REG - Vislink PLC - Half year results <Origin Href="QuoteRef">VLK.L</Origin> - Part 1
RNS Number : 2747LVislink PLC30 September 2016Vislink plc
(the "Company" or the "Group")
Half year results for the six months ended 30 June 2016
Vislink plc, a leading global software and technology business specialising in solutions for the live collection, delivery and playout automation of high quality video 'from scene to screen' for the broadcast and surveillance and public safety markets, today announces its half year results for the six months ended 30 June 2016.
Results for the six months ended 30 June 2016
2016
2015
m
m
Order intake
22.3
28.2
Revenue
22.6
26.6
Adjusted operating (loss) / profit1
(1.1)
2.2
Adjusted (loss) / earnings per share1
(2.9)p
1.6p
Adjusted (loss) / earnings per share normalised for tax effects2
(0.8)p
1.3p
Reported operating loss
(32.0)
(0.8)
Basic loss per share
(26.9)p
(0.4)p
Net debt
(8.8)
(1.2)
1 Adjusted operating profit from continuing operations before the amortisation of acquired intangibles and non-recurring costs (note 5).
2 Adjusted earnings per share normalised for tax effective rate of 20 per cent.
Key points
- Pebble Beach Systems' order intake in H1 2016 was up 53.3% to 5.4 million (H1 2015: 3.5 million).
- Pebble Beach Systems generated lower than expected revenue in Q2, however there is a strong pipeline in H2.
- Activity levels in Pebble Beach Systems remain strong with the relationship with Harmonic continuing to progress.
- Sales in Vislink Communication Systems in H1 were below management expectations, down 18.5% to 17.2 million (H1 2015: 21.2 million).
- The Board has now initiated a business improvement plan within Vislink Communication Systems to ensure its brands maintain their market leading position and the business generates acceptable levels of profitability in future periods.
- Write-off of inventory and capitalised development costs leading to adjustments of 6.3 million
- Write-off of goodwill and acquired intangibles leading to an adjustment of 23.3 million
- Adjusted operating loss of 1.1 million (H1 2015: profit of 2.2 million)
- The Group benefitted from a 2.2 million favourable movement on foreign exchange in the period which has been credited to reserves.
- The Group is currently fully utilising the RCF facility (15.0 million) and is forecast to breach its September 2016 banking covenant, but remains in constructive discussions with its bankers
John Hawkins, Executive Chairman of the Group, said:
"We continue to see significant underlying organic growth in our software business with a strong order intake which has carried through into H2.
The long term prospects for Pebble Beach Systems continue to improve as we augment our core enterprise software solutions with cloud enabled software applications. We also have a pipeline of partners and software bolt-on acquisitions which will further enhance the Group strategy of building a high margin, cash generative software business.
In its core broadcast market Vislink Communication Systems has seen a reduction in spend from broadcasters as they divert budgets from building infrastructure to investing in content. A technology shift to IP infrastructures has also delayed key buying decisions.
With this background and with a desire to increase the efficiency of VCS and ensure that we build a cash generative sustainable and profitable business we have taken a number of decisive actions as part of our business improvement plan, including the move of the VCS finance function to Head Office leading to improved cash collection. We will continue to re-evaluate implementation of the business plan as trading progresses into H2.
To ensure that we continue our focus on improving the cash generation and profitability of the Group we will:
- Reduce the dividend going forward to nil until our bank debt is below 1 x EBITDA;
- Senior management to voluntarily cancel the VCP Scheme and there is no intention to replace this scheme;
- Continue to examine the appropriateness of the Board and Group structure.
Our long term aim of investing in software and services, and reducing our overall indebtedness remains central to our objectives to ensure we have a continuation of the growth of our software business in 2017 and beyond, and a cash generative VCS.
- ends -
For further information please contact:
John Hawkins, Executive Chairman
+44 (0) 14 88 68 55 00
Ian Davies, Group Finance Director
+44 (0) 14 88 68 55 00
Charlie Jack / Bertie Berger
Hudson Sandler
+44 (0) 20 77 96 41 33
Shaun Dobson / James White
N+1 Singer
+44 (0) 20 74 96 30 00
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon publication of this announcement this information is now considered to be in the public domain.
About Vislink plc
Vislink plc is a leading global software and technology business specialising in solutions for the live collection, delivery and playout automation of high quality video 'from scene to screen'.
For the broadcast markets, Vislink provides wireless communication solutions for the collection of live news, sport and entertainment as well as software solutions for channel playout automation, channel-in-a-box and video content management. Vislink also provides secure video communications for surveillance and public safety applications such as law enforcement and homeland security.
Vislink employs over 250 people worldwide with offices in the UK, USA, UAE and Singapore and manufacturing operations in the UK and the USA. Vislink has net assets of over 21 million and continues to invest in innovation.
The Company is listed on the AIM market of the London Stock Exchange. For further information, visit www.vislinkplc.com.
Forward-looking statements
Certain statements in this announcement 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 be 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. Nothing in this announcement should be construed as a profit forecast.
