RNS Number : 7757F
The Vitec Group PLC
25 February 2015
 

 

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.

25 February 2015

The Vitec Group plc

2014 Full Year Results

Growth in Revenue and Profit at constant exchange rates

The Vitec Group plc ("Vitec" or "The Group"), the international provider of products and services for the Broadcast and Photographic markets, announces its audited results for the year ended 31 December 2014.

 

Results

2014

2013

% Change

% Change

 

 

 

 

at constant exchange rates

Revenue

£309.6m

£315.4m

-1.8%

+3.3%

 

 

 

 

 

Operating profit*

£38.8m

£39.5m

-1.8%

+7.4%

Operating margin* %

12.5%

12.5%

-

 

 

 

 

 

 

Profit before tax*

£35.3m

£35.6m

-0.8%

+9.1%

Adjusted earnings per share*

55.9p

56.1p

-0.4%

 

 

 

 

 

 

Operating profit

£27.6m

£24.3m

+13.6%

 

Profit before tax

£20.1m

£20.4m

-1.5%

 

Basic earnings per share

29.4p

31.9p

-7.8%

 

 

 

 

 

 

Free cash flow+

£18.2m

£21.4m

 

 

Net debt

£70.9m

£61.5m

 

 

 

 

 

 

 

Total dividend per share

24.0p

23.0p

+4.3%

 

 

Key Points

Full year performance in line with the Board's expectations

Revenue 3.3% higher and profit before tax* up 9.1% at constant exchange rate

Operating margin* maintained at 12.5%

Significant strategic progress with three value-adding acquisitions and exit from IMT

Group now focused on Broadcast and Photographic Divisions

Well positioned to benefit from any market upturn

 

* Before restructuring costs and charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of IMT in 2014 for a loss of £4.0 million. Restructuring costs were £2.7 million (2013: £11.4 million) and charges associated with acquired businesses were £8.5 million (2013: £3.8 million). The charges associated with acquired businesses are described in Note 1 below.

+ Free cash flow: cash generated from operations in the financial year after net capital expenditure, net interest and tax paid.

 

Commenting on the results, Stephen Bird, Group Chief Executive, said:

"We have delivered a good performance in 2014 with revenue at constant exchange rates up 3.3% and profit before tax* 9.1% higher. As expected, foreign exchange rates have negatively impacted our reported revenue and profits. Following our exit from the loss-making IMT business we are focused on our core Broadcast and Photographic markets supplemented with selective value-adding acquisitions.

"Our Broadcast Division performed well in a variable market including a strong performance from Teradek, acquired in the second half of 2013. We also benefited in 2014 from contracts to support the Sochi Winter Olympics and the FIFA World Cup. Our premium product and service offering was further strengthened through the acquisitions of Autocue, the speciality camera assets of SIS, and more recently SmallHD.

"The Photographic Division has taken share in its key markets although we have seen a continuation of challenging conditions, particularly in the camera bags sector. Overall we are pleased with the performance including the success of our new product launches.

"We achieved significant strategic progress in 2014 and focused the Group on its core Broadcast and Photographic activities. Vitec is well positioned to benefit from any upturn in its markets. Whilst some markets remain challenging, the Board remains confident about the prospects for the Group."

 

Enquiries:

 

The Vitec Group plc

Telephone: 020 8332 4600

Stephen Bird, Group Chief Executive

 

Paul Hayes, Group Finance Director

 

 

 

FTI Consulting

 

Nick Hasell / Susanne Yule

Telephone: 020 3727 1340

Notes

 

1.

Charges associated with acquired businesses were £8.5 million (2013: £3.8 million). These consisted of £3.4 million for the amortisation of acquired intangibles (2013: £2.6 million), £0.9 million of transaction costs relating to acquisitions (2013: £0.4 million), and £4.2 million fair value adjustment to contingent consideration since the date of acquisition (2013: £0.8 million).

2.

This statement is based on information sourced from management estimates.

3.

Current market exchange rates as at 23 February 2015: £1 = $1.55, £1 = €1.36, €1 = $1.14, £1 = Yen184.

4.

2014 average exchange rates: £1 = $1.65, £1 = €1.24, €1 = $1.33, £1 = Yen174.

5.

2013 average exchange rates: £1 = $1.56, £1 = €1.17, €1 = $1.33, £1 = Yen152.

6.

The Company's Annual General Meeting ("AGM") will be held on Tuesday, 12 May 2015. The 2014 Annual Report and Accounts and Notice of Annual General Meeting will be posted to shareholders and available on the Company's website from Wednesday, 18 March 2015.

 

Vitec is a global provider of premium branded products and services to the Broadcast and Photographic markets. Vitec is listed on the London Stock Exchange with 2014 revenue of £309.6 million.

The Group is organised in two Divisions:

The Broadcast Division designs, manufactures and distributes premium branded products for broadcasting, film and video production for broadcasters and independent content creators. It also provides premium services including equipment rental and technical solutions to TV production teams and film crews.

The Photographic Division designs, manufactures and distributes premium branded equipment and provides dedicated solutions to professional and non-professional image takers.

The Broadcast Division was previously presented as the Videocom and Services Divisions, and is now managed as one Division. The Photographic Division was previously described as the Imaging Division.

More information can be found at: www.vitecgroup.com.

Vitec will be presenting its results to analysts at 10.00 am on Wednesday, 25 February 2015.  An audio recording of the presentation, along with the presentation slides, will be available on our website after the meeting.  Users can pre-register to access the recording and slides using the following link: www.vitecgroup.com/results2014.

Directors' responsibility statement

The financial information for the year ended 31 December 2014 contained in this announcement was approved by the Board on 24 February 2015. This announcement does not constitute the statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for the year ended 31 December 2013 have been filed with the Registrar of Companies. Statutory accounts for the year ended 31 December 2014 will be delivered to the Registrar of Companies in due course. The auditors have reported on these accounts. Their reports were not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Forward looking statements

This announcement contains forward looking statements that are based on management's current expectations or beliefs as well as assumptions about future events. These are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries and sectors in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results, and Vitec's plans and objectives, to differ materially from those currently anticipated or implied in the forward looking statements. Investors should not place undue reliance on any such statements. Nothing in this press release should be construed as a profit forecast.

2014 Performance Overview

Vitec delivered a good full year performance with constant currency growth in revenue and operating profit*. This included the benefit from supporting the Sochi Winter Olympics and FIFA World Cup and a full year contribution from the Teradek business which was acquired in the second half of 2013. The results also reflect: the incremental benefits of successfully streamlining the business; an ongoing focus on cost management; and the exit from the loss-making IMT business. These benefits were offset by an adverse impact from foreign exchange.

Reported revenue decreased by 1.8% to £309.6 million (2013: £315.4 million) although revenue at constant currency increased by 3.3%. Operating profit* decreased by 1.8% to £38.8 million (2013: £39.5 million) but increased by 7.4% on a constant currency basis. The adverse year-on-year impact from foreign exchange movements was £15.8 million on revenue and £3.5 million on operating profit*. Revenue was 1.5% higher and operating profit* was up 5.0% on an organic basis. The operating margin* was maintained at 12.5% of revenue.

The Group gross margin* was lower than the prior year at 41.6% (2013: 43.9%) mainly reflecting product mix, including the non-repeat of a high margin US Department of Justice contract at IMT, and revenue growth in the lower margin broadcast services business.

Operating expenses* were £9.1 million lower than in 2013 at £90.0 million. This reflects the continuation of focused cost control that has delivered a £5.0 million year-on-year reduction in underlying operating expenses*. There was also a £4.0 million benefit from foreign exchange, partially offset by the inclusion of the operating expenses* of acquisitions made in the year.

We maintained our investment in product development and innovation at 4% of Group product sales (2013: 4%). Research, development and engineering expenditure on a like-for-like basis was £11.3 million (2013: £11.1 million) after adjusting for capitalised development expenditure of £3.4 million (2013: £2.4 million) and £0.8 million of amortisation (2013: £0.7 million).

There was a restructuring charge of £2.7 million (2013: £11.4 million). This included the completion of the restructuring projects that we commenced in 2013, in line with our plans. This restructuring was supplemented by the decision in December 2014 to fully integrate our camera bags business into our other Photographic activities, which will be completed in 2015. The total year-on-year benefit of these restructuring activities to our profitability in 2014 was £4.0 million (2013: £6.2 million).

Profit before tax* of £35.3 million was £0.3 million lower than the prior year. Adjusted earnings per share* decreased by 0.4% to 55.9 pence per share (2013: 56.1 pence per share). Group profit before tax of £20.1 million (2013: £20.4 million) was after: £2.7 million of restructuring costs (2013: £11.4 million); £8.5 million charges associated with acquired businesses (2013: £3.8 million); and a £4.0 million loss arising from the disposal of the IMT business.

Free cash flow+ of £18.2 million (2013: £21.4 million) is reported after £3.2 million of cash outflows on restructuring activities (2013: £7.9 million). There was a total cash outflow of £7.3 million (2013: £2.0 million inflow). This was after a £13.3 million net cash outflow on acquisitions (2013: £8.5 million), and further outflows relating to disposal, net purchases of shares to meet share plan commitments and dividend payments. Net debt at 31 December 2014 was £70.9 million (31 December 2013: £61.5 million) including a net adverse impact of £2.1 million from foreign exchange movements. The Group's balance sheet remains strong with a year end net debt to EBITDA ratio (covenant definition) of 1.2 times (31 December 2013: 1.1 times).

The Board has recommended a final dividend of 14.7 pence per share (2013: 14.1 pence per share). The final dividend, if approved by our shareholders at the 2015 Annual General Meeting to be held on Tuesday, 12 May 2015, will be paid on Friday, 15 May 2015. This will bring the total dividend for 2014 to 24.0 pence per share (2013: 23.0 pence per share).

