Good morning, and welcome to the Videndum Half Year 2023 Results Conference Call. My name is Carla, and I will be the operator of today's call. If you would like to register a question for the Q&A portion of the call, please press Star followed by one on your telephone keypad. When asking your question, please ensure your telephone is unmuted locally, and to revoke your question, you can press Star followed by two. I would now like to pass the conference over to our host, Stephen Bird, Group Chief Executive, to begin. Please go ahead.
Good morning, and welcome to our half-year results presentation for 2023. Here's today's agenda: I'll start by giving you an overview of the first half. I'll then update you on current trading and outlook, and in particular, how the group is being affected by the U.S. writers and actors strikes, and wider market conditions and how we're responding. This will be followed by a market and strategy update. Andrea will then cover our first half financial results in more detail, and I'll conclude with a summary. Before we start, you will have seen this morning's announcement about our chairman. Ian will not be seeking re-election at the 2024 AGM, and we've begun the search process for a new chair. On behalf of the board, I'd like to take this opportunity to thank Ian for his valuable contribution over the last four years.
Turning now to the half-year results. As expected, our first half financial performance was impacted significantly by two things. First, the impact from the writers strike, and second, the economic situation. Although the writers strike started in May, some U.S. cine and scripted TV productions were frozen from March as people waited to see if the strike went ahead or would be resolved. From the second of May, the majority of U.S. productions were suspended. This significantly affected demand in the first half for our high-end cine and scripted TV products in the U.S. In addition, the macroeconomic environment remained challenging, with continued softness in our consumer segment, and on top of that, there was some purchase deferral by independent content creators.
We also saw more retail destocking than we expected due to a lack of business confidence more generally, and in total, over half of the group was affected, and this meant that we finished the first half, with revenue from continuing operations down 25% and with a PBT of GBP 10 million. We focused on managing the things we could control. We implemented a number of self-help actions in H1 to cut costs, and the year-on-year net benefit of these actions was about GBP 9 million in the first half. The trading conditions in the first half meant that our net debt to EBITDA was higher than expected, although still within our covenant lending limits. I'll talk shortly about the actions we're taking to improve the balance sheet. Given the current circumstances, no interim dividend has been declared.
The board and I recognize the importance of dividends to our shareholders and intend resuming payments as soon as we can. Turning now to current trading and outlook. Unfortunately, the impact from the strikes and economic situation is worse than we anticipated when we last updated you, and probably worse than most people expected. Although these events are beyond our control, they are incredibly frustrating for all concerned. The first and biggest impact on the group is from the strikes. There is encouraging news about the strikes ending. However, what is not clear at this point in time is exactly how quickly productions will restart and what the pace of the recovery will be. Unfortunately, the writers' strike has lasted longer than we expected and is also having a much wider impact geographically because the actors also went on strike at the beginning of July.
Some productions have been halted in Europe, and some UK companies involved in this sector are talking about the situation being as bad as COVID. The strikes have also impacted more of the group's customer segments than we expected, and we're seeing an impact on independent content creators, and anyone who is involved with cine or scripted TV production is seeing their business affected. In addition, the strikes mean that sales of our new product launches are delayed, and one example is the exciting new sustainable power solution from Anton/Bauer, called the Salt-E Dog, which was incredibly well-received by customers when we launched it earlier this year. So the impact of the strikes on 2023 is dramatically more significant than we were expecting, and even if productions restart in October, we're unlikely to see a significant recovery this year.
Recently, the Milken Institute estimated that the economic impact of the strikes has already surpassed $5 billion, and the pain has spread to multiple industries, including, of course, ours. For example, Warner Brothers recently said that the strike had reduced their earnings guidance by $300 million, but then they also announced an investment of $500 million in UK studio capacity, and that's a great example of exactly what we believe is happening: short-term impact, but long-term confidence. On top of the strikes, although the macroeconomic situation is no worse, the consumer segment has not improved, and our independent content creator is behaving a bit more like a consumer and has also been impacted by the strikes. Customers, whether they're independent professionals or retailers, are being impacted significantly by high interest rates, and as a result, retailers don't want to hold much inventory.
We were expecting to see destocking finish in the second half, but we're now expecting some destocking to continue through H2. Some customers, like Amazon, have the right inventory levels now, but some specialist retailers still want to reduce inventory further. As a result of all this, there's a wide range of outcomes for 2023, and it's difficult to provide guidance. Although 2023 is extremely challenging, we can be sure of two things: number 1, the strikes will end, and we will see a significant recovery. And number 2, destocking will end, and at some point, we will start to see restocking. So looking forward, our longer-term outlook is very positive. The fundamental market growth drivers remain attractive, and there has been no structural change.
