Regulatory Story
Go to market news section View chart   Print
RNS
Vitec Group PLC (The)   -  VTC   

Half Year Results

Released 07:00 08-Aug-2019

RNS Number : 3249I
Vitec Group PLC (The)
08 August 2019
 

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.

 

8 August 2019

The Vitec Group plc

Half Year Results to 30 June 2019

Results in line with expectations

The Vitec Group plc ("Vitec" or "the Group"), the international provider of premium branded products and solutions to the fast moving and growing "image capture and content creation" market, announces its results for the half year ended 30 June 2019.

Results1



% change

H1 2019

H1 2018

As reported

Constant

FX rates

Revenue

£184.2m

£183.3m

+0.5%

-2.2%

Adjusted operating profit*

£25.8m

£25.5m

+1.2%

+0.5%

Adjusted operating margin*

14.0%

13.9%



Adjusted profit before tax*

£23.5m

£24.5m

-4.1%

-4.0%

Adjusted basic earnings per share*

39.9p

39.5p

+1.0%


Interim dividend per share

12.3p

11.5p

+7.0%


Free cash flow*

£16.0m

£16.4m



Net debt2

£108.4m

£43.0m



Statutory results





Operating profit

£18.9m

£20.7m

-8.7%


Operating margin

10.3%

11.3%



Profit before tax

£16.6m

£19.7m

-15.7%


Basic earnings per share

27.0p

38.2p

-29.3%


1 H1 2019 results have been prepared under IFRS 16 'Leases'. Prior period comparatives have not been restated.

2 Net debt as at June 2019 includes a £21.6 million impact from IFRS 16 'Leases' compared to June 2018.

Financial highlights

·    Robust performance in a non-Olympic year

·    Continued strength in reported adjusted operating margin*, towards our stated mid teen goal

·    As expected, increase in net debt from acquisitions and IFRS 16 impact, with capacity for further organic and M&A investment

·    Interim dividend growth of 7.0% to 12.3p per share

Operational highlights

·    Good progress executing strategy to drive growth and efficiencies, despite some disruption to the photographic market and the impact of US/China tariffs

·    Integration of Amimon is complete and the launch of wireless video products into the broadcast sports market is on schedule for 2020

·    Restructuring of Imaging Solutions to take advantage of the growing e-commerce channel is on track

·    Investing in targeted growth initiatives in the faster growing segments of the market, including wireless video, smartphone accessories, audio capture, LED lights and motion control

Outlook for 2019 is unchanged and, as expected, H2 weighted

* 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:

"I am pleased with Vitec's half year performance, where we delivered results in line with expectations despite some challenges. The integration of Amimon is complete and I am excited about the opportunity to grow our wireless video capabilities, particularly in the broadcast sports market. Imaging Solutions continued to outperform a disrupted market through expanding into adjacent market segments, and is transitioning to an e-commerce business model to support future growth.  

"Over the last three years, the Group has continued to make progress executing its strategy to drive organic growth, improve margins and make value adding acquisitions. Our resources and investment are prioritised on developing new products for our faster growing brands and market segments, and our cost base is tightly managed. We also continue to look for further opportunities to add to our product portfolio.

"Vitec is in good shape and is increasingly exposed to more growth segments of the "image capture and content creation" market. We are pleased to confirm that our outlook for the current year is unchanged, whilst we remain mindful of geopolitical challenges and FX movements. Notwithstanding these uncertainties, we continue to expect a strong 2020, benefitting from the summer Olympics, US Presidential elections and the targeted growth initiatives already underway."

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 Thursday, 8 August 2019. A live video webcast of the presentation will be available on our website, and an on-demand recording, along with the presentation slides and a highlights video, will be available after the meeting.

Users can pre-register to access the recording and slides 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, bags, motion control and noise reduction equipment.

We employ around 1,800 people across the world in 13 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 2018 revenue of £385.4 million.

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

LEI number: 2138007H5DQ4X8YOCF14

Notes

·     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.

·     H1 2019 average exchange rates: £1 = $1.29, £1 = €1.15, €1 = $1.12, £1 = Yen143.

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

 

Management and financial overview


Adjusted*

Statutory


H1 2019

H1 2018

% Change

% Change at constant exchange rates

H1 2019

H1 2018

Revenue

£184.2m

£183.3m

+0.5%

-2.2%

£184.2m

£183.3m

Operating profit

£25.8m

£25.5m

+1.2%

+0.5%

£18.9m

£20.7m

Profit before tax

£23.5m

£24.5m

-4.1%

-4.0%

£16.6m

£19.7m

Earnings per share

39.9p

39.5p

+1.0%


27.0p

38.2p

 

Revenue grew by 0.5% on a reported basis, which included a benefit from foreign exchange (£5.1 million) and acquisitions (£5.5 million). Excluding the 2018 Winter Olympics, the Group delivered a robust performance on an organic constant currency basis, despite photographic market headwinds and the impact of US/China tariffs. Lower revenue at Imaging Solutions was partly offset by growth at Creative Solutions, with a solid performance at Production Solutions in a non-Olympic year. Excluding the Olympics, revenue was 3.4% lower on an organic constant currency basis.

Adjusted operating profit* grew by 1.2% on a reported basis, which included a benefit from foreign exchange (£0.2 million), IFRS 16 'Leases' (£0.4 million) as well as a £0.2 million net year-on-year benefit from acquisitions. H1 2019 profit also included £5.8 million insurance income (H1 2018: £4.7 million) relating to the insurance claim as a result of the fire adjacent to SmallHD's premises in April 2018. We continue to improve profitability through organic growth in higher margin areas, sustained production efficiencies and higher margin acquisitions. Excluding the Olympics, adjusted operating profit* grew by 7.4% on an organic constant currency basis.

The integration of Amimon is complete and financial performance in H1 was as expected. We are making good progress investing in the next generation of wireless products enabled by Amimon, including for the broadcast sports market where we are on schedule to launch in 2020. We have also successfully integrated Syrp, which we acquired in January 2019 and which has performed in line with expectations. Revenue and profit for both acquisitions will be H2-weighted.

