CONSOLIDATED DIRECTORS’ REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2013 In ancient Greek drama, an apparently insoluble crisis was often solved by the intervention of the gods who magically descended onto the stage from the skies above. The elaborate crane mechanisms that enabled this impressive effect were known as aeorema. Aeorema Communications Plc, Moray House, 23-31 Great Titchfield Street, London, W1W 7PA Aeorema_Cover_04.indd 1 14/10/2013 13:02 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 1 Contents Overview Chairman’s statement Directors’ report Independent auditors’ report Consolidated statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the consolidated financial statements Notice of Annual General Meeting Company information 2 3 4-8 9-10 11 12 13 14 15-38 39-41 42 1 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 2 Aeorema Communications plc Aeorema Communications plc, the AIM-traded corporate communications and events specialist, announces its results for the year ended 30 June 2013. Overview (cid:129) Return to profitability with pre-tax profits from continuing operations of £358,864 (2012: loss of £36,272) (cid:129) 41% increase in revenues from continuing operations to £3,992,751 (2012: £2,837,345) (cid:129) Healthy cash position of £1,581,790 (2012: £756,642) (cid:129) Successful office move and integration of video and events divisions (cid:129) Strengthened team and board (cid:129) Recommending maiden dividend 2 2 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 3 Chairman’s Statement Aeorema has had a busy year which has seen it increase sales and return to profitability. This strong financial performance is a reflection of the confidence in our core offering and subsequent strengthened position as a provider of screen media and events that bring new ideas, innovation and products vividly to life. We continue to work closely with leading international companies operating primarily in the professional and financial services, telecommunications and technology sectors. Work undertaken during the year includes films and strategic advice on two events run by a professional services firm, events at the Cannes Lions for a global software company and a series of films for a leading management consultant for its new graduate recruitment microsite. A key change and benefit to the organisation during the year was our office move. This has seen our events and video companies working closer than ever, now being together on a single open-plan floor. Not only does this help us to deliver an even better service to our clients, but it also makes it a more conducive workplace for our employees. As you all know, we pride ourselves on our exceptional team and have strengthened it during the year. We have continued to win awards for the work we do for our clients both in events and film. To enhance this even further, during the year we have invested in new technologies, including an upgrade to our media storage and new presentation software. This should allow us to create a better offering to our events clients. The results for the year show a profit before taxation from continuing operations of £358,864 (2012: loss of £36,272) on an increased revenue of £3,992,751 (2012: £2,837,345) helped considerably by the thriving events business. We achieved significant cost saving through the office move - £150,000 per year and nominal associated dilapidations. We remain cash positive with reserves of £1,581,790 (2012: £756,642). In light of the excellent progress and significant growth potential, the Board is proposing an enhanced maiden dividend of 1.5 pence per share. This will be paid on 29 November 2013 to shareholders on the register on 25 October 2013. The Ex Dividend date is 23 October 2013. The total dividend amounts to £120,563. Going forward the Board will consider a more normalised dividend level. In summary, our focus and confidence in our core offering have created a stronger business closely aligned with our clients’ requirements. We believe that having reduced overheads and added new clients that Aeorema is positioned well for future growth but that we are reliant on the decisions of our clients to our creative proposals. The proposed payment of a maiden dividend demonstrates our confidence in Aeorema’s strategic direction. I would like to take this opportunity to thank both our shareholders for their support and our dedicated and talented creative team for their hard work over the period. M Hale Chairman 7 October 2013 3 3 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 4 Directors’ Report The directors present their annual report and financial statements for the year ended 30 June 2013. The financial statements are for Aeorema Communications plc (“the Company”) and its subsidiaries (together, “the Group”). Principal activities Aeorema is a multidisciplinary creative consultancy that specialises in devising and delivering corporate communication solutions. Business review The results for the year show a profit before taxation from continuing operations of £358,864 (2012: loss from continuing operations of £36,272). It is proposed that the retained profit after taxation of £263,501 (2012: loss of £85,183) is transferred to the Group's reserves. Revenue for the year from continuing operations was £3,992,751 (2012: £2,837,345). The gross profit margin remained consistent at 29% (2012: 28%) and gross profit from continuing operations was £1,167,261 (2012: £795,011). The board recommends an enhanced maiden dividend for the financial year ended 30 June 2013 of 1.5 pence per ordinary share to be paid on 29 November 2013 to all shareholders on the register at the close of business on 25 October 2013, subject to shareholders’ approval on 25 November 2013 (2012: no dividends). Key Financial Highlights Year Continuing operations Revenue 2013 £ 2012 £ 2011 £ 2010 £ 3,992,751 2,837,345 2,147,844 1,809,757 Profit / (loss) before taxation, impairment losses and write off of development costs 358,864 41,399 (90,336) 1,144 Further information can be found within the Chairman's statement on page 3. Capital Expenditure Total capital expenditure, including expenditure on intangible assets, was £51,335 compared with £13,653 last year. Cashflows Net cash inflow from operating activities was £847,834 compared with a net cash inflow of £263,309 for the year ended 30 June 2012. Total cashflow, representing operating cashflow after taxation, interest, capital expenditure and financing activities, increased by £825,148 compared with an increase of £228,227 last year. Employees Our priority is to attract and retain talented employees and to harness their creativity to drive growth through development and delivery of services that bring value to our customers' business operations. We continue to focus on ensuring that the performance of staff is measured against clear, business focused objectives and behavioural criteria through continual appraisals. 4 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 5 Directors’ Report continued For the year ended 30 June 2013 Reward The Group benchmarks employee salaries against the market and reviews salaries annually to ensure that we are paying at a level to attract and retain high-quality employees. Key employees are offered access to a share option scheme: further details of which are provided in note 22 to the financial statements. Equal Opportunities We are committed to ensuring equal opportunities for our staff. We have introduced training which covers equal opportunities legislation and best practice. Our policy in respect of employment of disabled persons is the same as that relating to all other employees in matters of training, career development and promotion. Where employees become disabled during the course of their employment, we make every effort to make reasonable adjustments to their working environment to enable their continued employment. Safety, Health and Environment The commitment and participation of all employees is vital to efficient and effective occupational risk control. In order to meet our responsibility to protect the environment, staff and the business, the Group continues to focus on maintaining a risk aware culture. We believe the Group maintains a low environmental impact. We therefore continue to work on the potential environmental impacts of energy consumption, waste and travel. Trade payables payment policy The Company's and the Group's current policy concerning the payment of trade payables is to:- – settle the terms of payment with suppliers when agreeing the terms of each transaction; – ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and – pay in accordance with the Company's contractual and other legal obligations. On average, trade payables at the year end represented 89 (2012: 76) days purchases. Directors' Policies for Managing Principal Risks There is an ongoing process for identifying, evaluating and managing the significant risks faced by the business. Risk reviews are undertaken regularly by the respective business areas throughout the year to identify and assess the key risks associated with the achievement of our business objective. Details of the financial risks faced by the Group and its policies for managing these are given in note 26. Details of other risks and uncertainties faced by the Group are included in the Chairman’s Statement on page 3. Financial instruments Details of financial instruments are given in note 26 to the accounts. 