Videndum H2 2024 Earnings Call Transcript

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April 30, 2025

There are 3 speakers on the call.

Operator

Hello, everyone, and thank you for joining the Bodendum '20 '20 '4 Full Year Results. My name is Lucy, and I'll be coordinating your call today. I will now hand over to your host, Stephen Harris, Executive Chairman, to begin. Please go ahead.

Speaker 1

Thank you, Lucy. Good morning, everybody. My name is Stephen Harris. I'm the one speaking at the moment. I'm joined by Sean Glitherow, our Interim CFO.

Speaker 1

We're going to take you through this presentation this morning. Brief overview and then Sean will take over, do the financial review. I'll come back with a market update and then on to operational actions and eventually the outlook. So without further ado, look at the overview. The results were in line with our December 16 trading update.

Speaker 1

And not much to talk about there because that all should be known by everybody. Effectively, we broke even after the one off charges before the one off charges of GBP 18,000,000. Our cash flow was up 45% to GBP 17,000,000 and closing net debt was GBP 133,000,000. Notably, our covenants have been reset for the remaining life of the revolving credit facility, which is till August 26. And this morning, we did a small equity raise of GBP 8,000,000 giving us some extra liquidity.

Speaker 1

The refinancing has been launched, and we're actually moving on with that. And very importantly, is significant progress on our operational improvements generating GBP 80,000,000 of annualized savings out of the work that we've announced so far. And finally, we'll back to it in more detail, but we think we're well positioned to weather The U. Tariffs. With that, I'm going to hand over to Sean, and he'll take you through the financial review.

Speaker 2

Thank you, Stephen. I'm going to run through the results for FY24 and then update on our refinancing. Revenue for the year at CHF284 million was as outlined in our December trading statement, 8% down year on year after what was another challenging year. Revenue includes CHF 3,000,000 within the VCS division from the recently sold Aminon business, and if you exclude that in FX, the decline on a like for like basis was about 6%, so similar to the headline fall. On the left, from a divisional perspective, VCS grew year on year, but as the division most exposed to the strikes in 2023, they were starting from a lower base.

Speaker 2

VPS was down 10%, but given it was an even year, there was 8,000,000 or eight points of upside from the Summer Olympics within that result. VMS, our largest division, was down 14%. Looking to the top right graph and share of revenue, it has been H1 weighted for the past two years. With the strikes in 2023, full storm in Sydney at the start of 2024, the weighting is more to the first half than in the past and what we will see in the future. However, our past actions have driven the shape too, by pushing for sales at the end of a quarter or particularly end of a half, we have put more stock into the channel and pulled forward into H1.

Speaker 2

Normalizing is not a science, but our best estimate is that if we adjust for this pull forward, the H1 versus H2 split for 2024 is more like 51%, forty nine %. But more importantly, our normalized half on half profile has been flatter at 5% down, moving half on half through each half from the second half of 'twenty three to the second half of 'twenty four, as shown on the graph on the bottom right. The reported growth of 12% in the first half 'twenty four being flattered by that pull forward and other normalization adjustments. This is important as we look forward, as we expect that normalized half and half improvement to continue with the first half 'twenty five revenue higher than that achieved in the second half 'twenty four. However, it will be down double digit on reported first half 'twenty four, as those normalization adjustments are lapped.

Speaker 2

The converse is that the second half 'twenty five will benefit from a more natural revenue profile and not have the headwinds that second half 'twenty four did. So no doubt, another challenging year, but the decline in the second half was less pronounced than it first appears. Looking at revenue from a year on year perspective, the biggest driver of the 8% decline is lower volume. However, greater discounts in part linked to the pull forward of revenue and negative FX player part two. These were offset by the Olympic contract.

Speaker 2

It's worth note worth spending a moment on Amimon as a quirk of the accounting rules means it's moving around our p and l. In financial year 2023 it was a discontinued item, and outside of revenue and operating profit. As we have now sold the business, it will be a discontinued item again in 2025, but as the sale was not until after the year end, it's back as a continued operation in 'twenty four. However, the P and L impact is limited, with only 3,000,000 of the revenue included, and on an adjusted basis the operating losses have been stripped out as an adjusted item. Looking at the gross profit bridge on the left, revenue movements for volumes, discounts and FX flow into a lower gross profit, before we have the upside from Olympics and some operating efficiencies including other.

Speaker 2

As outlined on the right, gross margin would have held year on year for 38% if we exclude the non cash one off charges. These one off charges relate to increases in our stock provision. Product line by product line, we have reviewed the inventory levels against future demand expectations and adjusted accordingly. Similar to gross profit, operating expenses were impacted by one off charges, this time related to additional amortization on previously capitalised development spend. Excluding those non cash write downs, spend was in line with 2023 at CHF108 million, very much consolidating the reductions made in 2022.

