The Vitec Group plc Annual Report & Accounts 2012
The Vitec Group plc
Bridge House
Heron Square
Richmond
TW9 1EN
United Kingdom
T +44 (0)20 8332 4600
F +44 (0)20 8948 8277
info@vitecgroup.com
www.vitecgroup.com
Registered in England and Wales no. 227691
The Vitec Group plc Annual Report & Accounts 2012 The Vitec Group plc
Annual Report & Accounts 2012
Inside this report
Shareholder Information and Financial Calendar
Corporate
Governance
52 Chairman’s Report
60 Audit Committee Report
Independent
Auditor’s Report
64
Independent Auditor’s Report
Financial Statements
65 Table of Contents
66 Primary Statements
71 Section 1 - Basis of preparation
73 Section 2 - Results for the year
81 Section 3 - Operating assets and liabilities
92 Section 4 - Capital structure
99 Section 5 - Other supporting notes
109 Company Financial Statements
116 Five Year Financial Summary
117 Shareholder Information and
Financial Calendar
Directors’ Report
01 Highlights
02 Business model
03 Behind every great image
04 Chairman’s Statement
06 Group Chief Executive’s Review
08 Market Update: Broadcast & Video
10 Market Update: Photographic
12 Market Update: Military, Aerospace
and Government
13 Market Update: Global presence
14 Financial Review
20 Videocom Division
22
Imaging Division
24 Services Division
25 Operations Executive
26 Board of Directors
28 Directors’ Report
Remuneration
Report
31 Remuneration Report
Corporate
Responsibility
44 Approach
45 Business Ethics
46 Environment
48 Employees
51 Community & Charitable Donations
The Vitec Group plc website
www.vitecgroup.com
Annual Report & Accounts online
www.vitecgroup.com/annual_report_2012
Where
the story
comes to
life
Shareholder enquiries
For enquiries about your shareholding, such as dividends
or lost share certificate(s), please contact the Company’s
registrars: Capita Registrars, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU. Telephone 0871 664 0300
(Calls cost 10p per minute plus any network extras.
Lines are open from 8.30am to 5.30pm Monday to Friday)
or if calling from overseas +44 (0)20 8639 3399.
Dividend reinvestment plan
The Company, in conjunction with Capita Registrars, offers
a Dividend Reinvestment Plan that enables shareholders to
reinvest cash dividends into additional shares in the Company.
For shareholders to apply the Final Dividend for the year ended
31 December 2012 to the Dividend Reinvestment Plan, application
forms must be received by the Registrars by no later than Monday,
22 April 2013. Details on the Dividend Reinvestment Plan can be
obtained from Capita Registrars using the contact details above.
Alternatively you can email them at shares@capitaregistrars.com.
Online services and electronic voting
The Company has arranged with Capita Registrars for shareholders
to use its online services. By logging on to www.capitaregistrars.com
and selecting Portal (Shareholders) you can make a transaction or
dividend payment enquiry, add or change a dividend mandate or
change your registered address.
The Company will again be making use of Capita Registrars’
electronic voting facility. By logging on to
www.capitashareportal.com and selecting The Vitec Group plc
you will find details of the 2013 Annual General Meeting, including
the venue and text of resolutions. Shareholders have the facility to
vote for, against or withhold the resolutions and can split or restrict
votes, appoint the Chairman of the meeting or a third party as their
proxy and include any instruction text. Shareholders who hold
their shares through CREST may use the CREST voting facility
as provided by Euroclear UK & Ireland Limited. To use the above
facilities, shareholders will need to input a unique User ID that can
be 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 on your
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
given above.
International dividend payment service
Overseas shareholders may wish to consider electing to receive
their dividends in a local currency instead of in Sterling. Details of
this facility can be obtained from Capita Registrars either by calling
+44 (0)20 8639 3399 (lines are open from 9.00am to 5.30pm
Monday to Friday. Calls will be charged at standard overseas rates)
or by visiting www.capitaregistrars.com/international/. Any election
to receive dividends in local currency in respect of the Final Dividend
for the year ended 31 December 2012 payable on Friday, 17 May
2013 must be received by Capita Registrars no later than the
record date for the final dividend, Friday, 19 April 2013.
Share price information
The middle market price of a share of The Vitec Group plc
on 31 December 2012 was 635.25 pence. During the year,
the share price fluctuated between 547 pence and 740 pence.
The Company’s share price is available from the Group’s website,
www.vitecgroup.com, with a 15-minute delay, and from the
Financial Times website, www.ft.com, with a similar delay.
Up-to-date market information and the Company’s share
price is also available from the Cityline service operated by
the Financial Times by telephoning 09058 171 690.
The Company sends to its shareholders each year an Annual
Report. Copies of this and of public announcements and
financial results are published on the Company’s website,
www.vitecgroup.com.
Financial calendar
Ex-dividend date for 2012 final dividend
Record date for 2012 final dividend
Annual General Meeting
Interim management statement
2012 final dividend payment date
Announcement of 2013 half year results
Proposed 2013 interim dividend payment date
Interim management statement
17 April 2013
19 April 2013
15 May 2013
15 May 2013
17 May 2013
22 August 2013
October 2013
November 2013
Analysis of shareholdings as at 31 December 2012
Shares held
Up to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Institutions
and companies
Individuals including
Directors and their
families
Number
of holders
%
of holders
Number
of shares
%
of shares
534
277
70
72
22
59
51.7
26.8
6.7
7.0
2.1
5.7
203,835
660,596
517,542
1,594,234
1,494,161
39,220,600
1,034
100
43,690,968
0.5
1.5
1.2
3.6
3.4
89.8
100
350
33.8
41,269,098
94.5
684
1,034
66.2
100
2,421,870
43,690,968
5.5
100.0
Find out more
www.vitecgroup.com/shareholder_services
Designed and produced by Design Motive Ltd
Printed and bound in the UK by CPI Colour Ltd
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Highlights
Key points
• Good Broadcast & Video performance, including a strong contribution from Camera
Corps at the London 2012 Olympics
• Photographic business gained market share and grew sales of Powerbrand products
• MAG activities benefited from the integration and strong performance of Haigh-Farr
• 13.9% increase in operating profit* and 160 bps increase in operating margin* to 11.4%
• Profit before tax* rose by 9.7% to £36.2 million
• Streamlining of certain operations planned in 2013 to strengthen the business
• Recommended 8.0% increase in final dividend to 13.5 pence per share
Group
Revenue
£345.3m
Operating profit*
£39.3m
Adjusted basic
earnings per share*
55.8p
Net debt
£63.7m
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Videocom Division
Imaging Division**
Services Division
Revenue
£146.2m
Operating profit*
£15.8m
Operating margin*
10.8%
Up
7.3%
Up
24.4%
Up
150bps
Revenue
£157.9m
Operating profit*
£22.9m
Operating margin*
14.5%
Down
4.6%
Up
4.6%
Up
130bps
Revenue
£33.0m
Operating profit
£1.2m
Operating margin
3.6%
Up
4.4%
Up
100%
Up
170bps
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted earnings per share are also before disposal of business.
In 2010 and 2009 before significant items.
** Excluding the Staging business that was disposed of during 2012.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Business model
Vitec is an international Group principally serving customers in the Broadcast
& Video, Photographic and Military, Aerospace and Government (MAG) markets.
Vitec is based on strong, well known, premium brands on which its customers
worldwide rely. Vitec is organised in three Divisions: Videocom, Imaging and Services.
Videocom designs and distributes systems and products used in broadcasting
and live entertainment, film and video production and MAG.
Imaging designs, manufactures and distributes equipment and accessories
for photography and video.
Services provides equipment rental, workflow design and technical support
to TV production teams and film crews.
What do we do?
•
We design, manufacture and distribute high quality branded products and services that
enable end users to capture exceptional images
- Our products primarily attach to or support a camera – including film, broadcast and
photographic applications
-
We also provide high-end services to major broadcasters
How d o we do it?
•
We design and develop high performance products
• We either manufacture or out-source production to high quality suppliers
• We manufacture our products efficiently and manage our costs closely
• We distribute our products through our comprehensive global network
Who are our customers?
•
•
Our customers are primarily broadcasters, production companies, systems integrators,
distributors, retailers and government agencies
Our end users are typically camera operators, broadcast cameramen, photographers
or government employees
Where do we do business?
•
We manufacture and distribute our products and services from our facilities
in 12 countries
• We employ around 1,900 people in our business
• Our products and services are sold in over 100 countries
What sets us apart from our competitors?
•
•
•
•
We work closely with our customers to develop innovative solutions tailored to their needs
and continually invest in new product development
We have strong proprietary designs and own leading brands with an excellent reputation
for high quality products
We typically have the number 1 or number 2 market share positions in each of our
product categories
We operate using the core values of the Vitec Mindset – product excellence, creative
solutions, integrity, customer focus and collaboration
Find out more
www.vitecgroup.com/about_us
Broadcast & Video
We provide high quality, fail safe
equipment for broadcasters
and videographers
market Update
Turn to page 8
Photographic
We provide a complete range of
creative support equipment for
pro photographers, photographic
enthusiasts and social recorders
market Update
Turn to page 10
mAG
We provide high definition
microwave technologies and
antennas for mission-critical
applications
market Update
Turn to page 12
The Vitec Group plc
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Behind every great image
For over 100 years, through every innovation in photography, film and digital
image-making, Vitec businesses have developed a powerful portfolio of brands
and products that have enabled some of the most amazing moments to be
captured under some of the most challenging conditions.
Videocom Division
Premium broadcast equipment
Supports / LED lighting / mobile power / bags / prompters / robotic camera systems
TV news & broadcast microwave video solutions
Video transmission / receive systems
Law enforcement and defence microwave video solutions
Video transmission / receive systems / speciality antennas
Imaging Division
Premium photographic equipment
Supports / bags / LED lighting / lighting accessories
*
* National Geographic bags are manufactured and distributed under licence.
Services Division
Broadcast production support
Equipment rental and used equipment sales / fibre optic integration and installation
All rights reserved. The above includes some of our trademarks and all names, characters, images, marks and logos shown are protected by national and international trademark, copyright and
other intellectual property laws, conventions, treaties and rights and are owned by The Vitec Group plc or its subsidiaries. Our marks and our interest in them are valuable commercial property
and will be protected from infringement where deemed necessary.
Find out more
www.vitecgroup.com/brands
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Chairman’s Statement
Chairman John McDonough
reports on his induction to Vitec
The Group has delivered a strong set of financial
results in 2012 and our involvement in the London
2012 Olympics was a notable success with our
equipment and services widely used to capture
exceptional images.
Chairman’s Statement
www.vitecgroup.com/chairman
Governance report
Turn to page 52
Performance and Strategy
In my first statement as Chairman I am pleased to report that the Group has
delivered a strong set of financials with growth in operating profit*. This is an especially
pleasing set of results considering that as the year progressed, the macroeconomic
environment became more challenging particularly in the US and Europe. A notable
success for the Group was its involvement in the London 2012 Olympics with our
equipment and services widely used to capture exceptional images that conveyed
the excitement of a truly memorable sporting occasion.
In the delivery of this result, the Board has focused upon the strategy of the Group
providing vital products and services that support the capture of exceptional images
to our customers in the Broadcast & Video, Photographic and MAG markets. We
acquired Camera Corps in April 2012 which provides speciality remote camera
systems, including the Q-Ball used widely at the key events of 2012. We also disposed
of the non-core Staging business in August 2012 enabling management to focus
upon delivering the Company’s strategy. We have reviewed our cost base seeking
to improve margins and drive operational efficiencies to ensure that our businesses
are competitive and able to deliver in these uncertain markets.
Dividend
As a result of our financial performance in 2012 and our confidence in the future,
the Board has recommended a final dividend of 13.5 pence per ordinary share
(12.5 pence in 2011). The final dividend, if approved at the 2013 Annual General
Meeting (AGM), will be paid on Friday, 17 May 2013.
Recommended final dividend
per share
13.5 pence
Interim dividend per share
8.5 pence
Total dividend for 2012
22.0 pence
Up
7.3%
* Before charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of business.
The Vitec Group plc 5
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We have complied with the UK Corporate Governance
Code throughout 2012 and continue to strive to evolve our
governance arrangements to comply with emerging best
practice and to explain constructively the rationale for any
divergence from the Code’s principles and provisions.
Annual General meeting
Our 2013 AGM will be held on Wednesday, 15 May 2013 and
the Notice of Meeting and explanatory notes accompany this
Annual Report. I look forward to the opportunity to meet our
shareholders at this meeting.
Our People
The Company’s long-term success is dependent upon the
diversity, dedication and commitment of all our people. We
have invested in the development of succession plans and
talent development. We have ensured that all our people have
a common set of values captured in our Code of Business
Conduct. We have further made good progress on Health
and Safety both in terms of safe working practices and the
reporting of performance. Our Corporate Responsibility Report
on pages 44 to 51 details this more fully.
Finally, on behalf of the Board, I would like to thank all our
people for their continuing commitment and passion for the
Company’s products, services and customers thus enabling
the delivery of a strong set of financial results in 2012.
John mcDonough CBE
Chairman
Board and Governance
Since my appointment as a director on 15 March 2012, I have
succeeded Michael Harper as Chairman with effect from 1 June
2012 and I would like to thank Michael for his excellent
Chairmanship and service to Vitec for over eight years. I have
undertaken a thorough induction to the Company, its products
and services, meeting numerous shareholders and advisors,
visiting our major businesses in the US, UK and Italy, and
meeting large numbers of our people.
I have got to know our executive management team led by
Stephen Bird and am confident that we have a talented team
in place to deliver on our strategy.
The Board will undergo further changes in the coming months.
Maria Richter, who has been an independent Non-Executive
Director since February 2007 will not be seeking re-appointment
at the 2013 AGM. I would like to thank Maria for her considerable
contribution to Vitec during this period of service. We will
therefore go forward after the AGM in 2013 with a slimmed
down Board of seven Directors including myself as Chairman,
four independent Non-Executive Directors and two Executive
Directors. In order to ensure Board continuity during my first year
as Chairman, Nigel Moore will remain as Senior Independent
Director and Chairman of the Audit Committee. Having been
appointed a Director in March 2004, the Board and I confirm
that Nigel continues to provide rigorous independence and
commitment to the role. His experience particularly on financial
matters, governance and the management of risk is considered
vital at this time of transition for the Board. The Board and I
will continue to consider the issue of succession within the
Board and will announce our plans in due course.
The Board is responsible for setting Group strategy and
charging the executive with delivery of that strategy including
the management of resources and associated risks and
controls. The Board has implemented a robust governance
structure to manage those risks. The Corporate Governance
report on pages 52 to 63 sets out the structure of our
governance arrangements. Good corporate governance is
central to the delivery of sustainable long-term shareholder
value. The Board set itself several key objectives in 2012
against which it has measured performance and has further
set new objectives for 2013. The detail of performance
against the 2012 objectives is summarised in the Corporate
Governance report. We have built upon the 2011 externally
facilitated Board evaluation with an internally facilitated
evaluation in 2012 and I can report that the Board and
its individual directors are working effectively, driving
management to deliver upon agreed strategy whilst
ensuring that risks are understood and managed.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Group Chief Executive’s Review
Group Chief Executive Stephen Bird
reviews strategy and performance
Vitec continues to deliver its strategy and increase
its share in key markets. We have successfully
integrated some value enhancing acquisitions
during the year.
Group Chief Executive’s Review
www.vitecgroup.com/ceo
Chosen markets
www.vitecgroup.com/chosen_markets
Strategy
We have continued to deliver our strategy to focus on three markets with organic growth
opportunities, supplemented where appropriate with selective acquisitions. Our three
markets are:
1: Broadcast & Video
The Broadcast & Video market is served by our Videocom businesses together with
the Services business, which supply a variety of products and services to assist in the
capture and transmission of video images. Vitec has leading products and brands aimed
at television networks and studios, film-makers, outside broadcasters and corporate,
religious and educational entities. Our strategy is to maintain our premium product
offerings and market share with traditional broadcast customers whilst developing
specific products and new channels focused on the needs of the cameraman in the
video segment. Where attractive and feasible, we will leverage our products from
the Broadcast market into other markets, for example the use of our batteries and
chargers for the US medical carts market.
We have increased our share of this market through our ability to bundle products
for broadcast studios and on-location needs. In the video sector we have benefited
from a major new range of supports, the Sachtler Ace, designed for the needs of the
independent cameraman.
2: Photographic
The Photographic market, served by our Imaging Division, has continued to supply
its range of products (tripods, heads, bags and lighting supports and controls) to the
professional photographic segment. We have also continued to supply a range of
tripods, bags, lighting and other photographic products to the consumer segment
as part of our Manfrotto Powerbrand sales initiative.
In the professional segment, we continued to serve the traditional photographic
speciality stores and in the consumer segment, we increased our penetration in
consumer electronics stores and in mass merchandise outlets. We continued to
grow our online sales of products to both the professional and consumer segments.
Based on independent research data, we have increased our share of the tripods
market in the US and in Europe.
The Vitec Group plc 7
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Product development
We continue to invest in new products and enhancements
to our existing range and in our research, development and
engineering capabilities. 2012 has seen a greater level of
product development collaboration across our Divisions,
with technologies such as LED lighting being developed to
serve both Broadcast & Video and Photographic markets.
We continue to invest around 4% of Group product sales
into research and development.
Acquisitions and disposals
We acquired Camera Corps in April 2012 for consideration of
£8.7 million. The business delivered an excellent result in 2012,
benefiting from the UEFA Euro 2012 Championships and the
London 2012 Olympics.
We sold the non-core and loss-making Staging business in
August 2012. The exit from this business will allow management
to focus attention on our core markets and future priorities.
Streamlining of certain operations planned in 2013
Vitec has continued to make good progress in improving its
margins and managing its cost base. As part of this process,
the Group is streamlining certain operations by downsizing
selected activities in the UK, Israel and US and expanding
its manufacturing capabilities in Costa Rica to further shift to
lower cost manufacturing. These planned actions are intended
to better position the Group for the future whilst delivering an
attractive return. These plans are expected to incur one-off
costs of approximately £9.0 million, of which £8.0 million will
be cash.
Outlook
Against the background of a challenging economic environment
and our limited order visibility, Vitec has decided to take
appropriate actions to streamline certain operations. These
actions better position Vitec for the future and the Board
remains confident about the prospects for the Group.
Stephen Bird
Group Chief Executive
3: military, Aerospace and Government (mAG)
The MAG market is addressed through the IMT and
Haigh-Farr businesses and is reported as part of our Videocom
segment. IMT is a technology leader for mission-critical visual
communication and surveillance products for security and
defence applications. Haigh-Farr is a world-leading designer
and manufacturer of high quality application-specific antennas
serving this market.
The MAG market is dependent on the level of investment
by the US Government and key US Government agencies.
Although the longer-term prospects for our IMT business
remain good, there is limited visibility around the award of
significant contracts from agencies that are experiencing
budget constraints. The Haigh-Farr business that was acquired
in 2011 is performing strongly and ahead of our pre-acquisition
expectations in this challenging market.
Performance overview
Vitec increased profits* and delivered improved margins*
in each Division during 2012, against a background of a more
challenging macroeconomic environment, particularly in the
second half of the year. We have been able to achieve this
through maintaining and in some cases increasing share in
our key markets, making earnings enhancing acquisitions,
and by a continued focus on cost management.
Revenue fell by 1.6% to £345.3 million (2011: £351.0 million).
There was a good performance in our Broadcast & Video
businesses which benefited from the acquisition of Camera
Corps and its strong performance at the London 2012
Olympics. The Olympics contributed approximately £3.0 million
of operating profit in 2012 including a significant profit from
Camera Corps. The Photographic business performed well
and ceased the distribution of some lower margin third-party
products. Our MAG activities benefited from the integration
and growth of Haigh-Farr which compensated for a challenging
year in our IMT business.
A focus on improving margins and controlling costs resulted in
a 13.9% increase in reported operating profit* to £39.3 million
(2011: £34.5 million) and a 160 bps increase in operating
margin* to 11.4% (2011: 9.8%).
Profit before tax* was 9.7% higher at £36.2 million. Adjusted
earnings per share* were up 8.6% at 55.8 pence per share
(2011: 51.4 pence per share). Group profit before tax of
£16.1 million (2011: £23.8 million) included the impact of
charges associated with acquired businesses incorporating a
goodwill impairment charge relating to IMT and the impact of
the disposal of the Staging business.
Free cash flow+ was £10.8 million (2011: £16.5 million)
and total cash outflow of £15.1 million (2011: £22.1 million)
reflected outflows relating to acquisitions and disposals,
purchases of shares to meet share plan commitments
and dividend payments.
3 market
strategy
* Before charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of business.
+ Free cash flow: cash generated from operations in the financial year after net capital expenditure, net interest and tax paid.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Market Update
Broadcast & Video
Vitec supplies the Broadcast & Video market
with a variety of products and services to
assist in the capture and transmission
of video images. The products
manufactured or sourced by Vitec are
camera supports (pedestals, tripods and
heads), robotic camera systems, bags,
LED lighting, prompters, mobile power
(batteries and chargers) and microwave systems.
The services provided by Vitec include broadcast
equipment rental and installation.
We estimate that the Broadcast & Video market for
products and services supplied by Vitec is worth around
£700 million. This includes the traditional broadcast and
film markets as well as the video production market.
The Growth Drivers
Increase in video
There has been a significant increase in
the amount of video being shot globally.
This has been stimulated by the ease with
which videographers can capture, edit
and distribute content (for example, over
the internet and the rise in popularity of
hand-held devices). It has also grown
thanks to the increased video capabilities
of photographic cameras. The growth
in video production and the subsequent
shortening of the replacement cycle
for cameras affects demand for our
products and services.
High definition transition
and higher image quality
Television production is increasingly
being shot in high definition which has
resulted in studios being upgraded,
camera replacement cycles shortening
and increased demand for our products.
The first wave of high definition is well
underway and largely complete in certain
countries. As producers seek to shoot
higher quality images, ultra high definition
cameras are being manufactured,
Chosen markets
www.vitecgroup.com/chosen_markets
although the timing and extent of their
adoption and thus the effect on demand
for our products is uncertain.
Broadcasters’ capital expenditure
Broadcasters’ ability and willingness
to incur capital expenditure on the
construction or refurbishment of
studios depends partly on their financial
performance. Those broadcasters reliant
on subscription income such as Sky
and ESPN have performed well despite
the downturn between 2009 and 2011
and have expanded with new operations
globally. Likewise in emerging markets
such as Brazil, China and the states of
the former Soviet Union, there has been
a desire to upgrade old facilities and
the financial capability to do so. Those
broadcasters reliant on advertising
expenditure have largely recovered
since the downturn but tend to be
more susceptible to macroeconomic
conditions. The savings and efficiencies
offered by LED lighting compared with
traditional lighting drive the replacement
of those products too.
The Vitec Group plc Vitec has the premium position and largest market share, providing
many of the number one products through our brands to the broadcast
and video markets.
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Vitec market Position
Supports
With our multiple brands, comprising
Vinten, Sachtler, OConnor and
Manfrotto, providing broadcast and
video manual supports, we have the
premium position and largest market
share. Vinten mainly operates in the
broadcast studio segment, Sachtler and
Manfrotto in the broadcast location and
video segments and OConnor in the
film segment. We also supply robotic
camera systems mainly for news and
sports applications through our Vinten
Radamec and Camera Corps brands.
Bags
With our Petrol and Kata brands, we are
the number one, by value, in the supply
of bags for the video segment.
Prompting
Autoscript is the number one, by value,
for prompting equipment to the
broadcast market.
Our Strategy
Broadcast equipment
To maintain our share and position in
manual camera supports and portable
power and to grow our share in robotic
camera systems, in LED lighting and
in microwave systems outside the
US. We are investing in increasing
our service offering to customers by
creating bespoke one-stop solutions.
Broadcast services
To focus on large events where higher
production values are most needed
and to secure multi-year contracts
for those events.
Lighting
Litepanels led the way in the adoption
of LED lighting in the video segment
and “on location” for broadcast. It is
now also the leader in the use of LEDs
for use in broadcast studios.
mobile Power
Anton/Bauer is the leading brand with
a number one position, by value, in the
after-market for camera batteries and
chargers in the broadcast sector.
microwave Systems
IMT is number two in the broadcast
segment and number one in the US
video segment, where its equipment is
also used in sports and entertainment
applications.
Video
To develop new products and new
sales channels to grow our share of this
fast growing segment which we serve
primarily with our Sachtler and Manfrotto
brands. We also combine our products
to offer a compelling package for
this segment.
Other markets
Where attractive and feasible, we
will leverage our products from the
Broadcast market into other markets.
An example of this is the use of our
batteries and chargers for the US
medical carts market.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Market Update
Photographic
Vitec supplies this market with a variety of products for the photographic camera.
These comprise products manufactured or sourced by Vitec, and third party products
distributed by Vitec, such as camera supports (tripods and heads), bags, lighting
supports, LED lights and lighting controls (for example, umbrellas and reflectors).
We estimate that the photographic market for product categories supplied or
distributed by Vitec is worth around £800 million. Of this market, approximately half
is purchased by professional photographers who we have supplied historically and
whose business is taking images. The remainder is sold to consumers who have
a keen interest in photography or, increasingly, a new population of photographers
who simply want to record and share images. Photography continues to attract
new customers as the number and type of image-taking devices increases and
the distribution of images via social media becomes more popular.
The Growth Drivers
Vitec market Position
Continued growth in sales of cameras with
inter-changeable lenses
Digital SLR unit sales have continued to grow albeit more
slowly than in recent years. Further growth of SLR volumes
is expected due to the improved video capability of the latest
models as video and photography converge. A new type of
inter-changeable lens camera, known as compact system or
mirrorless camera, has grown substantially in 2012 and this is
expected to continue. These cameras are priced significantly
higher than the old “point and shoot” camera and should
generate demand for products supplied by us.
The new social recorders
There is a new population of photographers who are interested
in recording images. These “social recorders” are using smart
phones with high mega-pixel lenses to take images and share
them using social media platforms. The emergence of a new
middle class in BRIC countries has contributed significantly to
this new population of photographers.
New distribution channels
The emergence of new distribution channels for photographic
products, such as online and in consumer electronics stores,
has helped stimulate demand from new consumers.
Supports
With high quality and innovative products sold under the
Manfrotto and Gitzo names, we possess the premier brands
in photographic camera tripods and heads. We are the clear
leader in terms of market share by value globally and continue
to grow that share.
Bags
Sold under the Manfrotto, Kata and, under licence, the National
Geographic brands, we have a small share in this large product
category. We have maintained market share in this category that
provides opportunities for further growth.
Lighting
In lighting supports, primarily used in the professional sector,
Manfrotto is the market leader by value. In lighting controls,
Lastolite is the market leader in EMEA and is gaining share in
the US. In lighting, the use of LEDs is gaining prominence as
a more efficient replacement for traditional continuous lighting
and Manfrotto is at the forefront of their introduction.
Chosen markets
www.vitecgroup.com/chosen_markets
The Vitec Group plc
Vitec has the leading premier brands in photographic
camera tripods and heads for the professional and
consumer photographer.
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Our Strategy
Professionals
To maintain our leadership in the
professional and keen amateurs
segments with our range of Manfrotto
and Gitzo camera supports, Kata bags
and Lastolite lighting controls.
Consumers
To grow the Manfrotto brand by
leveraging its strength into adjacent
products (such as bags and lights),
into premium consumer segments
and into new distribution channels.
To increase penetration of photographic
products into the market by developing
new products, by explaining better
the benefits of our products and by
engaging closely with customers.
To deliver an integrated range of
accessories from the same manufacturer
(Manfrotto) such that we are able to
accompany a photographer throughout
each stage of his imaging experience.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Market Update
Military, Aerospace
and Government
Vitec manufactures and supplies the military, Aerospace and Government
(mAG) market with microwave transmitters, receivers and antennas.
Vitec supplies:
Law enforcement agencies such as police departments – for example to send video
signals from helicopters to ground patrols.
Three letter agencies such as the US Department of Justice who use microwave
equipment for surveillance purposes.
Defence and Space customers where microwave systems are used to recognise
and assess threats more effectively and where high quality, application specific
antennas are needed for challenging
communication environments.
We estimate the MAG market for
products supplied by Vitec to be worth
around £400 million.
The Growth Drivers
Our Strategy
• To build on our leading market
position in the law enforcement
segment by continuing to offer
the latest technology.
• To leverage our expertise and success
with the US Department of Justice
to win orders from other three
letter agencies.
• To continue to grow our business
in the defence segment, including
adapting Haigh-Farr’s conformal
antennas for use in unmanned
applications.
There is an increasing demand for
real-time high quality video images to
be transmitted and received wirelessly
by law enforcement agencies and military
users. This technology provides users
with greater situational awareness,
for example for crowd control, and,
in unmanned applications, minimises
the potential loss of human life.
As defence products and space vehicles
become more advanced, there is a need
for more sophisticated antennas to send
signals back to command and control
centres. Haigh-Farr’s Wraparound™
antenna concept has enhanced the
performance capabilities of aircraft,
missiles and spacecraft worldwide.
The market remains challenging, but there
are good longer-term opportunities in the
niche market of wireless transmission of
real-time, high quality information.
Chosen markets
www.vitecgroup.com/chosen_markets
The Vitec Group plc Market Update
Global presence
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Our growth strategy is supported by the broad geographical
spread of the Group.
In 2012, 45% of our revenues by destination came from North America, with
the remainder split between Europe (33%), Asia Pacific (17%) and Rest of World
(5%). Only 10% of our revenue is derived from the UK. We currently have a direct
presence in 12 countries around the world: the UK, USA, Brazil, Costa Rica,
France, Germany, Italy, Netherlands, Israel, Japan, China and Singapore.
Revenue by destination
North America 45% (£155.5m)
Europe 33% (£112.3m)
Asia Pacific 17% (£60.4m)
Rest of World 5% (£17.1m)
Find out more
www.vitecgroup.com/global_presence
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Financial Review
Group Finance Director
Paul Hayes reviews performance
Group Finance Director statement online
www.vitecgroup.com/financial_review
Revenue
£345.3m
Operating Profit*
£39.3m
Adjusted basic
earnings per share*
55.8p
Down
1.6%
Up
13.9%
Up
8.6%
Vitec has performed well in a challenging
environment and improved margins in each
Division during 2012. Operating profit* increased
by 13.9% to £39.3 million.
Revenue
The Group’s revenue for 2012 at
£345.3 million was 1.6% lower than the
prior year (2011: £351.0 million). Revenue
included a £15.4 million contribution from
acquisitions partly offset by £9.5 million
lower revenue from the disposal of the
non-core Staging business and £4.0
million from ceasing to distribute some
third party branded products in our
Imaging Division. On an organic basis,
after excluding the effect of £3.8 million
of adverse movements in exchange rates,
revenue fell by £3.8 million or 1.2%.
Operating profit
Operating profit* rose by £4.8 million
to £39.3 million, an increase of 13.9%
despite the lower sales activity. On an
organic basis, operating profit grew by
£1.4 million after excluding £3.8 million of
contributions from acquisitions net of the
Staging disposal and ceasing to distribute
some lower margin third party products,
and £0.4 million of unfavourable
exchange rate movements, after hedging.
Operating profit* increased despite the
lower revenue as we have focused on
improving margins in the current more
challenging macroeconomic environment.
This includes £1.6 million of benefits from
pricing over commodity cost increases
(2011: £0.3 million loss) and a £4.8 million
reduction in operating expenses during the
year. As a result the operating margin* has
increased by 160 bps to 11.4%.
We maintained our investment in
product development and innovation at
4% of Group product sales (2011: 4%).
Research, development and engineering
expenditure on a like-for-like basis was
£10.8 million (2011: £11.8 million) after
adjusting for capitalised expenditure of
£0.3 million (2011: £0.1 million) and
£0.6 million of amortisation
(2011: £0.5 million). Management’s
estimate of the main drivers that reconcile
the 2011 to the 2012 operating profit*
are summarised in the following table:
Operating profit*
2011-12 Variance Analysis (£ million)
2011 Operating profit*
Gross margin effects:
- Volume, mix and efficiency
- Sales price less cost inflation
Operating expenses
Acquisitions and disposal**
Foreign exchange effects:
- Translation
- Transaction after hedging
2012 Operating profit*
(5.0)
1.6
4.8
(0.5)
0.1
34.5
1.4
3.8
(0.4)
39.3
Net financial expense
Net financial expense totalled £3.1 million
(2011: £1.5 million). Interest payable was
£3.2 million (2011: £1.9 million) and was
covered 17 times (2011: 26 times) by
earnings before interest, tax, depreciation
and amortisation. Vitec has a $50 million
private placement facility and a new five
year £100 million multi-currency revolving
credit facility that was arranged in July
2012. The higher finance costs reflect the
full year impact of the $50 million private
placement and higher interest charges
which reflect market rates on the new
revolving credit facility.
Profit before tax
Profit before tax* increased by
£3.2 million to £36.2 million
(2011: £33.0 million). The reported
profit before tax after charges associated
with acquired businesses and disposal
of business was down by 32.4% to
£16.1 million (2011: £23.8 million).
* Before charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of business.
** Includes year on year effect of acquisitions, full year effect of disposal of business and ceasing distribution of some non-core third party products.
The Vitec Group plc
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Taxation
The effective taxation rate on operating profit* after net
finance expense remained unchanged at 33% (2011: 33%).
The Group’s tax charge is higher than the UK statutory rate
because the majority of its profits arise in overseas jurisdictions
with higher tax rates.
Earnings per share
Basic earnings per share before charges associated with
acquired businesses and disposal of business was 55.8 pence
per share (2011: 51.4 pence per share) representing growth
of 8.6%. This includes the growth in operating profit* partly
offset by a higher net finance expense and a higher weighted
average number of shares. The basic earnings per share was
13.6 pence per share (2011: 34.7 pence per share).
Acquisitions and disposals
In April 2012, Vitec acquired Camera Corps in the UK for
consideration of £8.7 million. The fair value of the net assets
acquired was £3.7 million, including £3.1 million of acquired
intangibles, resulting in the capitalisation of £5.0 million
of goodwill. The total balance of acquired intangibles at
31 December 2012 was £12.0 million, which will be amortised
over an average six year period.
During the second half of the year, Vitec sold its Staging
business, which had previously been included in the Imaging
Division. The disposal was completed on 13 August 2012
with a net cash outflow, after transaction costs, of £2.1 million.
There was a loss on disposal of £6.4 million after transaction
costs. This reflected £0.3 million of cash consideration for the
business that had £6.3 million of net assets. This was partially
offset by a £2.0 million foreign exchange gain recycled to the
Income Statement in accordance with IFRS.
Financial key performance indicators
The Board and Operations Executive monitor a number of financial key performance indicators (KPIs), to measure our
performance over time. Targets for these KPIs are set annually during our budgetary process, in line with our strategic objectives
and may be subject to refinement in accordance with the needs of the business. Details of our performance against each of our
finance related KPIs is set out below:
KPI Measure
2012
2011
Definition/Calculation
Delivering value to shareholders
Basic earnings per share*
Return on sales*
Free cash flow
55.8p
51.4p
11.4%
9.8%
£10.8m
£16.5m
Profit for the financial year after tax, before charges associated with acquired
businesses and disposal of business divided by the weighted average number
of shares in issue during the financial year.
Operating profit for the financial year before charges associated with acquired
businesses, divided by revenue for the financial year.
Cash generated from operations in the financial year after net capital
expenditure (including capitalised software and development costs),
interest and tax paid in the financial year.
Controlling our working capital
Working capital to sales
20.0%
15.9%
Inventory days
113 days
109 days
Trade receivable days
43 days
38 days
Trade payable days
42 days
49 days
Growing the business
Constant currency organic revenue growth
(1.2)%
15.0%
Constant currency organic operating
profit* growth
4.2%
18.0%
Working capital at the end of the financial year divided by annualised Q4
(October, November and December) revenue.
Working capital at the end of the financial year comprises net inventories,
trade and other receivables and trade and other payables.
Inventory, net of impairment provisions, at the end of the financial year divided
by Q4 cost of sales (before exchange gains/losses) times number of days in Q4.
Trade receivables, net of impairment provisions, at the end of the financial year
divided by Q4 revenue times number of days in Q4.
Trade payables at the end of the financial year divided by Q4 cost of sales
(before exchange gains/losses) times number of days in Q4.
Constant currency revenue of the current financial year (excluding external
revenue from acquired businesses) divided by total revenue of the prior
financial year (excluding revenue from divested businesses) less 1 times 100%.
Constant currency operating profit* of the current financial year (excluding
operating profit from acquired businesses) divided by operating profit* of the prior
year (excluding operating profit from divested businesses) less 1 times 100%.
Constant currency: prior year adjusted for foreign exchange translation,
current year adjusted for foreign exchange transactions.
Acquired businesses: exclude external revenue and operating profit for each
month in the current financial year with no comparative amount in the same
month of the prior financial year. Businesses acquired during Q4 are excluded
from working capital ratios.
Divested businesses: fully exclude external revenue and operating profit
in the current and prior financial year.
* Before charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of business.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Financial Review
Charges associated with acquired businesses
The 2012 charges relate to the Group’s acquisition activities
and amortisation of previously acquired intangibles. There is
also a one-off non-cash impairment charge relating to goodwill.
Cash flow and net debt
Cash generated from operating activities was £38.4 million
(2011: £39.1 million) with the Group maintaining a strong
focus on cash generation.
We have reviewed the carrying value of the IMT goodwill that
arose on the acquisition of the business in 2007. Whilst the
business has made progress, including being awarded a
contract during the year by the US Department of Homeland
Security, and there remain good long-term opportunities and
prospects, the lack of visibility in future orders, particularly
considering budget constraints, has led Management to decide
to take a one-off non-cash £8.8 million goodwill impairment
charge to fully impair this investment (2011: £5.2 million
associated with the Staging business).
The amortisation of acquired intangibles of £3.6 million (2011:
£3.2 million) related to Manfrotto Lighting (previously Lastolite)
acquired in March 2011, Haigh-Farr acquired in December 2011
and Camera Corps acquired in April 2012.
