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2020 Reportwith great appreciation and thanks to our shareholders, employees, customers and suppliers, please accept our : privilege customer invitation visit our retail website on : www.beautyatcreightons.com using promotion code : PM003 for a 25% discount on all items* visit us at ... corporate : www.creightonsplc.com retail : www.beautyatcreightons.com www.realshavingshop.com business to business : www.pm-innovations.com brands : www.ashworthandclaire.com www.beautiful-brunette.com www.bronze-ambition.com www.fab-feet.com www.naturalgroomingco.com www.perfect-hair.org www.pure-touch.info www.potterandmoore.com www.realshaving.com www.stjamesoflondon.com www.sunshine-blonde.com * this offer may be varied or withdrawn at any time 2010 ANNUAL REPORT award winning fresh ideas talented innovation marketing excellence pro-active technical expertise dynamic passion leading-edge brands cross-category credibility full service multi-faceted global NB : PINK DOTTED LINE DOES NOT PRINT. IT IS TO INDICATE CUT AND FOLD LINES NB2 : THERE ARE CIRCLES OF WHITE BEHIND THE ‘just blond’ / ‘twisted sista’ and ‘natural grooming’ images - WITH TINTS OF COLOUR CIRCLES ON TOP TO CREATE A CLEAN BACKGROUND COLOUR TO THE PHOTOS - DO NOT OMIT THE WHITE LAYER OR THE TINTED COLOURS WILL GO VERY DIRTY ON TOP OF THE GREY BACKGROUND ALL IMAGES WILL NEED TO BE CLIPPED ACCURATELY IN ORDER TO PRINT WELL HI RES IMAGES ARE IN A SEPARATE FOLDER IN ORDER TO DO THIS PLEASE CALL JULIE ON : 07722170910 WITH ANY QUESTIONS giving you the control to style The naturally perfect Shave 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 1 Contents Directors, advisers and bankers Notice of meeting Chairman’s statement Corporate governance report Directors’ report Directors’ remuneration report Statement of directors’ responsibilities Independent auditor’s report to the members of Creightons plc Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Company balance sheet Consolidated statement of changes in equity Company statement of changes in equity Consolidated cash flow statement Notes to the financial statements Creightons Plc Page 2 3 6 8 11 18 22 23 25 25 26 27 28 28 29 30 Group Financial Statements 2010 1 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 2 Creightons Plc Directors, advisers and bankers Directors William O McIlroy Executive Chairman and Chief Executive Bernard JM Johnson Managing Director William T Glencross Non-executive Director Mary T Carney Non-executive Director Nicholas DJ O’Shea Non-executive Director Company Secretary Nicholas DJ O’Shea, BSc ACMA Registered Office Auditor Registrars Bankers Solicitors 1210 Lincoln Road Peterborough PE4 6ND Registered in England & Wales No 1227964 Chantrey Vellacott DFK LLP Russell Square House 10-12 Russell Square London WC1B 5LF Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA HSBC Bank Plc Cathedral Square Peterborough PE1 1XL Coole & Haddock 5 The Steyne Worthing West Sussex BN11 3DT Financial Advisers Cairn Financial Advisers LLP 38 Bow Lane London EC4M 9AY 2 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 3 Notice of meeting Creightons Plc Notice is hereby given that the Annual General Meeting of the Company will be held at the offices of Potter & Moore Innovations Ltd, 1210 Lincoln Road, Peterborough, PE4 6ND on 25 August 2010 at 12:00 noon in order to consider and, if thought fit, pass the following resolutions: 1. To receive and consider the Company’s financial statements and reports of the directors and auditor for the year ended 31 March 2010. 2. To receive and consider the Directors’ remuneration report for the year ended 31 March 2010. 3. To reappoint Mr William McIlroy retiring by rotation under the provisions of Article 103 of the Articles of Association, as a director of the Company. 4. To reappoint Mr Bernard Johnson retiring by rotation under the provisions of Article 103 of the Articles of Association, as a director of the Company. 5. To reappoint Chantrey Vellacott DFK LLP as auditor and to authorise the directors to determine their remuneration. 6. As an ordinary resolution: “That, in terms of Article 20 of the Company’s Articles of Association, the directors of the Company be and they are hereby generally and unconditionally authorised for the purposes of Section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot relevant securities (within the meaning of the said Section 551) of the Company up to an aggregate nominal value of £180,919.85 (representing approximately 33.3% of the current issued ordinary share capital) provided that this authority shall expire on the date of the next annual general meeting of the Company after the passing of this resolution or, if earlier, fifteen months after the passing of this resolution unless previously renewed, varied or revoked by the Company in general meeting and provided that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired, this authority to replace any existing like authority given prior to the date hereof which is hereby revoked with immediate effect.” 7. As a special resolution: “That, without prejudice to any existing powers in terms of Article 21 of the Company’s Articles of Association, the directors of the Company be and they are hereby empowered pursuant to Section 570 of the Companies Act 2006 to allot equity securities (within the meaning of Section 560 of the said Act) for cash pursuant to the authority conferred upon them by Section 551 of the said Act by resolution 6 above as if Section 561(I) of the said Act did not apply to any such allotment provided that this power shall be limited: (a) to the allotment of equity securities in connection with an offer or issue to or in favour of ordinary shareholders on the register on a date fixed by the directors where the equity securities respectively attributable to the interest of all ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them on that date but the directors may make such exclusions or other arrangements as they consider expedient in relation to fractional entitlements, legal or practical problems under the laws in any territory or the requirements of any regulatory body or stock exchange; and Group Financial Statements 2010 3 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 4 Creightons Plc Notice of meeting (b) to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of £27,137.97 (representing approximately 5% of the current issued ordinary share capital); and shall expire on the earlier of the date which is fifteen months after the date of the passing of this resolution and the date of the next annual general meeting of the Company after the passing of this resolution save that the Company may before such expiry make an offer or agreement which would or might require securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if the powers conferred hereby had not expired and so that all previous authorities of the directors pursuant to Section 95 of the said Act be and are hereby revoked.” 8. As a special resolution: “That the Company be and is hereby generally and unconditionally authorised pursuant to Section 701 of the Companies Act 2006 to make market purchase (as defined in Section 693(4) of the said Act) of its own ordinary shares of 1p each (“Ordinary Shares”) in such a manner and on such terms as the directors may from time to time determine provided that: (a) the authority hereby conferred shall expire on the earlier of the date which is fifteen months after the date of the passing of this resolution and the conclusion of the next Annual General Meeting of the Company after the passing of this resolution unless renewed or extended prior to or at such meeting, except that the Company may before the expiry of such authority make any contract of purchase of Ordinary Shares which will or might be completed wholly or partly after such expiry and to purchase Ordinary Shares in pursuance of such contract as if the authority conferred hereby had not expired; (b) the maximum number of Ordinary Shares hereby authorised to be purchased shall not exceed 2,713,797 Ordinary Shares (representing 5% of the Company’s issued share capital as at 31 March 2010); and (c) the maximum price which may be paid for each Ordinary Share pursuant to this authority hereby conferred is an amount equal to 105% of the average of the middle market quotations for Ordinary Shares (derived from The London Stock Exchange Daily Official List) for the five business days prior to the date of purchase and the minimum price of 1p. By order of the board Nicholas O’Shea Company Secretary 1210 Lincoln Road Peterborough PE4 6ND 22 July 2010 4 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 5 Creightons Plc Notice of meeting Notes 1. Holders of ordinary shares, or their duly appointed representatives, are entitled to attend and vote at the AGM. Shareholders are entitled to appoint a proxy to exercise all or any of their rights to attend and speak and vote on their behalf at the meeting. A shareholder can appoint the Chairman of the meeting or anyone else to be his/her proxy at the meeting. A proxy need not be a shareholder. More than one proxy can be appointed in relation to the AGM provided that each proxy is appointed to exercise the rights attached to a different ordinary share or shares held by that shareholder.To appoint more than one proxy, the Proxy Form should be photocopied and completed for each proxy holder.The proxy holder’s name should be written on the Proxy Form together with the number of shares in relation to which the proxy is authorised to act.The box on the Proxy Form must also be ticked to indicate that the proxy instruction is one of multiple instructions being given. All Proxy Forms must be signed and, to be effective, must be lodged with the company’s registrar so as to arrive not later than 48 hours before the time of the meeting, or in the case of an adjournment 48 hours before the adjourned time. 2. The return of a completed Proxy Form will not prevent a shareholder attending the AGM and voting in person if he/she wishes to do so. 3. Nominated persons (a) Any person to whom this Notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a Nominated Person) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. (b) The statement of the rights of shareholders in relation to the appointment of proxies in paragraph (1) above does not apply to Nominated Persons.The rights described in that paragraph can only be exercised by the shareholders of the Company. 4. Only shareholders whose names appear on the register of members of the Company as at 48 hours before the time of the meeting shall be entitled to attend the AGM either in person or by proxy and the number of ordinary shares then registered in their respective names shall determine the number of votes such persons are entitled to cast on a poll at the AGM. 5. The statement of the rights of shareholders in relation to the appointment of proxies in note 1 does not apply to Nominated Persons.The rights described in that note can only be exercised by shareholders of the Company. 6. As at 15 July 2010, being the latest practicable date prior to the publication of this document, the Company’s issued share capital consists of 54,275,876 ordinary shares, carrying one vote each.Therefore the total voting rights in the Company as at 15 July 2010 are 54,275,876. 7. In Accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the Company’s register of members at 6:00pm on the day which is two days before the day of the meeting or, if the meeting is adjourned, shareholders entered on the Company’s register of members at 6:00pm on the day two days before the date of any adjournment shall be entitled to attend and vote at the meeting. 8. Any member attending the meeting has the right to ask questions.The Company has to answer any questions raised by members at the meeting which relate to the business being dealt with at the meeting unless: • • • to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; the answer has already been given on a website in the form of an answer to a question, or; it is undesirable in the interests of the Company or the good order of the meeting to answer the question. 9. Copies of the director’s service contracts and letters of appointment are available for inspection at the registered office of the Company during normal business hours on any business day and will be available for inspection at the place where the meeting is being held from 15 minutes prior to and during the meeting. 10. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided they do not do so in relation to the same shares. 11. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. 