REG - Videndum PLC - 2023 Full Year Results
23/04/2024 07:00
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RNS Number : 6538L Videndum PLC 23 April 2024
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23 April 2024
Videndum plc
2023 Full Year Results
Videndum plc ("the Company" or "the Group"), the international provider of
premium branded hardware products and software solutions to the content
creation market, announces its audited results for the year ended 31 December
2023.
Results
2023 2022(1)
Continuing operations¹
Revenue £306.9m £442.5m
Adjusted operating profit* £12.8m £66.2m
Adjusted operating margin* 4.2% 15.0%
Adjusted profit before tax* £1.3m £60.2m
Adjusted basic earnings per share* 8.5p 96.8p
Free cash flow* £(23.8)m £40.3m
Net debt* £128.5m £193.5m
Statutory results from continuing and discontinued operations¹
Revenue £315.0m £451.2m
Operating (loss)/profit £(65.2)m £31.5m
Operating margin (20.7)% 7.0%
(Loss)/profit before tax £(79.7)m £24.7m
Basic (loss)/earnings per share (157.5)p 71.4p
Financial summary
· 2023 financial performance significantly impacted by three headwinds: strikes
by US writers and actors² ("the strikes"); challenging macroeconomic
environment; and destocking
· Revenue from continuing operations 31% lower year-on-year (H2 2023 36% lower
vs H2 2022 as significantly more impact from the strikes in H2 than in H1)
· Adjusted operating expenses* from continuing operations £21.2 million (17%)
lower vs 2022 partly due to self-help actions and synergies from site
restructuring
· Adjusted operating profit* from continuing operations of £12.8 million (81%
lower than 2022) reflecting a 39% dropthrough* on the lower revenue
· 84% cash conversion* from continuing operations
· In response to the headwinds, £125 million (£117.9 million net) equity
raised to deleverage and enable delivery of the Group's strategy going forward
· FY 2023 leverage of 3.3x, due to significantly depressed EBITDA; within
lending covenant limit of 4.25x
Current trading and outlook
· Industry confidence in the post-strike recovery remains strong, however the
significant pick up in the cine and scripted TV market anticipated in March
did not materialise and is now expected from June
· Macroeconomic environment affecting the consumer and independent content
creator segments remains challenging; nonetheless management believes that the
rate of decline is starting to show signs of improvement, and that destocking
is largely completed
· Broadcast TV segment performing well, with our market-leading robotics, AI
autonomous presenter-tracking software and speech recognition prompting
technology driving cost efficiencies for studios; the Group's second half
performance will benefit from the Summer 2024 Olympic Games and the US
Presidential election.
· As a result of the slower than anticipated recovery in the cine and scripted
TV market, trading in our traditionally smallest first quarter ended up being
below our expectations
· Net debt at 31 March 2024 was £122.4 million, £6.1 million lower than at 31
December 2023
· Leverage at 31 March 2024 of 3.0x; within lending covenant limit of 4.25x. The
Group continues to prioritise reducing leverage to its targeted range of below
1.5x
· The Board remains confident that the Group will benefit from a strong recovery
in the second half of 2024 as the cine and scripted TV market gradually
recovers, although the pace and shape of the post-strike recovery is uncertain
· The Group continues to control costs, capex and working capital tightly
· Videndum remains well positioned in a content creation market which has
attractive structural growth drivers and good medium-term prospects
Commenting, Stephen Bird, Group Chief Executive, said:
"2023 was an exceptionally challenging year for Videndum and, in particular,
the unprecedented length of the strikes by US writers and actors significantly
impacted our financial performance. We acted quickly to reduce costs and
manage cash, and, with the support of our shareholders, deleveraged through a
capital raise, which has enabled us to preserve the long-term capabilities of
the business.
"Although industry confidence in the post-strike recovery is strong, the cine
and scripted TV market is taking more time than anticipated to recover. In
addition, the macroeconomic environment remains challenging, and we have
therefore maintained our relentless focus on managing costs tightly, and
controlling capex and working capital.
"I am proud of the way our people have responded to an incredibly difficult
market environment and am confident in the ability of the team to deliver a
strong recovery over the next few years.
"We remain confident that the Group will benefit from a strong recovery in
2024, however, with an increased second half weighting as the cine and
scripted TV market gradually recovers. Videndum is well positioned in a
content creation market which has attractive structural growth drivers and
good medium-term prospects."
Notes
(1) Amimon was held for sale at 31 December 2023 and Lightstream was sold on 2
October 2023; both are reported as discontinued operations. The operation at
Syrp (the Media Solutions' motion controls R&D centre in New Zealand) was
wound down so is reported in discontinued operations. FY 2022 has been
re-presented to ensure fair comparability. Statutory Results from continuing
and discontinued operations are per those reported in the 2022 Annual Report.
Results of discontinued operations can be found in note 2 to the condensed
financial statements.
(2) The Writers' Guild of America ("WGA") was on strike from 2 May to 27 September
2023 and the Screen Actors Guild and the American Federation of Television and
Radio Artists ("SAG-AFTRA") were on strike from 14 July to 9 November 2023.
WGA's contract ending the strike was ratified on 9 October 2023 and
SAG-AFTRA's contract was ratified on 5 December 2023.
(3) 2023 average exchange rates: £1 = $1.24, £1 = €1.15, €1 = $1.08, £1 =
¥174.
(4) 2022 average exchange rates: £1 = $1.24, £1 = €1.17, €1 = $1.06, £1 =
¥161.
This announcement contains inside information. The person responsible for
arranging the release of this announcement on behalf of Videndum plc is Jon
Bolton, Group Company Secretary.
* In addition to statutory reporting, Videndum plc reports alternative
performance measures from continuing operations ("APMs") which are not defined
or specified under the requirements of International Financial Reporting
Standards ("IFRS"). The Group uses these APMs to aid the comparability of
information between reporting periods and Divisions, by adjusting for certain
items which impact upon IFRS measures and excluding discontinued operations,
to aid the user in understanding the activity taking place across the Group's
businesses. APMs are used by the Directors and management for performance
analysis, planning, reporting and incentive purposes. A summary of APMs used
and their closest equivalent statutory measures is given in the Glossary.
For more information please contact:
Videndum plc Telephone: 020 8332 4602
Stephen Bird, Group Chief Executive
Andrea Rigamonti, Group Chief Financial Officer
MHP
Tim Rowntree
Ollie Hoare Telephone: 07817 458 804
Robert Collett-Creedy Telephone: 07736 464 749
A video webcast and Q&A for Analysts and Investors will be held today,
starting at 09:00am UK time. The presentation slides are available on our
website.
Users can pre-register to access the webcast and slides using the following
link:
https://videndum.com/investors/results-reports-and-presentations/
(https://videndum.com/investors/results-reports-and-presentations/)
Notes to Editors:
Videndum is a leading global provider of premium branded hardware products and
software solutions to the content creation market. We are organised in three
Divisions: Videndum Media Solutions, Videndum Production Solutions and
Videndum Creative Solutions.
Videndum's customers include broadcasters, film studios, production and rental
companies, photographers, independent content creators ("ICC"), professional
musicians and enterprises. Our product portfolio includes camera supports,
video transmission systems and monitors, live streaming solutions, smartphone
accessories, robotic camera systems, prompters, LED lighting, mobile power,
carrying solutions, backgrounds, audio capture, and noise reduction equipment.
We employ around 1,600 people across the world in ten different countries.
Videndum plc is listed on the London Stock Exchange, ticker: VID.
More information can be found at: https://videndum.com/
(https://videndum.com/)
LEI number: 2138007H5DQ4X8YOCF14
2023 management and financial overview
2023 was an exceptionally challenging year for the Group, with three main
headwinds. First, the macroeconomic backdrop led to weaker consumer confidence
and customers delaying purchases. Second, concerns amongst our retailer
customers and distribution partners regarding the global economy, high
interest rates, and their working capital levels, led to destocking. These two
headwinds affected our consumer segment as well as our ICC segment (together
c.40-50% of Group revenue).
Third, the unprecedented and unforeseen impact from the lengthy US writers'
and actors' strikes significantly affected demand for our high-end cine and
scripted TV products (c.20% of Group revenue exposed to the US cine market,
and a further c.10% to global cine markets). The writers' strike began in May
and predominantly affected the US cine market; however, the speculation of a
strike had caused some cine and scripted TV productions to be paused in the
months prior. The actors commenced strike action in July and subsequently all
productions ceased in the US and spread globally where US actors were
involved. Both strikes impacted productions until the end of the year, having
significantly more impact on the Group in the second half of 2023 than in the
first of the year. In addition, the strikes meant that sales of some of our
new product launches were delayed.
Against this challenging backdrop, the Group took significant mitigating
actions, including agreeing covenant amendments with its lending banks, cost
reductions including restructuring projects, and developed plans to conserve
cash. The benefit of these actions was to reduce costs by c.£13 million
versus 2022. The majority of the reduction will remain in 2024, with
discretionary costs returning in a phased and controlled manner, as trading
conditions improve.
The Group largely protected R&D investment to enable it to develop
market-leading products to maximise our future growth potential. Gross R&D
spend in 2023 was £19.3 million compared to £19.9 million in 2022.
Whilst the response of our teams was outstanding, the self-help actions only
partly mitigated the weaker trading, and the low trailing 12-month EBITDA
resulted in an increase in leverage(1) from 2.9x at 30 June 2023 to 4.2x at 30
September 2023. As a result, having reviewed all options, the Board decided
that an equity raise was required and, through the support of our shareholders
and new investors, £125 million was raised in December 2023, enabling the
Group to deleverage despite reduction in EBITDA (to 3.3x at 31 December
2023), and help provide the platform to capture the post-strike recovery and
deliver the Group's strategy.
Income and expense
The numbers below are presented on a continuing basis (unless otherwise
stated) including 2022 re-presented to ensure fair comparability.
Adjusted* Statutory from continuing and discontinued operations
2023 2022 % change 2023 2022
Revenue £306.9m £442.5 -31% £315.0m £451.2m
Operating profit/(loss) £12.8m £66.2m -81% £(65.2)m £31.5m
Profit/(loss) before tax £1.3m £60.2m -98% £(79.7)m £24.7m
Earnings/(loss) per share 8.5p 96.8p -91% (157.5)p 71.4p
The headwinds mentioned above resulted in Group revenue from continuing
operations decreasing by 31% compared to 2022; a 32% decline on an organic,
constant currency basis. We estimate the revenue impact of the writers' and
actors' strikes was c.£60 million, the reduction from destocking was c.£25
million, and the residual reduction of c.£50 million was from challenging
trading conditions across our markets impacting demand in the consumer and ICC
segments. Price rises successfully implemented in 2022 and again at the
beginning of 2023 more than offset inflationary costs in the year.
The decline in revenue impacted adversely on adjusted gross margin*, which
fell from 43.7% in 2022 to 38.7% in 2023, mainly reflecting operating leverage
and inefficiencies with overheads that are unable to flex with lower volumes.
Within adjusted gross profit* the Group incurred £2.2 million charge relating
to an inventory provision for JOBY. La Cassa Integrazione Guadagni Ordinaria
("CIGO"), the non-refundable Italian government supported furlough programme,
was applied in our Italian facilities to partly mitigate the lower demand
whilst ensuring our employees were looked after and retained by the business.
Adjusted operating expenses* decreased by £21.2 million to £106.0 million
(2022: £127.2 million) partly due to self-help actions taken to reduce
discretionary costs in the short-term, including CIGO in Italy and shortened
working hours at Creative Solutions, and implementation of restructuring
projects across all Divisions to ensure we have a lean organisation ready to
capitalise as trading conditions improve (together c.£12 million of the
c.£13 million cost actions); as well as lower corporate costs, mainly due to
a decrease in charge for LTIPs as a result of a decreased EPS vesting
expectations and not awarding an LTIP in 2023, and lower discretionary bonus
accruals across the Group for 2023 (together c.£11 million). This was partly
offset by c.£2 million of charges relating to one-off professional fees.
The actions taken in cost of sales and operating expenses constrained the
revenue dropthrough* to adjusted operating profit* to 39% (compared to a c.50%
marginal contribution on the lower sales).
Adjusted operating profit* included a £3.2 million favourable foreign
exchange effect after hedging compared to 2022. The impact on 2024 adjusted
operating profit* from a one cent stronger/weaker US Dollar/Euro is expected
to be an increase/decrease of approximately £0.2 million and £0.3 million
respectively. At current spot rates (19 April: £1 = $1.24, £1 = €1.17)
there is expected to be a £0.6 million adverse impact on 2024 versus 2023.
Adjusted net finance expense* of £11.5 million was £5.5 million higher than
in 2022. This was driven by higher borrowings, following the acquisitions in
2021 and 2022, and higher interest rates. In 2024, an average of c.60% of our
borrowings will be fixed through swaps at an average rate of c.5% (including
margin). Our floating debt currently has an average interest rate of c.7%
(including margin). Net finance expense also includes interest on the lease
liabilities, income from the accounting surplus of the defined benefit pension
scheme, amortisation of loan fees, and net currency translation gains or
losses.
Adjusted profit before tax* was £1.3 million; £58.9 million lower than 2022.
On an organic, constant currency basis, adjusted operating profit* and
adjusted profit before tax* were 85% and 98% down respectively on 2022.
Statutory loss before tax from continuing and discontinued operations of
£79.7 million (2022: £24.7 million profit) further reflects adjusting items
from continuing operations of £20.1 million (2022: £18.0 million) and a
£60.9 million loss from discontinued operations after adjusting items (2022:
£17.5 million loss).
The adjusting items from continuing operations primarily relate to the
amortisation of acquired intangibles, acquisition related charges, impairment
of assets, and restructuring. These charges were higher compared to 2022
primarily due to the exit from the motion controls market, exit costs of
moving Wooden Camera operations to Costa Rica, the sale of property in the
Production Solutions Division, and indirect costs associated with the capital
raise and financing; partly offset by lower transaction costs in relation to
acquisitions compared to those in 2022, and lower amortisation of acquired
intangibles than in 2022. The loss at discontinued operations predominantly
reflects a £50.2 million impairment of assets (Lightstream £19.2 million,
Amimon £29.8 million, Syrp £1.2 million).
The Group's effective tax rate ("ETR") on adjusted profit before tax* was a
credit of 223% (2022: 26% debit). Statutory ETR from continuing and
discontinued operations was a 3% credit on the £79.7 million loss (2022: 33%
debit of the £24.7 million profit before tax).
Adjusted basic earnings per share* was 8.5 pence (2022: 96.8 pence). Statutory
basic loss per share from continuing and discontinued operations was 157.5
pence (2022: 71.4 pence earnings per share).
Cash flow and net debt
Cash generated from operating activities was £9.8 million (2022: £65.3
million) and net cash from operating activities was a £16.1 million outflow
(2022: £48.7 million inflow).
Free cash flow* was £64.1 million lower than 2022 reflecting the lower
adjusted operating profit* and higher interest, tax and restructuring costs.
Cash conversion* was 84%, and across the last three years has cumulatively
been 96%.
£m 2023 2022 Variance
Statutory operating (loss)/profit from continuing and discontinued operations (65.2) 31.5 (96.7)
Add back discontinued operations statutory operating loss 60.5 17.5 43.0
Add back adjusting items from continuing operations 17.5 17.2 0.3
Adjusted operating profit* 12.8 66.2 (53.4)
Depreciation((1)) 20.5 20.1 0.4
Adjusted trade working capital (inc)/dec* (1.1) (15.6) 14.5
Adjusted non-trade working capital (inc)/dec* (7.1) (2.4) (4.7)
Adjusted provisions inc/(dec)* - (0.7) 0.7
Capital expenditure((2)) (15.3) (15.4) 0.1
Other((3)) 1.0 7.5 (6.5)
Adjusted operating cash flow* 10.8 59.7 (48.9)
Cash conversion* 84% 90% -6%pts
Interest and tax paid (25.7) (16.5) (9.2)
Earnout and retention bonuses (3.6) (0.3) (3.3)
Restructuring, integration costs and sale of impaired inventory (5.3) (2.0) (3.3)
Transaction costs - (0.6) 0.6
Free cash flow* (23.8) 40.3 (64.1)
(1) Includes depreciation, amortisation of software and capitalised
development costs
(2) Purchase of Property, Plant & Equipment ("PP&E") and
capitalisation of software and development costs
(3) Includes share-based payments charge (excluding retention) and other
reconciling items to get to the adjusted operating cash flow*
Net cash from operating activities of £16.1 million outflow (2022: £48.7
million inflow) comprises -£23.8 million free cash flow from continuing
operations* (2022: £40.3 million) plus £15.3 million capital expenditure
from continuing operations (2022: £15.4 million) less £0.3 million from sale
of PP&E and software from continuing operations (2022: nil) plus net cash
from operating activities from discontinued operations of -£7.3 million
(2022: -£6.9 million)
Adjusted trade working capital* increased by £1.1 million in 2023 (2022:
£15.6 million increase). Inventory decreased by £2.0 million as we applied
effective control measures to offset the decrease in demand, whilst we
maintained stocks of critical electronic components to support the cine and
scripted TV recovery. Trade receivables decreased by £17.1 million which
included the benefit of £7.9 million from non-recourse factoring of
receivables, and trade payables decreased by £20.2 million; both reflecting
the lower level of trading. Adjusted non-trade working capital* increased by
£7.1 million (2022: £2.2 million increase) mainly due to the non-accrual of
discretionary bonuses relating to 2023.
