The Vitec Group plc
Annual Report & Accounts 2017
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Enabling the
capture and
sharing of
exceptional
images
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
Front cover image captured by:
Alex Krause, Vitec Production Solutions,
on location in Seljalandsfoss, Iceland
Contents
Strategic Report
02 Chairman’s Welcome
03 Highlights
04 Vitec Group Overview
06 Group Chief Executive’s Review
11 Our products and solutions
12 Market trends
14 Our customers
16 Our people
17 Our Operations Executive
18 Operational Review - Vitec Imaging Solutions
22 Operational Review - Vitec Production Solutions
26 Operational Review - Vitec Creative Solutions
30 Our Business Model
32 Progress on our Strategic Priorities
34 Principal Risks and Uncertainties
36 Financial Review
41 Key Performance Indicators
Corporate Responsibility
42 Commitment to Sustainable Business
43 Business Ethics
44 Employee Engagement
48 Community & Economic Contribution
50 Environmental Sustainability
Corporate Governance
52 Board of Directors
54 Chairman’s Report
65 Audit Committee Report
70
Remuneration Committee Chairman
Statement
72 Remuneration Policy Report
78 Annual Report on Remuneration
91 Directors’ Report
93
Independent auditor’s report
Financial Statements
97 Table of Contents
98 Primary Statements
103 Section 1 - Basis of Preparation
105 Section 2 - Results for the Year
115 Section 3 - Operating Assets and Liabilities
128 Section 4 - Capital Structure
136 Section 5 - Other Supporting Notes
144 Company Financial Statements
150 Alternative Performance Measures
151 Five Year Financial Summary
152 Shareholder Information and
Financial Calendar
Capture.
Share.
Vitec is a leading global provider of
premium branded products and solutions
to the fast changing and growing
“image capture and sharing” market.
Customers include broadcasters,
independent content creators,
photographers and enterprises.
We design, manufacture and distribute
high performance products and solutions
including camera supports, camera
mounted electronic accessories, robotic
camera systems, prompters, LED lights,
mobile power, monitors and bags.
We employ around 1,700 people across
the world in ten different countries
and are organised in three Divisions:
Imaging Solutions, Production Solutions
and Creative Solutions.
Designed and produced by Design Motive Ltd
Printed and bound in the UK by CPI Colour Ltd
What’s Inside
Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
18
Imaging
Solutions
Read about the operational
progress of our Imaging
Solutions Division
06
Group Chief
Executive’s
Review
Read a summary of 2017’s
performance and understand
Vitec’s strategy to realise growth
26
Creative
Solutions
Read about the operational
progress of our Creative
Solutions Division
08
Sustained
investment in
new markets and
technologies
Read about our latest acquisitions
22
Production
Solutions
Read about the operational
progress of our Production
Solutions Division
36
Financial
Review
Read the detailed financial
information for the year
97
Financial Statements
Adjusted revenue
£378.1m
Adjusted operating profit*
£44.8m
Chairman’s Welcome
John McDonough CBE reports on excellent
progress in 2017, both on strategic objectives
and financial performance
2018 also promises to be an exciting
year for Vitec. We have moved to a three
divisional structure – with Imaging Solutions,
Production Solutions and Creative Solutions
addressing our core photographic, broadcast
and independent content creator customers.
The Production Solutions Division will relocate
its Bury St. Edmunds operation into a new
purpose-built manufacturing site nearby in
H1 2018, demonstrating our confidence
in the division. We are making excellent
progress with the integration of JOBY and
Lowepro into the Imaging Solutions Division,
and Creative Solutions now has critical mass,
growth potential and the talent to stand on
its own as a separate division.
Martin Green joined the Board on 4 January
2017 as Group Business Development Director.
Kath Kearney-Croft joined the Board on
24 April 2017 as Group Finance Director.
The Company has a strong executive
management team to deliver our strategic
growth plans. Mark Rollins will be leaving
the Board as an independent Non-Executive
Director and Senior Independent Director on
2 April 2018 to focus on his Chairman’s role
at Carclo plc. Mark has been a valuable
member of the Board since joining in October
2013 and the Board wishes him well for the
future. To ensure that we have a strong
independent non-executive presence on the
Board we have searched for a replacement
to Mark and we are pleased to report that
Richard Tyson will join the Board on 2 April
2018 as an independent Non-Executive
Director. Richard is Chief Executive Officer
of TT Electronics plc, holding that position
since 2014. He was formerly President of
the Aerospace and Security Division of
Cobham plc from 2008 to 2014 and a
member of their Executive Committee.
Christopher Humphrey will become Senior
Independent Director in addition to his role
as Chairman of the Audit Committee with
effect from Mark ceasing to be a director.
In 2017, the Board conducted an external
evaluation of its performance and I am
pleased to report that the performance of
your Board and its committees were rated
highly with the right balance of skills and tone
from the top, along with the experience to
meet the challenges of growing the business.
The detail of this evaluation is covered in the
Governance Report.
The Board visited the Teradek business in
California, US in October 2017 and met with
the Creative Solutions senior management
team, including the founders of each of the
constituent businesses of Teradek, SmallHD,
Paralinx, Wooden Camera and RTMotion.
This was an exceptionally valuable exercise
in building the Board’s knowledge and
understanding of the new division and the
talent of the divisional team. I am confident
that with this talent in Creative Solutions,
as well as the talent in Imaging Solutions
and Production Solutions, the Company is
well positioned for further success and to
be able to deliver further growth in 2018.
Our excellent progress in 2017 and future
success is down to the hard work and
dedication of all our employees around
the Group, and on behalf of the Board I
thank each one of them for their dedication
in delivering the Company’s purpose of
providing vital products and solutions
that support the capture and sharing
of exceptional images.
I, and all my Board colleagues, plan to attend
the AGM on 15 May 2018 and we look
forward to the opportunity to meet with as
many shareholders as possible on the day.
John McDonough CBE
Chairman
21 February 2018
Corporate Governance Report
Turn to page 52
Dear Shareholders
2017 was another successful year
for Vitec, with a good trading performance,
continued underlying growth and significant
progress on strategic objectives. Vitec
delivered a good set of financial results for
2017, with underlying sales and profit growth,
and a record level of revenue and profit
before tax. The Company’s share price rose
from £6.48 at the start of January 2017
to £11.30 on 31 December 2017.
As a consequence, the Board recommends
a final dividend of 20.1 pence per ordinary
share (2016: 17.3 pence) which, subject to
approval by shareholders at the 2018 AGM,
will be paid on Friday 18 May 2018.
In 2017, we streamlined our portfolio of
businesses, successfully selling the non-core
businesses of Haigh-Farr and Bexel, our
US Services business, for a combined net
consideration of £33.2 million. We acquired
the JOBY and Lowepro brands, as well as
the higher technology business of RTMotion.
This streamlining of Vitec’s business portfolio
will in the future deliver enhanced financial
performance and higher margins for the
Company and we will continue to explore
bolt-on investment opportunities in our
core and adjacent markets.
02
The Vitec Group plc Highlights
Key points
Transformation of the portfolio,
repositioning the Group to be
able to deliver higher margins
and growth
» Disposal of two non-core
businesses funding the acquisitions
of JOBY and Lowepro, and
RTMotion
Record Group performance in
adjusted* revenue, profit before
tax and EPS
» Growth in revenue for continuing
operations of 10.8% and adjusted
profit before tax* of 13.4%
» Adjusted* operating margin for total
operations improved to 11.8% from
11.0% with operating margin for
continuing operations of 12.8%
for 2017
» ROCE++ for total operations
increased to 19.6% (2016: 17.5%)
Total dividend increased by 12.1%
to 30.5 pence with dividend cover
at 2.2 times
Strong free cash flow*
performance led to reduction
in net debt to EBITDA to 0.7x
(2016: 1.2x)
» Cash conversion+ of 119%,
excluding JOBY and Lowepro
* This report provides alternative performance measures (APMs)
which are not defined or specified under the requirements of
International Financial Reporting Standards (IFRS). We believe
these APMs provide readers with additional information on our
business. We have included a glossary on page 150 which
provides a comprehensive list of APMs that we use, including an
explanation of how they are calculated, why we use them and
how they can be reconciled to a statutory measure where relevant
+
Cash conversion is defined as the % of operating profit* that is
converted into operating cash flow*
++ Return on Capital Employed is calculated as adjusted operating
profit* for the last twelve months divided by the average total
assets less current liabilities excluding the current portion of
interest-bearing borrowings
2017 Financial highlights
Adjusted
revenue*
£378.1m
17
16
15
14
13
£378.1m
£376.2m
£317.8m
£309.6m
£315.4m
Adjusted
operating profit*
£44.8m
Adjusted basic
earnings per share*
68.1p
Net debt
£42.9m
17
16
15
14
13
£44.8m
£41.5m
£35.4m
£38.8m
£39.5m
17
16
15
14
13
68.1p
61.3p
49.4p
55.9p
56.1p
17
16
15
14
13
£42.9m
£75.1m
£76.3m
£70.9m
£61.5m
Imaging
Solutions
Production
Solutions
Creative
Solutions
Discontinued
operations
Adjusted
revenue*
£175.9m £114.2m
Up 16.2%
Down 6.1%
£63.2m
Up 37.7%
£24.8m
Down 56.7%
Adjusted
operating
profit*
£29.9m
Up 18.7%
£15.2m
Down 6.7%
£13.0m
Up 36.8%
£(0.4)m
n/m
Adjusted
operating
margin*
17.0%
Up 40 bps
13.3%
Down 10 bps
20.6%
Down 10 bps
n/m
Statutory
revenue
£175.9m
Up 16.2%
£114.2m
Down 6.1%
£63.2m
Up 37.7%
£24.8m
Down 56.7%
Statutory
operating
profit
£26.1m
Up 15.5%
£14.1m
Up 2.9%
£2.9m
Down 21.6%
£13.4m
n/m
Statutory
operating
margin
14.8%
Down 10 bps
12.3%
Up 100 bps
4.6%
Down 350 bps
54.0%
n/m
Recommended final dividend
per share
Up 16.2%
Up 5.1%
Up 12.1%
20.1 pence
10.4 pence
Interim dividend per share
Total dividend for 2017
30.5 pence
Chief Executive’s Review
Turn to page 6
Annual Report & Accounts 2017
03
Strategic Report Corporate Responsibility Corporate Governance Financial Statements Vitec Group Overview
Group adjusted
revenue*
£378.1m
Group adjusted
operating profit*
£44.8m
Vitec is a global
group mainly serving
customers in the
“image capture and
sharing” market.
We design, manufacture and
distribute high quality, high
performance, premium branded
products and solutions that
enable end users to capture and
share exceptional images. Our
products typically attach to, or
support, a camera – primarily for
broadcast, cinematic, pro-video
and photographic applications.
The Vitec Group is organised in
three Divisions and has strong
market positions in each.
Our global footprint
We manufacture and distribute our
products and services from our facilities in
10 countries
We employ around
1,700 people
Our products and services are sold in over
100 countries
* This report provides alternative performance measures (APMs) which are not defined or specified
under the requirements of International Financial Reporting Standards (IFRS). We believe these APMs
provide readers with additional information on our business. We have included a glossary on page 150
which provides a comprehensive list of APMs that we use, including an explanation of how they are
calculated, why we use them and how they can be reconciled to a statutory measure where relevant
** Manufactured under licence
† Management estimates by sales value in the market segments in which these products are sold
04
Operational Review
Turn to page 18
Vitec’s Imaging Solutions Division designs, manufactures and
distributes premium branded photographic and video equipment
such as tripods, bags, filters, LED lights, lighting controls and
lighting supports for professional users and imaging enthusiasts.
It also supplies an expanding range of accessories for
smartphones, action and VR cameras, and drones.
Revenue
£175.9m
Up 16.2%
Adjusted operating profit*
£29.9m
Up 18.7%
Statutory operating profit
£26.1m
Up 15.5%
Employees
c. 800
Brands
Avenger
Colorama
Gitzo
JOBY
Lastolite
Lowepro
Manfrotto &
Manfrotto Xume
National Geographic**
Addressable market
We estimate that the addressable market for products manufactured by Vitec’s
Imaging Solutions Division is worth around £800 million annually. Professional
users 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.
Market position
Vitec has leading premier brands in camera supports, heads, LED lights, filters and
bags for the professional and enthusiast photographer and videographer.
Product
category
Brand
Supports
Bags
Lighting and
Controls
Filters
Avenger,
JOBY,
Gitzo,
Manfrotto
Lowepro,
Manfrotto,
National
Geographic**
Colorama,
Lastolite,
Manfrotto
Manfrotto Xume
Market
position†
1
1
2
New
The Vitec Group plc Group adjusted
operating profit*
Group revenue by destination
North America 41%
Europe 35%
Asia-Pacific 21%
Rest of the
World 3%
Operational Review
Turn to page 22
Operational Review
Turn to page 26
Vitec’s Production Solutions Division designs, manufactures
and distributes technically advanced products which give
broadcasters, film studios, video production companies and
independent content creators total confidence in the production
equipment they depend upon to capture and share world class
footage. Products include video heads, tripods, lights, batteries
and speciality camera systems.
Revenue‡
£114.2m
Down 6.1%
Adjusted operating profit*‡
£15.2m
Down 6.7%
Statutory operating profit‡
£14.1m
Up 2.9%
Employees
c. 700
Brands
Anton/Bauer
Autocue
Autoscript
Camera Corps
Litepanels
OConnor
Sachtler
The Camera Store
Vinten
Addressable market
We estimate that the broadcast market for products and services supplied
by Vitec’s Production Solutions Division is worth around £400 million
annually. Vitec is well positioned due to its broad geographical reach and
premium products. We have a global sales team that offers 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, cinema and video
production markets.
Vitec’s recently formed Creative Solutions Division focuses on
developing, manufacturing and distributing products to equip,
educate and support content creators, including the new breed
of independent content creators, giving them the freedom and
confidence to exploit image content in multiple ways. Products
for this fast growing market include video transmission systems,
monitors, lens control systems, camera accessories as well as
mobile and cloud-based software applications. We sell our
products globally via distributors as well as online via our own
direct e-commerce capability and third parties.
Brands
Offhollywood
Paralinx
SmallHD
Teradek
VitecEV
Wooden Camera
Revenue
£63.2m
Up 37.7%
Adjusted operating profit*
£13.0m
Up 36.8%
Statutory operating profit
£2.9m
Down 21.6%
Employees
c. 200
Addressable market
We estimate that the video market focusing on content creators for
products and services supplied by Vitec’s Creative Solution Division is
worth around £500 million annually. This includes film, scripted television
series, independent video and enterprise video production. Vitec has a
strong position due to its premium brands, market-leading technology and
dedicated team of innovative product specialists with extensive experience
in shooting both professional and amateur video content.
Market position
Vitec is the market leader in most of its product categories, providing
leading products through our brands to the independent content creator
and filmmaker markets.
Product
category
Brand
Market
position†
Supports
Prompters
Lighting
Mobile
power
OConnor,
Sachtler,
Vinten
Autocue,
Autoscript
Litepanels
Anton/Bauer
Robotic
camera
systems
Camera
Corps,
Vinten
Distribution,
& rental
services
Camera
Corps,
TCS
Product
category
Video transmission
systems
Monitors
Lens Control
Camera
accessories
Brand
Teradek,
Paralinx
SmallHD
Teradek RT
Offhollywood,
Wooden Camera
1
1
2
1
2
1
Market
position†
1
1
3
3
‡ Results for continuing operations
05
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Group Chief Executive’s Review
2017 was a transformational year
for the Group
Vitec’s transformed
portfolio of businesses
and new operating
structure have
repositioned the
Group to deliver
future progress.
Vitec operates in the fast-growing, global “image
capture and sharing” market. Technology and
social media continue to drive fundamental
changes to this market. Vitec’s unique heritage,
the credibility of our premium products, and our
manufacturing and distribution strengths, provide
us with exciting opportunities to capitalise on those
changes. These, coupled with the experience and
knowledge of our people, enable us to develop
ground-breaking new products.
2017 was a transformational year for Vitec as
we significantly reshaped our portfolio through
disposals and acquisitions. The Group sold two
non-core businesses and invested in new markets,
geographies and technologies. We announced
that from 1 January 2018 we would move from
two to three Divisions to reflect a changing
customer base, to enable us to adapt quickly
to market and technological changes, and to give
greater focus to the fast-growing Independent
Content Creator market.
Our new three Divisions – Imaging Solutions,
Production Solutions and Creative Solutions –
are highly customer-focused and operate in a
decentralised, entrepreneurial structure, yet share
capabilities across the Group.
Although we continued to experience challenging
market conditions in the more mature US
broadcast market, this was offset by growth
in sales of higher technology products
and acquisitions.
Vitec has a clear growth strategy which is focused
on organic sales growth, operational efficiencies
and corporate development. 2017 saw significant
progress executing our strategy which is based
around five priorities.
1. Corporate development
We supplement our organic growth opportunities
with carefully targeted acquisitions. Our acquisition
strategy focuses on finding innovative businesses
operating within our core, or closely adjacent,
markets which possess the right product
development, growth characteristics and
financial prospects.
moving our manufacturing operations from
Shelton, US to Costa Rica. In H1 2018, the
Production Solutions Division will relocate its
Bury St. Edmunds, UK facility to a purpose-built
manufacturing site nearby that will deliver further
operational improvements. We also expect to
identify additional operational synergies across
the Group in the medium-term.
During the year, we streamlined our portfolio by
disposing of the non-core businesses – Haigh-Farr
and Bexel, our US Services business, for net
consideration of £33.2 million. In September 2017,
we acquired the JOBY and Lowepro brands for our
Imaging Solutions Division, for cash consideration
of £8.4 million excluding integration costs and
investment in working capital. JOBY is best known
for its patented GorillaPod tripod and Lowepro is the
leading camera bag brand. This acquisition is an
excellent strategic fit with Vitec’s existing core
activities and integration is going well.
In September 2017, we also announced the
acquisition of RTMotion for our Creative Solutions
Division, for up to £3.1 million in net cash. RTMotion
is a high technology business which gives the Group
additional high quality camera accessories for the
expanding Independent Content Creator market.
This business has been successfully integrated into
Creative Solutions and its products are being sold
under the Teradek brand name as Teradek RT.
2. Improve the core
We continue to maximise and improve our
business to better deliver underlying growth, and
in 2017 Vitec delivered operational efficiencies
through improvements to purchasing, inventory
management and manufacturing. We achieved
further lean manufacturing savings in our Italian
and Costa Rican facilities, and are currently
We continue to demonstrate innovation throughout
our businesses. In 2017 we launched a range
of new products, including the revolutionary
Flowtech carbon-fibre tripod, Internet Protocol
prompters from Autoscript, Litepanels Gemini
LED lights and compact tripods from Manfrotto.
We also celebrated the 100-year anniversary of
our Gitzo brand.
In 2018 we will maintain our market leadership
by focusing on maximising sales of these and
other new products, and continuing to innovate
with new products and new technologies.
In addition, our Production Solutions Division
is currently supporting the 2018 Winter
Olympics in South Korea.
3. New markets and technologies
We have maintained investment in new technology
and markets to underpin future growth. For
example, in 2017 we further expanded our product
offering in Apple stores with our newly acquired
JOBY brand, and the RTMotion acquisition has
performed in line with expectations.
We innovate quickly and we released a range
of high quality products, including SmallHD Ultra
Bright Monitors, a Wooden Camera Universal
Follow Focus, a new Teradek Cube HEVC encoder,
and Teradek Serv Pro, a dedicated iOS monitoring
solution. We also launched a number of cross-
06
The Vitec Group plc Approval of Strategic Report
We have provided information in this report on our
strategy, business model, and objectives. You will
find the Strategic Report on pages 2 to 41 and its
content has been approved by the Board.
Outlook
We have outlined a number of initiatives for
medium-term organic growth, particularly in
the Independent Content Creator market and in
APAC, and will continue to identify operational
improvements and businesses to acquire in core
and adjacent markets. Strong cash generation
and a robust balance sheet will support these
growth plans.
Vitec has a strong position in exciting and fast
changing markets. With our transformed portfolio
of businesses, new structure and growth
initiatives, the Board remains confident that,
at current exchange rates, the Group is well
positioned to deliver further progress in 2018.
Stephen Bird
Group Chief Executive
21 February 2018
Group products, developing synergies between
Vitec brands. Examples include a SmallHD monitor
with a built-in Teradek Bolt wireless receiver,
a SmallHD Focus monitor with an Anton/Bauer
battery, and a Manfrotto/Wooden Camera Directors
Cage for DSLR and mirrorless cameras. We remain
focused on further cross-selling of brands across
the Group, especially to our Independent Content
Creator customers. We also continue to identify
acquisition opportunities to address new areas
of the content production value chain.
4. Get closer to our customers
We continue to drive initiatives to get closer to our
customers by owning more of our distribution and
optimising our e-commerce activities. Our end
markets are changing with more independent
content creators looking to purchase equipment
online and we are investing in and optimising our
e-commerce capabilities through working with our
major customers like Amazon and other specialised
e-tailers, and by further developing our own online
platforms. Our Creative Solutions Division has
invested in a number of “Customer Experience
Centres”, tying our many Creative Solutions brands
together to offer bundled products as well as
educational workshops.
5. Expand in APAC
Finally, we continue to expand geographically,
especially in APAC, leveraging our current
capabilities and footprint. Our Imaging Solutions
Division has an efficient and widespread distribution
network throughout the region and deals directly
with the leading retailers and e-tailers. The
acquisition of the JOBY and Lowepro brands has
brought in specialist teams in Hong Kong and China.
APAC is the fastest growing region for Vitec, and we
see further growth opportunities in this area.
We will utilise our current networks to distribute
other Vitec brands with a specific focus on growing
our Creative Solutions Division, initially in China.
2017 Performance Overview
Vitec is pleased to report a record performance,
with strong growth in revenue and adjusted profit
before tax*. It has been a transformational year for
the Group, which saw the acquisition of the JOBY
and Lowepro brands.
We launched a record number of market-leading
new products and made significant progress
refocusing our portfolio with the disposal of
two non-core businesses.
Our Imaging Solutions Division had a strong
year and continues to outperform the market.
The integration of the JOBY and Lowepro brands
is going well.
The Production Solutions Division benefitted
from sales of new products, including the
revolutionary Flowtech tripod, although the
US studio market continued to experience
challenging market conditions.
Our Creative Solutions Division further expanded
its higher technology products with the acquisition
of RTMotion. SmallHD, in particular, grew strongly.
Product Development
We recognise that the markets in which we
operate are quick to change and evolve, so we
innovate quickly and invest in new products and
solutions to add to our already well respected
range. We are very pleased with the new products
we launched this year and continue to build on
those with synergistic efficiencies where possible
to create world-class solutions for our customers.
Examples of our new products can be seen in the
Operational Review which starts on page 18.
Strategic priorities
Improve
the core
Focus on new
markets and
technology
Get closer to
customers
Expand in
APAC
Corporate
development
Annual Report & Accounts 2017
07
Strategic Report Corporate Responsibility Corporate Governance Financial Statements Group Chief Executive’s Review
Sustained investment
in new markets and
technologies
For a business like Vitec, intelligent and sustained
investment in new markets, technologies, products
and people enables us to retain our market-leading
positions and create shareholder value in the future.
The “image capture and sharing” market is rapidly
changing 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 find attractive, high quality businesses in our
core or adjacent markets, technologies and
geographies to achieve our growth objectives.
We completed two acquisitions in 2017 and the
pipeline of potential acquisitions continued to
build during the year.
Operational Review
Turn to page 18
08
“I’ve been in the imaging industry for over 10 years working
with the JOBY and Lowepro brands globally. We were
acquired by the Vitec Group in September 2017. It’s been
such a positive experience to join a diverse team of talented
professionals who are dedicated to the same core values
within the industry we love.”
Tim Grimmer, Senior Brand Director, JOBY and Lowepro
The Vitec Group plc JOBY and Lowepro
Acquiring the JOBY and Lowepro brands
demonstrates Vitec’s commitment to
expanding our portfolio of premium branded
products for the imaging and Independent
Content Creator markets. These leading
brands give us greater access to new
markets and expand our retail presence,
especially in the US, by adding high quality,
complementary products.
As part of Vitec’s strategy to improve our core business and get closer
to our customers, we acquired the JOBY and Lowepro brands. JOBY
introduced the patented GorillaPod tripod which has transformed the
camera accessories market and has a strong presence in Apple
stores. Lowepro has been a market leader in bags designed to protect
electronic and camera devices since 1967.
JOBY and Lowepro products are designed by dedicated marketing
resources located in California, US, and engineered by expert
innovation teams based in the Far East. All products are manufactured
by third parties with proprietary tools and sold globally through the
Vitec Imaging Distribution network.
This acquisition strengthens and complements Vitec’s existing product
portfolio. It gives us:
• A leading global position in the new and fast growing iphoneography,
mobile journalism and vlogging markets, as well as the camera bags
market, bringing in an expanded product development team and
technical capabilities with access to new intellectual property;
• Increased retail presence, particularly in the US, making Vitec
Imaging Distribution a leading distributor of premium imaging
accessories in the largest global economies;
• The opportunity to get closer to customers by consolidating Vitec’s
strategic relationships with Apple and online retailers such as
Amazon and T-Mall, the leading consumer electronics retailers,
B&H and specialist retailers; and
• A platform to expand further in APAC and strengthen the Group’s
presence in China and Hong Kong through the JOBY and Lowepro
teams who are based there.
Vitec is integrating JOBY and Lowepro into its Imaging Solutions
Division’s existing organisational structure, under the leadership
of Marco Pezzana, Divisional Chief Executive, Vitec Imaging Solutions.
In addition to enabling greater penetration of
adjacent market segments, stronger retail
presence and improved innovation capabilities,
the integration of JOBY and Lowepro into
Vitec’s Imaging Solutions Division is expected
to deliver substantial operational synergies
in procurement, logistics and distribution
across all divisional brands.
“We have admired Vitec’s vision
and breadth of expertise for some
time, and are extremely excited to
be joining the Group alongside
industry leaders such as Teradek
and SmallHD. This acquisition will
give us world-leading support in
marketing, reseller channels and
strategic management.”
Kris Bird, Co-founder of RTMotion
RTMotion
The acquisition of RTMotion is in line with
Vitec’s strategy of offering innovative and
highly technical solutions to the Group’s
established independent content creator
customer base, and will facilitate Vitec’s
growth in the higher technology area of
camera accessories.
Based in the UK, RTMotion designs and manufactures lens control
systems for video cameras used to make feature films and television
series, for example, “Pirates of the Caribbean” and “Planet Earth II”.
RTMotion has been successfully integrated into our Creative Solutions
Division. There are significant growth opportunities to sell RTMotion’s
products through our global sales and distributor network, and the
business will benefit from Vitec’s marketing, manufacturing and supply
chain capabilities.
09
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Group Chief Executive’s Review
Investing in
manufacturing
excellence
Focussed on safety,
quality, efficiency, cost
and on-time delivery,
manufacturing excellence
is one of Vitec’s core
competitive strengths.
Our strategy is to continuously
improve and optimise our
manufacturing and assembly
operations globally to maximise
quality, service and efficiency,
while reducing costs. We operate
manufacturing facilities in the UK,
Italy and Costa Rica, and assembly
operations in a number of locations
in the US. In 2017, we invested
significantly in our facilities.
We operate competitive, flexible
manufacturing operations which
deliver premium products and
reliability to our markets. Vitec’s
facilities follow lean principles and,
where appropriate, are automated.
Our supply chain is efficient and
our people are highly trained, multi-
skilled, and focused on continuous
improvement. Our “improve the core”
strategic priority is focused on driving
further efficiency and investing
appropriately to support our wider
growth plans and deliver increasing
returns to our shareholders.
The provision of a healthy, safe and
productive work environment for
all of our employees is a high priority
for Vitec across all sites. We continue
to implement initiatives aimed at
sustainability and protecting the
environment across all of our locations.
Feltre, Italy
Vitec Centre of Excellence for high
volume heads and tripods
Vitec manufactures 80% of the supports for
its Imaging Solutions Division in our Italian
facility, across our Manfrotto, Gitzo and
Avenger brands. The 320,000 ft2 site was
established in 1986 and employs around
400 people. Vitec is the largest manufacturer
of branded supports in the world, with over
three million units produced annually.
As a result of our investment in people, lean
processes and automation, our premium
supports are produced more efficiently in
Italy than elsewhere. “Made in Italy” is
a distinct competitive advantage in this
market and in October 2017 we moved
the manufacturing of our Manfrotto Befree
Advanced tripod from China to Italy. Our
new automatic aluminium tube cutting and
punching machine is capable of producing
one tube every four seconds, is seamlessly
linked to the new assembly lines and gives a
high throughput of consistently high quality
products. This tube machine received its
Industry 4.0 certification at the end of 2017.
Ashby-de-la-Zouch, UK
Vitec Centre of Excellence for
Imaging Solutions lighting controls
Vitec acquired the Lastolite lights business in
2011 for its Imaging Solutions Division and
has transformed this factory into its specialist
centre for the production of lighting controls,
reflectors, backgrounds, umbrellas, soft boxes
and flash accessories. With around 60 people
the 43,000 ft2 factory produces 360,000 high
quality, durable units annually. This business
has remained highly competitive against
mainly Far Eastern competitors due to its
continuous improvement methodology and
the experienced gained from its sister facility
in Italy.
10
Cartago, Costa Rica
Vitec Centre of Excellence for
low volume heads, tripods
and batteries
Vitec selected Costa Rica for one of its main
manufacturing and engineering facilities
because of its educated workforce, its
proximity to our largest market (North
America), its low cost base, and its stable
government. Our Costa Rica facility
manufactures heads, tripods and camera
accessories for the Vinten, Sachtler, OConnor
and Anton/Bauer brands in our Production
Solutions Division. The site was established in
1985 and has approximately 180 employees
producing over 50,000 products annually,
in a 65,000 ft2 facility. The Costa Rica facility
has invested heavily in introducing lean
principals to make it one of the most efficient
manufacturing facilities in Central America.
We are in the process of consolidating our
manufacturing operations from Shelton,
US to Costa Rica.
Bury St. Edmunds, UK
Vitec Centre of Excellence for
robotics and Flowtech
Vitec’s Production Solutions Division will
relocate its Bury St. Edmunds operation into
a new, purpose-built site nearby in H1 2018.
Replacing the 50-year old existing factory,
the new facility will specialise in advanced
technology in areas such as robotics,
automation and broadcast studio equipment
for our Vinten and Sachtler brands. It will
include a fully automated, highly efficient
and proprietary process for the development
of carbon fibre for the Flowtech tripod, which
maintains our product differentiation and
competitive edge. Vitec has invested
significantly in the new, 66,000 ft2 site
which will house around 180 people across
manufacturing, engineering, operations and
other functions, and produces approximately
20,000 units annually. Our focus on
continuous improvement has led to
productivity, work flow and space utilisation
improvements and resulted in the new site
having a smaller footprint.
The Vitec Group plc Our products and solutions
Supports
(pedestals, tripods and heads)
» Avenger
» Gitzo
» JOBY
» Manfrotto
» OConnor
» Sachtler
» Vinten
Camera accessories
» Manfrotto
» Manfrotto Xume
» OConnor
» Offhollywood
» Teradek RT
» Wooden Camera
Video transmission systems
Lighting and controls
» Paralinx
» Teradek
» Colorama
» Lastolite
» Litepanels
» Manfrotto
Our products and
solutions
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, cinematic, pro-video and photographic
applications. Our products serve a variety of end users and are
offered as a cohesive package.
Prompters
» Autocue
» Autoscript
Robotic camera
systems
» Camera Corps
» Vinten
Mobile power
» Anton/Bauer
Monitors
» SmallHD
Distribution,
rental & services
» Camera Corps
» The Camera Store
» VitecEV
Bags
» Lowepro
» Manfrotto
» National
Geographic*
» Sachtler
* Manufactured and distributed under licence
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Our industry
Market trends and
growth drivers
Adoption of new
image capture devices
The growing demand for video
content, combined with the adoption
of new image capturing devices, are
important growth drivers for Vitec.
As camera technology improves,
for example, with new 4K and HDR
recording capabilities, mirrorless
cameras, OLED viewfinders and
live streaming of content to
mobile devices, this creates new
opportunities for Vitec accessories
(e.g. LED lights and flexible tripods)
as well as for our video transmission
systems as the production of live
streamed content increases.
These continued technological
enhancements mean that premium
mirrorless cameras, drones, action
cameras and smartphones are
rapidly being adopted by
professionals and advanced
consumers as complementary
equipment to traditional cameras
(photo and video). This has opened
up further opportunities 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.
Furthermore, the rapid growth in
smartphone adoption has resulted
in a sharp increase in the volumes
of general consumers shooting stills
12
and video and uploading them to
the internet with an increasing
focus on quality of content
requiring accessories to assist
with these shots.
Increase in video
consumption and
independent video
creation
The proliferation of new media,
coupled with the growth of third
party streaming applications, has
resulted in significantly higher
content generation, engagement,
reach and measurability (via likes,
follows, shares and comments).
Media companies today must
deliver content to more platforms
and devices than ever before to
build brand awareness and retain
their audience.
Newer online platforms such as
Netflix, Amazon and Hulu 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 or owner/
operator production companies set
up to produce content for those
networks and those production
companies purchasing or renting
equipment to do so. Our products
are well-suited to meeting the needs
of these production companies.
These smaller production companies
require more affordable, portable
products. 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
equipment (e.g. Manfrotto and JOBY
compact tripods and monopods,
Sachtler Flowtech tripod, Litepanels
portable lights and Manfrotto and
Lowepro carrying solutions) while
Teradek’s Live:Air production suite
offers a comprehensive video mixer
for mobile devices.
Wireless and cellular
data transmission,
and next generation
compression
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 and Teradek’s
wireless decoders are evidence
of our innovation in new markets
and technologies.
With the advent of Ultra High
Definition the amount of data
contained in one hour of video
has dramatically increased.
This, combined with the growing
demand to consume video on mobile
devices, necessitated a new video
compression paradigm, called HEVC,
or H.265. Vitec is a leading
manufacturer of HEVC solutions
for broadcasters and webcasters.
4K transition
4K resolution adoption has increased
rapidly and is becoming more
mainstream in the US, with Netflix,
Amazon, Sky and Apple all offering
4K Ultra HD streaming services.
As adoption grows around the globe,
studios and video cameras will need
to be upgraded with new technology,
resulting in increased demand for
our products and software to
accommodate the new formats.
Worldwide, even higher resolutions
have been launched, for example,
Japan’s pioneering public
broadcaster NHK has already begun
the world’s first 8K broadcast trials.
In addition, the application of 4K
video technology to both DSLR
and compact system cameras is
attracting a growing number of
content creators who can now
produce high quality visual content in
either still or motion picture formats
The Vitec Group plc Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
Vitec operates in one of the most exciting global markets; that of image
content creation 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. This drives sustained demand for new and replacement
products as customers take advantage of new technologies.
Our focus is on supplying a wide range of premium products for broadcasters,
cinematographers, independent content creators, photographers and videographers
to enable them to capture and share content. This content can be video footage or
still images and can be produced in a studio, on location, in an enterprise or at home.
We position our brands at the premium end of the market with technically advanced
products. We are focused on developing new products to enable our customers to
think and work differently, to capture and share world-class content in multiple ways.
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.
Traditional
broadcasters’ capital
expenditure
Traditional broadcasters’ ability
and willingness to incur capital
expenditure on the construction
or refurbishment of studios depends
partly on their financial performance.
Those broadcasters reliant on
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 Vinten robotic heads 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,
for example, Vitec’s carbon-fibre
Flowtech tripod is popular for
electronic news gathering and with
independent content creators. 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, and more
bonded cellular broadcasts are using
products such as Teradek’s Bond.
As part of the US broadcast spectrum
incentive auction, the Federal
Communications Commission was
authorised to “repack” the television
bandwidth by assigning television
stations to new channels. This
process has posed significant
challenges and delays for the
broadcast industry as television
stations will need to complete
channel moves. This project has
led to unexpected additional capital
investments in core transmission
technologies and has led to some
uncertainty by US broadcasters
and impacted investment in other
broadcast technology, including
Vitec’s US studio products from
our Production Solutions Division.
Sales of photographic
cameras with
interchangeable
lenses
We are seeing more stability in
the interchangeable lens cameras
market, driven by the popularity of
mirrorless cameras and their
combined photo/video high resolution
recording capabilities. The continued
upgrade in sensors and overall
specifications of latest generation
compact system cameras is also
driving a growing adoption of this
format by advanced consumers and
professionals alike. In addition, the
average price of a photographic
camera is increasing as consumers
demand premium camera models to
differentiate from images captured
on their smartphones. The camera
accessories market reflects this trend
with increased demand for SmallHD
monitors, Manfrotto high performance
compact tripods, and Manfrotto and
Lowepro multi-media bags.
Online distribution
channels
The continued growth in online
distribution channels for products for
photographers, videographers and
independent content creators has
stimulated increased 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.
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; and
• Sports teams and franchises
looking to capture and further
enhance their fans’ experience
and the team’s brand awareness.
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.
13
Annual Report & Accounts 2017
Cinematographers
for films
“When you have 700-800 people on the set
of Thor:Ragnarok, there can’t be any delays,
so we need everything to be working
guaranteed every time. In the thousands
of hours we’ve spent on set using it on our
drones, the Teradek Bolt 3000 has never failed
us once. We’ve tested other products out
there before, but Teradek is truly the brand
big productions expect to see on set.”
