Final Results

The Vitec Group PLC 06 March 2006 6 March 2006 The Vitec Group plc 2005 Full Year Results The Vitec Group plc, the international supplier of products, services and solutions to the Broadcast, Entertainment and Media industries, announces its results, under IFRS, for the year ended 31 December 2005. Results from continuing operations 2005 2004 Change Revenue Â£194.9m Â£185.4m +5.1% Before significant items* Operating profit Â£20.0m Â£17.8m +12.4% Profit before tax Â£18.4m Â£16.5m +11.5% Basic earnings per share 26.0p 22.2p +17.1% After significant items* Operating profit Â£19.2m Â£15.6m +23.1% Profit before tax Â£17.1m Â£14.2m +20.4% Basic earnings per share 22.9p 18.8p +21.8% Total dividend for the year 15.5p 15.0p +3.3% * Significant items comprise restructuring costs, goodwill impairment and negative goodwill, amortisation of acquired intangibles, profit on sale of property and fair value adjustments relating to volatile financial instruments. KEY POINTS â€¢ Sales growth of 5%, both in constant currency and as reported, following on from a strong 2004. â€¢ Photographic sales up almost 11%. â€¢ Profit before tax** of Â£18.4 million, an increase of 17% in constant currency, 11.5% as reported. â€¢ Basic earnings per share** of 26.0p, up 17%. â€¢ Cash generated from operations of Â£29.8 million. â€¢ Leading professional camera bag business acquired - Kata. â€¢ Total dividend of 15.5p per share, up 3%. ** from continuing operations and before significant items Commenting on the results, Gareth Rhys Williams, Chief Executive, said: 'The Vitec Group continued to make good progress during 2005. For the second year running sales moved ahead due to new product launches and acquisitions. This, taken together with the benefits of the restructuring programme initiated in prior years, meant we produced a strong operating profit performance. 'With favourable market conditions and exciting product ranges, stable market conditions, strong divisional management teams and the potential to make further acquisitions, the Board expects further growth during 2006.' Enquiries The Vitec Group plc Gareth Rhys Williams, Group Chief Executive 020 8939 4650 Alastair Hewgill, Group Finance Director Financial Dynamics Richard Mountain/Susanne Walker 020 7269 7291 CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT We are delighted to report a year of continued progress for The Vitec Group. Sales continued to move ahead due to new product launches and acquisitions, and this, together with the benefits of the restructuring programme initiated in prior years, resulted in a strong operating profit performance. Results 2005 saw revenue continue to grow. Following the very strong growth in 2004 we are pleased to report a further revenue increase of 5%, both in constant currency terms and in reported pounds sterling, of which organic growth accounted for 4%. This growth represents a strong performance for Vitec, which has seen revenue reductions in previous post-Olympics years. The Photographic Division generated sales growth of almost 11% as it benefited from products launched to capitalise on the growth in the wider photographic market, particularly of digital SLR cameras, and from the strength of our in-house distribution, particularly in the US and Germany. Growth also came from demand for our innovative lighting truss systems. Kata, acquired in May, contributed 1% to overall Group sales growth; we had already been distributing its camera bags in the USA for several years. Revenue in Broadcast Systems was up 5% as a result of a revival in interest for studio products, particularly for camera supports, and the portable power business had another excellent year. In Communications, the market remained tough, but new products launched in the last two years began to build volume. Broadcast Services saw significant growth in 2004, benefiting from the Olympics and a number of large reality TV show contracts. In 2005 the growth in the underlying market was insufficient to compensate for some of these large events not recurring and revenue was down 9%. Costs continued to be kept under tight control and the benefits of previous restructuring actions came through as planned. As a result, profit before tax and significant items* grew 17% in constant currency terms and 11.5% in pounds sterling. Excluding acquisitions, the reported growth was 15% in constant currency and 10% in pounds sterling. Although foreign exchange movements, after hedging, reduced reported operating profit by Â£0.9 million, this effect was more muted than the Â£4.8 million experienced in 2004. Basic earnings per share before significant items* were 26.0p (2004: 22.2p), an improvement of 17%. The Group attracts a relatively high reported tax charge due to the high tax rates of the countries in which the Group derives its profit, nevertheless actions taken to improve the efficiency of the Group's tax structure resulted in a welcome reduction in the reported tax rate to 42% (2004: 45%). During 2005, tax paid was Â£1.6 million as certain tax credits were utilised. After significant items*, profit before tax from continuing operations was up 20% to Â£17.1 million (2004: Â£14.2 million) and earnings per share were 22.9p (2004: 18.8p). After including the release of a provision of Â£0.4 million related to a business sold in 2003, earnings were 23.9p (2004: 18.8p). Cash generated from operations of Â£29.8 million (2004: Â£22.5 million) remained strong. The low tax payments and improvements in stock control meant that closing net debt fell to Â£5.4 million (2004: Â£11.3 million), despite the acquisition of Kata and additional