5th Mar 2007 07:01
The Vitec Group PLC05 March 2007 5 March 2007 2006 Full Year Results A YEAR OF VERY GOOD PROGRESS The Vitec Group plc, the international supplier of products, services andsolutions to the Broadcast, Photographic, Entertainment and Media industries,announces its results for the year ended 31 December 2006. Results from continuing operations 2006 2005 Change Revenue £222.3m £194.9m +14% Before significant items*Operating profit £25.2m £20.0m +26%Profit before tax £24.1m £18.4m +31%Earnings per share 35.3p 26.0p +36% After significant items*Operating profit £23.5m £19.2m +22%Profit before tax £22.6m £17.1m +32%Earnings per share 32.6p 22.9p +42% Total dividend recommended for the year 16.5p 15.5p +6% *Significant items comprise restructuring costs, goodwill impairment andnegative goodwill, amortisation of acquired intangibles, profit on sale ofproperty and fair value adjustments relating to volatile financial instruments. KEY POINTS • Revenue growth of 15% in constant currency, of which 12% organic. • Profit before tax** of £24.1 million, an increase of 35% in constant currency, 31% as reported. • Basic earnings per share** of 35.3p, up 36%. • Cash generated from operations of £28.7 million. • Imaging & Staging division sales up 24%. • Two further significant acquisitions: Autoscript prompters and Tomcat Global staging systems, both performing to plan. ** from continuing operations and before significant items Commenting on the results, Gareth Rhys Williams, Chief Executive, said: "The Vitec Group made very good progress in 2006, with strong revenue and profitgrowth. We launched exciting new products into growing markets and are seeingthe benefits of our consolidated operational structure. "2007 will not see any benefit from major events for our broadcast businesses.However, given the increasing importance of Vitec's photographic and liveentertainment businesses, combined with the contribution from the acquisitionsmade in 2006, and further operational improvements within Broadcast Systems, theBoard looks forward to further growth in 2007." 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 Susanne Walker 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. The Vitec Group supplies a wide range of equipment and services to the broadcasting, entertainment and photographic industries. Its products are distributed in nearly 100 countries, either through dealerships or direct to the end user or corporate customer. Vitec is based on strong, well known, premium brands that professionals rely on. Vitec is organised in three divisions: Imaging & Staging (formerly Photographic), Broadcast Systems and Broadcast Services. More information can be found at: http://www.vitecgroup.com. 2. As previously stated, whilst Vitec has significant production and sourcing in US dollars and has hedging arrangements in place, movements in the $/£ and, particularly, $/• rates can have a significant impact on reported results. If current exchange rates continue throughout 2007, it is estimated there will be an adverse impact of some £2.5 million on 2007 operating profit compared to 2006. 3. Current market exchange rates: £1 = $1.95, £1 = €1.49, €1 = $1.31 4. 2006 average exchange rates: £1 = $1.84, £1 = €1.47, €1 = $1.25 5. The Group's AGM will be held on 29 May. CHAIRMAN & CEO'S REPORT We are delighted to report another year of strong progress for The Vitec Groupin revenue, profits and earnings per share due to underlying growth in ourmarkets and continued operational improvements. Our efforts to find attractiveacquisitions were also successful, with four businesses joining the Group during2006. Results 2006 revenue grew 14%, to £222.3 million (2005: £194.9 million) of which around11% was organic, reflecting Vitec's strong positions in markets that are growingwell, and the continued emphasis placed on new product development. Constantcurrency organic growth was higher, at 12%, as the lower US dollar reducedreported figures. While the first half saw particularly good progress, partlydue to the rental contracts for the Winter Olympics, it was pleasing that thesecond half also showed significant growth over what had been a very good secondhalf in 2005. Imaging & Staging (previously Photographic) grew 24%, of which 18% was organic,with constant currency organic growth even stronger at 19%. This was driven by abuoyant market for accessories for professional photographers andcinematographers, with sales of lighting stands and bags also performing well.We saw continued benefits from the significant and ongoing growth in sales ofdigital SLR cameras to the keen amateur segment, which generates sales of ouraccessory products. Our distribution arm, Bogen Imaging, which sells both Groupand other premium third party products, had a good year, and was augmented inJune by bringing our Japanese distribution in-house. The Staging Systemsbusiness continued to expand and in November acquired Tomcat Global, bringingsignificant scale and international reach to this part of the company. Broadcast Systems saw revenues increase at each business unit. The ongoinginvestment by broadcasters in High Definition TV is proving of benefit to us.Following an excellent finish to 2005, overall sales growth in 2006 was 10%, ofwhich 8% was organic (10% in constant