REG - Videndum PLC - Videndum plc - 2023 Interim Results
26/09/2023 07:00
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26 September 2023
Videndum plc
2023 Interim 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 results for the half year ended 30 June 2023.
Results
H1 2023 H1 2022(1) % change
Continuing operations¹
Revenue £165.0m £219.4m -25%
Adjusted operating profit* £15.2m £32.1m -53%
Adjusted operating margin* 9.2% 14.6% -5.4%pts
Adjusted profit before tax* £10.1m £29.1m -65%
Adjusted basic earnings per share* 16.6p 49.3p -66%
Free cash flow* £(4.4)m £23.4m -119%
Net debt* £216.1m £194.1m +11%
Statutory results from continuing and discontinued operations¹
Revenue £169.9m £223.6m -24%
Operating (loss)/profit £(44.3)m £19.7m -325%
Operating margin -26.1% 8.8% -34.9%pts
(Loss)/profit before tax £(50.0)m £16.4m -405%
Basic (loss)/earnings per share (100.0)p 28.0p -457%
H1 2023 financial summary
· As previously highlighted, financial performance significantly impacted by
ongoing macroeconomic headwinds and effects of destocking, and compounded by
the US writers' strike²
· Revenue from continuing operations down 25% year-on-year
· Executed self-help actions to improve cost base, and to ensure business well
positioned once market recovers
· Higher-than-expected covenant net debt to EBITDA of 2.9x reflecting H1 2023
trading conditions, though still within our lending covenant limits
· Given the ongoing strikes by the US writers and actors³ ("the strikes"), no
interim dividend declared; plan to resume dividend payments when appropriate
to do so
Current trading, strategic positioning and outlook
· The Group is experiencing significantly more impact from the strikes in H2
2023 than anticipated at the time of its May Update. This is due to the
prolonged writers' strike, the additional impact of the actors' strike, and
the fact that there is less time for a recovery in the current year
· Additionally, the macroeconomic environment remains challenging. We are not
yet seeing recovery in the consumer or ICC segments, and retailers are
increasingly concerned about interest rates and working capital, and we are
therefore still seeing some destocking. This is resulting in
worse-than-expected trading conditions
· The Group has put additional mitigation plans in place to further reduce costs
and conserve cash, and is proactively working to reduce leverage and
recapitalise the business, which may require an equity raise
· The Group has strong relationships with its lending banks
· Agreed further lending covenant amendments for December 2023 to those
announced in August
· Committed lending facilities; £200 million RCF currently matures February
2026
· Further detail is set out below in the H1 2023 financial overview
· Maintaining investment in key strategic initiatives, focusing more tightly on
high-end professional content creation whilst exiting non-core markets
· Encouraging news about the strikes, however, it is not clear when productions
will restart, therefore there is a wide range of potential outcomes for FY
2023, and it is difficult to provide financial guidance. Nonetheless, when
productions restart, the Group remains well positioned and we expect to
benefit from a significant recovery in revenue
Discontinued operations
The Group is 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
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 a core focus going forward, two
businesses (Lightstream and Amimon) were held for sale at 30 June 2023 and
reported as discontinued operations. If a sale of Amimon were to take place,
Videndum would retain the exclusive rights to deploy its chipset technology in
content creation markets. Intangible assets of the two businesses have been
impaired by £46.9 million (Lightstream £18.9 million, Amimon £28.0
million).
Commenting on the results, Stephen Bird, Group Chief Executive, said:
"As expected, the first half of 2023 was exceptionally challenging for
Videndum. The ongoing macroeconomic headwinds, compounded by the US writers'
strike, significantly impacted our H1 2023 financial performance.
"The Group is also experiencing significantly more impact from the strikes in
H2 2023 than anticipated at the time of our May Update. This is due to the
prolonged writers' strike, the additional impact of the actors' strike, and
the fact that there is less time for a recovery in the current year.
Additionally, the macroeconomic environment remains challenging. We are not
yet seeing recovery in the consumer or ICC segments, and retailers are
increasingly concerned about interest rates and working capital, and we are
therefore still seeing some destocking. This is resulting in
worse-than-expected trading conditions.
"Management continues to be focused on tightly managing costs and preserving
cash, while seeking to ensure that we are well placed to take advantage of the
recovery once the strikes are over. We have excellent relationships with our
banks and the Group is proactively working to reduce leverage and recapitalise
the business, which may require an equity raise.
"Videndum remains well positioned in a content creation market which has
attractive structural growth drivers and strong medium-term prospects;
however, the current macroeconomic environment remains challenging, and
although there is encouraging news about the strikes, it is not clear when
productions will restart. Therefore, there is a wide range of potential
outcomes for the full year, and it is difficult to provide financial guidance.
Nonetheless, when productions restart, we expect Videndum to benefit from a
significant recovery in revenue."
Notes
(1) Following an extensive review of the Creative Solutions Division, two
businesses (Lightstream and Amimon) were held for sale at 30 June 2023 and
reported as discontinued operations; H2 2022 has been represented to ensure
fair comparability. Results of discontinued operations can be found in note 13
to the condensed financial statements.
(2) The Writers' Guild of America ("WGA"), combines two different US labour unions
representing TV and film writers in New York and Los Angeles, and called a
strike on 2 May 2023. The previous longest writers' strike was in 1988 and
lasted 153 days (source: Moody's). 2023 writers' strike has been ongoing for
148 days so far.
(3) The Screen Actors Guild and the American Federation of Television and Radio
Artists ("SAG-AFTRA"), combines two US labour unions, and called a strike on 3
July 2023.
(4) H1 2023 average exchange rates: £1 = $1.23, £1 = €1.14, €1 = $1.08, £1
= Yen166.
(5) H1 2022 average exchange rates: £1 = $1.31, £1 = €1.19, €1 = $1.10, £1
= Yen159.
(6) 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, re4.25porting 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
Jennifer Shaw, Group Communications Director
A video webcast and Q&A for Analysts and Investors will be held today,
starting at 09.00am UK time. The presentation slides will be available on our
website at 7.00am.
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"), gamers,
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, motion control, audio capture,
and noise reduction equipment.
We employ around 1,700 people across the world in 11 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
H1 2023 financial overview
During H1 2023, the macroeconomic environment remained challenging,
particularly with low business confidence in the US. This affected our
consumer segment (c.10% of Group revenue) as well as our ICC segment (c.35% of
Group revenue), and led to continuing destocking.
In addition, the Writers' Guild of America ("WGA"), which combines two
different US labour unions representing TV and film writers in New York and
Los Angeles, called a strike on 2 May 2023. In the months prior, the
speculation of a potential strike had caused some US cine/scripted TV
productions to be paused, and from 2 May 2023, the majority of US
cine/scripted TV productions were suspended. This significantly affected
demand for our high-end cine and scripted TV products in the US during the
period (c.20% of Group revenue).
Income and expense
The numbers below are presented on a continuing basis (unless stated)
including H1 2022 re-presented to ensure fair comparability.
Adjusted* Statutory from continuing and discontinued operations
H1 2023 H1 2022 % change H1 2023 H1 2022
Revenue £165.0m £219.4m -25% £169.9m £223.6m
Operating profit/(loss) £15.2m £32.1m -53% £(44.3)m £19.7m
Profit/(loss) before tax £10.1m £29.1m -65% £(50.0)m £16.4m
Earnings/(loss) per share 16.6p 49.3p -66% (100.0)p 28.0p
The headwinds mentioned above resulted in Group revenue from continuing
operations decreasing by 25% compared to H1 2022; a 28% decline on an organic,
constant currency basis: destocking c.£20 million, the demand in consumer and
ICC segments c.£20 million, and the writers' strike c.£20 million. Price
rises successfully implemented in 2022 and again at the beginning of 2023 more
than offset inflation.
The decline in revenue impacted adversely on adjusted gross margin*, which
fell from 43.7% in H1 2022 to 41.8% in H1 2023, reflecting operating leverage.
La Cassa Integrazione Guadagni Ordinaria ("CIGO"), the Italian government
supported furlough programme, was applied in our Italian facilities to
mitigate the lower demand whilst ensuring our employees were looked after and
retained by the business.
Adjusted operating expenses* decreased by £9.9 million to £53.8 million (H1
2022: £63.7 million) due to self-help actions taken to reduce discretionary
costs in the short-term, apply CIGO in Italy, and implement restructuring
projects in all Divisions to ensure we have a lean organisation ready to
capitalise once trading conditions improve.
The actions taken in cost of sales and operating expenses constrained that
revenue drop through to adjusted operating profit* to c.30% (compared to a
marginal contribution of c.50%).
Adjusted profit before tax* included a £1.3 million favourable foreign
exchange effect after hedging compared to H1 2022, due to a stronger US Dollar
and Euro than in H1 2022. The impact on H2 2023 adjusted profit before tax*
from a one cent stronger/weaker US Dollar/Euro is expected to be an
increase/decrease of approximately £0.2 million in each case. At current spot
rates (22 September: £1 = $1.23, £1 = €1.15) there is expected to be a
c.£2 million adverse impact on H2 2023 versus H2 2022.
Adjusted net finance expense* of £5.1 million was £2.1 million higher than
in H1 2022. This was driven by higher debt, following the 2021/22
acquisitions, and rising interest rates; partly offset by net gains on the
translation of intercompany loans and cash balances. In H2 2023, an average of
c.55% of our borrowings will be fixed through swaps at an average rate of c.5%
(including margin), partly mitigating the risk of further interest rate
increases. Our floating debt currently has an average interest rate of c.7%
(including margin). Net finance expense also includes interest on the lease
liabilities and the defined benefit pension scheme, amortisation of loan fees,
and net currency translation gains or losses.
Adjusted profit before tax* was £10.1 million; £19.0 million lower than H1
2022. On an organic, constant currency basis, adjusted operating profit* and
adjusted profit before tax* were 56% and 70% down respectively on H1 2022.
Statutory loss before tax from continuing and discontinued operations of
£50.0 million (H1 2022: £16.4 million profit) further reflects adjusting
items from continuing operations of £7.0 million (H1 2022: £6.2 million) and
a £53.1 million loss from discontinued operations (H1 2022: £6.5 million
loss).
The adjusting items from continuing operations primarily relate to the
amortisation of acquired intangibles, acquisition related charges, and
restructuring. These charges were higher compared to H1 2022 primarily due to
an impairment of property in the Production Solutions Division and
restructuring activities across all Divisions, partly offset by lower
transaction costs in relation to acquisitions compared to those in H1 2022.
The loss at discontinued operations predominantly reflects a £46.9 million
impairment of intangible assets (Lightstream £18.9 million, Amimon £28.0
million).
The Group's effective tax rate ("ETR") on adjusted profit before tax* was
23.8% (H1 2022: 22.0%). Statutory ETR from continuing and discontinued
operations was a 7.0% credit on the £50.0 million loss (H1 2022: 21.3% debit
of the £16.4 million profit before tax).
Adjusted basic earnings per share* was 16.6 pence. Statutory basic loss per
share from continuing and discontinued operations was 100.0 pence.
Cash flow and net debt
Cash generated from operating activities was £11.5 million (H1 2022: £34.2
million) and net cash from operating activities was £0.5 million (H1 2022:
£28.8 million).
