Vitec Group plc
Annual Report 2008

Plain-text annual report

01THE VITEC GROUPThe Year in ReviewFront cover pictures:Vinten’s Vector 750 now has the X Factor thanks to The Camera Store. Photo courtesy of Fountain Studios & TalkbackThames/Syco TV.Simone Moro with his Manfrotto 190CX PRO4 tripod and 701HDV head on their ascent to the summit of Mount Makalu in Nepal.The Vitec Group has delivered another year of strong operating profit growth, reflecting thecontinuing success of our strategy of launching innovative products, continually improvingour operations and developing our global distribution network. The RF Systems andLitepanels acquisitions performed well.Key highlights of 2008 include: • Strong revenue growth of 23% (5% constant currency, organic) • All divisions achieved organic growth, reflecting positive market drivers • Operating profit before significant items** up 18% (1% constant currency, organic) • Loan facility increased by 25% to £125 milllion, committed until 2013 • Excellent cash generated from operations, up 31% to £44.3 million • Three acquisitions in 2008, including Litepanels, performing well** 2008 significant items total a PBT charge of £9.9 million and comprise amortisation of acquired intangibles (£7.1 million), goodwill impairment (£2.1 million) anda provision against equity accounted investee (£1.3 million), offset by profit on sale of property (£0.3 million) and fair value adjustments relating to volatile financialinstruments (£0.3 million); with an earnings charge of £3.3 million after deferred tax credits (£6.6 million). 2007 significant items totalled a PBT charge of £4.5million; with an earning charge of £0.8 million after deferred tax credits (£3.7 million).03THE VITEC GROUP02ANNUAL REPORT 2008Directors’ ReportChairman’s & Interim Chief Executive’sStatementWe are delighted to report another year of good progress forThe Vitec Group in terms of revenue, operating profit andearnings per share growth.Results Revenue increased 23%, to £337.7 million in 2008 (2007:£273.8 million). Before acquisitions and favourable foreignexchange, revenue growth was around 5%. We achieved goodorganic growth, particularly in Broadcast Systems, whichreflects Vitec’s position in markets with positive underlyingdrivers and our focus on continuous innovation. Acquisitionsalso contributed to growth, the most significant being anadditional five months of revenue from RF Systems (acquiredin May 2007) and four months from Litepanels (acquired inAugust 2008).Broadcast Systems:Revenue increased 33%, of whichconstant currency organic growth was 7%, due principally tostrong global demand for broadcast video camera supports,together with the acquisition effects of RF Systems andLitepanels. Clear-Com and Autoscript, our intercoms andteleprompting businesses respectively, had excellent years. RFSystems performed strongly, as deliveries relating to the BASRelocation Project reached their peak.Imaging & Staging:Overall constant currency revenue growthin 2008 was 3%. This is the sixth year of growth in ourImaging business, which experienced strong demand forcamera tripods, monopods and bags, particularly in the pro-sumer market where sales of the higher priced digital SLRcameras continued to grow rapidly. However, there was nogrowth in sales of lighting stands, typically sold to thephotographic professional. In Staging, reported revenueincreased, but underlying volumes were largely unchangedcompared to 2007. We took a number of actions to improveprofitability in the business, including closing Tomcat UK,moving the low cost Tomcat Mexico business to largerpremises and making significant changes to seniormanagement.Broadcast Services:Operating mainly in the US, the divisionsaw reported revenue in Sterling increase by 10%. Revenue inUS Dollars increased by 1%. Bexel had a successful BeijingOlympics and benefited from the US elections. This waslargely negated by a further weakening in the general USbroadcast rentals market.Reported Group operating profit* improved by 18% or£5.8 million, to £38.4 million. Excluding acquisitions, andafter favourable foreign exchange effects of £2.1 million(2007: £3.7 million adverse), constant currency organicoperating profit* growth was 1%. Operating profit is statedafter charging £1.6 million of one-off costs relating toredundancies and rationalisation, including the closure ofTomcat UK.* Before significant items: significant items are those items of financialperformance that the directors consider should be separately disclosed toassist in the understanding of the underlying trading and financialperformance achieved by the Group and in making projections of futureresults. These items are quantified and explained in the Financial Review andin Note 5.A higher finance charge* of £3.0 million (2007: £2.3 million)arose mainly because of the effects of acquisitions and theadverse foreign exchange effect of non Sterling loan interest.Group profit before tax and significant items* increased 17%to £35.4 million (2007: £30.3 million). The headline tax ratefor the Group was reduced again, by 3% to 34%, and earningsper share, before significant items* rose to 55.9p (2007:46.0p), an improvement of 22%.Cash generated from operations rose by 31% to £44.3 million(2007: £33.8 million). Working capital increased due tohigher revenue, adverse movements in exchange rates and RFSystems’ advance payments reducing. Inventory days, restatedin constant currency at year end rates before acquisitions andRF Systems (whose inventory is not comparable to activitylevels due to BAS related accounting), were 101 in 2008 vs112 in 2007. 2008 dividend The full year total dividend will be 18.3p (2007: 17.8p), anincrease of 3%, with a final dividend of 10.9p per share.Subject to approval by shareholders at the Annual GeneralMeeting, the final dividend will be paid on 22 May 2009 toshareholders on the register on 24 April 2009.Using adjusted earnings per share before significant items*the dividend is covered 3.1 times (2007: 2.6 times), whilstafter significant items* it is covered 2.6 times (2007: 2.5times).The Company has introduced a Dividend Reinvestment Planthat allows shareholders to reinvest dividends to purchaseadditional shares in the Company. For shareholders to applythe proceeds of the final dividend for the year ended 31December 2008 to the plan, application forms must bereceived by the Company’s Registrars by no later than 27 April2009. Details on the Plan can be obtained from CapitaRegistrars on 0871 664 0381.Outlook In 2009, orders and revenues have been in line with ourexpectations. However we have seen weakness in some of ourBroadcast Systems businesses and experienced lower salesvolumes, which have impacted our profitability. As a result wehave taken further actions to reduce our cost base, thebenefits of which will flow through during the course of thecurrent year. Vitec has leading market positions and, whilstour trading visibility is limited, at this stage the Board’s viewof 2009 remains in line with its expectations.Business DevelopmentResearch, development & engineeringAs in previous years, we have maintained our emphasis oncontinuous innovation, bringing large numbers of newproducts to market and simultaneously widening our serviceoffering.Within Imaging & Staging and Broadcast Systems the Grouptypically spends approximately 4% of revenue on new productdevelopment, amounting to £12.5 million in 2008 (2007:£10.4 million). While Vitec's businesses are known for thequality and reliability of their products, there is also anexciting pipeline of new ideas for the future. In 2008 weagain received a large number of awards for innovation, a signthat the Group's products remain very relevant to ourcustomers (see page 15). Around 36% of product revenues in2008 (2007: 35%) were derived from products launched inthe last three years; this is a very high level of innovation anda source of significant competitive advantage.Within Broadcast Services we continue to expand our range ofservices; this year we supported a number of 3D initiatives.AcquisitionsDuring 2008 we bought three businesses, all of which becamepart of the Broadcast Systems division: Litepanels, amanufacturer of LED lights (based in North Hollywood, August2008), Talkdynamics, a developer of IP-based intercomssoftware (based in Montreal, October 2008) to complementour Communications business and The Camera Store (based inTwickenham, UK, September 2008), a broadcast equipmentrental company.Senior Management ChangesWe recently announced the appointment of Stephen Bird asChief Executive of the Group, commencing 14 April 2009.Stephen is currently divisional managing director of Weir Oil &Gas, part of Weir plc. Richard Cotton, previously GroupFinance Director of Wagon plc, joined us as Group FinanceDirector in November 2008.The Board would like to express its thanks to Alastair Hewgill,who is currently Interim Chief Executive and was previouslyGroup Finance Director, for his major contribution to theGroup over almost seven years. Alastair will be working withStephen to ensure a smooth transition and will then leave theCompany in due course.Gareth Rhys Williams resigned from the Board on 29 October2008 having served as Chief Executive of the Group for almostseven years. The Board would like to express its thanks toGareth for his valuable service and achievements duringthis time.Alastair HewgillInterim Chief ExecutiveMichael HarperChairman 05THE VITEC GROUP04ANNUAL REPORT 2008Directors’ Report continuedBroadcast Systems – Products and systems primarily for broadcast applicationsImaging & Staging - Products for the photographic, videography and live event marketsBroadcast Services – Rental and technical support services, mainly for the broadcast marketLocations: Canada, China, Costa Rica, France, Germany, Israel, Japan, The Netherlands, Singapore, UK, USAActivitiesDesign and manufacture of high qualityequipment used principally by broadcast andlive entertainmentprofessionals. Focused onstudio, outside broadcast, film production andgovernment markets.ProductsManual and remotely controlled camera support pedestals,tripods and heads. Camera and equipment bags. Studioand portable lighting. Fixed and mobile wireless camera links.Prompting products and services. Microprocessor-controlledbatteries and chargers for video cameras. Multi-locational wiredand wireless intercom systems.Locations: China, France, Germany, Israel, Italy, Japan, Mexico, Slovakia, UK, USAActivitiesDesign and manufacture of high qualityequipment principally for photography, video,cinematography and live events professionals.Distribution of in-house and third partyphotographic accessories.ProductsPhotographic and video camera tripods and heads.Lighting stands, grips and accessories. Lighting andscenery suspension equipment. Camera bags.Live entertainment and exhibition lighting suspensionstructures and staging systems. Third party productsdistributed include flash units, light meters and filters.Location: USAActivitiesRental services and selected sales ofcamera, video, wireless communicationand audio equipment, including engineeringsupport for the film and TV programmeproduction markets.ProductsRental of broadcast video equipment. Rental of audioequipment. Rental of high definition TV productionsupport. Provision of support for major event broadcastingand webcasting. Sales of communications,audio equipmentand used video equipment.Business ReviewOverviewVitec is an international Group, principally serving customers in the worldwide media sector withproducts, services and solutions for the Broadcast, Photographic and Entertainment industries. Vitec isbased on strong, well known, premium brands that professionals rely on. Vitec is organised in threedivisions: Imaging & Staging, Broadcast Systems and Broadcast Services.Strategy: 'Consolidate - Leverage - Grow'The Group's strategy is summarised in the phrase 'Consolidate – Leverage – Grow'. After the initial phase, duringwhich we consolidated multiple locations, smaller businesses and distribution channels into a more streamlinedstructure in order to extract scale economies, the focus has shifted to leveraging our skills in product developmentand to expanding and exploiting our routes to market in pursuit of growth. While continuous improvementactivities are ongoing, the emphasis is on generating growth. We continue to look for value-adding acquisitions.07THE VITEC GROUP06ANNUAL REPORT 2008Directors’ Report continuedBarack Obama duringhis presidential campaign,being interviewed in a roomlit by Litepanels LED lights.[]Broadcast Systems DivisionProducts and systems primarily for broadcast applicationsOverviewThe Broadcast Systems division provides equipmentprincipally for video professionals engaged in producing liveevents or video content, frequently for subsequent broadcast.The business units, Camera Dynamics, Communications,Mobile Power, RF Systems and now Litepanels, sell theirproducts worldwide, either direct to the end-customer orthrough a network of professional dealers. The division'sbrands are frequently the acknowledged leaders in their fields.StrategyThe market for broadcast equipment is benefiting from thetrend to make programmes in High Definition (HD). Thisinvolves upgrading cameras and associated ancillaryequipment, much of which is provided by Vitec Groupcompanies. We have responded to the changed needs of themarketplace by managing our brands within single businessunits, enabling us to achieve economies of scale inmanufacturing and distribution and to develop exciting newproduct ranges.2008 performance2008 revenue increased by 33% to £172.6 million (2007:£129.8 million), with a significant improvement in operatingprofit - a rise of 63% to £21.7 million (2007: £13.3 million).Camera Dynamics had a very strong year and it was a fittingtime to celebrate the 50th anniversary of the Sachtler brand.We saw growth in volumes in all product groups, with anumber of major installations of our Fusion robotic system,including the Spanish state broadcaster, TVE Spain. Newproducts included the Sachtler FSB8 and Vinten Pro Touch6HDV, which further extended our lightweight camera supportrange. Vinten introduced its Vector 750 head, whichestablishes the new standard for studio and outside broadcastapplications. Our OConnor brand, which is the global marketleader for camera supports in the movie industry, increasedsales as it was adopted as the support of choice for theinnovative new RED HD digital video camera.Autoscript continued to make progress, winning the Persian TVequipment and multi-year services contract with the BBC, andis now co-located in Twickenham with The Camera Store rentalbusiness acquired in September 2008. We continued to investin advanced machine tools at our Bury St Edmunds plant, andmanufacturing of OConnor camera supports was movedsuccessfully from California to our Costa Rican facility. RF Systems launched many new wireless HD products andwere able to deliver significant quantities under the BAScontract, which helped Sprint Nextel meet its commitments.We have stepped up our marketing to international and non-broadcast US customers and were pleased to win a majorcontract for the Houston Police Department, with deliverycommencing in early 2009. Developing these additionalmarkets is important as they will help offset the reduction inrevenue we will see when deliveries under the BAS contractare completed in about August 2009.Our Communications business delivered a strong performance,reflecting greatly improved management, outsourcedmanufacturing and its refreshed product range. Key successesin 2008 were providing intercoms matrix systems for theChinese state broadcaster, CCTV, at the Olympics and its newstudio buildings and to ZDF, the German national TVbroadcaster. We see intercoms-over-internet-protocol as amajor growth area for the future and in October 2008 we weredelighted to acquire Talkdynamics, a Montreal-based R&Dbusiness which was already a supplier to our Communicationsbusiness. Following a weakening in demand in the US broadcast market,Anton/Bauer, our mobile power business, had lower sales in2008 than 2007. Nevertheless, with the recent introductionof the VCLX battery for HD video film cameras, together withother non-broadcast marketing initiatives that are beingpursued, we are confident that the business will be able togrow more strongly as and when market conditions allow.In August 2008 we announced the acquisition of Litepanels, amanufacturer of LED lights for the broadcast market, locatedin North Hollywood. LEDs use around 10% of the power oftraditional tungsten lights and, because they generate lessheat, are more portable and require significantly less air-conditioning when used in studios. The business hasperformed well and we are pleased by a number of initiativesthat are underway between Litepanels and our otherbusinesses, which demonstrate how the Group is able to addvalue to its acquisitions. The business has an exciting pipelineof new products which will be launched this year. We expectLitepanels' revenue to continue to grow in 2009.Market developmentsIn December 2008 we announced headcount reductions inCamera Dynamics of 25, with an associated charge in the yearof £0.4 million. In the first two months of 2009 overall orderintake has been in line with our expectations; however, wehave experienced lower volumes in a number of ourbusinesses, which has led to some cost under-recovery. As aconsequence we have taken further cost reduction actions,including those within Camera Dynamics andCommunications, which will reduce headcount by some 50people. We will continue to flex our capacity and cost base aswe respond to material changes in demand.20082007Revenue£172.6m£129.8mOperating profit*£21.7m£13.3mOperating margin*12.6%10.2%*Before significant items. Significant items are amortisation of intangible assets of £6.4 million (2007: £4.3million) and negative goodwill of £nil (2007: £0.1 million).09THE VITEC GROUP08ANNUAL REPORT 2008Directors’ Report continuedThe Gitzo Ocean Traveller is not only the world’s first stainlesssteel tripod but also the world’sfirst tripod specifically developedto perform in extreme climatesand adverse elements.[]Imaging & Staging DivisionProducts for the photographic, videography and live event marketsOverviewThe Imaging & Staging division operates in two main markets:manufacturing and distributing products for the professionaland keen amateur photographer and videographer, such ascamera supports and bags (Imaging), and manufacturinglighting and staging systems for the live entertainment market(Staging). Lighting supports (grip) are manufactured for boththese markets and for cinematographers. It is organised in twounits: Imaging Accessories (including Supports, Bags andDistribution), and Staging Systems.StrategyFocusing on successful launches of innovative new products,combined with control of the distribution of those products inthe key markets of the world, is proving to be a winningformula. Innovation is as important to photo, video and cineprofessionals as it is in Staging Systems, where customerswho use our stage and lighting systems are looking for everlighter, easier to operate and more elegant solutions to maketheir events look as good as possible.2008 performanceRevenue increased by 16% to £135.8 million (2007: £117.3million). In constant currency, the division reported revenuegrowth of 3%. Operating profit reduced by £2.1 million, or12% to £15.6 million. Margins were depressed by adverseforeign exchange effects and a number of one-off actions weretaken. These include closing Tomcat UK, moving the low costTomcat Mexico business to larger premises and significantchanges to senior management.Imaging Support launched 30 new products in 2008, with the190 and 055 carbon fibre tripods and Gitzo ball heads beingparticularly well received. A sales office was established inMumbai for the first time. According to CIPA, the Camera &Imaging Products Association, shipments of digital SLRcameras increased by 30% by volume and 18% by value in2008, and it forecasts further growth in 2009 and 2010. Wecontinued to achieve operational improvements, rentingfurther factory space in Italy, optimising the new outsourcedlogistics hub in Padua, as well as successfully moving ourChinese tripod production to a new subcontractor. Marginswere affected both by the adverse Euro/Dollar exchange rateand increase in infrastructure costs that were needed tosupport the significant growth of the business over the pastthree years. Sales volumes in the bags business grew strongly,with over 50 new products launched, including the new KataDPS line and the 3N1 model, which are proving to be verypopular. Kata withdrew from its Protection and Securitybusiness line in 2008.In Imaging Distribution, we saw good revenue increases inmost of the six countries where Bogen Imaging distributes itsproducts. Bogen Imaging UK was launched in February 2008and reached its planned operating level and we consolidatedthe Bogen Imaging Italy operation into Bassano after moving itfrom Milan. Our websites continued to help drive sales, withthe number of hits increasing by over 100%. In Staging we also saw reported revenue growth, butunderlying volumes were largely unchanged compared to2007. Brilliant Stages saw a reduction in project work, but weexpect the pipeline to increase in 2009, with work on the TakeThat and U2 tours already in prospect. In order to increasesales in South America and reduce product costs, Tomcat'sMexican operation moved to larger premises in December2008. Market developmentsIn 2008, in order to improve the profitability of our Stagingbusiness we closed our Tomcat UK operation and made anumber of changes to senior management, at a combined costof £1.2 million. In the first two months of 2009, order intakeand sales are in line with our expectations, albeit volumes inconstant currency are lower than the same period in 2008. In2009, in Imaging, we have shed all temporary labour and hadselective shut downs. We will continue to flex our capacity andcost base as we respond to material changes in demand.20082007Revenue£135.8m£117.3mOperating profit*£15.6m£17.7mOperating margin*11.5%15.1%*Before significant items. Significant items are amortisation of intangible assets of £0.7 million (2007: £0.7 million), impairment of goodwill of £2.1 million (2007: £nil) and profit on sale of property of £0.3million (2007: £nil).11THE VITEC GROUP10ANNUAL REPORT 2008Directors’ Report continuedBexel rental equipmentin use at the NFL Super BowlMedia Day in January 2009.[]Broadcast Services DivisionRental and technical support services, mainly for the broadcast marketOverviewThe Broadcast Services division provides rental equipmentand technical support for the most demanding broadcastproductions, mostly in the US, from a network of nine depots.The division also acts as an integrator/dealer for high end audioequipment, resells used equipment and provides comprehensivemaintenance and fibre optic installation services.StrategyCustomers choose Bexel because of their reputation fordesigning creative solutions, providing service excellence andbecause of its nationwide US network. With the most relevantequipment and the best technical backup, Bexel will continueto seek longer term contracts from customers who want morethan simple equipment hire, by offering the most in-demandequipment and innovative technical solutions and support.2008 performanceReported revenue of £29.3 million was up 10% (2007: £26.7million). Revenue in US Dollars increased by 1%. Bexelbenefited from its successful involvement in the coverage ofthe Beijing Olympics and the US presidential elections.However, their contributions were largely negated by a furtherweakening in the general US broadcast rentals market.In 2008 Bexel benefited from supporting the Olympicsbroadcasters, including the host broadcaster, BOB (BeijingOlympic Broadcasting) and our highly acclaimed Herculesflypack provided outstanding HD images of the aquatic eventsfrom the iconic Water Cube for NBC Sports. Bexel supportedthe Republican and Democratic national conventions with fibreoptic transmission links along with video and audio systems.The business continued to deliver leading edge technologysolutions to its customers, which this year included work onthe Hell's Kitchen reality TV series for Fox and the new JonasBrothers 3D movie for Disney, audio support for the first everin-flight concert for the Grammy Awards and a brand newmobile edit vehicle provided to Turner for the NASCAR season.Our fibre business provided infrastructure for the SuperbowlXLII in Arizona and the Papal visit to Yankee Stadium, Audiosales made great progress with its Calrec dealership and ourresale business was able to sell on all of our anticipatedOlympics and other surplus rental gear. However, despite its strong performance in big events, sportsand high end reality programming, the general US broadcastrentals market weakened further, leading to the relatively flatyear-on-year sales performance set out above. Market developmentsIn the first two months of 2009 we estimate sales revenue (inDollars) will be some 10% behind the same period of 2008.In January 2009, in the light of the continued weakness ofthe US broadcast rentals market, the closure of Bexel'sOrlando office was announced, together with a number ofother redundancies. Bexel continues to operate at ninelocations, including its main Florida depot in Miami.20082007Revenue£29.3m£26.7mOperating profit£1.1m£1.6mOperating margin3.8%6.0%13THE VITEC GROUP12ANNUAL REPORT 2008Directors’ Report continuedFinancial ReviewRevenue Revenue increased by £63.9 million to £337.7 million, or23.3% in the year. After deducting £28.7 million (11.7%) forfavourable foreign exchange, there was a £14.0 million(4.6%) organic increase and £21.2 million (7.0%) due toacquisitions (including £19.3 million due to acquisitionsmade partway through 2007). Revenue growth, beforeacquisitions, was particularly strong in Camera Dynamics, RFSystems and Imaging.Operating profit The table below sets out an analysis of the causes of theincrease in operating profit before significant items* between2007 and 2008. The variances are based on management'sbest estimates and are not a statutory presentation.*Operating profit before significant itemsOperating profit before significant items* was £38.4 million,£5.8 million or 17.8% greater than 2007. The Group'soperating profit* margin fell slightly from 11.9% to 11.4%,reflecting some of the one-off reorganisation costs sustainedmainly in Staging Systems. Despite hedging its foreignexchange transaction exposure, the Group suffered from theweaker US Dollar in the first part of the year. Before beneficialforeign currency effects of £2.1 million over the entire period,the increase in operating profit was £3.7 million or 10.2%.Net financial expenseNet financial expense before significant items* totalled£3.0 million (2007: £2.3 million) and increased principallybecause of acquisitions and the adverse foreign exchangeeffect of non Sterling loan interest.Taxation The effective taxation rate on operating profit after net financeexpense but before significant items* was 34% (2007: 37%).The Group's tax charge is higher than the standard UKcorporation tax rate (see Note 11, page 58) because themajority of its profits arise in overseas jurisdictions with highertax rates.Significant items A number of items were treated as significant in the year.These are fully described in Note 5 on page 54 andsummarised here. Amortisation of acquired intangiblesincreased to £7.1 million (2007: £4.9 million after £0.1million negative goodwill) due to recent acquisitions,particularly Litepanels and the full year effect of RF Systemsand has been included in significant items*. Within theImaging & Staging division, the annual impairment review ofgoodwill led to an impairment charge of £2.1 million to thegoodwill of Tomcat Global (2007: £nil). Acquisition goodwillarising during the year was £4.8 million, including £3.7million relating to estimated earnouts, and is not amortised.Intangible assets acquired in Litepanels amounted to £6.6million with a further £0.7 million arising from the acquisitionof Talkdynamics.A provision charged against the equity accounted investmentin Media Numerics of £1.3 million (2007: £nil) and profit onsale of property of £0.3 million (2007: £nil) are also includedin significant items*.Finance income included in significant items* consisted of a£0.3 million gain (2007: £0.4 million gain) due to currencymovements on loans not accounted for as net investmenthedges.The tax credit of £6.6 million (2007: £3.7 million) relates todeferred tax. Acquisitions Acquisitions totalled £11.8 million, consisting of cashoutflow of £11.8 million (2007: £15.0 million), debtacquired of £nil (2007: £4.3 million), new shares issued of £nil(2007: £1.8 million); in addition there is an estimated earnoutof £3.7 million (2007: £4.8 million). There is a maximumpotential earnout of £34.8 million relating to Litepanels and£0.4 million relating to Talkdynamics. The Group completedthree acquisitions in 2008: Litepanels in August, The CameraStore in September and Talkdynamics in October.The investment of £1.3 million in Media Numerics has beenfully written down within significant items*.Cash flow and net debt Cash generated from operations was strong at £44.3 million(2007: £33.8 million). Capital expenditure totalled £17.6million (2007: £18.4 million), of which £4.7 million (2007:£6.4 million) related to rental assets, partly financed by theproceeds from rental asset disposals of £1.7 million (2007:£1.4 million).The higher profits were the main reason for the increased freecash flow of £19.0 million (2007: £4.7 million) which alsobenefited from lower capital expenditure, a more favourableworking capital movement and lower tax payments. Working capital increased, as a percentage of revenue due toweaker Sterling. Before acquisitions, RF Systems (whoseworking capital is not comparable to activity levels due to BASrelated accounting) and after being restated in constantcurrency at the year end rates it was 21.8% (2007: 23.4%) atthe year end, and averaged 25.5% in 2008 (2007: 24.1%).Inventory increased by £10.8 million to £76.4 million at theyear end, reflecting higher revenue, new acquisitions andadverse currency movements. In addition, inventory levelswere deliberately increased in Imaging to improve servicelevels. Inventory days, restated in constant currency at yearend rates before acquisitions and RF Systems (whoseinventory is not comparable to activity levels due to BASrelated accounting), reduced to 101 (2007: 112 days). Tradereceivables rose with the higher revenue and were£46.6 million as at the year end (2007: £40.1 million), butthere was a reduction in debtor days to 41 (2007: 51 days),when restated in constant currency at year end rates beforeacquisitions and RF Systems.Tax paid in 2008 of £6.7 million was significantly lower than2007 (£9.5 million), mainly due to a US tax rebate.Despite strong free cash flow, net debt increased to£53.0 million (2007: £38.4 million) mainly because of theeffect of weaker Sterling on our utilisation of our £125 millioncommitted multicurrency loan facility, a significant part ofwhich is denominated in US Dollars, Euros and Yen.Treasury Financing, currency hedging and tax planning are managedcentrally. Hedging activities are designed to protect profits,not to speculate. Substantial changes to the financialstructure of the Group or treasury practice are referred to theBoard for approval.The Group operates strict controls over all treasurytransactions involving dual signatures and appropriateauthorisation limits. As in previous years, a portion of the transactions ofsubsidiaries in foreign currencies is hedged 12 monthsforward, with the US Dollar contracts as at 31 December2008 set out below.The Group does not hedge its foreign currency profits. Aproportion of the Group's foreign currency net assets arehedged using normal Group borrowings and forward contracts.Financing activities The Group's principal financing facility is a five-year£125 million committed multicurrency revolving loanagreement involving five banks, expiring on 8 August 2013. Atthe end of December 2008 £64.9 million (2007: £43.4million) of the facility was utilised.The average cost of borrowing for the year was 4.0% (2007:6.1%) reflecting the worldwide downward movement ininterest rates. Net interest cost (consisting of net interestpayable and commitment fees) was £3.1 million(2007: £2.6 million), reflecting principally the acquisition ofLitepanels, the full year effect of RF Systems and the adverseforeign exchange effect of non Sterling loan interest. Netinterest cover (using operating profit before significant items*)remained high at 12 times (2007: 13 times).With regard to the management of capital, the Group's primaryobjective is to ensure its continuance as a going concern. Inrespect of gearing, the Board seeks to maintain an efficientcapital structure without exposing the Group to unnecessarylevels of risk; the Group has operated comfortably within itsloan covenants during 2008. The Board believes the currentcapital structure is appropriate for the Group, bearing in mind* 2008 significant items in operating profit total a cost of £10.2 million andcomprise amortisation of acquired intangibles (£7.1 million), goodwillimpairment (£2.1 million) and a provision against equity accounted investee(£1.3 million), offset by profit on sale of property (£0.3 million). 