Enabling the
capture and
sharing of
exceptional
images
The Vitec Group plc
Annual Report & Accounts 2016
Contents
Strategic Report
02 Chairman’s Statement
03 Highlights
04 Vitec Group Overview
06 Group Chief Executive’s Review
10 Our industry
11 Our products and services
12 Our customers
14 Our people
16 Operational Review - Broadcast Division
20 Operational Review - Photographic Division
24 Our Business Model
26 Progress on our Strategic Priorities
28 Principal Risks and Uncertainties
30 Financial Review
35 Key Performance Indicators
Corporate Responsibility
36 Commitment to Sustainable Business
37 Business Ethics
38 Employees
42 Community & Charity
44 Environment
Corporate Governance
46 Board of Directors
48 Chairman’s Report
59 Audit Committee Report
64
Remuneration Committee Chairman
Statement
66 Remuneration Policy Report
74 Annual Report on Remuneration
86 Directors’ Report
88
Independent auditor’s report
Financial Statements
91 Table of Contents
92 Primary Statements
97 Section 1 - Basis of Preparation
99 Section 2 - Results for the Year
107 Section 3 - Operating Assets and Liabilities
120 Section 4 - Capital Structure
128 Section 5 - Other Supporting Notes
136 Company Financial Statements
142 Five Year Financial Summary
143 Shareholder Information and
Financial Calendar
Capture.
Share.
Vitec is a leading global provider of premium
branded products and services to the fast changing
and growing “image capture and sharing” market.
Vitec’s customers include broadcasters,
independent content creators, photographers
and enterprises, and our activities comprise:
» Design, manufacture and distribution of high
performance products and software including
camera supports, wireless systems, robotic
camera systems, prompters, LED lights, mobile
power, monitors and bags.
» Premium services including technical solutions,
systems integration and equipment rental for TV
production teams, film crews and enterprises.
We employ around 1,700 people across the world
in ten different countries and are organised in two
Divisions: Broadcast and Photographic.
What’s Inside
Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
06
Group Chief
Executive’s
Review
Read a summary of 2016’s
performance and understand
Vitec’s strategy to realise growth
16
Broadcast
Division
Read about the operational
progress of our Broadcast
Division
20
Photographic
Division
Read about the operational
progress of our Photographic
Division
08
Investing
in new
markets and
technologies
Read about our
latest acquisitions
14 & 38
People
Hear from some of our people
and read about our corporate
responsibility and values
30
Financial
Review
Read the detailed financial
information for the year
91
Financial Statements
Revenue
£376.2m
£41.5m
Adjusted operating profit*
* Before restructuring costs, charges associated
with acquisition of businesses and impairment
of goodwill, as described on page 03.
Annual Report & Accounts 2016
01
Chairman’s Statement
John McDonough CBE reports
on progress in 2016
Dear Shareholders
I am pleased to report that Vitec
delivered a good set of financial
results for 2016. The business
delivered a record performance with
strong growth in revenue, profit* and
cash. We achieved this growth by
delivering our clear strategy,
including: progress in our higher
technology products; expanding into
new growth markets; and increasing
sales in APAC. We also benefited
from favourable movements in foreign
exchange and the Rio 2016
Olympics. Both our Broadcast and
Photographic Divisions outperformed
their respective markets. In addition,
our disciplined approach to cost
control and our focus on working
capital further supported this
performance.
These results clearly show that we are delivering
on our strategy to transform Vitec by investing in
new products and technologies in the fast growing
and changing “image capture and sharing” market.
As a consequence, the Board recommends a final
dividend of 17.3 pence per ordinary share (2015:
15.1 pence) and subject to approval by
shareholders at the 2017 AGM will be paid
on Friday, 19 May 2017.
In 2016, apart from ensuring delivery of a good
financial performance, your Board focused on
refining the Group’s strategy for growth, involving
detailed reviews of each business. This covered
the market, products, emerging technologies,
competition, risks, talent development, diversity
and succession plans. Further detail on this is
given in the Group Chief Executive’s report and the
Board will continue to measure progress in 2017.
The Board believes that our clear and focused
strategy, together with a highly motivated and
talented management team, premium branded
products and strong financial discipline, means
that Vitec is well positioned to realise sustainable,
long-term growth.
The Board also continued to set the right tone
from the top for the Group, visiting several sites,
meeting regularly with senior management and
tracking progress against potential key risks and
reputational issues. Our internal Board evaluation
in 2016 robustly challenged all aspects of the
Board including the performance of myself, each
Director, Board Committees and the Board as
a whole. I am pleased to report that your Board
continues to function well and is very clear and
focused on its priorities. A strong governance
framework is essential to support the long-term
sustainable growth of the business and the
Governance Report sets out in detail how the
Board embeds Vitec’s culture and values in
everything we do.
Paul Hayes, our Group Finance Director, will be
leaving the Board in 2017 to take on a new
executive role and we are actively searching
for a replacement. We also announced the
02
Corporate Governance Report
Turn to page 48
appointment of Martin Green to the Board,
as Group Business Development Director, on
4 January 2017. Martin has been with the Group
since 2003 in a variety of executive roles and
has been instrumental in focusing the Group
on growth. On behalf of the Board, I would like
to thank Paul for his contribution to Vitec over
the last five years and wish him well for the
future, and to welcome Martin to the Board.
The Board was sad to hear of the passing of Lino
Manfrotto in February 2017. Lino founded the
Manfrotto product range when he developed and
launched its first tripod in 1974, in Bassano, Italy.
The Manfrotto brand now has a global reputation
in the photographic market for exceptional quality
and Lino’s legacy is reflected in the range of
products sold bearing the Manfrotto name.
Our exceptional people were fundamental to the
delivery of 2016’s successful results. Highlights
include the delivery of products and services
around the 2016 Rio Olympics, the launch of
award-winning new products and the successful
integration of new businesses into the Group,
notably Wooden Camera. On behalf of the Board,
I would like to thank all of our people for living
Vitec’s values and going the “extra mile”
during 2016.
John McDonough CBE
Chairman
20 February 2017
The Vitec Group plc
Highlights
Key points
2016 Financial highlights
» Strategic progress
in higher technology
products, new growth
markets and APAC
» Strong Group
performance in revenue,
adjusted profit* and EPS*,
driven by:
- Favourable benefit
from foreign exchange
- Higher revenue growth
in the second half
» Underlying sales and
adjusted profit* growth,
excluding anticipated
lower performance of
non-core Haigh-Farr
business, and despite
lower activity in US
broadcast rentals
» Significant reduction in
working capital through
management focus to
produce strong free cash
flow+ of £44.6 million
Revenue
£376.2m
Adjusted
operating profit*
£41.5m
Adjusted basic
earnings per share*
61.3p
16
15
14
13
12
£376.2m
£317.8m
£309.6m
£315.4m
£345.3m
16
15
14
13
12
£41.5m
£35.4m
£38.8m
£39.5m
£39.3m
16
15
14
13
12
61.3p
49.4p
55.9p
56.1p
55.8p
Net debt
£75.1m
16
15
14
13
12
£75.1m
£76.3m
£70.9m
£61.5m
£63.7m
Broadcast Division
Photographic Division
Revenue
£224.8m
Up 18.9%
Revenue
£151.4m
Adjusted operating profit*
£21.0m
Up 3.4%
Adjusted operating profit*
£20.5m
Up 17.5%
Up 35.8%
Adjusted operating margin*
9.3%
Down 140 bps
Adjusted operating margin*
13.5%
Up 180 bps
Recommended final dividend per share
17.3 pence
Interim dividend per share
9.9 pence
Total dividend for 2016
Up 10.6%
27.2 pence
Chief Executive’s Review
Turn to page 06
* Adjusted performance is before £5.2m of restructuring costs (2015: £4.9m); £9.7m charges associated
with acquisition of businesses (2015: £8.1m); and £12.1m impairment of goodwill (2015: £nil).
+ Free cash flow: cash generated from operations in the financial year after net capital exposure, net
interest and tax paid.
03
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Vitec Group Overview
Group revenue
£376.2m
Group adjusted operating profit*
£41.5m
Vitec is a global group mainly serving customers in the
broadcast and photographic markets.
We design, manufacture and distribute high quality, high performance, premium
branded products and services that enable end users to capture and share
exceptional images. Our products typically attach to, or support, a camera –
primarily for broadcast, video and photographic applications. We also provide
high end technical services. The Vitec Group is organised in two Divisions:
Broadcast
Division
Vitec’s Broadcast Division designs, manufactures and distributes
premium branded products for broadcasters, film and video
production companies, independent content creators and
enterprises. It also provides premium services including
equipment rental and technical solutions to TV production teams
and film crews, and enterprise video solutions to corporates,
Governments and houses of worship.
Operational Review Broadcast Division
Turn to page 16
Photographic
Division
Vitec’s Photographic Division designs, manufactures
and distributes premium branded photographic and
video equipment such as tripods, bags, filters and
lights for professional and consumer photographers.
Revenue
£224.8m
Up 18.9%
Adjusted
operating profit*
£21.0m
Up 3.4%
Employees
1,000
Revenue
£151.4m
Up 17.5%
Adjusted
operating profit*
£20.5m
Up 35.8%
Employees
700
Operational Review Photographic Division
Turn to page 20
04
* Before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill, as described on page 03.
The Vitec Group plc Our global footprint
Revenue by destination
North America 48%
Europe 31%
Asia-Pacific 18%
Rest of the
world 3%
We manufacture and distribute our
products and services from our facilities in
We employ around
Our products and services are sold in over
10 countries
1,700 people
100 countries
Brands
Anton/Bauer
Autocue
Autoscript
Bexel
Camera Corps
Haigh-Farr
Litepanels
OConnor
Offhollywood
Paralinx
Sachtler
SmallHD
Teradek
The Camera Store
Wooden Camera
Vinten
Brands
Avenger
Colorama
Gitzo
Lastolite
Manfrotto
National
Geographic+
Xume
+ Manufactured and
distributed under
licence
Addressable market
We estimate that the broadcast market
for products and services supplied by
Vitec is worth around £900 million
annually. This includes the traditional
broadcast and film markets as well as
the higher growth independent video
production and enterprise video markets.
Vitec is well positioned due to its broad
geographical reach and premium
products. We have a global sales team
that is able to offer a full range of
products and services to our customers
all over the world, either directly or via
distributors, both online and in stores.
Market position
Vitec is the market leader in most of its product categories, providing leading
products through our brands to the broadcast market.
Product
category
Supports
Prompters
Lighting -
LEDs
Mobile
power
Wireless
systems
On-
camera
monitors
Robotic
camera
systems
Camera
accessories
Distribution,
rental &
services
Brand
OConnor,
Sachtler,
Vinten
Autocue,
Autoscript
Litepanels Anton/
Bauer
Haigh-
Farr,
Teradek,
Paralinx
SmallHD Camera
Corps,
Vinten
Offhollywood,
Wooden
Camera
Bexel,
Camera
Corps,
The
Camera
Store
Market
position*
1
1
1
1
1
1
2
2
1
* Management estimates by sales value in the market segments in which these products are sold.
Market position
Vitec has leading premier brands in photographic camera tripods, heads, lights and
bags for the professional and consumer photographer.
Product
category
Brand
Supports
Bags
Lighting
Filters
Avenger,
Gitzo,
Manfrotto
Manfrotto,
National
Geographic+
Colorama,
Lastolite,
Manfrotto
Xume
Market
position*
1
2
2
New
Addressable market
We estimate that the photographic market
for products manufactured by Vitec is
worth around £800 million annually.
Professional photographers account for
approximately half of this market and
consumers make up the remainder.
There is growing adoption of new image
capturing devices by professionals and
advanced consumers as the distribution of
images via social media continues to grow
rapidly. Vitec is focusing on the opportunity
to develop and commercialise innovative,
high end accessories for these new
applications. We sell our products globally
via multiple distribution channels as well
as online via our own direct e-commerce
capability and third party platforms.
05
* Management estimates by sales value in the market segments in which these products are sold.Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Group Chief Executive’s Review
Delivering on our strategy to transform
Vitec to realise growth, by Stephen Bird
Vitec is uniquely placed to take advantage of growth
opportunities in a changing market
Vitec operates in the fast growing “image capture
and sharing” market. Technology is driving
fundamental changes to this market and Vitec’s
unique heritage and the credibility of our premium
brands enables us to capitalise on those changes.
We have grown our addressable markets and end
users from traditional broadcast and photographic
customers to now encompass faster growing
market segments, like new media which includes
social media. These include independent content
creators and enterprises that are increasingly
using high quality video for their communication.
Vitec continues to lead the market with its range
of products and services. We have developed
a significantly higher technology business by
expanding our capabilities in software development
to support our hardware solutions, by increasing
our systems integration expertise, and by
designing products for new imaging devices.
We have been successfully transforming Vitec
by implementing a growth strategy focused on
five main strategic priorities:
1 To improve the core by improving and
strengthening our business model while
continuing to innovate. In 2016 Vitec delivered
a strong cash flow through disciplined cost
control and working capital management
initiatives that reduced inventory levels
significantly. The business has also been
improved through lean manufacturing
programmes and has realised savings on
previously announced restructuring activities.
We have demonstrated our innovation by
launching new products, for example new
tripods, market-leading robotics and innovative
LED lights.
2 To maintain investment into new and faster
growing markets and technologies to
underpin future growth. For example, this year
we expanded our product offering in Apple
Stores globally and we launched Sphere, our
award winning Virtual Reality product that
allows the audience to become the producer
of content. We are also building our business
to address the growing demand for high quality
video produced by corporates, religious, health
and education establishments and other
enterprises.
3 To continue to get closer to our end
customers by owning more distributors and
optimising our e-commerce activities. In
January 2016 we acquired our former
distribution partner in the Netherlands, Provak,
for a net consideration of £0.9 million, which
has expanded our strong photographic
distribution model. We are also investing in and
optimising our e-commerce capabilities through
working with our major e-commerce customers,
such as Amazon, and by further developing our
own online platforms.
4 To focus on geographical expansion,
especially in APAC, which we believe has
good medium-term growth opportunities.
In 2016 we grew revenue in this market by
£12.8 million to £68.7 million, which included
strong growth in Japan where we have achieved
record sales performances this year. We
expanded our Chinese direct distribution model
and invested in initiatives to improve synergies
across the Group in back office functions
in APAC.
5 To supplement our many organic growth
opportunities with carefully targeted
acquisitions and corporate development.
In April 2016 we acquired the business and
assets of Offhollywood that provides camera-
back modules for RED cameras and other
services to a similar customer base to that
serviced by the Group’s existing higher
technology businesses, for an initial
consideration of £1.5 million. In September
2016 we acquired Wooden Camera, a leading
one-stop provider of high quality, essential
camera accessories used by filmmakers and
independent content creators, for an initial
consideration of £15.4 million. Wooden Camera
is performing ahead of our expectations.
It complements Vitec’s strategy of providing
premium branded broadcast products and
services to our customers to capture and
share exceptional images.
06
The Vitec Group plc Approval of Strategic Report
We have provided information in this report on our
strategy, business model (which has been updated
to reflect our current strategy) and objectives
which is contained in the Strategic Report. You will
find the Strategic Report on pages 1 to 47 and its
content has been approved by the Board.
Outlook
We are continuing to transform the Group. We
are outperforming our markets by driving sales,
investing in new technologies, and expanding our
capabilities in the exciting and growing “image
capture and sharing” market. A strong cash flow
performance and our robust balance sheet support
our clear growth strategy.
Vitec has a strong position in changing markets
and the Board remains confident about future
growth prospects, assuming no significant adverse
change in exchange rates.
Stephen Bird
Group Chief Executive
20 February 2017
We believe that over the medium-term there are
exciting opportunities for Vitec that should deliver
sustainable sales growth while continuing to drive
strong cash performance. This will enable us to
finance a growing business, make value-adding
acquisitions and pay well-supported,
progressive dividends.
2016 Performance Overview
We are pleased to report that Vitec achieved a
record performance with strong growth in revenue,
adjusted profit* and cash. As expected, foreign
exchange rates had a significant favourable impact
on our results.
The Broadcast Division has brought further
innovative new products and services to market,
benefited from the acquisitions of Offhollywood
and Wooden Camera, and successfully supported
the Rio 2016 Olympics. Continued growth in
higher technology products was partially offset
by anticipated lower sales from the Haigh-Farr
antenna business and a decrease in US asset
rentals activity.
The Photographic Division performed well in 2016,
growing revenue and adjusted operating profit*.
We have outperformed the market by continuing
to invest in and launch innovative new products.
Adjusted profit before tax* of £37.5 million was
£6.0 million higher than the prior year which is
a record performance (2015: £31.5 million).
Statutory profit before tax of £10.5 million was
£8.0 million lower than 2015 as it includes the
stronger adjusted profit performance being offset
by the one-off non-cash impairment of goodwill.
As a result of the stronger performance, and an
improvement in the effective tax rate, adjusted
earnings per share* increased by 24.1% to 61.3
pence per share (2015: 49.4 pence per share).
Basic earnings per share were 20.2 pence per
share (2015: 29.3 pence per share).
Free cash flow+ was particularly strong at £44.6
million (2015: £16.2 million) even after £7.4
million of cash outflows on restructuring actions
(2015: £3.5 million). The strong free cash flow+
includes the benefits from working capital
management initiatives, including a reduction in
inventory of £11.2 million, and the consideration of
£3.9 million from the sale of the Bury St. Edmunds
site. Net debt at 31 December 2016 was £75.1
million (31 December 2015: £76.3 million). At
constant currency net debt would have reduced to
£63.5 million given a net adverse foreign exchange
impact of £11.6 million. The Group’s balance sheet
remains strong with a year-end net debt to EBITDA
ratio of 1.2 times (31 December 2015: 1.5 times)
that supports our growth and acquisition strategy.
Product Development
We continue to invest in new products and
enhancements to our existing product ranges and
I am pleased with the new products that we have
launched this year. The level of product
development collaboration across our Divisions
remained strong in 2016, including products for
the growing number of independent content
creators. Examples of our new products can be
seen in the operational review section which starts
on page 16. We continue to invest around 4% of
Group product sales into research, development
and engineering.
Strategic priorities
Improve the
core
Focus on new
markets and
technology
Get closer to
customers
Expand in
APAC
Corporate
development
* Before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill, as described on page 03.
+ Free cash flow: cash generated from operations in the financial year after net capital exposure, net interest and tax paid.
07
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Group Chief Executive’s Review
Investing in
new markets
and technologies
Our recent acquisitions are as much
about people as they are about product.
For a business like Vitec, intelligent and sustained investment in
new markets, technologies, products and people is vital to ensure
that we retain our market-leading positions.
The “image capture and sharing” market has fundamentally
changed and we continue to identify and make appropriate,
value-adding acquisitions to supplement our organic activities
and enable us to benefit from those changes.
Our unique heritage, experienced people and the credibility of
our established, premium brands allow us to recognise strategic
opportunities in new markets, technologies and geographies and
expand into those pockets of the market that are growing fast.
Operational Review
Turn to page 16
08
The Vitec Group plc Wooden Camera
Acquiring Wooden Camera demonstrates Vitec’s
commitment to expanding our portfolio of premium
branded products and services for the broadcast market.
Their products are the glue that binds all the building blocks
together on a professional camera system.
As part of Vitec’s strategy to invest in new markets and get closer to our
customers, we acquired Wooden Camera, a high quality camera
accessories company, whose products are used mainly by filmmakers
and independent content creators. Their products are known industry-wide
as essential items for making cameras more functional and versatile.
Based in Dallas, Texas, Wooden Camera’s high performing products
supplement basic camera equipment by linking camera peripherals and
are used on many leading cameras. Wooden Camera designs its products
in the US and sells them directly to end users through a number of
channels, including its own online store and a dedicated retail outlet in
Los Angeles, as well as via a reseller network. The products are used by
the growing market of independent content creators providing images to
an increasing number of new media platforms.
Wooden Camera strengthens and complements Vitec’s existing activities,
including Teradek, Paralinx, SmallHD and Offhollywood which also design
and provide high quality products mainly for independent content creators.
Our acquisition of Wooden Camera has enabled it to leverage its leading
market position and expand worldwide. Now, as part of Vitec, these
products are being sold around the world through Vitec’s extensive global
sales and distributor network and the business is benefiting from Vitec’s
manufacturing and product sourcing capabilities. It is also collaborating
with many areas of the Group on new product development.
“We are excited to have become part of Vitec and feel that our product line
and culture fits perfectly with Vitec’s premium brands. Customers already
turn to Wooden Camera when they need to mount a SmallHD monitor,
Teradek transmitter, Anton/Bauer battery and other items. Now as an
official part of the Group, we look forward to many new possibilities.”
Ryan Schorman, co-founder of Wooden Camera
Provak
Provak further expands
Vitec’s strong photographic
distribution model.
Offhollywood
Vitec’s investment in Offhollywood’s
R&D expertise and cutting-edge
products enables us to grow our
higher technology product range.
As part of Vitec’s strategy to get closer to
our customers we acquired Provak, the
main distributor of photographic brands
in the Netherlands and Vitec’s former
distribution partner. In addition to margin
consolidation, sales growth and full control
of channel management, Vitec’s ownership
of Provak has enabled us to consolidate
all photographic brands in Benelux under
one distributor and serve this region from
the Netherlands.
Offhollywood is a camera accessories manufacturer, equipment rental and production services
provider and its acquisition is in line with Vitec’s higher technology strategic goal. A digital cinema
company based in Brooklyn, New York, providing R&D and cutting-edge production/post-production
services, Offhollywood has most recently focused on designing and developing a unique line of
modules for the RED camera product range.
“By partnering with the Vitec engineering team we were able to rapidly develop and bring to market
a unique line of modules for the new RED cameras, overcoming obstacles that otherwise would have
been insurmountable.” Mark L. Pederson, co-founder and CEO of Offhollywood
“The Offhollywood team has been an important partner to RED since our inception and we have
continued to look to them for guidance over the last decade. We are proud and excited to see them
take their next step by joining forces with Vitec.” Jarred Land, RED Digital Cinema President
09
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Our industry
10
Our industry
Vitec operates in one of the most exciting global markets;
that of image capture and sharing. This dynamic market
has been transformed over the past decade and will
continue to change. Driven by new media and technological
innovation, image capture and sharing has grown
exponentially, with millions of videos and still images
taken and shared every day.
Broadcast
Vitec supplies broadcasters, cinematographers
and independent content creators with a variety
of products and services to assist in the capture
and transmission of video images.
Photographic
Vitec supplies photographers and videographers
with a variety of products for use alongside a
photographic camera. We target professionals
and advanced consumers.
The broadcast market comprises products and
services used in the production of content for
broadcasters and cinematographers, whether
in a studio, on location or in an enterprise.
The growing professional video segment
includes products and services used in the
production and streaming of video by
independent content creators including
education and religious establishments,
corporate entities and governmental bodies.
The majority of our products are designed for
use with an inter-changeable lens camera (“ILC”)
such as a single lens reflex (“SLR”) camera,
a compact system camera (“CSC”), premium
mirrorless cameras and new image capturing
devices (e.g. smartphones, action cameras,
Virtual Reality/360-degree cameras).
The Vitec Group plc
Our products and services
Supports
(pedestals, tripods and heads)
» Avenger
» Gitzo
» Manfrotto
» OConnor
» Sachtler
» Vinten
Camera accessories
» Manfrotto
» Manfrotto Xume
» OConnor
» Offhollywood
» Wooden Camera
Mobile power
» Anton/Bauer
On-camera monitors
» SmallHD
Wireless systems
Lighting and controls
» Haigh-Farr
» Paralinx
» Teradek
» Colorama
» Lastolite
» Litepanels
» Manfrotto
Our products and services
Our brands are leaders in the markets we serve, both in
terms of the premium product or service supplied and
the share of the market our brands capture. Our products
and services have enabled some of the most amazing
moments to be captured and shared.
Our products typically attach to, or support, a camera
– primarily for broadcast, video and photographic
applications. We also provide high end technical services
to major broadcasters. Our products serve a variety of
end users and are offered as a cohesive package.
Prompters
» Autocue
» Autoscript
Robotic camera systems
» Camera Corps
» Vinten
Distribution,
rental & services
» Bexel
» Camera Corps
» The Camera Store
Bags
» Manfrotto
» National Geographic*
» Sachtler
* Manufactured and distributed under licence
11
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Our customers
Our customers
Vitec’s purpose is to support our customers
to capture and share exceptional images. Our
products and services encompass a variety of
technologies, designed and engineered to ensure
that, whatever the conditions, the image maker
has the best equipment to “capture the moment”.
These technologies range from traditional
mechanical engineered products, for example
manual camera supports, through to electronics
and software. Nonetheless the user is the
same – an image maker – whether engaged
by a broadcaster, film or other production
company, a corporate, educational or religious
establishment, operating as an independent
business, or an amateur.
Independent Content
Creators
“My job is really about functionality and comfort
when it comes to my camera rigs. I own two
RED WEAPONS, an ALEXA Mini, Sony A7s,
a Panasonic GH4, the list goes on, and every
camera is decked out with Wooden Camera gear!
When you are on set, each camera needs to be
rigged like it was made for you and Wooden
Camera does that.”
Neil Dearman, Owner, Neil Dearman
Productions
Bloggers and
vLoggers
“I need a bag that does it all. One that
accommodates the variety of shooting I do.
Whether drone, cinema, stills or a mix. The
Manfrotto 3N1 gives me the freedom to go.”
Kody and Kyler McCormick, two brothers
“living to inspire”. Manfrotto Ambassadors, TEDx
speakers and sponsored adventure filmmakers
Lighting Specialists
“Litepanels became a very rare company in that
it has both a really good soft light panel and
an entire Fresnal package that would work in
conjunction. And that’s what’s really cool. I’m at
5,000 Watts for 100 lights, which is outstanding;
that’s four sound stages that have less wattage
than what typical studios use to light a green
screen for their weather segment.”
Dan Reed, Lighting Designer, Fullscreen Studios
Broadcasters and
TV Networks
“The first test of Autoscript’s VoicePlus blew
us away because it was completely seamless
and showed us this great new possibility for
our workflow. And, in the end, we made no
significant changes to our original infrastructure
to accommodate it.”
Neils Borg, Project Manager and Technical
Director, TV MIDTVEST
12
The Vitec Group plc
Amateur
Photographers
“Thank you Manfrotto.
You guys keep knocking
out amazing gear: it
never lets me down.”
Tom Adamson, with a
passion for photography,
he is always on
adventures with his
cameras
Cameramen
Enterprises
“Vinten hit a home run with the Vector Series
because of the pantographic design, perfect
balance, and the drag. Everything is perfect and
the pan head is so responsive. It doesn’t stick.
It doesn’t slip. There are no surprises. It does
exactly what I expect it to do and to a guy like me,
it’s how I express myself. It’s how I earn a living.
It’s how I get that signature shot that I could only
get with a Vinten.”
Tom Guilmette, Director of Photography who
has worked with the Boston Red Sox, Boston
Bruins and the Summer Olympics
“Every church has a story to tell, whether
conservative or contemporary, large or small.
Especially during the holiday season, you can
take your Church’s story to the world with Live
Video streaming. And no matter the size of your
congregation, Teradek has the gear to help you
share your services.”
Tyler Riddle, AV Director, OC Grace Church
Pro Photographers and
Videographers
“99% of my images rely on stability and
precision. I never take a photo without using
a tripod, unless there is just no other practical
option. Both Gitzo and Manfrotto justify their
reputation as being the best in the business –
they are reliable, stable, portable and enable me
to work quickly, efficiently and effectively. I’ve
used their products since my teens!”
Ross Hoddinott, natural history and landscape
photographer, member of the 2020VISION photo
team and a Nikon Ambassador
Cinematographers
for films
“Transport over icy, snowy and rocky terrain is
very difficult; that’s why the equipment has to
be extremely robust yet very lightweight at the
same time. On top of that, the quality of pan and
tilt movements is a basic requirement. It doesn’t
matter how well you prepare; you never know
how much leeway you’ll actually have in those
extreme conditions. That’s exactly why you need
the best possible camera support.”
Alessandro Beltrame, Director of Photography
on why he used his Sachtler FBS 6 system for
The Antarctica Project at the South Pole
Outside Broadcasters
(sports / live events)
“The Bexel team supplied much of the glue for
this production, including fibre optic cabling to
handle all of the short-haul, high definition video
runs between the Times Square studio, our
editing facility a few blocks away in a hotel,
and between NYC and MetLife Stadium for Super
Bowl XLVIII. Bexel helped plan and implement
that infrastructure and figure out the logistics
of making it all work, including what equipment
we’d need to do what we needed to accomplish.”
Mike Davies, Vice President of Field and
Technical Operations for FOX Sports
13
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Our people
Our people
Our people are key to Vitec’s future. They make
the difference not only by what they do, but by
how they do it. Their attitude and abilities, talent
and commitment create a culture that naturally
supports product excellence, creative solutions
and integrity.
Our values
Product excellence
Everything we make and do is exceptional
Customer focus
We are nothing without our customers
Creative solutions
We are constantly looking to break
new ground
Collaboration
We work better when we work together
Integrity
What you see is what you get
14
The Vitec Group plc
“As an entrepreneur faced with the prospect of selling my first company to Vitec, I didn’t know what to expect. However, in the two years since our acquisition I’ve been blown away by the ability to work with talented people, abundant technological resources and a global reach to the most interesting and diverse customers in the world.” Greg Smokler Co-Founder, Paralinx, Los Angeles“In my role as an HR professional I’ve been given a 360-degree view of the business, its strategy and the markets we work in. I’m now working in Asia with the best professionals in the field, learning everything from marketing to finance and learning more about our products.” Saema Rab HR Business Partner APAC, Hong Kong“Vitec has allowed me to learn about the importance of teamwork to achieve the goals of lean projects in the company, of cost reduction and process improvement.” Jose Daniel Brenes Continuous Improvement Engineer, Costa Rica“During 19 years at Vitec I have worked on many projects and been given countless opportunities to use and learn new, cutting-edge manufacturing technologies to produce our market leading products and also help advance my skills.” Steve Manning Team Leader, Production, Bury St. Edmunds“I started as an intern and have now been taken on full time at the Group head office, where I am learning about the Group’s strategy and have the opportunity to review and analyse potential acquisition targets around the world.”Felix Belloin Group Development Executive, Richmond, UK“Communication is my passion and I’m always excited to find new ways to engage with our community and to better understand the needs of our end users. I’ve been involved in Manfrotto’s development of social media and digital communications platforms to drive our online engagement opportunities.” Claudia Rossi Communications Specialist, Italy“As an experienced photographer, who integrates smart phone image taking into my projects, I am the customer Manfrotto and Apple both look to engage. Blending my consumer experience with Apple’s and Manfrotto’s trusted branding, we were able to create new smart phone products and develop new markets.”Robert Magness Regional Manager, West Coast, Manfrotto Distribution US, Los Angeles Our Operations Executive
Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
Stephen Bird
Group Chief Executive
“Vitec is uniquely
positioned in an exciting
and fast growing market.
Our exceptional people
are focused on continuing
to deliver our strategy to
realise growth.”
Jon Bolton
Group Company Secretary
“Vitec’s governance and
controls are appropriately
structured to protect
our reputation and
shareholder value and
support the business
on delivery of its
growth strategy.”
Paul Hayes
Group Finance Director
“We have a clear focus
on delivering sustainable
profit growth and tightly
managing Vitec’s
working capital.”
Martin Green
Group Business Development Director
“We keep the Group’s
portfolio under continuous
review, looking for
acquisitions and other
business development
opportunities to enhance
shareholder value.”
Our Operations Executive
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.
Jennifer Shaw
Group Communications Director
Marco Pezzana
Photographic Divisional Chief Executive
Alan Hollis
SVP Production Equipment, Broadcast Division
“We communicate
regularly, both internally
and externally, using
a variety of channels.
Keeping all of our
stakeholders informed
is key to the success
of the business.”
“Photographic technology
and distribution channels are
changing at an unprecedented
pace. We strive to get even
closer to our customers using
open innovation, strategic
alliances and e-commerce,
supporting them to capture
exceptional images.”
“In our core and
traditional businesses we
are market leaders with
highly valued, premium
brands. We remain
focused on delivering
constant improvements
while stimulating growth
and share gain with
sustained new product
development.”
Nicol Verheem
SVP Creative Solutions, Broadcast Division
Martin Vann
SVP Enterprise Video, Broadcast Division
Halid Hatic
SVP Production Services, Broadcast Division
“Content creation is
growing and evolving
in really exciting ways.
Creating the technology
that helps everyone from
individuals to media
giants make and share
this content is not only
rewarding, but also
enables Vitec to grow
alongside it.”
“The use of video by
enterprises to inform,
improve performance
and connect with
customers is growing
rapidly. Recorded and live
streamed video content
are redefining enterprise
communication.”
“We provide services in
the most demanding,
mission critical
broadcast environments.
Our customers rely upon
our specialty services
to enhance the viewing
experience of their
sports and live event
programming.”
Annual Report & Accounts 2016
15
15
Operational Review
Broadcast Division
Revenue for 2016 was £224.8 million, an increase
of 18.9% on the prior year. At constant exchange
rates revenue grew by 5.6% on 2015 with a
strong performance from the higher technology
businesses. Adjusted operating profit* increased
by £0.7 million to £21.0 million although it was
2.7% lower than the prior year at constant
exchange rates.
Adjusted operating profit* and margins reflected
a strong performance by the higher margin
technology businesses but also the negative
impact of the anticipated lower volumes in the
Haigh-Farr antenna business and the lower activity
at the US asset rentals business. The Haigh-Farr
business is a non-core activity. On a constant
currency basis excluding Haigh-Farr’s results,
the Division’s revenue grew by 7.0% and its
adjusted operating profit* was 11.2% higher.
The Division has continued to increase its sales
of higher technology products particularly for
independent content creators, including wireless
transmitters and receivers, camera monitors and
mobile power. Our mobile power business has
grown, with the US broadcast battery market
performing well and we have gained a number
of large medical mobile power orders. This was
offset by lower sales in more mature markets.
We have continued to invest in new product
development in line with the changing nature of
the broadcast market. New products launched in
the year include: large High Dynamic Range (HDR)
monitors; virtual reality capabilities; the Vinten
Vantage, a compact robotic head providing smooth
on-air motion that supports many cameras and
lenses; and the Teradek Live:Air, an iOS app
enabling live video production with a full range
of real time features, using only an iPad.
Our higher technology offering was further
enhanced with the acquisitions of Offhollywood
in April 2016 and Wooden Camera in September
2016. Both of these acquisitions provide the Group
with innovative ranges of high quality branded
camera accessories that we are selling through
our global distribution channel. This builds on our
recent strong acquisition track record including the
purchases of Teradek and SmallHD, with SmallHD
delivering growth in 2016 as it benefited from
investment in its monitor technology.
Revenue from the equipment rental and broadcast
services business was higher than the prior year,
benefiting from supporting the Rio 2016 Olympics
and the award of a significant contract with the
NFL for project management and technical
support. However, the NFL contract included high
material costs with a low pass-through margin.
The performance of the broadcast services
business was negatively impacted by a significant
downturn in the more competitive traditional US
asset rentals market, particularly in the second
half of the year. We are carefully reviewing the
business’ performance and taking appropriate
actions to drive improvement. This resulted in
a strong positive cash flow from this business
despite it making an operating loss in 2016.
This has been achieved by restructuring and
further simplifying the business model while
significantly reducing the asset base through
lower levels of investment and by proactively
selling underperforming rental assets.
As previously identified, the Division’s results were
also negatively impacted by the anticipated lower
volumes and planned cost investments within
the higher margin Haigh-Farr defence antenna
business. The business remains profitable but
its outlook is much weaker having performed
particularly strongly for the last few years.
The Broadcast Division
designs, manufactures and
distributes premium branded
products for broadcasting,
film and video production
for broadcasters and
independent content
creators. It also provides
premium services including
equipment rental and
technical solutions to TV
production teams, film
crews, and corporate
enterprises.
Revenue
£224.8m
Up 18.9%
Adjusted operating profit*
Up 3.4%
£21.0m
Adjusted operating margin*
Down 140 bps
9.3%
Revenue
2016
2015
£224.8m
£189.0m
Adjusted operating profit*
2016
2015
Adjusted operating margin*
2016
2015
£21.0m
£20.3m
9.3%
10.7%
* Before restructuring costs, charges associated with
acquisition of businesses and impairment of goodwill,
as described on page 03.
16
The Vitec Group plc Growth drivers
Increase in video consumption and
independent video creation
The proliferation of new media, coupled with
the launch and growth of third party streaming
applications from Google and Facebook, has
resulted in significantly higher content generation,
engagement, reach and measurability (via likes,
follows, shares and comments).
Newer online platforms such as Netflix and
Amazon Prime have rapidly increased their
commissioning of original content as opposed
to re-transmitting programmes previously aired
on the traditional networks. This has led to the
expansion of independent production companies
set up to produce content for those networks
and those production companies purchasing
or renting equipment to do so.
Free streaming platforms such as Facebook Live
and YouTube Live allow content creators in the
field (independent and traditional broadcasters)
to stream live and publish content on mobile
devices. Vitec provides a wide range of mobile
production equipment (e.g. Manfrotto monopods
and Litepanels portable lights) while Teradek’s
Live:Air production suite offers a comprehensive
video mixer for iOS devices.
High Definition transition, Virtual
Reality and 360-degree video
4K resolution adoption has increased rapidly with
the Rio 2016 Olympics and other sporting events
mostly shot and broadcast in 4K Ultra HD, and
Netflix and Amazon Prime offering 4K Ultra HD
streaming services. While adoption is growing,
with most major television and monitor
manufacturers creating products with HDR and
4K support at affordable prices, it is still not yet
mainstream. However, this has resulted in studios
being upgraded, camera replacement cycles
shortening and increased demand for our
products. Worldwide, even higher resolutions
have been launched, for example, Japan’s
pioneering public broadcaster NHK’s world first
8K broadcast.
360-degree video streaming and Virtual Reality
(“VR”) applications are expanding rapidly, with
many television shows offering “second screen”
content online. The industry is supported by
investments from companies like Facebook
(Oculus), HTC (Vive), Samsung (Gear VR), Sony
(PlayStation VR) as well as platforms such as
YouTube 360. Vitec has developed ground
breaking products in this area, with, for example,
Teradek’s award winning Sphere VR which
converts the flat, rectangular views from multiple
cameras into an immersive, virtual, 360-degree
world, and streams that wirelessly to tablets,
phones and the web.
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
funded by subscription income have performed
well and expanded with new operations globally.
Those broadcasters reliant on advertising
expenditure continue to invest in their
capabilities but tend to be more susceptible
to macroeconomic conditions.
Vitec’s ability to offer products that reduce the
capital expenditure requirements of broadcasters
and in turn reduce their investment risk, is
increasingly attractive, notably through savings
offered by our lower cost robotic heads (e.g.
Vinten Vantage) and Litepanels LED lighting
solutions. The savings and efficiencies offered
by LED lighting compared with traditional lighting
are significant. There is also a focus on mobile
journalism and portable solutions with more
bonded cellular broadcasts using products
such as Teradek’s Bond. It is not enough to
simply create content for broadcast; content
must also be made for online audiences, whether
that is live streamed or uploaded as “second
screen” content.
Wireless transmission of data
We see accelerating growth in the use of wireless
devices to transmit data and images on
“connected devices”, especially through WiFi.
The cost-effectiveness, range and quality of video
data encoders, decoders and related components
allows users to monitor and transmit at
increasingly lower costs. Vitec products, including
Litepanels’ use of Bluetooth for remote lighting
management, Teradek’s wireless decoders and
Manfrotto’s Digital Director, are all evidence of
our innovation in new markets and technologies.
Video for enterprises
There is a growing demand for high quality video
being produced by a variety of non-broadcast
enterprises. This includes:
» Fortune 1000 businesses wanting to capture
and disseminate corporate messages internally,
as well as training videos and new product
introductions
» Large religious institutions increasingly using
video to connect with congregations
» Public addresses and streaming of official
meetings, court proceedings and government
sessions
» Medical institutions wanting to record
healthcare procedures with high quality video
These customers need to light their content, use
teleprompters to better tell their story, deploy
stable supports to hold and use their cameras,
equipment to hold their lights and even
backgrounds for their videos. Vitec has built
a dedicated team (“VitecEV”) to focus on this
market segment, bringing innovative solutions
and services to help customers adopt, deploy
and increase their use of video.
17
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
New markets and
technologies
Vitec’s Creative Solutions Business Unit
comprises five entrepreneurial companies
which mainly serve the rapidly growing
independent content creator market with
higher technology products. Cheaper
production tools have enabled a much larger
population of video creators to emerge, whose
output is likely to appear on newer platforms
such as Netflix, or be webcast on, for example,
Livestream. We see growth coming from many
areas, but particularly webcasting, driven
by Facebook, YouTube and Twitter wanting
original video content on their platforms.
Here, our strategy in action is to “focus on new markets
and technologies”, and we have developed some ground
breaking products – hardware and software – to capitalise
on this exciting market.
Live:Air
“Live to Air” is a video
production suite developed
by Teradek for Apple iOS
devices. It comprises video
editing tools and support
for all popular live
streaming services,
enabling users to share
video content online;
content that looks like it
came from a professional
studio but at a fraction of
the cost, and with a much
simpler learning curve.
Sphere
Sphere, our award-winning
Virtual Reality product,
allows the audience to
become the producer
of the content. Teradek’s
technology converts the
flat, rectangular views
from multiple cameras
into an immersive, virtual,
360-degree world, and
streams that wirelessly
to tablets, phones or to
the web. Sphere is used
on landmark productions
like ABC’s “Dancing with
the Stars” and Fox Sports’
coverage of the 2016
Rio Olympics.
SmallHD High
Bright monitors
SmallHD’s High Bright
technology offers 3x the
brightness of traditional
LCD displays, allowing
filmmakers to easily
monitor their footage
outdoors. The first-ever line
of daylight-viewable HDR
production monitors in 17,
24 and 32-inch sizes, they
offer an unrivalled viewing
experience for studio and
field productions. Every
monitor housing is milled
from billet aluminium – an
industry first – and holds
a 3mm thick polycarbonate
screen protector that is
user-replaceable.
Broadcast Division
“
As an educator who teaches the craft
of video production and film making
I constantly look for best in class
products to integrate into both my
workshops and my work. SmallHD are
my “go to” monitoring solutions. When
students see how simple, modular and
customisable they are they want to
start using them on their projects.
They are also perfect for today’s Log/
LUT workflows. I can’t wait to see
what they come up with next!
Jem Schofield Producer/DP/Educator, theC47
18
The Vitec Group plc Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
“
Ever since the Barcelona
Games in 1992, Vitec’s
Camera Corps team has
been a regular service
provider in the field of
“Specialty Cameras”. Camera
Corps has been consistently
developing new and
innovative ways of providing
those “WOW” shots to make
the Games so memorable.
In addition, they provide
highly trained technicians
and full logistical support,
fully integrated within the
wider OBS “Team”.
The OBS and Camera Corps
have formed a special
broadcast partnership based
on trust and excellence.
Yiannis Exarchos Chief Executive
Officer, Olympic Broadcasting Services
Developing a
new market
Our Enterprise Video Business Unit (“VitecEV”)
addresses the growing demand for high quality
video in enterprises. We have had success
selling into this market for years in an
opportunistic fashion and have recently built a
small dedicated team to focus on this expanding
market segment. The combination of Vitec
products, as well as the wrap around services
we provide, enables Vitec to offer four
propositions in this growing area.
Improving the core
Vitec’s Production Equipment and Services
Business Units sell mainly into the more
traditional broadcast market where our
premium brands are market leaders. The
strategic focus here is to “improve the core”.
We have a clear plan to continue to enhance margins through
better purchasing, inventory management, manufacturing
and leveraging synergies. We also have a sustained
programme of investment in new product development,
in response to customer demand and technological
innovations, in order to support growth. Examples of new
products include unique new tripods, market-leading robotic
cameras, innovative Litepanels LED lights and moving into
adjacent markets with Anton/Bauer medical batteries.