Introduction
As indicated in the trading update issued on 6 July 2016, the Group generated lower than expected revenue of 22.6 million in a variable marketplace. Pebble Beach Systems achieved revenue of 5.4 million and contributed 1.2 million of adjusted operating profit. However, in challenging market conditions, Vislink Communication Systems underperformed with revenues of 17.2 million and generated an adjusted operating loss of 0.8 million. As a result, the Group is currently utilising its banking facilities, and forecasts it will breach its September banking covenants.
Our two divisions continue to provide best in class solutions to three core markets; the broadcast software market, the broadcast communications market for the collection of live news, sport and live entertainment events, and the surveillance and public safety market.
Platform for profit growth
The Group operates as two divisions: Pebble Beach Systems, which includes the Group's automation and playout software products, and Vislink Communication Systems, which is a consolidation of the Group's hardware businesses. Both divisions benefit from channel and market synergies. We continue to see a strengthening of our capabilities, expertise and ability to execute against our "Scene to Screen" strategy and this is accelerated by the development of key partnerships and the launch of new products.
Pebble Beach Systems
Pebble Beach Systems is a world leader in the provision of software for automation, Channel in a Box and content management solutions for TV broadcasters, cable and satellite operators. Its leading next generation products and cutting-edge software technology within the broadcasting sector are best reflected by its global customer base, which includes GloboSat, CNN Chile and Fox Sports. Furthermore, this customer base continues to grow rapidly. Pebble Beach Systems has high margins, excellent growth prospects and solid cash generation.
Pebble Beach Systems had a slower than expected start to the year due to a delay in orders being received, however still achieved revenue of 5.4 million (H1 2015: 5.4 million). Pebble Beach Systems contributed 1.2 million of adjusted operating profit in H1 2016 (H1 2015: 1.8 million) which reflects investment in software development and expansion of sales capability to underpin the future growth of the division.
We believe that Pebble Beach Systems' ongoing organic growth has transitioned Vislink into a market leading, video capture and playout provider to the broadcast industry. Pebble Beach Systems demonstrates that the Group's software strategy is on track, with the software business providing good growth prospects, better operating margins and the benefit of improved visibility of earnings.
Vislink Communication Systems
The business was restructured during 2015. However, the continued significant changes in both the broadcast marketplace and the media technology used to meet the industry's needs, combined with the external economic worldwide factors, meant that Vislink Communication Systems found market conditions continued to be challenging in H1 2016, resulting in lower than expected order intake.
The Board is initiating a business improvement plan within Vislink Communication Systems in H2. This improvement plan is focusing the business on key, leading edge technologies and a restructuring plan that is directed at further reducing costs within the business during H2.
Vislink Communication Systems has successfully developed new products incorporating IP technology. These products have been very well received and the timings of these launches will benefit Vislink Communication Systems in future periods, with further product launches planned. Vislink Communication Systems is positioning itself to be the technology leader in those markets which offer better growth through exploiting technology shift opportunities.
Financial results
Group revenue for the period to 30 June 2016 was 22.6 million (H1 2015: 26.6 million). Orders received in the period were 22.3 million (H1 2015: 28.2 million). The order book at 30 June 2016 was 11.4 million (30 June 2015: 7.1 million).
Total overheads reduced to 11.2 million (H1 2015: 11.5 million).
The adjusted operating loss for the period was 1.1 million (H1 2015: profit of 2.2 million) before charging 24.5 million in respect of the amortisation and impairment of goodwill and acquired intangibles (H1 2015: 1.2 million) and 6.4 million of non-recurring items (H1 2015: 1.7 million).
The reported loss before tax was 32.2 million (H1 2015: 0.9 million).
As at 30 June 2016 the Group held inventory of 8.1 million which is down 42.8 per cent on the prior year (H1 2015: 14.1 million), but which included an inventory write-down of 5.5 million. Trade and other receivables of 18.2 million, up 52.4 per cent on the prior year (H1 2015: 12.0 million); and trade and other payables of 13.1 million, up 1.4 per cent on the prior year (H1 2015: 12.9 million).
The Group continues to view investment in the development of new products and services as key to future growth. The cash outflow from investing activities amounted to 2.0 million (H1 2015: 1.6 million) which comprised net capital expenditure and the capitalisation of development costs.
Non-recurring Items
It was announced on 6 July 2016 that the Board had initiated a business improvement plan triggered by market conditions and a detailed review was carried out of inventory and capitalised development costs to identify increasingly inappropriate legacy technology and products. As a consequence a significant inventory write-down of 5.5 million has been recorded, along with a 0.8 million impairment of capitalised development costs, totalling 6.3 million.
These adjustments will ensure that the VCS product portfolio is focussed on key, leading-edge technologies. This, combined with the continuing development of new IP products, will ensure the business is well positioned to capitalise on the ever-evolving technology shift.
In addition, as a result of H1 performance and expected outturn for the year, management considered that there had been an impairment trigger requiring an impairment review of intangible assets. This has led to a write down of goodwill and acquired intangibles of 23.3 million, as a result of a downgrading of the forecasts for the business.
