Final Results

Vislink PLC 29 March 2006 Vislink plc Preliminary results for the year ended 31 December 2005 Vislink plc ('The Group'), a leading supplier of microwave radio and satellite transmission products for the broadcast and security markets and of integrated CCTV systems for the marine security market, has today announced its preliminary results for the year ended 31 December 2005. Financial summary For the year ended 31 December 2005 £'000 2004 £'000 Revenue 85,072 67,831 Operating profit - from continuing operations 7,141 193 Adjusted* operating profit 8,348 2,549 Profit before tax 6,365 (305) Earnings per share - basic 2.66p (1.12p) Earnings per share -adjusted* basic 3.30p 1.21p ----------------------------------- -------- -------- *Adjusted operating profit is operating profit before amortisation of acquired intangibles, impairment of goodwill and rationalisation costs. Adjusted earnings per share are calculated on the same basis. Key points • The Group's adjusted operating profit was up 227% to £8.35 million (2004 - £2.55 million) • Adjusted earnings per share increased by 173% to 3.30 pence (2004 - 1.21 pence) • The Board recommends an increased dividend up by 150% to 0.5 pence per share (2004 - 0.2 pence) • Group orders received were up by 92% to £95.50 million (2004 - £49.72 million) • Group sales up by 25.4%, including incremental revenue from Link acquisition of £3.67 million • Group's cash generation in the year was strong and the year ended with net cash of £2.16 million (2004 - net debt £2.35 million) Bob Morton, Chairman of Vislink plc, said: 'I am pleased to report that the Group has had a very successful year and achieved record profits. With current trading significantly ahead of last year and a strong order book the outlook is very encouraging. The Board looks forward to the future with confidence.' - Ends - For further information on 29 March 2006, please contact: Ian Scott-Gall, Chief Executive 01488 685500 James Trumper, Group Finance Director 01488 685500 Chairman's Statement Introduction I am pleased to report that the Group has had a very successful year and achieved record profits. MRC, the US broadcast business, had its best ever year for operating profit, orders and sales, benefiting from an increase in orders for its core business and incremental business from the 2GHz re-channelisation programme in the US. Link Research, acquired in February 2005, has been successfully integrated into the Group and has made a significant contribution to operating profits. Advent, the UK satcoms business, achieved a strong increase in order intake in the second half of the year. Hernis, our specialist marine CCTV business, also had a record year for order intake and sales, generated by the strong demand for its market-leading products. Results for the year The Group's orders received increased by 92% to £95.50 million (2004 - £49.72 million) whilst revenues increased by 25.4% to £85.07 million (2004 - £67.83 million), including incremental orders and sales from Link of £3.66 million and £3.67 million respectively. The Group's adjusted operating profit, being operating profit before the amortisation of acquired intangibles, impairment of goodwill and rationalisation costs, increased by 227% to £8.35 million (2004 - £2.55 million). The adjusted profit margin improved significantly to 9.8% of sales (2004 - 3.8%). The reported operating profit was £7.14 million (2004 - £0.19 million). Pre-tax profit rose to £6.36 million (2004 - £0.31 million loss) and our return on capital employed was 21.0% (2004 - 9.3%). The Group's cash generation in the year was strong and the Group ended the year with net cash of £2.16 million (2004 - net debt of £ 2.35 million). This outstanding performance was achieved while continuing to invest for the future, with our research and development costs increasing to 5.8% of sales (2004 - 4.5%). Earnings and dividends per share Adjusted earnings per share increased 173% to 3.30 pence (2004 - 1.21 pence) and basic earnings per share were 2.66 pence (2004 - 1.12 pence loss). As a result of our increased profitability and stronger cash position, the Board is pleased to recommend a significantly increased full-year dividend up by 150% to 0.50 pence per share (2004 - 0.20 pence). Business strategy The security challenges around the world have resulted in an increased demand for our marine CCTV, microwave and satellite technologies that have military, public safety, security and disaster recovery applications. The Group's strategy is to maintain its strong position in existing professional television and marine CCTV markets, whilst continuing to develop its sales channels into the worldwide military, government and security markets to provide organic growth. We will continue to evolve our product offering to meet the specific needs of these new growth markets, including IP enabled communications and video surveillance systems. The new product development programmes are expected to deliver market-leading products with built-in upgrade capabilities to secure