We continued to focus on driving organic growth through investment in faster growing market segments. There was growth at Imaging Solutions from JOBY in the smartphonography and independent content creator "ICC" markets, and from lighting supports and controls aimed at professional photographers. Organic growth in robotics at Production Solutions contributed to the Division's performance, along with operational productivity improvements. At Creative Solutions, Teradek grew year-on-year driven by new product launches and SmallHD also delivered higher sales.

The SmallHD business was disrupted in the prior year following a fire adjacent to its premises, which resulted in lost revenue and delayed product launches. While the insurance indemnity period ended in April 2019, the claim has not been finalised. Insurance payments totalling £4.2 million were received in H1 2019 (H1 2018: £3.2 million received) and a further accrual for £1.6 million (H1 2018: £1.5 million accrual) has been recognised, anticipated to be received in H2. SmallHD delivered year-on-year growth and is refocusing on the premium, higher margin end of the market where we see more growth.

The restructuring of Imaging Solutions to take advantage of the growing e-commerce channel is on track. We are transitioning to a higher margin e-commerce business model by investing in a new digital platform and team to improve our web marketing and e-commerce capabilities, and provide a long-term competitive advantage. At the same time, we are reorganising our sales and marketing by distribution channel to mirror our major e-commerce customers in Europe.

Group adjusted gross margin* at 47.6% was 190 bps higher than the prior year (H1 2018: 45.7%) and was 70 bps higher after excluding SmallHD and the insurance income. The improvement in gross margin reflects the initial benefit from acquiring Amimon as well as continued operational excellence across the Group. There was also an adverse impact from US/China trade tariffs in H1 2019, mainly at Imaging Solutions and Creative Solutions, which was mitigated by price increases and sourcing from alternative countries.

Adjusted operating margin* was 14.0% on a reported basis, compared to 13.9% in the prior year, with both periods including a small benefit from the accounting treatment of the SmallHD insurance claim. In line with the prior year, we recognised insurance proceeds as other income within gross profit with no adjustment for revenue, in line with IAS 1. Adjusted operating profit* also included a benefit of £0.4 million as a result of accounting under IFRS 16 'Leases' from 1 January 2019.

The net financial expense was £1.3 million higher than the prior year at £2.3 million. This reflects a higher interest expense following the acquisition of Amimon as expected, and an adverse impact of £0.5 million representing interest on lease liabilities under IFRS 16. As a result, adjusted profit before tax* of £23.5 million was £1.0 million lower than the prior year (H1 2018: £24.5 million). 

The Group's effective tax rate (ETR) on adjusted profit before tax* was 23% in H1 2019 (H1 2018: 27%). We expect the ETR on adjusted profit before tax* for the full year to be a maximum of 25%.

Adjusted basic earnings per share* were 39.9 pence per share (H1 2018: 39.5 pence per share). Statutory basic earnings per share were 27.0 pence per share (H1 2018: 38.2 pence per share).

Statutory profit before tax of £16.6 million was £3.1 million lower than the prior year (H1 2018: £19.7 million) reflecting the factors referred to above and higher charges associated with acquisition of businesses and material non-operating events of £6.9 million (H1 2018: £4.8 million). The increase in charges reflects: higher amortisation of acquired intangibles following the acquisitions of Amimon, Syrp and Rycote; higher earnout accruals relating to Rycote; a fair value uplift relating to acquired inventory at Amimon which has been sold by the Group in H1 2019; and initial restructuring costs at Imaging Solutions.

Our strategy

Over the last three years, Vitec has made good progress executing its three strategic priorities: driving organic growth; margin improvement; and investing in new technology and markets.

Organic growth: we continue to leverage our premium brands to invest selectively in faster growing brands and market segments, with a focus on profitability. The Group is increasingly exposed to more growth markets and is investing in a number of targeted growth initiatives, including developing new products in wireless video for the broadcast sports market, and developing new smartphone, audio capture, motion control, LED lighting, robotics and mobile power products across multiple brands and market segments. We also continue to focus on strengthening our presence in the APAC region.

Margin improvement: we continue to optimise our manufacturing and assembly portfolio, and improve productivity and channel mix, as well as growing the higher margin Creative Solutions Division. We are also restructuring Imaging Solutions' business model to take advantage of the growth in the e-commerce channel where we outperform the competition and enjoy higher margins.

M&A activity: we look to expand our addressable markets by investing in core and adjacent niche markets to further increase our technology capabilities. Our robust balance sheet will support additional value adding acquisitions.

Vitec continues to benefit from the number and quality of premium brands in our portfolio, the agility and resilience of our business model, and our strong competitive positions. We have more opportunities to grow than ever before, with more parts of the Group exposed to the faster growing segments of the global "image capture and content creation" market. This, coupled with the experience and knowledge of our people, and our manufacturing and distribution capabilities enable the Group to develop ground-breaking new products for our customers, drive operational efficiencies through our value chain and identify carefully targeted acquisitions, leveraging our diverse skills and assets to create even more value for our stakeholders.

Imaging Solutions

The Imaging Solutions Division designs, manufactures and distributes premium branded equipment for photographic and video cameras, and smartphones, and provides dedicated solutions to professional and non-professional image makers and independent content creators. This consists of camera supports and heads, camera bags, lighting supports, LED lights, lighting controls, motion control and noise reduction equipment marketed under the most recognised accessories brands in the industry. Imaging Solutions represents 52% of Group revenue, and our three year strategy is to increase revenue and maintain margins.


Adjusted*

Statutory

Imaging Solutions

H1 2019

H1 2018

% Change

% Change at constant exchange rates

H1 2019

H1 2018

Revenue

£95.5m

£98.5m

-3.0%

-4.2%

£95.5m

£98.5m

Operating profit

£13.4m

£14.9m

-10.1%

-5.5%

£11.4m

£13.1m

Operating margin

14.0%

15.1%

-110 bps

-20 bps

11.9%

13.3%

* For Imaging Solutions, before charges associated with acquisition of businesses and material non-operating events of £2.0 million (H1 2018: £1.8 million).

Imaging Solutions' revenue declined by 3.0% to £95.5 million and by 4.2% at constant exchange rates on the back of a challenging market with a sharp decline in interchangeable lens camera ("ILC") shipments due to a reduction in traditional entry level DSLR cameras, which are being replaced by smartphones, and retail disruption due to acceleration of e-commerce sales. Results were stronger in Q2 than in Q1, and included a year-on-year benefit from the acquisition of Rycote and Syrp as well as an incremental inorganic benefit from Adeal, acquired in March 2018. Revenue was 7.4% lower than the prior year on an organic constant currency basis. Adjusted operating profit* decreased by 5.5% at constant exchange rates and by 6.0% on an organic constant currency basis.

