Annual Report • Mar 23, 2022
Annual Report
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The Vitec Group plc Annual Report and Accounts 2021
| Strategic Report | |
|---|---|
| 2021 financial highlights | 01 |
| Business model | |
| Our Divisions, customers and brands | 02 |
| Our global footprint | 04 |
| Core competencies | 05 |
| Section 172(1) statement | |
| and our stakeholders | 06 |
| Market opportunity | 10 |
| Chairman's welcome | 12 |
| CEO's review | 14 |
| Operational review Imaging Solutions |
20 |
| Production Solutions | 24 |
| Creative Solutions | 28 |
| Financial review | 32 |
| Key Performance Indicators | 35 |
| Principal risks and uncertainties | 36 |
| Responsible business | |
| A snapshot of ESG | 42 |
| ESG governance | 44 |
| ESG targets | 46 |
| Vitec's pathway to net zero | 50 |
| Task Force on Climate-related Financial Disclosures report ("TCFD") |
52 |
| Environment | 60 |
| People | 63 |
| Giving back | 68 |
| Responsible practices | 71 |
| Non-Financial Information Statement | 73 |
| Corporate Governance | |
| Chairman's statement | 74 |
| A snapshot of governance | 76 |
| Leadership and Company purpose | 78 |
| Key Board activities in 2021 | 84 |
| Division of responsibilities | 92 |
| Composition, succession and evaluation | 95 |
| Nominations Committee report | 95 |
| Audit, risk and internal control | 100 |
| Audit Committee report | 100 |
| Remuneration report | 106 |
| Remuneration Policy report | 110 |
| Directors' report | 136 |
| Independent auditor's report | 139 |
| Financial Statements | |
| Introduction and table of contents | 146 |
| Primary statements | 147 |
| Section 1 – Basis of Preparation | 152 |
| Section 2 – Results for the Year | 155 |
| Section 3 – Operating Assets and Liabilities | 164 |
| Section 4 – Capital Structure | 175 |
| Section 5 – Other Supporting Notes | 183 |
| Company Financial Statements | 193 |
| Glossary of Alternative Performance Measures |
201 |
| Five Year Financial Summary | 204 |
| Shareholder Information | |
| and Financial Calendar | ibc |
Our customers include broadcasters, film studios, production and rental companies, photographers, independent content creators ("ICCs"), vloggers, influencers, gamers, professional sound crews and enterprises.
We design, manufacture and distribute highperformance products and solutions, including camera supports, video transmission systems and monitors, live streaming solutions, smartphone accessories, robotic camera systems, prompters, LED lighting, mobile power, bags, backgrounds and motion control, audio capture and noise reduction equipment.
We employ around 2,000 people in 11 different countries and are organised in three Divisions: Imaging Solutions, Production Solutions and Creative Solutions.
View our reports and presentations online Image: Philip Thurston vitecgroup.com
| Revenue £394.3m Up 36% 2021 £394.3m 2020 £290.5m 2019 £376.1m |
Adjusted operating profit* £46.2m Up 367% 2021 £46.2m 2020 £9.9m 2019 £52.4m |
Statutory operating profit £33.5m Up £36.8m |
Recommended final dividend per share 24.0p Up 433% |
|---|---|---|---|
| Net debt* £145.2m 2021 £145.2m 2020 £90.8m |
Adjusted operating margin* 11.7% Up 830 bps |
Statutory operating margin 8.5% Up 960 bps |
Interim dividend per share 11.0p |
| 2019 £96.0m * In addition to statutory reporting this report provides Alternative Performance Measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to aid the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary on pages 201 to 203. |
Adjusted basic earnings per share* 69.9p 2021 69.9p 2020 9.0p 2019 80.6p |
Basic earnings per share 56.4p Up 68p |
Recommended total dividend per share 35.0p Up 678% |
Organic growth driven by technology advancement and the Group's exposure to strong market growth drivers; Vitec expected to grow high single digit vs low single digit pre-pandemic
On track towards mid-teen adjusted operating margin*with continued strong cash conversion*, as volumes grow and we deliver operating leverage
(1) Underlying increases exclude the Olympics in 2021 and is on an organic, constant currency basis.
Our portfolio of market-leading brands encompasses a variety of technologies – from traditional mechanically engineered products through to electronics and software – designed and engineered to ensure that, whatever the conditions, the content creator has the best equipment to capture the moment.
We sell our products globally via multiple distribution channels, our own sales teams, and through e-commerce via our own and third-party websites.
Professional or amateur photographer, videographer or professional sound crew
Professional or amateur influencer, vlogger or gamer creating and sharing their video and audio content on social media platforms like TikTok, YouTube, Instagram and Twitch
Film or production company or ICC making content for feature films and scripted TV shows to share in cinemas or on subscription channels like Netflix, Amazon Prime Video, Apple TV+ and Disney+
TV broadcaster, production company or ICC producing video and audio content for TV programmes, news or live sports events
Enterprise, government, healthcare provider, education establishment or church, creating video and audio content to stream live or pre-recorded to their employees, customers and communities
Our brands are leaders in the markets we serve, both in terms of premium products and market share. Our products typically attach to, or support, a camera – primarily for broadcast, cinematic, video, photographic, audio and smartphone applications – and are offered as a cohesive package.
− Teradek
− Teradek
− JOBY
− Teradek
Monitors
Vitec's Imaging Solutions Division designs, manufactures and distributes premium branded equipment for photographic/video cameras and smartphones, and provides dedicated solutions to professional and amateur photographers/videographers, ICCs, vloggers/influencers, gamers, enterprises and professional sound crews. This includes camera supports and heads, smartphone accessories, lighting supports, LED lighting, lighting controls, motion control, audio capture and noise reduction equipment, camera bags and backgrounds.
£194.7m Revenue: up 24.3%
Vitec's Production Solutions Division designs, manufactures and distributes premium branded and technically advanced products and solutions for broadcasters, film and video production companies, ICCs and enterprises. Products include video heads, tripods, LED lighting, prompters, robotic camera systems and mobile power solutions. It also supplies premium services including equipment rental and technical solutions.
£121.8m Revenue: up 52.1%
Vitec's Creative Solutions Division develops, manufactures and distributes premium branded products and solutions for film and video production companies, ICCs, gamers, enterprises and broadcasters. Products include wireless video transmission and lens control systems, monitors, camera accessories, live streaming solutions and software applications.
Read more p20 Read more p24 Read more p28
£77.8m Revenue: up 44.9%
I have been working in the Italian plant for 11 years where I've seen exceptional evolution. In recent years I've been part of the lean transformation of the plant and have seen the productivity gains that come from lean.
Massimiliano Maccagnan Plant Director, Vitec Imaging Solutions, Italy
Vitec's clear strategy, simple structure and entrepreneurial culture allows us to adapt quickly to change, constantly innovating to make our products the best in the world.
Our people are key to Vitec. Their attitude and abilities, experience and market knowledge, talent and commitment create a culture that supports product excellence, creativity and integrity.
The Group has a decentralised structure with three Divisions, which allows us to react quickly to customer, market and technological changes. This, together with our entrepreneurial culture, enables focused decision-making and minimised bureaucracy.
We work across the Group to ensure that we have consistent policies and processes in place to acquire, engage and retain our best talent. We are a responsible business, focusing on supporting the communities we operate in and further reducing our impact on the environment.
Throughout the pandemic, our priority has been to protect the health and wellbeing of our people and to ensure a safe working environment so our operations can continue. We have comprehensive operating guidelines and internal communication plans to inform, reassure and retain the trust of our employees, and we work with our manufacturing teams to ensure stringent health and safety protocols.
Read more p63
We have a clear purpose that is founded on a set of core values that form the Vitec Mindset: "Enabling the capture and sharing of exceptional content".
We set the highest standards of technical performance
We are nothing without our customers
We apply our creativity and harness our diversity to engineer innovative new products and solutions
We share knowledge, pool resources, test ideas and learn from each other
We hold to the highest professional and corporate standards
Designing innovative solutions to make our customers' lives easier is what drives us.
For a business like Vitec, intelligent and sustained investment in new products, technologies, markets and people enables us to ensure that our brands remain at the forefront of the industry, renowned for their premium offerings and innovative technology.
We continually obtain customer feedback on market trends, competitors and their products, as well as from research.
Our experienced, specialist engineers apply new technologies, products and materials to develop high-quality, high-performance solutions. Vitec takes product quality and customer safety very seriously and our products are manufactured to the highest standards and rigorously tested. We are integrating sustainable product development into our brand strategies using a "cradle-tograve" life cycle assessment. This includes evaluating raw materials, manufacturing processes, waste, packaging and distribution, and end-of-life.
Our innovative products are protected by patents and trademarks, and marketed under our world-renowned brands.
We manufacture the majority of our products in-house and work with selected, market-leading partners for specialist solutions. We supplement in-house new product development with carefully selected acquisitions or partnerships in new markets and technologies.
Focused on safety, quality, efficiency, sustainability, cost and on-time delivery, sourcing and manufacturing excellence is one of Vitec's core competitive strengths. Our three major manufacturing sites in the UK, Italy and Costa Rica are all certified ISO 9001 for Quality Management, ISO 14001 for Environmental Management and ISO 45001 for Health & Safety.
Our supply chain is efficient and our people highly trained and multi-skilled. We procure materials from reputable suppliers and make our products in efficient and environmentally-friendly operations and, where appropriate, manufacture or source from lower-cost countries such as Costa Rica.
The majority of our operations are relatively low-volume, small-batch processes and our continuous improvement culture enables us to optimise our global operations and implement lean manufacturing and automation to maximise quality, service and efficiency, while reducing costs. Most of our factories are vertically integrated which means we produce many of our components in-house.
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, retailers and e-tailers who sell on to customers. The breadth of our product portfolio and our strong brand heritage means that our network of channel partners is unrivalled in the markets we serve.
We continue to expand our growing digital and e-commerce capabilities, working closely with our customers and suppliers to develop our online presence.
We engage with a number of leading logistics partners to ensure responsive and timely delivery of our products to the relevant geography, and remain conscious of the impact of our distribution channels on the environment.
Our experienced teams, clear strategy, premium brands, efficient supply chain and global distribution enable us to deliver long-term value to our shareholders, outstanding products and service to our customers, and rewarding careers for our people.
The Board of The Vitec Group plc confirms that during the year it has acted in good faith to promote the long-term success of the Company for the benefit of its key stakeholders who have been identified as its shareholders, employees, customers, suppliers and the communities and environments in which we operate, all while having due regard to the matters set out under section 172(1)(a) to (f) of the Companies Act 2006.
Further details on stakeholder engagement and Section 172(1) matters can be found throughout our Annual Report as follows:
| Page | |
|---|---|
| Purpose and values | 80 |
| Business model | 2 |
| Our strategy and market trends analysis | 10 |
| Dividends | 34 |
| Page | |
|---|---|
| Customer engagement | 7 |
| Supplier engagement and relationships | 7 |
| Anti-bribery and corruption and modern slavery | 72 |
| Page | |
|---|---|
| Values and culture at Vitec | 80 |
| Whistleblowing | 72 |
| Compliance with our policies | 72, 88 |
| Page | |
|---|---|
| People | 8, 63 |
| Employee engagement | 64, 87 |
| Employee health and wellbeing | 65 |
| Diversity and inclusion | 65, 96 |
D
B
| Giving back | 9, 68 |
|---|---|
| Page | |
|---|---|
| Shareholder engagement | 9, 86 |
| AGM | 138 |
| Shareholder rights | 136 |
Examples of major decisions considered by the Board in 2021 and how the Board considered Section 172(1) matters when reviewing them are outlined as follows:
In 2021, as part of the Group's enhanced ESG reporting practices, Vitec set itself clear targets which would have a positive contribution to the Company's long-term success and sustainability. Working closely with a specialist ESG consultancy, we have enhanced our ESG strategy, improved our reporting practices by collecting detailed data and we will be publishing our first standalone ESG report in April 2022.
Our ESG strategy is informed by both mandatory and voluntary ESG disclosures, such as the Streamlined Energy and Carbon Reporting ("SECR"), the Task Force on Climate-Related Financial Disclosures ("TCFD") and by aligning our net zero carbon strategy with the Science-Based Targets Initiative ("SBTi"). The latter demonstrates our commitment to the UK's Nationally Determined Contribution ("NDC") 2020 under the Paris Agreement 2015 to limit global warming to 1.5°C.
As well as the clear benefits to the environment, the Board noted that ESG matters have become increasingly important to all the Group's stakeholders. The Group's customers are also increasingly interested in energy saving and recycling, and ensuring products and packaging are sustainable. Our employees want reassurance that they are working for a responsible business and our shareholders seek better transparency on climate-related risks and any mitigation plans. The Board concluded that the improved ESG programme and initiatives would be a clear benefit to the Group and its stakeholders.
See pages 42 to 72 for more information in the Group's report on Responsible business.
The 2020 dividend was cancelled by the Board due to the pandemic and the uncertainty it brought to the business. However, in 2021, due to a strong recovery from the pandemic across all Divisions, the Board considered it appropriate that payment of dividends be resumed from May 2021. The Board reviewed the affordability of reinstating the dividend, the cost base of the business to ensure it remained aligned with performance and protecting R&D investment to be able to take advantage of growth opportunities as markets reopened.
In 2020, the Group accessed government furlough schemes to protect the long-term capabilities of the business and also took advantage of the UK Government's COVID Corporate Finance Facility ("CCFF") in response to the pandemic. The CCFF and furlough money were both repaid in early 2021 since the Board was satisfied that the recovery of the business from the pandemic in 2021 was sufficient to repay these funds. The Board considered its employees, customers and shareholders in making these key decisions as they all have a vested interest in the financial health of the Company.
The major decisions taken by the Board during the year can be found on pages 90 and 91.
Our success is dependent on our ability to understand and respond to our customers' needs, which include broadcasters, film studios, photographers, ICCs, vloggers, influencers, gamers, professional sound crews and enterprises.
| Material issues for our customers |
— Business continuity during COVID-19 — High-quality, high-performance products and services to enable them to capture and share exceptional content — Supply chain management – product availability and on-time delivery — Protecting their brand reputation |
|---|---|
| How we engage | — Our sales and marketing employees and senior management normally have the opportunity to meet our customers at trade shows such as IBC, NAB, NAMM and BSC – held in cities across the world — During COVID-19, management used video conferencing to maintain contact with all key customers — Our sales teams regularly meet with key customers |
| 2021 outcomes and highlights |
— 2021 strong business recovery with several trading updates issued during the year demonstrating a strong recovery in demand from end markets — Expansion into new end markets – notably gaming with the acquisition of Lightstream and pro audio with the acquisition of Audix |
| Further information | — Group Chief Executive review and Divisional operating reviews on pages 14 to 19 and 20 to 31. |
We have a large number of suppliers globally, as the majority of our operations are relatively low-volume, small batch processes. We source materials from suppliers close to our manufacturing facilities where possible.
| Material issues for our suppliers |
— To have payment terms and invoices met on time — To ensure a long and fair relationship — Supply chain stability |
|---|---|
| How we engage | — Each Division has key relationships with its specific suppliers for key components, both from the UK and overseas — Promoting our Code of Conduct as the right way to do business and to ensure the integrity of our supply chain and protect the Group's reputation. The Board is kept informed about major third parties, including suppliers, who are screened for reputational risk issues using specialist software |
| 2021 outcomes and highlights |
— 2021 has seen increasing pressure on supply chains especially components such as silicon chips. Our businesses have successfully managed this in 2021 through keeping close contact with key suppliers and sourcing alternative suppliers where necessary |
| Further information | — Responsible practices on page 71. |
Our employees are the best in the sector, our single greatest asset and critical to our success.
| Material issues for our employees |
— A safe, inclusive and engaging environment with health and safety and wellbeing at work (especially during COVID-19) — Opportunities for personal development and career progression — Competitive incentives and motivation at work — Security of employment — Innovative company pushing new product development to deliver great products to our customers — Keeping up-to-date with market, technology and business trends |
|---|---|
| How we engage | — The interests of our employees are considered by the Board and Committees, including remuneration, incentives and benefits — Caroline Thomson is the Non-Executive Director responsible for employee engagement — Employee surveys — Whistleblowing service — Group and Divisional intranets for Group-wide announcements/news — Regular employee updates from the Group Chief Executive and Divisional management — Employee wellness programme and competitive incentives including Sharesave and an established appraisal system |
| 2021 outcomes and highlights |
— Employees returning to our facilities as the pandemic subsided and ensured a safe working environment — Employee survey demonstrated high level of engagement and employee satisfaction — Ensuring those working from home had the IT support required; introduced Microsoft Teams as a new communications tool — Company recovered well from the pandemic, creating positive feedback and motivation amongst employees |
| Further information | — Employee engagement led by Caroline Thomson on page 64 — Whistleblowing service on page 72 — Employee survey overview on page 64 — Diversity information on page 65 — Health and safety in Vitec on page 66. |
Buyer & Planner – Wooden Camera, Vitec Creative Solutions, USA
We have a number of manufacturing and office facilities around the world and aim to limit any negative impact on the environment and protect natural resources we rely on, creating long-term sustainability for the business.
| Material issues for the communities we operate in |
— Minimising local disruption — Positive impact on the local economy and providing engaging employment — Our facilities being as "green" as possible, with the view for further improvements — Effective engagement programmes with the local communities |
|---|---|
| How we engage | — We engage in our local communities in various ways in each country we operate in and look to continually enhance our existing ESG activities |
| 2021 outcomes and highlights |
— Vitec committed to becoming carbon net zero by 2035 for Scope 1 and 2 emissions — Approved science-based targets, aligned to limit global warming to 1.5°C — Established ESG Committee to oversee our Environmental, Social and Governance programme |
| Further information | — More information on our community and environmental initiatives can be found in the Responsible business report from page 60. |
Vitec maintains close, open and regular contact with our shareholders. Shareholders play an important role in helping to shape our strategy and monitoring governance.
| Material issues for our shareholders |
— Financial impact of COVID-19 and how the Company has recovered — Capital allocation policy — Customer engagement and support — Viability of the strategy and business model in place — Dividend policy — Financial performance — Environmental, Social and Governance reporting — Fair and balanced executive remuneration |
|---|---|
| How we engage | — The Group Chief Executive and Group Finance Director have regular meetings with existing and potential shareholders — 2020 Annual Report published in March 2021 — Comprehensive website – www.vitecgroup.com – covering our business, ongoing performance, governance and our ESG programme — Regular market updates on performance including at the full year and half year, including video presentations |
| 2021 outcomes and highlights |
— All results presentations, investor roadshows and meetings held virtually — Engagement with investors and analysts virtually — Annual General Meeting held as a closed meeting and with all resolutions approved by shareholders — Regular updates given to the market on the recovery of the business and performance |
| Further information | — Key Performance Indicators on page 35 — Shareholder engagement on page 86. |
Vitec's purpose, to "enable the capture and sharing of exceptional content", continues to be highly relevant. 2021 saw strong market recovery and, post-pandemic, our markets are larger and growing faster.
Growth in retail e-commerce is driving increased demand for digital visual content as new products need to be photographed and filmed frequently to be published online. More and more brands are using digital platforms to reach audiences, and creatives must deliver content to more platforms and devices than ever before to build brand awareness.
This drives demand for Vitec's professional photography and videography equipment, including supports, backgrounds, lighting and bags, mainly benefitting our Imaging Solutions Division.
Increasing spend on original content creation for subscription TV channels like Netflix, Amazon Prime Video, Disney+ and Apple TV+, while incumbents like Hulu, HBO and traditional broadcasters are all maintaining existing levels of spending on original content, is driving higher demand for our equipment.
Vitec offers a wide range of market-leading products across all three Divisions to meet the high production value needs of both large media companies and smaller independent producers. These include our video transmission and monitoring systems and camera accessories in Creative Solutions, lighting equipment, mobile power and supports in Production Solutions, and supports and audio capture in Imaging Solutions.
The pandemic accelerated the democratisation and digitalisation of media, driving a permanent structural change to the content creation market. There has been recovery in demand and, more importantly, there has also been a dramatic increase in the capture, consumption and sharing of content. Vitec is right at the heart of this exciting and fast-growing market, with market-leading, premium products.
Market growth is being driven by technology advancement and by the significant changes in the way people capture, consume and share content.
We estimate that c.75% of the Group's business is being exposed to the four different structural market growth drivers below, which are all experiencing double-digit growth. This is driving a sustained demand for new and replacement products. The Group's Total Addressable Market ("TAM") is now larger, at £2.6 billion, and is expected to grow faster post-pandemic, at high single digit 2022-24 compared to low single digit pre-pandemic.
There has been significant growth in vloggers and influencers creating and sharing video and audio content on social media platforms like TikTok and YouTube. We estimate that there are more than 40 million vloggers (with a following of over 1,000 people), who share their videos or podcasts, and then monetise that content. Improving the quality of their content is enormously important to their success – and that's what Vitec products help them do.
JOBY is our main brand serving the needs of vloggers and influencers. They use our JOBY supports, lights, audio capture and our backgrounds and graphics to create high-quality content. The JOBY customers of today potentially transition to Vitec's other premium brands, as they become the film-makers, broadcasters and professional photographers of the future. In addition, growth in documentaries and wildlife photography, also typically shared on social media, benefit our supports, windjammers and bags in Imaging Solutions.
Live streaming of video is growing strongly across multiple verticals, such as enterprise, medical and gaming to maintain communications and facilitate remote working. For example, governments, schools, houses of worship and businesses rely on high quality, secure, zero or low delay video transmission to communicate with their communities, customers and employees. Professional content creators working from home require remote streaming with high image quality, low delay and robust security for post-production. This is driving demand for our Teradek IP-based live streaming software and hardware in Creative Solutions.
There is also a high demand for remote wireless video within hospital operating rooms. Our Creative Solutions Division has developed wireless video transmission and monitoring solutions using Amimon's proprietary zero delay technology for the leading medical equipment providers, and is also supplying the industrial market.
Vitec is uniquely placed to take advantage of the growing content creation market and deliver long-term sustainable growth and value to our stakeholders.
2021 was a year of strong recovery for the Group and the business returned to growth.
2021 was a year of strong recovery for the Group following the significant impact of COVID-19 in 2020. As the year progressed, the majority of our end markets recovered well and the business returned to growth. We are right at the heart of the growing content creation market which gives the Group exciting opportunities for sustainable growth. This, coupled with our premium brands, innovative, high quality products, highly capable workforce and first-rate manufacturing facilities, means that the Board is very confident about the Company's future growth opportunities. The Group does still face some uncertainties tied to the pandemic, including travel and work restrictions, component shortages and stretched supply chains, however Vitec continues to respond extremely well to these challenges.
Our 2021 financial results are strong given the impact of the pandemic. As the year progressed, we were able to repay all borrowings under the COVID Corporate Finance Facility, we repaid all furlough money and reintroduced dividend payments for our shareholders. The Board recommends a final dividend of 24 pence per ordinary share which, subject to shareholder approval at the 2022 AGM, will be paid on Friday, 20 May 2022.
Given our increasing confidence during 2021, we acquired several exciting businesses which bring exceptional new products, technology and talent into the Group. This was in line with our strategy to allocate resources and capital to the faster-growing segments of the content creation market, in particular, content creation and audio
capture in our Imaging Solutions Division and video transmission/streaming in our Creative Solutions Division.
Each of these new businesses is a great addition to the Company and will drive additional growth. The Board and I welcome each new employee to the Group and look forward to developing their businesses further.
A major area of focus for the Group in 2021 was to expand our ESG programme to ensure that the business remains sustainable. We have established a cross-Divisional ESG Committee, led by the Group Chief Executive, to oversee this, set ourselves clear objectives and goals, and have begun a challenging programme to enable the Group to become net carbon zero by 2035 (Scope 1 and 2). I am really pleased with our progress to date and, for the first time, we will publish a standalone and detailed ESG report in April 2022, where our stakeholders will be able to gauge the progress that we have made and our ambitions for the future.
Having the right governance and culture at Vitec is central to the success of the business. In 2021 the Board was evaluated by Lintstock, an independent facilitator. The detail of this evaluation is given in the governance report, but it was very reassuring to see that your Board operates to the highest standards and is totally aligned on the key matters facing the business. Our governance and controls are strong and the external evaluation has given us further reassurance. The Board dynamic is open and constructive, remaining positive despite the challenges posed by COVID-19.
At the end of 2021, we announced the appointment of Erika Schraner as an independent Non-Executive Director who will join the Board on 1 May 2022. Erika brings diverse and impressive skills to the Board. She is highly financially literate, has a strong understanding
of manufacturing and supply chain issues, particularly in technology companies, brings software and M&A experience, and has a global outlook with much of her career spent in Silicon Valley, US. I welcome Erika to the Board.
Duncan Penny will not be seeking reappointment at the 2022 AGM and he will therefore cease to be a Director of the Company at the close of the AGM. I would like to thank Duncan for his service since his appointment in 2018.
Our 2022 AGM is scheduled for Tuesday, 17 May 2022 and we hope this year to be able to hold this in person after not being able to do so for two years. Details of the AGM business are included in the accompanying AGM notice. It is important to host the AGM in person and to give shareholders the opportunity to meet with the Board face-to-face.
At the AGM, we will be seeking approval from shareholders to change the Company name to Videndum plc with effect from 23 May 2022. This change is due to the need to differentiate ourselves from other companies around the world who also operate under the Vitec name. It is also necessary to avoid financial penalties under a now settled dispute with a third party with claimed prior rights to the term "Vitec" in some territories. The proposed new name also better reflects our purpose (as it means "that which must be seen") and our presence across multiple segments of the growing content creation market. It will also enable us to refresh our branding and how we present ourselves to our stakeholders.
The performance for 2021 has been exceptional given the challenges faced by the business at the start of the year, principally recovering from the impact of COVID-19. This has been down to the hard work and dedication of all our employees and the Board and I are immensely proud of our people and thank them for their efforts during 2021. With their continuing dedication, your Company is well placed to grow over the coming years.
Ian McHoul Chairman 28 February 2022
Market growth is being driven by technology advancements and by four different structural growth drivers, all growing double-digit; 75% of the Group's business is exposed to these. Vitec is particularly focused on allocating resources and capital for video transmission/streaming in our Creative Solutions Division and for content creation and audio capture in our Imaging Solutions Division. We also continue to invest in our digital capabilities to benefit from the ongoing transition to the higher margin e-commerce channel.
We are focused on improving our operating profit margins towards our mid-teen goal as volumes grow and we deliver strong operating leverage. Our margin improvement drivers include higher pricing to reflect product quality and brand strength, growing online sales, continued operating efficiencies, in-sourcing, recovering the margin in our Creative Solutions Division, and capturing synergies from acquisitions.
We have a clear M&A strategy which is focused on investment in video transmission/streaming in Creative Solutions and in content creation and audio capture in Imaging Solutions.
2021 was a year of excellent progress for the Group across all three Divisions, reflecting strong market recovery, a larger and faster-growing market post-pandemic, and the execution of our strategy.
While the pandemic continued to present challenges in H1 2021, the majority of our markets were fully open by the end of H1. The travel segment remains subdued, but we expect it to recover once global travel restrictions have been removed.
We delivered growth versus 2019 across the majority of the business and remained focused on managing our cost base throughout the year while continuing to invest in our key priorities in line with our strategy.
The Group responded to increasing inflationary pressures by raising prices during the year in a targeted and appropriate manner, and in line with our leading market positions, product quality, brand strength, and technological and competitive advantage. These price rises were sufficient to stay ahead of inflationary headwinds.
We made substantial investments during the year, both organically and through acquisitions, to support future growth. We continued to launch new products for the fastest-growing segments of the market and gross R&D expenditure increased to c.£25 million, representing c.6.5% of Group revenue (2019: c.6%). We expanded our customer base, portfolio and technology capabilities with three acquisitions and, since the period end, we have made one further acquisition. We continued to improve the Group's e-commerce capabilities to grow our higher margin online sales and enhanced our approach to sustainability, aligning our strategy to five United Nations Sustainable Development Goals as the focus of our seven key pillars.
Cash conversion* exceeded 100% and we continue to monitor and control cash closely, while mitigating component shortages through managing inventory levels.
Vitec is well-positioned at the heart of the fast-growing content creation market to capitalise on the strong global demand for capturing, consuming and sharing content. Key developments over the last decade have laid a strong foundation for Vitec's future and also meant that the Group has emerged from the pandemic a stronger, higher quality business. The breadth of the Group's product portfolio in multiple market segments, coupled with our decentralised and entrepreneurial business model, and our increasing technological competencies, make us more resilient and enable us to rapidly adapt to changing market conditions.
I would like to thank everyone in the Group for what they have achieved last year and for their continued support, commitment and operational excellence.
2021 was a year of excellent progress for the Group across all three Divisions, reflecting strong market recovery, a larger and fastergrowing market postpandemic, and the execution of our strategy.
Vitec is at the heart of the fast-growing content creation market with marketleading, premium products, and we are executing well on our strategy to deliver organic growth, margin improvement and growth through M&A.
The closing order book at 31 December 2021 was our highest ever, and 2021 order intake was higher than 2019. The higher order intake reflects increased demand for Vitec's premium products and leading technologies, in excess of the demand created from market recovery following the outbreak of the pandemic in 2020.
Revenue of £394.3 million was a record, resulting in adjusted operating profit* of £46.2 million, and 36% ahead of 2020. Revenue was 5% ahead of 2019 on a reported basis, and 8% ahead on an organic, constant currency basis, excluding the Olympics. Revenue and profits were held back to a certain extent given some constraints in fulfilling orders due to component shortages and capacity constraints.
Adjusted operating profit margin* of 11.7% was only modestly below pre-pandemic levels (2019 excluding SmallHD insurance proceeds: 12.2%) and 8.3% points ahead of 2020. The margin in H2 was 11.4%, reflecting the investment in strategic growth and disruption in supply chains.
Adjusted profit before tax* included a £2.8 million adverse foreign exchange effect after hedging compared to 2020, mainly due to FX translation. The impact on 2022 adjusted profit before tax* from a one cent stronger/weaker US Dollar/Euro is expected to be an increase/decrease of approximately £0.4 million and £0.3 million respectively.
Statutory profit before tax of £29.6 million (2020: £7.7 million loss) further reflects adjusting items of £12.8 million (2020: £13.2 million), which primarily relate to the amortisation of acquired intangibles and acquisition related charges.
Free cash flow* was £23.6 million higher than 2020. Cash conversion* was strong at 108%.
Net debt* at 31 December 2021 was £54.4 million higher than at 31 December 2020 (£90.8 million).
Vitec's purpose, to "enable the capture and sharing of exceptional content", continues to be highly relevant and we are executing well on our strategy to deliver organic growth, margin improvement and growth through M&A.
Market growth is being driven by technology advancement and by the significant changes in the way people capture, consume and share content. We estimate that 75% of the Group's business is exposed to four different structural market growth drivers, which are all experiencing double-digit growth. This is driving a sustained demand for new and replacement products. The Group's Total Addressable Market ("TAM") is now larger post-pandemic, at £2.6 billion, and is expected to grow faster, at high single digit 2022-24 compared to low single digit pre-pandemic.
Due to the strategic transformation of Vitec over the past decade, the Group is uniquely positioned to take advantage of the structural changes and growth in its end markets. Vitec is a product-driven business and technology advancement is also driving growth through shorter product replacement cycles. Sustained R&D investment in innovative new product development is key to enabling our premium brands to maintain their already strong market positions and in places gain share. We have also increased our addressable markets, by expanding our product portfolio, customer base and technology capabilities, through carefully selected acquisitions. Our resources and capital are focused on the fastest-growing market segments of the content creation market, mainly in the two key strategic growth areas of video transmission/streaming in Creative Solutions and content creation in Imaging Solutions, including allocating more attention to audio where we see a sizeable opportunity.
In 2021, about half of our revenue came from products launched in the last three years (excluding 2020 and including acquisitions). 2021 saw the start of the full rollout of our 4K/HDR wireless video eco-system replacing the previous HD technology in the cine and subscription TV markets. We launched a wide range of new products, including on-camera microphones for our JOBY vlogging accessories to enhance the quality of content, LED lighting and voiceactivated prompting to enable broadcasters to reduce operating expenses, mechatronics, and bags made from recycled textiles for professional photographers and videographers.
We are also increasingly focusing on developing higher margin software-enabled technology, as well as looking to grow our cloud technology capabilities over the mid-term to expand our recurring revenue through subscription services with Software-as-a-Service and Hardware-as-a-Service.
We continue to invest in our digital capabilities across the Group to benefit from the transition to the higher margin e-commerce channel. This is a significant commercial advantage as many of our competitors lack the digital talent, supply chain and global support infrastructure that Vitec can deploy.
We expect continued margin improvement towards our mid-teen goal as volumes grow and we deliver operating leverage. Our margin improvement drivers include:
Insourcing, e.g. JOBY from China to Italy in Imaging Solutions
Operational efficiencies, e.g. targeting 3% year-on-year productivity improvements by driving lean manufacturing and continuous improvement initiatives across the Group
We have a clear and focused M&A strategy, aligned with our purpose, to increase addressable markets served and further increase our higher technology capabilities. Our organisation model is easily scalable which enables us to acquire small-to-medium sized businesses and bolt them on to our existing Divisions, capturing synergies from selling their products through our global distribution network, and using our digital expertise to market and sell new products online. There are also opportunities to gain synergies in procurement, manufacturing and logistics.
The Group has been focused on making acquisitions in two main areas, in video transmission/streaming in Creative Solutions and in content creation and audio capture in Imaging Solutions. During 2021, the Group acquired three strategically attractive, bolt-on businesses (Lightstream, Quasar, and Savage), and a fourth (Audix) in January 2022. These further enhanced our portfolio, expanded our customer base and added specialist R&D capabilities to support our future growth.
In April 2021, we acquired US-based Quasar who design and develop a range of marketleading, innovative, linear LED lighting solutions for cine-style applications. Their products are used in professional, large-scale film and scripted TV production as well as small-scale new media markets, and are highly sought-after for their industry-leading colour quality and versatility. Quasar has been integrated into Vitec's Production Solutions Division.
This acquisition was driven by Vitec's strategy to expand our higher technology capabilities in strategic growth markets. Quasar products are highly complementary to Vitec's existing Litepanels LED lighting brand and the two sales and marketing teams are now integrated. They are focused on selling Quasar products through Vitec's global sales and distribution network and using Quasar's expertise and network to grow the Litepanels brand in the cine and scripted TV market.
Two new Quasar products were released in May and the engineering teams are working together to develop a joint technological roadmap for future Litepanels and Quasar products.
In April 2021, we also acquired Lightstream, a US-based company which develops cloud-based video production and editing Software-as-a-Service platform to enable content creators to enrich their live video streams.
Live streaming across all industries has grown exponentially during the pandemic and it has become a significant growth opportunity for the Group with our Teradek brand. The gaming market was a logical extension to our live streaming strategy and, with Lightstream as part of the Group, we are able to address the growing demand for cloud-based content creation as well as increasing our recurring revenue stream.
Lightstream has been integrated into Vitec's Creative Solutions Division. Since our last update, Lightstream has made good progress in further developing their cloud platform. They have progressed licensing deals for their API product with major names in the gaming space and successfully demonstrated an improved version of the API platform to customers and are preparing to integrate with Teradek's existing cloud products.
In November 2021, we acquired Savage, a US-based global market leader in backgrounds for the professional studio photographic market. Backgrounds are a key aspect of imaging production as they are the quickest and easiest way to achieve the desired look for commercial and product photography, portraits, video interviews and social media posts, and they dramatically reduce post-production time.
This acquisition was driven by Vitec's strategy to acquire bolt-on businesses exposed to the faster-growing segments of the content creation market. Savage operates in the professional studio photography/videography segment, which is driven particularly by the global growth in demand for digital content and in retail e-commerce, where new products must be frequently photographed or videoed to quickly put fresh content online. Vitec knows the market and the Savage business well and is therefore well positioned to drive commercial synergies and growth. We will expand its distribution internationally, especially in APAC, and we will use our digital expertise to market and sell Savage products online. There is also the opportunity to sell Savage products to the fast-growing professional influencer and vlogger segment.
Integration into our Imaging Solutions Division is going very well and we are already starting to see distribution synergies.
In January 2022, we acquired US-based Audix, who designs and manufactures high-performing, innovative microphones for the professional audio industry.
This is a strategically significant acquisition as Audix enables Vitec to accelerate the pace of deployment of our audio capture strategy. Audio capture is an essential part of video creation as it enhances the quality of content; we know the market and the channel well as our customers already buy microphones for their smartphones or cameras that we provide under our growing JOBY brand. Vitec lacked a more specialist audio R&D capability to allow us to design and manufacture the microphones ourselves, which is what Audix brings. We intend to use their expertise to enhance the speed of new product development and expand our range of on-camera microphones further.
In addition, Audix brings Vitec a premium microphone brand which is focused on the music, professional vocal and enterprise markets, and is complementary to our growing JOBY and Rycote brands. We expect to significantly grow the Audix brand by selling their products through our global distribution network and we will use our digital expertise to market and sell Audix products online. There are also opportunities to sell other Vitec brands to the Audix customer base.
Audix is being integrated into Vitec's Imaging Solutions Division and the Audix team and the facility in Oregon will become Vitec's Audio R&D Centre of Excellence; we plan to move Rycote's microphone manufacturing and engineering development to Audix's facilities, and we will also bring the development of our JOBY microphones to the US. This will accelerate our new product innovation process and enable us to extend our microphone range, as well as further strengthening our competitive advantage in the largest content creator market. The audio market has reacted very positively to the acquisition and integration is going very well.
The Board believes that Creative Solutions has significant potential, in terms of market opportunity, rate of future growth and margins. The Board continues to review options to maximise and clearly demonstrate to shareholders the potential value of the Division. To this end, we have set up a Supervisory Board, including external members to review those options. A further update will be provided as and when appropriate.
Vitec is at the heart of this fast-growing market with market-leading, premium products, and we are executing well on our strategy to deliver organic growth, margin improvement and growth through M&A.
2022 has started very well, with a record opening order book followed by a record January and February performance. We will continue to mitigate component shortages in the short term through managing inventory levels, and by increasing prices in a targeted and appropriate manner.
The Board is increasingly confident about the outlook for the Group, despite previously highlighted short-term component shortages and inflation, but obviously the current geopolitical situation creates some uncertainty.
Vitec is now a stronger, higher quality business and the Group is well positioned to deliver sustainable growth and value for all of our stakeholders.
Group Chief Executive 28 February 2022
* In addition to statutory reporting, Vitec reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to aid the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary.
Definition: videndum
In British English
That which must be seen A "must see"
Latin
At the AGM on 17 May 2022, we will seek approval from shareholders to change the Company name to "Videndum plc", with effect from 23 May 2022. This change is due to the need to differentiate ourselves from other companies around the world who also operate under the Vitec name. It is also necessary to avoid financial penalties under a now settled dispute with a third party with claimed prior rights to the term "Vitec" in some territories.
Building on the structural change and growth in our end markets, and our leading market positions, we are using this opportunity to refresh and reframe our brand. "Videndum" better reflects our purpose, presence and opportunity in the multiple market segments of the growing content creation market in which we operate.
A subsequent announcement will be made when the Company's name change becomes effective, which is expected to be on 23 May 2022, with a revised stock ticker ("VID"). Until such an announcement is made, trading will continue under the existing ticker.
The rebranding rollout process for the new name and associated visual identity will begin on 23 May 2022 and progress through 2022 and early 2023 alongside implementation of a full stakeholder communications plan to manage the transition.
At the same time in May, we will change the name of our Imaging Solutions Division to "Media Solutions". As the Division has grown its portfolio to include audio capture under the JOBY, Rycote and Audix brands, the new name better represents its customer base and the exciting opportunities ahead.
We are passionate about helping content creators elevate the quality of their portfolios to stand out in an industry where more audio-visual content is being produced and shared than ever before.
Marco Pezzana Divisional Chief Executive, Vitec Imaging Solutions
The Imaging Solutions Division designs, manufactures and distributes premium branded equipment for photographic/video cameras and smartphones, and provides dedicated solutions to professional and amateur photographers/ videographers, ICCs, vloggers/influencers, gamers, enterprises and professional sound crews This includes camera supports and heads, smartphone accessories, lighting supports, LED lighting, lighting controls, motion control, audio capture and noise reduction equipment, camera bags and backgrounds.
Imaging Solutions' TAM has increased to £1.2 billion (2021) and we estimate that the market CAGR (2022-24) will be c.5% (previous mid-term forecast of c.1%). Imaging Solutions is expected to outperform the market growth because of its significant exposure to high-growth areas such as vlogging, live streaming and the internet/retail e-commerce. Vitec is focusing on the opportunity to develop and commercialise innovative, high end accessories for CSCs and smartphones, as well as its more traditional DSLR market. We sell our products globally via multiple distribution channels and increasingly online via our own direct e-commerce capability and third-party platforms.
We are focused on continued growth in vlogging accessories, professional equipment for retail e-commerce, new audio capture and mechatronic products, and growing the higher margin e-commerce channel.
Vitec has leading premium brands in camera supports and heads, camera bags, vlogging accessories, motion control, audio capture, backgrounds and lighting for the professional and enthusiast photographer/videography, influencer/vlogger and professional sound crews.
| Product category | Brand | Market position* |
|---|---|---|
| Supports | Avenger, JOBY, Gitzo, Manfrotto |
1 |
| Bags | Gitzo, Lowepro, Manfrotto, National Geographic (manufactured under licence) |
1 |
| Lighting & controls | JOBY, Manfrotto 2 | |
| Motion control & stabilisers |
JOBY, Manfrotto New entrants | |
| Smartphonography | JOBY | 1 |
| Audio capture | Audix, JOBY, Rycote |
Audix – US leader Rycote – 1 JOBY – new entrant |
| Backgrounds | Colorama, Savage, Superior |
1 |
Our brands Target audience
Photographic market: 60% Cine/scripted TV/ICC market: 40%
* Management estimates by sales value in the market segments in which these products are sold. ** In our niche
Imaging Solutions' revenue recovered to £194.7 million, which on an organic, constant currency basis was up 1% compared to 2019.
Revenue for professional (c.45% of Divisional revenue) photo and video supports was slightly ahead of 2019 due to new motion control products and strong demand from the professional market. Both professional filmmakers and independent content creators are demanding ever-more innovative solutions, to help them create dynamic material with ease and at speed. The Manfrotto MOVE Ecosystem, launched in October, enables film-makers to build their desired shooting platform in a modular
Rycote performed extremely well with revenue almost 50% higher than 2019 due to increased demand driven by strong growth in sales to external companies integrating Rycote's patented microphone shock mounting for their audio product offerings.
B2B revenue (c.25% of Divisional revenue) increased significantly compared to 2019. Demand for lighting supports in the global sports analytics market has grown significantly, and Manfrotto is the chosen supplier for lighting support stands and carrying solutions to all the main providers in this market; as a result Manfrotto lighting supports saw significant revenue growth on 2019.
In the consumer segment (c.10% of Divisional revenue), there was continued strong growth in JOBY smartphone and compact system camera accessories. JOBY revenue was up almost 30% compared to 2019. JOBY launched the Beamo Ring Light in March, and in January 2022 announced the launch of a new range of JOBY products, leading with WAVO microphones, as well as the JOBY Spin and Swing, which were made in partnership with Syrp Lab.
The production of the premium JOBY GorillaPod was successfully relocated from the Far East to Italy, expanding Feltre's highly efficient manufacturing capabilities. From now on, most of the JOBY GorillaPod line-up for compact system cameras, will be produced in Feltre. This will reduce the distance to European and American markets, strengthen the supply chain footprint as well as enabling Imaging to capture the manufacturing margin.
Adjusted operating profit* of £26.6 million represents a return to pre-pandemic margins. Adjusted operating margin* was 13.7%. On an organic, constant currency basis, adjusted operating profit* was only 2% down on 2019.
Statutory operating profit was £23.7 million (2020: £5.8 million), reflecting £2.9 million of charges associated with acquisition of businesses and other adjusting items (2020: £3.9 million) of which £0.4 million of charges related to the previously announced restructure.
Revenue £194.7m Up 24.3%
Adjusted operating profit*
£26.6m Up 174.2%
| 2021 | £194.7m | ||
|---|---|---|---|
| 2020 | £156.7m | ||
| 2019 | £196.6m | ||
| Adjusted operating profit* | |||
| 2021 | £26.6m | ||
| 2020 | £9.7m | ||
| 2019 | £27.1m | ||
| Statutory operating profit | |||
| 2021 | £23.7m |
2020 2019 £5.8m £17.8m
To record football effectively, you need good, stable tripods and Vitec has been a critical partner, providing high volumes and customisations to suit Veo.
Kawus Nouri VP Product, Veo Technologies
In 2021, JOBY launched a range of new products for beginners to professional content creators, for smartphones and cameras. New products include the flexible PodZilla tripod range, the first Apple MagSafe phone mount series and a fun range of changeable feet from GorillaPod.
Production of the premium JOBY GorillaPod was successfully relocated from the Far East to Italy, expanding the highly efficient manufacturing capabilities located in Northern Italy (Feltre). This reduces the distance to European and American markets, strengthens the supply chain and lowers the environmental and carbon footprint.
Imaging Solutions' Lighting business is seeing significant growth and is now the second largest category in the Division. The increase in demand for original content for scripted TV, cinema and streaming platforms has created an unparalleled demand for film production equipment, including our Manfrotto and Avenger Lighting brands. In addition, the demand for lighting supports in the global sports analytics market – from companies like VEO, Hudl, Pixellot and Movensee – has also grown significantly, benefitting our Manfrotto supports and bags.
Veo is a portable sports camera solution that enables sports teams to record and analyse matches and training sessions without the need for a camera operator. The camera is mounted on the Manfrotto tripod and records the entire sports pitch.
Audio capture is an essential part of video creation as it enhances the quality of the content. Vitec's acquisition of Audix in January 2022 accelerated its audio strategy, bringing specialist R&D and manufacturing capabilities to enable the Group to design and build on-camera microphones in-house. Vitec's audio strategy addresses three core market segments:
JOBY is dedicated to on-camera sound, for vloggers and social media influencers. We launched five new models in the WAVO range in January 2022, including the flagship WAVO PRO, a wireless and podcaster microphone.
Rycote serves the growing broadcast and production market. 2021 saw new product innovations including the Nano Shield series and Rycote's first professional broadcast shotgun.
Audix is our premium brand, focused on professional studio and live applications.
The growth in production of digital content for the internet is expected to continue as digital commerce advances. This means that highquality digital content – both video and still images – is more important than ever.
Imaging's leading position in studio accessories was further enhanced during 2021 with the acquisition of Savage Universal. Our range of backgrounds and essential lighting accessories is now the most comprehensive available, and includes Manfrotto Chroma Key backgrounds, perfect for vloggers and film-makers experimenting with green screen techniques.
Professional film-makers and ICCs are demanding ever-more innovative solutions to help them quickly and easily create dynamic content.
Manfrotto's new Move ecosystem enables film-makers to build their desired shooting platform in a modular way. It's remotely controlled which makes changes to set-up quick and easy opening-up a whole new world of shooting opportunities.
Out of all the gear I've used, this is definitely the quickest to transfer a camera from a gimbal, to a tripod, to a slider! You can move in seconds where it would normally take four to five minutes.
Devin Supertramp Professional videomaker
Working closely with our customers, we are advancing production technology for broadcasters, cinematographers and content creators with improved control, reliability and speed, enabling them to focus entirely on their creativity.
Nicola Dal Toso Divisional Chief Executive, Vitec Production Solutions The Production Solutions Division designs, manufactures and distributes premium branded and technically advanced products and solutions for broadcasters, film and video production companies, ICCs and enterprises. Products include video heads, tripods, LED lighting, prompters, robotic camera systems and mobile power solutions. It also supplies premium services including equipment rental and technical solutions.
Production Solutions' TAM of £0.4 billion in 2021 is growing at an estimated CAGR (2022-24) of c.3% (versus previous mid-term forecast of 0%). Production Solutions is expected to slightly outperform the market growth because of significant exposure to high-growth areas like subscription TV and automated production. 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.
We are focused on growth in professional equipment for scripted TV series, products for on-location news and sporting events, as well as robotic camera systems and voice-activated prompting to enable cost efficiencies in studios.
Vitec is the market leader in most of its product categories, providing premium products for broadcasters, scripted TV, film and video production companies, as well as to ICCs.
| Product category | Brand | Market position* |
|---|---|---|
| Supports | OConnor, Sachtler, Vinten |
1 |
| Prompters | Autocue, Autoscript | 1 |
| Lighting | Litepanels, Quasar | 2 |
| Mobile power | Anton/Bauer | 1 |
| Robotic camera systems |
Camera Corps, Vinten |
2 |
| Distribution, rental & services |
Camera Corps, The Camera Store |
1 |
Broadcast market: 60% Cine/scripted TV/ICC market: 40%
Production Solutions' revenue was a record £121.8 million, which on an organic, constant currency basis was 10% ahead of 2019, excluding the Olympics. Revenue was supported by higher royalties received for the Litepanels brand of £4.1 million (compared with £1.9 million in 2020).
The new generation Sachtler aktiv fluid heads, launched in October 2020, continued to be extremely popular and have driven material growth in non-studio supports compared to 2019. Voice-activated prompting was fully launched in 2021 and helped to deliver significant growth in Autoscript sales versus 2019. The Litepanels Gemini 1x1 Hard launched in April and contributed to material organic growth in revenue from lighting versus 2019. These growth areas and revenue from increased royalties were partly offset by studio supports and robotics, where there was a slower recovery in the broadcast industry.
Camera Corps provided a range of bespoke camera solutions for the postponed Euro 2020 tournament which was held across June and July 2021, and at the Tokyo Summer Olympics across August and September; together c.£8 million of revenue.
Adjusted operating profit* of £28.0 million was £8.4 million higher than 2019, benefitting from royalties, profit from the Euros and Olympics, and lower operating costs. Adjusted operating margin* was 23.0%. Excluding royalties from the LED patents it was 20.3%. On an organic, constant currency basis, excluding the Olympics, adjusted operating profit* was 43% up on 2019.
Statutory operating profit was £27.1 million (2020: £6.7 million), which included £0.9 million of adjusting items in relation to the acquisition of Quasar (2020: £0.9 million).
Adjusted operating profit*
£28.0m Up 268.4%
2019
| 2021 | £121.8m | |
|---|---|---|
| 2020 | £80.1m | |
| 2019 | £111.8m | |
| Adjusted operating profit* | ||
| 2021 | £28.0m | |
| 2020 | £7.6m | |
| 2019 | £19.6m | |
| Statutory operating profit | ||
| 2021 | £27.1m | |
| 2020 | £6.7m |
£18.9m
The outstanding versatility of the Litepanels Gemini panels means we can achieve so many looks accurately and quickly, and save money and time on rigging lights. We were blown away by the Gemini 1x1 Hard. When people see the movie, they will have no idea how we achieved such a big film look with such a small number of lights.
Jeff Ryan Independent film-maker
A feature film would normally have a truck full of lights to light a large space such as the independent production, Mean Spirited. Thanks to their extraordinary power and creative control options, independent film-maker, Jeff Ryan was able to use just 15 Litepanels Gemini panels controlled via DMX ("Digital Multiplex") via an iPad to light every scene.
In November 2021, Litepanels was awarded a Technology & Engineering Emmy® for its pioneering development of LED lighting for television production.
LED lighting is a strategic growth area for the Group and in April 2021 we acquired Los Angeles-based Quasar who design and develop a range of market-leading, innovative linear LED lighting solutions for cine-style applications. Their products are used in professional, large-scale film and scripted TV production as well as small-scale new media markets, and are highly sought-after for their industry-leading colour quality and versatility. Quasar products are highly complementary to Vitec's existing Litepanels LED lighting brand.
The new OConnor Ultimate 1040 flowtech100 system, launched in 2021, brings the precision ultra-smooth fluid camera movement that has made OConnor heads the cinematography industry-standard, together with the speed and stability of the award-winning flowtech tripod system.
Climbing a mountain, you don't skimp on the rope that will save your life. It's the same thing with your camera equipment. The OConnor 1040 system becomes an extension of my body; I have complete control and every movement is smooth, so I never miss the shot.
Renan Ozturk Adventurer, cinematographer
For demanding cinematographers, Anton/Bauer's new Dionic XT range represents the gold standard in high-performance battery power. It delivers constantly reliable power to run cameras and accessories at the same time, and sophisticated charging technology to prolong the life of sensitive equipment. Working on Netflix fantasy drama series The Witcher, Steadicam operator James Frater took full advantage of Dionic XT's enduring power to keep up with leading man Henry Cavill, capturing the action and drama as it happened.
It's important that I have strong reliable batteries, so that I can feel confident I won't run into power issues. Stopping the fast-paced action to change batteries is simply not an option.
James Frater Steadicam operator
The revolutionary aktiv fluid head range – with SpeedLevel™ and SpeedSwap™ technology – allows camera operators to mount, level and lock the head in seconds and to switch quickly from tripod, slider, or hand-held shots in an instant to capture the widest range of shots in the shortest time. The latest addition to the range, aktiv14T brings Sachtler's unique technology to the heavy payload, fast-paced world of electronic news gathering.
Speed is key because if you're in an environment where you're picking off B-roll shots that are happening as you see them, you've got to be able to quickly get to that next location, level up on your tripod and grab the moment. aktiv makes that speed possible.
Geoff Nelson Freelance news cameraman
The demand for original content continues to grow globally, as daily screen time and video consumption expand across several platforms. We make the tools to help tell the stories, share the news, engage an audience, or spread the word.
