28th Mar 2007 07:01
Vislink PLC28 March 2007 Vislink plc Results for the year ended 31 December 2006 Vislink plc ("The Group") is a leading supplier of microwave and satellite videoand data links for the broadcast, defence, law enforcement and security marketsand of integrated CCTV systems for the marine safety market. Today the Groupannounces its results for the year ended 31 December 2006. Financial summary----------------------------------- -------- --------For the year ended 31 December 2006 £'000 2005 £'000----------------------------------- -------- --------Revenue 100,498 85,072Operating profit 12,939 7,141Adjusted* operating profit 14,303 8,348Profit before tax 12,675 6,365Earnings per share - basic 5.65p 2.66pEarnings per share - adjusted* basic 6.35p 3.30p----------------------------------- -------- -------- *Adjusted operating profit is operating profit before amortisation of acquiredintangibles. Adjusted earnings per share are calculated on the same basis. Key points • Group revenue was up 18% to £100.5 million • Group adjusted operating profit was up 71% to £14.3 million • Sales growth of 29% into target markets of defence, law enforcement and security • Adjusted earnings per share increased by 92% to 6.35 pence • The Board recommends an increased dividend up by 100% to 1.0 pence per share • Group cash generation was strong; the year ended with net funds of £3.9 million. Bob Morton, Chairman of Vislink plc, said: "I am pleased to report that the Group has had another strong trading yearfollowing on the success achieved in 2005. With record profits, a clearstrategy, good order books and a positive cashflow the Group is well placed forfuture growth." - Ends - Enquiries: VislinkIan Scott-Gall, Chief Executive 01488 685500James Trumper, Group Finance Director 01488 685500 Hudson SandlerAndrew Hayes 020 7796 4133James White 020 7796 4133 CHAIRMAN'S INTRODUCTION I am pleased to report that the Group has had another strong trading yearfollowing on from the success achieved in 2005. This has culminated in the Groupbeing promoted to the all share index in December 2006. With record profits, aclear strategy, good order books and a positive cashflow the Group is wellplaced for future growth. This year's record performance was achieved while continuing to invest in ouroperational capabilities. The success of our proven technology in the broadcastindustry is enabling the Group to address the defence, law enforcement andsecurity markets where we achieved revenue growth of 29%. To build on thisprogress we have continued to invest for the future. Our research anddevelopment costs increased by 10% to £5.4 million (2005 - £4.9 million). Thisis being supported by investment in additional marketing capabilities across theGroup. As a result, our new products have won a series of technology awardsduring the year and the Group has delivered organic growth. Another record yearGroup revenues increased by 18% to £100.5 million (2005 - £85.1 million). TheGroup's adjusted operating profit, being operating profit before theamortisation of acquired intangibles, increased by 71% to £14.3 million (2005 -£8.3 million). The adjusted profit margin also improved significantly to 14.2%of sales (2005 - 9.8%). The reported operating profit was £12.9 million (2005 -£7.1 million). Pre-tax profit rose to £12.7 million (2005 - £6.4 million). The Group's cashinflow from operating activities was £8.4 million (2005 - £6.5 million) and theGroup ended the year with net funds of £3.9 million (2005 - £ 2.2 million). Shareholder returnsAdjusted earnings per share increased by 92% to 6.35 pence (2005 - 3.30 pence)and basic earnings per share were 5.65 pence (2005 - 2.66 pence). Given thisstrong performance, the Board is proposing a 100% increase in the full-yeardividend to 1.0 pence per share (2005 - 0.50 pence). Board and management changesLen Mann, our Chief Technology Officer, will step down from his executive roleon March 31, 2007. Len was a founder and the managing director of Link ResearchLimited and has played a key role in their successful integration into the Groupsince the acquisition in 2005. I am pleased to report that Len will remain onthe Board as a non-executive director. Mike Payne, the Vice President ofMarketing and Business Development at MRC has been appointed the Group ChiefTechnology Officer with effect from April 1, 2007. After fourteen years as Chairman of the Group I have decided that the time hascome for a change and I will therefore not be standing for re-election at thenext Annual General Meeting. I am pleased that the Board has decided to appointTim Trotter, our senior independent non-executive director, as Chairman elect inmy place and I thank all my colleagues past and present for their help andsupport during my term as Chairman. EmployeesI would like to conclude by thanking the Board, management and employees fortheir support and dedication that has been integral to our record year. ProspectsThe prospects for 2007 are encouraging. The Group has started the year with aforward order book of £34.7 million (2005 - £38.8 million). Advent, Link and MRC are all benefiting from increased demand in theinternational broadcast markets outside of North America. In addition MRC isexpected to continue to benefit from the re-channelisation programme in the USthrough 2007 and 2008. The UK business, through Link's supply of OEM equipment,will also benefit