contribution to the UK pension scheme. *Significant items are those items of financial performance that the directors consider should be separately disclosed to assist in the understanding of the underlying trading and financial performance achieved by the Group and in making projections of future results. These items are quantified both in the Financial Review and in note 4. Strategy update The results above show the success of the 'Consolidate - Leverage - Grow' strategy. The major restructuring process, started in 2002, is complete and we are seeing the benefits of operating as larger units. Each of our businesses is now engaged in continuous improvement activities, ranging from further movement of production to lower cost countries, to exploiting the better information generated by the IT systems recently put in place, to improving our purchasing performance. This work will carry on but the emphasis is now on generating growth. Vitec's organic growth comes from the ability of our brands to constantly launch new and exciting products and services that customers value. In 2005, as in 2004, the Photographic and Broadcast Systems divisions spent some 5% of sales on R&D, a level that will be maintained into 2006. As in previous years, this effort generated products that attracted acclaim, which we expect to convert to future revenue. The Board believes that acquisitions will form an important part of Vitec's future growth. We continue to look to acquire companies, either with complementary products or with distribution channels that will enhance our existing capabilities. At the end of May 2005 we acquired Kata, a leading designer and manufacturer of technically advanced camera bags, based in Israel. The acquisition consideration was US$8.5 million (Â£4.7 million), with up to a further US$13 million (Â£7.1 million) consideration payable based on the business's performance in 2005-07. Bags represent a complementary product area to those products we already sell, as they are bought by the same customers who are attracted to our other photographic accessories. Kata is performing well and continues to grow ahead of our expectations. On 16 January 2006 we completed the acquisition of Petrol, another bags business, also based in Israel. Both Kata's and Petrol's products have been distributed by Vitec companies for a number of years. The combination of these two companies will deliver coordinated and powerful new product ranges in both the broadcast and high-end photographic camera bag markets. Vitec's continued success wouldn't be possible without the continued hard work and dedication shown by all of our colleagues around the world throughout a period of considerable change, for which we would like to thank them. 2005 dividend Given the improved results and the more stable currency situation, the Board is proposing a final dividend of 9.4p per share, resulting in a full year total of 15.5p per share, an increase of 3%. Using basic earnings per share before significant items* the dividend is covered 1.7 times (2004: 1.5 times), whilst after significant items* it is covered 1.5 times (2004: 1.3 times). Our dividend policy, as previously communicated, is to move over a period of two to three years towards an average dividend cover of around two times, and this proposed payment continues the implementation of that policy. Board changes As previously announced, John Potter will stand down following the AGM in May 2006. John joined the Board in February 1999 and we thank him for his advice, which has been invaluable in seeing the Group through a period of substantial change. We are delighted that Simon Beresford-Wylie joined the Board as a non-executive director on 1 March 2006. Simon is presently Executive Vice President & General Manager, Networks for Nokia. He is a member of the Nokia Group Executive Board. He has spent much of his career working in Australia, India and South East Asia. He will bring useful insights into those countries and the fast-moving consumer electronics marketplace, which is of increasing relevance to Vitec. Sir David Bell, who has completed almost nine years as a director, stood down as Senior Independent Director on 1 March, but remains a director. Will Wyatt has taken over the role of Senior Independent Director. Outlook for 2006 The last months of 2005 saw a marked pick up in activity in the Broadcast Camera business, part of which was related to the forthcoming football World Cup in Germany. We have seen this momentum continue into the first quarter of 2006 and expect to see continued growth in our Photographic business during the year, underpinned by the continued penetration of digital SLR cameras. With favourable market conditions and exciting product ranges, stable market conditions, strong divisional management teams and the potential to make further acquisitions, the Board expects further growth during 2006. PHOTOGRAPHIC DIVISION Products for professional photographers 2005 2004 Revenue Â£76.2m Â£68.7m Operating profit* Â£13.6m Â£12.4m Operating margin* 17.8% 18.0% *Before significant items. Significant items are profit on sale of property of Â£0.3 million (2004: Â£nil), amortisation of intangible assets of Â£0.2 million (2004: Â£nil) and restructuring costs of Â£nil (2004: Â£0.1 million reversal of provision). Overview The Photographic division, based in Italy, designs, manufactures and distributes premium products principally for the professional photographer and keen amateur or 'pro-sumer'. These include imaging products such as camera tripods and monopods, lighting stands and camera bags, as well as lighting structures for studios and