TIDMCGNY
RNS Number : 6611P
Cagney PLC
30 March 2009
CAGNEY Plc ("Cagney" or the "Company")
FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
30 March 2009
Cagney, an integrated group of marketing services firms, today announces full
year results for the year ended 31 December 2008.
Highlights
+----+-------------------------------------------------------------------------------+
| - | Gross profit increased by 8% to GBP8.1m (2007 - GBP7.5m) |
+----+-------------------------------------------------------------------------------+
| - | Small operating profit, in line with earlier guidance (against |
| | GBP547,000 loss in 2007) |
+----+-------------------------------------------------------------------------------+
| - | More than GBP500,000 taken out of cost base going into 2009 |
+----+-------------------------------------------------------------------------------+
| - | Strong new business performance in all companies |
+----+-------------------------------------------------------------------------------+
| - | Profitable start to 2009 |
+----+-------------------------------------------------------------------------------+
| - | Significant reduction in debt |
+----+-------------------------------------------------------------------------------+
| - | Continued bank support |
+----+-------------------------------------------------------------------------------+
| - | New management team cautiously optimistic about 2009 |
+----+-------------------------------------------------------------------------------+
Commenting on the results, Chief Executive Steve Mattey said:
"When I look back at the task the new management team inherited almost a year
ago, I do so with satisfaction in what we have achieved so far, but also knowing
that we still have much to do.
At the time I became CEO, I felt that there were three stages which Cagney
needed to go through. The first, and most urgent, was to bring financial
robustness to all business areas of the Group; the second was to re-define our
business strategy and direction; and the third was to restore carefully managed
growth.
Therefore the key task during 2008 for the new management team was the first
stage - to bring financial robustness to all business areas. Among other
things, this involved taking more than GBP500,000 out of the Group's cost base.
Whilst this had a small impact in 2008, we will reap its full reward in the
coming year.
We have the continued support of our bank; we are being prudent and realistic in
our forecasting; and we are carefully managing our cost base. Ever mindful of
the wider economic malaise and the impact this might have on clients and
potential clients, we nevertheless expect to deliver a much more encouraging
financial performance in 2009.
I hope to be in a position to deliver news of changes in the strategy and
direction for Cagney as the year unfolds to match the changing needs of the
communications marketplace.
I would like to thank my Board for their support in a difficult 2008 and, as
always, my thanks to the staff of all the Cagney companies for their continued
hard work and commitment."
On 11 February 2009 the Board of Cagney announced that it had received a
preliminary approach regarding a possible offer for the Company, whilst
stressing that the approach and the resulting discussions were at an early
stage. Discussions continue, but this does not necessarily imply that an offer
will be made for the Company.A further announcement will be made as and when
appropriate.
ENDS
+------------------------------------------+------------------------------------------+
| Enquiries: | |
+------------------------------------------+------------------------------------------+
| Cagney Plc | Tel: 020 7637 4198 |
+------------------------------------------+------------------------------------------+
| Steve Mattey, Chief Executive | |
+------------------------------------------+------------------------------------------+
| Patrick Oram, Chief Financial Officer | |
+------------------------------------------+------------------------------------------+
| Smith & Williamson (Nomad) | Tel: 0117 376 2213 |
+------------------------------------------+------------------------------------------+
| Nick Reeve | |
+------------------------------------------+------------------------------------------+
| WH Ireland (Broker) | Tel: 0161 832 2174 |
+------------------------------------------+------------------------------------------+
| Stuart Forshaw | |
+------------------------------------------+------------------------------------------+
| The Media Foundry (PR) | Tel: 020 7612 1163 |
+------------------------------------------+------------------------------------------+
| Anna Foster | |
+------------------------------------------+------------------------------------------+
About Cagney Plc
Cagney Plc is an integrated group of marketing services firms. It combines four
main businesses: Chick Smith Trott (advertising and design); Cubo (promotional
marketing); The Media Foundry (public relations); and Tree (market research and
data analysis). The Group floated on AIM in February 2006.
www.cagneyplc.com
CEO STATEMENT
For the year ended 31 December 2008
OVERVIEW
I would not have chosen to begin my tenure as CEO of Cagney in the jaws of a
global financial crisis, but I have always relished a challenge, and continue to
believe that the economic conditions will bring opportunities in all business
sectors.
When I look back at the task I inherited almost a year ago, I do so with
satisfaction with what we have achieved so far, but also knowing that we still
have much to do.
I felt then that there were three stages which Cagney needed to go though. The
first was to create financial robustness in all business areas; the second was
the re-definition of our strategy and direction for the business; and the third
stage was carefully managed growth.
The key task during 2008 for the new management team was the first stage.
The interim operating profit for 2008 of GBP234,000 was a welcome performance
after 2007's operating loss of GBP547,000 but, as we said at the time, it was
boosted by some one-off revenues, and masked the pressure that the Group's
finances were under. The level of new business needed to produce a reasonable
margin from the Group's inflated cost base would have been difficult in times of
plenty, but almost impossible in a recession.
But we did achieve an operating profit in 2008, albeit a small one of GBP34,000,
and we achieved that despite inheriting a huge burden of central costs that
could not quickly be reduced. We also grew gross profit by GBP0.6m over 2007, to
GBP8.1m.
Central operating costs in 2007 were GBP1.3m, which was far too high for a group
of Cagney's size. Some cost cutting measures at the end of 2007 yielded a modest
improvement going into 2008, but the burden of central costs that we inherited
remained too high. In the first months of its tenure, the new management team
cut the running rate of central costs by more than half, although notice periods
meant that 2008 saw little benefit from these measures. Payments during the
notice periods of senior personnel who left the Group during the year amounted
to GBP338,000. Without these non-productive costs and other related costs the
Group would have registered an operating profit approaching GBP500,000.
The other main factor behind the 2007 operating loss was a significant loss at
CST, the Group's above-the-line advertising agency. CST's overheads were
significantly reduced towards the end of 2007, and cost control continued into
2008. CST recorded a small but encouraging profit in 2008, though the company's
main achievement during the year was in converting an increase in gross profit
of GBP138,000 against 2007 into an impressive GBP448,000 improvement in its
operating performance.
Whilst the operating profit for the year was small, it is nevertheless
satisfying considering the circumstances, and we entered 2009 in the best
possible shape to be able to capitalise on the opportunities we believe these
testing times will present.
In the first quarter of 2009 Cagney is trading profitably, and we continue to
feel cautiously optimistic about new business prospects. We have a healthy
pipeline and our bank is supportive of this management team's progress and
vision for the future.
This all puts us in a good place to move to the second stage I mentioned earlier
- re-definition of our strategy and direction for the business.
Communications companies need to respond to the changes taking place in the way
consumers receive information about products and services. Digital media and
mobile telecommunications are now critical routes to market in every sector.
There is an enormous proliferation of data about people and their behaviour -
web usage, purchasing habits, transactional information, personal data to name
but a few. Harnessing this data to understand people and reacting to it with
intuitive and natural communications is the future for marketing. With this in
mind, my intention is to re-align Cagney as a business delivering communications
led by insight and technology.
We are an extremely creative company, and if this creativity can be channelled
effectively for our clients, they will benefit greatly. Communications will be
judged on their effectiveness and impact on sales in this economy more than
ever. I welcome that. We will be a business that at its heart will let insight
and technology drive our creativity.
The third stage for Cagney will then be to embark on a measured and considered
growth plan which incorporates businesses that are consistent with this
strategy.