from the programme. Building on the growth achieved in 2006, we are continuing to target theworldwide defence, law enforcement and security markets, which offer goodopportunities for growth for the Group beyond the US re-channelisation programmefor Advent, Link and MRC. Hernis has entered 2007 with a record order book. The marine, offshore andonshore markets all remain strong for Hernis. Their growth has been fuelled bythe high oil price and the increasing demand for natural resources that hasencouraged investment in a number of shipping and exploration projects aroundthe world by the oil and gas industry. In summary, we have a clear strategy for the development of our markets and ourproducts in order to maintain organic growth across the Group's businesses. Theboard looks forward to 2007 with confidence. ALR MortonChairman CHIEF EXECUTIVE'S STRATEGY REVIEW Objectives: broadcast and beyondOur strategy is to deliver increasing shareholder value by building upon ourmarket leading positions in the marine safety and broadcast markets, whilstincreasing our capacity to capitalise on the growing defence, law enforcementand security markets ("DLES") through investment in our product offering and thedevelopment of our sales channels. Our businesses will continue to evolve astechnologies develop and market opportunities and conditions change. The Grouphas a number of strategic objectives, which are to: 1. Maintain market leadership in the television broadcast contribution technology segment2. Remain the world leader for the provision of intrinsically safe marine CCTV systems3. Become a global provider of high quality wireless transmission systems for defence, law enforcement and security markets4. Evolve our product offering to meet the specific needs of new growth markets5. Seek out earnings enhancing strategic acquisitions. Broadcast MarketWe aim to maintain our strong position in the existing markets for professionaltelevision contribution technologies and continue to deliver organic growth byinvesting in people, new products and technologies. Our broadcast products continue to offer the most flexible range of TVcontribution technology systems that enable the transmission of live news andsports. The different applications of live contribution technology define ourbroadcast markets. We are developing new products to meet the increasing demandsfor greater mobility, High Definition (HD) and IP based systems. We see the movefrom Standard Definition (SD) to HD within the professional broadcast market asa strong growth opportunity. Defence, Law Enforcement and Security Market (DLES)We believe that there is a major opportunity for our products and technologiesby developing new and existing global sales channels to the DLES markets. Thesemarkets require communication systems that are mobile, are able to deal withdifficult environments with minimal infrastructure whilst providing highbandwidth, high quality video and high-speed data transmission. There is asignificant trend towards the convergence of terrestrial microwave and satellitesystems in these markets. We have developed products to meet these needs; we canprovide rapidly deployable tactical, multi-agency video and data communicationsfrom vehicles, airborne platforms, point-to-point microwave and satellite links.In the public safety arena, our digital video solutions are offering authoritiespowerful new ways to gather and share video surveillance and data on the move.Investment has been made in key sales management positions to accelerate ourgrowth. Marine Safety MarketOur marine safety CCTV business, Hernis, provides video protection systems forincreasingly valuable shipping and petrochemical assets in the marinetransportation and oil & gas markets. Our market leading camera stations andtailor-made integrated software control systems are utilised in both on andoffshore installations. We will continue to invest in the global expansion ofHernis to maintain its market leading position. Product Development and TechnologyOur key development objective is to create software configurable buildingblocks, with shared technology, for the next generation of networked devices.These will have market leading performance and feature sets with built inupgrade capabilities. We are currently investing 5.4% of our revenue in productdevelopment to create exciting new opportunities and to meet our customersevolving needs. We are implementing a unified corporate level product strategy across therelated businesses of Advent, Link and MRC under the guidance of the ChiefTechnology Officer. We have also formed a strategic Technology Committee withsenior management from each business to maintain a focus on our strategicdevelopment direction and to review competing and complementary technologies.AcquisitionsOur strategy is to seek out suitable acquisitions in two areas. Firstly thosewhich will strengthen and accelerate our growth into the defence, lawenforcement and security markets and secondly those that would bring growththrough complementary businesses and technology for our existing products andmarkets. IH Scott-GallChief Executive OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2006 2006 highlights and key performance indicators 2006 was a record year for the Group. The highlights were: • 18% increase in sales to £100.5 million • Reported operating profit £12.9 million (2005 - £7.1 million) • 71% increase in