currency), with particularly good resultsin Camera Dynamics. Petrol, acquired in January, performed very well during theyear. At the end of October we acquired Autoscript, whose advanced telepromptingproducts we had already been distributing to several countries. Broadcast Services, operating principally in the USA, saw revenue growth in USdollars of some 1%, but flat revenue on translation to pounds sterling. Thisdivision benefited from a successful set of contracts for the Winter Olympicsand FIFA World Cup. With the further increase in revenue and continued progress on operationalimprovement, Group profit before tax and significant items* increased 31% to£24.1 million (2005: £18.4 million). In constant currency terms profit beforetax and significant items* grew 35% and, excluding acquisitions, the reportedprofit growth was 28% in pounds sterling and 32% in constant currency. The reported tax rate for the Group fell again by 2% to 40% and as a resultbasic earnings per share before significant items* rose to 35.3p (2005: 26.0p),an improvement of 36%. After significant items* profit before tax was up 32% to £22.6 million (2005:£17.1 million), and earnings per share rose to 32.6p (2005: 22.9p beforediscontinued operations). Cash generated from operations of £28.7 million (2005: £29.8 million) remainsstrong. While working capital control remains good, 2006 saw increasedexpenditure on acquisitions and on capital projects, including the expansion ofCamera Dynamics' Costa Rican facility. Strategy update and future development The Group's strategy is summarised in the phrase 'Consolidate - Leverage -Grow'. After an initial phase, during which multiple locations and smallerbusiness units were consolidated into a divisional structure to give economiesof scale, the focus shifted to leveraging our skills and exploiting our routesto market in pursuit of growth. While continuous improvement activities areongoing, the emphasis is on generating growth through ongoing research anddevelopment. We continue to review a number of potential acquisitionopportunities, some of which are material and would hope that, as in the recentpast, a number would complete in the coming year. We believe the consolidation of our individual brands into stronger businessesprovides a sound platform for future growth - each of them has the scale todevelop innovative products and services and to deliver them effectivelyworldwide. We aim to grow ever closer to our end-customer, providing them with better toolsand services to do their jobs, while at the same time looking for complementaryareas into which the Group can expand and utilise its industry-leadingexpertise. Research, development & engineering An ongoing part of our success is due to continuous innovation by Vitec's staff,developing both new products and new services. Within Imaging & Staging and Broadcast Systems the Group spends approximately4.5% of revenue on new product development, £8.7 million in 2006 (2005: £7.8million). Vitec's businesses are known for the quality and reliability of theirproducts and there is an exciting pipeline of new ideas for the future. Duringthe year our businesses won a number of awards for innovation, a sign that theGroup's products remain very relevant to our customers, and a testament to thestrength of our R&D capability. Around 25% of sales in 2006 (2005: 19%) werederived from products launched in the last three years. Within Broadcast Services continued innovation of its video and audio servicesis as important. 2006 saw the launch of the 'LTR' programme in the US. Bexel hastraditionally offered rentals - this Long Term Rental programme offers ourcustomers the advantages of a lease from a bank, but with the benefits ofadditional service options from Bexel. Acquisitions During the year we made four acquisitions: Petrol broadcast camera bags inJanuary; Bogen Imaging Japan, a photographic distribution business, trading fromJune; Autoscript prompting systems in October; and in November Tomcat Global,the leading manufacturer of aluminium truss and staging systems, perhaps bestknown for their projects for the Rolling Stones and U2 tours. These businessesare all complementary to the existing activities of the Group and increase therange of exciting products we can sell to our customers, often through in-housedistribution. We also acquired a minority stake in Media Numerics Ltd, which haslaunched a revolutionary digital audio network for use at live events. Post balance sheet events There have been no significant post balance sheet events. 