12. To be valid any proxy form or other instrument appointing a proxy must be: • • • completed and signed; sent or delivered to Capita Registrars, PXS,The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU; and received by Capita registrars no later than 12:00 noon on 23 August 2010. A copy of this notice, and other information required by S311A of the Companies Act 2006, can be found at www.creightonsplc.com Group Financial Statements 2010 5 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 6 Creightons Plc Chairman’s statement Review of the year I am pleased to report a pre-tax profit of £303,000 for the year ended 31 March 2010 (2009 – £378,000). Whilst this is a decrease we consider it to be a good performance given the difficult trading over the year. We continue to see consumers focused on lower priced products which offer a value proposition with increased use of promotions.We have continued our drive to re-engineer products to be able to achieve sustainable margins on the lower price points. Raw material price pressure abated over the year and whilst we were not able to increase our selling prices we were therefore better able to manage our margins over the year. We have refocused our efforts on sales and development during the period and have increased the resources allocated to selling and new product development.This means that whilst our headcount has remained static resources have been focused on winning business for the future. We have also expanded our new product development programme in order to support our customers and to maximise opportunities presented by the changing retail scene. Financial results Consolidated Group sales this year were £1,565,000 lower than last year (a decrease of 10.3%) at £13,590,000 (2009 – £15,155,000).The main reason for the sales decrease was the reduced level of sales associated with Christmas gifts. The benefits of product re-engineering and more stable raw material prices have resulted in an improvement in gross margin percentage by 1.6% to 42.3% (2009 – 40.7%). Changes in the sales mix has resulted in higher distribution costs as a percentage of sales which have increased to 3.8% from 3.4% in 2009. Profit before tax for the year of £303,000 (2009 – £378,000) represents a 20% reduction due mainly to contraction of the size of the business. Lower advertising and promotional expenditure was a significant contributor to the fall in overheads which limited the decline in pre tax profits to only £75,000. Interest costs were also lower with reduced average borrowings and lower interest rates combining to reduce the year’s charge to £31,000 (2009 – £97,000). Profit after tax of £303,000 (2009 – £378,000) therefore shows a very satisfactory performance given the unprecedented trading environment. Diluted earnings per share fell to 0.51p from 0.63p in 2009 as a result of the reduced Company earnings.The directors do not consider it is in the best interests of the Company to declare a dividend at the moment, instead using the funds generated from this year’s successful trading to manage future working capital requirements. Net borrowings (bank overdraft and loans less bank and cash on hand) has increased by £127,000 to £167,000 (2009 – £40,000).The main reason for the increase in borrowing is the higher working capital at the end of the year.The increase in trade debtors is primarily due to higher sales in the final quarter of the year although debtor days have increased as a result of changes in customer mix and unavoidable increases in payment terms imposed by some of our customers. Stock levels have also increased in the main to support the new ranges launched in the final quarter of the year. 6 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 7 Chairman’s statement Creightons Plc Current year developments The Group continues to develop and strengthen its branded portfolio, with emphasis continuing to be placed on offering a wider range of value brands at very competitive prices, and this strategy has succeeded in attracting a number of new customers for these value brands. We continue to face competitive price pressures with new business opportunities being converted at the expense of margin.We anticipate that levels of Christmas gift business will continue to decrease as customers increasingly source direct from the Far East.We therefore believe that sales may continue at depressed levels for the foreseeable future and we will continue to face increased pressure on margins. We also expect our main private label customers to continue to adopt value strategies with sales opportunities in lower priced products offsetting lower sales levels on higher priced products.This too is likely to adversely affect our turnover and margins in the current year. There has been some softening of price pressure in the last few months, however recent adverse movements in the Euro and US dollar are likely to increase raw material prices and create further margin pressure.We are continuing to develop our supplier network on a global basis to provide the lowest prices for the quality components required to support our business.We will also continue our successful programme of redeveloping and re-engineering our products in order to manage our margins in this exceptionally difficult trading environment. We will continue to manage our overhead cost base and working capital requirements to ensure they are aligned with the anticipated sales levels of the Group whilst retaining the skills necessary to meet growth opportunities as they arise. As in previous years, your board is continuing to seek opportunities to acquire brands or companies that would complement the existing businesses by offering synergies in manufacturing, sourcing and marketing due to similarities in product alignment, sourcing or outlets. I would like to take this opportunity to thank each and every one of the Group’s employees for the hard work and effort they have put in over what has been a challenging year. William McIlroy Chairman 24 June 2010 Group Financial Statements 2010 7 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 8 Creightons Plc Corporate governance report Compliance The Listing Rules of the Financial Services Authority require listed companies to disclose how they have applied the principles set out in Section 1 of the Combined Code prepared by the Committee on Corporate Governance and whether or not they have complied with its provisions. The Board is committed to the principles set out in the Combined Code but judges that some of the processes are disproportionate or less relevant to the Company, given the relative small size and minimal complexity of the business. The Company has not complied with the Combined Code as regards the following: • No formal training programme is in place for non-executive directors. • The role of the Chairman and Chief Executive is combined. The Board Details of all the directors are set out below: William McIlroy Bernard Johnson Nick O’Shea Mary Carney William Glencross Executive Chairman and Chief Executive Managing Director Company Secretary and Independent non-executive Director Senior Independent non-executive Director Independent non-executive Director The Board’s principal task is to set the Group’s strategy, which is devised to deliver optimum value for shareholders. Other matters reserved for decision by the full Board include approval of the annual report and financial statements, authorisation of all acquisitions and disposals, sanction of all major capital expenditure, the raising of equity or debt finance and investor relations. The Board does not operate a formal process of performance evaluation; however the Chairman does continually review the performance of the members of the Board. Both Mr William McIlroy and Mr Bernard Johnson have continued with their roles with their management companies and Mr William McIlroy has continued with his role with Oratorio Developments Ltd.There has been no change in these commitments over the past year. The directors have met as a full board on 8 occasions throughout the year, including meetings by telephone.The attendance at meetings held during the year to 31 March 2010 for each of the Directors is as follows: Director William McIlroy Bernard Johnson Nick O’Shea Mary Carney William Glencross 8 Group Financial Statements 2010 Board Meetings 8 8 8 8 7 Remuneration Committee 0 0 2 2 0 Audit Committee 0 0 2 2 0 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 9 Corporate governance report Creightons Plc Procedures are in place to enable the directors to take appropriate independent professional advice at the Company’s expense if that is necessary for the furtherance of their duties. All directors have access to the advice and services of the Company Secretary. The Articles of Association require one third of the Board to retire by rotation each year and for those directors appointed during the year to stand for re-election at the following Annual General Meeting. Nomination Committee The Board as a whole has undertaken the duties of the Nomination Committee.The Committee is responsible for proposing candidates for the Board having regard to the balance and structure of the Board.There were no appointments made during the year. Remuneration Committee The Remuneration Committee consisted of Ms Carney and Mr O’Shea. In determining policy for the executive directors, the Committee has given due consideration to the Combined Code.The remuneration packages are designed to attract, retain and motivate executive directors of the required calibre.The Committee reviews the appropriateness of all aspects of directors’ pay and benefits by taking into account the remuneration packages of similar businesses. Directors’ remuneration The executive directors are salaried in their capacity as directors.Their management and operational services are provided via management companies on a basic fee basis. Additional fees are contingent on the bottom line performance of the Group. In addition the executive directors and Mr Glencross participate in a share option scheme.The Board believes that in accordance with the best practice provisions, this approach aligns the interests of shareholders and executive directors. Mr Glencross was granted share options during his services as an employee of the Company, prior to his appointment to the board.The Company has a policy that share options may not be granted to non-executive directors. Full details of directors’ remuneration and share options are noted in the Directors’ remuneration report on page 18. Details of the directors’ shareholdings are shown in the Directors’ report on page 15. Accountability and Audit The directors are responsible for the Company’s systems of internal control and for reviewing its effectiveness whilst the role of management is to implement Board policies on risk management and control. It should be recognised that the Company’s system of internal control is designed to manage rather than eliminate risk of failure to achieve the Company’s business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. There is an ongoing process for managing the significant risks faced by the Company.This process is reviewed by the Board and accords with the internal control guidance issued by the Turnbull Committee. Group Financial Statements 2010 9 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 10 Creightons Plc Corporate governance report The key procedures designed to provide effective internal controls are: • A clearly defined organisational structure with the appropriate delegation of authority to operational management; • A comprehensive planning and budgeting process which requires the Chief Executive’s approval; • Management information systems to monitor financial and other operating statistics; • Aspects of internal control are regularly reviewed and where circumstances dictate new procedures are instigated. The Group does not have an internal audit function. However the Board periodically reviews the need for such a function.The current conclusion is that this is not necessary given the scale and complexity of the Group’s activities. The Board has reviewed the effectiveness of the internal controls in operation and this process will continue. Audit Committee The Audit Committee consists of Ms Carney and Mr O’Shea. Its role is to: • Monitor the integrity of the financial statements of the group and any formal announcements relating to the group’s financial performance and reviewing significant financial reporting judgements contained therein; • Review the group’s internal financial controls and the group’s internal control and risk management systems; • Review whether it is appropriate to introduce an internal audit function; • Make recommendations to the board, for a resolution to be put to the shareholders for their approval in general meeting, on the appointment of the external auditors and the approval of the remuneration and terms of engagement of the external auditors; • Review and monitor the external auditors’ independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements; • Develop and implement policy on the engagement of the external auditors to supply non-audit services, taking into account relevant guidance regarding provision of non-audit services by the external audit firm. The terms of reference of the Audit Committee are not set out in writing. The Group receives non-audit taxation advice from the Group’s auditors.The audit committee assesses the independence of the external auditors by means of an internal review of the relationships with the auditors. Shareholder Relations The objective of the Board is to create increased shareholder value by growing the business in a way that delivers sustainable improvements in earnings over the medium to long term. The Board considers the Annual General Meeting as an important opportunity to communicate with private investors in particular. Directors make themselves available to shareholders at the Annual General Meeting and on an ad hoc basis, subject to normal disclosure rules. 