Robotic Camera
Systems
Vitec has recently launched
the Vinten Vantage, a
market-leading compact
robotic head. In response
to the trend for smaller
studios and cameras we
launched this lightweight
robotic head which is
camera and lens agnostic,
to provide our customers
with flexibility in the studio.
LED Lighting
Litepanels pioneered LED
lighting for motion pictures,
television and the
audio-visual industry.
We continue to expand our
suite of products and have
introduced a low cost app
to enable remote control
and colour matching to
be managed from an
iPhone or iPad. This greatly
enhances the productivity
and quality of the shoot.
Specialist
Sporting Events
Vitec was in action in Rio
supporting our 9th summer
Olympic Games. Our
specialist products,
solutions, services and
crew were used to capture
and share over 40 sports.
We showcased new
products and technologies
throughout the Games,
shipping 130 tonnes
of equipment and 127
crew to Rio.
Production Tools
Vitec’s traditional production offerings can
be bought by enterprise customers for
traditional production uses.
Virtual Reality
The VR studio includes a variety of Vitec’s
offerings plus high level support.
Enterprise Studio
The Enterprise Studio is a broadcast-like
facility packaged to fit in a large
conference room to provide a high level
studio for high quality video production.
We recently deployed an Enterprise Studio
for one of the largest consulting firms in
the world and will be adding a second
studio in 2017.
Creative Studio
The Creative Studio is the size of a large
filing cabinet, is mobile and is designed to
be set up in a traditional conference room.
It can be used for product training, talking
head interviews (where one employee
interviews another), as well as new
product introductions.
19
Annual Report & Accounts 2016
Operational Review
Photographic Division
The Photographic Division
designs, manufactures and
distributes premium
branded equipment for
photographic and video
cameras and provides
dedicated solutions to
professional and non-
professional image makers.
This consists primarily of
camera supports, tripods,
camera bags, lighting
supports, LED lights, lighting
controls and filters. It also
supplies an expanding range
of premium accessories for
smartphones, action
cameras and drones.
Revenue
£151.4m
Up 17.5%
Adjusted operating profit*
Up 35.8%
£20.5m
Adjusted operating margin*
Up 180 bps
13.5%
The Photographic Division performed well in 2016
growing revenue by 17.5% to £151.4 million and
adjusted operating profit* by 35.8% to £20.5
million. After eliminating the favourable effect of
foreign exchange, revenue was 3.6% higher and
adjusted operating profit* increased by 2.8%.
We continue to monitor the shipments of
interchangeable lens cameras as published by the
Camera and Imaging Products Association (CIPA).
We believe that we are continuing to outperform
the market as our sales are outperforming recent
CIPA trends. Revenue growth has been achieved
through investing in and launching innovative new
products and developing our distribution channels.
As a result we have continued to grow our share
in most of our markets. Adjusted operating profit*
growth reflects this increase in sales and was
helped by lean initiatives and the restructuring
actions completed during the year.
New products launched this year include
specialised supports and bags that are designed
for action cameras and drones. This remains
a higher growth area within the photographic
market. We have successfully grown our video
sales including the new Manfrotto monopod and
BeFree Live, a compact and lightweight head
that enables smooth camera movement.
We have also launched products aimed at
smartphone users who accessorise their phones
because they want to take better photographs.
In 2016 we collaborated with Apple to launch the
TwistGrip that connects all smartphones to any
camera support. This is one of five of our products
that are sold in Apple Stores worldwide.
Revenue
2016
2015
£151.4m
£128.8m
Adjusted operating profit*
2016
2015
£20.5m
£15.1m
Adjusted operating margin*
2016
2015
13.5%
11.7%
* Before restructuring costs, charges associated with
acquisition of businesses and impairment of goodwill,
as described on page 03.
20
During the year the Division acquired the
intellectual property of Xume technology. This is
a patented quick release magnetic adapter that
enables photographers to connect filters to their
lenses quickly and with great precision. This range
complements Manfrotto’s existing premium filters
designed for professional and non-professional
image makers.
We continue to get closer to our customers with
our international distribution infrastructure and
e-commerce capabilities. We are pleased with
the performance of Provak, our former distribution
partner in the Netherlands that we acquired in
January 2016. This business has been
successfully integrated into the Division and
further expands our strong photographic
distribution model. We believe that our distribution
infrastructure is a major asset in remaining close
to our end customers.
This year we continued to develop our online
platforms, and launched and upgraded websites
in several countries. Our performance reflects the
benefit from these investments and the continued
growth of our e-commerce sales, both directly and
through sales to our major online partners
including Amazon.
The Photographic Division has a good market
share in the APAC region and we are focused on
delivering further growth in this area. We have
continued to grow sales in APAC during 2016
supported by our direct distribution in China,
Hong Kong and Japan.
Growth drivers
Adoption of new image
capture devices
The growing adoption of new image capturing
devices by professionals and advanced
consumers is an important growth driver
for Vitec’s Photographic Division.
Continued technological enhancements, premium
mirrorless cameras, drones, VR/360-degree
cameras and smartphones have drastically
improved image capturing performance and
are rapidly being adopted by professionals
and advanced consumers as complementary
equipment to traditional DSLRs. This has opened
up a new opportunity for Vitec to develop and
commercialise innovative, high end accessories
that enable a competent creative public to
obtain the best results from new image
capturing technologies.
The Vitec Group plc
Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
Getting closer to
our customers
Our Photographic Division has been
working hard to get closer to our
customers in both our core and
emerging markets, to enable us to
grow across channels and
geographies.
Today, many new image capture devices and related
accessories are sold outside photo specialty stores in new
distribution channels, like Apple Stores, Amazon and
specialised e-commerce platforms. All image makers are
highly digitalised and the internet is rapidly becoming the
preferred channel for them to purchase new equipment.
While Vitec continues to invest in distribution to photo specialty
stores, we have also been developing our online presence by
working in partnership with leading e-tailers, by growing sales
via direct e-commerce and by developing the largest social
community in the photographic accessory industry, driving
over nine million visits to manfrotto.com a year.
Manfrotto.com
Manfrotto launched a state of the art
e-commerce platform in late 2015 with the
objective of increasing direct sales, average
cart value and conversion rate. Direct
e-commerce has become an important
growth driver for the Photographic Division
with strong year-on-year revenue growth.
More importantly, direct e-commerce brings
us even closer to our core customers.
It enables fast track introduction of new
products and supports a more effective
expansion of the brand in adjacent product
categories via highly targeted direct
marketing and social media campaigns.
Amazon
Vitec’s global partnership with Amazon
drives growth through the customer-
centric supply of our core product range,
providing the platform to target relevant
customer segments quickly and efficiently.
Vitec has developed a dedicated team
within Amazon for the six most significant
geographies. This resource works on
advancing our brands in the consumers’
mind through engaging content, search
engine marketing, platform specific
promotions and digital integration.
21
The democratisation of film making
The availability of highly portable hybrid cameras,
coupled with the application of dependable WiFi
technology, enables an interchangeable lens
camera (“ILC”) to support instant content sharing
and post-production, responding to the growing
need for instant content both at professional and
end user level.
We call this the democratisation of content
production, a positive trend that is rapidly
expanding the addressable market for Vitec
and particularly the Manfrotto brand which offers
a wide range of hybrid accessories across
supports, lighting and carrying equipment.
Online distribution channels
The continued growth in online distribution
channels for photographic products has continued
to stimulate demand from new customers,
particularly in emerging economies where
e-commerce provides easier and faster access to
a wider range of products and tutorial information.
Sales of cameras with
interchangeable lenses
We are seeing more stability in the ILC market.
Towards the end of 2016, production in Japan
recovered from the earthquake earlier that year
and we are seeing the continued upgrade in
sensors and overall specifications of latest
generation compact system cameras. This is
driving a growing adoption of this format by
advanced consumers and professionals alike.
In addition, the application of 4K video technology
to both DSLRs and CSCs is attracting a growing
number of content creators who can now produce
high quality visual content in either still or motion
picture formats with highly dependable, portable
and affordable equipment. This positive trend is
expected to further consolidate with the evolution
of 4K into 8K technology which will enable the
extraction of high resolution still images from
video assets.
“
This handy, sleek little tool will now
stay in my camera bag permanently,
finding use in most of my photo
shooting situations. Thank you
Manfrotto!
Dean Blotto Gray Principal Photographer for
Burton Snowboards, a Manfrotto Ambassador,
referring to the TwistGrip
Annual Report & Accounts 2016
“
The new BeFree Live fluid head video
tripod is just such an epic addition to
the Manfrotto range. It’s half the size
of the tripods I’ve used in the past
and still has all the features that lets
me get those smooth motion shots
that I’m after when the waves are on.
Philip Thurston Ocean Art Photographer
Photographic Division
Award-winning
new products
Over the last 24 months we have entirely
renewed our tripod range with three core
principles in mind:
1) more compact designs
2) lightness and portability for outdoor/
urban photography and instant sharing
3) photo/video functionality combined
in a single support
We have also brought to market a number of new
accessories by collaborating with other industry leaders.
Some examples include:
190 Go!
The 190 Go! carbon fibre
tripod features unrivalled
professional performance
with the lowest weight,
fastest leg deployment
and patented Q90
portrait capability. The
190 Go! was awarded
the TIPA Award for best
tripod 2016.
TwistGrip
Following the launch of
TwistGrip, a selection of
five Manfrotto accessories
are now listed in all Apple
Stores worldwide. This was
accomplished by focusing
not only on innovative
product development but
also, and most importantly,
the retail partnership with
Apple Stores.
Pro Light 3N1
backpack
In addition to driving growth
in supports, over the last
24 months we have entirely
renewed our range of bags,
rapidly becoming the second
brand in value share
worldwide. The award
winning 3N1 backpack, for
example, enables users to
carry drones, photographic
or video kit, as well as
computing equipment,
depending on the needs of
a specific shoot. In addition,
adjustable straps and
multiple access points mean
the bag can be used either
as a backpack, sling or
shoulder bag.
22
The Vitec Group plc Expanding in APAC
Vitec’s ability to get closer to customers
across multiple distribution channels is
also the key to our successful expansion
in APAC.
Over the last three years we have invested significantly
to develop an efficient distribution network to grow the
business in APAC.
Focus on Japan and Greater China
Today we operate with all leading retailers in Japan as well as in the best known imaging
shops across first, second and third tier cities in China. Our team of over 40 dedicated
sales and marketing professionals work closely with both physical and e-tail customers.
With offices in Tokyo, Shanghai, Guangzhou and Hong Kong, Manfrotto has rapidly
achieved a leading market position in both supports and bags. APAC is the fastest
growing region for Vitec’s Photographic Division.
Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
“
We can never have enough
Gitzo and Manfrotto products
in our inventory. The more
we carry, the more they get
asked for. Affordable and
durable. A MUST for any
rental house.
Daniel Gurzi Adorama Rental Co.
23
Annual Report & Accounts 2016 Our Business Model
Vitec designs, manufactures and distributes high quality, high
performance, premium branded products and services in the
growing “image capture and sharing” market. Our business
model is focused on achieving five main strategic objectives.
Growing
image
capture
and sharing
market
Understand
customer
needs
» Customer feedback
» Camera manufacturers
» Technology advances
» Industry trends
» Commercial research
Focused
new product
development
» In-house expertise
» Partnerships
» Value engineering
» Systems integration
Market
leading brands
» Premium products,
software and services
» Heritage brands
» Intellectual property
» Acquisitions
Efficient
supply
chain
» Lean manufacturing
» Sourcing
» Quality control
» Health and safety
Vitec
strategic
priorities
Get closer to
customers
Focus on new
markets and
technologies
Corporate
development
Improve
the core
Our two Divisions create value by:
Understanding customer needs
Our businesses continually obtain feedback on market trends, competitors
and their products from customers as well as from research. As our
businesses are market leaders, this enables us to remain close to our
customers, anticipating and responding to developments to ensure that
our brands remain at the forefront of the industry, renowned for their
premium offerings.
Efficient supply chain
We procure materials from reputable suppliers and produce our products
in efficient and environmentally friendly operations and, where appropriate,
in lower cost countries such as Costa Rica and China. The majority of our
operations are relatively low-volume, small-batch processes and our
continuous improvement culture enables us to drive productivity in
our core businesses.
Focused new product development and market
leading brands
Our experienced, specialist engineers apply new technologies, products and
materials to develop high quality high performance solutions. Our innovative
products and services are protected by patents and trademarks and marketed
under our world renowned brands. We produce the majority of our products
in-house and work with selected, market leading partners for specialist
solutions. We supplement in-house developments with carefully selected
acquisitions in new markets and technologies.
Global distribution
We market our products and services through our own sales and marketing
teams. The majority of our sales are conducted via a global network of
distributors, dealers and retailers who sell on to customers. We are expanding
our e-commerce capabilities through working closely with our customers
to develop our online presence and have a particular focus on expanding
in APAC. The breadth of products and our strong brand heritage means that
our network of channel partners is unrivalled in the markets we serve.
We also engage with a number of leading logistics partners to ensure
responsive and timely delivery of our products to the relevant geography.
24
The Vitec Group plc Customers
» Broadcasters
» Independent Content
Creators
» Photographers
» Enterprises
» Filmmakers
Global
distribution
» Global sales force
» Online platforms
» Own distribution
» 3rd party distributors
Expand in
APAC
At the Group level we create value by:
Strategy
The Board and Operations Executive set Group and Divisional strategy,
focusing on markets served, customer segments and products supplied.
Governance
Vitec ensures that an effective Group wide governance framework and policies
are in place to ensure a strong culture of governance and ethical behaviour.
Risk management
We set an overall framework for reviewing and assessing risk and taking
mitigating actions as part of the execution of our strategy.
Health and safety
Vitec sets policies to ensure a healthy, safe and productive work environment
for all our employees, and ensures they are complied with.
Talent management
We work across the Group to ensure that we have consistent policies,
processes and initiatives for acquiring, engaging and retaining our best talent.
Budgeting and monitoring
Vitec sets Group and Divisional budgets annually and regularly reviews Group
and Divisional performance during the year. This includes regular forecasts
to ensure that the financial performance is clearly understood and appropriate
targets are set.
Investor relations
We communicate our strategy, performance, outlook and governance with
our investors on a regular basis.
Treasury and tax
Vitec manages its financing, hedging and tax planning activities centrally
to ensure that the Group has an appropriate structure and funding to support
its geographically diverse business.
Acquisitions and disposals
We buy businesses that provide a good return with clear synergies such as
extending our technological, product or geographic footprint. We dispose of
those businesses that do not fit strategically or do not offer scope to deliver
attractive returns.
25
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Progress on our Strategic Priorities
Strategic Priorities
Our focus
1) Improve
the core
2) Focus on new
markets and
technologies
3) Get closer to
customers
4) Expand
in APAC
5) Corporate
development
26
We leveraged our premium brands and strong market positions to improve and strengthen our traditional business. We continue to develop innovative products and services while focusing on operational efficiencies.We invested resources into new and faster growing markets and technologies to underpin future growth, launching products in new addressable markets and to new end users which include independent content creators, filmmakers and enterprises. Vitec has strong relationships with its customers and end users. We are enhancing our distribution channels and collaborating with key market players to form more durable and strategic relationships that are less susceptible to commoditisation. Direct e-commerce has also become an important growth driver for the Photographic Division.Geographical expansion has been another key focus especially in APAC, which we believe is a particularly attractive medium-term growth market with good opportunities. We continue to supplement organic growth with carefully targeted acquisitions. We have a strong track record in making and integrating acquisitions and we will continue to look for opportunities that meet our criteria for financial returns and strategic fit. Our people are our most important asset and we aim to recruit suitable talent to support the business. The Vitec Group plc Our achievements in 2016
• Sustained investment in R&D with around 4% of product revenue invested in
• Continued lean manufacturing initiatives to drive productivity in our main
developing new products
• New products focused on improving our core:
- Vinten Vantage – camera and lens agnostic compact robotic head
- Sachtler Ace L – tripod system endorsed by Freddie Wong
- Manfrotto BeFree Live – lightweight video head with fluid drag system
manufacturing plants, including Kaizen Events to increase productivity in Costa Rica
and significantly reduce assembly time in Italy
• Sale of Bury St. Edmunds site to facilitate move to modern manufacturing site
in 2017
• Delivered previously announced restructuring projects to plan that realised an
incremental £5.7 million of restructuring savings in 2016
• Strong cash flow through a focus on improving working capital including delivering
an £11.2 million reduction in inventory
• Continued to develop and launch products for independent content creators
including: SmallHD High Bright screen monitors and Offhollywood OMOD
• Launched Teradek Live:Air – iOS app enabling full featured live video production
• Developed apps to enable LED lighting products to be operated remotely saving
• Expanded our offering to filmmakers and independent content creators by the
customers time and cost
acquisition of Wooden Camera
• Developed additional strategic relationships within the medical industry and grown
underlying sales strongly in this industry year-on-year
• Launched Teradek Sphere – our award winning Virtual Reality product
• Investment in new 4,000 square metre facility for Teradek to support growth
• Formation of a dedicated Enterprise Video team, VitecEV, specifically to address
the growing demand for high quality video by enterprises
• Launched new products designed to support the needs of consumers developing
their interests in photography such as accessories for drones, action cameras and
smart phones
• Invested further in our e-commerce capabilities by developing our online platforms
• Developed a close working relationship with Apple to develop products suitable
and launching and upgrading websites in several countries
for iPhone users with five products on sale in Apple Stores worldwide
• Continued to build closer relationships with our customers by investing in our
• Grew our subscription revenue sevenfold at Teradek with its Core transmission
owned distribution resources, completing the acquisition of our former
photographic distribution partner in the Netherlands, Provak, and taking over
distribution for Benelux
• Continued direct sales to consumers through a significant increase in our revenues
with Amazon and other e-tailers
technology
• Worked closely with the NFL to provide major project management and technical
support to upgrade communication infrastructure in stadiums in which they operate
• Strengthened the management team supporting the Olympic Broadcasting
Services with the appointment of a new managing director for Camera Corps,
experienced in specialist cameras for sporting events
• Grown sales in our key Asia-Pacific market by £12.8 million during 2016 to £68.7
million including particularly strong growth in the Japanese market
• Expanded our Chinese direct distribution model that we implemented in 2015
as we continue to grow sales of our photographic products into this market
• Launched initiatives to coordinate our support functions across the Group to
drive growth in the APAC region including sharing HR, finance and other
back-office resources
• Completed three acquisitions in 2016: Provak, Offhollywood, and Wooden Camera
in line with our strategy. Acquisitions made in the last five years have achieved
a 20% return on investment
• Appointed Martin Green as an Executive Director with Board responsibility for Group
Business Development
• Acquired rights to Xume filter adapters, a unique patented product to facilitate easy
use of filters by photographers
• Expanded our product development teams especially in terms
of software capability with the addition of 24 new engineers at Teradek
• Continued to promote high potential employees both within and across Divisions
as part of our succession planning for key senior employees
• Made 83 long-term service awards in our Production Equipment business
• Appointed five senior executives to the Operations Executive team to support
the Group’s growth strategy
• Implemented cross-divisional project teams to leverage synergies and enhance
employees’ career options
• Continued to encourage diversity within our business across all the countries
we operate in
27
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Principal Risks and Uncertainties
Vitec is exposed to a number of risk factors which may
affect its performance. The Group has a well-established
framework for reviewing and assessing these risks on a
regular basis, and has put in place appropriate processes
and procedures to mitigate against them. However, no
system of control or mitigation can completely eliminate
all risks. The Board has determined that the following
are the principal risks facing the Group.
Change in risk profile
during 2016
Increased risk
Constant risk
Decreased risk
Specific Risk
Mitigation
Demand for Vitec’s 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. The Group increasingly produces and
sells products that are more technologically advanced, including encoders, transmitters
and on-camera monitors. These products have a shorter life cycle than our historical
products, and continuous investment in new product development is needed to keep
up with the changing demand. Demand may also be impacted by competitor activity,
particularly from low cost countries.
We value our relationships with our customers and to mitigate this risk we monitor closely
our target markets and user requirements. We maintain good relationships with our key
customers and make significant investments in product development and marketing
activities to ensure that we remain competitive in these markets. In support of our
new product launches, we have completed consumer research before developing
new products to ensure that they are appropriately designed for our target markets.
We monitor closely the demand for new products and phase out old product lines.
We are actively pursuing growth in selected emerging markets.
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. During the year
we continued to increase our online presence by developing our e-commerce activity,
and using our platform to promote and distribute partner brands. We have entered new,
adjacent markets with the creation of Enterprise Video (“VitecEV”), and the acquisitions
of Offhollywood and Wooden Camera. We continue to increase our investment in new
innovative products which address the needs of independent content creators.
Acquisitions
In pursuing our business strategy we continuously explore opportunities to enhance
our business through development activities such as strategic acquisitions. 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. In 2016 we
acquired Provak (Manfrotto Distribution Benelux), Offhollywood and Wooden Camera.
These acquisitions are performing to plan.
Pricing pressure
Vitec provides premium branded products and faces a number of competitors. The
strength of this competition varies by product and geographical market. In 2016 we
continued to see price pressure by low cost entrants to the market. In addition, there
was continued price pressure in broadcast services as major broadcasters continue
to manage their budgets tightly.
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. Our overall dependence on key suppliers has
increased as a result of the Group’s decision to reduce its costs by outsourcing some
manufacturing and assembly activities.
28
To mitigate these risks, we have a thorough process for assessing and planning the entry
into new markets and related opportunities. This includes marketing and advertising
strategies for our products and services. We continuously assess our performance and
the related opportunities and risks in these markets. We adapt our approach taking into
account our actual and anticipated performance. We review our channels of distribution
to make sure that they remain appropriate. Our increased online presence creates IT
security and compliance challenges which the Group is addressing.
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. The post-acquisition performance of each business is closely
monitored and a plan is developed to integrate the acquired businesses in an effective way.
To mitigate this risk, we ensure that our product and service offering remains competitive
by investing in new product development and in appropriate marketing and product
support, and by improving the management of supply chain costs. This, and working
closely with our suppliers and managing our expenses and cost base appropriately,
allows us to support price increases when required. We are rationalising our product
range to reduce complexity which will also allow us to achieve some cost savings on
production. Most of our products and services have a premium or niche differentiation
which commands a price point that is higher than that of the competition.
To address this risk 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 and outsourced providers globally
on an ongoing basis. Where economical we look to source materials closer to the
manufacturing facilities to reduce lead times and improve control over the supply chain.
The Vitec Group plc Specific Risk
Mitigation
Dependence on key customers
While 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. As in previous years, Vitec has no customer that accounts
for more than 10% of revenue. The business works with a variety of customers
on large sporting events and the extent of these activities varies year-on-year.
People
We employ around 1,700 people and are exposed to a risk of being unable to retain
or recruit suitable diverse talent to support the business. We manufacture and supply
products from a number of locations and it is important that our people operate in a
professional and safe environment.
Laws and regulations
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, taxation, data protection
regimes, 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 may also
incur additional cost from any legal action that is required to protect our intellectual
property. Although there are no specific issues arising in the near term, recent political
developments in the US and Europe may have implications for several areas of regulations
including but not limited to: the customs and import tariffs our businesses will be subject
to; corporation tax rates; employment laws and regulations; and other business regulation.
Reputation of the Vitec Group
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
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, Euro and Japanese Yen. There were significant
currency fluctuations affecting Sterling in 2016, reflecting partly the uncertainty caused
by the result of the UK referendum on membership of the European Union.
Business continuity
There are risks relating to business continuity resulting from specific events that may
impact our manufacturing plants or supply chain, particularly where these account for
a significant amount of our trading activity. We are also dependent on our IT platforms
continuing to work effectively in supporting our business and therefore there is a cyber
security risk for the Group.
Effectiveness and impact of
restructuring projects
In 2015/16 we conducted a number of restructuring projects to streamline the business,
and to deliver cost savings. There is a risk that the restructuring activity could have been
poorly executed and that the objectives might not be achieved. The main restructuring
projects are now substantially complete, and have already started to generate
year-on-year savings. We have also sold our Bury St. Edmunds site and plan to move
these activities to a lean, modern manufacturing facility in the same area in late 2017.
We mitigate this risk by monitoring closely our performance with all customers through
developing strong relationships, and we monitor the 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 we are not exposed to risk of unplanned employee turnover.
We fairly reward our people and have appropriate recruitment, appraisal, talent
management and succession planning strategies to ensure we recruit and retain
good quality people and leadership across the business. We take our employees’
health and safety very seriously and have appropriate processes in place to allow
us to monitor and address any issues appropriately.
We address this risk by having resources dedicated to legal and regulatory compliance
supported by external advice where necessary. We monitor and respond to developments
in the regulatory environment in which our companies operate. We enhance our controls,
processes and employee knowledge to maintain good governance and to comply with
laws and regulations such as the provisions of the UK Bribery Act 2010. The Group has
processes in place, including senior management training, to ensure that its worldwide
business units understand and apply the Group’s culture and processes to their own
operations. We actively protect our intellectual property, and will legally pursue any party
that infringes our intellectual property rights.
We manage this risk by recognising the importance of our reputation and attempting 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 Code of Conduct.
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. However, the Group does finance overseas investments partly
through the use of foreign currency borrowings in order to provide a net investment hedge
over the foreign currency risk that arises on translation of its foreign currency subsidiaries.
We address this risk with Business Continuity Plans and Disaster Recovery Plans at our
key sites, and by carrying out periodic IT and cyber security vulnerability assessments. We
have global insurance schemes in place which provide cover for business interruption.
To address this risk, projects are monitored closely by senior operational management
with regular updates provided to the Board. We anticipate that there will be significant
year-on-year savings. The status of the restructuring activities and risks relating to
these projects are being carefully monitored.
29
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Financial Review
Group Finance Director
Paul Hayes reviews performance
Revenue increased by 18.4% to £376.2 million
(2015: £317.8 million) and adjusted operating profit*
was 17.2% higher at £41.5 million (2015: £35.4
million). This included a benefit from foreign
exchange; at constant exchange rates revenue grew
by 4.8% while adjusted operating profit* decreased
by 0.3%. Growth in sales of higher technology
products and services in new markets where Vitec
continues to invest in new product development
was offset by anticipated lower activity in some of
our more mature markets. The statutory operating
profit was £14.5 million (2015: £22.4 million) as
a result of these trends and the £12.1 million (2015:
£nil) one-off, non-cash impairment of goodwill.
At constant exchange rates the Group delivered
higher revenue growth on the prior year of 6.3%
in the second half of the year in comparison to first
half growth of 3.1%.
The Broadcast Division grew revenue by 18.9%
to £224.8 million and adjusted operating profit*
increased by 3.4% to £21.0 million. There was
continued growth in higher technology products
including wireless transmitters and receivers, camera
monitors and mobile power. Revenue growth includes
a £24.1 million benefit from foreign exchange and
£3.2 million from the acquisitions of Offhollywood
and Wooden Camera. During the year Vitec
successfully supported the Rio 2016 Olympics.
This was partially offset by the anticipated lower
revenue performance of our Haigh-Farr antenna
business and a decrease in activity in our US
asset rentals business.
The Photographic Division grew revenue by 17.5%
to £151.4 million and adjusted operating profit*
increased by 35.8% to £20.5 million. At constant
exchange rates adjusted operating profit* was 2.8%
30
higher than the prior year. Sales benefited from: a
number of innovative product launches in the year;
the acquisition of our Netherlands distributor, Provak;
and favourable foreign exchange. Adjusted operating
profit* growth also included the benefit from previous
restructuring actions.
Statutory gross margin % at 39.4% was lower than
the prior year (2015: 40.6%). Excluding the impact
of Haigh-Farr of 40 bps and the US broadcast
services business of 120 bps, gross margin %
was 40 bps higher than the prior year. This reflects
the growth in new technology sales, operational
initiatives and acquisitions.
Adjusted operating expenses* were £12.7 million
higher than in 2015 at £107.1 million. This mainly
reflects an adverse currency impact of £10.0 million,
incremental costs from acquisitions and investments
in our higher technology businesses to drive future
growth. This has been partly offset by restructuring
savings. Investment in new product development at
£13.4 million (2015: £12.9 million) was broadly in
line with the prior year at 4% of Group product sales.
There was a restructuring charge of £5.2 million
in 2016 (2015: £4.9 million) relating to the actions
announced with our 2015 results. These actions
were taken in accordance with our plans, with
incremental savings of £5.7 million in the year.
The restructuring charge also reflected a £0.7 million
gain on the sale of the manufacturing site in Bury St.
Edmunds. Consideration of £3.9 million was agreed
in January 2016. We plan to vacate the site in late
2017 and move to a lean, modern manufacturing
facility in a nearby leased site.
Revenue
Up 18.4%
376.2 million
Adjusted operating profit*
Up 17.2%
£41.5 million
Adjusted basic earnings
per share
61.3 pence
Up 24.1%
* Before restructuring costs, charges associated with acquisition
of businesses and impairment of goodwill, as described on
page 03.
+ Free cash flow: cash generated from operations in the financial
year after net capital exposure, net interest and tax paid.
The Vitec Group plc
As expected, there was a net foreign exchange benefit of £6.2 million on our
adjusted operating profit* of £41.5 million versus 2015 mainly due to a stronger
US Dollar and Euro, particularly in the second half of the year. If exchange rates
were to remain at current levels, Vitec would realise a net currency benefit in
the first half of 2017 mainly from the translation of its results into Sterling.
Net financial expense
Net financial expense totalled £4.0 million and was broadly in line with the
prior year (2015: £3.9 million). Interest payable was £4.2 million (2015: £4.0
million) and was covered 14 times (2015: 13 times) by earnings before
interest, tax, depreciation and amortisation.
Adjusted profit before tax* of £37.5 million was £6.0 million higher than the prior
year (2015: £31.5 million). Statutory profit before tax of £10.5 million (2015: £18.5
million) was after £5.2 million of restructuring costs (2015: £4.9 million); £9.7
million charges associated with acquisition of businesses (2015: £8.1 million) and
a £12.1 million goodwill impairment charge (2015: £nil) relating to Haigh-Farr and
the US broadcast services business. We decided to impair this goodwill to better
reflect the fair value of each business in light of recent performance.
Adjusted earnings per share* increased by 24.1% to 61.3 pence per share
(2015: 49.4 pence per share). Basic earnings per share were 20.2 pence
per share (2015: 29.3 pence per share).
Free cash flow+ of £44.6 million (2015: £16.2 million) is reported after £7.4
million of cash outflows on restructuring actions (2015: £3.5 million). The
strong free cash flow+ includes the benefits from working capital management
initiatives, including a reduction in inventory of £11.2 million, and the
consideration of £3.9 million from the sale of the Bury St. Edmunds site.
There was a total cash inflow of £12.8 million (2015: £3.3 million outflow)
after investing £20.3 million in acquisitions (2015: £9.0 million), including
a £3.0 million final earnout payment on Teradek, and £11.1 million of
dividend payments (2015: £10.7 million).
Net debt at 31 December 2016 was £75.1 million (31 December 2015: £76.3
million). At constant currency net debt would have reduced to £63.5 million given
a net adverse foreign exchange impact of £11.6 million. The Group’s balance
sheet remains strong with a year end net debt to EBITDA ratio of 1.2 times
(31 December 2015: 1.5 times).
Adjusted operating profit* in 2016 was £6.1 million higher than the prior year.
This reflects a favourable foreign exchange impact of £6.2 million, £1.1 million
contribution from acquisitions, and incremental savings of £5.7 million from
restructuring actions. This was partly offset by investment in our higher technology
activities and the impact of lower volumes in Haigh-Farr and our US broadcast
asset rentals business. The statutory operating profit of £14.5 million was £7.9
million lower mainly due to the one-off, non-cash impairment of £12.1 million of
goodwill (2015: £nil).
Management’s estimate of these drivers is summarised in the following table:
Adjusted operating profit* bridge (£ million)
2015 Adjusted operating profit*
Decrease in adjusted gross profit* in the year
Incremental restructuring savings
Increase in adjusted operating expenses*
(1.1)
5.7
(5.8)
Contributions from acquisitions
Foreign exchange effects:
- Translation
- Transaction after hedging
2016 Adjusted operating profit*
4.3
1.9
35.4
(1.2)
1.1
6.2
41.5
Profit before tax
Adjusted profit before tax* increased by £6.0 million to £37.5 million (2015:
£31.5 million). Statutory profit before tax decreased by 43.2% to £10.5
million (2015: £18.5 million).
Taxation
The effective taxation rate on adjusted profit before tax* was 27% in 2016
(2015: 30%). The Group’s tax rate has improved year-on-year and we
anticipate that the tax rate will remain around 27% in 2017 supported by
reductions in the Italian corporation tax rate. Vitec’s tax charge is higher than
the UK statutory rate because the majority of our profits arise in overseas
jurisdictions with higher tax rates than the UK.
Earnings per share
Adjusted earnings per share* was 61.3 pence per share (2015: 49.4 pence
per share). Basic earnings per share was 20.2 pence per share (2015: 29.3
pence per share).
Acquisitions
In January 2016 the Group acquired 100% of the share capital of Manfrotto
Distribution Benelux B.V. (formerly Provak Foto Film Video B.V.), based in the
Netherlands, through a business combination for a net cash consideration of
m1.2 million (£0.9 million). The acquisition complements the Group’s owned
distribution channels.
In April 2016, the Group acquired the business and some of the assets
of Offhollywood Digital, LLC (“Offhollywood”), based in the US, through
a business combination for an initial net cash consideration of US$2.2 million
(£1.5 million). Under the terms of the acquisition, there is a potential earnout
payment of up to US$8.0 million that is dependent on performance against
demanding gross profit targets over the period to December 2018.
Offhollywood provides camera-back modules for RED cameras and other
services to a similar customer base to that serviced by the Group’s existing
higher technology businesses, and its products will be marketed through
the Group’s global distribution network.
In September 2016 the Group acquired the whole of the share capital of Wooden
Camera, Inc. and Wooden Camera Retail, Inc. (“Wooden Camera”), both based
in the US, through a business combination for an initial net cash consideration
of US$19.5 million (£14.9 million) after taking account of US$0.6 million (£0.5
million) of cash in the business at acquisition date. Under the terms of the
acquisition, there is a potential earnout payment of up to US$15.0 million that
is dependent on performance against demanding EBITDA targets over the period
to December 2018. In 2016 an amount of US$2.0 million (£1.5 million) was
provided for in relation to its performance in 2016. Wooden Camera designs,
manufactures and retails directly and online, essential professional camera
accessories used by broadcasters and independent content creators. The
acquisition complements the Group’s existing range of broadcast products.
Wooden Camera operates within the Broadcast Division.
We continue to review various bolt-on acquisition opportunities. These will be
assessed as to the strategic, commercial and financial benefits that they could
provide against acceptable risk parameters.
31
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Financial Review
Restructuring costs
In 2016 there was a restructuring charge of £5.2 million (2015: £4.9 million)
relating to actions to streamline operations with lower growth prospects,
which we commenced in the second half of 2015. These actions relate
predominantly to redundancy costs and have been completed in line with
our plans.
The total year-on-year benefit from these restructuring actions to our
profitability was £5.7 million (2015: £0.5 million). Cash outflows relating
to restructuring were £7.4 million in the year (2015: £3.5 million) in line
with expectations.
Charges associated with acquisition of businesses
The 2016 charges relate to the Group’s acquisition activities and amortisation
of previously acquired intangibles.
The amortisation of acquired intangibles of £7.9 million (2015: £5.4 million)
relates to Provak acquired in January 2016; Offhollywood acquired in April
2016; Wooden Camera acquired in September 2016; and other businesses
acquired by the Group from 2011 to 2015.
Transaction costs of £0.6 million were incurred in relation to acquisitions
(2015: £0.1 million).
Earnout payments of £1.5 million (US$2.0 million) were accrued during the
year to be paid to the previous owners of Wooden Camera in 2017 in relation
to the business’ performance in 2016. The business has delivered strong
growth and has performed ahead of our pre-acquisition expectations.
Impairment of goodwill
We have reviewed the carrying value of the Haigh-Farr goodwill that arose
on acquisition of the business in 2011. The long-term opportunities and
prospects for this specialist antenna business have been reduced to reflect
recent trading activity and the outlook in their niche markets. This has led to
a one-off non-cash goodwill impairment charge of £7.9 million to partially
impair the carrying value of this investment to £17.0 million.
We have also reviewed the carrying value of the US broadcast services
business that has been impacted by a significant downturn in its US asset
rentals activity particularly in the second half of 2016. The business made
an operating loss in 2016 but delivered a strong cash flow during the year
through more cautious investments and by selling non-core assets, and
therefore converted a proportion of its balance sheet into cash. The carrying
value of goodwill in the balance sheet of £4.2 million that relates to the
acquisition of parts of this business acquired prior to 1998 has been
fully impaired.
Cash flow and net debt
Cash generated from operating activities was £64.8 million (2015:
£41.7 million).
The Group uses a number of key performance indicators to manage cash
including the percentage of operating cash flow‡ generated from adjusted
operating profit*, the percentage of working capital to sales, inventory days,
trade receivable days and trade 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.
32
The adjusted operating profit* into operating cash flow‡ conversion at 155%
for 2016 is high as a result of a number of initiatives enacted in the year
particularly around inventory management. Vitec has an established track
record in converting adjusted operating profit* into cash with a 97%
conversion over the last five years.
The working capital to sales metric has decreased to 15.7% (31 December
2015: 18.9%) and overall working capital decreased by £12.0 million (2015:
£5.2 million increase). This reflects a number of initiatives taken across the
Group to reduce working capital levels.
Trade receivable days increased to 43 days (2015: 40 days) and remain well
controlled with a good ageing profile. On a cash flow basis, trade and other
receivables increased by £4.5 million (2015: £0.8 million decrease) on
stronger sales in the last two months of the year. The reported carrying value
of trade receivables at year end of £50.9 million includes £5.6 million adverse
foreign exchange compared to the prior year.
On a cash flow basis, inventory decreased by £11.2 million (2015: £3.0
million increase) to £57.9 million at the year end, reflecting focused initiatives
on inventory reduction across the Group. The reported carrying value
of inventory at year end includes £9.5 million adverse foreign exchange
compared to the prior year. Inventory days decreased to 83 days (2015:
105 days).
Trade payable days decreased to 38 days (2015: 44 days). On a cash flow
basis, there was a £5.3 million overall increase in trade and other payables
(2015: £3.0 million decrease) including bonus and commission accruals and
timing of payments. The reported carrying value of trade payables at year end
of £26.8 million includes £3.7 million favourable foreign exchange compared
to the prior year.
Capital expenditure, including £3.4 million of software and capitalised
development costs (2015: £4.2 million), totalled £16.8 million (2015: £20.6
million), of which £7.1 million (2015: £10.9 million) related to rental assets.
This was partly financed by the proceeds from rental asset disposals of £4.1
million (2015: £4.4 million). Overall capital expenditure was equivalent to 0.9
times depreciation (2015: 1.3 times) and included investments in
manufacturing processes and production tooling.
We monitor Return on Capital Employed (ROCE), calculated as adjusted
operating profit* divided by average total assets less current liabilities
excluding the current portion of interest-bearing borrowings. This has
increased from 16.3% in 2015 to 17.5% in 2016.
The net tax paid in 2016 of £7.2 million was £1.6 million higher than the £5.6
million paid in 2015 due to the timing of tax payments.
As a result, free cash inflow+ increased by £28.4 million to £44.6 million
(2015: £16.2 million).
The Vitec Group plc There was a £20.3 million net cash outflow relating to acquisitions during the
year (2015: £9.0 million). There was a net cash outflow in the period of £1.5
million relating to costs provided for on the disposal of IMT in 2014 (2015:
£0.7 million).
Dividends paid to shareholders totalled £11.1 million (2015: £10.7 million)
and there was a net cash inflow in respect of shares purchased and issued
of £1.1 million (2015: £0.9 million). The net cash inflow for the Group was
£12.8 million (2015: £3.3 million outflow) which, after £11.6 million adverse
exchange (2015: £2.1 million adverse), decreased the net debt to £75.1
million (2015: £76.3 million).
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 portion of its forecast future foreign currency
transactions to reduce the volatility from changes in exchange rates.
Our main exposure relates to the US Dollar and the table below
summarises the contracts held as at 31 December 2016:
Currency hedging
December
2016
Average
rate of
contracts
December
2015
Average
rate of
contracts
US Dollars sold
for Euros
Forward contracts
US Dollars sold
for Sterling
Forward contracts
$42.3m
1.13
$47.2m
1.15
$17.1m
1.37
$21.0m
1.52
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.
Free cash flow+
Adjusted operating profit*
Depreciation(1)
Changes in working capital
Restructuring costs paid
Other adjustments(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+
2016
£m
41.5
18.4
12.0
(7.4)
0.3
64.8
(13.4)
(3.4)
9.0
(5.2)
(7.2)
44.6
2015
£m
35.4
16.2
(5.2)
(3.5)
(1.2)
41.7
(16.4)
(4.2)
4.7
(4.0)
(5.6)
16.2
* Before restructuring costs, charges associated with acquisition of businesses and impairment
of goodwill, as described on page 3.
+ Cash generated from operating activities after net capital expenditure, net interest and tax paid.
‡ Cash generated from operating activities after net capital expenditure, before restructuring
costs paid.
(1) Includes depreciation and amortisation of software and capitalised development costs.
(2) Includes change in provisions, share based payments charge, gain on disposal of property,
plant and equipment, fair value derivatives and transaction costs relating to acquisitions.
Net debt
(£m)
80
75
70
65
60
55
50
45
40
35
30
Exchange
movements
Acquisitions
& prior year
disposal
Transactions
in own
shares
Free
cash
flow
31 Dec
2015
Net
debt
Dividends
31 Dec
2016
Net
debt
£76.3m
(£44.6m)
£11.1m
£21.8m
(£1.1m)
£11.6m
£75.1m
33
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
The Directors believe that three years is an appropriate period for this
assessment, reflecting the nature of the Group’s key markets, the nature
of its businesses and products, and its limited order visibility. This timeframe
is consistent with reviews undertaken annually by the Board during which
the Group and Divisional three year strategic plans are presented for approval.
Dividend
The Directors have recommended a final dividend of 17.3 pence per share
amounting to £7.7 million (2015: 15.1 pence per share, amounting to £6.7
million). The final dividend, subject to shareholder approval at the AGM, will
be paid on Friday, 19 May 2017 to shareholders on the register at the close
of business on Friday, 21 April 2017. This will bring the total dividend for the
year to 27.2 pence per share (up 10.6%).
Paul Hayes
Group Finance Director
20 February 2017
Financial Review
Financing activities
In July 2016 a new five year £125 million multi-currency Revolving Credit
Facility with five relationship banks was agreed to replace the previous £100
million facility. It has a better margin and will expire on 5 July 2021. At the
end of December 2016, £48.9 million (2015: £53.9 million) of the facility
was utilised.
The Group has a US$50 million (£40.5 million) private placement facility
which has been drawn down in two tranches of US$25 million each.
This financing has a combined fixed interest rate of 4.77% and is due
for repayment on 11 May 2017.
The Group therefore has a total of £165.5 million of committed facilities at the
year end with drawings of £89.4 million (31 December 2015: £87.6 million).
The average cost of borrowing for the year which includes interest payable,
commitment fees and amortisation of set-up charges was 3.9% (2015: 4.1%)
reflecting an interest cost of £4.2 million (2015: £4.0 million).
The Board has maintained an appropriate capital structure without exposing
the Group to unnecessary levels of risk and Vitec has operated comfortably
within its loan covenants during 2016.
