3rd Mar 2008 07:01
The Vitec Group PLC03 March 2008 3 March 2008 2007 Full Year Results A YEAR OF STRONG GROWTH The Vitec Group plc, the international supplier of products, services andsolutions to the Broadcast, Photographic, and Entertainment industries,announces its results for the year ended 31 December 2007. Results from continuing operations 2007 2006 Change Revenue £273.8m £222.3m +23% Before significant items*Operating profit £32.6m £25.2m +29%Profit before tax £30.3m £24.1m +26%Earnings per share 46.0p 35.3p +30% After significant items*Operating profit £27.7m £23.5m +18%Profit before tax £25.8m £22.6m +14%Earnings per share 44.1p 32.6p +35% Total dividend recommended for the year 17.8p 16.5p +8% KEY POINTS • Revenue growth of 30% in constant currency (12% organic) • Operating profit before significant items* up 46% in constant currency (31% organic) • Basic earnings per share before significant items * of 46.0p, up 30% • Cash generated from operations of £33.8 million • Imaging & Staging division sales up 24% • Broadcast Systems operating margin above 10% for the full year • Acquisition of RF Systems, performing well *2007 significant items total a PBT charge of £4.5m and comprise amortisation ofacquired intangibles (£5.0m), offset by negative goodwill (£0.1m) and fair valueadjustments relating to volatile financial instruments (£0.4m); with an earningscharge of £0.8m after deferred tax credits (£3.7m). 2006 significant itemstotalled a PBT charge of £1.5m; with an earning charge of £1.1m, after adeferred tax credit of £0.4m. Commenting on the results, Gareth Rhys Williams, Chief Executive, said: "The Vitec Group has delivered another year of strong profit growth. Wesuccessfully positioned ourselves in markets which grew strongly, ourconsolidated operations platform is working well and the acquisitions we havemade to broaden our product range and strengthen our distribution networkprovided further momentum. "We entered 2008 with a strong order book and we have noted the encouragingforecasts of continued growth in the high end photographic market. 2008 will seethe Olympics in Beijing and we will also benefit from a full year ofcontribution from RF Systems. Overall, the Board looks forward to continuedprogress in 2008." EnquiriesThe Vitec Group plc Gareth Rhys Williams, Group Chief Executive 020 8939 4650 Alastair Hewgill, Group Finance Director Financial Dynamics Richard Mountain 020 7269 7121 Sophie Kernon This preliminary announcement should be considered to be part of the Directors'report to be contained in the forthcoming Annual Report and Accounts and as suchhas been drawn up and presented in accordance with and in reliance uponapplicable English company law (in particular section 463 of the Companies Act2006 and section 90A of the Financial Services and Markets Act 2000) and theliabilities of the directors in connection with that report shall be subject tothe limitations and restrictions provided by such law. Notes: 1. Whilst Vitec has significant production and sourcing in US dollars andhas hedging arrangements in place, movements in the $/£ and, particularly, $/•rates can have a significant impact on reported results. After hedging, theGroup has seen an adverse effect of £3.7 million on operating profit in 2007compared to 2006 (compared to the guidance of £3.3 million adverse given at theInterims in September) and, if current exchange rates continue throughout 2008,an adverse impact of some £1.9 million on 2008 operating profit compared to 2007(compared to the guidance of £1.8 million adverse given in September and £1.5million adverse given in January). 2. Current market exchange rates: £1 = $1.98, £1 = €1.31, €1 = $1.51. 3. 2007 average market exchange rates: £1 = $2.00, £1 = €1.47, €1 = $1.37. 4. 2006 average market exchange rates: £1 = $1.84, £1 = €1.47, €1 = $1.25. 5. 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. 6. Vitec is an international Group, principally serving customers in theworldwide media sector with products and services for the broadcast,entertainment and photographic industries. Vitec is based on strong, well known,premium brands that professionals rely on. Vitec is organised in threedivisions: Imaging & Staging, Broadcast Systems and Broadcast Services. Moreinformation can be found at www.vitecgroup.com. 7. The Group's AGM will be held on 27 May. CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT We are delighted to report another year of good progress for The Vitec Group inrevenue, profits and earnings per share. We continued to see excellent revenuegrowth, both organically and from acquisitions, and margins continued toprogress based on the improved operations platform. Results 2007 revenue grew 23%, to £273.8 million (2006: £222.3 million). Beforeacquisitions and adverse foreign exchange, our growth was around 12%. This wasachieved in a year with no significant sporting events and reflects Vitec'spositions in markets with positive underlying drivers. Acquisitions alsocontributed to our growth, the most significant being that of RF Systems in May2007, which performed well. Imaging & Staging: revenue grew 24% (2006: 24%) and, in constant currency,growth was 30%. In Imaging, there was continued strong demand for all productcategories: in the professional market place for lighting stands and high-endcamera supports, and in the 'prosumer' market where sales of the higher priced 'digital SLR' cameras continued to grow rapidly. This is the fifth year of growthin our Imaging business. In Staging, the acquisition of Tomcat improved ourpresence in the US and in the market for customised projects. The integrationprocess, although slightly slower than expected, is continuing but, dueprincipally to problems with two large contracts, the Staging business wasloss-making in the year. Broadcast Systems: revenue grew 29%, of which constant currency organic growthwas 7%, due principally to strong global demand for camera supports offset byadverse foreign exchange and the end of an OEM contract at our batteriesbusiness. Teleprompting products from Autoscript, acquired