Final Results

Vislink PLC 18 March 2008 Vislink plc Preliminary results for the year ended 31 December 2007 Vislink plc ('The Group'), a leading supplier of microwave radio and satellite transmission products for the broadcast and security markets and of CCTV systems for the marine safety market has today announced its preliminary results for the year ended 31 December 2007. Financial highlights ---------------------------- -------- ----------- --------- 2007 2006 Change Unaudited Audited % £'000 £'000 ---------------------------- --------- ----------- --------- Revenue* 98,580 100,498 -1.9% Operating profit 14,216 12,939 +9.9% Adjusted** operating profit 15,678 14,303 +9.6% Adjusted** operating margin 15.9% 14.2% +1.7% Profit before taxation 13,956 12,675 +10.1% Cash generated from operating activities 9,253 8,372 +10.5% Earnings per share - basic 6.47p 5.65p +14.5% Adjusted** earnings per share - basic 7.21p 6.35p +13.5% Proposed dividend per share 1.25p 1.00p +25.0% ---------------------------- --------- ----------- --------- *Revenue increased by 7.4% excluding the effects of foreign exchange rates and revenue associated with the completed legacy Venezuelan contract **Adjusted operating profit is operating profit before the amortisation of acquired intangibles. Adjusted earnings per share are calculated on the same basis 2007 Operational highlights: • Key financial performance metrics of underlying revenue, margin, earnings per share and cash generated from operating activities have all shown year on year growth • Dividend increased by 25% to 1.25p • Strong growth at Hernis • Good progress made with the strategic development of core operations • Acquisition of WTS in July establishes US services business • Establishment of international DLES presence • Revenue growth in European and Asian markets 2008 Outlook: • As a result of the worsening US outlook, the Board's expectation for 2008 for MRC, the US RF business, is now reduced which, combined with slower progress in the DLES market for both MRC and Advent, will impact Group performance in 2008 • Acceleration of 2GHz re-channelisation programme will bring forward revenues into 2008 • Hernis continues to perform strongly • Current cash, net of bank borrowings, of £8.3 million Tim Trotter, Chairman of Vislink said: ''In 2007, we delivered growth in a number of key financial performance metrics with underlying revenue, margin, earnings per share and cash generated from operating activities all showing year on year growth. In particular, I am pleased to report that the Group has achieved a 13.5% increase in adjusted earnings per share. Looking forward, we are conscious that the US economic outlook has worsened since the start of the year and we have become more cautious in the outlook for MRC, our US radio frequency business. We also expect revenues from the Defence Law Enforcement and Security ('DLES') market for both MRC and Advent to be lower than expected by the Board in 2008 while we wait for delayed US programmes to be initiated. These two factors will impact group performance in 2008. On the positive side the FCC has now ruled that the 2GHz re-channelisation programme has to be completed by March 5 2009, which will bring forward revenues into 2008. Hernis continues to perform strongly. The Group, with its strong product range, remains cash generative and currently has cash, net of bank borrowings, of £8.3 million.' - ends - For further information on 18 March 2008, please contact: Ian Scott-Gall, Chief Executive 01488 685500 James Trumper, Group Finance Director 01488 685500 Andrew Hayes / James White 0207 796 4133 Hudson Sandler CHAIRMAN'S INTRODUCTION Results for year ended 31 December 2007 Introduction In 2007, we delivered year on year growth in a number of key financial performance metrics with underlying revenue, margin, earnings per share and cash generated from operating activities all showing year on year growth. We also successfully completed the acquisition of Western Technical Services which is in line with our strategic growth plan to build our US service and integration revenues in the broadcast, law enforcement and security markets. Financial results In 2007 the adjusted operating margin has improved to 15.9% of revenue (2006 - 14.2%) generating a 13.5% increase in adjusted earnings per share. Revenue for the year grew by 7.4%, excluding the effects of exchange on translation of £4.9 million and reduced sales on the completed legacy Venezuelan contract of £4.1 million. Headline revenues were £98.6 million (2006 - £100.5 million). The Group has been able to continue to improve its operating profit and operating margins. The adjusted operating profit, being operating profit from continuing operations before the amortisation of acquired intangibles, increased by 9.6% to £15.7 million (2006 - £14.3 million). This increase is after an adverse impact from foreign exchange on translation of £0.8 million. Operating profit from continuing operations was up by 9.9% to £14.2 million (2006 - £12.9 million). Profit before tax was up by 10.1% to £14.0 million (2006 - £12.7 million). The Group net cash inflow generated from operating activities was £9.3 million (2006 - £8.4 million). After increased capital expenditure and acquisition costs the Group held net funds of £3.5 million at 31 December 2007 (31 December 2006 - £3.9 million). Dividend and shareholder returns The basic undiluted earnings per share for the year was 6.47 pence (2006 - 5.65 pence). After adjusting for the amortisation of acquired intangibles, the adjusted earnings per share increased 13.5% to 7.21 pence (2006 - 6.35 pence). As a result of this strong performance, the Board is proposing a 25% increase in the full-year dividend to 1.25 pence per share (2006 - 1.00 pence). Board and management changes Ian Scott-Gall, our Chief Executive, has announced that he will be retiring at the end of this financial year. On behalf of the Board, and our employees I would like to thank Ian for his substantial contribution to the Group over the last nine years, during which time the Group has been transformed through acquisitions and strong organic growth into a group of highly profitable technology businesses. The