Pebble Beach Regulatory News (PEB)

29 Mar 2006 07:01

Vislink PLC29 March 2006 Vislink plc Preliminary results for the year ended 31 December 2005 Vislink plc ("The Group"), a leading supplier of microwave radio and satellitetransmission products for the broadcast and security markets and of integratedCCTV systems for the marine security market, has today announced its preliminaryresults for the year ended 31 December 2005. Financial summary For the year ended 31 December 2005 £'000 2004 £'000Revenue 85,072 67,831Operating profit - from continuing operations 7,141 193Adjusted* operating profit 8,348 2,549Profit before tax 6,365 (305)Earnings per share - basic 2.66p (1.12p)Earnings per share -adjusted* basic 3.30p 1.21p----------------------------------- -------- -------- *Adjusted operating profit is operating profit before amortisation of acquiredintangibles, impairment of goodwill and rationalisation costs. Adjusted earningsper share are calculated on the same basis. Key points • The Group's adjusted operating profit was up 227% to £8.35 million (2004 - £2.55 million) • Adjusted earnings per share increased by 173% to 3.30 pence (2004 - 1.21 pence) • The Board recommends an increased dividend up by 150% to 0.5 pence per share (2004 - 0.2 pence) • Group orders received were up by 92% to £95.50 million (2004 - £49.72 million) • Group sales up by 25.4%, including incremental revenue from Link acquisition of £3.67 million • Group's cash generation in the year was strong and the year ended with net cash of £2.16 million (2004 - net debt £2.35 million) Bob Morton, Chairman of Vislink plc, said:"I am pleased to report that the Group has had a very successful year andachieved record profits. With current trading significantly ahead of last year and a strong order bookthe outlook is very encouraging. The Board looks forward to the future withconfidence." - Ends - For further information on 29 March 2006, please contact: Ian Scott-Gall, Chief Executive 01488 685500James Trumper, Group Finance Director 01488 685500 Chairman's Statement Introduction I am pleased to report that the Group has had a very successful year andachieved record profits. MRC, the US broadcast business, had its best ever year for operating profit,orders and sales, benefiting from an increase in orders for its core businessand incremental business from the 2GHz re-channelisation programme in the US.Link Research, acquired in February 2005, has been successfully integrated intothe Group and has made a significant contribution to operating profits. Advent,the UK satcoms business, achieved a strong increase in order intake in thesecond half of the year. Hernis, our specialist marine CCTV business, also had arecord year for order intake and sales, generated by the strong demand for itsmarket-leading products. Results for the year The Group's orders received increased by 92% to £95.50 million (2004 - £49.72million) whilst revenues increased by 25.4% to £85.07 million (2004 - £67.83million), including incremental orders and sales from Link of £3.66 million and£3.67 million respectively. The Group's adjusted operating profit, being operating profit before theamortisation of acquired intangibles, impairment of goodwill and rationalisationcosts, increased by 227% to £8.35 million (2004 - £2.55 million). The adjustedprofit margin improved significantly to 9.8% of sales (2004 - 3.8%). Thereported operating profit was £7.14 million (2004 - £0.19 million). Pre-tax profit rose to £6.36 million (2004 - £0.31 million loss) and our returnon capital employed was 21.0% (2004 - 9.3%). The Group's cash generation in theyear was strong and the Group ended the year with net cash of £2.16 million(2004 - net debt of £ 2.35 million). This outstanding performance was achieved while continuing to invest for thefuture, with our research and development costs increasing to 5.8% of sales(2004 - 4.5%). Earnings and dividends per share Adjusted earnings per share increased 173% to 3.30 pence (2004 - 1.21 pence) andbasic earnings per share were 2.66 pence (2004 - 1.12 pence loss). As a resultof our increased profitability and stronger cash position, the Board is pleasedto recommend a significantly increased full-year dividend up by 150% to 0.50pence per share (2004 - 0.20 pence). Business strategy The security challenges around the world have resulted in an increased demandfor our marine CCTV, microwave and satellite technologies that have military,public safety, security and disaster recovery applications. The Group's strategyis to maintain its strong position in existing professional television andmarine CCTV markets, whilst continuing to develop its sales channels into theworldwide military, government and security markets to provide organic growth. We will continue to evolve our product offering to meet the specific needs ofthese new growth markets, including IP enabled communications and videosurveillance systems. The new product development programmes are expected todeliver market-leading products with built-in upgrade capabilities to securefuture revenue streams and extended product life cycles. Within the broadcast business the acquisition of Link