Free cash flow* was £27.8 million lower than H1 2022 reflecting the lower
adjusted operating profit* and higher interest, tax and restructuring costs.
Cash conversion* was 93%, and across the last three years has cumulatively
been 103%.
£m H1 2023 H1 2022 Variance
Statutory operating (loss)/profit from continuing and discontinued operations (44.3) 19.7 (64.0)
Add back discontinued operations adjusted operating loss* 52.9 6.6 46.3
Add back adjusting items from continuing operations 6.6 5.8 0.8
Adjusted operating profit* 15.2 32.1 (16.9)
Depreciation((1)) 10.5 9.9 0.6
Adjusted working capital (inc)/dec* (4.4) (8.7) 4.3
Adjusted provisions inc/(dec)* (0.1) (0.4) 0.3
Capital expenditure((2)) (7.8) (6.7) (1.1)
Other((3)) 0.8 4.1 (3.3)
Adjusted operating cash flow* 14.2 30.3 (16.1)
Cash conversion* 93% 94% -1%pts
Interest and tax paid (11.0) (5.3) (5.7)
Earnout and retention bonuses (3.7) (0.3) (3.4)
Restructuring and integration costs (3.3) (0.5) (2.8)
Transaction costs (0.6) (0.8) 0.2
Free cash flow* (4.4) 23.4 (27.8)
(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 £0.5 million (H1 2022: £28.8 million)
comprises -£4.4 million free cash flow* (H1 2022: £23.4 million) plus £7.8
million capital expenditure from continuing operations (H1 2022: £6.7
million) less £0.1 million proceeds from sale of PP&E and software (H1
2022: nil) plus net cash from operating activities from discontinued
operations of -£2.8 million (H1 2022: -£1.3 million)
Adjusted working capital* increased by £4.4 million in H1 2023. Inventory
increased by £1.1 million in H1 as we applied effective control measures that
largely offset the decrease in demand and the effects of the writers' strike,
whilst we maintained stocks of critical electronic components to support the
expected bounce back once the strikes end. Receivables decreased by £12.2
million and payables decreased by £15.5 million, both reflecting the lower
level of trading.
Capital expenditure included:
· £1.9 million of property, plant and equipment compared with £3.2 million in
H1 2022, reflecting actions to limit non-essential spend;
· £5.6 million capitalisation of development costs (H1 2022: £3.2 million)
primarily at Production Solutions to develop our AI-driven talent tracking and
sustainable portable power solutions based on sodium technology; and £0.3
million capitalisation of software (H1 2022: £0.3 million). Gross R&D was
higher than H1 2022 reflecting the projects above and inflation. The
percentage of revenue (6.6%) grew (H1 2022: 4.6%) but is a reflection of the
lower revenue and expected to return to c.5% once markets recover.
£m H1 2023 H1 2022 Variance
Gross R&D 10.9 10.0 0.9
Capitalised (5.6) (3.2) (2.4)
Amortisation 2.8 2.3 0.5
P&L Impact 8.1 9.1 (1.0)
'Other' primarily relates to share-based payments.
Interest and tax paid increased by £5.7 million compared to H1 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 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)
Continuing free cash flow* (4.4)
Upfront loan fees, net of amortisation (0.6)
Dividends paid (11.6)
Employee incentive shares (0.4)
Acquisitions (1.6)
Free cash outflow at discontinued operations (4.4)
Net lease additions (6.2)
FX 6.6
June 2023 closing net debt* (£m) (216.1)
Net debt* at 30 June 2023 was £22.6 million higher than at 31 December 2022
(£193.5 million) and £22.0 million higher than at 30 June 2022 (£194.1
million).
The ratio of net debt to EBITDA was 2.9x at 30 June 2023 (H1 2022: 2.2x), on
the basis used for our loan covenants(1).
Cash outflow on acquisitions relates to deferred consideration for the
purchase of Audix.
Net lease additions mainly consist of the lease renewal for our Media
Solutions headquarters in Cassola.
There was a £6.6 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 30 June 2023 totalled £62.9 million, comprising £45.0 million
unutilised RCF (total facility of £200 million matures in February 2026) and
£17.9 million of cash. We continue to have strong relationships with our
banks and have agreed further lending covenant amendments for December 2023
(ratio of net debt to EBITDA(1) increased from 3.25x to 5.75x and interest
cover(2) lowered from 4.0x to 2.0x) and amendments for June 2024 (ratio of net
debt to EBITDA(1) increased from 3.25x to 3.75x and interest cover(2) lowered
from 4.0x to 3.25x).
ROCE* of 15.8%(3) was lower than the prior year (H1 2022: 25.4%), which mainly
reflects the lower adjusted operating profit*.
Material uncertainty
As a result of there being a plausible scenario whereby covenants are
breached, the Board has determined that a material uncertainty exists that 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. The key judgements surrounding the material
uncertainty are the length and depth of the ongoing writers' and actors'
strikes, as well as the length of time over how long it takes to recover once
the strikes end, and the recovery from the broader macroeconomic challenges
faced by the Group. Further detail on the assessment of going concern can be
found within note 1 to the condensed financial statements.
Adjusting items
Adjusting items in profit before tax from continuing operations were £7.0
million versus £6.2 million in H1 2022.
£m H1 2023 H1 2022
Amortisation of acquired intangible assets that are acquired in a business 2.1 2.9
combination
Acquisition related charges(4) 0.7 2.0
Integration and restructuring costs 2.1 0.9
Impairment of fixed assets 1.7 -
Finance expense - amortisation of loan fees on borrowings for acquisitions 0.4 0.4
Adjusting items 7.0 6.2
Discontinued operations
The Group is 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
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, two businesses
(Lightstream and Amimon) were held for sale at 30 June 2023 and reported as
discontinued operations.
£m H1 2023 H1 2022
Revenue 4.9 4.2
Adjusted PBT* (3.0) (2.0)
Adjusting items (50.1) (4.5)
Statutory PBT (53.1) (6.5)
Revenue grew by 17% in discontinued operations, driven by medical sales at
Amimon. Adjusted PBT* declined by £1.0 million partly as a result of
increasing amortisation, with adjusted EBITDA* only declining by £0.4
million.
Adjusting items of £50.1 million mainly reflects a £46.9 million impairment
of intangible assets (Lightstream £18.9 million, Amimon £28.0 million), and
£2.1 million amortisation of acquired intangibles at Amimon and at
Lightstream prior to the impairment.
Notes
(1) Net debt is stated before arrangement fees and after leases of discontinued
operations; EBITDA is based on adjusted EBITDA* for the applicable 12-month
period (see Glossary), before non-cash share-based payment charges; and after
interest on employee benefits and FX movements, and the amortisation of
arrangement fees
(2) Interest cover is calculated as adjusted 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)
(3) Return on capital employed ("ROCE") is 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. H1 2022 has been restated to exclude the deferred tax
asset, which was included in the H1 2022 calculation (see Glossary).
(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
The content creation market continues to have strong medium-term prospects,
with structural growth drivers, and Videndum is uniquely positioned to benefit
with leading, premium brands. Our purpose is to: "enable the capture and
sharing of exceptional content", and c.90% of our revenue comes from content
creators who use our products to earn their living.
Although the consumer and ICC segments of the market are being impacted by the
challenging macroeconomic environment, and US and some European cine/scripted
TV productions are currently paused due to the strikes, we expect that the
demand for, and investment in, original content (e.g. for live news, sport,
reality and scripted TV shows, films, digital visual content for e-commerce
and vlogging, etc.) will continue to grow in the medium term.
Our strategic priorities remain unchanged; however, we are focusing more
tightly on our core markets, particularly for the high-end professional and
B2B segments - where we see the greatest growth potential - and exiting
non-core markets. We expect to come through this period with an enhanced
competitive position, well placed to return to growth once the strikes are
over and our markets recover. Our long-term strategy is to deliver organic
growth, improve margins and to grow through M&A.
1. Organic growth
We are maintaining our investment in key strategic initiatives, focused more
tightly on faster-growing, high-end professional content creation. Developing
technologically advanced products which improve our customers' productivity,
by reducing set up time and lowering operating costs, drives demand for new
and replacement products. This enables our premium brands to maintain their
already strong market positions and, in places, gain share.
Our key focus areas include robotics and AI-driven technology for broadcast
studio automation, high-end audio capture, wireless video and transmission
systems, and our new range of sustainable portable power solutions based on
sodium technology.
2. Margin improvement, and short-term mitigating actions to manage costs
and cash to offset prolonged strikes
The Group is actively managing the business to cut costs and to preserve cash
while seeking to ensure we are well placed to take advantage of the recovery
once the strikes end and productions restart. To offset the impact of the
prolonged strikes, we are executing further significant and far-reaching
actions to further reduce costs, whilst Government support in Italy (CIGO)
will also continue to help preserve the long-term capabilities of the
business.
Once the strikes are over and productions restart, we will see margin
improvement as volumes return and we deliver operating leverage. We will
continue to optimise our manufacturing and assembly portfolio, and to review
opportunities to deliver cross-Divisional synergies to ensure that the
business is well set up for long-term growth.
3. M&A activity
While we remain focused on proactively reducing leverage and therefore no
acquisitions will occur in the near term, we will continue to review
opportunities which could expand our addressable markets and enhance our
technology capabilities.
Businesses 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 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,
two businesses (Lightstream and Amimon) were held for sale at 30 June 2023 and
reported as discontinued operations.
Amimon was acquired in 2018, giving Videndum sole and exclusive access to its
chipset with zero delay wireless video transmission technology. It also
enabled us to focus R&D investment on the 4K chipset for the cine/scripted
TV industry. The Teradek team embedded the chipset into our products, which
are tailored for the content creation market. Embedding the core technology is
complete, and this successful strategy has enhanced our competitive position.
The Amimon team is now focused on adapting its technology and developing
products for other vertical markets. While Videndum has succeeded in
developing its medical business to date, strategically it is non-core, and we
have started the process to seek offers for the business. If a sale of Amimon
were to take place, Videndum would retain the exclusive rights to deploy its
chipset in content creation markets. This would ensure our customers could
continue to benefit from all future technology development. A disposal would
allow the Creative Solutions' R&D investment and resource to be focused
solely on their core markets of Cine, Broadcast and high-end Live Production
which offer opportunities for significant organic growth and margin
improvement when the strikes are over.
As previously announced, the Lightstream business is performing below
expectations and is lossmaking, and the carrying value of the Group's
investment in Lightstream has been fully written off. This 2021 acquisition
was based on the continued growth in gaming, which instead declined materially
in 2021 and is now flat. To grow this business would require significant
additional investment offering lower returns than our core high-end markets.
Following our technology conference in H2 2022, we had also planned to utilise
the Lightstream technology in other parts of the Group, however these plans
did not deliver to expectation during H1 2023.
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/videographers, independent content creators,
vloggers/influencers, gamers, enterprises and professional musicians. This
includes camera supports and heads, smartphone and vlogging accessories,
lighting supports and controls, LED lights, motion control, audio capture and
noise reduction equipment, camera bags and backgrounds, marketed under the
most recognised accessories brands in the industry. Media Solutions represents
c.50% of Group revenue.
Media Solutions' market drivers remain intact, driven by a mid-term increase
in professional content creation, audio capture, retail commerce and
vlogging; however, they are being impacted in the short-term by the
challenging macroeconomic environment affecting business confidence.