adjusted operating profit to £14.3 million (2005 - £8.3 million) • Adjusted earnings per share of 6.35 pence (2005 - 3.30 pence) • All key performance indicators have improved on the prior year The Group has achieved a 14.2% (2005 - 9.8%) return on sales at the adjustedoperating profit level, being operating profit before the amortisation ofacquired intangibles. This is ahead of the Group's previously stated keystrategic objective of a 10 per cent return. The table below sets out the trendin the key indicators that are used to measure the Group's performance. The 2006results show further improvement in all these metrics. Year ended December 31 2006 2005 2004----------------------------- -------- -------- ------- Orders received (£'000) 97,540 95,503 49,717Sales (£'000) 100,498 85,072 67,831Adjusted operating profit(1) (£'000) 14,303 8,348 2,549Adjusted profit as a percentage of sales 14.2% 9.8% 3.8%Adjusted earnings per share (pence) 6.35 3.30 1.21Net cash generation from operating activities(£'000) 8,372 6,461 (3,847)Return on capital employed(1) (ROCE) 36.6% 21.0% 9.3%----------------------------- -------- -------- ------- Review of operations in 2006 Markets Overview The Group has a global spread of revenues. In 2006, 54% of the Group's saleswere in North America, 18% in the UK and Europe, 11% in Asia and 17% in the restof the world. The Group saw growth in all regions in the year except for SouthAmerica where a large broadcast infrastructure contract has been completed. The operating businesses sell into three distinct global markets; broadcast,defence, law enforcement and security (DLES), and marine safety. Broadcast MarketEach of our brands, Advent, Link and MRC, are recognised within the broadcastindustry as market leaders with specialist knowledge. Each has well establishedroutes to market around the world, as well as taking advantage of being part ofthe Group through coordinated distribution. In particular Link wireless camerasand Advent satellite products are distributed in the North American markets byMRC, utilising MRC's established market strength. Group sales in the broadcast market grew 18% to £77.6million representing 77% ofthe Group's sales (2005 - 78%). The Group has seen increased demand in theMiddle East and Asia as well as continuing to benefit from the re-channelisationprogramme in the US. In addition HDTV is driving infrastructure spend by thebroadcasters. The Group also benefits from major sporting events and having hadsuccess in 2005/6 with the Winter Olympics we are looking to benefit from theanticipated spend for the summer Olympics in Beijing. Defence, Law Enforcement and Security Market (DLES)Sales in the DLES markets increased 29% to £10.0 million, representing 10% ofthe Group's sales (2005 - 9%). It is our strategy to develop these marketsfurther with a strategic objective that they should represent 30% of Group salesby 2009. The Group is continuing to invest in these markets through theappointment of two senior sales executives who will head up the development ofopportunities in the US and rest of the world respectively. Government agencies around the world are adopting digital technology andcreating growth markets. The need for two way, secure, bandwidth efficient videoand data communications to support tactical military, law enforcement andsurveillance operations is driving the demand for new applications of ourtechnology. With limited reliance on terrestrial infrastructure and power, ourmicrowave and satellite product lines, and core competencies, put us in a strongposition to provide solutions based on our proven expertise that meet the marketneeds. Marine Safety MarketHernis, our Norwegian business, sells into the global marine safety marketthrough a network of business partners and service centres. Hernis havepioneered the integration of intrinsically safe marine CCTV with other systemsincluding process control, fire, gas and intruder alarms. Sales into the marine safety market have increased 30% to £12.8 million,representing 13% of the Group's sales (2005 - 12%). The market is sub dividedinto onshore and offshore oil and gas and marine (including high risk vesselssuch as tankers and cargo ships as well as cruise and naval ships). The growthin the year has come from offshore (up 29%) and marine (up 77%) markets. Withthe oil and gas companies continuing to invest in exploration of increasinglyharsh environments and the strong build programme for new Liquid Natural Gas(LNG) vessels we expect Hernis to continue to see an increase in demand. Operational reviewThe table below summarises the Group's operating results by each businesssegment.