Group Finance Director
Paul Hayes reviews performance
2015 Performance Overview
Reported revenue increased by 2.6% to £317.8 million (2014: £309.6 million) and operating profit* decreased to £35.4 million (2014: £38.8 million). These results reflect the benefit from acquisitions, new product launches and the disposal of the IMT business in 2014, offset by an anticipated foreign exchange headwind, and the non-repeat of the 2014 Sochi Winter Olympics and FIFA World Cup.
The Broadcast Division performed satisfactorily in variable market conditions. The Division’s results included strong sales of higher technology products including wireless transmitters and receivers, camera monitors, mobile power and LED lighting products. We have continued to invest in higher growth segments of the market resulting in higher revenue that has been partly offset by lower broadcast service revenue due to the non-repeat of major sporting events, and lower sales of large camera supports.
The Photographic Division delivered sales at a broadly similar level to the prior year at constant exchange rates in a challenging market. Sales benefitted from the launch of a number of new product ranges. Profit* was lower than the prior year reflecting investments to launch new products and to upgrade our online offering and in-store presence.
The Group gross margin* % was 80 bps lower than the prior period at 40.8% (2014: 41.6%). This reflects a 150 bps adverse impact from foreign exchange partly offset by the beneficial impact of acquisitions, a disposal, and increased sales of higher technology products.
Operating expenses* were £4.4 million higher than in 2014 at £94.4 million. This reflects a full year effect of acquisitions net of the IMT disposal, investments in new and higher technology products in the Broadcast Division, and investments to drive sales in the Photographic Division.
The reported results reflect a significant
impact from foreign exchange. Revenue
increased by £4.2 million year-on-year due
to the benefit of translational exchange
gains and therefore revenue at constant
currency was 1.3% higher. There was a
£2.7 million adverse year-on-year impact
on operating profit* from foreign exchange,
principally reflecting the unwinding of
previous cash-flow hedges that are part of
the Group’s well-established hedging
policy. Operating profit* was 1.8% lower
on a constant currency basis.
The operating profit* margin % at 11.1%
was 140 bps lower than prior year (2014:
12.5%). This mainly reflects the negative
effect of foreign exchange of 100 bps, the
impact of acquisitions and a disposal, and
targeted investments in research and
development and sales and marketing
initiatives. There was also a £0.5 million initial
benefit from the 2015 restructuring actions
that will further benefit the business in 2016.
The investment in new product development and innovation
was higher than the prior year at 4.5% of Group product sales
(2014: 4.1%). Research, development and engineering
expenditure on a like-for-like basis was £12.9 million (2014:
£11.3 million) after adjusting for capitalised development
expenditure of £2.9 million (2014: £3.4 million) and £1.4
million of amortisation (2014: £0.8 million).
Profit before tax* of £31.5 million was £3.8 million lower than the
prior year (2014: £35.3 million). Adjusted earnings per share*
decreased by 11.6% to 49.4 pence per share (2014: 55.9
pence per share). Group profit before tax of £18.5 million (2014:
£20.1 million) was after £4.9 million of restructuring costs (2014:
£2.7 million) and £8.1 million charges associated with acquired
businesses (2014: £8.5 million). 2014 also included a £4.0
million loss arising from the disposal of the IMT business.
Free cash flow+ of £16.2 million (2014: £18.2 million) is reported
after £3.5 million of cash outflows on restructuring actions
(2014: £3.2 million). The year-on-year decrease mainly reflects
lower operating profit*, and higher net interest and tax payments
partly offset by a lower net investment in working capital. There
was a total cash outflow of £3.3 million (2014: £7.3 million
outflow) after investing £9.0 million in acquisitions (2014: £13.3
million), including £5.2 million of deferred consideration due to
Teradek’s performance in 2014, and £10.7 million of dividend
payments (2014: £10.3 million).
Net debt at 31 December 2015 was £76.3 million (31 December
2014: £70.9 million) including a net adverse foreign exchange
impact of £2.1 million. The Group’s balance sheet remains strong
with a year end net debt to EBITDA ratio (covenant definition) of
1.5 times (31 December 2014: 1.2 times).
Management’s estimate of the main drivers that reconcile the 2015
to the 2014 operating profit* are summarised in the following table:
|2014 Operating profit*
|Underlying gross profit*
|Underlying operating expenses*
|Foreign exchange effects:
|- Transaction after hedging
Net financial expense
Net financial expense totalled £3.9 million (2014: £3.5 million)
mainly reflecting the benefit from a one-off receipt of £0.3
million interest on a repayment from the Costa Rica tax
authorities in 2014. Interest payable was £4.0 million (2014:
£3.6 million) and was covered 13 times (2014: 15 times) by
earnings before interest, tax, depreciation and amortisation.
Profit before tax
Profit before tax* decreased by £3.8 million to £31.5 million
(2014: £35.3 million). The reported profit before tax after
restructuring costs, charges associated with acquired
businesses and disposal of business decreased by 8.0%
to £18.5 million (2014: £20.1 million).