in October 2006, hada very successful first business year in the Group. RF Systems continued to growstrongly following its acquisition, based on its success in the FCC-driven 'BASRelocation Project'. Broadcast Services: operating mainly in the US, saw US dollar revenues grow 7%,despite having no demand from major sporting events in the year. Reportedrevenue in sterling declined 2%. This additional revenue and continued control of operating cost resulted inconstant currency Group operating profit improving by 46% or £11.1 million.Excluding acquisitions, constant currency operating profit was up 31%. Howeveradverse currency movements, principally the fall in the US dollar, cost theGroup £3.7 million after hedging (2006: £0.7 million), resulting in reportedoperating profit improving 29% or £7.4 million to £32.6 million (2006: £25.2million). With a higher finance charge of £2.3 million (2006: £1.1 million) arising mainlyfrom £0.6 million interest costs on the RF Systems acquisition, Group profitbefore tax and significant items* increased 26% to £30.3 million (2006: £24.1million). The headline tax rate for the Group was reduced again, by 3% to 37%. As a resultof the above growth and the reduced rate, basic earnings per share, beforesignificant items*, rose to 46.0p (2006: 35.3p), an improvement of 30%. Cash generated from operations was £33.8 million (2006: £28.7 million). Workingcapital increased due to higher sales, although inventory days before the RFSystems acquisition reduced to 114 (2006: 116). 2007 dividend With these improved results, the Board is proposing a final dividend of 10.9pper share, resulting in a full year total of 17.8p (2006: 16.5p), an increase of8%. Subject to approval by shareholders, the final dividend will be paid on 30May 2008 to shareholders on the register on 25 April 2008. Using adjusted earnings per share before significant items* the dividend iscovered 2.6 times (2006: 2.1 times), whilst after significant items* it iscovered 2.5 times (2006: 2.0 times). Outlook for 2008 We entered 2008 with a strong order book and we have noted the encouragingforecasts of continued growth in the high end photographic market. 2008 will seethe Olympics in Beijing and we will also benefit from a full year ofcontribution from RF Systems. Overall, the Board looks forward to continuedprogress in 2008. *Significant items are those items of financial performance that the directorsconsider should be separately disclosed to assist in the understanding of theunderlying trading and financial performance achieved by the Group and in makingprojections of future results. These items are quantified and explained in theFinancial Review and in Note 6. OPERATING REVIEW IMAGING & STAGING DIVISION Products for the photographic, videography and live event markets 2007 2006Revenue £117.3m £94.6mOperating profit* £17.7m £16.6mOperating margin* 15.1% 17.5% *Before significant items. Significant items are amortisation of intangibleassets of £0.7 million (2006: £0.5 million) Overview The Imaging & Staging division operates in two main markets: manufacturing anddistributing products for the professional and keen amateur photographer andvideographer, such as camera supports and bags, and manufacturing lighting andstaging systems for the live entertainment market. Lighting supports ('grip')are manufactured for both these markets and for cinematographers. It isorganised in three units: Imaging Accessories, Imaging Distribution, and StagingSystems. Strategy Focusing on successful launches of innovative new products, combined withcontrol of the distribution of those products in the key markets of the world,is proving to be a winning formula. Innovation is as important to the prophotographer as it is in Staging Systems, where customers who use our stage andlighting systems are looking for ever lighter, easier to operate and moreelegant solutions to make their events look as good as possible. 2007 performance 2007 was another successful year for the Division: revenue rose 24% to £117.3million (2006: £94.6 million). As in 2005 and 2006, every part of business sawrevenue growth. Operating profit before significant items* rose 7% to £17.7million (2006: £16.6 million). Adverse foreign exchange, particularly the weakerUS dollar was a significant handicap, reducing operating profit by £2.1m; inconstant currency sales and profit growth were 30% and 20% respectively. Imaging saw good growth in both half-years, although the adverse FX conditionskept the reported revenue in the second half very similar to the first half.Sales of professional products remained strong and the growth in shipments ofD-SLR cameras (the lower end of which are bought by the type of 'prosumer'customer who is likely to purchase our accessories) was 42% in 2007 according toCIPA, the camera manufacturers' trade association, underpinning our prosumersales. We launched 22 new support products in the year, backed by 13 newinternational patents, and more than 40 new bag products, including a whole newmid-range collection, the 'Digital Photo Collection'. The latest Manfrotto190XProB tripod won the coveted TIPA award for Best Accessory. The in-house distribution business, Bogen Imaging, made several significantsteps forward in 2007: the US and European websites have been upgraded, allowingus to reach target customers in a more exciting but easier way, the Frenchoperation has been consolidated onto one site, with the warehousing outsourced.The existing UK operation, Kata UK, was scaled-up in the second half, also withoutsourced warehousing, ready to bring the Manfrotto products in-house fromFebruary 2008, away from the previous UK distributor. Bogen Imaging now operatesin six countries. Corporate Social Responsibility is an important theme for customers like ours.2007 saw the Italian operation awarded the ISO14001 environmental certificationand their energy in Bassano and Feltre is now provided from renewable sources. In late 2007 the decision was taken to outsource the central warehousing inItaly to a third party operation. This 'hub' will receive