Videndum Plc (VID.L) Earnings Call Transcript & Summary

Good morning, and welcome to our full year results presentation for 2021. I'll begin with a brief summary and then give an update on our market and strategy before Martin reviews our financial results in more detail. Vitec is in really great shape. Our markets recovered significantly during the year and are now larger and growing faster than pre pandemic. We delivered growth on 2019 and 2022 has started extremely well. Growth has been driven by the significant changes in the way people are now consuming content, whether it's spending more time watching TV, posting and viewing more content on social media, live streaming or shopping for more products online. These changes in consumer behavior are powering demand for our products. But it's not just that, it's also that we've got a clear strategy, which we're executing on really well. Now let's look at what we've achieved financially. Vitec delivered a really strong 2021 performance with growth across all three divisions. Given the disruption to our 2020 results caused by the pandemic, a comparison to 2019 performance is more meaningful than to 2020. Order intake was up 20% versus 2019. And in 2021, we achieved record group revenues despite some capacity constraints and component shortages. We're fortunate to own many of the industry's leading brands. And our premium prices reflect their brand strength, product quality and technology advantage. And price rises during the year more than offset inflationary headwinds. Once again, cash performance was excellent. We remained focused on managing our cost base while continuing to invest in our key priorities, in line with our strategy. We ended the financial year with a record order book. And given our strong performance and confidence in the future, we are proposing to pay a total dividend of 35p per share. Vitec is uniquely positioned at the heart of the content creation market to capitalize on the strong global demand for capturing, consuming and sharing content. We're continuing to execute well on our strategy. First, we're delivering organic growth due to both strong market demand and innovative new product development. Vitec is a product-driven business. And we're increasingly seeing that technology advancement is driving shorter product replacement cycles. We expect our underlying growth over the next few years to be in the high single digits versus low single digits pre pandemic. Second, we expect continued margin improvement towards our mid-teen goal as volumes grow and we deliver operating leverage. Our operations are strong. And we're targeting year-on-year productivity improvements and price increases, which will more than offset inflation pressures. And third, we're making acquisitions in the right areas to transform the group. We bought three new businesses last year and a fourth in January this year. These have expanded our customer base, our portfolio and our technology capabilities. I'm particularly excited about the audio market, where we see a big opportunity to grow even faster. Our investments to support future growth have been in two main areas: in video transmission and streaming in Creative Solutions; and in content creation and audio capture in Imaging Solutions. Over the last decade, we've laid a strong foundation for Vitec's growth. We're now in multiple growing market segments. And this, coupled with our clear strategy, has meant that the group has emerged from the pandemic a stronger, higher-quality business. 2022 is off to a great start with a record opening order book and a record January and February performance. Looking forward, there's clearly an awful lot going on externally. And it's difficult to predict exactly what will happen. But trading is going very well. And we're increasingly confident about the outlook for the group, despite component shortages and inflation. But obviously, the current geopolitical situation creates some uncertainty. I'm incredibly proud of what our team has achieved last year. And I'm really excited about the opportunities ahead of us. And now I'll provide a market and strategy update. The pandemic has driven fundamental and lasting structural changes to our market. Market growth is being driven by advances in technology as well as 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. We believe this will continue long term. First, the Internet. 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. Vitec's professional studio equipment, including supports, backgrounds and lighting, are all benefiting. Second, TikTok and YouTube. Vlogging and sharing content on social media has increased significantly. This means that more people are using our JOBY products to create and share content on their phones and cameras as well as using our backgrounds and graphics for high-quality content. Third, subscription TV. With more content on more TV channels and the need to produce more original content, our equipment, particularly our video transmission and monitoring systems, lights, batteries and supports, are all in high demand. And fourth, live streaming of video, which is driving demand for our streaming products, not only in offices and at home but also in operating theaters and even in other examples, such as plane spotting, as some of you will have seen during Storm Eunice, when more than 200,000 people tuned in live to watch Big Jet TV, using Teradek, to live stream planes battling the storm to land at Heathrow Airport. 7.5 million people have now watched that clip on YouTube. What's not growing is mainly our travel segment, which includes photographic bags and hobby supports. But we expect this to bounce back over time. Now let's look at our total addressable market. Post pandemic, our TAM has expanded to GBP 2.6 billion from GBP 2 billion pre pandemic. And we believe that it will grow at high single digits from 2022 to 2024 compared to low single digits pre pandemic. This is mainly due to our ability to serve the newer streaming, gaming and vlogging markets. And we're also seeing growth in some of our more traditional markets. Imaging Solutions markets saw a stronger-than-expected recovery. And the TAM has increased to GBP 1.2 billion, particularly due to the increase in vlogging. And we estimate that the market CAGR for 2022 to 2024 will now be about 5%. Production Solutions markets also recovered strongly. The TAM has not changed, but we estimate that the market will now grow about 3%, whereas previously, it was flat. And Creative Solutions markets were the last to reopen last year but saw a strong recovery. The TAM increased to GBP 1 billion, particularly due to the increase in streaming, the growing spend on original content and our ability to serve the gaming market. We believe that the market CAGR will be about 20%. Now moving on to discuss each our three divisions. Imaging Solutions had an excellent year. Overall, the market is larger and growing faster than pre pandemic. And we continue to invest in new product development, particularly in the fastest-growing