Interim Results

The Vitec Group PLC 2 September 2002 2 September 2002 The Vitec Group plc Half Year Results to 30 June 2002 The Vitec Group plc, the international supplier of products, services and solutions to the Broadcast, Entertainment and Media industries, announces its results for the half year to 30 June 2002. 2002 2001 Turnover £89.2m £99.6m Operating profit* £13.2m £15.4m Pre-tax profit* £12.5m £13.9m Headline EPS** 18.5p 22.5p Dividend 6.1p 6.1p Net operating cash inflow £19.4m £17.8m Net Debt £18.2m £38.1m * pre exceptional items and goodwill amortisation ** FRS19 deferred tax standard applied, with 2001 restated KEY POINTS • Margins at 14.8% holding up well despite challenging market conditions • Net cash inflow from operating activities increased by 9% • Interim dividend maintained at 6.1p per share • Product development expenditure maintained at 4% of sales • Alastair Hewgill appointed as Finance Director in May 2002 Commenting on the results, Gareth Rhys Williams, Chief Executive said: 'The first half of 2002 has proved challenging, with most of the markets in which we operate coming under significant pressure. With continuing economic uncertainty in the USA and Europe, we are cautious about short-term prospects for our markets. We have today announced a manufacturing restructuring that will lead to both lower costs and improved customer responsiveness. 'Our agreed strategy, summarised by 'Consolidate - Leverage - Grow', will add value for customers and shareholders; by consolidating some of our activities we can leverage our unquestioned strengths in our markets as a springboard for future growth.' Enquiries The Vitec Group plc Gareth Rhys Williams 020 8939 4650 Financial Dynamics Rob Gurner / Richard Mountain 020 7269 7221 Chairman's Statement Overview Trading conditions for the first half of 2002 remained difficult. Lower advertising revenue continued to reduce the expenditure on our products and services, although the Winter Olympics and FIFA World Cup contracts for our rental business, Broadcast services, provided a welcome contribution. Demand for our photographic products held up well, buoyed by strong sales to US consumers. Since his arrival, Gareth Rhys Williams has identified the operational changes needed to move Vitec forward. Your board has recently reviewed and agreed the strategic plan proposed by the Chief Executive and his executive team. We will continue to focus on exploiting our existing strengths within the Broadcasting, Media and Entertainment industries. Acquisitions are being sought in these and related markets that offer synergistic growth opportunities. Vitec's brands have considerable value and, by using our existing scale in manufacturing and distribution, the Group can continue to add value for shareholders and customers. The Board As part of the changes made to implement this strategy I would like to welcome Alastair Hewgill to the Board. He joined the Group as Finance director on 14 May. Alastair fulfilled a number of senior roles at GKN and has a wealth of experience in industrial manufacturing and service businesses. I should also like to thank our previous Finance director Richard Green, who left in June, for his contribution over ten years with Vitec. I also welcome Will Wyatt as a non-executive director. Will was, for many years, a senior and well-known figure in the BBC and is, therefore, familiar with the issues facing broadcast television businesses in the current economic climate. Given the current heightened sensitivity around the world regarding issues of corporate governance and financial controls, I should like to take this opportunity to assure shareholders that your Board treats these matters with the utmost importance and will continue to do so. All Board members are actively involved in debates and decisions over strategy, organisational structure, employee motivation and the required long-term returns for our shareholders. Outlook The results for the six months ended 30 June 2002 reflect lower sales levels than for the same period last year, but also lower costs. I repeat what I wrote to you in the last annual report that a recovery in our fortunes is heavily dependent upon a recovery of the broadcast markets. However our photographic businesses have held up well and we are pushing our way into new markets