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
Media Solutions H1 2023 H1 2022 % change H1 2023 H1 2022
Revenue £82.3m £111.5m -26% £82.3m £111.5m
Operating profit £9.5m £18.8m -49% £5.9m £14.5m
Operating margin 11.5% 16.9% -5.4%pts 7.2% 13.0%
* For Media Solutions, before adjusting items of £3.6 million (H1 2022: £4.3
million).
As expected, market conditions continued to be tough for Media Solutions, with
demand in the consumer segment (c.20%) remaining low and ICCs (c.55%)
deferring spend. This was compounded by the destocking effect that impacted H2
2022 continuing into H1 2023 as retail and distribution partners looked to
reduce cash tied up in stock.
The writers' strike impacted the high-end professional segment (c.25%)
although there was still significant growth in Avenger lighting supports, with
the Buccaneer and Long John Silver stands continuing to gain market share to
more than offset the pause in the cine market due to the strikes.
CIGO was applied both at the Feltre factory and the Cassola divisional head
office, which allowed us to reduce inventory and operating expenses. Short
term actions were also taken to minimise discretionary spend, whilst wider
restructuring actions helped reduce the cost base but will have more of an
impact in H2.
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 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.
In addition to completing the restructuring, we successfully launched the new
high-end Audix voice recording and podcasting microphone which has been
extremely well received globally.
Adjusted operating margin* was down to 11.5% (H1 2022: 16.9%) reflecting
operating leverage on the revenue decline, partly mitigated by the cost
savings.
Statutory operating profit was £5.9 million (H1 2022: £14.5 million)
reflecting £3.6 million of adjusting items (H1 2022: £4.3 million).
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 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.
Production Solutions' market drivers remain intact, driven by demand for
automated production, on-location news and original content; however, they are
being impacted in the short-term by the strikes.
Our strategy is focused on growth in professional equipment for on-location
news and sporting events, innovative new technology like 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/scripted
TV, including a new range of sustainable power solutions based on sodium
technology.
Adjusted* Statutory
Production Solutions H1 2023 H1 2022 % change H1 2023 H1 2022
Revenue £51.7m £67.5m -23% £51.7m £67.5m
Operating profit £7.3m £15.0m -51% £4.6m £14.9m
Operating margin 14.1% 22.2% -8.1%pts 8.9% 22.1%
* For Production Solutions, before adjusting items of £2.7 million (H1 2022:
£0.1 million).
Continuing destocking also impacted Production Solutions, as did the writers'
strike. The H1 2022 comparative includes the Winter Olympics, whereas 2023
does not have an event on the same scale. Overall, revenue was down 23%.
Demand remains high for our flowtech tripods and systems, and we have recently
upgraded our carbon cell facility in Bury St Edmunds to increase our capacity
by up to 40%. Autoscript Voice prompting revenue continued to grow, driven by
AI speech recognition.
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 in H2 in our Costa
Rica facility; and the Vinten VEGA Control System, a robotics control system
that can also be automated with AI-driven talent tracking.
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 14.1% (H1 2022: 22.2%).
Statutory operating profit was £4.6 million (H1 2022: £14.9 million)
reflecting £2.7 million of adjusting items (H1 2022: £0.1 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.
Creative Solutions' market drivers remain intact, driven by streaming and
demand for original content; however, they are being impacted in the
short-term by the strikes.
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/scripted TV, high-end Live Production and Broadcast
markets.
Adjusted* Statutory from continuing and discontinued operations
Creative Solutions H1 2023 H1 2022 % change H1 2023 H1 2022
Revenue £31.0m £40.4m -23% £35.9m £44.6m
Operating profit/(loss) £3.7m £7.0m -47% £(49.3)m £(0.7)m
Operating margin 11.9% 17.3% -5.4%pts (137.5)% (1.6)%
* For Creative Solutions, before adjusting items from continuing operations of
£0.1 million (H1 2022: £1.1 million) and operating loss from discontinued
operations of £52.9 million (H1 2022: £6.6 million loss)
The writers' strike had the largest effect on Creative Solutions, as expected,
where the majority of products are used in cine/scripted TV. Live production
revenue was significantly down as we repositioned our brand towards the higher
margin, higher end of the live production market.
However, orders with Raytheon Technologies, a subcontractor for NASA, and
Smart Video Group, our new European partner, saw sales of our Prism encoders
and decoders nearly double compared to H1 2022. Our Prism product will further
be improved by our ultra-low latency video over IP, known as Teradek Reliable
Transport ("TRT", the evolution of the ART protocol), enabling us to take
market share in the high-end live production market. At NAB we announced
Ranger, our next generation licensed band zero delay wireless video system for
live production and broadcast applications, which is now being shipped to
customers.
Following the restructuring announced in 2022, the reduced cost base helped to
mitigate the decline in revenue.
Adjusted operating margin* was down to 11.9% (H1 2022: 17.3%) reflecting
operating leverage on the revenue decline, partly mitigated by the cost
savings.
Statutory operating loss was £49.3 million (H1 2022: £0.7 million loss),
which reflects £0.1 million of adjusting items from continuing operations (H1
2022: £1.1 million) and a £52.9 million loss from discontinued operations
(H1 2022: £6.6 million loss) which includes £46.9 million impairment of
intangible assets.
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 H1 2023 H1 2022 % change H1 2023 H1 2022
Operating (loss) £(5.3)m £(8.7)m -39% £(5.5)m £(9.0)m
* For corporate costs, before adjusting items of £0.2 million (H1 2022: £0.3
million).
Corporate costs were below those in H1 2022 on an adjusted* basis mainly due
to a decrease in charge for LTIPs as a result of a decreased EPS vesting
expectations.
Interim dividend
Given the current circumstances, no interim dividend has been declared; the
Board recognises the importance of dividends to the Group's shareholders and
intends resuming dividend payments when appropriate to do so.
Responsibility
Videndum aims to be a sustainable business, minimising our impact on the
environment and working to improve the societies in which we operate. Our
strategy includes clear objectives and targets, prioritising actions that will
deliver the greatest impact. We continue to focus on four key areas: the
environment; our people; responsible practices; and giving back. Key focus
areas for 2023 include continuing with the energy reduction pathways, better
tracking of waste, a heavier focus on product sustainability and developing
new/sustainable products, and expanding the supply chain programme.
The Videndum Board provides oversight and has overall responsibility for the
Group's ESG programme, while the ESG Committee, chaired by the Group CEO and
comprising senior executives from across the Group, is responsible for driving
ESG performance. ESG Governance has been integrated into our existing
processes and a percentage of the Group CEO's remuneration is tied to the
Group's ESG performance.
The environment
Climate change scenario analysis is performed annually in respect of our main
sites and supply chain activities in order to model the impact of climate
change for three different warming scenarios. This year, we included more
suppliers in our climate scenario analysis. Potential supply chain routes were
also analysed, leading to discussions on alternative transport routes to be
considered, where needed.
Reducing the Group's carbon footprint is a clear priority for Videndum. We
have developed and set near-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. We have identified quantifiable measures to achieve these objectives.
By implementing smarter ways of working and investing in infrastructure, we
have already achieved a significant reduction across the Group's scope 1 and 2
emissions since 2019, excluding the impact of recently acquired businesses.
In H1 2023, we continued to install energy saving technology across our sites,
such as further LED lighting installations, a power saving initiative in IT
server rooms and conversion of company vehicles to electric or hybrid models.
Compressed air efficiency improvements were completed in Cartago, Costa Rica,
with intelligent controls installed, minimising wasted energy. Other carbon
reduction initiatives include the installation of solar panels at Feltre,
Italy; implementation started in July 2023 and we expect the system to be
fully operational by the end of 2023. This will reduce the Group's CO(2)
emissions by c.15% and Feltre annual electricity costs by c.10%. The ISO50001
certification for our Cartago, Costa Rica site passed the first stage, with
stage two planned for October.
The Group is committed to reducing packaging and waste. We have improved our
data capture systems to begin collating mass-based data relating to the
purchase of packaging materials. Not only does this allow us to utilise more
accurate emissions factors due to an improvement in the quality of
activity-data, but also ensures that all packaging is being accounted for in
Scope 3 Category 12 (end-of-treatment of sold products).
In H1 2023, we continued working towards eliminating single-use plastic and
improving the recyclability of packaging and other product components. For
example, Production Solutions has recently removed solvent waste from carbon
cells, reducing waste output, and is now planning to start trials to replace
plastic with paper packaging for spare parts. The Group aims to eliminate or
replace 50% of current cardboard packaging consumption with sustainable, FSC
grade cardboard.
We continue to focus on developing more sustainable products. In May this
year, the Group's Production Solutions Division launched Salt-E Dog - a
sustainable portable power source, in the form of a sodium battery designed
and built for the cine/scripted TV industry. We have also made further
progress in embedding product Life Cycle Assessment ("LCA") methodology into
our top emitting products to identify opportunities to reduce the
environmental impact, with our Production Solutions Division due to commence
LCAs in H2 2023 for specific product groups (aktiv and flowtech).
Responsible practices
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 have developed
a Group-wide Supply Chain Assessment process to engage with our top suppliers
on their carbon emissions and wider ESG credentials.
Positively impacting the communities in which we operate
Despite the market challenges, the Group remains fully engaged in a range of
community programmes. Production Solutions is well underway with their
"Action-4-Good" initiative, having already delivered a careers fair, family
walks and a movie makers club. As part of their "Creativity for Life"
programme, Media Solutions launched a photography and videomaking educational
course aimed at disadvantaged teenagers, focused on documenting sustainability
success stories; whilst Creative Solutions donated equipment to Outlast's
summer programming - an organisation that facilitates film education for
Indigenous youth from rural communities in South Dakota, US.
2023 reporting
We will produce our third standalone ESG Report for our 2023 reporting period
in accordance with the Global Reporting Initiative ("GRI"). We will also
develop 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 ESG and TCFD reports will be available on our website at the end of March
2024.
Outlook
The Group is experiencing significantly more impact from the strikes in H2
2023 than anticipated at the time of our May Update. This is due to the
prolonged writers' strike, the additional impact of the actors' strike, and
the fact that there is less time for a recovery in the current year.
Additionally, the macroeconomic environment remains challenging. We are not
yet seeing recovery in the consumer or ICC segments, and retailers are
increasingly concerned about interest rates and working capital, and we are
therefore still seeing some destocking. This is resulting in
worse-than-expected trading conditions.
Management continues to be focused on tightly managing costs and preserving
cash, while seeking to ensure that we are well placed to take advantage of the
recovery once the strikes are over. We have excellent relationships with our
banks and the Group is proactively working to reduce leverage and recapitalise
the business, which may require an equity raise.
Videndum remains well positioned in a content creation market which has
attractive structural growth drivers and strong medium-term prospects;
however, the current macroeconomic environment remains challenging, and
although there is encouraging news about the strikes, it is not clear when
productions will restart. Therefore, there is a wide range of potential
outcomes for the full year, and it is difficult to provide financial guidance.
Nonetheless, when productions restart, we expect Videndum to benefit from a
significant recovery in revenue.