segments of vlogging, audio and mechatronics. Our high-end professional segment is resilient with strong demand from professionals who need equipment to take still and video product images for online retail sales. Our B2B business is seeing significant growth and is now the second-largest category in the division. And B2B for Imaging Solutions mainly mean selling into production companies and other corporates. Growth is mainly being driven by demand for our lighting stands for scripted TV productions. But we've also seen huge demand for supports from companies like VO and Hudl, who use them for sports analytics. JOBY had another great, launching new products for all levels of content creators, from beginners to professionals, for cameras and for smartphones. New products include the first Apple MagSafe phone mounts. And last month, we launched our new JOBY on-camera microphones and sliders. JOBY is an important strategic growth engine for the group with a huge untapped customer base of influencers, who own a living by sharing their content on social media. It's seen as a core unique brand with unique technology, operating at the premium end of the market. And we have robust, defendable IP with numerous enforceable patents that we use to defend our market share. During 2021, we insourced production of some of JOBY's key products, including the GorillaPods, to Italy, expanding Feltre's highly efficient manufacturing capabilities. The made in Italy stamp differentiates us from our competitors, giving us greater control of the design and manufacturing process, it improves customer service, has a lower environmental impact, it's cost-competitive and improves margins. The travel market, however, remained subdued, which has impacted our hobbyist segment of supports and bags. We're continuing to grow our higher-margin online sales, which account near about 50% of Imaging Solutions revenue. Now let's look at the two recent imaging acquisitions. First, we bought the Savage backgrounds business in November to bolt on to our global distribution network and up-sell to our JOBY customers. Integration is going very well, and we're already starting to see distribution synergies. Second, we bought Audix in January this year. This is a key element of our audio strategy, which we see as a big opportunity. Audio enhances the quality of the video content, and we already know the customers as they buy our equipment. We also know the channel, as we bought Rycote in 2018, and we've already developed some audio products under our JOBY brand. Audix has given the group specialist R&D and manufacturing capabilities to design more microphones more quickly. And it allows us to make them in the U.S. So strategically, this is a great fit and it accelerates our audio strategy. We're planning to grow the Audix brand by selling their products through our distribution channels and to grow our on-camera microphone business by taking share. The audio market has reacted very positively to the acquisition and integration is going very well. Now let's look at Production Solutions. Production Solutions also recovered strongly and had an outstanding year, particularly due to the increase in spend on original content creation and demand for our recently launched products in the faster-growing segments, including news and sport, LED lighting and mobile power. Remote production and automation in broadcast TV is also an important trend. This benefits our robotic camera systems and voice-activated prompting. And our pipeline in this area is up about 30% on 2019. We're also benefiting from rescheduled major sporting events. And I'm really pleased that this market appears to be returning to normal and is now actively planning for events over the next few years. In April, we acquired Quasar, an LED company whose products are used in film and scripted TV productions. Quasar products are highly complementary to our Litepanels brand. Now on to Creative Solutions. In the cine and scripted TV market, there was a strong recovery in original content production in the second half. And sales of our 4K/HDR products have really taken off. But we estimate that we're only about 20% through this replacement cycle. Demand is very strong. And this is a great example of a technology change driving a shorter product replacement cycle. Revenue growth is being impacted by component shortages, particularly the chips in our Teradek Bolt transmitters. But we're managing inventory, SKUs and pricing, using alternative suppliers where we can and, in some cases, redesigning products. We don't expect this to have a significant impact in the full year. In the enterprise market, we expect continued growth in our high-end Teradek IP-based live streaming solutions for corporates and the cine market. There are also significant growth opportunities in the medical segment, where our Amimon wireless video solutions are being used in operating theaters. And we're also supplying the industrial market in remote machinery, such as cranes. In April, we entered the gaming market with the acquisition of Lightstream, who provide a cloud-based video production and editing Software-as-a-Service platform to enable content creators to enrich their live video streams. The acquisition of Lightstream has enabled us to address the growing demand for cloud-based content creation. And since our last update, Lightstream has progressed licensing deals for their API product with major names in the gaming space and are ready to integrate with Teradek's existing cloud products. Now let's look at future technology developments. Remote working and live streaming across all industries grew exponentially during the pandemic. And it's become a significant growth opportunity for our Teradek brand for both our IP-based and our patented Amimon technology. In the cine industry, our customers are demanding more remote access. And we're investing to evolve our monitoring technology, so it can be used both on-set and remotely. We're introducing new high-end streaming products, with Amimon Reliable Transport, or ART, with units currently out being tested with customers. We expect to launch towards the end of the half, initially with products designed for our cine customers. ART dramatically improves the viewer experience with high video quality and a lower transmission delay over the Internet or mobile network. We believe there are opportunities for ART beyond the cine market, for example, initially in the medical and industrial markets. Now I'd like to update you on ESG. Over the last 12 months, we've made great progress developing our ESG strategy. We've been working with a specialized external agency and have set clear targets. We have a focused and coordinated group-wide approach. And we've significantly improved our data collection, measurement and disclosure. Our initiatives are centered around the seven key priorities listed on this slide. And we will be publishing a stand-alone ESG report in April with all the detail. Now I'll hand over to Martin for more details on our financial performance.

