Total revenue for 1H 2016 was £171.1 million, an increase of 9.7% versus 1H 2015, and an increase of 5.7% when compared to 2H 2015. Operating profit was £12.6 million, a decrease of 8.7% versus 1H 2015, and a 41.7% decrease against 2H 2015. On a constant currency basis, revenue increased 3.1% and operating profit increased 5.2% on a year-over-year basis.
Operating profit declined despite the revenue growth because of non-repeat, high-margin Haigh-Farr antennas contracts in the comparison period (1H 2015) and a greater mix of lower margin broadcast services business during the first six months of 2016.
Operating profit is reported before costs associated with the acquisition of business ($2.7 million during 1H 2016), restructuring (£2.8 million in 1H 2016), and also the £0.7 million gain on sale of The Vitec Group’s manufacturing facility in Bury St Edmunds. Vitec indicated the restructuring activities initiated in 2015 resulted in savings of £2.5 million in the first six months of the year.
Vitec acquired two businesses in the first half of 2016. In January Vitec purchased Provak Foto Film Video B.V., a Netherlands distributor partner for cash consideration of £0.9 million. On April 12, 2016, Vitec’s Broadcast Division acquired Offhollywood Digital for upfront cash consideration of £1.6 million along with contingent compensation of up to $8.0 million (USD) if gross profit targets are met for the periods to December 2018. Offhollywood Digital provides camera-back modules for RED cameras along with related services.
Vitec often structures its acquisitions with contingent consideration. During the period Vitec made yet another payment in the amount of £2.8 million on the earn-out related to the 2013 acquisition of Teradek.
Vitec Broadcast Division:
Vitec’s broadcast brands serve various parts of the broadcast industry: Anton/Bauer, Autocue, Autoscript, Bexel, Camera Corps, Haigh-Farr, Litepanels, OConnor, Paralinx, Petrol Bags, Sachtler, SmallHD, Teradek, The Camera Store, and Vinten.
Vitec reports the results of its Broadcast Division separate from its Photographic division. For the first half of 2016, the Broadcast Division represented 60.0% of The Vitec Group’s total sales. In 1H 2015 and 2H 2015 the Broadcast Division accounted for 60.0% and 59.0%, respectively.
The below slide is taken from the Vitec Group earnings presentation and offers a summary on the key developments with the Broadcast Division in the first half of 2016.
The Broadcast Division had revenue of £102.3 million in 1H 2016, an increase of 10.0% versus 1H 2015 (an increase of 4.0% on constant currency basis), and an increase of 6.6% compared to the preceding period, 2H 2015.
In the Company’s release, management noted strength in the US market, which offset a more challenging environment in the EMEA region.
Positive currency benefits from a weaker British pound accounted for 60% of the Broadcast Division’s growth in 1H 2016. Given the currency volatility stemming from the recent EU referendum in the UK, The Vitec Group expects to realize a net currency benefit in the second half of 2016. Management indicated the hedges it maintains on the GBP to USD and GBP to EUR exchange rates will also delay part of the impact of a weaker GBP into the 2017 fiscal year.
Product sales for the Broadcast Division were £78.7 million for 1H 2016, an increase of 0.5% over 1H 2015, and a decrease of 4.0% over 2H 2015. As a percentage of Broadcast Revenue, Products sales accounted for 76.9% of revenue in 1H 2016. This compares to 84.6% in 1H 2015 and 85.4% during 2H 2015.
Within Product sales management highlighted the increased sales of wireless transmitters and receivers, camera monitors, and mobile power. The US market was especially strong for broadcast battery products. These results were offset by a decrease in large camera support sales.
Services sales from Vitec’s Bexel subsidiary were £23.6 million in 1H 2016, an increase of 66.2% versus 1H 2015, and an increase of 62.8% against 2H 2015. Services represented 23.1% of Broadcast revenue during 1H 2016. In 1H 2015 Services were 15.4% of sales and during 2H 2015 Services were 15.1% of Broadcast Revenue.
The strong growth in Services was due to a large contract with the NFL for project management and support to upgrade the communication infrastructure for all 31 NFL stadiums. The contract includes the pass-through of low margin products impacting the profitability of the Broadcast Division.
Operating profit for the Broadcast Division in 1H 2016 was £8.5 million, a decrease of 12.4% versus the 1H 2015 result (down 10.0% on constant currency basis), and a decrease of 34.6% against 2H 2015. In addition to the greater concentration with Services, operating profit was also negatively impacted by Vitec’s continued investment in the development of its wireless products and camera monitor business.
Operating margin for the Broadcast Division was 8.3% during the first half of 2016, a decrease of 220 basis points against 1H 2015, and a decrease of 600 basis points compared to 2H 2015.
Commenting on the first half results and outlook for the full year, Group Chief Executive Stephen Bird offered the following, “The Board’s expectations for the full year are unchanged. We anticipate that the Group’s performance in the second half of the year will benefit from the Rio 2016 Olympics, full year savings from the previously announced restructuring plans, and, potentially, from weaker Sterling.”
Press Release: Vitec Group 1H 2016 Results
Presentation: Vitec Group 1H 2016 Results
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