outside events, which are all 'in-house' brands. Additional products distributed on behalf of third party manufacturers include flash units, light meters and filters. Most products reach the end customer through local retailers. Strategy Originally a manufacturer of professional lighting stands, the Manfrotto business diversified into camera supports, also for the professional. The professional market is relatively static, but as the pro-sumer market is booming with the rapid uptake of digital photography, we have been targeting the latter sector with new products. The expansion of Bogen Imaging, the division's distribution arm, will allow much closer contact with the end customer and the local retailers. The market for outdoor lighting and rigging structures has also been growing and we are addressing this by focusing on innovation and the supply of equipment to key projects. To aid the development of this strategy the division has been reorganised around the Imaging Accessories, Distribution and Lighting Structures areas. 2005 performance Sales in the division were up by almost 11% to Â£76.2 million (2004: Â£68.7 million), with operating profit before significant items* up almost 10% to Â£13.6 million (2004: Â£12.4 million). Operating margin was down slightly due to the lower dollar/euro exchange rates post-hedging and to some changes in mix, principally greater sales of Litec product outside Italy, where lower margins are realised. Whilst all parts of the division showed sales growth, a significant step in implementing the strategy was the acquisition of Kata, a leading supplier of professional bags and protective equipment. Kata continues to grow strongly, recently relocating to new premises, and is implementing the division-wide ERP system that will link it to our own distribution companies. Towards the end of 2005 we finished the development of the new 'Modo' product. Continuing Manfrotto's tradition of ground-breaking innovation, it combines a still and video camera head on a tripod aimed at the pro-sumer. It is being manufactured in China. During the year the operations of Gitzo France were centralised in Italy, improving operational effectiveness and reducing costs. A project to rationalise two further Italian sites commenced that will see some further products outsourced to China. Bogen Imaging continued to grow strongly, selling both in-house and third party brands. It benefited from the strength of the US economy, as well as from the strong performance of Bogen Imaging GmbH, acquired in 2003. Litec and IFF were combined to form the Lighting Structures unit, which is now based in Litec's new facility near Venice, having outgrown the previous site. Litec completed the implementation of the divisional ERP system and continued to see strong growth throughout western Europe. Litec's products continued to gain widespread recognition for their design and ease of use. BROADCAST SYSTEMS DIVISION Products and systems primarily for broadcast applications 2005 2004 Revenue Â£91.5m Â£86.9m Operating profit* Â£5.2m Â£3.8m Operating margin* 5.7% 4.4% *Before significant items. Significant items are restructuring costs of Â£0.9 million (2004: Â£2.2 million) and goodwill impairment of Â£nil (2004: Â£0.7 million) Overview The Broadcast Systems division, with its major businesses in the US, Germany and the UK, provides equipment principally for the professional video cameraman and studio or outside broadcast production teams, which are generally sold either direct to the customer or through specialist dealers. The operating units, where Vitec brands are acknowledged leaders, are Camera Support, including lighting systems, Portable Power systems, and Communications. Strategy Following the decline in the broadcast market and the changes in camera technology, we have consolidated the division into fewer, larger business units and are now able to manufacture at lower cost and devote more resources to product development. By introducing exciting and innovative new products we will be able to stimulate the market and grow sales and profits. Additionally we are looking to expand in markets outside broadcast and entertainment where we have relevant technology and products. 2005 performance 2005 saw significant top and bottom line improvements as a result of an upturn in the Broadcast and Live Entertainment markets and the benefits from the restructuring programmes, particularly in our Camera Support business. The establishment of our Beijing office in 2004 led to substantial sales in mainland China, especially in sports and news-driven camera support applications. Overall revenue in 2005 grew by 5.3% to Â£91.5 million (2004: Â£86.9 million). Divisional profitability improved as a result of the additional volume and through tight control of costs. With the new structure in place, further opportunities to improve purchasing and simplify logistics have been taken. Operating profit before significant items* rose to Â£5.2 million (2004: Â£3.8 million), as these benefits coincided with a more benign foreign exchange environment. The division continued to launch new products that command attention in the marketplace. In Camera Support, following the acquisition of Radamec Broadcast Systems in 2003, the Robotic business was rebranded Vinten-Radamec. A single control system for all existing Robotic products was launched at the IBC show in September 2005, allowing customers to add new products to either type of existing Radamec or Autocam systems. The new control system allows users to select either style of user interface and even to switch between operators or between shows whilst retaining