Last checked at 21 Aug 2008 07:00
Vislink plc
Interim results for the six months ended 30 June 2008
Vislink plc ("The Group"), a leading supplier of microwave radio and satellite transmission products for the broadcast and security markets and of CCTV systems for the marine security market announces its interim results for the six months to 30 June 2008.
Financial summary
| For the six months ended 30 June | 2008 £'000 | 2007 £'000 |
| Revenue | 46,607 | 46,152 |
| Operating profit | 2,359 | 7,184 |
| Adjusted* operating profit | 4,256 | 7,924 |
| Adjusted* operating margin | 9.1% | 17.2% |
| Profit before taxation | 2,287 | 6,967 |
| Earnings per share - basic | 1.04p | 3.20p |
| Adjusted* earnings per share - basic | 2.04p | 3.59p |
| Cash generated from operating activities | 5,833 | 2,418 |
*Adjusted operating profit is operating profit before the amortisation of acquired intangibles, share based payments and non-recurring costs. Adjusted earnings per share are calculated on the same basis after taking account of tax adjustments.
Strategic developments since 30 June:
Operational highlights:
Tim Trotter, Chairman of Vislink said:
"There have been a number of important developments for the Group over the past few months. A new Chief Executive has been appointed, a significant acquisition has been made in the US to support our strategic plans for the Defence, Law Enforcement and Security (DLES) markets and we have acquired the assets of another small services business to build on the acquisition of WTS made last year.
We are pleased that Duncan Lewis is joining Vislink as Chief Executive on 1 October 2008. He has a proven track record in generating shareholder value by determining an appropriate strategy for technology based businesses and then driving those businesses forward.
The Group is trading in line with the Directors' expectations. Our two recent acquisitions are expected to be earnings neutral in 2008 but earnings enhancing thereafter. The Board is confident about the prospects for the Group."
- ends -
For further information on 21 August 2008, please contact:
Ian Scott-Gall, Chief Executive 01488 685500
James Trumper, Group Finance Director
James White / Hugo Jenkins 0207 796 4133
Hudson Sandler Chairman's Statement
Results for six months to 30 June 2008
Introduction
I am pleased to report that there have been a number of important developments for the Group over the past few months. A new Chief Executive has now been appointed in succession to our retiring Chief Executive, Ian Scott-Gall. A significant acquisition has been made in the US to support our strategic plans for the Defence, Law Enforcement and Security (DLES) markets and we have acquired the assets of another small services business to build on the acquisition of WTS made last year.
The Group has traded in line with our expectations in the first half of 2008. The 2GHz programme in the US domestic market, that has underpinned the Group's record results for the last two years, is expected to come to an end in 2008 in terms of the manufacture and supply of equipment. The demand for installation services under the programme is expected to increase for the remainder of 2008 and 2009 and Vislink is very well placed to capitalise on this important opportunity. The underlying US broadcast market has shown significant year on year growth in orders received in the period.
Our UK RF businesses and Hernis are strong, both showing growth in external orders received and sales revenue. Progress in the DLES segment has been below our expectations, but management action has been taken to provide a more focussed approach to this market and the acquisition of Pacific Microwave Research Inc will re-enforce our growth strategy.
Financial results
The order intake for the period excluding the 2GHz relocation programme increased by 22% to £36.6 million (2007: £29.2 million). The growth in the core RF business was 7%. The headline order intake was £44.7 million (2007: £46.1 million). Revenue for the six months to 30 June increased 1.0% to £46.6 million (2007: £46.2 million).
The Group's adjusted operating profit was lower than the previous half year at £4.3 million (2007: £7.9 million) due to a change in product mix in our US RF business and the increased costs of working to complete the 2GHz relocation programme that resulted in weaker operating margins. The reported operating profit was £2.4 million (2007: £7.2 million) after charging £0.8 million in respect of the amortisation of acquired intangibles (2007: £0.7 million), £1.0 million in respect of non-recurring costs (2007: £nil) and the effect of share-based payments. Profit before tax was £2.3 million (2007: £7.0 million).
The Group's cash generation remains strong. The net cash inflow generated from operating activities in the period was £5.8 million (2007: £2.4 million) and the net cash balance was £6.5 million at 30 June 2008 (31 December 2007: £3.5 million).
Earnings Per Share
The reported basic undiluted earnings per share for the period were 1.04 pence (2007: 3.20 pence). After adjusting for the amortisation of acquired intangibles, non-recurring costs and the effect of share based-payments, the Group's adjusted earnings per share were 2.04 pence (2007: 3.59 pence).
Dividends
The final dividend of 1.25 pence per share in respect of 2007 was paid to shareholders on 18 July 2008. As in previous years, the Board is not recommending an interim dividend.
Board Appointment
I am pleased to announce the appointment of Duncan Lewis as Chief Executive, from 1 October 2008. Duncan has previously been Managing Director of Equant, the global data communications business, and Chief Executive of Mercury Communications (now Cable & Wireless UK). Most recently he has been an adviser on telecommunications, media and technology investments at Carlyle, the global private equity group, and non-executive director of several technology companies. His considerable wealth of experience in determining an appropriate strategy for technology based businesses and then driving those businesses forward will be of great benefit to the Group. We look forward to working with Duncan, who will be focused on generating the shareholder value that we are confident exists within Vislink.
