Continuing operations
Turnover increased by £15.0 million (from £170.4 million to
£185.4 million) or 8.8% in the year. There was underlying
growth in all three divisions. Photographic and Broadcast
Services benefited from a contribution of £3.5 million and £1.8
million respectively from the acquisitions of the domestic
distribution activity of Multiblitz in Germany and Charter
Broadcast North America. Excluding the incremental effect of
those acquisitions, underlying sales growth was £22.6 million or
14%, but this was significantly reduced by the effects of adverse
foreign exchange rates on translation, £11.6 million, and
transaction, £2.1 million. The balance of growth, £0.8 million,
came from the full year effect of acquisitions made part-way
through 2003.
Gross profit margins fell from 43.6% to 41.3% reflecting a
change in mix in a number of businesses and the adverse effect
of foreign exchange transactions, particularly in the
Photographic Division. Gross profits were £0.3 million higher
than the prior year before a contribution of £1.9 million from
2004 acquisitions.
Net operating expenses, before exceptional items of £2.1
million and goodwill amortisation and impairment charges of
£1.8 million, increased by £2.2 million (3.9%) to £58.7 million.
£1.2 million of the total increase related to 2004 acquired
businesses, £4.1 million to existing businesses and there was an
offsetting foreign exchange translation benefit of £3.1 million.
Operating profit before exceptional items and goodwill
amortisation and impairment charges was unchanged at £17.8
million, including contributions of £0.1 million and £0.6 million
from the acquisitions of Multiblitz and Charter Broadcast North
America respectively. Operating profit margins were 9.6%
compared to 10.4% in 2003. The year on year effect of
translating overseas profits was £0.9 million adverse and the
effect of exchange rate changes on transactions after hedging,
principally the weaker US dollar against the euro, was £3.9
million unfavourable.
There is a net operating exceptional charge of £2.1 million
relating principally to previously announced restructuring plans
within the Broadcast Systems Division which will enable the
Camera Support and Communications businesses to operate in
a more integrated manner. It is expected that the overall charge
will be between £4.0 million and £5.0 million, in line with
previous guidance.
Goodwill amortisation and impairment The charge was £1.8
million (2003: £3.4 million including £2.1 million impairment
charge against the goodwill of the US Systems Wireless
business).
Taxation The effective taxation rate on operating profit before
exceptional items, goodwill amortisation and impairment has
increased to 42.0% (2003 39.8%) and includes £1.6 million
(9.9% rate) of deferred tax. The tax charge is relatively high
because profits have arisen in high tax jurisdictions but the
Group has incurred net losses in the UK on which it has not
benefited from tax relief.
Cash flow and net debt Cash generation remained strong.
However, net debt increased slightly from £10.4 million to £11.3
million after £1.5 million acquisition costs and £2.7 million cash
cost of restructuring actions.
Net cash inflow from operating activities was £22.5 million
(2003: £28.7 million), equating to 55p per share (2003: 70p per
share). Cash outflow from an increase in working capital
(principally due to a £1.2 million decrease in creditors) was £1.4
million (2003: £4.0 million inflow). Capital expenditure and
financial investments were £10.0 million (2003: £10.2 million),
of which £4.8 million related to rental assets and £0.8 million to
IT projects, partly financed by the proceeds from asset disposals
of £1.6 million (2003: £2.4 million).
Working capital was increased by the effect of the two
acquisitions and higher volumes, partially offset by efficiency
programmes. Stocks decreased by £0.6 million to £32.6 million,
whilst stock days decreased to 109 (2003: 126 excluding Retail
Display). Trade debtors at £26.2 million were £2.0 million lower
than last year with debtor days at 52 days (2003: 60 days
excluding Retail Display). Trade creditors at £15.7 million were
£0.7 million higher than last year (whereas other creditors were
£1.6 million lower). Amounts recoverable on long term contracts
increased by £1.1 million to £2.1 million.
Tax paid in 2004 of £1.4 million reduced considerably from
2003 (£10.8 million). The prior year included the settlement of
an historic tax claim of £1.4 million, whereas the current year
has benefited from Italian tax credits arising from the sale of the
Retail Display business in 2003.
Treasury Policy Financing, currency hedging and tax planning
are managed centrally. Hedging activities are designed to
protect profits, not to speculate. Substantial changes to the
financial structure of the Group or treasury practice are referred
to the Board. In 2003 the Board approved the use of option
contracts for hedging foreign currency receipts.
As in previous years, a portion of the transactions of subsidiaries
in foreign currencies is hedged 12 months forward. Forward
foreign exchange contracts at 31 December 2004 totalled £5.2
million (2003: £16.0 million). In addition, the Group had simple
option contracts, for the sale of dollars for euros over the period
January 2005 to December 2005 totalling £9.3 million (2003:
£8.4 million) and for the sale of dollars for £ sterling over the
period January 2005 to August 2005 totalling £0.9 million
(2003: £nil). Translation of foreign currency profits and interest
rates are not hedged. Foreign currency net assets are not
hedged other than by normal Group borrowings.
The Group operates strict controls over all treasury transactions
involving dual signatures and appropriate authorisation limits.
Financing Activities The average cost of borrowing for the year
was 4.8% (2003: 4.8%) with the upward trend in interest rates
being offset by the transfer of some of the Group’s £ sterling
loans into Euros and US dollars. Net interest cover (using profit
before exceptional items, goodwill amortisation and impairment)
remained high at 11 times (2003: 10 times). The Group's £55
million three-year bilateral credit facility agreements which were
due to expire in October 2005 were replaced on 25 January
2005 with a five-year £100 million multicurrency revolving credit
facility agreement involving five banks.
UK pensions The Group contributes to two UK defined benefit
pension schemes. At the end of 2003 the Group closed both
schemes to new members, replacing them for 2004 onwards
with a Group personal pension plan, currently with Standard
Life. A full triennial actuarial valuation was undertaken as at
5 April 2004. At that date, the schemes had assets with a
combined market value of £28.3 million. On the basis of the
assumptions adopted, the value of the schemes’ assets was
equal to 94% of the value placed on the benefits that had
accrued to members allowing for expected future increases in
salaries. As a result of the valuation, and following the increase
of £0.1 million per annum in Company contributions from the
beginning of 2003, regular contributions were again increased
by £0.2 million per annum with effect from the date of valuation.
In addition, employees’ contributions were increased from
1 January 2005. The Group’s UK pension charge to the profit
and loss account under SSAP24 has increased from £0.9
million in 2003 to £1.5 million in 2004 after the effects of
accounting for moving from a previous surplus to a shortfall in
scheme assets when compared to accrued liabilities.
International Financial Reporting Standards (‘IFRS’) The
Group has completed its initial investigation into the impact of
adopting IFRS with effect from 1 January 2004. The areas
currently identified as most affecting the profit before tax and
shareholders’ funds are as a result of the adoption of IAS 19
Employee Benefits (in respect of pensions), IAS 38 Intangible
Assets (in respect of capitalising major development costs),
IFRS 3 Business Combinations (in respect of goodwill) and
IFRS 2 Share Based Payment and IAS 10 Events After the
Balance Sheet Date (in respect of the dividends declared after
the balance sheet date). The exact impact of adopting IFRS, as
well as a full analysis of the impact on the 2004 published
results, will be communicated in May 2005. The Interim Results
for the six months ending 30 June 2005 will be prepared in
accordance with IFRS.
Alastair Hewgill