Cello

Gro

up p

lc Annual Rep

ort 2009

Annual ReportYear Ended 31 December 2009

Cello Group plc11-13 Charterhouse BuildingsLondon EC1M 7APtel: +44 (0)20 7812 8460www.cellogroup.co.uk

Company Registration No. 05120150

Page

Financial Highlights 1

Positioning and Strategy 2-3

Chairman’s Statement 4-9

Cello Research and Consulting 10-11

Tangible Group 12-13

Directors’ Report 14-17

Corporate Governance 18-19

Report of the Remuneration Committee 20-22

Independent Auditors’ Report 23

Consolidated Income Statement 24-25

Consolidated Statement of Comprehensive Income 25

Consolidated Balance Sheet 26

Consolidated Cash Flow Statement 27

Consolidated Statement of Changes in Equity 28

Consolidated Financial Statements – Accounting Policies 29-34

Notes to the Consolidated Financial Statements 35-68

Company Balance Sheet 69

Company Financial Statements – Accounting Policies 70

Notes to the Company Financial Statements 71-77

Notice of Annual General Meeting 78-83

Directors 84-85

Advisers 86

Group Directory 87-88

Contents

The Cello Annual Report 2009 is made from Naturalis Recycled Smooth paper, sourced from 50% FSC-certified recycled, 20% FSC virgin pulp and 30% mill broke. It is manufactured in Scotland.

1

Financial Highlights

• Like-for-like operating income £60.5m (2008: £65.4m)

• Research H2 2.6% growth

• Headline operating profit £5.9m (2008: £8.2m)

• Basic headline earnings per share 7.28p (2008: 13.08p)

• Full year dividend up 4% at 1.30p (2008: 1.25p)

• Strong cash management and generation held down net debt to £11.5m (2008: £9.9m), after cash earn out payments of £3.2m

• Banking facilities successfully renewed until 2013

• Solid second half performance in Research continues in 2010

• 6th largest UK research operation1 (2008: 9th) and 19th globally2 (2008: 21st)

• Good start to 2010 momentum in Q4 2009 continued into Q1 2010

• Robust pipelines of non-UK work in Research and Consulting

• Simon Dannatt appointed Managing Director, Cello USA

1source: Marketing Market Research Leagues September 20092source: Inside Research published August 2009

2

Against a very challenging backdrop in 2009,

Cello Group plc has continued to consolidate its

position in the specialist research and response

communications markets. Cello is now the 6th

largest research organisation domiciled in the

UK and the 19th largest globally. In Response we

remain number 6 in the UK. In both areas we

are the only business that is not part of a much

larger group.

Both research and response markets have

continued to evolve down the path of client sector

specialisation and Cello has benefitted from

structuring its offering along these lines. Healthcare

research and consulting has continued to develop

into our largest area of specialism, accounting

for approaching a third of our revenue. The

broader area of health in its various manifestations

accounts for a further 20% of our activities, and

has remained resilient during the downturn.

Cello’s business has been expanding most

rapidly in international markets, which account

for approaching half of our research revenues.

International revenue flows have shown resilience,

and pressure on gross margins in this area has

been more moderate than in domestic areas of

client activity. We are expanding our operations in

the US market, with a healthcare focus in particular,

and in due course will seek to grow our business in

Asia and the Far East.

The growing relevance of the internet to research

and response has continued unabated. We are

investing behind the growth of online research

communities, which are enjoying a rapid uptake

by clients, both in FMCG and healthcare markets.

Our Face brand has made particular headway in

this new evolving market under the banner of “co-

creation”. We continue to migrate our general data

collection capability online, as a complement to

our more traditional field force capability. Online

communications techniques are now core to the

daily activities of Tangible.

Our strategy as a Group remains to further

reinforce our positioning in research and response

during 2010 and beyond. In particular, we plan to

Positioning and Strategy

3

expand the international servicing capability of our

research business, with a focus on the US market

where we already have a profitable presence

in New York and San Francisco and a broad set

of client relationships, particularly in healthcare.

Asia is also a priority region for us where we have

strong client relationships on which we can readily

build. In the UK we continue to consolidate our

servicing capability so that we can compete more

effectively against our much larger rivals.

Operating Income by Industry Sector

Group Operating Board

Healthcare

5%

0

10%

15%

20%

25%

PublicSector

FinancialServices

Telecoms Leisure Charity Retail FMCG Food &Drink

Industrials Media Utilities Other

R & C 2009

R & C 2008

Tangible 2009

Tangible 2008

back row, L to R – John Rowley, Vincent Nolan, Richard Gilmore, Jane Shirley, Paul Walton, Stephen Highleyfront row, L to R – Andy Carolan, Mark Scott, Allan Rich, Mark Bentley, Owen Williams

4

Overview

2009 has been a demanding year for Cello with the

Group reporting headline operating profit of £5.9m

(2008: £8.2m) on operating income of £60.5m

(2008: £65.4m). However, the final quarter showed

clear signs of stabilisation and improving spend by

clients in the Group’s core areas of expertise.

The decline in income was not evenly spread

across the Group, nor across the year. A stronger

second half from Cello (Research) meant that

full year like-for-like income improved from the

half year decline of 10.4% to a full year decline

of 4.1% (H2 up by 2.6%). The rate of decline in

Tangible, the Group’s direct marketing arm also

improved slightly from 12.5% at the half year to a

full year decline of 11.7%.

These variations reflect the marked slowing in

H1 2009 of ad-hoc qualitative and quantitative

market research activity, which subsequently

recovered to more normal levels as clients

renewed their activity in the latter part of the year.

The rate of decline in certain parts of Tangible’s

business also slowed by year end.

As detailed in the interim results, the Group acted

rapidly to the market conditions by reducing

professional resource as well as property and

other administrative costs. Before discontinued

operations, the full year cost base for 2009 was

£4.3m lower than 2008 with a substantially

lower professional year end headcount of 760

(2008: 830). The Group has also taken action to

consolidate its property commitments and will exit

at least five leases over the next two years, reducing

annual property costs by a further £0.5m.

Cello continues to benefit from its client sector

focus and increasing orientation towards large

contracts. Performance remained particularly

strong in healthcare which now accounts for 38%

of operating income in Research (2008: 34%).

The fact that the top 20 Group clients remained

largely unchanged is a clear demonstration of the

Group’s ability to manage long term relationships.

They accounted for 38% of Cello’s total operating

income. At the same time the Group has achieved

significant new client wins.

In Cello (Research), the emphasis on international

activity has continued to yield good returns, with

overseas revenue now accounting for over 46%

of divisional revenue (2008: 42%). Overseas

revenue declined by 1.5%, at a significantly

slower rate of decline than UK domiciled income.

This has been achieved by continuing to target

multi-national client contracts which represent

higher growth opportunities outside the relatively

mature UK market.

Following continued strong operating cash

generation, net debt at year end was £11.5m

(2008: £9.9m) after £3.2m of earn out payments.

In March 2010, the Group secured new three year

debt facilities.

Financial Review

Total Group operating income was £60.5m

(2008: £65.4m). Headline profit before tax was

£5.1m (2008: £7.3m). The Group’s overall results

mask continued success in the core activities of

healthcare research, specialist FMCG research and

direct marketing. Within these areas, quantitative

research, where the Group has larger contract

sizes, has continued to prove particularly resilient.

The continued reduction in client activity in the

London-based financial services focused agency

and the business intelligence consulting business,

Chairman’s Statement

5

as well as weakness in parts of the charities activities

and in Tangible’s London communications market,

all impacted operating income. The Group headline

operating margin, before head office costs, was

12.4% (2008: 15.6%).

In all underperforming areas quick action was taken

to adjust the cost structure to an appropriate level,

resulting in an exceptional charge of £1.9m. This

charge relates to employee termination payments

and surplus space provisions. All of these were

deemed prudent actions to protect the medium

term profitability of the Group.

The net interest charge was £0.9m (2008: £0.9m).

The Group’s tax charge in the year was £0.2m

(2008: £1.0m). This reduction is as a result of

a decrease in headline operating profit; tax

deductible exceptional costs; deferred tax credits

occurring as a consequence of amortisation and

impairment of intangible assets, and recognition of

certain non-recurring tax credits from prior years.

Headline basic earnings per share were 7.28p

(2008: 13.08p) and headline fully diluted earnings

per share were 5.89p (2008: 8.41p). Fully diluted

earnings per share reflects the impact of the

anticipated future issuance of shares to vendors

of companies acquired by the Group under earn

out arrangements.

The Board is proposing a final dividend of 0.80p per

share, giving a total dividend per share for the year

ended 31 December 2009 of 1.30p (2008: 1.25p),

an increase of 4.0%. This dividend will be paid,

subject to shareholder approval, on 16 June 2010

to all shareholders on the register at 21 May 2010.

The Group’s net debt position at 31 December

2009 was £11.5m (2008: £9.9m), after earn out

payments of £3.2m. Operating cash flow of £5.2m

during the year represented an 87% conversion of

headline operating profit.

In March 2010, the Group renewed its banking

facility with The Royal Bank of Scotland. This new

66

facility consists of a £10.0m term loan and a

£7.0m Revolving Credit Facility. The facility expires

in March 2013. The multi-currency overdraft facility

of £2.0m was also renewed. Interest margin

is between 250pts and 325pts above LIBOR.

Increases in interest margins incurred under this

new facility are expected to be offset by ongoing

reduction in net debt through internally generated

cash during 2010 and beyond.

In April 2009, £7.8m of earn out liabilities were

settled, which is a very substantial part of the

Group’s outstanding earn out liabilities. These

were settled by £3.2m in cash and loan notes,

and £4.6m in shares issued at an average issue

price of 32.4p per share. Following a detailed

review of further liabilities, earn out commitments

now expected are £6.1m at 31 December 2009,

to be paid over the period from 2010 to 2013,

compared with £7.4m for the equivalent period

at 31 December 2008. The minimum cash or loan

note element of these liabilities is £2.8m. Shares

issued under these arrangements will be subject

to contractual trading lock-ins for up to three years

after their issue. The Board retains discretion to pay

a larger proportion of this in the form of loan notes

or cash.

Future earn out commitments including future

acquisition related employee expenses are

therefore expected to be as follows:

Year

Cash/Loan

notes

£m

Shares

£m

Total

£m

2010 1.4 1.1 2.5

2011 0.9 1.8 2.7

2012+ 0.5 0.4 0.9

Total 2.8 3.3 6.1

(continued)Chairman’s Statement

7

The Group incurs a number of non cash P&L

charges, detailed below. Deemed remuneration

of £0.2m (2008: £0.6m) and notional interest of

£0.1m (2008: £0.3m) have both dropped as a

large proportion of related earn outs have been

settled during the year. Impairment charges of

£8.4m, including £5.5m in the first half of the year,

relate to the write down in the carried balance sheet

value of Tangible Financial, SMT, TMI and Oomph

following their reduced performance in 2009, as

well as investment in a small research start-up which

failed to thrive.

2009

£’000

2008

£’000

Headline operating profit 5,943 8,168

Net interest payable (887) (891)

Headline profit before tax 5,056 7,277

Exceptional costs (1,949) (1,285)

Fair value gain/(loss) on

financial instruments

155 (444)

Deemed remuneration (163) (647)

Share option credit – 450

Impairment of investments (207) -

Impairment of intangibles (8,161) -

Amortisation of intangibles (455) (858)

Notional interest (104) (291)

Reported (loss)/profit before tax (5,828) 4,202

The Group examines the above financial indicators

and as such they can be considered to be key

performance indicators.

Divisional Review

Cello (Research)

The strong position of Cello in the international market

research industry enabled the Group to successfully

defend client revenues in a challenging and highly

competitive market. The Group has been able to

demonstrate greater scale and a broader range

of skills and services with clients as it competes for

larger contracts with existing and new clients.

In addition, the Group has continued to consolidate

our operations into shared facilities as leases come

up for renewal, enabling it to create clusters of

professional resource which are both more vibrant

and efficient. As a result of continued consolidation

in the market research sector, it has risen to become

the 6th largest research operation in the UK (2008:

9th), and 19th globally (2008: 21st).

Cello (Research) had a solid year given the

economic context, delivering a headline

operating profit of £5.6m (2008: £6.5m) from

operating income of £36.3m (2008: £37.9m).

With an employee base of 415 (2008: 460) and

revenue of £59.8m (2008: £64.9m), Cello ranks

firmly in the top ten of market research businesses

based in the UK and is the only business which is

not part of a much larger Group.

Operating margins were 15.4% (2008: 17.2%) as a

result of reduced profit performance in its business

intelligence business and in aspects of its public

sector market research activity which has come

under long anticipated pressure. The general hiatus

in market research activity which occurred in the

middle of 2009 has now been replaced by more

normal levels of client activity.

8

Healthcare research has shown particular resilience,

representing approximately 38% of operating

income in this division (2008: 36%). As well as

continued strength in the pharmaceutical core, the

Group has successfully extended into the growing

OTC and brand orientated market for drugs and

therapies, particularly in the USA.

The Group has continued to more closely integrate

its research and consulting capability and achieve

competitive advantage against the much larger

networks with which it is now directly competing.

The Group has also continued to consolidate its

field force and online data capture capacity to

improve utilisation levels and to position itself as

a competitive outsourcing solution for larger

research networks.

The research business has continued to grow

worldwide, with international work now accounting

for 46.4% of divisional activity (2008: 42.3%). The

Group plan to expand its US presence organically

in 2010, building on its successful existing operation

in New York. The Group has appointed Simon

Dannatt as Managing Director, Cello USA. Simon

was previously Chief Executive of Optimisa PLC.

Top clients during the year included GSK, Novartis, HP,

Tesco, EA Games and Nokia. All these clients are long

standing and reflect the first class blue chip nature of

the Group’s client base. Significant new client wins

in 2009 include; Sandoz, Mundipharma, Bupa, Kraft,

Kimberly Clark, L’Oreal, Boden, HP, Cadburys, Coors,

Nestle, Eurostar, Tesco Bank, Swiss Re and Bayer.

Tangible

Tangible (Response) had a more challenging

time than Cello (Research), delivering a headline

operating profit of £1.8m (2008: £3.7m) on

operating income of £24.2m (2008: £27.5m).