Capital expenditure included:
· £4.6 million of property, plant and equipment compared with £7.0 million in
2022, reflecting actions to limit non-essential spend;
· £10.0 million capitalisation of development costs (2022: £7.4 million);
including an increase at Production Solutions to develop our AI-driven talent
tracking (Vinten Vega) and sustainable portable power solutions based on
sodium technology (Salt-E Dog); and £0.7 million capitalisation of software
(2022: £1.0 million). Gross R&D was slightly lower than 2022; the
percentage of revenue (6.3%) grew (2022: 4.5%) but is a reflection of the
lower revenue and is expected to return to c.5% in 2024.
£m 2023 2022 Variance
Gross R&D 19.3 19.9 (0.6)
Capitalised (10.0) (7.4) (2.6)
Amortisation 5.6 4.7 0.9
P&L Impact 14.9 17.2 (2.3)
'Other' primarily relates to share-based payments whose reduction compared to
2022 is due to the lower vesting expectations of the adjusted EPS conditions
and not awarding an LTIP in 2023.
Interest and tax paid increased by £9.2 million compared to 2022 mainly due
to higher interest costs and the phasing of tax payments.
Earnout and retention bonuses relate to AUDIX, Savage and Quasar.
Restructuring cash outflow mainly reflects the exit costs of the self-help
actions taken to restructure in each of the Divisions.
December 2022 closing net debt* (£m) (193.5)
Free cash flow from continuing operations* (23.8)
Free cash flow from discontinued operations (10.5)
Upfront loan fees, net of amortisation (1.0)
Dividends paid (FY 22 final dividend) (11.6)
Net proceeds from the equity raise 117.9
Employee incentive shares (2.4)
Acquisitions/disposals (2.5)
Net lease additions (7.0)
FX 5.9
December 2023 closing net debt* (£m) (128.5)
Net debt* at 31 December 2023 of £128.5 million was £65.0 million lower than
at 31 December 2022 (£193.5 million).
Leverage(1) was 3.3x at 31 December 2023 (31 December 2022: 2.2x), on the
basis used for our loan covenants, and well within the revised covenant of
4.25x. Interest cover(2) of 2.0x at 31 December 2023 was also above the
revised covenant of 1.25x.
Free cash flow from discontinued operations includes Lightstream exit costs as
well as operating losses.
The net proceeds from the equity raise reflects gross proceeds of £126.4
million from the capital raising including £1.3 million from the Director and
Senior Management subscriptions; net of £8.5 million expenses.
Cash outflow on acquisitions relates to deferred consideration for the
purchase of AUDIX.
Net lease additions were mainly the lease renewal for our Media Solutions
headquarters in Cassola.
There was a £5.9 million favourable impact from FX, primarily from the
translation of our US dollar debt, following the weakening of the US dollar
against Sterling.
Liquidity at 31 December 2023 totalled £105.3 million, comprising £100.6
million unutilised RCF (total facility of £200 million which matures in
February 2026) and £8.7 million of cash less £4.0 million utilised
overdraft. We continue to have strong relationships with our banks and have
agreed lending covenant amendments for March 2024 (leverage(1) of 4.25x and
interest cover(2) of 1.5x), June 2024 (leverage(1) of 3.75x and interest
cover(2) of 1.75x), and September 2024 (leverage(1) of 3.75x and interest
cover(2) of 3.25x); before returning to original covenants at December 2024
(leverage(1) of 3.25x and interest cover(2) of 4.0x). The term loans taken out
at the time of the acquisitions of Savage and AUDIX were fully repaid upon
completion of the equity raise.
ROCE* of 4.4%(3) was lower than the prior year (2022: 25.5%), which mainly
reflects the lower adjusted operating profit*.
Adjusting items from continuing operations
Adjusting items in profit before tax from continuing operations were £20.1
million versus £18.0 million in 2022. The £7.3 million impairment of assets
(2022: £0.6 million) relates to the exit from the motion controls market,
exit costs of moving Wooden Camera operations to Costa Rica, impairment of
intangible assets at Savage, Quasar and Lowepro, and the sale of property.
£m 2023 2022
Amortisation of acquired intangible assets that are acquired in a business (4.0) (5.9)
combination
Acquisition related charges(4) (1.3) (4.4)
Integration, restructuring costs, and other costs (4.9) (6.3)
Impairment of assets (7.3) (0.6)
Finance expense - amortisation of loan fees on borrowings for acquisitions, (2.6) (0.8)
and other financing activities
Adjusting items (20.1) (18.0)
Discontinued operations
The Group is focusing more tightly on high-end professional content creation,
where it has high market share, sales channel expertise and compelling growth
opportunities. Consequently, the Board has decided to exit loss-making
operations in non-core markets, specifically medical and gaming, to
concentrate R&D investment on the content creation market. As a result,
whilst the Creative Solutions Division as a whole remains core going forward,
Amimon was held for sale at 31 December 2023 and Lightstream was sold on 2
October 2023 for a net cash consideration of £0.4 million; both are reported
as discontinued operations. In addition, we wound down Syrp (the R&D
centre in New Zealand).
£m 2023 2022
Revenue 8.1 8.7
Adjusted PBT* (6.4) (6.2)
Adjusting items (54.5) (11.3)
Statutory PBT (60.9) (17.5)
Revenue decreased by 7% in discontinued operations, due to the sale of
Lightstream part-way through the year.
Adjusting items of £54.5 million (2022: £11.3 million) mainly reflects a
£50.2 million impairment of assets (2022: £1.3 million) across Amimon
(£29.8 million), Lightstream (£19.2 million) and Syrp (£1.2 million), and
£2.2 million amortisation of acquired intangibles prior to the impairments
(2022: £5.0 million).
Notes
(1) Leverage is calculated as net debt before arrangement fees and after leases of
discontinued operations, divided by covenant EBITDA for the applicable
12-month period (being adjusted EBITDA*, before share-based payment charges,
and after interest on employee benefits, interest related net currency
translation gains, and the amortisation of loan arrangement fees); see
Glossary for further detail.
(2) Interest cover is calculated as covenant EBITA for the applicable 12-month
period (being adjusted EBITDA* less depreciation of PP&E) divided by
adjusted net finance expense* (before interest on employee benefits and FX
movements, and the amortisation of arrangement fees); see Glossary for further
detail.
(3) Return on capital employed ("ROCE") is calculated as adjusted operating
profit* for the last twelve months divided by the average total assets
(excluding non-trading assets of defined benefit pension and deferred tax),
current liabilities (excluding current interest-bearing loans and borrowings),
and non-current lease liabilities.
(4) Includes earnout charges, retention bonuses, transaction costs relating to the
acquisition of businesses, and the effect of fair valuation of acquired
inventory.
Market and strategy update, and medium-term prospects
Videndum's purpose is to "enable our customers to capture and share
exceptional content", and this is what guides us. Our strategy is to focus on
the professional end of the content creation market, operating in defensible
niches where our premium brands have strong share. Management estimates that
approximately 90% of our revenue comes from content creators who use our
products to earn their living and about 80% of our products are often
considered to be mission critical to our customers.
The content creation market continues to have good medium-term prospects, with
structural growth drivers, and Videndum is uniquely positioned to benefit.
Although the cine and scripted TV market is taking more time than anticipated
to recover from the strikes, and the consumer and ICC segments of the market
are being impacted by the challenging macroeconomic environment, we expect
that the demand for, and investment in, original content (e.g. for live news,
broadcast sport, reality and scripted TV shows, films, digital visual content
for e-commerce and vlogging, etc.) will grow in the medium term.
Our strategic priorities remain unchanged; however, we are focusing more
tightly on our core markets, particularly for high-end, professional and B2B
content creation - where we see the greatest growth potential - and exiting
non-core markets. Our long-term strategy is to invest in areas where we can
grow organically, while improving our margins and, over the longer-term, to
grow through M&A.
1. Organic growth
We focus on the growth areas of the content creation market, and we have
recently increased our product offering in the adjacent vertical market of
audio capture. We estimate that c.75% of the Group's business is exposed to
five main structural market growth drivers which we believe remain valid in
the medium-to-long term. These are: (1) internet/e-commerce; (2) subscription
TV/original content creation; (3) video sharing platforms such as
TikTok/YouTube; (4) live streaming; and (5) increasing environmental
consciousness in our markets.
We expect organic growth to be driven by these five drivers underpinned by
technology advancement which reduces product replacement cycles. We use our
customer-led R&D expertise to develop innovative, differentiated
technology to improve customers' productivity by developing products which can
lower operating costs and unlock creativity. Key focus areas include robotics
and AI-driven technology for broadcast studio automation, high-end audio
capture, wireless video transmission systems, heavy-duty lighting stands, and
a new range of sustainable portable power solutions based on sodium technology
(Anton/Bauer's Salt-E Dog) for the cine and scripted TV, broadcast and other
markets. Salt-E Dog received the "Excellence in Sustainability" Award at the
National Association of Broadcasters ("NAB") annual show in Las Vegas in April
2024. We also leverage our sales organisation to expand geographically where
markets are growing, and our presence is low; whilst recognising barriers to
entry of this strategy.
2. Margin improvement
The Group continues to manage costs tightly, and control capex and working
capital. Long-term margin improvement drivers include targeted pricing
increases to reflect product quality and brand strength, growing online sales,
continued operating efficiencies, and capturing cross-Divisional synergies.
Exiting non-core unprofitable segments (gaming and medical) will also deliver
improved margins.
3. M&A activity
While we remain focused on post-strike recovery no acquisitions will occur in
the near term. However, we will continue to review opportunities which could
increase our addressable markets and expand our product portfolio, customer
base and technology capabilities.
Disposal and business held for sale
Following an extensive review of the options for the Creative Solutions
Division, the Board concluded that the Group will deliver the most long-term
shareholder value by retaining the Division but focusing more tightly on the
high-end professional content creation market, where it has high market share,
sales channel expertise and compelling growth opportunities. Consequently, the
Board has decided to exit the non-core medical market, and has exited the
non-core gaming market, to concentrate R&D investment on the content
creation market. As a result, whilst the Creative Solutions Division as a
whole remains core going forward, Amimon was held for sale at 31 December 2023
and reported as a discontinued operation. On 2 October 2023, certain trade and
assets of Lightstream were sold to Xsolla (USA), Inc., a leading player in the
gaming industry.
Divisional performances
Media Solutions
The Media Solutions Division designs, manufactures and distributes premium
branded equipment for photographic and video cameras, and smartphones, and
provides dedicated solutions to professional and amateur photographers and
videographers, independent content creators, vloggers/influencers,
enterprises, governments and professional musicians. This includes camera
supports (tripods and heads), smartphone and vlogging accessories, lighting
supports and controls, LED lights, audio capture and noise reduction
equipment, carrying solutions and backgrounds. Media Solutions represents
c.50% of Group revenue.
Our strategy is focused on developing innovative new products to improve our
customers' productivity in order to grow our core professional business, as
well as a focus on high-end audio capture and return to growth in vlogging
accessories when the macroenvironment improves.
Adjusted* Statutory from continuing and discontinued operations
Media Solutions 2023 2022 % change 2023 2022
Revenue £153.7m £217.8m -29% £153.7m £217.8m
Operating profit/(loss) £11.4m £35.1m -68% £(4.8)m £23.4m
Operating margin 7.4% 16.1% -8.7%pts (3.1)% 10.7%
* For Media Solutions, before adjusting items of £12.8 million (2022: £9.5
million) and operating loss from discontinued operations of £3.4 million
(2022: £2.2 million loss)
Market conditions were tough for Media Solutions, with demand in the consumer
and ICC segments (together c.75%) remaining low. This was compounded by
destocking as retail and distribution partners looked to reduce cash tied up
in stock. The majority of the destocking effect occurred in the first half of
the year and management believes destocking is now largely completed.
The strikes impacted the high-end professional segment (c.25%) including the
Avenger lighting supports; although revenue was significantly above 2021 level
despite the strikes, demonstrating the market share gained by the Buccaneer
and Long John Silver stands over recent years.
CIGO was applied both at the Feltre factory and the Cassola divisional head
office, which allowed us to flex manufacturing output to reduce inventory, and
also reduce operating expenses. Actions were taken to minimise discretionary
spend, whilst wider restructuring actions, focussed primarily on consolidating
subsidiaries, helped reduce the cost base.
We restructured our operations to take advantage of location synergies
following recent acquisitions. In the UK, our Rycote windshield production is
now operating out of our Ashby-de-la-Zouch factory. This has expanded our
manufacturing capacity by c.50% and enables us to upgrade our operations.
Audio R&D and microphones production moved from the UK to our US audio
centre of excellence in Portland, and Media Solutions' US distribution moved
out of New Jersey to our Savage facilities in Arizona.
Adjusted operating margin* was down to 7.4% (2022: 16.1%) reflecting operating
leverage on the revenue decline, partly mitigated by the cost savings.
Statutory operating loss was £4.8 million (2022: £23.4 million profit) which
reflects £12.8 million of adjusting items from continuing operations (2022:
£9.5 million) and a £3.4 million loss from discontinued operations (2022:
£2.2 million loss) which includes £1.2 million impairment of intangible
assets at Syrp.
Production Solutions
The Production Solutions Division designs, manufactures and distributes
premium branded and technically advanced products and solutions for
broadcasters, film and video production companies, independent content
creators and enterprises. Products include video fluid heads, tripods, LED
lighting, batteries, prompters and robotic camera systems. It also supplies
premium services including equipment rental and technical solutions.
Production Solutions represents c.30% of Group revenue.
Our strategy is focused on growth in professional equipment for on-location
news and sporting events, innovative new technology like AI-driven robotic
camera systems and voice prompting to enable automation and cost efficiencies
in TV studios, and high-end products for original content creation in cine and
scripted TV, including a new range of sustainable power solutions based on
sodium technology.
Adjusted* Statutory
Production Solutions 2023 2022 % change 2023 2022
Revenue £101.2m £137.8m -27% £101.2m £137.8m
Operating profit £12.1m £31.4m -61% £9.5m £30.1m
Operating margin 12.0% 22.8% -10.8%pts 9.4% 21.8%
* For Production Solutions, before adjusting items of £2.6 million (2022:
£1.3 million).
Lower demand in ICC and subsequent destocking also impacted Production
Solutions, as did the strikes. The 2022 comparative includes the Winter
Olympics, whereas 2023 did not have an event on the same scale. Despite the
macroenvironment, demand remains high for our flowtech tripods and systems,
and we upgraded our carbon cell facility in Bury St Edmunds during 2023 to
increase our capacity by up to 40%.
We launched two exciting new products at the 2023 National Association of
Broadcasters Show in Las Vegas ("NAB") and the CineGear Expo 2023 in LA
("CineGear"): the Anton/Bauer Salt-E Dog, a sustainable portable power
solution based on sodium technology went into production at the end of the
year at our Costa Rica facility; and the Vinten VEGA Control System, a
robotics control system that can also be automated with AI-driven talent
tracking. Salt-E Dog initially is targeted at the cine and broadcast markets
and as such the launch was impacted by the strikes but we now have a strong
pipeline of opportunities. We were able to demonstrate its capabilities and
benefits at the Las Vegas F1 Grand Prix with Fox Sports, and this generated a
lot of interest in the product.
Costs continued to be controlled closely albeit starting from a very lean cost
base in 2022. The revenue decline subsequently resulted in the adjusted
operating margin* falling to 12.0% (2022: 22.8%).
Statutory operating profit was £9.5 million (2022: £30.1 million) reflecting
£2.6 million of adjusting items (2022: £1.3 million).
Creative Solutions
The Creative Solutions Division develops, manufactures and distributes premium
branded products and solutions for film and video production companies,
independent content creators, enterprises and broadcasters. Products include
wired and wireless video transmission and lens control systems, live streaming
solutions, monitors and camera accessories. Creative Solutions represents
c.20% of Group revenue.
Our strategy is focused on continuing to deliver the 4K/HDR replacement cycle
as well as developing innovative new technology to improve our customers'
productivity in the growing areas of remote monitoring, collaboration and
streaming in the cine and scripted TV, high-end Live Production and Broadcast
markets.
Adjusted* Statutory from continuing and discontinued operations
Creative Solutions 2023 2022 % change 2023 2022
Revenue £52.0m £86.9m -40% £60.1m £95.6m
Operating profit/(loss) £0.8m £16.7m -95% £(58.0)m £(3.3)m
Operating margin 1.5% 19.2% -17.7%pts (96.5)% (3.5)%
* For Creative Solutions, before adjusting items from continuing operations of
£1.7 million (2022: £4.7 million) and operating loss from discontinued
operations of £57.1 million (2022: £15.3 million loss)
The writers' and actors' strikes had the largest effect on Creative Solutions,
as expected, where the majority of products are used in cine and scripted TV.
Live production revenue was materially down as we repositioned our brand
towards the higher margin, higher end of the live production market.
However, orders with RTX, a subcontractor for NASA, and Smart Video Group, our
new European partner, saw sales of our Prism encoders and decoders nearly
double compared to 2022. At NAB we announced the latest version of the Teradek
Ranger product, our next generation licensed and unlicensed band zero delay
(<1ms) wireless video transmission system for live production and broadcast
applications, which drove Ranger revenue to nearly double compared to 2022.
Restructuring actions announced at the end of 2022 and limiting discretionary
spend helped to mitigate the decline in revenue. In the second half of the
year, production of our Wooden Camera products was transferred from the US to
our Production Solutions' Costa Rica facility and the Group benefitted from
cross-divisional synergies.