Stephen Oh, CEO and Producer, XM2
“It’s one of my most reliable pieces of support
equipment. Everybody is familiar with the head,
the crew are used to OConnor as it is the
industry standard – a nice, easy bit of kit that
people know well.”
Ben Wilson ACO, Camera Operator for
“Game of Thrones”
Lighting Specialists
“The versatility of the Litepanels Gemini light
is amazing! I was able to quickly change the
intensity and colour temperature and dim the
output so the light was perfect for my high
speed shots.”
Steve Romano, Director of Photography
Our customers
Our customers
Vitec’s purpose is to support our customers to capture and share
exceptional images. Our products and solutions 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 or content creator – 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
“Before, you’d need a whole broadcast truck
with expensive camera equipment to stream
live. Now, there’s the Teradek VidiU Pro which
lets you achieve that same quality of broadcast
and all you need is an internet connection and
a camera. It’s incredible.”
Sean Kurdziolek, Founder, Portraits
and Gallery
Broadcasters and TV
Networks
“Recording classical music in a concert hall
is actually the worst thing, because you don’t
have light, and you don’t want to disturb the
orchestra or the audience, so you have to be
invisible and silent. The fan, pan/tilt head and
camera had to make absolutely no noise –
the Vinten FHR-35 remote head was the only
combination we could find that offered this.”
Robert Zimmermann, MD, Berlin Phil Media
Cameramen
“This new Flowtech tripod is adaptive, lightweight,
and durable – it’s a complete game changer. With
just this one tripod I was able to film eye level with
smaller animals and then get high to film birds
in canopies. This level of versatility in a tripod’s
design is going to disrupt the industry.”
Filipe DeAndrade, Wildlife Filmmaker
“The JOBY GorillaPod Mobile Rig is the most
versatile and simplistic creation tool in
existence. It’s light, durable, all-in-one
capability makes it the perfect companion
tool for day-to-day travel needs. Having the
strength to handle heavier phones with lens
adapters and arms for microphones, cameras
and lights make this an answer to what many
bloggers and creative filmmakers look for in
a creation tool.”
Brian Corsello, MightJax, Inc.
1414
The Vitec Group plc
The Vitec Group plc Pro Photographers and
Videographers
“Gitzo tripods have been my choice for over
twenty years shooting for National Geographic
in all kinds of conditions around the world. What
is exciting to me about Gitzo is they continue to
innovate and improve their products.”
Tim Laman, Wildlife Photojournalist
Bloggers and Vloggers
“The CSNY showroom in Brooklyn is really great
for the community. It’s important to be able to
actually see and hold the products in the real
world before buying them. It’s also reassuring
to be able to speak with people who understand
the nuances of professional film equipment.”
Matt Workman, Vlogger, Cinematography
Database
“Behind every powerful image, there’s often
a series of challenges that have to be met in
order to capture that image. With that in mind,
my choice of equipment is fundamental. The
Manfrotto Pro Light Bumblebee backpack is
built to accommodate my passion.”
Philip Thurston, Outdoor Photographer
and filmmaker
“Filming in real world situations, you’ve got
to be quick! It’s super helpful to have gear as
versatile as the Manfrotto TwistGrip System,
a super handy tool that will take the camera
in your pocket to the next level for video.”
Juliana Broste, Travel Journalist
Amateur Photographers
“This Lowepro Flipside backpack looks
awesome! I instantly saw myself walking
through the woods, climbing mountains and
making a fashion statement with my friends.
All I have to do is take off the shoulder straps,
turn the pack around my body and voila!
Everything is presented in front of me as if it
was lying open on a table. Great job whoever
thought of this design! This truly is the most
comfortable camera backpack I have ever worn.”
Mark Behrens, Panoptic Chopsticks
Enterprises
“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
Annual Report & Accounts 2017
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Our people
“Litepanels has a great history in
revolutionising LED lighting in our
industry and I love the fact that I have
been able to continue to explore a
breadth of new technologies and
create innovative lighting products
that will continue to change the way
lighting is done. My co-workers are
incredibly talented in their disciplines
and being in this culture where we
are empowered to explore new
technologies is terrific.”
Victor Chen,
Senior Electrical Engineer – Technologist,
Production Solutions (Chatsworth, US)
“My frequent conversations with
customers make me very proud of
being part of Vitec as I hear only
glowing reviews of our products.”
Audrey Chang,
Channel and Customer Marketing Director, Production
Solutions, (Asia Pacific)
“The company is continuing to
invest in development and this is
extremely motivating for
employees. I have seen the power
of the team in our business
through the engagement and
deployment of our strategic plan
and the achievement of our
targets. I’m proud to be part
of this, and passionate about
what we do.”
Enrico Grando,
Manufacturing Director, Imaging Solutions (Italy)
Our people
“Being able to work on industry-
leading technologies has always
been a huge goal of mine, and
Teradek has made it possible. Here,
I get to work alongside people with
the same appreciation for innovative
hardware/software designs,
providing both an exciting and
fulfilling environment for me
to be in.”
Tony Mendoza
Q&A Engineer, Teradek,
Creative Solutions (Irvine, US)
“Vitec has given SmallHD and its
employees growth opportunities
they would have never had
otherwise. It’s exciting to have
access to so many key players and
interesting market data. There are
a lot of interesting things in store
for the future of Vitec because of
the variety of brands we have
under one roof.”
Wes Philips,
CEO and Co-Founder, SmallHD, Creative Solutions
(North Carolina, US)
“Working for Vitec’s Imaging
Solutions Division is very rewarding.
I have been given the opportunities
and freedom to utilise my skills in the
digital/creative domain, using my
language ability, as well as improving
local e-commerce strategy from a
marketing perspective. We have
frequent communication with
Headquarters despite us being miles
away from them. It is rare to find a
company who listens to your
concerns and does its best to provide
you with all available resources.”
Ayu Kusuma Wardhani,
e-Commerce Manager, Imaging Solutions (Japan)
“My role at Vitec’s head office allows
me to focus on the detail of each
Division’s financial performance,
made possible by a culture of open
communication across the Group.
I enjoy coming to work for the
positive environment and the huge
variety in work, which is more
interesting every day as Vitec
evolves and grows.”
Charlie Hutchinson,
Head of Financial Planning & Analysis,
Group, (Richmond, UK)
16
The Vitec Group plc
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, experience and
market knowledge, talent
and commitment create
a culture that supports
product excellence, creative
solutions and integrity.
Our values
Exceptional product
performance
We set the highest standards of
technical performance
Customer focus
We are nothing without our customers
Leading a fast changing market
We apply our creativity and harness our
diversity to engineer innovative new
products and solutions
Global capability
We share knowledge, pool resources,
test ideas and learn from each other
Transparency, integrity,
respect
We hold to the highest professional and
corporate standards
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. We expect our
refined portfolio, new
structure, exceptional
people and strategic
growth initiatives
to deliver further
progress and enhance
shareholder value.”
Jon Bolton
Group Company Secretary
“Whilst we are a
decentralised,
entrepreneurial
organisation, our
governance framework
or “Vitec Must-Haves”
is robust and strong,
supporting the business
on delivery of our
growth strategy.”
Kath Kearney-Croft
Group Finance Director
“Our focus is to
optimise cash
generation, minimise
risk and allocate
capital to sustainable
growth opportunities to
harness the capabilities
of the Group.”
Martin Green
Group Business Development Director
“Whilst we refocused our
portfolio of businesses in
2017, we will look to
leverage our existing
capabilities to continue
to grow in APAC, acquire
new businesses and to
develop our people for
the leadership roles
of the future.”
Our Operations Executive
The Operations Executive is responsible for leading the organisation.
Together the team develops strategy, implements our plans, ensures
we run the business effectively and communicates progress
throughout the organisation. 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
Divisional CEO, Imaging Solutions
Alan Hollis
Divisional CEO, Production Solutions
“At Vitec, our corporate
communications
strategy builds and
sustains our reputation,
both externally and
internally. Communicating
consistent messages to
all of our key stakeholders
is a vital element in the
delivery of our strategy.”
“2017 saw the introduction of
Manfrotto’s Befree Advanced
in our fully automated Italian
manufacturing facility, and the
acquisition of the JOBY and
Lowepro brands. These
developments are testimony
to our continued commitment
to the imaging industry,
developing high quality,
competitively priced
and technically
advanced
accessories.”
“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
Divisional CEO, Creative Solutions
Martin Vann
SVP, Creative Solutions Division
Halid Hatic
SVP, Production Solutions 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 tools that
facilitate the creation of
premium cinema, sports,
television and web
content. Our market
leading brands are
recognised worldwide
as delivering superior
quality, reliability and
value.”
Annual Report & Accounts 2017
17
17
Operational Review
by our customers, with the “Made in Italy” stamp
helping to differentiate us from our competitors.
We significantly increased our presence in Apple
stores globally through the acquisition of JOBY.
We also developed our relationship with Amazon,
with double digit sales growth for the year, driven
by strong performance in the US. Our owned
distribution business continued to perform well
and is a key asset in ensuring that we remain
close to our end customers.
Statutory operating profit increased by 15.5% to
£26.1 million. Adjusted operating profit* margin
increased by 0.4% pts to 17.0%. This reflects the
higher volumes as well as the favourable product
mix from higher sales of video supports, favourable
channel mix from higher e-commerce sales and
production efficiencies.
The Imaging Solutions 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 and heads, 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
£175.9m
Up 16.2%
Adjusted operating profit*
Up 18.7%
£29.9m
Statutory operating profit*
Up 15.5%
26.1m
Revenue
2017
2016
£175.9m
£151.4m
Adjusted operating profit*
2017
2016
£29.9m
£25.2m
Statutory operating profit
2017
2016
£26.1m
£22.6m
* This report provides alternative performance measures (“APMs”) which are
not defined or specified under the requirements of International Financial
Reporting Standards (“IFRS”). We believe these APMs provide readers with
additional information on our business. We have included a glossary on page
150 which provides a comprehensive list of APMs that we use, including an
explanation of how they are calculated, why we use them and how they can
be reconciled to a statutory measure where relevant.
Imaging Solutions had a strong year, growing
revenue by 16.2% to £175.9 million. This included
£12.6 million of revenue from the transformational
acquisition of JOBY and Lowepro which completed
in September 2017 and gives Vitec a leading
global position in the new and fast growing
iPhoneography and vlogging accessories market,
as well as the photographic bags market. The
integration of these brands is going well. Excluding
the favourable impact of foreign exchange, as well
as the impact from JOBY and Lowepro, revenue
was 3.3% higher.
Camera and Imaging Productions Association
(“CIPA”) data has shown a slightly positive trend
for full year shipments of interchangeable lens
cameras (“ILC”). Our sales outperformed CIPA
trends, particularly in APAC where we focused
on delivering growth. Revenue growth has been
achieved through investing in and launching new
products and continued development of our key
distribution channels.
We grew our sales of video and photo supports
and filters and successfully launched a number of
innovative products including the Manfrotto BeFree
Advanced tripod and the Manfrotto Nitrotech head.
Gitzo, our premium brand, celebrated its 100 year
anniversary and continues to be the favoured
choice for professional photographers. Our
decision to move production of the Manfrotto
BeFree range of tripods, which were previously
part manufactured in China, back to an automated
production facility in Italy has been well received
18
The Vitec Group plc Innovative new
products
2017 has been a transformational year for Vitec’s
Imaging Solutions Division with the addition of the
Lowepro and JOBY brands to our portfolio. We have
also launched a number of new products to market,
including more compact and versatile tripods.
Examples of new products launched in 2017 include:
“The new Nitrotech video head is a beautiful gift
dedicated to the new generation of filmmakers with
perfect versatility and precision!”
Sebastien Devaud, Director
“I am constantly searching for balance. In my work, life and art.
I like form as much as I like function and the Gitzo range fits
that. My bags are as well thought out functionally as they are
pleasing to look at and this compliments my photography
and work ethos. Attention to detail, practical and fashionable.”
Tobi Shinobi, Photographer
Manfrotto Befree
Advanced “Made in Italy”
The Befree Advanced tripod is a compact
and lightweight traveller tripod positioned
for advanced hobbyist photographers.
Uniquely, it offers two different models,
the twist lock and the lever lock to allow
photographers to choose the locking
mechanism they feel most comfortable
with, enabling them to set their gear up
quickly, and focus on the images they
want to capture.
Both models are engineered, designed
and manufactured in Manfrotto’s
automated Italian plants. In 2017 the
manufacturing was brought back from
China and the “Made in Italy” stamp is
a key competitive differentiator.
Twist
lock
Lever
lock
Pioneering technology
in the Manfrotto
Nitrotech head
This ground-breaking video head combines
the features from Manfrotto’s Professional
Video Head with the latest generation
nitrogen piston mechanism which
guarantees continuous counterbalance.
Developed to meet the market trend for
increasingly light video heads for smaller
camera body sizes, Vitec collaborated with
car manufacturers to produce the gas
piston (nitro) in the head, taken from those
currently used in vehicle boot doors.
This pioneering model from Manfrotto is
designed and manufactured in Italy and
provides independent content creators with
optimum counterbalanced weight capacity
as they work with the latest cameras and
accessories – in and outside the studio.
Manfrotto Xume
2017 saw the launch of Manfrotto’s first
suite of professional magnetic filters that
lock onto lenses quickly and easily,
enabling the photographer to focus
on their shot and change filters instantly.
Gitzo 100
2017 saw Vitec’s Gitzo brand celebrate its
100 year anniversary. To commemorate
the occasion we introduced a Limited
Edition state-of-the-art Traveller Tripod
entirely manufactured in carbon fibre,
a new Fluid Gimbal Head specifically
developed for birdwatching and wildlife
applications, and a range of high quality
leather camera bags.
Professionals throughout the world
acknowledge Gitzo tripods, monopods,
heads and accessories as setting the
industry’s standards for excellence.
Precision assembly, high quality materials
and fine control are all qualities that
represent Gitzo products.
19
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Operational Review
Getting closer to our customers
Beyond technology, our Imaging Solutions Division continues to work hard to get closer to our
customers to enable us to grow across channels and geographies.
Distribution is changing and today over 50% of our global Imaging Solutions sales are sold outside photo
speciality stores in distribution channels like Apple Stores and Amazon, and other specialised e-commerce
platforms like B&H.com, T-Mall and JD.com. The vast majority of image makers are highly digitalised
and the internet is the preferred channel for them to purchase new equipment. We continue to develop
our online presence by growing sales via direct e-commerce and by working in close partnership with
leading e-tailers. Our JOBY and Lowepro acquisition means that we have substantially more products and
experienced people to work with these strategic customers.
Another core asset of Vitec’s Imaging Solutions Division is our direct distribution network, which provides
localised expert access to over 3,000 retail customers worldwide and ensures that we remain close to
our end customers.
Vitec has a multichannel approach to providing the customer with a seamless shopping experience,
whether shopping online from a desktop or mobile device, by telephone or in a photo speciality store.
Amazon
Vitec’s global partnership with Amazon drives
growth through the customer centric supply of
our core product range. Double digit sales
growth with Amazon in 2017 was driven by the
US. Our dedicated team within Amazon works
on the six most significant geographies,
advancing our brands in the consumers’ mind
through the Manfrotto branded area within the
Amazon platform. We signpost our customers
to our products through engaging content,
search engine marketing, platform specific
promotions and digital integration. All Manfrotto
branded stores on Amazon are aligned so
whether you visit amazon.it, .com or .co.uk you
have the same level of brand engagement.
Direct e-commerce
Direct e-commerce is an important growth
driver for the Imaging Solutions Division, even
more so with the addition of end users through
our JOBY and Lowepro acquisition.
Year-on-year sales through our own platforms
increased by approximately 50%, driven by
further investment in developing our online
platforms and web support. 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.
We continue to work on increasing direct sales,
average cart value and conversion rate.
Vitec Imaging Distribution
Supported by a fully integrated supply chain
network, Vitec Imaging Distribution cost
effectively and efficiently delivers all Divisional
products and brands across major economies.
• 13 markets served directly
• 20+ brands distributed
• 150 sales and marketing professionals
• Over 3,000 direct accounts
• Integrated logistics and customer service
platform
Apple
The acquisition of JOBY has significantly
increased Vitec’s presence in Apple stores and
it is set to grow again in 2018 when a range
of three new products will go into half of their
stores. This will bring the total Vitec SKUs ranged
by Apple to 12, with different variations in each
store and online.
20
The Vitec Group plc Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
“The JOBY GripTight ONE Magnetic
Impulse is hands down THE most used
GorillaPod that I own because it is so
small yet so versatile. It does so much
while being so compact and portable.
This unit goes everywhere with me,
in my purse, on all of my travels.”
Valentina Dang, Makeup Artist & Hair Stylist,
YouTube Content Creator
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 four years we have invested significantly to
develop an efficient distribution network to grow our business
in APAC and this is proving successful, driven primarily by
millennials and the growing Chinese middle class. China
is now Imaging Solutions Division’s fourth largest market.
The acquisition of the JOBY and Lowepro brands has further
strengthened the Division’s engineering and supply chain
capabilities in Hong Kong and China.
Focus on Japan and China
We deal directly with all leading retailers in Japan as well as the best known imaging
specialist retailers 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 Imaging Solutions Division and we see
further opportunities in this area, one example being expanding distribution of Lowepro
in the region, as well as with Vitec Imaging Distribution soon distributing SmallHD and
Teradek products, initially in China.
21
Annual Report & Accounts 2017 Operational Review
in H1 2018 the manufacturing operations in Bury
St. Edmunds, UK will relocate to a new purpose
built site in the same area which will lead to
further operational improvements.
Statutory operating profit increased by £0.4
million to £14.1 million and adjusted operating
profit margin* reduced by 0.1% pt to 13.3%
driven by an improvement in gross margin
from favourable product mix and operational
efficiencies offset by lower volumes.
The Production Solutions Division designs,
manufactures, distributes and provides
premium branded products and solutions
for broadcasters, film and video production
companies, independent content creators
and enterprises. Products include video
heads, tripods, lights, batteries and
speciality camera systems.
Revenue†
£114.2m
Down 6.1%
Adjusted operating profit†*
Down 6.7%
£15.2m
Statutory operating profit†*
Up 2.9%
£14.1m
Revenue
2017
2016
Adjusted operating profit*
2017
2016
Statutory operating profit*
2017
2016
£114.2m
£121.6m
£15.2m
£16.3m
£14.1m
£13.7m
† Results for continuing operations
* This report provides alternative performance measures (“APMs”) which are
not defined or specified under the requirements of International Financial
Reporting Standards (“IFRS”). We believe these APMs provide readers with
additional information on our business. We have included a glossary on page
150 which provides a comprehensive list of APMs that we use, including an
explanation of how they are calculated, why we use them and how they can
be reconciled to a statutory measure where relevant.
The non-repeat of the 2016 Olympics and
continued challenging market conditions in
the US studio market led to a fall in Production
Solutions’ revenue from continuing operations
of £7.4 million to £114.2 million. This included
£4.5 million from favourable foreign exchange.
The business remains market leader in the
core broadcast studio market. Whilst we saw
an improvement in our US studio business in
the second half compared with the first half,
overall sales of large supports declined in the
year. This included the impact of the spectrum
“repack” in the US. This was partly offset by
stronger market conditions in Europe and the
Middle East and higher sales of robotics and
LED lighting products.
We launched a number of new products during
the year, mainly focusing on the non-studio
applications for broadcasters and on independent
content creators. These included Flowtech
(Sachtler and Vinten versions), a revolutionary
tripod which utilises state-of-the-art carbon fibre
technology developed in-house enabling very
rapid deployment, and Litepanels Gemini to exploit
growth in the LED lighting market. We also
launched Autoscript’s Intelligent Prompting, a fully
Internet Protocol-enabled teleprompting solution.
These products were well received by the market.
We continue to improve the core business by
driving operational efficiencies. We are in the
process of moving our manufacturing operations
from Shelton, US to our facility in Costa Rica and
22
The Vitec Group plc Continued investment in
new product development
Vitec’s Production Solutions Division has historically
and primarily sold into the more traditional broadcast
and cine markets where our premium brands are
market leaders. These customers are looking for new
products that reduce capital expenditure and Vitec
has a sustained programme of investment in new
product development to respond to customer demand,
technological innovations and to support growth.
Examples of award-winning new products include
the unique, carbon-fibre Flowtech tripod, Litepanels
Gemini LED lights and Autoscript IP Prompting.
Flowtech carbon-fibre
tripod
Flowtech is a brand new product with
revolutionary, patented technology,
produced in our Bury St. Edmunds factory.
Dual-branded Sachtler and Vinten,
Flowtech is a set of two-stage carbon fibre
tripod legs with quick release brakes.
A versatile, lightweight tripod, Flowtech
is easier and faster to deploy and adjust
than any other tripod on the market, giving
a camera operator ultimate versatility
on location.
Litepanels Gemini
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
recently introduced a new light that
combines daylight, tungsten and
red-green-blue LEDs to deliver highly
flexible and precise colour adjustment in a
lightweight design. The Gemini soft panel
produces true, full-spectrum white light
with manual and remote control options.
Camera Corps Rig
Captures “EasyJet: Inside
the Cockpit”
Our Camera Corps business created a multi
mini-camera rig for ITN’s recent three-part
documentary “Easyjet: Inside the Cockpit”.
The mini-rig captured broadcast quality
footage, day and night, of multiple flights
over a three month period, running for up to
five hours from its own airline-safe Anton/
Bauer batteries. Camera Corps provided
training and support for the duration of
filming. “ITV was sold on the fact that we
were offering this view of the pilots we
haven’t seen before,” ITN Productions’ Will
Smith commented to ‘Broadcast’ magazine.
Autoscript Intelligent
Prompting
In 2017, Vitec’s Autoscript introduced the
first Internet Protocol-enabled (“IP”)
teleprompter. Until now, prompting systems
have relied on USB, video and cables to
connect the controller to the prompting
engine and the monitor. Our engineers
completely redesigned the prompting
system around an IP-enabled workflow,
with a scalable architecture. The new
hardware is lightweight and uses a
carbon-fibre hood to reduce weight, as
well as being quick and easy to install.
The system is highly flexible and
cost-effective, with one operator
controlling the script in multiple locations.
“This level of versatility in a tripod’s design
(Flowtech) is going to disrupt the industry.”
Filipe DeAndrade, Wildlife Director of Photography
“When I’m thinking about investing in a
teleprompting system, I ask three questions:
1) is it legally compliant with the FCC’s
regulations, 2) is it reliable, and 3) does it
function so that the talent can easily see what
they’re doing without being distracted from
controlling it? For me, Autoscript achieves all
three flawlessly.”
Dan Stark, Chief Engineer of NBC station KTVH
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Operational Review
Improving the core
The main strategic focus in our Production Solutions Division
remains to “improve the core” and we have a clear plan to drive
operational efficiencies and further enhance margins through
continued improvements to purchasing, inventory management,
manufacturing and leveraging synergies.
Our strategy in this Division has been to rationalise all in-house
manufacturing into two sites - Bury St. Edmunds, UK and Cartago,
Costa Rica. The UK is our Centre of Excellence for high-end robotics
and our Flowtech tripods, while Costa Rica focuses on video heads,
tripods and batteries.
We seek year-on-year productivity improvements across all of our sites.
New manufacturing facility in Bury
St. Edmunds, UK
Continuous improvement in
Cartago, Costa Rica
In H1 2018 our Production Solutions Division’s UK
manufacturing operations will move to a new, purpose-built
site nearby in Bury St. Edmunds. Replacing the 50-year old
existing factory, the new facility will specialise in advanced
technology in areas such as robotics, automation and
broadcast studio equipment for our Vinten and Sachtler
brands. It will include a fully automated, highly efficient
and proprietary process for the development of carbon
fibre for the Flowtech tripod, which maintains our product
differentiation and competitive edge. Vitec has invested
significantly in the new, 66,000 ft2 site which will house
around 180 people across manufacturing, engineering,
operations and other functions, and will produce
approximately 20,000 units annually. Our focus on
continuous improvement has led to productivity, work
flow and space utilisation improvements, and resulted
in the new site having a smaller footprint.
Vitec has been manufacturing in Costa Rica since 1985
and has 180 employees producing 50,000 products
annually, including heads, tripods and camera accessories
for our Vinten, Sachtler, OConnor and Anton/Bauer brands.
In Costa Rica, the locally developed operations system
is based upon lean tools and techniques to improve
productivity and reduce inventory levels, and the factory
has achieved overall productivity improvements of
6% year-on-year since 2014. The recent Sachtler Ace
assembly line process improvement resulted in a 35%
productivity improvement and a 40% reduction in space
used. We are in the process of moving our manufacturing
operations from Shelton, US to Costa Rica.
24
The Vitec Group plc
Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
Growth in
APAC
Our Production Solutions
Division has strategic plans
to grow further in APAC,
particularly in India, China
and South Korea. We will
leverage the Group’s
current distribution
footprint and capabilities
where appropriate.
OConnor
The film industry in China is growing and in 2017 big
budget films such as “Wolf Warrior II” saw significant
commercial success and it is the highest grossing
Chinese film ever released. The government approval
needed to produce a film has been decentralised, and
this, coupled with a growing middle class, has provided
conditions for growth.
As a result, many brands, like Vitec’s OConnor, who makes
heads and tripods for high end films and dramas, are
seeing growth in China.
OConnor’s unparalleled fluid head performance makes it
the number one choice for the leading cinematographers
on most feature films and high end dramas around the
world. In China, OConnor revenue in 2017 doubled, making
it now the biggest single market for OConnor products.
This high level is expected to continue in the medium-term.
Annual Report & Accounts 2017
25
Operational Review
Creative Solutions now has “Customer Experience
Centres” in Los Angeles and Irvine, California and
in Brooklyn, New York where our knowledgeable
sales people demonstrate and sell our latest
products across the brands. These centres help us
to refine our products to improve user experience,
particularly when brands are used together.
Statutory operating profit decreased by 21.6%
to £2.9 million and adjusted operating profit
margin* decreased by 0.1% pts to 20.6%.
This reflects higher volumes offset by increased
investment in sales and marketing to drive sales
of our legacy products and increased investment
to develop new products which has positioned
us well for the future.
The Creative Solutions Division designs,
manufactures and distributes premium branded
products and solutions for independent content
creators, enterprises, broadcasters, and film
and video production companies. It is made
up of a number of brands that Vitec has built
through acquisitions and includes Teradek,
SmallHD, Wooden Camera, Paralinx,
Offhollywood and RTMotion.
Revenue
£63.2m
Up 37.7%
Adjusted operating profit*
Up 36.8%
£13.0m
Statutory operating profit*
Down 21.6%
£2.9m
Revenue
2017
2016
£63.2m
£45.9m
Adjusted operating profit*
2017
2016
£13.0m
£9.5m
Statutory operating profit
2017
2016
£2.9m
£3.7m
* This report provides alternative performance measures (“APMs”) which are
not defined or specified under the requirements of International Financial
Reporting Standards (“IFRS”). We believe these APMs provide readers
with additional information on our business. We have included a glossary
on page 150 which provides a comprehensive list of APMs that we use,
including an explanation of how they are calculated, why we use them and
how they can be reconciled to a statutory measure where relevant.
26
The Vitec Group plc
Creative Solutions further expanded its offering
of higher technology products to the Independent
Content Creator segment in 2017. This market
has shown continued strong growth with drivers
including the proliferation of online platforms such
as Netflix which have generated a need for original
content. Revenue for 2017 was £63.2 million,
an increase of 37.7% on the prior year. At constant
exchange rates, and after excluding the impact
from acquisitions including the 2016 acquisition
of Wooden Camera, revenue grew by 20.0%.
We have continued to invest in new product
development in line with the changing nature
of the image capture and sharing market. New
products launched in the year include HEVC
encoders, daylight viewable on-camera monitors
and Serv Pro, a dedicated iOS monitoring solution.
Our businesses have also worked together during
the year to develop new products, including a
SmallHD monitor with built-in Teradek Bolt wireless
receiver, a SmallHD Focus monitor with an Anton/
Bauer battery for DSLR cameras, and a Manfrotto/
Wooden Camera Directors Cage for DSLR and
mirrorless cameras.
Our higher technology offering was further
enhanced by the acquisition of RTMotion in
September 2017. This complements our existing
activities and provides the Division with additional
high quality camera accessories for the expanding
Independent Content Creator market. The business
has been integrated into Teradek and is performing
in line with expectations.
Corporate development
Vitec’s Creative Solutions Division comprises
five entrepreneurial companies which mainly
serve the rapidly growing Independent
Content Creator market with higher
technology products. This market is growing
well, driven by the sharp rise in original
content creation (e.g. scripted television
shows and web-streaming) viewed on
platforms such as Amazon, Netflix, HBO, BBC,
Sky, Facebook, YouTube and Livestream.
Given the similar target audience served by Teradek, SmallHD, Wooden
Camera, Offhollywood and RTMotion, we have created a separate division
for these businesses. This will also enable us to leverage the Division’s
market knowledge and products focused on this market, to further grow,
both organically and through acquisition, in adjacent areas.
We have a strong leadership team in Creative Solutions, led by the original
founders and entrepreneurs, and supported by key operational roles.
We are further building the team and developing a common culture across
the Division for product design, channel strategy, promotional activities and
operational processes, whilst retaining the entrepreneurial focus, which
is one of the key strengths for the Division’s end user.
27
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Operational Review
“The SmallHD FOCUS is a great
monitor that is bright enough for
all conditions and super easy to
use. It pairs beautifully with any
camera setup I have and it’s so
lightweight you can hardly feel the
difference when you’ve mounted
it on your camera setup.
It is always in my gear bag.”
Zach Lower, DIT/Director of Photography
“As a Steadicam Operator with over
20 years experience, I’m always
on the lookout for reliable daylight
viewable monitors. The SmallHD
703 Ultra Bright is an amazingly
lightweight, durable monitor with
enough horse power to be seen in
the harshest of daylight conditions.”
Alec Jarnagin, SOC, Director of Photography
“If we’re filming in a room with tight
spaces, instead of the director
coming into the room and
interfering, he could just watch from
his phone outside. We wouldn’t be
able to do that without Teradek’s
Serv Pros. The freedom they give us
means we’re always ready to shoot,
and for a documentary on student
athletes for Netflix, capturing in the
moment is what we’re all about.”
Terry Zumalt, Director of Photography
“The Bolt 3000 allows me to have
cable free monitoring on all my shots
that often could not be viewed via
a traditional cable connection because
of camera set up. It also gives me
freedom of movement to move around
the set or location and view images
privately, giving me the head space
I need to create the shot.”
Brett Danton, Director
“From a rental house perspective,
Wooden Camera always finds a way
to make our lives easier by creating
intelligent and durable products that
seamlessly integrate with every
camera system we have in our
inventory. They hold up to the use
that equipment in a rental house
is subjected to and consistently
meet the needs of camera
assistants working in the field.”
Mario Deas, President Mar Media
Digital Cinema Rentals
New markets and
technologies
Cheaper production tools have enabled a much larger population of video
creators to emerge and our strategy is to capitalise on this exciting market
by maintaining and expanding our current market leadership by innovating
quickly and creating high quality products with regular upgrades.
Our emphasis is on product design, quality and customer experience.
We are also developing product synergies between Vitec brands, for example,
a SmallHD ultra-bright monitor with a Teradek Bolt wireless receiver, a SmallHD Focus
monitor with an Anton/Bauer battery for DSLR cameras, and a Manfrotto/Wooden
Camera Director’s Cage for DSLR and mirrorless cameras.
We are focused on acquisition opportunities in adjacent markets and with new products
to address new areas of the content production value chain.
Teradek
Teradek launched several products
in 2017, including new Cube HEVC
encoders with the next generation
video compression technology, and
Serv Pro, their first dedicated iOS
monitoring solution that allows
directors and producers to watch
what is being shot in real-time on
their iPhones and iPads.
Teradek also launched Live:Air Action,
a video production application for iOS
that allows users to stream
professional looking live video to
Facebook, YouTube, Twitch, and more.
Lastly, Teradek released the Bond
Backpack, a completely new bonded
cellular streaming solution for
network broadcasters that combines
cutting edge HEVC video compression
with Teradek’s own Node LTE
modems, all packed in an ergonomic,
lightweight pack.
Wooden Camera
Accessories
Wooden Camera also launched a
series of new accessories. Major
new products included a Directors’
Monitor Cage, Universal Follow Focus
and a manual Follow Focus.
Wooden Camera and Manfrotto joined
forces in a cross-Group project to
develop a series of Camera Cages
for customers who shoot video with
mirrorless and DSLR cameras. The
cages are available in small, medium
and larger options and are compatible
with Sony, Panasonic, Canon, Nikon
and Olympus cameras. Developed
by Wooden Camera, and compatible
with all of their accessories, the
Cage sits on all Manfrotto video
tripods. Solid and well-constructed,
the minimalist design and lightweight
structure is branded Manfrotto and
sold globally via our extensive
Vitec Imaging distribution and
e-commerce network.
SmallHD Monitors
SmallHD launched a range of new
products during 2017, including
the Ultra Bright Monitors in both 5
and 7-inch formats. These daylight
viewable monitors are classed as
the brightest and most fully-featured
on-camera monitors in the world,
while maintaining low power
consumption.
Early in 2018, SmallHD also launched
its first touchscreen, high-definition
video monitor for use with small,
low profile cameras like DSLRs and
mirrorless. The 5-inch FOCUS is
an out-of-the-box monitor for under
$500 and has received critical
acclaim for its daylight-viewable
display and outdoor brightness.
It is lightweight, has an Anton/Bauer
centre-mounted battery and attaches
securely atop the camera with the
included Tilt Arm.
This year, SmallHD and Teradek
joined forces to create a wireless
monitoring device for directors.
The 703 Bolt is equipped with a
SmallHD monitor, a Teradek Bolt
built-in wireless receiver and an
Anton/Bauer battery, as well as
cutting-edge software tools.
28
The Vitec Group plc Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
Getting
closer to our
customers
We have begun to develop our
Creative Solutions Division as a
customer-facing brand, tying our
many brands together to develop
a “curated, branded customer
experience” in order to get closer
to our customers.
We currently have two stores in California and one in
New York and over the next few years are looking to
expand the reach of these “Customer Experience
Centres” both physically and online.
There are opportunities to develop synergies across
the customer-facing aspects of the Creative Solutions
Division. New centres and online stores will be
carefully designed and branded to offer product
displays and a consistent experience. Our sales people
will be knowledgeable, well trained and certified, and
will assist with bundling Vitec products. We will offer
global support for all of our products from any location
and regular educational workshops with presentations
from third parties as well as Vitec brands.
“I can always count on
CSNY to have the latest
and greatest in stock and
I love the white glove
service and cutting
edge info.”
“The team at CSLA helps
me stay in step with the
latest technology and is a
great place to network
with other members of
the industry.”
Charlie Anderson, DIT/Director
of Photography
John Tanzer, Director of
Photography
29
Annual Report & Accounts 2017 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 priorities.
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
» Hardware and software
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 three Divisions create value by:
Understanding customer needs
Our Divisions continually obtain feedback on market trends, competitors and
their products from customers as well as from research. As we 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.
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 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.
Efficient supply chain
We procure materials from reputable suppliers and produce our products
in efficient and environmentally friendly operations and, where appropriate,
manufacture or source from 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.
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.
30
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.
