30th May 2007 07:03
The Vitec Group PLC30 May 2007 Not for release, distribution or publication, in whole or in part, in or intothe United States, Canada, Australia or Japan FOR IMMEDIATE RELEASE30 May 2007 THE VITEC GROUP PLC ACQUISITIONS OF NUCOMM AND RF CENTRAL The Vitec Group plc ("Vitec" or the "Group") announces the acquisitions ofNucomm Inc and RF Central LLC (together "Vitec Group RF Systems") for aggregateinitial considerations of $38.5 million (£19.4 million), with a further $37.3million (£18.8 million) payable over the next four years, dependent onperformance (the "Acquisition"). After taking into account anticipated net cashof $2.8 million (£1.4 million) in the businesses at closing, the maximumacquisition cost is $73.0 million (£36.9 million). Closing is expected by earlyJune 2007. The two companies are technological leaders in providing wireless links forbroadcast applications, including camera, mobile broadcast van and fixedlocation transmitters and receivers. They sell mainly in the US, where theSprint/Nextel-sponsored BAS spectrum relocation project will generateconsiderable growth opportunities over the next three years. Due to Vitec Group RF Systems' size and growth prospects, the Acquisition is anexcellent fit with Vitec's Broadcast Systems division. The acquired companiessell to similar customers and Vitec's infrastructure is expected to provideopportunities for further growth internationally. The Acquisition is expected to be immediately earnings enhancing (preamortisation of intangibles and any one off costs) (see note 5). Commenting on the Acquisition, Gareth Rhys Williams, Chief Executive of Vitec,said: "The companies we are acquiring, while strong in their own right, will benefitfrom becoming a consolidated entity within Vitec and will be able to offer awider range of products and services to more customers. We are excited by thisopportunity to expand our product offering into a very closely-related area. "While the companies provide proven technology, the longstanding reputation ofVitec in the broadcast market will help to realise their potential. The volumegenerated by the BAS spectrum relocation project will generate significantpotential for the Group over the next three years and, thereafter, we expectthat the ongoing consolidated business will continue to generate an attractivereturn for shareholders." Analysts conference call Vitec will be hosting a conference call for analysts at 8.30am on Wednesday May30th 2007. For dial in details please contact Elaine Ryman at Financial Dynamicson 020 7269 7121. Enquiries:The Vitec Group Tel: 020 8939 4650Gareth Rhys WilliamsAlastair Hewgill Financial Dynamics Tel: 020 7269 7121Richard Mountain 30 May 2007 THE VITEC GROUP PLC ACQUISITIONS OF NUCOMM AND RF CENTRAL Introduction The Vitec Group plc ("Vitec" or the "Group") announces the acquisitions ofNucomm Inc and RF Central LLC (together "Vitec Group RF Systems") for aggregateinitial considerations of $38.5 million (£19.4 million) and a further $37.3million (£18.8 million) payable over the next four years, dependent onperformance (the "Acquisition"). After taking into account anticipated net cashof $2.8 million (£1.4 million) in the businesses at closing, the maximumacquisition cost is $73.0 million (£36.9 million). Closing is expected by earlyJune 2007. Commenting on the Acquisition, Gareth Rhys Williams, Chief Executive of Vitec,said: "The companies we are acquiring, while strong in their own right, will benefitfrom becoming a consolidated entity within Vitec and will be able to offer awider range of products and services to more customers. We are excited by thisopportunity to expand our product offering into a very closely-related area. "While the companies provide proven technology, the longstanding reputation ofVitec in the broadcast market will help to realise their potential. The volumegenerated by the BAS Relocation Project will generate significant potential forthe Group over the next three years and, thereafter, we expect that the ongoingconsolidated business will continue to generate an attractive return forshareholders." Information on VGRFS Vitec Group RF Systems makes, sells and installs wireless links, principally forUS broadcasters. Wireless links are used by broadcast companies for the transmission of video,audio and data. A typical application is the transmission of video signals froma mobile camera to a mobile broadcast van, then via fixed rooftop receivers andtransmitters to the studio (where the content is edited) and, finally, to thetransmission mast. They are used mainly by sports, entertainment and news eventsbroadcasters, as well as rental businesses, who value the speed, cost, bandwidthand