goods from the variousImaging plants or suppliers and consolidate shipments to the European in-houseand third party distributors. The benefit of this will come from logisticssavings, space savings in the Italian plants, and from offering reduced deliverytimes to customers as we will be selling from finished stock. Inventory levelsrose in the final months of 2007 as the 'hub' was prepared and will fall back in2008 as the stock in our in-house local 'spokes' can be trimmed back. In Staging, the acquisition of Tomcat improved our market presence in the US andfor customised projects. The integration process, although slightly slower thanexpected, is continuing but, due principally to problems with two largecontracts, the Staging business was loss-making in the year. The US plant inTexas suffered from a lack of welding labour; we are planning to increase thesize of the facility in Mexico and increase our project management strength toresolve these problems. In early 2007 we acquired a plant in Slovakia that hasnow been scaled-up, producing standard products for Europe. BROADCAST SYSTEMS DIVISION Products and systems primarily for broadcast applications 2007 2006Revenue £129.8m £100.5mOperating profit* £13.3m £6.9mOperating margin* 10.2% 6.9% *Before significant items. Significant items are restructuring costs of £nil(2006: £1.5 million), amortisation of intangible assets of £4.3 million (2006:£0.1 million), profit on sale of property of £nil (2006: £0.4 million) andnegative goodwill of £0.1 million (2006: £nil). Overview The Broadcast Systems division provides equipment principally for professionalsengaged in producing live events or video content, frequently for subsequentbroadcast. The business units, Camera Dynamics, Communications, Mobile Power,and now RF Systems, sell their products worldwide, either direct to theend-customer or through a network of professional dealers. The division's brandsare frequently the acknowledged leaders in their fields. Strategy The market for broadcast equipment is benefiting from the trend to makeprogrammes in 'High Definition' (HD). This involves upgrading cameras andassociated ancillary equipment, much of which is provided by Vitec Groupcompanies. We have responded to the changed needs of the marketplace by managingour brands within single business units, enabling us to achieve economies ofscale in manufacturing and distribution and to develop exciting new productranges. 2007 performance 2007 revenue increased by 29% to £129.8 million (2006: £100.5 million), with asignificant improvement in operating profit - a rise of 93% to £13.3 million(2006: £6.9 million). It is very pleasing that the strong second halfperformance has lifted operating margins above 10% for the full year. Volumes at Camera Dynamics were up, with sales of studio products and therecently acquired Autoscript products well ahead of 2006. They have entered 2008with a very good order book, particularly for the Fusion robotic system. Revenue in the Mobile Power business was down on the previous year as an OEMcontract for medical product came to an end. The new battery systems for moviecameras have been received very well, uptake of which should resume now thewriters' strike in Hollywood has been resolved. The Elipz battery systemintroduced in mid-2006 for small video cameras continues to gain momentum. In our Communications business, more than 40 new Clear Com products werelaunched in 2007, driving higher demand and establishing a much strongercustomer proposition. Significant contract wins at the Muziektheater inAmsterdam, Norway's National Opera House, Teatro Royal in Madrid, Korea's MBCnetwork and China's CCTV network point to encouraging progress. Manufacturingoperations and supply chain management were largely consolidated into our newAlameda facility in California, thereby downsizing production operations inCambridge and reducing our UK facility accordingly. RF Systems is performing well, with sales and operating profit in the sevenmonths of Vitec ownership of £23.5 million and £3.3 million respectively. Proforma 12-month sales and operating profit for 2007 were £32.2 million and £5.2million. Both RF Central and Nucomm, have launched well-received 'HighDefinition' products that will maintain our competitive position. 2008 and 2009results will be buoyed by revenue from the BAS relocation project, which isexpected to fall away by 2010. Within the operations area the extended Camera Dynamics plant in Costa Rica hasperformed well, and new investments in machining in the UK are also increasingresponsiveness and delivering savings. We have acquired the Anton/Bauer buildingin Shelton, Connecticut, to gain space and flexibility in order to develop thebusiness for the future. BROADCAST SERVICES DIVISION Rental and technical support services, mainly for the broadcast market 2007 2006Revenue £26.7m £27.2mOperating profit £1.6m £1.7mOperating margin 6.0% 6.3% Overview The Broadcast Services division provides rental equipment and technical supportfor demanding outside broadcast events, mostly in the USA, from a network of tendepots. Bexel people have a reputation for solving the most complex problemsthat arise when these events are broadcast. The division also acts as anintegrator for sophisticated audio equipment and resells used equipment into theaftermarket. Strategy Customers choose Bexel because of their reputation for designing creativesolutions, providing service excellence and because of their nationwidefootprint. With the most relevant equipment and the best technical back-up,Bexel will continue to target contracts from customers looking for more thansimple equipment hire. 2007 performance Reported revenue of £26.7 million was down 2% (2006: £27.2 million). Thisbusiness, based in the USA, grew 7% in local currency, a significant achievementin a year with none of the major sporting events that it supports. The fall inthe US dollar, however, obscures this picture; reported profit of £1.6 million(2006: £1.7 million) was similarly down in sterling but slightly better in USdollars. This result, in US