The latest data from Camera & Imaging Products Association ("CIPA") on ILC shipments shows a year-to-date decline, although the average price of ILCs continues to increase and the mix continues to shift towards premium mirrorless cameras where the core high end market remains resilient and our accessories have a higher attachment rate. We are increasingly exposed to faster growing markets as we target independent content creators ("ICC"), including the markets for smartphone accessories, audio capture and motion control equipment, enabled by recent acquisitions, and we are increasingly less exposed to the traditional photographic market. As a result, the Division outperformed the ILC market.

Sales through our owned distribution network were in line in APAC and grew in EMEA, however this was offset by lower sales to independent distributors. In EMEA, this reflects the impact of de-stocking and retail consolidation of traditional distributors due to the acceleration of e-commerce sales. As previously announced, we are transitioning our business to take advantage of this growth in the higher margin e-commerce channel. The restructuring is on track.

We continue to drive growth in lighting supports and controls (+4% revenue growth versus the prior year), reflecting the resilience of the professional photographer market, and sales of JOBY smartphone accessories were also higher than the prior year including the benefit from launching a new range of Gorillapod supports. We continue to invest in higher growth product categories including JOBY smartphone accessories, Syrp motion control and Rycote audio products.

Adjusted operating margin* decreased by 20 bps at constant exchange rates which reflects lower volumes and a dilutive effect from H2 weighted acquisitions, partly offset by efficiency savings, cost control and favourable channel mix. On an organic constant currency basis, adjusted operating margin* increased by 20 bps.

Statutory operating profit decreased by £1.7 million to £11.4 million.

We expect the Division to continue to outperform the market by diversification into adjacent markets and restructuring of its business model, in line with the three year strategy to increase revenue and maintain margins.

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 30% of Group revenue, and our three year strategy is to maintain revenue and improve margins.


Adjusted*

Statutory

Production Solutions

H1 2019

H1 2018

% Change

% Change at constant exchange rates

H1 2019

H1 2018

Revenue

£54.8m

£57.1m

-4.0%

-7.6%

£54.8m

£57.1m

Operating profit

£8.4m

£9.9m

-15.2%

-19.4%

£8.4m

£9.4m

Operating margin

15.3%

17.3%

-200 bps

-220 bps

15.3%

16.5%

* For Production Solutions, before charges associated with acquisition of businesses of £nil (H1 2018: £0.5 million).

Production Solutions' revenue decreased by 4.0% to £54.8 million and by 7.6% at constant exchange rates which mainly reflects the non-repeat of the 2018 Winter Olympics. On an organic constant currency basis excluding the Olympics, the Division delivered a solid performance with 1.0% adjusted operating profit* growth on a reduction in revenue of 1.8%. The key driver of the lower revenue was at Litepanels in white lighting where there is a trend towards commoditisation; we are focusing on the higher growth, more technically advanced, multi-colour lighting segment which grew 29% in H1. Robotics and other supports delivered year-on-year growth. Overall lower volumes were more than offset by favourable product mix and operational excellence.

Markets remain stable and we have more visibility of upcoming large studio projects which gives us confidence in achieving good performance in H2. This is underpinned by the positive launch of new products in H1, including Anton/Bauer Titon digital batteries (which has driven a year-on-year increase in batteries orders), Litepanels LED Gemini 1x1 lighting and a new Vinten robotic head. We continue to invest in higher growth areas, including more products targeted at the ICC market. However, some caution remains in the current geopolitical climate.

Adjusted operating margin* decreased by 200 bps to 15.3%, but increased by 40 bps on an organic constant currency basis after adjusting for the 2018 Winter Olympics. This was driven by an improvement in gross margin from favourable product mix, including higher robotics, and operational efficiencies.

Statutory operating profit decreased by £1.0 million to £8.4 million.

We expect continued progress from Production Solutions, particularly on margins, with a benefit in 2020 from the Olympic Games and US Presidential elections. The Division's three year strategy is to maintain revenue and improve margins.

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 18% of Group revenue, and our three year strategy is to increase revenue and maintain higher margins.

 


Adjusted*

Statutory

Creative Solutions

H1 2019

H1 2018

% Change

% Change at constant exchange rates

H1 2019

H1 2018

Revenue

£33.9m

£27.7m

+22.4%

+15.0%

£33.9m

£27.7m

Operating profit

£10.2m

£7.0m

+45.7%

+37.3%

£5.3m

£4.5m

Operating margin

30.1%

25.3%

+480 bps

+490 bps

15.6%

16.2%

* For Creative Solutions, before charges associated with acquisition of businesses of £4.9 million (H1 2018: £2.5 million).

Creative Solutions' revenue grew by 22.4% to £33.9 million and increased by 15.0% at constant exchange rates. Revenue growth included the benefit from the acquisition of Amimon and was 7.3% higher than the prior year after adjusting for currency and the acquisition. This increase reflects growth at Teradek and higher sales at SmallHD compared to H1 2018, which was disrupted following the fire adjacent to the premises. Adjusted operating profit* increased by 45.7% to £10.2 million or by 37.3% at constant exchange rates. Excluding SmallHD and the insurance income, the Division delivered revenue and adjusted operating profit* growth including a benefit from Amimon. We estimate that the market for Creative Solutions' products continues to grow at 6% and we expect to continue to grow and gain share.

A number of market leading new products were launched in H1 including an industry-first zero-delay 4K wireless video transmission product (Teradek Bolt 4K) using Amimon technology, and the SmallHD Cine 7 on-camera monitor, which has performed above expectations since launch. We have also increased collaboration between brands, launching a product that combines SmallHD, Teradek and RTMotion in a wireless monitor with integrated lens control.

We remain focused on growing in APAC, however there has been a slowdown in the cine market in China driven by a slight decrease in feature film production. Whilst SmallHD is recovering from the disruption last year, there is still work to be done, and the business is refocusing on higher end monitors in response to increased competition at the lower end of the ICC market.