Research has secured theintellectual property rights that are used in both MRC's and Advent's products.Towards the end of 2005 Link launched its market leading low delay, highdefinition (HD), wireless camera system. The transition to HD withinprofessional television markets will create future growth opportunities for theGroup beyond the US standard definition 2GHz re-channelisation programme. Employees I would like to thank the Board, management and employees for their outstandingcontributions to a very successful year. Outlook We believe the Group is well placed to meet the growth opportunities in itsestablished professional television and marine security markets. With currenttrading significantly ahead of last year and a strong order book the outlook isvery encouraging. The Board looks forward to the future with confidence. ALR MortonChairman29 March 2006 Operating and Financial Reviewfor the year ended 31 December 2005 Business Overview Description of businesses and markets The principal activities of the Group comprise two technology businesses. Theseare the broadcast business and the marine CCTV business. The Group has netassets of £37.8 million and employs around 350 people. The broadcast business designs and manufactures microwave radio, satellitetransmission and wireless camera products and systems for the professionaltelevision, government and security markets. The broadcast business has threeoperational sites, two in the UK and one in the USA. In addition the Group'sinternational project management business that is within the UK operation iscurrently completing a large broadcast infrastructure project in Venezuela. The broadcast business has three product lines sold under the three strongbrands of Advent Communications ("Advent"), Link Research ("Link") and MicrowaveRadio Communications ("MRC"). The broadcast business is probably the worldwidemarket leader for the design, manufacture and sale of television contributiontechnologies that take a signal from source to studio or play out centre beforedistribution to the viewer. The marine CCTV business of Hernis Scan Systems ("Hernis"), based in Norway, isa market leader in the supply of specialist integrated CCTV systems for both onand offshore oil and gas industries as well as for the marine, cruise and navalmarkets. Segmental reporting The broadcast business is organised geographically by the location of itsoperations where its products are produced and its service delivery activitiesare based. The internal management reporting within the Group also follows theselines. Therefore for the purposes of primary segmental reporting it isappropriate to split the broadcast business results between the US and the UKbroadcast operations. Hernis is a primary segment in itself, the operation beinggeographically centred in Norway. 2005 highlights and key performance indicators 2005 was a very successful year for the Group. The highlights were: • The acquisition of Link Research Limited in February • 25.4% increase in sales to £85.07 million including incremental sales of £3.67 million from Link • Reported operating profit £7.14 million (2004 - £0.19 million) • Adjusted operating profit of £8.35 million (2004 - £2.55 million) • Adjusted earnings per share of 3.30 pence (2004 - 1.21 pence) • All key performance indicators have improved on the prior year The Group's previously stated key strategic objective was to achieve a 10 percent return on sales at the adjusted operating profit level before centralcosts. This has been achieved in the year; our goal now is to achieve a net 10%adjusted operating profit return on sales. The table below sets out the historic performance for the Group together withthe key performance indicators that are used across the Group. The directorsbelieve that adjusted operating profit, being operating profit beforeamortisation of acquired intangibles, goodwill impairment and exceptional costs,and adjusted earnings per share, provide additional useful information toshareholders, as well as providing a measure for internal performance analysisand incentive compensation arrangements. Year ended December 31 2005 2004 2003(1)----------------------------- -------- -------- ------- Orders received (£'000) 95,503 49,717 97,890Sales (£'000) 85,072 67,831 69,391Adjusted operating profit(2) (£'000) 8,348 2,549 2,051Adjusted profit as a percentage of sales 9.8% 3.8% 3.0%Adjusted earnings per share (pence) 3.30 1.21 0.96Net cash generation from operating activities(£'000) 6,461 (3,847) 11,824Return on capital employed(3) (ROCE) 21.0% 9.3% 8.9%----------------------------- -------- -------- -------- (1) As previously reported under UK GAAP(2) Defined as opearting profit before the amortisation of acquired intangiblesthe impairment of goodwill and rationalisation costs(3) ROCE is calculatedas the adjusted operating profit as a percentage ocapital employed. Capital employed is defined as shareholders' equity plus debtless cash and cash equivalents. Strategy and product development The Group's strategy for the broadcast business is to leverage core technologiesto drive sales growth in the emerging government, military and security marketswhilst