search for a new Chief Executive is now underway. Tony Finizio has been promoted to Chief Operating Officer of our US operations. At the same time we strengthened the US management team by appointing Morgan Kurk as President of MRC. Morgan was previously Vice President and General Manager of the Andrew Corporation Wireless Solutions Group. Executive remuneration We have addressed the issues that were raised by the shareholders at the 2007 Annual General Meeting of the Company in respect of certain elements of executive remuneration. A circular was sent to all shareholders on 21 February 2008 containing the details of the changes proposed. These were subsequently approved at an Extraordinary General Meeting on 7 March 2008. Current trading and outlook Our progress in the defence satcom market has been hampered by the delay in the initiation of certain US programmes. Whilst these are starting to be announced, actual purchase orders have yet to be released and as a result revenues from the Defence Law Enforcement and Security ('DLES') market for both MRC and Advent will be lower than expected in 2008. Our RF businesses were expected to benefit from the introduction of new products for the growth opportunities created by the move from Standard Definition (SD) to High Definition (HD) within the professional broadcast market. However the US economic outlook has worsened and will have an impact on the level of broadcast orders to be received this year by MRC. On the positive side, the FCC has now ruled that the 2GHz re-channelisation programme has to be completed by March 5, 2009. This will result in increased deliveries of equipment in 2008 and opportunities for WTS, our recent acquisition, to increase revenue through the provision of further integration services to the programme. We are continuing to invest into the DLES markets, both in personnel and new products. Our plans for geographic expansion will continue and we have now opened a sales office in Dubai to enable the RF businesses to develop the customer base in this important region. Demand for Hernis' systems from the marine and offshore markets continues to be strong as growth in LNG marine transportation continues and as oil and gas exploration and extraction from harsher environments has been made economically viable by the higher oil prices. Hernis is expected to continue to perform strongly. The Group has invested in seeking out growth from entry into the adjacent sectors of the broadcast market by way of a significant acquisition using debt finance, but given our caution over the current economic outlook we have decided not to proceed further with this acquisition. We will continue to consider acquisition opportunities within our current markets. In summary, we achieved a 13.5% increase in adjusted earnings per share in 2007, however adverse trading conditions in the US in both our broadcast and DLES markets are expected to reduce our 2008 results below the Board's previous expectations. The Group, with its strong product range, remains cash generative and currently has net cash balances of £8.3 million. Tim Trotter Chairman 18 March 2008 CHIEF EXECUTIVE'S STRATEGY REVIEW Introduction We remain committed to our strategy through organic growth and acquisitions. The strategy will be delivered through our focus on our strategic objectives, which are to: 1. Maintain market leadership in the television broadcast contribution technology segment 2. Establish a global presence by providing high quality wireless transmission systems for defence, law enforcement and security markets 3. Remain the world leader for the provision of intrinsically safe marine CCTV systems 4. Evolve our products to meet the specific needs of new growth markets 5. Seek out earnings enhancing acquisitions. Our Strategy in Action Broadcast market leadership Broadcast sales represent 73% of Group revenue. In the US we have maintained a market share in excess of 60% in the RF broadcast contribution market. Over the last three years this sector of the market has been dominated by the 2GHz BAS relocation programme. The FCC has now agreed to extend the programme to 5 March 2009. The programme, which has expanded in total value, will provide a significant contribution to 2008 revenues. The programme has to move rapidly into the implementation phase to meet this deadline and this creates further opportunities for us to grow revenues in our US technical services business. Outside of the US we are seeking to increase our international presence by developing sales channels to growing Middle and Far Eastern markets through regional sales offices. We already have offices in Singapore and Hong Kong and in February 2008 we opened a regional office in Dubai. We expect to increase our market share by capitalising on the potential for equipment upgrades to high definition (HD) and high data rate IP systems through strong local partnerships. Developing the DLES markets DLES sales currently represent 10% of Group revenue. We will grow our DLES markets through increased investment in our products and sales channels. During 2007 a dedicated international DLES team was established and the existing US team was strengthened. Our product development programme included new satellite products to meet the specific needs of the market that will enter production in the first quarter of 2008. The development of this market has been slower than we had wished and sales opportunities will start to flow in the second half of the year. In the US we have a good track record in the LES market with steadily increasing sales. We have strong relationships with city and state police forces as well as with the National Guard. We are succeeding in developing the growing airborne digital video surveillance market; MRC secured milestone helicopter video downlink and receive systems orders from several large US municipalities and international security agencies. In addition a US network of specialist defence value added resellers has been set-up. Intrinsically safe marine CCTV systems market leadership Sales into the marine safety market through our Norwegian business, Hernis, represent 17% of Group revenue. The strategy for Hernis is to maintain its close