The integration of Amimon, which owns the wireless technology that interconnects devices on-set, is complete and its financial performance in H1 2019 was as expected. We are focused on designing products to take advantage of the opportunities available in broadcast sports.

Adjusted operating margin* increased by 480 bps to 30.1% on a reported basis, which includes a benefit from the accounting treatment of the SmallHD insurance claim in both periods. Excluding SmallHD and the insurance income, adjusted operating margin* was slightly lower in H1 2019, including some adverse mix and investment for future growth, although margins remain higher than the Group average.

Statutory operating profit increased by £0.8 million to £5.3 million.

We expect further growth for Creative Solutions including the benefit from the Amimon acquisition. We expect to maintain higher margins in line with the three year strategy.

Corporate costs

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


Adjusted*

Statutory

Corporate costs

H1 2019

H1 2018

% Change

% Change at constant exchange rates

H1 2019

H1 2018

Operating (loss)

£(6.2)m

£(6.3)m

1.6%

1.6%

£(6.2)m

£(6.3)m

 

Financial detail

Adjusted operating expenses* were 6.4% higher than the prior year at £61.9 million, reflecting the impact of acquisitions, principally Amimon and Syrp, partly offset by lower operating expenses in the underlying business.

Free cash flow* of £16.0 million was £0.4 million lower than the prior year (H1 2018: £16.4 million) on a reported basis but was £3.6 million lower than the prior year after excluding the benefit from IFRS 16, due to working capital phasing. The impact of IFRS 16 on net cash flow is £nil, but there is a reallocation in the cash flow statement from operating activities to financing activities, with an impact in H1 2019 of £3.2 million.

Net debt at 30 June 2019 was £108.4 million (30 June 2018: £43.0 million; 31 December 2018: £81.0 million). The increase in net debt compared to 31 December 2018 includes an opening adjustment of £22.3 million due to additional lease liabilities being recognised under IFRS 16. The underlying increase of £5.1 million reflects: payment of the 2018 final dividend (£11.5 million); the acquisition of Syrp (£2.4 million); a working capital adjustment relating to Amimon (£0.3 million); transactions in own shares relating to funding of our employee incentive programme (£4.5 million); and lease additions (£2.5 million); partly offset by free cash flow of £16.0 million and favourable foreign exchange of £0.1 million. The Group's balance sheet remains strong with a net debt to adjusted EBITDA* ratio of 1.6 times, or 1.3 times on a pre-IFRS 16 basis. (Pre-IFRS 16 comparatives: 30 June 2018: 0.7 times; 31 December 2018: 1.2 times). Banking covenants remain on a pre-IFRS 16 basis.

ROCE* of 20.1% was 160 bps lower than the prior year (H1 2018: 21.7%), which reflected an improvement of 100 bps, offset by an adverse impact from IFRS 16 of 60 bps and an impact from the acquisition of Amimon of 200 bps.

Interim dividend

The Board has declared an interim dividend of 12.3 pence per share (H1 2018: 11.5 pence per share). The dividend will be paid on Friday, 18 October 2019 to shareholders on the register at the close of business on Friday, 20 September 2019. The Group has sufficient distributable reserves to cover future dividend payments for a number of years.

Outlook

Over the last three years, the Group has continued to make progress executing its strategy to drive organic growth, improve margins and make value adding acquisitions. Our resources and investment are prioritised on developing new products for our faster growing brands and market segments, and our cost base is tightly managed. We also continue to look for further opportunities to add to our product portfolio.

Vitec is in good shape and is increasingly exposed to more growth segments of the "image capture and content creation" market. We are pleased to confirm that our outlook for the current year is unchanged, whilst we remain mindful of geopolitical challenges and FX movements. Notwithstanding these uncertainties, we continue to expect a strong 2020, benefitting from the summer Olympics, US Presidential elections and the targeted growth initiatives already underway.

Principal risks and uncertainties

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.

The principal risks and uncertainties that may affect our performance are set out on pages 18 to 21 of the Annual Report & Accounts 2018. In addition to these, we have identified a new risk relating to restructuring following the Group's decision to reorganise Imaging Solutions' sales and marketing network and invest in e-commerce and digital marketing capabilities.

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 Group

·         Exchange rates

·         Business continuity including cyber security

·         Effectiveness and impact of restructuring projects

Board changes

As previously announced, Ian McHoul was appointed as a Non-Executive Director and Chairman Designate on 25 February 2019.  Ian succeeded John McDonough CBE as Chairman of the Company at the conclusion of the Company's Annual General Meeting on 21 May 2019.

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 2019

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 on the company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

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. The Directors have considered the potential near-term risks of Brexit and, whilst continuing to monitor developments as the Group implements contingency plans, they currently consider these risks to be minimal. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

 

For and on behalf of the Board

Stephen Bird

Kath Kearney-Croft

Group Chief Executive

Group Finance Director

 

 

Condensed Consolidated Income Statement

For the half year ended 30 June 2019






Notes

Half year to

30 June

2019

Unaudited

£m

Half year to

30 June

2018

Unaudited

£m

Year to

31 December

2018

Audited

£m

Revenue

2

184.2

183.3

385.4

Cost of sales


(103.0)

(104.3)

(219.4)

Other income

3

5.8

4.7

7.8

Gross profit


87.0

83.7

173.8

Operating expenses

4

(68.1)

(63.0)

(133.6)

Operating profit


18.9

20.7

40.2

Comprising 





-   Adjusted operating profit


25.8

25.5

53.5

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

5

(6.9)

(4.8)

(13.3)



18.9

20.7

40.2

Net finance expense

6

(2.3)

(1.0)

(2.3)

Profit before tax


16.6

19.7

37.9

Comprising 





-   Adjusted profit before tax


23.5

24.5

51.2

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

5

(6.9)

(4.8)

(13.3)



16.6

19.7

37.9

Taxation


(4.4)

(2.5)

(3.6)

Comprising taxation on





-   Adjusted profit

7

(5.5)

(6.7)

(9.2)

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

7

1.1

4.2

5.6



(4.4)

(2.5)

(3.6)

Profit for the period attributable to owners of the parent

12.2

17.2

34.3

Earnings per share

Basic earnings per share

Diluted earnings per share

 

8

8

 

27.0p

26.5p

 