Divisional Chief Executive, Vitec Creative Solutions
| Product category | Brand | Market position* |
|---|---|---|
| Video transmission systems |
Teradek | 1 |
| Monitors | SmallHD | 1** |
| Lens control systems | Teradek | 3 |
| Live streaming | Teradek, Lightstream |
1** |
| IP video | Teradek | 3 |
| Camera accessories |
Wooden Camera |
3 |
The Creative Solutions Division develops, manufactures and distributes premium branded products and solutions for film and video production companies, ICCs, gamers, enterprises and broadcasters. Products include wireless video transmission and lens control systems, monitors, camera accessories, live streaming and IP video devices, and software applications.
Creative Solutions' TAM has increased from £0.5 billion to £1.0 billion, particularly due to the increase in streaming, spend on original content creation, and Vitec's Lightstream acquisition enabling us to serve the gaming market. We estimate that the market CAGR (2022-24) will be c.20% (previous mid-term forecast of c.17%). Creative Solutions is expected to grow in line with the market thanks to its exposure to growth areas such as gaming, live streaming, enterprises and scripted TV. 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. We sell our products globally via multiple distribution channels and increasingly online via our own direct e-commerce capability and third-party platforms.
We are focused on delivering the 4K/HDR replacement cycle and growing our remote monitoring/streaming capabilities in the cine, enterprise, medical, industrial and gaming markets.
Vitec is the market leader in most of its product categories, providing premium products for film and video production companies, ICCs, enterprises and gamers.
Cine/scripted TV/ICC market: 70% Enterprise market: 26% Gaming market: 4%
Creative Solutions' revenue was a record £77.8 million. On an organic, constant currency basis this was 22% ahead of 2019, despite the cine/scripted TV market not being fully open until H2, and the impact of component shortages in H2. Order intake was 45% ahead of 2019 on an organic, constant currency basis.
Sales to the cine/scripted TV market grew materially versus 2019. The overwhelming majority of Bolt sales are now 4K/HDR, and there were \$4.0 million sales of the SmallHD 4K/HDR monitors that were launched last year. Total 4K/ HDR sales were \$34.0 million. Wooden Camera revenue grew materially compared to 2019.
Sales to the enterprise market were up double-digit versus 2019. Within this, revenue to the medical market more than doubled compared to 2019, with high demand for Amimon products within the operating room ("OR") and moving more medical procedures from the OR to treatment rooms. Recurring revenue excluding Lightstream more than doubled compared to 2019. Recurring revenue including Lightstream was c.£3.0 million.
Adjusted operating expenses* grew compared to 2019 as Creative Solutions invested in sales and marketing to serve new verticals, R&D to drive future growth, and due to higher amortisation of capitalised R&D.
Adjusted operating profit* of £8.3 million represents an adjusted operating margin* of 10.7%. Excluding 2019 SmallHD insurance proceeds (£6.5 million), which were included in profit but not revenue, the adjusted operating margin* in 2019 was 14.9%. On an organic, constant currency basis, adjusted operating profit* was 12% up on 2019 (excluding insurance proceeds). We expect Creative Solutions' margins to improve as our investment in growth drives further higher revenues, and we sell more Amimon-enabled 4K/HDR products.
Statutory operating loss was £0.5 million (2020: £4.8 million loss), which reflects £8.8 million of charges associated with acquisition of businesses and other adjusting items (2020: £8.1 million).
Adjusted operating profit*
£8.3m Up 151.5%
| Revenue | |||
|---|---|---|---|
| 2021 | £77.8m | ||
| 2020 | £53.7m | ||
| 2019 | £67.7m | ||
| Adjusted operating profit* | |||
| 2021 | £8.3m | ||
| 2020 | £3.3m | ||
| 2019 | £15.6m | ||
| Statutory operating profit | |||
| 2021 | -£0.5m | ||
| 2020 | -£4.8m | ||
| 2019 | £5.3m |
Image: Craig Parry
Case studies
Innovere provides an entertainment solution for MRI scanners to relieve the anxiety of patients. Using Teradek wireless technology, we were able to make this product operate wirelessly so it is easily retrofittable in existing MRI sites.
CEO, Innovere Medical Inc.
Specifically designed for the medical industry, Vitec's Falco wireless video transmission and monitoring solutions deliver high quality 4K video with less than 1ms latency. Evolved from Teradek's Bolt 4K technology, Falco already has a foothold in the minimally invasive surgery space, providing solutions to endoscopy providers. Clinicians depend on medical devices and imaging modalities to provide real-time video during patient treatment, diagnosis and surgical procedures. The need to wirelessly connect video sources to display monitors is becoming standard as it improves clinical workflow efficiency and patient outcomes.
In February 2021, Teradek received two Technical Academy Awards – "Oscars" – from the Academy of Motion Picture Arts and Sciences for the Teradek Bolt 4K. One award recognised the development of the Teradek Bolt wireless video transmission system for on-set monitoring and the second was for the development of the Amimon wireless chipset.
In October 2021, the Teradek Bolt 4K was again recognised, this time as one of only eight technologies to win a 2021 Engineering Emmy® Award from the Television Academy, for developments in broadcast technology.
Engineers, scientists and technologists are a vital part of our industry and are key to the continuing evolution of television.
Frank Scherma Chairman and CEO of the Television Academy
2021 saw 4K/HDR monitoring embraced on sets around the world. This transition is being catalysed by Vitec's pioneering solutions: ultra long-range 4K/ HDR video transmitters and multiple 4K and HDR-capable SmallHD field-ready production monitors.
In April 2021, Vitec acquired Lightstream, enhancing its premium live streaming technology for the global content creator community. Lightstream is a world leader in live streaming technology for the fast-growing gaming market.
In 2022 we will continue building state-of-the-art cloud-based video production and audience activation tools. This will enable Lightstream to expand its impact in its existing markets – individual creator, video application developer and live video audience activation.
Stu Grubbs Lightstream founder
Vitec launched Teradek WAVE, a 5-in-1 smart streaming monitor for encoding, smart event creation, network bonding, multi-streaming and recording – all on a 7" daylight-viewable touchscreen display. It is designed to prep multiple events ahead of time, bond several internet connections together and send live streams to multiple destinations at once via Sharelink, Teradek's cloud platform that is available as a paid subscription through sharelink.tv.
Wave is truly an innovative product. Combining on-camera monitoring with Live Streaming, less the extra wires, is a great solution!
Darren Sager DMS Video Productions
Brian Aichlmayr 1st AC Local 600
Given the disruption to 2020 results caused by COVID-19, commentary below refers to performance in comparison with 2019 where that provides a greater insight into how the business has performed. However, it should be noted that 2019 gross margin benefitted from insurance payments of £6.5 million relating to the fire at the SmallHD facility.
The closing order book at 31 December 2021 was our highest ever, and 2021 order intake was higher than 2019. The higher order intake reflects increased demand for Vitec's premium products and leading technologies, in excess of the demand created from market recovery following the outbreak of the pandemic in 2020.
Revenue of £394.3 million was a record, resulting in adjusted operating profit* of £46.2 million, and 36% ahead of 2020. Revenue was 5% ahead of 2019 on a reported basis, and 8% ahead on an organic, constant currency basis, excluding the Olympics. Revenue and profits were held back to a certain extent given some constraints in fulfilling orders due to component shortages and capacity constraints.
Adjusted gross profit margin* of 43.9% was similar to 2019 pre-pandemic levels with price increases more than offsetting significant headwinds from freight, duty and raw materials cost increases. Excluding 2019 SmallHD insurance proceeds which were included in profit but not revenue, the adjusted gross profit margin* in 2019 was 43.5%.
Adjusted operating expenses* of £127.0 million were, as expected, £23.5 million higher than 2020 but only £9.3 million higher than 2019; £4.1 million of which relates to costs at the acquisitions made in 2021, and £1.2 million to the repayment of UK furlough proceeds. The savings from the previously announced restructuring at Imaging Solutions, were offset by inflation in employee costs, sales and marketing to drive new verticals, and targeted investment in R&D. The large increase in comparison to 2020 is driven by the non-repeat of the short-term actions taken to manage through the pandemic (such as shortened hours and reduced pay).
Adjusted operating profit margin* of 11.7% was only modestly below pre-pandemic levels (2019 excluding SmallHD insurance proceeds: 12.2%) and 8.3% points ahead of 2020. The margin in H2 was 11.4%, reflecting the investment in strategic growth and disruption in supply chains.
Adjusted profit before tax* included a £2.8 million adverse foreign exchange effect after hedging compared to 2020 mainly due to FX translation. The impact on 2022 adjusted profit before tax* from a one cent stronger/weaker US Dollar/Euro is expected to be an increase/decrease of approximately £0.4 million and £0.3 million respectively.
Adjusted profit before tax* was £42.4 million; £36.9 million higher than 2020. On an organic, constant currency basis adjusted operating profit* and adjusted profit before tax* were only 2% and 1% down respectively on 2019 (up 12% and 15% excluding SmallHD insurance proceeds).
Statutory profit before tax of £29.6 million (2020: £7.7 million loss) further reflects adjusting items of £12.8 million (2020: £13.2 million), which primarily relate to the amortisation of acquired intangibles and acquisition related charges.
The Group's effective tax rate ("ETR") on adjusted profit before tax* was 24.3%. Statutory ETR was 12.5%.
Adjusted basic earnings per share* was 69.9 pence. Statutory basic earnings per share was 56.4 pence.
Cash generated from operating activities was £65.7 million (2020: £34.0 million) and net cash from operating activities was £54.7 million (2020: £25.0 million).
Free cash flow* was £23.6 million higher than 2020. Cash conversion* was strong at 108%, as set out on the next page.
Adjusted working capital* decreased by £1.1 million in 2021. Inventory was £23.7 million higher than December 2020, which was expected following capacity constraints and component shortages; though this was more than offset by an increase in payables. Trade payables were higher due to increased activity, and other payables were higher due to larger bonus accruals compared to December 2020.
Capital expenditure included:
| £m | 2021 | 2020 | Variance |
|---|---|---|---|
| Gross R&D | 25.2 | 20.3 | 4.9 |
| Capitalised | (10.1) | (10.1) | – |
| Amortisation | 4.8 | 4.8 | – |
| P&L impact | 19.9 | 15.0 | 4.9 |
"Other" cash flow primarily relates to sharebased payments.
Interest and tax paid increased by £2.0 million compared to 2020 due to higher tax payments (including £3.0 million relating to EU State Aid) and upfront fees in relation to the acquisition loan facility; partly offset by the non-repeat of the RCF upfront and arrangement fees, and CCFF fees in 2020.
Restructuring cash outflow mainly reflects the final restructuring payments in Imaging Solutions in respect of its project to benefit from the move to the higher margin e-commerce channel.
| December 2020 closing net debt* | |
|---|---|
| (£m) | (90.8) |
| Free cash flow* | 33.1 |
| Upfront loan fees, net of amortisation | 0.6 |
| Dividends paid | (7.1) |
| Employee incentive shares | (4.3) |
| Acquisitions | (56.1) |
| Net lease additions | (20.1) |
| FX | (0.5) |
| December 2021 closing net debt* | |
| (£m) | (145.2) |
Net debt* at 31 December 2021 was £54.4 million higher than at 31 December 2020 (£90.8 million).
The ratio of net debt* to adjusted EBITDA* was 2.2x at 31 December 2021. This is c.0.3x higher than on a pre-IFRS 16 basis, and c.0.2x higher than on the basis used for our loan covenants.
Acquisitions cash outflow comprises £40.0 million for Savage, £15.1 million for Lightstream and £1.0 million for Quasar.
| Adjusted* | Statutory | ||||
|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | 2021 | 2020 | |
| Revenue | £394.3m | £290.5m | £376.1m | £394.3m | £290.5m |
| Operating profit/(loss) | £46.2m | £9.9m | £52.4m | £33.5m | £(3.3)m |
| Profit/(loss) before tax | £42.4m | £5.5m | £48.0m | £29.6m | £(7.7)m |
| Earnings per share | 69.9p | 9.0p | 80.6p | 56.4p | (11.6)p |
| Cash flow | |||
|---|---|---|---|
| £m | 2021 | 2020 | 2019 |
| Statutory operating profit/(loss) Add back charges associated with acquisition of businesses |
33.5 | (3.3) | 32.0 |
| and other adjusting items | 12.7 | 13.2 | 20.4 |
| Adjusted operating profit/(loss)* | 46.2 | 9.9 | 52.4 |
| Depreciation(1) | 18.7 | 19.0 | 18.6 |
| Working capital dec/(inc)* | 1.1 | 8.0 | (7.2) |
| Provisions (dec)/inc* | (0.8) | (0.4) | (3.8) |
| Capital expenditure(2) | (21.7) | (15.7) | (18.6) |
| Other(3) | 6.2 | 4.6 | 3.1 |
| Adjusted operating cash flow* | 49.7 | 25.4 | 44.5 |
| Cash conversion* | 108% | 257% | 85% |
| Interest and tax paid | (11.0) | (9.0) | (10.6) |
| Earnout and retention bonuses | (2.2) | (2.7) | (0.1) |
| Restructuring and integration costs | (1.9) | (4.2) | (3.3) |
| Transaction costs | (1.5) | – | – |
| Free cash flow* | 33.1 | 9.5 | 30.5 |
(1) Includes depreciation, amortisation of software and capitalised development costs
(2) Purchase of Property, Plant & Equipment ("PP&E") and capitalisation of software and development costs
(3) Includes share-based payments charge, proceeds from the sale of PP&E, gain on disposal of PP&E, fair value derivatives, impairment losses on PP&E, and foreign exchange movements.
Net cash from operating activities of £54.7 million (2020: £25.0 million) comprises £33.1 million free cash flow (2020: £9.5 million) plus £21.7 million capital expenditure (2020: £15.7 million) less £0.1 million proceeds from sale of PP&E and software (2020: £0.2 million).
Net lease additions were higher as previously announced (versus £3.5 million in 2020). They include the renewal of leases for our plants in Feltre, Costa Rica and Irvine, and also include a lease as part of the acquisition of Savage.
Liquidity at 31 December 2021 totalled £91.5 million; comprising £77.1 million unutilised RCF, £11.0 million of cash and £3.4 million unused overdraft facility. As previously announced, the Group repaid the CCFF during H1 2021.
ROCE(1) of 16.1% was higher than the prior year (2020: 3.7%), which reflects the higher adjusted operating profit*.
Charges associated with acquisition of businesses and other adjusting items in profit before tax were £12.8 million versus £13.2 million in 2020.
| £m | 2021 | 2020 |
|---|---|---|
| Amortisation of acquired | ||
| intangible assets | 7.2 | 7.6 |
| Integration and restructuring | ||
| costs | 0.9 | 2.8 |
| Acquisition related charges(2) | 4.6 | 2.8 |
| Finance expense – | ||
| amortisation of loan fees on | ||
| borrowings for acquisitions | 0.1 | – |
| Charges associated with | ||
| acquisition of businesses | ||
| and other adjusting items | 12.8 | 13.2 |
Notes
(1) Return on capital employed ("ROCE") is calculated as adjusted operating profit* for the last 12 months divided by the average total assets, current liabilities excluding the current portion of interest-bearing borrowings, and non-current lease liabilities.
(2) Includes earnout charges, retention bonuses, transaction costs relating to the acquisition of businesses, and the effect of fair valuation of acquired inventory.
In accordance with the 2018 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 36 to 41, and the latest management forecasts.
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 businesses and products and its limited order visibility. While 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.
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 a range of scenarios through to the end of 2024. Modelling is impacted by a number of factors including assumptions around the overall global economic environment, the growth of our end markets and the creation of original content, and continued actions that governments might take in relation to controlling the pandemic.
The Directors have reviewed the forecast scenarios set out below:
The severe downside scenarios are considered possible but not probable and factor-in mitigating cost-savings activities from management actions which would be taken to partly offset a decline in trading performance. These are proportionate and do not take into account all discretionary actions which could be taken; nor do they consider renegotiation of the covenants of the Multicurrency Revolving Credit Facility ("RCF"), which for example, occurred during 2020.
The Group has also modelled a reverse stress test scenario. This models the decline in sales that the Group would be able to absorb before breaching any financial covenants. Such a scenario, and the sequence of events that could lead to it, is considered to be remote, and is calculated before reflecting any mitigating actions or renegotiation of covenants. Revenue in 2021 increased by 36% versus 2020. Under the reverse stress scenario, revenue would need to decline by 16% in 2022 against the latest forecast to result in a breach of the covenants, and the lowest point of cash headroom in the next 12 months would be at February 2023, when cash headroom under the RCF would be £46 million.
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 Group's main committed borrowing facilities at 31 December 2021 was the £165 million RCF, where the Group had utilised £87.9 million (53%); in January 2022, under the terms of the RCF, four of the five banks agreed to extend the maturity of £130 million to 14 February 2026, with the residual £35 million expiring at original date of 14 February 2025.
The Group's committed borrowing facilities also include a three-year \$53.0 million (£39.1 million) amortising Term Loan signed on 15 November 2021 to finance the acquisition of Savage, and a three-year \$47.0 million (£34.7 million) amortising Term Loan signed on 7 January 2022 to finance the acquisition of Audix.
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 2024.
The Board has recommended a final dividend of 24.0 pence per share amounting to £11.1 million (2020: 4.5 pence per share amounting to £2.1 million). The final dividend, subject to shareholder approval at the 2022 Annual General Meeting, will be paid on Friday, 20 May 2022 to shareholders on the register at the close of business on Friday, 22 April 2022. This will bring the total dividend for the year to 35.0 pence per share. A dividend reinvestment alternative is available with details available from our registrars, Equiniti Limited. The Board's objective is for a progressive and sustainable dividend and believes it is appropriate for the Group to target a total dividend cover of 2.0-2.5 times adjusted basic earnings per share*.
Group Finance Director 28 February 2022
* In addition to statutory reporting, Vitec reports alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to aid the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary.
| KPI | 2021 | Performance | Progress | Link to strategy |
|---|---|---|---|---|
| Health and safety: accident record Number of accidents resulting in greater than three days' absence |
Nil | 2021 0 2020 0 2019 2 |
In 2021 we met our target of zero accidents resulting in greater than three days' absence |
n/a |
| Constant currency revenue (decline)/growth Change in revenue on operations at constant exchange rates |
43.5% | 2021 43.5% 2020 -22.9% 2019 -3.9% |
Increase driven by recovery from suppressed demand in 2020 due to the pandemic |
1, 3 |
| Adjusted operating profit margin Adjusted operating profit divided by revenue |
11.7% | 2021 11.7% 2020 3.4% 2019 13.9% |
Increase driven by higher volumes |
2, 3 |
| Adjusted profit before tax Adjusted profit before tax |
£42.4m | 2021 42.4m 2020 5.5m 2019 48.0m |
Increase driven by higher volumes |
1, 2, 3 |
| Adjusted basic EPS Adjusted profit after tax divided by weighted average number of shares outstanding during the period |
69.9p | 2021 69.9p 2020 9.0p 2019 80.6p |
Increase driven by higher adjusted profit after tax* |
1, 2, 3 |
| Return on Capital Employed Adjusted operating profit divided by the average total assets, current liabilities excluding the current portion of interest-bearing borrowings, and non-current lease liabilities |
16.1% | 2021 16.1% 2020 3.7% 2019 19.0% |
Increase driven by higher adjusted operating profit* |
1, 2, 3 |
| Cash conversion Adjusted operating cash flow divided by adjusted operating profit* |
108% | 2021 108% 2020 257% 2019 85% |
Tight control of cash despite higher inventory due to component shortages |
1, 2 |
| Revenue in APAC Revenue from selling to countries in the Asia Pacific region as a percentage of total revenue |
15.6% | 2021 15.6% 2020 18.9% 2019 20.2% |
Slightly lower than 2020 due to high growth areas outside of APAC |
1, 3 |
* A summary of APMs is given in the Glossary on pages 201 to 203.
2019 has been restated to include the non-current lease liabilities, which were not included in the 2019 calculation.
The Group has a well-established and effective framework for reviewing and assessing risks and has appropriate processes and procedures to mitigate against them.
To achieve its strategic objectives, Vitec recognises that it will take on certain business risks.
The Company aims to take business risks in an informed and proactive manner, such that the level of risk after mitigating action is aligned with the potential business rewards. Management regularly reviews risk exposures against current business risk level tolerances. Vitec aims to be a sustainable business, minimising its impact upon the environment, supporting and working to improve the societies in which it operates and with a rigorous governance framework ensuring the longevity of the business and minimising risks around its operations.
The risk management framework includes formal risk reviews and risk registers maintained at Group, Divisional and business unit level.
Our approach is underpinned by a commitment to fairness and honesty in our relationship with customers, suppliers, our people and all our stakeholders. The Group is risk averse with respect to risks that could negatively affect the safety of our employees and products, our brands or reputation, or risks that could lead to breaches of laws and regulations or endanger the future existence of the Group.
We have a disciplined financial management approach and in particular we seek to minimise the impact of short-term currency fluctuations on our business. The Group is committed to full compliance with all statutory obligations and full disclosure to tax authorities.
To support our strategic priorities, we have several business objectives which drive the way in which we proactively manage risks. These include: being a strong innovator and investing in research and development; identification of acquisition opportunities; optimising supply chain efficiency and operational excellence; and robust HR processes for resourcing and talent development.
| Principal risks | Movement | |
|---|---|---|
| 1. Demand for Vitec's products | Reduced | |
| 2. New markets and channels of distribution |
Stable | |
| 3. Acquisitions | Stable | |
| 4. Cost pressure | Increased | |
| 5. Dependence on key suppliers | Stable | |
| 6. Dependence on key customers |
Stable | |
| 7. | People | Increased |
| 8. Laws and regulations | Stable | |
| 9. Reputation of the Group | Stable | |
| 10. Foreign exchange and interest rates |
Stable | |
| 11. Business continuity including cyber security |
Stable | |
| 12. Climate change | New | |
| Principal risk | Specific priority | Movement | Strategic priority | Mitigation |
|---|---|---|---|---|
| 1 | 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. Demand may be impacted by changes in distribution channels. 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 changing demand. Demand for our consumer brands may also be impacted by competitor activity, particularly from low-cost countries. Overall, this risk is reduced compared with the prior year. This is due to a faster than planned recovery and a strong order book going into 2022. Several segments are performing extremely well, such as streaming solutions and lighting. Some specific segments remain affected by the pandemic, for example sales of bags are impacted by the huge decline in air travel. |
1 Organic growth 2 Margin improvement 3 M&A activity |
We value our relationships with our customers and to mitigate this risk we closely monitor 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. We complete appropriate market analyses before developing new products to ensure that they are appropriately designed for our target markets. We closely monitor the demand for new products and phase out old product lines. We are actively pursuing growth in selected emerging markets. We are increasingly focused on developing more sustainable products in order to meet changing consumer needs. For example, the majority of bag product ranges are made with recycled fabric. We actively pursue a strategy to reduce reliance on traditional market segments through the development of e-commerce platforms and products for adjacent niche markets. |
|
| 2 | 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 expect that the proportion of our business conducted through online channels will continue to increase, and we will continue our investment in new, innovative products which address the needs of independent content creators. Our ability to serve end consumers through enhanced digital experiences and channels is a competitive differentiator for Vitec. The Group is planning to further invest in developing its streaming capabilities. Some of the Group's proprietary wireless communication modules have applications in other vertical segments, such as medical, which we wish to leverage further. As a result, the risk relating to new markets and channels of distribution is stable overall. |
1 Organic growth 2 Margin improvement 3 M&A activity |
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 continue to develop our online presence leveraging a combination of owned and third-party platforms. The acquisitions made in 2021 and early 2022 will enable the Group to increase its exposure and capabilities in complementary segments (audio capture, gaming, specialist lighting). |
|
| 3 | Acquisitions In pursuing our business strategy, we continuously explore opportunities to expand 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. Several acquisitions were completed in the last 12 months: Lightstream, Quasar, Savage and Audix. These allow Vitec to develop capabilities and presence in segments that are complementary to existing businesses. |
3 M&A activity |
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 advisors where appropriate. The post-acquisition performance of each business is closely monitored and, before completion of any acquisition, a plan is developed to integrate the acquired businesses in an effective way. Good progress has been made in integrating recently acquired entities. |
| Principal risk | Specific priority | Movement | Strategic priority | Mitigation |
|---|---|---|---|---|
| 4 | Cost pressure We have seen significant increases in several categories of spend, notably freight, logistics and energy cost. However, demand conditions have remained strong which, combined with the premium differentiation of our products, has helped to reduce the pressure on price. |
2 Margin improvement |
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 expenses and cost base appropriately, allows us to support price increases when required. We have rationalised our product range to reduce complexity which will also allow us to achieve some cost saving on production. We continually review our production and sourcing activities for cost-saving opportunities. We review opportunities to improve productivity through deployment of practices such as lean manufacturing and robotics. Most of our products and services have a premium or niche differentiation. Vitec has in the past exited markets where the margins and sales volumes were too unattractive. We continue to monitor our pricing across the main currencies to reflect ongoing fluctuations. |
|
| 5 | 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 over the last few years 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. This trend has reversed somewhat in the last few months with the in-sourcing of critical manufacturing processes related to JOBY. Global supply chain shortages of certain raw materials and components, in particular semiconductors, have presented a major challenge to Vitec during 2021. Due to shortages of key components, the launch of certain products has been delayed, and the order fulfilment lead times have increased. We expect this to continue to be challenging in 2022. |
1 Organic growth 2 Margin improvement |
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. For example, some of the Group's metal firmware requirements are now sourced from Vitec's Costa Rican plant. We look to in-source manufacturing capability for strategic products where possible, in order to reduce reliance on third parties. This is the case for JOBY. The Group's business interruption insurance (within deductible limits) provides coverage for named key suppliers. The Group has responded to the issue of component shortages in several ways, by directing the utilisation of critical components in favour of higher margin products, and identifying alternative sources. Where necessary, the Group is re-engineering the design of products to reduce reliance on the most scarce components. Purchase planning activities have increased, for example, by placing orders earlier in advance, and where possible increasing buffer stock. |
|
| 6 | 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 marginally more than 10% of the Group's total turnover in 2021. The Company also works with a variety of customers on large sporting events, and the extent of these activities varies year-on-year. |
1 Organic growth 2 Margin improvement |
We mitigate this risk by closely monitoring our performance with customers through developing strong relationships and dedicated account management teams, and we monitor the financial performance of our key customers and the receivable balances outstanding from them. We continue to expand our customer base including entering into new channels of distribution and acquiring business in adjacent market segments. The increased investment in digital platforms will enable the Group to better serve end consumers and reduce reliance on third-party distributors. The Group has various credit insurance schemes in place (covering approximately 50% of the total trade debtor balance). |
| Principal risk | Specific priority | Movement | Strategic priority | Mitigation |
|---|---|---|---|---|
| 7 | People We employ around 2,000 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. The health and safety compliance requirements resulting from COVID-19 still present a number of challenges. There may also be a risk that the morale of our employees becomes eroded by the impact of the crisis and initiatives such as furlough and other cost reduction programmes. As the global economy recovers, we are seeing greater competition for engineering talent and there is an increased risk that some key engineers may leave Vitec thereby adversely affecting the development of new products. |
1 Organic growth 3 M&A activity |
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 reward our people fairly and have appropriate recruitment, appraisal, talent management and succession planning strategies to ensure we recruit and retain diverse, 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. During the pandemic, our primary concern was the health and safety of our employees and their relatives. The Group complies fully with all regulatory requirements. We have engaged extensively with employees throughout the pandemic and we mitigate the risk around our people by normalising pay in line with recovery and adopting mitigating measures such as restricted shares for senior employees. We continually review and adapt the employee retention plans for key employees in particular engineers. |
|
| 8 | 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, sanctions regimes, environment and climate change, 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. The EU State Aid investigation is still ongoing and may result in a maximum exposure of £3.0 million. The current tensions affecting the Ukraine region increase the possibility of economic sanctions applied by the US and Europe which may restrict Vitec's ability to trade with certain entities. The increases in tariffs on imports from China to the US, which were implemented during the previous US administration, have had an adverse effect on the purchase cost for some of our raw materials. The Group has not experienced any significant adverse impact from Brexit following the end of the transition period in December 2020. |
1 Organic growth 2 Margin improvement |
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 parties that infringe our intellectual property rights. We continue to monitor the longer-term effects of Brexit. We use a compliance search engine to monitor and vet third parties, including for possible issues relating to sanctions regimes. With regard to the China/US tariffs affecting imports from China into the US, we continually evaluate our pricing and sourcing strategy to mitigate the impact of additional tariff costs. We are sourcing products in alternative locations if possible (e.g. LED lights now sourced from Thailand and some of the production of bags moved out of China). |
| Principal risk | Specific priority | Movement | Strategic priority | Mitigation | |
|---|---|---|---|---|---|
| 9 | Reputation of the 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. We are mindful of the increasing levels of regulatory and stakeholder scrutiny of companies' affairs, coupled with the widespread impact of social media. The societal impact of our brands and the sustainability of our operations are increasingly important to consumers of Vitec products and our investor community. There is increased scrutiny of Vitec's ESG credentials, and a need to comply with increasing ESG regulations (ESOS, TCFD). |
1 | Organic growth |
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 Vitec Code of Conduct. Our IT Policy covers social media matters and is communicated to all employees and contractors. A whistleblowing facility is in place to allow employees to confidentially report any compliance issues. We have implemented a compliance programme with key vendors which includes site inspections and compliance database checks, and we require all vendors to sign up to the Vitec Code of Conduct or equivalent standards. For many years, we have implemented corporate citizenship initiatives and programmes to reduce Vitec's environmental impact. In 2021, we launched a structured, Group-wide, ESG programme and have implemented several key initiatives such as investments to reduce energy consumption, and initiatives to increase the sustainability of our products, for example through reduced packaging or use of recycled materials. |
|
| 10 | Foreign exchange and interest 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. Due to its debt, some of which is floating, the Group is also exposed to the risk of increase in the base rates of Bank of England and US Federal Reserve. There is the possibility that these will increase rapidly in the short term, as central banks move to contain inflation. |
1 2 |
Organic growth Margin improvement |
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. With regard to the exposure to rising interest rates, we have addressed this exposure by fixing approximately half of the interest charge for the remainder of the loan terms, through the use of swap instruments. In 2022, we will prioritise cash generation in order to repay debt. |
|
| 11 | Business continuity including cyber security There are risks relating to business continuity resulting from specific events such as natural disasters including earthquakes, floods, fires, or pandemic flu. 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 to support our business and therefore there is a cyber security risk for the Group. The latter continues to be a major focus for the Group. |
1 | Organic growth |
We address this risk with business continuity plans and disaster recovery plans at our key sites, and by carrying out regular IT and cyber security vulnerability assessments. There are standard procedures in place to escalate breaches and remediate IT security incidents. We have global insurances in place which provide cover for certain business interruption events. We review coverage annually to determine whether adjustments are needed. We continue to closely monitor our supply chain, and identify back-up suppliers. For components with availability concerns, we increase advanced purchases of those components, seek alternative suppliers, and also ration the use/direct the use of those components to the most profitable product lines. |
| Principal risk | Specific priority | Movement | Strategic priority | Mitigation |
|---|---|---|---|---|
| 12 | Climate Change We understand the serious nature of the challenges relating to climate change and the implications this may have on our operations and business model. We consider the physical risks to people and assets based on a projected increase in the frequency of natural disasters caused by climate change, and the impact of gradual changes such as increasing temperature. Shifting to a low-carbon model may necessitate expensive investment in new machinery and other costs may be adversely impacted such as insurance. We expect additional costs to arise to meet regulatory and reporting requirements, and costs to offset emissions. |
NEW | 1 Organic growth |
We are developing strategies to monitor and mitigate the potential physical impact of climate change on our operations and people, and our supply chain, as well as the risks and opportunities and potentially additional costs associated with the transition to a low-carbon economy. We believe that we are relatively well placed to manage this risk due to our environmental initiatives, diversified geographical footprint and supply chain, and the specific attributes of the content creation industry. We have established a Group-wide ESG Committee to oversee the Group's response to climate change and expanded the Group's ESG programme with a key pillar being a reduction in carbon emissions. Several initiatives are underway, or have been completed, to reduce energy consumption. Further details are included in the TCFD section on page 52. |
Vitec has a clear purpose and strategy, and a strong belief in doing business the right way. Throughout 2021, we have continued developing our ESG agenda to ensure a focused and coordinated Group-wide approach.
Stephen Bird Group Chief Executive
Responsibility
50 Vitec's pathways to net zero
52 Task Force on Climate-related Financial Disclosures Report
Read more online vitecgroup.com/responsibility
We are a small company with a global footprint and are committed to working responsibly. We have a coordinated Group-wide approach to ESG, focusing on the material issues that affect our business and our stakeholders. We engage with our stakeholders – including our employees, shareholders, customers, supply chain and rating agencies – to develop, deliver and evolve the Group's ESG strategy according to their needs.
Our strategy includes clear objectives and targets, prioritising actions that can deliver the greatest impact. It is designed to positively contribute to the success of the Company, to reduce the impact of the business on the environment, to prioritise the health and safety of our employees, and to improve the diversity and inclusivity of our workplaces.
We have worked closely with an independent, specialist ESG consultancy to develop our strategy, and to improve our disclosure by collecting detailed data and comprehensively, clearly and consistently reporting our progress and credentials. To reflect Vitec's commitment to ESG, we will publish our first standalone ESG Report which will cover Vitec's ESG programme and performance in detail. The Report will be published on our website in April 2022. This Annual Report contains an overview of our ESG activities.
Both mandatory and voluntary ESG disclosures have been considered in the creation of Vitec's ESG strategy, as follows.
We have aligned our ESG strategy and performance to the United Nations Sustainable Development Goals, specifically, SGD12 Responsible Consumption and Production and SDG13 Climate Action. Our Diversity and Inclusion strategy discussed on page 65 looks to contribute towards SDG5 Gender Equality. Our community efforts detailed on page 68 intend to contribute towards SDG4 Quality Education and SDG8 Decent Work.
We have a robust governance framework and a Code of Conduct that sets out our values and the behaviour expected from Vitec, our people, and our supply chain. ESG governance has been integrated into our existing processes, and this framework underpins a sustainable and responsible business for our stakeholders.
Image: Chris McLennan
The Vitec Board provides oversight and has overall responsibility for the Group's ESG performance. In response to the growing importance and increasing stakeholder interest in ESG, the Board established an ESG Committee to coordinate Vitec's ESG performance. The ESG Committee is chaired by the Group Chief Executive Stephen Bird and comprises senior executives representing the Group and each Division. The Committee is mandated to meet the Board's growing ESG standards and ambitions, lead initiatives across the Group and ensure compliance with emerging regulations. The Committee meets at least once a quarter, reporting Divisional ESG progress and updates the Board on Vitec's ESG performance. A percentage of the Group Chief Executive's remuneration has been tied to the Group's ESG performance; more details can be found in the Directors' Remuneration report from page 106.
In 2021, the Board, ESG Committee and broader management identified and addressed material issues affecting business operations and Vitec's stakeholders. Clear objectives and targets were set across all critical areas following stakeholder feedback, and data collection measures were introduced to monitor and report progress.
ESG Committee led by
(1) Using the location-based approach.
| Target | Progress 2021 | KPIs 2022 | |
|---|---|---|---|
| 1. Prioritise health and safety | |||
| No major lost time accidents. | Provided continued assurance on the number of accidents in 2021. |
Expand the way we externally report accidents (including those resulting |
|
| Completed external compliance verification in 2021 and plan to |
in under three days absence) and all near misses. |
||
| repeat every three years. | Continue to identify and monitor any H&S limitations. |
||
| Zero accidents resulting in over three days or more absence. |
|||
| 2. Reduce carbon emissions | |||
| Ensure that 100% of Group operations capture and report on CO2e emissions. |
In 2021 the Group started to measure its Scope 3 emissions. |
Develop approach to include Category 9 Downstream |
|
| Reduce our Scope 1 and 2 emissions by 25% by 2024: 50% by 2030: 90% by 2035 based on our 2019 baseline of 4,580 tCO2e.(1) |
Transportation and Distribution and Category 12 End-of-Life Treatment of Sold Products (focusing on packaging), to cover all emissions by 100%. |
||
| Reach net zero by 2035 in Scope 1 and 2. |
Improve data collection to move away from a spend-based methodology. |
||
| Scope 1 emissions | |||
| Scope 1 emissions are direct greenhouse ("GHG") emissions that occur from sources that are controlled |
In 2021, we conducted site surveys to establish energy savings options to reduce demand and use of gas. |
Decide which options to implement and confirm budget requirements. |
|
| or owned by Vitec (i.e. gas usage and transportation fuel). |
We are gradually converting the Company motor fleet to electric/ |
25% of our fleet will be electric/hybrid by 2024. |
|
| Reduce Scope 1 emissions by 35% by 2027. |
hybrid vehicles. Our Company motor fleet accounts |
Carry out a feasibility study into | |
| for 23.29% of the Group's Scope 1 emissions and 0.26% of the Group's total carbon emissions. |
charging capacity at sites. | ||
| In 2021, the Group started to measure its refrigerants which account for 1% of the Group's Scope 1 emissions and 0.01% of the Group's total carbon emissions. |
Improve data collection for sites where refrigerant data was not recorded. We aim to transition to low global warming potential F-gases over time. |
||
| Target | Progress 2021 | KPIs 2022 | |
|---|---|---|---|
| 2. Reduce carbon emissions/continued | |||
| Scope 2 emissions | |||
| Scope 2 emissions are indirect GHG emissions associated with Vitec's purchase of steam, heat or cooling. |
Measures were initiated to optimise consumption, including solar energy systems implemented |
On-site generation solar panels will reduce global emissions. |
|
| Reduce Scope 2 emissions by 50% by 2030 and 90% by 2035. |
in Bury St Edmunds, UK and Cartago, Costa Rica. Currently assessing the feasibility at other |
||
| Group sites. | Convert to LED lights across the Group to reduce emissions. |
||
| Full conversion to LED lighting at Feltre in progress. |
Switch to renewable energy contracts across the whole Group by 2024. |
||
| Secured renewable energy contracts in Italy, the UK and Costa Rica. |
|||
| Scope 3 emissions are indirect GHG | Scope 3 emissions | ||
| emissions of Vitec's value chain. Reduce business air travel by 50% by 2024 (from a baseline of c.1,000 tCO2e |
Limited flights where appropriate by moving to virtual meetings instead. |
Continue to limit flights where appropriate by moving to virtual meetings instead. |
|
| in 2019). Strategically reduce our Scope 3 emissions to meet our 2045 Net Zero target. |
Most Scope 3 categories calculated and revised our target to be more achievable and aligned with wider society. |
Implement data recommendations for each category in the carbon balance sheet. |
|
| Scope 3 emissions account for 97% of the Group's carbon emissions. |
Category 7 Employee Commuting example: hybrid approach to working implemented and re promoted cycle to work scheme. |
Develop our Net Zero Strategy to understand and engage our supply chain and staff to influence carbon reductions. |
|
| Employee commuting accounts for 1% of the Group's total carbon emissions. |
Develop an understanding of how to decarbonise employee commuting across the Group, i.e. understand |
||
| Category 5 Waste Generated in | transport infrastructure per country. | ||
| Operations, where possible we collected and presented activity based data on waste (i.e. waste type, mass and disposal method). |
For sites with only spend data available, begin collecting activity based data (i.e. waste type, mass and disposal method). |
||
| Target | Progress 2021 | KPIs 2022 |
|---|---|---|
| 3. Reduce packaging and waste | ||
| 50% of current cardboard packaging consumption will be replaced by sustainable, FSC grade cardboard or eliminated. |
Initial measurement complete and several initiatives underway. |
Continue monitoring and measuring progress. |
| 50% reduction in annual consumption of single-use plastics by 2024. |
Our largest manufacturing sites are already close to 0% waste to landfill, supported by ISO environmental programmes. We continue to drive initiatives for improved recyclability of all inputs and commodities/raw materials used in the manufacturing process. |
Continue monitoring and measuring progress. |
| Continue to reduce waste in landfill. | We continue to segregate our waste across our sites and update manufacturing technology to more efficient models. |
Continue monitoring and measuring progress. |
| Start recording water consumption and set a target. |
We set a goal to start recording water consumption. |
To collect data on water consumption and develop a metric for year-on-year measurement. |
| 4. Embed sustainability into our product life cycle | ||
| By 2025 have implemented a product life cycle (cradle to grave) for five of the Group's top-selling products. |
Imaging Solutions leads the way through a detailed cross-functional exercise with Bologna Business School. Product life cycle is already in place for some products (Gitzo and Manfrotto) with a roadmap for completion in 2022. |
Identify the five products and design and implement a consumer questionnaire to ask how they dispose of their products. Target the most significant areas of concern such as lithium batteries and |
| Started to target the most significant areas of concern in other Divisions, such as lithium batteries and recycling around electrical components. |
recycling around electrical components. |
|
| Gitzo Légende bag launched in June comprising 65% of recycled fabric, non-animal tested and non-toxic synthetic eco-leather. Lowepro launched PhotoSport bag in 2021 with 75% recycled fabric and aspiration for Lowepro Bags full product range to be 100% recycled fabric by 2024. |
| Target | Progress 2021 | KPIs 2022 | |
|---|---|---|---|
| 5. Formalise the integrity of our supply chain | |||
| Request supplier-specific data on products from top five largest |
Vetted all direct suppliers to encompass ESG dimensions. |
Engage the Group's top five suppliers by revenue with a products |
|
| suppliers across the Group by 2025. This is key to understanding the |
Reputational risk around supply chain already actioned through |
questionnaire. | |
| impacts of procured products on the | RiskRate vetting. | ||
| environment and society, e.g. virgin materials vs recycled materials. |
Recommunicated responsible sourcing policy to internal and external stakeholders. |
||
| Centralised APAC procurement which will enable greater consistency and transparency. |
|||
| 6. Improve diversity, equality and inclusion | |||
| Over the next five years, aim to improve the Group's overall gender diversity |
We developed a new D&I strategy with targets and action plans |
Continue to monitor and manage progress. |
|
| from 70% men and 30% women. At a senior leadership level, we expect the |
tailored to address our industry and our key area for improvement: |
Engage employees on this topic. | |
| ratio of women to be at least 30%. | to actively recruit more female employees. |
Recommunicate our Code of Conduct to all employees in 2022. |
|
| Our Code of Conduct sets out an express prohibition on discrimination of any kind. |
|||
| 7. Positively impact the communities in which we operate | |||
| Over a four-year period, positively impact one disadvantaged person for |
Many programmes were put on hold during 2021 due to the |
Continue monitoring and measuring progress. |
|
| every Vitec employee in the communities we operate. |
pandemic. Divisional programmes have restarted and are being reinvigorated, for example, the "Picture of Life" in our Imaging Division. |
We will continue to develop a structured and coherent approach and leverage external communications. |
|
| In 2021, the Group positively impacted 394 disadvantaged people. |
| Ta rg et s |
Scope 1 & 2 |
Scope 1 gaseous & other fuels |
Scope 1 transport (Company cars) |
Scope 2 electricity |
Scope 3 business air travel |
Scope 3 value chain |
|---|---|---|---|---|---|---|
| Baseline 2019 4,580 tonnes of CO2 2024 25% reduction 2025 Carbon Neutral 2030 50% reduction 2035 90% reduction 2035 Net zero |
2027 35% reduction |
2024 Convert 24% fleet to electric/ hybrid |
2030 50% reduction 2035 90% reduction |
Baseline 2019 c.1,000 tonnes of CO2 2024 50% reduction |
2045 Net zero |
We have worked on the net zero strategy throughout 2021 and have analysed the data for Scopes 1, 2 and 3 in accordance with the Greenhouse Gas ("GHG") Protocol. In the SECR report on page 58, we have set our energy efficiency measures for the next five years to begin decarbonising our Scope 1 and 2 emissions.
We have set near-term targets as we journey to be net zero for Scope 1 and 2 by 2035 and Scope 3 by 2045. Over the coming months, the Board will review the various strategic options to achieve our near and long-term targets.
The Vitec Group plc has complied with the requirements of Listing Rules 9.8.6R by including climate-related financial disclosures consistent with TCFD recommendations and recommended disclosures. We will continue to develop our TCFD reporting in the 2022 Annual Report as we further embed the recommendations and latest guidance.
We recognise that climate change is a complex issue and, although our assessment that the risk to the Group's operations is minimal, we have worked closely with an independent, specialist ESG consultancy to rigorously assess the impact of climate change on the business. In our first year of reporting, we have focused on three key areas.
The Board provides oversight to climate-related risks and opportunities which have been integrated into the business strategy and business targets. The Audit Committee reviews financial and non-financial risks outlined in the Group Risk Register, including the Climate Change Principal Risk. The Group Risk Assurance Manager, Group Company Secretary and Deputy Group Finance Director work with third-party experts to assess the potential climate-related risks for the short, medium and long term to annually review the Climate Change Principal Risk criteria. The responsibility for managing Vitec's climate-related risks and opportunities is assigned between Divisional CEOs, Operations Directors, Group Risk Assurance Manager and the Group Company Secretary. The Group Risk Assurance Manager coordinates the work between the ESG Committee and Divisional management across the business to ensure that climate risks and opportunities are identified, the potential impacts are accurately reported, and risk mitigation measures are adopted. The Group Risk Assurance Manager regularly reviews mitigation plans on behalf of the ESG Committee and provides annual updates on climate-related issues to Group operations. Further details on how TCFD is managed at Group and in key markets is available in our standalone TCFD Report that will be published in April 2022.
Several sessions were facilitated by the aforementioned third-party expert, to explain and raise awareness of the concepts of climate change. These sessions have involved the Board and senior management. In addition, the external auditors have provided an overview of climate change regulatory requirements to the Audit Committee.
Vitec has an established strategy and purpose. To ensure business longevity, we have worked to understand the impact of climate change on the Group's operations, strategy and financial planning. Adopting the TCFD recommendations within our existing risk management processes has enabled Vitec to develop a climate-risk impact framework. In 2021, a detailed climate scenario analysis was carried out across all 33 operational sites of the Group. A more comprehensive analysis was conducted for the Group's 12 largest sites – based on revenue and employee numbers. In 2022, we aim to extend the analysis to our key supply chain routes. The findings of the climate scenario analysis were presented to the Group Risk Assurance Manager, ESG Committee members and site managers to assess and appropriately classify the potential climate-related risks and opportunities across Vitec's operations. The Group Risk Assurance Manager, together with the Group Finance Director, assess if the potential climate-related risks and opportunities will significantly increase the Climate Change principal risk criteria in the short, medium and long term.
To assess the impact of climate change on our organisation we consider a range of scenarios. A climate scenario is a plausible representation of future climate that has been constructed for explicit use in investigating our future exposure to the impacts of climate change. We modelled our climate scenarios across three time-horizons using several established models: Climada natural catastrophe damage model, CORDEX regional climate projections, and IAMs (Integrated Assessment Models).
| Scenarios Warming Pathways | Time horizons |
|---|---|
| Below 2°C Scenario – Organisations begin to align more closely with the Paris Agreement and Science Based Targets initiative (1.5°C) for an orderly and coordinated transition to a low-carbon economy. |
Short-term 2020-2025 |
| Between 2-3°C Scenario – Businesses respond to patchwork policies with intermittent action, aligning with current forecasts. |
Medium-term 2025-2035 |
| Above 3°C Scenario – Bank of England models a recession; minimal climate action and global emissions rise unchecked. |
Long-term 2035-2050 |
Initial risk levels were considered before determining a final risk level based on mitigating measures. The following tables summarise the risks and opportunities that were identified as material and which cumulatively results in Climate Change being reported as a principal risk. While we have identified Climate Change as a principal risk, this process has determined that Climate Change and its impact is low for the Group in the medium term, and the risk is therefore categorised as moderate overall. There is no material impact in relation to 2021.
In accordance with the 2018 UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three-year period, taking account of the principal risks and uncertainties set out on pages 36 to 41 which include the climate-related risk. 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. The climate-related risk does not materially impact the Group's longer-term viability assessment. The maximum annuity impact of climate change, based on the impact ranges below, was factored into the long-term financial modelling for the Group's cash generating units ("CGUs"). There is no material impact on the available headroom.
| Description | Timeline | Impact range | Explanation |
|---|---|---|---|
| Transitional risks | |||
| Increased reporting requirements pertaining to climate change and increased resourcing for environmental initiatives. Risk is highest in the <2°C Scenario. |
Short/Medium/Long-term (2020-2050) |
Additional cost of £0.3 – £0.7m per annum. |
This reflects the incremental headcount required to deliver initiatives related to climate change and reporting thereof, increased management effort, steering Group activities and third-party consulting costs. We expect additional resourcing to work with the supply chain to reduce Scope 3 (indirect) emissions. |
| Carbon costs associated with carbon taxes and offsetting to hit our emissions goals; costs are highest in 2-3°C Scenario, as governments may bring in carbon taxation quickly |
Medium/Long-term (2025-2050) |
Additional cost of up to £0.3m per annum. |
The additional cost is derived by reference to available carbon cost benchmarks, applied to Vitec's projections for Scope 1 and 2 emissions over the next 15 years. |
| and in an unplanned way. | The annual charge may reach £0.3m in 2026, under the "2-3°C Scenario" assumption model as defined above, when carbon cost is projected to peak. |
||
| Mandates on, and regulation of, existing products and services such as UK plastic tax. Increased likelihood in <2°C Scenario. |
Short/Medium/Long-term (2020-2050) |
– | The impact is currently negligible based on new/ imminent legislation but may increase in the future as countries introduce new forms of environmental taxes. |
| Description | Timeline | Impact range | Explanation |
|---|---|---|---|
| Transitional risks/continued | |||
| Changing consumer preferences and increased sensitivity to ESG concerns across all scenarios. |
Medium/Long-term (2025-2050) |
– | This is a significant concern; however, we believe that Vitec is well-positioned, given the initiatives already underway to improve the sustainability of Vitec's products. No financial impact is assigned at this point. We will develop metrics to measure the relative environmental impact of different product lines. |
| Costs of energy and raw materials rising. Risk is variable across each Scenario. |
Short/Medium-term (2020-2035) |
– | Climate change may result in increased energy and raw material cost. The impact will be offset by Vitec's ability to pass incremental input costs onto customers and efforts to increase the use of sustainable components, improved efficiency and renewable energy. Hence no financial impact is assigned at this point. |
| Increased stakeholder concern damaging our reputation, risk in >3°C Scenario. |
Short/Medium/Long-term (2020-2025) |
– | We do not believe there is any significant risk in respect of this. Vitec's comprehensive ESG programme and commitment to a sustainable model mitigates this risk. |
| Description | Timeline | Impact range | Explanation |
|---|---|---|---|
| Physical risks | |||
| Increased frequency of natural disasters at critical sites, for example, California wildfires. These risks are most significant in >3°C Scenario. This risk may also disrupt the supply chain. |
Short/Medium/Long-term (2020-2050) |
£0.1m – £0.2m per annum (additional property and business continuity insurance cost). |
Most Vitec sites are currently rated as low-risk from a climate change perspective (this will be outlined in the standalone TCFD report). This follows a rigorous assessment of the sites. The key sites are built to robust standards, often to withstand seismic pressure and climate threats. |
| Nonetheless, the risk of damage to property and surrounding infrastructure increases with time under the different scenarios. We mitigate this through additional site mitigation measures (e.g. improved drainage systems), business continuity plans, and global insurance for property damage and business interruption, covering loss of earnings. |
|||
| We will monitor the risk rating of each site on an annual basis, where necessary, considering the options to relocate operations if necessary. |
|||
| Where possible, we diversify our supplier base and source away from countries with higher risk from a climate change perspective. For example, we have in-sourced some of the production relating to JOBY. Our business is less reliant on the camera industry which has been severely impacted by natural disasters in the Far East. |
Physical risks/continued Climate change is expected to result in an overall increase in insurance premiums due to increased frequency of natural disasters. Insidious changes relating to climate change, rising as time progresses this risk is most significant in our 2-3°C and >3°C Scenario. Medium/Long-term (2025-2050) – Increased heatwaves may have health and safety implications and require more energy for cooling our facilities. Additional costs will be offset by increased energy efficiency and selfsufficiency. Opportunity Substituting existing products to loweremission alternatives. Sustainable products have a competitive edge. Short/Medium-term (2020-2035) – The opportunity is not fully quantified at this point. We have already implemented some initiatives to make some of our products more sustainable which may also make these products more competitive. We will develop metrics to measure the relative environmental impact of different product lines. Reducing cost base through initiatives to increase energy efficiency, and relocating aspects of the supply chain. Short/Medium/Long-term (2020-2050) – This opportunity is not fully quantified at this point, but some projects are already expected to generate a financial return. For example, the ongoing installation of solar panels in Bury St Edmunds has an associated payback period of less than five years. In-sourcing of JOBY is environmentally beneficial but also improves cost base. Description Timeline Impact range Explanation
As Climate Change is classified as a principal risk, the Board has ultimate responsibility for climate-related risks and opportunities. We have a wellestablished framework for assessing our risks and assigning mitigation actions from years of development in a competitive business landscape. Our climate risk management process is to identify, evaluate and address potential risks and opportunities associated with climate change to our operations. Four interconnected steps were undertaken:
Step 1 – We identified risks through stakeholder engagement and risk workshops, involving stakeholders from the beginning to utilise their knowledge of Vitec. In total, eight climate-related risks and two opportunities were identified.
Step 2 – We assessed each risk and opportunity using our scenario analysis, accounting for the full range of each one's potential impact. This allowed us to determine the material impact and rank each risk and opportunity.
Step 3 – Our risk management options were appraised. We recognise that all good decisions rely on the effective analysis of alternate options. A risk management response was agreed on depending on how it helped build our resilience to the climate-related issue.
Step 4 – Finally, we addressed each risk and opportunity, and controls were implemented to prevent, reduce or mitigate downside risks, or increase the likelihood of opportunities. We recognise that residual risks will remain and communicate this across the business at this stage. At a minimum, our management teams review risk exposures against business risk level tolerances annually.