Ian Scott-Gall, our current Chief Executive, announced earlier this year that he was going to retire at the end of this financial year. However, with the Board having identified a new Chief Executive, it was agreed that it would be suitable to bring Ian's retirement forward. On behalf of the Board and our employees, I would like to thank Ian for his substantial contribution over the last nine years in transforming and building the Group through acquisitions and strong organic growth, into a group of profitable, cash generative technology businesses.
Events after the balance sheet date
On 31 July 2008 the Group acquired the assets and contracts of Scotts Valley Group Inc. trading as Marcom for a cash consideration, dependant on performance, of US$1.5 million (£0.8 million). The business will be merged into WTS as part of the Group's strategy to create incremental long-term recurring revenue opportunities by building a US Technical Services business through both organic and acquisition led growth. The acquisition of Marcom's business will enhance service revenues from the 2GHz re-channelisation programme as well as providing the prospect of recurring revenues as the broadcast customers move towards contracted out services.
On 21 August 2008 the Group announced the acquisition of Pacific Microwave Research, Inc, ("PMR"), for a maximum cash consideration, dependent on performance, of US$17.0 million (£9.1 million). The initial consideration of US$10.0 million (£5.4 million) has been funded out of the Group's existing multi-currency bank facility. PMR, incorporated in the State of California, is a high-technology design, engineering and manufacturing company specializing in analogue and digital microwave video transmission solutions for law enforcement, Homeland Security, and military applications. PMR products are used for evidentiary video collection, covert surveillance, unmanned ground vehicles (UGV), unmanned aerial vehicles (UAV), and flight test air-to-ground image transmission. The acquisition of PMR will enhance the Group's product offering to the covert LES markets, both in the US and internationally. PMR's product offering and market reach is complementary to that already existing within the Group's RF businesses.
Business Review
UK RF business
External orders for the UK business were up 5.8% to £9.1 million (2007: £8.6 million). External revenue was up 8.5% to £10.2 million (2007: £9.4 million excluding £2.0 million of sales on the legacy Venezuelan contract). Intercompany sales to the US business were lower at £5.8 million (2007: £7.0 million) reflecting the slowdown in the 2GHz relocation programme requirements. The operating profit for the UK RF business was £3.1 million (2007: £3.3 million) before the amortisation of acquired intangibles of £0.7 million (2007: £0.7million).
The demand for Advent's vehicle mounted satellite antenna systems is being sustained with significant first half orders for the Spanish and Italian markets. This was boosted by a £974k order for applications in the South American oil and gas market for delivery in the second half. Link has launched an innovative miniaturized new transmitter that was used to great effect throughout the 24 hour Le Mans race establishing a new reliability standard in televised motor sports. At least 36 Link wireless camera systems have been used during this summer's Beijing Olympics.
US RF business
Orders from the US core markets increased 14% to £12.2 million (2007: £10.7 million) whilst orders from the 2GHz relocation programme were lower at £8.1 million (2007: £17.8 million). Services added a further £2.5 million of orders (2007: £nil). Total orders for the US business in the period were £22.8 million (2007: £28.4 million). Revenue was £25.9 million (2007: £26.3 million). As a result of a change in product mix and the increased costs of working to complete the 2GHz relocation programme operating margins at MRC have declined in the period reducing the operating profit for the period to £1.3 million (2007: £4.6 million).
Throughout the 2GHz relocation programme MRC has maintained its market share and market leadership. As a result MRC has seen an increase in core broadcast orders (up 28% in the period) as the US station groups invest in new microwave equipment to broadcast the 2008 Presidential Campaign.
The order flow at WTS, our US services organisation, has been in line with our expectations but revenues have lagged. As a result the order backlog has increased with 2Ghz relocation programme installations moving out to 2009. The acquisition of the Marcom contracts, combined with WTS, gives a current services order backlog in excess of US$11.0 million (£5.6 million).
MRC has sustained its investment in R&D to maintain the market leading status of its product portfolio. At the world's largest annual electronic media exhibition, the 2008 NAB convention held in April, MRC won the TV Technology STAR Award for new products that address the growing demand from broadcast customers for solutions that provide IP file transfers, increased workflow efficiencies and that streamline the broadcast production processes.
Hernis
Orders received at Hernis increased in the period by 20.0% in local currency to £12.8 million (2007: £9.1 million). Revenue in the period was up 6.8% in local currency to £10.6 million (2007: £8.4 million). The strength of the Norwegian Krone has increased pressure on the margins at Hernis, particularly in Asia where most revenue is denominated in US$. As a result operating margins at Hernis are lower than last year. The operating profit for the period was £1.2 million (2007: £1.4 million).
The Hernis order backlog has increased within their main offshore oil and gas markets. In addition Hernis have made progress in the growing onshore market, where they were recently selected to deliver CCTV systems to several facilities including the Pluto LNG plant in Australia and a chemical plant in Qatar. Hernis has also begun promotion of an explosion proof torch with unique induction technology that will enable recharging to take place in hazardous environments. During the period we have invested £0.4 million in the facilities at Hernis to increase production capacity and improve efficiency to meet their growing demand.