38.2p

37.8p

 

76.1p

75.6p

Average exchange rates   

  Euro

  US$


 

1.15

1.29

 

1.14

1.38

 

1.13

1.33

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income

For the half year ended 30 June 2019



 


Half year to

30 June

2019

Unaudited

£m

Half year to

30 June

2018

Unaudited

£m

Year to

31 December

2018

Audited

£m

Profit for the period

12.2

17.2

34.3

Other comprehensive income:




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



Remeasurements of defined benefit obligation

0.4

6.0

4.0

Related tax

(0.1)

(1.0)

(0.7)

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



Currency translation differences on foreign currency subsidiaries

0.2

2.4

7.6

Net investment hedges - net loss

(0.2)

(1.6)

(3.7)

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

0.5

(0.6)

(0.2)

Cash flow hedges - effective portion of changes in fair value, net of tax

(0.9)

(0.5)

(1.8)

Other comprehensive (expense)/income, net of tax

(0.1)

4.7

5.2

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

12.1

21.9

39.5

 

Condensed Consolidated Balance Sheet

As at 30 June 2019







30 June

2019

Unaudited

£m

30 June

2018

Unaudited

£m

31 December

2018

Audited

£m

Assets

Non-current assets

Intangible assets


 

 

131.9

 

 

88.3

 

 

132.1

Property, plant and equipment


52.8

32.0

33.7

Trade and other receivables


2.0

1.1

2.0

Deferred tax assets


27.6

18.0

28.4



214.3

139.4

196.2

Current assets

Inventories


 

85.7

 

80.2

 

80.1

Trade and other receivables


67.3

64.8

68.7

Derivative financial instruments


0.2

0.7

0.1

Current tax assets


4.5

2.5

1.6


23.9

27.0

17.5



181.6

175.2

168.0

Total assets


395.9

314.6

364.2

Liabilities

Current liabilities

Bank overdrafts


 

 

-

 

 

-

 

 

2.4

Interest-bearing loans and borrowings


0.6

0.5

0.5

Lease Liabilities


6.1

-

-

Trade and other payables


65.1

70.4

70.3

Derivative financial instruments


1.4

0.5

1.1

Current tax liabilities


10.9

7.8

5.2

Provisions


4.8

8.8

3.2



88.9

88.0

82.7

Non-current liabilities

Interest-bearing loans and borrowings


 

110.1

 

69.5

 

95.6

Lease Liabilities


15.5

-

-

Derivative financial instruments


0.3

0.1

-

Other payables


0.6

1.1

0.8

Post-employment obligations 


8.8

6.5

9.4

Provisions


1.3

1.0

1.7

Deferred tax liabilities


11.2

2.3

11.7



147.8

80.5

119.2

Total liabilities


236.7

168.5

201.9

Net assets


159.2

146.1

162.3

Equity

Share capital


 

9.1

 

9.0

 

9.1

Share premium


18.8

16.8

18.6

Translation reserve


(4.7)

(7.8)

(4.7)

Capital redemption reserve


1.6

1.6

1.6

Cash flow hedging reserve


(1.1)

0.2

(0.7)

Retained earnings


135.5

126.3

138.4

Total equity


159.2

146.1

162.3





      Euro


1.12

1.13

1.11

      US$


1.27

1.32

1.27

 

 

 

 

 

Condensed Consolidated Statement of Changes in Equity

For the half year ended 30 June 2019 (Unaudited)

Notes

 

 

Share

capital

£m

 

 

 Share

premium

£m

 

 

Translation

reserve

£m

 

Capital

redemption

reserve

£m

Cash

flow

hedging

reserve

£m

 

 

Retained

earnings

£m

 

 

Total

equity

£m

Balance at 1 January 2019

9.1

18.6

(4.7)

1.6

(0.7)

138.4

162.3

Adoption of IFRS 16

1

-

-

-

-

-

(1.2)

(1.2)

Balance at 1 January 2019 (adjusted)

9.1

18.6

(4.7)

1.6

(0.7)

137.2

161.1

Total comprehensive income for the period






Profit for the period

-

-

-

-

-      

12.2

12.2

Other comprehensive (expense)/income for the period

-

-

-

-

(0.4)

0.3

(0.1)

Contributions by and distributions to owners






Dividends paid   

-

-

-

-

-

(11.5)

(11.5)

Own shares purchased

-

-

-

-

-

(4.7)

(4.7)

New shares issued

-

0.2

-

-

-

-

0.2

Share-based payment charge, net of tax

-

-

-

-

-

2.0

2.0

Balance at 30 June 2019

9.1

18.8

(4.7)

1.6

(1.1)

135.5

159.2



Share

capital

£m

 Share

premium

£m

Translation

reserve

£m

 Capital

redemption

reserve

£m

 

Cash

flow

hedging

reserve

£m

Retained

earnings

£m

Total

equity

£m

Balance at 1 January 2018

9.0

16.8

(8.6)

1.6

1.3

115.5

135.6

Adoption of IFRS 9


-

-

-

-

-

(0.1)

(0.1)

Balance at 1 January 2018 (adjusted)

9.0

16.8

(8.6)

1.6

1.3

115.4

135.5

Total comprehensive income for the period






Profit for the period


-

-

-

-

-

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, net of tax

-

-

-

-

-

1.4

1.4

Balance at 30 June 2018

9.0

16.8

(7.8)

1.6

0.2

126.3

146.1

 

Condensed Consolidated Statement of Cash Flows

For the half year ended 30 June 2019





Notes

Half year to

30 June

2019

Unaudited

£m

Half year to

30 June

2018

Unaudited

£m

Year to

31 December

2018

Audited

£m

Cash flows from operating activities 





Profit for the period


12.2

17.2

34.3

Adjustments for:





        Taxation


4.4

2.5

3.6

        Depreciation


6.9

3.4

7.2

        Amortisation of intangible assets


7.0

5.2

10.6

        Write-off intangible assets


-

-

0.6

        Net gain on disposal of property, plant and equipment and software

-

-

(0.2)

        Fair value losses on derivative financial instruments

0.1

0.1

0.2

Foreign exchange (gains)/losses


(0.1)