Headline operating margins in this business were

7.4% (2008: 13.5%), reflecting the continued

declines in financial services income, as well as a

challenging context for charities related work and

general agency activity in London.

The Edinburgh hub of Tangible had an excellent

year, as did the Cheltenham and London core

operations with their focus on direct marketing with

strong digital capability. The integration of online

capability with more traditional direct marketing

approaches has proved a successful strategy as

clients look to reduce risks. This is expected to put

the business in a good position to capitalise on the

recovery in client activity. The Groups pioneering

carbon footprinting tool for marketers, Footmark, has

successfully established its carbon management

offer with clients such as Unicef, Christian Aid, Lloyds

TSB and Cafod.

The Group continues to invest in developing digital

applications. Our online communities’ proposition,

trading as Face, continued to flourish as part of

the co-creation methodology which underpins our

unique client proposition.

Tangible remains the 6th largest UK direct marketing

company in the UK. Top clients of Tangible include

the Scottish Government, Coors, AGBarr, The Royal

British Legion and the British Heart Foundation.

Significant new client wins in 2009 include; Axiom,

Endsleigh Insurance, Shelter, Oxfam, Christian Aid,

Motability, Sony, HSBC GAM, EBRD, Baillie Gifford,

Platform, Energy Savings Trust, Tesco Bank, Scottish

Enterprise, BBC, Nandos, Which?, BT, Cancer

Research, Save the Children, Clorex, Nokia, Danone,

Aegon and Reckitt Benckiser.

(continued)Chairman’s Statement

9

Current Trading

The Group is optimistic that the higher levels of client

activity, particularly in the research sector, seen in

the last quarter of 2009 and in the early months

of 2010, will continue. Cello has strong revenue

pipelines in Research and Consulting and Tangible

has also seen a marked increase in levels of new

business activity.

At this early stage of the year, with its substantially

lower cost base, improved market position and

strong presence in healthcare research, the Group

is well positioned to benefit from more normal levels

of ongoing client activity and will materially benefit

from any upturn in the UK or internationally.

Allan Rich

Non-Executive Chairman

15 March 2010

10

Cello Research and Consulting

Cello Research and Consulting is now a significant

player in the global market research and advisory

sector, ranked 6th largest in the UK and 19th

globally. It is the only independent agency of this

scale that is not part of a larger holding company.

Cello derives competitive advantage from the

combination of its market research and consultant

capability, which allows it to deliver, clients strategic

direction, based on real world insight.

Our largest area of focus is the healthcare market

which accounts for 38% of divisional revenue.

FMCG, public sector, business to business and

technology applications account for a further 40% of

income. Whilst largely an ad-hoc business, the bulk

of revenues come from long term, blue chip client

relationships. There is an even balance between

quantitative and qualitative work.

We continue to invest in developing digital

applications. Our online communities research offer

through the Face brand has developed strongly.

The year saw good progress in the international

development of the business. International

work now accounts for 46% of divisional

income and we retain a physical presence in New

York, Chicago and San Francisco.

2010 will see continued implementation of a three

year strategy to establish Cello as the leading

research and consulting brand across a number

of identified priority ‘vertical’ industry sectors, most

notably healthcare, consumer products and

technology.

Healthcare: Insight Research Group,

MSI, Leapfrog

• Insight’s New York office experienced sustained

growth where bookings have nearly tripled from

those seen in 2008 and at higher margins than in

previous years.

• The number of online projects continues to rise,

with international work tripling since 2008 (nearly

a fifth of Insight’s business).

• There has been sustained growth and broadening

of our international client base which has risen

from 22 at the end of 2008 to more than 30

different healthcare focused clients in 2009.

• MSI had a strong year and continued to extend its

client base with significant new wins with Sandoz

and Mundipharma.

• MSI Marketing Sciences showed continued

rapid growth and now represents a significant

proportion of MSI business.

• Leapfrog’s health and wellbeing research offer

had a very strong year, with major projects for

GSK, SC Johnson, Kimberly Clark and Bayer.

FMCG and Retail: The Value Engineers, Leapfrog,

2CV, Rosenblatt, TMI

• The Value Engineers continued to perform

strongly in 2009 with new clients including

Advent International, Bupa, Kraft, and the return

of some previous clients such as Heineken and

Dairy Crest.

• Leapfrog continued to build on client relationships

with Carphone Warehouse, Cadbury, SC Johnson,

Bayer, Comic Relief and new clients, including

Kimberly Clark, L’Oreal, Boden, Laithwaites, ABRSM,

McCanns.

• Global business more than doubled, with many

multi-market projects across Australia, America,

the BRIC economies, Japan and Europe.

• 2CV’s focus on international, mission critical

product development and marketing evaluation

enabled it to perform strongly in 2009 with clients

such as COI, TfL and ITV.

• The 2CV US office established itself, winning a

major global tracking study with local technology

giant, HP, and increased activity from EA.

• During 2009 Rosenblatt consolidated its

relationship with Philips, the COI, the BBC and

Mitchells & Butlers, and formed new (or revived)

11

relationships with Cadbury, Coors Brewers, Digital

UK, Millie’s Cookies, Nestle/Cereal Partners, Turner

Broadcasting and Unilever.

• TMI worked with a wide range of clients including

Eurostar, BHS, The Home Office, Harley Medical

Group and the Dorchester Hotels Group.

Public Sector: RS Group, CELLO mruk research

• The RS Group’s public policy team successfully

increased its revenue with projects for both

Government Departments and the NHS.

• CELLO mruk research’s global business more than

doubled behind healthcare activity.

• The number of Government Framework contracts

won during the year increased by around 50%

to 34 contracts including Office of Fair Trading,

Central Office of Information, Competition

Commission, National Archives, Ofcom and the

Welsh Assembly.

Technology: RS Group, SMT, Kudos

• In RS’s core technology and logistics sectors there

were significant commissions from HP, Canon,

Brother and DHL, while its financial services division

delivered major new account wins including

Tesco Bank and Swiss Re.

• Significant investment in online research tools

has allowed the group to successfully market

both on qualitative and quantitative projects to

an increasing proportion of its customer base.

• 2009 saw SMT strengthen and build upon its

position in the utilities sector which contributed

over 50% of SMT’s revenue in 2009.

• Kudos saw an increase in revenue in the

pharma and wellbeing sectors, with health and

environmental strategy studies accounting for

15% of overall revenue in 2009.

12

Tangible Group

In 2009 tangible group made significant steps

toward organising itself into three hubs - London,

Edinburgh and Cheltenham. Shifting businesses into

shared offices reduces property and management

costs but also ensures better cross selling and

more effective use of senior, vocational staff. This

approach has been in place in Edinburgh since

2008, and 2009 saw that hub produce a record

profit and high levels of net profit margin compared

to industry norms. Overall the group’s emphasis

remains on results orientated and customer focused

marketing. Its strength in direct marketing has seen the

group reach 6th place in Marketing’s Direct League

table, making it the largest UK specific group.

The group has a significant client base in Financial

Services, Charities, Public Sector, FMCG/Drinks, Retail

and Utilities. Performance in 2009 was significantly

influenced by the downturn in Financial Services

and Charity marketing although these showed signs

of recovery towards the end of 2009.

tangible group is now organised around three

primary functions within the three hubs – insight,

marketing delivery and production.

Insight

Face, tangible data, Leithal Thinking.

• Face, continued to grow strongly with revenue

up by 50% on 2009 with client wins from Unilever,

Nokia, Clorox, SAB Miller, Danone and Reckitt

Benckiser in the US, Argentina, Mexico, Brazil,

China, Indonesia, Russia and Europe.

• Continued growth of our online communities

offering including the successful launch of

Mindbubble – a co-creation community for

women.

• The data division continues to provide cutting

edge analysis and research solutions and

segmentations, working closely with clients such

as British Gas, Help the Aged, and Business

Stream, as well as with new clients including

Tesco Bank, Which?, BT, Cancer Research UK,

Kidney Research UK, Save the Children.

• Clients such as VW/SEAT, Energy Saving Trust and

Calor continue to use Magellan, the proprietary

online marketing platform which supports on and

offline campaigns.

• The Leithal Thinking brand consultancy broke the

£1 million revenue mark with a number of wins

including Scottish Wildlife Trust, Kasteel Cru and

Historic Scotland.

Marketing Delivery

tangible, Leith, Farm, Blonde, Stripe

• Tangible’s increased emphasis on strategic

communications planning produced significant

new clients wins including Oxfam, Shelter,

Christian Aid (Present Aid), Beatson and Motability

in Charities, COI Energy Savings Trust, Scottish

Development International, Consumer Focus

Scotland, and Glasgow University roster in Public

Sector.

• Significant new financial client wins in 2009

included Tesco Bank, HSBC Global Asset

Management, European Bank for Reconstruction

and Development, Baillie Gifford and Platform.

• Tangible was awarded several industry awards

including a DMA award for Business to Consumer

Direct Marketing, a Silver for the Best Use of Direct

Mail in the Cream Awards and the Institute of

Fundraising Award for the Best use of Direct Mail.

• Tangible also received awards recognition from

Money Marketing – 2 x gold, 2 x silver and 1 x

bronze, and the Financial Services Forum (Most

Effective New Product, Service or Innovation –

MGM and tangible).

13

• 2009 saw a record operating profit performance

for Leith, driven by strong incremental growth in

existing clients and a number of new business

wins, predominantly in the public sector

(including Scottish Enterprise, See Me, Scottish

Natural Heritage and The Public Health Agency

for Northern Ireland).

• Farm strengthened its position on the Nestle

roster with wins from both the Confectionery and

Beverages divisions, as well as major projects with

the BBC, Nandos and Last Minute.com.

• New clients for Blonde included Nokia, Lloyds TSB,

Bank of Scotland Corporate, Rice Dream, Harrison

Parrot, SCO, Creative Scotland and AEGON.

• Stripe PR crowned a year of significant growth by

being awarded the IPR’s PR consultancy of the

year. They also cemented their position on the

Scottish Government roster with briefs for Alcohol

Awareness and Community and Road Safety.

Production

Brightsource, Magnetic

• Brightsource extended its track record of profit

growth for the 8th successive year. All top 15

clients increased their spend, compared with

2008, a reflection of the widening portfolio of

services. New clients for 2009 included Axiom,

Endsleigh Insurance and Shelter.

• Brightsource’s pioneering carbon footprinting

tool, Footmark, has successfully established the

carbon management offer with leading clients

such as Unicef, Christian Aid, Lloyds TSB, and

Cafod.

• Magnetic launched two new products – Standout

Covers and Proxi packs – the latter has been

picked up by Sony for worldwide use in their

Playstation 3 point of sale.

14

The directors present their report and the financial

statements of Cello Group plc for the year to 31

December 2009. To the best of their knowledge

the Directors’ Report includes a fair view of the

business and position of the Group, together with

a description of the principal risks and uncertainties

faced by the Group.

Principal Activities

The principal activity of the Group during the year

under review is that of research, consulting and

direct marketing.

Review of the Business and Future Developments

The results for the year ended 31 December 2009

are set out in the Group income statement on

pages 24 and 25. These show a loss attributable

to shareholders of £6,359,000. An interim dividend

of 0.50p per share was paid during the year and a

final dividend of 0.80p per share is proposed.

A review of the development and future prospects

of the business is given in the Chairman’s Statement

on pages 4 to 9. Key performance indicators are

also commented on within the Financial Review

section of the Chairman’s Statement.

Company law requires the Company to report on

principal risks and uncertainties facing the business,

which the directors believe to be as follows:

1. UK economy

The Group’s business is domiciled in the UK but 22%

of the Group’s revenues are from clients based

overseas. It is clear that the current economic

downturn has adversely affected the Group and

there is a risk that further economic downturn in

any of our markets will have an additional affect.

However, the mix of services we are offering is

proving resilient as the economy stabilises.

2. Loss of the Group’s key clients

Client relationships are crucial to the Group, and

the strength of them is key to its continued success.

The risk is mitigated by our client base being broadly

spread, but the loss of any large client would

require replacement. The Group’s client review

programmes help mitigate this risk.

3. Loss of key staff

The Group’s directors and staff are critical to the

servicing of existing business and the winning of new

accounts, departure of key staff could be a risk to

maintaining client service. With that risk in mind all

senior staff are subject to financial lock-ins and long-

term incentive arrangements, as well as being under

contractual non-compete and non-solicit clauses.

Directors

The following directors have held office since

1 January 2009:

Mark Scott

Mark Bentley

Paul Hamilton

Will David

Allan Rich

Chris Outram

Biographical details of the directors at the date of

this report are set out on pages 84 to 85.

Directors’ Report

15

Directors’ Interests in Shares and Options

Directors’ interests in the shares of the Company were as follows:

Number of ordinary

shares of 10p each

At 31 December 2009

Number of ordinary

shares of 10p each

At 31 December 2008

Mark Scott 724,010 714,010

Mark Bentley 15,000 15,000

Paul Hamilton 50,000 50,000

Will David 15,000 15,000

Allan Rich 444,595 415,184

Chris Outram 83,782 48,705

Under the rules of the Enterprise Management Incentive Scheme and the Unapproved Share Option

Scheme, the Executive Directors have been granted an interest in options over ordinary shares of 10p

each as follows:

At 1 January

2009 number of

ordinary shares of

10p each

Granted

in the year number of

ordinary shares of

10p each

Lapsed in

the year number of

ordinary shares of

10p each

At 31 December

2009 number of

ordinary shares of

10p each

Date from which

exercisable

Expiry date

Exercise price

(pence)

Mark Scott (1) 100,000 – – 100,000 Nov 2004 Nov 2014 100

Mark Scott (2) 200,000 – – 200,000 Nov 2004 Nov 2014 100

Mark Bentley (1) 81,633 – – 81,633 Jun 2008 Jun 2015 122.5

Mark Bentley (2) 81,633 – – 81,633 Jun 2008 Jun 2015 122.5

(1) Granted under the EMI Share Option Scheme

(2) Granted under the Unapproved Share Option Scheme

None of the options that have been granted were exercised in the year.

16

Share Capital

Changes to the Company’s share capital during

the year are given in note 22 to the consolidated

financial statements.

Treasury Shares

During the year the Company purchased 157,000

(0.29% of the issued share capital) ordinary shares

of 10p each for a total consideration of £53,000.