Going Concern
In the trading statement issued on 6 July 2016, the Group announced that the lower than expected trading performance of Vislink Communication Systems was expected to continue into H2, and that the Group's bankers had agreed to defer the covenant tests until 31 July 2016 (from 30 June 2016).
The deferred covenants at the end of July were waived, however trading for Vislink Communication Systems remains challenging, with the seasonal uplift usually experienced following Q1 not materialising. As a consequence the Group has been in conversation with its bankers.
As at 30 June 2016 net debt was 8.8m (cash 3.2m and bank debt (12.0)m). Net debt has subsequently increased. The Group is fully utilising its RCF facility and forecasts that it will be in breach of its banking covenants at 30 September 2016, meaning that it is reliant on the ongoing support of its bankers.
In order to assess the appropriateness of preparing the consolidated interim financial information on the going concern basis, management have prepared detailed projections of expected future cash flows out to 31 December 2016 and a higher level review to December 2017, and these have been reviewed by the Board.
Whilst challenging, Management are implementing an improvement plan directed at enabling the business to remain within its borrowing facilities through a combination of actively managing cash, cutting unnecessary expenditure and looking at other sources of finance or disposal opportunities within the Group.
In reaching their decision that the interim results should be prepared on the going concern basis, the Board has considered the forecast covenant breach. If the Group is not in compliance with its financing arrangements, the lender can immediately call for repayment of the loan, and the Group has insufficient cash to repay the secured loan in full without securing additional funding. However, the Group is in constructive discussions with its bankers.
The condition identified above, regarding the ongoing support of the Group's bankers, indicates the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern. The consolidated interim financial information does not include the adjustments that would result if the Group was unable to continue as a going concern.
Earnings per share
The reported basic undiluted loss per share for the period was 26.9 pence (H1 2015: 0.4 pence).
After adjusting for amortisation and impairment of goodwill and acquired intangibles and other non-recurring items the Group's adjusted loss per share was 2.9 pence (H1 2015: earnings of 1.6 pence).
The adjusted loss per share normalised for an effective tax rate of 20 per cent for the period was 0.8 pence (H1 2015: earnings of 1.3 pence).
Dividends
In order to preserve cash the Board proposed that the full year dividend in respect of the year ended 31 December 2015 remain at 1.5 pence per share (2014: 1.5 pence per share). This was approved at the Group's Annual General Meeting and the final dividend was paid to shareholders on the 18 July 2016. As in previous years, the Board is not declaring an interim dividend.
Our Markets
Orders received from our broadcast market were down 23.8 per cent to 19.5 million (H1 2015: 25.6 million), with orders received from the surveillance market up 5.5 per cent to 2.7 million (H1 2015: 2.6 million).
In the Group's hardware division, broadcast order intake was down 36.1 per cent to 14.1 million (H1 2015: 22.1 million). This was offset by the software division where broadcast order intake was up by 53.3 per cent to 5.4 million (H1 2015: 3.5 million).
Group Broadcast revenue decreased by 7.7 per cent to 20.6 million (H1 2015: 22.3 million). Group Surveillance revenue has decreased by 52.9% to 2.0 million (H1 2015: 4.3 million).
Revenue by market
H1 2016
H1 2015
Change
FY 2015
m
m
%
m
Broadcast:
UK & Europe
7.6
6.3
20.1%
15.1
Americas
7.9
10.8
(27.4)%
21.5
Middle East and Africa
3.2
3.3
(3.2)%
7.4
Asia/Pacific
1.9
1.9
4.1%
6.2
Broadcast
20.6
22.3
(7.7)%
50.2
Surveillance
2.0
4.3
(52.9)%
7.6
Total
22.6
26.6
(15.0)%
57.8
Divisional operations
H1 2016
H1 2015
Change
FY 2015
m
m
%
m
Revenues
Vislink Communication Systems
17.2
21.2
(18.5)%
46.9
Pebble Beach Systems
5.4
5.4
(1.4)%
10.9
Total revenue
22.6
26.6
(15.0)%
57.8
Adjusted operating profit
Vislink Communication Systems
(0.8)
1.9
(146.4)%
2.8
Pebble Beach Systems
1.2
1.8
(34.8)%
3.3
Central costs
(1.5)
(1.5)
(3.1)%
(1.4)
Total adjusted operating (loss) / profit
(1.1)
2.2
(152.7)%
4.7
Principal risks and uncertainties
The principal risks and uncertainties affecting the business activities of the Group remain those detailed on page 37 of the 2015 Annual Report, a copy of which is available on the Group website at www.vislinkplc.com, together with the banking uncertainties as referred to above. The Board considers that these are a current reflection of the main risks and uncertainties facing the business for the remaining six months of the financial year. The Group notes that this is not an exhaustive list. The Group's risk management process remains unchanged from 31 December 2015 and is described in detail in the 2015 Annual Report. The principal risks considered by the Board relate to global economic conditions and those associated with the Group's markets, reputation, overseas operations, customer defaults, senior management and foreign exchange, and the banking uncertainties. The principal exchange rates used in the preparation of this condensed consolidated half year financial information are provided in note 13.
