3rd Sep 2007 07:01
The Vitec Group PLC03 September 2007 3 September 2007 The Vitec Group plc Half year results to 30 June 2007 Another six months of strong growth The Vitec Group plc, the international supplier of products and services to thebroadcast, entertainment and photographic industries, announces its results forthe half year ended 30 June 2007. Results H1 2007 H1 2006 % Change Revenue £126.4m £107.4m +18% Before significant items*Operating profit £15.2m £12.0m +27%Profit before tax £14.3m £11.6m +23%Basic earnings per share 21.8p 16.8p +30% After significant items*Operating profit £14.1m £12.1m +17%Profit before tax £13.6m £12.2m +11%Basic earnings per share 22.3p 18.2p +23% Interim dividend 6.9p 6.4p +8% * Significant items comprise restructuring costs, goodwill impairment,amortisation of acquired intangibles, profit on sale of property and fair valueadjustments relating to volatile financial instruments. KEY POINTS • Reported revenue growth of 18%, with constant currency organic growth of 14%• Imaging & Staging division revenue up 31%; future growth supported by forecasts for global Digital SLR sales• Group operating margin** up by 80 basis points to 12.0%• Profit before tax** up by 23%, with constant currency organic growth of 42%• Recent acquisitions of Nucomm, RF Central and Microwave Service Corporation, all performing to plan• Interim dividend increased by 7.8% to 6.9p per share ** before significant items Commenting on the results, Gareth Rhys Williams, Chief Executive, said: "We are delighted to report another six months of strong growth, both in salesand profit. "The second half has got off to an encouraging start. Order intake remains goodand we believe the underlying demand for our products will continue to besupported by the trend to HD programming by broadcasters, and by the growth insales of digital SLR cameras. The RF Systems businesses are trading as expected,with the integration proceeding well, and we continue to look for acquisitionsthat complement our existing portfolio of premium brands and distributionchannels. "The Board looks forward to continued growth for the full year." Enquiries The Vitec Group plc Gareth Rhys Williams, Group Chief Executive 020 8939 4650 Alastair Hewgill, Group Finance Director 020 8939 4650 Financial Dynamics Richard Mountain/Susanne Yule 020 7269 7221 CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT Results overview We are pleased to report another six months of significant progress, building onthe momentum established in the second half of 2006. Reported revenue grew 18% and, with the benefit of the operational gearing ofthe business, operating profit before significant items* grew 27%. Before theeffects of foreign exchange in the first half (mainly the weaker US dollar),constant currency revenue was up 26%, of which organic growth was 14%. Groupoperating margins before significant items* continue to improve, up 80 basispoints to 12.0%. Reported profit, before tax and significant items* was up 23%,with the constant currency organic improvement 42%. With a further reduction inour headline tax rate, now down to 37%, basic EPS before significant items* roseby 30% to 21.8p. It is particularly pleasing that we have seen such stronggrowth coming from several different market segments, and in a period that hasnot seen any 'even year' sporting events. Our organic growth has been driven by strong sales of our accessory products toboth professionals and enthusiasts, as more and more video and photographiccontent is generated around the world. Moreover, predicted future sales ofdigital SLR cameras are even more encouraging than previously forecast, whichwill help drive the business in future years. Vitec has a history of value-enhancing acquisitions, and of those made lastyear, Autoscript has grown the fastest, and that business is now the clearmarket leader for professional prompting products. We have also seen a pleasingperformance from the new Bogen Imaging distribution operation in Japan. TheStaging business saw some organic growth in the half, but doubled in sizethrough the acquisition of Tomcat, where a number of projects are now expectedin the second half. In June we completed the acquisitions of RF Central, Nucomm and MSC (togetherknown as RF Systems), creating a significant player in the market for microwavevideo links. The Group paid an initial consideration, including expenses, of£20.5 million, with