6th Mar 2006 07:01
The Vitec Group PLC06 March 2006 6 March 2006 The Vitec Group plc 2005 Full Year Results The Vitec Group plc, the international supplier of products, services andsolutions to the Broadcast, Entertainment and Media industries, announces itsresults, under IFRS, for the year ended 31 December 2005. Results from continuing operations 2005 2004 Change Revenue £194.9m £185.4m +5.1% Before significant items*Operating profit £20.0m £17.8m +12.4%Profit before tax £18.4m £16.5m +11.5%Basic earnings per share 26.0p 22.2p +17.1% After significant items*Operating profit £19.2m £15.6m +23.1%Profit before tax £17.1m £14.2m +20.4%Basic earnings per share 22.9p 18.8p +21.8% Total dividend for the year 15.5p 15.0p +3.3% * Significant items comprise restructuring costs, goodwill impairment andnegative goodwill, amortisation of acquired intangibles, profit on sale ofproperty and fair value adjustments relating to volatile financial instruments. KEY POINTS • Sales growth of 5%, both in constant currency and as reported, following on from a strong 2004. • Photographic sales up almost 11%. • Profit before tax** of £18.4 million, an increase of 17% in constant currency, 11.5% as reported. • Basic earnings per share** of 26.0p, up 17%. • Cash generated from operations of £29.8 million. • Leading professional camera bag business acquired - Kata. • Total dividend of 15.5p per share, up 3%. ** from continuing operations and before significant items Commenting on the results, Gareth Rhys Williams, Chief Executive, said: "The Vitec Group continued to make good progress during 2005. For the secondyear running sales moved ahead due to new product launches and acquisitions.This, taken together with the benefits of the restructuring programme initiatedin prior years, meant we produced a strong operating profit performance. "With favourable market conditions and exciting product ranges, stable marketconditions, strong divisional management teams and the potential to make furtheracquisitions, the Board expects further growth during 2006." Enquiries The Vitec Group plc Gareth Rhys Williams, Group Chief Executive 020 8939 4650 Alastair Hewgill, Group Finance DirectorFinancial Dynamics Richard Mountain/Susanne Walker 020 7269 7291 CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT We are delighted to report a year of continued progress for The Vitec Group.Sales continued to move ahead due to new product launches and acquisitions, andthis, together with the benefits of the restructuring programme initiated inprior years, resulted in a strong operating profit performance. Results 2005 saw revenue continue to grow. Following the very strong growth in 2004 weare pleased to report a further revenue increase of 5%, both in constantcurrency terms and in reported pounds sterling, of which organic growthaccounted for 4%. This growth represents a strong performance for Vitec, whichhas seen revenue reductions in previous post-Olympics years. The Photographic Division generated sales growth of almost 11% as it benefitedfrom products launched to capitalise on the growth in the wider photographicmarket, particularly of digital SLR cameras, and from the strength of ourin-house distribution, particularly in the US and Germany. Growth also came fromdemand for our innovative lighting truss systems. Kata, acquired in May,contributed 1% to overall Group sales growth; we had already been distributingits camera bags in the USA for several years. Revenue in Broadcast Systems was up 5% as a result of a revival in interest forstudio products, particularly for camera supports, and the portable powerbusiness had another excellent year. In Communications, the market remainedtough, but new products launched in the last two years began to build volume. Broadcast Services saw significant growth in 2004, benefiting from the Olympicsand a number of large reality TV show contracts. In 2005 the growth in theunderlying market was insufficient to compensate for some of these large eventsnot recurring and revenue was down 9%. Costs continued to be kept under tight control and the benefits of previousrestructuring actions came through as planned. As a result, profit before tax and significant items* grew 17% in constantcurrency terms and 11.5% in pounds sterling. Excluding acquisitions, thereported growth was 15% in constant currency and 10% in pounds sterling.Although foreign exchange movements, after hedging, reduced reported operatingprofit by £0.9 million, this effect was more muted than the £4.8 millionexperienced in 2004. Basic earnings per share before significant items* were 26.0p (2004: 22.2p), animprovement of 17%. The Group attracts a relatively high reported tax charge dueto the high tax rates of the countries in which the Group derives its profit,nevertheless actions taken to improve the efficiency of the Group's taxstructure resulted in a welcome reduction in the reported tax rate to 42% (2004:45%). During 2005, tax paid was £1.6 million as certain tax credits wereutilised. After significant items*, profit before tax from continuing operations was up20% to £17.1 million (2004: £14.2 million) and earnings per share were 22.9p(2004: 18.8p). After including the release of a provision of £0.4 millionrelated to a business sold in 2003, earnings were 23.9p (2004: 18.8p). Cash generated from operations of £29.8 million (2004: £22.5 million) remainedstrong. The low tax payments and improvements in stock control meant thatclosing net debt fell