5 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 6 Directors’ Report continued For the year ended 30 June 2013 Directors The following directors have held office since 1 July 2012: P Litten R Owen S Garbutta M Hale G Fitzpatrick S Quah (Appointed 15 April 2013) In accordance with regulation 122 of the Company's Articles of Association, one third of the directors retire by rotation, or if their number is not three, or a multiple of three, the nearest to but not exceeding one third, and, being eligible, offer themselves for re-election. Non-current assets The significant changes in non-current assets during the year are explained in notes 11, 12 and 13 to the financial statements. As pioneers in visual technologies, the Group has utilised its resources to develop unique and highly innovative communications products. Shareholdings At 30 September 2013, the directors were aware that the following were the beneficial owners of 3% or more of the Company's issued share capital: Number of shares Percentages held P Litten M Hale R Hodgson Reverse Take-Over Investments Plc B Smith N J Newman 3,362,500 1,650,000 463,606 300,000 300,000 275,000 41.8 20.5 5.7 3.7 3.7 3.4 R Owen is a director and has an interest in Reverse Take-Over Investments Plc through its parent company Westside Acquisitions Plc. As civil partner of P Litten, G Fitzpatrick has a beneficial interest in 3,362,500 ordinary shares. N J Newman holds his shares on behalf of Harris & Trotter LLP. As a partner in Harris & Trotter LLP, S Garbutta has an indirect holding in these shares. Corporate governance Although not required to do so, the Company seeks within the practical confines of being a small company to act in compliance with the principles of good governance and the code of best practice (the "Combined Code") appended to the Listing Rules of the Financial Services Authority. 6 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 7 Directors’ Report continued For the year ended 30 June 2013 The Board The aim of the Board is to function at the head of the Company's management structures, leading and controlling its activities and setting a strategy for enhancing shareholder value. The Board currently consists of two executive directors and three non-executive directors. The Company does not have a Nomination Committee as such; the Board collectively undertakes the functions of such a committee. Internal control The Board has overall responsibility for ensuring that the Group maintains systems and internal financial controls that provide them with reasonable assurance regarding the financial information both for use within the business and for external publication and that the assets are safeguarded. Audit Committee There is an Audit Committee consisting of the Chairman, for the time being, and a non-executive director. The terms of reference of the Audit Committee are to assist the Board in the discharge of its responsibilities for corporate governance, financial reporting and internal control. Its duties include maintaining an appropriate relationship with the Company's auditors, keeping under review the scope and the results of the audit and its effectiveness. Remuneration Committee The Remuneration Committee consists of two Non-Executive Directors, Stephen Garbutta and Michael Hale, and a meeting will be held in no less than once a year. The Remuneration Committee is responsible for reviewing the performance of the executives of the Company and for setting the scale and structure of their remuneration, paying due regard to the interests of shareholders as a whole and the performance of the Company. Going concern After making appropriate enquiries, the directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Group's financial statements. Statement of disclosure to auditor So far as the directors are aware, there is no relevant audit information of which the Company's auditors are unaware. Additionally, they have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all the relevant audit information and to establish that the Company's auditors are aware of that information. Auditor On 1 October 2013, RSM Tenon Audit Limited changed its name to Baker Tilly Audit Limited. 7 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:53 Page 8 Directors’ Report continued For the year ended 30 June 2013 Directors' responsibilities The directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law and as required by the AIM rules of the London Stock Exchange, the directors have prepared the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and have also elected to prepare the Company financial statements in accordance with these standards. Under company law the directors must not approve the financial statements unless they are satisfied they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that year. In preparing those financial statements, the directors are required to:- – select suitable accounting policies and then apply them consistently; – make judgements and accounting estimates that are responsible and prudent; – state whether they have been prepared in accordance with IFRS as adopted by the European Union; – prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company and group will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the maintenance of the corporate and financial information within the Company and the Group's website. The maintenance and the integrity of the website is the responsibility of the directors; the work carried out by the Auditors does not involve consideration of these matters and accordingly, the Auditors accept no responsibility for any changes that may have occurred to the information contained in the financial statements since they were presented on the Company and the Group's website. Legislation in the UK governing dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board S Garbutta Director 7 October 2013 8 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 9 Independent Auditors’ Report To the shareholders of Aeorema Communications plc We have audited the financial statements of Aeorema Communications plc for the year ended 30 June 2013 which comprise the Group and Parent Company Statements of Financial Position, the Group Statement of Comprehensive Income, the Group and Parent Company Statements of Cash Flow, the Group and Parent Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 9, 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 International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements 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: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors’ Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on the financial statements In our opinion: – the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 30 June 2013 and of the group’s profit for the year then ended; - the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; – the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and – the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. 