Interim Results
The Vitec Group PLC
03 September 2007
3 September 2007
The Vitec Group plc
Half year results to 30 June 2007
Another six months of strong growth
The Vitec Group plc, the international supplier of products and services to the
broadcast, entertainment and photographic industries, announces its results for
the half year ended 30 June 2007.
Results H1 2007 H1 2006 % Change
Revenue £126.4m £107.4m +18%
Before significant items*
Operating profit £15.2m £12.0m +27%
Profit before tax £14.3m £11.6m +23%
Basic earnings per share 21.8p 16.8p +30%
After significant items*
Operating profit £14.1m £12.1m +17%
Profit before tax £13.6m £12.2m +11%
Basic earnings per share 22.3p 18.2p +23%
Interim dividend 6.9p 6.4p +8%
* Significant items comprise restructuring costs, goodwill impairment,
amortisation of acquired intangibles, profit on sale of property and fair value
adjustments relating to volatile financial instruments.
KEY POINTS
• Reported revenue growth of 18%, with constant currency organic growth of 14%
• Imaging & Staging division revenue up 31%; future growth supported by
forecasts for global Digital SLR sales
• Group operating margin** up by 80 basis points to 12.0%
• Profit before tax** up by 23%, with constant currency organic growth of 42%
• Recent acquisitions of Nucomm, RF Central and Microwave Service Corporation,
all performing to plan
• Interim dividend increased by 7.8% to 6.9p per share
** before significant items
Commenting on the results, Gareth Rhys Williams, Chief Executive, said:
'We are delighted to report another six months of strong growth, both in sales
and profit.
'The second half has got off to an encouraging start. Order intake remains good
and we believe the underlying demand for our products will continue to be
supported by the trend to HD programming by broadcasters, and by the growth in
sales of digital SLR cameras. The RF Systems businesses are trading as expected,
with the integration proceeding well, and we continue to look for acquisitions
that complement our existing portfolio of premium brands and distribution
channels.
'The Board looks forward to continued growth for the full year.'
Enquiries
The Vitec Group plc Gareth Rhys Williams, Group Chief Executive 020 8939 4650
Alastair Hewgill, Group Finance Director 020 8939 4650
Financial Dynamics Richard Mountain/Susanne Yule 020 7269 7221
CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT
Results overview
We are pleased to report another six months of significant progress, building on
the momentum established in the second half of 2006.
Reported revenue grew 18% and, with the benefit of the operational gearing of
the business, operating profit before significant items* grew 27%. Before the
effects of foreign exchange in the first half (mainly the weaker US dollar),
constant currency revenue was up 26%, of which organic growth was 14%. Group
operating margins before significant items* continue to improve, up 80 basis
points to 12.0%. Reported profit, before tax and significant items* was up 23%,
with the constant currency organic improvement 42%. With a further reduction in
our headline tax rate, now down to 37%, basic EPS before significant items* rose
by 30% to 21.8p. It is particularly pleasing that we have seen such strong
growth coming from several different market segments, and in a period that has
not seen any 'even year' sporting events.
Our organic growth has been driven by strong sales of our accessory products to
both professionals and enthusiasts, as more and more video and photographic
content is generated around the world. Moreover, predicted future sales of
digital SLR cameras are even more encouraging than previously forecast, which
will help drive the business in future years.
Vitec has a history of value-enhancing acquisitions, and of those made last
year, Autoscript has grown the fastest, and that business is now the clear
market leader for professional prompting products. We have also seen a pleasing
performance from the new Bogen Imaging distribution operation in Japan. The
Staging business saw some organic growth in the half, but doubled in size
through the acquisition of Tomcat, where a number of projects are now expected
in the second half.
In June we completed the acquisitions of RF Central, Nucomm and MSC (together
known as RF Systems), creating a significant player in the market for microwave
video links. The Group paid an initial consideration, including expenses, of
£20.5 million, with a possible earnout capped at £18.8 million. The integration
of these businesses is progressing well. Early indications are that the US
broadcast market, which presently has to undertake a wholesale switch of
equipment from analogue to digital technologies, is readily appreciating the
merits of a combined entity that can offer excellent products, integration and
installation services as well as maintenance.
Cash generation remains good, taking into account the normal seasonal increase
in working capital. Stock and debtor days were 115 days (H1 2006: 109) and 54
(H1 2006: 54) respectively before 2007 acquisitions. Inventory days can be
expected to increase whenever we acquire a distribution operation, as we did
with Bogen Imaging Japan last June. Capex in the half was £6.7 million (H1 2006:
£5.2 million) with a slightly higher amount anticipated in the second half.