The effective taxation rate on profit before tax* was 30% in
2015 (2014: 30%). We anticipate that the tax rate will remain
at 30% in 2016. The Group’s tax charge is higher than the
UK statutory rate because the majority of our profits arise in
overseas jurisdictions with higher tax rates.
Earnings per share
Earnings per share before restructuring costs, charges
associated with acquired businesses and disposal of a
business was 49.4 pence per share (2014: 55.9 pence per
share). The basic reported earnings per share was 29.3 pence
per share (2014: 29.4 pence per share).
Acquisitions and disposals
In February 2015, the Group acquired the assets of Paralinx
LLC, based in the US, for a net cash consideration of $6.2
million (£4.0 million). Paralinx is a leading provider of high
quality wireless video transmission systems and has been
fully integrated into the Teradek business.
In November 2015, the Group acquired the whole of the
issued share capital of Panlight Limited, a private company
based in the UK, for a consideration of £0.1 million. Panlight
has developed a remote controlled lightweight pan and tilt
device which gives directional control of speedlight flashes,
LED lighting and Wi-Fi controlled mirrorless cameras. Panlight
operates within the Photographic Division.
In January 2016, the Group acquired the whole of the issued
share capital of Provak, incorporated as Provak Foto Film B.V.,
our former distribution partner in the Netherlands for a net
consideration of £0.9 million.
We continue to review various acquisition opportunities.
These will be assessed as to the strategic, commercial and
financial benefits that they could provide against acceptable
In 2015 there was a total restructuring charge of £4.9 million
(2014: £2.7 million) relating to actions to streamline operations
with lower growth prospects, which we commenced in the
second half of 2015. These actions relate predominantly to
redundancy costs and are progressing in line with our plans.
The total year-on-year benefit from these restructuring actions to our profitability was £0.5 million (2014: £4.0 million). Cash outflows relating to restructuring were £3.5 million in the year (2014: £3.2 million) and we estimate a further £8 million outflow during 2016.
Charges associated with acquired businesses
The 2015 charges relate to the Group’s acquisition activities and amortisation of previously acquired intangibles.
The amortisation of acquired intangibles of £5.4 million (2014: £3.4 million) related to: Manfrotto Lighting (formerly Lastolite) acquired in March 2011; Haigh-Farr acquired in December 2011; Camera Corps acquired in April 2012; Teradek acquired in August 2013; SIS acquired in March 2014; Autocue acquired in October 2014; SmallHD acquired in December 2014; and Paralinx acquired in February 2015.
Transaction costs of £0.1 million were incurred in relation to the acquisitions of Paralinx and Panlight. (2014: £0.9 million in relation to the acquisitions of SIS, Autocue and SmallHD).
Contingent consideration of £2.6 million ($4.0 million) was accrued during the year to be paid to the previous owners of Teradek in 2016 in relation to the business’s performance in 2015 and is subject to final agreement. The business has delivered strong growth in the year and has performed ahead of our pre-acquisition expectations.
Cash flow and net debt
Cash generated from operating activities was £41.7 million (2014: £42.0 million).
The Group uses a number of key performance indicators to manage cash including the percentage of operating cash flow‡ generated from operating profit*, the percentage of working capital to sales, inventory days, trade receivable days and trade payable days. Inventory, trade receivable and trade payable days are stated at year end balances; inventory and trade payable days are based on Q4 cost of sales (excluding exchange gains/losses) while trade receivable days are based on Q4 revenue.
The operating profit* into operating cash flow‡ conversion at 83% is higher than 73% conversion achieved in 2014. This mainly reflects the timing of cash flows and changes in working capital levels in response to changing markets. 78% cash conversion over the last two years is consistent with our established track record for strong cash generation.
The working capital to sales metric has increased to 18.9% (31 December 2014: 17.9%) and overall working capital increased by £5.2 million (2014: £6.9 million increase).
Trade receivable days decreased to 40 days (2014: 41 days) and remain well controlled with a good ageing profile. Trade and other receivables decreased by £0.8 million (2014: £2.7 million increase) on positive collection efforts across the Group.
Inventory increased by £3.0 million (2014: £2.1 million increase) to £58.9 million at the year end, reflecting acquisitions, new products and geographical sales initiatives. Inventory days increased to 105 days (2014: 100 days).
Trade payable days decreased to 44 days (2014: 49 days). There was a £3.0 million overall decrease in trade and other payables (2014: £2.1 million decrease) including lower commission accruals.
Capital expenditure, including £4.2 million of software and capitalised development costs (2014: £4.7 million), totalled £20.6 million (2014: £22.2 million), of which £10.9 million (2014: £12.7 million) related to rental assets. This was partly financed by the proceeds from rental asset disposals of £4.4 million (2014: £5.0 million). Overall capital expenditure was equivalent to 1.3 times depreciation (2014: 1.4 times) and included investments in manufacturing processes and production tooling.
The net tax paid in 2015 of £5.6 million was higher than the £3.5 million paid in 2014 due to the timing of tax payments.
As a result, free cash inflow+ decreased by £2.0 million to £16.2 million (2014: £18.2 million).