We use a wide variety of metrics to measure climate-related impacts. These metrics consist of Vitec's greenhouse gas inventory, including the Group's Scope 1, 2 and 3 carbon emissions and the emissions reduction pathway shown on page 50 aligned with the Paris Agreement 1.5°C warming scenario. We have set several ambitious targets to manage climate-related risks described above (pages 53 to 56), and reduce our impact on the environment, such as becoming carbon neutral for Scope 1 and 2 by 2025, net zero for Scope 1 and 2 by 2035, and net zero for Scope 3 by 2045. Vitec's other environmental indicators (pages 47-48) on energy efficiency measures, waste reduction, water consumption, product sustainability, and supply chain integrity contribute towards mitigating some transitional and physical risks and capitalise on the potential opportunities in substituting products to lower-emission alternatives. We will annually measure and monitor severe weather events across our sites. A percentage of the Group Chief Executive's remuneration has been tied to the Group's ESG performance, which includes climate change-related matters. Other senior employees are also assigned specific individual performance objectives related to ESG.
Reducing the Group's carbon footprint is a priority for Vitec. In 2021, we began calculating our entire Scope 3 emissions for the first time following the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard using 2020 data to set our baseline. Under the GHG protocol, there are 15 reporting categories, of which 11 apply to the Group. However, Category 9 Downstream Transportation and Distribution was omitted for 2020 because there is no feasible system to capture this data. In 2022, we will introduce measures to begin to capture this data. Further, given the magnitude of assessing the carbon emissions of our value chain, we have set yearly milestones to extend the reporting boundaries of complex categories. We will begin to calculate our 2021 Scope 3 data in Q2 of 2022 and intend to align our Scope 3 with our annual SECR reporting period. By widening our emissions data collection, we better understand our operations and value chain high emitting areas, which will help us develop our roadmap to achieve net zero in 2035 for Scope 1 and 2, and net zero in 2045 for Scope 3. Our Scope 1 and 2 emissions represent 3% of our total Group emissions, with our Scope 3 emissions representing the remaining 97%. Our detailed Scope 3 inventory can be found in our TCFD and ESG Reports, published on our website in April 2022.
| Emissions Scope | 2019 tCO2e (Scope 1 and 2 baseline ) |
2020 tCO2e (Scope 3 baseline) |
2021 tCO2e |
Net Zero target year |
|---|---|---|---|---|
| Scope 1 | 1,479 | 833* | 1,357 | 2035 |
| Scope 2 | 3,101 | 2,072* | 2,524 | 2035 |
| Scope 3 | not fully captured | 119,435 | to be calculated Q2 2022 |
2045 |
| Total Scope 1 and 2 | 4,580 | 2,905 | 3,881 | 2035 |
| Total Scope 1, 2 and 3 | – | 119,435 | – | 2045 |
* Scope 1 and 2 emissions impacted by COVID-19.
This report summarises the energy usage, associated emissions, energy efficiency action and energy performance for the Group, under the government policy Streamlined Energy and Carbon Reporting ("SECR"), as implemented by the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Total Consumption (kWh) figures for energy supplies reportable by the Group are as follows:
| Utility and Scope | UK (kWh) (2020) |
UK (kWh) (2021) |
Global (excluding UK) (kWh) (2020) |
Global (excluding UK) (kWh) (2021) |
Total kWh (2020) |
Total kWh (2021) |
|---|---|---|---|---|---|---|
| Scope 1 – gaseous & other fuels | – | 945,124 | – | 4,639,214 | – | 5,584,338 |
| Scope 1 – transport (company fleet) | – | 243,081 | – | 1,104,929 | – | 1,348,010 |
| Scope 2 – electricity | – | 1,716,613 | – | 8,784,640 | – | 10,501,253 |
| Scope 2 – purchased heat, steam & cooling | – | 9,148 | – | – | – | 9,148 |
| Scope 3 – grey fleet | – | 51,642 | – | 53,895 | – | 105,537 |
| Total energy use – all Scopes | 2,900,826 | 2,965,608 | 10,860,347 | 14,582,678 | 13,761,173 | 17,548,286 |
The total emission (tCO2e) figures for energy supplies reportable by The Vitec Group plc are as follows:
| Utility and Scope | UK (tCO2e) 2020 |
UK (tCO2e) 2021 |
Global (excluding UK) (tCO2e) 2020 |
Global (excluding UK) (tCO2e) 2021 |
Total (tCO2e) 2020 |
Total (tCO2e) 2021 |
|---|---|---|---|---|---|---|
| Scope 1 total Scope 1 – gaseous & other fuels Scope 1 – transport (company fleet) Scope 1 – refrigerants |
– – – |
173.14 56.77 – |
– – – |
853.91 259.03 14.23 |
– – – |
1,357.08 1,027.05 315.80 14.23 |
| Scope 2 total Scope 2 – electricity Scope 2 – purchased heat, steam & cooling |
– – |
364.49 1.56 |
– – |
2,158.10 – |
– – |
2,524.15 2,522.59 1.56 |
| Scope 3 total Scope 3 – grey fleet Total emissions – all scopes |
630 | 11.92 607.88 |
2,905 | 11.74 3,297.01 |
3,535 | 23.67 23.67 3,904.89 |
An intensity metric of kWh/tCO2e per £m turnover has been applied for the annual total consumption.
| Global | Global (excluding |
|||||
|---|---|---|---|---|---|---|
| (excluding UK) | UK) | Total Global | Total Global | |||
| UK Intensity | UK Intensity | Intensity | Intensity | Intensity | Intensity | |
| Metric | Metric | Metric | Metric | Metric | Metric | |
| Intensity Metric | (2020) | (2021) | (2020) | 2021 | 2020 | 2021 |
| kWh / tCO2e / £m T/O | – | 1.54 | – | 8.32 | 10 | 9.86 |
The Group is committed to year-on-year improvements in our operational energy efficiency. A register of energy efficiency measures has been compiled and will be implemented within five years.
Reducing the Group's carbon footprint is a priority for Vitec. In 2021, we began calculating our entire Scope 3 emissions for the first time following the GHG Protocol using 2020 data to set our baseline. Under the GHG protocol, there are 15 reporting categories, of which 11 apply to the Group. Given the magnitude of assessing the carbon emissions of our value chain, we have set annual milestones to extend the reporting boundaries of complex categories. For this first year of implementation, we here excluded downstream transportation (Category 9). We will begin to calculate our 2021 Scope 3 data in Q2 of 2022 and intend to align our Scope 3 with our annual SECR reporting period. By widening our emissions data collection, we better understand our operations' high emitting areas, which will help us develop our roadmap to achieve net zero in 2035 for Scope 1 and 2, and net zero in 2045 for Scope 3. Our Scope 1 and 2 emissions represent 3% of our total Group emissions, with our Scope 3 emissions representing the remaining 97%.
| Emissions Scope | Gross emissions (tCO2e) |
Percentage of total emissions |
|---|---|---|
| Scope 1 | 1,357 | 1% |
| Scope 2 | 2524 | 2% |
| Scope 3 (2020) | 119,435 | 97% |
| Total | 123,316 | 100% |
Details of our full carbon balance sheet can be found in our TCFD and ESG Reports which will be published on our website in April 2022.
Greenhouse gas emissions have been calculated according to the 2019 UK Government environmental reporting guidance. Consistent with the guidance, the following emissions factors – using the kWh gross calorific value (CV) where applicable, and CO2 equivalent conversion factors – were applied:
| Country | Source used | Country | Source used |
|---|---|---|---|
| Australia China |
Australia National GHG Accounts 2021 IGES 2021 |
Italy Japan |
European Environmental Agency 2021 Bureau of Environment – Tokyo Met Government |
| Costa Rica | IRENA 2019 | New Zealand | Default to BEIS 2021 |
| France | European Environmental Agency 2021 | Singapore | IGES 2021 |
| Germany | European Environmental Agency 2021 | UK | BEIS 2021 |
| Hong Kong | Hong Kong Electric | Ukraine | Default to BEIS 2021 |
| India | IGES 2021 | USA | EPA 2021 |
| Israel | Default to BEIS 2021 | – | – |
— Transport related emissions from fuel combustion in Company cars (Scope 1 emissions) and grey fleet vehicles (Scope 3 emissions) in the UK, US, Australia and New Zealand were calculated using the BEIS 'Greenhouse gas reporting: conversion factors 2021' database.
Where billing data was missing for properties directly invoiced to the Group, usage was estimated at the meter level by pro-rating the kWh/day known consumption. The estimations equate to 1% of reported consumption. For properties where the Group is indirectly responsible for utilities (i.e. via a landlord or service charge), average kWh/m2 consumption for properties with similar operations was calculated at meter level and applied to the properties with no available data.
Reported total turnover (£m) was used to calculate a tCO2e/£m emissions intensity. This intensity was calculated for each emissions source respectively (natural gas, electricity, and transport fuels), as well as for the Company's total emissions.
Total turnover (£m) 394.3
Ensuring we limit any negative impact on the environment and protect the natural resources we rely on, creating long-term sustainability for the business.
We aim to adopt technologies, materials and processes that minimise our impact on the environment and maximise our use of sustainable resources.
Our efforts and environmental awareness continue to evolve to comply with regulations and make our business better and more sustainable. We have initiatives aimed at sustaining and protecting the environment, improving energy efficiency, reducing carbon emissions, water use and waste, using sustainable materials and packaging, and waste disposal.
We also encourage environmentally sustainable behaviour at work and ensure that our employees understand how they can contribute.
Responsible consumption and production
We monitor energy usage across our sites and energy reduction initiatives have begun across the Group. We have begun installing LED lighting across the Group. This transition in the Feltre, Bassano and Ashby-de-la-Zouch sites by 2023 will result in an estimated 80% energy reduction and cost savings of £60,000 per annum.
Many buildings have been fitted with timers and motion sensors for lighting, and programmable thermostats to optimise heating and cooling. The Feltre facility has installed 11 new air compressors with an energy-saving inverter system. We have installed Solar Photovoltaic Systems to our Production Solutions manufacturing sites at Cartago, Costa Rica and Bury St Edmunds, UK. Other solar panel projects are under consideration at other Group sites.
Power supply contracts at the Feltre, Ashby-de-la-Zouch and Byfleet sites have been moved to REGO backed supplies, guaranteeing energy from renewable sources.
Our products and services have a comparatively low impact on the environment. We use low hazard materials, minimise the use of resources during the manufacturing process, and search for sustainable materials that can be recycled or reused across production and packaging. In 2021, product sustainability was identified as a key focus area, and best practice initiatives and processes have been shared throughout the Group.
Our Imaging Solutions Division has made sustainability a pivotal part of future product development, partnering with the Bologna Business School to develop detailed product life cycles and extensively use recycled packaging and textiles.
Current packaging was reviewed, and product boxes will be replaced by recycled and FSC compliant paper, while polybags will be replaced with recycled polybags or non-plastic bags. Upcycling packaging, reducing the volume of products, utilising reusable shipping packaging, and reducing additional e-commerce packaging have also been explored.
Biodegradable packaging such as polylactic acid was tested at Production Solutions to replace plastic bags and the Division is exploring changes to products and shipping routes.
We share our learning across the Group, for example, Teradek in the Creative Solutions Division is in the process of testing and trialing different packaging materials to find the best-suited material.
Various initiatives around the Group have built on our work to reduce the amount of waste created in our operations. We encourage recycling of waste products, materials, paper and other recyclable items at all our sites.
In 2021, we started collecting and internally reporting data pertaining to waste and packaging consumption at each site.
Tradebe in the US recycles electronic waste from our Shelton site, partnering with a certified downstream vendor. None of our industrial scraps go to landfill, and waste metals at our Bury St Edmunds site are sorted and recycled with a return on revenue. Industrial scraps from our aluminium and magnesium stages of production are targeted for waste reduction, both in the design of our products and the end life of scraps. Waste to energy projects are being explored at our Feltre site.
If a product is returned from a customer or distributor, we evaluate the condition of parts to resell or reuse them within the manufacturing processes. Core components such as circuit boards are often repurposed and put up for resale on our website.
As part of our ESG target to reduce carbon emissions, this year we installed a Solar Photovoltaic System at our Production Solutions manufacturing site in Cartago, Costa Rica.
The system will provide more than a third (37%) of the power the site needs, saving around 13 tonnes of CO2 per year for its expected lifetime of 25 years. The initial outlay for the project has come from the building's owner, who will recoup the cost over seven years. At that point, Vitec will own the system and get the full cost benefit of saving on electricity.
Saving around
13
tonnes of CO2per year for its expected lifetime of 25 years
A very exciting project, highly valued by our employees and deeply related to the well-known culture of protection and conservation of the environment in Costa Rica.
Julio Lizano VP Global Operations, Vitec Production Solutions
Imaging Solutions' Lowepro brand is championing sustainability with their PhotoSport backpacks.
The PhotoSport and PhotoSport Pro are made with 75% and 85% recycled fabric respectively (measured by area). This is the first step in Lowepro's journey to sustainability with the aspiration for Lowepro Bags full product range to be 100% recycled fabric by 2024. Further progress towards this goal will be reflected by the Lowepro green line progress bar featured on the back of the new backpacks.
Using approximately
85% recycled fabrics
In order to reduce our impact on the climate, we are challenging everything from materials production to how our products are shipped and used."
Luis Quehl Design Director Lowepro and Manfrotto, Vitec Imaging Solutions
Read more at vitecgroup.com/responsibility
Water is not considered by Vitec businesses to be a critical input factor within our production or assembly environment, and water stewardship is not a material issue. However, in 2022 we will partner with third-party experts to ensure that accurate and timely data collection processes are embedded throughout the Group. We aim to report our water consumption publicly and set reasonable targets for reduction.
Water usage across the Group is mainly from human consumption. All Divisions have implemented a water-saving initiative to reduce their consumption, including installing waterless urinals, limiting flushing options on toilets and installing motion-controlled taps.
Production Solutions has explored rainwater collection at their Cartago site to be stored for industrial use, irrigation of green areas, sanitary services and more. The rainwater project has not yet been fully developed and we see it as a promising initiative for 2023 or 2024.
Although the Group has little direct contact with biodiversity, we recognise its importance for the planet. We ensure our sites emit little pollution and are not disruptive to any nearby wildlife.
Our Teradek site's impact on biodiversity was assessed in 2021, and the site was found to have little pollution and impact. At Imaging Solutions, sustainability partnerships have been nominated to establish a greater relationship with biodiversity. Lowepro is a founding member of SeaLegacy's Good Ocean community and we have committed to making decisions across our operations to support their goal of rebuilding ocean life for people and nature.
Our Costa Rica site has also received the Blue Flag Ecology Award, a recognition of the comprehensive environmental management to improve environmental conditions. Vitec wishes to utilise the compliance principles of the award to establish deep-rooted, biodiversity conscious, good practice across the organisation. Production Solutions employees participated in litter-picking sessions, recycling workshops and tree planting through their Action4Good programme.
performance
Work with our suppliers to reduce their environmental impact
3.
Continue to improve the methodology for indirect emissions reporting
Tree planting at our Bury St Edmunds site
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.
To attract, retain and grow a talented and diverse workforce, providing equal opportunities for all while nurturing a sense of pride in being part of Vitec.
Our employees are the best in the sector, our greatest single asset and critical to our success. Their attitude and abilities, experience and market knowledge, talent and commitment create a culture that supports product excellence, creativity and integrity.
We monitor and improve important areas to our people, ensuring that we have consistent policies and processes to acquire, engage and retain our best talent. Initiatives focus on wellbeing, working environment, sustainability, diversity, employee benefits and training. We have comprehensive benefits packages to support employees and remain competitive globally.
We also aim to provide our employees with an engaging and stimulating entrepreneurial environment where they are encouraged to learn and develop.
Gender equality
Decent work and economic growth
| 2021 all-employee survey | |
|---|---|
| 95% | 93% |
| of employees feel that their safety, health and wellbeing are a high priority for the Company |
of employees believe that Vitec is behaving in the right way and doing the right thing |
| Key Vitec Production Solutions statistics | |
| 78% male | 62% professional |
| 22% female | 38% direct employees |
| Employees in 14 countries | 525 |
| Average length of service | 9.6 yrs |
| Average age of employees | 43 |
Understanding how our employees feel about working for Vitec and whether they have any issues of concern is immensely important to us. The Board has designated Caroline Thomson as the independent Non-Executive Director responsible for employee engagement for the past four years.
In 2021 we continued with our proactive approach. Firstly, in May we carried out our second all-employee survey, focusing on five questions covering health & safety and wellbeing, culture and values, communications and satisfaction of working for Vitec. 83% of employees responded to the survey, which showed:
Feedback on the survey was reported to the Board at its June Board meeting and shared with Divisional management to take steps to improve the employee experience. We plan to repeat further all-employee surveys in future years since they provide an invaluable insight into how our people view working for Vitec.
Secondly, in October 2021, Caroline Thomson held our fourth employee engagement session, this time with employees in our Production Solutions Division. The session involved a detailed overview provided by Nicola Dal Toso (Divisional CEO) and Penny Wisdom (Divisional HR Director), covering progress within the Division since the last review in 2019 and the impact of the pandemic upon employees. The review covered:
Caroline Thomson followed up with individual sessions involving up to 12 employees from each site of Bury St Edmunds, Shelton and Cartago to hear first-hand from employees how they felt working for Vitec Production Solutions and to hear any issues of concern. Feedback was very positive and was subsequently shared with Divisional management and the Group Board.
We plan to repeat the employee engagement session in 2022 with our Imaging Solutions Division and our European Services business.
We offer the Sharesave Scheme to all our employees in the UK, US, Italy, Costa Rica, France, Germany, Singapore, Hong Kong, Japan, Australia, New Zealand and Israel. Sharesave allows employees to save a fixed monthly amount up to £350 with the option to purchase a fixed number of shares in the Company at a discount of up to 20% on the share price at the time.
Sharesave is extremely popular with over 70% of the Group's employees participating in the scheme and is recognised as a valuable benefit, demonstrating the close alignment between our employees and shareholders. As popularity increases, we have specifically enhanced communication across the Group to ensure it is well understood and to encourage as many employees as possible to participate in the scheme. Face-to-face presentations have been held at sites, and communications have been translated into local languages.
Employees have been specifically excited about the Company's recent share price growth. They were happy to see the extension on the Sharesave scheme following the approval of a ten-year renewal at the 2020 AGM, and we would like to continue to extend this opportunity to as many of our valued employees as possible.
| Country | Outstanding options at 31-Dec-2021 |
Active participants at 31-Dec-2021 |
|---|---|---|
| Australia | 21,548 | 21 |
| Costa Rica | 29,730 | 75 |
| France | 8,206 | 4 |
| Germany | 27,132 | 18 |
| Hong Kong | 7,657 | 5 |
| Israel | 89,794 | 46 |
| Italy | 594,377 | 404 |
| Japan | 73,006 | 42 |
| New Zealand | 33,478 | 23 |
| Singapore | 12,938 | 7 |
| The Netherlands | 2,483 | 2 |
| UK | 356,491 | 332 |
| USA | 307,751 | 471 |
| Total | 1,564,591 | 1,450 |
Employee wellbeing remains a top priority for the Board. We continuously review and improve processes across the Group to look after staff and improve employee wellbeing.
Our assistance programme provides free and confidential support to all employees and their families on a range of matters, including counselling for emotional and psychological support, practical guidance and support on legal, financial, family and work matters, and online health and wellbeing resources such as videos, podcasts and downloads. The service is confidential and freely delivered by a third-party company; it remains accessible 24 hours a day, 365 days a year. We continue to roll this programme out, translating it into the local languages commonly used throughout the Group.
Imaging Solutions employees are given access to local gyms at a subsidised cost to improve employees' physical and mental health. The Division promotes a healthy work-life balance and has invested in reducing the prices of after-school clubs and summer camps to assist employees with young children.
Family picnics, parties and wellness activities have been organised throughout the year at all Creative Solutions sites to increase collaboration and mixing across the Division. Where necessary, employee engagement activities were planned through Zoom to ensure staff working from home were not isolated and could maintain relationships and contact.
Production Solutions supported charities as part of the Action4Good programme to impact communities while engaging employees and improving their wellbeing. In September, employees raised £12,500 for two charitable organisations, Rainforest Trust and Action Aid. Participation from employees was excellent, and the initiative was a huge success with 270 people involved, completing 3,000+ hours of exercise. The money raised for the Rainforest Trust protected 3,250 acres of rainforest, which will store over 552,000 tonnes of CO2e.
Vitec aims to offer a comprehensive training and development programme linked to performance reviews. The Board reviews leadership and succession plans across each of the Group's Divisions to ensure a structured approach to growing and developing the Company's future leaders. All employees receive training on health and safety procedures appropriate to their line of work and environment. We continually review and expand training options for staff. 2021 initiatives included:
In 2021, Imaging Solutions invested c.£125,000 on employee training programmes. The focus was to capture both technical and soft skills, for example, health and safety, communication, leadership and problem solving. Imaging Solutions also ran a dedicated a leadership training programme for 50 female colleagues.
Upskilling employees is an important focus, and Italian language courses are offered to non-Italian employees across the Division. There are currently nine employees on our English Language Programme in Production Solutions at our Costa Rican site, and we intend to increase this number over time.
In 2021, Production Solutions invested £50,000 into improving training for employees across the Division. Health and Safety training was enhanced, and a robust individual development plan ("IDP") was developed. Development and training requirements specific to each employee can now be captured and implemented. The IDP has been very successful across the Division and will be reviewed half-yearly to assess progress and introduce continuous improvements based on specific employee feedback.
People management training was scheduled for 20 managers across our Production Solutions US sites in early February 2022. We partnered with the American Management Association to offer our employees the best training resources.
Creative Solutions employees have been working with Growth Space, the world's leading employee development platform, providing access to 1-to-1 coaching, mentoring and personalised Group programmes. This programme is being piloted at our Irvine site, and we intend to roll this out to all sites.
All US employees across the Creative Solutions Division are enrolled in general training, including health and safety, GDPR and sexual harassment. Relevant employees also have role-specific training such as product management, sales and strategic management. Leadership and management development training is in place at the Israel site and we plan to roll this out to other sites alongside diversity training for managers.
We aim to enhance how we capture and report all employee training across the Group in 2022.
The Imaging Solutions Division has introduced a new appraisal system to improve personal career reviews.
Production Solutions invest in junior colleagues by offering training in additional areas as part of its Hire2Develop strategy. This programme has been incredibly successful, and 69 career expansions have been awarded between 2019 and 2021.
We strive to employ a diverse workforce and foster an equal opportunities culture. Our approach to diversity follows a strict policy of sourcing the best person for the role irrespective of race, gender, age, religion, sexual preference, or disability. Our Code of Conduct sets out an express prohibition on discrimination of any kind.
We have developed a new D&I strategy with targets and action plans tailored to address our industry and actively recruit more female employees. Over the next five years, we aim to increase the number of female employees across the Group to improve the Group's overall gender diversity from 70% men, 30% women. At a senior leadership level, we expect the ratio of women to be at least 30%. However, post-pandemic the labour market is increasingly competitive in several of our key locations and our focus is on recruiting the right person for each role.
Flexible working policies are in place across our three Divisions and are open to all employees.
Applications for employment by disabled persons are always fully considered, bearing in mind the respective aptitudes and abilities of the applicant concerned. If employees become disabled, all reasonable effort is made to ensure that their employment within the Group continues. The training, career development and promotion of disabled persons should be, as far as possible, identical to that of all other employees.
The table shows employee turnover in 2021, with 2020 as a comparison, reflecting employees who had resigned from their employment within the Group.
| 2021 | 2020 | |
|---|---|---|
| Creative Solutions | 15% | 9% |
| Production Solutions | 3.9% | 2.1% |
| Imaging Solutions | 6.2% | 2.9% |
| European Services | 6.5% | 4.0% |
| Group/Head office | 18% | 0.0% |
| Average across the whole Group | 9.9% | 3.6% |
The Board continues to monitor progress on equality and the Group's gender breakdown at the end of 2021, with 2020 as a comparison below.
| 2021 | |||||
|---|---|---|---|---|---|
| M | % | F | % | ||
| Group Board of Directors(1) | 6 | 86% | 1 | 14% | |
| Operations Executive(2) | 11 | 92% | 1 | 8% | |
| Senior management(3) | 28 | 85% | 5 | 15% | |
| Rest of organisation | 1,259 | 71% | 513 | 29% | |
| 2020 | |||||
| M | % | F | % |
| Group Board of Directors(1) | 6 | 86% | 1 | 14% |
|---|---|---|---|---|
| Operations Executive(2) | 11 | 92% | 1 | 8% |
| Senior management(3) | 28 | 88% | 4 | 12% |
| Rest of organisation | 1,041 | 70% | 446 | 30% |
We employ around 2,000 employees in 11 countries who work according to local employment legislation, policies, and our organisational values.
(1) Group Board of Directors is listed on pages 78 to 79 of the Annual Report.
(2) The Operations Executive is listed on page 83 of the Annual Report and includes the Group CEO and Group Finance Director.
(3)The senior management team are the senior-most employees or teams within each Division and Group head office.
The health and safety of our people is of utmost importance, and we operate to stringent standards at all of our sites. We have a Health and Safety Policy, setting out guidelines for preventing accidents and workrelated ill-health. The policy is regularly reviewed and updated to address emerging risks such as COVID-19.
When faced with COVID-19, the Group implemented appropriate measures to follow local government advice and ensure a minimum Group-wide standard. Appropriate risk assessments for those working on-site and remotely were prepared, communicated and adhered to. We have continued to track and record instances where our employees have been infected or self-isolated. Aside from COVID-19 measures, we have continued to operate to a high health and safety standard, ensuring the safety of our people and have continued to share best practices across the Group.
We provide clear guidance for the control of health and safety risks arising from work-related accidents. Our objective is to eliminate all accidents on site. To further strengthen our health and safety protocols and practices, each site undergoes a third-party independent audit of our standards every three years.
All accidents and near misses are reported whether they result in absence from work or not. Remedial actions are identified and implemented to prevent repeat occurrences. Reporting is prompt, and any accident resulting in over three days absence is reported to senior management and the Group Chief Executive within 24 hours. Every month the health and safety performance of each Division is reviewed with Divisional Health and Safety representatives, the Group Risk Assurance Manager and the Group Company Secretary. We ensure that corrective measures are implemented and that best practices and lessons learned are shared. Health and safety performance is regularly reviewed with the Operations Executive and covered at every Board meeting.
All major sites have health and safety committees that hold regular meetings to review health and safety performance. Our structure for health and safety management across the Group is as follows:
In 2021, the new acquisitions of Quasar, Lightstream, Savage and in early 2022, Audix, were fully integrated into the Group's Health and Safety Policy and procedures to ensure that new acquisitions are operating to high Group-wide health and safety standards.
Our five-year accident record details the number of accidents resulting in over three days' absence from work across the Group. There were no such accidents in 2021, consistent with 2020 and compared to two in 2019. We also detail accidents resulting in less than three days absence and near misses. Each event is thoroughly investigated and remedial action is taken where necessary. There have been no work-related fatalities since the Group began collating health and safety statistics in 2002.
| 2021 | |
|---|---|
| 0 accidents resulting in over three days absence |
No accidents resulting in over three days absence for the second year in succession. This represents 0 accidents per 100,000 employees. Average number of employees in 2021 was 1,784. |
| 43 accidents resulting in three or less days absence | |
| 128 near misses | Near misses include events or circumstances that could have resulted in an accident. |
| 2020 | |
| 0 accidents resulting in over three days absence 42 accidents resulting in three or less days absence 110 near misses |
This represents 0 accidents per 100,000 employees. Average number of employees in 2020 was 1,569. Near misses include events or circumstances that could have resulted in an accident. |
| 2019 | |
| 2 accidents resulting in over three days absence |
This represents 117 accidents per 100,000 employees. Average number of employees in 2019 was 1,714. |
| 54 accidents resulting in three or less days absence | |
| 112 near misses | Near misses include events or circumstances that could have resulted in an accident. |
| This represents 116 accidents per 100,000 employees. Average number of employees |
|---|
| in 2018 was 1,723. |
| 58 accidents resulting in three or less days absence |
| Near misses include events or circumstances that could have resulted in an accident. |
| 2017 | |
|---|---|
| 7 accidents resulting in over three days absence |
This represents 418 accidents per 100,000 employees. Average number of employees in 2017 was 1,675. |
| 46 accidents resulting in three or less days absence | |
| 93 near misses | Near misses include events or circumstances that could have resulted in an accident. |
The Production Solutions' sites in Cartago, Costa Rica and Bury St Edmunds, UK, and the Imaging Solutions sites in Bassano and Feltre, Italy, were certificated with the standard UNI EN ISO 45001. Therefore, over 700 employees of the Group are covered by accreditation on health and safety. This management system audit helps build a framework to manage health and safety impacts and meet legal compliance.
In 2021, we continued to train all staff members on safety-relevant to their roles (including safety protocols around COVID-19).
Keeping our teams safe during the pandemic has been our top priority. We have used strong working relationships, consistent communication and compassion throughout these challenging times to achieve Vitec's global goals and to prepare our people for the future.
HR Manager Australia and New Zealand, Imaging Solutions, New Zealand
To support and integrate with the local communities and economies where we operate.
We invest in projects that align with our core values and look for opportunities to positively impact one disadvantaged person for every Vitec employee in the communities in which we operate.
We believe in the positive power of images to convey ideas and create wealth and positive social and environmental value. As a leader in our markets, our employees are experts in photography, videography, engineering and technology, and we aim to share this knowledge to enable positive social and environmental outcomes.
The pandemic affected our ability to interact with our local communities during 2021 but our teams were still able to have an impact in certain areas. We plan to resume our community activities throughout 2022.
Quality education
Decent work and economic growth
Vitec donates and lends professional photographic, TV, and cinematic equipment to educational institutions worldwide to upskill future image capture and sharing talent.
In Italy, the Imaging Solutions team collaborates with universities to share employee know-how with students and future industry professionals throughout the year via webinars and online lectures. A mentoring partnership was set up with the Universities of Venice and Padua, including virtual meetings and online HR lectures.
Our Production Solutions Costa Rican employees work with different technical schools in the community, onboarding eight to ten students each year to complete their professional practice of Precision Mechanics. Some of the schools we work with include COVAO, Ciudad de Los Niños and CTP. Once with us, we train the students in specialised machinery and often offer jobs following their training.
We have an ongoing apprenticeship programme for employees at the Production Solutions UK site, offering roles in various fields, including Engineering, Business Analysis and HR. This programme is fully funded through our Apprenticeship Levy Fund, with 11 employees currently enrolled.
Production Solutions employees at the US and Costa Rica sites are offered other development opportunities through partnerships with local universities, including potential funding opportunities for master's degrees. We provide funding opportunities for courses at degree and master's degree levels.
Images from the partnership with the Theodore D. Young Community Center
A participant from the Theodore D. Young Community Center
As part of our commitment to our long-term ESG strategy, our Lowepro and Gitzo brands have made great strides in sustainability and social projects in 2021. Lowepro launched Photosport, made from 75% recycled fabric and Gitzo launched the Légende Tripod, which has a lifetime guarantee.
Both products were launched on a crowdfunding platform to help engage their community in the brands' social impact initiatives. Backers each contributed \$1 to Indiegogo, raising \$50,000 for Wild Shoot Outreach (WSO). This South African NGO empowers young people from challenging backgrounds through photography and education. The funds enabled WSO to deliver more educational programmes and issue two new bursaries, offering one student a job in the organisation.
The funds will support vital aspects of our programme delivery for disadvantaged young people and our Bursary Fund for the further study and training of some of our most talented graduates.
Mike Kendrick WSO Founder
Imaging Solutions' Picture of Life project is a social and environmental education initiative which has been running since 2014.
This year we expanded the Picture of Life programme. Employees supported a range of social and environmental activities in Australia, New Zealand, China and Japan as part of a global ESG commitment. The Imaging Solutions Auckland team participated in a tree planting day alongside the stream draining Orewa Estuary. The newly planted trees have improved the water flow to the river estuary.
In 2021, Imaging Solutions ambassadors worked directly with young participants from the Jonathan Community to run a plastic-free campaign in Procida, the Italian capital of culture. The programme consisted of workshops and practical activities to build positive values and professional skills and educate them on minimising their impact on the environment. Imaging Solutions' employees also joined the wider Jonathan Community in a beach clean-up activity in Castel Volturno.
Donating to charitable causes and active participation in local communities is an essential focus across the Group. Our employees give generously with their time and money, and in 2021, we estimate that the Group as a whole donated approximately £69,000 across the globe.
Production Solutions held a range of fundraisers throughout the year. Employees participated in Breast Cancer Awareness Month, Christmas Jumper Day for Save the Children, and the Bus Shelter's sock and gift donation. The Division also raised money for the Rainforest Trust and Action Aid through the Action4Good programme, donating over £13,000.
We also partnered with the Offshoot Foundation to empower, enthuse and inspire disadvantaged people. Our Production Solutions' employees helped develop life skills and raise aspirations by running professional film workshops.
This year, our Creative Solutions Division worked with Made in Her Image, an organisation dedicated to advancing young women, girls and non-binary youth of colour within film, media and technology. In October, we donated \$15,000 to fully sponsor a four-week virtual Cinematography course called "Their Point of View" for 40 students.
Accompanying the donation, our team organised an in-person Mentorship Lab at the Creative Solutions Los Angeles store following the course completion. This gave students and local LA youth a chance to participate in hands-on cinematography lessons taught by five LA-based female cinematographers. After the students took turns at each learning station, they could participate in a Q&A featuring the instructors and other mentors.
Imaging Solutions employees volunteered their time while partnering with Theodore D. Young Community Center during 2021, an after-school haven that provides a safe place for disadvantaged students. We built and delivered a curriculum based on storytelling and photography.
Participants at the Mentorship Lab at CSLA as part of the "Their Point of View" course
Participants from the Picture of Life programme
To ensure that our employees clearly understand 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 that aligns with our approach, values and behaviours, as set out in our Code of Conduct.
We are committed to acting responsibly and conducting our business operations with integrity. Our core values and purpose drive our business decisions and Code of Conduct, and all our decisions are made with a focus on the impact they may have on our five main stakeholder groups. The Board considers that our people and operations meet the highest standards of business conduct.
We constantly improve our practices and processes to ensure safe and responsible operations and an ethical supply chain.
Our Code forms the backbone of our culture. It provides clear guidance to our employees on how they are expected to behave towards colleagues, suppliers, customers, shareholders and our wider responsibility to the communities in which we operate.
Our Code defines our approach to business integrity, including an absolute prohibition on bribery, kickbacks and political donations, along with guidance on gifts and hospitality, conflicts of interest, books and records, competition, shared 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 is communicated to all employees and is available on the Company website translated into local languages. We require all senior management to undertake an online training module covering the Code of Conduct, including share dealing, conflicts of interest, legal duties and other reputational issues.
Breach of the Code of Conduct, upon investigation, may lead to disciplinary action being taken against an individual and, in the worst case, dismissal. The Group's HR functions would conduct any investigation around the Code of Conduct. In 2021, six employees were dismissed from the business due to a breach of the Code of Conduct. These breaches consisted of HR issues and inappropriate behaviours in the workplace.
We have a policy on anti-bribery and corruption measures available on our website. It sets out a zero-tolerance approach and a clear commitment to doing business the right way, covering gifts and hospitality, prohibition on facilitation payments and kickbacks,and how employees raise issues of concern.
We regularly train our employees on anti-bribery and corruption measures using web-based training modules and face-to-face training on our Code of Conduct. To mitigate the risk around bribery and corruption, we actively screen all major third parties we do business with. We use third-party software that screens business partners for reputational risk issues, including bribery and corruption, sanctions, politically exposed persons and adverse media reports. The software covers over 900 entities and continues to be expanded. We train our people to ensure that they are screened through this service as part of doing business with a new partner.
The Board and the Audit Committee are regularly updated on the Group's anti-bribery and corruption measures, including training initiatives and screening status of third parties.
Our agents and distributors are party to agreements that prohibit bribery and set our expectations on behaviour and values.
We operate an independent whistleblowing service in conjunction with NAVEX, which enables any employee or third party to confidentially report on any issues around alleged wrongdoing or other Code contraventions. The process is supported by a policy on how whistleblowing reports will be investigated. The Board is expressly clear that all reports made in good faith will not result in an employee or third party being subject to recriminations or disciplinary action.
All reports are notified to the Group Chief Executive, the Group Company Secretary and the Audit Committee Chairman 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 is taken where necessary. The Board is notified of all whistleblowing reports and the outcome of all investigations.
This service is communicated to all employees with posters prominently visible at all sites and a letter explaining the service to ensure it remains visible and is understood. The documents are also available on the Group intranets, with all communications translated into local languages. In 2021, there were two whistleblowing reports that were HR-related in the US and Costa Rica. Each matter was thoroughly investigated, and corrective actions taken where necessary.
We expect our business partners to have similar values to our own to ensure that slavery and human trafficking is not something they are associated with.
Through screening our supply chain using third-party software and physically inspecting our supply chain, we are confident that this is not an issue within our operations. Our internal audit function also checks the integrity of the supply chain as part of its internal audit programme. We train our employees on this issue through web-based training modules and our Code of Conduct.
We are currently upgrading our supply chain analysis to reduce our impact and risk by conducting a Group-wide standard review. This will ensure our suppliers operate in terms broadly similar to our policies and procedures and verify that all raw materials are sourced ethically and sustainably. We expect to complete this process by the middle of 2022 and have recently formalised our Responsible Sourcing Policy and recommunicated this to suppliers.
We fully support the principles set out in the UN Universal Declaration of Human Rights. Our policies and procedures reflect the principles contained within the Declaration.
We support the Modern Slavery Act 2015 and have adopted slavery and human trafficking statement, setting out our processes to ensure that this issue is not in our operations or supply chain.
No instances of discrimination occurred throughout the Group during the reporting period.
Given the ever-increasing importance of information technology to the Company's operations and performance, we have an IT policy available on our website. Responsibility for IT ultimately rests with the Group Finance Director. The IT policy sets out standards to be followed across the Group for its employees, contractors and third parties to use the Group's IT systems. The policy has been implemented to ensure that the Company's IT fits proper business purpose and is a safe environment for all our users. Breach of the IT policy may lead to disciplinary action being taken. Notably, the IT policy covers the confidentiality of data, GDPR requirements, inappropriate content, security of data, including cyber security and reporting processes. The Group Finance Director and Group Risk Assurance Manager oversee the IT functions from a governance standpoint. With the use of specialist providers, they conduct regular vulnerability assessment and pen tests, and review the application of IT controls across the Group. This includes key control activities such as patching, multi-factor authentication and user access controls. Cyber security is a major risk on which regular updates are provided to the Board and Audit Committee.
The Group has moved to standard certification and accreditation using the government-backed Cyber Essentials framework, and will be working towards the IASME certification.
We work with a leading cyber security provider to deliver a programme of awareness training and communication to all employees, which is a vital component of our IT security framework. This includes training relating to GDPR.
Vitec complies with the requirements of sections 414CA and 414CB of the Companies Act 2006, the 2018 Non-Financial Reporting Directive and other key compliance areas by including certain non-financial information within the Strategic report. The table below, and the information it refers to, is intended to help stakeholders understand our position on key non-financial matters:
| Reporting requirement | Further information | Related Principal Risk |
Page(s) |
|---|---|---|---|
| Environmental matters | — The Responsible business section outlines our detailed commitment to operating responsibly in all our dealings with our stakeholders |
12 | 60 to 62 |
| — Our ESG targets sets out a roadmap towards becoming a sustainable business | |||
| — Vitec discloses its climate-related risks in line with TCFD requirements | |||
| Employees | — Vitec has a Code of Conduct which outlines the Group's expectation and commitment to maintaining the highest standards of ethical conduct and behaviour in business practice. The Code is reviewed annually and 2022 will see the Code of Conduct be recommunicated to employees |
7 | 63 to 67 |
| — We are committed to diversity and inclusion at all levels of our business and we do not discriminate on any basis |
|||
| — Vitec has a well-established employee engagement and feedback programme with Caroline Thomson, the Non-Executive Director charged with employee engagement |
|||
| Social matters | — The Responsible business section and our stakeholders sets Vitec's approach to supporting our employees, customers and suppliers |
9, 11, 12 | 9 and 68 to 70 |
| — Divisional programmes are being reinvigorated following the pandemic | |||
| Anti-bribery and corruption |
— Vitec's Code of Conduct sets out the Group's expectations towards the highest standards of ethical conduct and behaviour in business practice |
5, 8, 9 | 72 |
| — Vitec also has an anti-bribery and corruption policy which is reviewed by the Board annually and further sets out the responsibilities and expectations of our employees for the prevention, detection and reporting of bribery and other forms of corruption |
|||
| — Employees receive training on the anti-bribery and corruption policy, including gifts and hospitality as part of their induction and contract |
|||
| — Suppliers are made aware of our zero-tolerance approach to bribery and we undertake due diligence on all suppliers using the NAVEX Risk Rate system |
|||
| Human rights and | — Vitec's Code of Conduct outlines our stance on human rights and modern slavery | 7, 8, 9 | 72 |
| modern slavery | — A separate Slavery and Human Trafficking statement is published on our website annually and underlines our commitment to ensuring that slavery and human trafficking does not exist in our business operations or our supply chain |
||
| Business model | — Our Business model sets out how we do what we do, why, where and for whom | 2 to 11 | |
| Principal risks | — Vitec's principal risks set out the Group's carefully considered business risks and sets out the mitigating actions that are taken to help reduce the impact of any of these risks |
36 to 41 |
Vitec has developed a strong corporate governance framework and the Board, senior management and employees operate to the highest standards of corporate governance.
Ian McHoul Chairman
2021 has continued to present challenges to how Vitec manages its corporate governance in response to COVID-19 as well as the increasing demands around corporate governance in general. Remote working and the inability to travel and to see our people and facilities are a couple of examples that have necessitated the Board and Operations Executive to evolve new ways of working to ensure a robust governance framework that protects and grows shareholder value. Despite these challenges, Vitec continues to have the right culture and strong controls in place to enable the business to succeed.
My report on Vitec's corporate governance sets out in detail how the Board, its Committees, individual Directors and senior management have continued to operate with a strong corporate governance framework that remains appropriate and measured.
During 2021, we carried out an external Board evaluation facilitated by Lintstock. Full details are set out later in this report but it was pleasing to see that despite the most challenging couple of years that the Board and its individual Directors are performing to a high standard and that the Board is fully aligned with the strategy, priorities and corporate governance framework.
We have continued to engage extensively with our key stakeholders including shareholders, banks, employees, customers and suppliers to ensure that Vitec remains focused on the key issues impacting our business. In 2021 we expanded our ESG programme with an ESG Committee and set ambitious targets around areas such as environmental impact and diversity and we will publish a detailed ESG report in April 2022.
I am confident that Vitec has the right governance framework in place and the Board, senior management and employees operate to the highest standards of corporate governance to ensure the continuing and sustainable success of the business.
Ian McHoul Chairman 28 February 2022
During the year ended 31 December 2021, we have reported against the UK Corporate Governance Code 2018 ("the Code") issued by the Financial Reporting Council. The Code can be found at www.frc.org.uk.
We applied each principle and complied with provisions throughout 2021 as required by the Listing Rules, except for Provision 38. Provision 38 provides that Executive Director pension contribution rates (or payments in lieu) should be in line with those available to the wider workforce. As reported in 2020's Annual Report, we reached an agreement with Stephen Bird that his pension contribution of 20% that was put in place when he became a Director and Chief Executive in April 2009 will contractually change to 8% and be aligned with the UK workforce with effect from 1 January 2023.
Given the length of service and that the original level of contribution was agreed in 2009, the Board considered it reasonable to give a period of transition to adjust this pension contribution.
The Board agrees that the Annual Report taken as a whole is fair, balanced and understandable and gives all stakeholders the information necessary to assess the Group's business model, strategy and performance. The full report provides the information required for shareholders to assess the Group's overall performance against its strategy.
Major Board decisions The major decisions taken by the Board and its Committees during 2021 included:
Acquisition of Quasar
Acquisition of Savage
Reinstatement of dividends
Enhanced ESG programme
The following table outlines where shareholders can find and evaluate how the Company has applied the principles of the Code and where key content can be found in this report:
| Board leadership and Company purpose | |
|---|---|
| Page | |
| Code principle A | |
| Section 172(1) statement | 06 |
| Board of Directors | 78 to 79 |
| Code principle B | |
| Business model | 02 to 11 |
| Section 172(1) statement | 06 |
| Purpose, values and culture | 80 to 81 |
| Code principle C | |
| Strategic Report | 02 to 73 |
| Audit Committee report | 100 to 105 |
| Code principle D | |
| Section 172(1) statement | 06 |
| Our stakeholders | 07 to 09 |
| Code principle E | |
| Employee engagement | 64 and 87 |
| Workforce policies | 88 |
| Whistleblowing | 72 and 88 |
| Division of responsibilities | ||
|---|---|---|
| Page | |
|---|---|
| Code principle F | |
| Board governance | 82 |
| Division of responsibilities | 92 |
| Code principle G | |
| Board governance | 82 |
| Board of Directors | 78 to 79 |
| Division of responsibilities | 92 |
| Code principle H | |
| Section 172(1) statement | 06 |
| Time commitments | 98 |
| Code principle I | |
| Effective resources and controls | 82 |
| Board governance | 82 |
| Page | |
|---|---|
| Code principle J | |
| Nominations Committee report | 96 to 99 |
| Code principle K | |
| Nominations Committee report | 96 to 99 |
| Board of Directors | 78 to 79 |
| Code principle L | |
| Nominations Committee report | 96 to 99 |
| Page | |
|---|---|
| Code principle M | |
| Audit Committee report | 100 to 105 |
| Code principle N | |
| Fair, balanced and understandable | 104 |
| Code principle O | |
| Principal risks | 36 to 41 |
| Audit Committee report | 100 to 105 |
| Remuneration | |
|---|---|
| Page | |
| Code principle P | |
| Remuneration report | 106 to 135 |
| Code principle Q | |
| Remuneration report | 106 to 135 |
| Code principle R | |
| Remuneration report | 106 to 135 |
qualified as a Member of the Institute of Chartered Accountants in England and Wales when with KPMG.
Ian McHoul BSc, ACA
Stephen Bird MA
Martin Green
MA, MBA, ACCA Chairman Group Chief Executive Group Finance Director 25 February 2019 – tenure of 3 years (Chairman from 21 May 2019) 14 April 2009 – tenure of 12 years and 10 months 4 January 2017 – tenure of 5 years and 1 month British British British 62 61 53 Nominations (Chairman) Nominations – Ian is currently a non-executive director and the Chairman of the Audit Committee of Bellway plc, Young & Co's Brewery PLC and Britvic plc. Ian will be standing down from the Britvic plc Board in May 2022. He was formerly a Non-Executive Director of Wood Group PLC (2017 to 2018) and Premier Foods plc (from 2004 to 2013). He held several roles in his executive career including Chief Financial Officer at Amec Foster Wheeler plc between 2008 and 2017, Group Finance Director at Scottish & Newcastle plc from 2001 to 2008 (Ian was with the business from 1998 in the role of Finance Director for Scottish Courage Ltd), and Finance & Strategy Director, The Inntrepreneur Pub Company from 1995 to 1998. Prior to this he held several roles with Foster's Brewing Group and Stephen is currently a non-executive director of Headlam plc, having been appointed to that role in September 2021. He was formerly a non-executive director and Senior Independent Director of Dialight plc, standing down from that role in September 2021 and was formerly a non-executive director of Umeco plc. He was responsible for setting up Weir's Oil & Gas Division, part of Weir Group plc, and was its Managing Director until he left to join Vitec in 2009. Prior to this he worked in senior roles at Danaher Corporation, Black & Decker, Unipart Group, Hepworth PLC and Technicolor Group. Stephen has an MA from St John's College, Cambridge. Martin was appointed to the Board on 4 January 2017 as Group Business Development Director. Martin has been with the Group since April 2003 in a variety of roles and on 10 February 2020 was appointed Group Finance Director. Martin is an ACCAqualified accountant and began his Vitec career in financial reporting. He has an MA in Law from Trinity Hall, Cambridge, and an MBA from Cranfield School of Management. He trained and qualified as a solicitor with Linklaters & Alliance in the UK. Previously he held corporate development positions at Bunzl plc, at Telecast Communications and worked in investment banking at N M Rothschild. Role Appointed to Board Nationality Age Committee membership Skills and experience
and respect.
Vitec's purpose is to support our customers by providing premium branded hardware products and software solutions to the growing content creation market. We have a clearly defined strategy to execute this purpose and our values and culture underpin the sustainable delivery of this purpose.
Our values translate from our qualities and the way in which we, as a Group, think and act and underpin the way we do business – an entrepreneurial approach, acting with integrity at all times and working responsibly with sustainability in mind. Our values are consistently embedded in our operational practices with the guidance of the policies which have been approved by the Board and through oversight from our Operations Executive.
Further information on how the Board factors stakeholders into its decisions can be found on pages 6 to 9.
Having a clear purpose which aligns with our values and with a strategy to back it up, helps to instil confidence in our stakeholders. It helps to explain why we exist, why we do what we do and how we intend to meet our objectives. All employees are encouraged to embrace the Company's culture to ensure our long-term success.
In response to COVID-19, the Group refocused its efforts onto business recovery planning and ensuring its employees were fit, healthy and able to safely return to our facilities. Even as the pandemic began, the Group immediately flexed its working practices to allow those who could work from home, to do so, assisting in any way possible. As outlined on pages 14 to 18, the Group's recovery in 2021 was better than expected and the Group returned to paying dividends in May 2021 as well as announcing three new and highly-complementary acquisitions in the year to 31 December 2021 and the acquisition of Audix in early 2022. The pandemic presented new and exciting opportunities for the Group as more content was consumed than ever, opening the door to new technologies alongside our traditional business model. This was all made possible by our adaptable workforce, guided by our strong management team and Board.
During 2021, the Board received regular feedback on culture including output from employee surveys and also employee engagement sessions with Caroline Thomson as the Non-Executive Director charged with responsibility for employee engagement. This feedback helps to shape the Board and its Committees' thinking and decision-making to ensure that the views of employees are factored into Board decisions.
Vitec's management feel strongly about doing business the right way. The Group has a well-established Code of Conduct that sets out expectations surrounding behaviours in all aspects of how all at Vitec conduct themselves. This is communicated to all employees and is also available to all stakeholders including customers and suppliers. The Code of Conduct is published in all languages commonly spoken in the Group and is available on our website. All senior management are focused on encouraging our employees to behave in line with our values and on promoting the Group's purpose and strategy.
More information on Vitec's culture can be found at:
Vitec's governance framework and corporate governance practices on pages 82 to 88
Board decision-making on pages 84 to 85 and 90 to 91
The Group's approach to people, leadership and succession in the Nominations Committee report on pages 95 to 99
Vitec's risk controls in the Audit Committee report on pages 100 to 105
The focus on health and safety, the environment and sustainability across the Group in the Responsible business report on pages 42 to 72 as well as workforce policies to help guide and assist employees on page 88
Vitec's approach to executive remuneration in the Remuneration report on pages 106 to 135.
The Board, as detailed on pages 78 to 79, remained unchanged throughout 2021. Our Board comprises experienced professionals who bring a range of skills, perspectives and industry knowledge to our boardroom. In accordance with the Code, the role of the Board is to promote the long-term sustainable success of the Company, generate value for shareholders and make a meaningful contribution to wider society. Collectively, the Board has high quality experience in the areas of finance, technology, strategy, people management and global commerce which assists us in the implementation of our strategy.
In December 2021, we announced that with effect from 1 May 2022, Erika Schraner will join the Board as an independent Non-Executive Director who will also be a member of the Audit, Remuneration and Nominations Committees. Erika's appointment will strengthen the Board in terms of strong financial, technological and international experience. Erika's qualifications and experience are set out in the 2022 AGM Notice. The Board looks forward to Erika joining in May 2022.
We also announced that Duncan Penny will not be seeking reappointment at the 2022 AGM and he will therefore cease to be a Director of the Company at the close of the AGM on Tuesday, 17 May 2022.
To fulfil its duties, the Board has separate roles and a clear division of responsibilities. This is outlined in more detail on page 92. It is the role of the Chairman to manage the Board and to ensure its effectiveness. In conjunction with the Group Chief Executive and the Group Company Secretary, the Chairman ensures all Directors:
Board agendas are reviewed and agreed in advance by the Chairman and Group Chief Executive facilitated by the Group Company Secretary to ensure each Board meeting is as efficient as possible. All Board members are encouraged to constructively challenge any proposals made by executive management. Apart from the remuneration of Directors there were no instances when a Director had to abstain from voting on a matter due to a conflict of interest during 2021. The Board has a clear policy for dealing with conflicts or potential conflicts of interest. All Directors are reminded at the start of every Board meeting about their duties under section 172 of the Companies Act 2006 including the need to disclose any conflicts of interest. The Group Company Secretary maintains a record of all declared conflicts of interest.
Vitec's Board satisfied itself that the Company purpose is aligned with business practices through a variety of resources, including regular updates from the senior management team via video conference. These key operational updates are discussed by the Board in scheduled Board meetings and ad hoc Board calls as required, such as those surrounding an upcoming acquisition and the important decisions taken leading up to closing a deal.
The Board governance arrangements further support the development and delivery of strategy by ensuring accountability and responsibility for decisions from within the organisation and also by leveraging the skills, knowledge and experience from the Non-Executive Directors. Further information on the skills and experience of all Board members can be found on pages 78 to 79. At all times, the Board are encouraged to express views and opinions, particularly surrounding the operation of the Group or a proposed course of action. No concerns were raised during 2021.
The Board maintains a formal schedule of matters reserved solely for its approval. Such matters relate to decisions on strategy, financing, M&A activity, the risk appetite of the Group and the authorisation of any special capital expenditure above previously set delegated authority limits. The Board is formally required to authorise capital expenditure above the prescribed limits, however the open and flat nature of our organisation means that the Board are always aware of significant projects in the Group. The Board sets itself clear annual objectives and measures its performance against those objectives on a regular basis. More information on Board performance and effectiveness can be found on page 98.