Adjusted operating margin* was down to 1.5% (2022: 19.2%) reflecting operating
leverage on the revenue decline, partly mitigated by the cost savings
including shortened working hours.
Statutory operating loss was £58.0 million (2022: £3.3 million loss), which
reflects £1.7 million of adjusting items from continuing operations (2022:
£4.7 million) and a £57.1 million loss from discontinued operations (2022:
£15.3 million loss) which includes £49.0 million impairment of intangible
assets relating to Lightstream and Amimon.
Corporate costs
Corporate costs include Long Term Incentive Plan ("LTIP") and Restricted Share
Plan ("RSP") charges used to incentivise and retain employees across the
Group, as well as payroll and bonus costs for the Executive Directors and head
office team, professional fees, property costs and travel costs.
Adjusted* Statutory
Corporate costs 2023 2022 % change 2023 2022
Operating (loss) £(11.5)m £(17.0)m -32% £(11.9)m £(18.7)m
* For corporate costs, before adjusting items of £0.4 million (2022: £1.7
million).
Corporate costs were below those in 2022 on an adjusted* basis mainly due to a
decrease in charge for LTIPs as a result of a decreased EPS vesting
expectations and non-awarding of a bonus for 2023.
Dividend
Given the current circumstances, no dividend has been declared; the Board
recognises the importance of dividends to the Group's shareholders and intends
to resume payment of a progressive and sustainable dividend when appropriate
to do so.
Responsibility
ESG Strategy
Despite the market challenges faced in 2023, the Group has continued to make
good progress with our ESG programme. Videndum remains committed to operating
as a sustainable business, aiming to minimise our impact on the environment,
continuing to develop the ESG knowledge of our employees, and working to
improve the communities in which we operate. Our ESG strategy includes clear
objectives and targets, prioritising actions that will deliver the greatest
impact. It is also designed to contribute positively to the success of the
Group. We have prioritised seven key pillars, grouped under four areas:
Environment: Reduce carbon emissions; Reduce packaging and waste; Embed
sustainability into our product life cycle
Our people: Continue to prioritise health and safety; Improve diversity and
inclusion
Responsible practices: Formalise the integrity of our entire supply chain
Giving back: Positively impact the communities in which we operate
ESG Governance
The Videndum Board provides oversight and has overall responsibility for the
Group's ESG programme, while the ESG Committee, chaired by the Group Chief
Executive and comprising senior executives from across the Group, is
responsible for driving ESG and climate-related performance. ESG and Climate
Governance has been integrated into our existing processes and a part of the
Group Chief Executive's remuneration is tied to the Group's ESG performance.
2023 Reporting
Our third standalone ESG Report for our 2023 reporting period, in accordance
with the Global Reporting Initiative ("GRI"), is in production. We are also
developing our third Task Force on Climate-related Financial Disclosures
("TCFD") Report, widening our climate scenario analysis and data collection
processes to include recently acquired businesses and analysing a greater
number of top suppliers, based on spend, than in 2022. Both Reports will be
available on our website in May 2024.
2023 Progress
In 2023, our key focus areas included energy reduction pathways, enhanced
tracking of waste, a significantly increased emphasis on product
sustainability, the development of new sustainable products, and the expansion
of our supply chain programme.
We recognise the significant and escalating threat of climate change, and are
committed to addressing this global challenge. Our focus extends to providing
sustainable products and services, ensuring ethical and environmentally
friendly operations, including manufacturing, supply chain, distribution and
support services. Climate scenario analysis is conducted annually on our main
sites, key suppliers and supply routes, modelling the impact of climate change
across three different warming scenarios. This year, we included more
suppliers in our climate scenario analysis. To discuss the mitigation measures
for each risk, various stakeholders within the business participated in
Climate Risk Management Workshops in 2023. Clear objectives and targets guide
our climate change commitment, emphasising actions with the most substantial
impact. We rigorously collect detailed data to transparently report our
progress to stakeholders. Each Division undertakes environmental projects
tailored to its specific context, encompassing themes such as carbon
emissions, sustainable operations and products, waste management, water
stewardship, biodiversity and supply chain considerations.
Reducing the Group's carbon footprint is a clear priority for Videndum. We
have set short-term targets as we journey to be carbon neutral for Scope 1 and
2 by 2025, net zero for Scope 1 and 2 by 2035, and for Scope 3 by 2045. By
implementing smarter ways of working and investing in infrastructure, we have
achieved a 30% reduction across the Group's scope 1 and 2 emissions since
2019, and a 13% reduction in 2023 using the location-based approach for scope
2. Using the market-based methodology, the reduction is 42% and 17%
respectively, due to the majority of the Group's electricity contracts having
been converted to renewable contracts.
In 2023, we continued to install energy saving technology across our sites,
such as further LED lighting installations. Compressed air leak detection and
repairs, along with heating and air conditioning controls have also been
installed across many of our sites. Solar panels were installed at our largest
manufacturing site in Feltre, Italy and became operational at the end of 2023,
covering an estimated 25% of the site's total energy usage. As well as
significantly reducing emissions, these solar panels will generate net annual
expenditure savings exceeding €100k per annum, with a very short payback
period. With this development, all three of our main manufacturing sites -
Bury St Edmunds, UK, Cartago, Costa Rica and Feltre, Italy now have solar
panels installed providing a substantial part of their energy needs. In
addition, our site in Cartago, Costa Rica, was awarded the ISO 50001 energy
management certification in 2023.
In 2023, the health and safety of our people remained of utmost importance,
and we continued to operate to stringent health and safety standards across
all our sites. Throughout the year, we recorded two accidents over three days
which were subject to a rigorous review process to ensure that key learnings
were taken and shared across the Group.
Taking a life cycle approach is a key goal for Videndum. We continue to work
to embed sustainability into new product development and to have Product Life
Cycle Assessments ("PLCA") for our top five selling products by 2025. Our
Media Solutions Division already utilises PLCA and Sustainable Design
Principles in its internal design processes, supporting research and
development decisions regarding sustainability. Across core brands like
Lowepro, Gitzo and Manfrotto, sustainable alternative products are explored,
with ongoing assessments of each brand element to emphasise strengths in terms
of sustainability and product life cycle. In 2023, the team engaged with an
external consultancy to undertake a PLCA on three representative mechanical
and electrical Supports products. The project commenced in September 2023 and
was completed in February 2024.
Our Production Solutions Division commenced PLCAs in the second half of 2023.
This started with the aktiv and flowtech product lines, and the project will
also involve training Divisional employees to develop their skills further. In
2023, our Anton/Bauer brand, launched Salt-E Dog - a sustainable portable
power source, in the form of a sodium battery designed and built for the cine
and scripted TV industry. Salt-E Dog produces no harmful CO(2) or NOx
emissions and offsets greenhouse gas emissions, resulting in cleaner air, a
safer production experience and contributes to a greener future.
The Group is committed to reducing packaging and waste. In 2023, we improved
our data capture systems to begin collating mass-based data relating to the
purchase of packaging materials. This allows us to utilise more accurate
emissions factors due to an improvement in the quality of activity-based data.
Also, it ensures that all packaging is accounted for in Scope 3 Category 12
(end-of-treatment of sold products).
In 2023, we continued working towards eliminating single-use plastic and
improving the recyclability of packaging and other product components. For
example, our Teradek and SmallHD brands have incorporated 100% recycled poly
bags into their operations. The Group aims to eliminate or replace 50% of
current cardboard packaging consumption with sustainable, FSC grade cardboard
by the end of 2024.
Upholding the right values and behaviours is central to the Group's governance
and culture, and is reflected in our Code of Conduct, which was updated and
relaunched in January 2024, and is available on our website.
As part of our focus on formalising the integrity of our entire supply chain,
we conducted a review and gap analysis of existing supply chain assessment
processes across the Group. Using the information gathered, we developed a
Group-wide Supply Chain Assessment process to engage with our top suppliers on
their carbon emissions and wider ESG credentials. A survey was developed and
tailored to the key suppliers of the Group's three Divisions to obtain more
granular information.
Videndum remains engaged in a range of community programmes and during the
year, the Group positively impacted 560 disadvantaged people.
Key focus areas for our 2024 ESG programme include continuing with the energy
and emission reduction pathways, improving the tracking of waste to reduce our
output, further embedding sustainability into product lifecycle, and expanding
the supply chain programme.
Risks and Uncertainties
Videndum is exposed to a number of risk factors which may affect its
performance. The Group has a well-established framework for reviewing and
assessing these risks on a regular basis; and has put in place appropriate
processes and procedures to mitigate against them. However, no system of
control or mitigation can completely eliminate all risks.
The principal risks and uncertainties that may affect our performance are set
out in the 2023 Annual Report and in summary are around:
· Demand for Videndum's products
· Cost pressure
· Dependence on key suppliers (including component shortages)
· Dependence on key customers
· People (including health and safety)
· Laws and regulations
· Reputation of the Group
· Foreign exchange and interest rates
· Business continuity including cyber security
· Climate change
· Restructuring and disposals
· Acquisitions
At the time of signing these financial statements, a material uncertainty on
going concern exists in the event of a slower recovery in the cine and
scripted TV market in 2024 and significantly worsening demand for our
ICC/consumer products; that would cast a significant doubt upon the Group's
ability to specifically meet its loan covenant obligations. Therefore, a
number of the Group's principal risks have increased since the 2022 Annual
Report and additional actions implemented to mitigate the impact / likelihood.
The risk relating to "Demand for Videndum's products" increased during 2023,
This was due to a challenging economic outlook affecting our consumer-oriented
brands, a downturn in the consumer electronics channel (and associated
destocking), and an increasingly challenging geopolitical outlook. Our
activity in 2023 was heavily impacted by the US writers' and actors' strikes.
However, we expect the cine market to recover during 2024 as production
returns to normal levels. As retailers' destocking comes to an end, we expect
a normalisation of our consumer-related activity. We have partly mitigated the
impact of this downturn through increased restructuring and cost control
activity. We monitor closely the risks and opportunities related to the impact
of Artificial Intelligence on Videndum's products.
People risk is higher due to the increased pressure linked to restructuring
initiatives and measures to contain costs given pressures on the business,
including short-time working, which may affect morale and lead to greater
employee turnover. Variable incentive payments have significantly reduced.
Reputation risk is greater as a result of increased external pressure and
scrutiny, linked to the poor performance in 2023.
Cyber risk remains elevated in view of the high number of cyber security
breaches and ransomware activity affecting the corporate sector. We continue
to focus on strengthening our cyber security defences and have increased
budgets allocated to security. We keep our framework under review; however,
this risk remains inherently high and cannot be eliminated.
Significant restructuring activity was conducted in 2023 with the closure of
several operations. The impact will need to be carefully managed to ensure
that operations continue to operate effectively.
Change of Auditor
As set out in the Annual Report 2022, the Audit Committee on behalf of the
Board had undertaken to conduct a formal audit tender process during the
second quarter of 2023. Following the completion of this process and the
recommendation of the Audit Committee, the Board will appoint
PricewaterhouseCoopers LLP ("PwC") as the Company's independent auditor for
the financial year ending 31 December 2024, subject to approval by
shareholders at the next Annual General Meeting ("AGM") to be held in 2024.
Forward-looking statements
This announcement contains forward-looking statements with respect to the
financial condition, performance, position, strategy, results and plans of the
Group based on Management's current expectations or beliefs as well as
assumptions about future events. These forward-looking statements are not
guarantees of future performance. Undue reliance should not be placed on
forward-looking statements because, by their very nature, they are subject to
known and unknown risks and uncertainties and can be affected by other
factors that could cause actual results, and the Group's plans and objectives,
to differ materially from those expressed or implied in the forward-looking
statements. The Company undertakes no obligation to publicly revise or update
any forward-looking statements or adjust them for future events or
developments. Nothing in this announcement should be construed as a profit
forecast.
The information in this announcement does not constitute an offer to sell or
an invitation to buy shares in the Company in any jurisdiction or an
invitation or inducement to engage in any other investment activities. The
release or publication of this announcement in certain jurisdictions may be
restricted by law. Persons who are not resident in the United Kingdom or who
are subject to other jurisdictions should inform themselves of, and observe,
any applicable requirements.
This announcement contains brands and products that are protected in
accordance with applicable trademark and patent laws by virtue of their
registration.
Going concern and viability
Full detail on the assessment of going concern can be found within note 1 to
the condensed financial statements.
2023 was an exceptionally challenging year for Videndum, with the Group
suffering from the prolonged adverse impacts of three major headwinds. These
headwinds were (1) the weakened macroeconomic climate, (2) destocking of
inventory by retail customers and distribution partners, and (3) the US
Writers' and Actors' strikes (together "the strikes").
The Board approved a budget for 2024 which acknowledges the challenges and
opportunities being faced by the Group, and assumes a recovery in the cine and
scripted TV segment following the ending of the strikes. It also assumes that
the ICC/consumer segment continues to deteriorate, albeit at a lower rate than
we saw in 2023.
Although industry confidence in the post-strike recovery remains strong, the
Group did not see the significant pick up in the cine and scripted TV market
that it was expecting to happen in the month of March 2024, and as a result
trading in the first quarter was below the Group's expectations.
The Group has reforecast Q2 2024 ("Outlook"), in light of the unexpected
weakness in Q1 2024 and current expectations from its Divisions, including a
lower rate of recovery in the cine and scripted TV market which, in the
Outlook, is anticipated to pick-up only from June 2024. The Outlook
represents current expectations and lies within the range of plausible
downside scenarios, and would not result in a breach of covenants at 30 June
2024.
Whilst most of the Group's modelled forecasts do not result in breaching
covenants, there are severe but plausible downside scenarios which would
result in a breach of the lending covenants at the test dates from 30 June
2024. The severe but plausible scenarios that exist assume (i) a slower
recovery in the cine and scripted TV market in 2024, (ii) a worsening
macroeconomic environment for our ICC/consumer products, and (iii) no
additional mitigation.
In the absence of any further actions to mitigate risks and deliver cost and
cash saving measures, the most severe downside scenario would result in a
breach of the lending covenants at each of the 2024 test dates from 30 June
2024. If such a scenario were to occur, the Board would proactively manage the
options available to the Group to mitigate risks and deliver cost and cash
saving measures in addition to those factored in the forecast.
As a result of the challenging trading conditions experienced in Q1 2024, the
Group has developed a set of actions being delivered during Q2 2024 that will
reduce costs and secure incremental revenue opportunities in addition to those
included in the Outlook set out above. Cost and revenue actions have currently
highlighted Q2 operating profit benefits of £3.8 million, with £2.1 million
being within the Group's control.
During the second quarter of 2024, the Group will negotiate with its banks an
amendment and extension of its RCF. As part of this process, the Group will
also endeavour to agree with its banks a new relaxation of its covenants,
along with a reduction of the overall committed facility, currently £200
million.
The Board, in light of its experience, past practice and performance, and
historical evidence, considers that (a) it is not possible to determine the
length of time it will take to recover from the strikes, (b) there is limited
forecasting visibility supportable by externally sourced market evidence, (c)
the typical levels of the Group's order book are between one and two months'
sales and (d) the impact of the macroeconomic environment on ICC and retailer
customers and distribution partners remains uncertain.
The Board has, at the date of signing these financial statements, determined
that given the sensitivities over the timeline and pace of recovery from the
strikes and the financial impact on the Group (including potential covenant
breaches) of a slower than expected recovery and worsening macroeconomic
conditions, a material uncertainty exists which may cast significant doubt on
the Group's ability to continue as a going concern such that it may be unable
to realise its assets and discharge its liabilities in the normal course of
business.
Notwithstanding the material uncertainty, the Board has, on balance of the
available evidence and modelled scenarios, concluded that there is a
reasonable prospect that improvements in the Group's performance, along with
mitigating actions, will be achieved and it is appropriate to adopt the going
concern basis of accounting in preparing the 2023 year-end financial
statements.
The Directors have also assessed the longer-term viability of the Group over a
three-year period, taking account of the Group's current position and
prospects, its strategic plan, risk appetite and the principal risks and how
these are managed. Based on this assessment, the Directors have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over this period, subject to the Group retaining
the ability to acquire funding in order to refinance its committed facilities
when they fall due, which is expected to be the case.