Net debt at the end of June was £41.8 million and compares with £8.6 million at
the end of June 2006, inflated by the acquisition payments for Tomcat,
Autoscript and RF Systems, and is well within our committed financing facilities
of £100 million.
Looking back over the last few years' restructuring, the actions taken to
streamline the Group's operations and build a platform for future growth in
attractive markets have again delivered very good progress.
The Board has declared an increased interim dividend of 6.9p (2006: 6.4p), a
rise of 7.8%.
*Significant items are those items of financial performance that the directors
consider should be separately disclosed to assist in the understanding of the
underlying trading and financial performance achieved by the Group and in making
projections of future results.
IMAGING & STAGING DIVISION
Products for the photographic, video and live event markets
H1 2007 H1 2006 r %
Revenue £59.5m £45.4m 31.1%
Operating Profit* £10.4m £8.2m 26.8%
Operating Margin* 17.5% 18.1% -0.6 pts
*Before significant item. The significant item is amortisation of acquired
intangibles of £0.3 million (H1 2006: £0.2 million).
The Imaging & Staging Division consists of three business units, Imaging
Accessories, Imaging Distribution and Staging Systems, all of which have
achieved excellent growth in the first half, with revenues up 31%. Total
constant currency revenue growth was 39%, of which 24% was organic.
The division's strong margins were broadly stable in the first half compared
with the first half of 2006. These margins are a reflection of the continued
work done over several years; the ongoing product development efforts and the
price and cost actions taken, despite FX impacts and the anticipated effect of
the increased Staging activities.
In Imaging we have seen excellent growth in all parts of the business: keen
amateur photographers are buying increasing numbers of digital SLR cameras and
are choosing our camera support and bags accessories, and we have seen strong
demand among professional photographers and cinematographers for our lighting
support products.
This growth is due to buoyant market conditions and our focus on innovation.
Several new products were brought to the market in the first half of 2007, with
upgrades to the Manfrotto, Gitzo and Avenger ranges. The Manfrotto 190X tripod
was awarded the 2007 TIPA award for 'Best Accessory', following the 'Best
Design' award to Kata last year.
In order to make further inroads into the emerging markets, a new representative
office has been opened in Beijing and several new third party distributors have
been taken on in India. Bogen Imaging, our in-house distribution business,
continues to capitalise on the popularity of our products, and our new operation
in Tokyo is giving us better access to Japan.
Staging Systems, where the Litec truss and IFF lighting control systems now
operate together with Tomcat, has seen underlying growth in the core Litec
products. IFF and Tomcat, which are both much more reliant on larger projects,
for example the stage set built for the Genesis world tour, had a slower than
expected first half but we expect that activity will pick up in the second half.
Early in 2007 we acquired a small manufacturing operation in Slovakia which is
presently being expanded. This site and the pre-existing one in Mexico, provide
a lower cost base from which to supply both Litec's and Tomcat's standard
products, with the more complex products remaining in the original facilities.
BROADCAST SYSTEMS DIVISION
Products and systems primarily for broadcast applications
H1 2007 H1 2006 r %
Revenue £53.4m £47.1m 13.4%
Operating Profit* £4.0m £2.8m 42.9%
Operating Margin* 7.5% 5.9% 1.6 pts
*Before significant items. Significant items are amortisation of acquired
intangibles of £0.8 million (H1 2006: £nil), profit on sale of property of £nil
(H1 2006: £0.4 million) and restructuring costs of £nil (H1 2006: £0.1 million).
The division grew 13% in sterling, corresponding to 21% in constant currency, of
which 10% was organic. Acquisition growth of 11% in constant currency came from
Autoscript, the prompting business acquired in late 2006, whose products are now
firmly establishing themselves as the industry standard, and from one month's
sales from RF Systems.
The Camera Dynamics unit, now with a unified salesforce, continues to make good
progress, with considerable interest in the newer robotics products, which have
now entered scale production. Sachtler launched a new range of award-winning
support systems for the smaller Standard and HD broadcast cameras. The extension
of the factory in Costa Rica to encompass the machining of complex components
will help to improve margins further.
The Mobile Power unit, Anton/Bauer, is benefiting from movie cameramen moving
from recording on film to recording on video. Anton/Bauer has developed a
power-pack capable of running not just the new cameras, but the many accessories
that are integrated around it. The Elipz products launched last year also
continue to gain ground, with cooperative promotions with JVC and Panasonic.