----------------------------------- --------- --------Year ended 31 December 2006 2005 £'000 £'000----------------------------------- --------- --------Revenue by segment:UK 27,020 27,772US 60,384 47,256Norway 13,094 10,044 --------- --------Group total 100,498 85,072 --------- -------- Adjusted operating profit by segment:UK 4,095 2,095US 11,241 7,414Norway 1,318 942Central costs (2,130) (1,802) Unrealised profit in inventory (221) (301) --------- --------Operating profit before amortisation of acquiredintangibles 14,303 8,348----------------------------------- --------- -------- Operational review - UK business The UK business consists of three activities, the satellite communicationsbusiness of Advent, the wireless camera business of Link and the CMLinternational projects business. ------------------------- -------- -------- --------Year ended 31 December 2006 2005 Change £'000 £'000------------------------- -------- -------- --------Revenue:Advent 18,388 14,990 +23%Link 12,905 9,156 +41%CML projects 6,100 10,377 -41% -------- -------- --------Gross revenue 37,393 34,523 +8%Less: Inter segmental revenue (10,373) (6,751) +54% -------- -------- --------External revenue 27,020 27,772 -3% -------- -------- -------- Adjusted operating profit 4,095 2,095 +95%Amortisation of acquired intangibles (1,364) (1,207) -------- --------Operating profit 2,731 888 -------- --------Adjusted operating margin(1) 11.0% 6.1% +4.9%------------------------- -------- -------- -------- The core UK businesses of Advent and Link have shown good sales growth thisyear, whilst CML project sales decreased in line with expectations following thecompletion of the VTV contract. Advent has experienced sustained demand for satellite newsgathering products,with particular success in the Middle Eastern and Asian markets in the year.Advent has strong brand awareness in its markets, class leading products interms of performance and a reputation for reliability. Significant contract winsin the year included a satellite earth station for the Jordan Media City, and afurther five earth stations for Skylogic at Torino, building on the success ofthe earth stations built for the Turin Winter Olympics in 2005. In addition,Advent is building momentum in the DLES market having entered into a frameworkagreement with INDRA, a major European defence integrator, for the supply of 30X-band Newswift antennas in 2006/7. The Advent business has been strengthened by the recruitment of two new seniorsales executives and a strong product development programme. In 2006 Adventintroduced new HD enabled electronic sub systems and a new easy to integrate"flydrive" vehicle mounted antenna system. The development plan for 2007includes enhancements to existing products for the DLES market. In the DLESmarket Advent has seen growth in sales for its rugged commercial antennas thatmeet military requirements in the US through MRC. A new 1.0 metre antenna,developed jointly with MRC specifically for the military market, was launched inthe fourth quarter. After two difficult years Advent has now returned toprofitability, with an operating profit of £0.3million (2005 - loss of £0.6million). Sports programme makers were the first to adopt Link's standard definitionwireless camera technology, and now they are leading the way with HD wirelesscameras. Link's latest ultra low delay products are creating demand and the rollout of their new HD wireless cameras is well underway having been used in manyhigh profile sporting events during 2006. Broadcast Sports and Aerial VideoSystems, leading outside broadcast production houses in the US, have adoptedLink's HD systems as standard. Link are also benefiting from there-channelisation programme in the US through their association with MRC. In theUK, the BBC English Regions have appointed Link as their preferred supplier,having ordered systems for thirteen of their regions. Link generated anoperating profit of £3.7 million (2005 - £2.8 million) after the amortisation ofacquired intangibles. The VTV contract in Venezuela was completed in 2006. Whilst the contract made asmall profit over its full life, it was at a lower level than originallyanticipated due to delays in the completion of civil construction works andlocal inflation. As a result a final charge of £1.0million was taken in thefirst half of the year. The CML project business has continued to invest inopportunities in South America at a cost of £0.30 million, which has generated aprofitable equipment supply contract for £3.1 million in the fourth quarter.This is expected to be completed in the first quarter of 2007. Operational review - US business The US operation, MRC, has had its sixth consecutive year of growth since itsacquisition by the Group.------------------------- -------- -------- --------Year ended 31 December 2006 2005 Change £'000 £'000------------------------- -------- -------- -------- MRC revenue 60,762 47,403 +28%Less: Inter segmental revenue (378) (147) +157% -------- -------- --------External revenue 60,384 47,256 +28% -------- -------- -------- Operating profit 11,241 7,414 +52% -------- -------- --------Operating margin 18.5% 15.6% +2.9%------------------------- -------- -------- -------- MRC has an estimated 60% market share of the North American electronicnewsgathering (ENG) market, and a strong customer base in the Americas and Asia/Pacific regions. MRC has continued to benefit from the re-channelisation programme in the US thatinvolves over 1,000 broadcasters migrating to narrower frequency bands toaccommodate new advanced wireless services. In order to achieve thisbroadcasters are moving from analogue to digital transmission for electronicnewsgathering (ENG). MRC has a clear strategy in place to maintain their marketshare through this programme. Outside of the re-channelisation programme the US domestic broadcast market hasbeen flat. However, the programme provides only for the replacement of analogueproducts with SD digital products. We see significant opportunities beyond theprogramme to upgrade the new digital platforms that are being installed to HD.In addition MRC innovations have created opportunity by creating an awardwinning IP over ENG