Videndum is a strong, vibrant company, great people, premium brands in long-term growth markets, and this is partly evidenced by our ability to increase prices and not lose share. While near-term trading is expected to remain difficult, our markets will recover, and when they do, the group remains well-positioned to see a significant recovery in revenue driven by pent-up demand. In the meantime, we're proactively working to strengthen the balance sheet. Our banks continue to be very supportive and have reset lending covenants, and this demonstrates their confidence in the Group's prospects. We're also looking at options to reduce leverage and recapitalize the business, and this may require an equity raise. Now, a brief update on our market and strategy. As I said, the end drivers remain attractive.
Investment in original content creation will continue to grow in the medium term, and by content, I mean live news, sport, reality and scripted TV shows, films, and digital visual content for e-commerce and vlogging. We expect a significant recovery when productions restart. I've talked to you before about technology advancement driving shorter replacement cycles, and when we come to the divisions, I'll tell you about some of our exciting technology innovations, which save our customers time and money. Videndum is unique, right at the heart of the content creation market, with great people, world-class operations, and the market's leading brands, which our customers love and need to do their jobs. So as markets recover, the long-term growth prospects for the group are very good. Now let's look at our strategy. Our strategic priorities are unchanged.
However, while we remain focused on reducing leverage, no acquisitions will occur in the near term. We're focusing more tightly on areas where we see the greatest potential growth. These 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 power solutions based on sodium technology. We are exiting non-core markets, and specifically, medical and gaming. After an extensive review of the options for Creative Solutions, the board concluded that by retaining the division but focusing more tightly on the high-end professional content creation market, the group will deliver the most long-term shareholder value.
Although our Creative Solutions division as a whole remains a core focus going forward, two businesses were held for sale at the half year and reported as discontinued operations, and we started the process to seek offers for the Amimon medical business and are exiting the gaming market. Now, a brief update on each of our divisions. First, Creative Solutions. Creative Solutions market drivers are intact, and when the strikes finish and productions restart, we expect to see significant multi-year growth. Sales of our 4K HDR zero-delay point-to-point products will pick up. The Teradek team has evolved the ART protocol, known as Adaptive Reliable Transport, into Teradek Reliable Transport, known as TRT. TRT is focused on the smaller devices used by our content creation customer base.
Our cine customers are demanding more remote access, and we're evolving our monitor technology to the cloud, so it can be used both on set and remotely. Our SmallHD monitors grew significantly in 2022, and sales of both our new large production monitors and small on-camera monitors for high-end cinematic cameras will recover strongly post-strike. This is a good example of an area where we're taking share despite price increases. We've relocated our Wooden Camera accessories manufacturing to Costa Rica from Texas, and this enables us to expand and upgrade production of this successful brand. In live production, we expect continued growth in our high-end Teradek IP-based live streaming solutions, and we're also integrating TRT into our live production products for customers who need to send robust video over the internet. And in summary, we feel very positive about Creative Solutions.
Although this division has been most impacted by the strikes, we expect a significant recovery when the productions restart. Now let's look at Media Solutions. The market drivers for Media Solutions remain just as valid, but this division has been impacted by the weaker global economy, and parts of the high-end professional segment have also been affected by the strikes. The consumer and ICC segment is about 75% of the division, and here the environment remains tough. The softer economy, the strikes, and a lack of business confidence, more generally, with lower digital advertising spend are impacting our JOBY, Lowepro, and Manfrotto brands. Consumers and owner-operators are spending less or delaying purchases, and as I've mentioned, retailers are also holding less inventory in this area across all consumer electronics products, so a double impact. We continue to focus our resources more on the professional high-end segment.
First, we're investing in developing innovative new products across the division to shorten replacement cycles. For example, a groundbreaking new Manfrotto video and photo tripod, similar to Flowtech, will be available next year. Second, audio, which is an exciting growth opportunity for the group, and we're making good progress with our strategy. We've restructured operations in the U.K. and the U.S. to drive synergies from the recent acquisitions and to expand and upgrade our audio operations. We expect Media Solutions to recover well, as they have in the past, after a period of destocking, and the self-help actions we've implemented across the division will ensure that the business is well-placed when the economy recovers. Finally, let's look at Production Solutions. Production Solutions have been performing very strongly pre-strikes and destocking, driven by demand for original content, automated production, and on-location news and sport.