future revenue streams and extended product life cycles. Within the broadcast business the acquisition of Link Research has secured the intellectual property rights that are used in both MRC's and Advent's products. Towards the end of 2005 Link launched its market leading low delay, high definition (HD), wireless camera system. The transition to HD within professional television markets will create future growth opportunities for the Group beyond the US standard definition 2GHz re-channelisation programme. Employees I would like to thank the Board, management and employees for their outstanding contributions to a very successful year. Outlook We believe the Group is well placed to meet the growth opportunities in its established professional television and marine security markets. With current trading significantly ahead of last year and a strong order book the outlook is very encouraging. The Board looks forward to the future with confidence. ALR Morton Chairman 29 March 2006 Operating and Financial Review for the year ended 31 December 2005 Business Overview Description of businesses and markets The principal activities of the Group comprise two technology businesses. These are the broadcast business and the marine CCTV business. The Group has net assets of £37.8 million and employs around 350 people. The broadcast business designs and manufactures microwave radio, satellite transmission and wireless camera products and systems for the professional television, government and security markets. The broadcast business has three operational sites, two in the UK and one in the USA. In addition the Group's international project management business that is within the UK operation is currently completing a large broadcast infrastructure project in Venezuela. The broadcast business has three product lines sold under the three strong brands of Advent Communications ('Advent'), Link Research ('Link') and Microwave Radio Communications ('MRC'). The broadcast business is probably the worldwide market leader for the design, manufacture and sale of television contribution technologies that take a signal from source to studio or play out centre before distribution to the viewer. The marine CCTV business of Hernis Scan Systems ('Hernis'), based in Norway, is a market leader in the supply of specialist integrated CCTV systems for both on and offshore oil and gas industries as well as for the marine, cruise and naval markets. Segmental reporting The broadcast business 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 broadcast business results between the US and the UK broadcast operations. Hernis is a primary segment in itself, the operation being geographically centred in Norway. 2005 highlights and key performance indicators 2005 was a very successful year for the Group. The highlights were: • The acquisition of Link Research Limited in February • 25.4% increase in sales to £85.07 million including incremental sales of £3.67 million from Link • Reported operating profit £7.14 million (2004 - £0.19 million) • Adjusted operating profit of £8.35 million (2004 - £2.55 million) • Adjusted earnings per share of 3.30 pence (2004 - 1.21 pence) • All key performance indicators have improved on the prior year The Group's previously stated key strategic objective was to achieve a 10 per cent return on sales at the adjusted operating profit level before central costs. This has been achieved in the year; our goal now is to achieve a net 10% adjusted operating profit return on sales. The table below sets out the historic performance for the Group together with the key performance indicators that are used across the Group. The directors believe that adjusted operating profit, being operating profit before amortisation of acquired intangibles, goodwill impairment and exceptional costs, and adjusted earnings per share, provide additional useful information to shareholders, as well as providing a measure for internal performance analysis and incentive compensation arrangements. Year ended December 31 2005 2004 2003(1) ----------------------------- -------- -------- ------- Orders received (£'000) 95,503 49,717 97,890 Sales (£'000) 85,072 67,831 69,391 Adjusted operating profit(2) (£'000) 8,348 2,549 2,051 Adjusted profit as a percentage of sales 9.8% 3.8% 3.0% Adjusted earnings per share (pence) 3.30 1.21 0.96 Net cash generation from operating activities (£'000) 6,461 (3,847) 11,824 Return on capital employed(3) (ROCE) 21.0% 9.3% 8.9% ----------------------------- -------- -------- -------- (1) As previously reported under UK GAAP (2) Defined as opearting profit before the amortisation of acquired intangibles the impairment of goodwill and rationalisation costs (3) ROCE is calculatedas the adjusted operating profit as a percentage o capital employed. Capital employed is defined as shareholders' equity plus debt less cash and cash equivalents. Strategy and product development The Group's strategy for the broadcast business is to leverage core technologies to drive sales growth in the emerging government, military and security