Final Results

RNS Number : 4243D

Vislink PLC

23 March 2011

 



Vislink plc

Results for the year ended December 31, 2010

Vislink plc ("The Group"), the global technology business specialising in secure communications for the news & entertainment and law enforcement & public safety markets, has today announced its results for the year ended December 31, 2010.

Financial Headlines

	2010 £'000	2009 £'000
Revenue - continuing operations	38,176	53,680
Operating loss	(18,931)	(5,589)
Adjusted* operating loss - continuing operations	(7,847)	(2,316)
Adjusted* loss per share - continuing operations	(5.1)p	(1.7)p
Profit from discontinued operations	21,193	4,453
Profit/(loss) attributable to shareholders	3,989	(827)
Basic earnings/(loss) per share	2.9p	(0.6)p
Net cash generated from operating activities	3,187	5,053
Net cash	22,230	611
Dividend per share proposed	1.25p	1.25p

*Adjusted operating profit is operating profit before the amortisation and impairment of goodwill and acquired intangibles, share based payments and other non-recurring costs. Adjusted earnings per share is calculated on the same basis after taking account of related tax effects.

·     Underlying revenue** fell 13% to £38.2m (2009: £43.9m)

·     Total operating costs for the continuing operations reduced by 13% to £26.8m (2009: £30.6m)

·     Adjusted operating loss for the continuing operations increased to £7.8m (2009: £2.3m)

·     Non-recurring charges and impairments of £10.0m (2009: £0.9m)

·     Generated £3.2m of net operating cash (2009: £5.1m)

·     Net cash at December 31, 2010 of £22.2m (2009: £0.6m)

·     Proposed dividend maintained at 1.25p per share

·     Sale of Marine and Energy business for £32.5m completed December 30, 2010

Post Period End:

·     Cost reductions announced in January 2011 to further reduce total operating costs by 20%

·     Tender Offer to shareholders announced to return £5.0m of cash

·     John Hawkins appointed as CEO from 1^st April

**Underlying revenue is total revenue for the continuing operations excluding revenue associated with product shipments from the 2GHz US spectrum relocation programme

Tim Trotter, Chairman of Vislink said:

"Vislink has built strong market positions for its News and Entertainment and Law Enforcement and Public Safety businesses and we are confident of continuing to win market share in both of these markets in the coming year. As a result of the sale of HERNIS and the ongoing cost reduction programme we have implemented, the Group now has a strong balance sheet to invest in the profitable development of its markets and products and to consider selective acquisitions to generate future growth."

- ends -

For further information on March 23, 2011, please contact:

John Hawkins, Chairman Elect                                                          [phone]

Duncan Lewis, Chief Executive                                                          [phone]

James Trumper, Group Finance Director                                          [phone]

Andrew Hayes / Charlie Jack                                                              [phone]

Hudson Sandler                                                                                 

 

About Vislink plc

The Vislink Group is strategically focussed on providing secure communication technologies to customers in its chosen markets. We specialise in wireless, video and IP technologies together with the supporting management systems. We have two international business units organised to serve our customers in News & Entertainment and Law Enforcement & Public Safety and the related services markets. With offices in the UK, USA, UAE and Singapore we employ over 200 people worldwide and have net assets in excess of £50 million. Our products include the design and manufacture of microwave radio, satellite transmission and wireless cameras; our manufacturing operations are in the UK and the USA.

Basis of preparation

The financial information set out herein does not constitute the Company's statutory financial statements for the year ended 31 December 2010 but is derived from those financial statements and the accompanying directors' report. Those financial statements have not yet been delivered to the Registrar.

Forward looking statements

Certain statements in this preliminary announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast.

Chairman's Statement

For the year ended December 31, 2010

2010 was a demanding and difficult year for the Group, though one of important change and development. Having successfully completed the first stages of the Group reorganisation in 2009 there was early progress with our News and Entertainment business ("N&E") seeing uplift in order in-take and our Law Enforcement and Public Safety business ("LEPS") expecting an increase in order flow. With these early favourable market indicators we intended to complete the restructuring of the Group. The restructuring  included the acceleration of new product development using modular designs to reduce costs and to speed our time to market; moving product sourcing to Singapore where we had targeted an acquisition to build our presence and give us a low-cost source of manufacturing (which was later terminated); and the introduction of new group-wide management information systems.

However the early signs of recovery and growth seen at the start of the year did not continue. Our N&E business saw a 40 per cent decline in revenues during the first half of the year as our customers retrenched their spending in light of the decline in television advertising and public expenditure constraints.  Our LEPS business, in common with the rest of its industry, saw contracts delayed by public procurement bodies, or larger contracts broken into smaller individual orders, not all of which were released in the year. Our Marine and Energy business ("M&E") had already suffered from a slowing in both its offshore and marine segments, and this had continued into the first half of 2010 where the order intake for M&E was 33 per cent down on the previous year.

In the light of the Group's performance, and recognising the importance of returning value to our shareholders, the Board initiated a review of the Group's portfolio of companies at the beginning of the second half. The review concluded that the Group was structured across too many markets and needed to focus on markets where it could continue to grow and make profitable returns on its investments, and that it should dispose of assets which were not core to the future development of the Group.

The Board decided that the Group should focus its resources and strategy on the related news and entertainment and law enforcement and public safety markets, where it already held strong international positions and would be able to concentrate its technology investments. By disposing of other activities, the Group would become debt free, and have the capacity to invest selectively in product development and make judicious acquisitions where it could build profitable market-share.

Accordingly, it was decided that the Marine and Energy business that traded under the name of HERNIS Scan Systems ("HERNIS"), did not fit within the narrower focus of the Group and that HERNIS would be best served by becoming part of a company with a focus on marine safety.

On November 19, 2010, the Group announced that it had entered into a conditional agreement to sell the entire issued share capital of HERNIS for £32.5 million in cash to Cooper Industries Inc. The sale was completed on December 30, 2010 following shareholder approval given at a General Meeting on December 29, 2010.

Following the disposal of HERNIS, the Group comprises of two businesses serving the international broadcast and law enforcement markets. These markets share common technologies and similar manufacturing techniques, and continue to validate the strategy which we announced in 2009 to supply secure communications solutions to markets which have long-term structural growth.  We will do this through the progressive expansion of our international sales organisation, through technical product innovation, and world class logistical and customer support.  The Board believes the Group is well positioned to accelerate its move into Internet Protocol ('IP') based systems for the broadcast and law enforcement markets and to build market share. The Group will continue to benefit from the economies of scale of its investment in engineering and manufacturing by amortising the cost of its investments across both markets.

In addition, the Board decided to dispose of Western Technical Services Inc. ("WTS"), its small services business located on the West Coast of the USA and this process is continuing. WTS will continue to operate independently until the business is sold. Until such time it will be reported as a discontinued activity.

The Board also announced at the end of last year that the Group had entered into discussions to acquire Gigawave Limited, a privately held company which competed in the wireless camera, microwave and antenna markets.  Gigawave complements our own capabilities in terms of engineering capability, product portfolio and geographic reach.  Whilst we continue to believe in the industrial logic of bringing Gigawave and Vislink and their associated brands together we have, to date, been unable to reach an agreement with the vendors.

Financial results

Group revenues for the continuing business were £38.2 million (2009: £53.7 million).  N&E revenues were down 28 per cent to £31.6 million (2009: £43.8 million); however, as a result of the economic downturn, underlying revenue declined 7 per cent, when revenue from the 2GHz US spectrum relocation programme in the US of £9.8 million is deducted from the comparative prior year. Law Enforcement & Public Safety was also affected by the economic downturn which led to public procurement agencies deferring contracts, and its revenue fell by 34 per cent to £6.5 million (2009: £9.9 million).