SEGMENTAL REVIEW
The segmental analysis in the financial statements identifies three segments -
(i) creative services; (ii) market research and data analysis; and (iii) public
relations.
The creative services segment comprises CST, Exedra and Cubo. At the end of the
year we decided to fold Exedra, our brand consultancy, back into CST.
CST turned a GBP428,000 operating loss in 2007 into an operating profit in 2008
from only a modest increase in gross profit. The agency had a quiet first half
of the year, but emerged re-energised in the second half, adding Douwe Egberts
and Go3 to its client list, and winning a project from Interflora. It also
consolidated its relationships with existing clients, winning four additional
COI projects, and being re-appointed to National Savings & Investments following
the statutory review pitch.
Cubo, our promotional marketing business, had another very good year in 2008,
recording an increase in operating profit at a healthy margin. The arrival of
Cal Ledward as business development director in March 2008 contributed to a
solid new business performance, with added projects from Budweiser, Martell,
Busch Entertainment, and Douwe Egberts.
The market research and data analysis segment is primarily Tree, which grew both
operating profit and gross profit, despite a slightly disappointing new business
year.Tree has traditionally performed well when clients are challenged to
demonstrate the effectiveness of their marketing spend, and that should stand
the business in good stead at a time when companies are examining every penny of
their expenditure.
Cagney also has a minority stake in A Good Listener ("AGL"), a revolutionary
software tool which condenses all web chatter on particular topics of interest
to clients into digestible form. AGL already has clients and an impressive
pipeline of potential clients.
The public relations segment is The Media Foundry ("TMF"). The company
significantly increased its operating profit against 2007, despite the provision
for doubtful debts that we referred to in the announcement we made in
December. We are particularly pleased with the amount of new business
generated. During the year TMF won 18 new clients or projects, including
Tradewind, 38th Floor, CBS International and Clusta, and there are signs that
the economic conditions might lead companies to invest in communication methods
such as public relations which are capable of high impact at lower cost.
ECONOMIC OUTLOOK
No one knows how long this recession will last, or how deep it will go. We are
assuming that it will last long and be very deep, and are preparing ourselves
accordingly by preserving cash and cutting out waste. We will invest, but only
against a robust business plan.
SUMMARY
The Group entered 2009 running at a profit, and with a formidable and motivated
management team. TMF and Cubo now have business development directors, each of
whom contributed significant new business wins during 2008. The coming months
will not be easy, but we could hardly be better placed to build on an
encouraging start and the Board remains cautiously optimistic about 2009 despite
the current financial climate.
I would like to take this opportunity to thank my Board of Alex Hambro, Patrick
Oram and Kerry Simpson for their hard work, support and commitment during 2008.
Finally, a company is only as successful as the people who work in it, so I
would also like to thank all of the staff of Cagney and our companies for their
continued commitment to our business.
Steve Mattey
Chief Executive Officer
30 March 2009
FINANCIAL REVIEW
For the year ended 31 December 2008
HIGHLIGHTS
For the year ended 31 December 2008 the Cagney Group generated an operating
profit of GBP34,000 (2007 - operating loss of GBP547,000) on gross profit of
GBP8.1m (2007 - 7.5m).
Below the operating line, the Income Statement includes a loss of GBP85,000, net
of related taxation, on the associated undertaking, AGL, which came into being
at the beginning of the year. AGL is an online tool that gathers information
about clients and products from the internet. The loss is slightly greater than
originally planned, but development of the product has gone well and it is
generating revenue and considerable interest from potential clients.
Net interest payable of GBP165,000 is an improvement of GBP10,000 against 2007,
due primarily to the reduction in the base rate. At the present base rate, and
with the underlying debt declining, we would expect a more significant
improvement in 2009.
The Income Statement also includes the benefit of a GBP65,000 unwinding of part
of the notional provision for the finance cost of deferred consideration, which
compares with a GBP368,000 charge in 2007. This unwinding occurred because the
Directors reduced their estimates of the deferred consideration payable in
respect of Tree and TMF.
The last item in the Income Statement before the loss on ordinary activities
before taxation is a provision of GBP3.5m for the impairment of goodwill
relating to subsidiary undertakings Cubo (GBP2.5m), TMF (GBP0.5m) and CST
(GBP0.5m). This provision has no effect on either cash or taxation, nor is it an
indication of problems at those subsidiary undertakings - indeed, Cubo remains
the Group's most successful company. However, Cubo had an exceptional year in
2006, resulting in a consideration payment out of all proportion with the
company's current trading. The Board has therefore decided to reduce the
carrying value to a more sustainable level.
TMF and CST were both profitable in 2008, but they are in parts of the sector -
public relations and broadcast advertising - which could potentially be hit by a
prolonged recession, and the Board has therefore decided to take a cautious view
of the carrying value of these investments.
The loss before tax for the year was GBP3.7m (2007 - GBP3.1m), and the loss
after tax for the year was GBP3.7m (2007 - GBP2.9m).
LOSS PER SHARE
Basic and fully diluted loss per share were 1.9p (2007 - 2.6p).
KEY PERFORMANCE INDICATORS
Group management monitors three primary KPIs - (i) operating margin; (ii) staff
costs as a percentage of gross profit; and (iii) gross profit per head. Each of
these KPIs can vary significantly from business to business.
Operating margin is operating profit divided by gross profit. We would like each
of our business to achieve an operating margin of at least 20%. Some achieve
margins greater than this, but it can be a difficult mark to achieve in smaller
companies. This margin is important as a measure of the profitability of a
business, but it is also an important measure of risk. A company with a low
operating margin runs the risk that an absolute decline in its revenue will wipe
out its profit. Conversely, a company with a high operating margin is more
likely to be able to withstand a loss of revenue and still make a profit.
Having fixed a forecast for operating profit, we then also monitor what we call
incremental operating margin. This is the percentage of any additional gross
profit that flows into operating profit. This not only varies from business to
business, but also varies depending on whether or not a business has surplus
capacity - for example a business with a lot of surplus capacity would expect to
be able to service a certain amount of additional gross profit without employing
any additional staff.
Staff costs as a percentage of gross profit is self-explanatory. It is
particularly important in a service industry, as people are the main cost to the
business, and therefore one of the main factors in determining operating margin.
We would normally expect this measure to fall between 50% and 60%.
Gross profit per head is a measure of productivity. The 'holy grail' in the
sector is said to be gross profit of GBP100,000 per head, but it can be greater
than this.
Each of our businesses produces an initial profit plan - including a profit
forecast and a cash flow forecast - in October for the following year. The
holding company management team reviews each plan in the light of the forecast
for the current year, and the KPIs above, and discusses the plans with company
management. The agreed plans are then presented to the Group's senior
management, usually in early November. The plans are updated in January in the
light of activity since the original plan, and progress is monitored thereafter
on a monthly basis, both in terms of profit and cash flow.
Furthermore, in March each year senior management, in conjunction with the
finance team, also produce a financial model of the following year for use in
conjunction with its banking review and the audit. Thus we already have a
financial model of 2010, which also enables senior management better to
appreciate the longer-term effects of the actions planned for the current year.
DEFERRED CONSIDERATION
Under the terms of most of the Group's acquisitions, the vendors were able to
earn additional consideration if certain profit targets were achieved. TMF and
Tree were eligible for deferred payments based on their 2008 profitability. Tree
qualified for an additional payment based on their 2008 performance, but TMF did
not meet the necessary criteria. No further deferred consideration payments will
arise in the future, though the 2008 calculations are not yet final, and it is
possible that the Group's estimate of its present deferred consideration
obligations might change.