Strategy and Outlook
The key focus of the Group is to expand its software offerings, and continue its strong organic software growth whilst maintaining profitability.
Operating efficiency and cash generation will be the focal point. Restructuring in the last quarter of 2016 should benefit the Group, coupled with the improvement in lower costs at Group level leading to an improving position in 2017.
Our partnerships and expansion of our sales channels continues with our relationship with Harmonic continuing to make strong progress.
The software division (PBS) continues to benefit from market leading cloud and IP solutions. We remain committed to growing this business both organically and through bolt on acquisitions.
The Group has invested heavily over the past few years in ensuring that our hardware division (VCS) has the latest IP products and can exploit the live sports applications and improved content acquisition through exploiting the very latest Ultra High Definition technologies. That said this division has to now deliver improved cash generation and profitability, and benefit from its market leadership.
Taking the foreign exchange gain below the line, the Group anticipate making an adjusted operating loss for the year as a whole.
John Hawkins
Executive ChairmanCONSOLIDATED GROUP INCOME STATEMENT
For the six months ended 30 June 2016
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
Notes
000
000
000
Continuing operations
Revenue
4
22,640
26,631
57,811
Cost of sales
(12,586)
(13,009)
(31,800)
Gross profit
10,054
13,622
26,011
Sales and marketing expenses
(4,575)
(4,511)
(9,423)
Research and development costs
(3,641)
(2,811)
(5,757)
Administrative costs
(2,979)
(4,136)
(6,110)
Other expenses
(30,868)
(2,942)
(5,475)
Operating loss
4
(32,009)
(778)
(754)
Operating loss is analysed as:
Adjusted operating (loss) / profit
(1,141)
2,164
4,721
Amortisation and impairment of goodwill and acquired intangibles
(24,509)
(1,209)
(2,404)
Non-recurring items
5
(6,359)
(1,733)
(3,071)
Finance costs - net
(153)
(103)
(240)
Loss before taxation
(32,162)
(881)
(994)
Taxation
6
(612)
422
91
Loss for the period attributable to equity shareholders
(32,774)
(459)
(903)
Basic loss per share
8
(26.9)p
(0.4)p
(0.7)p
Diluted earnings per share
The diluted loss per share was (26.9)p (note 8).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2016
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Loss for the period
(32,774)
(459)
(903)
Items that may subsequently be reclassified to profit or loss:
Exchange difference on translation of foreign currency net investments
1,737
(17)
406
Total comprehensive expense for the period
(31,037)
(476)
(497)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months ended 30 June 2016
Share Capital
Share premium account
Capital redemption reserve
Merger reserve
Translation reserve
Retained earnings
Total
000
000
000
000
000
000
000
Balance at 1 January 2016
3,066
6,800
617
32,448
4,843
6,678
54,452
Share based payments: value of employee services
-
-
-
-
-
292
292
Dividends payable
-
-
-
-
-
(1,839)
(1,839)
Transactions with owners
-
-
-
-
-
(1,547)
(1,547)
Retained loss for the period
-
-
-
-
-
(32,774)
(32,774)
Exchange difference on translation of foreign currency net investments
-
-
-
-
1,737
-
1,737
Total comprehensive income/(expense) for the period
-
-
-
-
1,737
(32,774)
(31,037)
Balance at 30 June 2016
3,066
6,800
617
32,448
6,580
(27,643)
21,868
Balance at 1 January 2015
3,066
6,800
617
32,448
4,437
9,459
56,827
Adjustment in respect of Employee Share Ownership Plan
-
-
-
-
-
(5)
(5)
Share based payments: value of employee services
-
-
-
-
-
287
287
Dividends payable
-
-
-
-
-
(1,830)
(1,830)
Transactions with owners
-
-
-
-
-
(1,548)
(1,548)
Retained loss for the period
-
-
-
-
-
(459)
(459)
Exchange differences on translation of foreign currency net investments
-
-
-
-
(17)
-
(17)
Total comprehensive expense for the period
-
-
-
-
(17)
(459)
(476)
Balance at 30 June 2015
3,066
6,800
617
32,448
4,420
7,452
54,803
Balance at 1 January 2015
3,066
6,800
617
32,448
4,437
9,459
56,827
Adjustment in respect of Employee Share Ownership Plan
-
-
-
-
-
(5)
(5)
Share based payments: value of employee services
-
-
-
-
-
(43)
(43)
Dividends payable
-
-
-
-
-
(1,830)
(1,830)
Transactions with owners
-
-
-
-
-
(1,878)
(1,878)
Retained (loss)/profit for the year
-
-
-
-
-
(903)
(903)
Exchange differences on translation of overseas operations
-
-
-
-
406
-
406
Total comprehensive income/(expense) for the year
-
-
-
-
406
(903)
(497)
Balance at 31 December 2015
3,066
6,800
617
32,448
4,843
6,678
54,452
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
As at 30 June 2016
Notes
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Assets
Non-current assets
Intangible assets
9
17,984
42,648
42,291
Property, plant and equipment
9
2,041
2,268
2,201
Deferred tax assets
3,814
3,786
4,461
23,839
48,702
48,953
Current assets
Inventories
8,063
14,107
12,696
Trade and other receivables
18,228
11,958
18,751
Current tax assets
-
66
-
Cash and cash equivalents