shot definitions. Most significantly, the demand for Studio products increased steadily from the low point in Q1 2004, possibly driven by early purchases for the Turin Winter Olympics and football World Cup. Sachtler saw broad acceptance for its new range of 'Speedbalance' video camera mounting heads which give a much finer control of the balance function whilst retaining the repeatable stepwise setting for which Sachtler is renowned. Anton/Bauer, celebrating its 35th year in business, again produced a good result. Noteworthy was the delivery of a unique power source designed exclusively for Panavision's Genesis HD Super 35 Digital Cinematography camera system, introduced as more and more film studios replace their traditional celluloid-based cameras. In Communications, the integration of Drake and Clear-Com has led to a large increase in sales in Europe and the Middle East. A revolutionary 'Voice over IP' intercom product will start to contribute to sales in 2006, and the CellCom wireless intercom was approved for use in the USA in November 2005. While the market for Communications remained very tough, these new, higher margin products launched recently are beginning to build volume. With all of the initial contracts for Air Traffic Control (ATC) projects now completed, and now we are an established supplier, the focus has switched to driving up margins. The roll-out of the divisional ERP system continued, with the Cambridge site going live in January 2006. The acquisition of Petrol, whose camera bags had been distributed by Sachtler for three years, was completed in January 2006. The acquisition widens the division's product range, positioning it well for future growth. BROADCAST SERVICES DIVISION Rental services and technical support mainly for the broadcast market 2005 2004 Revenue Â£27.2m Â£29.8m Operating profit* Â£1.2m Â£1.6m Operating margin* 4.4% 5.4% *Before significant items. Significant items are negative goodwill of Â£nil (2004: Â£0.6 million) Overview The Broadcast Services business provides rental equipment and technical support for events, principally in the US, from a network of ten depots across the US. With a reputation for superior service and knowhow, Bexel equipment and people are found on the most demanding shows. The division provides both video and audio services and acts as an integrator for complex audio systems. Strategy With a unique geographical footprint, Bexel has a great advantage in offering pan-US services, which we aim to exploit. With a reputation for technical excellence, we have the ability to offer rentals that require complex engineering, either in preparation for an event or as the show is made. Bexel can also provide broadcast networks that are looking to outsource, services such as equipment maintenance and rentals that incorporate future technical upgrades. 2005 performance Sales were down Â£2.6 million (9.0%) following a very strong 2004. Operating profit before significant items* was down Â£0.4 million to Â£1.2 million (2004: Â£1.6 million), reflecting the rigorous cost control environment that the business operates within. At the end of 2004 we had hoped that the buoyant market that had supported the 10.4% increase in revenues achieved that year would continue into 2005 and more than outweigh the Athens Olympics and US Presidential election revenues falling out. That did not prove to be the case, partly because fewer new large reality TV shows were launched that needed our level of technical services during the year, although we did win renewals on the top shows that we already support. We also added several shorter and smaller scale new series, including the BBC's 'Shark Attack'. A number of large, lower margin projects from 2004 did not repeat in 2005 which reduced our turnover, but without a proportionate effect on operating profit. We also entered into our first substantial agreements with domestic television networks that span multiple seasons for various types of speciality equipment, including high definition super slow-motion camera systems. One example is the agreement with NBC to supply them with high definition content management and replay systems and support for the Turin and Beijing Olympics. We continued to fulfil more of our contracts with our own equipment rather than with expensive subrentals from third parties. Those cost savings dropped through to operating profit, offsetting the reduction in turnover. Going forward into 2006, we have built a '3G Live' prototype that provides an independent production stream for near-real-time delivery of alternative content from live event venues, primarily for distribution to the web, mobile phones and other new media devices. We became an authorised Apple Broadcast Services Partner, and have demonstrated the prototype to a number of major network and production customers. It has recently been used for editing the TWI/IMG 'Olympus Fashion Week', webcasting through MSN. With our new Chief Technology Officer on board, Vitec will be the major sponsor of the 2006 Techforum, an event at which the leaders of US broadcasting meet to learn about technical events in the industry. Although neither the Techforum nor the '3G Live' system will provide significant revenues by themselves in 2006, they are keeping us in closer contact with customers who often then end up renting other equipment and services from us. They also reinforce our image as a leading solutions and services provider as distinguished from more commoditised 'box renters' that add little value beyond fulfilling orders. FINANCIAL REVIEW The table below sets out an analysis of the causes of movements in