Interim Results

The Vitec Group PLC 01 September 2003 1 September 2003 The Vitec Group plc Half Year Results to 30 June 2003 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 2003. H1 2003 H1 2002 Turnover £91.3m £89.2m Operating profit* £8.8m £13.2m Pre-tax profit* £8.1m £12.5m Adjusted basic EPS* 11.8p 18.5p Dividend 6.1p 6.1p * pre exceptional items and goodwill amortisation KEY POINTS • Turnover increased on same period last year despite difficult markets • Successful new product launches during the period • Two acquisitions made in February being integrated • Manufacturing restructuring programme extended by Radamec Broadcast Systems relocation • Continued strong underlying cash flow • Maintenance of interim dividend Commenting on the results, Gareth Rhys Williams, Chief Executive said: 'The first half of 2003 has seen weak trading conditions, particularly in the broadcast market, where advertising has yet to recover and our customers' capital expenditure budgets remain low. Margins have been affected by reduced customer spending in the larger studio products and by the ongoing trend towards lighter cameras and hence lightweight supports, as well as by adverse currency movements. We are also seeing increasing competition from the Far East in the Photographic sector. 'Our restructuring programme is progressing well and we expect the anticipated benefits to come through in 2004. However we continue to be cautious about short-term prospects for our markets.' Enquiries The Vitec Group plc Gareth Rhys Williams 020 8939 4650 Financial Dynamics Rob Gurner 020 7269 7221 Chairman's Statement Overview Turnover for the first half has risen to £91.3m, £2.1m up on last year, supported by new product launches and the effects of the two small acquisitions made in February. This increase was achieved despite the expected weak trading conditions, particularly in the broadcast market where advertising has yet to recover and broadcasters' capital spend on our products is still low. The continued trend towards smaller cameras away from the larger studio systems contributed to a reduction in gross margin and hence operating margin, resulting in pre-tax profit, before exceptional items and goodwill amortisation, of £8.1m compared to £12.5m last year. Adjusted basic earnings per share is 11.8p compared with 18.5p for the first half last year. Despite the decline in operating results, with underlying cash generation remaining strong, the Board has declared an unchanged interim dividend of 6.1p per share. Turnover The rise in turnover relates to a number of factors. The increase in Photographic sales is due to the rapid take-up of several new products and systems, in particular the new range of tripods for digital cameras. Retail Display sales are benefiting from new products and continuing volume in Europe on a custom contract. In the Broadcast Systems businesses, the two acquisitions are performing in line with expectations and we have seen increased sales in the battery and intercoms units, mainly due to new product launches, offset by lower sales, particularly of studio products in the broadcast camera support businesses. Broadcast Services' rental business is sharply lower without the Winter Olympics and FIFA World Cup contracts of last year. The impact of different exchange rates compared to last year had a negative translation effect on sales of £1.7m. Profit Gross profit has declined by 3.7% compared to the first half of last year. Within the businesses there has been relatively more lower margin retail display contract work within Photographic, and in Broadcast we have sold more of the increasingly lightweight news gathering products and relatively fewer of the more profitable studio products. The changing balance between the businesses has also affected margin, as the lost Broadcast Services sales were at a higher gross margin than the Group average. In addition, within Broadcast Systems, the restructuring has given rise to additional temporary costs. As previously announced, a charge of £1.0m has been taken to upgrade some retail display units. An additional £1.2m has been lost due to the transaction effect of the stronger €/US$ rate, principally on sales from Italy to the US. To protect against weakening of the dollar against the Euro, below 1.15, a series of option contracts were taken out for the eleven month period to June 2005. A net translation benefit of £0.4m arose from exchange rate movements compared to the first half last year. Operating costs in sterling have risen by £2.1m from last year. Slightly under