Technology innovations will drive growth across this division, and again, we expect a strong recovery once the strikes are over and productions restart. In May, we launched our sustainable portable power solution based on sodium technology. This radical innovation will replace portable petrol generators on productions, which will be banned from sale in California. Salt-E Dog has started to be manufactured in our Costa Rica facility. It significantly reduces setup times and costs, as well as noise on set and emissions, helping productions to become more environmentally friendly. This is a really big opportunity, has been very well received with substantial press coverage. We also expect growth in LED lighting, where virtual production is increasing, and there is strong demand to enhance virtual environments with real lighting.
In broadcast TV, our market-leading robotics and AI speech recognition prompting technology drive cost efficiencies in broadcast TV studios, and we've also developed AI autonomous motion tracking software to be used in studios and by sports broadcasters. In summary, in Production Solutions, our core business will return to growth, and we're continuously evolving with innovative new technologies which drive shorter product replacement cycles. Now I'll hand over to Andrea for more details on our financial performance.
Thank you, Stephen. Our results have been delayed until now, as more time was needed to prepare the financial statements due to the unusual complexities of the situation we have been facing. I will now take you through our first half performance before reviewing net debt and liquidity and some of our self-help actions. Results and comparative numbers are presented on a continuing basis, as we have started the process to exit our non-core Lightstream and Amimon Medical businesses. These businesses are being reported within discontinued operations. The first half of 2023 was a tough six months for trading and followed on from a difficult second half in 2022. Revenue declined by 25% and was partly mitigated by cost savings, including the implementation of Cassa Integrazione, the Italian government-supported furlough scheme in our Media Solutions division.
In the next 2 slides, I will provide bridges setting out the main factors that have impacted revenue and operating profit. Net finance expense increased, as expected, due to rising interest rates and higher debt. As a result, profit before tax and EPS were down by 2/3. Given the current circumstances, no interim dividend has been declared. We recognize the importance of dividends to our shareholders and intend resuming payments as soon as we can. Let's now take a look at the revenue decline. Revenue was down 28% at constant currency, primarily due to three effects. Firstly, the writers' strike, which was announced at the start of May, but had also depressed revenues in the months leading up to it. Secondly, the continuation of the destocking effect seen towards the end of the second half of last year.
And thirdly, the weak macroeconomic environment impacting consumer demand, as well as independent content creators deferring purchases and behaving more like consumers. 2022 also benefited from the Winter Olympics, which is part of the other volume decline. Partly offsetting this decline was the year-on-year effects of price increases pushed through in July 2022, as well as selected price increases pushed through in January 2023. I'll now turn to the factors impacting operating profit. The lower sales volume dropped through to operating profit at around 50%, which is in line with our average marginal contribution. This was mitigated by management actions, including price increases and cost savings. Pricing once again offset inflation, partly helped by raw material inflation plateauing and, in some instances, declining.
The benefit from net cost savings includes minimizing discretionary spend in the short term, as well as the impact of longer-term restructuring actions and lower corporate costs… I'll expand on this later on. Let's now take a look at the divisional detail. As you can see, in all divisions, revenue decreased by around 25%, although the factors impacting each were different. The writers' strike had the largest impact within Creative Solutions, but also impacted Production Solutions and to some extent, Media Solutions. De-stocking had the largest impact in Media Solutions, followed by Production Solutions. Consumer and ICC demand weakness was predominantly felt in Media Solutions. All divisions controlled their cost basis to mitigate against the revenue decline. There were resilient performances in the areas not impacted by the strike, the de-stocking or the macroeconomic conditions.
Media Solutions saw growth in Avenger lighting, led by its Long John Silver and Buccaneer products, and despite the strike, reducing demand. Production Solutions continued to grow its Autoscript prompting, driven by AI speech recognition, and launched Salt-E Dog and Vinten Vega products. Creative Solutions within their live production product range, nearly doubled sales of Prism and launched the new Ranger product. Corporate costs were significantly lower than in the first half of last year, mainly due to a decrease in the charges relating to share options. Now that we have looked at the PNL, let's turn to cash and debt. Net debt at the end of June was GBP 216.1 million, or GBP 22.6 million higher than at the end of December 2022.
During the first half, we benefited from GBP 14.2 million operating cash inflow, representing a 93% cash conversion on operating profit. Within operating cash flow, inventory increased by GBP 1 million as it was tightly managed to minimize the adverse effect of lower revenue and uncertainties created by the writers strike. With the rest of the net change in working capital, due largely to the release of accruals for bonuses relating to 2022 and paid in March 2023. The operating cash inflow was offset by tax and interest payments of GBP 11 million and GBP 7 million of retention bonuses relating to recent acquisitions and restructuring costs, resulting in free cash outflow of GBP 4.4 million.