2007significant items in operating profit totalled a cost of £4.9 million.Business2008 acquisitionsThe CameraBroadcast1 Sep 080.4-0.4n/aStoreSystemsLitepanelsBroadcast21 Aug 088.23.411.62008-11SystemsTalkdynamicsBroadcast10 Oct 081.10.31.42008-11SystemsTotal cost of 2008 acquisitions9.73.713.4Earnout payments for previous acquisitionsKataImaging 31 May 051.0n/an/a2005-07(for 2007)& StagingAutoscriptBroadcast31 Oct 061.0n/an/a2007-08(for 2007)SystemsStaging SKImaging1 Feb 070.1n/an/a2007-08(for 2007)& StagingTotal acquisition cost in 200811.8n/an/a(1)Including acquisition expenses and cash acquiredEarnoutperiodTotal estimatedconsidera-tion£mEstimatedpotentialearnout£mAcquisitionconsidera-tion forcash(1)£mAcquisitiondateDivision200420052006200720080510152025303540455055302520151050£ million£ millionNet Debt (left scale)Free Cash Flow (right scale) (1)(1)Free cash flow is the cash generated from operations less interest, tax and netcapital expenditure on property, plant & equipment and capitalised IT costs.Currency millionsUS Dollars sold for EurosForward contracts$10.01.26--Options(1)$24.71.50$30.11.40US Dollars sold for SterlingForward contracts$8.31.51$14.71.97Options$6.71.85$4.92.03(1) Includes cylinder options, where the mid-point of range is takenAveragerateDecember2007AveragerateDecember200845403530252007Profit*2008Profit*Vol/MixPrice/CostOp. ExpsAcquisitionsFX TranslFX Transact£32.6m£7.6m£0.9m(£6.6m)(£1.6m)£3.4m£3.8m(£1.7m)£38.4m(£m)RestrOperating profit (before significant items)38.432.6Depreciation11.69.1Impairment losses on property,plant & equipment-0.2Amortisation of capitalised software anddevelopment costs1.21.3Net change in working capital andprovisions(7.7)(9.7)Other items(1)0.80.3Cash generated from operations44.333.8Net Interest paid(3.6)(3.0)Tax paid(6.7)(9.5)Proceeds from sale of property, plant& equipment2.61.8Capital expenditure(2)(17.6)(18.4)Free cashflow19.04.7(1) Comprises net gain on disposal of property, plant & equipment, profit on saleof property fixed assets (significant item), fair value losses on derivativefinancial instruments and cost of equity-settled employee share schemes(2) Comprises purchase of property, plant & equipment, purchase of intangibleassets and software and development costs capitalised as intangible assets2007£m2008£m15THE VITEC GROUP14ANNUAL REPORT 2008Directors’ Report continuedAwards for Product Innovation4Ever Group’s Product Innovation Award, TV Technology Europe’sSuperior Technology Star Award and The Chicago Athenaeum: Museumof Architecture and Design’s Good Design Award for Anton/Bauer’sStasis FLEX Power Support System.Technical Image PressAssociation’s Award forManfrotto’s 585 MODOSTEADYCamcorder Stabilisation System.TV Technology’s SuperiorTechnology Star Award for RF Central’s RF Extreme PRX-IIHandheld COFDM Receiver/Monitor.Japan’s Good Design Award, Digital Content Producer’s Pick Hit Award,4Ever Group’s Product Innovation Award, TV Technology’s SuperiorTechnology Star Award, DV Magazine’s Black Diamond Award andVideography Magazine’s Vidy Award for Sachtler’s SOOM System.Digital Content Producer’s Pick Hit Award, TV Technology’s SuperiorTechnology Star Award and DV Magazine’s Black Diamond Award forLitepanels’ Micro Portable LED Camera Light.4Ever Group’s Product Innovation Awardfor Sachtler’s Reporter 8LED On-camera LED Light.TV Technology’s Superior Technology Star Awardfor Vinten’s Vector 750 Pan and Tilt Head.TV Technology Europe’s Superior TechnologyStar Award for Autoscript’s LED Backlightingin prompters.TV Technology Europe’s Superior Technology Star Award for Nucomm’sMessenger IP Video File Encapsulator/Decapsulator.American Photo Editor’s Choice Award for Kata’s 3N1-20 SlingBackpack.its current strong cash generation, dividend policy and itstypical ongoing level of acquisition activity.In response to the weakening of Sterling we have amended theGroup policy on loan currency matching to net assets, toprotect against further Sterling deterioration and foreignexchange appreciation of our debt. About 50% of the drawnelement of our loan facility is now denominated in Sterling.UK pensionsAt the end of 2003 the Group closed both of its UK definedbenefit schemes to new members. Since 2004 a Grouppersonal pension plan has been made available for newemployees with Standard Life. In November 2005 the definedbenefit schemes were merged. As at 31 December 2008 thenumber of active members in the merged scheme was 10%lower at 158 (2007: 176). Total scheme members were 643(2007: 655).A triennial actuarial valuation was undertaken as at 5 April2007. This was agreed by the Company and the Trustees on 4July 2008.Following the funding actions set out above, the Group's UKdefined benefit pension liabilities under IAS 19 (amended) asat 31 December 2008 were estimated by the Scheme'sactuaries to be £35.2 million (2007: £43.2 million) with adeficit of £0.4 million (2007: £1.2 million surplus). The deficithas arisen because the decrease in pension liabilities was offsetby a greater decrease in pension assets. The principalassumptions used for recent valuations are set out below.Post balance sheet eventsThere have been no significant post balance sheet events.Principal risks and uncertaintiesUS market53% of 2008 revenue was from the Americas, principally theUS, so the Group remains susceptible to any majordeterioration in demand for its products and services from UScustomers. It is difficult to mitigate this risk but the Groupseeks to reduce its dependence on the US by activelywidening its sales and distribution activities, particularlyinto Asia.Foreign exchangeThe great majority of the Group's profit is earned in overseascurrencies and is therefore subject to translation risk ifSterling strengthens. To mitigate this, a proportion of theGroup's foreign currency net assets are hedged using normalGroup borrowings and forward contracts. Also, many of the Group's businesses sell worldwide fromvarious countries of manufacture, so the Group is subject totransaction risk, particularly that of a weaker US Dollar. TheGroup partially hedges its major foreign exchange receipts byselling currency 12-18 months forward on a rolling basis. Inaddition the Group seeks to outsource parts, whereappropriate, to low cost countries, whose currencies arefrequently either Dollar denominated or linked to the Dollar.MarketsThe Group's two Broadcast divisions are at risk from areduction in the capital expenditure requirements of itsbroadcast customers and, in the US, their rental requirements.This dependence is changing as broadcasting moves from TVto delivery by other modes such as internet and mobileservices. To mitigate this, the Group markets its products andservices to all of these producers of broadcast video material,as well as to the religious, corporate and government sectors. With the acquisition of RF Systems, the Group is benefitingfrom the BAS Relocation Project, which entails the conversionof part of the microwave spectrum that broadcasters use fromanalogue to digital technology. There will be further revenuefrom this project in 2009, after which time the business willneed to win other business in the US and abroad to mitigatethis reduction in sales.Imaging products are principally used by both professionalsand keen amateurs. Whilst sales of cameras is forecast tocontinue to grow, there is a risk that recessionary conditionsmay lead to adverse sales pressures in these markets.Low cost competitionThe Group is at risk from low cost competitors who may sellsimilar products at lower prices, particularly for higher volumeitems such as the simpler photographic tripods. While theGroup also sources those cheaper products from lower costcountries, it combats this threat by patenting its technologieswherever possible and taking action against any infringement,continuously innovating its products and employing itssignificant marketing and distribution capabilities.200620072008Inflation rate2.8%3.3%3.0%Expected rate of increase in:Salaries4.3%5.3%5.0%Pensions and deferred pensions2.8%3.3%3.0%Discount rate6.3%5.8%5.2%Long term rates of returnEquities8.2%8.0%7.8%Bonds4.4%4.8%4.7%Property6.9%6.7%6.2%LongevityPensioners currently aged 6586/89(4)86/89(4)86/89(4)Non pensioners currently aged 4588/91(4)88/91(4)88/91(4)Pension chargeOperating profit1.51.51.5Finance income(0.6)(0.7)(0.6)Net charge0.90.80.9(4)male/female.Richard CottonFinance Director17THE VITEC GROUP16ANNUAL REPORT 2008Directors’ Report continuedInnovation and growth continuedKPI/MeasurePurposeDefinition/CalculationUnitDatasourceTargetongoingaverageValue2008 2007KPI/MeasurePurposeDefinition/CalculationUnitDatasourceTargetongoingaverageValue2008 2007Usage ofelectricityUsage ofgasUsage ofoilUsage ofwaterMonitorelectricity, gas,oil and waterconsumptionmegawatthours vsrevenue(2)megawatthours vsrevenue(2)'000 litresvsrevenue(2)'000 cubicmetres vsrevenue(2)Internalreportsfrom VitecBusinessUnitsn/an/an/an/a36.9724.830.030.1142.3032.630.070.13(1)Working capital ratios are recalculated to reflect consistency in application of exchange rates. Excludes RF Systems whose working capital items are notcomparable to activity levels due to BAS related accounting.(2)Per £1.0 million of the Group’s revenue.(3)There were no fatal workplace injuries in 2008 or 2007.(4)Accidents have reduced from 20 in 2007 (representing 976 per 100,000 employees) to 16 in 2008 (representing 723 per 100,000 employees). The number ofaccidents at the operation in Camera Dynamics Costa Rica has reduced from four in 2007 to one in 2008. At Broadcast Services, the number of accidents havereduced from three in 2007 to one in 2008. At the Group's main operations in Italy, Imaging Support, the number of accidents is down from nine in 2007 toseven in 2008. RF Systems, Tomcat USA and Bogen Imaging Italy had no accidents in 2007, but three in 2008.(5)Since this is a new measure, a target will be determined in 2009.Revenue fromnew productsMeasures Vitec'sability to grow byinnovation% ofrevenueAuditedaccountsand internalreportsfrom VitecBusinessUnits20%36.3%34.5%Revenue for each month of the financial yearfrom products launched in the previous 36months divided bytotal product revenue ofthe financial year times100%Products launched: includes new productsand re-launched modified existing productsNew products: includes brand new productsmanufactured by Vitec and major upgrades,but not restyling or replacementsLaunch date: date first external revenueachievedTotal product revenue: total Vitec revenueexcluding the Broadcast Services divisionand Brilliant StagesExclude acquisitions in the financial yearMonitoring our environmental impactEmployees and safetyThe Group believes that its Key Performance Indicators and Other Measures must remain relevant to the needs of the businessand they will therefore be subject to refinement and change from time to time in accordance with the needs of the business.Delivering value to shareholdersControlling our working capital(1)Key Performance Indicators (KPIs) and Other MeasuresDetails of the Group's performance against each of its KPIs is set out below.Total shareholderreturn (TSR)Monitor andmeasure ofinvestment returnfor shareholdersShare price growth plusdividends that havebeen declared, paid and reinvested in Vitec'sshares over the three year period ended on31 December 2008 or 2007Share price: 30 trading day average overthe preceding 30 daysaveragecompoundannualgrowth %Data-streamn/a(17.4%)26.7%Adjusted basicearnings pershareMonitor andindicator ofearningsperformance Profit for the financial year after tax, beforediscontinued operationsand significant itemsdivided by weighted average number ofshares in issue during the financial year pence pershareAuditedaccountsn/a55.9p46.0pReturn onsalesProvide ameasure of overalloperationalefficiencyOperating profit before significant items forthe financial year divided bytotal revenuefor the financial year% ofrevenueAuditedaccountsn/a11.4%11.9%Free cash flowMeasure cash flowgenerated before"corporate" actions(M&A, share issues,dividends, sharebuy-backs etc)Cash generated from operations in thefinancial year afternet capital expenditure,net interest and tax paid in the financial year£mAuditedaccountsn/a19.04.7Workingcapital %Provide anindication of theefficient utilisationof working capitalresources% ofrevenue% ofrevenueAuditedaccountsMonthlymanage-mentaccounts25%25%21.8%25.5%23.4%24.1%Inventory daysProvide anindication of howlong it takes onaverage for Vitec toturn its inventoryinto revenue andhow ready we are tosupply customersNet inventory at the end of the financial yeardivided bytotal cost of sales of the financialyear timesnumber of days in the financialyearExcludes acquisitions in the financial yearand RF SystemsdaysAuditedaccounts110101112Debtor daysProvide anindication of howlong it takes onaverage for Vitec toreceive payment onaccounts receivableTrade receivables at the end of the financialyear divided bytotal revenue of the financialyear timesnumber of days in the financial yearExcludes acquisitions in the financial yearand RF SystemsdaysAuditedaccounts554151Amount of electricity consumed in thefinancial year divided by total revenue forthe financial yearAmount of gas consumed in the financialyear divided bytotal revenue for thefinancial yearAmount of heating oil consumed in thefinancial year divided by total revenue forthe financial yearAmount of water consumed in the financialyear divided by total revenue for thefinancial yearExclude consumption from acquisitions inthe financial year; prior year amountsadjusted from previous Annual Report toinclude acquisitions in that year and toreflect more accurate information gatheringInnovation and growthLike-for-likerevenue growth Monitor volumegrowth excludingeffects ofacquisitions anddivestments%Auditedaccountsand, foracquiredbusinesses,monthlymanage-mentaccountsn/a15.6%6.0%Total revenue of the current financial yearexcluding external revenue from acquiredbusinesses divided bytotal revenue of theprior financial year less1 times100%Acquired businesses: exclude external revenuefor each month in the current financial yearwith no comparative amount in the samemonth of the prior financial yearYear end: Net inventory plus trade receivableslesstrade payables at the end of the financialyear divided bytotal revenue of the financialyearAverage: Average of net inventory plustradereceivables lesstrade payables at the end ofeach month of the financial year divided bytotal revenue of the financial yearExcludes acquisitions in the financial year andRF SystemsNumber ofemployeeaccidents(3)Track changes inhealth and safetyperformance as itdirectly impactshours worked peremployeeRate of non-fatal workplace injuries leadingto absences from work of more than threedays in the financial yearrate per100,000employeesper yearInternalreportsfrom VitecBusinessUnits10%reductionpa723976(4)Number oftraining daysTracks employeedevelopmentMonitors the development of knowledge,skills and competencies of employeesrate peremployeeper yearInternalreportsfrom VitecBusinessUnitstbd2.0n/a(5)19THE VITEC GROUP18ANNUAL REPORT 2008Directors’ Report continuedMichael HarperBSc Eng, MScChairman, non-executive, British, aged 64, appointed to the Board on 14 June 2004, became Chairman on1 November 2004; Chairman of the Nominations Committee. Currently Chairman of BBA Aviation plc anda non-executive director of Ricardo plc and Catlin Group Limited.Stephen BirdBSc, MBAChief Executive, British, aged 48, appointed to the Board on 14 April 2009. Previously he was DivisionalManaging Director of Weir Oil & Gas, part of Weir plc, since 2005. Prior to this he has worked in seniorroles at Danaher Corporation, Black & Decker, Unipart Group, Hepworth PLC and Technicolor Group. He isa non-executive director of Umeco plc and is a graduate of St John’s College, Cambridge.Alastair HewgillBSc, ACMAInterim Chief Executive (from 1 October 2008 to 14 April 2009) and formerly Finance Director, British,aged 54, appointed to the Board on 14 May 2002. Previously he held senior finance positions within GKNplc over a period of 11 years, including Finance Director of GKN Aerospace Division and Head of CorporateFinance for the group. Prior to that he was a management consultant with Coopers & Lybrand Deloitte,specialising in the industry and commerce sector.Richard CottonBA, FCMAFinance Director, British, aged 48, appointed to the Board on 3 November 2008. Previously Group FinanceDirector of Wagon plc. Prior to this held senior positions with SPX Air Treatment Holdings plc (Formerly,McLeod Russel Holdings plc), served as Planning Director of Alcoa Europe, divisional Finance Director ofBritish Aluminium and worked with BTR PLC, JFP Products and Thomson CSF.Simon Beresford-WylieBANon-executive, independent, British, aged 50, appointed to the Board on 1 March 2006; member of theAudit Committee, the Nominations Committee and the Remuneration Committee. Currently CEO of NokiaSiemens Networks and member of the Nokia Group Executive Board having joined the Nokia Group in1998 from Indian mobile operator Modi Telstra (Pte. Ltd.) where he was Chief Executive Officer. Prior tothat he held various management positions within Telstra’s Corporate and Government Business Unit.Nigel Moore FCANon-executive, independent, British, aged 64, appointed to the Board on 1 March 2004; Chairman of theAudit Committee, member of the Nominations Committee and of the Remuneration Committee. CurrentlyChairman of The TEG Group plc, a director of IntelligentComms Ltd, Ascent Resources plc, HochschildMining plc, JKX Oil & Gas plc and Production Services Network Ltd. Formerly a London based partner ofErnst & Young.Maria Richter BA, JDNon-executive, independent, dual American and Panamanian, aged 54, appointed to the Board on 28February 2007; member of the Audit Committee, the Nominations Committee and the RemunerationCommittee. Currently a non-executive director of National Grid plc, The Pantry Inc and The Bessemer GroupIncorporated. Ms Richter is a director of Pro Mujer International, Chairman of Pro Mujer UK and on thePrivate Equity Advisory Board of Republic Financial Corporation. Previously with Morgan Stanley for nineyears, most recently as Managing Director of the Corporate Finance Retail Group. Prior to that she heldsenior positions with Salomon Brothers, Prudential Capital Corporation and Power Funding Associates.Will WyattCBE, BANon-executive, independent, British, aged 67, appointed to the Board on 10 June 2002; SeniorIndependent Director; member of the Audit Committee and the Nominations Committee and Chairman ofthe Remuneration Committee. Chairman of Racecourse Media Group Ltd and Racecourse Media ServicesLtd and a director of Amalgamated Racing Ltd. He is Chairman of the Teaching Awards Trust and a trusteeof the Services Sound and Vision Corporation. Formerly Chief Executive, BBC Broadcast. Other posts withinthe BBC included Managing Director of Network Television.Jon BoltonFCIS, LLB SecretaryBoard of DirectorsDirectorsThe directors throughout the year ended 31 December 2008were Michael Harper, Alastair Hewgill, Simon Beresford-Wylie,Nigel Moore, Maria Richter and Will Wyatt. Gareth RhysWilliams resigned as a director on 29 October 2008 andRichard Cotton joined as a director on 3 November 2008.The remuneration of the directors is set out in theRemuneration Report on pages 21 to 27. Photographs andbiographies of the current directors, as well as Stephen Birdwho will be appointed a director and Chief Executive on 14April 2009, are set out on page 18.Directors' shareholdingsTo align the interests of executives with those of shareholders,executive directors are required to build up, over a reasonableperiod of time, a substantial holding of shares in the Companyequal to 100% of salary. Other members of the ExecutiveBoard are also encouraged to do so. The value of holdings bythe executive directors at the end of 2008 represented 108%and 12% of the base salaries of Alastair Hewgill and RichardCotton respectively (2007: Mr Hewgill 136%), calculated byreference to the closing middle market price of a share of TheVitec Group plc on 31 December 2008, the last dealing day of2008, which was 235.5p.The table opposite sets out the beneficial interests in theCompany's shares of those persons who were directors at theend of the financial year. The interests are shown as at 31December 2008 and 1 January 2008 (or, if later, their date ofappointment). Details of the directors' other interests in theCompany's shares are set out in the Remuneration Report onpages 21 to 27. Other than as disclosed in the footnote,there have been no other changes to these interests in theperiod from 31 December 2008 to 19 March 2009.Substantial shareholdingsAs at 19 March 2009, the Company had been notified of thefollowing interests of 3% or more of the voting rights of itsissued share capital:Share capitalDetails of shares issued during the year are set out in Note 25to the Consolidated Accounts on page 73. An analysis ofshareholdings is shown on page 99. The closing middlemarket price of a share of the Company on 31 December2008, the last day of dealing in 2008, together with the rangeduring the year, is also shown on page 98. For details of ownshares held by the Company see Note k to the CompanyAccounts on page 94.1 January 2008or subsequentdate ofappointment31 December2008(1)(2)Directors' shareholdingsChairmanMichael Harper35,00030,000Executive DirectorsAlastair Hewgill137,77049,422Richard Cotton12,500-Non-executive DirectorsSimon Beresford-Wylie2,0002,000Nigel Moore9,3959,395Maria Richter1,0001,000Will Wyatt2,8751,675200,54093,492(1) Includes 25,584 shares purchased in the market using funds supplied byMr Hewgill and held by Halifax EES Trustees International Ltd, the trusteeused to hold shares in respect of awards made under the Deferred Bonus Plan.In March 2009, 2,948 Core Award shares in respect of the Deferred BonusPlan award made in 2006 were transferred from Halifax EES TrusteesInternational Ltd to Mr Hewgill in accordance with the rules of the Plan and32,971 shares were transferred to him on the exercise of a Long TermIncentive Plan award made in 2005.(2) Includes 27,424 shares purchased in the market using funds supplied by Mr Hewgill and held by Halifax EES Trustees International Ltd, the trusteeused to hold shares in respect of awards made under the Deferred Bonus Plan.(3) On 10 March 2009, Mr Moore’s interests increased to 15,470 with thepurchase of 6,075 shares.(4) On 2 March 2009, Ms Richter’s interests increased to 4,000 with thepurchase of 3,000 shares.Harris Associates5,068,76212.00Prudential plc4,074,7439.61Baring Trustees (Guernsey) Limited2,698,3746.58Manfrotto SA2,478,3746.05Aviva plc2,139,8825.07Aberforth Partners LLP2,129,1695.04Schroders plc2,112,2945.02Legal & General Group plc2,079,3174.93AXA SA2,065,1454.93Artisan Partners Limited Partnership1,945,2194.64%Number ofvoting rights(4)(3)21THE VITEC GROUP20ANNUAL REPORT 2008Directors’ Report continuedRemuneration ReportRemuneration Report This Report contains the information required under theListing Rules, the 2006 Combined Code on CorporateGovernance and under the Directors' Remuneration ReportRegulations 2002. A resolution to approve the Report will beproposed at the 2009 Annual General Meeting. The Chairmanof the Remuneration Committee will be available to answerquestions about the directors' remuneration at the AnnualGeneral Meeting.Remuneration CommitteeThroughout 2008, the Remuneration Committee comprisedWill Wyatt (Chairman of the Committee), Simon Beresford-Wylie, Nigel Moore and Maria Richter.Under its terms of reference, the Committee, on behalf of theBoard, determines the remuneration packages including basesalaries, bonus arrangements, participation in incentiveschemes, pension contributions and all other benefits receivedby the executive directors. In the event of the termination ofemployment of those directors, the Committee also determinesany compensation payments, after taking appropriate legaladvice.The Committee also makes recommendations to the Board,within its terms of reference, on the framework of seniorexecutive remuneration including terms of service, paystructure, bonus and share incentive arrangements and otherbenefits.The Chairman, Michael Harper, attended meetings byinvitation of the Committee in the year ended 31 December2008. The former Chief Executive, Gareth Rhys Williams, alsoattended meetings by invitation of the Committee up until hisresignation as Chief Executive on 30 September 2008 andAlastair Hewgill, as Interim Chief Executive, attendedmeetings from 1 October 2008. The executive directors arenot present when their own remuneration is being considered.The remuneration of the Chairman and the non-executivedirectors is determined by the Board as a whole with theChairman or the relevant non-executive director abstainingwhen his or her remuneration is considered.For further information regarding the Remuneration Committeesee page 36.Remuneration policyRemuneration packages are formulated to attract, retain andmotivate directors and senior executives of the qualityrequired, without being excessive, by reference to salary andbenefit surveys supplied by one or more external sources. Theytake into account the responsibilities and risks involved andremuneration packages in comparable companies that havesimilar international operations. During the year ended 31December 2008, the Committee received external advice fromits appointed advisors, Watson Wyatt remunerationconsultants. Watson Wyatt also provides pensions advice andservices to the Company. The Committee also received adviceand administrative services from the Company Secretary,Roland Peate, up until 29 October 2008 and Jon Bolton from29 October 2008.Since 2004 the Company has made available to allemployees, including executive directors, a Group personalpension plan. Prior to this the Company had in place definedbenefit Group and Executive pension schemes, both of whichwere closed to new members at the end of 2003. Up to thepensions earnings cap, retirement benefits are providedthrough an approved retirement benefit scheme. For furtherinformation, see pages 24 and 25 and the table entitledPensions related remuneration on page 26.Executive directors' service contracts do not provide forpredetermined amounts of compensation in the event of earlytermination by the Company. The Committee's policy in theevent of early termination of employment is to mitigatecompensation to the fullest extent practicable.The Committee believes that it is beneficial for an executivedirector to take up one external non-executive appointment.Remuneration received by an executive director in respect ofsuch an external appointment would be retained by thedirector. None of the executive directors held an external non-executive directorship in the year ended 31 December 2008.The Committee currently has no intention of amending theabove stated policy for 2009, although it will be reviewedfrom time to time.Chairman and the other non-executive directors The Chairman and the other non-executive directors do nothave service contracts but have letters of appointment. Theinitial period of their appointments is three years but theirappointments may, by mutual consent and with the approvalof the Nominations Committee and the Board, be extended fora further three years. In exceptional circumstancesappointments may be extended beyond six years by mutualconsent and with the approval of the Nominations Committeeand the Board if it is in the interests of the Group to do so.Will Wyatt was appointed on 10 June 2002 and, therefore, theBoard and Nominations Committee has considered hiscontinuation as a non-executive director and considers that itis in the best interests of the Company that he is proposed forre-appointment at the Annual General Meeting on 19 May2009.Executive directorsThe executive directors' remuneration comprises a basicsalary, an annual cash bonus, share incentives, a companyvehicle or cash allowance, fuel where a company vehicle isprovided, medical insurance, membership of one of theGroup's Pension Schemes or a contribution to their ownpersonal pension arrangement and life assurance. Acontribution towards a permanent health arrangement forGareth Rhys Williams was made during his service in 2008and a similar arrangement is available to Alastair Hewgill andRichard Cotton. Under the Executive Bonus Scheme, theexecutive directors can normally receive up to 100% of basicsalary based on a combination of Company and individualperformance. If they achieve maximum performance inrelation to the performance related elements of theirremuneration, those elements would, in total, account for50% of their total cash remuneration. On Mr Hewgill’sappointment as Interim Chief Executive with effect fromCommittees of the BoardThe Board has established an Audit Committee, aNominations Committee and a Remuneration Committee.Details of those Committees, including membership, terms ofreference and their activities, are contained in the CorporateGovernance section of this Annual Report and in theRemuneration Report. Corporate Social Responsibility ReportThe Group's report on social, environmental and ethicalmatters is set out on pages 28 to 32. The Group has policiesin respect of the following key areas: health and safety, riskand fraud, employment, whistleblowing, the environment,human rights, community impact and involvement andrelationships with suppliers and customers and otherstakeholders. It regularly reviews those policies and revisesthem as and when necessary.The Group's Remuneration Report is set out on pages 21to 27.Corporate GovernanceThe Group's report on corporate governance is on pages 33to 40.Directors’ and Officers’ Liability Insurance andIndemnification of DirectorsThe Company maintains Directors’ and Officers’ liabilityinsurance which gives appropriate cover for any legal actionbrought against its directors. The Company has also grantedindemnities to each of its directors to the extent permitted bylaw. Qualifying third party indemnity provisions (as defined inSection 324 of the Companies Act 2006) were adopted on 16March 2009 and remain in force, in relation to certain lossesand liabilities which the directors may incur to third parties inthe course of acting as directors of the Company.DonationsDuring 2008 charitable donations totalling £139,941 (2007:£73,641) were made by Group companies. No donations weremade to any political party. For further information ondonations refer to the section on Community giving, set out inthe Corporate Social Responsibility Report on page 31.Payments to suppliersIt continues to be the Group's policy that the Company andindividual subsidiary companies are responsible for negotiatingterms and conditions under which suppliers operate. Onceagreed, payments to suppliers are made in accordance withthose terms and conditions, subject always to the supplierhaving complied with them. That policy will continue for thefinancial year ending 31 December 2009. For the financial yearended 31 December 2008, the Group paid its suppliers onaverage within 61 days (2007: 64 days) of date of invoice,excluding RF Systems.Annual General MeetingThe Annual General Meeting for 2009 will be held at 2.30pmon Tuesday 19 May 2009 at the offices of FinancialDynamics, Holborn Gate, 26 Southampton Buildings, LondonWC2A 1PB.The Chairmen of the Board and of each of its Committees willbe in attendance at the Annual General Meeting to answerquestions from shareholders.The Company will again be making use of the electronic votingfacility provided by its registrars, Capita Registrars. The facilityhas been extended to include CREST voting for membersholding their shares in uncertificated form. For furtherinformation please refer to the section on Online services andelectronic voting set out on page 98.The Notice of the Annual General Meeting and an explanationof the resolutions to be put to the meeting are set out in theNotice of Meeting accompanying this Annual Report.AuditorsThe auditors, KPMG Audit Plc, are willing to continue inoffice. A resolution will be put to the Annual General Meetingto reappoint the auditors and to authorise the Board to agreetheir remuneration.By order of the BoardJon BoltonSecretary19 March 2009Cautionary statement Statements made in the Directors' Reportcontain forward looking statements that are subject to riskfactors associated with, amongst other things, the economicand business circumstances occurring from time to time in thecountries and sectors in which the Group operates. It isbelieved that the expectations reflected in these statementsare reasonable but they may be affected by a wide range ofvariables which could cause actual results to differ materiallyfrom those currently anticipated.23THE VITEC GROUP22ANNUAL REPORT 2008Remuneration Report continued1 October 2008, his limit was increased to 150% of basicsalary in respect of the year ended 31 December 2008 andfor 2009, until either he left the Company or was appointedpermanent Chief Executive. If the latter had occurred, then anew bonus arrangement would have been put in place. TheRemuneration Committee considered that this increase in limitwas merited on the basis that it provided an incentive forAlastair Hewgill in his role as Interim Chief Executive whilstthe Nominations Committee conducted a detailed andthorough search for a permanent Chief Executive. Mr Hewgilldid not receive any additional award of long term incentiveson his appointment to the role of Interim Chief Executive.Executive directors are required to defer a proportion of anyannual bonus. The deferred bonus is held in the form ofshares in the Company under the Deferred Bonus Plan.The normal retirement age of executive directors is 65. Thereare no special provisions in respect of early retirement for theexecutive directors.Gareth Rhys Williams, Chief Executive until 30 September2008 and a director until 29 October 2008, aged 47, wasemployed under a service contract dated 23 November 2001.The notice period by the Company under his contract was 12months; notice by the employee to the Company was sixmonths. Under the service contract the Company, in the eventof termination of employment, would pay a sum in lieu ofnotice equal to 12 months' gross basic salary together withthe gross value of the other benefits that he was entitled toreceive under his service contract but excluding pensioncontributions and any bonus. Alastair Hewgill, Interim Chief Executive from 1 October 2008and Finance Director until 2 November 2008, aged 54, isemployed under a service contract dated 17 April 2002.