to £5.4 million (2004: £11.3 million), despite theacquisition of Kata and additional contribution to the UK pension scheme. *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 both in the FinancialReview and in note 4. Strategy update The results above show the success of the 'Consolidate - Leverage - Grow'strategy. The major restructuring process, started in 2002, is complete and weare seeing the benefits of operating as larger units. Each of our businesses isnow engaged in continuous improvement activities, ranging from further movementof production to lower cost countries, to exploiting the better informationgenerated by the IT systems recently put in place, to improving our purchasingperformance. This work will carry on but the emphasis is now on generatinggrowth. Vitec's organic growth comes from the ability of our brands toconstantly launch new and exciting products and services that customers value.In 2005, as in 2004, the Photographic and Broadcast Systems divisions spent some5% of sales on R&D, a level that will be maintained into 2006. As in previousyears, this effort generated products that attracted acclaim, which we expect toconvert to future revenue. The Board believes that acquisitions will form an important part of Vitec'sfuture growth. We continue to look to acquire companies, either withcomplementary products or with distribution channels that will enhance ourexisting capabilities. At the end of May 2005 we acquired Kata, a leading designer and manufacturer oftechnically advanced camera bags, based in Israel. The acquisition considerationwas US$8.5 million (£4.7 million), with up to a further US$13 million (£7.1million) consideration payable based on the business's performance in 2005-07.Bags represent a complementary product area to those products we already sell,as they are bought by the same customers who are attracted to our otherphotographic accessories. Kata is performing well and continues to grow ahead ofour expectations. On 16 January 2006 we completed the acquisition of Petrol, another bagsbusiness, also based in Israel. Both Kata's and Petrol's products have beendistributed by Vitec companies for a number of years. The combination of thesetwo companies will deliver coordinated and powerful new product ranges in boththe broadcast and high-end photographic camera bag markets. Vitec's continued success wouldn't be possible without the continued hard workand dedication shown by all of our colleagues around the world throughout aperiod of considerable change, for which we would like to thank them. 2005 dividend Given the improved results and the more stable currency situation, the Board isproposing a final dividend of 9.4p per share, resulting in a full year total of15.5p per share, an increase of 3%. Using basic earnings per share beforesignificant items* the dividend is covered 1.7 times (2004: 1.5 times), whilstafter significant items* it is covered 1.5 times (2004: 1.3 times). Our dividendpolicy, as previously communicated, is to move over a period of two to threeyears towards an average dividend cover of around two times, and this proposedpayment continues the implementation of that policy. Board changes As previously announced, John Potter will stand down following the AGM in May2006. John joined the Board in February 1999 and we thank him for his advice,which has been invaluable in seeing the Group through a period of substantialchange. We are delighted that Simon Beresford-Wylie joined the Board as a non-executivedirector on 1 March 2006. Simon is presently Executive Vice President & GeneralManager, Networks for Nokia. He is a member of the Nokia Group Executive Board.He has spent much of his career working in Australia, India and South East Asia.He will bring useful insights into those countries and the fast-moving consumerelectronics marketplace, which is of increasing relevance to Vitec. Sir David Bell, who has completed almost nine years as a director, stood down asSenior Independent Director on 1 March, but remains a director. Will Wyatt hastaken over the role of Senior Independent Director. Outlook for 2006 The last months of 2005 saw a marked pick up in activity in the Broadcast Camerabusiness, part of which was related to the forthcoming football World Cup inGermany. We have seen this momentum continue into the first quarter of 2006 andexpect to see continued growth in our Photographic business during the year,underpinned by the continued penetration of digital SLR cameras. With favourable market conditions and exciting product ranges, stable marketconditions, strong divisional management teams and the potential to make furtheracquisitions, the Board expects further growth during 2006. PHOTOGRAPHIC DIVISION Products for professional photographers 2005 2004Revenue £76.2m £68.7mOperating profit* £13.6m £12.4mOperating margin* 17.8% 18.0% *Before significant items. Significant items are profit on sale of property of£0.3 million (2004: £nil), amortisation of intangible assets of £0.2 million(2004: £nil) and restructuring costs of £nil (2004: £0.1 million reversal ofprovision). Overview The Photographic division, based in Italy, designs, manufactures and distributespremium products principally for the professional photographer and keen amateuror 'pro-sumer'. These include imaging products such as camera tripods andmonopods, lighting stands and camera bags, as well as lighting structures forstudios and outside events, which are all 'in-house' brands. Additional