Annual Report and Accounts 2014 Financial Statementsar2014.creston.com/uploads/1405768301_Financial_Sta… · · 2014-07-19In our opinion the Financial Statements, defined below:

Financial Statements

Financial Statements70 Independent auditors’ report to

the members of Creston plc on the Group Financial Statements

73 Consolidated income statement 74 Consolidated statement of

comprehensive income75 Consolidated balance sheet76 Consolidated statement of

changes in equity 77 Consolidated statement of

cash flows78 Notes to the Financial

Statements 110 Independent auditors’ report

to the members of Creston plc on the parent Company Financial Statements

112 Company balance sheet113 Company statement of

changes in equity114 Company statement of

cash flows115 Notes to the Creston plc

Company Financial Statements

Shareholder information121 Financial glossary122 Shareholder information

www.creston.com Annual Report and Accounts 2014

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Our opinionIn our opinion the Financial Statements, defined below:

n give a true and fair view of the state of the Group’s affairs as at 31 March 2014 and of its profit and cash flows for the year then ended;

n have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and

n have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

This opinion is to be read in the context of what we say in the remainder of this report.

What we have auditedThe Group Financial Statements (the ‘Financial Statements’), which are prepared by Creston plc, comprise:

n the Consolidated balance sheet as at 31 March 2014;

n the Consolidated income statement and the Consolidated statement of comprehensive income for the year then ended;

n the Consolidated statement of cash flows for the year then ended;

n the Consolidated statement of changes in equity for the year then ended; and

n the notes to the Financial Statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.

What an audit of Financial Statements involvesWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

n whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed;

n the reasonableness of significant accounting estimates made by the Directors; and

n the overall presentation of the Financial Statements.

In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Overview of our audit approachMaterialityWe set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the Financial Statements as a whole.

Based on our professional judgement, we determined materiality for the Group Financial Statements as a whole to be £500,000. This represents approximately 5 per cent of headline profit before tax (‘PBT’). Headline PBT is considered to be an appropriate measure of performance for the Group.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £25,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Overview of the scope of the auditThe Group is structured into four divisions, including three operating divisions, being Communications, Health and Insight and a Head office function. Within each operating division are a number of trading entities. The Group Financial Statements are a consolidation of 19 trading entities and the centralised Head Office function.

In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the trading entities by us, as the Group engagement team. In our view, based on their size or risk characteristics, 11 components required an audit of their complete financial information. This, together with certain specific audit procedures performed on the material balances at Cooney Waters Group gave us the evidence we needed for our opinion on the Group Financial Statements as a whole.

Areas of particular audit focusIn preparing the Financial Statements, the Directors made a number of subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the Financial Statements.

In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered to be significant issues in relation to the Financial Statements is set out on page 54.

Independent auditors’ report to the members of Creston plc on the Group Financial Statements

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Area of focus How the scope of our audit addressed the area of focus

Impairment of goodwill The Group has significant goodwill asset balances. Under IAS 36, management are required to annually assess the carrying value of goodwill.

Assessment of impairment is, by its nature, judgmental and requires that management carefully assess the key assumptions underlying their valuation models and the detailed cash flow forecasts that support the carrying value of goodwill.

In particular, ICM, as a cash generating unit, was identified as being at greater risk of impairment due to a recent history of under performance against management forecasts.

We understood and evaluated the controls around management’s impairment models that support the carrying values of cash generating units, in particular the controls over forecasting future cash flows.

We assessed the appropriateness of management’s forecasts. This included a review of the performance of the underlying businesses and consideration of management’s projections of performance in the context of internally and externally available information, such as competitor discount rates, Price Earnings ratios and competitor Beta’s.

We tested management’s key assumptions including projected growth rates, discount rates, perpetuity rates, assessment of historic forecasting accuracy and sensitivity to changes in the assumptions.

In particular, as part of our audit procedures, we identified ICM as a cash generating unit that is especially sensitive to changes in management assumptions and focused our testing on the assumptions underlying management’s projections. ICM has experienced a recent history of underperformance against forecast, being an indicator for potential impairment. In addition, sensitivity analysis has been performed by management and based on management’s assessment; we note that an underperformance against the current forecast by 15 per cent would result in the carrying value of goodwill associated with ICM being equal to the recoverable amount.

Risk of fraud in revenue recognition Revenue is derived from customer contracts and is susceptible to risk of error or manipulation, especially in relation to recognition criteria and in particular, whether revenue is recorded in the correct accounting period, including whether revenue has been appropriately accrued or deferred.

The point at which revenue is recognised is subject to management judgement, most notably around the stage of completion of each individual contract.

We understood and evaluated management’s controls around revenue recognition, including understanding management’s monthly and year end processes for ensuring the correct amount of revenue has been recognised on contracts that were open at the year end.

We utilised Computer Assisted Audit Techniques to test transactions which were settled during the financial reporting period. We tested revenue to supporting evidence including agreement to the underlying terms of contracts, focusing on contracts in an open position at the year end.

We also tested reconciliations and manual journals in relation to recognised, accrued and deferred revenue.

Risk of management override of internal controls ISAs (UK & Ireland) require that we consider this.

We assessed the level of risk of management override of controls with reference to incentive plans, opportunities arising and discussions with those charged with governance and internal audit.

Based on the assessed risk, we tested key reconciliations and manual journal entries in the scoped reporting units and the consolidation.

We focussed on areas with significant accounting estimates or underlying judgments that could potentially be manipulated. We assessed whether there was evidence of bias by the Directors in their estimates, individually and in aggregate.

Going concernUnder the Listing Rules we are required to review the Directors’ statement, set out on page 49, in relation to going concern. We have nothing to report having performed our review.

As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the Financial Statements using the going concern basis of accounting. The going concern basis presumes that the Group has

adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the Financial Statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate.

However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to continue as a going concern.

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Independent auditors’ report to the members of Creston plc on the Group Financial Statementscontinued

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the Group Financial Statements are prepared is consistent with the Financial Statements.

Other matters on which we are required to report by exceptionAdequacy of information and explanations receivedUnder the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility.

Directors’ remunerationUnder the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statementUnder the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the parent Company’s compliance with nine provisions of the UK Corporate Governance Code (‘the Code’). We have nothing to report having performed our review.

On page 68 of the Annual Report and Accounts, as required by the Code Provision C.1.1, the Directors state that they consider the Annual Report and Accounts taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s performance, business model and strategy. On page 54, as required by C.3.8 of the Code, the Audit Committee has set out the significant issues that it considered in relation to the Financial Statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

n the explanation given by the Directors as to why the Annual Report and Accounts does not include a statement that the Annual Report and Accounts is fair balanced and understandable is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit; or

n the explanation given by the Directors as to why the Annual Report and Accounts does not include a section that appropriately addresses matters communicated by us to the Audit Committee is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit.

We have no exceptions to report arising from this responsibility.

Other information in the Annual Report and AccountsUnder ISAs (UK & Ireland) we are required to report to you if, in our opinion, information in the Annual Report and Accounts is:

n materially inconsistent with the information in the audited Financial Statements; or

n apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or

n is otherwise misleading.


Responsibilities for the Financial Statements and the auditOur responsibilities and those of the DirectorsAs explained more fully in the Directors’ Responsibilities Statement set out on page 68, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other matterWe have reported separately on the parent Company Financial Statements of Creston plc for the year ended 31 March 2014 and on the information in the Directors’ Remuneration Report that is described as having been audited.

Philip Stokes (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 9 July 2014

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Consolidated income statementfor the year ended 31 March 2014

Note

Headline 2014

£’000

Headline items

(note 3) £’000

Reported 2014

£’000

Headline 2013

£’000

Headline items

(note 3) £’000

Reported 2013

£’000

Turnover (billings) 2 101,850 – 101,850 107,088 – 107,088

Revenue 2 74,878 – 74,878 75,189 – 75,189

Operating costs 4 (65,112) (2,359) (67,471) (65,024) 841 (64,183)

Profit before finance income, finance costs and taxation 2/4 9,766 (2,359) 7,407 10,165 841 11,006

Finance costs 6 (149) (54) (203) (154) 154 –

Profit before taxation 2 9,617 (2,413) 7,204 10,011 995 11,006

Taxation 7 (2,410) 441 (1,969) (1,087) (125) (1,212)

Profit for the financial year 7,207 (1,972) 5,235 8,924 870 9,794

Attributable to:

Equity holders of the parent 7,100 (1,972) 5,128 8,866 870 9,736

Non-controlling interest 107 – 107 58 – 58

7,207 (1,972) 5,235 8,924 870 9,794

Earnings per share (pence)

Basic 8 11.84 8.55 14.66 16.10

Diluted 8 11.79 8.52 14.66 16.10

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Consolidated statement of comprehensive incomefor the year ended 31 March 2014

2014 £’000

2013 £’000

Profit for the financial year 5,235 9,794

Other comprehensive (expense)/income:

Items that may be reclassified subsequently to profit and loss:

Exchange differences on translation of foreign operations (1,007) 450

Other comprehensive (expense)/income for the financial year (1,007) 450

Total comprehensive income for the financial year 4,228 10,244

Attributable to:

Equity holders of the parent 4,121 10,186

Non-controlling interest 107 58

4,228 10,244

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Note

As at 31 March

2014£’000

As at 31 March

2013£’000

Non-current assets

Intangible assets

Goodwill 10 103,792 105,022

Other 11 1,193 1,359

Property, plant and equipment 12 4,619 4,442

Deferred tax asset 21 987 582

110,591 111,405

Current assets

Inventories and work in progress 13 905 1,070

Trade and other receivables 14 28,948 25,373

Cash and cash equivalents 26 7,452 11,208

37,305 37,651

Current liabilities

Trade and other payables 15 (28,519) (28,519)

Corporation tax payable (1,147) (1,549)

Bank overdraft, loans and loan notes 18 – (10)

(29,666) (30,078)

Net current assets 7,639 7,573

Total assets less current liabilities 118,230 118,978

Non-current liabilities

Trade and other payables 15/25 (2,674) (5,160)

Provision for contingent deferred consideration 16 (1,711) (1,714)

Provision for other liabilities and charges 17 (782) (128)

Deferred tax liability 21 (505) (368)

(5,672) (7,370)

Net assets 112,558 111,608

Equity

Called up share capital 22 6,134 6,134

Share premium account 24 35,943 35,943

Own shares 24 (1,679) (656)

Shares to be issued 24 929 1,167

Other reserves 24 30,822 30,822

Foreign currency translation reserve 24 (730) 277

Retained earnings 24 41,032 37,863

Equity attributable to equity holders of the parent 112,451 111,550

Non-controlling interest 107 58

Total equity 112,558 111,608

The Financial Statements, which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated statement of changes in equity, the Consolidated statement of cash flows and the related notes, were approved by the Board on 9 July 2014 and were signed by:

Barrie BrienGroup Chief Executive

Consolidated balance sheetas at 31 March 2014

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Called up share

capital £’000

Share premium account

£’000Own shares

£’000

Shares to be issued

£’000

Other reserves

£’000

Foreign currency

translation reserve

£’000

Retained earnings

£’000

Total attributable

to equity holders of

parent £’000

Non-controlling

interest £’000

Totalequity £’000

Changes in equity for 2014

At 1 April 2013 6,134 35,943 (656) 1,167 30,822 277 37,863 111,550 58 111,608

Profit for the year – – – – – – 5,128 5,128 107 5,235

Other comprehensive expense:

Exchange differences on translation of foreign operations – – – – – (1,007) – (1,007) – (1,007)

Total comprehensive (expense)/income for the financial year – – – – – (1,007) 5,128 4,121 107 4,228

Credit for share-based incentive schemes – – – 126 – – – 126 – 126

Transfer between reserves in respect of lapsed share options – – – (364) – – 364 – – –

Purchase of treasury shares – – (1,023) – – – – (1,023) – (1,023)

Dividends (note 9) – – – – – – (2,323) (2,323) (58) (2,381)

At 31 March 2014 6,134 35,943 (1,679) 929 30,822 (730) 41,032 112,451 107 112,558

Called up share

capital £’000


£’000Own shares

£’000

Shares to be issued

£’000

Other reserves

£’000

Foreign currency

translation reserve

£’000

Retained earnings

£’000

Total attributable

to equity holders of

parent £’000

Non-controlling

interest £’000

Totalequity £’000


At 1 April 2012 6,134 35,943 (656) 1,079 30,822 (173) 30,346 103,495 – 103,495

Profit for the year – – – – – – 9,736 9,736 58 9,794

Other comprehensive income:

Exchange differences on translation of foreign operations – – – – – 450 – 450 – 450

Total comprehensive income for the financial year – – – – – 450 9,736 10,186 58 10,244

Credit for share-based incentive schemes – – – 88 – – – 88 – 88

Dividends (note 9) – – – – – – (2,219) (2,219) – (2,219)

At 31 March 2013 6,134 35,943 (656) 1,167 30,822 277 37,863 111,550 58 111,608

Consolidated statement of changes in equityfor the year ended 31 March 2014

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Note2014

£’0002013

£’000

Profit for the financial year 5,235 9,794

Taxation 7 1,969 1,212

Profit before taxation 7,204 11,006

Finance costs 6 203 –

Profit before finance income, finance costs and taxation 7,407 11,006

Depreciation of property, plant and equipment 1,657 1,615

Amortisation of intangible assets 282 263

Share based payment charge 267 88

Charge/(credit) for future acquisition payments to employees deemed as remuneration 252 (299)

Movement in fair value of contingent deferred consideration 16 (29) (6,799)

Impairment of goodwill 10 – 5,161

Loss on disposal of property, plant and equipment 56 15

Loss on disposal of intangible assets 2 13

Decrease in inventories and work in progress 160 149

(Increase)/decrease in trade and other receivables (3,617) 1,002

Increase in trade and other payables 1,080 48

Adjusted operating cash flow 7,517 12,262

Movement in net proceeds on operating lease 25 (3,688) 6,529

Operating cash flow 3,829 18,791

Tax paid (2,647) (926)

Net cash inflow from operating activities 1,182 17,865

Investing activities

Purchase of subsidiary undertakings – (1,648)

Net cash acquired with subsidiaries – 413

Purchase of property, plant and equipment 12 (1,513) (2,598)

Proceeds from sale of property, plant and equipment – 9

Purchase of intangible assets 11 (152) (143)

Net cash outflow from investing activities (1,665) (3,967)

Financing activities

Finance costs (112) (176)

Net decrease in borrowings (10) –

Dividends paid 9 (2,323) (2,219)

Dividends paid to non-controlling interest (58) –

Purchase of treasury shares (1,023) –

Capital element of finance lease payments – (2)

Net cash outflow from financing activities (3,526) (2,397)

(Decrease)/increase in cash and cash equivalents 26 (4,009) 11,501

Cash and cash equivalents at start of the financial year 26 11,208 (80)

Effect of foreign exchange rates 253 (213)

Cash and cash equivalents at end of the financial year 26 7,452 11,208

Consolidated statement of cash flowsfor the year ended 31 March 2014

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1 Accounting policies

Basis of preparationThe Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRS Interpretations Committee interpretations adopted for use in the European Union and those parts of the Companies Act 2006 which are applicable to companies reporting under IFRS. The Group Financial Statements are consolidated and include all Group entities. The Company’s domicile and country of incorporation is England and Wales, and both its registered office and Head Office are located at Creston House, 10 Great Pulteney Street, London W1F 9NB.

The Financial Statements have been prepared in sterling, the currency in which the majority of the Group’s transactions are denominated, on the historical cost basis, except where IFRS as adopted by the European Union requires a fair value adjustment, and on a going concern basis.

The following standards, amendments and interpretations are relevant to the Group, but not yet effective and have not been early adopted by the Group:

n IFRS 10, ‘Consolidated Financial Statements’ (effective for periods beginning on or after 1 January 2014). This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the Consolidated Financial Statements. The standard provides additional guidance to assist in determining control where this is difficult to assess.

n Amendment to IAS 32, ‘Financial instruments: Presentation’ (effective for periods beginning on or after 1 January 2014). This amendment updates the application guidance in IAS 32, ‘Financial instruments: Presentation’, to clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet.

n IFRS 9 ‘Financial instruments’ (effective for periods beginning on or after 1 January 2018). This standard on classification and measurement of financial assets and financial liabilities will replace IAS 39, ‘Financial instruments: Recognition and measurement’. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the IAS 39 requirements.

Amendments to IFRS 13 ‘Fair value measurement’, IAS 1 ‘Financial statement presentation’ and IAS 12 ‘Income taxes’ became effective for the year ending 31 March 2014. The adoption of these amendments did not have a material impact on the Financial Statements.

The principal accounting policies applied in the preparation of these Financial Statements are set out below and on the following pages. These policies have been consistently applied to the Group and to all years presented, unless otherwise stated.

Basis of consolidationSubsidiariesSubsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The consideration for an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the consideration for an acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Consolidated income statement.

In accordance with IFRS 3 ‘Business combinations’, from 1 April 2010 all acquisition-related costs have been recognised as an operating cost in the Consolidated income statement, whereas previously they were capitalised.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.

Notes to the Financial Statementsfor the year ended 31 March 2014

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Turnover (billings)Turnover represents amounts received or receivable from clients for the rendering of services and is stated after deduction of trade discounts and excluding value-added tax or similar sales taxes outside the UK.

Turnover is recognised at fair value as service activity progresses on the following basis:

n Project fees are recognised over the period of the relevant assignments or agreements.

n Retainer fees are spread over the period of the contract on a straight-line basis.

n Third-party production fees are recognised at the point the client accepts delivery of each component of a project.

Turnover includes all charges paid to external suppliers where they are retained to perform part or all of a client assignment.

Revenue When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the level of services performed. In determining the level of services performed a percentage of completion method is adopted as detailed below:

Project fees for creative services – The level of services performed is based on actual chargeable hours undertaken versus total budgeted hours of a project. This percentage of completion is corroborated with progress against agreed project milestones to ensure the level of work undertaken is in line with actual service delivery.

Retainers – The level of services performed is based on the chargeable hours incurred in proportion to the total hours committed under the retainer.

Long-term contracts – The level of services performed is based on costs incurred including chargeable hours undertaken versus total budgeted costs. This percentage of completion is corroborated with progress against agreed project milestones to ensure the level of work undertaken is in line with actual service delivery.

Attributable profit on long-term contracts is only recognised once their outcome can be assessed with reasonable certainty. Full provision is made for any losses on projects in the period in which the loss is first foreseen.

Commissions on third party costs – Where agencies are able to mark up third party costs then the associated revenue will be recognised when the cost is incurred and where this cost reflects services delivered. Mark ups on third party costs are becoming an increasingly small part of the Group’s revenue with the majority of costs simply being pass-through costs with no margin.

Intangible assets(a) GoodwillGoodwill arising from the purchase of subsidiary undertakings represents the difference between the purchase consideration and the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary acquired, and is capitalised in accordance with the requirements of IFRS 3. Future anticipated payments to vendors in respect of earn-outs are based on the fair value of these obligations. Earn-outs are dependent on the future performance of the relevant business and are reviewed semi-annually. Any subsequent movements in the fair value of such consideration as a result of post-acquisition events are recognised as a gain or loss in the Consolidated income statement. The contingent deferred consideration is discounted to its fair value in accordance with IFRS 3 and IAS 39. The difference between the fair value of these liabilities and the actual amounts payable is charged to the Consolidated income statement as notional finance costs over the life of the associated liability.

Goodwill is carried at cost less accumulated impairment losses. The carrying value of goodwill is reviewed annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired. Under IFRS, an impairment charge is required for both goodwill and other assets with an indefinite useful life when the carrying value exceeds the recoverable amount, defined as the higher of fair value less costs to sell and value in use. In accordance with IFRS 3, the carrying value of goodwill will continue to be reviewed for impairment on the basis stipulated, and adjusted should this be required. Impairment is recognised in the Consolidated income statement and is not subsequently reversed. The individual circumstances of each future acquisition will be assessed to determine the appropriate treatment of any related goodwill.

Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts at the date of transition subject to being tested for impairment at that date.

The Directors consider that customer relationships are not separable or intangible assets, as customer relationships attach to the staff base and senior management of the agency and not to the agency itself. Consequently, unless stated otherwise in note 10, the goodwill reflects the combined value of customer relationships, the staff base and other non-separable intangible assets.

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Notes to the Financial Statementscontinued

1 Accounting policies continued(b) Other intangible assetsOther acquired intangible assets are carried at cost less accumulated amortisation and impairment losses. Intangible assets acquired as part of a business combination are capitalised at fair value at the date of acquisition. The list of such intangible assets is significantly more comprehensive under IFRS. Intangible assets are amortised to residual values over the useful economic life of the asset. Where an asset’s life is considered to be indefinite an annual impairment test is performed. The Directors consider the value assigned to goodwill to exceed that assigned to intangible assets because the inherent value of the acquired companies predominantly lies within the employees.

The identified intangible assets and associated periods of amortisation are as follows:

Intangible asset Period of amortisation

Brand names Infinite life – subject to annual impairment testing

Customer contracts Over the notice period of the contract (generally one to three months) on a straight line basis

Brands are considered to have an infinite economic life because of their proven market position and the Group’s commitment to develop and enhance their value. On this basis, the Directors consider it reasonable to assign an infinite life to these intangible assets but consider it appropriate to review this on an annual basis in order to assess whether there has been any degradation of a company’s brand name and image. The carrying values of brand names are reviewed for impairment in the same manner as goodwill.

The customer contracts are amortised over this period because the Directors consider this to be the typical length of customer contracts active at the time of acquisition.

(c) Software licencesAcquired computer software licences which do not form part of the operating software acquired with a piece of hardware are capitalised on the basis of all costs incurred in bringing them into use. These assets are carried at cost less accumulated amortisation and impairment losses and are amortised on a straight line basis over a five-year period.

(d) Software development costsCosts associated with the development of identifiable and unique software products controlled by the Group that will probably generate economic benefits exceeding costs are recognised as intangible assets. These assets are carried at cost less accumulated amortisation and impairment losses and are amortised on a straight line basis between three and five years.

Provisions for contingent deferred considerationThe terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash, shares or other securities at a future date, depends on uncertain future events such as the future performance of the acquired company. Where it is not possible to estimate the amounts payable with any degree of certainty, the amounts recognised in the Financial Statements represent a fair value estimate at the balance sheet date of the amounts expected to be paid. This amount is based on discounting management’s estimate of the most likely outcome. The difference between the fair value of the liabilities and the amounts payable is charged to the Consolidated income statement as notional finance costs (calculated at the annual rate of 3.3 per cent (2013: 3.3 per cent) based on the weighted average rate appropriate to the expected method of settlement) over the life of the associated liability.