operating profit before significant items* between 2004 and 2005. Whilst the variances are based on management's best estimates and are not a statutory presentation, they help to explain the underlying changes in the business during the year. Operating profit* 2004-05 Variance Analysis (Â£m) 2004 Operating profit* 17.8 Gross margin effects: - Volume and mix 2.1 - Sales price less cost inflation 0.1 Operating expenses 0.6 2.8 Acquisitions 0.3 FX effects: - Translation 0.1 - Transaction after hedging (1.0) (0.9) 2005 Operating profit* 20.0 * before significant items Revenue increased by Â£9.5 million to Â£194.9 million, or 5.1% in the year. Of this, Â£6.7 million (3.6%) was like-for-like, Â£2.2 million (1.2%) was due to acquisitions and Â£0.6 million (0.3%) favourable foreign exchange. Sales growth was particularly strong in the USA and EMEA but flat in Asia. Acquisition growth came principally from Kata, the Israeli bags maker, which was acquired on 31 May, together with a full year contribution from Charter US. Operating profit before significant items* was Â£20.0 million, Â£2.2 million or 12.4% greater than 2004. Before adverse foreign currency effects of Â£0.9 million, the increase in profit was Â£3.1 million or 17.3%. Despite hedging its foreign exchange transaction exposure, the Group suffered from the weaker US dollar against the euro, particularly in the first half year. The Group's operating profit* margin increased from 9.6% to 10.3%. Restructuring costs were Â£0.9 million (2004: Â£2.1 million) which principally arose from the previously-announced restructuring plans within the Broadcast Systems Division enabling the Camera Support and Communications businesses to operate in a more integrated manner. It is expected that the overall charge for these plans will be between Â£4.0 and Â£5.0 million, as previously announced, with Â£3.0m having now been charged. The charge for goodwill impairment was Â£nil (2004: Â£0.1 million). Amortisation of the intangibles acquired in Kata (see below) for the seven months of ownership was Â£0.2 million. These have been included as significant items. Significant items totalling Â£1.3 million were principally the above restructuring costs of Â£0.9 million, amortisation of intangibles for Kata of Â£0.2 million and other financial expense of Â£0.5 million (of which Â£0.3 million relates to the reduction in the value of foreign exchange options due to FX market volatility, and Â£0.2 million relates to currency losses on loans not accounted for as net investment hedges), offset by the profit on the sale of a factory building in Italy for Â£0.3 million. Taxation The effective taxation rate on operating profit after net finance expense but before significant items was 42% (2004: 45%). The reduction in the tax rate is due principally to progress made in reducing unrelieved UK tax losses. The Group's tax charge is relatively high because all of its profits arise overseas in high tax jurisdictions. (Note: the application of IFRS increased the effective tax rate for 2004 by some 3% compared to UK GAAP, due to changes in the accounting for deferred taxes). Discontinued operation The Â£0.4 million credit relates to the release of the remaining provision for the upgrade of retail units in the ALU business, which was divested in 2003. Acquisitions On 31 May 2005 the Group acquired the business and assets of Kata, the Israeli designer and manufacturer of premium protective carrying bags for cameras and accessories in the photographic and broadcast markets. The consideration, including acquisition expenses, amounted to Â£4.7 million. Based on an assessment of the fair value of assets acquired, Â£0.7 million was attributed to tangible assets, Â£1.4 million to intangible assets (before a contingent tax liability of Â£0.3 million) and Â£2.9 million to goodwill. The amortisation of intangibles for the seven months was Â£0.2 million. An earnout of up to $13.0 million (Â£7.1 million) is payable based on sales and profit performance for 2005-07. Following the 2005 performance, the estimated earnout provision has been increased from US$3.6 million (Â£2.0 million) at half year to US$4.6 million (Â£2.5 million). Cash flow and net debt Cash generation remained strong, with net debt reducing by half to Â£5.4 million (2004: Â£11.3 million), despite the acquisition of Kata (above) and a one-off Â£2.1 million contribution to the Group's two UK pension schemes which were then merged. The principal reasons were operating profit generation and tax paid of Â£1.6 million compared to a tax charge of Â£7.7 million. Cash generated from operations was Â£29.8 million (2004: Â£22.5 million) equating to 73p a share (2004: 55p). Capital expenditure and financial investments were Â£11.7 million (2004: Â£10.0 million), of which Â£5.4 million (2004: Â£5.1 million) related to rental assets, partly financed by the proceeds from rental asset disposals of Â£1.2 million (2004: Â£1.1 million). Working capital efficiency improved. Inventory decreased by Â£1.3 million to Â£31.3 million, whilst stock days decreased to 99 (2004: 109 days). Trade receivables increased by Â£4.3 million to Â£30.5 million, reflecting high sales in December which also contributed to higher debtor days of 57 (2004: 52 days). Tax paid in 2005 of Â£1.6 million was similar to 2004 (Â£1.4 million). The current year benefited again from Italian tax credits arising from the sale of the ALU business in 2003, as well as a Â£0.7 million UK tax rebate. Tax payments in 2006 will equate more closely to the 2006 current tax charge. Treasury Financing, currency hedging and tax planning are managed centrally. Hedging