productsdistributed on behalf of third party manufacturers include flash units, lightmeters and filters. Most products reach the end customer through localretailers. Strategy Originally a manufacturer of professional lighting stands, the Manfrottobusiness diversified into camera supports, also for the professional. Theprofessional market is relatively static, but as the pro-sumer market is boomingwith the rapid uptake of digital photography, we have been targeting the lattersector with new products. The expansion of Bogen Imaging, the division'sdistribution arm, will allow much closer contact with the end customer and thelocal retailers. The market for outdoor lighting and rigging structures has alsobeen growing and we are addressing this by focusing on innovation and the supplyof equipment to key projects. To aid the development of this strategy thedivision has been reorganised around the Imaging Accessories, Distribution andLighting Structures areas. 2005 performance Sales in the division were up by almost 11% to £76.2 million (2004: £68.7million), with operating profit before significant items* up almost 10% to £13.6million (2004: £12.4 million). Operating margin was down slightly due to thelower dollar/euro exchange rates post-hedging and to some changes in mix,principally greater sales of Litec product outside Italy, where lower marginsare realised. Whilst all parts of the division showed sales growth, a significant step inimplementing the strategy was the acquisition of Kata, a leading supplier ofprofessional bags and protective equipment. Kata continues to grow strongly,recently relocating to new premises, and is implementing the division-wide ERPsystem that will link it to our own distribution companies. Towards the end of 2005 we finished the development of the new 'Modo' product.Continuing Manfrotto's tradition of ground-breaking innovation, it combines astill and video camera head on a tripod aimed at the pro-sumer. It is beingmanufactured in China. During the year the operations of Gitzo France were centralised in Italy,improving operational effectiveness and reducing costs. A project to rationalisetwo further Italian sites commenced that will see some further productsoutsourced to China. Bogen Imaging continued to grow strongly, selling both in-house and third partybrands. It benefited from the strength of the US economy, as well as from thestrong performance of Bogen Imaging GmbH, acquired in 2003. Litec and IFF were combined to form the Lighting Structures unit, which is nowbased in Litec's new facility near Venice, having outgrown the previous site.Litec completed the implementation of the divisional ERP system and continued tosee strong growth throughout western Europe. Litec's products continued to gainwidespread recognition for their design and ease of use. BROADCAST SYSTEMS DIVISION Products and systems primarily for broadcast applications 2005 2004Revenue £91.5m £86.9mOperating profit* £5.2m £3.8mOperating margin* 5.7% 4.4% *Before significant items. Significant items are restructuring costs of £0.9million (2004: £2.2 million) and goodwill impairment of £nil (2004: £0.7million) Overview The Broadcast Systems division, with its major businesses in the US, Germany andthe UK, provides equipment principally for the professional video cameraman andstudio or outside broadcast production teams, which are generally sold eitherdirect to the customer or through specialist dealers. The operating units, whereVitec brands are acknowledged leaders, are Camera Support, including lightingsystems, Portable Power systems, and Communications. Strategy Following the decline in the broadcast market and the changes in cameratechnology, we have consolidated the division into fewer, larger business unitsand are now able to manufacture at lower cost and devote more resources toproduct development. By introducing exciting and innovative new products we willbe able to stimulate the market and grow sales and profits. Additionally we arelooking to expand in markets outside broadcast and entertainment where we haverelevant technology and products. 2005 performance 2005 saw significant top and bottom line improvements as a result of an upturnin the Broadcast and Live Entertainment markets and the benefits from therestructuring programmes, particularly in our Camera Support business. Theestablishment of our Beijing office in 2004 led to substantial sales in mainlandChina, especially in sports and news-driven camera support applications. Overallrevenue in 2005 grew by 5.3% to £91.5 million (2004: £86.9 million). Divisionalprofitability improved as a result of the additional volume and through tightcontrol of costs. With the new structure in place, further opportunities toimprove purchasing and simplify logistics have been taken. Operating profitbefore significant items* rose to £5.2 million (2004: £3.8 million), as thesebenefits coincided with a more benign foreign exchange environment. The division continued to launch new products that command attention in themarketplace. In Camera Support, following the acquisition of Radamec BroadcastSystems in 2003, the Robotic business was rebranded Vinten-Radamec. A singlecontrol system for all existing Robotic products was launched at the IBC show inSeptember 2005, allowing customers to add new products to either type ofexisting Radamec or Autocam systems. The new control system allows users toselect either style of user interface and even to switch between