Transaction costs of £0.3 million were incurred in relation to the
acquisition of Camera Corps (2011: £0.8 million in relation to
the acquisitions of Manfrotto Lighting and Haigh-Farr).
The Group uses a number of key performance indicators to
manage cash including the percentage of working capital to
sales, inventory days, receivable days and payable days.
Inventory, trade receivable and trade payable days are stated at
year-end balances; inventory and trade payable days are based
on Q4 cost of sales (excluding exchange gains/losses) while
trade receivable days are based on Q4 revenue. For the 2011
comparatives, the ratios presented exclude Haigh-Farr which
was acquired in the last month of that year.
The working capital to sales metric has increased to 20.0%
(31 December 2011: 15.9%) and overall working capital
increased by £14.9 million (2011: £5.6 million increase).
Trade receivables days increased to 43 days (2011: 38 days),
reflecting a strong sales month in December. Trade and other
receivables increased by £4.4 million accordingly (2011:
£3.2 million increase) but there was an improvement in
ageing on the prior year.
Contingent consideration of £0.7 million in respect of the
acquisition of Manfrotto Lighting had been provided at
31 December 2011. £0.5 million was paid in the year and
the remaining £0.2 million has been credited to the Income
Statement (2011: £nil).
In addition, £1.2 million of deferred consideration was accrued
during the year to be paid to the previous owners of Haigh-Farr
in relation to their 2012 performance targets (2011: £nil).
There was a tax credit of £1.7 million on these charges and
the disposal of business (2011: £2.0 million).
Inventory levels decreased by £1.3 million (2011: £8.4 million
increase) to £59.5 million at the year-end reflecting management
focus in this area. As a result of lower sales in the last quarter,
inventory days increased to 113 (2011: 109 days).
Trade payable days decreased to 42 days (2011: 49 days) and
there was an £11.8 million overall decrease in trade and other
payables (2011: £6.0 million increase). This reflects the reduction
in inventory particularly in the latter part of the year and lower
freight, expense, bonus and commission accruals.
Free cash flow
Net debt
Operating profit*
Depreciation(1)
Changes in working capital
Other items(2)
Cash generated from operating activities
Purchase of property, plant and equipment
Capitalisation of software and development costs
Proceeds from sale of property,
plant and equipment, and software
Interest paid
Tax paid
Free cash flow+
Year ended Year ended
2011
£m
2012
£m
39.3
14.2
(14.9)
(0.2)
38.4
(14.2)
(1.3)
1.8
(3.1)
(10.8)
10.8
34.5
14.9
(5.6)
(4.7)
39.1
(13.7)
(2.4)
6.4
(1.8)
(11.1)
16.5
Year ended
2012
£m
Year ended
2011
£m
Free cash flow+
Acquisitions and disposals(3)
Net cash used in financing activities
Increase / (decrease) in cash and cash equivalents
Proceeds from bank loans
Net cash outflow
Effect of exchange rate fluctuations on net debt
Net debt at 1 January
Net debt at 31 December
10.8
(12.7)
5.6
3.7
(18.8)
(15.1)
1.8
(50.4)
(63.7)
16.5
(27.9)
10.9
(0.5)
(21.6)
(22.1)
(0.2)
(28.1)
(50.4)
* Before charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of business.
+ Cash generated from operations after net capital expenditure, net interest and tax paid.
(1) Includes depreciation and amortisation of capitalised software and development costs.
(2) Includes change in provisions, share-based charge, gain on disposal of property, plant and equipment, fair value derivatives and transaction costs relating to acquisitions.
(3) Includes acquisitions of businesses, net of cash acquired; contingent consideration on acquisition of subsidiaries and net proceeds from disposal of businesses.
The Vitec Group plc
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Capital expenditure, including capitalised software and
development costs, totalled £15.5 million (2011: £16.1 million),
of which £7.7 million (2011: £6.4 million) related to rental
assets, partly financed by the proceeds from rental asset
disposals of £1.6 million (2011: £2.9 million). Services
benefited from a one-off sale of a large system to a major
customer in 2011. Overall capital expenditure was equivalent
to 1.1 times depreciation (2011: 1.1 times).
Net tax paid in 2012 of £10.8 million was lower than in 2011
of £11.1 million mainly due to lower payments in Italy and the
UK partially offset by higher payments in Germany.
Free cash flow+ at £10.8 million (2011: £16.5 million) principally
reflects changes in working capital, higher net capital
expenditure and increased interest payments.
There was a £12.7 million net cash outflow relating to
acquisitions and disposals during the year (2011: £27.9 million).
Dividends paid to shareholders totalled £9.1 million
(2011: £8.2 million) and there was a net cash outflow in
respect of shares purchased and issued of £4.1 million
(2011: £2.5 million). The net cash outflow for the Group was
£15.1 million (2011: £22.1 million) which, after £1.8 million
favourable exchange (2011: £0.2 million adverse), increased
the net debt to £63.7 million (2011: £50.4 million).
The Group’s balance sheet remains strong with a year-end net
debt to EBITDA ratio of 1.2 times (31 December 2011: 1.0
times), comfortably within our banking covenants.
Treasury
Vitec manages its financing, hedging and tax planning activities
centrally to ensure that the Group has an appropriate structure
to support its geographically diverse business. It has clearly
defined policies and procedures with any substantial changes
to the financial structure of the Group, or to its treasury
practice, referred to the Board for approval. The Group
operates strict controls over all treasury transactions including
clearly defined currency hedging processes to reduce risks
from volatility in exchange rates.
The Group is hedging a larger portion of its forecast future
foreign currency transactions to reduce the risk from changes
in exchange rates from current levels. Our main exposure
relates to the US Dollar and the table below summarises
the contracts held as at 31 December 2012.
The Group does not hedge the translation of its foreign
currency profits. A portion of the Group’s foreign currency
net assets are hedged using the Group’s borrowing facilities.
Financing activities
During July 2012 the Group negotiated a new £100 million
five-year multicurrency revolving credit facility involving five
relationship banks, which replaces the previous £100 million
facility. The new facility expires on 19 July 2017. At the end
of December 2012, £42.2 million (2011: £24.4 million) of the
facility was utilised.
The Group has a $50 million (£30.8 million) private placement
facility which has been drawn down in two tranches of
$25 million each. This financing has a combined fixed interest
rate of 4.77% and is due for repayment on 11 May 2017.
The Group therefore has £130.8 million of committed facilities
at the year-end with drawings of £73.0 million (31 December
2011: £56.6 million).
The average cost of borrowing for the year which includes
interest payable, commitment fees and amortisation of set-up
charges was 4.0% (2011: 3.6%) reflecting a net interest cost
of £3.2 million (2011: £1.9 million).
The Board has maintained an appropriate capital structure
without exposing the Group to unnecessary levels of risk and it
has operated comfortably within its loan covenants during 2012.
Foreign Exchange
2012 operating profit* included a £0.4 million net adverse
foreign exchange effect after hedging, mainly due to
unfavourable £/e rates when compared to 2011.
Dividend
The Directors have recommended a final dividend of
13.5 pence per share amounting to £5.9 million
(2011: 12.5 pence per share, amounting to £5.4 million).
The dividend, subject to shareholder approval at the AGM,
will be paid on Friday, 17 May 2013 to shareholders on the
register at the close of business on Friday, 19 April 2013.
This will bring the total dividend for the year to 22.0 pence
per share (up 7.3%).
Paul Hayes
Group Finance Director
Currency hedging
December
2012
Average
exchange rate
of contracts
December
2011
Average
exchange rate
of contracts
US Dollars sold for Euros
Forward contracts
US Dollars sold for Sterling
Forward contracts
$61.2m
1.29
$30.9m
$17.3m
1.57
$11.4m
1.38
1.58
* Before charges associated with acquired businesses. Profit before tax and adjusted earnings per share are also before disposal of business.
+ Cash generated from operations after net capital expenditure, net interest and tax paid.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Financial Review
Principal risks and uncertainties
We are exposed to a number of risk factors which may affect our performance. We have a well-established
framework for reviewing and assessing these risks on a regular basis, and have put in place appropriate
processes and procedures to mitigate against them. However, no system of control or mitigation can
completely eliminate all risks. This is a summary of some of the principal risks facing the Group:
Specific Risk
mitigation
Demand for our products
Demand for our products may be adversely affected by many factors,
including changes in customer and consumer preferences and our
ability to deliver appropriate products or to support changes in
technology. In addition, demand may be impacted by competitor
activity and demand in our target markets particularly reflecting
the current uncertain economic outlook.
major contract awards
We value our relationships with our customers and closely monitor our
target markets and user requirements. We maintain good relationships
with our key customers and make appropriate investments in product
development and marketing activities to ensure that we remain
competitive in these markets. In order to limit the impact of the
economic downturn, the Group executes programmes that simplify
processes, reduce costs and allow local management teams to
focus more closely on their markets.
Our operating performance and cash flow may be dependent on the
timing of major contract awards. The timing of the award of these
contracts can be difficult to predict. In addition, the loss, suspension or
cancellation of contracts may impact trading performance. In particular
our Military, Aerospace and Government segment could be adversely
impacted by a lower level of investment in the US defence budget.
We attempt to gain a good understanding of likely demand through
developing close relationships with our customers. We also have
a broad range of contracts that reduce our dependence on any
particular contract or customer. We actively review our orders
and trading outlook and manage our resources in line with
anticipated activity.
New markets and channels of distribution
As we enter new markets and channels of distribution we may achieve
lower than anticipated trading volumes and pricing levels or higher
costs and resource requirements. This may impact the levels of
profitability and cash flows delivered.
Acquisitions
We have a thorough process for assessing and planning the entry into
new markets and related opportunities. This includes repositioning
strategies of our products and services through marketing and
advertising. We continuously assess our performance in these markets
and the related opportunities and risks. We adapt our approach taking
into account our actual and anticipated performance.
In pursuing our business strategy we continuously explore
opportunities to enhance our business through development
activities such as strategic acquisitions and disposals. This involves
a number of calculated risks including: acquiring desired businesses
on economically acceptable terms; integrating new businesses,
employees, business systems and technology; and realising
satisfactory post-acquisition performance.
We mitigate these risks by having a clear acquisition strategy with
a robust valuation model. Thorough due diligence processes are
completed including the use of external advisers where appropriate.
There is a clear focus on integrating acquired businesses and
monitoring post-acquisition performance. In the last two years the
Group made three acquisitions (Lastolite, Haigh-Farr and Camera
Corps) which have been successfully integrated and completed
the disposal of our non-core Staging business.
Pricing pressure
We might experience pricing pressure including challenges in raising
prices, especially in the current economic climate, or not recovering
increases in commodity and other costs. If the price of products
does not at least recover movements in commodity costs and other
expenses and we are unable to reduce our expenses, our results
could be adversely affected.
We ensure that our products and service offering remains competitive
by investing in new product development, in appropriate marketing
and product support, and improving the management of supply chain
costs. This allows us to support price increases when required by
working closely with our suppliers and managing our expenses and
cost base appropriately.
The Vitec Group plc 19
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Specific Risk
mitigation
Dependence on key suppliers
We source materials and components from many suppliers in various
locations and in some instances are more dependent on a limited
number of suppliers for particular items. If any of these suppliers or
subcontractors fail to meet the Group’s requirements, we may not
have readily available alternatives, thereby impacting our ability to
provide an appropriate level of customer service.
Dependence on key customers
Whilst the Group has a wide customer base, the loss of a key
customer, or a significant worsening in their success or financial
performance, could result in a material impact on the Group’s results.
Employees
We employ around 1,900 people and are exposed to a risk of being
unable to retain or recruit suitable talent to support the business.
We manufacture and supply products from a number of locations
and it is important that our employees operate in a professional
and safe environment.
Laws and regulations
We aim to secure multiple sources of supply for all materials and
components and develop strong relationships with our major suppliers.
We review the performance of strategically important suppliers globally
on an on-going basis.
We monitor closely our performance with all customers through
developing strong relationships, analysis of sales trends and financial
performance of our key customers. We continue to expand our
customer base including entering into new channels of distribution
to expand our portfolio of customers.
We recognise that it is important to motivate and retain capable
people across our businesses to ensure that we are not exposed to
risk of unplanned staff turnover. We fairly reward our employees and
have appropriate staff recruitment, appraisal, talent management and
succession planning strategies to ensure we recruit and retain good
quality people across the business. We take our employees’ health
and safety very seriously and have appropriate processes in place
to allow us to monitor any issues.
We are subject to a comprehensive range of legal obligations in all
countries in which we operate. As a result, we are exposed to many
forms of legal risk. These include, without limitation, regulations
relating to government contracting rules, anti-bribery provisions,
competition, and health and safety laws in numerous jurisdictions
around the world. Failure to comply with such laws could significantly
impact the Group’s reputation and could expose the Group to fines
and penalties.
We have resources dedicated to legal and regulatory compliance
supported by external advice where necessary. We enhance our
controls, processes and employee knowledge to maintain good
governance and to comply with new laws and regulations such as
the provisions of the UK Bribery Act 2010. The Group has processes
in place to ensure that its worldwide business units understand and
apply the Group’s culture and processes to their own operations.
Our reputation
Damage to our reputation and our brand names can arise from a
range of events such as poor product performance, unsatisfactory
customer service and other events either within or outside our control.
Exchange rates
We recognise the importance of our reputation and attempt to
identify any potential issues quickly and address them appropriately.
We recognise the importance of providing high quality products,
good customer service and managing our business in a safe and
professional manner. This requires all employees to commit to and
comply with the Vitec Code of Business Conduct.
The global nature of the Group’s business means it is exposed to
volatility in currency exchange rates in respect of foreign currency
denominated transactions, and the translation of net assets and income
statements of foreign subsidiaries and equity accounted investments.
The Group is exposed to a number of foreign currencies, the most
significant being the US Dollar and Euro.
We regularly review and assess our exposure to changes in exchange
rates. We reduce the impact of sudden movements in exchange
rates with the use of appropriate hedging activities on forecast foreign
exchange net exposures. We do not hedge the translation effect of
exchange rate movements on the Income Statement or Balance Sheet
of overseas subsidiaries.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Videocom Division
The Videocom Division mainly
serves the Broadcast & Video and
MAG markets. It specialises in the
supply of high-quality equipment
principally for professionals
engaged in producing video
content for the media industries
globally: broadcast, film and live
events. This equipment is also
supplied to corporate, educational
and religious entities producing
video content which we define
as the “business and industry”
segment. Additionally, it supplies
mission-critical wireless
communication and surveillance
products for the MAG market,
serving law enforcement agencies,
‘three letter agencies’ such as the
US Department of Justice, and
defence and space customers.
Operations
Videocom’s reported revenue for 2012
was £146.2 million, an increase of 7.3%
from 2011. The acquisition of Haigh-Farr
in December 2011 and Camera Corps
in April 2012 made notable contributions
to 2012 revenue. Organic revenue at
constant currency decreased by 3.1%.
This included the non-recurrence of
$7.9 million (£4.9 million) of sales in
the prior year to the MAG market
under Auction 66. Operating profit*
rose 24.4% to £15.8 million.
There was growth in sales of outside
broadcast and video camera supports as
well as our range of bags for this market.
Demand for our premium studio and robotic
camera supports in the key US broadcast
market was affected by budget constraints
at the major studios and there was no repeat
of the sizeable 2011 contracts to supply
television studios in Asia.
Our Litepanels LED lighting products
benefited from the launch of new products
that broadened our product ranges and
enabled us to maintain our leading position
in the market. Shortly after the year-end, the
US International Trade Commission granted
a general exclusion order prohibiting the
import of products infringing a number of
Litepanels’ patents into the US market.
We will continue to protect our intellectual
property while granting licenses to other
manufacturers as and when appropriate.
Our Anton/Bauer mobile power products
performed consistently overall and made
good progress in supplying batteries and
chargers to power medical carts in hospitals.
The recently acquired Camera Corps
business complements our Broadcast
activities. Camera Corps provides
leading remote camera systems that are
predominantly used at major sporting
events. As anticipated, the business
benefited from the UEFA Euro 2012
Championships and more significantly the
London 2012 Olympics, delivering a better
than expected post-acquisition performance.
Our Haigh-Farr antenna business also
performed ahead of our pre-acquisition
expectations. The business continues
to grow in a challenging defence market
and has gained acceptance onto new
programmes and supported a number
of high profile space applications. These
include antennas for SpaceX’s Falcon-9
launch vehicle, the first commercial vehicle
to dock successfully with the International
Space Station, and NASA’s Curiosity
vehicle which landed on Mars.
IMT, our microwave transmitter and
receiver business, was awarded a contract
during the year by the US Department
of Homeland Security, but is operating in a
very challenging market. Although there are
good opportunities in this market, there is
limited order visibility and no other significant
US Government contracts have been
awarded. Its overall performance reflects
a low level of investment by its US
Government driven customer base
for this relatively small niche business.
Revenue
£146.2m
Operating profit*
£15.8m
Revenue
2012
2011
Up
7.3%
Up
24.4%
Operating profit*
2012
2011
Operating margin*
2012
2011
* Before charges associated with acquired businesses.
£136.2m
£12.7m
9.3%
Our brands
Supports
OConnor
Sachtler
Vinten
Bags
Petrol
Robotic Camera Systems
Camera Corps
Vinten Radamec
Equipment Rentals UK
TCS
Lighting
Litepanels
microwave Systems
Haigh-Farr
IMT
Microwave Services Company
Nucomm
RF Central
mobile Power
Anton/Bauer
Prompters
Autoscript
The Vitec Group plc10.8%£15.8m£146.2m Vitec in action
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Robotics control panel
2012 saw the introduction of Vinten Radamec’s latest robotics control system,
the CP4. This state-of-the-art device allows up to eight cameras to be operated
via a central control panel, reducing costs and providing greater control for
filming. The CP4 is specifically designed to support smaller camera systems,
allowing a cost-effective camera control solution for non-studio environments
or in remote locations such as regional news programmes.
Camera Corps Acquisition – Euro 2012
Camera Corps has performed strongly following its acquisition by the Group
in April 2012. Products and services were provided to UEFA’s Euro 2012
Championships, the London 2012 Olympic Games, the London 2012 Paralympic
Games and many high profile reality TV shows. Q-Ball’s unique position and
capability provided the iconic shot of the Olympic cauldron which became an
emblem of the London 2012 Games. Camera Corps has been successfully
integrated into the Videocom Division.
Costa Rica expansion
Vitec has opened a newly expanded Costa Rican production
facility in Cartago. The new plant has doubled capacity to more than
5,500 square metres. The expansion is to support increases in production
including the addition of Manfrotto manufacturing product lines at the plant
in 2013. The official opening was attended by the President of Costa Rica,
Laura Chinchilla, the Foreign Trade Vice Minister and Stephen Bird,
demonstrating the prominence Vitec has within Costa Rica.
mars Science Laboratory – Curiosity
Haigh-Farr provided the antenna system for the Curiosity vehicle which successfully
landed on Mars on 6 August 2012. The antenna system was used during the crucial
entry, descent and landing phase of the mission, to provide critical data to NASA
engineers as to what the Curiosity vehicle was experiencing. NASA reported that
the antenna provided perfect data, successfully accomplishing all of its objectives.
Hunan TV China
The second largest Chinese television network, Hunan, invested heavily in
Vitec products to support an upgrade to its TV facility. New studios were
exclusively fitted with Litepanels’ LED fixtures along with Vinten pedestals
and Autoscript teleprompters. These Vitec brands helped win the network
the State Administration of Radio, Film and Television award for the most
technically advanced studio of 2012 in China.
Vitec in action
www.vitecgroup.com/vitec_in_action
Autoscript
Autoscript delivered systems to major studios in the US and Russia to assist
with their coverage of events such as the US Presidential elections and
on-going broadcasting needs during their switch over to High Definition.
They also supplied products to the London 2012 Olympic Games.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Imaging Division**
Our Imaging Division provides
premium photographic and
increasingly video equipment
to both professional and
non-professional users. The
photographic and video equipment
consists primarily of camera
supports, tripods, equipment bags,
lighting supports, LED lights and
lighting accessories. The Division
also included the non-core
Staging business until its
disposal in August 2012.
The photographic market continued to
grow during 2012 with 28% growth in
the shipments of inter-changeable lens
cameras driven primarily by new higher
value compact system cameras. We
continue to purchase independent
market research data on the photographic
market that shows that we have increased
our share of the tripod market in the
US and Europe. We have also made
progress in penetrating online consumer
electronic sales channels. Volumes in
our bags business declined following
a contraction in this market during the
year, although our share of this market
remained stable.
Since the end of the year, Jessops,
a retailer of photographic equipment
in the UK, went into administration.
Our exposure was small and it has an
insignificant impact on our business.
Operations
Revenue for 2012, excluding the
disposed non-core Staging business,
was £157.9 million against a comparable
£165.5 million last year. This was 0.4%
lower on a constant currency basis
after taking into account the decision
to withdraw from the distribution of
certain lower margin third party
branded products.
Operating profit* rose by 4.6% to
£22.9 million, after excluding the loss-
making Staging business, despite a lower
level of sales. This reflected activities to
improve margins through pricing and
cost management. Underlying operating
margins for our Imaging activities
increased by 130 bps.
We grew sales of our video and lighting
supports for the professional market
segment, and made good progress with
the sale of new products including the
Sympla video range. Our Manfrotto
Powerbrand product range also
performed well, including the more
recently introduced LED lights.
Our brands
Supports
Avenger
Gitzo
Manfrotto
Bags
Kata
Manfrotto
National Geographic***
Lighting
Colorama
Lastolite
Manfrotto
Revenue
£157.9m
Operating profit*
£22.9m
Revenue
2012
Down
4.6%
2011
Up
4.6%
Operating profit*
2012
2011
Operating margin*
2012
2011
£165.5m
£21.9m
13.2%
* Before charges associated with acquired businesses and disposal of business.
** Figures in this section exclude the Staging business that was disposed in 2012.
*** Manufactured and distributed under licence.
The Vitec Group plc14.5%£157.9m£22.9m Vitec in action
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New logistics platform for US
To meet the increased demand of distribution and warehouse requirements
by Manfrotto Distribution US, Panalpina, a specialist logistics supplier, was
appointed. The use of advanced logistical systems at the New Jersey site has
improved efficiency, raising customer service and productivity by 40%. The
relationship provides potential for future synergies with other Vitec businesses.
KLYP iPhone case and LED light
Manfrotto successfully responded to continued growth within the smartphone
market in launching KLYP. KLYP is the first iPhone case designed with image-
enhancing accessories such as LED lights and supports. It allows smartphone
users to take better pictures with their mobile device, expanding Vitec’s audience
and market. Demonstrating its market significance KLYP has already received
excellent reviews, media focus and strong sales.
Faster, Smarter, Sympla
Sympla is a professional modular video rig system that complements the
evolution of camera technology. Built for flexibility and speed, it offers versatility
and high performance as well as comfort, safety and a simpler, faster set up
than existing rigs.
Innovative Bags
Manfrotto have developed a new bag series, Stile, featuring messenger, holster and
shoulder bags. These bags reflect the needs of the growing hobbyist audience who
are using smaller compact mirrorless cameras and digital technology to take pictures.
The new bags are smaller, lighter and offer quick access to the cameras along with
storage space for accessories such as a notebook or tablet computer.
Increased web presence
Manfrotto continues to maximise its online presence with more than four million
customers visiting its websites. The Manfrotto Imagine More Facebook group
has over 35,000 fans and 8,000 Twitter followers; the Manfrotto School of
Xcellence site has generated a trainee community of 4,000 Facebook fans;
and Kata possesses a Facebook page with over 67,000 “likes”.
manufacturing consolidation in Feltre
A five year project to consolidate manufacturing facilities into one site in Feltre,
Italy, was completed in August 2012, with all production activities combined into
a seamless system. Numerous benefits include higher service levels to assembly
lines, greater control of product components, shorter lead times and faster
delivery. The move has significantly cut costs while improving efficiency.
Vitec in action
www.vitecgroup.com/vitec_in_action
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Services Division
Revenue for 2012 increased by 4.4% to £33.0 million and profits doubled with the
benefit of contracts to supply the London 2012 Olympics and US Presidential election
more than offsetting a one-off sale of a large system to a major customer in 2011.
Increased margins reflected sales activity and a further reduction in costs through
streamlining operations.
Our Services Division provides
equipment rental, workflow design
and technical support to television
production teams and film crews.
It provides a complete one-stop
solution for top producers globally,
enabling customers to deliver the
most demanding projects. The
Division has a strategy to focus on
larger events, where higher levels
of service are most needed, and
to secure multi-year contracts for
these events.
Revenue
2012
2011
£31.6m
Our services
Major event production
systems design and
deployment services
Production equipment
rentals
Fibre optic broadcast and
infrastructure solutions
design and deployment
Sales and support of
professional audio and
video products
Used production
equipment sales
Our brands
Bexel
Revenue
£33.0m
Operating profit
£1.2m
Operating profit
2012
2011
£0.6m
Up
4.4%
Operating margin
2012
Up
100%
2011
1.9%
Vitec in action
Bexel’s Olympic endeavour
London’s summer sporting events generated
increased revenues for Bexel who supplied specialist
broadcast equipment for the London 2012 Olympic
and Paralympic Games. As a primary supplier for both
Games, Bexel provided a range of Vitec products
including over 100 Sachtler Tripods, 150 Litepanels
and 300 Anton Bauer batteries. Ten of Bexel’s portable
“Fly-Pack” control rooms were supplied for facilitating
production for live venue coverage at Wimbledon for
the Olympic tennis, at the Excel Centre for taekwondo
and fencing, and at the International Broadcast Centre
for the main press daily briefings.
Litepanels distribution through Bexel
Litepanels continues to elevate its presence via
increased distribution through Bexel. The successful
partnership resulted in Litepanels’ LED fixtures being
used at many major outdoor sporting events in the
US. These included coverage of the National Football
League, NCAA College Football, Major League
Baseball and the National Basketball Association.
Litepanels were also used for NBC’s Today Show
coverage of the London 2012 Olympic Games.
Vitec in action
www.vitecgroup.com/vitec_in_action
The Vitec Group plc£33.0m£1.2m3.6% Operations Executive
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The Operations Executive is responsible for leading the organisation. Together the team develops
strategy, implements our plans and ensures we run the business effectively. We meet monthly to discuss
the business and drive collaboration. The strength of this team derives from a diverse range of personal
and functional skills and experience.
For more information
Turn to page 20
Stephen Bird
Group Chief Executive
Paul Hayes
Group Finance Director
martin Green
Group Development Director
Jon Bolton
Group Company Secretary
Group Chief Executive, British, aged
52, appointed to the Board on 14 April
2009. He is currently a non-executive
director and the senior independent
director of Dialight plc. He was formerly
a non-executive director of Umeco plc.
Previously he was Divisional Managing
Director of Weir Oil & Gas, part of Weir
Group plc. Prior to this he has worked
in senior roles at Danaher Corporation,
Black & Decker, Unipart Group,
Hepworth PLC and Technicolor Group.
Group Finance Director, British,
aged 46, appointed to the Board on
13 June 2011. Previously he was
Group Financial Controller at Signet
Jewelers Limited. Prior to that, he
held senior roles at RHM plc and
Smiths Group plc. He is a Chartered
accountant having qualified with Ernst
& Young, and has a Masters degree
in Mechanical Engineering.
Group Development Director, British,
aged 44, appointed June 2005.
Previously he held corporate
development positions at Bunzl plc,
at a venture capital backed broadcast
equipment rental business and
worked in investment banking at
NM Rothschild. Trained and qualified
as a solicitor with Linklaters & Alliance
in the UK.
Group Company Secretary, British,
aged 46, appointed October 2008.
Previously Company Secretary of
Waste Recycling Group. Prior to this
he held company secretarial positions
at GlaxoSmithKline, where he trained
as a company secretary and Cable
& Wireless where he was Deputy
Company Secretary. He holds a
bachelor of law degree and is a
fellow of the Institute of Chartered
Secretaries and Administrators.
matt Danilowicz
Videocom and Services
Divisional Chief Executive
marco Pezzana
Imaging
Divisional Chief Executive
Steve Shpock
IMT President
Divisional Chief Executive, Videocom
and Services Divisions, American,
aged 52, appointed July 2012.
Previous roles include 7 years as
President of Clear-Com, a former Vitec
Group company, Vice President of
Worldwide Channels and General
Manager, Broadcast at Avid
Technology and CEO of iNews,
a market-leading news technology
company. BA degree in Economics
and English from the College of
William & Mary, Williamsburg, Virginia.
Divisional Chief Executive, Imaging
Division, Italian, aged 43, appointed
March 2009. Formerly Managing
Director of Manfrotto. Prior to joining
Vitec he held various positions in
general management and marketing
for consumer goods companies
including Newell Rubbermaid, Arc
International and Dusholux GmbH,
working extensively in the UK, USA
and France. He holds a university
degree in Political Science from the
University of Milan, with postgraduate
studies at London Business School
and Bocconi University.
President of IMT, American, aged 53,
appointed in 2011. Previously he
held the position of CEO of Thales
Component Corp, and executive
positions at MCE Technologies (now
Aeroflex) and Litton (now L-3 Com).
Francesco Bernardi
Group Head of
Strategic Projects
Group Head of Strategic Projects,
Italian, aged 47, appointed February
2004. Formerly Divisional Chief
Executive, Imaging & Staging Division.
Prior to this he held various
management positions in sales and
marketing in several consumer goods,
fashion and retail companies including
Benetton, Stefanel and Marzotto/
Hugo Boss. He holds a university
degree in Political Science.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Board of Directors
John mcDonough
CBE, BSc (Eng)
Stephen Bird
MA
Paul Hayes
M.Eng & Man, ACA
Carolyn Fairbairn
BA, MA and MBA
Group Chief Executive, British,
aged 52, appointed to the Board
on 14 April 2009. He is currently
a non-executive director and the
senior independent director of
Dialight plc. He was formerly a
non-executive director of Umeco
plc. Previously he was Divisional
Managing Director of Weir Oil &
Gas, part of Weir Group plc. Prior
to this he has worked in senior roles
at Danaher Corporation, Black &
Decker, Unipart Group, Hepworth
PLC and Technicolor Group.
Group Finance Director, British,
aged 46, appointed to the Board on
13 June 2011. Previously he was
Group Financial Controller at Signet
Jewelers Limited. Prior to that, he
held senior roles at RHM plc and
Smiths Group plc. He is a Chartered
accountant having qualified with
Ernst & Young, and has a Masters
degree in Mechanical Engineering.
Chairman, British, aged 61, appointed
to the Board on 15 March 2012;
Chairman of the Nominations
Committee; John ceased being
a member of the Audit and
Remuneration Committees on
becoming Chairman on 1 June
2012. He is also Chairman of
Vesuvius plc. John was most
recently Group Chief Executive of
Carillion plc from January 2001 to
December 2011. He was previously
a non-executive director of Tomkins
plc from June 2007 to September
2010, where he was also Chairman
of the Remuneration Committee,
and Exel from February 2004 to
December 2005. Prior to Carillion,
John worked for Johnson Controls
and Massey Ferguson.
Non-Executive, independent,
British, aged 52, appointed to the
Board on 1 February 2012; member
of the Audit, Nominations and
Remuneration Committees. She is
currently a non-executive director of
Lloyds Banking Group plc and was
previously a non-executive director
of the Financial Services Authority
between 2007 and 2011. Until April
2011, she was Director of Group
Development and Strategy at ITV
plc, having also spent five years as
Director of Strategy at the BBC and
a member of its Executive Board.
She has also been a partner at
McKinsey, where she specialised in
media, and a policy adviser in the
Number 10 Policy Unit. Previous
non-executive roles include chair of
Friends Reunited, chair of the Royal
Television Society, and director of
Digital UK and Freeview.
Board of Directors
www.vitecgroup.com/board_of_directors
The Vitec Group plc 27
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Simon Beresford-Wylie
BA
maria Richter
BA, JD
Nigel moore
FCA
John Hughes
CBE, BSc
Non-Executive, independent,
British, aged 54, appointed to the
Board on 1 March 2006; Chairman
of the Remuneration Committee
and a member of the Audit and
Nominations Committees.
Appointed Chief Executive Officer
of Digital Mobile Spectrum Limited
on 15 January 2013. Previously
Chief Executive Officer of Elster
Group SE, Chief Executive Officer
of Nokia Siemens Networks and
member of the Nokia Group
Executive Board having joined the
Nokia Group in 1998 from Indian
mobile operator Modi Telstra
(Pte. Ltd.), where he was Chief
Executive Officer. Prior to that he
held various management positions
within Telstra’s Corporate and
Government Business Unit.
Non-Executive, independent, dual
American and Panamanian, aged
58, appointed to the Board on
28 February 2007; member of
the Audit, Nominations and
Remuneration Committees. She
is currently a director of National
Grid plc, The Pantry Inc and
The Bessemer Group Incorporated.
She is a director of Pro Mujer
International and Chairman of the
Board of Trustees of Pro Mujer UK.
Previously with Morgan Stanley
for nine years, most recently as
Managing Director of the Corporate
Finance Retail Group. Prior to that
she held senior positions with
Salomon Brothers, Prudential
Capital Corporation and Power
Funding Associates.
Non-Executive, independent,
British, aged 68, appointed to
the Board on 1 March 2004;
Chairman of the Audit Committee
and a member of the Nominations
and Remuneration Committees.
He is the Senior Independent
Director. He is currently Chairman of
JKX Oil & Gas plc, and a director of
Hochschild Mining plc and Ascent
Resources plc. Formerly a London
based partner of Ernst & Young,
where he was engagement partner
for a number of significant client
companies with specific
responsibilities for their audits.
Non-Executive, independent,
British, aged 61, appointed to the
Board on 11 March 2011; member
of the Audit, Nominations and
Remuneration Committees. He is
currently Chairman of Spectris plc,
Telecity Group plc and Sepura plc.
He is also a director of CSG
Systems International, Inc. He was
previously Executive Vice-President
and Chief Operating Officer of
Thales SA, the defence, aerospace
and electronic systems group.
He serves as an ambassador to
the Alzheimer’s Society.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Directors’ Report
Principal Activity and Business Review
The principal activity of the Group is to provide products
and services that support the capture of exceptional images.
We serve customers in the Broadcast & Video, Photographic,
and Military, Aerospace and Government (MAG) markets.
Vitec is based on strong, well known premium brands on
which its customers worldwide rely and is organised in three
divisions: Videocom, Imaging and Services. Videocom designs
and distributes systems and products used in broadcasting
and live entertainment, film and video production and MAG.
Imaging designs, manufactures and distributes equipment
and accessories for photography and video. Services provides
equipment rental, workflow design and technical support to
TV production teams and film crews.
Details of the Group’s business model, strategy, activities,
developments and performance for the year, the main trends
and factors likely to affect its future development, together with
performance information which fulfills the requirements of the
Companies Act 2006 relating to the production of a business
review are set out on pages 1 to 24 and in the section entitled
“Principal risks and uncertainties” on pages 18 and 19. The
Company uses a number of key performance indicators to
measure progress towards its objectives which can be found
on pages 15, 39, 46, 47 and 49.
Paul Hayes respectively, calculated by reference to the
closing middle market price of a share of the Company on
31 December 2012, which was 635.25 pence.
The table below sets out the beneficial interests in the Company’s
shares of those persons who were Directors at the end of the
financial year. The interests are shown as at 31 December 2012
and 1 January 2012 (or date of appointment if later). Details of
the Executive Directors’ other interests in the Company’s shares
are set out in the Remuneration Report on pages 31 to 43.
There have been no other changes to these interests in the
period from 31 December 2012 to 27 February 2013.
Directors’ shareholdings
Chairman
John McDonough CBE
(appointed 15 March 2012)
Executive Directors
Stephen Bird
Paul Hayes
Non-Executive Directors
Simon Beresford-Wylie
31 December 2012
1 January 2012
(or date of appointment,
if later)
25,000
-
126,491(*)
32,843(**)
4,263
-
26,154
-
-
95,323(*)
24,000
4,215
-
20,470(***)
4,381
-
214,751
148,389
Directors
The Directors throughout the year ended 31 December 2012
and up to the date of this report are set out on pages 26 and 27
along with their photographs and biographies.
John Hughes
Nigel Moore
Maria Richter
Changes to the Board during the year and up to the date of this
report were as follows:
Carolyn Fairbairn
(appointed 1 February 2012)
Name
Date
Position
John McDonough
CBE
Appointed on
15 March 2012
Independent Non-Executive
Director (on appointment) and
Chairman (from 1 June 2012)
Carolyn Fairbairn
Appointed on
1 February 2012
Independent Non-Executive
Director
Michael Harper
Retired on
1 June 2012
Chairman
All current Directors, with the exception of Maria Richter, will be
standing for re-appointment at the forthcoming AGM to be held
on Wednesday, 15 May 2013. The remuneration of the Directors
is set out in the Remuneration Report on pages 31 to 43.
Directors’ shareholdings
To align the interests of executives with those of shareholders,
Executive Directors are required to build up, over a reasonable
period of time, a substantial holding of shares in the Company
of at least one times salary. A reasonable period is considered
to be the life of a performance period tied to an award vesting
under the Company’s Long Term Incentive Plan. Other members
of the Operations Executive are encouraged to do the same up
to a level of at least 50% of salary. The value of holdings by the
Executive Directors at 31 December 2012 represented 201%
and 76% of the base salaries of Stephen Bird and
(*)
(**)
Includes 77,821 shares and 54,875 shares (at 31 December 2012 and
1 January 2012 respectively) purchased in the market using funds supplied
by Stephen Bird and held by the Employee Benefit Trust, the trust used
to hold shares in respect of awards made under the Vitec Group 2005
Deferred Bonus Plan.
Includes 8,843 shares (at 31 December 2012) purchased in the market
using funds supplied by Paul Hayes and held by the Employee Benefit Trust,
the trust used to hold shares in respect of awards made under the Vitec
Group 2005 Deferred Bonus Plan.
(***) Nigel Moore’s shareholding as at 1 January 2012 has been re-stated due to
the regular re-investment of cash dividends through a SIPP since May 2009.