The continuing business reported an increase in the adjusted operating loss for the year, being operating profit before amortisation and impairment of goodwill and acquired intangibles and other non-recurring costs, to £7.8 million (2009: loss of £2.3 million). Total operating costs in the Group were reduced by 13 per cent to £26.8 million (2009: £30.6 million) but we have maintained our investment in sales and marketing, which includes selective recruitment of sales people, and in new product development. Despite this reduction in costs, the operating loss increased as a consequence of the 29 per cent reduction in headline revenues. However trading improved in the second half of 2010 where the adjusted operating loss was £2.2 million on revenues of £21.4 million compared with a £5.6 million loss in the first half of 2010 on revenues of £16.7 million.

The reported operating loss for the continuing business was £18.9 million (2009: loss of £5.6 million) after charging £1.1 million in respect of the amortisation of acquired intangibles (2009: £2.3 million), £4.6 million in respect of goodwill impairments (2009: £nil) and £5.4 million in respect of non-recurring costs (2009: £0.9 million). Non-recurring costs comprise employee termination costs of £0.4 million, product and market rationalisation costs of £4.4 million and £0.6 million in respect of the aborted acquisition.

The continuing business reported a loss for the financial year of £17.2 million (2009: £5.3 million) after net finance costs of £0.5 million (2009: £0.5 million) and a tax credit of £2.2 million (2009: credit of £0.8 million).

Discontinued operations contributed a net profit after tax of £0.4 million (2009: £4.5 million) from trading activities. In addition there was a profit from the sale of HERNIS of £20.8 million in the year. The net profit attributable to equity shareholders was £4.0 million (2009: loss of £0.8 million).

The Group ended the year with net cash of £22.2 million (December 31, 2009: net cash of £0.6 million) after a net cash inflow from the sale of Hernis of £26.9 million. The net cash inflow generated from operating activities in the period was £3.2 million (2009: £5.1 million) after the cash outflow associated with non-recurring costs. Net capital expenditure and deferred consideration payments were £6.8 million (2009: £4.5 million) and dividend payments were £1.7 million (2009: £1.7 million).

Dividend and Shareholder Returns 

Following consultation with major shareholders, the directors are proposing to return part of the proceeds from the sale of HERNIS to shareholders by way of an on-market tender offer, subject to shareholder approval at a General Meeting to be held on April 8, 2011. A circular will be sent to shareholders on March 23, 2011 explaining the proposal. Up to £5.0 million will be returned to shareholders.

The basic undiluted earnings per share was 2.9 pence (2009: loss of 0.6 pence). After adjusting for the amortisation of acquired intangibles, impairment of goodwill and other non-recurring costs and related tax effects, the adjusted loss per share for the continuing business was 5.1 pence (2009: loss 1.7 pence).

The Board is proposing that the full-year dividend be maintained at 1.25 pence per share (2009: 1.25 pence).

The Board and Management

I announced my intention at the 2010 AGM to stand down at the AGM in 2011.  In December 2010 the Board appointed John Hawkins to succeed me. 

Stephen Bellamy joined the Board in June 2010, and stood down in January 2011.  We are grateful to Stephen for his contribution.

Duncan Lewis, Chief Executive of the Group since October 2008, indicated to the Board at the beginning of 2011 that he would wish to stand down on or around his sixtieth birthday at the end of April.  Duncan will therefore be leaving the Group on March 31st, at the end of the first quarter. I would like to thank Duncan for his significant contribution to the Group over the last two and a half years in what has been an important period of transition for the Group in particularly challenging markets.

The Board has agreed that John Hawkins will take over Duncan's responsibilities as interim CEO from April 1st whilst a search is conducted for a new CEO. This will be in addition to taking on the role of Chairman following the Annual General Meeting in May.

On a personal note, I would like to thank my board colleagues for their support during my tenure as Chairman.

Current Trading and Outlook

We have entered 2011 with an order book of £5.6 million for the continuing business (2009: £5.4 million). In January we announced we were reducing headcount by 60 people, being approximately one quarter of the total workforce. These reductions will be combined with further site-consolidations and the acceleration of the transfer of product sourcing to Asia. As a result, the Group expects to reduce the total operating cost-base of the continuing business to approximately £20.0 million, which is consistent with the current market trends and expected revenue growth of the Group. The cash cost of the restructuring will be approximately £0.6 million.

In N&E we anticipate that we will see continued revenue growth in Asia and Latin America. We expect that the US and Canadian broadcast markets will be more robust as the economic recovery continues, and we expect some modest recovery in Western Europe. There are also important growth opportunities from non-traditional broadcasters, for example Professional Sports teams, Religious groups and Educators.

The 2011 market outlook for LEPS is also more positive.  We have a growing pipeline and we expect increased revenues from the Americas, Middle East and Asia.  In addition, Federal Government agencies throughout the Americas are expanding the capabilities of their aerial surveillance units increasing demand for sophisticated airborne downlink solutions. We continue to lead in these markets by offering advanced technology solutions.

We have a clear product development programme for 2011 that includes our new one-box Newslite satcom electronic solution;  innovative combinations of 4G and WiFi technology offerings with our existing microwave and satcoms products; and an expanded IP product portfolio.  These will provide our customers with secure communication solutions over a variety of networks bringing them greater efficiency and enhanced capability.

We have built strong market positions for our News and Entertainment and Law Enforcement and Public Safety businesses and we are confident of continuing to win market share in both of these markets in the coming year. As a result of the sale of HERNIS and the ongoing cost reduction programme we have implemented, the Group now has a strong balance sheet to invest in the profitable development of its markets and products and to consider selective acquisitions to generate future growth. 

Finally, on behalf of the Board, I thank all our employees for their efforts in the course of 2010 during which they have had to deal with the consequences of an extremely difficult economic environment whilst in the midst of the restructuring of the Group. We now look forward to rebuilding our businesses from the sound base that we have established.

Tim Trotter, Chairman

March 23, 2011

 

OPERATING and FINANCIAL REVIEW

For the year ended December 31, 2010

The Organisation of the Group

Continuing activities

The Group is now focussed on serving the news and entertainment and law enforcement and public safety markets through its two business units, N&E and LEPS. Although these markets have different customer characteristics, they share common technologies and related products, and the Group will therefore continue to benefit from economies of scale in its investment in engineering and manufacturing by amortising the costs of its investment across the two markets.

In each business unit, the Group expects it will be either the market-leader or a significant competitor of the market leader, and will have uniquely competitive products to continue to build market share and brand presence.

The business units are responsible for all aspects of marketing and product development and for sales.  They are each responsible for their orders, revenues and operating profits.

They are supported by two operational divisions:

·      Vislink Technologies is responsible for the forward technology strategy of the Group. It designs and develops products to meet the requirements of the business units' customers.

·      Vislink Logistics is responsible for the sourcing of materials and products in the most cost-efficient way for the business units, with end-to-end responsibility for supply chain management, including delivery of orders to customers on the agreed date, project management, installation, maintenance and customer care.

Following the announcement of further cost reductions at the start of 2011 the Group intends to continue to contain its operating costs. No further immediate expansion is planned; our regional sales offices are appropriately staffed and the major planned investments in information technologies have been completed. The Group however, intends to move the majority of its product-sourcing to Asia by the end of 2011. As previously announced, this is expected to improve gross margins.