9 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 10 Independent Auditors’ Report continued To the shareholders of Aeorema Communications plc Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: – adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or – the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or – certain disclosures of directors’ remuneration specified by law are not made; or – we have not received all the information and explanations we require for our audit. Tony Castagnetti (Statutory Auditor) for and on behalf of Baker Tilly Audit Limited 66 Chiltern Street, London, W1U 4JT 7 October 2013 10 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 11 Consolidated Statement of Comprehensive Income For the year ended 30 June 2013 Notes 2013 £ 2012 £ Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating Profit / (loss) Gain recognised on disposal of former subsidiary Finance income Finance expense Other income Profit / (loss) before taxation Taxation Profit / (loss) for the year from continuing operations Discontinued operations Loss for the period from discontinued operations Total comprehensive income / (expense) for the year attributable to owners of the parent Profit / (loss) per ordinary share: Basic From continuing operations From discontinued operations Total basic earnings per share Diluted From continuing operations From discontinued operations Total diluted earnings per share 2 3 24 4 4 5 6 8 10 10 There were no other comprehensive income items. The notes on pages 15 to 38 are an integral part of these financial statements. 3,992,751 (2,825,490) 1,167,261 (862,600) 304,661 54,021 195 (13) – 358,864 (79,087) 279,777 2,837,345 (2,042,334) 795,011 (833,011) (38,000) – 228 – 1,500 (36,272) (2,342) (38,614) (16,276) (46,569) 263,501 (85,183) 3.4809p (0.2025p) 3.2784p 3.25117p (0.18914p) 3.06203p (0.48876p) (0.58946p) (1.07822p) (0.45576p) (0.54966p) (1.00542p) 11 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 12 Statement of Financial Position As at 30 June 2013 Notes Group Company 2013 £ 2012 £ 2013 £ 2012 £ 11 12 13 7 14 15 365,154 365,154 77,040 65,928 - - - - - - 538,307 526,268 8,277 19,712 - - 450,471 450,794 538,307 526,268 2,675 2,675 – – 606,557 807,841 468,462 31,453 1,581,790 756,642 782,780 289,398 2,191,022 1,567,158 1,251,242 320,851 2,641,493 2,017,952 1,789,549 847,119 Non-current assets Intangible assets Property, plant and equipment Investments in subsidiaries Deferred taxation Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables 16 (1,140,377) (800,152) (282,081) (40,287) Net assets Equity Share capital Merger reserve Share-based payment reserve Capital redemption reserve Retained earnings 1,501,116 1,217,800 1,507,468 806,832 17 18 1,004,688 1,004,688 1,004,688 1,004,688 16,650 96,083 16,650 76,268 16,650 96,083 16,650 76,268 257,812 257,812 257,812 257,812 125,883 (137,618) 132,235 (548,586) Equity attributable to owners of the parent 1,501,116 1,217,800 1,507,468 806,832 The notes on pages 15 to 38 are an integral part of these financial statements. The financial statements were approved and authorised by the board of directors on 7 October 2013 and were signed on its behalf by P Litten, Director S Garbutta, Director Company Registration No. 04314540 12 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 13 Statement of Changes in Equity For the year ended 30 June 2013 - - - - - - Group At 1 July 2011 Comprehensive expense for the year Issue of shares Share issue costs Share-based payments At 30 June 2012 At 1 July 2012 Share Merger reserve capital £ £ 979,688 - - - 25,000 21,500 (4,850) Share- based payment reserve £ Capital redemption reserve £ Retained earnings £ Total equity £ 31,116 257,812 (52,435) 1,216,181 - - - - (85,183) (85,183) - - - 46,500 (4,850) 45,152 - 45,152 1,004,688 16,650 76,268 257,812 (137,618) 1,217,800 1,004,688 16,650 76,268 257,812 (137,618) 1,217,800 Comprehensive income for the year, net of tax Share-based payments - - - - - 19,815 - - 263,501 263,501 - 19,815 At 30 June 2013 1,004,688 16,650 96,083 257,812 125,883 1,501,116 Company At 1 July 2011 Comprehensive expense for the year Issue of shares Share issue costs Share-based payments At 30 June 2012 At 1 July 2012 Share Merger reserve capital £ £ 979,688 - - - 25,000 21,500 (4,850) Share- based payment reserve £ Capital redemption reserve £ Retained earnings £ Total equity £ 31,116 257,812 (277,792) 990,824 - - - - (270,794) (270,794) - - - 46,500 (4,850) 45,152 - 45,152 1,004,688 16,650 76,268 257,812 (548,586) 806,832 1,004,688 16,650 76,268 257,812 (548,586) 806,832 Comprehensive income for the year, net of tax Share-based payments - - - - - 19,815 - - 680,821 680,821 - 19,815 At 30 June 2013 1,004,688 16,650 96,083 257,812 132,235 1,507,468 The notes on pages 15 to 38 are an integral part of these financial statements. 13 - - - - Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 14 Statement of Cash Flows For the year ended 30 June 2013 Net cash flow from operating activities 25 847,834 263,309 493,244 (65,243) Notes Group Company 2013 £ 2012 £ 2013 £ 2012 £ Cash flows from investing activities Finance expense Finance income - 195 (13) 228 Purchase of property, plant and equipment 12 (51,335) (13,653) Proceeds from sale of property, plant and equipment 44,875 - Investments in subsidiaries (net of cash acquired) - (16,794) Disposal of subsidiary (net of cash disposed) 24 (16,421) - - 138 - - - - - 189 - - (40,000) - Cash (used) / generated in investing activities (22,686) (30,232) 138 (39,811) Cash flows from financing activities Cost of share issue Cash used in financing activities - - (4,850) (4,850) - - (4,850) (4,850) Net increase / (decrease) in cash and cash equivalents 825,148 228,227 493,382 (109,904) Cash and cash equivalents at beginning of year 756,642 528,415 289,398 399,302 Cash and cash equivalents at end of year 15 1,581,790 756,642 782,780 289,398 The notes on pages 15 to 38 are an integral part of these financial statements. 14 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 15 Notes to the Consolidated Financial Statements For the year ended 30 June 2013 1 Accounting policies Aeorema Communications plc is a public limited company incorporated in the United Kingdom. The Company is domiciled in the United Kingdom and its principal place of business is Moray House, 23/31 Great Titchfield Street, London W1W 7PA. The Company’s Ordinary Shares are traded on the AIM Market. The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. Going concern The Group’s business activities, together with the factors likely to affect its future development and performance are set out in the review of business contained in the Chairman’s Statement. The Group’s financial statements show details of its financial position including, in note 26, details of its financial instruments and exposure to risk. After reviewing the Group’s budget for the next financial year, other medium term plans and considering the risks outlined in note 26, the Directors, at the time of approving the financial statements, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and have therefore used the going concern basis in preparing the financial statements. Basis of Preparation The Group’s financial statements have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The following new standards, amendments to standards and interpretations, applied for the first time from 1 July 2012. (cid:129) IAS 1 (Amended) ‘Presentation of Other Comprehensive Income’, effective 1 July 2012. (cid:129) IAS 12 (Amended) ‘Income Taxes’, effective 1 January 2012. The adoption of these revised and amended standards has not impacted on the Annual Report and Financial Statements. Adopted IFRSs not yet applied The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 July 2012 and have not been adopted early by the group: (cid:129) IFRS 1 (Amended) ‘First-time Adoption of International Financial Reporting Standards’, effective 1 January 2013. (cid:129) IFRS 7 (Amended) ‘Financial Instruments: Disclosures’, effective 1 January 2015. (cid:129) IFRS 9 ‘Financial Instruments’, effective 1 January 2015. (cid:129) IFRS 10 ‘Consolidated Financial Statements’, effective 1 January 2013. (cid:129) IFRS 11 ‘Joint Arrangements’, effective 1 January 2013. (cid:129) IFRS 12 ‘Disclosure of Interests in Other Entities’, effective 1 January 2013. (cid:129) IFRS 13 ‘Fair Value Measurement’, effective 1 January 2013. (cid:129) IFRIC 20 ‘Stripping Costs in the Production Phase of a Surface Mine’, effective 1 January 2013. (cid:129) IAS 1 (Amended) ‘Presentation of Other Comprehensive Income’, effective 1 January 2013. (cid:129) IAS 16 (Amended) ‘Property, Plant and Equipment’, effective 1 January 2013. 