Our governance framework supports strong governance practices across the Group. The Board has overall responsibility for governance in the Group.
The Board has delegated certain responsibilities to its Nominations, Audit and Remuneration Committees. Further details of the work, composition, role and responsibilities of these Committees are provided in separate reports on pages 96, 100 and 106 respectively. Each of the Committees has clear Terms of Reference which were reviewed by the Committees and the Board during the year. These are available on the Group's website: https://vitecgroup.com/investors/corporate-governance/governanceframework/. The performance of each Committee is assessed annually as part of the evaluation process and the results of the external Board and Committee evaluation carried out in late 2021 are explained on page 98.
The governance framework at Vitec is structured as follows:
The Board has a clear schedule of matters reserved to it which is reviewed annually and can be viewed on the Group's website: https://vitecgroup. com/investors/corporate-governance/governance-framework/. The schedule of matters reserved to the Board includes matters such as acquisitions and divestment of businesses, declaration of dividends, appointments of new Directors and approval of financial results including budgets and capital expenditure. Further information on the matters reserved for the Board, can be found on page 94. The Board has in turn delegated to the Group Chief Executive certain of its powers to run the operations and business of Vitec. To support this, the Group Chief Executive has established the Operations Executive comprising the Group Chief Executive, Group Finance Director, Group Company Secretary, Group Communications Director and Divisional management. The Operations Executive meets monthly and covers current performance and operational matters including health and safety and other matters. Minutes of all Board and Committee meetings, including the Operations Executive, are prepared by the Group Company Secretary following each meeting.
For the majority of 2021, all Board, Committee and Operations Executive meetings were held by way of video conference to ensure that safety was adhered to given COVID-19. A few meetings were held face-to-face during 2021 where possible and we were able to resume face-to-face meetings from February 2022. Where scheduled Board meetings were held in person in 2021, we resumed our usual pre-Board meeting dinners. These dinners enable Directors to informally discuss current business matters. The Board appreciates this informal environment which creates an opportunity for members of the Operations Executive, other senior management or external advisors to attend to give updates on the business. The Non-Executive Directors continued to hold meetings between themselves following each scheduled Board meeting, either virtually or in person, to raise any issues without senior management present. As Chairman, I feed back to the Group Chief Executive on these discussions and take any actions necessary to address matters raised.
The Directors make use of electronic Board packs which provide fast and secure access to all Board and Committee papers, alongside any other key and confidential updates to enable the running of the business. The Chairman of the Board and the Chairs of each of the Committees set the agendas for all Board and Committee meetings with support from the Group Company Secretary. The information on the business shared with our Board is sufficient to allow effective debate and challenge to management.
The information contained within the Board and Committee packs includes detailed budgets, forecasts, strategy papers, reviews of the Group's financial position, corporate development opportunities and operating performance, and annual and half yearly reports. Each Director receives a detailed monthly report from the Group Chief Executive, Group Finance Director, Group Company Secretary and Group General Counsel, plus a Health and Safety Report. The Board receives further information from time to time as and when necessary. During 2021, the Group Chief Executive, given the recovery of the business from COVID-19, maintained a more regular level of updates to the Board, providing information on the safety of employees, site operations, financial performance and the Company's recovery from the pandemic.
All Directors have access to the advice and services of the Group Company Secretary and any Director may initiate an agreed procedure to seek independent professional advice sought at the Company's expense. Clearance to such advice being sought must be given by the Chairman. No such advice was sought by any Director during the year. The Group Company Secretary's role is to support the Chairman, the Board, its Committees and individual Directors in discharging their duties effectively including governance matters. The Group Company Secretary's appointment and removal is a matter to be considered by the Board.
The Board during 2021 had six scheduled Board meetings and seven short notice meetings to deal with specific business matters. At each scheduled Board meeting several standard items of business are covered including minutes of previous meetings, matters arising, progress against agreed Board objectives, Group Chief Executive's report (including health and safety performance), Group Finance Director's report and Group Company Secretary's report. Other specific business covered at meetings in 2021 included the following:
| 2021 Board meetings | 2021 Board meetings | |||
|---|---|---|---|---|
| January | Short notice meeting – 25 January 2021 | May | Scheduled meeting – 5/6 May 2021 | |
| Financial and Risk Management Update on the financial outturn for 2020 |
ESG 2021 AGM and voting results |
|||
| Operational Update on Production Solutions |
ESG programme update | |||
| Potential acquisition of Quasar | Strategy Blue Sky strategy session |
|||
| February | Scheduled meeting – 23 February 2021 | Financial and Risk Management Trading update |
||
| ESG Review and approve the 2020 Annual Report & Accounts, 2021 AGM Notice, Going Concern and Viability Statement and an update on the Company's ESG programme |
Operational Progress on Quasar and Lightstream acquisitions Lease extensions for Group head office site and Teradek's Irvine site in US |
|||
| Strategy | Production Solutions business update | |||
| Update on Group's overall strategy and potential new product development and acquisitions |
June | Scheduled meeting – 22/23 June 2021 | ||
| Financial and Risk Management 2020 year-end financial results |
Strategy Review of Group and Divisional strategy |
|||
| Recommend final dividend for shareholder approval Capital expenditure for Production Solutions aktiv Fluid |
Financial and Risk Management Trading update |
|||
| Head; Litepanels Gemini light and Anton/Bauer battery Capital expenditure for Imaging Solutions for low loading Long John Silver lighting stand and Junior Crank stand Repayment of £50 million borrowing under the COVID Corporate Finance Facility and £1.2 million of UK Government furlough funds Operational Creative Solutions update including the proposed acquisition of Lightstream Further details on the proposed acquisition of Quasar Lease extension for Imaging Solutions Ashby-de-la Zouch site |
People Employee survey results Creative Solutions retention award |
|||
| Employee Benefit Trust funding approved to purchase and hold shares for long-term incentive plans |
||||
| Operational Renewal of 2021/2022 insurance programme |
||||
| August | Scheduled meeting – 10 August 2021 | |||
| ESG Update on Group renaming project |
||||
| March | Short notice meeting – 18 March 2021 | ESG programme update | ||
| Strategy Update on Group strategy |
2021 external Board evaluation process and timing | |||
| Financial and Risk Management Trading update |
Financial and Risk Management H1 2021 financial results and interim dividend review and approval |
|||
| Operational Update on the proposed acquisition of Lightstream |
Capital expenditure proposals for Productions Solutions for flowtech fibre cell and robotics platform |
|||
| Lease to buy agreement for Feltre site in Italy | Investec corporate broker presentation and update | |||
| April | Short notice meeting – 1 April 2021 | People Approval of 2021 Sharesave Scheme invitation |
||
| Financial and Risk Management Trading update |
Operational Update on the proposed acquisition of Savage |
|||
| People Employee Benefit Trust funding to purchase and hold |
Patent enforcement action and associated legal spend | |||
| shares for long-term incentive plans | September | Short notice meeting – 15 September 2021 | ||
| Operational Approval of the acquisitions of Quasar and Lightstream |
Financial and Risk Management Renewal of HSBC overdraft facility |
Update on proposed acquisition of Audix
| 2021 Board meetings | 2021 Board meetings | ||
|---|---|---|---|
| October | Short notice meeting – 7 October 2021 | November | Short notice meeting – 8 November 2021 |
| ESG Consideration of response to FCA consultation on diversity |
Financial and Risk Management Trading update |
||
| Financial and Risk Management Trading update |
Operational Acquisition of Savage and approval of associated funding |
||
| Operational Updates on proposed acquisitions of Savage and Audix and associated funding |
Short notice meeting – 25 November 2021 Strategy/Operational Creative Solutions update |
||
| Scheduled meeting – 13 October 2021 | Update on proposed acquisition of Audix | ||
| ESG Cyber security update |
December | Scheduled meeting – 13-14 December 2021 | |
| Update on Group renaming project | ESG | ||
| Strategy Update on potential M&A opportunities |
External Board evaluation output Update on Group renaming project |
||
| Financial and Risk Management | Chairman and Non-Executive Directors' fee approval | ||
| Intercompany debt restructuring proposal | Board objectives review for 2021 and setting objectives for 2022 |
||
| Operational Updates from Production Solutions and Creative Solutions |
Strategy Update on potential M&A opportunities |
||
| Update on proposed acquisitions of Savage and Audix and associated funding |
Financial and Risk Management Trading update and intercompany debt restructuring update |
||
| Approval of 2022 budget | |||
| Operational Updates from Imaging Solutions and Creative Solutions |
|||
| Progress on integration of Lightstream |
| Board | Audit | Remuneration | Nominations | |||||
|---|---|---|---|---|---|---|---|---|
| Scheduled | Short notice | Scheduled | Short notice | Scheduled | Short notice | Scheduled | Short notice | |
| Number of meetings | 6 | 7 | 4 | 0 | 3 | 2 | 4 | 0 |
| Directors: | ||||||||
| Ian McHoul | 6 | 7 | – | – | – | – | 4 | 0 |
| Christopher Humphrey | 6 | 7 | 4 | 0 | 3 | 2 | 4 | 0 |
| Duncan Penny | 6 | 7 | 4 | 0 | 3 | 2 | 4 | 0 |
| Caroline Thomson | 6 | 7 | 4 | 0 | 3 | 2 | 4 | 0 |
| Richard Tyson | 6 | 7 | 4 | 0 | 3 | 2 | 4 | 0 |
| Stephen Bird | 6 | 7 | – | – | – | – | 4 | 0 |
| Martin Green | 6 | 7 | – | – | – | – | – | – |
Vitec has an active and open dialogue with our shareholders and their views are regularly sought on key issues such as strategy, governance, and financial performance. They are an important source of capital, without whom Vitec could not grow and invest in future success. The Board receives a monthly shareholder analysis report from our corporate broker which records movements in the shareholder register and also notes when investor engagement has occurred and any notable views expressed.
There is a comprehensive investor relations programme in place to provide all shareholders with regular updates on operational and financial performance, including regular market announcements, presentations, face-to-face meetings with investors, roadshows, the AGM and the upkeep of a detailed investor relations section on the Group website.
During 2021, with progress on recovery of the business from the impact of COVID-19, the Board increased communication with investors to ensure they remained informed and supportive of all key business decisions as to how the business continued its recovery.
During 2021, the Board engaged with numerous institutional investors both virtually and face-toface. These were often centred around major events such as the 2020 Full Year results or 2021 Half Year results and were attended by the Group Chief Executive, Group Finance Director and Group Communications Director.
The Chairman additionally met with several shareholders during 2021 to hear their views first-hand.
The 2021 AGM was held as a closed meeting at our Richmond head office, due to the government's stay at home measures and following the ICSA guidance. Shareholders were not permitted to attend in person but could choose to be represented by the Chairman of the meeting to act as their proxy. Shareholders were invited to submit any questions they had in writing so that written responses could be given. All resolutions at the 2021 AGM were passed with a majority of votes in favour. The detailed outcome of resolutions at the 2021 AGM is available on our website under "Corporate Governance". We are planning for our 2022 AGM to be held in person at 11:00am on Tuesday, 17 May 2022 at The Academy of Medical Sciences, 41 Portland Place, London W1B 1QH. Any changes to these arrangements will be announced via the Regulatory News Service ("RNS"). We will ensure that all necessary measures are taken to enable the AGM to proceed safely. We value the opportunity to meet with our shareholders at the AGM and hope that we will be able to do so on 17 May 2022. Voting at the AGM is carried out by way of a poll. We encourage shareholders, however, to submit their votes by proxy ahead of the AGM to ensure their views are received in advance.
The Board, in the event of a 20% or more vote against a resolution at a General Meeting of shareholders, would consider that a material level and would seek to engage with shareholders to understand the nature of concerns raised by the against votes and what actions, if any, should be taken to address such concerns.
At the 2021 AGM, an against vote just below 20% was given to the Remuneration report resolution. Despite this falling below the 20% threshold for engagement, the Board and Remuneration Committee have taken concerns raised by some shareholders into account in relation to Directors' remuneration in 2021 and 2022.
The Annual Report is available to all shareholders. It is published in March each year. Through electronic communication initiatives, we aim to make our Annual Report as accessible as possible. Shareholders can opt to receive a hard copy in the post or can download PDF copies via email or from our website. Additionally, if a shareholder holds their shares via a nominee account and encounters difficulty receiving the Annual Report via their nominee provider, they are welcome to contact the Group Company Secretary to request a copy.
The Vitec website, www.vitecgroup.com, has a dedicated investor section which includes all of our Annual Reports, results presentations, and our financial and dividend calendar for the upcoming year. The website also outlines our business strategy and model, product portfolio, Company announcements and has a detailed section covering our ESG activities.
If shareholders have any concerns, which the normal channels of communication to the Group Chief Executive, or Chairman have failed to resolve, or for which contact is inappropriate, then our Senior Independent Director, Christopher Humphrey, is available to address them. He can be contacted via email at [email protected].
We have an experienced, diverse and dedicated employee base. They are Vitec's greatest asset and are critical to our success. Our highly-skilled employees are incentivised and motivated to help contribute to successfully delivering our strategy, performance and strong reputation. In order to reach all employees, the Board utilises a combination of formal and informal engagement methods as set out below, the principal method as defined by the Code being engagement with a Non-Executive Director:
In October 2021, Caroline Thomson, the independent Non-Executive Director tasked with employee engagement, carried out a series of meetings with over 30 employees from the Production Solutions Division based at our Bury St Edmunds, Shelton and Cartago sites. This entailed employees being able to raise questions and comment on a range of issues arising from working at Vitec. The session covered topics such as:
Feedback on these sessions was then given by Caroline Thomson to the Board, Divisional CEO and Divisional HR Director to ensure that the views of employees are known and are being taken into account. This feedback helps to shape and develop the Board's decision-making and to address any issues. An example of this was the feedback received on how quickly the Company adapted to allowing employees to work from home and continuing to listen to its employees by adapting its working practices to allow a greater degree of flexible working. This is the fourth year of holding such dedicated sessions and we consider it an important feature in ensuring that employees are able to raise issues that are important to them. We will plan on holding similar such sessions in future years. Further information on Caroline Thomson's employee engagement process can be found on pages 64.
A combination of our high level of employee satisfaction as shown through annual employee surveys and interaction with Caroline Thomson illustrates that our employee engagement programme is strong. The programme is valued by employees and the Board and Caroline Thomson is exceptional at engaging with employees across the Group from all levels in the organisation and across multiple countries.
The Board and Operations Executive review and approve all key policies and practices which could impact Vitec's workforce and influence their behaviours. All policies are carefully drafted to ensure they reflect and support the Group's purpose, values and strategy. This includes the Group's Code of Conduct and its additional policies relating to health and safety, anti-bribery and corruption, modern slavery, data protection and whistleblowing. Furthermore, training sessions are arranged on these topics on a regular basis for employees to attend. Further information on Vitec's key compliance policies can be found on page 72. The policies are published on the Group's intranet, with some included in the employee handbook. The Group's Code of Conduct will be relaunched to all employees in June 2022 and will also be provided to all third parties such as suppliers and customers over a certain financial value.
As part of Vitec's ESG programme, we review the integrity surrounding our supply chain, including all suppliers, agents and distributors, including a review of agreements and contractual terms prohibiting bribery and expressly requiring parties to comply with the Group's Code of Conduct. We also vet our supply chain for reputational risk issues using the NAVEX Risk Rate software package that screens for adverse media, sanctions and politically connected persons. Further detail is given on the Company's website and in Responsible business on page 72.
Vitec has a clear Conflicts of Interest Policy that sets out how any conflicts of interest are to be reported and to be managed, including a conflicts of interest register documenting all declared conflicts of interest. Each Director is required to declare any conflict of interest arising on any matter. The Articles of the Company dictate how any such conflicts are to be managed, including that in the event of a conflict of interest and it having been declared, the Board may authorise the conflicted Director to participate in discussions and the decisions relating to that matter. It is confirmed that no such conflicts arose in 2021.
The Board operates the Remuneration Policy approved by shareholders for Executive Directors remuneration via the Remuneration Committee. The Remuneration Committee while carrying out its duties has overall oversight of the wider workforce remuneration practices. Vitec's competitive remuneration policies and practices are designed to attract, retain and motivate employees at all levels. They are intended to be clear and simple and to align with our strategy and our corporate culture.
It is part of our culture that all employees are encouraged to identify and speak up against any malpractices and wrongdoings occurring within the organisation which fall short of our high standards of operating and in conflict with our Code of Conduct.
Vitec's whistleblowing procedures are operated in conjunction with NAVEX which enables any employee or third party who feels the normal reporting channels are not appropriate or trustworthy, to report on any issues around alleged wrongdoing or other Code contraventions confidentially and anonymously.
Details of the whistleblowing service are included in our employee handbook, on our website and on posters around all our sites. All communication is translated into local languages where necessary.
All reports are notified to the Group Chief Executive, the Group Company Secretary and the Chairman of the Audit Committee and are investigated independently by senior management who are not connected to the report. The outcome of an investigation is reported to the Chairman of the Audit Committee and remedial action taken where necessary. The Board is notified of all whistleblowing reports and the outcome of investigations. During 2021, there were two whistleblowing reports that were related to HR matters. Each matter underwent a thorough investigation and corrective actions were taken with oversight of the Audit Committee Chairman and involving Divisional management as appropriate.
The whistleblowing service will be recommunicated to all employees in mid-2022.
The following major decisions were taken by the Board and its Committees during 2021:
In April 2021 we acquired Quasar for up to \$6.1 million. Quasar designs and develops a range of market-leading innovative
linear LED lighting solutions for cine-style applications.
In April 2021, we acquired Lightstream for an expected total cost of \$35.9 million. Lightstream develops cloud-based live production software to enable content creators, particularly gamers, to enrich their live video streams.
In November 2021, we acquired Savage for up to \$57.3 million. Savage is a global market leader in backgrounds for the growing professional studio photographic market.
Following The Suspension Of Dividends In 2020 Due To The Impact Of Covid-19, The Board Reinstated The Payment Of Dividends With The Payment Of A Final Dividend In May 2021.
In 2021 we enhanced our ESG programme establishing a cross-Divisional ESG Committee with an increased focus on ESG reporting, setting clear objectives and targets and will publish a detailed ESG report in April 2022.
The Board underwent an external evaluation in 2021 led by Lintstock – an independent advisory firm with extensive experience in listed company Board evaluations. This was the first external evaluation since 2017.
There is clear division of responsibilities for the Board between Executive and Non-Executive Director roles, providing a framework for accountability and oversight. The roles of Group Chief Executive and Chairman are separately held and their responsibilities are well-defined, set out in writing and regularly reviewed by the Board. The Chairman is responsible for the leadership of the Board and the Group Chief Executive manages and leads the business and its operations.
Chairman of the Board and Chairman of the Nominations Committee
Senior Independent Director and Chairman of the Audit Committee
Designated Non-Executive Director for Employee Engagement and Chair of the Remuneration Committee
Ian McHoul Chairman
Group Company Secretary and HR Director
All Non-Executive Directors bring independent character and judgement to Vitec's strategy, the performance of the Group, the adequacy of resources and standards of conduct. The Board as a whole considers that Ian McHoul, Christopher Humphrey, Duncan Penny, Caroline Thomson and Richard Tyson are independent in accordance with the recommendations of the 2018 UK Corporate Governance Code. Except for Christopher Humphrey and Caroline Thomson, each of these Non-Executive Directors' tenure on the Board is less than six years and as outlined on page 95 and 97. The process is being led by the Chairman each year of ensuring that the performance of each Director is objectively appraised. The 2021 external Board evaluation as detailed on page 98 covers the performance assessment of each Director.
The Board announced on 20 December 2021 that Erika Schraner will be appointed as an independent Non-Executive Director of the Company with effect from 1 May 2022.
We also announced that Duncan Penny will not be seeking reappointment at the 2022 AGM and he will therefore cease to be a Director of the Company at the close of the AGM on Tuesday, 17 May 2022.
The following diagram illustrates the dynamic between the Board and Operations Executive and the responsibilities they are each tasked with:
The Board has overall responsibility for setting the Group's strategy, taking risk appetite into consideration and setting objectives for the business. It delegates overall delivery of the strategy to the Group Chief Executive who is supported by the Operations Executive.
The Board considers there to be an appropriate balance between Executive and Non-Executive Directors required to lead the business and safeguard the interests of shareholders.
As at 31 December 2021, the Board was comprised of the Chairman, four independent Non-Executive Directors and two Executive Directors. This meets the requirement of the 2018 UK Corporate Governance Code for at least half the Board, excluding the Chairman, to be independent Non-Executive Directors.
The Operations Executive, led by the Group Chief Executive, is responsible for running the business of the Group. The Operations Executive meets on a monthly basis and individual members of the Operations Executive attend Board meetings on a regular basis to provide updates on their businesses. The Board delegates all operational matters to the Group Chief Executive except for those matters reserved for the Board. The Group Chief Executive in turn uses the Operations Executive to help deliver on operational matters.
The Operations Executive has responsibility for day-to-day management of the business, including employees and delivery of the strategy set by the Board.
The Board has a formal schedule of matters reserved for its approval which includes:
The Nominations Committee is responsible for monitoring the Board, its Committees and Vitec's senior management to ensure that they have the right balance of skills, knowledge and experience to lead the Group effectively, both now and in the longer term.
The Nominations Committee comprises the following members:
Ian McHoul (Chairman)
Stephen Bird, Christopher Humphrey, Caroline Thomson, Richard Tyson and Duncan Penny
Board skills and experience
Marketing
Finance and accounting
The purpose of this report is to highlight the role that the Nominations Committee plays in monitoring the Board's balance of skills, knowledge and experience and to provide the diversity of thinking and perspective required to provide effective leadership.
An important area of work for the Nominations Committee is succession planning around the Board and senior management of the Group. We aim to have a talented management team with the right skills, diversity and experience to sustainably grow the business. In 2021, the Board received an update on talent and succession plans across the senior management teams in the Group's three Divisions. The Board and its Committees get regular exposure to the senior management team to see and hear first-hand from our executive talent.
The Nominations Committee further oversaw the recruitment of Erika Schraner who will join the Board as an independent Non-Executive Director on 1 May 2022 following a thorough induction process. Erika is highly financially literate, has a strong understanding of manufacturing and supply chain issues, particularly in technology companies, brings software and M&A experience and has a global outlook with much of her career spent in Silicon Valley, US. Her appointment strengthens the skills and diversity on the Board.
The Board considers the issue of diversity for every appointment. The objective is to ensure that the Board appoints the best person for every role and to optimise the collective Board strength. As part of this, the Board has adopted the following policy on diversity and inclusion.
Vitec recognises the importance of a fully diverse and inclusive 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 and senior management level and throughout the entire workforce, taking into account, among other things, Lord Davies' review, Women on Boards, the Hampton-Alexander review, FTSE Women Leaders and the Parker and McGregor-Smith reviews on ethnic diversity. We will report upon this issue annually in our Annual Report. Our Diversity & Inclusion Policy is available on our website: https://vitecgroup.com/ responsibility/our-people.
—
The Responsible business section on page 66 contains further information on diversity, including the disclosure of gender diversity statistics at all levels across the business in accordance with the requirements of the Companies Act 2006.
We engaged over the year, with shareholders on our ESG (Environment, Social and Governance) programme, including on diversity at Board level. We used the feedback received to help shape our meeting agendas and discussion points in the Committee meetings.
The performance of the Committee was considered through the annual Board evaluation process, which in 2021 was the subject of an external review. From the responses provided, it was concluded that the Nominations Committee was operating effectively.
Chairman of the Board and Nominations Committee Chairman 28 February 2022
| Page | |
|---|---|
| Board succession and appointment process of new Non-Executive Director | 96 and 97 |
| Performance of the Nominations Committee | 96 |
| Board composition | 78 to 79 |
| Diversity and inclusion | 96 |
| Board and Committee evaluation | 98 |
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 the Board the comprehensive skillset required to deliver the strategic objectives of the Group and to ensure its continued success. More insight into the Board's overall composition, skills, knowledge and performance was drawn from the 2021 external Board evaluation. Further detail can be found on page 98. The Nominations Committee continues to monitor Board structure and succession plans, including internal talent development and succession plans of senior management below Board level. During 2021, Nicola Dal Toso succeeded as CEO of our Production Solutions Division. Nicola previously ran the operations for the Imaging Solutions Division for several years and was a clear successor to lead the Production Solutions Division.
During 2021, the Nominations Committee, led by Ian McHoul, continued to review plans around Board succession for both Executive and Non-Executive Directors. This culminated with the announcement that Erika Schraner will join the Board as an independent Non-Executive Director on 1 May 2022 following an induction period. More information about Erika can be found in the 2022 AGM Notice. The Nominations Committee continues to assess succession around the Board, Operations Executive and other senior management with regular updates on talent and also meeting with key talent.
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 holds office only until the next AGM and shall then put themselves forward to be reappointed by shareholders . Notwithstanding the appointment of Erika Schraner to the Board with effect from 1 May 2022, the current Board comprises a Chairman, Group Chief Executive, Group Finance Director and four independent Non-Executive Directors. Details of their appointment are set out below:
| Chairman or Non-Executive Director | Appointment date | First renewal of term | Second renewal of term | Subsequent renewal of term |
|---|---|---|---|---|
| Ian McHoul (Chairman) | 25 February 2019 | 25 February 2022 | 25 February 2025 | Annually from 25 February 2026 onwards |
| Christopher Humphrey | 1 December 2013 | 1 December 2016 | 1 December 2019 | Renewed tenure to 1 December 2022 |
| Duncan Penny | 1 September 2018 | 1 September 2021 | 1 September 2024 | Annually from 1 September 2025 onwards |
| Caroline Thomson | 1 November 2015 | 1 November 2018 | 1 November 2021 | Annually from 1 November 2022 onwards |
| Richard Tyson | 2 April 2018 | 2 April 2021 | 2 April 2024 | Annually from 2 April 2025 onwards |
| Executive Director | Appointment date | Term | ||
| Stephen Bird (Group Chief Executive) |
14 April 2009 | Appointed under a service contract | ||
| Martin Green (Group Finance Director) |
4 January 2017 | Appointed under a service contract |
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, subject to annual election by shareholders.
Under the Company's Articles, each Director is required to stand for annual reappointment at every AGM. The annual renewal 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. The explanatory notes in the Notice of Meeting of the AGM state the reasons why the Board believes that the Directors proposed for re-election should be reappointed.
The Company announced that Duncan Penny will not be seeking reappointment at the 2022 AGM and he will therefore cease to be a Director of the Company at the close of the AGM on Tuesday, 17 May 2022.
Upon appointment, each Director is provided with an extensive, tailored induction to the Group. This includes meeting with all senior head office and Divisional management, meeting the Company's main external advisors including Deloitte and Investec and visits to the key operational facilities in the Group. The Group Company Secretary coordinates this induction process. Erika Schraner will have such an induction to the Group ahead of joining the Board on 1 May 2022.
Ongoing training for new and existing Directors is available on request. Directors receive details of relevant training and development courses from both the Group Company Secretary and from the Company's advisors. Any requests for training are discussed at Board or Committee meetings and we 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 2021 the Board collectively received training sessions on product technology, cyber security, investor relations, ESG matters and the broadcast and photographic markets as well as accounting and legal updates from the Company's external auditor and legal advisor. The Board also receives regular written updates on governance, regulatory and financial matters as they are published.
All Directors demonstrated strong time commitment to their roles on our Board and Committees and attended all scheduled and short notice meetings during 2021. The Directors have also given careful consideration to their external time commitments to confirm they are able to devote an appropriate amount of time to their roles on our Board and Committees. The Nominations Committee reviews on an ongoing basis Directors' time commitments and confirms that they are fully satisfied with the amount of time each Director devoted to the business.
An external Board evaluation was facilitated in 2021 by Lintstock. Lintstock are an independent third party organisation which specialises in Board evaluations and holds no connection with the Company or any individual Director. The external evaluation was postponed from 2020 due to COVID-19 and the need for the Board to focus on recovery of the business from the pandemic. The 2021 external Board evaluation involved a series of questionnaires prepared by Lintstock and completed by each member of the Board covering the Board, its Committees (Audit, Remuneration and Nominations), the Chairman and individual Directors. Once completed, Lintstock followed up with interviews with each Director to review questionnaire responses and to delve deeper into responses given. All Directors participated in the process over several weeks and the output was reported on at the December 2021 Board meeting.
The 2021 external Board evaluation found the following:
The Board will carry out an internal evaluation in 2022 and report on that in the 2022 Annual Report and Accounts.
The Board annually sets itself objectives against which to measure its own performance and effectiveness and to remain focused on the key issues facing the Group. These objectives are tracked during the year and progress reported on at each scheduled Board meeting. The following table sets out the agreed Board objectives for 2021 and progress made throughout the year.
| 2021 Board objective | Progress during 2021 |
|---|---|
| Financial Recovery of the business in 2021 post COVID-19 – achieving 2021 budget and ensuring the business was on target to recover to pre-COVID levels by 2022. |
— The Board considered the 2020 full year results including outlook for 2021 and kept under review the Group's financial performance and recovery plans during 2021 |
| — Based on the strong recovery throughout the year, repaid the UK Government's furlough scheme funds and COVID Corporate Finance Facility |
|
| — In May 2021, resumed the payment of dividends to shareholders | |
| — Reviewed the Group's 2022 budget | |
| — Delivered a strong financial outturn for 2021 with several upgrades issued during 2021 |
|
| Strategy Review overall portfolio of businesses and strategic direction for the Group with |
— Received high-level updates on strategy throughout the year for the Group and individual Divisions |
| a focus on Creative Solutions. | — Blue Sky strategy session resumed in May 2021 covering the overall Group strategy including Creative Solutions deep dive |
| — Strategy update session held at the December 2021 meeting | |
| — Successful acquisitions of Quasar, Lightstream and Savage in 2021, and Audix in early 2022 |
|
| Board and senior management succession planning Review succession plans for Board and senior management including |
— Received updates on Board and senior management succession along with talent and succession plans throughout the Group |
| development plans and ensuring that potential successors are exposed to the Board. |
— Nicola Dal Toso appointed as CEO Production Solutions, succeeding Alan Hollis |
| — Following a detailed review of the Board, Erika Schraner was recruited as an independent Non-Executive Director with effect from 1 May 2022 |
|
| Creative Solutions Creative Solutions – subject to COVID-19, the Board to visit Creative Solutions (Irvine, US) in 2021 to see the business, meet its people and review the risks and opportunities around the business. |
— A physical visit to the Creative Solutions business in the US did not progress due to COVID-19 restrictions, however Nicol Verheem updated the Board on the Creative Solutions Division |
| ESG (Environmental, Social and Governance) Develop the Group's ESG programme with increased disclosure and clarity. |
— Received regular updates on the development of the Group's revised ESG programme and initiatives |
| Ensure that the Company responds in a timely manner to wider changes to corporate governance including, but not limited to, TCFD. |
— Established an ESG Committee which met regularly throughout the year and reported to the Board. The ESG Committee is comprised of the Group Chief Executive, Group Company Secretary, Group Communications Director, Group Risk Assurance Manager and senior representatives of each Division |
| — Oversaw the work of Inspired ESG who helped develop the ESG and TCFD disclosures for year end reporting and the 2021 Annual Report and Accounts |
|
| — Expanded ESG reporting for 2021 that will culminate in a standalone ESG report to be published in April 2022 |
The Board has set itself several objectives for 2022, mainly driven from the output of the external Board evaluation in 2021. These will be reported on in the 2022 Annual Report.
The Audit Committee fulfils a vital role in the Group's governance framework, providing valuable independent oversight of the Group's financial reporting, system of internal controls to safeguard shareholders' investments and the Company's assets and employees. Furthermore, it oversees the relationship with the external auditor to assess their effectiveness and to annually assess their independence and objectivity.
The Audit Committee comprises solely of independent Non-Executive Directors of the Company namely:
Christopher Humphrey (Chairman),
Duncan Penny, Richard Tyson and Caroline Thomson
Other members of the Board, Operations Executive and other senior management, Group Risk Assurance Manager and the Company's external auditor, Deloitte, attend meetings of the Audit Committee by invitation only.
Financial reporting
The role that the Audit Committee plays in monitoring the Company's financial integrity, control framework and governance is imperative. The following report is intended to provide shareholders with an insight into how key topics are considered during the year and how the Committee discharged its responsibilities.
During 2021, the Audit Committee has focused on several key issues as the business has continued its recovery from the impact of COVID-19. In early 2021, the Committee was focused on the financial reporting and disclosures tied to the 2020 Annual Report to ensure that they were fair, balanced and understandable. This was additionally challenging given the need for remote working in early 2021, however the Committee, Operations Executive and the Company's external auditor, Deloitte, reached the conclusion that the 2020 financial statements were true and fair of the state of the Group and had been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards.
The Committee further oversaw the risk management of the Group in 2021. Apart from the normal operational risks subject to the annual risk management review process, the business was exposed to increasing risks from stretched supply chains, component shortages and increasing risk around cyber security. The Committee has reviewed the Operations Executive's response to these emerging risks and is satisfied that appropriate mitigation is being taken.
The Financial Reporting Council carried out a thematic review of our Alternative Performance Measures disclosures tied to the 2020 Annual Report in mid-2021. That review found that:
Under my remit, the Audit Committee has a key role in checking that the Group's narrative reporting provides a fair, balanced, and understandable assessment of the Group's position and prospects and establishing that the financial statements offer a fair and true view of the Group's financial affairs. As part of this process, we considered the significant financial judgements made during the year, along with other key financial reporting issues.
We also considered, on a regular basis, the potential for fraud in revenue recognition, scope for management override of controls and compliance with legislation and regulations. No concerns arose out of this review.
Further details of the main activities and information on the other significant issues that the Committee considered during the year can be found on page 102.
While I did not need to meet with shareholders or other stakeholders during the year, I remain available to do so should the need arise and will be present at the Company's AGM on Tuesday, 17 May 2022 to answer any questions from our shareholders.
The Group has set up an ESG Committee to review our effectiveness and controls in matters relating to Environment, Social and Governance across the business. This Committee reports to the Board on a regular basis and the Audit Committee has oversight of reporting on TCFD (Task Force on Climate Related Financial Disclosures) and management of risks tied into climate change. You can read more on our ESG programme on pages 42 to 72.
After reviewing the reports from management and following discussions with the external auditor, the Committee is satisfied that:
The performance of the Committee was considered through the annual Board evaluation process, which in 2021 was the subject of an external review. From the responses provided, I am pleased to report that the Audit Committee was found to be operating effectively. Additionally, the quality of the papers and presentations by management, the level of challenge by the Audit Committee and Deloitte and the quality of discussions held, gives the Committee further comfort and assurance that it is performing its role effectively. A number of suggestions for areas to focus on have been incorporated into the Committee's 2022 objectives. These objectives are set annually, the progress of which is reviewed at every Committee meeting and will be reported on in the 2022 Annual Report and Accounts.
Audit Committee Chairman 28 February 2022
The Audit Committee is composed solely of independent Non-Executive Directors who collectively have a wide range of skills and experience including finance and accounting, leadership, and technology. Christopher Humphrey, as a Chartered Management Accountant and Fellow of CIMA, satisfies the requirement of having appropriate and relevant financial experience. Page 79 sets out his full biographical details.
The schedule of Audit Committee meetings is built around the key dates in the financial reporting and audit cycle. During the year, the Committee met on four scheduled occasions, in February, June, August and December. The Committee met in February 2021 to review the 31 December 2020 year end results and Annual Report and Accounts.
Forward planning of agenda items guides the business to be considered at each meeting and is regularly reviewed and developed. This assists and facilitates the work of the Committee, enabling it to give thorough consideration to matters of particular importance to the Company.
The Committee received information in advance of its meetings from management and from the external auditor including the main audit report. The Committee meets privately with the external auditor at least annually and received feedback from management when considering areas for review.
Christopher Humphrey also maintains close contact with the Group Finance Director, Group Chief Executive and members of the senior Audit team at Deloitte. These meetings inform the work of the Committee by identifying key areas of focus and emerging issues.
The Committee regularly invites the external audit lead partner, David Halstead, the Chairman of the Board, the Group Chief Executive, the Group Finance Director and the Deputy Group Finance Director to its meetings.
Meetings of the Committee are held in advance of the main Board meetings to allow the Committee Chairman to provide a report on the key matters discussed to the Board, and for the Board to consider any recommendations made. All of this, along with ongoing challenge debate and engagement, allows the Committee to discharge its responsibilities effectively.
| 23 February 2021 | 23 June 2021 | 9 August 2021 | 13 December 2021 |
|---|---|---|---|
| Financial and narrative reporting | |||
| — Received the accounting presentation and judgemental issues report, and the report on going concern for the full year ended 31 December 2020 |
— Tax and interest rate hedging update | — Received the accounting presentation and judgemental issues report, and the report on going concern for the half year ended 30 June 2021 |
— Tax and Treasury updates |
| — Recommended the approval of the 2020 Annual Report and Accounts, agreeing when taken as a whole is fair, balanced and understandable |
— Reviewed the letters of representation issued to the external auditor for the half year results prior to being agreed by the Board |
||
| — Reviewed the letters of representation issued to the external auditor for the full year results prior to being agreed by the Board |
— Tax and interest rate hedging update | ||
| External audit | |||
| — Received a full year report from the external auditor on the 2020 financial statements and accounting disclosures |
— Presented the 2021 half year audit plan — Presented update on Task Force for Climate related Financial Disclosures to be reported on in the 2021 Annual Report and Accounts — Considered an update on potential audit fees for 2021 |
— Received half year report from the external auditor on the 2021 half year financial statements and accounting disclosures — Approved the audit fees for 2021 |
— Received the final planning report on the 2021 external audit — Considered the 2021 year end process to date by the external auditor |
| Governance | |||
| — Agreed the disclosure of the 2020 Audit Committee report |
— Draft response to BEIS consultation paper relating to restoring trust in audit and corporate governance |
— Update on whistleblowing, third-party reputational risk management and anti-bribery and corruption programme |
|
| — ESG programme update including preparation of TCFD disclosures |
|||
| — Approved Committee objectives for 2022 |
|||
| Risk management and internal control | |||
| — Reviewed the principal and operational risks identified across the Group — Update on cyber security |
— Risk assurance update against the 2021 risk assurance programme — Update on cyber security |
— Half year review and progress against agreed 2021 risk assurance programme — Update on cyber security |
— Risk assurance update against 2021 risk assurance programme and agreed the risk assurance and internal audit programme for 2022 |
| — Approved the 2021 internal audit programme |
— Received full year report of internal audit activity in 2021, internal audit plans for 2022 and status of Vitec's key controls |
— Update on cyber security
The Board delegates 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 judgements in the course of the management of the business.
The Board has completed a robust assessment of the Company's emerging and principal risks and 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:
The Board has established a control framework within which the Group operates. This contains the following key elements:
Defined expenditure authorisation levels.
Operational review process covering all aspects of each business conducted by the Operations Executive on a regular basis throughout the year.
This system has been in place for the year under review and up to the date of approval of the Annual Report.
The Board carries out a periodic assessment of the Group's risk appetite, which includes the identification of the risk thresholds against each organisational objective. Key elements of the risk appetite (for example, our commitment to innovation, compliance and sustainability practices) are summarised in the overview section of the Principal risks and uncertainties.
Deloitte were appointed in May 2018, following a formal tender process. At the 2021 AGM, shareholders reappointed Deloitte as the external auditor of the Group for the year ended 31 December 2021 and authorised the Audit Committee to fix the external auditor's remuneration. The current lead audit partner, David Halstead, is in the fourth year of his term.
The Committee reviews reports on the audit firm's own internal quality control procedures together with the policies and processes for maintaining independence and monitoring compliance with relevant requirements Deloitte has confirmed its independence as external auditor of the Company in a letter addressed to the Directors. The fees payable for 2021 and previous years are as follows:
| 2021 | 2020 | 2019 | 2018 | |
|---|---|---|---|---|
| Fees payable to Deloitte for the audit of the Company's financial statements |
£0.6m | £0.2m | £0.1m | £0.1m |
| Fees payable to Deloitte for audit of subsidiaries |
£0.7m | £0.5m | £0.5m | £0.4m |
| Fees related to corporate finance transactions |
£nil | £nil | £nil | £0.2m |
The FRC's Audit Quality Review Team ("AQRT") monitors the quality of audit work of certain UK audit firms through annual inspections of a sample of audits and related procedures at individual audit firms. During 2021, the AQRT reviewed Deloitte's audit of the Group's financial statements for the year ended 31 December 2020 as part of its annual inspection of audit firms. Deloitte discussed with the Audit Committee the findings from the AQRT which indicated that there were no significant areas of concern.
The effectiveness of the external auditor and the audit process is assessed by the Committee, meeting the audit partner and senior audit managers regularly through the year. Annually, the Committee assesses the qualifications, expertise, resources and independence of the Group's external auditor, as well as the effectiveness of the audit process through discussion with the Group Finance Director and Deputy Group Finance Director. The Chairman of the Committee also meets with the Deloitte lead partner.
Every couple of years, a detailed survey is performed of all employees who have interacted with the external auditors; the main purpose being to identify opportunities to improve the audit process. We review the output of the audit process, as presented to the Audit Committee, to ensure that there is a clear logical planning and scoping process. This allows the Audit Committee to ascertain that all areas of audit risk are being addressed.
The Audit Committee will continue to review the effectiveness and independence of the external auditor each year. Vitec complies with the Competition and Markets Authority Order 2014 relating to audit tendering and the provision of non-audit services, and it is the Group's intention to put the audit out to tender at least every ten years. The external audit was last tendered in 2017-2018 following which the external auditor changed from KPMG to Deloitte and there are no current plans to retender the services of the external auditor.
The Group Risk Assurance Manager conducted several internal audits and additional assurance reviews during 2021, the details of which were presented to the Audit Committee. The internal 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; human resources and IT processes. An internal audit plan for 2021 was prepared and agreed with the Audit Committee at its February 2021 meeting and progress against the internal audit plan was tracked throughout the year.
As required by the Code, the Audit Committee has a formal policy governing the engagement of our external auditor, Deloitte, to supply non-audit services and to assess the threats of self-review, self-interest, advocacy, familiarity and management. Written permission must be obtained from the Chair of the Audit Committee before the external auditor is engaged for any non-audit work. The policy ensures that any non-audit work provided by Deloitte does not impair their independence or objectivity and is divided into two parts:
| Excluded Services | Appropriate Services | ||
|---|---|---|---|
| Include: | With approval from the Group Finance | ||
| — Internal accounting or other financial services |
Director and Chair of the Audit Committee, these include: |
||
| — Design, development or implementation of financial |
— Accounting advice in relation to acquisitions and divestments |
||
| information or internal control systems | — Corporate governance advice | ||
| — Internal audit services or their outsourcing |
— Defined audit related work and regulatory reporting |
||
| — Forensic accounting services | — Reporting accountant services | ||
| — Executive or management roles and | — Compliance services | ||
| functions | — Transaction work (M&A and | ||
| — IT consultancy | divestments) | ||
| — Litigation support services and other financial services such as broker, financial advisor or investment banking services. |
— Fairness opinions and contribution reports |
During 2021, the non-audit services policy was followed with no exceptions. During 2021, £0.1 million (2020: £0.1 million) was paid to Deloitte in respect of non-audit work compared to an audit fee of £1.3 million (2020: £0.9 million). This non-audit work mainly comprised the review of the half yearly financial statements.
The Committee provides assurance to the Board 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 performance, business model and strategy. The 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 content of the financial statements and the Viability Statement were reviewed by the Committee at the February 2022 meeting. The Board as a whole are responsible for preparing the Annual Report and Accounts. The Committee reported to the Board that based on its review of the evidence, it was satisfied that the Annual Report and Accounts, taken as whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.
Significant accounting issues and judgements are identified by the finance team, or through the external audit process and are reviewed by the Audit Committee. The significant issues considered by the Committee in respect of the year ended 31 December 2021 are set out below:
| Significant | accounting issues How was it addressed |
|---|---|
| Going concern | The Committee considered whether it was appropriate to prepare the financial statements on the going concern basis. It was noted that there was significant covenant headroom at 31 December 2021, and, on the basis of stress testing performed on the Group's financial forecasts, covenants were not expected to be breached through to the end of 2024 which is the time period over which the viability review is completed. It was further noted that there was sufficient headroom over committed lending facilities, with undrawn amounts left on the RCF under each scenario each month through to at least February 2023 (12 months from the date of signing the financial statements). Management therefore concluded it was appropriate to prepare the financial statements on the going concern basis. The external auditor also presented their assessment. The Committee concurred with management's assessment. |
| Working capital valuation |
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 throughout the year and with special emphasis on the 2021 year-end process. Management presented to the Committee the experience of bad debts during 2021, 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. |
| Provisions and liabilities |
The Committee considered the judgemental issues relating to the level of provisions and other liabilities. The more significant items include pensions 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. |
| Restructuring costs |
The Committee considered the validity of restructuring costs that were included in adjusting items in 2021. In total, integration and restructuring costs of £0.9 million were incurred in 2021, which mainly related to a strategic project in Imaging Solutions and Production Solutions to rebalance the allocation of resources from offline to online to enable growth, reduce operating costs and improve margins. The external auditor presented their findings with regard to key audit testing over restructuring costs. The Committee agreed with management's accounting and disclosures. |
| Capitalisation of development costs |
The Committee considered whether the development costs capitalised during the year complied with IAS 38. Management presented a list of the key projects that had been capitalised, along with an assessment of future profitability to support the value on the Balance Sheet. The external auditor also presented their findings. The Committee agreed with management's accounting treatment and related disclosures. |
| Significant | accounting issues How was it addressed |
|---|---|
| Acquired intangibles |
The Committee critically reviewed management's assessment of acquired intangible assets tested for impairment and the recognition of acquired intangible assets from acquisitions completed in 2021. The external auditor also presented their assessment. The Committee concurred with management's assessment. |
The following table sets out the agreed Audit Committee objectives for 2021 and an assessment of progress against each.
| 2021 Audit Committee objective | Progress during 2021 |
|---|---|
| Track progress on the Group's cyber security initiatives |
The Committee received regular updates on key cyber security initiatives during 2021 from the Group Risk Assurance Manager and Group Head of IT and Security. Examples of progress included the rollout of two factor authentication, implementation of patching solutions, cyber essential plus accreditation, external assessment of security, dark web monitoring and user awareness training. |
| Business continuity – evolve learnings from events such as COVID-19 and Brexit to ensure and improve the robustness of the organisation |
Key learnings from the pandemic have been taken and reflected in updated business continuity plans and the transition of the UK under Brexit out of the European Union has been mitigated with no material impact upon the business or operations. |
| Treasury strategy with focus on interest rate hedging |
Regular updates provided to the Committee throughout 2021 by the Group Treasury Manager. Implemented an interest rate and FX hedging policy. |
| Tax strategy with focus on Group financing and impact on the Group's tax rate |
Regular updates provided to the Committee throughout 2021 by the Group Head of Tax. The Group's Effective Rate of Tax (ETR) has been appropriately managed in 2021. |
| Oversight of Group R&D programme | Updates given on major R&D projects including associated spend, timescales and progress against key milestones. The Committee is satisfied that resources for R&D are adequately monitored. |
Annual statement by Caroline Thomson, Chairman of the Remuneration Committee
Our senior leadership team has worked tirelessly throughout 2021 to drive recovery and to deliver an exceptional financial performance for our shareholders and wider stakeholders. This has resulted in the Committee being able to award bonus payments to the Executive Directors and senior leadership team that are entirely merited.
Vitec's Remuneration report for 2021 comprises three separate sections:
The Committee in 2021 focused on ensuring that the implementation of the Remuneration Policy supported the recovery of the business from the full impact of COVID-19. Notably this included setting an appropriate bonus plan targets for 2021 and for long-term incentives that drove management to recover and grow the business as quickly as possible. There was an increased level of concern expressed by fewer than 20% of votes cast at the 2021 AGM on the 2020 Remuneration report. The Committee is, however, confident that it has got the issue of executive remuneration right, with the business recovering faster than expected and real growth being delivered with exciting acquisitions including Quasar, Lightstream, Savage and Audix. Shareholders have seen in 2021 a material growth in shareholder value with the Company's market capitalisation growing from £420 million at the start of 2021 to £658.6 million at the end of 2021 as well as the reintroduction of dividends that were suspended in 2020. At the same time, we have acted on shareholders' feedback in respect of the level of 2022 LTIP awards and performance measures.
The Remuneration Committee has taken the UK Corporate Governance Code provisions into account with the Remuneration Policy and the operation of that Policy for executive remuneration. Notably the Committee has operated the Policy with simplicity of structure in mind and continues to ensure that remuneration outcomes are predictable, aligned with the experience of stakeholders in the Company and also drive the right behaviours and culture in the Company.
2021 saw a continuing acceleration in the recovery of the business from the impact of COVID-19 with increasing confidence as the year progressed. Despite some challenges including travel restrictions and component shortages, the Group's financial performance has significantly improved in 2021, with several upgrades issued during the year, a strong recovery in the Company's share price – rising from £9.17 at the start of 2021 to £14.20 at 31 December 2021 and the reintroduction of dividends for our shareholders. We have achieved an excellent outcome for 2021 with Group profit before tax of £42.4 million and revenue of £394.3 million.
In the first half of 2021, the recovery in the business enabled the Company to repay all of its borrowings under the Bank of England's COVID Corporate Finance Facility as well as to repay all money taken from the UK furlough scheme. We have remained very mindful of the safety and wellbeing of all our employees throughout 2021 and an all-employee survey in mid-2021 showed that our people are well engaged, feel safe at work and are motivated to work for Vitec.
Our increasing confidence in the recovery of the business and growth opportunities have further been shown by several exciting acquisitions – Lightstream and Quasar in April 2021, Savage in November 2021 and Audix in January 2022. These acquisitions fit excellently into our growth strategy and bring great new talent and exciting products into the Group.
Our senior leadership team has worked tirelessly throughout 2021 to drive this recovery and to deliver an exceptional financial performance for our shareholders and wider stakeholders. This has resulted in the Committee being able to award bonus payments to the Executive Directors and senior leadership team that are entirely merited. Our Remuneration Policy and its operation in 2021 has delivered an outcome that is fully aligned with our stakeholders' interests and their experience of investing in the Company.
At the start of 2021, given continuing uncertainty and risk around the recovery of the business, the Committee did not give any salary or fee increases to the Directors. This was against the context of general salary increases across the wider workforce of 2.2%. For 2022, all the Directors will receive an increase in salaries and fees of 3% which is in line with the general increase given to the wider workforce and reflects our increasing confidence around the recovery of the business. It is also reflective of the need to offer a competitive remuneration package that attracts, retains and motivates our talent.
We also set financial targets for the 2021 Annual Bonus Plan that we believed set the right balance between being challenging and realistic given the context and impact of COVID-19. The senior leadership team has driven recovery and growth in the financial performance of the Group that has resulted in bonus pay-outs for 2021 at near maximum levels. The 2021 Annual Bonus Plan was tied to the 2021 budget and focused on delivery of profit, cash conversion and stretching personal objectives. Details on the Annual Bonus Plan and assessment of personal objectives are on page 120 to 121 of this report. To ensure that bonus payments are aligned with shareholders' interests, the Executive Directors will be required to defer 50% of their 2021 bonus into shares held for three years in the Deferred Bonus Plan.
Long Term Incentive Plan ("LTIP") awards made in 2019 to Executive Directors did not achieve threshold performance conditions based on EPS growth and TSR performance. Accordingly, the 2019 LTIP award will lapse on the third anniversary of the award on 8 March 2022. This is the second consecutive year where the LTIP has not vested and reflects the experience of our shareholders during the respective performance periods.
A key decision of the Remuneration Committee in 2021 related to the award of LTIPs and setting of associated performance conditions. Due to the continuing challenges faced by the Operations Executive team in recovering the business as well as the need to set stretching targets for the EPS performance condition, the Committee felt that an award representing 200% of base salary was merited. The Committee considered that an award at this level, given the uncertainties of the pandemic, would drive Executive Directors to focus on value-creating activities and reward and retain them over the next few years when the Committee expect the scale of the commercial challenges and demands on the executive team to be great. The 2021 LTIP award was structured so that 33% was tied to TSR performance over a three-year period commencing 1 January 2021 compared to a comparator group comprising the constituents of the FTSE 250 Index (excluding financial services companies and investment trusts). 67% of the 2021 LTIP award is tied to a challenging adjusted basic EPS* performance corridor over the same three-year period with threshold set at 60 pence and stretch set at 100 pence for the financial year 2023 and with a straight-line progression between each point. Given the uncertainties around the pandemic and recovery of the business, the Committee considered that this was an appropriately challenging hurdle. Any shares vesting under the 2021 LTIP to the Executive Directors will be subject to a further two-year holding period aligning with shareholders' long-term interests. When determining the vesting level of this award, the Remuneration Committee will also take into account ROCE performance for the Company. The Committee retains full discretion to reduce the vesting outcome taking into account underlying business performance.
Some shareholders expressed concern about the structure of the 2021 LTIP award and just under 20% of votes cast were against the 2020 Annual Remuneration report. The Committee has listened to this feedback and will therefore ensure that LTIP awards for 2022 will revert to a pre-COVID-19 level representing 125% of salary.
The performance conditions tied to the 2022 LTIP have been set at a level to only reward strong performance that is aligned with shareholders' interests.
The Committee approved Restricted Share Plan ("RSP") awards in 2021 for key talent in the Group, excluding the Executive Directors and Operations Executive members. The RSP delivers shares over a three-year period to retain and incentivise talent to deliver on strategic growth initiatives.