maintaining leadership in the professional television market. Within theprofessional television market each brand is synonymous with excellence indifferent applications of contribution technologies and the brands will befurther developed through extensive marketing activities to build and retainmarket share. Both the broadcast business and Hernis are well placed to take advantage ofregulatory driven changes that are creating growth opportunities. Hernis, forexample, has benefited from the introduction of the International Port SafetyRegulations that has broadened the CCTV marine security market; MRC willcontinue to benefit from the capital expenditure associated with there-channelisation programme in the US. The growth for the Group in 2005 has been achieved through a combination oforganic and acquisition led growth. The acquisition of Link Research Limited inthe year brought to the Group the intellectual property rights for theapplication of technologies that are used extensively in the broadcastbusiness's product lines as well as enhancing product development capabilities. Whilst there are no further acquisitions under consideration at present thedirectors will continue to consider opportunities to acquire complementarybusinesses and technologies that will provide enhanced earnings for the Group. To maintain growth the Group will continue to invest in new technologies andproducts as well as new sales channels. The core new product developmentobjectives are: • To create common technology building blocks for the next generation of broadcast contribution products that will offer market leading performance and feature sets with built in upgrade capabilities to secure future revenue streams.• To further develop compression and modulation technology compatible with industry standards along with proprietary modulation and de-modulation techniques.• To develop new products that support broadcast customers' migration from Standard Definition ("SD") to High Definition ("HD") future proofed for different interface protocols.• To develop new rapid deployment portable satellite antennas designed for both broadcast and military applications.• To develop new digital video products that meet the needs of the public safety and law enforcement markets.• To evolve system solutions that include IP-addressable networked products to strengthen Hernis's market position. Prospects The prospects for 2006 are encouraging. The Group has started the year with aforward order book of £38.76 million. MRC is expected to continue to benefitfrom the re-channelisation programme in the US through 2006 and 2007. The UKbroadcast business, through Link's supply of OEM equipment, will also benefitfrom the re-channelisation programme and the improving financial performance ofthe Advent satellite communications operation. The completion of the Venezuelancontract in 2006 will eliminate the risk associated with large constructionprojects. Hernis is expecting to make further progress in both the marine andoffshore/onshore oil and gas markets as a result of its long term strategic workwithin the industry and the increased demand for these natural resources. The Group has an exciting new product development programme. By way of example,Link was first to market with a low delay HD wireless camera that wasdemonstrated successfully at the US Superbowl in February 2006 and subsequentlyused at the Winter Olympics. The Group is continuing to target the worldwide military and law enforcementmarkets, and the US homeland security market, which offer good opportunities forgrowth beyond the US re-channelisation programme. Acquisitions At an Extraordinary General Meeting on February 9, 2005 shareholders approvedthe acquisition of the entire issued share capital of Link Research Limited("Link") and the issue of 20,414,569 ordinary shares at 22.75 pence to raise£4.64 million before expenses. The maximum consideration payable for Link, excluding acquisition costs, is£10.75 million by way of an initial consideration of £5.00 million (comprising£3.00 million by the issue of 13,186,813 new ordinary shares at 22.75 pence eachand £2.00 million in cash and loan notes), and a further performance relateddeferred consideration of up to £5.75 million payable in loan notes and shares. Link has been successfully integrated into the UK broadcast operation during theyear. The Group has benefited from the natural synergies and the financialadvantages of owning the core IPR acquired with Link. The Link management teamhave added valuable skills to the UK broadcast research and developmentprogramme. Returns to shareholders It is the Group's stated strategy to only recommend a final dividend. The Boardis committed to a progressive dividend policy and this is reflected in therecommended final dividend of 0.5 pence per share (2004 - 0.2 pence). Subject tothe approval of shareholders, this final dividend will be paid on July 21, 2006,to those on the register at June 30, 2006. Review of operations in 2005 Overview Group sales have increased 25.4% to £85.07 million (2004 - £67.83 million),including incremental sales of £3.67 million from the acquisition of Link.Adjusted