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 2022 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
· Acquisitions
At half-year, a material going concern uncertainty existed as a result of the
ongoing US writers' strike, the ultimate impact of which is dependent on the
duration of the strike, which is not known, and casts a significant doubt upon
the Group's ability to specifically meet its loan covenant obligations. This
issue is further compounded by macroeconomic headwinds, and destocking by some
of our key retail customers. 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 has significantly
increased in the last 6 months. The macroeconomic environment remains
challenging, particularly with low business confidence in the US. This
affected our consumer segment (c.10% of Group revenue) as well as our ICC
segment (c.35% of Group revenue), and led to continuing destocking. In
addition, the WGA called a strike on 2 May 2023. In the months prior, the
speculation of a potential strike had caused some US cine/scripted TV
productions to be suspended, and from 2 May 2023, the majority of US
cine/scripted TV productions were paused. This strike, which has been
compounded by the US actors' union strike action, has significantly affected
demand for our high-end cine and scripted TV products in the US during the
period (c.20% of Group revenue). While a number of specific segments (e.g.
Lighting controls, flowtech, Audio) continue to perform strongly, the
uncertainty regarding the duration of the strikes, and shape of any subsequent
recovery, creates a material uncertainty for the going concern of the
business.
· The risk relating to Foreign Exchange and Interest Rates continues to increase
due to a higher interest charge and performance issues in 2023 impacting the
Group's ability to reduce its debt. We are mitigating this through further
restructuring and cost cutting activity (see below).
· The risk related to Restructuring is higher in 2023, due to several actions
already underway to reduce costs and preserve cash. This includes short and
long-term actions to increase purchasing synergies between the Divisions,
combine site operations where possible, and other initiatives to reduce
manufacturing costs, such as relocation of production and in-sourcing
initiatives. The CIGO furlough initiative for Media Solutions in Italy has
been extended to the end of October 2023. The Creative Solutions Division has
implemented shorter hours for up to 100 employees to mitigate the financial
impact of reduced activity levels.
· People risk is higher due to the increased pressure linked to restructuring
initiatives and also measures to contain costs given pressures on the business
including short time working which may affect morale, and lead to greater
employee turnover. Our transformation programmes are supported by strong
communication and employee engagement plans.
· Reputation risk is greater as a result of increased external pressure and
scrutiny. We remain committed to high standards of governance and compliance.
· Cyber Security 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.
Audit Tender 2023
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.
Videndum's current external auditor, Deloitte LLP has confirmed that they will
conduct the audit for the year ending 31 December 2023 which was approved by
shareholders at the AGM on 11 May 2023.
Board Changes
The Board of Videndum plc announces that Ian McHoul, Chairman, has informed
the Board of his intention not to seek re-election at the Company's 2024 AGM
due to personal reasons. The Board respects Ian's wishes and thanks him for
his service and his leadership over the last four years, navigating the Group
through the pandemic, the strategic development of its portfolio, and more
recently, the challenging macroeconomic environment and the strikes by the US
writers and actors.
The Board has commenced a search process for a replacement that will be led by
Richard Tyson, Senior Independent Director.
Ian McHoul was appointed to the Board on 25 February 2019 and succeeded as
Chairman on 21 May 2019.
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.
Responsibility statement of the Directors in respect of the Half Year Results
to 30 June 2023
We confirm that, to the best of our knowledge:
· The condensed set of financial statements has been prepared in accordance with
IAS 34 Interim Financial Reporting;
· The interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
· The interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's
website. Legislation in the United Kingdom governing the preparation and
dissemination of financial information differs from legislation in other
jurisdictions.
Adoption of going concern basis
The Directors have made appropriate enquiries and challenge of the forecasts,
judgements and mitigating actions available to the Group, and consider that
the Group has adequate resources to continue in operational existence for the
foreseeable future, being a period of at least 12 months from the date of
approval of these financial statements. However, as a result of there being a
plausible scenario whereby covenants are breached, the Board has determined
that a material uncertainty exists that 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. The key judgements surrounding the material uncertainty are the
length and depth of the ongoing writers' and actors' strikes, as well as the
length of time over how long it takes to recover once the strikes end, and the
recovery from the broader macroeconomic challenges faced by the Group. Further
detail on the assessment of going concern can be found within note 1 to the
condensed financial statements.
For and on behalf of the Board
Stephen Bird Andrea Rigamonti
Group Chief Executive Group Chief Financial Officer
INDEPENDENT REVIEW REPORT TO VIDENDUM PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the condensed consolidated income statement, the
condensed consolidated balance sheet, the statement of changes in equity, the
condensed consolidated statement of cash flows and related notes 1 to 14.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Material Uncertainty Related to Going Concern
We draw attention to note 1 in the condensed set of financial statements,
which indicates there is a plausible downside scenario considered by the
Board, which would result in both the covenants being breached in one of the
next couple of test dates and whereby liquidity drops to £nil in July 2024.
As stated in note 1, these events or conditions, along with the other matters
as set forth in note 1 to the condensed set of financial statements, indicate
that a material uncertainty exists that may cast significant doubt on the
company's ability to continue as a going concern. Our overall review
conclusion is not modified in respect of this matter.
Notwithstanding the material uncertainty discussed above, based on our review
procedures, which are less extensive than those performed in an audit as
described in the Basis for Conclusion section of this report, nothing has come
to our attention to suggest that the directors have inappropriately adopted
the going concern basis of accounting or that the directors have identified
material uncertainties relating to going concern that are not appropriately
disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
25 September 2023
Condensed Consolidated Income Statement
For the half year ended 30 June 2023
Half year to 30 June 2023 Half year to 30 June 2022((1)) Year to 31 December 2022((1))
Unaudited Unaudited Audited
Notes £m £m
Continuing operations
Revenue 2 165.0 219.4 442.5
Cost of sales (96.9) (123.7) (251.8)
Other Income 0.4 - -
Gross profit 68.5 95.7 190.7
Operating expenses 3 (59.9) (69.4) (143.8)
Operating profit 8.6 26.3 46.9
Comprising
- Adjusted operating profit 15.2 32.1 64.2
- Adjusting items in operating profit 4 (6.6) (5.8) (17.3)
Finance Income 2.7 0.7 3.0
Finance Expense (8.2) (4.1) (9.8)
Net finance expense 5 (5.5) (3.4) (6.8)
Profit before tax 3.1 22.9 40.1
Comprising
- Adjusted profit before tax 10.1 29.1 58.2
- Adjusting items in profit before tax 4 (7.0) (6.2) (18.1)
Taxation (0.7) (4.6) 5.3
Comprising taxation on
- Taxation on adjusted profit 6 (2.4) (6.4) (15.0)
- Adjusting items in taxation 6 1.7 1.8 20.3
Profit for the period from continuing operations 2.4 18.3 45.4
Loss for the period from discontinued operations 13 (48.9) (5.4) (12.5)
(Loss)/Profit for the period attributable to owners of the parent (46.5) 12.9 32.9
((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"
Earnings per share from continuing operations
Basic earnings per share 7 5.2p 39.8p 98.6p
Diluted earnings per share 7 5.1p 38.4p 94.8p
Earnings per share from discontinued operations
Basic earnings per share 7 (105.2)p (11.8)p (27.1)p
Diluted earnings per share 7 (105.2)p (11.8)p (27.1)p
Earnings per share from continuing and discontinued operations
Basic earnings per share 7 (100.0)p 28.0p 71.5p
Diluted earnings per share 7 (100.0)p 27.0p 68.7p
Average exchange rates
Euro 1.14 1.19 1.17
US$ 1.23 1.31 1.24
Consolidated Statement of Comprehensive Income
For the half year ended 30 June 2023
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
Unaudited Unaudited Audited
£m £m £m
(Loss)/Profit for the period (46.5) 12.9 32.9
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit schemes 0.8 7.2 9.1
Related tax (0.2) (1.8) (2.1)
Items that are or may be reclassified subsequently to profit or loss:
Currency translation differences on foreign currency subsidiaries (14.0) 19.6 22.6
Net investment hedges - net gain/(loss) 2.4 (4.0) (5.8)
Cash flow hedges - reclassified to the Income Statement, net of tax (1.5) 0.6 1.6
Cash flow hedges - effective portion of changes in fair value, net of tax 2.2 0.2 2.4
Other comprehensive (loss)/income, net of tax (10.3) 21.8 27.8
Total comprehensive (loss)/income for the period attributable to owners of the (56.8) 34.7 60.7
parent
Condensed Consolidated Balance Sheet
As at 30 June 2023
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
Notes £m £m £m
Assets
Non-current assets
Intangible assets 155.8 221.8 217.9
Property, plant and equipment 60.2 69.7 66.6
Employee benefit asset 8 4.7 2.6 3.9
Trade and other receivables 5.0 6.2 7.4
Derivative financial instruments 10 3.6 3.0 3.8
Non-current tax assets 6 3.1 3.0 3.0
Deferred tax assets 6 43.7 37.0 51.2
276.1 343.3 353.8
Current assets
Inventories 102.0 111.0 107.3
Trade and other receivables 54.3 66.4 68.9
Derivative financial instruments 10 2.8 0.1 2.3
Current tax assets 5.3 3.6 4.1
Cash and cash equivalents 9 17.9 31.3 15.8
Assets of the disposal group classified as held for sale 13 22.6 - -
204.9 212.4 198.4
Total assets 481.0 555.7 552.2
Liabilities
Current liabilities
Bank overdrafts 4.3 - -
Interest-bearing loans and borrowings 9 30.7 28.7 36.0
Lease liabilities 9 5.7 6.2 6.0
Trade and other payables 56.0 90.6 81.3
Derivative financial instruments 10 0.1 2.0 0.9
Current tax liabilities 13.8 18.7 16.7
Provisions 3.5 3.8 5.5
Liabilities of the disposal group classified as held for sale 13 6.5 - -
120.6 150.0 146.4
Non-current liabilities
Interest-bearing loans and borrowings 9 162.8 159.1 138.5
Lease liabilities 9 30.5 31.4 28.8
Derivative financial instruments 10 - 0.3 -
Other payables 0.8 0.8 1.8
Employee benefit liabilities 2.7 3.6 3.1
Provisions 0.8 0.9 2.4
Deferred tax liabilities 7.2 7.7 7.5
204.8 203.8 182.1
Total liabilities 325.4 353.8 328.5
Net assets 155.6 201.9 223.7
Equity
Share capital 11 9.4 9.4 9.4
Share premium 24.4 23.2 24.3
Translation reserve (12.4) (2.0) (0.8)
Capital redemption reserve 1.6 1.6 1.6
Cash flow hedging reserve 4.6 0.7 3.9
Retained earnings 128.0 169.0 185.3
Total equity 155.6 201.9 223.7
Balance Sheet exchange rates
Euro 1.17 1.16 1.13
US$ 1.27 1.21 1.21
Consolidated Statement of Changes in Equity
For the half year ended 30 June 2023 (Unaudited)
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 period - - - - - 12.9 12.9
Other comprehensive income for the period - - 15.6 - 0.8 5.4 21.8
Total comprehensive income for the period - - 15.6 - 0.8 18.3 34.7
Contributions by and distributions to owners
Dividends paid - - - - - (11.1) (11.1)
Own shares purchased - - - - - (2.4) (2.4)
Own shares sold - - - - 1.7 1.7
New shares issued 0.1 0.1 - - - - 0.2
Share-based payment charge, net of tax - - - - - 4.9 4.9
Balance at 30 June 2022 9.4 23.2 (2.0) 1.6 0.7 169.0 201.9
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 2023 9.4 24.3 (0.8) 1.6 3.9 185.3 223.7
Loss for the period - - - - - (46.5) (46.5)
Other comprehensive (expense)/income for the period - - (11.6) - 0.7 0.6 (10.3)
Total comprehensive (expense)/income for the period - - (11.6) - 0.7 (45.9) (56.8)
Contributions by and distributions to owners