CURRENT AND NON-CURRENT LIABILITIES
At the end of 2008 the Group had net current liabilities of GBP1.8m (down from
GBP4.1m at the end of 2007), and total net debt of GBP2.3m (down from GBP6.6m at
the end of 2007).
Total net debt of GBP2.3m comprises a bank overdraft with Coutts of GBP0.5m; the
GBP0.8m balance of the GBP1.2m term loan provided by Coutts in 2007; loan notes
of GBP0.4m; and GBP0.8m of deferred consideration, all offset by GBP0.2m of net
current trading assets.
The major factor behind the GBP4.3m reduction in total net debt was a GBP4.6m
reduction in deferred consideration provisions and liabilities. Of that GBP4.6m,
GBP3m resulted from the settlement of Cubo and Tree deferred consideration by
the issue of shares. Most of the balance is attributable to a reduction in the
Directors' estimate of deferred consideration in respect of The Media Foundry,
which fell short of the necessary performance thresholds whilst still delivering
a reasonable operating profit.
During 2007 the Group secured a GBP1.2m medium term loan from Coutts. The loan
including interest is repayable in monthly instalments amounting to
approximately GBP345,000 per annum, and is scheduled to be fully repaid by May
2011. Interest is charged at 1.75% above Coutts' base rate from time to time.
The loan and bank overdraft are secured by fixed and floating charges over the
assets of the Group, with cross guarantees. The Group's overdraft facility
was formally renewed by Coutts in March 2009.
The overdraft and the deferred consideration are payable on demand.
RISKS AND UNCERTAINTIES
The nature of the business is such that there is always a risk that existing
clients might reduce expenditure or find alternative providers, and groups of
our nature are always seeking to find a way to measure the extent of this risk.
My preference is to consider how much of the year's gross profit is genuinely
secure - barring default or liquidation on the part of the client - and that is
the total of gross profit already earned, plus retainer fees covered by
contractual notice periods. Of the current forecast gross profit for 2009, I
estimate that at the time of writing almost 50% of the year's forecast gross
profit was secure on the stated basis. That is encouraging, given that we are
only a quarter of the way through the year.
STAFF NUMBERS
The average number of employees decreased from 100 to 93 during the year,
reflecting the cost cutting measures taken during the year.
PROPERTY
The Group operates out of two premises located within a few minutes walk of each
other. One of the leases terminates early next year, which could present an
opportunity to bring the Group even closer together and reduce its cost base.
DIVIDENDS
The Directors do not propose a dividend, and are unlikely to do so until the
Group is much closer to achieving its strategy, as described in the Business
Review.
Patrick Oram
Chief Financial Officer
30 March 2009
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2008
+---------------------------------+-----------+-----------+-----------+------------+------------+
| | Note | | | 2008 | 2007 |
| | | | | GBP000 | GBP000 |
+---------------------------------+ +-----------+-----------+ + +
| | | | | | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Revenue | 1,2 | | | 11,812 | 11,251 |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Direct costs | | | | (3,669) | (3,724) |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Gross profit | 2 | | | 8,143 | 7,527 |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Administrative expenses | | | | (7,771) | (8,074) |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Payments during notice periods | | | | (338) | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Operating profit/(loss) | 3 | | | 34 | (547) |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Share of loss of associated | 1 | | | (85) | - |
| undertaking | | | | | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Interest receivable | 5 | | | 12 | 13 |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Interest payable and similar | 6 | | | (177) | (188) |
| charges | | | | | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Finance cost of deferred | 16 | | | 65 | (368) |
| consideration | | | | | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Impairment of goodwill | 9 | | | (3,500) | (2,000) |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Loss on ordinary activities | 2 | | | (3,651) | (3,090) |
| before taxation | | | | | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Tax (charge)/credit on loss on | 7 | | | (11) | 147 |
| ordinary activities | | | | | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
| Loss on ordinary activities | | | | (3,662) | (2,943) |
| after taxation | | | | | |
+---------------------------------+-----------+-----------+-----------+------------+------------+
+---------------------------------+----+----------------------+------------+------------+
| Loss per ordinary share: | 2008 | 2007 |
| | | |
+-------------------------------------------------------------+------------+------------+
| Basic | 8 | | (1.9p) | (2.6p) |
+---------------------------------+----+----------------------+------------+------------+
| Diluted | 8 | | (1.9p) | (2.6p) |
+---------------------------------+----+----------------------+------------+------------+
CONSOLIDATED BALANCE SHEET
As at 31 December 2008
+----------------------------------------------------+-------+-------------+-------------+
| | Note | 2008 | 2007 |
| | | GBP000 | GBP000 |
+----------------------------------------------------+ + + +
| | | | |
+----------------------------------------------------+-------+-------------+-------------+
| Non-current assets | | | |
+----------------------------------------------------+-------+-------------+-------------+
| Goodwill | 9 | 5,569 | 10,509 |
+----------------------------------------------------+-------+-------------+-------------+
| Tangible assets | 10 | 180 | 249 |
+----------------------------------------------------+-------+-------------+-------------+
| | | 5,749 | 10,758 |
+----------------------------------------------------+-------+-------------+-------------+
| Current assets | | | |
+----------------------------------------------------+-------+-------------+-------------+
| Trade and other receivables | 12 | 2,213 | 2,834 |
+----------------------------------------------------+-------+-------------+-------------+
| Deferred tax asset | 15 | 192 | 138 |
+----------------------------------------------------+-------+-------------+-------------+
| | | 2,405 | 2,972 |
+----------------------------------------------------+-------+-------------+-------------+
| Current liabilities | | | |
+----------------------------------------------------+-------+-------------+-------------+
| Trade and other payables | 13 | (2,165) | (2,181) |
+----------------------------------------------------+-------+-------------+-------------+
| Current tax liabilities | | (7) | (142) |
+----------------------------------------------------+-------+-------------+-------------+
| Bank overdrafts, loans and loan notes | 14 | (1,244) | (1,120) |
+----------------------------------------------------+-------+-------------+-------------+
| Deferred consideration liabilities | 16 | (616) | (2,509) |
+----------------------------------------------------+-------+-------------+-------------+
| Deferred consideration provisions | 16 | (213) | (1,127) |
+----------------------------------------------------+-------+-------------+-------------+
| | | (4,245) | (7,079) |
+----------------------------------------------------+-------+-------------+-------------+
| Net current liabilities | | (1,840) | (4,107) |
+----------------------------------------------------+-------+-------------+-------------+
| Total assets less current liabilities | | 3,909 | 6,651 |
+----------------------------------------------------+-------+-------------+-------------+
| Non-current liabilities: | | | |
+----------------------------------------------------+-------+-------------+-------------+
| Bank loans | 14 | (437) | (764) |
+----------------------------------------------------+-------+-------------+-------------+
| Deferred consideration provisions | 16 | - | (1,773) |
+----------------------------------------------------+-------+-------------+-------------+
| Total net assets | 2 | 3,472 | 4,114 |
+----------------------------------------------------+-------+-------------+-------------+
| | | | |
+----------------------------------------------------+-------+-------------+-------------+
| Capital and reserves | | | |
+----------------------------------------------------+-------+-------------+-------------+
| Called up share capital | 20 | 2,183 | 1,344 |
+----------------------------------------------------+-------+-------------+-------------+
| Share premium | | 8,153 | 5,986 |
+----------------------------------------------------+-------+-------------+-------------+
| Share option reserve | | 20 | 6 |
+----------------------------------------------------+-------+-------------+-------------+
| Merger reserve | | (150) | (150) |
+----------------------------------------------------+-------+-------------+-------------+
| Profit and loss account | | (6,734) | (3,072) |
+----------------------------------------------------+-------+-------------+-------------+
| Equity shareholders' funds | | 3,472 | 4,114 |
+----------------------------------------------------+-------+-------------+-------------+
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2008