relationship with the oil and gas companies, ship owners and ship builders around the world. With regional offices in Brazil, Houston and Singapore, Hernis is well positioned to service its global customers and maintain its market leadership through product innovation and highly effective channel management. The current strong oil price will continue to sustain high levels of investment into offshore exploration and marine transportation and related loading facilities. This will sustain growth in the offshore and marine markets for Hernis. We will continue to invest in the facilities in Norway to meet the growth in the business. Our investment in Wireless Power and Communications A/S (WPC) (an associate company) is providing Hernis with new products based on the application of induction charging and data transfer technology for the marine safety market. The first products will enter production in the first half of 2008. Evolving our products and service capability We have continued our investment in the development of HD encoding and advanced high data rate modulation systems to maintain our market leading technology and market share. We will continue to invest in the application of new technologies, with increasing use of software-driven products, to meet our customers' requirements for more automation and integrated field upgradable systems. In order to support our products we have established service centres in Hong Kong and South America for the RF businesses and in Brazil and Singapore for Hernis. We have implemented a unified corporate level product strategy across the related RF businesses of Advent, Link and MRC under the guidance of the Chief Technology Officer. We have also formed a strategic Technology Committee with senior management from each business to maintain a focus on our strategic development direction and to review competing and complementary technologies. Earnings enhancing strategic acquisitions Part of the Group strategy is to create incremental long-term recurring revenue opportunities by building a US Technical Services business through organic and acquisition led growth. The acquisition of Western Technical Services ('WTS') in July 2007 is enhancing service revenues from the 2GHz re-channelisation programme and the DLES markets, as well as providing the prospect of recurring revenues as the broadcast customers move towards contracted out fee services. This provides the Group with a stepping-stone towards being able to provide full 'turnkey' project management and integration services in the US, utilising the strength of our market leading products. Summary In 2007 we acquired WTS to establish a Technical Services business in the US market that will be supplemented with organic growth. We have increased our investment in new products and channels to market in order to deliver our growth strategy across our target markets. The Group is looking forward to meeting its strategic objectives. Ian Scott-Gall Chief Executive 18 March 2008 OPERATING AND FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2007 2007 highlights and key performance indicators Good progress was made in 2007. The highlights in the year were: • Revenues increased by 7.4% (at constant exchange rates and excluding the Venezuelan contract sales) • Adjusted(1) operating profit increased by 9.6% to £15.7 million (2006 - £14.3 million) • Adjusted(2) operating margin increased to 15.9% (2006 - 14.2%) • Acquisition of Western Technical Services • Growth from law enforcement and security markets in the US • Continued growth from Hernis • Growth in Asian and European markets • Establishment of an International DLES presence. The table below sets out the trend in the key indicators that are used to measure the Group's performance. The 2007 results show further improvement in all these metrics. Whilst the headline sales are 1.9% lower our underlying sales grew 7.4% before foreign exchange adjustment of £4.9 million and excluding sales from the completed legacy broadcast contract in Venezuela. ----------------------------- -------- -------- -------- Year ended 31 December 2007 2006 2005 Unaudited Audited Audited ----------------------------- -------- -------- -------- Orders received (£'000) 101,374 97,540 95,503 Revenue (£'000) 98,580 100,498 85,072 Underlying revenue(1) 101,354 94,398 n/a Adjusted operating profit (£'000) 15,678 14,303 8,348 Adjusted profit as a percentage of sales 15.9% 14.2% 9.8% Adjusted earnings per share (pence) 7.21 6.35 3.30 Net cash generation from operating activities (£'000) 9,253 8,372 6,461 Return on capital employed(1) (ROCE) 32.9% 36.6% 21.0% ----------------------------- -------- -------- -------- Review of operations in 2007 Our Markets The Group has a global spread of revenues. In 2007, 58% of the Group's sales were in North America, 21% in the UK and Europe, 11% in Asia and 10% in the rest of the world. The operating businesses sell into three distinct global markets; broadcast, defence, law enforcement and security (DLES), and marine safety. Broadcast sales represent 73% of Group revenues, DLES 10% and marine safety 17%. Group sales in the broadcast market were lower in 2007 at £72.8 million (2006 - £77.6 million) primarily due to lower sales in South America of £4.1 million following the completion of the VTV contract. Revenues from North America increased, despite the impact of foreign exchange, as we continue to benefit from the 2 GHz re-channelisation programme. Internationally the demand for HDTV, news and sports programming and the proliferation of TV channels is driving infrastructure spend by the broadcasters. In the broadcast market each of our brands, Advent, Link and MRC, are recognised within the broadcast industry as market leaders with specialist knowledge. Each has well-established routes to market. In the Americas we are utilising MRC's established market strength to distribute all three brands through a combination of directs sales, value added resellers and distributors. The acquisition of WTS has given the Group another route to market, and the ability to sell turnkey solutions alongside integrated products and systems. In international markets each business manages its sales through a combination