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Edited Transcript of VTC.L earnings conference call or presentation 8-Aug-19 8:30am GMT

Half Year 2019 Vitec Group Plc Earnings Call

Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Vitec Group PLC earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kath Kearney-Croft

The Vitec Group plc - Group Finance Director & Executive Director

* Stephen Clive Bird

The Vitec Group plc - Group Chief Executive & Director

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Conference Call Participants

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* Henry Carver

Peel Hunt LLP, Research Division - Analyst

* Michael John Blogg

Investec Bank plc, Research Division - Capital Goods Analyst

* Tom Fraine

Shore Capital Group Ltd., Research Division - Research Analyst

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Presentation

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [1]

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Well, good morning, everyone, and welcome to Vitec's half year results presentation for 2019, and welcome also to those of you joining us online for our live webcast. I'm Stephen Bird, Group Chief Executive. And with me here is Kath Kearney-Croft, Group Finance Director. We'll just put more water.

So as usual, I'll go through the highlights. Kath will then take you through the financial review. Then it's back to me to look at the market and strategy before we have Q&A.

During the market and strategy section, we'll show you 2 short videos to highlight some of the growth opportunities that we're focused on. And so on now to the reported results.

First, the highlights. I'm pleased to report that our first half financial results were in line with our expectations in a period which has had a number of challenges. The team has delivered a robust set of results in a non-Olympic year, with continued strength in our reported adjusted operating margin progressing towards our stated mid-teen goal.

As expected, net debt has increased due to the impact of acquisitions and IFRS 16, but we still have capacity to support sustained organic and M&A investment.

We have declared a 7% increase in the interim dividend, maintaining our long-term progressive dividend policy. Operationally, we made good progress driving growth and efficiencies despite some disruption to the photographic market and the impact of the U.S.-China tariffs. Amimon, the wireless video transmission business we bought at the end of 2018 is now fully integrated and its financial performance is on track. We're making good progress developing the new generation of wireless video products and are on schedule to launch into the broadcast sports market next year.

Our Imaging Solutions division had a tough H1, particularly the first quarter, with disruption to our traditional market caused by 2 main factors: first, lower demand for entry-level DSLR cameras, which were impacting the retail channel; and second, also affecting retailers, there's been a further shift to e-commerce channel. As previously reported, we are changing Imaging's business model to take advantage of this trend, and our plans here are on track.

The group is increasingly exposed to more growth markets than ever before, and we're investing in these faster-growing brands and segments of the market with targeted growth initiatives and a bit more about this later.

Our full year outlook remains unchanged and, as previously guided, is H2 weighted.

So now I'll hand over to Kath for the financial review.

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Kath Kearney-Croft, The Vitec Group plc - Group Finance Director & Executive Director [2]

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Thank you, Stephen, and good morning. Vitec's performance in the first half was robust. Reported revenue growth of 0.5% or a decline of 2.2% at constant FX was achieved despite photographic market headwinds, the non-repeat of the 2018 Winter Olympics and U.S.-China tariffs. Adjusted operating profit grew 1.2% on a reported basis and 0.5% on a constant currency basis. We continue to improve profitability through organic growth in higher margin areas, production efficiencies and higher-margin acquisitions.

Excluding the Olympics, adjusted operating profit grew 7.4% on a constant currency basis. The cost impact of U.S.-China tariffs in the first half was mitigated by pricing and sourcing from other countries. The results included GBP 5.8 million insurance income relating to the disruption caused by the fire adjacent to SmallHD's premises in the last year. This was accounted for in gross profit with no adjustment for lost revenue, consistent with the prior year, and resulted in margin benefits. We estimate that the benefit was circa 50 basis points in the first half, compared to 40 basis points in the first half of last year.

While the insurance indemnity period had ended in April, the claim is not yet finalized. The adjusted operating margin was strong at 14%. Net finance expense increased by GBP 1.3 million on a reported basis, including an adverse impact of GBP 0.5 million representing interest on lease liabilities under IFRS 16. As expected, underlying net finance expense is also higher, following the acquisition of Amimon. This resulted in adjusted profit before tax of GBP 23.5 million, 4.1% lower than the prior year. Adjusted earnings per share increased by 1%, reflecting a lower effective tax rate.