31
Annual Report & Accounts 2017 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
32
We leveraged our premium brands and strong market positions to continue to improve and strengthen our traditional business. We focused on developing innovative products and solutions while maximising operational efficiencies.We invested resources into faster growing markets and technologies to underpin future growth, launching products for independent content creators, filmmakers and enterprises.Vitec has strong relationships with its customers and end users. We continue to enhance our distribution channels and collaborate with key market players to form more durable and strategic relationships that are less susceptible to commoditisation. Direct e-commerce is an important growth driver for our Imaging Solutions Division.Geographical expansion is 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 2017
» Sustained investment in R&D with around 4.6% of product revenue invested in
» Moved production of the Manfrotto BeFree range of tripods, which were
developing new products
» New products focused on improving our core, including:
- Manfrotto BeFree Advanced – lightweight tripod for travel photography
- Manfrotto Nitrotech – video head utilising nitrogen gas technology
- Sachtler/Vinten Flowtech – rapid deployment tripod utilising state-of-the-art
carbon fibre technology developed and manufactured in-house in the UK
- Litepanels Gemini – new light to exploit growth in the LED lighting market
- Autoscript’s Intelligent Prompting – a fully IP-enabled teleprompting solution
- Gitzo Limited Edition carbon fibre tripod – to commemorate Gitzo 100 year
anniversary
» Implementation of a new three-Divisional reporting structure to give greater
focus to the Independent Content Creator market and leverage synergies
in the new Creative Solutions Division and improve commercial and
operational performance
previously part manufactured in China, back to an automated production facility
in Italy; the “Made in Italy” stamp helps to differentiate us from our competitors
» Announced plans to move Production Solutions’ manufacturing operations from
Shelton, US, to our facility in Costa Rica to drive operational efficiencies
» Acquisition of JOBY and Lowepro brands gives Vitec a leading global position
in the new and fast growing iphoneography, mobile journalism and vlogging
accessories market, as well as the photographic bags market
» The Production Solutions Division will relocate its Bury St. Edmunds, UK facility
in H1 2018 to a purpose-built manufacturing site in the same area that will
deliver further operational improvements
» Continued to promote high potential employees both within and across
Divisions as part of our succession planning for key senior employees
» Continued to encourage diversity within our business across all of the
countries we operate in
» Continued to develop products and solutions for independent content creators,
» Expanded our offering to filmmakers and independent content creators
including:
- Teradek Cube HEVC encoders – small, power-efficient encoders that enable
high quality video transmission
- Teradek’s Serv Pro – hardware streaming device
- SmallHD Ultra Bright monitors
- Wooden Camera Universal and Manual Follow Focus
» Newly formed Creative Solutions Division gives greater focus to the fast-
growing Independent Content Creator market
by the acquisition of the higher technology RTMotion business
» Investment in VitecEV, to address the growing demand for high quality video
for enterprises
» Launched a number of cross-Group products for the Independent Content
Creator market, developing synergies between Vitec brands, including
a SmallHD monitor with a built-in Teradek Bolt wireless receiver, a SmallHD
FOCUS monitor with an Anton/Bauer battery for DSLR cameras, and
a Manfrotto/Wooden Camera Directors Cage for DSLR and
mirrorless cameras
» Further improved our relationship with Apple and significantly increased
our presence in Apple’s stores globally through the acquisition of JOBY
» Developed our relationship with Amazon with double digit sales growth for
the year in our Imaging Solutions Division
» Invested further in our e-commerce capabilities; e-commerce sales through
our own platforms increased by c. 50% in the Imaging Solutions Division
» Opened a new Creative Solutions “Customer Experience Centre” in Irvine,
bringing our total number of stores to three; these stores help us to refine
our products to improve user experience, particularly when brands are
used together
» Grown sales from continuing business in our key Asia-Pacific market by
£4.5 million (+6.5%) during 2017 to £73.5 million including particularly
strong growth in China
» Launched initiatives to utilise Imaging Solutions’ distribution network in APAC
to sell Vitec brands from Creative Solutions, initially in China
» The acquisition of the JOBY and Lowepro brands has brought additional
specialist teams in APAC
» Significant portfolio refinement to reposition the Group to deliver increased
» Launch of three cross-Divisional strategic initiatives on operational excellence,
operating margins and future progress
getting closer to customers and leveraging our distribution in APAC
» Disposal of two non-core businesses, US Services (Bexel) and Haigh-Farr
» Part of the proceeds from the disposals were redeployed to acquire JOBY
and Lowepro brands and RTMotion which have a good strategic fit and
will materially enhance EPS for 2018
» Simplification of organisation within the Production Solutions Division including
appointment of Operations Director who is responsible for all sites
33
Annual Report & Accounts 2017 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.
Specific Risk
Mitigation
Change in risk profile
during 2017
Increased risk
Constant risk
Decreased risk
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.
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.
We continue to increase our online presence and our investment in new innovative products
which address the needs of independent content creators. We are also increasing our presence
and investment in APAC.
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 2017, we acquired the JOBY and Lowepro brands,
and RTMotion. 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.
We continue to face price pressure from new market entrants, which we are responding to
through the launch of new competitive product ranges. We continually review our production
activities for cost saving opportunities. We have also faced issues relating to parallel trades /
price arbitrage particularly in our Imaging Solutions business which led us to enforce
“Minimum Advertised Price” where this is permitted.
Price competition from Chinese low-cost producers is becoming stronger in some of the more
technologically advanced segments, particularly in respect of wireless transmitters.
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. For several of our products we are heavily dependent on a specific supplier for the
provision of core elements of the products; such vendors may decide to compete with Vitec.
The recent acquisition of JOBY and Lowepro has further increased the dependence on
external sourcing.
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 appropriate market analyses 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.
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 continually 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. With the recent currency fluctuations, we continue to monitor
our pricing across the main currencies.
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.
34
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. Vitec’s largest customer accounted for 11.9% of revenue from continuing
operations which is marginally higher than in previous years. The business also 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.
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.
More specifically, the UK’s exit from the European Union may have a significant impact on rates
of duties and other taxes applied to our UK entities’ exports and imports, which would have a
material effect on the Group’s results. There may be other legal, regulatory and commercial
ramifications, the likely impact of which are difficult to measure given the uncertainties
surrounding the outcome of the current negotiations between the UK Government and the EU.
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. The uncertain outcome of Brexit negotiations may increase
Sterling’s volatility in the next few years, which in turn may a material impact on the Group’s
translated results.
Business continuity
There are risks relating to business continuity resulting from specific events such as
natural disasters including earthquakes, floods or fires. These 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 will move these activities to a lean,
modern manufacturing facility in H1 2018.
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, including the effect of tax changes.
We enhance our controls, processes and employee knowledge to maintain good governance
and to comply with laws and regulations. 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.
With regards to Brexit, we have established an executive-led steering group to develop
contingency plans whilst closely monitoring developments in the negotiations between the
UK Government and the EU.
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. We review
coverage annually to determine whether adjustments are needed.
To address this risk, projects were monitored closely by senior operational management with
regular updates provided to the Board. We anticipate that there will be significant year-on-year
savings. In addition, we continually aim to identify and implement operational synergies between
the different business units.
35
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Financial Review
Group Finance Director
Kath Kearney-Croft reviews performance
Adjusted revenue*
Up 0.5%
£378.1 million
Adjusted operating profit*
Up 8.0%
£44.8 million
Adjusted basic earnings
per share
68.1pence
Up 11.1%
Revenue from continuing operations increased by
10.8% to £353.3 million (2016: £318.9 million) and
adjusted operating profit* from continuing operations
was 9.2% higher at £45.2 million (2016: £41.4
million). At constant exchange rates, revenue from
continuing operations was 6.4% higher and adjusted
operating profit* from continuing operations was in
line with the prior year. Lower broadcast activity in
the more mature US studio markets, higher corporate
costs and non-repeat of the 2016 Olympics were
offset by acquisitions and growth in sales of higher
technology and photographic products.
Imaging Solutions’ revenue grew by 16.2% to
£175.9 million and adjusted operating profit*
increased by 18.7% to £29.9 million. Revenue
growth included a £12.6 million benefit from the
acquisition of JOBY and Lowepro and £6.6 million
from foreign exchange. At constant exchange rates
and excluding the impact of the acquisition, revenue
increased by 3.3% and adjusted operating profit*
grew by 10.4% driven by higher sales of video and
photo supports, as well as favourable channel mix
and production efficiencies.
Production Solutions’ revenue from continuing
operations declined by 6.1% to £114.2 million and
adjusted operating profit* from continuing operations
declined by 6.7% to £15.2 million. This was partly
due to non-repeat of the Olympics, and the
spectrum “repack” in the US which led to our key
broadcast customers focusing their expenditure
on transmission rather than studios. At constant
exchange rates revenue from continuing operations
fell by 9.6% and adjusted operating profit* from
continuing operations was 21.1% lower than
the prior year.
Revenue in the Creative Solutions Division increased
by 37.7% to £63.2 million, driven by continued
strong growth in the Independent Content Creator
market, a particularly strong performance for
SmallHD and the acquisition of Wooden Camera in
2016. Adjusted operating profit* increased by 36.8%
to £13.0 million. At constant exchange rates revenue
increased by 31.9% and adjusted operating profit*
grew by 31.3%.
Adjusted Group gross margin* from continuing
operations at 44.3% was higher than the prior
year (2016: 42.6%) reflecting growth in higher
technology sales and favourable sales mix.
Adjusted operating expenses* from continuing
operations were £16.8 million higher than 2016
at £111.3 million. This mainly reflects investments
in our Creative Solutions and Imaging Solutions
businesses to drive sales and future growth,
including higher investment in new product
development at 4.6% of Group product sales from
continuing operations (2016: 4.4% on continuing
operations), and higher corporate costs. This also
reflects an adverse currency impact of £3.5 million.
This year corporate costs of £12.9 million have been
reported separately rather than being allocated to
the Divisions.
Adjusted profit before tax* from continuing operations
of £42.4 million was £5.0 million higher than the prior
year (2016: £37.4 million). There was a net foreign
exchange benefit versus 2016 of £3.4 million on our
adjusted profit before tax* from continuing operations
mainly due to a stronger Euro and US Dollar.
Adjusted earnings per share* from total operations
increased by 11.1% to 68.1 pence per share (2016:
61.3 pence per share).
36
The Vitec Group plc Statutory profit before tax of £27.4 million (2016: £26.4 million) was after £15.0
million charges associated with acquisition of businesses (2016: £7.6 million)
and £nil restructuring costs (2016: £3.4 million).
Free cash flow* of £23.5 million (2016: £44.6 million) includes a working capital
outflow of £9.4 million (2016: £12.0 million inflow). This reflects the anticipated
investment in working capital following the acquisition of JOBY and Lowepro,
as we have started to transition these businesses from a third party distributor
model to using Vitec’s own distribution business. Excluding the impact from
this acquisition, working capital would have reduced. The significant reduction
in working capital in 2016 was driven by the business right-sizing its inventory
which, as expected, was not repeated this year. 2016 free cash flow also
included £3.9 million from the sale of the Bury St. Edmunds manufacturing
site as well as the benefit of the Olympics.
Net debt at 31 December 2017 was £42.9 million (31 December 2016: £75.1
million). The decrease in net debt resulting from cash flows was £29.0 million
(2016: £12.8 million). This was after: £12.4 million cash outflow on acquisitions
being made up of net payments of £10.8 million relating to the acquisitions
of the JOBY and Lowepro brands and RTMotion and a £1.6 million earnout
payment on Wooden Camera in respect of their strong 2016 performance,
a net cash inflow on disposals of £32.4 million arising from the disposals
of Bexel and Haigh-Farr (£32.6 million) partly offset by £0.2 million of rent
payments relating to the prior disposal of IMT, £12.4 million of dividend
payments (2016: £11.1 million), and a net favourable foreign exchange impact
of £3.2 million principally driven by US Dollar denominated debt. Vitec repaid its
$50 million private placement facility in full in the year, funded by the Revolving
Credit Facility. The Group’s balance sheet remains strong with a year-end net
debt to adjusted EBITDA* ratio of 0.7 times (31 December 2016: 1.2 times).
Adjusted operating profit* for total operations in 2017 was £3.3 million higher
than the prior year. This reflects an increase in adjusted gross profit* of £5.5
million, favourable foreign exchange impact of £3.8 million and a £3.3 million
contribution from acquisitions. This was partly offset by investment in operating
expenses of £8.8 million to drive sales and future growth in our higher
technology and photographic businesses as well as higher corporate costs linked
to our strong financial performance, and £0.5 million lower adjusted operating
profit* from discontinued operations. The statutory operating profit for continuing
operations of £30.2 million was £0.2 million lower than prior year.
Management’s estimate of these drivers is summarised in the following table:
Adjusted operating profit* bridge (£ million)
2016 Adjusted operating profit*
Increase in adjusted gross profit*
Increase in adjusted operating expenses*
Acquisitions
Disposals
Foreign exchange effects:
- Translation
- Transaction after hedging
2017 Adjusted operating profit*
5.5
(8.8)
3.3
(0.5)
1.9
1.9
41.5
(3.3)
2.8
3.8
44.8
* Before charges associated with acquisition of businesses, impairment of goodwill,
restructuring costs and material non-operating events as defined on page 150.
Net financial expense
Net financial expense of £2.8 million was lower than the prior year (2016:
£4.0 million) mainly due to lower overall debt levels, the benefit from repaying
the $50 million private placement in May 2017 and lower rates of interest on
the debt facility that was put in place in July 2016. Interest payable was £2.6
million (2016: £4.2 million) and was covered 23 times (2016: 14 times)
by adjusted EBITDA*.
Profit before tax
Adjusted profit before tax* for total operations increased by £4.5 million to
£42.0 million (2016: £37.5 million). Statutory profit before tax for continuing
operations increased from £26.4 million to £27.4 million.
Taxation
The effective taxation rate on adjusted profit before tax* was 27% in 2017
(2016: 27%). 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* for total operations was 68.1 pence per share
(2016: 61.3 pence per share). Basic earnings per share for total operations
was 61.4 pence per share (2016: 20.2 pence per share).
37
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Financial Review
Acquisitions
On 22 September 2017, the Group acquired the trade and certain assets
(primarily comprising the JOBY and Lowepro brands) of the DayMen Group
S.a.r.l. including 100% of the share capital of the subsidiary companies in
Hong Kong and China (“JOBY and Lowepro”), through a business combination
for a cash consideration of £8.4 million, expected integration and deal costs
of £4.4 million and expected investment in working capital of £10.9 million.
The fair value of the net assets acquired was £4.4 million resulting in
goodwill of £4.0 million.
JOBY and Lowepro products are designed and developed in Hong Kong
and California respectively. JOBY’s patented GorillaPod has transformed the
camera accessories market while Lowepro has been a market leader in bags
designed to protect electronic and photographic devices since its inception
in 1967. The acquisition is an excellent strategic fit with the Group’s existing
core activities and gives the Group greater access to the fast growing
iPhoneography and vlogging consumer accessories market.
On 20 September 2017, the Group acquired 100% of the issued share capital
of RT Motion Systems Ltd (“RTMotion”), a private company based in the UK,
for a cash consideration of £2.5 million (£1.9 million net of cash acquired).
The fair value of the net assets acquired was £1.6 million resulting in goodwill
of £0.9 million. Under the terms of the acquisition, there is a potential deferred
payment of up to £1.2 million payable in cash. This is dependent on the
achievement of non-financial targets, including integration milestones,
being met over the period to 31 December 2019, and is not contingent
consideration. In 2017 an amount of £0.2 million was provided for and
charged to the Income Statement in relation to milestones met in 2017.
RTMotion is a high technology business which provides wireless motor
lens control systems for broadcast, cine and video cameras. The acquisition
complements the Group’s existing activities in the expanding Independent
Content Creator market and its products will be marketed through the Group’s
global distribution network.
Disposals
On 9 May 2017, the Group sold Haigh-Farr Inc (“Haigh-Farr”), a defence
antennas business based in the US, for a cash consideration of $15.8 million
(£12.2 million), of which $0.8 million (£0.6 million) is deferred for twelve
months from disposal date. A profit of £3.2 million arose on disposal after
taking into account £0.5 million costs of disposal, £17.3 million net assets
disposed and the previously recorded foreign exchange gain of £8.8 million
that has been recycled to the Income Statement.
On 1 August 2017, the Group sold Bexel for a net cash consideration of $32.1
million (£24.3 million). A profit of £11.3 million arose on disposal after taking
into account £2.8 million costs of disposal, £18.7 million net assets disposed
and the previously recorded foreign exchange gain of £8.5 million that has
been recycled to the Income Statement.
Restructuring costs
In 2017 the restructuring charge was £nil (2016: £5.2 million). The prior year
charge relates to actions to streamline operations with lower growth prospects
and was mostly made up of redundancy costs.
Charges associated with acquisition of businesses
The 2017 charges relate to the Group’s acquisition activities and amortisation
of previously acquired intangible assets.
The amortisation of acquired intangible assets for continuing operations
of £7.4 million (2016: £5.8 million) relates to the JOBY and Lowepro brands
and RTMotion acquisitions in 2017, and other businesses acquired by the
Group since 2011.
Transaction costs of £1.3 million (2016: £0.6 million) and integration costs
of £2.2 million (2016: £nil) were incurred in relation to acquisitions.
Earnout payments of £4.1 million were accrued during the year (2016: £1.2
million). £3.9 million related to Wooden Camera on its strong performance
in 2017 following its acquisition in the prior year and £0.2 million related
to RTMotion following its acquisition in the current year.
Impairment of goodwill
There was £nil impairment of goodwill in the year (2016: £12.1 million).
Cash flow and net debt
Cash generated from operating activities for total operations was £48.7
million (2016: £64.8 million).
The Group uses a number of key performance indicators to manage cash
including cash conversion+, 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.
Cash conversion+ was 90% for 2017 (2016: 155%). This includes the impact
of working capital investment following the acquisition of JOBY and Lowepro
to move from a third party distributor model to using Vitec’s own distribution
business. After excluding the impact of the JOBY and Lowepro acquisition,
cash conversion was 119%.
The working capital to sales metric was in line with prior year at 15.7% and
overall working capital increased by £9.4 million (2016: £12.0 million
decrease).
Trade receivable days increased slightly to 45 days (2016: 43 days)
and remain well controlled with a good ageing profile.
On a cash flow basis, trade and other receivables increased by £5.6 million
(2016: £4.5 million). The reported carrying value of trade receivables at year
end of £52.5 million includes £1.5 million favourable foreign exchange
compared to the prior year.
On a cash flow basis, inventory increased by £9.9 million (2016: £11.2 million
decrease). The reported carrying value of inventory at year end includes £2.5
million favourable foreign exchange compared to the prior year. Inventory days
increased to 106 days (2016: 83 days) partly driven by the buy-back of
inventory in November 2017 relating to the acquisition of JOBY and Lowepro.
38
The Vitec Group plc
Trade payable days increased to 54 days (2016: 38 days). On a cash flow basis,
there was a £6.1 million increase in trade and other payables (2016: £5.3
million) including bonus and commission accruals and timing of payments.
The reported carrying value of trade payables at year end of £35.1 million
includes £0.1 million adverse foreign exchange compared to the prior year.
Capital expenditure for total operations, including £4.3 million of software
and capitalised development costs (2016: £3.4 million) totals £15.1 million
(2016: £16.8 million). Overall capital expenditure was equivalent to 1.1
times depreciation (2016: 0.9 times).
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 17.5% in 2016 to 19.6% in 2017 for total operations.
The net tax paid in 2017 of £11.0 million was £3.8 million higher than
the amount paid in 2016 due to the timing of tax payments.
As a result free cash inflow* was £23.5 million (2016: £44.6 million).
Free cash flow*
£ million
for continuing and discontinued operations
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*
2017
£m
44.8
14.1
(9.4)
(1.4)
0.6
48.7
(10.8)
(4.3)
3.5
(2.6)
(11.0)
23.5
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
* Before charges associated with acquisition of businesses, impairment of goodwill, restructuring
costs and material non-operating events as defined on page 150.
(1) Includes depreciation, amortisation of software and capitalised development costs and
impairment losses on property, plant and equipment
(2) Includes change in provisions, share based payments charge, gain on disposal of property,
plant and equipment, fair value derivatives, integration costs and transaction costs relating
to acquisitions.
There was a £12.4 million net cash outflow relating to acquisitions during
the year (2016: £20.3 million).
There was a £32.4 million net cash inflow from disposals, which mainly
related to the disposals of Haigh-Farr and Bexel during the year
(2016: £1.5 million outflow).
Dividends paid to shareholders totalled £12.4 million (2016: £11.1 million)
and there was a net cash outflow in respect of shares purchased and issued
of £2.1 million (2016: £1.1 million net inflow). The net cash inflow for the
Group was £29.0 million (2016: £12.8 million) which, after £3.2 million
favourable foreign exchange (2016: £11.6 million adverse), decreased
net debt to £42.9 million (2016: £75.1 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 2017:
Currency hedging
December
2017
Average
rate of
contracts
December
2016
Average
rate of
contracts
US Dollars sold
for Euros
Forward contracts
US Dollars sold
for Sterling
Forward contracts
$25.2m
1.14
$42.3m
1.13
$9.0m
1.30
$17.1m
1.37
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.
39
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
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. The results
of the sensitivity analysis which also included stress testing of the Strategic
Plan, demonstrated that as a result of the Group’s strong cash generation
it was able to maintain sufficient headroom within its net debt covenant
to accommodate the above scenarios, both individually and in combination.
This is supported by the fact that the Group sells a wide portfolio of different
products, has a global distribution network, and has well-established
relationships with its customers.
Mitigation actions considered as part of this stress testing included further
cost reductions, tight control of working capital, and reduction in non-essential
capital expenditure. The Directors consider that under each of the scenarios,
the mitigating actions would be effective and sufficient to ensure the
continued viability of the Group.
The Directors have also considered the Group’s capacity to remain viable
after consideration of future cash flows, expected debt service requirements,
undrawn facilities and access to capital markets. The primary element of
the Group’s committed borrowing facilities is the £125.0 million five-year
Revolving Credit Facility that expires in July 2021. As at 31 December 2017,
the Group had utilised £53.4 million (43%) of the facility.
Dividend
The Directors have recommended a final dividend of 20.1 pence per share
amounting to £9.0 million (2016: 17.3 pence per share, amounting to
£7.7 million). The final dividend, subject to shareholder approval at the 2018
Annual General Meeting, will be paid on Friday 18 May 2018 to shareholders
on the register at the close of business on Friday 20 April 2018. This will
bring the total dividend for the year to 30.5 pence per share (up 12.1%).
A dividend reinvestment alternative is available with details available from
our registrars, Link Asset Services.
Kath Kearney-Croft
Group Finance Director
21 February 2018
Financial Review
Financing activities
In July 2016, a five year £125.0 million committed multi-currency Revolving
Credit Facility with five relationship banks was renegotiated. This is due to
expire on 5 July 2021. At the end of December 2017, £53.4 million (2016:
£48.9 million) of the facility was utilised. In May 2017 the Group repaid its
US$50 million private placement facility in full.
The average cost of borrowing for the year which includes interest payable,
commitment fees and amortisation of set-up charges was 3.2% (2016: 3.9%)
reflecting an interest cost of £2.6 million (2016: £4.2 million).
The Board has maintained an appropriate capital structure without exposing
the Group to unnecessary levels of risk and Vitec has operated comfortably
within its loan covenants during 2017.
Foreign exchange
2017 adjusted operating profit* included a £3.8 million net favourable foreign
exchange effect after hedging, mainly due to favourable £/m and £/$ rates
when compared to 2016. Should exchange rates remain at current levels
($1.40, m1.13), we would expect a headwind from foreign exchange in 2018
in the order of £0.8 million.
Viability Statement
In accordance with the 2016 UK Corporate Governance Code, the Directors
have assessed the viability of the Group over a three year period, taking
account of the Group’s current financial and trading position as summarised
in this Annual Report, the principal risks and uncertainties set out on pages
34 and 35 and the three year Group and Divisional strategic plans which
are reviewed annually by the Board. Based on this assessment, the Directors
confirm that they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over the period
from the date of this Annual Report to 31 December 2020.
The Directors believe that a three year period is an appropriate period over
which a reasonable expectation of the Group’s longer-term viability can be
evaluated and is aligned with the Group’s business and strategic planning
time horizon. It reflects the nature of the Group’s key markets, its investment
profile, its businesses and products and its limited order visibility. Whilst the
Directors have no reason to believe that the Group will not be viable over a
longer period, they believe that the three year period presents readers of the
Annual Report with a reasonable degree of confidence while still providing
a longer-term perspective.
The Group’s strategic and financial planning process reflects the Directors’
best estimate of the future prospects of the Group, but they have also
considered the resilience of the Group across a number of severe but
plausible scenarios, taking into account the principal risks facing the Group
as detailed on pages 34 and 35, and the likely 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. The following scenarios were applied to the most
recent Strategic Plan which was reviewed by the Board in June 2017:
• Loss of significant amounts of revenue and gross margin;
• Additional working capital requirements;
• Significant adverse movements in foreign exchange rates.
40
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
2017**
2016
Basis of preparation
Constant currency revenue growth
Constant currency adjusted
operating profit* growth
6.4%
0.0%
4.8%
% increase in revenue at constant exchange rates
(0.3%)
% increase/(decrease) in adjusted operating profit* at
constant exchange rates
Return on sales
12.8%
11.0%
Adjusted operating profit* divided by revenue
Investing in product development
4.6%
3.9%
Total research, development and engineering costs
before capitalisation and amortisation of development
costs, divided by revenue from product sales
Basic earnings per share
(2017 total operations)
Basic earnings per share
(2017 continuing operations)
68.1p
61.3p
70.5p
61.3p
Adjusted profit after tax* divided by the weighted
average number of shares in issue during the
financial year
Total dividend per share
30.5p
27.2p
ROCE***
19.6%
17.5%
Operating cash generation***
90%
155%
Working capital to sales
15.7%
15.7%
Inventory days
106 days
83 days
Trade receivable days
45 days
43 days
Trade payable days
54 days
38 days
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) multiplied by
number of days in Q4
Trade receivables at the end of the financial year
divided by Q4 revenue multiplied by number
of days in Q4
Trade payables at the end of the financial year divided
by Q4 cost of sales (before exchange gains/losses)
multiplied by number of days in Q4
Accident record
Electricity usage
Gas usage
Water usage
7
4
Number of work-related accidents resulting in greater
than three days absence
28.4
19.0
0.05
28.6
18.8
0.06
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 charges associated with acquisition of businesses, restructuring costs and material non-operating costs as defined on page 150.
** Unless otherwise indicated 2017 KPIs are based on continuing operations.
*** ROCE and Operating cash generation KPIs are based on total operations (continuing and discontinued) to be consistent with presentation elsewhere in the Annual Report & Accounts.
41
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Corporate Responsibility
Stephen Bird, Group Chief Executive,
explains the context for Vitec’s journey
towards sustainability that ensures our
success and longevity as a business
Business Ethics
Employee Engagement
page 43
page 44
page 48
page 50
Community & Economic
Contribution
Environmental
Sustainability
As we continue to grow and acquire new
businesses, Vitec is becoming increasingly
multi-cultural and demographically diverse.
At the same time, the democratisation of image
capture and sharing means that our products are
being used by an ever-wider range of customers.
Vitec will continue to evolve as the needs and
expectations of our customers change.
As a global business, we take our corporate
responsibility extremely seriously. Our strategy
looks at how we do business, how we operate
as an employer, a supplier to our customers,
a partner to the communities that host us, as
well as a supply chain manager. This strategy is
reflected by our employees who understand the
importance of the right values and behaviours
when carrying out their roles at Vitec. Our
employee Code of Conduct underpins our Business
Model to ensure Vitec’s long-term success.
In early 2018 we refreshed and re-issued our
Code of Conduct, as well as our Health and Safety
and Diversity Policies – all critical aspects of the
Company’s ethical approach to business. In 2017,
we issued for the first time our Statement on the
UK’s Modern Slavery Act 2015 which confirms
our zero-tolerance approach to ensure our supply
chain is free from slavery and human trafficking.
In terms of our strategic approach to corporate
responsibility, we look for opportunities to invest
in projects where the power of images specifically,
or the creative arts more generally, can be used
to positively impact the communities and
environment in which we operate.
In particular we aim to support those projects
which enable the young or under-privileged to
learn new skills to improve their own lives and
forge their careers.
The Vitec Mindset
We have a clear purpose that is supported by
five values, namely:
Enabling the capture and
sharing of exceptional images
> Exceptional product
performance
We set the highest standards of
technical performance
> Customer focus
We are nothing without our
customers
> Leading a fast changing market
We apply our creativity and
harness our diversity to engineer
innovative new products and
solutions
> Global capability
We share knowledge, pool
resources, test ideas and learn
from each other
> Transparency, integrity,
respect
We hold to the highest professional
and corporate standards
In the past year, a number of key activities have
taken place around Vitec which have demonstrated
these values.
• Our Imaging Solutions Division’s Picture of Life
Programme offers disenfranchised young people
the chance to learn professional photography
skills. Now in its fourth year, we celebrated the
programme’s achievements with a global
exhibition tour that will continue into 2018.
• Wooden Camera, part of our Creative Solutions
Division, contributed specialist skills and
equipment to the North Texas University
film school.
• Our Production Solutions facility in Costa Rica
was honoured with an Award for our export
efforts which was presented by the President
of Costa Rica.
• All over the world our people have given their
time and money for people in need – from
earthquake victims, to the homeless,
to blood donations.
You can read about these initiatives and more
in the coming pages.
Stephen Bird
Group Chief Executive
42
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
ethically, with a common
set of values. We expect
our business partners to
act in a manner which
aligns with our approach.
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 business ethics.
Our management of corporate
responsibility
The Board has overall responsibility for corporate
responsibility. It 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 divisions and
employees worldwide, are available on our
website, and are central to our approach
to corporate responsibility.
The Board has delegated the coordination of our
corporate responsibility efforts to Stephen Bird
and together with the Operations Executive and
senior management, focuses his efforts on the
areas outlined above.
The Board and Operations Executive regularly
consider the Group’s reputation and measure
progress against our corporate responsibility
objectives. Examples include: monthly health
and safety performance reviews; whistleblowing
reports; and regular training of employees
ensuring the right corporate culture and
good governance.
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 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 company website translated into
several languages. All newly acquired businesses
receive the Code as part of their induction. In 2017,
this included employees of the JOBY and Lowepro
brands and RTMotion.
We require all senior management 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.
In early 2018 we re-launched the Code to all
employees and partners to reflect new branding
and values and to ensure it remains visible.
Anti-bribery
We have continued with the development of our
employees’ understanding of anti-bribery and
corruption as reflected in our Code.
Agents and distributors have 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.
Modern slavery statement
In May 2017 we adopted our modern slavery
and human trafficking statement, setting out
our processes to ensure that this issue is not
in existence in our operations or supply chain.
The statement can be viewed on our website.
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 alleged wrongdoing or other
Code contraventions.
In accordance with a 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 and remedial action taken
where necessary.
This service is communicated to all employees
with posters prominently visible at all sites, and
a letter sent explaining the service to ensure that
it remains visible and understood. The documents
are also available on the Company website with all
communications translated into several languages.
43
43
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Employee
Engagement
Our vision
To be the preferred
employer for the very
best people in our
sector by providing
an entrepreneurial
environment that offers
opportunities for our
people to develop
and thrive.
Our approach
To attract, retain and
grow a talented workforce,
providing equal
opportunities for all,
whilst nurturing a sense
of pride in being part
of Vitec.
Cassola and Feltre employees participated in a multi company
football and volleyball competition in the summer, collecting
money for charity and fostering team building.
44
Our people are a key asset
for the Group
Our employees are the best in the sector, our
greatest single asset and critical to our success.
Passionate, motivated and skilled employees
in safe working environments directly contribute
to our strategy, performance and reputation.
In 2017, we continued to focus time and resources
on engaging, motivating and developing our
employees, executing initiatives designed to
improve the working environment, increase
diversity, expand skillsets, and ensure health
and wellbeing.
The Group runs a decentralised approach to
operational management ensuring the individual
cultures and needs of the brands can be met at a
Divisional level where managers are closest to the
needs of the people and the business. Maintaining
the entrepreneurial essence of our brands is
central to our ethos and ongoing success.
However, we believe that the value the Group can
bring is in facilitating a culture of best practice,
sharing and ensuring that policies and procedures
are elevated to a high international standard.
In October 2017, 60 senior leaders from the three
Divisions and Head Office met in the UK to input
into the Company’s strategic plan. Plenary and
workshop sessions were held, where the
Operations Executive shared the Group’s strategy
and vision, and agreed with the team what
success would look like. The group explored how
Vitec was organised and what needed to change
to optimise our performance. The attendees also
refreshed the Group’s purpose and values, and
agreed Divisional plans to implement the strategy,
and communicate and engage all employees
across the Group.
In October, we also held a Divisional HR
Conference – sharing best practice, making sure
there were robust processes in all Divisions,
and agreed shared priorities for the coming year.
Employee 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 and Divisional 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 global
communication videos presented by the Group
Chief Executive which are uploaded to the Group
intranet, with translations available.
Alongside Group-wide communications, employees
receive briefings on performance and business
issues on a regular basis from Divisional senior
management.
More informal communications also take place
around the various divisions: breakfast with the
CEO is an informal opportunity for employees in
our Imaging Solutions Division to exchange ideas
and express opinions on current business
strategies; in our Production Solutions US office,
“Time Out” is a monthly activity combining social
time including quizzes and food with Vitec updates.
>>PHOTO OF THE TIME OUT IN THE US<<
Employees in the US Imaging Solutions office at a regular
team briefing.
A number of other initiatives to keep employees
engaged in the workplace and provide a chance
to relax with colleagues were undertaken at sites
around the world. These included Thanksgiving
and Christmas lunches, wellness fairs, on-site
massages, meditation coaching, sporting classes
and competitions, and cooking contests.
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. It is an important part of our
culture to ensure that all our colleagues are
able to work in a safe and secure environment.
We promote 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 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.
The Vitec Group plc Strategic Report
Corporate Responsibility
Corporate Governance
Financial Statements
“Stephen Bird and
Martin Green address
colleagues at the
Creative Solutions site
in Irvine, California.
New open-plan office at Bury St. Edmunds, UK.
Benefits
We employ around 1,700 people 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 where we operate, 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.
Employees in the UK, Italy, US, Costa Rica, Japan,
France, Hong Kong, Singapore, the Netherlands
and Germany 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 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. In 2017, over 450 employees
shared in the maturity of the 2014/2015 Sharesave
Scheme making an average gain of £5 per share.
As an all-employee share scheme, this rewards
employees at all levels in the organisation.
Over 600 employees currently participate in
the Sharesave scheme across these territories.
45
All accidents and near misses, whether they result
in absence from work or not, are reported, with
remedial action identified and implemented to
prevent repeat occurrences. Reporting is prompt
and any accident resulting in over three days’
absence is reported to senior management as
well as the Group Chief Executive within 24 hours.
Our five-year accident record is shown below, and
details the number of accidents resulting in over
three days’ absence from work across the Group.
There were seven such accidents in 2017
compared to four in 2016. Each of these accidents
has been fully investigated and key issues
identified to try to ensure it is not repeated.
Our five year accident record
2017
7 accidents
representing 418 accidents per 100,000 employees
Average number of employees – 1,675
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
There have been no work-related fatalities since
the Group began collating health and safety
statistics in 2002.
All major sites have Health and Safety Committees
who hold regular meetings to review safety, ensure
that operating practices are safe and address
potential safety concerns. At the Imaging Solutions
manufacturing sites in Feltre, Italy and Ashby-de-
la-Zouch, UK, daily observation procedures have
been set up to observe employees’ health and
safety behaviour in the workplace. In 2017, a total
of 66,000 work actions were observed at both
sites with an average of 99.9% compliance with
safe working practices.
The Production Solutions sites in Cartago, Costa
Rica and Bury St. Edmunds, UK as well as the
Imaging Solutions sites in Cassola and Feltre, Italy,
have had their OHSAS 18001 occupational health
and safety accreditations confirmed again for
2017. Our sites in Cassola and Feltre in Italy
continue to promote the “Are you working safely?”
campaign which provides regular tips on health
and safety.
Health and Well-Being
The Company continues to prioritise the provision
of healthy working environments for our staff.
The new site at Bury St. Edmunds, UK, which
is due to open in H1 2018, has been developed
following a detailed consultation with staff.
It provides upgraded facilities, including a new,
open-plan office environment, on-site catering,
which will form the hub of the site, access to car
share and bike schemes to make travelling to
work easier.
Various Vitec locations are now providing free
or subsidised healthy eating facilities onsite,
and workplace health and gym memberships.
The Production Solutions business in Costa Rica
supports the Vitec Runners – a group of 15
employees who participated in ten fundraising
running events in 2017.
Annual Report & Accounts 2017 To meet our goal of linking the performance
management system with training and
development needs, our Imaging Solutions Division
also set up the MyTalent Academy to offer both
soft and technical skills for around 300 employees
that was linked to training needs identified in the
appraisal process.
Much of Vitec’s strength lies in the expert
knowledge of our people. It is vital that our
employees understand, and are passionate about,
our products and technologies. In 2017, Imaging
Solutions ran the “Shoot and Share” training
programme - offering camera craft and technical
training on the Divisions’ products.
All Divisions within the Vitec Group continually
review and expand training options for staff;
for example in Costa Rica, Production Solutions
offered over 500 training days in 2017.
Employee volunteering
We encourage a culture of active participation
in the communities in which we operate and staff
around the world give their time and money to
various social programmes in their local
communities. In 2017 both the Costa Rica and
Shelton, US, teams within Production Solutions
participated in the Red Cross Blood Drive, with
over 65 staff opting to give blood on site during
work hours at a time of severe shortages. In Costa
Rica the team volunteered in a teenage community
centre where Vitec participates annually in
organising the Christmas lunch where gifts
are donated by employees.
The US Production Solutions team participating in
the American Red Cross Blood Drive.
Diversity and inclusion
Vitec has an equal opportunities culture with an
express prohibition on discrimination of any kind.
The Board continues to monitor progress on
equality and the Group Chief Executive is
responsible for developing diversity throughout
the Group. The organisation’s gender breakdown
as at the end of 2017 was as follows:
Number
of men
% of
men
Number
of women
% of
women
5
8
63%
80%
32
91%
3
2
3
37%
20%
9%
1,074
70%
470
30%
Board
Operations
Executive
Senior
Management
Rest of
organisation
Fixed term contractors are excluded from this list.
We 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.
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.
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.
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 benefit from the
new Benefit Salute health care plan which has
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.
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 auto-enrolled into a
qualifying pension plan.
Vitec offers a flexible work environment and is
supportive of all employees enjoying a good work
life balance. Flexible working policies are in place
in most of our locations around the world, and a
positive impact can be seen. For example, in our
Production Solutions Division, recent changes
introduced have meant several employees were
able to reduce the time of their daily commute
to work. Another aspect of creating a balance is
an inclusive attitude towards employees’ family
life. In Italy, Imaging Solutions hosted two Summer
Camps for children of employees offering a range
of sports and training activities. These camps
proved popular with employees with school-aged
children as they helped to make life a little easier
for parents to continue working during the
European summer holiday period.