As outlined in last year's Remuneration report, we agreed with Stephen Bird in 2021 to amend his pension contribution and to align it with the wider UK workforce. Stephen currently receives a pension contribution representing 20% of annual salary and this was contractually put in place when he was recruited in 2009 and was aligned with the market at that time. In light of changing sentiment to Directors' pension contributions, the Remuneration Committee and Stephen have agreed that this will reduce to 8% with effect from 1 January 2023. We felt that this period of transition was appropriate given the period of service and was right in the circumstances. The Committee is clear that any new Director will have a pension contribution that is aligned with the wider UK workforce which is currently 8%.
The Remuneration Committee and I are entirely satisfied that the Company's Remuneration Policy has continued to operate as intended, in terms of the Company's performance and the quantum of remuneration paid to the Directors in 2021. The exercise of discretion has not been required.
The Remuneration Committee comprises the following membership:
All members of the Remuneration Committee are independent Non-Executive Directors of the Company.
The Remuneration Committee has been delegated by the Board responsibility to set the remuneration framework for the Group Chief Executive, other Executive Directors and members of the Operations Executive. As Chairman of the Committee, I lead this process with the support of the other Committee members. During 2021, we invited the Chairman of the Board, Ian McHoul, Group Chief Executive, Stephen Bird, Group Finance Director, Martin Green and Group Company Secretary, Jon Bolton to attend meetings and to give input unless they were conflicted in a particular matter. To further support the Committee in its duties, the Committee uses the support and services of FIT Remuneration Consultants, who provide independent advisory services on executive remuneration and wider market remuneration issues.
In my role as Chairman of the Remuneration Committee, I am available to shareholders to discuss matters relating to Directors and senior executive remuneration. During 2021 I engaged with several shareholders in the run-up to the 2021 AGM and vote on the 2020 Annual Remuneration report.
The Remuneration Committee held three scheduled meetings in 2021 and two meetings at short notice at which all members of the Committee attended. Apart from normal business such as Directors' duties and conflicts of interest, minutes of previous meetings, matters arising and tracking progress against agreed Committee objectives for 2021 the following specific business was covered at each meeting:
January 2021 – short-notice meeting – covered a review of 2020 personal objectives performance for Executive Directors and Operations Executive members; 2021 Annual Bonus Plan structure update; and 2021 pay rises – the meeting agreed that due to the impact of COVID-19 and the recovery of the business that none of the Directors would receive any increase in salary or fees for 2021 in contrast to the wider workforce receiving increases at a general level of 2.2%.
February 2021 – approved the 2020 Annual Remuneration report submitted to the 2021 AGM; approved the outcome of the 2020 Annual Bonus Plan; determined the outcome of 2018 LTIP awards against performance measures; considered the outline structure of 2021 LTIP awards and associated performance conditions; approved the final structure of the 2021 Annual Bonus Plan; and approved personal objectives for the Executive Directors for 2021.
March 2021 – short-notice meeting – approved the final detail of 2021 LTIP awards.
October 2021 – update on executive remuneration trends provided by FIT Remuneration Consultants; update on 2021 Annual Bonus Plan; and TSR performance report update.
December 2021 – 2021 Annual Bonus Plan update; proposed pay rises for 2022 for Executive Directors and Operations Executive members; outline 2022 LTIP awards and proposed structure; and 2022 Annual Bonus Plan – proposed structure.
Minutes of each meeting are prepared by the Group Company Secretary and circulated to Committee members following each meeting.
The Remuneration Committee annually sets itself objectives and in 2021 it set the following ones and has measured progress against each:
| 2021 Remuneration Committee objectives | Progress during 2021 |
|---|---|
| 1. 2021 Incentives – ensure that suitably stretching performance conditions for the LTIP and Annual Bonus Plan are adopted which drive performance and the right behaviours. |
2021 LTIP awards and Annual Bonus Plan adopted for 2021 have driven performance and recovery of the business and are incentivising and retaining senior leadership to grow the business. |
| 2. Ensure that the 2020 Annual Remuneration report submitted to the 2021 AGM complies with best practice in terms of clear disclosures on Directors' remuneration and is approved by shareholders at the 2021 AGM. |
The 2020 Annual Remuneration report was approved by just over 80% of shareholders voting at the 2021 AGM. Disclosures in the 2020 Remuneration report were compliant with regulations and covered all elements of remuneration including the 2020 annual bonus. |
| 3. Ensure that 2021 personal objectives for Executive Directors are suitably stretching, SMART and that performance against them is clearly reported with appropriate detail. |
Personal objectives for 2021 were set focusing on delivering the recovery of the business from the impact of COVID-19 and securing long-term growth for the business. Detail of the personal objectives is set out on page 121 of this Report and assessment around each is given. |
| 4. Continue to assess the performance of FIT Remuneration Consultants following the 2021 AGM and considering support given to the Annual Remuneration report submitted to shareholders at that meeting. |
FIT Remuneration Consultants continued to give support to the Remuneration Committee throughout 2021 with input and guidance on the 2020 Remuneration report and associated disclosures, setting of awards including the Annual Bonus Plan and Long Term Incentive Plan including associated performance conditions, giving updates on market practice and emerging governance around Directors' remuneration. |
| 5. Ensure that key employees are retained through the setting of appropriate remuneration packages tied to the delivery of key strategic objectives. |
The setting of the 2021 Annual Bonus Plan and the 2021 LTIP award with associated performance conditions have incentivised management to drive the recovery and growth of the business. The combination of the Annual Bonus Plan and LTIP provide the right balance of short- and long-term incentives to incentivise and retain key talent. This is demonstrated by the fact that the senior team is stable and focused on growing the business. |
| 6. Monitor employee engagement throughout the Group by visiting sites (either in person or virtually), ensuring that the Committee has a thorough understanding of employee issues including remuneration. |
As part of a regular pattern of consultations across the business, Caroline Thomson held several employee engagement sessions covering employees in the Production Solutions Division in 2021 enabling the first-hand views of employees to be given. These sessions covered a range of issues including employee remuneration and benefits. The all-employee survey conducted in mid-2021 also enabled all employees to give feedback on employee issues and gave further confidence that employees across the Group feel valued, well engaged and motivated working for the Company. The output of employee engagement sessions and the all-employee survey were shared with the Board and Divisional senior leadership teams and have helped to shape the Remuneration Committees' application of the Company's Remuneration Policy for executive remuneration. |
Apart from the process of setting itself objectives and measuring progress against each, the Remuneration Committee was also subject in 2021 to an externally facilitated evaluation conducted by Lintstock. Lintstock is an independent external consultant who specialise in Board evaluations. They have no other connection with the Company or any Vitec Board member. The evaluation involved a questionnaire to each Committee member followed up with an interview to discuss the detail of the questionnaire. The output from the 2021 Remuneration Committee evaluation included:
Given the strength of recovery during 2021 and also to reflect the need to retain, motivate and incentivise Executive Directors, and general market inflation, the Committee has agreed that base salaries for the Executive Directors will increase in line with the general increase for the wider workforce by 3%.
Fees paid to the Chairman and Non-Executive Directors have also been increased by 3% in 2022 to reflect time commitments, market practice and that no increase was given in 2021 (no increase has been given for the Chairman since his appointment in 2019).
The 2022 Annual Bonus Plan has been designed to ensure that it motivates Executive Directors to deliver against challenging targets for 2022 based on the continued recovery of the business following the pandemic. Its structure retains the same combination of financial targets (Group adjusted profit before tax* and adjusted operating cash flow* generation) and personal objectives as used in 2021 and is tied to delivery of the 2022 budget. Given the continuing risks around 2022 and the importance of cash generation, the 2022 Annual Bonus Plan is structured so that Profit and Cash Conversion measures are independently assessed. Financial targets and personal objectives for the 2022 Annual Bonus Plan, against which actual performance will be measured, will be disclosed in the 2022 Remuneration report.
The Committee intends that the LTIP awards for 2022 will continue to be based on the Company's EPS and TSR performance ranked against a comparator group. The EPS performance condition, representing 67% of the award, will be set with a threshold adjusted basic EPS* compound annual growth target of 100 pence and a stretch of 130 pence measured over a three-year performance period commencing 1 January 2022 and using the adjusted basic EPS* of 69.9 pence for 2021 as the base for growth. 33% of the award will be measured using the Company's TSR performance compared to the constituents of the FTSE 250 index (excluding financial services companies and investment trusts). As before we will also operate a ROCE underpin on the 2022 LTIP award. The Committee believes that this combination of performance measures will challenge and incentivise management to deliver sustainable growth for shareholders and only deliver value should that growth be achieved. The 2022 LTIP award will revert to its pre-pandemic level for the Executive Directors representing 125% of base salary.
The Committee in 2022 will focus on the following matters:
We will be putting the Remuneration report covering Directors' remuneration paid in 2021 to the Company's shareholders for an advisory vote at the 2022 AGM. I encourage all shareholders to vote in favour of this resolution. I will attend the AGM and be open to answering questions on the Annual Remuneration report either at the meeting itself or ahead of the AGM should any shareholder wish to contact me at [email protected].
Chairman, Remuneration Committee 28 February 2022
* This report provides alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to aid the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary on pages 201 to 203.
The following is a summary of the Policy that covers remuneration for Directors of the Company for a three-year period from the Company's AGM on 27 May 2020 until the 2023 AGM. The full Policy, as approved by shareholders, is available on the Company's website and is contained in the 2019 Annual Report. Should there be any need to change the Company's Policy ahead of the 2023 AGM, shareholders will be asked to approve a revised Policy.
This report contains further information required under the Listing Rules and the 2018 UK Corporate Governance Code.
| Element of remuneration |
Purpose and link to strategy |
Operation | Maximum opportunity | Performance measures |
|---|---|---|---|---|
| Base salary | Base salary is set at a level to secure the services of talented Executive Directors with the ability to develop and deliver a growth strategy. |
Fixed contractual cash amount usually paid monthly in arrears. Normally reviewed annually, with any increases taking effect from 1 January each year, although the Committee may award increases at other times of the year if it considers it appropriate. This review is dependent on continued satisfactory performance in the role of an Executive Director. It also includes a number of other factors, including experience, development and delivery of Group strategy and Group profitability, as well as external market conditions and pay awards across the Company. |
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 and/ or size 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. |
Not applicable |
| Benefits | To provide Executive Directors with ancillary benefits to assist them in carrying out their duties effectively. |
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 income protection, expatriate travel or accommodation allowances. Executive Directors are entitled to participate on the same terms as all 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). An International Sharesave Plan also operates for non-UK employees. |
Not applicable |
| Element of remuneration |
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 (after tax) is deferred into the Deferred Bonus Plan held in the form of shares 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. 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. Up to 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. Awards may be granted in the form of conditional awards, nil-cost options, forfeitable shares or similar rights. After a period of three years, the awards vest 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. Such dividends are paid out in the form of additional shares in the Company. In the event of any material misstatement of the Company's financial results, serious reputational damage to the Company caused by a breach of the Company's Code of Conduct or otherwise, a miscalculation or an assessment of any performance conditions that was based on incorrect information, the occurrence of an insolvency or administration event, malus and clawback provisions may apply for three years from the date of payment of any bonus or the grant of any deferred bonus share award permitting the Committee to reduce, cancel or impose further conditions on awards. |
An absolute maximum of 125% of base salary to be paid in each year. |
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 adjusted operating cash flow generated as a percentage of adjusted operating profit* (25%). 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. |
| Element of remuneration |
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 |
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 (for participants in territories that prohibit settlement in shares). |
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). |
LTIP awards may be based on financial and/or share price based performance conditions as determined from time to time by the Committee. The Committee will determine the choice of measures and their weighting prior to each grant and 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. |
| the Group's agreed strategic objectives. |
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. The Committee retains full discretion to amend the vesting outcome upwards or |
Currently, 33% of the award is subject to the Company's Total Shareholder Return compared to a comparator group measured over a three-year performance period. 67% of the award is subject to targets set against growth (adjusted by the Committee as it considers |
||
| downwards if, in its opinion, any calculation or 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. For Executive Directors, awards are normally |
appropriate) in the Company's adjusted basic earnings per share* over the same three-year performance period. The Remuneration Committee additionally adopts a discretionary underpin on vesting of the LTIP, whereby the Committee will assess the |
|||
| subject to a mandatory two-year holding period for any shares that vest. In the event of any material misstatement of the Company's financial results or serious reputational damage to the Company caused |
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 |
|||
| by a breach of the Company's Code of Conduct or otherwise, a miscalculation of an assessment of any performance conditions that was based on incorrect information, the occurrence of an insolvency or administration event, malus and clawback provisions may apply for up to three years from the vesting of an award permitting the Committee |
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. |
|||
| to reduce or impose further conditions on awards. |
There is no retesting of any performance measure. |
|||
| 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. |
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. |
Stephen Bird currently receives a pension contribution of 20% of base salary. Martin Green and any subsequently appointed Executive Director, receive a pension contribution of 8% of base salary which is in line with pension contributions provided to the wider UK employee workforce. The Committee has agreed that Stephen Bird's pension contribution will change to 8% of base salary from 1 January 2023, so that it is aligned with the wider UK employee workforce. |
Not applicable. |
| Salary is the only pensionable element of Executive Director remuneration. |
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. Any such amendment would be reported in a subsequent Remuneration report.
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.
Executive Directors during their tenure are expected to build a shareholding in the Company representing 200% or more of their base salary. All net of tax vested LTIP awards, DBP awards and exercised Sharesave options should be retained by the Executive Director until this requirement has been met. This level of shareholding aligns Executive Directors with the interests of shareholders and ensures that Executive Directors are focused on long-term shareholder value.
Post-employment, Executive Directors are expected to maintain a material level of shareholding in the Company for at least two years from the date of departure made up of the following elements:
The Chairman and Non-Executive Directors are not subject to any such shareholding requirement. However, they are encouraged to hold shares in the Company. Details of shares held by the Directors are set out on page 126.
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. The selection of measures and the setting of targets takes into account the Company's business priorities and risk appetite.
LTIP awards traditionally 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 performance for the Company over the longer term. While TSR links a portion of the LTIP to the creation of value for shareholders, adjusted basic Earnings Per Share* growth is a Key Performance Indicator for the Group with the combination providing an appropriate balance between growth and returns. The 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. While the Committee does not disclose a formulaic target in advance, the Committee will ensure that it provides full retrospective disclosure around its 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, current liabilities excluding the current portion of interest-bearing borrowings and non-current lease liabilities. Any changes to these measures will be aligned with the long-term strategy of the Group. In 2020, given the impact of COVID-19 on the business, the Committee, after consulting with major shareholders, adjusted the performance conditions tied to the 2020 LTIP award only. In summary, this was based on share price growth and the Company's TSR performance. Full details of this are set out on page 123 of this report.
Provisions for the withholding and recovery of sums from the Directors (malus and clawback) are as set out on page 134.
The table on page 114 sets out a description of the Chairman and Non-Executive Directors' remuneration.
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 delivery on the Group's growth strategy and creation of long-term sustainable |
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. |
| shareholder value. | The Chairman's fee is an all-inclusive consolidated amount. It is paid in cash, not shares, usually on a monthly basis in arrears. |
|
| Fees are benchmarked against FTSE-listed companies of a similar size and complexity to Vitec. Any future increases will take into account the need to ensure that the fee remains competitive and reflects the time commitment for the role. |
||
| The Chairman's remuneration also covers his chairmanship of the Nominations Committee. |
||
| Non-Executive Director |
To recruit and retain independent Non-Executive Directors reflecting the responsibilities and time commitment for the role |
Fees paid to Non-Executive Directors of the Company consist of the following: |
| to contribute to an effective Board and to deliver on the Group's growth strategy and creation of long-term sustainable |
— A base fee. | |
| shareholder value. | — An additional fee for the role of the Senior Independent Director. | |
| — An additional fee for chairing Board Committees or for the designated Non-Executive Director tasked with oversight of employee engagement. |
||
| Fees are usually reviewed annually and are benchmarked against FTSE-listed companies of a similar size and complexity to Vitec. All fees are paid in cash, not shares, usually on a monthly basis in arrears. |
||
| 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). |
The following charts set out scenarios for the remuneration of Stephen Bird and Martin Green for 2022 in line with the Policy. This includes scenarios for full vesting of LTIP awards based on an award at 125% of salary, with one chart showing no share price appreciation and one chart showing a 50% appreciation in share price:
| Stephen Bird Basic remuneration |
Martin Green Basic remuneration |
||
|---|---|---|---|
| Minimum base salary | £488,868 (79%) | Minimum base salary | £365,650 (87%) |
| Benets | £30,053 (5%) | Benets | £23,487 (6%) |
| Pension (20% of salary) | £97,773 (16%) | Pension (8% of salary) | £29,252 (7%) |
| Total xed pay (minimum) | £616,694 | Total xed pay (minimum) | £418,389 |
| On-target performance (no share price appreciation): | On-target performance (no share price appreciation): | ||
| Fixed pay | £616,694 (57%) | Fixed pay | £418,389 (55%) |
| Annual bonus | £305,542 (29%) | Annual bonus | £228,531 (30%) |
| LTIP | £152,771 (14%) | £114,266 (15%) | |
| Total on target pay | £1,075,007 | Total on target pay | £761,186 |
| Maximum pay (no share price appreciation): | Maximum pay (no share price appreciation): | ||
| Fixed pay | £616,694 (34%) | Fixed pay | £418,389 (32%) |
| Annual bonus | £611,085 (33%) | Annual bonus | £457,063 (34%) |
| LTIP | £611,085 (33%) | LTIP | £457,063 (34%) |
| Total maximum pay | £1,838,864 | Total maximum pay | £1,332,515 |
| Maximum pay (including 50% share price appreciation for LTIP award): |
Maximum pay (including 50% share price appreciation for LTIP award): |
||
| Fixed pay | £616,694 (29%) | Fixed pay | £418,389 (27%) |
| Annual bonus | £611,085 (29%) | Annual bonus | £457,063 (29%) |
| LTIP | £916,627 (42%) | LTIP | £685,595 (44%) |
| Total maximum pay | £2,144,406 | Total maximum pay | £1,561,047 |
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:
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. Caroline Thomson is the Non-Executive Director with responsibility for employee engagement and as part of that role is informed on remuneration issues for the wider Group workforce and keeps the Board fully updated. The detail of this role is given on pages 64 and 87 of this Annual Report.
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 was an independent non-executive director and senior independent director of Dialight plc until 10 September 2021. In this role he received a basic fee of £42,000 per annum and an additional £5,100 per annum in the role of senior independent director. For the period of service with Dialight in 2021 he received £29,292 basic fee and £3,557 for the senior independent director role. With effect from 13 September 2021, Stephen Bird was appointed as an independent non-executive director of Headlam plc and in this role he receives an annual fee of £45,000 and for the period of service in 2021 he received a fee of £13,673. Under the terms of his service contract, 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 Martin Green had not taken up any such external non-executive appointment.
The remuneration policy for senior managers in the Company is similar to that of the Executive Directors although the quantums are lower. They participate in the Annual Bonus Plan with the same structure as the Executive Directors, as well as the LTIP or participation in a Restricted Share Plan, and therefore a significant element of their remuneration is dependent upon the financial performance of the Company and the Company's share price in addition to individual performance.
Remuneration for all other employees is set taking into account local market conditions to ensure that pay and benefits attract and retain employees in those local markets and help deliver the Group's agreed strategy. A large proportion of employees are able to participate in bonus plans that are tied to Company, Divisional and business unit financial performance as well as individual performance against personal objectives. The structure of bonus plans varies across the employee workforce to achieve different objectives.
Full-time employees of the Company in all of the territories of the UK, US, Italy, France, Germany, Israel, Australia, New Zealand, Japan, Hong Kong, Singapore and Costa Rica are able to participate in an all-employee Sharesave plan granting employees an option to save and purchase a limited number of shares in the Company at a discount to the market price at the time an offer of the plan is made. Further information on this plan is given on pages 64 and 65 of this Annual Report. In 2021, approximately 100 senior managers participated in a Restricted Share Plan ("RSP") (excluding Executive Directors). The RSP awards shares to key employees over a vesting period of up to three years and helps retain and motivate key talent to deliver on the Group's strategic growth objectives.
All full-time employees are also offered membership of a pension scheme upon joining the Company which is compliant with local legal requirements. In the UK, employees are able to join a defined contribution pension plan with the employer making an 8% fixed contribution and the employee required to make a minimum contribution of 4%. The pension contribution is based on base salary only.
The Remuneration Committee is kept informed on remuneration policy and arrangements for the wider employee population with regular updates to enable it to stay informed and to assist in setting Executive Directors' remuneration.
The Committee's Policy is to seek to recruit Directors with the requisite skill and experience to lead the business and grow the value of the Company over the long term. Generally, pay on recruitment will be consistent with the Policy for Executive Directors as set out in the Policy table and set at a level to reflect overall responsibilities.
The Committee has the flexibility to set the salary of a new Executive Director at a lower level initially, with a series of planned increases implemented over the following years to bring the salary to the desired level. Consistent with the regulations, any cap on base salary does not apply. Benefits will be consistent with the Remuneration Policy. Certain additional benefits may be provided such as relocation expenses or allowances. The pension contribution for a new Executive Director will be in line with the UK workforce contribution rate (currently 8% of base salary).
However, the Committee may, in its absolute discretion, include remuneration components or awards which are not specified in the Policy table, subject to the maximum level of variable pay set out in the following paragraph, where this facilitates the hiring of candidates of an appropriate calibre and skillset to deliver on the Group's strategy. The Committee will ensure this is only done where there is a genuine commercial need, and where this is in the best interests of the Company and its shareholders. The Committee does not intend to use this discretion to make a nonperformance related payment (for example a "golden hello" payment).
The absolute maximum level of variable pay will be 325% of base salary (excluding any buy-out awards) which is in line with the Remuneration Policy set out on the previous page. This comprises up to 125% of base salary under the Annual Bonus Plan and up to 200% of base salary under the Company's LTIP.
In certain circumstances, the Committee may need to make payments or awards to an executive in respect of buying-out remuneration arrangements relinquished on leaving a previous employer. When doing so, the Committee will aim to do so broadly on a like-for-like basis with a fair value no higher than the awards foregone. It will take a number of relevant factors into account which may include any performance conditions attached to these awards and the time at which they would have normally vested. These payments or awards are excluded from the maximum level of variable remuneration referred to above.
In the event of any such treatment, the Committee will explain in the next Annual Remuneration report the rationale for the relevant arrangements.
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 |
|
|---|---|---|---|
| Stephen Bird, Group Chief Executive – appointed on 14 April 2009 |
28 January 2009 |
12 months | 6 months |
| Martin Green, Group Finance Director – appointed on 4 January 2017 |
10 February 2020 |
12 months | 6 months |
The terms of the service contracts for Executive Directors do not provide for predetermined amounts of compensation in the event of early termination by the Company. The Remuneration Committee's policy in the event of early termination of employment is set out below.
Executive Directors' notice periods under service contracts are summarised in the table above. The Committee believes that the Company's policy on payment for loss of office and the structure of notice periods is sufficient to ensure that the Executive Director has security of tenure and also that the Company has sufficient retention and notice periods to enable an orderly process for succession planning. In the Committee's opinion, any shorter notice period would not be in the Company's best interests and would risk the stable running of its operations. The Committee, however, will not give any Executive Director a service contract of greater than 12 months' notice.
In the event of termination of office, the Committee will consider the circumstances including notice period contained within the service contract, the circumstances surrounding the termination notably including the individual's performance and what is considered to be in the Company's best interests. The terms of service contracts do not provide for predetermined amounts of compensation in the event of early termination of employment. The Committee maintains full discretion at how to treat each such termination upon its merits when trying to mitigate the cost of termination but ultimately honouring contracted terms. Dealing with each specific element of remuneration for an Executive Director this would mean the following:
with the limits and rules of the Annual Bonus Plan applying to the Executive Director.
When negotiating the exit package of an Executive Director, the Committee will ultimately aim to mitigate the cost of any termination payment while also fairly treating the Executive Director, honouring the terms of a service contract and acting in the Company's best long-term interests. The Committee will, upon reaching an agreement with an Executive Director on the terms of termination, publish details both with an announcement and with details published in the subsequent Remuneration report and this will include an explanation of any use of discretion. No Director left the Company in 2021 and so no details are reportable for 2021.
In the event of a change of control of the Company, LTIP and DBP awards will vest with the Committee taking into account, in the case of LTIP awards, the extent to which the relevant performance conditions have been satisfied and, unless the Committee determines otherwise, the period of time that has elapsed since grant. In the event of a winding-up of the Company, demerger, delisting, special dividend or other event that may affect the share price, the Committee may also allow awards to vest on the same basis.
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 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 at www.vitecgroup.com.
The Committee has continued to take into account the views of its shareholders concerning the Policy on remuneration of Directors.
The Company received 80.09% support for the 2020 Annual Report on Remuneration at the 2021 AGM, indicating an acceptable level of support for the structure of Directors' remuneration. Given that less than 20% of votes cast by shareholders against the Annual Report on Remuneration, the Committee did not consider it necessary to consult any further with shareholders on Directors' remuneration. The 2020 AGM gave over 89% support for the Directors' Remuneration Policy report.
The Committee would engage with shareholders ahead of any material change to the Policy for the Company relating to its Directors and would also engage with shareholders should there be a material level of dissatisfaction from shareholders with Directors' remuneration. A material level of dissatisfaction from shareholders would be more than 20% of shareholders voting against, or abstaining on, a vote related to Directors' remuneration.
Caroline Thomson as Remuneration Committee Chair, remains available to discuss the Company's remuneration policy and implementation of it with shareholders. The Directors' Remuneration Policy will be submitted to the 2023 AGM for approval and will be prepared in the second half of 2022. Caroline Thomson will look to consult with our major shareholders as part of the process of preparing this in the run up to the 2023 AGM.
This Annual Report on Remuneration together with the Annual Statement will be put to an advisory vote at the AGM to be held on Tuesday, 17 May 2022.
The following table sets out the single figure of total remuneration for Directors for the financial years ended 31 December 2021 and 2020:
| Salary/ fees £ |
Benefits(1) £ |
Pension(2) £ |
Annual bonus(3) £ |
LTIP(4) £ |
Total | Total fixed remuneration |
Total variable remuneration |
|
|---|---|---|---|---|---|---|---|---|
| Stephen Bird | ||||||||
| 2021 | 474,629 | 30,053 | 94,926 | 566,588 | 0 | 1,166,196 | 599,608 | 566,588 |
| 2020 | 446,223 | 32,787 | 89,245 | 133,489 | 0 | 701,744 | 568,255 | 133,489 |
| Martin Green | ||||||||
| 2021 | 355,000 | 23,487 | 28,400 | 423,781 | 0 | 830,668 | 406,887 | 423,781 |
| 2020 | 331,549 | 26,391 | 28,500 | 99,843 | 0 | 486,283 | 386,440 | 99,843 |
| Kath Kearney–Croft (left 13 September 2019)(5) |
||||||||
| 2021 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2020 | 18,459 | 0 | 0 | 0 | 0 | 18,459 | 18,459 | 0 |
| Ian McHoul | ||||||||
| 2021 | 170,000 | 0 | 0 | 0 | 0 | 170,000 | 170,000 | 0 |
| 2020 | 159,826 | 0 | 0 | 0 | 0 | 159,826 | 159,826 | 0 |
| Christopher Humphrey | ||||||||
| 2021 | 69,250 | 0 | 0 | 0 | 0 | 69,250 | 69,250 | 0 |
| 2020 | 65,105 | 0 | 0 | 0 | 0 | 65,105 | 65,105 | 0 |
| Caroline Thomson | ||||||||
| 2021 | 66,250 | 0 | 0 | 0 | 0 | 66,250 | 66,250 | 0 |
| 2020 | 62,285 | 0 | 0 | 0 | 0 | 62,285 | 62,285 | 0 |
| Richard Tyson | ||||||||
| 2021 | 51,250 | 0 | 0 | 0 | 0 | 51,250 | 51,250 | 0 |
| 2020 | 48,183 | 0 | 0 | 0 | 0 | 48,183 | 48,183 | 0 |
| Duncan Penny | ||||||||
| 2021 | 51,250 | 0 | 0 | 0 | 0 | 51,250 | 51,250 | 0 |
| 2020 | 48,183 | 0 | 0 | 0 | 0 | 48,183 | 48,183 | 0 |
| Total | ||||||||
| 2021 | 1,237,629 | 53,540 | 123,326 | 990,369 | 0 | 2,404,864 | 1,414,495 | 990,369 |
| 2020 | 1,179,813 | 59,178 | 117,745 | 233,332 | 0 | 1,590,068 | 1,356,736 | 233,332 |
Notes:
(1) Taxable benefits include car allowance, healthcare cover and income protection. This also includes the grant of Sharesave options to Stephen Bird and Martin Green in 2020 and shows the value of the 20% discount on the option granted. Stephen Bird and Martin Green were both granted 2,282 Sharesave options on 24 September 2020 at an option price of £5.52 compared to a market price of £6.90 per share.
(2) Stephen Bird receives a pension contribution of 20% of base salary which is taken in the form of a cash payment. With effect from Martin Green's appointment as Group Finance Director on 10 February 2020, he receives a pension contribution of 8% of base salary. Prior to this date he received a contribution of 15% of base salary.
(3) For the Annual Bonus Plan 2021, Stephen Bird's and Martin Green's bonus potential was 125% of base salary. 50% of the annual bonus is deferred into the Deferred Bonus Plan. Further details are set out in the "Further notes" section on the following page.
(4) Long-term incentives comprise LTIP awards. Awards made in 2019 failed to achieve their performance conditions based on EPS growth and TSR performance. The 2019 award will therefore lapse on its third anniversary of 8 March 2022. LTIP Awards made in 2018 also failed to achieve performance conditions based on TSR and growth in adjusted basic Earnings Per Share* and lapsed on 2 March 2021.
(5) Kath Kearney-Croft ceased to be Group Finance Director on 13 September 2019, and as detailed in 2019's Annual Report, her fixed pay and benefits were paid on a monthly basis up until 20 January 2020.
The Remuneration Committee has not used discretion in the award of Directors' remuneration in 2021.
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.
The table below shows base salaries paid for each Executive Director in 2021. Neither Executive Director received any pay rise in connection with 2021 as part of the Company's actions to recover the business from the impact of COVID-19.
| Executive Director | 2021 salary |
|---|---|
| Stephen Bird | £474,629 |
| Martin Green | £355,000 |
The single figure of total remuneration table sets out the total value of benefits received by each Executive Director in 2021. Details are as follows:
| Executive Director | Car allowance |
Healthcare cover |
Income protection |
Other (Sharesave) |
Total |
|---|---|---|---|---|---|
| Stephen Bird | £23,727 | £1,526 | £4,800 | £0 | £30,053 |
| Martin Green | £17,789 | £898 | £4,800 | £0 | £23,487 |
The table below sets out the value of the cash payment in lieu of pension for each Executive Director in 2021:
| Executive Director | Pension allowance |
|---|---|
| Stephen Bird (representing 20% of base salary) | £94,926 |
| Martin Green (representing 8% of base salary) | £28,400 |
Stephen Bird's pension contribution was agreed at a rate of 20% of base salary at the point he was recruited in April 2009 and is set out in his contract of employment. The Remuneration Committee, in light of changes in attitude to pensions for Directors has agreed with Stephen Bird that his pension contribution will be reduced to 8% of base salary with effect from 1 January 2023. The level of 8% of base salary is in line with pension contributions to the wider UK employee workforce in the Group.
In 2021, each Executive Director was eligible to receive, subject to performance, a maximum bonus of up to 125% of base salary, half of which is deferred into the DBP.
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 adjusted operating cash flow* (over a half year and full year average target) measured against financial targets set by the Board. The Group adjusted profit before tax* financial element represented 50% of the maximum bonus that could be earned and the Group conversion of adjusted operating profit* into adjusted operating cash flow* represented 25% of the maximum bonus that could be earned (with one third-based on half year 2021 performance and two-thirds based on the full year 2021 performance).
Under the rules of the 2021 Annual Bonus Plan, each of the above financial performance metrics are assessed independently of one another so that should threshold not be achieved for one performance condition, that bonus could still be earned for the other financial performance condition. The Committee introduced this change for the Annual Bonus Plan for 2021 due to the continuing uncertainty surrounding COVID-19 and the high level of risk on the recovery of the business.
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 operating profit* and adjusted operating cash flow* generation and had the most direct impact upon shareholder value for the year ended 31 December 2021. The financial targets were set by the Board/Remuneration Committee with the objective to drive the recovery of the business from the impact of COVID-19.
The personal objective element of the 2021 Annual Bonus Plan for each Executive Director, representing 25% of the maximum bonus that could be earned, was based upon individual performance measured against stretching personal objectives set by the Board and Remuneration Committee, as set out on the following page.
| Stephen Bird – 2021 personal objectives – 82% achieved | |
|---|---|
| Objective | Assessment |
| Continue to build a world-class organisation including: ensure leadership change in Production Solutions is a success, develop succession plans around the Group CEO role, develop Creative Solutions leadership and succession and develop HR function (20%) |
Successful promotion of new Production Solutions CEO; appointment of an effective Chief Operating Officer in Creative Solutions and strengthening of HR and finance capabilities. Senior leadership team retained and motivated, executing on strategy. |
| Execute on key initiatives to drive growth and momentum: focus on key growth initiatives including 4K execution, growth in streaming products, growth in JOBY, delivery on 2021 Tokyo Olympics, growth of audio business, completion on Imaging Solutions' digital restructuring and growth in LED lighting (25%) |
Some residual impact from COVID-19, but very good progress in the circumstances. Notably, successful launch of 4K products, JOBY growth, successful delivery of the 2021 Tokyo Olympics and successful acquisitions of Lightstream, Quasar, Savage and Audix. |
| Creative Solutions strategy: develop the Creative Solutions organisation structure to drive growth optimising exposure to markets including cine, streaming and other vertical markets (15%) |
Creative Solutions' organisation and management matured and achieved strong order growth. Strategic challenge to achieve full potential. |
| Strategic Plan follow up: evolution of the Group's strategic plan and growth initiatives (25%) |
Very strong strategic progress, particularly in Imaging Solutions and development of audio business. Production Solutions also performing strongly. |
| ESG: Develop a well-rounded Group ESG programme with Group-wide focus on material environmental, social and governance issues and |
Established a cross-Divisional ESG Committee to drive further improvement in the Group's ESG disclosures during 2021. |
| increased transparency and clarity of reporting to stakeholders (15%) | Delivered several key initiatives including installation of solar panels at Cartago, Costa Rica and Bury St Edmunds, UK and installation of LED lighting at the Feltre site. Successful level of employee engagement and health and safety performance with zero accidents resulting in over three days' absence. |
| Martin Green – 2021 personal objectives – 82% achieved | |
| Objective | Assessment |
|---|---|
| Build a world-class finance organisation: ensuring appropriate talent and succession in key Divisional finance roles and Head Office finance function (20%) |
Significantly strengthened finance team across the Group through promotions and new hires. |
| Execute on key initiatives to drive growth and momentum: focus on key growth initiatives including 4K execution, growth in streaming products, growth in JOBY, delivery on 2021 Tokyo Olympics, growth of audio business, completion on Imaging Solutions' digital restructuring and growth in LED lighting (20%) |
Some residual impact from COVID-19, but very good progress in the circumstances. Notably, successful launch of 4K products, JOBY growth, successful delivery of the 2021 Tokyo Olympics and successful acquisitions of Lightstream, Quasar, Savage and Audix. |
| Capital structure: review and optimise capital structure including repayment of CCFF borrowings and in light of M&A activity in 2021 and resumption of dividend payments (15%) |
Repaid CCFF borrowing, raised funding tied to acquisitions of Savage and Audix and restructured intercompany debt for the Group. |
| Strategic Plan follow up: evolution of the Group's strategic plan and growth initiatives (20%) |
Very strong strategic progress, particularly in Imaging Solutions and development of audio business. Production Solutions also performing strongly. |
| M&A: develop a compelling growth M&A pipeline in line with Group's strategic plan and execute on at least one opportunity (15%) |
Highly successful targeted acquisitions including Lightstream, Savage, Quasar and Audix. |
| Corporate governance and auditing standards: evaluate changes in corporate governance especially regarding audits and ensure Board/ Committees remain up to date with changes and ensure timely compliance (10%) |
Delivered TCFD disclosure in the 2021 Annual Report and Accounts; FRC review of the 2020 Annual Report and Accounts with no significant issues noted; preparation ahead of "UK SOx" compliance; and formal response to BEIS consultation on restoring trust in audit and corporate governance. |
The above personal objectives were set by the Board and Remuneration Committee at the start of 2021, with a strong focus on seeing the Executive Directors drive the recovery of the business following the impact of COVID-19 and were continually assessed throughout the year. The Remuneration Committee at its meeting on 21 February 2022 assessed final performance.
The Committee strongly considered that a pay-out on the personal objectives element of the 2021 Annual Bonus Plan was fully merited given the strong recovery of the business in 2021 with significant progress on strategic growth objectives including several strategically important acquisitions, strong recovery in financial performance with Group revenue of £394.3 million and adjusted profit before tax* of £42.4 million, reintroduction of dividends to shareholders, strong growth in the Company's share price and that employees and other stakeholders were very satisfied with the recovery and performance of the business.
The table below sets out the annual bonus awards made to Executive Directors in respect of the year ended 31 December 2021 including the financial trigger points used in determining whether a bonus was payable.
| Name | Bonus potential |
Elements of bonus potential |
Threshold | Target | Maximum | Actual Group performance/ assessment of personal objective performance |
Payout and % of maximum |
|
|---|---|---|---|---|---|---|---|---|
| Stephen Bird | 125% of annual salary |
50% Group adjusted PBT* |
£23.0m | £28.8m | £34.6m | £42.4m | £296,643 | 100% |
| 25% Group | H1: 56.0% | 62.0% | 68.0% | H1: 118% | £148,322 | 100% | ||
| conversion of adjusted operating profit into adjusted operating cash flow |
FY: 67.0% | 74.0% | 81.0% | FY: 108% | ||||
| 25% personal objectives |
82% | £121,624 | ||||||
| Payout due to Executive Director at each level |
£148,322 | £296,643 | £593,286 | |||||
| Total | £566,588 | 95.5% | ||||||
| Martin Green | 125% of annual salary |
50% Group adjusted PBT |
£23.0m | £28.8m | £34.6m | £42.4m | £221,875 | 100% |
| 25% Group | H1: 56.0% | 62.0% | 68.0% | H1: 118% | £110,938 | 100% | ||
| conversion of adjusted operating profit into adjusted operating cash flow |
FY: 67.0% | 74.0% | 81.0% | FY: 108% | ||||
| 25% personal objectives |
82% | £90,969 | ||||||
| Payment due to Executive Director at each level |
£110,938 | £221,875 | £443,750 | |||||
| Total | £423,782 | 95.5% |
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 2021.
Under the rules of the Annual Bonus Plan the Remuneration Committee retains 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 2021 Annual Bonus Plan, the Remuneration Committee exercised no discretion in respect of the Executive Directors' bonus.
Half of the 2021 annual bonus (after tax) will be deferred into the DBP. The 2021 deferred bonus will be used to purchase award shares to be held in trust for a three-year period. No matching award shares can be earned under the DBP. After three years, the award shares are released from the trust to the Executive Directors.
The long-term incentive awards value shown in the single figure of total remuneration table relate to the following awards:
These relate to awards made in 2019 under the LTIP. Vesting is based 33% upon the Company's TSR measured against a comparator group and 67% on 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. Vesting is underpinned by Remuneration Committee discretion that will take into account, in particular, ROCE performance over the performance period for the EPS element of the award. The detail of each performance condition for each award is set out on the next page.
For that part of an award made in 2019 under the LTIP measured against TSR, if the Company's TSR performance is at the median of the comparator group at the end of the three-year performance period, 25% of that element of an award may vest. The full element of an award may vest if the Company's TSR performance is in the top 25% of the comparator group. There is a pro rata straight-line vesting between these two points. The comparator group comprised the constituents of the FTSE 250 Index (excluding financial services companies and investment trusts) and performance was measured over a three-year period.
For that part of an award measured against EPS growth, if the percentage growth in the EPS of the Company exceeds 6% per annum (Compound Annual Growth Rate), 25% of that element of an award may vest. Full vesting of an award occurs if the growth in EPS over the performance period exceeds growth by 14% (Compound Average Annual Growth Rate) or greater. There is a pro rata straight-line vesting between these two points.
An award lapses if threshold performance is not achieved during the performance period.
The Remuneration Committee also considered the underlying financial performance of the Company before it confirmed vesting, notably the Company's ROCE performance.
The table below summarises the value of awards vesting for the 2019 award. The award failed to achieve threshold performance and will therefore lapse in full on the third anniversary of the award on 8 March 2022.
| 2019 awards | Actual performance | Vesting as a % of award |
|---|---|---|
| TSR | Vitec ranked in the 65th percentile of the comparator group with TSR performance of 20.5% over the three-year performance period |
0% |
| EPS | Adjusted "normalised" EPS of 69.9 pence compared to a base EPS point of 85.2 pence | 0% |
| ROCE underpin | The Company's ROCE performance over the performance period was as follows: 2018: 21.8%; 2019: 18.5%; 2020: 3.7%; 2021: 16.1% |
|
| Total vesting | 0% |
TSR is calculated on the basis of growth in the Company's share price over a three-year performance period plus dividends paid during that period and is expressed as a percentage of average compound annual growth. Share price performance is averaged over three months at the start and end of a performance period to eliminate volatility that may result in anomalous outcomes. The TSR performance is independently verified by FIT Remuneration Consultants on behalf of the Committee and is ranked against the comparator group companies' TSR performance to determine the outcome. The comparator group comprised the constituents of the FTSE 250 index (excluding financial services companies and investment trusts).
EPS is determined in accordance with note 2.5 of the financial statements on page 163. The base point for the EPS performance condition was 85.2 pence per share, being the EPS figure for the year ended 31 December 2018.
The Remuneration Committee at its meeting on 21 February 2022 confirmed that 2019 awards will therefore lapse as the performance conditions had not been achieved.
These relate to awards made in 2018 under the LTIP. The performance conditions for these awards are the same as those made in 2019 split 33% based on TSR and 67% based on EPS growth, both over a three-year performance period. The adjusted basic earnings per share* growth targets were 6% growth per annum (Compound Average Annual Growth Rate) for 25% of that element of an award to vest and 14% or more growth per annum for full vesting, respectively. The Remuneration Committee also considered the underlying financial performance of the Company, notably the Company's ROCE performance before it confirmed vesting.
As disclosed in the 2020 Annual Report on Remuneration, neither the TSR performance condition or EPS performance condition achieved threshold performance and so the 2018 award did not vest and lapsed in full on 2 March 2021.
In 2020, due to the impact of COVID-19 upon the business, the award of LTIPs to Executive Directors and senior management was delayed. This was due to difficulties in setting appropriate performance conditions tied to awards given the impact of the pandemic upon the business and its financial performance. Given this challenge, the Committee consulted with its major shareholders to consider how to structure LTIP awards for 2020 with the objective to drive management in the recovery of the business following the impact of COVID-19.
The Committee was grateful for the valuable input and support given by shareholders in addressing this issue given the need to incentivise, motivate and retain its senior leadership team. The general feedback received was that shareholders wanted to ensure that there was a clear and strong incentive for executives to achieve a swift recovery in the share price and this should be the priority.
The 2020 LTIP awards were granted on 21 September 2020 and will only vest if very stretching absolute targets around share price are met and if Vitec's relative Total Shareholder Return ("TSR") is also in the top half of the FTSE 250 constituents (excluding financial services companies and investment trusts). The challenge is particularly great against the context of the continuing impact of COVID-19. If achieved, the Group's performance and increase in share price will significantly reward both shareholders and management. The terms remain in line with the Directors' Remuneration Policy approved by shareholders at the 2020 AGM.
For the awards to vest in full, Vitec's share price must be £18 or higher in February 2023 and Vitec's relative TSR must be at least in the upper quartile of the FTSE 250. A £18 share price would deliver over £480 million additional shareholder value between grant and vesting. Given the stretching nature of the targets and the exceptional circumstances the Remuneration Committee made awards to the Executive Directors of 200% of salary which is the maximum permitted under the Directors' Remuneration Policy.
The Remuneration Committee believes the structure of the 2020 LTIP aligns our Executive Directors and PDMRs with the achievement of a strong recovery over the performance period. The structure will help reward for significant growth in shareholder value and will drive management towards that goal. It is only the 2020 LTIP award that has this unique structure.
The Remuneration Committee has discretion to reduce vesting if it feels appropriate to do so.
The following provides details of the 2020 LTIP awards made on 21 September 2020 to the Executive Directors including performance conditions.
| % of total award to |
|
|---|---|
| Vitec absolute share price | vest |
| £9.00 | 25% |
| £10.00 | 33.33% |
| £11.00 | 41.67% |
| £12.00 | 50% |
| £13.00 | 58.33% |
| £14.00 | 66.67% |
| £15.00 | 75.00% |
| £16.00 | 83.33% |
| £17.00 | 91.67% |
| £18.00 | 100% |
| Vitec's TSR ranking compared to FTSE 250 constituents (excluding financial services companies and investment trusts) |
% of award to vest |
|---|---|
| Below median | 0% |
| Median | 25% |
| Upper quartile | 100% |
— The Remuneration Committee will also continue to use a ROCE underpin to ensure the underlying financial performance of the business as part of the vesting outcome. The Committee will also retain a discretion to scale back the vesting of an award should it result in an unfair outcome for shareholders.
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. The two-year holding period post-vesting will apply in the normal way.
There is no retesting of any performance condition under any of the above awards.
TSR is calculated on the basis of growth in the Company's share price over the performance period from 1 July 2020 through to 28 February 2023 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 FIT Remuneration Consultants on behalf of the Committee to determine the outcome.
The following table provides details of the awards made under the LTIP on 3 March 2021 to Stephen Bird and Martin Green. The Remuneration Committee, given the continuation of COVID-19 and ongoing recovery of the business from its impact, decided that it was important to give an award to both Executive Directors at a level representing 200% of salary to focus Executive Directors on value creating activity, delivering performance and recovering the business as quickly as possible. In addition, the Remuneration Committee set challenging performance conditions as set out below.
Performance for the 2021 Award is to be measured over the three financial years from 1 January 2021 to 31 December 2023. Awards are split in performance conditions so that 33% is based on the Company's TSR performance and 67% is based on EPS performance. Vesting of the 2021 LTIP award will be as follows:
For the TSR element, the Company's TSR performance will be compared against the constituents of the FTSE 250 Index (excluding financial services companies and investment trusts) over the three-year performance period. Threshold performance for the TSR element will be at the median point of the comparator group and will result in 25% of an award vesting. Full vesting of the TSR element will be at the upper quartile of the comparator group. A straight-line sliding scale will operate between each of the above points. Below threshold performance, none of the TSR element will vest. 67% of the award will be subject to adjusted basic EPS* growth over the same three-year period. Threshold for adjusted basic earnings per share* vesting was set at 60 pence per share and full vesting for adjusted basic earnings per share* was set at 100 pence per share with a straight-line progression between each point. Below threshold performance, none of the adjusted basic earnings per share element will vest.
Vesting of the 2021 Award will be underpinned by Remuneration Committee discretion that will take into account, in particular, ROCE performance over the three-year performance period for the EPS element of the award.
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 awards on the previous page.
There is no retesting of any performance condition under any of the above awards.
TSR is calculated on the basis of growth in the Company's share price over a three-year performance period plus dividends paid during that period and expressed as a percentage of average compound annual growth. Share price performance is averaged over three months at the start and end of the performance period to eliminate volatility that may result in an anomalous outcome. The TSR performance is independently verified by FIT Remuneration Consultants on behalf of the Committee and is ranked against the comparator group companies' TSR performance to determine the outcome.
| Director | Type of award | Award date | Number of shares awarded |
Face value(1) (£) |
Face value (% of salary) |
Threshold vesting (% of face value) |
Maximum vesting (% of face value) |
End of performance period |
|---|---|---|---|---|---|---|---|---|
| Stephen Bird | Performance shares | 3 March 2021 | 96,273 | £949,252 | 200% | 25% | 100% | 31 December 2023 |
| Martin Green | Performance shares | 3 March 2021 | 72,008 | £709,999 | 200% | 25% | 100% | 31 December 2023 |
(1) The face value has been calculated using the three-day average share price from 26 February 2021 to 2 March 2021 prior to the award being made on 3 March 2021. This was £9.86.
The following table provides details of the awards made under the DBP on 13 May 2021 in respect of the 2020 annual bonus. There are no performance conditions or matching shares associated with these awards. The shares are held in an Employee Benefit Trust on behalf of the Directors. The deferral represents 50% of the after tax bonus paid for the 2020 annual bonus. Normally Executive Directors are required to defer 50% of any after tax annual bonus into the DBP. The 2021 DBP award will be released on the third anniversary of the award – 13 May 2024.
| Director | Type of award | Number of shares awarded |
Face value(1) (£) |
End of holding period |
|---|---|---|---|---|
| Stephen Bird | Shares awarded using | 2,537 | £35,366 | 100% of award on 13 May 2024 |
| Martin Green | deferred annual cash bonus | 1,897 | £26,444 | 100% of award on 13 May 2024 |
(1) Face value has been calculated using the Company's share price at the date of the award of £13.94.
There were no payments to past Directors of the Company for loss of office in 2021.
The Chairman and Non-Executive Directors were paid the following fees in 2021:
| Role | 2021 annual fee | Comment |
|---|---|---|
| Chairman | £170,000 | Fee of £170,000 paid since 2019 when Ian McHoul was appointed Chairman on 21 May 2019 |
| Non-Executive Director | £51,250 | Base fee increased to £51,250 from £50,000 with effect from 1 January 2020 |
| Chairman of Audit Committee | £10,000 | Fee was last increased on 1 January 2014 |
| Chairman of Remuneration Committee | £10,000 | Fee was increased on 1 January 2019 |
| Senior Independent Director | £8,000 | Fee was increased on 1 January 2019 |
| Employee Engagement Non-Executive Director | £5,000 | Fee introduced with effect from 1 January 2019 to reflect new role under 2018 UK Corporate Governance Code |
The above fees are reviewed annually by the Board with the support of FIT Remuneration Consultants providing market data to ensure that fees remain appropriate given the size of the Company, 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.
The Board has determined that Executive Directors of the Company are required to build up, over a reasonable period of time, a substantial shareholding in the Company and from the adoption of the 2020 Policy Report at the Company's AGM held on 27 May 2020 this shareholding requirement is to represent at least two times base salary. Stephen Bird and Martin Green satisfied this requirement throughout the whole of 2020 and up to the date of this report. Other members of the Operations Executive are encouraged to do the same up to a level of 50% of base salary.
The Chairman and Non-Executive Directors of the Company have no such requirement and have discretion as to whether to hold shares in the Company or not. The tables on the following page set 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 2021.
Under the 2018 UK Corporate Governance Code there is a requirement for the Company to develop a post-employment shareholding policy, encompassing vested and unvested shares. The detail of this post-employment shareholding policy is as follows and applies from the 2020 AGM:
Upon the departure of an Executive Director, the post-employment shareholding policy will operate as follows:
— Shares purchased by an Executive Director using their own personal funds shall not be subject to this post-employment shareholding policy.
| Executive Director | Share ownership requirement (% of salary) |
Number of shares owned outright (including connected persons) |
Number of shares beneficially owned (DBP award shares) |
Number of shares unvested and subject to performance (LTIP shares) |
Number of shares under option (Sharesave) |
Ownership requirements met (based on shares owned outright and DBP award shares) |
|---|---|---|---|---|---|---|
| Stephen Bird | 200% | 196,187 | 16,928 | 270,691 | 2,282 | 587% |
| Martin Green | 200% | 74,420 | 10,739 | 196,631 | 2,282 | 298% |
| Director | 1 January 2021 |
31 December 2021 |
|---|---|---|
| Ian McHoul (Chairman) | 15,000 | 20,000 |
| Christopher Humphrey | 10,000 | 10,000 |
| Duncan Penny | 5,000 | 5,000 |
| Caroline Thomson | 8,407 | 8,407 |
| Richard Tyson | 2,654 | 2,654 |
– The closing mid-market share price on 31 December 2021 was £14.20 and the calculation of the percentage shareholding requirement achieved for the Executive Directors is based on this closing mid-market share price.
—On 26 February 2021 exercised and retained award shares under DBP for 2020 over 5,676 ordinary shares.
– Martin Green's share interests include 10,739 shares (at 31 December 2021) 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 DBP. These shares will vest out of the DBP in 2022, 2023 and 2024, 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 2021, Martin Green had the following share dealings:
—On 26 February 2021 exercised and retained award shares under the DBP for 2020 over 3,701 ordinary shares.
—On 13 May 2021 exercised and retained award shares under the DBP for 2018 over 6,314 ordinary shares and 409 dividend shares.
—On 13 May 2021 acquired 1897 ordinary shares through the DBP that are held in the Employee Benefit Trust.
—On 13 August 2021 sold 40,000 ordinary shares.
– There has been no change to the Directors' shareholdings described in the table above in the period from 31 December 2021 to 28 February 2022, the date of signing of this report.
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, Israel, Australia, New Zealand and Germany). The scheme and plan are open to all the Group's employees in those countries, including the Executive Directors, and approximately 1,400 of the Group's employees participate in this valuable benefit. As at 31 December 2021 Stephen Bird and Martin Green participate in the UK scheme and the details are shown below.
| Director | Date of grant | At 1 January 2021 (shares) |
Options exercised during the year |
Options lapsed during the year |
Options granted during the year |
At 31 December 2021 (shares) |
Exercise price (pence) |
Market price at date of grant (pence) |
Date from which exercisable |
Expiry date |
|---|---|---|---|---|---|---|---|---|---|---|
| Stephen Bird | 24 September 2020 |
2,282 | 0 | 0 | 0 | 2,282 | 552 | 690(1) | 1 November 2023 |
30 April 2024 |
| Martin Green | 24 September 2020 |
2,282 | 0 | 0 | 0 | 2,282 | 552 | 690(1) | 1 November 2023 |
30 April 2024 |
(1) The market price for the grant of shares under option was calculated on the basis of the three-day average of the closing mid-market share price from 26 August 2020 to 28 August 2020 inclusive. A 20% discount was applied to this price under this HMRC approved Sharesave plan.
