TIDMVTC
RNS Number : 3690I
Vitec Group PLC (The)
12 August 2021
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART
IN, INTO OR FROM ANY JURISDICTION WHERE TO DO THE SAME WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH
JURISDICTION.
12 August 2021
The Vitec Group plc
2021 Interim Results
Strong half year performance in a faster-growing market
The Vitec Group plc ("Vitec" or "the Group"), the international
provider of premium branded hardware products and software
solutions to the growing content creation market, announces its
results for the half year ended 30 June 2021.
Results(1) H1 2021 H1 2020 H1 2019
---------- ----------- ----------
Revenue GBP181.4m GBP118.9m GBP184.2m
Adjusted operating profit/(loss)* GBP21.9m GBP(4.4)m GBP25.8m
Adjusted operating margin* 12.1% (3.7)% 14.0%
Adjusted profit/(loss) before GBP20.0m GBP(7.0)m GBP23.5m
tax*
Adjusted basic earnings/(loss)
per share* 32.7p (9.9)p 39.9p
Dividend per share 11.0p - 12.3p
Free cash flow* GBP15.8m GBP(5.8)m GBP16.0m
Net debt GBP102.0m GBP107.4m GBP108.4m
Statutory results
Operating profit/(loss) GBP17.0m GBP(11.2)m GBP18.9m
Operating margin 9.4% (9.4)% 10.3%
Profit/(loss) before tax GBP15.1m GBP(13.8)m GBP16.6m
Basic earnings/(loss) per
share 24.4p (20.9)p 27.0p
H1 2021 results highlights
-- Continued strong trading across the Group driven by a faster-growing
market, with underlying(2) order intake up 12% compared with
H1 2019
-- Adjusted operating margin improvement, driven by strong operating
leverage
-- Excellent cash performance with high operating cash conversion*
at 118%
-- Expanded addressable markets and increased higher technology
capabilities through acquisitions of Lightstream and Quasar
-- Interim dividend at 11.0p
Outlook and strategic positioning
-- H2 2021 trading started well and July/August order intake
likely to be c.20% above 2019
-- FY 2021 adjusted PBT to be above current market forecasts,
despite ongoing uncertainties
-- Content creation market expected to grow faster than pre-pandemic
with Vitec benefitting from permanent structural market changes
-- On track towards mid-teen adjusted operating margin*
-- Vitec's investment focused on the fastest growing segments
of the market and, increasingly, software-enabled technology
* In addition to statutory reporting, Vitec reports alternative
performance measures ("APMs") which are not defined or specified
under the requirements of International Financial Reporting
Standards ("IFRS"). The Group uses these APMs to improve the
comparability of information between reporting periods and
Divisions, by adjusting for certain items which impact upon IFRS
measures, to aid the user in understanding the activity taking
place across the Group's businesses. APMs are used by the Directors
and management for performance analysis, planning, reporting and
incentive purposes. A summary of APMs used and their closest
equivalent statutory measures is given in the Glossary.
Commenting on the results, Stephen Bird, Group Chief Executive,
said:
"The Group's positive first half performance is a result of
strong demand, market growth and a tightly managed cost base.
Second half trading has started extremely well, and we expect the
combined order intake for July and August to be approximately 20%
above 2019. The Board now expects adjusted PBT * for FY 2021 to be
above current market forecasts(5) , despite ongoing
uncertainties.
"The content creation market is a great place to be. The
pandemic has accelerated the democratisation and digitalisation of
media, driving a permanent structural change to the market. There
has been a dramatic increase in the capture, consumption and
sharing of video and scripted TV content, and Vitec is right at the
heart of this fast-growing market. We expect to deliver strong
margin recovery, as we benefit from strong operating leverage and
ongoing operational efficiencies, increase sales of higher margin,
higher technology products, in-source production of some JOBY
products, and grow online sales, particularly in our Imaging
Division. Vitec is now a stronger, higher quality business in a
larger and faster-growing market, and the Group is well placed for
long-term, sustainable growth and value creation for all of our
stakeholders. "
For further information please
contact:
The Vitec Group plc Telephone: 020 8332 4602
Stephen Bird, Group Chief Executive
Martin Green, Group Finance Director
Jennifer Shaw, Group Communications
Director
A video webcast and Q&A for Analysts and Investors will be
held today, starting at 9.30am UK time. The presentation slides
will be available on our website at 7.00am.
Users can pre-register to access the webcast and slides using
the following link:
www.vitecgroup.com/investors/results-reports-and-presentations/
Notes to Editors :
Vitec is a leading global provider of premium branded hardware
products and software solutions to the growing content creation
market.
Vitec's customers include broadcasters, film studios, production
and rental companies, photographers, independent content creators,
gamers and enterprises. Our product portfolio includes camera
supports, video transmission systems and monitors, live streaming
solutions, smartphone accessories, robotic camera systems,
prompters, LED lighting, mobile power, bags and motion control,
audio capture and noise reduction equipment.
We employ around 1,800 people across the world in 11 different
countries and are organised in three Divisions: Imaging Solutions,
Production Solutions and Creative Solutions.
The Vitec Group plc is listed on the London Stock Exchange.
More information can be found at: www.vitecgroup.com
LEI number: 2138007H5DQ4X8YOCF14
Notes
This announcement is based on information sourced from
(1) management estimates and includes comparing performance
at constant exchange rates to assist in understanding the
underlying performance of the Group.
Underlying order intake increase excludes the Olympics
(2) order in 2021 and is on an organic, constant currency basis.
H1 2021 average exchange rates: GBP1 = $1.39, GBP1 = EUR1.15,
(3) EUR1 = $1.21, GBP1 = Yen148.
H1 2020 average exchange rates: GBP1 = $1.27, GBP1 = EUR1.15,
(4) EUR1 = $1.11, GBP1 = Yen138.
Current company compiled consensus for FY2021: Adjusted
(5) PBT GBP39.3m.
This announcement contains inside information. The person
(6) responsible for arranging the release of this announcement
on behalf of The Vitec Group plc is Jon Bolton, Group Company
Secretary.
H1 2021 management and financial overview
Vitec's purpose to "enable the capture and sharing of
exceptional content" has never been more relevant than it is today.
The pandemic has accelerated the democratisation and digitalisation
of media and driven a permanent structural change to the content
creation market, which is now larger and growing faster. There has
been a dramatic increase in the capture, consumption and sharing of
video and scripted TV content, and Vitec is right at the heart of
this fast-growing market.
Vitec delivered a positive H1 2021 performance. While the
COVID-19 pandemic continued to present challenges, we delivered
growth versus H1 2019 in many areas of the business and have
benefitted from the mitigating actions we put in place in 2020. We
remain focused on tightly managing our cost base and this enabled
us to deliver strong operating leverage while continuing to invest
in our key priorities in line with our strategy.
Our photographic and most broadcast markets recovered first, and
we saw a slower recovery in the cine market as production sets
opened up towards the end of the half. We continued to see strong
growth in the enterprise market for our wireless products,
particularly in the medical segment, and new markets emerged such
as lighting supports for sports analytics. More people have become
accustomed to communicating via video and more video content is
being produced, streamed and watched on subscription channels and
social media platforms. We believe that the demand for, and
investment in, original content (e.g. films, scripted TV shows,
live news, sport, videos, games and photos) will continue to grow
rapidly. There has clearly been some bounce back in demand, but the
Group's Total Addressable Market ("TAM") is now larger, at GBP2.6
billion, and is expected to grow faster - high single digit 2022-24
compared to low single digit pre-pandemic.
We continued to launch new products for the fastest growing
segments of the market, including the rollout of our 4K/HDR
wireless video eco-system in the cine market, and we developed new
vlogging accessories, LED lights, mechatronics and audio capture
products. We expanded our customer base with the acquisitions of
Lightstream and Quasar, and are increasingly focused on developing
software-enabled technology, as well as streaming
Software-as-a-Service to expand our recurring revenues in gaming
and enterprises through subscription services. And we continue to
improve the Group's e-commerce capabilities to grow our higher
margin online sales.
While there remain some short-term supply chain constraints, we
are well-positioned at the heart of the fast-growing content
creation market to capitalise on the strong global demand for
capturing, consuming and sharing content.
Vitec has emerged from the pandemic a stronger, higher quality
business with strong operating leverage. The breadth of the Group's
product portfolio in multiple market segments, coupled with our
decentralised and entrepreneurial business model and our increasing
technological competencies, make us more resilient and enable us to
rapidly adapt to market changes.
Finally, the response of our people has been outstanding
throughout the pandemic and we would like to thank everyone across
the Group for their continued support and commitment.
Financial performance
Adjusted* Statutory
H1 2021 H1 2020 H1 2019 H1 2021 H1 2020
------------------------- ----------- ---------- ---------- ---------- -----------
Revenue GBP 181.4m GBP 118.9 GBP184.2m GBP 181.4 GBP 118.9
m m m
Operating profit/(loss) GBP21 GBP (4.4) GBP25.8m GBP 17.0 GBP (11.2)
.9 m m m m
Profit/(loss) GBP 20.0 GBP (7.0) GBP23.5m GBP 15.1 GBP (13.8)
before tax m m m m
Earnings per (9.9) 24.4 (20.9)
share 32.7p p 39.9p p p
----------- ---------- ---------- ---------- -----------
The closing order book at 30 June 2021 was our highest ever,
driven by order intake being higher than H1 2019, even after
excluding the Olympics, and reflecting increased demand for Vitec's
premium products and leading technologies.
Revenue recovered to GBP181.4 million, resulting in adjusted
operating profit* of GBP21.9 million. This was 2% ahead of H1 2019
on an organic, constant currency basis.
Group adjusted gross margin* of 44.0% was similar to
pre-pandemic levels despite significant headwinds from freight and
duty costs. Excluding H1 2019 SmallHD insurance proceeds (GBP5.8
million), which were included in profit but not revenue, the
adjusted gross margin* in H1 2019 was 44.5%.
Adjusted operating expenses* of GBP57.9 million were, as
expected, GBP9.1 million higher than H1 2020 but GBP4.0 million
lower than H1 2019 due to restructuring savings, and lower spend on
travel and expenses given global travel restrictions remaining in
place in H1 2021. As announced at the 2020 full year results, we
repaid GBP1.2 million of UK furlough proceeds, which is included in
the H1 2021 adjusted operating profit*.
Adjusted operating profit margin* of 12.1% was back to
pre-pandemic levels (H1 2019 excluding SmallHD insurance proceeds:
10.9%) .
Net finance expense of GBP1.9 million led to adjusted profit
before tax* of GBP20.0 million; GBP3.5 million lower than H1 2019,
although H1 2019 included insurance proceeds of GBP5.8 million. On
an organic, constant currency basis adjusted operating profit* and
adjusted profit before tax* were 9% and 8% down on H1 2019
respectively.
The Group's effective tax rate ("ETR") on adjusted profit before
tax* was 25%. Our expectation for the full year ETR on adjusted
profit before tax* is c.25%.
Adjusted basic earnings per share* was 32.7 pence. Statutory
basic profit per share was 24.4 pence.
Statutory profit before tax of GBP15.1 million (H1 2020: GBP11.2
million loss) reflects adjusting items of GBP4.9 million (H1 2020:
GBP6.8 million).
H1 2021 adjusted profit before tax* included a GBP0.7 million
adverse foreign exchange effect after hedging compared to H1 2020.