The total number of shares in treasury at 31

December 2009 was 237,000 (0.40% of the issued

share capital). The purpose of the acquisition was

to satisfy future earn out payments and/or option

awards.

Statement of Directors’ Responsibilities

The directors are responsible for preparing the

Directors’ Report and the financial statements in

accordance with applicable law and regulations.

Company law requires the directors to prepare

group and company financial statements for each

financial year. The directors are required by the AIM

rules of the London Stock Exchange to prepare

group financial statements in accordance with

International Financial Reporting Standards (“IFRS”)

as adopted by the European Union (“EU”) and

have elected under company law to prepare the

company financial statements in accordance with

United Kingdom Generally accepted Accounting

Practice (United Kingdom Accounting Standards

and applicable law).

The Group financial statements are required by law

and IFRS as adopted by the EU to present fairly the

financial position and performance of the Group,

the Companies Act 2006 provides in relation to

such financial statements that references in the

relevant part of that Act to financial statements

giving a true and fair view are references to their

achieving a fair presentation.

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 Group and the Company and of the

profit or loss of the Group for that period.

In preparing each of the Group and Company

financial statements, the directors are required to:

a. Select suitable accounting policies and then

apply them consistently;

b. Make judgements and estimates that are

reasonable and prudent;

c. For the Group financial statements, state whether

they have been prepared in accordance with

IFRSs adopted by the EU; and for the Company

financial statements state whether applicable

UK accounting standards have been followed,

subject to any material departures disclosed and

explained in the Company financial statements;

d. Prepare the financial statements on the going

concern basis unless it is inappropriate to

presume that the Group and the Company will

continue in business.

Directors’ Report (continued)

Substantial Shareholdings

Other than the directors’ interests disclosed above, the Company is aware of the following shareholdings

of 3% or more in the issued share capital at 28 February 2010:

No. of shares %

Octopus Asset Management Limited 5,200,290 8.85

Richard Gilmore 3,214,144 5.47

Universities Superannuation Scheme 2,047,000 3.48

Paul Walton 1,869,680 3.18

17

The directors are responsible for keeping adequate

accounting records that are sufficient to show and

explain the Group’s and the Company’s transactions

and disclose with reasonable accuracy at any time

the financial position of the Company and enable

them to ensure that the financial statements

comply with the Companies Act 2006. They are

also responsible for safeguarding the assets of the

Group and hence for taking reasonable steps for

the prevention and detection of fraud and other

irregularities.

The directors are responsible for the maintenance and

integrity of the corporate and financial information

included on the Cello Group plc website.

Legislation in the United Kingdom governing

the preparation and dissemination of financial

statements may differ from legislation in other

jurisdictions.

Employees

It is the Company’s policy not to discriminate

between employees or potential employees on

any grounds. Full and fair consideration is given to

the recruitment, training and promotion of disabled

people and, should staff become disabled

during the course of their employment, efforts

are made to provide appropriate re-training. The

Company places enormous importance on the

contributions of its employees and aims to keep

them informed of developments in the Company

through a combination of meetings and electronic

communication.

Political and Charitable Contributions

During the year the Company made no political or

charitable donations.

Directors Third Party Indemnity Provisions

A qualifying Third Party Indemnity Provision was in

place for directors throughout the year.

Policy on Payment to Creditors

The Company agrees the terms and conditions

under which business transactions with suppliers are

conducted. It complies with these payment terms,

provided that it is satisfied that the supplier has

provided the goods or services in accordance with

agreed terms and conditions.

The effect of the Company’s payment policy is that

its trade creditors at the year end represent 48 days

(2008: 43 days).

Research and Development Activities

During the year the Group spent £141,000 (2008:

£119,000) on the development of new software

products which are expected to generate

economic benefits in the future. These amounts

were capitalised as intangible assets.

Statement as to Disclosure of Information to the

Auditors

The directors who were in office on the date of

approval of these financial statements have

confirmed that, as far as they are aware, there is

no relevant audit information of which the auditors

are unaware. Each of the directors has confirmed

that he, as far as he is aware, has taken all the

steps that he ought to have taken as a director

in order to make himself aware of any relevant

audit information and to establish that it has been

communicated to the auditor.

Auditors

A resolution to re-appoint Baker Tilly UK Audit LLP,

Chartered Accountants, as auditors will be proposed

at the forthcoming Annual General Meeting.

By order of the Board

Mark Bentley

Company Secretary

15 March 2010

18

Corporate Governance

The Board of Cello Group plc appreciates the value

of good corporate governance not only in the areas

of accountability and risk management but also as

a positive contribution to the business. The Board

considers that the Company, whilst trading on the

AIM Market, has adopted those requirements of the

Combined Code on Corporate Governance (the

“Code”) published in June 2006 as best applicable

to the Company given its current size.

Board Structure

The Board comprises two executive directors and

four non-executive directors. The roles of Chairman

and Chief Executive are separate. The Non-Executive

Directors are independent of management and

free from any business or other relationship with the

Company other than owning shares. The directors’

biographies appear on pages 84 to 85.

The Board is scheduled to meet at least six times

a year and additionally when necessary. At each

scheduled meeting of the Board, the Chief

Executive and Finance Director report on the

Group’s operations. The Board is satisfied that it is

provided with information in an appropriate form

and quality to enable it to discharge its duties. All

directors are subject to re-election by shareholders

at the first opportunity after their appointment. All

directors are required to retire by rotation and one

third of the Board is required to seek re-election

each year. The Chairman ensures that the directors

are permitted to take independent professional

advice as required.

All directors have access to the advice and services

of the Company Secretary, who is responsible to

the Board for ensuring that Board procedures are

followed and that applicable rules and regulations

are complied with.

The following committees of the Board have been

established to deal with specific aspects of the

Company’s affairs.

Audit Committee

The Audit Committee consists of three Non-Executive

Directors; Will David as Chairman, Paul Hamilton

and Allan Rich. The Committee considers matters

relating to the financial accounting controls, the

reporting of results, and the effectiveness and cost

of the audit. It aims to meet at least twice a year

with the Company’s auditors in attendance. Other

directors attend as required. The Company Secretary

provides secretarial support to the Committee. The

terms of reference of the Committee are available

on request.

In considering the effectiveness of the audit the

Audit Committee will also, where appropriate,

consider whether any flexibility over rotation of the

audit partner is appropriate in order to safeguard

the quality of the audit.

The Audit Committee is satisfied that the Group’s

auditors, Baker Tilly UK Audit LLP, have been objective

and independent of the Group. Associate firms of

Baker Tilly UK Audit LLP perform non-audit services for

the Group, but the Audit Committee is satisfied that

their objectivity is not impaired by such work.

Nomination Committee

The Nomination Committee consists of two

independent Non-Executive Directors; Paul

Hamilton and Will David. The Committee is chaired

by Paul Hamilton and meets as necessary. The

Committee is formally constituted with written terms

of reference and is responsible for reviewing and

making proposals to the Board on the appointment

of directors. The Company Secretary provides

secretarial support to the Committee. The terms

of reference of the Nominations Committee are

available on request.

Remuneration Committee

The Remuneration Committee is formally

constituted with written terms of reference and

makes recommendations to the Board with regard

to remuneration policy and related matters. The

Remuneration Committee consists solely of three

of the Independent Non-Executive Directors, Paul

Hamilton, who chairs the committee, Will David and

Chris Outram. However, the Chairman and the Chief

Executive attend as required and have the right to

address the Committee. The Committee aims to

19

meet at least twice a year. The terms of reference

of the Committee are available on request.

Further details of the Company’s policies on

remuneration, including details of directors’ share

options are given in the Report of the Remuneration

Committee on pages 20 to 22.

Shareholder Communications

The Company believes in maintaining good

communications with shareholders. The Chief

Executive and Finance Director meet analysts

and institutional shareholders regularly with a view

to ensuring that the strategies and objectives of

the Company are well understood. The Senior

Independent Director will not ordinarily attend

such meetings other than at the request of the

relevant shareholder. However, he is available to

shareholders if they have concerns which contact

through the Chairman, Chief Executive or the

Finance Director has failed to resolve or for which

such contact is inappropriate.

Going Concern

The directors have satisfied themselves that the

Company and Group have adequate resources to

continue in operational existence for the foreseeable

future, and for this reason the financial statements

continue to be prepared on a going concern basis.

Internal Control

The Board is responsible for ensuring that the

Group maintains a system of internal controls and

risk management, including suitable monitoring

procedures. The objective of the system is to

safeguard Group assets, ensure proper accounting

records are maintained and that the financial

information used within the business and for

publication is reliable. Any such system can only

provide reasonable, but not absolute, assurance

against material misstatement or loss.

Given the Group’s size and the nature of its business,

the Board does not consider it would be appropriate

to have its own internal audit function. An internal

audit function will be established as and when the

Group is of an appropriate size but meanwhile the

audit of internal financial controls forms part of the

responsibilities of the Group’s finance function.

All the day-to-day operational decisions are taken

initially by the executive directors or subsidiary

directors, in accordance with the Group’s strategy.

Where appropriate, the Board or subsidiary

directors approve such decisions. The executive or

subsidiary directors are also responsible for initiating

all transactions and authorising all payments, save

for those relating to their employment. As such, the

internal controls primarily comprise:

• the segregation of duties, such that the executive

directors have no involvement in the recording

of any financial data;

• the review of pertinent financial and other

information by the Board on a regular basis;

• the prior approval of all significant strategic

decisions;

• having a formal strategy for business activities.

The Environment

The activities of the Group do not have a high impact

on the environment. However, we aim to ensure that

where waste can be reduced, this is done efficiently,

by employing recycling where viable.

Employees

The Group employs nearly 800 employees, and we

place a great deal of emphasis on their training

and retention. Our central programme for rising

talent, “Cello Academy”, is now a well established

feature of our staff development initiatives.

On behalf of the Board

Mark Bentley

Company Secretary

15 March 2010

20

The directors have applied the principles of good

governance relating to directors’ remuneration as

described below:

Remuneration Committee

The Remuneration Committee is authorised on

behalf of the Board to determine the Company’s

remuneration policy on executive directors’

remuneration, including pension rights and share

option awards, and the terms of their service

contracts. The Committee aims to meet at least

twice a year and supervises the operation of share

schemes and other employee incentive schemes.

The remuneration and terms and conditions of

appointment of the Non-Executive Directors will

be set by the Board. No director shall participate

in discussions relating to his own remuneration.

The Remuneration Committee consists of three

of the independent Non-Executive Directors, Paul

Hamilton who chairs the committee, Will David and

Chris Outram.

Remuneration Policy

The policy of the Board is to provide executive

remuneration packages designed to attract,

motivate and retain directors of the calibre

necessary to maintain the Group’s position as a

market leader and to reward them for enhancing

shareholder value and return on investment. The

remuneration should also reflect the directors’

responsibilities and contain incentives to deliver the

Group’s objectives.

The main elements of the executive directors’

remuneration packages are as follows:

• basic salary;

• performance-related bonus – 50% of an

executive director’s bonus is based on earnings

per share growth targets set by the Remuneration

Committee at the beginning of the financial

year. The remaining 50% is paid at the discretion

of the Remuneration Committee;

• benefit package – car allowance and health

care insurance;

• share option incentives – details of share options

granted to the executive directors are shown on

page 15;

• contributions to directors’ individual defined

contribution pension schemes.

The Remuneration Committee reviews the

components of each executive director’s

remuneration package annually.

Report of the Remuneration Committee

Directors’ Remuneration

Salary/ Fees

£’000

Bonus £’000

Benefits

£’000

Total Emoluments

£’000

Pension

£’000

Total 2009 £’000

Total 2008 £’000

Kevin Steeds* – – – – – – 233

Mark Scott 195 45 9 249 29 278 296

Mark Bentley 145 28 6 179 22 201 204

Allan Rich 47 – – 47 – 47 25

Paul Hamilton 28 – – 28 – 28 30

Will David 25 – – 25 – 25 25

Chris Outram 23 – – 23 – 23 25

Total 463 73 15 551 51 602 838

*Deceased on 17 December 2008

21

Long Term Incentive Arrangements

In 2004, the Company established an EMI Share

Option plan to allow selected employees to share

in the success of the Group and promote motivation

and retention through the award of tax efficient

share options.

A summary of all the share option awards to directors

can be found in the directors’ report on page 15.

In 2004, the Company also established an

Unapproved Share Option plan for those individuals

not eligible to participate under the EMI Share Option

plan and for the award of additional options to the

recipients of awards under the EMI Share Option plan.

Vesting of the share options awarded to Mark Scott

in November 2004 under the EMI and Unapproved

Share Option Plans is not subject to performance

conditions but vesting of the share options granted

to Mark Bentley in June 2005 under these plans was

subject to performance conditions which have

been met.

On 13 March 2006 the Board adopted the Cello

Group plc Performance Share Plan 2006 (“PSP”).

However, no awards since made under the PSP

are now capable of vesting and the Remuneration

Committee has decided to make no further awards

under the PSP. To replace the PSP the Board has

adopted two new share option plans and a Joint

Ownership Share plan.

On 17 November 2009 the Board adopted the

Cello Group plc HM Revenue & Customs Approved

Share Option Plan 2009 (the “Approved Plan”) and

on 15 March 2010 adopted the Cello Group plc

Unapproved Option Plan 2010 (the “Unapproved

Plan”).

Under the Approved Plan and the Unapproved Plan

(the “Option Plans”) awards of options over shares

with a market value of no more than 150% of basic

salary may be made to any one individual in any

financial year. A higher percentage may be granted

in exceptional circumstances, as determined by the

Remuneration Committee. It is not currently intended

that main board directors will participate in the

Option Plans.

Options will generally be exercisable three years, but

not later than ten years, after the date of grant subject

to the extent to which performance conditions have

been achieved over the initial three year period after

the award is made and subject to the participant’s

continued employment with the Group.

Performance conditions will be tailored to each

participant according to his or her seniority and

responsibilities and will be based on performance

as measured against an appropriate combination

of Company, Division and Group targets and the

extent to which these are achieved or exceeded

over the performance period will determine the

proportion of each participant’s options which vest.

The Committee will review the Option Plans on a

regular basis and may amend the performance

conditions from time to time.