There were also cash outflows for the final dividend of 2022, paid in May 2023 of GBP 11.6 million and GBP 7 million of other items, which mainly reflect the net cash outflow from discontinued operations and deferred considerations for acquisitions. Net debt was also adversely impacted by GBP 6.2 million of new leases, which primarily relate to Media Solutions headquarters in Cassola, offset by an FX benefit of GBP 6.6 million due to the weaker dollar. Our covenant leverage ratio at June 2023 was 2.9 times, and we currently have GBP 42 million of liquidity. The group has had and continues to have very good and constructive dialogues with its lending banks, who have been supportive throughout these difficult trading conditions. As a result of these strong relationships, we have successfully agreed to align all of the GBP 200 million RCF to mature in February 2026.
Amend covenants, as announced in August, for the December 2023 and June 2024 testing periods, and further amend covenants relating to December 2023 testing period, where we have agreed to set leverage to be not higher than 5.75x, and interest cover to be no lower than 2x. No restrictions apply to these new covenants, but new testing dates for March and September 2024 have been agreed. Further detail on this can be found in the appendices to this presentation and in note one of the financial statements. Looking forward, we have put in place additional mitigating plans to conserve cash, proactively reducing leverage and recapitalizing the business, which may require an equity raise.
We are also continuing to deploy self-help actions, and I'd like to finish by discussing what we have been implementing in the first half and how we are setting up the group for future growth. In the first half, we implemented short-term measures to minimize discretionary spend and longer-term plans to restructure and take advantage of location synergies following recent acquisitions. In the U.K., our Rycote windshield production is now operating out of Ashby factory. This has expanded our manufacturing capacity at this site by around 50% and enables us to upgrade our operations. In the U.S., audio R&D and microphone productions moved to our audio center of excellence in Portland, and the Media Solutions U.S. distribution site moved out to New Jersey and into our existing Savage facilities in Arizona.
Once the strikes are over and trading conditions improve, we will see margin improvement as volumes return and we deliver operating leverage. We will continue to optimize 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. I'll now hand back to Stephen.
Thank you, Andrea. To summarize, the first half of 2023 was exceptionally challenging, and this has continued into the second half. The strikes, as well as the continued soft markets, are having significantly more impact in the second half than we had originally anticipated. We're focused on managing everything that we can control ourselves to reduce costs and preserve cash, while ensuring that the group is well-placed for recovery. Our excellent relationship with our banks means we've agreed lending covenant amendments, but we're still taking prudent actions and considering all options to reduce our debt and significantly lower leverage. We're in an exciting market with strong growth drivers, and the fundamentals of the business are exceptionally strong. We've got great products with market-leading positions. We're focusing more tightly on our core high-end markets, driving operational excellence and investing in innovative new products.
Our people are exceptional, and I'm really proud of how they're responding to the challenging market conditions. While we can't control the world economy or Hollywood, my experience with this business, which goes back to 2009, shows that we really manage downturns well, and we recover extremely strongly and quickly as conditions improve. I'm confident that this is what will happen when production restart. Of course, predicting the timing of that is difficult. We're now going to move on to our question and answer session, so I'd like to hand over to the operator. Dial-in details are shown on this slide.
This concludes today's prepared remarks. Thank you for listening. The live Q&A session will begin shortly. To register a question for this, please press Star followed by one on your telephone keypad. And to revoke a question, please press Star followed by two. Thank you for your patience. Thank you for your patience. We will now begin the Q&A session. As a reminder, to ask a question, you may do so by pressing Star followed by one on your telephone keypad. When preparing for your question, please ensure your phone is unmuted locally. We will now take our first question from Scott Cagehin from Investec. Scott, your line is now open. Please go ahead.
Thank you, and good morning. Clearly, bedeviled first half, lots to deal with. Just three questions, please. Firstly, what are you hearing from your people on the ground or customers regarding the latest news on the strikes? And secondly, given the actions you've had to take in the first half, have you potentially cut too deep for any recovery? Clearly, the strikes will end and de-stocking will stop. Just wondering how you're managing that. And then lastly, do you have any more color on the chairman announcement? Thank you.
Hi, Scott. It's Stephen here. Thanks for the questions. In terms of the strike, yeah, we've obviously been monitoring this very, very carefully for whatever it is now, 150 days. We've got people in the industry who are pretty close to it. So I think, only very recently have we started to hear positive news. And as you will have seen, the writers' strike is over. That's going back to the members. The actors strike is not over yet, but the view is that the actors will support that very, very quickly. So, we're confident that hopefully, these strikes are gonna end pretty soon. So the message on the ground is very optimistic, which is great.