activities are designed to protect profits, not to speculate. Substantial changes to the financial structure of the Group or treasury practice are referred to the Board. The Group operates strict controls over all treasury transactions involving dual signatures and appropriate authorisation limits. As in previous years, a portion of the transactions of subsidiaries in foreign currencies is hedged 12 months forward, as set out below. In 2005, due to the relative strength of the US dollar, some cover was also taken out for the first half of 2007. Currency millions December 2005 Average rate December 2004 Average rate US dollars sold for Euros Forward contracts $22.9 1.22 - - Options* $17.7 1.24 $16.0 1.21 US dollars sold for Sterling Forward contracts $15.5 1.78 $3.7 1.80 Options - - $1.7 1.84 *Includes cylinder options, where the mid-point of range is taken The Group does not hedge its foreign currency profits. Foreign currency net assets are not hedged other than by normal Group borrowings. Financing activities The Group's principal financing facility is a five-year Â£100 million committed multicurrency revolving loan agreement involving five banks, expiring on 24 January 2010. At the end of December, Â£17.2 million of the facility was utilised. The average cost of borrowing for the year was 4.6% (2004: 4.8%) with the upward trend in interest rates being partially mitigated by converting the remainder of the Group's sterling loans into euros and US dollars. Net interest cost (consisting of net interest payable and commitment fees) was Â£1.3 million (2004: Â£1.6 million). Net interest cover (using operating profit before significant items) remained high at 15 times (2004: 11 times). UK pensions At the end of 2003 the Group closed both of its UK defined benefit schemes to new members. From the beginning of 2004 a Group personal pension plan was made available for new employees, currently with Standard Life. In November 2005 the two schemes were merged. As at 31 December 2005 the number of active members in the newly-merged scheme had reduced by 13% to 201 (2004: 232). Total scheme members are 662 (2004: 676). A triennial actuarial valuation was undertaken as at 5 April 2004. On the basis of the assumptions adopted, the value of the schemes' assets (Â£28.3 million) was equal to 94% of the value placed on the benefits that had accrued to members allowing for expected future increases in salaries. As a result of the valuation regular contributions were increased by Â£0.2 million per annum with effect from the date of valuation. In addition, employees' contributions were increased from 1 January 2005. In November 2005 the Group contributed Â£2.1 million to fund the deficit highlighted by the 2004 triennial valuation and, also, to facilitate the merger of the two schemes to reduce ongoing administration costs. Following the funding actions set out above, the Group's UK defined benefit pension liabilities under IAS 19 (amended) as at 31 December 2005 were estimated by the Group's actuaries to be Â£42.0 million (2004: Â£36.5 million) and the deficit Â£3.1 million (2004: Â£5.8 million). The principal assumptions used for the valuations are set out below. 2005 2004 Inflation rate 2.8% 2.8% Expected rate of increase in: - Salaries 4.8% 4.8% - Pensions and deferred pensions 2.8% 2.8% Discount rate 4.8% 5.3% Long term rates of return - Equities 7.8% 7.9% - Bonds 4.3% 4.8% - Property 6.3% 6.8% Longevity - Pensioners currently aged 65 84/87 * 84/87 * - Non-pensioners currently aged 45 86/89 * 86/89 * * male/female Cautionary statement This announcement contains forward looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries and sectors in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. Consolidated income statement For the year ended 31 December 2005 Full year 2005 Full year 2004 Significant items (1) Significant items (1) Before Total Before Total significant significant items items Amortisation Restructuring Goodwill Restructuring of acquired costs and impairment, costs and intangibles Property negative Property and Other profits goodwill profits financial and Other expense financial items expense items Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue Continuing operations 193.2 193.2 185.4 185.4 Acquisitions 1.7 1.7 - - 194.9 194.9 185.4 185.4 Cost of sales (115.6) (115.6) (108.9) (108.9) Gross profit 79.3 79.3 76.5 76.5 Other operating income - 0.3 0.3 - - Operating expenses (59.3) (0.2) (0.9) (60.4) (58.7) (0.1) (2.1) (60.9) Operating profit Continuing operations 19.8 - (0.6) 19.2 17.8 (0.1) (2.1) 15.6 Acquisitions 0.2 (0.2) - - - - - - 20.0 (0.2) (0.6) 19.2 17.8 (0.1) (2.1) 15.6 Interest payable on bank (1.5) (1.5) (1.7) (1.7) borrowings Interest income 0.2 0.2 0.1 0.1 Pension scheme: Interest charge (2.0) (2.0) (1.1) (1.1) Expected return on assets 2.2 2.2 1.4 1.4 Other financial expense (0.5) (0.5) (1.0) - (0.1) (0.1) Net financial expense (1.6) (0.5) - (2.1) (1.3) (0.1) - (1.4) Profit before tax 18.4 (0.7) (0.6) 17.1 16.5 (0.2) (2.1) 14.2 Overseas taxation (7.7) - - (7.7) (7.4) - 0.9 (6.5) Profit from continuing 10.7 (0.7) (0.6) 9.4 9.1 (0.2) (1.2) 7.7 operations Profit from discontinued 0.4 0.4 - - operation Profit for the year 11.1 (0.7) (0.6) 9.8 9.1 (0.2) (1.2) 7.7 (attributable to Equity Shareholders) Earnings per share Continuing operations: Basic earnings per share 22.9p 18.8p Diluted earnings per share 22.7p 18.7p Total : Basic earnings per share 23.9p 18.8p Diluted earnings per share 23.7p 18.7p Dividends per ordinary share Prior year final paid Â£3.6m 8.9p Current year interim paid 6.1p Â£2.5m Current year final proposed 9.4p Â£3.9m (1) See note 4 