Directors’ and Officers’ Liability Insurance
and Indemnification of Directors
The Company maintains Directors’ and Officers’ liability
insurance which gives appropriate cover for any legal action
brought against its Directors. The Company has also granted
indemnities to each of its Directors to the extent permitted by
law. Qualifying third party indemnity provisions (as defined in
Section 324 of the Companies Act 2006) were adopted on
16 March 2009 for those Directors on the Board at that time
and have been agreed by all Directors joining the Board since
that date. These indemnities remain in force in relation to certain
losses and liabilities which the Directors may incur to third
parties in the course of acting as Directors of the Company.
The Vitec Group plc 29
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Share capital
The Company has only ordinary shares of 20 pence nominal
value in issue. Note 4.3 to the consolidated financial
statements summarises the rights of the ordinary shares
as well as the number issued during 2012. An analysis of
shareholdings is shown on page 117. The closing middle
market price of a share of the Company on 31 December
2012, together with the range during the year, is also shown
on page 117. For details of own shares held by the Company
see note 4.3 to the consolidated financial statements.
Payments to creditors
It continues to be the Group’s policy that the Company and
individual subsidiary companies are responsible for negotiating
terms and conditions under which suppliers operate. Once
agreed, payments to suppliers are made in accordance with
those terms and conditions, subject always to the supplier
having complied with them. That policy will continue for
the year ending 31 December 2013. For the year ended
31 December 2012, the Group’s payables days
were 42 (2011: 49 days).
Substantial shareholdings
As at 27 February 2013, the Company had been advised under
the Disclosure and Transparency Regime, or had ascertained
from its own analysis, that the following held interests of
3% or more of the voting rights of its issued share capital:
Shareholder
Delta Lloyd NV
Manfrotto
Standard Life Investments
Harris Associates
Cazenove Capital Management
Schroder Investment Management
M&G Investment Management
Number of
voting rights
6,584,080
4,788,102
3,979,258
3,966,016
3,548,786
2,143,771
1,580,333
%
15.07
10.96
9.11
9.08
8.12
4.91
3.62
Committees of the Board
The Board has established an Audit Committee, a Nominations
Committee and a Remuneration Committee. Details of these
Committees, including membership, outline terms of reference
and their activities during 2012, are contained in the Corporate
Governance section of this Annual Report and in the
Remuneration Report.
Remuneration Report
The Group’s Remuneration Report is set out on pages 31 to 43.
Corporate Responsibility
The Group’s report on corporate responsibility is set out on
pages 44 to 51. The Group has a Code of Business Conduct
and specific policies which cover the following key areas:
health and safety; risk and fraud; employment; whistleblowing;
the environment; human rights; community impact and
involvement; and relationships with suppliers and customers
and other stakeholders. It regularly reviews these policies and
revises them as and when necessary.
Corporate Governance
The Group’s report on Corporate Governance is on pages
52 to 63.
Donations
During 2012, the Group made charitable and community-
based donations totalling £71,173 (2011: £152,143), of
which £19,425 were made in the UK. No donations were
made to any political party (2011: £nil). For further information
on donations refer to the section on Community and Charitable
Donations set out in the Corporate Responsibility report on
page 51.
Companies Act 2006 Disclosures
In accordance with Section 992 of the Companies Act 2006
the Directors disclose the following information:
• The Company’s capital structure and voting rights are
summarised on page 98, and there are no restrictions
on voting rights nor any agreement between holders of
securities that result in restrictions on the transfer
of securities or on voting rights;
• There exist no securities carrying special rights with regard
to the control of the Company;
• Details of the substantial shareholders and their
shareholdings in the Company are listed opposite;
• Shares awarded under the Core award of the Company’s
Deferred Bonus Plan are held in a nominee capacity by the
Employee Benefit Trust (EBT). The Trustees of the EBT do
not seek to exercise voting rights on shares held in the EBT.
No voting rights are exercised in relation to shares
unallocated to individual beneficiaries;
• The rules concerning the appointment and replacement
of Directors, amendment to the Articles of Association and
powers to issue or buy back the Company’s shares are
contained in the Articles of Association of the Company
and the Companies Act 2006;
• There exist no agreements to which the Company is party
that may affect its control following a takeover bid; and
• There exist no agreements between the Company and its
Directors providing for compensation for loss of office that
may occur because of a takeover bid.
Articles of Association
The Company’s Articles of Association set out the rights
of shareholders including voting rights, distribution rights,
attendance at general meetings, powers of directors,
proceedings of directors as well as borrowing limits and other
governance controls. A copy of the Articles of Association can
be requested from the Company Secretary.
Conflicts of Interest
During the year no Director held any beneficial interest in any
contract significant to the Company’s business, other than a
contract of employment. The Company has procedures set out
in the Articles of Association for managing conflicts of interest.
Should a Director become aware that they, or their connected
parties, have an interest in an existing or proposed transaction
with the Group, they are required to notify the Board as soon
as reasonably practicable.
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
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Directors’ Report
Statement of Directors' Responsibilities in respect
of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report
and the Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and
parent company financial statements for each financial year.
Under that law they are required to prepare the Group financial
statements in accordance with IFRSs as adopted by the EU and
applicable law and have elected to prepare the parent company
financial statements in accordance with UK Accounting
Standards and applicable law (UK Generally Accepted
Accounting Practice).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and parent company
and of their profit or loss for that period. In preparing each of the
Group and parent company financial statements, the Directors
are required to:
• Select suitable accounting policies and then apply them
consistently;
• Make judgements and estimates that are reasonable and prudent;
• For the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by
the EU;
• For the parent company financial statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained
in the parent company financial statements; and
• Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy,
at any time, the financial position of the parent company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are
also responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Disclosure of information to auditors
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information (as defined in Section
418(2) of the Companies Act 2006) of which the Company’s
auditors are unaware; and each Director has taken all the steps
that they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the
Company’s auditors are aware of that information.
Annual General meeting
The 2013 AGM will be held at 2.30pm on Wednesday,
15 May 2013 at Prince Philip House, 3 Carlton House Terrace,
London SW1Y 5DG.
The Chairmen of the Board and of each of its Committees
will be in attendance at the AGM to answer questions from
shareholders. All Directors, with the exception of Maria Richter,
will be standing for re-appointment at the AGM.
The Company will be making use of the electronic voting facility
provided by its registrars, Capita Registrars. The facility includes
CREST voting for members holding their shares in uncertificated
form. For further information, please refer to the section on
Online services and electronic voting set out on page 117.
The Notice of the AGM and an explanation of the resolutions
to be put to the meeting are set out in the Notice of Meeting
accompanying this Annual Report. The Board fully supports all
the resolutions and encourages shareholders to vote in favour
of each of them.
Auditors
The Auditors, KPMG Audit Plc (“KPMG”), are willing to
continue in office. Separate resolutions will be put to the AGM
to re-appoint the Auditors and to authorise the Board to agree
their remuneration.
By order of the Board
Jon Bolton
Group Company Secretary
27 February 2013
Cautionary statement: Statements made in the Directors’ Report
(pages 1 to 30) contain forward-looking statements that are subject to risk
factors associated with, among other things, the economic and business
circumstances occurring from time to time in the countries and sectors in
which the Group operates. It is believed that the expectations reflected in
these statements are reasonable but they may be affected by a wide range
of variables which could cause actual results to differ materially from those
currently anticipated. Nothing in these Annual Report and Accounts should
be construed as a profit forecast.
The Vitec Group plc
Remuneration Report
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During 2012, the Committee considered a range of issues,
the detail of which is given in the Report, including:
• Executive Directors’ pay rises with effect from 1 January
2013 have been set at 2.5 per cent, reflecting pay increases
within the Group’s workforce and current market conditions.
• 2012 bonus payments to Executive Directors averaged 79
per cent of the maximum potential award. This has been
earned against the Group delivering profit before tax* of
£36.2 million, an increase of 9.7 per cent over 2011. Each
Executive Director is required to mandatorily defer 50 per
cent of the bonus into the Deferred Bonus Plan for three years
ensuring that focus on long-term growth is encouraged.
• Long Term Incentive awards made in 2010 to Executive
Directors vested at a level of 92.4 per cent of their
performance conditions and clearly reflect growth in
shareholder value during the performance period including
growth in profits, dividends and share price. The share price
increased from £3.81 at the award date to £6.3525 at 31
December 2012, being the end of the performance period.
• The structure of the 2013 Annual Bonus Plan has been
set to drive Executive Directors to deliver a budget that the
Board considers to be challenging, particularly when viewed
against the backdrop of current market conditions.
• The Committee has confirmed the need for Executive Directors
to build a significant shareholding in the Company of at least
one times base salary over a reasonable period of time.
For 2013 the Remuneration Committee will continue to monitor
the Group’s remuneration policy to ensure that it remains fit
for purpose in delivery of the Group’s growth strategy and
to ensure that executive remuneration provides rewards that
support delivery of that strategy. We do not propose any
significant changes to the current remuneration policy for
2013. We will begin a consultation with our major investors on
the need to renew our Long Term Incentive Plan and Deferred
Bonus Plan at the 2014 Annual General Meeting ahead of the
expiry of the current plans. The Remuneration Committee will
consider performance conditions tied to long-term awards
to ensure that they remain sufficiently demanding to drive
performance.
The Committee will also consider on-going performance
against the targets set for the 2013 Annual Bonus Plan.
Finally, the Committee will consider disclosures to be made
in the 2013 Remuneration Report in compliance with the
BIS regulations.
The 2012 Remuneration Report will be put to an advisory vote
at the Annual General Meeting to be held on 15 May 2013.
I will attend the Annual General Meeting and will be available
to answer questions on our Remuneration Report and our
policy on executive remuneration.
Simon Beresford-Wylie
Chairman, Remuneration Committee
Remuneration Report online
www.vitecgroup.com/remuneration_report_2012
Dear Shareholder
The 2012 Remuneration Report sets out our approach
to remuneration of the Executive Directors and senior
executives. Our objective is to set remuneration at a level
that drives our executive management team to deliver long-
term sustainable growth in shareholder value. Throughout
2012 the Remuneration Committee has monitored executive
remuneration packages to ensure that they remain fit for
purpose in achieving this objective, taking into account a range
of factors including market conditions, the ability to attract
and retain a talented management team, advice from our
remuneration advisor and the views of our major investors.
The structure of executive remuneration has not changed
during 2012 following the re-balancing that we undertook
in 2011 having consulted with our major shareholders. The
Remuneration Committee is satisfied that the current policy
on remuneration is driving the management team to deliver
on the Group’s strategy. Our shareholders are also supportive
of the approach to executive remuneration with over 98 per
cent of proxy votes cast at the 2012 Annual General Meeting
being in favour of the 2011 Remuneration Report.
The 2012 Remuneration Report complies with disclosures
required under the Directors’ Remuneration Report Regulations
2002. Additionally we have taken into account emerging best
practice on executive remuneration with the Report drafted to
include many of the provisions of the forthcoming Department
for Business, Innovation and Skills Directors’ Pay: Revised
Remuneration Reporting Regulations (“BIS regulations”) that
are anticipated to come into law in 2013. The Remuneration
Committee recognises the need for transparent disclosure on
executive remuneration and will move towards full compliance
with the final BIS regulations for the 2013 Remuneration Report
that will be published in 2014.
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
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Remuneration Report
Remuneration Report
This Report contains the information required under the
Listing Rules, the UK Corporate Governance Code as issued
in June 2010 and under the Directors’ Remuneration Report
Regulations 2002. The Report also reflects a number of
forthcoming provisions to be brought into effect under BIS
regulations that are anticipated to become law in 2013 and
the new UK Corporate Governance Code 2012 that will apply
to accounting periods beginning on or after 1 October 2012.
Remuneration Committee
The Remuneration Committee consisted of the following
throughout 2012:
Simon Beresford-Wylie – Chairman
Maria Richter
Nigel Moore
John Hughes
Carolyn Fairbairn – appointed 1 February 2012
John McDonough – appointed 15 March 2012 and resigned
1 June 2012 on becoming Chairman
of the Board
All of the Committee members are independent
Non-Executive Directors.
The Committee, on behalf of the Board, determines the
remuneration packages, including base salaries, annual
cash bonus arrangements, participation in incentive schemes,
pension arrangements and all other benefits received by
the Executive Directors. The Committee also oversees the
framework of senior executive remuneration, including
members of the Operations Executive, including terms
of service, pay structure, annual cash bonus, pensions,
share incentive arrangements and all other benefits.
The former Chairman, Michael Harper, the current Chairman,
John McDonough, the Group Chief Executive, Stephen Bird,
the Group Company Secretary, Jon Bolton, the former Group
HR Director, Cathy Walkington and the Group Development
Director, Martin Green, attended meetings by invitation in the
year ended 31 December 2012. The Executive Directors or
members of the Operations Executive are not present when
their own remuneration is being considered.
The remuneration of the Chairman and the Non-Executive
Directors is determined by the Board as a whole, with the
Chairman or the relevant Non-Executive Director abstaining
when his or her remuneration is considered.
For further information regarding governance for the
Remuneration Committee see pages 57 and 58.
Remuneration policy for Executive Directors
Remuneration packages are developed to attract, retain and
motivate Executive Directors and senior executives without
being excessive, and to be aligned with both the interests
of shareholders and the business strategy of the Company.
They take into account the responsibilities and risks involved
and remuneration packages in comparable companies that
have similar scale international operations. Consideration of
remuneration and benefits across the Company’s employee
population is also taken into account.
Remuneration for the Executive Directors is comprised of
several elements including base salary, annual cash bonus,
Long Term Incentive Plan, pension contribution and other
benefits including car allowance, life assurance, permanent
health insurance and healthcare. The table on the following page
summarises each element of remuneration for the Executive
Directors including link to strategy, operation, maximum
opportunity, any performance metrics and changes made
during the year ended 31 December 2012.
The Vitec Group plc 33
Changes in
year ended 31
December 2012
5% and 3% for
Stephen Bird
and Paul Hayes
respectively
with effect from
1 January 2012
No change
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Purpose and link to strategy
Operation
Maximum
opportunity
Performance metrics
Base salary
Base salary is set at a level
to secure the services of a
talented Group Chief Executive
and Group Finance Director
with the ability to develop
and deliver a growth strategy
Paid monthly in arrears
Not applicable
Annual bonus
To provide a material incentive
to deliver stretching strategic
and financial performance and
to grow long-term sustainable
shareholder value
Paid annually following
publication of full year results
125% of salary
Long Term
Incentive Plan
To provide a long-term retention
incentive for the Group
Chief Executive and Group
Finance Director involving the
Company’s shares. To link long-
term rewards to the creation
of long-term sustainable
shareholder value
Awarded to the executive
and subject to stretching
performance conditions over a
three year performance period.
At the end of the performance
period and subject to
satisfaction of performance
conditions the shares vest
to the executive
100% of salary;
value based on
share price at
award date
Continued satisfactory
performance in the role of
Group Chief Executive and
Group Finance Director. This
includes development and
delivery of Group strategy
and budgets associated
with growth in long-term
sustainable shareholder value
Stephen Bird - 30% tied to
achievement of personal
objectives; 46.7% tied to
achievement of targets set
against the Group’s profit
before tax*; and 23.3% tied
to achievement of targets set
against the Group’s working
capital to sales. Paul Hayes
– Same metrics except that
personal objectives totals 25%,
Group profit before tax* 50%
and Group working capital
to sales 25%
50% of the award is subject
to the Company’s Total
Shareholder Return compared
to a comparator group
measured over a three year
period and 50% of the award
is subject to targets set against
growth in the Company’s
earnings per share* over
the same three year period
Deferred
Bonus Plan
Deferral of annual bonus
into the Deferred Bonus Plan
focuses the Executive Director
on long-term value delivery
and growth
50% of the annual bonus is
mandatorily deferred into the
Deferred Bonus Plan. The
deferred bonus is used to
purchase Core award shares
held in an employee trust over
a three year performance
period. Subject to satisfaction
of performance conditions,
Matching award shares
are awarded
Up to 1 Matching
share for every
1 Core share
can apply
Same performance conditions
as the Long Term Incentive Plan
No change
Pension
contribution
Other Benefits
including car
allowance, life
assurance,
healthcare and
permanent
health
insurance
Clawback
To provide the Executive
Director with a contribution
towards a personal pension
arrangement of the executive’s
choice and to provide a benefit
compatible with market rates
To provide the Executive
Director with ancillary benefits
compatible with market rates
Paid monthly in arrears
20% of salary
None
No change
Paid monthly in arrears for
car allowance and permanent
health insurance. Annual
payment for healthcare
and life assurance
Not applicable
None
No change
To ensure that Executive
Directors do not benefit
from inappropriate
behaviour, including material
misstatement, misconduct
or material ethical breach
against the Company’s
Code of Business Conduct
Applies to awards under the
annual bonus, Long Term
Incentive Plan and Deferred
Bonus Plan – any material
breach may result in the after
tax value of an award being
clawed back
As per awards
detailed above
Inappropriate behaviour,
including material misstatement,
misconduct or material ethical
breach against the Company’s
Code of Business Conduct
No change
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
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Remuneration Report
The Committee received advice from Deloitte LLP as the
Committee’s appointed remuneration advisor during the year
ended 31 December 2012. Deloitte have a wide range of
experience and knowledge on executive remuneration for
multinational companies such as the Company and are able
to provide detailed background and context to enable the
Committee to come to an informed decision on executive
remuneration. This advice related to disclosures in the 2011
Remuneration Report, measurement of performance conditions
associated with long-term incentive arrangements, changes
to performance conditions associated with long-term incentive
arrangements, a proposal to re-balance the senior executive
Annual Bonus Plan and the Long Term Incentive Plan and
general remuneration advice. Deloitte’s total fees for 2012 work
and advice relating to executive remuneration was £76,200.
Deloitte also provided other services to the Company during
the year, including work and advice relating to expatriate tax,
international relocations and corporate finance. Deloitte are
members of the Remuneration Consultants Group and are
committed to that group’s voluntary code of practice for
remuneration consultants in the UK. The Committee also
received advice and administrative support from the Group
Company Secretary, Jon Bolton, the Group Business
Development Director, Martin Green and the former
Group HR Director, Cathy Walkington.
The Remuneration Committee, when determining Executive
Directors’ remuneration, takes into account remuneration and
employment terms and conditions, including levels of pay for all
employees of the Company. The Committee is kept informed on:
• Salary increases for the general employee population;
• Company-wide benefit provision including pensions, share
incentives, bonus arrangements and other ancillary benefits;
• Overall spend on annual bonus; and
• Participation levels and outcomes in the Annual Bonus Plan
and Long Term Incentive Pan.
The Committee as part of the background to setting executive
remuneration receives detailed market data on executive
remuneration from Deloitte.
The Committee believes that it is beneficial both for the
individual and the Company for an Executive Director to take
up one external non-executive appointment. Remuneration
received by an Executive Director in respect of such an external
appointment would be retained by the Director. Stephen Bird
was a Non-Executive Director of Umeco PLC until 20 July 2012,
a position he held since October 2006. In this capacity,
Stephen Bird received a basic fee of £35,000 per annum and
an additional fee of £5,000 per annum as Chairman of the
Remuneration Committee. On 10 January 2013, Stephen Bird
was appointed an independent Non-Executive Director of
Dialight plc. In this role he receives a basic fee of £40,000 per
annum and an additional £5,000 per annum in the role of Senior
Independent Director. Under the terms of his service contract,
Paul Hayes, with the agreement of the Group Chief Executive
and Chairman, may take up one external non-executive
appointment of a listed company. As of the date of this report
no such external non-executive appointment has been made.
The Committee currently has no intention of amending the above
stated policy; however, it will be reviewed from time to time.
Remuneration policy for senior managers and
other employees
The remuneration policy for other senior managers in the
Company is similar to that of the Executive Directors other
than the quantums are different.
Senior managers’ remuneration contains a significant element
that is dependent upon financial performance of the Company,
the Company’s share price as well as individual performance.
Remuneration for all other employees is set taking into account
local market conditions to ensure that pay and benefits attract
and retain employees. All employees are able to participate
in an annual bonus plan that is tied to Company financial
performance as well as individual performance against personal
objectives. Whilst the structure of bonus plans varies across
the employee workforce, approximately 50 senior managers
participate in the Annual Bonus Plan that is the same structure
as described for the Executive Directors although the limits and
performance conditions vary.
All full time employees in the UK, US, Italy, Costa Rica,
Israel and Germany are able to participate in an all-employee
sharesave plan granting employees an option to save and
purchase a limited number of shares in the Company at a
discount to the market price at the time an offer of the plan is
made. Over 540 employees participated in the latest offer made
in August 2012. Over 50 senior managers also participate in
the Company’s Long Term Incentive Plan that awards shares
subject to satisfaction of performance conditions over a three
year performance period.
All full time employees are also offered membership of a
pension scheme upon joining the Company which is compliant
with local legal requirements. In the UK, employees are able to
join a defined contribution pension plan with both the employee
and employer making fixed contributions.
Executive Directors’ remuneration
The Executive Directors’ remuneration comprises a basic
salary, an annual cash bonus, long-term share incentives,
a car allowance, healthcare, membership of the Group’s
personal pension scheme or a contribution to their own
personal pension arrangement, permanent health insurance
and life assurance.
The Vitec Group plc
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For both financial targets the following trigger points were used
in 2012:
• 90% or less of budget – Threshold – resulting in no payout;
• 100% of budget for Group profit before tax* and 95% of
budget for Group working capital to sales – Target –
resulting in half of the maximum payout;
• 105% of budget – Maximum – resulting in a maximum
payout; and
• A straight line sliding scale operates between each of the
above points.
The personal objective element of the 2012 Annual Bonus
Plan for each Executive Director is based upon individual
performance measured against stretching personal objectives
set by the Board and Remuneration Committee.
Both Stephen Bird and Paul Hayes are required to mandatorily
defer 50 per cent of the 2012 Annual Bonus into the Deferred
Bonus Plan. They cannot however defer any more of the
Annual Bonus. The deferred cash bonus is used to purchase
Core award shares that potentially attract Matching award
shares subject to the achievement of stretching performance
conditions over a three year performance period.
Under the rules of the Annual Bonus Plan the Remuneration
Committee retains a full and absolute discretion as to whether
a bonus is payable or not that may be used only in exceptional
circumstances, taking into account the overall financial
performance of the Company. Any use of this discretion in
connection with an Executive Director will be clearly explained
in the Remuneration Report. To date, the Remuneration
Committee has not exercised any such discretion.
The Annual Bonus Plan for 2013 has been structured to
ensure that Executive Directors and senior management
remain focused on the delivery of stringent financial targets.
Both Stephen Bird and Paul Hayes will participate in the 2013
Annual Bonus Plan that may deliver a maximum bonus of
125% of salary.
Base Salary
With effect from 1 January 2013, Stephen Bird’s base salary
was increased from £389,550 to £399,289 (a 2.5% increase)
and Paul Hayes’ base salary was increased from £267,800 to
£274,495 (a 2.5% increase). This increase reflects the average
increase given to employees across the Group as a whole.
Salaries for Executive Directors will be reviewed by the
Remuneration Committee in December 2013 for 2014 taking
into account several factors including Company and individual
performance, pay increases for the Company’s employees,
market rates for Executive Directors’ remuneration and
prevailing economic conditions at that time.
Annual Bonus Plan
The 2012 Annual Bonus Plan has been structured as follows
for the Executive Directors:
Stephen Bird
Paul Hayes
Personal Objectives
30% of total
Personal Objectives
25% of total
Group Working Capital to Sales
23.3% of total
Group Working Capital to Sales
25% of total
Group Profit Before Tax*
46.7% of total
Group Profit Before Tax*
50% of total
Each Executive Director under the 2012 Annual Bonus Plan
can receive a maximum bonus of up to 125% of basic salary,
50% of which is mandatorily deferred into the Deferred Bonus
Plan (see later). The financial elements of the Annual Bonus Plan
for each Executive Director are based upon actual financial
results achieved for Group profit before tax* and Group
working capital to sales measured against the 2012 Budget
as set by the Board. The Remuneration Committee considered
that these two financial performance targets have the most
direct impact upon shareholder value for that financial year.
The Remuneration Committee does not publish specific details
of these financial targets since it believes they are commercially
sensitive and that it would not be in the Company’s best interests
to do so.
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
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Remuneration Report
For 2013 the Remuneration Committee has changed Stephen
Bird’s Annual Bonus Plan structure so that 25 per cent relates
to satisfaction of personal objectives, 50 per cent relates to
satisfaction of targets set for Group profit before tax* and
25 per cent relates to satisfaction of targets set for conversion
of operating profit* into operating cash. Paul Hayes’ 2013 Annual
Cash Bonus Plan retains the same percentages as for 2012 but
reflects this change in performance condition to conversion of
operating profit* into operating cash.
The financial measures have been adjusted to give greater
focus on key performance indicators for the business. Whilst
Group profit before tax* remains a key financial measure, the
Remuneration Committee has agreed that the other financial
measure be changed to conversion of operating profit* into
operating cash. The use of a percentage target with a sliding
scale depending upon the level of cash generation achieved
has been set. To drive the right behaviours in the business a full
year target and a quarterly average target for the conversion of
operating profit* into operating cash has been set. This change is
considered beneficial to focus management on delivery of cash
and is better understood by participants in the Annual Bonus Plan
as well as being a key financial metric for our investors.
In spite of the current macroeconomic uncertainty, the Board
considers the budget set for 2013 to be significantly stretching.
The Committee has set the following trigger points for the
financial targets of the 2013 Annual Bonus Plan:
• 90% or less of budget – Threshold – resulting in no payout;
• 100% of budget – Target – resulting in half of the maximum
paying out;
• 110% of budget – Stretch – resulting in maximum payout; and
• A straight line sliding scale operates between each of the
above points.
The operating profit* into operating cash generation element
of the Annual Bonus Plan will only be payable in the event
that the profit before tax* element reaches the threshold level.
The Remuneration Committee retains an absolute discretion
in connection with the Annual Bonus Plan for 2013, enabling
it to reduce or increase payments up to the maximum limit in
exceptional circumstances or where an outcome would have
an undesirable effect such as an anomalous payment of
bonus when Company financial performance does not merit a
payment. Any use of discretion would be clearly reported in a
subsequent Remuneration Report with the rationale explained.
Long-Term Incentive arrangements
The Company has the following long-term incentive
arrangements in place.
The Deferred Bonus Plan was approved by shareholders at
the Annual General Meeting in 2005 and has been used in
connection with bonuses paid since then arising from the
Annual Bonus Plan and will continue to be used in 2013.
The Long Term Incentive Plan was approved by shareholders
at the Annual General Meeting in 2005 and has been used to
make awards to the Executive Directors, the members of the
Operations Executive and to the Group’s senior management
as envisaged when shareholder approval was received. The
level of awards for the Executive Directors and members of the
Operations Executive in 2012 were one times salary, based on
the Company’s share price at the date of award. Awards for
2013 will be at the same level. Awards for the Group’s senior
management are based on a specific number of shares, but
which does not exceed one times salary.
The Unapproved Share Option Plan was approved by
shareholders at the Company’s Annual General Meeting in
2002, its rules expired in April 2012 and grants were last made
in March 2008 to Executive Directors in office at that time. No
further awards can be made under that Plan. The performance
conditions for awards under the Long Term Incentive Plan and
the Deferred Bonus Plan are set out on pages 37 and 38.
Monitoring and measuring performance conditions takes place
following the end of each financial year when the Company’s
results have been audited and at the end of the relevant
performance period.
The Chairman and the Non-Executive Directors do not
participate in the Company’s long-term incentive arrangements
and consequently do not hold any share options or other
share incentives.
Awards and grants under the Group’s incentive arrangements
are within the overall flow limits advised by the Association of
British Insurers to limit potential dilution arising from the issue of
new shares. Awards vesting under the Long Term Incentive Plan
and Deferred Bonus Plan are satisfied from existing shares
through the Company’s Employee Trust.
Performance targets and vesting levels are reviewed by the
Remuneration Committee ahead of each time an award is
made to ensure that they remain sufficiently demanding and
are aligned with long-term shareholder interests.
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
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Long Term Incentive Plan
Executive Directors and other senior employees are selected
to receive awards over shares that vest in whole or in part
depending on the satisfaction of performance conditions.
For awards made before 2010 under the Plan the performance
condition was based solely on the Company’s TSR over a
period of three years, relative to a comparator group of other
companies. The comparator group comprised companies
of similar market capitalisation and having at least 50% of
their turnover arising outside of the UK. Due to the size of
the comparator group (approximately 60 in total), it is not
practical to detail it fully in this report. The Group Company
Secretary can provide this detail if required. The Remuneration
Committee reviewed the composition of the comparator group
in conjunction with its remuneration consultants annually
ahead of awards being made to ensure that they were
relevant and sufficiently demanding.
For awards made since 2010 the Remuneration Committee,
having consulted with major shareholders, decided to amend
the performance condition to provide a more meaningful
measure of performance. 50% of an award is measured based
upon TSR as described above. However, 50% of an award
is subject to growth in the Company’s adjusted earnings per
share (“EPS”)*. Each performance condition is entirely
independent from the other performance condition.
Performance condition
For that part of an award made before 2012 measured against
TSR, if the Company’s TSR performance is at the median
of the comparator group at the end of the three-year
performance period, 35% of that element of an award may
vest. The full element of an award may vest if the Company’s
TSR performance is in the top 20% of the comparator group.
There is a pro-rata straight line vesting between these two points.
For that part of an award measured against EPS* growth made
in 2010, if the percentage growth in the EPS* of the Company
exceeds the percentage growth in the Retail Price Index (RPI)
over the three-year performance period by 4% (Compound
Average Growth Rate), 35% of that element of an award may
vest. Full vesting of an award occurs if the growth in EPS*
over the performance period exceeds growth in RPI by 8%
(Compound Average Growth Rate) or greater. There is a
pro-rata straight line vesting between these two points.
An award lapses if the lower point under both performance
conditions is not achieved during the performance period
and there is no re-testing of performance under either
performance condition. The Remuneration Committee
will also consider the underlying financial performance
of the Company before it confirms vesting.
For awards made in 2011 the same performance conditions
applied as in 2010 except that the EPS* growth figures were
5% and 10% respectively.
Following consultation with major shareholders, awards made
in 2012 and going forward will have the following performance
conditions attached:
50% of an award will be subject to TSR with the Company’s
TSR performance ranked against the constituents of the
FTSE 250 index (excluding financial services companies
and investment trusts) over a three year performance period.
The constituents of the FTSE 250 index have a greater level of
complexity and internationality when compared to the previous
comparator group constituents and so are more comparable
to Vitec’s business operations where approximately 90%
of revenues are generated outside the UK. Threshold
performance for the TSR performance condition will be at
the median point of the comparator group and will result in
25% of an award vesting. Full vesting for the TSR element
will be at the upper quartile point of the comparator group.
A straight line sliding scale will operate between each of
the above points.
50% of the award will be subject to EPS* growth over a three
year performance period. For awards made in 2012 the EPS*
growth figures were set at 6% for 25 per cent vesting and
12% for full vesting. The Remuneration Committee has not
yet made awards of LTIPs to Executive Directors and senior
managers for 2013 and these will be made in the 42 day
period following the announcement of full year results on 28
February 2013. The detail of performance conditions will be
clearly set out in the announcement detailing the award made.
The Remuneration Committee takes into account market
consensus figures, advice from its corporate broker and
internal forecasts to determine that these targets are
sufficiently stretching when making awards.
Dividends that would have been paid on shares vesting under
the Long Term Incentive Plan during the performance period
are re-invested in additional shares.
There will be no re-testing of either performance condition and
the Remuneration Committee will also consider the underlying
financial performance of the Company before it confirms vesting.
TSR is calculated on the basis of growth in the Company’s
share price over a three year performance period plus dividends
paid during that period and is expressed as a percentage of
average compound annual growth. Share price performance
is averaged over three months at the start and end of a
performance period to eliminate volatility that may result in
anomalous outcomes. The TSR performance is independently
verified by Deloitte on behalf of the Committee and is ranked
against the comparator group companies’ TSR performance
to determine the outcome.
EPS* is determined in accordance with note 2.5 of the
Financial Statements.
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
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Deferred Bonus Plan
Executive Directors and members of the Operations Executive
are required to defer a proportion of any after tax cash bonus
in exchange for receiving a Core award over shares in the
Company with a value equivalent, at the date of award, to the
amount of the deferred bonus. For bonuses earned in 2011,
or before, a minimum of 20% of bonus for Executive Directors
and 15% of bonus for the Operations Executive members was
required to be deferred. However, subject to the discretion of
the Remuneration Committee, the executive could voluntarily
decide to defer a higher proportion up to a maximum of 100%
of any bonus paid under the annual bonus scheme. Both
Stephen Bird and Paul Hayes have deferred 100% of their
annual bonuses earned in 2011 and before. For bonuses earned
in 2012 and onwards Executive Directors must mandatorily
defer 50% of any after tax bonus earned into the Plan. There
is no discretion to defer any more or less. A Core award may,
in normal circumstances, be exercised by a participant after
two years. If exercise is deferred for three years, the executive
remains employed by the Group, and subject to satisfaction
of the performance conditions, the participant is entitled to
receive a Matching award of additional shares up to the number
comprised in the Core award. Dividends that would have been
paid on the Core award of shares and the actual Matching
shares that vest during the performance period are re-invested
in additional shares.
Performance condition
For awards under the Plan made before 2010, if the executive
remains in employment for three years, and if in that period
the Company’s Total Shareholder Return (“TSR”) relative to a
comparator group of other companies is at median, or above,
of the comparator group, the deferred Core shares will be
matched at the rate of:
• One Matching share for every three Core shares at median
performance; and
• One Matching share for every one Core share within the top
20% performance.
• If performance is below the median then no Matching awards
will be given and the participant will receive only their Core
award shares and associated dividend shares.
There will be pro-rata straight line vesting between these points.
The comparator group comprises the same group used for the
Long Term Incentive Plan.
For awards under the Plan made since 2010 the performance
condition has changed to the same as applies to the Long Term
Incentive Plan for that respective year. There is no re-testing of
performance under either performance condition.
Clawback
A clawback policy applies to any award made under the Annual
Bonus Plan, Long Term Incentive Plan or Deferred Bonus Plan
from 2011 onwards. Under the policy any Executive Director
or senior executive found to have benefited from an award due
to inappropriate behaviour, including material misstatement,
misconduct, or a material ethical breach against the Company’s
Code of Business Conduct may have the after-tax value of that
award clawed back.
Sharesave Scheme and International Sharesave Plan
The Group operates a savings-related share option scheme in
the UK and a similar international plan in respect of overseas
employees in certain countries. The scheme and plan are open
to all the Group’s employees in those countries, including the
Executive Directors. Under the scheme and plan, participants
contract for either a three or five year term (two years in the
US) to save a set amount each month (up to £250 maximum or
equivalent in local currency) in return for which they are granted
an option over a specified number of shares. The price of the
option is fixed at the date of grant and, in the UK, has a 20%
discount to the market price. In other countries the discount
applied is either the same or less to reflect local regulations.
At the end of the savings period, participants may exercise
their options to buy shares in the Company using their savings.
Exercise is not subject to any performance condition. Invitations
under the Group’s Sharesave arrangements are usually made
annually and these are planned to continue.
The existing rules for the scheme and plan were approved by
shareholders at the AGM in May 2011 and will expire in May 2021.
Service Contracts
Stephen Bird, aged 52, was appointed a Director and Group
Chief Executive of the Company on 14 April 2009 and is
employed under a service contract dated 28 January 2009.
Paul Hayes, aged 46, was appointed a Director and Group
Finance Director of the Company on 13 June 2011, and is
employed under a service contract dated 3 June 2011.
The notice period by the Company to the employee is twelve
months and notice by the employee to the Company is six
months. The terms of the service contracts do not provide for
pre-determined amounts of compensation in the event of early
termination by the Company. The Remuneration Committee’s
policy in the event of early termination of employment is to
mitigate compensation to the fullest extent practicable.
This means that base salary and benefits (including pension)
will be paid for the notice period subject to being mitigated if
the executive secures other suitable employment. Entitlement
to any annual cash bonus in the event of early termination will
be subject to consideration by the Remuneration Committee
around the nature of the termination, period served during the
financial year and achievement of financial targets and personal
objectives allied to the Annual Bonus Plan. Long-term incentive
awards under the Long Term Incentive Plan and Deferred Bonus
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
The Vitec Group plc Five year Total Shareholder Return performance
2008-2012
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31 Dec
2007
31 Dec
2008
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
FTSE Small Cap
FTSE All-Share Media
FTSE Industrial Engineering Index
The Vitec Group plc
To produce a ‘fair value’ each point is a 30 trading day average
of the indices. TSR data is taken from Datastream.
TSR comprises share price growth plus dividends paid over a
three year period and is expressed as a percentage of average
compound annual growth.
£
300
250
200
150
100
50
0
Plan will be subject to consideration by the Remuneration
Committee at the time of an early termination to consider the
circumstances around the early departure. Generally, such
awards will be pro-rated to the date of departure and will
remain subject to the satisfaction of performance conditions
in the normal time frame.
Both service contracts for Stephen Bird and Paul Hayes are
available for inspection at the Company’s registered office
and through the Group Company Secretary.
Chairman and Non-Executive Directors
The Chairman and Non-Executive Directors do not have
service contracts but serve under letters of appointment.
The initial period of their appointments is three years but their
appointments may, by mutual consent, and with the approval
of the Nominations Committee and the Board, be extended for
a further three years. Appointments may be extended beyond
six years by mutual consent, and with the approval of the
Nominations Committee and the Board, if it is in the interest
of the Company to do so.
Annual General Meeting
This Remuneration Report will be put to an advisory vote at the
Company’s AGM to be held on 15 May 2013. Details of the
venue and business to be considered at the AGM is given in
the Notice of Meeting that accompanies this Annual Report.
The 2011 Remuneration Report was put to an advisory
vote at the AGM held on 8 May 2012. The resolution was
passed on a show of hands. 98.4% of proxy votes received
voted in favour of the 2011 Remuneration Report.