a possible earnout capped at £18.8 million. The integrationof these businesses is progressing well. Early indications are that the USbroadcast market, which presently has to undertake a wholesale switch ofequipment from analogue to digital technologies, is readily appreciating themerits of a combined entity that can offer excellent products, integration andinstallation services as well as maintenance. Cash generation remains good, taking into account the normal seasonal increasein working capital. Stock and debtor days were 115 days (H1 2006: 109) and 54(H1 2006: 54) respectively before 2007 acquisitions. Inventory days can beexpected to increase whenever we acquire a distribution operation, as we didwith Bogen Imaging Japan last June. Capex in the half was £6.7 million (H1 2006:£5.2 million) with a slightly higher amount anticipated in the second half. Net debt at the end of June was £41.8 million and compares with £8.6 million atthe end of June 2006, inflated by the acquisition payments for Tomcat,Autoscript and RF Systems, and is well within our committed financing facilitiesof £100 million. Looking back over the last few years' restructuring, the actions taken tostreamline the Group's operations and build a platform for future growth inattractive markets have again delivered very good progress. The Board has declared an increased interim dividend of 6.9p (2006: 6.4p), arise of 7.8%. *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. IMAGING & STAGING DIVISION Products for the photographic, video and live event markets H1 2007 H1 2006 r %Revenue £59.5m £45.4m 31.1%Operating Profit* £10.4m £8.2m 26.8%Operating Margin* 17.5% 18.1% -0.6 pts *Before significant item. The significant item is amortisation of acquiredintangibles of £0.3 million (H1 2006: £0.2 million). The Imaging & Staging Division consists of three business units, ImagingAccessories, Imaging Distribution and Staging Systems, all of which haveachieved excellent growth in the first half, with revenues up 31%. Totalconstant currency revenue growth was 39%, of which 24% was organic. The division's strong margins were broadly stable in the first half comparedwith the first half of 2006. These margins are a reflection of the continuedwork done over several years; the ongoing product development efforts and theprice and cost actions taken, despite FX impacts and the anticipated effect ofthe increased Staging activities. In Imaging we have seen excellent growth in all parts of the business: keenamateur photographers are buying increasing numbers of digital SLR cameras andare choosing our camera support and bags accessories, and we have seen strongdemand among professional photographers and cinematographers for our lightingsupport products. This growth is due to buoyant market conditions and our focus on innovation.Several new products were brought to the market in the first half of 2007, withupgrades to the Manfrotto, Gitzo and Avenger ranges. The Manfrotto 190X tripodwas awarded the 2007 TIPA award for 'Best Accessory', following the 'BestDesign' award to Kata last year. In order to make further inroads into the emerging markets, a new representativeoffice has been opened in Beijing and several new third party distributors havebeen taken on in India. Bogen Imaging, our in-house distribution business,continues to capitalise on the popularity of our products, and our new operationin Tokyo is giving us better access to Japan. Staging Systems, where the Litec truss and IFF lighting control systems nowoperate together with Tomcat, has seen underlying growth in the core Litecproducts. IFF and Tomcat, which are both much more reliant on larger projects,for example the stage set built for the Genesis world tour, had a slower thanexpected first half but we expect that activity will pick up in the second half.Early in 2007 we acquired a small manufacturing operation in Slovakia which ispresently being expanded. This site and the pre-existing one in Mexico, providea lower cost base from which to supply both Litec's and Tomcat's standardproducts, with the more complex products remaining in the original facilities. BROADCAST SYSTEMS DIVISION Products and systems primarily for broadcast applications H1 2007 H1 2006 r %Revenue £53.4m £47.1m 13.4%Operating Profit* £4.0m £2.8m 42.9%Operating Margin* 7.5% 5.9% 1.6 pts *Before significant items. Significant items are amortisation of acquiredintangibles of £0.8 