Prospects
Hernis continues to see increased opportunities and order flow from both its offshore and onshore markets. The UK and US RF businesses have seen growth in their core broadcast market order intake in the period. Progress has been made both internationally and in the US in the law enforcement and security market. Although the sales cycle in this market is lengthy, prospects for the second half are encouraging.
Advent now has direct responsibility for the management and development of the US defence satcoms market. The new Mark V motorised Mantis mount has been well received and there are opportunities for this and other existing products. A number of important demonstrations and trials are taking place in the third quarter that are expected to lead to orders from US defence customers.
The acquisition of PMR brings the Group business from the L-band relocation programme that requires procurement of new technology as part of the federal government acquisition of new surveillance technology. PMR has already won contracts to meet this requirement.
Principal risks and uncertainties
The Group's risk management process remains unchanged from 31 December 2007 and is described in detail in the Directors' Report of the Group's 2007 Annual Report on pages 46-48. The principal exchange rates used in the preparation of this condensed interim Financial Statement are provided in note 15.
The Group's exposure to market risk, liquidity risk, credit risk and cashflow interest rate risk remains largely unchanged from the position at 31 December 2007.
The Group's principal risks and uncertainties for the remainder of the year continue to be the impact of foreign exchange rates on margins for non-domestic sales in each of our businesses. The Group mitigates this risk as far as possible through the policies described in the 2007 Annual Report.
The Group expects to gain synergies from the integration of the business of Marcom and PMR, the benefits of which will be seen in 2009. PMR has a number of opportunities in its markets that will enable the Group to establish a stronger DLES presence worldwide. We also expect to make progress in the penetration of the US defence satcoms market through Advent during the second half of 2008.
The US broadcast market continues to be dominated by the 2GHz relocation programme. The Group's objective is to have completed the supply of products under the programme by the end of 2008 and to replace part of those revenues in 2009 with the installation services, including the contracts acquired from Marcom.
Related parties
Related party disclosures are given in note16.
Forward-looking statements
Certain statements in this interim report are forward-looking. Although the group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Summary
In summary, the Group is trading in line with the Directors' expectations. Our two recent acquisitions are expected to be earnings neutral in 2008 but earnings enhancing thereafter. Our new Chief Executive will join the Group on 1 October 2008. The Board is confident about the prospects for the Group.
THS Trotter, Chairman
August 21, 2008
CONSOLIDATED GROUP INCOME STATEMENT
for the six months ended 30 June 2008
| Six months to 30 June 2008 (Unaudited) | Six months to 30 June 2007 (Unaudited) | Year ended 31 December 2007 (Audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Continuing operations | ||||
| Revenue | 4 | 46,607 | 46,152 | 98,580 |
| Cost of sales | (28,864) | (26,932) | (58,848) | |
| Gross profit | 17,743 | 19,220 | 39,732 | |
| Sales and marketing expenses | (5,387) | (4,728) | (9,570) | |
| Research and development costs | (3,838) | (2,839) | (5,835) | |
| Administrative costs | (5,170) | (4,440) | (9,951) | |
| Other expenses Other losses | (971) (18) | (29) - | (146) (14) | |
| Operating profit | 4,5 | 2,359 | 7,184 | 14,216 |
| Operating profit is analysed as: | ||||
| Operating profit before amortisation of acquired intangibles | 4,256 | 7,924 | 15,797 | |
| Amortisation of acquired intangibles | (798) | (676) | (1,462) | |
| Share based payments | (128) | (64) | (119) | |
| Non-recurring costs | 5 | (971) | - | - |
| Finance costs | 6 | (98) | (301) | (437) |
| Investment income Share of loss in associate | 6 | 51 (25) | 84 - | 192 (15) |
| Profit before taxation | 2,287 | 6,967 | 13,956 | |
| Taxation | 7 | (852) | (2,554) | (5,026) |
| Profit for the period being profit attributable to equity shareholders | 1,435 | 4,413 | 8,930 | |
| Earnings per share expressed in pence per share: - basic - diluted | 9 9 | 1.04p 1.04p | 3.20p 3.16p | 6.47p 6.44p |
Dividends
No dividends have been declared and approved in respect of the six-month periods ending 30 June 2008 and 30 June 2007 (see note 8).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2008