10
3,172
6,180
3,251
29,463
32,311
34,698
Liabilities
Current liabilities
Financial liabilities-borrowings
10
12,000
7,400
9,000
Trade and other payables
13,121
12,938
13,554
Current tax liabilities
226
-
239
Provisions for other liabilities and charges
11
537
733
272
25,884
21,071
23,065
Net current assets
3,579
11,240
11,633
Non-current liabilities
Deferred tax liabilities
5,478
5,139
5,714
Provisions for other liabilities and charges
11
72
-
420
5,550
5,139
6,134
Net assets
21,868
54,803
54,452
Shareholders' equity
Ordinary shares
3,066
3,066
3,066
Share premium account
6,800
6,800
6,800
Capital redemption reserve
617
617
617
Merger reserve
32,448
32,448
32,448
Translation reserve
6,580
4,420
4,843
Retained earnings
(27,643)
7,452
6,678
Total shareholders' equity
21,868
54,803
54,452
CONSOLIDATED GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2016
Notes
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Cash flows from operating activities
Cash (used in) / generated from operations
12
(819)
829
605
Interest paid
(155)
(107)
(248)
Taxation paid
(193)
(641)
(918)
Net cash from operating activities
(1,167)
81
(561)
Cash flows from investing activities
Interest received
2
4
8
Proceeds from sale of property, plant and equipment
-
458
338
Proceeds from sale of intangibles
-
-
61
Purchase of property, plant and equipment
9
(158)
(359)
(605)
Expenditure on capitalised development costs
9
(1,886)
(1,737)
(3,582)
Net cash used in investing activities
(2,042)
(1,634)
(3,780)
Cash flows from financing activities
Net proceeds from new bank loans
10
3,000
(600)
1,000
Dividend paid to shareholders
-
-
(1,830)
Proceeds on (purchase)/issue of shares
-
(5)
(5)
Net cash generated from/(used in) financing activities
3,000
(605)
(835)
Net increase/(decrease) in cash and cash equivalents
(209)
(2,158)
(5,176)
Cash and cash equivalents at beginning of period
3,251
8,380
8,380
Effect of foreign exchange rate changes
10
130
(42)
47
Cash and cash equivalents at end of period
10
3,172
6,180
3,251
NOTES TO THE HALF YEAR FINANCIAL INFORMATION
For the six months ended 30 June 2016
1. GENERAL INFORMATION
Vislink plc ("the Company") and its subsidiaries (together "the Group") is a global software and technology business specialising in solutions for the live collection, delivery and playout automation of high quality video 'from scene to screen'.
For the broadcast markets, Vislink provides wireless communication solutions for the collection of live news, sport and entertainment as well as software solutions for channel playout automation, channel-in-a-box and video content management. Vislink also provides secure video communications for surveillance and public safety applications such as law enforcement and homeland security.
Vislink employs over 250 people worldwide with offices in the UK, USA, UAE and Singapore and manufacturing operations in the UK and the USA. Vislink has net assets of over 21 million and continues to invest in innovation.
The Company is listed on the AIM market of the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is Marlborough House, Charnham Lane, Hungerford, Berkshire, RG17 0EY. The registered number of the Company is 4082188.
This condensed consolidated half year financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015 were approved by the Board of Directors on 6 April 2016 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 498 of the Companies Act 2006.
This condensed consolidated half year financial information has been subject to a review in accordance with ISRE (UK and Ireland) 2410 by our auditors but has not been subject to an audit.
This half year results announcement was approved for issue by the Board of Directors on 29 September 2016.
2. BASIS OF PREPARATION
This condensed consolidated half year financial information for the six months ended 30 June 2016 has been prepared in accordance with the AIM Rules for Companies and with IAS 34, 'Half year financial reporting' as adopted by the European Union. The condensed consolidated half year financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with IFRSs 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.Going concern
In the trading statement issued on 6 July 2016, the Group announced that the lower than expected trading performance of Vislink Communication Systems was expected to continue into H2, and that the Group's bankers had agreed to defer covenant tests until 31 July 2016 (from 30 June 2016).
The deferred covenants were subsequently waived at the end of July, however trading for Vislink Communication Systems remains challenging with the seasonal uplift usually experienced following Q1 not materialising. As a consequence the Group has been in conversation with its bankers.
As at 30 June 2016 net debt was 8.8m (cash 3.2m and bank debt (12.0)m). Net debt has subsequently increased. The Group is fully utilising its RCF facility and forecasts that it will be in breach of its banking covenants at 30 September 2016, meaning that it is reliant on the ongoing support of its bankers.