markets whilst maintaining leadership in the professional television market. Within the professional television market each brand is synonymous with excellence in different applications of contribution technologies and the brands will be further developed through extensive marketing activities to build and retain market share. Both the broadcast business and Hernis are well placed to take advantage of regulatory driven changes that are creating growth opportunities. Hernis, for example, has benefited from the introduction of the International Port Safety Regulations that has broadened the CCTV marine security market; MRC will continue to benefit from the capital expenditure associated with the re-channelisation programme in the US. The growth for the Group in 2005 has been achieved through a combination of organic and acquisition led growth. The acquisition of Link Research Limited in the year brought to the Group the intellectual property rights for the application of technologies that are used extensively in the broadcast business's product lines as well as enhancing product development capabilities. Whilst there are no further acquisitions under consideration at present the directors will continue to consider opportunities to acquire complementary businesses and technologies that will provide enhanced earnings for the Group. To maintain growth the Group will continue to invest in new technologies and products as well as new sales channels. The core new product development objectives are: • To create common technology building blocks for the next generation of broadcast contribution products that will offer market leading performance and feature sets with built in upgrade capabilities to secure future revenue streams. • To further develop compression and modulation technology compatible with industry standards along with proprietary modulation and de-modulation techniques. • To develop new products that support broadcast customers' migration from Standard Definition ('SD') to High Definition ('HD') future proofed for different interface protocols. • To develop new rapid deployment portable satellite antennas designed for both broadcast and military applications. • To develop new digital video products that meet the needs of the public safety and law enforcement markets. • To evolve system solutions that include IP-addressable networked products to strengthen Hernis's market position. Prospects The prospects for 2006 are encouraging. The Group has started the year with a forward order book of £38.76 million. MRC is expected to continue to benefit from the re-channelisation programme in the US through 2006 and 2007. The UK broadcast business, through Link's supply of OEM equipment, will also benefit from the re-channelisation programme and the improving financial performance of the Advent satellite communications operation. The completion of the Venezuelan contract in 2006 will eliminate the risk associated with large construction projects. Hernis is expecting to make further progress in both the marine and offshore/onshore oil and gas markets as a result of its long term strategic work within the industry and the increased demand for these natural resources. The Group has an exciting new product development programme. By way of example, Link was first to market with a low delay HD wireless camera that was demonstrated successfully at the US Superbowl in February 2006 and subsequently used at the Winter Olympics. The Group is continuing to target the worldwide military and law enforcement markets, and the US homeland security market, which offer good opportunities for growth beyond the US re-channelisation programme. Acquisitions At an Extraordinary General Meeting on February 9, 2005 shareholders approved the acquisition of the entire issued share capital of Link Research Limited ('Link') and the issue of 20,414,569 ordinary shares at 22.75 pence to raise £4.64 million before expenses. The maximum consideration payable for Link, excluding acquisition costs, is £10.75 million by way of an initial consideration of £5.00 million (comprising £3.00 million by the issue of 13,186,813 new ordinary shares at 22.75 pence each and £2.00 million in cash and loan notes), and a further performance related deferred consideration of up to £5.75 million payable in loan notes and shares. Link has been successfully integrated into the UK broadcast operation during the year. The Group has benefited from the natural synergies and the financial advantages of owning the core IPR acquired with Link. The Link management team have added valuable skills to the UK broadcast research and development programme. Returns to shareholders It is the Group's stated strategy to only recommend a final dividend. The Board is committed to a progressive dividend policy and this is reflected in the recommended final dividend of 0.5 pence per share (2004 - 0.2 pence). Subject to the approval of shareholders, this final dividend will be paid on July 21, 2006, to those on the register at June 30, 2006. Review of operations in 2005 