half of that increase is due to the two recent acquisitions, but there has been increased spending on marketing and R&D. Many of the Group's product lines have been refreshed, and we have made inroads into the air traffic control intercoms market, but there will be continued significant spending in the second half in order to address this new opportunity. As previously announced, the Group has taken a £1.0m operating exceptional charge for the restructuring of Radamec Broadcast Systems. Net cash inflow from operating activities The inflow of £11.6m was affected by an increased seasonal stock build to protect against potential issues during the complex series of factory closures and the major IT implementation in Italy. This will be substantially worked off during the second half. A large retail contract due for shipment in July has absorbed some £4.0m, which will also reverse itself later in the year. With £6.5m paid for the two acquisitions in February, net debt is now £18.9m, leaving the ratio of net debt to shareholders' funds at 29.0%. Outlook Trading in the second half of the year is usually stronger for the Group: whilst July was as expected, August has proved difficult, demonstrating that the markets in which we operate remain uncertain. Competition from the Far East is intensifying in Photographic and our profits are being affected by the ongoing trend to smaller cameras. The second half will see additional resources being put into the development of new products, particularly intercom, and the adverse effect of foreign exchange will be greater than in the first half. During 2003 the Group is being refocused and its manufacturing operation is being restructured to contend with the changed marketplaces in which we operate, but these markets are not yet showing signs of a meaningful upturn. Vitec Group is going through some significant changes, and I would like to thank our staff throughout the world for their dedication and professionalism over the last few months. Alison Carnwath Chairman 1 September 2003 Chief executive's review Overview We expected 2003 to be a challenging year, and so it is proving, with difficult markets overall and broadcast particularly weak in Germany and Asia. It is also a period of great change for the Group. A year ago we embarked on an aggressive programme of new product development at the same time as restructuring our manufacturing and simplifying our complex operations under the strategy ' Consolidate - Leverage - Grow'. The restructuring actions are progressing well, but the timescale has been extended to include the integration of Radamec Broadcast Systems; the benefits will come through as expected in 2004. Revenue has increased but so far this has been insufficient to outweigh the combined effects of the unfavourable mix in our camera support businesses and the change in the €/US$ exchange rate. Consolidate - Leverage... In the weaker Broadcast markets we are seeing less spending on the larger studio products than we have in the past and more on the lightweight systems used with smaller, portable cameras. Also, there is less infrastructure spending on our higher end intercom systems. This ongoing change in mix has the effect of reducing Group profit margins and is being countered by the manufacturing restructuring process we are now implementing. In the first half we closed the plants in Valley Cottage, US and relocated the Radamec Broadcast Systems manufacturing site from Chertsey, UK, and substantially exited the facility in Munich. Much of this volume has been moved to Costa Rica, with the more specialist products being consolidated in the UK. We recently also announced the relocation of the plant in Florence, Italy. This process is reducing our number of locations, allowing us to realise the scale economies of our combined volumes. Simultaneously with the plant moves, we are installing division-wide IT systems in both the Photographic and Broadcast Systems divisions. The main Photographic units went live in June and the Broadcast Systems roll out will continue into 2004, with Costa Rica and Radamec Broadcast Systems brought online already this year. These platforms are key to our leveraging the skills and knowledge within the Group that are dispersed around the globe. There is a huge effort being put into these projects, which are inevitably disruptive, although it is encouraging to note that the customer service metrics we now have in place continue to improve. ...Leverage - Grow The sales of our photographic accessories remained broadly stable; volumes increased