+----------------------------------------------------+------+-------------+--------------+
| |Note | 2008 | 2007 |
| | | GBP000 | GBP000 |
+----------------------------------------------------+ + + +
| | | | |
+----------------------------------------------------+------+-------------+--------------+
| Cash flows from operating activities | | | |
+----------------------------------------------------+------+-------------+--------------+
| Operating profit/(loss) | | 34 | (547) |
+----------------------------------------------------+------+-------------+--------------+
| Share of loss before tax of associate | | (117) | - |
+----------------------------------------------------+------+-------------+--------------+
| Charge in respect of share option scheme | 19 | 14 | 6 |
+----------------------------------------------------+------+-------------+--------------+
| Depreciation charge | 10 | 121 | 103 |
+----------------------------------------------------+------+-------------+--------------+
| Operating profit/(loss) before working capital | | 52 | (438) |
| changes | | | |
+----------------------------------------------------+------+-------------+--------------+
| Reduction/(increase) in trade and other | | 620 | (710) |
| receivables | | | |
+----------------------------------------------------+------+-------------+--------------+
| (Reduction)/increase in trade and other payables | | (16) | 676 |
+----------------------------------------------------+------+-------------+--------------+
| Net cash inflow/(outflow) from operating | | 656 | (472) |
| activities | | | |
+----------------------------------------------------+------+-------------+--------------+
| Investing activities | | | |
+----------------------------------------------------+------+-------------+--------------+
| Interest received | | 12 | 13 |
+----------------------------------------------------+------+-------------+--------------+
| Purchases less disposals of property, plant and | | (52) | (116) |
| equipment | | | |
+----------------------------------------------------+------+-------------+--------------+
| Purchase of business and assets | | - | (882) |
+----------------------------------------------------+------+-------------+--------------+
| Settlement of deferred consideration | | (70) | (1,633) |
+----------------------------------------------------+------+-------------+--------------+
| Net cash used in investing activities | | (110) | (2,618) |
+----------------------------------------------------+------+-------------+--------------+
| Taxation | | | |
+----------------------------------------------------+------+-------------+--------------+
| UK corporation tax paid | | (168) | - |
+----------------------------------------------------+------+-------------+--------------+
| Financing activities | | | |
+----------------------------------------------------+------+-------------+--------------+
| Interest paid | | (175) | (123) |
+----------------------------------------------------+------+-------------+--------------+
| Loan repayments | | (296) | (606) |
+----------------------------------------------------+------+-------------+--------------+
| Proceeds on issue of shares (net of expenses) | | - | 1,811 |
+----------------------------------------------------+------+-------------+--------------+
| Proceeds from loan financing | | - | 1,200 |
+----------------------------------------------------+------+-------------+--------------+
| Net cash (outflow)/inflow from financing | | (471) | 2,282 |
| activities | | | |
+----------------------------------------------------+------+-------------+--------------+
| Net change in cash and cash equivalents | | (93) | (808) |
+----------------------------------------------------+------+-------------+--------------+
| Net cash and cash equivalents at beginning of year | | (417) | 391 |
+----------------------------------------------------+------+-------------+--------------+
| Cash and cash equivalents at end of year | | (510) | (417) |
+----------------------------------------------------+------+-------------+--------------+
| Analysed as: | | | |
+----------------------------------------------------+------+-------------+--------------+
| Bank overdrafts | 14 | (510) | (417) |
+----------------------------------------------------+------+-------------+--------------+
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2008
+--------------------------+----------+----------+---------+----------+----------+---------+
| | Called | Share | Share | Other | Profit | Total |
| | up share | premium | options | reserves | and loss | GBP000 |
| | capital | account | reserve | GBP000 | account | |
| | GBP000 | GBP000 | GBP000 | | GBP000 | |
+--------------------------+ + + + + + +
| | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Balance at 1 January | 831 | 4,191 | - | (150) | (129) | 4,743 |
| 2007 | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Retained loss for the | - | - | - | - | (2,943) | (2,943) |
| year | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Provision for share | - | - | 6 | - | - | 6 |
| based payment | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Shares issued during the | 513 | 1,994 | - | - | - | 2,507 |
| year | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Costs of fundraising | - | (199) | - | - | - | (199) |
+--------------------------+----------+----------+---------+----------+----------+---------+
| At 31 December 2007 | 1,344 | 5,986 | 6 | (150) | (3,072) | 4,114 |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Retained loss for the | - | - | - | - | (3,662) | (3,662) |
| year | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Provision for share | - | - | 14 | - | - | 14 |
| based payment | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| Shares issued during the | 839 | 2,167 | - | - | - | 3,006 |
| year | | | | | | |
+--------------------------+----------+----------+---------+----------+----------+---------+
| At 31 December 2008 | 2,183 | 8,153 | 20 | (150) | (6,734) | 3,472 |
+--------------------------+----------+----------+---------+----------+----------+---------+
Other reserves represents the merger reserve arising from the prior year merger
of Cagney Plc with Paul Simons & Partners Limited. Merger relief under s131 of
the Companies Act has been taken and the premium arising on the issue of these
shares has been disregarded as required by s133 of the Companies Act 1985.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with IFRS
and IFRIC interpretations for use in the European Union and issued by the
International Accounting Standards Board.
b) Basis of preparation
The financial statements have been prepared in sterling, the currency in which
the majority of the Group's transactions are denominated, under the historical
cost convention and in accordance with applicable International Financial
Reporting Standards ("IFRS"). The principal accounting policies which have been
consistently applied are described below.
The Directors have satisfied themselves that the Company will in due course to
be able to satisfy all its liabilities within its present banking facilities,
and have therefore prepared the financial statements on the going concern basis.
c) Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiaries for financial periods ended 31 December 2008.
Control is achieved where the Group has the power to govern the financial and
operating policies of an investee so as to obtain benefits from its activities.
On acquisition the assets, liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (ie
discount on acquisition) is credited to the income statement in the period of
acquisition.
The results of subsidiaries acquired during the year are included in the
consolidated income statement from the effective date of acquisition.
Where necessary, adjustments are made to the financial statements of subsidiary
undertakings to bring the accounting policies used in line with those used by
the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
d) Gross revenue recognition
Revenue is taken on fee income in the period to which it relates. Project income
is recognised in the period in which the project is worked on. For projects
which fall over the financial year end, income is recognised to reflect the
partial performance of the contractual obligations in accordance with IAS 18.
Third party costs and the associated income relating to bought in costs directly
rechargeable to clients are recognised in the period to which they relate.
e) Retirement benefit costs
The Group operates a defined contribution pension scheme for employees. The
assets of the scheme are held separately from those of the Group in an
independently administered fund. The amount charged to the profit and loss
account represents the contributions payable to the scheme in respect of the
accounting period.
f) Finance costs
Finance costs - including interest, bank charges and the unwinding of the
discount on deferred consideration - are recognised as profit or loss in the
period in which they are incurred.
g) Taxation
The tax charge or credit represents the sum of the current tax and deferred tax.
The current tax charge or credit is based on taxable profit or loss for the
year. Taxable profit or loss differs from profit or loss on ordinary activities
before taxation as reported in the income statement because it excludes items of
income or expense that are taxable or deductible in other years, and 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.