In Communications we have introduced innovations in every one of the business's
major product lines which we expect will generate improvements in H2. Margins
should also improve as we outsource manufacture of further components to Asia.
The integration of RF Systems is progressing well, with the Nucomm and RF
Central sales forces now working closely together. As highlighted at the end of
May, the catalyst for the acquisitions was the BAS Relocation Project, under
which Sprint/Nextel is replacing US broadcasters' analogue wireless equipment
with digital equivalents. At that time we estimated that the project would
result in 2GHz equipment sales and integration services of c.$600m between 2006
and 2009 (predominantly 2007 to 2009) and RF Systems had the potential to win a
substantial share of this going forward. We continue to believe that this is an
appropriate estimate. As BAS volume builds, and after the transient effects of
fair value accounting in 2007 (see below), we estimate operating profit margins
before significant items will be comfortably in excess of those we currently
achieve in Broadcast Systems.
Accounting for the RF Systems acquisitions under IFRS, including the BAS
project, affects the Group's financial reporting, including the balance sheet,
revenue recognition and potential 2007 profits. Certain of these effects are
described in note 7 of the Interim Financial Information following this
statement.
BROADCAST SERVICES DIVISION
Rental services and technical support mainly for the broadcast market
H1 2007 H1 2006 r %
Revenue £13.5m £14.9m -9.4%
Operating Profit £0.8m £1.0m -20.0%
Operating Margin 5.9% 6.7% -0.8 pts
Broadcast Services enjoyed considerable revenues from the Turin Winter Olympics
in 2006, which have not been repeated this year. The business has been
successful in increasing its penetration of US-based events and projects such
that revenue in US dollars has been relatively constant. Part of the growth in
US-based business has been a large contract with the NFL to install fibre in a
number of its member teams' stadia. These two effects have combined to reduce
the operating margin slightly in the period.
Foreign Exchange
The deterioration of the US dollar has reduced reported sterling operating
profit by £2.0 million, of which £1.1 million is due to transaction effects and
£0.9 million due to translation. If currency rates average £1 = $2.00, £1 =
€1.48 and €1 = $1.35 for the rest of the year, the full year effect will be a
total impact of £3.3 million, i.e. an adverse effect of a further £1.3 million
in the second half.
Tax
The Group continues to make progress in reducing its headline rate, forecast to
be 37% of profit before tax and significant items* for 2007, 3% down on the full
year rate for 2006. As previously stated, there are significant deferred or
non-cash taxes in that charge, so our ongoing guidance for effective cash taxes
remains about 5% below that headline rate.
Outlook
The second half has got off to an encouraging start. Order intake remains good
and we believe the underlying demand for our products will continue to be
supported by the trend to HD programming by broadcasters and by the growth in
sales of digital SLR cameras. The RF Systems businesses are trading as expected,
with the integration proceeding well, and we continue to look for acquisitions
that complement our existing portfolio of premium brands and distribution
channels.
The Board looks forward to continued growth for the full year.
Michael Harper Gareth Rhys Williams
Chairman Chief Executive
Cautionary statement
This announcement contains forward looking statements that are subject to risk
factors associated with, amongst other things, the economic and business
circumstances occurring from time to time in the countries and sectors in which
the Group operates. It is believed that the expectations reflected in these
statements are reasonable but they may be affected by a wide range of variables
which could cause actual results to differ materially from those currently
anticipated.