There is no performance condition attached to the exercise of the Sharesave plan which is an all-employee plan.
Each year the Executive Directors are made a conditional award of shares in the Company. Awards to Executive Directors for 2019 represented 125% of salary. For 2020 and 2021 and to encourage the Executive Directors to recover the business as quickly as possible from the impact of the pandemic, it was agreed that LTIP awards for the Executive Directors would represent 200% of salary. LTIP awards are subject to satisfaction of performance conditions over a three-year performance period as summarised above. It is noted that LTIP awards for 2022 will however revert to a pre-pandemic level representing 125% of salary. The 2022 LTIP award will be made in the 42 days period following the announcement of the 2021 financial results on 1 March 2022. The following table sets out the outstanding awards under the LTIP as at 31 December 2021 for the Executive Directors:
| Director | Date of award |
Awards at 1 January 2021 |
Awards exercised during the year |
Associated dividend shares with the exercised award |
Awards lapsed during the year |
Awards made during the year |
At 31 December 2021 |
Market price on which award made (pence) |
Market price at exercise date (pence) |
Face value of award |
Percentage of interest that vests if threshold performance achieved |
End of performance period |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Stephen Bird | 2 March 2018(1) |
50,106 | – | – | 50,106 | – | – | 1127 | – | 125% of annual salary |
25% | 31 December 2020 |
| 8 March 2019(2) |
48,355 | – | – | – | – | 48,355 | 1197 | – | 125% of salary |
25% | 31 December 2021 |
|
| 21 Sept 2020 |
126,023 | – | – | – | – | 126,063 | 753 | – | 200% of annual salary |
25% | 28 February 2023 |
|
| 3 March 2021 |
– | – | – | – | 96,273 | 96,273 | 986 | – | 200% of annual salary |
25% | 31 December 2023 |
|
| Total | 224,484 | – | – | 50,106 | 96,273 | 270,691 | ||||||
| Martin Green | 2 March 2018(1) |
29,558 | – | – | 29,558 | – | – | 1127 | – | 125% of annual salary |
25% | 31 December 2020 |
| 8 March 2019(2) |
30,334 | – | – | – | – | 30,334 | 1197 | – | 125% of annual salary |
25% | 31 December 2021 |
|
| 21 Sept 2020 |
94,289 | – | – | – | – | 94,289 | 753 | – | 200% of annual salary |
25% | 28 February 2023 |
|
| 3 March 2021 |
– | – | – | – | 72,008 | 72,008 | 986 | – | 200% of annual salary |
25% | 31 December 2023 |
|
| Total | 154,181 | – | – | 29,558 | 72,008 | 196,631 |
(1) The LTIP award made on 2 March 2018 did not achieve any of its performance conditions based on TSR or EPS growth for the Company. As a consequence, 0% of this award vested and the award lapsed in full on 2 March 2021. Details are shown in the remuneration table for the year ended 31 December 2021 on page 119.
(2) The LTIP award made on 8 March 2019 did not achieve any of its performance conditions based on TSR and EPS growth for the Company. As a consequence 0% of the award will vest and the award will lapse in full on 8 March 2022. Details are shown in the remuneration table for the year ended 31 December 2021 on page 119.
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. Normally, Executive Directors are required to defer 50% of any after tax annual bonus into the DBP. In 2020, due to the impact of the pandemic, each Director deferred 100% of their bonus into the DBP preserving cash within the business. 50% of the 2020 deferred bonus will vest on the third anniversary and the other 50% vested after the 2020 Full Year results were announced on 25 February 2021. For any bonus earned in respect of 2021, bonus deferral will revert to 50%.
| Director | Date of award |
Awards at 1 January 2021 (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 2021 |
Market price on which award made (pence) |
Market price at exercise date (pence) |
Face value of award |
Percentage of interest that vests if threshold performance achieved |
End of performance period |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Stephen Bird |
9 April 2018(1) |
10,704 | 10,704 | 693 | – | – | – | 1205 | 1395 | 50% of annual bonus |
Not applicable |
Shares held in Employee Trust to 3rd anniversary of award date |
| 3 April 2019(2) |
8,715 | – | – | – | – | 8,715 | 1149 | – | 50% of annual bonus |
Not applicable |
Shares held in Employee Trust to 3rd anniversary of award date |
|
| 1 April 2020(3) |
11,352 | 5,676 | – | – | – | 5,676 | 581 | 964 | 100% of annual bonus |
Not applicable |
Shares held in Employee Trust. 50% of the award vested on 25 February 2021 and 50% to vest on 3rd anniversary of the award |
|
| 13 May 2021(4) |
– | – | – | – | 2,537 | 2,537 | 1394 | – | 50% of annual bonus |
Not applicable |
Shares held in Employee Trust to 3rd anniversary of award date |
|
| Total | 30,771 | 16,380 | 693 | – | 2,537 | 16,928 | ||||||
| Martin Green |
9 April 2018(1) |
6,314 | 6,314 | 409 | – | – | – | 1205 | 1395 | 50% of annual bonus |
Not applicable |
Shares held in Employee Trust to 3rd anniversary of award |
| 3 April 2019(2) |
5,141 | – | – | – | – | 5,141 | 1149 | – | 50% of annual bonus |
Not applicable |
Shares held in Employee Trust to 3rd anniversary of award |
| Total | 18,857 | 10,015 | 409 | – | 1,897 | 10,739 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 13 May 2021(4) |
– | – | – | – | 1,897 | 1,897 | 1394 | – | 50% of annual bonus |
Not applicable |
Shares held in Employee Trust to 3rd anniversary of award date |
|
| 1 April 2020(3) |
7,402 | 3,701 | – | – | – | 3,701 | 581 | 964 | 100% of annual bonus |
Not applicable |
Shares held in Employee Trust. 50% of the award vested on 25 February 2021 and 50% to vest on 3rd anniversary of the award |
|
| Director | Date of award |
Awards at 1 January 2021 (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 2021 |
Market price on which award made (pence) |
Market price at exercise date (pence) |
Face value of award |
Percentage of interest that vests if threshold performance achieved |
End of performance period |
(1) The DBP award made on 9 April 2018 vested on 9 April 2021 and the award plus associated dividend shares were paid out to participants on 13 May 2021.
(2) The DBP award made on 3 April 2019 will vest on its third anniversary of 3 April 2022. The award plus associated dividend shares will be paid out to the participants on this anniversary.
(3) The DBP award made to Stephen Bird and Martin Green on 1 April 2020 due to the pandemic was made to cover 100% of the annual bonus earned for 2019 and paid in March 2020. This was above the normal level of 50% and was done to preserve cash in the business. 50% of the 2020 DBP award vested with the announcement of the 2020 Full Year results on 25 February 2021 and the other 50% will vest on the third anniversary of the award in April 2023.
(4) The DBP award made on 13 April 2021 covered 50% of the bonus earned in respect of the financial year ended 31 December 2020. The award will vest on its third anniversary in April 2024.
The Company is required to include a line graph showing the Company's ordinary share performance compared to an appropriate index over a ten-year performance period ending 31 December 2021. 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 ten-year period ending 31 December 2021, 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. TSR data is taken from Datastream.
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 ten years ended 31 December 2021.
| Year (ended 31 December) | Group Chief Executive | CEO single figure of total remuneration |
Annual bonus payout against maximum opportunity % (including actual amount paid) |
Long-term incentive vesting rates against maximum opportunity % |
|---|---|---|---|---|
| 2021 | Stephen Bird | 1,166,196 | 95.5% | 0% |
| £566,588 | ||||
| 2020 | Stephen Bird | £701,744 | 22.5% | 0% |
| £133,489 | ||||
| 2019 | Stephen Bird | £1,151,858 | 21.5% | 72.06% |
| (£124,445) | ||||
| 2018 | Stephen Bird | £2,280,723 | 66.9% | 100% |
| (£377,925) | ||||
| 2017 | Stephen Bird | £1,596,214 | 88.4% | 67.5% |
| (£486,771) | ||||
| 2016 | Stephen Bird | £962,299 | 77.9% | 0% |
| (£418,450) | ||||
| 2015 | Stephen Bird | £636,374 | 20% | 0% |
| (£104,876) | ||||
| 2014 | Stephen Bird | £745,388 | 44.25% | 0% |
| (£226,378) | ||||
| 2013 | Stephen Bird | £1,057,407 | 71% | 28.55% |
| (£355,616) | ||||
| 2012 | Stephen Bird | £1,697,841 | 79.4% | 92.4% |
| (£386,434) |
The table below shows the year-on-year percentage change in salary, benefits and annual bonus earned between the year ended 31 December 2021 and the year ended 31 December 2020 for the Directors, compared to the average of earnings of the parent Company employees. The Remuneration Committee has selected this comparator group on the basis that each of the Directors is UK based and this provides a local market reference, is a sizeable population and a fair representation of the Group's employee base.
| 2019/20 Annual salary |
2019/20 Taxable benefits |
2019/20 Annual bonus |
2020/21 Annual salary |
2020/21 Taxable benefits |
2020/21 Annual bonus |
|
|---|---|---|---|---|---|---|
| Stephen Bird, Group Chief Executive | 2.5% | 2.5% | -7% | 0% | 0% | 324% |
| Martin Green, Group Finance Director | 2.5% | 2.5% | -23% | 0% | 0% | 324% |
| Ian McHoul, Chairman | 0% | n/a | n/a | 0% | n/a | n/a |
| Christopher Humphrey, Non-Executive Director | 2.5% | n/a | n/a | 0% | n/a | n/a |
| Caroline Thomson, Non-Executive Director | 2.5% | n/a | n/a | 0% | n/a | n/a |
| Richard Tyson, Non-Executive Director | 2.5% | n/a | n/a | 0% | n/a | n/a |
| Duncan Penny, Non-Executive Director | 2.5% | n/a | n/a | 0% | n/a | n/a |
| Parent Company employees | 2.5% | 2.5% | -36% | 2.2% | 2.2% | 292% |
In accordance with Option C as set out in the Companies (Miscellaneous Reporting) Regulations 2018, the following table sets out Stephen Bird's (Group Chief Executive) total remuneration for the year ended 31 December 2021 compared with all UK employees of the Group at the 25th percentile, 50th percentile and 75th percentile. The data has been compiled from available data as at 31 December 2021 for all UK-based employees and no element of remuneration has been excluded from the calculation. This table will build up over a ten-year period. We have chosen Option C as it reflects all our UK workforce and is more complete in showing the Group Chief Executive's remuneration compared to the entire UK workforce. It uses bonus information for 2020 and was paid in March 2021 as bonus information for 2021 is not calculated until March 2022 for many UK employees. It is therefore not possible to use 2021 bonus data since the 2021 Annual Report was approved on 28 February 2022. The same principle applies for prior years disclosed. The Company believes the median ratio is consistent with the Company's wider policies on employee pay, reward and progression. We seek to pay all employees including the Chief Executive fairly for the roles they perform and taking into account a range of factors including the relevant role, their performance and internal and external measures including pay rates and pay gaps.
| Year | Method | 25th percentile | 50th percentile | 75th percentile |
|---|---|---|---|---|
| 2019 | Option C | 82:1 | 57:1 | 35:1 |
| £27,833 | £40,002 | £64,086 | ||
| 2020 | Option C | 44:1 | 31:1 | 19:1 |
| £25,866 | £36,965 | £61,245 | ||
| 2021 | Option C | 28:1 | 19:1 | 12:1 |
| £26,361 | £37,726 | £58,866 |
The actual salaries paid for each UK employee at the respective quartiles for 2021 were: 25th percentile – £25,632; 50th percentile – £34,659; and 75th percentile – £52,660. The change in the pay ratios from 2019 to 2021 has been greatly impacted by COVID-19. In 2020, the Company implemented short-time working and other measures such as salary waivers in response to the pandemic. In 2021, Executive Directors did not receive any pay increase in contrast to the wider UK employee population and long-term incentives for the Executive Directors did not vest due to performance conditions not being achieved. As the Company recovers from the impact of the pandemic, we expect the pay ratio gap to widen as annual bonuses and long-term incentives become payable. We consider that the use of Option C and the percentiles shown for UK employees are reasonably representative.
The following table sets out for the year ended 31 December 2021 compared to the year ended 31 December 2020 the actual expenditure of the Company in terms of remuneration paid to or receivable by all employees of the Group and distributions to shareholders by way of dividends. It is noted that in response to the pandemic and as a measure to ensure the financial security of the Company, the Board cancelled dividends in 2020. The Board reinstated the final dividend for 2020 which was paid on 14 May 2021. There are currently 133,600 ordinary shares held in treasury. 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 2021 |
Year ended 31 December 2020 |
% change | |
|---|---|---|---|
| Total remuneration paid to all Vitec Group employees | £101.0m | £82.9m | 17.92% |
| Total dividends paid to shareholders | £7.1m | £0m | n/a |
This section provides an overview of how the Committee is proposing to implement the Remuneration Policy in 2022.
(1) Base salary
The table sets out the 2022 base salary for each Executive Director, together with the percentage increase from 2021:
| Executive Director | 2022 salary | Increase from 2021 |
|---|---|---|
| Stephen Bird | £488,868 | 3% |
| Martin Green | £365,650 | 3% |
The Committee decided that a 3% increase for Executive Director salaries was merited for 2022. This was based on several factors including: (i) that the wider employee population across the Group received a 3% increase for 2022; (ii) Executive Directors received no increase in salary in 2021 due to the impact of COVID-19 on the business (in contrast to the wider employee population who received 2.2%); (iii) the continuing recovery of the business from the impact of COVID-19; and (iv) the need to provide a remuneration package to the Executive Directors that is competitive and retains and incentivises the individuals.
Benefits, including car allowance, private healthcare and income protection will be paid at the same rate as in 2021.
Pension allowances paid to Executive Directors are set out in the table below. Stephen Bird's allowance currently represents 20% of his base salary and this level was contractually agreed at the time of his appointment in 2009. We have now contractually agreed with Stephen Bird that his pension allowance will reduce to 8% of base salary with effect from 1 January 2023 and therefore be aligned with the wider UK workforce. Newly appointed Executive Directors receive a pension contribution of 8% of base salary which is in line with pension contributions provided to the wider UK employee workforce. Upon his appointment as Group Finance Director on 10 February 2020, Martin Green's pension contribution was reduced from 15% to 8% of base salary.
| Executive Director | Pension allowance |
|---|---|
| Stephen Bird (20% of salary) | £97,773 |
| Martin Green (8% of salary) | £29,252 |
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 2022 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 2022 Annual Bonus Plan will be measured:
| Core measures for 2022 Annual Bonus Plan | Weighting (% of overall opportunity) |
|---|---|
| Adjusted Group profit before tax* | 50% |
| Group percentage of adjusted operating profit converted to operating cash flow |
25% |
| Role-specific personal objectives set by the Board and Remuneration Committee for the Executive Director |
25% |
The performance measures selected reflect the strategic and operational objectives of the Group. The Profit and Cash Conversion measures are independently assessed. The Group percentage of operating profit converted to operating cash metric for 2022 will be measured against targets set for H1 2022 performance and full year 2022 performance, with one-third for half year and two-thirds for the full year. The Committee considers that the specific targets and personal objectives for 2022 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.
Stephen Bird and Martin Green will each receive an award of shares under the LTIP. These awards will be made in the 42-day period following the announcement of the full year results for the year ended 31 December 2021 that will be announced on 1 March 2022. The performance conditions for the 2022 LTIP awards will be as follows: 67% of the award will be subject to adjusted basic EPS* growth over a three-year performance period. For the adjusted EPS performance condition, we propose a challenging adjusted EPS performance corridor to reflect the ambitious growth plans for the business. We therefore propose an adjusted EPS performance condition with threshold vesting at 25% of the award for an adjusted EPS growth target of 100 pence and full vesting of the award for adjusted EPS growth target of 130 pence, using 2021's adjusted EPS of 69.9 pence as a base. 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. Threshold performance for the TSR element will be at the medium point of the comparator group and will result in 25% of an award vesting. Full vesting of the TSR element will be at the upper quartile of the comparator group. A straight-line sliding scale will operate between each of the above points. Below threshold, none of the TSR element will vest. For the 2022 LTIP award we will revert to a level of award representing 125% of salary – which represents the same level of award pre the COVID-19 pandemic. Vesting of the 2022 LTIP award will be consistent with that described on page 112. 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 2022, after deduction of taxes, will be subject to a further two-year holding period, thereby more closely aligning the participants' interests with the long-term interests of shareholders.
The fee structure for the Chairman and Non-Executive Directors for 2022 is set out in the following table:
| Role | 2022 fee | 2021 fee |
|---|---|---|
| Chairman | £175,000(1) | £170,000 |
| Non-Executive Directors' base fee | £52,750(2) | £51,250 |
| Chairman of Audit Committee | £10,000(3) | £10,000 |
| Chairman of Remuneration Committee | £10,000(3) | £10,000 |
| Senior Independent Director | £8,000(3) | £8,000 |
| Employee Engagement Non-Executive Director | £5,000(4) | £5,000 |
(1) Ian McHoul became Chairman on 21 May 2019 when the Chairman's fee was increased to £170,000 per annum. Given that no increase has been given since that date and the increased demands in the role as Chairman, the Board has agreed that the Chairman's fee be increased to £175,000 from 1 January 2022. This increase reflects a similar level given to the wider employee workforce of 3 per cent and also is in line with market data provided by FIT Remuneration for the role.
(2) Following a review of Non-Executive Directors' fees with the support of FIT Remuneration Consultants, it was concluded that a 3% increase to the base fee would be applied for 2022. This aligned the Non-Executive Directors increase with the Executive Directors and wider employee workforce, also took into account the ongoing recovery of the business from the impact of the COVID-19 pandemic and that no increase was given in 2021 to support the recovery of the business.
(3)The Chairman of the Remuneration Committee and Senior Independent Director were last increased to their current level in 2019 to take account of the nature of each role, the time commitment, performance of the respective individuals, market rates for the complexity of the roles and the calibre of individuals. The Audit Committee Chairman's fee upon review was considered to be in line with market rates and appropriate for the demands of the role and complexity of the Company.
(4) In 2019, the Company appointed Caroline Thomson as the Non-Executive Director with responsibility for employee engagement in accordance with the 2019 UK Corporate Governance Code. Given the responsibility of this role and additional work associated with it, the Board approved that a fee of £5,000 per annum be payable to Caroline Thomson for that role. This fee will be paid to any other successor Non-Executive Director in future years. A full description of the activity involved with this role is given on pages 64 of the Annual Report.
The Board has agreed that fees will typically be reviewed annually to ensure that they remain appropriate.
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, a miscalculation or an assessment of any performance conditions that was based on incorrect information, or the occurrence of an insolvency or administration event. In addition, under the above plans, a clawback provision exists 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.
At the Company's last AGM held on 6 May 2021, shareholders were asked to vote for an advisory vote on the Directors' Annual Remuneration report for the year ended 31 December 2020. The resolution was approved by shareholders on a poll at the 2021 AGM and the table below sets out the proxy votes voted for, against and withheld for the resolution.
| Resolution | For proxy votes and % of votes cast |
Against proxy votes and % of votes cast |
Withheld proxy votes |
|---|---|---|---|
| Advisory vote on the Remuneration report for the year ended 31 December 2020 |
32,395,463 | 8,051,377 | 477,464 |
| 80.79% | 19.91% |
The Remuneration Policy report was voted on by shareholders at the Company's AGM held on 27 May 2020. The details of that vote are set out below:
| Resolution | For proxy votes and % of votes cast |
Against proxy votes and % of votes cast |
Withheld proxy votes |
|---|---|---|---|
| Remuneration Policy report – to cover Directors remuneration for the period from the 2020 AGM through to the 2023 AGM |
30,806,064 | 3,888,644 | 1,641,632 |
| 88.79% | 11.21% |
As at the date of the Company's AGM on 6 May 2021 the Company had 46,240,200 ordinary shares in issue. The Remuneration Committee, in line with guidance, considers that an against vote of 20% or more of the votes cast is deemed to be significant in connection with a resolution on Directors' remuneration. The Committee was clear that while not constituting a significant against vote of 20% or more, those voting against were concerned by the structure of the performance conditions tied to the 2021 LTIP award. The Committee has noted this and will take that into account for the 2022 LTIP award and in future years. In the event that a significant level of concern is raised at future AGMs, both the Chairman of the Board and the Chairman of the Remuneration Committee will contact the Company's major shareholders following an AGM to understand the precise detail of the concern being raised. Subject to that, the Committee and the Board as a whole will consider how best to address the concern being raised. This may involve a revision to the Company's Policy on Directors' remuneration at a subsequent AGM or some other change which can be implemented without further shareholder consultation. The Committee and the Board are committed to an open and transparent dialogue with shareholders on material matters of concern.
The Remuneration Committee comprised the following members during 2021: Caroline Thomson – Chairman, Christopher Humphrey, Richard Tyson and Duncan Penny.
All of the Committee members are independent Non-Executive Directors. Erika Schraner who will join the Board as an independent Non-Executive Director on 1 May 2022, will become a member of the Remuneration Committee with effect from that same date.
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 including any exit packages.
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 and also has regard to wider employee remuneration within the Group.
The Committee invites individuals to attend meetings, as it deems necessary, to assist with consideration of remuneration matters. During 2021 the following individuals attended meetings of the Committee: Ian McHoul (Board Chairman), Stephen Bird (Group Chief Executive), Martin Green (Group Finance Director), and Jon Bolton (Group Company Secretary). Representatives of the Committee's remuneration advisor, FIT Remuneration Consultants, also attended meetings in 2021.
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 106 to 108 of this Annual Report.
The Committee appointed FIT Remuneration Consultants as its external remuneration advisor in 2019. Their appointment involved the Committee Chairman reviewing several potential advisors including written proposals and interviews. Following this process, the Remuneration Committee selected FIT Remuneration. FIT Remuneration Consultants charge for their time given in providing a service to the Company and during 2021 the level of fees paid to remuneration advisors totalled £30,825 (2020: £22,281) and was charged on a time basis. This fee covered advice relating to disclosures in the 2020 Directors' Remuneration report, measurement of performance conditions associated with long-term incentive arrangements and general remuneration advice. FIT Remuneration do not provide any other services to the Company. FIT Remuneration Consultants are 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 FIT Remuneration Consultants during 2021 was objective and independent. The Company or any of its individual Directors has no other connection with FIT Remuneration Consultants other than as acting as the Committee's external remuneration advisor. The Committee also received advice and administrative support during 2021 from the Group Company Secretary, Jon Bolton.
This Annual Remuneration report has been approved by the Remuneration Committee and signed on its behalf by:
Chairman, Remuneration Committee 28 February 2022
* This report provides alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards ("IFRS"). The Group uses these APMs to aid the comparability of information between reporting periods and Divisions, by adjusting for certain items which impact upon IFRS measures, to aid the user in understanding the activity taking place across the Group's businesses. APMs are used by the Directors and management for performance analysis, planning, reporting and incentive purposes. A summary of APMs used and their closest equivalent statutory measures is given in the Glossary on pages 201 to 203.
The Directors who held office at 31 December 2021 and up to the date of this report are set out on pages 78 and 79 along with their biographies and photographs. There were no changes to the Board during 2021.
The Company announced on 20 December 2021 that Erika Schraner is to join the Board as an independent Non-Executive Director with effect from 1 May 2022. All current Directors and Erika Schraner will be standing for reappointment at the forthcoming AGM to be held on Tuesday, 17 May 2022.
The Company also announced that Duncan Penny will not be seeking reappointment at the 2022 AGM and he will therefore cease to be a Director of the Company at the close of the AGM on Tuesday, 17 May 2022.
The remuneration of the Directors including their respective shareholdings in the Company is set out in the Remuneration report on pages 106 to 135.
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.
The Vitec Group plc is proposing to change the Company name to "Videndum plc". This change is due to the need to differentiate ourselves from other companies around the world who also operate under the Vitec name. It is also necessary to avoid financial penalties under a now settled dispute with a third party with claimed prior rights to the term "Vitec" in some territories. Subject to shareholder approval at the AGM to be held on Tuesday, 17 May 2022, the Company's name will be changed to Videndum plc with effect from Monday, 23 May 2022. The meaning of Videndum is "to be seen" in Latin, which better reflects our Company purpose and growth plans. The AGM notice sets out some questions and answers in respect of the name change and how it will impact shareholders.
The Company's shareholders have a series of rights in connection with the governance of the Company. These are contained in statute, principally the Companies Act 2006, regulations such as the UKLA's Listing Rules and in the Company's Articles of Association. A shareholder, or shareholders acting together, can use procedures set out in the Companies Act 2006, to requisition a general meeting of the Company. The Directors are required to call such a general meeting once the Company has received requests to do so from shareholders representing at least 5% of the paid-up capital of the Company as carries the right of voting at general meetings of the Company (excluding any paid-up capital held as treasury shares).
Under the Companies Act 2006, either (i) a member or members representing at least 5% of the total voting rights of all the members having a right to vote on the resolution at the AGM (excluding voting rights attached to any treasury shares); or (ii) at least 100 members with the right to vote on the resolution at the AGM and each holding, on average, at least £100 of paid-up share capital, may require the Company to give members of the Company entitled to receive notice of the next AGM, notice of a resolution which may properly be moved at that meeting. Such a resolution may be properly moved unless it is defamatory, frivolous or vexatious or if it would be ineffective for any reason.
Such a request may be in hard copy or electronic form and must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it and must be received by the Company not less than six weeks before the meeting. A request for a matter to be included in the business of the
meeting must also be accompanied by a statement setting out the grounds for the request.
Shareholders have an express right to vote annually on the Directors' Remuneration report and at least every three years they have the right to vote on the policy governing Directors' remuneration. Under the Company's Articles of Association, shareholders have the right to vote on the re-election of all Directors of the Company annually at the AGM.
It is also confirmed that under the Company's governance arrangements, including the Articles of Association, there are no anti-takeover devices or provisions to prevent a takeover of the ownership of the Company through the normal ways permitted under UK law and regulation. There are no limitations on share ownership and the issuance of new capital, subject to shareholder approval, would be to address funding needs and is not a tool for an anti-takeover measure.
The Company has only ordinary shares of 20 pence nominal value in issue along with 133,600 shares held in treasury. Note 4.3 to the consolidated financial statements on page 181 summarises the rights of the ordinary shares as well as the number issued during 2021. An analysis of shareholdings is shown on page 205. The closing mid-market price of a share of the Company on 31 December 2021, together with the range during the year, is also shown on page 205. For details of own shares held by the Company see note 4.3 to the consolidated financial statements.
The Board has recommended a final dividend of 24 pence per share amounting to £11.1 million (2020: 4.5 pence per share, amounting to £2.1 million. Interim dividend 11.0 pence per share amounting to £5.03 million). The final dividend, subject to shareholder approval at the 2022 Annual General Meeting, will be paid on Friday, 20 May 2022 to shareholders on the register at the close of business on Friday, 22 April 2022. This will bring the total dividend for the year to 35 pence per share. A dividend reinvestment alternative is available with details available from our registrars, Equiniti Limited.
As at 23 February 2022, the Company had been advised under the Disclosure Guidance and Transparency Rules, or had ascertained from its own analysis, that the following held notifiable interests in the voting rights in the Company's issued share capital:
| Shareholder | Number of voting rights |
% of voting rights |
|---|---|---|
| Alantra Asset Management | 10,564,618 | 22.84% |
| Aberforth Partners | 3,338,726 | 7.22% |
| Schroder Investment Management | 3,088,455 | 6.68% |
| Franklin Templeton Investments | 2,117,000 | 4.58% |
| Brown Capital Management | 1,846,897 | 3.99% |
| Gidema SPA | 1,743,734 | 3.77% |
| Tellworth Investments | 1,719,678 | 3.72% |
| Chelverton Asset Management | 1,627,500 | 3.52% |
| Invesco | 1,380,332 | 2.98% |
| Royal London Asset Management | 1,364,293 | 2.95% |
The Board has established Audit, Nominations and Remuneration Committees. Details of these Committees, including membership, governance and their activities during 2021, are contained in the Governance section of this Annual Report and in the Remuneration report.
In accordance with Section 992 of the Companies Act 2006 the Directors disclose the following information:
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.
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.
Further to shareholder approval at the 2021 AGM empowering the Directors to make political donations, it is confirmed that no such donations were made in the year ended 31 December 2021. The Company's policy is not to make political donations. The 2025 AGM will be asked to renew this existing authority that expires in May 2025.
The following sets out the location of additional information which forms part of the Directors' report:
| Reporting requirement | Comprising | Location |
|---|---|---|
| Strategic report | — An indication of the Group's likely future business developments |
Pages 2 to 72 |
| — 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 |
||
| — The Group's disclosures regarding greenhouse gas emissions |
||
| Non-financial information statement | — Environmental matters, employees, social matters, respect for human rights, anti-corruption and anti-bribery matters |
Page 73 |
| — Business model | ||
| — Policies | ||
| — Principal risks | ||
| — Non-financial KPIs | ||
| Statement on corporate governance | — Review of the Board's governance arrangements during the year |
Pages 74 to 105 |
| — Review of the Board's Committee's arrangements during the year |
||
| Financial instruments | — Financial risk management objectives and policies of the Group |
Note 4.2 to the consolidated financial statements on pages 177 to 182 |
| — The exposure of the Group to foreign currency risk, interest rate risk, and liquidity risk |
| Reporting requirement | Comprising | Location |
|---|---|---|
| Responsible business | — Explanation of our approach to business ethics, employees, community and the environment |
Pages 42 to 72 |
| Employee engagement statement | — Explanation of how the Directors have engaged with employees and taken them into account when making principal decisions |
Employee engagement section on pages 64 and 87. Stakeholder engagement statement on page 8 |
| Statement regarding fostering relationships with suppliers, customers and others |
— Explanation of how the Directors have fostered the Company's business relationships with suppliers, customers, employees and others, and taken each group into account when making principal decisions |
Section 172(1) statement on page 6 |
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, being 28 February 2022. 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.
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:
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.
The acquisition of Audix was completed on 11 January 2022 for consideration of up to \$54.3 million (£39.9 million). Further details can be found on page 172.
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.
The 2022 AGM will be held at 11.00am on Tuesday, 17 May 2022 at The Academy of Medical Sciences, 41 Portland Place, London W1B 1QH. Should it be necessary to rearrange the venue and timing for the AGM, we will communicate this to shareholders by way of a stock exchange announcement.
The Company will be making use of the electronic voting facility provided by its registrars, Equiniti Limited. 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 set out in the Notice and encourages shareholders to vote in favour of each of them as they intend to in respect of their own shareholdings.
Deloitte LLP has expressed its willingness to continue in office as auditor and separate resolutions will be proposed at the forthcoming AGM concerning their reappointment and to authorise the Board to agree their remuneration.
By order of the Board
Group Company Secretary and HR Director 28 February 2022
In our opinion:
We have audited the financial statements which comprise:
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and United Kingdom adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 "Reduced Disclosure Framework" (United Kingdom Generally Accepted Accounting Practice).
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the "FRC's") Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the Group and Parent Company for the year are disclosed in note 2.1 to the financial statements. We confirm that non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
| Key audit matter | The key audit matter that we identified in the current year is: |
|---|---|
| − Valuation of inventory obsolescence provision |
|
| Within this report, key audit matter is: | |
| Similar level of risk | |
| Materiality | The materiality that we used for the Group financial statements was £2.3 million which was determined on the basis of a blended range of measures, including profit before tax, revenue and net assets. |
| Scoping | We focused our scope on the three trading divisions: Vitec Imaging Solutions, Vitec Production Solutions and Vitec Creative Solutions. These were subject either to full scope audits, audit of specified account balances or specified audit procedures which account for 94% of Group revenue and 86% of net assets. |
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the Group's and Parent Company's ability to continue to adopt the going concern basis of accounting included:
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included 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.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| Key audit matter description | At 31 December 2021, the gross inventory balance was £106.8 million (2020: £83.0 million), against which there was £18.3 million (2020: £18.2 million) provision. |
|||||
|---|---|---|---|---|---|---|
| Significant management judgement is involved in determining the adequacy of the inventory obsolescence provision across a wide range of products, within different geographical regions, set against a backdrop of ever-changing technology in the image capture and sharing market. Given the high level of management judgement involved, particularly in respect of forecast future usage, we deemed this a potential fraud risk for our audit. |
||||||
| Management has highlighted inventory provisioning as a key accounting estimate in Section 1. The Audit Committee report on page 105 also refers to inventory provisioning as one of the significant issues and judgements. Further information is included in note 3.3 to the financial statements. |
||||||
| How the scope of our audit responded to the key audit matter |
In order to address this key audit matter, we have completed audit procedures including: − Obtaining an understanding of the controls relating to inventory provisioning; − Evaluating the appropriateness of the methodology used to calculate the inventory provision; − Challenging the reasonableness of management's judgements and the assumptions used, specifically by assessing the provision percentages in relation to sales demand with comparison to prior years; − Assessing the integrity of the underlying calculation by checking the accuracy of the ageing of discontinued and slow-moving inventory items; − Assessing the level of inventory write-offs in the year compared to the overall inventory provision at 31 December 2020; and − Assessing the exposure of inventory relating to slow-moving ranges but for which no provision is included, together with testing the appropriateness of a sample of manual adjustments. |
|||||
| Key observations | Based on the audit procedures performed we are satisfied the overall inventory provision is appropriate. | |||||
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Group financial statements | Parent Company financial statements | |
|---|---|---|
| Materiality | £2.3 million (2020: £1.6 million) | £2.1 million (2020: £1.5 million) |
| Basis for determining materiality | The materiality that we used for the Group financial statements was £2.3 million which was determined on the basis of a blended range of measures, including revenue, net assets. This approach is consistent with the prior year. |
Parent Company materiality equates to 1% of net assets, which is capped at 95% of Group materiality, this is consistent with the prior year. |
| Rationale for the benchmark applied |
The basis on which we have determined materiality in the current year is consistent with the prior year, which reflects the impact of COVID-19 on the scale of the Group's operations and reflects the metrics that are most relevant for the users of the financial statements. Materiality of £2.3 million represents 0.6% of revenue |
Net assets benchmark has been used as this is a non-trading holding company and we consider this to be the most appropriate basis. |
| (2020: 0.6%) and 1.3% of net assets (2020: 1.1%). |
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole.
| Group financial statements | Parent Company financial statements | |
|---|---|---|
| Performance materiality | 70 % (2020: 70%) of Group materiality | 70% (2020: 70%) of Parent Company materiality |
| Basis and rationale for determining performance materiality |
In determining performance materiality, we considered the following factors: − the overall quality of the control environment where no significant deficiencies were identified; − the low turnover of management and key accounting personnel; and − the low number of corrected and uncorrected misstatements identified in previous audits. |
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.11 million (2020: £0.08 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level.
Based on that assessment we focused our scope on the three trading divisions: Vitec Imaging Solutions, Vitec Production Solutions and Vitec Creative Solutions. These were subject to either full scope audits, audit of specified account balances, specified audit procedures and analytical reviews which account for 94% (2020: 92%) of Group revenue and 86% (2020: 92%) of net assets. These audit procedures were performed to materiality levels applicable to each entity, which was lower than the Group materiality level and ranged from £0.9 million to £2.1 million (2020: £0.6 million to £1.5 million).
At the parent entity level, we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to a full audit.
The Group audit team instructed component auditors as to the significant risk areas to be addressed, including the key audit matter in respect of the valuation of the inventory obsolescence provision, and other relevant risks through the issuance of detailed referral instructions. The Group audit team had video conference meetings with the Divisional head office of each of the three trading divisions in Italy, the UK and US.
Due to inability to travel our component oversight visits were replaced with video conference meetings. We engaged regularly with the component auditors, considered and discussed the appropriateness of their local risk assessment, attended video closing meetings with them and component management teams, reviewed their work and reviewed their component reporting.
The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
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 error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor's report.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following:
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the valuation of inventory. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pension legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the Group's ability to operate or to avoid a material penalty. These included the Group's regulatory solvency requirements and covenants requirements.
As a result of performing the above, we identified the valuation of inventory obsolescence provision as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter:
In addition to the above, our procedures to respond to risks identified included the following:
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report.
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the directors' remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Following the recommendation of the Audit Committee, we were appointed by the members at the Company's Annual General Meeting on 15 May 2018 to audit the financial statements for the year ending 31 December 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 4 years, covering the years ending 31 December 2018 to 31 December 2021.
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
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 required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ("ESEF RTS"). This auditor's report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.
David Halstead FCA (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor St Albans, United Kingdom
28 February 2022
| Primary Statements | |
|---|---|
| Consolidated Income Statement | 147 |
| Consolidated Statement of Comprehensive Income | 148 |
| Consolidated Balance Sheet | 149 |
| Consolidated Statement of Changes in Equity | 150 |
| Consolidated Statement of Cash Flows | 151 |
| Section 1 – Basis of Preparation | |
| Section 2 – Results for the Year | |
| 2.1 Profit before tax (including segmental information) | 155 |
| 2.2 Charges associated with acquisition of businesses and other adjusting items | 157 |
| 2.3 Net finance expense | 159 |
| 2.4 Tax | 159 |
| 2.5 Earnings per share | 163 |
| Section 3 – Operating Assets and Liabilities | |
| 3.1 Intangible assets | 164 |
| 3.2 Property, plant and equipment | 166 |
| 3.3 Working capital | 168 |
| 3.4 Acquisitions | 170 |
| 3.5 Provisions | 172 |
| 3.6 Leases | 173 |
| Section 4 – Capital Structure | |
| 4.1 Net debt | 175 |
| 4.2 Financial instruments | 176 |
| 4.3 Share capital and reserves | 181 |
| Section 5 – Other Supporting Notes | |
| 5.1 Employees | 183 |
| 5.2 Pensions | 183 |
| 5.3 Share-based payments | 187 |
| 5.4 Contingent liabilities | 189 |
| 5.5 Related party transactions | 189 |
| 5.6 Group investments | 190 |
| 5.7 Subsequent events | 192 |
| The Vitec Group plc Company Financial Statements | |
| Company Balance Sheet | 193 |
| Company Statement of Changes in Equity | 194 |
| Notes to the Company Financial Statements | 195 |
| Glossary of Alternative Performance Measures | 201 |
| Five Year Financial Summary | 204 |
| Shareholder Information and Financial Calendar | ibc |
Each section sets out the accounting policies applied in producing these financial statements together with any key judgements and estimates used. Text boxes provide an introduction to each section.
For the year ended 31 December 2021
| Notes | 2021 £m |
2020 £m |
|
|---|---|---|---|
| Revenue Cost of sales |
2.1 2.1 |
394.3 (221.2) |
290.5 (178.5) |
| Gross profit Operating expenses |
2.1/2.2 | 173.1 (139.6) |
112.0 (115.3) |
| Operating profit/(loss) | 2.1 | 33.5 | (3.3) |
| Comprising: – Adjusted operating profit – Charges associated with acquisition of businesses and other adjusting items |
2.2 | 46.2 (12.7) |
9.9 (13.2) |
| 33.5 | (3.3) | ||
| Net finance expense | 2.3 | (3.9) | (4.4) |
| Profit/(loss) before tax | 29.6 | (7.7) | |
| Comprising: – Adjusted profit before tax – Charges associated with acquisition of businesses and other adjusting items, including finance expense |
2.2 | 42.4 (12.8) 29.6 |
5.5 (13.2) (7.7) |
| Taxation | 2.4 | (3.7) | 2.4 |
| Comprising taxation on: – Adjusted profit – Charges associated with acquisition of businesses and other adjusting items |
(10.3) 6.6 (3.7) |
(1.4) 3.8 2.4 |
|
| Profit/(loss) for the year attributable to owners of the parent | 25.9 | (5.3) | |
| Earnings per share Basic earnings per share Diluted earnings per share |
2.5 2.5 |
56.4p 54.5p |
(11.6)p (11.6)p |
| Average exchange rates Euro US\$ |
1.16 1.38 |
1.12 1.29 |
For the year ended 31 December 2021
| 2021 £m |
2020 £m |
|
|---|---|---|
| Profit/(loss) for the year | 25.9 | (5.3) |
| Other comprehensive income/(expense): | ||
| Items that will not be reclassified subsequently to profit or loss: | ||
| Remeasurements of defined benefit obligation | 6.9 | (7.6) |
| Related tax | (0.7) | 1.6 |
| Items that are or may be reclassified subsequently to profit or loss: | ||
| Currency translation differences on foreign currency subsidiaries | (3.9) | (0.7) |
| Net investment hedges – net gain/(loss) | 0.2 | (1.3) |
| Cash flow hedges – reclassified to the Income Statement, net of tax | (0.1) | 0.7 |
| Cash flow hedges – effective portion of changes in fair value, net of tax | (0.1) | (0.9) |
| Other comprehensive income/(expense), net of tax | 2.3 | (8.2) |
| Total comprehensive income/(expense) for the year attributable to owners of the parent | 28.2 | (13.5) |
As at 31 December 2021
| Notes | 2021 £m |
2020 £m |
|
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Intangible assets | 3.1 | 174.1 | 123.5 |
| Property, plant and equipment | 3.2 | 60.7 | 42.2 |
| Trade and other receivables | 3.3 | 5.8 | 1.5 |
| Derivative financial instruments | 4.2 | 0.1 | – |
| Non-current tax assets | 2.4 | 3.0 | – |
| Deferred tax assets | 2.4 | 33.1 | 24.6 |
| 276.8 | 191.8 | ||
| Current assets | |||
| Inventories | 3.3 | 88.5 | 64.8 |
| Trade and other receivables | 3.3 | 60.0 | 51.7 |
| Derivative financial instruments | 4.2 | – | 0.1 |
| Current tax assets | 2.4 | 4.7 | 8.9 |
| Cash and cash equivalents | 4.1 | 11.0 | 17.3 |
| 164.2 | 142.8 | ||
| Total assets | 441.0 | 334.6 | |
| Liabilities | |||
| Current liabilities | |||
| Bank overdrafts | 4.1 | 3.1 | 0.5 |
| Interest-bearing loans and borrowings | 4.1 | 13.2 | 50.6 |
| Lease liabilities | 4.1 | 5.7 | 4.7 |
| Trade and other payables | 3.3 | 76.6 | 44.8 |
| Derivative financial instruments | 4.2 | 0.3 | – |
| Current tax liabilities | 2.4 | 16.0 | 9.7 |
| Provisions | 3.5 | 1.5 | 3.7 |
| 116.4 | 114.0 | ||
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 4.1 | 109.6 | 40.8 |
| Lease liabilities | 4.1 | 24.6 | 11.5 |
| Other payables | 3.3 | 0.4 | – |
| Post-employment obligations | 5.2 | 8.4 | 15.9 |
| Provisions | 3.5 | 2.9 | 1.0 |
| Deferred tax liabilities | 2.4 | 4.8 | 6.0 |
| 150.7 | 75.2 | ||
| Total liabilities | 267.1 | 189.2 | |
| Net assets | 173.9 | 145.4 | |
| Equity | |||
| Share capital | 9.3 | 9.2 | |
| Share premium Translation reserve |
23.1 (17.6) |
21.7 (13.9) |
|
| Capital redemption reserve | 1.6 | 1.6 | |
| Cash flow hedging reserve | (0.1) | 0.1 | |
| Retained earnings | 157.6 | 126.7 | |
| Total equity | 4.3 | 173.9 | 145.4 |
| Balance Sheet exchange rates | |||
| Euro | 1.19 | 1.12 | |
| US\$ | 1.35 | 1.37 | |
Approved and authorised for issue by the Board on 28 February 2022 and signed on its behalf by:
Martin Green
Group Finance Director
For the year ended 31 December 2021
| Share capital £m |
Share premium £m |
Translation reserve £m |
Capital redemption reserve £m |
Cash flow hedging reserve £m |
Retained earnings £m |
Total equity £m |
|
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2020 | 9.1 | 20.7 | (11.9) | 1.6 | 0.3 | 136.9 | 156.7 |
| Loss for the year | – | – | – | – | – | (5.3) | (5.3) |
| Other comprehensive expense for the year | – | – | (2.0) | – | (0.2) | (6.0) | (8.2) |
| Total comprehensive expense for the year Contributions by and distributions to owners |
– | – | (2.0) | – | (0.2) | (11.3) | (13.5) |
| Own shares purchased | – | – | – | – | – | (2.3) | (2.3) |
| Share-based payment charge, net of tax | – | – | – | – | – | 3.4 | 3.4 |
| New shares issued | 0.1 | 1.0 | – | – | – | – | 1.1 |
| Balance at 31 December 2020 and 1 January 2021 |
9.2 | 21.7 | (13.9) | 1.6 | 0.1 | 126.7 | 145.4 |
| Profit for the year | – | – | – | – | – | 25.9 | 25.9 |
| Other comprehensive (expense)/income for the year |
– | – | (3.7) | – | (0.2) | 6.2 | 2.3 |
| Total comprehensive (expense)/income for the year |
– | – | (3.7) | – | (0.2) | 32.1 | 28.2 |
| Contributions by and distributions to owners | |||||||
| Dividends paid | – | – | – | – | – | (7.1) | (7.1) |
| Own shares purchased | – | – | – | – | – | (5.8) | (5.8) |
| Share-based payment charge, net of tax | – | – | – | – | – | 8.2 | 8.2 |
| New shares issued | 0.1 | 1.4 | – | – | – | 3.5 | 5.0 |
| Balance at 31 December 2021 | 9.3 | 23.1 | (17.6) | 1.6 | (0.1) | 157.6 | 173.9 |
For the year ended 31 December 2021
| Notes | 2021 £m |
2020 £m |
|---|---|---|
| Cash flows from operating activities | ||
| Profit/(loss) for the year | 25.9 | (5.3) |
| Adjustments for: | ||
| Taxation Depreciation |
3.7 12.9 |
(2.4) 13.1 |
| Impairment losses on property, plant and equipment | 0.2 | 0.6 |
| Amortisation of intangible assets | 13.0 | 13.5 |
| Net gain on disposal of property, plant and equipment and software | – | (0.1) |
| Fair value gains on derivative financial instruments | – | (0.1) |
| Foreign exchange losses | – | 0.3 |
| Share-based payment charge | 7.9 | 3.7 |
| Earnout charges and retention bonuses | 0.8 | 1.9 |
| Net finance expense | 3.9 | 4.4 |
| Cash generated from operating activities before changes in working capital, including provisions | 68.3 | 29.6 |
| (Increase)/decrease in inventories | (21.9) | 11.5 |
| (Increase)/decrease in receivables | (5.8) | 8.3 |
| Increase/(decrease) in payables | 27.8 | (12.6) |
| Decrease in provisions | (2.7) | (2.8) |
| Cash generated from operating activities | 65.7 | 34.0 |
| Interest paid | (4.5) | (5.9) |
| Tax paid | (6.5) | (3.1) |
| Net cash from operating activities | 54.7 | 25.0 |
| Cash flows from investing activities | ||
| Proceeds from sale of property, plant and equipment and software | 0.1 | 0.2 |
| Purchase of property, plant and equipment | (10.8) | (5.1) |
| Capitalisation of software and development costs | (10.9) | (10.6) |
| Acquisition of businesses, net of cash acquired | (56.1) | – |
| Net cash used in investing activities | (77.7) | (15.5) |
| Cash flows from financing activities | ||
| Proceeds from the issue of shares | 1.5 | 1.1 |
| Own shares purchased | (5.8) | (2.3) |
| Principal lease repayments | (5.7) | (5.8) |
| Repayment of interest-bearing loans and borrowings | (128.2) | (76.9) |
| Borrowings from interest-bearing loans and borrowings | 160.8 | 71.7 |
| Dividends paid | (7.1) | – |
| Net cash from/(used) in financing activities | 15.5 | (12.2) |
| Decrease in cash and cash equivalents and overdrafts 4.1 |
(7.5) | (2.7) |
| Cash and cash equivalents at 1 January | 16.8 | 18.9 |
| Effect of exchange rate fluctuations on cash held | (1.4) | 0.6 |
| Cash and cash equivalents and overdrafts at 31 December | 7.9 | 16.8 |
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 public company limited by shares incorporated in the United Kingdom under the Companies Act. The Company is registered in England and Wales and its registered address is Bridge House, Heron Square, Richmond TW9 1EN, United Kingdom. The consolidated financial statements of the Company as at and for the year ended 31 December 2021 comprise the Company and its subsidiaries (together referred to as the "Group").
The Group's financial statements have been prepared in accordance with UK-adopted International Accounting Standards, 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 International Financial Reporting Standards ("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 and enable an alternative comparison of performance over time. A glossary on pages 201 to 203 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").
The Group's business activities, together with its principal risks and uncertainties and other 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 risk, interest rate risk and liquidity risk.
As part of the Directors' consideration of the appropriateness of adopting the going concern basis in preparing the financial statements, a range of scenarios have been modelled. The Directors have applied a robust process to assess the forecast scenarios which included applying severe but plausible downside risks and mitigating activities as set out in the Viability Statement on page 34. Neither the Group's latest forecast nor the downside scenarios modelled result in a breach of the covenants under the terms of its multicurrency Revolving Credit Facility ("RCF") and all scenarios show sufficient cash headroom to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of approval of these financial statements.
The Directors have also considered the Group's capacity to remain a going concern after consideration of future cash flows, expected debt service requirements, undrawn facilities and access to capital markets.
As such, the Directors are satisfied that it is appropriate for the Group to continue to adopt the going concern basis for preparing these financial statements.
Subsidiaries are entities that are 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.
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 on the day the fair value was determined.
The assets and liabilities of overseas subsidiaries, including goodwill and fair value adjustments arising on consolidation, are translated at the year-end exchange rate. The revenues and expenses of these subsidiaries 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 typically 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 which are designated as net investment hedges 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.
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.
The following are the critical estimates and assumptions that the Directors have made in the process of applying the Group's accounting policies and that have a significant risk of resulting in material adjustments to the carrying amounts of assets and liabilities within the next financial year.
The Group's acquired intangible assets are amortised over useful lives which are estimated in accordance with IAS 38 "Intangible Assets" and reviewed each financial year-end.
Determination of useful lives are based upon a number of assumptions including: expected usage, typical product life cycles, public information on estimates of useful lives of similar assets and expected actions by competitors or potential competitors.
As such, reasonably possible changes to the useful lives of these assets could result in material adjustments to the carrying amount of acquired intangible assets.
At 31 December 2021, the carrying value of individually material acquired intangible assets is disclosed in note 3.1 "Intangible assets". A change of +/- one year to the useful lives of all the Group's acquired intangible assets would result in an increase/(decrease) of £2.3 million/(£3.3 million) to the closing net book value at 31 December 2022.
Provisions are required to write down slow-moving, excess and obsolete inventory to its net realisable value. The estimation of inventory impairment is based on anticipated future sales of products over particular time periods. The anticipated level of future sales is determined primarily based on actual sales over a specified historic reference period of between six and twelve months, which is determined by management and is deemed appropriate to the type of inventory. See note 3.3 "Working capital".
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 and sensitivities are set out in note 5.2 "Pensions".
Acquisitions are accounted for under the acquisition method, based on the fair values of the consideration paid. Assets and liabilities, with limited exceptions, are measured at their fair value at the acquisition date. The Group estimates the provisional fair values and useful lives of acquired assets and liabilities at the date of acquisition. The valuation of acquired intangibles is subject to estimation of future cash flows and the discount rate applied to them. Determination of the useful economic lives of technology-related intangible assets requires assumptions about future market trends and future risk of replacement or obsolescence of those assets. The useful economic lives of intangible assets are disclosed in note 3.1 "Intangible assets".
The Group is subject to income taxes in a number of jurisdictions. Management is required to make 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. The most significant estimates made are in relation to the recognition of deferred tax assets arising from carried forward tax losses. The recovery of those losses is dependent on the future profitability of Group entities based in the jurisdictions with those carried forward tax losses, most significantly in the United States. The assumptions used in the measurement of the deferred tax assets are consistent with those as disclosed in note 3.1 "Intangible assets" in relation to the impairment tests of cash-generating units ("CGUs") containing goodwill. See note 2.4 "Tax" for further details of the carrying amounts of deferred tax assets.
The following are critical judgements that the Group makes, apart from those involving estimations (which are dealt with above), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
The Group capitalises development costs which meet the criteria under IAS 38 "Intangible Assets" and discloses the amount capitalised in note 3.1 "Intangible assets". The Group makes significant judgements in the application of IAS 38, particularly in relation to its requirements regarding the technical feasibility of completing the asset and the Group's ability to sell and generate future economic benefits from the intangible asset.
In relation to tax, these include the interpretation and application of existing legislation. The Group's key judgement relates to the application of tax law in relation to the EU State Aid investigation. Details in relation to this judgement are set out in note 2.4 "Tax".
In the current year, the Group adopted the Phase 2 amendments Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments enables the Group to reflect the effects of transitioning from interbank offered rates ("IBOR") to alternative benchmark interest rates (also referred to as "risk-free rates" or "RFRs") without giving rise to accounting impacts that would not provide useful information to users of financial statements.
As a result of the Phase 2 amendments, when the contractual terms of the Group's bank borrowings are amended as a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the basis immediately preceding the change, the Group changes the basis for determining the contractual cash flows prospectively by revising the effective interest rate. The Group has not restated the prior period. The amendments have been applied retrospectively with no impact to equity as at 1 January 2021.
If additional changes are made, which are not directly related to the reform, the applicable requirements of IFRS 9 are applied to the other changes.