(superceded in September 2008 on his appointment asInterim Chief Executive) The notice period by the Companyunder his contract is six months and notice by the employeeto the Company is six months. The Company may, in the eventof termination of employment, pay a sum in lieu of noticeequal to six months' gross basic salary together with the grossvalue of the other benefits that he is entitled to receive underhis service contract but excluding pension contributions. Inaddition, the period of notice shall be taken into account forany bonus due. The bonus arrangements for 2009 may delivera maximum bonus of 150% of salary, 50% of which is basedon achievement of financial results (reported Group profitbefore tax and working capital measured against the 2009budget) and 50% of which is based on performance againstpersonal targets and expectations set by the Board. Richard Cotton, appointed a director on 3 November 2008,aged 48, is employed under a service contract dated 17September 2008. The notice period by the Company under hiscontract is 12 months and notice by the employee to theCompany is six months. The bonus arrangements for 2009may deliver a maximum bonus of 100% of salary with 75%based on achievement of financial results (reported Groupprofit before tax and working capital measured against the2009 budget) and 25% based on performance against personaltargets and expectations set by the Board. The Company may,in the event of termination of employment, pay a sum in lieu ofnotice equal to 12 months’ gross basic salary together with thegross value of other benefits that he is entitled to receive underhis service contract, but excluding any bonus or share optionswhich are not granted, do not vest or cannot be exercised inaccordance with the rules of such schemes.On 14 April 2009, Stephen Bird will be appointed a directorand Chief Executive of the Company. He is aged 48 and will beemployed under a service contract dated 28 January 2009.The notice period by the Company under his contract is 12months and notice by the employee to the Company is sixmonths. Under his service contract, he will receive a salary of£350,000 per annum and will be able to participate in theannual bonus arrangements for 2009 that may deliver amaximum bonus of 100% of salary with 75% based onachievement of financial results (reported Group profit beforetax and working capital measured against the 2009 budget) and25% based on performance against personal targets andexpectations set by the Board. The Company may, in the eventof termination of employment, pay a sum in lieu of notice equalto 12 months’ gross basic salary together with the gross value ofother benefits that he is entitled to receive under his servicecontract, but excluding any bonus or share options which arenot granted, do not vest or cannot be exercised in accordancewith the rules of such schemes.Having taken into account the current difficult economicclimate the Remuneration Committee decided that there will beno salary increases for 2009 in respect of the executivedirectors and senior executives. Salaries will be reviewed for2010 taking into account Company performance and prevailingeconomic conditions.Incentive arrangementsThe Company has the following long term incentivearrangements in place:The 2005 Long Term Incentive Plan was approved byshareholders at the Annual General Meeting in 2005 and hasbeen used to make awards to the executive directors and theother members of the Executive Board and also to the Group'ssenior management below the level of the Executive Board asenvisaged when shareholder approval was received. The levelof awards for the executive directors and Executive Board areup to one times salary per year, based on the Company’s shareprice at the date of award. Awards for the Group’s seniormanagement are based on a specific number of shares, butwhich does not exceed one times salary.The 2005 Deferred Bonus Plan was approved by shareholdersat the Annual General Meeting in 2005 and has been used inconnection with bonuses paid since then arising from theExecutive Bonus Scheme and will be used in 2009 and futureyears.The 2002 Unapproved Share Option Plan was approved byshareholders at the Annual General Meeting in 2002 and agrant of share options was made in June 2005 and March2008 to the executive directors and the other members of theExecutive Board. At the time of these grants, the Committeereviewed and revised the performance condition applicable tothe grant.The performance conditions for the 2005 Long Term IncentivePlan and the 2005 Deferred Bonus Plan use total shareholderreturn of the Company measured against a comparator group;for awards under the 2002 Unapproved Share Option Plan themeasure is increases in earnings per share. This combinationof measures is considered the most appropriate way of aligningthe long term interests of senior management with those ofshareholders.Monitoring and measuring of the performance conditions takeplace following the end of each year when the Company'sresults have been audited and again at the end of the relevantperformance period for options and awards. Non-executive directors are not eligible to participate in theCompany's share incentive schemes and consequently they donot hold any share options or other share incentives. Invitations under the Group's sharesave arrangements areusually made annually and these are planned to continue. Awards and grants under the Group’s incentive arrangementsare within the overall flow limits advised by the Association ofBritish Insurers to limit potential dilution arising from the issueof new shares.The Group currently has the following incentive schemes andplans under which awards are outstanding and further awardsare proposed. Performance targets and vesting levels arereviewed by the Remuneration Committee each time an awardis made to ensure that they remain sufficiently demanding.2002 Unapproved Share Option PlanExecutive directors and other senior executives are selected toreceive options over shares. The price of an option over sharesis fixed at the date of grant at the prevailing market price of theCompany’s shares at that time. Exercise of an option is subjectto growth in the Company's earnings per share, excludingexceptional or extraordinary items. Options are exercisablebetween the third and the tenth anniversaries of their dates ofgrant subject to satisfaction of performance conditions.Performance conditionOptions granted in 2005 use thefollowing: If the percentage growth in the earnings per share ofthe Company, after adjustments for exceptional or extraordinaryitems, exceeds the percentage growth in the retail prices indexover the three year performance period by 6% (the base targetthreshold), an option will become exercisable in respect of one-third of the shares over which it is held. Full vesting takes placewhen such growth over the performance period exceeds growthin RPI by 12% or greater. For options granted in 2008 the performance condition wasrevised and is now RPI+9% for minimum vesting and RPI+30%for full vesting. A sliding scale operates for performance between the lower andupper thresholds. Options lapse if the base target threshold isnot achieved by the end of the three year performance period.There is no re-testing of performance.2005 Long Term Incentive PlanUnder this plan, executive directors and other senior employeesare selected to receive awards over shares that vest in whole orin part depending on the satisfaction of a performancecondition related to the Company’s total shareholder return(TSR) over a period of three years, relative to a comparatorgroup of other companies. The comparator group comprisescompanies of similar market capitalisation and having at least50% of their turnover arising outside of the UK. Due to thesize of the comparator group (approximately 60 in total), it isnot practical to detail it fully in this report. The RemunerationCommittee reviews the composition of the comparator group inconjunction with its remuneration consultants, Watson Wyatt,annually ahead of awards to determine that it is relevant andsufficiently demanding.Performance condition If the Company’s TSR performance is atthe median of the comparator group at the end of the three yearperformance period, 35% of an award may vest. The full awardmay vest if the Company’s TSR performance is in the top 20%of the comparator group. There is pro-rata straight line vestingbetween these two points. The Remuneration Committee willalso consider the underlying financial performance of theCompany before it confirms vesting. There is no re-testing ofperformance.Dividends that would have been paid on the vesting sharesduring the performance period will generally be re-invested inadditional shares. For awards made in 2005, which vested in2008, dividends were however paid out in cash. Futuredividends on vesting awards will be paid out in the form ofshares.2005 Deferred Bonus PlanExecutive directors and members of the Executive Board arerequired to defer a proportion (currently 20% for executivedirectors and 15% for other Executive Board members) of anycash bonuses in exchange for receiving a core award over sharesin the Company with a value equivalent, at the date of award, tothe amount of the deferred bonus. However, subject to thediscretion of the Remuneration Committee, the executive mayvoluntarily decide to defer a higher proportion up to a maximumof 100% of any bonus paid under the annual bonus scheme. Acore award may, in normal circumstances, be exercised by aparticipant after two years. However, if exercise is deferred forthree years and the executive remains employed by the Group,and subject to satisfaction of the performance condition, theparticipant is entitled to receive a matching award of additionalshares up to the number comprised in the core award. Sharescomprising core awards are purchased in the market and heldin trust by Halifax EES Trustees International Ltd until exercise.Dividends that would have been paid on the core award ofshares and the actual matching shares during the performanceperiod are re-invested in additional shares.Performance condition If the executive remains in employmentfor three years, and if in that period the Company's TSR relativeto a comparator group of other companies is at median, orabove, of the comparator group, the deferred core shares willbe matched at the rate of:• one share for every three shares at median performance • one share for every one share within the top 20%performanceThere will be pro-rata straight line vesting between these points.The comparator group comprises the same group used forthe Long Term Incentive Plan Awards. There is no re-testing of performance.25THE VITEC GROUP24ANNUAL REPORT 2008Remuneration Report continuedSharesave Scheme and International Sharesave PlanThe Group operates a savings related share option scheme inthe UK and a similar international plan in respect of overseasemployees in certain countries. The scheme and plan are opento all the Group's employees in those countries, including theexecutive directors. Under the scheme and plan, participantscontract to save a set amount each month (£250 maximum)in return for which they receive an option over a specifiednumber of shares. The price of an option over shares is fixedat the date of grant and, in the UK, has a 20% discount tothe market price. In other countries the discount applied iseither the same or less to reflect local regulations. At the endof the savings period participants may exercise their options tobuy shares in the Company using their savings. Exercise is notsubject to any performance condition.Five year share price performance 2004-2008Under the requirements of the Directors' Remuneration ReportRegulations 2002, the Company is required to include a graphshowing the Company's performance compared to anappropriate index over a five year period. Set out below, thegraph illustrates the Company's annual total shareholder return(share price growth plus dividends that have been declared,paid and reinvested in the Company's shares) relative to theFTSE Small Cap, FTSE All Share Media and FTSE IndustrialEngineering Index for the five year period 2004-2008,assuming an initial investment of £100.To produce a 'fair value' each point is a 30 trading dayaverage of the indices. The FTSE Small Cap and the FTSEIndustrial Engineering Index are the broad market indices thatinclude the Company and comprise comparable companies.For comparison purposes the FTSE All Share Media Index hasalso been included.The following information has been audited.Directors' remunerationMichael Harper, Chairman, is currently paid a fee at the rateof £110,000 per annum. This was increased from £95,000per annum on 1 July 2008. On 1 July 2008, the fee payableto the other non-executive directors was increased from£30,000 per annum to £36,000 per annum. The increase infees was to reflect the increasing time commitment requiredof the Chairman and non-executive directors in managing adiverse and international business. The increases took intoaccount market data from comparable sized companies. Thechairmen of the Remuneration Committee and of the AuditCommittee, Will Wyatt and Nigel Moore respectively, receivean additional fee for their services as chairmen of thoseCommittees. Mr Wyatt receives an additional £5,000 perannum, increased from £4,000 per annum on 1 July 2008,and Mr Moore receives £8,000 per annum, increased from£6,500 per annum on 1 July 2008. An additional fee of£2,200, increased from £2,000 per annum on 1 July 2008,is also paid to the Senior Independent Director, Mr Wyatt.These fees are all fixed for two years and the next fee reviewfor the non-executive directors will be on 1 July 2010. Thenon-executive directors do not receive any other benefits fromthe Company.Gareth Rhys Williams annual salary as at 31 October 2008,his date of resignation, was £340,260, increased from£321,000 with effect from 1 January 2008. Mr Rhys Williamswas a member of the Vitec Group Pension Scheme andcontributed 9% of his pensionable salary. The accrual rate isone fortieth of the pensions earnings cap for each year ofpensionable service. Mr Rhys Williams was also paid, with hissalary, 40% of the amount by which his base salary exceededthe Company's notional pensions earnings cap.Mr Rhys Williams was eligible for a performance-related bonusbased on Company performance and, when determined by theRemuneration Committee, individual performance, of up to100% of base salary each year. In respect of 2008, 75% ofhis bonus was calculated upon the Group's financialperformance and 25% on the achievement of personalobjectives. For the financial performance element of hisbonus, the Remuneration Committee considered the Group’sactual financial performance, based on profit before tax,measured against the Company’s 2008 budget. Actual resultswere calculated using results for the period to 30 September2008, as set out in the management accounts, and projectingthem forward to the year end. The Remuneration Committeewas mindful to take into account the economic uncertainty atthat time and the need for broad equivalence between thecalculation for Mr Rhys Williams and for the other staff at theyear end. Putting together the achievement of personalobjectives and the estimated financial target elements andapplying a pro rata treatment for the period of service up until31 October 2008, Mr Rhys Williams was paid a bonus of£100,000 in respect of 2008 (2007: £312,975).In addition, his unvested Long Term Incentive Plan shares andDeferred Bonus Plan shares were performance tested and prorated up to the date of departure. Awards made in 2008 and2007 under the Long Term Incentive Plan and the DeferredBonus Plan failed to achieve performance conditions andtherefore lapsed. Awards made in 2006 under the Long TermIncentive Plan and the Deferred Bonus Plan part achievedperformance conditions with 22,877 Long Term Incentive Planshares vesting and 1,420 Deferred Bonus Plan Matchingshares vesting. Dividends on the vesting shares under bothplans were calculated at the point of exercise and weredelivered in the form of additional shares. In addition, Mr Rhys Williams has, under the 2002 Unapproved ShareOption Plan, options over the following shares:• 95,000 shares at an option price of 300p per share; and• 18,460 shares at an option price of 512p per share.Mr Rhys Williams has until 31 October 2009 to exercise theseoptions.Alastair Hewgill, Interim Chief Executive, currently receives anannual salary of £300,000, increased from £224,720 witheffect from 1 October 2008 when Mr Hewgill became InterimChief Executive. Mr Hewgill is a member of the Vitec GroupPension Scheme and contributes 9% of his pensionablesalary. Additionally, monthly payments at the rate of 25% ofthe difference between the amount of his base salary and theCompany’s notional pensions earnings cap are paid by theCompany into Mr Hewgill's Group Personal Pension Plan.Mr Hewgill is eligible for a performance related bonus basedon the Company’s financial performance and achievement ofpersonal objectives, of up to 150% of base salary for the yearended 31 December 2008. 75% of this bonus was dependentupon satisfaction of financial performance targets based uponactual reported Group profit before tax, measured against theCompany’s 2008 budget. 25% of the bonus was dependentupon performance against personal targets and expectationsset by the Board and aligned to achieving agreed strategicobjectives. Mr Hewgill was paid a bonus of £170,508 inrespect of 2008 based upon an assessment that 57.8% of the financial performance targets had been satisfied and100% of the personal targets had been achieved (2007:£201,400). Richard Cotton, Finance Director, currently receives an annualsalary of £250,000. Mr Cotton is not a member of the GroupPersonal Pension Plan, but has his own personal pensionarrangement into which the Company contributes 20% of hisbasic salary. Mr Cotton did not receive a bonus in respect of2008 having joined the Company in November 2008.Mr Cotton will be eligible for a performance related bonusbased on Company performance for the year ending 31December 2009 and individual performance, of up to 100%of base salary each year. 6080100120140160180200220£31 Dec200331 Dec200431 Dec200531 Dec200631 Dec200731 Dec2008FTSESmall CapFTSE All ShareMediaFTSE IndustrialEngineering IndexTheVitec GroupDirector's nameChairmanMichael Harper102,50095,000------102,50095,000Executive DirectorsAlastair Hewgill243,540212,00020,92614,142170,508201,40065,23461,309500,208488,851Richard Cotton41,667-32,645---8,333-82,645-(joined on 3November 2008)Gareth Rhys Williams283,550321,00019,32823,054100,000312,975102,237118,343505,115775,372(left on 31October 2008)Non-executive DirectorsSimon Beresford-Wylie33,00030,000------33,00030,000Nigel Moore40,25036,500------40,25036,500Maria Richter33,00025,125------33,00025,125Will Wyatt39,60036,000------39,60036,000Totals817,107755,62572,89937,196270,508514,375175,804179,6521,336,3181,486,848(1)The principal benefits are a company vehicle or a cash allowance, fuel where a Company vehicle is provided, medical insurance and life assurance. In respect ofMr Rhys Williams only, a cash payment of £17,130 in lieu of a company car and a contribution of £400 per month to a permanent health arrangement areincluded in the figures shown. In respect of Mr Cotton, he received relocation expenses of £30,000 to enable him to find suitable accommodation near to hisplace of work. Upon his appointment as Interim Chief Executive Officer with effect from 1 October 2008 and for the duration of his term in that position, MrHewgill was provided with chauffeur driven transportation from his home to the Company’s head office and accommodation in Greater London.Total2007£2008£Pensionrelatedremuneration2007£2008£Performancerelated annualbonus2007£2008£Benefits2007£2008£Salaries andfees2007£2008£(1)Details of the directors' remuneration for 2008 withcomparatives for 2007 are set out in the following tables:27THE VITEC GROUP26ANNUAL REPORT 2008Remuneration Report continuedPensions related remunerationAlastair Hewgill22,13218,4083,0062,86010,47610,05850,34939,386361,488270,90180,111Gareth Rhys Williams20,33517,1552,5112,8758,71210,05826,07420,181222,446157,71956,015*For Mr Rhys Williams, figures are calculated to his date of leaving of 31 October 2008.This table should be read in conjunction with the information given on pages 24 and 25.Increase intransfervalue overyear to 31December*netof membercontributions2008£Transfervalue ofaccrued pension at 31 December*2007£2008£Transfer valueof the increasein accruedpension net ofmembercontributions2007£2008£2008£2008£2008£Accruedpension at31 December*2007£Increase inaccrued pension(in excess ofprice inflation)during2007£Membercontributionstowardspension2007£Directors' share optionsGareth Rhys WilliamsExecutive share options2002 UnapprovedJun 200595,000---95,000300-Jun 2008Oct 2009Mar 2008--47,99766,45718,460*512-Oct 2008Oct 2009SAYE optionsNov 20022,4512,451---268445.00--May 20034,2664,266---231412.75--May 2008--1,8811,881-346---Alastair Hewgill2002 UnapprovedJun 200563,333---63,333300-Jun 2008Jun 2015Mar 2008---43,89143,891512-Mar 2011Mar 2018SAYE optionsMay 20037,1107,110---231429.50--172,16013,82749,878112,229220,684 * Remaining after original award pro rated down to reflect service period up until 31 October 2008.The share price at the end of the year and the highest and lowest prices during the year are shown in Shareholder Information and Financial Calendar on page 98.Expiry dateDate fromwhichexercisableMarketprice atexercisedate(pence)Exerciseprice(pence)At 31December2008(shares)Optionsgrantedduringyear(shares)Optionsexercisedduringyear(shares)Optionslapsedduringyear(shares)At1 January2008(shares)Date ofgrantDirectors' long term incentivesAwards under theLong Term Incentive PlanGareth Rhys WilliamsJune 200595,00084,96810,032--300176.00Apr 200657,14322,87734,266--525175.25Jun 200753,058-53,058--602-Mar 2008--69,71669,716-501-Alastair HewgillJun 200563,333-6,688-56,645300-Apr 200638,095---38,095525-Jun 200735,041---35,041602-Mar 2008---44,85444,854501-341,670107,845173,760114,570174,635(1)Mr Rhys Williams made gains of £191,848 and £49,631 respectively on the exercise of his June 2005 and April 2006 Long Term Incentive Plan awards. Thegains were calculated as the number of shares that vested, including dividend shares, multiplied by the closing mid market price at exercise. All of the shares fromthe 2005 Award were retained by Mr Rhys Williams and 5,266 shares from the 2006 Award were sold at exercise.(2)On final testing of the performance condition in early 2009, Mr Hewgill’s April 2006 Long Term Incentive Plan award lapsed.(3)In March 2009, Mr Hewgill exercised the Long Term Incentive Plan award made to him in 2005. On final testing, this award had vested at 89.44%, therefore56,645 shares were exercised and 6,668 shares lapsed.Market priceof a shareat the dateof award(pence)Market priceof a shareat the dateof exercise(pence)At31 December2008(shares)Awardsmadeduringthe year(shares)Awardsexercisedduringthe year(shares)Awardslapsedduringthe year(shares)Awards at1 January2008(shares)Date ofawardAwards under theDeferred Bonus PlansGareth Rhys WilliamsJune 2005Basic10,49710,497---336-Matching17,88617,886---336148.00May 2006Core3,6753,675---505-Matching3,6751,4202,255--505175.25June 2007Core26,13026,130---605-Matching26,130-26,130--605-April 2008Core-8,780-8,780-452-Matching--8,7808,780-452-Alastair HewgillJune 2005Basic7,0567,056---336-Matching12,02212,022---336158.00May 2006Core2,948---2,948505-Matching2,948---2,948505-Jun 2007Core17,420---17,420605-Matching17,420---17,420605-April 2008Core---5,2165,216452-Matching---5,2165,216452-147,80787,46637,16527,99251,168 (1)Mr Rhys Williams made gains of £26,471 and £4,613 respectively on the exercise of his June 2005 and May 2006 Deferred Bonus Plan Matching awards. Thegains were calculated as the number of shares that vested, including dividend shares for the 2006 award, multiplied by the closing mid market price at the exercisedate. Mr Rhys Williams also exercised his Core Awards made in 2007 and 2008, but performance testing meant that no Matching Award shares vested in respect ofthose Awards. All of the shares were retained by Mr Rhys Williams. Mr Hewgill made a gain of £18,995 on the exercise of his June 2005 Matching awards. Thegain was calculated as the number of shares multiplied by the market price at the exercise date. All of the shares were retained by Mr Hewgill (2007: no gains weremade as there were no exercises by directors of Deferred Bonus Plan awards).(2)For awards made from 2006 onwards, there is a TSR related performance condition attached to the Matching Awards. For the purposes of this table, where theaward has not yet been finally performance tested, 100% vesting is assumed.(3) On 3 March 2009, 2,948 Core Award shares in respect of the Deferred Bonus Plan award made in 2006 were transferred from Halifax EES Trustees International Ltdto Mr Hewgill in accordance with the rules of the Plan. Final performance testing of this award took place in the first quarter of 2009 and has resulted in there beingno Matching Award made.Other than as disclosed in the table footnotes, there have been no other changes to these interests in the period from 31December 2008 to 19 March 2009.Approved by the Board of Directors on 19 March 2009 and signed on its behalf byJon BoltonSecretaryMarket priceof a shareat the dateof award(pence)At31 December2008(shares)Awardsmadeduringthe year(shares)Awardsexercisedduringthe year(shares)Awardslapsedduringthe year(shares)Awards at1 January2008(shares)Date ofawardMarket priceof a shareat the dateof exercise(pence)29THE VITEC GROUP28ANNUAL REPORT 2008Corporate Social Responsibility ReportVitec has always maintained a considered approach to theenvironmental and social issues surrounding its businessactivities worldwide. Although the Group's environmentalimpacts are relatively limited, we continuously look for ways tobe more responsible and sustainable across all our operations.Vitec first began reporting on Corporate Responsibility in2002. Since then the Group has continued to assess itsresponsibilities at local, national and global levels. Werecognise that Corporate Responsibility will become even morecentral to sustainable growth, particularly as investors andcustomers increasingly consider these non-financial issues indecision making. We want to be in the best position possibleto minimise risks and identify and capitalise on theopportunities presented.In 2007 we asked a specialist third party to review theGroup's Corporate Responsibility related policies and issues.An analysis of the risks faced by the Group in the followingareas was undertaken: the environment, business ethics andhuman rights, health & safety and employment andcommunity giving. The result of this analysis follows and weintend to use it as the focus of our approach to CorporateResponsibility reporting in the future.Specific responsibility for these matters has been delegated tosenior employees within each of the Group's divisions. Reviewsby local management take place at each location and reportsare made of the major risks in these areas to the Company’sBoard, through the Chief Executive who has ultimateresponsibility for these matters. These reports identify risks,the current measures being taken to control them and thesteps being taken to eradicate or minimise their effect in thefuture. The compilation of statistics commenced in 2002 andwas improved in 2004 and these are being used to monitorchanges and trends.We report on our electricity, gas, water and oil consumptionand accident statistics since these are the principal areaswhere our business impacts the environment and thecommunities within which we operate. The section on KeyPerformance Indicators and other measures on page 16 setout our performance in 2008 compared to 2007.We are keen to receive feedback from all of our stakeholdersand we will use their comments and views to shape our futureCorporate Responsibility policies and practices. Please get intouch with us at info@vitecgroup.com if you have anycomments.Our policies and actionsClimate change and our environmental impactPolicyThe Group's energy usage is closely monitored and thereduction of energy, water and waste used or generatedthroughout the Group is promoted, with the aim of reducing theenvironmental impacts of its operations, products and services. The approach taken to achieve this common aim variesthroughout the Group depending on the nature of the workcarried out at a business unit and the stage of development ofa business unit's environmental management systems.The Group is not a big consumer of electricity compared tomany other companies, however it is important that wemonitor its usage and ensure that it is used efficiently bothfrom a cost and environmental perspective. New product introductions are developed to ensure they areenergy efficient both in their production and, so far as theyare able, in their use. Crisis management plans are in place at all our operations andmore detailed business continuity plans are being developed atour principal locations to ensure, so far as possible, that theeffect on our operations is minimised in the event of a majoroccurrence caused by external events including climate change.We strongly encourage recycling of waste products, materials,paper and all other items that can be recycled. We encourageour businesses to reduce the quantities and thickness ofcardboard and use alternative packaging wherever possible.ActionsEach of our sites around the Group has an environmentalmanagement system based on three main principles:• To identify materials, processes, products and wastes thatcause or may cause pollution and to implement measures toavoid, reduce or control pollution where technically andeconomically viable. • To comply with applicable environmental laws, regulations,codes of practice and other environmental requirements. Toachieve such compliance we develop and maintainmanagement systems for identifying relevant requirementsand for monitoring the performance of related activities. • To continually enhance and improve our environmentalmanagement systems to ensure they are appropriate andeffective.Anton/Bauer, our battery and charger business based in theUS, continues to be an active member of the battery recyclingscheme in conjunction with the Rechargeable BatteryRecycling Corporation (RBRC). In 2008 Anton/Bauerforwarded to RBRC 18,439kg (2007: 15,876kg) of nickelcadmium, lithium ion and nickel metal hydride batteriesreturned to the Company for recycling. Anton/Bauer activelyencourages its customers to recycle batteries and is a memberof the PRBA (Portable Recharging Battery Association) whosemission is to provide leadership in obtaining consistentdomestic and international solutions to environmental andother selected issues affecting the use, recycling and disposalof small sealed rechargeable batteries. Anton/Bauer is also a contributor to Panasonic’s GreenProducts Plan in respect of the phasing out of PVC in theproducts that Anton/Bauer supplies to Panasonic. AlthoughPVC is not currently prohibited under any law that applies tochemical substances used in electronics products, someresearchers have suggested that there may be risks associatedwith incorrect disposal and associated with phthalate estersused in certain PVC resins.The Camera Dynamics business and manufacturing plant inBury St Edmunds, England operates to ISO 14001Environmental Management Standard. In 2007 that operatingunit initiated a programme for raw materials and productrecycling through the original suppliers in line with the WasteElectrical and Electronic Equipment Directive. In 2008 someeight tonnes of raw materials and products were recycled inthis way. The business has also introduced coloured bins atits site to segregate its waste.The Broadcast Services division is a rental operation with itsmain office in Burbank, California. As a rental business itsscope for reducing emissions and usage of resources that isalready low is very limited. During 2008, the main warehouses’ power switches were splitso that areas could be isolated and power in unused areasswitched off. Furthermore, those switches were also fittedwith timers to further minimise energy usage. As part of a programme sponsored by the City of New York,the division has begun replacing lighting fixtures and bulbswith energy saving types and cleaning and sanitation suppliesto more eco-friendly ones. They plan to continue thatprogramme in 2009. The division also recycles obsoletemobile phones, computer, audio and video equipment throughlocal programmes that follow the California guidelines for thecontrolled disposal of used equipment containing hazardousmaterials. Used toner cartridges are also recycled through thetoner vendors.The Imaging & Staging division started several activitiesduring 2008 aimed at reducing their CO2 emissions includingthe commencement of an Energia Pura contract with thesupplier of energy to the Feltre and Bassano sites. EnergiaPura allows large companies to minimise their impact on theenvironment by sourcing energy from certified renewablesources.The Group’s gas, electricity and water usage over each of thelast five years is set out in the table below. The figures inparentheses are the consumptions of gas, electricity and water(as appropriate) per £1.0 million of the Group's revenue. Itcan be seen that, apart from electricity usage in 2005, from2004 onwards the Group's consumption of gas, electricity andwater per unit of Group revenue has reduced each year.YearGasElectricityWaterGroup revenue20047,133 (38.5)8,345 (45.0)40.0 (0.22)£185.4m20057,092 (36.4)9,125 (46.8)27.5 (0.14)£194.9m20067,879 (35.4)10,159 (45.7)30.5 (0.14)£222.3m20078,934 (32.6)11,583 (42.3)34.7 (0.13)£273.8m20088,384 (24.8)12,486 (37.0)37.5 (0.11)£337.7m(1)Units of measurement for gas and electricity are megawatt hours. For waterthey are cubic metres in 000's.(2)Usage of electricity and water increased during 2008 by 7.8% and 8.2%respectively but gas has reduced during 2008 by 6.2% when compared to2007. This is due to two main factors: the significant increase in revenue bythe Group (revenue in 2008 increased by 23% over 2007) and the inclusionin the 2007 figures of only seven months usage by RF Systems following itsacquisition in May 2007. The usage of electricity, gas and water has thereforesignificantly decreased for each pound Sterling of sales and also on the basisof average headcount (which increased by 8.1% from 2,049 in 2007 to2,214 in 2008).Business ethics and our relationships withsuppliers, customers and other stakeholdersPolicyThe Vitec Code of Business Conduct and Supplier EthicalStandards Assessment (the Code) covers the way in which wedeal with employees, suppliers, customers, shareholders andour responsibility to society and are used to ensure thathuman rights are upheld in both our own operations and thoseof our suppliers. All employees are required to comply with itand any violations of the Code are required to be reported tolocal management or the Group Company Secretary, asappropriate. If an employee feels that they want to reportbreaches anonymously, then the Group has put in place anindependent, confidential whistleblowing service run through athird party provider, Expolink. All employees have beenadvised of the service and are encouraged to report any eventin breach of the Code.Vitec's Code includes supply chain requirements. Suppliersare regularly monitored to confirm compliance with Vitec'srequired standards. The Code includes a clear prohibition onbribery or giving any kind of inducements. We support the UN Universal Declaration of Human Rightsand the International Labour Organization’s core conventionson labour standards (addressing forced labour, freedom ofassociation, discrimination and child labour). ActionsAll new employees are given a copy of the Vitec Code ofBusiness Conduct when they join the Group and it wasupdated and re-distributed to all employees in early 2008. In 2008, the Group established the confidential whistleblowingservice run through a third party provider, Expolink. Allemployees have been advised of the service and are encouragedto report any event in breach of the Code of Business Conduct.Communications material on the service has been translated foreach area of operation and is published on notice boards and onthe Group Intranet. Reports will be independently investigatedwithout fear of any adverse consequences.31THE VITEC GROUP30ANNUAL REPORT 2008Corporate Social Responsibility Report continuedHealth & safety and employmentPolicyThe Group's policy is to give the greatest importance to thehealth and safety of its employees and to comply with allrelevant legislation and codes of practice relating toemployment, health and safety and equal opportunities. Insummary, this covers: good quality, safe working environmentsand facilities for employees and training and developmentappropriate to each of their roles; not to discriminate in anyway; to take a flexible approach towards familyresponsibilities; to assist employees in establishing anappropriate work/life balance; and to provide a competitiverange of quality employee benefits. The Board and seniormanagement are committed to keeping the workforce informedof major events and developments within the Group.In the design, construction, operation and maintenance of allthe plant, equipment and facilities, it is the duty ofmanagement to do everything reasonably practical to preventpersonal injuries. To this end, management provides personalprotective equipment and protective clothing and courses arerun regularly for employees. It is also the duty of everyemployee to exercise responsibility and to do everythingreasonably practicable to prevent injury to himself/herself andothers and for the prompt reporting of accidents and potentialhazards.Details of specific responsibilities for health and safety,together with other relevant health and safety information aredisplayed on notice boards at each Group location.Accident statistics are reviewed at each meeting of theExecutive Board, usually held seven times a year, and arereported to the main Board directors as part of their monthlymanagement pack. Training is regularly carried out to educateemployees in health & safety matters and safe systems ofwork. Recruitment and retention of a skilled and diverse workforce.Vitec has very low staff turnover and levels of sickness areminimal across the Group.Vitec has an equal opportunities culture with no discriminationof any kind. ActionsLino Manfrotto & Co SpA and Vitecgroup Italia SpAsuccessfully attained OHSAS 18001 Occupational Health andSafety certification in 2008 (following attainment of ISO9001 Quality and ISO 14001 Environment certification in2007). The companies employ 530 employees at fivemanufacturing sites in Italy. OHSAS 18001 is theinternationally recognised assessment specification foroccupational health and safety management systems.The following key areas are addressed by OHSAS 18001:• Planning for hazard identification, risk assessment and riskcontrol • OHSAS management programme • Structure and responsibility • Training, awareness and competence • Consultation and communication • Operational control • Emergency preparedness and response • Performance measuring, monitoring and improvementHealth and safety training is part of the induction process fornew employees. Specific training is given, where relevant, forforklift truck, crane and hoist operation and bottle gas usageas well as fire safety and first aid training. Additional trainingis given where an employee has a specific role such asresponsibility for administering first aid.Risk assessments are in place throughout the Group.Appropriate control measures have been taken to control therisks identified. Assessments are carried out on a regular basisand these assessments are kept under review, particularlywhen new equipment or machinery is acquired or newprocesses are introduced.Accident statistics have been published by the Group for eachyear since 2002. The table below sets out the position duringthe last five years. For 2008 we targeted a 10% reduction forthe year in accidents. An 18% reduction was achieved in2008 with accidents reducing from 20 (representing 976 per100,000 employees) in 2007 to 16 (representing 723 per100,000 employees) in 2008 see Note 4 on page 17.There were no fatal accidents during 2008. A similar targetedreduction has been set for 2009.YearAccident rateFatalitiesAverage numberof employees20041,290Nil1,55020051,040Nil1,5382006835Nil1,6762007976Nil2,0492008723Nil2,214Note: Accident rate means the number of accidents per 100,000 employeesper year leading to absences from work of more than three days.The Group website’s principal aim is to help investors,potential investors, customers, employees and otherstakeholders to better understand the Group and view the widevariety of products available from Group companies –www.vitecgroup.com. Our policy is to keep employeesinformed on matters relating to their employment and onfinancial and economic factors affecting the Group. We do thisthrough management briefings by the Group Chief Executive,the Group Finance Director and divisional heads, managementconferences, through the Group's website and by internaldistribution of press releases and internal announcements. Anintranet for the whole Group has been created and is beingrefined and updated regularly. Combining the variousintranets that existed around the Group has enabled ouremployees to gain better access to information and animproved understanding of our Group and individual businessobjectives and their roles in achieving them. The Group hasoperations in many countries and employees speaking manydifferent languages