dollars, is the best since 2000. With two of the 2008 Olympics contracts awarded to Bexel in 2007, investments innew equipment were increased and this equipment allowed us to earn extra rentalincome. For example the new Hercules HD fly pack, essentially a mini-studio thatcan be disassembled and air-freighted, debuted to great acclaim and has beenwell utilised since its introduction. The fibre services business upgraded NFL's instant replay system to HD in 29stadia; more work of this type is anticipated. Operationally, the investments in IT now enable project staffing, profitabilityand performance to be monitored and managed very closely, a key part ofdelivering the required return on capital, which will be helped by theconclusion of new supply agreements with some of the major equipment providers.The Division's websites and communications have been enhanced, with all thebusiness streams (rental, projects, fibre, resale) now using the well-knownBexel name, and the number of major sales events where we participated has beendramatically increased. Preparation for the two major Olympics contracts in the summer is already welladvanced and the Bexel team will exploit the expertise of other Vitec staffbased in Beijing to make the event run efficiently. STRATEGY UPDATE AND FUTURE DEVELOPMENT The Group's strategy is summarised in the phrase 'Consolidate - Leverage -Grow'. After the initial phase, during which we consolidated multiple locations,smaller businesses and distribution channels into a more streamlined structurein order to extract scale economies, the focus has shifted to leveraging ourskills in product development and to expanding and exploiting our routes tomarket in pursuit of growth. While continuous improvement activities areongoing, the emphasis is on generating growth. We continue to look forvalue-adding acquisitions. By running our brands within consolidated businesses we are able to deliver bothcost efficiencies through better scale and maintain the individuality and energyof those brands, backed by higher levels of innovation. We aim to grow ever closer to our end-customers, providing them with bettertools and services to do their jobs, while at the same time looking forcomplementary areas into which the Group can expand and utilise itsindustry-leading expertise. Research, development & engineering As in previous years, we have maintained our emphasis on continuous innovation,bringing large numbers of new products to market and simultaneously widening ourservice offering. Within Imaging & Staging and Broadcast Systems the Group spends approximately 4%of revenue on new product development, £10.4 million in 2007 (2006: £8.7million). While Vitec's businesses are known for the quality and reliability oftheir products, there is an exciting pipeline of new ideas for the future. In2007 we again received a large number of awards for innovation, a sign that theGroup's products remain very relevant to our customers. Around 35% of sales in2007 (2006: 25%) were derived from products launched in the last three years;this is a very high level of innovation and a source of significant competitiveadvantage. Within Broadcast Services we continue to expand our range of services; this yearwe completed a large fibre networking project for the NFL and a number ofagreements have been concluded with major equipment vendors that improve ourflexibility and cost when handling large projects. The long-term rentalprogramme with National City Commercial Capital has produced several projectsand led to relationships with many new customers, who have subsequently usedBexel's rental services. Acquisitions During the year we bought three businesses: RF Central, Nucomm and MSC(Microwave Service Corporation). All three are based on the East Coast of theUSA and principally serve US broadcast customers. These businesses between themprovide leading products, system integration, installation and maintenanceservices. The US market for microwave equipment will be very strong in 2007 to2009 because part of the microwave spectrum that the broadcasters use (for 'ENG'or 'electronics news gathering' video signals that are sent to the studio) isbeing converted from analogue to digital technology under the FCC-mandated 'BASRelocation Project'. We believe that our three companies can grow market shareduring the BAS project which will leave them well-positioned afterwards whenbroadcasters have to consider how to upgrade their other networks. Vitec canalso help them grow outside the USA by leveraging our network of sales offices. In February 2007 we acquired a manufacturing plant in Slovakia that had beenoperating as a subcontract supplier for Litec, the Italian staging business.This plant has now been expanded to take more of our in-house production fromthe other plants in Europe. FINANCIAL REVIEW Revenue Revenue increased by £51.5 million to £273.8 million, or 23.2% in the year.After adding back £11.3 million (6.6%) for adverse foreign exchange, there was a£24.7 million (11.7%) organic increase and £38.1 million (18.1%) due toacquisitions (including £14.6 million due to acquisitions made partway through2006). Revenue growth, before acquisitions, was particularly strong in Asia, theUK and the rest of Europe. Operating profit The table below sets out an analysis of the causes of the increase in operatingprofit before significant items* between 2006 and 2007. The variances are basedon management's best estimates and are not a statutory presentation. Operating profit before significant items* 2006-07 Variance Analysis (£m)2006 Operating profit* 25.2Gross margin effects:- Volume and mix 10.7- Sales price less cost inflation 1.3Operating expenses (4.7) 7.3Acquisitions 3.8Foreign exchange effects:- Translation (1.3)- Transaction after hedging (2.4) (3.7)2007 Operating profit* 32.6 *2007 significant items in operating profit total a cost of £4.9m and compriseamortisation of acquired intangibles (£5.0m) offset by negative goodwill(£0.1m). 