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Vitec Group PLC (The)  -  VTC   

Half Year Results

Released 07:00 10-Aug-2018

RNS Number : 4046X
Vitec Group PLC (The)
10 August 2018
 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION. THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

 

10 August 2018

The Vitec Group plc

Half Year Results to 30 June 2018

Record H1 profit and improved margins

The Vitec Group plc ("Vitec" or "the Group"), the international provider of products and solutions for the broadcast and photographic markets, announces its results for the half year ended 30 June 2018.

 

Results

 

 

% change

H1 2018

H1 2017

As reported

Constant

FX rates

Continuing operations

 

 

 

 

Revenue

£183.3m

£164.9m

+11.2%

+16.0%

Adjusted operating profit*

£25.5m

£21.6m

+18.1%

+16.7%

Adjusted operating margin*

13.9%

13.1%

 

 

Adjusted profit before tax*

£24.5m

£19.7m

+24.4%

+19.2%

Adjusted basic earnings per share*

39.5p

34.2p

+15.5%

 

 

 

 

 

 

Statutory results

 

 

 

 

Revenue

£183.3m

£164.9m

+11.2%

 

Operating profit

£20.7m

£18.3m

+13.1%

 

Operating margin

11.3%

11.1%

 

 

Profit before tax

£19.7m

£16.4m

+20.1%

 

Basic earnings per share from continuing and discontinued operations

38.2p

32.0p

+19.4%

 

 

 

 

 

 

Interim dividend per share

11.5p

10.4p

 

 

Free cash flow*

£16.4m

£19.4m

 

 

Net debt

£43.0m

£52.6m

 

 

 

 

 

 

 

           

 

 

Highlights

Record Group performance in profit before tax and EPS

 

-     Further underlying profit growth across the portfolio

 

-     Improvement in adjusted operating margin* to 13.9% on a reported basis

 

-     ROCE* increased to 21.7% (H1 2017: 19.4%)

Continued progress in driving further growth and efficiency

 

-     JOBY and Lowepro acquisition performing in line with expectations and gaining market share; acquisition of Adeal expanded APAC distribution into Australia

 

-     Significant number of market-leading new products launched at end of 2017 are selling well

 

-     Further improvements to manufacturing operations across the Group including move to new Bury St Edmunds, UK site; transfer from Shelton, US to our facility in Costa Rica on track

Strong Balance Sheet to support organic investment and M&A

Full year expectations remain unchanged, with material EPS growth

 

 

 

* In addition to statutory reporting, Vitec reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards (IFRS). The Group uses these APMs to improve the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary.

 

 

 

Commenting on the results, Stephen Bird, Group Chief Executive, said:

"Vitec continued to make good progress, delivering record first half profit and earnings per share for shareholders.

We are seeing the benefits of the actions taken last year to streamline the Group's portfolio, acquire new product lines and restructure into three Divisions.

The broad range of products in Imaging Solutions enables us to continue to outperform the market, and JOBY and Lowepro are performing to plan. The new products launched by Production Solutions continue to be well received and the Division successfully moved its head office operations to a new manufacturing site in Bury St Edmunds. As anticipated, we benefitted from the 2018 Winter Olympics. Our Creative Solutions Division continued to grow strongly and gain market share prior to the fire in April 2018, which temporarily disrupted SmallHD's site operations.

Vitec has a diversified product portfolio with strong positions in the fast moving and growing "image capture and content creation" market. We remain on track in the second half of the year; we expect to deliver organic revenue growth and year-on-year margin improvements, and to identify businesses to acquire in core and adjacent markets. The Board's expectations for the full year are unchanged, with material EPS growth."

 

For further information please contact:    

 

The Vitec Group plc

Telephone: 020 8332 4600

Stephen Bird, Group Chief Executive

 

Kath Kearney-Croft, Group Finance Director

 

 

 

MHP Communications

Telephone: 020 3128 8100

Tim Rowntree/ Ollie Hoare

 

 

Vitec will present its results to analysts at 9.30am on Friday, 10 August 2018. A live webcast of the presentation will be available on our website, and an audio recording, along with the presentation slides and a highlights video, will be available after the meeting.

Users can pre-register to access the presentation material using the following link:

www.vitecgroup.com/investors/results-reports-and-presentations/

 

Notes to Editors:

Vitec is a leading global provider of premium branded products and solutions to the fast moving and growing "image capture and content creation" market.

Vitec's customers include broadcasters, independent content creators, photographers and enterprises, and our activities comprise: design, manufacture and distribution of high performance products and solutions including camera supports, camera mounted electronic accessories, robotic camera systems, prompters, LED lights, mobile power, monitors and bags.

We employ around 1,700 people across the world in eleven different countries and are organised in three Divisions: Imaging Solutions, Production Solutions and Creative Solutions.

The Vitec Group plc is listed on the London Stock Exchange with 2017 revenue from continuing and discontinued operations of £378.1 million.

More information can be found at: www.vitecgroup.com

LEI number: 2138007H5DQ4X8YOCF14

 

Notes

1

This statement is based on information sourced from management estimates and includes comparing performance at constant exchange rates to assist in understanding the underlying performance of the Group.

2

H1 2018 average exchange rates: £1 = $1.38, £1 = €1.14, €1 = $1.21, £1 = Yen149

3

 

H1 2017 average exchange rates: £1 = $1.27, £1 = €1.16, €1 = $1.09, £1 = Yen142

 

 

 

 

 

 

 

 

 

H1 2018 management and financial overview

 

 

 

Adjusted*

Statutory

 

H1 2018

H1 2017

% Change

% Change at constant exchange rates

H1 2018

H1 2017

Revenue

 

 

 

 

 

 

Continuing operations

£183.3m

£164.9m

+11.2%

+16.0%

£183.3m

£164.9m

Total operations

£183.3m

£187.6m

-2.3%

+1.6%

-

-

Operating profit

 

 

 

 

 

 

Continuing operations

£25.5m

£21.6m

+18.1%

+16.7%

£20.7m

£18.3m

Total operations

£25.5m

£21.2m

+20.3%

+18.9%

-

-

Profit before tax

 

 

 

 

 

 

Continuing operations

£24.5m

£19.7m

+24.4%

+19.2%

£19.7m

£16.4m

Total operations

£24.5m

£19.3m

+26.9%

+21.6%

-

-

Basic earnings per share

 

 

 

 

 

 

Continuing operations

39.5p

34.2p

+15.5%

 

38.2p

30.3p

Total operations

39.5p

31.7p

+24.6%

 

38.2p

32.0p

Revenue from continuing operations increased by 11.2% to £183.3 million (H1 2017: £164.9 million) despite the impact of the fire at premises adjacent to SmallHD in April 2018. Adjusted operating profit* from continuing operations was 18.1% higher at £25.5 million (H1 2017: £21.6 million). At constant exchange rates, revenue from continuing operations was 16.0% higher and adjusted operating profit* from continuing activities was 16.7% higher. This was driven by higher revenue from the 2017 acquisition of JOBY and Lowepro, continued strong growth in Creative Solutions prior to the fire at SmallHD and the benefit of the Winter Olympics.

Our insurance cover is expected to mitigate any potential losses from the fire. Results for the first half include £4.7 million related to the insurance claim; a staged payment of $4.3 million (£3.2 million) was received from the insurer in June 2018 to cover in part property damage and business interruption for the SmallHD business. The business is making good progress in returning to full operational performance.

Imaging Solutions' revenue grew by 25.6% to £98.5 million and adjusted operating profit* increased by 10.4% to £14.9 million. Revenue growth included a £21.5 million benefit from JOBY and Lowepro, partly offset by £2.5 million from unfavourable foreign exchange. At constant exchange rates and excluding the impact of acquisitions, revenue was in line with the prior period and adjusted operating profit* grew by 4.3% driven by productivity savings.

Production Solutions' revenue from continuing operations increased by 2.5% to £57.1 million driven by the Winter Olympics and strong sales of Litepanels Gemini lights and Flowtech tripods, launched at the end of 2017, partly offset by unfavourable foreign exchange. Adjusted operating profit* increased by 50.0% to £9.9 million due to higher volumes, higher margin impact from the Winter Olympics and favourable foreign exchange. At constant exchange rates revenue from continuing operations increased by 6.9% and adjusted operating profit* from continuing operations was 31.8% higher than the prior period.