For and on behalf of the Board
Stephen Bird Andrea Rigamonti
Group Chief Executive Group Chief Financial Officer
Condensed Consolidated Income Statement
For the year ended 31 December 2023
2023 2022((1))
Continuing operations Notes £m £m
Revenue 2 306.9 442.5
Cost of sales (193.0) (251.7)
Other income 0.7 -
Gross profit 114.6 190.8
Operating expenses 3 (119.3) (141.8)
Operating (loss)/profit (4.7) 49.0
Comprising
- Adjusted operating profit 4 12.8 66.2
- Adjusting items in operating (loss)/profit from continuing operations 4 (17.5) (17.2)
Finance income 2.4 3.0
Finance expense (16.5) (9.8)
Net finance expense 5 (14.1) (6.8)
(Loss)/Profit before tax (18.8) 42.2
Comprising
- Adjusted profit before tax 1.3 60.2
- Adjusting items in (loss)/profit before tax from continuing operations (20.1) (18.0)
Taxation 6 6.7 4.7
Comprising
- Taxation on adjusted (loss)/profit 6 2.9 (15.6)
- Adjusting items in taxation 6 3.8 20.3
(Loss)/profit for the year from continuing operations (12.1) 46.9
Loss for the year after tax from discontinued operations 13 (66.0) (14.0)
(Loss)/profit for the year attributable to owners of the parent (78.1) 32.9
Earnings per share from continuing operations
Basic earnings per share 7 (24.4)p 101.8p
Diluted earnings per share 7 (24.4)p 97.9p
Earnings per share from discontinued operations
Basic earnings per share 7 (133.1)p (30.4)p
Diluted earnings per share 7 (133.1)p (30.4)p
Earnings per share from continuing and discontinued operations
Basic earnings per share 7 (157.5)p 71.4p
Diluted earnings per share 7 (157.5)p 68.7p
((1)) 2022 has been re-stated to present discontinued operations separately
from the continuing operations. See note 13 "Discontinued operations and
non-current assets classified as held for sale"
Average exchange rates
Euro 1.15 1.17
US$ 1.24 1.24
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
2023 2022
£m £m
(Loss)/profit for the year (78.1) 32.9
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit obligation 0.1 9.1
Related tax - (2.1)
Items that are or may be reclassified subsequently to profit or loss:
Currency translation differences on foreign currency subsidiaries (12.2) 22.6
Net investment hedges - net gain/(loss) - (5.8)
Fair value of cash flow hedges reclassified to the Income Statement (4.2) 2.2
Effective portion of changes in fair value of cash flow hedges 2.9 3.2
Tax associated with changes in cash flow hedges 0.3 (1.4)
Other comprehensive (expense)/income, net of tax (13.1) 27.8
Total comprehensive (expense)/income for the year attributable to owners of (91.2) 60.7
the parent
Condensed Consolidated Balance Sheet
As at 31 December 2023
2023 2022
£m £m
Assets
Non-current assets
Intangible assets 152.6 217.9
Property, plant and equipment 56.4 66.6
Employee benefit asset 4.2 3.9
Trade and other receivables 5.2 7.4
Derivative financial instruments 2.3 3.8
Non-current tax assets 3.1 3.0
Deferred tax assets 55.4 53.2
Total non-current assets 279.2 355.8
Current assets
Inventories 94.5 107.3
Contract assets 2.0 1.8
Trade and other receivables 47.1 67.1
Derivative financial instruments 1.8 2.3
Current tax assets 5.7 4.1
Cash and cash equivalents 8.7 15.8
Total current assets 159.8 198.4
Assets of the disposal group classified as held for sale 12.3 -
Total assets 451.3 554.2
Liabilities
Current liabilities
Bank overdrafts 10 4.0 -
Interest-bearing loans and borrowings 10 0.2 36.0
Lease liabilities 10 5.6 6.0
Contract liabilities 2.4 2.5
Trade and other payables 42.5 78.8
Derivative financial instruments 0.1 0.9
Current tax liabilities 7.8 16.7
Provisions 3.1 5.5
Total current liabilities 65.7 146.4
Non-current liabilities
Interest-bearing loans and borrowings 99.0 138.5
Lease liabilities 28.4 28.8
Other payables 1.2 1.8
Employee benefit liabilities 2.9 3.1
Provisions 0.8 2.4
Deferred tax liabilities 11.2 9.5
Total non-current liabilities 143.5 184.1
Liabilities of the disposal group classified as held for sale 4.6 -
Total liabilities 213.8 330.5
Net assets 237.5 223.7
Equity
Share capital 18.9 9.4
Share premium 133.7 24.3
Translation reserve (13.0) (0.8)
Capital redemption reserve 1.6 1.6
Cash flow hedging reserve 2.9 3.9
Retained earnings 93.4 185.3
Total equity 237.5 223.7
Balance Sheet exchange rates
Euro 1.15 1.13
US$ 1.27 1.21
Consolidated Statement of Changes in Equity
Share capital Share premium Translation reserve Capital redemption reserve Cash flow hedging reserve Retained earnings Total equity
£m £m £m £m £m £m £m
Balance at 1 January 2022 9.3 23.1 (17.6) 1.6 (0.1) 157.6 173.9
Profit for the year - - - - - 32.9 32.9
Other comprehensive income for the year - - 16.8 - 4.0 7.0 27.8
Total comprehensive income for the year - - 16.8 - 4.0 39.9 60.7
Contributions by and distributions to owners
Dividends paid - - - - - (18.0) (18.0)
Own shares purchased - - - - - (5.8) (5.8)
Own shares sold - - - - - 3.1 3.1
New shares issued 0.1 1.2 - - - - 1.3
Share-based payment charge, net of tax - - - - - 8.5 8.5
Balance at 31 December 2022 and 1 January 2023 9.4 24.3 (0.8) 1.6 3.9 185.3 223.7
Loss for the year - - - - - (78.1) (78.1)
Other comprehensive (expense)/income for the year - - (12.2) - (1.0) 0.1 (13.1)
Total comprehensive loss for the year - - (12.2) - (1.0) (78.0) (91.2)
Contributions by and distributions to owners
Dividends paid - - - - - (11.6) (11.6)
Own shares purchased - - - - - (3.7) (3.7)
Own shares sold - - - - - 1.2 1.2
New shares issued, net of costs 9.5 109.4 - - - (0.8) 118.1
Share-based payment charge, net of tax - - - - - 1.0 1.0
Balance at 31 December 2023 18.9 133.7 (13.0) 1.6 2.9 93.4 237.5
Condensed Consolidated Statement of Cash Flows
For the year ended 31 December 2023
2023 2022
Notes £m £m
Cash flows from operating activities
(Loss)/profit for the year (78.1) 32.9
Adjustments for:
Net finance expense 14.5 6.8
Taxation (2.6) (8.2)
Depreciation 14.4 15.3
Impairment of fixed assets 53.8 1.9
Amortisation of intangible assets 14.0 18.3
Net loss on disposal of property, plant and equipment 0.3 -
Fair value (gains)/losses on derivative financial instruments (0.2) 0.1
Foreign exchange losses - 0.6
Share-based payment charge 1.5 8.9
Earnout charges and retention bonuses 1.7 4.5
Loss on disposal of business before tax 1.0 -
Cash generated from operating activities before changes in working capital, 20.3 81.1
including provisions
Decrease/(increase) in inventories 7.6 (8.0)
Decrease/(increase) in trade debtors 16.3 (6.8)
Decrease in other debtors and contract assets 0.7 1.8
(Decrease)/increase in trade creditors (20.5) 1.3
Decrease in other creditors and contract liabilities (12.3) (6.9)
(Decrease)/increase in provisions (2.3) 2.8
Cash generated from operating activities 9.8 65.3
Interest paid ((1)) (15.4) (9.4)
Tax paid (10.5) (7.2)
Net cash (used in)/from operating activities (16.1) 48.7
Cash flows from investing activities
Proceeds from sale of property, plant and equipment and software 0.2 -
Purchase of property, plant and equipment (4.8) (7.1)
Capitalisation of software and development costs (13.7) (13.1)
Acquisition of businesses, net of cash acquired (1.6) (33.2)
Disposal of business (0.9) -
Net cash used in investing activities (20.8) (53.4)
Cash flows from financing activities
Proceeds from the issue of shares, net of costs 118.1 1.3
Proceeds from the sale of own shares 1.2 3.1
Own shares purchased (3.7) (5.8)
Principal lease repayments ((1)) (6.7) (6.4)
Repayment of interest-bearing loans and borrowings (313.9) (93.8)
Borrowings from interest-bearing loans and borrowings 240.0 130.3
Dividends paid (11.6) (18.0)
Net cash from financing activities 23.4 10.7
(Decrease)/increase in cash and cash equivalents 10 (13.5) 6.0
Cash and cash equivalents at 1 January 15.8 7.9
Effect of exchange rate fluctuations on cash held 2.4 1.9
Cash and cash equivalents and overdrafts at 31 December 10 4.7 15.8
((1)) Total cash outflow for leases is £8.2 million (2022: £7.9 million) of
which £1.5 million (2022: £1.5 million) relates to interest and £6.7
million (2022: £6.4 million) to principal lease repayments.
1. Accounting policies
Reporting entity
Videndum plc (the "Company") is a public company limited by shares
incorporated in the United Kingdom under the Companies Act. The Company is
registered in England and Wales and its registered address is Bridge House,
Heron Square, Richmond, TW9 1EN, United Kingdom. The consolidated financial
statements of the Company as at and for the year ended 31 December 2023
comprise the Company and its subsidiaries (together referred to as the
"Group").
Basis of preparation
In reporting financial information, the Group presents Alternative Performance
Measures ("APMs") which are not defined or specified under the requirements of
International Financial Reporting Standards ("IFRS"). The Group believes that
these APMs, which are not considered to be a substitute for or superior to
IFRS measures, provide stakeholders with additional helpful information and
enable an alternative comparison of performance over time. A glossary in Note
14 provides a comprehensive list of APMs that the Group uses, including an
explanation of how they are calculated, why they are used and how they can be
reconciled to a statutory measure where relevant.
The Company has elected to prepare its Parent Company financial statements in
accordance with Financial Reporting Standard 101 Reduced Disclosure Framework
("FRS 101").
Basis of consolidation
Subsidiaries are entities that are controlled by the Group. Control exists
when the Group has the rights to variable returns from its involvement with an
entity and has the ability to affect those returns through its power over the
entity. The results of subsidiaries sold or acquired during the year are
included in the Financial Statements up to, or from, the date that control
exists.
Going concern
Background and context
2023 was an exceptionally challenging year for Videndum, with the Group
suffering from the prolonged adverse impacts of three major headwinds. These
headwinds were (1) the weakened macroeconomic climate, (2) destocking of
inventory by retail customers and distribution partners, and (3) the US
Writers' and Actors' strikes (together "the strikes").
First, from late 2022, the Group's performance from its consumer and
Independent Content Creator ("ICC") markets was impacted by macroeconomic
conditions, mainly the increase in interest rates and inflation, which led to
weakening demand and customers delaying purchases.
Second, concerns amongst the Group's retail customers and distribution
partners regarding the global economy, higher interest rates, and their
working capital levels, led to destocking. These two headwinds affected the
consumer segment as well as the ICC segment (together c.40-50% of Group
revenue).
Third, the unprecedented and unforeseen impact from the lengthy strikes
significantly affected demand for the Group's high-end cine and scripted TV
products (c.20% of Group revenue exposed to the US cine market, and a further
c.10% to global cine markets). During the early part of the first half of
2023, demand from the cine/scripted TV markets weakened as contract renewal
negotiations between the Writers Guild of America ("WGA") and Alliance of
Motion Picture and Television Producers ("AMPTP") created uncertainty for the
Group's customers. Negotiations subsequently broke down and the WGA called a
strike for the first time since 2007. Whilst the WGA strike officially
commenced on 2 May 2023, the impact from the decline in orders received by
Videndum began to be noticed in the months leading up to May 2023. On 14 July
2023, the Screen Actors Guild - American Federation of Television and Radio
Artists ("SAG-AFTRA"), the actors' union who had also been conducting its own
contract renewal negotiations with the AMPTP, also started strike action. This
resulted in all cine/scripted TV productions ceasing in the US and spreading
globally where US actors were involved. In addition, the strikes meant that
some of the Group's new product launches were delayed.
The adverse impact on revenue from continuing operations in 2023 from the
strikes was c.£60 million, the reduction from destocking was c.£25 million,
and the residual reduction of c.£50 million was from challenging trading
conditions across our markets impacting demand in the consumer and ICC
segments.
Against this challenging backdrop, the Group took significant mitigating
actions, including agreeing covenant amendments with its lending banks, cost
reductions including restructuring projects, and developed plans to conserve
cash.
The Group has had, and continues to have, support from its lending banks which
was evidenced in 2023 by the Group agreeing an extension of £35 million of
its Revolving Credit Facility ("RCF"), as well as negotiating and agreeing
Amended Covenants.
Self-help actions taken to reduce discretionary costs in the short-term
included applying La Cassa Integrazione Guadagni Ordinaria ("CIGO"), the
non-refundable Italian government supported furlough programme, in the Group's
Italian-based facilities to partly mitigate the lower demand whilst ensuring
employees were looked after and retained by the business. In addition, reduced
marketing and travel spend was implemented across the Group, shortened working
hours were implemented at the Creative Solutions Division, hiring freezes, and
bonuses across the Group were not awarded.
The Group implemented several restructuring projects to reduce its cost base
and focus on the more profitable areas. The most noticeable activities
included the disposal of the Lightstream business, commencing the sale process
of Amimon, the closure of the Syrp research and development centre in New
Zealand and the exit from the motion controls market, moving Media Solutions'
US distribution out of New Jersey into its Savage facilities in Arizona,
transferring Wooden Camera operations from Texas to Costa Rica, and moving
Rycote operations to the Ashby-de-la-Zouch factory in the UK.
The combined benefit of the self-help and restructuring actions was to reduce
costs by c.£13 million in 2023 versus 2022. However, the actions only partly
mitigated the weaker trading, and as a result, having reviewed all options,
the Board decided that an equity raise was required. Videndum successfully
completed an equity raise in December 2023, generating net proceeds of £117.9
million. Refer to note 12 "Share capital" for further information on the
equity raise. The principal purpose of the equity raise was to repay
indebtedness and improve the Group's capital position. These proceeds were
used to reduce external debt, which meant that the two term loans were repaid
(£44.0 million) and the remaining balance was used to reduce the drawn down
amount on the RCF facility by £73.9 million.
Borrowing facilities and financial position at 31 December 2023 and at 31
March 2024
The Group has a committed £200 million Multicurrency Revolving Credit
Facility ("RCF") with a syndicate of five banks with a term until 14 February
2026 (see note 10 "Analysis of net debt").
At 31 December 2023, liquidity (cash headroom) was £105.3 million, comprising
£100.6 million unutilised RCF and £8.7 million of cash less £4.0 million
utilised overdraft. Liquidity at 31 March 2024 totalled £112.1
million, comprising £94.7 million unutilised RCF and £17.4 million of cash
with £nil utilised overdraft.
The RCF lending covenants relate to net debt:EBITDA and EBITA:net interest
(see note 14 "Glossary of alternative performance measures" for the definition
of these measures as set out in the RCF), which historically are tested at 30
June and 31 December, to be no higher than 3.25x and at least 4.0x
respectively ("Existing Covenants").
During 2023, given the challenges facing the Group, particularly the
unpredictability of the end of the strikes and uncertainty relating to the
timing and pace of the market recovery, the macroeconomic climate and
destocking, the Group proactively negotiated amended covenants ("Amended
Covenants") to the RCF with its lending banks.
As a result of the good relationship between the Group and its lending banks,
the Group agreed with its lending banks:
- an extension of £35 million of its RCF from 14 February 2025 to
14 February 2026, which was confirmed on 19 July 2023 and brought this
commitment to be in line with the remainder of the RCF which matures at the
same time in February 2026 (the total RCF facility is £200 million);
- to amend the "Existing Covenants" to the new "Amended Covenants"
as follows:
o net debt:EBITDA to be no higher than 4.25x (December 2023) and 3.75x (June
2024);
o EBITA:net interest of at least 1.25x (December 2023) and 1.75x (June
2024).
No restrictions apply to these Amended Covenants, for example there are no
restrictions on declaring a dividend but new testing dates for 31 March 2024
(net debt:EBITDA to be no higher than 4.25x and EBITA:net interest of at least
1.5x) and 30 September 2024 (net debt:EBITDA to be no higher than 3.75x and
EBITA:net interest of at least 3.25x) were agreed. From 31 December 2024, the
covenants are net debt:EBITDA to be no higher than 3.25x and EBITA:net
interest of at least 4.00x. The test dates in 2025 are 30 June and 31
December.
At 31 December 2023 these ratios were 3.3x for net debt: EBITDA and 2.0x for
EBITA:net interest (31 December 2022: 2.1x and 9.8x respectively). At 31
March 2024 these ratios were 3.0x for net debt: EBITDA and 2.2x for EBITA:net
interest.
Base case
The Board is continuing to monitor the Group's ability to meet its lending
covenants. As part of the Board's consideration of the appropriateness of
adopting the going concern basis of accounting in preparing the 2023 year-end
financial statements, a range of scenarios have been modelled over the 12
months following the signing of the Group's Annual Report. For this, the Board
has considered base case projections and several severe, but plausible,
downside scenarios.
The base case follows the Board-approved budget for 2024 which acknowledges
the challenges and opportunities being faced by the Group and assumes a
recovery in the cine/scripted TV segment during 2024, following the ending of
the strikes. It also assumes that the ICC/consumer segment will continue to
deteriorate, albeit at a lower rate than 2023. The Board approved budget for
2024 is within the range of forecasts approved by the Directors as part of the
equity raise.
The base case assumed a slower recovery in January and February 2024, with
improvement thereafter. This forecast is partly supported by the contracted
revenue relating to the 2024 Summer Olympic games and the typical seasonal
uplift in Q2 and Q4.
The Q1 2024 budget assumed an improvement in revenue of 5% when compared to Q1
2023. The FY 2024 budget assumes an improved second half, including the
assumptions of a recovery from the challenges previously discussed and the
generation of revenue from new product launches. The recovery in H2 2024
forecasts revenue to be broadly in line with H2 2022. The overall budgeted
revenue acknowledges the current challenges faced in 2024 and contains a
judgement around the speed of recovery from the challenges faced in 2023. The
2024 budget therefore does not assume to reach 2022 levels.
The most material judgements for the 2024 budget relate to how long it will
take for the Group's financial performance to recover from the strikes and how
much worse or better the macroeconomic environment might be in 2024 vs 2023.