2006 significant items in operating profit totalled a cost of £2.1m. Operating profit before significant items* was £32.6 million, £7.4 million or29.4% greater than 2006. The Group's operating profit* margin increased from11.3% to 11.9%. Despite hedging its foreign exchange transaction exposure, theGroup suffered from the weaker US dollar. Before adverse foreign currencyeffects of £3.7 million, the increase in operating profit was £11.1 million or46.4%. Net financial expense Net financial expense before significant items* totalled £2.3 million (2006:£1.1 million) and increased principally because of the RF Systems acquisition. Taxation The effective taxation rate on operating profit after net finance expense butbefore significant items* was 37% (2006: 40%). The Group's tax charge isrelatively high because the majority of its profits arise in high tax overseasjurisdictions. Significant items No restructuring costs (2006: £1.5 million) are included in significant items*.There was no operating profit on the sale of buildings (2006: £0.4 million). Amortisation of acquired intangibles increased to £5.0 million (2006: £0.6million) due to recent acquisitions, particularly RF Systems, and has beenincluded in significant items*. Note: acquisition goodwill arising during theyear was £12.1m, including £4.8m estimated earnout, and is not amortised.Intangible assets acquired in RF Systems amounted to £14.2 million and will belargely amortised during the BAS project years of 2007, 2008 and 2009. Finance income included in significant items* consisted of a £0.4 million gain(2006: £0.2 million gain) due to currency movements on loans not accounted foras net investment hedges. The tax credit of £3.7 million relates to deferred tax. £1.7 million is deferredtax credits relating to tax relief on the amortisation of intangible assets,particularly in the USA. The Group has significant UK tax losses brought forwardand is paying no cash taxes in the UK. £2.0 million represents the credit forthe establishment of a deferred tax asset which was created in the year thencharged against profit before significant items. Acquisitions Acquisitions totalled £25.9 million, consisting of the cash outflow £15.0million (2006: £15.8 million), debt acquired £4.3 million, new shares issued£1.8 million and estimated earnout of £4.8 million. There is a maximum potentialearnout of £18.8 million relating to RF Systems and £0.1 million relating toStaging SK. The Group completed four acquisitions in 2007: Nucomm Inc, RFCentral LLC and Microwave Services (together "RF Systems"), involved in themanufacture, sale and service of microwave systems primarily for broadcast use,and Staging SK, a manufacturer of staging trusses, located in Slovakia. Business Division Acquisition Acquisition Bank loans & Issue of Estimated Total Earnout date consideration other new potential estimated period (1) borrowings ordinary earnout consideration acquired shares £m £m £m £m £m2007 acquisitionsStaging SK Imaging & 1 Feb 07 0.3 - - 0.1 0.4 2007-08 StagingRF Systems Broadcast 30 May 07/ 12.3 4.3 1.8 4.7 23.1 2007-10 Systems 27 Jun 07Total cost of 2007 acquisitions 12.6 4.3 1.8 4.8 23.5Earnout payments for previousacquisitionsPetrol Broadcast 16 Jan 06 1.2 n/a n/a n/a n/a 2006(re 2006) SystemsKata Imaging & 31 May 05 1.2 n/a n/a n/a n/a 2005-07(re 2006) StagingTotal acquisition cost in 2007 15.0 n/a n/a n/a n/a (1) Including acquisition expenses and cash acquired In addition, the Group invested a further £0.6 million (2006: £0.7 million) inMedia Numerics Ltd, a company that has developed a digital network producttargeted at the live entertainment industry. As at 31 December 2007 the Groupholds a 29% shareholding in Media Numerics. Cash flow and net debt £m 2003 2004 2005 2006 2007Net Debt 10.4 11.3 5.4 18.9 38.4Free Cash Flow(2) 2.9 11.1 17.3 10.5 4.7 (2) Free cash flow is the cash generated from operations less interest, taxand capital expenditure on property, plant & equipment and capitalised IT costs. Net debt increased to £38.4 million (2006: £18.9 million) mainly because of theRF Systems acquisition. Despite higher profits, free cash flow reduced to £4.7 million (2006: £10.5million) as a result of higher capital expenditure, increased working capitaland higher tax payments. Cash generated from operations was £33.8 million (2006: £28.7 million). Capitalexpenditure and financial investments totalled £19.0 million (2006: £13.9million), of which £6.4 million (2006: £4.1 million) related to rental assets,partly financed by the proceeds from rental asset disposals of £1.4 million(2006: £1.4 million), and £3.4 million related to the acquisition of the Anton/Bauer building in Shelton, Connecticut. Whilst working capital increased, as a percentage of revenue (beforeacquisitions) it was 24.0% (2006: 22.0%) at the year end, and averaged 24.1% in2007 (2006: 23.1%). Inventory increased by £24.5 million to £65.6 million,reflecting higher revenue, the new acquisitions and deliberately increasedinventory levels in Imaging. Nonetheless inventory days, before RF Systems,reduced to 114 (2006: 116 days). Trade receivables rose with the higher revenueand were £40.1 million (2006: £31.2 million), which resulted in debtor days,before the acquisition of RF Systems, of 52 (2006: 51 days). Tax paid in 2007 of £9.5 million was significantly greater than 2006 (£5.5million), with more taxes paid on profits in Italy and the USA. Treasury Financing, currency hedging and tax planning are managed centrally. Hedgingactivities are designed to protect profits, not to speculate. Substantialchanges to the financial structure of the Group or treasury practice arereferred to the Board. The Group operates strict controls over all treasury transactions involving dualsignatures and appropriate authorisation limits. As in previous years, a portion of the transactions of subsidiaries in foreigncurrencies is hedged 12 months forward, as set out below. Currency millions December 2007 Average rate December 2006 Average rateUS dollars sold for EurosForward contracts - - $9.6 1.23Options(3) $30.1 1.40 $23.6 1.25US dollars sold for SterlingForward contracts $14.7 1.97 $17.3 1.85Options $4.9 2.03 - - (3)Includes