10 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 11 Directors’ report Creightons Plc The directors present their annual report on the affairs of the group, together with the financial statements for the year ended 31 March 2010. Principal activities The principal activity of the group continued to be the creation and manufacture of toiletries and fragrances. A review of the operations of the group during the year and future developments are referred to in the Chairman’s statement on page 6. The principal subsidiary undertakings affecting the results of the group in the year are detailed in note 14 to the financial statements. Business Review History Creightons plc was first established in 1975, manufacturing and marketing toiletries made exclusively from natural products. It created a number of proprietary brands, although it focused mainly on private label and contract manufacturing. It was first listed on the London Stock Exchange in 1987. By 2003 it was seeking to expand both organically and by acquisition, and launched several of its new range of brands, including The Real Shaving Company. In March 2003 it purchased the mainly private label and contract filling business of Potter & Moore out of administration. Since then, the Group has gradually consolidated its manufacturing at the more modern and efficient Potter & Moore Innovations plant in Peterborough. By March 2006, the Group had closed and disposed of its operations in Storrington, transferring Creightons’ manufacturing to the Potter & Moore Innovations factory in Peterborough. Part of the Storrington site originally in the Company’s ownership had been disposed of several years previously, the remaining manufacturing and office facilities were disposed of in 2005. In March 2007 the group established a sales and distribution operation in New York in order to market the Group’s branded products in North America. Having previously experienced a number of years with major losses, the years since the acquisition of Potter & Moore Innovations have seen Creightons plc return to sustained profitability. Operating Environment The toiletries sector encompasses products ranging from haircare to footcare, excluding medical and therapeutical products.There has been a significant fragmentation of the individual markets in the sector in recent years, with for example shampoos and conditioners for different coloured hair and different preparations addressing various perceived consumer differentiated needs such as frizziness and tangles. Consumers purchase these through a range of retail outlets, from high quality department stores to low-cost discounters, with the high street supermarkets and drug stores somewhere in the middle.The majority of the Group’s production is sold into the UK, other EU member states and North America. Producers and manufacturers providing products in this market place range from major multinational corporations to small businesses, such as Creightons. Also, production and manufacturing in the toiletries market is now world-wide, with many competitors sourcing a significant proportion of their products from outside the UK or EU, either due to greater efficiency of scale or due to a lower cost base. Although the cost advantage some Far Eastern producers enjoyed a few years ago has been deteriorating in the past year or so. Group Financial Statements 2010 11 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 12 Creightons Plc Directors’ report Regulation The Group does not operate in a ‘regulated’ market in the sense that pharmaceutical product manufacturers do, but there has been increasing regulation covering the use, handling and transportation of potentially hazardous substances, of consumer protection as well as increasing restrictions and regulations on waste and disposal of potentially environmentally hazardous products and packaging materials. Objectives The principal objectives of the business are to supply high quality toiletry products to its customers, meeting high levels of product quality and consumer satisfaction. Clearly, a critical goal for the Board over the past few years has been to maintain the Group’s profitability in the difficult trading environment created by the recession.The main private label manufacturing business operates in a market which is comparatively low-margin, and susceptible to changes in consumer purchasing, loss of major contracts and in particular at present, increases in primary raw material prices, especially for oil-based products.The unprecedented economic situation of the last two years has made trading conditions far more challenging than at any time in the past decade. In the short term, until the economy recovers with consumer and customer purchasing and confidence returning to historic levels, the Board has made sustaining profitability a key objective. Strategy The Board’s strategy to achieve its objectives and goals whilst guarding against commercial risks has been to ensure high quality and efficiency in all manufactured and bought-in products, to continuously develop and enhance its product ranges, both branded and for its private label customers, to seek to source its raw materials as cost-effectively as possible, and to ensure its manufacturing processes are constantly being improved both in terms of quality and efficiency.The Board is particularly aware that over reliance upon a small number of contract customers could put the business into jeopardy, and so is seeking to develop the branded business, whilst of course recognising the continuing importance of, and still looking after and expanding, the core private label and contract manufacturing side. Recent Developments The Group consolidated all ongoing manufacturing at the Potter & Moore Innovations factory in Peterborough some years ago, and continues to spend modest amounts of capital on improving the filling lines and mixing facilities to improve efficiency and flexibility to handle a wider range of products. In 2007 the Group established a sales and distribution operation in North America in order to maximise sales opportunities for its branded product ranges in this important market. Current Operations Following the merger of the operations of Creightons and Potter & Moore Innovations the Group has organised its sales through three sales divisions: • • • private label division which focuses on high quality private label products for major High Street retailers and supermarket chains; contract manufacturing division, which develops and manufactures products on behalf of third party brand owners; and branded sales division which markets, sells and distributes our branded products.This division includes our North American operation. 12 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 13 Directors’ report Creightons Plc All of these divisions use the central creative, research and development, sourcing, manufacturing and distribution operations based in Peterborough. All of the sales divisions are pro-active in the development of new sales and product development opportunities for their respective customers. The Group has extensive development and manufacturing capabilities encompassing toiletries, skincare, hair care and fragrances.The Group has extended its research and development and sales expertise to maximise the opportunities afforded by these capabilities. Some of this work has been capitalised and is being amortised over the estimated life of the products in accordance with IFRS requirements. The Group has continued its aggressive development programme of new ranges of branded toiletries, hair care and skincare products and continues to extend those already successfully launched Potter and Moore International Inc, which was incorporated in the USA in May 2007, continues to expand the range of products offered and the mix of customers in North America. Management and monitoring of performance Your directors are mindful that although Creightons plc is a UK Listing Authority listed Company, in size it is really only medium sized and therefore many of the ‘big business’ features common in listed companies are inappropriate.This year’s profitable result has been achieved only as a result of considerable hard work over several years in focusing management, staff and production workers’ efforts on more productive product ranges, improving production and stock holding efficiencies, ensuring high levels of customer service and eliminating overhead inefficiencies. Consequently, they have continued the ‘minimalist’ approach to micro-management of the business that would otherwise add significantly to costs whilst delivering at best minimal added benefits to shareholders. The Group does not operate a formal personal performance appraisal process, but individual managers and supervisors undertake continuous performance monitoring and appraisal for their subordinates, and routinely report the results of these to their own managers.The group therefore has no formal personnel or other non-financial Key Performance Indicators (KPIs) or targets, and each position that becomes vacant is reviewed for necessity and criticality before authorisation is given for it to be filled through either recruitment or promotion. The Group has a formal Staff Handbook which covers all major aspects of staff discipline and grievance procedure, Health and Safety regulations, and the Group’s non-discrimination policy.Two incidents involving employees or contractors on the Group’s sites have required to be reported to the Health & Safety Executive during the year (2009 – 1) The Group has a formally adopted Environmental Policy which requires management to work closely with the local environmental protection authorities and agencies, and as a minimum to meet all environmental legislation. The Board regularly monitors performance against several key financial indicators, including gross margin, production efficiency, overhead cost control, cash/borrowing and inventory levels. Performance is monitored monthly against both budget and prior year. Financial Key Performance Indicators Sales Gross Margin as a % of Revenue Operating profit excluding one off costs Operating Profit – as a % of Revenue Return on net assets Bank overdraft and loans 2009/10 £13,590,000 42.3% £334,000 2.5% 8.3% £216,000 2008/09 £15,155,000 40.7% £463,000 3.1% 10.8% £234,000 Movement Decrease of 10.3% Increase of 1.6% Decrease of £129,000 Decrease of 0.6% Reduced by 2.5% Reduced by £18,000 Group Financial Statements 2010 13 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 14 Creightons Plc Directors’ report Risks The board regularly monitors exposure to key risks, such as financial ones related to a drop in production efficiencies, worsening cash position, decline in sales both related to contract and private label manufactured products and branded lines. It has also taken account of the worsening economic situation over the past 12 months, and the impact that has had on costs and consumer purchases. It also monitors those not directly or specifically financial, but capable of having a major impact on the business’s financial performance if there is any failure, such as product contamination and manufacture outside specification, maintenance of satisfactory levels of customer and consumer service, or failure to meet environmental protection standards or any of the areas of regulation mentioned above. Further details are set out in Note 18. Capital structure, cash flow and liquidity Having achieved profitability after a number of years of substantial losses, and having repaid the loans used at the time of the purchase of the Potter & Moore business, the Group’s cash flow has improved substantially.The business is funded using invoice discounting, a bank facility secured against its assets. Further details are set out in Note 21. Financial The profit for the year is shown in the attached consolidated income statement.The directors do not recommend the payment of a dividend (2009 – nil). Research and development The group has a policy of continual product development.The costs associated with the development of ranges where the group can identify probable future economic benefit are treated as intangible assets and are amortised over the period over which those economic benefits are expected to arise. Directors The directors who held office during the year were as follows: William O McIlroy Mary T Carney Nicholas DJ O’Shea Bernard JM Johnson William T Glencross (Executive Chairman and Chief Executive) (Non-executive) (Non-executive) (Managing Director) (Non-executive) The directors retiring by rotation are Mr WO McIlroy and Mr BJM Johnson. 