An amendment to IFRS 16 "Leases" was issued by the International Accounting Standards Board on 28 May 2020. The amendment provides lessees with a practical expedient from assessing whether a COVID-19-related rent concession is a lease modification. In March 2021, the International Accounting Standards Board issued COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) that extends the practical expedient to apply to reductions in lease payments originally due on or before 30 June 2022.
During the year, the Group adopted both of the amendments and they had no material impact.
Amended standards and interpretations not yet effective are not expected to have a significant impact on the Group's consolidated financial statements.
2.5 Earnings per share
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.
The Group has received government assistance as a result of the COVID-19 pandemic in the form of contributions towards employee costs. For government assistance which meets the definition of a government grant under IAS 20, the Group applies the income approach to account for the grants received. As such, the grant is recognised in the Income Statement as a reduction of the related costs incurred.
Revenue from the sale of goods is recognised when the Group sells a product to a customer and control has passed. This is either once the product has been shipped or delivered to the customer, depending on the terms and conditions of the sale. Payment terms vary by Division and customer but where credit terms are given, payments are due generally 30 days after control of the goods has passed to the customer. Revenue is recognised at the transaction price exclusive of sales tax, adjusted for the expected level of returns, trade discounts and volume rebates. For the products expected to be returned, both a refund liability and a right to the returned goods are recognised using an expected value method based on past history.
Some contracts include multiple deliverables, such as the sale of the product and its installation. If material, distinct goods and services are accounted for as separate performance obligations. The transaction price is allocated to each performance obligation based on their standalone selling prices.
Revenue from rental service contracts which are fulfilled using the Group's equipment and operators is recognised in the accounting period in which the services are rendered. Payment terms vary and there can be small advance payments but generally payments are due as services are rendered.
Generally, contracts with customers are for periods of one year or less. As a result, the transaction price allocated to any unsatisfied contracts is not disclosed, as permitted by IFRS 15.
Software licences are sold by the Group on a standalone basis and together with a tangible product. If the licence is considered distinct, the revenue recognition pattern is based on whether the licence is a right-to-use intellectual property (revenue recognised at a point in time) or a right-to-access intellectual property (revenue recognised over time). The majority of the licences granted by the Group represent a right-to-use intellectual property for which payments are generally in advance. From a right-to-access intellectual property, payments are normally on a monthly basis with a credit period of 30 days.
The Group generally does not have contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.
The Group has three reportable segments which are reported in a manner that is consistent with the internal reporting provided to the Chief Operating Decision Maker 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.
| Imaging Solutions | Production Solutions | Creative Solutions | Corporate and unallocated | Consolidated | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 £m |
2020 £m |
2021 £m |
2020 £m |
2021 £m |
2020 £m |
2021 £m |
2020 £m |
2021 £m |
2020 £m |
||
| 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 |
17.4 72.6 62.1 37.8 4.8 |
9.4 54.4 53.8 35.7 3.4 |
13.4 36.2 53.8 14.4 4.0 |
7.8 21.1 35.4 13.0 2.8 |
6.3 8.7 52.0 9.4 1.4 |
3.9 4.7 38.1 6.1 0.9 |
– – – – – |
– – – – – |
37.1 117.5 167.9 61.6 10.2 |
21.1 80.2 127.3 54.8 7.1 |
|
| Total revenue from external customers Inter-segment revenue(1) |
194.7 0.2 |
156.7 0.2 |
121.8 0.5 |
80.1 0.2 |
77.8 0.2 |
53.7 0.3 |
– (0.9) |
– (0.7) |
394.3 – |
290.5 – |
|
| Total revenue | 194.9 | 156.9 | 122.3 | 80.3 | 78.0 | 54.0 | (0.9) | (0.7) | 394.3 | 290.5 | |
| Adjusted operating profit/(loss) Amortisation of acquired intangible assets Integration and restructuring costs Acquisition related charges |
26.6 (1.2) (0.4) (1.2) |
9.7 (1.5) (1.6) (0.8) |
28.0 (0.3) (0.4) (0.2) |
7.6 – (0.9) – |
8.3 (5.7) – (3.2) |
3.3 (6.1) – (2.0) |
(16.7) – (0.1) – |
(10.7) – (0.3) – |
46.2 (7.2) (0.9) (4.6) |
9.9 (7.6) (2.8) (2.8) |
|
| Operating profit/(loss) Net finance expense Taxation Profit/(loss) for the year |
23.8 | 5.8 | 27.1 | 6.7 | (0.6) | (4.8) | (16.8) | (11.0) | 33.5 (3.9) (3.7) 25.9 |
(3.3) (4.4) 2.4 (5.3) |
|
| Segment assets Unallocated assets Cash and cash equivalents Non-current tax assets Current tax assets Deferred tax assets |
186.6 | 124.3 | 101.7 | 86.2 | 98.2 | 72.5 | 2.7 11.0 3.0 4.7 33.1 |
0.8 17.3 – 8.9 24.6 |
389.2 11.0 3.0 4.7 33.1 |
283.8 17.3 – 8.9 24.6 |
|
| Total assets | 441.0 | 334.6 | |||||||||
| Segment liabilities Interest-bearing loans and borrowings Unallocated liabilities Bank overdrafts Current tax liabilities Deferred tax liabilities |
57.1 0.6 |
34.2 0.6 |
37.9 – |
32.7 – |
18.8 0.4 |
13.1 0.4 |
6.6 121.8 3.1 16.0 4.8 |
1.6 90.4 0.5 9.7 6.0 |
120.4 122.8 3.1 16.0 4.8 |
81.6 91.4 0.5 9.7 6.0 |
|
| Total liabilities | 267.1 | 189.2 | |||||||||
| Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities |
32.2 (49.7) (2.5) |
19.1 (4.8) (3.0) |
30.4 (5.4) (2.0) |
12.2 (4.0) (1.8) |
8.8 (22.6) (1.1) |
6.8 (6.7) (1.2) |
(16.7) – 21.1 |
(13.1) – (6.2) |
54.7 (77.7) 15.5 |
25.0 (15.5) (12.2) |
|
| Capital expenditure Property, plant and equipment Software and development costs |
6.8 2.9 |
2.2 2.6 |
3.4 1.1 |
2.6 1.5 |
0.6 6.9 |
0.3 6.5 |
– – |
– – |
10.8 10.9 |
5.1 10.6 |
(1) Inter-segment pricing is determined on an arm's length basis. These are eliminated in the Corporate column.
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.
One customer (2020: one) accounted for more than 10% of external revenue. In 2021, the total revenue from this customer, which was recognised in all three segments, was £50.4 million (2020: £33.3 million).
| 2021 £m |
2020 £m |
|
|---|---|---|
| Analysis of operating expenses | ||
| – Charges associated with acquisition of businesses and other adjusting items(1) | 12.6 | 11.8 |
| – Other administrative expenses | 57.6 | 47.3 |
| Administrative expenses | 70.2 | 59.1 |
| Marketing, selling and distribution costs | 49.5 | 41.2 |
| Research, development and engineering costs | 19.9 | 15.0 |
| Operating expenses | 139.6 | 115.3 |
(1) Total charges associated with acquisition of businesses and other adjusting items are £12.7 million (2020: £13.2 million) of which £12.6 million (2020: £11.8 million) are recognised in operating expenses and £0.1 million (2020: £1.4 million) in cost of sales. See note 2.2 "Charges associated with acquisition of businesses and other adjusting items".
| 2021 £m |
2020 £m |
|
|---|---|---|
| The following items are included in operating profit | ||
| Fees payable to Deloitte for the audit of the Company's financial statements | 0.6 | 0.2 |
| Fees payable to Deloitte for: | ||
| – The audit of the subsidiaries(1) | 0.7 | 0.5 |
| – Audit-related assurance services | 0.1 | 0.1 |
(1) This amount is a corrected figure from the disclosure in the Annual Report and Accounts 2020 which was previously reported as £0.7 million.
The Group presents APMs in addition to its statutory results. These are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority ("ESMA").
APMs used by the Group and, where relevant, a reconciliation to statutory measures are set out in the glossary to these financial statements on pages 201 to 203. Adjusting items are described below along with more detail of the specific adjustment and the Group's rationale for the adjustment.
The Group's key performance measures, such as adjusted operating profit, exclude charges associated with acquisition of businesses and other adjusting items.
Adjusting items are split between charges associated with acquisition of businesses and other adjusting items. On this basis, the following are the Group's principal adjusting items when determining adjusted operating profit:
Acquired intangibles are measured at fair value, which takes into account the future cash flows expected to be generated by the asset rather than past costs of development. Additionally, acquired intangibles include assets such as brands, know-how and relationships which the Group would not normally recognise as assets outside of a business combination. The amortisation of the fair value of acquired intangibles is not considered to be representative of the normal costs incurred by the business within the Group on an ongoing basis. On an ongoing basis, the Group capitalises development costs of intangible assets and the costs of purchasing software. These intangible assets are recognised at cost and the amortisation of these costs are included in adjusted operating profit.
As part of the accounting for business combinations, the Group measures acquired inventory at fair value as required under IFRS 3. This results in the carrying value of acquired inventory being higher than its original cost-based measure. The impact of the uplift in value has the effect of increasing cost of sales thereby reducing the Group's gross profit margin which is not representative of ongoing performance.
Upfront borrowing fees related to funding for acquisitions do not reflect the ongoing funding cost of the investment and so are adjusted to ensure consistency between periods.
Transaction costs related to the acquisition of a business do not reflect its trading performance and so are adjusted to ensure consistency between periods.
Under IFRS 3, most of the Group's earnouts are treated as post combination remuneration, although the levels of remuneration generally do not reflect market rates and do not get renewed as a salary (or other remuneration) might. The Group considers this to be inconsistent with the economics reflected in the deals because other consideration for the acquisition is effectively included in goodwill rather than in the Income Statement. Retention agreements are generally entered into with key management at the point of acquisition to help ensure an efficient integration.
For an acquired business, the costs of integration, such as termination of third-party distributor agreements, severance and other costs included in the business's defined integration plan, do not reflect the business's trading performance and so are adjusted to ensure consistency between periods.
In addition to the above, the current and deferred tax effect of adjusting items are taken into account in calculating post-tax APMs. In addition, the following are treated as adjusting items when considering post-tax APMs:
The APMs reflect how the business is measured and managed on a day-to-day basis including when setting and determining the variable element of remuneration of senior management throughout the Group (notably cash bonus and the Long Term Incentive Plan ("LTIP") described in more detail on pages 187 to 188).
Adjusted operating profit, adjusted profit before tax and adjusted profit after tax are not defined terms under IFRS and may not be comparable with similarly titled profit measures reported by other companies. They are not intended to be a substitute for IFRS measures. All APMs relate to the current year results and comparative periods where provided.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Amortisation of acquired intangible assets(4) | (7.2) | (7.6) |
| Integration and restructuring costs(1) (4) | (0.9) | (2.8) |
| Acquisition related charges(2) (4) | (4.6) | (2.8) |
| Charges associated with acquisition of businesses and other adjusting items | (12.7) | (13.2) |
| Finance expense – amortisation of loan fees on borrowings for acquisitions(3) (4) | (0.1) | – |
| Charges associated with acquisition of businesses and other adjusting items, including finance expense | (12.8) | (13.2) |
(1) Restructuring costs were mainly incurred in the Imaging Solutions and Production Solutions Divisions. In 2019, the Imaging Solutions Division began a strategic project to rebalance the allocation of resources from offline to online to enable growth, reduce operating costs and improve margins. The costs incurred in 2021 in relation to this project are mainly recruitment costs of £0.2 million (2020: £0.2 million) and professional fees of £0.3 million (2020: £0.3 million) including legal, tax and strategic consulting. In 2021, the Production Solutions Division incurred £0.4 million of integration costs in relation to the acquisition of Quasar. In 2020, the Production Solutions Division rationalised its cost base which resulted in redundancy costs of £0.9 million. All restructuring and integration costs in 2021 have been recognised in operating expenses.
(2) Acquisition related charges comprise the effect of fair valuation of acquired inventory of £0.1 million (2020: £0.9 million), earnout charges and retention bonuses of £2.8 million (2020: £1.9 million), and transaction costs relating to the acquisition of businesses of £1.7 million (2020: £nil).
The fair value uplift of £0.1 million (2020: £0.9 million) relating to acquired inventory sold or impaired by the Group since the business combination was adjusted from cost of sales. The earnout and retention payment charge of £2.8 million (Quasar: £0.1 million, Lightstream: £2.6 million and Savage: £0.1 million) relates to continued employment. The charge incurred in 2020 was £1.9 million (Rycote: £0.8 million and Amimon: £1.1 million) and related both to continued employment and satisfaction of certain non-financial targets in relation to Rycote.
In 2021, transaction costs of £1.7 million (Quasar: £0.1 million, Lightstream: £0.5 million, Savage: £0.7 million and Audix: £0.4 million) were incurred in relation to acquisitions.
(3) Amortisation of loan fees of £0.1 million (2020: £nil) relating to borrowings for acquisitions was adjusted from net finance expense.
(4) See note 2.5 "Earnings per share" for tax relating to this.
This note details the finance income and expense generated from the Group's financial assets and liabilities.
Net finance expense comprises:
| 2021 £m |
2020 £m |
|
|---|---|---|
| Finance income | ||
| Net currency translation gains | 0.5 | 0.6 |
| Finance expense | ||
| Other interest payable | – | (0.1) |
| Unwind of discount on liabilities | – | (0.1) |
| Interest expense on lease liabilities | (1.0) | (0.8) |
| Interest expense on interest-bearing loans and borrowings(1) | (3.3) | (3.9) |
| Interest expense on net defined benefit pension scheme(2) | (0.1) | (0.1) |
| (4.4) | (5.0) | |
| Net finance expense | (3.9) | (4.4) |
(1) Interest expense on interest-bearing loans and borrowings of £3.3 million includes an amount of £0.1 million relating to amortisation of loan fees on borrowings for acquisitions. See note 2.2 "Charges associated with acquisition of businesses and other adjusting items".
(2) See note 5.2 "Pensions".
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.
The tax expense in the Income Statement represents the sum of current 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:
Tax – Income Statement
| 2021 £m |
2020 £m |
|
|---|---|---|
| The total taxation charge/(credit) in the Income Statement is analysed as follows: | ||
| Summarised in the Income Statement as follows | ||
| Current tax | 11.4 | 2.1 |
| Deferred tax | (7.7) | (4.5) |
| 3.7 | (2.4) | |
| Charges associated with acquisition of businesses and other adjusting items | ||
| Current tax(1) | (0.2) | (0.1) |
| Deferred tax(2) | (6.4) | (3.7) |
| (6.6) | (3.8) | |
| Before charges associated with acquisition of businesses and other adjusting items | ||
| Current tax | 11.6 | 2.2 |
| Deferred tax | (1.3) | (0.8) |
| 10.3 | 1.4 |
(1) Current tax credit of £0.2 million (2020: £0.1 million credit) was recognised in the year of which £0.2 million credit (2020: £0.6 million credit) relates to restructuring and integration costs and £nil (2020: £0.5 million charge) relates to tax on the acquisition and disposal of businesses.
(2) A deferred tax credit of £6.4 million (2020: £3.7 million credit) was recognised in the year of which £nil (2020: £nil) relates to restructuring and integration costs, £1.5 million credit (2020: £0.2 million credit) to acquisitions, £1.8 million credit (2020: £2.3 million credit) to amortisation of intangible assets, £nil (2020: £1.2 million credit) to the impact of the US Cares Act, £2.6 million credit (2020: £nil) to the impact of an intercompany debt restructure, £0.9 million credit (2020: £nil) to the impact of the step-up in the tax base of certain plant and equipment in Italy and £0.4 million charge (2020: £nil) to the UK rate change from 19% to 25%.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Current tax expense/(credit) | ||
| Charge for the year | 8.5 | 2.1 |
| Adjustments in respect of prior years | 2.9 | – |
| Total current tax expense | 11.4 | 2.1 |
The UK current tax charge represents a charge of £4.0 million (2020: £1.0 million charge) of the total Group current tax charge of £11.4 million (2020: £2.1 million) charge, with the remaining £7.4 million (2020: £1.1 million) charge relating to overseas tax.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Deferred tax expense/(credit) | ||
| Origination and reversal of temporary differences | (7.5) | (4.2) |
| Adjustments in respect of prior years | (0.2) | (0.3) |
| Total deferred tax credit | (7.7) | (4.5) |
The UK deferred tax charge represents £0.3 million (2020: £1.0 million charge) and the US deferred tax credit represents £4.8 million (2020: £3.9 million credit) of the total Group deferred tax credit of £7.7 million (2020: £4.5 million credit), with £3.2 million credit (2020: £1.6 million credit) relating to overseas tax.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Tax (credit)/charge recognised in Statement of Changes in Equity ("SOCIE") | ||
| Current tax recognised in SOCIE(3) | – | – |
| Deferred tax recognised in SOCIE(4) | (0.3) | 0.7 |
| (0.3) | 0.7 |
(3) No current tax deductions have been reflected in the SOCIE in both the current and prior year.
(4) A deferred tax credit of £0.3 million (2020: £0.7 million charge) relating to the impact of share-based payments on outstanding options, has been reflected in the SOCIE.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Profit/(loss) before tax | 29.6 | (7.8) |
| Income tax using the domestic corporation tax rate at 19% (2020: 19%) | 5.6 | (1.5) |
| Effect of tax rates in foreign jurisdictions | 1.1 | – |
| Non-deductible expenses | 0.6 | 1.0 |
| Non-taxable income | (1.4) | (0.8) |
| Beneficial tax rates and incentives(5) | (0.5) | (0.4) |
| Movement on unrecognised deferred tax | (0.7) | (0.5) |
| Other – including movement on assessment of tax risks | (0.6) | 0.1 |
| UK rate change | 0.4 | (0.3) |
| Intercompany debt restructure | (2.6) | – |
| Italy fixed asset revaluation | (0.9) | – |
| Adjustments in respect of prior years | 2.7 | – |
| Total income tax expense in Income Statement | 3.7 | (2.4) |
(5) The beneficial tax rates and incentives of £0.5 million credit (2020: £0.4 million credit) relates to the beneficial tax rate in Costa Rica.
The current tax liability of £16.0 million (2020: £9.7 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 £4.7 million (2020: £8.9 million) relates to income tax receivable in the UK, the US and Italy, and includes a provision in relation to uncertain tax positions.
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 Co-operation and Development ("OECD"). In light of this, the Group has been monitoring developments and continues to engage transparently with the tax authorities in countries where the Group operates, to ensure that it 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.
The non-current tax asset of £3.0 million relates to the payment made on account to HMRC in 2021 which is considered to be recoverable in more than one year. Further details are below.
In October 2017, the European Commission (EC) opened a State Aid investigation into the Group Financing Exemption in the UK controlled foreign company ("CFC") rules (an exemption introduced into the UK tax legislation in 2013). While the Group has complied with all the requirements of UK tax law, in April 2019 the EC confirmed its view that some (but not all) of the UK exemptions constituted State Aid and that it would therefore require the UK to assess and recover the amount of State Aid that each affected taxpayer had received. In common with other UK-based international companies whose intra-group finance arrangements are in line with current controlled foreign company rules, Vitec is affected by this decision.
In June 2019, the UK government submitted an appeal to the EU Commission against its decision. In common with a number of other affected taxpayers, Vitec has also filed its own annulment application.
On 8 March 2021, the Group received a revised Charging Notice from HMRC under the Taxation (Post-transition Period) Bill Act 2020 for £2.9 million (plus interest of £0.1 million), which was paid in March 2021. The Group has appealed the Charging Notice (this is in addition to the annulment application which was made against the EC decision). As the statutory window for issuing the Charging Notice under the provisions of the Taxation (Post-transition Period) Act 2020 has now passed, and no further Charging Notices were received by the Group, the Group's maximum potential liability is considered to be £3.0 million, being the liability per the Charging Notice plus interest received on 8 March 2021. As the Group considers that the annulment application and/or the appeal against the Charging Notice will be successful, the £3.0 million payment has been recognised as a non-current asset on the basis that it will be repaid in due course. As at the date of issue of these financial statements, the annulment application and the appeal against the Charging Notice are still in progress.
| 2021 £m |
Recognised in income £m |
Recognised in goodwill and reserves £m |
Exchange movements £m |
Transfer between categories £m |
2020 £m |
|
|---|---|---|---|---|---|---|
| Assets | ||||||
| Inventories | 2.6 | 0.6 | – | – | – | 2.0 |
| Intangible assets | 1.1 | 0.5 | 0.6 | – | (0.8) | 0.8 |
| Tax losses | 19.7 | 2.6 | 2.0 | 0.1 | – | 15.0 |
| Property, plant, equipment and other | 9.7 | 3.6 | (0.6) | (0.1) | – | 6.8 |
| 33.1 | 7.3 | 2.0 | – | (0.8) | 24.6 | |
| Liabilities | ||||||
| Property, plant, equipment and other | (0.3) | (0.2) | – | – | – | (0.1) |
| Intangible assets | (4.5) | 0.6 | – | – | 0.8 | (5.9) |
| (4.8) | 0.4 | – | – | 0.8 | (6.0) | |
| Net | 28.3 | 7.7 | 2.0 | – | – | 18.6 |
| 2020 £m |
Recognised in income £m |
Recognised in goodwill and reserves £m |
Exchange movements £m |
Transfer between categories £m |
2019 £m |
|
|---|---|---|---|---|---|---|
| Assets | ||||||
| Inventories | 2.0 | (0.9) | – | 0.1 | – | 2.8 |
| Intangible assets | 0.8 | (0.1) | – | – | – | 0.9 |
| Tax losses | 15.0 | 3.7 | – | (0.6) | – | 11.9 |
| Property, plant, equipment and other | 6.8 | 0.3 | 1.0 | 0.1 | – | 5.4 |
| 24.6 | 3.0 | 1.0 | (0.4) | – | 21.0 | |
| Liabilities | ||||||
| Property, plant, equipment and other | (0.1) | – | – | – | – | (0.1) |
| Intangible assets | (5.9) | 1.5 | – | 0.1 | – | (7.5) |
| (6.0) | 1.5 | – | 0.1 | – | (7.6) | |
| Net | 18.6 | 4.5 | 1.0 | (0.3) | – | 13.4 |
The deferred tax assets include £19.7 million which relate to carried forward tax losses in the US consolidated group and Israel. These are historic losses which the Group has concluded will be recoverable based on estimated future taxable income projections.
The UK deferred tax balances as at 31 December 2021 have been remeasured following the legislated increase in the main UK corporation tax rate from 19% to 25% which takes effect from 1 April 2023. The net impact of the rate change was not significant, with a £0.4 million charge recognised in the Consolidated Income Statement and a £0.7 million credit recognised in the SOCIE.
The deferred tax asset increase of £2.0 million (2020: £1.0 million increase) recognised in goodwill and reserves relates to the following: £0.7 million decrease recognised in the SOCIE in relation to defined benefit obligations, £0.3 million increase reflected in the SOCIE in relation to share options and £2.4 million increase recognised in reserves in relation to US acquisitions.
Deferred tax assets have not been recognised of £17.9 million (2020: £21.1 million), comprising £5.9 million in relation to losses, £0.6 million in relation to intangible assets and £11.4 million in relation to other timing differences because it is not sufficiently probable that these assets will be utilised 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 £154.6 million at 31 December 2021 (2020: £158.4 million). As dividends remitted from overseas subsidiaries to the UK should be exempt from additional UK corporation tax, no significant tax charges would be expected.
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 calculated based on adjusted profit and is used by management to set performance targets for employee incentives and to assess performance of the businesses.
The calculation of basic, diluted and adjusted EPS is set out below:
| 2021 £m |
2020 £m |
|
|---|---|---|
| Profit/(loss) for the financial year | 25.9 | (5.3) |
| Add back charges associated with acquisition of businesses and other adjusting items, all net of tax: | ||
| Amortisation of acquired intangible assets, net of tax | 5.4 | 5.3 |
| Integration and restructuring costs, net of tax | 0.7 | 2.2 |
| Acquisition related charges, net of tax | 3.1 | 3.1 |
| Finance expense – amortisation of loan fees on borrowings for acquisitions, net of tax | 0.1 | – |
| Deferred tax credit(1) | (3.1) | (1.2) |
| 6.2 | 9.4 | |
| Adjusted profit after tax | 32.1 | 4.1 |
(1) A deferred tax credit of £3.1 million (2020: £1.2 million) relates to £2.6 million credit (2020: £nil) on the impact of the intercompany debt restructure, £0.9 million credit (2020: £nil) on the impact of the step-up in the tax base of certain plant and equipment in Italy, £0.4 million charge (2020: £nil) to the UK rate change from 19% to 25%, and £nil (2020: £1.2 million credit) to the impact of the US Cares Act.
| Weighted average number of shares '000 |
Adjusted earnings per share | Earnings per share | |||||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||
| Number | Number | pence | pence | pence | pence | ||
| Basic | 45,904 | 45,531 | 69.9 | 9.0 | 56.4 | (11.6) | |
| Dilutive potential ordinary shares | 1,619 | – | (2.4) | 0.0 | (1.9) | – | |
| Diluted | 47,523 | 45,531 | 67.5 | 9.0 | 54.5 | (11.6) |
In 2020, potential ordinary shares were antidilutive for statutory earnings per share but 107,000 shares were dilutive for the purposes of adjusted earnings per share.
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:
3.1 Intangible assets
3.2 Property, plant and equipment
3.3 Working capital
This shows the non-physical assets used by the Group to generate revenues and profits. These assets include the following:
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 CGUs, or groups of CGUs, assessed to be the three segments of the Group, that are anticipated to benefit from the combination. It is not subject to amortisation but is tested annually for impairment. Impairment is determined by assessing the recoverable amount of the segment 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 segment, including both its operating profit and operating cash flow performance. Where the recoverable amount of the segment 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 12 months of the acquisition date where original fair values were determined provisionally. These adjustments are accounted for from the date of acquisition.
Other intangible assets acquired as part of a business combination are shown at fair value at the date of acquisition less accumulated amortisation at the rates indicated below:
| Order backlog | up to 2 years |
|---|---|
| Brand | 3 to 15 years |
| Customer relationships | 3 to 10 years |
| Technology | 3 to 10 years |
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 programs 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.
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. 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.
In accordance with the requirements of IAS 36 "Impairment of Assets", goodwill is allocated to the CGU groups, assessed to be the three segments of the Group, which are expected to benefit from the combination and are identified by the way goodwill is monitored for impairment. The Group's total consolidated goodwill of £99.7 million at 31 December 2021 (£75.8 million at 31 December 2020) is allocated to: Imaging Solutions: £35.1 million (2020: £23.1 million); Production Solutions: £30.2 million (2020: £28.8 million); and Creative Solutions: £34.4 million (2020: £23.9 million). Goodwill allocated to each segment is assessed for impairment annually and whenever there is a specific indicator of impairment.
As part of the annual impairment test review, the carrying value of goodwill has been assessed with reference to value in use over a projected period of five years together with a terminal value. This reflects the projected cash flows of each segment based on the actual operating results, the most recent Board approved budget, the strategy, and management projections.
As part of determining the value in use of each CGU group, management has considered the potential impact of climate change on the business performance over the next five years, and the terminal growth rates. While there is considerable uncertainty relating to the longer term and quantifying the impact on a range of outcomes, management considers that environmental related incremental costs are expected to have a relatively low impact, and in addition, the Group has already started to develop strategies to mitigate them. Recognising that there are extreme but unlikely scenarios, the Group considers that while exposed to physical risks associated with climate change (such as flooding, heatwaves, sea level rises and increased precipitation) the estimated impact of these on the Group is not deemed material. In addition, the Group is exposed to transitional risks which might arise, for example, from government policy, customer expectations, material costs and increased stakeholder concern. The transitional risks could result in financial impacts such as higher environmentally focused levies (e.g. carbon pricing) and increased material costs. While the Group is exposed to the potential financial impacts associated with transitional risks, after expected mitigating actions, these are not deemed to have a significant impact on the headroom of value in use over the carrying values of the CGU groups.
The key assumptions on which the value in use calculations are based relate to (i) business performance over the next five years, (ii) long-term growth rates beyond 2026 and (iii) discount rates applied.
Growth rates for the period beyond 2026 were assumed to be 2.0% for Imaging Solutions and Production Solutions, and 4.0% for Creative Solutions (2020: 0.0% for Imaging Solutions and Production Solutions, and 2.0% for Creative Solutions). The pre-tax discount rates applied to discount the pre-tax cash flows were 13% (2020: 13%) for Imaging Solutions; 11% (2020: 12%) for Production Solutions; and 12% (2020: 13%) for Creative Solutions.
No reasonably possible change of key estimate would result in a material impairment to the goodwill of any CGU group. The following scenarios would be required to result in an impairment of goodwill: the pre-tax WACC would need to increase by c.22% points for Imaging Solutions, c.29% points for Production Solutions; and c.15% points for Creative Solutions.
Intangible assets
| Total £m |
Goodwill £m |
Acquired intangible assets £m |
Software £m |
Capitalised development costs £m |
|
|---|---|---|---|---|---|
| Cost | |||||
| At 1 January 2020 | 211.2 | 76.8 | 86.4 | 17.6 | 30.4 |
| Currency translation adjustments | (2.5) | (0.7) | (2.0) | 0.6 | (0.4) |
| Additions | 10.7 | 0.1 | – | 0.5 | 10.1 |
| Disposals | (0.4) | – | – | (0.4) | – |
| At 31 December 2020 and 1 January 2021 | 219.0 | 76.2 | 84.4 | 18.3 | 40.1 |
| Currency translation adjustments | (1.1) | (0.3) | 0.4 | (0.8) | (0.4) |
| Additions | 10.9 | – | – | 0.8 | 10.1 |
| Disposals | (0.2) | – | – | (0.1) | (0.1) |
| Business combinations | 53.1 | 24.2 | 28.9 | – | – |
| At 31 December 2021 | 281.7 | 100.1 | 113.7 | 18.2 | 49.7 |
| Amortisation and impairment losses At 1 January 2020 Currency translation adjustments Amortisation in the year Disposals |
83.5 (1.1) 13.5 (0.4) |
0.4 – – – |
54.4 (1.5) 7.6 – |
14.3 0.5 1.1 (0.4) |
14.4 (0.1) 4.8 – |
| At 31 December 2020 and 1 January 2021 | 95.5 | 0.4 | 60.5 | 15.5 | 19.1 |
| Currency translation adjustments | (0.7) | – | 0.3 | (0.7) | (0.3) |
| Amortisation in the year | 13.0 | – | 7.2 | 1.0 | 4.8 |
| Disposals | (0.2) | – | – | (0.1) | (0.1) |
| At 31 December 2021 | 107.6 | 0.4 | 68.0 | 15.7 | 23.5 |
| Carrying amounts At 1 January 2020 |
127.7 | 76.4 | 32.0 | 3.3 | 16.0 |
| At 31 December 2020 and 1 January 2021 | 123.5 | 75.8 | 23.9 | 2.8 | 21.0 |
| At 31 December 2021 | 174.1 | 99.7 | 45.7 | 2.5 | 26.2 |
The carrying value of individually material acquired intangible assets is £5.2 million (2020: £7.9 million) for software and algorithms, £8.9 million (2020: £4.2 million) for trademarks, £3.3 million (2020: £3.8 million) for patents, £16.0 million (2020: £2.9 million) for customer relationships and £7.8 million (2020: £1.6 million) for technology. The remaining amortisation period of these intangible assets is two years for software and algorithms, between ten and eleven years for trademarks, seven years for patents, between seven and nine years for customer relationships and seven years for technology.
This shows the physical assets used by the Group to generate revenues and profits. These assets include the following:
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Rental assets are recorded as plant and machinery. Right-of-use assets under lease contracts are included within property, plant and equipment. See note 3.6 "Leases".
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 | not depreciated |
|---|---|
| Freehold buildings | up to 50 years |
| Leasehold improvements | shorter of estimated useful life or remaining period of the lease |
| Plant and machinery | 4 to 10 years |
| Motor vehicles | 3 to 4 years |
| Equipment, fixtures and fittings | 3 to 10 years |
| Rental assets | 3 to 6 years |
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.
| Total £m |
Land and buildings £m |
Plant, machinery and vehicles £m |
Equipment, fixtures and fittings £m |
|
|---|---|---|---|---|
| Cost | ||||
| At 1 January 2020(1) | 142.6 | 57.5 | 76.4 | 8.7 |
| Currency translation adjustments | 3.1 | 0.7 | 2.3 | 0.1 |
| Transfers between asset categories | – | 0.1 | (0.7) | 0.6 |
| Additions | 8.8 | 3.2 | 5.1 | 0.5 |
| Disposals | (5.8) | (4.6) | (1.1) | (0.1) |
| At 31 December 2020 and 1 January 2021 | 148.7 | 56.9 | 82.0 | 9.8 |
| Currency translation adjustments | (4.7) | (1.2) | (3.1) | (0.4) |
| Transfers between asset categories | – | 0.1 | 0.1 | (0.2) |
| Additions | 26.5 | 15.4 | 9.6 | 1.5 |
| Disposals | (3.4) | (1.2) | (1.5) | (0.7) |
| Business combinations | 6.2 | 4.6 | 1.6 | – |
| At 31 December 2021 | 173.3 | 74.6 | 88.7 | 10.0 |
| Depreciation | ||||
| At 1 January 2020(1) | 95.9 | 31.5 | 58.7 | 5.7 |
| Currency translation adjustment | 2.6 | 0.5 | 1.9 | 0.2 |
| Transfers between asset categories | – | 0.1 | (0.3) | 0.2 |
| Depreciation charge in the year | 13.1 | 5.9 | 5.9 | 1.3 |
| Impairment losses in the year | 0.6 | – | 0.6 | – |
| Disposals | (5.7) | (4.6) | (1.0) | (0.1) |
| At 31 December 2020 and 1 January 2021 | 106.5 | 33.4 | 65.8 | 7.3 |
| Currency translation adjustment | (3.8) | (1.1) | (2.6) | (0.1) |
| Transfers between asset categories | – | 0.1 | 0.1 | (0.2) |
| Depreciation charge in the year | 12.9 | 5.6 | 6.2 | 1.1 |
| Impairment losses in the year | 0.2 | 0.2 | – | – |
| Disposals | (3.2) | (1.1) | (1.4) | (0.7) |
| At 31 December 2021 | 112.6 | 37.1 | 68.1 | 7.4 |
| Carrying amounts | ||||
| At 1 January 2020(1) | 46.7 | 26.0 | 17.7 | 3.0 |
| At 31 December 2020 and 1 January 2021 | 42.2 | 23.5 | 16.2 | 2.5 |
| At 31 December 2021 | 60.7 | 37.5 | 20.6 | 2.6 |
(1) At 1 January 2020, both cost and depreciation have been increased by £0.6 million (plant, machinery and vehicles: increase of £0.8 million; equipment, fixtures and fittings: decrease of £0.2 million). This relates to a correction of grossed up disposals in prior years.
Plant, machinery and vehicles include equipment rental assets with an original cost of £11.8 million (2020: £11.5 million) and accumulated depreciation of £8.3 million (2020: £7.9 million).
Capital commitments at 31 December 2021 for which no provision has been made in the accounts amount to £nil (2020: £0.5 million).
Working capital represents the assets and liabilities the Group generates through its trading activities. These include inventories, trade and other receivables, and 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.
Inventories and work in progress are carried at the lower of cost and net realisable value. Inventory acquired as part of business combinations is initially measured 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 method. 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 their 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 receivables and contract assets are recognised initially at fair value, and subsequently at amortised cost using the effective interest rate method, less provision for impairment.
A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
The Group applies the IFRS 9 simplified approach to measure expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the number of days past due. The expected loss rates are based on payment profiles of sales over a preceding 36-month period and the corresponding historical credit losses experienced within this period. When appropriate, the historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables where a trend exists.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for an extended period.
When customer payments are received in advance and the amount of consideration exceeds the revenue recognised, a contract liability is recognised in the Balance Sheet.
Trade payables are generally recognised at the value of the invoice received from a supplier.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Raw materials and components | 26.0 | 16.9 |
| Work in progress | 7.4 | 5.1 |
| Finished goods | 55.1 | 42.8 |
| Inventories, net of impairment provisions | 88.5 | 64.8 |
Inventory of £88.5 million (2020: £64.8 million) is stated net of impairment provisions of £18.3 million (2020: £18.2 million). During the year £2.0 million (2020: £6.0 million) was recognised as an expense resulting from the write-down of inventory. A reversal of £1.6 million (2020: £0.5 million) was recognised as a reduction of the amount of inventory recognised as an expense.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Current receivables | ||
| Trade receivables, net of impairment provisions | 43.9 | 40.4 |
| Other receivables | 7.5 | 4.3 |
| Right to returned goods | 0.2 | 0.3 |
| Contract assets | 2.9 | 1.2 |
| Prepayments | 5.5 | 5.5 |
| 60.0 | 51.7 | |
| Non-current receivables | ||
| Other receivables | 5.8 | 1.5 |
| Total receivables | 65.8 | 53.2 |
| 2021 | 2020 | |
| £m | £m | |
| Gross trade receivables – ageing(1) | ||
| Current | 38.5 | 32.6 |
| 1-30 days | 4.6 | 7.3 |
| 31-60 days | 1.4 | 1.3 |
| 61-90 days | 0.7 | 0.3 |
| Over 90 days | 3.7 | 3.4 |
| Gross trade receivables | 48.9 | 44.9 |
(1) Days overdue are measured from the date an invoice was due to be paid.
| Overdue | |||
|---|---|---|---|
| Total | debts | Discounts | |
| £m | £m | £m | |
| Impairment provisions against trade receivables | |||
| Balance at 1 January 2021 | 4.5 | 2.9 | 1.6 |
| Net increase during the year | 1.4 | 0.5 | 0.9 |
| Utilised during the year | (0.8) | (0.3) | (0.5) |
| Currency translation adjustments | (0.1) | (0.1) | – |
| Balance at 31 December 2021 | 5.0 | 3.0 | 2.0 |
| 2021 £m |
2020 £m |
|
|---|---|---|
| Current trade and other payables | ||
| Trade payables | 38.1 | 19.9 |
| Other tax and social security costs | 4.3 | 3.7 |
| Contract liabilities | 2.6 | 2.2 |
| Expected refunds to customers | 0.3 | 0.4 |
| Accruals | 13.7 | 6.7 |
| Other creditors | 17.6 | 11.9 |
| 76.6 | 44.8 | |
| Non-current payables | ||
| Other non-trade payables | 0.4 | – |
| Total payables | 77.0 | 44.8 |
This note outlines how the Group has accounted for businesses that it has acquired.
Acquisitions are accounted for under the acquisition method of accounting. With limited exceptions, identifiable assets acquired and liabilities and contingent liabilities assumed are measured at their fair values at the acquisition date. 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. This process continues as information is finalised, and accordingly the fair values presented in the tables below are provisional amounts. In accordance with IFRS 3, until the assessment is complete the measurement period will remain open up to a maximum of 12 months from the acquisition date so long as information remains outstanding.
The excess of the consideration transferred, any non-controlling interest recognised and the fair value of any previous equity interest in the acquired entity over the fair value of net identifiable assets acquired is recorded as goodwill. Acquisition-related costs are recognised in the Income Statement as incurred in accordance with IFRS 3.
Acquisitions provide opportunities for further development of the Group's activities and create enhanced returns. Such opportunities and the workforces inherent in each of the acquired businesses represent much of the assessed value of goodwill.
On 22 November 2021, the Group acquired 100% of the issued share capital of Savage Universal Corp. and Superior Paper Specialities, LLC ("Savage"), both US companies, for cash consideration of US\$51.0 million (£38.1 million).
Savage has been integrated into the Imaging Solutions Division and is a global market leader in backgrounds for the growing professional studio photographic market. Savage products are highly complementary to the JOBY brand and this acquisition will help to enhance the Group's leading position in the growing vlogger, influencer and gamer market.
The consideration for the acquisition is set out in the table below. At completion, an amount of US\$57.0 million (£42.5 million) was paid by the Group and is subject to customary working capital adjustments. The consideration for the acquisition is also adjusted for receivable amounts in relation to tax-related indemnities covered by payments to escrow accounts. The resulting IFRS 3 consideration was US\$51.0 million (£38.1 million).
Based on the provisional view, the fair value of the net assets acquired in the business at acquisition date was £25.3 million, resulting in goodwill of £12.8 million. The whole amount of goodwill is tax deductible over 15 years and represents the expected synergies from the acquisition and the assembled workforce.
In connection with the acquisition, a retention agreement was entered into with a key employee who was also a selling shareholder. The retention agreement is for a total of US\$1.5 million (£1.1 million) payable half in December 2022 and half in December 2023. The awards are conditional on continued employment at the date of vesting in relation to each payment respectively. This is accounted for as an employee expense in accordance with IAS 19. The associated cost set out in the table below is included with operating costs in the Income Statement.
On 12 April 2021, the Group acquired 100% of the issued share capital of Infiniscene Inc. ("Lightstream"), a US company, for consideration of US\$25.9 million (£18.8 million).
Lightstream has been integrated into the Creative Solutions Division and is a US-based technology company that provides a cloud-based video production and editing Software-as-a-Service ("SaaS") platform to enable content creators to enrich their live video streams. The acquisition is driven by the Group's long-standing strategy to increase its higher technology capabilities and expand its addressable markets.
The consideration for the acquisition is set out in the table below. The initial consideration was satisfied in part by cash of £11.6 million, and the issue of 309,753 ordinary shares of the Company worth £3.6 million based on the published price at date of acquisition. Under the terms of the acquisition, there was a deferred payment of US\$5.0 million (£3.6 million) which was paid in cash during the year.
Based on the provisional view, the fair value of the net assets acquired in the business at acquisition date was £8.7 million, resulting in goodwill of £10.1 million. The goodwill is not tax deductible and represents the expected synergies from the acquisition, assembled workforce and Lightstream's ability to develop new technology in the future.
In connection with the acquisition, retention agreements were entered into with key employees who were also selling shareholders. The retention agreement is for a total of US\$9.0 million (£6.7 million) and includes a share award and a cash bonus which each vest over a three-year period in equal amounts each year. The awards are conditional on continued employment on the first, second and third anniversaries of the closing date of the acquisition. The cash element of the award is accounted for as an employee expense in accordance with IAS 19 and the share element a share-based payment in accordance with IFRS 2. The associated cost set out in the table below is included with operating costs in the Income Statement.
On 5 April 2021, the Group acquired the trade and net assets of Quasar Science LLC ("Quasar"), a US company, through a business combination for consideration of US\$1.9 million (£1.4 million).
Quasar has been integrated into the Production Solutions Division and is a motion picture LED lighting manufacturer that was founded in Los Angeles in 2012 by a group of I.A.T.S.E. Local 728 Studio Electrical Lighting Technicians with over 100 years combined expertise in lighting movie sets. Quasar products are highly complementary to the Litepanels brand and this acquisition will help to enhance the Group's leading position in the growing LED lighting market.
The consideration for the acquisition is set out in the table below. As part of the consideration for the acquisition, a contingent consideration agreement was entered into for which there are three potential payments over three years, due in April 2022, April 2023 and April 2024. The payments are determined based on whether predefined performance measures are met in each of the three years. There is no minimum payment, but the maximum cumulative payment is capped at US\$2.75 million. The fair value of contingent consideration at acquisition date was US\$0.1 million (£0.1 million).
Based on the provisional view, the fair value of the net liabilities acquired in the business at acquisition date was £0.1 million, resulting in goodwill of £1.3 million. The whole amount of goodwill is tax deductible over 15 years and represents the expected synergies from the acquisition, assembled workforce and Quasar's ability to develop new technology in the future.
In connection with the acquisition, retention agreements were entered into with key employees who were also the previous owners. The retention agreements are for a total of US\$1.0 million (£0.7 million) which vest over a three-year period. The awards are conditional on continued employment on the first, second and third anniversaries of the closing date of the acquisition. The awards are accounted for as an employee expense in accordance with IAS 19, and the associated cost set out in the table below is included with operating costs in the Income Statement.
A summary of the acquisitions is detailed below:
| Savage £m |
Lightstream £m |
Quasar £m |
Total £m |
|
|---|---|---|---|---|
| Fair value of net assets acquired | ||||
| Intangible assets | 19.2 | 8.8 | 0.9 | 28.9 |
| Property, plant and equipment | 5.7 | – | 0.5 | 6.2 |
| Inventories | 2.4 | – | 0.4 | 2.8 |
| Trade and other receivables | 3.7 | 0.1 | 0.1 | 3.9 |
| Cash | 2.5 | 0.1 | – | 2.6 |
| Lease liabilities | (4.2) | – | (0.3) | (4.5) |
| Trade and other payables | (2.0) | (0.7) | (1.3) | (4.0) |
| Provisions | (1.9) | – | (0.1) | (2.0) |
| Corporation tax | (2.3) | – | – | (2.3) |
| Deferred tax | 2.2 | 0.4 | (0.1) | 2.5 |
| 25.3 | 8.7 | 0.1 | 34.1 | |
| Goodwill | 12.8 | 10.1 | 1.3 | 24.2 |
| Total purchase consideration | 38.1 | 18.8 | 1.4 | 58.3 |
| Issue of ordinary shares | – | (3.6) | – | (3.6) |
| Receivable from escrow | 4.2 | – | – | 4.2 |
| Provision for contingent consideration | – | – | (0.1) | (0.1) |
| Purchase price adjustment receivable/(payable) | 0.2 | – | (0.3) | (0.1) |
| Cash payment | 42.5 | 15.2 | 1.0 | 58.7 |
| Cash acquired | (2.5) | (0.1) | – | (2.6) |
| Total outflow of cash | 40.0 | 15.1 | 1.0 | 56.1 |
Charges associated with the acquisition of businesses include transaction costs relating to the acquisition of businesses of £1.7 million (Audix: £0.4 million, Savage: £0.7 million, Lightstream: £0.5 million and Quasar: £0.1 million) and earnout charges and retention bonuses of £2.8 million (Savage: £0.1 million, Lightstream: £2.6 million and Quasar: £0.1 million).
The trade receivables acquired had a fair value and a gross contractual value of £3.6 million. All contractual cash flows at acquisition date are expected to be collected.
The results of the acquisitions made during the year included in the Group's consolidated results comprise the following:
| Savage £m |
Lightstream £m |
Quasar £m |
Total £m |
|
|---|---|---|---|---|
| Revenue | 1.8 | 1.5 | 1.6 | 4.9 |
| Loss | (0.7) | (5.2) | (2.2) | (8.1) |
Had the acquisitions been made at the beginning of the year (i.e. 1 January 2021), they would have made the following contribution to the Group:
| Savage | Lightstream | Quasar | Total | |
|---|---|---|---|---|
| £m | £m | £m | £m | |
| Revenue | 18.4 | 2.2 | 2.2 | 22.8 |
| Loss | (0.1) | (5.9) | (2.5) | (8.5) |
The level of profitability is stated after charges associated with acquisition of businesses.
On 11 January 2022, the Group acquired 100% of the issued share capital of Audix LLC ("Audix"), a US company, for an initial cash consideration of US\$45.7 million (£33.8 million), and subject to customary working capital adjustments. Under the terms of the acquisition, there is a deferred consideration payable in 2023 of US\$2.0 million (£1.5 million). In addition, a potential payment of up to US\$2.3 million (£1.7 million) in relation to contingent consideration could be payable which is outside of the control of the Group, the fair value of which has not yet been assessed.
In connection with the acquisition, a retention agreement was entered into with key employees. The retention agreement is for a total of US\$3.1 million (£2.3 million) conditional on continued employment and payable in 2023. This is accounted for as an employee expense in accordance with IAS 19.
Audix has been integrated into the Imaging Solutions Division and it designs, engineers and manufactures high-performing, innovative microphones for the professional audio industry. Audix products are highly complementary to the JOBY and Rycote brands and this acquisition will help to enhance the Group's leading position in the growing audio market. This acquisition is in line with the Group's strategy to drive growth by increasing its addressable markets and expanding its higher technology capabilities.
At the time the financial statements were authorised for issue, the initial accounting for the business combination was incomplete as information is being finalised to enable valuations to be performed, and accordingly, the Group is unable to disclose any provisional fair values for major classes of assets and liabilities, including acquired receivables, the fair value of the receivables, the gross contractual amounts receivable and contractual cash flows not expected to be collected at the acquisition date.
Acquired net assets have a provisional value of US\$8.1 million (£6.0 million) prior to fair value adjustments and the recognition of IFRS 16 right-of-use assets and lease liabilities. This reflects the net assets of Audix as at 31 December 2021, as disclosed in its most recent financial information. The remaining £29.3 million is expected to be allocated between goodwill and other intangible assets.
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.
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.
| Total £m |
Warranty £m |
Restructuring £m |
Earnout and deferred payments £m |
Tax-related provisions £m |
Other £m |
|
|---|---|---|---|---|---|---|
| At 1 January 2021 | 4.7 | 1.8 | 0.8 | 1.2 | – | 0.9 |
| Business combinations | 2.1 | – | – | 0.1 | 1.9 | 0.1 |
| Provisions made in the year | 0.4 | 0.4 | – | – | – | – |
| Provisions utilised during the year | (2.6) | (0.7) | (0.6) | (1.2) | – | (0.1) |
| Provisions reversed during the year | (0.1) | (0.1) | – | – | – | – |
| Currency translation adjustments | (0.1) | – | – | – | – | (0.1) |
| At 31 December 2021 | 4.4 | 1.4 | 0.2 | 0.1 | 1.9 | 0.8 |
| Current | 1.5 | 1.0 | 0.2 | – | – | 0.3 |
| Non-current | 2.9 | 0.4 | – | 0.1 | 1.9 | 0.5 |
| 4.4 | 1.4 | 0.2 | 0.1 | 1.9 | 0.8 |
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.
The restructuring provision is expected to be utilised during 2022.
The fair value of contingent consideration for Quasar, at acquisition date was US\$0.1 million (£0.1 million). Payment of £1.2 million was made during the year relating to Rycote (£1.1 million) and Amimon (£0.1 million).
On acquisition of Savage, the Group recognised a provision of £1.9 million for a tax-related contingent liability which is not in the scope of IAS 12 "Income Taxes". As part of the acquisition agreement, the Group obtained indemnities from the sellers and an amount of the potential consideration was transferred to an escrow account. If the contingent liability were to crystallise, the expected timing of the outflow is between one and six years. The amount of any payment would be recoverable by the Group under the escrow and indemnity arrangements, and as such, the Group has also recognised a corresponding receivable of £1.9 million included in trade and other receivables.
Other provisions include an amount of £0.7 million relating to potential dilapidation costs on the termination of leases on occupied property that the Group has entered into.
This note provides information in relation to leases when the Group is a lessee. The Group does not have any material leases where it acts as a lessor.
Each lease is recognised as a right-of-use asset with a corresponding liability at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis. Interest expense is charged to the Consolidated Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
For the Group, lease payments generally comprise the following:
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Generally, the interest rate implicit in the lease is not readily determinable, as such the incremental borrowing rate is used to discount future lease payments.
Right-of-use assets are measured at cost comprising the amount of the initial measurement of the lease liability, and lease payments made at or before the commencement date less any lease incentives received, any initial direct costs, and restoration costs.
When an adjustment to lease payments based on an index takes effect, the liability is remeasured with a corresponding adjustment to the right-of-use asset.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the Consolidated Income Statement.
The Group enters into leases of land and buildings in relation to offices, warehouses and factory premises around the world. In addition, the Group leases plant, machinery and vehicles, as well as other equipment.
Contracts entered into by the Group have a wide range of terms and conditions but generally do not impose any additional covenants. Several of the Group's contracts include indexation adjustments to lease payments in future periods which are not reflected in the measurement of the lease liabilities at 31 December 2021.
Many of the contracts entered into by the Group include extension or termination options which provide the Group with additional operational flexibility. If the Group considers it reasonably certain that an extension option will be exercised or a termination option not exercised, the additional period is included in the lease term. Generally, extension options are not included in the lease term for plant, machinery and vehicles, and equipment, fixtures and fittings. Most options in respect of land and buildings are not included in the calculation of the lease term.
During 2021, the financial effect of revising lease terms arising from the effect of exercising extension and termination options was an increase of £2.9 million in the recognised lease liabilities.
As at 31 December 2021, potential future cash outflows of £7.3 million (undiscounted) have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated).
A maturity analysis of lease liabilities is included in note 4.2 "Financial instruments".
Right-of-use assets
| Leasehold | Plant, | Equipment, | ||
|---|---|---|---|---|
| Total | land and buildings |
machinery and vehicles |
fixtures and fittings |
|
| £m | £m | £m | £m | |
| Cost | ||||
| At 1 January 2020 | 34.9 | 32.0 | 2.8 | 0.1 |
| Currency translation adjustments | 0.3 | 0.2 | 0.1 | – |
| Additions | 3.7 | 3.1 | 0.6 | – |
| Termination of leases | (5.5) | (4.7) | (0.8) | – |
| Transfers between asset categories | – | 0.1 | (0.7) | 0.6 |
| At 31 December 2020 | 33.4 | 30.7 | 2.0 | 0.7 |
| At 1 January 2021 | 33.4 | 30.7 | 2.0 | 0.7 |
| Currency translation adjustments | (0.6) | (0.5) | (0.1) | – |
| Additions | 15.7 | 14.8 | 0.9 | – |
| Termination of leases | (2.0) | (1.1) | (0.8) | (0.1) |
| Transfers between asset categories | – | 0.1 | (0.1) | – |
| Business combinations | 4.5 | 4.5 | – | – |
| At 31 December 2021 | 51.0 | 48.5 | 1.9 | 0.6 |
| Depreciation | ||||
| At 1 January 2020 Currency translation adjustment |
19.0 0.2 |
17.5 0.1 |
1.5 0.1 |
– – |
| Depreciation charge in the year | 5.6 | 4.8 | 0.6 | 0.2 |
| Depreciation on termination of lease | (5.3) | (4.6) | (0.7) | – |
| Transfers between asset categories | – | 0.1 | (0.3) | 0.2 |
| At 31 December 2020 | 19.5 | 17.9 | 1.2 | 0.4 |
| At 1 January 2021 | 19.5 | 17.9 | 1.2 | 0.4 |
| Currency translation adjustments | (0.5) | (0.3) | (0.2) | – |
| Depreciation charge in the year | 5.4 | 4.6 | 0.6 | 0.2 |
| Depreciation on termination of lease | (1.9) | (1.1) | (0.7) | (0.1) |
| Transfers between asset categories | – | 0.1 | (0.1) | – |
| At 31 December 2021 | 22.5 | 21.2 | 0.8 | 0.5 |
| Carrying amounts | ||||
| At 1 January 2020 | 15.9 | 14.5 | 1.3 | 0.1 |
| At 31 December 2020 and 1 January 2021 | 13.9 | 12.8 | 0.8 | 0.3 |
| At 31 December 2021 | 28.5 | 27.3 | 1.1 | 0.1 |
Total cash outflow for leases is £6.7 million (2020: £6.6 million) of which £1.0 million (2020: £0.8 million) relates to interest and £5.7 million (2020: £5.8 million) to principal lease repayments.