The impact on H2 2021 adjusted profit before tax* from a one cent
stronger/weaker US Dollar/Euro is expected to be an
increase/decrease of approximately GBP0.1 million. At current spot
rates there is expected to be a GBP2.0 million adverse impact
versus 2020; primarily due to the weaker dollar.
Cash flow and net debt
Strong operating cash conversion* was 118%, as set out below.
Operating cashflow* was GBP6.1 million higher than in H1 2019, and
free cash flow* was broadly in line with H1 2019.
GBPm H1 2021 H1 2020 H1 2019
Adjusted operating
profit/(loss)* 21.9 (4.4) 25.8
Depreciation(1) 9.3 9.4 9.1
Working capital
dec/(inc)* 2.6 5.4 (8.7)
Capital expenditure(2) (10.2) (8.5) (7.9)
Other(3) 2.2 0.6 1.4
Operating cashflow* 25.8 2.5 19.7
Interest and tax
paid (6.7) (4.8) (3.3)
Earnout and retention
bonuses (2.0) (2.1) -
Restructuring and
integration costs (1.0) (1.4) (0.4)
Transaction costs (0.3) - -
-------- -------- --------
Free cash flow* 15.8 (5.8) 16.0
------------------------ -------- -------- --------
(1) Includes depreciation, amortisation of software and
capitalised development costs
(2) Purchase of Property, Plant & Equipment ("PP&E") and
capitalisation of software and development costs
(3) Includes change in provisions, share based payments charge,
proceeds from the sale of PP&E, gain on disposal of PP&E,
fair value derivatives, impairment losses on PP&E, and foreign
exchange movements
Working capital* decreased by GBP2.6 million in H1 2021. As
expected, inventory was GBP8.4 million higher than December 2020
but was more than offset by an increase in payables.
Capital expenditure included:
-- GBP4.4 million of property, plant and equipment (of which
GBP1.9 million relates to new machinery to enable some
JOBY products to be made in Italy, and GBP0.4 million
relates to the Olympics) compared with GBP2.8 million
in H1 2020;
-- GBP5.3 million capitalisation of R&D; and GBP0.5 million
capitalisation of software.
GBPm H1 2021 H1 2020 Variance
-------- --------
Gross R&D 11.6 10.0 1.6
Capitalised (5.3) (5.5) 0.2
Amortisation 2.7 2.2 0.5
P&L Impact 9.0 6.7 2.3
-------------- -------- -------- ---------
'Other' cash flow primarily relates to share-based payments.
Interest and tax paid increased by GBP1.9 million compared to H1
2020 due to higher tax payments (including GBP3.2 million relating
to EU State Aid); partly offset by the non-repeat of the RCF
upfront and arrangement fees, and CCFF fees in H1 2020.
Restructuring cash outflow mainly reflects the final
restructuring payments in the Imaging Solutions Division.
December 2020 closing
net debt (GBPm) (90.8)
Free cash flow* 15.8
Net amortisation of
loan fees (0.1)
Dividends paid (2.1)
Employee incentive
shares (0.7)
Acquisitions (12.7)
Net lease additions (11.9)
FX 0.5
June 2021 closing net
debt (GBPm) (102.0)
----------------------- --------
Net debt at 30 June 2021 was GBP11.2 million higher than at 31
December 2020 (GBP90.8 million) and GBP5.4 million lower than at 30
June 2020 (GBP107.4 million).
Excluding acquisitions (GBP12.7 million) and net lease additions
(GBP11.9 million), net debt decreased by GBP13.4 million versus 31
December 2020.
On 5 April 2021 the Group acquired Quasar Science ("Quasar") for
cash consideration of $1.7 million (GBP1.2 million).
On 12 April 2021 the Group acquired Infiniscene, INC
("Lightstream") for cash consideration of $15.8 million (GBP11.5
million), net of cash acquired, and $4.9 million (GBP3.6 million)
through the issue of 309,753 ordinary shares of 20 pence each.
Net lease additions were higher as expected (versus GBP1.7
million in H1 2020) as they include the renewal of leases for our
plants in Feltre, Costa Rica and Irvine.
Liquidity at 30 June 2021 totalled GBP91.0 million; comprising
GBP70.5 million unutilised RCF, GBP17.1 million of cash and GBP3.4
million unused overdraft facility. As previously announced, the
Group repaid the CCFF during H1 2021.
ROCE * of 13.1 %(1) was higher than the prior year (12 months to
June 2020: 7.8%), which reflects the higher adjusted operating
profit*.
Charges associated with acquisition of businesses and other
adjusting items
Charges associated with acquisition of businesses and other
adjusting items in profit before tax were GBP4.9 million versus
GBP6.8 million in H1 2020.
GBPm H1 2021 H1 2020
Amortisation of acquired intangible assets 3.3 4.5
Integration and restructuring costs 0.3 0.6
Earnout charges and retention bonuses 0.8 1.1
Effect of fair valuation of acquired inventory - 0.6
Transaction costs relating to acquisition 0.5 -
of businesses
Charges associated with acquisition of businesses
and other adjusting items 4.9 6.8
--------------------------------------------------- --------
Notes
Return on capital employed ("ROCE") is calculated as adjusted
(1) operating profit* for the last twelve months divided by
the average total assets, current liabilities excluding
the current portion of interest-bearing borrowings, and
non-current lease liabilities. 12 months to June 2020 has
been restated to include the non-current lease liabilities,
which were not included in the J une 2020 calculation.
Strategy update
We continue to make good progress delivering our strategic
objectives and our strong H1 2021 performance in a larger and
faster-growing market is evidence of Vitec's potential for
long-term sustainable growth and value creation for all of our
stakeholders.
Organic growth: we have focused our resources and investment on
developing new products for our fastest growing market segments
and, increasingly, software-enabled technology, which provides us
with broad and sustainable growth opportunities:
-- Vlogging and sharing video and audio content on social media
have increased with more people using smartphones and compact
system cameras to create and share content using our JOBY
vlogging accessories.
-- Live streaming of video in multiple verticals, such as enterprises,
medical and gaming, continues to grow significantly, driving
demand for our streaming solutions.
-- More content has been consumed on subscription channels like
Netflix, Amazon Prime and Disney, and original content creation
is growing dramatically, driving demand for our video transmission
and monitoring systems.
-- Further automation of TV studios to drive cost efficiencies
is benefitting our robotic camera systems, voice-activated
prompting solutions, and LED lighting products.
We also continue to invest in our digital capabilities across
the Group to benefit from the continued transition to the higher
margin e-commerce channel. This is a significant commercial
advantage as many of our competitors lack the digital talent,
supply chain and global support infrastructure that Vitec can
deploy.
Margin improvement: we will continue to improve margins.
With increased volumes and tight control of our operating
expenses, we benefitted from strong operating leverage in H1. This
is an important focus for the Group as we expect operating leverage
to continue to drive better margins.
In addition, we expect to improve operating margins by:
-- Optimising our manufacturing and assembly portfolio
-- Improving productivity with operational efficiencies
-- Increasing sales of higher margin, higher technology products
-- Growing our online sales, especially in the Imaging Solutions Division
-- Recovering the margin in our Creative Solutions Division, and
-- Capturing synergies from acquisitions.
These benefits are expected to more than offset headwinds from
increased amortisation and increased freight and duty costs. We
expect to recover raw material inflation with pricing
increases.
M&A activity: we have a clear and focused M&A strategy,
aligned with our purpose, to increase addressable markets served
and further increase our higher technology capabilities. Our
organisation model is easily scalable and gives us the opportunity
to continue to acquire small-to-medium sized businesses.
In April 2021, we acquired Los Angeles-based Quasar. Quasar
designs and develops a range of market-leading, innovative linear
LED lighting solutions for cine-style applications. Their products
are used in professional, large-scale film and scripted TV
production as well as small scale new media markets, and are highly
sought after for their industry leading colour quality and
versatility. Quasar is being integrated into Vitec's Production
Solutions Division.
This acquisition was driven by Vitec's strategy to expand our
higher technology capabilities in strategic growth markets. Quasar
products are highly complementary to Vitec's existing Litepanels
LED Lighting brand and the two sales and marketing teams are being
integrated. They are focused on selling Quasar products through
Vitec's global sales and distribution network and using Quasar's
expertise and network to grow the Litepanels brand in the cine
market. Two new Quasar products were released in May and the
Engineering Teams are working together to develop a joint
technological roadmap for future Litepanels and Quasar
products.
In the same month, we acquired Lightstream, a US-based
technology company that provides a cloud-based video production and
editing Software-as-a-Service ("SaaS") platform to enable content
creators to enrich their live video streams. Lightstream is a world
leader in cloud live streaming technology for the fast-growing
gaming market and has strong strategic partnerships and technology
integrations with the leading streaming and gaming platforms,
including with Microsoft's Xbox and Amazon's Twitch.
Live streaming across all industries has grown exponentially
during the pandemic and it has become a significant growth
opportunity for the Group with our Teradek brand. The gaming market
was a logical extension to our live streaming strategy and, with
Lightstream as part of the Group, we are able to address the
growing demand for cloud-based content creation as well as
increasing our recurring revenue stream.
Lightstream is being integrated into Vitec's Creative Solutions
Division. Our marketing, digital and sales teams are now actively
promoting Lightstream in the major global gaming markets. We have
completed the strategic review which looked at combining Teradek's
video encoding and cloud distribution capabilities with the
Lightstream cloud editing platform and we are developing a joint
software roadmap. We are also planning to apply Lightstream's
technology to our enterprise customer base. Our JOBY team has
started promoting Lightstream's studio product into its growing
JOBY vlogger and social media influencer customer base, bundling
Lightstream subscriptions and Vitec hardware accessories. We are
also preparing to take a strong lead in the cloud video market
offering Teradek hardware with Lightstream cloud solutions.
Creative Solutions has our greatest market opportunity, fastest
area of growth and highest margin potential. The Board continues to
consider how best, over time, to maximise and clearly demonstrate
to shareholders the potential value of the Creative Solutions
Division.
Divisional performances
Imaging Solutions
The Imaging Solutions Division designs, manufactures and
distributes premium branded equipment for photographic and video
cameras and smartphones, and provides dedicated solutions to
professional and amateur image makers, independent content
creators, vloggers and enterprises. This includes camera supports
and heads, camera bags, smartphone and vlogging accessories,
lighting supports, LED lights, lighting controls, motion control,
audio capture and noise reduction equipment marketed under the most
recognised accessories brands in the industry. Imaging Solutions
represents 51% of Group revenue.
Imaging Solutions has seen a stronger than expected recovery,
its TAM having increased to GBP1.2 billion (2021), particularly due
to the increase in vlogging. We estimate that the market CAGR
(2022-24) will be c.2-5% (previous mid-term forecast of c.1%). We
are focused on continued growth in the higher margin e-commerce
channel, vlogging accessories, and new audio capture and
mechatronic products.
Adjusted* Statutory
------------------------- --------------------------------
Imaging Solutions H1 2021 H1 2020 H1 2019 H1 2021 H1 2020
--------- ---------- --------- --------- ----------
Revenue GBP91.7m GBP63.8m GBP95.5m GBP91.7m GBP63.8m
Operating profit/(loss) GBP12.8m GBP(1.2)m GBP13.4m GBP12.2m GBP(3.0)m
Operating margin 14.0% (1.9)% 14.0% 13.3% (4.7)%
--------- ---------- --------- --------- ----------
* For Imaging Solutions, before charges associated with
acquisition of businesses and other adjusting items of
GBP0.6 million (H1 2020: GBP1.8 million).