operating profits (being operating profit before amortisation ofacquired intangibles, goodwill and rationalisation costs) increased to £8.35million (2004 - £2.55 million), with the US broadcast operation reporting arecord year. Link made a substantial contribution to the UK broadcast resultsubsequent to its acquisition. Hernis had a record year for orders received andsales. The table below summarises the Group's results and the operational reviewsreport on the results of each business operation. Year ended 31 December 2005 2004 £'000 £'000Revenue:US broadcast 47,256 27,621UK broadcast 27,772 32,250Hernis 10,044 7,960 --------- --------Group total 85,072 67,831 --------- -------- Operating profit/(loss):US broadcast 7,414 3,871UK broadcast 2,095 (853)Hernis 942 714Central costs (1,802) (1,183) Unrealised profit in inventory (301) - --------- --------Adjusted operating profit 8,348 2,549 Amortisation of acquired intangibles (1,207) - Impairment of goodwill - (817) Rationalisation costs - (1,539) --------- --------Reported operating profit 7,141 193 Net finance costs (776) (498) --------- --------Profit/(loss) before tax 6,365 (305) --------- --------Profit/(loss) after tax 3,482 (1,132) --------- --------Basic earnings/(loss) per share 2.66p (1.12)p Adjusted earnings per share 3.30p 1.21p --------- -------- Operational review - US broadcast The US broadcast operation, MRC, has had a year of record growth. Ordersreceived were $122.15 million (2004 - $49.40 million). MRC has benefited fromthe 2GHz re-channelisation programme in the US that involves over 1,000broadcasters migrating to narrower frequency bands to accommodate new advancedwireless services. In order to achieve this broadcasters are moving fromanalogue to digital transmission for electronic news gathering (ENG). MRC has aleading market share in providing equipment to the broadcasters to support thischange. Whilst the re-channelisation programme has fuelled the growth there hasalso been an increase in core business orders of 17%. The growth in underlyingorders has come from an expansion of MRC's international customer base andtargeted growth from public safety/homelands security applications. Sales at MRC increased 70% to $86.01 million (2004 - $50.50 million). Withincreasing sales and improved gross margins, MRC saw operating profits increaseto $13.50 million (2004 - $7.04 million) giving a 15.7% return on sales (2004 -13.9%). Operational review - UK broadcast The UK broadcast operation consists of three activities, the satellitecommunications business of Advent, the CML international projects business and,since its acquisition, the wireless camera business of Link. Total sales for the operation were £34.52 million (2004 - £33.32 million)including sales to the US broadcast operation of £6.75million (2004 - £1.07million). Link contributed £9.16 million to the sales total including £5.49million of inter group sales. Advent's sales increased 9% to £14.99 million(2004 - £13.71 million). CML project sales decreased to £10.37million (2004 -£19.61 million) in line with expected progress on the $58.85million contract tore-equip and modernise the Venezuelan national state broadcaster VTV. At the endof 2005 total revenue recognised on the contract had reached $51.87 million(2004 - $33.19 million). The total operating profit for the operation was £2.10 million before theamortisation of acquired intangibles associated with Link of £1.21 million (2004- operating loss of £0.85 million before goodwill impairment of £0.82 millionand rationalisation costs of £1.54 million). Advent reported an operating loss of £0.58 million (2004 - operating loss of£2.53 million) following a weak first half performance. However Advent recoveredin the second half with an operating profit of £0.03million. Advent has beenthrough considerable rationalisation over the last two years in order to restoreits profitability; it has strong brand awareness in its markets and its productsare class leading in terms of performance. Advent entered 2006 with a £4.60million order book and a strong new product development plan aimed at improvingmargins. The CML international projects activity reported an operating loss in the yearof £1.37 million. Of the loss, £0.30 million was attributable to the investmentin opportunities in West Africa and South America that have yet to come tofruition and £0.37 million was associated with legacy issues arising out of theclosure of the CML manufacturing facility in 2004. The remainder of theoperating loss of £0.70 million was incurred on the VTV contract (2004 - profitof £1.68 million). Whilst the contract is expected to make a profit over itsfull life, the profit will be at a lower level than originally anticipated dueto delays in the completion of civil construction works and local inflation. Thecontract will be completed in 2006. Link has benefited from substantial OEM sales to MRC, derived from there-channelisation programme, as well as growth in sales to external globalcustomers for wireless camera systems. Link generated an operating profit of£2.83 million after the amortisation of acquired intangibles. Towards the end ofthe year Link made