Foreign exchange
2016 adjusted operating profit* included a £6.2 million net favourable foreign
exchange effect after hedging, mainly due to more favourable £/$ and £/m
rates when compared to 2015. Should exchange rates remain at current
levels, Vitec should continue to benefit to the order of £2.0 million from
foreign exchange in 2017.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code,
as published in September 2014 (“the Code”), the Directors have assessed
the viability of the Group over a three year period, taking account of the
Group’s current position and prospects, its strategic plan, risk appetite,
and the principal risks and how these are managed. Further details on
these items are set out in the Strategic Report on pages 1 to 47.
Based on this assessment, the Directors have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they
fall due over this period.
In making this assessment, the Directors have considered the resilience of the
Group in severe but plausible scenarios, taking into account the principal risks
facing the Group as detailed on pages 28 and 29, and the effectiveness of any
mitigating actions. The Board reviews these risks in detail throughout the year,
and the Audit Committee has a structured programme for the review of risks
and mitigating actions. This is explained in more detail on pages 59 to 63.
The Directors’ assessment considered the potential impacts of these
scenarios, both individually and in combination, on the Group’s business
model, future performance, solvency and liquidity over the period. Sensitivity
analysis was also used to stress test the Group’s strategic plan and to confirm
that sufficient headroom would remain available under the Group’s credit
facilities. The Directors consider that under each of these scenarios, the
mitigating actions would be effective and sufficient to ensure the continued
viability of the Group.
34
The Vitec Group plc Key Performance Indicators
The Board and Operations Executive monitor a number of key performance
indicators (KPIs), to measure our performance over time. Targets for most KPIs
are set annually during our budgetary process and include our strategic priorities:
KPI measure
2016
2015
Definition/Calculation
Growing the business
Constant currency revenue growth
Constant currency adjusted
operating profit* growth
Return on sales
Investing in product development
4.8%
(0.3%)
11.0%
3.9%
1.3%
(1.8%)
11.1%
4.5%
% increase in revenue at constant exchange rates
% increase/(decrease) in adjusted operating profit* at
constant exchange rates
Adjusted operating profit* divided by revenue
Total research, development and engineering costs
before capitalisation and amortisation of development
costs, divided by revenue from product sales
Delivering value to shareholders
Adjusted earnings per share*
61.3p
49.4p
Total dividend per share
27.2p
24.6p
Return on Capital Employed
17.5%
16.3%
Managing cash generation
Operating cash generation
155%
83%
Working capital to sales
15.7%
18.9%
Inventory days
83 days
105 days
Trade receivable days
43 days
40 days
Trade payable days
38 days
44 days
Profit after tax, before restructuring costs, charges
associated with acquired businesses and impairment
of goodwill, divided by the weighted average number
of shares in issue during the financial year
Sum of interim and final dividend per share in respect
of the financial year
Adjusted operating profit* divided by average total
assets less current liabilities excluding the current
portion of interest-bearing borrowings
Operating cash# flow divided by adjusted
operating profit*
Inventories, receivables and payables at the end of the
financial year, divided by annualised Q4 revenue
Inventories at the end of the year divided by Q4 cost of
sales (before exchange gains/losses) times number of
days in Q4
Trade receivables 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
Safety
Accident record (number of accidents)
4
5
Number of accidents resulting in greater than
three days absence
Environment
Electricity usage
Gas usage
Water usage
28.6
18.8
0.06
34.5
23.1
0.07(1)
Actual usage in MWh per £million of Group revenue
Actual usage in MWh per £million of Group revenue
Actual usage in cubic metres per £million of
Group revenue
* Before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill, as described on page 03.
# Cash generated from operating activities after net capital expenditure, before restructuring costs paid.
(1) The figure for 2015 has been restated following receipt of final invoices for consumption during 2015 that were not available at the time of publication of the 2015 Annual Report.
35
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Corporate Responsibility
Stephen Bird, Group Chief Executive,
explains his commitment to a sustainable
business to ensure long-term success
The Board has overall responsibility for corporate responsibility and considers
and approves our key policies, including our Code of Conduct, Environmental
Policy and Health and Safety Policy. These policies set a standard for all
businesses and employees worldwide. All of these policies are available
on our website and are central to our approach on corporate responsibility.
The Board has delegated the coordination of our corporate responsibility
efforts to me and, with the Operations Executive and senior management,
we focus our efforts on the areas of business ethics, employees, community
and charity, and environment. The size of our Group dictates that our approach
to corporate responsibility must be flexible and pragmatic, focusing our
resources where necessary to comply with legal requirements and to support
our purpose. The Board and Operations Executive regularly consider the
Group’s reputation and measures progress against our corporate responsibility
objectives. Examples include: monthly health and safety performance reviews
to learn important lessons in this vital area; whistleblowing reports
independently investigated, with action taken where necessary; and
regular training of employees ensuring the right corporate culture and
good governance.
The following pages describe our 2016 corporate responsibility activities
organised in the following areas:
page 37
page 38
Business Ethics
Employees
Corporate responsibility remains an important area of focus for Vitec.
This is reflected by our employees who understand the importance
of the right values and behaviours when carrying out their roles at
Vitec. It involves dealing with all our stakeholders – including
customers, suppliers, shareholders, local communities in which
we operate and with our own employees. The values and behaviours
of our employees underpin our Business Model (which is set out
on pages 24 and 25) to ensure Vitec’s long-term success.
The Vitec Mindset
We have a clear purpose that is supported by five values, namely:
To provide vital products and services that enable the capture and
sharing of exceptional images.
Community &
Charity
page 42
page 44
Environment
> Product excellence
Everything we make and do is exceptional
> Customer focus
We are nothing without our customers
> Creative solutions
We are constantly looking to break new ground
> Collaboration
We work better when we work together
> Integrity
What you see is what you get
In 2017, we plan to recommunicate our Code of Conduct to all employees
and to our major suppliers and customers to ensure that our supply chain
is robust and that there are no reputational issues associated with it. We will
undertake further training of our employees in this area to ensure our values
are well understood. We will also publish our statement in compliance with the
UK’s Modern Slavery Act that will confirm our commitment to ensuring that
our supply chain is free from matters relating to slavery and human trafficking
and reinforces our zero tolerance approach. We will continue our review of
health and safety procedures to improve working practices and to ensure
a safe and healthy working environment for all our employees and third parties
on our sites. We will continue to focus on diversity, talent development and
succession planning to ensure we have the best talent and resources to
deliver on our strategic objectives. Progress against each of these will be
reported on in the 2017 Annual Report.
Stephen Bird
Group Chief Executive
36
The Vitec Group plc
Business
Ethics
Our vision
To 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.
Our approach
Vitec’s Code of Conduct sets
out our values, beliefs and
behaviours and has been
communicated to all
employees and business
partners. We train our
employees on key issues
including bribery and
corruption, inside information,
conflicts of interest and good
governance, and promote an
independent whistleblowing
service as a back-up control.
Code of Conduct
Our Code of Conduct (“Code”) forms the backbone
of our culture, and provides clear guidance to our
employees on how they are expected to behave
towards colleagues, suppliers, customers,
shareholders and on our wider responsibility
to the communities within which we operate.
Our Code, which is available on our website, sets
out our approach to business integrity including
an express prohibition on bribery, kickbacks, and
political donations, along with guidance on gifts
and hospitality, conflicts of interest, books and
records, competition, share dealing, respect for
the UN Universal Declaration of Human Rights,
compliance with anti-slavery legislation, respect
for the individual and privacy, diversity, health and
safety, environmental sustainability, business
partners and charitable donations.
Our Code has been communicated to all
employees including new employees joining the
Group and is available on the Group intranet
translated into seven languages. In 2016, new
employees from businesses we acquired – Provak,
Offhollywood and Wooden Camera – were
provided with a copy of the Code. All employees
are expected to comply with our Code and any
violations are reported to local management or
the Group Company Secretary for investigation.
Anti-bribery
We have continued with the development of our
employees’ understanding of anti-bribery and
corruption as reflected in our Code. All senior
employees within the Group have completed an
online training module covering anti-bribery and
corruption.
Agents and distributors have formal agreements in
place which clearly prohibit bribery and set out our
expectation on behaviour and values. We carry out
due diligence on major customers and suppliers
with a more detailed screening of backgrounds
using a third party provider focusing on reputational
risk. We have standardised due diligence with a
common third party questionnaire and thorough
reputational screening. The background screening
and due diligence processes in place will support
our Slavery and Human Trafficking Statement
which will be published in 2017.
Training on Business Ethics
In 2016 we required all of our senior management
team to undertake an online training module
covering good corporate governance including
issues such as share dealing, conflicts of interest,
legal duties and other reputational issues. We will
repeat such training in future years to ensure that
our people are aware of the importance of the right
corporate culture.
Whistleblowing service
We operate an independent whistleblowing service
in conjunction with EXPOLINK. This enables any
employee or third party who feels that the normal
reporting channels through line management are
not appropriate, to confidentially report on any
issues around dishonesty, fraud, bribery,
malpractice, bullying, unfair treatment, unsafe
working practices or other Code contraventions.
In accordance with a clearly documented
procedure, all reports are notified to the Group
Company Secretary, the Group Chief Executive
and the Chairman of the Audit Committee, and are
investigated independently by senior management
who are not connected to the report. The outcome
of investigations is reported to the Chairman of the
Audit Committee. All whistleblowing reports are
independently investigated with remedial action
taken where necessary.
This service has been communicated to all
employees with posters prominently visible at all
sites, a letter from the Group Chief Executive and
a letter from EXPOLINK explaining the service to
ensure that it remains visible and understood. The
documents are also available on the Group intranet
with all literature and communications translated
into several languages. During 2016 there were
three whistleblowing reports, all of which were fully
investigated. The use of the whistleblowing service
confirms that our culture permits employees to
raise concerns in a constructive way without fear
of recrimination.
We will recommunicate the whistleblowing service
to all employees in 2017 to ensure that it remains
prominent and understood.
37
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Employees
Our vision
Be a responsible employer
providing attractive
opportunities for our
people to develop.
Our approach
To attract and engage a
committed workforce,
ensuring diversity and
non-discrimination. Vitec
is committed to respecting
the UN Universal Declaration
of Human Rights.
38
as well as the Group Chief Executive within 24
hours. Our five year accident record is shown
below, which details the number of accidents
resulting in over three days’ absence from work
across the Group. There were four such accidents
in 2016 compared to five in 2015. We are pleased
with this reduction but it remains our aim to have
no such accidents each year. Each accident has
been fully investigated and key issues identified to
try to ensure it is not repeated. This process should
deliver continued improvement in health and safety
across the Group’s operations and we will continue
to develop our practices to deliver further
improvements in this important area.
Our five year accident record
2016
4 accidents
representing 239 accidents per 100,000 employees
Average number of employees – 1,676
2015
5 accidents
representing 273 accidents per 100,000 employees
Average number of employees – 1,833
2014
1 accident
representing 53 accidents per 100,000 employees
Average number of employees – 1,876
2013
4 accidents
representing 211 accidents per 100,000 employees
Average number of employees – 1,898
2012
6 accidents
representing 288 accidents per 100,000 employees
Average number of employees – 2,085
There have been no work related fatalities since
the Group began collating health and safety
statistics in 2002.
The Costa Rican manufacturing site received
recognition from a government institution, the
National Institute of Insurance, for its strong
commitment to Health and Safety Management
Systems. The institute performed an evaluation
at the site, focusing on assessing policies,
procedures, common practices, physical conditions
and employees’ engagement related to the
prevention of accidents and risk mitigation.
The 2016 evaluation was made up of 41
manufacturing and services companies with the
Costa Rica site receiving two awards. The first,
a bronze medal awarded for “Improvements on
Safety and Occupational Hygiene Management
Our people are a key asset
for the Group
Our employees are critical to our success.
Passionate, motivated and skilled employees in
safe working environments directly contribute
to our strategy, performance and reputation.
In 2016 we continued to focus time and
resources on our employees, including initiatives
on subjects such as engagement, wellbeing,
working environment, diversity, employee
benefits and training.
Our business in Costa Rica was recognised as
a “Great Place to Work” in 2016 following an
employee survey focused on the areas of
credibility, respect, fairness, pride and
camaraderie. Continued focus and communication
from the local management team resulted in the
company being identified as one of the top 50
companies in Central America.
Health and Safety
The provision of a healthy, safe and productive
work environment for all of our employees and
third parties on our sites is a priority for Vitec,
for which all of our management and employees
are responsible.
We have continued to impress the need for
excellent health and safety procedures in
compliance with the Group’s Health and Safety
Policy, which is available on our 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. It is an important part of our culture
to ensure that all our colleagues are able to work
in a safe and secure environment.
All accidents and near misses, whether they result
in absence from work or not, are reported, with
remedial action identified and implemented to
prevent such occurrences in the future. Reporting
is prompt and any accident resulting in over three
days’ absence is reported to senior management
The Vitec Group plc “Employees in
Costa Rica
celebrating a
Great Place
to Work
System” and the second, a gold medal awarded to
Site Manager Julio Lizano for “Manager’s
Outstanding Leadership Prevention Practices”.
The Operations Executive reviews health and safety
performance every month, discussing accidents
and any incidents of note, remedial actions, sharing
best practice initiatives and supporting the
Divisions in the management of local health
and safety committees and the implementation
of regular training activity. The Group Chief
Executive updates the Board regularly on health
and safety performance by way of monthly reports
and verbal updates 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, 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. Within each business, separate assessment
and training appropriate to operations is carried
out for health and safety. Employees are regularly
reminded of the need to work safely with posters
on notice boards at all sites. Our sites in Cassola
and Feltre in Italy continue to promote the “Are you
working safely?” campaign which provides regular
tips and key notes on health and safety subjects.
Health and Safety committees at all major sites
hold regular meetings to review safety, ensure that
operating practices are safe and address potential
safety concerns. At the Photographic Division’s
manufacturing sites in Feltre, Italy and Ashby-de-
la-Zouch, UK, a procedure has been set up to
observe employees’ health and safety behaviour
in the workplace. Using an industrial safety
management approach, the procedure checks
whether employees’ working practices are
compliant with standards and procedures related
to personal protective equipment, tools,
substances, machinery, handling and other
activities, and enables feedback to be given
to avoid workplace accidents. In 2016 a total of
60,545 work actions were observed at both sites
with an average of 99.8% compliance with safe
working practices.
The Broadcast Division’s sites in Cartago, Costa
Rica and Bury St. Edmunds, UK as well as the
Photographic Division’s sites in Cassola and Feltre,
Italy, have had their OHSAS 18001 occupational
health and safety accreditations confirmed again
for 2016. This confirms that the sites operate with
a robust health and safety management system,
with policies, procedures and controls needed to
achieve the best possible working conditions
aligned to internationally recognised best practice.
Engagement
We aim to provide our employees with an
engaging and stimulating environment where
they are encouraged to learn and develop. We
communicate with our employees on a regular
basis, keeping them informed of business
performance at a Group, Divisional and Business
Unit level. Reflecting the diverse global nature
of our employees we use multiple channels and
a variety of media to communicate.
Business overviews, focusing on results and key
events, are shared with all employees via annual,
global communication videos presented by the
Group Chief Executive which are uploaded to the
Group intranet. The Group Chief Executive also
communicates with employees via regular
Group-wide emails. The Group Chief Executive
visits our primary sites to meet with all employees
and share updates on business performance.
Alongside Group-wide 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 internal announcements, meetings with
management, regular “town hall” presentations
and via the intranet sites. The Production
Equipment Business Unit started an employee
newsletter in 2016 to disseminate news and
employees are encouraged to submit articles
for publication.
We continue to use the intranet sites to
communicate business news, employee changes
and Group policies. The Group website remains
a source of information for employees including
a section on Working at Vitec for prospective
employees to find out about career opportunities
throughout the Group.
A number of initiatives to keep employees engaged
in the workplace and provide a chance to relax
with colleagues were undertaken at sites in the
US, UK, Italy and Costa Rica. These included
Thanksgiving and Christmas lunches, wellness
fairs, on-site massages, meditation coaching,
sporting classes and competitions, and cooking
contests.
39
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements “Children enjoy
a healthy eating
workshop in the
Photographic
Division’s canteen
in Cassola, Italy
Wellbeing
Good3
The Good3 project, launched in 2011 by the
Photographic Division, continued in 2016 with
more initiatives undertaken at several sites.
The programme was developed to help employees
stay healthy by providing them with training and
tools to develop good habits in the areas of diet,
exercise and the prevention of illnesses.
Discounted gym memberships for employees
at the principal Italian sites of Cassola and Feltre
have been extended to include family members.
Healthy eating initiatives continue to be promoted
with a healthy eating workshop for children hosted
in the Cassola canteen, where children learned to
prepare and cook simple and nutritious food.
The focus on educating employees to enable them
to make healthy decisions is also active within the
Broadcast Division. Initiatives include occupational
health services and talks, the cycle to work
scheme under the Government’s cycle initiative
in the UK, annual flu vaccinations, healthy eating,
health and safety initiatives, and exercise
programmes across the UK, US and Costa Rica.
Work 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. We utilise
web-based video-conferencing solutions where
possible to facilitate global business meetings.
40
We have also listened to and responded to our
employees’ views. The Photographic Division’s site
in Cassola, Italy, opened a canteen in the building,
providing hot food on site and using an online
ordering system resulting in reduced food waste.
been promoted to provide an increasing number of
services in line with our policies in terms of health,
welfare and support of the individual employee.
Similar plans are offered to employees in other
territories.
A summer camp programme for employees’
children aged between three and 14 continued in
Italy in 2016, helping families with childcare during
the school holiday period. Over 40 children enjoyed
sporting and cultural activities over a number of
weeks. For older children, a workshop was held
in Milan to educate them about the world of work
after leaving school. Hosted by HR managers from
a number of Italian companies, the teenagers
learned about CV writing, job interviews and the
use of social media in recruitment.
Benefits
We employ around 1,700 employees in ten
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 we operate in has required
the organisation to adopt comprehensive benefits
packages, to support our employees and 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. Employees at the
Cassola and Feltre sites in Italy now benefit from
the new Benefit Salute health care plan which has
Employees are also given the option to join pension
plans appropriate to local markets. In the UK this
involves a Company approved pension plan with
minimum employer and employee contributions
and in the US a 401k plan. Since April 2014 in
the UK, all employees except for those who have
expressly opted out, are now in a qualifying
pension plan.
All employees in the UK, US, Italy, Costa Rica,
France, Germany and Japan, are given the
opportunity to join an all-employee Sharesave
scheme on an annual basis, enabling the
employee to save to purchase shares in the
Company at a discounted rate. Employees save
a fixed monthly amount of up to £350 (or US$500
in the US or foreign currency equivalent in other
territories) over a fixed term (usually three years
but two years in the US) with the option to
purchase a fixed number of shares at a discount
of up to 20% on the prevailing share price at the
time of the offer. Over 600 employees participate
in the Sharesave scheme across these territories
which represents over 40% of eligible employees
able to participate in the scheme. We will continue
to offer this valuable benefit to employees annually
and will look to extend it to other territories
where possible.
The Vitec Group plc The Photographic Division’s Italian sites offer
employees a Vitec Shopping Card that allows
employees to benefit from special prices on food,
drink, travel, clothing, sport, cinema and medicine
through agreements with local retailers. These
discounts of up to 50% help employees to
increase their purchasing power.
A Long Service Award programme has been
reinvigorated at sites in the UK, US and Costa Rica.
On achieving various milestones with the company,
ranging from five to 40 years, employees are
awarded “points” which can be used to purchase
gifts via a website. During 2016, 83 awards were
presented by the business unit senior managers
at all-employee meetings to publically recognise
these dedicated employees.
Capability and development
Learning and development activity continued to
take place in our businesses in accordance with
personal development plans, results of annual
performance appraisals and organisational need.
Talent reviews of senior employees were expanded
to include succession planning matrices, to fully
understand the organisation’s capacity and
capability for achieving its strategic plans. The
talent reviews and succession planning enable
the Operations Executive to create the leadership
pipeline for its critical roles and specify the
development requirements to be offered to
employees. The outcome of the reviews were
presented to the Nominations Committee for the
most senior employees, allowing the Nominations
Committee to have oversight of talent below the
Board and assist the Operations Executive in
identifying areas of strength and weakness.
The performance appraisal process, in operation
in both 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 continue
to be used to enhance the global programme of
talent development for release more widely across
the Group.
After a successful launch in 2015, the
Photographic Division’s Performance Appraisal
(“PA”) system continued to be developed for
employees during 2016. Along with evaluating
the distinctive competencies and skills of each
employee, it is now being used to plan training
and development activities according to the needs
identified during reviews. It enables the business
to manage employees’ performance in a fair and
inclusive way with a structure that is common
across the Division, enabling career development
that is aligned to the strategic objectives of the
business. All Photographic employees can access
the PA system and find induction models on the
Divisional intranet. A further project, “Click
Potential”, has been piloted to support managers
in evaluating their team’s individual competencies
and the results will be used to define development
and career paths.
Targeted learning and development activities
have continued within the Group’s businesses.
Manfrotto Distribution in the US continued to offer
a Tuition Programme for eligible employees for
educational assistance related to the employee’s
current duties or a foreseeable future position with
the company. Within the Photographic Division,
Manfrotto’s School of Xcellence offers a three
day induction programme for all employees
called “Shoot and Capture Imaging”, to educate
employees on photography and videography.
Equal opportunity
Vitec has an equal opportunities culture with an
express prohibition on discrimination of any kind.
During 2016, results of the Hampton-Alexander
Review FTSE Women Leaders were published and
the Parker review on Ethnic Diversity was
launched, and we have confirmed in our diversity
statement, set out on page 53 of the Governance
Report and on our website, that we will also take
these publications into account in addition to Lord
Davies’ 2011 review on board gender diversity.
The Board has continued to monitor progress
on this issue and the Group Chief Executive is
responsible for developing diversity throughout
the Group. The organisation’s gender breakdown
as at the end of 2016 was as follows:
Number
of men
% of
men
Number
of women
% of
women
5
9
71%
90%
38
88%
2
1
5
29%
10%
12%
1,103
70%
468
30%
Board
Operations
Executive
Senior
Management
Rest of
organisation
We continue to recognise the importance of
diversity throughout our workforce and the human
resources teams continue with efforts to attract
women to Vitec and encourage them to apply for
promotions. To assist with this aim, training was
provided to female employees in Costa Rica to
develop their skills and to encourage them to
consider applying for more senior roles.
Vitec’s approach to diversity has always followed a
strict policy of sourcing the best person for the role
irrespective of race, gender, age, religion, sexual
preference 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. Recruitment processes have been
reviewed to ensure a diverse mix of candidates
is reviewed and shortlisted for interviews, where
appropriate, with a view to increasing the number
of women in senior roles. Flexible working policies
have been introduced in all major business units,
allowing all employees, regardless of gender, to
request flexible working. This is usually granted,
unless the needs of the business cannot otherwise
be met.
It is Vitec’s policy that applications for employment
by disabled persons are always fully considered,
bearing in mind the respective aptitudes and
abilities 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.
We continue to strive to employ a diverse workforce.
41
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Community &
Charity
We have continued to support charitable and
community based causes in 2016. The following
are a few examples of the good work completed
by our employees in the communities within which
we operate.
Our vision
Support the communities in
which we operate.
Task Brasil Trust
Our approach
We support initiatives and
projects strongly backed by
employees that are relevant
to what we do and can be
supported for several years.
42
Apart from delivering a successful 2016 Rio
Olympics for the Group, the Production Services
Business Unit and its employees raised a
significant amount for Task Brasil Trust enabling a
donation of over £11,000 to be made. The team
visited the charity at “Casa Jimmy” which provides
a safe and happy home for young children who are
either living on the streets or leading lives of great
deprivation and vulnerability in Rio de Janeiro.
Some of the Production Services specialists also
used their time to produce a video programme
about the running of Casa Jimmy. Task Brasil Trust
is a charity that was established in 1993 to help
the street children of Rio de Janeiro. Following
a donation from Jimmy Page of Led Zeppelin
the charity established Casa Jimmy.
Leicestershire Cares
In 2016 the team at Manfrotto UK developed
a relationship with a local organisation called
Leicestershire Cares which brings businesses
and local communities together through employee
volunteering. Members of the team participated
in interview technique days with four local schools
which involved conducting mock interviews and
giving feedback to students to help them prepare
for future interviews. Work experience placements
were also offered to local schools.
Earthquake initiatives
In light of the devastating earthquakes in both
Japan in April 2016 and Central Italy in August
2016, employees in both countries gathered
donations to benefit charities that assisted with
the relief efforts. The team in Japan donated over
£2,000 to the Japanese Red Cross whilst efforts
across the Photographic Division as a
whole raised over £5,700. The team in Italy also
collaborated with a supplier in Fabriano, Italy, to
create a Christmas card. The town of Fabriano
was selected as the area is renowned amongst
publishers, writers and artists for its high quality
paper and our employees wanted to help local
artisans whose activities had been severely
affected by the earthquakes.
Continuing education support
The Broadcast Division’s site based in Bury St.
Edmunds continued its support of the William
& Ellen Vinten Trust with an employee providing
a dedicated resource to the trust, supporting
local schools with initiatives on an ongoing basis.
The Bury St. Edmunds site also provided a five
week work experience placement for a local
student, helping to promote the company as
a local employer.
The Broadcast Division’s site in Costa Rica
donated tools to local technical schools to support
the development of technicians in gaining skills
required to support the business. The team
in Costa Rica also created a supplier development
programme to help improve the capabilities of
their suppliers and build long-term relationships,
including offering training courses in technical
topics.
Local community donations
Across the Group, each local business makes
efforts to support local community projects. These
are many and varied and focus on local community
projects. Examples include the following:
The Broadcast Division’s site in Cartago, Costa
Rica continues to support the community including
sponsoring the local Red Cross Committee, a local
nursery and completing sponsored walks to raise
funds for the local hospital. Employees also
volunteer their time at a centre for teenagers.
In 2016 the Group head office in Richmond made
a donation of £2,000 to Shine Cancer Support in
support of a colleague who had benefited from
Shine’s resources during the year. The Broadcast
Division’s Bury St. Edmunds site raised £1,000
for two local charities, St Nicholas Hospice and
Henry’s Holidays, through a Christmas raffle.
The Division’s sites in the US also made donations
to local charities including St Vincent’s Special
Needs, Shelton Gazebo Fund, Oxford Youth
Basketball League and Camerata D’Amini.
The Vitec Group plc “An exhibition of
the final Picture of
Life images at the
Festival Italiano
del Volontariato
in Lucca, Italy
Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
Picture of Life
The Photographic Division’s Picture of Life
educational photography programme
continued in 2016. It is aimed at young people
who have experienced difficult upbringings
and who are looking for a chance to gain
a professional qualification. The 2016
programme was developed to include the
following organisations: Jonathan Charity,
Naples; NYC Salt Organisation, US and
Aike-Dellarco art gallery, Shanghai. The main
subject for participants in 2016 was “Invisible
Cities” with the final images displayed in
several photography exhibitions.
The Picture of Life project won the AIF award
for Ethics and Corporate Social Responsibility
in Italy in 2016. The award recognised the
positive effect of the project not only on
young people, but the important messaging
it conveyed.
Annual Report & Accounts 2016
43
43
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Environment
Our vision
To ensure our decision
making and operations are
mindful of the environment
while enhancing our
competitiveness.
Our approach
We are creating a culture that
adopts technologies,
materials and processes to
ensure we minimise our
impact on the environment.
44
Vitec’s products and
processes
We continue to implement initiatives aimed at
sustaining and protecting the environment, in the
areas of research and development, production,
packaging and waste disposal.
Our products and services have a low impact on
the environment. We use low hazard materials,
minimise the use of resources during the
manufacturing process and search for materials
that are sustainable and can be recycled and
reused. 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 an environmental management
system we are reducing operating costs and
business risks, while ensuring sustainability.
Vitec’s green practices
As part of our commitment to responsible
business practices, we have continued initiatives
aimed at reducing energy, paper and water use,
encouraging recycling and proper waste disposal,
and promoting a culture of sustainability among
our employees.
We monitor and track our usage of electricity, gas
and water across our manufacturing, warehouse
and administrative sites and make efforts, where
possible, to reduce our usage both to reduce
costs and the 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.
The electricity contracts with Green Certificates
at the Italian sites were renewed in 2016 for a
further three years, confirming the commitment
to use energy generated by renewable sources.
The Photographic Division’s sites in Cassola
and Feltre in Italy had their ISO 14001 status
confirmed in 2016 whilst the Broadcast Division’s
site in Costa Rica had its ISO 14000 status
confirmed in 2016 showing that these operations
have designed and implemented effective
environmental management systems.
Employees in Italy participated in an environmental
awareness initiative called the “Green to Work
week”, during which employees were encouraged
to consider alternative ways to get to the office,
either using public transport, cycling or car
sharing. Healthy food was promoted in the canteen
and employees could win “green” products for
participating. Similar initiatives are run elsewhere
in the Group including recycling campaigns and
reduction of usage of consumables. Employees
and their families from the Costa Rica site took
part in a tree planting day in celebration of
Earth Day to help support and protect their
local environment.
The Vitec Group plc Our electricity, gas and water usage in 2016 and 2015
Electricity (MWh)
2016
2015
Gas (MWh)
2016
2015
10,773
10,954
Water (cubic metres, thousands)
2016
2015*
7,091
7,356
23.99
21.33
Our electricity, gas and water usage based on usage per £million of Group revenue
Electricity (MWh / £m Group revenue)
Gas (MWh / £m Group revenue)
Water (cubic metres, thousands / £m
Group revenue*)
35.7
36.5
36.4
34.5
28.6
40.00
30.00
20.00
10.00
30.00
25.00
20.00
15.00
10.00
5.00
20.8
18.7
22.3
23.1
18.8
0.12
0.10
0.08
0.06
0.04
0.02
0.09
0.09
0.08
0.07
0.06
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
* The figures for 2015 have been re-stated following receipt of final invoices for consumption during 2015 that were not available at the time of publication
of the 2015 Annual Report.
Feltre, Italy; Bury St. Edmunds, UK; Cartago,
Costa Rica; Burbank, US; Ashby-de-la-Zouch, UK;
Irvine, US; and Shelton, US. These sites account
for over 95% of the Group by revenue. We have
excluded our smaller sites as their size and scale
of operations are not material with respect to
their Scope 1 and 2 emissions.
We have selected a reporting date of 30
September each year to enable accurate data
to be collated to compile the Greenhouse Gas
Emissions disclosure in time for inclusion in this
Annual Report. We have conducted an internal
review to check the completeness and accuracy
of the reported data.
Our most significant emissions arise from the
use of electricity which makes up all our Scope 2
emissions. Approximately two thirds of our Scope
1 emissions arise from the use of natural gas
with the remainder mostly arising from transport
fuel. All of our emissions have been calculated
using the latest Defra conversion factors available
at https://www.gov.uk/government/publications/
greenhouse-gas-reporting-conversion-
factors-2016.
Greenhouse Gas Emissions for the period
from 1 October 2015 to 30 September
2016 (Tonnes of CO2 equivalent)
2016
2015
Scope 1 emissions
1,709
1,599
Scope 2 emissions
4,353
4,458
Total gross emissions
6,062
6,057
Total carbon emissions per
£m of Group revenue
16.1
19.1
In accordance with the Greenhouse Gas
Emissions (Directors Reports) Regulations and
the requirement to report on greenhouse gas
emissions, we have developed processes to
accurately capture and report all material Scope
1 and 2 emissions as defined by the Greenhouse
Gas protocol as of 31 December 2016. We have
applied the financial control basis for our
reporting boundary. These emissions have
been recorded at 21 of our operating sites in
the 12 months to 30 September 2016, and
arise from on-site energy use and any fugitive
emissions, and transport from owned vehicles.
We have identified these major operating sites
as the material sites for the Group for this
requirement as it covers our principal sites:
Potential areas of saving have been identified
in our larger production sites in the UK, Italy
and Costa Rica. 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 will be
assessed as opportunities arise to identify the
best opportunities to pursue, balancing the need
to deliver on other business priorities in 2017
and beyond.
45
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Board of Directors
John McDonough
CBE, BSc (Eng) & ACGI
Stephen Bird
MA
Paul Hayes
M.Eng & Man, ACA
Martin Green
MA, MBA, ACCA
Role
Chairman
Appointed
15 March 2012
(Chairman from 1 June 2012)
Nationality
British
Age
65
British
56
Committee membership
Nominations (Chairman)
Nominations
Group Chief Executive
Group Finance Director
Group Business Development
Director
14 April 2009
13 June 2011
4 January 2017
British
50
-
British
48
-
Skills & experience
John is also Chairman of Vesuvius plc,
a Director of Cornerstone Property
Assets Ltd and Sunbird Business
Services Ltd and a Trustee of Team
Rubicon UK. 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 Excel
plc from February 2004 to December
2005. Prior to Carillion, John worked
for Johnson Controls and Massey
Ferguson. He was awarded a CBE
in 2011 for services to Industry.
Stephen 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 worked in senior roles
at Danaher Corporation, Black &
Decker, Unipart Group, Hepworth PLC
and Technicolor Group.
Martin has been with the Group since
April 2003 in a variety of roles, most
recently as Group Development & HR
Director. Previously he held corporate
development positions at Bunzl plc,
at a broadcast equipment rental
business and worked in investment
banking at N M Rothschild. He trained
and qualified as a solicitor with
Linklaters & Alliance in the UK, is a
Certified Accountant and has an MBA
from Cranfield School of Management.
Paul was previously Group Financial
Controller at Signet Jewelers Limited
(formerly Signet Group plc) between
2007 and 2011. Prior to that,
he held a senior role at RHM plc from
2004 to 2007, through its flotation in
2005 and subsequent sale to Premier
Foods plc. Paul was with Smiths Group
plc for over ten years from 1993,
including a number of divisional and
operating company finance director
roles. He is a Chartered Accountant
having qualified with EY, and has a first
class Masters degree in Mechanical
Engineering, Manufacture &
Management. Paul has resigned and
will be leaving the Board in April 2017.
4646
The Vitec Group plc
The Vitec Group plc
Caroline Thomson
BA and D.Univ
Christopher Humphrey
BA, MBA, FCMA
Lorraine Rienecker
B.Eng, MBA
Mark Rollins
B.Eng, ACA
Role
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director,
Senior Independent Director
1 December 2013
1 December 2013
2 October 2013
Appointed
1 November 2015
Nationality
British
Age
62
British
59
Committee membership
Audit
Nominations
Remuneration (Chairman)
Audit (Chairman)
Nominations
Remuneration
British
53
Audit
Nominations
Remuneration
British
54
Audit
Nominations
Remuneration
Skills & experience
Caroline is currently Chair of Digital
UK, a Non-Executive Director of CN
media group, Deputy Chair of NHS
Improvement, a Director of London
First, a Non-Executive Director of
UKGI and Chair of its Remuneration
Committee, and a trustee of Tullie
House Gallery in Cumbria. She recently
retired as Executive Director of English
National Ballet. Until September
2012 Caroline was Chief Operating
Officer at the BBC, serving 12 years
as a member of the Executive Board.
Caroline received an honorary
doctorate from York University in 2013
and was made an honorary Fellow
of the University of Cumbria in 2015.
She is a member of the Council of the
University of York, a Fellow of the Royal
Television Society and a trustee of The
Conversation.
Christopher is a Non-Executive
Director of SDL PLC and AVEVA
Group plc. He was formerly Group
Chief Executive Officer of Anite plc,
holding that position from 2008 until
August 2015. Previously he was their
Group Finance Director between
2003 and 2008. He has held senior
positions in finance at Conoco,
Eurotherm International plc and
Critchley Group plc. He was previously
a Non-Executive Director of Alterian
plc between 2011 and 2012. He is a
Chartered Management Accountant
and a Fellow of CIMA.
Lorraine is currently President, Meggitt
Customer Services & Support, having
previously held the role of Executive
Vice President, Strategy, Sales &
Marketing at Meggitt plc, with
increasing responsibilities including
commercial and shared after-market
operations from 2005 to 2014.
Previously she was Director of
Strategy & Planning at BAE Systems
and Marconi Electronic Systems (GEC)
between 1998 and 2002 and has held
several other senior roles at Booz Allen
& Hamilton and Bombardier. Lorraine
was made a Fellow of the Royal
Aeronautical Society in April 2015.
Mark was Chief Executive of Senior
plc until 1 June 2015, being
appointed to that position in March
2008. He joined Senior plc in 1998
from Morgan Crucible plc, and
became Group Finance Director
in 2000. He is currently a Non-
Executive Director of Tyman plc and
Non-Executive Chairman of Sigma
Components Ltd. He was formerly a
Non-Executive Director of WSP Group
from 2006 to 2012. He is a Chartered
Accountant and holds a degree in
Engineering.
Annual Report & Accounts 2016
4747
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Corporate Governance
Chairman John McDonough, CBE responds
to questions on Vitec’s corporate governance
Martin has wide commercial experience and an in depth knowledge of the
Group having been an employee for over 13 years.
How does the Board set the right culture and tone from
the top?
We strongly believe in doing business in the right way. Our Code of Conduct
sets out our expectations around behaviours and is given to all employees
and is available to all our stakeholders including customers and suppliers.
The Vitec Mindset sets out our values which remain unchanged and can be
found on page 14. Health and safety is an absolute priority for our businesses
with management focused on safe working conditions and accurate reporting
of any near misses and accidents along with root cause investigations.
Reports are provided to the Board on a monthly basis to track incidents and
remedial actions taken as necessary. To further demonstrate the importance
of good governance, we launched a governance training module to around 60
of our senior managers in 2016, giving them a deeper understanding of their
roles and responsibilities as senior employees and reinforcing our approach
to governance matters.
The Board and Operations Executive visited a number of our sites in 2016 to
meet with employees, share key messages and promote the right culture and
behaviours across our businesses. The right business culture and tone from
the top can only be promoted with proactive steps and leadership. The Board
will continue to visit our operations and meet with our people in 2017 to
further embed this.
What has the Board done in terms of strategy and its
implementation?
During 2016 the Board undertook a detailed review of the Group’s strategy
and this is set out in Stephen Bird’s Group Chief Executive’s Review. The
strategy review involved both support and constructive challenge to each
major business at an off-site location involving all of the senior management
team. Coupled with this, the Board visited operations in and around New York
including the newly acquired Offhollywood business, the Photographic and
Broadcast offices and a major customer’s retail store. The Board has further
communicated with shareholders on strategy and business priorities including
results presentations, a Capital Markets Day and several one-to-one meetings
with major shareholders to hear first-hand their views on the strategy and
business performance.
Does the Board have the right structure and skills, and which
directors will be standing for reappointment at the AGM?
Throughout 2016 the Board comprised seven directors including myself as
Chairman, four independent Non-Executive Directors and two Executive
Directors. We further strengthened the Board with the appointment of Martin
Green as Group Business Development Director and are actively recruiting
a new Group Finance Director following Paul Hayes’ decision to leave. I believe
we have the right sized Board with the correct balance of skills given the scale
of our operations. Each Director has skills in the areas of strategy, finance and
technology to assist with the implementation of our strategy. They also
enhance our diversity in terms of gender, professional and global experience.
Three of our Non-Executive Directors are currently working, or have recently
worked, in other international companies, ensuring they have relevant and
current global commercial experience.
All Directors, with the exception of Paul Hayes, will stand for reappointment at
the 2017 AGM and their biographies are set out on pages 46 and 47.
Key focus during 2016:
1) Strategy review
2) People
3) Technology
4) Operations
I am pleased to introduce my governance report for 2016
which I hope enables readers to understand our culture
and governance. Under my Chairmanship, the Board
is responsible to all Vitec’s stakeholders for the
continued successful operation of the Group to ensure
its long-term success through the implementation of our
strategy. Culture and governance are vital in underpinning
this success.
Were there any Board changes in 2016?
There were events affecting the Board’s composition in 2016 that I should
highlight. Caroline Thomson joined as a Non-Executive Director and Chairman
of the Remuneration Committee in late 2015 and during 2016 she undertook
a thorough induction with a focus on remuneration matters, successfully
leading the Remuneration Committee through a change of advisor, the
redrafting of the remuneration policy, and a shareholder consultation. In
November 2016 Paul Hayes informed the Board of his intention to resign
as Group Finance Director. Paul will be leaving the Board in April 2017 to
take on a new executive role and we are actively searching for a new Group
Finance Director.
On 4 January 2017 we announced the appointment of Martin Green as
an Executive Director. Martin is the Group Business Development Director
and has responsibility for business development particularly focusing on
APAC and opportunities in the Creative Solutions businesses as well as
his responsibility for corporate development and HR. Martin is an excellent
addition to the Board and his appointment reflects his importance in
the development of the Group and the delivery of our growth strategy.
48
The Vitec Group plc How does your role interact with the Group
Chief Executive?
The Group Chief Executive is responsible for managing the business.
The Operations Executive supports the Group Chief Executive in this duty,
the members of which are shown on page 15. The Group Chief Executive
and I have an excellent working relationship, meeting and speaking regularly
outside of scheduled Board meetings to discuss strategy and performance,
and to ensure that Board meetings cover relevant matters. Our relationship
and regular dialogue helps to underpin the working of the Board, providing
an open forum in which matters are discussed openly and robustly.
Who is the Senior Independent Director?
Mark Rollins is the Senior Independent Director. Mark led the evaluation
of my performance as part of the internal Board evaluation and met with
major investors. Information on the outcome of my evaluation is provided
later in this report.
What is the Board responsible for?
The Board has a Schedule of Matters Reserved to it which includes:
consideration and development of the Group’s strategy; setting of annual
operating budgets; regular review of progress against strategy and budgets;
financial results; dividends; changes in Board composition including key roles;
acquisitions and disposals; material litigation; capital structure; risk management
strategy; and various statutory and regulatory approvals. The Board meets
regularly to receive updates on business performance and consider proposals
within its remit. The Schedule of Matters Reserved to the Board is available on
our website.
What are the Board’s Committees responsible for?
The Board has delegated certain items of business to its principal
Committees. I feel it is appropriate to ensure 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, copies of which are available on our website.
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 effectively and recommends any changes it considers necessary
to the Board for approval. Each Committee’s responsibilities and activity in
2016 are set out later in this report.
Is the Annual Report fair, balanced and understandable?
The Board has considered the Governance Code requirement and it confirms
that the Annual Report taken as a whole is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy, and has retained this
power for itself. To achieve this we asked the Executive Directors and the
Operations Executive to provide us with clear documentary evidence around
the content and process of the 2016 Annual Report at our February 2017
Board meeting. The February 2017 Audit Committee confirmed to us that:
the 2016 financial statements are true and fair; the work of the external
auditor was effective; and the process supporting the Viability Statement was
robust. As a consequence we are able to confirm that the 2016 Annual Report
taken as a whole is fair, balanced and understandable through reliance on
management and knowledge of the following processes:
• a detailed planning stage including drafting guidance and coordinated
project management;
• a verification process dealing with the factual content of the Annual Report;
• comprehensive reviews undertaken at different l evels in the Group that aim
to ensure consistency and overall balance; and
• a comprehensive review by the senior management team.
Has the Group complied with the UK Corporate
Governance Code?
My governance review has taken into account the Governance Code as
published in September 2014, and explains how we applied its main
principles. I confirm that the 2016 Annual Report is drafted in full compliance
with the latest version of the Governance Code published in April 2016,
including its supporting principles and provisions. Each was complied with
throughout 2016, as required by the Listing Rules.
Leadership
How do you lead the Board and how are decisions made
by the Board?
The Board is responsible to shareholders for the creation and delivery of
sustainable performance and long-term shareholder value. 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, ensuring its effectiveness in all
aspects of its role. I work closely with the Group Chief Executive and Group
Company Secretary to achieve this by ensuring that all Directors: are kept
advised of key developments; receive accurate, timely and clear information;
and actively participate in the decision making process. Board agendas are
reviewed and agreed in advance to ensure each Board 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 during 2016. The Board has a clear
policy for dealing with any such conflicts or potential conflicts of interest.
49
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Corporate Governance
What did the Board do in 2016?