2006 dividend With improved results and positive trends in our markets the Board is proposinga final dividend of 10.1p per share, resulting in a full year total of 16.5p(2005:15.5p), an increase of 6.5%. Subject to approval by shareholders, thefinal dividend will be paid on 31 May 2007 to shareholders on the register on 4May 2007. Using adjusted earnings per share before significant items* the dividend iscovered 2.1 times (2005: 1.7 times), whilst after significant items* it iscovered 2.0 times (2005: 1.5 times). Board changes As previously announced, Sir David Bell will step down from the Board followingthe AGM in May 2007. David joined the Board as a non-executive director in 1997and has provided us with ten years of excellent service and wise counsel,helping us navigate the Group through a period of considerable change. We are delighted that Maria Richter joined the Board as a non-executive directoron 28 February 2007. Maria's background is in corporate finance in the US andshe has significant experience with deals involving companies, both in the USand South America, which complements the skills of the Board, and will be of useas the Group expands. Our thanks The continued success of Vitec is due primarily to the dedication and skill ofall of our colleagues throughout the world - the Group is now seeing the fruitsof the efforts they have expended over the past years, for which we thank them. Outlook for 2007 2007 will not see any benefit from major events for our broadcast businesses.However, given the increasing importance of Vitec's photographic and liveentertainment businesses, combined with the contribution from the acquisitionsmade in 2006, and further operational improvements within Broadcast Systems, theBoard looks forward to further growth in 2007. *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 3. IMAGING & STAGING (FORMERLY PHOTOGRAPHIC) DIVISIONProducts for the photographic, video and live event markets 2006 2005 Revenue £94.6m £76.2mOperating profit* £16.6m £13.6mOperating margin* 17.5% 17.8% *Before significant items. Significant items are amortisation of intangibleassets of £0.5 million (2005: £0.2 million) and profit on sale of property of£nil (2005: £0.3 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 The division's operations are highly interrelated - strengths in photographicaccessories and in their distribution are mutually supportive. A focus onconstant innovation in product development as well as the control of theirdistribution in the key markets of the world, which allows us to work moreclosely with the end-customer, is proving to be a winning combination.Innovation is as important in Staging Systems, where the businesses erecting thestage or lighting systems are looking for ever lighter, easier to use and moreelegant solutions to make their events look as good as possible. 2006 performance 2006 was another successful year for this division with revenue of £94.6 million(2005: £76.2 million) up 24.1% and operating profit before significant items*rising to £16.6 million (2005: £13.6 million), up 22.1%. Constant currency salesand profit growth were £19.1 million and £3.5 million respectively. As in 2005,each part of the business saw revenue growth. Imaging Accessories continued to benefit from the continued uptake of digitalSLR cameras by keen amateur photographers, who also buy the Group's accessoryproducts. 2006 also saw a resurgence of sales of lighting stands to professionalphotographers. The range of camera supports and bags sold under the NationalGeographic brand (under licence from the National Geographic Society) has beenwell accepted, as has the new Crosspole lighting suspension system, the new 501HD video head and the new 190 series professional tripod. Continuous improvementactivities during the year included the relocation of lighting standmanufacture, part of which was outsourced to China with the rest beingconsolidated into the existing site at Feltre in Italy. Imaging Distribution also had a good year - those customers who buy camerasupports and bags that are manufactured by the Group also buy other professionalproducts that we distribute to the retailer through Bogen Imaging, our in-housedistributor. Bogen is one of the largest photographic and video accessorydistributors operating internationally and has strengthened its position throughthe creation of Bogen Imaging KK, which is based in Tokyo. Litec and IFF, brought together in 2005, focus on the market for lightingtrusses and control systems. That area grew organically but the biggest stepforward was the acquisition of Tomcat Global, the worldwide leader in temporarystaging for live events, to create a new unit, Staging Systems. We believe thecombination of Litec's standard trusses and Tomcat's custom designs andreputation for innovation will be very positive. As a result of this acquisition, reflecting the increased importance of liveevents in this division and that we now sell to a wider customer base thanpurely "photographers", we have renamed the division 'Imaging & Staging'. BROADCAST SYSTEMS DIVISION Products and systems primarily for broadcast applications 2006 2005Revenue £100.5m £91.5mOperating profit* £6.9m £5.2mOperating margin* 6.9% 5.7% *Before significant items. Significant items are restructuring costs of £1.5million (2005: £0.9 million), amortisation of intangible assets of £0.1 million(2005: £nil) and profit on sale of property of £0.4 million (2005: £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 and Mobile Powersell their products worldwide, either direct to the end-customer or through anetwork of professional dealers. The division's brands are frequently theacknowledged leaders in their fields. Strategy The broadcast market has changed considerably in recent years with a dramaticdecline post-9/11. In the production area the market has recently beeninvigorated by the move to make programmes in 'High Definition' (HD). Thisinvolves the upgrading of cameras and the associated ancillary equipment, muchof which is provided by Vitec Group companies. We have responded to the changedneeds of the marketplace by managing the brands in groupings of similarbusinesses, enabling us to achieve economies of scale in manufacturing anddistribution and to develop exciting new product ranges. 