million (H1 2006: £nil), profit on sale of property of £nil(H1 2006: £0.4 million) and restructuring costs of £nil (H1 2006: £0.1 million). The division grew 13% in sterling, corresponding to 21% in constant currency, ofwhich 10% was organic. Acquisition growth of 11% in constant currency came fromAutoscript, the prompting business acquired in late 2006, whose products are nowfirmly establishing themselves as the industry standard, and from one month'ssales from RF Systems. The Camera Dynamics unit, now with a unified salesforce, continues to make goodprogress, with considerable interest in the newer robotics products, which havenow entered scale production. Sachtler launched a new range of award-winningsupport systems for the smaller Standard and HD broadcast cameras. The extensionof the factory in Costa Rica to encompass the machining of complex componentswill help to improve margins further. The Mobile Power unit, Anton/Bauer, is benefiting from movie cameramen movingfrom recording on film to recording on video. Anton/Bauer has developed apower-pack capable of running not just the new cameras, but the many accessoriesthat are integrated around it. The Elipz products launched last year alsocontinue to gain ground, with cooperative promotions with JVC and Panasonic. In Communications we have introduced innovations in every one of the business'smajor product lines which we expect will generate improvements in H2. Marginsshould also improve as we outsource manufacture of further components to Asia. The integration of RF Systems is progressing well, with the Nucomm and RFCentral sales forces now working closely together. As highlighted at the end ofMay, the catalyst for the acquisitions was the BAS Relocation Project, underwhich Sprint/Nextel is replacing US broadcasters' analogue wireless equipmentwith digital equivalents. At that time we estimated that the project wouldresult in 2GHz equipment sales and integration services of c.$600m between 2006and 2009 (predominantly 2007 to 2009) and RF Systems had the potential to win asubstantial share of this going forward. We continue to believe that this is anappropriate estimate. As BAS volume builds, and after the transient effects offair value accounting in 2007 (see below), we estimate operating profit marginsbefore significant items will be comfortably in excess of those we currentlyachieve in Broadcast Systems. Accounting for the RF Systems acquisitions under IFRS, including the BASproject, affects the Group's financial reporting, including the balance sheet,revenue recognition and potential 2007 profits. Certain of these effects aredescribed in note 7 of the Interim Financial Information following thisstatement. BROADCAST SERVICES DIVISION Rental services and technical support mainly for the broadcast market H1 2007 H1 2006 r %Revenue £13.5m £14.9m -9.4%Operating Profit £0.8m £1.0m -20.0%Operating Margin 5.9% 6.7% -0.8 pts Broadcast Services enjoyed considerable revenues from the Turin Winter Olympicsin 2006, which have not been repeated this year. The business has beensuccessful in increasing its penetration of US-based events and projects suchthat revenue in US dollars has been relatively constant. Part of the growth inUS-based business has been a large contract with the NFL to install fibre in anumber of its member teams' stadia. These two effects have combined to reducethe operating margin slightly in the period. Foreign Exchange The deterioration of the US dollar has reduced reported sterling operatingprofit by £2.0 million, of which £1.1 million is due to transaction effects and£0.9 million due to translation. If currency rates average £1 = $2.00, £1 =€1.48 and €1 = $1.35 for the rest of the year, the full year effect will be atotal impact of £3.3 million, i.e. an adverse effect of a further £1.3 millionin the second half. Tax The Group continues to make progress in reducing its headline rate, forecast tobe 37% of profit before tax and significant items* for 2007, 3% down on the fullyear rate for 2006. As previously stated, there are significant deferred ornon-cash taxes in that charge, so our ongoing guidance for effective cash taxesremains about 5% below that headline rate. Outlook The second half has got off to an encouraging start. Order intake remains goodand we believe the underlying demand for our products will continue to besupported by the trend to HD programming by broadcasters and by the growth