The Board are in the process of finalising a Joint

Ownership Share Plan 2010 (“JOSP”) under which it

is intended that awards will be made to the Group’s

most senior employees, including main board

executive directors.

Name Title Date of Appointment Notice period

Allan Rich Non-Executive Chairman 5 April 2005 3 months

Mark Scott Chief Executive 5 May 2004 12 months

Mark Bentley Finance Director 1 May 2005 12 months

Paul Hamilton Senior Non-Executive Director 8 October 2004 6 months

Will David Non-Executive Director 8 October 2004 6 months

Chris Outram Non-Executive Director 1 July 2007 3 months

22

Report of the Remuneration Committee (continued)

Under the terms of the JOSP participants will acquire

a beneficial interest as joint owner in a number

of Cello shares (“the JOSP award shares”) for a

consideration of 0.1 pence per share. The beneficial

interest in the JOSP award shares will be held jointly

by the participant and an employee benefit trust in

the proportions 0.01% : 99.99%. Participants will, if

and to the extent that performance conditions are

met, derive 99.99% of the growth over the three

years following the date of the award in the value

of the JOSP award shares plus 0.01% of the initial

value of the JOSP award shares, less a fixed carrying

cost of 2.5% per annum.

The maximum individual annual award under the

JOSP will be interests in shares whose market value is

twice the participant’s basic annual salary.

The JOSP performance measure will be Total

Shareholder Return (“TSR”) relative to a comparator

group of the company’s peers over the three years

following the date of the award. The proportion of

JOSP awards which participants will be entitled to

retain on vesting in will depend upon Cello’s TSR

performance relative to the comparator companies

as follows:

Cello relative Proportion of JOSP

TSR performance award shares

below median nil

median 25%

top quartile 100%

between median and straight line interpolation

top quartile between 25% and 100%

The market value of the shares at 31 December

2009 was 37.5p and the high and low prices during

the year were 45.5p and 27.5p respectively.

On behalf of the Board

Paul Hamilton

Chairman – Remuneration Committee

15 March 2010

23

We have audited the Group and parent company

financial statements (“the financial statements”) on

pages 24 to 77. The financial reporting framework

that has been applied in the preparation of the

Group financial statements is applicable law and

International Financial Reporting Standards (IFRSs)

as adopted by the European Union. The financial

reporting framework that has been applied in

the preparation of the parent company financial

statements is applicable law and United Kingdom

Accounting Standards (United Kingdom Generally

Accepted Accounting Practice).

This report is made solely to the company’s

members, as a body, in accordance with Chapter

3 of Part 16 of the Companies Act 2006. Our audit

work has been undertaken so that we might state

to the company’s members those matters we are

required to state to them in an auditor’s report and

for no other purpose. To the fullest extent permitted

by law, we do not accept or assume responsibility

to anyone other than the company and the

company’s members as a body, for our audit work,

for this report, or for the opinions we have formed.

Respective responsibilities of directors and

auditor

As more fully explained in the Statement of Directors’

Responsibilities, 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 (APB’s) Ethical Standards

for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial

statements is provided on the APB’s website at

www.frc.org.uk/apb.scope/UKNP.

Opinion on the financial statements

In our opinion:

• the financial statements give a true and fair view

of the state of the Group’s and of the parent

company’s affairs as at 31 December 2009 and

of the Group’s loss 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

United Kingdom Generally Accepted Accounting

Practice; and

• the financial statements have been prepared

in accordance with the requirements of the

Companies Act 2006.

Opinion on other matters prescribed by the

Companies Act 2006

In our opinion the information given in the Directors’

Report for the financial year for which the financial

statements are prepared is consistent with the

financial statements.

Matters on which we are required to report

by exception

We have nothing to report in respect of the following

matters 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 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.

DAVID FENTON (Senior Statutory Auditor)

For and on behalf of

BAKER TILLY UK AUDIT LLP

Statutory Auditor

Chartered Accountants

2 Bloomsbury Street

London WC1B 3ST

15 March 2010

Independent Auditors’ Reportto the members of Cello Group plc

24

Consolidated Income Statement for the year ended 31 December 2009

Notes

Year ended 31 December 2009

£’000

Year ended 31 December 2008

£’000

Continuing operations

Revenue

Cost of sales

1 126,660

(66,201)

137,630

(72,269)

Operating income

Administration expenses

1

3a

60,459

(54,516)

65,361

(57,193)

Headline operating profit

Exceptional items

Amortisation of intangible assets

Acquisition related employee expenses

Share option credit

1

3a

10

18

23

5,943

(1,949)

(455)

(163)

–

8,168

(1,285)

(858)

(647)

450

Operating profit before impairment charges

Impairment of intangible assets

Impairment of goodwill

Impairment of available-for-sale investments

1

10

9

12

3,376

(778)

(7,383)

(207)

5,828

–

–

–

Operating (loss)/profit

Finance income

Finance cost of deferred consideration

Fair value gain/(loss) on derivative financial instruments

Other finance costs

3a

2

2

2

2

(4,992)

69

(104)

155

(956)

5,828

243

(291)

(444)

(1,134)

(Loss)/profit on continuing operations before taxation

Tax 5

(5,828)

(239)

4,202

(1,015)

(Loss)/profit on continuing operations after taxation

Loss from discontinued operations 6

(6,067)

(253)

3,187

(386)

(Loss)/profit for the year (6,320) 2,801

Attributable to:

Owners of the parent

Minority interest

(6,359)

39

2,761

40

(6,320) 2,801

25

Consolidated Income Statement (continued) for the year ended 31 December 2009

Notes

Year ended 31 December 2009

£’000

Year ended 31 December 2008

£’000

Basic (loss)/earnings per share

From continuing operations

From discontinued operations

8

8

(11.26)p

(0.47)p

7.35p

(0.90)p

(11.73)p 6.45p

Diluted (loss)/earnings per shareFrom continuing operationsFrom discontinued operations

88

(11.26)p(0.47)p

5.55p(0.68)p

(11.73)p 4.87p

Consolidated Statement of Comprehensive Income for the year ended 31 December 2009

Year ended 31 December 2009

£’000

Year ended 31 December 2008

£’000

(Loss)/profit for the year (6,320) 2,801

Other comprehensive income:

Exchange differences on translation of foreign operations

Deferred tax recognised direct in equity

12

–

(47)

222

Total other comprehensive income for the year 12 175

Total comprehensive income for the year (6,308) 2,976

26

Consolidated Balance Sheet 31 December 2009

Notes

31 December 2009 £’000

31 December 2008 £’000

Goodwill

Intangible assets

Property, plant and equipment

Available-for-sale investments

Deferred tax assets

9

10

11

12

21

67,926

1,174

2,515

20

962

76,291

2,266

3,103

227

1,080

Non-current assets

Trade and other receivables

Cash and cash equivalents

14

14

72,597

25,711

3,135

82,967

26,658

5,065

Current assets 28,846 31,723

Trade and other payables

Current tax liabilities

Borrowings

Consideration payable in respect of acquisitions

Obligations under finance leases

Derivative financial instruments

15

16

18

19

20

(25,419)

(568)

(14,529)

(2,472)

(68)

(289)

(26,633)

(708)

(1,053)

(7,980)

(68)

–

Current liabilities (43,345) (36,442)

Net current liabilities (14,499) (4,719)

Total assets less current liabilities

Borrowings

Provisions

Obligations under finance leases

Derivative financial instruments

Deferred tax liabilities

16

17

19

20

21

58,098

–

(3,315)

(65)

–

(292)

78,248

(13,750)

(6,453)

(86)

(444)

(616)

Non-current liabilities (3,672) (21,349)

Net assets 54,426 56,899

Equity

Share capital

Share premium

Retained earnings

Capital redemption reserve

Merger reserve

Share-based payment reserve

Foreign currency reserve

22 5,876

34,945

2,904

50

10,496

73

(35)

4,456

31,745

10,048

50

10,496

73

(47)

Equity attributable to equity holders of parent

Minority interest

54,309

117

56,821

78

Total equity 54,426 56,899

Approved and authorised for issue by the Board on 15 March 2010 and signed on its behalf by

Mark Scott Director

Mark Bentley Director

27

Consolidated Cash Flow Statement for the year ended 31 December 2009

Notes

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

Net cash inflow from operating activities before

taxation

Tax paid

24a 5,198

(591)

9,682

(1,911)

Net cash inflow from operating activities after taxation 4,607 7,771

Investing activities

Interest received

Purchase of property, plant and equipment

Sale of property, plant and equipment

Expenditure on intangible assets

Deferred consideration paid for subsidiary undertakings

69

(699)

39

(141)

(1,478)

243

(1,119)

66

(119)

(3,636)

Net cash outflow from investing activities (2,210) (4,565)

Financing activities

Dividends paid to equity holders of the parent

Repayment of borrowings

Repayment of loan notes

Drawdown of borrowings

Capital element of finance lease payments

Payment of finance lease interest

Interest paid

Purchase of own shares

(733)

(3,000)

(2,187)

2,600

(21)

(21)

(935)

(52)

(556)

(8,050)

(5,211)

10,050

(90)

(21)

(1,105)

(71)

Net cash outflow from financing (4,349) (5,054)

Movements in cash and cash equivalents

Net decrease in cash and cash equivalents

Exchange gains/(losses) on cash and bank overdrafts

Cash and cash equivalents at the beginning of the year

(1,952)

22

5,065

(1,848)

(73)

6,986

Cash and cash equivalents at end of the year 24b 3,135 5,065

28

Consolidated Statement of Changes in Equity for the year ended 31 December 2009

Share Capital

£’000

Share Premium

£’000

Capital Redemption

Reserve £’000

Merger Reserve

£’000

Share-based

Payment Reserve

£’000

Foreign Currency

Exchange Reserve

£’000

Retained Earnings

£’000

Total Attributable

to Owners of the Parent

£’000

Minority Interest

£’000

Total Equity £’000

At 1 January 2008 3,884 25,776 50 10,496 523 – 7,692 48,421 38 48,459

Profit for the year – – – – – – 2,761 2,761 40 2,801

Other comprehensive

income:

Currency translation

Deferred tax recognised

direct in equity

–

–

–

–

–

–

–

–

–

–

(47)

–

–

222

(47)

222

–

–

(47)

222

Total other comprehensive

income for the year

–

–

–

– – (47) 222 175 – 175

Total comprehensive income

for the year – – – – – (47) 2,983 2,936 40 2,976

Transactions with owners:

Shares issued

Own shares purchased

Debit for share-based

incentive schemes

Dividends

572

–

–

–

5,969

–

–

–

–

–

–

–

–

–

–

–

–

–

(450)

–

–

–

–

–

–

(71)

–

(556)

6,541

(71)

(450)

(556)

–

–

–

–

6,541

(71)

(450)

(556)

Total transactions with owners 572 5,969 – – (450) – (627) 5,464 – 5,464

At 1 January 2009 4,456 31,745 50 10,496 73 (47) 10,048 56,821 78 56,899

Loss for the year – – – – – – (6,359) (6,359) 39 (6,320)

Other comprehensive

income:

Currency translation – – – – – 12 – 12 – 12

Total comprehensive income

for the year

–

–

–

– – 12 (6,359) (6,347) 39 (6,308)

Transactions with owners:

Shares issued

Own shares purchased

Dividends

1,420

–

–

3,200

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(52)

(733)

4,620

(52)

(733)

–

–

–

4,620

(52)

(733)

Total transactions with

owners 1,420 3,200 – – – – (785) 3,835 – 3,835

As at 31 December 2009 5,876 34,945 50 10,496 73 (35) 2,904 54,309 117 54,426

The merger reserve was created as a result of the placing of shares on 4 November 2004.

The capital redemption reserve arose from the purchase and cancellation of own share capital.

29

GENERAL INFORMATION

Cello Group plc is a company incorporated in the United Kingdom under the Companies Act 1985. The

Group’s operations consist principally of research, consulting and direct marketing.

These financial statements are presented in pounds sterling as this is the currency of the primary economic

environment in which the Group operates.

At the date of authorisation of these financial statements, the following standards and interpretations, which

are issued but not yet effective, have not been applied:

Effective for reporting

periods starting on or after

IFRIC 9 Reassessment of Embedded Derivatives – Amendment;

Embedded Derivatives

30 June 2009

IFRIC 14 Amendments – Prepayments of a Minimum Funding

Requirement

1 January 2011

IFRIC 17 Distributions of Non-cash Assets to Owners 1 July 2009

IFRIC 18 Transfers of Assets from Customers 1 July 2009

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010

Amendments to IFRSs arising from Annual Improvements Projects

Effective for reporting

periods starting on or after

IFRS 2 Share-based Payment 1 July 2009

IFRS 5 Non-current Assets Held for Sale and Discontinued

Operations

1 January 2010

IFRS 6 Exploration for and Evaluation of Mineral Resources

(consequential amendments from IAS 7)

1 January 2010

IFRS 8 Operating Segments 1 January 2010

IAS 1 Presentation of Financial Statements 1 January 2010

IAS 7 Statement of Cash Flows 1 January 2010

IAS 17 Leases 1 January 2010

IAS 36 Impairment of Assets 1 January 2010

IAS 38 Intangible Assets 1 July 2009

IAS 39 Financial Instruments: Recognition and Measurement 1 January 2010

IFRIC 9 Reassessment of Embedded Derivatives 1 July 2009

IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1 July 2009

The directors anticipate that the adoption of these Standards and Interpretations as appropriate in future

periods will have no material impact on the financial statements of the Group when the relevant standards

come into effect for periods commencing after 1 January 2010.

Consolidated Financial Statements – Accounting Policies

30

SIGNIFICANT ACCOUNTING POLICIES

(1) Basis of accounting

The consolidated financial statements have been

prepared under the historical cost convention, as

modified by the revaluation of available-for-sale

investments and financial assets and liabilities

(including derivative instruments) at fair value

through profit and loss. The consolidated financial

statements have been prepared in accordance

with applicable International Financial Reporting

Standards as adopted by the European Union

(IFRS).

In preparing the consolidated financial statements

the Group has adopted the exemption in IFRS 1

not to restate business combinations prior to 1

December 2005.

The Group’s business activities, performance and

position are set out in the Chairman’s Statement

on pages 4 to 9 and an assessment of the risks

and uncertainties is set out in the Directors’ Report

on pages 14 to 17.