as well as effecting reorganisation to continue to reduce costs. We expect to come through the current depressed environment in better shape and with an improved spread of opportunities. Trading since 30 June 2002 has remained subdued, with no strong trends from which we can detect an upturn in demand for our core products and services. With the major sporting events of the first half behind us we expect the second half to be slightly behind the first half, but with continued strong cash generation. The Board has declared an unchanged interim dividend of 6.1p per share. I should like to thank all the employees at Vitec for their continued hard work and dedication in what continue to be challenging market conditions. Alison Carnwath Chairman 2 September 2002 Chief Executive's Review Overview The first half of 2002 has proved very challenging, with most of our markets under significant pressure. Many of our customers in the broadcast area, in particular in the US and Europe, are going through a period of restructuring, driven by changes within the large media groups and the continuing decline in their advertising revenue. As a result, many have trimmed their capital expenditure programmes, affecting the Broadcast camera and Communications and audio divisions. In the US, Broadcast services, our rental division, continued to see a reduced level of demand for equipment to cover the smaller events, reflecting reductions by both broadcasting and corporate clients. Their successes at larger events, such as the Winter Olympics and FIFA World Cup, continued to win plaudits. Photographic and retail display had a mixed first half. Photographic, despite lower sales, performed very well, particularly in the US, where Bogen, our photographic distributor, launched a new line of tripods for digital cameras. By contrast, Retail display experienced a much tougher US market than in 2001. In Europe, however, they are performing well on a large custom contract that will extend through most of 2002. Financials Turnover declined to £89.2m from the record £99.6m in 2001. Good control of operating expense at £31.6m (2001: £36.2m) meant that operating profit before exceptional items and goodwill amortisation was £13.2m (2001: £15.4m). The impact of translating overseas profits into sterling, principally euros and dollars, was neutral in the first half. Interest costs reduced to £0.7m from £1.5m, leaving PBT before exceptionals and goodwill amortisation at £12.5m (2001: £13.9m). PBT of £12.0m was higher than last year's £10.7m due to last year's exceptional items of £2.9m net. The tax charge increased to 39.2% from 33.8%. Of the increase, 2.6% is due to the implementation of FRS19 with the balance due to an increase in the underlying tax rate. Net cash inflow from operating activities increased 9% to £19.4m (2001: £17.8m) due to improved seasonal working capital flows compared with 2001. Free cash flow of £11.9m was up from neutral due to timing of the above and tax payments, leaving net debt at £18.2m (2001: £38.1m). An unchanged interim dividend of 6.1p per share (2001: 6.1p) will be paid on 1 November 2002, with the shares going ex-dividend on 2 October 2002. Strategy I joined Vitec at the end of last year and have reviewed the strategic options for the Group with my colleagues. With markets now much tougher we have to find new ways to continue to add value for both customers and shareholders. Vitec has great strengths in its brands, employees and our individual companies' reputation for quality and service. However we do not presently fully exploit the opportunities to utilise group knowledge of our markets and scale economies in manufacturing. Our new strategy agreed by the Board may be summarised as ' Consolidate-Leverage-Grow'. By leveraging the resources we have across the Group for the benefit of all the Group companies, we can gain the scale needed to both improve our cost base and build a platform for growth. Realising this potential will require our companies to operate in a more cohesive way in the future, but will yield the resources required to keep Vitec at the forefront of product development and customer service. We have recently announced the appointment of a new Operations director, and the merging of the two divisions that support primarily TV studios (Broadcast camera and