We have increased the interim dividend by 7%, and this reflects our unchanged outlook for the full year and dividend policy. Return on capital employed at 20.1% was lower than last year but increased by 100 basis points after adjusting for the impact of IFRS 16 and the acquisition of Amimon, where profit is H2 weighted.

I'll now summarize the performance of our divisions. Firstly, Imaging Solutions. On a constant currency basis, revenue declined by 4.2%, reflecting a challenging market for entry-level interchangeable lens cameras, or ILCs. We continue to drive growth in lighting supports and controls with single-digit revenue growth versus the prior year, reflecting resilience at the professional end of the market. Sales of JV smartphone accessories were also higher.

Organic constant currency margins improved by 20 basis points despite lower revenue, reflecting efficiency savings, cost control and favorable channel mix. We have successfully integrated Syrp, which we acquired in January 2019, and launched new generation products, which are now starting to ship through our global distribution network.

As previously announced, Rycote is now part of Imaging Solutions and is performing to plan. Both acquisitions are H2 weighted.

Now turning to Production Solutions. Revenue decreased by 7.6% on a constant currency basis. After adjusting for the non-repeat of the Winter Olympics, the decline was 1.8%. This slight reduction in underlying revenue was driven by white LED lighting, where there is a trend towards commoditization. However, there was strong growth in multi-color lighting, which is the area in which we have invested and launched new products as well as growth in robotics and other supports.

Underlying adjusted operating profit grew 1% and margins improved 40 basis points, reflecting favorable product mix and operational excellence.

Broadcast markets remain stable, and we continue to invest in higher growth areas, including more products targeted at independent content creators.

And now taking a look at Creative Solutions. Revenue increased by 15% at constant exchange rates. This included a benefit from acquiring Amimon, and revenue growth was 7.3% on an organic constant currency basis. This increase reflects growth at Teradek driven by new product launches as well as higher sales at SmallHD compared to H1 2018, which was disrupted by the fire -- sorry, which was disrupted following the fire adjacent to the premises.

SmallHD is recovering, and the business is refocusing on the higher-margin premium end of the market in response to increased competition at the lower end. Steven will talk more about SmallHD later on.

The margin benefit at Creative Solutions benefited from the insurance income, although normalized margins remain above the group average. We have completed the integration of Amimon, and financial performance was as expected, including higher capitalization development of costs, in line with the group's accounting policy. Amimon's contribution will be H2 weighted as expected.

And turning now to the group revenue bridge. Overall, revenue increased by GBP 0.9 million to GBP 184.2 million. As anticipated, revenue in European Services has reduced, driven by the non-repeat of the Winter Olympics. After excluding this, underlying revenue decreased by GBP 6.3 million. Lower revenue at Imaging Solutions was partly offset by growth at Creative Solutions for Teradek and SmallHD, with a solid performance at Production Solutions. There was a net year-on-year benefit of GBP 5.5 million from acquisitions, including Syrp, acquired in 2019, and Adeal, Rycote and Amimon, acquired in 2018.

Finally, there was a favorable impact from currency movements of GBP 5.1 million, mainly on the translation of the group's revenue into sterling, driven by the year-on-year strengthening of the dollar.

Now moving on to the operating profit bridge. Overall, adjusted operating profit increased by GBP 0.3 million to GBP 25.8 million. Excluding the lower performance from European Services and movement in corporate costs, underlying profit growth of GBP 1.4 million was driven by operational excellence at Production Solutions, growth at Creative Solutions and improved organic margins at Imaging Solutions. There were small favorable impacts from acquisitions, FX and IFRS 16 as shown in the bridge.

Our profit for the first half included GBP 5.8 million of insurance income, an incremental GBP 1.1 million versus the first half of last year.