2006 performance 2006 saw a further significant improvement in the underlying result for thisdivision, with revenue of £100.5 million (2005: £91.5 million), up 9.8%, andoperating profit before significant items* rising to £6.9 million (2005: £5.2million), up 32.7%. After a very strong first half, all business units showed ayear-on-year increase in revenue. Volumes in Camera Dynamics continued strongly as we benefited from ourcustomers' increased expenditure on production equipment. Revenue growth wasparticularly good in the US, Middle East and Russia and we have seen furthersignificant interest in our robotic camera control products, particularlyfollowing the launch of the new Fusion system. During the year the acquisitionand integration of the Petrol bags business was completed, and in November wewere delighted to acquire Autoscript, the leading manufacturer and provider ofprompting systems and services, which are sold to customers Vitec knows well.Like our existing businesses, Autoscript has a history of product innovation,and won several awards during the year. During 2006 we expanded the assemblyfacility in Costa Rica to include the machining of key components; we believethis will both reduce costs and ease the introduction of new products. In Communications, the market remained the toughest area for this division.Clear-Com is the brand of choice for many of the outside broadcast vans beingbuilt for the Beijing Olympics, and Clear-Com systems were used successfully atthe Asian Games, seen by many as a test for Beijing. During the yearconsiderable effort was spent updating the product range to comply with the newEU lead-free regulations, which have also generated issues for many of ourelectronics suppliers. With this now done, many new products will be launched inearly 2007 which will provide for improved networking, user flexibility andergonomics. The margins in this unit were unsatisfactory in 2006 and we expectthem to improve in 2007; some local management has been changed and we willbenefit from the outsourcing of some production to the Far East. The Mobile Power business had a good year, one of record sales (in US dollars,where the business is based). The Elipz system, consisting of camera battery,on-board light, innovative grip and charger has been well received. It takes thecompany's products into a new segment, that of the smaller, handheld camerasoften used by the professional news gatherers who have long been used to thequality and service Anton/Bauer provides. BROADCAST SERVICES DIVISION Rental and technical support services, mainly for the broadcast market 2006 2005 Revenue £27.2m £27.2mOperating profit* £1.7m £1.2mOperating margin* 6.3% 4.4% *Before significant items. Significant items are £nil (2005: £nil) 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 ASG and Bexel because of their reputation for designingcreative solutions, 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. 2006 performance Revenue in 2006 of £27.2 million (2005: £27.2 million) was boosted by successfulcontracts for the Winter Olympics and FIFA World Cup in the first half. Inconstant currency revenue was up 1.1%, but was unchanged when translated intopounds sterling. Operating profit before significant items* at £1.7 million(2005: £1.2 million) was up 41.7% due to the Winter Olympics contract, betterequipment utilisation and continued good cost control. With HD technology becoming widely accepted, the capital spending on newequipment which resulted in the successful Winter Olympics contracts has alsoled to significant customer commitments for the summer games in Beijing. In turnthis will enable Bexel to explore other contracts using similar equipment thatwould not otherwise have been viable. With the core US market relatively flat, the emphasis has been on findinginnovative new service niches to exploit. In the second half we were delightedto announce that a joint marketing effort to promote longer-term contracts hasbeen launched in conjunction with the commercial arm of a Cleveland-based bank,National City Commercial Credit Corporation (NC-4). They normally arrangefinancing leases for their broadcast clients; the 'LTR' programme of long-termrental will prove useful for those clients who are looking for more flexiblearrangements to acquire assets that need upgrading or other technical servicesduring the life of the lease. NC4 will provide the lease, with Bexel providingthe service and a route to market for the equipment at the end of the lease. Thefirst of these deals has been entered into in 2007 and we look forward tofinding more. During the year it was determined that the Irvine facility was no longer viableand it was relocated to the growing rental market in Las Vegas in mid-year. Thatoffice has just supported the very successful NBA All-Star games. FINANCIAL REVIEW Revenue Revenue increased by £27.4 million to £222.3 million, or 14.1% in the year. Ofthis, £23.3 million (12.1%) was like-for-like, £2.1 million (1.2%) was due toadverse foreign exchange and £6.2 million (3.2%) due to acquisitions (including£1.2 million due to the Kata acquisition partway through 2005). Revenue growthwas particularly strong in the UK and the rest of Europe. Operating profit The table below sets out an analysis of the causes of movements in operatingprofit before significant items* between 2005 and 2006 and helps to explain theunderlying changes in the business during the year. The variances are based onmanagement's best estimates and are not a statutory presentation. Operating profit before significant items* 2005-06 Variance Analysis (£m) 2005 Operating profit* 20.0Gross margin effects:- Volume and mix 9.9- Sales price less cost inflation 2.2Operating expenses (6.7) 5.4Acquisitions 0.5Foreign exchange effects:- Translation (0.2)- Transaction after hedging (0.5) (0.7)2006 Operating profit* 25.2 Operating profit before significant items* was £25.2 million, £5.2 million or26.0% greater than 2005. The Group's operating profit* margin increased from10.3% to 11.3%. Despite hedging its foreign exchange transaction exposure, theGroup suffered from the weaker US dollar in the second half of the year. Beforeadverse foreign currency effects of £0.7 million, the increase in profit was£5.9 million or 29.8%. Restructuring costs of £1.5 million (2005: £0.9 million) are included insignificant items*. This is the last part of the previously-announcedrestructuring plans within the Broadcast Systems division. No further costs willbe charged and the cumulative total cost is £4.5 million, within the £4.0-5.0million originally forecast. There was an operating profit on the sale of abuilding of £0.4 million (2005: £0.3 million) Amortisation of acquired intangibles increased to £0.6 million (2005: £0.2million) due to the recent acquisitions and has been included in significantitems*. Net financial expense Net financial expense before significant items* totalled £1.1 million (2005:£1.6 million) and reduced principally because of an increase in the IAS 19pension credit to £0.5 million (2005: £0.2 million). Finance expenses includedin significant items* consisted of a £0.2 million gain (2005: £0.2 million loss)due to currency movements on loans not accounted for as net investment hedgesand £nil (2005: £0.3 million loss) arising from a reduction in the value offoreign exchange options due to foreign exchange market volatility. Taxation The effective taxation rate on operating profit after net finance expense butbefore significant items* was 40% (2005: 42%). The reduction in the tax rate isdue principally to progress made in rationalising the Group's legal structure.The Group's tax charge is relatively high because the significant majority ofits profits arise in overseas high tax jurisdictions. We are targeting a rate of38% in 2007. Acquisitions Acquisitions totalled £15.8 million (2005: £4.6 million). The Group completedfour acquisitions in 2006: Petrol, a manufacturer of high-end broadcast camerabags; ALC Broadcast Ltd (Autoscript), a leading provider of prompting hardwareand software to the broadcast industry; Tomcat Global Corporation, a leading USmanufacturer of aluminium trusses for live events; and Bogen Imaging KK, whichacquired the businesses of Imaging's two Japanese distributors. Business Division Acquisition Acquisition Maximum Maximum Earnout date consideration(1) potential potential period £m earnout £m consideration £m2006 acquisitionsPetrol Broadcast 16 Jan 2006 1.8 1.8 3.6 2006 SystemsBogen Imaging Imaging & 1 Jun 2006 0.9 - 0.9 -KK StagingALC Broadcast Broadcast 31 Oct 2006 5.0 2.0 7.0 2007-08Ltd SystemsTomcat Global Imaging & 7 Nov 2006 7.1 3.6 10.7 2007-08Corp Staging Earnout payments for previousacquisitionsKata (re 2005) Imaging & 31 May 2005 1.0 n/a n/a 2005-07 Staging Total acquisition cost in 2006 15.8 n/a n/a (1)Including acquisition expenses and net cash acquired In addition, in May a minority stake was acquired in Media Numerics Ltd, acompany that has developed a digital network product targeted at the liveentertainment industry. The planned investment is £1.0 million, with £0.7million invested in 2006. Cash flow and net debt £m 2002 2003 2004 2005 2006 Net Debt 11.9 10.4 11.3 5.4 18.9Free Cash Flow(2) 21.1 2.9 11.1 17.3 10.5 (2)Free cash flow is the cash generated from operations less interest, tax andcapital expenditure on property, plant & equipment and capitalised IT costs. Net debt increased to £18.9 million (2005: £5.4 million) mainly because of thetwo acquisitions we made towards the end of the year. Despite higher profits, free cash flow reduced to £10.5 million (2005: £17.3million) as a result of higher capital expenditure, increased working capitaland higher tax payments. Cash generated from operations was £28.7 million (2005: £29.8 million). Capitalexpenditure and financial investments totalled £13.9 million (2005: £11.7million), of which £4.1 million (2005: £5.4 million) related to rental assets,partly financed by the proceeds from rental asset disposals of £1.4 million(2005: £1.2 million). Whilst working capital increased, as a percentage of revenue (beforeacquisitions) it was 22.0% (2005: 23.1%) at the year end and averaged 23.1% in2006 (2005: 25.9%). Inventory increased by £9.8 million to £41.1 million,reflecting higher revenue, the new acquisitions and deliberately increasedinventory levels in Imaging and Camera Dynamics in order to reduce delivery leadtimes. As a result, inventory days increased to 116 (2005: 99 days). Tradereceivables were only slightly higher than 2005 at £31.2 million (2005: £30.5million), despite higher revenue, which lowered debtor days to 51 (2005: 57days). Tax paid in 2006 of £5.5 million was significantly greater than 2005 (£1.6million). 