| Six months to 30 June 2008 (Unaudited) | Six months to 30 June 2007 (Unaudited) | Year ended 31 December 2007 (Audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Opening shareholders' equity | 51,164 | 42,963 | 42,963 | |
| Profit for the financial period | 1,435 | 4,413 | 8,930 | |
| Share options - value of employee services | 128 | 64 | 119 | |
| Dividends Acquisition of own shares | 8 | (1,726) - | (1,380) - | (1,381) (169) |
| Disposal of investment in own shares | - | 19 | 19 | |
| Movements in the profit and loss account | (163) | 3,116 | 7,518 | |
| Translation difference on foreign currency net investments | 422 | (260) | 627 | |
| Shares issued | 11 | 17 | 34 | 56 |
| Total movements in shareholders' equity | 276 | 2,890 | 8,201 | |
| Closing shareholders' equity | 51,440 | 45,853 | 51,164 |
CONSOLIDATED GROUP BALANCE SHEET
as at 30 June 2008
| 30 June 2008 (Unaudited) | 30 June 2007 (Unaudited) | 31 December 2007 (Audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Assets | ||||
| Non-current assets | ||||
| Goodwill | 24,370 | 22,635 | 24,370 | |
| Intangible assets | 10 | 7,523 | 6,111 | 7,283 |
| Property, plant and equipment | 10 | 5,505 | 4,977 | 5,220 |
| Investment in associates | 179 | 188 | 191 | |
| Deferred tax assets | 662 | 1,093 | 630 | |
| 38,239 | 35,004 | 37,694 | ||
| Current assets | ||||
| Inventories | 18,747 | 16,112 | 15,847 | |
| Trade and other receivables Derivative financial instruments | 17,188 24 | 18,467 - | 23,682 25 | |
| Net cash and cash equivalents | 12 | 7,543 | 4,664 | 7,004 |
| 43,502 | 39,243 | 46,558 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Financial liabilities: borrowings | 12 | 13 | - | 2,522 |
| Trade and other payables | 23,849 | 23,661 | 24,040 | |
| Current tax liabilities Derivative financial instruments | 1,105 28 | 1,149 - | 779 11 | |
| Provisions for other liabilities and charges | 13 | 694 | 622 | 902 |
| 25,689 | 25,432 | 28,254 | ||
| Net current assets | 17,813 | 13,811 | 18,304 | |
| Non-current liabilities | ||||
| Financial liabilities: borrowings | 12 | 1,000 | 500 | 1,000 |
| Deferred tax liabilities | 2,001 | 2,075 | 2,226 | |
| Other non-current liabilities | 1,077 | - | 1,332 | |
| Provisions for other liabilities and charges | 13 | 534 | 387 | 276 |
| 4,612 | 2,962 | 4,834 | ||
| Net assets | 51,440 | 45,853 | 51,164 | |
| Shareholders' equity | ||||
| Ordinary shares | 11 | 3,465 | 3,462 | 3,463 |
| Share premium account | 11 | 4,900 | 4,864 | 4,885 |
| Merger reserve | 30,565 | 30,565 | 30,565 | |
| Translation reserve | (2,817) | (4,126) | (3,239) | |
| Retained earnings | 15,327 | 11,088 | 15,490 | |
| Total shareholders' equity | 51,440 | 45,853 | 51,164 |
CONSOLIDATED GROUP CASH FLOW STATEMENT
for the six months ended 30 June 2008
| Six months to 30 June 2008 (Unaudited) | Six months to 30 June 2007 (Unaudited) | Year ended 31 December 2007 (Audited) | |||
| Notes | £'000 | £'000 | £'000 | ||
| Cash flow from operating activities | |||||
| Cash generated from operations | 14 | 6,730 | 5,333 | 14,451 | |
| Interest received | 51 | 84 | 192 | ||
| Interest paid | (133) | (177) | (192) | ||
| Taxation paid | (815) | (2,822) | (5,198) | ||
| Net cash generated from operating activities | 5,833 | 2,418 | 9,253 | ||
| Cash flows from investing activities | |||||
| Acquisition of subsidiary (net of cash acquired) Acquisition of own shares Proceeds from sale of property, plant and equipment | - - - | - - - | (1,291) (169) 1 | ||
| Purchase of property, plant and equipment | 10 | (1,039) | (953) | (1,790) | |
| Expenditure on capitalised development costs | 10 | (1,840) | (1,120) | (2,839) | |
| Net cash (absorbed by) investing activities | (2,879) | (2,073) | (6,088) | ||
| Cash flows from financing activities | |||||
| Net proceeds from issue of ordinary share capital | 11 | 17 | 34 | 56 | |
| Net proceeds from sale of own shares Repayment of borrowings: finance leases | 12 | - (9) | 19 - | 19 (9) | |
| Repayment of borrowings: secured | - | (2,000) | (2,500) | ||
| Repayment of borrowings: unsecured | 12 | (2,500) | (1,750) | (1,750) | |
| Net proceeds from issue of new bank loan | - | - | 1,000 | ||
| Dividend paid to shareholders | - | - | (1,381) | ||
| Net cash (absorbed by) financing activities | (2,492) | (3,697) | (4,565) | ||
| Net increase/(decrease) in cash and cash equivalents | 462 | (3,352) | (1,400) | ||
| Cash and cash equivalents at beginning of period | 7,004 | 8,159 | 8,159 | ||
| Effect of foreign exchange rate changes | 12 | 77 | (143) | 245 | |
| Cash and cash equivalents at end of period | 12 | 7,543 | 4,664 | 7,004 | |
NOTES TO THE INTERIM ACCOUNTS
for the six months ended 30 June 2008
1. GENERAL INFORMATION
Vislink plc ("the Company") and its subsidiaries (together "the Group") design and manufacture microwave radio, satellite transmission, wireless camera and marine CCTV systems. The Group has manufacturing subsidiaries in the UK, Norway and the USA.