operators orbetween shows whilst retaining shot definitions. Most significantly, the demandfor Studio products increased steadily from the low point in Q1 2004, possiblydriven by early purchases for the Turin Winter Olympics and football World Cup.Sachtler saw broad acceptance for its new range of 'Speedbalance' video cameramounting heads which give a much finer control of the balance function whilstretaining the repeatable stepwise setting for which Sachtler is renowned. Anton/Bauer, celebrating its 35th year in business, again produced a goodresult. Noteworthy was the delivery of a unique power source designedexclusively for Panavision's Genesis HD Super 35 Digital Cinematography camerasystem, introduced as more and more film studios replace their traditionalcelluloid-based cameras. In Communications, the integration of Drake and Clear-Com has led to a largeincrease in sales in Europe and the Middle East. A revolutionary 'Voice over IP'intercom product will start to contribute to sales in 2006, and the CellComwireless intercom was approved for use in the USA in November 2005. While themarket for Communications remained very tough, these new, higher margin productslaunched recently are beginning to build volume. With all of the initialcontracts for Air Traffic Control (ATC) projects now completed, and now we arean established supplier, the focus has switched to driving up margins. Theroll-out of the divisional ERP system continued, with the Cambridge site goinglive in January 2006. The acquisition of Petrol, whose camera bags had been distributed by Sachtlerfor three years, was completed in January 2006. The acquisition widens thedivision's product range, positioning it well for future growth. BROADCAST SERVICES DIVISION Rental services and technical support mainly for the broadcast market 2005 2004Revenue £27.2m £29.8mOperating profit* £1.2m £1.6mOperating margin* 4.4% 5.4% *Before significant items. Significant items are negative goodwill of £nil(2004: £0.6 million) Overview The Broadcast Services business provides rental equipment and technical supportfor events, principally in the US, from a network of ten depots across the US.With a reputation for superior service and knowhow, Bexel equipment and peopleare found on the most demanding shows. The division provides both video andaudio services and acts as an integrator for complex audio systems. Strategy With a unique geographical footprint, Bexel has a great advantage in offeringpan-US services, which we aim to exploit. With a reputation for technicalexcellence, we have the ability to offer rentals that require complexengineering, either in preparation for an event or as the show is made. Bexelcan also provide broadcast networks that are looking to outsource, services suchas equipment maintenance and rentals that incorporate future technical upgrades. 2005 performance Sales were down £2.6 million (9.0%) following a very strong 2004. Operatingprofit before significant items* was down £0.4 million to £1.2 million (2004:£1.6 million), reflecting the rigorous cost control environment that thebusiness operates within. At the end of 2004 we had hoped that the buoyant market that had supported the10.4% increase in revenues achieved that year would continue into 2005 and morethan outweigh the Athens Olympics and US Presidential election revenues fallingout. That did not prove to be the case, partly because fewer new large realityTV shows were launched that needed our level of technical services during theyear, although we did win renewals on the top shows that we already support. Wealso added several shorter and smaller scale new series, including the BBC's 'Shark Attack'. A number of large, lower margin projects from 2004 did not repeat in 2005 which reduced our turnover, but without a proportionate effect onoperating profit. We also entered into our first substantial agreements with domestic televisionnetworks that span multiple seasons for various types of speciality equipment,including high definition super slow-motion camera systems. One example is theagreement with NBC to supply them with high definition content management andreplay systems and support for the Turin and Beijing Olympics. We continued to fulfil more of our contracts with our own equipment rather thanwith expensive subrentals from third parties. Those cost savings dropped throughto operating profit, offsetting the reduction in turnover. Going forward into 2006, we have built a '3G Live' prototype that provides anindependent production stream for near-real-time delivery of alternative contentfrom live event venues, primarily for distribution to the web, mobile phones andother new media devices. We became an authorised Apple Broadcast ServicesPartner, and have demonstrated the prototype to a number of major network andproduction customers. It has recently been used for editing the TWI/IMG 'OlympusFashion Week', webcasting through MSN. With our new Chief Technology Officer onboard, Vitec will be the major sponsor of the 2006 Techforum, an event at whichthe leaders of US broadcasting meet to learn about technical events in theindustry. Although neither the Techforum nor the '3G Live' system will provide significantrevenues by themselves in 2006, they are keeping us in closer contact withcustomers who often then end up renting other equipment and services from us.They also reinforce our image as a leading solutions and services provider asdistinguished from more commoditised "box