2005 benefited from Italian tax credits arising from the sale of theALU business in 2003, as well as a £0.7 million UK tax rebate, whereas 2006payments returned to more normal levels. 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. Some cover was alsotaken out for the first quarter of 2008. Currency millions December 2006 Average rate December 2005 Average rate US dollars sold for EurosForward contracts $9.6 1.23 $22.9 1.22Options(3) $23.6 1.25 $17.7 1.24 US dollars sold for SterlingForward contracts $17.3 1.85 $15.5 1.78 (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, £26.3 million (2005: £17.2 million) of thefacility was utilised. The average cost of borrowing for the year was 5.4% (2005: 4.6%) reflecting theworldwide upward trend in interest rates. Net interest cost (consisting of netinterest payable and commitment fees) was £1.4 million (2005: £1.3 million). Netinterest cover (using operating profit before significant items*) remained highat 18 times (2005: 15 times). 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 2006 the number of active members in themerged scheme had reduced by 7% to 192 (2005: 206). Total scheme members are 662(2005: 662). A triennial actuarial valuation was undertaken as at 5 April 2004. On the basisof the assumptions adopted, the value of the schemes' assets (£28.3 million) wasequal to 94% of the value placed on the benefits that had accrued to members,allowing for expected future increases in salaries. As a result of thevaluation, employers' and employees' contributions were increased. In November2005 the Group contributed £2.1 million to fund the deficit highlighted by the2004 triennial valuation and, also, to facilitate the merger of the two schemes. Following the funding actions set out above, the Group's UK defined benefitpension liabilities under IAS 19 (amended) as at 31 December 2006 were estimatedby the Group's actuaries to be £43.5 million (2005: £42.0 million) and thedeficit £1.0 million (2005: £3.1 million). The deficit has reduced principallybecause of an increase in the corporate bond interest rate used to calculate thepresent value of future liabilities, partially offset by an increase inliabilities arising from an assumption of greater longevity for scheme members.The principal assumptions used for recent valuations are set out below. 2006 2005 2004 Inflation rate 3.0% 2.8% 2.8%Expected rate of increase in:- Salaries 5.0% 4.8% 4.8%- Pensions and deferred pensions 3.0% 2.8% 2.8%Discount rate 5.2% 4.8% 5.3%Long term rates of return- Equities 7.8% 7.8% 7.9%- Bonds 4.7% 4.3% 4.8%- Property 6.2% 6.3% 6.8%Longevity- Pensioners currently aged 65 86/89(4) 84/87(4) 84/87 (4)- Non-pensioners currently aged 45 88/91(4) 86/89(4) 86/89(4) (4)male/female PRINCIPAL RISKS AND UNCERTAINTIES US market Forty eight per cent of the Group's 2006 revenue was from the Americas,principally the USA. This percentage has reduced in recent years, mainly due tothe weakness of the US dollar, but the Group remains very susceptible to anymajor deterioration in demand for its products and services from US customers.It is difficult to mitigate this risk but the Group is seeking to reduce itsdependence on the US by actively widening its sales and distribution activities,particularly into Asia. Foreign exchange The great majority of the Group's profits is earned in overseas currencies andis therefore subject to translation risk if sterling strengthens. To mitigatethis, a proportion of the Group's foreign currency net assets are hedged usingnormal Group 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. 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 2006 2006 2005 Significant items (1) Significant items (1) Before Total Before Total significant significant items items Amortisation Restructuring Amortisation Restructuring of acquired costs and of costs and intangibles property acquired property and other profits intangibles profits financial and other expense financial items expense items £m £m £m £m £m £m £m £mRevenueExisting operations 217.3 217.3 193.2 193.2Acquisitions 5.0 5.0 1.7 1.7 Continuing operations 222.3 222.3 194.9 194.9Cost of sales (129.1) (129.1) (115.6) (115.6) Gross profit 93.2 93.2 79.3 79.3Other operating income - - 0.4 0.4 - - 0.3 0.3Operating expenses (68.0) (0.6) (1.5) (70.1) (59.3) (0.2) (0.9) (60.4) Operating profitExisting operations 25.1 (0.3) (1.1) 23.7 19.8 - (0.6) 19.2Acquisitions 0.1 (0.3) - (0.2) 0.2 (0.2) - - Continuing operations 25.2 (0.6) (1.1) 23.5 20.0 (0.2) (0.6) 19.2 Interest payable on bank (1.5) (1.5) (1.5) (1.5)borrowingsInterest income 0.1 0.1 0.2 0.2Pension scheme:Interest charge (2.1) (2.1) (2.0) (2.0)Expected return on assets 2.6 2.6 2.2 2.2Other financial income/ (0.2) 0.2 - (0.5) (0.5) (1.0)(expense) Net financial expense (1.1) 0.2 (0.9) (1.6) (0.5) (2.1) Profit before tax 24.1 (0.4) (1.1) 22.6 18.4 (0.7) (0.6) 17.1Taxation (9.6) 0.4 (9.2) (7.7) - - (7.7) Profit