Five-year share price performance
Under the requirements of the Directors’ Remuneration
Report Regulations 2002, the Company is required to include
a graph showing the Company’s performance compared
to an appropriate index over a five year period. The graph
illustrates the Company’s annual TSR (share price growth plus
dividends that have been declared, paid and re-invested in
the Company’s shares) relative to the FTSE Small Cap, FTSE
All-Share Media and FTSE Industrial Engineering Index for the
preceding five year period, assuming an initial investment of
£100. These indices have been chosen for the purpose of the
Directors’ Remuneration Report Regulations 2002 since they
are a suitably broad-based equity market index.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
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The following information on pages 40 to 43 has been audited
by the Company’s auditor, KPMG Audit Plc.
Directors’ remuneration
Chairman and Non-Executive Directors
John McDonough, who was appointed a director on 15 March
2012 and became Chairman on 1 June 2012, is paid a fee of
£140,000 per annum. His predecessor, Michael Harper, who retired
as Chairman on that date was paid a fee of £120,000 per annum.
The fee payable to the other Non-Executive Directors is £40,000
per annum. Fees were last increased in June 2010. Fees for the
Chairman, Non-Executive Directors, Committee Chairmen and
Senior Independent Director roles are reviewed annually by the
Board with the support of Deloitte providing market data to
ensure that fees remain appropriate given time commitment
and the need to attract the right experience for the role. There
is no commitment to increase fees annually. The Chairman and
Non-Executive Directors do not receive any other benefits from
the Company.
The Chairmen of the Remuneration Committee and the Audit
Committee, Simon Beresford-Wylie and Nigel Moore respectively,
receive an additional fee for their services as chairmen of those
Committees. Simon Beresford-Wylie receives an additional
£5,000 per annum and Nigel Moore receives an additional
£8,000 per annum. An additional fee of £5,000 is also paid to
the Senior Independent Director, Nigel Moore. The fees for the
Chairmanship of the Remuneration and Audit Committees were
approved in August 2008 and remained unaltered in 2012.
The fee for the role of the Senior Independent Director was last
increased in July 2011 to reflect work associated with the role.
Stephen Bird, Group Chief Executive
Stephen Bird, Group Chief Executive, currently receives an
annual salary of £399,289, increased from £389,550 with effect
from 1 January 2013 (an increase of 2.5%). Stephen Bird is not
a member of the Group Personal Pension Plan, but receives
a contribution of 20% of his basic salary in the form of an
alternative pension contribution. Stephen Bird was paid a bonus
of £386,434 in respect of 2012 based upon an assessment of
the achievement of financial and personal objectives for 2012.
This represented 79.3% of the maximum bonus potential.
The financial objectives represented 70% of the bonus and
comprised Group profit before tax* representing two thirds of
the financial objectives total and Group working capital to sales
targets representing one third of the financial objectives total
measured against the 2012 budget. The operation of the 2012
Annual Bonus Plan is summarised on page 35.
The Group profit before tax* element was 97.2% achieved and
the Group working capital to sales element was 30% achieved.
30% of the bonus was measured against personal objectives
set by the Board and included:
• Development of a world class senior management team;
• Evaluating the strategic options for the Staging business and
executing on conclusions;
• Responding to economic conditions including good market
intelligence and contingency plans for key businesses;
• Delivery on Manfrotto strategic objectives including
development of management team, market share and
innovative products; and
• Corporate activity including integration of Lastolite and
Haigh-Farr, successful acquisition and integration of Camera
Corps and succession around the role of Chairman.
These personal objectives were 90% achieved.
50% of the after tax bonus for 2012 will be mandatorily deferred
into the Deferred Bonus Plan.
Stephen Bird will be eligible for a performance related bonus
based on the Company’s financial performance and personal
objectives for the year ending 31 December 2013 of up to
125% of base salary.
On 16 April 2012 Stephen Bird received 200,286 shares from
the vesting of an award made to him in April 2009 under the
Long Term Incentive Plan that fully achieved the stretching TSR
performance condition. In addition, he received associated
dividend shares totaling 16,650 shares. Over the three year
performance period, the Company’s TSR was 229%, leading
to the Company being ranked 6th out of a comparator group
of 46 companies and resulting in full vesting. The Company’s
share price when the award was made in 2009 was £1.75 per
share and on vesting in April 2012 was £6.60. The Committee
considers this outcome consistent with the strong underlying
financial performance of the Company over this period and
that full vesting was appropriate.
Paul Hayes, Group Finance Director
Paul Hayes, Group Finance Director, currently receives an
annual salary of £274,495 increased from £267,800 with effect
from 1 January 2013 (an increase of 2.5%). Paul Hayes is not
a member of the Group Personal Pension Plan, but receives
a contribution of 20% of his basic salary in the form of an
alternative pension contribution. Paul Hayes was paid a bonus
of £267,298 in respect of 2012 based on an assessment of
the achievement of financial and personal objectives for 2012.
This represented 79.8% of the maximum bonus potential.
The financial objectives represented 75% of the bonus and
comprised Group profit before tax* representing two thirds of
the financial objectives total and Group working capital to sales
targets representing one third of the financial objectives total
measured against the 2012 budget. The operation of the 2012
Annual Bonus Plan is summarised on page 35. The Group
profit before tax* element was 97.2% achieved and the
Group working capital to sales element was 30% achieved.
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
The Vitec Group plc 41
The table below sets out the beneficial interests in the
Company’s ordinary shares of the Executive Directors as at
1 January 2012 and changes throughout the year ended
31 December 2012:
Director
Stephen Bird
Shareholding
1 January
2012
95,323*
Shareholding
Requirement
100% of
base salary
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Shareholding
assuming share
price of
£6.3525 as at
31 December
2012
£803,534
(representing
201% of
1 January 2013
base salary)
£208,653
(representing 76%
of 1 January 2013
base salary)
Shareholding
31 December
2012
126,491*
32,843**
25% of the bonus was measured against personal objectives
set by the Board and included:
• Renegotiation of the Group’s Revolving Credit Facility;
• Review of strategic options for the Staging business and
execution on conclusions;
• Execute internal tax initiatives;
• Development of supply chain strategy;
• Contingency plans and key indicators with robust plans
of action;
• Further embed risk assurance programme and de-cluttering
of financial statements; and
• Streamline reporting and improve focus on measures that
Paul Hayes
100% of
base salary
24,000
drive performance.
* Includes 77,821 shares and 54,875 shares (as at 31 December 2012 and
1 January 2012 respectively) purchased in the market using funds supplied by
Stephen Bird and held by the Employee Benefit Trust, in respect of awards made
under the Vitec Group 2005 Deferred Bonus Plan.
** Includes 8,843 shares (as at 31 December 2012) purchased in the market
using funds supplied by Paul Hayes and held by the Employee Benefit Trust,
in respect of awards made under the Vitec Group 2005 Deferred Bonus Plan.
There have been no other changes to these beneficial interests
between 31 December 2012 and the date of this report.
During the year ended 31 December 2012 the Company’s
share price reached a high of 740 pence and a low of
547 pence.
These personal objectives were 95% achieved.
50% of the after tax bonus for 2012 will be mandatorily
deferred into the Deferred Bonus Plan.
Paul Hayes will be eligible for a performance related bonus
based on the Company’s financial performance and personal
objectives for the year ending 31 December 2013 of up to
125% of base salary.
Richard Cotton
Richard Cotton, appointed a Director on 3 November 2008
under a service contract dated 17 September 2008, ceased
to be a Director and an employee of the Company on 4
February 2011. Under the terms of his severance package
and in accordance with the terms of his service contract the
Company made 12 monthly payments of salary and pension
contributions and he also received:
• 12 monthly payments of £400 per month in lieu of Private
Health Insurance;
• A contribution of £5,621 for private healthcare cover;
• A Company car with a value of £20,000; and
• Outplacement support up to a value of £30,000.
He also received Long Term Incentive Plan and Deferred
Bonus Plan awards pro-rated to the date of departure and
subject to the satisfaction of performance conditions on the
third anniversary of each respective award. During the year
ended 31 December 2012, Richard Cotton received the
following payment from the Company in accordance with
the vesting of an LTIP award:
On 16 April 2012 Richard Cotton received 87,426 shares
from the vesting of an award made to him in April 2009 under
the Long Term Incentive Plan and that had fully achieved
performance conditions. In addition, he received associated
dividend shares totaling 7,268 shares. The Committee
considers this outcome consistent with the strong underlying
financial performance of the Company over the performance
period as described for Stephen Bird above.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
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Remuneration Report
Detailed Audit Disclosures
Details of the directors’ remuneration and share incentives for 2012 with comparatives for 2011 are set out in the following tables.
All of these tables have been audited by KPMG Audit Plc.
Directors’ remuneration
Director’s name
Chairman
Salaries and
fees
Benefits (1)
Performance
related
annual bonus
Long-term
incentives
Pension
related
remuneration
2012
£
2011
£
2012
£
2011
£
2012
£
2011
£
2012
£
2011
£
2012
£
2011
£
2012
£
Total
2011
£
John McDonough
(appointed on 15 March 2012)
111,364
-
Former Chairman
Michael Harper
(until 1 June 2012)
Executive Directors
50,000 120,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 111,364
-
- 50,000 120,000
Stephen Bird
389,550 371,000 26,519
25,414 386,434 323,816 1,431,778
- 77,910
74,200 2,312,191 794,430
267,800 143,890 21,879
9,113 267,298 124,797
-
- 53,560
28,778 610,537 306,578
Paul Hayes
(appointed on 13 June 2011)
Richard Cotton
(left on 4 February 2011)
Non-Executive Directors
28,393 265,000
400
60,421
Simon Beresford-Wylie
45,000
45,000
Nigel Moore
Maria Richter
Will Wyatt
(until 19 May 2011)
53,000
50,753
40,000
40,000
-
16,071
John Hughes
(appointed on 11 March 2011)
40,000
32,438
Carolyn Fairbairn
(appointed on 1 February 2012)
36,666
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 624,980
-
5,048
53,000 658,821 378,421
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 45,000
45,000
- 53,000
50,753
- 40,000
40,000
-
-
16,071
- 40,000
32,438
- 36,666
-
Total
1,061,773 1,084,152 48,798
94,948 653,732 448,613 2,056,758
- 136,518 155,978 3,957,579 1,783,691
(1) The principal benefits are a Company vehicle cash allowance, medical insurance, permanent health insurance and life assurance.
Directors’ long-term incentives
1 January
2012
(shares)
Date of
grant
Options
At exercised
during
year
(shares)
May 2009
Sept 2012
6,984
-
6,984
-
Directors’
share options
Stephen Bird
Sharesave options
Paul Hayes
Sharesave options
Sept 2012
-
-
Total
6,984
6,984
Options
lapsed
during
year
(shares)
-
-
-
-
Options
granted
At 31
during December Exercise
price
(pence)
2012
(shares)
year
(shares)
Market
price at
exercise Date from
which
(pence) exercisable
date
Expiry
date
-
1,657
-
1,657
131
543
648.5
Jul 2012 Dec 2012
- Nov 2015 Apr 2016
1,657
3,314
1,657
3,314
543
- Nov 2015 Apr 2016
The Vitec Group plc
43
Awards
lapsed
during
the year
(shares)
Awards
made
At 31
during December
2012
(shares)
the year
(shares)
Market
price at
award
date
(pence)
Market
price at
exercise
date
(pence)
-
-
-
58,124
-
94,619
62,352
58,124
175
381
595
674
660
-
-
-
39,958
39,958
674
-
R
E
M
U
N
E
R
A
T
I
O
N
R
E
P
O
R
T
-
-
-
20,650
175
381
660
-
98,082
275,703
-
-
-
-
-
-
-
-
Awards under the
Long Term Incentive Plan
Date of
award
Stephen Bird
Awards at
1 January
2012
(shares)
exercised
Awards Associated
dividend
during shares with
exercised
awards
the year
(shares)
Apr 2009
Mar 2010 (1)
Mar 2011
Apr 2012
200,286
94,619
62,352
-
200,286
-
-
-
16,650
-
-
-
Apr 2012
-
-
-
Paul Hayes
Richard Cotton
(left on 4 February 2011)
Apr 2009
Mar 2010 (1)
87,426
20,650
87,426
-
7,268
-
Total
465,333
287,712
23,918
(1) The Long Term Incentive award made in March 2010 has achieved 92.4% of its performance condition based on TSR and EPS* growth. 92.4% of
awards will therefore vest in 2013.
Awards under the
Deferred Bonus Plan
Stephen Bird
Paul Hayes
Richard Cotton
(left on 4 February 2011)
Total
Awards at
1 January
2012
(shares)
Awards
exercised
during
the year
(shares)
Awards
lapsed
during
the year
(shares)
Awards
made
At 31
during December
2012
(shares)
the year
(shares)
Market
price at
award
date
(pence)
Market
price at
exercise
date
(pence)
Date of
award
Mar 2010
Core
Matching (1)
Mar 2011
Core
Matching (1)
Apr 2012
Core
Matching (1)
Apr 2012
Core
Matching (1)
26,185
26,185
28,690
28,690
-
-
-
-
Mar 2010
Matching (1)
5,569
115,319
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26,185
26,185
28,690
28,690
22,946
22,946
22,946
22,946
8,843
8,843
8,843
8,843
385
385
608
608
677
677
677
677
-
5,569
385
63,578
178,897
-
-
-
-
-
-
-
-
-
(1) There is a performance condition attached to the Matching awards that is detailed on page 38. For the purposes of this table and footnotes, where
the award has not yet been finally performance tested, 100% vesting is assumed. The Deferred Bonus Plan award made in March 2010 has achieved
92.4% of its performance condition based on TSR and EPS* growth. 92.4% of Matching awards will therefore vest in 2013.
Performance conditions associated with the Long Term Incentive Plan and Deferred Bonus Plan are set out on pages 37 and 38.
Other than as disclosed in the table footnotes, there have been no other changes to these interests in the period from 31 December
2012 to 27 February 2013.
Approved by the Board of Directors on 27 February 2013 and signed on its behalf by:
Jon Bolton
Group Company Secretary
* In 2012 and 2011 before charges associated with acquired businessesand disposal of business.
In 2010 and 2009 before significant items.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
44
Corporate Responsibility
Stephen Bird confirms Vitec’s
commitment to corporate responsibility
Our corporate purpose is to provide vital products and services that support the
capture of exceptional images. To do this we operate with the following values:
> Product excellence – everything we make and do is exceptional
> Creative solutions – we are constantly looking to break new ground
> Integrity – what you see is what you get
> Customer focus – we are nothing without our customers
> Collaboration – we work better when we work together
Our corporate responsibility efforts are to protect our reputation and the value of our
business. Corporate responsibility is central to sustainable growth and we recognise
that our stakeholders increasingly consider corporate responsibility matters in decision
making about whether to invest in Vitec or to buy our products and services. The
Board has overall responsibility for corporate responsibility matters and has formally
approved our Code of Business Conduct and our Environmental Policy. Both of
these are available on our web site.
We reported in 2011 the setting up of a Group-wide team of representatives from
each Division and the Head Office to co-ordinate the Group’s corporate responsibility
activity. This team includes the Group Company Secretary, the Group Head of
Strategic Projects and Divisional HR and operations representatives. The work of
this team has continued throughout 2012 with meetings held on a monthly basis
by telephone or video conference to share corporate responsibility practices
being undertaken at business unit and Divisional level as well as championing
Group-wide initiatives.
In 2012 we focused on two key Group-wide priorities. Firstly, to encourage our
employees to consider adopting healthier lifestyles through a project known as
Good3 and, secondly, the environment and efforts to accurately record and reduce
our carbon footprint. Progress against each is given under the Environment and
Employees sections. The work of the team is reported to the Operations Executive
on a monthly basis through the Group Head of Strategic Projects or the Group
Company Secretary and it will continue to develop the Group’s corporate
responsibility activities in 2013 and beyond.
The following pages describe our 2012 corporate responsibility activities organised
in the following areas:
Business Ethics
Page 45
Employees
Page 48
Environment
Page 46
Community &
Charitable Donations
Page 51
Corporate Responsibility Report online
www.vitecgroup.com/responsibility
While our main purpose
remains the creation of
value, we are aware that
the way we do business
matters, as it can have
an influence on all of
our stakeholders.
We believe that our
corporate responsibility
efforts will engage and
motivate our employees,
add value for our customers
and protect our reputation,
benefiting the Company,
our shareholders and all
other stakeholders.
The Vitec Group plc 45
Business Ethics
Our Vision
Our Approach
Ensure our employees have a clear
understanding of what is expected
of them in conducting business in the
right way with a common set of values.
We expect our business partners to
abide by standards that are compatible
with our own
Vitec’s Board has implemented a robust
governance framework including a
Code of Business Conduct that is
communicated to all employees and
major business partners articulating our
values, beliefs and behaviours. Where
appropriate we train our employees
on key issues including bribery and
corruption and promote a whistleblowing
service as a back-up control
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Code of Business Conduct
Anti-bribery
Whistleblowing service
Our Code of Business Conduct
(Code) provides clear guidance to our
employees on how they are expected to
behave towards employees, suppliers,
customers, shareholders and on our
wider responsibility to the communities
within which we operate. The Code,
which is available on our website, sets
out our approach to business integrity
including an express prohibition on
bribery and kickbacks, guidance on
gifts and hospitality, conflicts of interest,
books and records, competition, share
dealing, human rights, respect for the
individual and privacy, diversity, health
and safety, environmental sustainability,
business partners, and charitable and
political donations.
To ensure that the Code is understood
by our employees, each employee has
been given a copy and all new starters
are provided with a copy. When new
businesses have been acquired the
Code has been rolled out to employees
in those new businesses to ensure that
a common Group-wide approach to
business ethics is in place.
All employees are expected to comply
with the Code and any violations of it
are to be reported to local management
or the Group Company Secretary
for investigation.
We have continued with the
development of our employees’
understanding of anti-bribery and
corruption as reflected in our Code
of Business Conduct. To date, over
500 employees have undertaken an
online training module (also translated
into Italian, German and Japanese)
including the Board of Directors,
Operations Executive, senior executives
and customer-facing employees
covering anti-bribery and corruption.
All participants were required to
complete the module and to take a test
on the issues covered by the training.
All new starters who fit into this group
of employees are required to undertake
the training and our aim is to further
develop the training in 2013 to build
upon employees’ understanding and
knowledge of this issue.
During 2012 we communicated our
Code of Business Conduct on a
risk-based approach to our major
suppliers, customers, agents and
distributors with an express prohibition
on bribery. We have either secured their
agreement with the terms of the Code
or secured evidence of their own ethics
procedures including an express
prohibition on bribery.
We operate an independent
whistleblowing service in conjunction
with Expolink. This service enables any
employee or third party who feels that
the normal reporting channels through
line management are not appropriate,
to confidentially report any issues around
dishonesty, fraud, bribery, malpractice,
bullying, unfair treatment, unsafe working
practices or other contraventions of our
Code. All such reports are notified to the
Group Company Secretary, the Group
Chief Executive and the Chairman of the
Audit Committee and are independently
investigated by senior management who
are not connected to the report. The
outcome of investigations is reported to
the Chairman of the Audit Committee.
The service will be re-communicated to
our employees in 2013 to ensure that
it remains visible and understood. The
service is introduced to all employees of
new businesses on acquisition. During
2012 all whistleblowing reports were
investigated with remedial actions
undertaken where necessary.
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
46
Corporate Responsibility
Environment
Our Vision
Our Approach
Become increasingly environmentally
friendly without impacting our
competitiveness
We are creating a “green culture” by
adopting technologies, materials and
processes that will have the lowest impact
on the environment
Vitec’s products and processes
Vitec’s green practices
In 2012 we continued to implement initiatives aimed at
sustaining and protecting the environment, in the areas of
research and development, production, packaging and
waste disposal.
As part of our commitment to responsible business practices,
in 2012 we implemented initiatives aimed at reducing energy, paper
and water use, encouraging recycling and proper waste disposal
and promoting a culture of sustainability among our employees.
By their very nature, our products and services have a low
impact on the environment: we use low-hazard materials;
we minimise the use of resources during the manufacturing
process; and we search for materials that are sustainable
and can be recycled and re-used.
Our efforts and environmental awareness have continued to
evolve, not only to comply with regulations but also to make
our business better. By putting in place a proper environmental
management system we are reducing operating costs and
business risks, while ensuring sustainability.
An example of how innovation and technology play a critical role
in helping reduce the impact on the environment is LED lighting,
which is produced by Litepanels and Manfrotto. LED technology
has significant benefits over traditional lighting as LED lights last
ten times longer than a regular incandescent bulb and are four
times more energy efficient. The dramatic cut in the amount of
energy used translates to financial savings for users along with
creating a cleaner environment.
IMT has been working to standardise its product line in an
environmentally friendly way to comply with the most strict
environment regulations at a worldwide level. It has also
instituted a recycling plan for expired batteries and light bulbs.
These are collected and disposed of with authorised recyclers.
We monitor and track our usage of gas, electricity and water
across our manufacturing, warehouse and administrative sites
and make efforts, where possible, to reduce our usage both in
terms of reducing costs and impact on the environment. Many
buildings within the Group have timer and motion sensors for
lighting to save on electricity usage. Other buildings have
programmable thermostats that are centrally managed to optimise
the building’s heating and cooling needs, therefore maintaining
a steady temperature.
The electricity contracts with Green Certificates at the Italian sites
were renewed in 2012, confirming the commitment to use energy
generated by renewable sources. Our Mount Olive, New Jersey,
site also acquired 50% of its energy from renewable sources
throughout the year.
The Group’s gas, electricity and water usage per £million of Group
revenue over the last five years is set out below.
Our gas usage
Gas - mega watt hours / £m revenue
30.00
25.00
20.00
15.00
10.00
5.00
25.5
25.4
25.1
20.3
18.7
2008
2009
2010
2011
2012
Our electricity usage
Electricity - mega watt hours / £m revenue
37.0
35.2
37.5
35.2
35.7
40.00
30.00
20.00
10.00
Environmental Policy online
www.vitecgroup.com/environmental_policy
2008
2009
2010
2011
2012
The Vitec Group plc 47
LED lights produced by Litepanels and Manfrotto
last ten times longer and are four times more energy
efficient than regular bulbs resulting in financial
savings for users and a cleaner environment.
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Our water usage
Water - cubic metres / £m revenue
0.11
0.10
0.10
0.08
0.08
0.12
0.10
0.08
0.06
0.04
0.02
2008
2009
2010
2011
2012
Our sites in Bassano and Feltre in Italy have had their
ISO 14001 status renewed in 2012, confirming that these
operations have designed and implemented effective
environmental management systems in place. The Bury
St Edmunds site undertook a GAP analysis and internal
assessment of the requirements of the ISO 14001 standard
with the aim of achieving the certification.
Offices and manufacturing sites have waste recycling points
to enable the sorting of waste into different recycling streams
(paper, glass, plastics and general). At our main manufacturing
sites in the UK, Italy and Costa Rica, we carefully manage the
recycling of machine shop swarf arising from the manufacturing
process. In 2012 a total of 214.5 tonnes of waste metal were
recycled at the three sites, including aluminium, steel, brass,
bronze, iron and magnesium. The manufacturing sites in
Italy and Costa Rica sites also managed the recycling of
90.7 tonnes of paper and plastic. The recycling largely
covers the cost of waste management at our main sites.
This Annual Report is produced using vegetable-based inks
and materials approved by The Forest Stewardship Council.
We also encourage our shareholders to receive the Annual
Report electronically thereby saving on production and
distribution resources and costs.
Most of the Group’s operating sites including the Head Office,
Divisional head offices and business units have video
conference facilities in place enabling employees to video
conference with both internal and external parties and to
optimise the need for business travel.
Vitec objectives and future plans
Over recent years we have made progress in energy efficiency
and the use of renewable energy where practical. However,
being aware that the environment presents many cost,
regulation and reputational risks, our aim for the future is to
develop a clear environmental plan, set up a rigorous reporting
system to capture data in a consistent way across the whole
Group and to identify opportunities for cost and energy reduction.
In the second half of 2012 we undertook a project to capture the
Group’s greenhouse gas emissions. This is partly in recognition of
the forthcoming need for listed companies to mandatorily report
on carbon emissions anticipated to come into effect in 2013.
We engaged the Carbon Trust on this project to capture Scope 1
and 2 emissions from 23 of our major operating sites using 2011
as a baseline year and, having set up that reporting system, have
extended the capture of emissions for 2012. Apart from enabling
the reporting of emissions, this information will give the Group
data to enable it to identify potential cost savings.
Results for carbon reporting using 2011 data give an overall
carbon footprint (Scope 1 and 2) of 8.5 kt CO2e (intensity ratio
of 24 tonnes CO2e/£m of revenue). This covered the principal
operations of the Group and is indicative at this stage, with
the quality of data being verified to ensure that compliance
with mandatory reporting is achievable. Scope 2 emissions
(purchased electricity) were the largest contributor to the
Group’s emissions. Results for 2012 give an indicative overall
carbon footprint (Scope 1 and 2) of 8.3kt CO2e (intensity ratio
of 24 tonnes CO2e/£m of revenue).
Potential areas of saving have been identified through two
specific audits completed by specialists in our larger production
sites in the UK and Italy. These include energy efficient lighting,
staff awareness, regular maintenance programmes,
optimisation of machinery and equipment switch off and
optimisation of control around air conditioning. Associated
capital requirements and payback periods are being assessed
to identify the best opportunities to pursue, balancing the need
to deliver on other business priorities in 2013 and beyond.
We will continue to work towards improving the quality of data
to enable external verification of the Group’s greenhouse gas
emissions and will also consider the opportunity to set targets
around the Group’s carbon footprint. We will report on
progress towards these in the 2013 Annual Report.
Progress versus 2011
> Co-ordinated Group efforts to reduce emissions versus
>
Improved measurement and reporting
fragmented initiatives
>
Improved process management, through Group-wide
monthly calls and regular updates to the Group Chief
Executive
> Appointment of Carbon Trust to support the Group in the
process around the capture and reporting on greenhouse
gas emissions
Annual Report & Accounts 2012DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS
48
Corporate Responsibility
Employees
Our Vision
Our Approach
Be a responsible employer providing
attractive opportunities for our people
to develop
We are attracting and engaging a
committed workforce, ensuring diversity
and non-discrimination
Our people are a key asset for the Group
We are fully aware that our employees are critical for the success of the business. Passionate, motivated, skilled employees
in a good working environment can directly contribute to our strategy, performance and reputation.
In 2012 we continued to focus time and resource on our employees, hosting initiatives on subjects such as wellbeing,
engagement and training events.
In recognition, in early 2013 Vitec’s Italian sites, covering approximately 600 employees, were awarded the “Top Employers”
certification by the CRF Institute for their high employment standards. All critical areas of HR processes were assessed
including benefits, working conditions, training and development, career development and company culture.
In 2012 the Imaging Division launched a new communication
initiative on HR matters to its employees: People Focus.
Its objective is to enable employees to clearly identify and
engage with all the programmes that form part of the culture of
working at Vitec, including wellness, engagement, development,
working environment and team building. The goal is to share
best practices and extend the visual approach in engaging
employees with the other Divisions, creating a co-ordinated
Group-wide programme.
During 2012 the Manfrotto School of Xcellence programme –
www.manfrottoschoolofxcellence.com – continued, providing
employees with training on photography and on the world of
imaging. The programme involves professional photographers
and educates employees about capturing excellent images.
This involved over 80 employees in 2012, with 17 seminars
on each aspect over the course of the year.
Engagement
Internal Communication
Our strategy is to provide an engaging and stimulating
environment where our employees want to develop and feel
part of a collaborative, global community. We communicate
with our employees on a regular basis, keeping them informed
on business performance at a Group, Divisional and business
unit level.
During the year all employees received two global
communication webcasts from the Group Chief Executive
focusing on strategy, priorities, results and key events for 2012.
In March 2012 a Management Conference took place in
London, involving the senior managers across the Group
covering strategy, results, main achievements and team
building activities. As part of this the Group Chief Executive
gave recognition awards to the best performers in different
areas based on our Group values. The conference outcome
was circulated to all employees via staff meetings and a
dedicated website.
Apart from Group level communications, employees receive
briefings on performance and business issues on a regular
basis from Divisional and business unit senior management.
This takes the form of company newsletters, breakfast meetings
with Divisional management, quarterly business updates and
via Divisional intranet sites.
Working at Vitec
www.vitecgroup.com/working_at_vitec
The Vitec Group plc 49
1 A Manfrotto School of Xcellence
event with employees
2 The logo of the Vitec
wellness programme
1
2
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The Operations Executive reviews health and safety
performance every month, discussing any incidents of note
and supports the Divisions in the management of local health
and safety committees and the implementation of regular
training activity. The Board is regularly updated on health
and safety performance by way of monthly reports and at
Board meetings. Employees receive training on health and
safety procedures that are appropriate to their line of work
and environment. This may, for example, involve training
in warehouse operations, DSEAR, working at heights,
fire safety or more general initiatives to make employees
aware of the dangers that can be encountered in the
execution of their various duties.
In Italy an awareness campaign called “Are you working
safely?” was launched in the offices and plants, comprising
short monthly tips on a specific health and safety subject
posted on employee notice boards. Imaging Italian sites
had the OHSAS 18001 occupational health and safety
certification confirmed in 2012.
Good3
The ‘Good3’ project, launched in 2011 in the Group’s
Imaging sites, continued throughout 2012.
The programme was developed to help employees to stay
healthy, by providing them with training and tools to develop
good habits in the areas of diet, exercise and the prevention
of illnesses. Within Imaging this involved healthy eating
initiatives and discounted membership rates for employees
at two local sports centres.
Videocom started to plan Good3 activities in 2012, hosting
health-related talks to employees by an occupational health
provider. The topics covered were smoking and
healthy eating.
The intention is to extend Good3 initiatives across the Group.
Wellbeing
Health and Safety
The provision of a healthy, safe and productive work environment
for all our employees is a priority for Vitec, for which all our
management and employees are held accountable.
In 2012 we continued to impress the need for excellent
health and safety procedures and the Group’s Health and
Safety Policy was updated. This will be re-issued in 2013
and is available on the Group website. This policy sets
the Group-wide guidelines for the prevention of accidents
and work-related ill-health and provides guidance for the
adequate control of health and safety risks arising from
work-related accidents.
All accidents, whether they result in absence from work or not,
plus near misses, are reported and remedial action identified
and implemented to prevent such occurrences in the future.
Reporting is prompt with any accident resulting in over three
days absence reported to senior Divisional management
as well as the Group Chief Executive as soon as possible.
Our six year accident record is shown below, which details
the number of accidents resulting in over three days’
absence from work across the Group.
Our six year accident record
2012
6 accidents
representing 288 accidents per 100,000 employees
2011
8 accidents
representing 390 accidents per 100,000 employees
2010
10 accidents
representing 525 accidents per 100,000 employees
2009
10 accidents
representing 511 accidents per 100,000 employees
2008
16 accidents
representing 723 accidents per 100,000 employees
2007
20 accidents
representing 976 accidents per 100,000 employees
There have been no work related fatalities since the Group
began collating Health & Safety statistics in 2002.
Health & Safety Policy
www.vitecgroup.com/health_and_safety
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50
1 New Manfrotto Distribution US
headquarters
2 Costa Rica manufacturing plant
3 The Vitec Shopping Card and
retailers’ guide
1
2
3
Working Environment
We continue to invest in improving the work environment for
our employees, creating contemporary spaces with upgraded
technology and communication systems that enable collaboration
and personal efficiency. In 2012, the Group relocated employees
in the US and Japan into new premises and is also in the
process of relocating its Manfrotto Lighting and Manfrotto
Distribution UK businesses into a combined site in the UK.
The Group has developed a shared management web-site
called The Hub that contains training materials for senior
management. The Hub has focused on the core business
priorities of building the right organisation, developing commercial
acumen, operational excellence and working together. A range
of training modules and materials within each priority is available
and senior management are required to undertake modules to
develop their knowledge of the key priorities.
Benefits
We employ around 1,900 employees in 12 different countries
who are managed in accordance with local employment
legislation, policies and our organisational values. Attracting the
talent we need and retaining their commitment to our organisation
in all of the territories in which we operate has required the
organisation to commence an assertive approach to our benefits
packages in order to support our employees and to remain
competitive in a global market where talent is in short supply.
In the US our employees participate in a consolidated Health
Benefits Plan that provides a valued level of healthcare.
Similar plans are offered to employees in other territories.
Employees are provided with the option to join pension plans
appropriate to local markets and in the UK this involves a Group
Personal Pension Plan with minimum employer and employee
contributions and in the US a 401k plan.
Employees in the UK, US, Italy, Costa Rica, Israel and Germany
are further given the opportunity to join a Sharesave scheme on
an annual basis, enabling the employee to save a fixed amount
each month to purchase shares in the Company at a discounted
rate. Following the successful maturity of the 2009 offer to nearly
250 employees in the summer of 2012 we offered Sharesave
or an equivalent plan to all employees in these countries in
August 2012. Over a third of eligible employees took up the
offer showing a good level of interest in this benefit.
As part of the People Focus activities in Imaging’s Italian sites,
a new Vitec Shopping Card was launched at the end of 2012.
The card allows employees to benefit from special prices on
food, drinks, travel, clothing, sport, cinema and medicine
through agreements with local retailers. These discounts of up
to 50% help employees to increase their purchasing power.
Capability/development
Learning and development activity continued to take place in our
businesses in accordance with the personal development plans
put in place in 2010, results of annual performance appraisals
and organisational need. In 2011, the Organisation and Talent
Review (OTR) was introduced in order to fully understand the
organisation’s capacity and capability for achieving its strategic
plans. The OTR enables the Operations Executive to create the
leadership pipeline for its critical roles and specify the
development requirements to be offered to employees.
The performance appraisal process, in operation in each of the
Divisions, provides the opportunity for the employee to discuss
current performance and future potential with their line manager
in an objective and positive manner. The development needs
identified by the discussions will be used in 2013 to enhance
the global programme of talent development for release more
widely across the Group.
Opportunity
Vitec has an equal opportunities culture with an express
prohibition on discrimination of any kind. In 2011, Lord Davies’
report on Women on Boards was considered by the Board
leading to a reiteration of our diversity statement, which is set
out on page 55 of the Corporate Governance section and on
our website. The organisation’s current gender breakdown
is as follows:
Board of Directors
25% women, following the appointment of Carolyn Fairbairn
in February 2012; 75% men
Operations Executive
During 2012 the Operations Executive comprised 90% men
and 10% women
Senior Management
11% of the top leaders in the business are women; 89% men
Rest of Organisation
25% female; 75% male
Vitec’s approach to diversity has always been to follow a strict
policy of sourcing the best person for the role irrespective of
race, gender, age or disability. We are keen to develop further
the recruitment of talented women to the organisation at all
levels and are developing policies and procedures across the
Group to achieve this.
It is Vitec’s policy that applications for employment by disabled
persons are always fully considered, bearing in mind the
respective aptitudes and ability of the applicant concerned.
In the event of employees becoming disabled all reasonable
effort is made to ensure that their employment within the
Group continues. It is our policy that the training, career
development and promotion of disabled persons should be,
as far as possible, identical to that of all other employees.
The Vitec Group plc Corporate Responsibility
51
Community & Charitable Donations
Our Vision
Our Approach
Support the communities in which
we operate
We emphasise initiatives and projects
strongly backed by employees, that are
relevant to what we do and that can be
supported for several years
In 2012, we set specific guidelines for community and charitable donations to have a consistent Group approach.
In prior years each Division handled charitable giving on their own, reducing the positive impact of our efforts with
only local visibility of the initiatives supported.
For the whole year the Vitec Group and its subsidiaries donated £71,173 to charitable and community-based causes
(2011: £152,143).
The following are a few examples of the good work being done by Vitec in the communities within which we operate.
Kingston University Television and
Video Technology department:
The Head Office maintained its link
with Kingston University’s Television
and Video Technology department with
a donation of £2,500 in 2012. This
donation was part used to provide
further broadcast equipment including
some of the Company’s products giving
over 200 students the opportunity to use
first-hand the Company’s broadcast and
photographic equipment including Vinten,
Manfrotto and Autoscript products.
The V Foundation for Cancer
research:
Services’ Head Office supported the
13th ESPYS Celebrity Golf Classic,
which benefits The V Foundation for
Cancer Research. The Company
provided full technical system support for
a total value of approximately £7,100
and donated £6,100 to the event.
(www.jimmyv.org); (www.espygolf.com)
Orto in Condotta:
Imaging’s Head Office sponsored a three
year educational project for primary
schools in the area of Bassano del
Grappa on sensory, consumer and
environmental education, as well as
lessons on food culture and gardening.
The project was developed and
sponsored by Slow Food Italy.
School teachers were trained to carry
out the programme and they worked
with parents and grandparents to
support the project. The creation of
school gardens were accompanied
by workshops that trained children and
parents to appreciate the importance
of healthy food. The project started
in 2010, with a total donation of
£6,500 over the three year period.
(www.slowfood.it)
St Nicolas Hospice:
Videocom’s Head Office supported the
charity care facility for people with life
threatening illnesses and their families
based in Bury St Edmunds through
various donations totalling £2,553.
(www.stnicholashospice.org.uk)
Water Aid:
Manfrotto Lighting in the UK donated
£3,000 to Water Aid and a further
£6,000 to Village of India, Reaching
the Unreached, a UK registered charity
that supports charitable work in India
for the poor. The Company has had
a long-standing relationship with the
specific town in India that it supports
for over forty years, and employees
wish to maintain that link.
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52
Corporate Governance
Chairman John McDonough reports on
Vitec’s corporate governance following
his appointment in 2012
Corporate Governance online
www.vitecgroup.com/corporate_governance
Your Board, under my Chairmanship,
is responsible to all Vitec stakeholders
for providing strong leadership and
effective decision-making to ensure
the continued success of the Group
and the implementation of our strategy.
We strive to work in accordance with
best corporate governance practice and
evolve those practices and procedures to
deliver long-term sustainable shareholder
value. I believe it is important that you
understand how the Board operates.