Communications and audio) into a new Broadcast systems division. Several exciting initiatives are already underway. We are also progressing plans to optimise our manufacturing infrastructure, which will result in a charge of some £5-£6million in the second half, reflecting the cost of writedowns and redundancies as we restructure. We are continuing to look for opportunities to consolidate our position in the Broadcast, Media and Entertainment markets, and for acquisitions in related areas where we can find synergies and growth. Gareth Rhys Williams Chief Executive 2 September 2002 Broadcast Camera Systems 2002 2001 +/- Turnover £28.3m £33.7m -16% Operating profit* £3.9m £6.0m -35% Operating margin 14% 18% -4pts *before exceptional items and goodwill amortisation All of the Vitec Broadcast units continued to be affected by the slowdown at the major networks. Vinten saw sales in Europe and Asia being worst affected, with the few large projects strongly contested. In the US, the company benefited from strong sales of robotic solutions as customers recognise the cost benefits offered. New robotic products were also launched in the second quarter to boost sales further. Operational restructuring in March led to a reduction of 18 people, the benefits of which will be evident in the second half. Combined with tighter expense controls and inventory reductions this has led to strong cash generation. Sachtler saw reduced revenues in both the US and Europe, with Germany showing particular weakness. In Asia, however, increased sales activity and new dealer networks paid dividends despite declining markets. Sachtler's main market is news gathering equipment, which has also seen adverse changes in mix as cameras have become lighter. Spending reductions by studio clients have also delayed several lighting projects, although a significant order (Euros 700,000) was received for delivery in the second half. Anton/Bauer battery sales declined in all geographies and product categories as sales of most broadcast camera types fell sharply and broadcast operations reduced their spend on replacement batteries. Cost control reduced operating expenses in the first half of this year by 16%, despite which the business continued its healthy product introduction programme, with several new products launched. The integration of the Aspen business into the Anton/Bauer operations in Connecticut was completed well ahead of schedule. A rationalised but strengthened product range will be promoted at IBC, the International Broadcasting Convention, in September to the additional European distribution outlets that have been established. Photographic and retail display 2002 2001 +/- Turnover £36.1m £38.3m -6% Operating profit* £7.4m £7.9m -6% Operating margin 20% 21% -1pt *before exceptional items and goodwill amortisation Photographic sales held up well, being ahead of plan but slightly below last year. In the US, Bogen saw strong demand from the higher-end amateur photographers who buy through largely professional dealerships. Demand in Asia, Japan and Korea in particular, was strong in the run up to the World Cup. Product development remains a priority, with new Manfrotto products launched to benefit from the demand for digital cameras. IFF continued to expand its range of studio lighting suspension projects, with successes in Rome, Athens, New York and Singapore, and has launched a new modular truss system. Manfrotto's revenues over the summer period, normally the peak months, depend heavily on whether recent events in the US have dented consumer optimism and spending. The first six months of 2002 produced a better than expected performance from the relocated Gitzo production. Work is now in progress to introduce flow line production to these 'top of the range' products. Following that move, the French sales offices of Gitzo, Manfrotto and Vinten were combined into one location. The US Retail display business was badly affected by the downturn in retail activity. The department stores, one of ALU's main customer groups, continued to clamp down on in-store spending; the workforce was reduced in response. A new line of customisable racking systems, based around an upgrade to the original Manfrotto lighting support product, is attracting customer interest. In Europe, a major project to supply a leading phone manufacturer