Training and development
Vitec aims to offer a comprehensive training and
development programme, linked to performance
reviews and development plans, for all employees.
These are arranged at a Divisional level to ensure
the needs of the relevant Division are met. In
addition, in 2018 the Operations Executive will be
reviewing its leadership and succession plans to
ensure there is a structured approach to growing
and developing the Company’s future leaders.
All 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.
46
The Vitec Group plc
“Team building
event at Imaging
Solutions
“Engineering
technicians at
work in our Costa
Rican facility
47
Annual Report & Accounts 2016 Strategic Report Corporate Responsibility Corporate Governance Financial Statements “Picture of Life exhibition, Rome
Community &
Economic
Contribution
Our vision
To strengthen, support
and integrate with the local
communities and economies
where we operate.
Our approach
We invest in projects that
align with our values and look
for opportunities to contribute
our specialist skills in the
creative arts or engineering,
using our products and core
skills to create a positive
impact in our local
communities.
The positive power of images
As a leading player in the image capture and
sharing market, we believe in the positive power
of images to convey ideas, create wealth and
positive social and environmental value.
Our employees are experts in photography,
videography, engineering and technology, and
we aim to share this knowledge constructively
to enable positive social and environmental
outcomes. In particular we focus on ways in
which our products and skills can benefit those
who are disadvantaged.
Supporting and strengthening
our communities
The following are a few examples of positive
contributions we made in 2017 in the communities
in which we operate:
Investing in future industry talent
Vitec often donates or lends its professional
photographic, TV and cinematic equipment to
educational institutions around the world in order
to assist with the upskilling of future talent in the
image capture and sharing industry.
Production Solutions regularly donates to technical
schools in the local communities where they
operate in Shelton, US and in Costa Rica; in 2017
in Japan, Imaging Solutions’ products were given
as prizes in a photography competition held
between 500 high schools across the country;
Creative Solutions’ Teradek loaned equipment
to film a local high school surf competition.
48
Students from Technical College in Costa Rica.
Wooden Camera, part of Creative Solutions, has
a long-standing affiliation with The University of
North Texas (“UNT”) ever since co-founder Ryan
Schorman graduated from there in 2006. Wooden
Camera supports the development of talent in the
Independent Content Creator market by providing
technical support in the optimisation of the
cameras and accessories in the University’s film
programme. In addition, the company donated
specialist equipment to the University to the
equivalent value of $10,000 in 2017. As a
passionate proponent of independent film content
creation, Ryan sits on the Media Arts Executive
Board at UNT, where he advises on the film
programme, judges film contests and contributes
to scholarships.
The University of North Texas has a long standing affiliation with
Wooden Camera.
The Vitec Group plc “2017 Project of
Life: The Theme
of Beauty
In the UK, Vitec has been a long-time supporter of
The Vinten Trust which was set up by the original
founder of the company that became Vitec, William
Vinten. The Trust is a charitable foundation whose
aim is to pursue initiatives which increase interest
from students at schools and colleges in the Bury
St. Edmunds area in science and technology
subjects. As part of this support provided to the
Trust, the UK Production Solutions team hosted 47
local students at their site in Bury St. Edmunds
during half term holidays to help them learn about
careers in engineering.
Since its initial launch in Italy, the initiative has
proved so successful that it has been replicated
in New York, US, Shanghai, China, and the UK.
In 2017, an international competition took place
resulting in a touring exhibition to showcase some
of the most impressive photographs from students
around the world. The exhibition, which was
launched in Rome in December, and will move
to London, New York and other cities in 2018,
has already been visited by hundreds of people.
“As with everything else in life, you need to feel
it is your own, love it and then apply yourself and
study. Otherwise you cannot learn. I feel like a
richer person now. For me, photography is really
important.” Mohamadou, 18 year old participant
in the 2017 Picture of Life programme.
Students in Bury St. Edmunds learning about careers in engineering.
Picture of Life
Imaging Solutions’ Picture of Life project, now in
its fourth year, is a photography education initiative
comprising a three-month training programme for
young people who have faced hardship and
disenfranchisement. Starting out as a collaboration
between Vitec and the Italian Justice Ministry in
2014, photographers from the Manfrotto School
of Xcellence teach techniques, lighting and street
photography. The course is a way of rehabilitating
and re-energising these young people.
Vitec supports the project by donating and setting
up a permanent photography studio in the project
centres, by providing participants with the
photographic equipment they need for the duration
of the programme, and by organising all aspects
of the course.
Mohamadou, receiving his certificate from the 2017
Picture of Life programme.
Contributing to the local economy
In December 2017, Production Solutions was
honoured to receive an Award from the Costa
Rican Chamber of Exporters (“CADECXO”) which
recognised our outstanding contribution to export
efforts in industrial manufacturing in the country.
The Award was presented to Julio Lizano, Vice
President Global Operations, Vitec Production
Solutions Division, by the President of Costa Rica,
Luis Guillermo Solís.
A significant player in terms of export volumes in
the country and an employer of nearly 200 local
jobs, Vitec was also recognised for its strong
contribution in the local supply chain: 50% of its
components used in manufacturing come from
local suppliers, thereby creating a further 300
jobs with more than 30 Costa Rican suppliers.
The President of Costa Rica and Julio Lizano of Vitec.
Apprenticeships and work experience
initiatives
Around the world, Vitec businesses have continued
to offer work placements and internships for
students of engineering and film studies. In the US,
Production Solutions hosts engineering students
within their team at Shelton, who assist with the
design, implementation and support of new and
existing products whilst gaining real world
experience. In Costa Rica, a total of 15 students
had placements at the Production Solutions site
for two months; some of these students were
offered full time roles at the end of the period.
Students on a two-month placement in Costa Rica.
49
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Environmental
Sustainability
Our vision
To ensure we limit our
negative impact on the
environment and protect
the natural resources we
rely on, creating long-term
sustainability for the
business.
Our approach
We adopt technologies,
materials and processes
that ensure we minimise
our impact on the
environment and
maximise our use of
sustainable resources.
50
Vitec’s products and
processes
We continue to implement initiatives aimed at
sustaining and protecting the environment in
the areas of energy efficiency, reducing carbon
emissions, water use and waste; and sustainable
use of materials, packaging and waste disposal.
We also encourage a culture of environmentally
sustainable behaviour at work and ensure that our
employees understand how they can contribute.
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 or
reused. Our efforts and environmental awareness
have continued to evolve, not only to comply with
regulations but also to make our business better.
New manufacturing and operational centre in Bury
St. Edmunds, UK.
In H1 2018, a new centre will open in Bury St.
Edmunds to house Production Solutions
manufacturing and engineering plant, as well
as many of the Division’s operational functions in
the UK. Replacing the 50-year old existing factory,
the new centre is purpose-built for modern
manufacturing, and will specialise in advanced
technology in areas such as robotics, automation
and broadcast studio equipment. It will include a
unique manufacturing process for the development
of carbon fibre for the Flowtech tripod.
The site will house up to 200 staff, comprising
engineers, sales and marketing, operational
support and manufacturing personnel.
The facility’s main challenge is to meet the needs
of this diverse group, whilst improving work flow,
efficiency, productivity and space utilisation.
A cross-functional design team was engaged
to meet this challenge.
The new site is 66,000 square feet and is one
third smaller than the previous location, making
effective space utilisation imperative. The goal is
to reduce the use of electricity by 30% and gas by
60% through a combination of factors including:
the introduction of LED lighting throughout; no
requirement for heating in the factory due to
improved thermal properties; and three new
compressors that will deliver further electrical
use savings and a new, more efficient paint oven.
Another key change will be the improved flow of
materials from the assembly area to the shop floor;
this will reduce travel time thereby cutting energy
and improving efficiency. We will report more fully
on this in the 2018 Annual Report.
Energy use
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.
Many buildings within the Group have timer and
motion sensors for lighting to save on electricity
usage. Our new site at Bury St. Edmunds, UK
and our Production Solutions site in Costa Rica
now have LED lighting throughout, which will
significantly cut their 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 our two main sites in Italy were renewed last
year until 2021, confirming Vitec’s commitment
to use energy generated by renewable sources.
Sites in Italy and Costa Rica continue to maintain
their ISO 14001 compliance which were renewed
in 2017.
Greenhouse gas reporting
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 20 of our operating sites in the
12 months to 30 September 2017, and arise
from on-site energy use and any fugitive
emissions, and transport from owned vehicles.
We have identified the following major operating
sites as the material sites for the Group for this
requirement: Feltre, Italy; Bury St. Edmunds, UK;
Cartago, Costa Rica; 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
Scope 1 and 2 emissions.
The Vitec Group plc Our electricity, gas and water usage in 2017 and 2016
Electricity (MWh)*
Gas (MWh)*
Water (cubic metres, thousands)*
2017
2016
2017
2016
10,018
10,773
2017
2016
6,722
7,091
19.31
23.99
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)*
36.5
36.4
34.5
28.6
28.4
40.00
30.00
20.00
10.00
30.00
25.00
20.00
15.00
10.00
5.00
20.8
22.3
23.1
18.8
19.0
0.12
0.10
0.08
0.06
0.04
0.02
0.09
0.09
0.07
0.06
0.05
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
*The figures for 2017 are based on continuing operations.
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-conversionfactors-2016.
Greenhouse Gas Emissions for the period
from 1 October 2016 to 30 September
2017 (Tonnes of CO2 equivalent)
2017
2016
Scope 1 emissions
1,647
1,709
Scope 2 emissions
3,106
4,353
Total gross emissions
4,753
6,062
Total carbon emissions per
£m of Group revenue
13.5
16.1
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.
Environmental awareness
Green Week events took place at our sites in both
Italy and Costa Rica in 2017 to raise awareness
amongst employees and share ideas on how to
improve environmental impact. In Italy this took
the form of a “Green to Work Week”, during which
employees were encouraged to consider
alternative ways to get to work, using either
public transport, cycling or car sharing.
Sustainable resource
management
Various initiatives around the Group took place in
2017 to build on our work to reduce the amount
of waste created in our operations. We sort waste
for recycling at our sites in Italy, the UK and Costa
Rica using colour coded bins to improve
segregation. At our factory in Bury St. Edmunds,
UK, the improved waste stream segregation and
labelling, combined with employee engagement
in the process has resulted in 91% of all solid
waste being diverted away from landfill, as well
as a rebate for metal recycling from the site.
Water free urinals and sensors for use of water
for irrigation at our Costa Rican plant have also
reduced water consumption. The introduction
of print management software in Italy has
significantly reduced paper wastage.
Children’s drawing contest as part of Environmental
“Green to Work Week”.
Recycling sorting bins at our site in Costa Rica.
51
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Board of Directors
John McDonough
CBE, BSc (Eng) & ACGI
Stephen Bird
MA
Kath Kearney-Croft
BSc, MBA, ACMA
Martin Green
MA, MBA, ACCA
Role
Chairman
Appointed
15 March 2012
(Chairman from 1 June 2012)
Nationality
British
Age
66
British
57
Committee membership
Nominations (Chairman)
Nominations
Group Chief Executive
Group Finance Director
Group Business Development
Director
14 April 2009
24 April 2017
4 January 2017
British
43
-
British
49
-
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 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.
John had also 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, Senior Independent Director
of and Chairman of the Remuneration
Committee of Dialight plc. He was
formerly a Non-Executive Director
of Umeco plc. He was responsible
for setting up Weir Oil & Gas Division,
part of Weir Group plc, and was its
Managing Director until he left to join
Vitec. Prior to this he worked in senior
roles at Danaher Corporation, Black &
Decker, Unipart Group, Hepworth PLC
and Technicolor Group. He has an MA
from St. John’s College, Cambridge.
Kath was previously Acting Finance
Director at Rexam PLC until its
acquisition by Ball Corporation Inc.
in June 2016. Kath had been with
Rexam since 2007 in a number
of senior financial and strategic
leadership roles. Prior to Rexam,
Kath was with The BOC Group plc
for nine years, qualifying as a
Chartered Management Accountant
in 2001 and holding a number of
operational financial roles in the
UK and US. Kath has an MBA with
distinction from Manchester Business
School and a first class degree in
Business and Management from
the University of Salford.
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. Martin
has an MA in Law from Trinity Hall,
Cambridge. 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.
52
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
63
British
60
Committee membership
Audit
Nominations
Remuneration (Chairman)
Audit (Chairman)
Nominations
Remuneration
British
54
Audit
Nominations
Remuneration
British
55
Audit
Nominations
Remuneration
Skills & experience
Caroline is currently Chair of Digital
UK, a Non-Executive Director of CN
Media Group, 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 has
been Chair of Oxfam’s UK trustees
since January 2017. She was formerly
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, Senior
Independent Director and Chairman
of the Audit Committee of AVEVA
Group plc and Non-Executive
Chairman of Eckoh 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 held the role of President,
Meggitt Customer Services & Support
until 2017, with responsibility for all
centralised aftermarket operations
since 2013. Prior to that she was
Executive Vice President, Strategy,
Sales & Marketing at Meggitt with
increasing responsibility for group
customers, including commercial and
programme management, from 2005
to 2013. 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
has a degree in Mechanical
Engineering and is a Fellow of the
Royal Aeronautical Society.
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,
Non-Executive Chairman of Sigma
Components Ltd and Non-Executive
Director and Chairman of the
Remuneration Committee of Carclo
plc where he will become Chairman
in July 2018. 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. Mark will cease to be
a director on 2 April 2018.
53
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Corporate Governance
Chairman John McDonough, CBE explains
Vitec’s governance arrangements
Biographical details for each Board member as at 31 December 2017 can be
found on pages 52 and 53 of the Annual Report and details for Richard Tyson
can be found in the 2018 AGM notice circular.
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.
Our Code of Conduct was re-communicated to all employees in early 2018
and is available on our website. The Vitec Mindset sets out our values which
remain unchanged and can be found on page 42. Health and Safety is a key
performance indicator for our business 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.
Our online governance training module has been completed by all new senior
joiners during 2017, notably newly acquired businesses. In 2017 we also
re-issued our independent whistleblowing service run by EXPOLINK.
This enables employees or third parties to confidentially raise any
concerns especially if they feel unable to do so through normal line
management channels.
The Board and Operations Executive visited a number of our businesses in
2017 to meet with employees, share key messages and promote the right
culture and behaviours. 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 2018 to further embed
our values.
What has the Board done in terms of strategy and its
implementation?
During 2017 the Board undertook a detailed review of the Group’s strategy.
As a result of the strategy review, we announced in November 2017 that we
would be moving to a three divisional structure with effect from 1 January
2018 and this is set out in Stephen Bird’s Group Chief Executive’s Review.
Coupled with this, the Board visited the Creative Solutions business in
October, meeting that Division’s senior management team and the Teradek
business site in Irvine, California. The Board has further communicated
with shareholders on strategy and business priorities, including results
presentations, an investor visit to Italy and several one-to-one meetings
with major shareholders to hear first-hand their views on the strategy and
business performance. With clear focus on the core broadcast and
photographic markets, the Board also took the decision in 2017 to sell the
non-core businesses of Bexel, the US Services business, and Haigh-Farr and
acquire the JOBY and Lowepro brands and RTMotion.
Does the Board have the right structure and skills, and
which directors will be standing for reappointment at
the AGM?
The Board currently comprises eight directors with three executive directors,
four independent non-executive directors and myself as chairman. As noted
above, there will be a change to the Board and 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, technology, human
resources and global commercial experience to assist with the implementation
of our strategy. They also enhance our diversity in terms of gender,
2017 headlines
1) Significant progress on strategy
2) External board evaluation
3) Progress on succession, people and talent
4) Strong control environment whilst
preserving entrepreneurial spirit
I am pleased to introduce my governance report for 2017
which sets out our culture and governance. Under my
Chairmanship, the Board is responsible to all Vitec’s
stakeholders for the continued success of the Group.
Culture and governance are critical to this.
Were there any Board changes in 2017?
Martin Green joined the Board on 4 January 2017 as Group Business
Development Director and on 24 April 2017 Kath Kearney-Croft joined as Group
Finance Director, succeeding Paul Hayes who left the Company on 28 April 2017.
Both Martin and Kath bring excellent skills to the Board. Martin has been with the
Group for over ten years and brings strong commercial insight into the Group’s
core markets and will be particularly focused on growth in APAC and opportunities
in the Creative Solutions businesses as well as responsibility for corporate
development and HR. Kath has undergone a thorough induction visiting our major
operations and has made an excellent start during a period of significant change.
On 22 February 2018 we announced that Mark Rollins would leave the Board as
a Non-Executive Director with effect from 2 April 2018. We also announced that
Richard Tyson will join the Board as a Non-Executive Director with effect from
2 April 2018. I discuss the recruitment process later in this report. Christopher
Humphrey will be taking on the role of Senior Independent Director following
Mark’s departure. I would like to thank Mark for his thoughtful insight into Board
matters over the last five years and wish him well for the future. At the same time I
welcome Richard Tyson to the Board and look forward to working with him.
54
The Vitec Group plc professional and global experience. The Board also has a strong independent
element to ensure that the interests of all stakeholders are reflected in the
running of the Company.
All Directors will stand for reappointment at the 2018 AGM.
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 2017. The Board has a clear policy for
dealing with any such conflicts or potential conflicts of interest.
Is the Annual Report fair, balanced and understandable?
The Board considers 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 2017 Annual Report at our
February 2018 Board meeting. The February 2018 Audit Committee
confirmed to us that: the 2017 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
2017 Annual Report taken as a whole is fair, balanced and understandable
through reliance on management and knowledge of the following processes:
• detailed planning including drafting guidance and coordinated project
management;
• a verification process dealing with the factual content of the Annual Report;
• comprehensive reviews undertaken at different levels in the Group to ensure
consistency and overall balance; and
• a comprehensive review by the senior management team.
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 17. 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
a forum in which matters are discussed openly and robustly.
Who is the Senior Independent Director?
Mark Rollins acted as Senior Independent Director throughout 2017 and
until he ceases to be a director on 2 April 2018. Notably in this role, Mark
led the evaluation of my performance as part of the 2017 Board evaluation,
information on which is provided later in this report. With Mark ceasing to
be a director, the Board has decided that Christopher Humphrey will be
appointed Senior Independent Director with effect from 2 April 2018.
The Board considers that Christopher Humphrey is clearly independent
and has the right experience and background to fill this important role.
Has the Company complied with the UK Corporate
Governance Code?
My governance review has taken into account the UK Corporate Governance
Code (“Governance Code”) as published in April 2016, and explains how we
applied its main principles, supporting principles and provisions. Each was
complied with throughout 2017, as required by the Listing Rules. The Board is
aware that the Financial Reporting Council is consulting on a new Governance
Code that is likely to come into effect for accounting periods beginning on or
after 1 January 2019 and will adopt any new requirements as appropriate as
and when the new Code is published.
What is the Board responsible for?
The Board has a Schedule of Matters Reserved to it which includes: the
Group strategy; setting of annual operating budgets; 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 throughout the year to receive
updates on business performance and consider proposals within its remit.
The Schedule of Matters Reserved to the Board is reviewed annually and is
available on our website.
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 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 and to ensure that it is effective.
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,
What are the Board’s Committees responsible for?
The Board has delegated certain items of business to its principal
Committees. This ensures the Board has sufficient time to deal with strategic
matters while retaining oversight on salient points by virtue of its Committees.
The Board’s principal committees are the Audit, Remuneration and
Nominations Committees. Each Committee has terms of reference, copies of
which are available on our website. Each Committee can 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 remit. Each Committee annually reviews its
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
2017 are set out later in this report.
55
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
What did the Board do in 2017?
At each scheduled Board meeting the
following standing items are considered:
• Directors’ duties and conflicts of interest
• Minutes of previous meetings and
matters arising
May (short notice meeting held by phone)
September (short notice meeting held by phone)
• Approved the content of the trading
update including the disposal of the
Haigh-Farr business
• Considered and approved the acquisitions
of the JOBY and Lowepro brands
and RTMotion
October (held in Los Angeles, US)
Update on Group strategy
• Presentations from the Creative
Solutions business
• Reviewed the reforecast of 2017
performance
• Received an update on Group synergies
• Update on progress with the external
Board Evaluation
• Update on Group property matters
including Chatsworth lease
December (held in Richmond, UK)
• Update on Group strategy
• Update on Group synergies project
• Approved the 2018 budget
• Presentation on investor relations strategy
• Presentation on the European
Services business
• Presentation from Rothschild on
strategic matters
• Outcome of the 2017 external Board
evaluation and approved 2018
Board objectives
• Reviewed Board governance arrangements
and key policies including terms of
reference for board committees
• Reviewed the Chairman’s and Non-
Executive Directors’ fees
• Update on pension matters relating to
the UK’s Defined Benefit and Defined
Contribution schemes
• Progress against agreed Board objectives
• Received updates on potential acquisitions
• Reports from the Group Chief Executive,
Group Finance Director, Group Business
Development Director and Group Company
Secretary 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
• Key performance indicators
There were six scheduled Board meetings
and five short notice Board meetings in
2017. In addition to the standing items,
the following is a summary of the business
considered at each meeting in 2017.
May (held in central London, UK)
• AGM briefing
• Trading update (including reforecast of
2017 performance)
• Group strategy including potential
acquisitions
• Update on the Group’s financing arrangements
• Update on the Enterprise Video business
• Investor relations update from Investec
• Approval of the Group’s Modern
Slavery Statement
January (short notice meeting held by phone)
June (held in Richmond, UK)
• Approved lease terms for the new Bury St.
• Review of Group and divisional strategies
Edmunds site
• Capital expenditure proposal for European
• Considered performance conditions tied
Services business
to 2017 LTIP awards
• Updates on potential acquisitions
and disposals
February (held in Richmond, UK)
• Annual Results, including review and
approval, where appropriate, of:
- Principal risks and mitigation
• Sharesave offer to all employees
June (short notice meeting held by phone)
• Update on potential acquisition and
associated due diligence
July (short notice meeting held by phone)
- Report on going concern and viability
• Update on potential acquisition and
statement
- Final dividend recommendation
- Full year results announcement for the
year ended 31 December 2016
- 2016 Annual Report including an
assessment that the Report was fair,
balanced and understandable
- Notice of AGM
- Management representation letter
• Recommended the reappointment of
external auditor
• Group strategy including post acquisition
reviews of the Creative Solutions
businesses and potential acquisitions
and disposals
• Update on the Group’s financing structure
concerning the Revolving Credit Facility
and the Private Placement Facility
• Production Solutions Division
business update
disposal and associated due diligence,
including an approval for the disposal
of Bexel, the US Services business.
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 2017
- Management representation letter
• Update on Group strategy including
potential acquisitions
• Reviewed the reforecast of 2017
performance
• Approved the format of the 2017 external
Board evaluation
56
The Vitec Group plc Did all Directors attend meetings in 2017?
Details of Directors’ attendance at Board and Committee meetings is shown
in the table on page 60. All Directors attended each scheduled Board meeting
and the five called at short notice, with the exception of Lorraine Rienecker
who could not attend the short notice meeting in July due to prior commitments.
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 input.
Did the Board visit any of the Group’s sites during the year?
In October 2017 the Board visited the Creative Solutions business operations
in California, US. The visit included management presentations on market
trends, product development, innovation and operations. The Board intends
to hold a meeting at an operational site each year to deepen its knowledge
and understanding of the Group. In 2018 this will be at our new Bury St.
Edmunds facility in the UK. Each Director is encouraged to visit our operations
at their own convenience to further build on their understanding of the Group.
Did the Board meet 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 ensure an effective Board. We hold a dinner for the Board before each
scheduled Board 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
the business. This is a very useful and effective format.
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.
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?
The Operations Executive which is led by the Group Chief 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 Board regularly meets with members of the Operations
Executive around its scheduled Board meetings. This attendance allows the
Board to directly question senior management responsible for the business
and to gain a better understanding of their respective technologies, market,
products, customers and competitors.
Effectiveness
How do you measure the effectiveness and performance
of the Board?
The Board annually sets itself clear objectives and monitors progress against
each throughout the year. The Board rigorously challenges itself on delivery of
strategy, financial performance measured against budgets, governance and
operational performance issues. During 2017 we conducted an externally
facilitated Board evaluation and the detail of this is set out later in this report.
In compliance with the Governance Code we conduct an external Board
evaluation every three years to ensure that we independently measure the
effectiveness and performance of the Board. In years where we do not have
an external Board evaluation, we conduct an internal evaluation to ensure that
we continue to challenge the Board on its effectiveness and performance.
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, Caroline Thomson and Mark
Rollins are independent in accordance with the recommendations of the
Governance Code. Each of these Non-Executive Directors’ tenure on the Board
is less than five 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 2017. 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. We have also appointed
Richard Tyson as Non-Executive Director with effect from 2 April 2018 and
Mark Rollins will cease to be a Director with effect from 2 April 2018.
We consider that Richard Tyson is independent.
Do new Directors receive an induction?
On appointment, we provide each Director with a tailored and extensive
induction to the Group. The induction programme for Kath Kearney-Croft
included meetings with: senior colleagues internally; the Group’s key advisors
from KPMG, Investec, Rothschild, Slaughter and May and our relationship
banks, including regular reviews with the KPMG Audit Partner; and the Audit
Committee Chairman. Kath visited our businesses in Costa Rica, Bury St.
Edmunds, UK, various locations in the US and Italy during 2017 to learn more
about operations in each location and meet our employees. She attended all
Board meetings and the strategy day held in June, allowing her to gain an
in-depth understanding of the Group, as well as a senior management
conference in October attended by over 60 of our senior employees.
As part of the Board meetings she received 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. Martin Green’s induction was more finely
tailored on account that he has been with the Group for over ten years.
Each induction process is tailored to the individual and would be adjusted
if it related to a Non-Executive Director. Each Director is encouraged to
continue visiting the Group’s operations as their schedule permits.
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Annual Report & Accounts 2017 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
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 2017 no Director took 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 Directors receive papers for consideration at Board meetings
so that it gives all Board members adequate time to read, prepare and,
where appropriate, ask questions prior to the meeting. 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 Business Development
Director, Group Company Secretary 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 necessary.
All Board and Committee meetings are minuted by the Group Company
Secretary. In the first instance, minutes are reviewed by the Chairman of that
meeting before being circulated to all Directors in attendance and then tabled
for approval at the 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 the
Chairman and 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.
Mark Rollins will cease to be a director on 2 April 2018 and has not been
included in the table below. Having served on the Board for six years, the
Chairman’s term of appointment was renewed at the February 2018 Board
meeting and he will be standing for re-election at the 2018 AGM.
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.
Richard Tyson has been appointed as a Non-Executive Director with effect
from 2 April 2018 and will be standing for re-election at the 2018 AGM.
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
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
58
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, the Parker and McGregor-Smith
reviews 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 2017?
In 2017 we conducted an external Board evaluation that was facilitated by
Lintstock, who previously conducted our last external evaluation in 2014.
The process entailed individual meetings held with myself, Stephen Bird, Kath
Kearney-Croft and the Group Company Secretary, where the performance of
the Board and business were discussed. Following this, the Group Company
Secretary and I worked with Lintstock to develop two bespoke questionnaires
that focused on the work completed by the Board during 2017 including the
strategy review held in June and the Board visit to the US in October along
with general Board matters. These were issued to all Directors and the
Group Company Secretary, and also covered reviews of the Board, the Audit,
Remuneration and Nominations Committees, and the Chairman. Lintstock
collated the findings from both questionnaires into five separate reports which
were presented to the Board by Lintstock at the December 2017 Board
meeting. I also met with each Director individually, allowing for a discussion
to take place around any areas for improvement. Mark Rollins, as Senior
Independent Director, coordinated the process for my own evaluation.
The outcomes have helped to shape the Board and Committee
objectives for 2018.
What was the outcome of the 2017 evaluation?
I am pleased to report that Lintstock concluded that your Board was
performing well, with its dynamic rated highly, reflecting a collegiate and
transparent approach during meetings. The Board’s composition, skills
and expertise were also rated favourably, with strong governance processes
underpinning its performance. The relationship between the Chairman and
Group Chief Executive continued to work well. The strategy review process
had improved on the prior year and the Board’s oversight of the resulting
actions was effective. Visiting the US operations in California had allowed
Directors to understand more about the Creative Solutions business and
its people.
Each Committee was deemed to be effective along with individual Directors
contributing time and effort both during and outside of meetings. 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. Board and Committee materials and papers are comprehensive,
clear, appropriately detailed and circulated in good time, allowing for meetings
to be managed efficiently.
What actions has the Board taken as a result of the 2017
evaluation?
The 2017 Board evaluation has been used as a basis to set Board objectives
for 2018 and these focus on the areas of: strategy; governance and culture;
financial performance; customers, technology and competitors; key
performance indicators; and risk. The Board will track progress against each
during 2018 and I will report on these objectives in the 2018 Annual Report.
Each of the Board Committees were reviewed with individual outputs and
actions created. As with the Board, the output helped set the 2018 objectives
that will be reported on by each Committee in the 2018 Annual Report. For
the Audit Committee, 2018’s focus will be on: reviewing the risk management
of strategic objectives; a successful handover to the new external auditor; an
overview of IT strategy and processes; oversight of treasury arrangements and
tax strategy; the successful induction of the new Non-Executive Director and
continued training on financial and governance matters. The Remuneration
Committee’s objectives for 2018 include: ensuring the Remuneration Report
takes into account best practice and receives significant shareholder support
at the 2018 AGM; ensuring remuneration structures for senior management
remain appropriate and aligned to delivery of our Group strategy; preparing
for changes concerning executive remuneration as a consequence of new
legislation and a revision to UK Corporate Governance Code; and ensuring
the Committee continues to receive appropriate ongoing training.
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.
John McDonough and the Vitec Board visiting the offices and operating facilities of
Teradek in October 2017.
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
How did the Board perform against the 2017 Board Objectives?
The Board set itself several objectives for 2017. These are summarised below with an assessment of performance against each.
2017 Board Objectives
Progress during 2017
Continue to review 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 resolve long-term future of Bexel
and Haigh-Farr
Ensure that Executive Director succession
planning is regularly discussed, talent
development processes for senior roles are
in place and the Board has visibility of senior
management to support delivery of strategy
Continue to develop understanding and
knowledge of underlying and emerging
technologies, and the risks associated with
those technologies, along with customers
and their technology needs and competitors’
technological capabilities
Continue to ensure that robust governance
processes are in place and that Group’s culture
and common values are well communicated
and widely understood throughout the Group.
Undertake an external board evaluation
Develop detailed understanding of operations
ensuring operations are optimised, aligned with
future strategy and deliver improved financial
performance
Closely monitor current financial performance
and recommend actions as appropriate
• Received regular updates from each Division on progress against their strategic plans with Divisional and
Business Unit senior management attending several Board meetings
• Visited the Creative Solutions business to review operations, technology and people
• Undertook detailed strategic review, identified key areas concerning strategy and agreed programme for ongoing
review, including splitting the Group into three Divisions
• Regular review of strategic KPIs
• Completed the acquisitions of the JOBY and Lowepro brands and RTMotion
• Sold the non-core businesses of Bexel and Haigh-Farr
• 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 and during the strategic review
• Reviewed incentive proposals for roles below the Operations Executive
• Externally recruited Kath Kearney-Croft as Group Finance Director
• Received presentations from product specialists within the business on existing and developing technologies
• Attendance at Photographic and Broadcast trade shows including NAB
• Considered capital expenditure requests for new products and acquisitions
• Approved and published the Group’s Modern Slavery statement in May 2017
• Ensured that the governance disclosures in the 2017 Annual Report were robust and accurate and received
over 99% support from shareholders voting on the 2016 Annual Report
• Health & Safety and Whistleblowing notices re-communicated to all employees to stress their importance
• All major customers vetted for reputational risk issues
• Engaged an external consultant to assist with corporate responsibility reporting
• Completed an external Board evaluation facilitated by Lintstock
• Code of Conduct re-communicated to all employees in February 2018
• Regular presentations from business units covering operational matters
• Presentation from Group Finance Director on synergies across operations and back office functions including
synergies action plan
• Site visits to the US to allow for oversight of operations
• 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 2017 performance
• Approved sales of US Services business (Bexel), and Haigh-Farr, along with agreeing three Divisional structure
to optimise Group operations
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 2017 annual bonus.
Directors’ Attendance table for 2017
Board
Audit
Remuneration
Nominations
Scheduled
Short notice
Scheduled
Short notice
Scheduled
Short notice
Scheduled
Short notice
6
6
6
6
6
6
6
5/5
1/1
6
5
5
5
4
5
5
5
4/4
1/1
5
4
-
4
4
4
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
-
3
3
3
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
3
3
3
3
3
3
-
-
-
-
-
-
-
-
-
-
-
-
-
Number of meetings
Directors
John McDonough
Christopher Humphrey
Lorraine Rienecker
Mark Rollins
Caroline Thomson
Stephen Bird
Kath Kearney-Croft (appointed 24 April 2017)
Paul Hayes (resigned 28 April 2017)
Martin Green (appointed 4 January 2017)
60
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 2017 each Board member assessed the
current mix of the Board and skills of directors to identify potential areas for
improvement. This has helped to support the recruitment of new Directors as
we move forward. The recruitment of a new Non-Executive Director has taken
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 2017
At each main meeting the Committee considers:
• Directors’ duties and conflicts of interest
• Minutes of previous meetings and matters arising
The Committee had three scheduled meetings in 2017 and
covered the following matters:
February
• Recommended to the Board the appointment of a new Group
Finance Director
October
• Reviewed Board succession planning
• Received an update on senior management talent and succession
planning in the Creative Solutions business
December
• Reviewed Board succession planning
• Received an update on senior management talent and succession
planning across the Group
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 2017.
Other members of the Board attend Nominations Committee meetings by invitation
and where there is no conflict.
Chairman
Members
John McDonough
Stephen Bird
Christopher Humphrey
Lorraine Rienecker
Mark Rollins
Caroline Thomson
What did the Nominations Committee do in 2017 and what
are its plans for 2018?
During 2017 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. In the early part of 2017, the Committee was principally
focussed on the recruitment process for a new Group Finance Director that
culminated in Kath Kearney-Croft’s appointment on 24 April 2017. In the latter
part of 2017, the Committee commenced a search for a new Non-Executive
Director following Mark Rollins’ indication that he would wish to stand down
as a Director in 2018. The Committee managed this search for his successor
and made a recommendation on this to the Board at the February 2018
meeting. In 2018 the Committee will focus in detail on succession planning
and talent development for the direct reports of the Executive Directors and
senior management within each of the Group’s divisions.
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 used the services of JCA Group in 2017 as part
of the process for the recruitment of a new Non-Executive Director.
61
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements October
• Noted an update on performance conditions for the 2015 LTIP
• Considered the treatment of acquisitions and disposals on the
outcome of LTIP awards and 2017 Annual Bonus Plan awards
December
• Approved the outcome of the Committee’s 2017 objectives and
set 2018 objectives
• Update on general remuneration matters from Mercer, the
Committees’ appointed remuneration advisor
• Considered the treatment of acquisitions and disposals on the
outcome of LTIP Awards
• Update on indicative outcome for the 2017 Annual Bonus Plan
• Approved proposed salary increases for 2018 for the Executive
Directors and Operations Executive
• Approved the structure of the 2018 Annual Bonus Plan
• Considered draft personal objectives for Executive Directors
for 2018
How did the Remuneration Committee monitor
its performance?
The Remuneration Committee set itself several objectives for 2017, the detail
and progress against which is shown in the table on the following page.
The Remuneration Committee has set itself objectives for 2018 and will report
on progress against these in the 2018 Annual Report.
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 2017.
The Remuneration Report for the year ended 31 December 2017 on pages
70 to 90 provides an introduction from the Committee Chairman. It sets out
an overview of the Group’s remuneration policy for Executive and Non-
Executive Directors which was approved by shareholders at the 2017 AGM
and will next be put to shareholders at the 2020 AGM, unless changes to the
remuneration policy need to be made before this date. The Remuneration
Report gives full details of Executive and Non-Executive Directors’
remuneration during 2017 including payments made to previous directors.
Current Committee members are set out below and all served
throughout 2017.
Chairman
Members
Caroline Thomson
Christopher Humphrey
Lorraine Rienecker
Mark Rollins
Remuneration Committee activities during 2017
During 2017 the Remuneration Committee had three scheduled
meetings. 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 2017:
February
• Approved the 2017 Remuneration Committee Report including
the Remuneration Policy
• Approved the outcome of personal objectives for Executive
Directors for 2016 and agreed Executive Directors’
2017 objectives
• Approved the outcome of 2016 Annual Bonus Plan and confirmed
financial targets for 2017 Annual Bonus Plan
• Approved the outcome of performance conditions tied to 2014
LTIP and DBP awards
• Approved 2017 awards to be made under the LTIP and DBP
• Agreed the treatment of incentives for Paul Hayes ahead of his
resignation as a Director
62
The Vitec Group plc 2017 Remuneration Committee Objectives
Progress during 2017
Draft 2017 Remuneration Policy and ensure it is aligned
to Group strategy, in line with best practice and receives
over 80% approval at the 2017 AGM
• Policy drafted to include 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 for future Executive Directors
• Remuneration Policy approved by 99.9% of shareholders voting at the 2017 AGM. Successful
consultation with shareholders completed as part of the process. Policy to be applicable for three
years to 2020 AGM
• 2016 Remuneration Report compliant with regulations and received 99.9% support of shareholders
voting on the advisory resolution at the 2017 AGM
• Remuneration and incentives for Operations Executive agreed
Ensure appropriate remuneration structures for senior
management taking into account business operations
and global locations
Review performance of the remuneration advisor,
Mercer, following the 2017 AGM
• Mercer provided support on the drafting of the remuneration policy and shareholder consultation
in late 2016 / early 2017
• The Committee remains satisfied that Mercer continue to provide appropriate advice on executive
remuneration including market context and Company specific issues
• 2017 LTIP awards made in line with the terms of the approved remuneration policy at the 2017
AGM and with appropriately stretching performance conditions attached
• Remuneration of Group Finance Director in line with remuneration policy and market practice
Make LTIP awards in conjunction with new
remuneration policy and appropriately stretching
performance conditions
Support recruitment of a new Group Finance Director
with appropriate remuneration structure
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 34 and 35 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;
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Annual Report & Accounts 2017 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 2017, 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 2018 was prepared
and agreed with the Audit Committee at its February 2018 meeting.