product in 2006 that allows journalists on assignment totransmit fully edited content in the form of digital files back to the studio.With shorter product life cycles in the digital age, we expect the underlyingbroadcast market in the US to grow on a regional basis once there-channelisation programme has been completed. MRC has also seen a 41% increase in DLES sales to £8.7 million. During the yearMRC won a US$3.0 million contract for the supply of the Advent Mantis antennas,as part of a system to support voice, video and data transport for a USGovernment user. MRC are also successfully developing Mobile Network CentricSolutions (MNCS). MNCS provides fast deployable disaster communications supportfor phone, video and Internet connectivity. By having an on demandself-sufficient network that does not require existing infrastructure MNCSenables agencies to perform together in applications such as disaster response,ground surveillance, border patrol, central command, fire and many other typesof emergency and tactical situations. In addition MRC have been strong in the USairborne digital video surveillance market by adapting broadcast engineeringsolutions for sending video and data back to Command Centres, a capability nowenhanced by the addition of HD. Operational Review - Norway The Norwegian business, Hernis, has had a record year for both sales andoperating profits.------------------------- -------- -------- --------Year ended 31 December 2006 2005 Change £'000 £'000------------------------- -------- -------- -------- Revenue 13,094 10,044 +30%Operating profit 1,318 942 +40%Operating margin 10.1% 9.4% +0.7%------------------------- -------- -------- -------- Growth for Hernis has come from strong marine and offshore oil and gas markets.Hernis have a market leading position for the supply of systems for the newLiquid Natural Gas (LNG) vessels built in Asia. The increasing level ofinvestment in offshore oil and gas rigs by the major oil companies has led to anincrease in demand for products and systems for floating rigs and drill ships.In addition Hernis have benefited from increased demand for both on and offshoreoil and gas installations such as tank farms, jetties and terminals. Significantorders received in the year included a contract for the installation of Herniscamera systems on four new LNG carriers for Samsung Heavy Industries in Korea, astorage tank farm for Qatar and two contracts in Norway for ultra-deepwatersemi-submersible drilling rigs. As a result sales, operating profit and marginshave all improved in the year. Hernis have been very successful in developing regional markets and customerrelationships through sales and technical support centres set up in Singapore,Houston and Brazil. Within the industry they have also achieved class typeapproval for their explosion proof camera housings that differentiates them byproviding quality assurance for their products and systems. Hernis have a strong product development programme. This has been enhanced bythe acquisition of a 34% stake in Wireless Power and Communications A/S (WPC) inNorway. WPC gives Hernis access to new power and data transfer techniques, usinginduction, which can be applied to a range of new camera stations. Hernis isalso developing other lateral market opportunities for this technology. Research and developmentThe Group is committed to investment in research and development in order tomaintain and enhance the Group's market share and competitive advantage for theproducts it manufactures. Both Link and MRC have won a number of awards fortheir use of technology and new products at the major international broadcastshows in 2006. Expenditure in 2006 was £5.4 million representing 5.4% of revenues (2005 - £4.9million, 5.8%). In addition the Group has capitalised development costs in theyear of £1.8 million (2005 - £1.1 million). The amortisation of developmentcosts of £1.0 million (2005 - £1.0 million) is included in the reportedexpenditure. Financial ReviewThe Group's results are summarised as follows: --------------------------------- --------- --------Year ended 31 December 2006 2005 £'000 £'000------------------------- -------- -------- Revenue 100,498 85,072 --------- -------- Adjusted operating profit 14,303 8,348 Amortisation of acquired intangibles (1,364) (1,207) --------- --------Reported operating profit 12,939 7,141 Net finance costs (264) (776) --------- --------Profit before tax 12,675 6,365 Taxation (4,968) (2,883) --------- --------Profit after tax 7,707 3,482 --------- --------Effective tax rate 39.2% 45.3% Basic earnings per share 5.65p 2.66p Adjusted earnings per share 6.35p 3.30p--------------------------------- --------- -------- Finance costsThe net interest charge for the year was £0.26 million (2005 - £0.78 million).Included within the interest charge is £0.22 million (2005 - £0.29 million) inrespect of the unwinding of the discounting of the deferred considerationassociated with the acquisition of Link Research Limited to its present value.Net interest paid in the year was £0.07million (2005 - £0.47 million). TaxationThe tax charge for the year was £4.97 million (2005 - £2.88 million). The UKcurrent tax charge was £0.35 million (2005 - £0.15 million) and the overseascurrent taxation in the year was £5.12 million (2005 - £2.75 million). Overseastaxation represents Norwegian corporation tax on the taxable profits of Hernisand state and federal