cylinder options, where the mid-point of range is taken The Group does not hedge its foreign currency profits. A proportion of theGroup's foreign currency net assets are hedged using normal Group borrowings andforward contracts. Financing activities The Group's principal financing facility is a five-year £100 million committedmulticurrency revolving loan agreement involving five banks, expiring on 24January 2010. At the end of December £43.4 million (2006: £26.3 million) of thefacility was utilised. The average cost of borrowing for the year was 6.1% (2006: 5.4%) reflecting theworldwide upward movement in interest rates. Net interest cost (consisting ofnet interest payable and commitment fees) was £2.6 million (2006: £1.4 million),reflecting principally the acquisition of RF Systems. Net interest cover (usingoperating profit before significant items*) remained high at 13 times (2006: 18times). With regard to the management of capital, the Group's primary objective is toensure its continuance as a going concern. In respect of gearing, the Boardseeks to maintain an efficient capital structure without exposing the Group tounnecessary levels of risk; the Group has operated comfortably within its loancovenant during 2007. The Board believes the current capital structure isappropriate for the Group, bearing in mind its current strong cash generation,dividend policy and its typical ongoing level of acquisition activity. UK pensions At the end of 2003 the Group closed both of its UK defined benefit schemes tonew members. Since 2004 a Group personal pension plan has been made availablefor new employees with Standard Life. In November 2005 the defined benefitschemes were merged. As at 31 December 2007 the number of active members in themerged scheme was 8% lower at 176 (2006: 192). Total scheme members were 655(2006: 662). A triennial actuarial valuation was undertaken as at 5 April 2007. The Trustees'actuary has recently sent this to the Group and we are currently in discussionabout the assumptions, funding position and impact on future contributions. Following the funding actions set out above, the Group's UK defined benefitpension liabilities under IAS 19 (amended) as at 31 December 2007 were estimatedby the Group's actuaries to be £43.2 million (2006: £43.5 million) with asurplus of £1.2 million (2006: £1.0 million deficit). The surplus hasprincipally arisen because of an increase in the corporate bond interest rateused to calculate the present value of future liabilities. The principalassumptions used for recent valuations are set out below. 2007 2006 2005Inflation rate 3.3% 3.0% 2.8%Expected rate of increase in:- Salaries 5.3% 5.0% 4.8%- Pensions and deferred pensions 3.3% 3.0% 2.8%Discount rate 5.8% 5.2% 4.8%Long term rates of return- Equities 8.0% 7.8% 7.8%- Bonds 4.8% 4.7% 4.3%- Property 6.7% 6.2% 6.3%Longevity- Pensioners currently aged 65 86/89(4) 86/89(4) 84/87(4)- Non-pensioners currently aged 45 88/91(4) 88/91(4) 86/89(4)Pension charge- Operating profit 1.5 1.5 1.5- Finance income (0.7) (0.6) (0.3)Net charge 0.8 0.9 1.2 (4)male/female 2006 Companies Act The 2006 Companies Act has introduced multiple, albeit individually small,changes. New Articles of Association reflecting these requirements are beingdrawn up for consideration at the AGM on 27 May 2008. Post balance sheet events There have been no significant post balance sheet events. PRINCIPAL RISKS AND UNCERTAINTIES US market Fifty one per cent of 2007 revenue was from the Americas, principally the USA,so the Group remains susceptible to any major deterioration in demand for itsproducts and services from US customers. It is difficult to mitigate this riskbut the Group seeks to reduce its dependence on the US by actively widening itssales and distribution activities, particularly into Asia. Foreign exchange The great majority of the Group's profit is earned in overseas currencies and istherefore subject to translation risk if sterling strengthens. To mitigate this,a proportion of the Group's foreign currency net assets are hedged using normalGroup borrowings and forward contracts. Also, many of the Group's businesses sell worldwide from various countries ofmanufacture, so the Group is subject to transaction risk, particularly that of aweaker US dollar. The Group partially hedges its major foreign exchange receiptsby selling currency 12-18 months forward on a rolling basis. In addition theGroup seeks to outsource parts, where appropriate, to low-cost countries, whichare frequently dollar-denominated. Broadcast market The Group's two broadcast divisions are at risk from a reduction in the capitalexpenditure requirements of its broadcast customers and, in the US, their rentalrequirements. This dependence is changing as broadcasting moves from TV todelivery by other modes such as internet and mobile services. To mitigate this,the Group markets its products and services to all of these producers ofbroadcast video material, as well as to the religious, corporate and governmentsectors. With the acquisition of RF Systems, the Group is benefiting from the BASRelocation Project, which entails the conversion of part of the microwavespectrum that broadcasters use from analogue to digital technology. There willbe significant revenue from this project, which is expected to peak in 2008 and2009, after which time the business will need to win other business in the USand abroad to replace these sales. Low-cost competition The Group is at risk from low-cost competitors who may sell similar products atlower prices, particularly for higher volume items such as the simplerphotographic tripods. While the Group also sources those cheaper products fromlower-cost countries, it combats this threat by patenting its technologieswherever possible and taking action against any infringement, continuouslyinnovating its products and employing its significant marketing and distributioncapabilities. Cautionary statement This announcement contains forward looking statements that are subject to riskfactors associated with, amongst other things, the economic and