The Board dealt with a diverse range of
matters during 2016. At each scheduled
meeting the following standing items are
considered:
• Directors’ duties and conflicts of interest
• Minutes of previous meetings and matters
arising
• Progress against agreed Board objectives
• Reports from the Group Chief Executive,
Group Finance Director, Group
Company Secretary and Group Business
Development Director on key aspects of
the business including health and safety,
current trading, strategy, acquisitions and
disposals, financial results, governance, HR
and legal matters including litigation
• Performance against KPIs
There were six scheduled Board meetings
and one short notice Board meeting in
2016. In addition to the standing items, the
following is a summary of the material items
considered at each meeting in 2016.
February (held in Richmond, UK)
• Annual Results, including review and
approval, where appropriate, of:
- Principal risks and mitigation
- Report on going concern and Viability
Statement
- Final dividend recommendation
- Full year results announcement for the
year ended 31 December 2015
- 2015 Annual Report including an
assessment that the Report was fair,
balanced and understandable
- Notice of AGM
- Management Representation letter
• Recommended the reappointment of
KPMG LLP as auditor
• Update on Group strategy including post-
acquisition reviews of the SmallHD and
Paralinx businesses
• Update on the renegotiation of the
Revolving Credit Facility
May (held in central London, UK)
September (short notice meeting held by phone)
• AGM briefing
• Trading update (including reforecast of
2016 performance)
• Update on Group strategy
• Update on the renegotiation of the
Revolving Credit Facility and the overdraft
facility
• Investor relations update from Investec
• Update on property matters
June (held in New York City, US)
• Visited Photographic and Broadcast
businesses and key customer
• Reviewed presentations on Group
and business unit strategies including
associated risks, mitigations and risk
appetite
• Approved capital expenditure requests for
new products
• Update on the renegotiation of the
Revolving Credit Facility
• Reviewed the Group’s 2016/17 insurances
• Process and timing of the 2016 internal
Board evaluation
• Sharesave offer to employees
• Update on the Market Abuse Regulations
August (held in Richmond, UK)
• Half year results, including review and
approval, where appropriate, of:
- Principal risks and mitigation
- Report on going concern
- Interim dividend
- Half year results announcement for the
period ended 30 June 2016
- Management Representation letter
• Update on Group strategy including
acquisitions, actions from the strategy
review held in June, a review of strategic
KPIs and a capital markets event to be held
in late 2016
• Reviewed the reforecast of 2016
• Considered and approved the acquisition
of Wooden Camera
October (held in Richmond, UK)
• Update on Group strategy including a
review of competitors and an update on
actions from the strategy review held in
June
• Strategy presentations from the Creative
Solutions and Enterprise Video Business
Units
• Reviewed the reforecast of 2016
performance
• Received an update on Group synergies
• Approved a capital expenditure request
relating to the prompting business
• Presentation on the Group’s tax structure
• Update on progress with the internal Board
evaluation
December (held in Richmond, UK)
• Approved the 2017 budget
• Update on Group strategy including
feedback on the capital markets event, a
research and design project tracker and a
review of strategic KPIs
• Update on property matters
• Outcome of the 2016 internal Board
evaluation and approved 2017 Board
objectives
• Reviewed Board governance arrangements
and key policies
• Reviewed the Chairman’s and Non-
Executive Directors’ fees
• Update on pension matters relating to
the UK’s Defined Benefit and Defined
Contribution schemes
• Property update relating to the Bury St.
performance
Edmunds site
50
• Completion of the renegotiation of the
Revolving Credit Facility
• Approved a capital expenditure request for
a new product
• Renewed tenures of three Non-Executive
Directors
• Update on property matters
• Presentation from Rothschild on strategic
matters
The Vitec Group plc Effectiveness
How do you measure the effectiveness and performance
of the Board?
Your Board has remained stable throughout 2016 with no changes in
individuals. This allowed us to work together in an open and collegiate
manner. The Board annually sets itself clear objectives and monitors progress
against each throughout the year. I believe the Board has the right skills, talent
and diversity to effectively deliver the Group’s agreed growth strategy. The
Board rigorously challenges itself on delivery of strategy, financial performance
measured against budgets, governance and operational performance issues.
Are the Non-Executive Directors independent?
Each of 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 Christopher Humphrey, Lorraine Rienecker, Mark Rollins and Caroline
Thomson are independent in accordance with the recommendations of the
Governance Code. Each of these Non-Executive Directors’ tenure on the Board
is less than four years and I lead the process of ensuring that each year the
performance of each Director is objectively appraised. Each Director is also
required to declare any conflict of interest arising on any matter and I confirm
that no such conflicts arose in 2016. Each Director brings a complementary
set of skills and diversity to the Board, having served in companies of varying
size, complexity and market sector. 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.
Do new Directors receive an induction?
On appointment, we provide each Director with a tailored and extensive
induction to the Group. An induction programme for a new Non-Executive or
Executive Director would include: meeting all the Board members individually,
the Operations Executive and key external advisors; receiving briefings on
each area of the business; and visiting the Group’s principal operations in the
UK, US and Italy. Presentations on 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 would be given. To gain a better understanding of the Group
externally, meetings would be arranged with the Group auditor, KPMG, and
corporate advisors including Investec, Slaughter and May, Kepler and MHP.
Each induction process is tailored to the individual. Following the induction
process, each Director is encouraged to continue visiting the Group’s
operations as their schedule permits.
Did all Directors attend meetings in 2016?
Details of Directors’ attendance at Board and Committee meetings is shown
in the table on page 54. I confirm that all Directors attended each scheduled
Board meeting and the one called at short notice. When any Director is unable
to attend they continue to receive the necessary papers and I contact them
in advance of the meeting to obtain their views and decisions on the proposals
to be considered.
Did the Board visit any of the Group’s sites during the year?
During June 2016 the Board visited the Photographic and Broadcast Division’s
operations on the east coast of the US. They also visited the newly acquired
business of Offhollywood along with a major customer’s store. The visits
included updates from management teams on market trends, product
development, innovation and operations. The Board was given a
demonstration of new products, including those still under development.
At the customer store the Board was able to view the Group’s products
alongside competitors’. The Board intends to hold a meeting at an overseas
business each year to deepen their knowledge and understanding of the
Group. Each Director is encouraged to visit our operations at their own
convenience to further build on their understanding of the Group.
Did the Board get together outside of scheduled meetings,
including Non-Executive Director only meetings?
We continue to spend time together outside of Board meetings to learn not
only about the business but each other’s skills and personalities, which helps
facilitate effective and constructive Board and Committee meetings. We hold
a dinner for the Board around each scheduled meeting to enable Directors
to informally discuss current business matters. It also gives an opportunity
for the Operations Executive, other senior management or external advisors
to attend to give updates on trading, markets or wider industry matters.
This is a very useful and effective format.
At least twice a year we also hold Non-Executive Director only meetings,
scheduled around the February and August Board meetings. These enable the
Non-Executive Directors to raise any issues without executive management
present. In my role as Chairman I feed back to the Executive Directors on
these discussions and take any actions necessary to address matters raised.
How is the Board supported by executive management?
As part of the wider governance framework it is important to explain the
Operations Executive, which is the Group’s executive committee, chaired by
the Group Chief Executive. The Operations Executive meets regularly to
discuss 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.
The members of the Operations Executive are set out on page 15.
I was pleased to welcome members of the Operations Executive to a number
of Board and Committee meetings during 2016, along with the Group Risk
Assurance Manager, Group Financial Controller, Group Head of Tax and a
number of product specialists from each Division, each of whom provided
the Board with technical knowledge about different parts of the business.
Their attendance allows the Board to directly question senior management
responsible for the business and to gain a better understanding of their
respective technologies, products and customers. We will continue to welcome
members of the Operations Executive and other senior management to Board
and Committee meetings in the future.
51
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
Does the Board receive ongoing training?
Ongoing training for new 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 the
Company’s appointed advisors. The requirement for training is discussed at
meetings of the Board and 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 product technology, investor
relations, Market Abuse Regulation, cyber security issues, and the broadcast
and photographic markets. The Board regularly receives written updates on
governance, regulatory and financial matters as they are published.
What if a Director needs to take independent
external advice?
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 2016 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 myself, on all
governance matters.
How do you ensure that Board meetings run effectively?
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, prepare and, where appropriate,
ask questions prior to the meeting about the information supplied. The
information includes detailed budgets, forecasts, strategy papers, reviews 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,
Group Business Development Director, and Group Legal Counsel, 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 or the Deputy 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 next meeting.
What is the Board’s policy on appointing Directors?
Under the Company’s Articles, the Board has the 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 reappointed
by shareholders.
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 Company 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, each Director is required to stand
for annual reappointment at every AGM. The table below sets out the
Chairman’s and Non-Executive Directors’ appointment dates and scheduled
renewal of terms.
The annual renewals of terms for a Non-Executive Director will take into
account ongoing performance, continuing independence and the needs
and balance of the Board as a whole.
Chairman or Non-
Executive Director
John McDonough
(Chairman)
Appointment date
First renewal of term
Second renewal of
term
Annual renewal of term post two three year terms
15 March 2012
15 March 2015
15 March 2018
Annually from 15 March 2019 onwards
Mark Rollins
2 October 2013
2 October 2016
2 October 2019
Annually from 2 October 2020 onwards
Christopher Humphrey 1 December 2013
1 December 2016
1 December 2019
Annually from 1 December 2020 onwards
Lorraine Rienecker
1 December 2013
1 December 2016
1 December 2019
Annually from 1 December 2020 onwards
Caroline Thomson
1 November 2015
1 November 2018
1 November 2021
Annually from 1 November 2022 onwards
52
The Vitec Group plc What is the Board’s policy on diversity?
The Board considers the issue of diversity for every appointment. As part
of this the Board has adopted a policy on diversity as set out below:
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 Board level, senior
management level and throughout the entire workforce, taking into account
among other things Lord Davies’ review Women on Boards, the Hampton-
Alexander review FTSE Women Leaders and the forthcoming Parker review on
Ethnic Diversity. 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
in accordance with the requirements of the Companies Act 2006.
What format did the Board’s evaluation take in 2016?
For the last two years we have completed internally facilitated Board
evaluations, as part of our three year cycle around internally and externally
facilitated evaluations. The output from the 2015 evaluation assisted in the
Board’s 2016 objective setting, which is reported on later in this section.
This output, along with feedback from the strategy review held in June 2016,
fed into the format of 2016’s internal evaluation, and helped to shape the
questions and analyse progress made during the year. We will conduct an
externally facilitated evaluation of the Board and its Committees in 2017.
Four areas were covered by the 2016 process:
• Evaluation of the performance of the Board by each Director
• Evaluation of the performance of Board Committees by each
Committee member
• Evaluation of the Non-Executive Directors by the Chairman
• Evaluation of the Chairman led by the Senior Independent Director
taking into account the views of the Board
The Board evaluation took the following process:
Completion of questionnaires by each Director
Analysis of responses and creation of output document
Individual meetings with each Director led by the Chairman
Collective Board discussion at the December 2016 Board meeting
Setting of 2017 objectives
The Group Company Secretary and I agreed the format of the evaluation,
which required Directors to, both objectively and subjectively, evaluate the
performance of the Board, Board Committees, progress against strategy,
monitoring performance, leadership, succession planning, customers,
markets, technology, culture and corporate governance, taking into account
the balance of skills, experience and knowledge of the Group by each Director.
I followed up with meetings with each Director on the content of completed
evaluation forms, allowing for a discussion to take place around any areas
for improvement. Mark Rollins, as Senior Independent Director, coordinated
the process for my evaluation.
What was the outcome of the 2016 evaluation?
At our December meeting we considered the outputs that had been identified.
I am pleased to report that all Board members considered that the Board, its
Committees and individual Directors performed effectively during 2016, both
individually and as a collective unit. Non-Executive Directors demonstrated
a willingness to devote sufficient time and effort to understand the Company
and its businesses, and provided independent, rigorous and constructive
challenge on strategy and operational performance. The processes,
governance and controls around the Board and its Committees were
effective and robust.
Each Director was asked to report on three key items for the Board to focus
on during 2017. As in previous years these key items have been incorporated
into the Board’s agreed objectives for 2017 and will focus on the areas of:
Group strategy; succession planning for the Executive Directors and senior
management team; talent development; technology, customers and
competitors; governance and culture; operational efficiencies; and trading
performance. The Board will track progress against each during 2017 and
I will report to you on these objectives in the 2017 Annual Report.
Each of the Board Committees were reviewed with individual outputs and
actions created. As with the Board, the output helped set the 2017 objectives
that will be reported on by each Committee in the 2017 Annual Report. For
the Audit Committee, 2017’s focus will be on: reviewing the risk management
of strategic objectives; a successful induction of a new Group Finance
Director; receiving regular training on financial and governance changes,
including oversight of the whistleblowing arrangements and the risk
management of third parties; and oversight of treasury arrangements and tax
strategy. The Remuneration Committee’s objectives for 2017 include ensuring
the new remuneration policy is aligned to Group strategy, takes into account
best practice and receives shareholder support at the 2017 AGM; ensuring
remuneration structures for senior management are appropriate and
aligned to delivery of our Group strategy; reviewing the performance of
the remuneration advisor following the 2017 AGM; ensuring 2017 LTIP
awards are made with appropriately stretching performance conditions;
and supporting the recruitment of a new Group Finance Director with
an appropriate remuneration package.
Finally, my review led by Mark Rollins highlighted that I have a good
relationship with the Group Chief Executive, Board members and major
shareholders, and my performance was rated highly by every Board member.
53
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
How did the Board perform against the 2016 Board Objectives?
The Board set itself several objectives for 2016. These are summarised below with an assessment of performance against each.
2016 Board Objectives
Progress during 2016
Ensure that Executive Director succession
planning is regularly discussed, talent
development processes for senior roles
are in place, the Board has visibility of
senior management, and key man
retention plans are in place for specific
roles to support delivery of strategy
Develop understanding and knowledge
of underlying and emerging technologies,
along with customers and their
technology needs
Evaluate current strategy and ensure it is
fit for purpose based on changing markets
and customer needs, monitor progress
of strategy against KPIs, continue to
oversee acquisition strategy, and ensure
development of the Creative Solutions
Business Unit
• Received regular updates on talent and succession planning for Executive Directors and senior management roles
across the Group
• Met with a number of senior employees during visits to operations in the US, during the strategic review and at the
capital markets event
• Reviewed incentive proposals for roles below the Operations Executive
• Received presentations from product specialists within the business on existing and developing technologies
• Attendance at trade shows such as Photokina and NAB along with the capital markets event
• Visited a major customer as part of the strategic review
• Considered capital expenditure requests for new products and acquisitions
• Received regular updates from each Division on progress against their strategic plans with Divisional and Business
Unit senior management attending several Board meetings
• Two separate presentations from the Creative Solutions Business Unit and a detailed business plan from the
Enterprise Video Business Unit
• Undertook detailed strategic review, identified key areas concerning strategy and agreed programme for
ongoing review
• Regular review of strategic KPIs
• Completed acquisitions of Provak, Offhollywood, Xume and Wooden Camera
• Reviewed corporate action opportunities
• Post-acquisition reviews of SmallHD and Paralinx
Develop detailed understanding of
operations ensuring operations are
optimised, aligned with future strategy and
deliver improved financial performance
• Regular presentations from business units covering operational matters
• Presentation from Group Finance Director on synergies across operations and back office functions
• Site visits to the US to allow for oversight of operations
Review and determine content of the
Viability Statement to be published in
the 2015 Annual Report
• Received recommendation from the Audit Committee on the draft Viability Statement
• Reviewed detailed stress testing in support of the three year period covered by the Viability Statement
• Approved publication of the final version of the Viability Statement in the 2015 Annual Report
Closely monitor current financial
performance and recommend actions
as appropriate
• Received regular updates from the Group Chief Executive and Group Finance Director on current trading
• Approved content of full and half year announcements and trading updates
• Reviewed quarterly reforecasts of 2016 performance
• Considered and implemented restructuring initiatives
Performance evaluations of each of the Executive Directors also took place against achievement of specific personal objectives, the detail of which can be found
in the Remuneration Report in respect of the outcome of their 2016 annual bonus.
Directors’ Attendance table for 2016
Board
Audit
Remuneration
Nominations
Scheduled
Short
notice
Scheduled
Short
notice
Scheduled
Short
notice
Scheduled
6
6
6
6
6
6
6
6
1
1
1
1
1
1
1
1
4
-
4
4
4
4
-
-
-
-
-
-
-
-
-
-
5
-
5
5
5
5
-
-
1
-
1
1
1
1
-
-
2
2
2
2
2
2
2
-
Short
notice
1
1
1
1
1
1
1
-
Number of meetings
Directors
John McDonough
Christopher Humphrey
Lorraine Rienecker
Mark Rollins
Caroline Thomson
Stephen Bird
Paul Hayes
54
The Vitec Group plc Does the Board have the right mix of Directors?
I am confident that we have the necessary mix and balance of skills,
personalities and diversity on the Board to meet the challenges the Group
faces, deliver on strategy, monitor ongoing performance and exercise good
corporate governance. During 2016 each Board member assessed the current
mix of the Board and skills of directors to identify potential areas for
improvement. This will help support the recruitment of new Directors as we
move forward. The recruitment of the Group Finance Director will take into
account the current mix of the Board and the need to ensure continued
diversity of experience and background. I will remain mindful of the need to
have the right balance on the Board and future Board changes will take this
into consideration. The Nominations Committee will continue to monitor Board
structure and succession plans, including talent and succession plans of
senior management below Board level.
Nominations Committee activities during 2016
At each main meeting the Committee considers:
• Directors’ duties and conflicts of interest
• Minutes of previous meetings and matters arising
The Committee had two scheduled meetings and one short
notice meeting in 2016 and covered the following matters:
May
• Reviewed Board succession planning
October
• Received an update on senior management talent and succession
planning
December (called at short notice)
• Received an update on the recruitment of a new Group Finance
Director
• Considered a proposal on the appointment of a new Executive
Director
What is the purpose of the Nominations Committee?
The Board has appointed the Nominations Committee to oversee the
composition of the Board (including skills, knowledge, experience and
diversity), senior executive recruitment and succession, and the process
for appointments of Directors.
Current Committee members are set out below and all served throughout 2016.
Chairman
Members
John McDonough
Stephen Bird
Christopher Humphrey
Lorraine Rienecker
Mark Rollins
Caroline Thomson
What did the Nominations Committee do in 2016 and what
are its plans for 2017?
During 2016 the Nominations Committee focused its attention on executive
management, receiving presentations on talent development and succession
planning for the Executive Directors, Operations Executive and senior
management. Following the resignation of Paul Hayes in November 2016,
the Committee is managing the search process for his successor and will
make a recommendation on this to the Board in due course. The Committee
also recommended the appointment to the Board of Martin Green as an
Executive Director, which was announced on 4 January 2017. In 2017 the
Committee will focus further on succession planning and talent development
for the direct reports of the Executive Directors and those roles one further
level down the organisation.
What is the process for the appointment of a new Director?
Once the Board has identified the need for a new Director, the Chairman
would, except where the search relates to his role, engage the support of an
external executive search consultant where necessary to facilitate the search.
The Chairman would work with the consultant to draft a clear brief on the role,
skills and personal attributes that the Board was looking for, taking into
account Board diversity, and follow this up with a search process to identify
suitable candidates. Initial interviews would be held with candidates with both
the Chairman and the Group Chief Executive, where appropriate, following
which a shortlist would be created taking into account the skills of each
candidate and perceived fit with the Board and senior management. Following
further meetings a preferred candidate would be chosen and each member
of the Board would then meet with or speak to the preferred candidate
individually to ensure that a person with the right skills, diversity and dynamic
fit with the Board was appointed. This same process would occur whether the
role was executive or non-executive in nature. However, should the search be
for the role of Chairman, it would be conducted by the Senior Independent
Director with the support of the Board. Subject to the outcome of each search,
a formal recommendation on an appointment is made by the Nominations
Committee to the Board for approval.
The Nominations Committee engaged with The Zenith Partnership at the end
of 2016 and has begun a process in respect of the recruitment of a Group
Finance Director. We will report further on this in 2017.
55
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Corporate Governance
What is the purpose of the Remuneration Committee?
The Board has delegated to the Remuneration Committee the setting of a
remuneration framework for the Company’s Group Chief Executive, other
Executive Directors and members of the Operations Executive. An overview of
the work completed by the Remuneration Committee during the year is set
out in the following table. The Remuneration Committee is chaired by Caroline
Thomson and comprises exclusively independent Non-Executive Directors.
The Chairman, Group Chief Executive, Group Finance Director, Group Business
Development Director and Group Company Secretary have all been invited to
attend meetings throughout 2016.
The Remuneration Report for the year ended 31 December 2016 on pages 64
to 85 provides an introduction from the Committee Chairman. It sets out the
Group’s remuneration policy for Executive and Non-Executive Directors which
will be put to shareholders for approval at the 2017 AGM and gives full details
of Executive and Non-Executive Directors’ remuneration during 2016.
Current Committee members are set out below and all served throughout 2016.
May
• Presentation from shortlisted advisor as part of the tender process
for remuneration advisor
• Presentation on gender pay reporting in the Group’s main
countries of operation
• Update on the incentivisation of the Creative Solutions
Business Unit
• Agreed the treatment of the acquisition of Offhollywood in respect
of the 2016 Annual Bonus Plan and LTIP
June
• Approved the appointment of Kepler as remuneration advisor
August (called at short notice)
Chairman
Members
• Reviewed an initial draft of the new remuneration policy
October
• Approved shareholder consultation that would take place on
the new remuneration policy
• Agreed the treatment of the acquisition of Wooden Camera
in respect of the 2016 Annual Bonus Plan and LTIP
December
• Approved the outcome of 2016 objectives and set 2017
objectives
• Reviewed update of the new remuneration policy and
communication with shareholders
• Update on indicative outcome for the 2016 Annual Bonus Plan
• Approved proposed salary increases for 2017 for the Executive
Directors and Operations Executive
• Approved the structure of the 2017 Annual Bonus Plan
• Considered draft personal objectives for Executive Directors
for 2017
How did the Remuneration Committee monitor its
performance?
The Remuneration Committee set itself several objectives for 2016, the detail
and progress against which is shown in the table on the following page.
The Remuneration Committee has set itself objectives for 2017 and will
report on progress against these in the 2017 Annual Report.
Caroline Thomson
Christopher Humphrey
Lorraine Rienecker
Mark Rollins
Remuneration Committee activities during 2016
During 2016 the Remuneration Committee had six meetings,
five of which were scheduled and one of which was short notice.
At each scheduled meeting the Committee considered the
following matters:
• Directors’ duties and conflicts of interest
• Minutes of previous meetings and matters arising
• Reviewed progress against objectives
The following specific business was dealt with at each meeting
held in 2016:
February
• Approved the 2015 Remuneration Committee Report
• Approved the outcome of personal objectives for Executive
Directors for 2015 and agreed Executive Directors’ 2016 objectives
• Approved the outcome of 2015 Annual Bonus Plan and confirmed
financial targets for 2016 Annual Bonus Plan
• Approved the outcome of performance conditions tied to 2013
LTIP and DBP awards
• Approved 2016 awards to be made under the LTIP and DBP
• Reviewed a proposal on the incentivisation of the Creative
Solutions Business Unit
• Agreed to tender the services of the Committee’s remuneration
advisor
56
The Vitec Group plc
2016 Remuneration Committee Objectives
Progress during 2016
Ensure 2015 Remuneration Report approved by
shareholders at the 2016 AGM and continued
engagement with shareholders on remuneration matters
Draft a new Remuneration Policy aligned to Group
strategy and undertake consultation with key investors
dependent on any material changes to executive
remuneration packages
• 2015 Remuneration Report compliant with regulations and received over 99% support on the advisory
resolution at the 2016 AGM
• Policy prepared including introduction of ROCE underpin to LTIP, rebalance of performance
conditions with an increased proportion based on EPS growth and a reduced proportion based on
TSR, and a reduction of pension contribution to future Executive Directors
• Consultation with major shareholders undertaken
• Policy to be submitted for approval at 2017 AGM
Ensure thorough induction process for new Committee
Chairman, ensuring knowledge of all stakeholders’
views and that executive remuneration crafted to drive
right behaviours and performance
• Induction included meeting several major shareholders, particularly focusing on a new
remuneration policy
• Meeting with remuneration advisors and appointing new advisor, Kepler
• Visited all of the Group’s major sites to enhance knowledge of business operations and to meet
senior management
Review policy around performance conditions for long-
term incentives for participants below the Operations
Executive
Continue to monitor performance of Remuneration
Committee advisor in supporting the Remuneration
Committee, particularly in advance of drafting a new
remuneration policy
• Policy reviewed and performance conditions on the same basis as awards made to Executive
Directors deemed appropriate for awards made in 2016
• Tender process completed and Kepler appointed as the new remuneration advisor
Accountability
How does the Board oversee internal control and risk
management?
The Board has delegated responsibility to the Audit Committee for oversight
of the Group’s system of internal controls to safeguard shareholders’
investments and the Company’s assets. As part of its responsibility, the Audit
Committee formally reviews the effectiveness of the Group’s internal controls
twice a year. 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 and Audit Committee to fulfil their legal responsibility
for the keeping of proper accounting records, safeguarding the assets of the
Group and detecting fraud and other irregularities. This approach provides
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 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
the risks it faces and for putting in place procedures to monitor and manage
those risks.
• The responsibilities of 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 financial capital projects, property leases, 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 mitigate those risks. In addition, every
business unit conducts a self-assessment of its internal controls. Every year,
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 register 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 Group’s
principal risks and uncertainties and mitigation for them are set out on
pages 28 and 29 of this Annual Report.
• The Board has established a control framework within which the Group
operates. This contains the following key elements:
- an organisational structure with clearly defined lines of responsibility,
delegation of authority and reporting requirements;
- defined expenditure authorisation levels;
- an operational review process covering all aspects of each business
conducted by Group executive management on a regular basis throughout
the year;
57
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Corporate Governance
- a strategic planning process identifying key actions, initiatives and risks
to deliver the Group’s long-term strategy; and
- a comprehensive system of financial reporting including weekly flash
reports, monthly reporting, quarterly forecasting and an annual budget
process. The Board approves the Group budget, forecasts and strategic
plans. Monthly actual results are reported against prior year, budget and
latest forecasts and are circulated to the Board. 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 coordinated 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.
This system has been in place for the year under review and up to the date
of approval of the Annual Report.
The Group’s internal audit function, led by the Group Risk Assurance Manager,
conducted a number of internal audits and additional assurance reviews
during 2016, 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, but not limited to: purchasing and
payments; sales and cash collection; inventory management; accounting
and reporting; and IT processes. An internal audit plan for 2017 has been
prepared and agreed with the Audit Committee.
What publications has the Board reviewed in consideration
of compliance with internal control and risk matters?
The Board considers that this report accords with the Financial Reporting
Council’s (“FRC”) Guidance on Risk Management, Internal Control and related
Financial and Business Reporting, as issued in 2014, and has reported
against the recommendations in this Annual Report.
Relations with shareholders
How does the Board ensure it has a continued dialogue
with its major shareholders?
Maintaining regular contact with our shareholders remains an important part of
our activities and is fundamental to good corporate governance. During 2016,
the Group Chief Executive and Group Finance Director held face-to-face meetings
with each of our major shareholders tied into the publication of our full year and
half year results. I also met with several major shareholders in 2016 to discuss
the Group’s strategy, governance and remuneration matters. In November 2016
we held a Capital Markets Day for our major shareholders showcasing our
strategy and Caroline Thomson, as Chairman of the Remuneration Committee,
met with several major shareholders as part of the process of developing the
Remuneration Policy Report that will be put to shareholders for approval at the
2017 AGM. In addition, Mark Rollins as Senior Independent Director met with
a major shareholder during 2016. We aim to ensure that our business, strategy,
governance and remuneration policies are clearly understood and that any
concerns are addressed through constructive engagement.
How does the Board use the AGM to communicate with
all shareholders?
I was pleased to meet some of our shareholders at the 2016 AGM and look
forward to meeting shareholders again at the 2017 AGM. This offers an
opportunity for you to meet with our Directors and to hear more about the
Group’s strategy. Shareholders are encouraged to attend the AGM and to
ask questions about the business. The Group Chief Executive gives a short
business update to the AGM. I confirm that all Board members will 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 and which is available on our website.
How do shareholders vote at the AGM?
All resolutions are voted on by way of a poll. This reflects best practice and
ensures that all the views of all shareholders who submit proxy forms are
taken into account in terms of the actual voting at the general meeting.
The outcome of the voting at the AGM will be announced by way of a Stock
Exchange announcement and full details will be published on the Company’s
website shortly after the AGM. At the 2016 AGM, 75% of our shares were
voted by way of proxies submitted. Separate resolutions are proposed for each
substantive issue upon which shareholders are asked to vote.
Shareholders attending the AGM have the opportunity to ask questions
at the meeting. In the event that a resolution is opposed by a significant
proportion of shareholders, the Company will endeavour to explain, as soon
as practically possible following the meeting, the actions it intends to take
to understand shareholders’ concerns and how best to address the concerns
being raised. The Board considers that a vote in excess of 20% of
shareholders to be significant.
What about other types of shareholder communication?
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 AGM and create an informed view of the Group,
we comply with the requirement set out in the Governance Code in respect
of shareholder meetings to send the Notice of Meeting 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.
Regular updates from the Executive Directors 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.
Our website contains information on the Group including financial results,
presentations, investor relations and products and services. Shareholders
and other stakeholders are encouraged to view the website to receive
up-to-date information about us.
John McDonough CBE
Chairman
20 February 2017
58
The Vitec Group plc Corporate Governance
Report from Christopher Humphrey,
Chairman of the Audit Committee
What qualifications and skills do you possess as Audit
Committee Chairman?
2016 was my second year as Chairman of the Committee, having been
appointed on 12 May 2015. The Board believes I continue to have the
necessary recent and relevant financial experience, along with financial
competence, as required by the Governance Code. I am a Chartered
Management Accountant and a Fellow of CIMA, and most recently held the
role of Chief Executive Officer and previously Group Finance Director of Anite
plc, formerly a UK listed company. In my earlier career I held senior positions
in finance at Conoco, Eurotherm International plc and Critchley Group plc.
I continue to maintain an up-to-date understanding of financial and corporate
governance knowledge and best practice by attending training sessions and
updates presented by major accounting firms. The Board also considers that
the other members of the Committee have a broad range of appropriate skills
and experiences covering financial, commercial and operational matters, along
with competence of the manufacturing and technological aspects of the
industry in which Vitec operates, and their biographies are summarised
on pages 46 and 47.
What did the Committee do in 2016?
In 2016 I chaired the four scheduled meetings of the Committee and I work
closely with the Group Finance Director, Group Risk Assurance Manager and
Deputy Company Secretary to ensure 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 our website), the Group’s annual reporting requirements and
any other matters which arise on an ad-hoc basis. The Committee sets aside
appropriate time for the review of financial reporting and the risk assurance
process to ensure they both receive robust consideration and challenge.
A priority in 2016 was to ensure the transition to a new KPMG Audit Partner
and I am pleased to report this was completed effectively. Full details of the
work we completed during 2016 is set out in the table on page 63.
How do you keep on top of matters outside meetings?
I meet regularly with the Group Finance Director and KPMG Audit Partner to
provide necessary support to their roles, and also individually with the Group
Risk Assurance Manager to discuss the findings of his work and to maintain
an open line of communication.
How did the Committee review the effectiveness of KPMG?
During the year we formally assessed the effectiveness of the external auditor,
KPMG. With the appointment of Adrian Wilcox in May 2016, we focused the
review on his and his team’s performance during the 2016 year end process,
acknowledging that this was the first audit where Adrian was the partner.
We received a written report from the Group Risk Assurance Manager which
summarised the results of an initial formal review of the effectiveness of
KPMG. This was based on conversations held with key finance employees
who had interaction with KPMG during the 2016 external audit. This covered
the planning and execution of the audit, level of challenge and detailed work
completed by the KPMG audit teams. We will supplement this initial review
of the process following the year end which will cover areas such as:
leadership and team structure; planning, approach and scope; execution and
processes; risks; communication; independence and objectivity; adding value;
and cost effectiveness.
59
The Audit Committee is responsible for ensuring the
effective financial integrity of the Group through the regular
review of its financial processes and performance. It is also
responsible for ensuring that the Group has appropriate
risk management and internal controls, and that internal
and external audit processes are robust. I will explain the
Committee’s activities in more detail in my report.
The Audit Committee at the date of this report comprises four independent
Non-Executive Directors. During 2016 the members were:
Chairman
Members
Christopher Humphrey
Lorraine Rienecker
Mark Rollins
Caroline Thomson
The Audit Committee provides effective governance over external financial
reporting, risk management and internal controls and reports its findings and
recommendations to the Board. As Chairman of the Audit Committee, I am
pleased to report on the operations of the Committee during the past year,
with emphasis on the specific matters we considered, including compliance
with the Governance Code and associated Guidance on Audit Committees.
We fully comply with the requirements of the Governance Code as issued in
September 2014 along with forthcoming changes as set out in the April 2016
version of the Governance Code.
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
The results of the initial review were shared with KPMG and allowed the Audit
Committee to conclude that the KPMG audit process was robust, effective and
in accordance with auditing standards. We also took into account publications
made by the FRC, including the Audit Quality Practice Aid for Audit
Committees as published in May 2015. These provided the Committee with
comfort that an external and independent review of the quality of KPMG’s
overall audit work had taken place. As a result, we recommend the
reappointment of KPMG as auditor of the Company at the 2017 AGM.
A separate resolution for the approval of the auditor’s remuneration will be put
to shareholders at the 2017 AGM. We will report on the outcome of the more
detailed review of KPMG in next year’s Annual Report.
Was the Company subject to any reviews by the FRC
during 2016?
The Company was not subject to any FRC reviews during 2016. Should this
occur in future, we will advise shareholders in the subsequent Annual Report.
How has the Committee assessed the content of the
Annual Report?
As already explained by the Chairman, the Board takes responsibility for
determining that the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders
to assess the Group’s performance, business model and strategy. At the
request of the Board, the Audit Committee concentrated its review of the
full year results on the financial statements only and the process which
underpinned the drafting of the Viability Statement. The process for
determining content of the financial statements and the Viability Statement
was reviewed by the Audit Committee who recommended to the Board at
its meeting on 16 February 2017 the adoption of the financial statements
as at 31 December 2016 and that they provide a true and fair view of the
financial performance of the Group.
What were the significant accounting issues considered
by the Committee?
The Committee considered several significant accounting issues, matters and
judgements in relation to the Group’s financial statements and disclosures
for the year ended 31 December 2016. As part of the half year and full year
reporting process, management present an accounting paper to the
Committee, and the external auditor is asked to also comment on the key
significant areas of accounting judgement and disclosure. The information
presented is used by the Committee to critically review and assess the key
policies and judgements that have been applied, the consistency of policy
application from year to year and the appropriateness of key disclosures
made, together with compliance with the applicable accounting standards.
The significant issues arising and a description of how each was addressed
is shown in the following table.
60
Significant issue How it was addressed
Carrying value of
goodwill arising
on acquisition of
businesses
Working capital
management
Provisions and
other liabilities
Restructuring
costs and
provisions
The carrying value of goodwill is subject to annual
impairment testing undertaken by management who
apply a series of assumptions concerning future
revenue and cash flows and appropriate discount
rates for cash generating units. Management
presented the outcome of the impairment review
to the Audit Committee, highlighting the level of
headroom. The external auditor also commented
on this. The Committee critically reviewed
management’s assessment of the outlook and
carrying value of these intangible assets and their
disclosure in the Group’s financial statements.
The Committee concurred with management’s
conclusion that the majority of the carrying value of
goodwill was fully supported, and it was appropriate
to impair the carrying value of the goodwill relating to
Haigh-Farr and the US broadcast services business.
The Committee critically reviewed the carrying
value of the Group’s working capital. This took
into account management’s assessment of
the appropriate level of provisioning including
collectability of receivables and inventory
obsolescence. Management presented to the
Committee the experience of bad debts during
the year, and the debtor concentration and days
outstanding. With regard to inventory, the gross
levels held by inventory type, the provisions
recorded against obsolescence, and inventory days
analysis were also presented to the Committee.
In addition, the external auditor presented its
findings with regard to the key audit testing over
working capital covering all the major locations.
The Committee concurred with management’s
assessment of the Group’s working capital position.
The Committee considered the judgemental
issues relating to the level of provisions and other
liabilities. The more significant items include
post-employment and taxation. For each area
management presented to the Committee the
key underlying assumptions and key judgements
and, where relevant, the range of possible
outcomes. The external auditor also presented
on each of these areas and their assessment
of these judgements. The Committee has used
this information to review the position adopted in
terms of the amounts charged and recorded as
provisions, acknowledging the level of subjectivity
that needs to be applied.
The Committee considered the presentation and
accounting for the costs that arose in connection
with the various restructuring activities that were
undertaken during the year. Management presented
an analysis of the types of costs incurred, the
nature of the provisions held at the year end and
the proposed presentation and disclosures. The
external auditor reported on the findings from the
audit work performed and commented on the
accounting requirement with regard to recognising
restructuring provisions at the year end. The
Committee reviewed the analysis with consideration
as to how other similar companies present and
disclose restructuring activities and concurred with
the disclosures and presentations proposed.
The Vitec Group plc • Work from which the external auditor is 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 2016 the policy was followed without exception and that
no changes to the scope of the policy were made. A report on the level of
non-audit work provided by KPMG is given to the Committee half-yearly
and the Committee is satisfied that the advice they received from KPMG has
been objective and independent. During 2016, £0.2 million was paid to KPMG
in respect of non-audit work compared to an audit fee of £0.5 million. This
non-audit work comprised primarily investor relations advice provided by
Makinson Cowell that was acquired by KPMG in 2013. In early 2016 KPMG
advised us that they could no longer provide investor relations advice due
to new rules on the provision of non-audit services by the auditor and the
agreement with Makinson Cowell was terminated with effect from 30
April 2016.
How was the Committee rated in the annual evaluation?
Our performance as a Committee was assessed through the internal Board
performance evaluation, information on which is provided in the Governance
Report. The Audit Committee is working effectively and supported by an
excellent internal finance team. A number of suggestions for areas to focus
on have been incorporated in our 2017 objectives. To ensure that we continue
to be an effective Committee, we set and measure our performance against
specific objectives every year. These objectives are set annually and the
details of our objectives for 2016 and the progress made is summarised on
the following page. I am pleased to confirm that we successfully achieved all
of these objectives. Progress on achievement against our 2017 objectives will
be reported in next year’s Annual Report.
Who else attends Committee meetings?
The Chairman, Group Chief Executive, Group Finance Director, Group Risk
Assurance Manager, Group Company Secretary and Deputy Company
Secretary attend meetings by invitation and other members of the senior
management team attend as required. I invite the audit partner from the
Company’s external auditor, KPMG, to attend meetings of the Committee on
a regular basis and during 2016 he attended three of the four scheduled
meetings, either in whole or for part of the meeting. At two of the meetings
the Executive Directors and senior management were not present for part of
the meeting so that members of the Committee could meet with the external
auditor in private. The Committee will continue with the practice of meeting
in private with the external auditor in the future.
How long has KPMG been the Group’s Auditor?
KPMG has been the Company’s auditor since 19 July 1995 and we comply
with the requirement to rotate the audit partner every five years. We reviewed
the external audit arrangements in 2015 and as a result Robert Brent stood
down at the conclusion of the 2016 AGM and Adrian Wilcox was appointed.
Adrian is expected to serve in this role for five years and will be in attendance
at the 2017 AGM should shareholders wish to meet him. I would like to place
on record my thanks to Robert Brent for his service as audit partner for the
five years up until the 2016 AGM.
When will you tender the external auditor?
In accordance with the new Governance Code, and acknowledging the
Competition and Markets Authority’s proposal that companies must put their
statutory audit engagement out to tender at least every ten years, we expect
to tender the audit process in 2020, to coincide with the rotation of the audit
partner, or earlier if KPMG’s performance falls short of the Audit Committee’s
expectations. In all events, we note that under published EU requirements on
auditor rotation, we will be required to replace KPMG as our external auditor
by 2023 at the latest.
What is the policy on non-audit services provided by the
external auditor?
We have a policy on the use of the external auditor for non-audit services that
has been in place for a number of years and which is reviewed annually. The
use of the external auditor is determined by their demonstrable competence,
knowledge of the Group, and competitive pricing, and monetary thresholds for
the approval of non-audit work by KPMG have been set by the Committee.
The policy ensures that the non-audit work provided by KPMG does not impair
their independence or objectivity and is divided into three parts:
• Work where use of the external auditor is deemed appropriate: This 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: This 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.
61
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
2016 Audit Committee Objectives Progress during 2016
2016 Audit Committee Objectives
Progress during 2016
Ensure successful induction of
Non-Executive Director
• Caroline Thomson held meetings with the Group Finance Director, KPMG Audit Partner, Group Risk
Assurance Manager, Deputy Company Secretary and other members of the internal finance team
• She attended all meetings of the Committee during 2016 covering the full remit of an annual cycle of
Ensure successful handover to
new Audit Partner
Committee matters
Adrian Wilcox has:
• Held regular meetings with the Group Finance Director and Audit Committee Chairman
• Met with the Group Risk Assurance Manager, Group Financial Controller, Deputy Company Secretary
and other members of the internal finance team in advance of his appointment and regularly thereafter
• Met with the Group Chairman to gain a deeper understanding of the Group
• Shadowed Robert Brent through the 2015 full year end process and attended closing meetings in the
UK, US and Italy
• Reviewed the Group’s key internal processes on internal audit, risk assurance, bribery and
whistleblowing matters, Code of Conduct and main policies
• Attended all meetings of the Committee during 2016 which KPMG was requested to attend
Receive updated governance
materials and discuss their impact
on the Group, and oversee the
Group’s whistleblowing
arrangements
• Received updates during the year on: FRC’s “Year-end advice to larger listed companies”; “Guidance on
Audit Committees” and the “UK Corporate Governance Code”; various publications from KPMG’s Audit
Committee Institute; and other publications from major accounting firms
• Reviewed and recommended to the Board the Viability Statement
• Completed the Group’s online governance training module
• Received a presentation from Adrian Wilcox on forthcoming technical and governance changes
• Received detail of whistleblowing reports made during the year
Ensure continued appropriateness
of the Group’s Risk Management
processes and that internal audit
actions are aligned with critical
business risks
• Reviewed the approach taken to internal audit and risk assurance and provided support to the
processes
• Critically reviewed and approved the Principal Risks to be disclosed in the 2015 Annual Report
• Reviewed regular Risk Assurance Reports from the Group Risk Assurance Manager
• Approved the 2016 Internal Audit Plan
• Received regular updates on the cyber security governance programme
Review the process underpinning
the Viability Statement
• Reviewed the supporting analysis and stress testing that was completed to support the drafting of the
Viability Statement
• Recommended the publication of the Viability Statement in the 2015 Annual Report
62
The Vitec Group plc Audit Committee activities during 2016
During 2016 the Audit Committee had four
scheduled meetings. At each scheduled
meeting the Committee considered the
following matters:
• Directors’ duties and any new conflicts
of interest
• Minutes of previous meetings and
matters arising
February
June
• Annual results for 31 December 2015,
• Reviewed cyber security governance
including:
programme
- Accounting issues report
- Full year report from the external auditor
including Auditor’s Report to be included in
the 2015 Annual Report
• Reviewed external audit strategy for the year
ended 31 December 2016
• Summaries of internal audit’s reviews of the
business
• Progress against agreed objectives
- Consolidated financial statements for the
• Reviewed bribery and whistleblowing
• Risk Assurance Report covering risk,
assurance, internal audit and internal
controls
• Any whistleblowing reports
The following specific business was dealt
with at each meeting held in 2016:
year ended 31 December 2015
- Principal risks and uncertainties
- Report on internal controls
- Separate report on the work of the Audit
Committee
- Performance, effectiveness and
independence of the external auditor
- Fees for non-audit services and
professional fees
- Process behind the drafting of the Viability
Statement
• Recommendations to the Board on:
- The consolidated financial statements
- The reappointment of and fees for KPMG
- The independence and objectivity of KPMG
- Management’s representation letter to
KPMG
- The Viability Statement
arrangements
• Training session from KPMG on technical
and governance issues
August
• Half year results for 30 June 2016, including
reviews of:
- Accounting issues report
- Report from the external auditor
- Results for the half year ended 30 June
2016
- Fees for non-audit services and
professional fees
- Principal risks and uncertainties
• Recommendations to the Board on:
- The half year results
- Management’s representation letter
• Reviewed results of enhanced controls self-
to KPMG
assessment process
• Reviewed 2016 internal audit plan
• Summaries of internal audit’s reviews of the
business
• Private meeting between the Committee
and external auditor without executive
management present
• Summaries of internal audit’s reviews of the
business
December
• Considered the outcome of 2016 objectives
and agreed 2017 objectives
• Agreed the process by which the
effectiveness of the external auditor would
be assessed for the 2016 Annual Report
• Update on the cyber security governance
programme
• Reviewed an operational control issue
Christopher Humphrey
Chairman, Audit Committee
20 February 2017
63
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Remuneration Report
Annual Statement by Caroline Thomson,
Chairman of the Remuneration Committee
2016 performance
Vitec achieved strong growth and record performances in revenue and
adjusted profit* during 2016. This included a favourable benefit from foreign
exchange and strategic progress in higher technology products, new growth
markets and APAC. The Group delivered underlying sales and adjusted profit*
growth excluding the anticipated lower performance of the non-core
Haigh-Farr business and despite lower activity in the US rental services
business. Management has successfully completed the restructuring of the
more traditional parts of the business during 2016 and invested in the higher
growth parts of the business to drive organic growth. The Group delivered
a strong cash performance through a continued focus on working capital
management and the Group is well positioned with a robust balance sheet.