The question is, how quickly things are gonna go back to normal? And up until you know, a month or two ago, we were pretty confident that there would be a strong bounce back in the rest of the year. Clearly, as the strike's gone on longer, you get a sort of exponential effect, which is you have another month where there's no absolutely no business whatsoever, and then you get one month less opportunity to bounce back. And if things don't start to get back to normal and production start quite soon, then we get into November, and in the U.S., that's Thanksgiving, then obviously you're into Christmas, and there's a danger that people say: "Well, actually, let's wait till January." So the bit that we're really unsure about is the pace of the bounce back.
The words that are used among our people is that the floodgates will open. I think the best question is when that happens. The other thing about strike is that recently it has got much, much worse in terms of impact, for a number of reasons. One is because the actors joined in, and that meant that even outside the U.S., in the rest of the world, where areas we thought actually might pick up because the U.S. was shut, places like the U.K. and Europe have just been shut because there are no actors, you know, very few actors to support productions. We've also seen, because the strike's gone on so long, and this is, you know, this is an unprecedented event. Nobody's seen this happen before. We've never had the actors and the writers out-...
On strike for this long before, so something that really has been a shock. The impact on other parts of our business, anything to do with content creation is being affected, and everyone's very, very cautious. And also, unfortunately for us, exciting new products like the new Anton/Bauer battery, which is gonna come on set and replace petrol and diesel generators, should be selling it to customers now, but it's not, because customers are buying nothing whatsoever. So we hope that's gonna pick up soon, but that has obviously been delayed. I might ask Marco, who's here, just to talk a bit about what we've been doing to preserve the business. Because what we've been doing very carefully, particularly in Italy and California, is making sure that we don't cut into the business too strongly.
So I'll, Marco will cover that in a second. I'll just cover your comment on the chairman. And so, yes, Ian has announced that he's not gonna be standing for reelection at the AGM. There's nothing sinister there. It's for personal reasons and, you know, by all means, talk to Ian about it. There's no sinister problem. There's not been any big fallout. There's no disagreement over strategy. It's a personal matter, and, you know, he will make sure that he helps us through until we find a successor. We've got a search started, so we'll update you on that when we know a bit more.
Marco, do you want to just talk a little bit about how we've avoided making large numbers of redundancy and cutting into the bone of the business, also kept product development going, but also managing to cut costs?
Yes, of course. Good morning. We've been very strategic in managing costs, given the environment, and we've actually followed the two main strategies. One was to reduce manufacturing capacity, particularly in Italy, using the government furlough program. That enables to retain all the employees, and be able to resurrect production to full capacity as soon as the market picks up. That's exactly what we did in COVID, and if you recall, during COVID, we were first to get back to market and serve our customers. So we are following exactly the same scheme, and we are ready to restart as soon as the strike is over and the economy recovers. Very similar program has been deployed at Creative Solutions. So it's not funded by the government, but we've managed to find the ability to shorten working hours whilst retaining all the employees.
That's for manufacturing capacity. In terms of managing operating expenses, rather than cutting strategic projects, we've been deploying some important strategic restructuring projects. As Andrea mentioned in this presentation, we have merged our VMS operations in the US by relocating New Jersey into Phoenix, which now provides a much more synergistic facility into our largest market. Very similarly, we have relocated Rycote manufacturing into Ashby, which increases manufacturing capacity, but also obviously helps us managing costs. We have a solution for long-term leverage wise, we've not impaired the ability to drive investment into new products, and to recover when demand picks up.
Great. Scott, is that helpful?
That's very helpful. Thank you.
Thank you.
Thank you, Scott. Our next question comes from Andrew Douglas from Jefferies. Andrew, your line is now open. Please go ahead.
Thank you, guys, for the presentation and opportunity to ask some questions. I've got three, please. I guess one of the things that I was quite surprised by was the, the, I guess, the breadth of impact from the writers' strike and the actors' strike. If we were to assume, and this is, you know, fingers crossed, that, you know, this gets, things get put to bed, reasonably promptly, how do we think the businesses respond? Is it gonna be creative first or the other divisions first? How, how do you see that kind of chronology kind of evolving over the next, next couple of months? And what is it that will decide the speed of that recovery?
Is it that everyone's got the kit that they need for the time being, but as soon as they start producing, they need more? Or is it, you know, they need... Can you just explain how you think that works out? Secondly, on Amimon, and clearly, you know, there's opportunity to dispose of that business. Can you just talk to us about how you've negotiated the exclusivity on the technology, and does that also extend, I guess, to next generation technology, or is it more the technology that they currently have? And then last one for Andrea. Afraid you don't get away scot-free, Andrea. On working capital, clearly the top line was down pretty sharpish. Yet working capital possibly didn't follow.
Can you just talk to us whether there's an opportunity to take some working capital out of the business in the second half? Thank you.