Speaker 2

Stephen will talk later about the extensive restructuring we planned and commenced in q4 twenty four, that drives a 15,000,000 cost reduction in 2025. '20 '20 '4 saw 1,000,000 to 2,000,000 impact from this, but the balance will be in 2025, as it has taken time to complete employee and union consultations, as well as supplier negotiations to realize the procurement savings that will come through gross margin. In the operating profit box, the divisional profit split of the breakeven result is shown before one off charges. Media Solutions down from CHF11 million to CHF3 million as the 14% lower revenue fell through to profit. Production Solutions top line also down a similar amount, but the profit impact was cushioned by the margin on the major sporting events that only occur at even years, this time the Olympics.

Speaker 2

Creative Solutions profit increased, as did revenue, following the lapping of the twenty twenty three strikes. Ultimately, on a pre one off charges basis, the CHF12 million reduction in gross profit falling through to a CHF13 million reduction in operating profit, operating expenses were broadly flat. So far I've talked to the result before adjusting items and operating profit level. Looking at the full profit and loss account in a statutory format, we had £78,000,000 of adjusting items, as outlined in the box below the P and L. 51,000,000 of these related to impairment of assets, mainly in respect of goodwill write offs.

Speaker 2

Amomon operating losses were 12,000,000, approximately half of which was from asset impairments. The restructuring costs of 11,000,000 reflect the provisions made in 2024 for spend that will be in 2025 as we complete the restructuring projects. Back to the P and L, net finance expense of 7,000,000 was half of the 14,000,000 in 2023. The main driver of this was that the average RCF borrowings fell nearly 50% following the use of proceeds from the equity raise at the end of twenty twenty three. However, as in 2023 net finance expense was also aided by £4,000,000 of FX gains.

Speaker 2

There was a large tax charge in the year, as we wrote down 63,000,000 of the deferred tax asset balance, and this together with the adjusting items charge of 78,000,000, drove the increase in statutory loss for the year to 147,000,000. Turning now to cash flow and net debt, in the box on the top left we can see operating cash flow was up 45% to CHF17 million, despite the fall in revenue and lower EBITDA. EBITDA and working capital both presented here, excluding the non cash one off charges of CHF18 million. Working capital was favorable due to reduction in debtors that followed the revenue fall, plus a small increase in creditor balances. Excluding the extra stock provision, inventories were flat year on year and focused for reduction in 2025.

Speaker 2

CapEx was very much in line with prior years at CHF15 million. Increases in physical property plant and equipment spend were linked to the Olympics contract and extra investment ahead of new product launches, particularly the Manfrotto One camera support coming to market in H2. This was offset by less capitalized spend on R and D, albeit gross spend remained at 6% of revenue. Bridging net debt in the chart on the right, we can see that net debt has risen CHF4 million to CHF133 million. Offsetting operating cash flow has been interest of CHF10 million, and within other, there is CHF4 million of Amomon cash out and CHF4 million of net lease additions.

Speaker 2

Cash tax was minimal in 2024. Leverage is stated on a covenant basis and increased from 3.3 times to 5.2 times, as well as net debt was relatively flat, EBITDA declined. A reconciliation has been included in the appendix. Before handing over to Stephen, I wanted to share the progress we have made on our balance sheet. As outlined in a number of trading updates, we met the December 2024 covenant tests, and had both the February 25 and March 25 tests waived.

Speaker 2

This was the precursor to the full covenant reset we've just completed for the remaining life of the facility. The reset has been significant, involves new covenant tests, including that of minimum liquidity, and together with the 8,000,000 gross equity raise announced this morning, sets a strong cash base from which to focus on our refinancing. Preparations for the refinancing have been extensive, and we've launched these earlier this month, with completion targeted ahead of our H1 twenty five results in September. I will now pass back to Stephen to provide a market update.

Speaker 1

Thanks, Sean. Okay. So if we get into the markets, the Slide number 14 I'm showing at the moment is showing the markets three markets that we sell to, not our divisions. We have three divisions, but they are actually not a one to one map with our markets. This information was derived from a consulting study that was done very recently that was required for refinancing.

Speaker 1

And it was very insightful. A lot of work was done, a lot of interviews carried out. And what you can see on the slide is the results of that. I would point out that the TSM, total shared market, is actually only part of the potential addressable market. And it's that market that we can currently serve with our current geographies and distribution channels and some of our products.