due to the introduction of new tripods for digital cameras and a new truss system from Litec, but these volume increases were almost completely negated by the decline of the US dollar relative to the Euro. With over half of our sales in the US, and with competition mainly coming from China and Japan, we increased our US prices slightly, maintaining market share but at reduced margins. Retail Display introduced new products and gained a significant order in the US, which will ship in the second half, in addition to the large Nokia project in Europe originally scheduled to finish in early 2003. In Broadcast we reacted to the slow market by launching many new products. Clear-Com's ' Eclipse', Drake's 'FreeSpeak' and developments for their Air Traffic Control intercom systems are particularly exciting, as was the winning of multiple awards at the major trade shows by a number of our other companies. Sales of these products will build towards the end of the year and into 2004. We also started to sell Drake products in the US, a market not previously addressed by them. The two acquisitions, Radamec Broadcast Systems, a specialist in automated camera control, and OConnor, the leading designer of camera heads for the film market, saw good sales in the first half, taking overall Broadcast Systems sales ahead of last year. Broadcast Services saw the benefit of its much more proactive sales approach in the pick up of sales to the major networks but, in a rentals market that remains very weak, this was not sufficient to offset the shortfall left by last year's successful contracts at the Winter Olympics and FIFA World Cup. The team The management team has been strengthened by the appointment of Joop Janssen, who joined us in July from Thomson Broadcast in the US. Joop will lead the Broadcast Systems Division. His background, before moving into general management at Thomson, and previously Philips, was in product and business development. I am delighted to welcome him to the Group. Gareth Rhys Williams Chief Executive 1 September 2003 Photographic and Retail Display Products for professional photographers and the retail display market 2003 2002 Turnover £39.4m £36.1m Operating profit* £7.1m £7.4m Operating margin 17.9% 20.3% *before exceptional items and goodwill amortisation Revenue increased despite continuing adverse market conditions, but the weaker US dollar impacted margins. In photographic the continued demand for digital cameras meant that our new digital tripod range was very well accepted. Retail Display enjoyed substantially stronger volumes in the first half compared to last year. Photographic volumes increased significantly due to recently launched products, the remote pan bar and the 'digi' tripod range. Litec, manufacturing aluminium truss systems, continued to be a star performer with growth over last year of over 10% driven by its introduction of a new heavy duty system 'Libera'. In the US, Bogen secured three new accessory lines which will further strengthen its position as the leading photographic distributor at a time when Far Eastern competitors are aggressively entering the market. The European economic climate is making conditions difficult for our trading companies in France, where we are trading at the same level as last year and Italy where the performance of the video sector in particular had a negative impact on the business. In Asia, Korea and Japan are holding up well and showing growing demand for our products compared to last year. China, Singapore and Indonesia, however, have slowed down, possibly related to SARS. ALU successfully introduced the new Box, Acrobat and Autocube products at Globalshop. These new products, and excellent support from our key distributors, helped win initial projects at Nike, Puma, Tumi, Sony and BMW. However a large Hong Kong based cosmetics project is on hold because of SARS. ALU in the US has had a good first half despite a very tough retail and competitive environment. In 2002 retailing went through the most demanding period for 30 years and this year even mass merchandisers (last year's only growing category) are struggling. In the second half we will benefit from a £4.0m contract for standard products, albeit at low margins. In Europe, ALU's sales are well ahead of last year as a large custom project continues. The Division had a very busy first six months in operations with projects including the new flow manufacturing line for Gitzo in Feltre, with significant efficiency improvements allied to stock reductions and space reduction. The implementation of the new