Discontinued business

The Group sold its Marine & Energy business unit (HERNIS) to Cooper Industries on December 30, 2010. In addition the Group has announced its intention to sell its California based Services business, Western Technical Services ("WTS"). The trading results of both HERNIS and WTS have been treated as discontinued activities in the consolidated group income statement.

The Group's Products and Markets

The Group offers its customers products under a number of different brand names which are well known in our markets:

•           Advent satellite systems

•           Link wireless cameras

•           MRC microwave systems

•           PMR video surveillance systems

The market for the News and Entertainment business unit is the global broadcast contribution market where our products are used to capture live TV coverage of news and sports events. Our brands have a strong market presence, are recognised for their quality and we historically have strong distribution. Revenue is being driven by the demand for HDTV and 3DTV, news and sports programming and new TV channels, and increasingly for IP-based workflow management.

For the Law Enforcement and Public Safety business unit the market is video collection and transmission solutions for surveillance purposes, either overt or covert, for government agencies and "homeland security".

In 2010, N&E represented 83 per cent of the Group's revenues (2009: 82 per cent); LEPS 17 per cent (2009: 18 per cent). 

It is part of the Group's strategy to continue to increase its revenues from markets in the Middle East, Africa, Asia and South America and to reduce its dependency upon North America and Europe.  In 2010 the revenues split across regions was more even, North America representing 39 per cent of Group revenues (2009: 54 per cent); UK and Europe 24 per cent (2009: 21 per cent) and the rest of the world 37 per cent (2009: 25 per cent).

Key Indicators

The table below sets out the key indicators that are used to measure the performance in the continuing business.

Headline revenues for the continuing business declined by 29 per cent to £38.2 million (2009: £53.7 million). The end of the 2GHz US spectrum relocation programme in 2009 accounted for 18 per cent of the revenue decline. The economic downturn accounted for a further 7 per cent decline in underlying revenues in N&E to £31.6 million. Our LEPS business unit was also affected by the economic downturn which led to public procurement agencies deferring contracts, and its revenue fell by 34 per cent to £6.5 million.

Our material margin percentage declined by 3.1 per cent as pricing became increasingly competitive in our markets.  Our material margin declined by £9.4 million as a result of both lower volumes and the lower margin percentage. Total operating costs were reduced by 13 per cent to £26.8 million but despite this reduction in costs, the adjusted operating loss increased to £7.8 million (2009: £2.3 million).

However trading improved in the second half of 2010 where the adjusted operating loss was £2.2 million on revenues of £21.4 million compared to a £5.6 million loss in the first half on revenues of £16.7 million.

Year ended 31 December	H1 2010	H2 2010	2010 Total	2009 Total
Underlying Orders received (£'000)1	18,520	19,999	38,519	39,350
Revenue (£'000)	16,745	21,431	38,176	53,680
Underlying revenue (£'000)2	16,745	21,431	38,176	43,915
Material cost margin (£'000)3	8,063	10,894	18,957	28,321
Material margin as a percentage of sales	48.2%	50.8%	49.7%	52.8%
Total operating costs(£'000)4	13,708	13,096	26,804	30,637
Adjusted operating (loss) (£'000) 5	(5,645)	(2,202)	(7,847)	(2,316)
Adjusted (loss) per share (pence)5	(3.6)p	(1.5)p	(5.1p)	(1.7p)
Net cash generation from operating activities (£'000)	433	2,754	3,187	5,053

Notes

¹ Underlying orders are defined as orders booked excluding those from the 2GHz relocation programme.

² Underlying revenue is defined as revenue excluding those from the 2GHz relocation programme.

³ Defined as revenue less material costs in cost of sales.

⁴ Operating costs comprise sales and marketing expenses, administration expenses, and the costs associated with the logistics and technology business units.

⁵ Defined as operating profit before the amortisation and impairment of goodwill and acquired intangibles, and other non-recurring costs. Adjusted EPS is calculated on the same basis after taking account of related tax effects.

BUSINESS UNIT REVIEWS

News & Entertainment

	2010 £'000	2009 £'000
Core revenue	31,629	33,997
2GHz revenue	-	9,765
Revenue	31,629	43,762
Operating profit contribution*	4,126	8,770
Operating margin	13.0%	20.0%

*Operating profit contribution is gross margin less sales and marketing overheads

Vislink News & Entertainment (N&E) is a unified business unit serving broadcast industry customers worldwide with Advent satellite communications solutions, Link Research wireless camera systems, MRC terrestrial microwave products and associated services. The global sales team is supported by pre-sales engineering, product line managers and an integrated marketing organisation. N&E has four regional sales offices in the USA, UK, UAE and Singapore, each with technical support.

During 2010 N&E revenue declined by 28 per cent to £31.6 million, largely due to the £9.8 million reduction in US 2GHz relocation programme revenues which ended during 2009. The 7 per cent reduction in core revenue during the year reflected a continuing slowdown in broadcasters' expenditure. This trend was most pronounced in Europe, but also impacted revenues in the Americas and Middle East regions. There was, however, marked revenue growth in our Asia Pacific region during 2010.

The United States remains our single largest market. During 2010 broadcaster spending patterns shifted from electronic news gathering post the 2GHz relocation program towards high definition upgrades, digital fixed microwave links, wireless camera systems and IP over 3G cellular solutions. Early in the year we won an important tender to upgrade the state-wide microwave network for Alabama public television. During 2010 US commercial broadcasters began to recover from the recession in on-air advertising, and this trend was further boosted by robust advertising expenditure during the November election cycle. The Latin America region continues to grow and is contributing an increasing percentage of regional revenue.

Trading in the UK and Western Europe has been weak, and our overall revenue from this region declined by 18 per cent from 2009. Both commercial and license funded broadcasters exerted tight controls over equipment and operations expenditure despite increases in advertising expenditure in the second half. This affected us directly, but also impacted our events coverage and broadcast rental equipment customers. Eastern Europe and Africa offered some growth opportunities, and N&E won new customers in both regions late in the year. The Middle East/North Africa region had a slow start to 2010 but recovered well later in the year. Overall revenue in MENA was down 12 per cent.

Revenue in the Asia Pacific region grew by 45 per cent during 2010. China, Indonesia, Thailand, the Philippines, Korea and Australia were all important markets. We also won new opportunities in the Indian sub-continent. As part of our ongoing investment in the APAC region we formed a sales and marketing partnership in July to more effectively serve our customers in the Peoples Republic of China.

The reduction in the operating margin to 13.0 per cent during 2010 was due to a combination of a 2.2 point reduction in gross margin due to increasingly competitive pricing; and higher overheads as a proportion of total sales despite the fact that sales and marketing costs were reduced by 15 per cent over the course of the year.

For 2011 N&E anticipates continued revenue growth in East Asia, Latin America, Russia/Eastern Europe and the Indian sub-continent. The US and Canadian broadcast markets will be more robust as the economic recovery continues, and we expect some recovery in Western Europe. There are also important growth opportunities from non-traditional broadcasters, in particular Professional Sports teams, Religious groups and Educators.

We will continue to expand our portfolio of IP/3G/4G products, satellite electronics systems, satellite terminals and H.264 encoders for wireless cameras. We will form strategic partnerships with key broadcast technology and solution vendors as appropriate. We will further evolve our Channel Partner Program in order to motivate and reward our most valued partners.

 Law Enforcement & Public Safety

	2010 £'000	2009 £'000
Revenue	6,547	9,918
Operating profit contribution*	(620)	1,759
Operating margin	-9.5%	17.7%

*Operating profit contribution is gross margin less sales and marketing overheads

Vislink's Law Enforcement and Public Safety (LEPS) Business Unit serves worldwide covert and overt video surveillance markets with wide area video collection solutions designed to improve accessibility and dissemination of mission critical visual intelligence over public and private networks.  The business unit serves customers at all levels of government including first responders (law enforcement, fire, and other emergency rescue personnel).