-

0.3

        Share-based payment charge


2.0

1.4

3.1

        Earn-out charges and retention bonuses 


1.0

0.5

1.4

        Net finance expense


2.3

1.0

2.3

Operating profit before changes in working capital and provisions 

35.8

31.3

63.4

Increase in inventories


(4.6)

(6.9)

(0.8)

Decrease/(increase) in receivables


1.1

2.3

(0.5)

(Decrease)/increase in payables


(4.5)

2.5

(4.3)

Decrease in provisions


(0.7)

(3.8)

(3.8)

Cash generated from operating activities


27.1

25.4

54.0

Interest paid


(2.2)

(0.9)

(2.5)

Tax paid


(1.1)

(1.5)

(4.1)

Net cash from operating activities


23.8

23.0

47.4






Cash flows from investing activities





Proceeds from sale of property, plant and equipment

0.1

0.1

0.5

Purchase of property, plant and equipment


(2.6)

(4.3)

(8.4)

Capitalisation of software and development costs


(5.3)

(2.4)

(6.0)

Acquisition of businesses, net of cash acquired

9

(2.7)

(2.5)

(51.8)

Disposal of businesses


-

-

0.5

Net cash used in investing activities


(10.5)

(9.1)

(65.2)






Cash flows from financing activities 





Proceeds from the issue of shares


0.2

-

1.9

Own shares purchased


(4.7)

(3.7)

(3.7)

Principal lease repayments


(3.2)

-

-

Repayment of interest-bearing loans and borrowings


(18.6)

(44.0)

(101.7)

Borrowings from interest-bearing loans and borrowings

33.0

56.9

138.1

Dividends paid


(11.5)

(9.0)

(14.1)

Net cash from financing activities


(4.8)

0.2

20.5






Increase in cash and cash equivalents

10

8.5

14.1

2.7

Cash and cash equivalents at 1 January


15.1

12.6

12.6

Effect of exchange rate fluctuations on cash held 


0.3

0.3

(0.2)

Cash and cash equivalents at the end of the period

10

23.9

27.0

15.1

 

1 Accounting policies

Reporting entity

The Vitec Group plc (the "Company") is a company domiciled and incorporated under the Companies Act in the United Kingdom and registered in England and Wales. These condensed consolidated interim financial statements as at and for the half year ended 30 June 2019 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 2018, 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 2018 do not constitute statutory accounts for the purpose of section 434 of the Companies Act 2006. The auditors have reported on the 2018 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 2018.

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 a 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 7 August 2019.

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 16 "Leases" from 1 January 2019, which has resulted in new accounting policies as set out below.

IFRS 16 "Leases"

Initial application

The cumulative impact of adopting the standard has been recognised as an adjustment to opening equity, and the comparative amounts presented in the Consolidated Income Statement and Consolidated Balance Sheet have not been restated.

On adoption, the Group recognised lease liabilities of £22.3 million for leases previously classified as operating leases, measured at the present value of the remaining lease payments. In accordance with the transition provisions of IFRS 16, the Group discounted the future lease payments at the incremental borrowing rate of the lessee at the date of adoption. The weighted average lessee's incremental borrowing rate applied to lease liabilities at 1 January 2019 was 4.6%. At the same time, the Group recognised right-of-use assets of £20.7 million, measured as if the standard had been applied since commencement date of the lease, and discounted using the lessee's incremental borrowing rate at the date of adoption. As a result of the adoption of IFRS 16 the Group also recognised deferred tax assets of £0.3 million at 1 January 2019 and made adjustments for prepayments and accruals of £0.1 million.

Right-of-use asset by category

1 January

2019

£m

30 June

2019

£m

Land and buildings

19.2

18.3

Plant, machinery and vehicles

1.1

1.1

Equipment, fixtures and fittings

0.4

0.5

Total right-of-use assets

20.7

19.9

 

A difference arises between the present value of operating lease commitments disclosed at 31 December 2018 and the lease liabilities recognised by the Group at 1 January 2019. This is due to the Group taking advantage of the exemptions in IFRS 16 that permit lease payments for short term leases and leases of low value assets to continue to be accounted for as an expense on a straight line basis over the lease term.

Practical expedients taken

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

-       The use of a single discount rate applied to a portfolio of leases with reasonably similar characteristics;

-       Reliance on previous assessments of whether leases are onerous;

-       The exclusion of initial direct costs in the measurement of the right-of-use asset at the date of initial application; and

-       The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Group relied on its assessment made applying IAS 17 and IFRIC 4 "Determining whether an Arrangement contains a Lease".

New accounting policy

From 1 January 2019, each lease is recognised as a right-of-use asset with a corresponding liability at the date at which the leased asset is available for use by the Group. Interest expense is charged to the Consolidated Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Right-of-use assets are measured at cost comprising the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date less any lease incentives received, any initial direct costs, and restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the Consolidated Income Statement.

Other standards

Interpretation 23 "Uncertainty over Income Tax Treatments"- The interpretation explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. The interpretation was adopted on 1 January 2019. There has been no material impact on the Financial Statements of the Interpretation.

Amendments to IAS 19 "Plan Amendment, Curtailment or Settlement" - The amendments to IAS 19 clarify the accounting for defined benefit plan amendments, curtailments and settlements. The amendment was adopted on 1 January 2019. There has been no material impact on the Financial Statements of adopting the amendment to IAS 19.

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 condensed financial statements.

New standards and interpretations not yet adopted

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

 

2 Segment reporting

The Group has three reportable segments which are reported in a manner that is consistent with 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


2019

2018

2019

2018

2019

2018

2019

2018

2019

2018


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Total revenue from external customers

95.5

98.5

54.8

57.1

33.9

27.7

-

-

184.2

183.3

Inter-segment revenue (1)

0.2

0.2

0.2

0.2

-

0.1

(0.4)

(0.5)

-

-

Total revenue

95.7

98.7

55.0

57.3

33.9

27.8

(0.4)

(0.5)

184.2

183.3

Adjusted operating profit

13.4

14.9

8.4

9.9

10.2

7.0

(6.2)

(6.3)

25.8

25.5

Amortisation of acquired intangible assets

(1.1)

(0.6)

-

(0.5)

(3.7)

(2.0)

-

-

(4.8)

(3.1)

Effect of fair valuation of acquired inventory

-

-

-

-

(0.7)

-

-

-

(0.7)