Overview Group sales have increased 25.4% to £85.07 million (2004 - £67.83 million), including incremental sales of £3.67 million from the acquisition of Link. Adjusted operating profits (being operating profit before amortisation of acquired intangibles, goodwill and rationalisation costs) increased to £8.35 million (2004 - £2.55 million), with the US broadcast operation reporting a record year. Link made a substantial contribution to the UK broadcast result subsequent to its acquisition. Hernis had a record year for orders received and sales. The table below summarises the Group's results and the operational reviews report on the results of each business operation. Year ended 31 December 2005 2004 £'000 £'000 Revenue: US broadcast 47,256 27,621 UK broadcast 27,772 32,250 Hernis 10,044 7,960 --------- -------- Group total 85,072 67,831 --------- -------- Operating profit/(loss): US broadcast 7,414 3,871 UK broadcast 2,095 (853) Hernis 942 714 Central costs (1,802) (1,183) Unrealised profit in inventory (301) - --------- -------- Adjusted operating profit 8,348 2,549 Amortisation of acquired intangibles (1,207) - Impairment of goodwill - (817) Rationalisation costs - (1,539) --------- -------- Reported operating profit 7,141 193 Net finance costs (776) (498) --------- -------- Profit/(loss) before tax 6,365 (305) --------- -------- Profit/(loss) after tax 3,482 (1,132) --------- -------- Basic earnings/(loss) per share 2.66p (1.12)p Adjusted earnings per share 3.30p 1.21p --------- -------- Operational review - US broadcast The US broadcast operation, MRC, has had a year of record growth. Orders received were $122.15 million (2004 - $49.40 million). MRC has benefited from the 2GHz re-channelisation programme in the US that involves over 1,000 broadcasters migrating to narrower frequency bands to accommodate new advanced wireless services. In order to achieve this broadcasters are moving from analogue to digital transmission for electronic news gathering (ENG). MRC has a leading market share in providing equipment to the broadcasters to support this change. Whilst the re-channelisation programme has fuelled the growth there has also been an increase in core business orders of 17%. The growth in underlying orders has come from an expansion of MRC's international customer base and targeted growth from public safety/homelands security applications. Sales at MRC increased 70% to $86.01 million (2004 - $50.50 million). With increasing sales and improved gross margins, MRC saw operating profits increase to $13.50 million (2004 - $7.04 million) giving a 15.7% return on sales (2004 - 13.9%). Operational review - UK broadcast The UK broadcast operation consists of three activities, the satellite communications business of Advent, the CML international projects business and, since its acquisition, the wireless camera business of Link. Total sales for the operation were £34.52 million (2004 - £33.32 million) including sales to the US broadcast operation of £6.75million (2004 - £1.07 million). Link contributed £9.16 million to the sales total including £5.49 million of inter group sales. Advent's sales increased 9% to £14.99 million (2004 - £13.71 million). CML project sales decreased to £10.37million (2004 - £19.61 million) in line with expected progress on the $58.85million contract to re-equip and modernise the Venezuelan national state broadcaster VTV. At the end of 2005 total revenue recognised on the contract had reached $51.87 million (2004 - $33.19 million). The total operating profit for the operation was £2.10 million before the amortisation of acquired intangibles associated with Link of £1.21 million (2004 - operating loss of £0.85 million before goodwill impairment of £0.82 million and rationalisation costs of £1.54 million). Advent reported an operating loss of £0.58 million (2004 - operating loss of £2.53 million) following a weak first half performance. However Advent recovered in the second half with an operating profit of £0.03million. Advent has been through considerable rationalisation over the last two years in order to restore its profitability; it has strong brand awareness in its markets and its products are class leading in terms of performance. Advent entered 2006 with a £4.60 million order book and a strong new product development plan aimed at improving margins. The CML international projects activity reported an operating loss in the year of £1.37 million. Of the loss, £0.30 million was attributable to the investment in opportunities in West Africa and South America that have yet to come to fruition and £0.37 million was associated with legacy issues arising out of the closure of the CML manufacturing facility in 2004. The remainder of the operating loss of £0.70 million was incurred on the VTV contract (2004 - profit of £1.68 million). Whilst the contract is expected to make a profit over its full life, the profit will be at a lower level than originally anticipated due to delays in the completion of civil construction works and local inflation. The contract will be completed