The Income Statement includes an amount of £nil (2020: £0.2 million) relating to short-term leases and £nil (2020: £nil) relating to leases of low-value assets.
The Group is committed to one lease agreement not yet commenced as at 31 December 2021. The total expected lease liability for these agreements is approximately £2.9 million.
This section outlines the Group's capital structure. The Group defines its capital structure as its equity and non-current interestbearing 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 its capital 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 its capital structure, it may return capital to shareholders, through dividends and share buybacks, 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
The Group's net debt comprises the following:
Cash and cash equivalents in the Balance Sheet represents cash on hand and at banks.
Cash and cash equivalents in the Statement of Cash Flows includes bank overdrafts that are repayable on demand and form an integral part of the Group's cash management.
Interest-bearing 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.
See note 3.6 "Leases".
The table below analyses the Group's components of net debt and their movements in the period:
| Interest bearing loans and borrowings £m |
Leases £m |
Liabilities from financing Sub-total £m |
Other cash and cash equivalents(1) (2) £m |
Total £m |
|
|---|---|---|---|---|---|
| Opening at 1 January 2020 | (96.7) | (18.2) | (114.9) | 18.9 | (96.0) |
| Other cash flows | – | – | – | 8.3 | 8.3 |
| Repayments | 76.9 | 5.8 | 82.7 | (82.7) | – |
| Borrowings | (71.7) | – | (71.7) | 71.7 | – |
| Leases entered into during the year | – | (3.7) | (3.7) | – | (3.7) |
| Leases – early termination | – | 0.2 | 0.2 | – | 0.2 |
| Fees paid | 2.1 | – | 2.1 | – | 2.1 |
| Amortisation of fees | (0.7) | – | (0.7) | – | (0.7) |
| Foreign currency | (1.3) | (0.3) | (1.6) | 0.6 | (1.0) |
| Closing at 31 December 2020 and opening at 1 January 2021 | (91.4) | (16.2) | (107.6) | 16.8 | (90.8) |
| Other cash flows | – | – | – | (37.0) | (37.0) |
| Business combinations | – | (4.5) | (4.5) | 2.6 | (1.9) |
| Repayments | 128.2 | 5.7 | 133.9 | (133.9) | – |
| Borrowings | (160.8) | – | (160.8) | 160.8 | – |
| Leases entered into during the year | – | (15.7) | (15.7) | – | (15.7) |
| Leases – early termination | – | 0.1 | 0.1 | – | 0.1 |
| Fees incurred | 1.3 | – | 1.3 | – | 1.3 |
| Amortisation of fees | (0.7) | – | (0.7) | – | (0.7) |
| Foreign currency | 0.6 | 0.3 | 0.9 | (1.4) | (0.5) |
| Closing at 31 December 2021 | (122.8) | (30.3) | (153.1) | 7.9 | (145.2) |
(1) Other cash and cash equivalents include bank overdrafts of £3.1 million (2020: £0.5 million).
(2) In 2020, net cash repayment of £2.7 million has been reclassified to Other cash flows (£8.3 million), Repayments (£82.7 million) and Borrowings (£71.7 million).
On 14 February 2020, the Group signed a new £165.0 million five-year (with one optional one-year extension) multicurrency RCF with a syndicate of five banks. On 12 November 2021, the Group signed an amendment and restatement agreement to change the underlying benchmark from LIBOR to the relevant risk-free rates (SONIA, SOFR, TONA), due to the cessation of LIBOR on 31 December 2021. In January 2022, the one-year extension was agreed with four syndicate banks resulting in £35.0 million expiring on 14 February 2025 and £130.0 million expiring on 14 February 2026. The Group was utilising 53% of the RCF as at 31 December 2021.
Under the terms of the RCF the Group expects to and has the discretion to roll over the obligation for at least 12 months from the Balance Sheet date, and as a result, these amounts are reported as non-current liabilities in the Balance Sheet.
On 30 April 2020, the Group was confirmed as eligible to issue Commercial Paper under the Bank of England's COVID Corporate Financing Facility ("CCFF") scheme. The Group issued a total of £50.0 million in Commercial Paper under the scheme in 2020. The Group fully repaid the CCFF in March 2021, drawing £50.0 million on the RCF to repay the outstanding balance.
On 14 November 2021, the Group signed a new \$53.0 million (£39.1 million) three-year amortising Term Loan with a syndicate of four banks to facilitate the acquisition of Savage. This facility will expire on 14 November 2024. The Term Loan was fully utilised as at 31 December 2021.
On 7 January 2022, the Group signed a new \$47.0 million (£34.7 million) three-year amortising Term Loan with a syndicate of four banks to facilitate the acquisition of Audix. This facility will expire on 7 January 2025.
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 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. Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates, are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.
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 used to hedge 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 one year at the Balance Sheet date.
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.
The Group's results, which are reported in Sterling, are 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) and Euro (EUR). The Group is exposed to the underlying translational movements which remain outside the control of the Group.
The Group's translational exposures to foreign currency risks relate to both the translation of income and expenses 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.
It is estimated that the Group's adjusted operating profit for the year ended 31 December 2021 would have increased/decreased by approximately £3.0 million (2020: £1.2 million) from a ten cent stronger/weaker US Dollar against Sterling and by approximately £1.8 million (2020: £0.4 million) from a ten cent stronger/weaker Euro against Sterling. This reflects the impact of the sensitivities to the translational exposures and to the proportion of the transactional exposures that are not hedged.
It is estimated that the statutory operating profit for the year ended 31 December 2021 would have increased/decreased by £2.2 million (2020: £0.5 million) from a ten cent stronger/weaker US Dollar against Sterling and by approximately £1.7 million (2020: £0.3 million) from a ten cent stronger/weaker Euro against Sterling.
Interest rate risk comprises the interest cash flow risk that results from borrowing at variable rates.
The Group is exposed to cash flow interest rate risk arising from long-term borrowings bearing variable interest rates. The Group policy is to maintain up to 50% of its borrowings at fixed rate. At 31 December 2021, the Group's variable interest rate borrowings were mainly denominated in Sterling and US Dollars, with 45% of the Group's floating rate debt fixed using floating-to-fixed interest rate swaps.
The borrowings are periodically contractually repriced which exposes the Group to the risk of future changes in market interest rates.
For the year ended 31 December 2021, it is estimated that a general increase of 1% in interest rates would decrease the Group's profit before tax by approximately £0.9 million (2020: £0.8 million) and a general decrease of 1% in interest rates would increase the Group's profit before tax by approximately £0.1 million (2020: £0.8 million).
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group was utilising 53% of the £165.0 million multicurrency RCF as at 31 December 2021. On 14 February 2020, the Group signed a new £165.0 million five-year (with an optional one-year extension) multicurrency RCF with a syndicate of five banks. In January 2022, the one-year extension was agreed with four syndicate banks resulting in £35.0 million expiring on 14 February 2025 and £130.0 million expiring on 14 February 2026.
The Group was utilising 100% of the \$53.0 million (£39.1 million) amortising Term Loan as at 31 December 2021. The loan amortises bi-annually from 30 June 2022 through to maturity on 14 November 2024. Repayments are set as a percentage of the original amount of the Term Loan and the amount repayable at each respective repayment date is as follows: 10%, 15%; 20%, 25%; 15% and 15%.
At the date of signing these financial statements, the Group was also utilising 100% of the \$47.0 million (£34.7 million) amortising Term Loan drawn to finance the acquisition of Audix on 11 January 2022. The loan amortises bi-annually from 30 June 2022 through to maturity on 7 January 2025. Repayments are set as a percentage of the original amount of the Term Loan and the amount repayable at each respective repayment date is as follows: 10%, 15%; 20%, 25%; 15% and 15%.
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.
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. At the Balance Sheet date, one of the Group's largest customers, which has a high credit rating, accounts for 18% of the gross outstanding trade receivables (2020: 16%) which represents a concentration of credit risk.
Credit risk associated with cash balances is managed by transacting with a number of major financial institutions worldwide and periodically reviewing their creditworthiness. Transactions involving derivative financial instruments are managed centrally. These are only with banks that are part of the Group's multicurrency RCF and which have strong credit ratings. Accordingly, the Group's associated credit risk is limited. The Group has no significant concentration of credit risk.
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 interest and 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.
The fair value of interest rate swaps are determined by estimating the market value of that swap 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.
Contracts with derivative counterparties are based on ISDA Master Agreements. Under the terms of these arrangements, only in certain situations will the net amounts owing/receivable to a single counterparty be considered outstanding. The Group does not have the present legal ability to set-off these amounts and so they are not offset in the Balance Sheet. Of the derivative assets and derivative liabilities recognised in the Balance Sheet, an amount of £0.1 million (2020: £nil) would be set-off under enforceable master netting agreements.
The Group classifies its financial instruments depending on the business model for managing the financial assets and their contractual cash flows. Trade receivables and contract assets are measured at amortised cost while derivatives are measured at fair value through profit or loss unless designated in a qualifying hedging relationship.
In accordance with Board-approved policies, the Group uses derivative financial instruments such as forward foreign exchange contracts and interest rate swaps to hedge its exposure to fluctuations in foreign exchange rates and interest rates arising from operational activities. The Group does not hold or use derivative financial instruments for trading or speculative purposes.
Cash flow hedges are used to hedge the variability in cash flows of highly probable forecast transactions caused by changes in foreign currency exchange rates and interest 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 reclassified to 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.
For hedges of foreign currency sales, the Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item and the Group designates the forward exchange rate as the hedged risk. The Group therefore performs a qualitative assessment of effectiveness. In hedges of foreign currency sales, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated, or if there are changes in the credit risk of the Group or the derivative counterparty.
The following table shows the forward exchange contracts in place at the Balance Sheet date. These contracts mature in the next 12 months, therefore the cash flows and resulting effect on profit and loss are expected to occur within the next 12 months.
| Currency | As at 31 December 2021 (millions) |
Average exchange rate of contracts |
As at 31 December 2020 (millions) |
Average exchange rate of contracts |
|
|---|---|---|---|---|---|
| Cash flow hedging contracts | |||||
| USD/GBP forward exchange contracts | USD | 12.1 | 1.35 | 2.5 | 1.34 |
| USD/EUR forward exchange contracts | USD | 16.2 | 1.17 | – | – |
| EUR/GBP forward exchange contracts | EUR | 3.8 | 1.18 | 2.0 | 1.11 |
| JPY/GBP forward exchange contracts | JPY | 93.0 | 156.7 | 140.0 | 139.5 |
| JPY/EUR forward exchange contracts | JPY | 204.0 | 133.4 | 162.0 | 125.7 |
A net gain of £0.1 million (2020: £0.9 million loss) 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.
The table below provides further information on the Group's forward contracts.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Net forward exchange contracts (liability)/asset | (0.3) | 0.1 |
| Recognised in OCI | (0.3) | (1.1) |
| Reclassified from OCI to the Income Statement | (0.1) | 0.9 |
| Maturity dates | January 2022 to December 2022 | January 2021 to June 2021 |
| Hedge ratio | 1:1 | 1:1 |
| Change in value of hedging instruments since 1 January | (0.3) | (1.1) |
| Change in value of the hedged item used to determine hedge effectiveness | 0.3 | 1.1 |
The Group enters into interest rate swaps that have the same critical terms as the hedged item, such as reference rate, reset dates, payment dates, maturities and notional amount. As all critical terms matched during the year, there is an economic relationship.
Hedge ineffectiveness for interest rate swaps is assessed using the same principles as for hedges of foreign currency sales. It may occur due to:
There was no recognised ineffectiveness during 2021 in relation to the interest rate swaps.
The gain or loss relating to the effective portion of the interest rate swaps that are hedging variable rate borrowings is recognised in the Income Statement within net finance expense at the same time as the interest expense on the hedged borrowings.
For interest rate swaps hedging interest rate risk on term loans, the notional amount of interest rate swaps decreases in line with the repayments of the hedged borrowings.
For interest rate swaps on other borrowings, the notional amounts are consistent over the term of the hedging relationship.
The balances and movements into and out of the cash flow hedging reserve are shown in the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Changes in Equity respectively. Amounts reclassified from the cash flow hedging reserve to the Consolidated Statement of Comprehensive Income are included in revenue for foreign currency forward exchange contracts and net finance cost for interest rate swaps.
The table below provides further information on the Group's interest rate swaps:
| 2021 £m |
2020 £m |
|
|---|---|---|
| Interest rate swaps asset/(liability) | 0.1 | – |
| Recognised in Other Comprehensive Income ("OCI") | 0.1 | – |
| Reclassified from OCI to the Income Statement | – | – |
| Some of the Group's swaps amortise in proportion to the loans they provide hedges against. As a result, the following disclosure shows the notional amounts over time. Notional amount |
||
| Notional amount at the end of year 1 | 51.7 | – |
| Notional amount at the end of year 2 and 3 | 37.0 | – |
| Notional amount at the end of year 4 | – | – |
| Maturity dates | January 2023 to January 2025 | n/a |
| Hedge ratio | 1:1 | – |
| Change in value of hedging instruments since 1 January | 0.1 | – |
| Change in value of the hedged item used to determine hedge effectiveness | (0.1) | – |
| Interest rate swap average hedged rate for the year | 0.7% | – |
The Group entered into three floating-to-fixed interest rate swaps in December 2021 totalling £56.6 million (2020: nil). Swaps currently in place cover approximately 45% of the variable loan principal outstanding. The fixed interest rates of the swaps range between 0.6% (USD) and 1.0% (GBP).
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:
Fair value measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
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).
Fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of the Group's financial instruments approximate their fair value. 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 Group's derivative financial instruments are Level 2. The fair value of forward foreign currency exchange derivative financial instruments is determined based on the present value of future cash flows using forward exchange rates at the Balance Sheet date. The fair value of interest rate swap derivative financial instruments is estimated as the present value of the future cash flows based on observable yield curves at the Balance Sheet date.
The Group uses its US Dollar, Euro and Japanese Yen denominated borrowings as a hedge against the translation exposure on the Group's net investment in overseas companies. The Group designates the spot rate of the loans as the hedging instrument. There was no ineffectiveness to be recognised on hedges of net investments in foreign operations.
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.
The table below provides further information on the Group's net investment hedging relationships:
| 2021 £m |
2020 £m |
|
|---|---|---|
| Hedge ratio | 1:1 | 1:1 |
| Change in value of hedging instruments due to foreign currency movements since 1 January | (0.2) | 1.3 |
| Change in value of the hedged item used to determine hedge effectiveness | 0.2 | (1.3) |
The balances and movements into and out of the foreign currency translation reserve are shown in the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Changes in Equity respectively.
The amount in the foreign currency translation reserve in relation to hedge accounting is a loss of £35.1 million (2020: £35.3 million loss) and is split as follows:
The table below analyses the Group's interest-bearing loans and borrowings, including bank overdrafts, by currency:
| Currency | Total £m |
Fixed rate borrowings £m |
Floating rate borrowings £m |
|---|---|---|---|
| US Dollar | 65.0 | – | 65.0 |
| Sterling | 54.1 | – | 54.1 |
| Euro | 6.5 | 0.6 | 5.9 |
| Japanese Yen | 2.4 | – | 2.4 |
| Unamortised fees and transaction costs | (2.1) | – | (2.1) |
| At 31 December 2021 | 125.9 | 0.6 | 125.3 |
| US Dollar | 26.0 | – | 26.0 |
| Sterling | 50.3 | 49.9 | 0.4 |
| Euro | 12.3 | 0.6 | 11.7 |
| Japanese Yen | 4.9 | – | 4.9 |
| Unamortised fees and transaction costs | (1.6) | – | (1.6) |
The floating rate borrowings comprise borrowings bearing interest at rates based on SONIA, SOFR, EURIBOR and TONA for Sterling, US Dollar, Euro and Japanese Yen borrowings respectively.
The floating rate borrowings are repriced between one and three months.
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:
| Carrying amount £m |
Total contractual cash flows £m |
Within one year £m |
From two to five years £m |
Greater than five years £m |
|
|---|---|---|---|---|---|
| 2021 Unsecured interest-bearing loans and borrowings including bank overdrafts(1) Lease liabilities Trade payables Forward exchange contracts outflow |
(125.5) (30.3) (38.1) (0.3) |
(133.5) (34.9) (38.1) (17.8) |
(15.1) (6.7) (38.1) (17.8) |
(118.4) (18.5) – – |
– (9.7) – – |
| Total outflows Forward exchange contracts inflow |
(194.2) – |
(224.3) 17.4 |
(77.7) 17.4 |
(136.9) – |
(9.7) – |
| Net outflows | (194.2) | (206.9) | (60.3) | (136.9) | (9.7) |
| 2020 Unsecured interest-bearing loans and borrowings including bank overdrafts(1) Lease liabilities Trade payables Forward exchange contracts outflow |
(91.5) (16.2) (19.9) – |
(96.7) (18.4) (19.9) (0.7) |
(52.0) (5.2) (19.9) (0.7) |
(44.7) (8.5) – – |
– (4.7) – – |
| Total outflows Forward exchange contracts inflow |
(127.6) – |
(135.7) 0.7 |
(77.8) 0.7 |
(53.2) – |
(4.7) – |
| Net outflows | (127.6) | (135.0) | (77.1) | (53.2) | (4.7) |
(1) This excludes an amount of £0.4 million (2020: £0.4 million) of an interest-bearing liability in relation to a government grant which does not meet the definition of a financial liability.
The Group had the following undrawn borrowing facilities at the end of the year:
| Expiring in: | 2021 £m |
2020 £m |
|---|---|---|
| Less than one year – Uncommitted facilities |
3.4 | 3.6 |
| More than one year but not more than five years – Committed facilities |
77.1 | 122.3 |
| Total | 80.5 | 125.9 |
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 2021 are set out below. The various share-based payment schemes are explained in note 5.3 "Share-based payments".
| Number of shares (thousands) |
Nominal value £m |
|
|---|---|---|
| Issued and fully paid | ||
| At 1 January 2021 | 45,895 | 9.2 |
| Issue of shares | 310 | 0.1 |
| Exercise of share options | 173 | – |
| At 31 December 2021 | 46,378 | 9.3 |
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.
The Group issued 309,753 ordinary shares as part of the consideration for the acquisition of Lightstream. See note 3.4 "Acquisitions".
The consideration received in relation to Sharesave Scheme exercises was £1.5 million.
At 31 December 2021 the following options had been granted and remained outstanding under the Company's share option schemes:
| Number of shares (thousands) |
Exercise prices | Dates normally exercisable |
|
|---|---|---|---|
| UK Sharesave Schemes | 354 | 552p-1280p | 2022-2027 |
| International Sharesave Schemes | 1,211 | 552p-1280p | 2022-2025 |
| 1,565 |
The nature and purpose of other reserves forming part of equity are as follows:
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.
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.
The capital redemption reserve of £1.6 million was created on the repurchase and subsequent cancellation of 885,000 ordinary shares by the Company in 1999.
Retained earnings are the cumulative gains and losses recognised by the Group, not recorded in any of the other reserves. On 12 April 2021, the Company issued 309,753 ordinary shares as part of the consideration for the acquisition of Lightstream. The excess of the fair value of the shares issued over their nominal value was recorded in Retained earnings.
Own shares held by the Company's Employee Benefit Trust are recognised as a deduction from retained earnings. As at 31 December 2021, the Employee Benefit Trust held 314,202 (2020: 55,604) ordinary shares. The Company holds 133,600 (2020: 133,600) shares, of 20p nominal value, in treasury.
The Employee Benefit Trust purchased 95,199 own shares on 7 May 2021 (average price of 1560.00p per share) to be used to satisfy future LTIP and Restricted Share Plan ("RSP") Share Scheme maturities, and 259,800 own shares on 13 August 2021 (average price of 1549.23p per share) to be used to satisfy future Sharesave Scheme maturities under the UK and International Sharesave Schemes.
Dividends are recognised through equity on the earlier of their approval by the Company's shareholders or their payment.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Amounts arising in respect of the year | ||
| Interim dividend for the year ended 31 December 2021 of 11.0p (2020: nil pence) per ordinary share | 5.0 | – |
| Proposed final dividend for the year ended 31 December 2021 of 24.0p (2020: 4.5p) per ordinary share | 11.1 | 2.1 |
| 16.1 | 2.1 | |
| The aggregate amount of dividends paid in the year | ||
| Final dividend for the year ended 31 December 2020 of 4.5p (2019: nil pence) per ordinary share | 2.1 | – |
| Interim dividend for the year ended 31 December 2021 of 11.0p (2020: nil pence) per ordinary share | 5.0 | – |
| 7.1 | – |
This section explains items that are not explained elsewhere in the financial statements.
On the following pages, there are disclosures covering the following:
| 2021 £m |
2020 £m |
|
|---|---|---|
| Employee costs, including Directors' remuneration, comprise: | ||
| Government grants repaid voluntarily/(received) towards employee costs(1) | 1.2 | (2.0) |
| Wages and salaries | 86.6 | 71.3 |
| Redundancy costs | 0.3 | 1.9 |
| Employers' social security costs | 13.3 | 9.9 |
| Employers' pension costs – defined benefit schemes | 0.1 | – |
| Employers' pension costs – defined contribution schemes | 3.4 | 3.2 |
| Other employment benefits | 2.7 | 2.8 |
| Share-based payment charge | 7.9 | 3.7 |
| 115.5 | 90.8 |
(1) This excludes amounts paid directly to employees by governments. There are no unfulfilled conditions or other contingencies attached to this government assistance.
Details of Directors' remuneration and share incentives are disclosed in the Remuneration report.
| 2021 | 2020 | |
|---|---|---|
| Total | Total | |
| Average number of employees during the year | ||
| Imaging Solutions | 866 | 746 |
| Production Solutions | 539 | 508 |
| Creative Solutions | 354 | 289 |
| Head Office | 25 | 26 |
| 1,784 | 1,569 |
This note explains the accounting policies governing the Group's treatment of the pension schemes, followed by an analysis of these 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.
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.
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.
Currently there is neither an actuarial surplus (measured on an IAS 19 "Employee Benefits" basis) nor are there any contributions being made to the UK defined benefit scheme. Therefore IFRIC 14 currently has no impact on the Group's Balance Sheet.
In October 2018, the High Court reached a judgement in relation to Lloyds Bank's defined benefit pension schemes, which concluded that the schemes should equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. The issues arising from the judgement will apply to most other UK defined benefit pension schemes.
In November 2020, the High Court reached a further judgement, which concluded that the schemes should pay uplifts to members who had transferred benefits out in the past (back to 17 May 1990), where those benefits were not equalised in line with the 2018 judgement. The Group has reviewed past transfers out and estimated the impact of this judgement to be highly immaterial and therefore no further liability has been booked.
The total Income Statement charge of the defined contribution schemes for the year ended 31 December 2021 was £3.4 million (2020: £3.2 million). There were no outstanding or prepaid contributions to these plans as at 31 December 2021 (or at 31 December 2020).
The Group's defined benefit schemes are disclosed below:
| 2021 £m |
2020 £m |
|
|---|---|---|
| Amounts recognised on the Group Balance Sheet | ||
| Plan assets | ||
| – Equities | 22.4 | 19.5 |
| – Bonds | 39.1 | 40.4 |
| – Other | 8.7 | 8.8 |
| Total fair value of plan assets | 70.2 | 68.7 |
| Present value of defined benefit obligation | (78.6) | (84.6) |
| Net deficit recognised on the Group Balance Sheet | (8.4) | (15.9) |
| 2021 | 2020 | |
| £m | £m | |
| Analysis of net recognised deficit | ||
| Total funded plan (UK pension scheme) | (4.6) | (11.6) |
| Total unfunded plans (non-UK pension schemes) | (3.8) | (4.3) |
| Liability recognised on the Group Balance Sheet | (8.4) | (15.9) |
| 2021 | 2020 | |
| £m | £m | |
| Amounts recognised in the Group Income Statement | ||
| – Administration costs incurred during the period | 0.2 | 0.2 |
| – Past service gains | (0.1) | (0.2) |
| Included in operating expenses | 0.1 | – |
| Net interest expense on net defined benefit pension scheme liabilities | 0.1 | 0.1 |
| Total amounts charged to the Group Income Statement | 0.2 | 0.1 |
The UK defined benefit pension scheme, being significant, is disclosed below.
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 2019 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 2022 are expected to be £nil. The scheme is subject to all legislation and regulations that apply to UK occupational pension schemes.
The main risk to which the Group is exposed by the scheme is that the cost of the benefits provided by the scheme is greater than expected, for example due to lower than expected investment returns or members of the scheme living longer than expected, which may result in additional contributions being required from the Group.
In accordance with UK trust and pensions law, the pension scheme has a corporate trustee. Although the Group bears the financial cost of the scheme, the responsibility for the management and governance of the scheme lies with the trustee, which has a duty to act in the best interest of members at all times. The assets of the scheme are held in trust by the trustee who consults with the Group on investment strategy decisions.
| 2021 | 2020 | |
|---|---|---|
| Discount rate increased by 0.1% points | –2% | –2% |
| Inflation increased by 0.1% points | +1% | +1% |
| Life expectancy increased by one year | +4% | +4% |
A decrease in the assumptions noted above results in an equal and opposite movement to those disclosed.
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.
| 2021 | 2020 | |
|---|---|---|
| % pa | % pa | |
| Assumptions used by the actuary to value the liability of the defined benefit plan, on 31 December, were: | ||
| Price inflation (RPI) | 3.3 | 2.9 |
| Price inflation (CPI) | RPI less 1% | RPI less 1% |
| pa to 2030, | pa to 2030, | |
| and RPI less | and RPI less | |
| 0.1% pa | 0.1% pa | |
| from 2030 | from 2030 | |
| Life expectancy of male/female aged 65 at Balance Sheet date | 22.2/24.6 | 22.4/24.7 |
| Life expectancy of male/female aged 65 in 2036 | 22.8/25.5 | 23.0/25.6 |
| Pension increase rate (% pa) — Discretionary (pre-6 April 1997 accrual in excess of GMP) |
3.2 | 2.8 |
| — Guaranteed LPI 5% (6 April 1997 – 30 June 2008) | 3.2 | 2.9 |
| — Guaranteed LPI 5%, with 3% floor | 3.4 | 3.3 |
| — Guaranteed LPI 2.5% (accrual from 1 July 2008) | 2.2 | 2.1 |
| Discount rate (% pa) | 1.9 | 1.2 |
| 2021 £m |
2020 £m |
|
| Change in DBO for the year to 31 December | ||
| Present value of DBO at start of year | 80.3 | 68.5 |
| Interest cost | 1.0 | 1.4 |
| Actuarial loss/(gain) on experience | 1.0 | (0.3) |
| Actuarial (gain)/loss on demographic assumptions | (0.6) | 1.4 |
| Actuarial (gain)/loss on financial assumptions | (4.7) | 11.6 |
| Actual benefit payments | (2.1) | (2.1) |
| Past service gains | (0.1) | (0.2) |
| Present value of DBO at end of year | 74.8 | 80.3 |
At 31 December 2021, the weighted average duration of the scheme's DBO was 17 years (2020: 18 years). The proportion of DBO in respect of pensions in payment is approximately 43% (2020: 43%) and that in respect of deferred pensioners is approximately 57% (2020: 57%).
| Fair value 2021 £m |
Quoted split % |
Unquoted split % |
Fair value 2020 £m |
|
|---|---|---|---|---|
| Scheme assets and proportion which have quoted market price, at 31 December | ||||
| Bonds | 39.1 | 100 | – | 40.4 |
| Equities | 22.4 | 100 | – | 19.5 |
| Infrastructure | 8.2 | – | 100 | 7.5 |
| Cash/non-cash assets | 0.3 | – | 100 | 1.1 |
| Insurance policies | 0.2 | – | 100 | 0.2 |
| Total value of assets | 70.2 | 68.7 |
Note: The asset values shown are, where relevant, estimated bid values of market securities.
| 2021 £m |
2020 £m |
|
|---|---|---|
| Change in fair value of assets for the year to 31 December | ||
| Fair value of assets at start of year | 68.7 | 64.4 |
| Interest income on scheme assets | 0.8 | 1.3 |
| Return on scheme assets (less)/greater than discount rate | 2.8 | 5.1 |
| Actual benefit payments | (2.1) | (2.1) |
| Fair value of assets at end of year | 70.2 | 68.7 |
| 2021 £m |
2020 £m |
|
|---|---|---|
| Development of net Balance Sheet position at 31 December Present value of defined benefit obligation Assets at fair value |
(74.8) 70.2 |
(80.3) 68.7 |
| Net defined benefit scheme liability | (4.6) | (11.6) |
| 2021 £m |
2020 £m |
|
| 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 OCI |
(11.6) – 7.0 |
(4.1) 0.1 (7.6) |
| Defined benefit scheme liability at end of year | (4.6) | (11.6) |
| 2021 £m |
2020 £m |
|
| Amounts recognised in the Income Statement – Past service gains Included in operating expenses Net interest expense on net defined benefit pension scheme liability |
(0.1) (0.1) 0.1 |
(0.2) (0.2) 0.1 |
| Total amounts credited to the Income Statement | – | (0.1) |
| 2021 £m |
2020 £m |
|
| Amounts recognised in OCI Actuarial loss/(gain) due to liability experience Actuarial (gain)/loss due to liability assumption changes |
1.0 (5.2) |
(0.3) 13.0 |
| Actuarial (gain)/loss arising during the period Return on scheme assets greater than discount rate |
(4.2) (2.8) |
12.7 (5.1) |
| Remeasurement effects recognised in OCI | (7.0) | 7.6 |
| 2021 £m |
2020 £m |
|
| Defined benefit pension scheme cost Past service gains Net interest expense on net defined benefit pension scheme liability Remeasurement effects recognised in OCI |
(0.1) 0.1 (7.0) |
(0.2) 0.1 7.6 |
| Total defined benefit pension scheme (credit)/charge | (7.0) | 7.5 |
Group employees participate in a number of employee incentive schemes including a Sharesave Scheme, an LTIP, a Deferred Bonus Plan and a Restricted Share Plan.
This note explains the accounting policy governing share-based payments and the impact of various share schemes operated by the Group.
The Group operates a number of share-based incentive schemes, which are treated as equity-settled awards. The fair value of equity-settled awards is determined at grant date and charged to the Income Statement over the vesting period of the award, with a corresponding adjustment to equity.
Any potential employer's social security liability on share awards is calculated based on the intrinsic value of the awards at the Balance Sheet date and recognised over the vesting period of the related award.
Exercises of share options granted to employees can be satisfied by a market purchase or an issue of new shares. Shares purchased in the market are held by the Company's Employee Benefit Trust.
Further details of the accounting for the schemes provided by the Group are set out below.
A description of the LTIP including its general terms and conditions, such as performance conditions and vesting requirements, is set out in the Remuneration report. Awards prior to and after 2020 included a portion linked to a non-market condition (adjusted EPS) as well as a portion linked to a market condition (Total Shareholder Return, "TSR"). LTIPs awarded in 2020 vest subject to both a TSR and a share price condition and do not contain a portion linked to a non-market condition.
The fair value of the awards linked to the EPS condition is the Company's share price at grant date, while the fair value of awards containing market conditions is determined using Monte Carlo simulation models. The number of awards which are expected to vest is estimated by management based on levels of expected forfeitures and the expected outcome of the EPS condition. For awards subject to market conditions, no adjustment is made to reflect the likelihood of the market condition being met nor the actual number of awards which lapse as a result of the condition not being met.
Options granted under the Sharesave Scheme vest subject to continued employment and a saving condition in some countries. The options entitle employees to purchase shares in the Company at a fixed price. Further details of the Group's Sharesave arrangement are included in the Strategic Report.
The fair value of options granted under the Sharesave Scheme is determined using a Black-Scholes model with the key inputs to the model set out below. The number of awards which are expected to vest is estimated by management based on levels of expected forfeitures. At an employee's discretion they can choose to withdraw from a particular scheme and stop saving. This action is accounted for as a cancellation and results in an acceleration of the Income Statement charge related to the cancelled options.
The Restricted Share Plan ("RSP") was introduced in 2019 to support retention plans for key employees (excluding Directors and Operations Executive members). The fair value of awards under the RSP is the Company's share price at grant date. Under the RSP, shares which are awarded, generally vest over three years and are subject to a continued employment condition. The number of awards which are expected to vest is estimated by management based on levels of expected forfeitures.
The amount recognised in the Income Statement for share-based payment transactions with employees for the year ended 31 December 2021 was £7.9 million (2020: £3.7 million).
Options outstanding under the 2011 UK Sharesave Scheme and 2011 International Sharesave Scheme as at 31 December 2021, together with their exercise prices and vesting periods, are as follows:
| Weighted | |||
|---|---|---|---|
| Weighted | average | ||
| Number | average | remaining | |
| outstanding | exercise price | contractual life | |
| Range of exercise prices | (thousands) | (£) | (years) |
| £5.51 – £6.00 | 1,169 | 5.59 | 2.19 |
| £7.50 – £9.50 | 166 | 8.89 | 1.32 |
| £9.51 – £10.50 | 42 | 10.35 | 0.40 |
| £12.01 – £14.00 | 188 | 12.48 | 2.85 |
| Total | 1,565 | 6.89 | 2.13 |
Movements in these share option plans were as follows:
| Awards exercisable at 31 December 2021 | 4 | 7.63 |
|---|---|---|
| Awards at 31 December 2021 | 1,565 | 6.89 |
| Granted during 2021 | 190 | 13.15 |
| Lapsed during 2021 | (19) | 7.60 |
| Forfeited during 2021 | (101) | 6.95 |
| Cancelled during 2021 | (24) | 8.04 |
| Exercised during 2021 | (228) | 8.55 |
| Awards at 31 December 2020 | 1,747 | 6.45 |
| Granted during 2020 | 1,275 | 5.59 |
| Lapsed during 2021 | (44) | 9.07 |
| Forfeited during 2020 | (68) | 7.82 |
| Cancelled during 2020 | (738) | 8.90 |
| Exercised during 2020 | (171) | 6.55 |
| Awards at 31 December 2019 | 1,493 | 9.18 |
| Sharesave (thousands) |
price (£) |
|
| exercise | ||
| average | ||
| Weighted |
The weighted average share price at the date of exercise for share options exercised during the year was £13.68 (2020: £7.77).
| Arrangement | Restricted Share Plan |
2011 International Sharesave Scheme 2 Year |
2011 UK and International Sharesave Scheme 3 Year |
2011 UK and International Sharesave Scheme 5 Year |
2014 Long Term Incentive Plan |
|---|---|---|---|---|---|
| Nature of arrangement | Share award plan |
Save as you earn scheme |
Save as you earn scheme |
Save as you earn scheme |
Share award plan |
| Date of grant | Various | 27 Sep 2021 | 27 Sep 2021 | 27 Sep 2021 | 03 Mar 2021 |
| Number of instruments granted (thousands) | 892 | 83 | 97 | 9 | 423 |
| Exercise price | n/a | 13.60 | £12.80 | 12.80 | n/a |
| Share price at date of grant | Various | £15.50 | £15.50 | £15.50 | £10.05 |
| Contractual life (years) | Up to 3 years | 2.25 | 3.50 | 5.50 | n/a |
| Expected option life (years) | Up to 3 years | 2.25 | 3.25 | 5.25 | n/a |
| Vesting conditions | Up to 3-year service period |
2-year service period and savings requirement |
3-year service period and savings requirement |
5-year service period and savings requirement |
Relative TSR performance against comparator group and adjusted EPS growth |
|---|---|---|---|---|---|
| Settlement | Shares | Shares | Shares | Shares | Shares |
| Expected volatility(1) | n/a | 36.9% | 36.9% | 36.9% | 35.6% |
| Risk-free interest rate | n/a | 0.30% | 0.40% | 0.60% | n/a |
| Expected dividend yield | n/a | 2.30% | 2.30% | 2.30% | n/a |
| Expected departures (per annum from grant date) | 0 – 20% | 5% | 5% | 5% | 0% |
| Expected outcome of non-market based related performance condition | n/a | n/a | n/a | n/a | 100% |
| Expected outcome of non-vesting condition(2) | n/a | 85% | 85% | 85% | n/a |
| Fair value per granted instrument determined at the grant date | £10.05 – £15.05 | £3.19 | £3.82 | £4.25 | £4.79/£10.05(3) |
| Valuation model | n/a | Black-Scholes | Black-Scholes | Black-Scholes | Monte Carlo(4) |
(1) The expected volatility of the 2011 Sharesave Plan is based on historical volatility determined by the analysis of daily share prices over a period commensurate with the expected lifetime of the award and ending on the date of grant of the award. Due to significant fluctuations in Vitec's share price during the year a uniform rate has been used for all the Sharesave options as a reasonable estimate of volatility going forward.
(2) Non-vesting condition relates to the monthly contributions that employees need to make under the SAYE scheme to receive the options at vesting. Based on historical cancellation rates, a 15% rate has been used.
(3) The first figure (£4.79) represents the fair value of awards subject to TSR criteria and the second figure (£10.05) represents the fair value of awards subject to adjusted EPS growth 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 well as the TSR for Vitec and the companies in the comparator group. Thousands of simulations are run and the payoff for each iteration is calculated as the number of shares that vest multiplied by the projected share price. The fair value of the award is calculated as the average payoff of all iterations.
The Group has obtained cash receipts from government entities which have been accounted for as forgivable loans. The Group recognised a liability for these forgivable loans on the acquisition of Amimon in 2018 in relation to amounts it does not have reasonable assurance will be forgiven. At December 2021, the amount recognised as a liability in relation to these loans is £0.4 million (2020: £0.4 million). The total contractual amount outstanding at 31 December 2021 is £2.1 million (2020: £2.1 million).
Tax-related contingent liabilities are disclosed in note 2.4 "Tax".
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 Group under IAS 24 "Related Party Disclosures".
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 14 (2020: 13) key management personnel during the year, including the Executive Directors, is shown in the table below:
| 2021 | 2020(2) | |
|---|---|---|
| £m | £m | |
| Salaries | 3.2 | 3.0 |
| Employers' social security costs | 0.9 | 0.6 |
| Performance-related bonuses | 3.4 | 0.9 |
| Share-based payment charge(1) | 1.5 | 0.6 |
| Other short-term employee benefits | 0.4 | 0.5 |
| Employers' pension costs – defined contribution schemes | 0.4 | 0.3 |
(1) IFRS 2 charge recognised in the Income Statement for share-based payment transactions with key management personnel.
(2) Following a review of the previously reported remuneration of key management personnel, the prior year amounts for salaries of £1.9 million, performance-based bonuses of £0.2 million, share-based payment charge of £0.2 million and other short-term benefits of £0.3 million have each been restated as above. In addition, an amount in relation to employers' social security costs has been added.
The Group's subsidiaries at 31 December 2021 are listed below. All subsidiaries are 100% owned within the Group.
| Company | County of incorporation | Issued securities |
|---|---|---|
| Amimon Inc | United States(35) | Ordinary shares of NPV |
| Amimon Ltd | Israel(37) | Ordinary shares of ILS 0.01 each |
| Amimon Japan Co. Ltd | Japan(36) | Ordinary shares of JP¥10,000 each |
| Autocue Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Autocue LLC | United States(3) | Membership units of NPV |
| Autoscript Limited | England & Wales(1) | Ordinary shares of £1 each |
| BRCT Holdings Limited | New Zealand(2) | Ordinary shares of NZD1.00 |
| Camera Corps, Inc. | United States(34) | Ordinary shares of US\$0.01 each |
| Camera Corps Ltd | England & Wales(1) | Ordinary shares of £1 each |
| Camera Dynamics sarl | France(4) | Ordinary shares of NPV |
| Chalfont Investments Inc. | United States(5) | Ordinary shares of US\$0.01 each |
| Colorama Photodisplay Holdings Limited | England & Wales(1) | Ordinary shares of £1 each |
| Creative Solutions Division Inc. | United States(41) | Ordinary shares of US\$0.001 each |
| Gitzo Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Gitzo S.A. | France(6) | Ordinary shares of NPV |
| Infiniscene Inc. | United States(40) | Ordinary shares of US\$0.001 each |
| JOBY Technology (Shenzhen) Co. Limited | China(33) | Ordinary shares of RMB1,814,855 each |
| Kata UK Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Lastolite Limited* | England & Wales(1) | Ordinary shares of £1 each |
| LCB Beteiligungs GmbH | Germany(9) | Ordinary shares of €25,000 |
| Lowepro Huizhou Trading Co Ltd | China(32) | Ordinary shares of HK\$3,000,000 each |
| Litepanels Ltd | England & Wales(1) | Ordinary shares of US\$1 each |
| Manfrotto Bags Ltd | Israel(8) | Ordinary shares of ILS1 each |
| Manfrotto Distribution Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Mount Olive 2016, LLC | United States(17) | Membership units of NPV |
| Offhollywood, LLC | United States(18) | Membership units of NPV |
| Palmer Dollar Finance | England & Wales(1) | Ordinary shares of US\$1 each |
| Palmer Dollar Finance Ireland Investment DAC* | Ireland(19) | Ordinary shares of US\$1 each |
| Palmer Dollar Finance Luxembourg Investment Sarl* | Luxembourg(20) | Ordinary shares of US\$1,000 each |
| Palmer Euro Finance Ireland Investment DAC* | Ireland(19) | Ordinary shares of €1 each |
| Palmer Euro Finance Luxembourg Investment Sarl* | Luxembourg(20) | Ordinary shares of €1,000 each |
| Palmer Euro Finance Netherlands B.V.* | Netherlands(21) | Ordinary shares of €1 each |
| Palmer Finance | England & Wales(1) | Ordinary shares of €1 each |
| Palmer Yen Finance | England & Wales(1) | Ordinary shares of JP¥100 each |
| Petrol Bags Limited | Israel(22) | Ordinary shares of ILS1 each |
| Petrol Bags Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Quasar Science LLC | United States(39) | Membership units of NPV |
| Radamec Broadcast Systems Limited | England & Wales(1) | Ordinary shares of £1 each |
| RECO Srl | Italy(10) | Shares of NPV |
| Rycote Microphone Windshields Ltd | England & Wales(1) | Ordinary shares of £1 each and deferred shares of £1 each |
| Sachtler Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Savage Paper Specialties, LLC | United States(38) | Membership units of NPV |
| Savage Universal LLC | United States(38) | Membership units of NPV |
| Company | County of incorporation | Issued securities |
|---|---|---|
| SmallHD LLC | United States(23) | Membership units of NPV |
| Syrp, Inc | United States(7) | Common stock of US\$0.10 each |
| Syrp Limited | New Zealand(2) | Ordinary shares of NZD1.00 |
| Teradek Ukraine LLC | Ukraine(24) | Membership interests of NPV |
| Teradek, LLC | United States(25) | Membership units of NPV |
| The Camera Store Limited | England & Wales(1) | Ordinary shares of £1 each |
| Vinten Broadcast Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Vitec Creative Solutions UK Limited | England & Wales(1) | Ordinary shares of £1 each |
| Vitec Group Holdings Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Vitecgroup Italia spa | Italy(10) | Ordinary shares of €1,000 each |
| Vitec Group Pensions Trust Company (UK) Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Vitec Group US Holdings, Inc. | United States(5) | Ordinary shares of US\$0.01 each |
| Vitec Holdings Limited | Guernsey(27) | Ordinary shares of £0.10 each |
| Vitec Imaging Distribution Australia Pty Ltd | Australia(26) | Ordinary shares of AUD1 each |
| Vitec Imaging Distribution Benelux B.V. | Netherlands(11) | Ordinary shares of €454 each |
| Vitec Imaging Distribution GmbH | Germany(12) | Shares of €25,000 each |
| Vitec Imaging Distribution HK Limited | Hong Kong(13) | Shares of HK\$1 each |
| Vitec Imaging Distribution Inc. | United States(14) | Ordinary shares of NPV |
| Vitec Imaging Distribution KK* | Japan(15) | Shares of JP¥1 each |
| Vitec Imaging Distribution SAS | France(6) | Ordinary shares of €16 each |
| Vitec Imaging Distribution Shanghai Limited | China(16) | Ordinary shares of US\$1 each |
| Vitec Imaging Solutions HK Limited | Hong Kong(31) | Shares of HK\$1 each |
| Vitec Imaging Solutions Spa | Italy(10) | Ordinary shares of €5.556 each |
| Vitec Imaging Solutions UK Limited | England & Wales(1) | Ordinary shares of £1 each |
| Vitec Investments Limited | England & Wales(1) | Ordinary shares of £1 each |
| Vitec Production Solutions GmbH | Germany(9) | Ordinary shares of DEM50,000 each |
| Vitec Production Solutions Inc | United States(5) | Ordinary shares of US\$0.01 each |
| Vitec Production Solutions KK* | Japan(15) | Ordinary shares of JP¥1,000 each |
| Vitec Production Solutions Limitada | Costa Rica(28) | Shares of CRC50 each |
| Vitec Production Solutions Limited* | England & Wales(1) | Ordinary shares of £1 each |
| Vitec Production Solutions Pte. Limited* | Singapore(29) | Ordinary shares of SGD1 each |
| Vizua Limited | England & Wales(1) | Ordinary shares of £1 each |
| VTC International Limited* | England & Wales(1) | Ordinary shares of £1 each |
| WHDI LLC | United States(35) | Membership unit of NPV |
| Wooden Camera, Inc | United States(30) | Ordinary shares of NPV |
* Investment held directly by The Vitec Group plc.
For proposed final dividend see note 4.3 "Share capital and reserves".
In January 2022, the one-year extension to the RCF was agreed with four syndicate banks resulting in £35.0 million expiring on 14 February 2025 and £130.0 million expiring on 14 February 2026. The Group was utilising 53% of the RCF as at 31 December 2021.
On 7 January 2022, the Group signed a new \$47.0 million (£34.7 million) three-year amortising Term Loan with a syndicate of four banks to facilitate the acquisition of Audix. This facility will expire on the 7 January 2025. See note 4.1 "Net debt".
On 11 January 2022 the Group acquired 100% of the issued share capital of Audix, a US company, for initial cash consideration of US\$45.7 million (£33.8 million), and subject to customary working capital adjustments. Under the terms of the acquisition, there is deferred consideration payable in 2023 of US\$2.0 million (£1.5 million). In addition, a potential payment of up to US\$2.3 million (£1.7 million) in relation to contingent consideration could be payable which is outside of the control the Group, the fair value of which has not yet been assessed. See note 3.4 "Acquisitions".
There were no other events after the Balance Sheet date that require disclosure.
As at 31 December 2021
| Notes | 2021 £m |
2020 £m |
|---|---|---|
| Fixed assets | ||
| Intangible assets f) |
0.1 | 0.2 |
| Property, plant and equipment g) |
1.8 | 0.1 |
| Investments in subsidiary undertakings h) |
484.0 | 420.7 |
| Other receivables i) |
3.1 | – |
| 489.0 | 421.0 | |
| Current assets | ||
| Debtors i) |
96.2 | 71.0 |
| Cash at bank and in hand | – | – |
| 96.2 | 71.0 | |
| Liabilities falling due within one year | ||
| Creditors j) |
(92.7) | (81.9) |
| Provisions l) |
– | (0.1) |
| (92.7) | (82.0) | |
| Net current liabilities | 3.5 | (11.0) |
| Total assets less current liabilities | 492.5 | 410.0 |
| Liabilities falling due after one year | ||
| Creditors j) |
(129.6) | (42.4) |
| Provisions l) |
(0.1) | – |
| (129.7) | (42.4) | |
| Net assets | 362.8 | 367.6 |
| Capital and reserves | ||
| Called up share capital m) |
9.3 | 9.2 |
| Share premium account | 23.2 | 21.7 |
| Cash flow hedge reserve o) |
0.1 | – |
| Other reserves n) |
58.8 | 55.3 |
| Profit and Loss Account | 271.4 | 281.4 |
| Shareholders' funds | 362.8 | 367.6 |
The Company's loss after tax for the year ended 31 December 2021 was £5.3 million (2020: profit £11.2 million).
Approved and authorised for issue by the Board of Directors on 28 February 2022 and signed on its behalf:
Group Finance Director
Registered in England and Wales no. 227691
| Share capital £m |
Share premium £m |
Revaluation reserve £m |
Cash flow hedging reserve £m |
Other reserves £m |
Profit and Loss Account £m |
Total equity £m |
|
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2021 | 9.2 | 21.7 | – | – | 55.3 | 281.4 | 367.6 |
| Total comprehensive expense for the year | |||||||
| Loss for the year | – | – | – | – | – | (5.3) | (5.3) |
| Fair value gain – interest rate swap | – | – | – | 0.1 | – | – | 0.1 |
| Contributions by and distributions to | |||||||
| owners | |||||||
| Dividends paid | – | – | – | – | – | (7.1) | (7.1) |
| Own shares purchased | – | – | – | – | – | (5.8) | (5.8) |
| Share-based payment charge, net of tax | – | – | – | – | – | 8.2 | 8.2 |
| New shares issued | 0.1 | 1.5 | – | – | 3.5 | – | 5.1 |
| Balance at 31 December 2021 | 9.3 | 23.2 | – | 0.1 | 58.8 | 271.4 | 362.8 |
| Balance at 1 January 2020 | 9.1 | 20.7 | 0.9 | – | 55.3 | 268.2 | 354.2 |
| Total comprehensive income for the year | |||||||
| Profit for the year | – | – | – | – | – | 11.2 | 11.2 |
| Contributions by and distributions to owners |
|||||||
| Transfers between reserves | – | – | (0.9) | – | – | 0.9 | – |
| Own shares purchased | – | – | – | – | – | (2.3) | (2.3) |
| Share-based payment charge, net of tax | – | – | – | – | – | 3.4 | 3.4 |
| New shares issued | 0.1 | 1.0 | – | – | – | – | 1.1 |
| Balance at 31 December 2020 | 9.2 | 21.7 | – | – | 55.3 | 281.4 | 367.6 |
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.
For all enquiries about your shareholding please contact the Company's registrar, EQ Group plc:
| Website | www.shareview.co.uk |
|---|---|
| Address | Aspect House, Spencer Road, Lancing, |
| West Sussex, BN99 6DA, UK | |
| Phone from UK | 0371 384 2030* |
* Or if calling from overseas +44 (0) 121 415 7047. Lines are open between 9.00am to 5:00pm (UK time) Monday to Friday (except public holidays in England and Wales).
Alternatively you can contact the Group Company Secretary either by phone on +44 (0)20 8332 4600 or email on [email protected].
Enabling the capture and sharing of 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 EQ Group plc.
exceptional content Overseas shareholders can receive dividends in a local currency instead of Sterling and can find out more about this by contacting EQ Group plc on +44 121 415 7047. Any election to receive dividends in local currency in respect of a dividend must be received by EQ Group plc not later than the associated record date for that dividend.
The closing mid-market price of a share of The Vitec Group plc on 31 December 2021 was £14.20. During 2021, the share price fluctuated between £9.20 and £16.15. 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.
Shareholders should be aware that fraudsters may try and use highpressure 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.
| Ex-dividend date for 2021 final dividend | Thursday 21 April 2022 |
|---|---|
| Record date for 2021 final dividend | Friday 22 April 2022 |
| Last day for DRIP election | Friday 6 May 2022 |
| Annual General Meeting | Tuesday 17 May 2022 |
| 2021 final dividend payment date | Friday 20 May 2022 |
| Group name change | Monday 23 May 2022 |
| Announcement of 2022 half year results | Thursday 11 August 2022 |
| Proposed 2022 interim dividend payment date | Friday 28 October 2022 |
| Shares held | Number of holders |
% of holders | Number of shares |
% of shares |
|---|---|---|---|---|
| Up to 1,000 | 418 | 47.88% | 145,731 | 0.32% |
| 1,001 to 5,000 | 254 | 29.10% | 602,313 | 1.31% |
| 5,001 to 10,000 | 53 | 6.07% | 375,104 | 0.82% |
| 10,001 to 50,000 | 70 | 8.02% | 1,643,323 | 3.58% |
| 50,001 to 100,000 | 29 | 3.32% | 2,043,069 | 4.45% |
| 100,001 and over | 49 | 5.61% | 41,085,365 | 89.52% |
| Total | 873 | 100% | 45,894,905 | 100% |
| Institutions and companies |
316 | 36.20% | 44,180,263 | 96.26% |
| Individuals including Directors and their families |
557 | 63.80% | 1,714,642 | 3.74% |
| Total | 100% | 100% |
This document is printed on paper made of material from well-managed, FSC®-certified forests and other controlled sources.
Bridge House Heron Square Richmond TW9 1EN United Kingdom
t +44 (0)20 8332 4600
[email protected] www.vitecgroup.com The Vitec Group plc Bridge House Heron Square Richmond TW9 1EN United Kingdom
t +44 (0)20 8332 4600 [email protected] www.vitecgroup.com
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