Now let's have a look at cash. Free cash flow of GBP 16 million was broadly in line with the prior year. There was a net investment in working capital of GBP 8.7 million, reflecting the timing of payments and the seasonal increase in inventory to support sales in the second half. Accounting under IFRS 16 had a GBP 3.2 million favorable impact from free cash flow, with higher operating profit, depreciation and interest. There are further details on IFRS 16 in the appendix.

As expected, capital expenditure was slightly higher than the prior year, mainly reflecting higher capitalized development costs following the acquisition of Amimon, in line with accounting standards.

And now looking at net debt. Net debt increased by GBP 5.1 million after adjusting for the impact of IFRS 16. Free cash flow of GBP 16 million supported the payments of the 2018 final dividend of GBP 11.5 million, the GBP 2.7 million cash outflow on acquisitions related to the acquisition of Syrp, and a small working capital adjustment relating to Amimon. There was net outflow of GBP 4.5 million, funding the employee trust LTIP vesting in the period and to underpin future awards. The balance sheet remains strong, with net debt to adjusted EBITDA at 1.3x, pre-IFRS 16.

Now turning to guidance for the second half. As expected, performance will be H2 weighted, reflecting the phasing of recent acquisitions as well as underlying seasonality. We expect to continue to mitigate the impact of U.S.-China tariffs in the second half through pricing and alternative sourcing. And regarding Brexit, at this stage, we do not anticipate a material impact on results in the second half, although we continue to monitor the situation. We expect to incur a GBP 6 million cash cost in 2019 as a result of the Imaging Solutions restructuring investment announced in May, which is consistent with previous guidance. We anticipate the effective tax rate on adjusted profit will be a maximum of 25%. And finally, we've updated -- we've included updated guidance on FX for the second half in the appendix.

I'll now hand you back to Stephen for the market and strategy update.

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [3]

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Thank you, Kat. Now we're to look at each division's market trends, give a brief update on strategy and the investments and actions we're making to sustain growth and returns. We're now well into the second year of our division -- our 3 divisional structure, and I believe that this has given Vitec a greater ability to adapt and evolve in response to market challenges. And I believe we're becoming more and more agile.

Over the last 3 years, the group has continued to make good progress executing its strategy.

Our first priority is to drive organic growth by investing in new products for our faster-growing segments, expanding our geographic reach and continuing to develop our digital channels. Second, we're continuing to focus on margins by managing our cost base and improving productivity and channel mix. We're also growing the higher-margin Creative Solutions division and, of course, will increase prices as appropriate. And lastly, we're looking to continue to build on our successful track record of making value-adding acquisitions.

So now let's look at the 3 main markets we serve. First, Imaging. We estimate that currently 70% of our Imaging Solutions revenue comes from the photographic market, which is growing at about 1% per annum. 30% comes from the ICC/Cine market, which we estimate to be growing at 6% per annum. And we expect this 70-30 split to move proportionately more towards the ICC, as we continue to develop additional new products focused on this faster growing market. I note that the total addressable market for Imaging now includes audio capture.

In Production Solutions, we estimate that 60% of our revenue comes from the core broadcast market, which is broadly stable, and 40% comes from the ICC/Cine segment. And this has increased from 35% due to growth in on-location productions, especially for news and sports. And this is where we're focusing our investment and new business development.

And in Creative Solutions, 90% of its revenue comes from the ICC/Cine market. We expect the division to continue to grow and gain share. So the key message from this slide is that Vitec is increasingly exposed to more growth segments of the image capture and content creation market than ever before.

So now let's look at how Vitec is looking to capture that growth across the 3 divisions. We're targeting our resources and investment on developing a range of new products across multiple brands in these faster-growing market segments, and we're calling these targeted growth initiatives.

In Imaging Solutions, it's smartphone accessories, audio capture and motion control. In Production Solutions, it's LED lights, robotics and mobile power. And in Creative Solutions, it's wireless broadcast sports, premium 4K on-camera monitors, and unique integrated products.

