Chairman's And Chief Executive's Statement

We are delighted to report a year of continued progress for The Vitec Group. Sales continued to move ahead due to new product launches and acquisitions, and this, together with the benefits of the restructuring programme initiated in prior years, resulted in a strong operating profit performance.

Results

2005 saw revenue continue to grow. Following the very strong growth in 2004 we are pleased to report a further revenue increase of 5%, both in constant currency terms and in reported pounds sterling, of which organic growth accounted for 4%. This growth represents a strong performance for Vitec, which has seen revenue reductions in previous post-Olympics years.

The Photographic division generated sales growth of almost 11% as it benefited from products launched to capitalise on the growth in the wider photographic market, particularly of digital SLR cameras, and from the strength of our in-house distribution, particularly in the US and Germany. Growth also came from demand for our innovative lighting truss systems. Kata, acquired in May, contributed 1% to overall Group sales growth; we had already been distributing its camera bags in the USA for several years.

Revenue in Broadcast Systems was up 5% as a result of a revival in interest for studio products, particularly for camera supports, and the portable power business had another excellent year. In Communications, the market remained tough, but new products launched in the last two years began to build volume.

Broadcast Services saw significant growth in 2004, benefiting from the Olympics and a number of large reality TV show contracts. In 2005 the growth in the underlying market was insufficient to compensate for some of these large events not recurring and sales were down 9%.

Costs continued to be kept under tight control and the benefits of previous restructuring actions came through as planned.

As a result, profit before tax and significant items* grew 17% in constant currency terms and 11.5% in pounds sterling. Excluding acquisitions, the reported growth was 15% in constant currency and 10% in pounds sterling. Although foreign exchange movements, after hedging, reduced reported operating profit by £0.9 million, this effect was more muted than the £4.8 million experienced in 2004.

Basic earnings per share before significant items* were 26.0p (2004: 22.2p), an improvement of 17%. The Group attracts a relatively high reported tax charge due to the high tax rates of the countries in which the Group derives its profit, nevertheless actions taken to improve the efficiency of the Group’s tax structure resulted in a welcome reduction in the reported tax rate to 42% (2004: 45%). During 2005, tax paid was £1.6 million as certain tax credits were utilised.

After significant items*, profit before tax from continuing operations was up 20% to £17.1 million (2004: £14.2 million) and earnings per share were 22.9p (2004: 18.8p). After including the release of a provision of £0.4 million related to a business sold in 2003, earnings were 23.9p (2004: 18.8p).

Cash generated from operations of £29.8 million (2004: £22.5 million) remained strong. The low tax payments and improvements in stock control meant that closing net debt fell to £5.4 million (2004: £11.3 million), despite the acquisition of Kata and additional contribution to the UK pension scheme.

* 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 both in the Financial Review and in Note 5.

Strategy update

The results above show the success of the ‘Consolidate – Leverage – Grow’ strategy. The major restructuring process, started in 2002, is complete and we are seeing the benefits of operating as larger units. Each of our businesses is now engaged in continuous improvement activities, ranging from further movement of production to lower cost countries, to exploiting the better information generated by the IT systems recently put in place, to improving our purchasing performance. This work will carry on but the emphasis is now on generating growth. Vitec’s organic growth comes from the ability of our brands to constantly launch new and exciting products and services that customers value. In 2005, as in 2004, the Photographic and Broadcast Systems divisions spent some 5% of sales on R&D, a level that will be maintained into 2006. As in previous years, this effort generated products that attracted acclaim, which we expect to convert to future revenue.

The Board also believes that acquisitions will form an important part of Vitec’s future growth. We continue to look to acquire companies, either with complementary products or with distribution channels that will enhance our existing capabilities.

At the end of May 2005 we acquired Kata, a leading designer and manufacturer of technically advanced camera bags, based in Israel. The acquisition consideration was US$8.5 million (£4.7 million), with up to a further US$13 million (£7.1 million) consideration payable based on the business’s performance in 2005-07. Bags represent a complementary product area to those products we already sell, as they are bought by the same customers who are attracted to our other photographic accessories. Kata is performing well and continues to grow ahead of our expectations.

On 16 January 2006 we completed the acquisition of Petrol, another bags business, also based in Israel. Both Kata’s and Petrol’s products have been distributed by Vitec companies for a number of years. The combination of these two companies will deliver coordinated and powerful new product ranges in both the broadcast and high-end photographic camera bag markets.

Vitec’s continued success wouldn’t be possible without the continued hard work and dedication shown by all of our colleagues around the world throughout a period of considerable change, for which we would like to thank them.

2005 dividend

Given the improved results and the more stable currency situation, the Board is proposing a final dividend of 9.4p per share, resulting in a full year total of 15.5p per share, an increase of 3%. Using basic earnings per share before significant items*, the dividend is covered 1.7 times (2004: 1.5 times), whilst after significant items*, it is covered 1.5 times (2004: 1.3 times). Our dividend policy, as previously communicated, is to move over a period of two to three years towards an average dividend cover of around two times, and this proposed payment continues the implementation of that policy.

Board changes

As previously announced, John Potter will stand down following the AGM in May 2006. John joined the Board in February 1999 and we thank him for his advice, which has been invaluable in seeing the Group through a period of substantial change.

We are delighted that Simon Beresford-Wylie joined the Board as a non-executive director on 1 March 2006. Simon is presently Executive Vice President & General Manager, Networks for Nokia. He is a member of the Nokia Group Executive Board. He has spent much of his career working in Australia, India and South East Asia. He will bring useful insights into those countries and the fast-moving consumer electronics marketplace, which is of increasing relevance to Vitec.

Sir David Bell, who has completed almost nine years as a director, stood down as Senior Independent Director on 1 March, but remains a director. Will Wyatt has taken over the role of Senior Independent Director.

Outlook for 2006

The last months of 2005 saw a marked pick up in activity in the Broadcast Camera business, part of which was related to the forthcoming football World Cup in Germany. We have seen this momentum continue into the first quarter of 2006 and expect to see continued growth in our Photographic business during the year, underpinned by the continued penetration of digital SLR cameras.

With favourable market conditions and exciting product ranges, strong divisional management teams and the potential to make further acquisitions, the Board expects further growth during 2006.
Michael Harper
Chairman		 Gareth Rhys Williams
Chief Executive

Information correct at 26/04/2006