insales of digital SLR cameras. The RF Systems businesses are trading as expected,with the integration proceeding well, and we continue to look for acquisitionsthat complement our existing portfolio of premium brands and distributionchannels. The Board looks forward to continued growth for the full year. Michael Harper Gareth Rhys WilliamsChairman Chief Executive 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 half year ended 30 June 2007 (unaudited) Half year to 30 June 2007 Half year to 30 June 2006 Significant items(1) Significant items(1) Before Amortisation Restructuring Total Before Amortisation Restructuring Total significant of acquired costs & £m significant of acquired costs & £m items intangibles & property items intangibles & property £m other profits £m other profits financial £m financial £m income items income items £m £mRevenueContinuingoperations 123.7 123.7 107.4 107.4Acquisitions 2.7 2.7 126.4 126.4 107.4 107.4Cost of sales (73.1) (73.1) (61.9) (61.9) Gross profit 53.3 53.3 45.5 45.5Otheroperatingincome - - - - - - 0.4 0.4Operatingexpenses (38.1) (1.1) - (39.2) (33.5) (0.2) (0.1) (33.8) OperatingprofitContinuingoperations 15.5 (0.5) - 15.0 12.0 (0.2) 0.3 12.1Acquisitions (0.3) (0.6) - (0.9) 15.2 (1.1) - 14.1 12.0 (0.2) 0.3 12.1Interestpayable onbankborrowings (1.1) (1.1) (0.6) (0.6)Interest - - 0.1 0.1incomePensionscheme:Interest charge (1.1) (1.1) (1.1) (1.1)Expectedreturn onassets 1.5 1.5 1.3 1.3Otherfinancial(expense)/income (0.2) 0.4 0.2 (0.1) 0.5 0.4 Net financial(expense)/income (0.9) 0.4 (0.5) (0.4) 0.5 0.1 Profit beforetax 14.3 (0.7) - 13.6 11.6 0.3 0.3 12.2Taxation (5.3) 0.9 (4.4) (4.7) - - (4.7) Profit fortheperiod(attributableto Equity Shareholders) 9.0 0.2 - 9.2 6.9 0.3 0.3 7.5 Earnings pershareBasicearnings per share 22.3p 18.2pDilutedearnings pershare 22.0p 18.0p AverageexchangeratesEuro 1.49 1.46US$ 1.97 1.78 Year to 31 December 2006 Significant items(1) Before Amortisation of acquired Restructuring Total significant intangibles & other costs & £m items financial income items property £m £m profits £mRevenueContinuingoperations 222.3 222.3Acquisitions 222.3 222.3Cost of sales (129.1) (129.1) Gross profit 93.2 93.2Otheroperatingincome - - 0.4 0.4Operatingexpenses (68.0) (0.6) (1.5) (70.1) OperatingprofitContinuingoperations 25.2 (0.6) (1.1) 23.5Acquisitions 25.2 (0.6) (1.1) 23.5Interestpayable onbankborrowings (1.5) (1.5)Interest income 0.1 0.1Pensionscheme:Interest charge (2.1) (2.1)Expectedreturn onassets 2.6 2.6Otherfinancial(expense)/income (0.2) 0.2 - Net financial(expense)/income (1.1) 0.2 (0.9) Profit beforetax 24.1 (0.4) (1.1) 22.6Taxation (9.6) 0.4 (9.2) Profit forthe period(attributableto Equity Shareholders) 14.5 (0.4) (0.7) 13.4 Earnings pershareBasicearnings per share 32.6pDilutedearnings pershare 32.2p AverageexchangeratesEuro 1.47US$ 1.84 (1) See Note 2 Consolidated Statement of Recognised Income and ExpenseFor the half year ended 30 June 2007 (unaudited) Half year to Half year to Year to 31 30 June 2007 30 June 2006 December £m £m 2006 £mActuarial gain on defined benefit plan 4.4 1.1 2.2Currency translation differences on foreign net investments (1.4) (2.7) (7.0)Net gain on hedge of net investment in foreign subsidiaries 0.5 0.4 1.3Cash flow hedging: Amounts released to income statement (0.9) 0.4 0.6 Effective portion of changes in fair value 0.4 1.0 1.4Net income/(expense) recognised directly in equity 3.0 0.2 (1.5)Profit for the period 9.2 7.5 13.4Total recognised income for the year 12.2 7.7 11.9 Consolidated Balance SheetAs at 30 June 2007 (unaudited) As at As at As at 30 June 30 June 31 December 2006 2007 2006 £m £m £mAssetsNon-current assetsProperty, plant and equipment 38.3 32.8 35.1Intangible assets 62.7 21.4 34.1Investments 1.0 0.4 0.7Deferred tax assets 4.5 5.1 4.7 106.5 59.7 74.6Current assetsInventories 67.9 37.2 41.1Trade and other receivables 49.7 40.1 38.6Derivative financial instruments 1.8 1.2 2.3Current tax assets - 0.3 -Cash and cash equivalents 7.5 9.1 9.4 126.9 87.9 91.4Total assets 233.4 147.6 166.0 LiabilitiesCurrent liabilitiesBank overdrafts - 0.8 1.9Bank loans and other borrowings 0.5 - 0.1Trade and other payables 40.7 34.7 37.1Advanced payments received 33.0 - -Derivative financial instruments - 0.1 -Current tax liabilities 9.7 9.6 9.9Provisions 4.2 3.4 5.0 88.1 48.6 54.0Non-current liabilitiesBank loans and other borrowings 48.8 16.9 26.3Other payables 0.2 0.2 0.2Post-employment