Dividends paid - - - - - (11.6) (11.6)
Own shares purchased - - - - - (1.6) (1.6)
Own shares sold - - - - - 1.1 1.1
New shares issued - 0.1 - - - - 0.1
Share-based payment charge, net of tax - - - - - 0.7 0.7
Balance at 30 June 2023 9.4 24.4 (12.4) 1.6 4.6 128.0 155.6
Condensed Consolidated Statement of Cash Flows
For the half year ended 30 June 2023
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
Unaudited Unaudited Audited
Notes £m £m £m
Cash flows from operating activities
(Loss)/Profit for the period (46.5) 12.9 32.9
Adjustments for:
Taxation (3.5) 3.5 (8.2)
Depreciation 7.5 7.5 15.3
Impairment of intangible and fixed assets 4 48.6 - 1.9
Amortisation of intangible assets 8.7 8.5 18.3
Net loss on disposal of property, plant and equipment and software 0.2 - -
Fair value (gains)/losses on derivative financial (0.3) 0.2 0.1
instruments
Foreign exchange losses/(gains) - 0.3 0.6
Share-based payment charge 1.2 4.6 8.9
Earnout charges and retention bonuses 0.7 2.0 4.5
Net finance expense 5.7 3.3 6.8
Cash generated from operating activities before change in working capital, 22.3 42.8 81.1
including provisions
Increase in inventories (0.8) (12.1) (8.0)
Decrease/(increase) in receivables 10.3 (1.9) (5.0)
(Decrease)/Increase in payables (18.6) 5.5 (5.6)
Decrease/(increase) in provisions (1.7) (0.1) 2.8
Cash generated from operating activities 11.5 34.2 65.3
Interest paid (6.2) (4.4) (9.4)
Tax paid (4.8) (1.0) (7.2)
Net cash from operating activities 0.5 28.8 48.7
Cash flows from investing activities
Proceeds from sale of property, plant and equipment and software 0.1 - -
Purchase of property, plant and equipment (2.0) (3.3) (7.1)
Capitalisation of software and development costs (7.5) (6.2) (13.1)
Acquisition of businesses, net of cash acquired (1.6) (33.3) (33.2)
Net cash used in investing activities (11.0) (42.8) (53.4)
Cash flows from financing activities
Proceeds from the issue of shares 0.1 0.2 1.3
Proceeds from the sale of own shares 1.1 1.7 3.1
Own shares purchased (1.6) (2.4) (5.8)
Principal lease repayments 9 (3.5) (3.3) (6.4)
Repayment of interest-bearing loans and borrowings 9 (62.8) (27.5) (93.8)
Borrowings from interest-bearing loans and borrowings 9 85.7 79.8 130.3
Dividends paid (11.6) (11.1) (18.0)
Net cash from financing activities 7.4 37.4 10.7
(Decrease)/Increase in cash and cash equivalents (3.1) 23.4 6.0
Cash and cash equivalents at 1 January 15.8 7.9 7.9
Effect of exchange rate fluctuations on cash held 0.9 - 1.9
Cash and cash equivalents at the end of the period 9 13.6 31.3 15.8
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. These condensed consolidated interim
financial statements ("Financial Statements") as at and for the half year
ended 30 June 2023 comprise the Company and its subsidiaries (together
referred to as the "Group").
Basis of preparation and statement of compliance
The half year financial information covers the six-month period ended 30 June
2023 and has been prepared in accordance with IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards Board (IASB)
and as adopted by the United Kingdom (UK); and the Disclosure and Transparency
Rules of the Financial Conduct Authority. This condensed set of financial
statements comprises the unaudited financial information for the half years
ended 30 June 2023 and 2022, together with the audited consolidated statement
of financial position as at 31 December 2022. The half year financial
information has been prepared applying consistent accounting policies to those
applied by the Group for the year ended 31 December 2022 and are expected to
be applicable for the year ending 31 December 2023. The annual financial
statements will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards.
The re-stated comparative figures for the year ended 31 December 2022 do not
constitute statutory accounts for the purpose of section 434 of the Companies
Act 2006. The auditor has reported on the 2022 accounts, and these have been
filed with the Registrar of Companies; their report was unqualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis, and did not contain a statement under section 498(2) or (3) of
the Companies Act 2006. The half year amounts as at and for the half years
ending 30 June presented in these condensed consolidated interim financial
statements have been reviewed in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 but have not been audited.
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statements as at and for the year
ended 31 December 2022. In addition to these, we have identified the following
for the purpose of these half year accounts.
Estimates:
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.
There was estimation and assumptions applied by Management in determining the
recoverable amount of these assets.
Judgements:
Going concern assessment: There were material judgements made by the Board to
determine if the Group is a going concern and the material uncertainty
surrounding it. These judgements are disclosed under "going concern" in note 1
"Accounting policies". The key judgements surrounding the material uncertainty
relate to the length and depth of the ongoing writers' and actors' strikes, as
well as the length of time over how long it takes to recovery once the strikes
end and the recovery from the broader macroeconomic challenges faced by the
Group.
Asset held for sale and discontinued operations: The critical judgement is in
relation to determining if the assets held for sale 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 both assets have met this requirement. See note 13
"Discontinued operations and non-current assets classified as held for sale".
In reporting financial information, the Group presents alternative performance
measures ("APMs") which are not defined or specified under the requirements of
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 an IFRS measure where
relevant.
These condensed consolidated interim financial statements were approved by the
Board of Directors on 25 September 2023.
Impact of adoption of new accounting standards
There has been no material impact on the Group's consolidated financial
statements of adopting new standards or amendments.
New standards and interpretations 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.
Going concern
Background and context
Following a record breaking 2022 financial year, Videndum entered 2023 facing
headwinds. From late in 2022, the Group began to feel the impact of the
pressure that consumers were facing on a macroeconomic level. The knock-on
effect of this was that our customers began destocking the levels of inventory
that they were holding from late in 2022. During the early part of the first
half of 2023, contract renewal negotiations started between the Writers Guild
of America ("WGA") and Alliance of Motion Picture and Television Producers
("AMPTP") which subsequently broke down and the WGA called a writers' strike
for the first time since 2007. Whilst the strike officially commenced on 2 May
2023, the impact from the decline in orders received by Videndum was 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, entered into
a strike. The WGA announced on Sunday 24 September that it had reached a
tentative agreement with AMPTP on a new 2023 Minimum Basic Agreement ("MBA"),
which is to say an agreement in principle on all deal points, subject to
drafting final contract language and could end the writers' strike subject to
approval from various stakeholders.
It is due to this challenging market that the Board has had a heightened level
of interaction with Management, and as a result with the Divisions, and is
monitoring scenarios around the Group's ability to meet its covenants and
liquidity requirements. As part of the Directors' consideration of the
appropriateness of adopting the going concern basis in preparing the half year
2023 financial statements, a range of scenarios have been modelled through to
the end of December 2024. For this, the Directors have considered base case
projections and a number of severe, but plausible, downside scenarios. The
most material judgements made relate to the length of the ongoing writers' and
actors' strikes and the length of time it will take to recover from both the
strikes and the challenging macroeconomic trading market conditions.
Borrowing facilities and financial position as at 30 June 2023
The Group has the following committed facilities (see note 9 "Analysis of net
debt"):
- £200 million Multicurrency Revolving Credit Facility ("RCF")
with a syndicate of five banks until 14 February 2026;
- $55.0 million (£43.3 million) in total relating to two Term
Loans amortising at six monthly intervals until November 2024 and January 2025
respectively. $25.0 million (£19.7 million) is repayable in February 2024,
$15.0 million (£11.8 million) in June 2024, and $15.0 million (£11.8
million) across November 2024 and January 2025; and
- £0.6 million relating to an Italian government loan repayable
from 2024 to 2027.
As at 30 June 2023:
- total committed facilities were therefore £243.9 million.
- net borrowings, being gross borrowings net of cash, were £181.0
million.
- liquidity was therefore £62.9 million, comprising £45.0
million unutilised RCF and £17.9 million of cash.
The Group's liquidity position as at 31 August 2023 is currently materially in
line with its base case forecast at c.£42 million.
The covenants against all of the above committed facilities, except for the
£0.6 million loan, which does not have covenants, relate to Net debt to
EBITDA ("leverage") and EBITA to net interest ("interest cover"), (see note 14
"Glossary on Alternative Performance Measures from continuing operations
("APMs")) for the definition of these measures as defined by the lending
agreements), which are tested at June and December each year, to be no higher
than 3.25x and at least 4.0x respectively ("Existing Covenants"). At 30 June
2023 these ratios were 2.9x and 5.9x respectively (31 December 2022: 2.1x and
9.8x respectively).
Given the current macroeconomic climate, destocking, the uncertainty relating
to ongoing strikes and the uncertainty relating to the timing and pace of the
market recovery, the Group has been proactively discussing with its banks and
considering options available to manage these risks.
The Group has had and continues to have very good and constructive dialogues
with its lending banks who have been supportive throughout. As a result of
this relationship, the Group has successfully managed to:
- obtain an extension of £35 million of its RCF from February
2025 to February 2026, which was confirmed on 19 July 2023 and brings 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);
- amend the "Existing Covenants" in August 2023 for the December
2023 and June 2024 testing periods; and
- further amend, in September 2023, the covenants relating to the
December 2023 testing period.
The "New Covenants" are as follows:
- net debt:EBITDA to be no higher than 5.75x (December 2023) and
3.75x (June 2024); and
- EBITA:net interest of at least 2.0x (December 2023) and 3.25x
(June 2024).
No restrictions apply to these New Covenants but new testing dates for March
2024 (net debt:EBITDA to be no higher than 4.25x and EBITA:net interest of at
least 2.0x) 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 alongside a
requirement to prepare a deleveraging plan by February 2024 if certain
conditions have not been met.
Severe but plausible downside assessment
The Directors have reviewed the trading performance of the Group for the first
half of 2023, as well as forecast scenarios as set out below. Due to the
challenges being faced by the Group, including the strikes lasting longer than
originally anticipated, during August 2023 the Board requested a reassessment
of the full year forecast for both 2023 and 2024. The base forecast developed
following the reassessment acknowledges the continued pressures facing the
Group through the rest of 2023, however there is some level of recovery
forecast in Q4 2023. This is partly offset by forecasting less destocking than
H1 2023 coupled with a slight market improvement in Q4 2023. The forecast sees
improvement in 2024, resulting from a recovery from both the strikes ending
and an improvement to the overall worldwide economic environment.
Several plausible downside scenarios have been considered. The material
judgements considered in these scenarios are:
- the length and quantum of the recovery from the challenging
trading conditions,
- determining when the strikes are likely to end; and
- estimating the recovery from the strikes, both in terms of the
length of the recovery and the quantum thereof.
The plausible downside scenarios consider the strikes ending at various stages
in 2023.