Imaging Solutions' revenue recovered to GBP91.7 million, which
on an organic, constant currency basis was only down 1% compared to
H1 2019.
In the consumer segment (c.15% of Divisional revenue), there was
continued strong growth in JOBY smartphone and compact system
camera accessories. JOBY revenue grew double digit compared to H1
2020 and was up c.20% compared to H1 2019. JOBY launched the Beamo
Ring Light in March, designed to integrate seamlessly with existing
JOBY supports and microphones.
B2B revenue (c.25% of Divisional revenue) increased materially
compared to 2019. This was due to demand for lighting supports and
backgrounds. Key companies in the sports analysis and streaming
market are using Manfrotto Lighting supports to hold their sports
cameras at an elevated height; as a result Manfrotto lighting
supports saw c.20% revenue growth on H1 2019.
Revenue for professional (c.40% of Divisional revenue) photo and
video supports grew significantly compared to H1 2019 due to new
motion control products launched last year and strong demand from
the professional market. Hobbyist (c.20% of Divisional revenue)
photo supports and bags revenue saw a decline compared to H1 2019,
whilst markets remained subdued due to travel restrictions;
although is significantly ahead of H1 2020. In audio, Rycote
performed extremely well with more than 50% revenue growth versus
H1 2019 due to increased demand driven by significant growth in
sales to external companies integrating Rycote's patented
microphone shock mounting for their audio product offerings.
Adjusted operating profit* of GBP12.8 million represents a
return to pre-pandemic margins; higher freight and duty costs being
offset by restructuring savings. Adjusted operating margin* was
14.0%. On an organic, constant currency basis, adjusted operating
profit* was 1% down on H1 2019.
Statutory operating profit was GBP12.2 million (H1 2020: GBP3.0
million loss), reflecting GBP0.6 million of charges associated with
acquisition of businesses and other adjusting items (H1 2020:
GBP1.8 million) of which GBP0.1 million of charges related to the
previously announced restructure. As of June 2021 Imaging Solutions
had expensed GBP7.5 million in total, and by the end of 2021 it
expects to have expensed a total of GBP8.5 million in relation to
the restructure. In addition, our operations in China and Hong Kong
will be consolidated later in 2021 at a cost of GBP0.4 million to
achieve further efficiencies.
Production Solutions
The Production Solutions Division designs, manufactures and
distributes premium branded and technically advanced products and
solutions for broadcasters, film and video production companies,
independent content creators and enterprises. Products include
video heads, tripods, lights, batteries, prompters and speciality
camera systems. It also supplies premium services including
equipment rental and technical solutions. Production Solutions
represents 29% of Group revenue.
Production Solutions has seen a strong recovery, particularly
due to the increase in spend on original content creation. We
estimate that the market CAGR (2022-24) will be c.0-2% (versus
previous mid-term forecast of 0%). We are focused on growth in
products for on-location news and sporting events, as well as
robotic camera systems and voice-activated prompting to enable cost
efficiencies in studios.
Adjusted* Statutory
----------------------
Production Solutions H1 2021 H1 2020 H1 2019 H1 2021 H1 2020
--------- --------- --------- --------- ---------
Revenue GBP52.8m GBP33.7m GBP54.8m GBP52.8m GBP33.7m
Operating profit GBP11.3m GBP1.4m GBP8.4m GBP10.9m GBP1.4m
Operating margin 21.4% 4.2% 15.3% 20.6% 4.2%
--------- --------- --------- --------- ---------
* For Production Solutions, before charges associated with
acquisition of businesses and other adjusting items of GBP0.4
million (H1 2020 nil).
Production Solutions' revenue recovered to GBP52.8 million,
which on an organic, constant currency basis was in line with H1
2019. Its markets are not yet fully back to pre-pandemic levels,
and revenue was supported by higher royalties received for the
Litepanels brand.
The Litepanels Gemini 1x1 Hard launched in April and the new
super-bright LED panel is the brightest 1x1 LED light ever made.
The new generation Sachtler aktiv fluid heads, launched in October
2020, continued to be extremely popular.
Camera Corps provided a range of bespoke camera solutions for
the Euro 2020 tournament across June and July.
The acquisition of Quasar has performed as expected in the first
few months of trading; delivering GBP0.9 million of revenue and an
adjusted operating loss* of GBP0.2 million.
Adjusted operating profit* of GBP11.3 million was GBP2.9 million
higher than H1 2019, benefitting from royalties and lower operating
costs. Adjusted operating margin* was 21.4%. Excluding royalties
from the LED patents it was 17.2%. On an organic, constant currency
basis, adjusted operating profit* was 40% up on H1 2019.
Statutory operating profit was GBP10.9 million (H1 2020: GBP1.4
million), which included GBP0.4 million of adjusting items (H1
2020: nil).
Creative Solutions
The Creative Solutions Division develops, manufactures and
distributes premium branded products and solutions for independent
content creators, enterprises, broadcasters, film and video
production companies and gamers. It is made up of a number of
brands that Vitec has acquired and includes Teradek, SmallHD,
Amimon, Wooden Camera and Lightstream. Products include wired and
wireless video transmission and lens control systems, live
streaming solutions, monitors, camera accessories and software
applications. Creative Solutions represents 20% of Group
revenue.
Creative Solutions has seen a strong recovery, its TAM having
increased from GBP0.5 billion to GBP1.0 billion, particularly due
to the increase in streaming, spend on original content creation,
and Vitec's Lightstream acquisition enabling us to serve the gaming
market. We estimate that the market CAGR (2022-24) will be
c.20-25%. We are focused on delivering the 4K/HDR replacement cycle
and growing our medical and cloud-based streaming products for
gaming, enterprise and broadcast customers.
Adjusted* Statutory
-------------------------
Creative Solutions H1 2021 H1 2020 H1 2019 H1 2021 H1 2020
--------- ---------- --------- --------- ----------
Revenue GBP36.9m GBP21.4m GBP33.9m GBP36.9m GBP21.4m
Operating profit/(loss) GBP4.5m GBP(0.8)m GBP10.2m GBP0.6m GBP(5.4)m
Operating margin 12.2% (3.7)% 30.1% 1.6% (25.2)%
--------- ---------- --------- --------- ----------
* For Creative Solutions, before charges associated with
acquisition of businesses and other adjusting items of
GBP3.9 million (H1 2020: GBP4.6 million).
Creative Solutions' revenue recovered to GBP36.9 million. On an
organic, constant currency basis this was 15% ahead of H1 2019,
despite the cine market not being fully open. Order intake was
significantly ahead of H1 2019 on an organic, constant currency
basis.
Sales to the cine market grew double digit versus H1 2019. The
overwhelming majority of Bolt sales are now 4K/HDR, and there were
c.GBP1.0 million sales of the SmallHD 4K/HDR monitors that were
launched last year . Wooden Camera revenue grew significantly
compared to H1 2019.
Sales to the enterprise market were up materially versus H1 2020
and H1 2019. Within this, revenue to the medical market tripled
compared to H1 2019, with high demand for Amimon products within
the operating room ("OR") and moving more medical procedures from
the OR to treatment rooms. Recurring revenue excluding Lightstream
was up c.50% compared to both H1 2020 and H1 2019.
Component shortages for products that serve both the cine and
enterprise markets were largely mitigated in H1, with a greater
impact expected in H2 2021.
The acquisition of Lightstream has performed as expected in the
first few months of trading; delivering GBP0.5 million of revenue
and an adjusted operating loss* of GBP0.3 million.
Adjusted operating expenses* grew compared to H1 2019 as
Creative Solutions invested in sales and marketing to serve new
verticals.
Adjusted operating profit* of GBP4.5 million represents a return
towards pre-pandemic margins; an adjusted operating margin* of
12.2%. Excluding H1 2019 SmallHD insurance proceeds (GBP5.8
million), which were included in profit but not revenue, the
adjusted operating margin* in H1 2019 was 13.0%. On an organic,
constant currency basis, adjusted operating profit* was 16% up on
H1 2019 (excluding insurance proceeds). We expect Creative
Solutions' margins to improve as the cine market opens up fully and
we sell more Amimon-enabled 4K/HDR products.
Statutory operating profit was GBP0.6 million (H1 2020: GBP5.4
million loss), which included GBP3.9 million of charges associated
with acquisition of businesses and other adjusting items (H1 2020:
GBP4.6 million).
Corporate costs
Corporate costs include payroll and bonus costs for the
Directors and head office team, Long Term Incentive Plan and
Restricted Share Plan costs for individuals across the Group,
professional fees, property costs and travel costs.
Adjusted* Statutory
-----------------
Corporate costs H1 2021 H1 2020 H1 2019 H1 2021 H1 2020
Operating (loss) GBP(6.7)m GBP(3.8)m GBP(6.2)m GBP(6.7)m GBP(4.2)m
---------- ---------- ---------- ---------- ----------
* For corporate costs, before charges associated with
acquisition of businesses and other adjusting items of GBPnil
million (H1 2020: GBP0.4 million).
Corporate costs increased by GBP2.9 million reflecting accruals
for expected bonuses (H1 2020: nil) and share based payments
returned to being issued in H1 as opposed to H2 in 2020. Corporate
costs will rise in H2 2021 mainly due to new RSP awards issued in
July 2021.
Interim dividend
The Board has declared an interim dividend of 11.0 pence per
share (H1 2020: nil, H1 2019: 12.3p). The dividend will be paid on
Friday, 29 October 2021 to shareholders on the register at the
close of business on Friday, 24 September 2021. The Board's
objective is for a progressive and sustainable dividend and
believes it is appropriate for the Group to target a total dividend
cover of 2.0-2.5 times adjusted EPS*. The Company has sufficient
distributable reserves to cover future dividend payments for a
number of years.
Responsibility
Vitec has a clear purpose and strategy, and strongly believes in
doing business the right way. These behaviours are well embedded
within the organisation and are closely monitored by the Board.
Over the last six months, the Company has continued to develop its
ESG programme, particularly in the area of climate change, and to
ensure a focused and coordinated Group-wide approach to ESG. Our
ambition and vision are also aligned with the UN Sustainable
Development Goals (SDGs), demonstrating our commitment and
contribution to wider sustainability trends and objectives.
Specifically, with regards to our assessment of risks relating
to climate change, we will further report on all areas outlined by
the Task Force on Climate-related Financial Disclosures as part of
our 2021 Annual Report, to be published in March 2022.
We have engaged with our stakeholders - including our employees,
shareholders, customers, supply chain and ratings agencies - to
conduct a thorough materiality assessment. Our ESG strategy is
tailored to address our key areas of impact and those of our
industry, as well as meeting the priorities of our stakeholders. It
is also designed to positively contribute to the success of the
Company, to reduce the impact of the business on the environment,
to continue to prioritise the health and safety of our employees,
and to improve the diversity and inclusivity of our workplaces.
Targets
Our strategy includes clear objectives and targets across all
areas, prioritising actions that are going to deliver the greatest
impact. We are also collecting detailed data in order to
comprehensively, clearly and consistently report our progress and
credentials to our stakeholders. We have challenging aspirations
and the senior team has a material percentage of the personal
objectives element of their bonus scheme clearly tied to delivering
an improvement in our ESG performance. We will continue to report
progress on our website and in our 2021 Annual Report.