of direct sales from regional offices, sales agents and distributors. As part of our strategy to develop our sales channels we have opened a regional office in Dubai in January 2008. Sales in the DLES markets were £9.5 million. We have had success in the US in developing our law enforcement and security channels to market and increased sales. Advent has also had sales success in Asia. Our defence sales, particularly US satcoms, were below our expectations as several major spending programmes have been delayed. We remain convinced of the long-term potential of this market. Sales into the marine safety market have increased 27% to £16.2 million. The market is sub divided into onshore and offshore oil and gas and marine (including high risk vessels such as tankers and cargo ships as well as cruise and naval vessels). The growth in the year has come from offshore and marine markets. With the oil and gas companies continuing to invest in exploration of increasingly harsh environments and the strong build programme for new Liquid Natural Gas (LNG) vessels we expect Hernis to continue to see an increase in demand. Operational review Operational review - UK RF business --------- -------- -------- 2007 2006 Change Unaudited Audited £'000 £'000 --------- -------- -------- Revenue 35,821 37,393 -4.2% (Including inter segmental) Adjusted operating profit 6,612 4,095 +61.5% (Excluding amortisation of acquired intangibles) Adjusted operating margin 18.5% 11.0% +7.5% ------------------------ --------- -------- -------- The UK business consists of three activities, the satellite communications business of Advent, the wireless camera business of Link and the legacy CML international projects business. Following the completion of the VTV contract CML project sales decreased by £4.1 million, in line with expectations. Sales in the core UK RF businesses of Advent and Link were up 7.6% to £33.7 million. The adjusted operating profit from the core businesses of Link and Advent was up by 29% (£1.5 million), with both businesses contributing higher returns. Operating profits in 2006 had been depressed by a final charge in respect of the VTV contract of £1.0 million, which was completed in the first quarter of 2007. Advent has experienced sustained demand for its satellite technology, with particular success in the European and Asian markets. Advent's strength is its strong brand awareness, class-leading products in terms of performance and a reputation for reliability. Significant broadcast contract wins included a £1.0 million contract to supply transmission products to a West African state broadcaster and a £4.3 million order from a European broadband satellite services provider for a large fixed earth station project. In addition, Advent is building momentum in the DLES market having won a £1.2 million order from a government customer in Central Asia, supplied twelve mobile satellite uplinks to INDRA, a major European defence integrator, and is also supplying twenty mobile systems to a government integrator in China. Advent has two key product launches in the first quarter of 2008. The Summit flyaway system, a joint programme with MRC, is the first dedicated ruggedised satellite terminal to be launched by the Group. This is an auto acquisition terminal designed to fully provide a fully integrated solution for rapid deployment and secure satellite communications. In addition Advent are introducing a fully motorised auto acquisition version of the popular 1.9m and 2.4 m Mantis products to meet the need for deskilled operation in global defence and security markets. Link has seen sales growth internationally. Link continues to benefit from the sale of High Definition (HD) products in both Europe and Asia as well as from both standard and HD sales in the US via MRC. As a tribute to its growing International presence Link has received the Queen's Award for International Trade in 2007, adding to their success in 2004 when they won the Queen's Award for Enterprise: Innovation. Link's latest ultra low delay HD products are creating demand and the roll out of their new wireless camera radios is well underway. In particular Link have secured several orders for the supply of HD systems for the Beijing Olympics. Link products have been used in a number of high profile events during the year including the 2007 US PGA tour, the Rugby World Cup and the onboard radio cameras used to record and transmit live the record breaking TGV train travelling at 360mph. Link expects to build on their success in 2008. Link are partnering with Advent in the creation of the Dubai regional sales office and the International DLES sales effort with new product developments. Link has attended the International DLES exhibitions alongside Advent and MRC to demonstrate its expertise. There has been particular interest in the application of Links city centre cellular diversity networks that are already in place in the UK and Europe, to the law enforcement security market. Operational review - US RF business --------- -------- -------- 2007 2006 Change Unaudited Audited £'000 £'000 --------- -------- -------- Revenue 59,299 60,762 -2.4% (Including inter segmental) --------- -------- -------- Adjusted operating profit 9,535 11,241 -15.2% (Excluding amortisation of acquired intangibles) --------- -------- -------- Adjusted operating margin 16.1% 18.5% -2.4% ------------------------ --------- -------- -------- MRC has an estimated 60% market share of the North American electronic newsgathering (ENG) market, and a strong customer base in the Americas and Asia/ Pacific regions. During the year WTS was acquired to create incremental long-term recurring revenue opportunities by building a US Technical Services business. This provides the US business with a stepping-stone towards being able to provide full 'turnkey' project management and integration services. MRC sales revenues increased 4.3% in local currency to $116.9 million (2006 - $112.0). WTS contributed additional sales of $1.6 million. Reported sales, after the effect of adverse foreign exchange translation, were 2.4% lower at £59.3 million. Operating profits at MRC were down 7.6% in local currency million as a result increased material