in 2006. Link has benefited from substantial OEM sales to MRC, derived from the re-channelisation programme, as well as growth in sales to external global customers for wireless camera systems. Link generated an operating profit of £2.83 million after the amortisation of acquired intangibles. Towards the end of the year Link made its first shipments of the new low delay HD wireless camera systems. Operational Review - Hernis Hernis had a record year in terms of order intake and sales. Orders received were £11.91 million, up 34% (2004 - £8.88 million); sales were £10.04 million, up 26% (2004 - £7.96 million). The growth has come from a strong marine market and in particular Hernis' market leading position in the supply of systems for new Liquid Natural Gas (LNG) vessels built in Asia. In addition there has been increased demand for both on and offshore oil and gas installations. As a result of increased sales operating profit improved to £0.94million (2004 - £0.71 million) giving a 9.4% return on sales. Research and development The Group is committed to investment in research and development in order to maintain and enhance the Group's market share and competitive advantage for the products it manufactures and supplies. Expenditure in 2005 was £4.95 million representing 5.8% of revenues (2004 - £3.08 million, 4.5%). In addition the Group has capitalised development costs in the year of £1.05 million (2004 - £1.03 million). The amortisation of development costs of £0.97 million (2004 - £0.83 million) is included in expenditure. Financial Review Interest The net interest charge for the year was £0.78 million (2004 - £0.50 million). Included within the interest charge is £0.29 million in respect of the unwinding of the discounting of the deferred consideration associated with the acquisition of Link Research Limited to its present value. Net interest paid in the year was £0.47million (2004 - £0.50 million). Interest was covered 10.7 times by adjusted operating profits (2004 - 5.1 times). Taxation The tax charge for the year was £2.88 million (2004 - £0.83 million). The UK current tax charge was £0.15 million (2004 - £nil) and the overseas current taxation in the year was £2.76 million (2004 - £0.81 million). Overseas taxation represents Norwegian corporation taxation on the taxable profits of Hernis and state and federal taxes in respect of the US broadcast business. The current tax charge was mitigated by a net deferred tax credit of £0.02 million (2004 - charge of £0.02 million), comprising a UK deferred tax charge of £0.52 million and an overseas deferred tax credit of £0.54 million. The effective tax rate for the year was 45.3% compared to the standard UK corporation tax rate applicable during the year of 30%. The Group tax charge includes a one-off UK deferred tax charge £0.49 million in respect of the write off of certain deferred tax assets (trading losses) that are no longer considered to be recoverable. Excluding this one-off charge from the Group tax charge in the year reduces the effective tax rate to 37.6%, which reflects higher tax rate (40%) that is attributable to the proportion of the Group's taxable profits generated in the US. Current tax payable at December 31, 2005 was £0.82 million (2004 - £0.21 million). Cash flows The Group's cash flow in the year has been strong. The Group has moved from a position of net debt at December 31, 2004 of £2.35 million to net cash of £2.16 million at December 31, 2005. The Group generated net cash from operating activities of £6.46 million in the year (2004 - absorbed £3.85 million). A further £4.74 million was generated from the proceeds of the issue of new ordinary shares for the acquisition of Link and from the exercise of share options during the year. Investing activities absorbed £4.43 million of cash (2004 - £1.76million), comprising £2.45 million for the acquisition of Link, £1.05 million for capitalised development costs and a net £0.93 million for property plant, equipment and investments. Debt repayments during the year amounted to £3.14 million (2004 - £0.28 million), including the repayment of certain debt acquired with Link. The balance outstanding on the Group's medium term loan at December 31, 2005 was £3.20 million (2004 - £5.37 million). Group cash and cash equivalents increased to £7.12 million at December 31, 2005 (2004 - £3.22 million). Exchange rates The principle exchange rates used by the Group in translating overseas profits and net assets into sterling are set out in the table below. Rate Average rate, Average rate, Year end rate, Year end rate, compared to £ sterling 2005 2004 2005 2004 US 1.82 1.83 1.72 1.92 dollar Norwegian krone 11.72 11.62 11.63 11.63 Summary 2005 was a successful year for the Group. The Group has a clear strategy for both product and market development that lay the foundations for organic growth in the broadcast business and Hernis. 