Revenue in Creative Solutions declined by 10.1% to £27.7 million, a reduction of 2.5% on a constant currency basis. Prior to the fire which disrupted SmallHD's operations, Creative Solutions' revenue was growing at c. 9% after excluding the impact of foreign exchange and the 2017 acquisition of RTMotion, as we continued to gain share in the fast growing Independent Content Creator market.  We expect to return to growth in H2. Adjusted operating profit* increased by 7.7% to £7.0 million which included £4.7 million of other income related to the insurance claim following the fire. At constant exchange rates adjusted operating profit* increased by 16.7%.

Reported group gross margin from continuing operations of 45.7% was higher than the prior period (H1 2017: 44.7%). This reflects booking the insurance income to gross profit with no adjustment for lost revenue in Creative Solutions, the impact of the higher margin Winter Olympics in Production Solutions, and the expected decline in margin in Imaging Solutions due to the acquisition of JOBY and Lowepro, partly offset by productivity savings.

Adjusted operating expenses* from continuing operations were £6.1 million higher than the prior period at £58.2 million (H1 2017: £52.1 million). This mainly reflects the impact of the acquisition of JOBY and Lowepro and higher corporate costs, partly offset by favourable foreign exchange.

Adjusted operating margin* was 13.9% on a reported basis which includes a small benefit from accounting for the SmallHD fire insurance claim. The reported adjusted operating margin* improved from H1 2017 total operations (11.3%), including the benefit from disposing of Haigh-Farr and Bexel, as we progress towards achieving our mid-teen target over the medium-term.

Adjusted profit before tax* from continuing operations of £24.5 million was £4.8 million higher than the prior period (H1 2017: £19.7 million). This included a net foreign exchange benefit versus the prior period of £0.9 million.

Adjusted basic earnings per share* from continuing operations increased by 15.5% to 39.5 pence per share (H1 2017: 34.2 pence per share).

Statutory profit before tax of £19.7 million (H1 2017: £16.4 million) was after £4.8 million charges associated with acquisition of businesses (H1 2017: £3.3 million).

Free cash flow* of £16.4 million (H1 2017: £19.4 million) includes a working capital outflow of £2.1 million (H1 2017: £2.0 million). The prior period included £2.3 million of asset sales from Bexel prior to its disposal and higher depreciation.

Net debt at 30 June 2018 was £43.0 million (31 December 2017: £42.9 million). The decrease in net debt resulting from cash flows was £1.2 million (H1 2017: £19.8 million). This was after: £9.0 million of dividend payments (H1 2017: £7.7 million); £3.7 million transactions in own shares relating to funding of our employee incentive programme; and £2.5 million net cash outflow relating to the acquisition of Adeal. There was also a net unfavourable foreign exchange impact of £1.3 million driven by US dollar denominated debt. The Group's balance sheet remains strong with a net debt to adjusted EBITDA* ratio of 0.7 times (30 June 2017: 0.9 times).

The Board has declared an interim dividend of 11.5 pence per share (H1 2017: 10.4 pence per share). The dividend will be paid on Friday, 19 October 2018 to shareholders on the register at the close of business on Friday, 21 September 2018. The Group has sufficient distributable reserves to cover the dividends for a number of years.

Continued progress

Vitec operates in the fast moving and growing "image capture and content creation" market. Technology and social media are driving fundamental changes to this market and Vitec's unique heritage, the credibility of our premium products, and our manufacturing and distribution strengths, provide us with exciting opportunities to capitalise on those changes.

2017 was a transformational year for Vitec, as we significantly streamlined our portfolio through disposals and acquisitions, repositioning the Group for further progress. From 1 January 2018 we changed our reporting from two to three Divisions to reflect a changing customer base, to enable us to adapt more quickly to market and technological changes, and to give greater focus to the fast-growing Independent Content Creator market. Our new three Divisions - Imaging Solutions, Production Solutions and Creative Solutions - are highly customer-focused and operate in a decentralised, entrepreneurial structure, yet share capabilities across the Group.

Vitec continues to lead the market with its range of products and solutions and is making good progress delivering against our clear growth strategy:

1. Organic growth through continued product innovation, and geographical, distribution and digital expansion to get closer to our customers and expand our market share;

2. Margin improvements by optimising our manufacturing and assembly portfolio, improving productivity, optimising our channel and Divisional sales mix, identifying cross-Divisional synergies and making higher margin acquisitions; and

3. Further M&A activity with carefully targeted acquisitions in core and adjacent niche markets, investing in new and faster growing markets and technologies.

Imaging Solutions

Imaging Solutions designs, manufactures and distributes premium branded equipment for photographic and video cameras and provides dedicated solutions to professional and non-professional image makers.  This consists primarily of camera supports and heads, camera bags, lighting supports, LED lights, lighting controls and filters. It also designs and distributes a range of premium accessories for smartphones, action cameras and drones. Imaging Solutions represents 54% of Group revenue, and our three year strategy is to increase revenue and maintain margins.

 

 

Adjusted*

Statutory

Imaging Solutions

H1 2018

H1 2017

% Change

% Change at constant exchange rates

H1 2018

H1 2017

Revenue

£98.5m

£78.4m

+25.6%

+29.1%

£98.5m

£78.4m

Operating profit

£14.9m

£13.5m

+10.4%

+13.7%

£13.1m

£13.4m

Operating margin

15.1%

17.2%

-210 bps

-210 bps

13.3%

17.1%

* For Imaging Solutions, before charges associated with acquisition of businesses of £1.8m (H1 2017: £0.1m).

Imaging Solutions grew revenue by 25.6% to £98.5 million. This strong result was driven by the transformational acquisition of JOBY and Lowepro, which completed in September 2017 and is performing in line with expectations, delivering revenue of £21.5 million during the period. Overall, performance of these brands is expected to be weighted towards the second half. Excluding the unfavourable impact of foreign exchange, as well as the impact from acquisitions, revenue was in line with the prior period with a slower start in Q1 and growth in Q2. Adjusted operating profit* increased by 4.3% on the same basis.

Camera and Imaging Products Association's (CIPA) data of year-to-date shipments of interchangeable lens cameras (ILCs) stabilised in Q2, following the slightly lower performance in Q1. Our sales continued to outperform CIPA trends and we maintained our leading market share in bags and supports. During the period JOBY and Lowepro returned to month-on-month market share growth.

We have made progress in developing our distribution partnerships to support both innovation and user engagement. We signed a strategic alliance with Sony and have agreed a full product roadmap; the first Manfrotto and Gitzo dedicated accessories for Sony Alpha were launched in April 2018 and are performing ahead of expectations. We developed the JOBY GripTight PRO TelePod tripod in conjunction with Apple, which is also performing well and has further enhanced our presence in Apple stores globally.

We continue to invest in developing our own distribution channels and acquired Adeal, our former distribution partner in Australia, in March 2018. The acquisition of Adeal is in line with Vitec's strategy to expand in APAC and get closer to our customers.

Adjusted operating margin* decreased by 2.1% pts to 15.1%. This reflects the expected impact of the JOBY and Lowepro acquisition, where products have a slightly lower margin in line with comparable products in the rest of the Division, and H1 margins were depressed due to selling through the buyback inventory. After excluding the impact of acquisitions and foreign exchange, adjusted operating margin* increased by 0.8% pts.  This improvement was driven by productivity savings, including greater use of automation at our facility in Italy.

Statutory operating profit decreased by 2.2% to £13.1 million which included £1.8 million of costs associated with acquisitions (H1 2017: £0.1 million).

Production Solutions

Production Solutions designs, manufactures and distributes premium branded products and solutions for broadcasters, film and video production companies, independent content creators and enterprises. Products include video heads, tripods, lights, batteries and speciality camera systems.  Production Solutions represents 31% of Group revenue, and our three year strategy is to maintain revenue and improve margins.

 

 

Adjusted*

Statutory

Production Solutions

 

H1 2018

H1 2017

% Change

% Change at constant exchange rates

H1 2018

H1 2017

Revenue

£57.1m

£55.7m

+2.5%

+6.9%

£57.1m

£55.7m

Operating profit

£9.9m

£6.6m

+50.0%

+31.8%

£9.4m

£6.0m

Operating margin

17.3%

11.8%

+550 bps

+290 bps

16.5%

10.8%

* For Production Solutions' continuing operations, before charges associated with acquisition of businesses of £0.5m (H1 2017: £0.6m).