15 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 16 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 (cid:129) IAS 19 (Amended) ‘Employee Benefits’, effective 1 January 2013. (cid:129) IAS 27 (Revised) ‘Separate Financial Statements’, effective 1 January 2013. (cid:129) IAS 28 (Revised) ‘Investments in Associates and Joint Ventures’, effective 1 January 2013. (cid:129) IAS 32 (Amended) ‘Financial Instruments: Presentation’, effective 1 January 2013. (cid:129) IAS 34 (Amended) ‘Interim Financial Reporting’, effective 1 January 2013. Management does not believe that the application of these standards, where applicable, will have an impact on the financial statements, except for the requirement of additional disclosures. Basis of consolidation The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 30 June 2013. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from their activities. Subsidiaries are fully consolidated from the date on which control is transferred until the date that such control ceases. Intra-group transactions, balances and unrealised gains and losses on transactions between group companies are eliminated. The merger reserve is used where more than 90% of the shares in a subsidiary are acquired and the consideration includes the issue of new shares by the Company, thereby attracting merger relief under the Companies Act 2006. Revenue Revenue represents amounts (excluding value added tax) derived from the provision of services to third party customers in the course of the Group’s ordinary activities. Revenue is measured at the fair value of consideration received taking into account any trade discounts and volume rebates. Revenue for all business segments is recognised when the Group has earned the right to receive consideration for its services. Intangible assets – goodwill All business combinations are accounted for by applying the acquisition method. Goodwill acquired represents the excess of the fair value of the consideration and associated costs over the fair value of the identifiable net assets acquired. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. At the date of acquisition, the goodwill is allocated to cash generating units, usually at business segment level or statutory company level as the case may be, for the purpose of impairment testing and is tested at least annually for impairment. On subsequent disposal or termination of a business acquired, the profit or loss on termination is calculated after charging the carrying value of any related goodwill. Property, plant and equipment Property, plant and equipment is stated in the financial statements at cost less accumulated depreciation and any impairment value. Depreciation is provided to write off the cost less estimated residual value of property, plant and equipment over its expected useful life (which is reviewed at least at each financial year end), as follows: 16 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 17 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Leasehold land and buildings straight line over the life of the lease (5 years) Fixtures, fittings and equipment 25% straight line Any gain or loss arising on the derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year that the asset is derecognised. Fully depreciated assets still in use are retained in the financial statements. Impairment The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated. For goodwill and intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each annual balance sheet date and whenever there is an indication of impairment. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement in those expense categories consistent with the function of the impaired asset. Operating leases Rentals under operating leases are charged to the Statement of Comprehensive Income on a straight line basis over the period of the lease. Investments Fixed asset investments are stated at cost less provision for diminution in value. Inventories Inventories are stated at the lower of cost and net realisable value. Trade and other receivables Trade and other receivables are stated initially at fair value and subsequently measured at amortised cost less any provision for impairment. Trade and other payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost. Cash and cash equivalents Cash comprises, for the purpose of the Statement of Cash Flows, of cash in hand and deposits payable on demand and bank overdrafts. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. Cash equivalents normally have a date of maturity of 3 months or less from the acquisition date. 17 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 18 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Finance income Financial income consists of interest receivable on funds invested. It is recognised in the Statement of Comprehensive Income as it accrues. Taxation Income tax on the profit or loss for the periods presented comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; the differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. Pension costs The Group does not operate a pension scheme for its employees. It does however, make contributions to the private pension arrangements of certain employees. These arrangements are of the money purchase type and the amount charged to the Statement of Comprehensive Income represents the contributions payable by the Group for the period. Financial instruments The Group does not enter into derivative transactions and does not trade in financial instruments. Financial assets and liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provision of the instrument. Equity An equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. The Group’s equity instruments comprise ‘share capital’ in the Statement of Financial Position. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the Statement of Comprehensive Income. Share-based payments The Group has applied the transitional provisions of IFRS 2 only to awards of equity instruments made after 7 November 2002 that had not vested by 1 July 2006. 18 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 19 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 The fair value of equity rights is estimated using option pricing models at the date of grant to key employees and is dependent on factors such as the exercise price, expected volatility, option price and risk free interest rate. The fair value is then amortised through the Statement of Comprehensive Income on a straight-line basis over the vesting period. Expected volatility is determined based on the historical share price volatility for the Company. Further information is given in note 22 to the financial statements. Significant judgements and estimates The preparation of the Group’s financial statements in conforming with IFRS required management to make judgements, estimates and assumptions that effect the application of policies and reported amounts in the financial statements. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances. Information about such judgements and estimation is contained in the accounting policies and / or notes to the financial statements and the key areas are summarised below: a) Depreciation rates are based on the estimated useful lives and residual value of the assets involved. b) The impairment review of goodwill is based on the estimation of future cash flows and discount rates in order to calculate the present value of the cash flows. c) The Group operates share incentive schemes as detailed in note 22. In order to calculate the annual charge in accordance with IFRS 2, management are required to make a number of assumptions and include, amongst others, volatility and expected life of options. d) An allowance for uncollectable trade receivables is estimated based on a combination of aging analysis and any specific, known troubled customer accounts. 