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
2017, 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 and also periodically as requested by existing
and potential shareholders. I also make myself available to shareholders as
required to discuss the Group’s strategy, governance and remuneration
matters. In May 2017 we took some of our major shareholders and analysts
to visit our facilities in Italy. The visit included a tour of our operations and
allowed them to meet with more of our employees. We plan to run a similar
visit to our new facility in Bury St. Edmunds that will open in 2018. 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 2017 AGM and look
forward to meeting shareholders again at the 2018 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 2017 AGM, over 80% of our issued 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 voting
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 current 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
21 February 2018
64
The Vitec Group plc Corporate Governance
Report from Christopher Humphrey,
Chairman of the Audit Committee
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 2017 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 2017,
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 April 2016.
What qualifications and skills do you possess as Audit
Committee Chairman?
I was appointed as Chairman of the Audit Committee 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 52 and 53.
What did the Committee do in 2017?
In 2017 I chaired four scheduled meetings of the Committee and I worked
closely with both Group Finance Directors, the Group Risk Assurance Manager
and the 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 2017 was to ensure the smooth
handover to Kath Kearney-Croft as the new Group Finance Director and
full details of her induction are contained earlier in this report. Her induction
has been extremely thorough and she provides detailed input to the Audit
Committee. The Committee also undertook in the latter part of 2017 a tender
for the services of the external auditor. This was earlier than expected due to
a number of business changes that I explain in more detail below. Full details
of the work we completed during 2017 is set out in the table on page 68.
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. Adrian Wilcox was
appointed as Audit Partner in 2016 and was in attendance at the 2017 AGM.
How did the Committee review the effectiveness
of KPMG?
Before I explain about the tender process for the external auditor, I will explain
how we formally assessed the effectiveness of the external auditor during
2017. Alongside collecting verbal feedback from each business unit on
KPMG’s performance, every three years we issue a feedback questionnaire
to employees who had interaction with KPMG during the 2016 audit.
The questionnaire was issued in mid-2017 and covered areas of: leadership
and team structure; planning, approach and scope; execution and process;
risks; communication; independence and objectivity; adding value; and cost
effectiveness. The results of the questionnaire showed that KPMG was
performing adequately and highlighted areas for improvement during
the 2017 audit process.
65
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
The aggregated results of the questionnaires 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.
A resolution will be put to shareholders at the 2018 AGM to recommend the
appointment of Deloitte as auditor of the Group. A separate resolution for the
approval of the external auditors remuneration will also be put to shareholders
at the 2018 AGM.
We will review Deloitte’s performance during 2018 and provide a summary
in the 2018 Annual Report.
How do you keep on top of matters outside meetings?
I meet regularly with the Group Finance Director and external 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.
Was the Company subject to any reviews by the FRC
during 2017?
The Company was not subject to any FRC reviews during 2017. 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 19 February 2018 the adoption of the financial statements as at
31 December 2017 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 2017. 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, specifically
inventory and tax provisions. 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 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.
Why did you tender the external auditor?
In the 2016 Annual Report we reported that we expected to tender the
external auditor in 2020, to coincide with the rotation of the audit partner,
or earlier, if KPMG’s performance fell short of the Audit Committee’s
expectations. In late 2017 we decided to accelerate the tender of the external
auditor due to a number of factors, including: the appointment of a new Group
Finance Director; the change to a three Divisional reporting structure; material
changes to the composition of the Group following the sales of Bexel and
Haigh-Farr and the acquisitions of the JOBY and Lowepro brands and RTMotion.
What process was undertaken in selecting a new
external auditor?
Following a decision by the Audit Committee to put the external audit to
tender, a number of firms were invited including Deloitte, EY, PwC and BDO.
BDO declined to participate due to their limited knowledge of our business.
Initial meetings were held with each firm and the Group Finance Director,
following which a number of due diligence documents were shared with
each firm to allow them to gain a better understanding of our business.
Formal tender meetings were held with each firm where they presented
their proposals and met with a number of head office and divisional finance
colleagues. The proposed lead audit partners also met with myself as
Chairman of the Audit Committee and the Group Finance Director. All three
firms presented to the Audit Committee in December 2017 on a blind fee
basis, and were rated on a pre-defined list of criteria before fees were
disclosed. Two firms were shortlisted and a recommendation made to the
Board. Following further discussion, the lead audit partner from the preferred
firm met with the Board Chairman and Group Chief Executive. A final decision
on the appointment of a new external auditor was made by the Board on
21 February 2018.
Which audit firm is being recommended to shareholders
to be appointed as the external auditor at the 2018 AGM
and why?
As a result of the tender process, the Audit Committee recommended to
the Board that Deloitte LLP (“Deloitte”) be appointed as the Group’s external
auditor. KPMG will not seek re-appointment at the 2018 AGM and therefore
the Board recommend to shareholders for approval at the 2018 AGM, the
appointment of Deloitte, to succeed KPMG as the external auditor for the
financial year commencing 1 January 2018. As outgoing auditor, KPMG
will provide the Company with a statement of the reasons for ceasing to
hold office as the Company’s external auditor and a copy will be circulated
to shareholders attached to the 2018 AGM Notice of Meeting.
Deloitte was the strongest candidate firm and had built up a strategic
relationship with the Group over a number of years. Its audit team impressed
the Group head office and Divisional finance functions with their technical
knowledge and its senior team was felt to have the best fit with the Group.
Deloitte is currently the Group’s tax advisor and due to independence issues
will step down from this role at the commencement of the audit engagement.
66
The Vitec Group plc non-audit work. 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 two parts:
• Work from which the external auditor is excluded: This includes but is not
limited to: 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.
• Work where use of the external auditor may be deemed appropriate
– subject to pre-approval from the Group Finance Director and Chairman
of the Audit Committee: This includes accounting advice in relation to
acquisitions and divestments, corporate governance and risk management
advice, defined audit related work and regulatory reporting, reporting
accountant services, compliance services, transaction work (mergers,
acquisitions and divestments), valuation and actuarial services, fairness
opinions and contribution reports.
I confirm that during 2017 the policy was followed without exception. 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 2017, £0.1 million was
paid to KPMG in respect of non-audit work compared to an audit fee of £0.7
million. This non-audit work mainly comprised the review of the half-yearly
financial statements. The policy on non-audit services provided by the external
auditor will continue to apply to Deloitte going forward from their appointment
as external auditor.
Significant issue How it was addressed
Working capital
management
Provisions and
other liabilities
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 their 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.
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 to attend meetings of the Committee on a regular
basis and during 2017 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.
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
which is reviewed annually. During 2017 the policy was refined to include
only two classes of work (previously three): services from which the external
auditor is excluded and services for which the external auditor may be
considered, which better represented how the policy was being applied in
practice. There were no changes to the items of work covered by the policy
except for being covered under two categories instead of three. An express
provision was included in the policy that written permission must be obtained
from the Group Finance Director before the external auditor is engaged for any
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Corporate Governance
How was the Committee rated in the annual evaluation?
Our performance as a Committee was assessed through the external Board
performance evaluation, information on which is provided in the Governance
Report. The Audit Committee is working effectively and supported by internal
finance and internal audit teams. A number of suggestions for areas to focus
on have been incorporated in our 2018 objectives. To ensure that we continue
to be an effective Committee, we set and measure our performance against
2017 Audit Committee Objectives Progress during 2017
2017 Audit Committee Objectives
Progress during 2017
specific objectives every year. These objectives are set annually and the
details of our objectives for 2017 and the progress made is summarised
below. I am pleased to confirm that we successfully achieved all of these
objectives. Progress on achievement against our 2018 objectives will be
reported in next year’s Annual Report.
Ensure continued appropriateness
of the Group’s Risk Management
processes and that internal audit
actions are aligned with critical
business risks. Oversee resources
of internal audit team
Receive updated governance
materials and discuss their
impact on the Group, and oversee
the Group’s whistleblowing
arrangements
• Reviewed the approach taken to internal audit and risk assurance and provided support to the processes
• Critically reviewed and approved the Principal Risks disclosed in the 2016 Annual Report
• Reviewed regular Risk Assurance Reports from the Group Risk Assurance Manager
• Approved the 2017 Internal Audit Plan
• Initiated the recruitment of an additional internal audit resource in the US
• Received technical updates during the year from KPMG’s Audit Committee Institute, other publications
from major accounting firms and a legal and regulatory presentation
• Reviewed and recommended to the Board the Viability Statement as disclosed in the 2016
Annual Report
• Received a presentation from Adrian Wilcox, the senior KPMG partner, on forthcoming technical and
governance changes
• Oversaw the Group’s whistleblowing arrangements and the recommunication of the whistleblowing
service to all employees in August 2017
• Update on suppliers vetted through the Group’s reputational risk database
Oversee the Group’s Treasury
function
• Presentation from Group Treasurer on the Group’s Treasury function
• Recommended the Group’s Treasury policy to the Board for approval
Review the Group’s Tax strategy
• Scheduled for February 2018 Audit Committee meeting
Ensure successful induction of
Group Finance Director
• Met with finance team to understand Vitec’s finance function
• Met with key external advisors including KPMG, Investec, Slaughter and May and Rothschild and key
banking relationship managers
• Met with Christopher Humphrey to discuss the finance function and workings of the Audit Committee
• Visited major sites including: Costa Rica, Bury St. Edmunds, various sites in the US and Italy
• Attended NAB in Las Vegas
• Participated in the AGM and met with a number of investors and analysts following the half year results
• Received a governance induction from the Group Company Secretary
• Led the finance process around the 2017 half and full year results
• Led the re-forecast process for 2017 and the budget process for 2018
• Managed the tender process for the external audit services alongside Christopher Humphrey
• Reviewed the Group’s Investor Relations strategy
68
The Vitec Group plc
Audit Committee activities during 2017
During 2017 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
• Progress against agreed objectives
• 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 2017:
February
June
• Annual results for 31 December 2016,
including:
- Accounting issues report
- Full year report from the external auditor
including Auditor’s Report to be included in
the 2016 Annual Report
- Consolidated financial statements for the
year ended 31 December 2016
- Principal risks and uncertainties
- Report on internal controls
- Separate report on the work of the Audit
Committee
• Reviewed progress on compliance with
General Data Protection Regulations
• Approved policy on audit and non-audit
services provided by the external auditor
• Reviewed outcome of review of the external
auditor following the year end
• Reviewed external audit strategy for the year
ended 31 December 2017
• Training session from KPMG on technical
and governance issues
• Summaries of internal audit’s reviews of
the business
- Performance, effectiveness and
independence of the external auditor
August
- 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
• Reviewed results of enhanced controls self-
assessment process
• Reviewed 2017 internal audit plan
• Summaries of internal audit’s reviews of
the business
• Private meeting between the Committee
and external auditor without executive
management present
• Reviewed KPMG’s fees and scope for the
external audit for 31 December 2017
• Half year results for 30 June 2017, including
reviews of:
- Accounting issues report
- Report from the external auditor
- Results for the half year ended 30 June
2017
- 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 to
KPMG
• Summaries of internal audit’s reviews of
the business
• Presentation on geopolitical risks
December
• Considered the outcome of 2017 objectives
and agreed 2018 objectives
• Considered progress on a tender for the
external auditor
• Reviewed bribery and whistleblowing
arrangements
• Presentation on the Group’s Treasury
strategy
• Presentation on legal and regulatory matters
Christopher Humphrey
Chairman, Audit Committee
21 February 2018
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Remuneration Report
Annual Statement by Caroline Thomson,
Chairman of the Remuneration Committee
2017 performance
Vitec achieved record performances in adjusted revenue* and adjusted profit*
for 2017 as well as a material appreciation in share price from an opening
price in January 2017 of £6.48 per share to a closing share price at
31 December 2017 of £11.30. In addition to growth in revenues and adjusted
profit*, management successfully carried out strategic corporate activity
including the disposals of the non-core businesses of Haigh-Farr and Bexel,
the US Services business, as well as the acquisitions of the JOBY and Lowepro
brands and RTMotion. The Group delivered a strong cash performance and has
reduced Group net debt. The Group’s Return on Capital Employed (“ROCE”)
performance was also strong in 2017. The Group is well positioned for future
growth in its core markets with a robust balance sheet.
Committee activities in 2017
The Remuneration Committee in 2017 dealt with the following matters:
• The Committee sought approval from shareholders at the 2017 AGM for
a new Remuneration Policy following a detailed shareholder consultation in
2016. The policy is similar to that approved by shareholders in 2014 except
for two changes:
- Firstly, under the Long Term Incentive Plan (“LTIP”) a re-balancing 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 is underpinned by Committee discretion that will
take into account, in particular, ROCE performance over the performance
period for the EPS element of awards.
- Secondly, under the pension contribution, a reduction in the Company
contribution for Executive Directors appointed from 2017 onwards from
20% of salary to 15% of salary.
The Policy Report was approved by over 99% of shareholders voting at
the 2017 AGM giving a clear mandate on Directors’ remuneration for the
next three years.
• The Committee approved an increase in the Group Chief Executive’s,
Group Finance Director’s and Group Business Development Director’s
salaries with effect from 1 January 2018 of 2.5%, reflecting pay increases
within the Group’s workforce and current market conditions. The fees paid
to the Chairman and Non-Executive Directors have also been increased by
the same percentage.
• Bonus payments for 2017 were 88.4%, 87.9% and 88.4% respectively of
the maximum potential award for the Group Chief Executive, Group Finance
Director and Group Business Development Director. The 2017 Annual Bonus
Plan paid out against the adjusted profit and operating cash* performance
measures at 84.2% and 100% respectively as well as an individual
assessment against personal objectives for each Executive Director.
Each of the Executive Directors is required to defer half of their earned 2017
bonus (after taxes) into the Deferred Bonus Plan (“DBP”) for three years,
ensuring focus on long-term growth for the Company.
Dear Shareholder
I am pleased to present to you our 2017 Remuneration
Report which is split into three separate sections.
• Firstly, my annual statement setting out the work of the
Remuneration Committee in 2017 and priorities for 2018.
• Secondly, a summary of the Remuneration Policy Report
(“Policy Report”). The Policy Report was approved by
over 99% of shareholders voting at the 2017 Annual
General Meeting and sets out the Company’s policy
on Directors’ remuneration for the three years from
May 2017 to May 2020.
• Thirdly, the Annual Report on Remuneration that sets
out the remuneration paid to Directors in 2017 as well as
details of how the Committee intends to implement our
remuneration policy for 2018. Shareholders will have the
opportunity for an advisory vote on the Annual Report
on Remuneration at the 2018 AGM.
70
The Vitec Group plc Annual General Meeting
The Annual Remuneration Report will be put to the Company’s shareholders
for an advisory vote at the AGM to be held on Tuesday 15 May 2018.
I encourage all shareholders to vote in favour of this resolution and I look
forward to the opportunity to meet with shareholders at the 2018 AGM.
Caroline Thomson
Chairman, Remuneration Committee
21 February 2018
• The Committee approved the remuneration packages for Kath Kearney-Croft
upon her appointment as Group Finance Director with effect from 24 April
2017, Martin Green upon his appointment as Group Business Development
Director with effect from 4 January 2017, and also approved the leaving
arrangements for Paul Hayes upon his departure as Group Finance Director
on 28 April 2017.
• LTIP awards made in 2015 to Executive Directors partially achieved their
performance conditions based upon TSR and adjusted basic earnings per
share* growth with 100% of the TSR performance condition achieved and
35% of the EPS growth performance condition achieved. As a consequence
a blended level of 67.5% of the 2015 LTIP will vest to Executive Directors
(and other participants) on the third anniversary of the award on 8 April
2018. As part of the calculation of EPS the Committee exercised a
discretion around the treatment of acquisitions and disposals made
in the performance period. The detail is set out on page 82.
• The Committee made LTIP awards to Executive Directors and senior managers
on 28 February 2017 with performance conditions based on TSR and EPS
growth with a discretionary ROCE underpin. 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 2017 AGM approved the Company’s 2016 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 2018 Annual
Bonus Plan to ensure that it motivates Executive Directors to deliver against
challenging financial targets for 2018. 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 2017.
We will disclose financial targets for the 2018 Annual Bonus Plan against
actual performance in the 2018 Remuneration report along with a
commentary on our assessment of the personal objectives element.
Committee priorities for 2018
The Committee in 2018 will focus on the following matters:
• Securing shareholder approval at the 2018 AGM for the Annual Report
on Remuneration.
• Granting LTIP awards in 2018 to support our strategic growth targets with
appropriately stretching performance conditions based on the Company’s
EPS and TSR performance and with a ROCE underpin.
• Ensuring that the 2018 Annual Bonus Plan is structured to drive performance,
with stretching financial performance targets, and to reward growth in
the Company.
• Considering the impact and actions necessary to address proposed changes
to the UK Corporate Governance Code relating to Directors’ remuneration
and other matters that is currently under consultation by the Financial
Reporting Council and that is likely to be implemented for accounting
periods beginning on or after 1 January 2019.
* This report provides alternative performance measures (“APMs”) which are not defined or specified under the requirements of International Financial
Reporting Standards (“IFRS”). We have included a glossary on page 150 which provides a comprehensive list of APMs that we use including an
explanation of how they are calculated, why we use them and how they can be reconciled to a statutory measure where appropriate.
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Remuneration Policy Report
Policy Report
The following is a summary of the Policy Report that covers remuneration for Directors of the Company
for a three year period from the Company’s AGM on 17 May 2017 until the 2020 AGM. The full Policy
Report, as approved by shareholders, is available on the Company’s website and is contained in the
2016 Annual Report. Should there be any need to change the Company’s remuneration policy ahead
of the 2020 AGM, shareholders will be asked to approve a revised Policy Report.
This Report contains further information required under the Listing Rules and the April 2016 version
of the UK Corporate Governance Code.
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.
Benefits
To provide Executive
Directors with
ancillary benefits
to assist them in
carrying out their
duties effectively.
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.
The Committee has not set a maximum level
of salary and 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.
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 Sharesave Plan (currently £350
per month maximum).
Performance
measures
Not applicable.
Not applicable.
72
The Vitec Group plc 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 any earned
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 after tax 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.
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.
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Remuneration Policy Report
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 for an Executive Director.
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 2018 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.
LTIP awards from 2017 onwards 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 has also
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.
At threshold, 25% of the award will vest, increasing
on a straight-line basis up to 100% for performance
in line with maximum. Below threshold none of the
award will vest.
There is no re-testing of any performance measure.
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.
74
LTIP awards from 2017 onwards are 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 Company performance 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 89.
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, not shares,
usually on a monthly basis in arrears.
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 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.
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 the Audit and Remuneration 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 paid in cash, not shares, usually
on a monthly basis 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 relating to the Company’s business
(including travel and hotel accommodation).
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Annual Report & Accounts 2017 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, Kath Kearney-Croft and Martin Green for 2018 in line with the
Policy Report:
Stephen Bird
Basic Remuneration
Base salary
£451,758
Benefits
£28,286
Pension (20% of salary)
£90,352
Kath Kearney-Croft
Basic Remuneration
Base salary
£317,750
Benefits
£22,627
Pension (15% of salary)
£47,663
Martin Green
Basic Remuneration
Base salary
£266,500
Benefits
£22,200
Pension (15% of salary)
£39,975
Total fixed pay (minimum)
Total fixed pay (minimum)
Total fixed pay (minimum)
£570,396
£388,040
£328,675
On target performance:
Fixed pay
On target performance:
Fixed pay
On target performance:
Fixed pay
£570,396
£388,040
£328,675
Annual Bonus
£282,349
LTIP
£141,175
Annual Bonus
£198,594
LTIP
£99,297
Annual Bonus
£166,563
LTIP
£83,282
Total On Target Pay
Total On Target Pay
Total On Target Pay
£993,920
£685,931
£578,520
Maximum pay:
Fixed pay
Annual Bonus
LTIP
£570,396
£564,698
£564,698
Maximum pay:
Fixed pay
Annual Bonus
LTIP
£388,040
£397,188
£397,188
Maximum pay:
Fixed pay
£328,675
Annual Bonus
LTIP
£333,125
£333,125
Total Maximum Pay
Total Maximum Pay
Total Maximum Pay
£1,699,792
£1,182,416
£994,925
The illustrations above are based on the following assumptions:
• Fixed pay – Base salary as at 1 January 2018.
• The total value of benefits received for the full year ended 31 December 2017
which included car allowance, private healthcare and income protection.
• Pension contribution of 20% of base salary for Stephen Bird and 15% of
base salary for Kath Kearney-Croft and 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 125% 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 base salary) and
set out at face value, with no share price growth or dividend assumptions.
76
The Vitec Group plc 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 £42,000 per annum, an additional £5,100 per annum
in the role of Senior Independent Director and £5,100 as Chairman of the
Remuneration Committee. Under the terms of their service contracts, Kath
Kearney-Croft 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 Kath Kearney-Croft
nor Martin Green had taken up any such external non-executive appointment.
Executive Directors’ service contracts
The Executive Directors’ service contracts are as follows:
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
21 February
2017
12 months
6 months
3 January
2017
12 months
6 months
Stephen Bird, Group
Chief Executive –
appointed on 14
April 2009
Kath Kearney-Croft,
Finance Director
– appointed on 24
April 2017
Martin Green, Group
Business
Development
Director – appointed
on 4 January 2017
Details of the Committee’s approach and policy on payment for loss of
office are given in full in the 2016 Remuneration Policy Report and are
available on the Company’s website.
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 99% support for the 2016 Remuneration Policy
Report and over 99% support for the 2016 Annual Report on Remuneration
at the 2017 AGM indicating a strong level of support for the structure of
Directors’ remuneration.
During 2017, the Committee continued to take into account the views of 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
in the latter part of 2016 and early 2017. This consultation was on the basis
that the current policy was fit for purpose and achieved the objectives of
incentivising management in the delivery of the Company’s growth strategy.
A summary of the Policy is set out earlier in this Report and the strong level
of support from shareholders indicates that the Committee and shareholders
are aligned on the issue of Directors’ remuneration.
The Committee further took into consideration the views of shareholders in
its treatment in connection with the resignation of Paul Hayes, particularly
the lapsing of LTIP awards and also in the recruitment and remuneration
packages of both Martin Green and Kath Kearney-Croft, appointed in 2017.
77
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Martin Green
(appointed 4/1/17)
Kath Kearney-Croft
(appointed 24/4/17)
Paul Hayes
(left on 28/4/17)
Non-Executive Directors
Caroline Thomson
Mark Rollins
Lorraine Rienecker
Total
Notes:
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 Tuesday 15 May 2018.
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 2017 and 2016:
Base salary / fees
Benefits
Pension
Annual bonus
Long-term incentives
Total
2017
£
2016
£
2017(1)
£
2016
£
2017(2)
£
2016
£
2017(3)
£
2016
£
2017(4)
£
2016
£
2017
£
2016
£
Executive Directors
Stephen Bird
440,740 429,990
28,286
27,861
88,148
85,998 486,771 418,450 528,199
- 1,572,144 962,299
260,000
213,125
-
-
22,200
15,426
-
-
39,000
- 287,155
- 270,707
-
879,062
31,969
- 235,043
-
-
495,563
98,534
295,601
7,542
22,739
19,707
59,120
- 285,820
John McDonough
150,000
150,000
Christopher Humphrey
54,152
53,075
53,152
52,075
50,152
49,075
44,152
43,075
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,364,007 1,072,891
73,454
50,600 178,824 145,118 1,008,969 704,270 798,906
- 3,424,160 1,972,879
1. Benefits includes car allowance, healthcare cover and income protection.
4. Long-term incentives comprise LTIP awards. Awards made in 2015 achieved in
2. Stephen Bird receives a pension contribution of 20% of base salary. Both Kath
Kearney-Croft and Martin Green receive a pension contribution of 15% of base
salary. Each Executive Director currently takes this contribution in the form of
a cash payment.
3. For the Annual Bonus 2017, Stephen Bird and Martin Green’s bonus potential was
125% of base salary. Kath Kearney-Croft’s bonus potential was also 125% of base
salary but pro-rated from her start date of 24 April 2017. Further details are set out
in the “Further notes” section on the following page.
part performance conditions based on TSR and growth in adjusted basic earnings
per share*. Long-Term Incentives – 2015 LTIP to vest at 67.5%, share price
as at 31 December 2017 of £11.30 and associated dividend shares paid
on shares vesting (76.9 pence per share). The 2018 Remuneration Report will
reflect updated final values. Awards made in 2014 did not achieve their performance
conditions also based on the same performance conditions and therefore lapsed.
Further details on the vesting of the 2015 LTIP awards are set out in the “Further
notes” section on the following pages.
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.
78
-
-
-
125,783
663,280
-
-
-
-
-
150,000
150,000
54,152
53,075
53,152
52,075
50,152
49,075
44,152
43,075
-
-
-
-
-
-
-
The Vitec Group plc
(4) Annual bonus
In 2017, 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. Kath Kearney-Croft’s bonus potential was pro-rated
from her appointment date of 24 April 2017. Paul Hayes was not entitled to
any bonus payment for 2017 due to his departure on 28 April 2017.
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 adjusted profit before tax* and operating
cash flow* generation and had the most direct impact upon shareholder value
for the year ended 31 December 2017.
Further notes to the Directors’ single figure of total
remuneration table (audited)
(1) Base salary
The table below shows base salaries for 2017:
Executive Director
2017 Salary
Stephen Bird
£440,740
Paul Hayes – left on 28
April 2017
£98,534 (£295,601 for the full year)
Martin Green – appointed
on 4 January 2017
£260,000
Kath Kearney-Croft –
appointed on 24 April 2017
£213,125 (£310,000 for the full year)
(2) Benefits
The single figure of total remuneration table sets out the total value of benefits
received by each Executive Director in 2017. Details are as follows:
Executive Director
Car
allowance
Healthcare
cover
Income
protection
Stephen Bird
£22,031
£1,455
£4,800
Paul Hayes – left
on 28 April 2017
£5,457
(£16,372 for
the full year)
£485
(£1,455 for
the full year)
£1,600
(£4,800 for
the full year)
Martin Green –
appointed on 4
January 2017
£16,519
£881
£4,800
Kath Kearney-Croft
– appointed on 24
April 2017
£11,256
(£16,372 for
the full year)
£970
(£1,455 for
the full year)
£3,200
(£4,800 for
the full year)
(3) Pension allowance
The table below sets out the value of the cash payment in lieu of pension for
each Executive Director in 2017:
Executive Director
Pension allowance
Stephen Bird
£88,148
Paul Hayes – left on 28 April
2017
£19,707 (£59,120 for the full year)
Martin Green – appointed on
4 January 2017
£39,000
Kath Kearney-Croft –
appointed on 24 April 2017
£31,969 (£46,500 for the full year)
79
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
The personal objective element of the 2017 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 - 2017 Personal Objectives
Kath Kearney-Croft - 2017 Personal Objectives
• Build a world class organisation – Replace Group Finance Director and
• Continue to build a world class finance team – Develop talent and
ensure successful induction for both Kath Kearney-Croft and Martin Green
in their Executive Director roles; improve the quality of succession planning
and talent development across the Group; and ensure that Group strategy
is well communicated to employees.
succession plans for global finance team; review and develop finance
team including communications and ensuring finance function is an
effective business partner while ensuring financial reporting and controls
are maintained.
• Execution of growth strategy – Deliver budgeted underlying constant
currency sales and PBT growth in 2017 as well as achieve ROCE and
operating cash targets; ensure strategy review in 2017 is streamlined;
deliver Enterprise Video budget; focus on new product development
launches; drive cross Group synergies; and growth plans for APAC market.
• Creative Solutions – Develop the Creative Solutions business structure
including synergies across business units to maximise sales and
operating profit.
• Corporate structure – Dispose of non-core businesses (Haigh-Farr and the
US Services business (Bexel)) and maximise shareholder value; review
divisional structure to reflect focus on core markets and areas of growth;
and deliver on acquisition targets.
• Investor Relations (“IR”) strategy – Review current strategy with advisors
and deliver new shareholders, ensure greater analyst coverage and
increase in share liquidity.
• Execution of growth strategy – Support Group Chief Executive on growth
strategy review; lead Group synergies project to deliver quantified
savings; support M&A activity including financial due diligence and
ensure appropriate financing to support M&A activity.
• Investor Relations strategy – Review and refresh current IR strategy with
input from advisors; ensure wider analyst base understands the business
and support Group Chief Executive on shareholder engagement including
improving share liquidity.
• 2018 Budget – Preparation and approval of a budget for 2018 reflecting
underlying growth in line with strategic plan.
• Onboarding – Review and refresh functional strategies and requirements
including tax and treasury strategy, management reporting processes and
working capital model.
• Induction and personal development – Undertake a thorough induction to
the Group visiting its main locations; attend training and develop personal
development plan.
Martin Green - 2017 Personal Objectives
• Manage a successful external audit tender.
• Execution of growth strategy – Support Group Chief Executive on growth
strategy review; growth plans for APAC market; drive synergies between
the Creative Solutions businesses and deliver on revenue and operating
profit uplift; and embed processes around strategic plan KPIs and
tracking of major R&D projects.
• Talent development – Support Group Chief Executive with improving the
quality of succession plans and talent development across the Group;
support Group Chief Executive and Divisional Heads in improving
employee communications; and lead Divisional HR Directors to support
execution of strategy.
• Corporate Development – Investigate and deliver on potential disposals of
Haigh-Farr and the US Services business (Bexel) to maximise shareholder
value; identify acquisition targets in line with strategic criteria;
and monitor integration of Wooden Camera into the Creative
Solutions Division.
• Investor Relations strategy – support Group Chief Executive on the review
of IR strategy.
80
The Vitec Group plc 2017 Annual Bonus Outcome
The table below sets out the annual bonus awards made to Executive Directors in respect of the year ended 31 December 2017 including the financial trigger
points used in determining whether a bonus was payable. Paul Hayes did not receive any bonus for 2017 due to leaving the Company on 28 April 2017.
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*
£34.3m
£38.1m
£41.9m
£40.7m**
£231,968 (84.2%)
72%
80%
88%
108%
£137,731 (100%)
25% Group conversion of
adjusted operating profit*
into operating cash flow#
25% Personal objectives
25% Group conversion of
adjusted operating profit*
into operating cash flow#
25% Personal objectives
Kath Kearney-Croft
– appointed on 24
April 2017 – bonus
pro-rated to reflect
start date
Martin Green –
appointed 4 January
2017
125% of
annual salary
50% Group
adjusted PBT*
£34.3m
£38.1m
£41.9m
£40.7m**
72%
80%
88%
108%
£66,884 (100%)
85%
TOTAL
83%
TOTAL
£117,072
£486,771 (88.4%)
£112,646 (84.2%)
£55,513
£235,043 (87.9%)
£136,842 (84.2%)
125% of
annual salary
50% Group
adjusted PBT*
£34.3m
£38.1m
£41.9m
£40.7m**
25% Group conversion of
adjusted operating profit*
into operating cash flow#
25% Personal objectives
72%
80%
88%
108%
£81,250 (100%)
85%
TOTAL
£69,063
£287,155 (88.4%)
** The £40.7 million Group adjusted profit before tax* represents an average of:
- £42.4 million being the reported Group adjusted profit before tax*; and
- £39.0 million being the Group adjusted profit before tax* adjusted for constant foreign exchange rates with those of 2016.
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 2017 given the
uncertain macroeconomic environment, challenging markets that the Group
faced, strategic objectives 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. For the 2017 Annual Bonus Plan the Remuneration
Committee determined the following treatment of disposals and acquisitions
made during 2017:-
Group Adjusted PBT Element
• For the disposals of Haigh-Farr and the US Services business (Bexel)
– actual and budgeted results from 1 January 2017 to the respective
dates of disposal were excluded from the financial targets.
• For the acquisition of the JOBY and Lowepro brands and RTMotion – their
actual results and base case financials for the acquisitions were included in
the financial results from the dates of acquisition until 31 December 2017.
• JOBY and Lowepro integration costs were excluded from both actual results
and base case for the 2017 Annual Bonus Scheme.
Group conversion of adjusted operating profit* into operating cash flow*
• For the disposals of Haigh-Farr and Bexel, the US Services business –
their actual and budgeted cash conversion was excluded from
financial targets.
• For the acquisition of the JOBY and Lowepro brands and RTMotion –
excluded the businesses from measurement of Group cash conversion given
that there was only three months left of the year and that the calculation
involves an average of annual and quarterly cash conversion measures.
Half of the 2017 annual bonus will be deferred into the Deferred Bonus Plan.
The 2017 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 plus
any dividends accrued on the core award are released from the Trust to the
Executive Directors.
The Committee determined the treatment as detailed above was merited as
the acquisitions and disposals were strongly in line with agreed Group strategy
and executed well. The Committee considered that the best interests of the
Company performance overall were served by ensuring that the executives were
incentivised to deliver the restructuring savings resulting from the acquisitions
as quickly as possible and that therefore they should be removed from the
calculations. The Committee, as part of this decision, took into account share
price growth, growth in adjusted PBT and dividends paid, reduction in Group
Net Debt and improvement in the Group’s ROCE performance.
81
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Remuneration Report
Annual Report on Remuneration
(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 2015 and vesting in respect of performance to
31 December 2017
These relate to awards made in 2015 under the LTIP. 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 LTIP award made in 2015 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 LTIP award made in 2015 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 12% (Compound Average Annual Growth Rate)
or greater. There is a pro-rata straight line vesting between these two points.
An award lapses if the lower point under both performance conditions is not
achieved during the performance period.
The Remuneration Committee also considered the underlying financial
performance of the Company before it confirmed vesting.
Performance out-turn
The table below summarises the value of awards vesting for the 2015 award.
2015 Awards
Actual performance
TSR
Vitec ranked in the 83rd
percentile of the comparator
group (100th percentile
being the highest) with TSR
performance of 104.9%
over the 3 year performance
period.
Vesting as a % of
total award
50%
EPS
Adjusted EPS of 68.1p
Total vesting
17.5%
67.5%
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 Mercer on behalf
of the Committee and is ranked against the comparator group companies’
TSR performance to determine the outcome.
EPS is determined in accordance with note 2.5 of the Financial statements
on page 114. As part of the assessment of EPS performance the Committee
adopted a policy of:- (i) including disposed businesses in all years during the
performance period up until the date of disposal; (ii) including all acquisitions
of businesses during the performance period from the date of their acquisition;
(iii) excluding integration costs for JOBY and Lowepro incurred in 2017; and (iv)
excluding integration costs for JOBY and Lowepro entirely in 2018 on the basis
that they are excluded from adjusted earnings (see page 150). While other
treatments were possible, the Committee considered that this treatment
was appropriate, consistent with past treatment and best reflected the
true underlying performance of the business.
The Remuneration Committee has confirmed that 2015 awards will therefore
vest at a level of 67.5% on the third anniversary of the awards on 8 April
2018. Indicative values for vesting awards for the Executive Directors are
shown in the Remuneration Table on page 78. Final values will be reported
in 2018’s Remuneration Report.
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 DBP. The
performance conditions for these awards are the same as those made in
2015. 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 2016 and the final outcome resulted in 0% of the TSR and
EPS elements vesting. As a consequence the 2014 LTIP awards lapsed on 2
April 2017 and the DBP matching award shares lapsed on 31 March 2017.
82
The Vitec Group plc Other outstanding awards made in 2016 and vesting in respect of
performance to 31 December 2018
For awards made in 2016, 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 2016 the adjusted EPS* growth figures were set at
5% compound average per annum for 25% vesting and 12% plus compound
average per annum for full vesting. A straight line sliding scale will operate
between each of the above points and below 5% adjusted EPS* compound
average growth none of the award will vest. Subject to satisfaction of performance
conditions to 31 December 2018, these awards will vest in March 2019.
Awards made in 2017 and vesting in respect of performance to 31
December 2019
The table below provides details of the awards made under the LTIP on 28
February 2017 to Stephen Bird and Martin Green. Kath Kearney-Croft’s LTIP
award was made on 15 May 2017 following her appointment as Group
Finance Director on 24 April 2017. Performance for these awards is measured
over the three financial years from 1 January 2017 to 31 December 2019.
Long Term Incentive Plan 2017 awards (audited)
As reported to shareholders in the 2016 Annual Report while the performance
conditions of TSR and EPS growth targets remain, awards in 2017 and in the
future have been re-balanced so that the split in performance conditions is
changed to 33%/67% between TSR and EPS respectively. Vesting will be
underpinned by Remuneration Committee discretion that will take into
account, in particular, Return on Capital Employed (“ROCE”) performance
over the performance period for the EPS element of the award.