Production Solutions' revenue grew by £1.4 million to £57.1 million. This includes the benefit from the Winter Olympics and strong sales of Litepanels Gemini lights and the Flowtech carbon fibre tripod, which were launched at the end of 2017, partly offset by £2.3 million of unfavourable foreign exchange.

The business remains market leader in the core broadcast studio market. Performance in the US was slightly better following a weak first half last year due to the impact of the spectrum "repack" which we continue to monitor. This was partly offset by lower demand in EMEA.

New products launched during the period mainly focused on non-studio applications for broadcasters and independent content creators.  These included the Anton/Bauer Dionic XT battery, the next generation of the highly popular battery series with improved performance and reliability; and the Dual Mini Remote Head, a device recently featured in the World Cup to support high motion cameras for through-the-net football replays.

We continue to improve the core business by driving operational efficiencies. In May 2018 we opened our new manufacturing site in Bury St Edmunds, UK. We also made further progress in moving our manufacturing operations from Shelton, US to our facility in Costa Rica, which will lead to cost savings from 2019. These improvements have established a solid foundation to support further strong performance.

Adjusted operating margin* increased by 5.5% pts to 17.3% driven by favourable foreign exchange, higher volumes and the incremental impact from the Winter Olympics.

Statutory operating profit increased by £3.4 million to £9.4 million.

Creative Solutions

Creative Solutions designs, manufactures and distributes premium branded products and solutions for independent content creators, enterprises, broadcasters, and film and video production companies.  It is made up of a number of brands that Vitec has acquired and includes Teradek, SmallHD, Wooden Camera and RTMotion.  Creative Solutions represents 15% of Group revenue, and our three year strategy is to increase revenue and maintain higher margins.

 

 

Adjusted*

Statutory

Creative Solutions

H1 2018

H1 2017

% Change

% Change at constant exchange rates

H1 2018

H1 2017

Revenue

£27.7m

£30.8m

-10.1%

-2.5%

£27.7m

£30.8m

Operating profit

£7.0m

£6.5m

+7.7%

+16.7%

£4.5m

£3.9m

Operating margin

25.3%

21.1%

+420 bps

+420 bps

16.2%

12.7%

* For Creative Solutions, before charges associated with acquisition of businesses of £2.5m (H1 2017: £2.6m).

Creative Solutions' revenue decreased by £3.1 million to £27.7 million. This includes the impact of a fire at an adjacent office which disrupted SmallHD's site operations and £2.4 million from unfavourable foreign exchange.

We have continued to invest in the Division to build the Divisional structure. As previously planned, SmallHD will be moving to a larger facility later in 2018. Prior to the fire, Creative Solutions' revenue had been growing at c. 9%, driven by growth of c. 70% at SmallHD, and the new facility will enable us to meet the higher demand as we return to full production.

Our markets continue to grow, driven by the sharp rise in original content creation including the proliferation of various online platforms such as Amazon and Netflix. We further expanded our offering of higher technology products to the Independent Content Creator segment. New products launched include Teradek Bolt XT and LT, the latest updates to our zero delay wireless video product line, which have been differentiated to target different segments of the market and drive growth; Teradek Link Pro, a powerful WiFi router with built-in network bonding; Teradek VidiU Go, a livestreaming device with built-in cellular bonding; and an innovative power plate developed by Wooden Camera in conjunction with Production Solutions that is compatible with Anton/Bauer batteries.

RTMotion, the wireless motor lens control systems company which was acquired in September 2017, continued to perform in line with expectations.

Adjusted operating margin* increased by 4.2% pts to 25.3%.  This benefits from recognising the insurance income within gross profit with no adjustment for lost revenue.

Statutory operating profit increased by 15.4% to £4.5 million.

Corporate costs

Corporate costs include payroll and bonus costs for the Directors and head office team, Long Term Incentive Plan costs for key individuals across the Group, professional fees, property costs, travel costs and IT costs.

 

 

Adjusted*

Statutory

Corporate costs

H1 2018

H1 2017

% Change

% Change at constant exchange rates

H1 2018

H1 2017

Operating loss

£6.3m

£5.0m

26.0%

26.0%

£6.3m

£5.0m

The increase in corporate costs includes higher Long Term Incentive Plan accruals linked to good financial performance and share price increase.

Site visit to Production Solutions

On Thursday 20 September 2018, Vitec will host a site visit to Production Solutions' UK head office in Bury St Edmunds for institutional investors and analysts. The day will focus on growth opportunities in both our Production Solutions and Creative Solutions Divisions. Copies of the presentations will be made available on the Group's website after the event.

Principal risks and uncertainties

The principal risks and uncertainties that may affect our performance are unchanged from those set out on pages 34 and 35 of the Annual Report & Accounts 2017. The Directors continue to regard these as the principal risks and uncertainties facing the Group.

Vitec is exposed to a number of risk factors which may affect its performance. The Group has a well-established framework for reviewing and assessing these risks on a regular basis, and has put in place appropriate processes and procedures to mitigate against them. However, no system of control or mitigation can completely eliminate all risks. In summary, the principal risks facing the Group are around:

 

Demand for Vitec's products

New markets and channels of distribution

Acquisitions

Pricing pressure

Dependence on key suppliers

Dependence on key customers

People

Laws and regulations

Reputation of the Vitec Group

Exchange rates

Business continuity

Board changes

The Board announces that with effect from 1 September 2018, Lorraine Rienecker will cease to be an independent non-executive director of the Company.  Lorraine will stand down from the Board to concentrate on her executive career. With effect from the same date, Duncan Penny will join the Board as an independent non-executive director.  Duncan is currently Chief Executive at XP Power holding that position since February 2003 and was previously its Finance Director from April 2000 to 2003. Prior to XP Power, Duncan held senior roles with Dell Computer Corporation and LSI Logic Corporation and was an audit manager at Coopers & Lybrand. Upon appointment, Duncan has a holding of 3,000 ordinary shares in the Company held through a discretionary portfolio.

John McDonough, Chairman commented "On behalf of the Board I welcome Duncan as an independent non-executive director at this exciting time of growth for the Company.  Duncan brings extensive international experience especially in APAC in technology businesses.  I would also like to thank Lorraine for her service to the Company since her appointment in December 2013 and wish her success in her exciting new role."

In connection with Duncan Penny's appointment there are no further matters to be disclosed in accordance with paragraph 9.6.13 of the Listing Rules of the UK Listing Authority.

Change of auditor

Following approval at our AGM on 15 May 2018, we are pleased to confirm that we have appointed Deloitte LLP as our new auditor. The Board is grateful to KPMG LLP for their lengthy service to Vitec.

Forward-looking statements

This announcement contains forward-looking statements with respect to the financial condition, performance, position, strategy, results and plans of the Group based on Management's current expectations or beliefs as well as assumptions about future events. These forward-looking statements are not guarantees of future performance. Undue reliance should not be placed on forward-looking statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. The Company undertakes no obligation to publicly revise or update any forward-looking statements or adjust them for future events or developments. Nothing in this announcement should be construed as a profit forecast.

The information in this announcement does not constitute an offer to sell or an invitation to buy shares in the Company in any jurisdiction or an invitation or inducement to engage in any other investment activities.  The release or publication of this announcement in certain jurisdictions may be restricted by law.  Persons who are not resident in the United Kingdom or who are subject to other jurisdictions should inform themselves of, and observe, any applicable requirements.

This announcement contains brands and products that are protected in accordance with applicable trademark and patent laws by virtue of their registration.

Responsibility statement of the Directors in respect of the Half Year Results to 30 June 2018

We confirm that, to the best of our knowledge:

•    The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting

•    The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

•    The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

The Directors are responsible for the maintenance and integrity of the corporate and financial information included in the company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

Outlook

Vitec has a diversified product portfolio with strong positions in the fast moving and growing "image capture and content creation" market. We remain on track in the second half of the year; we expect to deliver organic revenue growth and year-on-year margin improvements, and to identify businesses to acquire in core and adjacent niche markets. The Board's expectations for the full year are unchanged, with material EPS growth.

Going concern and viability

The Directors have made appropriate enquiries and consider that the Group has adequate resources to continue in operational existence for the foreseeable future. The Board has considered the potential risks to the uncertainty of the Brexit negotiations and, whilst continuing to monitor developments, currently consider the risks to be minimal. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

The Directors have also assessed the long-term viability of the Group over a three year period, taking account of the Group's current position and prospects, its strategic plan, risk appetite and the principal risks and how these are managed. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over this period.