In order to assess the appropriateness of preparing the consolidated interim financial information on the going concern basis, management have prepared detailed projections of expected future cash flows out to 31 December 2016 and a higher level review to December 2017, and these have been reviewed by the Board.
Whilst challenging, Management are implementing an improvement plan directed at enabling the business to remain within its borrowing facilities through a combination of actively managing cash, cutting unnecessary expenditure and looking at other sources of finance or disposal opportunities within the Group.
In reaching their decision that the interim results should be prepared on the going concern basis, the Board has considered the forecast covenant breach. If the Group is not in compliance with its financing arrangements, the lender can immediately call for repayment of the loan, and the Group has insufficient cash to repay the secured loan in full without securing additional funding. However, the Group is in constructive discussions with its bankers.
The condition identified above, regarding the ongoing support of the Group's bankers, indicates the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern. The consolidated interim financial information does not include the adjustments that would result if the Group was unable to continue as a going concern.
3. ACCOUNTING POLICIES
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2015, as described in those annual financial statements.Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.
Taxes on income in the half year periods are accrued using the tax rate that would be applicable to expected total annual earnings on a country by country basis.
4. SEGMENTAL ANALYSIS
The two markets in each of the divisions are Broadcast and Surveillance and public safety. As the divisions manage and control the markets directly, costs are shared across markets in certain divisions which means that any allocation of costs to markets would be arbitrary. The focus of management is to ensure that the appropriate material margins are being achieved in each market as a sub analysis of the divisional performance.
The segment information provided to the Executive Management Board for the reportable continuing segments for the period ended 30 June 2016 is as follows:
Vislink Communication Systems
Pebble Beach Systems
TOTAL
H1
2016
H1
2015
FY 2015
H1 2016
H1 2015
FY 2015
H1 2016
H1 2015
FY 2015
000
000
000
000
000
000
000
000
000
Revenue
17,254
21,171
46,862
5,386
5,460
10,949
22,640
26,631
57,811
Operating (loss)/profit:
Adjusted operating (loss)/profit
(858)
1,851
2,820
1,204
1,847
3,255
346
3,698
6,075
Central costs
(1,487)
(1,534)
(1,354)
Group adjusted operating profit
(1,141)
2,164
4,721
Amortisation and impairment of goodwill and acquired intangibles
(23,802)
(506)
(985)
(707)
(703)
(1,419)
(24,509)
(1,209)
(2,404)
Non-recurring items
(6,246)
(1,717)
(2,872)
-
-
-
(6,246)
(1,717)
(2,872)
Central non-recurring items
-
-
-
-
-
-
(113)
(16)
(199)
Group total operating (loss)/profit
(30,906)
(372)
(1,037)
497
1,144
1,836
(32,009)
(778)
(754)
Finance (costs)/income - net
(1)
(4)
(487)
1
3
78
-
(1)
(409)
Central finance (costs)/income - net
-
-
-
-
-
-
(153)
(102)
169
(Loss)/profit before tax
(30,907)
(376)
(1,524)
498
1,147
1,914
(32,162)
(881)
(994)
GEOGRAPHIC REVENUE ANALYSIS BY DESTINATION
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
'000
(Unaudited)
'000
(Audited)
'000
UK & Europe
8,628
8,967
19,610
Americas
8,580
12,340
24,485
Middle East and Africa
3,415
3,288
7,398
Asia/Pacific
2,017
2,036
6,318
22,640
26,631
57,811
The amounts reported to the Executive Chairman with respect to total net assets are measured in a manner consistent with that of the financial statements. The assets are allocated based on the operations of the segment and the physical location of the asset.
NET ASSETS
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
'000
(Unaudited)
'000
(Audited)
'000
Vislink Communication Systems
22,668
50,913
52,509
Pebble Beach Systems
8,993
11,307
8,810
Segment net assets
31,661
62,220
61,319
Central net assets
(9,793)
(7,417)
(6,867)
Total Group net assets
21,868
54,803
54,452
5. NON-RECURRING ITEMS
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 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Rationalisation and redundancy costs
68
1,717
2,531
Inventory write down
5,479
-
-
Capitalised development costs write down
793
-
-
Onerous property commitments
(94)
-
341
Acquisition related costs
113
16
199
Total non-recurring items
6,359
1,733
3,071
Inventory and capitalised cost write downs arose as a result of the review carried out as part of the business improvement plan to identify increasingly inappropriate legacy technology and products.