Consolidated statement of recognised income and expense For the year ended 31 December 2005 2005 2004 Â£m Â£m Actuarial gain/(loss) on pension obligations 0.5 (0.6) Currency translation differences on foreign net investments 2.4 (4.1) Net (loss)/gain on hedge of net investment in foreign subsidiaries (0.2) 0.1 Cash flow hedging reserve: Amounts released to income statement (0.8) Effective portion of changes in fair value (0.7) Net income/(expense) recognised directly in equity 1.2 (4.6) Profit for the year 9.8 7.7 Total recognised income for the year 11.0 3.1 Effect of adoption of IAS 32 and IAS 39 at 1 January 2005 on: Retained earnings 0.4 Cash flow hedging reserve 0.8 Total 12.2 3.1 Consolidated Balance Sheet As at 31 December 2005 2005 2004 Â£m Â£m Assets Non-current assets Property, plant and equipment 33.6 30.7 Intangible assets 19.9 12.8 Deferred tax assets 5.8 7.2 59.3 50.7 Current assets Inventories 31.3 32.6 Trade and other receivables 37.0 35.0 Derivative financial instruments 0.2 Current tax assets 0.9 2.3 Cash and cash equivalents 12.7 14.4 82.1 84.3 Total assets 141.4 135.0 Liabilities Current liabilities Bank overdrafts 0.9 1.0 Bank loans - 24.7 Trade and other payables 31.5 27.4 Derivative financial instruments 0.9 Current tax liabilities 7.6 2.6 Provisions 1.2 2.7 42.1 58.4 Non-current liabilities Bank loans 17.2 - Other payables 0.2 0.1 Post-employment obligations 7.5 9.7 Provisions 2.7 0.2 Deferred tax liabilities 1.1 2.4 28.7 12.4 Total liabilities 70.8 70.8 Net assets 70.6 64.2 Equity Share capital 8.2 8.2 Share premium 2.7 2.7 Translation reserve (1.8) (4.0) Other reserves 0.9 1.6 Retained earnings 60.6 55.7 Total equity 70.6 64.2 Consolidated cash flow statement For the year ended 31 December 2005 2005 2004 Â£m Â£m Cash flows from operating activities Profit for the year 9.8 7.7 Adjustments for: Taxation 7.7 6.5 Depreciation 8.9 9.4 Amortisation of intangibles 1.2 0.8 Goodwill impairment - 0.7 Negative goodwill - (0.6) Loss on disposal of property, plant and equipment (1.6) (1.0) Fair value losses on derivative financial instruments (0.4) Cost of equity-settled employee share schemes 0.3 0.1 Financial income (2.4) (1.5) Financial expense 4.5 2.9 Operating profit before changes in working capital and provisions 28.0 25.0 Decrease/(Increase) in inventories 3.0 (0.1) Increase in debtors (0.8) (0.1) Increase/(decrease) in creditors 3.1 (1.2) Decrease in provisions (3.4) (1.1) Adjustments for foreign exchange losses (0.1) - Cash generated from operations 29.8 22.5 Interest paid (1.8) (1.7) Tax paid (1.6) (1.4) Net cash from operating activities 26.4 19.4 Cash flows from investing activities Proceeds from sale of property, plant and equipment 2.1 1.6 Purchase of property, plant and equipment (11.1) (8.7) Software and development costs capitalised as intangible assets (0.6) (1.3) Interest received 0.5 0.1 Acquisition of subsidiary, net of cash acquired (4.6) (1.5) Net cash from investing activities (13.7) (9.8) Cash flows from financing activities Proceeds from the issue of shares - 0.1 Repayment of bank loans (8.2) (1.6) Dividends paid (6.1) (9.3) Net cash from financing activities (14.3) (10.8) Decrease in cash and cash equivalents (1.6) (1.2) Cash and cash equivalents at 1 January 13.4 15.6 Exchange rate movements - (1.0) Cash and cash equivalents (including overdrafts) as at 31 December 11.8 13.4 Cash and cash equivalents 12.7 14.4 Bank overdrafts (0.9) (1.0) Cash and cash equivalents in the cash flow statement 11.8 13.4 Abbreviated segment reporting Primary format - by business segments Photographic Broadcast Broadcast Corporate and Consolidated Systems Services unallocated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue from external customers : Sales 76.2 68.7 91.5 86.9 7.8 8.8 - - 175.5 164.4 Services - - - - 19.4 21.0 - - 19.4 21.0 Total revenue from external 76.2 68.7 91.5 86.9 27.2 29.8 - - 194.9 185.4 customers Inter-segment revenue (1) 1.3 1.6 1.2 1.0 - - (2.5) (2.6) - - Total revenue 77.5 70.3 92.7 87.9 27.2 29.8 (2.5) (2.6) 194.9 185.4 Operating profit before 13.6 12.4 5.2 3.8 1.2 1.6 - - significant items 20.0 17.8 Amortisation of intangible (0.2) - - - - - - - (0.2) - assets Profit on the sale of 0.3 - - - - - - - 0.3 - property Restructuring costs - 0.1 (0.9) (2.2) - - - - (0.9) (2.1) Goodwill impairment and - - - (0.7) - 0.6 - - - (0.1) negative goodwill Segment result 13.7 12.5 4.3 0.9 1.2 2.2 - - 19.2 15.6 Net financial expense (2.1) (1.4) Taxation (7.7) (6.5) Profit for the period Continuing operations 9.4 7.7 Discontinued operation 0.4 - 9.8 7.7 Segment assets 48.6 39.0 52.1 54.1 20.3 18.3 1.0 (0.3) 122.0 111.1 Unallocated assets Cash and cash 12.7 14.4 12.7 14.4 equivalents Current tax assets 0.9 2.3 0.9 2.3 Deferred tax assets 5.8 7.2 5.8 7.2 Total assets 141.4 135.0 Segment liabilities 19.4 14.3 16.4 20.0 4.6 3.3 3.6 2.5 44.0 40.1 Unallocated assets Bank overdrafts 0.9 1.0 0.9 1.0 Bank loans 17.2 24.7 17.2 24.7 Current tax liabilities 7.6 2.6 7.6 2.6 Deferred tax liabilities 1.1 2.4 1.1 2.4 Total liabilities 70.8 70.8 Capital expenditure (including those acquired within acquisitions) Property, plant and equipment 3.3 2.4 2.4 1.2 5.4 6.0 0.1 - 11.2 9.6 Intangible assets 2.0 0.6 - 0.7 - - - - 2.0 1.3 (1) Inter-segment pricing is determined on an arm's length basis. Abbreviated segment reporting (continued) Secondary format - by geographical segments United Kingdom Rest of The Rest of the Corporate and Consolidated Europe Americas World unallocated 2005 2005 2004 2005 2004 2004 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue from external customers: By origin 37.5 40.5 70.1 66.8 85.5 78.1 1.8 - - - 194.9 185.4 