The expansion of the LEPS business was much slower than we had expected due to the deferment of a large number of major projects and the unpredictability of public purchasing decisions as public authorities remained cautious about the fiscal outlook. In particular second half contract delays in the United States combined with a weaker performance in Asia and Africa was responsible for the 34 per cent decline in revenues to £6.5 million (2009: £9.9 million). During the year we have maintained our investment in sales and marketing despite the lower sales volumes and as a consequence the business unit reported an operating loss for the year of £0.6 million (2009: profit of £1.8 million).

However, throughout 2010 there has been a steady increase in demand for airborne video surveillance from the worldwide user community. Our comprehensive digital video transmission product suite continues to eliminate many of the technical barriers faced by security officials; our products decrease response time and improve the effectiveness of crisis management. Our innovative technologies, including DoubleVision and RangeMaster, provide real time remote images to key decision makers with higher quality and reliability at greater distances than ever before.  These features are quickly becoming the default standard for high performance microwave video transmission.

Despite the lower than expected revenues in the year LEPS has achieved market penetration largely due to the flexibility engineered into its Software Defined Surveillance (SDS) products.  SDS allows law enforcement professionals to easily expand their video collection systems over time and mitigates technology obsolescence.  End-to-end solutions for video collection represent the heart of our product and market strategy.  Customers are requiring turnkey solutions which provide seamless connectivity utilizing advance RF and IP technologies.  We have addressed this with the Kamelyon family of products.  Kamelyon provides both over-the-air transmission and IP infrastructure capabilities to support wide area video collection and distribution. 

The 2011 market outlook for Vislink LEPS is positive with significant improvement in the Americas, Middle East and Asia Pacific regions expected.  In addition, Federal Government agencies throughout the Americas are expanding the roles and mission capabilities of their aerial surveillance units increasing demand for sophisticated airborne downlink solutions.  Real-time aerial video downlinks play a critical role in border surveillance and suppression of illegal activities worldwide and demand is increasing in the Middle East and Asia Pacific regions.  We continue to lead in these markets by offering advanced technology solutions and unmatched customer support. 

Vislink Technologies

Expenditure on research and development in 2010 in the continuing business was £5.7 million representing 15 per cent of revenues, compared with £6.2 million in 2009, 12 per cent of revenues. In addition, the continuing business has capitalised development costs of £2.9 million (2009: £3.1 million).  Amortisation of development costs of £2.6 million (2009: £1.9 million) is included in the reported research and development expenses in the consolidated group income statement.  In cash terms, the Group spent £6.0 million on R&D, a decrease of 20 per cent over 2009 (2009: £7.5 million).

The integration of engineering across the Group continues to generate improvements in the efficiency and effectiveness of the product development programme. Duplicated effort has now been eliminated and the specialist expertise of the various sites is now applied to the best effect for all the Group's products. All sites operate to a common product development process which tightly integrates the development activities with the market requirements and product launch processes of the individual business units. A focus on lean and efficient processes means that 89 per cent of the 44 staff in Vislink Technologies are engineers.

We reduced the number of engineers employed in the United States during the year as several products came to the end of their natural lives, and to enable us to change our skill mix to follow the direction of our customers as they increasingly apply IP to their operations.  We took the opportunity in January 2011 to complete this process by creating a 'solutions' team. Our customers in the Americas increasingly require complex IP-based systems configured to their particular needs. We have also developed strong relationships with third party technology providers to broaden the scope of the solutions we provide and complement our key competencies in encoding, modulation, video, IP, microwave and satcom. Development of our core technology platforms is concentrated in our UK facility.

We have now fully adopted the modular approach to product development, improving design reuse and providing more flexible building blocks for faster product introduction, greater economies of scale, lower support costs and faster return from cost reductions through design improvements.

In 2010 we applied the Kamelyon technologies developed for the LEPS market to several products for the N&E market, including the development of a new lightweight wireless camera and H.264 encoding capabilities for our broadcast encoder-modulators. We developed a new, modular receiver-decoder platform that supports an unrivalled breadth of modulations and video compression formats, including the highest quality 10-bit H.264 4:2:2 format. We responded to the pressures on our customers' use of RF bandwidth by developing a new modulation method that combines the best features of both single and multi-carrier modulations, making optimal use of increasingly congested spectrums. We shipped IP gateways to broadcast customers, facilitating more efficient and cost-effective contribution workflows.

In 2011 we will commence shipment of our innovative and highly integrated NewsLite satcom electronics solution, combining video and IP data handling, WiFi, bonded 3G/4G cellular connectivity and fully automated dish control in a single, compact, rapidly deployable package. We will also launch new encoding and modulation platforms, expand our IP product portfolio and offer innovative combinations of WiFi and 4G technologies with our class-leading microwave and satcom products to provide our customers with secure communications solutions that bring greater efficiencies, enhanced capabilities and competitive advantage.

Vislink Logistics 

Vislink Logistics is progressively changing its role as the Group evolves.  When it was created in January 2009, it was responsible for the manufacture and delivery of the Group's products with the remit to ensure the business units benefit from low-cost, flexible manufacturing and improved customer delivery and support. In January 2011, we reduced our operational sites from three to two. As we have withdrawn a number of legacy products, we can source most of our new products from Asia because of their modular design, thereby improving our material margin. We have now implemented our new ERP system.

Logistics is responsible for all aspects of customer support, from the configuration and integration and testing of products and systems, to customer delivery, project management and installation.

FINANCIAL REVIEW

The Group's results are summarised as follows:

Year ended December 31,	2010 £’000	2009 £’000
Continuing business
Revenue	38,176	53,680
Material cost of sales	(19,219)	(25,359)
Material margin	18,957	28,321
Material margin percentage	49.7%	52.8%
Operating costs	(26,804)	(30,637)
Adjusted operating (loss)	(7,847)	(2,316)
Amortisation of acquired intangibles	(1,119)	(2,331)
Impairment of goodwill	(4,557)	-
Non-recurring costs	(5,408)	(942)
Reported operating (loss)	(18,931)	(5,589)
Net finance costs	(486)	(458)
(Loss) before tax	(19,417)	(6,047)
Taxation credit	2,213	767
(Loss) after tax – continuing business	(17,204)	(5,280)
Discontinued activities
Profit after tax from discontinued operations	381	4,453
Profit from disposal of subsidiary	20,812	-
Profit (loss) attributable to equity shareholders	3,989	(827)
Effective tax rate1	14.3%	13.0%
Basic earnings (loss) per share	2.9p	(0.6p)
Adjusted (loss) per share2	(5.1p)	(1.7p)

¹The effective tax rate is that used to calculate adjusted earnings per share

²Adjusted EPS is calculated on operating profit before the amortisation and impairment of goodwill and acquired intangibles, and other non-recurring costs after taking account of related tax effects.

Goodwill impairment

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. An impairment review has been undertaken in respect of the goodwill associated with both the N&E and LEPS business units.  The basis for the review was to assess the strategic plans for the businesses and to discount the future expected cash flows using the Group's weighted average cost of capital in accordance with IAS36 "Impairment of Assets". The Board considered the estimated discounted cash flows for the business units from the business plan for the next two years. The Board also reviewed the performance of the business units in 2010 against the prior year projections used in the impairment review undertaken the previous year.