Consolidated Income Statement
For the half year ended 30 June 2007 (unaudited)
Half year to 30 June 2007 Half year to 30 June 2006
Significant items(1) Significant items(1)
Before Amortisation Restructuring Total Before Amortisation Restructuring Total
significant of acquired costs & £m significant of acquired costs & £m
items intangibles & property items intangibles & property
£m other profits £m other profits
financial £m financial £m
income items income items
£m £m
Revenue
Continuing
operations 123.7 123.7 107.4 107.4
Acquisitions 2.7 2.7
126.4 126.4 107.4 107.4
Cost of sales (73.1) (73.1) (61.9) (61.9)
Gross profit 53.3 53.3 45.5 45.5
Other
operating
income - - - - - - 0.4 0.4
Operating
expenses (38.1) (1.1) - (39.2) (33.5) (0.2) (0.1) (33.8)
Operating
profit
Continuing
operations 15.5 (0.5) - 15.0 12.0 (0.2) 0.3 12.1
Acquisitions (0.3) (0.6) - (0.9)
15.2 (1.1) - 14.1 12.0 (0.2) 0.3 12.1
Interest
payable on
bank
borrowings (1.1) (1.1) (0.6) (0.6)
Interest - - 0.1 0.1
income
Pension
scheme:
Interest
charge (1.1) (1.1) (1.1) (1.1)
Expected
return on
assets 1.5 1.5 1.3 1.3
Other
financial
(expense)/
income (0.2) 0.4 0.2 (0.1) 0.5 0.4
Net financial
(expense)/
income (0.9) 0.4 (0.5) (0.4) 0.5 0.1
Profit before
tax 14.3 (0.7) - 13.6 11.6 0.3 0.3 12.2
Taxation (5.3) 0.9 (4.4) (4.7) - - (4.7)
Profit for
the
period
(attributable
to Equity
Shareholders) 9.0 0.2 - 9.2 6.9 0.3 0.3 7.5
Earnings per
share
Basic
earnings
per share 22.3p 18.2p
Diluted
earnings per
share 22.0p 18.0p
Average
exchange
rates
Euro 1.49 1.46
US$ 1.97 1.78
Year to 31 December 2006
Significant items(1)
Before Amortisation of acquired Restructuring Total
significant intangibles & other costs & £m
items financial income items property
£m £m profits
£m
Revenue
Continuing
operations 222.3 222.3
Acquisitions
222.3 222.3
Cost of sales (129.1) (129.1)
Gross profit 93.2 93.2
Other
operating
income - - 0.4 0.4
Operating
expenses (68.0) (0.6) (1.5) (70.1)
Operating
profit
Continuing
operations 25.2 (0.6) (1.1) 23.5
Acquisitions
25.2 (0.6) (1.1) 23.5
Interest
payable on
bank
borrowings (1.5) (1.5)
Interest
income 0.1 0.1
Pension
scheme:
Interest
charge (2.1) (2.1)
Expected
return on
assets 2.6 2.6
Other
financial
(expense)/
income (0.2) 0.2 -
Net financial
(expense)/
income (1.1) 0.2 (0.9)
Profit before
tax 24.1 (0.4) (1.1) 22.6
Taxation (9.6) 0.4 (9.2)
Profit for
the period
(attributable
to Equity
Shareholders) 14.5 (0.4) (0.7) 13.4
Earnings per
share
Basic
earnings
per share 32.6p
Diluted
earnings per
share 32.2p
Average
exchange
rates
Euro 1.47
US$ 1.84
(1) See Note 2
Consolidated Statement of Recognised Income and Expense
For the half year ended 30 June 2007 (unaudited)
Half year to Half year to Year to 31
30 June 2007 30 June 2006 December
£m £m 2006
£m
Actuarial gain on defined benefit plan 4.4 1.1 2.2
Currency translation differences on foreign net investments (1.4) (2.7) (7.0)
Net gain on hedge of net investment in foreign subsidiaries 0.5 0.4 1.3
Cash flow hedging:
Amounts released to income statement (0.9) 0.4 0.6
Effective portion of changes in fair value 0.4 1.0 1.4
Net income/(expense) recognised directly in equity 3.0 0.2 (1.5)
Profit for the period 9.2 7.5 13.4
Total recognised income for the year 12.2 7.7 11.9
Consolidated Balance Sheet
As at 30 June 2007 (unaudited)
As at As at As at
30 June 30 June 31 December 2006
2007 2006 £m
£m £m
Assets
Non-current assets
Property, plant and equipment 38.3 32.8 35.1
Intangible assets 62.7 21.4 34.1
Investments 1.0 0.4 0.7
Deferred tax assets 4.5 5.1 4.7
106.5 59.7 74.6
Current assets
Inventories 67.9 37.2 41.1
Trade and other receivables 49.7 40.1 38.6
Derivative financial instruments 1.8 1.2 2.3
Current tax assets - 0.3 -
Cash and cash equivalents 7.5 9.1 9.4
126.9 87.9 91.4
Total assets 233.4 147.6 166.0
Liabilities
Current liabilities
Bank overdrafts - 0.8 1.9
Bank loans and other borrowings 0.5 - 0.1
Trade and other payables 40.7 34.7 37.1
Advanced payments received 33.0 - -
Derivative financial instruments - 0.1 -
Current tax liabilities 9.7 9.6 9.9
Provisions 4.2 3.4 5.0
88.1 48.6 54.0
Non-current liabilities
Bank loans and other borrowings 48.8 16.9 26.3
Other payables 0.2 0.2 0.2
Post-employment obligations 0.5 6.1 5.0
Provisions 5.9 0.1 3.0
Deferred tax liabilities 0.4 1.4 0.7
55.8 24.7 35.2
Total liabilities 143.9 73.3 89.2
Net assets 89.5 74.3 76.8
Equity
Share capital 8.3 8.2 8.2
Share premium 6.4 3.1 3.2
Translation reserve (8.4) (4.1) (7.5)
Other reserves 2.5 2.3 2.9
Retained earnings 80.7 64.8 70.0
