The Vitec Group, which owns more than a dozen brands in the broadcast industry, released an update of its financial performance through the first half 2017 based on its new segment reporting.
The change followed the Company’s divestiture of its services business Bexel to NEP. The new structure offers visibility into the two product groups Vitec sells in the broadcast industry.
As of November 2017, The Vitec Group reports across the following three Divisions:
- Imaging Solutions contains the assets formerly reported in the Photographic division, which is focused on the professional and consumer photographers.
- Production Solutions groups Vitec’s more traditional broadcast products, including camera supports, robotic camera systems, prompters, mobile power, lighting, along with the remaining service activities of Camera Corps and The Camera Store.
- Creative Solutions comprises The Vitec Group’s video transmission systems (Paralinx, Teradek), monitors (smallHD), and camera accessories (Wooden Camera, Offhollywood).
One of the stated goals of the reporting modification is to give greater focus to the fast-growing independent content creator market where the Creative Solutions division has a larger presence.
It is interesting to note nearly all of the assets in Creative Solutions were acquired over the past five years.
Broadcast Operating Segment Results
The restated 2016 and 1H 2017 results illustrate the relative revenue contribution and profitability profiles of the Production Solutions and Creative Solutions divisions.
For full year 2016, Production Solutions represented 72.5% of Broadcast sales or £121.6 million. Creative Solutions had sales of £45.9 million or 27.5% of Broadcast revenue.
When including an allocation for corporative overhead the operating margin profile for Production Solutions was 10.9% during 2016 and 16.8% for Creative Solutions.
During the first half of 2017 (ending June 30) Production Solutions had sales of £55.7 million (64.3% of Broadcast) and Creative Solutions contributed £30.8 million of revenue (35.7% of Broadcast).
Operating margins (with corporate allocation) for 1H 2017 were 9.5% for Production Solutions and 17.2% for Creative Solutions.
Vitec Group did not provide comparable year-over-year period presentations of the Divisions. However, even using a straight line estimate, it is reasonable to view the Production Solutions as an approximately flat business (year-over-year) in the first half of 2017, as the second half is usually the stronger portion of the year. Creative Solutions, in contrast, is experiencing strong growth. The magnitude of growth is difficult to estimate given the inorganic additions to the division with the closing of the acquisitions of Offhollywood and Wooden Camera. As a reference point, the 2016 restatement lists £20.4 million of investing activities attributable to the Creative Solutions division.
While growing faster, the Creative Solutions division is also meaningfully more profitable with operating margins in the high teens. Thus, consistent with The Vitec Group’s stated intentions, this reporting approach provides greater visibility into the higher growth, higher margin Creative Solutions division.
In addition, the restatement of 2016 financial results further highlights the merits of the divestiture of Bexel. This is not a commentary on the quality of Bexel, but rather an observation about the fundamentally different characteristics of Bexel’s asset and capital intensive business, which contrasts with the remaining product businesses. Consider that during 2016 – the fourth year in the four year industry cycle – Bexel had revenue of £47.7 million, an adjusted (before impairments and restructuring costs) operating loss of £1.4 million, and capital expenditures of £7.1 million. (It is appropriate to point out Bexel generated operating cash when adjusting for non-cash items and including rental asset disposals).
Full year 2017 results are scheduled for release on February 22, 2018.
Impact of US Tax Change
In the same release, Vitec offered guidance on the impact of the new Tax Cuts and Jobs Act legislation passed in the United States. The immediate impact to Vitec is a revaluation lower of its US deferred tax balance by £7.0 million. This is because the lower US tax rate of 21% (versus 34%) means tax losses have less value in the future.
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