Deferred 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 or loss, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and 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 goodwill or from the initial
recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable profit or loss nor
the accounting profit or loss.
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.
The carrying amount of deferred tax assets 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 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.
h) Goodwill
Goodwill 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
Directors' best estimates of these obligations. Earn-outs are dependent on the
future performance of the relevant business and are reviewed annually. The
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 income statement as notional finance
costs over the life of the associated liability.
Goodwill impairment is assessed in accordance with IAS 36. Impairment has taken
place if the carrying amount of an asset is greater than its 'recoverable
amount'. The recoverable amount of an asset is the higher of its 'fair value'
(less the likely costs of disposal) and its 'value in use'. Fair value is the
amount obtainable from an arm's-length transaction between a willing buyer and a
willing seller. Value in use is the discounted present value of the future cash
flows expected to be derived from the asset. The discount rate used is the
risk-free rate of interest adjusted to reflect the risk associated with the
asset. This adjusted discount rate should reflect the return that an investor
would require from an investment in such an asset. Impairment is recognised in
the income statement and is not subsequently reversed.
On disposal of a subsidiary, associate or jointly controlled entity, the
attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
i) Associated undertakings
The Group's share of the net assets or liabilities of associated undertakings
has been accounted for in the consolidated financial statements using the equity
method.
j) Operating leases
Rental costs under operating leases are charged to the income statement in equal
annual amounts over the periods of the leases.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term or the period
to the next review.
k) Plant and equipment
Plant and equipment is stated at cost less accumulated depreciation and any
provision for impairment. Depreciation is provided on a straight-line basis over
the estimated useful economic lives of assets at between 25% and 33% per annum.
Any gain or loss arising on the disposal of an asset is determined as the
difference between the sales proceeds and the carrying amount of the asset and
is recognised in the income statement.
l) Cash and cash equivalents
Cash and cash equivalents comprises cash, overdrafts and cash held on short-term
deposit.
m) Trade receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
n) Share-based payment
The Company grants options over its shares to certain directors and employees
under the Group's Enterprise Management Incentive Plan. The value of these
share-based payments is measured at the date of grant using the Black-Scholes
pricing model, and is expensed on a straight-line basis over the vesting period.
2. Segment reporting
The Group's gross profit and its loss on ordinary activities before taxation
were derived from the following business segments:
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Gross profit | | |
+------+------------------------------------------------+----------------+--------------+
| | Creative services | 4,499 | 4,280 |
+------+------------------------------------------------+----------------+--------------+
| | Market research and data analysis | 2,635 | 2,201 |
+------+------------------------------------------------+----------------+--------------+
| | Public relations | 1,009 | 1,046 |
+------+------------------------------------------------+----------------+--------------+
| | | 8,143 | 7,527 |
+------+------------------------------------------------+----------------+--------------+
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Profit/(loss) on ordinary activities before | | |
| | taxation | | |
+------+------------------------------------------------+----------------+--------------+
| | Creative services | 453 | 210 |
+------+------------------------------------------------+----------------+--------------+
| | Market research and data analysis | 348 | 348 |
+------+------------------------------------------------+----------------+--------------+
| | Public relations | 104 | 57 |
+------+------------------------------------------------+----------------+--------------+
| | Head office | (1,056) | (1,705) |
+------+------------------------------------------------+----------------+--------------+
| | Impairment provision | (3,500) | (2,000) |
+------+------------------------------------------------+----------------+--------------+
| | | (3,651) | (3,090) |
+------+------------------------------------------------+----------------+--------------+
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Net assets | | |
+------+------------------------------------------------+----------------+--------------+
| | Creative services | 902 | 1,122 |
+------+------------------------------------------------+----------------+--------------+
| | Market research and data analysis | 325 | 277 |
+------+------------------------------------------------+----------------+--------------+
| | Public relations | 137 | 202 |
+------+------------------------------------------------+----------------+--------------+
| | Head office | 2,108 | 2,513 |
+------+------------------------------------------------+----------------+--------------+
| | | 3,472 | 4,114 |
+------+------------------------------------------------+----------------+--------------+
The Group's revenue was earned from clients based in the following geographical
markets:
+------+------------------------------------+------------------+------------+------------+
| | | UK | Rest of | Total |
| | | GBP000 | World | GBP000 |
| | | | GBP000 | |
+------+------------------------------------+ + + +
| | | | | |
+------+------------------------------------+------------------+------------+------------+
| | Year ended 31 December 2008 | | | |
+------+------------------------------------+------------------+------------+------------+
| | Creative services | 5,656 | 1,530 | 7,186 |
+------+------------------------------------+------------------+------------+------------+
| | Public relations | 1,072 | - | 1,072 |
+------+------------------------------------+------------------+------------+------------+
| | Market research and data analysis | 3,554 | - | 3,554 |
+------+------------------------------------+------------------+------------+------------+
| | | 10,282 | 1,530 | 11,812 |
+------+------------------------------------+------------------+------------+------------+
| | Year ended 31 December 2007 | | | |
+------+------------------------------------+------------------+------------+------------+
| | Creative services | 4,603 | 2,813 | 7,416 |
+------+------------------------------------+------------------+------------+------------+
| | Public relations | 1,113 | - | 1,113 |
+------+------------------------------------+------------------+------------+------------+
| | Market research and data analysis | 2,722 | - | 2,722 |
+------+------------------------------------+------------------+------------+------------+
| | | 8,438 | 2,813 | 11,251 |
+------+------------------------------------+------------------+------------+------------+
All assets and liabilities are located within the UK with the exception of
certain trade receivables which relate to the revenue noted above.
All the above figures are shown before intra-group management charges.
3. Operating profit/(loss)
Operating profit/(loss) is stated after charging:
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Staff costs (note 4) | 5,285 | 5,728 |
+------+------------------------------------------------+----------------+--------------+
| | Directors' emoluments (note 4) | 468 | 457 |
+------+------------------------------------------------+----------------+--------------+
| | Depreciation - owned plant and equipment (note | 121 | 103 |
| | 10) | | |
+------+------------------------------------------------+----------------+--------------+
| | Operating lease rentals - land and buildings | 282 | 285 |
+------+------------------------------------------------+----------------+--------------+
| | Operating lease rentals - plant and machinery | 47 | 59 |
+------+------------------------------------------------+----------------+--------------+
| | Auditors' remuneration for audit services | 68 | 63 |
+------+------------------------------------------------+----------------+--------------+
4. Staff costs
The average monthly number of employees (including non-executive Directors) was:
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
+------+------------------------------------------------+----------------+--------------+
| | Directors | 5 | 5 |
+------+------------------------------------------------+----------------+--------------+
| | Creative services | 46 | 51 |
+------+------------------------------------------------+----------------+--------------+
| | Public relations | 12 | 16 |
+------+------------------------------------------------+----------------+--------------+
| | Market research and data analysis | 28 | 25 |
+------+------------------------------------------------+----------------+--------------+
| | Head office | 2 | 3 |
+------+------------------------------------------------+----------------+--------------+
| | | 93 | 100 |
+------+------------------------------------------------+----------------+--------------+
Their total aggregate remuneration comprised:
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Wages and salaries | 4,721 | 5,173 |
+------+------------------------------------------------+----------------+--------------+
| | Social security costs | 545 | 519 |
+------+------------------------------------------------+----------------+--------------+
| | Pension costs | 19 | 36 |
+------+------------------------------------------------+----------------+--------------+
| | | 5,285 | 5,728 |
+------+------------------------------------------------+----------------+--------------+
Directors' remuneration during the year was as follows:
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Emoluments | 454 | 422 |
+------+------------------------------------------------+----------------+--------------+
| | Pension contributions | 14 | 35 |
+------+------------------------------------------------+----------------+--------------+
| | | 468 | 457 |
+------+------------------------------------------------+----------------+--------------+
Pension contributions made during the year were in respect of two directors
(2007 - three).