The Company is a public limited company that is listed on the London Stock Exchange. The Company is registered and domiciled in the UK and its registered office is Marlborough House, Charnham Lane, Hungerford, Berkshire. The registered number of the Company is 4082188.
This consolidated condensed interim financial report comprises the consolidated interim balance sheets as of 30 June 2008 and 30 June 2007 and related consolidated interim statements of income and cash flows for the six months then ended. This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985 (section 434 of the Companies Act 2006). Statutory accounts for the year ended 31 December 2007 were approved by the Board of directors on 4 April 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985 (section 498 of the Companies Act 2006)
This condensed consolidated interim financial information has been reviewed, not audited.
This condensed consolidated interim financial report was approved for issue on 21 August 2008.
2. BASIS OF PREPARATION
This condensed consolidated interim financial information for the six months ended 30 June 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2007, which have been prepared in accordance with IFRS as adopted by the European Union.
The preparation of the financial information requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates.
3. ACCOUNTING POLICIES
Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2007, as described in those annual financial statements.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2008, but are not currently relevant to the Group.
The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2008 and have not been early adopted:
4. SEGMENTAL ANALYSIS
The Group's internal organisational and management structure and its system of internal financial reporting to the Board of Directors is based on the geographical location of its businesses. These comprise three regions, the UK, the United States of America (US) and Norway. The UK comprises the RF businesses of Advent Communications satellite products and the wireless camera systems of Link. The US comprises the RF microwave radio business of MRC and the services business of WTS. Norway comprises the marine CCTV business of Hernis.
The table below shows the analysis of Group external revenue, by geographic location.
| Revenue | Operating Profit | ||||||
| Six months to 30 June 2008 (Unaudited) £'000 | Six months to 30 June 2007 (Unaudited) £'000 | Year ended 31 December 2007 (Audited) £'000 | Six months to 30 June 2008 (Unaudited) £'000 | Six months to 30 June 2007 (Unaudited) £'000 | Year ended 31 December 2007 (Audited) £'000 | ||
| By geographic location | |||||||
| UK (note a) | 15,975 | 18,420 | 35,821 | 2,380 | 2,600 | 5,248 | |
| US (note b) | 25,867 | 26,273 | 59,299 | 1,272 | 4,637 | 9,437 | |
| Norway | 10,603 | 8,444 | 16,843 | 1,189 | 1,375 | 1,741 | |
| Central costs (note c) | - | - | - | (2,367) | (1,008) | (2,185) | |
| Inter-segmental transactions | (5,838) | (6,985) | (13,383) | (115) | (420) | (25) | |
| Group total | 46,607 | 46,152 | 98,580 | 2,359 | 7,184 | 14,216 | |
Notes:
a) For the six months ended 30 June 2008 the UK operating profit is after charging £680,000 in respect of the acquired intangibles (six months to 30 June 2007 - £676,000 and year to 31 December 2007 - £1,364,000).
b) For the six months ended 30 June 2008 the US operating profit is after charging £122,000 in respect of the acquired intangibles (six months to 30 June 2007 - £nil and year to 31 December 2007 - £98,000).
c) For the six months ended 30 June 2008 central costs are after charging £971,000 in respect of non-recurring costs (six months to 30 June 2007 and year to 31 December 2007 - £nil) (note 5)
The Group manages its business segments on a global basis. The operations are based in three main geographical areas. The UK is the home country of the parent. The operations are located geographically as described in the table above.
The sales analysis in the tables below is based on the geographical location of the customer, product category and customer category.
Geographic revenue analysis
| Six months to 30 June 2008 (Unaudited) £'000 | Six months to 30 June 2007 (Unaudited) £'000 | Year ended 31 December 2007 (Audited) £'000 | |
| By market: | |||
| UK & Ireland | 3,341 | 2,810 | 5,714 |
| Rest of Europe | 9,491 | 7,276 | 15,296 |
| North America | 24,198 | 24,361 | 56,761 |
| South America | 1,660 | 3,895 | 4,806 |
| Middle East | 1,234 | 1,121 | 2,838 |
| Asia | 6,157 | 4,757 | 11,163 |
| Africa | 181 | 1,237 | 1,650 |
| Other | 345 | 695 | 352 |
| 46,607 | 46,152 | 98,580 | |
| Analysis of revenue by product category | |||
| Microwave radio and wireless camera products | 27,109 | 26,130 | 59,896 |
| Satellite products Technical services | 8,080 815 | 9,560 - | 18,859 839 |
| Broadcast projects | - | 2,018 | 2,143 |
| Marine CCTV products | 10,603 | 8,444 | 16,843 |
| 46,607 | 46,152 | 98,580 | |
| Analysis of revenue by customer category | |||
| Broadcasters | 33,296 | 33,163 | 72,824 |
| Defence, security and law enforcement | 2,806 | 4,882 | 9,542 |
| Marine, oil and gas | 10,505 | 8,107 | 16,214 |
| 46,607 | 46,152 | 98,580 |
5. OPERATING PROFIT
The following items of unusual nature, size or incidence have been charged to operating profit during the period and are described as non-recurring.
| Six months to 30 June 2008 (Unaudited) £'000 | Six months to 30 June 2007 (Unaudited) £'000 | Year ended 31 December 2007 (Audited) £'000 | |
| Aborted acquisition costs | 646 | - | - |
| Compensation for loss of office | 325 | - | - |
| Total non-recurring costs | 971 | - | - |
The Group invested in seeking out growth from entry into the adjacent sectors of the broadcast market by way of a significant acquisition using debt finance during the first quarter of 2008. Given the Directors' caution over the economic outlook the Group decided not to proceed further with the proposed acquisition. The costs represent professional fees incurred up to the date of the process being aborted.