Committee activities in 2016 and priorities for 2017
The Remuneration Committee in 2016 focused on the following matters:
• The Committee reviewed the Remuneration Policy approved by shareholders
at the 2014 AGM with a view to seeking a renewal of it at the 2017 AGM
in accordance with regulations. This entailed a review of its key features
including salary, benefits, annual bonus and long-term incentives (including
associated performance conditions). As part of this we consulted with
our major shareholders to ensure that the Policy meets their expectations
in terms of quantum and motivating executive management to deliver
sustainable growth for the Company. The proposed policy is very similar
to that adopted in 2014 except in two main areas:
- Firstly, under the Long Term Incentive Plan (“LTIP”) we are proposing a
re-balance in the performance conditions from a 50/50 split between
Total Shareholder Return (“TSR”) and Earnings per Share (“EPS”) to
a 33/67 split respectively. Vesting will be underpinned by Committee
discretion that will take into account, in particular, Return on Capital
Employed (“ROCE”) performance over the performance period for the
EPS element of awards.
- Secondly, under the Pension, we are proposing to reduce the Company
contribution for Executive Directors appointed from 2017 onwards from
20% of salary to 15% of salary.
• The Committee approved an increase in the Group Chief Executive’s salary
with effect from 1 January 2017 of 2.5%, reflecting pay increases within
the Group’s workforce and current market conditions. Fees paid to
Non-Executive Directors have also been increased by the same percentage.
The Chairman’s fee that was increased on 1 January 2016 to £150,000
remains unchanged.
• Bonus payments for 2016 were 77.9% and 77.4% respectively of the
maximum potential award for the Group Chief Executive and Group Finance
Director. The 2016 Annual Bonus Plan paid out against the profit and
operating cash# performance measures at 64.7% and 100% respectively
as well as an individual assessment against personal objectives for each
Executive Director. Stephen Bird will defer half of his earned 2016 bonus
into the Deferred Bonus Plan (“DBP”) for three years ensuring focus on
long-term growth.
Dear Shareholder
The Remuneration Report is split into three sections.
• Firstly, my annual statement summarising the work
of the Remuneration Committee in 2016 and priorities
for 2017.
• Secondly, the Remuneration Policy Report (the “Policy”)
that sets out the Company’s policy on Directors’
remuneration. It is now three years since the Company’s
shareholders approved this Policy at the 2014 AGM and
in accordance with regulations we will be submitting
a revised Policy to shareholders for approval at the
forthcoming AGM. We set out in full the Policy on pages
66 to 73 and key changes to the Policy are summarised
below and in detail in the Policy Report.
• Thirdly, the Annual Report on Remuneration sets out
the remuneration paid to Directors in 2016 as well as
details of how the Committee intends to implement
our remuneration policy for 2017. Shareholders will
have the opportunity for an advisory vote on the Annual
Report on Remuneration at the forthcoming AGM.
64
The Vitec Group plc Annual General Meeting
The Remuneration Policy Report and Annual Remuneration Report will be put
to the Company’s shareholders as two separate resolutions at the AGM to be
held on Wednesday, 17 May 2017. The Policy resolution will seek approval
from shareholders to set a remuneration framework that will govern Directors’
remuneration for the next three years and support delivery of the Company’s
growth strategy. The Annual Remuneration Report resolution is an advisory
vote on the Remuneration Report for 2016. I encourage shareholders to vote
in favour of both resolutions and I look forward to the opportunity to meet with
shareholders at the 2017 AGM.
Caroline Thomson
Chairman, Remuneration Committee
20 February 2017
• LTIP awards made in 2014 to Executive Directors did not achieve their
performance conditions based upon TSR and adjusted basic earnings per
share* growth and therefore will lapse on their third anniversary in April
2017. The Committee made LTIP awards to Executive Directors and senior
managers in March 2016 with performance conditions based on TSR and
EPS growth. Share awards made to Executive Directors under the LTIP
are subject to a further two year holding period following a three year
performance period.
• The 2016 AGM approved the Company’s 2015 Annual Report on
Remuneration with over 99% of shareholders voting in favour of
the Report which was in accordance with the Remuneration Policy
approved by shareholders in 2014.
• The Remuneration Committee approved the structure of the 2017 Annual
Bonus Plan to ensure that it motivates Executive Directors to deliver against
challenging targets for 2017. Its structure is the same combination of both
financial targets (Group adjusted profit before tax* and operating cash flow#
generation) and personal objectives as was used in 2016. The Committee
considers this split of performance measures will drive performance and
behaviour in the right way and is aligned with the strategic objectives for
the Company. We will disclose financial targets for the 2017 Annual Bonus
Plan against actual performance in the 2018 Remuneration report.
• Malus and clawback provisions apply to any payments or awards vesting
under the Annual Bonus Plan and long-term share incentives.
• In 2016, the Committee, ahead of its review of the Policy, appointed
Kepler as its remuneration advisor.
Priorities for the Committee in 2017 include securing shareholder approval of
the Policy and Executive Director remuneration in accordance with that Policy
going forward. Contingent upon the Policy being approved at the 2017 AGM,
we propose that the adjusted EPS* performance condition applying to the
2017 LTIP awards will be expressed in pence terms to be achieved in the year
ending 31 December 2019 with a threshold of 73.0 pence and a stretch of
90.8 pence (equivalent to 6% and 14% per annum cumulative growth
respectively over the three year performance period). Further details of the
proposed implementation of the Policy are included on page 68. In the early
part of 2017, the Committee has further determined the remuneration
arrangements for Martin Green upon his appointment as an Executive Director
of the Company on 4 January 2017. Details are set out on page 70. The
Committee has also determined the treatment of share awards held by Paul
Hayes upon his resignation as a Director of the Company, details of which are
set out on page 79.
* Before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill, as described on page 03.
# Cash generated from operating activities after net capital expenditure, before restructuring costs paid.
65
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Remuneration Policy Report
2017 Policy Report
The 2017 Policy Report will cover Directors’ remuneration for a period of
three years commencing from the Company’s AGM to be held on Wednesday,
17 May 2017 and until the AGM to be held in 2020. The key terms for the
2017 Policy are set out in the tables below and shareholders will be asked
to approve the 2017 Policy at the 2017 AGM. The current Policy approved
by shareholders at the 2014 AGM and covering Directors’ remuneration
up until the May 2017 AGM is available on our website or in the
2013 Annual Report.
Should there be a need to change the Company’s 2017 Policy ahead of
the 2020 AGM, shareholders will be asked to approve a revised policy.
This Report contains further information required under the Listing Rules
and the latest version of the UK Corporate Governance Code as published
in April 2016.
Performance
measures
Not applicable.
2017 Remuneration policy table for Executive Directors
Purpose and link
to strategy
Operation
Maximum
opportunity
Base
salary
Base salary is set at
a level to secure the
services of talented
Executive Directors
with the ability to
develop and deliver
a growth strategy.
Fixed contractual cash amount
usually paid monthly in arrears.
Normally reviewed annually, with
any increases taking effect from
1 January each year, although the
Committee may award increases
at other times of the year if it
considers it appropriate.
This review is dependent
on continued satisfactory
performance in the role of an
Executive Director.
It also includes a number of other
factors, including experience,
development and delivery of
Group strategy and Group
profitability, as well as external
market conditions and pay
awards across the Company.
While the Committee has not set a maximum
level of salary, the Committee will usually
award salary increases in line with average
increases awarded across the Company.
Larger increases may, in certain
circumstances, be awarded where the
Committee considers that there is a genuine
commercial reason to do so, for example:
• where there is a significant increase in the
Executive Director’s role and duties;
• where an Executive Director’s salary falls
significantly below market positioning;
• where there is significant change in the
profitability of the Company or material
change in market conditions; and
• where an Executive Director was recruited
on a lower than market salary and is being
transitioned to a more market standard
package as he or she gains experience.
Benefits
To provide Executive
Directors with
ancillary benefits
to assist them in
carrying out their
duties effectively.
Not applicable.
Executive Directors are entitled
to a range of benefits including
car allowance, private health
insurance and life assurance.
Other ancillary benefits may also
be provided where relevant,
such as expatriate travel or
accommodation allowances.
Executive Directors are entitled
to participate on the same
terms as all UK employees in
the Sharesave Plan or any other
relevant all-employee share plan.
There is no maximum level of benefits
set, given that the cost of certain benefits
will depend on the individual’s particular
circumstances. However, benefits are set at
an amount which the Committee considers
to be appropriate, based on individual
circumstances and local market practice.
Executive Directors’ participation in the UK
all-employee Sharesave Plan is capped by the
rules of the relevant all-employee share plan
(currently £350 per month maximum).
66
The Vitec Group plc 2017 Remuneration policy for Executive Directors
Remuneration packages are developed to attract, retain and motivate Executive
Directors without being excessive, and to be aligned with the long-term interests
of shareholders and the Company’s strategy. Remuneration takes into account
the responsibilities and risks involved and the remuneration packages of
comparable companies that have similar scale international operations. When
setting the remuneration of Executive Directors, the Remuneration Committee
has regard to remuneration and benefits paid across the Company’s employee
population. The Remuneration Committee also takes into account the views of
shareholders on Executive Director remuneration.
Remuneration for Executive Directors consists of several elements including
base salary, annual cash bonus, LTIP, pension contribution and other taxable
benefits. The 2017 Remuneration Policy table summarises each element of
remuneration for the Executive Directors including an explanation of its
purpose and link to strategy, its operation, maximum opportunity and
performance measures.
Purpose and link to
strategy
Operation
Maximum
opportunity
Performance
measures
Annual
bonus
To provide a material
incentive to drive
Executive
Directors to deliver
stretching strategic
and financial
performance and
to grow long-
term sustainable
shareholder value.
Half of the annual
bonus is deferred
into the Deferred
Bonus Plan and
focuses the
Executive Director
on long-term value
delivery and growth.
Paid annually based on performance in
the relevant financial year. The amount is
determined based on published full year
results after the financial year end.
An absolute
maximum of 125%
of base salary to be
paid in each year.
Award levels and performance measures are
reviewed annually. The Committee ensures
that performance measures remain aligned
to the Company’s business objectives and
strategic priorities for the year.
Half of the annual bonus paid is deferred
into awards under the Deferred Bonus Plan
for a period of three years on a mandatory
basis unless the Committee determines an
alternative deferral period is appropriate.
Awards may be granted in the form of
conditional awards, nil-cost options, forfeitable
shares or similar rights. After a period of three
years, the awards are paid out to Directors in
the form of shares in the Company.
The Committee retains full discretion to amend
the bonus payout (upwards or downwards), if
in its opinion any calculation of payout does not
produce a fair result for either the individual or
the Company, taking into account the overall
business performance of the Company. Any
such use of discretion will be clearly reported in
the next published remuneration report.
Participants may also receive the value of
any dividends which would have been paid
on shares in respect of which the award
vests, which may be calculated assuming
reinvestment of the dividends in the
Company’s shares on a cumulative basis.
In the event of any material misstatement of
the Company’s financial results or serious
reputational damage to the Company caused
by a breach of the Company’s Code of
Conduct or otherwise, the Committee may
reduce, cancel or impose further conditions
on awards.
Measures and targets for the
annual bonus are set annually
by the Committee.
Currently, half of the annual
bonus is based on the
achievement of annual targets
set against the Group’s
adjusted profit before tax*,
with the remainder based on
the achievement of annual
personal objectives and
achievement of annual targets
set against the Group’s
operating cash flow# generated
as a percentage of adjusted
operating profit*.
The Committee reserves the
right to vary these proportions
and also the measures annually
to ensure the annual bonus
remains appropriate and
challenging.
Targets are measured over
a one year period. Payments
range between 0% and 125%
of base salary for threshold and
maximum performance.
Awards granted under the
Deferred Bonus Plan are not
subject to any performance
conditions.
67
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Remuneration Policy Report
2017 Remuneration policy table for Executive Directors (continued)
Purpose and
link to strategy
Operation
Maximum
opportunity
Performance
measures
Long Term
Incentive
Plan
(“LTIP”)
To provide a long-
term performance
and retention
incentive for the
Executive Directors
involving the
Company’s shares.
To link long-term
rewards to the
creation of long-
term sustainable
shareholder value
by way of delivering
on the Group’s
agreed strategic
objectives.
Pension
contribution
To provide
a benefit
comparable with
market rates,
helping with
the recruitment
and retention of
talented Executive
Directors able to
deliver a long-term
growth strategy.
Under the LTIP, awards are made over a
fixed number of shares, which will vest
based on the achievement of performance
conditions over a performance period of,
unless the Committee determines otherwise,
at least three years. The performance
conditions are set by the Committee at the
start of the performance period. Awards
can take the form of a conditional award of
shares, a nil-cost option or similar rights.
Awards may be settled in cash.
Participants may also receive the value of
any dividends which would have been paid
on shares in respect of which the award
vests, which may be calculated assuming
reinvestment of the dividends in the
Company’s shares on a cumulative basis.
Awards made since 2015 are subject to a
mandatory two year holding period for any
shares that vest.
In the event of any material misstatement of
the Company’s financial results or serious
reputational damage to the Company caused
by a breach of the Company’s Code of
Conduct or otherwise the Committee may
reduce or impose further conditions on
awards.
Usually paid monthly in arrears.
Executive Directors may receive a
contribution into the Company’s Defined
Contribution Plan, a personal pension
arrangement and/or a payment as a
cash allowance.
The maximum value of shares
over which awards may be
granted in respect of each
year is 150% of base salary
(although 200% is permitted
in exceptional circumstances
determined by the Committee).
Awards to Executive Directors
in 2017 will be at a level
representing 125% of
base salary.
Executive Directors appointed
before 2017 receive a
pension contribution of 20%
of base salary. Executive
Directors appointed from
2017 onwards receive a
pension contribution of 15%
of base salary.
Salary is the only pensionable
element of Executive Director
remuneration.
LTIP awards may be based on both financial
and share price based performance conditions
as determined from time to time by the
Committee. It is the intention for awards from
2017 onwards to be granted to have 33%
of the award subject to the Company’s TSR
compared to a comparator group measured
over a three year performance period and
67% of the award subject to targets set
against growth (adjusted by the Committee
as it considers appropriate) in the Company’s
adjusted basic earnings per share* over the
same performance period. However the
Committee reserves the right to change
the balance of the measures as it deems
appropriate, such that no measure accounts
for less than 25% of the total award. For LTIP
awards from 2017 onwards the Remuneration
Committee will adopt a discretionary underpin
on vesting of the LTIP, whereby the Committee
will assess the Group’s underlying performance
in finalising vesting outcomes. In particular
the Committee will assess the Group’s ROCE
performance when approving outcomes under
the EPS element of awards.
At threshold, 25% of the award will vest,
increasing on a straight-line basis up to 100%
for performance in line with maximum.
Not applicable.
Notes to the remuneration policy table for Executive Directors
Under the Company’s share plans the Committee may: (1) in the event of any variation of
the Company’s share capital, demerger, delisting, special dividend or other event which may
affect the price of shares, adjust or amend awards in accordance with the terms of the plan;
and (2) amend a performance condition if an event occurs which causes it to consider an
amended condition would be more appropriate and not materially less difficult to satisfy.
Legacy plans
The Committee reserves the right to make any remuneration payments and payments for
loss of office notwithstanding that they are not in line with the Policy set out above where
the terms of the payment were agreed: (1) before the policy came into effect; or (2) at a time
when the relevant individual was not a Director of the Company and, in the opinion of the
Committee, the payment was not in consideration for the individual becoming a Director
of the Company. For these purposes payments include the Committee satisfying awards
of variable remuneration and, in relation to an award over shares, the terms of the payment
are agreed at the time the award is granted.
Performance measures
The annual bonus plan is based on both personal and financial measures. Typically, the
majority of the bonus will be based on financial measures such as Group adjusted profit
before tax*. The measures have been chosen to provide a balance between incentivising
the delivery of the Group’s key financial priorities in any particular year and important
individual strategic objectives. The Committee may vary the specific measures and targets
year-on-year to ensure that they reflect the key financial and strategic priorities for the
Company in any given year.
LTIP awards from 2017 onwards will be based 67% on adjusted basic earnings per share*
growth and 33% on TSR performance against a specific comparator group. The Committee
considers these to be important measures of performance for the Company over the longer
term. While TSR links a portion of the LTIP to the creation of value for shareholders, adjusted
basic earnings per share* growth is a key performance indicator for the Group with the
combination providing an appropriate balance between growth and returns. For LTIP awards
from 2017 onwards, the Committee has adopted a discretionary underpin on vesting of the
LTIP, whereby the Committee will assess the Group’s underlying performance in finalising
vesting outcomes. In particular the Committee will assess the Group’s ROCE performance
when approving outcomes under the EPS element of awards. While we will not be disclosing
a formulaic target in advance, the Committee will ensure that it provides full retrospective
disclosure around our decision-making process, including a summary of the ROCE trajectory
over the performance period. The Committee will measure ROCE using a standard definition
of adjusted operating profit* divided by average total assets less current liabilities excluding
the current portion of interest-bearing borrowings, calculated on an average monthly basis
at constant currency. Any changes to these measures will be aligned with the long-term
strategy of the Group.
Provisions for the withholding and recovery of sums from the Directors are as set out in the
table above and on page 84.
68
The Vitec Group plc Remuneration policy table for the Chairman and Non-Executive Directors
The table below sets out a description of the Chairman and Non-Executive Directors’ remuneration for the period through to the 2020 AGM.
Neither the Chairman nor the Non-Executive Directors participate in any annual bonus plan or the Company’s share plans:
Role
Purpose
Operation
Chairman
To recruit and retain an independent Non-Executive
Chairman reflecting the responsibilities and time
commitment for the role. To lead an effective Board
enabling the delivery on the Group’s growth strategy
and creation of long-term sustainable shareholder value.
While the Board has not set a maximum level of fee payable to the Chairman, the Board
will review the level of fee paid usually on an annual basis and determine whether that is
sufficient in terms of market conditions and also the time commitment for the role.
The Chairman’s fee is an all inclusive consolidated amount. It is paid in cash usually on a
monthly basis in arrears and not in shares.
Fees are benchmarked against FTSE-listed companies of a similar size and complexity to
Vitec. Any future increases will take into account the need to ensure that the fee remains
competitive and reflects the time commitment
for the role.
The Chairman’s remuneration also covers his chairmanship of the Nominations Committee.
Non-
Executive
Director
To recruit and retain independent Non-Executive
Directors reflecting the responsibilities and time
commitment for the role to contribute to an effective
Board and to deliver on the Group’s growth strategy
and creation of long-term sustainable shareholder value.
Fees paid to Non-Executive Directors of the Company consist of the following:
• A base fee;
• An additional fee for the role of the Senior Independent Director; and
• An additional fee for chairing Board Committees.
Fees are usually reviewed annually and are benchmarked against FTSE-listed companies
of a similar size and complexity to Vitec. Fees are typically increased in line with annual
salary increases for the Executive Directors. All fees are usually paid in cash and not in
shares and are paid monthly in arrears.
Any future increases will take into account the need to ensure that the fee remains
competitive and reflects the time commitment for the role. The Board has not imposed a
maximum level of fee payable.
Benefits
To reimburse Non-Executive Directors for reasonable
expenses incurred and bear any costs associated with
tax, where relevant.
Expenses are reimbursed as and when incurred (including travel and hotel
accommodation).
69
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Remuneration Policy Report
Illustrative remuneration performance scenarios
The following charts set out three scenarios for the current remuneration of Stephen Bird and Martin Green in the year following the 2017 AGM
(the first year that the 2017 Policy will apply):
Stephen Bird
Basic Remuneration
Base salary
£440,740
Benefits
£27,861
Pension (20% of salary)
£88,148
Total fixed pay (minimum)
£556,749
On target performance:
Fixed pay
£556,749
Annual Bonus
£275,463
LTIP
£137,731
Total On Target Pay
Maximum pay:
Fixed pay
Annual Bonus
LTIP
£969,943
£556,749
£550,925
£550,925
Martin Green
Basic Remuneration
Base salary
£260,000
Benefits
£21,846
Pension (15% of salary)
£39,000
Total fixed pay (minimum)
£320,846
On target performance:
Fixed pay
£320,846
Annual Bonus
£162,500
LTIP
£81,250
Total On Target Pay
£564,596
Maximum pay:
Fixed pay
£320,846
Annual Bonus
LTIP
£325,000
£325,000
Total Maximum Pay
Total Maximum Pay
£1,658,599
£970,846
70
The Vitec Group plc The illustrations opposite are based on the
following assumptions:
• Since Paul Hayes will cease to be a director and employee of the
Company ahead of the 2017 AGM, his details have been excluded.
• The Company is currently recruiting a replacement for Paul Hayes as
Group Finance Director. Details of his/her remuneration package will be
communicated to shareholders at the time of appointment.
• Fixed pay – Base salary as at 1 January 2017.
• The total value of benefits received in the year ended 31 December 2016
which include car allowance, private healthcare and income protection.
• Pension contribution of 20% for Stephen Bird and 15% for Martin Green.
• Annual Bonus
- At Minimum – nil
- On Target – 50% of maximum payout (i.e. 62.5% of base salary)
- At Maximum – 100% of the maximum payout (i.e. 125% of base salary)
• LTIP
- At Minimum – nil
- On Target – 25% vesting under the LTIP (i.e. 25% of base salary) and set
out at face value, with no share price growth or dividend assumptions
- At Maximum – 100% of the maximum payout (i.e. 125% of of base salary)
and set out at face value, with no share price growth or dividend assumptions
Consideration of employment conditions elsewhere
in the Company
The 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 of:
• Salary increases for the general employee population
• Company-wide benefits including pensions, share incentives, bonus
arrangements and other ancillary benefits
• Overall spend on annual bonus
• Participation levels and outcomes in the annual bonus plan and the LTIP
When setting the remuneration of the Executive Directors, the Committee has
regard to general employment terms and conditions within the Company as
set out above. However, it is recognised that the roles and responsibilities of
Executive Directors are such that different levels of remuneration apply, with
a greater proportion of remuneration tied to the financial performance of the
Company. The Committee did not consult with the Company’s employees
when drawing up the Directors’ Remuneration Policy set out in this report.
Policy on outside appointments
The Committee believes 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 is an independent
Non-Executive Director of Dialight plc. In this role he receives a basic fee of
£40,800 per annum and an additional £5,000 per annum in the role of Senior
Independent Director. Under the terms of their service contracts, Paul Hayes and
Martin Green, with the agreement of the Chairman and Group Chief Executive,
may take up one external non-executive appointment of a listed company.
As of the date of this report neither Executive Director had taken up any
such external non-executive appointment.
Remuneration policy for senior managers and other
employees of the Company
The remuneration policy of senior managers in the Company is similar to that
of the Executive Directors other than that the quantums are lower. They will
participate in the annual bonus plan with the same structure as the Executive
Directors, as well as the LTIP, and therefore a significant element of their
remuneration is dependent upon the financial performance of the Company
and the Company’s share price in addition to 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 in
those local markets and to help achieve delivery of the Group’s agreed strategy.
A large proportion of employees are able to participate in bonus plans that are
tied to the Company, Divisional or Business Unit financial performance as well
as individual performance against personal objectives. The structure of bonus
plans varies across the employee workforce to achieve different objectives.
Full time employees in some countries (UK, US, Italy, Costa Rica, Japan, France
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 50 senior managers also participate in the LTIP 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.
Approach to recruitment remuneration
The Committee’s policy is to seek to recruit Directors with the requisite skill and
experience to lead the business and grow the value of the Company over the
long term. Generally, pay on recruitment will be consistent with the policy for
Executive Directors as set out in the policy table.
However, the Committee may, in its absolute discretion, include remuneration
components or awards which are not specified in the policy table, subject to the
maximum level of variable pay set out in the following paragraph, where this
facilitates the hiring of candidates of an appropriate calibre and skill-set to deliver on
the Group’s strategy. The Committee will ensure this is only done where there is a
genuine commercial need, and where this is in the best interests of the Company
and its shareholders. The Committee does not intend to use this discretion to make
a non-performance related payment (for example a “golden hello” payment).
The absolute maximum level of variable pay will be 325% of base salary
(excluding any buy-out awards) which is in line with the Remuneration Policy
set out above. This comprises up to 125% of base salary under the annual
bonus and up to 200% of base salary under the Company’s LTIP.
In certain circumstances, the Committee may need to make payments or
awards to an executive in respect of buying-out remuneration arrangements
relinquished on leaving a previous employer. When doing so, the Committee
will aim to do so broadly on a like-for-like basis with a fair value no higher than
the awards foregone. It will take a number of relevant factors into account which
may include any performance conditions attached to these awards and the time
at which they would have normally vested. These payments or awards are
excluded from the maximum level of variable remuneration referred to above.
In the event of any such treatment, the Committee will explain in the next annual
remuneration report the rationale for the relevant arrangements.
71
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Remuneration Policy Report
Executive Directors’ service contracts
The Executive Directors’ service contracts are as follows:
Stephen Bird, Group Chief Executive –
appointed on 14 April 2009
Paul Hayes, Group Finance Director –
appointed on 13 June 2011
Martin Green, Group Business
Development Director –
appointed on 4 January 2017
Date of Contract
Notice period from the
Company to the Executive
Notice period from the
Executive to the Company
28 January 2009
12 months
6 months
3 June 2011
12 months
6 months
3 January 2017
12 months
6 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 set out below.
Policy on payment for loss of office
Executive Directors’ notice periods under service contracts are summarised
in the table above. The Committee believes that the Company’s policy on
payment for loss of office and the structure of notice periods is sufficient to
ensure that the executive has security of tenure and also that the Company
has sufficient retention and notice periods to enable an orderly process for
succession planning. In the opinion of the Committee, any shorter notice
period would not be in the Company’s best interests. In accordance with best
practice, the Committee will not give any Executive Director a service contract
of greater than 12 months’ notice.
In the event of termination of office, the Committee will consider the
circumstances including notice period contained within the service contract,
the circumstances around the termination and what is considered to be in
the best interests of the Company. The terms of service contracts do not
provide for pre-determined amounts of compensation in the event of early
termination of employment. The Committee maintains full discretion to treat
each such termination upon its merits trying to mitigate the cost of termination
but ultimately honouring contracted terms. Dealing with each specific element
of remuneration for an Executive Director this would mean the following:
Base salary, pension and other benefits – These will be paid for the
notice period, subject to being mitigated if the Executive Director finds other
suitable employment. This means that each element will continue to be paid
on a monthly basis in arrears during the notice period either to the end of the
notice period or if earlier to the point at which the Executive Director finds
other suitable employment.
Annual bonus plan – The Committee will generally pro rate an annual bonus
to the date of termination and the payment of the annual bonus will usually be
dependent upon the satisfaction of financial performance conditions and an
assessment of the achievement of personal objectives up to the point of leaving.
The Committee reserves an absolute discretion in circumstances which it
considers appropriate to enable a full year’s annual bonus to be paid in full
to an Executive Director in accordance with the limits and rules of the annual
bonus plan applying to the Executive Director.
Long Term Incentive Plan – Awards granted under the Company’s LTIP
are generally treated as follows: if a participant ceases office or employment
with the Group his award will lapse unless he is deemed to be a good leaver
or dies in service. An individual is a good leaver if he ceases employment
because of ill-health, injury, disability, the sale of his employing company
or business out of the Group or for any other reason at the Committee’s
discretion (except where the participant is summarily dismissed). Except in
the case of death (where awards vest following death, unless the Committee
determines otherwise), awards will normally vest on the normal vesting date,
unless the Committee determines that awards should vest at the time the
individual ceases employment. The Committee when determining the level
of an award to vest will take into account satisfaction of the relevant
performance conditions and the period of time that has elapsed since
the award was granted until the date of cessation of employment.
Deferred Bonus Plan – Awards under the DBP will vest on the normal
vesting date (unless the Committee determines that awards should vest
on the individual’s cessation of employment) except in the case of: (1) death,
when awards will vest following an individual’s death; or (2) gross misconduct,
when awards will lapse.
When negotiating the exit package of an Executive Director, the Committee
will ultimately aim to mitigate the cost of any termination payment while also
fairly treating an Executive Director, honouring the terms of a service contract
and acting in the Company’s best long-term interests. The Committee will,
upon reaching an agreement with an Executive Director on the terms of
termination, publish details both with an announcement and with details
published in the subsequent Remuneration Report and this will include an
explanation of any use of discretion.
72
The Vitec Group plc During 2016, the Committee consulted with the Company’s major
shareholders on the structure of the Remuneration Policy with a view to
the Policy being submitted to shareholders for approval at the 2017 AGM.
This entailed a consultation letter setting out the structure and several
face-to-face meetings with major shareholders to review the detail. This
consultation was on the basis that the current policy was fit for purpose and
achieving the objectives of incentivising management in the delivery of the
Company’s growth strategy. As part of the new policy to be submitted to the
2017 AGM for approval, the Committee has proposed that the current policy
be amended so that:
• LTIP performance measures for 2017 onwards be rebalanced from 50%
each on EPS and TSR to 67% / 33% weightings respectively;
• Adoption of a discretionary underpin on vesting of the LTIP, whereby the
Committee will assess the Group’s underlying performance in finalising
vesting outcomes. In particular, the Committee will assess Group ROCE
performance when approving outcomes under the EPS element of
awards; and
• Under the Pension, a reduction in the employer contribution for Executive
Directors appointed from 2017 onwards from 20% of salary to 15%
of salary.
Change of Control
In the event of a change of control of the Company, LTIP and DBP awards will
vest with the Committee taking into account, in the case of the LTIP awards,
the extent to which the relevant performance conditions have been satisfied
and, unless the Committee determines otherwise, the period of time that has
elapsed since grant. In the event of a winding-up of the Company, demerger,
delisting, special dividend or other event that may affect the share price,
the Committee may also allow awards to vest on the same basis.
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. Under the letters of appointment notice can be given by either
party upon one month’s written notice. Apart from the disclosure under the
Remuneration Policy table for the Chairman and Non-Executive Directors
there are no further obligations which could give rise to a remuneration or
loss of office payment under the letters of appointment. All the Non-Executive
Directors and Chairman (as well as the Executive Directors) are subject to
annual reappointment by the shareholders at the AGM.
Copies of the Executive Directors’ service contracts, Chairman’s and each
Non-Executive Director’s letters of appointment are available on our website.
Consideration of shareholder views
The Committee has continued to take into account the views of its
shareholders concerning the policy on remuneration of Directors.
The Company received over 96% support for the 2013 Remuneration Policy
Report at the 2014 AGM and over 99% support for the 2015 Annual Report
on Remuneration at the 2016 AGM indicating a strong level of support for the
structure of Directors’ remuneration.
73
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
This Annual Report on Remuneration will be put to an advisory vote at the AGM to be held on Wednesday, 17 May 2017.
Directors’ single figure of total remuneration (audited)
The following table sets out the single figure of total remuneration for Directors for the financial years ended 31 December 2016 and 2015:
Base salary / fees
Benefits
Pension
Annual bonus
Long-term incentives
Total
2016
£
2015
£
2016
£
2015
£
2016
£
2015
£
2016
£
2015
£
2016
£
2015
£
2016
£
2015
£
Executive Directors
Stephen Bird
Paul Hayes
Non-Executive Directors
429,990 419,503
27,861
28,095
85,998
83,900 418,450 104,876
295,601 288,391
22,739
23,099
59,120
57,678 285,820
72,098
John McDonough
150,000 143,500
Christopher Humphrey
53,075
48,374
43,075
42,025
49,075
45,835
52,075
8,504
-
42,521
-
21,184
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,072,891 1,059,837
50,600
51,194 145,118 141,578 704,270 176,974
Lorraine Rienecker
Mark Rollins
Caroline Thomson
(appointed 1/11/15)
Carolyn Fairbairn
(left on 31/10/15)
Nigel Moore
(left on 12/05/15)
Total
Notes:
-
-
-
-
-
-
-
-
-
-
- 962,299 636,374
-
663,280
441,266
-
-
-
-
-
-
-
150,000
143,500
53,075
48,374
43,075
42,025
49,075
45,835
52,075
8,504
-
-
42,521
21,184
- 1,972,879 1,429,583
1. Taxable benefits includes car allowance, healthcare cover and income protection.
2. Each Executive Director receives a pension contribution of 20% of base salary into a
pension arrangement of their choice (including the Company’s defined contribution
scheme) or a cash allowance of 20% of base salary. Both Executive Directors
currently take this contribution in the form of a cash payment.
3. For the Annual Bonus 2016, both Stephen Bird and Paul Hayes’ bonus potential
was 125% of base salary. Further details are set out in the “Further notes” section
on the following page.
4. Long-term incentives comprise LTIP and matching awards under the DBP awards.
Awards made in 2014 and 2013 did not achieve performance conditions based on
TSR and growth in adjusted basic earnings per share* and therefore lapsed on the
third anniversary of their awards respectively.
5. Each Director has confirmed in writing to the Company that the information in the
single figure remuneration table is correct and that they have not received from the
Company any other items of remuneration other than disclosed.
74
The Vitec Group plc
Further notes to the Directors’ single figure of total
remuneration table
(1) Base salary
The table below shows base salaries for 2016:
Executive Director
2016 Salary
Stephen Bird
Paul Hayes
£429,990
£295,601
(2) Benefits
The single figure of total remuneration table sets out the total value of benefits
received by each Executive Director in 2016. Details are as follows:
Executive Director
Stephen Bird
Paul Hayes
Car
allowance
£21,494
£16,372
Healthcare
cover
Income
protection
£1,567
£1,567
£4,800
£4,800
The personal objective element of the 2016 annual bonus plan for each
Executive Director, representing 25% of the maximum bonus that could be
earned, is based upon individual performance measured against stretching
personal objectives set by the Board and Remuneration Committee, as set
out below:
Stephen Bird - 2016 Personal Objectives
• Continue to build a world class organisation – Evolve a structure that
supports growth strategy; Ensure Operations Executive commitment
to delivery of growth strategy; Improve the quality of succession planning;
Ensure visibility to Board of diverse senior talent; Ensure that Personal
Development Plan process is embedded in the Company; Ensure
that Group HR organisation is fit for purpose.
• Execution of growth strategy – Develop growth strategy and use of simple
KPIs to measure implementation; Right size Production Equipment and
Photographic businesses and deliver savings; Grow the Creative Solutions
business and identify opportunities in Enterprise Video; Communicate
strategy to senior management and lead strategy review with the Board.
(3) Pension allowance
The table below sets out the value of the cash payment in lieu of pension for
each Executive Director in 2016:
• Lead M&A process – Identify potential M&A targets; Manage existing
business portfolio to ensure focused on growth strategy.
• 2017 Budget – Preparation and approval of a budget for 2017 reflecting
Executive Director
Pension allowance
Stephen Bird
Paul Hayes
£85,998
£59,120
(4) Annual bonus
In 2016, each Executive Director was entitled to receive, subject to
performance, a maximum bonus of up to 125% of base salary, half of
which is deferred into the Deferred Bonus Plan.
The financial elements of the annual bonus plan for each Executive Director
were based upon actual financial results achieved for Group adjusted profit
before tax* and Group conversion of adjusted operating profit* into operating
cash flow# (over a quarterly and full year average target) measured against
financial targets set by the Board. The Group adjusted profit before tax*
financial element represents 50% of the maximum bonus that could be
earned and the Group conversion of adjusted operating profit* into operating
cash flow# represents 25% of the maximum bonus that could be earned.
Under the rules of the annual bonus plan there is a link between the two
financial performance conditions so that the conversion of adjusted operating
profit* into operating cash flow# element will only pay out if the Group adjusted
profit before tax* element has at least achieved threshold performance.
The Remuneration Committee considered that these two financial
performance conditions are key financial measures for the Group driving
the right behaviour in terms of achieving profit* and operating cash flow#
generation and had the most direct impact upon shareholder value for
the year ended 31 December 2016.
underlying growth.
Paul Hayes - 2016 Personal Objectives
• Support the Group Chief Executive in delivering Group’s strategy – Review
and development of growth strategy including clear communication to
City; Attract new investors; Restructure businesses in line with growth
strategy; Develop cross Divisional collaboration and back office synergies.
• Work with Production Services management to clarify and implement strategy
and deliver performance.
• M&A – Support Group Chief Executive in M&A process including robust
financial due diligence and risk mitigation.
• 2017 Budget – preparation and approval of a budget for 2017 reflecting
underlying growth.
• Refinance the Group’s Revolving Credit Facility.
• World Class Finance function – strengthen the Finance function across
the Group and ensure that the function is an effective business partner
to the business.
75
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
2016 Annual Bonus Outcome
The table below sets out the annual bonus awards made to Executive Directors in respect of the year ended 31 December 2016 including the financial trigger
points used in determining whether a bonus was payable.
Name
Bonus
potential
Elements of
bonus potential
Threshold
Target
Maximum
Actual Group Performance/
Assessment of personal
objective performance
Pay-out and %
of maximum
Stephen Bird
125% of
annual salary
50% Group
adjusted PBT*
£31.5m
£33.5m
£36.9m
£34.5m**
£173,893 (64.7%)
76%
85%
94%
155%
£134,372 (100%)
25% Group conversion
of adjusted operating
profit* into operating
cash flow#
25% Personal objectives
82%
TOTAL
£110,185
£418,450 (77.9%)
£119,545 (64.7%)
Paul Hayes
125% of
annual salary
50% Group
adjusted PBT*
£31.5m
£33.5m
£36.9m
£34.5m**
25% Group conversion
of adjusted operating
profit* into operating
cash flow#
25% Personal objectives
76%
85%
94%
155%
£92,375 (100%)
80%
TOTAL
£73,900
£285,820 (77.4%)
** The £34.5 million Group adjusted profit before tax* represents an average of:
- £37.5 million being the reported Group adjusted profit before tax*; and
- £31.5 million being the Group adjusted profit before tax* adjusted for constant foreign exchange rates with those of 2015.
A straight line sliding scale operates between each of the above trigger points
for both financial targets. The Remuneration Committee considered that
these trigger points were appropriate and sufficiently stretching for 2016
given the uncertain macroeconomic environment, challenging markets that
the Group faced and performance in the prior year.
For the conversion of adjusted operating profit* into operating cash flow
element of annual bonus, trigger points and performance are measured over
a quarterly and full year average. The table above shows the full year
performance and equivalent trigger points only.
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, and that
discretion may only be used 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.
Half of the 2016 annual bonus will be deferred into the Deferred Bonus Plan.
The 2016 deferred bonus will be used to purchase core award shares to be held
in trust for a three year period. No matching award shares can be earned under
the Deferred Bonus Plan. After three years, the core award shares are released
from the Trust to the Executive Directors. Since Paul Hayes will cease to be a
Director of the Company by the end of April 2017, the Committee has
determined that he will not be required to defer any of his 2016 annual bonus.
76
The Vitec Group plc
Performance out-turn
The table below summarises the value of awards vesting for the 2014 award.
2014 Awards
Actual performance
Vesting as a % of award
TSR
EPS
Below median
Less than 6% per annum
Total vesting
0%
0%
0%
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 Kepler on behalf
of the Committee and is ranked against the comparator group companies’
TSR performance to determine the outcome.
Vitec was ranked in the 42nd percentile in the 2014 comparator group with
a relative TSR performance of 5.3%.
EPS is determined in accordance with note 2.5 of the Financial statements
on page 106.
Awards made in 2013 and vesting in respect of performance to
31 December 2015
These relate to awards made in 2013 under the LTIP and DBP. The
performance conditions for these awards are the same as those made
in 2014. The EPS growth targets were 6% growth per annum (Compound
Average Annual Growth Rate) for 25% of that element of an award to vest
and 12% or more growth per annum for full vesting respectively. The
Remuneration Committee also considered the underlying financial
performance of the Company before it confirmed vesting.
As disclosed in last year’s report, both performance conditions were measured
to 31 December 2015 and the final outcome resulted in 0% of the TSR and
EPS elements vesting. As a consequence the 2013 LTIP awards lapsed on 21
March 2016 and the DBP matching award shares lapsed on 8 April 2016.
(5) Long-term incentives – Long Term Incentive Plan
(“LTIP”) and Deferred Bonus Plan (“DBP”)
The long-term incentive awards value shown in the single figure of total
remuneration table relate to the following awards:
Awards made in 2014 and vesting in respect of performance to
31 December 2016
These relate to awards made in 2014 under the LTIP and matching awards
under the DBP. Awards are measured based 50% upon the Company’s TSR
measured against a comparator group and 50% subject to growth in the
Company’s adjusted basic earnings per share*. Each performance condition
is entirely independent from the other performance condition and there is no
retesting of either performance condition. The detail of each performance
condition for each award is set out below.
For that part of an award made in 2014 under the LTIP 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, 25% 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 25% of the comparator group. There is a
pro-rata straight line vesting between these two points. The comparator group
comprises the constituents of the FTSE 250 index (excluding financial services
companies and investment trusts) over a three year performance period.
The Remuneration Committee considered that this index has a greater level
of complexity and internationality and was most comparable to Vitec’s
business operations where approximately 90% of revenues are generated
outside of the UK.
For that part of an award made in 2014 under the LTIP measured against EPS
growth, if the percentage growth in the EPS of the Company exceeds 6% per
annum (Compound Average Annual Growth Rate), 25% 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 by 12% (Compound Average Annual
Growth Rate) or greater. There is a pro-rata straight line vesting between these
two points.
The same performance conditions applied to matching awards made in 2014
under the DBP as for the LTIP except that at median performance for TSR or
6% EPS growth one matching share vests for every three core award shares
and at the upper quartile point for TSR and 12% EPS growth one matching
share vests for every one core award share.
An award lapses if the lower point under both performance conditions is not
achieved during the performance period.
The Remuneration Committee also considered the underlying financial
performance of the Company before it confirmed vesting.
77
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
The performance required for threshold vesting (25% of this part of the award)
is adjusted EPS* growth of 5% per annum. Full vesting of this part of the
award required adjusted EPS* growth of 12% plus per annum, with a straight
line sliding scale between these two points. None of this part of the award will
vest for adjusted EPS* absolute growth lower than 5% per annum.