6. TAX ON PROFIT ON ORDINARY ACTIVITIES
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Current tax:
UK corporation tax
-
(178)
160
Foreign tax
59
-
182
Adjustments in respect of prior years
220
-
(34)
Total current tax
279
(178)
308
Deferred tax:
UK corporation tax
333
(180)
188
Impact of change in tax rate
-
-
(117)
Foreign tax
-
(64)
(613)
Adjustments in respect of prior years
-
-
143
Total deferred tax
333
(244)
(399)
Total taxation charge
612
(422)
(91)
The tax charge for the six months ended 30 June 2016 is based on the full year estimated effective tax rate of 0 per cent for the UK which is significantly lower than the standard rate principally due to the utilisation of tax losses and enhanced Research and Development claims. Deferred tax is calculated in full on temporary differences under the liability method using a tax rate appropriate to the country in which the deferred tax liability or asset has arisen. Deferred tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that they are regarded as recoverable against future profits.
7. DIVIDENDS
No interim dividend is proposed for the period. In respect of 2015 there was no interim dividend and the final dividend of 1.5 pence per share was approved at the Group's Annual General Meeting on 20 May 2016 and paid on 18 July 2016. The total cash cost of the dividend was 1.8 million.
8. EARNINGS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held in the employee share trust which are treated as cancelled. Earnings per share is calculated by reference to a weighted average of 121,977,000 ordinary shares in issue during the period (30 June 2015: 121,844,000 and 31 December 2015: 121,910,000).
For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the company's ordinary shares during the period. At 30 June 2016 there were 2,704,000 dilutive share options (30 June 2015: 2,756,000 and 31 December 2015: 2,784,000) and the diluted loss per share was 26.9 pence (H1 2015: 0.4 pence) compared to the basic loss per share of 26.9 pence (H1 2015: 0.4 pence).
Adjusted earnings
The directors believe that the adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term "adjusted" is not a defined term used under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles, impairment of goodwill and non-recurring costs and their related tax effects.
The reconciliation between reported and adjusted earnings and basic earnings per share for the continuing business is shown below:
Six months to
Six months to
Year ended
30 June
2016
30 June
2015
31 December
2015
Pence per share
Pence per share
Pence per share
000
000
000
Reported (loss) / earnings per share
(32,774)
(26.9)
(459)
(0.4)
(903)
(0.7)p
Amortisation of acquired intangibles after tax
24,091
19.8
1,020
0.8
2,188
1.7p
Non-recurring costs after tax
5,087
4.2
1,382
1.2
2,449
2.0p
Adjusted (loss) / earnings per share
(3,596)
(2.9)
1,943
1.6
3,734
3.0p
9. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Property, plant and equipment
Opening net book value as at 1 January
2,201
2,665
2,665
Additions
158
359
605
Disposals
-
(341)
(339)
Depreciation
(358)
(421)
(761)
Exchange adjustment
40
6
31
Closing net book value
2,041
2,268
2,201
Intangible assets
Capitalised development costs
Opening net book value as at 1 January
10,091
9,441
9,441
Additions
1,886
1,737
3,582
Amortisation
(1,551)
(1,411)
(3,224)
Impairment
(793)
-
-
Exchange adjustment
536
(37)
292
Capitalised development costs closing net book value
10,169
9,730
10,091
Goodwill and acquired intangible assets
Opening net book value as at 1 January
32,200
34,242
34,242
Additions
-
-
99
Disposals
(99)
(66)
(61)
Amortisation and impairment
(24,509)
(1,210)
(2,404)
Exchange adjustment
223
(48)
324
Goodwill and acquired intangible assets closing net book value
7,815
32,918
32,200
Total closing net book value of intangible assets
17,984
42,648
42,291
Historical goodwill acquired in business combinations was allocated, at acquisition, to the cash-generating units (CGUs) that were expected to benefit from those business combinations, being the markets that the Group serves, namely Broadcast, Surveillance and Public Safety, Amplifier Technology Limited and Pebble Beach Systems Limited.
In accordance with the requirements of IAS 36 "Impairment of assets", goodwill is required to be tested for impairment on an annual basis or when there is a triggering event, with reference to the value of the cash-generating units in question. The downturn in trading performance is considered to be a trigger and an impairment review has been performed. The goodwill relating to the Surveillance and Public Safety market was fully written down in 2010. The Group acquired Amplifier Technology in 2013 which is a separate CGU and Pebble Beach Systems in 2014 which is also a separate CGU, therefore impairment reviews have been undertaken in respect of the Broadcast market and Amplifier Technology. No impairment trigger is considered to exist for Pebble Beach Systems. The carrying value of goodwill at 30 June 2016 is 3.3 million (2015: 25.0 million) consisting of nil for the Broadcast market (2015: 20.6 million), nil for Amplifier Technology (2015: 1.1 million) and 3.3 million for Pebble Beach Systems (2015: 3.3 million).
The carrying value of all CGUs (including goodwill) have been assessed with reference to value in use over a projected period of four and a half years, along with a terminal value. This reflects projected cash flows based on management projections.
The key assumptions on which the value in use calculations are based relate to business performance over the next four and a half years, long term growth rates beyond 2016 and the discount rate applied. It has been assumed there will be no long term growth of either Amplifier Technology or Broadcast and growth of 3% for Pebble Beach Systems. In accordance with accounting standards, it has also been assumed that there will be no savings resulting from future restructuring which is yet to occur.