A compensation benefit package has been agreed with Mr Ian Scott-Gall on his retirement at 30 September 2008.The total amount payable is £325,000 including employers national insurance costs.
6. FINANCE COSTS - NET
| Six months to 30 June 2008 (Unaudited) £'000 | Six months to 30 June 2007 (Unaudited) £'000 | Year ended 31 December 2007 (Audited) £'000 | |
| Interest payable on bank borrowing | (32) | (124) | (174) |
| Interest payable on other loans | (28) | (23) | (78) |
| Unwinding of interest associated with the discounting of deferred consideration | (38) | (154) | (185) |
| Interest and similar charges payable | (98) | (301) | (437) |
| Investment income | 51 | 84 | 192 |
| Finance costs - net | (47) | (217) | (245) |
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
| Six months to 30 June 2008 (Unaudited) £'000 | Six months to 30 June 2007 (Unaudited) £'000 | Year ended 31 December 2007 (Audited) £'000 | |
| The tax charge for the period comprises: UK corporation tax | 172 | 934 | 1,202 |
| Foreign tax | 938 | 1,930 | 3,633 |
| Total current tax | 1,110 | 2,864 | 4,835 |
| Deferred tax: UK corporation tax | (222) | (310) | (166) |
| Foreign tax | (36) | - | 357 |
| Total deferred tax | (258) | (310) | 191 |
| Total taxation | 852 | 2,554 | 5,026 |
The tax charge for the six months ended 30 June 2008 is based on the effective tax rate, which it is estimated will apply to earnings for the full year.
8. DIVIDENDS
No interim dividend is proposed for the period. In respect of 2007 there was no interim dividend and the final dividend of 1.25 pence per share was approved at the Annual General Meeting on 21 May 2008 and paid on 18 July 2008.
9. EARNINGS PER ORDINARY SHARE
Earnings per share is calculated by reference to a weighted average of 137,709,000 ordinary shares in issue during the period, excluding shares held by the Employees' Share Ownership Plan (30 June 2007: 137,891,000 and 31 December 2007: 137,955,000).
The diluted earnings per share is after taking account of a further 23,000 shares (30 June 2007: 1,656,000; 31 December 2007: 810,000) being the dilutive effect of share options.
Adjusted earnings
Vislink believes that adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide additional useful information on trends to shareholders. Vislink uses these measures for internal performance analysis and incentive compensation arrangements. The principal adjustments are in respect of the amortisation of acquired intangibles and share based payments. In the period to 30 June 2008 the non-recurring aborted acquisition costs have also been included in the adjustment. Share based payments have been included in the adjustment following the approval of the Vislink plc Long Term Incentive Plan by shareholders on 7 March 2008.
The reconciliation between reported and adjusted earnings and basic earnings per share is shown below:
| Six months to 30 June 2008 | Six months to 30 June 2007 | Year ended 31 December 2007 | ||||
| Earnings £'000 | Basic EPS pence | Earnings £'000 | Basic EPS pence | Earnings £'000 | Basic EPS Pence | |
| Reported earnings | 1,435 | 1.04p | 4,413 | 3.20p | 8,930 | 6.47p |
| Amortisation of acquired intangibles after tax | 559 | 0.41p | 473 | 0.34p | 1,023 | 0.74p |
| Share based payments | 128 | 0.09p | 64 | 0.05p | 119 | 0.09p |
| Non-recurring costs after tax | 683 | 0.50p | - | - | - | - |
| Adjusted earnings | 2,805 | 2.04p | 4,950 | 3.59p | 10,072 | 7.30p |
10. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
| Six months to 30 June 2008 £'000 | Six months to 30 June 2007 £'000 | Year ended 31 December 2007 £'000 | |
| Property, plant and equipment | |||
| Opening net book value as at 1 January | 5,220 | 4,689 | 4,689 |
| Additions | 1,039 | 953 | 1,790 |
| Additions through business combinations | - | - | 126 |
| Disposals | (1) | - | (1) |
| Depreciation | (836) | (662) | (1,485) |
| Exchange adjustment | 83 | (3) | 101 |
| Closing net book value | 5,505 | 4,977 | 5,220 |
| Intangible development costs | |||
| Opening net book value as at 1 January | 3,692 | 1,928 | 1,928 |
| Additions | 1,840 | 1,120 | 2,839 |
| Depreciation | (808) | (484) | (1,072) |
| Exchange adjustment | 6 | (26) | (3) |
| Closing net book value | 4,730 | 2,538 | 3,692 |
| Acquired Intangible assets | |||
| Opening net book value as at 1 January | 3,591 | 4,249 | 4,249 |
| Additions through business combinations | - | - | 804 |
| Depreciation | (798) | (676) | (1,462) |
| Exchange adjustment | - | - | - |
| Closing net book value | 2,793 | 3,573 | 3,591 |
| Total closing net book value of intangible assets | 7,523 | 6,111 | 7,283 |
Intangible development cost additions in the period to 30 June 2008 include £595,000 in respect of third party IPR that has been acquired for the integration of core technologies.