The Group's latest forecast and most of the plausible downside scenarios
modelled do not result in a breach of the New Covenants in respect of December
2023 or June 2024 as well as at the new testing dates of March 2024 and
September 2024. These scenarios show sufficient liquidity (cash headroom) to
continue in operational existence for the foreseeable future, being a period
of at least 12 months from the date of approval of these financial statements.
The lowest point of cash headroom over the next 12 months within the severe
but plausible scenario would be at July 2024. However, there is a plausible
downside scenario which would result in both covenants being breached in one
of the next couple of test dates and whereby liquidity drops to £nil in July
2024. This scenario assumes that the strikes last until December 2023, there
is continued destocking, and no improvement in macroeconomic environment.
Mitigation plans
Resulting from the above, the Board is proactively managing the options
available to the Group to mitigate these risks. Some of the key levers being
discussed are detailed below:
- entering into a new committed lending facility;
- cost saving measures factored in the forecast and also exploring
other potential options;
- disposal proceeds of discontinued operations;
- non-recourse factoring of receivables; and
- deleveraging the balance sheet through an equity raise.
Material uncertainty
To summarise, as a result of there being a plausible scenario whereby
covenants are breached, the Board has determined that a material uncertainty
exists that 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. The key judgements
surrounding the material uncertainty are the length and depth of the ongoing
writers' and actors' strikes, as well as the length of time over how long it
takes to recover once the strikes end, and the recovery from the broader
macroeconomic challenges faced by the Group.
2 Segment reporting
For the half year ended 30 June 2023
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, part of the Creative Solutions
Division, have been classified as discontinued operations in the current
period. Their performance in this period and comparative periods are therefore
part of discontinued operations as presented in note 12 and are excluded from
segmental performances below.
For the half year to 30 June
Media Solutions Production Solutions Creative Solutions Corporate and unallocated Group
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m £m £m £m £m
From continuing operations:
Analysis of revenue from external customers, by location of customer
United Kingdom 6.9 8.6 5.7 7.1 1.8 2.6 - - 14.4 18.3
The rest of Europe 26.8 37.7 11.8 18.2 4.0 4.0 - - 42.6 59.9
North America 29.9 40.8 24.8 30.6 20.9 29.2 - - 75.6 100.6
Asia Pacific 15.5 20.0 7.2 8.3 3.8 4.2 - - 26.5 32.5
The rest of the World 3.2 4.4 2.2 3.3 0.5 0.4 - - 5.9 8.1
Total revenue from external customers 82.3 111.5 51.7 67.5 31.0 40.4 - - 165.0 219.4
Inter-segment revenue ((1)) 0.1 - 0.3 0.3 - 0.1 (0.4) (0.4) - -
Total revenue 82.4 111.5 52.0 67.8 31.0 40.5 (0.4) (0.4) 165.0 219.4
Adjusted operating profit/(loss) 9.5 18.8 7.3 15.0 3.7 7.0 (5.3) (8.7) 15.2 32.1
Amortisation of intangible assets that are acquired in a business (2.0) (2.2) (0.1) (0.1) - (0.6) - - (2.1) (2.9)
combination
Impairment of fixed assets - - (1.7) - - - - - (1.7) -
Acquisition related charges (0.1) (2.0) (0.4) - - - (0.2) - (0.7) (2.0)
Integration and restructuring costs (1.5) (0.1) (0.5) - (0.1) (0.5) - (0.3) (2.1) (0.9)
Operating profit/(loss) 5.9 14.5 4.6 14.9 3.6 5.9 (5.5) (9.0) 8.6 26.3
Net finance expense (5.5) (3.4)
Profit before tax 3.1 22.9
Taxation (0.7) (4.6)
Profit for the period 2.4 18.3
Segment assets 215.3 241.8 115.0 112.5 46.2 52.9 12.0 10.4 388.4 417.6
Unallocated assets
Cash and cash equivalents 17.9 31.3 17.9 31.3
Non-current tax assets 3.1 3.0 3.1 3.0
Current tax assets 5.3 3.6 5.3 3.6
Deferred tax assets 43.7 31.5 43.7 31.5
Total assets 458.4 487.0
Segment liabilities 50.9 69.3 31.2 37.6 13.8 19.0 4.2 8.2 100.1 134.1
Interest-bearing loans and borrowings 0.6 0.6 - - - - 192.9 186.8 193.5 187.4
Unallocated liabilities
Bank overdrafts 4.3 - 4.3 -
Current tax liabilities 13.8 18.7 13.8 18.7
Deferred tax liabilities 7.2 6.1 7.2 6.1
Total liabilities 318.9 346.3
((1)) Inter-segment pricing is determined on an arm's length basis. These
are eliminated in the corporate and unallocated column.
The Group's operations are located in several geographic locations and sell
products and services to external customers around the world.
3 Operating expenses
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
£m £m £m
Analysis of operating expenses
- Adjusting items in operating expenses((1)) 6.1 5.7 14.8
- Other administrative expenses 24.3 30.1 59.1
Adjusting items and administrative expenses 30.4 35.8 73.9
Marketing, selling and distribution costs 21.4 24.5 51.7
Research, development and engineering costs 8.1 9.1 18.2
Total from continuing operations 59.9 69.4 143.8
- Adjusting items in operating expenses((1)) 49.9 4.5 11.1
- Other administrative expenses 1.6 1.6 2.8
Adjusting items and administrative expenses 51.5 6.1 13.9
Marketing, selling and distribution costs 0.7 0.9 2.0
Research, development and engineering costs 3.1 1.8 4.3
Total from discontinued operations 55.3 8.8 20.2
((1)) Adjusting items in operating profit from continuing operations are £7.0
million (2022: £6.2 million) of which £6.1 million (2022: £5.7 million) are
recognised in operating expenses, £0.5 million (2022: £0.1 million) in cost
of sales, and £0.4 million (2022: £0.4 million) in finance expense.
Adjusting items in operating loss from discontinued operations are £50.1
million (2022: £4.5 million) of which £49.9 million (2022: £4.5 million)
are recognised in operating expenses and £0.2 million (2022: £nil) in
finance expense.
4 Adjusting items
The Group presents alternative performance measures ("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 the glossary to these financial statements. 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 and capitalised development costs:
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. 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) shall be adjusted
for to ensure consistency between periods. No such impairments existed in the
prior year.
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:
Upfront borrowing fees related to funding for 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.
No such items arose in the current or prior year.
- 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, adjusted profit before tax and adjusted profit
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.
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
£m £m £m
Continuing operations
Amortisation of intangible assets that are acquired in a business combination (2.1) (2.9) (6.0)
Impairment of fixed assets (1.7) - -
Acquisition related charges (0.7) (2.0) (4.4)
Integration and restructuring costs (2.1) (0.9) (6.9)
Adjusting items in operating profit from continuing operations (6.6) (5.8) (17.3)
Finance expense - amortisation of loan fees on borrowings for acquisitions and (0.4) (0.4) (0.8)
other interests
Adjusting items in profit before tax from continuing operations (7.0) (6.2) (18.1)
Discontinued operations
Amortisation of intangible assets that are acquired in a business combination (2.1) (2.3) (4.9)
Impairment of intangible assets((1)) (46.9) - -
Acquisition related charges (0.9) (2.2) (4.9)
Integration and restructuring costs - - (1.4)
Adjusting items in operating loss from discontinued operations (49.9) (4.5) (11.2)
Finance expense - unwind of discount on liabilities and other interest (0.2) - -
Adjusting items in profit before tax from discontinued operations (50.1) (4.5) (11.2)
Adjusting items in profit before tax (57.1) (10.7) (29.3)
See note 7 "Earnings per share" for the above, net of tax.
((1)) Following an impairment review just prior to their classification as
held for sale, intangible assets were impaired by £46.9 million (2022: £nil)
relating to Lightstream £18.9 million and Amimon £28.0 million.
5 Net finance expense
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
£m £m £m
Finance income
Fair value gain on interest rate swaps designated as cash flow hedges 1.7 - 0.7
Other interest income 0.1 - -
Interest income on net defined benefit pension scheme 0.1 - -
Net currency translation gains 0.8 0.7 2.3
2.7 0.7 3.0
Finance expense
Interest expense on lease liabilities (0.8) (0.7) (1.4)
Interest expense on interest-bearing loans and borrowings((1)) (7.4) (3.3) (8.3)
Interest expense on net defined benefit pension scheme - (0.1) (0.1)
(8.2) (4.1) (9.8)
Net finance expense from continuing operations (5.5) (3.4) (6.8)
Finance income - net currency translation gains from discontinued operations - 0.1 0.1
Finance expense
Interest expense on lease liabilities - - (0.1)
Other interest expense (0.1) - -
Unwind of discount on liabilities (0.1) - -
(0.2) - (0.1)
Net finance expense from discontinued operations (0.2) 0.1 -
( ) ((1)) Interest expense on interest-bearing loans and borrowings of £7.4
million (2022: £3.3 million) from continuing operations includes an amount of
£0.3 million (2022: £0.4 million) relating to amortisation of loan fees on
borrowings for acquisitions. See note 4 "Adjusting items".
6 Taxation
Income tax expense is recognised at an amount determined by multiplying the
profit before tax for the interim reporting period by management's best
estimate of the weighted-average annual income tax rate for the full financial
year, adjusted for the tax effect of certain items recognised in full in the
interim period. As such, the effective tax rate in the interim financial
statements may differ from management's estimate of the effective tax rate for
the annual financial statements.
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
£m £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 1.4 4.2 8.5
Deferred tax (0.7) 0.4 (13.8)
0.7 4.6 (5.3)
Discontinued operations
Current tax - - -
Deferred tax (4.2) (1.1) (2.9)
(4.2) (1.1) (2.9)
Continuing and discontinued operations
Current tax 1.4 4.2 8.5
Deferred tax (4.9) (0.7) (16.7)
(3.5) 3.5 (8.2)
Adjusting items
Continuing operations
Current tax (0.5) (0.8) (1.7)
Deferred tax (1.2) (1.0) (18.6)
(1.7) (1.8) (20.3)
Discontinued operations
Current tax - - -
Deferred tax (3.6) (0.9) (0.4)
(3.6) (0.9) (0.4)
Continuing and discontinued operations
Current tax (0.5) (0.8) (1.7)
Deferred tax (4.8) (1.9) (19.0)
(5.3) (2.7) (20.7)
Before adjusting items
Continuing operations
Current tax 1.9 5.0 10.2
Deferred tax 0.5 1.4 4.8
2.4 6.4 15.0
Discontinued operations
Current tax - - -
Deferred tax (0.6) (0.2) (2.5)
(0.6) (0.2) (2.5)
Continuing and discontinued operations
Current tax 1.9 5.0 10.2
Deferred tax (0.1) 1.2 2.3
1.8 6.2 12.5
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 intra-group
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. Notwithstanding this development,
management remain 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 30 June 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 utilised in the
relevant jurisdictions. As of 30 June 2023, Videndum has recognised deferred
tax assets of £43.7 million (2022: £37.0 million)
7 Earnings per ordinary 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 period divided by the weighted
average number of ordinary shares in issue during the
period.
Diluted EPS is calculated on the profit for the period divided by the weighted
average number of ordinary shares in issue during the period, but adjusted for
the effects of dilutive share options.