ERP system throughout the division continued, with the main units going live in June. Following the success of the new manufacturing processes introduced to the Gitzo and Nokia lines, further flow lines will be introduced in the second half and the manufacturing process further streamlined. Broadcast Systems Products and systems primarily for broadcast applications 2003 2002 Turnover £39.0m £36.1m Operating profit* £1.9m £4.1m Operating margin 5.0% 11.2% *before exceptional items and goodwill amortisation Not withstanding a promising first quarter, the broadcast market remained difficult. While the US and Japanese markets were broadly flat, France and Germany were very weak, and SARS caused a slowdown in parts of Asia. Margin has been affected by unfavourable mix and higher spending in support of new products. In February, Vinten completed the acquisition of Radamec Broadcast Systems. This acquisition expands the range of automated camera control systems and widens Vinten's access to non-broadcast applications for pan and tilt heads, and adds capability in Virtual Reality studio technology. Overall demand for automated camera control systems and VR products was strong in the first half of the year. A number of new products were introduced in April at NAB, the world's largest broadcast show. Fibertec -a new concept in tripod design from Vinten-garnered multiple awards at the show. Vinten also introduced the 'Series 200 Control System' for AutoCam, capable of controlling over 90 devices from multiple, remote locations. Radamec Broadcast Systems launched its new robotic camera network control system, which enables sophisticated control of cameras over internet networks. Sachtler's integration of the recently acquired OConnor business is on schedule and Sachtler's world-wide sales presence has started to bring in additional business for OConnor's film products, while their own sales were boosted by a contract for 100 ENG systems for Spanish TV and another large contract for the All-Africa Games. In batteries, Anton/Bauer's first half turnover increased 10% over the same period in 2002. A significant contribution came from the company's Custom Power Systems (CPS) initiative - in particular a new application for powering medical monitoring carts. Broadcast volumes improved over last year driven by the introduction of new chargers and improvements to several of its battery products. Turnover by Aspen Electronics, acquired in February 2002, was 80% above the same period in 2002 with expanded distribution in Europe and solid relationships with dealers and customers in the US. Aspen introduced its new range of Nexus lithium ion batteries and Aspekt AllChem chargers at the NAB show in April. Within the intercom business, while US Government orders slowed for Clear-Com, Drake has gained broadcast projects in the US and was successful in gaining a number of Air Traffic Control projects, particularly in the Far East. The reorganisation to improve the joint R&D capabilities, commenced last year, bore first fruit when Clear-Com won a 'Pick Hit' award at NAB from Broadcast Engineering for products revealed for the first time at the show. Drake was similarly successful, winning two awards for its FreeSpeak digital wireless intercom. High levels of product development investment are expected to continue for the rest of the year, with Clear-Com planning further product releases in 2003 in all product lines and Drake continuing to develop systems for applications in Air Traffic Control. In April Drake relocated to more appropriate premises on the Cambridge Research Park. Broadcast Services Rental services and technical support mainly for the broadcast market 2003 2002 Turnover £12.9m £17.0m Operating (loss)/profit* (£0.2)m £1.7m Operating margin (1.6)% 10.2% *before exceptional items and goodwill amortisation The US rental market remains subdued. Cost and capital expenditure have been reduced accordingly. Although Broadcast Services is beginning to see an upturn in certain types of large scale and High Definition productions, the first half continued to be impacted by weak trading conditions in the US broadcast industry. Demand from corporate accounts in the US also remained weak with fewer requirements for events such as sales conferences and trade shows. Without the recurrence of 2002's large Winter Olympic and World Cup contracts, the Division's turnover fell 24%. Highly focused sales and marketing campaigns continued to be the primary operational activity. Increased customer contact resulted in a number of new leads and