Thanks very much, Stephen. I'm delighted to be presenting a great set of results for Vitec for 2021. We delivered record group revenue. Revenue was 5% ahead of 2 years ago in 2019 on a reported basis and 8% on an organic constant currency basis, excluding Olympics. This was achieved despite our end market only being fully opened in the second half of 2021. And we also continue to be impacted by component shortages and capacity constraints towards the end of 2021. We achieved a strong group revenue performance in 2021 due to record order intake, up 20% versus 2019 on an organic constant currency basis. And we closed the year with a record order book. We've invested to accelerate future growth but have still managed to return to similar group operating profit margin as in 2019. Note that 2019 included a 2 percentage point benefit from the SmallHD insurance claim recognized in profit but not revenue. Group operating expenses were around GBP 9 million higher than in 2019, which mainly reflects investment as well as inflation, cost of new acquisitions and retention schemes for key personnel across the group. We made a group operating profit of GBP 46.2 million and profit before tax of GBP 42.4 million, which far exceeded expectations as we enter 2021. Adjusted EPS of 69.9p is higher than consensus of 68.1p largely due to the improved ETR of 24% compared to 25% in 2020. I am pleased to report that the Board is recommending a final dividend of 24p per share, which would take the total dividend to 35p per share, covered 2x by adjusted EPS. This is at the lower limit of our previously communicated range of 2 to 2.5x cover. ROCE is returning towards historic levels, reflecting higher profits and despite the acquisition of Savage in November. Excluding acquisitions, ROCE was 18.6%. Turning now to the divisions. Imaging Solutions had a great year. Revenue was significantly up on 2020 and slightly ahead of 2019 on an organic constant currency basis. This was a tremendous performance, given that the travel market was still significantly impacted by the pandemic, affecting demand for our bags and compact tripods. As mentioned by Stephen, JOBY continued to grow strongly, launching a Beamo Ring Light in March. Component shortages delayed the launch of some new products in the second half of 2021, including the Wavo microphones and the Spin and Swing devices. But these were all launched in January 2022 and have been really well received. In B2B, there was a significant increase in demand for our lighting supports, driven by their use with sports analytics devices to provide footage from an elevated height. Manfrotto is the leading supplier for lighting sports stands to all the main providers in this market. Operating profit margin of 13.7% was similar to 2019. Now let's turn to Production Solutions. This division had an excellent year with a record revenue up more than 50% on 2020 and up 10% compared to 2019 on an organic constant currency basis, even after excluding the Tokyo Olympics. The new products launched towards the end of 2020 and in the first half of 2021 continue to prove extremely popular. In particular, the Sachtler aktiv fluid head, which allows camera operators to mount, level and lock the head in seconds, Autoscript's voice-activated prompting and Litepanels' Gemini 1x1 Hard LED light. 2021 was a really exciting year for Camera Corps, which once again provided bespoke equipment to the Tokyo Olympics as well as at the Euros in June and July. For 2022, they've also just covered the Beijing Winter Olympics. And in November, we'll be at the World Cup in Qatar. Operating profit margin was a record 23%, which was enhanced by royalties from licensees using our LED patents. Excluding these, the margin was 20.3%, which still represents more than double 2020 margins and a 3 percentage point improvement on 2019. Creative Solutions grew strongly with revenue up 22% compared to 2019 on an organic constant currency basis. This was despite the cine market not fully reopening until the second half of 2021 and component shortages impacting the second half. Order intake was up 45% on an organic constant currency basis versus 2019, driven by the rollout of 4K, which now includes 4K monitors. The overwhelming majority of Teradek Bolt transmitter and receiver orders and revenue were 4K, and we expect take-up to increase significantly in 2022. Revenue from the enterprise market was up double digits compared to 2019. This was driven by sales to the medical market more than doubling, with high demand for Amimon products within the operating room. Operating profit of 10.7% was lower than 2019 after adjusting for the GBP 6.5 million insurance proceeds in 2019. This was due to the investment to drive growth, including sales and marketing, R&D and investment in Lightstream, which is still relatively early in its business life cycle. We are seeing previous R&D investment come to fruition. For example, SmallHD had a record year following the investment to develop its 4K monitors. So that's our P&L. Let's have a look now at how this flows through to cash. We had strong cash conversion, which was once again over 100%. This was despite a significant increase