So on to Imaging Solutions. Imaging continued to outperform a challenging end market. The market was disrupted, primarily due to retail consolidation and a destocking of traditional distribution, reflecting the shift and growth in e-commerce sales. Smartphones have continued to replace entry-level cameras, which has led to the decline in sales of lower value DSLR cameras. We're encouraged by the trend towards higher value compact system cameras, which are used by our core professional and key member customers. It's also where our accessories have a higher attachment rate. Vitec is very well positioned to offset any future market disruption in the lower end of the camera market. Our strategy has not changed. We're focused on developing a range of new products across multiple brands in adjacent market segments with a particular focus on the ICC. And we're capitalizing on the continued growth in JOBY smartphone accessories as well as driving growth of our Syrp motion control and Rycote audio capture products. We continue to invest selectively in our core business with a focus, of course, on profitability.

Imaging Solutions has our largest share of revenue in APAC, and this remains a focus, although the Chinese market has been slightly subdued to the impact of tariffs. Over 1/3 of Imaging's revenue is now generated from e-commerce, either from third-party platforms or our own websites. We accelerated our digital strategy during the year, investing to take advantage of the growth in the higher-margin e-commerce channel, and I'll update you on this project in the next slide.

So to summarize, we expect imaging to continue to outperform the market by diversification into adjacent markets and restructuring of its business model, and this is in line with its 3-year strategy to increase revenue and maintain margins.

In May, we announced a significant investment in a new digital platform and team to improve our web marketing and e-commerce capabilities across all of Imaging's brands, and this is an important strategic move. This enables us to take advantage of retail trends towards e-commerce, where we outperform the competition and enjoy higher margins. This has also meant reorganizing sales and marketing by distribution channel, which mirrors our major e-commerce customers. This restructuring is well advanced, and we expect the new organization to be live by the end of Q1 2020. This investment will give Vitec the industry's leading e-commerce platform and will provide a long-term competitive advantage, and we're on track to achieve the anticipated cost savings.

Now let's look at Production Solutions. Production Solutions performed well in the first half in a non-Olympic year, benefiting from continued operational improvement. The core broadcast market segment is broadly stable. Some of the more traditional areas of this segment are declining, but we are seeing growth in a number of areas, for example, robotics, where some customers are looking for more cost-efficient and automated products. We're also continuing to see growth from on-location productions, especially for news and sports. This is where we're focusing our investment and new business development.

In the first half, we launched new Litepanel lights Anton/Bauer batteries and Vinten Robotics. And as in Imaging, we will continue to invest selectively in new products and upgrades in our core business to maintain market share. We continue to look to grow in APAC, which is currently 18% of sales. And we also continue to drive margin improvements, and the first half saw further operational productivity efficiencies and purchasing price initiatives.

We had a number of major new wins in the first half in European Services, including the FIFA Women's World Cup in France and the European Athletics Games in Belarus. And the 2020 Tokyo Olympics are set to be the largest games ever, with 50 sports and 42 sports venues, and these will be the first game shot primarily in 4K.

So to summarize, we continue to -- we expect continued progress from Production Solutions, particularly on margins with a benefit in 2020 from the Olympic Games and the U.S. presidential elections. And the division's 3-year strategy is to maintain revenue and improve margins.

Now let's look at Creative Solutions. Creative Solutions had a successful first half integrating the Amimon acquisition and continues to grow. Although traditional TV networks are still the largest spenders, newer players such as Netflix and Amazon are investing heavily in original content and constitute a growing proportion of incremental programming spend. The strategy for Creative Solutions remains the same: first, to grow our presence in scripted series and film productions by improving our core product range and developing more integrated products to support the camera ecosystem with innovative new functionality; and second, to expand into broadcast sports.

The third is to grow in APAC. And with currently only 11% of its sales from the region, it has the greatest opportunity of the 3 divisions. Towards the end of the first half, we launched the Teradek 4K BOLT, the world's first 4K zero-delay wireless video transmission system with our unique Amimon technology. And this product has been well received in the market. SmallHD launched its new Cine 7 on-camera monitor, which has also been very well received. The integration of Amimon is complete and the launch of new products into broadcast sports market remains on schedule for 2020.

I will show you 2 short videos on these areas in a moment. So to summarize, we expect further growth in Creative Solutions, including the benefit from the Amimon acquisition, and we expect to maintain higher margins in line with the 3-year strategy.