obligations 0.5 6.1 5.0Provisions 5.9 0.1 3.0Deferred tax liabilities 0.4 1.4 0.7 55.8 24.7 35.2Total liabilities 143.9 73.3 89.2 Net assets 89.5 74.3 76.8 EquityShare capital 8.3 8.2 8.2Share premium 6.4 3.1 3.2Translation reserve (8.4) (4.1) (7.5)Other reserves 2.5 2.3 2.9Retained earnings 80.7 64.8 70.0Total equity 89.5 74.3 76.8 Consolidated Cash Flow StatementFor the half year ended 30 June 2007 (unaudited) Half year Half year Year to 30 June to 30 June to 31 2007 2006 December £m £m 2006 £mCash flows from operating activitiesProfit for the period 9.2 7.5 13.4Adjustments for : Taxation 4.4 4.7 9.2 Depreciation 5.1 5.0 8.9 Amortisation of intangibles 1.1 0.5 1.7 Net gain on disposal of property, plant and equipment (0.4) (0.5) (1.5) Fair value gains on derivative financial instruments - - (0.2) Cost of equity-settled employee share schemes 0.7 0.4 1.2 Financial income (1.9) (1.8) (2.7) Financial expense 2.4 1.7 3.6Operating profit before changes in working capital & provisions 20.6 17.5 33.6(Increase) in inventories (3.6) (6.2) (9.2)Increase in receivables (8.2) (3.8) (2.1)Increase in payables 1.1 3.8 4.4Increase/(decrease) in provisions (0.2) (0.1) 2.1Adjustments for foreign exchange losses (0.1) - (0.1)Cash generated from operations 9.6 11.2 28.7Interest paid (1.1) (0.7) (1.7)Tax paid (4.7) (1.5) (5.5)Net cash flow from operating activities 3.8 9.0 21.5 Cash flows from investing activitiesProceeds from sale of property, plant and equipment 0.4 0.6 2.0Purchase of property, plant and equipment (6.2) (5.0) (12.0)Software & development costs capitalised as intangible assets (0.5) (0.2) (1.2)Interest received - 0.1 0.2Acquisition of investment (0.3) (0.4) (0.7)Acquisition of subsidiaries, net of cash acquired (14.9) (3.2) (15.8)Net cash flow from investing activities (21.5) (8.1) (27.5) Cash flows from financing activitiesProceeds from the issue of shares 1.5 0.4 0.5Sale/(purchase) of own shares 0.6 (0.9) (0.9)Borrowing/(repayment) of loans 18.9 (0.2) 9.1Dividends paid (4.1) (3.9) (6.5)Net cash flow from financing activities 16.9 (4.6) 2.2 Decrease in cash and cash equivalents (0.8) (3.7) (3.8)Cash and cash equivalents at the beginning of the period 7.5 11.8 11.8Exchange rate movements(1) 0.8 0.2 (0.5)Cash and cash equivalents at the end of the period 7.5 8.3 7.5 (1) Exchange rate movements result from the adjustment of opening balances andcash flows in the year to closing exchange rates. Notes to the Interim Financial StatementsFor the half year ended 30 June 2007 (unaudited) 1. Basis of preparation and statement of compliance The interim financial information has been prepared by applying the accountingpolicies that were applied in the preparation of the company's publishedconsolidated financial statements for the year ended 31 December 2006. They donot include all of the information required for full annual financial statementsand should be read in conjunction with the Annual Report 2006. The comparative figures for the year ended 31 December 2006 do not constitutestatutory accounts for the purpose of section 240 of the Companies Act 1985. Theauditors have reported on the 2006 accounts, and these have been filed with theRegistrar of Companies; their report was unqualified, did not include areference to any matters to which the auditors drew attention by way ofemphasis, and did not contain a statement under section 237(2) or (3) of theCompanies Act 1985. 2. 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. Prior year other operating income of £0.4 million relates to profit on the saleof property fixed assets (Broadcast Systems division). There was no sale ofproperty fixed assets in the current period. Operating expenses include £1.1 million (2006: £0.2 million) of amortisation ofintangible assets acquired as part of the acquisitions, and £nil (2006: £0.1million) relates to the restructuring costs in Broadcast Systems division. Significant items included in other financial income/(expense) comprise thefollowing items: - The Group uses options as part of its hedging of future foreign exchangecash flows. As such options are held to maturity, the ultimate net amountcharged to the income statement in respect of any option will always equate tothe initial premium paid for that option. However, as a result of the time valueof such options being marked-to-market at each balance sheet date, volatileincome and expenses can be introduced between periods and such amounts aretherefore identified as significant other financial expense. A gain of £0.1million (2006: £0.2 million) relating to this volatile premium on options wasrecorded in significant items within other financial expense. - Currency translation differences arising on long-term intra-group fundingloans that are similar in nature to equity are charged/credited to reserves.Currency translation gains of £0.3 million (2006: £0.3 million) arising oncertain other intra-group funding balances that do not meet this strict criteriabut are very similar in nature are recorded in significant items within otherfinancial expense. 