2006 has started strongly with both orders received and sales significantly ahead of the previous year, and the Board looks forward to the rest of the year with confidence. Ian Scott-Gall - Chief Executive James Trumper - Group Finance Director 29 March 2006 CONSOLIDATED GROUP INCOME STATEMENT for the year ended 31 December 2005 Year ended 31 Year ended 31 December 2005 December 2004 Notes £'000 £'000 Continuing operations Revenue 2 85,072 67,831 Cost of sales (56,452) (52,145) ---------- ---------- Gross profit 28,620 15,686 Sales and marketing (8,952) (5,865) Research and development (4,950) (3,082) Administrative costs (7,407) (6,276) Other expenses (170) (270) ---------- ---------- Operating profit from continuing operations 2 7,141 193 ----------------------------- ------- ---------- ---------- Operating profit is analysed as: Adjusted operating profit 5 8,348 2,549 Amortisation of acquired intangibles (1,207) - Impairment of goodwill - (817) Rationalisation costs - (1,539) ----------------------------- ------- ---------- ---------- Finance costs 3 (872) (591) Investment income 3 96 93 ---------- ---------- Profit/(loss) on continuing activities before taxation 6,365 (305) Tax on profit/(loss) on ordinary activities 4 (2,883) (827) ---------- ---------- Profit/(loss) for the year from continuing operations being profit/(loss) attributable to shareholders 3,482 (1,132) ---------- ---------- Earnings/(loss) per share expressed in pence per share: 5 2.66p (1.12)p From continuing operations - basic 5 2.62p (1.11)p From continuing operations - diluted ---------- ---------- Dividends The directors are proposing a final dividend in respect of the financial year ended 31 December 2005 of 0.5 pence per share, which will absorb an estimated £682,000 of shareholders' funds. It will be paid on 21 July 2006 to shareholders who are on the register of members on 30 June 2006. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 £'000 £'000 Opening shareholders' equity 25,001 27,208 ----------- ----------- Profit/(loss) for the financial period 3,482 (1,132) Share options - value of employee services 75 47 Dividends paid (246) (202) ----------- ----------- Movements in the profit and loss account 3,311 (1,287) Translation difference on foreign currency net investments 1,765 (920) Shares issued 7,687 - Disposal of investment in own shares 51 - ----------- ----------- Total movements in shareholders' equity 12,814 (2,207) ----------- ----------- Closing shareholders' equity 37,815 25,001 ----------- ----------- CONSOLIDATED GROUP BALANCE SHEET as at 31 December 2005 31 December 31 December 2005 2004 Notes £'000 £'000 Assets Non-current assets Goodwill 23,393 16,922 Intangible assets 6,854 1,062 Property, plant and equipment 4,547 4,314 Financial assets 43 - Deferred tax assets 835 1,602 ----------- ----------- 35,672 23,900 ----------- ----------- Current assets Inventories 13,345 8,936 Trade and other receivables 17,032 15,386 Net cash and cash equivalents 8 7,122 3,219 ----------- ----------- 37,499 27,541 ----------- ----------- Liabilities Current liabilities Financial liabilities - borrowings 8 3,794 2,190 Trade and other payables 22,206 18,363 Current tax liabilities 816 206 Provisions 732 757 ----------- ----------- 27,548 21,516 ----------- ----------- ----------- ----------- Net current assets 9,951 6,025 ----------- ----------- Non-current liabilities Financial liabilities - borrowings 8 1,169 3,378 Deferred tax liabilities 2,608 1,255 Other non-current liabilities 3,878 - Provisions 153 291 ----------- ----------- 7,808 4,924 ----------- ----------- ----------- ----------- Net assets 37,815 25,001 ----------- ----------- Capital and reserves Called up share capital 3,412 2,552 Share premium account 4,362 205 Investment in own shares (109) (160) Merger reserve 30,565 27,895 Translation reserve (1,288) (3,053) Profit and loss account 873 (2,438) ----------- ----------- Total shareholders' equity 37,815 25,001 ----------- ----------- CONSOLIDATED GROUP CASH FLOW STATEMENT for the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 Notes £'000 £'000 Cash flow from operating activities Cash generated from/(absorbed by) operations 7 9,602 (2,613) Investment income 96 93 Finance costs (567) (590) Taxation paid (2,670) (737) ----------- ----------- Net cash generated from/(absorbed by) operating 6,461 (3,847) activities ----------- ----------- Cash flows from investing activities Acquisition of subsidiary (net of cash acquired) 6 (2,445) - Proceeds from sale of property, plant and equipment 130 2 Purchase of property, plant and equipment (1,014) (729) Expenditure on capitalised development costs (1,054) (1,032) Acquisition of investments (43) - ----------- ----------- Net cash used in investing activities (4,426) (1,759) ----------- ----------- Cash flows from financing activities Net proceeds from issue of ordinary share capital 4,687 - Net proceeds from sale of own shares held 51 - Repayment of borrowings 8 (3,138) (275) Dividend paid to shareholders (246) (202) ----------- ----------- 1,354 (477) ----------- ----------- Effect of foreign exchange rate changes 8 514 (238) ----------- ----------- Net increase/(decrease) in cash and cash equivalents 3,903 (6,321) Net cash and cash equivalents at beginning of 8 3,219 9,540 period ----------- ----------- Net cash and cash equivalents at end of 8 7,122 3,219 period ----------- ----------- NOTES TO THE PRELIMINARY RESULTS for the year ended 31 December 2005 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. 