 

For and on behalf of the Board

Stephen Bird

Group Chief Executive

Kath Kearney-Croft

Group Finance Director

 

 

 

 

 

 

 

 

 

 

INDEPENDENT REVIEW REPORT TO THE VITEC GROUP PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated income statement, the consolidated statement of comprehensive income, the condensed consolidated balance sheet, the consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes 1 to 12. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council.  Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, United Kingdom

9 August 2018

 

Condensed Consolidated Income Statement

 

 

 

 

For the half year ended 30 June 2018

 

 

 

 

 

 

Half year to 30 June

Half year to 30 June

Year to 31 December

 

 

2018

2017

2017

 

Notes

£m

£m

£m

Revenue

2

183.3

164.9

353.3

Cost of sales

 

(104.3)

(91.2)

(196.8)

Other income

3

4.7

-

-

Gross profit

 

83.7

73.7

156.5

Operating expenses

4

(63.0)

(55.4)

(126.3)

Operating profit

 

20.7

18.3

30.2

Comprising 

 

 

 

 

-  Adjusted operating profit

 

25.5

21.6

45.2

- Charges associated with acquisition of businesses

4

(4.8)

(3.3)

(15.0)

 

 

20.7

18.3

30.2

Net finance expense

5

(1.0)

(1.9)

(2.8)

Profit before tax

 

19.7

16.4

27.4

Comprising 

 

 

 

 

-  Adjusted profit before tax

 

24.5

19.7

42.4

-  Charges associated with acquisition of businesses

4

(4.8)

(3.3)

(15.0)

 

 

19.7

16.4

27.4

Taxation

 

(2.5)

(2.9)

(16.9)

Comprising taxation on

 

 

 

 

-  Adjusted profit

6

(6.7)

(4.4)

(10.8)

-  Charges associated with acquisition of businesses and material non-operating events

6

4.2

1.5

(6.1)

 

 

(2.5)

(2.9)

(16.9)

Profit from continuing operations

 

17.2

13.5

10.5

Profit after tax from discontinued operations

12

-

0.8

17.0

Profit for the period attributable to owners of the parent

17.2

14.3

27.5

 

 

 

 

 

Earnings per share from continuing operations

7

 

 

 

Basic earnings per share

 

38.2p

30.3p

23.4p

Diluted earnings per share

 

37.8p

30.0p

23.3p

 

 

 

 

 

Earnings per share from continuing and

discontinued operations

7

 

 

 

Basic earnings per share

 

38.2p

32.0p

61.4p

Diluted earnings per share

 

37.8p

31.7p

61.0p

 

 

 

 

 

Average exchange rates

 

 

 

 

      Euro

 

1.14

1.16

1.14

      US$

 

1.38

1.27

1.29

 

Consolidated Statement of Comprehensive Income

 

 

 

For the half year ended 30 June 2018

 

 

 

 

Half year to 30 June

Half year to 30 June

Year to 31 December

 

2018

2017

2017

 

£m

£m

£m

Profit for the period

17.2

14.3

27.5

Other comprehensive income:

 

 

 

Items that will not be reclassified subsequently to profit or loss:

 

 

Remeasurements of defined benefit obligation

6.0

2.1

0.6

Related tax

(1.0)

(0.4)

(0.1)

Items that are or may be reclassified subsequently to profit or loss:

 

 

Foreign exchange gain recycled to the Income Statement on disposal of businesses

-

(8.8)

(17.3)

Currency translation differences on foreign currency subsidiaries

2.4

(6.5)

(10.8)

Net investment hedges - net (loss)/gain

(1.6)

2.5

2.7

Cash flow hedges - reclassified to the Income Statement, net of tax

(0.6)

2.7

3.3

Cash flow hedges - effective portion of changes in fair value

(0.7)

2.2

2.5

Related tax

0.2

(1.2)

(0.6)

Other comprehensive income/(expense), net of tax

4.7

(7.4)

(19.7)

Total comprehensive income for the period attributable to owners of the parent

21.9

6.9

7.8

         

 

 

Condensed Consolidated Balance Sheet

 

 

 

 

As at 30 June 2018

 

 

 

 

 

 

30 June

30 June

31 December

 

 

2018

2017

2017

 

Notes

£m

£m

£m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

88.3

81.0

88.4

Property, plant and equipment

 

32.0

29.0

31.0

Trade and other receivables

 

1.1

0.9

0.9

Derivative financial instruments

 

-

0.4

0.4

Deferred tax assets

 

18.0

24.9

17.7

 

 

139.4

136.2

138.4

Current assets

 

 

 

 

Inventories

 

80.2

61.9

69.8

Trade and other receivables

 

64.8

53.5

65.8

Derivative financial instruments

 

0.7

0.8

1.9

Current tax assets

 

2.5

0.9

1.2

Cash and cash equivalents

 

27.0

18.7

12.6

Assets of the disposal group classified as held for sale

12

-

22.6

-

 

 

175.2

158.4

151.3

Total assets

 

314.6

294.6

289.7

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Interest-bearing loans and borrowings

 

0.5

0.5

0.5

Trade and other payables

 

70.4

50.8

67.4

Derivative financial instruments

 

0.5

1.6

0.4

Current tax liabilities

 

7.8

10.7

4.4

Provisions

 

8.8

2.3

9.3

Liabilities of the disposal group classified as held for sale

12

-

4.3

-

 

 

88.0

70.2

82.0

Non-current liabilities

 

 

 

 

Interest-bearing loans and borrowings

 

69.5

70.8

55.0

Derivative financial instruments

 

0.1

0.1

0.1

Other payables

 

1.1

0.8

-

Post-employment obligations 

 

6.5

11.1

12.6

Provisions

 

1.0

0.7

1.7

Deferred tax liabilities

 

2.3

2.3

2.7

 

 

80.5

85.8

72.1

Total liabilities

 

168.5

156.0

154.1

Net assets

 

146.1

138.6

135.6

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

9.0

9.0

9.0

Share premium

 

16.8

15.5

16.8

Translation reserve

 

(7.8)

4.0

(8.6)

Capital redemption reserve

 

1.6

1.6

1.6

Cash flow hedging reserve

 

0.2

(0.2)

1.3

Retained earnings

 

126.3

108.7

115.5

Total equity

 

146.1

138.6

135.6

 

 

 

 

 

Balance Sheet exchange rates

 

 

 

 

      Euro

 

1.13

1.14

1.13

      US$

 

1.32

1.30

1.35

           

 

Consolidated Statement of Changes in Equity

For the half year ended 30 June 2018

 

Notes

 Share capital

 Share premium 

 Translation reserve

 Capital redemption reserve

 Cash flow hedging reserve

 Retained earnings

 Total equity

 

 

 £m

 £m

 £m

 £m

 £m

 £m

 £m

Balance at 1 January 2018

 

9.0

16.8

(8.6)

1.6

1.3

115.5

135.6

IFRS 9 adjustment to opening equity

1

-

-

-

-

-

(0.1)

(0.1)

Adjusted opening equity

 

9.0

16.8

(8.6)

1.6

1.3

115.4

135.5

Total comprehensive income for the period

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

-

-

17.2

17.2

Other comprehensive income/(expense) for the period

-

-

0.8

-

(1.1)

5.0

4.7

Contributions by and distributions to owners

 

 

 

 

 

 

 

Dividends paid

 

-

-

-

-

-

(9.0)

(9.0)

Own shares purchased

 

-

-

-

-

-

(3.7)

(3.7)

Share-based payment charge

 

-

-

-

-

-

1.4

1.4

Balance at 30 June 2018

 

9.0

16.8

(7.8)

1.6

0.2

126.3

146.1

 

 

 Share capital

 Share premium 

 Translation reserve

 Capital redemption reserve

 Cash flow hedging reserve

 Retained earnings

 Total equity

 

 

 £m

 £m

 £m

 £m

 £m

 £m

 £m

Balance at 1 January 2017

 

9.0

15.4

16.8

1.6

(3.9)

100.9

139.8

Total comprehensive income for the period

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

-

-

-

14.3

14.3

Other comprehensive (expense)/income for the period

-

-

(12.8)

-

3.7

1.7

(7.4)

Contributions by and distributions to owners

 

 

 

 

 

 

 

 

Dividends paid

 

-

-

-

-

-

(7.7)

(7.7)

Own shares purchased

 

-

-

-

-

-

(1.3)