Total equity 89.5 74.3 76.8
Consolidated Cash Flow Statement
For the half year ended 30 June 2007 (unaudited)
Half year Half year Year
to 30 June to 30 June to 31
2007 2006 December
£m £m 2006
£m
Cash flows from operating activities
Profit for the period 9.2 7.5 13.4
Adjustments for :
Taxation 4.4 4.7 9.2
Depreciation 5.1 5.0 8.9
Amortisation of intangibles 1.1 0.5 1.7
Net gain on disposal of property, plant and equipment (0.4) (0.5) (1.5)
Fair value gains on derivative financial instruments - - (0.2)
Cost of equity-settled employee share schemes 0.7 0.4 1.2
Financial income (1.9) (1.8) (2.7)
Financial expense 2.4 1.7 3.6
Operating profit before changes in working capital & provisions 20.6 17.5 33.6
(Increase) in inventories (3.6) (6.2) (9.2)
Increase in receivables (8.2) (3.8) (2.1)
Increase in payables 1.1 3.8 4.4
Increase/(decrease) in provisions (0.2) (0.1) 2.1
Adjustments for foreign exchange losses (0.1) - (0.1)
Cash generated from operations 9.6 11.2 28.7
Interest paid (1.1) (0.7) (1.7)
Tax paid (4.7) (1.5) (5.5)
Net cash flow from operating activities 3.8 9.0 21.5
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.4 0.6 2.0
Purchase of property, plant and equipment (6.2) (5.0) (12.0)
Software & development costs capitalised as intangible assets (0.5) (0.2) (1.2)
Interest received - 0.1 0.2
Acquisition of investment (0.3) (0.4) (0.7)
Acquisition of subsidiaries, net of cash acquired (14.9) (3.2) (15.8)
Net cash flow from investing activities (21.5) (8.1) (27.5)
Cash flows from financing activities
Proceeds from the issue of shares 1.5 0.4 0.5
Sale/(purchase) of own shares 0.6 (0.9) (0.9)
Borrowing/(repayment) of loans 18.9 (0.2) 9.1
Dividends paid (4.1) (3.9) (6.5)
Net cash flow from financing activities 16.9 (4.6) 2.2
Decrease in cash and cash equivalents (0.8) (3.7) (3.8)
Cash and cash equivalents at the beginning of the period 7.5 11.8 11.8
Exchange rate movements(1) 0.8 0.2 (0.5)
Cash and cash equivalents at the end of the period 7.5 8.3 7.5
(1) Exchange rate movements result from the adjustment of opening balances and
cash flows in the year to closing exchange rates.
Notes to the Interim Financial Statements
For the half year ended 30 June 2007 (unaudited)
1. Basis of preparation and statement of compliance
The interim financial information has been prepared by applying the accounting
policies that were applied in the preparation of the company's published
consolidated financial statements for the year ended 31 December 2006. They do
not include all of the information required for full annual financial statements
and should be read in conjunction with the Annual Report 2006.
The comparative figures for the year ended 31 December 2006 do not constitute
statutory accounts for the purpose of section 240 of the Companies Act 1985. The
auditors have reported on the 2006 accounts, and these have been filed with the
Registrar of Companies; their report was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of
emphasis, and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
2. Significant items
Significant items are those items of financial performance that the directors
consider should be separately disclosed to assist in the understanding of the
underlying trading and financial performance achieved by the Group and in making
projections of future results.
Prior year other operating income of £0.4 million relates to profit on the sale
of property fixed assets (Broadcast Systems division). There was no sale of
property fixed assets in the current period.
Operating expenses include £1.1 million (2006: £0.2 million) of amortisation of
intangible assets acquired as part of the acquisitions, and £nil (2006: £0.1
million) relates to the restructuring costs in Broadcast Systems division.
Significant items included in other financial income/(expense) comprise the
following items:
- The Group uses options as part of its hedging of future foreign exchange
cash flows. As such options are held to maturity, the ultimate net amount
charged to the income statement in respect of any option will always equate to
the initial premium paid for that option. However, as a result of the time value
of such options being marked-to-market at each balance sheet date, volatile
income and expenses can be introduced between periods and such amounts are
therefore identified as significant other financial expense. A gain of £0.1
million (2006: £0.2 million) relating to this volatile premium on options was
recorded in significant items within other financial expense.