The Group does not plan to make any structural changes under the scenarios
that have been modelled. The judgements and sensitivities are expanded on in
further detail below. The base case does not forecast a breach of covenants in
2024. In terms of liquidity, the lowest point between the time of signing
these financial statements and April 2025 is £113 million at 30 April 2024.
Current sell-side analysts' forecasts are below this budget for 2024, as is
typical for this stage in the financial year.
Severe but plausible downside assessment
In acknowledging the challenges faced in 2023, the Board has also modelled
several severe but plausible downside scenarios. The material judgements
considered in these scenarios are:
- estimating the recovery from the strikes, both in terms of the
length of the recovery and the quantum thereof, which is at a slower pace than
the base case;
- trading conditions and, in particular, the impact of the
macroeconomic environment being worse than expected; and
- continuing self-help actions that would partly offset the
effects of the above.
Whilst most of the Group's modelled forecasts do not result in breaching
covenants, there are severe but plausible downside scenarios which would
result in a breach of the Amended Covenants at the test dates from 30 June
2024. The severe but plausible scenarios that exist assume (1) a slower
recovery in the cine/scripted TV market in 2024; (2) a worsening macroeconomic
environment for the Group's consumer/ICC products; and (3) no additional
mitigation.
The most severe modelled slower recovery assumes that the ICC/consumer segment
declines by 30% on 2023 and that the cine/scripted TV market only recovers to
50% of 2022. Under these scenarios, there would be a breach of the Amended
Covenant at each of the 2024 test dates from 30 June 2024. In the event that
the results for Q2 2024 were to be the same as Q1 2024, this would result in a
breach of the Amended Covenant at 30 June 2024. Albeit the average revenue
uplift between the first and second quarters of the year over the last ten
years, excluding 2020 (COVID-19), has been 22% and every Q2 has been higher
than Q1.
The Board, in light of its experience, past practice and performance, and
historical evidence and current trading, considers that (a) it is not possible
to determine the length of time it will take to recover from the strikes, (b)
there is limited forecasting visibility supportable by externally sourced
market evidence, (c) the typical levels of the Group's order book are between
one and two months sales, and (d) the impact of the macroeconomic environment
on ICC and retail customers and distribution partners remains uncertain.
The Board is proactively managing the options available to the Group to
mitigate risks and deliver cost and cash saving measures as set out in the
"Mitigation plans" below.
Trading update for the first quarter of 2024
Although industry confidence in the post-strike recovery remains strong, the
Group did not see the significant pick up in the cine/scripted TV market that
it was expecting to happen in the month of March. As a result, although orders
for the first quarter of 2024 were 6% ahead at constant currency than the same
period of 2023 (strikes began in May 2023), revenue was 3% below at constant
currency. Adjusted operating profit was £0.7 million behind the prior year,
reflecting a consistent treatment for bonus accruals, with continuing tight
control on costs, capex, and working capital. The macroeconomic environment
for the sell-out from the Group's customers for its consumer/ICC products
continued to decline, albeit at a slower rate than experienced throughout
2023.
Compared to base case, orders for the first quarter of 2024 were 9% below, at
constant currency, with revenue 8% below, at constant currency. Revenue was
£8.1 million below base case and, reflecting a consistent treatment for bonus
accruals in both the base case and Q1 results, adjusted operating profit was
£3.0 million below base case.
The Group has reforecast Q2 2024 ("Outlook"), in light of the unexpected
weakness in Q1 2024 and current expectations from its Divisions, including a
lower rate of recovery in the cine and scripted TV market which, in the
Outlook, is anticipated to pick-up only from June 2024. The Outlook
represents current expectations and lies within the range of plausible
downside scenarios, would not result in a breach of covenants at 30 June 2024
Material uncertainty
The Board has, at the date of signing these financial statements, determined
that given the sensitivities over the timeline and pace of recovery from the
strikes and the financial impact on the Group (including potential covenant
breaches) of a slower than expected recovery and worsening macroeconomic
conditions, a material uncertainty exists which may cast significant doubt on
the Group's ability to continue as a going concern such that it may be unable
to realise its assets and discharge its liabilities in the normal course of
business.
Mitigation plans
The Board implemented mitigating actions during 2023 to offset the lost
revenue. These included the restructuring projects and cost reductions
previously mentioned. The benefits of these actions was to reduce 2023 costs
by c.£13 million versus 2022. The majority of the reduction will remain in
2024, with discretionary costs returning in a phased and controlled manner, as
trading conditions improve.
The Board is proactively managing the mitigating options available to the
Group. These include:
- cost and cash saving measures in addition to those factored into
the forecast;
- incremental revenue generating activities; and
- renegotiating the committed facility, extension and quantum, and
the lending covenants.
As a result of the challenging trading conditions experienced in Q1 2024, the
Group has developed a set of actions being delivered during Q2 2024 that will
reduce costs and secure incremental revenue opportunities in addition to those
included in the Outlook set out above. Cost and revenue actions have currently
highlighted Q2 operating profit of £3.8 million, with £2.1 million being
within the Groups control.
During the second quarter of 2024, the Group will negotiate with its banks an
amendment and extension of its RCF. As part of this process, the Group will
also endeavour to agree with its banks a new relaxation of its covenants,
along with a reduction of the overall committed facility, currently £200
million.
Notwithstanding the above material uncertainty, the Board has, on balance of
the available evidence and modelled scenarios, concluded that there is a
reasonable prospect that improvements in the Group's performance, along with
mitigating actions, will be achieved and it is appropriate to adopt the going
concern basis of accounting in preparing the 2023 year-end financial
statements.
Critical accounting judgements and key sources of estimation uncertainty
The following provides information on those policies that the Directors
consider critical because of the level of judgement and estimation required
which often involves assumptions regarding future events which can vary from
what is anticipated. The Directors review the judgements and estimates on an
ongoing basis with revisions to accounting estimates recognised in the period
in which the estimates are revised and in any future periods affected. The
Directors believe that the consolidated financial statements reflect
appropriate judgements and estimates and provide a true and fair view of the
Group's performance and financial position.
Critical accounting judgements in applying the Group's accounting policies
The following are critical accounting judgements that the Group makes, apart
from those involving estimations (which are dealt with above), that the
Directors have made in the process of applying the Group's accounting policies
and that have the most significant effect on the amounts recognised in the
financial statements.
Development costs
The Group capitalises development costs which meet the criteria under IAS 38
"Intangible Assets". The Group makes significant judgements in the application
of IAS 38, particularly in relation to its requirements regarding the
technical feasibility of completing the asset and the Group's ability to sell
and generate future economic benefits from the intangible asset.
Going concern assessment
There were material judgements made by the Board to determine if the Group is
a going concern. These judgements are disclosed under "going concern" in Note
1. The key judgements surrounding the going concern assessment relate to the
recovery of the business from headwinds faced during 2023 by the Group.
Assets held for sale and discontinued operations
The critical judgement is in relation to determining if the assets held for
sale and those that have been abandoned meet the criteria to be classified as
a discontinued operation under IFRS 5 "Non-current Assets Held for Sale and
Discontinued Operations", particularly if they represent either a separate
major line of business or a geographical area of operations. Management has
deemed that all three assets have met this requirement and if this criteria
was not met then it would not be accounted for as a discontinued operation.
Amimon and Lightstream, were disclosed as a non-current asset held for sale as
at 30 June 2023. Since then, a war broke out in the Middle East which has
impacted the sales process and the Group has further impaired Amimon as at 31
December 2023. The intention as at 31 December 2023 and at the time of signing
the 2023 financial statements, is to dispose of Amimon and generate as much
value as possible. Lightstream was sold during 2023 and Syrp abandoned in
2023. See note 13 "Discontinued operations and non-current assets classified
as held for sale".
Tax
In relation to tax, these include the interpretation and application of
existing legislation. The Group's key judgement relates to the application of
tax law in relation to the EU State Aid Investigation. Details in relation to
this judgement are set out in note 6 "Tax".
Key sources of estimation uncertainty in applying the Group's accounting
policies
The following are the key sources of estimation uncertainty that the Directors
have made in the process of applying the Group's accounting policies and that
have a significant risk of resulting in material adjustments to the carrying
amounts of assets and liabilities within the next financial year.
Impairment of discontinued operations
Non-current assets held for sale are measured at the lower of carrying amount
and fair value less costs to sell. Estimations and assumptions were applied by
Management in determining the recoverable amount of these assets. These
estimations relate predominantly to the valuation and estimated disposal
proceeds provided by an independent third-party, both of which impacted the
final carrying value. The valuation provided an indicator as to how much the
Amimon business could be sold for in an arm's length transaction. This
valuation combined with additional relevant information, such as the
macroeconomic climate and current situation in the Middle East, along with
Amimon's balance sheet determined a reasonable estimate of fair value less
costs to sell. This led to a range of potential valuations, ultimately leading
to a further impairment being booked in the second half of 2023. The ultimate
carrying value recorded on the balance sheet, is therefore sensitive to the
possible range of net disposal proceeds. Further detail about the assumptions
used and sensitivities are set out in note 13 "Discontinued operations and
non-current assets classified as held for sale".
Pension benefits
The actuarial valuations associated with the pension schemes involve making
assumptions about discount rates and life expectancy. All assumptions are
reviewed at each reporting date.
Tax
The Group is subject to income taxes in a number of jurisdictions. Management
is required to make estimates in determining the provisions for income taxes
and deferred tax assets and liabilities recognised in the consolidated
financial statements. Tax benefits are recognised to the extent that it is
probable that sufficient taxable income will be available in the future
against which temporary differences and unused tax losses can be utilised. The
most significant estimates made are in relation to the recognition of deferred
tax assets arising from carried forward tax losses. The recovery of those
losses is dependent on the future profitability of Group entities based in the
jurisdictions with those carried forward tax losses, most significantly in the
United States.
Impairment of acquired intangibles
The impairment of acquired intangibles involve making assumptions. The most
judgemental assumptions include determination of the WACC, growth rates,
operating leverage and operating cash conversion. All assumptions are reviewed
at each reporting date.
Inventory
Provisions are required to write down slow-moving, excess and obsolete
inventory to its net realisable value. Management assessed the level of
inventory provisioning by category and judgements and estimates were made in
determining if a provision was required and at what level. The key estimates
relate to supply chains and their lead times, future selling price,
anticipated future sales of products over particular time periods, the
susceptibility of the underlying product to obsolescence and current year
trading performance. The anticipated level of future sales is determined
primarily based on actual sales over a specified historic reference period,
which has been enhanced to a period of between six and 24 months, which is
determined by Management and is deemed appropriate to the type of inventory.
New and amended IFRS Accounting Standards that are effective for the current
year
In the current year, the Group has applied a number of amendments to IFRS
Accounting Standards issued by the International Accounting Standards Board
("IASB") that are mandatorily effective for an accounting period that begins
on or after 1 January 2023. Their adoption has not had any material impact on
the disclosures or on the amounts reported in these financial statements.
IFRS 17: "Insurance Contracts"
Amendments to IAS 1: "Presentation of Financial Statements" and IFRS Practice
Statement 2: "Making Materiality Judgements"
Disclosure of accounting policies
Amendments to IAS 12: "Income Taxes"
Deferred tax relating to assets and liabilities arising from a single
transaction - Following this amendment the deferred tax assets and deferred
tax liabilities relating to lease liabilities and lease assets which were
disclosed net in the prior year have been disclosed gross in both the current
and prior year.
International tax reform. Pillar two model rules
Amendments to IAS 8: "Accounting Polices, Changes in Accounting Estimates and
Errors"
Definition of accounting estimates
New standards and interpretations effective for future periods and not yet
adopted
Amended standards and interpretations not yet effective are not expected to
have a significant impact on the Group's consolidated financial statements.
At the date of authorisation of these financial statements, the Group has not
applied any new or revised IFRS Accounting Standards that have been issued but
are not yet effective. The standards applicable to the Group are shown below:
Amendments to IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture
Amendments to IAS 1
Non-current Liabilities with Covenants
Classification of Liabilities as Current or Non-current
Amendments to IAS 7 and IFRS 7
Supplier Finance Arrangements
Amendments to IFRS 16
Lease Liability in a Sale and
Leaseback
2. Segment reporting
The Group has three reportable segments which are reported in a manner that is
consistent with the internal reporting provided to the Chief Operating
Decision Maker on a regular basis to assist in making decisions on capital
allocated to each segment and to assess performance.
The Lightstream and Amimon businesses, which are part of the Creative
Solutions Division, and Syrp which is part of the Media Solutions Division,
have been classified as discontinued operations in the current year. Their
performance in this year and comparative years are therefore part of
discontinued operations as presented in note 13 "Discontinued operations and
non-current assets classified as held for sale".
Media Solutions Production Solutions Creative Solutions Corporate and unallocated Continuing operations Discontinued operations and non-current assets held for sale ((4)) Continuing and discontinued operations
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m £m £m £m £m £m £m £m £m
Analysis of revenue from external customers, by location of customer
United Kingdom 11.9 17.7 11.0 15.3 3.1 5.5 - - 26.0 38.5 - - 26.0 38.5
The rest of Europe 51.7 75.2 21.9 32.7 7.1 9.3 - - 80.7 117.2 0.5 0.7 81.2 117.9
North America 52.3 74.4 47.3 63.3 34.5 60.6 - - 134.1 198.3 6.7 6.4 140.8 204.7
Asia Pacific 31.8 42.8 13.1 16.3 6.4 10.1 - - 51.3 69.2 0.8 1.2 52.1 70.4
The rest of the World 6.0 7.7 7.9 10.2 0.9 1.4 - - 14.8 19.3 0.1 0.4 14.9 19.7
Total revenue from external customers 153.7 217.8 101.2 137.8 52.0 86.9 - - 306.9 442.5 8.1 8.7 315.0 451.2
Inter-segment revenue ((1)) 0.1 0.1 1.1 0.4 0.3 0.1 (1.5) (0.6) - - - - - -
Total revenue 153.8 217.9 102.3 138.2 52.3 87.0 (1.5) (0.6) 306.9 442.5 8.1 8.7 315.0 451.2
Adjusted operating profit/(loss) 11.4 35.1 12.1 31.4 0.8 16.7 (11.5) (17.0) 12.8 66.2 (6.3) (6.2) 6.5 60.0
Amortisation of intangible assets that are acquired in a business combination (3.9) (4.3) (0.1) (0.2) - (1.4) - - (4.0) (5.9) (2.2) (5.0) (6.2) (10.9)
Impairment of assets (4.5) - (1.7) - (1.1) (2.3) - - (7.3) (2.3) (50.2) (1.3) (57.5) (3.6)
Acquisition related (1.0) (4.3) (0.3) (0.1) - - - - (1.3) (4.4) (1.4) (4.9) (2.7) (9.3)
charges
Integration, restructuring and other costs (3.4) (0.9) (0.5) (1.0) (0.6) (1.0) (0.4) (1.7) (4.9) (4.6) (0.4) (0.1) (5.3) (4.7)
Operating profit/(loss) (1.4) 25.6 9.5 30.1 (0.9) 12.0 (11.9) (18.7) (4.7) 49.0 (60.5) (17.5) (65.2) 31.5
Finance income 2.4 2.3 - 0.1 2.4 2.4
Finance expense (16.5) (9.1) (0.4) (0.1) (16.9) (9.2)
Net finance expense (14.1) (6.8) (0.4) - (14.5) (6.8)
(Loss)/profit before tax (18.8) 42.2 (60.9) (17.5) (79.7) 24.7
Taxation 6.7 6.0 (4.1) 2.2 2.6 8.2
Loss on disposal of discontinued operation after tax - - (1.0) - (1.0) -
(Loss)/profit for the year (12.1) 48.2 (66.0) (15.3) (78.1) 32.9
Segment assets 206.8 242.5 112.7 119.7 40.2 107.4 6.4 8.5 366.1 478.1 12.3 - 378.4 478.1
Unallocated assets
Cash and cash equivalents 8.7 15.8 8.7 15.8 - - 8.7 15.8
Non-current tax assets 3.1 3.0 3.1 3.0 - - 3.1 3.0
Current tax assets 5.7 4.1 5.7 4.1 - - 5.7 4.1
Deferred tax assets 55.4 53.2 55.4 53.2 - - 55.4 53.2
Total assets 439.0 554.2 12.3 - 451.3 554.2
Segment liabilities 47.2 62.8 26.5 38.9 7.8 20.6 5.5 7.5 87.0 129.8 4.6 - 91.6 129.8
Interest-bearing loans 0.6 0.6 - - - - 98.6 173.9 99.2 174.5 - - 99.2 174.5
and borrowings
Unallocated liabilities
Bank overdrafts 4.0 - 4.0 - - - 4.0 -
Current tax liabilities 7.8 16.7 7.8 16.7 - - 7.8 16.7
Deferred tax liabilities 11.2 9.5 11.2 9.5 - - 11.2 9.5
Total liabilities 209.2 330.5 4.6 - 213.8 330.5
Non-current assets, by location
United Kingdom 10.0 10.3 31.2 33.3 - - 1.4 1.7 42.6 45.3 2.5 - 45.1 45.3
The rest of Europe 38.9 37.4 0.3 0.4 - - - - 39.2 37.8 - - 39.2 37.8
North America 75.2 85.8 17.3 20.4 21.6 42.7 - 0.5 114.1 149.4 - - 114.1 149.4
Asia Pacific 0.4 2.4 1.0 0.8 - - - - 1.4 3.2 - - 1.4 3.2
The rest of the World 8.3 8.7 8.6 9.5 - 38.0 - - 16.9 56.2 7.1 - 24.0 56.2
Total non-current assets ((2)) 132.8 144.6 58.4 64.4 21.6 80.7 1.4 2.2 214.2 291.9 9.6 - 223.8 291.9
Cash flows from operating activities ((3)) 14.7 26.5 4.3 30.5 4.0 14.2 (31.8) (15.5) (8.8) 55.7 (7.3) (7.0) (16.1) 48.7
Cash flows from investing activities (7.3) (39.9) (5.1) (5.3) (4.3) (3.3) - - (16.7) (48.5) (4.1) (4.9) (20.8) (53.4)
Cash flows from financing activities (2.9) (2.9) (2.1) (2.1) (0.9) (0.9) 29.7 17.5 23.8 11.6 (0.4) (0.9) 23.4 10.7
Capital expenditure
Property, plant and equipment 2.6 3.6 1.9 3.0 0.1 0.3 - - 4.6 6.9 0.2 0.2 4.8 7.1
Software and development costs 3.2 3.2 3.4 2.4 4.1 2.8 - - 10.7 8.4 3.0 4.7 13.7 13.1
((1)) Inter-segment pricing is determined on an arm's length basis. These are
eliminated in the Corporate column.