Thanks, Andy. It's Stephen here. Yes, so in terms of the strike, I mean, first of all, I won't repeat everything I've said before, but the strike, when we first heard about it, you know, we started hearing about it in March. It came through in May. When we first heard about it, we were expecting it to be fairly tight and restricted to the U.S., and the actors hadn't come on board. So I think about 11,000 writers were on strike, and then I think, if I can remember right, the directors decided to have a quick go, and then the directors settled reasonably quickly. The thing that's really changed the strike has been the actors coming on board, so about, I think about 160,000, which has broadened the impact of it.
Made sure that there were no areas that were getting away with continuing to work. So a number of people, if you are entirely exposed to that industry, then every business that I've seen, you know, if you, if you're on, say, visual effects in the UK, you're describing the impact as worse than COVID because there is just nothing. There's you know, just completely shut down. So in terms of the strike, the width and depth of the strike is much more significant than we expected. So the reason our second half is gonna be poor is primarily because of the strike. So in the first half, you know, we sort of had an equal impact from the strike and destocking. In the second half, the destocking will be much less.
The end market will be sort of similar, but the impact of the strike will be dramatically more, whereas previously we were hoping the strike would end a bit quicker, and we would get a bit of bounce back and so forth, so the impact wouldn't be, have been so significant. The speed of the recovery is the thing that we cannot predict. What we're expecting to see is that once production-- So the key question is: once productions come up on, on speed, then we will see, the floodgates open. So, but it does take a little bit of time to organize things, and so, you know, what will be happening now is people will be, you know, making sure that locations are available, spaces are available, start to talk to people.
Our products tend to be a little later in that life cycle, so some products, you know, for example, on-set monitoring, can be quite a late-in-the-process decision. So we've got to wait and see on that. I expect to see both VCS and VPS bounce back pretty quickly, and if it, you know... I think if this had happened a couple of months ago, we would've expected the bounce back to be pretty quick. Because of what I said about November, Thanksgiving, Christmas, et cetera, there is a danger, I think, that some might get delayed to January. But what I can be absolutely certain about is that come the beginning of next year, we're gonna see a very, very strong recovery. So we will see the floodgates open.
And so when you start to look at 2024, and I'm, you know, I'm very much aware that, you know, I don't want to sound too positive about anything because we are obviously in a very, very difficult situation, and I know, for a lot of shareholders, this is unbelievably frustrating. However, a bit like Warner Brothers, who recently said, "You know, this year is a disaster," it slashed, I think, $300 million off their earnings. But at the same time, they announced that they're investing over $500 million in new studio space for the future. I think that is a good example of, you know, the short-- horrible short-term pain that this industry and we are experiencing, but the positive long-term, future for the, for this business. And for 2024, we believe we'll see a very strong recovery.
Clearly, we've got to be cautious, but we've managed the business well. The business is still intact. We're ready to bounce back. We've got the people in place. We haven't cut too deep. We've actually managed to drive some synergies, which is very, very helpful. And 2024 should be a good, strong year. We've got presidential elections, we've got the Olympics coming, so really quite positive. In terms of Amimon-
Stephen, just before you go to Amimon. So if we're looking for external data points, it will be production permits that will be the lead indicator to production taking place?
Sorry, Andy, could you repeat that?
If we're looking for external data points to validate whether production has or is likely to kind of kick in November, December, or it's first half of next year, it will be what? Production permits that will be-
Production started.
Production permits-
Yeah. So production permits in California is something that we measure, so we will see that pick up. So we'll be able to track that, and we can, you know, we can definitely communicate that information. It needs to be filtered a little bit, but we will... We can definitely communicate that. That's exactly the sort of thing we'd be expecting to see. But in reality-
Yeah
... what we'll see probably before that happens, we'll start to see orders, as particularly, for example, rental houses start to realize they just haven't got enough inventory on the shelves. Because what's gonna happen is when this does pick up, there's not gonna be enough inventory around for everybody.
Yeah. Okay, cool. Sorry, sorry, Joshua.
And then,
Amimon?
So Amimon, what we're looking to do is, you know, effectively sell half of the business we bought, what it was five or six years ago. So we bought a business that, at the time, had, sort of half of its business in the cine industry, working with us, and half doing other things in other industries. What we're doing is hanging on to the piece that looks after our cine business, so hanging on to that technology, hanging on to that-- We have a license, and we have the capability of continuing to develop, as you asked about, you know, next generation, chips and so on. We have the ability to continue to do that, and we have the capability, so that's what we have the capability to do in Irvine and Teradek.