businesscircumstances occurring from time to time in the countries and sectors in whichthe Group operates. It is believed that the expectations reflected in thesestatements are reasonable but they may be affected by a wide range of variableswhich could cause actual results to differ materially from those currentlyanticipated. Consolidated Income StatementFor the year ended 31 December 2007 2007 2006 Before Significant Total Before Significant Total significant items(1) significant items(1) items items £m £m £m £m £m £mRevenueContinuing operations 250.3 250.3 222.3 222.3Acquisitions 23.5 23.5 273.8 273.8 222.3 222.3Cost of sales (162.5) (162.5) (129.1) (129.1)Gross profit 111.3 111.3 93.2 93.2Other operating income - - - - 0.4 0.4Operating expenses (78.7) (4.9) (83.6) (68.0) (2.1) (70.1)Operating profitContinuing operations 29.3 (1.0) 28.3 25.2 (1.7) 23.5Acquisitions 3.3 (3.9) (0.6) 32.6 (4.9) 27.7 25.2 (1.7) 23.5Interest payable on bank (2.8) (2.8) (1.5) (1.5)borrowingsInterest income 0.2 0.2 0.1 0.1Pension scheme:Interest charge (2.3) (2.3) (2.1) (2.1)Expected return on assets 2.9 2.9 2.6 2.6Other financial income/(expense) (0.3) 0.4 0.1 (0.2) 0.2 -Net financial expense (2.3) 0.4 (1.9) (1.1) 0.2 (0.9)Profit before tax 30.3 (4.5) 25.8 24.1 (1.5) 22.6Taxation (11.2) 3.7 (7.5) (9.6) 0.4 (9.2)Profit for the period 19.1 (0.8) 18.3 14.5 (1.1) 13.4(attributable to EquityShareholders) Earnings per shareBasic earnings per share 44.1p 32.6pDiluted earnings per share 43.5p 32.2p Dividends per ordinary sharePrior year final paid 10.1p £4.2mCurrent year interim paid 6.9p £2.8mCurrent year final proposed 10.9p £4.5m (1) See Note 6 Consolidated statement of recognised income and expenseFor the year ended 31 December 2007 2007 2006 £m £mActuarial gain/(loss) on pension obligations 2.5 2.2Currency translation differences on foreign net investments 2.3 (7.0)Net gain/(loss) on hedge of net investment in foreign (0.6) 1.3subsidiariesCash flow hedging reserve: Amounts released to income statement (1.3) 0.6 Effective portion of changes in fair value 0.3 1.4Net income/(expense) recognised directly in equity 3.2 (1.5)Profit for the year 18.3 13.4Total recognised income for the year 21.5 11.9 Consolidated Balance SheetAs at 31 December 2007 2007 2006 £m £mAssetsNon-current assetsProperty, plant and equipment 45.6 35.1Intangible assets 55.5 34.1Investments - 0.7Investment in equity-accounted investee 1.3 -Deferred tax assets 13.7 4.7 116.1 74.6Current assetsInventories 65.6 41.1Trade and other receivables 50.7 38.6Derivative financial instruments 1.2 2.3Current tax assets 2.1 -Cash and cash equivalents 8.4 9.4 128.0 91.4Total assets 244.1 166.0 LiabilitiesCurrent liabilitiesBank overdrafts 1.1 1.9Bank loans - 0.1Trade and other payables 74.4 37.1Derivative financial instruments 0.5 -Current tax liabilities 10.2 9.9Provisions 4.1 5.0 90.3 54.0Non-current liabilitiesBank loans 45.7 26.3Other payables 0.1 0.2Post-employment obligations 2.8 5.0Provisions 5.7 3.0Deferred tax liabilities 2.2 0.7 56.5 35.2Total liabilities 146.8 89.2 Net assets 97.3 76.8 EquityShare capital 8.4 8.2Share premium 7.0 3.2Translation reserve (5.8) (7.5)Other reserves 1.9 2.9Retained earnings 85.8 70.0Total equity 97.3 76.8 Consolidated Cash Flow StatementFor the year ended 31 December June 2007 2007 2006 £m £mCash flows from operating activitiesProfit for the year 18.3 13.4Adjustments for :Taxation 7.5 9.2Depreciation 9.1 8.9Impairment losses on property, plant and equipment 0.2 -Amortisation of acquired intangible assets 5.0 0.6Amortisation of capitalised software and development costs 1.3 1.1Negative goodwill (0.1) -Net gain on disposal of property, plant and equipment (1.2) (1.5)Fair value (profits)/losses on derivative financial instruments 0.1 (0.2)Cost of equity-settled employee share schemes 1.4 1.2Financial income (3.1) (2.7)Financial expense 5.0 3.6Operating profit before changes in working capital and provisions 43.5 33.6Decrease/(increase) in inventories (0.7) (9.2)Increase in receivables (6.3) (2.1)Increase/(decrease) in payables (2.5) 4.4Increase/(decrease) in provisions (0.2) 2.1Adjustments for foreign exchange losses - (0.1)Cash generated from operations 33.8 28.7Interest paid (3.2) (1.7)Tax paid (9.5) (5.5)Net cash flow from operating activities 21.1 21.5Cash flows from investing activitiesProceeds from sale of property, plant and equipment 1.8 2.0Purchase of property, plant and equipment (17.3) (12.0)Software & development costs capitalised as intangible assets (1.1) (1.2)Interest received 0.2 0.2Acquisition of investment - 0.7Acquisition of investment resulting in significant influence (0.6) -Acquisition of subsidiaries, net of cash acquired (15.0) (15.8)Net cash flow from investing activities (32.0) (27.5)Cash flows from financing activitiesProceeds from the issue of shares(2) 2.2 0.5Transfer/(purchase) of own shares 0.6 (0.9)Borrowing/(repayment) of bank loans 13.5 9.1Dividends paid (7.0) (6.5)Net cash flow from financing activities 9.3 2.2Decrease in cash and cash equivalents (1.6) (3.8)Cash and cash equivalents at 1January 7.5 11.8Exchange rate movements(1) 1.4 (0.5)Cash and cash equivalents at 31 December 7.3 7.5 (1) Exchange rate movements result from the adjustment of opening balances andcash flows in the year to closing exchange rates. (2) The initial consideration for the acquisition of RF Systems was satisfiedin part by the issue of 285,776 new Vitec ordinary shares worth US$3.5 million(£1.8 million). This is excluded from the £2.2 million of proceeds from theissue of shares. Segment reportingPrimary format - by business segments Imaging & Broadcast Broadcast Corporate & Consolidated Staging Systems Services unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m £m £mRevenue from externalcustomers: Sale of goods 117.3 94.6 129.8 100.5 3.8 4.0 - - 250.9 199.1 Services - - - - 22.9 23.2 - - 22.9 23.2Total revenue from external 117.3 94.6 129.8 100.5 26.7 27.2 - - 273.8 222.3customersInter-segment revenue (1) 1.2 1.1 1.7 1.7 - - (2.9) (2.8) - -Total revenue 118.5 95.7 131.5 102.2 26.7 27.2 (2.9) (2.8) 273.8 222.3Operating