Having reviewed all the relevant calculations and the sensitivities the Board considered that there had been a £3.3 million impairment in the goodwill associated with the LEPS business and a £1.2 million impairment in the goodwill associated with the international services business which has been incorporated within N&E. The appropriate non-cash charge has been made in the consolidated group income statement.

Non-recurring costs

Non-recurring costs comprise:

·      £0.4 million in respect of rationalisation and redundancy costs;

·      £1.2 million from the withdrawal of the Military Satcoms market;

·      £0.8 million impairment of development costs capitalised associated with an accelerated end of life;

·      £2.5 million inventory write down associated with an accelerated end of life;

·      £0.6 million aborted acquisition costs; and net of

·      £0.1 million write back of onerous property commitments.

Following the reorganisation of the Group's operations into four international business units in 2009 the Group has incurred further rationalisation and redundancy costs of £0.37 million (2009: £1.22 million) in the period.  As part of the reorganisation the Law Enforcement and Public Safety business unit has withdrawn from the Military Satellite Communications market. As a result inventory and capitalised product development costs of £0.54 million and £0.63 million have been written off.            

The Group reorganisation has also extended to the accelerated rationalisation of the microwave product range manufactured in the United States. As a result of the planned move to manufacture products in Asia a number of microwave product lines have been terminated earlier in their life cycle than would be normal and as a result inventory has been written down by £2.51 million and development costs associated with those products  have been impaired by £0.88 million.                                        

The Group explored the possibility of acquiring a business in Asia to which it would have transferred much of its manufacturing and which would have provided a base for further expansion into the region.  The transaction was aborted in the light of discoveries at the end of due diligence. The costs incurred represent professional fees incurred up to the date of the process being aborted.

Finance costs

The net interest charge for the continuing business was £0.49 million (2009: £0.46 million). Included within the interest charge is £0.17 million (2009: £0.23 million) in respect of the unwinding of the discounting of the deferred consideration associated with the acquisitions of WTS and PMR to their present value.

Interest paid in the year was £0.19 million (2009: £0.29 million) net of £0.12 million of interest earned by the discontinued business (2009: £0.01 million).

Taxation

There was a net tax credit for the year of £2.22 million (2009: £0.77 million). There was a UK current tax credit of £0.02 million (2009: credit of £0.20 million) and an overseas current taxation credit of £0.74 million (2009: credit of £0.73 million). Overseas taxation represents state and federal taxes in respect of the US business. There was a deferred tax credit of £1.46 million (2009: charge of £0.16 million).

The effective tax rate of 14.3 per cent for the year is lower than the standard UK corporation tax rate applicable during the year of 28.0 per cent (2009: 28 per cent) due to the level of losses that the Group made in the year which have not been recognised as tax assets.

Current tax recoverable at December 31, 2010 was £0.76 million in respect of US tax (2009: total UK tax recoverable of £0.18 million; foreign tax payable of £1.17 million). Net tax paid in the year of £0.63 million comprised Norwegian tax in respect of HERNIS of £1.17 million and repayments of UK and US tax of £0.20 million and £0.34 million respectively.

Discontinued activities

The business of HERNIS made an operating profit after tax of £2.66 million (2009: £3.55 million). WTS made a loss after tax of £2.28 million (2009: profit of £0.90 million) after charging amortisation of acquired intangibles of £0.91 million (2009: £1.08 million) and a goodwill impairment charge of £0.80 million (2009: £nil).

There was a profit from the sale of HERNIS of £20.81 million. This was after costs of disposal of £0.49 million and payment to the management of HERNIS under a change of ownership incentive plan of £1.51 million.

Cash flows

The Group held cash and cash equivalents of £22.23 million at December 31, 2010 (2008: £7.42 million).

The Group generated net cash from operating activities of £3.19 million in the year (2009: £5.05 million). There was a net cash release from working capital of £4.47 million (2009: absorption of £0.05 million) after removing the effect of increased inventory provisions. Investing activities absorbed £6.82 million of cash (2009: £4.52 million), comprising £1.63 million in respect of deferred consideration on previous acquisitions, £2.98 million for capitalised development costs and a net £2.22 million for property, plant, equipment and investments.

Dividend payments in the year amounted to £1.72 million (2009: £1.72 million).

The sale of HERNIS generated a net cash inflow of £26.94 million. The proceeds were used to repay all existing bank debt amounting to £7.16 million. The Group had no debt at December 31, 2010 (2009: secured bank loans of £6.81 million). At December 31, 2010 the Group had net funds of £22.30 million (2009: £0.60 million).

Returns to shareholders

It is the Group's stated strategy to only recommend a final dividend. The Board is recommending that the dividend be maintained at 1.25 pence per share (2009: 1.25 pence). The payment of the dividend will absorb approximately £1.72 million of cash. Subject to the approval of shareholders, the dividend will be paid on July 15, 2011, to those shareholders on the register at June 24, 2011. 

In addition, following consultation with major shareholders, the Group is proposing to return part of the proceeds from the sale of HERNIS Scan Systems AS to shareholders by way of an on-market tender offer, subject to shareholder approval at a General Meeting to be held on April 8, 2011. A circular was sent to shareholders on March 23, 2011 explaining the proposal. Up to £5.0million will be returned to shareholders.

Principal risks and uncertainties for the Group

The Group may be affected adversely by global economic conditions

The operating and financial performance of the Group is influenced by the economic conditions of the regions in which it operates, particularly the United Kingdom, Continental Europe and the USA. The Group is mitigating its reliance on these regions by expanding its activities in Asia Pacific, the Middle East and Africa. However the current strained global economic conditions and the volatility of international markets could result in a general reduction in business activity and a consequent loss of income for the Group. The global credit market conditions mean financial institutions are applying more stringent lending criteria and the availability of debt is low by historical comparison, which may mean that it will be more costly for the Group to raise funds to take advantage of opportunities, should additional funding be required.

The Group expects to weather the current economic climate through its renewed focus on its existing customers as well as developing new relationships through expanding its international presence. Improving the operational efficiency of the Group combined with cost reductions will help underpin the underlying performance going forward.

Risks associated with the Group's markets

The markets in which the Group operates are mature and highly competitive with respect to price, geographic distinction, functionality, brand recognition and the effectiveness of sales and marketing.

Due to price pressure, the Group may experience fluctuations in future operating results. If the Group is unable to offset any reductions in selling prices and margins by increases in volumes and/or by decreases in operating expenses, turnover and profitability may be affected negatively. Competition could be intensified due to companies entering certain markets with new products or favourable cost structures. In such events Group sales, margins and/or market shares may decrease.

Group management and the business units are aware of the competitive risks in its markets and regularly review competitor activity in order to create strategies to protect the Group's position as far as possible.

Reputational risks for operational incidents

Many of the Group's products are for mission critical services, such as ensuring live news is available in real time or that mission critical video surveillance is uninterrupted. There is the risk that product failure will cause loss of services to Vislink customers, bringing damage to the Group's reputation. Customer service and support is a key part of the Group's offering to customers to mitigate such damage.

Operations overseas

The Group conducts its business in multiple jurisdictions and, as a result, assumes the accompanying risks which may include government regulations and administrative policies which could change quickly. Governments could expropriate assets; burdensome taxes or tariffs could be imposed. Political changes in the business environment in which the Group operates and economic downturns, political instability and civil disturbances could disrupt the Group's business activities. Where appropriate the Group will take out insurance to cover political risks. Management monitor the exposure that the Group has to higher risk countries.

The Group's business may be affected by the default of customers in respect of monies owed to the Group

As a consequence of its normal operations, the Group often has significant amounts owed to it by its customers. In the current market environment, the Group's operating and financial performance may be impacted by increased exposure to the default of customers, which may reduce the Group's cash flows.

