Interim Results

The Vitec Group PLC 3 September 2001 Embargoed until 7.00am, 3 September 2001 The Vitec Group plc Half Year Results to 30 June 2001 The Vitec Group plc, the international supplier of products, services and solutions to the broadcast, entertainment and media industries, announces its results for the half year to 30 June 2001. 2001 2000 Turnover £99.6m £94.7m Operating profit* £15.4m £18.8m Pre-tax profit* £13.9m £17.3m Headline EPS* 22.9p 29.2p Dividend 6.1p 5.6p *pre exceptional charges and goodwill amortisation KEY POINTS * Turnover up five per cent, due to favourable exchange rates * Interim dividend increased nine per cent to 6.1p * Difficult economic conditions in USA impact first half performance * Review of manufacturing operations commenced * Search well underway for Chief Executive * Benefits of cost reduction programme will assist second half Commenting on the results, Alison Carnwath, Chairman and Group Chief Executive said: 'At the heart of Vitec is an exceptional portfolio of world leading camera and lighting support brands, which have recorded excellent profitability and growth under our ownership. Whilst not immune to the current downturn, these businesses have demonstrated their strength and resilience in testing conditions. There are currently no signs that markets will improve in the second half. We are confident that the benefits of our cost reduction actions will show through in the second half.' Enquiries Alison Carnwath, Chairman The Vitec Group plc 020 8939 4650 Peter Otero Financial Dynamics 020 7831 3113 Richard Mountain Chairman's Statement Overview Throughout most of 2000, the Group experienced strong markets for the majority of its products and services. However, during the first half of this financial year we have been exposed to difficult economic conditions in the USA, which together with the significant fall in broadcast industry advertising revenues in the USA, have contributed to lower sales and profits in all our businesses there. In other parts of the world, our photographic and broadcast camera support businesses continue to perform strongly, although more recently certain European markets have begun to show signs of slowing down. Notwithstanding our strong brands, the wide geographic markets which we serve and our continuing ability to generate cash, our profits before tax for the half-year to 30 June show a substantial reduction from the same period last year. Financials Turnover increased five per cent to £99.6 million (2000 £94.7 million). Favourable exchange rates accounted for all of the increase. Sales volumes for our products and services in the USA declined by approximately eight per cent compared with last year but increased by seven per cent in other parts of the world. The net volume shortfall of just over one per cent was offset by price increases. Operating profit before exceptional items and goodwill amortisation was 18 per cent lower at £15.4 million (2000 £18.8 million). The stronger US dollar and Euro compared with last year increased reported profits by £0.6 million. With interest expense unchanged at £1.5 million, profit before tax, exceptional items and goodwill amortisation was £13.9 million (2000: £17.3 million). The tax charge increased to 32.4 per cent from 30.6 per cent and headline earnings per share decreased 22 per cent to 22.9p (2000: 29.2p). Full impairment provision has been made against the $5.3 million (£3.7 million) cost of our investment in Intersense, the high-tech motion control company. Its products have not been developed at the speed which was originally expected and although their cash burn rate has been reduced substantially, losses are forecast to continue. We have declined to increase our investment but expect to have continued access to the technology in the near-term. We entered 2001 with a higher cost base reflecting planned investments in products, markets and resources. The downturn in the USA markets, together with these higher costs, resulted in lower profitability than in the first half of last year. We have taken firm action to reduce costs in all our businesses and our companies now should be better positioned to deal with the uncertainties of the markets in which they operate. Operating cash flow remained strong at £17.8 million (2000 £20.6 million). This represented 118% of operating profit (2000:111%). Free cash flow before dividends was neutral (2000 £8.1 million inflow), adversely impacted by tax payments which will be refunded later in the year, leaving net debt of £38.1 million (2000: £28.9million). An interim dividend of 6.1p (2000 5.6p), an increase of 9 per cent, will be paid on 2 November 2001. The shares will go ex-dividend on 3 October 2001. Board Following the resignation of Philip Cushing, Group Chief Executive, on 23 July, we are currently engaged in