Subsequent movements in the fair value of the expected future contingent deferred consideration payment are recognised in the Consolidated income statement.

Where contingent deferred consideration may be settled by the issue of either shares or loan notes, it is classified in the balance sheet in accordance with the substance of the transaction. Where the agreement gives rise to an obligation that is settled by the delivery of a variable number of shares to meet a monetary defined liability, these amounts are disclosed as debt.

In accordance with IFRS 3, certain payments made to employees in respect of earn-out arrangements are treated as remuneration within the Consolidated income statement over the relating vesting period.

Provisions for other liabilities and chargesProvisions are recognised where there is a present obligation, arising from a past event, that has a probable future economic outflow that can be estimated reliably. The amount of each provision recognised is based on management’s best estimate.

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Share-based payment transactionsThe Group has applied the requirements of IFRS 2 ‘Share-based payments’. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2005.

The Group issues equity-settled and cash-settled share-based payments (LTIPs and options) to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the Consolidated income statement with a corresponding adjustment to equity.

Fair value is measured by use of a Black-Scholes model on the grounds that there are no market-related vesting conditions. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability and exercise restrictions. Details of the risk-free rate and dividend yield used to underpin these assumptions are included in note 23. Market price on any given day is obtained from external publicly available sources.

A liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance sheet date for cash-settled share-based payments. Over the vesting period, where remeasurements materialise, differences are taken to the Consolidated income statement.

The share-based plans are subject to performance criteria and continued employment. These are assessed on an annual basis. Further details of share options are included in note 23.

Property, plant and equipmentAll property, plant and equipment is stated at historical cost (or fair value on acquisition where appropriate) less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less the estimated residual value of each asset, evenly over its expected useful economic life, as follows:

Property, plant and equipment Period of depreciation

Leasehold property Period of the lease

Motor vehicles Four years

Fixtures, fittings and equipment Three to ten years

Residual values and lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Inventories and work in progressInventories are stated at the lower of cost and net realisable value. The cost of work in progress includes the costs of direct materials and purchases.

Where projects have the characteristics of long-term contracts, attributable profit is only recognised once their outcome can be assessed with reasonable certainty. Such profit reflects the proportion of work on the project completed to date. Amounts recoverable on such projects are included within trade and other receivables after provision for any foreseeable losses and the deduction of applicable payments on account. Full provision is made for any losses on projects in the year in which the loss is first foreseen.

Current taxationThe tax expense represents the sum of the tax currently payable and deferred tax.

The current tax is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

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1 Accounting policies continuedDeferred taxationDeferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

The carrying amount of the deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Lease and hire purchase commitmentsIn accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. Leases of land and buildings are split into land and buildings elements according to the relative fair values of the leasehold interests at the date the asset is initially recognised/date of entering into the lease agreement.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the Consolidated income statement over the period of the lease.

All other leases are regarded as operating leases and the payments made under them are charged to the Consolidated income statement on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease.

Pension costsRetirement benefits to employees are provided by defined contribution schemes that are funded by the Group and employees. Payments are made to pension trusts that are financially separate from the Group. These costs are charged against profits as incurred.

Financial instrumentsFinancial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Issue costs are offset against the proceeds of such instruments.

Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Consolidated balance sheet.

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Trade receivablesTrade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Consolidated income statement within operating costs. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating costs in the Consolidated income statement.

Trade payablesTrade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Bank borrowingsInterest-bearing bank loans and overdrafts are recorded at their fair value, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the Consolidated income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Other financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group has only one class of shares in existence. See note 22.

Derivative financial instrumentsThe Group’s activities expose it to certain financial risks including changes in foreign currency exchange rates. The Group uses foreign exchange forward contracts to hedge this exposure. The Group does not use derivative financial instruments for speculative purposes.

Derivative financial instruments are held at fair value at the balance sheet date. Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges of future cash flows are recognised directly in other comprehensive income and the ineffective portion is recognised immediately in the Consolidated income statement. Amounts deferred in this way are recycled to the Consolidated income statement in the same period in which the hedged firm commitments or forecast transactions are recognised in the Consolidated income statement.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Consolidated income statement as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gains or losses on the hedging instrument recognised in equity are retained until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the Consolidated income statement for the period.

Foreign currenciesTransactions in currencies other than the functional currency of the individual group entities are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing on the balance sheet date.

Exchange differences arising on the settlement of monetary assets and liabilities and those arising on retranslation are included within operating costs in the period in which the difference arose.

On consolidation, the assets and liabilities of the Group’s operations are translated at the exchange rate prevailing on the balance sheet date. The trading results and cash flows are translated at the average exchange rate for the period. Exchange differences arising upon consolidation are taken directly to the Consolidated statement of comprehensive income.

Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the exchange rate prevailing on the balance sheet date.

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1 Accounting policies continuedDividendsDividends distributed to the Group’s shareholders are recognised as a liability in the Group’s Financial Statements in the period in which the dividends are approved by the Group’s shareholders. Interim dividends are recognised when paid.

Accounting estimates and judgementsThe Group makes a number of accounting estimates and judgements and the resulting estimates may, by definition, vary from the related actual results. The Directors have considered the critical accounting estimates and judgements used in the Financial Statements and have concluded that the main areas are as follows:

(a) Estimated impairment of goodwillThe Group tests annually whether goodwill has suffered any impairment, in accordance with the Group’s accounting policy. These calculations require the use of estimates. See note 10 for further details.

(b) Revenue recognition and percentage of completionWhen the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the level of services performed. In determining the level of services performed management must estimate the percentage of completion. Management ensure the accuracy of percentage of completion estimates through detailed discussions with those individuals directly involved in the relevant projects. For further details see the revenue accounting policy on page 79.

(c) Contingent deferred consideration in respect of acquisitionsThe Group has estimated the value of future purchase consideration payable to vendors based on management’s estimate of the future financial performance of the relevant entity. This estimated future purchase consideration is used to calculate the deemed remuneration charge. Refer to note 16.

2 Segmental analysis

The chief operating decision-maker has been identified as the Executive Board of Directors, which makes the strategic decisions. The Executive Board has determined the operating segments in a manner consistent with the internal reporting provided to the Executive Board. The Executive Board considers the business from a divisional perspective, these being Communications, Health and Insight. The principal activities of the three divisions are as follows:

CommunicationsThe Communications division offers clients an integrated approach to their marketing and communication strategy, offering a range of services which include advertising, brand strategy, channel marketing, customer relationship marketing (CRM), digital marketing, direct marketing, local marketing, social media marketing and public relations.

HealthThe Health division provides an integrated communications solution to the healthcare and pharmaceutical sector and offers services which include advertising, advocacy, brand and creative consulting, digital and direct marketing, public relations, issues and reputation management and medical education.

InsightThe Insight division performs a complete range of market research services on behalf of its clients, through both qualitative and quantitative means, using face-to-face, telephone and online data collection techniques.

The Executive Board assesses the performance of the operating segments based on a measure of revenue and Headline PBIT. This measurement basis excludes the effects of exceptional charges from the operating segments, such as property related costs, acquisition, start-up and restructuring related costs, amortisation of acquired intangible assets, movement in fair value of contingent deferred consideration, impairment of goodwill, future acquisition payments to employees deemed as remuneration and notional finance costs on contingent deferred consideration.

Accounting policies are consistent across the reportable segments.

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All significant assets and liabilities are located within the UK and the USA. The Executive Board does not review the assets and liabilities of the Group on a divisional basis and has therefore chosen not to segment the assets and liabilities of the Group.

Other information provided to the Executive Board is measured in a manner consistent with that in the Financial Statements.

With the launch of a new Group vision and strategy in FY15 a new agency group structure is set to evolve. The Executive Board is therefore likely to reconsider how it reviews the performance of the Group and as a result there may be a change in the Group’s operating segments as defined under IFRS 8.

Segmental analysis by businessTurnover, revenue, Headline and Reported profit before finance income, finance costs and taxation (PBIT), and profit before tax (PBT) attributable to Group activities are shown below.

2014Communications

£’000Health£’000

Insight£’000

Head Office£’000

Group£’000

Turnover (billings) 54,702 24,021 23,127 – 101,850

Revenue 40,656 21,286 12,936 – 74,878

Headline profit/(loss) before finance income, finance costs and taxation (segment results) 5,709 4,497 2,559 (2,999) 9,766

Property related costs (94) – (440) (912) (1,446)

Acquisition, start-up and restructuring related costs – (195) (435) – (630)

Amortisation of acquired intangible assets – (60) – – (60)

Movement in fair value of contingent deferred consideration – 29 – – 29

Future acquisition payments to employees deemed as remuneration – (252) – – (252)

Reported profit/(loss) before finance income, finance costs and taxation (segment results) 5,615 4,019 1,684 (3,911) 7,407

Finance costs – – – (149) (149)

Notional finance cost on future contingent deferred consideration – (54) – – (54)

Profit/(loss) before taxation 5,615 3,965 1,684 (4,060) 7,204

Taxation (1,969)

Profit for the financial year 5,235

Property related costs of £1.4 million have been excluded from the Headline PBIT measure for the year ended 31 March 2014. These costs include £0.9 million recognised within the Head Office result, relating to the costs incurred during the vacant period of Creston House, including double rent, rates and service charge. A further £0.6 million in relation to the vacant period of Creston House was recognised within the Head Office result in the year ended 31 March 2013. As at 31 March 2013 a provision for the £0.9 million costs was not made because the economic benefit to be obtained under the new Creston House lease was due to exceed these costs and the additional costs over the lease term.

The remaining £0.5 million included within the total £1.4 million of property related costs for the year relates to move costs and double rent, rates and service charge on existing leases; these have been recognised within the respective divisional result. As the economic benefit obtained during the year ended 31 March 2014 was in excess of the £0.5 million incurred under the existing leases, a provision for these costs was not made as at 31 March 2013.

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2 Segmental analysis continuedSegmental analysis by business continuedAcquisition, start up and restructuring related costs of £0.6 million have been excluded from the Headline PBIT measure for the year ended 31 March 2014. These consist of £0.4 million in closure costs and trading losses for Vitaris and restructuring costs within the Insight division, and £0.2 million in start-up costs associated with the new brand and creative consultancy, Loooped.

2013Communications

£’000Health £’000

Insight £’000

Head Office £’000

Group £’000

Turnover (billings) 58,511 26,426 22,151 – 107,088

Revenue 41,142 21,949 12,098 – 75,189

Headline profit/(loss) before finance income, finance costs and taxation (segment results) 6,164 5,081 1,404 (2,484) 10,165

Property related costs – (361) – (583) (944)

Acquisition related costs – (152) – – (152)

Movement in fair value of contingent deferred consideration – 6,799 – – 6,799

Impairment of goodwill – (5,161) – – (5,161)

Credit for future acquisition payments to employees deemed as remuneration – 299 – – 299

Reported profit/(loss) before finance income, finance costs and taxation (segment results) 6,164 6,505 1,404 (3,067) 11,006

Finance costs – – – (154) (154)

Notional finance credit on future contingent deferred consideration – 154 – – 154

Profit/(loss) before taxation 6,164 6,659 1,404 (3,221) 11,006

Taxation (1,212)

Profit for the financial year 9,794

Due to management’s revision of expected trading performance of Cooney/Waters during the earn-out period, there was a reduction of contingent deferred consideration during FY13 resulting in a credit to the income statement of £6.8 million. An impairment charge of £5.2 million was also recognised for the Cooney/Waters goodwill with the revision in expected trading performance no longer supporting the carrying value of goodwill. Both items were treated as Headline items in FY13 and excluded from the Group’s Headline performance.