11. CALLED UP SHARE CAPITAL AND SHARE PREMIUM
| Number of shares '000 | Share Capital £'000 | Share Premium £'000 | Total £'000 | |
| At 1 January 2008 | 138,534 | 3,463 | 4,885 | 8,348 |
| Issued on exercise of executive share options | 60 | 2 | 15 | 17 |
| At 30 June 2008 | 138,594 | 3,465 | 4,900 | 8,365 |
Employee share option scheme: options exercised during the period to 30 June 2008 resulted in 60,000 shares being issued (30 June 2007: 71,000 shares), with exercise proceeds of £17,000 (30 June 2007 - £34,000). The related weighted average price at the time of exercise was 26.5 pence (30 June 2007: 96.8 pence) per share.
12. CASH, BORROWINGS AND LOANS
The movements in cash and cash equivalents, borrowings and loans in the period were as follows:
| Net cash and cash equivalents £'000 | Loan notes £'000 | Other borrowings £'000 | Total net cash £'000 | |
| Six months ended 30 June 2007 | ||||
| At 1 January 2007 | 8,159 | (1,750) | (2,500) | 3,909 |
| Repayment of borrowings | (2,000) | - | 2,000 | - |
| Payment of loan notes | (1,750) | 1,750 | - | - |
| Other cash movements in the period | 398 | - | - | 398 |
| Exchange rate adjustments | (143) | - | - | (143) |
| At 30 June 2007 | 4,664 | - | (500) | 4,164 |
| Six months ended 30 June 2008 | ||||
| At 1 January 2008 | 7,004 | (2,500) | (1,022) | 3,482 |
| Repayment of borrowings | (9) | - | 9 | - |
| Payment of loan notes | (2,500) | 2,500 | - | - |
| Other cash movements in the period | 2,971 | - | - | 2,971 |
| Exchange rate adjustments | 77 | - | - | 77 |
| At 30 June 2008 | 7,543 | - | (1,013) | 6,530 |
The Group has sufficient headroom to enable it to conform to covenants on its existing borrowings. The Group has sufficient working capital and undrawn financing facilities to service its operating activities and proposed acquisitions.
The Group has the following undrawn borrowing facilities:
| 30 June 2008 £'000 | 30 June 2007 £'000 | 31 December 2007 £'000 | |
| Floating rate: - expiring within one year - expiring beyond one year | 4,042 19,000 | 4,889 3,800 | 3,772 19,000 |
The Group's facilities comprise a bank overdraft facility of £5.0 million and a revolving credit facility of £20.0 million. The facilities expiring within one year comprise the Group overdraft facility that is subject to review during 2009 in the normal course of business. The revolving credit facility has been provided for the Group to make acquisitions. The facility reduces to £17.0 million twelve months after the date of drawing on the facility exceeds £4.3 million, to £13.5 million after 24 months, £10.0 million after 36 months and zero after 48 months. Interest on the overdraft facility is charged at 1% over base rate; interest on the revolving credit facility is charged at 1% over LIBOR. The bank loans and overdrafts are secured by fixed and floating charges over the Group's assets and by cross-guarantees between the Company and certain UK and US subsidiaries.
13. PROVISIONS FOR LIABILITIES AND CHARGES
| £'000 | |
| Six months ended 30 June 2008 | |
| Warranty provision at 1 January 2008 | 1,178 |
| Charged in period | 322 |
| Utilised in period | (272) |
| At 30 June 2008 | 1,228 |
Warranty provisions are made in respect of the expected future warranty costs in certain businesses based on historic actual costs. Warranty periods on products are generally between one and two years. Other than a warranty provision of $1,047,000 (£526,000) all provisions are denominated in sterling.
14. NOTES TO THE CASH FLOW STATEMENT
Net cash flow from operating activities comprises:
| Six months to 30 June 2008 £'000 | Six months to 30 June 2007 £'000 | Year ended 31 December 2007 £'000 | |
| Profit attributable to shareholders | 1,435 | 4,413 | 8,930 |
| Taxation | 852 | 2,554 | 5,026 |
| Depreciation | 836 | 662 | 1,485 |
| Loss on disposal of property, plant and equipment | 1 | - | - |
| Amortisation of development costs | 808 | 484 | 1,072 |
| Amortisation of acquired intangibles | 798 | 676 | 1,462 |
| Share options - value of employee services | 128 | 64 | 119 |
| Investment income | (51) | (84) | (192) |
| Finance costs Derivative financial instruments Share of loss associate | 98 18 25 | 301 - - | 437 (14) 15 |
| (Increase) in inventories | (2,736) | (1,714) | (1,062) |
| Decrease/(increase) in trade and other receivables | 6,793 | (202) | (4,714) |
| (Decrease)/increase in payables | (2,327) | (1,873) | 1,666 |
| Increase/(decrease) in provisions | 52 | 52 | 221 |
| Cash flow from operating activities | 6,730 | 5,333 | 14,451 |
15. FOREIGN EXCHANGE RATES
The principal exchange rates used by the Group in translating overseas profits and net assets into GBP are set out in the table below.