Amounts paid to the highest paid Director were GBP213,000 (2007 - GBP198,000).
5. Interest receivable
Interest receivable comprises interest on bank deposits.
6. Interest payable and similar charges
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Interest and charges on bank overdrafts and | 99 | 76 |
| | loans | | |
+------+------------------------------------------------+----------------+--------------+
| | Interest on convertible loan notes | 45 | 22 |
+------+------------------------------------------------+----------------+--------------+
| | Interest on other loans | 33 | 90 |
+------+------------------------------------------------+----------------+--------------+
| | | 177 | 188 |
+------+------------------------------------------------+----------------+--------------+
7. Tax on loss on ordinary activities
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Current tax (UK corporation tax at 28.5% (2007 | | |
| | - 30%)): | | |
+------+------------------------------------------------+----------------+--------------+
| | Current year | (19) | 22 |
+------+------------------------------------------------+----------------+--------------+
| | Prior year | (14) | (13) |
+------+------------------------------------------------+----------------+--------------+
| | Total current tax (charge)/credit | (33) | 9 |
+------+------------------------------------------------+----------------+--------------+
| | Deferred tax: | | |
+------+------------------------------------------------+----------------+--------------+
| | Current year (see note 15) | 26 | 138 |
+------+------------------------------------------------+----------------+--------------+
| | Prior year (see note 15) | (4) | - |
+------+------------------------------------------------+----------------+--------------+
| | Total deferred tax credit | 22 | 138 |
+------+------------------------------------------------+----------------+--------------+
| | Total tax (charge)/credit | (11) | 147 |
+------+------------------------------------------------+----------------+--------------+
The (charge)/credit for the year can be reconciled to the loss per the income
statement as follows:
+------+------------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------+ + +
| | | | |
+------+------------------------------------------------+----------------+--------------+
| | Loss before tax | (3,651) | (3,090) |
+------+------------------------------------------------+----------------+--------------+
| | Notional tax credit at UK corporation tax rate | 1,041 | 927 |
| | of 28.5% (2007 - 30%) | | |
+------+------------------------------------------------+----------------+--------------+
| | Tax effect of: | | |
+------+------------------------------------------------+----------------+--------------+
| | Impairment provision disallowed for tax | (998) | (600) |
| | purposes | | |
+------+------------------------------------------------+----------------+--------------+
| | Effect of offsetting tax relief on losses of | (24) | - |
| | associated undertaking against such losses, | | |
| | rather than including it in the tax line | | |
+------+------------------------------------------------+----------------+--------------+
| | Unwinding of finance charge on deferred | 19 | - |
| | consideration not taxable | | |
+------+------------------------------------------------+----------------+--------------+
| | Finance charge on deferred consideration | - | (110) |
| | disallowed for tax purposes | | |
+------+------------------------------------------------+----------------+--------------+
| | Other expenditure disallowed for tax purposes | (30) | (22) |
+------+------------------------------------------------+----------------+--------------+
| | DT assets not provided | (9) | - |
+------+------------------------------------------------+----------------+--------------+
| | Charges relating to prior year | (18) | (13) |
+------+------------------------------------------------+----------------+--------------+
| | Profits taxed at small company rates | 8 | - |
+------+------------------------------------------------+----------------+--------------+
| | Losses carried forward at lower future tax | - | (7) |
| | rates | | |
+------+------------------------------------------------+----------------+--------------+
| | Losses carried back at small company rates | - | (13) |
+------+------------------------------------------------+----------------+--------------+
| | Deferred tax provided at lower future rates | - | (2) |
+------+------------------------------------------------+----------------+--------------+
| | Movement in provisions | - | (13) |
+------+------------------------------------------------+----------------+--------------+
| | Tax (charge)/credit for year | (11) | 147 |
+------+------------------------------------------------+----------------+--------------+
8. Loss per share
The calculation of the basic and diluted loss per share is based on the
following data:
+------+------------------------------------------------------+----------+-------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+------------------------------------------------------+ + +
| | Loss | | |
+------+------------------------------------------------------+----------+-------------+
| | Loss for the purposes of basic loss per share, (net | (3,662) | (2,943) |
| | loss attributable to equity holders) | | |
+------+------------------------------------------------------+----------+-------------+
| | Interest and redemption premium on convertible loan | n/a | 34 |
| | notes | | |
+------+------------------------------------------------------+----------+-------------+
| | Adjusted loss for diluted loss per share | (3,662) | (2,909) |
+------+------------------------------------------------------+----------+-------------+
+------+------------------------------------------------------+-------------+-------------+
| | | 2008 | 2007 |
| | | Number | Number |
+------+------------------------------------------------------+ + +
| | Number of shares | | |
+------+------------------------------------------------------+-------------+-------------+
| | Weighted average number of ordinary shares for basic | 189,412,432 | 114,497,772 |
| | loss per share | | |
+------+------------------------------------------------------+-------------+-------------+
| | Effect of dilutive potential ordinary shares: | | |
+------+------------------------------------------------------+-------------+-------------+
| | Share options | 62,700 | - |
+------+------------------------------------------------------+-------------+-------------+
| | Shares to be issued in respect of deferred | - | 89,559,339 |
| | acquisition consideration | | |
+------+------------------------------------------------------+-------------+-------------+
| | Convertible loan notes | n/a | 2,500,000 |
+------+------------------------------------------------------+-------------+-------------+
| | Weighted average number of ordinary shares for | 189,475,132 | 206,557,111 |
| | diluted loss per share | | |
+------+------------------------------------------------------+-------------+-------------+
Diluted loss per share for the year ended 31 December 2007 was the same as basic
loss per share, as the above instruments were anti-dilutive. Basic and diluted
loss per share for the year ended 31 December 2008 appear the same when given to
one decimal place, but are in fact slightly different.
9. Goodwill
The movement on goodwill during the year is set out below.
+------+--------------------------------------------------------------+----------------+
| | | GBP000 |
+------+--------------------------------------------------------------+----------------+
| | At beginning of year | 10,509 |
+------+--------------------------------------------------------------+----------------+
| | Deferred consideration in respect of The Media Foundry | (1,225) |
+------+--------------------------------------------------------------+----------------+
| | Deferred consideration in respect of Tree | (215) |
+------+--------------------------------------------------------------+----------------+
| | Impairment provision in respect of Cubo | (2,500) |
+------+--------------------------------------------------------------+----------------+
| | Impairment provision in respect of The Media Foundry | (500) |
+------+--------------------------------------------------------------+----------------+
| | Impairment provision in respect of Chick Smith Trott | (500) |
+------+--------------------------------------------------------------+----------------+
| | At end of year | 5,569 |
+------+--------------------------------------------------------------+----------------+
Impairment reviews have been undertaken in respect of goodwill in accordance
with the policy set out in note 1(h). The reasons for the impairment provisions
are given in the Financial Review. In arriving at the impairment provision in
respect of Cubo, the Directors considered discount rates of between 15% and 20%.