Speaker 1

If we go market by market, the independent content creation market, obviously a very high market share, 44%. And all three of these markets by the way structurally sound and forecast for continuing growth which is quite pleasing. So 44% of 400,000,000 served market. Cine and Scripted TV, 26% of $200,000,000 served market and the broadcast market 20% of $125,000,000 So that's quite useful information that we've gained from that. Moving on to look at what's happening in those markets, we take them one by one.

Speaker 1

So independent content creation, it's quite clear that the demand for photo services and growing amateur interests have now stabilized. They have been in a downward trend for five or six years but it seems to have bottomed out and we're just turning the corner on that now in 2025. There was some concern that there would be an impact on the business from artificial intelligence. People were worried that might be negative for us and the study showed that the only real impact that it will have is on backgrounds as our paper business where that's fairly straightforward for The rest of the products that we sell into this area, we don't think in the foreseeable future that there will be any impact from AI. So we're now into regular upgrade cycles.

Speaker 1

It's interesting to note that camera sales are growing quite nicely and of course the camera sales we will see that come through in supports and tripods by attachment rate to those. The other thing that we've done here, we've kick started our new product development programs, which had been paused for a few years. So that's also going to help our growth in these markets. That comment actually applies to all three of the markets. The other important point here is that the channel inventory is now normalized.

Speaker 1

What we saw is, as Sean mentioned, a big pull forward into the channels that wasn't meeting customer demand, that was just putting inventory into the channels. And since the half year last year, we've been burning that off. We actually stopped the heavy discounting that was going on. And that meant that our sales into those channels went down as they were waiting for us to give them big discounts again and we weren't giving them. And in the meantime, they'd be burning off the extra inventory that they had.

Speaker 1

As we come into 2025, what we see is that the inventory now which we've got a good view of actually about 60% of the channels, we have a good view of the inventory. It's now pretty much burned off. What we're seeing is that our sell in data, our revenue, which started off being quite low at the beginning of twenty twenty five, has now come on par with the sell out data, what the channels are selling out to the market, meaning they've actually burnt the inventory down. Moving on to Sydney, again, Shaun mentioned the false dawn at the start of 2024. This is where post strike people went back into production to finish off the paused productions.

Speaker 1

Once we got past Q1, the Sydney market started dropping off back to where it had been. And it stayed in lackluster land throughout the year, frankly, just starting in the fourth quarter to slowly pick up. We've seen that continuation of the pickup now into 2025 and there's growth across the piece except in North America. We're yet to see Hollywood turn the corner. But there's a lot of growth around the rest of the world.

Speaker 1

There's some structural issues that help us in Sydney and scripted TV and that's that the more cameras that are on set and of course it's much cheaper to have multiple cameras rather than retaking the scene again and again. So they put multiple cameras on now. That drives more transmissions, which we use for our Teradek equipment and that also drives more monitors because each camera requires several monitors. And we've now returned to regular upgrade cycles for the destocking over in senior scripted TV. Broadcast, a bit of a mixed picture.

Speaker 1

It's turning, but it's been slow in 2024. Some strong growth in sports and entertainment and in our business particularly we've got continuing automation driving growth in robotics. We've got some great products in that. Moving on to just looking at another piece of work that came out of the consulting is our product positioning. And you can see our products laid across the different markets here.

Speaker 1

And the thing that should jump out of you is that the number of them that are number one in the market. And in many instances, we're number one by a long way. So there are very few of our products where we aren't in the lead and aren't leading by quite a way. So we've got a very strong position with our products and brands. Just want to talk about U.

Speaker 1

S. Tariffs. So our strategy on this is to pass 100% of the tariffs on through the price increases and we're well set to do this because of our strong position in each of the markets, each of our brands being so strong. The main competition we've got is Chinese and that when I say that I mean it's across all of the products that we produce, it's virtually all Chinese. In a steady state world, that would actually say we are competitively advantaged and the Chinese are disadvantaged by the current high level of tariffs on China.

Speaker 1

But I mentioned in a steady state world there because right now what's going on is anybody's guess, things are coming and going and the actual disruption out there is causing problems particularly with shipments and things like that. Hopefully it will settle down soon. We have no intention to change our sourcing strategy at this stage. That would be presumptuous because we've got to see where this goes. But right now, we're in a pretty good shape to whether this there is a second order risk we see and that's the higher pricing, not just from our markets but right across the piece could lead to a global recession and that of course would impact demand for our products as well.