A pre-tax discount rate of 8.9 per cent (2014: 14.6 per cent) has been used. In respect of the Broadcast market and Amplifier Technology the value in use was found to be lower than the carrying value resulting in the impairment of goodwill of 20.6m for Broadcast and 1.1m for Amplifier Technology.
10. CASH, BORROWINGS AND LOANS
The movements in cash and cash equivalents (net of overdrafts), borrowings and loans in the period were as follows:
Net cash and cash equivalents
Other borrowings
Total net cash
000
000
000
Six months ended 30 June 2016
At 1 January 2016
3,251
(9,000)
(5,749)
Cash flow for the period before financing
(3,209)
-
(3,209)
Movement in borrowings in the period
3,000
(3,000)
-
Exchange rate adjustments
130
-
130
At 30 June 2016
3,172
(12,000)
(8,828)
Six months ended 30 June 2015
At 1 January 2015
8,380
(8,000)
380
Cash flow for the period before financing
(1,558)
-
(1,558)
Movement in borrowings in the period
(600)
600
-
Exchange rate adjustments
(42)
-
(42)
At 30 June 2015
6,180
(7,400)
(1,220)
Year ended 31 December 2015
At 1 January 2015
8,380
(8,000)
380
Cash flow for the period before financing
(4,346)
-
(4,346)
Movement in borrowings in the year
1,000
(1,000)
-
Dividend paid to shareholders
(1,830)
-
(1,830)
Exchange rate adjustments
47
-
47
At 31 December 2015
3,251
(9,000)
(5,749)
The Group held cash of 3.2 million at the period-end and taken together with the outstanding debt of 12.0 million, there was a net debt position of 8.8 million.
11. PROVISIONS FOR OTHER LIABILITIES AND CHARGES
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Warranty provision
199
269
188
Property provision
410
171
504
Rationalisation provision
-
293
-
609
733
692
Amounts due within one year
537
733
272
Amounts due after one year
72
-
420
609
733
692
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.
The property provision consists of a provision for vacated leasehold properties acquired as part of the Gigawave acquisition and a vacated property provision for the Vislink International Hemel Hempstead site, created as a result of the restructuring that was conducted in 2015.
The current period property provision movement relates to the release of some of the vacant property provision for the Vislink International Hemel Hempstead site.
The property provision represents the estimated future liabilities associated with the properties.
12. NOTES TO THE CASH FLOW STATEMENT
Net cash flow from operating activities comprises:
Six months to 30 June 2016
Six months to 30 June 2015
Year ended
31 December 2015
(Unaudited)
(Unaudited)
(Audited)
000
000
000
Loss before tax
(32,162)
(881)
(994)
Depreciation
358
421
761
Profit on disposal of property, plant and equipment
-
(50)
-
Amortisation and impairment of development costs
2,344
1,411
3,224
Amortisation and impairment of goodwill and acquired intangibles
24,509
1,209
2,404
Share based payment expenses
292
287
(43)
Finance income from continuing operations
(2)
(4)
(8)
Finance costs from continuing operations
155
107
248
(Increase)/decrease in inventories
5,084
(1,258)
557
Decrease/(increase) in trade and other receivables
1,243
712
(2,411)
Decrease in payables
(2,547)
(1,301)
(3,261)
(Decrease)/increase in provisions
(93)
176
128
Net cash (outflow)/inflow from operating activities
(819)
829
605
13. 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.
Six months to 30 June 2016
Six months to 30 June 2015
Year ended 31 December 2015
(Unaudited)
(Unaudited)
(Audited)
Average rate for the period
US dollar
1.4325
1.5151
1.5286
Period end rate
US dollar
1.3429
1.5729
1.4819
Independent review report to Vislink Plc
Report on the consolidated interim financial statements
Our conclusion
We have reviewed Vislink Plc's consolidated interim financial statements (the "interim financial statements") in the half year results of Vislink Plc for the 6 month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.
Emphasis of matter
Without modifying our conclusion on the interim financial statements, we have considered the adequacy of the disclosure made in the basis of preparation note made in note 2 to the consolidated interim financial information concerning the Group's ability to continue as a going concern, and the uncertainty regarding the ongoing support of the group's bankers. This condition, along with the other matters explained in note 2 to the consolidated interim financial information, indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern. The consolidated interim financial information does not include the adjustments that would result if the company was unable to continue as a going concern.
What we have reviewed
The interim financial statements comprise:
the consolidated group statement of financial position as at 30 June 2016;
the consolidated group income statement and consolidated statement of comprehensive income for the period then
ended;
the consolidated group cash flow statement for the period then ended;
the consolidated statement of changes in shareholders equity for the period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the half year results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The half year results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year results in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.
Our responsibility is to express a conclusion on the interim financial statements in the half year results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, 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.
What a review of interim financial statements involves
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.
We have read the other information contained in the half year results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Bristol
29September 2016
a) The maintenance and integrity of the Vislink Plc website 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 financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR PGUCUBUPQPPB
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