And now an update on SmallHD. SmallHD is recovering after a very difficult 12 months, but there is still work to be done. It moved to new custom-designed premises at the end of last year, and our insurance claim will be finalized shortly. SmallHD launched a range of new products at NAB in April, a little later than planned, after the disruption last year. And the Cine 7 on-camera monitor has been incredibly well received. It's the first monitor which allows you to control different manufacturers' cameras from the actual monitor.

The brand is focusing on the premium, higher end of the market, of diluting some share in the more price-competitive low end of the market while the business was disrupted.

We're currently working on new SmallHD 4K production monitors, which will come to the market later this year. And there are also some exciting and unique integrated products in the pipeline. These incorporate Amimon wireless technology with other Creative Solutions brands.

So now I'd like to show you a video from the SmallHD team showing future growth opportunities for the brand.

(presentation)

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [4]

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Good. As you can see, SmallHD has had a tough time. And although the business is recovering and the team is very upbeat about the future, we still have a lot to do. So we will continue to update you on progress as appropriate.

So now Amimon. In November last year, we bought Amimon, the Israeli technology company. And just to remind you, we bought the business to enable us to strengthen our position in the Cine market and also to develop new products for the adjacent broadcast sports market. Amimon's H1 performance was in line with our expectation and integration is complete. So we now have 4 R&D centers in Creative Solutions, are all working together and give you as fast and integrated product development.

Under previous ownership, Amimon's R&D was spread across multiple markets, even including unmanned cranes. Prior to the acquisition, Amimon viewed Teradek as one of its many customers. So now we're able to focus Amimon's R&D investment on developing products just for Vitec's customers, and we have integrated the sales and marketing admin teams, and the initial cost synergies are coming through.

We've already strengthened our position in the Cine market with the launch of the world's first 4K zero-delay wireless transmission system at NAB in April, and we're working on other unique integrated products. These are innovative products which we believe no competitor can replicate. And as I've said, the development of new wireless production for the adjacent broadcast sports market are on track for launch in 2020.

So here's a short video from Nicol on Amimon.

(presentation)

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [5]

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Great. I'm very excited about the opportunity that Amimon has brought to Vitec. Strategically, it has transformed our wireless video capabilities, and it gives us a great opportunity to grow.

So to summarize, we're pleased to report results in line with our expectations. This is despite quite a few moving parts during the first half and no Olympics, which is both testament to the strength of the team and to our strategy and the business model.

Over the last 3 years, the group has continued to make good progress executing our strategy to drive growth and efficiencies. Making value-adding acquisitions in growth areas is a key part of our strategy and, I believe, our investment case. Amimon was an important acquisition for us, and it's great to be able to report that the integration is complete and it's going so well. This is a great platform to grow from in our fastest-growing market and gives us plenty to look forward to in 2020.

In Imaging Solutions, we're restructuring with a significant investment to transform our routes to market. This gives us a strategic advantage and is on track. And across the business, we're focusing investment and resources in areas where we can grow, as well as making the business more efficient operationally.

So the group is in good shape. Our full year outlook is unchanged and, as expected, H2-weighted, and we continue to expect a strong 2020.

So that concludes the formal presentation. I think Kath and I will now take some questions. So if you could possibly just say who you are and which company you're from, that will be terrific. Thank you.

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Questions and Answers

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Henry Carver, Peel Hunt LLP, Research Division - Analyst [1]

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It's Henry Carver from Peel Hunt. Just a couple of queries. But first of all, just Amimon and the expectation around those new products next year, how much of that was baked into what we thought Amimon was going to deliver when we first bought it? And where -- are you going to get these products into the Olympics, do you think? Or is it too early for that sort of -- for them to be delivered to that. You're going to start small. Just give us a bit more color around how you're expecting...

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [2]

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Sure. So I mean, very simply, this is going as well as we hoped. So as we've got to know Amimon better, I'm more and more pleased that we made this acquisition. I mean I'm really very pleased we made this acquisition. I think it was a great move. If we hadn't, we would not have control of the technology and that would have been -- I think that would have been a mistake. So having the control of the technology and being able to target that, all those guys in Israel, on helping us to develop products for our customers is fantastically, strategically important for us. So that's a big tick.