* Before restructuring costs and charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of business. These are defined on page 1 of this announcement.

+ Cash generated from operations after net capital expenditure, net interest and tax paid.

Continuing to deliver our strategy

The Group made significant strategic progress in 2014 and continued to successfully execute our strategy of focusing on our core markets supplemented with selective value-adding acquisitions.

Vitec's Broadcast and Photographic activities continue to present attractive long-term growth prospects for the Group. This growth is being driven by the increase in not only the capture but also the sharing of high quality images, and by the continued rapid evolution of new technologies. Vitec has leading brands and technologies in its markets and we are developing and launching new premium products and services particularly for the growing number of independent content creators.

Our strategy is to grow our core business by leveraging our premium brands supported by product development and utilising our global reach. We believe that the Asia-Pacific region, which accounts for around 17% of our revenue, is an important growth market and there are good opportunities in this region. Products and services supporting major live events also present good growth opportunities for the Group, as demonstrated by the Sochi Winter Olympics and FIFA World Cup.

In our Broadcast market we have launched a number of innovative products including: the Teradek Bolt; new ranges of Anton/Bauer batteries; and the QBall 3 robotic camera. The Teradek Bolt is a market leading wireless transmitter that transmits high quality images up to 600 metres and is selling strongly. Anton/Bauer has launched a new range of Lithium-Ion batteries with the latest battery cell technology and enhanced features including an improved fuel computer display. The new QBall 3 has an even smoother motion, enhanced zoom and choice of multiple HD formats.  

Vitec made three acquisitions in the year, which complement existing activities and further enhance the Group's product and service offerings. These comprise: the speciality camera assets of SIS Outside Broadcasts Limited, which capture unique camera shots at sporting events; the established teleprompting brand, Autocue, which complements our existing Autoscript business; and SmallHD which is a leading provider of high-quality, high definition on-camera field monitors. Following the successful exit from the loss-making IMT business we are able to focus on our core Broadcast and Photographic activities.

We have integrated the management of our Services Division with our Videocom Division and have renamed the combined business the Broadcast Division. We now report our product sales and services to the Broadcast market as one Division. Our service activities performed well in 2014, including the benefit from contracts to supply the Sochi Winter Olympics and FIFA World Cup. We are concentrating on driving sales while securing attractive pricing for our premium services, improving asset utilisation, and managing the cost base effectively.

Our Photographic Division also performed well. Against a challenging market background, it has continued to gain share in some key markets and has improved its operating margin* percentage despite lower revenue. New products launched towards the end of 2013 and through 2014 performed well and include upgraded professional tripod ranges and Manfrotto professional bags. More recently we have launched the Off-Road range of tripods and bags and these have received good initial feedback. We continue to grow sales through our owned distribution channels and make good progress with our online sales activities.

Broadcast Division

The Broadcast Division designs, manufactures and distributes products for broadcasting, film and video production. It also provides premium services including equipment rental and technical solutions to TV production teams and film crews.

These activities were previously presented separately as the Videocom and Services Divisions, but are now managed and reported as one Division. We have separately disclosed the performance of the Broadcast Equipment and Broadcast Services activities within this announcement for comparative purposes.

The Division included the non-core IMT business until its disposal in November 2014. The performance of the Division excluding IMT is summarised below. IMT recorded an operating loss* of £1.3 million in 2014 on revenue of £7.9 million (2013: £0.0 million operating profit* on revenue of £14.0 million).

 

Broadcast Division

(excluding IMT)

2014

2013

% Change

% Change

at constant exchange rates

Revenue

£171.1m

£160.9m

+6.3%

+11.9%

Operating Profit*

£21.2m

£19.4m

+9.3%

+16.6%

Operating Margin*

12.4%

12.1%

+30 bps

+60 bps

* Before restructuring costs and charges associated with acquired businesses as defined on page 1 of this announcement.

 

Markets

We estimate that the addressable Broadcast market for products and services supplied by Vitec is worth around £700 million annually. This includes the traditional broadcast and film markets as well as the video production market.  Vitec is well positioned due to its broad geographical reach and premium products. We have a global sales team that provides strong international coverage and is able to offer a full range of products and services to our customers all over the world. This market has seen some variability in demand in 2014, particularly in the US, although it has benefited from major sporting events.

Operations

Revenue for 2014 was £171.1 million, excluding IMT, an increase of 6.3% on prior year. On a constant exchange rate basis, revenue was up 11.9% and was 4.5% higher organically. Operating profit* improved by £1.8 million after excluding the £1.3 million loss* recorded by IMT in 2014 (2013: £0.0 million). The operating profit* increased by 5.2% organically. The Division benefited from the inclusion of a strong performance at Teradek and a contribution from supporting the Sochi Winter Olympics and FIFA World Cup. Restructuring activities were completed to plan, including the relocation of certain UK manufacturing processes to Costa Rica.

The Group further strengthened the Division's premium product and service offerings through three acquisitions in the year:

The speciality camera assets of SIS Outside Broadcasts Limited are renowned for the innovative solutions that deliver viewers to the heart of live events. This business has been successfully integrated into our Camera Corps business and has supported many sporting events including Test Cricket (with the Stump Cam), and in-boat footage at the Boat Race.

Autocue is a long established and highly respected brand of teleprompting hardware and software which complements the Division's existing Autoscript business. We completed the acquisition in October and have integrated this business into the Group. We will continue to develop and support this well-known premium brand.

Our most recent acquisition was SmallHD, which was acquired in December and is a leading provider of high-quality, high definition on-camera field monitors designed around the growing number of independent content creators. The business complements the Division's existing video activities, including Teradek which serves a similar customer base.

The performance of the Division's Broadcast Equipment and Services activities are reviewed individually below:

 

Broadcast Equipment

The Broadcast Division includes the supply of high-quality broadcast equipment principally for professionals engaged in producing video content for the media industries globally: broadcast, film and live events. This equipment is also supplied to meet the growing demand from independent content creators.

 

Broadcast Equipment (excluding IMT)

(Previously described as Videocom Division)

2014

2013

% Change

% Change

at constant exchange rates

Revenue

£131.9m

£129.8m

+1.6%

+7.0%

Operating Profit*

£18.8m

£17.9m

+5.0%

+12.3%

Operating Margin*

14.3%

13.8%

+50 bps

+70 bps

* Before restructuring costs and charges associated with acquired businesses as defined on page 1 of this announcement.

 

Our sales of broadcast equipment benefited from the Sochi Winter Olympics and strong sales of our Teradek wireless products. The Teradek business that we acquired in August 2013 continues to develop innovative products, including the new Bolt wireless transmitter which has been selling well. On an organic constant currency basis revenue was down 2.2% but operating profit* was in line with prior year.

Our prompter business also performed well and will include a contribution from the Autocue brand going forward. In camera supports we experienced a lower level of investment by studios in larger camera supports, although our smaller products continued to perform in line with our expectations. Our battery business experienced a lower level of activity but should benefit from the new ranges of products launched at the end of 2014.

Profitability remained strong and reflected the benefit of previous restructuring and continued cost control activities.

Broadcast Services

The Broadcast Division also provides broadcast equipment rental and technical support to television production teams and film crews. It offers a complete one-stop solution for producers globally, enabling customers to deliver the most demanding projects. This enables Vitec to closely monitor changes in technology and to showcase our products. The Division's strategy is to focus on events where higher levels of service are most needed.

 

Broadcast Services

(Previously described as Services Division)

2014

2013

% Change

% Change

at constant exchange rates

Revenue

£39.2m

£31.1m

+26.0%

+32.9%

Operating Profit*

£2.4m

£1.5m

+60.0%

+71.4%

Operating Margin*

6.1%

4.8%

+130 bps

+140 bps

* Before restructuring costs and charges associated with acquired businesses as defined on page 1 of this announcement.

 

This strong performance included supporting the Sochi Winter Olympics, the FIFA World Cup and an increase in our underlying rentals business for other major events. We have also supported a number of improvements in the infrastructure of NFL stadiums including player positioning systems. We are pleased with progress as we concentrate on driving sales and securing attractive pricing for our premium services. The profitability of the business is also benefiting from improving asset utilisation by acquiring appropriate assets and disposing of under-utilised assets, and continuing to manage the cost base tightly.

Photographic Division

The Photographic Division (previously described as the Imaging Division) provides premium branded photographic and video equipment and provides dedicated solutions to professional and non-professional image takers. The photographic and video equipment consists primarily of camera supports, tripods, camera bags, lighting supports, LED lights and lighting accessories. We also supply a range of tripods, bags, lighting and other photographic products to the consumer segment.

 

Photographic Division

(Previously described as Imaging Division)

2014

2013

% Change

% Change

at constant exchange rates

Revenue

£130.9m

£141.2m

-7.3%

-2.1%

Operating Profit*

£18.9m

£20.1m

-6.0%

+4.8%

Operating Margin*

14.4%

14.2%

+20 bps

+100 bps

* Before restructuring costs and charges associated with acquired businesses as defined on page 1 of this announcement.

 

Markets

We estimate that the addressable Photographic market for product categories supplied or distributed by Vitec is worth around £800 million annually. Approximately half of this market is accounted for by professional photographers and the remainder by consumers who have a keen interest in photography or who simply want to record and share images.  Photography continues to attract new consumers as the number and type of image-taking devices increases and the distribution of images via social media continues to grow in popularity.

The sale of new cameras is a key driver in the Photographic market. According to the Camera & Imaging Products Association (CIPA), overall global shipments of interchangeable lens cameras continued to decrease in 2014 although there was an increased demand for compact system cameras. The installed base of interchangeable lens cameras continues to grow globally.