in inventory, as expected, from capacity constraints and component shortages. This increase in inventory was more than offset by an increase in payables due to increased activity and other items, which meant that working capital overall declined in the year. Capital expenditure rose following a lower level of spend in 2020, when we conserved cash in response to the pandemic. In 2021, we spent GBP 2.8 million, mainly on plastic injection molding machines to bring some JOBY production in-house. Free cash flow was excellent and ahead of 2019 at around GBP 33 million. This was despite the previously announced GBP 3 million tax payment in relation to EU state aid. Restructuring cash paid was lower as the final payments were made for the previously announced e-commerce project in Imaging Solutions. Now let's look at what that meant for net debt. Net debt increased despite the high free cash flow as we acquired Savage, Lightstream and Quasar. As previously guided, renewal of leases in Feltre, Costa Rica and Irvine as well as the acquisition of the lease with Savage meant that our IFRS 16 lease liabilities increased. Total liquidity at 31 December 2021 of GBP 91.5 million was similar to 30 June 2021 as we financed the acquisition of Savage and Audix in early 2022 through dedicated additional facilities. Net debt-to-EBITDA was 2.2x on a reported basis and 2x on the basis that is used for our loan covenants, both of which are on a post-IFRS 16 basis. In the appendix to this presentation, you can find a slide detailing the differences in these calculations. So to conclude on our 2021 results, these are a really strong set of results that have delivered top line in-year growth whilst also investing in future growth and continue to generate cash. I'd like now to turn to some guidance for 2022, take a look at our financial goals for the mid-term and review how our M&A strategy has been implemented. As Stephen mentioned, 2022 has started very well for us, and we're increasingly confident about the outlook for the group. I'll let you peruse this slide in your own time, but I'd like to highlight a few points to consider when assessing the outlook for 2022, despite the previously highlighted short-term component shortages and inflation. Obviously, the current geopolitical situation also creates some uncertainty. We expect high single-digit organic growth in group revenue. We expect lower royalty receipts in VPS but no decline in total VPS revenue for 2022. R&D amortization will rise as a result of the investment capitalized over the past few years. We also expect gross R&D spend to increase as we invest in future growth across all divisions. Central costs will increase slightly as we incur a full year impact from the share-based payments that were awarded in June 2021 to retain staff in Creative Solutions. We continue to expect 2022 cash generation to be strong with at least 80% cash conversion. Net debt will increase due primarily to the January 2022 acquisition of Audix. And we are targeting further growth in our group EBITDA. So we continue to expect our net debt-to-EBITDA to be around 2.3x on a covenant basis at the half year and around 2x at year-end. That gave a flavor for 2022. Let's now look longer term at our financial goals. We thought this would be a good point in time to lay out our financial goals, given the changes the pandemic has brought to our end markets. As Stephen highlighted, our end markets are growing faster. And Vitec is positioned to capitalize on this. So we expect to achieve high single-digit organic revenue growth each year. Given our market position in various niches, we expect to be able to more than offset inflation. As volumes grow, we expect to leverage our fixed cost base, which would lead to operating leverage of at least 30%. We are on track to deliver at least mid-teen operating profit margins. We will keep a close eye on cash and our aim is to keep cash conversion of at least 80% despite the business growing. With increased profits, our goal is to achieve at least 20% ROCE. We will continue with our progressive dividend policy with a dividend covered 2 to 2.5x by adjusted EPS. As revenue and profits grow and we maintain control of cash, we expect net debt to EBITDA to trend down to below 1.5x. Now I'd like to look at our acquisition strategy. Some of you will recognize the layout of this slide from our Capital Markets Day in 2018. This showed the product categories we wanted to look at expanding into through M&A. The logos show where we have acquired since then, which was just after we purchased JOBY, which provided an entry point to smartphone accessories. As you can see, we've delivered what we said we would. Obviously, we have a lot of work to do in 2022 to integrate fully our recent acquisitions and to ensure we capture the substantial synergies they offer. So let's recap. 2021 was a great year with Vitec returning to pre-pandemic levels whilst investing in future growth. There are more exciting times to come as the markets we serve are larger and grow faster than pre pandemic and as we continue to execute extremely well on our strategic priorities. With that, I'd like to hand back to Stephen.