The Group policy is to limit its exposure by setting credit limits for each customer, where possible by reference to published credit ratings, to manage its exposure. In addition on larger contracts the Group seeks deposits and advance payments to maintain a positive cash flow and to cover its costs.

Senior management and senior personnel

The Group is dependent on members of its senior management team and skilled personnel. Its future success will depend in part on its ability to attract and retain highly skilled management and personnel. If the Group does not succeed in attracting and retaining skilled personnel, it may not be able to grow its business as anticipated. Further, the departure of certain senior employees from the Group could, in the short term, have a material adverse effect on the Group's business. The Board gives regular consideration to succession planning.

Foreign exchange

The Group's exposure to market risk, liquidity risk, credit risk and cash flow interest rate risk remains largely unchanged from the position at December 31, 2009, other than that the Group now has a significantly improved net cash position and that, through the sale of HERNIS, the Group no longer has an exposure to fluctuations in the Norwegian Krone.

The Group's principal risks and uncertainties continue to be the impact of foreign exchange rates on margins for non-domestic sales in each of our businesses. The Group mitigates this risk as far as possible through hedging expected foreign exchange receipts. Borrowings to fund overseas acquisitions are taken out in local currency to provide a natural hedge against the translation risk arising from the net assets of those businesses.

The Group is exposed to the translational risk of fluctuations in the value of sterling when translating overseas results and assets back into sterling. The exchange risk to the Group in terms of its reported results lies in the translation of the results of our trading entities in the USA. The Group accounting policy is to translate the profits and losses of overseas operations using the average exchange rate for the financial year and the net assets and liabilities of overseas subsidiaries at the year end exchange rate. It continues to be Group policy not to hedge the foreign currency exposures on the translation of overseas profits or losses and net assets or liabilities as they are considered to be accounting rather than cash exposures.

In 2010 the net assets of the Group increased by £1.1 million on the translation of foreign currency net investments (2009: decreased by £2.3 million) as a result of the strengthening of the US dollar against sterling. If the results for the year to December, 31 2009 had been translated at the 2010 rates then the translation impact on revenue would be to reduce prior year revenue by £0.4 million and increase the loss before tax by £0.02 million.

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 £ sterling	Average rate, 2010	Average rate, 2009	Year end rate, 2010	Year end rate, 2009
US dollar	1.55	1.56	1.57	1.61
Norwegian Krone	9.34	9.78	9.10	9.33

Risk management

The Board regularly reviews the full range of business risks facing the Group. The approach adopted is to identify, evaluate and manage the likely impact of risk on the Group's business objectives. Where the risks are unavoidable they are managed through business controls and where appropriate through insurance and treasury activities.

The Group has a programme of regular risk assessment, which incorporates internal control reviews of both a financial and non-financial nature. A process of continuous review has been in place throughout the year at an operating company level to consider the risk environment and the effectiveness of controls. The results of reviews, initiatives and progress on implementing control improvements are regularly reported to the Board.

Duncan Lewis, Group Chief Executive

James Trumper, Group Finance Director

March 23, 2011

CONSOLIDATED GROUP INCOME STATEMENT

for the year ended 31 December 2010

		2010	2009
			Restated
	Notes	£'000	£'000
Continuing operations
Revenue	3	38,176	53,680
Cost of sales		(24,754)	(32,337)
Gross profit		13,422	21,343
Sales and marketing expenses		(9,916)	(10,814)
Research and development expenses		(5,712)	(6,218)
Administrative expenses		(5,641)	(6,564)
Other expenses		(11,084)	(3,273)
Operating (loss)	3,4	(18,931)	(5,589)
Operating (loss) is analysed as:
Adjusted operating (loss)		(7,847)	(2,316)
Amortisation of acquired intangibles		(1,119)	(2,331)
Goodwill impairment		(4,557)	-
Non-recurring costs	4	(5,408)	(942)
Finance costs	5	(487)	(474)
Investment income	5	1	16
(Loss) before taxation		(19,417)	(6,047)
Income tax credit	6	2,213	767
(Loss) for the year from continuing operations		(17,204)	(5,280)
Discontinued operations:
Profit for the year from discontinued operations	7	21,193	4,453
Profit/(loss) for the year being loss attributable to equity shareholders	8	3,989	(827)
Basic earnings/(loss) per share
From continuing operations		(12.4)p	(3.8)p
From discontinued operations		15.3p	3.2p
Basic earnings/(loss) per share	9	2.9p	(0.6)p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2010

		2010 £'000	2009 £'000
Profit/(Loss) for the financial year		3,989	(827)
Other comprehensive income/(loss):
Translation difference on foreign currency net investments		1,062	(2,313)
Total comprehensive income/(loss)for the year attributable to equity shareholders		5,051	(3,140)

CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION

as at 31 December 2010

	Notes	2010	2009
		£'000	£'000
Assets
Non-current assets
Goodwill		16,252	24,832
Intangible assets		9,182	12,192
Property, plant and equipment		2,793	5,756
Investment in associates		-	224
Deferred tax assets		408	958
Total non-current assets		28,635	43,962
Current assets
Inventories		7,398	15,655
Trade and other receivables		10,917	23,738
Non-current assets held for sale		-	461
Current tax assets		764	179
Cash and cash equivalents	11	22,230	7,423
		41,309	47,456
Assets of subsidiary undertaking classified as held for sale		2,305	-
Total current assets		43,614	47,456
Liabilities
Current liabilities
Trade and other payables		12,841	22,677
Current tax liabilities		-	1,173
Provisions for other liabilities and charges		514	1,093
		13,355	24,943
Liabilities of subsidiary undertaking classified as held for sale		1,049	-
Total current liabilities		14,404	24,943
Net current assets		29,210	22,513
Non-current liabilities
Financial liabilities: borrowings	11	-	6,812
Deferred tax liabilities		96	2,380
Other non-current liabilities		1,177	4,143
Provisions for other liabilities and charges		299	380
Total non-current liabilities		1,572	13,715
Net assets		56,273	52,760
Shareholders' equity
Ordinary shares		3,465	3,465
Share premium account		4,900	4,900
Merger reserve		30,565	30,565
Translation reserve		4,592	3,530
Retained earnings		12,751	10,300
Total shareholders' equity		56,273	52,760

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

	Share Capital £000	Share premium account £000	Merger reserve £000	Translation reserve £000	Retained earnings £000	Total £000
At January 1, 2009	3,465	4,900	30,565	5,843	12,501	57,274
Retained (loss) for the year	-	-	-	-	(827)	(827)
Value of employee services	-	-	-	-	346	346
Dividends paid	-	-	-	-	(1,720)	(1,720)
Exchange differences on translation of overseas operations	-	-	-	(2,313)	-	(2,313)
At January 1, 2010	3,465	4,900	30,565	3,530	10,300	52,760
Retained profit for the year	-	-	-	-	3,989	3,989
Value of employee service	-	-	-	-	182	182
Dividends paid	-	-	-	-	(1,720)	(1,720)
Exchange differences on translation of overseas operations	-	-	-	1,062	-	1,062
At December 31, 2010	3,465	4,900	30,565	4,592	12,751	56,273