its first shipments of the new low delay HD wireless camerasystems. Operational Review - Hernis Hernis had a record year in terms of order intake and sales. Orders receivedwere £11.91 million, up 34% (2004 - £8.88 million); sales were £10.04 million,up 26% (2004 - £7.96 million). The growth has come from a strong marine marketand in particular Hernis' market leading position in the supply of systems fornew Liquid Natural Gas (LNG) vessels built in Asia. In addition there has beenincreased demand for both on and offshore oil and gas installations. As a resultof increased sales operating profit improved to £0.94million (2004 - £0.71million) giving a 9.4% return on sales. Research and developmentThe Group is committed to investment in research and development in order tomaintain and enhance the Group's market share and competitive advantage for theproducts it manufactures and supplies. Expenditure in 2005 was £4.95 millionrepresenting 5.8% of revenues (2004 - £3.08 million, 4.5%). In addition theGroup has capitalised development costs in the year of £1.05 million (2004 -£1.03 million). The amortisation of development costs of £0.97 million (2004 -£0.83 million) is included in expenditure. Financial Review Interest The net interest charge for the year was £0.78 million (2004 - £0.50 million).Included within the interest charge is £0.29 million in respect of the unwindingof the discounting of the deferred consideration associated with the acquisitionof Link Research Limited to its present value. Net interest paid in the year was£0.47million (2004 - £0.50 million). Interest was covered 10.7 times by adjustedoperating profits (2004 - 5.1 times). Taxation The tax charge for the year was £2.88 million (2004 - £0.83 million). The UKcurrent tax charge was £0.15 million (2004 - £nil) and the overseas currenttaxation in the year was £2.76 million (2004 - £0.81 million). Overseas taxationrepresents Norwegian corporation taxation on the taxable profits of Hernis andstate and federal taxes in respect of the US broadcast business. The current taxcharge was mitigated by a net deferred tax credit of £0.02 million (2004 -charge of £0.02 million), comprising a UK deferred tax charge of £0.52 millionand an overseas deferred tax credit of £0.54 million. The effective tax rate for the year was 45.3% compared to the standard UKcorporation tax rate applicable during the year of 30%. The Group tax chargeincludes a one-off UK deferred tax charge £0.49 million in respect of the writeoff of certain deferred tax assets (trading losses) that are no longerconsidered to be recoverable. Excluding this one-off charge from the Group taxcharge in the year reduces the effective tax rate to 37.6%, which reflectshigher tax rate (40%) that is attributable to the proportion of the Group'staxable profits generated in the US. Current tax payable at December 31, 2005 was £0.82 million (2004 - £0.21million). Cash flows The Group's cash flow in the year has been strong. The Group has moved from aposition of net debt at December 31, 2004 of £2.35 million to net cash of £2.16million at December 31, 2005. The Group generated net cash from operating activities of £6.46 million in theyear (2004 - absorbed £3.85 million). A further £4.74 million was generated fromthe proceeds of the issue of new ordinary shares for the acquisition of Link andfrom the exercise of share options during the year. Investing activities absorbed £4.43 million of cash (2004 - £1.76million),comprising £2.45 million for the acquisition of Link, £1.05 million forcapitalised development costs and a net £0.93 million for property plant,equipment and investments. Debt repayments during the year amounted to £3.14 million (2004 - £0.28million), including the repayment of certain debt acquired with Link. Thebalance outstanding on the Group's medium term loan at December 31, 2005 was£3.20 million (2004 - £5.37 million). Group cash and cash equivalents increased to £7.12 million at December 31, 2005(2004 - £3.22 million). Exchange rates The principle exchange rates used by the Group in translating overseas profitsand net assets into sterling are set out in the table below. Rate Average rate, Average rate, Year end rate, Year end rate, comparedto £sterling 2005 2004 2005 2004US 1.82 1.83 1.72 1.92dollarNorwegiankrone 11.72 11.62 11.63 11.63 Summary 2005 was a successful year for the Group. The Group has a clear strategy forboth product and market development that lay the foundations for organic growthin the broadcast business and Hernis. 