Operations

Revenue decreased by 7.3% to £130.9 million, and was 2.1% lower than prior year organically and at constant exchange rates. Despite the decline in revenue, operating margin* increased by 20 bps to 14.4%, reflecting a continuing focus on cost control and the year-on-year benefits from the restructuring completed in 2013. Operating profit* increased by 4.8% on an organic growth and constant exchange rate basis with operating margin* 100 bps higher.

Against a challenging market background, sales of our core camera supports performed well and we are particularly pleased with sales of new products including the BeFree and new 190 tripod ranges leading us to again outperform the Photographic market. We continued to launch a number of new products including the Manfrotto Off Road range. Our premium Gitzo brand, including the new Gitzo Mountaineer tripod, performed strongly. We believe that certain competitors' products have infringed our patented technology and we are reviewing our options.

The camera bags market is largely driven by new camera sales and has been hardest hit by lower interchangeable lens camera sales over the last few years. Although this market remains competitive, we are pleased with sales of the Manfrotto branded range of camera bags which continued to gain market share. We have now launched these bags globally as our main bags brand. In light of the continuation of a challenging camera bags market, in December 2014 we decided to close our overseas bags facility and fully integrate it into our other Photographic business. This will be completed in early 2015. 

Geographic Spread

Vitec has a broad geographic spread. In 2014, 46% of our revenues by destination came from North America, with the remainder split between Europe 31%, Asia-Pacific 17% and Rest of World 6%. 9% of our revenue is derived from the UK. We currently have a direct presence in 12 countries around the world: the UK, the US, Brazil, Costa Rica, France, Germany, Italy, Netherlands, Israel, Japan, China and Singapore.

Financial Detail

Management's estimate of the main drivers that reconcile the 2014 to the 2013 operating profit* are summarised in the following table:

Operating profit * Bridge

 (£ million)

2013 Operating profit*

 

39.5

  Gross margin effects:



    - Volume, mix and efficiency

(3.6)

 

    - Sales price less cost inflation

(3.5)

 

  Restructuring savings

4.0

 

  Underlying operating expenses*

5.0

 

 

 

1.9

  Acquisitions

2.2

 

  Disposals

(1.3)

 

 

 

0.9

  Foreign exchange effects:

 

 

    - Translation

(1.5)

 

    - Transaction after hedging

(2.0)

 


 

(3.5)

2014 Operating profit*    

 

38.8

* Before restructuring costs and charges associated with acquired businesses as defined on page 1 of this announcement.

Net financial expense

Net financial expense totalled £3.5 million (2013: £3.9 million), after the benefit from a one-off receipt of £0.3 million interest on a repayment from the Costa Rica tax authorities. Interest payable was £3.6 million (2013: £3.6 million) and was covered 15 times (2013: 15 times) by earnings before interest, tax, depreciation and amortisation.

Profit before tax

Profit before tax* decreased by £0.3 million to £35.3 million (2013: £35.6 million). The reported profit before tax after restructuring costs, charges associated with acquired businesses and disposal of business decreased by 1.5% to £20.1 million (2013: £20.4 million).

Taxation

The effective taxation rate on profit before tax* decreased from 31% in 2013 to 30% in 2014. We anticipate that the tax rate will remain at 30% in 2015. The Group's tax charge is higher than the UK statutory rate because the majority of its profits arise in overseas jurisdictions with higher tax rates.

Earnings per share

Earnings per share before restructuring costs, charges associated with acquired businesses and disposal of a business was 55.9 pence per share (2013: 56.1 pence per share). The basic reported earnings per share was 29.4 pence per share (2013: 31.9 pence per share).

Acquisitions and disposals

During 2014, Vitec acquired three businesses and disposed of one:

In March 2014, Vitec acquired the assets of the Speciality Cameras Division of SIS Outside Broadcasts Limited (SIS) for a cash consideration of £1.8 million. There is a potential contingent consideration of up to £1.4 million that is dependent on demanding revenue targets for certain future events by 2017.

In October 2014, the Group acquired Autocue Group Limited for a net cash consideration of £6.1 million. We are in the process of agreeing the post-completion adjustments to finalise the net consideration under the terms of this transaction.

In December 2014, the Group acquired the net assets of SmallHD in the US for an initial cash consideration of $4.6 million (£2.9 million). We are in the process of finalising the post-completion adjustments to agree the net consideration under the terms of this transaction. There is a potential contingent consideration of up to a further $25.4 million (£16.3 million) that is dependent upon the achievement against stretching EBITDA targets over a two and a half year period to 30 June 2017.

In November 2014, the Group sold its loss-making IMT business, based in the US. The disposal enables management to place greater focus on opportunities in the Group's core Broadcast and Photographic activities. A loss of £4.0 million arose on disposal after taking into account exit costs together with the net assets disposed (£9.5 million) offset by cash consideration (£0.3 million) and the previously recorded foreign exchange gain that has been recycled to the income statement (£5.2 million). The total net cash outflow, after exit costs, is expected to be £3.8 million of which £1.3 million was paid in the period. The remaining £2.5 million, of which £1.8 million ($2.9 million) relates to an onerous lease provision, is expected to be paid by 2016.

We continue to review various acquisition opportunities. These will be assessed as to the strategic, commercial and financial benefits that they could provide against acceptable risk parameters.

Restructuring costs

In 2014 there was a restructuring charge of £2.7 million (2013: £11.4 million) relating to activities to streamline our operations and improve our processes. This includes the completion of the projects announced in 2013, which we delivered in line with our plans. In addition we have taken the decision to fully integrate the camera bags business into our other Photographic activities, which will be completed in 2015.

The year-on-year benefit of these restructuring plans to our profitability in 2014 was £4.0 million (2013: £6.2 million). Cash outflows relating to restructuring were £3.2 million in the year (2013: £7.9 million).

Charges associated with acquired businesses

The 2014 charges relate to the Group's acquisition activities and amortisation of previously acquired intangibles.

The amortisation of acquired intangibles of £3.4 million (2013: £2.6 million) related to: Manfrotto Lighting (formerly Lastolite) acquired in March 2011; Haigh-Farr acquired in December 2011; Camera Corps acquired in April 2012; Teradek acquired in August 2013; SIS acquired in March 2014; and Autocue acquired in October 2014.

Transaction costs of £0.9 million were incurred in relation to the acquisitions of SIS, Autocue and SmallHD (2013: £0.4 million in relation to the acquisition of Teradek).

Contingent consideration of £4.2 million ($7.0 million) was accrued during the year to be paid to the previous owners of Teradek in 2015 in relation to the business's performance in 2014 and is subject to final agreement. The business has delivered strong growth in the year and has performed ahead of our pre-acquisition expectations. In 2013, £0.8 million was accrued to be paid to the previous owners of Haigh-Farr.

Cash flow and net debt

Cash generated from operating activities was £42.0 million (2013: £52.4 million) with the Group maintaining a focus on cash generation.

The Group uses a number of key performance indicators to manage cash including the percentage of operating cash flow generated from operating profit*, the percentage of working capital to sales, inventory days, trade receivable days and trade payable days. Inventory, trade receivable and trade payable days are stated at year-end balances; inventory and trade payable days are based on Q4 cost of sales (excluding exchange gains/losses) while trade receivable days are based on Q4 revenue.

The operating profit* into operating cash flowconversion at 73% is lower than the very strong 105% conversion achieved in 2013. This mainly reflects the timing of cash flows, with 89% cash conversion over the last two years consistent with our established track record for strong cash generation.

The working capital to sales metric has increased to 17.9% (31 December 2013: 16.5%) and overall working capital increased by £6.9 million (2013: £8.6 million decrease).

Trade receivable days increased to 41 days (2013: 39 days), reflecting the timing of sales.  Trade and other receivables increased by £2.7 million accordingly (2013: £1.8 million decrease) and the ageing remained well controlled and in line with prior year.

Inventory increased by £2.1 million (2013: £4.9 million decrease) to £55.0 million at the year-end, reflecting higher activity levels. Inventory days decreased to 100 days (2013: 106 days).

Trade payable days remain at 49 days (2013: 49 days). There was a £2.1 million overall decrease in trade and other payables (2013: £3.1 million increase) including lower bonus and commission accruals.

Capital expenditure, including £4.7 million of software and capitalised development costs (2013: £3.4 million), totalled £22.2 million (2013: £22.7 million), of which £12.7 million (2013: £11.8 million) related to rental assets. This was partly financed by the proceeds from rental asset disposals of £5.0 million (2013: £3.5 million) which included the disposal of some specific assets acquired for the Sochi Winter Olympics. Overall capital expenditure was equivalent to 1.4 times depreciation (2013: 1.6 times) and included investments in manufacturing processes and production tooling.

The net tax paid in 2014 of £3.5 million was lower than the £8.5 million paid in 2013 due to the level of tax charge and timing of tax payments.

As a result, free cash inflow+ decreased by £3.2 million to £18.2 million (2013: £21.4 million).

 

Free cash flow+

2014

2013

Operating profit *

£38.8m

£39.5m

Depreciation (1)

£16.1m

£14.3m

Changes in working capital

(£6.9m)

£8.6m

Restructuring costs

(£3.2m)

(£7.9m)

Other adjustments (2)

(£2.8m)

(£2.1m)

Cash generated from operating activities

£42.0m

£52.4m

Purchase of property, plant and equipment

(£17.5m)

(£19.3m)

Capitalisation of software and development costs

(£4.7m)

(£3.4m)

Proceeds from sale of property, plant and equipment and software

£5.2m

£3.8m

Interest paid

(£3.3m)

(£3.6m)

Tax paid

(£3.5m)

(£8.5m)

Free cash flow+

£18.2m

£21.4m

* Before restructuring costs and charges associated with acquired businesses as defined on page 1 of this announcement.

+ Cash generated from operating activities after net capital expenditure, net interest and tax paid.

‡ Cash generated from operating activities after net capital expenditure, before restructuring costs paid.

(1) Includes depreciation and amortisation of software and capitalised development costs.