Dividends that would have been paid on shares vesting under the LTIP during
the performance period are reinvested in additional shares for each of the
above awards. There is no retesting of any performance condition under any
of the above awards and the Remuneration Committee will also consider the
underlying financial performance of the Company before it confirms vesting
of any of the above awards.
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 Kepler on behalf
of the Committee and is ranked against the comparator group companies’
TSR performance to determine the outcome.
Other outstanding awards
Awards made in 2015 and vesting in respect of performance to
31 December 2017
For awards made in 2015, 50% of an award is 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. 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. Below threshold
performance none of the award will vest.
50% of the award will be subject to EPS growth over a three year
performance period. For awards made in 2015 the adjusted EPS* absolute
growth figures were set at 6% per annum for 25% vesting and 12% plus per
annum for full vesting. A straight line sliding scale will operate between each
of the above points and below 6% adjusted EPS* absolute growth none of the
award will vest. Subject to satisfaction of performance conditions to 31
December 2016, these awards will vest in April 2018.
Awards made in 2016 and vesting in respect of performance to
31 December 2018
The table below provides details of the awards made under the LTIP on
1 March 2016. Performance for these awards is measured over the three
financial years from 1 January 2016 to 31 December 2018. They are
subject to the same performance conditions as for the 2015 award.
Long Term Incentive Plan 2016 awards
Executive
Director
Type of award
Number
of shares
awarded
Face value(1)
(£)
Face value
(% of salary)
Threshold vesting
(% of face value)
Maximum
vesting
(% of face value)
End of performance
period
Stephen Bird
Paul Hayes
Performance
shares
103,362
£537,487
71,057
£369,501
125%
125%
25%
100%
31 December 2018
(1) Face value has been calculated using the Company’s share price at the date of the award of £5.20.
Deferred Bonus Plan 2016 awards
The following table provides details of the awards made under the DBP on 11 April 2016. There are no performance conditions or matching shares
associated with these awards. The core shares are held in an Employee Trust on behalf of the Directors for three years and will be released to the
individuals on 11 April 2019.
Executive Director
Type of award
Stephen Bird
Paul Hayes
Core award
shares using
deferred
annual cash
bonus
Number of
core shares
awarded
Face value(2)
(£)
4,716
£27,789
End of holding period
3,242
£19,103
11 April 2019
(2) Face value has been calculated using the Company’s share price at the date of the award of £5.8925.
78
The Vitec Group plc Payments to Past Directors
There were no payments in 2016 to past directors of the Company.
Paul Hayes will cease to be an Executive Director and employee of the
Company in April 2017. With effect from that date he will not receive any
further remuneration from the Company. The Committee has determined that
he will not be required to defer any of his 2016 annual bonus on the basis
that he will be leaving the Company. The Committee has further determined
that his outstanding LTIP awards and Sharesave options will lapse with effect
from this departure date. In respect of the Deferred Bonus awards for 2015
and 2016, the Committee has determined that these will be paid out to Paul
Hayes upon his departure along with associated dividends. Details will be
covered fully in the 2017 Annual Remuneration Report.
Executive Director’s shareholdings as at 31 December 2016
Executive
Director
Share
ownership
requirement
(% of
salary)
Number
of shares
owned
outright
(including
connected
persons)
Number
of shares
beneficially
owned
(DBP core
award
shares)
Ownership
requirements
met (based
on shares
owned
outright and
core award
shares)
Number
of shares
unvested
and
subject to
performance
(DBP
matching
and LTIP
shares)
Stephen
Bird
Paul
Hayes
100%
233,282
42,269
262,471
415%
100%
52,786
29,920
181,120
181%
Chairman and Non-Executive Directors
The Chairman and Non-Executive Directors were paid the following
fees in 2016:
Role
2016 Annual Fee
Comment
Chairman
£150,000
Non-Executive
Director
£43,075
Increased to £150,000 from
£147,000 with effect from 1
January 2016
Base fee paid to Non-Executive
Directors. Fee effective from
1 January 2016
Chairman of Audit
Committee
£10,000
Fee was last increased on
1 January 2014
Chairman of
Remuneration
Committee
Senior
Independent
Director
£9,000
£6,000
Fee was last increased on
1 January 2014
Fee was last increased on
1 January 2014
Fees for the Chairman, Non-Executive Directors, Committee Chairmen and
Senior Independent Director roles are reviewed annually by the Board with
the support of Kepler providing market data to ensure that fees remain
appropriate given time commitment and the need to attract the right
experience for the role. The Chairman and Non-Executive Directors
do not receive any other benefits from the Company.
Directors’ Shareholding Requirements and
Share Interests
The Board has determined that Executive Directors of the Company are
required to build up, over a reasonable period of time, a substantial holding
of shares in the Company of at least one times base salary. A reasonable
period is considered to be the life of a performance period tied to an award
vesting under the Company’s LTIP or DBP. The Executive Directors satisfied
this requirement throughout the whole of 2016 and up to the date of this
report. Other members of the Operations Executive are encouraged to do
the same up to a level of 50% of base salary.
The Chairman and Non-Executive Directors of the Company have no such
requirement and have discretion as to whether to hold shares in the Company
or not. The following table sets out the interests in the ordinary shares of the
Company held by each Director (or connected persons) of the Company during
the year ended 31 December 2016.
Upon his appointment to the Board as an Executive Director on 4 January
2017, Martin Green held 34,821 shares in the Company, of which 12,851
were DBP Core award shares.
Chairman and Non-Executive Directors’ shareholdings as
at 31 December 2016
Director
1 January 2016
31 December 2016
John McDonough, Chairman
50,000
Caroline Thomson
Mark Rollins
Christopher Humphrey
Lorraine Rienecker
-
4,900
5,000
-
50,000
8,407
10,000
10,000
3,248
1. The closing mid-market share price on 31 December 2016 was £6.485 and the
calculation of the percentage shareholding requirement achieved for the Executive
Directors is based on this closing mid-market share price.
2. The shares shown in the beneficial holdings table above were acquired by the
Directors using their own funds and not through any share incentive scheme (or
similar) with the exception of the following disclosures in notes 3 and 4 below.
3. Stephen Bird’s share interests include 42,269 shares (at 31 December 2016)
purchased in the market using deferred annual cash bonus and held by the Employee
Benefit Trust, the trust used to hold shares in respect of awards made under the
Vitec Group DBP. These shares will vest out of the DBP in 2017, 2018 and 2019
respectively. Neither these shares nor any of the other shares held by Stephen Bird
have any performance conditions attached to them. During the year ended
31 December 2016 Stephen Bird acquired 17,899 shares through the exercise
of awards under the DBP arising from awards made in 2013. During the year, Stephen
Bird also acquired 1,291 shares through the reinvestment of dividends
into the Dividend Reinvestment Plan operated by the Company. 2,000 shares of
Stephen Bird’s holding are held by his spouse.
4. Paul Hayes’ share interests include 29,920 shares (at 31 December 2016) purchased
in the market using deferred annual cash bonus and held by the Employee Benefit
Trust, the trust used to hold shares in respect of awards made under the Vitec Group
DBP. These DBP awards will be paid out to Paul Hayes on the earlier of vesting or his
departure along with associated dividends. Neither these shares nor any of the other
shares held by Paul Hayes have any performance conditions attached to them. During
the year ended 31 December 2016 Paul Hayes acquired 12,381 shares through the
exercise of awards under the DBP arising from awards made in 2013.
5. There has been no change to the Directors’ shareholdings described in the table
above in the period from 31 December 2016 to 20 February 2017.
79
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
Sharesave
The Group operates an all-employee savings-related share option scheme in the UK (“Sharesave”) and a similar international plan in respect of overseas
employees in certain countries (US, Italy, Costa Rica, Japan, France and Germany). The scheme and plan are open to all the Group’s employees in those
countries, including the Executive Directors. As at 31 December 2016 both Stephen Bird and Paul Hayes participate in the UK scheme and the details
are shown below.
Director Date of
grant
At
1 January
2016
(shares)
Options
exercised
during the
year
Options
lapsed
during the
year
Options
granted
during the
year
At 31
December
2016
(shares)
Exercise
price
(pence)
Market
price at
date of grant
(pence)
Date from which
exercisable(3)
Expiry date
Stephen
Bird
Paul
Hayes
25 September 2015
2,560
25 September 2014
743
25 September 2015
1,829
-
-
-
-
-
-
-
-
-
2,560
492
614(2)
1 November 2018
30 April 2019
743
1,829
484
492
604.75(1)
1 November 2017
30 April 2018
614(2)
1 November 2018
30 April 2019
(1) The market price for the grant of shares under option was calculated on the basis of a three day average of the closing mid-market share price from 27 August 2014 to
29 August 2014 inclusive. A 20% discount was applied to this price under this HMRC approved Sharesave plan.
(2) The market price for the grant of shares under option was calculated on the basis of a three day average of the closing mid-market share price from 27 August 2015 to
1 September 2015 inclusive. A 20% discount was applied to this price under this HMRC approved Sharesave plan.
(3) There is no performance condition attached to the exercise of the Sharesave plan which is an all-employee plan.
80
The Vitec Group plc
Long Term Incentive Plan
Each year the Executive Directors are made a conditional award of shares in the Company. Up until 2015 this had been at a level representing 100% of annual
base salary, based on the three day average closing mid-market share price of the Company in the period just prior to the award. From 2015, awards to
Executive Directors have been increased to a level representing 125% of annual base salary to partly compensate for the removal of the matching share award
element under the Deferred Bonus Plan (as disclosed in the 2014 Annual Report). Both Executive Directors agreed to waive this increase in 2015. The award
is subject to satisfaction of performance conditions over a three year performance period. The following table sets out the outstanding awards under the LTIP
as at 31 December 2016 for each of the Executive Directors:
Director Date of
award
Awards at
1 January
2016
Award
exercised
during the
year
Associated
dividend
shares
with the
exercised
award
Awards
lapsed
during
the year
Awards
made
during
the year
At 31
December
2016
Market
price on
which
award
made
(pence)
Market
price at
exercise
date
(pence)
Face value
of award
End of
performance
period
Percentage
of interest
that vests
if threshold
performance
achieved
Stephen
Bird
61,833
65,958
64,838
-
21
March
2013
2 April
2014(1)
8 April
2015
1
March
2016
Total
192,629
Paul
Hayes
42,507
45,343
44,573
-
21
March
2013
2 April
2014(1)
8 April
2015
1
March
2016
Total
132,423
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
61,833
-
-
-
-
-
-
-
645
65,958
620.5
64,838
647
103,362
103,362
520
61,833
103,362
234,158
42,507
-
-
645
-
-
-
45,343
620.5
-
44,573
647
71,057
71,057
520
42,507
71,057
160,973
-
-
-
-
-
-
-
-
25%
25%
25%
25%
25%
25%
25%
25%
100% of
annual
salary
100% of
annual
salary
100% of
annual
salary
125% of
annual
salary
100% of
annual
salary
100% of
annual
salary
100% of
annual
salary
125% of
annual
salary
31 December
2015
31 December
2016
31 December
2017
31 December
2018
31 December
2015
31 December
2016
31 December
2017
31 December
2018
(1) The LTIP award made on 2 April 2014 did not achieve either of its performance conditions based on Adjusted EPS* growth and TSR performance compared to a comparator
group. As a consequence the award will lapse on its third anniversary of 2 April 2017.
81
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
Deferred Bonus Plan
Each year, Executive Directors are required to defer a proportion of their annual bonus into the DBP. No matching awards can be earned on deferred shares
since 2014.
Director Date of
award
Awards
at 1
January
2016
(shares)
Awards
exercised
during the
year
Associated
dividend
shares with
the exercised
awards
Awards
lapsed
during
the year
Awards
made
during
the year
At 31
December
2016
Face value
of award
Market
price on
which
award
made
(pence)
Market
price at
exercise
date
(pence)
Percentage
of interest
that vests
if threshold
performance
achieved
End of
performance
period
Stephen
Bird
8 April
2013 (core
award)
8 April
2013
(matching
award)
31 March
2014 (core
award) (1)
31 March
2014
(matching
award) (1)
16 April
2015 (core
award)
15,969
28,313
28,313
9,240
-
11 April
2016 (core
award)
Total
Paul
Hayes
8 April
2013 (core
award)
8 April
2013
(matching
award)
31 March
2014 (core
award) (1)
31 March
2014
(matching
award) (1)
16 April
2015
11,046
20,147
20,147
6,531
-
11 April
2016 (core
award)
15,969
15,969
1,930
-
-
-
-
-
-
-
-
-
-
-
15,969
-
-
-
-
-
-
-
-
-
-
-
641
641
28,313
628
28,313
628
9,240
649
4,716
4,716
589
97,804
15,969
1,930
15,969
4,716
70,582
11,046
11,046
1,335
-
-
-
-
-
-
-
-
-
-
-
11,046
-
-
-
-
-
-
-
-
641
641
20,147
628
20,147
628
-
6,531
649
3,242
3,242
589
-
-
-
-
-
-
-
-
-
-
-
-
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
Not
applicable
31 December
2015
33.30%
31 December
2015
Not
applicable
31 December
2016
33.30%
31 December
2016
Not
applicable
Not
applicable
Shares held
in Employee
Trust to 3rd
anniversary of
award date
Shares held
in Employee
Trust to 3rd
anniversary of
award date
Not
applicable
31 December
2015
33.30%
31 December
2015
Not
applicable
31 December
2016
33.30%
31 December
2016
Not
applicable
Not
applicable
Shares held
in Employee
Trust to 3rd
anniversary of
award date
Shares held
in Employee
Trust to 3rd
anniversary of
award date
Total
68,917
11,046
1,335
11,046
3,242
50,067
(1) The DBP award made on 31 March 2014 did not achieve either of its performance conditions based on EPS growth and TSR performance compared to a comparator group.
As a consequence the matching award will lapse on its third anniversary of 31 March 2017.
82
The Vitec Group plc Performance graph of the Company’s ordinary
shares compared to comparator group
From 2013, the Company is required to include a line graph showing the
Company’s ordinary share performance compared to an appropriate index
initially over a five year period, but building up to a ten year performance
period over subsequent years. The graph below illustrates the Company’s
annual Total Shareholder Return (TSR) (share price growth plus dividends
that have been declared, paid and reinvested in the Company’s shares)
relative to the FTSE 250 for the preceding eight year period, assuming
an initial investment of £100. This index has been chosen since it is the
comparator group (excluding financial services companies and investment
trusts) for one of the performance conditions tied to awards under the LTIP.
The Committee notes that the FTSE 250 index is a recognised broad market
equity index, relatively complex and international in nature and is comparable
to the Company’s business operations where approximately 90% of revenues
are generated outside the UK.
Each point is a 30 trading day average of the indices. TSR data is taken
from Datastream.
£
500
450
400
350
300
250
200
150
100
31 Dec
2008
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
The Vitec Group plc
FTSE 250
Performance table setting out the total remuneration
of the Group Chief Executive
The following table sets out the single figure of total remuneration paid
and the amount vesting under short-term and long-term incentives (as a
percentage of the maximum that could have been achieved) to the Group
Chief Executive for each of the eight years ended 31 December 2016.
Year
(ended 31
December)
Group Chief
Executive
CEO single
figure of
total
remuneration
Annual Bonus
payout against
maximum
opportunity %
(including actual
amount paid)
Long-term
incentive vesting
rates against
maximum
opportunity %
2016
2015
2014
2013
2012
2011
2010
2009
2009
£962,299
£636,374
£745,388
£1,057,407
£1,697,841
£2,053,828
£812,946
£487,087
£151,634
Stephen
Bird
Stephen
Bird
Stephen
Bird
Stephen
Bird
Stephen
Bird
Stephen
Bird
Stephen
Bird
Stephen
Bird (from 14 April
2009)
Alastair
Hewgill (from
1 January 2009 to
14 April 2009)
77.9%
(£418,450)
20%
(£104,876)
44.25%
(£226,378)
71%
(£355,616)
79.4%
(£386,434)
87.3%
(£323,816)
98.75%
(£355,994)
68.7%
(£172,069)
42%
(£51,911)
0%
0%
0%
28.55%
(£195,634)
92.4%
(£817,428)
100%
(£1,259,398)
-
-
-
Percentage change in remuneration of the Group
Chief Executive
The table below sets out a comparison of the following elements of remuneration
paid to the Group Chief Executive, Stephen Bird, in the year ended 31 December
2016 compared to the year ended 31 December 2015 and compared to that of
UK based employees: Annual Salary; Taxable Benefits; and Annual Bonus. The
Remuneration Committee has selected this comparator group on the basis that
the Group Chief Executive is UK based and this provides a local market reference,
is a sizeable population and a fair representation of the Group’s employee base.
Annual Salary
(% change in
2016 compared
to 2015)
Taxable benefits
(% change in
2016 compared
to 2015)
Annual Bonus
(% change in
2016 compared
to 2015)
Stephen Bird,
Group Chief Executive
2.5%
UK based employees
2.5%
2.5%
2.5%
299%
230%
Relative importance of spend on pay
The following table sets out for the year ended 31 December 2016 compared to
the year ended 31 December 2015 the actual expenditure of the Company in
terms of remuneration paid to or receivable by all employees of the Vitec Group
and distributions to shareholders by way of dividends. There have been no share
buybacks or other significant distributions and payments required to be disclosed
that would assist in understanding the relative importance of spend on pay.
Year ended
31 December
2016
Year ended
31 December
2015
% change
£99.7m
£92.6m
7.7%
£11.1m
£10.7m
3.7%
Total remuneration
paid to all Vitec
Group employees
Total dividends paid
to shareholders
83
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
Statement of Implementation of Remuneration Policy
in the Year Ending 31 December 2017
This section provides an overview of how the Committee is proposing to
implement the Remuneration Policy in 2017.
(1) Base salary
The table sets out the 2017 base salary for each Executive Director, together
with the percentage increase from 2016:
Executive Director
2017 Salary
Increase from 2016
Stephen Bird
Paul Hayes
£440,740
£295,601
2.5%
0% (No increase due to departure)
Martin Green
(appointed 4 January 2017)
£260,000
Not applicable
In determining the increases for 2017, the Committee took into account a
number of factors, including Company and individual performance, the
executive’s responsibilities and experience, pay increases for the Company’s
employees, market rates for Executive Director remuneration, the need for
retention of a talented executive team and prevailing economic conditions.
(2) Benefits
The car allowance taxable benefit has been increased in line with base salary
increases for 2017. The other taxable benefits of private healthcare and
income protection are respectively premium and contractually based.
(3) Pension allowance
The pension allowances remain unchanged from 2016 for Stephen Bird
and Paul Hayes representing 20% of base salary. Both Executive Directors
currently take this contribution in the form of a cash payment. Martin Green
upon his appointment as an Executive Director on 4 January 2017 receives
a pension allowance representing 15% of base salary, in line with the
proposed 2017 remuneration policy. The table below shows the value
of the pension allowance in 2017:
Executive Director
Pension allowance
Stephen Bird
£88,148
Paul Hayes
£59,120 (pro rata to departure date)
Martin Green
£39,000
(4) Annual Bonus
The maximum opportunity remains unchanged at 125% of base salary.
Half of any net after tax annual bonus earned for the year ended 31 December
2017 will be deferred into the DBP for a period of three years and held in the
form of shares in the Company. There will be no matching award that can
be earned on this deferred bonus. The table below provides information on
the performance measures against which performance for the 2017 annual
bonus plan will be measured:
Core measures for 2017 annual
bonus plan
Weighting
(% of overall opportunity)
Group adjusted profit before tax*
Group percentage of adjusted operating
profit* converted to operating cash flow#
Role specific personal objectives set by
the Board and Remuneration Committee
for the Executive Director
50%
25%
25%
84
The performance measures selected reflect the strategic and operational
objectives of the Group. The Committee considers that the specific targets
and personal objectives for 2017 are commercially sensitive and therefore
has not disclosed them. The Committee will disclose these targets and
objectives once a bonus has been paid and subject to the Committee
considering that they are no longer commercially sensitive. Given his
resignation from the Company, Paul Hayes will not be eligible for an
annual bonus in respect of 2017 performance.
(5) Long Term Incentive Plan
Stephen Bird and Martin Green will each receive an award of shares under the
LTIP equivalent to 125% of base salary in 2017. These awards will be made
in the 42 day period following the announcement of the full year results for
the year ended 31 December 2016 that will be announced on 21 February
2017. The awards however will be contingent on the Remuneration Policy
being approved by shareholders at the 2017 AGM to be held on Wednesday,
17 May 2017. The performance conditions for the LTIP awards to be granted
in 2017 will be as follows: 67% of the award will be subject to adjusted basic
earnings per share* growth over a three year performance period. The
Remuneration Committee has determined that the EPS targets for threshold
and maximum vesting levels for 2017 will be 73 pence and 90.8 pence to
be achieved in the year ending 31 December 2019, equivalent to 6% and
14% per annum growth over the three year performance period. The remaining
33% of the 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. Vesting will be underpinned by Committee discretion that will take into
account, in particular, ROCE performance over the performance period for the
EPS element of the award. Any awards vesting under the LTIP 2017, after
deduction of taxes, will be subject to a further two year holding period, thereby
more closely aligning their interests with the long-term interests of shareholders.
Given his resignation from the Company, Paul Hayes will not be eligible
for a 2017 LTIP award.
Malus and clawback
Under the rules of the Annual Bonus Plan, LTIP and DBP, awards up until 2015
have been subject to a malus rule whereby the Remuneration Committee has
the power to reduce, cancel or impose further conditions upon a bonus or
award in circumstances that the Committee determines such action is
appropriate including circumstances where a material misstatement of the
Company’s audited financial results has occurred or serious reputational
damage to the Company has occurred as a result of a participant having
breached the Company’s Code of Conduct. Under the UK Corporate
Governance Code companies are expected to include both clawback and
malus provisions for all incentive awards from that date. The Remuneration
Committee took the decision to amend the rules of the LTIP, DBP and Annual
Bonus Plan with effect from February 2015, to include a clawback provision
where in the same circumstances as for malus, any future award that is paid
out can be clawed back from a participant for a period of up to three years
from it vesting or being paid out. All awards from February 2015 are on the
basis that malus and clawback applies to them.
(6) Chairman and Non-Executive Directors’ remuneration
The fee structure for the Chairman and Non-Executive Directors for 2017
is set out in the table on the next page:
The Vitec Group plc Role
Chairman
2017 fee
£150,000
Non-Executive Director’s Base fee
£44,152(1)
Chairman of Audit Committee
Chairman of Remuneration
Committee
£10,000(2)
£9,000(2)
2016 fee
£150,000
£43,075
£10,000
£9,000
Senior Independent Director
£6,000(2)
£6,000
(1) The Non-Executive Director’s base fee was increased by 2.5% with effect from
1 January 2017.
(2) The Chairman of the Audit Committee, Chairman of the Remuneration Committee
and Senior Independent Director fees are reviewed annually to ensure that they
remain appropriate taking into account the nature of each role, the time commitment,
performance of the respective individuals, market conditions for the complexity of the
roles and the calibre of individuals. The last increases for each of these roles were with
effect from 1 January 2014.
The Board has agreed that the basic Non-Executive Director fee will typically
be increased in line with the level of salary increases given to Executive
Directors on an annual basis in future years. The Chairman elected to waive
any increase in fee for 2017. The fees paid to the Senior Independent Director
and Chairmen of the Audit and Remuneration Committees will be reviewed
annually to ensure that they remain appropriate.
Voting at Annual General Meeting
At the Company’s last AGM held on 18 May 2016, the Directors’ Annual
Remuneration Report for the year ended 31 December 2015 was put to
an advisory vote by way of an ordinary resolution that set out the detail of
remuneration paid to Directors during 2015. The resolution was approved by
shareholders on a poll. The table below sets out the proxy votes voted for,
against and withheld against the resolution.
Resolution
Advisory vote on the
Remuneration Report
for the year ended
31 December 2015
For proxy
votes and
% of votes
cast
31,165,662
(99.9%)
Against proxy
votes and %
of votes cast
Withheld
proxy votes
11,507 (0.1%)
2,218,327
As at the date of the Company’s AGM on 18 May 2016 the Company had
44,526,580 Ordinary Shares in issue. The Remuneration Committee considers
that an against or withheld vote of 20% or more of the votes cast is deemed to be
significant in connection with a resolution on Directors’ remuneration. Based on
the level of support at the 2016 AGM, the Committee did not consider that there
were any significant issues of concern. In the event that a significant level of
concern is raised at future AGMs, both the Chairman of the Board and the
Chairman of the Remuneration Committee will contact the Company’s major
shareholders following an AGM to understand the precise detail of the concern
being raised. Subject to that, the Committee and the Board as a whole will
consider how best to address the concern being raised. This may involve a
revision to the Company’s Policy on Directors’ Remuneration at a subsequent
AGM or some other change which can be implemented without further
shareholder consultation. The Committee and the Board are committed to an
open and transparent dialogue with shareholders on material matters of concern.
The Remuneration Committee
The Remuneration Committee comprised the following members during 2016:
Caroline Thomson – Chairman, Mark Rollins, Lorraine Rienecker and
Christopher Humphrey.
All of the Committee members are independent Non-Executive Directors.
The Committee, on behalf of the Board, determines the policy, 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 remuneration for the
Operations Executive, including terms of service, pay structure, annual cash
bonus, pensions, share incentive arrangements and all other benefits.
The Committee invites individuals to attend meetings, as it deems necessary,
to assist with consideration of remuneration matters. The Chairman, John
McDonough, the Group Chief Executive, Stephen Bird, the Group Finance Director,
Paul Hayes, the Group Company Secretary, Jon Bolton and the Group Business
Development Director, Martin Green, attended meetings by invitation in the year
ended 31 December 2016. 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 56 and 57 of this Annual Report.
External advisors
During 2016, the Committee received independent advice from Deloitte LLP as
the Committee’s remuneration advisor up until 2 June 2016 and from Kepler
as the Committee’s newly appointed remuneration advisor from 3 June 2016.
The Committee decided to change remuneration advisor in preparation for work
on the Policy to be submitted to shareholders at the 2017 AGM and ahead of a
consultation with major shareholders as part of that work. Kepler 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. During 2016 the level of fees paid to remuneration
advisors totalled £53,085 (2015: £15,500) and this fee covered advice relating
to disclosures in the 2015 Directors’ Remuneration Report, measurement of
performance conditions associated with long-term incentive arrangements,
preparation of the 2017 Policy, consultation exercise with shareholders on
the 2017 Policy and general remuneration advice. Kepler is a member of the
Remuneration Consultants Group and operates under that group’s voluntary
code of practice for remuneration consultants in the UK. The Committee is
satisfied that the advice it received from Kepler during 2016 was objective and
independent. The Committee also received advice and administrative support
during 2016 from the Group Company Secretary, Jon Bolton, and the Group
Business Development Director, Martin Green.
This Annual Remuneration Report has been approved by the Remuneration
Committee and signed on its behalf by:
Caroline Thomson
Chairman, Remuneration Committee
20 February 2017
85
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Directors’ Report
Strategic Report
The statements and reviews on pages 1 to 47 comprise the Strategic Report
which contains certain information, outlined below, that is incorporated into
this Directors’ Report by reference:
Shareholder
Number of
voting rights
% of voting
rights
Aberforth Partners
7,299,033
Alantra Asset Management (formerly Nmás1)
6,231,763
16.32
13.93
10.35
8.96
8.50
6.96
6.37
5.28
4.46
4.40
• an indication of the Group’s likely future business developments;
Fidelity Investments
• an indication of the Group’s research and development activities;
JO Hambro Capital Management
• information on the Group’s policies for the employment of disabled persons
Manfrotto
and employee involvement; and
• the Group’s disclosures regarding greenhouse gas emissions.
M&G Investment Management
Delta Lloyd Asset Management
4,627,993
4,007,712
3,800,449
3,112,201
2,849,548
Directors
The Directors who held office at 31 December 2016 and up to the date of
this report are set out on pages 46 and 47 along with their photographs
and biographies.
Changes to the Board during the year and up to the date of this report were
as follows:
Name
Effective Date
Position
Martin Green
Appointed on
4 January 2017
Executive Director, Group
Business Development
Paul Hayes
Announced will
resign in April 2017
Executive Director, Group
Finance Director
All current Directors will be standing for reappointment at the forthcoming
AGM to be held on Wednesday, 17 May 2017 with the exception of Paul
Hayes who advised the Board of his resignation on 25 November 2016.
He will leave the Board in April 2017. The remuneration of the Directors
including their respective shareholdings in the Company is set out in the
Remuneration Report on pages 64 to 85.
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) have been adopted for each Director
and indemnify 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.
Share capital
The Company has only ordinary shares of 20 pence nominal value in issue.
Note 4.3 to the consolidated financial statements on page 126 summarises
the rights of the ordinary shares as well as the number issued during 2016.
An analysis of shareholdings is shown on page 143. The closing mid-market
price of a share of the Company on 31 December 2016, together with the
range during the year, is also shown on page 143. For details of own shares
held by the Company see note 4.3 to the consolidated financial statements.
Heronbridge Investment Management
2,359,786
Schroder Investment Management
Royal London Asset Management
1,996,069
1,967,532
Committees of the Board
The Board has established Audit, Nominations and Remuneration Committees.
Details of these Committees, including membership and their activities during
2016, are contained in the Corporate Governance section of this Annual
Report and in the Remuneration Report.
Corporate responsibility
The Group’s report on corporate responsibility is set out on pages 36 to 45.
The Group has a Code of Conduct which has been communicated to all
employees and is available on the Company’s website and intranet. The Group
has also adopted 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, 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 48 to 63 and forms
part of this Directors’ Report.
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 126, 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 above;
• 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;
Substantial shareholdings
As at 20 February 2017, the Company had been advised under the Disclosure
Guidance and Transparency Rules, 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:
• 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.
86
The Vitec Group plc 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 Group 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.
Political donations
Further to shareholder approval at the 2013 AGM empowering the Directors
to make political donations, it is confirmed that no such donations were made
in the year ended 31 December 2016. The Company’s policy is not to make
political donations and a resolution to renew this authority on its four year
expiry will be put to the 2017 AGM. The details of this resolution can be
found in the accompanying Notice of Meeting.
Financial instruments
The financial risk management objectives and policies of the Group and the
exposure of the Group to foreign currency risk, interest rate risk, and liquidity
risk are outlined in note 4.2 to the consolidated financial statements on pages
121 and 122.
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, which comprises the period of at least 12 months from
the date of approval of the financial statements. There are no material
uncertainties that would prevent the Directors from being unable to make
this statement. Accordingly, the Directors continue to adopt the going concern
basis in preparing the financial statements.
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 IFRS as adopted
by the EU and applicable law and have elected to prepare the parent company
financial statements in accordance with UK Accounting Standards.
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:
• 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 Strategic Report, 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.
In addition, each of the Directors considers that the Annual Report, taken as
a whole, is fair, balanced and understandable and that it provides all the
information necessary for shareholders to assess the Company’s position
and performance, business model and strategy.
Disclosure of information to the auditor
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 auditor is 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 auditor
is aware of that information.
Annual General Meeting (AGM)
The 2017 AGM will be held at 9.30am on Wednesday, 17 May 2017 at
The Academy of Medical Sciences, 41 Portland Place, London W1B 1QH.
The Company will be making use of the electronic voting facility provided
by its registrars, Capita Asset Services. 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
in the notes to the Notice of Meeting.
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 as they intend to in
respect of their own shareholdings.
Auditor
KPMG LLP has expressed its willingness to continue in office as auditor and
separate resolutions will be proposed at the forthcoming AGM concerning
their reappointment and to authorise the Board to agree their remuneration.
• Select suitable accounting policies and then apply them consistently;
By order of the Board
• Make judgements and estimates that are reasonable and prudent;
• For the Group financial statements, state whether they have been prepared
in accordance with IFRS 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
Jon Bolton
Group Company Secretary
20 February 2017
87
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Independent auditor’s report to the members of
The Vitec Group plc only
Opinions and conclusions arising from our audit
Overview
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of The Vitec Group plc for the year
ended 31 December 2016 set out on pages 91 to 142. In our opinion:
• the financial statements give a true and fair view of the state of the Group’s
and of the parent company’s affairs as at 31 December 2016 and of the
Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance
with International Financial Reporting Standards as adopted by the European
Union;
• the parent company financial statements have been properly prepared in
accordance with UK Accounting Standards, including FRS 101 Reduced
Disclosure Framework; and
• 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.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the risks of
material misstatement, in decreasing order of audit significance, that had the
greatest effect on our audit were as follows:
Materiality: Group financial
statements as a whole
Coverage
£1.45m (2015: £1.5m)
5% (2015: 5%) of normalised
profit before tax
82% (2015: 78%) of Group profit
before tax
Risks of material misstatement vs 2015
Recurring risks
Carrying value of inventory
Restructuring provision
Current tax liability
Event driven
New: Carrying value of goodwill
The risk
Our response included the following audit procedures:
• The inventory held at the year end
covers a wide range of products in
different geographical regions and
the demand for these and the ability
of the Group to sell this inventory in
the future may be adversely affected
by many factors including changes
in customer and consumer
preferences, competitor activity
including pricing and the introduction
of new products and technology.
This variability introduces an element
of judgement into the valuation of
inventory.
• There is judgement in determining
whether a provision should be
recognised and, if so, how it should
be measured. The level of judgement
is heightened given the wide range
of products and the geographic
spread of the operations.
• Inspecting the ageing of inventory, the accuracy of which was
tested, to identify any slow moving inventory lines and assessing
that these inventories have been provided for, where required;
• Critically assessing whether appropriate provisions have been
established for slow-moving and obsolete items based on our
knowledge of the business and discontinued productlines;
• Comparing recent sales prices for a sample of inventory items
to their carrying values to assess whether the provision held is
appropriate;
• Comparing the methodology and assumptions used by the
Group in calculating the inventory provisions to those used in
the prior years and, as part of this, we considered whether we
would expect a change to the methodology and assumptions
based on any changes to the current markets that the Group
serves, noting the demand factors highlighted opposite;
• Assessing the historical accuracy of provisions recorded by
examining the utilisation or release of previously recorded
provisions; and
• Considering the adequacy of the Group’s disclosures (see note
3.3) in relation to inventory.
• The Group has significant goodwill
• Obtaining the discounted cash flow models and assessing the
arising from the acquisition of
businesses in the current year
and also prevailing balances from
previous acquisitions.This has been
identified as a new significant risk
during the year due to changing
market conditions in the broadcast
rental market, changes in trading
activities in the defence industry
and the identification of impairments
by the Directors.The estimated
recoverable amount is subjective,
due to the inherent uncertainty
involved in forecasting and
discounting future cash flows.
principles and integrity of each model;
• Comparing the Group’s valuation assumptions for its cash flow
projections with reference to internally derived sources;
• Assessing the Group’s historical forecasting accuracy;
• Challenging the key assumptions based on our own insights
and experience on comparable companies and evaluating the
appropriateness of the discount rate by using our own valuation
specialists;
• Performing sensitivity analysis around the cash flow forecasts,
long-term growth rates and discount rates to ascertain the
extent of change in those assumptions that would be required
for material changes in impairment; and
• Considering the adequacy of the Group’s disclosures in respect
of impairment testing and whether disclosures about the
sensitivity in the outcome of the impairment assessment to
changes in key assumptions properly reflected the risks inherent
in the valuations.
Carrying value of inventory
(£57.9 million; 2015: £58.9
million)
Refer to note 3.3 of the
financial statements
Refer to page 60 (Audit
Committee Report) and page
112 (accounting policy and
financial disclosures)
Carrying value of goodwill
(£64.0 million; 2015: £66.7
million)
Refer to note 3.1 of the
financial statements
Refer to page 60 (Audit
Committee Report) and page
107 (accounting policy and
financial disclosures)
88
The Vitec Group plc Restructuring provision
(£1.5 million; 2015: £3.2
million)
Restructuring costs
(£5.2 million; 2015: £4.9
million)
Refer to notes 3.5 and 2.2 of
the financial statements
Refer to page 60 (Audit
Committee Report) and pages
102 and 118 (accounting
policy and financial
disclosures)
Current tax liability
(£8.1 million; 2015: £6.6
million)
Refer to note 2.4 of the
financial statements
Refer to page 60 (Audit
Committee Report) and page
103 (accounting policy and
financial disclosures)
The risk
Our response included the following audit procedures:
• The Group has continued to implement
the restructuring programme which has
developed to include further activities.
Judgement is involved in determining
whether the criteria for recognising a
provision have been met at the balance
sheet date for these further activities.
There is also judgement in estimating
the amount to provide for.
• As these balances are presented as
separately disclosed items, there is
a risk that items are inappropriately
classified as restructuring rather than
operating expenses.
• Critically assessing whether the further developed elements
of the restructuring programmes were sufficiently formalised
to meet the requirements for a provision to be recognised in
accordance with relevant accounting standards;
• Challenging the nature of the costs included in the provisions
and the measurement of the amount provided for based on
supporting evidence such as termination letters and onerous
lease contracts; and
• Challenging the classification of restructuring expenses as
a separate line item or as part of operating expenses by
considering the nature of the expense and the appropriate
categorisation (see note 2.2).
• Tax provisions require the Directors
• Involving our own tax specialists to challenge the
to make judgements and estimates in
relation to tax issues and exposures
given the Group operates in a number
of tax jurisdictions, the complexities of
transfer pricing and other international
tax legislation and the time taken for
tax matters to be agreed with the tax
authorities. The complexity is increased
as a result of acquisitions and Group
reorganisation activities in the current
year.
appropriateness of the assumptions applied and estimates made
in relation to current tax liabilities by considering the range of
possible outcomes that may be assessed under the applicable
tax laws and relevant tax authorities;
• Assessing the impact of recent acquisitions and Group
reorganisation of certain activities on the level of provisions;
• Assessing the historical accuracy of provisions recorded by
examining the utilisation or release of previously recorded
provisions; and
• Assessing whether the Group’s tax disclosures set out in note
2.4 are appropriate and in accordance with relevant accounting
standards.
We continue to perform procedures over recoverability of debtors. However, following continued strong cash collection and historical robustness of provisions,
the inherent risk of material misstatement is considered to have reduced to the extent that we have not assessed this as one of the risks that had the greatest
effect on our audit and therefore, it is not separately identified in our report this year.
3. Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at
£1.45 million (2015: £1.5 million), determined with reference to a benchmark
of Group profit before tax, normalised to exclude this year’s restructuring
costs, impairment of goodwill and charges associated with acquisition of
businesses (of which it represents 5%; 2015: 5%). For those items excluded
from normalised Group profit before tax, the component teams performed
procedures on items relating to their components. The Group team performed
procedures on the remaining excluded items.
The Group audit team instructed component auditors as to the significant
areas to be covered, including the relevant risks and the information to be
reported back. The audits undertaken for Group reporting purposes at the key
reporting components of the Group were all performed to the lower of
statutory materiality or materiality of £0.8 million set by the Group audit team,
having regard to the mix of size and risk profile of the Group across the
components. The work on seven of the 25 components was performed by
component auditors and the rest by the Group audit team.
The Group audit team visited reporting components in the following locations:
UK, US and Italy. Telephone conference meetings were also held with these
component auditors and others that were not physically visited. At these visits
and meetings, the findings reported to the Group audit team were discussed
in more detail, and any further work required by the Group audit team was
then performed by the component auditor.
We report to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £72,500 (2015: £75,000), in addition to other
identified misstatements that warranted reporting on qualitative grounds.
The Group has 51 reporting components. Of the Group’s 51 (2015: 49)
reporting components, we subjected 19 (2015: 22) to full scope audits for
Group purposes and six (2015: five) to specified risk-focused audit procedures.
The components within the scope of our work accounted for the percentages
of the Group’s results as shown in the charts on the following page.
Components for which specified risk focused audit procedures were
performed were not individually financially significant enough to require an
audit for Group reporting purposes, but did present specific individual risks
that needed to be addressed. The remaining 24% of total Group revenue,
18% of Group profit before tax and 14% of total Group assets is represented
by 26 reporting components, none of which individually represented more
than 10% of any of total Group revenue, Group profit before tax or total Group
assets. For these remaining components, we performed analysis at an
aggregated Group level to reexamine our assessment that there were
no significant risks of material misstatement within these.
89
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Independent auditor’s report to the members of
The Vitec Group plc only
Normalised profit before tax
£29.5m (2015: £31.5m)
Materiality
£1.45m (2015: £1.5m)
£1.45m
Whole financial statements
materiality (2015: £1.5m)
£0.8m
Range of materiality at 25
components (£0.2m to £0.8m)
(2015: £0.2 m to £0.8m)
Group revenue
Group profit before tax
Group total assets
34
37
76%
(2015 72%)
35
42
11
82%
(2015 78%)
17
61
71
86%
(2015 81%)
24
23
58
62
Normalised profit before tax
Group materiality
£0.07m
Misstatements reported to the Audit
Committee (2015: £0.08m)
Full scope for group audit purposes 2016
Specified risk-focused audit procedures 2016
Full scope for group audit purposes 2015
Specified risk-focused audit procedures 2015
Residual components
4. Our opinion on other matters prescribed by the
Companies Act 2006 is unmodified
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
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 Strategic Report and the Directors’ Report
for the financial year is consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the
audit of the financial statements and from reading the Strategic Report and
the Directors’ Report:
• we have not identified material misstatements in those reports; and
• in our opinion, those reports have been prepared in accordance with
the Companies Act 2006.
5. We have nothing to report on the disclosures of
principal risks
Based on the knowledge we acquired during our audit, we have nothing
material to add or draw attention to in relation to:
• 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’ statements, set out on page 34 and 87, in relation to going
concern and longer-term viability; and
• the part of the Corporate Governance Statement on pages 48 to 63 relating
to the Company’s compliance with the eleven provisions of the 2014 UK
Corporate Governance Code specified for our review.
• the Directors’ Viability Statement on page 34, concerning the principal risks,
We have nothing to report in respect of the above responsibilities.
their management, and, based on that, the Directors’ assessment and
expectations of the Group’s continuing in operation over the three years to
2019; or
• the disclosures in Section 1 of the financial statements concerning the
use of the going concern basis of accounting.
6. We have nothing to report in respect of the matters on
which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the
knowledge we acquired during our audit, we have identified other information
in the Annual Report that contains a material inconsistency with either that
knowledge or the financial statements, a material misstatement of fact, or that
is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired
during our audit and the Directors’ statement that they consider that the Annual
Report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Group’s position and performance, business model and strategy; or
• the Corporate Governance section does not appropriately address matters
communicated by us to the Audit Committee.
90
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out
on page 87, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view.
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. This report is made solely to the Company’s members
as a body and is subject to important explanations and disclaimers regarding
our responsibilities, published on our website at www.kpmg.com/uk/
auditscopeukco2014a, which are incorporated into this report as if set out
in full and should be read to provide an understanding of the purpose of
this report, the work we have undertaken and the basis of our opinions.
Adrian Wilcox (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
20 February 2017
The Vitec Group plc
Table of Contents
The notes are grouped under the following sections:
Primary Statements
Consolidated Income Statement ..............................................92
Consolidated Statement of Comprehensive Income .....................93
Consolidated Balance Sheet ...................................................94
Consolidated Statement of Changes in Equity ..........................95
Consolidated Statement of Cash Flows ....................................96
Section 1 - Basis of Preparation ...................................... 97
Section 2 - Results for the Year ....................................... 99
2.1 Profit before tax
(including segmental information) .....................................99
2.2 Restructuring costs, charges associated with acquisition
of businesses and impairment of goodwill .......................102
2.3 Net finance expense ......................................................102
2.4 Tax ................................................................................103
2.5 Earnings per share .........................................................106
Section 3 - Operating Assets and Liabilities ................. 107
3.1 Intangible assets ............................................................107
3.2 Property, plant and equipment ........................................110
3.3 Working capital ..............................................................112
3.4 Acquisitions ...................................................................114
3.5 Provisions .....................................................................118
Section 4 - Capital Structure .......................................... 120
4.1 Net debt ........................................................................120
4.2 Financial instruments .....................................................121
4.3 Share capital and reserves .............................................126
Section 5 - Other Supporting Notes .............................. 128
5.1 Employees.....................................................................128
5.2 Pensions .......................................................................128
5.3 Share-based payments ..................................................132
5.4 Leases ..........................................................................134
5.5 Related party transactions ..............................................134
5.6 Group investments .........................................................135
5.7 Subsequent events ........................................................135
The Vitec Group plc Company Financial Statements
Company Balance Sheet ......................................................136
Company Statement of Changes in Equity .............................137
Notes to the Company financial statements ...........................138
Five Year Financial Summary ............................................. 142
Shareholder Information and Financial Calendar ........... 143
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.