Speaker 1

With that, let's move on to the operational actions that we've been taking. Clearly, in the fourth quarter, we really went to this quite strongly. You can see we've actually taken quite a chunk out of the business in terms of cost savings, pounds 18,000,000 annualized out of the actions we've announced so far, 15,000,000 of that will hit 2025. Quite a big program and just a point to note, I'd like to say thank you to our employees. Without their support, this wouldn't have been so straightforward to do because there's a lot of work that's been doing right across the piece.

Speaker 1

One of the things we're doing is simplifying the structure. So we have three divisions that we're moving to two going forward. That work will be complete by next year and we'll be reporting on that basis from the start of next year. The advantage of making just two divisions here is actually it eliminates a lot of duplicative overhead. I mean you see three divisions as we are at the moment, but actually there are a lot more operating units within those divisions.

Speaker 1

So part of moving to the simplified structure is to consolidate operating units within divisions so that we've got a much cleaner approach going forward. We've done some so far, but it's more work to do on that. We've reinstated pricing discipline. One of the problems we had was a lot of independent, I'll say pricing going on with discounts being offered around the place with no real coordination of it. We've now put in place a governance system to manage that and we've reduced the level of discounting.

Speaker 1

There's a lot of work going on there and the sales force are actually handling that quite well. One of the things that we mentioned was this heavy discounting and people holding off buying hoping for a discount. We didn't give them a discount, But what I can say is as we hit March year, pretty much everybody started buying for us at the lower, higher discounted price. So the prices are higher and people started buying. So there's no resistance anymore to that and indeed we're moving forward quite well.

Speaker 1

One of our targets is to drive gross margin expansion and in doing that we're actually rationalizing the SKUs that we've got, procurement is being improved, we've hired in some specialists for that and our supply chain is being optimized. As a no brainer, we've reduced discretionary spending. That's pretty easy and so that's taken out a chunk And our operational efficiency is being worked on as we speak. This of course is a never ending thing. I mean you should always work on these, but there was a lot to do and we're doing it, a lot of costs coming out of that.

Speaker 1

Manufacturing efficiencies, we had too much manufacturing capacity. I mean if I tell you that we were operating in our three main facilities, each one at about 40% utilization on one shift. So a lot of space and what we've announced so far is that we're closing the Berries and Edmunds site and consolidating that into our Italian site in Feltript. So more work to be done, but a great start and we are virtually complete with this. I mean having negotiated things with the unions and the other employees involved, this is now just a case of putting things in pace.

Speaker 1

We should be in very good shape with most of these savings coming in the second half. Reduction in headcount, our year end number will be about $13.80 and you can see the headcount has been falling quite steadily. So moving to the summary and outlook. So we've talked about the 2024 performance, clearly a challenging year and recovery anticipated at half one twenty twenty four didn't happen. And the shift to focus on prioritizing actions within our control is what we've moved to.

Speaker 1

Full year results are in line. Operational efficiency program, I've just talked about that. And balance sheet, which is what Sean was touching on. So we've done the equity raise. We've actually got the covenants reset.

Speaker 1

So we're moving forward quite fast on that. Moving to the outlook, this is the same word for word as you'll find in the RNS press release, also our annual report. I don't intend to go through every word, but the bottom line here is that we are improving at the moment. We started the year fairly softly, but month on month there's been quite a marked improvement and going forward that's what we need and it looks good. So we've got no inventory lag at the moment that's been burnt away.

Speaker 1

Month on month improvement looks good for the second half. With that I will leave it there hand it back to Lucy for any questions. Thank you.

Operator

Thank you. We currently have no questions. So I'll hand back to Stephen Harris for closing remarks.

Speaker 1

Okay. Well, thank you very much everybody. I appreciate you listening. I'm sure we'll meet up with a lot of you in the coming weeks, but let's go from there. Thank you.

Speaker 1

Goodbye.

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Key Takeaways

  • In FY24 the company broke even before one-off costs, delivered a 45% increase in operating cash flow to £17m, ended the year with £133m net debt, reset its banking covenants and completed an £8m equity raise.
  • Revenue fell 8% to CHF284m but normalization of a H1/H2 pull-forward has improved the split to 51/49, and management expects H1 FY25 revenue to exceed H2 FY24 despite year-on-year declines.
  • Operational efficiency actions are on track to deliver £80m annualised savings, including simplification to two divisions, closure of the UK plant, and a £15m cost reduction set to hit in FY25.
  • The group holds leading market positions, with 44% share in independent content creation, 26% in scripted TV and 20% in broadcast, while channel inventory has normalized and AI is not expected to disrupt core product demand.
  • To mitigate US tariffs, the company will pass 100% of duties through price increases without altering its sourcing strategy, though it remains vigilant of broader recession risks.
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