During the year the Group incurred a loss before

tax of £5.8m, although excluding non-recurring

exceptional costs and non-cash charges the

Group made a profit of £5.1m.

The Group had net current liabilities of £14.5m at

31 December 2009. This is due to the inclusion

in current liabilities of the borrowings under the

Group’s debt facilities, which were due to expire

on 31 December 2010, together with certain

earn out liabilities. Since the year end the Group

has entered into new debt facilities which total

£19.0m. £2.0m of these facilities are repayable

on 31 December 2010.

After reviewing the Group’s performance and

forecast future cashflows, the directors consider

the Group has adequate resources to continue in

operational existence for the foreseeable future.

The Group therefore continues to adopt the going

concern basis in preparing the Group’s Financial

Statements.

(2) Basis of consolidation

The Group’s financial statements consolidate the

financial statements of the Company and all of

its subsidiary undertakings. The results of subsidiary

undertakings acquired in the year are included in the

consolidated income statement from the effective

date of acquisition. On acquisition of a business all

of the assets and liabilities of that business that exist

at the date of acquisition are recorded at fair value.

Minority interests represent the portion of profit and or

loss and net assets in subsidiaries that is not held by

the Group and is presented separately from Group

shareholder’s equity in the consolidated balance

sheet. All intra-group transactions and balances are

eliminated on consolidation.

(3) Revenue, cost of sales and revenue

recognition

Revenue is recognised as contract activity

progresses, in accordance with the terms of the

contractual agreement and the stage of completion

of the work. It is in respect of the provision of

services including fees, commissions, rechargeable

expenses and sales of materials performed subject

to specific contract. Where recorded revenue

exceeds amounts invoiced to clients, the excess is

classified as accrued income and where recorded

revenue is less than amounts invoiced to clients, the

difference is classified as deferred income.

Cost of sales include amounts payable to external

suppliers where they are retained at the Group’s

discretion to perform part of a specific client project

or service where the Group has full exposure to the

benefits and risks of the contract with the client.

(4) Goodwill and other intangible assets

In accordance with IFRS 3 Business Combinations,

goodwill arising on acquisitions is capitalised as an

intangible asset. Other intangible assets are also

identified and amortised over their useful economic

lives on a straight line basis. Examples of these are

licences to trade, and client contracts. The useful

economic lives vary from 3 months to 8 years.

Goodwill is not amortised.

Consolidated Financial Statements – Accounting Policies (continued)

31

Under IAS 36 Impairment of Assets, goodwill is

allocated to cash generating units for the purpose of

impairment testing. The allocation is made to each

cash generating unit that is expected to benefit from

the business combination in which goodwill arose

and identified according to operating segment.

The carrying values of goodwill for each cash

generating unit is reviewed annually for impairment

on the basis stipulated in IAS 36 and adjusted to

the recoverable amount. Typically, such a review

will entail an assessment of the present value of

projected returns from the asset over a 3 to 5 year

projection period, and growth assumptions based

on expected overall sector growth for subsequent

years, to a maximum period of 20 years.

(5) Property, plant and equipment

Property, plant and equipment are stated at historical

cost. Depreciation is provided at rates calculated

to write off the cost, less estimated residual value, of

each asset, over their estimated useful economic

lives as follows:-

Leasehold improvements – over the remaining

term of the lease

Motor vehicles – 25% pa. straight line

Computer equipment – 33% pa. straight line

Fixtures, fittings and office equipment – 25% pa.

straight line

(6) Available-for-sale investments

Investments classified as available-for-sale are

initially recorded at fair value including transaction

costs. Such instruments are subsequently measured

at fair value with gains and losses being recognised

in other comprehensive income until the instrument

is disposed of or is determined to be impaired, at

which time the cumulative gain or loss previously

recognised in other comprehensive income is

recycled to the income statement and recognised

in profit or loss for the period. Impairment losses are

recognised in the income statement when there is

objective evidence of impairment.

(7) Internally generated intangible assets –

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 development expenditure is recognised

only when the following conditions are met:

i. an asset is created that can be identified (such

as software or a new process);

ii. it is probable that the asset created will generate

future economic benefit;

iii. the development cost of the asset can be

measured reliably;

iv. there is the availability of adequate technical,

financial or other resources and an intention to

complete the development and to use or sell

the development

Internally generated assets are amortised on a

straight line basis over their useful lives. Where

no internally generated intangible asset can be

recognised, the development expenditure is

recognised as an expense in the period in which

it is incurred.

Assets subject to amortisation are reviewed for

impairment whenever events or changes in

circumstances indicate that the carrying value

may not be fully recoverable.

(8) Deferred taxation

Deferred tax is the tax expected to be payable or

recoverable on differences between the carrying

value of assets and liabilities in the financial

statements and the corresponding tax bases used in

the computation of taxable profit, and is accounted

for using the balance sheet liability method.

Deferred tax liabilities are generally recognised for

all taxable temporary differences and deferred tax

assets are recognised to the extent that it is probable

that taxable profits will be available against which

deductible temporary differences can be utilised.

Such assets and liabilities are not recognised if

the temporary difference arises from the initial

32

recognition of goodwill or from the initial recognition

of other assets and liabilities in a transaction that

affects neither the tax profit or the accounting profit

other than those on business combinations.

The carrying amount of deferred tax assets is

reviewed at each balance sheet date and reduced

to the extent that it is no longer probable that

sufficient taxable profits will be available to allow all

or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are

enacted or substantially enacted and expected to

apply in the period when the liability is settled or the

asset is realised. Deferred tax is charged or credited

in the income statement, except where it relates to

items charged or credited directly to equity, in which

case the deferred tax is also dealt with in equity.

(9) Leasing and hire purchase commitments

When the Group enters into a lease which entails

taking substantially all the risks and rewards of

ownership of an asset, the lease is treated as a

finance lease or similar hire purchase contract.

The asset is recorded at fair value (or present

value of minimum lease payments if lower) in the

balance sheet as property, plant and equipment

and is depreciated over the estimated useful life

or the term of the lease, whichever is shorter. Future

instalments under such leases, net of finance

charges, are included as a liability. Rentals payable

are apportioned between the finance element,

which is charged to the income statement, and

the capital element which reduces the outstanding

obligation for future instalments.

All other leases are treated as operating leases

and rentals payable are charged to the income

statement on a straight line basis over the lease

terms.

(10) Foreign currencies

Sterling is the functional currency of the company

and the presentational currency of the Group.

The functional currency of subsidiaries is the local

currency of the primary economic environment in

which the entity operates.

Foreign currency transactions are translated

into the functional currency using the exchange

rate prevailing at the date of the transaction.

Foreign exchange gains or losses resulting from

the settlement of such transactions and from the

translation to the rate prevailing at the year end

of monetary assets and liabilities denominated in

foreign currencies are recognised in the income

statement.

The financial statements of subsidiaries whose

functional currency is different to the presentational

currency of the Group are translated into

the presentational currency of the Group on

consolidation. Assets and liabilities are translated at

the exchange rate prevailing at the balance sheet

date. Income and expenses are translated at the

average exchange rate for the year. Exchange

differences arising on consolidation are recognised

in other comprehensive income and the cumulative

effect of these as a separate component in equity.

(11) Pension contributions

Subsidiaries operate defined contribution pension

schemes and contribute to the personal pension

schemes of certain employees or to a Group

personal pension plan. The assets of the schemes

are held separately from those of the subsidiary

companies in independently administered funds.

The amount charged against profits represents the

contributions payable to the scheme in respect of

the accounting period.

(12) Share-based payments

The Group has applied the requirements of IFRS 2

Share-based Payment which requires the fair value

of share-based payments to be recognised as

an expense. In accordance with the transitional

provisions, IFRS 2 has been applied to such equity

instruments that were granted after 7 November

2002 and which had not vested by 1 January 2006.

Consolidated Financial Statements – Accounting Policies (continued)

33

This standard has been applied to various types of

share-based payments as follows:

i. Share options

Certain employees receive remuneration in

the form of share options. The fair value of the

equity instruments granted is measured on the

date at which they are granted by using the

Black-Scholes model, and is expensed to the

income statement over the appropriate vesting

period.

ii. Acquisition related employee remuneration

expenses

In accordance with IFRS 3 Business Combinations

and IFRS 2 Share-based Payment, certain

payments to employees in respect of earn out

arrangements are treated as remuneration

within the income statement.

(13) Financial instruments

Financial assets and financial liabilities are

recognised on the Group’s balance sheet when

the Group has become a party to the contractual

provisions of the instrument.

i. Trade receivables

Trade receivables are classified as loans

and receivables and are initially recognised

at fair value and subsequently measured

at amortised cost in accordance with IAS

39 Financial Instruments: recognition and

measurement. A provision for impairment

is made where there is objective evidence,

(including customers with financial difficulties or

in default on payments) that amounts will not

be recovered in accordance with original terms

of the agreement. A provision for impairment

is established when the carrying value of the

receivable exceeds the present value of the

future cash flow discounted using the original

effective interest rate. The carrying value of the

receivable is reduced through the use of an

allowance account and any impairment loss is

recognised in the income statement.

ii. Cash and cash equivalents

Cash and cash equivalents comprise cash in

hand and at bank and other short-term deposits

held by the Group with maturities of less than

three months.

iii. Financial liabilities and equity

Financial liabilities and equity instruments are

classified according to the substance of the

contractual arrangements entered into. An

equity instrument is any contract that evidences

a residual interest in the assets of the Group

after deducting all of its liabilities.

iv. Bank borrowings

Interest-bearing bank loans and overdrafts

are recorded initially at their fair value, net of

direct transaction costs. Such instruments are

subsequently carried at their amortised cost and

finance charges, including premiums payable

on settlement or redemption, are recognised

in the income statement over the term of the

instrument using an effective rate of interest.

v. Trade payables

Trade payables are initially recognised at fair

value and subsequently measured at amortised

cost.

vi. Derivative financial instruments and hedge

accounting

The Group’s activities expose the entity primarily

to foreign currency and interest rate risk. The

Group uses interest rate swap contracts to

hedge interest rate exposures.

Interest rate swap contracts are initially

recognised at fair value on the date the contract

is entered into and subsequently remeasured

at their fair value. Changes in the fair value are

recorded in the income statement.

34

(14) Accounting estimates and judgements

The directors consider the critical accounting

estimates and judgements used in the financial

statements and concluded that the main areas of

judgements are:

i. Revenue recognition policies in respect of

contracts which straddle the year end.

ii. Contingent deferred consideration payments in

respect of acquisitions.

iii. Recognition of share-based payments.

iv. Valuation of intangible assets.

These estimates are based on historical experience

and various other assumptions that management

and the board of directors believe are reasonable

under the circumstances and are discussed in

more detail in their respective notes. The Group also

makes estimates and judgements concerning the

future and the resulting estimate may, by definition,

vary from the related actual results.

(15) Provisions

Provisions are recognised when the Group has a

present obligation (legal or constructive) as a result

of a past event, it is probable that an outflow of

resources will be required to settle this obligation and

a reliable estimate can be made of the amount of

the obligation. Expected future cash flows to settle

provisions are discounted to present value.

(16) Segment reporting

Operating segments are reported in a manner

consistent with the internal reporting provided to

the chief operating decision maker. The chief

operating decision maker, which is responsible for

allocating resources and assessing performance

of the operating segments has been indentified as

the board of directors.

Consolidated Financial Statements – Accounting Policies (continued)

35

1 SEGMENTAL INFORMATION

Adoption of IFRS 8 Operating Segments

The Group has adopted IFRS 8 Operating Segments during the year. The standard supersedes IAS 14 Segment

Reporting and is effective for the year ended 31 December 2009. IFRS 8 requires disclosure of segment

information on the basis of information reported internally to the chief operating decision maker for decision

making purposes. The Group considers that the role of chief operating decision maker is performed by the

plc’s board of directors. IAS 14 required segmental information to be reported for business segments and

geographical segments based on assets and operations that provided products and services subject to

different risks and returns. The adoption of IFRS 8 has not had any impact on the performance or position of

the Group.

For management purposes, the Group is organised into two operating groups; Cello Research and Consulting,

and Tangible Group. These groups are the basis on which the Group reports internally to the plc’s board of

directors, who have been identified as the chief operating decision makers.

The principal activities are as follows:

Cello Research and Consulting

The Research and Consulting Group provide both qualitative and quantitative research to a global range

of clients across a range of sectors. This research combined with a consulting capability puts the Group in a

unique position to add real value to client relationships.

Tangible Group

The Tangible Group offers results orientated and customer focused marketing, with particular strength in direct

marketing. Focus is on three key delivery areas; Insight, marketing delivery, and production.

Revenues of £3.85m (2008: £4.30m) are derived from the Group’s largest client and these revenues are

included in Cello Research and Consulting.