19 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 20 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 2 Revenue and segment information Revenue and segmental results have been disclosed by two operating segments of On Screen and Live Events in the manner that the information is presented to the Board of Directors, being the Chief Operating Decision Makers, in accordance with IFRS 8. Viral Film operations were discontinued in the current year. The segment information reported below does not include any amounts for these discontinued operations, which are described in more detail in note 8. Continuing operations Revenue Segment results Unallocated expenses Operating profit / (loss) Finance expense Finance income Other income Profit on disposal of subsidiary Taxation Profit / (loss) after tax (continuing operations) Segment assets Unallocated assets Assets relating to Viral Film operations (now discontinued) On Screen 2013 £ On Screen 2012 £ Live Events 2013 £ Live Events 2012 £ Total 2013 £ Total 2012 £ 1,489,427 1,027,974 2,503,324 1,809,371 3,992,751 2,837,345 243,540 80,632 380,430 123,522 623,970 204,154 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (319,309) (242,154) 304,661 (38,000) (13) 195 – 228 – 1,500 54,021 – (79,087) (2,342) 279,777 (38,614) 553,540 501,613 935,599 792,857 1,489,139 1,294,470 – – – – – – – – 1,152,354 658,764 – 64,718 Total assets 553,540 501,613 935,599 792,857 2,641,493 2,017,952 Segment liabilities (276,744) (238,690) (785,088) (484,463) (1,061,832) (723,153) Unallocated liabilities Liabilities relating to Viral Film operations (now discontinued) – – – – – – – – (198,545) (20,263) – (56,736) Total liabilities (276,744) (238,690) (785,088) (484,463) (1,260,377) (800,152) Other segment information: Capital expenditure Impairment losses 50,700 12,809 – – 635 – 844 – 51,335 – Depreciation and amortisation 34,026 58,653 1,321 1,137 35,347 13,653 77,671 59,790 20 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 21 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 All revenue represents sales to external customers. One customer (2012: One) is defined as a major customer by revenue, contributing more than 10% of the Group revenue. Major customer Live Events 1,217,332 Segment 2013 £ 2012 £ 757,255 The geographical analysis of turnover and assets from continuing operations by geographical location of customer is as follows: Geographical market 2013 UK £ 2012 UK £ 2013 Europe £ 2012 Europe £ 2013 USA £ 2012 USA £ 2013 Total £ 2012 Total £ Revenue 3,803,651 2,729,369 1,752 8,144 187,348 99,832 3,992,751 2,837,345 Segment assets 466,554 591,538 - - 60,428 83,449 526,982 674,987 Unallocated assets Total assets Capital expenditure – unallocated 2,114,511 1,342,965 2,641,493 2,017,952 51,335 13,653 21 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 22 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 3 Operating profit / (loss) Operating profit / (loss) is stated after charging Depreciation of property, plant and equipment Impairment of goodwill Profit on disposal of property, plant and equipment Fees payable to the Company’s auditor in respect of: Audit of the Company’s annual accounts Audit of the Company’s subsidiaries Staff costs (see note 21) Operating leases – land and buildings 4 Financial Income and expenses Finance income Bank interest received Finance expenses Other interest payable 5 Other income Rental income 22 2013 £ 2012 £ 35,934 59,790 – 77,671 44,875 – 6,000 6,000 11,500 13,000 1,001,550 1,037,826 91,438 105,068 2013 £ 195 2013 £ 13 2012 £ 228 2012 £ – 2013 £ 2012 £ – 1,500 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 23 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 6 Taxation The tax charge comprises: Current tax Current year Deferred tax Current year Total tax charge in the statement of comprehensive income Factors affecting the tax charge for the year 2013 £ 2012 £ 67,652 67,652 – – 11,435 11,435 2,342 2,342 79,087 2,342 Profit / (loss) on ordinary activities before taxation from continuing operations 358,864 (36,272) Profit / (loss) on ordinary activities before taxation multiplied by standard rate of UK corporation tax of 23% (2012: 20%) Effects of: Non deductible expenses Income that is exempt from taxation Depreciation, impairment losses and disposals Capital allowances Share-based payment Losses utilised Losses carried forward Marginal relief Deferred tax asset movement Total taxation charge 82,539 (7,254) 12,494 3,151 (22,745) - 8,130 27,492 (8,671) (7,351) 7,785 6,223 (9,505) (22,423) - (2,375) 162 - 11,435 2,342 (3,452) 9,596 79,087 2,342 The Group has estimated losses of £375,762 (2012: £448,940) available to carry forward against future trading profits. 23 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 24 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 7 Deferred taxation Property, plant and equipment temporary differences Temporary differences Losses At 1 July Transfer to Statement of Comprehensive Income At 30 June 2013 £ (1,094) 2012 £ 622 9,371 4,725 - 14,365 8,277 19,712 19,712 22,054 (11,435) (2,342) 8,277 19,712 The deferred tax asset is expected to be utilised given the return to profitability and future trading prospects. 8 Discontinued Operations On 7 December 2012 the Group disposed of its 100% subsidiary ST16 Limited, which carried out Viral Film operations. ST16 Limited was sold to its directors, S Crofts and J Stinton for proceeds of £5. Details of the assets and liabilities disposed of, and the calculation of the profit or loss on disposal, are disclosed in note 24. The loss from the discontinued operation included in the profit for the year is set out below. The comparative profit and cash flows from discontinued operations have been represented to include those operations classified as discontinued in the current year. Loss for the year from discontinued operations Revenue Expenses 2013 £ 2012 £ 69,002 62,257 (85,278) (108,826) Loss for the year from discontinued operations attributable to owners of the company (16,276) (46,569) Cash flows from discontinued operations Net cash inflows / (outflows) from operating activities Net cash inflows from investing activities Net cash inflows / (outflows) (90,006) 15,481 51,319 - (38,687) 15,481 24 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 25 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 9 Profit attributable to members of the parent company As permitted by section 408 of the Companies Act 2006, the parent Company’s Statement of Comprehensive Income has not been included in these financial statements. The retained profit for the financial year of the holding company was £680,821 (2012: retained loss of £270,794). 10 Earnings per ordinary share Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share are calculated by dividing the profit or loss attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would have been issued on the conversion of all dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used and dilutive earnings per share computations: Basic earnings per share Profit for the year attributable to owners of the Company 263,501 (85,183) Loss for the period from discontinued operations used in the calculation of basic earnings per share from discontinued operations 16,276 46,569 Earnings used in the calculation of basic earnings per share from continuing operations 279,777 (38,614) 2013 £ 2012 £ Basic weighted average number of shares 8,037,500 7,900,342 Dilutive potential ordinary shares: Employee share options Diluted weighted average number of shares 567,915 572,017 8,605,415 8,472,359 25 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 26 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 11 Intangible Fixed Assets Group Cost At 1 July 2011 Acquisition of subsidiary At 30 June 2012 Disposal of subsidiary At 30 June 2013 Impairment and amortisation At 1 July 2011 Impairment charge At 30 June 2012 Eliminated on disposal At 30 June 2013 Net book value At 1 July 2011 At 30 June 2012 At 30 June 2013 Goodwill £ 2,728,292 77,671 2,805,963 (77,671) 2,728,292 2,363,138 77,671 2,440,809 (77,671) 2,363,138 365,154 365,154 365,154 Goodwill arose for the Group on consolidation of its subsidiary company, Aeorema Limited (formerly Cheerful Scout Productions Limited). Impairment – Aeorema Limited (formerly Cheerful Scout Productions Limited) Goodwill has been tested for impairment based on its future value in use. Future value has been calculated on a discounted cash flow basis using the 2014 budgeted figures as approved by the Board of Directors extended for a period of 5 years and discounted at a rate of 2.9%. It has been assumed that future growth will be at 1.5%. Based upon these assumptions, there was no impairment in the year. Management has assessed the sensitivity of the recoverable amounts in the key assumptions to be as follows: a five percentage increase in the discount rate would reduce the recoverable amount by £75,000 and a one percentage fall in future growth would reduce the recoverable amount by £225,000. However, in both cases there would still be no indication of impairment of goodwill. 