renters" that add little value beyondfulfilling orders. FINANCIAL REVIEW The table below sets out an analysis of the causes of movements in operatingprofit before significant items* between 2004 and 2005. Whilst the variances arebased on management's best estimates and are not a statutory presentation, theyhelp to explain the underlying changes in the business during the year. Operating profit* 2004-05 Variance Analysis (£m)2004 Operating profit* 17.8Gross margin effects:- Volume and mix 2.1- Sales price less cost inflation 0.1Operating expenses 0.6 2.8Acquisitions 0.3FX effects:- Translation 0.1- Transaction after hedging (1.0) (0.9)2005 Operating profit* 20.0 * before significant items Revenue increased by £9.5 million to £194.9 million, or 5.1% in the year. Ofthis, £6.7 million (3.6%) was like-for-like, £2.2 million (1.2%) was due toacquisitions and £0.6 million (0.3%) favourable foreign exchange. Sales growthwas particularly strong in the USA and EMEA but flat in Asia. Acquisition growthcame principally from Kata, the Israeli bags maker, which was acquired on 31May, together with a full year contribution from Charter US. Operating profit before significant items* was £20.0 million, £2.2 million or12.4% greater than 2004. Before adverse foreign currency effects of £0.9million, the increase in profit was £3.1 million or 17.3%. Despite hedging itsforeign exchange transaction exposure, the Group suffered from the weaker USdollar against the euro, particularly in the first half year. The Group'soperating profit* margin increased from 9.6% to 10.3%. Restructuring costs were £0.9 million (2004: £2.1 million) which principallyarose from the previously-announced restructuring plans within the BroadcastSystems Division enabling the Camera Support and Communications businesses tooperate in a more integrated manner. It is expected that the overall charge forthese plans will be between £4.0 and £5.0 million, as previously announced, with£3.0m having now been charged. The charge for goodwill impairment was £nil (2004: £0.1 million). Amortisationof the intangibles acquired in Kata (see below) for the seven months ofownership was £0.2 million. These have been included as significant items. Significant items totalling £1.3 million were principally the aboverestructuring costs of £0.9 million, amortisation of intangibles for Kata of£0.2 million and other financial expense of £0.5 million (of which £0.3 millionrelates to the reduction in the value of foreign exchange options due to FXmarket volatility, and £0.2 million relates to currency losses on loans notaccounted for as net investment hedges), offset by the profit on the sale of afactory building in Italy for £0.3 million. Taxation The effective taxation rate on operating profit after net financeexpense but before significant items was 42% (2004: 45%). The reduction in thetax rate is due principally to progress made in reducing unrelieved UK taxlosses. The Group's tax charge is relatively high because all of its profitsarise overseas in high tax jurisdictions. (Note: the application of IFRSincreased the effective tax rate for 2004 by some 3% compared to UK GAAP, due tochanges in the accounting for deferred taxes). Discontinued operation The £0.4 million credit relates to the release of theremaining provision for the upgrade of retail units in the ALU business, whichwas divested in 2003. Acquisitions On 31 May 2005 the Group acquired the business and assets of Kata,the Israeli designer and manufacturer of premium protective carrying bags forcameras and accessories in the photographic and broadcast markets. Theconsideration, including acquisition expenses, amounted to £4.7 million. Basedon an assessment of the fair value of assets acquired, £0.7 million wasattributed to tangible assets, £1.4 million to intangible assets (before acontingent tax liability of £0.3 million) and £2.9 million to goodwill. Theamortisation of intangibles for the seven months was £0.2 million. An earnout ofup to $13.0 million (£7.1 million) is payable based on sales and profitperformance for 2005-07. Following the 2005 performance, the estimated earnoutprovision has been increased from US$3.6 million (£2.0 million) at half year toUS$4.6 million (£2.5 million). Cash flow and net debt Cash generation remained strong, with net debt reducingby half to £5.4 million (2004: £11.3 million), despite the acquisition of Kata(above) and a one-off £2.1 million contribution to the Group's two UK pensionschemes which were then merged. The principal reasons were operating profitgeneration and tax paid of £1.6 million compared to a tax charge of £7.7million. Cash generated from operations was £29.8 million (2004: £22.5 million) equatingto 73p a share (2004: 55p). Capital expenditure and financial investments were£11.7 million (2004: £10.0 million), of which £5.4 million (2004: £5.1 million)related to rental assets, partly financed by the proceeds from rental assetdisposals of £1.2 million (2004: £1.1 million). Working capital efficiency improved. Inventory decreased by £1.3 million to£31.3 million, whilst stock days decreased to 99 (2004: 109 days). Tradereceivables increased by £4.3 million to £30.5 million, reflecting high sales inDecember which also contributed to higher debtor days of 57 (2004: 52 days). Tax paid in 2005 of £1.6 million was similar to 2004 (£1.4 million). The currentyear benefited again from Italian tax credits arising from the sale of the ALUbusiness in 2003, as well as a £0.7 million