(2) Includes change in provisions, share based charge, gain on disposal of property, plant and equipment, fair value derivatives and transaction costs relating to acquisitions.

There was a £13.3 million net cash outflow relating to acquisitions during the year (2013: £8.5 million). In 2014 there was also a cash outflow of £1.3 million relating to the disposal of IMT. Dividends paid to shareholders totalled £10.3 million (2013: £9.8 million) and there was a net cash outflow in respect of shares purchased and issued of £0.6 million (2013: £1.1 million). The net cash outflow for the Group was £7.3 million (2013: £2.0 million inflow) which, after £2.1 million adverse exchange (2013: £0.2 million favourable), increased the net debt to £70.9 million (2013: £61.5 million).

Treasury

Vitec manages its financing, hedging and tax planning activities centrally to ensure that the Group has an appropriate structure to support its geographically diverse business. It has clearly defined policies and procedures with any substantial changes to the financial structure of the Group, or to its treasury practice, referred to the Board for approval. The Group operates strict controls over all treasury transactions including clearly defined currency hedging processes to reduce risks from volatility in exchange rates.

The Group is hedging a portion of its forecast future foreign currency transactions to reduce the volatility from changes in exchange rates. Our main exposure relates to the US Dollar and the table below summarises the contracts held as at 31 December 2014:

 

Currency hedging

December

Average rate of

December

Average rate of

 

2014

contracts

2013

contracts

US Dollars sold for Euros

 

 

 

 

Forward contracts

$36.0m

1.33

$56.2m

1.32

US Dollars sold for Sterling

 

 

 

 

Forward contracts

$14.8m

1.62

$13.5m

1.56

The Group does not hedge the translation of its foreign currency profits. A portion of the Group's foreign currency net assets are hedged using the Group's borrowing facilities.

Financing activities

The Group's principal financing facility is a £100 million five year multi-currency revolving credit facility involving five relationship banks, expiring on 19 July 2017. At the end of December 2014, £45.8 million (2013: £44.2 million) of the facility was utilised.

The Group has a $50 million (£32.1 million) private placement facility which has been drawn down in two tranches of $25 million each. This financing has a combined fixed interest rate of 4.77% and is due for repayment on 11 May 2017.

The Group therefore has a total of £132.1 million of committed facilities at the year-end with drawings of £77.9 million (31 December 2013: £74.4 million).

The average cost of borrowing for the year which includes interest payable, commitment fees and amortisation of set-up charges was 4.3% (2013: 4.4%) reflecting an interest cost of £3.6 million (2013: £3.6 million).

The Board has maintained an appropriate capital structure without exposing the Group to unnecessary levels of risk and Vitec has operated comfortably within its loan covenants during 2014.

Foreign Exchange

2014 operating profit* included a £3.5 million net adverse foreign exchange effect after hedging, mainly due to less favourable £/$ and £/€ rates when compared to 2013.

Dividend

The Directors have recommended a final dividend of 14.7 pence per share amounting to £6.5 million (2013: 14.1 pence per share, amounting to £6.2 million). The dividend, subject to shareholder approval at the AGM, will be paid on Friday, 15 May 2015 to shareholders on the register at the close of business on Friday, 17 April 2015. This will bring the total dividend for the year to 24.0 pence per share (up 4.3%).  A dividend reinvestment alternative is available with details available from our registrars, Capita Asset Services.

 

Principal 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 Board has determined that the following are the principal risks facing the Group.

Demand for Vitec's products

Demand for our products may be adversely affected by many factors, including changes in customer and consumer preferences and our ability to deliver appropriate products or to support changes in technology. During the year we have continued to invest in new product development and launched a number of new products. Demand may also be impacted by competitor activity, particularly from low-cost countries.

We value our relationships with our customers and closely monitor our target markets and user requirements. We maintain good relationships with our key customers and make appropriate investments in product development and marketing activities to ensure that we remain competitive in these markets. In support of our new product launches, we have completed consumer research before developing new products to ensure that they are appropriately designed for our target markets. We are actively pursuing growth in selected emerging markets.

New markets and channels of distribution

As we enter new markets and channels of distribution we may achieve lower than anticipated trading volumes and pricing levels or higher costs and resource requirements. This may impact the levels of profitability and cash flows delivered. During the year we have seen a continuation of the trend of sales increasingly being made online rather than through stores. We have developed new routes-to-market in emerging markets, and introduced new products.

We have a thorough process for assessing and planning the entry into new markets and related opportunities. This includes marketing and advertising strategies for our products and services. We continuously assess our performance in these markets and the related opportunities and risks. We adapt our approach taking into account our actual and anticipated performance. We review our channels of distribution to make sure they remain appropriate.

Acquisitions

In pursuing our business strategy we continuously explore opportunities to enhance our business through development activities such as strategic acquisitions. This involves a number of calculated risks including: acquiring desired businesses on economically acceptable terms; integrating new businesses, employees, business systems and technology; and realising satisfactory post-acquisition performance. In 2014 we acquired Autocue, the speciality camera assets of SIS, and SmallHD, and those businesses are in the process of being integrated into the Broadcast Division.

We mitigate these risks by having a clear acquisition strategy with a robust valuation model. Thorough due diligence processes are completed including the use of external advisers where appropriate. There is a clear focus on integrating acquired businesses and monitoring post-acquisition performance.

Pricing pressure

We might experience pricing pressure including challenges in raising prices, especially in the current economic climate, or not recovering increases in commodity and other costs. If the price of our products does not at least recover movements in commodity costs and other expenses and we are unable to reduce our expenses, our results could be adversely affected.

We ensure that our product and service offering remains competitive by investing in new product development and in appropriate marketing and product support, and by improving the management of supply chain costs. This allows us to support price increases when required by working closely with our suppliers and managing our expenses and cost base appropriately. We are rationalising our product range to reduce complexity which will also allow us to achieve some cost saving on production.

Dependence on key suppliers

We source materials and components from many suppliers in various locations and in some instances are more dependent on a limited number of suppliers for particular items. If any of these suppliers or subcontractors fail to meet the Group's requirements, we may not have readily available alternatives, thereby impacting our ability to provide an appropriate level of customer service.

We aim to secure multiple sources of supply for all materials and components and develop strong relationships with our major suppliers. We review the performance of strategically important suppliers globally on an ongoing basis. Where economical we look to source materials closer to the manufacturing facilities to reduce lead times and improve control over the supply chain.

Dependence on key customers

Whilst the Group has a wide customer base, the loss of a key customer, or a significant worsening in their success or financial performance, could result in a material impact on the Group's results.  As in previous years, Vitec has no customer that accounts for more than 10% of sales. The business works with a variety of customers on large sporting events and the extent of these activities varies year-on-year.

We monitor closely our performance with all customers through developing strong relationships, and we monitor the financial performance of our key customers. We continue to expand our customer base including entering into new channels of distribution to expand our portfolio of customers.

People

We employ around 1,900 people and are exposed to a risk of being unable to retain or recruit suitable diverse talent to support the business. We manufacture and supply products from a number of locations and it is important that our people operate in a professional and safe environment.

We recognise that it is important to motivate and retain capable people across our businesses to ensure that we are not exposed to risk of unplanned staff turnover. We fairly reward our people and have appropriate staff recruitment, appraisal, talent management and succession planning strategies to ensure we recruit and retain good quality people and leadership across the business. We take our employees' health and safety very seriously and have appropriate processes in place to allow us to monitor and address any issues appropriately.

Laws and regulations

We are subject to a comprehensive range of legal obligations in all countries in which we operate. As a result, we are exposed to many forms of legal risk. These include, without limitation, regulations relating to government contracting rules, anti-bribery provisions, competition, and health and safety laws in numerous jurisdictions around the world. Failure to comply with such laws could significantly impact the Group's reputation and could expose the Group to fines and penalties. We may also incur additional cost from any legal action that is required to protect our intellectual property. 

We have resources dedicated to legal and regulatory compliance supported by external advice where necessary. We enhance our controls, processes and employee knowledge to maintain good governance and to comply with laws and regulations such as the provisions of the UK Bribery Act 2010. The Group has processes in place to ensure that its worldwide business units understand and apply the Group's culture and processes to their own operations. We actively protect our intellectual property, and will legally pursue any party that infringes our intellectual property rights.

Reputation of Vitec Group

Damage to our reputation and our brand names can arise from a range of events such as poor product performance, unsatisfactory customer service, and other events either within or outside our control.

We recognise the importance of our reputation and attempt to identify any potential issues quickly and address them appropriately. We recognise the importance of providing high quality products, good customer service and managing our business in a safe and professional manner. This requires all employees to commit to and comply with the Vitec Code of Business Conduct.

Exchange rates

The global nature of the Group's business means it is exposed to volatility in currency exchange rates in respect of foreign currency denominated transactions, and the translation of net assets and income statements of foreign subsidiaries and equity accounted investments. The Group is exposed to a number of foreign currencies, the most significant being the US Dollar, Euro and Japanese Yen.

We regularly review and assess our exposure to changes in exchange rates. We reduce the impact of sudden movements in exchange rates with the use of appropriate hedging activities on forecast foreign exchange net exposures. We do not hedge the translation effect of exchange rate movements on the Income Statement or Balance Sheet of overseas subsidiaries.

Business Continuity Planning

There are risks relating to business continuity resulting from specific events that may impact our manufacturing plants or supply chain, particularly where these account for a significant amount of our trading activity. We are also dependent on our IT platforms continuing to work effectively in supporting our business.

We address this risk with Business Continuity Plans and Disaster Recovery Plans at our key sites, and by carrying out periodic IT vulnerability assessments. We have global insurance schemes in place which provide cover for business interruption.