Following my appointment to the Board in March 2012 and
my appointment as Chairman on 1 June 2012, I am pleased to
present my first corporate governance report to shareholders.
The first part of the year was under Michael Harper’s
Chairmanship and I believe that we have a sound and robust
corporate governance framework in place, which I confirm
has applied throughout 2012.
Since my appointment I have undertaken a thorough induction
to the Group including visits to the major business sites in the
US, UK and Italy, and meeting large numbers of our people,
specifically spending time with the members of the Operations
Executive. I have learnt more about the products and services
we offer and how each business operates in its chosen markets
and segments, along with the internal governance processes
and procedures that exist to support our operations. To gain a
better understanding of the Group externally, I have met with
our corporate advisors and with a number of our major
shareholders and their governance representatives.
The fundamental value of good governance is that it seeks to
ensure that a Company is well run, providing a framework for
accountable and effective decision making. Having completed
my induction and become familiar with our senior managers
I am confident that we have a talented management team in
place to meet our stakeholders’ expectations of delivery on
our strategy.
In reporting to stakeholders on governance matters, your
Board has taken into account the UK Corporate Governance
Code (the Code) as introduced in June 2010 and has
considered some of the forthcoming changes to the Code
for reporting periods beginning on or after 1 October 2012
(new Code) insofar as they relate to disclosure of diversity
statistics and policy. We report on progress in complying with
the requirements of the new Code and will work towards full
compliance in the 2013 Annual Report.
Your Board and their biographies are set out on pages 26
and 27. During 2012 we appointed Carolyn Fairbairn as an
independent Non-Executive Director with effect from 1 February.
I joined the Board on 15 March and, following Michael Harper’s
retirement on 1 June, succeeded him as Chairman.
Maria Richter will not be standing for re-appointment at the
2013 Annual General Meeting (“AGM”) having come to the end
of her term of appointment. We will therefore go forward after
the AGM with a slimmed down Board of seven Directors
including myself as Chairman, four independent Non-Executive
Directors and two Executive Directors. In order to ensure Board
continuity during my first year as Chairman, Nigel Moore will
The Vitec Group plc 53
remain as Senior Independent Director and Chairman of the
Audit Committee. Having been appointed a Director in March
2004, the Board and I confirm that Nigel continues to provide
rigorous independence and commitment to the role. His
experience particularly on financial matters, governance
and the management of risk is considered vital at this time
of transition for the Board. The Board and I will continue to
consider the issue of succession within the Board and will
announce our plans in due course.
My governance review reports on how we have applied the
Main Principles of the Code and I am pleased to confirm that
we have complied with the relevant provisions of the Code
throughout 2012, as required by the Listing Rules.
Leadership
The Board is collectively responsible to shareholders for
the creation and delivery of strong, sustainable performance
and the creation of long-term shareholder value. However,
there are separate roles for each member of the Board and
we have agreed a clear division of responsibilities between
the Chairman and Group Chief Executive. Full details of
our respective roles and responsibilities can be found
on our website.
It is my responsibility to manage the Board. I work closely with
the Group Chief Executive and Group Company Secretary to
achieve this, ensuring that all Directors are kept advised of key
developments, that they receive accurate, timely and clear
information and that they actively participate in the decision-
making process. Board agendas are reviewed and agreed in
advance to ensure that each meeting utilises the Board’s time
most efficiently. I encourage all Board members to openly and
constructively challenge the proposals made by executive
management led by the Group Chief Executive. I ensure that
each Director properly exercises the power vested in them
and in accordance with the Company’s Articles of Association,
relevant law and any directions as provided by the Company
in general meeting. Apart from the remuneration of directors
or directors’ fees there were no instances when a Director had
to abstain from voting on a matter due to a conflict of interest.
The Board has adopted a formal procedure for dealing with
any such conflicts or potential conflicts of interest.
The Group Chief Executive is responsible for managing the
day-to-day running of the business. The Operations Executive
supports the Group Chief Executive in this duty, the members
of which are shown on page 25. The Group Chief Executive
and I have developed a good working relationship over the
past nine months, meeting regularly outside of scheduled
Board meetings to discuss strategy, performance and to
ensure that Board meetings cover relevant matters. Our
relationship helps to underpin the working of the Board,
providing for an open forum in which matters are discussed.
Nigel Moore is the Senior Independent Director having been
appointed to that position in May 2011. In this role, Nigel
has provided support particularly in the area of succession
planning, specifically during early 2012 for filling the vacancy
of Chairman of the Board. This process is described more
fully under Overview of the Nominations Committee.
The Board operates under a Schedule of Matters Reserved
to it, which includes, amongst other items: consideration
and development of the Group’s strategy; setting of annual
operating budgets; annual review of progress against strategy
and budget; financial results, dividends and capital structure of
the Company; risk management strategy and various statutory
and regulatory approvals. The Board also considers a wide
range of other matters not expressly detailed in the Matters
Reserved to the Board, including but not limited to, succession
planning and talent development both for the Board and senior
management team. During 2012 the Matters Reserved to the
Board were reviewed and updated to ensure compliance with
best practice. The full schedule of Matters Reserved to the
Board can be found on our website.
During 2012 the Board dealt with the following matters: approval
of the financial results for 2011 and the half year results for 2012
including dividend policy; acquisition and integration of Camera
Corps; disposal of the Staging business; negotiation of a new
five year £100 million revolving credit facility; Board succession,
related appointments and Non-Executive Directors’ fees;
Group strategy and 2013 budget; output of an internally
facilitated Board and Committee evaluation; review of the
strategic risks facing the Group with mitigating actions; review
of financial controls; performance against 2012 objectives and
setting of 2013 objectives; ongoing financial performance;
various property, legal and share incentive matters; and
revised Group policies and procedures.
To monitor its ongoing performance during 2012, the Board
set itself several objectives for the year. These are detailed
in the section on Board performance evaluation. The agreed
objectives were reviewed at regular intervals during 2012 to
monitor progress. We have set further objectives for 2013
that I will report on in next year’s Annual Report.
In addition to the matters reserved to itself, the Board
delegates certain items to its principal Committees. I feel it
is appropriate to ensure that the Board has sufficient time to
deal with strategic matters while retaining oversight on salient
points by virtue of its Committees. The Board’s three principal
committees are the Audit, Remuneration and Nominations
Committees. Each Committee operates under clear Terms
of Reference which were updated during the year to reflect
emerging best practice. Copies of the current Terms of
Reference are available on our website.
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Corporate Governance
Each Committee is authorised to seek any information it
requires from any employee of the Company in order to perform
its duties and to obtain, at the Company’s expense, outside
legal or other professional advice on any matter within its Terms
of Reference. Each Committee, at least once a year, reviews
its own performance, constitution and Terms of Reference
to ensure it is operating at maximum effectiveness and
recommends any changes it considers necessary to the
Board for approval.
The Remuneration and Audit Committees each agreed their
objectives for 2012 in order to monitor their progress and
performance. Progress on each objective is set out in this
report under the relevant section for that Committee.
Objectives for these two Committees have been set for
2013 and an evaluation of progress against these objectives
will be reported in next year’s Annual Report.
In 2012 the Board met eight times, of which six were scheduled
at the start of the year and two were held at short notice.
Details of Directors’ attendance at Board and Committee
meetings is shown in the table on page 63 including any instance
when a Director was unable to attend and the reason. When
any Director is unable to attend they continue to receive the
necessary papers and I seek to contact them in advance
of the meeting to obtain their views and decisions on the
proposals to be considered.
The Board did not hold a meeting overseas in 2012 as this
was re-scheduled at short notice due to business priorities.
The Board intends to hold a meeting at one overseas
business each year in the foreseeable future to allow Directors
to develop their understanding of operations. Each Director
is also encouraged to visit operations when appropriate
to further their understanding of the business and meet
operational management.
As part of the wider governance framework it is important to
explain the workings of the Operations Executive. The Group
Chief Executive chairs the monthly meetings of the Operations
Executive which discusses ongoing business performance and
enables the Group Chief Executive to manage the business
with his direct reports. I receive an update from the Group Chief
Executive on any salient matters resulting from each meeting.
I was pleased to welcome members of the Operations Executive
to a number of Board and Committee meetings during 2012,
along with the Group Risk Assurance Manager. Their attendance
allows the Board to directly question those senior managers
responsible for the business and to gain a better understanding
of their respective businesses. This practice will continue in
the future.
Effectiveness
A key event for the Board in 2012 was the retirement of Michael
Harper as Chairman with effect from 1 June 2012, and my
appointment with effect from the same date. I believe that the
transition has been smooth and successful as evidenced by
the internal Board evaluation described later on.
The Non-Executive Directors bring independent character and
judgement to bear on strategic matters, the performance of the
Group, the adequacy of resources and standards of conduct.
The Board considers that Simon Beresford-Wylie, Maria
Richter, Nigel Moore, John Hughes and Carolyn Fairbairn are
independent in accordance with the recommendations of the
Code. Each Director brings a complementary set of skills to the
Board, having served in companies of varying size, complexity
and industries. When combined, these skills give your Board
the comprehensive skill set required to deliver the strategic
objectives of the Group and to ensure its continued success.
On appointment, we provide each Director with a tailored
and extensive induction to the Group. This includes meeting
with each of their fellow Board members, the Operations
Executive and advisors individually, receiving briefings on each
area of the business in turn and visiting the Group’s principal
operations. I spoke earlier about my induction and I confirm
that Carolyn Fairbairn completed a similar induction following
her appointment.
All Directors, having notified me in the first instance, are able
to take independent professional advice at the Company’s
expense in furtherance of their duties. During 2012 no Director
felt the need to take such advice. They also have access to
the advice and services of the Group Company Secretary,
who is responsible for advising the Board, through the
Chairman, on all governance matters.
Ongoing training for new Directors and existing Directors is
available at the request of the Director. Each Director receives
details of relevant training and development courses from both
the Group Company Secretary and from external bodies such
as KPMG and Deloitte. The requirement for training is discussed
at meetings of the Board and of its Committees and I ensure
that each Director has the required skills and knowledge to
enable them to operate efficiently on the Board. The Group
Company Secretary maintains a register of training undertaken
by directors to facilitate this discussion. During the year the
Board collectively received training sessions on such matters
as investor relations, bid defence and the Takeover Code,
corporate governance and changes to corporate reporting.
The Board regularly receives written updates on governance,
regulatory and financial matters as they are published.
Working with the Group Chief Executive and Group Company
Secretary, I ensure that the Board receives papers for
consideration so that it gives all Board members adequate
time to read and, where appropriate, ask questions prior to
the meeting about the information supplied. The information
includes sufficiently detailed budgets, strategy papers, reviews
The Vitec Group plc 55
Board performance evaluation
We conducted an internal Board evaluation in 2012 following
the externally facilitated evaluation in 2011 that was reported
on in last year’s Annual Report. It is expected that the next
externally facilitated evaluation will be conducted in 2014.
Four major topics were covered by the 2012 internal process:
• Evaluation of the performance of the Board by each Director;
• Evaluation of the performance of the Committees of the
Board by each member of the relevant Committee;
• Evaluation of the Non-Executive Directors by the Chairman;
and
• Evaluation of the Chairman led by the Senior Independent
Director taking into account the views of the Board.
The 2012 evaluation took the form of questionnaires,
individual meetings and discussion at the Board meeting held
in December. The Group Company Secretary and I agreed
the format of the questionnaire, which requested Directors
to evaluate the performance of individual Directors, Board
Committees, the ability of the Board and Directors to set
strategy, monitor performance, leadership, culture and
corporate governance, taking into account the balance
of skills, experience and knowledge of the Group by each
Director. I subsequently followed up with each Director on the
content of their completed evaluation forms, allowing for a
discussion to take place around any areas for improvement.
Nigel Moore, as Senior Independent Director, co-ordinated
the process for the evaluation of the Chairman, with follow
up discussions with each Director on the basis of completed
evaluation forms.
I am pleased to report that all your Board members considered
that the Board, its Committees and individual Directors have
performed effectively during 2012, both individually and as a
collective unit. Non-Executive Directors have demonstrated a
willingness to devote sufficient time and effort to understand the
Company and its businesses and have provided independent,
rigorous and constructive challenge on strategy and
operational performance. The processes, governance and
controls around the Board were also deemed to be robust.
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of the Group’s financial position and operating performance
and annual and half-yearly reports. Each Board member
receives a detailed monthly report from the Group Chief
Executive, Group Finance Director, Group Company Secretary
and Group Development Director, plus a Health and Safety
Report covering the ongoing performance of the business.
The Board receives further information from time to time as
and when requested.
All meetings of the Board and its Committees are minuted by
the Group Company Secretary. In the first instance, minutes
are reviewed by the Chairman of that meeting before being
circulated to all Directors in attendance and then tabled for
approval at the subsequent meeting. Any concerns raised by
Directors are clearly recorded in the minutes of each meeting.
The Board has power at any time and from time to time to
appoint any person to be a Director, either to fill a casual
vacancy or as an addition to the existing Board, subject to a
maximum number of 15 Directors. Any Director so appointed
shall hold office only until the next AGM and shall then put
himself or herself forward to be re-appointed by the members.
The Chairman and the other Non-Executive Directors are
appointed for an initial period of three years which, with
the approval of the Nominations Committee and the Board,
would normally be extended for a further three years. If it is
in the interests of the Group to do so appointments of Non-
Executive Directors may be extended beyond six years, with
the approval of the Nominations Committee, the Board and the
individual Director concerned. Under the Company’s Articles
of Association, each Director is required to stand for annual
re-appointment. Full details are included within the 2013
Notice of AGM.
On making appointments to the Board, amongst other items,
the issue of diversity is considered. The Board agreed its policy
on diversity during 2011 and our statement is set out below,
as well as being published on our website.
Vitec recognises the importance of a fully diverse workforce
in the successful delivery of its strategy. The effective use of
all the skills and talents of our employees is encouraged and
this extends to potential new employees. It is essential that the
best person for the job is selected regardless of race, gender,
religion, age, sexual orientation, physical ability or nationality.
Vitec is fully committed to equal opportunity where talent is
recognised. The Board will keep under regular review the issue
of diversity including at the Board level, senior management
level and throughout the entire workforce, taking into account
amongst other things Lord Davies’ review Women on Boards.
We will report upon this issue annually in our Annual Report.
The Employees section of the Corporate Responsibility
Report contains further information on diversity, including the
disclosure of gender diversity statistics at Board, Operations
Executive and senior management level as well as throughout
the organisation.
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56
Corporate Governance
As part of the evaluation, each Director identified several issues
to enable the Board to focus on key areas in the year ahead.
These have enabled the Board to set itself several key objectives
for 2013 and we will report on progress against these in the
2013 Annual Report. Following the Board evaluation in 2011,
the Board set itself several objectives for 2012. These are
summarised below with an evaluation of performance
against each:
Overview of the Nominations Committee
The Board has appointed a dedicated committee to oversee
the composition of the Board, succession and the process
for appointments. The Nominations Committee, that is chaired
by myself (and Michael Harper before me), has agreed terms
of reference that are available on the Company’s website.
The Committee met twice during 2012 and considered the
following matters:
2012 Board Objectives
Progress during 2012
Chairman
Members
Michael Harper (until 1 June 2012)
Simon Beresford-Wylie
John McDonough (from 1 June 2012)
Review progress on three
market strategy
Identified key areas concerning strategy;
detailed discussion of these points and the
three year business plan for the Group, the
divisions and each business unit; approved
the acquisition of Camera Corps and the
disposal of the Staging business in line
with strategy
Manufacturing strategy
review
Received update from Group Finance
Director on progress and Group-wide
initiatives undertaken
Board succession
Monitor executive director
and senior executive
remuneration following
implementation of revised
remuneration structure
Maintain close investor
relations links
Maintain state of the art
governance standards
Measurement of Board
effectiveness using
performance indicators
Appointed Carolyn Fairbairn as an
independent Non-Executive Director in
February 2012; appointed John McDonough
as an independent Non-Executive Director
in March 2012 and as Chairman on 1 June
2012 in succession to Michael Harper;
feedback from Board evaluation supports
successful induction and integration of
both appointments
Shareholder approval of Remuneration
Report at 2012 AGM; received updates
from Remuneration Committee on emerging
best practice
Regular monitoring of shareholder register
and major movements; regular meetings
between Executive Directors and major
shareholders
Online bribery training extended to more
employees and translated into three
languages; 2011 Annual Report complied
with UK Corporate Governance Code
Quarterly monitoring of the Company’s
Total Shareholder Return
Duties
• Reviews and evaluates the structure,
size and composition (including the
skills, knowledge, experience and
diversity) of the Board
• Considers succession planning
for directors and other senior
executives
• Identifies and nominates to the
Board candidates for Board
vacancies
• Prepares descriptions of roles
and capabilities required for
Board appointments
• Reviews the executive and non-
executive leadership needs of
the Company
• Reviews time commitment of
Non-Executive Directors
• Ensures that Non-Executive
Directors receive a formal
letter of appointment
Implement new long-term
credit facility
£100 million five year revolving credit
facility agreed
Review strategic risks for
the Group and ensure
appropriate mitigation
in place
Reviewed detailed risk assessment and
mitigation process and disclosed principal
risks in Annual Report 2011
Performance evaluations of each of the Executive Directors also
took place against achievement of specific personal objectives,
the result of which can be found in the Remuneration Report
in respect of the outcome on their 2012 annual bonus.
Stephen Bird
Carolyn Fairbairn
(from 1 February 2012)
John Hughes
John McDonough
(from 15 March until 1 June 2012)
Nigel Moore
Maria Richter
Activities completed in 2012
• Considered Board and senior
executive succession planning
• Used the services of an external
search consultancy to facilitate
the search for a new Chairman
• Recommended the appointment
of John McDonough as a
Non-Executive Director and
Chairman elect
• Reported to the Board after
each meeting
• Reviewed plans for the
executive level talent
management programme
The Vitec Group plc 57
The Nominations Committee uses the support of external
executive search consultancies where necessary to facilitate
searches for new Directors. A clear brief on the role, skills and
personal attributes required is prepared, taking into account
diversity on the Board, and a search process is conducted
by the consultancy. Each member of the Board has the
opportunity to meet with preferred candidates to ensure that
the correct person with the right skills and dynamic fit with
the Board is appointed whether the role be executive or non-
executive in nature. The process is normally led by myself as
Chairman of the Committee. However, during 2012 the search
for the role of Chairman was led by Nigel Moore, the Senior
Independent Director, with the support of the Group Chief
Executive. Subject to the outcome of each search, a formal
recommendation on an appointment is made to the full
Board for approval.
Going forward I am very mindful of the need to have the right
balance on the Board with the necessary skills and diversity to
develop and deliver on strategy, monitor on-going performance
and to discharge good corporate governance. Future Board
changes will take this into consideration.
Remuneration
The Remuneration Committee is chaired by Simon Beresford-
Wylie and comprises exclusively independent Non-Executive
Directors. The Chairman, Group Chief Executive, the former
Group HR Director, Group Development Director and the
Group Company Secretary have all been invited to meetings
throughout 2012. The Committee met four times in 2012.
The Board has delegated to the Remuneration Committee the
setting of a remuneration framework or broad policy for the
Company’s Group Chief Executive, the Executive Directors,
the Group Company Secretary and such other members
of the executive management as it is designated to consider.
The Committee’s full Terms of Reference can be found
on our website.
An overview of the Remuneration Committee is set out in the
following table. The Remuneration Report for the year ended
31 December 2012 on pages 31 to 43 gives full details on
Executive and Non-Executive Directors’ remuneration.
Overview of the Remuneration Committee
Chairman
Simon Beresford-Wylie
Members
Carolyn Fairbairn
(from 1 February 2012)
John Hughes
John McDonough
(from 15 March to 1 June 2012)
Nigel Moore
Maria Richter
Duties
Activities completed in 2012
• Determining and agreeing with
• 2011 Annual Bonus
Plan outcome
• 2012 and 2013 Annual Bonus
Plan structure including
financial targets
• Executive Directors’ personal
objectives and long-term
incentive awards for 2012
• Senior executive 2012 long-term
incentive awards and vesting
levels for 2009 awards
• Approved 2011
Remuneration Report
• Reviewed BIS consultation
on Remuneration Reporting
Regulations and impact on the
2012 Remuneration Report
• Reviewed 2012 objectives
and agreed 2013 objectives
the Board the broad framework or
policies for Board and executive
level remuneration
• Ensuring executive management
are provided with appropriate
incentives to encourage
enhanced performance
• Reviewing performance-related
pay schemes and ensuring their
structure encourages long-term
growth for the Company
• Reviewing ongoing
appropriateness of
remuneration policy
• Reviewing the design of all
share incentive plans
• Reviewing pension arrangements
for executive management
• Reviewing remuneration trends
and major changes in employee
benefits across the Group
• Ensuring full disclosure is made
regarding remuneration in the
Company’s Annual Report
• Ensuring advice is obtained
from appropriate sources
• Agreeing objectives and reviewing
performance against each one
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Corporate Governance
The Remuneration Committee set itself several objectives for
2012, the detail and progress against which is detailed below:
2012 Remuneration
Committee Objectives
Ensure remuneration policies
and practices reward fairly
and responsibly with clear
link to strategic objectives,
corporate and individual
performance
Implement revised
remuneration structure
Progress during 2012
Annual bonus linked to stretching financial
performance; vesting of long-term incentives
tied to TSR and EPS* over three year
performance period; Executive Directors
required to build stake in the Company of
at least one times gross salary; claw-back
provisions across all bonus and long-term
incentives
Re-balanced executive remuneration structure
following consultation with major shareholders
(see Remuneration Report on pages 37 and
38 for details of the re-balancing)
Ensure clarity around annual
target setting, particularly
around the budget process
and link to strategy
Targets for the 2012 Annual Bonus
Plan reviewed during the year to ensure
continued appropriateness. Targets for the
2013 Annual Bonus Plan revised and agreed
Ensure best practice annual
Remuneration Report
and that approved by
shareholders at the AGM
Closely monitor performance
of newly appointed
remuneration advisors
2011 Remuneration Report fully compliant
with all applicable regulations and received
over 98% of the proxy votes for the
resolution at the 2012 AGM. Reviewed BIS
consultation document on Remuneration
Reporting Regulations
Provided well-run support on the
re-balance of executive remuneration,
performance measurement for the long-term
incentive plans, tax treatment and the BIS
Remuneration Reporting Regulations
The Remuneration Committee has set itself objectives for
2013 and will report on progress against these in the 2013
Annual Report.
Accountability
Internal control and risk management
The Board and Audit Committee are responsible for the
Group’s system of internal controls to safeguard shareholders’
investment and the Company’s assets. As part of its
responsibility, the Board regularly, and at least annually, reviews
the effectiveness of its internal controls. There are systems
and procedures in place for internal controls that are designed
to provide reasonable control over the activities of the Group
and to enable the Board to fulfill its legal responsibility for the
keeping of proper accounting records, safeguarding the assets
of the Group and detecting fraud and other irregularities. The
approach taken is designed to provide reasonable assurance
against material misstatement or loss, although it is recognised
that as with any successful company, business and commercial
risks must be taken and enterprise, initiative and the motivation
of employees must not be unduly stifled. It is not our intention
to avoid all commercial risks and commercial judgements will
be made in the course of the management of the business.
The Board has adopted a risk-based approach to establishing
the system of internal controls. The application and process
followed by the Board in reviewing the effectiveness of the
system of internal controls during the year were as follows:
• Each business unit is charged with the ongoing responsibility
for identifying risks facing each of the businesses and for
putting in place procedures to monitor and manage risks.
• This system has been in place for the year under review and
up to the date of approval of the Annual Report.
• The responsibilities of the senior management at each
business unit to manage risks within their businesses are
periodically reinforced by the Operations Executive.
• Major Strategic, Operational, Financial, Regulatory &
Compliance and Reputational risks are formally assessed
during the annual long-term business planning process around
mid-year. These plans and the attendant risks to the Group
are reviewed and considered by the Board.
• Large capital projects, product development projects and all
acquisitions and disposals require advance Board approval.
• The process by which the Board reviews the effectiveness
of internal controls has been agreed by the Board and is
documented. This involves regular reviews by the Board
of the major business risks of the Group, together with the
controls in place to manage those risks. In addition, each
year businesses conduct a self-assessment of their internal
controls. The results of these assessments are reviewed by
the Group Risk Assurance Manager who provides a report
to the Group Finance Director and the Chairman of the Audit
Committee. The Board is made aware of any significant
matters arising from the self assessments. The risk and
control identification and certification process is monitored
and periodically reviewed by Group financial management.
• A centralised database of risks facing the Group, as well as
each individual business, and an evaluation of the impact and
likelihood of those risks is maintained and updated regularly
by the Group Risk Assurance Manager.
• The Board has established a control framework within which
the Group operates. This contains the following key elements:
- organisational structure with clearly defined lines of
responsibility, delegation of authority and reporting
requirements;
- defined expenditure authorisation levels;
- operational review process covering all aspects of each
business conducted by Group executive management on
a regular basis throughout the year;
- strategic planning process identifying key actions and
initiatives to deliver the Group’s long-term strategic
development; and
* In 2012 and 2011 before charges associated with acquired businesses; profit before tax and adjusted
earnings per share are also before disposal of business. In 2010 and 2009 before significant items.
The Vitec Group plc 59
- comprehensive system of financial reporting including
monthly reporting, quarterly forecasting and an annual
budget process. The Board approves the overall Group
budget, forecasts and strategic plans. Monthly actual
results are reported against prior year, budget and latest
forecasts. These forecasts are revised where necessary
but formally at least once every quarter. Any significant
changes and adverse variances are reviewed by the Group
Chief Executive and Operations Executive and remedial
action is taken where appropriate. Group tax and treasury
functions are co-ordinated centrally. There is regular cash
and treasury reporting to Group financial management and
monthly reporting to the Board on the Group’s tax and
treasury position.
The Group’s internal audit function, led by the Group Risk
Assurance Manager, conducted a number of internal audits
and additional assurance reviews during 2012, the details of
which were presented to the Audit Committee. The audits
included reviews of the appropriateness and effectiveness of
controls within the Group including: purchasing and payments,
sales and cash collection, inventory management, accounting
and reporting, IT processes, HR procedures and payroll.
An internal audit plan for 2013 has been prepared and
agreed with the Audit Committee.
The Board considers that it has fully complied with the
Code during the year and up to the date of approval of
the Annual Report and Accounts and that it accords with
Turnbull guidance in respect of internal controls.
Relations with Shareholders
Maintaining regular contact with our shareholders remains
an important part of our activities. On becoming Chairman
I wrote to our major shareholders and have subsequently
met several of them. We aim to ensure that our business,
strategy and remuneration policies are understood and
that any concerns are addressed in a constructive way.
Establishing and maintaining reliable lines of communication
is a key part of good corporate governance.
I look forward to meeting our shareholders at the 2013
AGM. This offers an opportunity for you to meet with our
Directors and to hear more about the strategy of the Group.
Shareholders are encouraged to attend the AGM and to
ask questions about the business. I confirm that all Board
members are scheduled to attend the forthcoming AGM,
including each of the Committee Chairmen. Details of the
AGM are included in the Notice of Meeting that accompanies
this Annual Report.
At general meetings of shareholders, voting on resolutions is
in the first instance on a show of hands of those shareholders
and proxies attending in person. The level of proxy votes
received, together with the numbers of votes in favour,
against and withheld, is announced after each resolution
has been dealt with on a show of hands. At the 2012 AGM
over 70 per cent of our shares were voted by way of proxies
submitted. Voting by poll may take place should shareholders
request and the necessary procedures are complied with
in accordance with the Articles of Association. Separate
resolutions are proposed for each substantive issue upon
which shareholders are asked to vote.
We publish an Annual Report each year usually in March
following the end of the financial year on 31 December. To allow
shareholders to review the Annual Report in advance of the
Annual General Meeting and create an informed view of the
Company, we comply with the requirement set out in the
Code in respect of shareholder meetings to send the notice of
AGM and related papers at least 20 working days before the
meeting and we will continue to comply with this requirement.
The Board communicates with its shareholders via a
combination of public announcements through the London
Stock Exchange, analyst briefings, roadshows and press
interviews at the time of the announcements of the half-year
and full-year results and, when appropriate, at other times in
the year. The Executive Directors, the Chairman, the Senior
Independent Director and Chairman of the Remuneration
Committee also meet with investors from time to time to
discuss relevant matters.
Regular updates from the Group Chief Executive and Group
Finance Director at Board meetings keep the Board advised
of the views of major shareholders. We also receive monthly
reports on market and investor sentiment along with a full
shareholder analysis.
Copies of public announcements and financial results are
published on the Company’s website, www.vitecgroup.com,
along with a number of other investor relations tools, including
information on how to invest in the Company’s shares,
a dividend chart, share prices and presentation materials
used for key shareholder presentations.
Going Concern
The Directors have made appropriate enquiries and consider
that the Group has adequate resources to continue in
operational existence for the foreseeable future. Accordingly,
the Directors continue to adopt the going concern basis
in preparing the financial statements.
John McDonough CBE
Chairman
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Corporate Governance
Report from Nigel Moore,
Chairman of the Audit Committee
Audit Committee online
www.vitecgroup.com/audit_committee
The Audit Committee is responsible
for ensuring that the financial integrity
of the Group is effective, through
the regular review of its financial
performance. It is also responsible
for ensuring that the Group has
appropriate risk management
processes and internal controls,
and that audit processes are robust.
I explain in more detail our activities
in my report.
The Audit Committee comprises five Non-Executive Directors,
all of whom are considered independent. During 2012 the
following were members:
Nigel Moore – Chairman
Simon Beresford-Wylie
Carolyn Fairbairn (from 1 February 2012)
John Hughes
John McDonough (from 15 March to 1 June 2012)
Maria Richter
The Audit Committee provides effective governance over
external financial reporting, risk management and internal
controls and reports its findings and recommendations to the
Board. In my capacity as Chairman of the Audit Committee,
I am pleased to report on the operations of the Committee
during 2012, with emphasis on the specific matters we have
considered and compliance with the Code and associated
Guidance on Audit Committees. We will work towards
compliance with the new Code that applies to financial years
beginning on or after 1 October 2012 and will report on
progress for the Audit Committee in the 2013 Annual Report.
I have been Chairman of the Committee since March 2004,
and have the necessary recent and relevant financial experience
as required by the Code having formerly been a London-based
partner of Ernst & Young LLP, where I was engagement partner
for a number of significant client companies with specific
responsibilities for their audits. Also, during the last ten years I
have been Chairman of the Audit Committee of several public
limited companies and attended many training sessions and
updates presented by the major accounting firms. Biographies
of the Committee members are set out on pages 26 and 27,
and between them have a wide skill set covering financial,
commercial and operational matters.
The Committee has four scheduled meetings a year and I work
closely with the Group Finance Director, Group Risk Assurance
Manager and Group Company Secretary to ensure that the
Committee is provided with the necessary information it requires
to discharge its duties. We operate with a rolling agenda
programme, taking into account our Terms of Reference (which
can be found on the Group’s website), the Group’s annual
reporting requirements and any other matters which arise on an
ad-hoc basis. I aim to maintain a balance between the review of
financial reporting and the risk assurance process as both merit
significant consideration. Full detail of the work we completed
during 2012 is set out in the table on the following page.
We assessed the effectiveness of the annual audit through
separate discussions at the Audit Committee with Executive
Directors, senior executives and representatives of KPMG. We
concluded that KPMG had completed the audit effectively and in
accordance with required auditing standards. We also took into
The Vitec Group plc 61
account publications made by the Financial Reporting Council,
including the Annual Report as published by the Audit Quality
Review team and the Audit Inspection Unit’s Public Report on
the inspection of KPMG, which provided the Committee with
comfort that an external and independent review of the quality
of KPMG’s overall audit work had taken place. Given this, we
recommend the re-appointment of KPMG at the 2013 AGM
for the forthcoming year.
Following a review of the process around the annual audit and
the content of the financial statements, the Audit Committee
recommended to the Board at its meeting on 25 February
2013 that the 2012 financial statements were true and fair.
I invite the audit partner from the Company’s external auditors,
KPMG, to attend meetings of the Committee on a regular basis
and during 2012 they attended all but one meeting; in each case
for part of the meeting. The Chairman, Group Chief Executive,
Group Finance Director and Group Risk Assurance Manager
attend meetings by invitation and other members of the senior
management team attend as required. At two of the meetings
the Executive Directors and senior executives were not present
for part of the meeting so that members of the Committee
could meet with the external auditors in private. I will continue
to encourage the practice of the Committee meeting in private
with the external auditors in the future.
KPMG has acted as the Company’s external auditor since
19 July 1995 and we comply with the requirement to rotate the
audit partner every five years. We reviewed in detail external
audit arrangements in 2010 and as a result Robert Brent of
KPMG was appointed as audit partner for the audit of the
2011 results. His term of appointment is currently expected to
end in 2016. In accordance with the new Code it is likely that
we will tender the audit process in 2016 or earlier if KPMG’s
performance falls short of the Audit Committee’s expectations.
We have a policy on the use of the external auditors for non-
audit services that has been in place for a number of years. The
use of the external auditors is determined by their demonstrable
competence and competitive pricing, and monetary thresholds
for the approval of non-audit work by KPMG have been set by
the Committee. The policy is divided into three parts:
• Work where use of the external auditors is deemed
appropriate: This type of work includes accounting advice
in relation to acquisitions and divestments, corporate
governance and risk management advice, defined audit
related work and regulatory reporting.
• Work requiring Audit Committee clearance or refinement of
the Vitec Group policy: This type of work includes services
as reporting accountants, compliance services (including
fraud and money laundering), transaction work (mergers,
acquisitions and divestments), valuation and actuarial
services, fairness opinions and contribution reports.
• Work from which the external auditors are excluded:
This includes internal accounting or other internal financial
services, design development or implementation of
financial information or internal controls systems, internal
audit services or their outsourcing, forensic accounting
services, executive or management roles and functions,
IT consultancy, litigation support services and other
financial services such as broker, financial adviser
or investment banking services.
I confirm that during 2012 the policy has been followed.
During 2012, £0.1 million was paid to KPMG in respect of
non-audit work compared to an audit fee of £0.4 million.
To ensure that we continue to be an effective Committee,
we measured our performance during the year through the use
of objectives and I can confirm that we successfully achieved
all of these by the year end. The details of our objectives and
the progress we made is set out below. Our performance
was further assessed through the internally facilitated Board
performance evaluation, information on which has been
provided earlier in this report. The Audit Committee was
deemed to be working effectively and no major suggestions
for improvement were noted. I will report to you next year
on our achievement against our 2013 objectives.
Audit Committee Specific Objectives
2012 Audit Committee
Objectives
Progress during 2012
Review assurance process to
ensure appropriate coverage
Assurance mapping process reviewed
and approved
Review revised risk
management process
Review annual financial
statements in line with
Financial Reporting Council’s
recommendations on
“Cutting Clutter”
Review of key risks and mitigation
processes completed from both
a “top-down” and “bottom-up”
perspective. Key risks updated and
included in Annual Reports 2011
and 2012
Reviewed proposal, made suggestions
and agreed final version of Annual
Report before publication
Ensure effective working
relationship between internal and
external audit
Reviewed areas where teams have
developed approaches to working
together more efficiently
Review fraud and whistleblowing
process, cases reported and
actions taken
Processes working effectively. All
whistleblowing cases reported during
2012, and the Committee satisfied
that successful solutions to all
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Corporate Governance
Overview of the Audit Committee
Requirements
Group Accounts
Activities completed in 2012
• Monitoring the integrity of the financial statements of the Group, including
its annual and half-yearly reports, results announcements and any other
formal announcement relating to its financial performance
• Confirming to the Board that the annual financial statements are true and fair
• Reviewed and recommended to the Board that the financial results and
accounting disclosures are true and fair in connection with the full-year
results for the year ended 31 December 2011 and the half-year results
for the period ended 30 June 2012
Internal control and risk management
• Keeping under review the adequacy and effectiveness of the Company’s
• Monitored ongoing performance of internal controls for the Group through
internal financial controls and internal control and risk management systems
• Monitoring and reviewing the effectiveness of the Company’s internal audit
function and overseeing its work
the Risk Assurance Report provided by the Group Risk Assurance Manager,
including a revised risk register for the Group to show risks defined from both
a “top-down” and “bottom-up” analysis
• Monitored the work of the internal audit function through the review of the
• Reviewing the statements to be included in the Annual Report concerning
internal audit plan for 2012
internal controls and risk management
• Confirmed that the statement on internal controls in the Annual Report for
the year ended 31 December 2011 was accurate
Prevention of bribery
• Reviewing the Company’s systems and controls for the prevention of
bribery and receiving reports on non-compliance
• Reviewed that the Company has adequate procedures for the prevention
of bribery, including key customer acceptance of the Code of Business
Conduct, reviewing commissions paid to agents and third party suppliers
and expanding training
Performance of and relationship with external auditors
• Overseeing the relationship with the external auditors including their
• Considered the terms of engagement, scope and associated fee for the audit
remuneration and fees for non-audit services, terms of their engagement,
assessing annually their independence and objectivity, and their compliance
with ethical and professional standards taking into account relevant UK
professional and regulatory requirements
in connection with the year-end audit for 31 December 2012
• Confirmed the independence and objectivity of the external auditors taking
into account compliance with ethical and professional standards
• Considered the performance of the external auditors and recommended
• Considering and making recommendations to the Board in relation to
to the Board the re-appointment of the external auditors
the appointment, re-appointment and removal of the Company’s external
auditors
• Met with the external auditors without the executive management present
to discuss any issues arising from the audit
• Reviewing the audit plan, the resulting findings and the effectiveness
• Reviewed the auditors’ report to the Committee and the effectiveness
of the audit
of the audit
• Ensuring the external audit is co-ordinated with the activities of the internal
audit arrangements
Whistleblowing
• Reviewed the work of the external auditors alongside that of the
internal auditor
• Reviewing the Company’s whistleblowing arrangements
• Audit Committee Chairman provided with full details of each reported
case and highlights presented to Audit Committee
Committee objectives
• Agreeing objectives and reviewing performance against each one
• Reviewed 2012 objectives and agreed objectives for 2013
Nigel Moore
Chairman of the Audit Committee
The Vitec Group plc 63
Attendance table for Governance Report 2012
Board
Audit
Remuneration
Nominations
Regular
Ad hoc
Regular
Ad hoc
Regular
Ad hoc
Regular
Ad hoc
Number of meetings
Current Directors
John McDonough (from 15 March 2012)
Simon Beresford-Wylie
Stephen Bird
Paul Hayes
John Hughes
Nigel Moore
Maria Richter
Carolyn Fairbairn
Former directors who served
during 2012
6
4/4
5*
6
6
4**
6
6
5****
2
1/1
1*
2
2
2
2
2
2
3
-
2*
-
-
1**
3
3
2****
Michael Harper (until 1 June 2012)
2/2
2/2
-
1
-
1
-
-
1
1
1
1
-
4
-
4
-
-
3*
4
4
4
-
-
-
-
-
-
-
-
-
-
-
1
1
1
1
-
1
1
1
1
-
1
0/0
1
1
-
1
1
0***
1
1
*
**
Simon-Beresford Wylie did not attend the scheduled Board and Audit Committee meetings in June 2012 as these were re-scheduled at short notice
and conflicted with other commitments. He did not attend the ad-hoc Board meeting in April 2012 due to a conflict that arose at short notice.