Notes to the Consolidated Financial Statementsfor the year ended 31 December 2009

36

1 SEGMENTAL INFORMATION continued

for the year ended 31 December 2009

Research and Consulting

£’000

Tangible Group £’000

Unallocated Corporate Expenses

£’000Group £’000

Profit and loss

Revenue 59,807 66,853 – 126,660

Operating income 36,301 24,158 – 60,459

Headline operating profit (headline segment

result)

Exceptional items

Amortisation of intangible assets

Acquisition related employee expenses

5,575

(918)

(315)

(217)

1,814

(1,031)

(140)

54

(1,446)

–

–

–

5,943

(1,949)

(455)

(163)

Operating profit before impairments

Impairment of intangible assets

Impairment of goodwill

Impairment of available-for-sale investments

4,125

(778)

(4,637)

(177)

697

–

(2,746)

–

(1,446)

–

–

(30)

3,376

(778)

(7,383)

(207)

Operating loss (segment result) (1,467) (2,049) (1,476) (4,992)

Financing income

Finance costs

Fair value gain on derivative financial

instruments

Finance cost of deferred consideration

69

(104)

155

(956)

Loss before tax (5,828)

Other information

Additions to property, plant and equipment 321 371 7 699

Capitalisation of intangible assets – 141 – 141

Depreciation of property, plant and equipment 680 555 12 1,247

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

37

1 SEGMENTAL INFORMATION continued

31 December 2009

Research and Consulting

£’000

Tangible Group £’000

Unallocated Corporate

Assets/ (Liabilities)

£’000Eliminations

£’000Total

£’000

Assets and liabilities

Non current assets

Current assets

43,634

20,143

27,957

16,252

44

999

–

(8,548)

71,635

28,846

Total segment assets 63,777 44,209 1,043 (8,548) 100,481

Deferred tax assets 962

Consolidated total assets 101,443

Segment liabilities (17,163) (13,977) (8,903) 8,548 (31,495)

Borrowings

Corporation tax liabilities

Deferred tax liabilities

Finance leases

(14,529)

(568)

(292)

(133)

Consolidated total liabilities (47,017)

38

1 SEGMENTAL INFORMATION continued

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

for the year ended 31 December 2008

Tangible Group £’000

Unallocated Corporate Expenses

£’000Group £’000

Profit and lossRevenue 64,918 72,712 – 137,630

Operating income 37,861 27,500 – 65,361

Headline operating profit (headline segment result) 6,508 3,708 (2,048) 8,168

Exceptional items Amortisation of intangible assets Acquisition related employee expenses Share option credit

(521)(611)(419)

98

(724)(247)(228)

78

(40)––

274

(1,285)(858)(647)450

Operating profit (segment result) 5,055 2,587 (1,814) 5,828

Financing income Finance cost of deferred consideration Fair value loss on derivative financial instruments Finance costs

243(291)(444)

(1,134)

Profit before tax 4,202

Other information

Additions to property, plant and equipment 742 501 – 1,243

Capitalisation of intangible assets – 119 – 119

Depreciation of property, plant and equipment 843 560 – 1,403

Research and Consulting

£’000

31 December 2008

Research and

Consulting £’000

Tangible Group

£’000

Unallocated Corporate

Assets/ (Liabilities)

£’000Eliminations

£’000Total

£’000

Assets and liabilities

Non current assets

Current assets

50,464

18,591

30,086

18,589

1,337

1,075

–

(6,532)

81,887

31,723

Total segment assets 69,055 48,675 2,412 (6,532) 113,610

Deferred tax assets 1,080

Consolidated total assets 114,690

Segment liabilities (23,452) (17,282) (7,308) 6,532 (41,510)

BorrowingsCorporation tax liabilitiesDeferred tax liabilitiesFinance leases

(14,803)(708)(616)(154)

Consolidated total liabilities (57,791)

39

1 SEGMENTAL INFORMATION continued

The Group’s operations are located in the United Kingdom and the USA.

The following table provides an analysis of the Group’s revenue by geographical market, based on the

billing location of the client:

Geographical

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

UK

Rest of Europe

USA

Rest of the World

98,345

18,790

8,511

1,014

110,091

15,954

10,265

1,320

126,660 137,630

2 FINANCE INCOME AND COSTS

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

Financial income:

Interest receivable on bank deposits

Fair value gains on derivative financial instruments

69

155

243

–

224 243

Finance costs:

Interest payable on bank loans and overdrafts

Interest payable on loan notes

Interest payable in respect of finance leases

Finance costs on cap and collar interest rate hedge

547

3

21

385

974

139

21

–

956 1,134

Notional finance costs on future deferred consideration

Fair value loss on derivative financial instruments

104

–

291

444

1,060 1,869

40

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

3 OPERATING (LOSS)/PROFIT

Notes

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

(a) Operating (loss)/profit is stated after charging/(crediting):

Administration costs:

Staff costs

Operating lease rentals : land and buildings

: other leases

Depreciation of property, plant and equipment : owned assets

: leased assets

Loss/(profit) on disposal of property, plant and equipment

Auditors’ remuneration

Net foreign exchange losses/(profits)

Other occupancy costs

Other administration costs

4

3b

39,682

2,223

307

1,171

76

3

397

263

1,579

8,815

42,047

2,560

310

1,314

89

(48)

402

(522)

1,486

9,555

54,516 57,193

Exceptional items:

Staff redundancies

Property costs

Other

1,372

516

61

978

136

171

1,949 1,285

Other non-headline charges:

Amortisation of intangible assets

Acquisition related employee expenses

Share option credit

Impairment of intangible assets

Impairment of goodwill

Impairment of available-for-sale investments

4

4

455

163

–

778

7,383

207

858

647

(450)

–

–

–

8,986 1,055

(b) Auditors’ remuneration:

Fees payable to Baker Tilly UK Audit LLP for:

– audit services to the parent company

– audit services to subsidiary companies pursuant to legislation

43

238

45

243

Total audit fees 281 288

Non-audit fees:

– taxation services

– interim review

– other services not included above

93

10

13

96

10

8

Total non-audit fees 116 114

Total auditors’ remuneration 397 402

All non-audit fees were payable to associates of Baker Tilly UK Audit LLP.

41

4 STAFF COSTS

The average monthly number of persons (including directors) employed by the Group during the year was

as follows:

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

Cello Research and Consulting

Tangible Group

Head Office

438

344

5

472

361

6

787 839

The aggregate employee costs of these persons were as follows:

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

Wages and salaries

Social security costs

Other pension costs

34,838

3,851

993

36,873

4,150

1,024

Employee costs before non-headline charges/(credits)

Acquisition related employee remuneration expense

Share-based payments – share options

39,682

163

–

42,047

647

(450)

39,845 42,244

Key management remuneration – Directors:

Directors’ emoluments

Social security costs

Money purchase pension contributions

Share-based payments – share options

551

65

51

–

758

90

80

(272)

667 656

Included in the above is £249,000 (2008: £267,000) of emoluments and £29,000 (2008: £29,000) of

pension contributions paid or payable to the highest paid director.

The number of directors to whom retirement benefits accrued under money purchase pension schemes

in the year was 2 (2008: 3).

42

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

5 TAXATION

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

Current tax:

UK corporation tax at 28% (2008: 28.5%)

Adjustment in respect of prior year

864

(413)

1,047

(466)

451 581

Deferred tax:

Origination and reversal of temporary differences

Effect of decrease in tax rate on deferred tax assets

Adjustment in respect of prior year

(108)

–

(104)

225

6

203

(212) 434

Tax charge 239 1,015

Corporation tax is calculated at 28% (2008: 28.5%) of the estimated assessable profit for the year.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.

The charge for the year can be reconciled to the loss per the income statement.

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

(Loss)/profit before taxation (5,828) 4,202

Tax at the UK corporation tax rate of 28% (2008: 28.5%)

Tax effect of expenses not deductible for tax purposes

Effect of decrease in tax rate on deferred tax assets

Prior year corporation tax adjustment

Prior year deferred tax adjustment

(1,632)

2,388

–

(413)

(104)

1,198

74

6

(466)

203

239 1,015

43

6 DISCONTINUED OPERATIONS

The loss for the year from discontinued operations relates to two of the Group’s businesses which have

been closed in the year ended 31 December 2009. These were Digital People Online Limited, the Group’s

digital market research business and Richmark Group Inc, the Group’s quantitative market research agency

based in Chicago.

In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations the income

statement for the year ended 31 December 2008 has been re-presented to include income and expenses

for operations discontinued in the year ended 31 December 2009 in loss from discontinued operations.

An analysis of the result of discontinued operations is as follows:

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

Revenue

Cost of sales

784

(40)

1,497

(274)

Operating income

Administration expenses

744

(997)

1,223

(1,609)

Loss from discontinued operations (253) (386)

7 EQUITY DIVIDENDS

A final dividend of 0.75p (2008: 0.75p) per ordinary share was paid on 17 June 2009 to all shareholders on

the register at 22 May 2009. The total amount of the dividend paid was £439,000 (2008: £334,000).

An interim dividend of 0.50p (2008: 0.50p) per ordinary share was paid on 4 November 2009 to all

shareholders on the register on 9 October 2009. The total amount of the dividend paid was £294,000

(2008: £222,000).

A final dividend of 0.80p (2008: 0.75p) is proposed to be paid on 16 June 2010 to all shareholders on the

register at 21 May 2010. In accordance with IAS 10 Events After the Balance Sheet Date, this dividend has

not been recognised in the consolidated financial statements at 31 December 2009, but if approved will

be recognised in the year ending 31 December 2010.

44

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

8 (LOSS)/EARNINGS PER SHARE

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

(Loss)/earnings attributable to ordinary shareholders

Loss from discontinued operations

(6,359)

253

2,761

386

(Loss)/earnings attributable to ordinary shareholders from continuing

operations

Adjustments to (loss)/earnings:

Exceptional items

Amortisation of intangible assets

Acquisition related employee remuneration expenses

Share-based payments credit

Impairment of intangible assets

Impairment of goodwill

Impairment of available-for-sale investments

Notional finance costs on future deferred consideration payments

Fair value (gain)/loss on derivative financial instruments

Tax thereon

(6,106)

1,949

455

163

–

778

7,383

207

104

(155)

(829)

3,147

1,285

858

647

(450)

–

–

–

291

444

(618)

Headline earnings attributable to ordinary shareholders 3,949 5,604

Number

of shares

Number

of shares

Weighted average number of ordinary shares

Dilutive effect of securities:

Deferred consideration shares to be issued

54,212,092

7,324,037

42,831,617

13,823,781

Diluted weighted average number of ordinary shares 61,536,129 56,655,398

Further dilutive effect of securities:

Contingent consideration shares to be issued 5,506,051 9,964,568

Fully diluted weighted average number of ordinary shares 67,042,180 66,619,966

45

8 (LOSS)/EARNINGS PER SHARE continued

Year ended 31 December

2009

Year ended 31 December

2008

Basic (loss)/earnings per share

From continuing operations

From discontinued operations

(11.26)p

(0.47)p

7.35p

(0.90)p

(11.73)p 6.45p

Diluted (loss)/earnings per share

From continuing operations

From discontinued operations

(11.26)p

(0.47)p

5.55p

(0.68)p

(11.73)p 4.87p

Fully diluted (loss)/earnings per share

From continuing operations

From discontinued operations

(11.26)p

(0.47)p

4.72p

(0.58)p

(11.73)p 4.14p

Headline earnings per share

Headline basic earnings per share

Headline diluted earnings per share

Headline fully diluted earnings per share

7.28p

6.42p

5.89p

13.08p

9.89p

8.41p

Headline earnings per share and fully diluted (loss)/earnings per share have been presented to provide

additional information which may be useful to the readers of these financial statements.

Basic (loss)/earnings per share is calculated by dividing the (loss)/earnings attributable to ordinary shareholders

by the weighted average number of ordinary shares in issue during the year, excluding treasury shares,

determined in accordance with the provisions of IAS 33 Earnings Per Share.

Diluted (loss)/earnings per share is calculated by dividing (loss)/earnings attributable to ordinary shareholders

by the weighted average number of ordinary shares in issue during the year adjusted for the potentially

dilutive ordinary shares for which the conditions of issue have substantially been met but not issued at the

end of the year. Given the loss in the year ended 31 December 2009, the effect of these, potentially dilutive

ordinary shares, are anti-dilutive so dilutive loss per share is deemed to equal basic loss per share.

Fully diluted (loss)/earnings per share is calculated by adjusting the weighted average number of ordinary

shares in issue on the assumption of conversion of all the potentially dilutive ordinary shares. Given the loss in

the year ended 31 December 2009, the effect of these, potentially dilutive ordinary shares, are anti-dilutive

so fully dilutive loss per share is deemed to equal basic loss per share.

The Group’s potentially dilutive shares are to be issued as deferred consideration on completed acquisitions.

46

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

9 GOODwILL 2009

£’000 2008 £’000

Cost

At 1 January 2009

Goodwill arising on acquisitions in the year

Adjustment to fair value of deferred consideration

Impairment of goodwill

76,291

48

(1,030)

(7,383)

77,912

–

(1,621)

–

At 31 December 2009 67,926 76,291

Goodwill represents the excess of cost of acquisition over the fair value of the Group’s share of the net

identifiable assets of the acquired subsidiary at the date of acquisition.

Goodwill arising on acquisition in the year relates to goodwill arising on the acquisition of a 20% stake in

Opticomm Media Limited (“Opticomm”) in the year. Opticomm is accounted for as a subsidiary as Cello

Group plc has options over the remaining 80% of the shares in Opticomm and under the option agreement

has the power to govern the financial and operating policies of Opticomm.

The adjustment to fair value of deferred consideration relates to the changes in estimate to deferred consideration

payable under earn out arrangements in accordance with the terms of the relevant acquisition agreements.

The carrying amount of goodwill has been reduced to its recoverable amount through recognition of an

impairment loss against goodwill. This loss is shown separately in the income statement.

Goodwill is allocated to the Group’s cash-generating units identified according to operating segment.

Goodwill allocated by operating segment is given below: 2009

£’000 2008 £’000

Research and Consulting

Tangible Group

41,405

26,521

46,566

29,725

At 31 December 2009 67,926 76,291

The recoverable amount of each cash-generating unit is determined based on value-in-use calculations.

These calculations use pre-tax cash flow projections using projected returns over the next 4 years, with

growth assumptions based on expected overall sector growth for up to 20 years. Future cash flows are then

discounted to present value using a discount rate based on the Group’s estimated weighted average cost of

capital, risk adjusted for the cash-generating unit as appropriate. The average pre-tax discount rate applied

to the cash flow projections is 7.6%. Management have determined projected returns over the next 4 years

based on past performance, cost rationalisation and expectations of market development.

Following this review, impairment charges within Research and Consulting have been made in respect of

SMT Consulting Limited, the Group’s business intelligence unit and Chairos Holdings Limited, the Group’s HR

consultancy business, due to reduced trading performance in the current economic environment.

47

9 GOODwILL continued

Within Tangible Group, impairment charges have been made in respect of Tangible Financial Limited, the

Group’s specialist financial services agency, and OMP Services Limited, the Group’s digital agency based in

Cirencester, due to reduced trading performance in the current economic environment.

The key assumption in the value-in-use calculation is projected revenue used to calculate projected returns.

Reduction in revenues can be mitigated by cost rationalisations in the Group; as a result there is no material

effect to the carrying value of goodwill as a result of reasonable changes to the revenue assumptions in the

short term.

Impairment charges by segment are given in note 1 to the consolidated financial statements.