2006 has started strongly with both ordersreceived and sales significantly ahead of the previous year, and the Board looksforward to the rest of the year with confidence. Ian Scott-Gall - Chief ExecutiveJames Trumper - Group Finance Director29 March 2006 CONSOLIDATED GROUP INCOME STATEMENT for the year ended 31 December 2005 Year ended 31 Year ended 31 December 2005 December 2004 Notes £'000 £'000Continuing operationsRevenue 2 85,072 67,831Cost of sales (56,452) (52,145) ---------- ----------Gross profit 28,620 15,686Sales and marketing (8,952) (5,865)Research anddevelopment (4,950) (3,082)Administrative costs (7,407) (6,276)Other expenses (170) (270) ---------- ----------Operating profitfrom continuingoperations 2 7,141 193----------------------------- ------- ---------- ---------- Operating profit is analysed as:Adjusted operatingprofit 5 8,348 2,549Amortisation ofacquired intangibles (1,207) -Impairment ofgoodwill - (817)Rationalisationcosts - (1,539)----------------------------- ------- ---------- ----------Finance costs 3 (872) (591)Investment income 3 96 93 ---------- ----------Profit/(loss) oncontinuingactivities beforetaxation 6,365 (305)Tax on profit/(loss)on ordinaryactivities 4 (2,883) (827) ---------- ----------Profit/(loss) forthe year fromcontinuingoperations beingprofit/(loss)attributable toshareholders 3,482 (1,132) ---------- ---------- Earnings/(loss) pershare expressed inpence per share: 5 2.66p (1.12)pFrom continuingoperations - basic 5 2.62p (1.11)pFrom continuing operations - diluted ---------- ---------- Dividends The directors are proposing a final dividend in respect of the financial yearended 31 December 2005 of 0.5 pence per share, which will absorb an estimated£682,000 of shareholders' funds. It will be paid on 21 July 2006 to shareholderswho are on the register of members on 30 June 2006. CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 £'000 £'000 Opening shareholders' equity 25,001 27,208 ----------- ----------- Profit/(loss) for the financial period 3,482 (1,132)Share options - value of employee services 75 47Dividends paid (246) (202) ----------- -----------Movements in the profit and loss account 3,311 (1,287)Translation difference on foreign currencynet investments 1,765 (920)Shares issued 7,687 -Disposal of investment in own shares 51 - ----------- -----------Total movements in shareholders' equity 12,814 (2,207) ----------- -----------Closing shareholders' equity 37,815 25,001 ----------- ----------- CONSOLIDATED GROUP BALANCE SHEETas at 31 December 2005 31 December 31 December 2005 2004 Notes £'000 £'000 Assets Non-current assets Goodwill 23,393 16,922Intangible assets 6,854 1,062Property, plant and equipment 4,547 4,314Financial assets 43 -Deferred tax assets 835 1,602 ----------- ----------- 35,672 23,900 ----------- -----------Current assets Inventories 13,345 8,936Trade and other receivables 17,032 15,386Net cash and cash equivalents 8 7,122 3,219 ----------- ----------- 37,499 27,541 ----------- -----------Liabilities Current liabilitiesFinancial liabilities - borrowings 8 3,794 2,190Trade and other payables 22,206 18,363Current tax liabilities 816 206Provisions 732 757 ----------- ----------- 27,548 21,516 ----------- ----------- ----------- -----------Net current assets 9,951 6,025 ----------- ----------- Non-current liabilities Financial liabilities - borrowings 8 1,169 3,378Deferred tax liabilities 2,608 1,255Other non-current liabilities 3,878 -Provisions 153 291 ----------- ----------- 7,808 4,924 ----------- ----------- ----------- -----------Net assets 37,815 25,001 ----------- -----------Capital and reservesCalled up share capital 3,412 2,552Share premium account 4,362 205Investment in own shares (109) (160)Merger reserve 30,565 27,895Translation reserve (1,288) (3,053)Profit and loss account 873 (2,438) ----------- -----------Total shareholders' equity 37,815 25,001 ----------- ----------- CONSOLIDATED GROUP CASH FLOW STATEMENTfor the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 Notes £'000 £'000Cash flow from operating activitiesCash generated from/(absorbed by) operations 7 9,602 (2,613)Investment income 96 93 Finance costs (567) (590) Taxation paid (2,670) (737) ----------- -----------Net cash generated from/(absorbed by)operating 6,461 (3,847)activities ----------- ----------- Cash flows from investing activities Acquisition of subsidiary (net of cashacquired) 6 (2,445) - Proceeds from sale of property, plant andequipment 130 2Purchase of property, plant and equipment (1,014) (729)Expenditure on capitalised development costs (1,054) (1,032)Acquisition of investments (43) - ----------- -----------Net cash used in investing activities (4,426) (1,759) ----------- ----------- Cash flows from financing activities Net proceeds from issue of ordinary sharecapital 4,687 -Net proceeds from sale of own shares held 51 -Repayment of borrowings 8 (3,138) (275)Dividend paid to shareholders (246) (202) ----------- ----------- 1,354 (477) ----------- ----------- Effect of foreign exchange rate changes 8 514 (238) ----------- ----------- Net increase/(decrease) in cash and cashequivalents 3,903 (6,321)Net cash and cash equivalents at beginningof 8 3,219 9,540period ----------- -----------Net cash and cash equivalents at end of 8 7,122 3,219period ----------- ----------- NOTES TO THE PRELIMINARY RESULTSfor the year ended 31 December 2005 1. BASIS OF PREPARATION These results have been prepared in accordance with all International FinancialReporting Standards (IFRS) as adopted by the European Union (EU), IFRICinterpretations and with those parts of the Companies Act, 1985 applicable tocompanies reporting under IFRS. 2. SEGMENTAL ANALYSIS The broadcast business is organised geographically by the location of itsoperations where its products are produced and its service delivery