(1.3)

New shares issued

 

-

0.1

-

-

-

-

0.1

Share-based payment charge, net of tax

 

-

-

-

-

-

0.8

0.8

Balance at 30 June 2017

 

9.0

15.5

4.0

1.6

(0.2)

108.7

138.6

                   

 

 

Condensed Consolidated Statement of Cash Flows

 

 

 

For the half year ended 30 June 2018

 

 

 

 

 

 

Half year to 30 June

Half year to 30 June

Year to 31 December

 

 

2018

2017

2017

 

Notes

£m

£m

£m

Cash flows from operating activities 

 

 

 

 

Profit for the period

 

17.2

14.3

27.5

Adjustments for:

 

 

 

 

        Taxation

 

2.5

3.7

13.3

        Depreciation and impairment

 

3.4

6.9

10.5

        Amortisation of intangible assets

 

5.2

6.1

12.2

        Net gain on disposal of property, plant and equipment and

        software

-

(0.5)

(0.7)

        Fair value losses/(gains) on derivative financial instruments

 

0.1

(0.3)

(0.6)

        Share-based payment charge

 

1.4

0.8

2.2

        Earnout, deferred payments and purchase price adjustment

 

0.5

-

4.1

        Profit on disposal of businesses, before tax

 

-

(3.2)

(15.0)

        Net finance expense

 

1.0

1.9

2.8

 Operating profit before changes in working capital and provisions 

 

31.3

29.7

56.3

 Increase in inventories

 

(6.9)

(8.2)

(9.9)

 Decrease/(increase) in receivables

 

2.3

4.8

(5.6)

 Increase in payables

 

2.5

1.4

6.1

(Decrease)/increase in provisions

 

(3.8)

(1.0)

1.8

 Cash generated from operating activities

 

25.4

26.7

48.7

 Interest paid

 

(0.9)

(1.7)

(2.6)

 Tax paid

 

(1.5)

(2.0)

(11.0)

Net cash from operating activities

 

23.0

23.0

35.1

 

 

 

 

 

Cash flows from investing activities 

 

 

 

 

Proceeds from sale of property, plant and equipment and software

0.1

2.4

3.5

Purchase of property, plant and equipment

 

(4.3)

(3.7)

(10.8)

Capitalisation of software and development costs

 

(2.4)

(2.3)

(4.3)

Acquisition of businesses, net of cash acquired

8

(2.5)

(1.6)

(12.4)

Disposal of businesses

 

-

10.9

32.4

Net cash (used in)/from investing activities

 

(9.1)

5.7

8.4

 

 

 

 

 

Cash flows from financing activities 

 

 

 

 

Proceeds from the issue of shares

 

-

0.1

1.4

Own shares purchased

 

(3.7)

(1.3)

(3.5)

Repayment of interest-bearing loans and borrowings

 

(44.0)

(61.6)

(144.5)

Borrowings from interest-bearing loans and borrowings

 

56.9

43.5

110.7

Dividends paid

 

(9.0)

(7.7)

(12.4)

Net cash from/(used in) financing activities

 

0.2

(27.0)

(48.3)

 

 

 

 

 

Increase/(decrease) in cash and cash equivalents  

9

14.1

1.7

(4.8)

Cash and cash equivalents at 1 January

 

12.6

16.8

16.8

Effect of exchange rate fluctuations on cash held 

 

0.3

0.2

0.6

Cash and cash equivalents at the end of the period

9

27.0

18.7

12.6

             

 

1 Accounting policies

 

Reporting entity

 

The Vitec Group plc (the "Company") is a company domiciled in the United Kingdom.  These condensed consolidated interim financial statements as at and for the half year ended 30 June 2018 comprise the Company and its subsidiaries (together referred to as the "Group").

 

Basis of preparation and statement of compliance

 

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting.  This report does not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").

 

The comparative figures for the year ended 31 December 2017 do not constitute statutory accounts for the purpose of section 434 of the Companies Act 2006. The auditors have reported on the 2017 accounts, and these have been filed with the Registrar of Companies; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The half year amounts as at and for the half years ending 30 June presented in these condensed consolidated interim financial statements have been reviewed in accordance with International Standard on Review Engagements (UK and Ireland) 2410 but have not been audited.

 

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

 

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2017, except for the estimation of insurance receivable in relation to the SmallHD insurance claim (see note 3).

 

In reporting financial information, the Group presents alternative performance measures ("APMs") which are not defined or specified under the requirements of IFRS. The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information to better reflect the underlying business and enable more meaningful comparison over time. A glossary on the last page provides a comprehensive list of APMs that the Group uses, including an explanation of how they are calculated, why they are used and how they can be reconciled to a statutory measure where relevant.

 

These condensed consolidated interim financial statements were approved by the Board of Directors on

9 August 2018.

 

The accounting policies adopted in these interim financial statements are consistent with those of the previous financial year and the corresponding interim period, except for the adoption of new accounting standards as set out below.

 

Impact of adoption of new accounting standards

 

The Group has applied IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from Contracts with Customers" from 1 January 2018, which has resulted in new accounting policies as set out below.

 

IFRS 9 "Financial Instruments"

IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. In accordance with the transitional provisions of IFRS 9, comparative figures have not been restated.

 

The Group was required to revise its provision methodology under IFRS 9 for its trade receivables and contract assets. The £0.1 million impact of the change on the Group's retained earnings is set out in the Consolidated Statement of Changes in Equity.

IFRS 15 "Revenue from Contracts with Customers"

The Group has applied IFRS 15 retrospectively using the cumulative effect method and has chosen not to adjust contract consideration for the effects of a significant financing component when the period between delivery of a specified good or service and payment by a customer is less than one year. The Group generally does not have contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.

 

There has been no material impact on the financial statements of adopting IFRS 15. The Group previously recognised a net provision for returns in trade receivables. Under IFRS 15, a refund liability of £0.5 million for the expected refunds to customers is recognised in other payables, and a separate asset for the right to the returned goods of £0.2 million is recognised in other receivables.

 

Accounting policies applying from 1 January 2018

 

Derivatives and hedge accounting

 

Cash flow hedges are used to hedge the variability in cash flows of highly probable forecast transactions caused by changes in exchange rates.

 

At 31 December 2017 the Group's foreign currency forward contracts which were designated in hedging relationships continue to qualify for hedge accounting under IFRS 9 and these relationships are therefore treated as continuing hedges.

 

As a result of adopting IFRS 9, there have been no changes to the accounting for qualifying cash flow hedges and the accounting policies as disclosed in the 2017 annual report continue to apply.

 

Net Investment hedges

 

The Group uses US Dollar, Euro and Japanese Yen denominated borrowings as a hedge against the translation exposure on the Group's net investment in overseas companies. At 31 December 2017 the Group's borrowings which were designated in hedging relationships continue to qualify for hedge accounting under IFRS 9 and these relationships are therefore treated as continuing hedges.

 

As a result of adopting IFRS 9, there have been no changes to the accounting for qualifying net investment hedges and the accounting policies as disclosed in the 2017 annual report continue to apply.

 

Financial assets classification and measurement

 

The Group classifies its financial instruments depending on the business model for managing the financial assets and the contractual terms of the cash flows. Trade receivables and contract assets are measured at amortised cost while derivatives are measured at fair value through profit or loss unless designated in a qualifying hedging relationship.

 

Trade receivables impairment

 

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due.

 

Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for an extended period.

 

Sale of goods

 

Revenue from the sale of goods is recognised when the Group sells a product to a customer and control has passed. This is either once the product has been shipped or delivered to the customer depending on the terms and conditions of the sale. Revenue is recognised at the transaction price exclusive of sales tax, adjusted for the expected level of returns, trade discounts and volume rebates. A refund liability and a right to the returned goods are recognised for the products expected to be returned.

 

Some contracts include multiple deliverables, such as the sale of the product and its installation. If material, distinct goods and services are accounted for as separate performance obligations. The transaction price is allocated to each performance obligation based on their stand-alone selling prices.

 

Service contracts

 

Revenue from rental service contracts which are fulfilled using the Group's equipment and operators is recognised in the accounting period in which the services are rendered.

 

Licenses

 

Software licenses are sold by the Group on a standalone basis and together with a tangible product. If the license is considered distinct, the revenue recognition pattern is based on whether the license is a right to access intellectual property (revenue recognised over time) or a right to use intellectual property (revenue recognised at a point in time). The majority of the licenses granted by the Group represent a right to use intellectual property.