 

Board Changes

Nigel Moore will not be standing for re-appointment at the Company's AGM on Tuesday, 12 May 2015 having reached the end of his term of office. He will therefore cease to be a Director at the close of the AGM having first been appointed to the Board in March 2004. The Board would like to thank Nigel for his considerable contribution to the success of the Group over his tenure including as Chairman of the Audit Committee since March 2004 and Senior Independent Director since May 2011.

            To succeed Nigel, the Board has decided that Christopher Humphrey will become Chairman of the Audit Committee with effect from the close of the 2015 AGM. Christopher is a Chartered Management Accountant who is currently Chief Executive of Anite plc and has the required skills and relevant financial experience to chair the Audit Committee. We also propose that Mark Rollins will succeed Nigel as Senior Independent Director. Mark has extensive experience as a director of listed companies with a wide experience of shareholder matters during his most recent role as Chief Executive of Senior plc.

Outlook

We achieved significant strategic progress in 2014 and focused the Group on its core Broadcast and Photographic activities. Vitec is well positioned to benefit from any upturn in its markets. Whilst some markets remain challenging, the Board remains confident about the prospects for the Group.

Going Concern

The Directors have made appropriate enquiries and consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

 

John McDonough CBE

Stephen Bird

Chairman

Group Chief Executive

 

Consolidated Income Statement

For the year ended 31 December 2014

 



2014

2013


Notes

 £m

 £m

Revenue


309.6

315.4

Cost of sales


(181.7)

(181.3)

Gross profit


127.9

134.1

Operating expenses


(100.3)

(109.8)

Operating profit


27.6

24.3

Comprising 




- Operating profit before restructuring costs and charges associated with acquired businesses


38.8

39.5

- Restructuring costs

2

(2.7)

(11.4)

- Charges associated with acquired businesses

2

(8.5)

(3.8)



27.6

Net finance expense

3

(3.5)

(3.9)

Loss on disposal of business

8

(4.0)

-

Profit before tax


20.1

20.4

Comprising 




- Profit before tax, excluding restructuring costs, charges associated with acquired businesses and disposal of business


35.3

35.6

- Restructuring costs

2

(2.7)

(11.4)

- Charges associated with acquired businesses

2

(8.5)

(3.8)

- Loss on disposal of business

8

(4.0)

-



20.1

20.4

Taxation

4

(7.1)

(6.4)

Profit for the year attributable to owners of the parent


13.0

14.0

Adjusted earnings per share (see note 5)




Basic earnings per share


55.9p

56.1p

Diluted earnings per share


55.8p

55.9p





Earnings per share (see note 5)




Basic earnings per share


 29.4p

 31.9p

Diluted earnings per share


 29.3p

 31.8p





Dividends per ordinary share (see note 6)




Prior year final paid 14.1p


£6.2m


Current year interim paid 9.3p


£4.1m


Current year final proposed 14.7p


£6.5m










Average exchange rates




      Euro


1.24

1.17

      US$


1.65

1.56

 

 

Consolidated Statement of Comprehensive Income

 

 

For the year ended 31 December 2014

 

 

 

2014

2013

 

 £m

 £m

Profit for the year

13.0

14.0

Other comprehensive income:

 

 

Items that will not be reclassified to profit or loss:

 

 

Remeasurements of defined benefit obligation

1.1

0.1

Related tax

(0.2)

(0.3)

Items that are or may be reclassified to profit or loss:

 

 

Foreign exchange gain recycled to the Income Statement on disposal of business

(5.2)

-

Currency translation differences on foreign currency subsidiaries

4.5

(2.8)

Net investment hedges - net (loss)/gain

(2.0)

0.5

Cash flow hedges - reclassified to the Income Statement

(2.2)

(1.5)

Cash flow hedges - effective portion of changes in fair value

(2.0)

2.6

Related tax

1.3

(0.3)

Other comprehensive expense, net of tax

(4.7)

(1.7)

Total comprehensive income for the year attributable to owners of the parent

8.3

12.3

 

 

 

 

 

Consolidated Balance Sheet

As at 31 December 2014

 



2014

2013



 £m

 £m

Assets




Non-current assets




Intangible assets


87.1

76.3

Property, plant and equipment


54.8

53.5

Trade and other receivables


0.5

0.4

Derivative financial instruments


-

1.0

Deferred tax assets


14.2

14.0



156.6

145.2

Current assets




Inventories


55.0

55.3

Trade and other receivables


51.1

48.5

Derivative financial instruments


1.5

2.5

Current tax assets


1.0

2.7

Cash and cash equivalents


9.2

12.9



117.8

121.9

Total assets


274.4

267.1

Liabilities




Current liabilities




Bank overdrafts


1.3

-

Interest-bearing loans and borrowings


0.1

-

Trade and other payables


46.3

48.1

Derivative financial instruments


2.5

0.1

Current tax liabilities


6.1

5.2

Provisions


9.2

6.5



65.5

59.9

Non-current liabilities




Interest-bearing loans and borrowings


78.7

74.4

Other payables


-

0.8

Post-employment obligations 


7.7

9.1

Provisions


2.1

1.4

Deferred tax liabilities


1.8

1.3



90.3

87.0

Total liabilities


155.8

146.9





Net assets


118.6

120.2





Equity




Share capital


8.9

8.8

Share premium


13.4

12.1

Translation reserve


(7.0)

(4.3)

Capital redemption reserve


1.6

1.6

Cash flow hedging reserve


(0.6)

2.3

Retained earnings


102.3

99.7

Total equity


118.6

120.2





Balance Sheet exchange rates




      Euro


1.29

1.20

      US$


1.56

1.66

 

Consolidated Statement of Changes in Equity

 

 

 Share capital

 Share premium 

 Translation reserve

 Capital redemption reserve

 Cash flow hedging reserve

 Retained earnings

 Total equity

 

 £m

 £m

 £m

 £m

 £m

 £m

 £m

Balance at 1 January 2014

8.8

12.1

(4.3)

1.6

2.3

99.7

120.2

Total comprehensive income for the year

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

13.0

13.0

Other comprehensive income/(expense) for the year

-

-

(2.7)

-

(2.9)

0.9

(4.7)

Contributions by and distributions to owners

 

 

 

 

 

 

 

Dividends paid

-

-

-

-

-

(10.3)

(10.3)

Own shares purchased

-

-

-

-

-

(1.5)

(1.5)

Share-based payment charge, net of tax

-

-

-

-

-

0.5

0.5

New shares issued (1)

0.1

1.3

-

-

-

-

1.4

Balance at 31 December 2014

8.9

13.4

(7.0)

1.6

(0.6)

102.3

118.6

 

 

 Share capital

 Share premium 

 Translation reserve

 Capital redemption reserve

 Cash flow hedging reserve

 Retained earnings

 Total equity

 

 £m

 £m

 £m

 £m

 £m

 £m

 £m

Balance at 1 January 2013

8.8

10.4

(2.0)

1.6

1.5

94.3

114.6

Total comprehensive income for the year

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

14.0

14.0

Other comprehensive income/(expense) for the year

-

-

(2.3)

-

0.8

(0.2)

(1.7)

Contributions by and distributions to owners

 

 

 

 

 

 

 

Dividends paid

-

-

-

-

-

(9.8)

(9.8)

Own shares purchased

-

-

-

-

-

(1.5)

(1.5)

Share-based payment charge, net of tax

-

-

-

-

-

2.9

2.9

New shares issued (1)

-

1.7

-

-

-

-

1.7

Balance at 31 December 2013

8.8

12.1

(4.3)

1.6

2.3

99.7

120.2

 (1) In 2014, the contingent consideration of Teradek was satisfied in part by the issue of new Vitec ordinary shares worth £0.5 million. In 2013, the acquisition of Teradek was funded in part by the issue of new Vitec ordinary shares worth £1.3 million.

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2014

 



2014

2013


 Notes

 £m

 £m

Cash flows from operating activities 




Profit for the year


13.0

14.0

Adjustments for:




Taxation


7.1

6.4

Depreciation


14.2

12.4

Amortisation of intangible assets


5.3

4.5

Net gain on disposal of property, plant and equipment and software


(2.1)

(2.1)

Fair value gains on derivative financial instruments


0.2

-

Share-based payment charge


0.5

1.4

Fair value adjustment to contingent consideration since date of acquisition


4.2

0.8

Disposal of business


4.0

-

Net finance expense


3.5

3.9

Operating profit before changes in working capital and provisions 


49.9

41.3

(Increase)/decrease in inventories


(2.1)

4.9

(Increase)/decrease in receivables


(2.7)

1.8

(Decrease)/increase in payables


(2.1)

3.1

(Decrease)/increase in provisions


(1.0)

1.3

Cash generated from operating activities


42.0

52.4

Interest paid


(3.3)

(3.6)

Tax paid


(3.5)

(8.5)

Net cash from operating activities


35.2

40.3





Cash flows from investing activities 




Proceeds from sale of property, plant and equipment and software


5.2

3.8

Purchase of property, plant and equipment


(17.5)

(19.3)

Capitalisation of software and development costs


(4.7)

(3.4)

Acquisition of businesses, net of cash acquired

7

(13.3)

(8.5)

Disposal of business

8

(1.3)

-

Net cash used in investing activities


(31.6)

(27.4)





Cash flows from financing activities 




Proceeds from the issue of shares


0.9

0.4

Own shares purchased


(1.5)

(1.5)

Proceeds from interest-bearing loans and borrowings


2.4

1.9

Dividends paid


(10.3)

(9.8)

Net cash used in financing activities


(8.5)

(9.0)





(Decrease)/increase in cash and cash equivalents  

       

(4.9)

3.9

Cash and cash equivalents at 1 January


12.9

9.3

Effect of exchange rate fluctuations on cash held 


(0.1)

(0.3)

Cash and cash equivalents at 31 December

9

7.9

12.9

 

Segment reporting

The Group has two reportable segments which are reported in a manner that is consistent with the internal reporting provided to the Chief Operating Decision Maker (considered to be the Board). Further details on the nature of these segments and the products and services they provide are contained in the Strategic Report.