activitiesare based. The internal management reporting within the Group also follows theselines. Therefore for the purposes of primary segmental reporting it isappropriate to split the broadcast business results between the US and the UKbroadcast operations. Hernis is a primary segment in itself, the operation beinggeographically centred in Norway. Revenue Operating Profit Net Assets 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000By business:US - broadcast 47,403 29,395 7,414 3,871 14,782 11,099UK - broadcast 34,523 33,315 2,095 (853) 15,991 10,756Norway - marine CCTV 10,044 7,960 942 714 4,471 3,834Inter-segmental (6,898) (2,839) (301) - - -transactionsCentral - - (1,802) (1,183) 2,571 (688) -------- ------- ------- ------- ------- ------- 85,072 67,831 8,348 2,549 37,815 25,001Amortisation of acquiredintellectual property andcustomer relationships - - (1,207) - - -Exceptionalrationalisation - - - (1,539) - -costsImpairment of goodwill - - - (817) - - -------- ------- ------- ------- ------- ------- Total 85,072 67,831 7,141 193 37,815 25,001 -------- ------- ------- ------- ------- -------Amortisation of acquired intellectual property and customer relationships,exceptional rationalisation costs and impairment of goodwill relate to the UKbroadcast business. The table below shows the analysis of Group external revenue, by geographicmarket. Revenue analysis US broadcast UK broadcast Hernis Total 2005 2004 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Bygeographicmarket:UK & 37 57 4,890 4,446 551 1,014 5,478 5,517Ireland Rest of 905 436 7,002 4,192 4,423 3,902 12,330 8,530EuropeNorth 40,236 23,640 784 456 815 897 41,835 24,993AmericaSouth 1,087 1,055 10,858 18,683 603 173 12,548 19,911AmericaMiddle 288 370 1,367 2,239 355 68 2,010 2,677EastAsia 4,242 1,824 1,974 1,236 3,066 1,479 9,282 4,539Africa 92 77 404 762 110 200 606 1,039Other 369 162 493 236 121 227 983 625 ------- ------- ------- ------- ------- ------- ------- ------ 47,256 27,621 27,772 32,250 10,044 7,960 85,072 67,831 ------- ------- ------- ------- ------- ------- ------- ------ 3. FINANCE COSTS - NET 2005 2004 £'000 £'000Interest payable on bank borrowing (537) (591)Interest payable on other loans (43) -Unwinding of interest associated with the discounting ofdeferred consideration (292) - --------- --------Interest and similar charges payable (872) (591) Investment income 96 93 --------- --------Net finance costs (776) (498) --------- -------- 4. TAXATION The tax charge for the year comprises: 2005 2004 £'000 £'000Current taxContinuing operations - UK corporation tax 149 -Continuing operations - foreign tax 2,755 809 --------- --------Total current tax 2,904 809 --------- -------- Deferred taxContinuing operations - UK corporation tax 520 (86)Continuing operations - foreign tax (541) 104 --------- --------Total deferred tax (21) 18 --------- -------- --------- --------Taxation charge 2,883 827 --------- -------- UK Corporation tax is calculated at 30 per cent (2004 - 30 per cent) of theestimated assessable profit for the year. Foreign corporation taxes for otherjurisdictions are calculated at the rates prevailing in the respectivejurisdictions. 5. EARNINGS PER ORDINARY SHARE Earnings per share is calculated by reference to a weighted average of131,052,000 ordinary shares in issue during the period, excluding shares held bythe Employees' Share Ownership Plan (2004 - 101,123,000). The diluted earnings per share is after taking account of a further 1,631,000shares (2004 - 460,000) being the dilutive effect of share options. Adjusted earningsVislink believes that adjusted operating profit, adjusted profit before tax,adjusted earnings and adjusted earnings per share provide additional usefulinformation to shareholders. These measures are used by Vislink for internalperformance analysis and incentive compensation arrangements. The term"adjusted" is not a defined term under IFRS and may not therefore be comparablewith similarly titled profit measurements reported by other companies. Theprincipal adjustments are made in respect of rationalisation costs, theimpairment of goodwill and the amortisation of acquired intangibles.The reconciliation between reported and adjusted earnings and basic earnings pershare is shown below: Year ended Year ended 31 December 2005 31 December 2004 Earnings Basic EPS Earnings Basic EPS £'000 pence £'000 penceReported earnings 3,482 2.66p (1,132) (1.12)pAmortisation of acquiredintangibles after tax 845 0.64p - -Impairment of goodwill - - 817 0.81pRationalisation costs - - 1,539 1.52p --------- -------- -------- --------Adjusted earnings 4,327 3.30p 1,224 1.21p --------- -------- -------- -------- 6. ACQUISITIONS On 14 January 2005 the Group announced to shareholders the proposed acquisitionof Link Research Limited. The maximum consideration, excluding acquisitioncosts, is £10.75 million comprising an initial consideration of £5.00 million(comprising £3.00 million in ordinary shares and £2.00 million in cash and loannotes), and a further performance related deferred consideration of up to £5.75million payable in loan notes and shares. Also on 14 January 2005 the Group proposed the issue of 