Segmental analysis by geographyThe following table provides an analysis of the Group’s turnover and revenue by geographical market, irrespective of the origin of the services.

Turnover Revenue

2014 £’000

2013 £’000

2014 £’000

2013 £’000

UK 70,376 73,922 50,949 48,951

Rest of Europe 18,471 15,508 12,779 12,278

Rest of the World (including USA) 13,003 17,658 11,150 13,960

101,850 107,088 74,878 75,189

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3 Reconciliation of Headline profit to Reported profit

In order to enable a better understanding of the underlying trading of the Group, the Board refers to Headline PBIT, PBT and PAT, which eliminate certain amounts from the Reported figures. These break down into two parts:

(i) Certain accounting policies which have a material impact and introduce volatility to the Reported figures. These are acquisition related costs, amortisation of acquired intangible assets, movement in the fair value of contingent deferred consideration, future acquisition payments to employees deemed as remuneration and notional finance costs on future contingent deferred consideration. These charges will cease once all the relevant earn-out and related obligations have been settled; and

(ii) Exceptional non-recurring operating charges, which consist of property related costs, start-up and restructuring related costs, and the impairment of goodwill.

2014PBIT

£’000PBT

£’000PAT

£’000

Headline 9,766 9,617 7,207

Property related costs (1,446) (1,446) (1,446)

Acquisition, start-up and restructuring related costs (630) (630) (630)

Amortisation of acquired intangibles (60) (60) (60)

Movement in fair value of contingent deferred consideration 29 29 29

Future acquisition payments to employees deemed as remuneration (252) (252) (252)

Notional finance cost on future contingent deferred consideration – (54) (54)

Deferred tax charge on amortisation of goodwill – – (147)

Taxation impact 588

Reported 7,407 7,204 5,235

2013PBIT

£’000PBT

£’000PAT

£’000

Headline 10,165 10,011 8,924

Property related costs (944) (944) (944)

Acquisition related costs (152) (152) (152)

Movement in fair value of contingent deferred consideration 6,799 6,799 6,799

Impairment of goodwill (5,161) (5,161) (5,161)

Credit for future acquisition payments to employees deemed as remuneration 299 299 299

Notional finance credit on future contingent deferred consideration – 154 154

Deferred tax charge on amortisation of goodwill – – (268)

Taxation impact – – 143

Reported 11,006 11,006 9,794

Creston requires a proportion of any contingent deferred consideration payable as part of an earn-out to be paid to the non-shareholders of the acquired company. Creston believes this is an important driver in motivating employees, rather than just the shareholders, to grow the acquired company and outperform the market. This consideration paid by Creston to non-shareholder employees in respect of the contingent deferred consideration is deemed to be remuneration. The notional finance costs also relate to the contingent deferred consideration. Both of these charges will cease once all earn-out obligations have been settled.

During FY13 an income tax provision of £1.7 million was released following the conclusion of an HMRC enquiry into the deductibility of goodwill that was written off when CML Research Limited ceased to trade in 2009. This provision release was included within the Group’s Headline profit after tax result of £8.9 million for the year ended 31 March 2013 to ensure consistent treatment with the annual tax relief obtained in prior periods.

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4 Operating costs

2014 £’000

2013 £’000

Employee benefits (note 5) 49,961 46,704

Depreciation and amortisation 1,939 1,878

Other expenses 15,571 15,601

67,471 64,183

Profit before finance income, finance costs and taxation is stated after:

2014 £’000

2013 £’000

Auditors’ remuneration (see below) 275 276

Loss on disposal of property, plant and equipment 56 15

Loss on disposal of intangible assets 2 13

Amortisation of intangible assets (note 11) 282 263

Foreign exchange loss 72 238

Movement in fair value of contingent deferred consideration (note 16) (29) (6,799)

Impairment of goodwill (note 10) – 5,161

Depreciation of property, plant and equipment 1,657 1,615

Operating lease rentals – land and buildings 3,399 3,229

Operating lease rentals – plant and equipment 121 121

Operating lease rentals – vehicles 27 33

Auditors’ remuneration may be analysed as follows:

2014 £’000

2013 £’000

External audit services – fees payable for the audit of the parent Company and Consolidated Financial Statements 67 67

External audit services – fees payable for the audit of subsidiary undertakings 208 180

Other services – 29

275 276

Other services provided in FY13 include transactional due diligence in connection with the acquisition of DJM.

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5 Employee benefits

2014 £’000

2013 £’000

Wages and salaries (including deemed remuneration) 43,919 41,090

Social security costs 4,550 4,361

Other pension costs 1,225 1,165

Share-based payments (excluding deemed remuneration) 267 88

49,961 46,704

Wages and salaries include the following costs/(credits):

2014 £’000

2013 £’000

Deemed remuneration:

Future acquisition payments 252 (299)

252 (299)

The deemed remuneration arises on the contingent deferred consideration to be paid to non-shareholding employees of the business acquisitions. These costs will cease once the relevant earn-outs have been settled.

The monthly average number of employees of the Group during the year was:

2014Number

2013Number

Directors 6 6

Administration 92 92

Marketing services 717 719

815 817

The key management are considered to be the Executive Board, which includes the Executive Directors. Their remuneration is as follows:

Key management compensation2014

£’0002013

£’000

Salaries and other short-term employee benefits 2,146 2,036

Other pension costs 69 31

Share-based payments 144 68

Aggregate emoluments 2,359 2,135

Executive Directors2014

£’0002013

£’000

Salaries and other short-term employee benefits 895 707

Other pension costs 24 –


Aggregate emoluments 990 775

The Non-Executive Directors’ remuneration has not been disclosed above. Details of the remuneration of each of these Directors, which form part of the audited Financial Statements, are set out in the Directors’ Remuneration Report on page 64.

Details of the highest paid Director are set out in the Directors’ Remuneration Report on page 64.

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6 Finance costs

Finance costs include:

2014 £’000

2013 £’000

Notional finance (cost)/credit on future contingent deferred consideration (54) 154

Finance costs on bank overdrafts and loans (149) (154)

(203) –

7 Taxation

2014 £’000

2013 £’000

The tax charge comprises:

Current tax:

Corporation tax 2,182 2,516

Under/(over)-provision of corporation tax in previous year 78 (1,552)

2,260 964

Deferred tax:

Origination and reversal of temporary differences (300) 299

Under/(over)-provision of deferred tax in previous year 9 (51)

Tax charge for the year 1,969 1,212

The tax rate for the year is different from the standard rate of corporation tax in the UK, i.e. 23 per cent (2013: 24 per cent). The differences are explained below:

2014 £’000

2013 £’000


Profit before taxation multiplied by standard rate of corporation tax in the UK of 23 per cent (2013: 24 per cent) 1,657 2,641

Effects of:

Expenses not deductible for tax purposes 126 57

Share based payments (19) –

Contingent deferred consideration revaluation not taxable – (1,632)

Goodwill impairment not deductible – 1,239

Deferred tax on US goodwill amortisation 147 268

Overseas tax (29) 242

Under/(over)-provision of tax in previous year 87 (1,603)

Tax charge for the year 1,969 1,212

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The Group’s Reported effective tax rate of 27 per cent (2013: 11 per cent) is higher than the UK statutory rate of 23 per cent as a result of disallowable expenditure and higher rates of US tax incurred by the Group’s US operations. The prior year Reported effective tax rate was lower than the statutory rate (24 per cent) as it included a provision release following resolution of HMRC’s enquiry into the tax deductibility of goodwill that was written off when CML Research Limited ceased to trade in 2009. The prior year reported tax charge was also reduced by the non-taxable credit recognised on the revaluation of contingent deferred consideration.

2014 £’000

2013 £’000

Headline tax charge 2,410 1,087

Deferred tax charge on amortisation of goodwill 147 268

Taxation impact of Headline adjustments (588) (143)

Reported tax charge 1,969 1,212

The Group’s Headline tax rate was 25 per cent (2013: 11 per cent). This rate is higher than the current UK statutory rate of 23 per cent as a result of disallowable expenditure. The prior year Headline effective tax rate was lower than the statutory rate (24 per cent) as a result of the provision release detailed above.

Factors affecting future tax chargesThe rate of UK corporation tax changed from 23 per cent to 21 per cent on 1 April 2014. As deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal, deferred tax balances at 31 March 2014 have been calculated using a rate of 21 per cent, see note 21. The impact of this reduction was not material to the Group’s tax charge.

The main rate of UK corporation tax will reduce further to 20 per cent by 1 April 2015. The future corporation tax rate reduction is not expected to materially affect the Group’s Financial Statements. The actual impact will depend on the Group’s deferred tax position at that time.

8 Earnings per share

Headline Reported

2014 2013 2014 2013

Earnings

Profit for the financial year (£’000) 7,207 8,924 5,235 9,794

Attributable to:

Non-controlling interest (£’000) 107 58 107 58

Equity holders of the parent (£’000) 7,100 8,866 5,128 9,736

Number of shares

Weighted average number of shares 59,951,901 60,458,946 59,951,901 60,458,946

Dilutive effect of shares 244,459 – 244,459 –

Diluted weighted average number of shares 60,196,360 60,458,946 60,196,360 60,458,946

Earnings per share

Basic earnings per share (pence) 11.84 14.66 8.55 16.10

Diluted earnings per share (pence) 11.79 14.66 8.52 16.10

A reconciliation from the Headline to Reported profit after tax is given in note 3.

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9 Dividends

2014 £’000

2013 £’000

Amounts recognised as distributions to shareholders in the year:

Prior year final dividend of 2.67 pence per share (2013: 2.67 pence per share) 1,610 1,614

Interim dividend of 1.20 pence per share (2013: 1.00 pence per share) 713 605

Total 2,323 2,219

A final dividend of 2.70 pence (2013: 2.67 pence) per share equivalent to £1,605,392 is recommended to be paid on 12 September 2014 to shareholders on the register on 8 August 2014. The final dividend will be recognised in the FY15 accounts, should it be approved by shareholders at the AGM.

10 Goodwill

Goodwill represents the excess of the cost of acquisition over fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

Goodwill on consolidation £’000

At 1 April 2012 107,050

Additions 2,183

Impairment (5,161)

Exchange differences 950

At 31 March 2013 105,022

Exchange differences (1,230)

At 31 March 2014 103,792

The cumulative goodwill impairment was £5,161,000 as at 31 March 2013 and 31 March 2014.

The Group acquired DJM Digital Solutions Limited and also recognised an impairment to Cooney/Waters in the year to 31 March 2013.

In accordance with the Group’s accounting policy, the carrying value of goodwill and other intangible assets are not subject to systematic amortisation but are reviewed annually for impairment. The review assesses whether the carrying value of goodwill could be supported by the recoverable amount which is determined through value in use calculations of each cash generating unit (‘CGU’). The key assumptions applied in the value in use calculations are the discount rate and the projected cash flows. The recoverable amounts of all CGUs are based on the same key assumptions.

Discount ratesManagement estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money. In assessing the discount rate applicable to the Group the following factors have been considered:

(i) 12-month cost of debt;

(ii) the cost of equity based on a two-year industry average beta of 0.58. We consider this to be an appropriate period since the Group is of an acquisitive nature and therefore has changed significantly during the last five years;

(iii) the risk free rate for a 20-year UK government bond; and

(iv) the risk premium to reflect the increased risk of investing in equities.

