Chairman's And Chief Executive's Statement
We are delighted to report another year of strong progress for The Vitec Group in revenue, profits and earnings per share due to underlying growth in our markets and continued operational improvements. Our efforts to find attractive acquisitions were also successful, with four businesses joining the Group during 2006.
2006 revenue grew 14%, to £222.3 million (2005: £194.9 million) of which around 11% was organic, reflecting Vitec's strong positions in markets that are growing well and the continued emphasis placed on new product development. Constant currency organic growth was higher, at 12%, as the lower US Dollar reduced reported figures. While the first half saw particularly good progress, partly due to the rental contracts for the Winter Olympics, it was pleasing that the second half also showed significant growth over what had been a very good second half in 2005.
Imaging & Staging (previously Photographic) grew 24%, of which 18% was organic, with constant currency organic growth even stronger at 19%. This was driven by a buoyant market for accessories for professional photographers and cinematographers, with sales of lighting stands and bags also performing well. We saw continued benefits from the significant and ongoing growth in sales of digital SLR cameras to the keen amateur segment, which generates sales of our accessory products. Our distribution arm, Bogen Imaging, which sells both Group and other premium third party products, had a good year and was augmented in June by bringing our Japanese distribution in-house. The Staging Systems business continued to expand and in November acquired Tomcat Global, bringing significant scale and international reach to this part of the Company.
Broadcast Systems saw revenues increase at each business unit. The ongoing investment by broadcasters in High Definition TV is proving of benefit to us. Following an excellent finish to 2005, overall sales growth in 2006 was 10%, of which 8% was organic (10% in constant currency), with particularly good results in Camera Dynamics. Petrol, acquired in January, performed very well during the year. At the end of October we acquired Autoscript, whose advanced teleprompting products we had already been distributing to several countries.
Broadcast Services, operating principally in the USA, saw revenue growth in US Dollars of some 1%, but flat revenue on translation to pounds Sterling. This division benefited from a successful set of contracts for the Winter Olympics and FIFA World Cup.
With the further increase in revenue and continued progress on operational improvement, Group profit before tax and significant items* increased 31% to £24.1 million (2005: £18.4 million). In constant currency terms profit before tax and significant items* grew 35% and, excluding acquisitions, the reported growth was 28% in pounds Sterling and 32% in constant currency.
The reported tax rate for the Group fell again by 2% to 40% and as a result basic earnings per share before significant items* rose to 35.3p (2005: 26.0p), an improvement of 36%. After significant items* profit before tax was up 32% to £22.6 million (2005: £17.1 million) and earnings per share rose to 32.6p (2005: 22.9p before discontinued operations).
Cash generated from operations of £28.7 million (2005: £29.8 million) remains strong. While working capital control remains good, 2006 saw increased expenditure on acquisitions and on capital projects, including the expansion of Camera Dynamics' Costa Rican facility.
*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 and in making projections of future results. These items are quantified and explained in the Financial Review and in Note 5.
Strategy update and future development
The Group's strategy is summarised in the phrase 'Consolidate – Leverage – Grow'. After an initial phase, during which multiple locations and smaller business units were consolidated into a divisional structure to give economies of scale, the focus shifted to leveraging our skills and exploiting our routes to market in pursuit of growth. While continuous improvement activities are ongoing, the emphasis is on generating growth through ongoing research and development. We continue to review a number of potential acquisition opportunities, some of which are material and would hope that, as in the recent past, a number would complete in the coming year.
We believe the consolidation of our individual brands into stronger businesses provides a sound platform for future growth - each of them has the scale to develop innovative products and services and to deliver them effectively worldwide.
We aim to grow ever closer to our end customer, providing them with better tools and services to do their jobs, while at the same time looking for complementary areas into which the Group can expand and utilise its industry-leading expertise.
Research, development & engineering
An ongoing part of our success is due to continuous innovation by Vitec's staff, developing both new products and new services.
Within Imaging & Staging and Broadcast Systems the Group spends approximately 4.5% of revenue on new product development, £8.7 million in 2006 (2005: £7.8 million). Vitec's businesses are known for the quality and reliability of their products and there is an exciting pipeline of new ideas for the future. During the year our businesses won a number of awards for innovation, a sign that the Group's products remain very relevant to our customers and a testament to the strength of our R&D capability. Around 25% of sales in 2006 (2005: 19%) were derived from products launched in the last three years.
Within Broadcast Services, continued innovation of its video and audio services is as important. 2006 saw the launch of the 'LTR' programme in the US. Bexel has traditionally offered rentals – this Long Term Rental programme offers our customers the advantages of a lease from a bank, but with the benefits of additional service options from Bexel.
During the year we made four acquisitions: Petrol broadcast camera bags in January; Bogen Imaging Japan, a photographic distribution business, trading from June; Autoscript prompting systems in October; and in November Tomcat Global, the leading manufacturer of aluminium truss and staging systems, perhaps best known for their projects for the Rolling Stones and U2 tours. These businesses are all complementary to the existing activities of the Group and increase the range of exciting products we can sell to our customers, often through in-house distribution. We also acquired a minority stake in Media Numerics Ltd, which has launched a revolutionary digital audio network for use at live events.
Post balance sheet events
There have been no significant post balance sheet events.
With improved results and positive trends in our markets the Board is proposing a final dividend of 10.1p per share, resulting in a full year total of 16.5p (2005: 15.5p), an increase of 6.5%. Subject to approval by shareholders, the final dividend will be paid on 31 May 2007 to shareholders on the register on 4 May 2007.
Using adjusted earnings per share before significant items* the dividend is covered 2.1 times (2005: 1.7 times), whilst after significant items* it is covered 2.0 times (2005: 1.5 times).
As previously announced, Sir David Bell will step down from the Board following the Annual General Meeting in May 2007. David joined the Board as a non-executive director in 1997 and has provided us with ten years of excellent service and wise counsel, helping us navigate the Group through a period of considerable change.
We are delighted that Maria Richter joined the Board as a non-executive director on 28 February 2007. Maria's background is in corporate finance in the US and she has significant experience with deals involving companies, both in the US and South America, which complements the skills of the Board and will be of use as the Group expands.
The continued success of Vitec is due primarily to the dedication and skill of all of our colleagues throughout the world – the Group is now seeing the fruits of the efforts they have expended over the past years, for which we thank them.
Outlook for 2007
2007 will not see any benefit from major events for our broadcast businesses. However, given the increasing importance of Vitec's photographic and live entertainment businesses, combined with the contribution from the acquisitions made in 2006 and further operational improvements within Broadcast Systems, the Board looks forward to further growth in 2007.
|Gareth Rhys Williams
Information correct at 16/04/2007