| Rate compared to GBP: Period ended | 30 June 2008 | 30 June 2007 | 31 December 2007 |
| Average rates | |||
| US dollar | 1.98 | 1.97 | 2.00 |
| Norwegian Krone | 11.72 | 12.06 | 11.71 |
| Period end rate | |||
| US dollar | 1.99 | 2.00 | 1.99 |
| Norwegian Krone | 10.26 | 11.85 | 10.80 |
16. RELATED PARTY TRANSACTIONS
A compensation benefit package has been agreed with Mr Ian Scott-Gall on his retirement at 30 September 2008.The total amount payable under the agreement is £296,000 plus employers national insurance costs.
17. SUBSEQUENT EVENT - ACQUISITION
Marcom
On 31 July 2008 the Group acquired the assets and contracts of Scotts Valley Group Inc. trading as Marcom for a cash consideration, dependant on performance, of $1.5 million (£0.8 million) before expenses. Below is a summary of the preliminary valuation of the tangible and intangible net assets acquired and the calculation of goodwill:
| Book value | Fair value adjustment | Fair value | Fair value | |
| $'000 | $'000 | $'000 | £'000 | |
| Net assets acquired | ||||
| Acquired intangibles - customer relationships | - | 1,400 | 1,400 | 704 |
| Property, plant and equipment | 180 | - | 180 | 90 |
| 180 | 1,400 | 1,580 | 794 | |
| Goodwill on acquisition | - | - | ||
| Total consideration | 1,580 | 794 | ||
| Satisfied by: | ||||
| Cash consideration (including acquisition costs of £56,000) | 1,080 | 543 | ||
| Deferred consideration | 500 | 251 | ||
| 1,580 | 794 | |||
| Net cash outflow arising on acquisition | ||||
| Cash consideration (including acquisition costs of £56,000) | 1,080 | 543 | ||
| Less: deposits against contracts retained by vendors | (331) | (167) | ||
| 749 | 376 | |||
The contracts acquired have a revenue value of US$5.7 million (£2.9 million).
Pacific Microwave Research, Inc
On 20 August 2008 the Group agreed to acquire 100% of the issued share capital of Pacific Microwave Reserach, Inc, ("PMR"), for a maximum consideration, dependent on performance, of US$17.0 million (£9.1 million) before expenses. PMR, incorporated in the State of California, is a high-technology design, engineering and manufacturing company specializing in analogue and digital microwave video transmission solutions for law enforcement, Homeland Security, and military applications. PMR products are used for evidentiary video collection, covert surveillance, unmanned ground vehicles (UGV), unmanned aerial vehicles (UAV), and flight test air-to-ground image transmission.
Below is a summary of the preliminary valuation of the tangible and intangible net assets acquired and the calculation of goodwill:
| Book value | Fair value adjustment | Fair value | Fair value | |
| US$'000 | US$'000 | $'000 | £'000 | |
| Net assets acquired | ||||
| Acquired intangibles | - | 9,500 | 9,500 | 5,107 |
| Property, plant and equipment | 320 | - | 320 | 172 |
| Inventories | 432 | - | 432 | 232 |
| Trade and other receivables | 443 | - | 443 | 238 |
| Cash at bank and in hand | 436 | - | 436 | 234 |
| Trade and other payables | (140) | - | (140) | (75) |
| Provisions | (24) | - | (24) | (13) |
| 1,467 | 9,500 | 10,967 | 5,895 | |
| Purchased goodwill on acquisition | 5,055 | 2,718 | ||
| Total consideration | 16,022 | 8,613 | ||
| Satisfied by: | ||||
| Cash consideration (including acquisition costs of US$300,000) | 10,300 | 5,537 | ||
| Deferred consideration (discounted to present value) | 5,722 | 3,076 | ||
| 16,022 | 8,613 | |||
| Net cash outflow arising on acquisition | ||||
| Cash consideration (including acquisition costs of US$300,000) | 10,300 | 5,537 | ||
| Cash and cash equivalents acquired | (436) | (234) | ||
| 9,864 | 5,303 | |||
The deferred consideration of US$7.0 million (£3.7 million) payable over the next four years has been discounted to its present value at a rate of 6.1% to US$5.7 million (£3.1 million) at the date of acquisition. Goodwill arising on acquisition is attributable to the anticipated growth in profitability of the business and the future operating synergies with the current DLES strategy within the Group.
Statement of directors' responsibilities
The directors' confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The directors of Vislink plc are listed in the Vislink plc Annual Report for 31 December 2007.
By order of the Board
Ian Scott-Gall
Chief Executive
James Trumper
Finance Director
21 August 2008
Independent review report to Vislink Plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008, which comprises the income statement, balance sheet, statement of changes in equity, cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Bristol
21 August 2008
Notes: (a) The maintenance and integrity of the Vislink web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.