 


Broadcast (1)

Photographic (2)

 Corporate and unallocated

 Consolidated


Videocom

 Services

 Total Broadcast





2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013


 £m

 £m

 £m

 £m

 £m

 £m

 £m

 £m

 £m

 £m

 £m

 £m

Revenue from external customers:













Sales

133.4

140.0

12.7

9.4

146.1

149.4

130.9

141.2

-

-

277.0

290.6

Services

6.1

3.1

26.5

21.7

32.6

24.8

-

-

-

-

32.6

24.8

Total revenue from external customers

139.5

143.1

39.2

31.1

178.7

174.2

130.9

141.2

-

-

309.6

315.4

Inter-segment revenue (3)

1.6

2.2

0.1

-

1.7

2.2

0.3

0.6

(2.0)

(2.8)

-

-

Total revenue

141.1

145.3

39.3

31.1

180.4

176.4

131.2

141.8

(2.0)

(2.8)

309.6

315.4














Segment result

17.5

17.9

2.4

1.5

19.9

19.4

18.9

20.1

-

-

38.8

39.5

Restructuring costs

(1.4)

(5.3)

-

(0.5)

(1.4)

(5.8)

(1.3)

(5.6)

-

-

(2.7)

(11.4)

Fair value adjustment to contingent consideration since date of acquisition

(4.2)

(0.8)

-

-

(4.2)

(0.8)


-

-

-

(4.2)

(0.8)

Transaction costs relating to acquisitions

(0.9)

(0.4)

-

-

(0.9)

(0.4)

-

-

-

-

(0.9)

(0.4)

Amortisation of acquired intangible assets

(3.0)

(2.2)

-

-

(3.0)

(2.2)

(0.4)

(0.4)

-

-

(3.4)

(2.6)

Operating profit

8.0

9.2

2.4

1.0

10.4

10.2

17.2

14.1

-

-

27.6

24.3

Net finance expense











(3.5)

(3.9)

Loss on disposal of IMT business (1)











(4.0)

-

Taxation











(7.1)

(6.4)

Profit for the year











13.0

14.0














Segment assets

130.6

120.5

31.4

26.2

162.0

146.7

84.9

85.5

3.1

5.3

250.0

237.5

Unallocated assets













Cash and cash equivalents









9.2

12.9

9.2

12.9

Current tax assets









1.0

2.7

1.0

2.7

Deferred tax assets









14.2

14.0

14.2

14.0

Total assets











274.4

267.1

Segment liabilities

27.8

27.0

4.3

6.6

32.1

33.6

25.2

25.3

10.5

7.1

67.8

66.0

Unallocated liabilities













Bank overdrafts









1.3

-

1.3

-

Interest-bearing loans and borrowings









78.8

74.4

78.8

74.4

Current tax liabilities









6.1

5.2

6.1

5.2

Deferred tax liabilities









1.8

1.3

1.8

1.3

Total liabilities











155.8

146.9














Cash flows from operating activities

14.4

14.8

3.8

6.8

18.2

21.6

14.6

15.3

2.4

3.4

35.2

40.3

Cash flows from investing activities

(19.1)

(13.5)

(7.9)

(7.8)

(27.0)

(21.3)

(4.4)

(5.8)

(0.2)

(0.3)

(31.6)

(27.4)

Cash flows from financing activities

-

-

-

-

-

-

0.9

-

(9.4)

(9.0)

(8.5)

(9.0)

Capital expenditure













Property, plant and equipment

2.2

3.7

12.8

11.4

15.0

15.1

2.5

4.2

-

-

17.5

19.3

Software and development costs

2.6

1.7

0.1

0.1

2.7

1.8

2.0

1.6

-

-

4.7

3.4

 

(1) The Broadcast Division was previously presented as the Videocom and Services Divisions, and is now managed as one Division. Videocom Division and Services Division have been disclosed separately for comparative purposes. This includes IMT business which was previously recorded within Videocom Division and was sold by the Group during the second half of 2014.

(2) Photographic Division was previously called Imaging Division.

(3) Inter-segment pricing is determined on an arm's length basis.

No individual customer accounted for more than 10% of external revenue in either 2014 or 2013.

 

Geographical segments

 

 


2014

2013

 


 £m

 £m

 

Analysis of revenue from external customers, by location of customer



 

United Kingdom

27.6

26.5

 

The rest of Europe

69.7

71.6

 

North America

143.3

142.0

 

Asia Pacific

53.3

56.8

 

The rest of the World

15.7

18.5

 

Total revenue from external customers

309.6

315.4

 

The Group's operations are located in several geographical locations, and sell products and services on to external customers in all parts of the world.

 

1 Accounting policies

 

Basis of consolidation

 

Subsidiaries are entities that are directly or indirectly controlled by the Group.  Control exists when the Group has the rights to variable returns from its involvement with an entity and has the ability to affect those returns through its power over the entity.  The results of subsidiaries sold or acquired during the year are included in the accounts up to, or from, the date that control exists.

 

New standards and interpretations not yet adopted

 

There are no new standards, amendments to standards or interpretations which are expected to have a significant impact on the financial statements of the Group for the year ended 31 December 2014 or in the foreseeable future.

 

2 Restructuring costs and charges associated with acquired businesses

 

Restructuring costs and charges associated with acquired businesses are excluded from key performance measures in order to more accurately show the underlying current business performance of the Group in a consistent manner. This also reflects how the business is managed and measured on a day-to-day basis. Restructuring costs include employment termination and other site rationalisation costs. Charges associated with acquired businesses include non-cash charges such as amortisation of acquired intangible assets, and cash charges such as transaction costs and fair value adjustments to contingent consideration since date of acquisition.

 


2014

2013

 


 £m

 £m

 

Restructuring costs (1)

(2.7)

(11.4)

 




 

Fair value adjustment to contingent consideration since date of acquisition (2)

(4.2)

(0.8)

 

Transaction costs relating to acquisitions (3)

(0.9)

(0.4)

 

Amortisation of acquired intangible assets

(3.4)

(2.6)

 

Charges associated with acquired businesses

(8.5)

(3.8)

 

(1)  One-off restructuring costs of £2.7 million primarily relate to the Group streamlining certain operations by downsizing selected activities mainly in the US and Israel. This includes employment termination costs of £0.9 million and other site rationalisation costs of £1.8 million. These actions have better positioned the Group for the future.

 

(2)  A charge of £4.2 million (US$7.0 million) has been recorded in respect of contingent consideration of Teradek, a prior period acquisition.

 

(3) Transaction costs of £0.9 million (SIS: £0.1 million, Autocue: £0.6 million, SmallHD: £0.2 million) were incurred in relation to acquisitions in the year. See note 7 "Acquisitions".

 

3 Net finance expense

 

 


2014

2013

 


 £m

 £m

 

Finance income



 

Other interest receivable

0.3

-

 

Net currency translation gains

0.1

-

 


0.4

-

 

Finance expense



 

Interest payable on interest-bearing loans and borrowings

(3.6)

(3.6)

 

Net interest expense on net defined benefit pension scheme liabilities

(0.3)

(0.3)

 


(3.9)

(3.9)

 

Net finance expense

(3.5)

(3.9)

 

 

4 Taxation

 


2014

2013


 £m

 £m

The total taxation charge/(credit) in the Income Statement is analysed as follows:



Before restructuring costs, charges associated with acquired businesses and disposal of business



Current tax

7.0

11.2

Deferred tax

3.6

(0.2)


10.6

11.0

Restructuring costs, charges associated with acquired businesses and disposal of business



Current tax (1)

(0.7)

(4.6)

Deferred tax (2)

(2.8)

-


(3.5)

(4.6)

Summarised in the Income Statement as follows



Current tax

6.3

6.6

Deferred tax

0.8

(0.2)


7.1

6.4

(1) Current tax credits of £0.7 million (2013 £4.6 million) were recognised in respect of restructuring costs and charges associated with acquired businesses and disposal of businesses.  This tax credit is split between restructuring costs of £0.4 million (2013 £3.5 million) and amortisation of intangible assets in the period of £0.3 million (2013 £1.1 million).

(2) Deferred tax credits of £2.8 million (2013 £nil) were recognised in respect of restructuring costs and charges associated with acquired businesses and disposal of businesses.   This is made up of £1.6 million in respect of acquisitions (including the Teradek earnout), £0.3 million in respect of restructuring costs and £0.9 million in respect of amortisation of intangible assets. 

 

 

5 Earnings per share

Earnings per share ("EPS") is the amount of post-tax profit attributable to each share.

Basic EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue during the year.

Diluted EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue during the year, 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 restructuring costs, charges associated with acquired businesses and disposal of business, all net of tax.


The calculation of basic, diluted and adjusted EPS is set out below:


2014

2013


 £m

 £m

Profit for the financial year

13.0

14.0

Add back:



Restructuring costs and charges associated with acquired businesses, net of tax

7.7

10.6

Loss on disposal of IMT business, net of tax

4.0

-

Earnings before restructuring costs, charges associated with acquired businesses and disposal of business

24.7

24.6



2014

2013

2014

2013

2014

2013


 No

 No

 pence

 pence

 pence

 pence


Weighted average number of shares '000

Adjusted earnings per share

Earnings per share

Basic

44,190

43,869

55.9

56.1

29.4

31.9

Dilutive potential ordinary shares

68

204

(0.1)

(0.2)

(0.1)

(0.1)

Diluted

44,258

44,073

55.8

55.9

29.3

31.8

 

 

6 Dividends

After the Balance Sheet date the following final dividend for the year ended 31 December 2014 was recommended by the Directors and subject to approval by shareholders at the AGM on 12 May 2015 will be paid on 15 May 2015. The dividend has not been provided for at the year end and there are no tax consequences.