Our key focus areas are:
-- Environment
-- Our people
-- Community
-- Business practices
Under these broad categories, we have seven key pillars:
1. Continue to prioritise health and safety
We take our employees' health and safety and wellbeing extremely
seriously; this continues to be our single most important priority.
We promote a culture of continuous improvement in order to prevent
any major incidents, and our goal is to have zero significant lost
time accidents. In 2020, there were zero lost time accidents
resulting in over three days absence. Year to date in 2021, there
are also zero such accidents. By the end of 2021, we will also
expand our disclosures to cover accidents under three days and all
near misses.
2. Reduce carbon emissions
Vitec's operations have a comparatively low impact on the
environment, however we are committed to reducing that impact, and
have established targets and action plans to significantly reduce
the carbon emissions which are under our control. Over half of the
emissions currently measured result from electricity, therefore we
have initiated several important initiatives to reduce energy
consumption. This includes the planned implementation of solar
panels in Bury St Edmunds and Cartago, completing the conversion of
all lighting to LED, and investment in more efficient
machinery.
Other initiatives to reduce carbons emissions have been, or are
in the process of being, implemented. This includes: tracking CO2
emissions resulting from business travel; converting all car fleets
to electric or hybrid; and, trialling of carbon offsetting scheme
for specific areas of the business. From existing initiatives, we
estimate that current direct emissions can be reduced by at least
25% by 2024, from a baseline of 4,700 tonnes of CO2 in 2019. By the
end of 2021, we will establish a clear timeframe for achieving
carbon neutrality which will also encompass indirect emissions from
our supply chain.
We have engaged a third-party specialist to improve the capture
of carbon emissions data and further develop carbon reduction
plans. In H2 2021, we aim to start measuring indirect carbon
emissions relating to our supply chain activity.
3. Reduce packaging and waste
We have identified significant opportunities to reduce the
amount of cardboard and plastic used in packaging our products, and
have already converted much of the packaging to more sustainable
variations, such as using cardboard made from recycled product.
Specific reduction targets have been set by each Division, in
particular, the cardboard used for product packaging currently
exceeds 400 tonnes per annum, and a target has been provisionally
set whereby half of this total cardboard consumption will be
eliminated by 2024 or replaced with sustainable cardboard made from
FSC-grade cardboard (made from recycled product and/or sustainable
forests).
Managing manufacturing waste is a huge focus area and our three
largest manufacturing sites (Bury St Edmunds, Feltre and Cartago)
have achieved ISO environmental accreditation. Our key sites have
achieved zero, or close to zero, waste to landfill. Raw material
components and waste are carefully measured and disposed of in a
sustainable way.
4. Embed sustainability into our product life cycle
Our ambition over the next few years is to ensure that
sustainable product life cycle principles are embedded across all
of Vitec's brands, covering product development through to
retirement, such that the total environmental impact of our brands
is measured and reduced. Our consumer-centric Imaging Solutions'
brands are well under way in this journey, for example, some of the
photographic bags are made using up to 75% recycled fabric and
sustainable packaging, and Lowepro's ambition is to only use
recycled material in three years' time. Imaging Solutions is
rolling out a holistic sustainability development programme in
partnership with Bologna Business School. We will expand this to
other businesses in due course.
5. Formalise the integrity of our entire supply chain
We are taking steps to further strengthen our supply chain
management processes in terms of supplier vetting and inspection,
and in-depth review of the origin of all components within the
supply chain. We expect to complete this process by the middle of
2022 and have recently formalised our Responsible Sourcing Policy
and recommunicated this to suppliers.
6. Improve diversity and inclusion ("D&I")
We strive to employ a diverse workforce and foster an equal
opportunities culture. Our approach to diversity follows a strict
policy of sourcing the best person for the role irrespective of
race, gender, age, religion, sexual preference or disability, and
our Code of Conduct sets out an express prohibition on
discrimination of any kind.
We have developed a new D&I strategy with targets and action
plans tailored to address our industry and our key area of
weakness, which is a lack of female employees in many areas of the
Group. Over a five-year period, we aim to increase the number of
female employees across the Group and improve the Group's overall
gender diversity from 70% men, 30% women. At a senior leadership
level, we expect the ratio of women to be at least 30%.
7. Positively impact the communities in which we operate
We remain committed to our aim for Vitec to positively impact
one disadvantaged young person for every Vitec employee in the
communities in which we operate.
Managing a responsible business
We continue to have a robust Governance framework with a Code of
Conduct which sets out our values and the behaviour that can be
expected from Vitec, our people and our supply chain. This is
available on the Group website. This robust Governance framework
underpins a sustainable and responsible business for our
stakeholders.
We are starting to actively engage the whole business in ESG.
Our ESG Committee oversees, delivers and reports on our ESG
programme, with input from employees across the Group. The
Committee was established to help us meet our growing standards and
ambition, leading initiatives across the Group and ensuring
compliance with all regulations and emerging practices. And the
Vitec Board has oversight and overall responsibility for the
Company's ESG strategy and performance.
Outlook
The Group's positive first half performance is a result of
strong demand, market growth and a tightly managed cost base.
Second half trading has started extremely well, and we expect the
combined order intake for July and August to be approximately 20%
above 2019. The Board now expects adjusted PBT for FY 2021 to be
above current market forecasts, despite ongoing uncertainties.
The content creation market is a great place to be. The pandemic
has accelerated the democratisation and digitalisation of media,
driving a permanent structural change to the market. There has been
a dramatic increase in the capture, consumption and sharing of
video and scripted TV content, and Vitec is right at the heart of
this fast-growing market. We expect to deliver strong margin
recovery, as we benefit from strong operating leverage and ongoing
operational efficiencies, increase sales of higher margin, higher
technology products, in-source production of some JOBY products,
and grow online sales, particularly in our Imaging Division. Vitec
is now a stronger, higher quality business in a larger and
faster-growing market, and the Group is well placed for long-term,
sustainable growth and value creation for all of our
stakeholders.
Risks and Uncertainties
Vitec is exposed to a number of risk factors which may affect
its performance. The Group has a well-established framework for
reviewing and assessing these risks on a regular basis; and has put
in place appropriate processes and procedures to mitigate against
them. However, no system of control or mitigation can completely
eliminate all risks.
The principal risks and uncertainties that may affect our
performance are set out in the Annual Report and in summary are
around:
-- Demand for Vitec's products
-- New markets and channels of distribution
-- Acquisitions
-- Pricing pressure
-- Dependence on key suppliers
-- Dependence on key customers
-- People (including health and safety)
-- Laws and regulations
-- Reputation of the Group
-- Exchange rates
-- Business continuity including cyber security
-- Climate change
We believe that the risks relating to "Demand for Vitec's
products" has reduced due to an overall recovery that is faster
than expected, and the strong order book which supports demand. A
small number of segments and territories remain strongly affected
by the pandemic, for example sales of photographic bags are heavily
affected by the decline in air travel; some territories such as
Japan are still in a state of emergency, resulting in a subdued
demand. At the same time, Vitec's diversification away from
traditional markets is proving to be highly successful; Vitec is
experiencing a very strong level of growth in several segments
especially lighting supports, vlogging accessories, streaming
solutions and services, 4K transmitters, monitors and encoders, and
LED lighting. We believe the long-term fundamentals for the content
creation industry remain strong.
Pricing pressure has reduced overall due to the strong order
backlog. We are largely able to recover increases in component and
shipping costs through price increases.
We believe the risk relating to the Group's reputation continues
to increase due to increased stakeholder and regulatory scrutiny,
particularly in relation to companies' impact on the environment
and their role in combatting climate change. We fully recognise our
corporate responsibilities and in particular we have implemented a
structured, cross functional, ESG framework.
The risk related to People (including health and safety) has
also increased overall due to a labour market for engineers
(including software engineers) that is increasingly competitive in
several of Vitec's key locations for product development. We are
reviewing the incentive structure for our engineering workforce.
With regards to COVID-19, we continue to implement strict
mitigation measures at all sites.
The risk relating to Business continuity, including cyber
security, continues to increase. This is due to lack of
availability of certain critical components, in particular
semi-conductors, which may hinder our production capacity, as well
as a continued increase in cyber security risks. With regards to
semi-conductors, our most impacted business is Teradek. We are
mitigating this issue by actively identifying alternative sources
of supply, increasing the number and value of orders placed in
advance, using the semiconductors in our inventory to build the
most profitable products and passing on cost increases by raising
prices.
Climate Change has been added as a principal risk. We recognise
the potential long-term severity of the climate change risks,
notwithstanding the challenges in quantifying the range of
outcomes. Although Vitec has a comparatively low impact on the
environment, we are developing strategies to mitigate the potential
physical impact of climate change on our operations and people, and
our supply chain, as well as the risks and opportunities, and
potentially additional costs associated with the transition to a
low-carbon economy. We believe that we are relatively well placed
to manage this risk due to our environmental initiatives,
diversified geographical footprint and supply chain, and the
specific attributes of the content creation industry.
Forward- looking statements
This announcement contains forward-looking statements with
respect to the financial condition, performance, position,
strategy, results and plans of the Group based on Management's
current expectations or beliefs as well as assumptions about future
events. These forward-looking statements are not guarantees of
future performance. Undue reliance should not be placed on
forward-looking statements because, by their very nature, they are
subject to known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results, and the
Group's plans and objectives, to differ materially from those
expressed or implied in the forward-looking statements. The Company
undertakes no obligation to publicly revise or update any
forward-looking statements or adjust them for future events or
developments. Nothing in this announcement should be construed as a
profit forecast.
The information in this announcement does not constitute an
offer to sell or an invitation to buy shares in the Company in any
jurisdiction or an invitation or inducement to engage in any other
investment activities. The release or publication of this
announcement in certain jurisdictions may be restricted by law.
Persons who are not resident in the United Kingdom or who are
subject to other jurisdictions should inform themselves of, and
observe, any applicable requirements.
This announcement contains brands and products that are
protected in accordance with applicable trademark and patent laws
by virtue of their registration.
Responsibility statement of the Directors in respect of the Half
Year Results to 30 June 2021
We confirm that, to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting;
-- The interim management report includes a fair review of
the information required by DTR 4.2.7R (indication of
important events during the first six months and description
of principal risks and uncertainties for the remaining
six months of the year); and
-- The interim management report includes a fair review of
the information required by DTR 4.2.8R (disclosure of
related parties' transactions and changes therein).
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial information differs from
legislation in other jurisdictions.
Going concern and viability
The Directors have made appropriate enquiries and consider that
the Group has adequate resources to continue in operational
existence for the foreseeable future. The Directors have considered
the potential risk of continued suppression of demand and, while
monitoring developments as the Group implements contingency plans,
they currently consider there to be minimal risk of breaching
covenants. Accordingly, the Directors continue to adopt the going
concern basis in preparing the financial statements. Further detail
on the assessment of going concern can be found within note 1 to
the condensed financial statements.