John Hughes did not attend the Board, Audit Committee and Remuneration Committee meetings held in February 2012 due to ill-health.
He did not attend the scheduled Board and Audit Committee meetings in June 2012 as these were re-scheduled at short notice and conflicted
with other commitments.
*** Maria Richter did not attend the ad-hoc meeting of the Nominations Committee in March 2012 due to short notice and a conflict with
other commitments.
**** Carolyn Fairbairn did not attend the scheduled Board and Audit Committee meetings in June 2012 as these were re-scheduled at short notice
and conflicted with other commitments.
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Independent Auditor’s Report to
the members of The Vitec Group plc
We have audited the financial statements of The Vitec Group plc
for the year ended 31 December 2012. The financial reporting
framework that has been applied in the preparation of the
group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU.
The financial reporting framework that has been applied in
the preparation of the parent company financial statements is
applicable law and UK Accounting Standards (UK Generally
Accepted Accounting Practice).
This report is made solely to the Company's members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company's members, as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 30, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit, and express an opinion on, the financial statements
in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board's (APB's) Ethical
Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• The part of the Directors' Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006; and
• The information given in the Directors' Report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report
to you if, in our opinion:
• Adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• The parent company financial statements and the part of
the Directors' Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
• Certain disclosures of directors' remuneration specified
by law are not made; or
• We have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
• The Directors' statement, set out on page 59, in relation
to going concern;
• The part of the Corporate Governance Statement on page
59 relating to the Company's compliance with the nine
provisions of the UK Corporate Governance Code
specified for our review; and
• Certain elements of the report to shareholders by the
• The financial statements give a true and fair view of the state
Board on directors' remuneration.
of the Group's and of the parent company's affairs as at
31 December 2012 and of the Group's profit for the year
then ended;
• The Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the EU;
• The parent company financial statements have been properly
prepared in accordance with UK Generally Accepted
Accounting Practice;
• The financial statements have been prepared in accordance
with the requirements of the Companies Act 2006; and,
as regards the Group financial statements, Article 4 of
the IAS Regulation.
Robert Brent (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc,
Statutory Auditor
Chartered Accountants
London
27 February 2013
The Vitec Group plc Table of contents
The notes are grouped under the following sections:
65
Primary Statements ................................................................ 66
Consolidated Income Statement ............................. 66
Consolidated Statement of Comprehensive Income ... 67
Consolidated Balance Sheet ................................... 68
Consolidated Statement of Changes in Equity ......... 69
Consolidated Statement of Cash Flows ................... 70
Section 1 – Basis of preparation ........................................... 71
Section 2 – Results for the year ............................................ 73
2.1 Profit before tax ................................................ 73
2.2 Charges associated with acquired businesses .. 76
2.3 Net finance expense ......................................... 76
2.4 Tax .................................................................... 77
2.5 Earnings per share ............................................ 80
Section 3 – Operating assets and liabilities ........................ 81
3.1 Intangible assets ............................................... 81
3.2 Property, plant and equipment .......................... 84
3.3 Working capital ................................................. 86
3.4 Acquisitions ...................................................... 88
3.5 Disposals .......................................................... 90
3.6 Provisions ......................................................... 91
Section 4 – Capital structure ................................................. 92
4.1 Net debt ........................................................... 92
4.2 Financial instruments......................................... 93
4.3 Share capital and reserves ................................ 98
Section 5 – Other supporting notes ..................................... 99
5.1 Employees ........................................................ 99
5.2 Pensions ......................................................... 100
5.3 Share-based payments ................................... 104
5.4 Leases ............................................................ 106
5.5 Related party transactions............................... 107
5.6 Principal Group investments ............................ 108
5.7 Subsequent events ......................................... 108
The Vitec Group plc Company financial statements ........ 109
Company Balance Sheet ....................................... 109
Reconciliation of Movements in Shareholders’ Funds . 110
Notes to the Company financial statements .......... 111
Five year financial summary ........................................... 116
Shareholder Information and Financial Calendar ......... 117
Each section sets out the accounting policies applied in
producing these notes together with any key judgements
and estimates used. Text boxes provide an introduction
to each section.
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
DIRECTORS’ REPORTREMUNERATION REPORTCORPORATE RESPONSIBILITYCORPORATE GOVERNANCEINDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTSAnnual Report & Accounts 2012
66
Consolidated Income Statement
For the year ended 31 December 2012
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Comprising
- Operating profit before charges associated with acquired businesses
- Charges associated with acquired businesses
Finance income
Finance costs
Disposal of business
Profit before tax
Comprising
- Profit before tax, excluding charges associated with acquired businesses and disposal of business
- Charges associated with acquired businesses
- Disposal of business
Taxation
Profit for the year attributable to owners of the parent
Earnings per share
Basic earnings per share
Diluted earnings per share
Average exchange rates
Euro
US$
Notes
2.1
2.1 / 2.2
2012
£m
345.3
(198.1)
147.2
(121.6)
2011
£m
351.0
(204.9)
146.1
(120.8)
2.1
25.6
25.3
2.2
2.3
2.3
3.5
2.4
2.5
39.3
(13.7)
25.6
2.5
(5.6)
(6.4)
16.1
36.2
(13.7)
(6.4)
16.1
(10.2)
5.9
34.5
(9.2)
25.3
3.1
(4.6)
-
23.8
33.0
(9.2)
-
23.8
(8.8)
15.0
13.6p
13.4p
34.7p
33.9p
1.23
1.58
1.15
1.60
The Vitec Group plc
Consolidated Statement of
Comprehensive Income
For the year ended 31 December 2012
Profit for the year
Other comprehensive income:
Actuarial (loss)/gain on pension obligations, net of tax
Foreign exchange gain recycled to the Income Statement on disposal of business
Currency translation differences on foreign currency subsidiaries
Net gain/(loss) on designated effective net investment hedges
Amounts released to Income Statement in relation to cash flow hedges, net of tax
Effective portion of changes in fair value of cash flow hedges
Total comprehensive (loss)/income for the year attributable to owners of the parent
67
2011
£m
15.0
0.4
-
0.1
(0.2)
0.5
(1.3)
14.5
2012
£m
5.9
(3.8)
(2.0)
(8.2)
2.4
0.3
2.1
(3.3)
Annual Report & Accounts 2012
68
Consolidated Balance Sheet
As at 31 December 2012
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Bank overdrafts
Trade and other payables
Derivative financial instruments
Current tax liabilities
Provisions
Non-current liabilities
Interest-bearing loans and borrowings
Other payables
Post-employment obligations
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Translation reserve
Capital redemption reserve
Cash flow hedging reserve
Retained earnings
Total equity
Balance Sheet exchange rates
Euro
US$
Approved by the Board on 27 February 2013 and signed on its behalf by:
Paul Hayes
Group Finance Director
Notes
2012
£m
2011
£m
3.1
3.2
3.3
4.2
2.4
3.3
3.3
4.2
2.4
4.1
4.1
3.3
4.2
2.4
3.6
4.1
3.3
5.2
3.6
2.4
4.3
68.2
48.6
0.5
0.6
14.4
132.3
59.5
50.1
1.8
1.0
10.0
122.4
254.7
0.7
44.4
0.1
6.6
2.5
54.3
73.0
1.0
9.4
1.2
1.2
85.8
140.1
114.6
8.8
10.4
(2.0)
1.6
1.5
94.3
114.6
75.0
50.1
0.4
-
15.8
141.3
66.4
50.7
0.3
0.8
6.9
125.1
266.4
0.7
58.3
1.6
7.4
4.1
72.1
56.6
1.2
4.9
1.6
0.7
65.0
137.1
129.3
8.7
9.8
5.8
1.6
(0.9)
104.3
129.3
1.23
1.63
1.20
1.55
The Vitec Group plc
Consolidated Statement of Changes in Equity
69
Balance at 1 January 2012
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Actuarial loss on pension obligations, net of tax
Foreign exchange gain recycled to the Income Statement
on disposal of business
Currency translation differences on foreign currency subsidiaries
Net gain on designated effective net investment hedges
Amounts released to Income Statement in relation to cash flow hedges,
net of tax
Effective portion of changes in fair value of cash flow hedges
Contributions by and distributions to owners
Dividends paid
Own shares purchased
Share-based payment charge
New shares issued
Balance at 31 December 2012
Balance at 1 January 2011
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Actuarial gain on pension obligations, net of tax
Currency translation differences on foreign currency subsidiaries
Net loss on designated effective net investment hedges
Amounts released to Income Statement in relation to cash flow hedges,
net of tax
Effective portion of changes in fair value of cash flow hedges
Contributions by and distributions to owners
Dividends paid
Own shares purchased
Share-based payment charge
New shares issued
Balance at 31 December 2011
Share
capital
£m
8.7
Share
premium
£m
Translation
reserve
£m
Capital
redemption
reserve
£m
Cash flow
hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
9.8
5.8
1.6
(0.9)
104.3
129.3
-
-
-
-
-
-
-
-
-
-
0.1
8.8
8.6
-
-
-
-
-
-
-
-
-
0.1
8.7
-
-
-
-
-
-
-
-
-
-
0.6
10.4
9.6
-
-
-
-
-
-
-
-
-
0.2
9.8
-
-
(2.0)
(8.2)
2.4
-
-
-
-
-
-
(2.0)
5.9
-
-
0.1
(0.2)
-
-
-
-
-
-
5.8
-
-
-
-
-
-
-
-
-
-
-
1.6
1.6
-
-
-
-
-
-
-
-
-
-
1.6
-
-
-
-
-
0.3
2.1
-
-
-
-
1.5
5.9
5.9
(3.8)
-
-
-
-
-
(9.1)
(4.8)
1.8
-
94.3
(3.8)
(2.0)
(8.2)
2.4
0.3
2.1
(9.1)
(4.8)
1.8
0.7
114.6
(0.1)
98.7
124.3
-
-
-
-
0.5
(1.3)
-
-
-
-
(0.9)
15.0
15.0
0.4
-
-
-
-
(8.2)
(2.8)
1.2
-
104.3
0.4
0.1
(0.2)
0.5
(1.3)
(8.2)
(2.8)
1.2
0.3
129.3
Annual Report & Accounts 2012
70
Consolidated Statement of Cash Flows
For the year ended 31 December 2012
Cash flows from operating activities
Profit for the year
Adjustments for:
Taxation
Depreciation
Amortisation of intangible assets
Impairment of goodwill
Net gain on disposal of property, plant and equipment and software
Fair value gains on derivative financial instruments
Share-based payment charge
Contingent consideration on previous acquisitions
Disposal of business
Financial income
Financial expense
Operating profit before changes in working capital and provisions
Decrease/(increase) in inventories
Decrease /(increase) in receivables
(Decrease)/increase in payables
(Decrease)/increase in provisions
Cash generated from operating activities
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment and software
Purchase of property, plant and equipment
Capitalisation of software and development costs
Acquisition of businesses, net of cash acquired
Disposal of business
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issue of shares
Own shares purchased
Proceeds from interest-bearing loans and borrowings
Dividends paid
Net cash used in financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
Note
2012
£m
2011
£m
5.9
15.0
10.2
12.6
5.2
8.8
(0.3)
(0.2)
1.8
1.0
6.4
(2.5)
5.6
54.5
1.3
(4.4)
(11.8)
(1.2)
38.4
(3.1)
(10.8)
24.5
1.8
(14.2)
(1.3)
(10.6)
(2.1)
(26.4)
0.7
(4.8)
18.8
(9.1)
5.6
3.7
6.2
(0.6)
9.3
8.8
13.2
4.9
5.2
(2.6)
(0.1)
1.2
-
-
(3.1)
4.6
47.1
(8.4)
(3.2)
6.0
(2.4)
39.1
(1.8)
(11.1)
26.2
6.4
(13.7)
(2.4)
(27.9)
-
(37.6)
0.3
(2.8)
21.6
(8.2)
10.9
(0.5)
6.7
-
6.2
3.4
3.5
4.1
The Vitec Group plc
Section 1 – Basis of preparation
71
This section lays out the Group’s accounting policies that
relate to the financial statements as a whole. Where an
accounting policy is specific to one note, the policy is
described in the note to which it relates.
Foreign Currencies
The consolidated financial statements are presented in Sterling
with the reporting currency of the Group’s subsidiaries generally
being that of the local country.
The Vitec Group plc (the “Company”) is a company domiciled in
the United Kingdom. The consolidated financial statements of
the Company as at and for the year ended 31 December 2012
comprise the Company and its subsidiaries (together referred to
as the “Group”).
As required by EU law (IAS Regulation EC 1606/2002) the Group
financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
EU (“IFRS”), and have been approved by the Directors.
The financial statements are principally prepared on the basis of
historical cost. Areas where other bases are applied are identified
in the accounting policy outlined in the relevant note.
The Company has elected to prepare its parent company financial
statements in accordance with UK GAAP.
Going Concern
The Group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Directors’ Report. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities are
described in the Financial Review. In addition, note 4.2 “Financial
Instruments” includes the Group’s 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, including
undrawn borrowing facilities at the end of the year of £83.2 million
(see note 4.2 “Financial Instruments”). The Directors believe that
the Group is well placed to manage its business risks.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing the
Consolidated Financial Statements.
Basis of consolidation
Subsidiaries are entities that are directly or indirectly controlled
by the Group. Control exists when the Group has the power to
govern the financial and operating policies of an entity in order to
obtain benefits from its activities. The results of subsidiaries sold
or acquired during the year are included in the accounts up to,
or from, the date that control exists.
Transactions in foreign currencies are translated at the exchange
rate on that day.
Foreign currency monetary assets and liabilities are translated
at the year-end exchange rate. Where there is a movement in
the exchange rate between the date of the transaction and the
year-end, a currency translation gain or loss may arise. Any such
differences are recognised in the Income Statement.
Non-monetary assets and liabilities measured at historical cost
are translated at the exchange rate on the day of the transaction,
unless they are stated at fair value in which case they are
translated at the exchange rate of the day the fair value was
determined.
The assets and liabilities of overseas companies, including
goodwill and fair value adjustments arising on consolidation, are
translated at the year-end exchange rate.
The revenues and expenses of these companies are translated
at the weighted average exchange rate for the year. Where
differences arise between these rates, they are recognised in the
translation reserve within Equity and Other comprehensive income.
The cash flows of these companies are translated at the weighted
average exchange rate for the year.
In the consolidated financial statements, currency translation
gains and losses on long-term inter-company loans that form
part of the net investment in the subsidaries are recognised
directly in the translational reserve within Equity and Other
comprehensive income.
In respect of all overseas companies, only those translation
differences arising since 1 January 2004, the date of transition
to IFRS, are presented as a separate component of equity.
On disposal of such a company, the related translation reserve
is released to the Income Statement as part of the gain or loss
on disposal.
Annual Report & Accounts 2012 72
Section 1 – Basis of preparation
Application of new or amended EU endorsed
accounting standards
A number of amendments to published standards and
interpretations are effective for the Group for the year ended
31 December 2012. The Group has reviewed the effect of
these amendments and interpretations, and has concluded
that they have no material impact on these consolidated
financial statements.
New standards and interpretations not yet adopted
There are a number of new standards, amendments to standards
and interpretations that are not yet effective for the year ended
31 December 2012, and have not been adopted early in preparing
these consolidated financial statements. Those which may be
relevant to the Group are set out below.
IAS 19 Employee Benefits (2011)
IAS 19 (2011) changes the definition of short-term and other
long-term employee benefits to clarify the distinction between the
two. For defined benefit plans, removal of the accounting policy
choice for recognition of actuarial gains and losses is not expected
to have any impact on the Group. The Group has considered the
impact of the change in measurement principles on the defined
benefit liability at 31 December 2012 and concluded that it is not
material; this will continue to be monitored during 2013.
Critical accounting judgements and estimates
The following provides information on those policies that the
Directors consider critical because of the level of judgement and
estimation required which often involves assumptions regarding
future events which can vary from what is anticipated. The
Directors review the judgements and estimates on an ongoing
basis with revisions to accounting estimates recognised in the
period in which the estimates are revised and in any future periods
affected. The Directors believe that the consolidated financial
statements reflect appropriate judgements and estimates and
provide a true and fair view of the Group’s performance and
financial position.
Pension benefits
The actuarial valuations associated with the pension schemes
involve making assumptions about discount rates, expected
rates of return on assets, future salary increases, future pension
increases and mortality rates. All assumptions are reviewed at
each reporting date. Further details about the assumptions
used are set out in note 5.2 “Pensions”.
Impairment testing
Goodwill is tested annually for impairment. Tests for impairment
are based on discounted cash flows and assumptions (including
discount rates, timing and growth prospects) which are inherently
subjective. Details about the assumptions used are set out in
note 3.1 “Intangible assets”.
Acquisitions
Acquisitions are accounted for under the acquisition method,
based on the fair value of the consideration paid. Assets and
liabilities are measured at fair value and the purchase price is
allocated to assets and liabilities based on these fair values.
IFRS 3 requires the identification of acquired intangible assets as
part of a business combination. The methods used to value such
intangible assets require the use of estimates including forecast
performance. Accordingly determining the fair values of assets
and liabilities acquired involves the use of significant estimates
and assumptions (including discount rates, asset lives and
recoverability). Details concerning the acquisition made in
the year are set out in note 3.4 “Acquisitions”.
Tax
The Group is subject to income taxes in a number of jurisdictions.
Management is required to make judgements and estimates in
determining the provisions for income taxes, deferred tax assets
and liabilities recognised in the consolidated financial statements.
Tax benefits are recognised to the extent that it is probable that
sufficient taxable income will be available in the future against
which temporary differences and unused tax losses can be
utilised. Details on the tax charge and assets and liabilities
recorded are set out in note 2.4 “Tax”.
The Vitec Group plc
Section 2 – Results for the year
73
This section focuses on the profitability of the Group. On the following pages you will find disclosures relating
to the following:
2.1 Profit before tax (including segmental information)
2.2 Charges associated with acquired businesses
2.3 Net finance expense
2.4 Tax
2.5 Earnings per share
2.1 Profit before tax (including segmental information)
This shows the analysis of the Group’s profit before tax by reference to its three Divisions. Further segmental information
and an analysis of key operating expenses are also shown here.
Accounting policies
Revenue recognition
Revenue is stated exclusive of VAT and consists of sales to third parties after an allowance for returns, trade discounts
and volume rebates.
Goods and services sold
Revenue from the sale of goods is recognised when both the significant risks and rewards of ownership have been transferred
to the customer and the amount of revenue can be measured reliably. This is normally when title passes to the customer.
Revenue from rental of assets is recognised over the duration of the rental contract, on a straight line basis, at the amount
billed to the customer.
Annual Report & Accounts 2012
74
Section 2 – Results for the year
2.1 Profit before tax
Segment reporting
The Group has three reportable segments which are reported in a manner that is consistent with the internal reporting provided to the
Chief Operating Decision Maker (considered to be the Board). Further details on the nature of these segments and the products and
services they provide are contained in the Directors’ Report.
Revenue from external customers:
Sales
Services
Total revenue from external customers
Inter-segment revenue (2)
Total revenue
Segment result
Fair value adjustment to contingent consideration on
previous acquisitions
Transaction costs relating to acquisitions
Impairment of goodwill
Amortisation of acquired intangible assets
Operating profit
Finance income
Finance costs
Loss on disposal of Staging business
Taxation
Profit for the year
Segment assets
Unallocated assets
Cash and cash equivalents
Current tax assets
Deferred tax assets
Total assets
Segment liabilities
Unallocated liabilities
Bank overdrafts
Interest-bearing loans and borrowings
Current tax liabilities
Deferred tax liabilities
Total liabilities
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Capital expenditure
Property, plant and equipment
Intangible assets
Videocom
Imaging (1)
Services
Corporate and
unallocated
Consolidated
2012
£m
2011
£m
2012
£m
2011
£m
2012
£m
2011
£m
2012
£m
2011
£m
2012
£m
2011
£m
137.1
9.1
134.0
2.2
166.1
-
183.2
-
146.2
2.5
148.7
136.2
2.3
138.5
166.1
0.2
166.3
183.2
0.6
183.8
7.0
26.0
33.0
0.1
33.1
7.5
24.1
31.6
0.1
31.7
-
-
-
(2.8)
(2.8)
-
-
310.2
35.1
324.7
26.3
-
(3.0)
(3.0)
345.3
-
345.3
351.0
-
351.0
15.8
12.7
22.3
21.2
1.2
0.6
(1.2)
(0.3)
(8.8)
(3.1)
-
(0.5)
-
(2.6)
0.2
-
-
(0.5)
-
(0.3)
(5.2)
(0.6)
-
-
-
-
-
-
-
-
2.4
9.6
22.0
15.1
1.2
0.6
-
-
(6.4)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
39.3
34.5
(1.0)
(0.3)
(8.8)
(3.6)
25.6
2.5
(5.6)
(6.4)
(10.2)
5.9
-
(0.8)
(5.2)
(3.2)
25.3
3.1
(4.6)
-
(8.8)
15.0
111.6
119.6
90.8
100.3
22.4
22.2
4.5
0.8
229.3
242.9
23.1
27.3
27.2
33.2
3.9
3.1
4.4
8.1
58.6
71.7
10.0
1.0
14.4
6.9
0.8
15.8
10.0
1.0
14.4
254.7
6.9
0.8
15.8
266.4
0.7
73.0
6.6
1.2
0.7
56.6
7.4
0.7
0.7
73.0
6.6
1.2
140.1
0.7
56.6
7.4
0.7
137.1
2.8
(14.2)
-
3.8
(1.4)
-
13.1
(6.8)
-
11.7
(3.6)
-
5.4
(5.3)
-
5.7
(3.5)
-
3.2
(0.1)
5.6
5.0
(29.1)
10.9
24.5
(26.4)
5.6
26.2
(37.6)
10.9
3.1
0.6
3.2
0.7
4.2
0.6
4.4
1.2
6.8
0.1
5.8
0.5
0.1
-
0.3
-
14.2
1.3
13.7
2.4
(1) The Imaging and Staging segment has been renamed the Imaging segment following the disposal of the Staging business in the year (see note 3.5 “Disposals”).
(2) Inter-segment pricing is determined on an arm’s length basis.
No individual customer accounted for more than 10% of external revenue in either 2012 or 2011.
The Vitec Group plc
Geographical segments
Analysis of revenue from external customers, by location of customer
United Kingdom
The rest of Europe
North America
Asia Pacific
The rest of the World
Total revenue from external customers
75
2012
£m
2011
£m
32.9
79.4
155.5
60.4
17.1
345.3
26.0
89.3
156.9
61.0
17.8
351.0
The Group’s operating segments are located in several geographical locations, and sell products and services on to external customers
in all parts of the world.
Operating expenses
Analysis of operating expenses
- Charges associated with acquired businesses
- Other administrative expenses
Administrative expenses
Marketing, selling and distribution costs
Research, development and engineering costs
Operating expenses
Operating profit
The following items are included in operating profit
Fees payable to the Company’s auditors for the audit of the Company’s annual financial statements
Fees payable to the Company’s auditors and its associates for other services
- The audit of the Company’s subsidiaries pursuant to legislation
- Transaction and other services
2012
£m
2011
£m
13.7
48.2
61.9
48.6
11.1
121.6
9.2
48.0
57.2
51.4
12.2
120.8
2012
£m
2011
£m
0.1
0.3
0.1
0.1
0.3
0.2
Annual Report & Accounts 2012
76
Section 2 – Results for the year
2.2 Charges associated with acquired businesses
Charges associated with acquired businesses are excluded from key performance measures in order to more accurately
show the underlying current business performance of the Group in a consistent manner and reflect how the business is
managed and measured on a day-to-day basis. Such costs include non-cash charges, for example impairment of goodwill
and amortisation of acquired intangible assets, and cash charges such as transaction costs and fair value adjustments
to contingent consideration since date of acquisition.
Contingent consideration on previous acquisitions (1)
Transaction costs relating to acquisitions (2)
Impairment of goodwill (3)
Amortisation of acquired intangible assets
Charges associated with acquired businesses, before tax
Tax on charges associated with acquired businesses
Charges associated with acquired businesses, net of tax
2012
£m
(1.0)
(0.3)
(8.8)
(3.6)
(13.7)
1.3
(12.4)
2011
£m
-
(0.8)
(5.2)
(3.2)
(9.2)
2.0
(7.2)
(1) A contingent consideration of £1.2 million has been provided for at 31 December 2012 in respect of a prior period acquisition (Haigh-Farr). A contingent
consideration of £0.7 million provided within goodwill at 31 December 2011 in respect of a prior period acquisition (Manfrotto Lighting, previously Lastolite),
was reversed by £0.2 million. The net charge of £1.0 million is included within administrative expenses, in the charges associated with acquired businesses.
See note 3.4 “Acquisitions”.
(2) £0.3 million transaction costs were incurred in relation to the acquisition of Camera Corps. See note 3.4 “Acquisitions”.
(3) The annual impairment review of goodwill led to a charge of £8.8 million to the goodwill of the IMT business, in the Videocom Division.
2.3 Net finance expense
This note details the finance income and expense generated from the Group’s financial assets and liabilities.
Accounting policies
Net finance expense comprises:
- interest payable on borrowings and interest receivable on funds invested;
- the amortisation of loan costs;
- foreign exchange gains and losses on external loans that are not part of a net investment hedge;
- the finance element of defined benefit pension schemes; and
- gains and losses on derivatives to the extent that they are recognised in the Income Statement.
Net finance expense
Finance income
Expected return on assets in the pension scheme (1)
Net currency translation gains
Finance expense
Interest payable on interest-bearing loans and borrowings
Interest charge on defined benefit pension scheme liabilities (1)
Net finance expense
(1) See note 5.2 “Pensions”.
2012
£m
2.2
0.3
2.5
(3.2)
(2.4)
(5.6)
(3.1)
2011
£m
2.8
0.3
3.1
(1.9)
(2.7)
(4.6)
(1.5)
The Vitec Group plc
77
2.4 Tax
This note lays out the tax accounting policies, the total tax charge or credit in the Income Statement, and tax assets
and tax liabilities in the Balance Sheet. This includes amounts relating to deferred tax.
Accounting policies
Income Tax
The tax expense in the Income Statement represents the sum of tax currently payable and deferred tax.
Current tax is the expected tax payable on the taxable income for the year, 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 carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred
tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates
substantively enacted at the Balance Sheet date.
Deferred tax assets are recognised for all deductible temporary differences and carried forward unused tax credits and unused tax
losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the
carry forward of unused tax credits and unused tax losses can be utilised.
The carrying amount of deferred income tax assets is reviewed at each Balance Sheet date and increased or reduced to the extent
of the probable level of taxable profit that would be available to allow all or part of the deferred income tax asset to be utilised.
Deferred tax liabilities are not recognised for the following temporary differences:
- Goodwill not deductible for tax purposes on the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; and
- Differences relating to investments in subsidiaries to the extent that the timing of the reversal is controlled by the Company
and they will probably not reverse in the foreseeable future.
Tax - Income Statement
The total taxation charge/(credit) in the Income Statement is analysed as follows:
Before charges associated with acquired businesses and disposal of business
Current tax
Deferred tax
Charges associated with acquired businesses and disposal of business
Current tax (1)
Deferred tax (2)
Summarised in the Income Statement as follows
Current tax
Deferred tax
2012
£m
2011
£m
9.8
2.1
11.9
-
(1.7)
(1.7)
9.8
0.4
10.2
8.7
2.1
10.8
(0.3)
(1.7)
(2.0)
8.4
0.4
8.8
(1) Current tax credits of £0.3 million were recognised with a corresponding credit to Charges associated with acquired businesses in 2011. This related to the
current tax impact of the amortisation of intangible assets in the period. There is no impact of the amortisation of intangibles to current tax in 2012.
(2) Deferred tax credits of £1.7 million have been recognised. £1.3 million relates to the deferred tax impacts of the amortisation of intangible assets. The remaining
£0.4 million relates to the deferred tax impact of the Staging disposal. In 2011, the impairment of goodwill to the Italian portion of the Staging business resulted
in the reversal of a deferred tax liability and a corresponding credit to Charges associated with acquired businesses of £0.7 million with the remaining £1.0 million
credit related to the deferred tax impacts of the amortisation of intangible assets.
Annual Report & Accounts 2012
78
Section 2 – Results for the year
2.4 Tax
Current tax expense
Charge for the year
Adjustments in respect of prior years
2012
£m
10.0
(0.2)
9.8
2011
£m
9.2
(0.8)
8.4
The UK current tax charge represents £1.5 million of the total Group current tax charge of £9.8 million with the remaining charge of
£8.3 million relating to overseas tax. The UK corporate tax rate reduced from 26% to 24% on 1 April 2012 and a further reduction in the
rate to 23% with effect from 1 April 2013 has been enacted. The UK Government has announced its intention to further reduce the rate
to 21% from 1 April 2014.
Deferred tax expense
Origination and reversal of temporary differences
Tax credits recognised in SOCIE (3)
2012
£m
0.4
-
0.4
2011
£m
0.4
-
0.4
(3) Deferred tax debits relating to the impact of cash flow hedges of £1.0 million have been fully offset by an equal £1.0 million credit in respect of the UK and
German defined benefit pension schemes. Both items have been reflected in the SOCIE.
The UK deferred tax credit represents £0.5 million of the total Group deferred tax charge of £0.4 million, offset by a £0.9 million charge
relating to overseas tax.
Reconciliation of Group tax charge
Profit before tax
Income tax using the domestic corporation tax rate at 24.5% (2011: 26.5%)
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Impact of business disposal
Impact of tax credits in respect of prior years
Impact of goodwill impairment
Impact of tax losses not recognised
Other
Total income tax expense in Income Statement
2012
£m
16.1
4.0
(1.3)
1.0
2.5
(0.7)
3.3
1.5
(0.1)
10.2
2011
£m
23.8
6.3
(0.2)
0.9
-
(0.8)
1.0
1.5
0.1
8.8
The Vitec Group plc
79
Tax - Balance Sheet
Current tax
The current tax liability of £6.6 million (2011: £7.4 million) represents the amount of income taxes payable in respect of current and prior
periods. The current tax assets of £1.0 million (2011: £0.8 million) mainly relate to income tax receivable in Germany and the US.
Deferred tax assets and liabilities
Assets
Inventories
Intangible assets
Tax value of loss carry-forwards recognised
Property, plant, equipment and other
Liabilities
Intangible assets
Net
Assets
Inventories
Intangible assets
Tax value of loss carry-forwards recognised
Property, plant, equipment and other
Liabilities
Intangible assets
Property, plant, equipment and other
Net
Recognised Recognised
on
in
income acquisitions
£m
£m
2012
£m
Eliminated
on
Exchange
disposals movements
£m
£m
2.9
(1.3)
4.1
8.7
14.4
(1.2)
(1.2)
13.2
0.7
0.7
0.6
(1.9)
0.1
(0.5)
(0.5)
(0.4)
-
(0.7)
-
-
(0.7)
-
-
(0.7)
-
-
-
(0.3)
(0.3)
-
-
(0.3)
-
-
(0.1)
(0.4)
(0.5)
-
-
(0.5)
Recognised Recognised
on
in
acquisitions
income
£m
£m
2011
£m
Exchange
Transfers (1) movements
£m
£m
2.2
(1.3)
3.6
11.3
15.8
(0.7)
-
(0.7)
15.1
(0.5)
(0.3)
0.8
(0.4)
(0.4)
-
-
-
(0.4)
-
(4.7)
-
-
(4.7)
-
-
-
(4.7)
0.3
(1.6)
(0.6)
0.2
(1.7)
1.6
0.1
1.7
-
0.2
-
(0.2)
-
-
-
-
-
-
2011
£m
2.2
(1.3)
3.6
11.3
15.8
(0.7)
(0.7)
15.1
2010
£m
2.2
5.3
3.6
11.5
22.6
(2.3)
(0.1)
(2.4)
20.2
(1) Deferred tax assets have been offset against liabilities where assets and liabilities arise in the same jurisdiction and there is a legal right of offset.
Deferred tax assets totalling £9.2 million (2011: £9.9 million) have been recognised in the US on the basis that future profits are expected
to be made in the US businesses such that it is probable that these assets will be utilised in the foreseeable future.
Deferred tax assets have not been recognised in respect of the following items:
Losses
Temporary differences on share options
Total
2012
£m
7.7
1.2
8.9
2011
£m
6.6
1.2
7.8
Deferred tax assets have not been recognised in respect of these items because it is not sufficiently probable that these assets will reverse in
the foreseeable future.
No taxes have been provided for liabilities which may arise on the distribution of unremitted earnings of subsidiaries on the basis of control,
except where distributions of such profits are planned. Cumulative unremitted earnings of overseas subsidiaries and associates totalled
approximately £61.2 million at 31 December 2012 (2011: £57.9 million). It is not practical to calculate the tax which would arise on remittance
of these amounts and, as dividends remitted from overseas subsidiaries to the UK should be exempt from additional UK tax, no significant
tax charges would be expected.
Annual Report & Accounts 2012
80
Section 2 – Results for the year
2.5 Earnings per share
Earnings per share (“EPS”) is the amount of post-tax profit attributable to each share.
Basic EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue
during the year.
Diluted EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue
during the year, but adjusted for the effects of dilutive share options. The key features of share option contracts are
described in note 5.3 “Share-based payments”.
The Adjusted EPS measure is used by Management to assess the underlying performance of the ongoing businesses,
and therefore excludes charges associated with acquired businesses and disposal of business, both net of tax.
The calculation of basic, diluted and adjusted EPS is set out below:
Profit
Profit for the financial year
Add back:
Charges associated with acquired businesses, net of tax
Loss on disposal of Staging business, net of tax
Earnings before charges associated with acquired businesses and disposal of business
Basic
Dilutive potential ordinary shares:
- Employee share options
- Deferred bonus plan
Diluted
2012
£m
5.9
12.4
6.0
24.3
2011
£m
15.0
7.2
-
22.2
Weighted average number
of shares ’000
Adjusted earnings
per share
Earnings per share
2012
Number
2011
Number
43,520
43,197
311
115
43,946
975
102
44,274
2012
pence
55.8
(0.4)
(0.1)
55.3
2011
pence
51.4
(1.2)
(0.1)
50.1
2012
pence
13.6
(0.1)
(0.1)
13.4
2011
pence
34.7
(0.7)
(0.1)
33.9
The Vitec Group plc
Section 3 – Operating assets and liabilities
81
This section shows the assets and liabilities used to
generate the Group’s trading performance. Liabilities
relating to the Group’s financing activities are addressed
in Section 4. Current tax and deferred tax assets and
liabilities are shown in Section 2.4.
On the following pages, there are disclosures covering
the following:
3.1 Intangible assets
3.2 Property, plant and equipment
3.3 Working capital
3.4 Acquisitions
3.5 Disposals
3.6 Provisions
3.1 Intangible assets
This shows the non-physical assets used by the Group
to generate revenues and profits. These assets include
the following:
- Goodwill
- Acquired intangible assets
- Capitalised software
- Capitalised development costs
Accounting policies
Goodwill
The goodwill recognised by the Group has all arisen as a result
of acquisitions and is stated at cost less any accumulated
impairment losses. Impairment losses on goodwill are not
reversed. From 1 January 2004 (IFRS transition date), goodwill
is allocated on acquisition, to cash-generating units that are
anticipated to benefit from the combination, and is not subject to
amortisation but is tested annually for impairment. Impairment is
determined by assessing the recoverable amount of the cash-
generating unit to which the goodwill relates. This estimate of
recoverable amount is determined at each Balance Sheet date.
The estimate of recoverable amount requires significant
assumptions to be made and is based on a number of factors
such as the near-term business outlook for the cash-generating
unit, including both its operating profit and operating cash
flow performance. Where the recoverable amount of the cash
generating unit is less than the carrying amount, an impairment
loss is recognised.
All acquisitions that have occurred since 1 January 2010 are
accounted for by applying the acquisition method. Goodwill on
these acquisitions represents the excess of the fair value of the
acquisition over the fair value to the Group, of the identifiable net
assets acquired, all measured at the acquisition date. Subsequent
adjustments to the fair values of net assets acquired can be
made within twelve months of the acquisition date where original
fair values were determined provisionally. These adjustments are
accounted for from the date of acquisition. Transaction costs that
the Group incurs in connection with an acquisition, such as legal
fees, due diligence fees and other professional and consulting
fees, are expensed as incurred.
Acquisitions that occurred between 1 January 2004 and
31 December 2009 have been accounted for by applying
the acquisition method in accordance with IFRS 3 ‘Business
Combinations (2004)’. Goodwill on these acquisitions represents
the excess of the cost of the acquisition over the fair value to the
Group of the identifiable net assets acquired. When the excess
is negative (negative goodwill) it is recognised immediately in the
Income Statement. Transaction costs that the Group incurred in
connection with an acquisition, such as legal fees, due diligence
fees and other professional and consulting fees, were included
in the cost of acquisition.