and so, where practical, documentspublished on our intranet are translated into the relevantlanguages. We strive to continue and improve this process,and development of the intranet generally, in the future.Building and developing the skills, competencies, motivationand teamwork of our people is key to achieving our businessobjectives and to ensuring best practices throughout theGroup.The Group operates in many countries and our employmentpolicies, which are designed to meet local conditions andrequirements, are established on the basis of the best practicein each country in which we operate. The wide geographicalspread provides some opportunities for employees to workeither short term, or on secondment for longer periods of time,at overseas locations.The Group encourages all employees both in the UK andoverseas to participate in the Group's savings related shareoption schemes under which options over the Company'sshares are granted to employees who enter into contracts withan external regulated savings carrier to save agreed amountseach month. We understand our responsibility as employers under theDisability Discrimination Act 1995 and we do not discriminateagainst disabled people. If an employee is, or becomes,disabled during his or her period of employment, we will, ifnecessary and to the extent possible, adapt the workenvironment to enable the employee to continue in his or hercurrent position or retrain the employee for duties suited tothat employee’s abilities. It continues to be the Group’s policyto consider applications for employment from disabled peopleon the same basis as other potential employees.Community giving PolicyVitec has for many years contributed to national and localcommunities in the countries in which we operate throughdonations, sponsorship and financial support for localcharities. In addition, we encourage local employees to givetheir time to local causes and this is coupled with a matchingelement from the employer. ActionsThe Vitec Group and divisional charity committees review allwritten requests for donations and decide on the level ofdonations and the charities to which donations are made. Weare now concentrating our donations to children, personaldevelopment and media-related causes.In addition to making donations to worthwhile causes, staff atmany of the Group's locations donate their time to worthwhilecauses. Time spent on such activities is matched by theCompany.During 2008 donations totalling £139,941 (2007: £73,641)were made by Group companies. Some of the support givenby Group companies during 2008 included the following.Camera Dynamics in Bury St Edmunds, England donated£4,000 worth of equipment to West Kent College, KingEdward VI School and Norwich Family Life Church foreducational purposes.The Bogen Café is an annual series of two day workshops andlectures at 20 universities and colleges in the United Statesdesigned to help the colleges to support their curriculumalong with awarding a Bogen scholarship. The Bogen Caféteam not only shares our expertise in photography but alsodonates a wealth of quality photographic equipment to eachuniversity and college they visit. During 2008 equipment tothe value of US$75,000 was donated by Bogen Imaging.www.bogencafe.comManfrotto in Bassano del Grappa, Italy ran a free photographiccourse in local schools to educate 10 year olds to usephotography as a means to report social and environmentalissues, to develop the children’s understanding of such issues,develop their artistic expression and introduce them tophotography as a possible future occupation or interest. Thevalue of this course was c13,802 including eight cameras andother equipment, the fee for two professional photographersand prints.Manfrotto further sponsored a photo exhibition in Bassano delGrappa which raised money for the Acholi ethnic group inUganda. The plight of the Acholi was communicated viaphotographic displays in Rome in 2007, in Bassano in 2008and, to follow, in Milan in 2009. Manfrotto’s sponsorshipcontribution was c1,500.The John Lennon Educational Tour Bus is a non-profit, mobileaudio and HD video recording and production facility. Since1998, the Bus has provided free hands-on programmes tohundreds of high schools, colleges, Boys and Girls Clubs,music festivals, concerts, conventions and communityorganisations. Working together with some of the biggestnames in music, the Lennon Bus encourages students to playmusic, write songs, engineer recording sessions and producevideo projects using the latest audio, video, and live soundequipment. Both Bogen Imaging and Litepanels in the USmade contributions to the Tour Bus in 2008. Litepanelsdonated equipment worth £22,157 and Bogen Imagingdonated equipment worth £1,621.www.lennonbus.org33THE VITEC GROUP32ANNUAL REPORT 2008Corporate Social Responsibility Report continuedCorporate GovernanceBogen Imaging donated £2,702 of equipment to GlobalWarming: Project Meltdown. Photographer James Balog istaking on his greatest challenge to date, inventing a way tocatch global warming in the act. Using 26 time-lapse cameraunits placed near 16 glaciers across the northern hemisphere,the celebrated wildlife photographer will produce 300,000images over three years, capturing glacial melt like never seenbefore - http://extremeicesurvey.orgThe Eddie Adams Barnstorm Workshop is an intense four-daygathering of top photography professionals, along with 100carefully selected students from around the world. TheWorkshop’s purpose is to create a forum in which an exchangeof ideas, techniques and philosophies can be shared betweenboth established members and newcomers in the field ofprofessional picture journalism. Bogen Imaging loanedequipment and four volunteer staff which totalled a value of£5,400.Ciudad de los Niños (Children’s City) is a school in Costa Ricawhich provides education to a total of 350 children and hasvarious education facilities including farms and tool shops.The manufacturing site in Costa Rica, Camera DynamicsLimitada, was contacted by the UK Ambassador located inCosta Rica, who is a sponsor of the school. The Ambassadorwas seeking donations for the school’s 50th anniversary.$26,000 of the $40,000 needed to purchase a new tractor tooperate on the school’s farm was donated by CameraDynamics Limitada.Anton/Bauer made donations totalling $18,273 in 2008 tovarious charities including $5,850 to the Hole in the WallGang, a charity for seriously ill children, $1,000 to AreaCongregations, who provide food, shelter and support servicesto people in need, $1,000 to the local fire department EchoHose Fire Company and $1,000 to the American CancerSociety.Cancer Campaign in Suffolk is a charity operating out ofIpswich Hospital to bring information to the community vialocal businesses, schools, community groups and sports clubswhich is aimed at educating and informing young people ofthe signs and symptoms to look for in the early detection ofcancer. They also work in partnership with the IpswichHospital and fund a specialist cancer nursing post and otherprojects over their 10 years in existence. Camera Dynamics inBury St Edmunds made a donation of £2,000 to support thecharity. The Listing Rules require a company to include in its annualreport and accounts a statement of how it has applied the mainand supporting principles set out in the 2006 Combined Code(the Code). The Listing Rules also require a company toinclude a statement as to whether or not it has compliedthroughout the accounting period with the Code provisions. Acompany that has not complied with the Code provisions, orcomplied with only some of the Code provisions or (in the caseof provisions whose requirements are of a continuing nature)complied for only part of an accounting period, must specifythe Code provisions with which it has not complied, and (whererelevant) for what part of the period such non-compliancecontinued, and give reasons for such non-compliance.Statement of complianceThe Board considers that it has complied with the Codethroughout the year ended 31 December 2008. The Companyregularly reviews and revises its procedures, as necessary, totake account of the requirements of the Code.The BoardThe Board is accountable to shareholders for the creation anddelivery of strong sustainable performance and the creation oflong term shareholder value. The Board meets regularly and isresponsible for organising and directing the affairs of theCompany and the Group in a manner that will promote thesuccess of the Company and is consistent with good corporategovernance practices and for ensuring that in carrying out itsduties the Company and the Group meets legal and regulatoryrequirements. The Board is also responsible to the FinancialServices Authority (FSA) for ensuring compliance with theGroup's UK regulatory obligations.The business of the Company is managed by the directors, whomay exercise all the power of the Company subject to theCompany's articles of association, relevant law and anydirections as may be given by the Company in general meeting.The directors may delegate any of their powers or discretions tocommittees consisting of one or more members of their bodyand (if thought fit) one or more other persons co-opted so longas the majority of committee members are directors.Unless authorised in advance by the Board of Directors andwith the respective director abstaining from any suchauthorisation, a director shall not vote in respect of anycontract or other proposal in which he or she (or any personconnected with the director) has a material interest otherwisethan by virtue of his or her interests in securities of theCompany. However, a director shall be entitled to vote incertain limited circumstances which are set out in full in thearticles of association. The Board has formally adopted a procedure for dealing withconflicts or potential conflicts of interest. The Board issatisfied that the procedure for dealing with conflicts isoperating effectively.The directors shall restrict the borrowings of the Company so asto secure that the aggregate amount of all monies borrowed bythe Group and owing to persons outside the Group shall not atany time, without the previous sanction of an ordinaryresolution of the Company, exceed a sum equal to twice theaggregate of (i) the amount paid up on the issued share capitalof the Company; and (ii) the amount standing to the credit ofthe reserves of the Group (subject to certain adjustments).The Company can increase its share capital and authorise thedirectors to allot further securities by ordinary resolution.Resolutions seeking to increase the authorised share capital andseeking authority for the directors to allot securities are beingput to the Company’s Annual General Meeting on 19 May 2009.Details on the respective authorities are set out in the Notice ofthe Annual General Meeting. The directors may offer, allot,grant options over or otherwise dispose of shares to suchpersons, at such times and for such consideration and uponsuch terms and conditions as the directors may determine,provided that no shares shall be issued at a discount.Subject to the provisions of the Companies Acts the Companymay purchase its own shares. Authority was given at the2008 Annual General Meeting for the Company to makemarket purchases of up to 4.2 million shares. That authorityexpires at the conclusion of the 2009 Annual GeneralMeeting. A renewal of this authority is being sought at the2009 Annual General Meeting. During the year ended 31December 2008, the Company purchased 150,000 shares inthe market under this authority at an average price of £4.53.These shares are held in treasury and are not counted in theAnalysis of Shareholdings given on page 99.The Board had six scheduled meetings during the year ended31 December 2008 and one meeting at short notice. There isa formal schedule of matters and levels of authority which aredelegated to the executive directors, all other matters andpowers being reserved to the Board or to its Committees. Fulldetails of matters reserved to the Board may be viewed on theCompany’s website.During the year, all directors attended all six scheduled Boardmeetings, except for Simon Beresford-Wylie who was unable toattend the December 2008 Board meeting due to anothercommitment. Apart from the scheduled Board meetings, therewas one Board meeting held at short notice. Due to a conflictof interest, neither Gareth Rhys Williams nor Alastair Hewgillattended this Board meeting.At 1 January 2008, the Board consisted of a Chairman(Michael Harper), a Chief Executive (Gareth Rhys Williams), aFinance Director (Alastair Hewgill) and four non-executivedirectors (Simon Beresford-Wylie, Nigel Moore, Maria Richterand Will Wyatt). Mr Wyatt is also the Senior IndependentDirector. On 30 September 2008, Mr Rhys Williams stooddown as Chief Executive and was replaced with Mr Hewgill asInterim Chief Executive. Mr Rhys Williams continued as adirector of the Company until 29 October 2008 when heresigned. On 3 November 2008, Richard Cotton wasappointed as Finance Director. As at 31 December 2008 theBoard therefore comprised a Chairman (Mr Harper), an InterimChief Executive (Mr Hewgill), a Finance Director(Mr Cotton) and four non-executive directors (Mr Beresford-Wylie, Mr Moore, Ms Richter and Mr Wyatt). The Board has announced that, on 14 April 2009, StephenBird will be appointed a director and Chief Executive of theCompany. Mr Hewgill will cease to be a director of theCompany at the conclusion of the Annual General Meeting on19 May 2009.Alex Watson, Senior Finance Manager of CameraDynamics Limitada, visiting Ciudad de los Niños onthe day they took delivery of the new tractor.35THE VITEC GROUP34ANNUAL REPORT 2008Corporate Governance continuedThe non-executive directors bring independent character andjudgement to bear on strategic matters, the performance ofthe Group, the adequacy of resources and standards ofconduct. The Board considers that Simon Beresford-Wylie,Maria Richter, Nigel Moore and Will Wyatt are independent inaccordance with the recommendations of the Combined Code.The roles of the Chairman (who is non-executive) and of theChief Executive are separate and they each have a clearwritten division of responsibilities approved by the Board. Fulldetails of which may be viewed on the Company’s website.Directors, having notified the Chairman, are able to takeindependent professional advice at the Company's expense infurtherance of their duties. All new directors are given anextensive introduction to the Group, including meeting withsenior executives and visiting the Group's principal operationsboth in the UK and overseas. All directors have access to theadvice and services of the Group Company Secretary.Ongoing training for new directors and existing directors isavailable at the request of the director. Each director receivesdetails of relevant training and development courses from boththe Secretary and from external bodies such as KPMG andWatson Wyatt. The requirement for training is regularlydiscussed at meetings of the Board and of its Committees.The papers supplied for consideration by the Board areprovided on the basis that it gives all Board membersadequate time to read and, where appropriate, ask questionsprior to the meeting about the information supplied. Theinformation includes budgets, strategy papers, reviews of theGroup's financial position and operating performance andannual and half yearly reports. Further information is suppliedfrom time to time as and when requested by the Board.The Board has an Audit Committee, a Nominations Committeeand a Remuneration Committee. Each Committee has formalterms of reference which may be viewed on the Company'swebsite. The terms of reference and the effectiveness of theBoard and of each Committee are regularly reviewed andchanges made where necessary. Any issues arising from thereviews of effectiveness are summarised and tabled atsubsequent Board meetings at which they are discussed andaction plans agreed.Performance evaluations of each of the directors took placeduring the year in accordance with the provision contained inthe Combined Code. In the case of the executive directors thisevaluation takes place by the non-executive directors regularlythroughout the year against achievement of specificobjectives. Evaluation of the Chairman was carried out by theSenior Independent Director. Evaluation of each of the othernon-executive directors was carried out by the Chairman. Eachevaluation was carried out by using written questionnaires andthe results were discussed individually with each of therelevant non-executive directors. Evaluations of theeffectiveness of the Board and each of the Committees werealso carried out by the full Board and the relevant Committeemembers respectively. The 2008 evaluation process concludedthat the Board, its Committees and individual members wereperforming to a good standard. Improvements identifiedinclude the development of greater exposure of theindependent non-executive directors to senior managementbelow Board level. Similar evaluations are planned to takeplace each year in the future.Audit CommitteeThe Committee is chaired by Nigel Moore. The other membersof the Committee are Simon Beresford-Wylie, Maria Richterand Will Wyatt. Each member of the Committee isindependent. The Committee considers that its members havea wide skill set covering financial, commercial and operationalmatters, however Mr Moore has the most recent and relevantfinancial experience. During 2008 the Committee met threetimes and all the members attended all the Committeemeetings. The Company's external auditors, KPMG, are invitedto attend meetings of the Committee on a regular basis andduring 2008 they attended all three meetings; in each casefor part of the meeting. At one of the meetings the executivedirectors were not present for part of the meeting so thatmembers of the Committee could meet with the externalauditors in private. The practice of the Committee meeting inprivate with the external auditors will continue in the future.Duties of the Committee:Financial ReportingMonitoring the integrity of the financial statements of theCompany, including its annual and half yearly reports,preliminary results announcements, interim managementstatements and any other formal announcement relating to itsfinancial performance, reviewing significant financial reportingissues and judgements which they contain.The annual financial statements of the pension funds were notreviewed by the Board as a whole.Internal Controls and Risk Management SystemsKeeping under review the effectiveness of the Company'sinternal financial controls and risk management systems; andreviewing the statements to be included in the annual reportconcerning internal controls and risk management.WhistleblowingReviewing the Company's arrangements for its employees toraise concerns, in confidence, about possible wrongdoing infinancial reporting or other matters. The Committee ensuresthat these arrangements allow proportionate and independentinvestigation of such matters and appropriate follow up action.Internal AuditDuring the year ended 31 December 2008, the Company didnot have its own internal audit function. Instead the Companyused the services of a third party audit consultant, which ismore fully explained in the final paragraph of the InternalControls and Risk Management section. Following a review ofthis arrangement, the directors have decided to recruit its owninternal audit function. The Committee will oversee the workof this new internal function in 2009.External AuditConsidering and making recommendations to the Board inrelation to the appointment, re-appointment and removal ofthe Company's external auditors. The Committee oversees theselection process for new auditors and, if the auditors resign,the Committee is required to investigate the issues leading tothis and decide whether any action is required.Overseeing the relationship with the external auditorsincluding, but not limited to:• approving its remuneration, whether fees for audit or nonaudit services and checking that the level of fees isappropriate to enable an adequate audit to be conducted;• approving its terms of engagement, including anyengagement letter issued at the start of each audit and thescope of the audit;• assessing annually its independence and objectivity takinginto account relevant professional and regulatoryrequirements and the relationship with the auditors as awhole, including the provision of any non-audit services;• satisfying itself that there are no relationships (such asfamily, employment, investment, financial or business)between the auditors and the Company (other than in theordinary course of business);• agreeing with the Board a policy on the employment offormer employees of the Company's auditors, thenmonitoring the implementation of this policy;• monitoring the auditors' compliance with relevant ethicaland professional guidance on the rotation of audit partners,the level of fees paid by the Company compared to theoverall fee income of the firm, office and partner and otherrelated requirements;• assessing annually the external auditors' qualifications,expertise and resources and the effectiveness of the auditprocess which shall include a report from the externalauditors on their own internal quality procedures;• ensuring co-ordination with the activities of the Company’sinternal audit arrangements;• meeting regularly with the external auditors, including at theplanning stage before the audit and after the audit at thereporting stage. The Committee meets the external auditorsat least once a year, without executive directors beingpresent, to discuss their remit and any issues arising fromthe audit;• reviewing and approving the annual audit plan and ensuringthat it is consistent with the scope of the audit engagement;• reviewing the findings of the audit with the externalauditors. This includes but is not limited to the following;• a discussion of any major issues that arose during theaudit, • accounting and audit judgements, and • levels of errors identified during the audit.• reviewing the effectiveness of the audit and reviewing anyrepresentation letter requested by the external auditorsbefore it is signed by management;• reviewing the management letter and management'sresponse to the auditors' findings and recommendations;• reviewing and approving the policy on the supply of non-audit services by the external auditors, taking into accountany relevant ethical guidance on the matter. A policy on the use of the external auditors for non-auditservices has been in place for a number of years. The use ofthe external auditors is subject generally to competitivenessand demonstrable competence in the relevant areas. Thepolicy is divided into three parts:• Work where use of the external auditors is deemedappropriate. This type of work includes corporate tax adviceand planning, tax compliance, accounting advice in relationto acquisitions, dividend planning, divestments, corporate governance/risk management advice and defined audit-related work and regulatory reporting.• Work requiring Audit Committee clearance or refinement ofVitec policy. The type of work includes reporting accountantservices, compliance services (including fraud and moneylaundering), transaction work (mergers/acquisitions),valuation and actuarial services, fairness opinions and contribution in kind reports, personal tax services,management consultancy, HR or recruitment services, remuneration consultancy and legal or other professional services unrelated to an audit.• Work from which the external auditors are excluded. Thisincludes internal accounting or other internal financialservices, design development or implementation of financialinformation or internal controls systems, internal auditservices or their outsourcing, forensic accounting services,executive or management roles and functions, ITconsultancy, litigation support services and other financialservices such as broker, financial adviser or investmentbanking services. 37THE VITEC GROUP36ANNUAL REPORT 2008Corporate Governance continuedReporting Responsibilities• The Committee Chairman reports to the Board on itsproceedings after each meeting on all matters within itsduties and responsibilities. • The Committee makes whatever recommendations to theBoard it deems appropriate on any area within its remitwhere action or improvement is needed. Other ResponsibilitiesThe Committee has access to sufficient resources in order tocarry out its duties, including access to the CompanySecretary for assistance as required;The Committee members are provided with training as andwhen required, both in the form of an induction programmefor new members and on an ongoing basis for all members;The Committee may oversee any investigation of activitieswhich are within its terms of reference and, for internalpurposes, act as a court of the last resort; andAt least once a year, reviewing its own performance,constitution and terms of reference to ensure it is operating atmaximum effectiveness and recommending any changes itconsiders necessary to the Board for approval.AuthorityThe Committee is authorised to seek any information itrequires from any employee of the Company in order toperform its duties and to obtain, at the Company's expense,outside legal or other professional advice on any matter withinits terms of reference. It is also authorised to call anyemployee to be questioned at a meeting of the Committee asand when required.Remuneration CommitteeThe Committee is chaired by Will Wyatt. The other members ofthe Committee are Simon Beresford-Wylie, Nigel Moore andMaria Richter. Each member of the Committee is independent.During 2008, the Committee had three scheduled meetings andtwo meetings called at short notice. Mr Beresford-Wylie did notattend two of the scheduled meetings and one of the shortnotice meetings due to other external commitments and MsRichter did not attend one of the short notice meetings due to aconflict with an external commitment. All other membersattended all the Committee meetings.The Remuneration Report in respect of the year ended 31December 2008 is set out on pages 21 to 27.Duties of the Committee:• determining and agreeing with the Board the framework orbroad policy for the remuneration of the Company'sChairman, the executive directors, the Company Secretaryand such other members of the executive management as it is designated to consider. No director or manager may beinvolved in any decisions as to their own remuneration;• in determining such policy, taking into account all factorswhich it deems necessary. The objective of such policy is toensure that members of the executive management of theCompany are provided with appropriate incentives toencourage enhanced performance and are, in a fair and responsible manner, rewarded for their individualcontributions to the success of the Company;• reviewing the ongoing appropriateness and relevance of theremuneration policy; • approving the design of, and determining targets for, anyperformance-related pay schemes operated by the Companyand approving the total annual payments made under suchschemes, ensuring that any performance related payschemes are structured to drive executive management todeliver sustainable long term growth in shareholder value; • reviewing the design of all share incentive plans for approvalby the Board and shareholders. For any such plans,determining each year whether awards will be made, and ifso, the overall amount of such awards, the individual awardsto executive directors and other senior executives and theperformance targets to be used, ensuring that awards aremerited, particularly given the context of ongoing businessperformance, that they are not disproportionate andpotentially rewarding failure; • determining the policy for, and scope of, pensionarrangements for each executive director and other seniorexecutives; • ensuring that contractual terms on termination, and anypayments made, are fair to the individual and the Company,that failure is not rewarded and that the duty to mitigateloss is fully recognised; • within the terms of the agreed policy and in consultationwith the Chairman and/or Chief Executive as appropriate,determining the total individual remuneration package ofeach executive director and other senior executives including bonuses, incentive payments and share options orother share awards; • in determining such packages and arrangements, give dueregard to any relevant legal requirements, the provisions andrecommendations in the Code and the UK Listing Authority'sListing Rules and associated guidance; • reviewing and noting annually the remuneration trendsacross the Company or Group; • overseeing any major changes in employee benefitsstructures throughout the Company or Group; • agreeing the policy for authorising claims for expenses fromthe Chief Executive and Chairman; • ensuring that all provisions regarding disclosure ofremuneration including pensions, as set out in the Directors'Remuneration Report Regulations 2002 and the Code arefulfilled; and • being exclusively responsible for establishing the selectioncriteria, selecting, appointing and setting the terms ofreference for any remuneration consultants who advise theCommittee, and to obtain reliable, up-to-date informationabout remuneration in other companies. The Committeeshall have full authority to commission any reports or surveysthat it deems necessary to help it fulfil its obligations. Reporting Responsibilities• The Committee Chairman reports formally to the Board onits proceedings after each meeting on all matters within itsduties and responsibilities.• The Committee makes whatever recommendations to theBoard it deems appropriate on any area within its remitwhere action or improvement is needed.• Produce an annual report of the Company’s remunerationpolicies and practices which will form part of the Company’sAnnual Report and ensure that it is put to shareholders forapproval at the Annual General Meeting.Other Responsibilities• The Committee, at least once a year, reviews its ownperformance, constitution and terms of reference to ensureit is operating at maximum effectiveness and recommendsany changes it considers necessary to the Board forapproval.AuthorityThe Committee is authorised by the Board to seek anyinformation it requires from any employee of the Company inorder to perform its duties. The Committee is also authorisedby the Board, in connection with the Committee's duties, toobtain, at the Company's expense, any outside legal or otherprofessional advice.Nominations CommitteeThe Committee is chaired by Michael Harper. The othermembers of the Committee are Simon Beresford-Wylie, NigelMoore, Maria Richter and Will Wyatt. There were three Committee meetings held during 2008 andall members of the Committee attended each meeting.During the year, the principal activity of the Committee wasthe selection of a new Chief Executive and Finance Director tosucceed Gareth Rhys Williams and Alastair Hewgillrespectively. The selection of a new Finance Director involvedan external search, with the support of an executive searchcompany, to identify potential external candidates. Severalcandidates were interviewed by Nigel Moore, Gareth RhysWilliams, Alastair Hewgill and finally by the Chairman. TheCommittee considered the merits of each candidate and, onthe strength of these interviews and meeting the preferredcandidate, made a recommendation to the Board that RichardCotton should be appointed Finance Director. Mr Cotton wassubsequently appointed Finance Director on 3 November2008.The selection of a new Chief Executive involved theCommittee taking advice from an executive search company. The Committee considered the merits of several internal andexternal candidates. Extensive interviews with each candidatewere held by the Committee and, on the strength of these, theCommittee recommended that Stephen Bird be appointedChief Executive. The Board has subsequently approved theappointment of Mr Bird as Chief Executive with effect from 14April 2009.The Committee also considered succession plans for other keypositions with the Group during the year.The Committee is delegated authority by the Board to dealwith succession planning and making recommendations to theBoard on all new Board appointments.Duties of the Committee:• reviewing the structure, size and composition (including theskills, knowledge and experience) required of the Board inthe future compared to its current position and makingrecommendations to the Board with regard to any changes; • giving full consideration to succession planning for directorsand other senior executives, taking into account thechallenges and opportunities facing the Company, and theskills and expertise needed on the Board in the future; • being responsible for identifying and nominating for theapproval of the Board, candidates to fill Board vacancies asand when they arise; • before any appointment is made by the Board, evaluatingthe balance of skills, knowledge and experience on theBoard, and, in the light of this evaluation preparing adescription of the role and capabilities required for aparticular appointment. In identifying suitable candidatesthe Committee:• uses open advertising or the services of external advisersto facilitate the search; • considers candidates from a wide range of backgrounds;and • considers candidates on merit and against objectivecriteria, taking care that appointees have enough timeavailable to devote to the position. • keeping under review the leadership needs of the Company,both executive and non executive, with a view to ensuringthe continuing ability of the Company to compete effectivelyin the marketplace; • keeping up to date and fully informed about strategic issuesand commercial changes affecting the Company and themarket in which it operates; 39THE VITEC GROUP38ANNUAL REPORT 2008Corporate Governance continuednature of any business that business and commercial risksmust be taken and that for a business to succeed, enterprise,initiative and the motivation of employees are key elementsthat must not be unduly stifled. It is not the intention of theGroup to avoid all commercial risks and commercialjudgements will have to be made in the course of themanagement of the business.The Board has adopted a risk based approach to establishingthe system of internal controls. The application and processfollowed by the Board in reviewing the effectiveness of thesystem of internal controls during the year are as follows:• operating company management is charged with the ongoingresponsibility for identifying risks facing each of thebusinesses and for putting in place procedures to monitorand manage risks.• this system has been in place for the year under review andup to the date of approval of the Annual Report andaccounts.• the responsibilities of the chief executive officer and chieffinancial officer at each operating unit to manage riskswithin their businesses are periodically reinforced by Groupexecutive management.• major commercial, technological and financial risks to theGroup are formally assessed during the annual long termbusiness planning process around mid-year. These plans andthe attendant risks to the Group are reviewed and considered by the Board.• large capital projects, product development projects andacquisitions and disposals require Board approval.• the process by which the Board reviews the effectiveness ofinternal controls has been agreed by the Board anddocumented. This involves regular reviews by the Board, ofthe major business risks of the Group together with the controls in place to manage those risks as reported to theBoard by the chief executives of each division. In addition,each year businesses formally review, in detail, all of theirbusiness risks and their internal controls, including financial, operational and compliance controls. They thenprepare statements that describe the extent of theircompliance with control objectives. These statements areapproved by the chief executive officer and chief financial officer of each operating unit and submitted to Groupexecutive management for review. Any significant mattersarising from this review are formally reported to the Board bythe Finance Director. The risk and control identification andcertification process is monitored and periodically reviewedby Group financial management.• a centralised database of risks facing the Group, as well aseach individual business, and an evaluation of the impactand likelihood of those risks is maintained and updatedregularly.