2014

2013


 £m

 £m

14.7p per ordinary share (2013: 14.1p per ordinary share)

6.5

6.2

 

 

7 Acquisition

Acquisitions are accounted for under the acquisition method of accounting.  As part of the acquisition accounting the Group has adopted a process to identify the fair values of the assets acquired and liabilities assumed, including the separate identification of intangible assets and to allocate the consideration paid.  This process continues as information is finalised, and accordingly the fair value adjustments presented in the tables below are provisional. In accordance with IFRS 3 until the assessment is complete the allocation period will remain open up to a maximum of twelve months from the acquisition date so long as information remains outstanding. Acquisition-related costs are recognised in the Income Statement as incurred in accordance with IFRS 3.

Acquisition of SIS

On 24 March 2014, the Broadcast Division of the Group acquired the assets of the Speciality Cameras division of SIS Outside Broadcasts Limited (SIS) through a business combination for a cash consideration of £1.8 million.

The acquired speciality camera assets are renowned for the innovative solutions that deliver viewers to the heart of live events. The acquisition complements the Group's existing range of broadcast equipment and its products will be marketed through the Group's global distribution network.

Under the terms of the acquisition, there is a potential contingent consideration of up to £1.4 million that is dependent on the performance against demanding revenue targets for certain future events by the year 2017. Management's assessment at the acquisition date is that £nil will be payable. Any payment that would be made shall be charged to the Income Statement as and when incurred.

A summary of the effect of the acquisition of SIS is detailed below:

 Book value at acquisition

 Provisional fair value adjustments

 Fair value of net assets acquired


 £m

 £m

 £m

Net Assets acquired




Intangible assets

-

0.4

0.4

Property, plant and equipment

1.2

-

1.2


1.2

0.4

1.6

Goodwill



0.2

Consideration satisfied from existing cash resources



1.8

No net deferred tax asset or liability has arisen on the net assets acquired.

Acquisition of Autocue

On 6 October 2014, the Group acquired the whole of the issued and to be issued share capital of Autocue Group Limited (Autocue), a private company based in the UK, for a net cash consideration of £6.1 million after taking account of £2.4 million of cash in the business at acquisition date.

Autocue is a long established and highly respected brand of teleprompting hardware and software. The acquisition complements the Group's existing Autoscript business and enables it to diversify its product base by extending its range of prompting solutions from broadcast to pro-videography. Autocue operates within the Broadcast Division. 

 

 

A summary of the effect of the acquisition Autocue is detailed below:


 Book value at acquisition

 Provisional fair value adjustments

Fair value of net assets acquired


 £m

 £m

 £m

Net Assets acquired




Intangible assets

-

3.6

3.6

Inventories

0.3

-

0.3

Trade and other receivables

0.5

-

0.5

Trade and other payables

(0.5)

-

(0.5)

Corporation tax receivable

0.1

-

0.1

Cash

2.4

-

2.4

Deferred tax

-

(0.7)

(0.7)


2.8

2.9

5.7

Goodwill

2.8

Consideration satisfied from existing cash resources

8.5

The trade receivables acquired had a fair value and a gross contractual value of £0.4 million.

Acquisition of SmallHD

On 10 December 2014, the Group acquired the net assets of SmallHD, based in the US, through a business combination for an initial cash consideration of US$4.6 million (£2.9 million).

SmallHD is a leading provider of high-quality and high-definition on-camera field monitors used by broadcasters and independent content creators. The acquisition complements the Group's existing video activities, including Teradek, which serves a similar customer base and its products will be marketed through the Group's global sales and distributor network. SmallHD operates within the Broadcast Division.      

Under the terms of the acquisition, there is a potential contingent consideration of up to US$25.4 million (£16.3 million) that is dependent on the performance against demanding EBITDA targets over the two and a half year period to 30 June 2017. Management's assessment at the acquisition date is that £nil is payable for this period to 30 June 2017. This reflects that these targets are over and above those included in the Board approved acquisition projections. Any payment that would be made relating to this period shall be charged to the Income Statement as and when incurred.

A summary of the effect of the acquisition SmallHD is detailed below:


 Book value at acquisition

 Provisional fair value adjustments

Fair value of net assets acquired


£m

£m

£m

Net Assets acquired




Intangible assets

-

1.8

1.8

Property, plant and equipment

0.3


0.3

Inventories

1.3

-

1.3

Trade and other receivables

0.2

-

0.2

Trade and other payables

(0.8)


(0.8)


1.0

1.8

2.8

Goodwill



0.1

Consideration satisfied from existing cash resources



2.9

The trade receivables acquired had a fair value and a gross contractual value of £0.1 million. No net deferred tax asset or liability has arisen on the net assets acquired.

 

 

The results of the acquisitions made during the period have been included in the Broadcast Division and comprise of the following.


SIS

Autocue

SmallHD


 £m

 £m

 £m

Revenue

0.5

0.7

0.2

Operating profit (1)

-

-

-

Had the acquisitions been made at the beginning of the year (i.e. 1 January 2014), they would have contributed £10.7 million (SIS: £0.6 million, Autocue: £3.9 million, SmallHD: £6.2 million) to revenue and £0.7 million (SIS: £0.1 million, Autocue: £0.6 million, SmallHD: £nil) to the operating profit (1) of the Group.

(1) Operating profit is stated before amortisation of intangible assets and after allocation of Head Office costs.

An analysis of the cash flows relating to acquisitions is provided below:


2014


 £m

Net outflow of cash in respect of acquisitions


Cash consideration

13.2

Transaction costs

0.9

Cash acquired

(2.4)

Net cash outflow in respect of 2014 acquisitions

11.7

Cash paid in relation to Haigh-Farr, acquired in December 2011

0.7

Cash paid in relation to Teradek, acquired in August 2013 (2)

1.8

Cash paid in 2014 in respect of contingent consideration for prior year acquisitions

2.5

Net cash outflow in respect of acquisitions (3)

14.2

(2)  During the year US$2.9 million (£1.8 million) was paid in cash and a further US$0.8 million (£0.5 million) was satisfied by the issue of 72,933 new Vitec ordinary shares in relation to Teradek.

(3)  Of the £14.2 million net cash outflow in respect of acquisitions, transaction costs of £0.9 million are included in cash flows from operating activities and the net cash consideration paid of £13.3 million is included in cash flows from investing activities.

 

 

8 Disposals

On 3 November 2014, the Group sold its IMT business which was based in the US and was included in the Broadcast Division. The disposal enables Management to place greater focus on opportunities in its core activities in the Broadcast and Photographic Divisions.

A loss of £4.0 million arose on disposal after taking into account impairment and exit costs together with the net assets disposed (£9.5 million including £4.6 million of inventories) offset by cash consideration (£0.3 million) and the previously recorded foreign exchange gain that has been recycled to the Income Statement (£5.2 million). The total net cash outflow, after exit costs, is expected to be £3.8 million of which £1.3 million was paid in the period, and the remaining £2.5 million, of which £1.8 million ($2.9 million) relates to the onerous lease provision, is expected to be paid by the end of 2016.

 

 

 

9 Analysis of net debt



The table below analyses the Group's components of net debt and their movements in the year.


2014

2013


 £m

 £m

(Decrease)/increase in cash and cash equivalents

(4.9)

3.9

Proceeds from interest-bearing loans and borrowings

(2.4)

(1.9)

(Increase)/decrease in net debt resulting from cash flows

(7.3)

2.0

Effect of exchange rate fluctuations on cash held

(0.1)

(0.3)

Effect of exchange rate fluctuations on debt held

(2.0)

0.5

Effect of exchange rate fluctuations on net debt

(2.1)

0.2

Movements in net debt in the year

(9.4)

2.2

Net debt at 1 January

(61.5)

(63.7)

Net debt at 31 December 

(70.9)

(61.5)




Cash and cash equivalents in the Balance Sheet

9.2

12.9

Bank overdrafts

(1.3)

-

Cash and cash equivalents in the Statement of Cash Flows

7.9

12.9

Interest-bearing loans and borrowings

(78.8)

(74.4)

Net debt at 31 December

(70.9)

(61.5)

 

 

10 Financial instruments

This provides details on:

   - Financial risk management

   - Derivative financial instruments

   - Fair value hierarchy

   - Interest rate profile

   - Maturity profile of financial liabilities


Financial risk management

The Group's multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the Group is exposed to foreign currency risk, interest rate risk, liquidity risk and credit risk.

Financial risk management is an integral part of the way the Group is managed. Financial risk management policies are set by the Board of Directors. These policies are implemented by a central treasury department that has formal procedures to manage foreign currency risk, interest rate risk and liquidity risk, including, where appropriate, the use of derivative financial instruments. The Group has clearly defined authority and approval limits built into these procedures.


Foreign currency risk

Foreign currency risk arises both where sale or purchase transactions are undertaken in currencies other than the respective functional currencies of Group companies (transactional exposures) and where the results of overseas companies are consolidated into the Group's reporting currency of Sterling (translational exposures).

The Group has businesses that operate around the world and accordingly record their results in a number of different functional currencies. Some of these operations also have some customers or suppliers that transact in a foreign currency.  The Group's results which are reported in Sterling are therefore exposed to changes in foreign currency exchange rates across a number of different currencies with the most significant exposures relating to the US Dollar (USD), Euro (EUR) and Japanese Yen (JPY). The Group pro-actively manages a proportion of its short-term transactional foreign currency exposures using derivative financial instruments, but remains exposed to the underlying translational movements which remain outside the control of the Group.