- Currency translation differences arising on long-term intra-group funding
loans that are similar in nature to equity are charged/credited to reserves.
Currency translation gains of £0.3 million (2006: £0.3 million) arising on
certain other intra-group funding balances that do not meet this strict criteria
but are very similar in nature are recorded in significant items within other
financial expense.
3. Income tax
The tax rate on profit before significant items for the half year is estimated
at 37% (2006: 40%) on the basis of the anticipated tax rates which will apply
for the full year. The tax charge before significant items comprises current tax
of £4.7 million (2006: £4.1 million) and deferred tax of £0.6 million (2006:
£0.6 million).
The tax rate on profit after significant items for the half year is estimated at
32% (2006: 39%) on the basis of the anticipated tax rates which will apply for
the full year. The tax charge after significant items comprises current tax of
£4.7 million (2006: £4.1 million) and deferred tax credit of £0.3 million (2006:
£0.6 million charge).
At the end of 2006 the Group had about £24 million of brought forward losses in
the UK which have the potential to reduce cash taxes on future UK profits by
£7.2 million (using a tax rate of 30%). If the Group can see that it will
consistently make profits in the UK in future years, it would be required under
IAS 12 to create a deferred tax asset to reflect the future tax benefit of those
losses. That deferred tax asset would then be amortised as a charge to profits,
as the tax losses were utilised. Whilst the Group expects to make profits in the
UK in 2007, it is too soon to judge if that will continue in future years.
In the first half, therefore, a deferred tax asset of only £0.9 million has been
created, with a credit of £0.9 million to significant items. The £0.9 million
deferred tax asset has then been amortised as a charge to profits before
significant items.
4. Earnings per ordinary share
Basic earnings per share of 22.3 pence (2006: 18.2 pence) is calculated using
profit after tax of £9.2 million (2006: £7.5 million) and the weighted average
number of shares in issue during the period of 41,314,900 (2006: 41,178,309).
Diluted earnings per share of 22.0 pence (2006: 18.0 pence) is calculated using
profit after tax of £9.2million (2006: £7.5 million) and 41,876,150 (2006:
41,647,999) ordinary shares.
Adjusted basic earnings per share is presented as the directors consider that
this gives a useful additional indication of the ongoing earnings performance of
the Group. Adjusted basic earnings per share of 21.8 pence (2006: 16.8 pence) is
calculated using profit after tax but before significant items of £9.0 million
(2006: £6.9 million) and the weighted average number of shares in issue during
the period of 41,314,900 (2006: 41,178,309).
5. Interim dividend
After the balance sheet date, an interim dividend of 6.9 pence per share was
recommended by the directors. This will cost £2.9 million (2006: 6.4 pence per
share costing £2.6 million). The dividend will be paid on 01 November 2007 to
shareholders on the register at the close of business on 28 September 2007.
6. Acquisitions
Nucomm Inc and RF Central LLC On 30 May 2007 the Group acquired Nucomm Inc and
the partnership interests in RF Central LLC, providers of wireless links for
broadcast applications, including camera, mobile broadcast van and fixed
location transmitters and receivers. The initial consideration was satisfied in
part by the issue of 207,572 new Vitec ordinary shares worth US$2.5 million
(£1.3 million) and net cash consideration of US$21.8 million (£11.1 million),
after taking account of US$13.1 million (£6.6 million) of cash in the businesses
at acquisition date, and including acquisition expenses. There is an estimated
contingent consideration of US$9.3 million (£4.7 million) payable over the next
four years, conditional upon profitability targets. Based on a provisional
assessment of the fair values of identifiable assets, liabilities and contingent
liabilities, goodwill of £15.6m arose on acquisition.
Microwave Service Corporation (MSC) On 27 June 2007 RF Central LLC completed the
acquisition of Microwave Service Corporation (MSC), a premiere international
microwave equipment service facility and equipment supplier that provides the
broadcast industry with superior microwave radio rental, sales and service. The
initial consideration was satisfied in part by the issue of 80,204 new Vitec
ordinary shares worth US$1.0 million (£0.5 million) and net cash consideration
of US$2.0 million (£1.0 million). Based on a provisional assessment of the fair
values of identifiable assets, liabilities and contingent liabilities, goodwill
of £0.1 million arose on acquisition.