10 INTANGIBLE ASSETSDevelopment

costs £’000

Client contracts

£’000Licences

£’000Total

£’000

Cost

At 1 January 2008

Expenditure on development

111

119

1,280

–

3,209

–

4,600

119

At 31 December 2008

Expenditure on development

230

141

1,280

–

3,209

–

4,719

141

At 31 December 2009 371 1,280 3,209 4,860

Amortisation

At 1 January 2008

Charge for the year

–

35

793

422

802

401

1,595

858

At 31 December 2008

Charge for the year

Impairment

35

75

–

1,215

65

–

1,203

315

778

2,453

455

778

At 31 December 2009 110 1,280 2,296 3,686

Net book value

At 31 December 2009

261

–

913

1,174

At 31 December 2008 195 65 2,006 2,266

At 1 January 2008 111 487 2,407 3,005

Client contracts and licences are amortised over their useful economic lives which range from 3 months to

8 years. Development costs are internally generated. Remaining amortisation periods are as follows:

Development costs 4 years

Licences 4 years

48

Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2009

11 PROPERTY, PLANT AND EQUIPMENT

Leasehold improvements

£’000

Computer equipment

£’000

Fixtures, fittings and office

equipment £’000

Motor vehicles

£’000Total

£’000

Cost

At 1 January 2008

Additions

Disposals

Exchange differences

1,850

117

(49)

–

2,457

820

(244)

15

986

124

(84)

7

313

182

(179)

–

5,606

1,243

(556)

22

At 31 December 2008

Additions

On acquisition

Disposals

Exchange differences

1,918

113

–

(28)

–

3,048

423

6

(66)

(8)

1,033

76

–

(3)

(3)

316

87

–

(63)

(1)

6,315

699

6

(160)

(12)

At 31 December 2009 2,003 3,403 1,103 339 6,848

Depreciation

At 1 January 2008

Charge for the year

Disposals

Exchange differences

526

231

(48)

–

1,330

838

(238)

13

274

245

(80)

5

199

89

(172)

–

2,329

1,403

(538)

18

At 31 December 2008

Charge for the year

Disposals

Exchange differences

709

244

(20)

–

1,943

759

(58)

(6)

444

164

(2)

(2)

116

80

(38)

–

3,212

1,247

(118)

(8)

At 31 December 2009 933 2,638 604 158 4,333

Net book value

At 31 December 2009

1,070

765

499

181

2,515

At 31 December 2008 1,209 1,105 589 200 3,103

At 1 January 2008 1,324 1,127 712 114 3,277

The net book value of property, plant and equipment of the Group includes £160,000 (2008: £175,000) of motor

vehicles and £23,000 (2008: £28,000) of other equipment in respect of assets held under finance leases.

49

12 AVAILABLE-FOR-SALE INVESTMENTS

2009 £’000

2008 £’000

At 1 January 2009

Impairment

227

(207)

227

–

At 31 December 2009 20 227

The Group holds 163,936 shares (0.5%) in Pixel Interactive Media Limited, a company listed on the

AIM Market. This company is an Asia-Pacific based interactive media business. The market value of this

investment at 31 December 2009 was £20,000 at 12p per share.

The Group holds 20% of the share capital in TMI Training Consultants Limited, an unquoted company

incorporated in the Republic of Ireland. This company provides brand consulting and training services. This

investment is not being treated as an associate on the grounds of materiality. This investment has been

impaired in full in the year.

The Group held 21% of the share capital in nQual Limited, an unquoted company at 1 January 2009.

nQual was a supplier of online market research solutions which ceased trading in the year. This investment

has been impaired in full in the year.

50

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

13 SUBSIDIARIES

Details of the Company’s principal subsidiary undertakings as at 31 December 2009 are as follows:

Company name

Country of incorporation/

principal operation

Class of share

Proportion of nominal value

of issued shares held

Principal activity

Held directly:2CV LimitedChiaros Holdings LimitedFenix Media LimitedHill Murray Group LimitedInsight Medical Research LimitedLeapfrog Research and Planning LimitedMagnetic Advertising Company LimitedMarket Research International LimitedOpticomm Media Limited*Rosenblatt LimitedRS Group LimitedTangible Group LimitedThe MSI Consultancy LimitedThe Value Engineers Limited

Held indirectly:2CV incBlonde Digital LimitedBrightsource LimitedCello MRUK Research LimitedInsight Research Group USA IncLabinah Management LimitedRS Consulting LimitedStripe PR and Communications LimitedTangible Data LimitedTangible Financial LimitedTangible UK LimitedTangible Response Limited

EnglandEnglandEnglandEnglandEngland

EnglandScotlandEnglandEnglandEnglandEnglandEnglandEnglandEngland

USAScotlandEnglandEngland

USAEnglandEnglandScotlandEnglandEnglandScotlandEngland

OrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinary

OrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinary

100%100%

51%100%100%100%100%100%

20%100%100%100%100%100%

100%84%

100%100%100%100%100%

84%100%100%100%100%

RCRC

TT

RCRC

TRC

TRCRC

TRCRC

RCTT

RCRCRCRC

TTTTT

*Opticomm Media Limited is included as a subsidiary as Cello Group plc has options over the remaining 80% of the shares in Opticomm Media Limited and under the option agreement Cello has the power to govern the financial and operating policies of Opticomm Media Limited.

RC = Cello Research and Consulting T = Tangible Group

51

14 CURRENT ASSETS

2009 £’000

2008 £’000

Trade and other receivables

Trade receivables

Other receivables

Prepayments and accrued income

19,021

907

5,783

19,759

1,287

5,612

25,711 26,658

The average credit period taken on the provision of services was 56 days (2008: 53 days).

The directors consider that the carrying value of trade and other receivables approximates to fair value.

2009 £’000

2008 £’000

Cash and cash equivalents

Cash at bank and in hand

3,135

5,065

Cash of £1,179,000 (2008: £1,053,000) is maintained in a designated account with The Royal Bank of Scotland

plc as security for the loan notes issued on acquisitions and is therefore not freely available to the Group.

Credit risk

The Group’s principal financial assets are bank balances and cash and trade and other receivables.

The Group’s credit risk is primarily attributable to its trade receivables. Amounts presented in the balance

sheet are net of allowances for doubtful debts. Allowance for doubtful debts was £nil at 31 December 2009

(2008: £nil).

The credit risk on bank balances is considered to be limited.

The Group has no significant concentration of credit risk, with exposure spread over a large number of clients.

15 TRADE AND OTHER PAYABLES

2009 £’000

2008 £’000

Trade payables

Other taxation and social security costs

Accruals and deferred income

Other payables

10,124

2,517

12,425

353

11,818

3,658

10,382

775

25,419 26,633

52

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

16 BORROwINGS

2009 £’000

2008 £’000

Bank loans

Loan notes

13,350

1,179

13,750

1,053

14,529 14,803

The borrowings are repayable as follows:

– on demand or within one year

– within two to five years

14,529

–

1,053

13,750

14,529 14,803

Bank loans

At 31 December 2009 the Group had a revolving credit facility of £20.0m of which £6.65m was undrawn

at that date. The revolving credit facility reduced to £17.0m on 1 January 2010.

This revolving credit facility bore interest at 2.25% over LIBOR and is secured by a floating charge over all assets

of the Group. The average interest rate on the revolving credit facility in the year was 3.4% (2008: 6.4%).

Since the end of the year the Group has entered into a new debt facility with The Royal Bank of Scotland plc. This

new facility consists of a £10.0m term loan and a £7.0m revolving credit facility. The term loan is repayable in full

over the term to 31 March 2013. The revolving credit facility is available in full to 31 March 2013. Both the term

loan and the revolving credit facility bear interest at a variable rate of 2.50% to 3.25% over LIBOR.

The amounts drawn down on the revolving credit facility of £13.35m have been included as borrowing

repayable within one year as the revolving credit facility in place on 31 December 2009 was due to expire

on 31 December 2010. Under the terms of the new debt facility entered into since the year end £2.0m will

become payable in 2010.

Loan notes

Loan notes have been issued as part of the consideration for certain acquisitions. Secured loan notes are

secured on cash deposits and by way of guarantee. Cash deposits provided as security are included within

cash and cash equivalents and amount to £1,179,000. Loan notes bear interest at the following rates:

2009 £’000

2008 £’000

Secured

LIBOR less 2%

LIBOR

808

371

956

97

1,179 1,053

17 PROVISIONS

Notes2009 £’000

2008 £’000

Contingent consideration for acquisitions 18 3,315 6,453

53

18 DEFERRED CONSIDERATION FOR ACQUISITIONS2009 £’000

2008 £’000

At 1 January 2009

Settled in the year

Adjustment to provision for additions in prior years

Acquisition related employee remuneration expense

Notional finance costs on future deferred consideration payments

14,433

(7,761)

(1,152)

163

104

30,581

(15,240)

(1,846)

647

291

At 31 December 2009 5,787 14,433

In one year or less:

Consideration for which all conditions have been met

In more than one year but not more than five years:

Contingent consideration for acquisitions

2,472

3,315

7,980

6,453

At 31 December 2009 5,787 14,433

Analysis of consideration for which all conditions have been met:

Cash liabilities

Shares to be issued

1,357

1,115

3,315

4,665

2,472 7,980

Analysis of the contingent consideration:

Cash liabilities

Shares to be issued

1,193

2,122

2,475

3,978

3,315 6,453

Acquisitions made by the Group typically involve an earn out agreement whereby the consideration payable

includes a deferred element that is contingent on the future financial performance of the acquired entity.

Earn out payments are to be in cash (or loan notes) and shares; in the analysis above the minimum

percentage of cash (or loan notes) has been assumed. However, at the Group’s sole discretion, this

percentage can be increased.

Conditions have substantially been met on £2.5m (2008: £8.0m) of earn out and other consideration which is

payable in 2010.

The provision for contingent consideration for acquisitions represents the directors’ best estimate of the amount

expected to be payable in cash (or loan notes) and shares to be issued. The provision is discounted to present

value at the company’s borrowing rate.

As a result of a review of contingent consideration at the year end, the directors’ best estimate of contingent

consideration payable in respect of acquisitions prior to 1 January 2009 has decreased the provision for

consideration payable by £1.2m (2008: £1.8m).

If the remaining earn out conditions are met, based on current expectations, £2.5m will become payable in

2011 and the remaining £0.8m is payable in 2012 or later.

54

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

19 OBLIGATIONS UNDER FINANCE LEASES

A maturity analysis of obligations under finance leases is shown below:

2009 £’000

2008 £’000

Finance leases which expire:

– within one year

– in more than one year but not more than five years

68

65

68

86

133 154

The Group’s policy is to lease certain of its plant, property and equipment under finance leases. The average

lease term is 3 years. The average effective borrowing rate is 16% (2008: 15%). Interest rates are fixed at the

contract date and all leases are on a fixed repayment basis.

All lease obligations are denominated in sterling.

The fair value of the Group’s obligations approximates to their carrying value.

The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets.

20 DERIVATIVE FINANCIAL INSTRUMENTS

2009 £’000

2008 £’000

Cap and collar interest rate hedge at fair value 289 444

On 22 October 2007, the Group entered into a nil cost cap and collar interest rate hedge over £10.0m of

borrowings, which reduced to £9.0m on 1 January 2009 and reduced to £7.0m on 1 January 2010. The

cap and collar interest rate hedge expires on 31 December 2010. The cap and collar are limited to LIBOR

at 6.5% with a floor of 5.01%. At 31 December 2009 the fair value of this hedge is a liability of £289,000

(2008: £444,000). The cap and collar interest rate hedge is included within Level 2 as defined in IFRS 7

(Revised) Financial Instruments: Disclosures.

55

21 DEFERRED TAXATION

The deferred tax asset of £962,000 (2008: £1,080,000) and deferred tax liability of £292,000 (2008:

£616,000) recognised in the financial statements is set out below:

2009 £’000

2008 £’000

Deferred tax assets

Unrelieved tax losses carried forward

Decelerated capital allowances

Unrelieved acquisition related employee remuneration expense

Unrelieved loss on derivative financial instruments

–

262

619

81

45

312

599

124

962 1,080

Deferred tax liabilities

Accelerated capital allowances

Temporary difference between the net book value and the

tax value of intangible assets

Other timing differences

(8)

(256)

(28)

(36)

(580)

–

(292) (616)

670 464

The movement for the year is analysed as follows:

2009 £’000

2008 £’000

At 1 January 2009

Income statement

Recognised in other comprehensive income

Revaluation due to change in tax rate

Foreign exchange differences

464

212

–

–

(6)

599

(434)

222

54

23

At 31 December 2009 670 464

Deferred tax has been calculated using rates that are expected to apply when the asset or liability is

expected to be realised or settled.

56

Notes to the Consolidated Financial Statements (continued)for the year ended 31 December 2009

22 SHARE CAPITAL

Authorised number of 10p shares

Allotted, issued and fully paid number

of 10p sharesShare capital

£’000

At 1 January 2008

Movements in the year

50,000,000

15,000,000

38,843,852

5,717,751

3,884

572

At 31 December 2008

Movements in the year

65,000,000

19,600,000

44,561,603

14,200,594

4,456

1,420

At 31 December 2009 84,600,000 58,762,197 5,876

The company has one class of ordinary shares which carry no right to fixed income.

On 28 March 2008, 67,725 ordinary shares of 10p each were issued to employees of the Group at a

value of 113.0p pursuant to the terms of the deferred consideration contained within the share purchase

agreement with SMT Consulting Limited, a wholly owned subsidiary.

On 17 April 2008, 5,650,026 ordinary shares of 10p each were issued at a value of 114.0p to employees

of the Group and vendors of Insight Medical Research Limited, Silvermills Holdings Limited, Tangible

Communications Limited, Hill Murray Group and Target Direct (Holdings) Limited, all wholly owned subsidiaries,

pursuant to the terms of the share purchase agreements of these companies.

On 16 April 2009, 13,471,067 ordinary shares of 10p each were issued at a value of 32.5p to vendors of The

Value Engineers Limited, The MSI Consultancy Limited, Magnetic Advertising Limited and Market Research

International Limited, all wholly owned subsidiaries, pursuant to the terms of the share purchase agreements

of these companies.

On 23 April 2009, 285,735 ordinary shares of 10p each were issued at a value of 32.8p to the vendor of

Rosenblatt Limited to purchase all of the remaining shares in Rosenblatt pursuant to the terms of the share

purchase agreement of that company.