3. Income tax The tax rate on profit before significant items for the half year is estimatedat 37% (2006: 40%) on the basis of the anticipated tax rates which will applyfor the full year. The tax charge before significant items comprises current taxof £4.7 million (2006: £4.1 million) and deferred tax of £0.6 million (2006:£0.6 million). The tax rate on profit after significant items for the half year is estimated at32% (2006: 39%) on the basis of the anticipated tax rates which will apply forthe full year. The tax charge after significant items comprises current tax of£4.7 million (2006: £4.1 million) and deferred tax credit of £0.3 million (2006:£0.6 million charge). At the end of 2006 the Group had about £24 million of brought forward losses inthe UK which have the potential to reduce cash taxes on future UK profits by£7.2 million (using a tax rate of 30%). If the Group can see that it willconsistently make profits in the UK in future years, it would be required underIAS 12 to create a deferred tax asset to reflect the future tax benefit of thoselosses. That deferred tax asset would then be amortised as a charge to profits,as the tax losses were utilised. Whilst the Group expects to make profits in theUK in 2007, it is too soon to judge if that will continue in future years. In the first half, therefore, a deferred tax asset of only £0.9 million has beencreated, with a credit of £0.9 million to significant items. The £0.9 milliondeferred tax asset has then been amortised as a charge to profits beforesignificant items. 4. Earnings per ordinary share Basic earnings per share of 22.3 pence (2006: 18.2 pence) is calculated usingprofit after tax of £9.2 million (2006: £7.5 million) and the weighted averagenumber of shares in issue during the period of 41,314,900 (2006: 41,178,309). Diluted earnings per share of 22.0 pence (2006: 18.0 pence) is calculated usingprofit after tax of £9.2million (2006: £7.5 million) and 41,876,150 (2006:41,647,999) ordinary shares. Adjusted basic earnings per share is presented as the directors consider thatthis gives a useful additional indication of the ongoing earnings performance ofthe Group. Adjusted basic earnings per share of 21.8 pence (2006: 16.8 pence) iscalculated using profit after tax but before significant items of £9.0 million(2006: £6.9 million) and the weighted average number of shares in issue duringthe period of 41,314,900 (2006: 41,178,309). 5. Interim dividend After the balance sheet date, an interim dividend of 6.9 pence per share wasrecommended by the directors. This will cost £2.9 million (2006: 6.4 pence pershare costing £2.6 million). The dividend will be paid on 01 November 2007 toshareholders on the register at the close of business on 28 September 2007. 6. Acquisitions Nucomm Inc and RF Central LLC On 30 May 2007 the Group acquired Nucomm Inc andthe partnership interests in RF Central LLC, providers of wireless links forbroadcast applications, including camera, mobile broadcast van and fixedlocation transmitters and receivers. The initial consideration was satisfied inpart by the issue of 207,572 new Vitec ordinary shares worth US$2.5 million(£1.3 million) and net cash consideration of US$21.8 million (£11.1 million),after taking account of US$13.1 million (£6.6 million) of cash in the businessesat acquisition date, and including acquisition expenses. There is an estimatedcontingent consideration of US$9.3 million (£4.7 million) payable over the nextfour years, conditional upon profitability targets. Based on a provisionalassessment of the fair values of identifiable assets, liabilities and contingentliabilities, goodwill of £15.6m arose on acquisition. Microwave Service Corporation (MSC) On 27 June 2007 RF Central LLC completed theacquisition of Microwave Service Corporation (MSC), a premiere