-

Transaction costs relating to acquisition of businesses

(0.1)

(0.1)

-

-

-

-

-

-

(0.1)

(0.1)

Earn-out charges and retention bonuses

(0.5)

-

-

-

(0.5)

(0.5)

-

-

(1.0)

(0.5)

Integration costs

-

(1.1)

-

-

-

-

-

-

-

(1.1)

Restructuring costs

(0.3)

-

-

-

-

-

-

-

(0.3)

-

Operating profit

11.4

13.1

8.4

9.4

5.3

4.5

(6.2)

(6.3)

18.9

20.7

Net finance expense









(2.3)

(1.0)

Taxation









(4.4)

(2.5)

Profit for the period









12.2

17.2

Segment assets

148.3

128.9

100.0

90.0

90.3

45.3

1.3

2.9

339.9

267.1

Unallocated assets











Cash and cash          equivalents







23.9

27.0

23.9

27.0

   Current tax assets







4.5

2.5

4.5

2.5

   Deferred tax assets







27.6

18.0

27.6

18.0

Total assets









395.9

314.6












Segment liabilities

47.7

44.3

34.6

25.2

15.9

14.1

5.7

4.8

103.9

88.4

Unallocated liabilities











Interest-bearing loans and borrowings







110.7

70.0

110.7

70.0

Current tax liabilities







10.9

7.8

10.9

7.8

    Deferred tax liabilities







11.2

2.3

11.2

2.3

Total liabilities









236.7

168.5

(1) Inter-segment pricing is determined on an arm's length basis. These are eliminated in the corporate and unallocated column.

 

 

 

Geographical information

For the half year ended 30 June 2019


Half year to 30 June 2019

£m

Half year to 30 June 2018

£m

Year to

31 December 2018

£m

Analysis of revenue from external customers, by location of customer




United Kingdom

22.8

21.0

42.5

The rest of Europe

43.7

47.6

94.3

North America

75.6

72.7

158.9

Asia Pacific

36.9

36.9

78.6

The rest of the World

5.2

5.1

11.1

Total revenue from external customers

184.2

183.3

385.4

The Group's operations are located in several geographic locations, and sell products and services 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 were damaged as a result of a fire which started in an adjacent office. SmallHD operates within the Creative Solutions Division. The insurance policy held by the Group covers both damage to assets and business interruption.

As at the date of the financial statements, the outcome of the insurance claim has not been finalised. At the balance sheet date, £5.8 million (June 2018: £4.7 million) has been recognised in other income of which £4.2 million (June 2018: £3.2 million) of staged cash payments have been received from the insurer.

4 Operating expenses


Half year to 30 June 2019

£m

Half year to 30 June 2018

£m

Year to

31 December 2018

£m

Analysis of operating expenses




Charges associated with acquisition of businesses and non-operating events(1)

(6.2)

(4.8)

(13.0)

Other administrative expenses

(26.1)

(24.2)

(51.6)

Administrative expenses

(32.3)

(29.0)

(64.6)

Marketing, selling and distribution costs

(27.4)

(26.6)

(53.3)

Research, development and engineering costs

(8.4)

(7.4)

(15.7)

Total operating expenses

(68.1)

(63.0)

(133.6)

(1) Total charges associated with acquisition of businesses and material non-operating events are £6.9 million (December 2018: 13.3 million) of which £6.2 million (December 2018: 13.0 million) are recognised in operating expenses and £0.7 million (December 2018: £0.3 million) in cost of sales.

 

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

Charges associated with acquisition of businesses and material non-operating events are excluded from key performance measures 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 also reflects how the business is managed and measured on a day-to-day basis. Non-cash charges associated with acquisition of businesses include amortisation of acquired intangible assets and the effect of fair valuation of acquired inventory. Cash charges include transaction costs, earn-out and significant costs relating to the integration of acquired businesses.


Half year to 30 June 2019

£m

Half year to 30 June 2018

£m

Year to

31 December 2018

£m

Amortisation of acquired intangible assets

(4.8)

(3.1)

(6.4)

Effect of fair valuation of acquired inventory

(0.7)

-

(0.3)

Transaction costs relating to acquisition of businesses

(0.1)

(0.1)

(2.0)

Earn-out charges and retention bonuses

(1.0)

(0.5)

(1.4)

Integration costs

-

(1.1)

(1.9)

Restructuring costs

(0.3)

-

-

Development costs written off

-

-

(0.6)

Guaranteed minimum pension charge

-

(0.7)

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

(4.8)

(13.3)

6 Net finance expense


Half year to 30 June 2019

£m

Half year to 30 June 2018

£m

Year to

31 December 2018

£m

Finance income




Net currency translation gains

0.4

0.8

Finance expense




Unwind of discount on liabilities

-

(0.1)

(0.2)

Interest payable on interest-bearing loans and borrowings

(1.9)

(1.2)

(2.7)

Interest expense on lease liabilities

(0.5)

-

-

Interest expense on net defined benefit pension scheme

(0.1)

(0.2)


(1.4)

(3.1)

Net finance expense

(2.3)

(1.0)

(2.3)

 

7 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

2019

£m

Half year to

30 June

2018

£m

Year to

31 December

2018

£m

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

Current tax

(3.9)

(3.5)

(4.3)

Deferred tax

(0.5)

1.0

0.7


(4.4)

(2.5)

(3.6)





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




Current tax

0.1

3.2

3.2

Deferred tax

1.0

1.0

2.4


1.1

4.2

5.6





Before charges associated with acquisition of businesses and material non-operating events




Current tax

(4.0)

(6.7)

(7.5)

Deferred tax

(1.5)

-

(1.7)


(5.5)

(6.7)

(9.2)

 

In October 2017, the European Commission ("EC") opened a state aid investigation into the Group Financing Exemption in the UK controlled foreign company ("CFC") rules (an exemption introduced into the UK tax legislation in 2013). While the Group has complied with all the requirements of UK tax law, in April 2019 the EC confirmed its view that some (but not all) of the UK exemptions constituted State Aid and that they would therefore require the UK to assess and recover the amount of state aid that each affected taxpayer had received. In June 2019, the UK government submitted an appeal to the EU Commission against their decision. Vitec calculates its maximum potential liability to be £8.3 million (including interest).  No provision has been made in respect of this investigation since we do not consider it possible at this stage to determine the realistic probable outcomes for the Group as there remains significant uncertainty regarding how matters will progress over the coming months.