Under the EPS element the performance required for threshold vesting (25%
of this part of the award) is adjusted EPS* growth of 6% per annum. Full vesting
of this part of the award required adjusted EPS* growth of 14% 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 6% per annum.
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 Mercer on behalf
of the Committee and is ranked against the comparator group companies’
TSR performance to determine the outcome. The same targets apply for
vesting under TSR as in 2016 and 2015.
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.
Executive Director
Type of
award
Stephen Bird
Martin Green
Kath Kearney-Croft
Performance
shares
Number
of shares
awarded
78,647
46,395
41,876
Face value(1)
(£)
Face value
(% of salary)
Threshold vesting
(% of face value)
Maximum
vesting
(% of face value)
End of performance
period
£550,925
£325,000
£387,500
125%
125%
125%
25%
100%
31 December 2019
(1) Face value has been calculated using the Company’s share price at the date of the award of £7.00 for Stephen Bird and Martin Green and £9.25 for Kath Kearney-Croft
following her appointment on 24 April 2017.
Deferred Bonus Plan 2017 awards (audited)
The following table provides details of the awards made under the DBP on 5 April 2017. 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 5 April
2020. Dividends accrued on the core shares during the three years will be paid out as additional dividend shares on this same date. Kath Kearney-Croft
having joined the Company on 24 April 2017 did not participate in the DBP during 2017.
Executive Director
Type of award
Stephen Bird
Martin Green(2)
Core award
shares using
deferred
annual cash
bonus
Number of
core shares
awarded
Face value(1)
(£)
13,344
£110,882
End of holding period
4,203
£34,925
5 April 2020
(1) Face value has been calculated using the Company’s share price at the date of the award of £8.31.
(2) Martin Green’s award relates to a bonus earned prior to his appointment as a Director of the Company.
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
Payments to Past Directors (audited)
There were no payments in 2017 to past directors of the Company. Payments
made to Paul Hayes in 2017 up to the date he ceased to be a director on
28 April 2017 are set out below:
• Salary totalling £98,534 for the period to his departure date.
• Annual Bonus of £285,820 paid in March 2017 in connection with financial
and personal objectives for the year ended 31 December 2016 and
disclosed in the 2016 Remuneration Report.
• Pension contribution totalling £19,707 for the period to his departure date.
• Benefits (including car allowance, healthcare and income protection)
totalling £7,542 for the period to his departure date.
• Core award shares under the DBP plus associated dividend shares were
paid out to Paul Hayes as follows:-
- 31 March 2017 – 2014 DBP – 20,147 shares plus 1,842 dividend shares
at a price of £7.94 per share and a total value of £174,593
Directors’ Shareholding Requirements and
Share Interests (audited)
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. Stephen Bird and Martin Green met this
requirement throughout the whole of 2017 and up to the date of this report.
Kath Kearney-Croft having been appointed Group Finance Director on 24 April
2017 is building a shareholding towards this requirement. 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 2017.
- 19 May 2017 – 2015 DBP – 6,531 core shares plus 470 dividend shares
at a price of £9.225 per share and a total value of £64,592
Executive Director’s shareholdings as at 31 December 2017
(audited)
- 19 May 2017 – 2016 DBP – 3,242 core shares plus 148 dividend shares
at a price of £9.225 per share and a total value of £31,279
Executive
Director
- All of Paul Hayes’ LTIP awards up until the date of his resignation were
lapsed with effect from that date.
Share
ownership
requirement
(% of
salary)
Number
of shares
owned
outright
(including
connected
persons)
Number
of shares
beneficially
owned
(DBP core
award
shares)
Number
of shares
unvested
and
subject to
performance
(LTIP shares)
Ownership
requirement
- % of salary
held as
shares
100%
173,731
27,300
246,847
515%
100%
2,700
-
41,876
10%
100%
26,937
8,466
122,894
153%
Stephen
Bird
Kath
Kearney-
Croft
Martin
Green
Chairman and Non-Executive Directors’ shareholdings as
at 31 December 2017 (audited)
Director
1 January 2017
31 December 2017
John McDonough, Chairman
50,000
Caroline Thomson
Mark Rollins
Christopher Humphrey
Lorraine Rienecker
8,407
10,000
10,000
3,248
50,000
8,407
10,000
10,000
3,248
1. The closing mid-market share price on 31 December 2017 was £11.30 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 3,4 and 5 below.
Chairman and Non-Executive Directors (audited)
The Chairman and Non-Executive Directors were paid the following
fees in 2017:
Role
2017 Annual Fee
Comment
Chairman
£150,000
Non-Executive
Director
£44,152
Last increased to £150,000 with
effect from 1 January 2016.
Base fee paid to Non-Executive
Directors. Fee effective from
1 January 2017.
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 Mercer 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.
84
The Vitec Group plc 3. Stephen Bird’s share interests include 27,300 shares (at 31 December 2017) 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 2018, 2019 and 2020 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 2017 Stephen Bird acquired
15,449 shares through the exercise of awards under the DBP arising from awards made in 2014. Stephen Bird also sold 75,000 shares during the year ended 31 December
2017. 2,000 shares of Stephen Bird’s holding are held by his spouse.
4. Martin Green’s share interests include 8,466 shares (at 31 December 2017) 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 2018, 2019 and 2020 respectively. Neither these
shares nor any of the other shares held by Martin Green have any performance conditions attached to them. During the year ended 31 December 2017 Martin Green acquired
4,967 shares through the exercise of awards under the DBP arising from awards made in 2014.
5. Kath Kearney-Croft’s share interests were acquired following her appointment on 24 April 2017.
6. There has been no change to the Directors’ shareholdings described in the table above in the period from 31 December 2017 to 21 February 2018.
Sharesave (audited)
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, Singapore, Hong Kong, Netherlands 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 2017 Stephen Bird, Kath Kearney-Croft and Martin Green
participate in the UK scheme and the details are shown below.
Director
Date of
grant
At 1 January
2017 or
date of
appointment
if later
(shares)
Options
exercised
during the
year
Options
lapsed
during the
year
Options
granted
during the
year
At 31
December
2017
(shares)
Exercise
price
(pence)
Market
price at
date of grant
(pence)
Date from which
exercisable(4)
Expiry date
Stephen
Bird
25 September
2015
Martin
Green
27 September
2016
2,560
2,597
9 October 2017
-
Kath
Kearney-
Croft
-
-
-
-
-
-
-
-
2,560
492
614(1)
1 November 2018
30 April 2019
2,597
485
606(2)
1 November 2019
30 April 2020
1,607
1,607
784
980(3)
1 November 2020
30 April 2021
(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 2015 to
1 September 2015 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 31 August 2016 to
2 September 2016 inclusive. A 20% discount was applied to this price under this HMRC approved Sharesave plan.
(3) 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 11 September 2017 to
13 September 2017 inclusive. A 20% discount was applied to this price under this HMRC approved Sharesave plan.
(4) There is no performance condition attached to the exercise of the Sharesave plan which is an all-employee plan.
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Remuneration Report
Annual Report on Remuneration
Long Term Incentive Plan (audited)
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). The Executive Directors at that time 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 2017 for the Executive Directors:
Director Date of
award
Awards at
1 January
2017
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
2017
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
2 April
2014(1)
65,958
8 April
2015(2)
64,838
1 March
2016
103,362
28 Feb
2017
-
Total
234,158
Martin
Green(3)
2 April
2014(1)
33,037
8 April
2015(2)
33,230
1 March
2016
43,269
28 Feb
2017
-
Total
109,536
15 May
2017
Kath
Kearney-
Croft
(appointed
24 April 2017)
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
65,958
-
-
-
-
-
-
-
620.5
64,838
647
103,362
520
78,647
78,647
700
-
-
-
-
65,958
78,647
246,847
33,037
-
-
620.5
-
-
-
33,230
647
-
43,269
520
46,395
46,395
700
33,037
46,395
122,894
-
-
41,876
41,876
925
41,876
41,876
-
-
-
-
-
25%
25%
25%
25%
25%
25%
25%
25%
100% of
annual
salary
100% of
annual
salary
125% of
annual
salary
125% of
annual
salary
100% of
annual
salary
100% of
annual
salary
125% of
annual
salary
125% of
annual
salary
31 December
2016
31 December
2017
31 December
2018
31 December
2019
31 December
2016
31 December
2017
31 December
2018
31 December
2019
25%
125% of
annual
salary
31 December
2019
(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 lapsed on its third anniversary of 2 April 2017.
(2) The LTIP award made on 8 April 2015 has achieved 100% of the TSR performance condition and 35% of the Adjusted EPS* growth performance condition, resulting in a blended
level of vesting of 67.5%. As a consequence 67.5% of this award, plus associated dividend shares, will vest on its third anniversary of 8 April 2018. Details of the estimated
associated value are shown in the remuneration table for the year ended 31 December 2017 on page 78.
(3) The LTIP awards to Martin Green for 2014, 2015 and 2016 were made before he was appointed a director on 4 January 2017 and are reported for completeness.
86
The Vitec Group plc Deferred Bonus Plan (audited)
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. Kath Kearney-Croft having been appointed on 24 April 2017 does not currently participate in the Deferred Bonus Plan.
Director Date of
award
Awards
at 1
January
2017
(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
2017
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
31 March
2014 (core
award)(1)
31 March
2014
(matching
award)(1)
16 April
2015 (core
award)(2)
28,313
9,240
4,716
11 April
2016 (core
award)
-
5 April
2017 (core
award)
28,313
28,313
2,588
-
-
-
-
-
-
-
-
-
28,313
-
-
-
-
-
-
-
-
-
628
628
9,240
649
4,716
589
13,344
13,344
831
Total
70,582
28,313
2,588
28,313
13,344
27,300
8,588
8,588
785
-
Martin
Green(3)
31 March
2014
(core)(1)
31 March
2014
(matching
award)(1)
16 April
2015
(core)(2)
8,588
2,777
11 April
2016
1,486
-
-
-
5 April
2017
-
-
-
-
-
-
-
-
628
628
2,777
649
1,486
589
4,203
4,203
831
-
-
-
-
8,588
-
-
-
-
-
-
-
-
-
-
-
-
-
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
50% of
annual
bonus
30% of
annual
bonus
30% of
annual
bonus
30% of
annual
bonus
30% of
annual
bonus
Not
applicable
31 December
2016
33.30%
31 December
2016
Not
applicable
Not
applicable
Not
applicable
Shares held
in Employee
Trust to third
anniversary of
award date
Shares held
in Employee
Trust to third
anniversary of
award date
Shares held
in Employee
Trust to third
anniversary of
award date
Not
applicable
31 December
2016
33.30%
31 December
2016
Not
applicable
Not
applicable
Not
applicable
Shares held
in Employee
Trust to third
anniversary of
award date
Shares held
in Employee
Trust to third
anniversary of
award date
Shares held
in Employee
Trust to third
anniversary of
award date
Total
21,439
8,588
785
8,588
4,203
8,466
(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 the comparator group.
As a consequence the matching award lapsed on its third anniversary of 31 March 2017.
(2) The DBP core award made on 16 April 2015 will vest on its third anniversary of 16 April 2018. The core award plus associated dividend shares will be paid out to the participant
on this anniversary.
(3) Martin Green’s DBP award relates to a bonus period prior to his appointment as an Executive Director of the Company.
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Remuneration Report
Annual Report on Remuneration
Performance graph of the Company’s ordinary
shares compared to comparator group
Since 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. 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.
£
900
800
700
600
500
400
300
200
100
£838
£482
£425
£364
Dec
2008
Dec
2009
Dec
2010
Dec
2011
Dec
2012
Dec
2013
Dec
2014
Dec
2015
Dec
2016
Dec
2017
The Vitec Group plc
FTSE 250
The Company’s share price on 31 December 2008 was £2.355 and on
31 December 2017 was £11.30.
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 nine years ended 31 December 2017.
88
Year
(ended 31
December)
Group Chief
Executive
2017
2016
2015
2014
2013
2012
2011
2010
2009
2009
Stephen
Bird
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)
CEO single
figure of
total
remuneration
£1,572,144
£962,299
£636,374
£745,388
£1,057,407
£1,697,841
£2,053,828
£812,946
£487,087
£151,634
Annual Bonus payout
against maximum
opportunity %
(including actual
amount paid)
Long-term
incentive vesting
rates against
maximum
opportunity %
88.4%
(£486,771)
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)
67.5%
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
2017 compared to the year ended 31 December 2016 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
2017 compared
to 2016)
Taxable benefits
(% change in
2017 compared
to 2016)
Annual Bonus
(% change in
2017 compared
to 2016)
Stephen Bird,
Group Chief Executive
2.5%
UK based employees
2.5%
2.5%
2.5%
16.3%
20.5%
Relative importance of spend on pay
The following table sets out for the year ended 31 December 2017 compared to
the year ended 31 December 2016 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. In 2017, the Company
acquired 15,600 ordinary shares that are held in treasury to cover Employer’s
National Insurance Contribution costs in relation to the Company’s LTIP. There have
been no 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
2017
Year ended
31 December
2016
% change
£91.1m
£99.7m
8.6%
£12.4m
£11.1m
11.7%
Total remuneration
paid to all Vitec
Group employees
Total dividends paid
to shareholders
The Vitec Group plc The performance measures selected reflect the strategic and operational
objectives of the Group. The Committee considers that the specific targets and
personal objectives for 2018 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.
(5) Long Term Incentive Plan
Stephen Bird, Kath Kearney-Croft and Martin Green will each receive an award
of shares under the LTIP equivalent to 125% of base salary in 2018. These
awards will be made in the 42 day period following the announcement of the
full year results for the year ended 31 December 2017 that will be announced
on 22 February 2018. The performance conditions for the LTIP awards to be
granted in 2018 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 2018 will be 81.1 pence and 100.9 pence to be
achieved in the year ending 31 December 2020, 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 2018, 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.
Malus and clawback
Under the rules of the Annual Bonus Plan, LTIP and DBP, awards are 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. In addition, any award made since February 2015 under the
above plans includes 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.
Statement of Implementation of Remuneration Policy
in the Year Ending 31 December 2018
This section provides an overview of how the Committee is proposing to
implement the Remuneration Policy in 2018.
(1) Base salary
The table sets out the 2018 base salary for each Executive Director, together
with the percentage increase from 2017:
Executive Director
2018 Salary
Increase from 2017
Stephen Bird
£451,758
Kath Kearney-Croft
£317,750
Martin Green
£266,500
2.5%
2.5%
2.5%
In determining the increases for 2018, 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 2018. The other taxable benefits of private healthcare and
income protection are respectively premium and contractually based.
(3) Pension allowance
Pension allowances paid to Executive Directors are set out in the table below.
Stephen Bird’s allowance represents 20% of his base salary. For any
Executive Director appointed since 1 January 2017, the pension allowance
has been set at 15% of base salary.
Executive Director
Pension allowance
Stephen Bird
£90,352
Kath Kearney-Croft
£47,663
Martin Green
£39,975
(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 2018
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 2018 annual
bonus plan will be measured:
Core measures for 2018 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%
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Remuneration Report
Annual Report on Remuneration
The Remuneration Committee
The Remuneration Committee comprised the following members during
2017: 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, Kath Kearney-Croft, the Group Company Secretary, Jon Bolton and
the Group Business Development Director, Martin Green, attended meetings
by invitation in the year ended 31 December 2017. 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 70 and 71 of this Annual Report.
External advisors
The Committee received independent advice from Mercer (formerly Kepler) as
the Committee’s appointed remuneration advisor during 2017. During 2017 the
level of fees paid to remuneration advisors totalled £19,565 (2016: £53,085)
and this fee covered advice relating to disclosures in the 2016 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. Mercer 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 Mercer during 2017 was objective and independent. The Committee also
received advice and administrative support during 2017 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
21 February 2018
(6) Chairman and Non-Executive Directors’ remuneration
The fee structure for the Chairman and Non-Executive Directors for 2018
is set out in the table below:
Role
Chairman
2018 fee
£153,750(1)
Non-Executive Director’s Base fee
£45,255(1)
Chairman of Audit Committee
Chairman of Remuneration
Committee
£10,000(2)
£9,000(2)
2017 fee
£150,000
£44,152
£10,000
£9,000
Senior Independent Director
£6,000(2)
£6,000
(1) The Chairman’s and Non-Executive Director’s base fee was increased by 2.5% with
effect from 1 January 2018.
(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 Chairman’s and 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 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 17 May 2017, shareholders were asked to
vote on the Directors’ Remuneration Policy Report and an advisory vote on the
Directors’ Annual Remuneration Report for the year ended 31 December 2016.
The Policy Report set out the policy towards Directors’ remuneration for a three
year period from the date of the 2017 AGM until 2020. Both the Policy Report
and Annual Remuneration Report resolutions were approved by shareholders
on a poll. The table below sets out the proxy votes voted for, against and
withheld against each resolution.
Resolution
For proxy
votes and %
of votes cast
Against proxy
votes and %
of votes cast
Withheld
proxy votes
Remuneration Policy
Report
36,268,829
(99.97%)
9,424 (0.03%)
11,500
Advisory vote on the
Remuneration Report
for the year ended
31 December 2016
36,272,645
(99.99%)
5,308 (0.01%)
11,800
As at the date of the Company’s AGM on 17 May 2017 the Company had
44,744,200 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 2017 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.
90
The Vitec Group plc
Directors’ Report
Strategic Report
The statements and reviews on pages 2 to 41 comprise the Strategic Report
which contains certain information, outlined below, that is incorporated into
this Directors’ Report by reference:
• an indication of the Group’s likely future business developments;
• an indication of the Group’s research and development activities;
• information on the Group’s policies for the employment of disabled persons
and employee involvement; and
Shareholder
Alantra Asset Management
Aberforth Partners
Fidelity Investments
JO Hambro Capital Management
M&G Investment Management
Royal London Asset Management
NN Investment Partners
• the Group’s disclosures regarding greenhouse gas emissions.
Heronbridge Investment Management
Directors
The Directors who held office at 31 December 2017 and up to the date of
this report are set out on pages 52 and 53 along with their biographies
and photographs.
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 Director
Paul Hayes
Resigned on
28 April 2017
Executive Director, Group
Finance Director
Kath Kearney-Croft Appointed on 24
April 2017
Executive Director, Group
Finance Director
All current Directors will be standing for reappointment at the forthcoming
AGM to be held on Tuesday 15 May 2018, with the exception of Mark Rollins
who will cease to be a director on 2 April 2018. The Board has announced that
Richard Tyson will be appointed as an independent Non-Executive Director on
2 April 2018, and he will also be standing for reappointment at the 2018 AGM.
The remuneration of the Directors including their respective shareholdings
in the Company is set out in the Remuneration Report on pages 70 to 90.
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
along with 15,600 number of shares held in treasury. Note 4.3 to the
consolidated financial statements on page 134 summarises the rights of
the ordinary shares as well as the number issued during 2017. An analysis
of shareholdings is shown on page 152. The closing mid-market price of a
share of the Company on 31 December 2017, together with the range during
the year, is also shown on page 152. For details of own shares held by the
Company see note 4.3 to the consolidated financial statements.
Substantial shareholdings
As at 21 February 2018, the Company had been advised under the Disclosure
Guidance and Transparency Rules, or had ascertained from its own analysis,
that the following held more than 3% of the issued capital:
Number of
voting rights
% of voting
rights
6,393,263
5,508,233
4,627,993
2,585,474
2,401,529
2,043,728
2,029,900
2,024,456
1,970,000
1,800,000
1,634,720
1,357,648
14.21
12.24
10.29
5.75
5.34
4.54
4.51
4.50
4.38
4.00
3.63
3.02
Gidema SPA
Schroder Investment Management
Pacific SRL
Hargreave Hale
Committees of the Board
The Board has established Audit, Nominations and Remuneration Committees.
Details of these Committees, including membership and their activities during
2017, 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 42 to 51.
The Group has a revised 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 52 to 96 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
134, 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;
• the Company holds 15,600 ordinary shares in treasury which do not carry
any 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;
• 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.
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Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Directors’ Report
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 2017 AGM empowering the Directors
to make political donations, it is confirmed that no such donations were made
in the year ended 31 December 2017. The Company’s policy is not to make
political donations.
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
129 and 130.
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:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been prepared
in accordance with 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
• 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 2018 AGM will be held at 11.00am on Tuesday 15 May 2018 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, Link 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 will not be standing for reappointment at the 2018 AGM. The Board
has recommended the appointment of Deloitte LLP as auditor and a resolution
concerning their appointment shall be put to the 2018 AGM. A separate
resolution will also be put to the AGM authorising the Board to agree
the auditor’s remuneration.
By order of the Board
Jon Bolton
Group Company Secretary
21 February 2018
92
The Vitec Group plc Independent auditor’s report to the members of
The Vitec Group plc only
Overview
Materiality: Group financial
statements as a whole
Coverage
£1.45m (2016: £1.45m)
5% (2016: 5%) of normalised
Group profit before tax from
continuing operations
84% (2016: 82%) of
Group profit before tax
Risks of material misstatement vs 2016
Recurring risk
Net realisable value of inventory
Tax provisioning
Parent company only
Recoverability of parent company’s
investment in subsidiaries
1. Our opinion is unmodified
We have audited the financial statements of The Vitec Group plc (“the
Company”) for the year ended 31 December 2017 which comprise the
Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial Position,
the Company Statement of Financial Position, the Consolidated Statement
of Changes in Equity, Company Statement of Changes in Equity, the
Consolidated Statement of Cash Flows and the related notes, including
the accounting policies included therein.
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 2017 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.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion. Our audit opinion is consistent
with our report to the Audit Committee.
We were appointed as auditor in 1995. The period of total uninterrupted
engagement is for the 23 financial years ended 31 December 2017. We have
fulfilled our ethical responsibilities under, and we remain independent of the
Group in accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit services
prohibited by that standard were provided.
93
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Independent auditor’s report to the members of
The Vitec Group plc only
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most
significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters,
in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required
for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the
context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental
to that opinion, and we do not provide a separate opinion on these matters.
The risk
Our response included the following audit procedures:
Net realisable value
of inventory
(Provision for
obsolescence included
as a deduction within
the carrying value of
£69.8 million; 2016:
£57.9 million)
Refer to note 3.3
of the financial
statements
Refer to page 65
(Audit Committee
Report) and page 119
(accounting policy and
financial disclosures)
Subjective estimate
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 estimation of the net
realisable value of, and the level of
provision held in relation to, inventory.
Our procedures included:
• Reperformance: 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;
• Our sector experience: Critically assessing whether appropriate
provisions have been established for slow-moving and obsolete items
based on our knowledge of the business and discontinued product lines;
• Tests of details: Comparing recent sales prices for a sample of inventory
items to their carrying values to identify carrying values in excess of sales
prices, and in such instances checking that a suitable provision was in place;
• Methodology implementation: Comparing the methodology and
assumptions used by the Group in calculating the inventory provisions to
those used in the prior years having first considered whether we would
expect a change to the methodology and assumptions to reflect changes
in the demand factors highlighted opposite;
• Historical comparisons: Assessing the historical accuracy of provisions
recorded by examining the utilisation or release of previously recorded
provisions; and
• Assessing transparency: Considering the adequacy of the Group’s
disclosures in relation to inventory.
Our results
We found the estimated net realisable value of inventory, and the related level
of provisioning, to be acceptable (2016 results: acceptable).
Tax provisioning
(Included within
Current Tax Liability
£4.4 million; 2016:
£8.1 million)
Refer to note 2.4 of the
financial statements
Refer to page 65
(Audit Committee
Report) and page 109
(accounting policy and
financial disclosures)
Recoverability of
parent company’s
investment in
subsidiaries
(£329.6 million; 2016:
£364.6 million)
Refer to note h of
the parent company
financial statements
94
Dispute outcome
Tax provisions require the Directors
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
disposals undertaken by the Group.
Our procedures included:
• Our tax expertise: Use of our own tax specialists to assess the Group’s
tax positions, its correspondence with the relevant tax authorities, and to
analyse and challenge the assumptions used to determine tax provisions
based on our knowledge and experiences of the application of the
international and local legislation by the relevant authorities and courts;
• Assessing transparency: Assessing the adequacy of the Group’s
disclosures in respect of tax and uncertain tax positions.
Our results
We found the level of tax provisioning to be acceptable (2016 results:
acceptable).
Low risk, high value
The carrying amount of the parent
company’s investments in subsidiaries
represents 83% (2016: 89%) of
the company’s total assets. Their
recoverability is not at a high risk of
significant misstatement or subject to
significant judgement, with only 2% of
investments supported by cash flow
forecasts (2016: 2%). The impairment
losses recognised during the year are
non-judgemental and relate to Group
reorganisation.
However, due to their materiality in the
context of the parent company financial
statements, this is considered to be the
area that had the greatest effect on our
overall parent company audit.
Our procedures included:
• Tests of detail: Comparing the carrying amount of a sample of the highest
value investments, representing 99% (2016: 99%) of the total investment
balance with the relevant subsidiaries’ draft balance sheet, that we tested,
to identify whether their net assets, being an approximation of their
minimum recoverable amount, were in excess of their carrying amount and
assessing whether those subsidiaries have historically been profit-making;
• Our sector experience: For the investments where the carrying amount
exceeded the net asset value, comparing the carrying amount of the
investment with the expected value of the business based on a suitable
cash flow forecast.
Our results
We found the Group’s assessment of the recoverability of the investment in
subsidiaries to be acceptable (2016 results: acceptable).
The Vitec Group plc During the audit we continued to perform procedures over the carrying value of goodwill. However, due to the disposal of the US broadcast services and Haigh
Farr CGUs during the year and the headroom on remaining CGUs, the inherent risk of material misstatement is considered to have reduced to the extent we
have not assessed this as one of the risks that had the greatest effect on our audit and therefore is not separately identified in our report this year. Restructuring
is no longer considered a key audit matter given the completion of the restructuring plan.
3. Our application of materiality and an overview of the
scope of our audit
Materiality for the Group financial statements as a whole was set at £1.45
million (2016: £1.45 million), determined with reference to a benchmark of
Group profit before tax from continuing operations normalised to take an
average of earnout costs for the last 3 years, of £28.9m, of which it
represents 5% (2016: 5% of Group profit before tax normalised to exclude
restructuring costs, impairment of goodwill and business acquisition charges,
of £29.5m).
Materiality for the parent company financial statements as a whole was set
at £0.4m (2016: £1.1m) by reference to component materiality. This is lower
than the materiality we would otherwise have determined by reference to
company net assets, and represents 0.1% (2016: 0.3%).
We agreed to report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £72,500 (2016: £72,500), in addition to
other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 52 (2016: 51) reporting components, we subjected 13 (2016:
19) to full scope audits for Group purposes and 5 (2016: 6) to specified
risk-focused audit procedures over inventory and revenue. The components
within the scope of our work accounted for the percentages of the Group’s
results as detailed in the table below.
having regard to the mix of size and risk profile of the Group across the
components. The work on 8 (2016: 7) of the 18 (2016: 25) components
was performed by component auditors and the rest, including the audit of
the parent company, was performed by the Group audit team. The Group
team performed procedures on the items excluded from normalised Group
profit before tax.
The Group audit team visited 14 (2016: 15) reporting components in the
following locations: UK, US and Italy. Telephone conference meetings were
also held with these component auditors and all 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.
4. We have nothing to report on going concern
We are required to report to you if:
• we have anything material to add or draw attention to in relation to the
directors’ statement in note 1 to the financial statements on the use of the
going concern basis of accounting with no material uncertainties that may
cast significant doubt over the Group and Company’s use of that basis for
a period of at least twelve months from the date of approval of the financial
statements; or
Group
revenue*
Group profit
before tax*
Group total
assets
• the related statement under the Listing Rules set out on page 92 is
materially inconsistent with our audit knowledge.
From continuing
operations
Audits for Group reporting
purposes
47%
62%
Specified risk-focused
audit procedures
From discontinued
operations
Audit
Specified risk-focused
audit procedures
Total
Total (2016)
26%
10%
-
6%
79%
76%
11%
1%
84%
82%
80%
14%
-
-
94%
86%
* Group revenue and profit before tax are from continuing and discontinued operations.
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 11% of total Group revenue,
16% of Group profit before tax and 6% of total Group assets is represented
by 34 reporting components, none of which individually represented more
than 5% of any of total Group revenue, Group profit before tax or total
Group assets. For these residual components, we performed analysis at
an aggregated Group level to re-examine our assessment that there were
no significant risks of material misstatement within these.
The Group audit team instructed component auditors as to the significant
areas to be covered, including the relevant risks detailed above and the
information to be reported back. The Group team approved the component
materialities, which ranged from £0.05m to £1.1m (2016: £0.2m to £0.8m),
We have nothing to report in these respects.
5. We have nothing to report on the other information in
the Annual Report
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic report and
the directors’ report;
• in our opinion the information given in those reports for the financial year
is consistent with the financial statements; and
• in our opinion those reports have been prepared in accordance with the
Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
95
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements Independent auditor’s report to the members of
The Vitec Group plc only
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit,
we have nothing material to add or draw attention to in relation to:
• the directors’ confirmation within the Directors’ Viability Statement on page
40 that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model,
future performance, solvency and liquidity;
• the principal risks disclosures describing these risks and explaining how
they are being managed and mitigated; and
• the directors’ explanation in the Directors’ Viability Statement of how they
have assessed the prospects of the Group, over what period they have
done so and why they considered that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the Directors’ Viability
Statement. We have nothing to report in this respect.
Corporate Governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the knowledge we
acquired during our financial statements 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 section of the Annual Report describing the work of the Audit Committee does
not appropriately address matters communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance Statement
does not properly disclose a departure from the eleven provisions of the UK
Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in
our opinion:
• adequate accounting records have not been kept by the parent Company,
or returns adequate for our audit have not been received from branches not
visited by us; or
• the parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
disclosing, as applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend to liquidate the
Group or the parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or other irregularities (see below), or error, and to issue our opinion in an
auditor’s report. Reasonable assurance is a high level of assurance, but does
not guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud, other irregularities or error and are considered material if, individually
or in aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities
Irregularities – ability to detect
Our audit aimed to detect non-compliance with relevant laws and regulations
(irregularities) that could have a material effect on the financial statements.
In planning and performing our audit we considered the impact of laws
and regulations in the specific areas of intellectual property legislation,
recognising the significance of this to the Group. We identified this area
through discussion with the directors and other management (as required by
auditing standards), and from inspection of the Group’s legal correspondence.
In addition we had regard to laws and regulations in other areas including
financial reporting, and company and taxation legislation.
We considered the extent of compliance with those laws and regulations that
directly affect the financial statements, being taxation legislation and financial
reporting (including related company legislation), as part of our procedures on
the related financial statement items. For the remaining laws and regulations,
we made enquiries of directors and other management (as required by
auditing standards) and inspected relevant legal correspondence.
We communicated identified laws and regulations throughout our team and
remained alert to any indications of non-compliance throughout the audit.
This included communication from the Group to component audit teams of
relevant laws and regulations identified at Group level, with a request to report
on any indications of potential existence of irregularities in these areas,
or other areas directly identified by the component team.
As with any audit, there remained a higher risk of non-detection of
irregularities, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
8. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members, as a body,
for our audit work, for this report, or for the opinions we have formed.
As explained more fully in their statement set out on page 92, the directors
are responsible for: the preparation of the financial statements including being
satisfied that they give a true and fair view; such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error; assessing
the Group and parent Company’s ability to continue as a going concern,
Adrian Wilcox (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London E14 5GL
21 February 2018
96
The Vitec Group plc Table of Contents
The notes are grouped under the following sections:
Primary Statements
Consolidated Income Statement ..............................................98
Consolidated Statement of Comprehensive Income .....................99
Consolidated Balance Sheet .................................................100
Consolidated Statement of Changes in Equity ........................101
Consolidated Statement of Cash Flows ..................................102
Section 1 - Basis of Preparation .................................... 103
Section 2 - Results for the Year ..................................... 105
2.1 Profit before tax
(including segmental information) ...................................105
2.2 Charges associated with acquisition of businesses,
impairment of goodwill and restructuring costs ................108
2.3 Net finance expense ......................................................108
2.4 Tax ................................................................................109
2.5 Earnings per share .........................................................114
Section 3 - Operating Assets and Liabilities ................. 115
3.1 Intangible assets ............................................................115
3.2 Property, plant and equipment ........................................117
3.3 Working capital ..............................................................119
3.4 Acquisitions ...................................................................121
3.5 Disposals and discontinued operations ............................125
3.6 Provisions .....................................................................126
Section 4 - Capital Structure .......................................... 128
4.1 Net debt ........................................................................128
4.2 Financial instruments .....................................................129
4.3 Share capital and reserves .............................................134
Section 5 - Other Supporting Notes .............................. 136
5.1 Employees.....................................................................136
5.2 Pensions .......................................................................136
5.3 Share-based payments ..................................................140
5.4 Leases ..........................................................................142
5.5 Related party transactions ..............................................142
5.6 Group investments .........................................................143
5.7 Subsequent events ........................................................143
The Vitec Group plc Company Financial Statements
Company Balance Sheet ......................................................144
Company Statement of Changes in Equity .............................145
Notes to the Company financial statements ...........................146
Glossary on Alternative Performance Measures ........... 150
Five Year Financial Summary ............................................. 151
Shareholder Information and Financial Calendar ........... 152
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.
97
Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Corporate Governance Financial Statements
Notes
2.1
2.1
2.1 / 2.2
2017
£m
353.3
(196.8)
156.5
(126.3)
2016
£m
318.9
(183.2)
135.7
(105.3)
2.1
30.2
30.4
2.2
2.2
2.3
2.2
2.2
2.4
3.5
2.5
2.5
45.2
(15.0)
-
30.2
(2.8)
27.4
42.4
(15.0)
-
27.4
(16.9)
10.5
17.0
27.5
23.4p
23.3p
61.4p
61.0p
1.14
1.29
41.4
(7.6)
(3.4)
30.4
(4.0)
26.4
37.4
(7.6)
(3.4)
26.4
(1.5)
24.9
(15.9)
9.0
55.9p
55.7p
20.2p
20.1p
1.22
1.35
Consolidated Income Statement
For the year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Comprising
- Adjusted operating profit
- Charges associated with acquisition of businesses
- Restructuring costs
Net finance expense
Profit before tax
Comprising
- Adjusted profit before tax
- Charges associated with acquisition of businesses
- Restructuring costs
Taxation
Profit from continuing operations
Profit/(loss) after tax from discontinued operations
Profit for the year attributable to owners of the parent
Earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
Earnings per share from continuing and discontinued operations
Basic earnings per share
Diluted earnings per share
Average exchange rates
Euro
US$
98
The Vitec Group plc
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit pension obligation
Related tax
Items that are or may be reclassified to profit or loss:
Foreign exchange gain recycled to the Income Statement on disposal of businesses
Currency translation differences on foreign currency subsidiaries
Net investment hedges - net gain/(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 (expense)/income, net of tax
Total comprehensive income for the year attributable to owners of the parent
2017
£m
27.5
0.6
(0.1)
(17.3)
(10.8)
2.7
3.3
2.5
(0.6)
(19.7)
7.8
2016
£m
9.0
(6.4)
1.0
-
37.7
(16.6)
0.8
(4.6)
0.9
12.8
21.8
99
Annual Report & Accounts 2017
Consolidated Balance Sheet
As at 31 December 2017
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Bank overdrafts
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 21 February 2018 and signed on its behalf by:
Kath Kearney-Croft
Group Finance Director
100
Notes
2017
£m
2016
£m
3.1
3.2
3.3
4.2
2.4
3.3
3.3
4.2
2.4
4.1
4.1
4.1
3.3
4.2
2.4
3.6
4.1
4.2
5.2
3.6
2.4
4.3
88.4
31.0
0.9
0.4
17.7
138.4
69.8
65.8
1.9
1.2
12.6
151.3
289.7
-
0.5
67.4
0.4
4.4
9.3
82.0
55.0
0.1
12.6
1.7
2.7
72.1
154.1
135.6
9.0
16.8
(8.6)
1.6
1.3
115.5
135.6
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
1.13
1.35
1.17
1.24
The Vitec Group plc
Consolidated Statement of Changes in Equity
Balance at 1 January 2017
Total comprehensive income for the year
Profit for the year
Other comprehensive (expense)/income for the year
Contributions by and distributions to owners
Dividends paid
Own shares purchased
Share-based payment charge
Tax on share-based payment charge
New shares issued
Balance at 31 December 2017
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
Tax on share-based payment charge
New shares issued
Balance at 31 December 2016
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Capital
redemption
reserve
£m
Cash flow
hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
9.0
15.4
16.8
1.6
(3.9)
100.9
139.8
-
-
-
-
-
-
-
9.0
8.9
-
-
-
-
-
-
0.1
9.0
-
-
-
(25.4)
-
-
-
-
1.4
16.8
14.3
-
-
-
-
-
-
1.1
15.4
-
-
-
-
-
(8.6)
(4.3)
-
21.1
-
-
-
-
-
16.8
-
-
-
-
-
-
-
1.6
1.6
-
-
-
-
-
-
-
1.6
-
5.2
-
-
-
-
-
1.3
27.5
0.5
(12.4)
(3.5)
2.2
0.3
-
115.5
27.5
(19.7)
(12.4)
(3.5)
2.2
0.3
1.4
135.6
(1.0)
106.8
126.3
-
(2.9)
-
-
-
-
-
(3.9)
9.0
(5.4)
(11.1)
(0.1)
1.6
0.1
-
100.9
9.0
12.8
(11.1)
(0.1)
1.6
0.1
1.2
139.8
101
Annual Report & Accounts 2017
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
Cash flows from operating activities
Profit for the year
Adjustments for:
Taxation
Depreciation
Amortisation of intangible assets
Impairment losses on property, plant and equipment
Impairment of intangible assets
Net gain on disposal of property, plant and equipment and software
Fair value (gains)/losses on derivative financial instruments
Share-based payment charge
Earnout, deferred payments and purchase price adjustment
Profit on disposal of businesses, before tax
Net finance expense
Operating profit before changes in working capital and provisions
(Increase)/decrease in inventories
Increase in receivables
Increase in payables
Increase/(decrease) in provisions
Cash generated from operating activities
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment and software
Purchase of property, plant and equipment
Capitalisation of software and development costs
Acquisition of businesses, net of cash acquired
Disposal of businesses
Cash outflow on previous disposal
Net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from the issue of shares
Own shares purchased
Repayment of interest-bearing loans and borrowings
Borrowings from interest-bearing loans and borrowings
Dividends paid
Net cash used in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
102
Notes
2017
£m
2016
£m
27.5
9.0
13.3
10.3
12.2
0.2
-
(0.7)
(0.6)
2.2
4.1
(15.0)
2.8
56.3
(9.9)
(5.6)
6.1
1.8
48.7
(2.6)
(11.0)
35.1
3.5
(10.8)
(4.3)
(12.4)
32.6
(0.2)
8.4
1.4
(3.5)
(144.5)
110.7
(12.4)
(48.3)
(4.8)
16.8
0.6
12.6
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)
(84.9)
71.3
(11.1)
(23.6)
(0.8)
12.5
5.1
16.8
3.5
3.4
3.5
3.5
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 2017 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.