UK tax rebate. Tax payments in 2006will equate more closely to the 2006 current tax charge. Treasury Financing, currency hedging and tax planning are managed centrally.Hedging activities are designed to protect profits, not to speculate.Substantial changes to the financial structure of the Group or treasury practiceare referred 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. In 2005, due to therelative strength of the US dollar, some cover was also taken out for the firsthalf of 2007. Currency millions December 2005 Average rate December 2004 Average rateUS dollars sold for EurosForward contracts $22.9 1.22 - -Options* $17.7 1.24 $16.0 1.21US dollars sold for SterlingForward contracts $15.5 1.78 $3.7 1.80Options - - $1.7 1.84 *Includes cylinder options, where the mid-point of range is taken The Group does not hedge its foreign currency profits. Foreign currency netassets are not hedged other than by normal Group borrowings. Financing activities The Group's principal financing facility is a five-year£100 million committed multicurrency revolving loan agreement involving fivebanks, expiring on 24 January 2010. At the end of December, £17.2 million of thefacility was utilised. The average cost of borrowing for the year was 4.6% (2004: 4.8%) with the upwardtrend in interest rates being partially mitigated by converting the remainder ofthe Group's sterling loans into euros and US dollars. Net interest cost(consisting of net interest payable and commitment fees) was £1.3 million (2004:£1.6 million). Net interest cover (using operating profit before significantitems) remained high at 15 times (2004: 11 times). UK pensions At the end of 2003 the Group closed both of its UK defined benefitschemes to new members. From the beginning of 2004 a Group personal pension planwas made available for new employees, currently with Standard Life. In November2005 the two schemes were merged. As at 31 December 2005 the number of activemembers in the newly-merged scheme had reduced by 13% to 201 (2004: 232). Totalscheme members are 662 (2004: 676). 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 membersallowing for expected future increases in salaries. As a result of the valuationregular contributions were increased by £0.2 million per annum with effect fromthe date of valuation. In addition, employees' contributions were increased from1 January 2005. In November 2005 the Group contributed £2.1 million to fund thedeficit highlighted by the 2004 triennial valuation and, also, to facilitate themerger of the two schemes to reduce ongoing administration costs. Following the funding actions set out above, the Group's UK defined benefitpension liabilities under IAS 19 (amended) as at 31 December 2005 were estimatedby the Group's actuaries to be £42.0 million (2004: £36.5 million) and thedeficit £3.1 million (2004: £5.8 million). The principal assumptions used forthe valuations are set out below. 2005 2004Inflation rate 2.8% 2.8%Expected rate of increase in:- Salaries 4.8% 4.8%- Pensions and deferred pensions 2.8% 2.8%Discount rate 4.8% 5.3%Long term rates of return- Equities 7.8% 7.9%- Bonds 4.3% 4.8%- Property 6.3% 6.8%Longevity- Pensioners currently aged 65 84/87 * 84/87 *- Non-pensioners currently aged 45 86/89 * 86/89 * * male/female Cautionary statement This announcement contains forward looking statements that are subject to 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 2005 Full year 2005 Full year 2004 Significant items (1) Significant items (1) Before Total Before Total significant significant items items Amortisation Restructuring Goodwill Restructuring of acquired costs and impairment, costs and intangibles Property negative Property and Other profits goodwill profits financial and Other expense financial items expense items £m £m £m £m £m £m £m £mRevenueContinuing operations 193.2 193.2 185.4 185.4Acquisitions 1.7 1.7 - - 194.9 194.9 185.4 185.4Cost of sales (115.6) (115.6) (108.9) (108.9)Gross profit 79.3 79.3 76.5 76.5Other operating income - 0.3 0.3 - -Operating expenses (59.3) (0.2) (0.9) (60.4) (58.7) (0.1) (2.1) (60.9)Operating profitContinuing operations 19.8 - (0.6) 19.2 17.8 (0.1) (2.1) 15.6Acquisitions 0.2 (0.2) - - - - - - 20.0 (0.2) (0.6) 19.2 17.8 (0.1) (2.1) 15.6Interest payable on bank (1.5) (1.5) (1.7) (1.7)borrowingsInterest income 0.2 0.2 0.1 0.1Pension scheme:Interest charge (2.0) (2.0) (1.1) (1.1)Expected return on assets 2.2 2.2 1.4 1.4Other financial expense (0.5) (0.5) (1.0) - (0.1) (0.1)Net financial expense (1.6) (0.5) - (2.1) (1.3) (0.1) - (1.4)Profit before tax 18.4 (0.7) (0.6) 17.1 16.5 (0.2) (2.1) 14.2Overseas taxation (7.7) - - (7.7) (7.4) - 0.9 (6.5)Profit from continuing 10.7 (0.7) (0.6) 9.4 9.1 (0.2) (1.2) 7.7operationsProfit from discontinued 0.4 0.4 - -operationProfit for the year 11.1 (0.7) (0.6) 9.8 9.1 (0.2) (1.2) 7.7(attributable to EquityShareholders) Earnings per shareContinuing operations:Basic earnings per share 22.9p 18.8pDiluted earnings per share 22.7p 18.7pTotal :Basic earnings per share 23.9p 18.8pDiluted earnings per share 23.7p 18.7p Dividends per ordinary sharePrior year final paid £3.6m8.9pCurrent year interim paid 6.1p £2.5mCurrent year final proposed 9.4p £3.9m (1) See note 4Consolidated statement of recognised income and expense For the year ended 31 December 2005 2005 2004 £m £mActuarial gain/(loss) on pension obligations 0.5 (0.6)Currency translation differences on foreign net investments 2.4 (4.1)Net (loss)/gain on hedge of net