from continuing 14.5 (0.4) (0.7) 13.4 10.7 (0.7) (0.6) 9.4operationsProfit from discontinued - - 0.4 0.4operation Profit for the year 14.5 (0.4) (0.7) 13.4 11.1 (0.7) (0.6) 9.8(attributable to EquityShareholders) Earnings per shareContinuing operations:Basic earnings per share 32.6p 22.9pDiluted earnings per 32.2p 22.7pshareTotal :Basic earnings per share 32.6p 23.9pDiluted earnings per 32.2p 23.7pshare Dividends per ordinaryshare Prior year final paid 9.4p £3.9mCurrent year interim paid 6.4p £2.6mCurrent year final proposed 10.1p £4.2m (1) See note 3 Consolidated statement of recognised income and expenseFor the year ended 31 December 2006 2006 2005 £m £m Actuarial gain on pension obligations 2.2 0.5Currency translation differences on foreign net investments (7.0) 2.4Net gain/(loss) on hedge of net investment in foreign subsidiaries 1.3 (0.2)Cash flow hedging reserve: Amounts released to income statement 0.6 (0.8) Effective portion of changes in fair value 1.4 (0.7) Net (expense)/income recognised directly in equity (1.5) 1.2Profit for the year 13.4 9.8 Total recognised income for the year 11.9 11.0 Consolidated Balance SheetAs at 31 December 2006 2006 2005 £m £m AssetsNon-current assetsProperty, plant and equipment 35.1 33.6Intangible assets 34.1 19.9Investments 0.7 -Deferred tax assets 4.7 5.8 74.6 59.3 Current assetsInventories 41.1 31.3Trade and other receivables 38.6 37.0Derivative financial instruments 2.3 0.2Current tax assets - 0.9Cash and cash equivalents 9.4 12.7 91.4 82.1 Total assets 166.0 141.4 LiabilitiesCurrent liabilitiesBank overdrafts 1.9 0.9Bank loans 0.1 -Trade and other payables 37.1 31.5Derivative financial instruments - 0.9Current tax liabilities 9.9 7.6Provisions 5.0 1.2 54.0 42.1 Non-current liabilitiesBank loans 26.3 17.2Other payables 0.2 0.2Post-employment obligations 5.0 7.5Provisions 3.0 2.7Deferred tax liabilities 0.7 1.1 35.2 28.7 Total liabilities 89.2 70.8 Net assets 76.8 70.6 EquityShare capital 8.2 8.2Share premium 3.2 2.7Translation reserve (7.5) (1.8)Other reserves 2.9 0.9Retained earnings 70.0 60.6 Total equity 76.8 70.6 Consolidated cash flow statementFor the year ended 31 December 2006 2006 2005 £m £mCash flows from operating activities:Profit for the year 13.4 9.8Adjustments for:Taxation 9.2 7.7Depreciation 8.9 8.9Amortisation of intangibles 1.7 1.2Net gain on disposal of property, plant and equipment (1.5) (1.6)Fair value losses on derivative financial instruments (0.2) (0.4)Cost of equity-settled employee share schemes 1.2 0.3Financial income (2.7) (2.4)Financial expense 3.6 4.5 Operating profit before changes in working capital and provisions: 33.6 28.0(Increase)/decrease in inventories (9.2) 3.0Increase in receivables (2.1) (0.8)Increase in payables 4.4 3.1Increase/(decrease) in provisions 2.1 (3.4)Adjustments for foreign exchange losses (0.1) (0.1) Cash generated from operations: 28.7 29.8Interest paid (1.7) (1.8)Tax paid (5.5) (1.6) Net cash flow from operating activities 21.5 26.4 Cash flows from investing activities:Proceeds from sale of property, plant and equipment 2.0 2.1Purchase of property, plant and equipment (12.0) (11.1)Software costs capitalised as intangible assets (1.2) (0.6)Interest received 0.2 0.5Acquisition of investment (0.7) -Acquisition of subsidiaries, net of cash acquired (15.8) (4.6) Net cash flow from investing activities (27.5) (13.7) Cash flows from financing activities:Proceeds from the issue of shares 0.5 -Purchase of own shares (0.9) -Borrowing/(repayment) of bank loans 9.1 (8.2)Dividends paid (6.5) (6.1) Net cash flow from financing activities 2.2 (14.3) Decrease in cash and cash equivalents (3.8) (1.6)Cash and cash equivalents at 1 January 11.8 13.4Exchange rate movements(1) (0.5) - Cash and cash equivalents at 31 December 7.5 11.8 (1) Exchange rate movements result from the adjustment of opening balances and cash flows in the year to closing exchange rates. Segment reporting Primary format - by business segments Imaging & Broadcast Broadcast Corporate and Consolidated Staging Systems Services unallocated 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £mRevenue from externalcustomers : Sales 94.6 76.2 100.5 91.5 4.0 7.8 - - 199.1 175.5 Services - - - - 23.2 19.4 - - 23.2 19.4 Total revenue from external 94.6 76.2 100.5 91.5 27.2 27.2 - - 222.3 194.9customersInter-segment revenue (1) 1.1 1.3 1.7 1.2 - - (2.8) (2.5) - - Total revenue 95.7 77.5 102.2 92.7 27.2 27.2 (2.8) (2.5) 222.3 194.9 Operating profit before 16.6 13.6 6.9 5.2 1.7 1.2 - - 25.2 20.0significant itemsAmortisation of acquired (0.5) (0.2) (0.1) - - - - - (0.6) (0.2)intangiblesProfit on the sale of - 0.3 0.4 - - - - - 0.4 0.3propertyRestructuring costs - (1.5) (0.9) - - - (1.5) (0.9) Segment result 16.1 13.7 5.7 4.3 1.7 1.2 - - 23.5 19.2Net financial expense (0.9) (2.1)Taxation (9.2) (7.7) Profit for the period Continuing operations 13.4 9.4 Discontinued operation(2) - 0.4 13.4 9.8 Segment assets 67.6 48.6 63.3 52.1 18.1 20.3 2.9 1.0 151.9 122.0Unallocated assets Cash and cash 9.4 12.7 9.4 12.7equivalents Current tax assets - 0.9 - 0.9 Deferred tax assets 4.7 5.8 4.7 5.8 Total assets 166.0 141.4 Segment liabilities 24.2 19.4 19.2 16.4 3.7 4.6 3.2 3.6 50.3 44.0Unallocated assets Bank overdrafts 1.9 0.9 1.9 0.9 Bank loans 26.4 17.2 26.4 17.2 Current tax liabilities 9.9 7.6 