profit before 17.7 16.6 13.3 6.9 1.6 1.7 - - 32.6 25.2significant itemsAmortisation of acquired (0.7) (0.5) (4.3) (0.1) - - - - (5.0) (0.6)intangiblesNegative goodwill - - 0.1 - - - - - 0.1 -Profit on the sale of property - - - 0.4 - - - - - 0.4Restructuring costs - - - (1.5) - - - - - (1.5)Segment result 17.0 16.1 9.1 5.7 1.6 1.7 - - 27.7 23.5Net financial expense (1.9) (0.9)Taxation (7.5) (9.2)Profit for the period 18.3 13.4Segment assets 80.0 67.6 116.3 63.3 20.7 18.1 2.9 2.9 219.9 151.9Unallocated assets Cash and cash equivalents 8.4 9.4 8.4 9.4 Current tax assets 2.1 - 2.1 - Deferred tax assets 13.7 4.7 13.7 4.7Total assets 244.1 166.0Segment liabilities 26.2 24.2 55.4 19.2 2.8 3.7 3.2 3.2 87.6 50.3Unallocated liabilities Bank overdrafts 1.1 1.9 1.1 1.9 Bank loans 45.7 26.4 45.7 26.4 Current tax liabilities 10.2 9.9 10.2 9.9 Deferred tax liabilities 2.2 0.7 2.2 0.7Total liabilities 146.8 89.2Cash flows from operating 4.9 9.5 8.7 4.4 2.2 3.3 5.3 4.3 21.1 21.5activities(2)Cash flows from investing (6.1) (6.1) (2.3) (4.0) (5.0) (2.6) (18.7) (14.8) (32.1) (27.5)activitiesCash flows from financing - (0.7) (2.0) - - - 11.3 2.9 9.3 2.2activities Capital expenditure (includingassets acquired withinacquisitions)Property, plant & equipment 4.4 5.8 8.4 3.0 6.4 4.0 - 0.1 19.2 12.9Intangible assets 0.9 4.2 14.3 2.2 - 0.1 0.1 - 15.3 6.5 (1) Inter-segment pricing is determined on an arm's length basis. (2) Prior year cash flows from operating activities have been restated toinclude Corporate allocations Segment reporting (continued)Secondary format - by geographical segments United The rest of The The rest of the Corporate and Consolidated Kingdom Europe Americas World unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m £m £m £m £mRevenue fromexternalcustomers: By location of 17.8 13.1 76.8 69.6 138.3 107.0 40.9 32.6 - - 273.8 222.3customerSegment assets 37.6 30.6 50.9 45.8 112.2 55.9 16.3 15.1 2.9 4.5 219.9 151.9Unallocated assetsCash and cash 8.4 9.4 8.4 9.4equivalentsCurrent tax assets 2.1 - 2.1 -Deferred tax 13.7 4.7 13.7 4.7assetsTotal assets 244.1 166.0Cash flows from (0.8) 2.1 12.7 10.9 3.4 5.7 0.5 (1.5) 5.3 4.3 21.1 21.5operatingactivities(1)Cash flows from (2.1) 0.1 (4.5) (4.9) (4.2) (3.7) (2.6) (4.2) (18.7) (14.8) (32.1) (27.5)investingactivitiesCash flows from - (0.2) - - (2.0) (0.5) - - 11.3 2.9 9.3 2.2financingactivities Capitalexpenditure(including assetsacquired withinacquisitions)Property, plant & 2.0 2.9 4.1 4.8 13.0 4.8 0.1 0.3 - 0.1 19.2 12.9equipmentIntangible assets 0.1 2.0 0.5 0.4 14.5 3.0 0.1 1.1 0.1 - 15.3 6.5 (1) Prior year cash flows from operating activities have been restated toinclude Corporate allocations 1. Basis of Preparation These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) adopted for use in the EU in accordancewith EU law. The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2007 or 2006. Statutoryaccounts for 2006 have been delivered to the registrar of companies, and thosefor 2007 will be delivered in due course. The auditors have reported on thoseaccounts; their reports were (i) unqualified, (ii) did not include references toany matters to which the auditors drew attention by way of emphasis withoutqualifying their reports and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985 2. Basis of Segmentation Segmental data in this statement is analysed on the basis of the divisionalmanagement structure (Imaging & Staging, Broadcast Systems, Broadcast Services)that the Group operates under. 3. Earnings per share Basic earnings per share of 44.1 pence (2006: 32.6 pence) is based on profit forthe year attributable to equity shareholders of £18.3 million (2006: £13.4million) and the weighted average number of shares of 41,532,930 (2006:41,107,593). Basic earnings per share before significant items of 46.0 pence(2006: 35.3 pence) is based on profit for the year attributable to equityshareholders but before the impact of significant items of £19.1 million (2006:£14.5 million). 4. Dividend The directors have declared a final dividend of 10.9 pence per share, which willabsorb £4.5 million (2006: 10.1 pence absorbing £4.2 million). The dividend willbe paid on 30 May 2008 to shareholders on the register at the close of businesson 25 April 2008. 5. Key Exchange Rates Weighted average Year end 2007 2006 2007 2006EUR / USD 1.37 1.25 1.46 1.32GBP / USD 2.00 1.84 1.99 1.96GBP / EUR 1.47 1.47 1.36 1.48 6. Significant items Significant items are those items of financial performance that the directorsconsider should be separately disclosed to assist in the understanding of theunderlying trading and financial performance achieved by the Group and in makingprojections of future results. Significant items comprise the following: 2007 2006 £m £m (a) Other operating incomeProfit on sale of property fixed assets - 0.4 (b) Operating expensesRestructuring costs - 1.5Amortisation of intangible assets 5.0 0.6Negative goodwill (0.1) - 4.9 2.1 (c) Other financial incomeCurrency translation gains 0.4 0.2 Currency translation differences, which arise on long-term intra-group fundingloans that are similar in nature to equity, are charged/credited to reserves.The currency translation differences which arise on certain other intra-groupfunding balances that do not meet this strict criteria but are very similar innature, are recorded in significant items within other financial income. 2007 2006 £m £m(d) TaxationCurrent tax credit - 0.4Deferred tax credit 3.7 - 3.7 0.4 The Group is paying no cash taxes in the UK, due to brought forward losses. A UKdeferred tax asset of £2.0 million has been recognised in 2007, with a credit of£2.0 million to significant items. The £2.0 million deferred tax asset has thenbeen amortised as a charge to profit before significant items in the year,reducing the overall tax on UK profits to £nil. A deferred tax credit of £1.7 million to significant items, represents theamortisation of intangible assets acquired on the acquisition of RF Systems inthe US, Bogen Imaging KK in Japan and Kata in Israel. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
VTC.L