26 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 27 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 12 Property, Plant and Equipment Group Cost At 1 July 2011 Additions Additions on acquisition of subsidiary At 30 June 2012 Additions Disposals Derecognised on disposal of a subsidiary At 30 June 2013 Depreciation At 1 July 2011 Charge for the year At 30 June 2012 Eliminated on disposal of assets Eliminated on disposal of a subsidiary Charge for the year At 30 June 2013 Net book value At 1 July 2011 At 30 June 2012 At 30 June 2013 Leasehold land and buildings £ Fixtures, fittings and equipment £ 157,063 - - 157,063 24,034 (157,063) - 24,034 151,738 2,100 153,838 (157,063) - 8,426 5,201 5,325 3,225 18,833 870,983 13,653 5,254 889,890 27,301 (90,870) (5,254) 821,067 769,120 58,067 827,187 (90,870) (965) 27,508 762,860 101,863 62,703 58,207 Total £ 1,028,046 13,653 5,254 1,046,953 51,335 (247,933) (5,254) 845,101 920,858 60,167 981,025 (247,933) (965) 35,934 768,061 107,188 65,928 77,040 The gross carrying amount of fully depreciated property, plant and equipment still in use is £nil (2012: £146,578) in relation to leasehold land and buildings and £696,292 (2012: £770,351) in relation to fixtures, fittings and equipment. 27 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 28 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Shares in subsidiary £ 3,175,929 86,500 45,152 (600) 3,306,981 12,039 (86,500) 3,232,520 2,694,813 86,500 (600) 2,780,713 (86,500) 2,694,213 481,116 526,268 538,307 13 Non-current Assets – Investments Company Cost At 1 July 2011 Acquisition of subsidiary Increase in respect of share based payments Disposal of subsidiary At 30 June 2012 Increase in respect of share based payments Disposal of subsidiary At 30 June 2013 Provision At 1 July 2011 Impairment of subsidiary Disposal of subsidiary At 30 June 2012 Disposal of subsidiary At 30 June 2013 Net book value At 1 July 2011 At 30 June 2012 At 30 June 2013 28 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 29 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Holdings of more than 20% The Company holds more than 20% of the share capital of the following companies: Subsidiary undertakings Aeorema Limited (formerly Cheerful Scout Productions Limited) Twentyfirst Limited Country of registration or incorporation England and Wales England and Wales Shares held Class Ordinary Ordinary % 100 100 The principal activity of these undertakings for the last relevant financial year was as follows: Company Principal activity Aeorema Limited (formerly Cheerful Scout Productions Limited) Provision of business communication services Twentyfirst Limited Provision of event management services During the year the company’s subsidiary, ST16 Limited, was sold. 14 Trade and other receivables Trade receivables Related party receivables Other receivables Prepayments and accrued income Group Company 2013 £ 2012 £ 526,982 674,987 2013 £ - 2012 £ - - - 457,863 21,869 20,516 37,901 59,059 94,953 6,180 4,419 5,372 4,212 606,557 807,841 468,462 31,453 All trade and other receivables are expected to be recovered within 12 months of the balance sheet date. The fair value of trade and other receivables is the same as the carrying values shown above. 29 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 30 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 At the year end, trade receivables of £262,488 (2012: £94,837) were past due but not impaired. These relate to a number of customers for whom there is no significant change in credit quality and the amounts are still considered recoverable. The ageing of these trade receivables is as follows: Less than 90 days More than 90 days 15 Cash and cash equivalents Bank balances Cash and cash equivalents Group 2013 £ 2012 £ 239,164 94,837 23,324 - 262,488 94,837 Group Company 2013 £ 2012 £ 2013 £ 2012 £ 1,581,790 756,642 782,780 289,398 1,581,790 756,642 782,780 289,398 Cash and cash equivalents in the statement of cash flows 1,581,790 756,642 782,780 289,398 16 Trade and Other Payables Trade payables Related party payables Taxes and social security costs Other payables Group Company 2013 £ 2012 £ 2013 £ 2012 £ 686,742 430,056 11,114 9,275 - - 197,355 14,652 186,474 171,040 160 10,866 250 - 250 - Accruals and deferred income 267,001 188,190 73,362 16,110 1,140,377 800,152 282,081 40,287 All trade and other payables are expected to be settled within 12 months of the balance sheet date. The fair value of trade and other payables is the same as the carrying values shown above. 30 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 31 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 17 Share capital Authorised 2013 £ 2012 £ 28,000,000 Ordinary shares of 12.5p each 3,500,000 3,500,000 Allotted, called up and fully paid At 1 July 2011 Issue of shares At 30 June 2012 At 30 June 2013 See note 22 for details of share options outstanding. 18 Merger reserve At 1 July 2011 Premium on issue of shares Share issue costs At 30 June 2012 At 30 June 2013 Ordinary shares £ Number 7,837,500 979,688 200,000 25,000 8,037,500 1,004,688 8,037,500 1,004,688 Merger reserve £ – 21,500 (4,850) 16,650 16,650 In accordance with section 612 of the Companies Act 2006, the premium on ordinary shares issued in relation to acquisitions is recorded as a merger reserve. The reserve is not distributable. 31 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 32 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 19 Financial commitments Total future minimum lease payments under non-cancellable operating lease rentals are payable as follows: Not later than one year Later than one year and not later than five years 20 Directors’ emoluments The remuneration of Directors of the Company is set out below. Land and Buildings 2013 £ - 62,500 2012 £ 64,167 6,258 P Litten G Fitzpatrick M Hale S Garbutta R Owen S Quah (appointed 15 April 2013) Salary or Fees 2013 £ 50,000 Salary or Fees 2012 £ 50,000 Pensions 2013 £ 52,483 Pensions 2012 £ 25,992 Total 2013 £ 102,483 Total 2012 £ 75,992 50,000 39,041 52,483 20,295 102,483 59,336 - 1,500 7,500 25,296 - 1,500 7,500 - - - - - - - - - - 1,500 7,500 25,296 - 1,500 7,500 - 134,296 98,041 104,966 46,287 239,262 144,328 The share options held by directors who served during the year are summarised below: Name Grant date G Fitzpatrick 28 October 2004 Number awarded 64,000 Exercise price 18.75p Earliest exercise price Expiry date 27 October 2007 27 October 2014 S Quah S Quah 20 July 2010 300,000 8.75p 20 July 2013 19 July 2020 25 April 2013 300,000 16.50p 25 April 2016 24 April 2023 No directors exercised share options during the year. Fees for S Garbutta are charged by Harris & Trotter LLP, a firm in which he is a member. See note 23. 32 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 33 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 21 Employee information The average monthly number of employees (including directors) employed by the Group during the year was: Number of employees Production Administration 2013 Number 2012 Number 13 4 17 15 5 20 The aggregate payroll costs of these employees charged in the Statement of Comprehensive Income was as follows: Employment costs Wages and salaries Social security costs Pension costs Share-based payments 2013 £ 2012 £ 782,230 844,962 94,367 105,138 19,815 95,556 52,156 45,152 1,001,550 1,037,826 22 Share-based payments The Group operates an EMI Share option scheme for key employees. Options are granted to key employees at an exercise price equal to the market price of the Company’s shares at the date of grant. Options are exercisable from the third anniversary of the date of grant and lapse if they remain unexercised at the tenth anniversary or upon cessation of employment. The following option arrangements exist over the Company’s shares: Date of grant Exercise price Exercise period From To Number of options 2013 Number of options 2012 28 October 2004 20 July 2010 9 March 2012 25 April 2013 18.75p 8.75p 23.25p 16.5p 28 October 2007 27 October 2014 113,000 143,000 20 July 2013 19 July 2020 1,200,000 1,200,000 9 March 2015 8 March 2022 - 600,000 25 April 2016 24 April 2023 300,000 - 1,613,000 1,943,000 33 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 34 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Details of the number of share options and the weighted average exercise price outstanding during the year are as follows: Weighted average exercise price 2013 £ Number of options 2013 Number of options 2012 Outstanding at beginning of the year 1,943,000 0.09 1,415,000 Lapsed during the year Granted during the year (630,000) (0.23) (72,000) 300,000 0.17 600,000 Outstanding at end of the year 1,613,000 0.11 1,943,000 Exercisable at the end of the year 113,000 143,000 Weighted average exercise price 2012 £ 0.12 (0.63) 0.23 0.09 The exercise price of options outstanding at the year-end ranged between £0.0875 and £0.2325 (2012: £0.0875 and £0.2325) and their weighted average contractual life was 7.7 years (2012: 8.5 years). Equity-settled share-based payments are measured at fair value at the date of grant. The fair value as determined at the grant date of equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. The estimated fair value of the options is measured using an option pricing model. The inputs into the model are as follows: 28 October 2004 20 July 2010 9 March 2012 25 April 2013 Grant date Model used Share price at grant date Exercise price Contractual life Risk free rate Expected volatility Expected dividend rate Binomial 16.25p 18.75p 10 years 6% 43% 0% Fair value option 5.9868p Black-Scholes Black-Scholes Black-Scholes 8.75p 8.75p 10 years 0.5% 100% 0% 7.779p 23.25p 23.25p 10 years 0.5% 105% 0% 16.5p 16.5p 10 years 0.5% 104% 0% 21.053p 14.889p The expected volatility is determined by calculating the historical volatility of the company’s share price over the last three years. The risk free rate is the office Bank of England base rate. The expected dividend rate is zero as the company has not paid dividends in the past. The Group recognised the following charges in the Statement of Comprehensive Income in respect of its share-based payment plans: Share-based payment charge 34 2013 £ 2012 £ 19,815 45,152 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 35 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 23 Related Party Transactions The Group has a related party relationship with its subsidiaries and its directors. Details of transactions between the Company and its subsidiaries are as follows: Management fees charged by subsidiaries to Aeorema Communications plc Aeorema Limited (formerly Cheerful Scout Productions Limited) 102,483 81,859 2013 £ 2012 £ Amounts owed by subsidiaries Total amount owed by subsidiaries Less provision Amounts owed by subsidiaries Total amount owed to subsidiaries The compensation of key management (including directors) of the Group is as follows: Short-term employee benefits Post-employment benefits 457,863 41,869 - (20,000) 457,863 21,869 197,355 14,652 2013 £ 2012 £ 119,176 119,293 104,966 51,984 224,142 171,277 Aeorema Communications Plc is a guarantor for a lease entered into by Aeorema Limited (formerly Cheerful Scout Productions Limited), its subsidiary undertaking. During the year, the Company’s investment in its subsidiary was impaired by £Nil (2012: £86,500). A loan to ST16 Limited of £Nil (2012: £20,000) was also impaired during the year. 35 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 36 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Harris and Trotter LLP is a firm in which S Garbutta is a member. The amounts charged to the Group for professional services is as follows: Harris and Trotter LLP – charged during the year Aeorema Communications plc Aeorema Limited (formerly Cheerful Scout Productions Limited) Twentyfirst Limited ST16 Limited 2013 £ 2012 £ 17,071 17,692 7,200 7,200 1,600 7,200 7,200 4,000 33,071 36,092 24 Disposal of a subsidiary On 7 December 2012 the Group disposed of its 100% subsidiary ST16 Limited, which carried out Viral Film operations. Consideration received Consideration received in cash and cash equivalents Analysis of assets and liabilities over which control was lost Current assets Cash and cash equivalents Trade and other receivables Non-current assets Property, plant and equipment Current liabilities Trade and other payables Net liabilities disposed of Gain on disposal of subsidiary Consideration received Net liabilities disposed of 36 2013 £ 5 5 2013 £ 16,426 11,700 4,289 (86,431) (54,016) 2013 £ 5 54,016 54,021 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 37 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Net cash outflow on disposal of subsidiary Consideration received in cash and cash equivalents Less: Cash and cash equivalent balances disposed of 25 Cash flows Cash flows from operating activities Profit / (Loss) before taxation Depreciation Profit on disposal of property, plant and equipment Profit on disposal of subsidiary Share-based payment Impairment of goodwill Impairment of investment in subsidiaries Finance expense Finance income 2013 £ 5 (16,426) (16,421) Group Company 2013 £ 2012 £ 2013 £ 2012 £ 342,588 (82,841) 680,821 (270,794) - - - - - 35,934 60,167 (44,875) (54,021) - - - - - 19,815 45,152 7,776 77,671 - - - - - (20,000) 86,500 13 - - (195) (228) (138) (189) 299,246 99,934 668,459 (184,483) Increase in trade and other payables 272,572 439,645 240,986 27,734 (Increase) / decrease in trade and other receivables 201,285 (269,284) (416,201) 91,506 Changes in working capital due to disposal of subsidiary: Trade and other receivables Trade and other payables Taxation paid (11,700) 86,431 - - - (6,986) - - - - - - Cash generated / (used) from operating activities 847,834 263,309 493,244 (65,243)) 26 Financial instruments The Group is exposed to risks that arise from its use of financial instruments. There have been no significant changes in the Group’s exposure to financial instrument risk, its objectives, policies and processes for managing those from previous periods. The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash and cash equivalents and trade and other payables. 37 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 38 Notes to the Consolidated Financial Statements continued For the year ended 30 June 2013 Credit risk Credit risk arises principally from the Group’s trade receivables. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk at 30 June 2013 was £526,982 (2012: £674,987). Trade receivables are managed by policies concerning the credit offered to customers and the regular monitoring of amounts outstanding for both time and credit limits. At the year end, the credit quality of trade receivables is considered to be satisfactory. Liquidity risk Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to meet its liabilities when they fall due. The Group monitors cash flow on a regular basis. At the year end, the Group has sufficient liquid resources to meets its obligations of £1,140,377 (2012: £800,152). Market risk Market risk arises from the Group’s use of interest bearing financial instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate. At the year end, the cash and cash equivalents of the Group was £1,581,790 (2012: £756,642). The Group ensures that its cash deposits earn interest at a reasonable rate. Capital risk The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern while maximising the return to stakeholders. The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in the Group Statement of Changes in Equity. At the year end, total equity was £1,501,116 (2012: £1,217,800). Fair value of financial assets The Group's book value of the financial assets equates to their fair values. 27 Pension costs defined contribution The Group makes pre-defined contributions to employees' personal pension plans. Contributions payable by the Group for the year were £105,138 (2012: £52,156). 28 Control There is no overall controlling party. 29 Events after the reporting period In respect of the current year, the directors propose that a dividend of 1.5 pence per share be paid to shareholders on 29 November 2013. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these consolidated financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 25 October 2013. The total estimated dividend to be paid is £120,563. 38 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 39 Notice of Annual General Meeting Aeorema Communications plc (Incorporated and registered in England and Wales with company number 04314540) Aeorema Communications plc (Incorporated and registered in England and Wales with company number 04314540) NOTICE IS HEREBY GIVEN that the Annual General Meeting of Aeorema Communications plc will be held at Moray House, 23-31 Great Titchfield Street, London W1W 7PA on 25 November 2013 at 10.00am for the transaction of the following business: As Ordinary Business to consider and, if thought fit, pass the following resolutions which will be proposed as Ordinary Resolutions: 1. To receive and adopt the report of the directors of the Company and the audited accounts for the Company for the year ended 30 June 2013. 2. To re-appoint Stephen Garbutta as a Director of the Company, who retires in accordance with article 122 of the Company’s Articles of Association. 3. To re-appoint Stephen Quah as a Director of the Company, who retires in accordance with article 128 of the Company’s Articles of Association. 