In terms of developing products, we're absolutely on track. It's all going to happen slightly different to exactly how we expected. But the more we know about this market, the more attractive it looks. So first of all, in the core Cine market. That market, we believe, is slightly bigger than we thought. In fact, Amimon, there were more chips being sold, particularly into China, than we realized. So that's actually a good thing. That means the market is actually a bit bigger than we thought. And I think the opportunity for Teradek to get stronger in that market, because we now have control of the core technology is much stronger. So that is a tick. So I think that is great news. So that's probably better than we expected.

In terms of delivering products for the broadcast sports market. We've been talking to customers. So I think we've talked to you about some of the people like Sky, about their golf coverage. Their golf-- because I think you saw the picture of all the cable that is used on a golf production. That is clearly an easy win once we get the product right. We think it's not difficult to get the product right. So we're very, very positive about that. And that should come through as we expected. I mean it's going to take time. And we'd probably start off quite small, in smaller events or sort of like, example of it, let's say it's the Ryder Cup. People are not going to trust the technology day 1. So the whole Ryder Cup is not going to go wireless with our products, obviously, but a limited number of cameras will hopefully be using our products to test it out, to improve the flexibility of the coverage and be able to improve the golf coverage.

Because, generally, people who watch golf are not terribly happy with the coverage. So overall, very positive. In terms of getting it into the Olympics, absolutely. We -- our relationship with the OBS, for example, is very strong, and they are very innovative, and they like to use new productions and new techniques and so on. So if it makes sense for them, then they absolutely will use it, but not in Tokyo.

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Henry Carver, Peel Hunt LLP, Research Division - Analyst [3]

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Okay. Perfect. And then just secondly, on Imaging Solutions, the e-commerce drive, just remind us the sort of proportions at the moment as what is sell-through commerce, either yourselves or your customers and where you hope to get to.

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [4]

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There's a lot -- those are our numbers, and I'll probably get a couple of these wrong. But generally, in terms of the total division, over 1/3 of our stuff is sold through e-commerce platforms, either third-party, like Amazon, who are obviously growing fast, or our own website, which is a -- who want to go on our website. Our website is world-class. It's extremely good. In markets where you have a pretty sophisticated market that is not too localized and doesn't have an awful lot of small specialist retailers, like the U.S. So in the U.S., more than half of our products are sold online. So that's where the world is going.

Europe has lagged behind that because Europe has tended to be -- have a lot more sort of local retailers, e-commerce has been less strong in Europe, but that's where it's going. So approximately, Henry, is that okay, in terms of numbers, that's roughly where we're going.

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Henry Carver, Peel Hunt LLP, Research Division - Analyst [5]

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Yes, so you're basically (inaudible) for over half.

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [6]

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It's going to be over half rate very soon. Yes. So what we -- so what that says to us is the restructuring does 2 things. So the one hand, it gives us -- we are going to be investing in people, bringing new people into our organization, focused in Italy, which happens to be where Amazon, for example, are centralizing their buyer for this area and centralizing their distribution. So their buyer has moved to Milan. We're in, as you know, Northern Italy is right in Bassano. So that kind of works well. We've got a very -- we've got a good relationship with Amazon. So that all makes sense. So we're focused on that.

At the same time is improving our digital capability. So that means that when you go online and you look at a tripod or whatever, our products should come up first, and they should have the best reviews, and they should have the best videos, and it all should look pretty good. And we, at the moment, do better online than we do in traditional distribution because, actually, although you think it's counterintuitive, actually, doing well on -- in e-commerce requires a lot of investment in time and people constantly working reviews and so on. So we're investing in digital, but we are also taking cost out of the business because we had, in Europe, a local organization of people calling on local stores, doing trade marketing at a local level, which is now becoming less financially attractive and economic. So the net result of all this, which we can sort of now say reasonably publically is that we will be reducing our headcount by 25 to 30 people. So that's what drives the hard cost savings that give us the payback on this project.