9.9 7.6 Deferred tax liabilities 0.7 1.1 0.7 1.1 Total liabilities 89.2 70.8 Cash flows from operating 13.9 17.9 6.3 9.2 3.8 6.6 (2.5) (7.3) 21.5 26.4activitiesCash flows from investing (6.1) (7.6) (4.0) (2.2) (2.6) (4.0) (14.8) 0.1 (27.5) (13.7)activitiesCash flows from financing (0.7) - - - - - 2.9 (14.3) 2.2 (14.3)activities Capital expenditure(including assets acquiredwithin acquisitions)Property, plant and equipment 5.8 3.3 3.0 2.4 4.0 5.4 0.1 0.1 12.9 11.2Intangible assets 4.2 2.0 2.2 - 0.1 - - - 6.5 2.0 (1) Inter-segment pricing is determined on an arm's length basis. (2) In 2005, income from discontinued operation of £0.4 million arose on the release of a previous provision of £0.4 million for the upgrade of retail units relating to the Retail Display segment that was divested in 2003. 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 2006 2005 2006 2005 2006 2005 2006 £m 2005 2006 £m 2005 2006 £m 2005 £m £m £m £m £m £m £m £m £mRevenue fromexternal customers:By location of 13.1 9.7 69.6 56.9 107.0 98.1 32.6 30.2 - - 222.3 194.9customer Segment assets 30.6 23.5 45.8 40.4 55.9 47.2 15.1 9.9 4.5 1.0 151.9 122.0Unallocated assetsCash and cash 9.4 12.7 9.4 12.7equivalentsCurrent tax assets - 0.9 - 0.9Deferred tax assets 4.7 5.8 4.7 5.8 Total assets 166.0 141.4 Cash flows from 2.3 1.5 15.3 17.3 7.6 14.6 (1.2) 0.3 (2.5) (7.3) 21.5 26.4operating activitiesCash flows from 0.1 (1.6) (4.9) (3.2) (3.7) (4.3) (4.2) (4.7) (14.8) 0.1 (27.5) (13.7)investing activitiesCash flows from (0.2) - - - (0.5) - - - 2.9 (14.3) 2.2 (14.3)financing activities Capital expenditure(including assetsacquired withinacquisitions)Property, plant and 2.9 1.7 4.8 3.3 4.8 5.8 0.3 0.3 0.1 0.1 12.9 11.2equipmentIntangible assets 2.0 - 0.4 0.5 3.0 0.1 1.1 1.4 - - 6.5 2.0 1. Basis of Preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the EU in accordance with EU law. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2006 or 2005. Statutory accounts for 2005 have been delivered to the registrar of companies, and those for 2006 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying 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 divisional management structure (Imaging & Staging, Broadcast Systems, Broadcast Services) that the Group operates under. 3. Significant items Significant items are those items of financial performance that the directors consider should be separately disclosed to assist in the understanding of the underlying trading and financial performance achieved by the Group and in making projections of future results. Amounts taken account of relating to operating items include the costs of major restructuring programmes, the amortization of acquired intangibles and profit on disposal of property. The Group uses options as part of its hedging of future cash flows. As such options are held to maturity, the ultimate net amount charged to the income statement in respect of any one option will always equate to the initial premium paid for that option. However, as a result of the time value of such options being marked-to-market at each balance sheet date, volatile income and expenses can be introduced between periods and such amounts are therefore identified as significant other financial expense. Currency translation differences arising on long-term intra-group funding loans that are similar in nature to equity are charged/credited to reserves. Amounts relating to the currency translation differences arising on certain other intra-group funding balances that do not meet this strict criteria but that are very similar in nature are included in significant items within other financial expense. Significant items comprise restructuring costs of £1.5 million (2005: £0.9 million), profit on disposal of property of £0.4 million (2005: £0.3 million), amortization of acquired intangibles of £0.6 million (2005: £0.2 million), volatile premium on option of £nil (2005: £0.3 million) and currency translation gains on intra-group funding balances of £0.2 million (2005: £0.2 million loss) 4. Earnings per share Basic earnings per share of 32.6 pence (2005: 23.9 pence) is based on profit for the year attributable to equity shareholders of £13.4 million (2005: £9.8 million) and the weighted average number of shares of 41,107,593 (2005: 41,084,054). Basic earnings per share relating only to continuing operations of 32.6 pence (2005: 22.9 pence) is based on profit for the year attributable to equity shareholders but before profit from discontinued operations. Basic earnings per share before significant items and discontinued operations of 35.3 pence (2005: 26.0 pence) is based on profit for the year attributable to equity shareholders but before the impact of significant items and before profit from discontinued operations. 5. Dividend The directors have declared a final dividend of 10.1 pence per share, which will absorb £4.2 million (2005: 9.4 pence absorbing £3.9 million). The dividend will be paid on 31 May 2007 to shareholders on the register at the close of business on 4 May 2007. 6. Key Exchange Rates Weighted average Year end 2006 2005 2006 2005 EUR / USD 1.25 1.24 1.32 1.18GBP / USD 1.84 1.82 1.96 1.72GBP / EUR 1.47 1.46 1.48 1.46 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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