 

Financing components

 

The Group generally does not have contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.

 

Going concern

 

The Directors have made appropriate enquiries and consider that the Group has adequate resources to continue in operational existence for the foreseeable future, which comprises the period of at least 12 months from the date of the half year results. There are no material uncertainties that would prevent the Directors from being unable to make this statement. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

 

New standards and interpretations not yet adopted

 

The following standards, amendments to standards and interpretations will become effective for the Group in future years.

 

IFRS 16 "Leases"

 

IFRS 16 "Leases" was issued on 13 January 2016 and is effective for annual periods beginning on or after

1 January 2019. It requires lessees to recognise most leases on the balance sheet. Currently, IAS 17 "Leases" only requires leases categorised as finance leases to be recognised on the balance sheet, with leases categorised as operating leases not recognised and expensed through the income statement. The impact of IFRS 16 will be to recognise a lease liability and a corresponding right of use asset in the balance sheet for leases currently classified as operating leases. The Directors are continuing to evaluate the full impact of the adoption of this standard. The actual impact in the period of initial application will depend on the composition of the Group's lease portfolio at that date, the Group's latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and exemptions. The Group expects to disclose further information about its transition approach and the impact of the new standard before adoption.

 

Other standards

 

Other amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements.

 

2 Segment reporting

 

 

In the year ended 31 December 2017, the Group reorganised its business into three Divisions (Imaging Solutions, Production Solutions and Creative Solutions) to reflect a changing customer base, to enable the Group to adapt quickly to market and technological challenges, and to give greater focus to the fast-growing Independent Content Creator market. These reportable segments reflect the internal reporting provided to the Chief Operating Decision Maker on a regular basis to assist in making decisions on capital allocated to each segment and to assess performance.

 

 

For the half year to 30 June

 

Imaging Solutions

Production Solutions

Creative Solutions

Corporate and unallocated

Consolidated

 

2017

2018

2017

2018

2017

2018

2017

2018

2017

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

From continuing operations:

 

 

 

 

 

 

 

 

 

 

Total revenue from external customers

 

98.5

78.4

57.1

55.7

27.7

30.8

-

-

183.3

164.9

Inter-segment revenue (1)

0.2

0.4

0.2

0.2

0.1

-

(0.5)

(0.6)

-

-

Total revenue

98.7

78.8

57.3

55.9

27.8

30.8

(0.5)

(0.6)

183.3

164.9

Adjusted operating profit

14.9

13.5

9.9

6.6

7.0

6.5

(6.3)

(5.0)

25.5

21.6

Transaction costs relating to acquisition of businesses

 

(0.1)

-

-

-

-

-

-

-

(0.1)

-

Integration costs

 

(1.1)

-

-

-

-

-

-

-

(1.1)

_

Amortisation of acquired intangible assets

 

(0.6)

(0.1)

(0.5)

(0.6)

(2.0)

(2.6)

-

-

(3.1)

(3.3)

Earnout payments

-

-

-

-

(0.5)

-

-

-

(0.5)

-

Operating profit

13.1

13.4

9.4

6.0

4.5

3.9

(6.3)

(5.0)

20.7

18.3

Net finance expense

 

 

 

 

 

 

 

 

(1.0)

(1.9)

Taxation

 

 

 

 

 

 

 

 

(2.5)

(2.9)

Profit for the period

 

 

 

 

 

 

 

 

17.2

13.5

 

 

 

 

 

 

 

 

 

 

 

Segment assets

128.9

96.4

90.0

85.1

45.3

42.9

2.9

3.1

267.1

227.5

Unallocated assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

27.0

18.7

27.0

18.7

Current tax assets

 

 

 

 

 

 

2.5

0.9

2.5

0.9

Deferred tax assets

 

 

 

 

 

 

18.0

24.9

18.0

24.9

Total assets

 

 

 

 

 

 

 

 

314.6

272.0

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities

44.3

31.6

25.2

24.6

14.1

7.0

4.8

4.2

88.4

67.4

Unallocated liabilities

 

 

 

 

 

 

 

 

 

 

Interest-bearing loans and borrowings

 

 

 

 

 

 

70.0

71.3

70.0

71.3

Current tax liabilities

 

 

 

 

 

 

7.8

10.7

7.8

10.7

Deferred tax liabilities

 

 

 

 

 

 

2.3

2.3

2.3

2.3

Total liabilities

 

 

 

 

 

 

 

 

168.5

151.7

 

(1)   Inter-segment pricing is determined on an arm's length basis.

 

 

Geographical information

For the half year ended 30 June 2018

 

Half year to 30 June

Half year to

30 June

Year to 31 December

 

2018

2017

2017

 

£m

£m

£m

Continuing operations - analysis of revenue from external customers, by location of customer

 

 

 

 

United Kingdom

21.0

19.0

40.3

The rest of Europe

47.6

39.9

83.1

North America

72.7

64.3

144.3

Asia Pacific

36.9

35.8

73.5

The rest of the World

5.1

5.9

12.1

Total revenue from external customers

183.3

164.9

353.3

 

The Group's operations are located in several geographic locations, and sell products and services on to external customers in all parts of the world.

 

3 Other income

 

On 26 April 2018, the offices and warehouse of SmallHD LLC ("SmallHD") in North Carolina, US (part of the Creative Solutions Division) were damaged by a fire which started in an adjacent office. An evacuation was conducted successfully with no injuries to our team. The insurance policy held by the Group covers both damage to assets and business interruption.

 

As at the date of the interim financial statements, the outcome of the insurance claim has not been finalised. At the balance sheet date, an amount of £4.7 million related to the insurance reimbursement has been recognised in other income. Staged cash payments of £3.2 million have been received, but the final insurance receivable is subject to ongoing discussions with the insurer and will also be affected by any continued impact to SmallHD which is covered by the business interruption insurance.

 

4 Operating expenses

 

Charges associated with acquisition of businesses are excluded from key performance measures in order to more accurately show the underlying current business performance of the Group in a consistent manner. This also reflects how the business is managed and measured on a day-to-day basis. Charges associated with acquisition of businesses include non-cash charges such as amortisation of acquired intangible assets and cash charges such as transaction costs, earnout and deferred payments and significant costs relating to the integration of acquired businesses.

 

 

Half year to 30 June

Half year to 30 June

Year to 31 December

 

2018

2017

2017

 

£m

£m

£m

Analysis of operating expenses

 

 

 

From continuing operations:

 

 

 

Transaction costs relating to acquisition of businesses

(0.1)

-

(1.3)

Integration costs

(1.1)

-

(2.2)

Amortisation of acquired intangible assets

(3.1)

(3.3)

(7.4)

Earnout payments

(0.5)

-

(4.1)

Charges associated with acquisition of businesses

(4.8)

(3.3)

(15.0)

Other administrative expenses

(24.2)

(20.4)

(46.4)

Administrative expenses

(29.0)

(23.7)

(61.4)

Marketing, selling and distribution costs

(26.6)

(24.4)

(49.7)

Research, development and engineering costs

(7.4)

(7.3)

(15.2)

Total from continuing operations

(63.0)

(55.4)

(126.3)

 

 

 

 

From discontinued operations:

 

 

 

Amortisation of acquired intangible assets

-

(1.2)

(1.2)

Other administrative expenses

-

(3.3)

(3.6)

Administrative expenses

-

(4.5)

(4.8)

Marketing, selling and distribution costs

-

(2.3)

(2.7)

Total from discontinued operations

-

(6.8)

(7.5)

 

 

 

 

5 Net finance expense

 

 

Half year to 30 June

Half year to

30 June

Year to 31 December

 

2018

2017

2017

 

£m

£m

£m

Finance income

 

 

 

Net currency translation gains

0.4

-

0.1

Finance expense

 

 

 

Net currency translation losses

-

(0.2)

-

Unwind of discount on liabilities

(0.1)

-

-

Interest payable on interest-bearing loans and borrowings

(1.2)

(1.6)

(2.6)

Interest expense on net defined benefit pension scheme

(0.1)

(0.1)

(0.3)

 

(1.4)

(1.9)

(2.9)

Net finance expense

(1.0)

(1.9)

(2.8)

             

 

6 Taxation

 

 

 

Income tax expense is recognised at an amount determined by multiplying the profit before tax for the interim reporting period by management's best estimate of the weighted-average annual income tax rate for the full financial year, adjusted for the tax effect of certain items recognised in full in the interim period.  As such, the effective tax rate in the interim financial statements may differ from management's estimate of the effective tax rate for the annual financial statements.