We also hope that actually doing all this is going to drive our business forward in terms of growing sales and taking share, although that's not baked into the numbers yet. Does that make sense? Michael?

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Michael John Blogg, Investec Bank plc, Research Division - Capital Goods Analyst [7]

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Michael Blogg from Investec. You mentioned U.S.-China trade wars and you mentioned tariffs as well and what you're doing to mitigate those issues. Do you have a feel for what your Chinese-based competitors are doing. And if you use pricing to some extent to mitigate the effect of tariffs, is that actually helping them as well?

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [8]

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Yes, a good question. The answer is, yes, we do have an idea of what's going on. So in terms of tariffs, so in theory, and strategically and in the medium to long term, the tariffs, I think, could potentially be quite a good thing because -- we have 45% of our business in the U.S. The market -- the business that is affected most by this is Imaging, who -- of who, about half of the business comes -- products come from China. So I'm talking about bags and the less expensive tripods and GorillaPods. So those come from China. So those are tariffed. Half of our stuff, however, comes from Italy, and there's no tariff on that. So this is all about tariffs in the U.S. All of our competitors -- almost all of our competitors are Chinese, and they are all being hit 100% by the tariffs. And what's happening in the U.S. is we have put our prices up, our competitors have had to put their prices up as well. And we are gaining share. So in the U.S., we've taken, in the last year, volume-wise, about 1, 1.5 points of share.

So this, strategically, is actually a good thing for us. However, it doesn't really feel like that because, obviously, the tariffs cost us money. We've got to put our prices up. It's causing disruption. The relationship with China is difficult when we're trying to get products into China. That's not from the U.S., that's not being helped. And I think that the Chinese market has been somewhat suppressed because there is absolute total disruption in the Chinese market in terms of suppliers. So some of our suppliers in China are looking to move out. And we are looking to re-source into Vietnam. I And that causes disruption. It causes difficulty. It costs money. So short term, in terms of, for example, in 2020, I think this is going to be net-net not a great thing. I think it's not going to be a disaster. We're mitigating, and I think we're doing a bloody good job of it. And in the long term, I think it will be to our advantage. But short term, it's going to be a bit tricky. So that's kind of why we're sort of saying, tariffs.

A year ago, I wasn't convinced that this really would happen. But it's happened. And it's -- right now, I don't think you can bet on it all kind of resolving itself next month, would you? Any other?

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Tom Fraine, Shore Capital Group Ltd., Research Division - Research Analyst [9]

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Morning. Tom Fraine from Shore Capital. Regarding the seasonality and the H2 weighting, obviously, we've got the impact of the acquisitions. But aside from that, what else is underlying the seasonality in the business?

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [10]

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Okay. Well, I might ask Kath to answer one of those questions. It's the same. But just to say, first of all, it's an H2-weighting. I mean the business has always been a bit H2-weighted. It is becoming a bit more H2-weighted for reasons that Kath will explain. And just to be absolutely crystal clear, we are not saying that we are going to be any more H2-weighted than we always thought we were going to be. So this H2-weighting is entirely expected. We are confident about the year, and we are not saying that we are any more H2-weighted than we were before. So it's completely as expected. Kath, do you want to explain some of the reasons?

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Kath Kearney-Croft, The Vitec Group plc - Group Finance Director & Executive Director [11]

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Yes. So the normal seasonality of the H2-weighting is really driven by new product launches. And so there's a big exhibition in NAB in April where we launch a lot of our products, and so we see the full benefit of those in the second half, and we also get the benefit of pricing -- full 6 months of pricing in the second half because pricing goes through at different stages in the first half. But we also have, this year, the benefit of acquisitions, which are H2-weighted. The large one around that is Amimon, and we'd always said that Amimon would be -- the profit would all come through in the second half because we have now the relationship between Amimon and Teradek. And so while you look at Amimon as a stand-alone company, it's profitable in the first half. But as we're selling those products from Amimon into Teradek, we need them to sell out at Teradek before we can recognize the profit, and so much more H2-weighting related to that.