14 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 15 Creightons Plc Directors’ report Directors’ interests The directors who held office at 31 March 2010 had the following beneficial interests in the shares of the company: Mr McIlroy Mr Johnson Mr O’Shea Mr Glencross 31 March 2010 1p ordinary shares 1 April 2009 1p ordinary shares Shares 14,916,000 3,344,569 31,000 – Options 1,628,275 1,628,275 – 300,000 Shares 14,916,000 3,344,569 31,000 – Options 1,628,275 1,628,275 – 300,000 Mr McIlroy’s holding noted above includes 14,450,000 (2009 – 14,450,000) shares held in the name of Oratorio Developments Ltd, a private company of which Mr McIlroy is a director and controlling shareholder. No changes took place between the 31 March 2010 and 15 July 2010: The share options detailed above were granted on 9 January 2004 to Messrs McIlroy, Johnson and Glencross, who was an executive at the time, in accordance with the rules of the existing share option scheme.The company does not make grants of share options to non-executive directors. See note 24 for further detail. Directors’ insurance The company has purchased insurance cover for the directors against liabilities arising in relation to the Group. Substantial interests At 15 July 2010 the following substantial interests, being 3% or more of the ordinary shares in issue, had been notified to the Company: Mr WO McIlroy (including Oratorio Developments Ltd) Mr D Abell Mr BJM Johnson Mr T Amies Mr B Dale 14,916,000 3,807,150 3,344,569 2,855,000 2,451,740 27.48% 7.01% 6.16% 5.26% 4.52% Mr McIlroy’s holding includes 14,450,000 (26.62%) shares held by Oratorio Developments Ltd, a company of which he is a director and controlling shareholder of which 3,700,000 (6.82%) shares are registered in the name of Hargreave Hale Nominees Ltd. Mr Johnson’s holding includes 3,184,569 (5.87%) shares of which he is the beneficial owner and which are registered in the name of Hargreave Hale Nominees Ltd. Mr Abell’s holding represents his beneficial ownership of 3,307,150 (6.09%) shares registered in the names of Ferlim Nominees Ltd and Rensburg Sheppards Investment Management Ltd, and of 500,000 (0.92%) shares registered in the name of Rock (Nominees) Ltd. Share structure and rights are included in Note 22. Group Financial Statements 2010 15 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 16 Creightons Plc Directors’ report Going concern The Directors are pleased to report that the Group has significant unused borrowing facilities, continues to meet its debt obligations and expects to operate comfortably within its available borrowing facilities.The Directors have therefore formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. Creditor payment policy The Group does not follow any code or standard on payment practice as it is the Group’s policy to settle creditors promptly on mutually agreed terms.The number of days’ billings from suppliers outstanding at 31 March 2010 was 52 days (2009 – 42 days). Resolutions to be proposed at the Annual General Meeting The board will be proposing the following resolutions at the AGM.The detailed wording of the resolutions is contained within the notice of the AGM.They have the support of all board members, who will vote in favour of them with all their own shareholdings and those under their control, and with any discretionary proxies granted to them personally or in the capacity of chairman of the meeting. 1. To receive and consider the Company’s accounts and reports of the directors and auditor for the year ended 31 March 2010. 2. To receive and consider the Directors’ remuneration report for the year ended 31 March 2010. 3. To reappoint William McIlroy retiring by rotation under the provisions of Article 103 of the Articles of Association, as a director of the Company. 4. To reappoint Bernard Johnson retiring by rotation under the provisions of Article 103 of the Articles of Association, as a director of the Company. 5. To reappoint Chantrey Vellacott DFK LLP as auditor and to authorise the directors to determine their remuneration. 6. To give authority to the directors to allot shares pursuant to Section 551 of the Companies Act 2006.This authorises the Company for a period of up to 15 months, or until the next AGM if sooner, to allot 1p Ordinary Shares up to an aggregate nominal value of £180,919.85, being a further one third of the Company’s present issued share capital as a rights issue. 7. As a special resolution, to grant a limited disapplication of the statutory pre-emption rights contained in Section 570 of the Companies Act 2006.This authorises the Company for a period of up to 15 months, or until the next AGM if sooner, to allot 1p Ordinary Shares up to an aggregate nominal value of £27,137.97, being 5% of the Company’s present issued share capital, without first offering them as a rights issue to existing share holders. 16 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 17 Directors’ report Creightons Plc 8. As a special resolution, to give a limited power to the Company to purchase its own shares.This authorises the Company for a period of up to 15 months, or until the next AGM if sooner, to purchase 1p Ordinary Shares up to a maximum aggregate nominal value of £27,137.97, being 5% of the Company’s present issued share capital, at no more than 105% of the average of the middle market quotations for Ordinary Shares for the five business days prior to the date of purchase and the minimum price of 1p. Directors standing for re-election Mr William McIlroy who has been Chairman and Chief executive of the Company for ten years has an extensive knowledge and experience of the personal care industry. Bernard Johnson has been with the company for ten years working as Managing Director. He has been in similar senior positions with manufacturing businesses over the past 30 years, in many cases brought in on a rescue and recovery basis. In the case of each of the persons who are acting as directors of the company at the date this report was approved: • • so far as each of the directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the company’s auditor is not aware; and each of the directors has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information (as defined) and to establish that the company’s auditor is aware of that information. Chantrey Vellacott DFK LLP have expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. By order of the Board Nicholas O’Shea Company Secretary 22 July 2010 1210 Lincoln Road Peterborough PE4 6ND Group Financial Statements 2010 17 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 18 Creightons Plc Directors’ remuneration report This report has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006. A resolution to approve this report will be proposed at the Annual General Meeting of the Company at which the annual accounts for the year are approved. The above regulations also require that the auditor shall report to the company’s members on the auditable part of the directors’ remuneration report and state whether in their opinion that part of the directors’ remuneration report has been properly prepared in accordance with the Accounting Regulations.This report has therefore been divided into separate sections for audited and unaudited information. In the opinion of the committee, the company has complied with Section B of the Combined Code, and in forming the remuneration policy, the committee has given full consideration to that section of the Combined Code. Unaudited information Remuneration Committee The board has established a Remuneration Committee to determine the remuneration of directors of the company.The members of the committee were Mr O’Shea and Ms Carney. In determining the directors’ remuneration the committee consulted the Executive Chairman, Mr McIlroy.There has been one meeting of the committee during the period, attended by Ms Carney and Mr O’Shea. Policy on directors’ remuneration The policy of the company on executive remuneration is to reward individual performance and motivate and retain existing executive directors so as to promote the best interests of the company and enhance shareholder value.The remuneration packages for executive directors include a basic annual salary, performance related bonus and a share option programme. Salary and benefits Executive directors’ salary and benefits packages are determined by the committee on appointment or when responsibilities or duties change substantially, and are reviewed annually.The last review was undertaken during the first quarter of this year, but no changes were proposed to the executive directors’ remuneration packages.The committee considers that improved performance should be recognised by achievement of performance bonuses. Directors’ performance bonus Both executive directors’ contracts provide for performance bonuses should the group achieve profitability, and Mr McIlroy’s also provides for a bonus should a successful sale of the group’s toiletries business be achieved. The profit criterion was met in 2010, and as a consequence, provision for payment of the profit related performance bonus has been made in the accounts, and will be made as required by the contracts within one month of the approval and publication of these accounts. The contract for Mr McIlroy’s services as a director provides for a performance bonus payment to Mr McIlroy’s employer (Lesmac Securities Ltd) should the Group achieve profitability, on a scale of 12½% of the pre-tax audited profits up to £50,000, 7½% of pre-tax audited profits between £50,001 and £100,000 and 5% of pre-tax audited profits in excess of £100,000.The contract also provides for a success bonus payment to Mr McIlroy’s employer should the Group dispose of the toiletries business.This bonus is 10% of the proceeds of a complete disposal should the sale price exceed £1.5 million, or of a partial disposal should the sale price exceed £0.5 million and be for not more than one third of the book value of the net assets of the group so disposed. 