In reporting financial information, the Group presents alternative performance
measures (“APMs”) which are not defined or specified under the requirements
of IFRS. The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide stakeholders with
additional helpful information to better reflect the underlying business and
enable more meaningful comparison over time. A glossary on page 150 provides
a comprehensive list of APMs that the Group uses, including an explanation of
how they are calculated, why they are used and how they can be reconciled
to a statutory measure where relevant.
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 £82.6 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 twelve months from the date of approval of the consolidated financial
statements. 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 accounts 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.
103
Annual Report & Accounts 2017 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
Judgement is applied to assess whether a trade receivable is recoverable or
not, and whether the level of provision required to write down the value of the
receivable to its recoverable amount is appropriate.
Judgement is applied to assess the level of provisions required to write down
slow-moving, excess and obsolete inventory to 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”.
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. Judgement is applied in relation
to the estimation of the provisional fair values and useful lives of acquired assets
and liabilities at the date of acquisition. Details concerning the acquisitions made
in the year are set out in note 3.4 “Acquisitions”.
Tax
The Group is subject to income taxes in a number of jurisdictions. Management
is required to make judgements and estimates in determining the provisions
for income taxes 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 9 “Financial Instruments” is effective from 1 January 2018. The initial
application of IFRS 9 is not expected to have a material impact on these results or
the Balance Sheet reported in the consolidated financial statements.
IFRS 15 “Revenue from Contracts with Customers” is effective from 1 January
2018. This standard requires the separation of performance obligations within
contracts with customers and the contractual value to be allocated to each of
the performance obligations. Revenue is then recognised as each performance
obligation is satisfied. This standard will replace existing revenue recognition
standards. The Group will apply the standard from the transition date using the
cumulative effect method. The Directors do not consider that the application
of IFRS 15 will have a material impact on these results or the Balance Sheet
reported in the consolidated financial statements. For the sale of goods, where
revenue is currently recognised when both the significant risks and rewards of
ownership have been transferred to the customer, and for the rental of assets,
where revenue is recognised over the duration of the rental contract on a straight
line basis at the amount billed to the customer, no adjustments are expected
under IFRS 15. For goods sold with a right to return, and service warranties
over an extended period, the adjustments are not material.
IFRS 16 “Leases” was revised on 13 January 2016 and is effective from
1 January 2019 and will require all leases to be recognised on the Balance
Sheet. Currently, IAS 17 “Leases” only requires those categorised as finance
leases to be recognised on the Balance Sheet, with leases categorised as
operating leases not recognised and expensed through the Income Statement.
The impact of IFRS 16 will be to recognise a lease liability and a corresponding
asset in the Balance Sheet for leases currently classified as operating leases.
The Directors are continuing to evaluate the full impact of the adoption of this
standard. The actual impact in the period of initial application will depend on
the composition of the Group’s lease portfolio at that date, the Group’s latest
assessment of whether it will exercise any lease renewal options and the extent
to which the Group chooses to use practical expedients and exemptions.
The Group expects to disclose its transition approach and quantitative
information before adoption.
Other standards
Other amended standards and interpretations are not expected to have
a significant impact on the Group’s consolidated financial statements.
104
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 Charges associated with acquisition of businesses, impairment of goodwill and restructuring costs
2.3 Net finance expense
2.4 Tax
2.5 Earnings per share
2.1 Profit before tax (including segmental information)
This shows the analysis of the Group’s profit before tax by reference to its three Divisions. Further segmental
information and an analysis of key operating expenses are also shown here.
Accounting policies
Revenue recognition
Revenue is stated exclusive of sales tax and consists of sales to third parties after an allowance for returns, trade discounts and volume rebates.
Revenue recognition policies for material revenue streams are detailed below.
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 typically on delivery when legal title transfers to the customer.
Revenue from the rental of assets is recognised over the duration of the rental contract, on a straight line basis, at the amount billed to the customer.
105
Annual Report & Accounts 2017
Section 2 – Results for the Year
2.1 Profit before tax (including segmental information)
Segment reporting
In the year, the Group reorganised its business into three Divisions (Imaging Solutions, Production Solutions and Creative Solutions) to reflect a changing customer base,
to enable the Group to adapt quickly to market and technological challenges, and to give greater focus to the fast-growing Independent Content Creator market. These
reportable segments reflect the internal reporting provided to the Chief Operating Decision Maker on a regular basis to assist in making decisions on capital allocated to
each segment and to assess performance. Further details on the nature of these segments and the products and services they provide are contained in the Strategic Report.
The US broadcast services business and the Haigh-Farr defence antennae business, both part of the previous Broadcast Division, have been classified as discontinued
operations in the current year. Their performance in this year and the comparative year is therefore part of discontinued operations as presented in note 3.5 “Disposals
and discontinued operations” and is excluded from segmental performances below.
From continuing operations:
Total revenue from external customers
Inter-segment revenue (3)
Total revenue
Adjusted operating profit
Earnout, deferred payments and purchase price adjustment
Transaction costs relating to acquisition of businesses
Integration costs
Amortisation of acquired intangible assets
Restructuring costs
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
Unallocated liabilities
Bank overdrafts
Interest-bearing loans and borrowings
Current tax liabilities
Deferred tax liabilities
Total liabilities
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Capital expenditure
Property, plant and equipment
Software and development costs
Imaging
Solutions (1)
Production
Solutions (2)
Creative
Solutions (2)
Corporate and
unallocated
Consolidated
2017
£m
2016
£m
2017
£m
2016
£m
2017
£m
2016
£m
2017
£m
2016
£m
2017
£m
2016
£m
175.9
0.6
176.5
151.4
0.6
152.0
114.2
1.0
115.2
121.6
1.1
122.7
29.9
-
(1.2)
(2.2)
(0.4)
-
25.2
0.1
(0.1)
-
(0.8)
(1.8)
15.2
-
-
-
(1.1)
-
16.3
0.2
-
-
(1.3)
(1.5)
63.2
0.2
63.4
13.0
(4.1)
(0.1)
-
(5.9)
-
45.9
-
45.9
9.5
(1.5)
(0.5)
-
(3.7)
(0.1)
-
(1.8)
(1.8)
(12.9)
-
-
-
-
-
-
(1.7)
(1.7)
(9.6)
-
-
-
-
-
26.1
22.6
14.1
13.7
2.9
3.7
(12.9)
(9.6)
353.3
-
353.3
318.9
-
318.9
45.2
(4.1)
(1.3)
(2.2)
(7.4)
-
30.2
(2.8)
(16.9)
10.5
41.4
(1.2)
(0.6)
-
(5.8)
(3.4)
30.4
(4.0)
(1.5)
24.9
124.9
94.8
87.6
88.3
41.4
45.0
4.3
1.5
258.2
229.6
44.6
31.3
31.0
26.9
7.2
5.9
8.7
10.8
91.5
74.9
12.6
1.2
17.7
17.1
0.7
26.6
12.6
1.2
17.7
289.7
17.1
0.7
26.6
274.0
-
55.5
4.4
2.7
0.3
91.9
8.1
2.4
-
55.5
4.4
2.7
154.1
0.3
91.9
8.1
2.4
177.6
13.8
(13.5)
-
23.3
(4.3)
-
19.5
(6.9)
-
24.5
(1.3)
-
11.7
(4.9)
-
6.3
(20.4)
-
(13.2)
-
(48.3)
(10.3)
(0.1)
(23.6)
31.8
(25.3)
(48.3)
43.8
(26.1)
(23.6)
4.2
2.0
2.6
1.5
4.9
1.6
2.9
1.1
0.2
0.6
0.7
0.4
-
-
-
0.1
9.3
4.2
6.2
3.1
(1) Imaging Solutions Division was previously called Photographic Division.
(2) Production Solutions and Creative Solutions Divisions were previously presented within the Broadcast Division.
(3) Inter-segment pricing is determined on an arm’s length basis.
One customer (2016: nil) accounted for more than 10% of external revenue. In 2017, the total revenue from this customer, which was recognised in all three segments, was £42.1 million.
106
The Vitec Group plc
Geographical segments
Continuing operations - 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
2017
£m
2016
£m
40.3
83.1
144.3
73.5
12.1
353.3
34.8
75.4
129.6
69.0
10.1
318.9
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
- Charges associated with acquisition of businesses (1)
- Restructuring costs (2)
- Other administrative expenses
Administrative expenses
Marketing, selling and distribution costs
Research, development and engineering costs
Total from continuing operations
- Amortisation of acquired intangible assets
- Impairment of goodwill
- Restructuring costs (2)
- Other administrative expenses
Administrative expenses
Marketing, selling and distribution costs
Total from discontinued operations
2017
£m
2016
£m
15.0
-
46.4
61.4
49.7
15.2
126.3
1.2
-
-
3.6
4.8
2.7
7.5
7.6
3.2
38.7
49.5
42.6
13.2
105.3
2.1
12.1
1.5
8.1
23.8
4.5
28.3
(1) See note 2.2 “Charges associated with acquisition of businesses, impairment of goodwill and restructuring costs”.
(2) In 2016, of the total £5.2 million restructuring costs (continuing operations: £3.4 million; discontinued operations: £1.8 million), £4.7 million (continuing operations: £3.2 million; discontinued
operations: £1.5 million) is included in operating expenses and £0.5 million (continuing operations: £0.2 million; discontinued operations: £0.3 million) in cost of sales.
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
2017
£m
2016
£m
0.2
0.1
0.5
0.1
0.4
0.2
107
Annual Report & Accounts 2017
Section 2 – Results for the Year
2.2 Charges associated with acquisition of businesses,
impairment of goodwill and restructuring costs
Charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, and material
non-operating events 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. Charges associated with acquisition of businesses include non-cash charges such as
amortisation of acquired intangible assets and cash charges such as transaction costs, earnout and deferred payments
and significant costs relating to the integration of acquired businesses. Restructuring costs comprise employment
termination and other site rationalisation costs.
From continuing operations:
Earnout, deferred payments and purchase price adjustment (1)
Transaction costs relating to acquisition of businesses (2)
Integration costs (3)
Amortisation of acquired intangible assets
Charges associated with acquisition of businesses
Restructuring costs
From discontinued operations:
Amortisation of acquired intangible assets
Impairment of goodwill
Restructuring costs
Total
2017
£m
2016
£m
(4.1)
(1.3)
(2.2)
(7.4)
(15.0)
-
(1.2)
-
-
(1.2)
(1.2)
(0.6)
-
(5.8)
(7.6)
(3.4)
(2.1)
(12.1)
(1.8)
(16.0)
(1) The charge of £4.1 million comprises an earnout payable of £3.9 million (US$5.0 million) in relation to Wooden Camera which was as a result of its performance for the year ending 31 December 2017,
and an amount of £0.2 million relating to RTMotion, as a result of certain non financial targets having been met in 2017. See note 3.6 “Provisions”.
(2) Transaction costs of £1.3 million (2016: £0.6 million) were incurred in relation to acquisitions in the year. See note 3.4 “Acquisitions”.
(3) Integration costs of £2.2 million relate to the integration of JOBY and Lowepro into the Group and mainly comprise employment termination costs and costs to terminate agreements with third party
distributors. See note 3.4 “Acquisitions”.
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:
- foreign exchange gains and losses on cash and inter company loans that are not net investment hedges;
- interest payable on borrowings and interest receivable on funds invested; and
- net interest expense on net defined benefit pension scheme.
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(1)
Net finance expense
(1) See note 5.2 “Pensions”.
108
2017
£m
2016
£m
0.1
0.4
(2.6)
(0.3)
(2.9)
(2.8)
(4.2)
(0.2)
(4.4)
(4.0)
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.
US Tax Reform
On 22 December 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act is complex and wide ranging and in these financial statements
the impact has been estimated and may be further refined as more clarity and guidance becomes available.
The legislation includes a reduction in the federal tax rate from 35% to 21% and also contains increased restrictions on the deductibility of interest expense.
As a consequence of these changes, the remeasurement of the deferred tax asset for both the change in tax rate and forecast utilisation of the deferred tax
asset has resulted in a one-off deferred tax charge of £7.9 million which is excluded from adjusted earnings.
The Group expects that the effective tax rate on adjusted profits will be reduced by two percentage points, from 27% to 25%, in 2018 as a result of the
reduction in federal tax rate.
109
Annual Report & Accounts 2017
Section 2 – Results for the Year
2.4 Tax
Tax - Income Statement
The total taxation charge/(credit) in the Income Statement is analysed as follows:
Summarised in the Income Statement as follows
Continuing operations
Current tax
Deferred tax
Discontinued operations
Current tax
Deferred tax
Continuing and discontinued operations
Current tax
Deferred tax
Charges associated with acquisition of businesses, impairment of goodwill,
restructuring costs, profit on disposal of businesses and material non-operating events
Continuing operations
Current tax (1)
Deferred tax (2)
Discontinued operations
Current tax (1)
Deferred tax (2)
Continuing and discontinued operations
Current tax (1)
Deferred tax (2)
Before charges associated with acquisition of businesses, impairment of goodwill,
restructuring costs, profit on disposal of businesses and material non-operating events
Continuing operations
Current tax
Deferred tax
Discontinued operations
Current tax
Deferred tax
Continuing and discontinued operations
Current tax
Deferred tax
2017
£m
2016
£m
6.2
10.7
16.9
0.4
(4.0)
(3.6)
6.6
6.7
13.3
(0.2)
6.3
6.1
0.4
(4.7)
(4.3)
0.2
1.6
1.8
6.4
4.4
10.8
-
0.7
0.7
6.4
5.1
11.5
8.4
(6.9)
1.5
-
-
-
8.4
(6.9)
1.5
(4.9)
(3.8)
(8.7)
-
-
-
(4.9)
(3.8)
(8.7)
13.3
(3.1)
10.2
-
-
-
13.3
(3.1)
10.2
(1) Current tax expense of £0.2 million (2016: £4.9 million credit) was recognised in the year of which £0.1 million credit (2016: £nil) relates to integration costs, £0.1 million credit (2016: £4.2 million
credit) to amortisation of intangible assets and £0.4 million (2016: £nil) to tax on the disposal of businesses.
(2) Deferred tax expense of £1.6 million (2016: £3.8 million credit) was recognised in the year of which £0.2 million credit (2016: £nil) relates to integration costs, £1.8 million credit (2016: £0.7
million credit) to acquisitions, £0.4 million (2016: £2.0 million credit) to amortisation of intangible assets, £4.7 million credit (2016: £nil) to the disposal of businesses and £7.9 million (2016: £nil)
to the impact of US tax reform.
110
The Vitec Group plc
Current tax expense/(credit)
Charge for the year
Adjustments in respect of prior years
Total current tax expense
2017
£m
2016
£m
6.8
(0.2)
6.6
8.9
(0.5)
8.4
The UK current tax charge represents a charge of £0.3 million (2016: £0.3 million) of the total Group current tax charge of £6.6 million (2016: £8.4 million),
with the remaining £6.3 million (2016: £8.1 million) charge relating to overseas tax.
Deferred tax expense/(credit)
Origination and reversal of temporary differences
Adjustments in respect of prior years
Total deferred tax credit
2017
£m
5.8
0.9
6.7
2016
£m
(6.2)
(0.7)
(6.9)
The UK deferred tax charge represents £nil (2016: £1.6 million credit) and the US deferred tax charge represents £6.4 million (2016: £5.3 million credit) of the total
Group deferred tax charge of £6.7 million (2016: £6.9 million credit), with £0.3 million (2016: £nil) relating to overseas tax. A reduction in the UK corporation tax rate
from 19% to 17% (effective 1 April 2020) 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 2017 has been calculated based on these rates.
The US deferred tax charge of £6.4 million includes a one-off exceptional charge of £7.9 million in relation to the remeasurement of deferred tax assets as a
consequence of the reduction in US federal tax rate (from 35% to 21%) enacted by the Tax Cuts and Jobs Act in the US on 22 December 2017.
Tax charge recognised 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 £0.3 million (2016: £0.1 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 19.25% (2016: 20%)
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Impact of US tax reform
Impact of tax losses not recognised
Movement in US unrecognised deferred tax
Other
Impact of tax credits in respect of prior years
Total income tax expense in Income Statement
2017
£m
-
0.3
0.3
2017
£m
40.8
7.8
(11.8)
12.7
7.9
(0.6)
(2.4)
(1.0)
0.7
13.3
2016
£m
-
0.1
0.1
2016
£m
10.5
2.1
(1.4)
1.5
-
(0.3)
-
0.8
(1.2)
1.5
111
Annual Report & Accounts 2017
Section 2 – Results for the Year
2.4 Tax
Tax - Balance Sheet
Current tax
The current tax liability of £4.4 million (2016: £8.1 million) represents the amount of income taxes payable in respect of current and prior periods, including a
provision in relation to uncertain tax positions. The current tax asset of £1.2 million (2016: £0.7 million) mainly relates to income tax receivable in the UK, the US,
Italy and France.
In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption in the UK controlled foreign company (“CFC”) rules.
The Group Financing Exemption was introduced into the UK tax legislation in 2013. In common with other UK based international companies whose arrangements
are in line with current CFC legislation, Vitec may be affected by the outcome of this investigation and continues to monitor developments. If the preliminary findings
of the European Commission’s investigation are upheld, Vitec calculates its maximum potential liability to be £6.3 million. The detailed arguments of the European
Commission are not yet available and it is unlikely that a decision will be made within the next 12 months. No provision has been made in the financial statements
as the outcome of the investigation cannot be determined at this time.
The international tax environment has received increased attention and seen rapid change over recent years, both at a US and European level, and by international
bodies such as the Organisation for Economic Cooperation and Development (“OECD”). In light of this, Vitec has been monitoring developments and continues to
engage transparently with the tax authorities in countries where Vitec operates, to ensure that the Group manages its tax arrangements on a sustainable basis.
As for most multinationals, the current tax environment is creating increased levels of uncertainty and 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
Property, plant, equipment & other
Intangible assets
Net
Assets
Inventories
Intangible assets
Tax value of loss carry-forwards recognised
Property, plant, equipment & other
Liabilities
Intangible assets
Net
112
Recognised Recognised
in goodwill
in
Exchange
income and reserves movements
£m
£m
£m
Transfer
between
categories
£m
2017
£m
3.7
0.4
7.8
5.8
17.7
0.7
0.9
2.1
(10.4)
(6.7)
(0.4)
(2.3)
(2.7)
15.0
-
-
-
(6.7)
-
(0.1)
-
0.3
0.2
(1.6)
(0.1)
(1.7)
(1.5)
-
(0.1)
(0.6)
(0.5)
(1.2)
-
0.2
0.2
(1.0)
-
-
-
(1.2)
(1.2)
1.2
-
1.2
-
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
0.2
(0.2)
1.0
1.9
2.9
(0.4)
2.5
Transfer
between
categories
£m
-
-
-
-
-
-
-
2016
£m
3.0
(0.3)
6.3
17.6
26.6
-
(2.4)
(2.4)
24.2
2015
£m
2.7
(3.0)
4.8
10.7
15.2
(2.1)
13.1
The Vitec Group plc
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
relating to cashflow hedges was an asset at 31 December 2016 and a liability at 31 December 2017.
The deferred tax credit of £1.5 million (2016: charge of £1.7 million) recognised in reserves relates to the following: £1.6 million credit recognised in the
Consolidated Statement of Comprehensive Income in relation to cashflow hedges, £0.1 million credit recognised in the Consolidated Statement of Comprehensive
Income in relation to defined benefit pension obligations and £0.3 million charge reflected in the Consolidated Statement of Changes in Equity in relation to share
options. There is also a £0.1 million credit reflected in goodwill in relation to the acquisition of RTMotion.
Deferred tax assets totalling £10.2 million (2016: £17.5 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. This also reflects a reduction in the level of deferred tax
assets by £7.9 million to reflect the changes introduced as part of US tax reform.
Deferred tax assets have not been recognised of £16.3 million, comprising £3.9 million in relation to losses, £2.3 million in relation to intangibles and £10.1 million
in relation to other timing differences (2016: £17.3 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 £54.2 million at 31 December 2017 (2016: £40.8 million).
As dividends remitted from overseas subsidiaries to the UK should be exempt from additional UK tax, no significant tax charges would be expected.
113
Annual Report & Accounts 2017 Section 2 – Results for the Year
2.5 Earnings per share
2.5 Earnings per share
Earnings per share (“EPS”) is the amount of post-tax profit attributable to each share.
Basic EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue
during the year.
Diluted EPS is calculated on the profit for the year divided by the weighted average number of ordinary shares in issue
during the year, but adjusted for the effects of dilutive share options. The key features of share option contracts are
described in note 5.3 “Share-based payments”.
The adjusted EPS measure is used by management to assess the underlying performance of the ongoing businesses,
and therefore excludes charges associated with acquisition of businesses, impairment of goodwill, restructuring costs,
material non-operating events and profit on disposal of businesses, all net of tax.
The calculation of basic, diluted and adjusted EPS is set out below:
Profit/(loss) for the financial year
Continuing operations
Discontinued operations
Add back charges associated with acquisition of businesses, impairment of goodwill, restructuring costs, material non-operating
events and profit on disposal of businesses, all net of tax
Continuing operations
Discontinued operations
2017
£m
10.5
17.0
27.5
21.1
(18.1)
3.0
31.6
(1.1)
30.5
2016
£m
24.9
(15.9)
9.0
2.3
16.0
18.3
27.2
0.1
27.3
Weighted average number
of shares ’000
Adjusted earnings
per share
Earnings per share
2017
Number
2016
Number
2017
pence
2016
pence
2017
pence
2016
pence
44,798
319
45,117
44,568
96
44,664
44,798
319
45,117
44,568
96
44,664
44,798
319
45,117
44,568
96
44,664
68.1
(0.5)
67.6
70.5
(0.5)
70.0
(2.4)
-
(2.4)
61.3
(0.1)
61.2
61.0
(0.1)
60.9
0.3
-
0.3
61.4
(0.4)
61.0
23.4
(0.1)
23.3
38.0
(0.3)
37.7
20.2
(0.1)
20.1
55.9
(0.2)
55.7
(35.7)
0.1
(35.6)
Adjusted profit after tax
Continuing operations
Discontinued operations
From continuing and discontinued operations
Basic
Dilutive potential ordinary shares
Diluted
From continuing operations
Basic
Dilutive potential ordinary shares
Diluted
From discontinued operations
Basic
Dilutive potential ordinary shares
Diluted
114
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 note 2.4 “Tax”.
On the following pages, there are disclosures covering
the following:
Other intangible assets
The 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:
3.1 Intangible assets
3.2 Property, plant and equipment
3.3 Working capital
3.4 Acquisitions
3.5 Disposals and discontinued operations
3.6 Provisions
3.1 Intangible assets
This shows the non-physical assets used by the Group
to generate revenues and profits. These assets include
the following:
- Goodwill
- Acquired intangible assets
- 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 consideration over the fair value 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.
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.
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 Group’s total consolidated goodwill of £58.0
million at 31 December 2017 is allocated to: Production Solutions: £28.9 million
(2016: £30.1 million); Imaging Solutions: £18.8 million (2016: £15.4 million); and
Creative Solutions: £10.3 million (2016: £10.3 million). Each CGU is assessed for
impairment annually and whenever there is a specific indication of impairment.
115
Annual Report & Accounts 2017
Section 3 – Operating Assets and Liabilities
3.1 Intangible assets
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.
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
2022 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 2022 are assumed to be 1.5% to 2.0% (2016:
1.0% to 2.0%), 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
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 17%
(2016: 13% to 15%) reflecting different geographies have been used for
impairment testing (13% (2016: 13%) applied to the Production Solutions CGU,
14% (2016: 13%) applied to the Imaging Solutions CGU and 17% (2016: 15%)
applied to the Creative Solutions CGU).
The following specific individual sensitivities of reasonable possible change have
been considered for each CGU in relation to the weighted average cost of capital
used in the value in use calculations, resulting in the carrying amount not
exceeding the recoverable amount for each CGU:
- a 10% increase in unlevered equity beta;
- a 1% increase in alpha;
- a 10% decrease in gearing;
- a 1% increase in the pre-tax cost of debt; and
- a 10% reduction in forecast cashflows over the next five years.
Intangible assets
Cost
At 1 January 2016
Currency translation adjustments
Additions
Disposals
Acquisitions
At 31 December 2016
At 1 January 2017
Currency translation adjustments
Additions
Disposals - on disposal of businesses (1)
Acquisitions (2)
At 31 December 2017
Amortisation and impairment losses
At 1 January 2016
Currency translation adjustment
Amortisation in the year
Impairment charge
Disposals
At 31 December 2016
At 1 January 2017
Currency translation adjustment
Amortisation in the year
Disposals - on disposal of businesses (1)
At 31 December 2017
Carrying amounts
At 1 January 2016
At 31 December 2016 and 1 January 2017
At 31 December 2017
(1) See note 3.5 “Disposals and discontinued operations”.
(2) See note 3.4 “Acquisitions”.
116
Total
£m
Goodwill
£m
Acquired
intangible
assets
£m
Capitalised
development
costs
£m
Software
£m
139.6
20.6
3.4
(0.2)
16.2
179.6
179.6
(8.6)
4.3
(39.6)
13.4
149.1
48.9
8.8
11.0
12.1
(0.2)
80.6
80.6
(3.7)
12.2
(28.4)
60.7
90.7
99.0
88.4
71.7
10.3
-
-
1.2
83.2
83.2
(4.3)
-
(25.4)
4.9
58.4
5.0
2.1
-
12.1
-
19.2
19.2
(1.1)
-
(17.7)
0.4
66.7
64.0
58.0
43.5
7.3
-
-
15.0
65.8
65.8
(4.1)
-
(12.4)
8.5
57.8
28.8
4.7
7.9
-
-
41.4
41.4
(2.5)
8.6
(9.3)
38.2
14.7
24.4
19.6
15.1
1.8
1.4
(0.2)
-
18.1
18.1
0.1
1.1
(1.8)
-
17.5
12.2
1.4
1.3
-
(0.2)
14.7
14.7
0.1
1.2
(1.4)
14.6
2.9
3.4
2.9
9.3
1.2
2.0
-
-
12.5
12.5
(0.3)
3.2
-
-
15.4
2.9
0.6
1.8
-
-
5.3
5.3
(0.2)
2.4
-
7.5
6.4
7.2
7.9
The Vitec Group plc
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.
Rental assets are recorded as plant and machinery.
Depreciation
Depreciation is provided to write off the cost of property, plant and equipment, less estimated residual value, on a straight line basis over their estimated useful lives.
The annual depreciation charge is sensitive to the estimated useful life of each asset and expected residual value at the end of its life. The major categories of property,
plant and equipment are depreciated as follows:
Freehold land
Freehold and long leasehold buildings
Leasehold improvements
Plant and machinery
Motor vehicles
Equipment, fixtures and fittings
Rental assets
not depreciated
up to 50 years
shorter of estimated useful life or remaining period of the lease
4 to 10 years
3 to 4 years
3 to 10 years
3 to 6 years
Impairment of assets
Property, plant and equipment that is subject to depreciation is reviewed for impairment when 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.
117
Annual Report & Accounts 2017
Section 3 – Operating Assets and Liabilities
3.2 Property, plant and equipment
Property, plant and equipment
Cost
At 1 January 2016
Currency translation adjustments
Transfers between asset categories
Additions
Disposals
Acquisitions
At 31 December 2016
At 1 January 2017
Currency translation adjustments
Additions
Disposals
Disposals - on disposal of businesses
Acquisitions
At 31 December 2017
Depreciation
At 1 January 2016
Currency translation adjustment
Transfers between asset categories
Depreciation charge in the year
Disposals
At 31 December 2016
At 1 January 2017
Currency translation adjustment
Impairment losses in the year
Depreciation charge in the year
Disposals
Disposals - on disposal of businesses
At 31 December 2017
Carrying amounts
At 1 January 2016
At 31 December 2016 and 1 January 2017
At 31 December 2017
Total
£m
139.0
22.3
-
13.4
(21.4)
0.1
153.4
153.4
(3.5)
10.8
(6.6)
(50.7)
0.4
103.8
85.2
13.8
-
15.3
(14.9)
99.4
99.4
(1.5)
0.2
10.3
(3.8)
(31.8)
72.8
53.8
54.0
31.0
Land machinery
and
vehicles
£m
and
buildings
£m
Plant, Equipment,
fixtures
and
fittings
£m
27.7
3.8
0.4
0.3
(6.8)
-
25.4
25.4
(0.2)
1.5
(1.7)
(0.7)
-
24.3
14.3
1.9
0.3
1.0
(4.1)
13.4
13.4
0.1
-
0.8
(0.5)
(0.6)
13.2
13.4
12.0
11.1
99.8
17.0
-
12.1
(13.0)
0.1
116.0
116.0
(3.0)
8.0
(4.7)
(47.7)
0.2
68.8
62.4
10.8
-
12.8
(9.2)
76.8
76.8
(1.4)
-
8.5
(3.1)
(29.3)
51.5
37.4
39.2
17.3
11.5
1.5
(0.4)
1.0
(1.6)
-
12.0
12.0
(0.3)
1.3
(0.2)
(2.3)
0.2
10.7
8.5
1.1
(0.3)
1.5
(1.6)
9.2
9.2
(0.2)
0.2
1.0
(0.2)
(1.9)
8.1
3.0
2.8
2.6
Plant, machinery and vehicles include equipment rental assets with an original cost of £8.4 million (2016: £56.8 million) and accumulated depreciation of £5.2 million
(2016: £32.1 million).
Capital commitments at 31 December 2017 for which no provision has been made in the accounts amount to £0.6 million (2016: £1.2 million).
118
The Vitec Group plc
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, accruals, 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
2017
£m
19.2
5.9
44.7
69.8
2016
£m
19.3
6.7
31.9
57.9
During the year £1.5 million (2016: £2.1 million) was recognised as an expense resulting from the write-down of inventory. Inventory of £3.8 million is carried at fair
value less costs to sell.
119
Annual Report & Accounts 2017
Section 3 – Operating Assets and Liabilities
3.3 Working Capital
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 2017
Net increase during the year
Utilised during the year
Currency translation adjustments
Balance at 31 December 2017
Trade and other payables
Current trade and other payables
Trade payables
Other tax and social security costs
Accruals
Other non-trade payables and deferred income
120
2017
£m
52.5
7.1
6.2
65.8
0.9
66.7
2017
£m
43.1
8.8
0.9
0.5
2.0
55.3
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
Total
£m
2.3
1.3
(0.7)
(0.1)
2.8
Overdue
debts
£m
Sales
returns and
discounts
£m
1.5
0.4
(0.1)
-
1.8
2017
£m
35.1
3.5
12.4
16.4
67.4
0.8
0.9
(0.6)
(0.1)
1.0
2016
£m
26.8
3.3
12.7
12.5
55.3
The Vitec Group plc
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.
A detailed exercise is undertaken to assess the fair value of assets acquired and liabilities assumed, with the use of third-
party experts where appropriate. The valuation of intangible assets requires the use of assumptions and estimates,
including future growth rates, expected inflation rates, discount rates used and useful economic lives.
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 JOBY and Lowepro
On 22 September 2017, the Imaging Solutions Division of the Group acquired the trade and certain assets (primarily comprising the JOBY and Lowepro brands)
of the DayMen Group S.a.r.l. including 100% of the share capital of the subsidiary companies in Hong Kong and China (“JOBY and Lowepro”), through a business
combination for a cash consideration of £8.4 million. The fair value of the net assets acquired was £4.4 million resulting in goodwill of £4.0 million.
JOBY and Lowepro products are designed and developed in Hong Kong and California respectively. JOBY’s patented GorillaPod has transformed the camera
accessories market while Lowepro has been a market leader in bags designed to protect electronic and photographic devices since its inception in 1967.
The acquisition is an excellent strategic fit with the Group’s existing core activities and gives the Group greater access to the fast growing iPhoneography
and vlogging consumer accessories market.
A summary of the effect of the acquisition of JOBY and Lowepro is detailed below:
value at
Book Provisional Fair value of
net assets
acquired
£m
fair value
acquisition adjustments
£m
£m
Net assets acquired
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Provisions
Goodwill
Consideration satisfied from existing cash resources
The trade receivables acquired had a fair value and a gross contractual value of £1.8 million.
-
0.4
7.5
4.7
(11.2)
-
1.4
7.4
-
(0.4)
(2.4)
0.1
(1.7)
3.0
7.4
0.4
7.1
2.3
(11.1)
(1.7)
4.4
4.0
8.4
121
Annual Report & Accounts 2017
Section 3 – Operating Assets and Liabilities
3.4 Acquisitions
Acquisition of RTMotion
On 20 September 2017, the Group acquired 100% of the issued share capital of RT Motion Systems Ltd (“RTMotion”), a private company based in the UK, for a cash
consideration of £2.5 million (£1.9 million net of cash acquired). The fair value of the net assets acquired was £1.6 million resulting in goodwill of £0.9 million.
Under the terms of the acquisition, there is a potential deferred payment of up to £1.2 million payable in cash. This is dependent on the achievement of non-financial
targets, including integration milestones, being met over the period to 31 December 2019 and is not contingent consideration. In 2017 an amount of £0.2 million
was provided for and charged to the Income Statement in relation to milestones met in 2017.
RTMotion is a high technology business which provides wireless motor lens control systems for broadcast, cine and video cameras. The acquisition complements the
Group’s existing activities in the expanding Independent Content Creator market and its products will be marketed through the Group’s global distribution network.
RTMotion operates within the Creative Solutions Division.
A summary of the effect of the acquisition of RTMotion is detailed below:
value at
Book Provisional Fair value of
net assets
acquired
£m
fair value
acquisition adjustments
£m
£m
Net assets acquired
Intangible assets
Inventories
Trade and other receivables
Trade and other payables
Cash
Deferred tax
Current tax
Goodwill
Consideration satisfied from existing cash resources
The trade receivables acquired had a fair value of £0.1 million and a gross contractual value of £0.3 million.
The results of the acquisitions made during the year comprise the following:
Revenue
Operating loss
-
0.1
0.1
(0.1)
0.6
-
(0.1)
0.6
1.1
-
-
-
-
(0.1)
-
1.0
1.1
0.1
0.1
(0.1)
0.6
(0.1)
(0.1)
1.6
0.9
2.5
JOBY and
Lowepro
£m
RTMotion
£m
12.6
(1.7)
0.3
-
Due to a material difference in the post-acquisition operating model of certain businesses, the Directors consider that it is impracticable to disclose the results
of the combined entity as though all the acquisitions were effected 1 January 2017.
The level of profitability is stated after integration costs and 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
Transaction costs
Payment into escrow to be released to vendors in 2019, subject to 2018 milestones being met
Cash acquired
Net cash outflow in respect of 2017 acquisitions
Cash paid in respect of contingent consideration for Wooden Camera (acquired in 2016)
Net cash outflow in respect of acquisitions (1)
2017
£m
10.9
1.3
0.5
(0.6)
12.1
1.6
13.7
(1) Of the £13.7 million net cash outflow in respect of acquisitions, transaction costs of £1.3 million are included in cash flows from operating activities and the remaining net cash outflow of
£12.4 million is included in cash flows from investing activities.
122
The Vitec Group plc
Acquisitions in 2016
Acquisition of Manfrotto Distribution Benelux (formerly Provak Foto Film Video B.V.)