91
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Consolidated Income Statement
For the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Comprising
Notes
2.1
2.2
2.1 / 2.2
2016
£m
376.2
(228.1)
148.1
(133.6)
2015
£m
317.8
(188.9)
128.9
(106.5)
2.1
14.5
22.4
- Operating profit before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill
- Restructuring costs
- Charges associated with acquisition of businesses
- Impairment of goodwill
Net finance expense
Profit before tax
Comprising
- Profit before tax, excluding restructuring costs, charges associated with acquisition of businesses and impairment of goodwill
- Restructuring costs
- Charges associated with acquisition of businesses
- Impairment of goodwill
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$
2.2
2.2
2.2
2.3
2.4
2.5
41.5
(5.2)
(9.7)
(12.1)
14.5
(4.0)
10.5
37.5
(5.2)
(9.7)
(12.1)
10.5
(1.5)
9.0
35.4
(4.9)
(8.1)
-
22.4
(3.9)
18.5
31.5
(4.9)
(8.1)
-
18.5
(5.5)
13.0
20.2p
20.1p
29.3p
29.2p
1.22
1.35
1.38
1.53
92
The Vitec Group plc
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit obligation
Related tax
Items that are or may be reclassified to profit or loss:
Currency translation differences on foreign currency subsidiaries
Net investment hedges - net loss
Cash flow hedges - reclassified to the Income Statement, net of tax
Cash flow hedges - effective portion of changes in fair value
Related tax
Other comprehensive income, net of tax
Total comprehensive income for the year attributable to owners of the parent
2016
£m
2015
£m
9.0
13.0
(6.4)
1.0
37.7
(16.6)
0.8
(4.6)
0.9
12.8
21.8
1.5
(0.5)
4.2
(1.5)
0.6
(1.5)
0.5
3.3
16.3
93
Annual Report & Accounts 2016
Consolidated Balance Sheet
As at 31 December 2016
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Derivative financial instruments
Deferred tax assets
Current assets
Assets held for sale
Inventories
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Bank overdrafts
Interest-bearing loans and borrowings
Trade and other payables
Derivative financial instruments
Current tax liabilities
Provisions
Non-current liabilities
Interest-bearing loans and borrowings
Derivative financial instruments
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 20 February 2017 and signed on its behalf by:
Paul Hayes
Group Finance Director
94
Notes
2016
£m
2015
£m
3.1
3.2
3.3
4.2
2.4
3.2
3.3
3.3
4.2
2.4
4.1
4.1
4.1
3.3
4.2
2.4
3.5
4.1
4.2
5.2
3.5
2.4
4.3
99.0
54.0
0.9
0.2
26.6
180.7
-
57.9
66.2
0.2
0.7
17.1
142.1
322.8
0.3
40.9
55.3
4.8
8.1
4.9
114.3
51.0
1.2
13.0
1.1
2.4
68.7
183.0
139.8
9.0
15.4
16.8
1.6
(3.9)
100.9
139.8
90.7
53.8
0.6
0.1
15.2
160.4
1.0
58.9
50.7
0.5
0.9
13.6
125.6
286.0
1.1
0.2
43.5
1.7
6.6
8.1
61.2
88.6
0.5
6.1
1.2
2.1
98.5
159.7
126.3
8.9
14.3
(4.3)
1.6
(1.0)
106.8
126.3
1.17
1.24
1.36
1.48
The Vitec Group plc
Consolidated Statement of Changes in Equity
Balance at 1 January 2016
Total comprehensive income for the year
Profit for the year
Other comprehensive income/(expense) for the year
Contributions by and distributions to owners
Dividends paid
Own shares purchased
Share-based payment charge
Related tax
New shares issued
Balance at 31 December 2016
Balance at 1 January 2015
Total comprehensive income for the year
Profit for the year
Other comprehensive income/(expense) for the year
Contributions by and distributions to owners
Dividends paid
Share-based payment charge
Related tax
New shares issued
Balance at 31 December 2015
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Capital
redemption
reserve
£m
Cash flow
hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
8.9
14.3
(4.3)
1.6
(1.0)
106.8
126.3
-
-
-
-
-
-
0.1
9.0
8.9
-
-
-
-
-
-
8.9
-
-
-
-
-
-
1.1
15.4
13.4
-
-
-
-
-
0.9
14.3
-
21.1
-
-
-
-
-
16.8
(7.0)
-
2.7
-
-
-
-
(4.3)
-
-
-
-
-
-
-
1.6
1.6
-
-
-
-
-
-
1.6
-
(2.9)
-
-
-
-
-
(3.9)
9.0
(5.4)
9.0
12.8
(11.1)
(0.1)
1.6
0.1
-
100.9
(11.1)
(0.1)
1.6
0.1
1.2
139.8
(0.6)
102.3
118.6
-
(0.4)
-
-
-
-
(1.0)
13.0
1.0
13.0
3.3
(10.7)
1.1
0.1
-
106.8
(10.7)
1.1
0.1
0.9
126.3
95
Annual Report & Accounts 2016
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
Cash flows from operating activities
Profit for the year
Adjustments for:
Taxation
Depreciation
Amortisation of intangible assets
Impairment of intangible assets
Net gain on disposal of property, plant and equipment and software
Fair value losses on derivative financial instruments
Share-based payment charge
Earnout payments and purchase price adjustment
Net finance expense
Operating profit before changes in working capital and provisions
Decrease/(increase) in inventories
(Increase)/decrease in receivables
Increase/(decrease) 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
Cash outflow on previous disposal
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issue of shares
Own shares purchased
(Repayment of)/proceeds from interest-bearing loans and borrowings
Dividends paid
Net cash used in financing activities
(Decrease)/increase 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
96
Notes
2016
£m
2015
£m
9.0
13.0
1.5
15.3
11.0
12.1
(1.5)
0.4
1.6
1.2
4.0
54.6
11.2
(4.5)
5.3
(1.8)
64.8
(5.2)
(7.2)
52.4
9.0
(13.4)
(3.4)
(20.3)
(1.5)
(29.6)
1.2
(0.1)
(13.6)
(11.1)
(23.6)
(0.8)
12.5
5.1
16.8
5.5
13.8
7.8
0.2
(1.2)
0.1
1.1
2.6
3.9
46.8
(3.0)
0.8
(3.0)
0.1
41.7
(4.0)
(5.6)
32.1
4.7
(16.4)
(4.2)
(9.0)
(0.7)
(25.6)
0.9
-
8.5
(10.7)
(1.3)
5.2
7.9
(0.6)
12.5
3.4
4.1
The Vitec Group plc
Section 1 – Basis of Preparation
This section sets 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.
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 2016 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 Financial Reporting Standard 101 Reduced Disclosure
Framework (“FRS 101”).
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 Strategic 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, and its exposure to foreign
currency risks, interest rate risks and liquidity risks.
The Group has considerable financial resources, including undrawn borrowing
facilities at the end of the year of £86.7 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 next
12 months. 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 rights to variable returns from its
involvement with an entity and has the ability to affect those returns through its
power over the entity. The results of subsidiaries sold or acquired during the year
are included in the financial statements up to, or from, the date that control exists.
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.
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 external loans and borrowings and on long-term inter company loans that
form part of the net investment in the subsidiaries are recognised directly in
the translation 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.
97
Annual Report & Accounts 2016 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 and 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”.
New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations will
become effective for the Group in future years.
IFRS 16 “Leases” was revised on 13 January 2016 and is effective for the 31
December 2019 year end. The adoption of this standard removes the distinction
between operating and finance leases and will result in all operating leases,
above a de minimis level, being capitalised with the associated assets and
liabilities being brought on to the Balance Sheet. Given the effective date of
the standard, the Directors have not yet evaluated the full impact.
The adoption of the following standards is not expected to have a significant
impact on these consolidated financial statements. They are effective for the
31 December 2018 year end:
IFRS 15 “Revenue from Contracts with Customers”
IFRS 9 “Financial Instruments”
Section 1 – Basis of preparation
Significant judgements, key assumptions 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.
Working capital
Provisions over trade receivables are maintained to reflect expected credit
losses based on collection history and specific risks identified on a customer-by-
customer basis. Provisions against slow-moving, excess and obsolete inventory
are estimated to reflect its net realisable value. See note 3.3 “Working Capital”.
Pension benefits
The actuarial valuations associated with the pension schemes involve making
assumptions about discount rates, 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, liabilities and assumed contingent
considerations 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 and assumed contigent considerations involves the use
of significant estimates and assumptions (including discount rates, asset
lives and recoverability and forecast performance). Details concerning the
acquisitions made in the year are set out in note 3.4 “Acquisitions”.
98
The Vitec Group plc Section 2 – Results for the Year
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 Restructuring costs, charges associated with acquisition of businesses and impairment of goodwill
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 two Divisions. Further segmental
information and an analysis of key operating expenses are also shown here.
Accounting policies
Revenue recognition
Revenue is stated exclusive of sales tax 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 and high-end technical services is recognised over the duration of the rental contract, on a straight line basis, at the amount
billed to the customer.
99
Annual Report & Accounts 2016
Section 2 – Results for the Year
2.1 Profit before tax (including segmental information)
Section 2 – Results for the Year
2.1 Profit before tax (including segmental information)
Segment reporting
TThe Group has two 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 Strategic Report.
Broadcast
Photographic
Corporate and
unallocated
Consolidated
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
190.9
33.9
160.3
28.7
151.4
-
128.8
-
-
-
-
-
342.3
33.9
289.1
28.7
224.8
0.4
225.2
189.0
0.9
189.9
151.4
0.6
152.0
128.8
0.2
129.0
-
(1.0)
(1.0)
-
(1.1)
(1.1)
376.2
-
376.2
317.8
-
317.8
21.0
(3.4)
(1.3)
(0.5)
(7.1)
(12.1)
20.3
(4.1)
(2.6)
(0.1)
(4.8)
-
20.5
(1.8)
0.1
(0.1)
(0.8)
-
15.1
(0.8)
-
-
(0.6)
-
(3.4)
8.7
17.9
13.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41.5
(5.2)
(1.2)
(0.6)
(7.9)
(12.1)
14.5
(4.0)
(1.5)
9.0
35.4
(4.9)
(2.6)
(0.1)
(5.4)
-
22.4
(3.9)
(5.5)
13.0
182.1
172.2
94.8
82.7
1.5
1.4
278.4
256.3
17.1
0.7
26.6
13.6
0.9
15.2
17.1
0.7
26.6
322.8
13.6
0.9
15.2
286.0
38.2
28.1
31.3
26.0
10.8
7.0
80.3
61.1
-
-
-
-
-
-
-
-
0.3
1.1
-
-
-
0.4
-
-
-
90.8
8.1
2.4
1.1
88.4
6.6
2.1
0.3
91.9
8.1
2.4
183.0
1.1
88.8
6.6
2.1
159.7
34.5
(25.2)
-
19.4
(21.7)
-
18.6
(4.3)
1.1
15.2
(3.9)
0.4
(0.7)
(0.1)
(24.7)
(2.5)
-
(1.7)
52.4
(29.6)
(23.6)
32.1
(25.6)
(1.3)
10.8
1.8
14.1
2.6
2.6
1.5
2.3
1.6
-
0.1
-
-
13.4
3.4
16.4
4.2
Revenue from external customers:
Sales
Services
Total revenue from external customers
Inter-segment revenue (1)
Total revenue
Segment result
Restructuring costs
Earnout payments and purchase price adjustment
Transaction costs relating to acquisition of businesses
Amortisation of acquired intangible assets
Impairment of goodwill
Operating profit
Net finance expense
Taxation
Profit for the year
Segment assets
Unallocated assets
Cash and cash equivalents
Current tax assets
Deferred tax assets
Total assets
Segment liabilities
Other 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
Software and development costs
(1) Inter-segment pricing is determined on an arm’s length basis.
No individual customer accounted for more than 10% of external revenue in either 2016 or 2015.
100
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
2016
£m
2015
£m
35.5
80.5
180.9
68.7
10.6
376.2
31.5
64.0
150.2
55.9
16.2
317.8
The Group’s operations 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
- Restructuring costs (1)
- Charges associated with acquisition of businesses (2)
- Impairment of goodwill (2)
- Other administrative expenses
Administrative expenses
Marketing, selling and distribution costs
Research, development and engineering costs
Operating expenses
2016
£m
2015
£m
4.7
9.7
12.1
46.8
73.3
47.1
13.2
133.6
4.0
8.1
-
40.5
52.6
42.5
11.4
106.5
(1) Of the total £5.2 million (2015: £4.9 million) restructuring costs, £4.7 million (2015: £4.0 million) is included in operating expenses and £0.5 million (2015: £0.9 million) in cost of sales.
(2) See note 2.2 “Restructuring costs, charges associated with acquisition of businesses and impairment of goodwill”.
Operating profit
The following items are included in operating profit
Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements
Fees payable to the Company’s auditor and its associates for other services
- The audit of the Company’s subsidiaries pursuant to legislation
- Transaction and other services
2016
£m
2015
£m
0.1
0.1
0.4
0.2
0.4
0.1
101
Annual Report & Accounts 2016
Section 2 – Results for the Year
2.2 Restructuring costs, charges associated with acquisition of businesses
and impairment of goodwill
Restructuring costs, charges associated with acquisition of businesses and impairment of goodwill are excluded from key
performance measures in order to more accurately show the underlying current business performance of the Group in a consistent
manner. This also reflects how the business is managed and measured on a day-to-day basis. Restructuring costs comprise
employment termination and other site rationalisation costs. Charges associated with acquisition of businesses include non-cash
charges such as amortisation of acquired intangible assets and cash charges such as transaction costs and earnout payments.
Restructuring costs (1)
Earnout payments and purchase price adjustment (2)
Transaction costs relating to acquisition of businesses (3)
Amortisation of acquired intangible assets
Charges associated with acquisition of businesses
Impairment of goodwill (4)
2016
£m
(5.2)
(1.2)
(0.6)
(7.9)
(9.7)
(12.1)
2015
£m
(4.9)
(2.6)
(0.1)
(5.4)
(8.1)
-
(1) Restructuring costs of £5.2 million primarily relate to the Group streamlining certain operations by downsizing selected activities mainly in the UK, US and Europe. This specific restructuring programme
commenced in 2015 and finished in 2016. This comprises employment termination costs of £3.5 million and other rationalisation costs of £1.7 million. Of the total £5.2 million restructuring costs, £4.7
million is in operating expenses and the remaining £0.5 million is included in cost of sales. A provision of £1.5 million has been recognised at the end of the period in relation to restructuring primarily
related to committed redundancy costs. These actions have better positioned the Group for the future.
(2) A net charge of £1.2 million relates to earnout payable of £1.4 million (US$2.0 million) and a credit on the receipt of £0.2 million for the purchase price adjustment of Autocue (acquired in 2014) which
was agreed with the vendors during the year. See note 3.4 “Acquisitions”. The earnout to Wooden Camera was as a result of its performance for the year ending 31 December 2016.
See note 3.5 “Provisions”.
(3) Transaction costs of £0.6 million were incurred in relation to acquisitions in the year. See note 3.4 “Acquisitions”.
(4) The annual impairment review of goodwill led to an impairment charge of £12.1 million (US broadcast services business: £4.2 million, Haigh-Farr: £7.9 million, both in the Broadcast Division).
See note 3.1 “Intangible assets”.
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;
- other interest receivable;
- foreign exchange gains and losses on cash and inter company loans that are not net investment hedges; and
- net interest expense on net defined benefit scheme liabilities.
Net finance expense
Finance income
Net currency translation gains
Finance expense
Interest payable on interest-bearing loans and borrowings
Net interest expense on net defined benefit pension scheme liabilities (1)
Net finance expense
(1) See note 5.2 “Pensions”.
102
2016
£m
2015
£m
0.4
0.3
(4.2)
(0.2)
(4.4)
(4.0)
(4.0)
(0.2)
(4.2)
(3.9)
The Vitec Group plc
2.4 Tax
This note sets 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 in the Income Statement is analysed as follows:
Before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill
Current tax
Deferred tax
Restructuring costs, charges associated with acquisition of businesses and impairment of goodwill
Current tax (1)
Deferred tax (2)
Summarised in the Income Statement as follows:
Current tax
Deferred tax
2016
£m
2015
£m
13.3
(3.1)
10.2
(4.9)
(3.8)
(8.7)
8.4
(6.9)
1.5
7.5
2.1
9.6
(1.2)
(2.9)
(4.1)
6.3
(0.8)
5.5
(1) Current tax credits of £4.9 million (2015: £1.2 million) were recognised in the year of which £0.7 million (2015: £0.2 million) related to restructuring costs and £4.2 million (2015: £1.0 million)
related to amortisation of intangible assets.
(2) Deferred tax credits of £3.8 million (2015: £2.9 million) were recognised in the year of which £1.1 million (2015: £1.1 million) related to restructuring costs, £0.7 million (2015: £1.0 million)
to acquisitions and £2.0 million (2015: £0.8 million) to amortisation of intangible assets.
103
Annual Report & Accounts 2016
Section 2 – Results for the Year
2.4 Tax
Current tax expense
Charge for the year
Adjustments in respect of prior years
Total current tax expense
2016
£m
8.9
(0.5)
8.4
2015
£m
6.0
0.3
6.3
The UK current tax charge represents a charge of £0.3 million (2015: £0.1 million) of the total Group current tax charge of £8.4 million (2015: £6.3 million),
with the remaining £8.1 million (2015: £6.2 million) charge relating to overseas tax.
Deferred tax credit
Origination and reversal of temporary differences
Adjustments in respect of prior years
Total deferred tax credit
2016
£m
2015
£m
(6.2)
(0.7)
(6.9)
(0.8)
-
(0.8)
The UK deferred tax credit represents £1.6 million (2015: £0.8 million) and the US deferred tax credit represents £5.3m (2015: £nil) of the total Group deferred tax
credit of £6.9 million (2015: £0.8 million), with £nil (2015: £nil) relating to overseas tax. Reductions in the UK corporation tax rate from 20% to 19% (effective from
1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. A further reduction to 17% (effective 1 April 2020 and replacing
the rate enacted in 2015) was substantively enacted on 6 September 2016. This will reduce the company’s future current tax charge accordingly. The UK deferred
tax asset at 31 December 2016 has been calculated based on these rates.
A reduction in the Italian corporate income tax (IRES) rate from 27.5% to 24% from 1 January 2017 has been enacted by the Italian Parliament. The Italian deferred
tax asset at 31 December 2016 has been calculated based on these rates.
Tax charge in Statement of Changes in Equity (SOCIE)
Current tax recognised in SOCIE (3)
Deferred tax recognised in SOCIE (4)
(3) No current tax deductions have been reflected in the SOCIE in both the current and prior year.
(4) A deferred tax charge of £0.1 million (2015: £0.4 million) relating to the impact of share based payments on outstanding options, has been reflected in the SOCIE.
Reconciliation of Group tax charge
Profit before tax
Income tax using the domestic corporation tax rate at 20% (2015: 20.25%)
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Impact of tax credits in respect of prior years
Impact of tax losses not recognised
Other
Total income tax expense in Income Statement
2016
£m
-
0.1
0.1
2015
£m
-
0.4
0.4
2016
£m
2015
£m
10.5
18.5
2.1
(1.4)
1.5
(1.2)
(0.3)
0.8
1.5
3.7
0.7
0.3
0.4
1.2
(0.8)
5.5
104
The Vitec Group plc
Tax - Balance Sheet
Current tax
The current tax liability of £8.1 million (2015: £6.6 million) represents the amount of income taxes payable in respect of current and prior periods. The current tax
asset of £0.7 million (2015: £0.9 million) mainly relates to income tax receivable in the UK, the US and France.
The Group is potentially subject to tax audits in many jurisdictions. By their nature these are often complex and could take a significant period of time to be agreed
with the tax authorities. The Group estimates and accrues taxes that will ultimately be payable when reviews or audits by tax authorities of tax returns are completed.
These estimates include Management judgements about the position expected to be taken by each tax authority, primarily in respect of transfer pricing as well as in
respect of financing arrangements and tax credits and incentives.
Management estimates of the level of risk arising from tax audit may change in the next year as a result of changes in legislation or tax authority practice or
correspondence with tax authorities during a specific tax audit. It is not possible to quantify the impact that such future developments may have on the Group’s tax
positions. Actual outcomes and settlements may differ significantly from the estimates recorded in these consolidated financial statements.
Deferred tax assets and liabilities
Assets
Inventories
Intangible assets
Tax value of loss carry-forwards recognised
Property, plant, equipment & other
Liabilities
Intangible assets
Net
Assets
Inventories
Intangible assets
Tax value of loss carry-forwards recognised
Property, plant, equipment & other
Liabilities
Intangible assets
Net
Recognised Recognised
in
in
income
£m
Exchange
reserves movements
£m
£m
2016
£m
3.0
(0.3)
6.3
17.6
26.6
(2.4)
24.2
0.1
2.9
0.5
3.3
6.8
0.1
6.9
-
-
-
1.7
1.7
-
1.7
Recognised Recognised
in
in
income
£m
Exchange
reserves movements
£m
£m
2015
£m
2.7
(3.0)
4.8
10.7
15.2
(2.1)
13.1
0.3
2.2
(1.8)
0.3
1.0
(0.2)
0.8
-
-
-
(0.4)
(0.4)
-
(0.4)
(0.4)
2.5
(2.1)
13.1
2015
£m
2.7
(3.0)
4.8
10.7
15.2
2014
£m
2.5
(5.1)
6.3
10.5
14.2
0.2
(0.2)
1.0
1.9
2.9
(0.1)
(0.1)
0.3
0.3
0.4
(0.1)
0.3
(1.8)
12.4
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 £17.5 million (2015: £9.8 million) have been recognised in the US on the basis that future profits are expected to be made
across all of 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 losses of £17.3 million (2015: £16.1 million) 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 totalled approximately £40.8 million at 31 December
2016 (2015: £23.3 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.
105
Annual Report & Accounts 2016
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 restructuring costs, charges associated with acquisition of businesses and impairment of
goodwill, all net of tax.
The calculation of basic, diluted and adjusted EPS is set out below:
Profit for the financial year
Add back restructuring costs, charges associated with acquisition of businesses and impairment of goodwill, net of tax
Earnings before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill
2016
£m
9.0
18.3
27.3
2015
£m
13.0
8.9
21.9
Basic
Dilutive potential ordinary shares
Diluted
Weighted average number
of shares ’000
Adjusted earnings
per share
Earnings per share
2016
Number
44,568
96
44,664
2015
Number
44,364
133
44,497
2016
pence
61.3
(0.1)
61.2
2015
pence
49.4
(0.1)
49.3
2016
pence
20.2
(0.1)
20.1
2015
pence
29.3
(0.1)
29.2
106
The Vitec Group plc
Section 3 – Operating Assets and Liabilities
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 “Tax”.
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 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
- 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. Goodwill is allocated
on acquisition to cash-generating units (“CGU”) 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 CGU 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 CGU, including both its operating profit and operating cash flow performance.
Where the recoverable amount of the CGU is less than the carrying amount, an
impairment loss is recognised. Impairment losses on goodwill are not reversed.
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.
Other intangible assets
Other intangible assets are either acquired or internally generated (such as
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 10 years
3 to 10 years
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. Software expenditure is amortised over its estimated useful life
of between three to five years, and is stated at cost less accumulated
amortisation and impairment losses.
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 product, any
further expenditure incurred on the project is capitalised, typically up to two to
three years. 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 product, and is stated at cost less accumulated
amortisation and impairment losses.
107
Annual Report & Accounts 2016
Section 3 – Operating Assets and Liabilities
3.1 Intangible assets
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 CGUs which are identified by the way goodwill is
monitored for impairment. The most significant elements of the Group’s total
consolidated goodwill of £64.0 million at 31 December 2016 are allocated to:
Vitec Videocom: £30.1 million (2015: £27.7 million); Photographic: £15.4 million
(2015: £13.3 million); and Creative Solutions: £9.6 million (2015: £8.0 million).
The Vitec Videocom and Creative Solutions CGUs sit within the Broadcast
segment and the Photographic CGU sits within the Photographic segment.
The remaining goodwill relates to CGUs which are not individually significant.
Each CGU 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
CGU based on the actual operating results, the most recent Board approved
budget, strategic plans and management projections.
A goodwill impairment of £12.1 million (2015: £nil) has been charged to the
Income Statement. See note 2.2 “Restructuring costs, charges associated with
acquisition of businesses and impairment of goodwill”. This is in relation to a
£7.9 million partial impairment of goodwill in the Haigh-Farr business and a
full impairment of £4.2 million of goodwill relating to the US broadcast services
business, both within the Broadcast segment. The long-term prospects for
Haigh-Farr remain good but the outlook has been reduced to reflect recent
trading activity. The US broadcast services business sold non-core assets
during the year, converting a proportion of its balance sheet into cash,
and has faced a significant downturn in its rentals activity.
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
2021 and the discount rates applied. The key judgements are the level of
revenue and operating margins anticipated and the proportion of operating profit
converted into cash flow 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 2021 are assumed to be 1% to 2%
(2015: 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 13% to 15% (2015: 9% to 11%) reflecting different geographies have been
used for impairment testing (13% (2015: 11%) applied to the Vitec Videocom
and Photographic CGUs; 15% (2015: 9%) applied to other CGUs).
The following specific individual sensitivities of reasonable possible change
have been considered for each CGU in isolation in relation to the value in use
calculations. For the Vitec Videocom, Photographic and Creative Solutions CGUs,
the carrying value did not exceed the recoverable amount. For the Haigh-Farr
and US broadcast services CGUs, the carrying value did exceed the recoverable
amount, and an impairment has been recognised accordingly. Any further
adverse change in key assumptions in excess of these sensitivities could
result in a further impairment loss to be recognised:
- if the long-term growth rate assumption was reduced by 1% point;
- a 1% point increase in the discount rate applied; and
- a 10% reduction in forecast cashflow over the next five years.
108
The Vitec Group plc
Intangible assets
Cost
At 1 January 2015
Currency translation adjustments
Additions
Disposals
Acquisitions
At 31 December 2015
At 1 January 2016
Currency translation adjustments
Additions
Disposals
Acquisitions (1)
At 31 December 2016
Amortisation and impairment losses
At 1 January 2015
Currency translation adjustment
Amortisation in the year
Impairment charge
Disposals
At 31 December 2015
At 1 January 2016
Currency translation adjustment
Amortisation in the year
Impairment charge (2)
Disposals
At 31 December 2016
Carrying amounts
At 1 January 2015
At 31 December 2015 and 1 January 2016
At 31 December 2016
(1) See note 3.4 “Acquisitions”.
(2) See note 2.2 “Restructuring costs, charges associated with acquisition of businesses and impairment of goodwill”.
Total
£m
Goodwill
£m
Acquired
intangible
assets
£m
Capitalised
development
costs
£m
Software
£m
127.4
3.8
4.2
(0.4)
4.6
139.6
139.6
20.6
3.4
(0.2)
16.2
179.6
40.3
1.0
7.8
0.2
(0.4)
48.9
48.9
8.8
11.0
12.1
(0.2)
80.6
87.1
90.7
99.0
66.1
2.4
-
-
3.2
71.7
71.7
10.3
-
-
1.2
83.2
4.8
0.2
-
-
-
5.0
5.0
2.1
-
12.1
-
19.2
61.3
66.7
64.0
40.6
1.5
-
-
1.4
43.5
43.5
7.3
-
-
15.0
65.8
22.5
0.9
5.4
-
-
28.8
28.8
4.7
7.9
-
-
41.4
18.1
14.7
24.4
14.4
(0.2)
1.3
(0.4)
-
15.1
15.1
1.8
1.4
(0.2)
-
18.1
11.8
(0.2)
1.0
-
(0.4)
12.2
12.2
1.4
1.3
-
(0.2)
14.7
2.6
2.9
3.4
6.3
0.1
2.9
-
-
9.3
9.3
1.2
2.0
-
-
12.5
1.2
0.1
1.4
0.2
-
2.9
2.9
0.6
1.8
-
-
5.3
5.1
6.4
7.2
109
Annual Report & Accounts 2016
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 at the date of transition.
Rental assets are recorded as plant and machinery.
Non-current assets held for sale
Non-current assets are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
They are measured at the lower of carrying amount and fair value less costs to sell.
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.
110
The Vitec Group plc
Land machinery
and
vehicles
£m
and
buildings
£m
Plant, Equipment,
fixtures
and
fittings
£m
Property, plant and equipment
Cost
At 1 January 2015
Currency translation adjustments
Reclassified as current assets (1)
Transfers between asset categories
Additions
Disposals
Fair value adjustments on previous acquisitions
At 31 December 2015
At 1 January 2016
Currency translation adjustments
Transfers between asset categories
Additions
Disposals
Acquisitions
At 31 December 2016
Depreciation
At 1 January 2015
Currency translation adjustment
Reclassified as current assets (1)
Depreciation charge in the year
Disposals
At 31 December 2015
At 1 January 2016
Currency translation adjustment
Transfers between asset categories
Depreciation charge in the year
Disposals
At 31 December 2016
Carrying amounts
At 1 January 2015
At 31 December 2015 and 1 January 2016
At 31 December 2016
Total
£m
142.1
0.5
(2.6)
-
16.4
(17.2)
(0.2)
139.0
139.0
22.3
-
13.4
(21.4)
0.1
153.4
87.3
(0.6)
(1.6)
13.8
(13.7)
85.2
85.2
13.8
-
15.3
(14.9)
99.4
54.8
53.8
54.0
30.7
(0.4)
(2.6)
-
0.4
(0.4)
-
27.7
27.7
3.8
0.4
0.3
(6.8)
-
25.4
15.3
(0.3)
(1.6)
1.1
(0.2)
14.3
14.3
1.9
0.3
1.0
(4.1)
13.4
15.4
13.4
12.0
97.6
1.0
-
(0.2)
15.0
(13.4)
(0.2)
99.8
99.8
17.0
-
12.1
(13.0)
0.1
116.0
61.1
(0.1)
-
11.8
(10.4)
62.4
62.4
10.8
-
12.8
(9.2)
76.8
36.5
37.4
39.2
Plant, machinery and vehicles include equipment rental assets with an original cost of £56.8 million (2015: £51.5 million) and accumulated depreciation
of £32.1 million (2015: £26.0 million).
Capital commitments at 31 December 2016 for which no provision has been made in the accounts amount to £1.2 million (2015: £1.1 million).
(1) During the previous year freehold land and buildings with a net book value of £1.0 million were reclassified as non-current assets held for sale. These were disposed of in 2016.
13.8
(0.1)
-
0.2
1.0
(3.4)
-
11.5
11.5
1.5
(0.4)
1.0
(1.6)
-
12.0
10.9
(0.2)
-
0.9
(3.1)
8.5
8.5
1.1
(0.3)
1.5
(1.6)
9.2
2.9
3.0
2.8
111
Annual Report & Accounts 2016
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, judgement is applied to assess the level of provisions required to write down slow-moving, excess and obsolete inventory to
its net realisable value.
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
During the year £2.1 million (2015: £2.4 million) was recognised as an expense resulting from the write-down of inventory.
2016
£m
19.3
6.7
31.9
57.9
2015
£m
15.9
6.7
36.3
58.9
112
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 - ageing (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 2016
Net increase during the year
Utilised during the year
Currency translation adjustments
Balance at 31 December 2016
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
2016
£m
50.9
8.1
7.2
66.2
0.9
67.1
2016
£m
43.2
5.9
1.8
0.7
1.6
53.2
2015
£m
38.3
7.0
5.4
50.7
0.6
51.3
2015
£m
33.6
4.1
1.3
0.3
1.0
40.3
Overdue
debts
£m
Sales
returns and
discounts
£m
1.2
0.4
(0.2)
0.1
1.5
0.8
0.7
(0.8)
0.1
0.8
Total
£m
2.0
1.1
(1.0)
0.2
2.3
2016
£m
26.8
3.3
25.2
55.3
2015
£m
24.9
2.9
15.7
43.5
113
Annual Report & Accounts 2016
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 and liabilities acquired, including contingent
considerations assumed. This includes the separate identification of intangible assets and the allocation of 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 until the assessment is complete the allocation period will remain open up
to a maximum of 12 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.
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 Manfrotto Distribution Benelux (formerly Provak Foto Film Video B.V.)
On 13 January 2016, the Group acquired 100% of the issued share capital of Manfrotto Distribution Benelux B.V. (formerly Provak Foto Film Video B.V.), based in the
Netherlands, through a business combination for a net cash consideration of e1.2 million (£0.9 million). The acquisition complements the Group’s owned distribution
channels. The fair value of the net assets acquired in the business at acquisition date was £0.4 million resulting in goodwill of £0.5 million.
A summary of the effect of the acquisition of Manfrotto Distribution Benelux is detailed below:
Net assets acquired
Inventories
Trade and other receivables
Trade and other payables
Goodwill
Consideration satisfied from existing cash resources
Book and
fair value of
net assets
acquired
£m
0.2
0.4
(0.2)
0.4
0.5
0.9
The trade receivables acquired had a fair value and a gross contractual value of £0.3 million. No net deferred tax asset or liability has arisen on the net
assets acquired.
Acquisition of Offhollywood
On 12 April 2016, the Group acquired the business and some of the assets of Offhollywood Digital, LLC (“Offhollywood”), based in the US, through a business
combination for an initial net cash consideration of US$2.2 million (£1.5 million). The fair value of the net assets acquired in the business at acquisition date was
£1.5 million resulting in goodwill of £nil. Under the terms of the acquisition, there is a potential earnout payment of up to US$8.0 million that is dependent on the
performance against demanding gross profit targets over the period to December 2018. There was no earnout payable in relation to its performance in 2016.
Offhollywood provides camera-back modules for RED cameras and other services to a similar customer base to that serviced by the Group’s existing higher
technology businesses, and its products will be marketed through the Group’s global distribution network.
114
The Vitec Group plc
A summary of the effect of the acquisition of Offhollywood is detailed below:
Book
value at
Fair value
acquisition adjustments
£m
£m
Fair value of
net assets
acquired
£m
Net assets acquired
Intangible assets
Trade and other payables
Goodwill
Consideration satisfied from existing cash resources
-
(0.1)
(0.1)
1.6
-
1.6
1.6
(0.1)
1.5
-
1.5
The process to identify the fair values of the assets and liabilities acquired was completed in the year. As a result, an increase in intangible assets of £0.8 million was
recognised since the half year. No net deferred tax asset or liability has arisen on the net assets acquired.
Acquisition of Wooden Camera
On 19 September 2016, the Group acquired the whole of the share capital of Wooden Camera, Inc. and Wooden Camera Retail, Inc., (“Wooden Camera”), both based
in the US, through a business combination for an initial net cash consideration of US$19.5 million (£14.9 million) after taking account of US$0.6 million (£0.5 million)
of cash in the business at acquisition date. The fair value of the net assets acquired, excluding cash in the business at acquisition date was £14.2 million resulting in
goodwill of £0.7 million. Wooden Camera designs, manufactures and retails directly and online, essential professional camera accessories used by broadcasters and
independent content creators. The acquisition complements the Group’s existing range of products. Wooden Camera operates within the Broadcast Division.
Under the terms of the acquisition, there is a potential earnout payment of up to US$15.0 million payable in cash. This is dependent on the performance against demanding
EBITDA targets over the period to December 2018. In 2016 an amount of £1.5 million (US$2.0 million) was provided for in relation to its performance in 2016.
A summary of the effect of the acquisition of Wooden Camera is detailed below:
Book
value at
Fair value
acquisition adjustments
£m
£m
Fair value of
net assets
acquired
£m
Net assets acquired
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Provisions
Cash
Goodwill
Consideration satisfied from existing cash resources
-
0.1
0.8
0.8
(0.1)
-
0.5
2.1
13.2
-
(0.2)
(0.2)
-
(0.2)
-
12.6
13.2
0.1
0.6
0.6
(0.1)
(0.2)
0.5
14.7
0.7
15.4
The trade receivables acquired had a gross contractual value of £0.7 million and a fair value of £0.5 million. No net deferred tax asset or liability has arisen on the
acquisition due to a joint election made by the sellers and the Group to treat the acquisition as an asset acquisition for tax purposes.
115
Annual Report & Accounts 2016
Section 3 – Operating Assets and Liabilities
3.4 Acquisitions
The results of the acquisitions made during the year comprise the following:
Revenue
Operating profit/(loss)
Manfrotto
Distribution
Benelux Offhollywood
£m
£m
Wooden
Camera
£m
1.2
0.2
1.2
(0.6)
2.0
0.4
Had the acquisitions been made at the beginning of the year (i.e. 1 January 2016), they would have contributed £9.9 million to revenue and £0.7 million to the
operating profit of the Group. The level of profitability is stated after amortisation of intangible assets.
An analysis of the cash flows relating to acquisitions is provided below:
Net outflow of cash in respect of acquisitions
Cash consideration (1)
Cash acquired
Transaction costs
Net cash outflow in respect of 2016 acquisitions
Cash paid in respect of contingent consideration for Teradek (acquired in 2013)
Cash received in relation to the purchase price adjustment for Autocue (acquired in 2014), agreed with the vendors during the period
Cash paid in 2016 in respect of prior year acquisitions
Net cash outflow in respect of acquisitions (2)
2016
£m
18.0
(0.5)
0.6
18.1
3.0
(0.2)
2.8
20.9
(1) Cash consideration of £18.0 million includes £0.2 million relating to the purchase of the intellectual property of Xume technology in September 2016. This has been fully amortised in the year.
(2) Of the £20.9 million net cash outflow in respect of acquisitions, transaction costs of £0.6 million are included in cash flows from operating activities and the net cash consideration paid of
£20.3 million is included in cash flows from investing activities.
Teradek, acquired in August 2013
Under the terms of the acquisition, there was a total potential contingent consideration of US$15.5 million that was dependent on the performance against demanding
EBIT targets over the three year period to 31 December 2015. In 2014 the Group paid £2.0 million (US$3.2 million) in relation to Teradek’s performance in 2013,
of which £1.5 million was paid in cash and the remaining £0.5 million was satisfied by the issue of 72,933 new Vitec ordinary shares. In 2015 an amount of
£5.2 million (US$8.0 million) was paid in cash in relation to Teradek’s performance in 2014. In 2016 an amount of £3.0 million (US$4.0 million) was paid in cash
in relation to Teradek’s performance in 2015. See note 2.2 “Restructuring costs, charges associated with acquisition of businesses and impairment of goodwill”
and note 3.5 “Provisions”.
116
The Vitec Group plc
Acquisitions in 2015
Acquisition of Paralinx
On 27 February 2015, the Broadcast Division of the Group acquired the assets of Paralinx, LLC (“Paralinx”), based in the US, through a business combination
for a net cash consideration of US$6.2 million (£4.0 million) after taking account of US$0.3 million (£0.2 million) of cash in the business at acquisition date.
The fair value of the net assets acquired excluding cash in the business at acquisition date was £1.9 million (Intangible assets: £1.4 million, Inventories: £0.4 million,
Trade and other receivables: £0.2 million, Provisions: (£0.1 million)) resulting in goodwill of £2.1 million. No net deferred tax asset or liability has arisen on the
net assets acquired.
Acquisition of Panlight
On 2 November 2015, the Group acquired the whole of the issued share capital of Panlight Limited (“Panlight”), a private company based in the UK, for a
consideration of £0.1 million. The fair value of the net assets acquired was £nil resulting in goodwill of £0.1 million. No net deferred tax asset or liability has
arisen on the net assets acquired.
The 2015 results of the acquisitions made in that year were included in the Broadcast Division and comprise the following:
Revenue
Operating profit (1)
Paralinx
£m
Panlight
£m
3.4
1.2
-
-
Had the acquisitions been made at the beginning of the year (i.e. 1 January 2015), they would have contributed £4.0 million (Paralinx: £4.0 million,
Panlight: £nil) to revenue and £1.3 million (Paralinx: £1.3 million, Panlight: £nil) to the operating profit (1) of the Group.
(1) Operating profit is stated before amortisation of intangible 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
Cash consideration
Cash acquired
Transaction costs
Net cash outflow in respect of 2015 acquisitions
Cash paid in relation to Teradek, acquired in August 2013
Cash received in relation to SmallHD, acquired in December 2014
Cash paid in 2015 in respect of prior year acquisitions
Net cash outflow in respect of acquisitions (2)
(2) Of the £9.1 million net cash outflow in respect of acquisitions, transaction costs of £0.1 million are included in cash flows from operating activities and the net cash consideration paid of £9.0 million
is included in cash flows from investing activities.
2015
£m
4.3
(0.2)
0.1
4.2
5.2
(0.3)
4.9
9.1
117
Annual Report & Accounts 2016
Section 3 – Operating Assets and Liabilities
3.5 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 2016
Charged to the Income Statement
Provisions utilised during the year
Acquisition of subsidiary undertaking
Currency translation adjustments
At 31 December 2016
Current
Non-current
Total
£m
Warranty Restructuring
£m
£m
Onerous
lease
and other
£m
Earnout
£m
9.3
8.1
(12.8)
0.2
1.2
6.0
4.9
1.1
6.0
1.0
0.8
(0.7)
-
0.1
1.2
0.6
0.6
1.2
3.2
5.5
(7.4)
-
0.2
1.5
1.5
-
1.5
2.4
0.4
(1.7)
0.2
0.4
1.7
1.2
0.5
1.7
2.7
1.4
(3.0)
-
0.5
1.6
1.6
-
1.6
118
The Vitec Group plc
Warranty provisions
Warranties over the Group’s products typically cover periods of between one 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 the Group streamlining certain operations by downsizing selected activities mainly in the UK, US and Europe.
These planned actions are intended to better position the Group for the future. The restructuring provision is expected to be utilised by the end of 2017.
Onerous lease contracts and other
The onerous lease contracts provision of £0.4 million is in relation to non-cancellable leases on vacant property. Utilisation of the provision will be over
the remaining life of the leases of one year.
The other provision is mainly in relation to potential dilapidation costs on the termination of leases on occupied property that the Group entered into in previous years.
Earnout
The Group made an earnout payment of £3.0 million (US$4.0 million) provided for at 31 December 2015 in relation to Teradek, acquired in 2013.
The earnout provision at 31 December 2016 of £1.6 million (US$2.0 million) after currency translation adjustments is in respect of Wooden Camera.
See note 2.2 “Restructuring costs, charges associated with acquisition of businesses and impairment of goodwill” and note 3.4 “Acquisitions”.
119
Annual Report & Accounts 2016
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 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 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 at banks.
Cash and cash equivalents in the statement of cash flows includes 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 loans and 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:
(Decrease)/increase in cash and cash equivalents
Repayment of/(proceeds from) interest-bearing loans and borrowings
Decrease/(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 2016
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 2016
120
2016
£m
(0.8)
13.6
12.8
5.1
(16.7)
(11.6)
1.2
(76.3)
(75.1)
17.1
(0.3)
16.8
(91.9)
(75.1)
2015
£m
5.2
(8.5)
(3.3)
(0.6)
(1.5)
(2.1)
(5.4)
(70.9)
(76.3)
13.6
(1.1)
12.5
(88.8)
(76.3)
The Vitec Group plc
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 currency 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 businesses that operate around the world and accordingly
record their results in a number of different functional currencies. Some of these
operations also have some customers or suppliers that transact in a foreign
currency. The Group’s results which are reported in Sterling are therefore exposed
to changes in foreign currency exchange rates across a number of different
currencies with the most significant exposures relating to the US Dollar (USD),
Euro (EUR) and Japanese Yen (JPY). There has been volatility in currency
exchange rates during the year as a result of the EU referendum and other
factors. The Group proactively manages a proportion of its short-term
transactional foreign currency exposures using derivative financial instruments,
but remains exposed to the underlying translational movements which remain
outside the control of the Group.