internationalmicrowave equipment service facility and equipment supplier that provides thebroadcast industry with superior microwave radio rental, sales and service. Theinitial consideration was satisfied in part by the issue of 80,204 new Vitecordinary shares worth US$1.0 million (£0.5 million) and net cash considerationof US$2.0 million (£1.0 million). Based on a provisional assessment of the fairvalues of identifiable assets, liabilities and contingent liabilities, goodwillof £0.1 million arose on acquisition. Nucomm Inc, RF Central LLC, and MSC together form "Vitec Group RF Systems", theresults of which have been included in the Broadcast Systems division. US$1.2million (£0.6 million) of amortisation of intangible assets was charged tooperating expenses as a significant item. Staging SK On 1 February 2007 the Group acquired the manufacturing activities ofa Slovakian-based company. The consideration amounted to Slovakian Koruna of19.3 million (£0.4 million). Based on a provisional assessment of the fairvalues of identifiable assets and liabilities, goodwill of Slovakian Koruna 16.9million (£0.3 million) arose on acquisition. The results of Staging SK have been included in the Imaging & Staging division. Petrol As at 31 December 2006 there was an estimated contingent consideration ofUS$3.1 million (£1.7 million) conditional upon future profitability targets. InMay 2007 part of this contingent consideration was paid in cash amounting toUS$2.3 million (£1.2 million), leaving a recorded liability of US$0.8 million(£0.4 million). The results of Petrol have been included in the Broadcast Systems division. Kata As at 31 December 2006 there was an estimated contingent consideration ofUS$2.6 million (£1.3 million) conditional upon future sales and profitabilitytargets. In June 2007 this estimate was increased by US$0.3 million (£0.2million), and part of the consideration was paid in cash amounting to US$2.3million (£1.2 million), leaving a balance of US$0.6 million (£0.3 million). The results of Kata have been included in the Imaging & Staging division. The table below provides an analysis of the purchase consideration foracquisitions during the period. Total Vitec Group Staging Petrol Kata £m RF Systems SK £m £m £m £mNet Assets acquiredIntangible assets 14.2 14.2 - - -Other (liabilities)/net assets (4.6) (4.7) 0.1 - - 9.6 9.5 0.1 - -Purchased goodwill 16.0 15.7 0.3 - -Total purchase consideration, including expenses 25.6 25.2 0.4 - - Net outflow of cash in respect of acquisitionsTotal purchase consideration 25.6 25.2 0.4 - -Consideration paid for previous acquisitions, 2.4 - - 1.2 1.2conditional upon achievement of sales andprofitability targetsContingent consideration payable (4.7) (4.7) - - -Issue of new ordinary shares (1.8) (1.8) - - -Cash consideration paid for acquisitions, including 21.5 18.7 0.4 1.2 1.2expensesCash acquired (6.6) (6.6) - - -Total outflow of cash from Group, net of cash 14.9 12.1 0.4 1.2 1.2acquiredBank loan and other borrowings acquired 4.2 4.2 - - -Increase in net debt of the Group arising from 19.1 16.3 0.4 1.2 1.2acquisitions 7. Accounting for the acquisition of RF Systems Note 6 sets out the acquisition details of RF Systems businesses. Both RF Central and Nucomm are suppliers of wireless equipment under theBroadcast Auxiliary Services (BAS) Relocation Project, which is managed bySprint Nextel. Under this contract, Sprint Nextel is making advance payments toRFC and Nucomm to build up an inventory of 2GHz wireless equipment which can becalled upon by US broadcasters, free of charge, at a later date. The effects ofthese are: - Although RFC and Nucomm have received the full sale price of equipment fromSprint Nextel, under IAS 11 the revenue and profit cannot be recognised untilthe equipment is delivered to the broadcaster. When this happens, therefore, nocash is received from the broadcaster. - RF Systems have significant inventory and advanced payments on theirbalance sheets related to the BAS Relocation Project (£16.7 million and £33.0million respectively, as at 30 June). By the end of 2009, when the project isplanned to be complete, these amounts are expected to have largely reduced tozero. - At the date of acquisition, a US$4.4 million fair value increase was madeto inventory under IFRS 3. As this related inventory is delivered tobroadcasters, there will be US$4.4 million less profit reported than wouldotherwise have been the case. US$1.7 million of this fell in the first half of2007 and the balance of US$2.7 million will fall in the second half of 2007. 