opportunities, such as Bexel's introduction of the first custom 'HD Fly Pack,' which supports a separate split feed signal for the increasingly popular 'High Definition' TV broadcasts. This package solution provides up-conversion, switching, MPEG-2 HD encoding and fiber optic distribution, and enables the end customers of a major cable provider to view a wider range of HDTV broadcasts at home. ASG's Systems Wireless unit is now successfully selling Drake digital matrix intercom products in the US, having secured several important broadcast stations including KYW-TV, Philadelphia, America's number four TV market, and KDKA-TV, Pittsburgh, the oldest Broadcast station in the US. Additionally, Systems Wireless has consolidated its position as the leading RF audio specialists, evidenced by a three-year exclusive contract to distribute the newest broadcast product for HME, a major analogue wireless intercom supplier. The introduction, last year, of new division-wide IT systems allowed better allocation of rental assets and, therefore, reduced the requirement for expensive sub-rentals. The reduced level of demand also allowed reduced capital expenditure on new rental assets, resulting in the Division being cash generative. Consolidated profit and loss account Six months ended 30 June 2003 (unaudited) Audited Six months to June year 2003 2002 2002 £m £m £m Turnover Continuing operations 88.8 89.2 182.2 Acquisitions 2.5 - - ______ ______ ______ 91.3 89.2 182.2 Operating profit Continuing operations 8.7 13.2 24.7 Acquisitions 0.1 - - ______ ______ ______ Operating profit before exceptional items and goodwill 8.8 13.2 24.7 amortisation Exceptional items (1.0) 0.0 (5.8) Goodwill amortisation (0.5) (0.5) (0.9) ______ ______ ______ Operating profit before exceptional items 7.3 12.7 18.0 Profit on sale of fixed assets 0.0 0.0 0.2 ______ ______ ______ Profit on ordinary activities before interest 7.3 12.7 18.2 Net interest payable (0.7) (0.7) (1.6) ______ ______ ______ Profit on ordinary activities before tax 6.6 12.0 16.6 Tax (3.2) (4.9) (9.1) ______ ______ ______ Profit on ordinary activities after tax 3.4 7.1 7.5 Dividends (2.5) (2.5) (9.3) ______ ______ ______ Retained profit 0.9 4.6 (1.8) ______ ______ ______ Basic earnings per share 8.1p 17.3p 18.3p Diluted earnings per share 8.0p 17.3p 18.3p Adjusted basic earnings per share 11.8p 18.5p 34.1p Consolidated balance sheet As at 30 June 2003 (unaudited) Audited 30 June 31 December 2003 2002 2002 £m £m £m Fixed assets Intangible assets 13.6 11.6 11.0 Tangible assets 42.0 48.5 42.7 Investments 0.5 0.0 0.5 ______ ______ ______ 56.1 60.1 54.2 ______ ______ ______ Current assets Stocks 41.2 33.9 30.5 Debtors 36.8 35.6 37.0 Cash at bank and in hand 13.9 15.9 16.1 ______ ______ ______ 91.9 85.4 83.6 Creditors - due within one year (39.0) (60.1) (36.8) ______ ______ ______ Net current assets 52.9 25.3 46.8 ______ ______ ______ Total assets less current liabilities 109.0 85.4 101.0 Creditors - due after more than one year (29.1) (4.5) (24.3) Provisions for liabilities and charges (14.7) (8.9) (13.8) ______ ______ ______ Net assets 65.2 72.0 62.9 ______ ______ ______ Capital and reserves Share capital including share premium 10.8 10.8 10.8 Reserves 54.4 61.2 52.1 ______ ______ ______ Shareholders' funds - equity 65.2 72.0 62.9 ______ ______ ______ Group statement of total recognised gains and losses Six months ended 30 June 2003 (unaudited) Audited Six months to June year 2003 2002 2002 £m £m £m Profit for the period 3.4 7.1 7.5 Exchange differences on foreign net investments 1.4 0.2 (2.5) ______ ______ ______ Total recognised gains and losses relating to the period 4.8 7.3 5.0 Prior year adjustment 0.0 (2.3) (2.3) ______ ______ ______ Total recognised gains and losses relating to the period 4.8 5.0 2.7 ______ ______ ______ Group reconciliation of movements in shareholders' funds Six months ended 30 June 2003 (unaudited) Audited Six months to June year 2003 2002 2002 £m £m £m Profit for the period 3.4 7.1 7.5 Dividends (2.5) (2.5) (9.3) ______ ______ ______ Retained profit for the period 0.9 4.6 (1.8) Exchange differences on foreign net investments 1.4 0.2 (2.5) New share capital subscribed 0.0 0.1 0.1 ______ ______ ______ Increase in shareholders' funds 2.3 4.9 (4.2) Opening shareholders' funds 62.9 67.1 67.1 ______ ______ ______ Closing shareholders' funds 65.2 72.0 62.9 ______ ______ ______ Consolidated cash flow statement Six months ended 30 June 2003 (unaudited) Audited Six months to June year 2003 2002 2002 £m £m £m Operating profit 7.3 12.7 18.0 Research and development - amortisation