a search for a new chief executive. On 8 August Lino Manfrotto, a non-executive director, retired after 10 years on the Board. We thank him for the considerable contribution he has made to the Group during his tenure. Outlook At the heart of Vitec is an exceptional portfolio of world leading camera and lighting support brands, which have recorded excellent profitability and growth under our ownership. Whilst not immune to the current downturn, these businesses have demonstrated their strength and resilience in testing conditions. We have commenced a fundamental review of the manufacturing operations of these businesses with the objectives of better asset utilisation and increased efficiency in order to improve competitiveness into the future. There are currently no signs that markets will improve in the second half. We are confident that the benefits of our cost reduction actions will show through in the second half, although profits are unlikely to match those of the same period of last year. The fundamental strength of the Group nevertheless remains unchanged. Alison Carnwath Chairman OPERATIONAL OVERVIEW Broadcast Camera Systems Turnover increased 7 per cent to £33.7 million from £31.5 million in 2000. Operating profit fell by 15 per cent compared with the prior year, from £7.1 million to £6.0 million. Vinten's turnover in the first half was ahead of last year. In the USA, sales of Autocam products increased significantly, whereas studio and outside broadcast (studio/OB) equipment sales were significantly down on last year. Sales of lightweight products were also lower. In South America, however, there were impressive sales increases over the prior year. Turnover outside of the Americas was also higher than last year with European, Asian and Australian markets well ahead. Sachtler built on its outstanding performance last year with turnover to June, across all product ranges, well ahead of 2000. Turnover of suspension systems was boosted by a large studio project in Brazil. Overall sales in the Americas were higher than in the first half of 2000, despite weakness in the USA. Turnover in Europe overall was significantly ahead of last year, despite lower sales in Germany and Eastern Europe. Turnover in the Far East also increased substantially. Anton/Bauer was unable to sustain the excellent performance achieved over the last two years. Sales to dealers and networks in the USA, its major market, were both lower than last year. Turnover in Europe and Japan was also significantly down. Turnover was depressed due to lower sales by the camera manufacturers, caused partly by the slowdown in conversion to digital formats by broadcasters and high-end field producers. Also, delays in the introduction of new products by its largest customer caused OEM sales to be significantly lower. Operating expenses in the division were higher than last year with increases occurring in new product development, also in sales and marketing in Sachtler and Vinten. Photographic & Retail Display Turnover for the division was £38.3 million (2000: £34.7 million), an increase of 10 per cent. Operating profit decreased 2% to £7.9 million from £8.1 million, with a reduction in operating margin from 23.3 per cent to 20.6 per cent. With the exception of the USA, the photographic businesses performed very well, building on the considerable gains made throughout the last two years. The strongest markets were in South East Asia, especially Korea and China, and also Europe. New product introductions, replacing the most popular '055' and ' 190' tripods and heads helped to drive the sales increases. However, higher sales of tripods and heads elsewhere did not make up for the USA shortfall, although lighting support sales did show a net increase. Lower USA sales held back Gitzo, which made a good recovery in Japan after several periods of weakness. The relocation of Gitzo's manufacturing from France to Italy commenced and this was completed at the end of August. This should result in greater efficiencies and better margins in the second half. IFF reported another superb performance, as did Litec. IFF's hoist manufacturing operation has now been relocated from Florence to the new factory in Northern Italy, purchased last year. Operating margins were lower than last year. Gross margins were reduced by a 12% increase in the cost of aluminium and the one-time duplicate costs of preparing the Italian operation for the Gitzo transfer. Also, operating costs in the product development and sales and marketing areas were higher. Retail display turnover in the USA was a little higher than the first six months of 2000, and further advances were made in Europe, helped by large orders from Nokia and Benetton. Operating margins improved over last year. This was mainly due to higher gross margins, aided by the stronger US $, despite higher aluminium costs. Communications and Audio Turnover for the division was £9.7 million (2000: £10.9 million), a decrease of 11 per cent, and operating profit decreased 64 per cent to £0.4 million from £1.1 million. Operating margins fell from 10.1% to 4.1%. After an excellent year in 2000, Clear-Com suffered because of capital spending cut-backs in the broadcast sector. Sales of Matrix products were well below last year in both US domestic and international markets, despite a large sale into the aerospace sector earlier in the year. A solid improvement in turnover was achieved within the PartyLine product range in the US market. In international markets, however, demand for these products was lower than the first half of 2000, especially in the Far East. International sales of both Matrix and Party-Line products were also adversely affected by the strength of the US dollar. Sales of Vega wireless intercom products were also much lower than the prior year as the market continued to wait for the new, frequency agile Q700 wireless intercom. Vega's operation in Los Angeles was closed down in May and relocated to Clear-Com's factory near Berkeley, California. The Q700 has been extremely well received in the market and the first production units were shipped from Clear-Com at the end of June. Operating costs of the integrated operation were higher as the sales and marketing function incurred duplicate costs in bringing the international sales function in house. Significant cost containment actions were taken in May, resulting in a 15% reduction in the workforce. Drake's turnover in the first half was significantly lower than last year. Following a very strong first half in 2000, demand was lower in both the broadcast and voice communications systems markets. Improvements in gross margins and reduced operating costs were not sufficient enough to make up for the shortfall in turnover and operating profits fell accordingly. Broadcast Services Turnover was £17.9 million (2000: £17.6 million), an increase of 2 per cent. Operating profit decreased 56 per cent from £2.5 million to £1.1 million and operating margins fell to 6.1 per cent from 14.2 per cent last year. Due to the division operating exclusively in the USA, the full impact of the fall in US television advertising revenues, the drive by US television companies to contain programming costs and the decline in US corporate earnings have impacted on the division's results. The downturn was accentuated by the division's outstanding performance last year. In Bexel, despite an aggressive marketing campaign, core video rentals were significantly reduced due to lower demand in the televised entertainment and commercial sectors. Large event rentals also registered a steep decline. In contrast, the prior year benefited from two large events in the first quarter, the Americas Cup and the International AIDS Conference. Sales of used video equipment were ahead of last year, helped by successful trading initiatives in the marketplace. The Audio Specialties Group performed well in rentals, which were slightly ahead of the good result reported in the first six months of 2000. Specialty rentals, however, both experienced lower market demand. Audio equipment sales were lower than last year, despite a large sale in January, because of lower demand from the commercial sector. Employee costs, IT infrastructure and staff training all contributed to higher operating costs. However, steps have been taken to reduce these in the second half. Capital expenditure is also being carefully controlled in relation to the lower levels of turnover. Consolidated profit and loss account Six months ended 30 June 2001 (unaudited) Audited Six months to year June 2001 2000 2000 £m £m £m Turnover 99.6 94.7 200.0 ______ ______ ______ Operating profit Operating profit before exceptional items and goodwill amortisation 15.4 18.8 40.1 Exceptional items - - (1.9) Goodwill amortisation (0.3) (0.3) (0.6) ______ ______ ______ Operating profit 15.1 18.5 37.6 Profit on sale of property fixed assets 0.8 - - Amounts written off investments (3.7) - - ______ ______ ______ Profit on ordinary activities before interest 12.2 18.5 37.6 Net interest payable (1.5) (1.5) (2.9) ______ ______ ______ Profit on ordinary activities before tax 10.7 17.0 34.7 Tax (4.5) (5.3) (11.5) ______ ______ ______ Profit on ordinary activities after tax 6.2 11.7 23.2 Dividends (2.5) (2.3) (8.7) ______ ______ ______ Retained profit 3.7 9.4 14.5 ______ ______ ______ Basic earnings per share 15.1p 28.5p 56.7p Diluted earnings per share 15.1p 28.0p 56.4p Headline earnings per share 22.9p 29.2p 62.8p Consolidated balance sheet As at 30 June 2001 (unaudited) Audited 30 June 31 December 2001 2000 2000 £m £m £m Fixed assets Intangible assets 11.2 11.3 10.9 Tangible assets 48.8 44.0 47.0 Investments - - 