((2)) Non-current assets exclude employee benefit asset, derivative financial
instruments and non-current tax assets.
((3)) A cash outflow of £1.5 million previously included in the 2022
Corporate and unallocated has been reclassified to Media Solutions Division
(£0.7 million) and Discontinued operations (£0.8 million).
((4)) In the Production Solutions division, certain land and buildings of
£2.5 million have been classified as a disposal group held for sale within
the year.
The Group's operations are located in several geographical locations and sell
products and services on to external customers in all parts of the world.
The £60.5 million (2022: £17.5 million) operating loss of discontinued
operations comprises £3.4 million (2022: £2.1 million) in Media Solutions
division and £57.1 million (2022: £15.4 million) in Creative Solutions
division.
No customer (2022: one) accounted for more than 10% of external revenue. In
2022, the total revenue from this customer, which was recognised in all three
segments, was £60.8 million.
3. Operating expenses
2023 2022
£m £m
Analysis of operating expenses
Adjusting items in operating profit 17.5 17.2
Adjusting items in cost of sales ((1)) (4.2) (2.6)
- Adjusting items in operating expenses ((1)) 13.3 14.6
- Other administrative expenses 49.8 58.7
Adjusting items and administrative expenses 63.1 73.3
Marketing, selling and distribution costs 41.3 51.3
Research, development and engineering costs 14.9 17.2
Total operating expenses from continuing operations 119.3 141.8
- Adjusting items in operating expenses 54.2 11.3
- Other administrative expenses 2.6 3.2
Adjusting items and administrative expenses 56.8 14.5
Marketing, selling and distribution costs 1.7 2.4
Research, development and engineering costs 5.6 5.3
Total operating expenses from discontinued operations 64.1 22.2
((1)) Adjusting items in (loss)/profit before tax from continuing operations
are £20.1 million (2022: £18.0 million) of which £13.3 million (2022:
£14.6 million) are recognised in operating expenses, £4.2 million (2022:
£2.6 million) in cost of sales and £2.6 million (2022: £0.8 million) in
finance expense.
Adjusting items in operating loss from discontinued operations are £54.5
million (2022: £11.3 million), of which £54.2 million (2022: £11.3 million)
are recognised in operating expenses and £0.3 million (2022: £nil) in
finance expense.
See note 4 "Adjusting items".
4. Adjusting items
The Group presents APMs in addition to its statutory results. These are
presented in accordance with the Guidelines on APMs issued by the European
Securities and Markets Authority ("ESMA").
APMs used by the Group and, where relevant, a reconciliation to statutory
measures are set out in note 14 "Glossary of Alternative Performance
Measures". Adjusting items are described below along with more detail of the
specific adjustment and the Group's rationale for the adjustment.
The Group's key performance measures, such as adjusted operating profit,
exclude adjusting items.
The following are the Group's principal adjusting items when determining
adjusted operating profit:
Amortisation of acquired intangible assets:
Acquired intangibles are measured at fair value, which takes into account the
future cash flows expected to be generated by the asset rather than past costs
of development. Additionally, acquired intangibles include assets such as
brands, know-how and relationships which the Group would not normally
recognise as assets outside of a business combination. The amortisation of the
fair value of acquired intangibles is not considered to be representative of
the normal costs incurred by the business within the Group on an ongoing
basis.
Amortisation of capitalised development costs:
On an ongoing basis, the Group capitalises development costs of intangible
assets and the costs of purchasing software. These intangible assets are
recognised at cost and the amortisation of these costs are included in
adjusted operating profit.
Impairment charges:
The impairment of disposed entities or groups of asset(s) held for sale are
adjusted for to ensure consistency between
periods.
Impairment of goodwill, acquired intangible assets and capitalised development
costs:
Impairments to acquired intangibles arose as a result of the estimated net
present values of cash flows being lower than the carrying value at year end.
Within discontinued operations the impairment of goodwill, acquired
intangibles and capitalised development costs resulted from the assets being
classified as non-current assets held for sale, measured at the lower of the
carrying amount and the expected fair value less costs to sell.
Impairment of property, plant and equipment:
Impairment of property, plant and equipment resulted from the asset being
classified as non-current assets held for sale, measured at the lower of the
carrying amount and the expected fair value less costs to
sell.
Impairment of inventory:
The impairment of inventory relates to a discontinuation of product lines
which are significant in nature and not considered by the Group to be part of
the normal operating result of the business.
Acquisition related charges
Earnout charges and retention bonuses agreed as part of the acquisition:
Under IFRS 3, most of the Group's earnout charges and retention bonuses are
treated as post combination remuneration, although the levels of remuneration
generally do not reflect market rates and do not get renewed as a salary (or
other remuneration) might. The Group considers this to be inconsistent with
the economics reflected in the deals because other consideration for the
acquisition is effectively included in goodwill rather than in the Income
Statement. Retention agreements are generally entered into with key management
at the point of acquisition to help ensure an efficient
integration.
Transaction costs:
Transaction costs related to the acquisition of a business do not reflect its
trading performance and so are adjusted to ensure consistency between
periods.
Effect of fair valuation of acquired inventory:
As part of the accounting for business combinations, the Group measures
acquired inventory at fair value as required under IFRS 3. This results in the
carrying value of acquired inventory being higher than its original cost-based
measure. The impact of the uplift in value has the effect of increasing cost
of sales thereby reducing the Group's gross profit margin which is not
representative of ongoing performance.
Effect of fair valuation of property, plant and equipment:
Under IFRS 3, acquired fixed assets are measured at fair value. This measure
does not reflect the undepreciated cost of the acquired asset from the
perspective of the acquiree and as such alters the depreciation cost from the
Group's perspective after the acquisition. This does not reflect the ongoing
profitability of the acquired business.
Grant payments in excess of the liability recognised on acquisition:
These are costs relating to pre-acquisition funding activity. As they are not
relevant to understanding the in-year performance of the business, they are
adjusted to ensure consistency between periods.
Integration and restructuring costs:
For an acquired business, the costs of integration, such as termination of
third-party distributor agreements, severance and other costs included in the
business's defined integration plan, do not reflect the business's trading
performance and so are adjusted to ensure consistency between periods.
Restructuring and other associated costs arising from significant strategy
changes that are not considered by the Group to be part of the normal
operating costs of the
business.
Finance expense:
Amortisation of loan fees on borrowings for acquisitions:
These are upfront borrowing fees related to funding for acquisitions and do
not reflect the ongoing funding cost of the investment. Unwind of discount on
liabilities and other interest: This is discount being unwound on the payment
of deferred consideration, and interest charged on deferred retention
payments, both relating to acquisitions.
The above are adjusted to ensure consistency between periods.
Unwind of discount on liabilities and other interest:
Unwinding of discounts and interest charged on deferred payments relating to
acquisitions do not reflect the ongoing funding cost of the investment and so
are adjusted to ensure consistency between periods.
Other adjusting items:
- profit/(loss) on disposal of businesses;
- past service charges associated with defined benefit pensions,
such as gender equalisation of guaranteed minimum pension ("GMP") for
occupational schemes; and
- other significant initiatives not related to trading.
In addition to the above, the current and deferred tax effects of adjusting
items are taken into account in calculating post-tax APMs. In addition, the
following are treated as adjusting items when considering post tax APMs:
- significant adjustments to current or deferred tax which have
arisen in previous periods but are accounted for in the current period; and
- the net effect of significant new tax legislation changes.
The APMs reflect how the business is measured and managed on a day-to-day
basis including when setting and determining the variable element of
remuneration of senior management throughout the Group (notably cash bonus and
the Long Term Incentive Plan ("LTIP")).
Adjusted operating profit/(loss), adjusted profit/(loss) before tax and
adjusted profit/(loss) after tax are not defined terms under IFRS and may not
be comparable with similarly titled profit measures reported by other
companies. They are not intended to be a substitute for IFRS measures. All
APMs relate to the current year results and comparative periods where
provided.
2023 2022
£m £m
Continuing operations
Amortisation of intangible assets that are acquired in a business combination (4.0) (5.9)
Impairment of assets ((1)) (7.3) (2.3)
Acquisition related charges ((2)) (1.3) (4.4)
Integration, restructuring, and other costs ((3)) (4.9) (4.6)
Adjusting items in operating (loss)/profit from continuing operations (17.5) (17.2)
Finance expense - amortisation of loan fees on borrowings for acquisitions and (2.6) (0.8)
other financing initiatives
Adjusting items in (loss)/profit before tax from continuing operations (20.1) (18.0)
((1)) The impairment of assets of £7.3 million (2022: £2.3 million) relates
to inventory: £3.7 million (2022: £1.7 million), which mainly comprises the
discontinuation of the motion controls market and Wooden Camera inventory
following the relocation to Costa Rica; land and buildings: £1.5 million
(2022: £nil) which is predominantly the £1.3m impairment of the building
which was classified as non-current assets held for sale; acquired intangible
assets: £1.8 million (2022: £nil) and capitalised development costs: £0.3
million (2022: £0.6 million).
The two significant restructuring charges relate to:
Motion controls: During the second half of 2023, the Group took a strategic
decision to close Syrp, its Media Solutions mechatronic research and
development centre in New Zealand and exit from the lower margin motion
control product category. A restructuring charge of £2.4 million (2022:
£nil) was incurred reflecting inventory losses incurred and the write-down to
net realisable value of the motion control inventory which has been reported
within adjusting items.
During this period, the disposal of inventory, resulted in revenue of £1.2
million recognised within operating profit from continuing operations and
associated cash flows of £1.1 million, which are not expected to be part of
underlying operations of the business going forward. The remaining £0.9
million of inventory at hand, which has been written down to fair value is
expected to be disposed during first half of 2024.
Wooden Camera: the restructuring project within Creative Solutions involved
the relocation of Wooden Camera to Costa Rica from Texas and resulted in the
scrapping of £1.0 million worth of inventory.
((2)) Acquisition related charges of £1.3 million (2022: £4.4 million)
comprise a retention payment charge of £1.1 million (2022: £3.4 million)
relating to continued employment, transaction costs relating to the
acquisition of Audix of £nil million (2022: £0.4 million), the effect of
fair valuation of acquired inventory of £0.1 million (2022: £0.5 million),
and the effect of fair valuation of acquired property, plant and equipment of
£0.1 million (2022: £0.1 million).
The retention payment charge of £1.1 million relates to Quasar: £0.3
million, Savage: £0.6 million and Audix: £0.2 million. The charge incurred
in 2022 was £3.4 million relating to Quasar: £0.1 million, Savage: £0.7
million and Audix: £2.6 million.
((3)) Integration, restructuring and other costs of £4.9 million (2022: £4.6
million) relate mainly to site rationalisation and other restructuring
activities of which employee related charges were £4.1 million (2022: £3.7
million); and corporate related initiatives £0.8 million (2022: £0.9
million). The most significant restructuring projects entered into in 2023
were:
Creative Solutions Division: exit costs relating to the migration of the
Wooden Camera manufacturing plant from Texas to Costa Rica.
Media Solutions Division: exit costs relating to the closure of Videndum Media
Distribution US ("VMD US") and incorporation of its operations into Savage,
which involved moving from New Jersey to Phoenix; and the rationalisation of
the UK operations of Rycote to Videndum Media Distribution UK ("VMD UK")
within the UK. The consolidation of VMD US operations into Savage will result
in improved efficiency and capability, delivering savings and new
opportunities for further incremental synergies in the coming years, mainly
within logistics. The rationalisation of Rycote to VMD UK will reduce costs
and streamline production.
Corporate initiatives incurred relate to the multi-year rebranding initiative
which commenced in 2022 and other one off projects.
Corporate: initiatives incurred in 2023 relating to corporate activities and
rebranding.
An amount of £4.2 million (2022: £2.6 million) was adjusted from cost of
sales. This related to the fair value uplift of £0.1 million (2022: £0.5
million) relating to acquired inventory sold by the Group since the business
combination, inventory impairment was £3.7 million (2022: £1.7 million), and
redundancy costs £0.4 million (2022: £0.4 million).
2023 2022
£m £m
Discontinued operations
Amortisation of intangible assets that are acquired in a business combination (2.2) (5.0)
Impairment of fixed assets ((1)) (50.2) (1.3)
Acquisition related charges ((2)) (1.4) (4.9)
Integration, restructuring, and other costs ((3)) (0.4) (0.1)
Adjusting items in operating loss from discontinued operations (54.2) (11.3)
Finance expense - unwind of discount on liabilities and other interest (0.3) -
Adjusting items in loss before tax from discontinued operations (54.5) (11.3)
See note 7 "Earnings per share" for the above, net of tax.
((1)) The impairment of assets charge of £50.2 million (2022: £1.3 million)
relates to goodwill: £26.8 million (2022: £nil), acquired intangible assets:
£14.0 million (2022: £nil), capitalised development costs: £9.1 million
(2022: £1.3 million), and land and buildings: £0.3 million (2022: £nil).
The goodwill, acquired intangibles and capitalised development costs resulted
from the recognition of Lightstream and Amimon as non-current assets held for
sale at the half year 2023.
((2)) Acquisition related charges of £1.4 million comprise a retention
payment charge relating to continued employment of £1.1 million (2022: £2.5
million), transaction costs relating to the acquisition of businesses of £0.3
million (2022: £0.6 million), and grant payments in excess of liability
recognised at acquisition of £nil (2022: £1.8 million).
((3)) Integration, restructuring and other costs of £0.4 million (2022: £0.1
million), relates to the closure of the Syrp operations in New Zealand, within
the Media Solutions Division.
To ensure fair review of the development and performance of the business and
of the position of the Group from a cash flow standpoint, the table below
shows a reconciliation from "Net cash (used in)/from operating activities" to
"Adjusted net cash from continuing operating activities", considering the
impact of cash flows from discontinued operations and cash flows associated
with items disclosed as adjusting within the income statement.
2023 2022
£m £m
Net cash (used in)/from operating activities (16.1) 48.7
Add back:
Adjusting items in net cash (used in)/from operating activities
- Net cash used in operating activities from discontinued operations 7.3 7.0
- Earnout and retention bonuses 3.6 0.3
- Transaction costs - 0.6
- Cash generated from the sale of impaired inventory (1.1) -
- Restructuring and integration costs 6.4 2.0
Adjusted net cash from continuing operating activities 0.1 58.6
5. Net finance expense
2023 2022
£m £m
Finance expense
Interest expense on interest-bearing loans and borrowings ((1)) (16.3) (8.3)
Fair value gain on interest rate swaps designated as cash flow hedges 3.0 0.7
Interest expense on net defined benefit pension scheme (0.1) (0.1)
Interest expense on lease liabilities (1.5) (1.4)
Other interest expense ((2)) (1.6) -
(16.5) (9.1)
Finance income
Net currency translation gains 2.0 2.3
Other interest income 0.2 -
Interest income on net defined benefit pension scheme 0.2 -
2.4 2.3
Net finance expense from continuing operations (14.1) (6.8)
Finance expense
Interest expense on lease liabilities - (0.1)
Net currency translation losses (0.1) -
Unwind of discount on liabilities and other interest ((3)) (0.3) -
(0.4) (0.1)
Finance income - net currency translation gains - 0.1
Net finance expense from discontinued operations (0.4) -
((1)) Interest expense on interest-bearing loans and borrowings of £16.3
million (2022: £8.3 million) relates to interest expense of £14.4 million
(2022: £7.0 million); amortisation of loan fees £0.7 million (2022: £0.5
million); and an adjusting amount of £1.2 million (2022: £0.8 million)
relating to loan fees on borrowings for acquisitions of £0.6 million (2022:
£0.8 million) and other financing initiatives of £0.6 million (2022: £nil).
See note 4 "Adjusting items".
((2)) Other interest expense of £1.6 million (2022: £nil) includes an
adjusting amount of £1.4 million (2022: £nil) relating to other financing
initiatives, not related to underlying trading that has been written off
during the year. See note 4 "Adjusting items".
((3)) Unwind of discount on liabilities and other interest of £0.3 million
(2022: £nil) is an adjusting charge in loss before tax from discontinued
operations. See note 4 "Adjusting items".
At the end of 2021, the Group entered into material Term Loans, refer to note
10 "Net debt" for further details, and following the increase in interest
rates throughout 2023, this resulted in a material increase in finance
expense.