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Tom Fraine, Shore Capital Group Ltd., Research Division - Research Analyst [12]

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And also on the impact of sports events outside of the Olympics. So why is the Winter Olympics -- why does that have so much more of a benefit than any of the major sporting events that you see in the complexity of the equipment and the conditions.

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [13]

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So is the question why is Olympics relatively bigger than other events?

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Tom Fraine, Shore Capital Group Ltd., Research Division - Research Analyst [14]

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Yes.

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [15]

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Yes. So for us, we've had a reasonably long-term relationship with the OBS, who are the broadcasting part of the IOC in the Olympic movement. So we have a good relationship with them, providing cameras in unusual places to capture fantastic shots at the Olympics. The Olympics, they tend to be pioneers. So sort of 10, 15 years ago, you'd never see underwater cameras of shots of people swimming along. You just see them swimming along the surface, but now you can see them swimming underneath and people diving in, you can follow them down, which is kind of a lot more interesting. So we have pioneered that with them. They trust us to do that, and we go out there and we stick the cameras in lots of strange places. And it's -- the Olympics is a massively bigger event.

So I can't remember exactly what I said, but it's 50 sports or 42 venues or something. So it is just the scale of it is much, much bigger than even the football, because actually the football isn't actually that big. So it's basically driven by the scale of it. And the fact that we are pretty much the sole supplier of the specialist cameras, and they trust us to do that.

So we -- in Tokyo, we will have about 100 people there, putting all these cameras in, making sure they're working, making sure it's giving the great shots that the OBS wants, and we are a trusted supplier in that situation. And it's -- that's a very strong part of it. But the reason it's bigger is just the scale of the Olympics. And then even the Winter Olympics is bigger as well. Sorry, I'm sorry. But what we're trying to do is we used to be very much, feast and famine. What we're trying to do is fill those gaps in and [Phil Beck], who runs that business for me, who is a phenomenal guy, he has gone out and found more sports events that we can support, so that we're starting to fill that in. So in the old days, camera cords used a very specialist bit, we would make a lot of money during Olympics, and then it would manage to lose a bit of money when the Olympics wasn't happening. Now that's still making a lot of money, but it's not losing money.

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Tom Fraine, Shore Capital Group Ltd., Research Division - Research Analyst [16]

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Okay. Is the strategy similar for other sporting events? So working with the organization and we finally got it working, but best place to put the equipment is -- to put the cameras in to get the best shots, would it be -- and would you be the sole broadcaster for these sporting events, as well as the other ones you are targeting?

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [17]

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Are we the sole broadcaster?

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Tom Fraine, Shore Capital Group Ltd., Research Division - Research Analyst [18]

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Yes.

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Stephen Clive Bird, The Vitec Group plc - Group Chief Executive & Director [19]

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So the -- so for the Olympics, no -- the answer is, no, we're not the sole broadcaster. Usually, most events, there are a multitude of broadcasters. So at the Olympics, the OBS provides the core feed for the Olympics. So if you are a smaller country that doesn't have your own broadcasting capability, then you would take the core feed, but people like the BBC and the U.S. networks will have their own people there. Make sense? But the Olympics, I mean, the exciting thing is, I mean, the Olympics have always been quite important to us. The Tokyo Olympics are going to be significantly bigger than the Rio Olympics were 4 years ago. So that's exciting.

And then the other thing we shouldn't forget is that next year, there's going to be U.S. presidential elections, and they are clearly going to be newsworthy events. And for the U.S. broadcasters, they don't have enough equipment to cover everything that's going to happen. And so we -- that helps us as well. That tends to stimulate people investing and making sure that coverage is good and interesting. And if you are watching TV in the U.S., it's just going to be blanket coverage. And what you're going to be seeing is usually a bunch of people talking to each other. It's usually reporters interviewing each other asking each other what's going on, or the candidates or whatever. And they will be sitting there with a camera sitting on our stuff, lit, hopefully, by our on-location lighting, powered by our on-location batteries. So that's all exciting stuff.

But it should be an interesting year, next year. Great. On that note, I think we'll call it a day. Thank you very much, indeed. Thank you.