4. To re-appoint Baker Tilly Audit Limited as auditors of the Company and to authorise the Directors to fix their remuneration. 5. To declare a final dividend on the ordinary shares of 12.5 pence each in the capital of the Company for the year ended 30 June 2013 of 1.5 pence per ordinary share. As Special Business to consider and, if thought fit, pass the following resolutions of which Resolutions 6 and 7 will be proposed as Ordinary Resolutions and Resolution 8 will be proposed as a Special Resolution: 6. That the Company be and is hereby generally and unconditionally authorised in accordance with Section 701 of the Companies Act 2006 (the “Act”) to make market purchases (within the meaning of Section 693(3) of the Act) on the AIM Market of the London Stock Exchange plc of ordinary shares of 12.5 pence each in the capital of the Company (“Ordinary Shares”) provided that: (i) the maximum number of Ordinary Shares hereby authorised to be purchased is 1,190,625 Ordinary Shares; (ii) the minimum price which may be paid for an Ordinary Share is 1 pence; (iii) the maximum price which shall be paid for an Ordinary Share shall be an amount equal to 105 per cent. of the average middle market quotations taken from the AIM Appendix to the Daily Official List of the UKLA for the five business days immediately preceding the day on which the Ordinary Share is contracted to be purchased; (iv) unless renewed the authority hereby conferred shall expire on the earlier of the Company’s Annual General Meeting in 2014 or eighteen months from the passing of this Resolution unless such authority is renewed, varied or revoked prior to such time; and (v) the Company may make a contract or contracts to purchase Ordinary Shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of Ordinary Shares in pursuance of any such contract or contracts. 7. That the directors of the Company be generally and unconditionally authorised pursuant to and in accordance with section 551 of the Act to exercise all the powers of the Company to allot shares in the Company and/or to grant rights to subscribe for, or to convert any security into, shares in the Company (“Rights”) up to a maximum nominal amount of £1,000,000, provided that this authority shall expire at the end of the next annual general meeting of the Company to be held after the date of the passing of this Resolution or, if earlier, fifteen months from the date of the 39 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 40 Notice of Annual General Meeting continued Aeorema Communications plc (Incorporated and registered in England and Wales with company number 04314540) passing of this Resolution save that the Company may prior to the expiry of such period make any offer or agreement which would or might require shares to be allotted or Rights to be granted after such expiry and the directors of the Company shall be entitled to allot shares in the Company and to grant Rights pursuant to any such offer or agreement as if this authority had not expired. 8. That, subject to the passing of Resolution 7 set out above, the directors of the Company be empowered pursuant to section 570 of the Act to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority conferred on them by Resolution 7 above, as if section 561(1) of the Act did not apply to such allotment provided this power shall be limited to: (i) the allotment of equity securities in connection with a rights issue, open offer or other offer of equity securities open for acceptance for a period fixed by the directors of the Company to holders of equity securities on the register on a fixed record date where the equity securities respectively attributable to the interests of such holders are proportionate (as nearly as may be practicable) to their respective holdings of such equity securities or in accordance with the rights attached thereto (but subject to such exclusions or other arrangements as the directors of the Company may deem necessary or expedient in relation to treasury shares, fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognised body or stock exchange in, any territory or by virtue of shares being represented by depositary receipts or any other matter); and (ii) the allotment to any person or persons (otherwise than pursuant to sub-paragraph (i) of this Resolution above) of equity securities up to an aggregate nominal amount of £1,000,000; provided that the power given by this Resolution shall expire at the end of the next annual general meeting of the Company to be held after the date of the passing of this Resolution or, if earlier, fifteen months from the date of the passing of this Resolution, save that the directors of the Company shall be entitled to make offers or agreements before the expiry of such power which would or might require equity securities to be allotted after such expiry and the directors of the Company shall be entitled to allot equity securities pursuant to any such offers or agreements as if the power conferred hereby had not expired. By order of the Board G Fitzpatrick Company Secretary Registered Office: 64 New Cavendish Street London W1G 8TB Dated: 7 October 2013 40 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 41 Notice of Annual General Meeting continued Aeorema Communications plc (Incorporated and registered in England and Wales with company number 04314540) Notes: (1) A member entitled to attend and vote at the above-mentioned annual general meeting (the "Meeting") is entitled to appoint a proxy or proxies to exercise any or all of his rights to attend, speak and vote at the Meeting instead of him. All members are entitled to attend and vote at the Meeting, whether or not they have returned a form of proxy. (2) A Form of Proxy is enclosed for your use, if desired. The instrument appointing a proxy must reach the Company’s registrars, Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU not less than 48 hours before the time of holding of the Meeting. (3) Pursuant to Regulation 41 of The Uncertificated Securities Regulations 2001, the Company specifies that only those members of the Company on the register 48 hours before the time set for the Meeting shall be entitled to attend or vote at the Meeting in respect of the number of shares registered in their name at the time. Changes to the register of members after that time will be disregarded in determining the rights of any person to attend or vote at the Meeting. (4) A copy of the register of Directors’ interests in shares in the Company and copies of the Directors’ service contracts of more than one year’s duration will be available for inspection at the registered office of the Company during office hours only on any weekday (excluding Saturdays, Sundays and public holidays) from the date of this notice until the date of the Meeting and at the place of the Meeting for at least 15 minutes prior to and during the Meeting. 41 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 42 Company Information Company Information Directors M Hale P Litten G Fitzpatrick S Garbutta R Owen S Quah (Non-Executive Chairman) (Deputy Chairman and Creative Director) (Chief Executive) (Non-Executive) (Non-Executive) (Executive Director) Secretary G Fitzpatrick Company number 04314540 Registered office Financial advisers Stockbrokers Nominated adviser Auditors Solicitors Bankers 64 New Cavendish Street London, W1G 8TB Harris & Trotter LLP 64 New Cavendish Street London, W1G 8TB Cantor Fitzgerald Europe One Churchill Place Canary Wharf London, E14 5RB Cantor Fitzgerald Europe One Churchill Place Canary Wharf London, E14 5RB Baker Tilly Audit Limited 66 Chiltern Street London, W1U 4JT HowardKennedyFsi LLP 179 Great Portland Street London, W1W 5LS Ross & Craig 12a Upper Berkeley Street London, W1H 7PE Barclays Bank plc P O Box 32106 London, NW1 2ZH Registrar and transfer office Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 42 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 43 Notes 43 Aeroema_R&A_2013_v2_Layout 1 14/10/2013 12:54 Page 44 Notes 44 CONSOLIDATED DIRECTORS’ REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2013 In ancient Greek drama, an apparently insoluble crisis was often solved by the intervention of the gods who magically descended onto the stage from the skies above. The elaborate crane mechanisms that enabled this impressive effect were known as aeorema. Aeorema Communications Plc, Moray House, 23-31 Great Titchfield Street, London, W1W 7PA Aeorema_Cover_04.indd 1 14/10/2013 13:02