6. Tax
2023 2022
£m £m
The total taxation charge/(credit) in the Income Statement is analysed as
follows:
Summarised in the Income Statement as follows
Continuing operations
Current tax 1.0 9.0
Deferred tax (7.7) (13.7)
(6.7) (4.7)
Discontinued operations
Current tax (0.6) (0.5)
Deferred tax 4.7 (3.0)
4.1 (3.5)
Continuing and discontinued operations
Current tax 0.4 8.5
Deferred tax (3.0) (16.7)
(2.6) (8.2)
Adjusting items
Continuing operations
Current tax (1.8) (1.7)
Deferred tax (2.0) (18.6)
(3.8) (20.3)
Discontinued operations
Current tax (0.4) -
Deferred tax (5.2) (0.4)
(5.6) (0.4)
Continuing and discontinued operations
Current tax ((1)) (2.2) (1.7)
Deferred tax ((2)) (7.2) (19.0)
(9.4) (20.7)
Before adjusting items
Continuing operations
Current tax 2.8 10.7
Deferred tax (5.7) 4.9
(2.9) 15.6
Discontinued operations
Current tax (0.2) (0.5)
Deferred tax 9.9 (2.6)
9.7 (3.1)
Continuing and discontinued operations
Current tax 2.6 10.2
Deferred tax 4.2 2.3
6.8 12.5
((1)) Current tax credit of £2.2 million (2022: £1.7 million credit) was
recognised in the year of which £1.6 million credit (2022: £0.7 million
credit) related to restructuring and integration costs, £nil million charge
(2022: £nil) related to tax on the acquisition and disposal of businesses,
£0.6 million credit (2022 £0.2 million credit) related to financial expense
and £nil relates to non-taxable foreign exchange (2022: £0.8 million
credit).
(
)
((2)) Deferred tax credit of £7.2 million (2022: £19.0 million credit) was
recognised in the year of which £2.6 million credit (2022: £0.7 million
credit) relates to restructuring and impairment costs, £0.7 million credit
(2022: £1.7 million credit) to acquisitions, £3.9m million credit (2022:
£2.3 million credit) to amortisation and impairment of intangible assets and
£nil (2022: £14.3 million) credit relates to a deferred tax asset
recognition.
EU State Aid investigation
In October 2017, the European Commission (EC) opened a State Aid investigation
into the Group Financing Exemption in the UK controlled foreign company
("CFC") rules (an exemption introduced into the UK tax legislation in 2013).
In common with other UK-based international companies whose intragroup finance
arrangements are in line with current controlled foreign company rules,
Videndum is affected by this decision.
In June 2019, the UK government submitted an appeal to the EU Commission
against its decision. In common with a number of other affected taxpayers,
Videndum has also filed its own annulment application.
In 2021 the Group received a Charging Notice and Interest Charging Notice from
HMRC, and accordingly paid £3.0 million. The Group considers it probable that
its appeal against the Charging Notice and/or its annulment application
against the European Commission's ("EC") State Aid decision will be successful
and as such has recorded a non-current asset in relation to the payment on the
basis that it will ultimately be refunded.
It is considered possible, however, that the appeal and/or annulment might be
unsuccessful which would result in a liability contingent on the outcome.
In 2022, the General Court of the European Union upheld the EC's original
decision to the Court of Justice of the European Union ("CJEU"). The
applicants in both of the lead cases making applications for annulment of
which the Group's own annulment application is currently stood behind have
appealed against this judgement.
On 11 April 2024, the Advocate General delivered an independent, but
non-binding, opinion on the case, stating that the CJEU should set aside the
judgement of the General Court and annul the EC's decision which found that
the UK provided State Aid to certain multinational groups between 2013 and
2018. The final judgement is expected to be delivered in the coming months,
although there is no prescribed timeframe for the issue of that final
decision.
Management remains of the view that it is probable that its appeal and/or its
annulment application will be successful based on the technical facts of the
case.
The non-current tax asset at 31 December 2023 is £3.1 million which
represents the £3.0 million described above plus £0.1 million interest
receivable.
Deferred Tax Assets
Deferred tax assets are recognised to the extent it is probable that future
taxable profit will be available against which the unused tax losses, unused
tax credits and deductible temporary differences can be utilized in the
relevant jurisdictions. As of 31 December 2023, Videndum has recognised
deferred tax assets of £55.4 million (£53.2 million as of 31 December
2022).
7. Earnings per share
Earnings per share ("EPS") is the amount of post-tax profit attributable to
each share.
Basic EPS is calculated on the profit for the year divided by the weighted
average number of ordinary shares in issue during the year.
Diluted EPS is calculated on the profit for the year divided by the weighted
average number of ordinary shares in issue during the year, but adjusted for
the effects of dilutive share options.
A negative basic EPS is not adjusted for the effects of dilutive share
options.
The adjusted EPS measure is calculated based on adjusted profit/(loss) and is
used by Management to set performance targets for employee incentives and to
assess performance of the businesses.
The calculation of basic, diluted and adjusted EPS is set out below:
2023 2022
£m £m
(Loss)/profit for the financial year from continuing operations (12.1) 46.9
Add back adjusting items, all net of tax:
Amortisation of intangible assets that are acquired in a business combination, 3.3 3.9
net of tax
Impairment of fixed assets, net of tax 6.2 2.3
Acquisition related charges, net of tax 1.1 2.9
Integration, restructuring and other costs, net of tax 3.7 3.1
Finance expense - amortisation of loan fees on borrowings for acquisitions and 2.0 0.6
other interest, net of tax
Current tax credit ((1)) - (0.8)
Deferred tax credit ((2)) - (14.3)
Add back adjusting items from continuing operations, all net of tax: 16.3 (2.3)
Adjusted profit after tax from continuing operations 4.2 44.6
( )
Loss for the financial year from discontinued operations (66.0) (14.0)
Add back adjusting items, all net of tax:
Amortisation of intangible assets that are acquired in a business combination, 1.9 4.8
net of tax
Impairment of intangible assets 45.5 1.3
Acquisition related charges, net of tax 0.9 4.7
Integration, restructuring and other costs, net of tax 0.3 0.1
Finance expense - unwind of discount on liabilities and other interest, net of 0.3 -
tax
Add back adjusting items from discontinued operations, all net of tax: 48.9 10.9
Add back loss on disposal of discontinued operation after tax 1.0 -
Adjusted loss after tax from continuing operations (16.1) (3.1)
(Loss)/profit for the financial year (78.1) 32.9
Adjusted (loss)/profit after tax (11.9) 41.5
((1)) A current tax credit of £nil (2022: £0.8 million) relates to
non-taxable foreign exchange gains.
((2)) A deferred tax credit of £nil (2022: £14.3 million) relates to the
recognition of deferred tax assets.
Weighted average number of shares '000 Adjusted earnings per share Earnings per share
2023 2022 2023 2022 2023 2022
Number Number pence pence pence pence
From continuing operations ((1))
Basic 49,584 46,064 8.5 96.8 (24.4) 101.8
Dilutive potential ordinary shares 318 1,850 (0.1) (3.7) - (3.9)
Diluted 49,902 47,914 8.4 93.1 (24.4) 97.9
From discontinued operations((2))
Basic 49,584 46,064 (32.5) (6.7) (133.1) (30.4)
Dilutive potential ordinary shares 318 1,850 - - - -
Diluted 49,902 47,914 (32.5) (6.7) (133.1) (30.4)
From continuing and discontinued operations ((2))
Basic 49,584 46,064 (24.0) 90.1 (157.5) 71.4
Dilutive potential ordinary shares 318 1,850 - (3.5) - (2.7)
Diluted 49,902 47,914 (24.0) 86.6 (157.5) 68.7
((1)) For the year ended 31 December 2023, potential 318,000 ordinary shares
are dilutive for the purposes of adjusted earnings per share but antidilutive
for statutory earnings per share.
((2)) 318,000 (2022: 1,850,000) potential ordinary shares are antidilutive for
both adjusted earnings per share and statutory earnings per
share.
8. Employee benefit asset
The Group has defined benefit pension schemes in the UK, Italy, Germany, Japan
and France. The UK defined benefit scheme was closed to future benefit accrual
with effect from 31 July 2010.
The UK defined benefit scheme is in an actuarial surplus position at 31
December 2023 (measured on an IAS 19 "Employee Benefits" basis) of £4.2
million (31 December 2022: £3.9 million). The surplus has been recognised on
the basis that the Group has an unconditional right to a refund, assuming the
gradual settlement of Scheme liabilities over time until all members have left
the Scheme.
9. Dividend
Dividends are recognised through equity on the earlier of their approval by
the Company's shareholders or their payment.
2023 2022
Amounts arising in respect of the year £m £m
Interim dividend for the year ended 31 December 2023 of nil pence (2022: - 6.9
15.0p) per ordinary share
Proposed final dividend for the year ended 31 December 2023 of nil pence - 11.6
(2022: 25.0p) per ordinary share
- 18.5
The aggregate amount of dividends paid in the year
Final dividend for the year ended 31 December 2022 of 25.0p (2021: 24.0p) per 11.6 11.1
ordinary share
Interim dividend for the year ended 31 December 2023 of nil pence (2022: - 6.9
15.0p) per ordinary share
11.6 18.0
10. Analysis of net debt
The table below analyses the Group's components of net debt and their
movements in the period:
Interest- bearing loans and borrowings ((1)) Leases Liabilities from financing Sub-total Cash and cash equivalents ((2)) Total
£m £m £m £m £m
Opening at 1 January 2022 (122.8) (30.3) (153.1) 7.9 (145.2)
Other cash flows - - - (24.3) (24.3)
Business combinations - (4.4) (4.4) 0.2 (4.2)
Repayments 93.8 6.4 100.2 (100.2) -
Borrowings (130.3) - (130.3) 130.3 -
Leases entered into during the year - (4.8) (4.8) - (4.8)
Leases - early termination - 0.6 0.6 - 0.6
Fees incurred 1.0 - 1.0 - 1.0
Amortisation of fees (1.3) - (1.3) - (1.3)
Foreign currency (14.9) (2.3) (17.2) 1.9 (15.3)
Closing at 31 December 2022 and opening at 1 January 2023 (174.5) (34.8) (209.3) 15.8 (193.5)
Other cash flows - - - 67.1 67.1
Repayments 313.9 6.7 320.6 (320.6) -
Borrowings (240.0) - (240.0) 240.0 -
Leases entered into during the year - (7.7) (7.7) - (7.7)
Leases - early termination - 0.4 0.4 - 0.4
Fees incurred 0.3 - 0.3 - 0.3
Amortisation of fees (1.3) - (1.3) - (1.3)
Foreign currency 2.4 1.1 3.5 2.4 5.9
Discontinued operations - 0.3 0.3 - 0.3
Closing at 31 December 2023 from continuing operations (99.2) (34.0) (133.2) 4.7 (128.5)
((1)) Interest bearing loans and borrowings include unamortised fees and
transaction costs of 0.8 million (2022: £1.7 million)
((2)) Cash and cash equivalents include bank overdrafts of £4.0 million
(2022: £nil).
On 14 February 2020, the Group signed a new £165.0 million five-year (with
one optional one-year extension) multicurrency RCF with a syndicate of five
banks. On 12 November 2021, the Group signed an amendment and restatement
agreement to change the underlying benchmark from LIBOR to the relevant
risk-free rates (SONIA, SOFR, TONA), due to the cessation of LIBOR on 31
December 2021. The one-year extension was agreed with four syndicate banks in
January 2022 and the fifth syndicate bank extended in July 2023, increasing
the RCF maturity to 14 February 2026. In December 2022, a £35.0 million
accordion was agreed with four syndicate banks, resulting in the total
commitments increasing to £200 million. The Group was utilising 51% of the
RCF as at 31 December 2023.
During the second half of 2023, the Group agreed new covenants with its
lending banks, that apply instead of the existing covenants for the following
testing periods: net debt:EBITDA to be no higher than 4.25x (December 2023)
and 3.75x (June 2024); and EBITA:net interest of at least 1.25x (December
2023) and 1.75x (June 2024). No restrictions apply to these new covenants but
new testing dates were introduced for March 2024 (net debt:EBITDA to be no
higher than 4.25x and EBITA:net interest of at least 1.5x) and September 2024
(net debt:EBITDA to be no higher than 3.75x and EBITA:net interest of at least
3.25x) have been agreed.
Under the terms of the RCF the Group expects to and has the discretion to roll
over the obligation for at least 12 months from the Balance Sheet date, and as
a result, these amounts are reported as non-current liabilities in the Balance
Sheet.
On 14 November 2021, the Group signed a new US$53.0 million (£43.8 million)
three-year (expiry 14 November 2024) amortising Term Loan with a syndicate of
four banks to facilitate the acquisition of Savage. Following the payment of
25% of the original amount during 2022 and 20% in June 2023, the outstanding
balance of US$29.1 million (£23.3 million) was pre-paid on 11 December 2023
and the facility cancelled.
On 7 January 2022, the Group signed a new US$47.0 million (£38.8 million)
three-year (maturity 7 January 2025) amortising Term Loan with a syndicate of
four banks to facilitate the acquisition of Audix. Following the payment of
25% of the original amount during 2022 and 20% in June 2023, the outstanding
balance of US$25.9 million (£20.7 million) was pre-paid on 11 December 2023
and the facility cancelled.
The RCF was reduced by £73.9 million on 11 December 2023, following the
receipt of the equity proceeds.
The Group has un-committed bank overdraft facilities totalling £4.3 million
and a £5.0 million committed bank overdraft facility, which is carved out of
the £200.0 million revolving credit facility when in use. As at 31 December
2023, £4.0 million bank overdrafts were in use.
Factoring of trade receivables
Trade receivables are derecognised through schemes with a financial
institution, where the counterparty assumes the risk of non-payment by the
customer. The transfer is on a limited recourse basis in which there is no
obligation to the factor for non-payment by a customer and substantially all
risks and rewards have been transferred.
Derecognition occurs when cash is received from the financial institution
(less reverse factoring discount).
On 28 June 2023 the Group signed a €20.0 million (£17.3 million)
un-committed evergreen receivables factoring facility. The amount of
receivables factored at year end was £7.9 million (2022: £nil), maximum
usage during the year was £8.2 million.
11. Derivative financial instruments
The fair value of forward exchange contracts and interest rate swap contracts
is determined by estimating the market value of that contract at the reporting
date. Derivatives with a positive fair value are recorded as assets and
negative fair values as liabilities, and are presented as current or
non-current based on their contracted maturity dates.
Forward exchange contracts
The following table shows the forward exchange contracts in place at the
Balance Sheet date. These contracts mature in the next 24 months, therefore
the cash flows and resulting effect on profit and loss are expected to occur
within the next 24 months.
As at 31 December 2023 Average exchange rate of contracts As at 31 December 2022 Average exchange rate of contracts
millions
millions
Currency
Forward exchange contracts (buy/sell)
GBP/USD forward exchange contracts USD 16.8 1.18 27.8 1.21
EUR/USD forward exchange contracts USD 33.4 1.05 58.6 1.05
GBP/EUR forward exchange contracts EUR 28.7 1.13 15.3 1.15
GBP/JPY forward exchange contracts JPY 627.6 172.8 288.0 155.6
EUR/JPY forward exchange contracts JPY 1,235.0 152.8 656.0 138.4
A net gain of £1.2 million (2022: £2.9 million loss) relating to forward
exchange contracts was reclassified to the Income Statement, to match the
crystallisation of the hedged forecast cash flows which affect the Income
Statement.
Interest rate swaps
The following table shows the interest rate swap contracts in place at the
Balance Sheet date. The interest is payable quarterly on 31 March, 30 June, 30
September and 31 December.
Nominal amounts as at 31 December 2023 Weighted average fixed rate((1)) Maturity Nominal amounts as at 31 December 2022
Currency
Interest rate swap contracts
USD Interest rate swaps float (SOFR) to fix USD 40.0 5.18% Sep 24 35.0
GBP Interest rate swaps float (SONIA) to fix ((1)) GBP 37.0 1.01% Jan 25 47.0
((1)) In addition to these fixed rates, the margin relating to the interest
swapped of the underlying RCF or term loans continues to apply.
During the period ended 31 December 2023 a net gain of £3.0 million (2022:
£0.7 million) relating to interest rate swaps was reclassified to the Income
Statement, to match the crystallisation of the hedged forecast cash flows
which affects the Income Statement.
The Group entered into a new $40.0m floating-to-fixed interest rate swap to
replace the maturing $35.0 million swap in September 2023. As at 31 December
2023, a total of £68.4m (£137.9 million 31 December 2022) remain in place
following the maturity of the $35.0 million (£27.5 million) swap and the
early closures of the $55.0 million (£44.0 million) and £10.0 million swaps,
due to the underlying debt repayment following the equity raise. Swaps
currently in place cover 69% of the variable loan principle outstanding.
Fair value hierarchy
The carrying values of the Group's financial instruments approximate their
fair value.
The Group's derivative financial instruments are Level 2.
12. Share Capital
Equity Raise:
On 8 December 2023, the Company issued 47,329,954 new ordinary shares for an
offer price of 267.0 pence, generating gross proceeds of £126.4 million.
Expenses of £8.5 million were incurred and have been offset in the share
premium account leaving net proceeds of £117.9 million.
13. Discontinued operations and non-current assets classified as held for
sale
In accordance with IFRS 5 "Non-current assets held for sale and discontinued
operations", the assets and liabilities of the Syrp business which is part of
the Media Solutions Division, Amimon business which is part of the Creative
Solutions Division, and certain land and buildings of the Production Solutions
division have been classified as a disposal group held for sale within the
year.