By location of 9.7 9.9 56.9 52.6 98.1 94.3 30.2 28.6 - - 194.9 185.4 customer Segment assets 23.5 24.9 40.4 42.5 47.2 42.4 9.9 1.6 1.0 (0.3) 122.0 111.1 Unallocated assets Cash and cash 12.7 14.4 12.7 14.4 equivalents Current tax assets 0.9 2.3 0.9 2.3 Deferred tax assets 5.8 7.2 5.8 7.2 Total assets 141.4 135.0 Capital expenditure (including those acquired within acquisitions) Property, plant and 1.7 0.6 3.3 2.5 5.8 6.4 0.3 0.1 0.1 - 11.2 9.6 equipment Intangible assets - 0.7 0.5 0.6 0.1 - 1.4 - - - 2.0 1.3 Important: The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2005 or 2004. Statutory accounts for 2004, which were prepared under UK GAAP, have been delivered to the registrar of companies. The auditors have reported on the 2004 accounts; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 1. Basis of Preparation The transition date for adoption of IFRS is determined in accordance with IFRS1 First Time Adoption of International Financial Reporting Standards, and has been determined as 1 January 2004. The information included within this document has been prepared on the basis of the recognition and measurement requirements of IFRS standards and IFRIC interpretations in issue that are endorsed by the European Commission and effective (or which Vitec has chosen to early adopt) at 31 December 2005 ('adopted IFRS'), the Group's first annual reporting date in accordance with IFRS. The standards having the most effect on the profit before tax and shareholders' funds are as a result of the adoption of IAS 19 (amended) Employee Benefits (in respect of pensions), IAS12 income taxes (in respect of deferred tax assets), IFRS 3 Business Combinations (in respect of goodwill), IFRS 2 Share Based Payment and IAS 10 Events After The Balance Sheet Date (in respect of dividends declared after the balance sheet date). The impact of adopting IFRS and a full analysis of the impact on the 2004 published results were reported in May 2005. 2. Basis of Presentation The Group's financial statements are prepared under the historical cost convention and in accordance with the Companies Act 1985 and applicable accounting standards. The accounting policies of the Group under previous UK GAAP are detailed in the 2004 Annual Report and Accounts and have been amended as discussed in the IFRS announcement on 19 May 2005. The revised accounting policies of the Group conform to IFRS. The financial data presented in this document is for the full year 2005, being the twelve months ended 31 December 2005, and compared to the corresponding period in the previous year. 3. Basis of Segmentation Segmental data in this statement is analysed on the basis of the divisional management structure (Photographic, Broadcast Systems, Broadcast Services) that the Group operates under. 4. 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. Amounts taken account of relating to operating items include the costs of major restructuring programmes, the amortization of acquired intangibles and profit on disposal of property. The Group uses options as part of its hedging of future cash flows. Under IFRS, the Group is able to hedge account for the intrinsic value of such options, but is not permitted to hedge account for the time value of such options. This time value is therefore marked-to-market at each balance sheet date. As such options are held to maturity, the ultimate net amount charged to the income statement in respect of any one option will always equate to the initial premium paid for that option. However, as a result of the mark to market, this may introduce volatile income and expenses between periods and such amounts are therefore being identified as other financial expense. Under IFRS, currency translation differences arising on long-term intra-group funding loans that are similar in nature to equity are charged/credited to reserves. Amounts relating to the currency translation differences arising on certain other intra-group funding balances that do not meet this strict criteria but that are very similar in nature are included within other financial expense. Significant items comprise restructuring costs (Â£0.9m), profit on disposal of property Â£0.3m, amortization of acquired intangibles (Â£0.2m), volatile premium on options (Â£0.3m) and currency translation on intra-group funding balances (Â£0.2m). 5. Earnings per share Basic earnings per share of 23.9 pence (2004: 18.8 pence) is based on profit for the year attributable to equity shareholders of Â£9.8 million (2004: Â£7.7 million) and the weighted average number of shares of 41,084,054 (2004: 41,062,429). Basic earnings per share relating only to continuing operations of 22.9 pence (2004: 18.8 pence) is based on profit for the year attributable to equity shareholders but before profit from discontinued operations. Basic earnings per share before significant items and discontinued operations of 26.0 pence (2004: 22.2 pence) is based on profit for the year attributable to equity shareholders but before the impact of significant items and before profit from discontinued operations. 6. Dividend The directors have declared a final dividend of 9.4 pence per share, which will absorb Â£3.9 million (2004: 8.9 pence absorbing Â£3.6 million). The dividend will be paid on 28 May 2006 to shareholders on the register at the close of business on 26 April 2006. 7. Key Exchange Rates Weighted average Year end 2005 2004 2005 2004 EUR / USD 1.24 1.24 1.18 1.36 GBP / USD 1.82 1.82 1.72 1.92 GBP / EUR 1.46 1.47 1.46 1.41 This information is provided by RNS The company news service from the London Stock Exchange

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