 

 

 

 

 

Half year to 30 June

Half year to 30 June

Year to 31 December

 

2018

2017

2017

 

£m

£m

£m

 

The total taxation (charge)/credit in the Income Statement is analysed as follows:

 

Summarised in the Income Statement as follows

 

 

 

Continuing operations

 

 

 

Current tax

(3.5)

(3.8)

(6.2)

Deferred tax

1.0

0.9

(10.7)

 

(2.5)

(2.9)

(16.9)

Discontinued operations

 

 

 

Current tax

-

(0.4)

(0.4)

Deferred tax

-

(0.4)

4.0

 

-

(0.8)

3.6

Continuing and discontinued operations

 

 

 

Current tax

(3.5)

(4.2)

(6.6)

Deferred tax

1.0

0.5

(6.7)

 

(2.5)

(3.7)

(13.3)

 

 

 

 

Charges associated with acquisition of businesses, profit on disposal of businesses and material non-operating events (1)

 

 

 

 

Continuing operations

 

 

 

Current tax

3.2

-

0.2

Deferred tax

1.0

1.5

(6.3)

 

4.2

1.5

(6.1)

 

 

 

 

Discontinued operations

 

 

 

Current tax

-

(0.4)

(0.4)

Deferred tax

-

0.3

4.7

 

-

(0.1)

4.3

Continuing and discontinued operations

 

 

 

Current tax

3.2

(0.4)

(0.2)

Deferred tax

1.0

1.8

(1.6)

 

4.2

1.4

(1.8)

 

 

 

 

Before charges associated with acquisition of businesses, profit on disposal of businesses and material non-operating events (1)

 

 

 

 

Continuing operations

 

 

 

Current tax

(6.7)

(3.8)

(6.4)

Deferred tax

-

(0.6)

(4.4)

 

(6.7)

(4.4)

(10.8)

Discontinued operations

 

 

 

Current tax

-

-

-

Deferred tax

-

(0.7)

(0.7)

 

-

(0.7)

(0.7)

Continuing and discontinued operations

 

 

 

Current tax

(6.7)

(3.8)

(6.4)

Deferred tax

-

(1.3)

(5.1)

 

(6.7)

(5.1)

(11.5)

(1) The amount of £4.2 million in the half year to 30 June 2018 includes taxation on charges associated with acquisition of businesses and an overseas tax credit of £3.0 million related to prior periods.

 

           

 

7 Earnings per share

 

Earnings per share ("EPS") is the amount of post-tax profit attributable to each share.

 

Basic EPS is calculated on the profit for the period divided by the weighted average number of ordinary shares in issue during the period.

 

Diluted EPS is calculated on the profit for the period divided by the weighted average number of ordinary shares in issue during the period, but adjusted for the effects of dilutive share options.

 

The adjusted EPS measure is used by management to assess the underlying performance of the ongoing businesses, and therefore excludes charges associated with acquisition of businesses, profit on disposal of businesses and material non-operating events, all net of tax.

 

The calculation of basic, diluted and adjusted EPS is set out below:

 

 

Half year to 30 June

Half year to 30 June

 

2018

2017

Profit for the financial period

£m

£m

Continuing operations

17.2

13.5

Discontinued operations

-

0.8

 

17.2

14.3

Add back charges associated with acquisition of businesses, profit on disposal of businesses and material non-operating events, all net of tax

 

 

 

Continuing operations

0.6

1.8

Discontinued operations

-

(1.9)

 

0.6

(0.1)

Adjusted profit after tax

 

 

Continuing operations

17.8

15.3

Discontinued operations

-

(1.1)

 

17.8

14.2

 

 

Weighted average number of shares '000

Adjusted earnings per share

Earnings per share

 

Half year to 30 June

Half year to 30 June

Half year to 30 June

 

2018

2017

2018

2017

2018

2017

 

Number

Number

pence

pence

pence

pence

From continuing and discontinued operations

 

 

 

 

 

 

Basic

45,011

44,741

39.5

31.7

38.2

32.0

Dilutive potential ordinary shares

511

371

(0.4)

(0.3)

(0.4)

(0.3)

Diluted

45,522

45,112

39.1

31.4

37.8

31.7

 

 

 

 

 

 

 

From continuing operations

 

 

 

 

 

 

Basic

45,011

44,741

39.5

34.2

38.2

30.3

Dilutive potential ordinary shares

511

371

(0.4)

(0.3)

(0.4)

(0.3)

Diluted

45,522

45,112

39.1

33.9

37.8

30.0

 

 

 

 

 

 

 

From discontinued operations

 

 

 

 

 

 

Basic

45,011

44,741

-

(2.5)

-

1.7

Dilutive potential ordinary shares

511

371

-

-

-

-

Diluted

45,522

45,112

-

(2.5)

-

1.7

 

8 Acquisitions

 

Acquisition of Adeal

 

On 7 March 2018, the Group acquired 100% of the issued share capital of Adeal Proprietary Limited ("Adeal"), a company based in Australia, for net cash consideration of A$4.5 million (£2.5 million), after cash acquired of A$0.2 million (£0.1 million). The acquisition complements the Group's owned distribution channels. As at the date of this report the fair value of the assets and liabilities acquired are being measured. Based on provisional adjustments, the fair value of the net assets acquired in the business at acquisition date was £2.5 million (mainly inventory £2.3 million; trade receivables £1.1 million, trade and other payables £1.0 million) resulting in goodwill of £0.1 million. The trade receivables acquired had a fair value and a gross contractual value of £1.1 million. Adeal operates within the Imaging Solutions Division.

 

The results of Adeal in the six month period to 30 June 2018 comprise revenue of £2.3 million and operating profit of £nil million. Had the acquisition been made at the beginning of the year (i.e. 1 January 2018), consolidated pro-forma revenue and profit for the half year ended 30 June 2018 would have been £183.9 million and £17.2 million respectively.

 

JOBY and Lowepro, acquired in 2017

 

In the period, the process to measure the fair values of the assets and liabilities acquired was completed in respect of the JOBY and Lowepro acquisitions. An increase in goodwill of £1.4 million was recognised in the period as a result of fair value adjustments mainly to contingent liabilities.

 

9 Analysis of net debt

 

The table below analyses the Group's components of net debt and their movements in the period:

 

Half year to 30 June

Half year to 30 June

Year to

31 December

 

2018

2017

2017

 

£m

£m

£m

Increase/(decrease) in cash and cash equivalents

14.1

1.7

(4.8)

Repayment of interest-bearing loans and borrowings

44.0

61.6

144.5

Borrowings from interest-bearing loans and borrowings

(56.9)

(43.5)

(110.7)

Decrease in net debt resulting from cash flows

1.2

19.8

29.0

 

Effect of exchange rate fluctuations on cash held

0.3

0.2

0.6

Effect of exchange rate fluctuations on debt held

(1.6)

2.5

2.6

Effect of exchange rate fluctuations on net debt

(1.3)

2.7

3.2

 

 

 

 

Movements in net debt in the period

(0.1)

22.5

32.2

Net debt at 1 January

(42.9)

(75.1)

(75.1)

Net debt at the end of the period

(43.0)

(52.6)

(42.9)

 

 

 

 

Cash and cash equivalents in the Statement of Cash Flows

27.0

18.7

12.6

  Interest-bearing loans and borrowings

(70.0)

(71.3)

(55.5)

Net debt at the end of the period

(43.0)

(52.6)

(42.9)

                 

 

 

10 Forward exchange contracts

 

The fair value of forward exchange contracts is determined by estimating the market value of that contract at the reporting date. Derivatives with a positive fair value are recorded as assets and negative fair values as liabilities, and presented as current or non-current based on their contracted maturity dates.

 

The following table shows the forward exchange contracts in place at the Balance Sheet date. These contracts mature in the next 18 months, therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 18 months.