CONSOLIDATED GROUP STATEMENT OF CASH FLOWS

for the year ended 31 December 2010

	Notes	2010 £000	2009 Restated £000
Cash flow from operating activities
Cash flow from operating activities	10	3,998	7,333
Interest received		1	50
Interest paid		(187)	(289)
Taxation paid		(625)	(2,041)
Net cash generated from operating activities		3,187	5,053
Cash flows from investing activities
Proceeds from sale of subsidiary (net of working capital adjustments)		26,943	-
Deferred consideration in respect of acquisitions		(1,629)	(484)
Proceeds from sale of property, plant and equipment		304	1,828
Purchase of property, plant and equipment		(2,519)	(2,662)
Expenditure on capitalised development costs		(2,980)	(3,197)
Net cash generated from (used in) investing activities		20,119	(4,515)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital		-	-
Repayment of borrowings		(7,162)	(199)
Net proceeds from issue of new bank loan		-	-
Dividend paid to shareholders		(1,720)	(1,720)
Net cash (used in) financing activities		(8,882)	(1,919)
Net increase/(decrease) in cash and cash equivalents		14,424	(1,381)
Effect of foreign exchange rate changes		383	(228)
Cash and cash equivalents at 1 January		7,423	9,032
Cash and cash equivalents at 31 December	11	22,230	7,423
Net cash (debt) comprises:
Cash and cash equivalents at December 31		22,230	7,423
Borrowings		-	(6,812)
Net cash	11	22,230	611

NOTES TO THE ACCOUNTS

for the year ended 31 December 2010

1.   GENERAL INFORMATION

Vislink plc ("the Company") and its subsidiaries (together "the Group") is a global technology business specialising in the provision of secure communications for the news & entertainment and law enforcement & public safety markets. The Group has offices in the UK, USA, UAE, and Singapore and employs over 200 people worldwide. The Group specialises in the design and manufacture of microwave radio, satellite transmission and wireless camera. The Group has manufacturing subsidiaries in the UK and the USA.

The Company is a public limited company that is listed on the London Stock Exchange. The Company is registered and domiciled in the UK and its registered office is Marlborough House, Charnham Lane, Hungerford, Berkshire, RG17 0EY. The registered number of the Company is 4082188.

This preliminary announcement was approved for issue on March 23, 2011.

 

2.   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, 2006 applicable to companies reporting under IFRS. Other than to reflect the implementation of IAS1 (amendment), IFRS8 and IAS23 (amendment), there have been no changes in accounting policies during the year.

The financial information set out herein does not constitute the Company's statutory financial statements for the year ended December 31, 2010 but is derived from those financial statements and the accompanying directors' report.  Those financial statements have not yet been delivered to the Registrar, nor have the Auditors yet reported on them. The financial information has been prepared in accordance with our accounting policies published in our financial statements for the year ended December 31, 2009. Statutory accounts for the year to December 31, 2010 will be delivered to the Registrar of Companies in due course.

The comparative figures for the year ended December 31, 2009 are not the Company's statutory accounts for the financial year but are derived from those accounts which have been reported by the Company's auditors and delivered to the Registrar of Companies. They have been restated to reflect the treatment of discontinued activities. The report of the auditors was unqualified and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.

 

3.   SEGMENTAL REPORTING

In 2009 the Group was reorganised into four international business units that were focussed on providing secure communications to the customers that the Group served. In 2010 one of the business units, Marine and Energy, was sold and the US services business was put up for sale.  As a result the Group has restated the prior year numbers so as to treat the Marine and Energy business and the US services business as discontinued activities. The remaining business units of News & Entertainment and Law Enforcement and Public Safety continue to be reported on within the following segmental analysis.

The Group's internal organisational and management structure is organised to reflect the business unit structure. An Executive Management Board under the chairmanship of the Chief Executive oversees the running of the Group. Each business unit has its own managing director who sits on the Executive Management Board together with the managing directors of logistics and technology and the directors of HR and IT. The costs of Technology, HR and IT are all allocated to central costs.

The chief operating decision-maker has been identified as the Executive Management Board for the purposes of determining the appropriate operating segments for the Group. This Board reviews the Group's internal financial reporting in order to assess performance and allocate resources. The same information is provided to the Board of Directors of Vislink plc. Management has therefore determined that the operating segments for the Group will be based on these reports.

The business unit managing directors are responsible for income statement performance down to the operating profit level. They are also responsible for revenues by the geographic segments and product categories within their business unit. Thereafter the Group manages its operations by geographical location. Therefore finance costs, taxes and balance sheet items will continue to be disclosed by the geographic location of the related assets and liabilities of the Group as this is consistent with the presentation of internal reporting provided to the Executive Management Board and the Board of Directors of Vislink plc.

The segment information provided to the Executive Management Board for the reportable continuing segments for the year ended December 31, 2010 is as follows:   

	Revenue			Operating profit
	Year ended 31 December  2010 £'000	Year ended 31 December  2009 Restated £'000		Year ended 31 December  2010 £'000	Year ended 31 December 2009 Restated £'000
By business unit
News & Entertainment (N&E)	31,629	43,762		4,126	8,770
Law Enforcement & Public Safety (LEPS)	6,547	9,918		(620)	1,759
Vislink Technology	-	-		(5,712)	(6,281)
Administration	-	-		(5,641)	(6,564)
Adjusted operating loss				(7,847)	(2,316)
Amortisation of acquired intangibles				(1,119)	(2,331)
Goodwill impairment				(4,557)	-
Non-recurring costs				(5,408)	(942)
Group total	38,176	53,680		(18,931)	(5,589)

Notes:

a)   Business unit operating profit is after charging for cost of goods sold and direct sales and marketing costs associated with that market.

b)   Vislink Technology represents the Group investment in research and development and product engineering.

Geographic external revenue analysis

The sales analysis in the table below is based on the geographical location of the customer for each business unit. The analysis of assets and capital expenditure is not relevant to this table as the geographic location of assets and liabilities follows that of the segments identified above. There are no individual customers that represent more than 10 per cent of Group revenues.

			2010			2009 Restated
	News & Entertainment £'000	Law Enforcement & Public Safety £'000	Total £'000	News & Entertainment £'000	Law Enforcement & Public Safety £'000	Total £'000
By market
UK & Ireland	2,812	80	2,892	4,449	381	4,830
Rest of Europe	5,990	243	6,233	6,285	171	6,456
USA	8,686	4,713	13,399	22,165	6,135	28,300
Canada	868	591	1,459	473	275	748
South America	3,483	599	4,082	1,830	494	2,324
Middle East	3,596	95	3,691	3,599	118	3,717
Asia	5,707	226	5,933	3,941	1,644	5,585
Africa	487	-	487	1,020	700	1,720
	31,629	6,547	38,176	43,762	9,918	53,680

Net assets

The table below summarises the net assets of the Group by their geographic location. Balance sheet reporting will continue to be disclosed by the geographic location of the assets and liabilities of the Group as this is consistent with the presentation of internal reporting provided to the Executive Management Board and the Board of Directors of Vislink plc.

 

	31 December 2010 £'000	31 December 2009 £'000
By market:
UK	37,032	18,657
North America	19,241	21,898
Norway	-	12,205
	56,273	52,760

4.   OPERATING PROFIT

The following items have been included in arriving at the operating (loss) for the continuing business:

	2010 £'000	2009 Restated £'000
Depreciation of property, plant and equipment	1,685	1,703
Amortisation of acquired intangibles	1,120	2,331
Goodwill impairment	4,557	-
Operating lease rentals	471	556
Loss/(profit) on sale of property, plant and equipment	2	(738)
Repairs and maintenance expenditure on property, plant and equipment	49	295
Exchange losses charged to profit and loss	14	44
Research and development expenditure:
-       Expenditure	5,712	6,281
-       Amortisation and impairment of development cost	4,007	1,885
Non-recurring costs
The following items of unusual nature, size or incidence have been charged in arriving at the operating loss for the period and are described as non-recurring.
	2010 £000	2009 £000
(Profit) from disposal of freehold property	-	(699)
Rationalisation and redundancy costs	374	1,219
Costs associated with the withdrawal from the Military Satcoms market	1,176	-
Onerous property commitments	(134)	422
Impairment of development costs capitalised associated with accelerated end of life	880	-
Inventory write down associated with accelerated end of life	2,511	-
Aborted acquisition costs	601	-
	5,408	942

Following the reorganisation of the Group's operations into four international business units as described in note 3 above the Group has incurred rationalisation and redundancy costs of £0.37 million in the period. As part of the reorganisation the Law Enforcement and Public Safety business unit has withdrawn from the Military Satellite Communications market. As a result inventory and capitalised product development costs of £0.54 million and £0.63 million have been written off.