Thank you, Martin. So to summarize, the group has emerged from the pandemic in great shape and 2022 has also started extremely well. The content creation market is a great place to be, being larger and growing faster than previously envisaged. And Vitec is right at the heart of this fast-growing market and executing well on its strategy. Obviously, there's a lot of uncertainty in the world at the moment. But as a business, we're increasingly confident about the outlook for the group. Before I move on to our Q&A session, I wanted to tell you about our plans to change the group's name to Videndum following the AGM in May. This change is due to the need to avoid litigation from another company called Vitec. But more importantly, the new name better reflects our purpose as it means that which must be seen or a must-see. This is a great opportunity for us to refresh our brand as the group has transformed over the past decade and is now in multiple market segments with a much broader portfolio. At the same time in May, we'll change the name of our Imaging Solutions division to Media Solutions. As the division has grown its portfolio to include JOBY for vloggers and audio capture under the JOBY, Rycote and Audix brands, the new name better represents its wider customer base and the exciting opportunities ahead. To conclude, we're a stronger, higher-quality business well placed to deliver sustainable growth and value for all our stakeholders. We're now going to move on to our question-and-answer session. So I'd like to hand over to our operator.

Our first question comes from Scott Cagehin with Investec.

Congratulations on a great set of results. Just a quick question for me, I sort of throw it on Slide 6, where you're talking about 75% of revenues being driven by double-digit growth levels through content creation. I found that very interesting. I was just wondering if you could sort of step up a little bit on those four segments at the bottom and sort of maybe comment on the areas that you're most excited about for this year and next, that would be great.

Scott, thanks very much. Yes, so we -- this is a new slide. I mean, we have talked about this a little bit before. And so it's not hopefully a surprise to too many people. But putting it all together, it's very powerful. So as we say, 75% of the markets that we are addressing at the moment are growing faster than 10%. The bit that's not, just briefly, is mainly around travel. So anything to do with travel, which is sort of travel tripods, photographic bags that people tend to buy when they're going on a nice holiday, that is a bit depressed. But the rest of the business is in great shape. And this is a big change for us. Because pre pandemic, this number would be a lot less. The overall group would have been looking at growth rates more in the low single digits. So now having an overall growth rate in high single digits is a drive to change for us. And it's driven by the basic changes that we've seen, particularly post pandemic, which have been accelerated in the way that people are consuming and capturing content. So the big four are basically the Internet, first of all, which is basically driving a demand for professional photography. So you can imagine so many websites worldwide need to continually refresh the photographs or the video of the content that they're selling. This is growing and growing and growing. So the Internet piece for us is very big. It's probably about 30% of our total addressable market. And so it's things like our photographic tripods, our lighting stands, now backgrounds are into that market. And that is being driven purely by the Internet. And we see that growing sort of 10% to 15%. The other piece which is very -- and we had that business for quite a while obviously, but it's exciting that it's growing fast. The other piece that is quite new is all around influencers and vloggers, which is TikTok and YouTube. And a lot of us probably haven't heard of TikTok sort of 3 or 4 years ago. It is obviously a new phenomenon. It's driven by social media, it's here to stay, it's growing really fast. And we are basically helping a large number of vloggers and influencers put content onto the Internet, either live or recorded. And that accounts for around about 10% of our sales now. And that's grown from pretty much nothing. And that's where JOBY is doing so well. And we're seeing significant growth there, so again sort of in the 10% to 15%. So the other piece is again something I want to be familiar with. We've all heard of Netflix and Amazon Prime and Disney and Apple TV, probably haven't heard of them 5 years ago, probably haven't subscribed to them 5 years ago. But we all are doing that now and we're consuming content in a different way. And this is driving an absolutely huge increase in the investment in new scripted TV shows. So for example, Netflix, although they might be losing a tiny bit of share to other people, are still doing incredibly well and still investing significantly and are planning to make a new series or a new film every day for the next few years. So we're seeing a 20%-plus investment in that area. And that accounts for roughly about 25% of all of our sales. So that's where we do the on-set monitoring and that's where we sell large lighting stands and cinematic equipment into that market. And then the last one is something that's really grown out through the pandemic, which is live streaming, which wasn't a very big market. It's still only about 5% of our sales, but it's growing fast and that's where we help people. I gave the example of Big Jet TV. That's a great example of a company that's caught up live streaming content and getting loads of people watching what they're doing. We help people basically stream a better quality video and typically with less delay. And that's about 5% of our business. And that's again growing sort of in the 15% zone. So all of this is exciting structural change in the market. That means that we now expect revenue to be growing in the high single digits.

Our next question comes from Andrew Douglas with Jefferies.