Free cash flow+
|Changes in working capital
|Restructuring Costs (2013 plans)
|Cash generated from operating activities
|Purchase of property, plant and equipment
|Capitalisation of software and development costs
|Proceeds from sale of property, plant and equipment, and software
* Before restructuring costs and charges associated with acquired businesses.
+ Cash generated from operating activities after net capital expenditure, net interest and tax paid.
# Cash generated from operating activities after net capital expenditure, before restructuring costs paid.
(1) Includes depreciation and amortisation of capitalised development costs.
(2) Includes change in provisions, share-based payments charge, gain on disposal of property, plant and equipment, fair value derivatives and transaction costs relating to acquisitions.
There was a £9.0 million net cash outflow relating to acquisitions
during the year (2014: £13.3 million). There was a net cash outflow in the period of £0.7 million relating to costs provided for on the disposal of IMT in 2014 (2014: £1.3 million).
Dividends paid to shareholders totalled £10.7 million (2014:
£10.3 million) and there was a net cash inflow in respect of
shares purchased and issued of £0.9 million (2014: £0.6 million net
outflow). The net cash outflow for the Group was £3.3
million (2014: £7.3 million outflow) which, after £2.1 million
adverse exchange (2014: £2.1 million adverse), increased
the net debt to £76.3 million (2014: £1.3 million).
Vitec manages its financing, hedging and tax planning activities
centrally to ensure that the Group has an appropriate structure
to support its geographically diverse business. It has clearly
defined policies and procedures with any substantial changes
to the financial structure of the Group, or to its treasury practice,
referred to the Board for approval. The Group operates strict
controls over all treasury transactions including clearly defined
currency hedging processes to reduce risks from volatility in
The Group is hedging a portion of its forecast future foreign
currency transactions to reduce the volatility from changes in
exchange rates. Our main exposure relates to the US Dollar
and the table below summarises the contracts held as at 31
The Group does not hedge the translation of its foreign currency
profits. A portion of the Group’s foreign currency net assets are
hedged using the Group’s borrowing facilities.
|US Dollars sold for Euros
|US Dollars sold for Sterling
The Group’s principal financing facility is a £100 million five year
multi-currency revolving credit facility involving five relationship
banks, expiring on 19 July 2017. At the end of December
2015, £53.9 million (2014: £45.8 million) of the facility
The Group has a $50 million (£33.7 million) private placement
facility which has been drawn down in two tranches of $25
million each. This financing has a combined fixed interest rate
of 4.77% and is due for repayment on 11 May 2017.
The Group therefore has a total of £133.7 million of committed
facilities at the year end with drawings of £87.6 million
(31 December 2014: £77.9 million).
The average cost of borrowing for the year which includes
interest payable, commitment fees and amortisation of set-up
charges was 4.1% (2014: 4.3%) reflecting an interest cost of
£4.0 million (2014: £3.6 million).
The Board has maintained an appropriate capital structure without
exposing the Group to unnecessary levels of risk and Vitec has
operated comfortably within its loan covenants during 2015.
2015 operating profit* included a £2.7 million net adverse
foreign exchange effect after hedging, mainly due to less
favourable £/$ and £/e rates when compared to 2014.
In accordance with provision C.2.2 of the UK Corporate
Governance Code, as published in September 2014 (“the Code”),
the Directors have assessed the 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. Further details on these items are
set out in the Strategic Report on pages 1 to 39 of the 2015 Annual Report.
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.
In making this assessment, the Directors have considered the
resilience of the Group in severe but plausible scenarios, taking
into account the principal risks facing the Group, and the effectiveness of any mitigating actions.
The Board reviews these risks in detail throughout the year, and
the Audit Committee has a structured programme for the review
of risks and mitigating actions. This is explained in more detail on
pages 52 to 55 of the 2015 Annual Report.
The Directors’ assessment considered the potential impacts of
these scenarios, both individually and in combination, on the
Group’s business model, future performance, solvency and
liquidity over the period. Sensitivity analysis was also used to
stress test the Group’s strategic plan and to confirm that
sufficient headroom would remain available under the Group’s
credit facilities. The Directors consider that under each of these
scenarios, the mitigating actions would be effective and sufficient
to ensure the continued viability of the Group.
The Directors believe that three years is an appropriate period
for this assessment, reflecting the nature of the Group’s key
markets, the nature of its businesses and products, and its
limited order visibility. This timeframe is consistent with reviews
undertaken annually by the Board during which the Group and
Divisional three year strategic plans are presented for approval.
The Directors have made an assumption that the Group’s two
main credit facilities, the £100 million Revolving Credit Facility
which expires in July 2017 and the $50 million Private Placement
Loan Notes which expire in May 2017, will be renewed during
the three year assessment period.
The Directors have recommended a final dividend of 15.1
pence per share amounting to £6.7 million (2014: 14.7 pence
per share, amounting to £6.5 million). The dividend, subject to
shareholder approval at the AGM, will be paid on Friday, 20 May
2016 to shareholders on the register at the close of business on
Friday, 22 April 2016. This will bring the total dividend for the
year to 24.6 pence per share (up 2.5%).
Group Finance Director
* Before restructuring costs and charges associated with acquired businesses; profit before tax and adjusted earnings per share are also before disposal of business.