taxes in respect of the US business. The current taxcharge was mitigated by a net deferred tax credit of £0.50 million (2005 -credit of £0.02 million). The effective tax rate for the year was 39.2% compared with the standard UKcorporation tax rate applicable during the year of 30%. The Group tax chargeincludes an overseas tax prior year adjustment of £0.39 million in respect of anIRS audit, against which the Company is appealing. Excluding this one-off chargereduces the effective tax rate to 36.1%, which reflects the higher tax rate(40%) that is attributable to the proportion of the Group's taxable profitsgenerated in the US. Current tax payable at December 31, 2006 was £1.17 million (2005 - £0.82million). Tax paid in the year was £5.12 million (2005 - £2.67 million). Cash flowsGroup cash and cash equivalents increased to £8.16 million at December 31, 2006(2005 - £7.12 million). The Group generated net cash from operating activities of £8.37 million in theyear (2005 - £6.46 million) after a net absorption of working capital of £3.23million (2005 - £0.88 million) as a result of the increased level of activities.A further £0.58 million was generated from the proceeds of the issue of newordinary shares (2005 - £4.74 million). Investing activities absorbed £3.68 million of cash (2005 - £4.43 million),comprising £1.81 million for capitalised development costs and a net £1.87million for property, plant, equipment and investments. Dividend paymentsamounted to £0.68 million (2005 - £0.25 million). Net debt repayments during the year were £2.70 million (2005 - £3.14 million),including the payment of £1.50 million of deferred consideration associated withthe acquisition of Link. Group debt at December 31, 2006 comprised secured bankloans of £2.50 million (2005 - £3.36 million) and unsecured loan notes of £1.75million (2005 - £1.60 million) in respect of the Link deferred considerationearned. The unsecured loan notes were settled on March 23, 2007. At December 31, 2006 the Group had net funds of £3.91 million (2005 - £2.16million). Returns to shareholdersIt is the Group's stated strategy to only recommend a final dividend. The Boardis committed to a dividend policy in line with the Group's performance and thisis reflected in the increase in the recommended dividend to 1.0 pence per share(2005 - 0.5 pence). The payment of the dividend will absorb approximately £1.38million of cash. Subject to the approval of shareholders, the dividend will bepaid on July 20, 2007, to those on the register at June 29, 2007. Foreign currency riskThe largest exchange risk to the Group in terms of its reported results lies inthe translation of the results of the US business from US dollars to sterling atthe average rate ruling for the year. To a lesser extent the Group's results arealso affected by the translation of the results of Hernis, the Norwegianbusiness. The principal exchange rates used by the Group in translating overseasprofits and net assets into sterling are set out in the table below. Rate compared to £ Average Average Year end rate, Year end rate,sterling rate, rate, 2006 2005 2006 2005 US dollar 1.84 1.82 1.96 1.72Norwegiankrone 11.81 11.72 12.19 11.63 Summary2006 was a record year for the Group, with growth being achieved in all keymetrics. The Group has a clear strategy for both product and market developmentfor organic growth across all of its businesses. The Board looks forward tofurther growth in 2007. Finally, on behalf of the Board, we would like to thank Bob Morton for hissubstantial contribution to the Group's success. Ian Scott-Gall - Chief ExecutiveJames Trumper - Group Finance DirectorMarch 28, 2007 CONSOLIDATED GROUP INCOME STATEMENTfor the year ended 31 December 2006 2006 2005 Notes £'000 £'000 Revenue 2 100,498 85,072Cost of sales (63,053) (56,452) ---------- ----------Gross profit 37,445 28,620Sales and marketing expenses (10,060) (8,952)Research and development costs (5,398) (4,950)Administrative costs (8,757) (7,407)Other expenses (291) (170) ---------- ----------Operating profit 2 12,939 7,141----------------------------- ------- ---------- ---------- Operating profit is analysed as:Operating profit before amortisation of acquiredintangibles 5 14,303 8,348Amortisation of acquired intangibles (1,364) (1,207)----------------------------- ------- ---------- ----------Finance costs 3 (505) (872)Investment income 3 241 96 ---------- ----------Profit before taxation 12,675 6,365Tax on profit 4 (4,968) (2,883) ---------- ----------Profit for the year being profit attributable toequity shareholders 7,707 3,482 ---------- ---------- ---------- ----------Earnings per share (pence per share): 5 5.65p 2.66p- basic 5 5.56p 2.62p- diluted ---------- ---------- Dividends The directors are proposing a final dividend in respect of the financial yearending 31 December 2006 of 1.0 pence per share, which will absorb an estimated£1,384,000 of shareholders' funds. It will be paid on 20 July 2007 toshareholders who are on the register of members on 29 June 2007. CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2006 2006 2005 £'000 £'000 Opening shareholders' equity 37,815 25,001 ----------- ----------- Profit for the financial period 7,707 3,482Share options - value of employee services 122 75Dividends (681) (246) ----------- -----------Movements in the profit and loss account 7,148 3,311Translation difference on foreign currency net (2,578) 