The adjusted EPS measure is calculated based on adjusted profit 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:
Half year to 30 June 2023 Half year to 30 June 2022
£m £m
Profit for the financial period from continuing operations
Add back adjusting items, all net of tax: 2.4 18.3
Amortisation of intangible assets that are acquired in a business combination, 1.6 2.2
net of tax
Impairment of fixed assets, net of tax 1.3 -
Acquisition related charges, net of tax 0.5 1.7
Integration and restructuring costs, net of tax 1.6 0.7
Finance expense - amortisation of loan fees on borrowings for acquisitions and 0.3 0.3
other interest, net of tax
Current tax credit - (0.5)
Add back adjusting items from continuing operations, all net of tax 5.3 4.4
Adjusted profit after tax from continuing operations 7.7 22.7
Loss for the financial period from discontinued operations
Add back adjusting items, all net of tax: (48.9) (5.4)
Amortisation of intangible assets that are acquired in a business combination, 1.8 1.9
net of tax
Impairment of intangible assets 43.8 -
Acquisition related charges, net of tax 0.7 1.7
Finance expense - unwind of discount on liabilities and other interest and 0.2 -
other interest, net of tax
Add back adjusting items from discontinued operations, all net of tax 46.5 3.6
Adjusted loss after tax from discontinued operations (2.4) (1.8)
(Loss)/profit for the financial period (46.5) 12.9
Adjusted profit after tax 5.3 20.9
Weighted average number of shares '000 Adjusted earnings per share Earnings per share
Half year to 30 June Half year to 30 June Half year to 30 June
2023 2022 2023 2022 2023 2022
Number Number pence pence pence pence
From continuing operations
Basic 46,485 46,003 16.6 49.3 5.2 39.8
Dilutive potential ordinary shares 1,006 1,700 (0.4) (1.7) (0.1) (1.4)
Diluted 47,491 47,703 16.2 47.6 5.1 38.4
From discontinued operations((1))
Basic 46,485 46,003 (5.2) (3.9) (105.2) (11.8)
Dilutive potential ordinary shares - - - - - -
Diluted 46,485 46,003 (5.2) (3.9) (105.2) (11.8)
From continuing and discontinued operations ((2))
Basic 46,485 46,003 11.4 45.4 (100.0) 28.0
Dilutive potential ordinary shares - - (0.2) (1.6) - (1.0)
Diluted 46,485 46,003 11.2 43.8 (100.0) 27.0
((1)) 1,006,000 (2022: 1,700,000) potential ordinary shares are antidilutive
for both statutory earnings per share and adjusted earnings per share.
((2)) Potential ordinary shares are antidilutive for half year to 30 June 2023
statutory earnings per share but 1,006,000 (2022: 1,700,000) are dilutive for
the purposes of adjusted earnings per share and half year to 30 June 2022
statutory earnings per share.
8 Employee benefit asset
The Group has employee benefit schemes in the UK, Italy, Germany, Japan and
France. In the UK it is a defined benefit scheme which was closed to future
accruals with effect from 31 July 2010.
The UK defined benefit scheme is in an actuarial surplus position of £4.7
million at 30 June 2023 (31 December 2022: £3.9 million) measured on an IAS
19 "Employee Benefits" basis). This surplus is as a result of actuarial
movements during the period, including an increase in the discount rate from
4.8% at 31 December 2022 to 5.2% at 30 June 2023. 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 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 Other Half year to 30 June 2023
sub-total
Cash and cash equivalents((2))
£m £m £m £m £m
Opening at 1 Jan 2023 (174.5) (34.8) (209.3) 15.8 (193.5)
Other cash flows - - - (22.5) (22.5)
Business combinations - - - - -
Repayments 62.8 3.5 66.3 (66.3) -
Borrowings (85.7) - (85.7) 85.7 -
Leases entered into during the year - (6.8) (6.8) - (6.8)
Leases - early termination - 0.1 0.1 - 0.1
Fees incurred - - - - -
Amortisation of fees (0.6) - (0.6) - (0.6)
Foreign exchange differences 4.5 1.3 5.8 0.9 6.7
Discontinued operations - 0.5 0.5 - 0.5
Closing at 30 June 2023 from continuing operations (193.5) (36.2) (229.7) 13.6 (216.1)
((1)) Interest bearing loans and borrowings are stated after deduction of
unamortised loan fees of £1.1 million (31 December 2022: £1.7 million, 30
June 2022: £2.0 million).
((2)) Other cash and cash equivalents include bank overdrafts of £4.3
million.
Interest bearing loans and borrowings Leases Liabilities from financing Other Year to 31 December 2022
sub-total
Cash and cash equivalents
£m £m £m £m £m
Opening at 1 Jan 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 (174.5) (34.8) (209.3) 15.8 (193.5)
Interest bearing loans and borrowings Leases Liabilities from financing Other Half year to 30 June 2021
sub-total
Cash and cash equivalents
£m £m £m £m £m
Opening at 1 Jan 2022 (122.8) (30.3) (153.1) 7.9 (145.2)
Other cash flows - - - (25.8) (25.8)
Business combinations - (4.4) (4.4) 0.2 (4.2)
Repayments 27.5 3.3 30.8 (30.8) -
Borrowings (79.8) - (79.8) 79.8 -
Leases entered into during the year - (4.1) (4.1) - (4.1)
Leases - early termination - 0.2 0.2 - 0.2
Fees incurred 0.5 - 0.5 - 0.5
Amortisation of fees (0.7) - (0.7) - (0.7)
Foreign exchange differences (12.5) (2.3) (14.8) - (14.8)
Closing at 30 June 2022 (187.8) (37.6) (225.4) 31.3 (194.1)
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 78% of the
RCF as at 30 June 2023. 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 amortising Term Loan with a syndicate of four banks to facilitate
the acquisition of Savage. This facility will expire on 14 November 2024.
Following the payment of 25% of the original amount during 2022 and 20% in
June 2023, the outstanding balance of this Term Loan was US$29.1 million
(£22.9 million) as at 30 June 2023. A further 25% of the original amount is
due in February 2024, 15% due in June 2024 and the remaining 15% due November
2024.
On 7 January 2022, the Group signed a new US$47.0 million (£38.8 million)
three-year amortising Term Loan with a syndicate of four banks to facilitate
the acquisition of Audix. This facility will expire on 7 January 2025.
Following the payment of 25% of the original amount during 2022 and 20% in
June 2023, the outstanding balance of this Term Loan was US$25.9 million
(£20.4 million) as at 30 June 2023. A further 25% of the original amount is
due in February 2024, 15% due in June 2024 and the remaining 15% due January
2025.
Two financial covenants, Net Debt to EBITDA ("leverage") and EBITA to net
interest ("interest cover"), (see note 14 "Glossary on Alternative Performance
Measures from continuing operations ("APMs")) for the derivation of these
measures as defined by the lending agreements, are applicable for the RCF and
term loans. These are tested at June and December each year, to be no higher
than 3.25x and at least 4.0x respectively ("Existing Covenants"). At 30 June
2023 these ratios were 2.9x and 5.9x respectively (31 December 2022: 2.1x and
9.8x respectively).
During August and September 2023, the Group has 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 5.75x
(December 2023) and 3.75x (June 2024); and EBITA:net interest of at least 2.0x
(December 2023) and 3.25x (June 2024). No restrictions apply to these New
Covenants but new testing dates for March 2024 (net debt:EBITDA to be no
higher than 4.25x and EBITA:net interest of at least 2.0x) 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.
10 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 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 eighteen months,
therefore the cash flows and resulting effect on the Income Statement are
expected to occur within the next eighteen months.
Nominal amounts as at 30 June 2023 Weighted average exchange rate of contracts Nominal amounts as at 30 June 2022 Weighted average exchange rate of contracts
millions
millions
Currency
Forward exchange contracts (buy/sell)
GBP/USD forward exchange contracts USD 18.3 1.20 26.6 1.28
EUR/USD forward exchange contracts USD 41.1 1.04 33.3 1.11
GBP/EUR forward exchange contracts EUR 7.6 1.14 25.3 1.16
GBP/JPY forward exchange contracts JPY 144.0 154.0 27.0 156.1
EUR/JPY forward exchange contracts JPY 263.0 137.0 246.6 130.4
CHF/GBP forward exchange contracts CHF 0.5 1.11 - -
During the period ended 30 June 2023 a net gain of £0.4 million (2022: £0.2
million net loss) relating to forward exchange contracts was reclassified to
the Income Statement, to match the crystallisation of the hedged forecast cash
flows which affects 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 30 June 2023 Weighted average fixed rate((1)) Maturity Nominal amounts as at 30 June 2022 millions
millions
Currency
Interest rate swap contracts
USD Interest rate swaps float (SOFR) to fix((2)) USD 55.0 1.01% Sep-23 90.0
USD Interest rate swaps float (SOFR) to fix((2)) USD 35.0 4.89% Sep-23 -
GBP Interest rate swaps float (SONIA) to fix GBP 47.0 1.74% Jan-25 37.0
(()(1)) In addition to these fixed rates, the margin relating to the interest
swapped of the underlying Revolving Credit Facility or the term loans
continues to apply.
((2)) The two USD swaps maturing in September 2023 will be replaced by a $75m
interest rate swap fixing at 5.19%, maturing 30 September 2024.
During the period ended 30 June 2023 a net gain of £1.7 million (2022: net
loss of £0.2 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.
Fair value hierarchy
The carrying values of the Group's financial instruments approximate their
fair values.
The Group's financial instruments measured at fair value are Level 2.
11 Share capital
Share capital as at 30 June 2023 amounted to £9.4 million. During the period,
the Group issued 12,977 shares as part of a capitalisation issue to its
shareholders. The capitalisation issue increased the number of shares in issue
from 46,585,333 to 46,598,310.
12 Subsequent events
Other than as described below, there were no events after the Balance Sheet
date that require disclosure.
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 $25 million (£19.7 million) amortisation payment relating to the two term
loans is amended from December 2023 to February 2024. This amendment was
agreed in September 2023.
During August and September 2023, the Group has 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 5.75x
(December 2023) and 3.75x (June 2024); and EBITA:net interest of at least 2.0x
(December 2023) and 3.25x (June 2024). No restrictions apply to these New
Covenants but new testing dates for March 2024 (net debt:EBITDA to be no
higher than 4.25x and EBITA:net interest of at least 2.0x) 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.
13 Discontinued operations and non-current assets classified as held for sale
Discontinued
operations
In accordance with IFRS 5 "Non-current assets held for sale and discontinued
operations", the assets and liabilities of the Lightstream and Amimon
businesses which are part of the Creative Solutions Division, and certain
property, plant and equipment of the Production Solutions division have been
classified as a disposal group held for sale within the period.
Discontinued operations are businesses that have been sold, or which are held
for sale.
The Group is 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
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, two businesses
(Lightstream and Amimon) were held for sale at 30 June 2023 and reported as
discontinued operations.
Both Lightstream and Amimon have been classified as discontinued operations in
the current period. These operations meet the definition as a discontinued
operation due to them both being separate major lines of business and are part
of single coordinated plan to dispose of.