The Group manages its transactional exposures to foreign currency risks through the use of forward exchange contracts including the US Dollar, Euro and Japanese Yen. Forward exchange contracts are typically used to hedge approximately 75% of the Group's forecasted foreign currency exposure in respect of forecast cash transactions for the following 12 months. Forward exchange contracts may also be used to hedge a proportion of the forecast cash transactions for the following 13 to 24 months. The forward exchange contracts currently have maturities of less than one year at the Balance Sheet date.

The Group's translational exposures to foreign currency risks relate to both the Income Statement and net assets of overseas subsidiaries which are converted into Sterling on consolidation. The Group does not seek to hedge the translational exposure that arises primarily to changes in the exchange rates of the US Dollar, Euro and Japanese Yen against Sterling. However the Group does finance overseas investments partly through the use of foreign currency borrowings in order to provide a net investment hedge over the foreign currency risk that arises on translation of its foreign currency subsidiaries.

The Group ensures that its net exposure to foreign denominated cash balances is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.  In addition the Group manages the denomination of surplus cash balances across the overseas subsidiaries to allow natural hedging where effective in any particular country.

It is estimated that the Group's operating profit before restructuring costs and charges associated with acquired businesses for the year ended 31 December 2014 would have increased/decreased by approximately £1.7 million from a ten cent stronger/weaker US Dollar against Sterling, by approximately £1.3 million from a ten cent stronger/weaker Euro against Sterling and by approximately £0.3 million from a ten Yen stronger/weaker Japanese Yen against Sterling. This reflects the impact of the sensitivities to the translational exposures and to the proportion of the transactional exposures that is not hedged. The Group, in accordance with its policy, does not use derivatives to manage the translational risks.  During 2014 the Group's operating profit benefitted from a net gain of £1.8 million (2013: £1.7 million loss) upon the crystallisation of forward exchange contracts as described later in this note.

 

Interest rate risk 

Interest rate risk comprises of both the interest rate price risk that results from borrowing at fixed rates of interest and also the interest cash flow risk that results from borrowing at variable rates.

For the year ended 31 December 2014, it is estimated that a general increase/decrease of one percentage point in interest rates, would decrease/increase the Group's profit before tax by approximately £0.8 million. 

 

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group has signed a five year £100 million Multicurrency Revolving Credit Facility Agreement with a syndicate comprising of five banks: three UK banks, one American bank, and one European bank, that expires in July 2017. The Group was utilising 46% of the £100 million Multicurrency Revolving Credit Facility at 31 December 2014. In 2011 the Group drew down US$50 million from a Private Placement shelf facility with repayment due in May 2017.

 

Credit risk

Credit risk arises because a counterparty may fail to meet its obligations. The Group is exposed to credit risk on financial assets such as trade receivables, cash balances and derivative financial instruments. The Group's maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the Group Balance Sheet.

a) Trade receivables

The Group's credit risk is primarily attributable to its trade receivables. Trade receivables are subject to credit limits, and control and approval procedures in the operating companies. Due to its large geographic base and number of customers, the Group is not exposed to material concentrations of credit risk on its trade receivables.

b) Cash balances and derivative financial instruments

Credit risk associated with cash balances is managed by transacting with a number of major financial institutions worldwide and periodically reviewing their credit worthiness. Transactions involving derivative financial instruments are managed centrally. These are only with banks that are part of the Group's £100 million Multicurrency Revolving Credit Facility Agreement. Accordingly, the Group's associated credit risk is limited. The Group has no significant concentration of credit risk.

Derivative financial instruments

This is a summary of the derivative financial instruments that the Group holds and uses to manage risk. The value of these derivatives changes over time in response to underlying variables such as exchange rates and are carried in the Balance Sheet at fair value.

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.

 

Accounting policies

Derivative financial instruments

In accordance with Board approved policies, the Group uses derivative financial instruments such as forward foreign exchange contracts to hedge its exposure to fluctuations in foreign exchange rates arising from operational activities. These are designated as cash flow hedges. It does not hold or use derivative financial instruments for trading or speculative purposes.  

Cash flow hedge accounting

Cash flow hedges are used to hedge the variability in cash flows of highly probable forecast transactions or a recognised asset or liability, caused by changes in exchange rates.

Where a derivative financial instrument is designated in a cash flow hedge relationship with a highly probable forecast transaction, the effective part of any change in fair value arising is deferred in the Cash flow hedging reserve within Equity, via the Statement of Comprehensive Income. The gain or loss relating to the ineffective part is recognised in the Income Statement within net finance expense. Amounts deferred in the cash flow hedging reserve are reflected in the Income Statement in the periods when the hedged item is recognised in the Income Statement.

If a hedging instrument expires or is sold but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs.  If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the Income Statement.

Where a derivative is used to hedge economically the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the Income Statement.

If a derivative financial instrument is not formally designated in a cash flow hedge relationship, any change in fair value is recognised in the Income Statement. 

Forward exchange contracts

The following table shows the forward exchange contracts in place at the Balance Sheet date. These contracts mature in the next 12 months, therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 12 months.


As at 31 December

Average exchange rate of contracts

As at 31 December

Average exchange rate of contracts


2014

2014 

2013

2013 


 currency

millions


millions


Cash flow hedging contracts






USD  / GBP forward exchange contracts

USD

14.8

1.62

13.5

1.56

USD  / EUR forward exchange contracts

USD

36.0

1.33

56.2

1.32

EUR / GBP forward exchange contracts

EUR

17.4

1.21

17.2

1.20

JPY / GBP forward exchange contracts

JPY

459.0

163.6

506.9

143.7

JPY / EUR forward exchange contracts

JPY

629.0

136.7

618.0

121.5

A net gain of £1.8 million (2013: £1.7 million gain) relating to forward exchange contracts that crystallised during the year was charged to the Income Statement.

Fair value hierarchy

The following summarises financial instruments carried at fair values and the major methods and assumptions used in estimating these fair values. 

The different levels of fair value hierarchy have been defined as follows:

Level 1

Fair value measured using quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2

Fair values measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3

Fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs)

The table below shows the carrying values and fair values of financial assets and liabilities.


 Carrying value

 Fair value 

 Carrying value

 Fair value 

 


2014

2014

2013

2013

 


 £m

 £m

 £m

 £m

 

Forward exchange contracts - Assets

1.5

1.5

3.5

3.5

 

Forward exchange contracts - Liabilities

(2.5)

(2.5)

(0.1)

(0.1)

 

Cash at bank and in hand

9.2

9.2

12.9

12.9

 

Net trade receivables

37.2

37.2

35.8

35.8

 

Trade payables

(26.5)

(26.5)

(25.1)

(25.1)

 

Fixed rate borrowings

(33.0)

(34.1)

(30.2)

(31.7)

 

Floating rate borrowings

(47.1)

(47.1)

(44.2)

(44.2)

 


(61.2)

(62.3)

(47.4)

(48.9)

 

The fair value of floating rate borrowings approximates to the carrying value because interest rates are at floating rates where payments are reset to market rates at intervals of less than one year.

The fair value of fixed rate borrowings is estimated by discounting the future contracted cash flow, using appropriate yield curves, to the net present values.

All financial instruments are deemed Level 2.

Interest rate profile

The table below analyses the Group's interest rate exposure arising from bank loans by currency

Accounting policies

Net investment hedge accounting

The Group uses US Dollar, Euro and Japanese Yen denominated borrowings as a hedge against the translation exposure on the Group's net investment in overseas companies.

Where the hedge is fully effective at hedging the variability in the net assets of such companies caused by changes in exchange rates, the changes in value of the borrowings are recognised in the translation reserve within Equity, via the Statement of Comprehensive Income. The ineffective part of any change in value caused by changes in exchange rates is recognised in the Income Statement.

The effective portion will be recycled into the Income Statement on the sale of the foreign operation.

Interest bearing loans and borrowings

The table below analyses the Group's interest bearing loans and borrowings, by currency.


 Total

 Fixed rate borrowings

 Floating rate borrowings

Currency

 £m

 £m

 £m

US Dollar

47.5

32.1

15.4

Euro

25.7

0.9

24.8

Sterling

5.3

-

5.3

Japanese Yen

1.6

-

1.6

At 31 December 2014

80.1

33.0

47.1

US Dollar

44.1

30.2

13.9

Euro

16.6

-

16.6

Sterling

12.0

-

12.0

Japanese Yen

1.7

-

1.7

At 31 December 2013

74.4

30.2

44.2


The floating rate borrowings comprise borrowings bearing interest at rates based on LIBOR. The fixed rate borrowings in US Dollar are due for repayment on 11 May 2017.


 

 

Maturity profile of financial liabilities

The table below analyses the Group's financial liabilities and derivative financial liabilities into relevant maturity groupings based on the period remaining until the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows (including interest), so will not always reconcile with the carrying amounts disclosed on the Balance Sheet.

The following are the contractual maturities of financial liabilities, including undiscounted future interest payments.


 Carrying amount

 Total contractual cash flows

 Within one year

 From one to five years

 From five to ten years


 £m

 £m

 £m

 £m

 £m

2014






Unsecured interest bearing loans and borrowings

(80.1)

(86.4)

(3.6)

82.8)

-

Trade payables

(26.5)

(26.5)

(26.5)

-

-

Forward exchange contracts

(2.5)

(2.5)

(2.5)

-

-


(109.1)

(115.4)

(32.6)

(82.8)

-

2013






Unsecured interest bearing loans and borrowings

(74.4)

(82.8)

(2.2)

(80.6)

-

Trade payables

(25.1)

(25.1)

(25.1)

-

-

Forward exchange contracts

(0.1)

(0.1)

(0.1)

-

-


(99.6)

(108.0)

(27.4)

(80.6)

-

The Group had the following undrawn borrowing facilities at the end of the year:


2014

2013

Expiring in :

 £m

 £m

less than one year



  - Uncommitted facilities

9.3

10.8

More than one year but not more than five years



  - Committed facilities

54.2

55.8

Total

63.5

66.6

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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