Discontinued operations are businesses that have been sold, abandoned, or
which are held for sale and contribute to a separate major line of business or
geographical area of operations. Amimon, Lightstream, and Syrp have all been
classified as discontinued operations in the current year. These operations
meet the definition as a discontinued operation due to them all being separate
major lines of business, and are part of a single coordinated plan to dispose
of.
As at 30 June 2023 Amimon was classified as an asset held for sale and a
discontinued operation.
On 2 October 2023 the Group sold its Lightstream business based in the US for
a cash consideration of $0.5 million (£0.4 million) resulting in a loss on
disposal before tax of £1.0 million after taking into account £1.4 million
costs of disposal. Immediately before the initial classification of
Lightstream as held for sale, the carrying amounts of all the assets and
liabilities in the disposal group were measured in accordance with applicable
IFRSs. As a result of measuring the disposal group at the lower of carrying
amount and fair value less costs to sell, an impairment charge of £19.2
million (goodwill: £11.2 million; acquired intangibles: £7.5 million;
capitalised development costs: £0.5 million) was incurred.
On 31 December 2023 the Syrp business based in New Zealand was abandoned.
Employee termination costs of £0.4 million were incurred and an impairment
charge of £0.4 million was made to plant, machinery and vehicles. The
property lease was terminated on 21 January 2024.
On 5 January 2024 certain land and buildings of the Production Solutions
Division were sold for a net sale price of £2.5 million.
The tables below show the results of the discontinued operations which are
included in the Consolidated Income Statement and Consolidated Statement of
Cash Flows respectively, and the effect of the disposal group on the Group
Balance Sheet.
Sensitivities
The key source of estimation uncertainty relates to the estimated disposal
proceeds, which would have an impact on the final carrying value. There is a
direct correlation between the estimated disposal proceeds and the final
carrying value. A £2 million increase/decrease in estimated disposal proceeds
would cause a £2 million increase/decrease in the carrying value.
a) Income Statement - discontinued operations
2023 2022
Notes £m £m
Revenue 2 8.1 8.7
Expenses (68.6) (26.2)
Operating loss (60.5) (17.5)
Comprising
- Adjusted operating loss (6.3) (6.2)
- Adjusting items in operating loss 4 (54.2) (11.3)
Finance expense (0.4) -
Loss before tax (60.9) (17.5)
Comprising
- Adjusted loss before tax (6.4) (6.2)
- Adjusting items in loss before tax 4 (54.5) (11.3)
Taxation (4.1) 3.5
Comprising taxation on
- Taxation on adjusted loss (9.7) 3.1
- Adjusting items in taxation 5.6 0.4
Loss after tax from discontinued operations (65.0) (14.0)
Loss on disposal of discontinued operation after tax (1.0) -
Loss after tax from discontinued operations attributable to owners of parent (66.0) (14.0)
b) Statement of Cash Flows - discontinued operations
2023 2022
£m £m
Net cash used in operating activities (7.3) (7.0)
Net cash used in investing activities (4.1) (4.9)
Net cash from financing activities (0.4) (0.9)
Net cash used in discontinued operations (11.8) (12.8)
Loss on disposal of discontinued operation after tax (1.0) -
Add back share-based payment charge 0.1 -
Disposal of business in cash flow (0.9) -
c) Assets and liabilities of the disposal group classified as held for
sale
2023
£m
Assets
Intangible assets 5.5
Property, plant and equipment ((1)) 3.6
Inventories 1.0
Trade and other receivables 1.7
Other non-current receivables 0.5
12.3
Liabilities
Lease liabilities (0.3)
Trade payables (0.8)
Other payables (1.9)
Current provisions (0.6)
Non-current provisions (1.0)
(4.6)
((1)) Property, plant and equipment of £3.6 million classified as assets held
for sale within the year comprises land and buildings of £2.5 million in
Continuing operations (Production Solutions division) and £1.1 million in
Discontinued operations (Creative Solutions division).
14. Glossary on Alternative Performance Measures ("APMs")
The Group believes that these APMs, which are not considered to be a
substitute for or superior to IFRS measures, provide stakeholders with
additional helpful information and enable an alternative comparison of
performance over time.
The Group uses APMs to aid the comparability of information between reporting
periods and Divisions, by adjusting for certain items which impact upon IFRS
measures, to aid the user in understanding the activity taking place across
the Group's businesses. APMs are used by the Directors and Management for
performance analysis, planning, reporting and incentive purposes. Where
relevant, further information on specific APMs is provided in each section
below.
The APMs refer to continuing operations; 2022 has been represented to ensure
fair comparability.
APM Closest equivalent IFRS measure Definition and purpose
Income Statement measures from continuing operations
Adjusted gross profit Gross profit Calculated as gross profit before adjusting items.
The table below shows a reconciliation:
See note 4 "Adjusting items".
2023 2022
£m £m
Gross profit 114.6 190.8
Adjusting items in cost of sales 4.2 2.6
Adjusted gross profit 118.8 193.4
Adjusted gross profit margin None Calculated as adjusted gross profit divided by revenue.
Adjusted operating expenses Operating expenses Calculated as operating expenses before adjusting items.
The table below shows a reconciliation:
2023 2022
£m £m
Operating expenses 119.3 141.8
Adjusting items in operating expenses (13.3) (14.6)
Adjusted operating expenses 106.0 127.2
Adjusted operating profit (Loss)/profit before tax Calculated as (Loss)/profit before tax, before net finance expense, and before
adjusting items. This is a key management incentive metric.
Adjusting items include non-cash charges such as amortisation of intangible
assets that are acquired in a business combination, impairment of disposed
entities or groups of asset(s) and effect of fair valuation of acquired
inventory and property, plant and equipment. Cash charges include items such
as transaction costs, earnout, retention and deferred payments, and
significant costs relating to the integration of acquired businesses.
The
tabl
e
belo
w
show
s a
reco
ncil
iati
on:
See
note
4
"Adj
usti
ng
item
s".
2023 2022
£m £m
(Loss)/profit before tax (18.8) 42.2
Net finance expense 14.1 6.8
Adjusting items in operating (loss)/profit 17.5 17.2
Adjusted operating profit 12.8 66.2
Adjusted operating profit margin None Calculated as adjusted operating profit divided by revenue. Progression in
adjusted operating margin is an indicator of the Group's operating efficiency.
Adjusted net finance income/(expense) None Calculated as finance expense, less finance income, and less amortisation of
loan fees on borrowings for acquisitions and other financing initiatives.
The table below shows a reconciliation:
2023 2022
£m £m
Finance expense (16.5) (9.1)
Finance income 2.4 2.3
Adjusting finance expense - amortisation of loan fees on borrowings for 2.6 0.8
acquisitions and other financing initiatives
Adjusted net finance expense (11.5) (6.0)
Adjusted profit before tax Profit before tax Calculated as profit before tax, before adjusting items. This is a key
management incentive metric and is a measure used within the Group's incentive
plans.
See
Cond
ense
d
Cons
olid
ated
Inco
me
Stat
emen
t
for
a
reco
ncil
iati
on.
Adjusted profit after tax Profit after tax Calculated as profit after tax before adjusting items.
See Condensed Consolidated Income Statement for a reconciliation.
Adjusted basic earnings per share Basic earnings per share Calculated as adjusted profit after tax divided by the weighted average number
of ordinary shares outstanding during the period. This is a key management
incentive metric and is a measure used within the Group's incentive plans.
See
note
7"Ea
rnin
gs
per
shar
e"
for
a
reco
ncil
iati
on.
Cash flow measures from continuing operations
Free cash flow Net cash from operating activities Net cash from operating activities after proceeds from property, plant and
equipment and software, purchase of property, plant and equipment, and
capitalisation of software and development costs. This measure reflects the
cash generated in the period that is available to invest in accordance with
the Group's capital allocation policy.
See
"Adj
uste
d
oper
atin
g
cash
flow
"
belo
w
for
a
reco
ncil
iati
on.
Adjusted operating cash flow Net cash from operating activities Free cash flow before payment of interest, tax, restructuring, integration and
other costs, retention bonuses and transaction costs relating to the
acquisition of businesses, and before proceeds from sale of impaired
inventory. This is a measure of the cash generation and working capital
efficiency of the Group's operations. Adjusted operating cash flow as a
percentage of adjusted operating profit is a key management incentive metric.
2023 2022
£m £m
(Loss)/profit for the period from continuing operations (12.1) 46.9
Add back:
Taxation and net finance expense 7.4 2.1
Adjusting items in operating (loss)/profit 17.5 17.2
Adjusted operating profit 12.8 66.2
Depreciation excluding effect of fair valuation of property, plant and 14.0 14.4
equipment
Amortisation of capitalised software and development costs 6.5 5.7
Adjusted trade working capital movement ((1)) (1.1) (15.6)
Adjusted non-trade working capital movement ((1)) (7.1) (2.4)
Adjusted provision movement ((1)) - (0.7)
Other:
- Net loss on disposal of property, plant and equipment and software 0.2 -
- Fair value losses on derivative financial instruments (0.2) -
- Foreign exchange losses (0.3) 0.6
- Share-based payments 1.0 6.9
- Proceeds from sale of property, plant and equipment and software 0.3 -
Purchase of property, plant and equipment (4.6) (7.0)
Capitalisation of software and development costs (10.7) (8.4)
Adjusted operating cash flow 10.8 59.7
Interest paid (15.3) (9.3)
Tax paid (10.4) (7.2)
Income/(payments) relating to:
Restructuring and integration costs (6.4) (2.0)
Proceeds from the sale of impaired inventory 1.1 -
Retention bonuses (3.6) (0.3)
Transaction costs - (0.6)
Free cash flow (23.8) 40.3
Proceeds from sale of property, plant and equipment and software (0.3) -
Purchase of property, plant and equipment 4.6 7.0
Capitalisation of software and development costs 10.7 8.4
Net cash (used in)/from operating activities (8.8) 55.7
((1)) See "Adjusted trade working capital movement" and "Adjusted non-trade
working capital movement" and "Adjusted provision movement" below for a
reconciliation.
Adjusted trade working capital movement None The adjusted trade working capital movement includes movements in inventories,
trade debtors and trade creditors, excluding movements relating to adjusting
items.
2023 2022
£m £m
Decrease/(increase) in inventories 6.9 (7.5)
Decrease/(increase) in trade debtors 17.1 (6.7)
(Decrease)/increase in trade creditors (20.2) 0.8
Decrease/(increase) in trade working capital 3.8 (13.4)
Deduct inflows from adjusting charges:
Effect of fair valuation of acquired inventory (0.1) (0.5)
Adjustments for integration, restructuring and other costs (3.7) (1.7)
Proceeds from the sale of impaired inventory (1.1) -
Adjusted trade working capital movement (1.1) (15.6)
Adjusted non-trade working capital movement None The adjusted non-trade working capital movement includes movements in other
debtors, other creditors and contract assets/liabilities, excluding movements
relating to adjusting items.
2023 2022
£m £m
Decrease in other debtors and contract assets 0.5 1.9
Decrease in other creditors and contract liabilities (10.9) (4.6)
Increase in non-trade working capital (10.4) (2.7)
Deduct inflows from adjusting charges:
Adjustments for integration, restructuring and other costs, transaction costs 3.3 0.3
relating to acquisition of businesses, and retention bonuses
Adjusted non-trade working capital movement (7.1) (2.4)
Adjusted provisions movement Increase/(decrease) in provisions The adjusted provisions movement excludes movements relating to adjusting
items.
2023 2022
£m £m
Increase/(decrease) in provisions (1.9) 1.1
Adjustments for integration, restructuring and other costs 1.9 (1.8)
Adjusted provision movement - (0.7)
Other measures from continuing operations
Return on capital employed (ROCE) None ROCE is calculated as annual adjusted operating profit for the last 12 months
divided by the average total assets (excluding defined benefit pension asset
and deferred tax assets), current liabilities (excluding current
interest-bearing loans and borrowings), and non-current lease liabilities.
The average is based on the opening and closing of the 12 month period. See
"Five Year Summary".
2023 2022
£m £m
Adjusted operating profit for the last 12 months 12.8 66.2
Capital employed at the beginning of the year 296.3 222.0
Capital employed at the end of the year 289.1 296.3
Average capital employed 292.7 259.1
Adjusted ROCE % 4.4% 25.5%
Dropthrough None Dropthrough is the change in adjusted operating profit as a percentage of the
change in revenue.
Organic revenue None Organic revenue is revenue from existing business, and not from new mergers
and acquisitions.
Organic adjusted operating profit None Organic adjusted operating profit is adjusted operating profit from existing
business, and not from new mergers and acquisitions.
Organic growth None Organic growth is the growth achieved year-on-year from existing business, and
not from new mergers and acquisitions.
Constant currency None Constant currency variances are derived by calculating the current year
amounts at the applicable prior year foreign currency exchange rates,
excluding the effects of hedging in both years.
Revenue growth is represented on a constant currency basis as this best
represents the impact of volume and pricing on revenue growth.
Organic revenue at constant currency None Calculated as organic revenue at constant currency.
The table below shows a reconciliation:
See "Condensed Consolidated Income Statement"
See "Constant currency", "Organic revenue" and "Organic growth" above for
definitions.
2023
£m
2022 Revenue 442.5
Add from acquisitions 0.1
2022 Organic revenue 442.6
2023 Revenue 306.9
Exclude effects of foreign currency exchange rates:
Translation effects 0.3
Transactional effects (4.1)
2023 Organic revenue at constant currency 303.1
Organic growth at constant currency % (32%)
Organic adjusted operating profit at constant currency None Calculated as organic adjusted profit at constant currency.
The table below shows a reconciliation.
See "Condensed Consolidated Income Statement".
See "Adjusted operating profit" above for a reconciliation.
See "Constant currency", "Organic adjusted operating profit" and "Organic
growth" above for definitions.
2023
£m
2022 Adjusted operating profit 66.2
Add from acquisitions -
2022 Organic adjusted operating profit 66.2
2023 Adjusted operating profit ((1)) 12.8
Exclude effects of foreign currency exchange rates:
Translation effects (0.4)
Transactional effects (2.8)
2023 Organic adjusted operating profit at constant currency 9.6
Organic growth at constant currency % (85%)
((1)
)
See
"Adj
uste
d
oper
atin
g
prof
it"
abov
e
for
a
reco
ncil
iati
on
Cash conversion None Calculated as adjusted operating cash flow divided by adjusted operating
profit. This is a key management incentive metric and is a measure used within
the Group's incentive plans as set out in the Remuneration report.
Adjusted EBITDA None Calculated as adjusted operating profit for the last 12 months before
depreciation of tangible fixed assets and amortisation of intangibles (other
than those already excluded from adjusted operating profit).
The table below shows a reconciliation:
2023 2022
£m £m
Adjusted operating profit for the last 12 months 12.8 66.2
Add back:
Depreciation excluding effect of fair valuation of property, plant and 14.0 14.4
equipment
Amortisation of capitalised software and development costs 6.5 5.7
Adjusted EBITDA 33.3 86.3
Covenant EBITDA None Calculated as adjusted EBITDA for the last 12 months before share-based
payment charge, and after interest income/(expense) unrelated to gross
borrowings
The table below shows a reconciliation:
2023
£m
Adjusted EBITDA for the last 12 months 33.3
Add back share-based payment charge 1.0
Add back material items of an unusual nature 4.1
Add interest income unrelated to gross borrowings((1)) 1.4
Covenant EBITDA 39.8
((1)) See "Interest income/(expense) unrelated to gross borrowings" below for
a reconciliation.
Covenant EBITA None Calculated as Covenant EBITDA for the last 12 months less depreciation of
tangible fixed assets and amortisation of intangibles (other than those
already excluded from adjusted operating profit).
The table below shows a reconciliation:
2023
£m
Covenant EBITDA for the last 12 months 39.8
Less depreciation excluding effect of fair valuation of property, plant and (14.0)
equipment
Covenant EBITA 25.8
Interest income/(expense) unrelated to gross borrowings None This is currency translation gains/(losses), other interest income/(expense),
interest income/(expense) on net defined benefit pension scheme, and
amortisation of loan fees on borrowings, excluding those on borrowings for
acquisitions, and other financing initiatives.
2023
£m
Net currency translation gains 2.0
Other interest income 0.2
Interest income on net defined benefit pension scheme 0.2
Interest expense on net defined benefit pension scheme (0.1)
Other interest expense (1.6)
Amortisation of loan fees on borrowings (1.9)
Less amortisation of loan fees on borrowings for acquisitions, and other 2.6
financing initiatives
Interest income unrelated to gross borrowings 1.4
Covenant net interest None Calculated as adjusted net finance income/(expense)((1)) for the last 12
months less interest income/(expense) unrelated to gross borrowings((1))
2023
£m
Adjusted net finance expense for the last 12 months (11.5)
Less interest income unrelated to gross borrowings (1.4)
Covenant net interest (12.9)
((1)) See "Adjusted net finance income/(expense)" and "Interest
income/(expense) unrelated to gross borrowings" above for a reconciliation.
Net debt None See note 10 "Analysis of net debt" for an explanation of the balances included
in net debt, along with a breakdown of the amounts.
Covenant net debt None Calculated as Net debt before unamortised loan fees on borrowings, and before
lease liabilities from discontinued operations.
2023
£m
Net debt 128.5
Add back unamortised loan fees on borrowings 0.8
Add back lease liabilities from discontinued operations 0.3
Covenant net debt 129.6
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