 

 

As at 30 June

Average exchange rate of contracts

As at 30 June

Average exchange rate of contracts

2018

2017

 

Currency

millions

millions

Cash flow hedging contracts

 

 

 

 

 

USD / GBP forward exchange contracts

USD

7.3

1.32

14.4

1.32

USD / EUR forward exchange contracts

USD

20.6

1.19

35.9

1.13

EUR / GBP forward exchange contracts

EUR

12.8

1.13

20.7

1.20

JPY / GBP forward exchange contracts

JPY

487.8

143.0

586.6

150.2

JPY / EUR forward exchange contracts

JPY

968.8

127.1

1,071.5

122.3

 

During the period to 30 June 2018 a net profit of £0.7 million (2017: £2.2 million loss) relating to forward exchange contracts was reclassified to the Income Statement, to match the crystallisation of the hedged forecast cash flows which affect the Income Statement.

 

Fair value hierarchy

 

The carrying values of financial assets and liabilities approximate their fair values.

 

All financial instruments are deemed Level 2.

 

11 Subsequent events

 

Other than as described below, there were no events after the Balance Sheet date that require disclosure.

 

Interim dividend

 

After the balance sheet date, an interim dividend of 11.5 pence per share has been declared by the Directors, totalling £5.2 million (2017: 10.4 pence per share totalling £4.7 million). The dividend has not been included as a liability in these financial statements.

 

The dividend will be paid on Friday 19 October 2018 to shareholders on the register at the close of business on Friday 21 September 2018. The Company has a Dividend Reinvestment Plan that allows shareholders to reinvest dividends to purchase additional shares in the Company. For shareholders to apply the proceeds of this and future dividends to the plan, application forms must be received by the Company's Registrars by no later than Friday 28 September 2018. Existing participants in the Plan will automatically have the interim dividend reinvested. Details on the Plan can be obtained from Link Asset Services on 0871 664 0300 or at www.signalshares.com. Calls cost 12p per minute plus your phone company's access charge. If you are outside the United Kingdom, please call

+44 371 664 0381. Calls outside the United Kingdom will be charged at the applicable international rate. The lines are open from 9.00am to 5.30pm, Monday to Friday (excluding public holidays in England and Wales).

 

 

12 Disposals and discontinued operations in 2017

 

Both Haigh-Farr and the US broadcast services business were disposed in 2017 and were classified as discontinued operations in accordance with IFRS 5 "Non-current assets held for sale and discontinued operations". As at 30 June 2017, the assets and liabilities of the US broadcast services business, which was disposed on 1 August 2017, were classified as a disposal group held for sale.

 

The table below shows the results of the discontinued operations which are included in the Group Income Statement and Group Statement of Cash Flows respectively.

 

a) Income Statement - discontinued operations

Half year to 30 June

Year to 31 December

2017

2017

 

£m

£m

Revenue

22.7

24.8

Expenses

(24.3)

(26.4)

Operating loss

(1.6)

(1.6)

Comprising

-   Operating loss before amortisation of acquired intangible assets

(0.4)

(0.4)

-   Amortisation of acquired intangible assets

(1.2)

(1.2)

 

(1.6)

(1.6)

Taxation

(0.7)

(0.7)

Loss after tax from discontinued operations

(2.3)

(2.3)

 

 

 

Gain on disposal of discontinued operations before tax

3.2

15.0

Taxation

(0.1)

4.3

Gain on disposal of discontinued operations after tax

3.1

19.3

 

 

 

Profit after tax from discontinued operations attributable to owners of parent

0.8

17.0

 

 

 

b)  Statement of Cash Flows - discontinued operations

Half year to 30 June

Year to 31 December

2017

2017

 

£m

£m

Net cash from operating activities

2.8

3.3

Net cash from investing activities (1)

12.1

33.7

Net cash from discontinued operations

14.9

37.0

(1)   Includes net proceeds of £11.1 million in half year to 30 June 2017 and £32.6 million in year to 31 December 2017 from disposal of businesses

c)  Effect of disposal on the Group Balance Sheet

30 June

31 December

2017

2017

 

£m

£m

Assets of the disposal group classified as held for sale

 

 

Property, plant and equipment

16.7

-

Inventories

0.1

-

Trade and other receivables

5.8

-

 

22.6

-

 

 

 

Liabilities of the disposal group classified as held for sale

 

 

Trade and other payables

4.3

-

       

 

Glossary - Alternative Performance Measures ("APMs")

 

In addition to statutory reporting, Vitec reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to improve the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes.

 

APM

Closest equivalent statutory measure

 

Definition & Purpose

Income Statement Measures

 

Adjusted operating profit

Operating profit

Calculated as operating profit before charges associated with acquisition of businesses and material non-operating events. These are excluded by virtue of their size and nature in order to more accurately show the underlying business performance of the Group in a consistent manner. This is a key management incentive metric.

 

Charges associated with acquisition of businesses include non-cash charges such as amortisation of acquired intangible assets and cash charges such as transaction costs, earnout and deferred payments and significant costs relating to the integration of acquired businesses.

 

See the Condensed Consolidated Income Statement for a reconciliation.

 

Adjusted operating profit margin

None

Calculated as adjusted operating profit divided by revenue. Progression in adjusted operating margin is an indicator of the Group's operating efficiency.

 

Adjusted operating expenses

Operating expenses

Calculated as operating expenses before charges associated with acquisition of businesses and material non-operating events. These are excluded by virtue of their size and nature in order to more accurately show the underlying operating cost base of the Group in a consistent manner.

 

The table below shows the reconciliation for continuing operations:

 

 

 

 

Half

year to

30 June

Half

year to  30 June

Year to 31 December

 

 

 

2018

2017

2017

 

 

 

£m

£m

£m

 

 

Operating expenses

 

63.0

55.4

126.3

 

 

Charges associated with acquisition of businesses

 

(4.8)

(3.3)

(15.0)

 

 

Adjusted operating expenses

 

58.2

52.1

111.3

Adjusted profit before tax

Profit before tax

Calculated as profit before tax, before charges associated with acquisition of businesses and material non-operating events. These are excluded by virtue of their size and nature in order to more accurately show the underlying business performance of the Group in a consistent manner. This is a key management incentive metric.

 

See the Condensed Consolidated Income Statement for reconciliation.

 

Adjusted profit after tax

Profit after tax

Calculated as profit after tax before charges associated with acquisition of businesses, profit on disposal of businesses and material non-operating events.

 

Adjusted basic earnings per share

Basic earnings per share

Calculated as adjusted profit after tax divided by the weighted average number of ordinary shares in issue during the period. This is a key management incentive metric.

 

See note 7 "Earnings per share".

 

Cash Flow Measures

 

Free cash flow

Net cash from operating activities

Net cash from operating activities after proceeds from property, plant and equipment and software, purchase of property, plant and equipment, and capitalisation of software and development costs. This measure reflects the cash generated in the period that is available to invest in accordance with the Group's capital allocation policy.

 

Operating cash flow

Net cash from operating activities

Free cash flow before payment of interest, tax, restructuring costs, transaction costs relating to acquisition of businesses and integration costs. This is a measure of the cash generation and working capital efficiency of the Group's operations. Operating cash flow as a percentage of adjusted operating profit is a key management incentive metric.

 

 

 

 

Half

year to

30 June

Half

year to  30 June

Year to 31 December

 

 

 

2018

2017

2017

 

 

 

£m

£m

£m

 

 

Net cash from operating activities

 

23.0

23.0

35.1

 

 

Proceeds from sale of property, plant and equipment and software

 

0.1

2.4

3.5

 

 

Purchase of property, plant and equipment

 

(4.3)

(3.7)

(10.8)

 

 

Capitalisation of software and development costs

 

(2.4)

(2.3)

(4.3)

 

 

Free cash flow

 

16.4

19.4

23.5

 

 

Add back:

 

 

 

 

 

Interest paid

 

0.9

1.7

2.6

 

 

Tax paid

 

1.5

2.0

11.0

 

 

Payment of restructuring costs, transaction costs relating to acquisition of businesses and integration costs

 

1.6

1.2

3.3

 

 

Operating cash flow

 

20.4

24.3

40.4

Other Measures

Return on capital employed (ROCE)

None

Calculated as adjusted operating profit for the last twelve months divided by average total assets less current liabilities excluding the current portion of interest-bearing borrowings. This is a measure of the efficiency of the Group's asset base.

 

Adjusted EBITDA

Operating profit

Calculated as adjusted operating profit for the last twelve months before depreciation of tangible fixed assets and amortisation of intangibles (other than those already excluded from adjusted operating profit).

 

The ratio of net debt to adjusted EBITDA is a metric used in assessing covenant compliance for the Group's Revolving Credit Facility Agreement, and is a measure of the level of the Group's borrowings relative to its cash generation.

 

 


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