costs. MRC purchases approximately 35% of its material from Link and Advent in sterling and suffered increased costs as a result of the weakness of the US dollar. WTS broke even in the period post acquisition. The foreign exchange translation impact on the US business was to reduce like for like profit by £0.8 million. The US domestic broadcast market continues to be driven by the 2Ghz re-channelisation programme for which MRC launched two new key products at the NAB exhibition in April. The acquisition of WTS will enhance service revenues from the 2GHz programme and provide both MRC and WTS with opportunities to cross sell their products and services. Outside of the re-channelisation programme the US domestic broadcast market has remained flat. However, the programme provides only for the replacement of analogue products with SD digital products. There are opportunities beyond the programme to upgrade the new digital platforms that are being installed to HD. With shorter life cycles for digital products we expect the underlying broadcast market in the US to start to grow on a regional basis once the re-channelisation programme has been completed. The addition of WTS provides the prospect of recurring revenues as the broadcast customers move towards contracted out services for maintenance of their RF networks. Progress continues to be made in developing the US defence and law enforcement markets. DLES sales increased 38.3%. During the year MRC supplied $6.6 million of the Advent Mantis satellite antennas, as part of a system to support voice, video and data transport for a US Government user. MRC are also successfully developing the US law enforcement and security market, and in particular the airborne digital video surveillance market. MRC's multi-band video microwave equipment was chosen by the New Jersey State Police (NJSP) for their state-wide video and communications upgrade for homeland security, law enforcement and emergency response. MRC have continued to invest in product development. During the year MRC introduced new radio platforms that give the ability to support both SD and HD utilising the Link IPR and a new expandable central receive diversity system that supports single or multi-site architectures for SD and HD ENG and outside broadcast applications. All the new products represent significant enhancements to existing market leading news gathering capabilities, providing amongst the most efficient workflow solutions in the industry. The microwave transmission products enable editors and engineers to extend their newsrooms into the field through wireless IP enabled network extension with remote control capabilities. Further developments and enhancements will be launched in 2008. Operational Review - Norway ------------------------ --------- -------- -------- Year ended 31 December 2007 2006 Change Unaudited Audited £'000 £'000 --------- -------- -------- Revenue 16,843 13,094 +28.6% Operating profit 1,741 1,318 +32.1% Operating margin 10.3% 10.1% +0.2% ------------------------ --------- -------- -------- Hernis, our Norwegian business, has had a record year for both sales and operating profits. Hernis has improved its margins despite the currency pressures of selling into international markets (35% of sales are denominated in US$). Hernis have pioneered the integration of intrinsically safe marine CCTV with other systems including process control, fire, gas and intruder alarms. Hernis sells into the global marine safety market and service centres. Hernis has been very successful in developing its markets and customer relationships through a network of business partners and creating regional sales and technical support centres in Singapore, Houston and Brazil. Within the industry Hernis has achieved class type approval for their explosion proof camera housings that differentiates them by providing quality assurance for their products and systems. Growth for Hernis has come from strong marine and offshore oil and gas markets. Hernis have a market leading position for the supply of systems for the new Liquid Natural Gas (LNG) vessels. The increasing level of investment in offshore oil and gas rigs by the major oil companies has led to an increase in demand for products and systems for floating rigs and drill ships. Hernis have also benefited from increased demand for offshore oil and gas installations such as jetties and terminals. The domestic Norwegian offshore market for Hernis has been particularly strong, contributing to a 31% increase in European sales. The Singapore operation has also seen growth in both business and personnel. As a result Asian market sales were up 48% and now represent 35% of revenue. During 2007 Hernis became the first Group company to have its environmental assurance system to be certified according to ISO14001. Environmental measures have been integrated into the day-to-day operations and awareness has been increased amongst the staff as a result. Research and development We are committed to investment in research and new product development in order to maintain and enhance our market share and competitive advantage. Expenditure in 2007 was £5.8 million representing 5.9% of revenues (2006 - £5.4 million, 5.4%). In addition the Group has capitalised development costs in the year of £2.8 million (2006 - £1.8 million). The amortisation of development costs of £1.1 million (2006 - £1.0 million) is included in the reported expenditure. Financial Review The Group's results are summarised as follows: --------------------------------- --------- -------- -------- Year ended 31 December 2007 2006 2005 Unaudited Audited Audited £'000 £'000 £'000 --------------------------------- --------- -------- -------- Revenue 98,580 100,498 85,072 --------- -------- -------- Adjusted operating profit 15,678 14,303 8,348 Amortisation of acquired intangibles (1,462) (1,364) (1,207) --------- -------- -------- Reported operating profit 14,216 12,939 7,141 Net finance costs (245) (264) (776) Share of loss in associate (15) - - --------- -------- -------- Profit before tax 13,956 12,675 6,365 Taxation (5,026) (4,968) (2,883) --------- -------- -------- Profit after tax 8,930 7,707 3,482 --------- -------- -------- Effective