reliability of microwave wireless transmission. Vitec Group RF Systems comprises three companies: • Nucomm - based in Hackettstown, New Jersey, is one of the leading providers in the US of fixed and mobile links. Presently employing some 95 staff, the business is majority owned by Dr John Payne, the founder, and his son, John Payne IV, both of whom will be staying with the business; • RF Central - based in Carlisle, Pennsylvania, is a US distributor and integrator of microwave products, particularly mobile links. The business, employing some 50 people, is managed by Jeff Winemiller, the founder, who will also be staying with the business, and majority owned by Jeff Winemiller and his wife. RF Central also has an agreement to acquire MSC, below; • Microwave Services Corporation (MSC), based in Haverhill, Massachusetts; a leading US microwave repair house, managed by the founder, Warren Parece, who will also be staying with the business post closing. Information on BAS Relocation Project In exchange for being granted radio spectrum for their telecoms needs, Sprint/Nextel have been required by the US FCC to compress the existing BroadcastAuxiliary Service (BAS) spectrum into a smaller portion of the 2GHz radiospectrum. This compression requires the use of digital equipment. Under this 'BAS Relocation Project', Sprint/Nextel will replace all 2GHz analogue microwavesystems in the United States with Standard Definition digital systems on alike-for-like basis. This project is expected to result in 2GHz equipment salesand integration services of c.$600 million between 2006 and 2009 (predominantly2007 to 2009). As the BAS demand is significantly higher than the typical annual requirement,Sprint/Nextel has been issuing manufacturers with advance stocking orders, andpaying those manufacturers in advance for those stocks to be put in place. Inthis way, when the broadcasters make their final choice of equipment, there isexpected to be significant stocks available at each manufacturer. Opportunity for VGRFS / Vitec The Vitec Directors believe that Vitec Group RF Systems, with proven digitaltechnology and in aggregate probably the number two position in the US market,is well placed to gain significant sales during the BAS Relocation Project, byproviding leading products and installation services to customers who have toabandon their legacy analogue systems. Customers, reassured by Vitec'sinvolvement and support of these businesses, can plan purchases, not just forthe BAS Relocation Project, but afterwards when it is envisaged that otheropportunities, such as the upgrade of equipment from Standard Definition to HighDefinition, and the transition from analogue to digital for similar equipmentoperating on other frequencies, will underpin Vitec Group RF Systems' long-termperformance. Information on financial performance of VGRFS In the year ended 31 December 2006, based on US GAAP audited accounts, VitecGroup RF Systems' aggregated revenue and loss before tax were $19.3 million and$7.0 million respectively. On an unconsolidated basis, the profit before tax and gross assets attributableto the Vitec Group RF Systems businesses (sourced from US GAAP auditedaccounts) were as follows: Year end Loss before tax Gross assetsNucomm 31 December 2006 $5.8 million (£2.9 million) $36.2 million (£18.3 million)RF Central 31 December 2006 $1.2 million (£0.6 million) $24.4 million (£12.3 million) In 2006, both companies built up significant inventories in support of the BASproject which cannot be recognised as revenue, which led to the reported losses.Under US GAAP, despite having been paid for the product by Sprint/Nextel, the USvendors cannot recognise sales until the products are shipped to the endcustomer. As those inventories are delivered to the broadcast customers, revenuecan be recognised, resulting in a significant improvement in tradingperformance. This is expected to be enhanced by increased market share andintegration benefits. Aggregated revenue (under US GAAP) for the first quarterof 2007 was more than 60% higher than in the first quarter of 2006. Going forward, the results of Vitec Group RF Systems will be reported withinVitec's Broadcast Systems division under IFRS. Summary terms of the Acquisition Under the terms of the acquisition agreements, Vitec has acquired the shares of Vitec Group RF Systems' constituent companies for an initial consideration of$38.5 million (£19.4 million) from existing management of the respectivebusinesses, before cash in the business of $2.8m (£1.4 million). The Acquisitionwill be funded from: (i) the Group's existing bank facilities ($35.0 million /£17.7 million) and (ii) by the issuance of around 295,000 new Vitec