18 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 19 Directors’ remuneration report Creightons Plc The contract for Mr Johnson’s services as a manager provides for a performance bonus payment to Mr Johnson’s employer (Carty Johnson Ltd) should the group achieve profitability, on a scale of 12½% of the pre-tax audited profits up to £50,000, 7½% of pre-tax audited profits between £50,001 and £100,000 and 5% of pre-tax audited profits in excess of £100,000. Executive share option scheme The policy of the company is to grant options to executive directors and other senior managers as an incentive to enhance shareholder value.Those options held by members of the board are exercisable at 2.75p per share, the performance criterion having already been fulfilled, until 8 January 2011, at which time any remaining unexercised options will expire. Further detail of share options held by directors is given below, and of all options granted by the Company in note 24 (Share Based Payments). Pension arrangements The company does not make any pension arrangements or contributions for the directors. Benefits Mr WT Glencross is a member of the Group medical scheme. Service contracts It is the company’s policy that service contracts for the executive directors are for an indefinite period, terminable by either party with a maximum period of notice of 12 months. Any payments in lieu of notice should not exceed the director’s salary or fees for the unexpired term of the notice period.Within that policy, information relating to individual directors is scheduled below: Name of Director WO McIlroy (executive contract) WO McIlroy (director’s contract with employer) BJM Johnson (director’s contract) BJM Johnson (manager’s contract with employer) MT Carney (non-executive) NDJ O’Shea (non-executive) WT Glencross (non-executive) Date of service contract Date contract last amended 6 Feb 2003 16 Jan 2002 16 Jan 2002 Notice period 12 months 12 months 12 months 16 Jan 2002 20 Mar 2003 12 months 29 Nov 1999 1 Jan 2002 5 Jul 2001 31 Jul 2005 1 Sep 2006 None None None Group Financial Statements 2010 19 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 20 Creightons Plc Directors’ remuneration report Non-executive directors The remuneration for non-executive directors is determined by the executive chairman. Non-executive directors may not be granted share options nor participate in any performance bonus, and are not eligible for pension contributions. Performance graph The following graph shows the company’s performance, measured by total shareholder return, compared with the FTSE All-Share index. Creightons Plc – Total Shareholder Return compared to FTSE All-Share Index 6.00 5.00 4.00 3.00 2.00 1.00 0.00 p / e c i r P e r a h S c l P s n o t h g i e r C 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 x e d n I e r a h S - l l A E S T F 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 Creightons Plc Share price – pence FTSE All-Share Index The market price at 31 March 2010 was 2p. 20 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 21 Directors’ remuneration report Creightons Plc Audited Information Directors’ emoluments WO McIlroy MT Carney BJM Johnson NDJ O’Shea WT Glencross Total Share options WO McIlroy BJM Johnson WT Glencross Salaries/Fees £000 Bonus £000 Benefits £000 Total 2010 £000 Total 2009 £000 – 8 88 10 12 118 20 – 20 – – 40 – – – – 1 1 20 8 108 10 13 159 43 8 111 10 13 185 At 31 March 2010 At 31 March 2009 Exercise Date from price which exercisable Expiry Date 1,628,275 1,628,275 300,000 1,628,275 1,628,275 300,000 2.75p 2.75p 2.75p 9 January 2007 9 January 2007 9 January 2007 8 January 2011 8 January 2011 8 January 2011 Pension entitlements No pension contributions are made in respect of directors. Approval This report was approved by the Board of Directors on 22 July 2010 and signed on its behalf by: Nicholas O’Shea Company Secretary Remuneration Committee Group Financial Statements 2010 21 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 22 Creightons Plc Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements.The directors are required to prepare financial statements for the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and have also elected to prepare financial statements for the company in accordance with IFRS. Company law requires the directors to prepare such financial statements in accordance with IFRS, the Companies Act 2006 and Article 4 of the IAS Regulation. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company for that period. International Accounting Standard 1 requires that the financial statements present fairly for each financial year the company’s financial position, financial performance and cash flows.This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standard Board’s Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards.The directors are also required to: • • • properly select then apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosure when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the group’s financial position and financial performance; and • make an assessment of the company’s ability to continue as a going concern. The directors are responsible for maintaining proper accounting records that disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006.They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ responsibility statement pursuant to DTR4 (Periodic Financial Reporting) • The Group and Company financial statements in this report have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, IFRIC interpretations, Companies Act 2006 applicable to companies reporting under IFRS and give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation; and • The contents of this report include a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face. 22 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 23 Independent Auditor’s Report to the members of Creightons Plc Creightons Plc We have audited the financial statements of Creightons plc for the year ended 31 March 2010 which comprise the consolidated income statement, consolidated statement of comprehensive income, the consolidated and parent company balance sheets, and consolidated and parent company statements of changes in equity, the consolidated and company cash flow statements 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 auditors’ 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, 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 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 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. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2010 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. Group Financial Statements 2010 23 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 24 Creightons Plc Independent Auditor’s Report to the members of Creightons Plc Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and 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 where: The Companies Act 2006 requires us 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. Under the Listing Rules we are required to review: • • the directors’ statement in relation to going concern; and the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of June 2008 Combined Code specified for our review. STEPHEN CORRALL (Senior Statutory Auditor) for and on behalf of CHANTREY VELLACOTT DFK LLP Chartered Accountants and Statutory Auditor London 22 July 2010 24 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 25 Consolidated income statement for the year ended 31 March 2010 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit Investment revenue Finance costs Profit before tax Income tax expense Profit for the period from continuing operations Earnings per share Basic Diluted Creightons Plc Note 4 5 7 8 9 Year ended Year ended 31 March 2010 £000 31 March 2009 £000 13,590 (7,837) 5,753 (511) 15,155 (8,994) 6,161 (518) (4,908) (5,180) 334 – (31) 303 – 303 463 12 (97) 378 – 378 10 10 0.56p 0.51p 0.70p 0.63p The company has elected to take exemption under S408 of the Companies Act 2006 not to present the parent company’s income statement. The profit of the parent company was nil (2009 – nil). Consolidated statement of comprehensive income Profit for the period from continuing operations Exchange differences on translating foreign operations Gains on cash flow hedges taken to equity Release of cash flow hedge to income statement Total comprehensive income for the period attributable to the equity holders of the parent Year ended Year ended 31 March 2010 31 March 2009 £000 303 18 – (179) 142 £000 378 (76) 179 – 481 There are no movements to be recognised through the parent company statement of comprehensive income in 2010 or 2009. Group Financial Statements 2010 25 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 26 Creightons Plc Consolidated balance sheet at 31 March 2010 Non-current assets Goodwill Other intangible assets Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Derivative financial instruments Total assets Current liabilities Trade and other payables Obligations under finance leases Bank overdrafts and loans Net current assets Non-current liabilities Obligations under finance leases Total liabilities Net assets Equity Share capital Share premium account Other reserves Share-based payment reserve Retained earnings Hedging reserve Translation reserve Total equity attributable to the equity shareholders of the parent company Note 31 March 2010 £000 31 March 2009 £000 11 12 13 15 16 17 19 20 21 20 22 23 24 331 154 394 879 2,770 2,013 49 – 4,832 5,711 1,822 16 216 2,054 2,778 7 2,061 3,650 543 1,229 38 69 331 112 435 878 2,550 1,537 194 191 4,472 5,350 1,576 14 234 1,824 2,648 24 1,848 3,502 543 1,229 38 63 1,824 1,521 – (53) 179 (71) 3,650 3,502 These financial statements were approved by the board of directors and authorised for issue on 22 July 2010. They were signed on its behalf by: Nicholas O’Shea Director Company registration number 1227964 26 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 27 Company balance sheet at 31 March 2010 Non-current assets Investment in subsidiaries Current assets Trade and other receivables Total assets Current liabilities Trade and other payables Net current assets Total liabilities Net assets Equity Share capital Share premium account Capital redemption reserve Special reserve Share-based payment reserve Retained earnings Total equity attributable to the equity shareholders of the parent company Creightons Plc Note 14 16 19 22 23 23 23 24 23 31 March 2010 £000 31 March 2009 £000 60 60 2,031 2,031 2,091 35 35 1,996 35 2,056 543 1,229 18 1,441 69 60 60 2,025 2,025 2,085 35 35 1,990 35 2,050 543 1,229 18 1,441 63 (1,244) (1,244) 2,056 2,050 These financial statements were approved by the board of directors and authorised for issue on 22 July 2010. They were signed on its behalf by: Nicholas O’Shea Director Company registration number 1227964 Group Financial Statements 2010 27 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 28 Creightons Plc Consolidated statement of changes in equity for the year ended 31 March 2010 At 1 April 2008 Gain on cash flow hedges Exchange differences on translation of foreign operations Additional provision Net profit for the year Share capital £000 543 Share premium account £000 1,229 – – – – – – – – Other Share-based reserves (note 23) £000 38 – – – – payment Hedging Translation reserve £000 56 – – 7 – reserve £000 – 179 – – – reserve £000 5 – (76) – – Retained earnings £000 Total equity £000 1,143 3,014 – – – 378 179 (76) 7 378 At 31 March 2009 543 1,229 38 63 179 (71) 1,521 3,502 Release of cash flow hedge to income statement Exchange differences on translation of foreign operations Additional provision Net profit for the year – – – – – – – – – – – – – – 6 – At 31 March 2010 543 1,229 38 69 (179) – – – – – 18 – – – – – 303 (179) 18 6 303 (53) 1,824 3,650 Company statement of changes in equity At 1 April 2008 Additional provision At 31 March 2009 Additional provision At 31 March 2010 28 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Share Capital premium redemption Share capital £000 543 – account £000 1,229 – 543 1,229 – – 543 1,229 reserve £000 18 – 18 – 18 Special reserve (note 23) £000 1,441 – 1,441 – 1,441 Share-based payment reserve £000 56 7 63 6 69 Retained earnings £000 Total equity £000 (1,244) 2,043 – 7 (1,244) 2,050 – 6 (1,244) 2,056 Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 29 Consolidated cash flow statement for the year ended 31 March 2010 Net cash inflow from operating activities Cash flow from investing activities Purchase of property, plant and equipment Expenditure on intangible assets Net cash used in investing activities Cash flow from financing activities Repayment of finance lease obligations Decrease in bank loans Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start of period Effect of foreign exchange rate changes Cash and cash equivalents at end of period Creightons Plc Note 29 Year ended Year ended 31 March 2010 31 March 2009 £000 151 (77) (182) (259) (15) (18) (33) (141) 194 (4) 49 £000 1,438 (69) (125) (194) (14) (1,115) (1,129) 115 79 – 194 The Company cash flow statement is not disclosed as there were no cash movements in the two years ended 31 March 2010. Group Financial Statements 2010 29 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 30 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 1 General information Creightons Plc (the Company) was incorporated on 29 September 1975 in England; it is a public company, quoted on the London Stock Exchange and domiciled in the United Kingdom. These Financial Statements are presented in pounds sterling because that is the currency of the primary economic environment in which the group operates. Foreign operations are included in accordance with the policies set out in note 2. 2 Accounting policies Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards adopted for use in the European Union and therefore comply with Article 4 of the IAS regulation, and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have also been prepared on the historical cost basis, except for the revaluation of financial instruments.The principal accounting policies adopted are set out below.These policies have been applied consistently to all years presented unless otherwise stated. Initial application of new IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations effective for current reporting period or any amendments to such standards have been reflected in these financial statements. Application of these did not have a material impact on the financial statements and did not require a change in any significant accounting policies. At the date of authorisation of the financial information there were Standards and Interpretations, which have not been applied in the financial information, that were in issue but not yet effective.The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the group or company, except for additional disclosures when the relevant Standards and Interpretations come into effect. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries), made up to the 31 March each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated comprehensive income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. A separate income statement for the Company has not been presented as permitted by section 408 of the Companies Act 2006. 30 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 31 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 2 Accounting policies (continued) Goodwill Goodwill on consolidation represents the excess of the purchase price over the fair value of the identifiable assets and liabilities of a business acquired at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is tested at least annually for impairment and is carried at cost less accumulated impairment losses. Any impairment is recognised immediately in the income statement and is not subsequently reversed. No amortisation is charged. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is first allocated to reduce the carrying amount of the goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis of the carrying amount of each asset in the unit. On disposal of an acquired business the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts,VAT and other sales related taxes. Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable. Dividend income from investments is recognised when shareholder’s rights to receive payment has been established. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at the fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease.The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Rentals under operating leases are charged against income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into operating leases are spread on a straight-line basis over the term of the lease. Group Financial Statements 2010 31 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 32 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 2 Accounting policies (continued) Foreign currencies The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of consolidated financial statements, the results and financial position of each group company are presented in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates ruling at the balance sheet date. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement in the period they arise, except when deferred in equity as qualifying cash flow hedges. For the purposes of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and recognised in the group’s foreign currency translation reserve. Such translation differences are recognised as income or as an expense in the period in which the operation is disposed of. In order to hedge its exposure to certain foreign exchange risks the Group enters into forward exchange contracts and options – see below for the Group’s accounting policies in respect of such derivative financial instruments. Operating profit Operating profit is stated after charging any restructuring costs and other exceptional items but before investment income and finance costs. Retirement benefit costs The Group companies contribute to a defined contribution retirement benefit scheme. Payments to the defined contribution retirement benefit scheme are charged as an expense as they fall due. Payments to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. 32 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 33 Notes to the financial statements for the year ended 31 March 2010 Creightons Plc 2 Accounting policies (continued) Taxation The tax expense represents the sum of tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year.Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items of income or expenditure that are never taxable or allowable.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, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all 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 timing differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither taxable profit nor accounting profit. Deferred tax is calculated using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and that are expected to apply in the period when the liability is settled or the asset is realised. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of the assets over their estimated useful lives using the straight line method on the following basis: Plant and equipment Fixtures and fittings Computers % per annum 10-20 10-33 25-33 Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. The gain or loss arising on the disposal or retirement 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. Group Financial Statements 2010 33 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 34 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 2 Accounting policies (continued) Research and Development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated intangible asset arising from the Group’s product development is recognised only if the following conditions are met: • • • an asset is created that can be identified with a specific product or range of products; it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably. Internally generated intangible assets are amortised on a straight-line basis over their useful lives.Where no internally generated intangible assets can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Other intangible assets Other intangible assets are carried at cost less accumulated amortisation and accumulated annual impairment. Amortisation begins when an asset is available for use and is calculated on a straight-line basis over their estimated useful lives as follows: Acquired licences Computer software – Over three years – Over three to five years Impairment of assets (excluding goodwill) At each reporting date, the Group assesses whether there is any indication that an asset may be impaired.Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount. Recoverable amount is the higher of the fair value less cost to sell and value in use and is determined for an individual asset. If the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, the recoverable amount of the cash generating unit to which the asset belongs is determined. Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation. Investments Investments in subsidiary companies are stated at cost less any provision for impairment. Inventories Inventories are stated at the lower of cost or net realisable value.The standard cost comprises direct materials and where applicable direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. 34 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 35 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 2 Accounting policies (continued) Trade receivables Trade receivables are initially recognised at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired.The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to insignificant risk of change of value. Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortisation cost, using the effective interest rate method. Derivative financial instruments The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates. The Group uses foreign exchange forward contracts to hedge against foreign exchange rate risk.The Group does not use derivative financial instruments for speculative purposes. Further details of derivative financial instruments are disclosed in note 18 to the financial statements. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each balance sheet date.The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends upon the nature of the hedge relationship.The group designates certain derivatives as either hedges of the fair value of the recognised assets or liabilities or firm commitments (fair value hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investment in foreign operations. A derivative is presented as a non-current asset or non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are treated as current assets or liabilities. Hedge accounting The Group designates certain hedging instruments, which include derivatives and non-derivatives in respect of foreign currency risks as either fair value hedges or cash flow hedges. Hedges of foreign exchange on firm commitments are accounted for as cash flow hedges. At the inception of the hedge relationship, the entity documents the hedge relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. Note 18 sets out details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are also detailed in the consolidated statement of changes in equity. Group Financial Statements 2010 35 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 36 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 2 Accounting policies (continued) Fair value hedges Changes in the fair value of derivatives that are designed and qualify as fair value hedges are recorded in income statement immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk.The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line in the income statement relating to the hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or no longer qualifies for hedge accounting.The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to income statement from that date. Cash flow hedge The effective portion of change in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred and recognised in equity.The gain or loss relating to the ineffective portion is recognised immediately in income statement, and is included in the ‘other gains or losses’ line of the income statement. Amounts deferred in equity are recycled in income statement in the period when the hedged item is recognised in income, in the same line of the income statement as the recognised hedged item. However when the forecast transaction that is hedged results in recognition of a non-financial asset or non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement.When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in income statement. Share based payments The Group issues equity-settled share based payment to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant.The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is calculated using the Black-Scholes model.The expected life used in the model has been adjusted, based on management’s best estimate, for the non-transferability, exercise restrictions and behavioural considerations. 36 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 37 Notes to the financial statements for the year ended 31 March 2010 Creightons Plc 3 Critical accounting judgements and sources of estimation uncertainty Critical judgements in applying the group’s accounting policies In the process of applying the Group’s accounting policies, which are described in note 2, management have made the following judgements that have the most significant effect on the amounts recognised in the financial statements. Corporation tax A judgement is required in determining the provision for Corporation tax.There are some calculations for which the ultimate tax determination is uncertain in the ordinary course of business.The group recognises tax liabilities on the best estimate of whether tax liabilities will be due.Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income and deferred tax provisions in the period in which such determination is made. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating unit to which goodwill is allocated.The value in use requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate to calculate the present value. No impairment provision was considered necessary against this carrying value. Impairment of product development costs Management review the recoverability of capitalised product development costs throughout the year and will charge amortisation to reflect any impairment arising from a reduction in the anticipated lifecycle of the products. At the balance sheet date all products were considered to have product lifecycles which were in line with the accounting policies noted in 2 above. Provisions As described in the accounting policies in note 2 above the Group assesses provisions as the Directors’ best estimate of the expenditure required to settle obligations at the balance sheet date.These estimates are made taking account of information available and different possible outcomes. Estimates relating to the net realisable value of inventories and recoverability of trade debtors are areas where the Directors’ best estimates have been applied in the current financial year. 4 Business and geographic segments For management purposes the Group is organised into one operating division which operates in one business segment.The Group has commenced trading in North America in May 2007.The level of activity in this market is below the quantitative thresholds under IFRS 8 and therefore no geographic segmental information is presented in these financial statements. Group Financial Statements 2010 37 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 38 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 5 Operating profit Net foreign exchange profit Cost of inventories recognised as expense Write downs of inventories recognised as an expense Research and development costs Depreciation of property plant and equipment – owned assets – leased assets Amortisation of intangible assets Staff costs Auditor’s remuneration for audit services Operating lease rental expense – Land & buildings – Other The analysis of auditor’s remuneration is as follows: Audit services Fees payable to the company’s auditor for the audit of the parent company and the group financial statements Fees payable to the company’s auditor for other services: The audit of the company’s subsidiaries, pursuant to legislation Tax services Other services 38 Group Financial Statements 2010 Year ended Year ended 31 March 2010 31 March 2009 £000 115 £000 53 8,057 8,996 161 210 106 12 140 3,647 27 350 35 153 202 117 12 76 3,677 30 350 31 Year ended Year ended 31 March 2010 31 March 2009 £000 £000 21 5 1 – 21 5 1 3 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 39 Notes to the financial statements for the year ended 31 March 2010 6 Staff costs The average number of employees (including directors) was: Management Administration Production Total Their aggregate remuneration comprised: Wages and salaries Social security costs Pension contributions Total Details of directors’ emoluments are set out in the directors’ remuneration report. 7 Investment revenue Fair value gains and interest differentials on derivatives 8 Finance costs Interest on bank overdrafts and loans Interest on obligations under finance leases Total 9 Tax Current tax Deferred tax Total Creightons Plc Year ended Year ended 31 March 2010 31 March 2009 Number Number 8 41 101 150 8 40 101 149 Year ended Year ended 31 March 2010 31 March 2009 £000 3,328 295 24 £000 3,349 303 25 3,647 3,677 Year ended Year ended 31 March 2010 31 March 2009 £000 – £000 12 Year ended Year ended 31 March 2010 31 March 2009 £000 £000 29 2 31 93 4 97 Year ended Year ended 31 March 2010 31 March 2009 £000 £000 – – – – – – Group Financial Statements 2010 39 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 40 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 9 Tax (continued) The charge for the year can be reconciled to the profit per the income statement as follows: Profit before tax Tax charge at the UK corporation tax rate of 28% (2009 – 28%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of utilisation of brought forward tax losses Total expense and effective rate for the year Year ended Year ended Year ended Year ended 31 March 2010 31 March 2010 31 March 2009 31 March 2009 £000 303 % – £000 378 % – (85) (28.0) (106) (28.0) (2) 87 – (0.7) 28.7 – (2) 108 – (0.5) 28.5 – There is no charge to deferred tax for the group or the company. At the balance sheet date, the Group has unused tax losses of £2,977,000 (2009 – £3,325,000) available for offset against future profits. No deferred tax asset has been recognised in respect of these losses due to the unpredictability of future profit streams. All losses may be carried forward indefinitely and utilised against profits of the same trade. 10 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Earnings Net profit attributable to the equity holders of the parent company 303 378 Year ended Year ended 31 March 2010 £000 31 March 2009 £000 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares relating to share options Weighted average number of ordinary shares for the purposes of diluted earnings per share Year ended Year ended 31 March 2010 31 March 2009 Number Number 54,275,876 54,275,876 5,426,550 5,426,550 59,702,426 59,702,426 40 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 41 Notes to the financial statements for the year ended 31 March 2010 11 Goodwill Cost At 1 April 2008, 31 March 2009 and at 31 March 2010 Accumulated impairment losses At 1 April 2008, 31 March 2009 and at 31 March 2010 Carrying Amount At 1 April 2008, 31 March 2009 and at 31 March 2010 Creightons Plc Year ended 31 March 2010 £000 364 33 331 Goodwill relates to the Potter & Moore business acquired in March 2003. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amount is determined from a value in use calculation.The key assumptions used for the value in use calculation are the discount rate, sales and margin projections, expected changes in direct and indirect costs during the five year forecast, a growth rate of 0% and a discount rate of 6.0%. No reasonably possible change in these assumptions would give rise to impairment. The growth rates are based on the average growth rate experienced by the cash generating unit which is in line with historical growth rates for the business sector.The pre-tax discount rate is based upon the group’s weighted average cost of capital adjusted for specific risks relating to the sector and country, as this is believed to be the most appropriate to be used. No goodwill impairment charges arose during the current or prior year. Group Financial Statements 2010 41 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 42 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 Acquired computer software £000 Product development costs £000 17 25 – 42 23 – 65 17 3 – 20 10 – 30 – 22 35 135 100 (6) 229 159 (53) 335 72 73 (6) 139 130 (53) 216 63 90 119 Total £000 152 125 (6) 271 182 (53) 400 89 76 (6) 159 140 (53) 246 63 112 154 12 Other intangible assets Group Cost At 1 April 2008 Additions Disposals At 31 March 2009 Additions Disposals At 31 March 2010 Accumulated amortisation At 1 April 2008 Amortisation for the year Disposals At 31 March 2009 Amortisation for the year Disposals At 31 March 2010 Carrying value At 1 April 2008 At 31 March 2009 At 31 March 2010 42 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 43 Notes to the financial statements for the year ended 31 March 2010 13 Property, plant and equipment Group Cost At 1 April 2008 Additions At 31 March 2009 Additions At 31 March 2010 Accumulated depreciation At 1 April 2008 Depreciation for the year At 31 March 2009 Depreciation for the year At 31 March 2010 Carrying value At 1 April 2008 At 31 March 2009 At 31 March 2010 Creightons Plc Property, plant and equipment £000 1,665 69 1,734 77 1,811 1,170 129 1,299 118 1,417 495 435 394 Included within plant and equipment are assets held under finance leases with a carrying value of £49,000 (2009 – £61,000) on which depreciation of £12,000 (2009 – £12,000) has been charged during the year. At 31 March 2010 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to nil (2009 – £4,000). Group Financial Statements 2010 43 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 44 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 14 Investments in subsidiaries Details of the Company’s subsidiaries at 31 March 2010 are as follows: Name Potter & Moore Innovations Limited Potter and Moore International Inc The Real Shaving Company Limited The Natural Grooming Company Limited St James Perfumery Co Limited Ashworth & Claire Limited The Haircare Studio Limited The Hair Design Studio Limited The Sensual Secrets Company Limited Creightons Naturally Limited Proportion of ownership Place of incorporation interest and voting and operation power held England United States of America England England England England England England England England 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% The activity of Potter & Moore Innovations Ltd is the creation and manufacture of toiletries and fragrances. The activity of Potter and Moore International Inc is the distribution of personal care products. All other subsidiaries were dormant throughout the years ended 31 March 2010 and 31 March 2009. 15 Inventories Raw materials Work in progress Finished goods Group Company 2010 £000 837 191 1,742 2,770 2009 £000 1,107 120 1,323 2,550 2010 £000 2009 £000 – – – – – – – – Inventories with a carrying value of £2,770,000 (2009 – £2,550,000) have been pledged as security for the Group’s bank overdrafts. Management believe that net realisable value approximates to fair value. 44 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 45 Notes to the financial statements for the year ended 31 March 2010 16 Trade and other receivables Trade receivables Amounts receivable from subsidiaries Prepayments and other receivables Creightons Plc Group Company 2010 £000 1,940 – 73 2009 £000 1,397 – 140 2010 £000 – 2,031 – 2,013 1,537 2,031 2009 £000 – 2,025 – 2,025 Trade receivables have been pledged as security for the Group’s borrowings under invoice finance facilities and the Group’s bank overdrafts. The carrying value of trade and other receivables represents their fair value. Trade receivables have been reported in the balance sheet net of provisions as follows: Trade receivables Less impairment provision Group Company 2010 £000 1,976 (36) 1,940 2009 £000 1,409 (12) 1,397 2010 £000 – – – The movement in the trade receivables impairment provision is as follows: At 1 April Charge in current year income statement At 31 March Group Company 2010 £000 12 24 36 2009 £000 – 12 12 2010 £000 – – – 2009 £000 – – – 2009 £000 – – – There were £75,000 trade receivables that were overdue at the balance sheet dates that have not been provided against.There are no indications as at 31 March 2010 that the debtors will not meet their payment obligations in respect of the amount of trade receivables recognised in the balance sheet that are overdue and not provided. The proportion of trade receivables at 31 March 2010 that were overdue for payment was 3.9%. Group Financial Statements 2010 45 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 46 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 17 Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short term bank deposits with an original maturity rate of three months or less.The carrying amounts of these assets approximates to their fair value. An analysis of the amounts at the year end is as follows: Cash at bank and in hand Sterling equivalent of deposit denominated in US dollars Group Company 2010 £000 25 24 49 2009 £000 2 192 194 2010 £000 – – – 2009 £000 – – – 18 Financial instruments and treasury risk management Exposures to credit, interest and currency risks arise in the normal course of the Group’s business. Risk management policies and hedging activities are outlined below. Derivative financial instruments were used to hedge exposure to significant foreign exchange fluctuations in accordance with the Groups’ policies which are set out in the accounting policies in note 2. Credit risk Trading exposures are monitored by the operational companies against agreed policy levels. Credit insurance is employed where it is considered to be cost effective. Non-trading financial exposures are incurred only with the Group’s bankers or other institutions with prior approval of the Board of Directors. The majority of trade receivables in the UK and North America is with retail customers.The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet. Impairment provisions on trade receivables have been disclosed in note 16. Interest rate risk The Group finances its operations through a mixture of debt associated with working capital facilities and equity. The Group is exposed to changes in interest rates on its floating rate working capital facilities.The variability and scale of these facilities is such that the Group does not consider it cost effective to hedge against this risk. Interest rate sensitivity The interest rate sensitivity is based upon the Group’s weighted average borrowings over the year assuming a 1% increase or decrease which is used when reporting interest rate risk internally to key management personnel. If interest rates had been 1% higher/lower and all other variables were held constant, the Group’s profit for the year ended 31 March 2010 would increase/decrease by £11,000 (2009 – £14,600).The Group’s sensitivity to interest rates has reduced during the current year mainly due to the reduction in the average working capital facilities used in the year. 46 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 47 Notes to the