tax rate 36.0% 39.2% 45.3% Basic earnings per share 6.47p 5.65p 2.66p Adjusted earnings per share 7.21p 6.35p 3.30p --------------------------------- --------- -------- -------- Finance costs The net interest charge for the year was £0.24 million (2006 - £0.26 million). Included within the interest charge is £0.19 million (2006 - £0.22 million) in respect of the unwinding of the discounting of the deferred consideration associated with the acquisition of Link Research Limited and Western Technical Services to their present value. Net interest paid in the year was £nil million (2006 - £0.07 million). Taxation The tax charge for the year was £5.03 million (2006 - £4.97 million). The UK current tax charge was £1.20 million (2006 - £0.35 million) and the overseas current taxation in the year was £3.63 million (2006 - £5.12 million). Overseas taxation represents Norwegian corporation tax on the taxable profits of Hernis and state and federal taxes in respect of the US business. There was a deferred tax charge of £0.19 million (2006 - credit of £0.50 million). The effective tax rate for the year was 36.0% (2006 - 39.2%) compared with the standard UK corporation tax rate applicable during the year of 30%, which reflects the higher tax rate (40%) that is attributable to the proportion of the Group's taxable profits generated in the US. The prior year Group tax charge included an overseas tax prior year adjustment of £0.39 million in respect of an IRS audit, against which the Company is appealing. Excluding this one-off charge the prior year effective tax rate was 36.1%. Current tax payable at December 31, 2007 was £0.78 million (2006 - £1.17 million). Tax paid in the year was £5.20 million (2006 - £5.12 million). Cash flows Group cash and cash equivalents was £7.00 million at December 31, 2007 (2006 - £8.16 million). The Group generated net cash from operating activities of £9.25 million in the year (2006 - £8.37 million) after a net absorption of working capital of £3.80 million (2006 - £3.23 million) primarily as a result of an increase in trade debtors due to a higher level of sales in December. A further £0.08 million was generated from the proceeds of the issue of new ordinary shares (2006 - £0.58 million). Investing activities absorbed £6.09 million of cash (2006 - £3.68 million), comprising £1.29 million for the acquisition of WTS, £2.84 million for capitalised development costs and a net £1.96 million for property, plant, equipment and investments. The acquisition consideration of WTS included a deferred element of £1.50 million ($3.0 million) that can be earned over the period 2008 to 2010, depending on the performance of the business. Dividend payments in the year amounted to £1.38 million (2006 - £0.68 million). Net debt repayments during the year were £3.26 million (2006 - £2.70 million), including the payment of £1.75 million of deferred consideration associated with the acquisition of Link (2006 - £1.5 million). Group debt at December 31, 2007 comprised secured bank loans of £1.00 million (2006 - £2.50 million) and unsecured loan notes of £2.50 million (2006 - £1.75 million) in respect of the Link deferred consideration earned. The unsecured loan notes will be settled on March 25, 2008. At December 31, 2007 the Group had net funds of £3.50 million (2006 - £3.91 million). Returns to shareholders It is the Group's stated strategy to only recommend a final dividend. The Board is committed to a dividend policy in line with the Group's performance and this is reflected in the increase in the 25% increase in the recommended dividend to 1.25 pence per share (2006 - 1.00 pence). The payment of the dividend will absorb approximately £1.7 million of cash. Subject to the approval of shareholders, the dividend will be paid on July 18, 2008, to those on the register at June 27, 2008. Foreign currency risk The largest exchange risk to the Group in terms of its reported results lies in the translation of the results of the US business from US dollars to sterling at the average rate ruling for the year. To a lesser extent the Group's results are also affected by the translation of the results of Hernis, our Norwegian business. In the year to 31 December 2007 the adverse translation impact on revenue was £4.9 million and on operating profits the adverse impact was £0.8 million, relative to the rates used in 2006. The principal exchange rates used by the Group in translating overseas profits and net assets into sterling are set out in the table below. Rate compared to Average rate, Average rate, Year end rate, Year end rate, £ sterling 2006 2007 2006 2007 US dollar 2.00 1.84 1.99 1.96 Norwegian krone 11.71 11.81 10.80 12.19 Ian Scott-Gall, Chief Executive James Trumper, Group Finance Director 18 March 2008 CONSOLIDATED GROUP INCOME STATEMENT for the year ended 31 December 2007 2007 2006 Unaudited Audited Notes £'000 £'000 Revenue* 2 98,580 100,498 Cost of sales (58,848) (63,053) ---------- ---------- Gross profit 39,732 37,445 Sales and marketing expenses (9,570) (10,060) Research and development costs (5,835) (5,398) Administrative costs (9,951) (8,757) Other expenses (160) (291) ---------- ---------- Operating profit 2 14,216 12,939 ----------------------------- ------- ---------- ---------- Operating profit is analysed as: Operating profit before amortisation of acquired intangibles 5 15,678 14,303 Amortisation of acquired intangibles (1,462) (1,364) ----------------------------- ------- ---------- ---------- Finance costs 3 (437) (505) Investment income 3 192 241 Share of loss in associate (15) - ---------- ---------- Profit before taxation 13,956 12,675 Tax on profit 4 (5,026) (4,968) ---------- ---------- Profit for the year being profit attributable to equity shareholders 8,930 7,707 ---------- ---------- ---------- ---------- Earnings per share (pence per share): 5 6.47p 5.65p - basic 5 6.44p 5.56p - diluted ---------- ---------- *Revenue from acquisition in the year was £0.83 million (2006 - £nil). CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2007 2007 2006 Unaudited Audited £'000 £'000 Opening shareholders' equity 42,963 37,815 ----------- ----------- Profit for the financial period 8,930 7,707 Share options - value