For and on behalf of the Board
Stephen Bird Martin Green
Group Chief Executive Group Finance Director
INDEPENT REVIEW REPORT TO THE VITEC GROUP PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the Income Statement,
the Balance Sheet, the Statement of Changes in Equity, the Cash
Flow Statement and related notes 1 to 12. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
11 August 2021
Condensed Consolidated Income Statement
For the half year ended 30 June 2021
Half year Half year Year to
to 30 June to 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
Notes GBPm GBPm GBPm
------ ------------ ------------ -------------
Revenue 2 181.4 118.9 290.5
Cost of sales (101.6) (75.1) (178.5)
Gross profit 79.8 43.8 112.0
Operating expenses 3 (62.8) (55.0) (115.3)
-------------------------------------------------------------- ------ ------------ ------------ -------------
Operating profit/(loss) 17.0 (11.2) (3.3)
-------------------------------------------------------------- ------ ------------ ------------ -------------
Comprising
* Adjusted operating profit/(loss) 21.9 (4.4) 9.9
* Charges associated with acquisition of businesses and
other adjusting items 4 (4.9) (6.8) (13.2)
17.0 (11.2) (3.3)
-------------------------------------------------------------- ------ ------------ ------------ -------------
Net finance expense 5 (1.9) (2.6) (4.4)
-------------------------------------------------------------- ------ ------------ ------------ -------------
Profit/(loss) before tax 15.1 (13.8) (7.7)
-------------------------------------------------------------- ------ ------------ ------------ -------------
Comprising
* Adjusted profit/(loss) before tax 20.0 (7.0) 5.5
* Charges associated with acquisition of businesses and
other adjusting items 4 (4.9) (6.8) (13.2)
15.1 (13.8) (7.7)
-------------------------------------------------------------- ------ ------------ ------------ -------------
Taxation (3.9) 4.3 2.4
-------------------------------------------------------------- ------ ------------ ------------ -------------
Comprising taxation on
* Adjusted profit/(loss) 6 (5.0) 2.5 (1.4)
* Charges associated with acquisition of businesses and
other adjusting items 6 1.1 1.8 3.8
-------------------------------------------------------------- ------ ------------ ------------ -------------
(3.9) 4.3 2.4
-------------------------------------------------------------- ------ ------------ ------------ -------------
Profit/(loss) for the period attributable
to owners of the parent 11.2 (9.5) (5.3)
---------------------------------------------------------------------- ------------ ------------ -------------
Earnings per share
Basic earnings per share 7 24.4p (20.9)p (11.6)p
Diluted earnings per share 7 23.9p (20.9)p (11.6)p
Average exchange rates
Euro 1.15 1.15 1.12
US$ 1.39 1.27 1.29
Consolidated Statement of Comprehensive Income
For the half year ended 30 June 2021
Half year Half year Year to
to 30 June to 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
GBPm GBPm GBPm
----------------------------------------- ------------ ------------ ---------------
Profit/(loss) for the period 11.2 (9.5) (5.3)
Other comprehensive income/(expense):
Items that will not be reclassified
subsequently to profit or loss:
Remeasurements of defined benefit
obligation 5.6 (4.0) (7.6)
Related tax (0.4) 0.9 1.6
Items that are or may be reclassified
subsequently to profit or loss:
Currency translation differences
on foreign currency subsidiaries (4.7) 15.7 (0.7)
Net investment hedges - net gain/(loss) 0.7 (4.8) (1.3)
Cash flow hedges - reclassified to
the Income Statement, net of tax (0.2) 0.9 0.7
Cash flow hedges - effective portion
of changes in fair value, net of
tax 0.1 (1.5) (0.9)
--------------------------------------------- ------------ ------------ ---------------
Other comprehensive income/(expense),
net of tax 1.1 7.2 (8.2)
Total comprehensive income/(loss)
for the period attributable to owners
of the parent 12.3 (2.3) (13.5)
--------------------------------------------- ------------ ------------ ---------------
Condensed Consolidated Balance Sheet
As at 30 June 2021
30 June 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
GBPm GBPm GBPm
--------------------------------------- ---------- ---------- --------------
Assets
Non-current assets
Intangible assets 142.8 133.1 123.5
Property, plant and equipment 51.7 46.5 42.2
Trade and other receivables 1.6 2.1 1.5
Non-current tax assets 3.2 - -
Deferred tax assets 25.5 23.7 24.6
224.8 205.4 191.8
------------------------------------------ ---------- ---------- --------------
Current assets
Inventories 73.2 80.0 64.8
Trade and other receivables 62.6 46.0 51.7
Derivative financial instruments - - 0.1
Current tax assets 4.9 10.8 8.9
Cash and cash equivalents 17.1 16.1 17.3
157.8 152.9 142.8
------------------------------------------ ---------- ---------- --------------
Total assets 382.6 358.3 334.6
------------------------------------------- ---------- ---------- --------------
Liabilities
Current liabilities
Bank overdrafts - - 0.5
Interest-bearing loans and borrowings 0.4 50.5 50.6
Lease liabilities 4.7 6.6 4.7
Trade and other payables 72.9 48.0 44.8
Derivative financial instruments - 0.6 -
Current tax liabilities 8.5 8.8 9.7
Provisions 2.6 3.1 3.7
89.1 117.6 114.0
------------------------------------------ ---------- ---------- --------------
Non-current liabilities
Interest-bearing loans and borrowings 94.1 54.9 40.8
Lease liabilities 19.9 11.5 11.5
Other payables 0.4 - -
Post-employment obligations 9.8 12.4 15.9
Provisions 1.1 0.8 1.0
Deferred tax liabilities 7.0 6.9 6.0
-------------------------------------------
132.3 86.5 75.2
------------------------------------------ ---------- ---------- --------------
Total liabilities 221.4 204.1 189.2
------------------------------------------- ---------- ---------- --------------
Net assets 161.2 154.2 145.4
------------------------------------------- ---------- ---------- --------------
Equity
Share capital 9.3 9.1 9.2
Share premium 22.6 20.8 21.7
Translation reserve (17.9) (1.0) (13.9)
Capital redemption reserve 1.6 1.6 1.6
Merger reserve 3.5 - -
Cash flow hedging reserve - (0.3) 0.1
Retained earnings 142.1 124.0 126.7
------------------------------------------- ---------- ---------- --------------
Total equity 161.2 154.2 145.4
------------------------------------------- ---------- ---------- --------------
Balance Sheet exchange rates
Euro 1.16 1.10 1.12
US$ 1.38 1.24 1.37
Consolidated Statement of Changes in Equity
For the half year ended 30 June 2021 (Unaudited)
Cash
Capital flow
Share Share Translation redemption Merger hedging Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-----------------
Balance at 1 January
2021 9.2 21.7 (13.9) 1.6 - 0.1 126.7 145.4
Total comprehensive
income for the
period
Profit for the
period - - - - - - 11.2 11.2
Other comprehensive
(expense)/income
for the period - - (4.0) - - (0.1) 5.2 1.1
Contributions by
and distributions
to owners
Dividends paid - - - - - - (2.1) (2.1)
Own shares purchased - - - - - - (1.6) (1.6)
New shares issued 0.1 0.9 - - 3.5 - - 4.5
Share-based payment
charge - 2.6 2.6
Tax on share-based
payment charge - - - - - - 0.1 0.1
Balance at 30 June
2021 9.3 22.6 (17.9) 1.6 3.5 - 142.1 161.2
--------------------- --------- --------- ------------ ------------ -------- ------------ ---------- --------
Cash
Capital flow
Share Share Translation redemption Merger hedging Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2020 9.1 20.7 (11.9) 1.6 - 0.3 136.9 156.7
Total comprehensive
income for the
period
Loss for the period - - - - - - (9.5) (9.5)
Other comprehensive
income/(expense)
for the period - - 10.9 - - (0.6) (3.1) 7.2
Contributions by
and distributions
to owners
Own shares purchased - - - - - - (1.6) (1.6)
New shares issued - 0.1 - - - - - 0.1
Share-based payment
charge - - - - - - 1.3 1.3
--------------------- --------- --------- ------------ ------------ -------- ------------ ---------- --------
Balance at 30 June
2020 9.1 20.8 (1.0) 1.6 - (0.3) 124.0 154.2
--------------------- --------- --------- ------------ ------------ -------- ------------ ---------- --------
Condensed Consolidated Statement of Cash Flows
For the half year ended 30 June 2021
Half year Half year Year to
to 30 June to 30 June 31 December
2021 2020 2020
Unaudited Unaudited Audited
Notes GBPm GBPm GBPm
--------------------------------------- ------ ------------ ------------ -------------
Cash flows from operating activities
Profit for the period 11.2 (9.5) (5.3)
Adjustments for:
Taxation 3.9 (4.3) (2.4)
Depreciation 6.1 6.6 13.1
Impairment losses on property,
plant and equipment - - 0.6
Amortisation of intangible assets 6.5 7.3 13.5
Net loss on disposal of property,
plant and equipment and software - (0.1) (0.1)
Fair value losses/(gains) on
derivative financial instruments - 0.2 (0.1)
Foreign exchange (gains)/losses (0.2) 0.4 0.3
Share-based payments 2.6 1.3 3.7
Earnout charges and retention
bonuses 0.2 1.1 1.9
Net finance expense 1.9 2.6 4.4
--------------------------------------- ------ ------------ ------------ -------------
Operating profit before changes
in working capital and provisions 32.2 5.6 29.6
(Increase)/decrease in inventories (9.3) 1.1 11.5
(Increase)/decrease in receivables (12.2) 15.9 8.3
Increase/(decrease) in payables 23.4 (11.0) (12.6)
Decrease in provisions (1.4) (4.2) (2.8)
--------------------------------------- ------ ------------ ------------ -------------
Cash generated from operating
activities 32.7 7.4 34.0
Interest paid (1.8) (3.6) (5.9)
Tax paid (4.9) (1.2) (3.1)
--------------------------------------- ------ ------------ ------------ -------------
Net cash from operating activities 26.0 2.6 25.0
--------------------------------------- ------ ------------ ------------ -------------
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment, and software - 0.1 0.2
Purchase of property, plant and
equipment (4.4) (2.8) (5.1)
Capitalisation of software and
development costs (5.8) (5.7) (10.6)
Acquisition of businesses, net (12.7) - -
of cash acquired
Net cash used in investing activities (22.9) (8.4) (15.5)
--------------------------------------- ------ ------------ ------------ -------------
Cash flows from financing activities
Proceeds from the issue of shares 0.9 0.1 1.1
Own shares purchased (1.6) (1.6) (2.3)
Principle lease repayments (3.2) (2.4) (5.8)
Repayment of interest-bearing
loans and borrowings (87.8) (61.4) (76.9)
Borrowings from interest-bearing
loans and borrowings 91.5 67.1 71.7
Dividends paid (2.1) - -
--------------------------------------- ------ ------------ ------------ -------------
Net cash used in financing activities (2.3) 1.8 (12.2)
--------------------------------------- ------ ------------ ------------ -------------
Increase in cash and cash equivalents 9 0.8 (4.0) (2.7)
Cash and cash equivalents at
1 January 16.8 18.9 18.9
Effect of exchange rate fluctuations
on cash held (0.5) 1.2 0.6
--------------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents at
the end of period 9 17.1 16.1 16.8
--------------------------------------- ------ ------------ ------------ -------------
1 Accounting policies
Reporting entity
The Vitec Group plc (the "Company") is a company domiciled and
incorporated under the Companies Act in the United Kingdom. These
condensed consolidated interim financial statements as at and for
the half year ended 30 June 2021 comprise the Company and its
subsidiaries (together referred to as the "Group").