The Group reorganisation has also extended to the accelerated rationalisation of the microwave product range manufactured in the United States. As a result of the planned move to manufacture products in Asia a number of microwave product lines have been terminated earlier in their life cycle than would be normal and as a result inventory has been written down by £2.51 million and development costs associated with those products have been impaired by £0.88 million.

The Group explored the possibility of acquiring a business in Asia to which it would have transferred much of its manufacturing and which would have provided a base for further expansion into the region. The transaction was aborted in the light of discoveries at the end of due diligence. The costs incurred represent professional fees incurred up to the date of the process being aborted.

5.   FINANCE COSTS - NET

	2010 £'000	2009 Restated £'000
Interest payable on bank borrowing	(316)	(245)
Unwinding of interest associated with the discounting of deferred consideration	(171)	(229)
Finance costs	(487)	(474)
Finance income	1	16
Finance costs - net	(486)	(458)

Investment income is derived from cash held on deposit.

6.   INCOME TAX EXPENSE

	2010  £'000	2009 £'000
Current tax
UK corporation tax	(21)	(199)
Foreign tax - current year	(1,127)	(1,283)
Foreign tax - prior year adjustment	390	557
Total current tax	(758)	(925)
Deferred tax
UK corporation tax	(88)	(586)
Foreign tax	(1,367)	744
Total deferred tax	(1,455)	158
Total taxation	(2,213)	(767)

UK Corporation tax is calculated at 28.0 per cent (2009: 28.0 per cent) of the estimated assessable profit for the year. Foreign corporation taxes for other jurisdictions are calculated at the rates prevailing in the respective jurisdictions.

The deferred tax has been calculated at the rate of 27.0 per cent (2009: 28.0 per cent). There was not a material impact on the deferred tax charge as a result of the change in deferred tax rates.

There is no tax impact associated with items that have been taken directly to equity. There is no tax impact for the Group associated with the dividend proposed.

7.   DISCONTINUED OPERATIONS

On 29 December 2010 shareholders approved the disposal of the entire issued share capital of HERNIS Scan Systems AS ("HERNIS") to Copper Industries for £32.5 million. The disposal was completed on 30 December 2010. The amount of cash left in the business after working capital adjustments following completion of the sale was £2.5 million.

On 19 November 2010 the Group announced it was proposing to dispose of the Services business, Western Technical Services ("WTS").

Both WTS and HERNIS are treated as discontinued activities in the current year and the prior year comparatives have been restated. The analysis of the result of discontinued operations is as follows:

			2010			2009
	Hernis	WTS	Total	Hernis	WTS	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	24,996	4,948	29,944	31,758	9,239	40,997
Expenses	(21,582)	(5,488)	(27,070)	(26,895)	(6,914)	(33,809)
Amortisation of acquired intangibles	-	(908)	(908)	-	(1,075)	(1,075)
Goodwill impairment	-	(805)	(805)	-	-	-
Finance costs (net)	108	16	124	5	(14)	(9)
Profit before tax of discontinued operations	3,522	(2,237)	1,285	4,868	1,236	6,104
Tax	(866)	(38)	(904)	(1,316)	(335)	(1,651)
Profit after tax of discontinued operations	2,656	(2,275)	381	3,552	901	4,453
Pre tax gain recognised on the sale of Hernis	20,812	-	20,812	-	-	-
Tax on gain	-	-	-	-	-	-
After tax gain recognised on the sale of Hernis	20,812	-	20,812	-	-	-
Profit for the year from discontinued operations	23,468	(2,275)	21,193	3,552	901	4,453

8.   DIVIDENDS

The directors are proposing a final dividend in respect of the financial year ending 31 December 2010 of 1.25 pence per share, which will absorb an estimated £1.72 million of shareholders' funds. It will be paid on 15 July 2011 to shareholders who are on the register of members on 24 June 2011.

In addition the directors are proposing to return part of the proceeds from the sale of HERNIS Scan Systems AS to shareholders by way of an on-market tender offer, subject to shareholder approval at a General Meeting to be held on April 8, 2011. A circular will be sent to shareholders on March 23, 2011 explaining the proposal. Up to £5.0 million will be returned to shareholders.

9.   EARNINGS PER ORDINARY SHARE

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust which are treated as cancelled.

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the company's ordinary shares during the year. 

Adjusted earnings

The directors believe that the adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term "adjusted" is not a defined term used under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles, impairment of goodwill and non-recurring costs and their related tax effects.   

The reconciliation between reported and underlying earnings and basic earnings per share is shown below:

	2010		2009
	£'000	Pence	£'000	Pence
Reported (loss) per share	(17,204)	(12.4)p	(5,280)	(3.8)p
Amortisation of acquired intangibles after tax	806	0.6p	1,632	1.2p
Impairment of goodwill	4,557	3.3p	-	0.0p
Non-recurring costs after tax	4,702	3.4p	678	0.5p
Prior year adjustment for foreign tax	-	0.0p	557	0.4p
Adjusted (loss) per share	(7,139)	(5.1)p	(2,413)	(1.7)p

 

10.  CASH FLOW FROM OPERATING ACTIVTIES

Reconciliation of the profit attributable to shareholders to net cash flows from operating activities.

	2010 £'000	2009 Restated £'000
Profit/(loss) attributable to shareholders	3,989	(827)
Taxation credit on loss from continuing activities	(2,213)	(767)
Taxation on profit from discontinued activities	903	1,651
Depreciation	2,240	2,127
Loss/(gain) on disposal of property, plant and equipment	2	(745)
(Gain) on disposal of subsidiary	(20,812)	-
Impairment of goodwill	5,362	-
Amortisation and impairment of development costs	4,044	1,981
Amortisation of acquired intangibles	2,028	3,406
Share options - value of employee services	182	346
Investment income from continuing operations	(1)	(16)
Finance costs from continuing operations	487	474
Net finance costs from discontinued activities	(124)	9
Movement in fair value of derivative financial instruments	-	(257)
Share of loss/(profit) of associate	12	(2)
Decrease in inventories	3,999	3,090
Decrease/(Increase) in trade and other receivables	11,079	(24)
(Decrease) in payables	(6,503)	(3,305)
(Decrease)/increase in provisions	(676)	192
Net cash inflow from operating activities	3,998	7,333

11.  NET FUNDS

The movements in cash and cash equivalents and borrowings in the period are as follows:

	Cash and cash equivalents £'000	Other borrowings £'000	Total net funds £'000
At 1 January 2010	7,423	(6,812)	611
Cash flow for the period before financing	22,956	-	22,956
Net repayment of borrowings	(7,162)	7,162	-
Dividend paid to shareholders	(1,720)	-	(1,720)
Exchange rate adjustments	733	(350)	383
At 31 December 2010	22,230	-	22,230

 

Ends.

 

END

 

 

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