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
Acquisition of Offhollywood
A summary of the effect of the acquisition of Offhollywood is detailed below:
Net assets acquired
Intangible assets
Trade and other payables
Goodwill
Consideration satisfied from existing cash resources
Acquisition of Wooden Camera
A summary of the effect of the acquisition of Wooden Camera is detailed below:
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
Book and fair
value of net
assets acquired
£m
0.2
0.4
(0.2)
0.4
0.5
0.9
Book
value at
acquisition
£m
Fair value
adjustments
£m
Fair value of
net assets
acquired
£m
-
(0.1)
(0.1)
1.6
-
1.6
1.6
(0.1)
1.5
-
1.5
Book
value at
acquisition
£m
Fair value
adjustments
£m
Fair value of
net assets
acquired
£m
-
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
123
Annual Report & Accounts 2017
Section 3 – Operating Assets and Liabilities
3.4 Acquisitions
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.
124
The Vitec Group plc
3.5 Disposals and discontinued operations
On 9 May 2017 the Group sold Haigh-Farr, Inc. (“Haigh-Farr”), a defence antennae business based in the US for a cash consideration of $15.8 million
(£12.2 million), of which $0.8 million (£0.6 million) is deferred for twelve months from disposal date. A profit of £3.2 million arose on disposal after taking into
account £0.5 million costs of disposal, £17.3 million net assets disposed and the previously recorded foreign exchange gain of £8.8 million that has been recycled
to the Income Statement.
On 1 August 2017 the Group sold its US broadcast services business based in the US for a net cash consideration of $32.1 million (£24.3 million). A profit of
£11.3 million arose on disposal after taking into account £2.8 million costs of disposal, £18.7 million net assets disposed and the previously recorded foreign
exchange gain of £8.5 million that has been recycled to the Income Statement.
The property lease of the IMT business which was disposed in 2014 came to an end in the year. At 31 December 2016 there was a provision of £0.7 million
in relation to onerous lease contracts and potential exit costs. The Group made a payment of £0.2 million and the remaining provision of £0.5 million was
released to the Income Statement.
Both Haigh-Farr and the US broadcast services business, which were included in the previous Broadcast Division, have been classified as discontinued operations
in the current year in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations”. The disposals enable management to place greater
focus on opportunities in its core activities.
The tables below show the results of the discontinued operations which are included in the Group Income Statement and Group Statement of Cash Flows respectively.
Income Statement - discontinued operations
Revenue
Expenses
Operating loss
Comprising
- Operating (loss)/profit before amortisation of acquired intangible assets, impairment of goodwill and restructuring costs
- Amortisation of acquired intangible assets
- Impairment of goodwill
- Restructuring costs
Taxation
Loss after tax from discontinued operations
Gain on disposal of discontinued operations before tax
Taxation
Gain on disposal of discontinued operations after tax
Profit/(loss) after tax from discontinued operations attributable to owners of parent
Statement of Cash Flows - discontinued operations
Net cash from operating activities
Net cash from/(used in) investing activities (1)
Net cash from discontinued operations
(1) 2017 includes net proceeds of £32.6 million from the disposal of businesses.
2017
£m
24.8
(26.4)
(1.6)
(0.4)
(1.2)
-
-
(1.6)
(0.7)
(2.3)
15.0
4.3
19.3
17.0
2017
£m
3.3
33.7
37.0
2016
£m
57.3
(73.2)
(15.9)
0.1
(2.1)
(12.1)
(1.8)
(15.9)
-
(15.9)
-
-
-
(15.9)
2016
£m
8.6
(3.5)
5.1
125
Annual Report & Accounts 2017
Section 3 – Operating Assets and Liabilities
3.6 Provisions
A provision is recognised by the Group where an obligation exists, relating to events in the past, and it is probable that an
outflow of economic benefits will be required to settle it.
Accounting policies
Provisions
Provisions are recognised in the Balance Sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that
an outflow of economic benefits will be required to settle it. If the effect is material, provisions are determined by discounting the expected future cash flows
at an appropriate discount rate.
Provisions for warranties, based on historical warranty data, are recognised when the underlying products or services are sold.
Obligations arising from restructuring plans are recognised when detailed formal plans have been established and the restructuring has either commenced or
has been announced.
Provisions for onerous contracts are recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected
to be received under it.
Total
£m
Warranty Restructuring
£m
£m
Onerous Earnout and
deferred
payments
£m
lease
and other
£m
6.0
9.2
(6.7)
(0.7)
1.8
1.7
(0.3)
11.0
9.3
1.7
11.0
1.2
1.0
(0.6)
(0.2)
-
-
-
1.4
1.0
0.4
1.4
1.5
-
(1.4)
-
-
-
-
0.1
0.1
-
0.1
1.7
4.1
(3.1)
(0.5)
1.8
1.7
(0.1)
5.6
4.3
1.3
5.6
1.6
4.1
(1.6)
-
-
-
(0.2)
3.9
3.9
-
3.9
At 1 January 2017
Charged to the Income Statement
Provisions utilised during the year
Provisions reversed during the year
Divestment of business
Acquisition of subsidiary undertaking
Currency translation adjustments
At 31 December 2017
Current
Non-current
126
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.
Onerous lease contracts and other
The onerous lease contracts provision of £0.1 million is in relation to non-cancellable leases on vacant property and a provision of £0.4 million relates to potential dilapidation
costs on the termination of leases on occupied property that the Group entered into in previous years.
The other provisions are in relation to costs associated with the integration of JOBY and Lowepro (£1.2 million), off-market contracts on the disposal of the US broadcast
services business (£1.2 million), fair value adjustments relating to acquisitions made in the year (£1.2 million), transfer of manufacturing from the US to Costa Rica
(£0.8 million) and severance and legal claims (£0.7 million).
Earnout and deferred payment
Of the £3.9 million earnout and deferred payment provision at 31 December 2017, £3.7 million (US$5.0 million) after currency translation adjustments is in respect
of Wooden Camera’s earnout (acquired in 2016) and £0.2 million in respect of RTMotion’s deferred payment. (See note 2.2 “Charges associated with acquisition of
businesses, impairment of goodwill and restructuring costs” and note 3.4 “Acquisitions”).
127
Annual Report & Accounts 2017
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 include bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management.
Interest-bearing loans and borrowings
Interest-bearing borrowings are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these transaction
costs are recognised in the Income Statement over the term of the related borrowings.
Analysis of net debt
The table below analyses the Group’s components of net debt and their movements in the year:
Decrease in cash and cash equivalents
Repayment of interest-bearing loans and borrowings
Borrowings from interest-bearing loans and borrowings
Decrease in net debt resulting from cash flows
Effect of exchange rate fluctuations on cash held
Effect of exchange rate fluctuations on debt held
Effect of exchange rate fluctuations on net debt
Movements in net debt in the year
Net debt at 1 January
Net debt at 31 December
Cash and cash equivalents in the Balance Sheet
Bank overdrafts
Cash and cash equivalents in the Statement of Cash Flows
Interest-bearing loans and borrowings
Net debt at 31 December
128
2017
£m
(4.8)
144.5
(110.7)
29.0
0.6
2.6
3.2
32.2
(75.1)
(42.9)
12.6
-
12.6
(55.5)
(42.9)
2016
£m
(0.8)
84.9
(71.3)
12.8
5.1
(16.7)
(11.6)
1.2
(76.3)
(75.1)
17.1
(0.3)
16.8
(91.9)
(75.1)
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). 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 adjusted operating profit for the year ended 31
December 2017 would have increased/decreased by approximately £1.6 million
from a ten cent stronger/weaker US Dollar against Sterling, by approximately £1.9
million from a ten cent stronger/weaker Euro against Sterling and by approximately
£0.4 million from a ten Yen stronger/weaker Japanese Yen against Sterling.
This reflects the impact of the sensitivities to the translational exposures and to
the proportion of the transactional exposures that is not hedged. The Group, in
accordance with its policy, does not use derivatives to manage translational risks.
During 2017 the Group’s operating profit included a net loss of £2.3 million (2016:
£5.0 million) in relation to the crystallisation of forward exchange contracts as
described later in this note.
It is estimated that the statutory operating profit for the year ended 31 December
2017 would have increased/decreased by approximately £0.7 million from a ten
cent stronger/weaker US Dollar against Sterling, by approximately £1.7 million
from a ten cent stronger/weaker Euro against Sterling and by approximately
£0.4 million from a ten Yen stronger/weaker Japanese Yen against Sterling.
Interest rate risk
Interest rate risk comprises the interest cash flow risk that results from borrowing
at variable rates.
For the year ended 31 December 2017, it is estimated that a general increase/
decrease of one percentage point in interest rates, would decrease/increase the
Group’s profit before tax by approximately £0.8 million.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial
obligations as they fall due.
In 2011, the Group drew down US$50 million from a Private Placement shelf
facility. This was repaid on 11 May 2017 funded by the Multicurrency Revolving
Credit Facility.
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 43% of the £125 million Multicurrency Revolving Credit Facility at
31 December 2017.
129
Annual Report & Accounts 2017
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 transactional exposure.
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 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.
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.
130
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
2017
millions
Average
exchange
rate of
contracts
As at 31
December
2016
millions
Average
exchange
rate of
contracts
9.0
25.2
17.6
508.8
946.6
1.30
1.14
1.15
143.0
123.7
17.1
42.3
25.9
769.1
1,233.4
1.37
1.13
1.25
159.2
124.1
Currency
USD
USD
EUR
JPY
JPY
A net loss of £2.3 million (2016: £5.0 million) relating to forward exchange contracts was reclassified to the Income Statement, to match the crystallisation
of the hedged forecast cash flows 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
Accruals
Fixed rate borrowings
Floating rate borrowings
Carrying
value
2017
£m
Fair value
2017
£m
2.3
(0.5)
12.6
52.5
(35.1)
(12.4)
(2.1)
(53.4)
(36.1)
2.3
(0.5)
12.6
52.5
(35.1)
(12.4)
(2.1)
(53.4)
(36.1)
Carrying
value
2016
£m
0.4
(6.0)
17.1
50.9
(26.8)
(12.7)
(43.0)
(49.2)
(69.3)
Fair value
2016
£m
0.4
(6.0)
17.1
50.9
(26.8)
(12.7)
(43.7)
(49.2)
(70.0)
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.
131
Annual Report & Accounts 2017
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
GB Pound
Euro
Japanese Yen
At 31 December 2017
US Dollar
Euro
Japanese Yen
At 31 December 2016
The floating rate borrowings comprise borrowings bearing interest at rates based on LIBOR.
Fixed rate Floating rate
Total borrowings borrowings
£m
£m
£m
21.4
30.0
2.1
2.0
55.5
73.7
16.4
2.1
92.2
-
-
2.1
-
2.1
40.5
2.5
-
43.0
21.4
30.0
-
2.0
53.4
33.2
13.9
2.1
49.2
132
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:
2017
Unsecured interest-bearing loans and borrowings
Trade payables
Forward exchange contracts
2016
Unsecured interest-bearing loans and borrowings including bank overdrafts
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
Total
contractual
cash flows
£m
(55.5)
(35.1)
(0.5)
(91.1)
(59.6)
(35.1)
(0.5)
(95.2)
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
(1.7)
(35.1)
(0.5)
(37.3)
Within
one year
£m
(43.3)
(26.8)
(4.9)
(75.0)
From two
to five
years
£m
(57.9)
-
-
(57.9)
From two
to five
years
£m
(51.8)
-
(1.1)
(52.9)
2017
£m
2016
£m
11.0
10.6
71.6
82.6
76.1
86.7
133
Annual Report & Accounts 2017
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 2017 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 2017
Exercise of share options
At 31 December 2017
Number of
shares
(thousands)
Nominal
value
£m
44,732
273
45,005
9.0
-
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 2017 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
290 484p-784p 2018-2022
803 484p-833p 2018-2021
1,093
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 2017 the Company Employee
Benefit Trust held 354,271 ordinary shares.
134
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 2017 of 10.4p (2016: 9.9p) per ordinary share
Proposed final dividend for the year ended 31 December 2017 of 20.1p (2016: 17.3p) per ordinary share
The aggregate amount of dividends paid in the year
Final dividend for the year ended 31 December 2016 of 17.3p (2015: 15.1p ) per ordinary share
Interim dividend for the year ended 31 December 2017 of 10.4p (2016: 9.9p) per ordinary share
2017
£m
4.7
9.0
13.7
7.7
4.7
12.4
2016
£m
4.4
7.7
12.1
6.7
4.4
11.1
The proposed final dividend for the year ended 31 December 2017 was recommended by the Directors. This is subject to approval by shareholders at the AGM
on Tuesday 15 May 2018 and, if approved, will be paid on Friday 18 May 2018. The dividend has not been included as a liability in these financial statements.
135
Annual Report & Accounts 2017
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
2017
£m
71.2
11.7
1.1
1.5
3.4
2.2
91.1
2016
£m
82.0
10.3
1.2
1.5
3.1
1.6
99.7
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
Discontinued operations
Imaging Solutions
Production Solutions
Creative Solutions
Head Office
5.2 Pensions
2017
Total
2016
Total
86
781
591
194
23
1,675
195
697
609
154
21
1,676
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.
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.
136
The Vitec Group plc
Defined contribution schemes
The total Income Statement charge of the defined contribution schemes for the year ended 31 December 2017 was £1.5 million (2016: £1.5 million).
There were no outstanding or prepaid contributions to these plans as at 31 December 2017 (or at 31 December 2016).
Defined benefit schemes
The Group’s defined benefit schemes are disclosed below:
Amounts recognised on the Group Balance Sheet
Plan assets
- Equities
- Bonds
- Other
Total fair value of plan assets
Present value of defined benefit obligation
Net deficit recognised in the Group Balance Sheet
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.
2017
£m
2016
£m
23.0
31.9
9.2
64.1
(76.7)
(12.6)
2017
£m
(8.4)
(4.2)
(12.6)
21.9
30.5
9.1
61.5
(74.5)
(13.0)
2016
£m
(8.8)
(4.2)
(13.0)
2017
£m
2016
£m
1.2
(0.1)
1.1
0.3
1.4
1.3
(0.1)
1.2
0.2
1.4
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 2018 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 investments 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.
137
Annual Report & Accounts 2017
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% point
Inflation increased by 0.1% point
Life expectancy increased by one year
2017
-2%
+1%
+3%
2016
-2%
+1%
+4%
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 2017
Life expectancy of male / female aged 65 in 2032
Pension increase rate (% pa)
- 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 on experience
Actuarial gain on demographic assumptions
Actuarial loss on financial assumptions
Actual benefit payments
Past service gains
Present value of DBO at end of year
2017
% pa
2016
% pa
3.1
2.1
3.2
2.2
22.5 / 24.4 22.5 / 24.6
23.3 / 25.3 23.5 / 25.7
3.0
3.0
3.2
2.1
2.4
2017
£m
70.3
1.8
0.3
(0.3)
2.3
(1.8)
(0.1)
72.5
3.1
3.1
3.3
2.1
2.6
2016
£m
57.3
2.1
0.4
(1.1)
14.2
(2.5)
(0.1)
70.3
At 31 December 2017, the weighted-average duration of the scheme’s DBO was 18 years (2016: 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)
Infrastructure
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
2017
£m
31.9
23.0
-
8.5
0.5
0.2
64.1
Quoted
split
%
Unquoted
split
%
100
77
-
-
-
-
-
23
-
100
100
100
Fair
value
2016
£m
30.5
21.9
8.5
-
0.3
0.3
61.5
138
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 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 due to liability experience
Actuarial loss due to liability assumption changes
Actuarial loss arising during the period
Return on scheme assets greater 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 (credit)/cost
2017
£m
61.5
1.6
2.9
(1.8)
(0.1)
64.1
2017
£m
(72.5)
64.1
(8.4)
2017
£m
(8.8)
(0.2)
0.6
(8.4)
2017
£m
0.1
(0.1)
-
0.2
0.2
2017
£m
0.3
2.0
2.3
(2.9)
(0.6)
2017
£m
0.1
(0.1)
0.2
(0.6)
(0.4)
2016
£m
54.8
2.0
7.4
(2.5)
(0.2)
61.5
2016
£m
(70.3)
61.5
(8.8)
2016
£m
(2.5)
(0.2)
(6.1)
(8.8)
2016
£m
0.2
(0.1)
0.1
0.1
0.2
2016
£m
0.4
13.1
13.5
(7.4)
6.1
2016
£m
0.2
(0.1)
0.1
6.1
6.3
139
Annual Report & Accounts 2017
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 2017 was £2.9 million
(2016: £1.9 million), of which £0.7 million (2016: £0.3 million) related to employers’ tax liability.
The outstanding employers’ tax liability recognised in the Balance Sheet for UK awards was £1.0 million (2016: £0.3 million).
Share options outstanding at the end of the period
Options outstanding under the 2002 UK Sharesave Scheme, 2002 International Sharesave Plan, 2011 UK Sharesave Scheme and 2011 International Sharesave Plan
as at 31 December 2017, together with their exercise prices and vesting periods, are as follows:
Number
outstanding
(thousands)
Weighted
average
Weighted
average
remaining
exercise contractual
life (years)
price (£)
512
142
439
1,093
4.89
5.15
8.02
6.18
2
1
3
2
Range of Exercise Prices
£4.51 - £5.00
£5.01 - £5.50
£7.50 - £8.50
Total
140
The Vitec Group plc
Movements in these share option plans were as follows:
Awards at 31 December 2015
Exercised during 2016
Lapsed during 2016
Granted during 2016
Awards at 31 December 2016
Exercised during 2017
Lapsed during 2017
Granted during 2017
Awards at 31 December 2017
Awards exercisable at 31 December 2017
The weighted average share price at the date of exercise for share options exercised during the year was £10.38 (2016: £5.99).
Weighted
average
Exercise
Price (£)
Sharesave
(thousands)
984
(238)
(131)
415
1,030
(273)
(103)
439
1,093
3
4.98
5.03
5.00
5.02
4.98
5.03
5.07
8.02
6.18
4.84
Arrangement
Nature of arrangement
Date of grant (1)
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 (2)
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
09 Oct 2017
09 Oct 2017
09 Oct 2017
28 Feb 2017/
15 May 2017
05 April 2017
163
£8.33
£10.86
2.3
2.1
265
£7.84
£10.86
3.6
3.3
11
£7.84
577
n/a
£10.86
£7.00 / £9.23
5.6
5.3
n/a
n/a
2 year
service period
and savings
requirement
3 year
service period
and savings
requirement
5 year
service period
and savings
requirement
Shares
22.0%
0.41%
2.6%
5%
Shares
22.0%
0.50%
2.6%
5%
Shares
22.0%
0.76%
2.6%
5%
Relative TSR
performance
against
comparator
group and
adjusted
EPS growth
Shares
22.5%
n/a
n/a
8%
n/a
80%
£7.00/£3.14
£9.23/£4.14 (3)
Black-Scholes Black-Scholes Black-Scholes Monte Carlo (4)
£2.83
£2.80
£2.45
n/a
n/a
24
n/a
£8.53
n/a
n/a
3 year
service
period
Shares
-
n/a
n/a
n/a
n/a
£8.53
n/a
(1) The 2017 LTIP awards were issued on 2 dates - 28 February 2017 and 15 May 2017.
(2) 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.
(3) As mentioned above, the 2017 LTIP awards were issued on 2 dates 28 February and 15 May 2017. The first figures (£7.00/£9.23) represents fair value of awards subject to adjusted EPS growth
criteria and the second figure (£3.14/£4.14) represents fair value of awards subject to TSR criteria.
(4) 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.
141
Annual Report & Accounts 2017
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
4.2
12.0
6.0
22.2
Other
£m
0.6
1.0
-
1.6
Total
2017
£m
Land and
buildings
£m
4.8
13.0
6.0
23.8
5.1
11.7
1.8
18.6
Other
£m
0.4
1.0
-
1.4
Total
2016
£m
5.5
12.7
1.8
20.0
During the year £4.5 million (2016: £5.0 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. This also shows the highest paid Director.
The compensation of the ten (2016: ten) members of the Operations Executive during the year, including the Executive Directors, is shown in the table below:
Salaries
Performance-related bonuses
Share-based payment charge (1)
Other short-term employee benefits
Post employment benefits
(1) IFRS 2 charge recognised in the Income Statement for share-based payment transactions with members of the Operations Executive.
2017
£m
2.5
2.3
1.1
0.2
0.3
2016
£m
1.7
1.5
0.6
0.2
0.3
142
The Vitec Group plc
5.6 Group investments
The Group’s subsidiaries at 31 December 2017 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, Inc.
Camera Corps Ltd
Camera Dynamics sarl
Chalfont Investments Inc.
Colorama Photodisplay Holdings Limited
DayMen Asia Limited
DayMen Dongguan Trading Co Limited
Gitzo Limited
Gitzo S.A.
JOBY Technology (Shenzhen) Co. 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 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
Country of
incorporation
England & Wales (1)
Netherlands (2)
England & Wales (1)
United States (3)
England & Wales (1)
England & Wales (1)
England & Wales (1)
United States (35)
England & Wales (1)
France (4)
United States (5)
England & Wales (1)
Hong Kong (32)
China (33)
England & Wales (1)
France (6)
China (34)
England & Wales (1)
Israel (8)
England & Wales (1)
Germany (9)
Italy (10)
England & Wales (1)
Israel (8)
Netherlands (11)
Germany (12)
Hong Kong (13)
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 US$0.01 each
Ordinary shares of £1 each
Ordinary shares of NPV
Ordinary shares of US$0.01 each
Ordinary shares of £1 each
Shares of HK$1 each
Ordinary share of HK$3,000,000 each
Ordinary share of £1 each
Ordinary shares of NPV
Ordinary share of RMB1,814,855 each
Ordinary shares of £1 each
Ordinary shares of ILS1 each
Ordinary shares of £1 each
Ordinary shares of e25,000
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 HK$1 each
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
The registered address is as follows:
(1) Bridge House, Heron Square, Richmond, TW9 1EN, United Kingdom
(2) Sint Lambertuslann 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) 272 Bath Street, Glasgow, Scotland, G2 4JR, United Kingdom
(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
(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
5.7 Subsequent events
There were no events after the Balance Sheet date that require disclosure.
Country of
incorporation
Ireland (19)
Company
Palmer Dollar Finance Luxembourg Investment Sarl Luxembourg (20)
Palmer Euro Finance Ireland Investment DAC
Palmer Euro Finance Luxembourg Investment Sarl Luxembourg (20)
Netherlands (21)
Palmer Euro Finance Netherlands B.V.
England & Wales (1)
Palmer Finance
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
Scotland (7)
RT Motion Systems Limited
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
Vitec Brasil Commercio Importacao e
Brazil (26)
Intermediacao de Tecnologias, Ltda
England & Wales (1)
Vitec Group Holdings Limited
Vitec Group Pensions Trust Company (UK) Limited England & Wales (1)
Vitec Group US Holdings, Inc.
Vitec Holdings Italia Srl
Vitec Holdings Limited
Vitec Imaging Distribution Inc.
(formerly Manfrotto Distribution Inc.)
Vitec Investments Limited
Vitec Videocom GmbH
Vitec Videocom KK
Vitec Videocom Limitada
Vitec Videocom Limited
Vitec Videocom Pte Limited
Vitec Videocom, Inc
Vitecgroup Italia spa
Wooden Camera, Inc
United States (14)
England & Wales (1)
Germany (9)
Japan (15)
Costa Rica (28)
England & Wales (1)
Singapore (29)
United States (5)
Italy (30)
United States (31)
United States (5)
Italy (10)
Guernsey (27)
Issued securities
Ordinary shares of US$1,000 each
Ordinary shares of e1 each
Ordinary shares of e1,000 each
Ordinary shares of e1 each
Ordinary 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 shares of £0.0167 each
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
Shares of BRL1 each
Ordinary shares of £1 each
Ordinary shares of £1 each
Ordinary shares of US$0.01 each
Ordinary share of e10,000 each
Ordinary shares of £0.10 each
Ordinary shares of NPV
Ordinary shares 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 shares of NPV
(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) Uspenskaya 2, Odessa, 65014, 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) Mont Crevelt House, Bulwer Avenue, St. Sampson, GY2 4LH, 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
(32) Unit 901-2, 9/F, Metroplaza Tower 2, No. 223 Hing Fong Road, Kwai Fong, N.T. Hong Kong
(33) No. 1101, Office Building, Block B, Zhixing Commercial Building, Banshi Village, Changping Town,
Dongguan City, Guangdong Province, China
(34) Suite 916, Office Tower, Shun Hing Square, Di Wang Commercial Centre, 5002 Shen Nan Dong Road,
Shenzhen, 518008, China
(35) Corporate Service Company, 251 Little Falls Drive, Wilmington, County of New Castle, DE, 19808, United States
143
Annual Report & Accounts 2017
Notes
2017
£m
2016
£m
f)
h)
i)
j)
j)
k)
l)
0.1
371.9
372.0
4.0
30.9
34.9
(6.8)
28.1
400.1
(53.7)
346.4
9.0
16.8
0.9
55.3
264.4
346.4
0.1
454.0
454.1
7.2
6.4
13.6
(52.8)
(39.2)
414.9
(100.0)
314.9
9.0
15.4
0.9
55.3
234.3
314.9
Company Balance Sheet
As at 31 December 2017
Fixed assets
Intangible assets
Investments in subsidiary undertakings
Current assets
Debtors
Cash at bank and in hand
Liabilities falling due within one year - creditors
Net current assets/(liabilities)
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 21 February 2018 and signed on its behalf:
Kath Kearney-Croft
Group Finance Director
The Vitec Group plc
Registered in England and Wales no. 227691
144
The Vitec Group plc
Company Statement of Changes in Equity
Balance at 1 January 2017
Total comprehensive income for the year
Profit for the year
Contributions by and distributions to owners
Dividends paid
Own shares purchased
Share-based payment charge, net of tax
New shares issued
Balance at 31 December 2017
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
Share
capital
£m
Share Revaluation
reserve
£m
premium
£m
Other
reserves
£m
Profit
and loss
account
£m
Total
equity
£m
9.0
15.4
0.9
55.3
234.3
314.9
-
-
-
-
-
9.0
8.9
-
-
-
0.1
9.0
-
-
-
-
1.4
16.8
14.3
-
-
-
1.1
15.4
-
-
-
-
-
0.9
0.9
-
-
-
-
0.9
-
43.5
43.5
-
-
-
-
55.3
55.3
(12.4)
(3.5)
2.5
-
264.4
(12.4)
(3.5)
2.5
1.4
346.4
229.9
309.3
-
13.9
13.9
-
-
-
55.3
(11.1)
1.6
-
234.3
(11.1)
1.6
1.2
314.9
145
Annual Report & Accounts 2017
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”).
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 IFRSs), 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 IFRSs; and
• 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; and
• 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.
Leasehold improvements
Equipment, fixtures and 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.
146
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”
3.6 “Provisions”
4.2 “Financial instruments”
4.1 “Net debt”
5.4 “Leases”
5.3 “Share-based payments”
4.3 “Share capital and reserves”
2017
£m
2016
£m
4.9
0.7
0.1
0.8
6.5
4.0
0.5
0.1
0.5
5.1
2017
23
2016
21
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 2017 and 31 December 2017
Accumulated amortisation
At 1 January 2017 and 31 December 2017
Net book value
At 31 December 2016 and 31 December 2017
Capitalised
software
£m
0.2
0.1
0.1
147
Annual Report & Accounts 2017
Notes to the Company Financial Statements
g) Property, plant and equipment
Cost
At 1 January 2017 and 31 December 2017
Accumulated depreciation
At 1 January 2017 and 31 December 2017
Net book value
At 31 December 2016 and 31 December 2017
Land and buildings
Total commitments under non-cancellable operating leases expiring:
Within one year
In two to five years
Leasehold
buildings
£m
0.5
0.5
-
2017
£m
2016
£m
0.2
0.5
0.7
0.2
0.7
0.9
During the year £0.2 million (2016: £0.2 million) was recognised as an expense in the profit and loss account in respect of operating lease payments.
h) Investments in subsidiary undertakings
Shares
in Group
Loans
to Group
Total undertakings undertakings
£m
£m
£m
Cost
At 1 January 2017
Additions/(repayments)
At 31 December 2017
Provisions
At 1 January 2017
Impairment losses
At 31 December 2017
Net book value
At 1 January 2017
At 31 December 2017
642.9
(44.0)
598.9
188.9
38.1
227.0
454.0
371.9
553.5
3.1
556.6
188.9
38.1
227.0
364.6
329.6
89.4
(47.1)
42.3
-
-
-
89.4
42.3
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 2017 are included in note 5.6 “Group investments” of the Group’s consolidated financial statements.
148
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
Amounts falling due after more than one year
Bank loans (unsecured)
Amounts owed to subsidiary undertakings
Contingent liabilities
There are no contingent liabilities at 31 December 2017 (2016: £nil).
2017
£m
2016
£m
1.2
1.7
1.1
4.0
1.4
5.5
0.3
7.2
2017
£m
2016
£m
-
0.8
1.7
0.4
0.1
3.8
6.8
53.4
0.3
53.7
40.5
3.5
5.5
0.2
-
3.1
52.8
48.9
51.1
100.0
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 70 to 90 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 reduction 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.
149
Annual Report & Accounts 2017
Glossary on Alternative Performance Measures (“APMs”)
APM
Income Statement Measures
Adjusted revenue
Adjusted operating profit
Closest equivalent
statutory measure
Revenue
Operating profit
Adjusted operating margin
Adjusted operating expenses
None
Operating expenses
Adjusted profit before tax
Profit before tax
Adjusted profit after tax
Profit after tax
Adjusted earnings per share
Earnings per share
Cash Flow Measures
Operating cash flow
Cash generated fro m
operating activities
Free cash flow
Net cash from operating activities
Other Measure
Return on capital employed
None
150
Definition and purpose
Revenue from continuing and discontinued operations.
Calculated as operating profit before charges associated with acquisition of businesses,
impairment of goodwill, restructuring costs and material non-operating events. These are
excluded from key performance measures in order to more accurately show the underlying
current business performance of the Group in a consistent manner.
See Consolidated Income Statement for reconciliation.
Calculated as adjusted operating profit divided by revenue.
Calculated as operating expenses before charges associated with acquisition of
businesses, impairment of goodwill, restructuring costs and material non-operating events.
The table below shows the reconciliation for continuing operations:
Operating Expenses
Charges associated with acquisition of businesses
Restructuring costs
Adjusted Operating Expenses
2017
£m
126.3
(15.0)
-
111.3
2016
£m
105.3
(7.6)
(3.2)
94.5
Calculated as profit before tax, before charges associated with acquisition of businesses,
impairment of goodwill, restructuring costs, profit on disposal of businesses and material
non-operating events. This is a measure used within the Group’s incentive plans as set out
in the Remuneration Report.
See Consolidated Income Statement for reconciliation.
Calculated as profit after tax, before charges associated with acquisition of businesses,
impairment of goodwill, restructuring costs, profit on disposal of businesses and material
non-operating events. See note 2.5 “Earnings per share”.
Calculated as adjusted profit after tax divided by the weighted average number
of ordinary shares in issue during the financial year.
This is a measure used within the Group’s incentive plans as set out in the
Remuneration Report.
See note 2.5 “Earnings per share”.
Cash generated from operating activities after proceeds from property, plant and
equipment and software, purchase of property, plant and equipment, and capitalisation of
software and development costs, and before payment of restructuring costs, transaction
costs relating to acquisition of businesses, and significant costs relating to integration of
acquired businesses.
Cash Generated from Operating Activities
Proceeds from sale of property, plant and equipment and software
Purchase of property, plant and equipment
Capitalisation of software and development costs
Payment of restructuring costs, transaction costs relating to acquisition
of businesses and significant costs relating to integration of
acquired businesses
Operating cash flow
2017
£m
48.7
3.5
(10.8)
(4.3)
2016
£m
64.8
9.0
(13.4)
(3.4)
3.3
40.4
7.4
64.4
This is a measure used within the Group’s incentive plans as set out in the
Remuneration Report.
Net cash from operating activities after proceeds from property, plant and equipment
and software, purchase of property, plant and equipment, and capitalisation of
software and development costs.
See “Five Year Financial Summary” on page 151.
Adjusted operating profit divided by average total assets less current liabilities excluding
the current portion of interest-bearing borrowings.
The Vitec Group plc
Five Year Financial Summary
As at 31 December 2017
Revenue
Adjusted operating profit
Net interest on interest-bearing loans and borrowings
Other financial (expense)/income
Adjusted profit before tax
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
Adjusted operating profit (%)
Adjusted effective tax rate (%)
Adjusted basic earnings per share (p)
Basic earnings per share (p)
Dividends per share (p)
Year end mid-market share price (p)
2017 (1)
£m
353.3
45.2
(2.6)
(0.2)
42.4
48.7
(2.6)
(11.0)
35.1
(11.6)
23.5
88.4
31.0
44.1
163.5
135.6
42.9
(15.0)
163.5
12.8
27.4
68.1
61.4
30.5
1,130.0
2016 (1)
£m
318.9
41.4
(4.2)
0.2
37.4
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
13.0
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
(1) Revenue, adjusted operating profit and adjusted profit before tax for 2017 and 2016 reflect continuing operations only. The US broadcast services business and the Haigh-Farr defence antennae
business, both part of the previous Broadcast Division, have been classified as discontinued operations in these years. See note 3.5 “Disposals and discontinued operations”.
151
Annual Report & Accounts 2017
Shareholder Information and Financial Calendar
Financial calendar
Ex-dividend date for 2017 final dividend
Thursday, 19 April 2018
Record date for 2017 final dividend
Friday, 20 April 2018
Annual General Meeting
Tuesday, 15 May 2018 (11.00am)
2017 final dividend payment date
Friday, 18 May 2018
Announcement of 2018 half year results
Thursday, 9 August 2018
Proposed 2018 interim dividend payment date
October 2018
Analysis of shareholdings as at 31 December 2017
Shares held
Up to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Institutions
and companies
Individuals including
Directors and their
families
Number
of holders
%
of holders
Number
of shares
%
of shares
452
234
41
56
17
45
845
53.50
27.70
4.86
6.62
2.00
5.32
100
164,172
560,007
303,915
1,388,959
1,175,260
41,412,539
45,004,852
0.36
1.24
0.68
3.08
2.61
92.03
100
274
32.40
43,310,990
96.23
571
845
67.60
1,693,862
100
45,004,852
3.77
100
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 the Company’s
registrar:
Link Asset Services
Website
Email
Address
https://www.signalshares.com
shareholderenquiries@linkgroup.co.uk
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. Link 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 Link Asset Services. You must arrange for your
Dividend Reinvestment Plan application form to be received by Link Asset
Services no later than Monday, 23 April 2018 to join the Plan for the final
dividend for the year ended 31 December 2017.
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://ips.linkassetservices.com.
Any election to receive dividends in local currency in respect of the final dividend
for the year ended 31 December 2017 must be received by Link Asset Services no
later than the record date for the final dividend, Friday, 20 April 2018.
Share price information
The closing mid-market price of a share of The Vitec Group plc on 29 December
2017, the last trading day of the year, was £11.30. During the year, the share
price fluctuated between £6.40 and £11.47. 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/scams,
or via their consumer helpline: 0800 111 6768.
152
The Vitec Group plc
Contents
Strategic Report
02 Chairman’s Welcome
03 Highlights
04 Vitec Group Overview
06 Group Chief Executive’s Review
11 Our products and solutions
12 Market trends
14 Our customers
16 Our people
17 Our Operations Executive
18 Operational Review - Vitec Imaging Solutions
22 Operational Review - Vitec Production Solutions
26 Operational Review - Vitec Creative Solutions
30 Our Business Model
32 Progress on our Strategic Priorities
34 Principal Risks and Uncertainties
36 Financial Review
41 Key Performance Indicators
Corporate Responsibility
42 Commitment to Sustainable Business
43 Business Ethics
44 Employee Engagement
48 Community & Economic Contribution
50 Environmental Sustainability
Corporate Governance
52 Board of Directors
54 Chairman’s Report
65 Audit Committee Report
70
Remuneration Committee Chairman
Statement
72 Remuneration Policy Report
78 Annual Report on Remuneration
91 Directors’ Report
93
Independent auditor’s report
Financial Statements
97 Table of Contents
98 Primary Statements
103 Section 1 - Basis of Preparation
105 Section 2 - Results for the Year
115 Section 3 - Operating Assets and Liabilities
128 Section 4 - Capital Structure
136 Section 5 - Other Supporting Notes
144 Company Financial Statements
150 Alternative Performance Measures
151 Five Year Financial Summary
152 Shareholder Information and
Financial Calendar
Capture.
Share.
Vitec is a leading global provider of
premium branded products and solutions
to the fast changing and growing
“image capture and sharing” market.
Customers include broadcasters,
independent content creators,
photographers and enterprises.
We design, manufacture and distribute
high performance products and solutions
including camera supports, camera
mounted electronic accessories, robotic
camera systems, prompters, LED lights,
mobile power, monitors and bags.
We employ around 1,700 people across
the world in ten different countries
and are organised in three Divisions:
Imaging Solutions, Production Solutions
and Creative Solutions.
Designed and produced by Design Motive Ltd
Printed and bound in the UK by CPI Colour Ltd
The Vitec Group plc
Annual Report & Accounts 2017
T
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e
V
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1
7
Enabling the
capture and
sharing of
exceptional
images
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
Front cover image captured by:
Alex Krause, Vitec Production Solutions,
on location in Seljalandsfoss, Iceland