In respect of acquisitions prior to 1 January 2004, goodwill is
included on the basis of its deemed cost, which represents the
amount recorded previously under UK GAAP at that time less
amortisation up to 31 December 2003. Prior to 1 January 1998,
goodwill was written off to reserves in the year of acquisition.
Other intangible assets
The other intangible assets are either acquired, or internally
generated (such as capitalised software and capitalised
development costs).
Acquired intangible assets
Other intangible assets acquired as part of a business combination
are shown at fair value at the date of acquisition less accumulated
amortisation at the rates indicated below:
Order backlog
Brand
Customer relationships
Technology
up to 2 years
3 to 15 years
3 to 15 years
3 to 15 years
Annual Report & Accounts 2012
82
Section 3 – Operating assets and liabilities
3.1 Intangible assets
Capitalised software
The cost of acquiring software (including associated implementation
and development costs where applicable) is classified as an
intangible asset. Costs that are directly associated with the
production of identifiable and unique software products controlled
by the Group, and that are assessed as likely to generate
economic benefits exceeding costs beyond one year, are also
capitalised and recognised as intangible assets. Costs associated
with maintaining computer software programmes are recognised
as an expense as incurred. Capitalised software expenditure is
amortised over its estimated useful life of between 3 to 5 years,
and is stated at cost less accumulated amortisation and
impairment losses.
A goodwill impairment of £8.8 million has been charged to the
Income Statement, within charges associated with acquired
businesses. This is in relation to the Group’s full impairment
of goodwill in the IMT business (2011: £5.2 million relating to
goodwill in the Staging business). While the business is trading in
line with expectations in 2012, the Directors have reassessed its
longer term prospects and concluded that these do not support
the carrying value of goodwill. The IMT CGU represents a
business operation and is within the Videocom segment.
The carrying value of the remaining CGUs exceed their
recoverable amounts.
The key assumptions on which the value in use calculations
are based relate to business performance over the next five
years, long-term growth rates beyond 2017 and the discount
rates applied. The key judgements are the level of revenue and
operating margins anticipated and the proportion of operating
profit converted to cash in each year. Forecasts are based on
past experience and take into account current and future market
conditions and opportunities.
Growth rates for the period beyond 2017 are assumed to be 2%,
which is considered to be at or below long-term market trends for
significant CGUs.
The cash flow projections have been discounted to present value
using the Group’s post-tax weighted average cost of capital
adjusted for economic and CGU-specific risk factors including
markets and size of business. Pre-tax rates of 9% to 14% have
been used for impairment testing (11% applied to the Haigh-Farr
CGU, 13% applied to the Vitec Videocom and Imaging CGUs
and 14% applied to IMT CGU).
The following specific individual sensitivities have been considered
for each CGU in relation to the value in use calculations, resulting
in the carrying amount not exceeding the recoverable amount:
- if the long-term growth rate assumption was reduced to 1%;
and
- a 1% point increase in the discount rate applied.
Capitalised development costs
Research and development costs are charged to the Income
Statement in the year in which they are incurred unless
development expenditure meets the criteria for capitalisation.
Once detailed and strict criteria have been met that confirm that
the product or process is both technically and commercially
feasible and the Group has sufficient resources to complete
the project, any further expenditure incurred on the project is
capitalised. The capitalised expenditure includes the cost of
materials, direct labour and an appropriate portion of overheads.
Capitalised expenditure is amortised over the life of the project,
and is stated at cost less accumulated amortisation and
impairment losses.
Impairment tests for cash-generating units (CGUs)
containing goodwill
In accordance with the requirements of IAS 36, Impairment of
Assets, goodwill is allocated to the Group’s cash-generating
units which are identified by the way goodwill is monitored for
impairment. The most significant elements of the Group’s total
consolidated goodwill of £52.3 million at 31 December 2012 are
allocated to Vitec Videocom: £18.4 million (2011: £17.2 million)
Imaging: £12.7 million (2011: £13.0 million) and Haigh-Farr:
£12.7 million (2011: £13.3 million). Vitec Videocom and Haigh-Farr
CGUs sit within the Videocom segment and the Imaging CGU
sits within the Imaging segment. The remaining goodwill relates to
CGUs which are not individually significant. Each cash-generating
unit is assessed for impairment annually and whenever there is a
specific indication of impairment.
As part of the annual impairment test review, the carrying value of
goodwill has been assessed with reference to value in use over
a projected period of five years together with a terminal value.
This reflects the projected cash flows of each cash-generating
unit based on the actual operating results, the most recent Board
approved budget, strategic plans and management projections.
The Vitec Group plc
83
Total
£m
Goodwill
£m
Acquired
intangible
assets
£m
Capitalised
Capitalised development
costs
£m
software
£m
100.6
0.3
1.5
31.8
134.2
134.2
(4.8)
2.0
(0.6)
(12.1)
8.1
126.8
48.8
0.3
4.9
5.2
59.2
59.2
(2.6)
5.2
8.8
(12.0)
58.6
51.8
75.0
68.2
52.7
0.1
(0.9)
18.3
70.2
70.2
(2.3)
0.7
-
(8.2)
5.0
65.4
7.9
-
-
5.2
13.1
13.1
(0.6)
-
8.8
(8.2)
13.1
44.8
57.1
52.3
34.2
0.3
-
13.5
48.0
48.0
(2.0)
-
-
(3.1)
3.1
46.0
31.5
0.4
3.2
-
35.1
35.1
(1.6)
3.6
-
(3.1)
34.0
2.7
12.9
12.0
11.6
(0.1)
2.3
-
13.8
13.8
(0.4)
1.0
(0.6)
(0.8)
-
13.0
9.2
(0.1)
1.2
-
10.3
10.3
(0.4)
1.0
-
(0.7)
10.2
2.4
3.5
2.8
2.1
-
0.1
-
2.2
2.2
(0.1)
0.3
-
-
-
2.4
0.2
-
0.5
-
0.7
0.7
-
0.6
-
-
1.3
1.9
1.5
1.1
Intangible assets
Cost
At 1 January 2011
Currency translation adjustments
Additions/(reductions)
Acquisitions
At 31 December 2011
At 1 January 2012
Currency translation adjustments
Additions (1)
Disposals
Disposals - on divestment of business
Acquisitions (2)
At 31 December 2012
Amortisation and impairment losses
At 1 January 2011
Currency translation adjustment
Amortisation in the year
Impairment charge
At 31 December 2011
At 1 January 2012
Currency translation adjustment
Amortisation in the year
Impairment charge (3)
Disposals - on divestment of business
At 31 December 2012
Carrying amounts
At 1 January 2011
At 31 December 2011 and 1 January 2012
At 31 December 2012
(1) The increase in goodwill of £0.7 million arose on the deferred consideration of Litepanels (an acquisition prior to 1 January 2010) being revised to reflect the
increased earn-out payment of £0.7 million that was not accrued at 31 December 2011.
(2) Acquired intangible assets of £3.1 million and goodwill of £5.0 million arose on the acquisition of Camera Corps. See note 3.4 “Acquisitions”.
(3) The annual impairment review of goodwill led to a full impairment charge of £8.8 million to the goodwill of the IMT business, in the Videocom Division.
Annual Report & Accounts 2012
84
Section 3 – Operating assets and liabilities
3.2 Property, plant and equipment
This shows the physical assets used by the Group to generate revenues and profits. These assets include the following:
- Land and buildings
- Plant, machinery and vehicles
- Equipment, fixtures and fittings
Accounting policies
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain land and buildings
that had been revalued to fair value prior to 1 January 2004, the date of transition to IFRS, are measured on the basis of deemed cost,
being the revalued amount less depreciation up to the date of transition.
Rental assets are recorded as plant and machinery.
Depreciation
Depreciation is provided to write off the cost of property, plant and equipment, less estimated residual value, on a straight line basis over
their estimated useful lives. The annual depreciation charge is sensitive to the estimated useful life of each asset and expected residual
value at the end of its life. The major categories of property, plant and equipment are depreciated as follows:
Freehold land
Freehold and long leasehold buildings
Leasehold improvements
Plant and machinery
Motor vehicles
Equipment, fixtures and fittings
Rental assets
not depreciated
up to 50 years
shorter of estimated useful life or remaining period of the lease
4 to 10 years
3 to 4 years
3 to 10 years
3 to 6 years
Impairment of assets
Property, plant and equipment that is subject to depreciation is reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Indicators of impairment may include changes in technology and market conditions.
The Vitec Group plc
85
Land
and
buildings
£m
Plant,
machinery
and
vehicles
£m
Equipment,
fixtures
and
fittings
£m
35.0
(0.3)
1.4
(5.6)
-
30.5
30.5
(0.7)
-
1.5
(0.2)
(1.5)
-
29.6
14.2
(0.2)
1.6
(2.7)
12.9
12.9
(0.2)
-
1.4
(0.2)
(0.9)
13.0
20.8
17.6
16.6
97.5
(0.6)
11.1
(8.1)
0.2
100.1
100.1
(3.6)
(1.3)
10.7
(5.4)
(3.4)
0.7
97.8
69.7
(0.5)
10.4
(7.3)
72.3
72.3
(2.6)
(1.0)
9.5
(4.5)
(2.9)
70.8
27.8
27.8
27.0
15.3
(0.1)
1.2
(2.1)
-
14.3
14.3
(0.6)
1.3
2.0
(0.6)
(0.5)
0.1
16.0
10.5
(0.1)
1.2
(2.0)
9.6
9.6
(0.4)
1.0
1.7
(0.6)
(0.3)
11.0
4.8
4.7
5.0
Total
£m
147.8
(1.0)
13.7
(15.8)
0.2
144.9
144.9
(4.9)
-
14.2
(6.2)
(5.4)
0.8
143.4
94.4
(0.8)
13.2
(12.0)
94.8
94.8
(3.2)
-
12.6
(5.3)
(4.1)
94.8
53.4
50.1
48.6
Property, plant and equipment
Cost
At 1 January 2011
Currency translation adjustments
Additions
Disposals
Acquisitions
At 31 December 2011
At 1 January 2012
Currency translation adjustments
Transfers between categories
Additions
Disposals
Disposals - on divestment of business
Acquisitions
At 31 December 2012
Depreciation
At 1 January 2011
Currency translation adjustment
Depreciation charge in the year
Disposals
At 31 December 2011
At 1 January 2012
Currency translation adjustment
Transfers between asset categories
Depreciation charge in the year
Disposals
Disposals - on divestment of business
At 31 December 2012
Carrying amounts
At 1 January 2011
At 31 December 2011 and 1 January 2012
At 31 December 2012
Plant, machinery and vehicles includes broadcast equipment rental assets with an original cost of £46.2 million (2011: £45.4 million)
and accumulated depreciation of £34.1 million (2011: £31.2 million).
Capital commitments at 31 December 2012 for which no provision has been made in the accounts amount to £0.7 million
(2011: £0.3 million).
Annual Report & Accounts 2012
86
Section 3 – Operating assets and liabilities
3.3 Working capital
Working capital represents the assets and liabilities the Group generates through its trading activities. The Group therefore
defines working capital as inventory, trade and other receivables, trade and other payables.
Careful management of working capital is vital as it ensures that the Group can meet its trading and financing obligations
within its ordinary operating cycle.
Accounting policies
Inventories
Inventories and work in progress are carried at the lower of cost and net realisable value. Inventory acquired as part of business combinations
is valued at fair value. Cost represents direct costs incurred and, where appropriate, production or conversion costs and other costs to
bring the inventory to its existing location and condition. In the case of manufacturing inventory and work in progress cost includes an
appropriate share of production overheads based on normal operating capacity. Inventory is accounted for on an average cost or first-in,
first-out method as appropriate. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses. Provisions for inventories are recognised when the book value exceeds its net realisable value.
In the ordinary course of business, the Group makes provision for slow-moving, excess and obsolete inventory as appropriate.
Trade and other receivables
Trade and other receivables are recognised at the invoice value less provision for impairment. The carrying value of trade receivables is
considered to approximate fair value.
A provision for impairment is established when there is objective evidence that amounts due will not be collected according to the original
terms of the receivables. Significant financial difficulties of the debtor and default or delinquency in payments are considered indicators that
the trade receivable is impaired.
Amounts recoverable on contracts are included in trade receivables and represent revenue recognised in excess of payments on account.
Trade and other payables
Trade payables are recognised at the value of the invoice received from a supplier.
Inventories
Raw materials and components
Work in progress
Finished goods
Inventories, net of impairment provisions
Impairment provisions against inventory obsolescence
Balance at 1 January
Net increase during the year
Utilised during the year
Disposals - on divestment of business
Currency translation adjustments
Balance at 31 December
2012
£m
15.9
11.8
31.8
59.5
2012
£m
20.9
3.6
(6.0)
(0.8)
(0.7)
17.0
2011
£m
18.5
12.6
35.3
66.4
2011
£m
18.9
3.2
(1.3)
-
0.1
20.9
The Vitec Group plc
Trade and other receivables
Short-term receivables
Trade receivables, net of impairment provisions
Other receivables
Prepayments and accrued income
Long-term receivables
Other receivables
Total receivables
Gross trade receivables - days overdue (1)
Current
1-30 days
31-60 days
61-90 days
over 90 days
Gross trade receivables
(1) Days overdue are measured from the date an invoice was due to be paid.
Impairment provisions against trade receivables
Balance at 1 January 2012
Net increase during the year
Utilised during the year
Disposals - on divestment of business
Currency translation adjustments
Balance at 31 December 2012
Trade and other payables
Current trade and other payables
Trade payables
Other tax and social security costs
Other non-trade payables, accruals and deferred income
Long-term payables
Other non-trade payables, accruals and deferred income
Total payables
87
2011
£m
38.7
8.6
3.4
50.7
0.4
51.1
2011
£m
33.5
6.0
1.7
0.5
2.5
44.2
2012
£m
38.2
9.5
2.4
50.1
0.5
50.6
2012
£m
32.4
6.6
1.6
0.3
0.9
41.8
Total
£m
Bad debts
£m
Sales
returns and
discounts
£m
5.5
4.8
(5.9)
(0.6)
(0.2)
3.6
2.9
0.1
(0.8)
(0.6)
(0.1)
1.5
2012
£m
22.4
3.3
18.7
44.4
1.0
45.4
2.6
4.7
(5.1)
-
(0.1)
2.1
2011
£m
29.7
2.9
25.7
58.3
1.2
59.5
Annual Report & Accounts 2012
88
Section 3 – Operating assets and liabilities
3.4 Acquisitions
This note outlines how the Group has accounted for businesses that it has acquired.
Acquisitions are accounted for under the acquisition method of accounting. As part of the acquisition accounting the
Group has adopted a process to identify the fair values of the assets acquired and liabilities assumed, including the separate
identification of intangible assets and to allocate the consideration paid. This process continues as information is finalised,
and accordingly the fair value adjustments presented in the tables below are provisional. In accordance with IFRS 3 (Revised)
until the assessment is complete the allocation period will remain open up to a maximum of twelve months from the
acquisition date so long as information remains outstanding. Acquisition related costs are recognised in the Income
Statement as incurred in accordance with IFRS 3 (Revised).
Acquisitions provide opportunities for further development of the Group’s activities and create enhanced returns.
Such opportunities and the workforces inherent in each of the acquired businesses represent much of the assessed
value of goodwill.
Acquisition of Camera Corps
On 10 April 2012, the Group acquired the whole of the share capital of Camera Corps Ltd (“Camera Corps”). Based in the UK,
Camera Corps is a world leading provider of speciality remote camera systems used by broadcasters for capturing high quality images.
This includes the Q-Ball™ which provides high definition images from a small, highly flexible and easy to operate camera system that
is increasingly used at events from top sporting events such as the Olympics to reality TV shows. The acquisition complements the
Group’s existing range of broadcast equipment and its products are marketed through the Group’s global distribution network.
The Group’s Services Division is the existing US distributor of the Q-Ball™. Camera Corps operates within the Videocom Division.
The acquisition was funded from existing cash resources.
A summary of the effect of the acquisition of Camera Corps is detailed below:
value at
Book Provisional Fair value of
net assets
acquired
£m
fair value
acquisition adjustments
£m
£m
Net assets acquired
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Cash
Deferred tax
Goodwill
Cash consideration
-
1.1
0.4
0.8
(1.2)
0.7
(0.1)
1.7
3.1
(0.3)
(0.1)
-
(0.1)
-
(0.6)
2.0
3.1
0.8
0.3
0.8
(1.3)
0.7
(0.7)
3.7
5.0
8.7
The value of the gross trade receivables at acquisition date amounted to £0.3 million reflecting Management’s estimate of the fair
value to be attributed.
The Vitec Group plc
The results of Camera Corps have been included in the Videocom Division and comprise:
Revenue
Operating profit (1)
89
2012
£m
7.0
2.3
Had the acquisition been made at the beginning of the year (i.e. 1 January 2012) it would have contributed £7.6 million to revenue and
£2.3 million to the operating profit of the Group.
(1) Operating profit is stated before amortisation of intangibles assets and after allocation of Head Office costs.
An analysis of the cash flows relating to acquisitions is provided below.
Net outflow of cash in respect of acquisition
Total purchase consideration
Transaction costs
Cash acquired
Net cash outflow in respect of 2012 acquisition
Contingent consideration in relation to Litepanels, acquired in August 2008
Contingent consideration in relation to Manfrotto Lighting (previously Lastolite), acquired in March 2011
Working capital adjustment in relation to Haigh-Farr, acquired in December 2011
Cash paid in 2012 in respect of prior year acquisitions
Net cash outflow in respect of acquisitions (2)
2012
£m
8.7
0.3
(0.7)
8.3
1.5
0.5
0.6
2.6
10.9
(2) Transaction costs of £0.3 million are included in cash flows from operating activities and net cash consideration paid of £10.6 million is included in cash flows
from investing activities.
Annual Report & Accounts 2012
90
Section 3 – Operating assets and liabilities
3.4 Acquisitions
Acquisitions in 2011
On 4 March 2011, the Group acquired the whole of the share capital of Henry (Holdings) Limited, a UK company which owns Manfrotto
Lighting Limited (previously Lastolite Limited) and the Colorama brand.
On 15 December 2011, the Group acquired the whole of the share capital of Haigh-Farr, Inc (Haigh-Farr), a private company based in
Bedford, New Hampshire, USA.
A summary of the effect of the acquisitions are detailed below:
Net assets acquired
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Cash
Deferred tax
Current tax
Goodwill
Consideration
Satisfied by
- Cash consideration
- Deferred consideration
An analysis of the cash flows relating to acquisitions is provided below.
Total purchase consideration
Deferred consideration
Cash consideration
Transaction costs
Cash acquired
Net cash outflow in respect of acquisitions (1)
Book
value at
acquisition
£m
Provisional
fair value
adjustments
£m
Fair value of
net assets
acquired
£m
-
0.2
2.2
2.1
(2.0)
0.9
-
(0.1)
3.3
13.5
-
0.1
-
(0.4)
-
(4.7)
-
8.5
13.5
0.2
2.3
2.1
(2.4)
0.9
(4.7)
(0.1)
11.8
18.3
30.1
28.8
1.3
30.1
£m
30.1
(1.3)
28.8
0.8
(0.9)
28.7
(1) Transaction costs of £0.8 million are included in cash flows from operating activities and net cash consideration paid of £27.9 million is included in cash flows
from investing activities.
3.5 Disposals
During the second half of the year the Group sold its Staging business, which was previously included in the Imaging Division.
The Staging companies were based in the UK, USA, Mexico, Italy and Slovakia. The disposal enables Management to place
greater focus on opportunities in the Group’s core markets.
The disposal was completed on 13 August 2012. The net cash outflow, after transaction costs, was £2.1 million resulting in a
loss on disposal of £6.4 million after taking into account transaction costs together with the net assets disposed (£6.3 million)
offset by cash consideration (£0.3 million) and the previously recorded foreign exchange gain that has been recycled to the
Income Statement (£2.0 million).
The Vitec Group plc
91
3.6 Provisions
A provision is recognised by the Group where an obligation exists, relating to events in the past, and it is probable that an
outflow of economic benefits will be required to settle it.
Accounting policies
Provisions
Provisions are recognised in the Balance Sheet when the Group has a present legal or constructive obligation as a result of a past event,
and it is probable that an outflow of economic benefits will be required to settle it. If the effect is material, provisions are determined by
discounting the expected future cash flows at an appropriate discount rate.
Provisions for warranties, based on historical warranty data, are recognised when the underlying products or services are sold.
Obligations arising from restructuring plans are recognised when detailed formal plans have been established and the restructuring has
either commenced or has been announced.
Provisions for onerous contracts are recognised when the unavoidable costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under it.
At 1 January 2012
Provisions utilised during the year
Provisions increased/(decreased) during the year
Charged to the Income Statement
Currency translation adjustments
At 31 December 2012
Current
Non-current
Total
£m
5.7
(4.0)
0.4
1.7
(0.1)
3.7
2.5
1.2
3.7
Warranty Restructuring
£m
£m
Onerous
Deferred
lease consideration
£m
£m
1.5
(0.6)
(0.3)
0.7
-
1.3
0.8
0.5
1.3
1.2
(0.6)
-
-
-
0.6
0.3
0.3
0.6
0.8
(0.2)
-
-
-
0.6
0.2
0.4
0.6
2.2
(2.6)
0.7
1.0
(0.1)
1.2
1.2
-
1.2
Warranty provisions
Warranties over the Group’s products typically cover periods of between two and five years. The provision represents Management’s
best estimate of the Group’s liability based on past experience.
Restructuring
The restructuring provision is in relation to a previously announced efficiency programme and is expected to be utilised by 2015.
Onerous lease contracts
The onerous lease contracts provision is in relation to non-cancellable leases on vacant property that the Group entered into
in previous years. Utilisation of the provision will be over the anticipated life of the lease up to four years, or earlier if exited.
Deferred consideration
The Group paid £2.6 million (Litepanels: £1.5 million, Haigh-Farr: £0.6 million, Lastolite: £0.5 million) in respect of prior years’
acquisitions. See note 3.4 “Acquisitions”.
In respect of Litepanels (an acquisition prior to 1 January 2010) the deferred consideration has been revised to reflect the increased
earn-out payment of £0.7 million that was not accrued at 31 December 2011 with a corresponding increase to goodwill of £0.7 million.
A charge of £1.0 million to the Income Statement is in relation to the fair value adjustment to contingent consideration on previous
acquisitions. See note 2.2 “Charges associated with acquired businesses”.
The deferred consideration provision at 31 December 2012 of £1.2 million relates to amounts payable in respect of a prior period
acquisition (Haigh-Farr). Up to a further US$2.5 million (£1.5 million) is payable in 2014 upon the vendors remaining employed within
the business and achievement of performance targets for the year ending 31 December 2013. This will be charged to the Income
Statement as and when incurred.
Annual Report & Accounts 2012
92
Section 4 – Capital structure
This section outlines the Group’s capital structure. The Group defines its capital structure as its equity and non-current
interest-bearing loans and borrowings and aims to manage this to safeguard its ability to continue as a going concern,
so that it can continue to provide returns to shareholders and benefits for other stakeholders. The Group manages the
capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics
of the underlying assets. In order to maintain or adjust the capital structure, it may return capital to shareholders, through
dividends and share buy backs, issue new shares or sell assets to reduce debt. The Group considers its dividend policy
at least twice a year ahead of announcing results in the context of its ability to continue as a going concern and deliver its
business plan. The Group focuses on leverage, credit ratings and interest cost, particularly when considering investment.
On the following pages there are disclosures concerning the following:
4.1 Net debt
4.2 Financial instruments
4.3 Share capital and reserves
4.1 Net debt
The Group’s net debt comprises of the following:
- Interest-bearing loans and borrowings
- Cash and cash equivalents (cash on hand and demand deposits at banks)
- Bank overdrafts that are payable on demand
Accounting policies
Cash and cash equivalents
Cash and cash equivalents in the Balance Sheet represent cash on hand and demand deposits at banks. Demand deposits are
short-term highly liquid investments that are readily convertible to known amounts of cash without penalty and that are subject to
an insignificant risk of changes in value.
Cash and cash equivalents in the statement of cash flows include bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management.
Interest-bearing loans and borrowings
Interest-bearing borrowings are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial
recognition, these transaction costs are recognised in the Income Statement over the term of the related borrowings.
Analysis of net debt
The table below analyses the Group’s components of net debt and their movements in the year.
Increase/(decrease) in cash and cash equivalents
Proceeds from interest-bearing loans and borrowings
Increase in net debt resulting from cash flows
Effect of exchange rate fluctuations on cash held
Effect of exchange rate fluctuations on debt held
Effect of exchange rate fluctuations on net debt
Movements in net debt in the year
Net debt at 1 January
Net debt at 31 December
Cash and cash equivalents in the Balance Sheet
Bank overdrafts
Cash and cash equivalents in the Statement of Cash Flows
Interest-bearing loans and borrowings
Net debt at 31 December
2012
£m
3.7
(18.8)
(15.1)
(0.6)
2.4
1.8
(13.3)
(50.4)
(63.7)
10.0
(0.7)
9.3
(73.0)
(63.7)
2011
£m
(0.5)
(21.6)
(22.1)
-
(0.2)
(0.2)
(22.3)
(28.1)
(50.4)
6.9
(0.7)
6.2
(56.6)
(50.4)
The Vitec Group plc
93
The Group’s translational exposures to foreign currency risks can
relate both to the Income Statement and net assets of overseas
subsidiaries. The Group’s policy is not to hedge the translational
exposure that arises on consolidation of the statement of income
of overseas subsidiaries. The Group finances overseas company
investments partly through the use of foreign currency borrowings
in order to provide a natural hedge of foreign currency risk arising
on translation of the Group’s foreign currency subsidiaries.
The Group ensures that its net exposure to foreign denominated
cash balances is kept to an acceptable level by buying or selling
foreign currencies at spot rates when necessary to address
short-term imbalances.
At 31 December 2012, it is estimated that a ten cent stronger/
weaker US Dollar against Sterling and Euro would have increased/
decreased the Group’s operating profit before charges associated
with acquired businesses for the year ended 31 December 2012
by approximately £1.1 million.
Interest rate risk
Interest rate risk comprises of both the interest rate price risk
that results from borrowing at fixed rates of interest and also the
interest cash flow risk that results from borrowing at variable rates.
For the year ended 31 December 2012, it is estimated that a
general increase/decrease of one percentage point in interest
rates, would decrease/increase the Group’s profit before tax
by approximately £0.8 million.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet
its financial obligations as they fall due.
On 19 July 2012 the Group signed a five year £100 million
Multicurrency Revolving Credit Facility Agreement with a syndicate
comprising of five banks: three UK banks, one American bank,
and one European bank. The Group was utilising 42% of the
£100 million Multicurrency Revolving Credit Facility at 31 December
2012. In 2011 the Group drew down US$50 million from a private
placement shelf facility with repayment due in May 2017.
4.2 Financial instruments
This provides details on:
- Financial risk management
- Derivative financial instruments
- Fair value hierarchy
- Interest rate profile
- Maturity profile of financial liabilities
Financial risk management
The Group’s multinational operations and debt financing
expose it to a variety of financial risks. In the course of its
business, the Group is exposed to foreign currency risk,
interest rate risk, liquidity risk and credit risk.
Financial risk management is an integral part of the
way the Group is managed. Financial risk management
policies are set by the Board of Directors. These policies
are implemented by a central treasury department that
has formal procedures to manage foreign exchange
risk, interest rate risk and liquidity risk, including, where
appropriate, the use of derivative financial instruments.
The Group has clearly defined authority and approval
limits built into these procedures.
Foreign currency risk
Foreign currency risk arises both where sale or purchase
transactions are undertaken in currencies other than the respective
functional currencies of Group companies (transactional exposures)
and where the results of overseas companies are consolidated into
the Group’s reporting currency of Sterling (translational exposures).
The Group has operations around the world which record their
results in a variety of different local functional currencies. In countries
where the Group does not have operations, it invariably has some
customers or suppliers that transact in a foreign currency. The
Group is therefore exposed to the changes in foreign currency
exchange rates between a number of different currencies, but
the Group’s primary exposures relate to the US Dollar and Euro.
Where appropriate, the Group manages its foreign currency
exposures using derivative financial instruments.
The Group manages its transactional exposures to foreign currency
risks through the use of forward exchange contracts. Forward
exchange contracts are typically used to hedge 75% of the Group’s
forecasted foreign currency exposure in respect of transactions for
the following 12 months and up to 50% of the Group’s forecasted
foreign currency exposure in respect of transactions for the following
12 to 24 months. These contracts have maturities of less than
one year and between one and two years at the Balance Sheet
date respectively.
Annual Report & Accounts 2012
94
Section 4 – Capital structure
4.2 Financial instruments
Credit risk
Credit risk arises because a counterparty may fail to meet its
obligations. The Group is exposed to credit risk on financial
assets such as trade receivables, cash balances and derivative
financial instruments. The Group’s maximum exposure to credit
risk is represented by the carrying amount of each financial
asset, including derivative financial instruments, in the
Group Balance Sheet.
Accounting policies
Derivative financial instruments
In accordance with Board approved policies, the Group
uses derivative financial instruments to hedge its exposure to
fluctuations in foreign exchange rates arising from operational
activities. It does not hold or use derivative financial instruments
for trading or speculative purposes.
a) Trade receivables
The Group’s credit risk is primarily attributable to its trade
receivables. Trade receivables are subject to credit limits, and
control and approval procedures in the operating companies.
Due to its large geographic base and number of customers,
the Group is not exposed to material concentrations of credit
risk on its trade receivables.
b) Cash balances and derivative financial instruments
Credit risk associated with cash balances is managed by
transacting with a number of major financial institutions worldwide
and periodically reviewing their credit worthiness. Transactions
involving derivative financial instruments are managed centrally.
These are only with banks that are part of the Group’s £100 million
Multicurrency Revolving Credit Facility Agreement. Accordingly,
the Group’s associated credit risk is limited. The Group has no
significant concentration of credit risk.
Derivative financial instruments
This is a summary of the derivative financial instruments
that the Group holds and uses to manage risk. The value
of these derivatives change over time in response to
underlying variables such as exchange rates and are
carried in the Balance Sheet at fair value.
The fair value of forward exchange contracts is determined
by estimating the market value of that contract at the
reporting date. Derivatives with a positive fair value are
recorded as assets and negative fair values as liabilities,
and presented as current or non-current based on their
contracted maturity dates.
Cash flow hedge accounting
Derivative financial instruments are used to hedge the variability in
cash flows of highly probable forecast transactions or a recognised
asset or liability, caused by changes in exchange rates.
Where a derivative financial instrument is designated in a cash
flow hedge relationship with a highly probable forecast transaction,
the effective part of any gain or loss arising is recognised in the
Cash flow hedging reserve within Equity, via the Statement of
Comprehensive Income. The ineffective part of any gain or loss is
recognised in the Income Statement within net finance expense.
When the forecast transaction subsequently occurs and results
in the recognition of a financial asset or liability that impacts on
the Income Statement, the associated cumulative gain or loss
is removed from the hedging reserve and presented within the
Income Statement.
If a hedging instrument expires or is sold but the hedged forecast
transaction is still expected to occur, the cumulative gain or loss
at that point remains in equity and is recognised in accordance
with the above policy when the transaction occurs. If the hedged
transaction is no longer expected to take place, the cumulative
unrealised gain or loss recognised in equity is recognised
immediately in the Income Statement.
Where a derivative is used to hedge economically the foreign
exchange exposure of a recognised monetary asset or liability,
no hedge accounting is applied and any gain or loss on the
hedging instrument is recognised in the Income Statement.
If a derivative financial instrument is not formally designated
in a cash flow hedge relationship, any change in fair value is
recognised in the Income Statement.
The Vitec Group plc
95
Forward exchange contracts
The following table shows the forward exchange contracts in place at the Balance Sheet date. These contracts mature in the next twenty
four months, therefore the cash flows and resulting effect on profit and loss are expected to occur within the next twenty four months.
Cash flow hedging contracts
USD / GBP forward exchange contracts
USD / EUR forward exchange contracts
USD / RMB forward exchange contracts
EUR / GBP forward exchange contracts
JPY / GBP forward exchange contracts
JPY / EUR forward exchange contracts
As at 31
December
2012
millions
Average
exchange
rate of
contracts
As at 31
December
2011
millions
Average
exchange
rate of
contracts
Currency
USD
USD
USD
EUR
JPY
JPY
17.3
61.2
3.0
18.4
361.1
491.0
1.57
1.29
6.4
1.21
123
101
11.4
30.9
-
9.3
245.0
347.0
1.58
1.38
-
1.15
123
109
A net loss of £0.8 million (2011: £1.1 million gain) relating to fair value instruments that crystalised during the year was charged to the
Income Statement.
Fair value hierarchy
The following summarises financial instruments carried at fair values and the major methods and assumptions used in
estimating these fair values.
The different levels of fair value hierarchy have been defined as follows:
Level 1
Fair value measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Fair values measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3
Fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The table below shows the carrying values and fair values of financial assets and liabilities.
Forward exchange contracts - Assets
Forward exchange contracts - Liabilities
Cash at bank and in hand
Net trade receivables
Trade payables
Fixed rate borrowings
Floating rate borrowings
Carrying
value
2012
£m
Fair value
2012
£m
Carrying
value
2011
£m
Fair value
2011
£m
2.4
(0.1)
10.0
38.2
(22.4)
(30.8)
(42.9)
(45.6)
2.4
(0.1)
10.0
38.2
(22.4)
(32.7)
(42.9)
(47.5)
0.3
(1.6)
6.9
38.7
(29.7)
(32.2)
(25.1)
(42.7)
0.3
(1.6)
6.9
38.7
(29.7)
(34.6)
(25.1)
(45.1)
The fair value of floating rate borrowings approximates to the carrying value because interest rates are at floating rates where payments
are reset to market rates at intervals of less than one year.
The fair value of fixed rate borrowings is estimated by discounting the future contracted cash flow, using appropriate yield curves,
to the net present values.
All financial instruments are deemed Level 2.
Annual Report & Accounts 2012
96
Section 4 – Capital structure
4.2 Financial instruments
Interest rate profile
The table below analyses the Group’s interest rate exposure arising from bank loans by currency.
Accounting policies
Net investment hedge accounting
The Group uses Yen, US Dollar and Euro denominated borrowings as a hedge against the translation exposure on the Group’s net
investment in overseas companies.
Where the hedge is fully effective at hedging the variability in the net assets of such companies caused by changes in exchange rates,
the changes in value of the borrowings are recognised in the translation reserve within Equity, via the Statement of Comprehensive
Income. The ineffective part of any change in value caused by changes in exchange rates is recognised in the Income Statement.
The effective portion will be recycled into the Income Statement on the sale of the foreign operation.
Interest-bearing loans and borrowings
The table below analyses the Group’s interest-bearing loans and borrowings, by currency.
Yen
US Dollar
Euro
Sterling
At 31 December 2012
Yen
US Dollar
Euro
Sterling
At 31 December 2011
Total
£m
2.1
39.4
20.2
12.0
73.7
2.5
38.0
4.1
12.7
57.3
Fixed rate
borrowings
£m
Floating rate
borrowings
£m
-
30.8
-
-
30.8
-
32.2
-
-
32.2
2.1
8.6
20.2
12.0
42.9
2.5
5.8
4.1
12.7
25.1
The floating rate borrowings comprise borrowings bearing interest at rates based on LIBOR. The fixed rate borrowings are due for
repayment on 11 May 2017.
The Vitec Group plc
97
Maturity profile of financial liabilities
The table below analyses the Group’s financial liabilities and derivative financial liabilities into relevant maturity groupings
based on the period remaining until the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows (including interest), so will not always reconcile with the carrying amounts disclosed on the
Balance Sheet.
The following are the contractual maturities of financial liabilities, including undiscounted future interest payments.
2012
Unsecured bank loans/overdrafts
Trade payables
Forward exchange contracts
2011
Unsecured bank loans/overdrafts
Trade payables
Forward exchange contracts
Carrying
amount
£m
Total
contractual
cash flows
£m
(73.7)
(22.4)
(0.1)
(96.2)
(84.4)
(22.3)
(0.1)
(106.8)
Carrying
amount
£m
(57.3)
(29.7)
(1.6)
(88.6)
Total
contractual
cash flows
£m
(66.1)
(29.7)
(1.6)
(97.4)
Within
one year
£m
(2.9)
(22.3)
(0.1)
(25.3)
Within
one year
£m
(2.6)
(29.7)
(1.6)
(33.9)
From one
to five
years
£m
From five
to ten
years
£m
(81.5)
-
-
(81.5)
-
-
-
-
From one
to five
years
£m
From five
to ten
years
£m
(30.8)
-
-
(30.8)
(32.7)
-
-
(32.7)
The Group had the following undrawn borrowing facilities at the end of the year:
Expiring in:
Less than one year
- Uncommitted facilities
More than one year but not more than two years
- Uncommitted facilities
More than one year but not more than five years
- Committed facilities
Total
2012
£m
2011
£m
25.4
6.8
-
16.0
57.8
83.2
75.5
98.3
Annual Report & Accounts 2012
98
Section 4 – Capital structure
4.3 Share capital and reserves
This note explains the movements in Share Capital, and the nature and purpose of other reserves forming part of Equity.
The movements in reserves are set out in the Consolidated Statement of Changes in Equity.
The Group utilises share award schemes as part of its employee remuneration packages. Options that have been granted
and remain outstanding at 31 December 2012 are set out below. The various share-based payment schemes are explained
in note 5.3 “Share-based payments”.
Share capital
Issued and fully paid
At 1 January 2012
Exercise of share options
At 31 December 2012
Number of
shares
Nominal
value
£m
43,255,518
435,450
43,690,968
8.7
0.1
8.8
Each ordinary share carries one vote, participates equally with the other ordinary shares in distribution of dividends and capital (including
on a winding up) and is not redeemable.