The Group manages its transactional exposures to foreign currency risks through
the use of forward exchange contracts including the US Dollar, Euro and Japanese
Yen. Forward exchange contracts are typically used to hedge approximately 75%
of the Group’s forecasted foreign currency exposure in respect of forecast cash
transactions for the following 12 months. Forward exchange contracts may also
be used to hedge a proportion of the forecast cash transactions for the following
13 to 24 months. The forward exchange contracts currently have maturities of
less than two years at the Balance Sheet date.
The Group’s translational exposures to foreign currency risks relate to both the
Income Statement and net assets of overseas subsidiaries which are converted
into Sterling on consolidation. The Group does not seek to hedge the translational
exposure that arises primarily from changes in the exchange rates of the US
Dollar, Euro and Japanese Yen against Sterling. However the Group does finance
overseas investments partly through the use of foreign currency borrowings in
order to provide a net investment hedge over the foreign currency risk that arises
on translation of its 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. In addition the Group manages
the denomination of surplus cash balances across the overseas subsidiaries to
allow natural hedging where effective in any particular country.
It is estimated that the Group’s operating profit before restructuring costs, charges
associated with acquisition of businesses and impairment of goodwill for the year
ended 31 December 2016 would have increased/decreased by approximately
£1.4 million from a ten cent stronger/weaker US Dollar against Sterling, by
approximately £1.3 million from a ten cent stronger/weaker Euro against Sterling
and by approximately £0.3 million from a ten Yen stronger/weaker Japanese
Yen against Sterling. This reflects the impact of the sensitivities to translational
exposures and to the proportion of transactional exposures that is not hedged.
The Group, in accordance with its policy, does not use derivatives to manage
translational risks. During 2016 the Group’s operating profit included a net loss
of £5.0 million (2015: £2.2 million) in relation to the crystallisation of forward
exchange contracts as described later in this note.
It is estimated that statutory operating profit for the year ended 31 December
2016, that includes the one-off impairment of goodwill, restructuring costs and
charges associated with the acquisition of businesses, would have increased/
decreased by approximately £3.1 million from a ten cent stronger/weaker US
Dollar against Sterling, by approximately £1.5 million from a ten cent stronger/
weaker Euro against Sterling and by approximately £0.3 million from a ten Yen
stronger/weaker Japanese Yen against Sterling.
Interest rate risk
Interest rate risk comprises 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 2016, 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 £1.0 million.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial
obligations as they fall due.
The Group has a five year £125 million Multicurrency Revolving Credit Facility
Agreement with a syndicate comprising five banks: two UK banks, two American
banks, and one European bank, that expires in July 2021. The Group was utilising
39% of the £125 million Multicurrency Revolving Credit Facility at 31 December
2016. In 2011 the Group drew down US$50 million from a Private Placement
shelf facility with repayment due in May 2017.
121
Annual Report & Accounts 2016
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.
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
£125 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 changes over time in response to
underlying variables such as exchange rates. They 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.
Accounting policies
Derivative financial instruments
In accordance with Board approved policies, the Group uses derivative financial
instruments such as forward foreign exchange contracts to hedge its exposure
to fluctuations in foreign exchange rates arising from operational activities.
These are designated as cash flow hedges. It does not hold or use derivative
financial instruments for trading or speculative purposes.
Cash flow hedge accounting
Cash flow hedges 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
change in fair value arising is deferred in the cash flow hedging reserve within
equity, via the Statement of Comprehensive Income. The gain or loss relating
to the ineffective part is recognised in the Income Statement within net finance
expense. Amounts deferred in the cash flow hedging reserve are reflected
in the Income Statement in the periods when the hedged item is recognised in
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.
122
The Vitec Group plc
Forward exchange contracts
The following table shows the forward exchange contracts in place at the Balance Sheet date. These contracts mature in the next 24 months, therefore the cash flows
and resulting effect on profit and loss are expected to occur within the next 24 months.
Cash flow hedging contracts
USD / GBP forward exchange contracts
USD / EUR forward exchange contracts
EUR / GBP forward exchange contracts
JPY / GBP forward exchange contracts
JPY / EUR forward exchange contracts
As at 31
December
2016
millions
Average
exchange
rate of
contracts
As at 31
December
2015
millions
Average
exchange
rate of
contracts
Currency
USD
USD
EUR
JPY
JPY
17.1
42.3
25.9
769.1
1,233.4
1.37
1.13
1.25
159.2
124.1
21.0
47.2
28.4
1,009.0
1,059.0
1.52
1.15
1.33
179.1
134.6
A net loss of £5.0 million relating to forward exchange contracts was reclassified to the Income Statement, to match the crystallisation of the hedged forecast
cashflows which affect 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
2016
£m
Fair value
2016
£m
Carrying
value
2015
£m
Fair value
2015
£m
0.4
(6.0)
17.1
50.9
(26.8)
(43.0)
(49.2)
(56.6)
0.4
(6.0)
17.1
50.9
(26.8)
(43.7)
(49.2)
(57.3)
0.6
(2.2)
13.6
38.3
(24.9)
(34.9)
(55.0)
(64.5)
0.6
(2.2)
13.6
38.3
(24.9)
(35.6)
(55.0)
(65.2)
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.
123
Annual Report & Accounts 2016
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 US Dollar, Euro and Japanese Yen 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 including bank overdrafts, by currency:
Currency
US Dollar
Euro
Japanese Yen
At 31 December 2016
US Dollar
Euro
Sterling
Japanese Yen
At 31 December 2015
Fixed rate Floating rate
Total borrowings borrowings
£m
£m
£m
73.7
16.4
2.1
92.2
63.5
17.7
7.0
1.7
89.9
40.5
2.5
-
43.0
33.7
1.2
-
-
34.9
33.2
13.9
2.1
49.2
29.8
16.5
7.0
1.7
55.0
The floating rate borrowings comprise borrowings bearing interest at rates based on LIBOR. The fixed rate borrowings in US Dollar are due for repayment
on 11 May 2017.
124
The Vitec Group plc
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:
2016
Unsecured interest-bearing loans and borrowings including bank overdrafts
Trade payables
Forward exchange contracts
2015
Unsecured interest-bearing loans and borrowings
Trade payables
Forward exchange contracts
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 five years
- Committed facilities
Total
Carrying
amount
£m
(92.2)
(26.8)
(6.0)
(125.0)
Total
contractual
cash flows
£m
(95.1)
(26.8)
(6.0)
(127.9)
Within
one year
£m
(43.3)
(26.8)
(4.9)
(75.0)
From two
to five
years
£m
From six
to ten
years
£m
(51.8)
-
(1.1)
(52.9)
-
-
-
-
Carrying
amount
£m
(89.9)
(24.9)
(2.2)
(117.0)
Total
contractual
cash flows
£m
(94.2)
(24.9)
(2.2)
(121.3)
Within
one year
£m
(3.9)
(24.9)
(1.7)
(30.5)
From two
to five
years
£m
From six
to ten
years
£m
(90.0)
-
(0.5)
(90.5)
(0.3)
-
-
(0.3)
2016
£m
2015
£m
10.6
9.3
76.1
86.7
46.2
55.5
125
Annual Report & Accounts 2016
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 2016 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 2016
Exercise of share options
At 31 December 2016
Number of
shares
(thousands)
Nominal
value
£m
44,494
238
44,732
8.9
0.1
9.0
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 2016 the following options had been granted and remained outstanding under the Company’s share option schemes:
UK Sharesave schemes
International Sharesave schemes
Other Reserves
The nature and purpose of other reserves forming part of equity are as follows:
Number of
shares
(thousands)
Exercise
Dates
normally
prices exercisable
310 472p-543p 2017-2022
720 484p-522p 2017-2022
1,030
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 2016 the Company’s Employee
Benefit Trust held 46,782 ordinary shares.
126
The Vitec Group plc
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
Amounts arising in respect of the year
Interim dividend for the year ended 31 December 2016 of 9.9p (2015: 9.5p) per ordinary share
Proposed final dividend for the year ended 31 December 2016 of 17.3p (2015: 15.1p) per ordinary share
The aggregate amount of dividends paid in the year
Final dividend for the year ended 31 December 2015 of 15.1p (2014: 14.7p ) per ordinary share
Interim dividend for the year ended 31 December 2016 of 9.9p (2015: 9.5p) per ordinary share
2016
£m
4.4
7.7
12.1
6.7
4.4
11.1
2015
£m
4.2
6.7
10.9
6.5
4.2
10.7
The proposed final dividend for the year ended 31 December 2016 was recommended by the Directors. This is subject to approval by shareholders at the AGM
on Wednesday, 17 May 2017 and, if approved, will be paid on Friday, 19 May 2017. The dividend has not been included as a liability in these financial statements.
127
Annual Report & Accounts 2016
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
2016
£m
82.0
10.3
1.2
1.5
3.1
1.6
99.7
2015
£m
76.7
9.5
1.1
1.4
2.8
1.1
92.6
Details of Directors’ remuneration and share incentives are disclosed in the Remuneration Report. Employee costs exclude employment termination costs.
Average number of employees during the year
Broadcast
Photographic
Head Office
5.2 Pensions
2016
Total
2015
Total
958
697
21
1,676
1,072
739
22
1,833
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 ongoing service cost, past service costs and any cost or income relating to the curtailment or settlement of a pension scheme in operating
expenses in the Income Statement. The unwinding of the discount (above) is recognised as part of net financial expense.
128
The Vitec Group plc
Pension schemes
The Group has defined benefit pension schemes in the UK, Italy, Germany, Japan 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 2016 was £1.5 million (2015: £1.4 million). There were no
outstanding or prepaid contributions to these plans as at 31 December 2016 (or at 31 December 2015).
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 on the Group Balance Sheet
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
- Administration costs incurred during the period
- Past service gain
Included in operating expenses
Net interest expense on net defined benefit pension scheme liabilities
Total amounts charged to the Income Statement
UK defined benefit pension scheme
The UK defined benefit pension scheme, being significant, is disclosed below.
2016
£m
2015
£m
21.9
30.5
9.1
61.5
(74.5)
(13.0)
19.4
26.1
9.3
54.8
(60.9)
(6.1)
2016
£m
2015
£m
(8.8)
(4.2)
(13.0)
(2.5)
(3.6)
(6.1)
2016
£m
2015
£m
1.3
(0.1)
1.2
0.2
1.4
1.2
(0.1)
1.1
0.2
1.3
The nature of the UK scheme is a funded final salary scheme closed to future benefit accrual with effect from 31 July 2010. As a result, since that date, no contributions
are payable in respect of future accrual of benefits. As the 5 April 2016 funding valuation of the scheme disclosed a funding surplus, no recovery plan is required
under the Pensions Act 2004. As such, member and employer contributions to the scheme over the year to 31 December 2017 are expected to be £nil. The scheme
is subject to all legislation and regulations that apply to UK occupational pension schemes.
The main risk to which the Group is exposed by the scheme is that the cost of the benefits provided by the scheme is greater than expected, for example due to lower
than expected investment returns or members of the scheme living longer than expected, which may result in additional contributions being required from the Group.
In accordance with UK trust and pensions law, the pension scheme has a corporate trustee. Although the Group bears the financial cost of the scheme, the responsibility
for the management and governance of the scheme lies with the trustee, which has a duty to act in the best interest of members at all times. The assets of the
scheme are held in trust by the trustee who consults with the Group on investment strategy decisions.
129
Annual Report & Accounts 2016
Section 5 – Other Supporting Notes
5.2 Pensions
Impact on defined benefit obligation (“DBO”) of changes in the three key significant individual assumptions
Discount rate increased by 0.1% points
Inflation increased by 0.1% points
Life expectancy increased by one year
2016
-2%
+1%
+4%
2015
-2%
+1%
+3%
Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumptions shown.
Assumptions used by the actuary to value the liability of the defined benefit plan, on 31 December were:
Price inflation (RPI)
Price inflation (CPI)
Life expectancy of male / female aged 65 in 2016
Life expectancy of male / female aged 65 in 2030
Pension increase rate
- Discretionary (pre - 6 April 1997 accrual in excess of GMP)
- Guaranteed LPI 5% (6 April 1997 - 30 June 2008)
- Guaranteed LPI 5%, with 3% floor
- Guaranteed LPI 2.5% (accrual from 1 July 2008)
Discount rate
Change in DBO for the year to 31 December
Present value of DBO at start of year
Interest cost
Actuarial loss/(gain) on experience
Actuarial gain on demographic assumptions
Actuarial loss/(gain) on financial assumptions
Actual benefit payments
Past service gains
Present value of DBO at end of year
2016
% pa
2015
% pa
3.2
2.2
3.0
2.0
22.5 / 24.6 22.8 / 25.0
23.5 / 25.7 23.8 / 26.2
3.1
3.1
3.3
2.1
2.6
2.9
2.9
3.2
2.0
3.8
2016
£m
2015
£m
57.3
2.1
0.4
(1.1)
14.2
(2.5)
(0.1)
70.3
60.3
2.1
(0.5)
-
(2.1)
(2.4)
(0.1)
57.3
At 31 December 2016, the weighted-average duration of the scheme’s DBO was 18 years (2015: 18 years). The proportion of DBO in respect of pensions in payment is 50% and that in respect
of deferred pensioners is 50%.
Scheme assets and proportion which have quoted market price, at 31 December
Bonds
Equities
Diversified growth (bonds and equities)
Cash/non-cash assets
Insurance policies
Total value of assets
Note: The asset values shown are, where relevant, estimated bid values of market securities.
Fair
value
2016
£m
30.5
21.9
8.5
0.3
0.3
61.5
Quoted
split
%
Unquoted
split
%
100
76
100
-
-
-
24
-
100
100
Fair
value
2015
£m
26.1
19.4
8.6
0.3
0.4
54.8
130
The Vitec Group plc
Change in fair value of assets for the year to 31 December
Fair value of assets at start of year
Interest income on scheme assets
Return on scheme assets greater/(less) than discount rate
Actual benefit payments
Administration expenses paid
Fair value of assets at end of year
Development of net balance sheet position at 31 December
Present value of defined benefit obligation
Assets at fair value
Net defined benefit scheme liability
Reconciliation of net balance sheet position
Net defined benefit scheme liability at start of year
Total amounts charged to the Income Statement
Remeasurement effects recognised in Other Comprehensive Income (“OCI”)
Defined benefit scheme liability at end of year
Amounts recognised in the Group Income Statement
- Administration costs incurred during the period
- Past service gains
Included in operating expenses
Net interest expense on net defined benefit pension scheme liability
Total amounts charged to the Income Statement
Amounts recognised in OCI
Actuarial loss/(gain) due to liability experience
Actuarial loss/(gain) due to liability assumption changes
Actuarial loss/(gain) arising during the period
Return on scheme assets (greater)/less than discount rate
Remeasurement effects recognised in OCI
Defined benefit pension scheme cost
Administration costs incurred during the period
Past service gains
Net interest expense on net defined benefit pension scheme liability
Remeasurement effects recognised in OCI
Total defined benefit pension scheme cost
2016
£m
2015
£m
54.8
2.0
7.4
(2.5)
(0.2)
61.5
56.5
2.0
(1.0)
(2.4)
(0.3)
54.8
2016
£m
2015
£m
(70.3)
61.5
(8.8)
(57.3)
54.8
(2.5)
2016
£m
2015
£m
(2.5)
(0.2)
(6.1)
(8.8)
(3.8)
(0.3)
1.6
(2.5)
2016
£m
2015
£m
0.2
(0.1)
0.1
0.1
0.2
0.3
(0.1)
0.2
0.1
0.3
2016
£m
2015
£m
0.4
13.1
13.5
(7.4)
6.1
(0.5)
(2.1)
(2.6)
1.0
(1.6)
2016
£m
2015
£m
0.2
(0.1)
0.1
6.1
6.3
0.3
(0.1)
0.1
(1.6)
(1.3)
131
Annual Report & Accounts 2016
Section 5 – Other Supporting Notes
5.3 Share-based payments
Group employees participate in a number of employee incentive schemes including a Sharesave Scheme, 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 intrinsic 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 2016 was £1.9 million
(2015: £1.1 million), of which £0.3 million (2015: £nil) related to employers’ tax liability.
The outstanding employers’ tax liability recognised in the Balance Sheet for UK awards was £0.3 million (2015: £nil).
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 and 2011 International Sharesave Plan
as at 31 December 2016, together with their exercise prices and vesting periods, are as follows:
Number
outstanding
(thousands)
Weighted
average
Weighted
average
remaining
exercise contractual
life (years)
price (£)
678
352
1,030
4.88
5.18
4.98
3
2
2
Range of Exercise Prices
£4.51 - £5.00
£5.01 - £5.50
Total
132
The Vitec Group plc
Movements in these share option plans were as follows:
Awards at 31 December 2014
Exercised during 2015
Lapsed during 2015
Granted during 2015
Awards at 31 December 2015
Exercised during 2016
Lapsed during 2016
Granted during 2016
Awards at 31 December 2016
Awards exercisable at 31 December 2016
The weighted average share price at the date of exercise for share options exercised during the year was £5.99 (2015: £6.22).
Weighted
average
Exercise
Price (£)
Sharesave
(thousands)
737
(172)
(82)
501
984
(238)
(131)
415
1,030
9
5.05
5.30
5.09
5.00
4.98
5.03
5.00
5.02
4.98
5.02
Arrangement
Nature of arrangement
Date of grant
Number of instruments granted (thousands)
Exercise price
Share price at date of grant
Contractual life (years)
Expected option life (years)
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
2011 UK and
International
Sharesave
Scheme 3 Year
2011 UK and
International
Sharesave
Scheme 5 Year
2014
Long Term
Incentive
Plan
2014
Deferred
Bonus
Plan
“Save as you
earn scheme”
“Save as you
earn scheme”
“Save as you
earn scheme”
Share award
plan
Share award
plan
27 Sep 2016
27 Sep 2016
27 Sep 2016
1 March 2016
11 April 2016
223
£5.16
£5.92
2.3
2.1
179
£4.85
£5.92
3.6
3.3
13
£4.85
£5.92
5.6
5.3
2 year
service period
and savings
requirement
3 year
service period
and savings
requirement
5 year
service period
and savings
requirement
Shares
23.0%
0.03%
4.00%
5%
Shares
23.0%
0.06%
4.00%
5%
Shares
23.0%
0.20%
4.00%
5%
571
n/a
£5.35
n/a
n/a
Relative TSR
performance
against
comparator
group and
adjusted
EPS growth
Shares
22.6%
n/a
n/a
10%
100%
£5.35/£2.32 (2)
Black-Scholes Black-Scholes Black-Scholes Monte Carlo (3)
n/a
£1.00
n/a
£1.02
n/a
£0.85
14
n/a
£5.88
n/a
n/a
3 year
service
period
Shares
-
n/a
n/a
n/a
n/a
£5.88
n/a
(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 2014 LTIP, 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.
133
Annual Report & Accounts 2016
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 charged to the Income
Statement on a straight line basis over the lease term.
Total future minimum lease payments under non-cancellable operating leases
Expiring within one year
Expiring within two to five years
Expiring after five years
Land and
buildings
£m
5.1
11.7
1.8
18.6
Other
£m
0.4
1.0
-
1.4
Total
2016
£m
Land and
buildings
£m
5.5
12.7
1.8
20.0
5.5
10.1
1.1
16.7
Other
£m
0.1
0.7
-
0.8
Total
2015
£m
5.6
10.8
1.1
17.5
During the year £5.0 million (2015: £4.5 million) was recognised in the Income Statement in respect of operating lease payments.
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 Directors, 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, bonus arrangements and holdings of the Company’s shares are shown in detail in the
Remuneration Report.
The compensation of the ten (2015: six) members of the Operations Executive during the year, including the Executive Directors, is shown in the table below(1):
Salaries
Performance-related bonuses
Share-based payment charge (2)
Other short-term employee benefits
Post employment benefits
(1) Five members were appointed to the Operations Executive on 1 October 2016. The table includes their compensation for three months of 2016 only.
(2) IFRS 2 charge recognised in the Income Statement for share-based payment transactions with members of the Operations Executive.
2016
£m
1.7
1.5
0.6
0.2
0.3
2015
£m
1.5
0.4
0.4
0.1
0.2
134
The Vitec Group plc
5.6 Group investments
The Group’s subsidiaries at 31 December 2016 are listed below. All subsidiaries are 100% owned within the Group.
Company
ALC Broadcast Limited
Anton/Bauer Europe B.V.
Autocue Limited
Autocue LLC
Autoscript Limited
Bexel Global Broadcast Solutions Limited
Bogen Imaging UK Limited
Camera Corps Ltd
Camera Dynamics sarl
Chalfont Investments Inc.
Colorama Photodisplay Holdings Limited
Gitzo Limited
Gitzo S.A.
Haigh-Farr, Inc.
Henry (Holdings) Limited
Kata UK Limited
Kata Vitec P Limited
Lastolite Limited
LCB Beteiligungs GmbH
Lino Manfrotto & Co Spa
Litepanels Ltd
Manfrotto Bags Ltd
Manfrotto Distribution Benelux B.V.
Manfrotto Distribution GmbH
Manfrotto Distribution HK Limited
Manfrotto Distribution Inc.
Manfrotto Distribution KK
Manfrotto Distribution Limited
Manfrotto Distribution SAS
Manfrotto Distribution Shanghai Limited
Manfrotto UK Limited
Mount Olive 2016, LLC
Offhollywood, LLC
Palmer Dollar Finance
Palmer Dollar Finance Ireland Investment DAC
Palmer Dollar Finance Luxembourg Investment Sarl Luxembourg (20)
Netherlands (21)
Palmer Dollar Finance Netherlands B.V.
Ireland (19)
Palmer Euro Finance Ireland Investment DAC
County of
incorporation
England & Wales (1)
Netherlands (2)
England & Wales (1)
United States (3)
England & Wales (1)
England & Wales (1)
England & Wales (1)
England & Wales (1)
France (4)
United States (5)
England & Wales (1)
England & Wales (1)
France (6)
United States (7)
England & Wales (1)
England & Wales (1)
Israel (8)
England & Wales (1)
Germany (9)
Italy (10)
England & Wales (1)
Israel (8)
Netherlands (11)
Germany (12)
Hong Kong (13)
United States (14)
Japan (15)
England & Wales (1)
France (6)
China (16)
England & Wales (1)
United States (17)
United States (18)
England & Wales (1)
Ireland (19)
Issued securities
Ordinary shares of £1 each
Ordinary shares of e1 each
Ordinary share of £1 each
Membership units of NPV
Ordinary shares of £1 each
Ordinary share of £1 each
Ordinary share of £1 each
Ordinary shares of £1 each
Ordinary shares of NPV
Ordinary shares of US$0.01 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of NPV
Ordinary shares of US$1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of ILS1 each
Ordinary shares of £1 each
Ordinary shares of e25,000 each
Ordinary shares of e5.556 each
Ordinary shares of US$1 each
Ordinary shares of ILS1 each
Ordinary shares of e454 each
Shares of e25,000 each
Shares of HKD1 each
Ordinary shares of NPV
Shares of JP¥1 each
Ordinary shares of £1 each
Ordinary shares of e16 each
Ordinary shares of US$1 each
Ordinary shares of £1 each
Membership units of NPV
Membership units of NPV
Ordinary shares of US$1 each
Ordinary shares of US$1 each
Ordinary share of US$1,000 each
Ordinary shares of e1 each
Ordinary shares of e1 each
The registered address is as follows:
(1) Bridge House, Heron Square, Richmond, TW9 1EN, United Kingdom
(2) Sint Lambertuslaan 9, 6212 AR Maastricht, Netherlands
(3) 124 West 30th Street, Suite 312, New York, NY 10001, United States
(4) 171 avenue des Grésillons, 92635 Gennevilliers cedex, France
(5) Corporation Service Company, 2711 Centerville Road - Suite 400, Wilmington, DE 19808, United States
(6) Parc Tertiaire Silic, 44 Rue De La Couture, 94150 Rungis, France
(7) 40 Spring Hill Drive, Bedford, NH 03110, United States
(8) Abraham & Bachar cp., Keren Hayesod 36, Jerusalem, Israel
(9) Parkring 29, 85748 Garching, Germany
(10) Via Valsugana 100, 36022 Cassola VI, Italy
(11) J.P. Poelstraat 5, 1483 GC De Rijp, Netherlands
(12) Ferdinand-Porsche-Strasse 19, 41149 Cologne, Germany
(13) Unit No.03, 3/F, Tower 3, Phase 1, Enterprise Square, No.9 Sheung Yuet Road, Kowloon Bay, Hong Kong
(14) Corporation Service Company, 830 Bear Tavern Road, West Trenton, NJ 08628, United States
(15) Shibakoen 3-chome Bldg, 1F, 3-1-38 Shibakoen, Mikato-ku, Tokyo 105-0011, Japan
(16) Room 2704-05, Shanghai Mart Tower, No.2299, Yan’an Road (West), Shanghai, 200336, China
(17) Corporation Service Company, 2595 Interstate Drive – Suite 103, Harrisburg, PA 17110, United States
5.7 Subsequent events
There were no events after the Balance Sheet date that require disclosure.
County of
incorporation
Company
Palmer Euro Finance Luxembourg Investment Sarl Luxembourg (20)
Netherlands (21)
Palmer Euro Finance Netherlands B.V.
England & Wales (1)
Palmer Finance
Netherlands (21)
Palmer Finance Netherlands Cooperatief W.A.
England & Wales (1)
Palmer Yen Finance
England & Wales (1)
Panlight Limited
Israel (22)
Petrol Bags Limited
England & Wales (1)
Petrol Bags Limited
England & Wales (1)
Radamec Broadcast Systems Limited
Italy (10)
RECO Srl
England & Wales (1)
Sachtler Limited
United States (23)
SmallHD LLC
Ukraine (24)
Teradek Ukraine LLC
United States (25)
Teradek, LLC
England & Wales (1)
The Camera Store Limited
England & Wales (1)
Vinten Broadcast Limited
England & Wales (1)
Vinten Instruments Limited
Vitec Brasil Commercio Importacao e
Brazil (26)
Intermediacao de Tecnologias, Ltda
United States (5)
Vitec Broadcast Services Inc.
England & Wales (1)
Vitec Group Holdings Limited
Vitec Group Pensions Trust Company (UK) Limited England & Wales (1)
Vitec Group US Holdings, Inc.
Vitec Holdings Limited
Vitec Investments Limited
Vitec UK Finance Limited
Vitec UK Investments Limited
Vitec Videocom GmbH
Vitec Videocom KK
Vitec Videocom Limitada
Vitec Videocom Limited
Vitec Videocom Pte Limited
Vitec Videocom, Inc
Vitecgroup Italia spa
Wheatfield Kingston Finance (UK)
Wooden Camera, Inc.
Wooden Camera Retail, Inc.
United States (5)
Guernsey (27)
England & Wales (1)
England & Wales (1)
England & Wales (1)
Germany (9)
Japan (15)
Costa Rica (28)
England & Wales (1)
Singapore (29)
United States (5)
Italy (30)
England & Wales (1)
United States (31)
United States (31)
Issued securities
Ordinary shares of e1,000 each
Ordinary shares of e1 each
Ordinary shares of e1 each
Membership shares of e1 each
Ordinary shares of JP¥100 each
Ordinary shares of £1 each
Ordinary shares of ILS1 each
Ordinary share of £1 each
Ordinary shares of £1 each
Shares of NPV
Ordinary share of £1 each
Membership units of NPV
Membership interests of NPV
Membership units of NPV
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of £0.01 each
Shares of BRL1 each
Ordinary shares of US$0.01 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of US$0.01 each
Ordinary shares of £0.10 each
Ordinary shares of £1 each
Ordinary shares of US$1 each
Ordinary share of £1 each
Ordinary share of DEM50,000 each
Ordinary shares of JP¥1,000 each
Shares of CRC50 each
Ordinary shares of £1 each
Ordinary shares of SGD1 each
Ordinary shares of US$0.01 each
Ordinary shares of e1,000 each
Ordinary share of £1 each
Ordinary shares of NPV
Ordinary shares of NPV
(18) Corporation Service Center, 2711 Centerville Road - Suite 440,Wilmington, New Castle County DE 19808,
United States
(19) Regus Dublin Airport, Tasc Building, Corballis Road North, Dublin Airport, Sword, Dublin, Ireland
(20) 9B Boulevard du Prince Henri, L-1724, Grand Duchy of Luxembourg, Luxembourg
(21) Kerkrade, Netherlands
(22) 3 Hasolelim Street, 67897, Tel Aviv, Israel
(23) Corporation Service Company, 327 Hillsborough Street, Raleigh, NC 27603, United States
(24) Per. Nechipurenko 4, Suite 15, Odessa, 65045, Ukraine
(25) CSC-Lawyers Incorporating Service, 2710 Gateway Oaks Drive – Suite 150N, Sacramento, CA 95833-3505,
United States
(26) Robertson Emerenciano of Emerenciano, Baggio & Associados, Avenida Paulista, 1842 – 17º Andar, Edifício
Torre Norte, Brasil, CEP 01310-200
(27) Glategny Court, Glategny Esplanade, St. Peter Port, GY1 1WR, Guernsey
(28) Parque Industrial de Cartago, Edificio Numero 68, Cartago, Costa Rica
(29) 6 New Industrial Road, #02-02 Hoe Huat Industrial Building, 536199, Singapore
(30) Via Monte Rosa, 91, 20149 Milano, Italy
(31) 1826 West Commerce Street, Dallas TX 75208, United States
135
Annual Report & Accounts 2016
Notes
2016
£m
2015
£m
f)
g)
h)
i)
0.1
-
454.0
454.1
-
1.1
443.8
444.9
7.2
6.4
13.6
(52.8)
(39.2)
2.4
9.5
11.9
(8.6)
3.3
414.9
448.2
j)
(100.0)
314.9
(138.9)
309.3
k)
l)
9.0
15.4
0.9
55.3
234.3
314.9
8.9
14.3
0.9
55.3
229.9
309.3
Company Balance Sheet
As at 31 December 2016
Fixed assets
Intangible assets
Property, plant and equipment (2015: includes £1.0 million held for sale)
Investments in subsidiary undertakings
Current assets
Debtors
Cash at bank and in hand
Liabilities falling due within one year - creditors
Net current (liabilities)/assets
Total assets less current liabilities
Liabilities falling due after one year
Creditors
Net assets
Capital and reserves
Called up share capital
Share premium account
Revaluation reserve
Other reserves
Profit and loss account
Equity shareholders’ funds
Approved by the Board of Directors on 20 February 2017 and signed on its behalf:
Paul Hayes
Group Finance Director
The Vitec Group plc
Registered in England and Wales no. 227691
136
The Vitec Group plc
Company Statement of Changes in Equity
Balance at 1 January 2016
Total comprehensive income for the year
Profit for the year
Contributions by and distributions to owners
Dividends paid
Share-based payment charge, net of tax
New shares issued
Balance at 31 December 2016
Balance at 1 January 2015
Total comprehensive income for the year
Profit for the year
Contributions by and distributions to owners
Dividends paid
Share-based payment charge, net of tax
New shares issued
Balance at 31 December 2015
Share
capital
£m
Share Revaluation
reserve
£m
premium
£m
Other
reserves
£m
Profit
and loss
account
£m
Total
equity
£m
8.9
14.3
0.9
55.3
229.9
309.3
-
-
-
-
13.9
13.9
-
-
0.1
9.0
8.9
-
-
1.1
15.4
13.4
-
-
-
0.9
0.9
-
-
-
55.3
(11.1)
1.6
-
234.3
(11.1)
1.6
1.2
314.9
55.3
226.5
305.0
-
-
-
-
12.9
12.9
-
-
-
8.9
-
-
0.9
14.3
-
-
-
0.9
-
-
-
55.3
(10.7)
1.2
-
229.9
(10.7)
1.2
0.9
309.3
137
Annual Report & Accounts 2016
Notes to the Company Financial Statements
a) Basis of preparation
These financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”).
The amendments to FRS 101 (2014/2015 Cycle) issued in July 2014 and effective immediately have been applied.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International Financial Reporting
Standards as adopted by the EU (“Adopted IFRS”), but makes amendments where necessary in order to comply with Companies Act 2006, and has set
out below where advantage of the FRS 101 disclosure exemptions have been taken.
Under Section 408(3) of the Companies Act 2006, the Company is exempt from the requirement to present its own profit and loss account.
b) Exemptions taken by the Company under FRS 101
The Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• Cash Flow statement and related notes
• Comparative period reconciliations for share capital, tangible fixed assets and intangible assets
• Disclosures in respect of transactions with wholly owned subsidiaries
• Disclosures in respect of capital management
• The effects of new but not yet effective IFRS
• Disclosures in respect of the compensation of Key Management Personnel
As the consolidated financial statements of The Vitec Group plc include the equivalent disclosures, the Company has also taken the exemptions under FRS 101
available in respect of the following disclosures:
• IFRS 2 “Share-Based Payments” in respect of group settled share-based payments;
• Certain disclosures required by IFRS 13 “Fair Value Measurement” and the disclosures required by IFRS 7 “Financial Instruments: Disclosures”.
c) Accounting policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to these financial statements.
Property, plant and equipment
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.
Fixed assets are depreciated as follows:
Leasehold improvements
Equipment, fixtures & fittings
over the remaining period of the lease
three to ten years
Intangible assets
The cost of acquiring software (including associated implementation and development costs where applicable) is classified as an intangible asset. Costs associated
with maintaining computer software programmes are recognised as an expense as incurred. Software expenditure is amortised over its estimated useful life of
between three and five years, and is stated at cost less accumulated amortisation and impairment losses.
Investments in subsidiary undertakings
Investments in subsidiaries are stated at historical cost, less provision for any impairment in value.
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 has a very small proportion of the scheme’s total members. As such, the Group has adopted a policy to recognise the full net
pension cost, and hence pension deficit, in its subsidiary Vitec Videocom Limited’s financial statements prepared in accordance with FRS 101.
Details in respect of the UK defined benefit pension scheme are disclosed in note 5.2 “Pensions” of the Group’s consolidated financial statements.
Dividends receivable
Dividends received and receivable are credited to the Company’s Income Statement.
138
The Vitec Group plc
Other significant accounting policies are consistent with the Group’s consolidated financial statements and below are
references where they are disclosed:
Foreign currencies
Debtors and Creditors
Cash and cash equivalents
Provisions
Derivative financial instruments and hedging activities
Bank loans
Leases
Share-based payments
Share capital and reserves
d) Employees
Employee costs comprise:
Wages and salaries
Employers’ social security costs
Employers’ pension costs - defined contribution schemes
Share-based payment charge
Average number of employees during the year
Further details of Directors’ remuneration and share incentives are disclosed in the Remuneration Report.
Section 1 - Basis of preparation
3.3 “Working capital”
4.1 “Net debt”
3.5 “Provisions”
4.2 “Financial instruments”
4.1 “Net debt”
5.4 “Leases”
5.3 “Share-based payments”
4.3 “Share capital and reserves”
2016
£m
4.0
0.5
0.1
0.5
5.1
2016
21
2015
£m
3.4
0.4
0.1
0.4
4.3
2015
22
e) Audit fees
The details regarding the remuneration of the Company’s auditor are included in note 2.1 “Profit before tax” of the Group’s consolidated financial statements
under “Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements”.
f) Intangible assets
Cost
At 1 January 2016
Additions
At 31 December 2016
Accumulated amortisation
At 1 January 2016 and 31 December 2016
Net book value
At 31 December 2015
At 31 December 2016
Capitalised
software
£m
0.1
0.1
0.2
0.1
-
0.1
139
Annual Report & Accounts 2016
Notes to the Company Financial Statements
g) Property, plant and equipment
Cost
At 1 January 2016
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charge for the year
Disposals
At 31 December 2016
Net book value
At 31 December 2015
At 31 December 2016
Land and buildings
Total commitments under non-cancellable operating leases expiring:
Within one year
In two to five years
After five years
Total
£m
3.1
(2.6)
0.5
2.0
0.1
(1.6)
0.5
1.1
-
Freehold
land and
buildings
£m
Leasehold
buildings
£m
2.6
(2.6)
-
1.6
-
(1.6)
-
1.0
-
0.5
-
0.5
0.4
0.1
-
0.5
0.1
-
2016
£m
2015
£m
0.2
0.7
-
0.9
0.1
0.8
0.1
1.0
During the year £0.2 million was recognised as an expense in the profit and loss account in respect of operating lease payments (2015: £0.2 million).
h) Investments in subsidiary undertakings
Shares
in Group
Loans
to Group
Total undertakings undertakings
£m
£m
£m
Cost
At 1 January 2016
Additions
At 31 December 2016
Provisions
At 1 January 2016
Impairment losses
At 31 December 2016
Net book value
At 1 January 2016
At 31 December 2016
444.4
198.5
642.9
0.6
188.3
188.9
362.8
190.7
553.5
0.6
188.3
188.9
81.6
7.8
89.4
-
-
-
443.8
454.0
362.2
364.6
81.6
89.4
The additions and impairment losses in investments during the year reflect the Company’s restructuring of certain subsidiary holding and financing companies.
The Company’s investments in subsidiaries as at 31 December 2016 are included in note 5.6 “Group investments” of the Group’s consolidated financial statements.
140
The Vitec Group plc
i) Debtors
Amount falling due within one year
Other debtors
Derivative financial instruments - forward exchange contracts
Deferred tax assets
j) Creditors
Amounts falling due within one year
Bank loans (unsecured)
Amounts owed to subsidiary undertakings
Derivative financial instruments - forward exchange contracts
Corporation tax
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 2016 (2015: £nil).
2016
£m
1.4
5.5
0.3
7.2
2015
£m
0.7
1.6
0.1
2.4
2016
£m
2015
£m
40.5
3.5
5.5
0.2
-
3.1
52.8
-
5.1
1.6
0.1
0.4
1.4
8.6
48.9
51.1
100.0
87.5
51.4
138.9
k) Called up share capital
Disclosure in respect of the Company’s share capital is provided in note 4.3 “Share capital” of the Group’s consolidated financial statements.
Options over shares of the Company have been granted to employees of the Company under various plans. Details of the terms and conditions of each share-based
payment plan are given in the Remuneration Report on pages 64 to 85 and note 5.3 “Share-based payments” of the Group’s consolidated financial statements.
l) Other Reserves
Other reserves of £55.3 million represent a merger reserve of £9.7 million; 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; and a capital redemption reserve of £1.6 million created on the repurchase and subsequent cancellation of
885 thousand ordinary shares by the Company in 1999.
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.
141
Annual Report & Accounts 2016
Five Year Financial Summary
As at 31 December 2016
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
Interest paid
Tax paid
Net cash from operating activities
Net capital expenditure on property, plant and equipment, software and development costs
Free cash flow
Capital employed
Intangible assets
Property, plant and equipment
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 (p) (3)
Basic earnings per share (p)
Dividends per share (p)
Year end mid-market share price (p)
2016
£m
376.2
41.5
(4.2)
0.2
37.5
64.8
(5.2)
(7.2)
52.4
(7.8)
44.6
99.0
54.0
37.7
190.7
139.8
75.1
(24.2)
190.7
11.0
27.2
61.3
20.2
27.2
648.5
2015
£m
317.8
35.4
(4.0)
0.1
31.5
41.7
(4.0)
(5.6)
32.1
(15.9)
16.2
90.7
53.8
45.0
189.5
126.3
76.3
(13.1)
189.5
11.1
30.4
49.4
29.3
24.6
602.5
2014
£m
309.6
38.8
(3.6)
0.1
35.3
42.0
(3.3)
(3.5)
35.2
(17.0)
18.2
87.1
54.8
35.2
177.1
118.6
70.9
(12.4)
177.1
12.5
30.0
55.9
29.4
24.0
594.0
2013
£m
315.4
39.5
(3.6)
(0.3)
35.6
52.4
(3.6)
(8.5)
40.3
(18.9)
21.4
76.3
53.5
39.2
169.0
120.2
61.5
(12.7)
169.0
12.5
30.9
56.1
31.9
23.0
639.0
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
(1) Before restructuring costs, charges associated with acquisition of businesses and impairment of goodwill.
(2) Before restructuring costs, charges associated with acquisition of businesses, impairment of goodwill, and disposal of business.
(3) Differences between adjusted basic and basic earnings per share arise from restructuring costs, charges associated with acquisition of businesses, impairment of goodwill,
disposal of business and related tax in the years in question.
142
The Vitec Group plc
Shareholder Information and Financial Calendar
Shareholder Information
The Investors section of the Group website, www.vitecgroup.com, contains
detailed information on news, key financial information, annual reports,
financial calendar, share price information, dividends and key contact details.
The following is a summary and readers are encouraged to view the website
for more detailed information.
Shareholder enquiries
For all enquiries about your shareholding please contact our registrar:
Financial calendar
Ex-dividend date for 2016 final dividend
Thursday, 20 April 2017
Record date for 2016 final dividend
Friday, 21 April 2017
Annual General Meeting
Wednesday, 17 May 2017 (9.30am)
2016 final dividend payment date
Friday, 19 May 2017
Announcement of 2017 half year results
Thursday, 10 August 2017
Proposed 2017 interim dividend payment date
October 2017
Capita Asset Services (“Capita”)
Analysis of shareholdings as at 31 December 2016
www.capitashareportal.com
shareholderenquiries@capita.co.uk
Shares held
Number
of holders
%
of holders
Number
of shares
%
of shares
Website
Email
Address
The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
Phone from UK
0871 664 0300*
* Calls cost 12p per minute plus your phone company’s access charge. If you are outside the UK,
please call +44 371 664 0300. Calls outside the UK will be charged at the applicable international
rate. Capita can be contacted between 9.00am and 5.30pm, Monday to Friday (excluding public
holidays in England and Wales).
Dividend Reinvestment Plan
The Company offers a Dividend Reinvestment Plan that enables shareholders
to reinvest cash dividends into additional shares in the Company. Application
forms can be obtained from Capita. You must arrange for your Dividend
Reinvestment Plan application form to be received by Capita no later than
Tuesday, 25 April 2017 to join the Plan for the final dividend for the year
ended 31 December 2016.
International dividend payment service
Overseas shareholders can receive their dividends in a local currency instead
of Sterling and can find out more about this by visiting http://international.
capitaregistrars.com. Any election to receive dividends in local currency in
respect of the final dividend for the year ended 31 December 2016 must be
received by Capita no later than the record date for the final dividend, Friday,
21 April 2017.
Share price information
The closing mid-market price of a share of The Vitec Group plc on 31 December
2016 was £6.48. During the year, the share price fluctuated between £4.85 and
£6.49. The Company’s share price is available on our website with a 15-minute
delay, and from the Financial Times website, www.ft.com, with a similar delay.
Share scams
Shareholders should be aware that fraudsters may try and use high pressure
tactics to lure investors into share scams. Information on share scams can be
found on the Financial Conduct Authority’s website, www.fca.org.uk/consumers/
share-fraud-boiler-room-scams, or via their consumer helpline: 0800 111 6768.
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
442
235
50
62
15
37
841
52.6
27.9
5.9
7.4
1.8
4.4
159,135
560,934
377,201
1,559,766
1,069,576
41,005,325
100
44,731,937
0.4
1.2
0.8
3.5
2.4
91.7
100
239
28.4
42,675,750
95.4
602
841
71.6
2,056,187
100
44,731,937
4.6
100
143
Annual Report & Accounts 2016
144
The Vitec Group plc Designed and produced by Design Motive Ltd
Printed and bound in the UK by CPI Colour Ltd
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