity profile of financial liabilities |
|
The table below analyses the Group's financial liabilities and derivative financial liabilities into relevant maturity groupings based on the period remaining until the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows (including interest), so will not always reconcile with the carrying amounts disclosed on the Balance Sheet. |
|
The following are the contractual maturities of financial liabilities, including undiscounted future interest payments: |
|
|
|
Carrying amount |
Total contractual cash flows |
Within one year |
From two to five years |
|
|
|
£m |
£m |
£m |
£m |
|
2017 |
|
|
|
|
|
|
Unsecured interest-bearing loans and borrowings |
(55.5) |
(59.6) |
(1.7) |
(57.9) |
|
|
Trade payables |
|
(35.1) |
(35.1) |
(35.1) |
- |
|
Forward exchange contracts |
|
(0.5) |
(0.5) |
(0.5) |
- |
|
|
|
(91.1) |
(95.2) |
(37.3) |
(57.9) |
|
2016 |
|
|
|
|
|
|
Unsecured interest-bearing loans and borrowings including bank overdrafts |
(92.2) |
(95.1) |
(43.3) |
(51.8) |
|
|
Trade payables |
|
(26.8) |
(26.8) |
(26.8) |
- |
|
Forward exchange contracts |
|
(6.0) |
(6.0) |
(4.9) |
(1.1) |
|
|
|
(125.0) |
(127.9) |
(75.0) |
(52.9) |
|
|
|||||
|
The Group had the following undrawn borrowing facilities at the end of the year: |
|||||
|
|
2017 |
2016 |
|||
|
Expiring in : |
£m |
£m |
|||
|
Less than one year |
|
|
|||
|
- Uncommitted facilities |
11.0 |
10.6 |
|||
|
More than one year but not more than five years |
|
|
|||
|
- Committed facilities |
71.6 |
76.1 |
|||
|
Total |
82.6 |
86.7 |
|||
|
11 Glossary on Alternative Performance Measures ("APMs")
|
||||||
|
APM |
Closest equivalent statutory measure |
Definition and purpose |
||||
|
Income Statement Measures |
||||||
|
Adjusted revenue |
Revenue |
Revenue from continuing and discontinued operations |
||||
|
Adjusted operating profit |
Operating profit |
Calculated as operating profit before charges associated with acquisition of businesses, impairment of goodwill, restructuring costs and material non-operating events. These are excluded from key performance measures in order to more accurately show the underlying current business performance of the Group in a consistent manner. See Consolidated Income Statement for reconciliation. |
||||
|
Adjusted operating margin |
None |
Calculated as adjusted operating profit divided by revenue. |
||||
|
Adjusted operating expenses |
Operating expenses |
Calculated as operating expenses before charges associated with acquisition of businesses, impairment of goodwill, restructuring costs and material non-operating events. The table below shows the reconciliation for continuing operations: |
||||
|
|
|
|
2017 |
2016 |
||
|
|
|
|
£m |
£m |
||
|
|
|
Operating Expenses |
126.3
|
105.3
|
||
|
|
|
Charges associated with acquisition of businesses
|
(15.0)
|
(7.6)
|
||
|
|
|
Restructuring costs
|
-
|
(3.2)
|
||
|
|
|
Adjusted Operating Expenses
|
111.3
|
94.5
|
||
|
Adjusted profit before tax |
Profit before tax |
Calculated as profit before tax, before charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, profit on disposal of businesses and material non-operating events. See Consolidated Income Statement for reconciliation. |
||||
|
Adjusted profit after tax |
Profit after tax |
Calculated as profit after tax, before charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, profit on disposal of businesses and material non-operating events. See note 7 "Earnings per share". |
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|
Adjusted earnings per share |
Earnings per share |
Calculated as adjusted profit after tax divided by the weighted average number of ordinary shares in issue during the financial year. |
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|
|
|
See note 7 "Earnings per share". |
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|
Cash Flow Measures |
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|
Operating cash flow |
Cash generated from operating activities |
Cash generated from operating activities after proceeds from property, plant and equipment and software, purchase of property, plant and equipment, and capitalisation of software and development costs, and before payment of restructuring costs, transaction costs relating to acquisition of businesses and significant costs relating to integration of acquired businesses. |
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|
|
|
|
2017 |
2016 |
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|
|
|
|
£m |
£m |
||
|
|
|
Cash Generated from Operating Activities
|
48.7 |
64.8 |
||
|
|
|
Proceeds from sale of property, plant and equipment and software
|
3.5 |
9.0 |
||
|
|
|
Purchase of property, plant and equipment
|
(10.8) |
(13.4) |
||
|
|
|
Capitalisation of software and development costs
|
(4.3) |
(3.4) |
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|
|
|
Payment of restructuring costs, transaction costs relating to acquisition of businesses and significant costs relating to integration of acquired businesses
|
3.3 |
7.4 |
||
|
|
|
Operating cash flow
|
40.4 |
64.4 |
||
|
Free cash flow |
Net cash from operating activities |
Net cash from operating activities after proceeds from property, plant and equipment and software, purchase of property, plant and equipment, and capitalisation of software and development costs. |
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|
Other Measure |
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|
Return on capital employed |
None |
Adjusted operating profit divided by average total assets less current liabilities excluding the current portion of interest-bearing borrowings. |
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This information is provided by RNS
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