3.5 ______ ______ ______ 60.0 55.3 61.4 ______ ______ ______ Current assets Stocks 41.5 34.0 37.8 Debtors 39.6 35.6 38.0 Cash at bank and in hand 13.4 21.3 19.2 ______ ______ ______ 94.5 90.9 95.0 Creditors - due within one year (30.8) (36.2) (38.6) ______ ______ ______ Net current assets 63.7 54.7 56.4 ______ ______ ______ Total assets less current liabilities 123.7 110.0 117.8 Creditors - due after more than one year (47.8) (46.7) (46.6) Provisions for liabilities and charges (7.1) (5.9) (7.5) ______ ______ ______ Net assets 68.8 57.4 63.7 ______ ______ ______ Capital and reserves Share capital including share premium 10.7 10.5 10.6 Reserves 58.1 46.9 53.1 ______ ______ ______ Shareholders' funds - equity 68.8 57.4 63.7 ______ ______ ______ Statement of total recognised gains and losses and reconciliation of movements in shareholders' funds Six months ended 30 June 2001 (unaudited) Audited Six months to year June 2001 2000 2000 £m £m £m Profit for the period 6.2 11.7 23.2 Exchange rate movements on foreign net investments 1.3 3.8 4.9 ______ ______ ______ Total recognised gains relating to the period 7.5 15.5 28.1 Dividends (2.5) (2.3) (8.7) New share capital subscribed 0.1 - 0.1 ______ ______ ______ Net increase in shareholders' funds 5.1 13.2 19.5 Opening shareholders' funds 63.7 44.2 44.2 ______ ______ ______ Closing shareholders' funds 68.8 57.4 63.7 ______ ______ ______ Consolidated cash flow statement Six months ended 30 June 2001 (unaudited) Audited Six months to June year 2001 2000 2000 £m £m £m Operating profit 15.1 18.5 37.6 Goodwill amortisation 0.3 0.3 0.6 Depreciation 6.2 5.5 11.4 Working capital and other items (3.8) (3.7) (3.8) ______ ______ ______ Net cash inflow from operating activities 17.8 20.6 45.8 Returns on investments and servicing of finance (1.6) (1.6) (3.0) Tax paid (9.5) (6.7) (12.4) Net capital expenditure (6.7) (4.2) (16.3) Acquisitions - (7.3) (7.1) Equity dividends paid (6.4) (2.0) (9.9) ______ ______ ______ Net cash outflow before financing (6.4) (1.2) (2.9) Financing Issue of shares 0.1 - 0.1 Net receipt/(repayment) of loans 0.9 (11.0) (11.0) ______ ______ ______ Net cash inflow/(outflow) from financing 1.0 (11.0) (10.9) ______ ______ ______ Decrease in cash in the period (5.4) (12.2) (13.8) ______ ______ ______ Segmental analysis of turnover and operating profit Six months ended 30 June 2001 (unaudited) 2001 2000 2001 2000 £m £m £m £m Class of business Turnover Operating profit Broadcast camera systems 33.7 31.5 6.0 7.1 Photographic and retail display 38.3 34.7 7.9 8.1 Communications and audio 9.7 10.9 0.4 1.1 Broadcast services 17.9 17.6 1.1 2.5 ______ ______ ______ ______ 99.6 94.7 15.4 18.8 Goodwill amortisation - - (0.3) (0.3) ______ ______ ______ ______ 99.6 94.7 15.1 18.5 ______ ______ ______ ______ Geographical turnover By destination By origin United Kingdom 4.8 4.4 12.8 14.1 The rest of Europe 25.3 22.5 38.0 33.1 The Americas 56.3 55.8 47.3 46.2 Asia and Australasia 11.8 10.8 1.5 1.3 Africa and Middle East 1.4 1.2 - - ______ ______ ______ ______ 99.6 94.7 99.6 94.7 ______ ______ ______ ______ Notes 1. Basis of preparation The financial information set out above does not constitute statutory accounts for the Group. The interim financial statements have been prepared in accordance with accounting policies set out in the Group's audited accounts. The figures for the year ended 31 December 2000 are extracted from the statutory accounts on which the auditors issued an unqualified report and which have been filed with the Registrar of Companies. 2. Tax charge The tax charge for the half year is estimated on the basis of the anticipated tax rates which will apply for the full year. The tax charge is substantially overseas tax. 3. Earnings per share The calculation of basic earnings per share is based on profit on ordinary activities after tax of £6,200,000 (2000: £11,651,000) and the weighted average number of shares of 40,979,848 (2000: 40,938,911). Headline earnings per share is calculated on profit on ordinary activities after tax but before exceptional items and amortisation of goodwill, using the same number of shares. Diluted earnings per share is based upon profit on ordinary activities after tax and the weighted average number of shares as adjusted for the weighted amount of shares under option of 41,079,488 (2000: 41,593,058). 4. Interim dividend The directors have declared an interim dividend of 6.1p per share, which will absorb £2.5 million (2000: 5.6p absorbing £2.3 million). The dividend will be paid on 2 November 2001 to shareholders on the register at the close of business on 3 October 2001. 5. Copies of this statement will be sent to all shareholders on the share register as at 3 September 2001. Copies are available on written application to the Company Secretary.

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