with customised display stands moved into the production phase and is helping to offset otherwise weakened markets. Substantial progress was made on updating IT systems. Manfrotto is well on the way to rolling out a single platform to support all of its Italian and international companies, with simpler scheduling and order fulfillment as well as improved reporting. Communications and audio 2002 2001 +/- Turnover £7.8m £9.7m -20% Operating profit* £0.2m £0.4m -50% Operating margin 3% 4% -1pt *before exceptional items and goodwill amortisation Both Drake and Clear-Com experienced reduced order intake and intensified price competition as a result of the slowdown in the Broadcast market. Clear-Com witnessed significant reductions in demand in the US and Europe with matrix sales being particularly affected. This shortfall was partially offset by an increase in activity in the military and aerospace market in the US. The Broadcast market in Germany, a traditional stronghold for Drake, continued to be very depressed. Combined with a slowing demand from DFS (the German Air Traffic Control authority) this led to a significant drop in turnover. A major breakthrough was achieved in the Air Traffic Control market with a £1million order from the European Space Agency coming on the back of continued investment into product development. Prospects in this new market are promising. Drake has also recently entered the US market and several new products will be introduced by both Clear-Com and Drake at IBC in September. Operating costs of the integrated operation were significantly lower than in the corresponding period last year due to actions taken in the second half of 2001. During the first half of the year further restructuring of the intercom companies was successfully completed with savings anticipated from 2003. Designed to improve market focus of the two brands, strengthen R&D capability and accelerate the introduction of new products and lean business practices at Clear-Com, these actions will ensure that the businesses remain well positioned as their markets pick up again. Broadcast services 2002 2001 +/- Turnover £17.0m £17.9m -5% Operating profit* £1.7m £1.1m +55% Operating margin 10% 6% +4pts *before exceptional items and goodwill amortisation Broadcast services continued to be impacted by the slump in TV advertising revenues and resultant pressure on programming costs, offset by a significant boost from large Winter Olympics and FIFA World Cup contracts. US rentals for smaller events fell 27% compared to 2001. Although the networks' 'up-front period' advertising sales rebounded sharply in June, this has not yet produced any noticeable increases in orders. The commercial market, influenced by corporate earnings, also remained weak. Competition is still intense due to the continued sector-wide surplus of equipment available for rent. In Bexel, specific projects were won from competitors through focused sales and marketing campaigns and several new service offerings were developed as a direct result of the increased customer contact. Bexel's ongoing entry into the film sector via high definition digital camera technology continued to be a significant source of new business. Gross margins dropped slightly due to the continued depreciation of an equipment pool that is larger than needed to meet today's lower demand. However, the savings achieved by last year's cost reduction programmes were maintained. Operating costs were 19% lower than last year, enabling the Division to record profits 55% higher. Given the decreased market demand, capital expenditure was limited to equipment purchases for major events and to equipment in high demand and was well below depreciation. As a result the Division was significantly cash generative. Without the presence of major international events, the Division will require an upturn in its base broadcast and corporate business to improve over the second half of last year. Consolidated profit and loss account Six months ended 30 June 2002 (unaudited) Audited Six months to June year 2002 2001 2001 £m £m £m (restated) (restated) Turnover Continuing operations 89.2 99.6 190.4 Operating profit Operating profit before goodwill amortisation 13.2 15.4 30.6 Goodwill amortisation (0.5) (0.3) (0.9) ______ ______ ______ Operating profit before exceptional