8. Fixed asset investments During the period, the Group invested a further £0.3 million in MediaNumerics,by way of a loan, thereby increasing its investment to £1.0 million. 9. Employee benefits An actuarial assessment of the UK defined benefit scheme under IAS 19 wascarried out as at 30 June 2007, reflecting the most up-to-date assumptions onmembership and mortality. The scheme has moved from being a liability of £1.0million at 31 December 2006 to becoming an asset of £3.7 million at 30 June2007. This movement was firstly due to better than expected returns on thescheme's investments and, secondly, due to an increase in the discount rate usedto value the scheme's liabilities (reflecting recent rises in long term interestrates). Half year to Half year to Year to 31 30 June 2007 30 June 2006 December £m £m 2006 £mDefined benefit asset/(liability) at the beginning of the (1.0) (3.1) (3.1)periodTotal pension (expense)/income (0.3) (0.4) (0.9)Employer contributions actually paid 0.6 0.6 1.0Gain recognised in SORIE 4.4 1.1 2.0Defined benefit asset/(liability) at the end of the period 3.7 (1.8) (1.0) The assumptions used for the actuarial assessment are set out in the tablebelow: Half year to Half year to Year to 31 30 June 2007 30 June 2006 December 2006Discount rate 5.9% 5.2% 5.2%Expected rate of salary increases 5.3% 5.0% 5.0%Rate of increase in payment and deferred pensions 3.3% 3.0% 3.0%Inflation rate 3.3% 3.0% 3.0% 10. Segment reporting Primary format - by business segmentsFor the half year ended 30 June 2007 (unaudited) Imaging & Broadcast Broadcast Corporate & Consolidated Staging Systems Services unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m £m £mRevenue from externalcustomers: Sales 59.5 45.4 53.4 47.1 1.7 1.9 - - 114.6 94.4 Services 11.8 13.0 - - 11.8 13.0Total revenue from external 59.5 45.4 53.4 47.1 13.5 14.9 - - 126.4 107.4customersInter-segment revenue (1) 0.6 0.6 0.5 0.7 - - (1.1) (1.3) - -Total revenue 60.1 46.0 53.9 47.8 13.5 14.9 (1.1) (1.3) 126.4 107.4Operating profit before 10.4 8.2 4.0 2.8 0.8 1.0 - - 15.2 12.0significant itemsAmortisation of intangible (0.3) (0.2) (0.8) - - - - - (1.1) (0.2)assetsProfit on the sale of - - - 0.4 - - - - - 0.4propertyRestructuring costs - - - (0.1) - - - - - (0.1)Segment result 10.1 8.0 3.2 3.1 0.8 1.0 - - 14.1 12.1Net financial (expense)/ (0.5) 0.1incomeTaxation (4.4) (4.7)Profit for the period 9.2 7.5 (1) Inter-segment pricing is determined on an arm's length basis. Secondary format - by geographical segmentsFor the half year ended 30 June 2007 (unaudited) United Kingdom The rest of The The rest of the Consolidated Europe Americas World 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m £m £mRevenue from externalcustomers: By location of customer 10.2 6.6 37.6 33.7 59.4 52.2 19.2 14.9 126.4 107.4 11. Reconciliation of Decrease in Cash and Cash Equivalents to Movement in NetDebt(1) As at 30 As at 30 As at 31 June 2007 June 2006 December £m £m 2006 £mDecrease in cash and cash equivalents (0.8) (3.7) (3.8)Loan and other borrowings taken over on acquisition of (4.2) - (0.9)businessesNet (borrowing)/repayment of loans and other borrowings (18.9) 0.2 (9.1)(Increase)/reduction in net debt resulting from cash flows (23.9) (3.5) (13.8)Exchange on cash movements 0.8 0.2 (0.5)Exchange on loan movements 0.2 0.1 0.8Exchange rate movements 1.0 0.3 0.3Movements in net debt in the period (22.9) (3.2) (13.5)Net debt at 1 January (18.9) (5.4) (5.4)Net debt at the end of the period (41.8) (8.6) (18.9) Exchange rate movements result from the adjustment of opening balances and cashflows in the year to closing exchange rates. (1) The table below provides an analysis of Net Debt at the end of the period. As at 30 As at 30 As at 31 June 2007 June 2006 December £m £m 2006 £mCash and cash equivalents per balance sheet 7.5 9.1 9.4Bank overdrafts - (0.8) (1.9)Cash and cash equivalents per cash flow statement 7.5 8.3 7.5Bank loans (48.8) (16.9) (26.3)Other borrowings (0.5) - (0.1)Net debt at the end of the period (41.8) (8.6) (18.9) 12. Copies of this statement will be sent to all shareholders on the shareregister as at 3 September 2007. Copies are available upon application to theCompany Secretary. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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