Basis of preparation and statement of compliance
These condensed consolidated interim financial statements have
been prepared in accordance with United Kingdom adopted IAS 34
"Interim Financial Reporting". This report does not include all of
the information required for full annual financial statements and
should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended 31 December
2020, which were prepared in accordance with International
Financial Reporting Standards as adopted by the European Union
("IFRS"). The annual financial statements of the Group will be
prepared in accordance with United Kingdom adopted International
Financial Reporting Standards.
The comparative figures for the year ended 31 December 2020 do
not constitute statutory accounts for the purpose of section 434 of
the Companies Act 2006. The auditors have reported on the 2020
accounts, and these have been filed with the Registrar of
Companies; their report was unqualified, did not include a
reference to any matters to which the auditors drew attention by
way of emphasis, and did not contain a statement under section
498(2) or (3) of the Companies Act 2006. The half year amounts as
at and for the half years ending 30 June presented in these
condensed consolidated interim financial statements have been
reviewed in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 but have not been audited.
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31
December 2020.
In reporting financial information, the Group presents
alternative performance measures ("APMs") which are not defined or
specified under the requirements of IFRS. The Group believes that
these APMs, which are not considered to be a substitute for, or
superior to, IFRS measures, provide stakeholders with additional
helpful information to better reflect the underlying business and
enable a more meaningful comparison over time. A glossary on the
last page provides a comprehensive list of APMs that the Group
uses, including an explanation of how they are calculated, why they
are used and how they can be reconciled to a statutory measure
where relevant.
These condensed consolidated interim financial statements were
approved by the Board of Directors on 11 August 2021.
The accounting policies adopted in these interim financial
statements are consistent with those of the previous financial year
and the corresponding interim period.
Impact of adoption of new accounting standards
There has been no material impact on the financial statements of
adopting new standards or amendments.
Going concern
The Group's strategic and financial planning process reflects
the Directors' best estimate of the future prospects of the Group,
but they have also considered a range of scenarios through to the
end of 2022. Modelling is impacted by a number of factors including
assumptions around the overall global economic environment, how
long it takes for our end markets to fully resume creation of
original content, and continued actions that governments might take
in relation to controlling the pandemic such as the closure of
retail stores.
The Directors have reviewed the forecast scenarios as set out
below:
-- The Group's latest forecast, which projects an improvement
in trading performance in H2 2021 and 2022, continuing
the strong recovery in H1 2021;
-- Two downside scenarios with the key changes to estimates
being as follows:
1. Reducing the rate at which forecast sales recover across both
years; and
2. Considering the possibility of large supply-side component
shortages, in both H2 2021 and 2022.
The downside scenarios are considered possible but not probable
and included an assumed operating leverage of 55%. They also factor
in cost savings from management actions which would be taken to
partly offset a decline in trading performance. These are
proportionate and do not take into account all discretionary
actions which could be taken; nor do they consider renegotiation of
the RCF covenants or Government support (both of which occurred in
2020).
Revenue in H1 2021 was broadly in line with H1 2019. Revenue
would need to decline by 20% in H2 2021 versus H2 2019 to result in
a breach of the covenants. The Directors currently consider this
scenario remote given the improvement in trading.
The Directors have also considered the Group's capacity to
remain a going concern after consideration of future cash flows,
expected debt service requirements, undrawn facilities and access
to capital markets. The main element of the Group's committed
borrowing facilities at 30 June 2021 is the GBP165 million
five-year RCF. As at 30 June 2021, the Group had utilised GBP94.5
million (57%) of the RCF.
New standards and interpretations not yet adopted
Amended standards and interpretations not yet effective are not
expected to have a significant impact on the Group's consolidated
financial statements.
2 Reportable segments
For the half year ended 30 June 2021
The Group has three reportable segments which are reported in a
manner that is consistent with the internal reporting provided to
the Chief Operating Decision Maker on a regular basis to assist in
making decisions on capital allocated to each segment and to assess
performance.
For the half year to 30 June
Imaging Production Creative Corporate Consolidated
Solutions Solutions Solutions and unallocated
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------ ------ ------ ----- ------ ------ --------- -------- ------ -------
Analysis of revenue
from external
customers, by
location of customer
United Kingdom 8.0 3.9 6.4 3.4 3.2 1.2 - - 17.6 8.5
The rest of Europe 36.2 22.2 14.3 8.6 4.6 1.8 - - 55.1 32.6
North America 26.1 20.2 23.4 14.7 23.9 15.3 - - 73.4 50.2
Asia Pacific 19.0 16.1 7.2 5.8 4.6 2.6 - - 30.8 24.5
The rest of the
World 2.4 1.4 1.5 1.2 0.6 0.5 - - 4.5 3.1
Total revenue
from external
customers 91.7 63.8 52.8 33.7 36.9 21.4 - - 181.4 118.9
Inter-segment
revenue (1) 0.1 0.1 0.2 0.1 0.1 0.2 (0.4) (0.4) - -
------ ------ ------ ----- ------ ------ --------- -------- ------ -------
Total revenue 91.8 63.9 53.0 33.8 37.0 21.6 (0.4) (0.4) 181.4 118.9
------ ------ ------ ----- ------ ------ --------- -------- ------ -------
Adjusted operating
profit/(loss) 12.8 (1.2) 11.3 1.4 4.5 (0.8) (6.7) (3.8) 21.9 (4.4)
Amortisation
of acquired intangible
assets (0.5) (1.0) (0.1) - (2.7) (3.5) - - (3.3) (4.5)
Integration and
restructuring
costs (0.1) (0.2) (0.2) - - - - (0.4) (0.3) (0.6)
Effect of fair
valuation of
acquired inventory - - - - - (0.6) - - - (0.6)
Earnout charges
and retention
bonuses - (0.6) - - (0.8) (0.5) - - (0.8) (1.1)
Transaction costs
relating to acquisition
of businesses - - (0.1) - (0.4) - - - (0.5) -
Operating profit/(loss) 12.2 (3.0) 10.9 1.4 0.6 (5.4) (6.7) (4.2) 17.0 (11.2)
Net finance expense (1.9) (2.6)
Taxation (3.9) 4.3
------ -------
Profit/(loss)
for the year 11.2 (9.5)
------ ------ ------ ----- ------ ------ --------- -------- ------ -------
Segment assets 132.5 132.9 101.0 95.1 97.8 79.1 0.6 0.6 331.9 307.7
Unallocated assets
Cash and cash
equivalents 17.1 16.1 17.1 16.1
Non-current tax
assets 3.2 - 3.2 -
Current tax assets 4.9 10.8 4.9 10.8
Deferred tax
assets 25.5 23.7 25.5 23.7
------ -------
Total assets 382.6 358.3
------ ------ ------ ----- ------ ------ --------- -------- ------ -------
Segment liabilities 45.6 35.1 41.2 33.0 22.3 11.8 2.3 3.1 111.4 83.0
Unallocated liabilities
Interest-bearing
loans and borrowings
(2) 0.9 0.9 - - 0.4 0.5 93.2 104.0 94.5 105.4
Current tax liabilities 8.5 8.8 8.5 8.8
Deferred tax
liabilities 7.0 6.9 7.0 6.9
------ -------
Total liabilities 221.4 204.1
------ ------ ------ ----- ------ ------ --------- -------- ------ -------
(1) Inter-segment pricing is determined on an arm's length
basis. These are eliminated in the corporate and unallocated
column.
(2) Interest-bearing loans and borrowings of GBP1.4 million
previously included in the 2020 Corporate and unallocated amount
have been reclassified to the Imaging Solutions Division (GBP0.9
million) and the Creative Solutions Division (GBP0.5 million).
The Group's operations are located in several geographic
locations, and sell products and services to external customers in
all parts of the world.
3 Operating expenses
Half year Half year Year to
to 30 June to 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
------------------------------------------ ------------ ------------ -------------
Analysis of operating expenses
Charges associated with acquisition
of businesses and other adjusting items
(1) (4.9) (6.2) (11.8)
Other administrative expenses (26.3) (21.7) (47.3)
------------------------------------------ ------------ ------------ -------------
Administrative expenses (31.2) (27.9) (59.1)
Marketing, selling and distribution
costs (22.6) (20.4) (41.2)
Research, development and engineering
costs (9.0) (6.7) (15.0)
Total operating expenses (62.8) (55.0) (115.3)
------------------------------------------ ------------ ------------ -------------
(1) Total charges associated with acquisition of businesses and
other adjusting items were GBP4.9 million (2020: GBP6.8 million of
which GBP6.2 million were recognised in operating expenses and
GBP0.6 million in cost of sales).
4 Charges associated with acquisition of businesses and other
adjusting items
The Group's key performance measures, such as adjusted operating
profit, exclude charges associated with acquisition of businesses
and items that the Group deems, by their nature, require adjustment
in order to show more accurately the underlying business
performance of the Group from period to period in a consistent
manner. Non-cash charges associated with acquisition of businesses
include amortisation of acquired intangible assets and the effect
of fair valuation of acquired inventory. Cash charges include
transaction costs, earnout charges and retention bonuses agreed as
part of the acquisition, and significant costs relating to the
integration of acquired businesses.
Half year Half year Year to
to 30 June to 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
------------------------------------------------ ------------ ------------ -------------
Amortisation of acquired intangible assets (3.3) (4.5) (7.6)
Integration and restructuring costs (0.3) (0.6) (2.8)
Effect of fair valuation of acquired inventory - (0.6) (0.9)
Earnout charges and retention bonuses(2) (0.8) (1.1) (1.9)
Transaction costs relating to acquisition (0.5) - -
of businesses
------------------------------------------------ ------------ ------------ -------------
Charges associated with acquisition of
businesses and other adjusting items (4.9) (6.8) (13.2)
------------------------------------------------ ------------ ------------ -------------
(2) Earnout charges and retention bonuses of GBP0.8 million
includes a share based payment charge of GBP0.6 million.
5 Net finance expense
Half year Half year Year to
to 30 June to 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Finance income
Net currency translation gains 0.1 - 0.6
Finance expense
Other interest payable - - (0.1)
Unwind of discount on liabilities - (0.1) (0.1)
Interest expense on lease liabilities (0.4) (0.4) (0.8)
Interest expense on interest-bearing loans
and borrowings (1.5) (2.1) (3.9)
Interest expense on net defined benefit
pension scheme (0.1) - (0.1)
-------------------------------------------- ------------ ------------ -------------
(2.0) (2.6) (5.0)
-------------------------------------------- ------------ ------------ -------------
Net finance expense (1.9) (2.6) (4.4)
-------------------------------------------- ------------ ------------ -------------
6 Taxation
Income tax expense is recognised at an amount determined by
multiplying the profit before tax for the interim reporting period
by management's best estimate of the weighted-average annual income
tax rate for the full financial year, adjusted for the tax effect
of certain items recognised in full in the interim period. As such,
the effective tax rate in the interim financial statements may
differ from management's estimate of the effective tax rate for the
annual financial statements.