• the Board has established a control framework within whichthe Group operates. This contains the following keyelements:• organisational structure with clearly defined lines ofresponsibility, delegation of authority and reportingrequirements. • defined expenditure authorisation levels. • on-site and telephone conferencing operations reviewscovering all aspects of each business are conducted byGroup executive management on a regular basis throughoutthe year. • comprehensive system of financial reporting. The annualbudget and long term plan of each operating company arereviewed in detail and approved by the executive directors.The Board approves the overall Group's budget and plans.Monthly actual results are reported against prior year andmonthly budgets. Forecasts are revised where necessary butformally at least once every quarter. Any significant changesand adverse variances are questioned by the Group executivedirectors and remedial action is taken where appropriate. Group tax and treasury is coordinated centrally. There isregular cash and treasury reporting to Group financialmanagement and periodic reporting to the Board on theGroup's tax and treasury position.The Board considers that it has fully complied with the Codeduring the year and up to the date of approval of the AnnualReport and accounts and that it accords with Turnbullguidance.The Group does not currently have an internal audit function.Instead, third party audit consultants, independent from thecompanies' external auditors, are used on specificassignments. Seven such outsourced audits took place in2008, the details of which have been reported to the AuditCommittee and the Board.The need for an internal audit function is regularly reviewedand the Board has taken the decision to establish such afunction during 2009. The resourcing of this is in progress.Going concernThe directors have made appropriate enquiries and considerthat the Group has adequate resources to continue inoperational existence for the foreseeable future. Accordingly,the directors continue to adopt the going concern basis inpreparing the accounts.Statement of directors' responsibilities in respectof the annual report and the financial statementsThe directors are responsible for preparing the Annual Reportand the Group and parent Company financial statements, inaccordance with applicable law and regulations.Company law requires the directors to prepare Group andparent Company financial statements for each financial year.Under that law they are required to prepare the Groupfinancial statements in accordance with IFRSs as adopted bythe EU and applicable law and have elected to prepare theparent Company financial statements in accordance with UKAccounting Standards and applicable law (UK GenerallyAccepted Accounting Practice).• reviewing annually the time required from non-executivedirectors; and • ensuring that on appointment to the Board, non-executivedirectors receive a formal letter of appointment setting outclearly what is expected of them in terms of timecommitment, Committee service and involvement outsideBoard meetings. Detailed terms of reference for the Nominations Committeeare on the Company’s website.Reporting Responsibilities• The Committee Chairman reports to the Board on itsproceedings after each meeting on all matters within itsduties and responsibilities. • The Committee makes whatever recommendations to theBoard it deems appropriate on any area within its remitwhere action or improvement is needed. Other ResponsibilitiesThe Committee, at least once a year, reviews its ownperformance, constitution and terms of reference to ensure itis operating at maximum effectiveness and recommends anychanges it considers necessary to the Board for approval.AuthorityThe Committee is authorised by the Board to seek anyinformation it requires from any employee of the Company inorder to perform its duties. The Committee is also authorisedby the Board, in connection with the Committee's duties, toobtain, at the Company's expense, any outside legal or otherprofessional advice.Appointments and re-appointments to the Board:The Board has power at any time and from time to time toappoint any person to be a director, either to fill a casualvacancy or as an addition to the existing Board. Any directorso appointed shall hold office only until the next AnnualGeneral Meeting and shall then put him or herself forward tobe re-appointed by the members.The Chairman and the other non-executive directors areappointed for an initial period of three years which, with theapproval of the Nominations Committee and the Board, wouldnormally be extended for a further three years. In exceptionalcircumstances, appointments of non-executive directors maybe extended beyond six years, with the approval of theNominations Committee, the Board and the individual directorconcerned, if it is in the interests of the Group to do so.Under the Company's Articles of Association, each director isrequired to be re-appointed at the third Annual GeneralMeeting following that at which he or she was last appointedor re-appointed. Will Wyatt and Simon Beresford-Wylie willretire and will be proposed for re-appointment at the AnnualGeneral Meeting on 19 May 2009. Richard Cotton andStephen Bird, having been appointed by the Board on 3November 2008 and 14 April 2009 respectively, willadditionally seek re-appointment by the members at the 19May 2009 Annual General Meeting. Alastair Hewgill, havinglast been re-appointed by the members at the 2006 AnnualGeneral Meeting, will not be seeking re-appointment at the 19May 2009 Annual General Meeting and will cease to be adirector of the Company from the conclusion of that meeting.Relations with ShareholdersThe Board continues to recognise the importance ofmaintaining regular contact with its shareholders to ensurethat its businesses, strategy and remuneration policies areunderstood and that any concerns are addressed in aconstructive way. The Board communicates with itsshareholders through a combination of public announcementsthrough the Stock Exchange, analyst briefings, road shows andpress interviews at the time of the announcements of the halfyear and full year results and, when appropriate, at othertimes in the year. The executive directors, the Chairman andthe Senior Independent Director also meet with investors fromtime to time. The Annual General Meeting offers a furtheropportunity for the directors to meet with shareholders and forthe shareholders to ask questions about the business.The Company sends to its shareholders each year an AnnualReport and copies of this and of public announcements andfinancial results are published on the Company’s websitewww.vitecgroup.com. The Company has previously sent toshareholders a printed Interim Report covering its half yearresults. To save on the costs of production and postage, theCompany will cease doing this going forward. Instead,shareholders will be able to view the half yearly results pressrelease on the Company’s website or request a copy of thepress release from the Company Secretary.At meetings of shareholders the level of proxy votes received,together with the numbers of votes in favour, against andwithheld, is announced after each resolution has been dealtwith on a show of hands. Separate resolutions are proposed foreach issue upon which shareholders are asked to vote. TheGroup's website contains details of the 2009 Annual GeneralMeeting resolutions and the voting thereon.The Company has complied with the requirement set out inthe Code in respect of shareholders' meetings to send thenotice of annual general meeting and related papers at least20 working days before the meeting. It will continue to complywith the requirement.Internal control and risk managementThe Board is responsible for the Group's system of internalcontrols to safeguard shareholders' investment and theCompany's assets. However, any system can only providereasonable assurance against material misstatement or loss.As part of its responsibility, the Board regularly, and at leastannually, reviews the effectiveness of its internal controls. TheGroup has systems and procedures for internal controls thatare designed to provide reasonable control over the activitiesof the Group and to enable the Board to fulfil its legalresponsibility for the keeping of proper accounting records,safeguarding the assets of the Group and detecting fraud andother irregularities. However, it is recognised that it is in the41THE VITEC GROUP40ANNUAL REPORT 2008Corporate Governance continuedIndependent Auditors' Report to the Members of The Vitec Group plcWe have audited the group and parent company financialstatements (the ''financial statements'') of The Vitec Group plcfor the year ended 31 December 2008 which comprise GroupIncome Statement, the Group and Parent Company BalanceSheets, the Group Cash Flow Statement, the Group Statementof Recognised Income and Expenses, the Parent CompanyReconciliation of Movements in Shareholders' Funds and therelated notes. These financial statements have been preparedunder the accounting policies set out therein. We have alsoaudited the information in the Directors' Remuneration Reportthat is described as having been audited.This report is made solely to the company's members, as abody, in accordance with section 235 of the Companies Act1985. Our audit work has been undertaken so that we mightstate to the company's members those matters we are requiredto state to them in an auditor's report and for no otherpurpose. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than thecompany and the company's members as a body, for our auditwork, for this report, or for the opinions we have formed.Respective responsibilities of directors andauditorsThe directors' responsibilities for preparing the Annual Reportand the group financial statements in accordance withapplicable law and International Financial ReportingStandards (IFRSs) as adopted by the EU, and for preparingthe parent company financial statements and the Directors'Remuneration Report in accordance with applicable law andUK Accounting Standards (UK Generally Accepted AccountingPractice) are set out in the Statement of Directors'Responsibilities on page 39.Our responsibility is to audit the financial statements and thepart of the Directors' Remuneration Report to be audited inaccordance with relevant legal and regulatory requirementsand International Standards on Auditing (UK and Ireland).We report to you our opinion as to whether the financialstatements give a true and fair view and whether the financialstatements and the part of the Directors' Remuneration Reportto be audited have been properly prepared in accordance withthe Companies Act 1985 and, as regards the group financialstatements, Article 4 of the IAS Regulation. We also report toyou whether in our opinion the information given in theDirectors' Report is consistent with the financial statements. In addition we report to you if, in our opinion, the company hasnot kept proper accounting records, if we have not received allthe information and explanations we require for our audit, or ifinformation specified by law regarding directors' remunerationand other transactions is not disclosed.We review whether the Corporate Governance Statementreflects the company's compliance with the nine provisions ofthe 2006 Combined Code specified for our review by theListing Rules of the Financial Services Authority, and wereport if it does not. We are not required to consider whetherthe Board's statements on internal control cover all risks andcontrols, or form an opinion on the effectiveness of thegroup's corporate governance procedures or its risk andcontrol procedures.We read the other information contained in the Annual Reportand consider whether it is consistent with the auditedfinancial statements. We consider the implications for ourreport if we become aware of any apparent misstatements ormaterial inconsistencies with the financial statements. Ourresponsibilities do not extend to any other information.Basis of audit opinionWe conducted our audit in accordance with InternationalStandards on Auditing (UK and Ireland) issued by theAuditing Practices Board. An audit includes examination, on atest basis, of evidence relevant to the amounts and disclosuresin the financial statements and the part of the Directors'Remuneration Report to be audited. It also includes anassessment of the significant estimates and judgments madeby the directors in the preparation of the financial statements,and of whether the accounting policies are appropriate to thegroup's and company's circumstances, consistently appliedand adequately disclosed.We planned and performed our audit so as to obtain all theinformation and explanations which we considered necessaryin order to provide us with sufficient evidence to givereasonable assurance that the financial statements and thepart of the Directors' Remuneration Report to be audited arefree from material misstatement, whether caused by fraud orother irregularity or error. In forming our opinion we alsoevaluated the overall adequacy of the presentation ofinformation in the financial statements and the part of theDirectors' Remuneration Report to be audited.OpinionIn our opinion:• the group financial statements give a true and fair view, inaccordance with IFRSs as adopted by the EU, of the state ofthe group's affairs as at 31 December 2008 and of its profitfor the year then ended;• the group financial statements have been properly preparedin accordance with the Companies Act 1985 and Article 4of the IAS Regulation;• the parent company financial statements give a true and fairview, in accordance with UK Generally Accepted AccountingPractice, of the state of the parent company's affairs as at31 December 2008;• the parent company financial statements and the part of theDirectors' Remuneration Report to be audited have beenproperly prepared in accordance with the Companies Act1985; and• the information given in the Directors' Report is consistentwith the financial statements.KPMG Audit Plc Chartered AccountantsLondonRegistered Auditor 2 March 2009The Group financial statements are required by law and IFRSsas adopted by the EU to present fairly the financial positionand the performance of the Group; the Companies Act 1985provides in relation to such financial statements thatreferences in the relevant part of that Act to financialstatements giving a true and fair view are references to theirachieving a fair presentation.The parent Company financial statements are required by lawto give a true and fair view of the state of affairs of the parentCompany.In preparing each of the Group and parent Company financialstatements, the directors are required to:• select suitable accounting policies and then apply themconsistently; • make judgments and estimates that are reasonable andprudent; • for the Group financial statements, state whether they havebeen prepared in accordance with IFRSs as adopted by theEU; • for the parent Company financial statements, state whetherapplicable UK Accounting Standards have been followed,subject to any material departures disclosed and explainedin the parent Company financial statements; and • prepare the financial statements on the going concern basisunless it is inappropriate to presume that the Group and theparent Company will continue in business.The directors are responsible for keeping proper accountingrecords that disclose with reasonable accuracy at any time thefinancial position of the parent Company and enable them toensure that its financial statements comply with theCompanies Act 1985. They have general responsibility fortaking such steps as are reasonably open to them to safeguardthe assets of the Group and to prevent and detect fraud andother irregularities.Under applicable law and regulations, the directors are alsoresponsible for preparing a Directors' Report, Directors'Remuneration Report and Corporate Governance Statementthat comply with that law and those regulations.The directors are responsible for the maintenance and integrityof the corporate and financial information included on theCompany's website. Legislation in the UK governing thepreparation and dissemination of financial statements maydiffer from legislation in other jurisdictions.Disclosure of information to auditorsThe directors who held office at the date of approval of thisDirectors' Report confirm that, so far as they are each aware,there is no relevant audit information (as defined in Section234ZA(3) of the Companies Act 1985) of which theCompany's auditors are unaware; and each director has takenall the steps that they ought to have taken as a director tomake themselves aware of any relevant audit information andto establish that the Company's auditors are aware of thatinformation.43THE VITEC GROUP42ANNUAL REPORT 2008Consolidated Income StatementFor the year ended 31 December 2008Consolidated Statement of Recognised Income and ExpenseFor the year ended 31 December 2008NotesTotal£m Total£m Significantitems£m Beforesignificantitems£m Beforesignificantitems£m Revenue3Continuing operations335.8335.8273.8273.8 Acquisitions1.91.9337.7337.7273.8273.8Cost of sales(200.6)(200.6)(162.5)(162.5)Gross profit137.1137.1111.3111.3Other operating income5-0.30.3---Provision against equity accounted investee5-(1.3)(1.3)---Operating expenses4/5(98.7)(9.2)(107.9)(78.7)(4.9)(83.6)Operating profit3/6Continuing operations38.0(9.4)28.632.6(4.9)27.7 Acquisitions0.4(0.8)(0.4)38.4(10.2)28.232.6(4.9)27.7 Interest payable on bank borrowings(3.2)(3.2)(2.8)(2.8)Interest income0.10.10.20.2Pension scheme: Interest charge(2.5)(2.5)(2.3)(2.3)Expected return on assets3.13.12.92.9Other financial income/(expense)(0.5)0.3(0.2)(0.3)0.40.1Net financial expense5/9(3.0)0.3(2.7)(2.3)0.4(1.9)Profit before tax35.4(9.9)25.530.3(4.5)25.8Taxation11(12.0)6.6(5.4)(11.2)3.7(7.5)Profit for the period (attributable to Equity Shareholders)23.4(3.3)20.119.1(0.8)18.3Earnings per share 12Basic earnings per share48.0p44.1pDiluted earnings per share47.9p43.5p(1) See Note 52008 2007(1)Significantitems£m (1)Actuarial gain/(loss) on pension obligations(1.8)2.5Revaluation reserve on property(0.2)-Currency translation differences on foreign net investments30.72.3Net loss on hedge of net investment in foreign subsidiaries(2.6)(0.6)Cash flow hedging reserve:Amounts released to income statement(0.3)(1.3)Effective portion of changes in fair value(3.7)0.3Net income recognised directly in equity22.13.2Profit for the year20.118.3Total recognised income for the year42.221.52008£m 2007£m 45THE VITEC GROUP44ANNUAL REPORT 2008Consolidated Balance SheetAs at 31 December 2008Consolidated Cash Flow StatementFor the year ended 31 December 2008AssetsNon-current assetsProperty, plant & equipment1363.645.6Intangible assets1471.655.5Investment in equity-accounted investee15-1.3Deferred tax assets1617.813.7153.0116.1 Current assetsInventories1776.465.6 Trade and other receivables1861.450.7Derivative financial instruments 190.71.2Current tax assets200.82.1Cash and cash equivalents2114.98.4154.2128.0Total assets307.2244.1Liabilities Current liabilities Bank overdrafts21-1.1Other borrowings193.0-Trade and other payables2371.574.4Derivative financial instruments197.40.5Current tax liabilities209.710.2Provisions244.14.195.790.3Non-current liabilities Bank loans and other borrowings1964.945.7Other payables230.10.1Post-employment obligations285.92.8Provisions245.75.7Deferred tax liabilities161.52.278.156.5Total liabilities173.8146.8Net assets133.497.3Equity Share capital8.58.4Share premium7.57.0Translation reserve22.3(5.8)Other reserves(2.1)1.9Retained earnings97.285.8Total equity25133.497.3Approved by the Board on 2 March 2009 and signed on its behalfRichard CottonDirectorNotesNotes2008£m 2007£m Cash flows from operating activities:Profit for the year20.118.3Adjustments for: Taxation5.47.5Depreciation11.69.1Impairment losses on property, plant & equipment-0.2Provision against equity-accounted investee1.3-Amortisation of acquired intangible assets7.15.0Amortisation of capitalised software and development costs1.21.3Goodwill impairment2.1-Negative goodwill-(0.1)Net gain on disposal of property, plant & equipment(1.6)(1.2)Fair value losses on derivative financial instruments0.40.1Cost of equity-settled employee share schemes1.71.4Financial income(4.1)(3.1)Financial expense6.85.0Operating profit before changes in working capital and provisions52.043.5Decrease/(increase) in inventories8.7(0.7)Decrease/(increase) in receivables3.8(6.3)Decrease in payables(21.0)(2.5)Increase/(Decrease) in provisions0.8(0.2)Cash generated from operations44.333.8Interest paid(3.7)(3.2)Tax paid(6.7)(9.5)Net cash flow from operating activities33.921.1Cash flows from investing activities: Proceeds from sale of property, plant & equipment2.61.8Purchase of property, plant & equipment(16.4)(17.3)Purchase of intangible assets(0.3)-Software and development costs capitalised as intangible assets(0.9)(1.1)Interest received0.10.2Acquisition of investment resulting in significant influence-(0.6)Acquisition of subsidiaries, net of cash acquired(11.8)(15.0)Net cash flow from investing activities(26.7)(32.0)Cash flows from financing activities:Proceeds from the issue of shares(1)0.52.2Transfer of own shares-0.6Purchase of treasury shares(0.7)-Borrowing of bank loans4.113.5Dividends paid(7.7)(7.0)Net cash flow from financing activities(3.8)9.3Increase/(decrease) in cash and cash equivalents223.4(1.6)Cash and cash equivalents at 1January7.37.5Exchange rate movements(2)4.21.4Cash and cash equivalents at 31 December2114.97.3(1)In 2007, the initial consideration for the acquisition of RF Systems was satisfied in part by the issue of 285,776 new Vitec ordinary shares worth US$3.5 million(£1.8 million). This is excluded from the £2.2 million of proceeds from the issue of shares. (2)Exchange rate movements result from the adjustment of opening balances and cash flows in the year to closing exchange rates.2008£m 2007£m 47THE VITEC GROUP46ANNUAL REPORT 2008Notes to the Consolidated AccountsThe Vitec Group Accounting Policies Under IFRS1a Reporting Entity The Vitec Group plc (the Company) is a Company domiciled in the United Kingdom. The consolidated financialstatements of the Company as at and for the year ended 31 December 2008 comprise the Company and its subsidiaries(together referred to as the Group).1bBasis of PreparationThe financial statements are presented in Sterling. They are prepared on the historical cost basis except that thefollowing assets and liabilities are stated at their fair value: • Derivative financial instruments.• Financial assets used to fund the Group’s defined benefit pension obligations (this fair value is stated net of theactuarial value of the associated pension obligations). The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates andassumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.The estimates and associated assumptions are based on historical experience and various other factors that are believed tobe reasonable under the circumstances, the results of which form the basis of making the judgements about carryingvalues of assets and liabilities that are not readily apparent from other sources. Actual results may differ from theseestimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognised in the period in which the estimate is revised if the revision affects only that period, or in the period of therevision and future periods if the revision affects both current and future periods.Those judgements made by management in the application of IFRS that have significant effect on the financialstatements and the estimates that are considered by the directors to have a significant risk of material adjustment in thenext year are discussed in Note 30.1cStatement of ComplianceThe Group financial statements have been prepared and approved by the directors in accordance with InternationalFinancial Reporting Standards as adopted by the EU (Adopted IFRSs). The Company has elected to prepare its parentcompany financial statements in accordance with UK GAAP. 2 Accounting PoliciesThe accounting policies set out below have been applied consistently to all periods presented in these consolidatedfinancial statements.Basis of Consolidation Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, togovern the financial and operating policies of an entity so as to obtain benefits from its activities. The results ofsubsidiaries sold or acquired during the year are included in the accounts up to, or from, the date that control passes.Intra-Group balances, and any unrealised gains and losses or income and expenses arising from intra-Group transactions,are eliminated in preparing the consolidated financial statements. Associates are those entities in which the Group has significant influence, but not control, over the financial and operatingpolicies. Significant influence is presumed to exist when the Group holds between 20% - 50% of the voting power ofanother entity. Associates are accounted for using the equity method (equity accounted investments) and are initiallyrecognised at cost. The Group’s equity accounted investment includes goodwill identified on acquisition, net of anyaccumulated impairment losses. The consolidated financial statements include the Group’s share of income and expensesand equity movements of equity accounted investments, after adjustments to align the accounting policies with those ofthe Group, from the date that significant influence commences until the date that significant influence ceases. When theGroup’s share of losses exceeds its interest in an equity accounted investment, the carrying amount of that interest isreduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligationor has made payments on behalf of the associate.Business Combinations All business combinations are accounted for by applying the purchase method. In respect of business acquisitions thathave occurred since 1 January 2004, goodwill represents the excess of the cost of the acquisition over the Group’sinterest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When theexcess is negative (negative goodwill), it is recognised immediately in profit or loss.In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents theamount previously recorded under UK GAAP.Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units for thepurposes of impairment testing. Goodwill is no longer amortised but is tested annually for impairment. Impairment The carrying amounts of the Group’s assets on the balance sheet are reviewed at each balance sheet date to determinewhether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.For goodwill, the recoverable amount is estimated at each balance sheet date.An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds itsrecoverable amount. Impairment losses are recognised in the income statement. Once recognised, an impairment loss isnot reversed.The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs tosell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-taxdiscount rate that reflects current market assessments of the time value of money and the risks specific to the asset.Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of anygoodwill allocated to the cash-generating units and then to reduce the carrying amount of the other assets in the unit on apro rata basis.Revenue Revenue, which excludes value added tax and sales between Group companies, represents the value of products andservices sold. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable,net of returns and allowances, trade discounts and volume rebates. Other than for long term contracts, the treatment ofwhich is set out separately below, revenue arising from product sales is recognised when the significant risks and rewardsof ownership have been transferred to the buyer, which is normally when title passes to the customer.Revenue arising from asset rental is recognised over the duration of the rental contract at the gross amount billed to thecustomer.No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, associatedcosts or the possible return of goods and continuing management involvement with the goods.Long Term Contracts Contract revenue and expenses are recognised in the income statement in proportion to the stage of completion of thecontract, to the extent that the contract outcome can be estimated reliably. The stage of completion is assessed byreference to surveys of work performed. An expected loss on a contract is recognised immediately in the incomestatement.Contract work in progress is stated at costs incurred, less those transferred to the income statement, after deductingforseeable losses and payments on account not matched with turnover.Amounts recoverable on contracts are included in receivables and represent revenue recognised in excess of payments onaccount.Foreign Currency Transactions in foreign currencies with overseas customers and suppliers are converted at the date at which transactionsoccur. Monetary assets and liabilities are translated at the period-end rates and the gains or losses on translation are included inthe income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilitiesdenominated in foreign currencies that are stated at fair value are translated using exchange rates ruling at the date thefair value was determined.Foreign currency gains and losses on inter-company loans are recorded directly in reserves if they form part of a netinvestment and repayment is neither planned nor likely to occur in the foreseeable future.49THE VITEC GROUP48ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedIntangible assets arising on acquisition are amortised at the rates indicated below:Backlog100% in first yearBrand6.7% – 331/3% on costCustomer relationships6.7% – 331/3% on costTechnology6.7% – 20% on costSoftware licences20% – 331/3% on costInventories Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price inthe ordinary course of business, less the estimated costs of completion and selling expenses. Cost is based on averagecost or the first in first out method as appropriate, and includes the cost of materials, direct labour and productionoverheads (based on normal operating capacity) incurred in bringing stocks and work in progress to their present locationand condition. Provisions for inventories are recognised when the book value exceeds its net realisable value.Derivatives and Hedge Accounting The Group uses derivative financial instruments (derivatives) to hedge its exposure to foreign exchange risks arising fromoperational activities. The Group does not hold or issue derivatives for trading purposes. However, derivatives that do notqualify for hedge accounting are accounted for as trading instruments. Derivatives are recognised initially at fair value, and subsequent to initial recognition are measured at fair value. The fairvalue of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of thequoted forward price. The fair value of simple option contracts is their quoted market price at the balance sheet date. Derivatives are de-recognised when they mature or are sold.The gain or loss on re-measurement to fair value is recognised immediately in the income statement unless the derivativesqualify for hedge accounting.Cash flow hedgesWhere a derivative is designated as a hedge of the variability in cash flows of a highly probable forecast transaction (“ahedging instrument”), the effective part of any gain or loss on the hedging instrument is recognised directly in equity.This gain or loss is removed from equity and recognised in the income statement in the same period during which thehedged forecast transaction affects profit or loss. The ineffective part of any gain or loss is recognised immediately in theincome statement.If a hedging instrument expires or is sold but the hedged forecast transaction is still expected to occur, the cumulativegain or loss at that point remains in equity and is recognised in accordance with the above policy when the transactionoccurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised inequity is recognised immediately in the income statement.Hedge of monetary assets and liabilitiesWhere a derivative is used to hedge economically the foreign exchange exposure of a recognised monetary asset orliability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the incomestatement.Hedge of a net investment in a foreign operationThe portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determinedto be an effective hedge is recognised directly in equity. The ineffective portion is recognised immediately in the incomestatement. The effective portion will be recycled into the income statement on the sale of the foreign operation.Interest-bearing BorrowingsInterest-bearing borrowings are stated in the balance sheet at cost, being the fair value of consideration, after thededuction of issue costs, which are recognised in the income statement over the term of the related borrowings.Income TaxThe tax expense in the income statement represents the sum of tax currently payable and deferred tax. Current tax is theexpected tax payable on the taxable income for the year, using tax rates substantively enacted at the balance sheet date,and any adjustment to tax payable in respect of previous years.Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amountof deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted at the balance sheet date.Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unusedtax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporarydifferences, and the carry forward of unused tax credits and unused tax losses can be utilised except: Foreign trading profits and cash flows are translated at a weighted average rate for the period. The assets and liabilities ofoverseas companies, including goodwill and fair value adjustments arising on consolidation, are translated using foreignexchange rates ruling at the balance sheet date. Differences on translation of net investments in overseas companies, and of related hedges, are taken directly to thetranslation reserve. They are released to the income statement on disposal.Pension Costs The costs of providing pensions for employees under defined contribution schemes are expensed as incurred.The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimatingthe amount of future benefit that employees have earned in return for their service in the current and prior periods. Thatbenefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount ratefor UK schemes has been derived based on redemption yields on appropriate British Government bonds, plus a marginrepresenting the yield premium on long-dated AA corporate bonds over British Government bonds. The calculation isperformed by a qualified actuary using the projected unit credit method. The Group recognises the ongoing service cost inthe income statement as part of operating profit. The Group recognises the unwinding of the discount (above) and thereturn on plan assets in the income statement as part of net financial expense. All actuarial gains and losses arerecognised in the Statement of Recognised Income and Expense. The Group’s net obligations in respect of overseasdefined benefit pensions plans are estimated by qualified actuaries using appropriate methodologies.Past-service costs are recognised immediately in the income statement, unless the changes to the pension plan areconditional on the employees remaining in service for a specified period of time (the vesting period). In this case, thepast-service costs are amortised on a straight-line basis over the vesting period.Property, Plant & Equipment Depreciation is provided at rates estimated to write off the cost or valuation of the relevant assets less their estimatedresidual values by equal annual amounts over their expected useful lives. Residual values and expected useful lives arereassessed annually. No depreciation is provided on freehold land. Other property, plant & equipment are depreciated atthe rates indicated below:Freehold and long leasehold buildings2%– 5% on cost or valuationLeasehold improvementsover the remaining period of the leasePlant and machinery121/2% – 25% on costMotor vehicles25% – 331/3% on costEquipment, fixtures & fittings10% – 331/3% on costRental equipment20% – 331/3% on costItems of property, plant & equipment are stated at cost less accumulated depreciation and impairment losses. Inaccordance with IFRS 8, certain land and buildings that had been revalued to fair value prior to 1 January 2004 aremeasured on the basis of deemed cost, being the revalued amount at the date of that revaluation.Research and Development The Group spends money on research projects and on projects to apply research findings to gain new scientific ortechnical knowledge and understanding. This expenditure is recognised in the income statement as incurred. Once detailed criteria have been met that confirm that the product or process is both technically and commerciallyfeasible and the Group has sufficient resources to complete the project, any further expenditure incurred on the project iscapitalised. The capitalised expenditure includes the cost of materials, direct labour and an appropriate portion ofoverheads.Capitalised expenditure is amortised over the life of the project and is stated at cost less accumulated amortisation andimpairment losses.Other Intangible Assets Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use thespecific software. These costs are amortised using the straight line method over their estimated useful lives.Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs thatare directly associated with the production of identifiable and unique software products controlled by the Group, and thatwill probably generate economic benefits exceeding costs beyond one year, are capitalised and recognised as intangibleassets.Computer software development costs recognised as assets are amortised using the straight line method.51THE VITEC GROUP50ANNUAL REPORT 2008Notes to the Consolidated Accounts continued•Where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition ofan asset or liability in a transaction that is not a business combination and, at the time of the transaction, affectsneither the accounting profit or taxable profit or loss; and•In respect of deductible temporary differences associated with investments in subsidiaries, where deferred tax assets areonly recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future andtaxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent thatit is no longer probable that sufficient taxable profit would be available to allow all or part of the deferred income tax assetto be utilised. Deferred tax liabilities are not recognised for the following temporary differences: •Goodwill not deductible for tax purposes or the initial recognition of an asset or liability in a transaction that is not abusiness combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit orloss; and•Differences relating to investments in subsidiaries to the extent that the timing of the reversal is controlled by theCompany and they will probably not reverse in the foreseeable future. IAS 12 requires deferred tax to be provided in respect of undistributed profits of overseas subsidiaries unless the parent isable to control the timing of remittances and it is probable that such remittances will not be made in the foreseeablefuture. As the Group is able to control the timing of remittances from overseas subsidiaries, no provision has been madefor any tax on undistributed profits of overseas subsidiaries. Similarly, no deferred tax assets or liabilities have beenrecognised in respect of temporary differences associated with investments in subsidiaries.Employee Share Schemes The Group operates a number of share based incentive schemes, some of which entitle the beneficiary to shares (equity-settled) and others that entitle the beneficiary to cash (cash-settled). The schemes in place prior to 2005 were based onshare price movements. A new equity-settled scheme was set up in 2005 that is based on Total Shareholder Returns(TSR).The fair values of options are calculated using Black-Scholes or Monte Carlo simulation models. For equity-settled options, income statement charges are made based on the fair value of these options at the date ofgrant and on the estimated number options expected to vest after adjusting for lapses due to leavers during the life of thescheme and achievement of any non-market based vesting conditions (for example, profitability and sales growth targets).Subsequently, at each balance sheet date prior to vesting of the relevant awards, the Group revises the estimates of thenumber of options that are expected to vest after adjusting for expected leavers and estimated achievement of non-marketbased vesting conditions. The Group recognises the expense in the income statement, and a corresponding adjustment toequity.The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, isrecognised as an expense, with a corresponding increase in liabilities, over the period in which the employees becomeunconditionally entitled to payment. The liability is re-measured at each reporting date and at settlement date. Anychanges in the fair value of the liability are recognised as personnel expense in profit or loss.The Group makes charges to the income statement for any potential employer’s Social Security liability on optionsgranted, based on an estimate of the fair value of the option. All of these charges are spread over the measurement period of the option.Leases Payments made under operating leases are charged to the income statement on a straight-line basis. Assets held for short-term rental are recorded as plant and machinery within property, plant & equipment and depreciatedover their estimated useful lives. Rental income from these assets is recognised as earned on a straight-line basis overthe rental period.Trade and Other Receivables Trade and other receivables are stated at their cost less provision for doubtful debts.Dividends The final annual dividend is not provided for until approved at the Annual General Meeting. Dividends are charged in theperiod they are paid.Provisions Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation as a result ofa past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effectis material, provisions are determined by discounting the expected future cash flows at an appropriate pre-tax discountrate.Provisions for warranties, based on historical warranty data, are recognised when the underlying products or services aresold. Provisions for restructuring are recognised when the Group has approved a detailed and formal restructuring planand the restructuring has either commenced or has been announced. Provisions for onerous contracts are recognisedwhen the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to bereceived under it. Segmental Reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (businesssegment), or in providing products and services within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments. The Group reports separate information onits material operations for each of the Group’s segments. The Group’s primary segment is the business sector and itssecondary segment is geographical area.Net Financial Expense Net financial expense comprises interest payable on borrowings, interest receivable on funds invested, the amortisation ofloan costs, foreign exchange gains and losses on external or inter-company loans or investments to the extent that they arerecognised in the income statement, the finance element of the charge or credit relating to defined benefit pensionschemes and gains and losses on derivatives to the extent that they are recognised in the income statement.Cash and Cash EquivalentsCash and cash equivalents represent cash on hand and demand deposits at banks. Demand deposits are short termhighly liquid investments that are readily convertible to known amounts of cash without penalty and that are subject to aninsignificant risk of changes in value. Bank overdrafts that are repayable on demand, which form an integral part of theGroup’s cash management, are included as a component of cash and cash equivalents for the purpose of the statement ofcash flows.New Standards and Interpretations Adopted During the YearDuring the year the Group adopted IFRIC 11 Group and Treasury Share Transactions. The implementation of this standardhad no material impact on the Group’s results, assets or liabilities.New Standards and Interpretations Not Yet AdoptedThe following new standards, amendments to standards and interpretations are not yet effective for the year ended 31December 2008 and have not been applied in preparing these consolidated financial statements:IFRS 8 Operating Segments: Implementation of this standard is not expected to have a material impact on the Group’sresults, assets or liabilities.IFRIC 12 Service Concession Arrangements: Implementation of this standard is not expected to have a material impact onthe Group’s results, assets or liabilities.IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction: this IFRICclarifies the requirements of IAS 19, which limits the measurement of a defined benefit asset to the present value of anyeconomic benefits available in the form of refunds from the plan or reductions in future contributions to the plan plusunrecognised gains and losses – this is known as the asset ceiling. Implementation of this standard is not expected tohave a material impact on the Group’s results, assets or liabilities.IFRIC 13 Customer Loyalty Programmes: Implementation of this standard is not expected to have a material impact onthe Group’s results, assets or liabilities.Amendments to IAS 1 Presentation of Financial Statements: Implementation of the revisions to this standard is notexpected to have a material impact on the Group’s results, assets or liabilities.Amendments to IFRS 2 Share Based Payment: Implementation of the revisions to this standard is not expected to have amaterial impact on the Group’s results, assets or liabilities.Amendments to IAS 23 Borrowing Costs: Implementation of the revisions to this standard is not expected to have amaterial impact on the Group’s results, assets or liabilities.Amendments to IAS 39 and IFRS 7 Reclassification of Financial Instruments: Implementation of the revisions to thesestandards are not expected to have a material impact on the Group’s results, assets or liabilities.53THE VITEC GROUP52ANNUAL REPORT 2008Notes to the Consolidated Accounts continued3 Segment ReportingPrimary format - by business segments2007£m 2008£m 2007£m 2008£m 2007£m 2008£m 2007£m 2008£m 2007£m 2008£m Broadcast SystemsImaging & StagingBroadcast ServicesCorporate andUnallocatedConsolidatedRevenue from external customers: Sale of goods171.0129.8135.8117.36.33.8--313.1250.9Services1.6-23.022.924.622.9Total revenue from external customers172.6129.8135.8117.329.326.7--337.7273.8Inter-segment revenue(1)2.01.72.31.2--(4.3)(2.9)--Total revenue174.6131.5138.1118.529.326.7(4.3)(2.9)337.7273.8Operating profit before significant items21.713.315.617.71.11.6--38.432.6Other operating income--0.3-----0.3-Provision against equity-accounted investee------(1.3)-(1.3)-Amortisation of acquired intangibles(6.4)(4.3)(0.7)(0.7)----(7.1)(5.0)Negative goodwill-0.1-------0.1Impairment of goodwill--(2.1)-----(2.1)-Segment result15.39.113.117.01.11.6(1.3)-28.227.7Net financial expense(2.7)(1.9)Taxation(5.4)(7.5)Profit for the period20.118.3Segment assets140.2116.3104.280.027.320.72.02.9273.7219.9Unallocated assets Cash and cash equivalents14.98.414.98.4Current tax assets0.82.10.82.1Deferred tax assets17.813.717.813.7Total assets307.2244.1Segment liabilities51.455.431.026.21.92.810.43.294.787.6Unallocated liabilities Bank overdrafts-1.1-1.1Bank loans67.945.767.945.7Current tax liabilities9.710.29.710.2Deferred tax liabilities1.52.21.52.2Total liabilities173.8146.8Cash flows from operating activities15.78.78.44.93.22.26.65.333.921.1Cash flows from investing activities(1.2)(2.3)(6.0)(6.1)(3.0)(5.0)(16.5)(18.7)(26.7)(32.1)Cash flows from financing activities-(2.0)----(3.8)11.3(3.8)9.3Capital expenditure (including assets acquired within acquisitions) Property, plant & equipment6.58.45.64.44.76.4--16.819.2Intangible assets7.914.30.60.9---0.18.515.3(1)Inter-segment pricing is determined on an arm's length basis. Revenue from external customers: by location of customer20.617.887.876.8178.0138.351.340.9--337.7273.8Segment assets40.437.667.050.9143.1112.221.216.32.02.9273.7219.9Unallocated assetsCash & cash equivalents14.98.414.98.4Current tax assets0.82.10.82.1Deferred tax assets17.813.717.813.7Total assets307.2244.1Cash flows from operating activities5.6(0.8)13.512.74.93.43.30.56.65.333.921.1Cash flows from investing activities(3.7)(2.1)(5.5)(4.5)(11.5)(4.2)(1.2)(2.6)(4.8)(18.7)(26.7)(32.1)Cash flows from financing activities-----(2.0)--(3.8)11.3(3.8)9.3Capital expenditure (including assets acquired within acquisitions) Property, plant & equipment3.52.05.74.17.513.00.10.1--16.819.2Intangible assets1.50.10.50.56.514.5-0.1-0.18.515.3Secondary format -by geographical segments 2008£m 2007£m 2008£m 2007£m 2008£m 2007£m 2008£m 2007£m 2008£m 2007£m 2008£m 2007£m United KingdomThe Rest of EuropeThe AmericasThe Rest ofthe WorldCorporate andUnallocatedConsolidated2008£m 2007£m Analysis of net operating expenses Marketing, selling and distribution costs42.832.7 Research, development and engineering costs(1)12.510.4 Administrative expenses- negative goodwill(2)-(0.1)- goodwill impairment2.1- - amortisation of acquired intangible assets7.15.0 - other administrative expenses43.435.6 52.640.5Net operating expenses107.983.6(1)No development costs have been capitalised in accordance with the Group accounting policies. Engineering costs are incurred as part of active productdevelopment programmes in the manufacturing companies.(2)Negative goodwill arose on the acquisition of Microwave Service Corporation.4 Analysis of Net Operating Expenses55THE VITEC GROUP54ANNUAL REPORT 2008Notes to the Consolidated Accounts continued5 Significant Items Significant items are those items of financial performance that the directors consider should be separately disclosed to assist inthe understanding of the underlying trading and financial performance achieved by the Group and in making projections offuture results.Significant items comprise the following:Other operating income Profit on the sale of property fixed assets0.3 - Other operating income of £0.3 million relates to profit on the sale of property fixed assets in the Imaging & Staging division.(a)2008£m 2007£m Operating expensesAmortisation of intangible assets(7.1)(5.0) Impairment of goodwill(2.1)- Negative goodwill- 0.1(9.2)(4.9)The annual impairment review of goodwill led to an impairment charge of US$3.9 million (£2.1 million) to the goodwill ofTomcat Global, in the Imaging & Staging division. (c)Other financial income/(expense)Net fair value losses on financial instruments(0.4)- Currency translation gains0.7 0.4 0.3 0.4 The Group uses options as part of its hedging of future foreign exchange cash flows. As such options are held to maturity, theultimate net amount charged to the income statement in respect of any option will always equate to the initial premium paidfor that option. However, as a result of the time value of such options being marked-to-market at each balance sheet date,volatile income and expenses can be introduced between periods and such amounts are therefore identified as significant otherfinancial expense.Currency translation differences, which arise on long term intra-Group funding loans that are similar in nature to equity, arecharged/credited to reserves. The currency translation differences which arise on certain other intra-Group funding balances thatdo not meet this strict criteria but are very similar in nature, are recorded in significant items within other financial income.(d)(e)Provision against equity-accounted investee(1.3)- The Group holds a 29% interest in Media Numerics Ltd, which is accounted for as an equity-accounted investee. Fullimpairment provision of £1.3 million has been made against this investment because Media Numerics Ltd is insolvent.(b)TaxationDeferred tax credit8.8 3.7 Deferred tax charge(2.2)-6.6 3.7 The Group is paying no cash taxes in the UK due to brought forward losses. Relating to these losses, a UK deferred tax assetof £4.2 million and a US deferred tax asset of £2.3 million have been recognised in 2008, totalling £6.5 million, with a creditto significant items.A deferred tax asset of £2.3 million has been recognised as a result of timing differences between the amortisation foraccounting purposes of intangible assets acquired on the acquisition of RF Systems and Litepanels in the US and theamortisation of these assets for tax purposes. This asset recognition has been treated as a credit to significant items.Deferred tax assets were reduced by £2.2 million relating to the reduction in estimated earn out for the RF Systemsacquisition. This reduction has been treated as an expense in significant items.The following items are included in operating profitGoodwill impairment2.1-Amortisation of acquired intangible assets7.15.0Amortisation of capitalised software and development costs1.21.3 Depreciation11.69.1 Net gain on disposal of property, plant & equipment(1.6)(1.2)Impairment losses on property, plant & equipment-0.2 Employee share based incentive schemes1.82.4 Redundancy and restructuring costs(1)1.6- Operating lease rental expensePlant, machinery and vehicles0.40.4 Property4.73.9 Fees payable to the Company's auditors for the audit of the Company's annual financial statements0.20.2 Fees payable to the Company's auditors and its associates for other servicesThe audit of the Company's subsidiaries pursuant to legislation0.30.3 Other services relating to taxation0.10.4 Other services relating to corporate financial transactions-0.4 (1) Redundancy and restructuring costs of £1.6 million comprise £0.4 million of redundancy costs within Camera Dynamics (Broadcast Systems division) and £1.2million of rationalisation and redundancy costs, including closure of Tomcat UK, within Staging (Imaging & Staging division).2007£m 2008£m 6 Operating ProfitRevenue49.323.5Operating profit(2)9.3 3.3 Working capital trend:Inventory16.219.4Advanced payments under BAS contract(9.1)(26.2)Other working capital(8.2)(2.4)Total working capital(1.1)(9.2)(1)Year to 31 December 2007 includes results of RF Systems for seven months.(2)Operating profit includes an allocation of Corporate costs.2007£m 2008£m RF SystemsRF Systems, a sub division of the Broadcast Systems division, supplies wireless equipment under the Broadcast AuxiliaryServices (BAS) Relocation Project, which is managed by Sprint Nextel.Under this contract, Sprint Nextel makes advance payments to RF Systems to build up an inventory of 2GHz wireless equipmentwhich can be called upon by US broadcasters, free of charge, at a later date. The effects of these are:- Although RF Systems has received the full sale price of equipment from Sprint Nextel, under IAS 11 the revenue and profitcannot be fully recognised until the equipment is delivered to the broadcaster. - RF Systems has significant inventory and advanced payments on their balance sheet related to the BAS Relocation Project.By the end of 2009, the project is planned to be largely complete, and these amounts are expected to have reduced tozero.The results of RF Systems are as follows:57THE VITEC GROUP56ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedAggregate remuneration of all employees during the yearWages and salaries73.262.8 Employers' social security costs9.68.1 Employers' pension costs - defined benefit schemes2.82.2 Employers' pension costs - defined contribution schemes0.80.6 Other employment benefits2.71.9 Cost of equity-settled employee share schemes1.71.4 Cost of cash-settled employee share schemes0.11.0 90.978.02008£m 2007£m 2008Total2007Total7 EmployeesAverage number of employees during the yearImaging & Staging(1)1,015 990 Broadcast Systems(2)1,018 880 Broadcast Services167 166 Head Office14 13 2,214 2,049(1)An increase of two in the average number of employees was due to the effect of acquisitions.(2)An increase of 97 in the average number of employees was due to the effect of acquisitions.2008Total2007TotalNumber of employees as at 31 DecemberImaging & Staging9571,043 Broadcast Systems(1)998952 Broadcast Services172166 Head Office1513 2,1422,174 (1)An increase of 29 in the number of employees as at 31 December was due to the effect of acquisitions.8 Directors' RemunerationThe emoluments, share options, awards under incentive schemes and pension entitlements of the directors are disclosed in theRemuneration Report on pages 21 to 27.The combined remuneration of the directors of the Group is set out belowFees for non-executive duties0.2 0.2 Remuneration for executive duties1.1 1.3 1.3 1.52008£m 2007£m 10 Net foreign exchange gainsThe net exchange gains charged to the income statement are included as follows:Cost of goods sold0.8 1.7 Other financial income0.9 0.5 Total net foreign exchange gains1.7 2.22008£m 2007£m Financial expenseInterest payable on bank borrowings(3.2)(2.8)Interest charge on pension scheme liabilities(2.5)(2.3)Other financial expense:Net fair value losses on financial instruments(1)(1.1)(0.4)(6.8)(5.5)Financial incomeInterest income0.1 0.2 Expected return on assets in the pension scheme3.1 2.9 Other financial income:Net foreign exchange gains(2)0.9 0.5 4.1 3.6Net financial expense(2.7)(1.9)(1) The Group uses options as part of its hedging of future foreign exchange cash flows. As such options are held to maturity, the ultimate net amount charged to theincome statement in respect of any option will always equate to the initial premium paid for that option. However, as a result of the the time value of such optionsbeing marked-to-market at each balance sheet date, volatile income and expenses can be introduced between periods and such amounts are therefore identifiedas significant other financial expense. Of the £1.1 million (2007: £0.4 million) time value of options, £0.4 million (2007: £nil) relating to the amortisation ofoptions was recorded as a significant item within other financial expense.(2) Currency translation differences, which arise on long term intra-Group funding loans that are similar in nature to equity, are charged/credited to reserves. Of the£0.9 million (2007: £0.5 million) net foreign exchange gains, £0.7 million (2007: £0.4 million) arose on certain other intra-Group funding balances that do notmeet this strict criteria but are very similar in nature and are recorded in significant items within other financial expense.2008£m 2007£m 9 Net Financial Expense59THE VITEC GROUP58ANNUAL REPORT 2008Notes to the Consolidated Accounts continued2008£m 2007£m 11 TaxRecognised in the income statementCurrent tax expenseCurrent year before significant items7.57.97.57.9Deferred tax expenseCurrent year before significant items4.53.3Tax credit (see Note 5)(6.6)(3.7)(2.1)(0.4)Summarised in the income statement as followsCurrent tax7.57.9Deferred tax4.53.312.011.2Tax credit (see Note 5)(6.6)(3.7)Total income tax expense in income statement5.47.5Reconciliation of effective tax rateProfit before tax 25.525.8Income tax using the domestic corporation tax rate28.5%7.330%7.7Effect of tax rates in foreign jurisdictions6%1.58%2.0Non-deductible expenses1%0.21%0.2Tax effect of profit elimination on intra-Group stock--(1%)(0.2)Effect of restructuring--(2%)(0.6)Benefit of tax losses recognised(14%)(3.6)(6%)(1.6)Total income tax expense in income statement21%5.429%7.5All of the income tax relates to overseas tax. There is no income tax expense relating to the UK as a result of the utilisation ofUK losses brought forward.2008%2008£m 2007%2007£m 12 Earnings Per Ordinary ShareThe calculation of basic earnings per share is based on profit after tax of £20.1 million (2007: £18.3 million) and on theweighted average number of shares in issue during the year of 41,886,616 (2007: 41,532,930).Adjusted basic earnings per share is presented as the directors consider that this gives a useful additional indication of theongoing earnings performance of the Group. This calculation is based on profit after tax but before significant items. In 2008this profit was £23.4 million (2007: £19.1 million).Profit for the financial year20.1 18.3 48.0 44.1 Add back: significant items3.3 0.8 7.9 1.9 Earnings before significant items23.4 19.1 55.9 46.0 2008£m Profit2007£m2008penceEarnings per share2007penceReconciliation of earnings and its effect on basic earnings per share and adjusted basic earnings per shareBasic weighted average number of shares41,886,61641,532,93048.044.155.946.0Dilutive potential ordinary shares: Employee share options111,292401,704(0.1)(0.4)(0.2)(0.4)Deferred bonus plan- 120,087- (0.2)- (0.2)Diluted weighted average number of shares41,997,90842,054,72147.943.555.745.42008Number of shares20072008penceEarnings per share2007pence2008penceAdjustedearnings per share2007penceReconciliation of shares and its effect on basic earnings per share and diluted earnings per share, and basic adjusted earnings pershare and diluted adjusted earnings per shareThe calculation of diluted earnings per share of 47.9p (2007: 43.5p) is based on profit after tax of £20.1 million (2007:£18.3 million) and on 41,997,908 (2007: 42,054,721) ordinary shares.The calculation of diluted adjusted earnings per share of 55.7p (2007: 45.4p) is based on profit after tax but before significantitems of £23.4 million (2007: £19.1 million) and on 41,997,908 (2007: 42,054,721) ordinary shares.61THE VITEC GROUP60ANNUAL REPORT 2008Notes to the Consolidated Accounts continued13 Property, Plant & EquipmentCostAt 1 January 2007104.1 21.1 67.6 15.4 Currency translation adjustments3.3 1.3 1.5 0.5 Acquisitions1.8 0.3 1.2 0.3 Additions 17.3 4.6 11.2 1.5 Disposals(5.5)(0.3)(4.6)(0.6)At 31 December 2007121.0 27.0 76.9 17.1 At 1 January 2008121.0 27.0 76.9 17.1 Currency translation adjustments36.2 6.9 25.6 3.7 Acquisitions0.4 - 0.4 - Additions 16.4 1.6 12.9 1.9 Disposals(11.3)(0.5)(7.7)(3.1)Revaluation surplus/(deficit)(0.2)(0.2)- - At 31 December 2008162.5 34.8 108.1 19.6 Depreciation At 1 January 200769.0 7.7 50.5 10.8 Currency translation adjustments2.0 0.5 1.1 0.4 Depreciation charge for the year9.1 0.9 7.0 1.2 Impairment loss0.2 - - 0.2 Disposals(4.9)(0.3)(4.1)(0.5)At 31 December 200775.4 8.8 54.5 12.1 At 1 January 200875.4 8.8 54.5 12.1 Currency translation adjustments22.2 2.2 17.3 2.7 Depreciation charge for the year11.6 1.2 8.9 1.5 Disposals(10.3)(0.3)(7.1)(2.9)At 31 December 200898.9 11.9 73.6 13.4 Carrying amountsAt 1 January 200735.1 13.4 17.1 4.6 At 31 December 2007 and 1 January 200845.6 18.2 22.4 5.0 At 31 December 200863.6 22.9 34.5 6.2(1)Plant, machinery and vehicles includes broadcast equipment rental assets with an original cost of £51.1 million (2007: £35.0 million) and accumulateddepreciation of £33.5 million (2007: £23.5 million).Capital commitments at 31 December 2008 for which no provision has been made in the accounts amount to £0.4 million (2007: £0.5 million).Included in the total net book value of plant, machinery and vehicles is £nil (2007: £0.1 million) in respect of assets held under finance leases. Depreciation forthe year on these assets was £0.1 million (2007: £nil).Total£m Land andbuildings£mPlantmachineryand vehicles£mEquipmentfixtures andfittings£m(1)CostAt 1 January 200745.3 6.4 31.7 7.2 Currency translation adjustment(0.1)(0.2)(0.2)0.3 Additions1.5 - 0.4 1.1 Acquisitions26.3 14.2 12.1 - At 31 December 200773.0 20.4 44.0 8.6 At 1 January 200873.0 20.4 44.0 8.6 Currency translation adjustment25.5 9.6 13.8 2.1 Additions/(reductions)(3.0)0.3 (4.2)(1)0.9 Acquisitions12.17.3(2)4.8(3)- At 31 December 2008107.6 37.6 58.4 11.6 Amortisation and impairment lossesAt 1 January 200711.2 0.8 6.0 4.4 Currency translation adjustment- - (0.1)0.1 Amortisation in the year6.3 5.0 - 1.3 At 31 December 200717.5 5.8 5.9 5.8 At 1 January 200817.5 5.8 5.9 5.8 Currency translation adjustment8.1 4.1 2.6 1.4 Impairment charge2.1 - 2.1(4)- Amortisation in the year8.3 7.1 - 1.2 At 31 December 200836.0 17.0 10.6 8.4 Carrying amountsAt 1 January 200734.1 5.6 25.7 2.8 At 31 December 2007 and 1 January 200855.5 14.6 38.1 2.8 At 31 December 200871.6 20.6 47.8 3.2 (1)£4.2 million represents a decrease in goodwill of RF Systems within the Broadcast Systems division arising from a reduction of US$7.8 million (£4.2million) in the estimate of contingent consideration.(2)Acquired intangible assets of £7.3 million arose on the acquisition of Litepanels and Talkdynamics. These are amortised using the straight line methodover their estimated useful lives (see Note 26).(3)£4.8 million represents goodwill arising on the acquisitions of Litepanels (£4.2 million), Talkdynamics (£0.5 million) and The Camera Store (£0.1million) in 2008 (see Note 26).(4)The annual impairment review of goodwill led to an impairment charge of US$3.9 million (£2.1 million) to the goodwill of Tomcat Global, in the Imaging& Staging division.Intangibleassets£m Total£m Goodwill£mCapitalisedsoftware £m14 Intangible Assets63THE VITEC GROUP62ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedUnitImaging11.88.6Staging (including Tomcat and Brilliant Stages)5.96.3Broadcast Services3.92.8Broadcast Systems (excluding RF Systems)15.58.7RF Systems10.711.7Total47.838.1The impairment tests for all the above units are based on value-in-use calculations. These calculations use cash flowprojections based on actual operating results and five year projections. These projections incorporate growth rates that arereasonable given the units’ business plans. Cash flows thereafter are extrapolated using a 1 to 2% growth rate. These growthrates are considered to be consistent with the long term average growth rates for these industries.A pre-tax discount rate of 10 to 13% has been used in discounting the project cash flows for all the above units. Thiscompares with a pre-tax discount rate of between 13 and 15% in 2007. The reduction has been caused by the impact of giltrates and the Vitec share price on the calculation of the discount rate.Sales growth rates of between 1 and 11% (depending on the unit in question) for the first five years are assumed whencalculating cash flow projections. A growth rate in cash flows of 2% is assumed for future years. This approach is consistentwith prior years.Based on this annual impairment review, it was determined that the projected cash flows of Staging could not fully support thecarrying value of goodwill on the balance sheet, due to Tomcat and Brilliant Stages. Therefore, a goodwill impairment of £2.1 million has been charged to significant items.With the exception of this impairment, the excess of discounted cash flows over the carrying value of the units’ goodwill andother assets ranged from 7% to over 100%. We performed sensitivity analysis on these cash flows and confirmed thatreasonable variations in key assumptions did not result in any goodwill impairment.2008£m 2007£m Impairment tests for cash-generating units containing goodwillGoodwill is analysed as follows:The Group's principal subsidiaries at 31 December 2008 are listed below. All subsidiaries are 100% owned within the Group.Country of incorporationVitec Group US Holdings IncUSAVitec Holdings LimitedGuernseyVitec Investments LimitedUK*Broadcast SystemsALC Broadcast LimitedUKAnton/Bauer IncUSACamera Dynamics LimitedUK*Camera Dynamics LimitadaCosta RicaCamera Dynamics IncUSACamera Dynamics GmbH & Co KGGermanyLitepanels IncUSANucomm IncUSARF Central LLCUSAVitec Group Communications LLCUSAVitec Group Communications LimitedUK*Imaging & Staging Bogen Imaging IncUSAGitzo SAFranceVitecgroup Italia SpAItalyKata Vitec I LimitedIsraelBroadcast ServicesVitec Broadcast Services IncUSA* Indicates companies directly owned by the parent Company.A complete list of subsidiary companies will be included in the next annual return to the Registrar of Companies.Principal subsidiaries15 Fixed Asset InvestmentsInvestment in equity-accounted investeeThe Group holds a 29% interest in Media Numerics Ltd, which is accounted for as an equity-accounted investee. Fullimpairment provision of £1.3 million has been made against this investment because Media Numerics Ltd is insolvent.2008£m 2007£m CostAt 1 January 1.3 0.7 Additions- 0.6 At 31 December 1.3 1.3 ProvisionAt 1 January - - Additions 1.3 - At 31 December 1.3 - Carrying amountAt 1 January 1.3 0.7 At 31 December - 1.3 14 Intangible Assets continued65THE VITEC GROUP64ANNUAL REPORT 2008Notes to the Consolidated Accounts continued16 Deferred Tax Assets and LiabilitiesAssetsInventories3.0(2.7)-(0.5)6.2Intangible assets6.10.30.21.64.0Tax value of loss carry-forwards recognised3.11.8-0.11.2Property, plant, equipment & other5.61.5-1.82.317.80.90.23.013.7LiabilitiesInventories-----Intangible assets(0.5)--(0.1)(0.4)Tax value of loss carry-forwards recognised-----Property, plant equipment & other(1.0)1.1-(0.3)(1.8)(1.5)1.1-(0.4)(2.2)Net16.32.00.22.611.5Recognisedin income£m 2008£m Recognisedon acquisition£m Exchange movements£m 2007£m AssetsInventories6.2(0.6)5.6-1.2Intangible assets4.00.91.4-1.7Tax value of loss carry-forwards recognised1.20.9--0.3Property, plant, equipment & other2.30.70.1-1.513.71.97.1-4.7LiabilitiesInventories-0.1--(0.1)Intangible assets(0.4)---(0.4)Tax value of loss carry-forwards recognised-0.2--(0.2)Property, plant equipment & other(1.8)(1.8)---(2.2)(1.5)--(0.7)Net11.50.47.1-4.0Included within the intangible deferred tax assets recognised in income in 2008 is a £2.2 million expense relating to thereduction in the expected earn-out for the RF Systems acquisition.Recognisedin income£m 2007£m Recognisedon acquisition£m Exchange movements£m 2006£m Capital Allowances0.2 -Short Term timing differences- -Losses1.15.5 Timing differences on share options- -Timing differences on pension scheme liabilities0.8 -Total2.15.5Deferred tax assets have not been recognised in respect of these items because it is not sufficiently probable that future taxableprofit will be generated to utilise the tax losses.2008£m 2007£m Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items:Raw materials and components17.4 13.7 Work in progress12.1 10.4 Finished goods46.9 41.5 76.4 65.62008£m 2007£m 17 InventoriesBalance at 1 January12.0 7.5 On acquisitions- 2.3 Increased during the period5.8 3.7 Utilised during the period(3.0)(1.5)Currency translation adjustments3.2 - Balance at 31 December18.0 12.0 The provision for inventory obsolescence as at 31 December 2008 was £18.0 million (2007: £12.0 million). Management believethat this provision is adequate to cover the risk of inventory obsolescence.2008£m 2007£m Provisions against inventory obsolescenceShort term receivables Trade receivables46.6 40.1 Amounts recoverable on long term contracts- 0.6 Other receivables10.8 7.7 Prepayments and accrued income2.8 1.6 60.2 50.0 Long term receivablesOther receivables1.2 0.7 1.2 0.7 Total receivables61.4 50.7 2008£m 2007£m 18 Trade and Other ReceivablesCurrent32.2 25.61-30 days9.18.631-60 days3.5 3.6 61-90 days1.8 1.5 Over 90 days4.2 3.8 Gross trade receivables50.8 43.1(1)Days overdue are measured from the date an invoice was due to be paid.2008£m 2007£m Gross trade receivables - days overdue(1)No taxes have been provided for liabilities which may arise on the distribution of unremitted earnings of subsidiaries on thebasis of control, except where distributions of such profits are planned. Cumulative unremitted earnings of overseas subsidiariesand associates totalled approximately £66 million at 31 December 2008 (2007: £54 million). It is not practical to calculatethe tax which would arise on remittance of these amounts; it would be substantially lower than statutory rates after giving effectto foreign tax credits.67THE VITEC GROUP66ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedBalance at 1 January3.0 2.4 Increased during the period4.2 3.3 Reversed during the period(0.1)(0.3)Utilised during the period(3.7)(2.4)Currency translation adjustments0.8 - Balance at 31 December4.2 3.0 The trade receivables impairment provision as at 31 December 2008 was £4.2 million (2007: £3.0 million) consisting of £2.9 million (2007: £1.9 million) for bad debts and £1.3 million (2007: £1.1 million) for sales returns and discounts.Management believe that this provision is adequate to cover the risk of bad debts and any exposure to credit risk.2008£m 2007£m Provisions against trade receivables19 Financial InstrumentsExposure to credit, interest rate and currency risks arises in the normal course of the Group’s business. Derivative financialinstruments are used to hedge exposure to fluctuations in foreign exchange rates only.Credit RiskThe Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations areperformed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financialassets.Transactions involving derivative financial instruments are with only banks that are part of the Group's £125 million MulticurrencyRevolving Credit Facilty Agreement. Therefore management does not expect any of the counterparties to fail to meet its obligations.At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk isrepresented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet.Interest Rate RiskAll the Group’s borrowings and investments are at floating rates with the exception of the £3.0 million mortgage on the Anton/Bauerproperty. Management currently believes that the benefits of fixing a proportion of its interest costs are outweighed by the costs.Other monetary assets are not considered to be exposed to interest rate risk.Foreign Currency RiskThe Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than thefunctional currency of the business unit. The currencies giving rise to this risk are primarily US$, Euros and Japanese Yen.The Group aims to hedge 75% of its forecasted foreign currency exposure in respect of forecasted sales and purchases for thefollowing 12 months. The Group uses forward exchange contracts (forwards), simple options and cylinders (a combination of twooffsetting simple options at different rates) to hedge its foreign currency risk. All these contracts have maturities of less than oneyear at the balance sheet date.In respect of other monetary assets and liabilities held in currencies other than Sterling, the Group ensures that the net exposure iskept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short term imbalances.Recognised Assets and LiabilitiesChanges in the fair value of derivatives that economically hedge monetary assets and liabilities in foreign currencies and for whichno hedge accounting is applied are recognised in the income statement. The changes in the fair value of the derivatives and anyforeign exchange gains and losses relating to the monetary assets and liabilities are recognised as part of Cost of sales. Hedge of net investment in foreign subsidiaryThe Group’s US$ and Euro loans, certain inter-company loans and forward contracts are designated as a hedge of the Group’sinvestment in subsidiaries overseas. Inter-company loans for which payment is not planned in the foreseeable future are classifiedas net investments and so any gain or loss on exchange is taken to reserves.Sensitivity AnalysisIn managing interest rate and currency risks the Group aims to reduce the impact of short term fluctuations on the Group’s earnings.Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidatedearnings.For the year ended 31 December 2008, it is estimated that a general increase of one percentage point in interest rates, increasingthe Group's weighted average cost of borrowing to 5.0%, would decrease the Group’s profit before tax by approximately £0.7 million.This reflects increased interest costs on the Group's borrowings.Correspondinlgly it is estimated that a general decrease of one percentage point in interest rates, decreasing the Group's weightedaverage cost of borrowing to 3.0%, would increase the Group’s profit before tax by approximately £0.7 million. This reflects thedecreased interest costs on the Group's borrowings. It is also estimated that a one percentage point stronger US Dollar against Pound Sterling and Euro (i.e. 1.85 cents and 1.3 centsrespectively) would have increased the Group’s operating profit before significant items for the year ended 31 December 2008 byapproximately £0.3 million and that a one percentage point weaker US Dollar against Pound Sterling and Euro (i.e. 1.85 cents and1.3 cents respectively) would have decreased the Group’s operating profit before significant items for the year ended 31 December2008 by approximately £0.3 million.Fair ValueThe fair values together with the carrying amounts shown in the balance sheet are as follows:Forward exchange contracts - Assets0.70.2Forward exchange contracts - Liabilities(6.1)(0.5)Option exchange contracts - Assets - 1.0Option exchange contracts - Liabilities(1.3)- Cash at bank and in hand14.9 8.4 Trade receivables46.6 40.1 Trade payables(28.5)(22.9)Finance leases- (0.1)Bank overdraft- (1.1)Other borrowings(3.0)(2.3)Floating rate borrowings(1)(64.9)(43.4)(41.6)(20.6)Market rates have been used to determine fair values.(1)Floating rate borrowings in currencies other than Pound Sterling are used for the purpose of net investment hedging.Estimation of Fair ValuesDerivativesForwards are marked to market by calculating the contractual forward price and deducting the current spot rate. Options andcylinders are marked to market by obtaining quotes from banks of their market value as at 31 December.2008Fair valueand book value £m2007Fair valueand book value £ma) Fair value of financial assets and liabilities18 Trade and Other Receivables continued69THE VITEC GROUP68ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedForward exchange contracts - Assets0.7 0.7 - Forward exchange contracts - Liabilities(6.1)(4.1)(2.0)Option exchange contracts - Liabilities(1.3)(0.5)(0.8)(6.7)(3.9)(2.8)Forward exchange contracts - Assets0.2 0.2 - Forward exchange contracts - Liabilities(0.5)(0.2)(0.3)Option exchange contracts - Assets1.0 0.7 0.3 0.7 0.7 - Within lessthan sixmonths £mTotal2008£mWithin sixmonths toone year £m£m2007£m£m19 Financial Instruments continued(i) Maturity profile of derivativesAll derivatives mature within the next 12 months.The Group had the following option and forward exchange contracts in place at the balance sheet date:US$/Euro option exchange contracts US$39.01.4530.11.40US$/GBP option exchange contracts US$12.51.944.92.03US$/GBP forward exchange contracts US$23.31.7428.71.98US$/Euro forward exchange contracts US$10.01.26--Euro/GBP forward exchange contracts Euro9.71.2710.81.43Yen/GBP forward exchange contracts Yen415187310222Yen/Euro forward exchange contracts Yen472150105158The charge to the income statement, reflecting the fall in value of option contracts that cannot be taken to reserves, was£1.1 million (2007: £0.4 million). During the period the amount debited to reserves was £6.6 million.Interest bearing loans and borrowingsAll interest bearing loans and borrowings, with the exception of the mortgage on theAnton/Bauer building, are at floating rates. Therefore, the fair value of these loans and borrowings is their carrying value.Trade and other receivables/payablesFor trade receivables and payables with a remaining life of less than one year, the notionalamount is deemed to reflect the fair value. All other trade receivables and payables are discounted to determine the fair value.Millions 2008Averageexchange rate ofMillions 2007Averageexchange rate ofOther borrowings(1)3.02.3Obligations under finance leases-0.1Overdrafts-1.1Bank loans 64.943.4Total borrowings67.9 46.9 Option exchange contracts1.3 - Forward exchange contracts6.1 0.5 Gross financial liabilities75.3 47.4 (1)Other borrowings consist of a mortgage on the property occupied by Anton/Bauer in Shelton, Connecticut. This mortgage is at a fixed interest rate of 8.3% and issecured by a charge on the property.2008£m2007£mb) Financial liabilitiesi) Analysis of borrowingsWithin one year or less3.0 1.1 More than one year but not more than two years- 2.4 More than two years but not more than five years64.9 43.4 67.9 46.9On 8 August 2008 the Group signed a five year £125 million Multicurrency Revolving Credit Facility Agreement with asyndicate of six UK and European banks. During the year the weighted average cost of borrowing was 4.0% (2007: 6.1%).The total amount of bank loans and overdrafts any part of which falls due after five years is £nil (2007: £nil).The Group had the following undrawn borrowing facilities at the end of the period:2008£m2007£mii) Maturity profileExpiring in one year or less- uncommitted facilities15.0 13.9 More than two years but not more than five years- committed facilities60.1 56.6 Total75.1 70.5 2008£m2007£mYen3.1 3.1 - US$29.4 26.4 3.0 Euro18.4 18.4 - Sterling17.0 17.0 - At 31 December 200867.9 64.9 3.0 Yen1.3 1.3 - US$30.4 28.1 2.3 Euro14.0 14.0 - Sterling1.1 1.1 - At 31 December 200746.8 44.5 2.3 The floating rate borrowings comprise bank loans and overdrafts bearing interest at rates based on LIBOR. The fixed rateborrowings consist of the mortgage on the Anton/Bauer property in Shelton, Connecticut.Floating rateborrowings £mTotal £mFixed rateborrowings £mCurrencyiii) Interest rate profile71THE VITEC GROUP70ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedCurrencyUS$6.54.7Euro5.43.1Sterling1.6-Other1.40.6Total cash balances14.9 8.4 Forward exchange contracts0.70.2Option exchange contracts-1.0Gross financial assets15.6 9.6 The floating rate financial assets comprise bank balances bearing interest at local bank rates.Sterling, US$, Euro and Yen balances within the UK can be offset. The forward and option exchange contracts all mature within 12 months.The Group holds cash in a number of major financial institutions worldwide and periodically reviews their credit worthiness toensure the Group is not exposed to counter party risk.Floatingrate2008£mFloatingrate2007£mc) Financial assets20 Current TaxThe current net tax liability of £8.9 million (2007: £8.1 million) represents the amount of income taxes payable in respect ofcurrent and prior periods.Cash and cash equivalents14.9 8.4 Bank overdrafts- (1.1) Cash and cash equivalents in the cash flow statement14.9 7.32008£m 2007£m 21 Cash and Cash EquivalentsIncrease/(decrease) in cash and cash equivalents3.4 (1.6)Loan acquired on acquisition of businesses- (4.3)Net borrowing of loans(4.1)(13.5)Increase in net debt resulting from cash flows(0.7)(19.4)Exchange on cash movements4.2 1.4 Exchange on loan movements(18.1)(1.5)Exchange rate movements (13.9)(0.1)Movements in net debt in the period(14.6)(19.5)Net debt at 1 January(38.4)(18.9)Net debt at 31 December (53.0)(38.4)Exchange rate movements result from the adjustment of opening balances and cash flows in the year to closing exchange rates.(1)Net debt constitutes cash and cash equivalents, bank overdrafts and bank loans and other borrowings.2008£m 2007£m 22 Reconciliation of Decrease in Cash and Cash Equivalents to Movement in Net Debt(1)Current trade and other payables Obligations under finance leases- 0.1 Payments received on account5.6 3.2 Trade payables28.5 22.9 Other tax and social security costs4.6 3.5 Other payables10.9 8.4 Advanced payments received, accruals and deferred income(1)21.9 36.3 71.5 74.4 Non current trade and other payablesAccruals and deferred income0.1 0.1 0.1 0.1(1)£9.1 million (2007: £26.2 million) of advanced payments received relate to RF Systems, which is part of the Broadcast Systems division.2008£m 2007£m 23 Trade and Other Payables24 ProvisionsAt 1 January 20089.8 0.4 1.4 7.7 0.3 Provisions created during the year0.7 0.7 - --Provisions reversed during the year(4.2)- - (4.2)- Provisions utilised during the year(3.4)(0.6)(0.5)(2.1)(0.2)Charged to the income statement0.9 0.4 0.5 - - Acquisition of subsidiary undertaking3.7 - - 3.7 - Currency translation adjustments2.3 0.3 0.3 1.7 - At 31 December 20089.8 1.2 1.7 6.8 0.1 Non-current5.7 - - 5.7 - Current4.1 1.2 1.7 1.1 0.1 9.8 1.2 1.7 6.8 0.1 Total£mRestructuring£mWarranty£m Contingentconsiderationon acquisitionof subsidiaries£m Other£m The contingent consideration on acquisition of subsidiaries of £6.8 million relates to the following acquisitions:• Kata- As at 31 December 2007, management's estimate of the realistic likely payout was US$1.9 million (£0.9 million).Effects of translation increased the provision by £0.1 million, and a payment of £1.0 million was made in 2008. As at 31December 2008, no further consideration is payable.• Autoscript- As at 31 December 2008, the contingent consideration payable is £1.0 million.• RF Systems- The maximum potential contingent consideration payable is US$37.3 million (£25.9 million), conditional on theachievement of profitability targets for 2008, 2009 and 2010. As at 31 December 2007, management's estimate of thelikely payout was US$9.3 million (£4.7 million). In 2008, this estimate was reduced by US$7.8 million (£4.2 million).Effects of translation increased the provision by £0.5 million. Management's estimate at 31 December 2008 of a likelypayout is US$1.5 million (£1.0 million).• Staging SK- As at 31 December 2008, the contingent consideration payable is £0.1 million.• Litepanels- The maximum potential contingent consideration payable is US$50.0 million (£34.8 million), conditional on theachievement of profitability targets in 2008 to 2011. Management's estimate at 31 December 2008 of a realistic actualpayout is US$6.3 million (£4.3 million).19 Financial Instruments continued73THE VITEC GROUP72ANNUAL REPORT 2008Notes to the Consolidated Accounts continued• Clear Com Reasearch Inc (Talkdynamics)- The maximum potential contingent consideration payable is C$0.7 million,conditional on the achievement of profitability targets in 2008 and 2011. Management's estimate at 31 December 2008 ofa realistic actual payout is C$0.7 million (£0.4 million).The remaining provisions comprise warranty provisions of £1.7 million (2007: £1.4 million), other provision for the earlytermination of property lease of £0.1 million (2007: £0.3 million), and the provision for restructuring of £1.2 million (2007:£0.4 million). The warranty provision is calculated based on the sale of products under warranty and is consistent withprevious years. The provision is expected to be utilised over the warranty period (up to five years). Management are confidentthat these provisions are adequate to cover the risk of warranty claims against the Group. The restructuring and earlytermination of property lease provision will be utilised during 2009.TotalEquity£m Retainedearnings£m CapitalRedemptionreserve£m Cash flowhedgingreserve £m SharePremium£m Translationreserve£m ShareCapital£m 25 Capital and ReservesAt 1 January 20078.2 3.2 (7.5)1.6 1.3 70.0 76.8 Total recognised income for the year--1.7 -(1.0)20.8 21.5 Dividends paid-----(7.0)(7.0)Own shares-----1.3 1.3 Equity-settled transactions, net of tax-----0.7 0.7 Premium on new shares issued0.2 3.8 ----4.0 At 31 December 20078.4 7.0 (5.8)1.6 0.3 85.8 97.3 At 1 January 20088.4 7.0 (5.8)1.6 0.3 85.8 97.3 Total recognised income for the year--28.1 -(4.0)18.1 42.2 Dividends paid-----(7.7)(7.7)Own shares-----0.2 0.2 Equity-settled transactions, net of tax-----0.8 0.8 Purchase of treasury shares- (0.7)----(0.7)New shares issued0.1 1.2 ----1.3 At 31 December 20088.5 7.5 22.3 1.6 (3.7)97.2 133.4Translation reserve The translation reserve comprises all currency translation differences arising from the translation of the financial statements offoreign operations, as well as from the translation of monetary items designated as foreign net investments and hedges of netinvestment in foreign subsidiaries.Capital redemption reserveThis reserve was created in 1999 when the Company purchased, and subsequently cancelled, 885,000 ordinary shares.Cash flow hedging reserveThe cash flow hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flowhedging instruments related to hedged transactions that have not yet occurred.During the year, the £0.3 million relating to derivatives in cash flow hedging relationships was released to the incomestatement in Cost of sales. Also, further derivatives were acquired for cash flow hedging relationships which were valued at£3.7 million at the end of the year. The total movement in the cash flow hedging reserve during the year was therefore£4.0 million.Own sharesOwn shares held are recognised as a deduction from retained earnings.In 2002 the Company purchased 142,857 own shares, representing 0.3% (2006: 0.3%) of the called up share capital of theCompany at an average price of 314.26p per share in connection with a share option made to the Chief Executive.In 2006 the Company purchased 189,210 own shares, representing 0.4% of the called up share capital of the Company at anaverage price of 482.8p per share in connection with share incentive awards made by the Company in previous years.In 2007, certain senior employees exercised their share options over 299,744 shares at an average price of 420.7p, resultingin 299,744 shares purchased in previous years, being transferred to them.During 2008, the remaining own shares of £0.2 million were transferred to certain senior employees who exercised their shareoptions. At the end of the year, there are no own shares held in trust.Treasury sharesDuring the year, the Company acquired 150,000 Ordinary shares of 20p each to be held as treasury shares. 100,000 of theseshares were acquired at 452p and 50,000 at 453p.Dividends After the balance sheet date the following dividend was recommended by the directors. The dividend has not been provided forat the year end and there are no tax consequences.10.9p per share (2007: 10.9p )4.64.5 2008£m 2007£m The authorised share capital at 31 December 2008 consisted of 65,000,000 (2007: 65,000,000) Ordinary shares of 20peach, of which 42,373,056 were allotted and fully paid. The movement during the year was:At 1 January 200842,044,8458.4 Exercise of share options478,2110.1Purchase of treasury shares(150,000)(0.0)At 31 December 200842,373,0568.5SharesIssued sharecapital£m At 31 December 2008 the following options had been granted and remained outstanding under the Company's share optionschemes:United Kingdom SAYE schemes167,790268p-491p2009-2015International SAYE schemes183,737290p-522p2009-2013Executive schemes719,773298p-549p2009-20181,071,300ExercisepricesNumber ofsharesDatesnormallyexercisableOn 12 March 2008, awards over an aggregate of 498,178 shares in the Company were made to 82 senior Group executivesunder the Company's 2005 Long Term Incentive Plan. The total number of shares outstanding at 31 December 2008 under theCompany's 2005 Long Term Incentive Plan was 936,428, taking into account the lapsing of the awards granted in 2006because the performance condition was not met. This assumes that achievement of the performance condition for the awardsgranted in 2007 and 2008 will be fully satisfied to show the maximum number of awards that could possibly vest (2007:1,209,429). The terms of the awards and the related performance conditions are described in the Remuneration Report.On 14 April 2008, Core awards over an aggregate of 24,280 shares in the Company were made to five senior Group executivesunder the Company's 2005 Deferred Bonus Plan (any Matching Awards, up to a maximum of 100% of the Core awards, will becalculated on vesting). The total number of Core awards outstanding at 31 December 2008 under the Company's 2005Deferred Bonus Plan was 52,191 (2007: 159,937). The terms of the awards and the related performance conditions aredescribed in the Remuneration Report.24 Provisions continued75THE VITEC GROUP74ANNUAL REPORT 2008Notes to the Consolidated Accounts continued26 Acquisitions of BusinessesDue to the complexity of the pre-acquisition structures of certain businesses, management consider that it is impracticable todisclose the results of the combined entity as though all the acquisitions were effected at 1 January 2008.LitepanelsOn 21 August 2008 the Group acquired the business and assets of Litepanels Inc and Litepanels LLC (togetherLitepanels), the leading manufacturer of light-emitting diode (LED) based lights for the television, broadcast, video and filmindustries.The cash consideration including acquisition expenses amounted to US$15.3 million (£8.2 million) and there is anestimated contingent consideration of US$6.3 million (£3.4 million) conditional upon future profitability targets. Based on anassessment of the fair values of the tangible and intangible assets, goodwill of £4.2 million arose on acquisition.As part of the fair value exercise, intangible fixed assets comprising brand name (£0.5 million), patents (£3.7 million) andcustomer relationships (£2.4 million) were identified.The Camera StoreOn 1 September 2008 Camera Dynamics Ltd acquired the net assets of The Camera Store, one of UK'Sleading broadcast camera mounting equipment hire companies. The cash consideration including acquisition expensesamounted to £0.4 million. Based on an assessment of the fair values of the tangible assets, goodwill of £0.1 million arose onacquisition.No intangible assets were identified as part of the fair value exercise.Net assets acquiredIntangible assets- 6.6 6.6 Property plant & equipment0.1 - 0.1 Inventories0.3 0.1 0.4 Trade and other receivables0.6 - 0.6 Trade and other payables(0.3)- (0.3)0.7 6.7 7.4 Purchased goodwill4.2 Total purchase consideration, including expenses and contingent consideration11.6 Net outflow of cash in respect of acquisitionsTotal purchase consideration, including expenses11.6 Contingent consideration(3.4)Total outflow of cash from Group 8.2 The results of Litepanels have been included in the Broadcast Systems division and comprise:External revenue1.7 Inter-segment revenue- Total revenue1.7 Cost of sales(0.7)Operating expenses(0.5)Operating profit0.5 Bookvalue£m Provisionalfair valueadjustments£mAsadjusted£m £m £m Net assets acquiredProperty plant & equipment0.3 - 0.3 0.3 - 0.3Purchased goodwill0.1 Total purchase consideration, including expenses and contingent consideration0.4 Total outflow of cash from Group 0.4 The results of The Camera Store have been included in the Broadcast Systems division and comprise:External revenue0.2 Inter-segment revenue- Total revenue0.2 Cost of sales- Operating expenses(0.2)Operating profit- Bookvalue£m Provisionalfair valueadjustments£mAsadjusted£m £m £m 77THE VITEC GROUP76ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedNet assets acquiredIntangible assets- 0.7 0.7 Deferred tax on intangible assets- 0.2 0.2 - 0.9 0.9 Purchased goodwill0.5Total purchase consideration, including expenses and contingent consideration1.4 Bookvalue£m Provisionalfair valueadjustments£mAsadjusted£m TalkdynamicsOn 10 October 2008 Clear Com Research Inc acquired certain assets (including intellectual property) ofTalkdynamics Technologies Inc. (Talkdynamics), a software development company based in Montreal, Canada. Talkdynamics isan existing supplier to Vitec Group Communications of Voice over Internet Protocol (VoIP) software. The cash considerationincluding acquisition expenses amounted to C$2.3 million (£1.1 million) and there is an estimated contingent consideration ofC$0.7 million (£0.3 million) conditional upon achievement of future development targets. Based on an assessment of the fairvalues of the tangible and intangible assets, goodwill of £0.5 million arose on acquisition.As part of the fair value exercise, intangible fixed assets comprising brand technology (£0.7 million) were identified.The results of Clear Com Research Inc have been included in the Broadcast Systems division and comprise:Net outflow of cash in respect of acquisitionsTotal purchase consideration, including expenses1.4 Contingent consideration(0.3)Total outflow of cash from Group 1.1 £m External revenue- Inter-segment revenue- Total revenue- Cost of sales- Operating expenses(0.1)Operating loss(0.1)£m The table below provides an analysis of total outflow of cash from the Group, net of cash acquired, in respect of acquisitions.Net Assets acquired Intangible assets7.36.6 - 0.7 - - -Deferred tax0.2- - 0.2 - - -Property plant & equipment0.40.1 0.3 - - - -Inventories0.40.4 - - - - - Trade and other Receivables0.6 0.6 - - - - - Trade and other Payables(0.3)(0.3)- - - - - 8.67.4 0.3 0.9 - - - Purchased goodwill4.84.2 0.1 0.5 - - - Total purchase consideration,including expenses andcontingent consideration13.411.6 0.4 1.4 - --Net outflow of cash in respectof acquisitionsTotal purchase consideration13.411.6 0.4 1.4 - - -Consideration paid for previousacquisitions, conditional uponachievement of sales andprofitability targets2.1- - - 1.0 0.1 1.0 Contingent consideration payableon current year acquisitions(3.7)(3.4)- (0.3)- - - Total outflow of cash from Group,net of cash acquired11.88.2 0.4 1.1 1.0 0.1 1.0 Litepanels£mTotal£mTheCameraStore£mTalkdynamics£mAutoscript£mStaging SK£mKata£mExpiring within one year0.9 0.1 1.0 0.9 Expiring two to five years6.8 0.8 7.6 5.9 Expiring after five years9.6 - 9.6 5.5 17.3 0.9 18.2 12.3 (1)Leasing commitments at 31 December 2007 comprised £11.7 million of land and buildings and £0.6 million of other commitments.Land andbuildings£m Other£m Total2008£m 2007£m 27 Operating LeasesGross leasing commitments(1)Expiring within one year0.1 - Expiring two to five years0.7 0.7 Expiring after five years- - 0.8 0.7 The Group leases a number of office, warehouse and factory facilities under operating leases. None of the leases includecontingent rentals.During the year ended 31 December 2008, £5.1 million (2007: £4.3 million) was recognised as an expense in respectof operating leases and £0.2 million (2007: £0.3 million) was recognised as income in respect of subleases in theincome statement.2008£m 2007£m Leasing income26 Acquisitions of Businesses continued79THE VITEC GROUP78ANNUAL REPORT 2008Notes to the Consolidated Accounts continued28 Employee Benefits28a Share Based PaymentsGroup employees participate in a number of employee incentive schemes including a sharesave plan, an unapproved shareoption plan, a long term incentive plan and a deferred bonus plan. The recognition and measurement principles in IFRS 2have not been applied to awards granted before 7 November 2002 in accordance with the transitional provisions in IFRS 1 andIFRS 2.Share option plansThe share option plans currently operated by the Group are:2002 Sharesave and International Sharesave Plan (SAYE)This is a share option plan. Employees can elect at the outset to save a fixed amount per month into the Sharesave Plan. Thevesting period is either three, five or seven years. At the vesting date, the employees have the option to use the savings topurchase shares at a discount to the share price (determined at the date of grant). The option expires six months after vesting.2002 Unapproved Share Option Plan (USOP)The USOP is a share option plan. Options are granted with a vesting period of three years. There is an Earnings Per Share(EPS) performance condition attached to the awards. If this performance condition is met, exercise is possible after the thirdanniversary of date of grant but before the tenth anniversary.For awards granted prior to 2005, 100% of awards vest if the EPS growth over three years increases by more than cumulativeRPI + 9.30%. If the EPS growth is lower than this, but more than cumulative RPI + 3.03%, then between 33.3% and 100%of the awards will vest. If the EPS growth is less than cumulative RPI + 3.03%, then no awards will vest.For awards granted in 100% of the awards vest if the EPS growth over three years increases by more than cumulative RPI +12%. If the EPS growth is lower than this, but more than cumulative RPI + 6%, then between 33% and 100% of the awardswill vest. If the EPS growth is less than cumulative RPI + 6%, no awards will vest.For awards granted in 2008 the performance condition was revised and is now RPI + 9% for minimum vesting and RPI + 30%for full vesting. A sliding scale operates for performance between the lower and upper thresholds.Awards are settled with shares.Share award plans2005 Long Term Incentive Plan (2005 LTIP)The 2005 LTIP are also subject to performance conditions but these conditions are market related, based on the TotalShareholder Return (TSR) of the Company over a three year period compared to the TSR of comparator companies over asimilar period. At the end of the performance period, the TSR of the Company and the comparator companies shall becalculated and ranked from highest to lowest. All awards will vest if the Company's TSR growth is in or above the 20thpercentile. If the Company's TSR performance lies between the 50th and 20th percentile, between 35% and 100% of theawards will vest, below the 50th percentile no awards will vest. For the 2008 awards, the performance period commenced on 1January 2008. Employees are entitled to dividends on the awarded shares that are paid over the performance period - these arepaid in the form of shares at the vesting date.Awards are settled with shares.2005 Deferred Bonus Plan (DBP)Under the 2005 DBP, employees can exchange up to 100% of their annual bonus in a financial period for shares of the samevalue. These awards will vest three years after the date of grant (or immediately if the employee leaves the Company). Awards,in any form other than an option, can be exercised within a period of one year (or an alternative period as determined by theCompany for leavers).The employee may also receive matching shares at the end of the vesting period. The number of matching shares is dependenton the outcome of a market performance condition. At the end of the performance period, the TSR of the Company and theComparator Companies shall be calculated and ranked from highest to lowest. Awards will be matched at one share for everyone share if the Company's TSR growth is in the top 20%. Awards will be matched at one share for every three shares atmedian performance. No awards will vest if the Company's TSR performance is below the median. Where the Company's TSRgrowth is between the median and the 20th percentile, awards will vest on a straight line basis between 33.3% and 100%.For the 2008 awards, the performance period commences on 1 January 2008.The amounts recognised in the income statement for share based payment transactions with employees for the year ended 31December 2008 was £1.6 million (2007: £1.7 million), of this £1.7 million (2007: £1.4 million) related to equity settledshare based payment transactions. The residual £(0.1) million related to cash settled share based payment transactions.The outstanding liability recognised in the balance sheet for cash settled UK awards as at 31 December 2008 was £0.1 million(2007: £0.3 million).The total intrinsic value as at 31 December 2008 for cash settled awards which had vested by this date was £0.1 million.Options outstanding under the 2002 Sharesave Plan and Unapproved Share Option Plan as at 31 December 2008, togetherwith their exercise prices and vesting periods, are as follows:NumberoutstandingWeightedaverageexercise price(£)Weightedaverageremainingcontractual lifeRange ofexercise prices££2.61 - £2.8025,0222.733.87£2.81 - £3.00375,1742.996.05£3.01 - £4.00196,4403.533.66£4.01 - £4.5051,9324.164.03£4.51 - £5.0032,8364.912.81£5.01 - £5.50389,8965.175.69Total1,071,3003.995.23Options granted, exercised and lapsed during the years ended 31 December 2008 and 2007 under these share options planswere as follows:Weightedaverageexercise price(£)USOPWeightedaverageexercise price(£)SharesaveAwards at 31/12/2006373,5072.951,214,9444.05Exercised during 200729,1072.93395,0474.49Lapsed during 20077,1053.76205,0194.16Granted during 2007122,2765.070-Awards at 31/12/2007459,5713.51614,8783.73Exercised during 2008190,1462.5836,3333.00Lapsed during 2008111,4254.08107,7724.94Granted during 2008193,5273.53249,0005.12Awards at 31/12/2008351,5273.84719,7734.07Awards exercisable at 31/12/200858,7552.84450,2023.43The weighted average share price at the date of exercise for share options exercised during the year was £4.47 (2007: £5.88).81THE VITEC GROUP80ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedNature of ArrangementSave as youSave as youSave as youShareShareShareearn schemeearn schemeearn schemeoption planoption planoption planDate of Grant02 May 200802 May 200802 May 200812 March 200812 March 200814 April 2008Number of Instruments granted151,22941,996302249,000498,17824,280 Basic/ 24,280MatchingExercise Price£3.46/£3.67(1)£3.46/£3.67(1)£3.46£5.12n/an/aShare price at date of grant£4.60£4.60£4.60£5.07£5.07£4.35Contractual Life (yrs)3.55.57.51044Expected Option Life (yrs)3.255.257.253.544SettlementSharesSharesSharesSharesSharesSharesExpected Volatility(2)31.1%28.0%31.3%30.6%30.6%30.6%Risk free interest rate4.50%4.60%4.70%4.50%n/an/aExpected Dividend Yield3.50%3.50%3.50%3.50%n/an/aExpected departures(per annum from grant date)5%5%5%5%5%0%Expected outcome ofnon-market based relatedperformance conditionn/an/an/a100%n/an/aFair value per grantedinstrument determined at thegrant date£1.45/£1.34(1)£1.48/£1.38(1)£1.62£1.04£1.43£4.35/£1.23Valuation ModelBlack ScholesBlack ScholesBlack ScholesBlack ScholesMonte CarloMonte Carlo(1)For the Sharesave 3 Year and 5 Year awards, the exercise price for awards made to US employees was different from those granted to European employees. Thefirst figure represents options granted to European employees while the second figure relates to options granted to employees in the US.(2)The expected volatility is based on historical volatility determined by the analysis of daily share price over a period commensurate with the expected lifetime ofthe award and ending on the date of grant of the award.(3)Represents fair value for basic and matched award respectively.(1)For the LTIP 2005 and DBP matched award, a Monte Carlo simulation has been used. Under this valuation method, the share price for Vitec is projected to theend of the performance period as is the Total Shareholder Return for Vitec and the companies in the comparator group. Based on these projections, the number ofawards that will vest is determined.Thousands of simulations are run and the fair value of the award is calculated as the product of the vesting probability and theshare price at the date of grant.2002UK andInternationalSharesavePlan 7 Year2002UK andInternationalSharesavePlan 5 Year2002UK andInternationalSharesavePlan 3 YearArrangement2002UnapprovedShare OptionPlan2005 LongTerm IncentivePlan2005DeferredBonus PlanVesting conditions7 yearservice periodand savingsrequirement5 yearservice periodand savingsrequirement3 yearservice periodand savingsrequirementEPS growthrelative toRPI and3 yearservice periodRelative TSRperformanceagainstcomparatorgroup and3 yearservice period3 year serviceperiod andrelative TSRperformance formatchingawards(3)(4)28b Post Employment ObligationsDefined benefit plans – pensions and other post-retirement plan disclosuresAmounts recognised on the Group balance sheetPlan assetsEquities21.929.5Bonds8.811.3Other4.13.6Total fair value of plan assets34.844.4Present value of defined benefit obligation(40.7)(47.2)Net (deficit) recognised in the Group balance sheet(5.9)(2.8)Analysis of net recognised deficit UK pension fund(0.4)1.2Total funded plans(0.4)1.2Italian pension scheme(3.4)(2.8)Other unfunded plans(2.1)(1.2)Total unfunded plans(5.5)(4.0)Liability recognised on the Group balance sheet(5.9)(2.8)Amounts recognised in the Group Income statement Amounts in net operating costsCurrent service costs – defined benefit schemes2.82.2Employers’ pension costs – defined contribution schemes0.80.63.62.8Amounts in net financial expenseExpected return on plan assets(3.1)(2.9)Interest cost2.52.3(0.6)(0.6)Total amounts charged to the income statement3.02.22008£m 2007£m 2008£m 2007£m 2008Plan assets34.844.442.538.930.7Defined benefit obligation(40.7)(47.2)(47.5)(46.4)(40.4)Total deficit(5.9)(2.8)(5.0)(7.5)(9.7)Net actuarial gain/(loss)(1.8)2.52.20.5(0.6)2007200620052004Movements since 2004 on defined benefit schemes28a Share Based Payments continued83THE VITEC GROUP82ANNUAL REPORT 2008Notes to the Consolidated Accounts continuedExpectedlong termrate of returnat 31.12.08% paFairvalue at31.12.08£m31 December2008£mInflation rate2.83.33.02.8Expected rate of salary increases(1)4.35.35.04.8Rate of increase of pensions in payment(2)- pre-1 August 2008 accruals in excess of GMP2.83.33.02.8- post-31 July 2008 accruals2.5n/an/an/aRate of increase for deferred pensions2.83.33.02.8Discount rate6.35.85.24.8(1)These exclude an age-related allowance for promotional and merit awards.