of employee services 119 122 Dividends (1,381) (681) ----------- ----------- Movements in the profit and loss account 7,668 7,148 Translation difference on foreign currency net investments 627 (2,578) Shares issued 56 518 Disposal of investment in own shares 19 60 Acquisition of own shares (169) - ----------- ----------- Total movement in shareholders' equity 8,201 5,148 ----------- ----------- Closing shareholders' equity 51,164 42,963 ----------- ----------- CONSOLIDATED GROUP BALANCE SHEET as at 31 December 2007 2007 2006 Unaudited Audited Notes £'000 £'000 Assets Non-current assets Goodwill 24,370 22,737 Intangible assets 7,283 6,177 Property, plant and equipment 5,220 4,689 Investment in associates 191 182 Deferred tax assets 630 991 ----------- ----------- 37,694 34,776 ----------- ----------- Current assets Inventories 15,847 14,466 Trade and other receivables 23,682 18,463 Derivative financial instruments 25 - Cash and cash equivalents 8 7,004 8,159 ----------- ----------- 46,558 41,088 ----------- ----------- Liabilities Current liabilities Financial liabilities - borrowings 8 2,522 1,750 Trade and other payables 24,040 24,240 Current tax liabilities 779 1,172 Derivative financial instruments 11 - Provisions 902 668 ----------- ----------- 28,254 27,830 ----------- ----------- ----------- ----------- Net current assets 18,304 13,258 ----------- ----------- Non-current liabilities Financial liabilities - borrowings 8 1,000 2,500 Deferred tax liabilities 2,226 2,275 Other non-current liabilities 1,332 - Provisions 276 296 ----------- ----------- 4,834 5,071 ----------- ----------- ----------- ----------- 51,164 42,963 ----------- ----------- Capital and reserves Ordinary shares 3,463 3,460 Share premium account 4,885 4,832 Merger reserve 30,565 30,565 Translation reserve (3,239) (3,866) Retained earnings 15,490 7,972 ----------- ----------- Total shareholders' equity 2 51,164 42,963 ----------- ----------- CONSOLIDATED GROUP CASH FLOW STATEMENT for the year ended 31 December 2007 2007 2006 Unaudited Audited Notes £'000 £'000 Cash flow from operating activities Cash generated from operations 7 14,451 13,558 Investment income 192 241 Finance costs (192) (309) Taxation paid (5,198) (5,118) ----------- ----------- Net cash generated from operating activities 9,253 8,372 ----------- ----------- Cash flows from investing activities Acquisition of subsidiary (net of cash acquired) (1,291) - Acquisition of own shares (169) - Proceeds from sale of property, plant and 1 12 equipment Purchase of property, plant and equipment (1,790) (1,747) Expenditure on capitalised development costs (2,839) (1,810) Investment in associates - (139) ----------- ----------- Net cash (absorbed by) investing activities (6,088) (3,684) ----------- ----------- Cash flows from financing activities Net proceeds from issue of ordinary share 56 518 capital Net proceeds from sale of own shares 19 60 Repayment of borrowings - finance leases (9) - Repayment of borrowings - secured (2,500) (3,362) Repayment of borrowings - unsecured (1,750) (1,836) Net proceeds from issue of new bank loan 1,000 2,500 Dividend paid to shareholders (1,382) (681) ----------- ----------- Net cash (absorbed by) financing activities (4,566) (2,801) ----------- ----------- Net (decrease)/increase in cash and cash (1,401) 1,887 equivalents Effect of foreign exchange rate changes 246 (850) Cash and cash equivalents at 1 January 8,159 7,122 ----------- ----------- Cash and cash equivalents at 31 December 8 7,004 8,159 ----------- ----------- NOTES TO THE ACCOUNTS for the year ended 31 December 2007 1. BASIS OF PREPARATION These results have been prepared in accordance with all International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), IFRIC interpretations and with those parts of the Companies Act, 1985 applicable to companies reporting under IFRS. There have been no changes in accounting policies during the year. The Group has adopted IFRS7 'Financial Instruments Disclosures' for the first time this year. The prior year numbers have been taken from the audited accounts. The current year numbers are unaudited. 2. SEGMENTAL ANALYSIS The Group is organised geographically by the location of its operations, where its products are produced and its service delivery activities are based. The internal management reporting within the Group also follows these lines. Therefore for the purposes of primary segmental reporting it is appropriate to split the results between the UK, the US and Norwegian businesses. Revenue Operating Profit Net Assets 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Audited Unaudited Audited Unaudited Audited -------------------- -------- ------- ------- ------- ------- ------- By business location: UK 35,821 37,393 6,612 4,095 30,016 15,595 US 59,299 60,762 9,535 11,241 21,734 18,413 Norway 16,843 13,094 1,741 1,318 7,027 5,107 Inter-segmenta l transactions (13,383) (10,751) (25) (221) - - Central - - (2,185) (2,130) (7,613) 3,848 -------- ------- ------- ------- ------- ------- 98,580 100,498 15,678 14,303 51,164 42,963 Amortisation of acquired intellectual property and customer relationships - - (1,462) (1,364) - - -------------------- -------- ------- ------- ------- ------- ------- Total 98,580 100,498 14,216 12,939 51,164 42,963 -------------------- -------- ------- ------- ------- ------- ------- Amortisation of acquired intellectual property and customer relationships relate to the UK business and WTS. The table below shows the analysis of Group revenue, by the geographic market of its customers, excluding inter-segmental sales. UK US Norway Total 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Audited Unaudited Audited Unaudited Audited Unaudited Audited ----------- ------- ------- ------- ------- ------- ------- -------- ------- By customer geographic market: UK & 3,869 5,421 233 - 1,612 853 5,714 6,274 Ireland Rest of 7,662 6,104 767 431 6,867 5,221 15,296 11,756 Europe North 221 767 55,099 53,240 1,441 567 56,761 54,574 America South 2,400 6,501 2,078 2,038 328 326 4,806 8,865 America Middle 2,351 4,693 7 - 480 1,946 2,838 6,639 East Asia 4,351 2,604 871 3,984 5,941 4,004 11,163 10,592 Africa 1,423 515 115 53 112 74 1,650 642 Other 216 415 74 638 