What we're selling is kind of half the business, which is focused on particular medical, which is a nice business, but it's not something that for us is of long-term strategic significance. So we will be effectively getting a license to use that technology. We'll have the intellectual property, and actually, I think if we have, you know, we haven't sold this business yet, but we have, you know, we have got significant interest in it. If we can sell that, I think that makes a lot of strategic sense, and we would be doing that whatever the state of the balance sheet was.
Okay, but you have exclusivity on next generation Amimon?
We have exclusivity on next generation, and we have the ability to use it in a very wide range of markets, so not just in cine, but also in live production, in broadcasting-
Yeah.
e-sports, everywhere where, you know, we talked about it being useful. We would not have the use of it in medical, but we don't see that-
Yeah.
strategically as an area we want to operate in.
Okay.
Thank you.
And then, Andrea, I think you're gonna talk about working capital.
Yeah, absolutely. So thanks for the question, Andy. So first of all, I think if you look at trade debtors and trade creditors, they have flexed with volume. So, you know, we're doing everything we can to keep the working capital as efficient as possible. Inventory has gone up GBP 1 million, but under the circumstances of everything that's come, has come at us, we have worked very hard to keep this as flat as possible, and actually, in sterling terms, it's gone down. You know, to your question, is there more we can do? Can we do more? Of course, we're working really hard to be as efficient as possible.
But, to another question, we're also ready for, for any bounce back when it comes, so we need to be, you know, ready to meet that demand when it's coming in. But doing, doing everything possible, to monetize working capital. And you'll probably look at, CapEx and other areas of the cash flow, and, those are being controlled very tightly as well. So yeah, everything we can there. Does that answer your question, Andy?
Yep, that's perfect. That's really good. Thank you very much.
Great. Thanks, Andy.
Thank you, Andrew. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. Our next question is from Henry Carver from Peel Hunt. Henry, your line is now open. Please go ahead.
Thanks. Yeah, morning, guys. Just a couple from me. First of all, on the equity raise, just, you know, thinking around some scenarios, at what point do you basically need to do something? It feels like right now, there's still a scenario in which you might not have to, or maybe I'm wrong on that. But yeah, just to sort of paint a picture of a couple of scenarios would be useful. And then secondly, I just wondered, you know, if there was anything in that was agreed in the strike negotiations, or likely to be agreed for the actors, that changes, you know, that market for you and possibly stimulates demand of some kit, or possibly reduces demand for other kit or services.
Just any color around that would be useful for sort of life after the strikes. That was it from me. Thanks.
Great. Thanks, Henry. I mean, in terms of equity, I mean, obviously, we're slightly limited on what we can discuss. We said we're looking at... I mean, we need to strengthen our balance sheet, clearly. And what we have done is we've been talking to the banks. As you'd understand, we've got very good relationships with the banks, so we have been talking to them recently about resetting the governance for a second time. So they've seen our forecast, they understand where we are, and they have agreed to do that. Clearly, they expect us to strengthen the balance sheet, and we need to do that reasonably quickly, I think, you know, by sort of early next year.
We are obviously looking at options to strengthen the balance sheet, and so there are a number of things that are going to become apparent over a fairly short period of time, and they include, obviously, what our current trading looks like. So if trading picks up significantly, that would obviously help. But, you know, it'd probably have to pick up quite a lot to make a significant difference. We may well sell Amimon. We don't want to sell that in a distressed state, but we may, if we've got the right price for that, we may well sell that. There are some other areas of the business that potentially we could sell. And obviously, there are other things we can do around the balance sheet, which might improve it.
So reasonably soon, I think, you know, over the next month, we will get a much, much clearer picture of where we are, and we will, you know, we will not, obviously not want to drag this on. You know, we've made it clear that equity is a possibility. There are other options at the moment, but we would probably not want that situation to continue for too long, because I think everyone will just want to know what we're doing. So, we'd expect, I think, within the month to kind of be able to be clear about what we're doing.
Got it.
Yeah.
Just, just to be clear, you mentioned there selling Amimon. Do you mean selling the half of Amimon that you've got up for sale?
Yeah.
selling-
Selling half of-
Yeah. Okay.
So not-
Yeah, thank you.
I mean, it's, we are effectively selling Amimon, but we're really only selling half the business. We're keeping half to ourselves.
Right. Yeah.
Yeah. All right.
Yeah.
Then I think your question is about, you know, this has obviously been a pretty traumatic event for the industry. Somebody, somewhere, I think the Milken Institute, estimated that already it's had an impact of $5 billion, I think just in California. So huge impact on the businesses that are involved in it. And, you know, there has been some publicity, but I'm surprised at how little publicity there's been about the hardship this has been causing for people, their families and also for companies that are close to this industry. What changes might be occurring? Well, obviously, there's two things can happen.