financial statements for the year ended 31 March 2010 Creightons Plc 18 Financial instruments and treasury risk management (continued) Foreign currency risks The Group is exposed to foreign currency transaction and translation risks. Transaction risk arises on sales and purchases in currencies other than the functional currency of each Group Company.The magnitude of this risk is relatively low as the majority of the Group’s purchases and sales are denominated in the functional currency. Approximately 5% of the Groups sales are denominated in US dollars and 2% in Euros. Approximately 13% of the group’s purchases are denominated in dollars and 2% denominated in Euros. Foreign currency sensitivity A 5% strengthening of Sterling would result in a £51,000 (2009 – £54,000) increase profits and equity. A 5% weakening in Sterling would result in a £56,000 (2009 – £60,000) decrease in profits and equity. When appropriate the Group utilises currency derivatives to hedge against significant future transactions and cash flows.The Group is not party to foreign currency forward contracts in the management of its exchange risk exposure at 31 March 2010.The instruments purchased are in the currency used by the Group’s principal overseas suppliers. Current assets Derivatives that are designated and effective as hedging instruments carried at fair value. Forward foreign currency contracts Group Company 2010 £000 – – 2009 £000 191 191 2010 £000 2009 £000 – – – – As at 31 March 2010, the aggregate amount of unrealised gains under forward exchange contracts deferred in the hedging reserve relating to these anticipated foreign exchange is nil (2009 – £179,000).The prior year purchases took place during the first nine months of the next financial year at which stage the amount deferred in equity were included in the carrying amount of the raw materials.The raw materials were converted into inventory and sold within 12 months after purchase at which stage the amount deferred in equity impacted profit or loss. Liquidity risk The Group has no long term borrowing requirements and manages its working capital requirements through overdrafts and invoice finance facilities.These facilities are due to be renewed in March 2011.The maturity profile of the committed bank facilities is reviewed regularly and such facilities are extended or replaced well in advance of their expiry.The Group has complied with all of the terms of these facilities. At 31 March 2010 the group had available £2,063,000 (2009 – £1,557,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. Group Financial Statements 2010 47 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 48 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 19 Trade and other payables Trade payables Social security and other taxes Accrued expenses Amounts payable to subsidiary undertakings 20 Obligations under finance leases Group Amounts payable under finance leases Within one year Between two to five years Total minimum lease payments Group Company 2010 £000 1,032 350 440 – 2009 £000 1,059 254 263 – 1,822 1,576 2010 £000 – – – 35 35 2009 £000 – – – 35 35 Minimum Lease payments 2010 £000 16 7 23 2009 £000 14 24 38 All lease obligations are denominated in Sterling and the fair value of the Group’s lease obligations approximate to their carrying value. The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets. 21 Bank overdrafts and loans Borrowings under invoice finance facilities The borrowings are repayable as follows: On demand or within one year 2010 £000 216 216 2010 £000 216 216 Group Company 2009 £000 234 234 2010 £000 – – Group Company 2009 £000 234 234 2010 £000 – – 2009 £000 – – 2009 £000 – – All borrowings are denominated in Sterling.The directors estimate that the fair value of the Group’s borrowings approximates to the carrying value. 48 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 49 Notes to the financial statements for the year ended 31 March 2010 21 Bank overdrafts and loans (continued) The weighted interest rates paid were as follows: Bank overdrafts Borrowings under invoice finance facilities Other loans Creightons Plc 2010 % 3.2 2.7 n/a Group 2009 % 6.3 5.4 6.4 Company 2010 2009 % – – – % – – – The bank overdraft is secured by fixed and floating charges over all the assets of the company and its subsidiaries. The invoice finance facility is secured on the trade receivables and a floating charge on all of the assets of the Group. 22 Share capital Authorised Issued and fully paid Ordinary shares of 1p each 2010 2009 £000 Number £000 Number 1,223 122,346,000 1,223 122,346,000 543 54,275,876 543 54,275,876 The Company has one class of ordinary shares which carry no right to fixed income. 23 Other reserves Group At 1 April 2008 Additional provision Net profit for the year At 31 March 2009 Additional provision Net profit for the year At 31 March 2010 Capital reserve £000 Special reserve £000 Capital redemption reserve £000 Total other reserves £000 7 – – 7 – – 7 13 – – 13 – – 13 18 – – 18 – – 18 38 – – 38 – – 38 The Company obtained a court ruling dated 19 March 1997 under which the reduction in share premium was credited to a special reserve.The special reserve was first used to write off the deficit on the company profit and loss account and then to write off the goodwill arising on the acquisition of Crestol Limited to the Group profit and loss account. At 31 March 2010 goodwill written off amounts to £2,575,000 (2009 – £2,575,000). Group Financial Statements 2010 49 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 50 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 23 Other reserves (continued) Under the court ruling, the special reserve may be used to write-off goodwill on any further acquisition.To the extent that there shall remain any sum standing to the credit of the reserve, it shall be treated as unrealised profit and as a non-distributable reserve, until such time as the creditors existing at the date of the ruling have been satisfied or consent to its distribution. 24 Share-based payments The Company has a share option scheme which is open to any employee of the Group. Options granted under the scheme are for nil consideration and are exercisable at a price equal to the quoted market price of the Company’s shares on the date of the grant.The vesting period is 3 years. If the options remain unexercised after a period of 7 years from the date of grant, the option expires. Options are forfeited if the employee leaves the group before options vest. Ordinary shares of 1p each 2010 2009 Weighted average Weighted average Number exercise price Number exercise price Outstanding at the beginning of the period 5,426,550 2.52p 5,426,550 Granted in the period Forfeited in the period – – – – 1,070,000 (1,070,000) Outstanding at the end of the period 5,426,550 2.52p 5,426,550 2.75p 1.38p 4.52p 2.52p Out of the 5,426,550 outstanding options, 4,356,550 options were exercisable. Share options outstanding at the end of the year have the following expiry dates and exercise prices: Granted January 2004 January 2007 December 2008 Outstanding at the end of the period Exercise period Number Exercise price 2007 – 2011 4,256,550 2010 – 2014 100,000 2011 – 2015 1,070,000 5,426,550 2.75p 4.75p 1.38p The share options granted during each period have been valued using a Black-Scholes model.The inputs to the Black-Scholes model are as follows: Weighted average share price (pence) Weighted average exercise price (pence) Expected volatility (%) Expected life (years) Risk free rate (%) Expected dividends (pence) 50 Group Financial Statements 2010 Year ended 31 March 2010 Year ended 31 March 2009 1.23p – 4.54p 1.23p – 4.54p 2.52p 2.52p 45.9% – 122.9% 45.9% – 122.9% 3 5.8% – 3 5.8% – Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 51 Notes to the financial statements for the year ended 31 March 2010 Creightons Plc 24 Share-based payments (continued) Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous year.The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The Group recognised total expenses of £6,000 (2009 – £7,000) related to share based payments. No options were issued during the year ended 31 March 2010. 25 Retirement benefit scheme The Group operates a defined contribution scheme for certain employees.The assets of the scheme are held separately from the Group.The charge in the consolidated income statement in the year was £24,000 (2009 – £25,000) and cash contributions were £14,000 (2009 – £25,000). 26 Operating lease arrangements The Group leases property, plant and equipment under non-cancellable operating lease agreements.These leases have varying terms, escalation clauses and renewal rights. Group Company Year ended Year ended Year ended Year ended 31 March 2010 31 March 2009 31 March 2010 31 March 2009 £000 £000 £000 £000 Minimum lease payments under operating leases recognised as an expense in the year 385 381 – – An analysis of the total minimum lease payments under operating leases is set out below: Group Company Within one year In the second to fifth year inclusive After five years Total 27 Capital commitments Contracts placed for future capital expenditure not provided for in the financial statements 2010 £000 385 1,438 2,095 3,918 2010 £000 – Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report 2010 £000 2009 £000 2009 £000 386 1,473 2,443 4,302 – – – – Group Company 2009 £000 4 2010 £000 – – – – – 2009 £000 – Group Financial Statements 2010 51 Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 52 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 28 Related party transactions Transactions between the parent company and its subsidiary During the year the company entered into the following transactions with its subsidiaries: Charges for management services The amounts owed by and to subsidiary companies are: Amounts receivable from subsidiary undertakings Amounts payable to subsidiary undertakings Oratorio Developments Limited Year ended Year ended 31 March 2010 31 March 2009 £000 6 £000 7 Year ended Year ended 31 March 2010 31 March 2009 £000 2,031 (35) £000 2,025 (35) On 24 July 2006 Oratorio Developments Limited, a company of which Mr McIlroy is a director and controlling shareholder, acquired the premises occupied by Potter & Moore Innovations Limited.The following amounts were charged under the terms of the lease: Rental charges Re-imbursement of property insurance costs Re-imbursement of utility charges. Total Amounts owed to Oratorio Developments Ltd Amounts payable Year ended Year ended 31 March 2010 31 March 2009 £000 350 12 2 364 £000 350 8 29 387 Year ended Year ended 31 March 2010 31 March 2009 £000 99 £000 16 52 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 53 Notes to the financial statements for the year ended 31 March 2010 Creightons Plc 28 Related party transactions (continued) Remuneration of key management personnel The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24, ‘Related Party Disclosure’. Further information about the remuneration of individual directors is provided in the audited part of the Directors’ Remuneration Report on pages 18 to 21. Salaries and other short term benefits Total 29 Notes to cash flow statement Group Profit from operations Adjustments for: Depreciation on property, plant and equipment Amortisation of intangible assets Share based payment charge Other non cash items (Increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase in trade and other payables Cash generated from operations Interest paid Cash inflow from operational activity Year ended Year ended 31 March 2010 31 March 2009 £000 159 159 £000 185 185 Year ended Year ended 31 March 2010 31 March 2009 £000 334 118 140 6 12 610 (224) (483) 279 182 (31) 151 £000 463 129 76 7 (88) 587 357 528 63 1,535 (97) 1,438 Cash and cash equivalents (which are presented as a single asset on the face of the balance sheet) comprise cash at bank and in hand. Group Financial Statements 2010 53 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: 4319 Creightons A&R Text:4319 Creightons A&R Text 29/7/10 14:24 Page 54 Creightons Plc Notes to the financial statements for the year ended 31 March 2010 29 Notes to cash flow statement (continued) Company Loss from operations Adjustments for: Share based payment charge Increase in trade and other receivables Cash outflow Year ended Year ended 31 March 2010 31 March 2009 £000 £000 – 6 6 (6) – – 7 7 (7) – Cash and cash equivalents (which are presented as a single asset on the face of the balance sheet) comprise cash at bank and in hand. 54 Group Financial Statements 2010 Job No.: Customer: 4319 Creightons Proof Event: Project Title: 6 Annual Report Park Communications Ltd T: 020 7055 6500 Alpine Way London E6 6LA 020 7055 6600 F: NB : PINK DOTTED LINE DOES NOT PRINT. 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