items 12.7 15.1 29.7 Profit on sale of fixed assets - 0.8 0.8 Amounts written off investments - (3.7) (3.7) ______ ______ ______ Profit on ordinary activities before interest 12.7 12.2 26.8 Net interest payable (0.7) (1.5) (2.6) ______ ______ ______ Profit on ordinary activities before tax 12.0 10.7 24.2 Tax (4.9) (4.7) (9.7) ______ ______ ______ Profit on ordinary activities after tax 7.1 6.0 14.5 Dividends (2.5) (2.5) (9.3) ______ ______ ______ Retained profit 4.6 3.5 5.2 ______ ______ ______ Basic earnings per share 17.3p 14.6p 35.4p Diluted earnings per share 17.3p 14.6p 35.3p Headline earnings per share 18.5p 22.5p 45.4p Consolidated balance sheet As at 30 June 2002 (unaudited) Audited 30 June 31 December 2002 2001 2001 £m £m £m (restated) (restated) Fixed assets Intangible assets 11.6 11.2 10.8 Tangible assets 48.5 48.8 48.5 ______ ______ ______ 60.1 60.0 59.3 ______ ______ ______ Current assets Stocks 33.9 41.5 33.6 Debtors 35.6 39.6 34.3 Cash at bank and in hand 15.9 13.4 17.8 ______ ______ ______ 85.4 94.5 85.7 Creditors - due within one year (60.1) (30.8) (64.8) ______ ______ ______ Net current assets 25.3 63.7 20.9 ______ ______ ______ Total assets less current liabilities 85.4 123.7 80.2 Creditors - due after more than one year (4.5) (47.8) (4.5) Provisions for liabilities and charges (8.9) (9.2) (8.6) ______ ______ ______ Net assets 72.0 66.7 67.1 ______ ______ ______ Capital and reserves Share capital including share premium 10.8 10.7 10.7 Reserves 61.2 56.0 56.4 ______ ______ ______ Shareholders' funds - equity 72.0 66.7 67.1 ______ ______ ______ Group statement of total recognised gains and losses Six months ended 30 June 2002 (unaudited) Audited Six months to June year 2002 2001 2001 £m £m £m (restated) (restated) Profit for the period 7.1 6.0 14.5 Exchange differences on foreign net investments 0.2 1.2 (0.1) ______ ______ ______ Total recognised gains and losses relating to the 7.3 7.2 14.4 period Prior year adjustment (see note 1 below) (2.3) - - ______ ______ ______ Total recognised gains and losses since the last 5.0 7.2 14.4 financial statements ______ ______ ______ Group reconciliation of movements in shareholders' funds Six months ended 30 June 2002 (unaudited) Audited Six months to June year 2002 2001 2001 £m £m £m (restated) (restated) Profit for the period 7.1 6.0 14.5 Dividends (2.5) (2.5) (9.3) ______ ______ ______ Retained profit for the period 4.6 3.5 5.2 Exchange differences on foreign currency net investments 0.2 1.2 (0.1) New share capital subscribed 0.1 0.1 0.1 ______ ______ ______ Increase in shareholders' funds 4.9 4.8 5.2 Opening sharehoders' funds 67.1 61.9 61.9 ______ ______ ______ Closing shareholders' funds 72.0 66.7 67.1 ______ ______ ______ Consolidated cash flow statement Six months ended 30 June 2002 (unaudited) Audited Six months to June year 2002 2001 2001 £m £m £m Operating profit 12.7 15.1 29.7 Goodwill amortisation 0.5 0.3 0.9 Depreciation 6.1 6.2 12.3 Working capital and other items 0.1 (3.8) (0.8) ______ ______ ______ Net cash inflow from operating activities 19.4 17.8 42.1 Returns on investments and servicing of finance (0.8) (1.6) (2.7) Tax paid (0.7) (9.5) (8.4) Net capital expenditure (6.0) (6.7) (13.0) Acquisitions (1.6) - (0.3) Equity dividends paid (6.8) (6.4) (8.9) ______ ______ ______ Net cash inflow/(outflow) before financing 3.5 (6.4) 8.8 Financing Issue of shares 0.1 0.1 0.1 Net (repayment)/receipt of loans (6.0) 0.9 (10.1) ______ ______ ______ Net (outflow)/inflow from financing (5.9) 1.0 (10.0) ______ ______ ______ Decrease in cash in the period (2.4) (5.4) (1.2) ______ ______ ______ Reconciliation of net cash flow to movement in net debt Six months ended 30 June 2002 (unaudited) Audited Six months to June year 2002 2001 2001 £m £m £m Reconciliation of net cash flow to movement in net debt Decrease in cash in the year (2.4) (5.4) (1.2) Net repayment/(receipt) of loans 6.0 (0.9) 10.1 _____ _____ _____ Increase/(decrease) in net debt resulting from cash flows 3.6 (6.3) 8.9 Exchange rate movements 0.7 (0.8) (0.4) _____ _____ _____ Movement in net debt in the period 4.3 (7.1) 8.5 Net debt at 1 January (22.5) (31.0) (31.0) _____ _____ _____ Closing net debt (18.2) (38.1) (22.5) _____ _____ _____ Analysis of net debt Cash 15.9 13.4 17.8 Debt due after one year (4.1) (47.3) (4.2) Debt due within one year (30.0) (4.2) (36.1) _____ _____ _____ Total (18.2) (38.1) (22.5) _____ _____ _____ Note: Free cash flow as referred to in the Chief executive's review is defined as net cash inflow from operating activities less capital expenditure, interest and tax. Segmental analysis of turnover and operating profit Six months ended 30 June 2002 (unaudited) 2002 2001 2002 2001 £m £m £m £m Class of business Turnover Operating profit Broadcast camera systems 28.3 33.7 3.9 6.0 Photographic and retail display 36.1 38.3 7.4 7.9 Communications and audio 7.8 9.7 0.2 0.4 Broadcast services 17.0 17.9 1.7 1.1 ______ ______ ______ ______ 89.2 99.6 13.2 15.4 Goodwill amortisation - - (0.5) (0.3) ______ ______ ______ ______ 89.2 99.6 12.7 15.1 ______ ______ ______ ______ Geographical turnover By destination By origin United Kingdom 4.0 4.8 9.5 12.8 The rest of Europe 23.8 25.3 34.5 38.0 The Americas 48.3 56.3 43.9 47.3 Asia and Australasia 11.3 11.8 1.3 1.5 Africa and Middle East 1.8 1.4 - - ______ ______ ______ ______ 89.2 99.6 89.2 99.6 ______ ______ ______ ______ Notes 1. Basis of preparation The financial information set out above does not constitute statutory accounts for the Group. The interim financial statements have been prepared in accordance with accounting policies set out in the Group's audited accounts except as set out below. The figures for the year ended 31 December 2001 are extracted from the statutory accounts, as restated following adoption of FRS 19 'Deferred Tax'. Those accounts, on which the auditors issued an unqualified report, have been filed with the Registrar of Companies. Implementation of FRS 19 'Deferred Tax' The standard, which affects the way the Group accounts for deferred tax, has been adopted by the Group for the first time in these interim financial statements. Comparative amounts have been restated as appropriate. FRS19 requires full, rather than partial, provision for future tax liabilities and has resulted in a prior year adjustment that has decreased shareholders funds and increased provisions by £1.8million at 31 December 2000. In adopting FRS 19 the Group has decided not to use the option of discounting the liability, as allowed by the standard. Comparative amounts have been restated and consequently reserves have decreased and provisions increased by £2.1million at 30 June 2001 and £2.3million at 31 December 2001. The tax charges for the six months ended 30 June 2001 and the financial year ended 31 December 2001 have been increased by £0.2million and £0.4million respectively. 2. Tax charge The tax charge for the half year is estimated on the basis of the anticipated tax rates which will apply for the full year and comprises current tax £4.4million (2001: £4.5million) and deferred tax £0.5million (2001: £0.2million). 3. Earnings per share The calculation of basic earnings per share is based on profit on ordinary activities after tax of £7.1million (2001: £6.0million restated) and the weighted average number of shares of 41,002,230 (2001: 40,979,848). Headline earnings per share is calculated on profit on ordinary activities after tax but before exceptional items and amortisation of goodwill, using the same number of shares. Diluted earnings per share is based upon profit on ordinary activities after tax and the weighted average number of shares as adjusted for the weighted amount of shares under option of 41,025,152 (2001: 41,079,488). 4. Interim dividend The directors have declared an interim dividend of 6.1p per share, which will absorb £2.5 million (2001: 6.1p absorbing £2.5 million). The dividend will be paid on 1 November 2002 to shareholders on the register at the close of business on 4 October 2002. 5. Acquisition On 14 February 2002, a subsidiary of the Group purchased the trade, assets and certain liabilities of Aspen Electronics Inc for a cash consideration of US$2million and deferred consideration of US$0.2million. Goodwill of £1.4million arose on the acquisition. The company is reported within Broadcast camera systems. 6. Copies of this statement will be sent to all shareholders on the share register as at 3 September 2002. Copies are available on application to the Company Secretary at the Group's head office. This information is provided by RNS The company news service from the London Stock Exchange

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