of deferred 0.2 - - expenditure Goodwill amortisation 0.5 0.5 0.9 Depreciation 5.8 6.1 12.2 Working capital and other items (2.2) 0.1 4.3 ______ ______ ______ Net cash inflow from operating activities 11.6 19.4 35.4 Returns on investments and servicing of finance (0.8) (0.8) (1.6) Tax paid (1.9) (0.7) (6.6) Net capital expenditure (3.7) (6.0) (6.6) Acquisitions (6.5) (1.6) (1.7) Equity dividends paid (6.8) (6.8) (9.3) ______ ______ ______ Net cash (outflow)/inflow before financing (8.1) 3.5 9.6 Financing Issue of shares 0.0 0.1 0.1 Net receipt/(repayment) of loans 4.9 (6.0) (12.0) ______ ______ ______ Net cash inflow/(outflow) from financing 4.9 (5.9) (11.9) ______ ______ ______ Decrease in cash in the period (3.2) (2.4) (2.3) ______ ______ ______ Reconciliation of net cash flow to movement in net debt Six months ended 30 June 2003 (unaudited) Audited Six months to June year 2003 2002 2002 £m £m £m Reconciliation of net cash flow to movement in net debt Decrease in cash in the period (3.2) (2.4) (2.3) Net (receipt)/repayment of loans (4.9) 6.0 12.0 _____ _____ _____ (Decrease)/increase in net debt resulting from cash flows (8.1) 3.6 9.7 Exchange rate movements 1.1 0.7 0.9 _____ _____ _____ Movements in net debt in the period (7.0) 4.3 10.6 Net debt at 1 January (11.9) (22.5) (22.5) _____ _____ _____ Closing net debt (18.9) (18.2) (11.9) _____ _____ _____ Analysis of net debt Cash 13.9 15.9 16.1 Debt due after one year (28.9) (4.1) (24.0) Debt due within one year (3.9) (30.0) (4.0) _____ _____ _____ Total (18.9) (18.2) (11.9) _____ _____ _____ Segmental analysis of turnover and operating profit Six months ended 30 June 2003 (unaudited) 2003 2002 2003 2002 £m £m £m £m Class of business Turnover Operating profit Broadcast camera systems 30.3 28.3 1.8 3.9 Communications and audio 8.7 7.8 0.1 0.2 Broadcast systems 39.0 36.1 1.9 4.1 Photographic and retail display 39.4 36.1 7.1 7.4 Broadcast services 12.9 17.0 (0.2) 1.7 ______ ______ ______ ______ 91.3 89.2 8.8 13.2 Exceptional items - - (1.0) 0.0 Goodwill amortisation - - (0.5) (0.5) ______ ______ ______ ______ 91.3 89.2 7.3 12.8 ______ ______ ______ ______ Geographical turnover By destination By origin United Kingdom 5.2 4.0 11.0 9.5 The rest of Europe 25.4 23.8 30.1 34.5 The Americas 47.7 48.3 50.0 43.9 Asia and Australasia 11.1 11.3 0.2 1.3 Africa and Middle East 1.9 1.8 - - ______ ______ ______ ______ 91.3 89.2 91.3 89.2 ______ ______ ______ ______ 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 2002 are extracted from the statutory accounts. Those accounts, on which the auditors issued an unqualified report, have been filed with the Registrar of Companies. 2 Tax charge The tax charge for the half year is estimated at 40% of profits before exceptional items and goodwill amortisation, on the basis of the anticipated tax rates which will apply for the full year and comprises current tax £2.4m (2002:£4.4m) and deferred tax £0.8m (2002:£0.5m). 3 Exceptional items relates to the restructuring of Radamec Broadcast Systems in the Broadcast Systems Division: Goodwill amortisation relates to Broadcast Systems £0.2m; Photographic and Retail Display £0.1m and Broadcast Services £0.2m. 4 Earnings per share The calculation of basic earnings per share is based on profit on ordinary activities after tax of £3.4m (2002:£7.1m) and the weighted average number of shares of 41,031,522 (2002:41,002,230). Adjusted basic 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 41,127,885 (2002:41,025,152). 5 Interim dividend The directors have declared an interim dividend of 6.1p per share, which will absorb £2.5m (2002:6.1p absorbing £2.5m). The dividend will be paid on 3 November 2003 to shareholders on the register at the close of business on 3 October 2003. 6 Acquisitions On 6 February 2003 the Group acquired the business of OConnor Engineering Laboratories from Autocue Inc for US$2.7million cash (£1.7million). Goodwill of £0.8m arose on acquisition. On 18 February 2003 the Group acquired the shares of Radamec Broadcast Systems Limited in the UK, and acquired the operating assets and some of the liabilities of Radamec Inc in the US, from Radamec Group PLC for £4.8million in cash. Goodwill of £2.6m arose on acquisition. Both the companies are reported within Broadcast camera systems. 7 Copies of this statement will be sent to all shareholders on the share register as at 3 September 2003. Copies are available on to the Company secretary. This information is provided by RNS The company news service from the London Stock Exchange

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