2. SEGMENTAL ANALYSIS The broadcast business 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 broadcast business results between the US and the UK broadcast operations. Hernis is a primary segment in itself, the operation being geographically centred in Norway. Revenue Operating Profit Net Assets 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 By business: US - broadcast 47,403 29,395 7,414 3,871 14,782 11,099 UK - broadcast 34,523 33,315 2,095 (853) 15,991 10,756 Norway - marine CCTV 10,044 7,960 942 714 4,471 3,834 Inter-segmental (6,898) (2,839) (301) - - - transactions Central - - (1,802) (1,183) 2,571 (688) -------- ------- ------- ------- ------- ------- 85,072 67,831 8,348 2,549 37,815 25,001 Amortisation of acquired intellectual property and customer relationships - - (1,207) - - - Exceptional rationalisation - - - (1,539) - - costs Impairment of goodwill - - - (817) - - -------- ------- ------- ------- ------- ------- Total 85,072 67,831 7,141 193 37,815 25,001 -------- ------- ------- ------- ------- ------- Amortisation of acquired intellectual property and customer relationships, exceptional rationalisation costs and impairment of goodwill relate to the UK broadcast business. The table below shows the analysis of Group external revenue, by geographic market. Revenue analysis US broadcast UK broadcast Hernis Total 2005 2004 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 By geographic market: UK & 37 57 4,890 4,446 551 1,014 5,478 5,517 Ireland Rest of 905 436 7,002 4,192 4,423 3,902 12,330 8,530 Europe North 40,236 23,640 784 456 815 897 41,835 24,993 America South 1,087 1,055 10,858 18,683 603 173 12,548 19,911 America Middle 288 370 1,367 2,239 355 68 2,010 2,677 East Asia 4,242 1,824 1,974 1,236 3,066 1,479 9,282 4,539 Africa 92 77 404 762 110 200 606 1,039 Other 369 162 493 236 121 227 983 625 ------- ------- ------- ------- ------- ------- ------- ------ 47,256 27,621 27,772 32,250 10,044 7,960 85,072 67,831 ------- ------- ------- ------- ------- ------- ------- ------ 3. FINANCE COSTS - NET 2005 2004 £'000 £'000 Interest payable on bank borrowing (537) (591) Interest payable on other loans (43) - Unwinding of interest associated with the discounting of deferred consideration (292) - --------- -------- Interest and similar charges payable (872) (591) Investment income 96 93 --------- -------- Net finance costs (776) (498) --------- -------- 4. TAXATION The tax charge for the year comprises: 2005 2004 £'000 £'000 Current tax Continuing operations - UK corporation tax 149 - Continuing operations - foreign tax 2,755 809 --------- -------- Total current tax 2,904 809 --------- -------- Deferred tax Continuing operations - UK corporation tax 520 (86) Continuing operations - foreign tax (541) 104 --------- -------- Total deferred tax (21) 18 --------- -------- --------- -------- Taxation charge 2,883 827 --------- -------- UK Corporation tax is calculated at 30 per cent (2004 - 30 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. 5. EARNINGS PER ORDINARY SHARE Earnings per share is calculated by reference to a weighted average of 131,052,000 ordinary shares in issue during the period, excluding shares held by the Employees' Share Ownership Plan (2004 - 101,123,000). The diluted earnings per share is after taking account of a further 1,631,000 shares (2004 - 460,000) being the dilutive effect of share options. Adjusted earnings Vislink believes that adjusted operating profit, adjusted profit before tax, 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 principal adjustments are made in respect of rationalisation costs, the impairment of goodwill and the amortisation of acquired intangibles. The reconciliation between reported and adjusted earnings and basic earnings per share is shown below: Year ended Year ended 31 December 2005 31 December 2004 Earnings Basic EPS Earnings Basic EPS £'000 pence £'000 pence Reported earnings 3,482 2.66p (1,132) (1.12)p Amortisation of acquired intangibles after tax 845 0.64p - - Impairment of goodwill - - 817 0.81p Rationalisation costs - - 1,539 1.52p --------- -------- -------- -------- Adjusted earnings 4,327 3.30p 1,224 1.21p --------- -------- -------- -------- 6. ACQUISITIONS On 14 January 2005 the Group announced to shareholders the proposed acquisition of Link Research Limited. The maximum consideration, excluding acquisition costs, is £10.75 million comprising an initial consideration of £5.00 million (comprising £3.00 million in ordinary shares and £2.00 million in cash and loan notes), and a further performance related deferred consideration of up to £5.75 million payable in loan notes and shares. Also on 14 January 2005 the Group proposed the issue of 20,414,569 ordinary shares at 22.75p raising £4.64 million before expenses. Both these transactions were approved by the shareholders at an Extraordinary General Meeting on 9 February 2005, and the acquisition of Link Research Limited was effective on 11 February 2005. Below is a summary of the valuation of the tangible and intangible net assets acquired and the calculation of goodwill: Book value Fair value Fair value adjustment £'000 £'000 £'000 -------- --------- -------- Net assets acquired Acquired intangibles - intellectual property - 3,720 3,720 Acquired intangibles - customer relationships - 3,100 3,100 Intangibles - goodwill 1,384 (1,384) - Property, plant and equipment 636 (329) 307 Inventories 450 - 450 Trade and other receivables 1,294 - 1,294 Investment assets held for resale - 259 259 Cash at bank and in hand 140 - 140 Trade and other payables (705) - (705) Current tax liabilities (357) - (357) Provisions (65) - (65) Financial liabilities - secured bank borrowings (661) - (661) Financial liabilities - unsecured borrowings (533) - (533) Deferred tax liabilities (63) (2,046) (2,109) -------- --------- -------- 1,520 3,320 4,840 -------- --------- Goodwill on acquisition 5,906 -------- Total consideration 10,746 -------- Satisfied by: Cash consideration (including acquisition costs of £659,000) 2,585 Ordinary shares 3,000 Unsecured loan notes 74 Deferred consideration 5,087 -------- 10,746 -------- Net cash outflow arising on acquisition Cash consideration (including acquisition costs of £659,000) 2,585 Cash and cash equivalents acquired (140) -------- 2,445 -------- The deferred consideration of £5,750,000 payable over the next 2.5 years has been discounted to its present value at a rate of 5.85% to £5,087,000 at the date of acquisition. In the period to 31 December 2005 an interest charge of £292,000 has been made to reflect the increase in the present value of the deferred consideration at 31 December 2005. Link Research Limited contributed revenue of £3,665,000 and an operating profit of £2,532,000 to the Group in the period after acquisition. If the acquisition of Link Research Limited had been completed on the first day of the financial year, Group revenues for the year would have increased by £571,000 and Group profit attributable to equity holders of the parent company by £97,000. 7. NOTES TO THE CASH FLOW STATEMENT Net cash flow from operating activities comprises: Year ended 31 Year ended 31 December 2005 December 2004 £'000 £'000 Profit/(loss) attributable to shareholders 3,482 (1,132) Taxation 2,883 827 Depreciation 1,081 773 Loss/(profit) on disposal of property, plant and equipment 5 (2) Impairment of goodwill - 817 Amortisation of development costs 968 832 Amortisation of acquired intangibles 1,207 - Share options - value of employee services 75 47 Investment income (96) (93) Finance costs 872 591 (Increase) in inventories (3,377) (68) Decrease/(increase) in trade and other receivables 619 (3,999) Increase in payables 2,150 33 (Decrease) in provisions (267) (1,239) ---------- ---------- Net cash inflow/(outflow) from operating activities 9,602 (2,613) ---------- ---------- 8. NET BORROWINGS The movements in cash and cash equivalents and borrowings in the period are as follows: Net cash and Short term Other Total net cash borrowings borrowings (borrowings)/ equivalents £'000 £'000 £'000 cash £'000 At 1 January 2005 3,219 (2,190) (3,378) (2,349) Cash flow for the period 3,249 3,138 - 6,387 Assumed on acquisition 140 (661) (533) (1,054) Unsecured loan notes issued - (1,339) - (1,339) Exchange rate adjustments 514 - - 514 Reclassification - (2,742) 2,742 - --------- --------- --------- ----------- At 31 December 2005 7,122 (3,794) (1,169) 2,159 --------- --------- --------- ----------- 9. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) From 2005 the Group is required to prepare its consolidated financial statements in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) to be adopted by the European Union (EU). The Group's date of transition to IFRS was 1 January 2004 and comparative information in the financial statements has been restated to reflect the Group's adoption of IFRS except where otherwise required or permitted by IFRS1. On September 1, 2005 the Group published a report to provide guidance on the impact IFRS on the Group, the initial transition balance sheet adjustments and the restatement of the 2004 published financial statements. 10. Directors Responsibilities The announcement represents non-statutory accounts within the meaning of section 240 of the Companies Act 1985. The statutory annual accounts for the year ended 31 December 2005, upon which an unqualified audit opinion has been given and which did not contain a statement under section 235, 237(2) or 237(3) of the Companies Act 1985, will be sent to the Registrar of Companies in due course. 11. Report and Accounts Copies of the 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. -------------------------- This information is provided by RNS The company news service from the London Stock Exchange

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