shares ($3.5million / £1.8 million), which are locked up for 18 months from closing. Deferred consideration of up to a maximum of $37.3 million (£18.8 million) isalso payable, at least 50% in Vitec shares, a portion of which are also lockedup for 18 months from receipt, the rest in cash, on the achievement of certainannual profitability targets for 2007-10. The earnout hurdles are set such thatVitec would recover its initial investment before any earnout payments are made.The current majority owners of the Vitec Group RF Systems companies will staywith their businesses and participate in the earnout arrangements. The maximumtotal consideration for the Acquisition, including upfront and earn-outs, is $73million (£36.9 million) and is achievable if adjusted after-tax profits arecumulatively around $97 million (£49.0 million) by the end of 2010. The upfront consideration and earnout maxima are as follows: Upfront (Cash) / Debt* Maximum earnout MaximumUS$ million considerationNucomm 29.5 (11.3) 12.7 30.9RF Central 6.0 8.5 21.8 36.3MSC 3.0 - 2.8 5.8Total 38.5 (2.8) 37.3 73.0 *Assumed (cash) / debt taken over at closing Completion, dependent on certain contractual matters, is expected by early June. Financial effects of the Acquisition The acquisition is expected (pre amortisation of intangibles and any one offcosts) to be earnings enhancing for the year ended 31 December 2007 andmaterially enhancing thereafter to 2009 (see note 5), when the BAS RelocationProject will scale down, at which time there will also be an increase in workingcapital as the prepaid inventories are delivered. The Directors of Vitec expect the return on investment to materially exceedVitec's weighted average cost of capital for the year ending 31 December 2008and onwards. Following the Acquisition, and based on the Group's net debt position as at 31December 2006, the pro forma net debt of the enlarged Group would have been£39.8 million at that date. In line with the significant expected cashgeneration of Vitec Group RF Systems, and assuming no other transactions,Vitec's gearing is expected to reduce over the following years. Vitec expectthat the majority of the intangibles acquired will be amortised during the BASrelocation period. Enquiries: The Vitec Group Tel: 020 8939 4650Gareth Rhys WilliamsAlastair Hewgill Financial Dynamics Tel: 020 7269 7121Richard MountainSusanne Walker Notes 1. The Vitec Group supplies a wide range of equipment and services to thebroadcasting, entertainment and photographic industries. Its products aredistributed in nearly 100 countries, either through dealerships or direct to theend user or corporate customer. Vitec is based on strong, well known, premiumbrands that professionals rely on. Vitec is organised in three divisions:Imaging & Staging (formerly Photographic), Broadcast Systems and BroadcastServices. More information can be found at: www.vitecgroup.com. 2. For more information on the Vitec Group RF Systems companies please see: Nucomm - www.nucomm.com RF Central - www.rfcentral.com Microwave Service Corporation - www.microwaveservice.com Sprint/Nextel BAS Relocation project - www.2ghzrelocation.com 3. US Dollar to £ Sterling conversions have been shown at the rate of $1.98 /£1, The Vitec Group share price assumed in the calculation of the number of newshares to be issued was £6. 4. Key terms: Fixed link. A wireless link that operates between two fixed points, for examplebetween two towers that might comprise part of a wider relay system Mobile link. A link between a mobile unit and a fixed point, for example betweena handheld touch line camera and an outside broadcast van Standard Definition. The format of television signal used until the recent trendto 'High Definition'. Standard Definition signals can be either analogue ordigital, whereas High Definition signals have to be digital due to thesignificantly higher data rates required. 5. This statement should not be taken to mean that earnings per share (preamortisation of intangibles and any one off costs) of The Vitec Group plc willnecessarily exceed historic earnings per share (pre amortisation of intangiblesand any one off costs) of The Vitec Group plc and no forecast is intended orimplied. 6. Statements made in this announcement that look forward in time or thatexpress management's beliefs, expectations or estimates regarding futureoccurrences are "forward-looking statements" within the meaning of the UnitedStates federal securities laws. These forward-looking statements reflect Vitec'scurrent expectations concerning future events and actual results may differmaterially from current expectations or historical results. 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