The pre-tax discount rate used to assess the carrying value of goodwill is 9.9 per cent (2013: 9.7 per cent). As all the CGUs are similar in nature, the risk profile is considered the same across countries. As a result the same discount rate is used for each.

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Projected cash flowsProjected cash flows are calculated with reference to each CGU’s latest budget and business plan (approved in March 2014) which is subject to a rigorous review and challenge process. Operating company management prepare the budgets through an assessment of historic revenues from existing clients, the pipeline of new projects, historic pricing, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment.

Projected cash flows are calculated using the first two years of approved budgets followed by a residual growth rate of 3 per cent (2013: 3 per cent) and after year five, a terminal value with 2.5 per cent (2013: 2.5 per cent) growth has been applied. Where a specific business issue such as the loss of a key client, as experienced by Cooney/Waters in FY13, means that the expected cash flows in the following three-year period are expected to be materially different to the residual growth rate of 3 per cent, the expected cash flows are used instead. Expected cash flows have been used in determining the recoverable amount at CWG and ICM instead of a residual growth rate of 3 per cent.

For acquisitions made within the last two years, the Group uses the relevant CGU’s current year Headline performance and applies a 3 per cent growth (2013: 3 per cent) for the following four years with 2.5 per cent (2013: 2.5 per cent) growth on the terminal value. This is then adjusted for any related deemed remuneration charges relevant for that CGU. Management believes this method to be more appropriate as it allows them to work with any new acquisitions through one complete budgeting and performance cycle.

Sensitivity analysisThe review performed at the year end did not result in the impairment of goodwill for any CGU with the estimated recoverable amount exceeding the carrying value in all cases.

Management also tested the sensitivity of key assumptions by increasing the discount rate by 10 per cent to 10.9 per cent, and maintaining the discount rate at 9.9 per cent whilst applying a 10 per cent decrease to the projected future cash flows, with neither scenario resulting in an impairment.

Through further sensitivity analysis, management determined that the CGU that is most sensitive to a change in key assumptions used in the calculation of the recoverable amount is ICM, with its value in use exceeding its carrying value by £3.4 million. The key assumption that is subject to possible change, on which management has based its determination of the CGU’s recoverable amount, is the projected future cash flows over the five year period. If the discount rate remained at 9.9 per cent then in order for the CGU’s recoverable amount to be equal to its carrying value a decrease in the five year projected future cash flows of 15 per cent would be required.

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10 Goodwill continuedThe Group’s carrying value of goodwill is allocated to the following CGUs:

2014 £’000

2013 £’000

Communications

EMO 4,362 4,362

NBG 6,434 6,434

TMW 28,541 28,541

TRA 5,281 5,281

44,618 44,618

Health

CWG 13,716 13,716

DJM 2,183 2,183

PAN 9,599 9,599

RDC 7,668 7,668

Exchange differences (655) 575

32,511 33,741

Insight

ICM 19,030 19,030

MSL 7,633 7,633

26,663 26,663

Total 103,792 105,022

The US Health companies, Cooney/Waters and The Corkery Group, have evolved significantly since their respective acquisition by the Group and it has therefore been considered appropriate to reassess the composition of the CGUs in the US as defined under IAS 36 ‘Impairment of Assets’. With the cash flows of Cooney/Waters and The Corkery Group now no longer independent from one another the companies have been combined into one single CGU: Cooney Waters Group (‘CWG’). This is considered to be the smallest identifiable group of assets operating in the US that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Exchange differences are unallocated above to ensure comparability between components of goodwill, however are allocated against CWG within the impairment review.

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The principal Group companies at 31 March 2014 are set out below:

Proportion of the Ordinary Shares and voting rights held by:

Operating company Principal activity in the year Country of incorporationThe

CompanyOperating

companies

Communications division

Colombus Communications Limited Direct Marketing United Kingdom 100%

Creston Connections Limited Marketing Communications United Kingdom 100%

Emery McLaven Orr Limited Marketing Communications United Kingdom 100%

Nelson Bostock Group Limited Public Relations United Kingdom 100%

The Real Adventure Marketing Communications Limited Digital Communications United Kingdom 100%

Tullo Marshall Warren Limited Digital Communications United Kingdom 100%

Health division

Alembic Health Communications LLC Public Relations United States of America 100%

Cooney/Waters LLC Public Relations United States of America 100%

DJM Digital Solutions Limited Digital United Kingdom 75%

Liberation Communications Limited Public Relations United Kingdom 100%

Loooped LLP Brand and Creative Consultancy United Kingdom 60%1

PAN Advertising Limited Advertising United Kingdom 100%

Red Door Communications Group Limited Public Relations United Kingdom 100%

ROCK medical communications Limited Medical Education and Consultancy United Kingdom 100%

The Corkery Group LLC Public Relations United States of America 100%

Insight division

FieldworkUK.com Limited Market Research United Kingdom 100%

ICM Direct Limited Market Research United Kingdom 100%

ICM Research Limited Market Research United Kingdom 100%

Marketing Sciences Limited Market Research United Kingdom 100%

1 Proportion of LLP units held.

The above list excludes details of non-trading or dormant subsidiaries, although all subsidiary undertakings have been included in the Consolidated Financial Statements.

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11 Other intangible assets

Software development and licences

£’000

Brand names£’000

Customer contracts

£’000Total

£’000

Cost

At 1 April 2012 2,088 958 1,594 4,640

Additions 143 – – 143

Disposals (128) – – (128)

Foreign exchange – 19 – 19

At 31 March 2013 2,103 977 1,594 4,674

Transfer from property, plant and equipment 2 – – 2

Additions 80 12 60 152

Disposals (22) – – (22)

Foreign exchange – (35) – (35)

At 31 March 2014 2,163 954 1,654 4,771

Accumulated amortisation

At 1 April 2012 1,573 – 1,594 3,167

Charge for the year 263 – – 263

Disposals (115) – – (115)

At 31 March 2013 1,721 – 1,594 3,315

Transfer from property, plant and equipment 1 – – 1

Charge for the year 222 – 60 282

Disposals (20) – – (20)

At 31 March 2014 1,924 – 1,654 3,578

Net book amount

At 31 March 2014 239 954 – 1,193

At 31 March 2013 382 977 – 1,359

In accordance with the Group’s accounting policy the carrying values of brand names are reviewed annually for impairment, and are included within the carrying value of CGUs as part of the goodwill impairment testing. See note 10 for further details.

The method of valuation and subsequent review is outlined in note 1.

The Group’s carrying value of brand names is allocated to the following CGUs:

2014 £’000

2013 £’000

TMW 150 150

CWG 392 427

PAN 50 50

RDC 100 100

ICM 250 250

Other 12 –

954 977

96


12 Property, plant and equipment

Leasehold property

£’000

Motor vehicles

£’000

Fixtures, fittings and equipment

£’000Total

£’000

Cost

At 1 April 2012 2,298 34 3,378 5,710

Reclassification of assets 57 – (57) –

Additions 850 – 1,748 2,598

Disposals (272) (34) (1,279) (1,585)

Acquisition of subsidiary 3 – 55 58

Foreign exchange 31 – 14 45

At 31 March 2013 2,967 – 3,859 6,826

Transfer to intangible assets (2) – – (2)

Reclassification of assets (28) – 28 –

Additions 1,756 – 205 1,961

Disposals (781) – (948) (1,729)

Foreign exchange (68) – (19) (87)

At 31 March 2014 3,844 – 3,125 6,969

Accumulated depreciation

At 1 April 2012 338 34 1,948 2,320

Reclassification of assets 22 – (22) –

Charge for the year 688 – 927 1,615

Disposals (272) (34) (1,255) (1,561)

Foreign exchange 5 – 5 10

At 31 March 2013 781 – 1,603 2,384

Transfer to intangible assets (1) – – (1)

Reclassification of assets (25) – 25 –

Charge for the year 815 – 842 1,657

Disposals (756) – (917) (1,673)

Foreign exchange (10) – (7) (17)

At 31 March 2014 804 – 1,546 2,350

Net book amount

At 31 March 2014 3,040 – 1,579 4,619

At 31 March 2013 2,186 – 2,256 4,442

The net book amount includes £nil (2013: £nil) in respect of assets held under finance leases and similar hire purchase contracts. The amount of depreciation in respect of such assets amounted to £nil (2013: £2,000) for the year. The Group acquired no assets under finance lease arrangements in the current or previous year.

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13 Inventories and work in progress

2014 £’000

2013 £’000

Work in progress 905 1,070

Changes in inventories and work in progress of £165,000 (2013: £132,000) are reflected in charges paid to external suppliers which form part of the difference between turnover and revenue.

14 Trade and other receivables

Current assets2014

£’0002013

£’000

Trade receivables 21,428 18,971

Less: provision for impairment of trade receivables (62) (129)

Trade receivables – net of provision 21,366 18,842

Other receivables 172 230

Prepayments 3,232 2,983

Accrued income 4,178 3,318

Total 28,948 25,373

The average credit period taken on sales of goods is 61 days (2013: 57 days). The Group is satisfied that the majority of its clients are of sound creditworthiness.

The ageing analysis of net trade receivables is as follows:

Past due but not impaired

Carrying value as at

31 March £’000

Neither past due nor

impaired £’000

Up to 3 months

£’0003 to 6 months

£’000

Greater than 6 months

£’000

2014 21,366 14,409 6,657 300 –

2013 18,842 10,690 7,811 341 –

Past due amounts are not considered impaired where collection is still considered likely.

As of 31 March 2014, trade receivables of £62,000 (2013: £129,000) were impaired and fully provided for. The individually impaired receivables relate to a mixture of clients and are aged as follows:

2014£’000

2013£’000

Three to six months – 1

Over six months 62 128

62 129

98


The carrying amounts of the trade and other receivables are denominated in the following currencies:

Current assets2014

£’0002013

£’000

Pounds 25,299 22,107

Euros 1,513 1,417

US dollars 2,136 1,849

28,948 25,373

Movements in the provision for impairment of trade receivables are as follows:

2014 £’000

2013 £’000

At 1 April 129 99

Provision for receivables impairment 64 230

Receivables written off during the year as uncollectible (54) (126)

Unused amounts reversed (77) (74)

At 31 March 62 129

The creation and release of the provision for impaired receivables have been included in operating costs in the Consolidated income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

The other classes within trade and other receivables do not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

15 Trade and other payables

Current liabilities2014

£’0002013

£’000

Trade payables 5,887 6,312

Social security and other taxes 3,025 4,627

Accruals 8,693 7,681

Deferred income 9,657 8,257

Other payables 1,257 1,642

28,519 28,519

Non-current liabilities2014

£’0002013

£’000

Other payables (note 25) 2,674 5,160

2,674 5,160

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. Management considers that the carrying amount of trade payables approximates to their fair value.

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15 Trade and other payables continuedThe carrying amounts of the trade and other payables are denominated in the following currencies:


£’0002013

£’000

Pounds 26,285 25,801

Euros 140 158

US dollars 2,094 2,560

28,519 28,519


£’0002013

£’000

Pounds 2,674 5,160

2,674 5,160

16 Provision for contingent deferred consideration

Deferred consideration2014

£’0002013

£’000

At 1 April 1,714 6,929

Movement in fair value of contingent deferred consideration (29) (6,799)

Acquisitions made during the financial year – 1,387

Foreign exchange (28) 351

Income statement

– Notional finance cost/(credit) on future contingent deferred consideration (note 6) 54 (154)

At 31 March 1,711 1,714

2014 £’000

2013 £’000

Analysed as:

Non-current liabilities 1,711 1,714

1,711 1,714

The Group considers that the above liabilities approximate to their fair value. The notional interest rate used during the year was 3.3 per cent (2013: 3.3 per cent).