 

8 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 2019

£m

Half year to 30 June 2018

£m

Profit for the financial period

12.2

17.2

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

5.8

0.6

Adjusted profit after tax

18.0

17.8

 


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


2019

2018

2019

2018

2019

2018


Number

Number

pence

pence

pence

pence

Basic

45,104

45,011

39.9

39.5

27.0

38.2

Dilutive potential ordinary shares

895

511

(0.8)

(0.4)

(0.5)

(0.4)

Diluted

45,999

45,522

39.1

39.1

26.5

37.8

 

9 Acquisitions

Acquisition of Syrp

On 23 January 2019 the Group acquired 100% of the issued share capital of Syrp Ltd ("Syrp"), a New Zealand incorporated company, for net cash consideration of NZ$4.5 million (£2.4 million). As at the date of this report the fair values of the assets and liabilities acquired have not yet been finalised. Based on the provisional view, the fair value of the net assets acquired in the business at acquisition date was £1.8 million made up of property, plant and equipment £1.3 million, acquired intangible assets £0.8 million, inventory £0.9 million, trade receivables £0.2 million, trade payables and other liabilities £1.2 million, and deferred tax liability £0.2 million, resulting in goodwill of £0.6 million. The trade receivables acquired had a fair value and a gross contractual value of £0.2 million. Syrp operates within the Imaging Solutions Division.

Had the acquisition been made at the beginning of the year (i.e. 1 January 2019), it would have contributed £1.0 million to revenue and a £0.3 million loss to the operating profit of the Group. The results of the acquisition included in the Group's consolidated results comprise £0.9 million of revenue and a £0.3 million operating loss. The level of profitability is stated after charges associated with acquisition of businesses.

Acquisition of Amimon

During the period, the process to measure the fair value of assets and liabilities acquired was completed in respect of the acquisition of Amimon. The December 2018 amounts have been restated to reflect an increase in goodwill of £1.3 million arising from adjustments to deferred tax.

An amount of £0.3 million was paid in the period in relation to the final working capital adjustment for Amimon (acquired in 2018).

 

10 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 2019

£m

Half year to 30 June 2018

£m

Year to

31 December 2018

£m

Increase in cash and cash equivalents

8.5

14.1

2.7

Government grant taken over on acquisition

-

-

(0.5)

Principal lease repayments

3.2

-

-

Increase in lease liabilities

(2.5)

-

-

Repayment of interest-bearing loans and borrowings

18.6

44.0

101.7

Borrowings from interest-bearing loans and borrowings

(33.0)

(56.9)

(138.1)

(Increase)/decrease in net debt

(5.2)

1.2

(34.2)

 

Effect of exchange rate fluctuations on cash held

0.3

0.3

(0.2)

Effect of exchange rate fluctuations on debt held

(0.2)

(1.6)

(3.7)

Effect of exchange rate fluctuations on net debt

0.1

(1.3)

(3.9)





Movements in net debt in the period

(5.1)

(0.1)

(38.1)

Net debt at 1 January

(81.0)

(42.9)

(42.9)

Lease liabilities at 1 January

(22.3)

-

-

Net debt at the end of the period

(108.4)

(43.0)

(81.0)





Cash and cash equivalents in the Balance Sheet

23.9

27.0

17.5

Bank overdraft

-

-

(2.4)

Cash and cash equivalents in the Statement of Cash Flows

23.9

27.0

15.1

  Interest-bearing loans and borrowings

(110.7)

(70.0)

(96.1)

  Lease liabilities

(21.6)

-

-

Net debt at the end of the period

(108.4)

(43.0)

(81.0)

 

11 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.

Currency

As at

30 June 2019

millions

Average exchange rate of contracts

As at

30 June 2018

millions

Average exchange rate of contracts

Cash flow hedging contracts






USD/GBP forward exchange contracts

USD

10.3

1.32

7.3

1.32

USD/EUR forward exchange contracts

USD

25.8

1.18

20.6

1.19

EUR/GBP forward exchange contracts

EUR

17.4

1.12

12.8

1.13

JPY/GBP forward exchange contracts

JPY

674.8

143.0

487.8

143.0

JPY/EUR forward exchange contracts

JPY

840.0

127.2

968.8

127.1

 

During the period to 30 June 2019 a net loss of £0.6 million (2018: profit of £0.7 million) 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 the Group's financial instruments approximate their fair values.

The Group's financial instruments measured at fair value are Level 2.

 

12 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 12.3 pence per share has been declared by the Directors, totalling £5.6 million (2018: 11.5 pence per share totalling £5.2 million). The dividend has not been included as a liability in these financial statements.

The dividend will be paid on Friday 18 October 2019 to shareholders on the register at the close of business on Friday 20 September 2019. The Company has a Dividend Reinvestment Plan ("the 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 27 September 2019. 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 0300. 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).

 

13 Glossary - Alternative Performance Measures ("APMs")

In reporting financial information, the Group presents alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("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. This note 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.

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 effect of fair valuation of acquired inventory. Cash charges include items such as transaction costs, earn-out 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:




Half year to

30 June

2019

£m

Half year to

30 June

2018

£m

Year to

31 December

2018

£m



Operating expenses

68.1

63.0

133.6



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

(6.2)

    (4.8)

(13.0)



Adjusted operating expenses

61.9

58.2

120.6

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 a reconciliation.

Adjusted profit after tax

Profit after tax

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

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 8 "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

2019

£m

Half year to

30 June

2018

£m

Year to

31 December

2018

£m



Net cash from operating activities

23.8

23.0

47.4



Proceeds from sale of property, plant and equipment

0.1

0.1

0.5



Purchase of property, plant and equipment

(2.6)

(4.3)

(8.4)



Capitalisation of software and development costs

(5.3)

(2.4)

(6.0)



Free cash flow

16.0

16.4

33.5



Add back:






Interest paid

2.2

0.9

2.5



Tax paid

1.1

1.5

4.1



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

0.4

1.6

4.6



Operating cash flow

19.7

20.4

44.7

 

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).

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
IR ZMGGRMNZGLZZ
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Half Year Results - RNS