Half year Half year Year to
to 30 June to 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
The total taxation (charge)/credit in
the Income Statement is analysed as follows:
Summarised in the Income Statement as
follows
Current tax (4.4) 2.8 (2.1)
Deferred tax 0.5 1.5 4.5
----------------------------------------------- ------------ ------------ -------------
(3.9) 4.3 2.4
----------------------------------------------- ------------ ------------ -------------
Charges associated with acquisition of
businesses and material non-operating
events
Current tax 0.1 0.1 0.1
Deferred tax 1.0 1.7 3.7
----------------------------------------------- ------------ ------------ -------------
1.1 1.8 3.8
----------------------------------------------- ------------ ------------ -------------
Before charges associated with acquisition
of businesses and material non-operating
events
Current tax (4.5) 2.7 (2.2)
Deferred tax (0.5) (0.2) 0.8
----------------------------------------------- ------------ ------------ -------------
(5.0) 2.5 (1.4)
----------------------------------------------- ------------ ------------ -------------
In October 2017, the European Commission ("EC") opened a State
Aid investigation into the Group Financing Exemption in the UK
controlled foreign company ("CFC") rules (an exemption introduced
into the UK tax legislation in 2013). While the Group has complied
with all the requirements of UK tax law, in April 2019 the EC
confirmed its view that some (but not all) of the UK exemptions
constituted State Aid and that they would therefore require the UK
to assess and recover the amount of State Aid that each affected
taxpayer had received. In common with other UK-based international
companies whose intra-group finance arrangements are in line with
current controlled foreign company rules, Vitec is affected by this
decision. Vitec calculates its maximum potential liability to be
GBP8.7 million (including interest).
On 9 February 2021, the Group received a charging notice from
HMRC under The Taxation (Post Transition Period) Bill for GBP3.2
million. On 31 March 2021, the Group submitted an appeal to HMRC
against this charging notice. As the Group considers that the
appeal will be successful, the payment made has been recorded as a
non-current asset on the basis this will be repaid in due
course.
7 Earnings per ordinary share
Earnings per share ("EPS") is the amount of post-tax
profit/(loss) attributable to each outstanding share.
Basic EPS is calculated on the profit/(loss) for the period
divided by the weighted average number of ordinary shares
outstanding during the period.
Diluted EPS is calculated on the profit/(loss) for the period
divided by the weighted average number of ordinary shares in issue
during the period, but adjusted for the effects of dilutive share
options.
The adjusted EPS measure is used by management to assess the
underlying performance of the ongoing businesses, and therefore
excludes charges associated with acquisition of businesses and
other adjusting items, all net of tax.
The calculation of basic, diluted and adjusted EPS is set out
below:
Half year Half year
to 30 June to 30 June
2021 2020
GBPm GBPm
----------------------------------------------- ------------ ------------
Profit/(loss) for the financial period 11.2 (9.5)
Add back charges associated with acquisition
of businesses and other adjusting items, all
net of tax 3.8 5.0
------------ ------------
Adjusted profit/(loss) after tax 15.0 (4.5)
----------------------------------------------- ------------ ------------
Weighted average Adjusted earnings Earnings per
number of shares per share share
'000
Half year to Half year to Half year to
30 June 30 June 30 June
2021 2020 2021 2020 2021 2020
Number Number pence pence pence pence
-------------------- --------- --------- --------- --------- ------ -------
Basic 45,868 45,444 32.7 (9.9) 24.4 (20.9)
Dilutive potential
ordinary shares 947 - (0.7) - (0.5) -
-------------------- --------- --------- --------- --------- ------ -------
Diluted 46,815 45,444 32.0 (9.9) 23.9 (20.9)
-------------------- --------- --------- --------- --------- ------ -------
8 Acquisitions
Acquisitions are accounted for under the acquisition method of
accounting. With limited exceptions, identifiable assets acquired
and liabilities and contingent liabilities assumed are measured at
their fair values at the acquisition date. A detailed exercise is
undertaken to assess the fair value of assets acquired and
liabilities assumed, with the use of third-party experts where
appropriate.
The valuation of intangible assets requires the use of
assumptions and estimates, including future growth rates, expected
inflation rates, discount rates used and useful economic lives.
This process continues as information is finalised, and accordingly
the fair values presented in the tables below are provisional
amounts. In accordance with IFRS 3 until the assessment is complete
the measurement period will remain open for up to a maximum of 12
months from the acquisition date so long as information remains
outstanding.
The excess of the consideration transferred, any non-controlling
interest recognised and the fair value of any previous equity
interest in the acquired entity over the fair value of net
identifiable assets acquired is recorded as goodwill.
Acquisition-related costs are recognised in the Income Statement as
incurred in accordance with IFRS 3.
Acquisitions provide opportunities for further development of
the Group's activities and create enhanced returns. Such
opportunities and the workforces inherent in each of the acquired
businesses represent much of the assessed value of goodwill.
Acquisition of Lightstream
On 12 April 2021 the Group acquired 100% of the issued share
capital of Infiniscene Inc. ("Lightstream"), a US company, for
consideration of US$25.9 million (GBP18.8 million).
Lightstream has been integrated into the Creative Solutions
Division and is a US-based technology company that provides a
cloud-based video production and editing Software-as-a-Service
("SaaS") platform to enable content creators to enrich their live
video streams. The acquisition is driven by the Group's
long-standing strategy to increase its higher technology
capabilities and expand its addressable markets.
The consideration for the acquisition is set out in the table
below. The initial consideration was satisfied in part by cash of
GBP11.6 million, and the issue of 309,753 ordinary shares of the
Company worth GBP3.6 million based on the published price at date
of acquisition. Under the terms of the acquisition, there is a
deferred payment of US$5.0 million (GBP3.6 million) payable in
cash. The timing of this payment is contingent on events outside of
the Group's control and is subject to ongoing negotiation. The
minimum period over which it might be payable is within one year
and the maximum period is expected to be three years.
Based on the provisional view, the fair value of the net assets
acquired in the business at acquisition date was GBP8.2 million
resulting in goodwill of GBP10.6 million. The goodwill represents
the expected synergies from the acquisition, assembled workforce
and Lightstream's ability to develop new technology in the
future.
In connection with the acquisition, retention agreements were
entered with key employees who were also selling shareholders. The
retention agreement is for a total of US$9.0 million (GBP6.5
million) and includes a share award and a cash bonus which each
vest over a three-year period in equal amounts each year. The
awards are conditional on continued employment on the first, second
and third anniversaries of the closing date of the acquisition. The
cash element of the award is accounted for as an employee expense
in accordance with IAS 19 and the share element a share-based
payment in accordance IFRS 2. The associated cost set out in the
table below is included within operating costs in the Income
Statement.
Had the acquisition been made at the beginning of the year (i.e.
1 January 2021), it would have contributed GBP1.1 million to
revenue and GBP1.1 million loss to the operating profit of the
Group. The results of the acquisition included in the Group's
consolidated results comprise GBP0.5 million of revenue and GBP0.6
million operating loss. The level of profitability is stated after
charges associated with acquisition of businesses.
Acquisition of Quasar
On 5 April 2021 the Group acquired the trade and net assets of
Quasar Science LLC ("Quasar"), a US company, through a business
combination for consideration of US$1.7 million (GBP1.2
million).
Quasar has been integrated into the Production Solutions
Division and is a motion picture LED lighting manufacturer that was
founded in Los Angeles in 2012 by a group of I.A.T.S.E. Local 728
Studio Electrical Lighting Technicians with over 100 years combined
expertise in lighting movie sets. Quasar products are highly
complementary to the Litepanels brand and this acquisition will
help to enhance the Group's leading position in the growing LED
lighting market.
The consideration for the acquisition is set out in the table
below. As part of the consideration for the acquisition a
contingent consideration agreement was entered into for which there
are three potential payments over three years, due in April 2022,
April 2023 and April 2024. The payments are determined based on
whether predefined performance measures are met in each of the
three years. There is no minimum payment, but the maximum
cumulative payment is capped at US$2.75 million. The fair value of
contingent consideration at acquisition date was US$0.1 million
(GBP0.1 million).
Based on the provisional view, the fair value of the net
liabilities acquired in the business at acquisition date was GBP0.1
million resulting in goodwill of GBP1.3 million. The whole amount
of goodwill is tax deductible and represents the expected synergies
from the acquisition, assembled workforce and Quasar's ability to
develop new technology in the future.
In connection with the acquisition, retention agreements were
entered with key employees who were also the previous owners. The
retention agreements are for a total of US$1.0 million (GBP0.7
million) which vest over a three-year period. The awards are
conditional on continued employment on the first, second and third
anniversary of the closing date of the acquisition. The awards are
accounted for as an employee expense in accordance with IAS 19 and
the associated cost set out in the table below is included within
operating costs in the Income Statement.
Had the acquisition been made at the beginning of the year (i.e.
1 January 2021), it would have contributed GBP1.5 million to
revenue and GBP0.7 million loss to the operating profit of the
Group. The results of the acquisition included in the Group's
consolidated results comprise GBP0.9 million of revenue and GBP0.3
million operating loss. The level of profitability is stated after
charges associated with acquisition of businesses.
A summary of the acquisitions is detailed below:
Lightstream Quasar Total
GBPm GBPm GBPm
Fair value of net assets acquired
Intangible assets 8.8 0.9 9.7
Property, plant and equipment - 0.5 0.5
Inventories - 0.4 0.4
Trade and other receivables 0.1 0.1 0.2
Cash 0.1 - 0.1
Lease liabilities - (0.3) (0.3)
Trade and other payables (0.7) (1.6) (2.3)
Provisions - (0.1) (0.1)
Deferred tax (0.1) - (0.1)
----------------------------------------------- ---------- ------- ------
8.2 (0.1) 8.1
Goodwill 10.6 1.3 11.9
----------------------------------------------- ---------- ------- ------
Total purchase consideration 18.8 1.2 20.0
Issue of ordinary shares (3.6) - (3.6)
Deferred/contingent consideration (3.6) (0.1) (3.7)
Purchase price adjustment receivable - 0.1 0.1
----------------------------------------------- ---------- ------- ------
Cash consideration 11.6 1.2 12.8
Cash acquired (0.1) - (0.1)
----------------------------------------------- ---------- ------- ------
Total outflow of cash 11.5 1.2 12.7
----------------------------------------------- ---------- ------- ------
Charges associated with acquisition of
businesses are as follows:
Transaction costs relating to acquisition
of businesses 0.4 0.1 0.5
Earnout charges and retention bonuses 0.8 - 0.8
----------------------------------------------- ---------- ------- ------
1.2 0.1 1.3
The trade receivables acquired had a fair value and a gross
contractual value of GBP0.2 million. All contractual cashflows at
acquisition date are expected to be collected.
The carrying amount of goodwill at 30 June 2021 was GBP86.7
million (1 January 2021: GBP75.8 million). During the period,
additions of GBP11.9 million were made on acquisitions. The
currency translation adjustment was (GBP1.0) million.