investment in foreign subsidiaries (0.2) 0.1Cash flow hedging reserve: Amounts released to income statement (0.8) Effective portion of changes in fair value (0.7)Net income/(expense) recognised directly in equity 1.2 (4.6)Profit for the year 9.8 7.7Total recognised income for the year 11.0 3.1Effect of adoption of IAS 32 and IAS 39 at 1 January 2005 on: Retained earnings 0.4 Cash flow hedging reserve 0.8Total 12.2 3.1 Consolidated Balance SheetAs at 31 December 2005 2005 2004 £m £mAssetsNon-current assetsProperty, plant and equipment 33.6 30.7Intangible assets 19.9 12.8Deferred tax assets 5.8 7.2 59.3 50.7Current assetsInventories 31.3 32.6Trade and other receivables 37.0 35.0Derivative financial instruments 0.2Current tax assets 0.9 2.3Cash and cash equivalents 12.7 14.4 82.1 84.3Total assets 141.4 135.0LiabilitiesCurrent liabilitiesBank overdrafts 0.9 1.0Bank loans - 24.7Trade and other payables 31.5 27.4Derivative financial instruments 0.9Current tax liabilities 7.6 2.6Provisions 1.2 2.7 42.1 58.4Non-current liabilitiesBank loans 17.2 -Other payables 0.2 0.1Post-employment obligations 7.5 9.7Provisions 2.7 0.2Deferred tax liabilities 1.1 2.4 28.7 12.4Total liabilities 70.8 70.8Net assets 70.6 64.2EquityShare capital 8.2 8.2Share premium 2.7 2.7Translation reserve (1.8) (4.0)Other reserves 0.9 1.6Retained earnings 60.6 55.7Total equity 70.6 64.2 Consolidated cash flow statementFor the year ended 31 December 2005 2005 2004 £m £mCash flows from operating activitiesProfit for the year 9.8 7.7Adjustments for:Taxation 7.7 6.5Depreciation 8.9 9.4Amortisation of intangibles 1.2 0.8Goodwill impairment - 0.7Negative goodwill - (0.6)Loss on disposal of property, plant and equipment (1.6) (1.0)Fair value losses on derivative financial instruments (0.4)Cost of equity-settled employee share schemes 0.3 0.1Financial income (2.4) (1.5)Financial expense 4.5 2.9Operating profit before changes in working capital and provisions 28.0 25.0Decrease/(Increase) in inventories 3.0 (0.1)Increase in debtors (0.8) (0.1)Increase/(decrease) in creditors 3.1 (1.2)Decrease in provisions (3.4) (1.1)Adjustments for foreign exchange losses (0.1) -Cash generated from operations 29.8 22.5Interest paid (1.8) (1.7)Tax paid (1.6) (1.4)Net cash from operating activities 26.4 19.4 Cash flows from investing activitiesProceeds from sale of property, plant and equipment 2.1 1.6Purchase of property, plant and equipment (11.1) (8.7)Software and development costs capitalised as intangible assets (0.6) (1.3)Interest received 0.5 0.1Acquisition of subsidiary, net of cash acquired (4.6) (1.5)Net cash from investing activities (13.7) (9.8) Cash flows from financing activitiesProceeds from the issue of shares - 0.1Repayment of bank loans (8.2) (1.6)Dividends paid (6.1) (9.3)Net cash from financing activities (14.3) (10.8) Decrease in cash and cash equivalents (1.6) (1.2)Cash and cash equivalents at 1 January 13.4 15.6Exchange rate movements - (1.0)Cash and cash equivalents (including overdrafts) as at 31 December 11.8 13.4 Cash and cash equivalents 12.7 14.4Bank overdrafts (0.9) (1.0)Cash and cash equivalents in the cash flow statement 11.8 13.4 Abbreviated segment reportingPrimary format - by business segments Photographic Broadcast Broadcast Corporate and Consolidated Systems Services unallocated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £m £m £mRevenue from externalcustomers : Sales 76.2 68.7 91.5 86.9 7.8 8.8 - - 175.5 164.4 Services - - - - 19.4 21.0 - - 19.4 21.0Total revenue from external 76.2 68.7 91.5 86.9 27.2 29.8 - - 194.9 185.4customersInter-segment revenue (1) 1.3 1.6 1.2 1.0 - - (2.5) (2.6) - -Total revenue 77.5 70.3 92.7 87.9 27.2 29.8 (2.5) (2.6) 194.9 185.4 Operating profit before 13.6 12.4 5.2 3.8 1.2 1.6 - -significant items 20.0 17.8Amortisation of intangible (0.2) - - - - - - - (0.2) -assetsProfit on the sale of 0.3 - - - - - - - 0.3 -propertyRestructuring costs - 0.1 (0.9) (2.2) - - - - (0.9) (2.1)Goodwill impairment and - - - (0.7) - 0.6 - - - (0.1)negative goodwill Segment result 13.7 12.5 4.3 0.9 1.2 2.2 - - 19.2 15.6Net financial expense (2.1) (1.4)Taxation (7.7) (6.5)Profit for the period Continuing operations 9.4 7.7 Discontinued operation 0.4 - 9.8 7.7 Segment assets 48.6 39.0 52.1 54.1 20.3 18.3 1.0 (0.3) 122.0 111.1Unallocated assets Cash and cash 12.7 14.4 12.7 14.4equivalents Current tax assets 0.9 2.3 0.9 2.3 Deferred tax assets 5.8 7.2 5.8 7.2Total assets 141.4 135.0 Segment liabilities 19.4 14.3 16.4 20.0 4.6 3.3 3.6 2.5 44.0 40.1Unallocated assets Bank overdrafts 0.9 1.0 0.9 1.0 Bank loans 17.2 24.7 17.2 24.7 Current tax liabilities 7.6 2.6 7.6 2.6 Deferred tax liabilities 1.1 2.4 1.1 2.4Total liabilities 70.8 70.8 Capital expenditure(including those acquiredwithin acquisitions)Property, plant and equipment 3.3 2.4 2.4 1.2 5.4 6.0 0.1 - 11.2 9.6Intangible assets 2.0 0.6 - 0.7 - - - - 2.0 1.3 (1) Inter-segment pricing is determined on an arm's length basis.Abbreviated segment reporting (continued) Secondary format - by geographical segments United Kingdom Rest of The Rest of the Corporate and Consolidated Europe Americas World unallocated 2005 2005 2004 2005 2004 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £m £m £m £m £mRevenue fromexternal customers:By origin 37.5 40.5 70.1 66.8 85.5 78.1 1.8 - - - 194.9 185.4By location of 9.7 9.9 56.9 52.6 98.1 94.3 30.2 28.6 - - 194.9 185.4customer Segment assets 23.5 24.9 40.4 42.5 47.2 42.4 9.9 1.6 1.0 (0.3) 122.0 111.1Unallocated assetsCash and cash 12.7 14.4 12.7 14.4equivalentsCurrent tax assets 0.9 2.3 0.9 2.3Deferred tax assets 5.8 7.2 5.8 7.2Total assets 141.4 135.0 Capital expenditure(including thoseacquired withinacquisitions)Property, plant and 1.7 0.6 3.3 2.5 5.8 6.4 0.3 0.1 0.1 - 11.2 9.6equipmentIntangible assets - 0.7 0.5 0.6 0.1 - 1.4 - - - 2.0 1.3 Important: The financial information set out above does not constitute thecompany's statutory accounts for the years ended 31 December 2005 or 2004.Statutory accounts for 2004, which were prepared under UK GAAP, have beendelivered to the registrar of companies. The auditors have reported on the 2004accounts; their report was unqualified and did not contain a statement undersection 237(2) or (3) of the Companies Act 1985. 