Goodwill at the end of the year comprised the following substantial holdings:
+------+--------------------------------------------------------------+----------------+
| | | GBP000 |
+------+--------------------------------------------------------------+----------------+
| | Chick Smith Trott | 701 |
+------+--------------------------------------------------------------+----------------+
| | Cubo | 2,291 |
+------+--------------------------------------------------------------+----------------+
| | The Media Foundry | 251 |
+------+--------------------------------------------------------------+----------------+
| | Tree | 2,326 |
+------+--------------------------------------------------------------+----------------+
| | Total goodwill | 5,569 |
+------+--------------------------------------------------------------+----------------+
10. Tangible assets
For the year ended 31 December 2008:
+------+---------------------------------------------+-----------+-----------+-----------+
| | | Short | Plant and | Total |
| | | leasehold | machinery | GBP000 |
| | | premises | GBP000 | |
| | | GBP000 | | |
+------+---------------------------------------------+ + + +
| | | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Cost: | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At beginning of year | 203 | 821 | 1,024 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Additions | - | 54 | 54 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Disposals | - | (62) | (62) |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At end of year | 203 | 813 | 1,016 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Depreciation: | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At beginning of year | 144 | 631 | 775 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Charge for year | 20 | 101 | 121 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Disposals | - | (60) | (60) |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At end of year | 164 | 672 | 836 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Net book value: | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At beginning of year | 59 | 190 | 249 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At end of year | 39 | 141 | 180 |
+------+---------------------------------------------+-----------+-----------+-----------+
For the year ended 31 December 2007:
+------+---------------------------------------------+-----------+-----------+-----------+
| | | Short | Plant and | Total |
| | | leasehold | machinery | GBP000 |
| | | premises | GBP000 | |
| | | GBP000 | | |
+------+---------------------------------------------+ + + +
| | | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Cost: | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At beginning of year | 203 | 678 | 881 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | On acquisitions of subsidiary undertakings | - | 87 | 87 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Additions | - | 131 | 131 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Disposals | - | (75) | (75) |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At end of year | 203 | 821 | 1,024 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Depreciation: | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At beginning of year | 125 | 588 | 713 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | On acquisitions of subsidiary undertakings | - | 26 | 26 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Charge for year | 19 | 84 | 103 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Disposals | - | (67) | (67) |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At end of year | 144 | 631 | 775 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | Net book value: | | | |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At beginning of year | 78 | 90 | 168 |
+------+---------------------------------------------+-----------+-----------+-----------+
| | At end of year | 59 | 190 | 249 |
+------+---------------------------------------------+-----------+-----------+-----------+
11. Subsidiaries
+------+---------------------------------+---------------+---------------------+----------+
| | | Country of | Principal activity | Holding |
| | | incorporation | | |
+------+---------------------------------+---------------+---------------------+----------+
| | Chick Smith Trott Limited | UK | Advertising | 100% |
+------+---------------------------------+---------------+---------------------+----------+
| | Cubo Brand Communications | UK | Promotional | 100% |
| | Limited | | Marketing | |
+------+---------------------------------+---------------+---------------------+----------+
| | The Media Foundry International | UK | Public Relations | 100% |
| | Limited | | | |
+------+---------------------------------+---------------+---------------------+----------+
| | Paul Simons and Partners | UK | Dormant | 100% |
| | Limited | | | |
+------+---------------------------------+---------------+---------------------+----------+
| | Tree (London) Limited | UK | Research and Data | 100% |
| | | | Analysis | |
+------+---------------------------------+---------------+---------------------+----------+
| | Exedra Consultancy Limited* | UK | Brand Consultancy | 100% |
+------+---------------------------------+---------------+---------------------+----------+
*Exedra, formerly Brand Aid Consultancy Limited, is 100% owned by Chick Smith
Trott.
12. Trade and other receivables
+------+----------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+----------------------------------------------+ + +
| | | | |
+------+----------------------------------------------+----------------+--------------+
| | Amounts receivable from provision of | 1,708 | 2,198 |
| | services | | |
+------+----------------------------------------------+----------------+--------------+
| | Prepayments and accrued income | 319 | 444 |
+------+----------------------------------------------+----------------+--------------+
| | Other debtors | 186 | 192 |
+------+----------------------------------------------+----------------+--------------+
| | | 2,213 | 2,834 |
+------+----------------------------------------------+----------------+--------------+
The Directors consider that the carrying value of trade and other receivables
approximates their fair market value.
13. Trade and other payables
+------+----------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+----------------------------------------------+ + +
| | | | |
+------+----------------------------------------------+----------------+--------------+
| | Trade creditors | 679 | 650 |
+------+----------------------------------------------+----------------+--------------+
| | Other taxation and social security | 397 | 369 |
+------+----------------------------------------------+----------------+--------------+
| | Accruals and deferred income | 892 | 1,023 |
+------+----------------------------------------------+----------------+--------------+
| | Other creditors | 197 | 139 |
+------+----------------------------------------------+----------------+--------------+
| | | 2,165 | 2,181 |
+------+----------------------------------------------+----------------+--------------+
14. Bank overdrafts, loans and loan notes
+------+----------------------------------------------+----------------+--------------+
| | | 2008 | 2007 |
| | | GBP000 | GBP000 |
+------+----------------------------------------------+ + +
| | | | |
+------+----------------------------------------------+----------------+--------------+
| | Bank overdrafts | 510 | 417 |
+------+----------------------------------------------+----------------+--------------+
| | Bank loans | 758 | 1,044 |
+------+----------------------------------------------+----------------+--------------+
| | Convertible loan notes | 177 | 200 |
+------+----------------------------------------------+----------------+--------------+
| | Loan notes issued in settlement of deferred | 236 | 223 |
| | consideration | | |
+------+----------------------------------------------+----------------+--------------+
| | | 1,681 | 1,884 |
+------+----------------------------------------------+----------------+--------------+
| | Analysed as: | | |
+------+----------------------------------------------+----------------+--------------+
| | Current liabilities | 1,244 | 1,120 |
+------+----------------------------------------------+----------------+--------------+
| | Non-current liabilities | 437 | 764 |
+------+----------------------------------------------+----------------+--------------+
| | | 1,681 | 1,884 |
+------+----------------------------------------------+----------------+--------------+
During 2007 the Group secured a GBP1.2m medium term loan from Coutts. The loan
is repayable in monthly instalments over 4 years and interest is charged at
1.75% above Coutts' base rate from time to time. The loan and bank overdraft are
secured by fixed and floating charges over the assets of the Group, with cross
guarantees. The Group's overdraft facility was renewed by Coutts in March 2009.
15. Deferred tax
The movement on the deferred tax asset during the year was as follows;
+------+---------------------------------------------+-----------+-------------+-----------+
| | | Losses | Other | Total |
| | | carried | timing | GBP000 |
| | | forward | differences | |
| | | GBP000 | GBP000 | |
+------+---------------------------------------------+ + + +
| | | | | |
+------+---------------------------------------------+-----------+-------------+-----------+
| | At beginning of year | 138 | - | 138 |
+------+---------------------------------------------+-----------+-------------+-----------+
| | Credit in respect of current year | - | 26 | 26 |
+------+---------------------------------------------+-----------+-------------+-----------+
| | Charge in respect of prior year | (4) | - | (4) |
+------+---------------------------------------------+-----------+-------------+-----------+
| | Deferred tax credit in respect of an | 32 | - | 32 |
| | associated undertaking | | | |
+------+---------------------------------------------+-----------+-------------+-----------+
| | At end of year | 166 | 26 | 192 |
+------+---------------------------------------------+-----------+-------------+-----------+
At the year end the Group and Company had unprovided deferred tax assets of
GBP95,000 (2007 - GBP96,000) relating to losses carried forward.