9 Analysis of net debt
The table below analyses the Group's components of net debt and
their movements in the period:
Interest-
bearing Liabilities Other Cash Half year
loans and from financing and cash to 30 June
borrowings Leases sub-total equivalents 2021
GBPm GBPm GBPm GBPm GBPm
------------ ------- ---------------- ------------- ------------
Opening at 1
Jan 2021 (91.4) (16.2) (107.6) 16.8 (90.8)
On acquisition - (0.3) (0.3) - (0.3)
Other cash flows - - - 0.3 0.3
Repayments 87.8 3.2 91.0 (91.0) -
Borrowings (91.5) - (91.5) 91.5 -
Leases entered
into during the
year - (11.6) (11.6) - (11.6)
Fees paid 0.2 - 0.2 - 0.2
Amortisation
of fees (0.3) - (0.3) - (0.3)
Foreign currency 0.7 0.3 1.0 (0.5) 0.5
------------ ------- ---------------- ------------- ------------
Closing at 30
June 2021 (94.5) (24.6) (119.1) 17.1 (102.0)
------------------ ------------ ------- ---------------- ------------- ------------
Interest-
bearing Liabilities Other Cash Year to 31
loans and from financing and cash December
borrowings Leases sub-total equivalents(1) 2020
GBPm GBPm GBPm GBPm GBPm
------------ ------- ---------------- ---------------- -----------
Opening at 1
Jan 2020 (96.7) (18.2) (114.9) 18.9 (96.0)
Other cash flows - - - 8.3 8.3
Repayments 76.9 5.8 82.7 (82.7) -
Borrowings (71.7) - (71.7) 71.7 -
Leases entered
into during the
year - (3.7) (3.7) - (3.7)
Leases - early
termination - 0.2 0.2 - 0.2
Fees Paid 2.1 - 2.1 - 2.1
Amortisation (0.7) - (0.7) - (0.7)
Foreign currency (1.3) (0.3) (1.6) 0.6 (1.0)
------------ ------- ---------------- ---------------- -----------
Closing at 31
December 2020 (91.4) (16.2) (107.6) 16.8 (90.8)
------------------ ------------ ------- ---------------- ---------------- -----------
( (1) Net cash repayment of GBP2.7 million has been reclassified
to Other cash flows (GBP8.3 million), Repayments (GBP82.7 million)
and Borrowings (GBP71.7 million).
Interest-
bearing Liabilities Other Cash Half Year
loans and from financing and cash to 30 June
borrowings Leases sub-total equivalents(2) 2020
GBPm GBPm GBPm GBPm GBPm
------------ ------- ---------------- ---------------- ------------
Opening at 1
Jan 2020 (96.7) (18.2) (114.9) 18.9 (96.0)
Other cash flows - - - (7.3) (7.3)
Repayments 61.4 2.4 63.8 (63.8) -
Borrowings (67.1) - (67.1) 67.1 -
Leases entered
into during the
year - (1.7) (1.7) - (1.7)
Fees Paid 1.5 - 1.5 - 1.5
Other non cash
movements 0.4 - 0.4 - 0.4
Foreign currency (4.9) (0.6) (5.5) 1.2 (4.3)
------------ ------- ---------------- ---------------- ------------
Closing at 30
June 2020 (105.4) (18.1) (123.5) 16.1 (107.4)
------------------ ------------ ------- ---------------- ---------------- ------------
( (2) Net cash repayment of GBP4.0 million has been reclassified
to Other cash flows (GBP7.3 million), Repayments (GBP63.8 million)
and Borrowings (GBP67.1 million).
On 14 February 2020, the Group signed a new GBP165.0 million
five-year (with one optional two year extension) Multicurrency
Revolving Credit Facility ("RCF") with a syndicate of five banks.
This facility will expire on 14 February 2025 without the
utilisation of the extension. The Group was utilising 57% of the
RCF as at 30 June 2021.
On 30 April 2020, the Group was confirmed as eligible to issue
Commercial Paper under the Bank of England's Covid Corporate
Financing Facility ("CCFF") scheme. The Group issued a total of
GBP50.0 million in Commercial Paper under the scheme in 2020. The
Group fully repaid the CCFF in March 2021, drawing GBP50.0 million
on the RCF to repay the outstanding balance.
Under the terms of the RCF the Group expects to and has the
discretion to roll over the obligation for at least 12 months from
the balance sheet date, and as a result, these amounts are reported
as non-current liabilities in the balance sheet.
10 Forward exchange contracts
The fair value of forward exchange contracts is determined by
estimating the market value of that contract at the reporting date.
Derivatives with a positive fair value are recorded as assets and
negative fair values as liabilities, and presented as current or
non-current based on their contracted maturity dates.
The following table shows the forward exchange contracts in
place at the Balance Sheet date. These contracts mature in the next
six months, therefore the cash flows and resulting effect on profit
and loss are expected to occur within the next six months.
Currency As at Average As at Average
30 June exchange 30 June exchange
2021 rate of 2020 rate of
millions contracts millions contracts
----------------------------- ---------- ---------- ----------- ---------- -----------
Cash flow hedging contracts
USD/GBP forward exchange
contracts USD - - 6.5 1.30
USD/EUR forward exchange
contracts USD 1.6 1.21 3.0 1.15
EUR/GBP forward exchange
contracts EUR - - 7.1 1.14
JPY/GBP forward exchange
contracts JPY - - 255.0 137.4
JPY/EUR forward exchange
contracts JPY - - 310.0 121.4
----------------------------- ---------- ---------- ----------- ---------- -----------
During the period to 30 June 2021 a net profit of GBP0.2 million
(2020: loss of GBP0.9 million) relating to forward exchange
contracts was reclassified to the Income Statement, to match the
crystallisation of the hedged forecast cash flows which affects the
Income Statement.
Fair value hierarchy
The carrying values of the Group's financial instruments
approximate their fair values.
The Group's financial instruments measured at fair value are
Level 2.
11 Subsequent events
Other than as described below, there were no events after the
Balance Sheet date that require disclosure.
Interim dividend
After the balance sheet date, an interim dividend of 11.0 pence
per share has been declared by the Directors, totalling GBP5.1
million (2020: nil pence per share).
12 Glossary on Alternative Performance Measures ("APMs")
In reporting financial information, the Group presents
Alternative Performance Measures ("APMs") which are presented in
accordance with the Guidelines on APMs issued by the European
Securities and Markets Authority ("ESMA"). The Group's key
performance measures, such as adjusted operating profit, exclude
charges associated with acquisition of businesses and items that
the Group deems, by their nature, require adjustment in order to
show more accurately the underlying business performance of the
Group from period to period in a consistent manner. This note
provides a comprehensive list of APMs that the Group uses,
including an explanation of how they are calculated, why they are
used and how they can be reconciled to a statutory measure where
relevant.
APM Closest Definition and Purpose
equivalent
statutory
measure
Income Statement measures
Adjusted gross Gross profit Calculated as gross profit before
profit charges associated with acquisition
of businesses and other adjusting
items that the Group deems, by their
nature, require adjustment in order
to show more accurately the underlying
business performance of the Group
from period to period in a consistent
manner.
The table below shows a reconciliation: Half Half
year year
to 30 to 30 Year to
June June 31 December
2021 2020 2020
GBPm GBPm GBPm
Gross profit 79.8 43.8 112.0
Charges associated
with acquisition
of businesses
and other adjusting
items - 0.6 1.4
------- ------- -------------
Adjusted gross
profit 79.8 44.4 113.4
---------------- ---------------------------------------------------------------------------------
Adjusted gross None Calculated as adjusted gross profit
profit margin divided by revenue.
---------------- ---------------------------------------------------------------------------------
Adjusted Operating Calculated as operating profit before
operating profit charges associated with acquisition
profit of businesses and other adjusting
items that the Group deems, by their
nature, require adjustment in order
to show more accurately the underlying
business performance of the Group
from period to period in a consistent
manner. This is a key management incentive
metric.
Charges associated with acquisition
of businesses include non-cash charges
such as amortisation of acquired intangible
assets and effect of fair valuation
of acquired inventory. Cash charges
include items such as transaction
costs, earnout and deferred payments
and significant costs relating to
the integration of acquired businesses.
See Condensed Consolidated Income
Statement for reconciliation.
---------------- ---------------------------------------------------------------------------------
Adjusted None Calculated as adjusted operating profit
operating divided by revenue. Progression in
profit margin adjusted operating margin is an indicator
of the Group's operating efficiency.
---------------- ---------------------------------------------------------------------------------
Adjusted Operating Calculated as operating expenses before
operating expenses charges associated with acquisition
expenses of businesses and other adjusting
items that the Group deems, by their
nature, require adjustment in order
to show more accurately the underlying
business performance of the Group
from period to period in a consistent
manner.
The table below shows a reconciliation: Half Half
year year
to to
30 30 Year to
June June 31 December
2021 2020 2020
GBPm GBPm GBPm
Operating expenses 62.8 55.0 115.3
Charges associated
with acquisition
of businesses and
other adjusting
items (4.9) (6.2) (11.8)
------ ------ -------------
Adjusted operating
expenses 57.9 48.8 103.5
Adjusted profit Profit before Calculated as profit before tax, before
before tax tax charges associated with acquisition
of businesses and other adjusting
items that the Group deems, by their
nature, require adjustment in order
to show more accurately the underlying
business performance of the Group
from period to period in a consistent
manner. This is a key management incentive
metric.
See Condensed Consolidated Income
Statement for reconciliation.
Adjusted profit Profit after Calculated as profit after tax before
after tax tax charges associated with acquisition
of businesses and other adjusting
items.
See Consolidated Income Statement
for reconciliation.
Adjusted basic Basic earnings Calculated as adjusted profit after
earnings per per share tax divided by the weighted average
share number of ordinary shares in issue
during the period. This is a key management
incentive metric.
See note 7 "Earnings per share".
Cash flow measures
Free cash Net cash from Net cash from operating activities
flow operating after proceeds from property, plant
activities and equipment and software, purchase
of property, plant and equipment,
and capitalisation of software and
development costs. This measure reflects
the cash generated in the period that
is available to invest in accordance
with the Group's capital allocation
policy.
---------------- ---------------------------------------------------------------------------------
Operating Net cash from Free cash flow before payment of interest,
cash flow operating tax, restructuring costs, transaction
activities costs relating to acquisition of businesses
and integration costs. This is a measure
of the cash generation and working
capital efficiency of the Group's
operations. Operating cash flow as
a percentage of adjusted operating
profit is a key management incentive
metric. Half Half
year year
to 30 to 30 Year to
June June 31 December
2021 2020 2020
GBPm GBPm GBPm
------- ------- -------------
Net cash from
operating activities 26.0 2.6 25.0
Proceeds from
sale of property,
plant and equipment
and software - 0.1 0.2
Purchase of property,
plant and equipment (4.4) (2.8) (5.1)
Capitalisation
of software and
development costs (5.8) (5.7) (10.6)
------- ------- -------------
Free cash flow 15.8 (5.8) 9.5
Add back:
Interest paid 1.8 3.6 5.9
Tax paid 4.9 1.2 3.1
Payment of transaction
costs relating
to acquisition
of businesses,
earnout and retention
bonuses, restructuring
costs and integration
costs 3.3 3.5 6.9
Operating cash
flow 25.8 2.5 25.4
Cash conversion None Calculated as operating cash flow
divided by adjusted operating profit.
Other Measures
Return on None Calculated as adjusted operating profit
capital employed for the last 12 months divided by
("ROCE") average total assets, current liabilities
excluding the current portion of interest-bearing
borrowings, and non-current lease
liabilities.
---------------- ---------------------------------------------------------------------------------
Adjusted EBITDA Operating Calculated as adjusted operating profit
profit for the last twelve months before
depreciation of tangible fixed assets
and amortisation of intangibles (other
than those already excluded from adjusted
operating profit).
---------------- ---------------------------------------------------------------------------------
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END
IR BRGDIISBDGBB
(END) Dow Jones Newswires
August 12, 2021 02:00 ET (06:00 GMT)
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