1. Basis of Preparation The transition date for adoption of IFRS is determined in accordance with IFRS1First Time Adoption of International Financial Reporting Standards, and has beendetermined as 1 January 2004. The information included within this document hasbeen prepared on the basis of the recognition and measurement requirements ofIFRS standards and IFRIC interpretations in issue that are endorsed by theEuropean Commission and effective (or which Vitec has chosen to early adopt) at31 December 2005 ("adopted IFRS"), the Group's first annual reporting date inaccordance with IFRS. The standards having the most effect on the profit before tax and shareholders'funds are as a result of the adoption of IAS 19 (amended) Employee Benefits (inrespect of pensions), IAS12 income taxes (in respect of deferred tax assets),IFRS 3 Business Combinations (in respect of goodwill), IFRS 2 Share BasedPayment and IAS 10 Events After The Balance Sheet Date (in respect of dividendsdeclared after the balance sheet date). The impact of adopting IFRS and a fullanalysis of the impact on the 2004 published results were reported in May 2005. 2. Basis of Presentation The Group's financial statements are prepared under the historical costconvention and in accordance with the Companies Act 1985 and applicableaccounting standards. The accounting policies of the Group under previous UKGAAP are detailed in the 2004 Annual Report and Accounts and have been amendedas discussed in the IFRS announcement on 19 May 2005. The revised accountingpolicies of the Group conform to IFRS. The financial data presented in this document is for the full year 2005, beingthe twelve months ended 31 December 2005, and compared to the correspondingperiod in the previous year. 3. Basis of Segmentation Segmental data in this statement is analysed on the basis of the divisionalmanagement structure (Photographic, Broadcast Systems, Broadcast Services) thatthe Group operates under. 4. 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. Amounts taken account of relating to operating items include the costs of majorrestructuring programmes, the amortization of acquired intangibles and profit ondisposal of property. The Group uses options as part of its hedging of future cash flows. Under IFRS,the Group is able to hedge account for the intrinsic value of such options, butis not permitted to hedge account for the time value of such options. This timevalue is therefore marked-to-market at each balance sheet date. As such optionsare held to maturity, the ultimate net amount charged to the income statement inrespect of any one option will always equate to the initial premium paid forthat option. However, as a result of the mark to market, this may introducevolatile income and expenses between periods and such amounts are thereforebeing identified as other financial expense. Under IFRS, currency translation differences arising on long-term intra-groupfunding loans that are similar in nature to equity are charged/credited toreserves. Amounts relating to the currency translation differences arising oncertain other intra-group funding balances that do not meet this strict criteriabut that are very similar in nature are included within other financial expense. Significant items comprise restructuring costs (£0.9m), profit on disposal ofproperty £0.3m, amortization of acquired intangibles (£0.2m), volatile premiumon options (£0.3m) and currency translation on intra-group funding balances(£0.2m). 5. Earnings per share Basic earnings per share of 23.9 pence (2004: 18.8 pence) is based on profit forthe year attributable to equity shareholders of £9.8 million (2004: £7.7million) and the weighted average number of shares of 41,084,054 (2004:41,062,429). Basic earnings per share relating only to continuing operations of22.9 pence (2004: 18.8 pence) is based on profit for the year attributable toequity shareholders but before profit from discontinued operations. Basicearnings per share before significant items and discontinued operations of 26.0pence (2004: 22.2 pence) is based on profit for the year attributable to equityshareholders but before the impact of significant items and before profit fromdiscontinued operations. 6. Dividend The directors have declared a final dividend of 9.4 pence per share, which willabsorb £3.9 million (2004: 8.9 pence absorbing £3.6 million). The dividend willbe paid on 28 May 2006 to shareholders on the register at the close of businesson 26 April 2006. 7. Key Exchange Rates Weighted average Year end 2005 2004 2005 2004EUR / USD 1.24 1.24 1.18 1.36GBP / USD 1.82 1.82 1.72 1.92GBP / EUR 1.46 1.47 1.46 1.41 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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