16. Deferred consideration liabilities and provisions
The Directors' best estimate of the fair value of future earn-out obligations is
set out below:
+------+---------------------------------------------+----------+----------+-----------+
| | Liabilities | Shares | Cash | Total |
| | | GBP000 | GBP000 | GBP000 |
+------+---------------------------------------------+ + + +
| | | | | |
+------+---------------------------------------------+----------+----------+-----------+
| | At beginning of year | 2,509 | - | 2,509 |
+------+---------------------------------------------+----------+----------+-----------+
| | Crystallised during year | 497 | 686 | 1,183 |
+------+---------------------------------------------+----------+----------+-----------+
| | Settled during year | (3,006) | (70) | (3,076) |
+------+---------------------------------------------+----------+----------+-----------+
| | At end of year | - | 616 | 616 |
+------+---------------------------------------------+----------+----------+-----------+
+------+---------------------------------------------+----------+----------+-----------+
| | Provisions | Shares | Cash | Total |
| | | GBP000 | GBP000 | GBP000 |
+------+---------------------------------------------+ + + +
| | | | | |
+------+---------------------------------------------+----------+----------+-----------+
| | At beginning of year: | | | |
+------+---------------------------------------------+----------+----------+-----------+
| | Short term | 451 | 676 | 1,127 |
+------+---------------------------------------------+----------+----------+-----------+
| | Long term | 977 | 796 | 1,773 |
+------+---------------------------------------------+----------+----------+-----------+
| | At beginning of year | 1,428 | 1,472 | 2,900 |
+------+---------------------------------------------+----------+----------+-----------+
| | Reduction in provision | (931) | (573) | (1,504) |
+------+---------------------------------------------+----------+----------+-----------+
| | Crystallised during year | (497) | (686) | (1,183) |
+------+---------------------------------------------+----------+----------+-----------+
| | At end of year | - | 213 | 213 |
+------+---------------------------------------------+----------+----------+-----------+
The deferred consideration liability is payable on demand, and the provision,
when crystallised, will become payable on demand before the end of the year. 40%
of the closing provision is capable of being settled in the form of shares, at
the Company's sole discretion.
The Directors consider that the provisions approximate to their fair value. The
obligations have been discounted using a rate of 4.65%, and the total obligation
expected to be paid before discounting is GBP216,000. The loss on ordinary
activities before taxation for the year benefited from an unwinding of the
finance charge provision in the amount of GBP65,000 (2007 - charge of
GBP368,000).
17. Pensions
The Group operates a defined contribution pension scheme. The pension cost
charge for the year represents contributions payable by the Company to the
scheme and amounted to GBP19,000 (2007 - GBP36,000).
18. Operating lease commitments
At the end of the year the Group had annual commitments under operating leases
as set out below:
+------+----------------------------------+----------+-----------+-----------+-----------+
| | | Plant and machinery | Land and buildings |
+------+----------------------------------+----------------------+-----------------------+
| | | 2008 | 2007 | 2008 | 2007 |
| | | GBP000 | GBP000 | GBP000 | GBP000 |
+------+----------------------------------+ + + + +
| | | | | | |
+------+----------------------------------+----------+-----------+-----------+-----------+
| | Expiring between one and five | 39 | 15 | 120 | 119 |
| | years | | | | |
+------+----------------------------------+----------+-----------+-----------+-----------+
| | Expiring after more than five | - | - | 166 | 166 |
| | years | | | | |
+------+----------------------------------+----------+-----------+-----------+-----------+
| | | 39 | 15 | 286 | 285 |
+------+----------------------------------+----------+-----------+-----------+-----------+
19. Share based payments
During the year options were granted under the Cagney Plc 2008 Enterprise
Management Incentive Plan. The number of options granted in the year and their
exercise price in pence per share was as follows:
+------+----------------------------------------------+----------------+---------------+
| | | Number | Exercise |
| | | | price in |
| | | | pence per |
| | | | share |
+------+----------------------------------------------+----------------+---------------+
| | Outstanding at beginning of year | 3,232,800 | |
+------+----------------------------------------------+----------------+---------------+
| | Expired during the year | (1,850,000) | |
+------+----------------------------------------------+----------------+---------------+
| | Granted during the year (less any | 2,917,200 | 1.380 |
| | surrendered) | | |
+------+----------------------------------------------+----------------+---------------+
| | Granted during the year (less any | 500,000 | 1.130 |
| | surrendered) | | |
+------+----------------------------------------------+----------------+---------------+
| | Outstanding at end of year | 4,800,000 | |
+------+----------------------------------------------+----------------+---------------+
| | Exercisable at end of year | 250,000 | 2.750 |
+------+----------------------------------------------+----------------+---------------+
No options were exercised during the year. The options outstanding at 31
December 2008 had a weighted average remaining minimum life of 336 days. The
value of the options is measured by the use of the Black-Scholes valuation
model, assuming volatility of 50%, an expected life of 1-3 years based on the
contractual life of the options, and a risk free rate of 4.65%. Expected
volatility is based on historic volatility of the Group's share price and from
review of similar AIM listed companies.
The Group recognised a charge of GBP14,000 (2007 - GBP6,000) in relation to
share-based payment transactions in the year.
20. Share capital
The Company's authorised share capital is GBP4m, comprising 400m ordinary shares
of 1 penny each.
+------+------------------------------------------------------+-------------+----------+
| | Called-up, allotted and fully-paid | Number of | Nominal |
| | | 1p | value |
| | | ordinary | GBP000 |
| | | shares | |
+------+------------------------------------------------------+-------------+----------+
| | At beginning of year | 134,394,338 | 1,344 |
+------+------------------------------------------------------+-------------+----------+
| | Issued in part settlement of deferred consideration | 27,914,110 | 279 |
| | for Tree | | |
+------+------------------------------------------------------+-------------+----------+
| | Issued in part settlement of deferred consideration | 55,988,484 | 560 |
| | for Cubo | | |
+------+------------------------------------------------------+-------------+----------+
| | At end of year | 218,296,932 | 2,183 |
+------+------------------------------------------------------+-------------+----------+
21. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Other transactions with related parties are detailed below.
During the year GBP13,334 of convertible loan notes were repaid to Alex Hambro,
chairman and non-executive director of Cagney Plc. At 31 December 2008 GBP86,666
of these convertible loan notes remained outstanding, which is payable on
demand. Interest is payable on these notes at a rate of 2% above the base rate
of the Bank of England.
22. Financial instruments
The Group's financial instruments principally comprise borrowings, cash at bank
and various items such as trade debtors and creditors that arise directly from
operations. The main purpose of these financial instruments is to raise money
for the Group's operations.
The Group's policy is to ensure that adequate cash is available and the Group
does not trade in financial instruments and has not entered into any derivative
transactions.
All of the material activities of the Group take place in the United Kingdom and
consequently there is minimal exchange risk. As at 31 December 2008 the Group
had no material foreign currency exposures.
The main risks arising from the Group's financial instruments are interest rate
risk and liquidity risk.
The Directors monitor the cash flows of the Group to ensure that there is
sufficient liquidity to meet foreseeable needs. The operations of the Group
generate cash and the planned growth activities are cash generative.
The Group has taken advantage of the exemption in respect of the disclosure of
short-term debtors and creditors.
The fair value of the Group's financial assets and liabilities is not considered
to be materially different from their book values.
23. Post balance sheet events
There are no post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Cagney (LSE:CGNY)
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