1,765investmentsShares issued 518 7,687Disposal of investment in own shares 60 51 ----------- -----------Total movement in shareholders' equity 5,148 12,814 ----------- -----------Closing shareholders' equity 42,963 37,815 ----------- ----------- CONSOLIDATED GROUP BALANCE SHEETas at 31 December 2006 2006 2005 Notes £'000 £'000 Assets Non-current assets Goodwill 22,737 23,393Intangible assets 6,177 6,854Property, plant and equipment 4,689 4,547Investment in associates 182 -Financial assets - 43Deferred tax assets 991 835 ----------- ----------- 34,776 35,672 ----------- -----------Current assets Inventories 14,466 13,345Trade and other receivables 18,463 17,032Net cash and cash equivalents 7 8,159 7,122 ----------- ----------- 41,088 37,499 ----------- -----------Liabilities Current liabilitiesFinancial liabilities - borrowings 7 1,750 3,794Trade and other payables 24,240 22,206Current tax liabilities 1,172 816Provisions 668 732 ----------- ----------- 27,830 27,548 ----------- ----------- ----------- -----------Net current assets 13,258 9,951 ----------- ----------- Non-current liabilities Financial liabilities - borrowings 7 2,500 1,169Deferred tax liabilities 2,275 2,608Other non-current liabilities - 3,878Provisions 296 153 ----------- ----------- 5,071 7,808 ----------- ----------- ----------- ----------- 42,963 37,815 ----------- -----------Capital and reservesOrdinary shares 3,460 3,412Share premium account 4,832 4,362Investment in own shares (49) (109)Merger reserve 30,565 30,565Translation reserve (3,866) (1,288)Profit and loss account 8,021 873 ----------- -----------Total shareholders' equity 2 42,963 37,815 ----------- ----------- CONSOLIDATED GROUP CASH FLOW STATEMENTfor the year ended 31 December 2006 2006 2005 Notes £'000 £'000Cash flow from operating activitiesCash generated from operations 6 13,558 9,602Investment income 241 96 Finance costs (309) (567) Taxation paid (5,118) (2,670) ----------- -----------Net cash generated from operating activities 8,372 6,461 ----------- ----------- Cash flows from investing activities Acquisition of subsidiary (net of cash acquired) - (2,445) Proceeds from sale of property, plant and 12 130equipmentPurchase of property, plant and equipment (1,747) (1,014)Expenditure on capitalised development costs (1,810) (1,054)Investment in associates (139) (43) ----------- -----------Net cash (absorbed by) investing activities (3,684) (4,426) ----------- ----------- Cash flows from financing activities Net proceeds from issue of ordinary share 518 4,687capitalNet proceeds from sale of own shares 60 51Repayment of borrowings - secured (3,362) (3,138)Repayment of borrowings - unsecured (1,836) -Net proceeds from issue of new bank loan 2,500 -Dividend paid to shareholders (681) (246) ----------- -----------Net cash (absorbed by)/generated from financing (2,801) 1,354activities ----------- ----------- Effect of foreign exchange rate changes (850) 514 ----------- ----------- Net increase in cash and cash equivalents 1,037 3,903 Cash and cash equivalents at 1 January 7,122 3,219 ----------- -----------Cash and cash equivalents at 31 December 7 8,159 7,122 ----------- ----------- NOTES TO THE INTERIM ACCOUNTSfor the year ended 31 December 2006 1. BASIS OF PREPARATION These results have been prepared in accordance with all International FinancialReporting Standards (IFRS) as adopted by the European Union (EU), IFRICinterpretations and with those parts of the Companies Act, 1985 applicable tocompanies reporting under IFRS. 2. SEGMENTAL ANALYSIS The Group is organised geographically by the location of its operations, whereits products are produced and its service delivery activities are based. Theinternal management reporting within the Group also follows these lines.Therefore for the purposes of primary segmental reporting it is appropriate tosplit the results between the UK, the US and Norwegian businesses. Revenue Operating Profit Net Assets 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000By business location:UK 37,393 34,523 4,095 2,095 15,595 15,991US 60,762 47,403 11,241 7,414 18,413 14,782Norway 13,094 10,044 1,318 942 5,107 4,471Inter-segmentaltransactions (10,751) (6,898) (221) (301) - -Central - - (2,130) (1,802) 3,848 2,571 -------- ------- ------- ------- ------- ------- 100,498 85,072 14,303 8,348 42,963 37,815Amortisation of acquiredintellectual propertyand customerrelationships - - (1,364) (1,207) - - -------- ------- ------- ------- ------- ------- Total 100,498 85,072 12,939 7,141 42,963 37,815 -------- ------- ------- ------- ------- -------Amortisation of acquired intellectual property and customer relationships relateto the UK business. The table below shows the analysis of Group external revenue, by the geographicmarket of its customers. UK US Norway Total 2006 2005 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Bycustomergeographicmarket:UK & 5,421 4,890 - 37 853 551 6,274 5,478Ireland Rest of 6,104 7,002 431 905 5,221 4,423 11,756 12,330EuropeNorth 767 784 53,240 40,236 567 815 54,574 41,835AmericaSouth 6,501 10,858 2,038 1,087 326 603 8,865 12,548AmericaMiddle 4,693 1,367 - 288 1,946 355 6,639 2,010EastAsia 2,604 1,974 3,984 4,242 4,004 3,066 10,592 9,282Africa 515 404 53 92 74 110 642 606Other 415 493 638 369 103 121 1,156 983 ------- ------- ------- ------- ------- ------- -------- ------- 27,020 27,772 60,384 47,256 13,094 10,044 100,498 85,072 ------- ------- ------- ------- ------- ------- -------- ------- The tables below analyse revenue by product categories and by category of enduser. 2006 2005 £'000 £'000Analysis of revenue by product categoryMicrowave radio and wireless camera products 63,275 49,070Satellite products 19,309 15,576Broadcast projects 4,820 10,370Marine CCTV products 13,094 10,044Other - 12 -------- -------- 100,498 85,072 ----------------------------------------- -------- -------- Analysis of revenue by end user categoryBroadcasters 77,570 66,017Defence, law enforcement and security 10,016 7,745Marine, oil and gas 12,773 9,803Utility 139 1,495Other - 12 -------- -------- 100,498 85,072 ----------------------------------------- -------- -------- 3. FINANCE COSTS - NET 2006 2005 £'000 £'000Interest payable on bank borrowing (236) (537)Interest payable on other loans (46) (43)Unwinding of interest associated with the discounting ofdeferred consideration (223) (292) --------- --------Interest and similar charges payable (505) (872) Investment income 241 96 --------- --------Finance costs - net (264) (776) --------- -------- 4. TAXATION The tax charge for the year comprises: 2006 2005 £'000 £'000Current taxUK corporation tax 351 149Foreign tax 5,118 2,755 --------- --------Total current tax 5,469 2,904 --------- -------- Deferred taxUK corporation tax (264) 520Foreign tax (237) (541) --------- --------Total deferred tax (501) (21) --------- --------Taxation charge 4,968 2,883 --------- -------- UK Corporation tax is calculated at 30 per cent (2005 - 30 per cent) of theestimated assessable profit for the year. Foreign corporation taxes arecalculated at the rates prevailing in the respective jurisdictions. 5. EARNINGS PER ORDINARY SHARE Earnings per share is calculated by reference to a weighted average of136,495,000 ordinary shares in issue during the period, excluding shares held bythe Employees' Share Ownership Plan (2005 - 131,052,000). The diluted earnings per share is after taking account of a further 2,094,000shares (2005 - 1,631,000) being the dilutive effect of share options. Adjusted earningsVislink believes that adjusted operating profit, adjusted profit before tax,adjusted earnings and adjusted earnings per share provide additional usefulinformation to shareholders. These measures are used by Vislink for internalperformance analysis and incentive compensation arrangements. The term"adjusted" is not a defined term under IFRS and may not therefore be comparablewith similarly titled profit measurements reported by other companies. Theprinciple adjustment is made in respect of the amortisation of acquiredintangibles. The reconciliation between reported and underlying earnings and basic earningsper share is shown below: 2006 2005 Earnings Basic EPS Earnings Basic EPS £'000 pence £'000 penceReported earnings 7,707 5.65p 3,482 2.66pAmortisation of acquiredintangibles after tax 955 0.70p 845 0.64p --------- --------- -------- ---------Adjusted earnings 8,662 6.35p 4,327 3.30p --------- --------- -------- --------- 6. NOTES TO THE CASH FLOW STATEMENT Reconciliation of operating profit to net cash flows from operating activities: 2006 2005 £'000 £'000 Profit attributable to shareholders 7,707 3,482Taxation 4,968 2,883Depreciation 1,321 1,081Loss on disposal of property, plant and equipment 41 5Amortisation of development costs 997 968Amortisation of acquired intangibles 1,364 1,207Share options - value of employee services 122 75Investment income (241) (96)Finance costs 505 872(Increase) in inventories (2,110) (3,377)(Increase)/decrease in trade and other receivables (2,706) 619Increase in payables 1,457 2,150Increase/(decrease) in provisions 133 (267) ---------- ----------Net cash inflow from operating activities 13,558 9,602 ---------- ---------- 7. NET FUNDS The movements in cash and cash equivalents and borrowings in the period are asfollows: Net cash and Short term Other Total net funds cash borrowings borrowings equivalents £'000 £'000 £'000 £'000At 1 January2006 7,122 (3,794) (1,169) 2,159Cash flow forthe period 1,887 - - 1,887Repayment ofborrowings - 3,794 1,169 4,963New securedbankborrowings - - (2,500) (2,500)New unsecuredloan notes - (1,750) - (1,750)Exchange rateadjustments (850) - - (850) --------- --------- --------- ---------At 31 December2006 8,159 (1,750) (2,500) 3,909 --------- --------- --------- --------- Unsecured loan notes issued in the year of £1.75 million are in respect of thedeferred consideration for the acquisition of Link Research Limited earned bythe vendors. 8. DIRECTORS RESPONSIBILITIESThe announcement represents non-statutory accounts within the meaning of section240 of the Companies Act 1985. The statutory annual accounts for the year ended31 December 2006, upon which an unqualified audit opinion has been given andwhich did not contain a statement under section 235, 237(2) or 237(3) of theCompanies Act 1985, will be sent to the Registrar of Companies in due course. 9. REPORT AND ACCOUNTS Copies of the Report and Accounts will be sent to shareholders in due course andwill then be available from the registered office at Marlborough House, CharnhamLane, Hungerford, Berkshire, RG17 0EY. --------------------------(1) Defined as operating profit before the amortisation of acquired intangibles,the impairment of goodwill, and rationalisation costs This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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