Under IFRS 3 the Group recognises any changes in the fair value of the contingent deferred consideration for previous acquisitions through the Consolidated income statement. Due to management’s downward revision of expected trading performance for Cooney/Waters a credit of £6.8 million to the Consolidated income statement was recognised in FY13.

The Group will settle the earn-out obligations in July 2015 and July 2016.

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17 Provision for other liabilities and charges

Dilapidation provisions2014

£’0002013

£’000

At 1 April 128 131

Charge/(credit) to the income statement 206 (3)

Additions 448 –

At 31 March 782 128

2014 £’000

2013 £’000

Analysed as:

Non-current liabilities 782 128

782 128

Dilapidation provisions represent the unavoidable costs of restoring leasehold properties to the condition specified in the lease at the end of the contractual term. The amount of each provision has been determined based on management’s best estimate.

During the year a charge of £206,000 (2013: credit of £3,000) was recognised in the Consolidated income statement in relation to dilapidation repairs. The Group provision was increased during the year by a further £448,000 following the leasehold improvements at Creston House. This provision reflects management’s best estimate of the cost associated with returning the property at the end of the lease to its original state. An equivalent decommissioning asset has been recognised in leasehold property the benefit of which will be recovered over the length of the lease.

The Group considers that the above liabilities approximate to their fair value.

18 Bank overdraft, loans and loan notes

2014 £’000

2013 £’000

Bank overdraft – –

Acquisition loan notes – 10

– 10

The borrowings are repayable as follows:

Less than one year – current liabilities – 10

In November 2011 the Group agreed with Barclays Corporate a new banking facility. The principal features of the Group’s borrowings are as follows:

(a) The Group has an overdraft facility of £5 million which is repayable on demand.

(b) The Group has a committed revolving credit facility of £20 million (which is reduced by the £5 million overdraft facility), expiring on 30 September 2015.

(c) The revolving credit facility and overdraft currently bear interest ranging between 1.75 and 2.40 per cent above LIBOR and vary depending on the Group’s gearing. During the year, the average margin was 1.75 per cent (2013: 1.75 per cent) above LIBOR.

(d) The revolving credit facility and overdraft are secured by a fixed and floating charge over the assets of the Group.

The Group has complied with all its covenants.

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19 Financial assets and liabilities

The Group’s financial instruments comprise bank borrowings, acquisition loan notes, cash and cash equivalents, acquisition contingent deferred consideration, trade payables, other payables, trade receivables, and other receivables. The financial assets are required for day-to-day working capital of the Group.

The Group’s objective for managing its financial position is to achieve the best interest rates available whilst maintaining acceptable flexibility and minimal risk.

The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit risk.

Foreign currency riskThe principal currency of the Group’s financial assets and liabilities is sterling. The Group, however, does own three trading subsidiaries based in the USA and also services a range of clients across Europe and the Rest of the World from its UK subsidiaries whose contracts, and therefore billings, are denominated in a currency other than the principal currency. The Group therefore faces currency exposures.

Where considered necessary the Group will manage its foreign currency risk through hedging arrangements. No hedging arrangements were entered into in the current year and as at 31 March 2014 there were no derivative instruments in place. The Group also actively monitors its foreign currency exposure and makes same day, spot rate currency transfers when appropriate.

The US-based subsidiaries trade in US dollars. The Group is therefore exposed to foreign currency movements which will affect the fair value of US dollar cash flows. As part of the purchase agreement, however, the Group is required to make further consideration payments in US dollars, which act as a partial hedge against the US dollar cash flows.

The sterling values of cash and debt-related assets and liabilities held in a currency other than the principal currency by the Group are as follows:

2014 £’000

2013 £’000

Euros 1,985 2,074

US dollars (2,034) (3,383)

Cash and debt related liabilities (49) (1,309)

The following table illustrates the possible impact on Group profit or loss and net assets as a result of management’s view of potential changes in the euro or US dollar exchange rates, with all other variables remaining constant. A strengthening or weakening of sterling by 10 per cent is considered an appropriate variable for the sensitivity analysis given the degree of foreign exchange fluctuations over the last two years.

Effect on Group profit or loss and

net assets

Strengthening/(weakening) of

sterling2014

£’0002013

£’000

Euros +10% (135) (136)

US dollars +10% 139 221

Euros –10% 165 166

US dollars –10% (170) (271)

102


Interest rate riskThe Group’s operations are cash-generative and the Group funds acquisitions through a combination of retained profits and borrowings. In order to manage the Group’s exposure to interest rate risk, borrowings comprise a mixture of fixed and floating rate instruments.

The Group’s interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group has minimised its borrowing liabilities and therefore this risk is low. The Group has a multi-currency pooling arrangement which means that interest is charged/credited on the net debt/cash position across all major currencies, thus reducing the risk of the Group incurring an interest expense should one currency be in an overdraft position.

During the course of the year, if interest rates had been 1 per cent higher/lower with all other variables held constant, Group profit or loss and net assets at 31 March 2014 would have been £50,000 (2013: £49,000) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings. An increase or decrease in interest rates by 1 per cent is considered an appropriate variable for sensitivity analysis given the degree of LIBOR movements over the last two years and the range of rates applicable to the Group’s revolving credit facility.

Liquidity riskThe Group maintains a large flexible revolving credit facility to manage liquidity risk. Furthermore, the Group’s cash deposits are highly liquid. The Group seeks to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group’s unused banking facilities can be drawn on a revolving credit facility which is available on 24 hours notice hence any short-term liquidity requirement can be managed.

Credit riskCredit risk arises from cash and cash equivalents, derivative financial instruments and credit exposures to customers, including outstanding receivables and committed transactions.

Credit risk in respect of customers is managed by assessing the credit quality of the customer, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal ratings in accordance with limits set by the relevant agency board. The utilisation of credit limits is regularly monitored. Before undertaking work with a new client each agency uses a third-party ratings agency to assess creditworthiness and payment terms are set accordingly. Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated.

Credit risk in respect of cash and cash equivalents and derivative financial instruments arises from the default of the counterparty, with a maximum amount of exposure equal to the carrying amount of these instruments. The credit risk in respect of these financial assets is limited because the counterparties are reputable banks with high credit ratings assigned by international credit-rating agencies.

Capital risk managementThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The key capital indicators used by the Group are the ratio of net debt to Headline EBITDA and the ratio of net debt including contingent deferred consideration to Headline EBITDA. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the Consolidated balance sheet) less cash and cash equivalents. The Group’s contingent deferred consideration provisions (being future earn-out obligations) are set out in note 16.

These ratios also form the capital requirements imposed through the Group’s banking covenants. There have been no breaches of the banking covenants in the current or prior year.

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19 Financial assets and liabilities continued

Ratio of debt to Headline EBITDA2014

£’0002013

£’000

Headline PBIT (note 3) 9,766 10,165

Depreciation (excluding Headline items) 1,633 1,615

Amortisation (excluding acquired intangible assets) 222 263

Headline EBITDA 11,621 12,043

Ratio of net debt to Headline EBITDA n/a n/a

Ratio of net debt including contingent deferred consideration to Headline EBITDA n/a n/a

The Group also assesses its capital structure by reference to the gearing ratio. This ratio is calculated as net debt including contingent deferred consideration divided by total capital. Total capital is calculated as equity as shown in the Consolidated balance sheet.

Equity gearing2014

£’0002013

£’000

Net cash (note 26) 7,452 11,198

Provision for contingent deferred consideration (note 16) (1,711) (1,714)

Net cash including contingent deferred consideration 5,741 9,484

Total equity 112,558 111,608

Gearing ratio n/a n/a

Financial assets2014

£’0002013

£’000

Cash at bank and in hand maturing in one year or less, or on demand 7,452 11,208

Weighted average interest rate 0.42% 0.10%

Financial liabilities2014

£’0002013

£’000

Subject to floating rates:

– Bank overdraft – –

– Revolving credit facility – –

Floating interest rate financial liabilities – –

Weighted average period for which rate is fixed (months) 1.0 1.0

Weighted average interest rate (including LIBOR) 2.24% 2.32%

The revolving credit facility interest rate can be fixed every one, three, six or 12 months and, accordingly, is not deemed a fixed rate financial liability.

Financial liabilities2014

£’0002013

£’000

Subject to fixed rates:

– Acquisition loan notes – 10

Fixed interest rate financial liabilities – 10

Financial liabilities (fixed and floating rate liabilities)2014

£’0002013

£’000

Repayable in:

One year or less or on demand – 10

– 10

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Book value Fair value

Fair values of financial assets and liabilities2014

£’0002013

£’0002014

£’0002013

£’000

Cash at bank and in hand 7,452 11,208 7,452 11,208

Bank overdraft – – – –

Acquisition loan notes – (10) – (10)

7,452 11,198 7,452 11,198

The fair values of the financial assets and liabilities are estimated to be equal to their book values.

20 Operating lease commitments

As at 31 March the Group had future aggregate minimum lease payments under non-cancellable operating leases, which fall due as follows:

2014 2013

Land and buildings

£’000Other £’000

Land and buildings

£’000Other £’000

Not later than one year 3,695 126 3,616 151

Later than one year and not later than five years 13,219 52 16,349 128

Later than five years 4,503 1 5,701 –

21,417 179 25,666 279

Operating lease commitments represent rentals payable by the Group primarily for its office properties.

21 Deferred taxation

The deferred taxation asset of £987,000 (2013: £582,000) recognised in the Financial Statements is set out below:

2014 £’000

2013 £’000

Depreciation in excess of capital allowances 438 350

Short-term timing differences 328 166


Future acquisition payments to employees deemed as remuneration 119 23

Other timing differences 2 4

987 582

The movement in the year is analysed as follows:

2014 £’000

2013 £’000

At 1 April 582 592

Income statement 428 (10)

Foreign exchange (foreign currency translation reserve) (23) –

At 31 March 987 582

The Group has recognised deferred tax assets where there are forecast profits in the next 12 months from which the future reversal of the underlying timing differences can be deducted.

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21 Deferred taxation continuedThe deferred taxation liability of £505,000 (2013: £368,000) recognised in the Financial Statements is set out below:

2014 £’000

2013 £’000

Accelerated capital allowances 2 12

Amortisation deduction on purchased goodwill 503 356

505 368


2014 £’000

2013 £’000

At 1 April 368 118

Income statement 137 238

Assumed on acquisition of DJM – 12

At 31 March 505 368

There are no material unrecognised/unprovided deferred tax assets or liabilities.

22 Called up share capital

Group and Company 2014

£’0002013

£’000

Authorised:

100,000,000 Ordinary Shares of 10 pence each 10,000 10,000

Called up, allotted and fully paid:

61,337,338 Ordinary Shares of 10 pence each 6,134 6,134

OptionsThe Group has the following options in issue:

EmployeeSharesave

schemeEMI

schemeOther

options Total

At 1 April 2012 – 190,940 1,330,000 1,520,940

Granted 867,465 – – 867,465

At 31 March 2013 867,465 190,940 1,330,000 2,388,405

Lapsed (153,406) – (580,934) (734,340)

At 31 March 2014 714,059 190,940 749,066 1,654,065

All outstanding options are due for settlement in shares up to the expiry dates disclosed in note 23. No options were exercised during the financial year ended 31 March 2014.