When this all comes back, this industry is not the most efficient and well-planned industry in the world, so the ability for people to see productions coming and plan for them is not always absolutely perfect. So quite a lot of the time, we see, you know, requests for products very late in the day when the products, you know, there's a production about to happen, there's a show about to be filmed, and product is needed the next day. And so I think there will be quite a scramble for product, which will suit us because we're good at this. We have-- You know, we're one of the bigger businesses in this industry. We have good inventory. We're very good at getting product to our customers quickly.
So we would hope to be able to do well out of that, and as you know, Marco said, we manage a downturn reasonably well. We come out of COVID very strongly. We took share because other people were not able to respond. There's an awful lot of our competitors who are shut down at the moment, who are, you know, effectively on furlough, and who are gonna take longer, we think, to recover. So we would hope to be able to support our customers really well, and take advantage of that. And, you know, particularly our products that meet our customers' needs to reduce setup time, reduce costs, and meet their environmental requirements. Those products, I think, are going to be phenomenally successful.
And so, you know, our on-set monitoring helps the, our customers set up quickly and get the product right first time. So, so they are, you know, enormously effective. Things like LED lighting and so on, on set are environmentally very, very attractive. And then, of course, we should mention Salt-E Dog, so our Anton/Bauer battery, that is gonna replace, smelly petrol and diesel generators on set, of which there are thousands and thousands. And as we talk to our customers, not just in the U.S., but also, I mean, in California, it's coming, the legislation's coming, those things are gonna be illegal.
So, you know, there is no debate that that is gonna—you're gonna see a massive transformation away from those products to clean energy, and we are gonna be a leader in that. But even outside of the US, you know, in the UK recently, we've been talking to customers who have a very strong—So Sky, for example, have a very, very strong, really impressive company [that] have very, very strong ESG credentials. And they see this as a solution to something that's a major problem, which is they have thousands of petrol and diesel generators all over the place, and they want to replace them with something that's environmentally friendly. So I think that's all looking very exciting. We're very well placed for that.
You know, but clearly, you know, I, I need to temper all that with the fact that, you know, we're sitting here in a very, very difficult situation. I know this is massively frustrating for shareholders, and I apologize for the situation we're in. It's horrible, but we will dig our way out of it, and we've done this before. And I, you know, I do think the future looks very, very promising, and we will make sure that we get the business in good shape for next year.
Great! Thanks. And just one quick follow-on, if I can. Just on the pricing strategy, which I think we laid out at the CMe. I just wondered if this sort of sequence of events across the consumer business and, well, and Media Solutions-
Yeah.
Has that changed the pricing strategy?
Good question, Henry, and I should have mentioned it, so I didn't manage to get that into one of the answers. Yeah, so pricing, so we've done a lot of work on this. So we... I've said. I've told you before, I won't bore you with what I said before. We take pricing incredibly seriously. It's a science. You know, we do, we do put a lot of attention to making sure that we are getting pricing where we can. We've been quite careful about it, so all the way through the last 18 months, we've not, we've not put many price increases through on consumer products, because that is where there's a lot of sensitivity, and there is price elasticity of demand.
In other areas, we've been able to get price. So overall, we're getting a lot of price, and price is absolutely more than offsetting inflation. So we're getting pricing, we are not losing share, and so we continue to monitor that. We've got good data, and so we're not losing share. There are places where our share is flattish. There's been a little bit of a move to very low-priced tripods, for example, but nothing dramatic. And then there are areas where we're taking shares. So, you know, good examples would be monitors. SmallHD monitors are taking share significantly, and prompting is taking share. So overall, we're holding our share. The pricing has come through. The only disappointment is obviously our revenue is a lot lower than we were hoping for, so we've got a bit less price.
But overall, the price increase as a percentage is held and, you know, we're very pleased with that. And then again, we'll see that start to come through next year as the revenue goes up. So again, another, in terms of bridge for next year, another positive part of the bridge.
Great! That's very clear. Thanks. Thanks.
Thanks, Henry. I think that may be all the questions, unless there's anyone else.
Yeah. We have no further questions. With that, I can hand back to yourself, Stephen, for final remarks.
Lovely. Well, thank you very much. Thanks, everybody. Thanks for calling in. Obviously, there's an awful lot to absorb here, and so I'm available for calls whenever, really. So, you know, I'm available. Andrea and Marco are with me at the moment, so we're available if I've sent, I've sent notes out to a lot of you, but if you'd like to have a call soon, just let us know, and we'll try and make sure we can at least have a quick call quickly, or then have a face-to-face meeting subsequently in the next few weeks. But thank you very much for your attention. I think that's it. Thank you.