Nucomm Inc, RF Central LLC, and MSC together form 'Vitec Group RF Systems', the
results of which have been included in the Broadcast Systems division. US$1.2
million (£0.6 million) of amortisation of intangible assets was charged to
operating expenses as a significant item.
Staging SK On 1 February 2007 the Group acquired the manufacturing activities of
a Slovakian-based company. The consideration amounted to Slovakian Koruna of
19.3 million (£0.4 million). Based on a provisional assessment of the fair
values of identifiable assets and liabilities, goodwill of Slovakian Koruna 16.9
million (£0.3 million) arose on acquisition.
The results of Staging SK have been included in the Imaging & Staging division.
Petrol As at 31 December 2006 there was an estimated contingent consideration of
US$3.1 million (£1.7 million) conditional upon future profitability targets. In
May 2007 part of this contingent consideration was paid in cash amounting to
US$2.3 million (£1.2 million), leaving a recorded liability of US$0.8 million
(£0.4 million).
The results of Petrol have been included in the Broadcast Systems division.
Kata As at 31 December 2006 there was an estimated contingent consideration of
US$2.6 million (£1.3 million) conditional upon future sales and profitability
targets. In June 2007 this estimate was increased by US$0.3 million (£0.2
million), and part of the consideration was paid in cash amounting to US$2.3
million (£1.2 million), leaving a balance of US$0.6 million (£0.3 million).
The results of Kata have been included in the Imaging & Staging division.
The table below provides an analysis of the purchase consideration for
acquisitions during the period.
Total Vitec Group Staging Petrol Kata
£m RF Systems SK £m £m
£m £m
Net Assets acquired
Intangible assets 14.2 14.2 - - -
Other (liabilities)/net assets (4.6) (4.7) 0.1 - -
9.6 9.5 0.1 - -
Purchased goodwill 16.0 15.7 0.3 - -
Total purchase consideration, including expenses 25.6 25.2 0.4 - -
Net outflow of cash in respect of acquisitions
Total purchase consideration 25.6 25.2 0.4 - -
Consideration paid for previous acquisitions, 2.4 - - 1.2 1.2
conditional upon achievement of sales and
profitability targets
Contingent consideration payable (4.7) (4.7) - - -
Issue of new ordinary shares (1.8) (1.8) - - -
Cash consideration paid for acquisitions, including 21.5 18.7 0.4 1.2 1.2
expenses
Cash acquired (6.6) (6.6) - - -
Total outflow of cash from Group, net of cash 14.9 12.1 0.4 1.2 1.2
acquired
Bank loan and other borrowings acquired 4.2 4.2 - - -
Increase in net debt of the Group arising from 19.1 16.3 0.4 1.2 1.2
acquisitions
7. Accounting for the acquisition of RF Systems
Note 6 sets out the acquisition details of RF Systems businesses.
Both RF Central and Nucomm are suppliers of wireless equipment under the
Broadcast Auxiliary Services (BAS) Relocation Project, which is managed by
Sprint Nextel. Under this contract, Sprint Nextel is making advance payments to
RFC and Nucomm to build up an inventory of 2GHz wireless equipment which can be
called upon by US broadcasters, free of charge, at a later date. The effects of
these are:
- Although RFC and Nucomm have received the full sale price of equipment from
Sprint Nextel, under IAS 11 the revenue and profit cannot be recognised until
the equipment is delivered to the broadcaster. When this happens, therefore, no
cash is received from the broadcaster.
- RF Systems have significant inventory and advanced payments on their
balance sheets related to the BAS Relocation Project (£16.7 million and £33.0
million respectively, as at 30 June). By the end of 2009, when the project is
planned to be complete, these amounts are expected to have largely reduced to
zero.
- At the date of acquisition, a US$4.4 million fair value increase was made
to inventory under IFRS 3. As this related inventory is delivered to
broadcasters, there will be US$4.4 million less profit reported than would
otherwise have been the case. US$1.7 million of this fell in the first half of
2007 and the balance of US$2.7 million will fall in the second half of 2007.
8. Fixed asset investments
During the period, the Group invested a further £0.3 million in MediaNumerics,
by way of a loan, thereby increasing its investment to £1.0 million.
9. Employee benefits
An actuarial assessment of the UK defined benefit scheme under IAS 19 was
carried out as at 30 June 2007, reflecting the most up-to-date assumptions on
membership and mortality. The scheme has moved from being a liability of £1.0
million at 31 December 2006 to becoming an asset of £3.7 million at 30 June
2007. This movement was firstly due to better than expected returns on the
scheme's investments and, secondly, due to an increase in the discount rate used
to value the scheme's liabilities (reflecting recent rises in long term interest
rates).