Employee Sharesave schemeThe purpose of this scheme is to incentivise all employees and encourage staff retention. Consequently, these options are linked to continued employment. This scheme is now closed and no further awards will be made.

EMI schemeThe purpose of this scheme is to incentivise certain key employees. Consequently, these options are linked to performance targets for both the Group and the individual. This scheme is now closed and no further awards will be made.

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Other optionsA total of 749,066 unapproved options are outstanding in respect of Directors as detailed in the Directors’ Remuneration Report.

Creston plc Long Term Incentive Plan (‘LTIP’)This scheme has replaced the EMI and Unapproved options scheme and is intended to incentivise the Group Chief Executive, the Chief Financial Officer and other senior employees. Participants are awarded a contingent right to receive new Ordinary Shares in the Company or a cash bonus subject to meeting certain agreed performance conditions. These awards are granted at the beginning of each financial year and vest over three years. There is no exercise price in respect of these awards.

The Group has the following LTIPs in issue:

LTIPs

At 1 April 2012 2,381,573

Granted 1,679,516

Lapsed (1,262,123)

At 31 March 2013 2,798,966

Granted 579,053

Lapsed (553,653)

At 31 March 2014 2,824,366

LTIPs lapsed in the year because certain performance criteria were not met and due to the departure of staff from the Group.

The following awards issued under this scheme have not vested nor lapsed as at 31 March:

Date of grantPrice of award

(pence)

2014Contingent

shares

2013Contingent

shares

14 July 2010 92.0 – 376,441

11 July 2011 108.0 643,575 743,009

28 June 2012 54.0 1,401,738 1,479,516

16 July 2012 64.5 200,000 200,000

24 June 2013 105.5 579,053 –

2,824,366 2,798,966

Own shares

Treasury scheme

No. of sharesEBT

No. of sharesTotal

No. of sharesTotal

£’000

At 1 April 2012 and 1 April 2013 52,383 821,657 874,040 656

Acquired in the year 1,000,000 4,352 1,004,352 1,023

At 31 March 2014 1,052,383 826,009 1,878,392 1,679

The market value of own shares at 31 March 2014 was £1,925,351 (2013: £745,119).

23 Share-based payments

OptionsThe Group uses a Black-Scholes model to calculate the fair value of options on grant date. For schemes without market-based performance conditions the valuation methodology is applied at each year end and the valuation revised to take account of any changes in estimate of the likely number of shares expected to vest.

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23 Share-based payments continuedThe key assumptions used in determining the fair values are set out below:

Share options outstanding at the year end

Dividendyield

%

Risk-free rate

%Volatility

%

Fairvalue

(pence)

Weightedaverage

share priceat grant (pence)

Exerciseprice

(pence) Grant date Expiry date Shares

Employee Sharesave scheme 4.1 2.1 39 22.0 89.0 84.1 21.02.13 30.09.16 714,059

EMI scheme 1.2 4.5 42 72.0 150.0 150.0 30.11.04 30.11.14 120,518

EMI scheme 1.2 4.5 41 75.0 142.0 142.0 30.09.04 30.09.14 70,422

Unapproved options 1.2 4.5 46 76.0 142.0 142.0 30.09.04 30.09.14 150,000





Volatility is based on the Group’s share price movement over the 12 months preceding the grant of the options. This is a lower period than is recommended by IFRS but is, in the opinion of the Directors, appropriate given the Group’s history of growth and acquisitions at the time the options were awarded.

During the year the Group recognised a charge of £41,000 (2013: £nil) for the options that remain in their vesting period.

LTIPThe Group operates the Creston Long Term Incentive Plan (LTIP) for senior management. The share awards are valued using the share price on the date of grant. The Consolidated income statement is charged over the performance period of the award, taking account of the number of shares or cash bonus expected to vest. The Group recognised a charge of £226,000 (2013: £171,000) as remuneration.

24 Reserves

Reserve Description and purpose

Share premium account Amount subscribed for share capital in excess of nominal value less directly attributable issue costs.

Own shares Cost of own shares held by the parent Company and employee benefit trust.

Shares to be issued Fair value of equity instruments granted but not yet exercised under share-based payments.

Foreign currency translation reserve Unrealised cumulative net gains and losses arising on the retranslation of the opening net assets and loans associated with overseas subsidiary undertakings.

Retained earnings Cumulative net gains and losses recognised in the Consolidated income statement less distributions made.

Other reserves:

Special reserve A non-distributable reserve which arose prior to 2001 when Creston commenced operations as a marketing communications group.

Capital redemption reserve Amounts transferred from share capital on redemption of issued shares.

Other reserve The difference between the fair value of shares issued for non-cash consideration and the nominal value of those shares which is considered by the Directors to be non-distributable.

Other reserves2014

£’0002013

£’000

Special reserve 2,385 2,385

Capital redemption reserve 72 72

Other reserve 28,365 28,365

30,822 30,822

108


25 Net proceeds on operating lease

On 7 January 2013 the Group entered into an operating lease for the new London office. On signing the lease, the Group received a one-off cash payment of £7.2 million (including VAT) in relation to a reverse premium and agreed dilapidations obligation. As at 31 March 2013 net proceeds of £6.5 million on the operating lease remained and were recognised as part of the Group’s operating cash flow. Excluding the £6.5 million from the Group’s operating cash flow of £18.8 million for the year ending 31 March 2013 resulted in an adjusted operating cash flow of £12.3 million.

During the year to 31 March 2014 £3.7 million of the operating lease proceeds have been utilised to fulfil the dilapidations obligation and settle the associated VAT liability. Excluding the £3.7 million from the Group’s operating cash flow of £3.8 million results in an adjusted operating cash flow of £7.5 million.

The remaining liability for the reverse premium has been recognised within trade and other payables in the Consolidated balance sheet, with £2.7 million being due in more than one year.

26 Analysis of net cash

At 1 April

2013 £’000

Acquisition related1

£’000Cash flow

£’000

Foreign exchange

£’000

At 31 March

2014 £’000

Cash and cash equivalents 11,208 – (4,009) 253 7,452

Bank overdraft – – – – –

Net cash and cash equivalents 11,208 – (4,009) 253 7,452

Acquisition loan notes (10) – 10 – –

Net cash 11,198 – (3,999) 253 7,452

Provision for contingent deferred consideration (note 16) (1,714) 3 – – (1,711)

Net cash including contingent deferred consideration 9,484 3 (3,999) 253 5,741

1 Includes non-cash items.

27 Directors’ interests in transactions and shares and other related party transactions

Mr D C Marshall, a Non-Executive Director of Creston plc, is a Director of City Group P.L.C. and Western Selection P.L.C. which held 3,000,000 Ordinary Shares in Creston plc at 31 March 2014. During the year total fees of £63,960 (2013: £64,160) were paid to City Group P.L.C., £28,960 (2013: £29,160) for the provision of company secretarial services and £35,000 (2013: £35,000) for the services of Mr D C Marshall. As at 31 March 2014 £19,323 (2013: £8,667) was due to City Group P.L.C.

There were no other related party transactions during the year.

Financial S

tatements

109


Our opinionIn our opinion the Financial Statements, defined below:

n give a true and fair view of the state of the parent Company’s affairs as at 31 March 2014 and of its cash flows for the year then ended;

n have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

n have been prepared in accordance with the requirements of the Companies Act 2006.

This opinion is to be read in the context of what we say in the remainder of this report.

What we have auditedThe parent Company Financial Statements (the ‘Financial Statements’), which are prepared by Creston plc, comprise:

n the Company balance sheet as at 31 March 2014;

n the Company statement of cash flows for the year then ended;

n the Company statement of changes in equity for the year then ended; and

n the notes to the Financial Statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.

Certain disclosures required by the financial reporting framework have been presented elsewhere in the Annual Report and Accounts, rather than in the notes to the Financial Statements. These are cross-referenced from the Financial Statements and are identified as audited.

What an audit of Financial Statements involvesWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

n whether the accounting policies are appropriate to the parent Company’s circumstances and have been consistently applied and adequately disclosed;

n the reasonableness of significant accounting estimates made by the Directors; and

n the overall presentation of the Financial Statements.

In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinions on other matters prescribed by the Companies Act 2006In our opinion:

n the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements; and

n the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Independent auditors’ report to the members of Creston plc on the parent Company Financial Statements

110


Other matters on which we are required to report by exceptionAdequacy of accounting records and information and explanations receivedUnder the Companies Act 2006 we are required to report to you if, in our opinion:

n we have not received all the information and explanations we require for our audit; or

n adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

n the Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns.


Directors’ remunerationUnder the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

Other information in the Annual Report and AccountsUnder ISAs (UK & Ireland) we are required to report to you if, in our opinion, information in the Annual Report and Accounts is:

n materially inconsistent with the information in the audited Financial Statements; or

n apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or

n is otherwise misleading.


Responsibilities for the Financial Statements and the auditOur responsibilities and those of the DirectorsAs explained more fully in the Directors’ Responsibilities Statement set out on page 68, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other matterWe have reported separately on the Group Financial Statements of Creston plc for the year ended 31 March 2014.

Philip Stokes (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 9 July 2014

Financial S

tatements

111


Note

As at 31 March

2014£’000

As at31 March

2013£’000

Non-current assets

Other intangible assets 2 65 –

Property, plant and equipment 3 70 1,046

Investments 4 115,030 115,030


Deferred tax asset 9 151 62

119,048 120,221

Current assets


Corporation tax receivable 87 86

5,035 4,895

Current liabilities

Trade and other payables 6 (4,162) (5,418)

Bank overdraft, loans and loan notes 7 (5,124) (2,329)

(9,286) (7,747)

Net current liabilities (4,251) (2,852)

Total assets less current liabilities 114,797 117,369

Non-current liabilities

Trade and other payables 6/10 (2,674) (5,160)

Provisions for contingent deferred consideration 8 (1,449) (1,403)

(4,123) (6,563)

Net assets 110,674 110,806

Equity

Called up share capital 6,134 6,134

Share premium account 12 35,943 35,943

Own shares 12 (1,112) (89)

Shares to be issued 12 929 1,167

Other reserves 12 30,822 30,822

Retained earnings 12 37,958 36,829

Total equity 110,674 110,806

The Financial Statements, which comprise the Company balance sheet, the Company statement of changes in equity, the Company statement of cash flows and the related notes, were approved by the Board of Directors on 9 July 2014.