I've got loads of questions, but I'll ask a few and then jump back into the queue. Can we start with ART? We talked about this, I think, what, 6, 12 months ago. But can you just give us an update on how you think that opportunity has developed, either in the quantum, what the potential upside is over the long term, the end markets that you're targeting, et cetera, just so we can have a proper understanding of that? Secondly, I was interested in your ESG slide, not something that maybe the market really kind of puts with Vitec. But it looks like you've made incredible progress there over the last couple of years. So can you just talk about the story there and how you're feeling about that progress? Third is on the Supervisory Board on Creative. Are you able to just flesh it out a little bit for us kind of why now, who these people are, what's their remits, et cetera, just so we understand? And then I'm just interested also in acquisitions. You made a lot this year, or in the last 12 months, where you're kind of most excited about the opportunities. It sounds like it's on the Audix side, but just want a feel for how you're thinking about those acquisitions now they're part of the group.

Great. Andy, thanks very much. So very briefly then, ART, so that's Amimon Reliable Transport, that is where we have developed a product that basically takes our Amimon technology, which at the moment is usually short-range wireless transmission with zero delay, where we are very strong in the on-set monitoring market, that basically takes that product and applies it over the Internet so that you can basically reduce delays or reduce latency and you can improve video quality. So it allows you to basically send a higher-quality video with less latency. Number of applications of existing cine market will definitely be very interested in that and allow them to move content around to people that are monitoring film sets and so on from remote locations. And clearly, a lot of remote, as a result of the pandemic, lots of monitoring has now moved off the film set to a remote location. And this will help people do that and make sure that they are monitoring with a high-quality video and with a relatively low delay. But there are other applications, medical applications and industrial applications that we're looking at, at the moment, where either we think we may be able to take the products into that market or we may need help, we maybe need to find a partner or even license it. So the size of the opportunity, we've been working actually with a consultant, L.E.K., to look at the size of that opportunity, the size is pretty significant. I mean, we're talking about markets that are into the hundreds of millions of dollars. Right now, we're focused on our existing market, improving the product work. So we have prototypes that are working and sending signals from Texas to Seattle and back with virtually zero delay. We've got the product working. We're going to start selling the product in a few months' time. It's going to be a relatively slow start, but we do see it as a big opportunity. It's just a question of how much of that market we can take and how quickly can we do it. So ART is real and tangible. And we've been talking about it for a bit, but it's here. We've got the product, it works, it beats the competition. So that's very exciting. ESG, Martin, maybe you can talk about a bit of our progress very briefly in a second. But in terms of our process, we've put a huge amount of effort to this and the focus on this is it's clearly important. I'm passionate about it. I think basically ESG gives us a chance to strengthen our focus in certain areas which is good for us, good for the business, good for our environment, but it's also good for our customers who care about this. It's good for our employees. So the things that we're doing here just make an awful lot of sense. So we're very, very pleased to be doing this. Martin, do you want to add in...

Yes, a couple of examples. So in terms of reducing our CO2 emissions, we have a goal of reducing Scope 2 by 50% by 2030. And we've already started by installing some solar panels in Costa Rica and Bury St Edmunds. And we'll extend that to other sites in 2022. And we've also started the replacement all of our lighting with LED. As regards reducing packaging and waste, we converted the filter packaging to FSC, so forestry standard commission-grade materials. So basically about 30% of that is complete. So we're saving hundreds of tons of cardboard packaging each year now. And we will -- we are and have moved to almost 0% landfill at Cartago and Bury St Edmunds. And then in terms of sustainability into the product life cycle, all our lighting bags are from recycled fabric. And we'll move all of our bags in the next year or so to recycled material. So we're making quite -- we've already made quite a lot of progress. And it's an ongoing thing that we'll continue in the next couple of years.

Lots of progress. I think it's fair to say a couple of years ago, we weren't putting enough focus on this. We've always been stroll on things like health and safety and governance and so on. So for example, we had 0 lost time accidents for a number of years now, which for a business of our size is fantastic and a testament to the people. But we're now starting to do some of the things that we weren't doing so well before, measure the amount of waste. We're not hugely wasteful or a polluting company, but we can do better. And I'm really excited about the way our people have got around that. Next question was, I think, on Supervisory Board. So this is basically fairly simple. In Creative Solutions, a very exciting business, fantastic technology that we want to try and leverage more outside of our existing markets. So we've set up a Board with some -- it allows us to bring some external people into the discussion, people who have got some -- basically just two people actually, but we brought them in to look at our options for Creative Solutions, how we might try and leverage the -- and unlock the value of Creative Solutions, particularly the technology. So we've got a couple of people who have got experience in other models, for example, licensing. And so that's working hard on looking at where we go with Creative Solutions. And that will then make a recommendation to the main Board about the best way forward for Creative Solutions. So that's -- they're working on that now and that's imminent. And then finally, on M&A., I mean, first of all, we've driven the debt up as high as we wanted to be. We want to get the debt back down below 1.5x as soon as we possibly can. And we will do that next year, it will be down below 2x by the end of this year. We've made some quite big acquisitions, enormously attractive, particularly Audix. I mean, Savage is a great business, background business, and gives us good exposure to the photographic studio market. But audio is even more exciting as it's part of our audio strategy about getting into audio in the future. And that is -- if you look at Vitec, the next big, exciting transformation is going to be audio, where we believe we can take a big share of the on-camera microphone market. And this business should be a $100 million business in the reasonably near term, which will be a big deal for us. So Audix is a big step in giving us the R&D capability to do that. You already know that we've got microphones under the JOBY brand. We want to launch a much bigger range of exciting microphones to go after the competition there, where we think we can take a share because our customers are already buying these products through our retail, through our channels. So we know it really well. And I think our customers will be very happy to buy these products from us.

Our next question comes from Henry Carver with Peel Hunt.

Just a couple. Maybe first, following on from Andy's one, just on the Creative Solutions sort of value realization plans and stuff, I mean, that -- it sounds like you're exploring all sorts of different sort of parts and avenues. But do we take this as being Creative Solutions as a whole and whatever sort of solution you find, it will be done with regard to the whole division? Or is it potentially going to be carved up? Or is there anything in between? Or just any sort of color on what the thinking is would be really useful, but appreciate it if you don't have it at this point.

Yes. It's a bit -- I mean, it's a little bit difficult to say much more than we've already said in the published material. We are looking at all options. And why are we doing this? Why are we talking about this? It's because Creative Solutions has some fantastic technology. So the core of it is the Amimon technology, I mean, apart from our people who are outstanding. We have a fantastic team of people who understand particularly on the cine market really well but also understand live streaming and so on. But it's the technology which allows you to transmit a video signal with zero delay because it's uncompressed, which is the unique technology. So while we're a small business, in that specific niche, we are the world leaders in zero-delay wireless video transmission over a short distance. And we believe that, that technology has applications outside the market -- outside of the cine markets. And we're already playing in the medical market but also potentially industrial and so on. And if we can make this product work over the Internet, then that opens up a massive opportunity to sell that technology into other areas, which range from medical to industrial to even to video conferencing and so on. So it's a question of working out, can we do that on our own, which we probably can't. We don't have the capacity and the bandwidth to do that. Do we need to license the technology? Or do we need to find partners to help us? And so all those options are up in the air. We're not going to go and look at this for much longer. It's time for us to work out what to do. So we will definitely be reporting back in a reasonably near future to let you know a bit more about that.

That's really, really useful. And just on Creative Solutions again, the margins there, clearly a bit depressed this year for obvious reasons of investing in the business. Do you still see a kind of normalized, if you like, margin for Creative Solutions being the highest in the group? Or sort of where do you see them on a recovered basis?

Sure. I mean, two answers to that one. First of all, the rest of the group, if you like, so Production Solutions and Imaging, have improved their margins significantly. So if you look across the divisions, strangely enough, now Creative Solutions actually has the lowest margin because Production Solutions is doing so well, has recovered so well, we're driving such great operating leverage, so those margins are very strong. Imaging's margins, after a big investment, are also significantly improving. So we're moving all of the divisions up. Creative Solutions' margins would improve probably not back to the level that they were 3 or 4 years ago, which was sort of mid-20s. I don't think we will get back to that, I think that is unsustainable. And the investment we need to make in Creative Solutions to continue to refresh and invest in the product is reasonably significant. But the margins will improve and should improve to help us get to our mid-teens and then on to higher single -- higher-teen margin situation. So I don't think it will be back to mid-20s, but it should certainly be back to mid-teens.

That's really clear. And then one more, if I may, just on the group, the growth expectations you've laid out there. Also, in the next point, you've laid out pricing sort of expectations. Can you give an idea of -- I mean, obviously, this year, with inflation and pricing being inflation means that perhaps there's less volume growth expectation. I don't know if that's the message you were trying to put across or whether if you could give us any color on your sort of expectations in terms of volume and pricing split when you're talking about revenue growth.

Sure. So one of the slides Martin showed on our financial goals sort of pull all this together. So in terms of the end markets, which will include pricing obviously, the end markets are growing high single digits, which is, as we said, is a big change for us. We will take share in those markets. So with pricing, we should be looking to grow at 10% a year. Pricing is something we have significant power over. So most of our businesses, our brand leaders are the most respected product in their areas. Most of the competition is relatively weak. So our pricing power is significant. So we've already started to significantly increase our prices. So we started doing that last year, so starting to increase prices across the board, typically 3% to 5%, and we're doing that again this year. And the reason we're doing that is that, clearly, we've got inflationary pressures on us. But we want to more than recover that. And we believe that with the investment we've made on our new products and managing the mix and so on, we can get more pricing in the market. So we are pushing our prices up in an appropriate way. And our customers, frankly, are happy to pay for products that are fantastically well engineered and manufactured, are available on time. We've looked after our customers through the pandemic. For example, none of our hubs closed down even in the worst moments of the pandemic. So we've looked after our customers very well. And they recognize that we are a premium-priced brand. So our pricing power will more than offset inflationary pressures this year. If we see more inflationary pressures, then we will put our prices up more. So that's a very strong position to be in. That then allows us to drive -- Martin has talked about drive good operating leverage. So as we see revenues go up, we believe at least 30% of that will fall through to the bottom line, which then drives improvement in margins. So all this is starting to come together. And the reason Martin put all that on one slide was just to show that if you look at all these financial goals and put them together and we achieve them all, which we're very confident of doing, then the future looks really compelling and, I think, offers really exciting investment opportunity for our shareholders.

[Operator Instructions] Our next question comes from Tom Fraine with Shore Capital.

A follow-up question on M&A. How reluctant would you be to do an equity raise? I know this is something you do in the past. But if there is a really good opportunity that presents itself, would you be willing to come to the market? The second question is on the 4K replacement cycle. How much of this is left to run? I think we were told a couple of years ago that it would be one of the most material areas of growth in the business, certainly at an operating profit level, and it was a multiyear cycle. Just wondering how much growth still comes from this. And finally, in terms of competition from alternative technologies, such as drones, how do you see that affecting your broadcast and potentially hobbyist revenues, if at all?

Okay. Thanks, Tom. Thank you. So in terms of M&A, Martin can jump in, in a second. So we hope -- in the worst moments of the pandemic, obviously, we thought about whether we would need to raise equity. We thought we could run the business effectively and that we didn't need to. And obviously, I'm very pleased that we didn't need to raise equity in distress. It's true that we have made a couple of acquisitions that have pushed our debt up probably to as high a level as I would want to accept. So we want to get our net debt-to-EBITDA down to 1.5x pretty down quickly, so very unlikely we're going to make any other significant acquisitions or even anything on the loan front for a while. Clearly, it's something absolutely amazing [indiscernible], particularly in the audio space that we have a really attractive [indiscernible] in imaging content creation and the audio space. So that is where we will focus. But I think that's relatively unlikely. So I think very unlikely. And frankly, it's not something I'm keen to do. In terms of the -- we're getting a little bit of noise on the line. I don't know if that's [indiscernible]. Sorry, in terms of the 4K replacement cycle, yes, absolutely a major driver of growth for us. Replacing all of the old HD transmitters with 4K transmitters is a major opportunity for us that we're executing on extremely well with our Bolt transmitters, so very well received. And as that market is taking off, that's growing very nicely. We're probably only about 20% or so through that cycle, so quite a lot to come. And it's just about how fast we can accelerate it. The only thing that is holding us back a little bit is component shortages in this area. So it's the one area where we do have some chips that are in short supply. But we're managing that. We're a bit worried about that a month or 2 ago. We're managing that. We're managing the mix. So actually, we're up-selling our customers to products at a higher price. We don't have the chip that we -- which is in short supply. So we're managing the mix. We're redesigning the chip out of some of the older products. And also, we are working with Intel, who are working really well with us. So hopefully, that's not going to be -- that's going to be a relatively small problem. In total, component shortages for the whole group are going to be, we think, in terms of revenue, less than $10 million of headwind, so not that significant and hopefully even less than that. And then in terms of competition in technology, in terms of if you're talking about the broadcast space, we are embracing most areas of new technologies. So if you talk about drones, drones for us are very interesting. We will not make drones ourselves. That's a crowded area. And also drones have the potential to fall on people's heads. So that's not a market I want to get into. It's very competitive, very, very low margins and potentially unsafe. But what we do, do is support big drone operators. So for example, putting stabilization into drones and putting our video transmission into drones so that the drones can be filming and sending back a signal to a monitor. And so that obviously sets up wirelessly, we benefit from that. So we benefit from that technology. Most of the technology trends in our business are very, very positive. So if you think about the 4K replacement cycle, it just -- it's shortening the product replacement cycle. You could go through new smartphones, the way that we managed to embrace that and sell JOBY products into smartphone users, the 4K transmission. The fact that digital cameras are getting smaller and smaller format with compact system cameras means some people would like to change their tripods, so we made small-level compact tripods, which drives our business. So technology driving the shorter replacement cycles is a really exciting opportunity for us. And right now, 50% of all the products that we sell, we've launched in the last 3 years, which is a very -- look at any other business, I mean, certainly in all the business I've been involved in, that's incredibly healthy ratio, much more healthy than 10 years ago, when I joined the company. And probably, it's going to improve because technology is offering -- technology is driving a change in the market that is great for us. Does that answer some of your questions? Good. I think that may be it. Thanks for all your questions. Andy, are you okay? I think you said you had loads and loads of questions. Are you okay with just your four?

Maybe Andy is gone.

Yes. Good. Excellent. Thank you much, everybody, for listening, and have a great day. Thank you.