The table below shows the results of the discontinued operations which are
included in the Condensed Consolidated Income Statement, Condensed
Consolidated Statement of Cash Flows and Condensed Consolidated Balance Sheet
respectively.
a) Income Statement - discontinued operations
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
Notes £m £m £m
Revenue 4.9 4.2 8.7
Expenses (57.8) (10.8) (24.1)
Operating loss (52.9) (6.6) (15.4)
Comprising
- Adjusted operating loss (3.0) (2.1) (4.2)
- Adjusting items in operating loss 4 (49.9) (4.5) (11.2)
Finance expense/(income) (0.2) 0.1 -
Loss before tax (53.1) (6.5) (15.4)
Comprising
- Adjusted loss before tax (3.0) (2.0) (4.2)
- Adjusting items in loss before tax 4 (50.1) (4.5) (11.2)
Taxation 4.2 1.1 2.9
Comprising taxation on
- Taxation on adjusted loss 0.6 0.2 2.5
- Adjusting items in taxation 3.6 0.9 0.4
Loss after tax from discontinued operations attributable to owners of parent (48.9) (5.4) (12.5)
b) Statement of Cash Flows - discontinued operations
Half year to 30 June 2023 Half year to 30 June 2022 Year to 31 December 2022
£m £m £m
Net cash used in operating activities (2.8) (1.4) (4.3)
Net cash used in investing activities (1.6) (2.8) (4.9)
Net cash from financing activities 4.4 4.2 9.2
Net cash used in discontinued operations - - -
c) Effect of the disposal group on the Group Balance Sheet
Half year to
30 June 2023
£m
Assets of the disposal group classified as held for sale
Intangible assets 5.4
Property, plant and equipment 3.6
Deferred tax assets 8.9
Inventories 1.6
Trade and other receivables 3.1
22.6
Liabilities of the disposal group classified as held for sale
Interest-bearing loans and borrowings -
Deferred tax liability -
Lease liabilities (0.5)
Trade and other payables (4.4)
Provisions (1.6)
(6.5)
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.
APM Closest equivalent IFRS measure Definition & Purpose
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.
Income Statement measures from continuing operations
Adjusted gross profit Gross profit Calculated as gross profit before adjusting items.
Half year to 30 June Half year to 30 June Year
to 31
Decem
ber
2023 2022 2022
£m £m £m
Gross profit 68.5 95.7 190.7
Adjusting items in cost of sales 0.5 0.1 2.6
Adjusted gross profit 69.0 95.8 193.3
Adjusted gross profit margin None Calculated as adjusted gross profit divided by revenue.
Adjusted operating profit Profit before tax Calculated as 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, 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 table below
shows a
reconciliation:
See note 4
"Adjusting items".
Half year to 30 June Half year to 30 June Year to 31 December
2023 2022 2022
£m £m £m
Profit before tax 3.1 22.9 40.1
Net finance expense 5.5 3.4 6.8
Adjusting items in operating profit 6.6 5.8 17.3
Adjusted operating profit 15.2 32.1 64.2
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 operating expenses Operating Calculated as operating expenses before adjusting items.
expenses
The table below
shows a
reconciliation:
See note 3
"Operating
expenses".
Half year to 30 June Half year to 30 June Ye
ar
to
31
De
ce
mb
er
2023 2022 20
22
£m £m £m
Operating expenses 59.9 69.4 14
3.
8
Adjusting items in operating expenses (6.1) (5.7) (1
4.
8)
Adjusted operating expenses 53.8 63.7 12
9.
0
Adjusted net finance income/(expense) None Calculated as finance expense, less finance income, and less amortisation of
loan fees and loan transaction costs on borrowings for acquisitions and other
interest.
The table below shows a reconciliation:
Half year to 30 June Half year to 30 June Year to 31 December
2023 2022 2022
£m £m £m
Finance expense (8.2) (4.1) (9.8)
Finance income 2.7 0.7 3.0
Adjusting finance expense - amortisation of loan fees and loan transaction 0.4 0.4 0.8
costs on borrowings for acquisitions and other interest
Adjusted net finance expense (5.1) (3.0) (6.0)
Adjusted profit before tax Profit before Calculated as profit before tax, before adjusting item. This is a key
tax management incentive metric.
See Condensed
Consolidated
Income Statement
and note 13
"Discontinued
operations and non
-current assets
classified as held
for sale" for a
reconciliation.
Adjusted profit after tax Profit after Calculated as profit after tax before adjusting items.
tax
See Condensed
Consolidated
Income Statement
and note 13
"Discontinued
operations and non
-current assets
classified as held
for sale" 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.
See note 7
"Earnings per
share" for a
reconciliation.
Cash Flow measures from continuing operations
Free cash flow Net cash from operating activities Net cash from operating activities after proceeds from the sale of 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 "adjusted operating cash flow" below for a reconciliation.
Adjusted operating cash flow Net cash from operating activities Free cash flow before payment of interest, tax, restructuring and integration
costs, and transaction costs relating to the acquisition of businesses. 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.
Half year to 30 June Half year to 30 June Year
to 31
Decem
ber
2023 2022 2022
£m £m £m
Profit for the period from continuing operations 2.4 18.3 45.4
Add back:
Taxation and net finance expense 6.2 8.0 1.5
Adjusting items 6.6 5.8 17.3
Adjusted operating profit 15.2 32.1 64.2
Depreciation excluding effect of fair valuation of property, plant and 7.2 7.1 14.6
equipment
Amortisation of capitalised software and development costs 3.3 2.8 5.9
Adjusted working capital movement ((1)) (4.4) (8.7) (18.8
)
Adjusted provision movement ((1)) (0.1) (0.4) (0.8)
Other:
- Net loss on disposal of property, plant and equipment and software 0.2 -
-
- Fair value (gains)/losses on derivative financial instruments (0.3) 0.2 (0.1)
- Foreign exchange losses - 0.3 0.6
- Share-based payment charges 0.8 3.6 6.9
- Proceeds from sale of property, plant and equipment and software 0.1 -
-
- Purchase of property, plant and equipment (1.9) (3.2) (7.0)
- Capitalisation of software and development costs (5.9) (3.5) (8.3)
Adjusted operating cash flow 14.2 30.3 57.2
Interest paid (6.2) (4.3) (9.3)
Tax paid (4.8) (1.0) (7.2)
Payments relating to:
Restructuring and integration costs (3.3) (0.5) (2.0)
Earnout and retention bonuses (3.7) (0.3) (0.3)
Transaction costs (0.6) (0.8) (1.4)
Free cash flow (4.4) 23.4 37.0
Proceeds from sale of property, plant and equipment and software (0.1) -
-
Purchase of property, plant and equipment 1.9 3.2
7.0
Capitalisation of software and development costs 5.9 3.5 8.3
Net cash from operating activities 3.3 30.1 52.3
((1)) See "adjusted working capital movement" and "adjusted provision
movement" below for a reconciliation.
Adjusted working capital movement None The adjusted working capital movement excludes movements in provisions, and
movements relating to adjusting items.
Half year to 30 June Half year to 30 June Ye
ar
to
31
De
ce
mb
er
2023 2022 20
22
£m £m £m
Increase in inventories (1.0) (12.2) (7
.4
)
Decrease/(increase) in receivables 12.2 (1.6) (4
.9
)
(Decrease)/increase in payables (19.3) 4.8 (4
.8
)
Increase in working capital, excluding provisions (8.1) (9.0) (1
7.
1)
Deduct inflows from adjusting charges:
Effect of fair valuation of acquired inventory (0.1) (0.1) (0
.5
)
Add back following outflows:
Adjustments for integration and restructuring costs, transaction costs 3.8 0.4 (1
relating to acquisition of businesses, and earnout and retention bonuses .2
)
Adjusted working capital movement (4.4) (8.7) (1
8.
8)
Adjusted provisions movement Increase/(decrease) in provisions The adjusted provisions movement excludes movements relating to adjusting
items.
Half year to 30 June Half Yea
year to r
30 June to
31
Dec
emb
er
2023 2022 202
2
£m £m £m
(Decrease)/increase in provisions (1.5) (0.1) 1.0
Adjustments for integration and restructuring costs 1.4 (0.3) (1.
8)
Adjusted provision movement (0.1) (0.4) (0.
8)
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 position of the 12 month
applicable period.
12 months ended 12 months ended 12
mon
30 June 30 June ths
end
ed
31
Dec
emb
er
2023 2022 202
2
£m £m £m
Adjusted operating profit for the last 12 months 47.3 58.2 64.
2
Opening capital employed 302.9 155.9 181
.5
Total assets 458.4 483.0 479
.7
Current liabilities (115.2) (143.6) (14
0.3
)
Total assets less current liabilities 343.2 339.4 339
.4
Less defined benefit asset (4.7) (2.6)
(3.
9)
Less deferred tax assets (43.7) (31.5) (43
.5)
Add the current portion of interest-bearing liabilities 30.7 28.6 36.
0
Less non-current lease liabilities (30.5) (31.0) (28
.5)
Closing capital employed 295.0 302.9 299
.5
Average capital employed 299.0 229.4 240
.5
ROCE % 15.8% 25.4% 26.
7%
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 presented on a constant currency basis as this best
represents the impact of volume and pricing on revenue growth.
Organic growth None Organic growth is the growth achieved year-on-year from existing business, and
not from new mergers and acquisitions.
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.
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:
12 months ended 12 months ended 12 months ended 31 December
30 June 30 June
2023 2022 2022
£m £m £m
Adjusted operating profit for the last 12 months 47.3 58.2 64.2
Add back depreciation excluding effect of fair valuation of property, plant 14.7 13.8 14.6
and equipment
Add back amortisation of intangible assets 11.6 9.3 11.9
Less amortisation of acquired intangible assets (5.2) (4.3) (6.0)
Adjusted EBITDA 68.4 77.0 84.7
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:
12 months ended
30 June
2023
£m
Adjusted EBITDA for the last 12 months 68.4
Add back share based payment charge 4.1
Add interest income unrelated to gross borrowings 2.1
Covenant EBITDA 74.6
((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:
12 months ended
30 June
2023
£m
Covenant EBITDA for the last 12 months 74.6
Less depreciation excluding effect of fair valuation of property, plant and (14.7)
equipment
Covenant EBITA 59.9
Interest income/(expense) unrelated to gross borrowings None This is interest income/(expense) on net defined benefit pension scheme,
currency translation gains/(losses), other interest income/(expense), and
amortisation of loan fees on borrowings excluding those on borrowings for
acquisitions.
12 months ended
30 June
2023
£m
Interest income on net defined benefit pension scheme 0.1
Net currency translation gains 2.4
Other interest income 0.1
Amortisation of loan fees and loan transaction costs on borrowings (1.2)
Less amortisation of loan fees and loan transaction costs on borrowings for 0.7
acquisitions
Interest income unrelated to gross borrowings 2.1
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))
12 months ended
30 June
2023
£m
Adjusted net finance expense for the last 12 months (8.1)
Less interest income unrelated to gross borrowings (2.1)
Covenant net interest (10.2)
((1)) See "Adjusted net finance income/(expense)" and "Interest
income/(expense) unrelated to gross borrowings" above for a reconciliation.
Net debt None See note 9 "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.
Half year to 30 June
2023
£m
Net debt 216.1
Add back unamortised loan fees and loan transaction costs on borrowings 1.1
Add back lease liabilities from discontinued operations 0.5
Covenant net debt 217.7
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