Barrie BrienGroup Chief Executive

Company balance sheetas at 31 March 2014

112


Called up share capital

£’000


£’000

Own shares

£’000

Shares to be

issued £’000

Other reserves

£’000

Retained earnings

£’000Total

£’000


At 1 April 2013 6,134 35,943 (89) 1,167 30,822 36,829 110,806

Profit for the financial year – – – – – 3,088 3,088

Total comprehensive income for the financial year – – – – – 3,088 3,088

Credit for share-based incentive schemes – – – 126 – – 126

Transfer between reserves in respect of lapsed share options – – – (364) – 364 –

Purchase of treasury shares – – (1,023) – – – (1,023)

Dividends – – – – – (2,323) (2,323)

At 31 March 2014 6,134 35,943 (1,112) 929 30,822 37,958 110,674

Called up share capital

£’000


£’000

Own shares £’000

Shares to be

issued £’000

Other reserves

£’000

Retained earnings

£’000Total

£’000


At 1 April 2012 6,134 35,943 (89) 1,079 30,822 33,085 106,974

Profit for the financial year – – – – – 5,963 5,963

Total comprehensive income for financial year – – – – – 5,963 5,963

Credit for share-based incentive schemes – – – 88 – – 88

Dividends – – – – – (2,219) (2,219)

At 31 March 2013 6,134 35,943 (89) 1,167 30,822 36,829 110,806

Company statement of changes in equityfor the year ended 31 March 2014

Financial S

tatements

113


Note2014

£’0002013

£’000

Profit for the financial year 13 3,088 5,963

Taxation (89) (40)


Finance costs 197 168

Finance income (200) (261)

Income from Group undertakings (4,025) (6,481)

Loss before finance income, finance costs and taxation (1,029) (651)

Depreciation of property, plant and equipment 3 40 92

Amortisation of intangible assets 2 56 –

Share based payment charge 267 88

Decrease/(increase) in trade and other receivables 210 (737)

(Decrease)/increase in trade and other payables (247) 2,088

Adjusted operating cash flow (703) 880

Movement in net proceeds on operating lease 10 (3,688) 6,529

Operating cash flow (4,391) 7,409

Net cash (outflow)/inflow from operating activities (4,391) 7,409

Investing activities

Finance income 200 261

Income from investments 4,025 6,481

Purchase of investments – (1,170)

Purchase of property, plant and equipment (58) (982)

Proceeds from sale of property, plant and equipment 3 911 –

Purchase of intangible assets 2 (23) –

Net cash inflow from investing activities 5,055 4,590

Financing activities

Finance costs (113) (176)

Net decrease in borrowings (10) –

Dividends paid (2,323) (2,219)

Purchase of treasury shares (1,023) –

Net cash outflow from financing activities (3,469) (2,395)

(Decrease)/increase in cash and cash equivalents (2,805) 9,604

Bank overdraft at start of the financial year 7 (2,319) (11,923)

Bank overdraft at end of the financial year 7 (5,124) (2,319)

Company statement of cash flows for the year ended 31 March 2014

114


1 Accounting policies

Basis of preparationThe Company Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee interpretations adopted for use in the European Union and those parts of the Companies Act 2006 which are applicable to companies reporting under IFRS. The Company elected against the early adoption of all non-mandatory IFRS standards. The Company’s domicile and country of incorporation is England and Wales. Its registered office is Creston House, 10 Great Pulteney Street, London W1F 9NB.

The Financial Statements have been prepared in sterling, the currency in which the majority of the Company’s transactions are denominated, on the historical cost basis, except where IFRS as adopted by the European Union requires a fair value adjustment, and on a going concern basis.

The main risks arising from the Company’s financial instruments and the associated risk management policies are consistent with those of the Group as set out in note 19 to the Group Financial Statements.

The principal accounting policies applied in the preparation of these Financial Statements are consistent with the policies adopted by the Group as set out on pages 78 to 84. Refer to page 78 of the Group Financial Statements for the accounting standards update.

The additional accounting policies that are relevant to the Company and not the Group are:

InvestmentsInvestments are stated at cost less provision for any impairment in value.

Impairment of investmentsThe Company assesses annually whether an investment may be impaired or more frequently if events or changes in circumstances indicate that an investment may be impaired. If any such indicator exists, the Company tests for impairment by estimating the recoverable amount. If the recoverable amount is less than the carrying value of an investment, an impairment loss is required.

Dividend incomeDividend income is recognised when the Company’s right to receive payment is established.

2 Other intangible assets

Software development and licences

£’000Total

£’000

Cost

At 1 April 2013 – –

Transfer from property, plant and equipment 1,022 1,022

Additions 23 23

At 31 March 2014 1,045 1,045

Accumulated amortisation

At 1 April 2013 – –

Transfer from property, plant and equipment 924 924

Charge for the year 56 56

At 31 March 2014 980 980

Net book amount

At 31 March 2014 65 65

At 31 March 2013 – –

Notes to the Creston plcCompany Financial Statements

Financial S

tatements

115


3 Property, plant and equipment

Leasehold property

£’000

Fixtures, fittings and equipment

£’000Total

£’000

Cost

At 1 April 2012 133 964 1,097

Additions – 982 982

At 31 March 2013 133 1,946 2,079

Reclassification of assets (30) 30 –

Transfer to other intangible assets – (1,022) (1,022)

Additions 39 34 73

Disposals (103) (911) (1,014)

At 31 March 2014 39 77 116

Accumulated depreciation

At 1 April 2012 76 865 941

Charge for the year 25 67 92

At 31 March 2013 101 932 1,033

Reclassification of assets (25) 25 –

Transfer to other intangible assets – (924) (924)

Charge for the year 32 8 40

Disposals (103) – (103)

At 31 March 2014 5 41 46

Net book amount

At 31 March 2014 34 36 70

At 31 March 2013 32 1,014 1,046

The £911,000 disposal of fixtures, fittings and equipment during the year relate to the reallocation of assets at cost to fellow subsidiary companies.

4 Investments

Shares in subsidiary

undertakings £’000

At 1 April 2012 112,412

Additions 2,618

At 31 March 2013 115,030

At 31 March 2014 115,030

The Directors believe that the carrying values of the investments are supported by their underlying net assets.

The additions in the prior year of £2.6 million relate to the acquisition of DJM.

A list of subsidiary undertakings can be found in the Consolidated Financial Statements on page 95.

Notes to the Creston plcCompany Financial Statements continued

116


5 Trade and other receivables

Non-current assets2014

£’0002013

£’000

Amounts owed by Group undertakings 3,732 4,083

The carrying amounts of the non-current trade and other receivables are denominated in US dollars.

Current assets2014

£’0002013

£’000

Amounts owed by Group undertakings 2,870 2,802

Other receivables 11 25

Prepayments 2,067 1,941

Social security and other taxes – 41

4,948 4,809

Amounts owed by the Group undertakings are predominantly related to the loan between Creston plc and Creston plc US Holdings Inc. The loan is held at fair value and is repayable in instalments in line with the loan agreement.

The trade and other receivables do not contain impaired assets. The Directors consider that the carrying amounts of trade and other receivables approximate to their fair value.

The carrying amounts of the current trade and other receivables are denominated in the following currencies:

Current assets2014

£’0002013

£’000

Pounds 4,161 3,086

US dollars 787 1,723

4,948 4,809

6 Trade and other payables


£’0002013

£’000

Trade payables 1,350 1,767

Amounts owed to Group undertakings 115 116

Social security and other taxes 747 1,715

Accruals 1,271 771

Other payables 679 1,049

4,162 5,418


£’0002013

£’000

Other payables (note 10) 2,674 5,160

2,674 5,160

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

The carrying amounts of the trade and other payables are denominated in sterling.

Financial S

tatements

117



7 Bank overdraft, loans and loan notes

2014 £’000

2013 £’000

Bank overdraft 5,124 2,319

Acquisition loan notes – 10

5,124 2,329

The borrowings are repayable as follows:

Less than one year – current liabilities 5,124 2,329

The balances drawn against the Company’s bank facility at 31 March 2014 are deemed to be their fair value.

8 Provisions for contingent deferred consideration

The contingent deferred consideration obligations are set out below:

Contingent deferred consideration2014

£’0002013

£’000

At 1 April 1,403 –

Acquisitions made during the financial year – 1,387

Income statement

– Notional finance cost on future contingent deferred consideration 46 16

At 31 March 1,449 1,403

2014 £’000

2013 £’000

Analysed as:

Non-current liabilities 1,449 1,403

1,449 1,403

The Company considers that the above liabilities approximate to their fair value. The notional interest rate used during the year was 3.3 per cent (2013: 3.3 per cent).

The acquisition made in the prior year of £1.4 million relates to DJM.

The Company will settle the earn-out obligation in July 2015.

118


9 Deferred taxation

The deferred taxation asset of £151,000 (2013: £62,000) recognised in the financial statements is set out below:

2014 £’000

2013 £’000

Depreciation in excess of capital allowances 51 23


151 62


2014 £’000

2013 £’000

As at 1 April 62 44

Income statement 89 18

As at 31 March 151 62

The Company has recognised deferred tax assets where there are forecast profits in the next 12 months from which the future reversal of the underlying timing differences can be deducted.

The rate of UK corporation tax changed from 23% to 21% on 1 April 2014. As deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal, deferred tax balances at 31 March 2014 have been calculated using a rate of 21%. The impact of this reduction was not material to the Company’s tax charge.

The main rate of UK corporation tax will reduce further to 20% by 1 April 2015. The future corporation tax rate reduction is not expected to materially affect the Company’s financial statements. The actual impact will depend on the Company’s deferred tax position at that time.

10 Net proceeds on operating lease

On 7 January 2013 the Company entered into an operating lease for the new London office. On signing the lease, the Company received a one-off cash payment of £7.2 million (including VAT) in relation to a reverse premium and agreed dilapidations obligation. As at 31 March 2013 net proceeds of £6.5 million on the operating lease remained and were recognised as part of the Company’s operating cash flow. Excluding the £6.5 million from the Company’s operating cash flow of £7.4 million for the year ending 31 March 2013 resulted in an adjusted operating cash flow of £0.9 million.

During the year to 31 March 2014 £3.7 million of the operating lease proceeds have been utilised to fulfil the dilapidations obligation and settle the associated VAT liability. Excluding the £3.7 million from the Company’s operating cash outflow of £4.4 million results in an adjusted operating cash outflow of £0.7 million.

The remaining liability for the reverse premium has been recognised within trade and other payables in the Company balance sheet, with £2.7 million being due in more than one year.

Financial S

tatements

119



11 Operating lease commitments

As at 31 March the Company had future aggregate minimum lease payments under non-cancellable operating leases as follows:

2014 2013

Land and buildings

£’000Other £’000

Land and buildings

£’000Other £’000

Not later than one year 2,000 – 2,030 4

Later than one year and not later than five years 8,000 – 8,000 –

Later than five years 1,000 – 3,000 –

11,000 – 13,030 4

Operating lease commitments represent rentals payable by the Company primarily for its office property.

12 Reserves

The nature and purpose of each reserve within equity is consistent with the Group as described on page 108 of the Group’s Financial Statements.

Amounts recognised as distributions to shareholders in the year are disclosed in note 9 of the Group Financial Statements.

13 Profit for the financial year

As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own income statement and statement of comprehensive income. The profit for the financial year relating to the Company amounted to £3.1 million (2013: £6.0 million).

14 Related party transactions

The Company does not actively trade with its subsidiary companies. The Company charges its subsidiaries an annual management fee. Amounts recognised in income for the year to 31 March 2014 in respect of management fees amounted to £3.3 million (2013: £3.0 million). Dividends received from subsidiaries amounted to £4.0 million (2013: £6.5 million). Key management and Directors’ remuneration disclosures are contained in note 5 to the Group Financial Statements. Remuneration for key management, other than the Executive Directors, is not included in the Company’s operating costs. Remuneration for the key management is disclosed in the Financial Statements of their respective employing companies.

Amounts owing from or to subsidiaries are disclosed in note 5 and note 6. Additional related party disclosures are provided in note 27 to the Group Financial Statements.

15 Share-based payments

Details of the Company’s share-based payment arrangements are disclosed in note 23 of the Group Financial Statements.

120


Documents

Annual Report and Accounts 2014 Financial Statementsar2014.creston.com/uploads/1405768301_Financial_Sta… · · 2014-07-19In our opinion the Financial Statements, defined below: