2009 Full Year results

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.

 

2 March 2010

The Vitec Group plc

 

2009 Full Year Results

 

Challenging 2009 – well positioned for future growth

 

Vitec, the international provider of products and services for the broadcast, photographic, MAG (military, aerospace and government) and entertainment industries, announces its full year audited results for the year ended 31 December 2009.

 

Results	2009	2008	% Change	% Change
				At CER**
Revenue	£315.1m	£337.7m	-7	-19
Before significant items*
Operating profit	£24.5m	£38.4m	-36	-54
Profit before tax	£22.7m	£35.4m	-36	-55
Basic earnings per share	36.5p	55.9p	-35	-55
After significant items*
Operating profit	£2.9m	£28.2m	-90	n/m
Profit before tax	£1.8m	£25.5m	-93	n/m
Basic earnings per share	7.5p	48.0p	-84	n/m
Free cash flow	£22.7m	£19.0m
Net debt	£40.6m	£53.0m
Total dividend per share	18.3p	18.3p

 

Key points

• Resilient performance in Imaging business, helped by growth in camera bags and the premium Gitzo brand
• Videocom division severely affected by economic downturn, although Litepanels LED business continued growth trend
• £21.9 million cost reduction programme fully implemented - at a cost of £10.9 million
• Excellent cash performance from enhanced working capital management
• Strong balance sheet: net debt reduced from £53.0 million to £40.6 million
• Final dividend maintained at 10.9p; full year dividend maintained at 18.3p
• Launch of three core market strategy

 

 

*Significant items are those items of financial performance that the directors consider should be separately disclosed to assist in the understanding of the underlying trading and financial performance achieved by the Group. 2009 significant items in operating profit total a charge of £21.6 million and comprise restructuring costs (£10.9 million), amortisation of acquired intangibles (£8.5 million), impairment loss on property, plant and equipment (£1.5 million) and loss on disposal of business (£0.7 million). 2008 significant items in operating profit totalled a charge of £10.2 million. Significant items in the profit before tax total a charge of £20.9 million (2008: £9.9 million) after a gain of £0.7 million (2008: £0.3 million) relating to volatile financial instruments.

 

**CER: Constant Exchange Rates

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

 

“2009 was a challenging year.  However, we produced a very good cash performance, implemented our cost reduction programme and launched a new focused strategy which will leverage our existing strengths and capabilities into higher growth markets.

 

“The last quarter of 2009 saw our markets stabilise, following a significant decline in activity in the first half and this stabilisation has continued into the current financial year.

 

“We believe that the opportunities in our three core markets will allow us to replace the shortfall arising from the end of the BAS contract, but we expect that the trading environment will remain challenging in 2010.  However, the prompt action we took last year to manage our cost base, combined with our strong balance sheet and clear strategic direction, will ensure that the Group is well positioned to benefit from a recovery in our markets.”

 

 

Enquiries:

The Vitec Group plc                                          

Stephen Bird, Chief Executive                                                        Telephone: 020 8939 4650

Richard Cotton, Group Finance Director

           

Financial Dynamics      

Susanne Yule / Sophie Kernon                                                       Telephone: 020 7269 7121

 

 

Notes

1. This statement is based on information sourced from management estimates.

 

2. Current market exchange rates as at 26 February 2010: £1 = $1.52, £1 = €1.12, €1 = $1.37.

 

3. 2009 average market exchange rates: £1 = $1.56, £1 = €1.12, €1 = $1.40

 

4. 2008 average market exchange rates: £1 = $1.85, £1 = €1.26, €1 = $1.46

 

5. Statements made in this announcement that look forward in time or that express management’s beliefs, expectations or estimates regarding future occurrences are “forward-looking statements” within the meaning of the United States federal securities laws. These forward-looking statements reflect Vitec’s current expectations concerning future events and actual results may differ materially from current expectations or historical results.

 

6. The Company’s AGM will be held on Monday 17 May 2010. The Annual Report and Accounts and Notice of AGM will be posted to shareholders and available on the Company’s website from 12 April 2010.

 

 

 

Vitec is an international group principally serving customers in the broadcast, photographic and Military, Aerospace and Government (MAG) markets. Vitec is based on strong, well known premium brands on which its customers worldwide rely. Vitec is organised in three divisions: Videocom, Imaging & Staging and Services.

 

Videocom designs and distributes systems and products used in broadcasting and live entertainment, film and video production, and MAG.

 

Imaging & Staging designs, manufactures and distributes equipment and accessories for professionals and keen amateurs in photography, video and events.

 

Services provides equipment rental, workflow design and technical support for camera, video, audio, fibre optic and wireless, technology used by TV production teams and film crews.

 

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

 

 

2009 Overview

 

In 2009 the Group delivered solid results despite some end markets being significantly depressed. Highlights of the year included:

 

• Very strong cash performance - net debt reduced from £53.0 million to £40.6 million;
• The resilience of our Imaging business, where revenue was down only 2.6% in constant currency;
• The successful execution of restructuring and cost reduction programmes which are delivering an annualised saving of £21.9 million at a cost of £10.9 million;
• The development of a focused three market strategy; and
• Some signs of order stabilisation in the last quarter.

 

 

Financial performance

 

Reported revenue declined by 7% to £315.1 million, a fall of 19% in constant currency, as markets contracted as a result of general economic weakness. The decline impacted our broadcast markets most severely, resulting in a 25.8% constant currency decline in Videocom, and a 24.2% constant currency decline in Services revenues. Within Imaging & Staging, Staging’s markets were also strongly impacted but Imaging’s markets proved more resilient, with the division down by only 9.4% in constant currency.

 

Operating profit* reduced to £24.5 million (2008: £38.4 million) as volumes remained under pressure throughout the year. The impact was mitigated by timely attention to cost reductions and careful focus on gross margins which reduced by only 1.3 pts to 39.3%. Profit before tax* was £22.7 million, down from £35.4 million in 2008. Adjusted earnings per share* were 36.5p (2008: 55.9p). EBITDA* reduced to £40.1 million (2008: £51.2 million) reflecting the decline in Operating Profit*, partially offset by an increase in depreciation to £15.6 million (2008: £12.8 million).

 

Cash generation was very strong. Deliberate action to reduce working capital levels, careful deferral of capital investments and prudent management of our tax positions ensured that free cash of £22.7 million (2008: £19.0 million) was generated. This includes the outflow of £5.5 million of the committed £10.9 million in restructuring costs.

 

The Group’s balance sheet has strengthened: although our net debt / EBITDA ratio remained unchanged at 1.0 times. Net debt at 31 December 2009 reduced to £40.6 million (2008: £53.0 million) and drawings under our £125 million committed banking facility (which extends to 2013) were reduced to £52.7 million, or 42.1% (2008: 51.9 %).

 

The Board is recommending an unchanged final dividend of 10.9p per share (2008: 10.9p). Subject to approval by shareholders at the Annual General Meeting, the dividend will be paid on 20 May 2010 to shareholders on the register at the close of business on 23 April 2010. This brings the full year dividend to 18.3p (2008: 18.3p).

 

* Before significant items. Significant items are those items of financial performance that the directors consider should be separately disclosed to assist in the understanding of the underlying trading and financial performance achieved by the Group (see note 6).

 

 

Key Actions

 

Cost Reduction

Management has acted decisively to restructure the business and reduce costs to mitigate the effect of lower volumes, and to make it leaner and more efficient. Great care has been taken to protect our product development and sales capabilities, and not to damage our ability to take full advantage of the market recovery when it comes.

 

In aggregate, the Group delivered restructuring plans this year which will save £21.9 million per annum, approx £17.0 million of which has benefitted 2009, and all of which will benefit 2010. The measures cost a total of £10.9 million – all of which was charged as significant items in 2009. Of the £10.9 million, £5.5 million was expended in 2009, and the balance will be expended in 2010 and beyond.

 

Some of the cost savings were capacity driven, where direct and indirect headcount was reduced as far as possible in line with volume reductions. Further cost savings arose following a fresh look at the cost structure, and will allow the business to be run more effectively and efficiently in the future: these savings will be maintained when the market recovers. Other savings were a result of reductions in discretionary expenditure, for example marketing expenses, related to weaker economic conditions.

 

Three Market Strategy

Following a reappraisal of available markets, we unveiled our new Strategic Direction at an investor event in London on 22 October 2009 (materials and video are available on our website, www.vitecgroup.com).

 

The essence of this strategic direction is a focus on three markets which will provide us with significant growth opportunities from the organic development of our existing capabilities and strengths. Our approach and offering to them can be briefly described as follows:

 

Broadcast & Video

Vitec has leading brands in the Broadcast & Video market and will continue to maintain its premium position. Growth opportunities in the Broadcast & Video market will come from:

• LED lighting (where the energy saving over traditional lighting is significant);
• Business and industry applications for our existing broadcast products and technology, taking advantage of the growth in video production by non-broadcast entities;
• microwave systems (outside the US using our global presence); and
• robotics (as production becomes more automated).

We continue to expect the Broadcast & Video market overall to grow at 5% pa between 2009-12.   

 

Since October 2009, we have:

• continued to broaden the range of LED products supplied and identified further opportunities in the Broadcast & Video market that will be addressed by product launches at the NAB trade show in April;
• grown our microwave systems business outside the US with key wins in Brazil and China and recruited a vice president of Asia Sales in Singapore; and
• recruited a specific team to develop a range of “small camera accessories” targeted at the growing demand for ergonomic solutions around the camera, which will be launched at the NAB trade show in April.

 

Photographic

Vitec has traditionally supplied its accessories (tripods, bags, etc) to professional and serious amateur photographers. We will continue to maintain our premium market position and market share among that user group. However, recognising that most of the growth in SLR sales is likely to be among non-professionals, Vitec will enter new segments leveraging the Manfrotto brand. This will entail the development of an integrated range of accessories targeting new consumers and channels.  Whilst the Photographic market is expected to grow at 2-4% pa between 2009-12, we expect to grow faster as we extend our product range and appeal to this wider audience. Our confidence is enhanced by the latest forecast of SLR growth from CIPA, the trade association of Japanese camera manufacturers. CIPA forecasts volume growth of SLRs in 2010 of 11% over 2009, compared with 2% in 2009 over 2008.

 

Since October 2009, we have:

• conducted further research with focus groups to refine the product and brand positioning needed to broaden our customer reach, which has confirmed our view of the market potential; and
• started the development of an integrated range of tripods, bags and lighting products under the Manfrotto brand that will culminate in the launch of several new products at Photokina in September. 

 

Military Aerospace and Government (MAG)

Having established our microwave technology as the brand leader in the US broadcast market in the last two years, we intend to leverage this technology into the MAG market, which we have identified as an attractive opportunity for the Group given the market size, forecast growth rates and technology fit. Our products are used in two applications:   

• law enforcement where they help police authorities to improve their situational awareness - e.g. crowd control - and surveillance where our miniature products will be supplied to national agencies to help in covert operations; and
• military vehicles where our video technology can be used in unmanned applications to assess threats and thus to minimise loss of human life.

We continue to expect the MAG market served by our products to grow at 9% pa between 2009-12.

 

 

 

Since October 2009, we have:

·         undertaken a further review of actual and potential military programmes, which has confirmed our confidence in the potential market for our products;  

·         supplied our products for use in an unmanned vehicle application by a governmental agency, and continued to showcase our technology to a variety of governmental agencies, armed forces and purchasers to develop credibility in the military markets; and

·         continued to supply to a variety of law enforcement agencies in the US.

 

 

Board changes and Employees

 

Stephen Bird joined the Group as CEO in April 2009, and has successfully worked with Richard Cotton who joined as Group Finance Director in November 2008. Together they have formed a strong executive leadership team, which has provided operational focus and a good performance in a difficult trading environment during 2009, as well as the new strategic direction, purpose and priorities clearly articulated at our Strategy Day in October 2009.

 

The Group was well served by the former Executive team of Gareth Rhys Williams (CEO) and Alastair Hewgill (Group Finance Director). We are particularly grateful for Alastair’s support during the transition between management teams.

 

Throughout the Group, decisive actions have been taken by our committed teams, and this has delivered a good performance in difficult conditions. Decisions regarding our employment levels during the year have been addressed with fairness and integrity. We thank all employees for their endurance and continuing commitment and service to our shareholders and customers.

 

 

Outlook

 

2009 was a challenging year.  However, we produced a very good cash performance, implemented our cost reduction programme and launched a new focused strategy which will leverage our existing strengths and capabilities into higher growth markets.

 

The last quarter of 2009 saw our markets stabilise, following a significant decline in activity in the first half and this stabilisation has continued into the current financial year.

 

We believe that the opportunities in our three core markets will allow us to replace the shortfall arising from the end of the BAS contract, but we expect that the trading environment will remain challenging in 2010.  However, the prompt action we took last year to manage our cost base, combined with our strong balance sheet and clear strategic direction, will ensure that the Group is well positioned to benefit from a recovery in our markets.

Operational Review

 

Imaging & Staging Division

 

The Imaging & Staging Division has a strong reputation with two main groups of creative professionals: firstly photographers and videographers, whether they are shooting commercially, independently or for pleasure; and secondly live and corporate event production and touring bands who need versatile trussing and staging sets.