Having joined the Board of Vitec in June, I succeeded Alison
Carnwath as Chairman in November. Alison retired from the
Board at the end of the year after almost nine years service and
we thank her for her contribution to the development of the
Group. The initiatives taken under Alison’s stewardship are
bearing fruit and I look forward to building on them.
I have visited many of the Group’s facilities, met key staff and
have been impressed by the skill and effort they are bringing to
tackling the issues which face the Group. I would like to take the
opportunity of thanking all our employees for their contribution
to the many changes and improvements they have made - the
underlying progress of the business is beginning to show
through.
The Board has conducted a review of Group strategy with the
Company’s new advisers and we are confident that the business
is on the right path to generate value for all shareholders.
The results for 2004 are encouraging in terms of organic growth
from new product development and from improving markets.
We are also benefiting from the reorganisation initiatives that
have involved plant closures and significant structural change,
combined with improved financial control. As a result, revenues
from continuing operations grew 18% in constant currency
terms and profit before tax, exceptional items, goodwill
amortisation and impairment grew 30% in constant currency.
Earnings per share, before exceptional items, goodwill
amortisation and impairment, were 22.9p (2003: 23.9p). As
announced at the half year, we continue to experience a high
underlying tax rate as all of the Group’s profits were earned
outside the UK. Nevertheless, tax payments in the year were
very low as the Group benefited from a significant tax credit
arising from the sale of the ALU business. The lowering of the
Group’s effective tax rate continues to be a priority.
Cash generation continued to be strong, with net cash inflow
from operating activities of £22.5 million (2003: £28.7 million).
Working capital increased as a result of the sales growth, but
stock and debtor ratios continued to improve.
Acquisition activity
To supplement the organic growth, two small businesses were
acquired in the year. As previously reported, our Photographic
Division strengthened its in-house distribution activities with the
acquisition of Multiblitz, its long-standing distributor in Germany,
in January 2004 for £1.4 million. Multiblitz is now integrated
and operates as part of Bogen Imaging. In March 2004 we
acquired the US assets of Charter Broadcast, a competitor in
the rental arena, for a nominal sum which, with transaction
costs, brought the total acquisition cost to £0.1 million. That
business was immediately integrated into our US network of
depots. Both acquisitions are performing well. We continue to
look for further acquisitions that will strengthen our existing
position or open up new avenues for growth in related areas.
Funding
On 25 January 2005 the Group agreed a new, enhanced loan
facility, which has a term of five years. The new facility, which is
for an increased amount of £100 million, compared to £55
million previously, is for Group companies’ current requirements
and for funding any potential future corporate activity.
2004 dividend
In line with the policy outlined in March last year, which stated
that over a period of two to three years we would move towards
an average dividend cover level of around two times, the Board
is recommending a final dividend of 8.9p, giving a total dividend
for the year of 15p per share. Since last year, when our new
dividend policy was announced, foreign exchange has
weakened against us. However, subject to no further significant
weakening in the US dollar, it is our current intention to maintain
the current level of dividend per share for 2005 and to seek to
return to a dividend cover in line with our stated policy over the
next two to three years.
Outlook for 2005
We ended 2004 with the factory and structural reorganisations
substantially behind us. The benefits flowing from these, which
will continue to be delivered in 2005, have allowed higher
spending on R&D and marketing in particular, which in turn has
resulted in much stronger product ranges.
We started 2005 in a much stronger position than at the same
time last year, with higher order books and rising volumes.
Going forward, Vitec remains exposed to fluctuations in the US
dollar but, as a result of restructuring actions taken over recent
years, the Group is now in better shape. Overall the Board views
the outlook for 2005 with cautious optimism.
Michael Harper