Half year to Half year to Year to 31
30 June 2007 30 June 2006 December
£m £m 2006
£m
Defined benefit asset/(liability) at the beginning of the (1.0) (3.1) (3.1)
period
Total pension (expense)/income (0.3) (0.4) (0.9)
Employer contributions actually paid 0.6 0.6 1.0
Gain recognised in SORIE 4.4 1.1 2.0
Defined benefit asset/(liability) at the end of the period 3.7 (1.8) (1.0)
The assumptions used for the actuarial assessment are set out in the table
below:
Half year to Half year to Year to 31
30 June 2007 30 June 2006 December
2006
Discount rate 5.9% 5.2% 5.2%
Expected rate of salary increases 5.3% 5.0% 5.0%
Rate of increase in payment and deferred pensions 3.3% 3.0% 3.0%
Inflation rate 3.3% 3.0% 3.0%
10. Segment reporting
Primary format - by business segments
For the half year ended 30 June 2007 (unaudited)
Imaging & Broadcast Broadcast Corporate & Consolidated
Staging Systems Services unallocated
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m £m £m
Revenue from external
customers:
Sales 59.5 45.4 53.4 47.1 1.7 1.9 - - 114.6 94.4
Services 11.8 13.0 - - 11.8 13.0
Total revenue from external 59.5 45.4 53.4 47.1 13.5 14.9 - - 126.4 107.4
customers
Inter-segment revenue (1) 0.6 0.6 0.5 0.7 - - (1.1) (1.3) - -
Total revenue 60.1 46.0 53.9 47.8 13.5 14.9 (1.1) (1.3) 126.4 107.4
Operating profit before 10.4 8.2 4.0 2.8 0.8 1.0 - - 15.2 12.0
significant items
Amortisation of intangible (0.3) (0.2) (0.8) - - - - - (1.1) (0.2)
assets
Profit on the sale of - - - 0.4 - - - - - 0.4
property
Restructuring costs - - - (0.1) - - - - - (0.1)
Segment result 10.1 8.0 3.2 3.1 0.8 1.0 - - 14.1 12.1
Net financial (expense)/ (0.5) 0.1
income
Taxation (4.4) (4.7)
Profit for the period 9.2 7.5
(1) Inter-segment pricing is determined on an arm's length basis.
Secondary format - by geographical segments
For the half year ended 30 June 2007 (unaudited)
United Kingdom The rest of The The rest of the Consolidated
Europe Americas World
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m £m £m
Revenue from external
customers:
By location of customer 10.2 6.6 37.6 33.7 59.4 52.2 19.2 14.9 126.4 107.4
11. Reconciliation of Decrease in Cash and Cash Equivalents to Movement in Net
Debt(1)
As at 30 As at 30 As at 31
June 2007 June 2006 December
£m £m 2006
£m
Decrease in cash and cash equivalents (0.8) (3.7) (3.8)
Loan and other borrowings taken over on acquisition of (4.2) - (0.9)
businesses
Net (borrowing)/repayment of loans and other borrowings (18.9) 0.2 (9.1)
(Increase)/reduction in net debt resulting from cash flows (23.9) (3.5) (13.8)
Exchange on cash movements 0.8 0.2 (0.5)
Exchange on loan movements 0.2 0.1 0.8
Exchange rate movements 1.0 0.3 0.3
Movements in net debt in the period (22.9) (3.2) (13.5)
Net debt at 1 January (18.9) (5.4) (5.4)
Net debt at the end of the period (41.8) (8.6) (18.9)
Exchange rate movements result from the adjustment of opening balances and cash
flows in the year to closing exchange rates.
(1) The table below provides an analysis of Net Debt at the end of the period.
As at 30 As at 30 As at 31
June 2007 June 2006 December
£m £m 2006
£m
Cash and cash equivalents per balance sheet 7.5 9.1 9.4
Bank overdrafts - (0.8) (1.9)
Cash and cash equivalents per cash flow statement 7.5 8.3 7.5
Bank loans (48.8) (16.9) (26.3)
Other borrowings (0.5) - (0.1)
Net debt at the end of the period (41.8) (8.6) (18.9)
12. Copies of this statement will be sent to all shareholders on the share
register as at 3 September 2007. Copies are available upon application to the
Company Secretary.
This information is provided by RNS
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