62 103 352 1,156 ----------- ------- ------- ------- ------- ------- ------- -------- ------- Total 22,493 27,020 59,244 60,384 16,843 13,094 98,580 100,498 ----------- ------- ------- ------- ------- ------- ------- -------- ------- The tables below analyse revenue by product categories and by category of end user. 2007 2006 £'000 £'000 Unaudited Audited -------- -------- Analysis of revenue by product category Microwave radio and wireless camera products 59,896 61,995 Satellite products 18,859 19,309 Services 839 - Broadcast projects 2,143 6,100 Marine CCTV products 16,843 13,094 -------- -------- 98,580 100,498 ----------------------------------------- -------- -------- Analysis of revenue by end user category Broadcasters 72,824 77,570 Defence, law enforcement and security 9,542 10,016 Marine, oil and gas 16,214 12,773 Utility - 139 -------- -------- 98,580 100,498 ----------------------------------------- -------- -------- 3. FINANCE COSTS - NET 2007 2006 £'000 £'000 Unaudited Audited --------- -------- Interest payable on bank borrowing (174) (236) Interest payable on other loans (78) (46) Unwinding of interest associated with the discounting of deferred consideration (185) (223) --------- -------- Interest and similar charges payable (437) (505) Investment income 192 241 --------- -------- Finance costs - net (245) (264) --------- -------- 4. TAXATION The tax charge for the year comprises: 2007 2006 £'000 £'000 Unaudited Audited --------- -------- Current tax UK corporation tax 1,202 351 Foreign tax 3,633 5,118 --------- -------- Total current tax 4,835 5,469 --------- -------- Deferred tax UK corporation tax (166) (264) Foreign tax 357 (237) --------- -------- Total deferred tax 191 (501) --------- -------- Taxation charge 5,026 4,968 --------- -------- UK Corporation tax is calculated at 30 per cent (2006 - 30 per cent) of the estimated assessable profit for the year. Foreign corporation taxes are calculated at the rates prevailing in the respective jurisdictions. 5. EARNINGS PER ORDINARY SHARE Earnings per share is calculated by reference to a weighted average of 137,955,000 ordinary shares in issue during the period, excluding shares held by the Employees' Share Ownership Plan (2006 - 136,495,000). The diluted earnings per share is after taking account of a further 810,000 shares (2006 - 2,094,000) being the dilutive effect of share options. Adjusted earnings Vislink believes that adjusted operating profit, adjusted earnings and adjusted earnings per share provide additional useful information to shareholders. These measures are used by Vislink for internal performance analysis and incentive compensation arrangements. The term 'adjusted' is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principle adjustment is made in respect of the amortisation of acquired intangibles. The reconciliation between reported and underlying earnings and basic earnings per share is shown below: 2007 2006 Earnings Basic EPS Earnings Basic EPS £'000 pence £'000 pence Unaudited Unaudited Audited Audited --------- --------- -------- --------- Reported earnings 8,930 6.47p 7,707 5.65p Amortisation of acquired intangibles after tax 1,023 0.74p 955 0.70p --------- --------- -------- --------- Adjusted earnings 9,953 7.21p 8,662 6.35p --------- --------- -------- --------- 6. DIVIDENDS The directors are proposing a final dividend in respect of the financial year ending 31 December 2007 of 1.25 pence per share, which will absorb an estimated £1,732,000 of shareholders' funds. It will be paid on 18 July 2008 to shareholders who are on the register of members on 27 June 2008. 7. NOTES TO THE CASH FLOW STATEMENT Reconciliation of profit attributable to shareholders to net cash flows from operating activities: 2007 2006 £'000 £'000 Unaudited Audited ---------- ---------- Profit attributable to shareholders 8,930 7,707 Taxation 5,026 4,968 Depreciation 1,485 1,321 Loss on disposal of property, plant and equipment - 41 Amortisation of development costs 1,072 997 Amortisation of acquired intangibles 1,462 1,364 Share options - value of employee services 119 122 Investment income (192) (241) Finance costs 437 505 Derivative financial instruments (14) - Share of loss of associate 15 - (Increase) in inventories (1,062) (2,110) (Increase) in trade and other receivables (4,714) (2,706) Increase in payables 1,666 1,457 Increase in provisions 221 133 ---------- ---------- Net cash inflow from operating activities 14,451 13,558 ---------- ---------- 8. NET FUNDS The movements in cash and cash equivalents and borrowings in the period are as follows: ---------------------- --------- --------- --------- --------- Cash and cash Short term Other Total net funds equivalents borrowings borrowings £'000 £'000 £'000 £'000 ---------------------- --------- --------- --------- --------- At 1 January 2007 (audited) 8,159 (1,750) (2,500) 3,909 Cash flow for the period (1,402) - - (1,402) Net repayment of borrowings - 1,750 1,500 3,250 New unsecured loan notes - (2,500) - (2,500) New finance leases - (22) - (22) Exchange rate adjustments 247 - - 247 ---------------------- --------- --------- --------- --------- At 31 December 2007 (unaudited) 7,004 (2,522) (1,000) 3,482 ---------------------- --------- --------- --------- --------- Unsecured loan notes issued in the year of £2.5 million are in respect of the deferred consideration for the acquisition of Link Research Limited earned by the vendors. 9. DIRECTORS RESPONSIBILITIES The announcement represents non-statutory accounts within the meaning of section 240 of the Companies Act 1985. A committee of the Board of Directors approved this report on 18 March 2008. 10. REPORT AND ACCOUNTS Copies of the audited Report and Accounts will be sent to shareholders in due course and will then be available from the registered office at Marlborough House, Charnham Lane, Hungerford, Berkshire, RG17 0EY. -------------------------- (1) Defined as operating profit before the amortisation of acquired intangibles (2) Defined as operating profit margin before the amortisation of acquired intangibles This information is provided by RNS The company news service from the London Stock Exchange

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