At 31 December 2012 the following options had been granted and remained outstanding under the Company’s share option schemes:
UK Sharesave schemes
International Sharesave schemes
Executive Unapproved schemes
Other Reserves
Number
of shares
Exercise
prices
Dates
normally
exercisable
426,971 131p-543p 2013-2017
460,966 131p-577p 2013-2017
62,421 298p-525p 2013-2018
950,358
The nature and purpose of other reserves forming part of Equity are as follows:
Translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements
of foreign subsidiaries, including gains or losses arising on net investment hedges.
Cash flow hedging reserve
This reserve records the cumulative net change in the fair value of forward exchange contracts where they are designated as
effective cash flow hedge relationships.
Own shares held
Own shares held by the Company’s Employee Benefit Trust are recognised as a deduction from retained earnings. As at 31 December
2012 the Company’s Employee Benefit Trust held 461,086 ordinary shares.
Dividends
After the Balance Sheet date the following final dividend for the year ended 31 December 2012 was recommended by the Directors and,
subject to approval by shareholders at the AGM on 15 May 2013, will be paid on 17 May 2013. The dividend has not been provided for
at the year end and there are no tax consequences.
13.5p per ordinary share (2011: 12.5p per ordinary share)
2012
£m
5.9
2011
£m
5.4
The Vitec Group plc
Section 5 – Other supporting notes
This section explains items that are not explained elsewhere in the financial statements.
5.1 Employees
Employee costs, including Directors’ remuneration, comprise:
Wages and salaries
Employers’ social security costs
Employers’ pension costs - defined benefit schemes
Employers’ pension costs - defined contribution schemes
Other employment benefits
Share-based payment charge
Details of Directors’ remuneration and share incentives are disclosed in the Remuneration Report.
Average number of employees during the year
Videocom
Imaging
Services
Head Office
99
2012
£m
77.9
11.6
1.0
1.4
3.2
1.8
96.9
2011
£m
77.3
11.2
0.9
1.2
3.0
1.2
94.8
2012
£m
2011
£m
920
960
183
22
2,085
834
1,020
178
20
2,052
Annual Report & Accounts 2012
100
Section 5 – Other supporting notes
5.2 Pensions
This note explains the accounting policies governing the Group’s treatment of the pension schemes, followed by an
analysis of these schemes.
Accounting policies
Defined contribution schemes
The assets are held separately from those of the Group in independently administered funds. The costs of providing pensions for
employees under defined contribution schemes are expensed as incurred.
Defined benefit schemes
The Group operates pension schemes providing benefits based on final pensionable pay. The assets of the schemes are held separately
from those of the Group. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan
by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That
benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is determined
by reference to market yields at the Balance Sheet date on high quality corporate bonds.
The calculation is performed by a qualified actuary using the projected unit credit method. Actuarial gains and losses are recognised in
full in the period in which they arise in the Statement of Comprehensive Income.
The Group recognises the on-going service cost in the Income Statement as part of operating profit. The Group recognises the
unwinding of the discount (above) and the return on plan assets in the Income Statement as part of net financial expense. Past-service
costs are recognised immediately in the Income Statement, unless the changes to the pension plan are conditional on the employees
remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight
line basis over the vesting period. Any cost or income relating to the curtailment or settlement of a pension scheme is recognised
immediately in the Income Statement.
Pension schemes
The Group has defined benefit pension schemes in the UK, Italy, Germany, Japan, Israel and France. The UK defined benefit scheme
was closed to future benefit accrual with effect from 31 July 2010. All UK employees of the Group are now offered membership of the
defined contribution pension scheme. Other overseas subsidiaries have their own defined contribution schemes.
Defined contribution schemes
The total Income Statement charge of the defined contribution schemes for the year ended 31 December 2012 was £1.4 million
(2011: £1.2 million). There were no outstanding or prepaid contributions to these plans as at 31 December 2012 (or at 31 December 2011).
Defined benefit schemes
The Group’s defined benefit schemes are disclosed below.
Amounts recognised on the Group Balance Sheet
Plan assets
- Equities
- Bonds
- Other
Total fair value of plan assets
Present value of defined benefit obligation
Net deficit recognised in the Group Balance Sheet
2012
£m
2011
£m
21.4
24.9
2.7
49.0
(58.4)
(9.4)
18.9
27.2
2.8
48.9
(53.8)
(4.9)
The Vitec Group plc
101
2011
£m
(0.4)
(4.5)
(4.9)
2011
£m
1.1
(0.2)
0.9
(2.8)
2.7
(0.1)
0.8
2008
£m
34.8
(40.7)
(5.9)
(1.8)
Analysis of net recognised deficit
Total funded plan (UK Pension scheme)
Total unfunded plans (non-UK Pension schemes)
Liability recognised on the Group Balance Sheet
Amounts recognised in the Income Statement
- Current service cost
- Past service gain
Included in operating costs
- Expected return on plan assets
- Interest cost
Included in financial expense
Total amounts charged to the Income Statement
2012
£m
(4.8)
(4.6)
(9.4)
2012
£m
1.2
(0.2)
1.0
(2.2)
2.4
0.2
1.2
Movements since 2008 on defined benefit schemes
Plan assets
Defined benefit obligation
Total deficit
Net actuarial (loss)/gain
UK pension scheme
The UK pension scheme, being significant, is disclosed below.
2012
£m
2011
£m
2010
£m
2009
£m
49.0
(58.4)
(9.4)
(4.8)
48.9
(53.8)
(4.9)
1.0
44.6
(51.6)
(7.0)
0.2
41.0
(52.0)
(11.0)
(6.1)
The nature of the UK scheme is a funded final salary scheme, closed to new entrants at the end of 2003 and closed to future benefit
accrual with effect from 31 July 2010.
Assumptions used by the actuary to value the liability of the defined benefit plan,
on 31 December were:
Price inflation (RPI)
Price inflation (CPI)
Expected rate of salary increases (1)
Rate of increase of pensions in payment (2)
- Discretionary (pre - 6 April 1997 accrual in excess of GMP)
- Guaranteed LPI 5% (6 April 1997 - 30 June 2008)
- Guaranteed LPI 2.5% (accrual from 1 July 2008)
Rate of increase for deferred pensions
Discount rate
(1) These exclude an age-related allowance for promotional and merit awards.
2012
% pa
2011
% pa
2010
% pa
2009
% pa
2008
% pa
2.8
2.1
n/a
2.7
2.7
2.4
2.1
4.4
2.9
1.9
n/a
2.8
2.8
2.4
1.9
4.7
3.5
2.8
n/a
3.4
3.4
2.5
2.8
5.5
3.6
n/a
5.1
3.6
3.6
2.5
3.6
5.7
2.8
n/a
4.3
2.8
2.8
2.5
2.8
6.3
(2) In addition, we have made allowance for the special pension increase guarantees applying to certain executive members of the Scheme.
Annual Report & Accounts 2012
102
Section 5 – Other supporting notes
5.2 Pensions
The assumptions relating to longevity underlying the pension liabilities at the Balance Sheet date are based on standard actuarial
mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expected longevity
at age 65 for members in normal health approximately as follows:
- Pensioners currently aged 65: ranging from 21.9 years to 24.5 years
- Non-pensioners currently aged 45: ranging from 23.8 years to 26.3 years
Reconciliation of present value of Defined Benefit Obligation (DBO) for the year to 31 December
Present value of DBO at start of year
Interest cost
Actuarial loss on change of assumptions
Experience loss
Actual benefit payments and expenses
Past service costs
Present value of DBO at end of year
Scheme assets and expected rate of return at 31 December
Equities
Bonds
Property
Cash/non-cash assets
Insurance policies
Total value of assets
2012
£m
49.3
2.3
3.6
0.3
(1.6)
(0.1)
53.8
2011
£m
46.9
2.5
1.4
0.3
(1.7)
(0.1)
49.3
Expected
long-term
rate of
return
2012
% pa
Expected
long-term
rate of
return
2011
% pa
7.2
3.2
6.7
2.3
4.4
7.5
3.4
6.5
2.5
4.7
Fair
value
2011
£m
18.9
27.2
2.1
-
0.7
48.9
Fair
value
2012
£m
21.4
24.9
2.0
-
0.7
49.0
Note: The asset values shown are, where relevant, estimated bid values of market securities.
The rates of return quoted are based on actual market yields for bonds. The assumed rates of return on other asset classes where
market rates of return are not readily available – including, most importantly, equities – are based on the central ten year median return
assumptions. We have assumed for this purpose that returns on overseas equities will be the same as on UK equities.
Reconciliation of the fair value of assets for the year to 31 December
Fair value of assets at start of year
Expected return on assets
Actuarial (loss)/gain on plan assets
Group contributions
Actual benefit payments
Administration expenses paid
Fair value of assets at end of year
2012
£m
48.9
2.2
(0.5)
-
(1.4)
(0.2)
49.0
2011
£m
44.6
2.8
2.6
0.6
(1.4)
(0.3)
48.9
The Vitec Group plc
103
2012
£m
2.2
(0.5)
1.7
2011
£m
2.8
2.6
5.4
2012
£m
2011
£m
(53.8)
49.0
(4.8)
(49.3)
48.9
(0.4)
2012
£m
(0.4)
-
-
(4.4)
(4.8)
2012
£m
(0.1)
(2.2)
2.3
0.1
-
2012
£m
(4.4)
(1.9)
(6.3)
2011
£m
(2.3)
0.4
0.6
0.9
(0.4)
2011
£m
(0.1)
(2.8)
2.5
(0.3)
(0.4)
2011
£m
0.9
(2.8)
(1.9)
Return on assets for the year to 31 December
Expected return on assets
Actuarial (loss)/gain on plan assets
Actual return on assets
Reconciliation of funded status at 31 December
Present value of defined benefit obligation
Assets at fair value
Defined benefit liability
Reconciliation of change in funded status for the year to 31 December
Defined benefit liability at start of year
Total pension income
Employer contributions actually paid
(Loss)/gain recognised in SOCIE
Defined benefit liability at end of year
Amounts recognised in the Group Income Statement
Included in operating costs - Past service costs
- Expected return on plan assets
- Interest cost
Included in financial expense
Total amounts charged to the Income Statement
Amounts recognised in the SOCIE
Actuarial (loss)/gain recognised in SOCIE during the period
Cumulative actuarial loss recognised at beginning of period
Cumulative actuarial loss recognised at end of period
Annual Report & Accounts 2012
104
Section 5 – Other supporting notes
5.3 Share-based payments
Group employees participate in a number of employee incentive schemes including a Sharesave Scheme, an Unapproved
Share Option Plan, a Long Term Incentive Plan and a Deferred Bonus Plan.
This note explains the accounting policy governing share-based payments and the impact of various share schemes
operated by the Group.
Accounting policies
Share-based payments
The Group operates a number of share-based incentive schemes. The fair value of the equity-settled employee share option grants
is calculated at grant date and charged to the Income Statement over the vesting period of the schemes, with a corresponding
adjustment to equity. The value of the charge is adjusted to reflect expected and actual levels of options that will vest, except where
forfeiture arises from share prices not achieving the threshold for vesting.
The fair values of options are calculated using Black-Scholes or Monte Carlo simulation models. Vesting conditions are limited to
non-market based conditions such as service conditions and performance conditions (adjusted earnings per share targets).
Any potential employer’s Social Security liability on options granted is calculated based on the estimated fair value of the options
and charged to the Income Statement over the vesting period of the schemes.
Exercises of share options granted to employees can be satisfied by market purchase or issue of new shares. Shares purchased
in the market are held in the Company’s Employee Benefit Trust.
A description of each type of share-based payment arrangement that existed at any time during the period, including the general
terms and conditions of each arrangement, such as vesting requirements, the maximum term of options granted, and the method
of settlement (for example whether in cash or equity) is set out in the Remuneration Report.
Share-based payments expense
The amount recognised in the Income Statement for share-based payment transactions with employees for the year ended
31 December 2012 was £2.0 million (2011: £1.2 million), of which £0.2 million (2011: £nil) related to employers’ tax liability.
The outstanding employers’ tax liability recognised in the Balance Sheet for UK awards was £0.5 million (2011: £0.8 million)
and for non-UK awards £0.1 million (2011: £0.4 million).
Share options outstanding at the end of the period
Options outstanding under the 2002 UK Sharesave Scheme, 2002 International Sharesave Plan, 2011 UK Sharesave Scheme,
2011 International Sharesave Plan and Unapproved Share Option Plan (“USOP”) as at 31 December 2012, together with their
exercise prices and vesting periods, are as follows:
Range of exercise prices
£1.30 - £1.40
£2.91 - £3.00
£3.01 - £4.00
£4.51 - £5.00
£5.01 - £5.50
£5.51 - £6.00
Total
Weighted
average
Weighted
average
remaining
exercise contractual
life (years)
price (£)
1.32
3.00
3.48
4.72
5.39
5.77
4.07
2
2
1
2
3
3
2
Number
outstanding
191,490
59,421
185,636
83,166
240,282
191,907
951,902
The Vitec Group plc
105
Options granted, exercised and lapsed during the years ended 31 December 2011 and 2012 under these share options plans were
as follows:
Weighted
average
Exercise
Price (£)
Weighted
average
Exercise
Price (£)
USOP
4.32
2.98
5.12
-
3.46
4.04
-
-
3.03
3.03
2005
Deferred
Bonus
Plan
Awards at 31 December 2010
Exercised during 2011
Lapsed during 2011
Granted during 2011
Awards at 31 December 2011
Exercised during 2012
Lapsed during 2012
Granted during 2012
Awards at 31 December 2012
Awards exercisable at 31 December 2012
Sharesave
1,481,571
(89,928)
(115,055)
129,158
1,405,746
(878,490)
(53,137)
415,362
889,481
-
1.76
2.61
2.31
4.81
1.97
1.38
3.46
5.59
4.14
-
248,775
(8,000)
(131,117)
-
109,658
(47,237)
-
-
62,421
62,421
The weighted average share price at the date of exercise for share options exercised during the year was £6.49 (2011: £5.70).
Arrangement
Nature of arrangement
Date of grant
Number of instruments granted
Exercise price
Share price at date of grant
Contractual life (yrs)
Expected option life (yrs)
Vesting conditions
Settlement
Expected volatility (1)
Risk free interest rate
Expected dividend yield
Expected departures
(per annum from grant date)
Expected outcome of
non-market based related
performance condition
Fair value per granted
instrument determined
at the grant date
Valuation model
2011
International
Sharesave
Plan 2 Year
“Save as you
earn scheme”
26 Sep 2012
195,065
£5.77
£7.12
2.3
2.3
2011 UK and
International
Sharesave
Scheme 3 Year
“Save as you
earn scheme”
26 Sep 2012
197,289
£5.43
£7.12
3.6
3.3
2011 UK and
International
Sharesave
Scheme 5 Year
“Save as you
earn scheme”
26 Sep 2012
23,008
£5.43
£7.12
5.6
5.3
2 year service
period and savings
requirement
Shares
30.5%
0.18%
3.10%
3 year service
period and savings
requirement
Shares
30.5%
0.28%
3.10%
5 year service
period and savings
requirement
Shares
30.5%
0.68%
3.10%
2005
Long Term
Incentive
Plan
Share award
plan
16 Apr 2012
531,708
n/a
£6.74
4.0
4.0
Relative TSR
performance against
comparator group,
and adjusted
EPS growth
Shares
35.8%
n/a
n/a
Share award
plan
12 Apr 2012
42,295
n/a
£6.72
4.0
4.0
Relative TSR
performance against
comparator group,
and adjusted
EPS growth for
matching awards
Shares
35.8%
n/a
n/a
5%
n/a
5%
n/a
5%
n/a
10%
100%
15%
100%
£1.59
Black Scholes
£1.86
Black Scholes
£1.97
Black Scholes
£6.74/£3.84 (2)
Monte Carlo (3)
£6.72/£3.80 (2)
Monte Carlo (3)
(1) The expected volatility is based on historical volatility determined by the analysis of daily share prices over a period commensurate with the expected lifetime
of the award and ending on the date of grant of the award. Due to significant fluctuations in Vitec’s share price during the year a uniform rate has been used
for all the Sharesave options as a reasonable estimate of volatility going-forward.
(2) The first figure represents fair value of awards subject to adjusted EPS growth criteria and the second figure represents fair value of awards subject to TSR criteria.
(3) For the 2005 LTIP and 2005 DBP Matching awards, a Monte-Carlo simulation has been used. Under this valuation method, the share price for Vitec is projected
at the end of the performance period as the TSR for Vitec and the companies in the comparator group. Based on these projections, the number of awards 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 the share price
at the date of grant.
Annual Report & Accounts 2012
106
Section 5 – Other supporting notes
5.4 Leases
Operating leases primarily relate to the Group’s properties, which principally comprise offices, warehouses and factory
facilities. None of the leases include contingent rentals.
Accounting policies
Leases
Operating leases are those which do not transfer substantially all the risks and rewards of ownership to the lessee, the rentals of which
are charges to the Income Statement on a straight line basis over the lease term.
Total commitments under non-cancellable operating leases
Expiring within one year
Expiring two to five years
Expiring after five years
Land and
buildings
£m
0.7
9.5
10.2
20.4
Other
£m
0.2
1.0
-
1.2
Total
2012
£m
0.9
10.5
10.2
21.6
Land and
buildings
£m
0.8
12.6
8.5
21.9
Other
£m
0.2
1.0
-
1.2
Total
2011
£m
1.0
13.6
8.5
23.1
During the year £5.9 million (2011: £6.0 million) was recognised in the Income Statement in respect of operating lease payments.
The Vitec Group plc
107
5.5 Related party transactions
A related party relationship is based on the ability of one party to control or significantly influence the other.
The Group has identified the Board, the Vitec Group Pension Scheme and members of the Operations Executive
as related parties to the Company under IAS 24, Related Party Disclosures.
Transactions with key management personnel
Details of Directors’ remuneration along with their pension, share incentive and bonus arrangements are shown in the
Remuneration Report. Holdings of the Company’s ordinary shares by Directors are shown in the Directors’ Report.
The compensation of the ten (2011: ten) members of the Operations Executive, including the Executive Directors, is shown
in the table below. Two members of the Operations Executive ceased to be members on 31 July 2012 and one ceased to be
a member on 31 December 2012.
Salaries
Performance-related bonuses
Share-based payment charge (1)
Other short-term employee benefits
Post employment benefits
(1) IFRS 2 charge recognised in the Income Statement for share-based payment transactions with members of the Operations Executive.
2012
£m
2.1
1.5
1.1
0.2
0.3
2011
£m
1.9
1.5
0.7
0.2
0.2
Annual Report & Accounts 2012
108
Section 5 – Other supporting notes
5.6 Principal Group investments
The Group’s principal subsidiaries at 31 December 2012 are listed below. All subsidiaries are 100% owned within the Group.
Vitec Group US Holdings Inc
Vitec Group Holdings Limited (1)
Vitec Investments Limited
Videocom
ALC Broadcast Limited
Anton/Bauer Inc
Vitec Videocom Limited (1) (2)
Vitec Videocom Limitada (3)
Vitec Videocom Inc (4)
Litepanels Inc
Integrated Microwave Technologies Inc
Haigh-Farr, Inc
Camera Corps Ltd
Imaging
Manfrotto Distribution Inc
Manfrotto Distribution Limited (1)
Manfrotto Distribution KK
Vitecgroup Italia SpA
Gitzo S.A.
Manfrotto Lighting Limited (5)
Manfrotto Bags Ltd
Services
Vitec Broadcast Services Inc
Country of incorporation
USA
Guernsey
UK
UK
USA
UK
Costa Rica
USA
USA
USA
USA
UK
USA
UK
Japan
Italy
France
UK
Israel
USA
(1) Indicates companies directly owned by the parent company.
(2) Formerly called Camara Dynamics Limited - name changed with effect from 3 January 2012.
(3) Formerly called Camara Dynamics Limitada - name changed with effect from 3 January 2012.
(4) Formerly called Camara Dynamics Inc - name changed with effect from 3 January 2012.
(5) Formerly called Lastolite Limited - name changed with effect from 3 January 2012.
Exemption has been taken under section 410 of the Companies Act 2006 to list all the subsidiary undertakings of the Group. A full list of
related subsidiary undertakings will be included in the Company’s next annual return filed with the Registrar of Companies.
5.7 Subsequent events
There were no events after the Balance Sheet date that require disclosure.
The Vitec Group plc
109
Notes
2012
£m
2011
£m
f)
g)
h)
i)
j)
i)
j)
k)
l)
l)
l)
l)
1.6
389.1
390.7
1.6
308.4
310.0
7.0
11.9
18.9
(14.8)
(0.2)
(15.0)
3.9
3.8
-
3.8
(19.5)
(0.2)
(19.7)
(15.9)
394.6
294.1
(103.0)
(0.4)
(103.4)
291.2
8.8
10.4
0.9
55.3
215.8
291.2
(103.0)
(0.6)
(103.6)
190.5
8.7
9.8
0.9
55.3
115.8
190.5
Company Balance Sheet
As at 31 December 2012
Fixed assets
Tangible fixed assets
Investments in subsidiary undertakings
Current assets
Debtors
Cash at bank and in hand
Liabilities falling due within one year
Creditors
Provisions
Net current assets/(liabilities)
Total assets less current liabilities
Liabilities falling due after one year
Creditors
Provisions
Net assets
Capital and reserves
Called up share capital
Share premium account
Revaluation reserve
Merger and other reserves
Profit and loss account
Equity shareholders’ funds
Approved by the Board on 27 February 2013 and signed on its behalf by:
Paul Hayes
Group Finance Director
The Vitec Group plc
Registered in England and Wales no. 227691
Annual Report & Accounts 2012
110
Reconciliation of Movements
in Shareholders’ Funds
For the year ended 31 December 2012
Profit for the financial year
Dividends paid
Retained profit for the year
Own shares purchased
Share-based payment charge
New shares issued
Net increase in shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
2012
£m
112.1
(9.1)
103.0
(4.8)
1.8
0.7
100.7
190.5
291.2
2011
£m
4.7
(8.2)
(3.5)
(2.8)
1.2
0.3
(4.8)
195.3
190.5
The Vitec Group plc
Notes to the Company financial statements
111
a) Basis of preparation
These accounts have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).
Under section 408 (3) of the Companies Act 2006, the Company is exempt from the requirement to present its own profit and
loss account.
Under FRS 1 (revised) the Company is exempt from the requirement to present a cash flow statement on the grounds that its cash
flows are included in the Group consolidated financial statements.
Under FRS 29 the Company is exempt from the requirement to provide its own financial instruments disclosures, on the grounds
that it is included in publicly available consolidated financial statements which include disclosures that comply with the IFRS equivalent
to that standard.
Under FRS 8 the Company is exempt from the requirement to disclose transactions or balances with wholly owned subsidiaries which
form part of the Group.
b) Accounting policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation
to the financial statements.
Foreign currencies
Transactions in foreign currencies are translated at the exchange rate on that day. Foreign currency monetary assets and liabilities are
translated at the year-end exchange rate. Where there is a movement in the exchange rate between the date of the transaction and the
year-end, a currency translation gain or loss may arise. Any such differences are recognised in the Profit and Loss account.
Fixed assets and depreciation
Depreciation is provided to write off the cost or valuation of property, plant and equipment, less estimated residual value, on a straight
line basis over their estimated useful lives. No depreciation is provided on freehold land. Other fixed assets are depreciated as follows:
Freehold buildings
Leasehold improvements
Motor vehicles
Equipment, fixtures & fittings
up to 50 years
over the remaining period of the lease
3 to 4 years
3 to 10 years
Fixed assets are stated at cost except that, as allowed under FRS 15 ‘Tangible Fixed Assets’, on adoption of that standard in the year
ending 31 December 2000 when the book amounts of revalued land and buildings were retained. These book values are based on the
previous revaluation on 31 March 1989 and have not been subsequently revalued.
Fixed asset investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. A list of principal subsidiaries directly
owned by the Company is contained within note 5.6 “Principal Group investments” of the Group’s consolidated financial statements.
Leases
Annual payments under operating leases are charged to the Profit and Loss account on a straight line basis.
Pensions
The Company participates in the Group’s defined benefit scheme operated in the UK, which was closed to future benefit accrual
with effect from 31 July 2010. All UK employees of the Company are now offered membership of the defined contribution scheme.
The assets of the schemes are held separately from those of the Company. The Company is unable to identify its share of the
Group defined benefit scheme’s underlying assets and liabilities and therefore accounts for it as a defined contribution scheme.
The amounts charged against profits represent contributions payable to the schemes in respect of the accounting period.
Further details of the UK pension scheme are disclosed in note 5.2 “Pensions” of the Group’s consolidated financial statements.
Share-based payments
The Group operates a number of share-based incentive schemes. Further details are disclosed in note 5.3 “Share-based payments”
of the Group’s consolidated financial statements.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
Annual Report & Accounts 2012
112
Notes to the Company financial statements
c) Employees
Employee costs comprise:
Wages and salaries
Employers’ social security costs
Employers’ pension costs - defined contribution schemes
Share-based payment charge (1)
(1) Share-based payment charge represents the Group total.
Average number of employees during the year
Further details of Directors’ remuneration and share incentives are disclosed in the Remuneration Report.
2012
£m
3.2
0.3
0.1
1.8
5.4
2011
£m
3.0
0.2
0.1
1.2
4.5
2012
22
2011
20
d) Audit fees
The audit fee in respect of the parent Company was £0.1 million.
Further details of the Group audit fee are disclosed in note 2.1 “Profit before tax” of the Group’s consolidated financial statements.
e) Dividends
The aggregate amount of dividends comprises:
Final dividend paid in respect of prior year but not recognised as liabilities in that year
Interim dividend paid in respect of the current year
A final dividend of 13.5 pence per ordinary share has been recommended by the Board.
2012
£m
5.4
3.7
9.1
2011
£m
4.8
3.4
8.2
The Vitec Group plc
113
Freehold
land and
buildings
£m
Leasehold
buildings
£m
Equipment,
fixtures and
fittings
£m
2.6
-
-
2.6
1.4
-
-
1.4
1.2
1.2
0.4
0.1
-
0.5
-
0.1
-
0.1
0.4
0.4
0.1
-
-
0.1
0.1
-
-
0.1
-
-
Total
£m
3.1
0.1
-
3.2
1.5
0.1
-
1.6
1.6
1.6
f) Tangible fixed assets
Cost or valuation
At 1 January 2012
Additions
Disposals
At 31 December 2012
Depreciation
At 1 January 2012
Charge for the year
Disposals
At 31 December 2012
Net book value
At 1 January 2012
At 31 December 2012
Freehold land and buildings disclosed at a revalued net book value of £1.2 million would have been stated under historical cost
at £0.7 million and a net book value of £nil.
The revalued amount of the land and buildings has been retained as allowed for by the transitional provisions set out in FRS 15
‘Tangible Fixed Assets’.
The Company has the following commitments during the following year, under non-cancellable operating leases:
Expiring in two to five years
g) Investments in subsidiary undertakings
Cost and net book value
At 1 January 2012
Additions
Disposals
Loan reductions
At 31 December 2012
Provisions
At 1 January 2012
Additions
At 31 December 2012
Net book value
At 1 January 2012
At 31 December 2012
Land and buildings
2012
£m
0.3
2011
£m
0.2
Investment
in other
shares
£m
Total
£m
308.4
253.1
(129.3)
(42.5)
389.7
204.9
253.1
(129.3)
-
328.7
-
0.6
0.6
-
0.6
0.6
Loans
£m
103.5
-
-
(42.5)
61.0
-
-
-
308.4
389.1
204.9
328.1
103.5
61.0
The additions, disposals and loan reductions in investments during the year reflect the Company’s restructuring of certain subsidiary
holding and financing companies.
Annual Report & Accounts 2012
114
Notes to the Company financial statements
h) Debtors
Amounts falling due within one year
Amount owed by subsidiary undertakings
Other debtors
Derivative financial instruments - forward exchange contracts
Prepayments and accrued income
i) Creditors
Amounts falling due within one year
Bank overdraft (unsecured)
Amounts owed to subsidiary undertakings
Derivative financial instruments - forward exchange contracts
Other creditors
Accruals and deferred income
Amount falling due after more than one year
Bank loans (unsecured)
Amounts owed to subsidiary undertaking
Contingent liabilities
There are no contingent liabilities at 31 December 2012 (2011: £nil).
j) Provisions
At 1 January 2012
Charged to the Profit and Loss
At 31 December 2012
Due within one year
Due after more than one year
2012
£m
2.6
1.8
2.4
0.2
7.0
2012
£m
-
9.2
2.4
1.8
1.4
14.8
2011
£m
1.6
0.7
1.3
0.2
3.8
2011
£m
9.2
5.2
1.3
0.7
3.1
19.5
73.0
30.0
103.0
56.6
46.4
103.0
Onerous
lease
£m
0.8
(0.2)
0.6
0.2
0.4
0.6
The onerous lease contracts provision is in relation to non-cancellable leases on vacant property that the Company entered into in
previous years. Utilisation of the provision will be over the anticipated life of the lease or earlier if exited.
The Vitec Group plc
k) Share capital
Issued and fully paid
At 1 January 2012
Exercise of share options
At 31 December 2012
115
Number of
shares
Nominal
value £m
43,255,518
435,450
43,690,968
8.7
0.1
8.8
Details of share-based payments and share options are stated in note 5.3 “Share-based payments” of the Group’s consolidated
financial statements.
l) Reserves
At 1 January 2012
Dividends paid
Own shares purchased
Share-based payment charge
New shares issued
Profit for the year
At 31 December 2012
Share
premium Revaluation
reserve
account
£m
£m
Merger
and other
reserves
£m
9.8
-
-
-
0.6
-
10.4
0.9
-
-
-
-
-
0.9
55.3
-
-
-
-
-
55.3
Profit
and loss
account
£m
115.8
(9.1)
(4.8)
1.8
-
112.1
215.8
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.
m) Related party transactions
The Company has identified a related party relationship with its Board, the Vitec Group Pension Scheme and members of the Operations
Executive as disclosed in the Remuneration Report and note 5.5 “Related party transactions” of the Group’s consolidated financial
statements. There are no other related party transactions to disclose.
n) Post Balance Sheet events
The financial statements were authorised for issue by the Board on 27 February 2013. There were no events after the Balance Sheet
date that require disclosure.
Annual Report & Accounts 2012
116
Five Year Financial Summary
Years ended 31 December
Revenue
Operating profit (1)
Net interest on interest-bearing loans and borrowings
Other financial income / (expense)
Profit before tax (2)
Cash generated from operating activities
Net interest paid
Tax paid
Operating cash flow
Net capital expenditure on property, plant and equipment and intangible assets
Free cash flow (3)
Capital employed
Intangible fixed assets
Tangible fixed assets
Other net assets
Financed by
Shareholders’ funds - equity
Net debt
Deferred tax
Statistics
Operating profit (%) (1)
Effective tax rate (%) (1)
Adjusted basic earnings per share (pence) (4)
Basic earnings per share (pence)
Dividends per share (pence)
Year-end mid-market share price (pence)
2012
£m
345.3
39.3
(3.2)
0.1
36.2
38.4
(3.1)
(10.8)
24.5
(13.7)
10.8
68.2
48.6
48.3
165.1
114.6
63.7
(13.2)
165.1
11.4
32.9
55.8
13.6
22.0
635.3
2011
£m
351.0
34.5
(1.9)
0.4
33.0
39.1
(1.8)
(11.1)
26.2
(9.7)
16.5
75.0
50.1
39.5
164.6
129.3
50.4
(15.1)
164.6
9.8
32.7
51.4
34.7
20.5
555.7
2010
£m
309.6
27.7
(1.2)
0.2
26.7
34.6
(1.2)
(0.9)
32.5
(14.5)
18.0
51.8
53.4
27.0
132.2
124.3
28.1
(20.2)
132.2
8.9
33.0
41.9
42.8
19.0
585.0
2009
£m
315.1
24.5
(1.6)
(0.2)
22.7
42.8
(2.1)
(4.3)
36.4
(13.7)
22.7
58.2
54.6
21.9
134.7
111.2
40.6
(17.1)
134.7
7.8
31.7
36.5
7.5
18.3
389.0
2008
£m
337.7
38.4
(3.1)
0.1
35.4
44.3
(3.6)
(6.7)
34.0
(15.0)
19.0
71.6
63.6
34.9
170.1
133.4
53.0
(16.3)
170.1
11.4
33.9
55.9
48.0
18.3
235.5
(1) Before charges associated with acquired businesses in 2012 and 2011; and before significant items in 2010, 2009 and 2008.
(2) Before charges associated with acquired businesses and disposal of business in 2012 and 2011; and before significant items in 2010, 2009 and 2008.
(3) Free cash flow is the cash generated from operations less interest, tax and capital expenditure on property, plant and equipment and intangible assets
excluding goodwill.
(4) Differences between adjusted basic and basic earnings per share arise from charges associated with acquired businesses and disposal of business
in the years in question.
The Vitec Group plc
The Vitec Group plc
Annual Report & Accounts 2012
Inside this report
Shareholder Information and Financial Calendar
Corporate
Governance
52 Chairman’s Report
60 Audit Committee Report
Independent
Auditor’s Report
64
Independent Auditor’s Report
Financial Statements
65 Table of Contents
66 Primary Statements
71 Section 1 - Basis of preparation
73 Section 2 - Results for the year
81 Section 3 - Operating assets and liabilities
92 Section 4 - Capital structure
99 Section 5 - Other supporting notes
109 Company Financial Statements
116 Five Year Financial Summary
117 Shareholder Information and
Financial Calendar
Directors’ Report
01 Highlights
02 Business model
03 Behind every great image
04 Chairman’s Statement
06 Group Chief Executive’s Review
08 Market Update: Broadcast & Video
10 Market Update: Photographic
12 Market Update: Military, Aerospace
and Government
13 Market Update: Global presence
14 Financial Review
20 Videocom Division
22
Imaging Division
24 Services Division
25 Operations Executive
26 Board of Directors
28 Directors’ Report
Remuneration
Report
31 Remuneration Report
Corporate
Responsibility
44 Approach
45 Business Ethics
46 Environment
48 Employees
51 Community & Charitable Donations
The Vitec Group plc website
www.vitecgroup.com
Annual Report & Accounts online
www.vitecgroup.com/annual_report_2012
Where
the story
comes to
life
Shareholder enquiries
For enquiries about your shareholding, such as dividends
or lost share certificate(s), please contact the Company’s
registrars: Capita Registrars, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU. Telephone 0871 664 0300
(Calls cost 10p per minute plus any network extras.
Lines are open from 8.30am to 5.30pm Monday to Friday)
or if calling from overseas +44 (0)20 8639 3399.
Dividend reinvestment plan
The Company, in conjunction with Capita Registrars, offers
a Dividend Reinvestment Plan that enables shareholders to
reinvest cash dividends into additional shares in the Company.
For shareholders to apply the Final Dividend for the year ended
31 December 2012 to the Dividend Reinvestment Plan, application
forms must be received by the Registrars by no later than Monday,
22 April 2013. Details on the Dividend Reinvestment Plan can be
obtained from Capita Registrars using the contact details above.
Alternatively you can email them at shares@capitaregistrars.com.
Online services and electronic voting
The Company has arranged with Capita Registrars for shareholders
to use its online services. By logging on to www.capitaregistrars.com
and selecting Portal (Shareholders) you can make a transaction or
dividend payment enquiry, add or change a dividend mandate or
change your registered address.
The Company will again be making use of Capita Registrars’
electronic voting facility. By logging on to
www.capitashareportal.com and selecting The Vitec Group plc
you will find details of the 2013 Annual General Meeting, including
the venue and text of resolutions. Shareholders have the facility to
vote for, against or withhold the resolutions and can split or restrict
votes, appoint the Chairman of the meeting or a third party as their
proxy and include any instruction text. Shareholders who hold
their shares through CREST may use the CREST voting facility
as provided by Euroclear UK & Ireland Limited. To use the above
facilities, shareholders will need to input a unique User ID that can
be 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 on your
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
given above.
International dividend payment service
Overseas shareholders may wish to consider electing to receive
their dividends in a local currency instead of in Sterling. Details of
this facility can be obtained from Capita Registrars either by calling
+44 (0)20 8639 3399 (lines are open from 9.00am to 5.30pm
Monday to Friday. Calls will be charged at standard overseas rates)
or by visiting www.capitaregistrars.com/international/. Any election
to receive dividends in local currency in respect of the Final Dividend
for the year ended 31 December 2012 payable on Friday, 17 May
2013 must be received by Capita Registrars no later than the
record date for the final dividend, Friday, 19 April 2013.
Share price information
The middle market price of a share of The Vitec Group plc
on 31 December 2012 was 635.25 pence. During the year,
the share price fluctuated between 547 pence and 740 pence.
The Company’s share price is available from the Group’s website,
www.vitecgroup.com, with a 15-minute delay, and from the
Financial Times website, www.ft.com, with a similar delay.
Up-to-date market information and the Company’s share
price is also available from the Cityline service operated by
the Financial Times by telephoning 09058 171 690.
The Company sends to its shareholders each year an Annual
Report. Copies of this and of public announcements and
financial results are published on the Company’s website,
www.vitecgroup.com.
Financial calendar
Ex-dividend date for 2012 final dividend
Record date for 2012 final dividend
Annual General Meeting
Interim management statement
2012 final dividend payment date
Announcement of 2013 half year results
Proposed 2013 interim dividend payment date
Interim management statement
17 April 2013
19 April 2013
15 May 2013
15 May 2013
17 May 2013
22 August 2013
October 2013
November 2013
Analysis of shareholdings as at 31 December 2012
Shares held
Up to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Institutions
and companies
Individuals including
Directors and their
families
Number
of holders
%
of holders
Number
of shares
%
of shares
534
277
70
72
22
59
51.7
26.8
6.7
7.0
2.1
5.7
203,835
660,596
517,542
1,594,234
1,494,161
39,220,600
1,034
100
43,690,968
0.5
1.5
1.2
3.6
3.4
89.8
100
350
33.8
41,269,098
94.5
684
1,034
66.2
100
2,421,870
43,690,968
5.5
100.0
Find out more
www.vitecgroup.com/shareholder_services
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