(2)In addition, we have made allowance for the special pension increase guarantees applying to certain executive members of the Scheme.The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standardactuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent toexpected longevity at age 65 for members in normal health approximately as follows:- Pensioners currently aged 65: ranging from 20 to 24 years- Non-pensioners currently aged 45: ranging from 22 years to 26 years.The rates of return quoted are based on actual market yields for bonds. The assumed rates of return on other asset classeswhere market rates of return are not readily available – including, most importantly, equities – are based on the central 10 yearmedian return assumptions. We have assumed for this purpose that returns on overseas equities will be the same as on UKequities.31 December2007% pa 31 December2008% pa 31 December2006% pa31 December2005% pai) Assumptions used to determine defined benefit obligation Equities21.98.229.58.029.67.827.37.8Bonds8.84.411.34.810.34.79.24.3Property1.56.91.96.72.16.21.26.3Cash/NCA2.03.81.05.2-4.80.63.8Insurance policies0.66.30.75.80.55.20.64.8Total value of assets34.844.442.538.9Note: the asset values shown are, where relevant, estimated bid values of market securitiesFairvalue at31.12.07£mExpectedlong termrate of returnat 31.12.07% paFairvalue at31.12.06£mExpectedlong termrate ofreturn at31.12.06% paFairvalue at31.12.05£mExpectedlong termrate ofreturn at31.12.05% paii) Scheme assets and expected rate of return A summary of the assets of the Scheme, classified into the major asset classes, is shown below, together with the expectedreturn on each major asset class.31 December2006£m31 December2007£m31 December2005£miii) Reconciliation of funded status at 31 December 2008Present value of defined benefit obligation(35.2)(43.2)(43.5)(42.0)Assets at fair value34.844.442.538.9Funded status(0.4)1.2(1.0)(3.1)Unrecognised past service cost----Unrecognised net gain/(loss)----Effect of asset ceiling----Defined benefit asset/(liability) (0.4)1.2(1.0)(3.1)Year ending31 December2008£mYear ending31 December2007£miv) Pension expense for year to 31 December 2008a) Components of pension expenseGroup service cost1.51.5Interest cost2.52.2Expected return on assets(3.1)(2.9)Past service costs--Curtailments--Settlements--Total pension expense/(income)0.90.8Year ending31 December2006£mYear ending31 December2007£mYear ending31 December2008£mYear ending31 December2005£mb) Statement of Recognised Income and Expense (SORIE)Actuarial gain/(loss) recognised in SORIE during the period(1.8)2.12.00.5Cumulative actuarial gain/(loss) recognised at beginning of period4.62.50.5-Cumulative actuarial gain/(loss) recognised at end of period2.84.62.50.5Note: the cumulative actuarial gains/(losses) shown reflect periods since 1 January 2005 only.Year ending31 December2008£mYear ending31 December2007£mv) Return on assets for year to 31 December 2008Expected return on assets3.12.9Actuarial gain/(loss) on assets(12.5)(0.9)Actual return on assets(9.4)2.0UK pension schemeAt the end of 2003 the Group closed both of its UK defined benefit schemes to new members. Since 2004 a Group personalpension plan has been made available for new employees with Standard Life. In November 2005 the defined benefit schemeswere merged. As at 31 December 2008 the number of active members in the merged scheme was 10% lower at 158 (2007:176). Total scheme members were 643 (2007: 655).The nature of the scheme is a funded final salary scheme, closed to new entrants.28b Post Employment Obligations continued85THE VITEC GROUP84ANNUAL REPORT 2008Notes to the Consolidated Accounts continued31 December2008£m31 December2007£mvii) Reconciliation of the fair value of assets for the year to 31 December 2008Fair value of assets at start of year44.442.5Expected return on assets 3.12.9Actuarial gain/(loss) on plan assets(12.5)(0.9)Group contributions1.10.9Employee contributions0.40.4Actual benefit payments(1.5)(1.2)Administration expenses paid(0.2)(0.2)Curtailments--Settlements--Fair value of assets at end of year34.844.4Year to31 December2008£mYear to31 December2007£mviii) Reconciliation of change in funded status for the year to 31 December 2008Defined benefit asset/(liability) at start of year 1.2(1.0)Total pension (expense)/income(0.9)(0.8)Employer contributions actually paid1.10.9Benefits paid directly by Group--Gain/(loss) recognised in SORIE(1.8)2.1Gain/(loss) due to exchange rate movements--Defined benefit asset/(liability) at end of year(0.4)1.2Yearcommencing1 January2009£mix) Expected 2009 contributionsGroup Contributions1.0Employee Contributions0.420082007Assumptions used to determine defined benefit obligation:Inflation rate2%2%Expected rate of salary increases0%2%Expected salary increase on promotion0%10.54%Discount rate4.30%4.33%2008£m2007£mPension expense for year to 31 December 2008Service cost1.10.5Interest cost-0.1Total1.10.62008£m2007£mActuarial gain/loss in SORIERecognised in period-0.42008£m2007£mReconciliation of present value of defined benefit obligation (DBO) for the year to 31 December 2008Brought forward(2.8)(3.0)Service cost(1.1)(0.5)Interest cost-(0.1)Actuarial gain/(loss)-0.4Contributions paid1.30.8Foreign exchange gain/(loss)(0.8)(0.4)Carried forward(3.4)(2.8)29 Post Balance Sheet EventsThere are no post balance sheet events to report.31 December2008£m31 December2007£mPresent value of DBO at start of year43.243.5Group service cost1.51.5Interest cost2.52.2Employee contributions0.40.4Actuarial (gain)/loss on change of assumptions(10.5)(2.6)Experience (gain)/loss(0.2)(0.4)Actual benefit payments and expenses(1.7)(1.4)Past service costs--Curtailments--Settlements--Present value of DBO at end of year35.243.2Italian pension provisionIn accordance with Italian law, Italian employees are entitled to a lump sum payment (TFR) from their employers when they resignor retire. The TFR is accrued over the years in which the employee is in service. In each year, the accrued amount is increased by 6.91% ofthe employee’s gross annual salary. At the end of each year, the employee’s TFR’s are revalued by 1.5% plus 75% of the nationalincrease in the consumer price index (as published by the Italian National Statistical Institute ISTAT).After eight years of service, an employee can ask his employer to advance up to 70% of his total TFR. Once the employee has leftthe Company and received the balance of his TFR, the Company is not liable for any further pension obligations in respect of thatemployee. The International Financial Reporting Interpretations Committee (IFRIC) of IASB (International Accounting Standard Board) hasestablished that, in accordance with IAS 19, TFR’s must be accounted for as defined benefit pension schemes and the presentvalue of the TFR’s must be computed using actuarial assumptions.28b Post Employment Obligations continuedvi) Reconciliation of present value of defined benefit obligation (DBO) for the year to 31 December 200887THE VITEC GROUP86ANNUAL REPORT 2008Notes to the Consolidated Accounts continued30 Accounting Estimates and JudgementsManagement discussed with the Audit Committee the development, selection and disclosure of the Group's critical accountingpolicies and estimates and the application of these policies and estimates.Accounting EstimatesKey sources of estimation uncertaintyNote 14 contains information about the assumptions and their risk factors relating to goodwill impairment. In Note 19detailed analysis is given of the foreign exchange exposure of the Group and risks in relation to foreign exchange movements.Provisions for trade receivables impairmentA number of accounting estimates and judgements are incorporated within the impairment provisions for trade receivables.These are described in more detail in Note 18.Provisions for inventory obsolescenceA number of accounting estimates and judgements are incorporated within the provisions for inventory obsolescence. These aredescribed in more detail in Note 17.Warranty ProvisionsA number of accounting estimates and judgements are incorporated within the provisions for warranty. These are described inmore detail in Note 24.Post-employment obligationsA number of accounting estimates and judgements are incorporated within the provisions for post-employment obligations.These are described in more detail in Note 28.Share based paymentsA number of accounting estimates and judgements are incorporated within the provisions for share based payments. These aredescribed in more detail in Note 28.Accounting JudgementsGoing concernThe Group’s business activities, together with the factors likely to affect its future development, performance and position areset out in the Business Review on pages 4 to 5. The financial position of the Group, its cash flows, liquidity position andborrowing facilities are described in the Financial Review on pages 12 to 14. In addition, Note 19 to the financial statementsincludes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives;details of its financial instruments and hedging activities; its exposure to credit risk and liquidity risk.The Group has considerable financial resources. As a consequence, the directors believe that the Group is well placed tomanage its business risks successfully despite the current uncertain economic outlook.After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue inoperational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing theannual report and accounts.31 Related Party TransactionsIdentity of related partiesThe Group has a related party relationship with its subsidiaries (these are listed in Note 15 on page 63), with its keymanagement personnel and directors of subsidiary entities.Transactions with directors of subsidiariesAbramo Manfrotto is a director of Vitecgroup Italia Spa and is also Managing Director of Alu Spa (disposed of by the Group inDecember 2003). Sales of Vitecgroup Italia Spa products and services to Alu in 2008 totalled c479,125, £379,055 (2007:c1,092,261, £743,035). At 31 December 2008, there was c118,428, £93,693 outstanding, payable by Alu Spa (2007:c330,592, £224,893). Sales of Alu products and services to Vitecgroup Italia Spa companies in 2008 totalled c26,867,£21,2556 (2007: c44,136, £30,024). At 31 December 2008, there was c4,568, £3,614 outstanding and payable to AluSpa (2007: c8,914, £6,064). There were no US$ sales of Alu products and services to Vitecgroup Italia Spa companies in2008 (2007: US$4,249, £2,124) and, therefore, at 31 December 2008, there were no US$ amounts outstanding and payableto Alu Spa (2007: $3,756, £1,878). Mitchell Clark, President of Tomcat Global Inc until 31 December 2008, is the owner of Bobawaba Ltd, a company from whichTomcat UK and Brilliant Stages rents properties. Rents paid to Bobawaba Ltd in 2008 totalled £nil (2007: £14,800). AlsoBobawaba supplied goods to Tomcat UK totalling £4,341 during the year (2007: £17,095). Mitchell Clark also owns 50% ofMRC/EC LLC, a company from which Tomcat USA rents properties. Rents invoiced from MRC/EC LLC in 2008 totalledUS$154,845, £83,682. (2007: US$142,315, £71,158). Also there were pass through property taxes invoiced totalling$14,606, £7,893 (2007: $15,115 , £7,558). At 31 December 2008, there were no amounts due to Bobawaba Ltd (2007:£25,995 was payable to Bobawaba Ltd (£17,095 relating to goods, £8,900 relating to rents)).Mitchell Clark is also the owner of Logic Productions Inc. The company car used by Mitchell Clark is owned by LogicProductions Inc and leased to Tomcat USA. Lease payments invoiced from Logic Productions Inc in 2008 totalledUS$13,543, £7,319 (2007: US$18,057, £9,029). There were no pass through auto property taxes and auto registration fees(2007: US$1,668, £834). There was a pass through amount invoiced for an electric cable license fee to Underwriter'sLaboratory for US$4,000, £2,162 (2007: US$2,800, £1,400).John James was Chief Executive Officer of Tomcat USA during 2008. He is also owner of LCOAT GP, Inc a company which sellspowdercoating services to Tomcat USA. Sales of LCOAT services to Tomcat USA in 2008 totalled US$259,407, £140,190(2007: US$180,011, £90,006). At 31 December 2008, there was US$43,053, £23,267 outstanding and payable to LCOAT(2007: US$1,867, £934).Warren Parece, President of Microwave Service Corporation, is the owner of WJP LLC, the landlord at 15 Thornton Avenue,Haverhill, Massachusetts from which Microwave Service Corporation operates. The relationship began on 18 June 2007 andcontinued through to the end of 2007. The lease term expires 30 June 2020. In 2008, the total value of the transaction wasUS$102,201, £55,232 (2007: from the period when the relationship began, through to the end of 2007 US$50,909,£25,455. At 31 December 2008, there were no amounts due to or from WJP LLC.Transactions with key management personnelKey management personnel are classed as the directors (including the non-executive directors) and the members of theExecutive Board. The Interim Chief Executive, Alastair Hewgill, and the Finance Director, Richard Cotton, are directors of theCompany and are also members of the Executive Board. Gareth Rhys Williams was Chief Executive, a director of the Companyand a member of the Executive Board during the year. However, for the purposes of the following paragraphs and to avoiddouble counting, their interests and remuneration have been excluded from the information relating to the Executive Board.Executive directors of the Company and their immediate relatives control 0.355% (2007: 0.455%) of the shares of theCompany. Non-executive directors control 0.119% (2007: 0.105%). Members of the Executive Board control 0.25% (2007:0.080%) of the shares of the Company.The remuneration of the directors is set out on pages 21 to 27. The remuneration of the members of the Executive Board in2008 was: salaries £923,512 (2007: £783,627); performance-related bonuses £254,313 (2007: £558,044); short termemployee benefits (company car and medical insurance) £68,239 (2007: £57,852).In addition to their salaries, the aggregate of which is set out above, the Group also contributes to a number of pensionarrangements, each one specific to the country in which the individual member of the Executive Board is based. Members ofthe Executive Board and the executive directors are eligible to participate in the Group's executive bonus scheme and its shareincentive arrangements. The cost to the Company in 2008 arising from share incentive awards was £986,000 (2007:£921,000).89THE VITEC GROUP88ANNUAL REPORT 2008Company Balance SheetAs at 31 December 2008Reconciliation of Movements in Shareholders' FundsFor the year ended 31 December 2008Fixed assetsTangible assetsg1.61.7 Investmentsh330.2301.8 331.8303.5 Current assetsDebtorsi7.92.1 Cash at bank and in hand10.34.1 18.26.2 Creditors -due within one yearj(13.2)(6.7)Net current assets/(liabilities)5.0(0.5)Total assets less current liabilities336.8303.0 Creditors -due after more than one yearj(140.8)(107.4)Net assets196.0195.6 Capital and reservesCalled up share capitalk8.58.4 Share premium accountl7.57.0 Capital redemption reservel1.61.6 Revaluation reservel0.90.9 Merger and other reservesl53.753.7 Profit and loss accountl123.8124.0 Shareholders' funds - equity196.0195.6Notes2008£m 2007£m Approved by the Board on 2 March 2009 and signed on its behalf Richard CottonDirectorProfit for the financial year6.7 100.3 Dividends(7.7)(7.0)Retained profit for the year(1.0)93.3 Equity settled transactions0.8 0.7 Reserve for own shares- 1.3 New share capital subscribed0.6 4.0 Net increase in shareholders' funds0.4 99.3 Opening shareholders' funds195.696.3Closing shareholders' funds196.0195.62008£m2007£m 91THE VITEC GROUP90ANNUAL REPORT 2008Notes to the Company Accountsa Basis of PresentationThe accounts have been prepared in accordance with applicable accounting standards and under the historical cost accountingrules modified to include the revaluation of certain land and buildings.Under Section 230(4) of the Companies Act 1985 the Company is exempt from the requirement to present its own profit andloss account.Under FRS 1 the Company is exempt from the requirement to present a cash flow statement on the grounds that this isincluded in the Group consolidated accounts.b Accounting policiesThe following accounting policies have been applied consistently in dealing with items which are considered material in relationto the financial statements.Fixed assets and depreciationDepreciation is provided to write off the cost or valuation of the relevant assets less the estimated residual value of tangiblefixed assets by equal annual amounts over their expected useful ecomonic lives. No depreciation is provided on freehold land.Other fixed assets are depreciated as follows:Freehold buildings21/2% – 5% on cost or valuationShort leasehold propertyover the remaining period of the leaseMotor vehicles25% – 331/3% on costEquipment, fixtures & fittings10% – 331/3% on costFixed assets are stated at cost except that, as allowed under FRS 15 Tangible Fixed Assets, on adoption of that Standard in theyear ending 31 December 2000 when the book amounts of revalued land and buildings were retained. These book values arebased on the previous revaluation on 31 March 1989 and have not been subsequently revalued.Foreign currenciesTransactions in foreign currencies are recorded using the monthly average rate of exchange ruling at the date of thetransaction.Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balancesheet date and the gains or losses on translation are included in the profit and loss account.LeasesRentals under operating leases are charged to the profit and loss account on a straight-line basis.Post-retirement benefitsThe Company participates in a UK group pension scheme providing benefits based on both final pensionable salary and oncontributions paid. The assets of the scheme are held seperately from those of the Company. The Company is unable to identifyits share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as requiredby FRS 17 Retirement Benefits accounts for the scheme as if it were a defined contribution scheme. As a result, the amountcharged to the profit and loss accounts represents the contributions payable to the scheme in the year.TaxationThe charge for taxation is based on the profit for the year and takes into account taxation deferred because of timingdifferences between the treatment of certain items for taxation and accounting purposes.Employee share schemesThe share option programme allows employees to acquire shares of the Company. The fair value of options granted is recognisedas an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over theperiod during which the employees become unconditionally entitled to the options.For cash settled share based payment transactions the fair value of the amount payable to the employee is recognised as anexpense with a corresponding increase in liabilities. Where the expense of the option relates to an employee of another Groupentity, this cost is recharged to that entity.Dividends in shares presented within shareholders' fundsDividends unpaid at the balance sheet date are not recognised as a liability at that date. Unpaid dividends that do not meetthese criteria are disclosed in the Notes to the financial statements.InvestmentsFixed asset investments are stated individually at cost less, where appropriate, provision for impairment in value. Financial InstrumentsFinancial instruments have been recognised in accordance with Group accounting policies. Derivative financial instrumentshave had no finacial impact on these accounts due to equal and opposite internal instruments written with certain of theCompany's operating subsidiaries.Derivatives are recognised initially at cost, and subsequent to initial recognition at fair value. The fair value of forward andoption exchange contracts is their quoted market price at the balance sheet date.Derivatives are de-recognised when they mature or are sold.The gain or loss on re-measurement to fair value is recognised immediately in the profit and loss account unless the derivativesqualify for hedge accounting.Hedge of Monetary Assets and LiabilitiesWhere a derivative is used to hedge economically the foreign exchange exposure of a recognised monetary asset or liability, nohedge accounting is applied and any gain or loss on the hedging instrument is recognised in the profit and loss account.Hedge of a Net Investment in a Foreign OperationThe portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to bean effective hedge is recognised directly in equity. The ineffective portion is recognised immediately in the profit and lossaccount. The effective portion will be recycled into the profit and loss account when the foreign operation will be sold.Wages and salaries1.91.7Employers' social security costs0.20.2Employers' pension costs0.30.22.42.12008£m2007£m c EmployeesAggregate remuneration of all employees during the year141320082007Average number of employees during the yeard Directors' RemunerationThe emoluments, share options, awards under incentive schemes and pension entitlements of the directors are disclosed in theRemuneration Report.Final dividends paid in respect of prior year but not recognised as liabilities in that year4.64.1 Interim dividends paid in respect of the current year3.12.9 Aggregate amount of dividends paid in the financial year7.7 7.0 A final 2008 dividend of 10.9p per share has been recommended by the Board.2008£m2007£m e DividendsThe aggregate amount of dividends comprises:93THE VITEC GROUP92ANNUAL REPORT 2008Notes to the Company Accounts continuedf PensionsThe Company is a member of a larger UK group wide pension scheme providing benefits based both on final pensionable payand on contributions. Because the Company is unable to identify its share of the scheme assets and liabilities on a consistentand reasonable basis, as permitted by FRS17 Retirement Benefits, the scheme has been accounted for in these financialstatements as if the scheme was a defined contribution scheme. At 31 December 2008, the UK scheme had a deficit of£0.4 million (2007: £1.3 million surplus).The contributions paid by the Company in the year amounted to £0.3 million (2007: £0.2 million). The expected Companycontributions in 2009 are £0.3 million.Further details of the UK pension scheme are disclosed on pages 81 to 84.Cost or valuationAt 1 January 20083.6 3.0 0.1 0.5 Additions- - - - At 31 December 20083.6 3.0 0.1 0.5 DepreciationAt 1 January 20081.9 1.5 0.1 0.3 Charge for the year0.1 - - 0.1 At 31 December 20082.0 1.5 0.1 0.4 Net book valueAt 1 January 20081.7 1.5 - 0.2 At 31 December 20081.6 1.5 - 0.1Total£m Land andbuildings£m Motorvehicles£mEquipmentfixtures andfittings£m g Tangible Fixed AssetsNet book value of land and buildings at cost or valuation comprise the followingCarried at valuation (open market basis-31.3.1989)1.5 1.5 Freehold1.5 1.5 The land and buildings shown above at a revalued net book value of £1.5 million would have been stated under historical costat £0.7 million and a net book value of £0.1 million.The revalued amount of the land and buildings has been retained as allowed for by the transitional provisions set out in FRS 15Tangible Fixed Assets.The Company had the following annual commitments under operating leases:Expiring two to five years0.10.12008£m2007£m 2008£m2007£m Land and buildingsh Fixed Asset InvestmentsInvestments at cost or written down valueTotal£m Investmentsin othershares£mLoans£m Amounts falling due within one yearAmounts owed by subsidiaries0.1 0.4 Other debtors1.0 0.8 Derivative financial instruments - forward and option exchange contracts6.7 0.7 Prepayments and accrued income0.1 0.2 7.9 2.12008£m2007£m i DebtorsAmounts falling due within one yearBank overdrafts (unsecured)4.2 3.2 Amounts owed to subsidiaries0.1 0.4 Derivative financial instruments - forward and option exchange contracts6.7 0.7 Other creditors0.5 0.1 Accruals and deferred income1.7 2.3 13.2 6.7 Amounts falling due after more than one yearBank loans (unsecured)64.9 43.4 Amounts owed to subsidiaries75.9 64.0 140.8 107.4 2008£m2007£m j CreditorsCostAt 1 January 2008307.5 134.8 172.7 Transfers from loans 77.6 77.6 - Transfers to investments/loan reductions(49.2)- (49.2)At 31 December 2008335.9 212.4 123.5 ProvisionAt 1 January 2008 and 31 December 20085.7 5.7 - Net Book ValueAt 1 January 2008301.8 129.1 172.7 At 31 December 2008330.2 206.7 123.5 95THE VITEC GROUP94ANNUAL REPORT 2008Notes to the Company Accounts continuedAt 1 January 200842,044,8458.4Purchase of treasury shares(150,000)-Exercise of share options478,2110.1At 31 December 200842,373,0568.5During 2008, the Company purchased 150,000 of its own shares at a cost of £0.7 million. These shares, known as TreasuryShares, have been deducted from the total number of shares allotted and fully paid.SharesIssued share capital £m k Share CapitalThe authorised share capital at 31 December 2008 consisted of 65,000,000 (2007: 65,000,000) shares of 20p each, ofwhich 42,373,056 were allotted and fully paid. The movement during the year was:i) Share based paymentsDetails of the share based payments can be found on page 78.ii) Share option schemesDetails of the share option schemes can be found on page 78.At 1 At 1 January 20087.0 1.6 0.9 9.7 44.0 124.0 Premium on new shares issued1.2 - - - - - Profit for the year- - - - - 6.7 Dividends paid- - - - - (7.7)Treasury shares(0.7)- - - - - Equity settled transactions, net of tax- - - - - 0.8 At 31 December 20087.5 1.6 0.9 9.7 44.0 123.8 Other reserves represents the capitalisation of the share premium account, £22.7 million in 1989 and £37.3 million in 1995,less £16.0 million of share repurchases in 1995.SharePremiumaccount£m CapitalRedemptionreserve£m Revaluationreserve£m Mergerreserve£mOtherreserves£mProfitand lossaccount£ml ReservesBank overdrafts4.2 3.2 Bank loans 64.9 43.4 Gross financial liabilities69.1 46.6 2008£m 2007£m m Financial Instrumentsa) Financial liabilitiesi) Analysis of borrowingsWithin one year or less4.2 3.2 More than two years but not more than five years64.9 43.4 69.1 46.6 The total amount of bank loans and overdrafts any part of which falls due after five years is £nil (2007: £nil).2008£m 2007£m ii) Maturity profileExpiring in one year or less- uncommitted facilities15.0 13.9 More than two years but not more than five years- committed facilities60.1 56.6 Total75.1 70.5 On 8 August 2008 the Company signed a five year £125 million Multicurrency Revolving CreditFacility Agreement with asyndicate of six UK and European banks.The Company had the following undrawn borrowing facilities at the end of the period:2008£m 2007£m CurrencyYen3.1 3.1 US$28.7 28.7 Euro20.3 20.3 Sterling17.0 17.0 At 31 December 200869.1 69.1 Yen1.5 1.5 US$28.1 28.1 Euro17.0 17.0 At 31 December 200746.6 46.6 The floating rate borrowings comprise bank loans and overdrafts bearing interest at rates based on LIBOR.Total£m Floating rateborrowings£m iii) Interest rate profileCurrencySterling10.2 3.3 US$- 0.8 Yen0.1 - 10.3 4.1The floating rate financial assets comprise bank balances bearing interest at local bank rates.Sterling, US$, Euro and Yen balances within the UK can be offset as a result of the Group's Balance Offset Agreement withHSBC Bank plc.Floating rate2008£m Floating rate 2007£m b) Financial assetsCash at bank and in hand10.3 4.1 Bank overdraft(4.2)(3.2)Floating rate borrowings(64.9)(43.4)Forward exchange contracts - Assets5.4 0.3 Forward exchange contracts - Liabilities(5.4)(0.3)Option exchange contracts - Assets 1.3 1.0 Option exchange contracts - Liabilities(1.3)(1.0)(58.8)(42.5)Fair valueand book value2008£mFair valueand book value2007£mc) Fair value of financial assets and liabilities97THE VITEC GROUP96ANNUAL REPORT 2008Notes to the Company Accounts continuedFive Year Financial SummaryFor the year ended 31 DecemberRevenue337.7 273.8 222.3 194.9 185.4 Operating profit before significant items38.4 32.6 25.2 20.0 17.8 Net interest on bank borrowings(3.1)(2.6)(1.4)(1.3)(1.6)Other financial income/(expense)0.1 0.3 0.3 (0.3)0.3Profit before tax and significant items35.4 30.3 24.1 18.4 16.5Cash generated from operations44.3 33.8 28.7 29.8 22.5 Net interest paid(3.6)(3.0)(1.5)(1.3)(1.6)Tax paid(6.7)(9.5)(5.5)(1.6)(1.4)Operating cashflow34.021.3 21.7 26.9 19.5 Net capital expenditure on property, plant &equipment and software and development costscapitalised as intangible assets(15.0)(16.6)(11.2)(9.6)(8.4)Free cash flow(1)19.04.7 10.5 17.3 11.1Capital employedIntangible fixed assets71.6 55.5 34.1 19.9 12.8 Tangible fixed assets63.6 45.6 35.1 33.6 30.7 Investment in equity-accounted investee- 1.3 0.7 - - Other net assets34.9 21.8 21.8 17.8 27.2 170.1 124.2 91.7 71.3 70.7 Financed byShareholders' funds - equity133.4 97.3 76.8 70.6 64.2 Net debt53.0 38.4 18.9 5.4 11.3 Deferred tax(16.3)(11.5)(4.0)(4.7)(4.8)170.1 124.2 91.7 71.3 70.7StatisticsOperating profit (%) before significant items11.411.911.310.29.6Effective tax rate (%) before significant items33.937.040.042.045.0Adjusted basic earnings per share (p)(2)55.946.035.326.022.2Basic earnings per share (p)48.044.132.623.918.8Dividends per share (p)18.317.816.515.515.0Year-end mid-market share price (p)235.5585.0528.5375.0286.0(1)Free cash flow is the cash generated from operations less interest, tax and capital expenditure on property, plant & equipment and capitalised softwarecosts.(2)Differences between Adjusted basic and Basic earnings per share arise from significant items in the years in question.2008£m2005£m 2004£m 2006£m 2007£mm Financial Instruments continuedMarket rates have been used to determine fair values.The Company has equal and opposite internal foreign exchange contracts matching the external foreign exchange contracts theCompany has taken out with financial instututions.Estimation of Fair ValuesDerivativesForwards are marked to market by calculating the contractual forward price and deducting the current spot rate. Options andcylinders are marked to market by obtaining quotes from banks of their market value as at 31 December.Forward exchange contracts - Assets0.7 Forward exchange contracts - Liabilities(6.1)Option exchange contracts - Liabilities(1.3)(6.7)Within oneyear or less2008£mForward exchange contracts - Assets0.2 Forward exchange contracts - Liabilities(0.5)Option exchange contracts - Assets1.0 0.7 In 2008 option exchange contracts selling US Dollars and purchasing Euros, totalling US$39.0 million (2007: US$30.1million) and selling US Dollars for Sterling, totalling US$12.5 million (2007: US$4.9 million) were taken out to coveranticipated US Dollar currency receipts covering the period January 2009 to October 2009. The unrecognised losses on theseoptions at 31 December 2008, based on the exchange rates on that date, were £1.3 million (2007: £1.0 million gain). TheGroup's foreign exchange hedging policy is set out in the Financial Review.Interest bearing loans and borrowingsAll interest bearing loans and borrowings are at floating rates. Therefore, the fair value of these loans and borrowings is theircarrying value.n Related party transactionsAs the results of the Company are being presented together with its consolidated financial statements, the Company has takenadvantage of the extension contained in FRS 8 and has, therefore, not disclosed transactions or balances with entities whichform part of the Group.o Post Balance Sheet Events There are no post balance sheet events to report.2007£md) Maturity profile of derivatives99THE VITEC GROUP98ANNUAL REPORT 2008Shareholder Information and Financial Calendardelay. Up to date market information and the Company's share price are available from the Cityline service operated by theFinancial Times by telephoning 0906 843 0000, keying 2 for share prices and entering Vitec's share code 4404.The Company sends to its shareholders each year an Annual Report and copies of this and of public announcements andfinancial results are published on the Company’s website www.vitecgroup.com. The Company has previously sent to shareholdersa printed Interim Report covering its half year results. To save on the costs of production and postage, the Company will ceasedoing this going forward. Instead, shareholders will be able to view the half yearly results press release on the Company’swebsite or request a copy of the press release from the Company Secretary.Financial calendarEx-dividend date for 2008 final dividend22 April 2009Record date for 2008 final dividend24 April 2009Annual General Meeting19 May 2009Interim management statement19 May 2009Proposed 2008 final dividend payment date22 May 2009Announcement of 2009 half year resultsAugust 2009Proposed 2009 interim dividend payment dateOctober 2009Interim management statementNovember 2009Analysis of shareholdings as at 31 December 2008Shares heldNumber of holders% of holdersNumber of shares% of sharesUp to 1,00058749.53237,9420.561,001 to 5,00034028.69811,8381.925,001 to 10,000816.84601,4641.4210,001 to 50,000958.022,351,2525.5550,001 to 100,000231.941,632,1133.85100,001 and over594.9836,738,44786.701,185100.0042,373,056100.00Institutions and companies42235.6139,584,72893.42Individuals including directors and their families76364.392,788,3286.581,185100.0042,373,056100.00In addition to the above, The Vitec Group plc also holds 150,000 shares in treasury.Shareholder enquiriesFor enquiries about your shareholding, such as dividends or loss of share certificate(s), please contact the Company's registrars,Capita Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield, West Yorkshire HD8 0LA, telephone 0871 6640300 or if calling from overseas +44 (0)20 8639 2157.Dividend reinvestment planThe Company in conjunction with Capita Registrars has recently introduced a Dividend Reinvestment Plan that enablesshareholders to reinvest cash dividends into additional shares in the Company. For shareholders to apply the Final Dividend forthe year ended 31 December 2008 to the Dividend Reinvestment Plan, application forms must be received by the Registrars byno later than 27 April 2009. Details on the Dividend Reinvestment Plan can be obtained from Capita Registrars on 0871 6640381 or if calling from overseas +44 (0)20 8639 3402 or alternatively you can email them at shares@capitaregistrars.com.Online services and electronic votingThe Company has arranged with Capita Registrars to use its online services. By logging on to www.capitaregistrars.com andselecting Portal (Shareholders) you can make a transaction or dividend payment enquiry, add or change a dividend mandate orchange your registered address.The Company will again be making use of Capita Registrars' electronic voting facility. By logging on to www.capitaregistrars.comand selecting Portal (Shareholders) you will find details of the 2009 Annual General Meeting including the venue and text ofresolutions. Shareholders have the facility to vote for, against or withhold and can split or restrict votes, appoint the Chairman ofthe meeting or a third party as their proxy and include any instruction text. The facility includes CREST voting for membersholding their shares in uncertificated form. To use the above facilities, shareholders will need to input a unique User ID that canbe applied for on your first visit to the site. To be allocated a User ID you will need your Investor Code, which can be found onyour dividend stationery and share certificates. User IDs previously issued will still be valid.Should you experience any difficulties using these facilities please contact the Capita Registrars helpline on the numbers givenabove.International dividend payment serviceOverseas shareholders may wish to consider electing to receive their dividends in a local currency instead of in Sterling. Detailsof this facility can be obtained from Capita Registrars either by calling telephone 0871 664 0300 or if calling from overseas+44 (0)20 8639 3399, visiting www.capitaregistrars.com/international/ or writing to Capita Registrars, The Registry, 34Beckenham Road, Beckenham, Kent BR3 4TU. Any election to receive dividends in local currency in respect of the FinalDividend for the year ended 31 December 2008 payable on 22 May 2009 must be received by Capita Registrars no later thanthe record date for the final dividend, 24 April 2009.Boiler room scamsMany companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerninginvestment matters. These are typically from overseas based ‘brokers’ who target UK shareholders, offering to sell them whatoften turn out to be worthless or high risk shares in UK companies or UK investments. These operations are commonly knownas ‘boiler rooms’.It is not just the novice investor that has been duped in this way; many of the victims had been successfully investing forseveral years. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers offree company reports. If you receive any unsolicited investment advice:• make sure you get the correct name of the person and organisation• check that they are properly authorised by the FSA before getting involved by visiting www.fsa.gov.uk/register/home.do• report the matter to the FSA either by calling 0845 606 1234 or visiting www.moneymadeclear.fsa.gov.uk• if the calls persist, hang upIf you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services CompensationScheme.More detailed information on this or similar activity can be found on the FSA website www.moneymadeclear.fsa.gov.ukShare price informationThe middle market price of a share of The Vitec Group plc on 31 December 2008, the last dealing day of 2008, was 235.5p.During the year the share price fluctuated between 148p and 585p. The Company's share price is available from the Group'swebsite www.vitecgroup.com, with a 15 minute delay, and from the Financial Times web site www.ft.com with a similar 100ANNUAL REPORT 2008Back cover pictures:Jürgen Killenberger at a Solar 23 solar plant project in Ndelle, Senegal using Sachtler’s multi award winning SOOM System.Anton/Bauer’s award winning CINE-VCLX battery and an OConnor 2575 Fluid Head being used on location by Sony Italy.

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