20,414,569 ordinaryshares at 22.75p raising £4.64 million before expenses. Both these transactions were approved by the shareholders at an ExtraordinaryGeneral Meeting on 9 February 2005, and the acquisition of Link Research Limitedwas effective on 11 February 2005. Below is a summary of the valuation of the tangible and intangible net assetsacquired and the calculation of goodwill: Book value Fair value Fair value adjustment £'000 £'000 £'000 -------- --------- --------Net assets acquiredAcquired intangibles -intellectual property - 3,720 3,720Acquired intangibles -customer relationships - 3,100 3,100Intangibles - goodwill 1,384 (1,384) -Property, plant andequipment 636 (329) 307Inventories 450 - 450Trade and other receivables 1,294 - 1,294Investment assets held forresale - 259 259Cash at bank and in hand 140 - 140Trade and other payables (705) - (705)Current tax liabilities (357) - (357)Provisions (65) - (65)Financial liabilities -secured bank borrowings (661) - (661)Financial liabilities -unsecured borrowings (533) - (533)Deferred tax liabilities (63) (2,046) (2,109) -------- --------- -------- 1,520 3,320 4,840 -------- ---------Goodwill on acquisition 5,906 --------Total consideration 10,746 -------- Satisfied by:Cash consideration(including acquisition costsof £659,000) 2,585Ordinary shares 3,000Unsecured loan notes 74Deferred consideration 5,087 -------- 10,746 -------- Net cash outflow arising on acquisitionCash consideration(including acquisition costsof £659,000) 2,585Cash and cash equivalentsacquired (140) -------- 2,445 -------- The deferred consideration of £5,750,000 payable over the next 2.5 years hasbeen discounted to its present value at a rate of 5.85% to £5,087,000 at thedate of acquisition. In the period to 31 December 2005 an interest charge of£292,000 has been made to reflect the increase in the present value of thedeferred consideration at 31 December 2005. Link Research Limited contributed revenue of £3,665,000 and an operating profitof £2,532,000 to the Group in the period after acquisition. If the acquisitionof Link Research Limited had been completed on the first day of the financialyear, Group revenues for the year would have increased by £571,000 and Groupprofit attributable to equity holders of the parent company by £97,000. 7. NOTES TO THE CASH FLOW STATEMENT Net cash flow from operating activities comprises: Year ended 31 Year ended 31 December 2005 December 2004 £'000 £'000 Profit/(loss) attributableto shareholders 3,482 (1,132)Taxation 2,883 827Depreciation 1,081 773Loss/(profit) on disposal of property,plant and equipment 5 (2)Impairment of goodwill - 817Amortisation of development costs 968 832Amortisation of acquired intangibles 1,207 -Share options- value of employee services 75 47Investment income (96) (93)Finance costs 872 591(Increase) in inventories (3,377) (68)Decrease/(increase) in tradeand other receivables 619 (3,999)Increase in payables 2,150 33(Decrease) in provisions (267) (1,239) ---------- ----------Net cashinflow/(outflow) from operatingactivities 9,602 (2,613) ---------- ---------- 8. NET BORROWINGS The movements in cash and cash equivalents and borrowings in the period are asfollows: Net cash and Short term Other Total net cash borrowings borrowings (borrowings)/ equivalents £'000 £'000 £'000 cash £'000At 1 January2005 3,219 (2,190) (3,378) (2,349)Cash flow forthe period 3,249 3,138 - 6,387Assumed onacquisition 140 (661) (533) (1,054)Unsecured loannotes issued - (1,339) - (1,339)Exchange rateadjustments 514 - - 514Reclassification - (2,742) 2,742 - --------- --------- --------- -----------At 31 December2005 7,122 (3,794) (1,169) 2,159 --------- --------- --------- ----------- 9. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) From 2005 the Group is required to prepare its consolidated financial statementsin accordance with International Accounting Standards (IAS) and InternationalFinancial Reporting Standards (IFRS) to be adopted by the European Union (EU).The Group's date of transition to IFRS was 1 January 2004 and comparativeinformation in the financial statements has been restated to reflect the Group'sadoption of IFRS except where otherwise required or permitted by IFRS1. On September 1, 2005 the Group published a report to provide guidance on theimpact IFRS on the Group, the initial transition balance sheet adjustments andthe restatement of the 2004 published financial statements. 10. Directors ResponsibilitiesThe announcement represents non-statutory accounts within the meaning of section240 of the Companies Act 1985. The statutory annual accounts for the year ended31 December 2005, upon which an unqualified audit opinion has been given andwhich did not contain a statement under section 235, 237(2) or 237(3) of theCompanies Act 1985, will be sent to the Registrar of Companies in due course. 11. Report and Accounts Copies of the Report and Accounts will be sent to shareholders in due course andwill then be available from the registered office at Marlborough House, CharnhamLane, Hungerford, Berkshire, RG17 0EY. -------------------------- This information is provided by RNS The company news service from the London Stock Exchange