On 8 May 2009, 443,792 ordinary shares of 10p each were issued at a value of 33.4p to the vendors of

Fenix Media Limited pursuant to the terms of the share purchase agreement of that company. Following

the issue of shares the Group owns 50.7% of Fenix Media Limited.

57

23 SHARE-BASED PAYMENTS

Options

The Group has three share option schemes.

EMI Share Option Scheme and Unapproved Share Option Scheme

In 2004, the company established an EMI Share Option Scheme plan and an Unapproved Share Option

Scheme. 600,000 share options awarded under these schemes have no performance related vesting

criteria and expire on 1 November 2014. 163,266 share options awarded under these schemes can be

exercised from 1 June 2008 until 1 June 2015 on a sliding scale subject to earnings per share growth in the

three years from the date of grant. On 13 March 2006, the Remuneration Committee agreed that no further

awards would be made under these plans. The range of exercise prices of options granted under these

schemes is 100p to 122.5p being the market value of the shares at the date of grant of the options.

PSP Option Scheme

On 13 March 2006 the company established a new Performance Share Plan. Under this plan participants

are awarded options over fully paid shares with an exercise price equal to the nominal value of shares,

currently 10p per share. Options are exercisable three or four years after grant subject to the condition

that earnings per share cannot drop in any year in the vesting period and subject to the extent to which

an earnings per share growth criteria of up to 15% compound has been met.

The following share options were outstanding under these share option schemes at 31 December 2009

and 31 December 2008.

31 December 2009 31 December 2008

Number of

share options

weighted average

exercise price (pence)

Number of share options

Weighted average

exercise price (pence)

Outstanding at the beginning of the year

Granted during the year

Lapsed during the year

763,266

–

–

105

–

–

3,338,617

987,000

(3,562,351)

32

10

10

Outstanding at the end of the year 763,266 105 763,266 105

Exercisable at the end of the year 763,266 105 763,266 105

The Group uses a Black Scholes model to calculate the fair value of options. The key inputs are as follows:

EMI Options

Unapproved Options

PSP Options 2007

PSP Options 2008

Weighted average share price

Weighted average exercise price

Expected volatility

Expected life

Risk free rate

Dividend yield

Weighted average remaining contractual life

115p

123p

17.6%

3 years

6.75%

1%

6 years

115p

123p

17.6%

3 years

6.75%

1%

6 years

148p

10p

17.6%

3.8 years

6.75%

1%

8.5 years

126p

10p

17.6%

3 years

6.00%

1%

9.5 years

58

Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2009

23 SHARE-BASED PAYMENTS continued

Expected volatility has been determined by calculating the historical volatility of the Group’s share price over

the previous 2 years. The expected life used in the model has been adjusted, based on management’s best

estimates, for the effects of the non-transferability, exercise restrictions and behavioural considerations.

At 31 December 2009, 281,633 EMI options (2008: 281,633) and 481,633 unapproved options, (2008: 481,633)

had vested. No share options under the PSP scheme have vested at 31 December 2009 (2008: nil).

The fair value of options granted in the year was £nil (2008: £967,000).

The Group recognised a credit of £nil (2008: £450,000) in the year in relation to equity settled share-based

payment transactions, as the performance criteria were not met.

24 NOTES TO THE CONSOLIDATED CASH FLOw STATEMENT

(a) Reconciliation of profit for the year to net cash inflow from operating activities

Year ended 31 December

2009 £’000

Year ended 31 December

2008 £’000

(Loss)/profit for the year

Financing income

Finance costs of deferred consideration

Fair value (gain)/loss on derivative financial instruments

Other finance costs

Tax

Depreciation

Amortisation of intangible assets

Impairment of intangible assets

Impairment of goodwill

Impairment of available-for-sale assets

Share-based payment expense

Acquisition related employee remuneration expense

Loss/(profit) on disposal of property, plant and equipment

Decrease in receivables

Decrease in payables

(6,320)

(69)

104

(155)

956

239

1,247

455

778

7,383

207

–

163

3

977

(770)

2,801

(243)

291

444

1,134

1,015

1,403

858

–

–

–

(450)

647

(48)

2,062

(232)

Net cash inflow from operating activities 5,198 9,682

(b) Analysis of net debtAt 1 January

2009 £’000

Cash flow £’000

Issue of loan notes

£’000

Foreign exchange

£’000

At 31 December 2009 £’000

Cash and cash equivalents

Loan notes

Bank loans

Finance leases

5,065

(1,053)

(13,750)

(154)

(1,952)

2,187

400

21

–

(2,313)

–

–

22

–

–

–

3,135

(1,179)

(13,350)

(133)

(9,892) 656 (2,313) 22 (11,527)

59

25 COMMITMENTS UNDER OPERATING LEASES

At 31 December 2009 the Group had total commitments under non-cancellable operating leases as follows:

Land and buildings

2009 £’000

Land and buildings

2008 £’000

Other 2009 £’000

Other 2008 £’000

within one year

in more than one year but not more than five years

after five years

1,865

4,595

782

2,621

6,248

1,935

187

173

–

280

309

–

7,242 10,804 360 589

26 RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated

on consolidation and are not disclosed in this note.

Remuneration of key management personnel

The key management personnel of the Group are considered to be the directors. Further information about

the remuneration of the directors is provided in the Report of the Remuneration Committee on pages 20

to 22, and in note 4 to the consolidated financial statements.

27 CONTINGENT LIABILITIES

Under the terms of certain acquisition agreements, additional consideration is payable by the Company

contingent on the future financial performance of the acquired entities. The estimated amount of such

contingent consideration is included in Provisions (note 17 to the consolidated financial statements).

60

Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2009

28 FINANCIAL INSTRUMENTS

Financial risk management

The Group’s activities expose the Group to a number of risks including market risk (foreign currency risk

and interest rate risk), credit risk and liquidity risk. The Group manages these risks through an effective risk

management programme.

Maturity analysis

Non-derivative financial assets

The tables below analyse the Group’s financial assets held for managing liquidity risk which are considered to

be readily saleable or are expected to generate cash inflows to meet cash outflows on financial liabilities.

2009Less than 6 months

£’000Total

£’000

Available-for-sale investments

Cash and cash equivalents

Trade receivables

Other receivables

Accrued income

20

3,135

19,021

907

2,735

20

3,135

19,021

907

2,735

25,818 25,818

2008

Available-for-sale investments

Cash and cash equivalents

Trade receivables

Other receivables

Accrued income

227

5,065

19,759

1,287

2,015

227

5,065

19,759

1,287

2,015

28,353 28,353

Non-derivative financial liabilities

The tables below analyse the Group’s financial liabilities on a contractual gross undiscounted cash flow

basis into maturity groupings based on period outstanding at the balance sheet date up to the contractual

maturity date.

2009

Less than 6 months

£’000

Between 6 months and

1 year £’000

Between 1 and 5 years

£’000Total

£’000

Bank loans

Loan notes

Finance leases

Consideration payable in respect of acquistions

Trade payables

Accruals

Other payables

–

1,179

34

2,472

10,124

6,516

353

13,350

–

34

–

–

–

–

–

–

65

–

–

–

–

13,350

1,179

133

2,472

10,124

6,516

353

Total 20,678 13,384 65 34,127

61

28 FINANCIAL INSTRUMENTS continued

2008

Less than 6 months

£’000

Between 6 months and

1 year £’000

Between 1 and 5 years

£’000Total

£’000

Bank loans

Loan notes

Finance leases

Consideration payable in respect of acquistions

Trade payables

Accruals

Other payables

–

1,053

34

7,980

11,818

6,236

775

–

–

34

–

–

–

–

13,750

–

86

–

–

–

–

13,750

1,053

154

7,980

11,818

6,236

775

Total 27,896 34 13,836 41,766

The Group monitors rolling forecasts of the Group’s liquidity position on the basis of expected operating

cash flow.

In addition, at 31 December 2009, the Group had a committed undrawn bank facility of £6.65m (2008:

£6.25m) which can be accessed as considered necessary. This facility expires on 31 December 2010.

Since the year end the Group has entered into a new debt facility which is disclosed in note 16 to the

consolidated financial statements.

Foreign currency risk

The Group operates in a number of markets across the world and is exposed to foreign exchange risk

arising from various currency exposures in respect of trade receivables and trade payables, in particular

with respect to the US dollar and the euro. This risk is considered to be low.

Sensitivity analysis

The Group has derived the following sensitivities based on variations of 30% in the US dollar and the euro.

2009 £’000

2008 £’000

Impact on equity and profit after tax

30% increase in US dollar fx rate against pound sterling

30% decrease in US dollar fx rate against pound sterling

30% increase in euro fx rate against pound sterling

30% decrease in euro fx rate against pound sterling

(63)

62

(57)

70

(48)

89

(48)

88

Interest rate risk

The Group’s interest rate exposure arises mainly from its floating rate interest bearing borrowings.

The table below shows the Group’s financial assets and liabilities split by those bearing fixed rates, floating

rates and those that are non-interest bearing.

62

Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2009

28 FINANCIAL INSTRUMENTS continued

Financial assets2009

Floating rate £’000

Non-interest bearing

£’000Total

£’000

Available-for-sale investments

Cash and cash equivalents

Trade receivables

Other receivables

Accrued income

–

3,135

–

–

–

20

–

19,021

907

2,735

20

3,135

19,021

907

2,735

3,135 22,683 25,818

2008

Available-for-sale investments

Cash and cash equivalents

Trade receivables

Other receivables

Accrued income

–

5,065

–

–

–

227

–

19,759

1,287

2,015

227

5,065

19,759

1,287

2,015

5,065 23,288 28,353

Financial liabilities2009

Fixed rate

£’000Floating rate

£’000

Non-interest bearing

£’000Total

£’000

Trade payables

Accruals

Other payables

Consideration payable in respect of acquisitions

Bank loans

Loan notes

Obligations under finance leases

–

–

–

–

–

–

133

–

–

–

–

13,350

1,179

–

10,124

6,516

353

2,472

–

–

–

10,124

6,516

353

2,472

13,350

1,179

133

133 14,529 19,465 34,127

2008

Trade payables

Accruals

Other payables

Consideration payable in respect of acquisitions

Bank loans

Loan notes

Obligations under finance leases

–

–

–

–

–

–

154

–

–

–

–

13,750

1,053

–

11,818

6,236

775

7,980

–

–

–

11,818

6,236

775

7,980

13,750

1,053

154

154 14,803 26,809 41,766

63

28 FINANCIAL INSTRUMENTS continued

Sensitivity analysis

The Group has derived a sensitivity analysis based on 50% variances in floating interest rates.

2009 £’000

2008 £’000

Impact on equity and profit after tax 50% increase in base rate of interest50% decrease in base rate of interest

(24)24

(36)15

Credit risk exposure

Credit risk predominantly arises from financial asset investments and trade receivables and cash and cash

equivalents. The risk is mitigated by rigorous credit control procedures and trade debtor insurance where

appropriate.

The Group’s maximum exposure to credit risk, relating to its financial assets is equivalent to their carrying

value as disclosed below. All financial assets have a fair value which is equal to their carrying value.

2009 £’000

2008 £’000

Maximum exposure to credit riskAvailable-for-sale investmentsTrade and other receivablesCash and cash equivalents

2022,6633,135

22723,061

5,065

25,818 28,353

Capital management

The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the

Group will continue to trade in the foreseeable future.

The Group considers its capital to include share capital, share premium, retained earnings, interest in own

shares and debt as noted below.

Debt includes short and long-term borrowings (including overdrafts and lease obligations) net of cash and

cash equivalents, where under the same facility agreement.

The Group does not have any externally imposed capital requirements. The debt and cash are substantially

with one financial institution under one facility agreement.

2009 £’000

2008 £’000

Total debtLess: cash and cash equivalents

14,662(3,135)

14,957(5,065)

Net debt 11,527 9,892

Total equity 54,754 56,899

Debt to capital ratio 0.21 0.17

64

28 FINANCIAL INSTRUMENTS continued

Finance income

An analysis of finance income is set out in note 2 to the consolidated financial statements.

Finance costs

An analysis of interest payable and similar charges is set out in note 2 to the consolidated financial

statements.

Non-derivative financial instruments recognised in the balance sheet

2009

Loans and receivables

£’000Available-for-sale

£’000Total

£’000

Non-current financial assets

Available-for-sale investments – 20 20

– 20 20

Current financial assets

Trade receivables

Other receivables

Accrued income

Cash and cash equivalents

19,021

907

2,735

3,135

–

–

–

–

19,021

907

2,735

3,135

25,798 – 25,798

Other financial

liabilities £’000

Liabilities at fair value through profit or loss

£’000

Total £’000

Current financial liabilities

Trade payables

Accruals

Other payables

Consideration payable in respect of acquisitions

Obligations under other finance leases

Bank loans

Loan notes

10,124

6,516

353

2,472

68

13,350

1,179

–

–

–

–

–

–

–

10,124

6,516

353

2,472

68

13,350

1,179

34,062 – 34,062

Non-current financial liabilities

Obligations under finance leases 65 – 65

65 – 65

Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2009

65

28 FINANCIAL INSTRUMENTS continued

2008

Loans and receivables

£’000Available-for-sale

£’000Total

£’000

Non-current financial assetsAvailable-for-sale investments – 227 227

– 227 227

Current financial assetsTrade receivablesOther receivablesAccrued incomeCash and cash equivalents

19,7591,2872,0155,065

––––

19,7591,2872,0155,065

28,126 – 28,126

Other financial liabilities

£’000

Liabilities at fair value through profit or loss

£’000

Total £’000

Current financial liabilities

Trade payables

Accruals

Other payables

Consideration payable in respect of acquisitions

Obligations under other finance leases

Loan notes

11,818

6,236

775

7,980

68

1,053

–

–

–

–

–

–

11,818

6,236

775

7,980

68

1,053

27,930 – 27,930

Non-current financial liabilities

Bank loans

Obligations under finance leases

13,750

86

– 13,750

86

13,836 – 13,836

66

28 FINANCIAL INSTRUMENTS continued

Available-for-sale investments

Details of available-for-sale investments are given in note 12 to the consolidated financial statements.

Financial assets

Financial assets comprise trade and other receivables and cash and cash equivalents.

Trade and other receivables are as follows:

2009 £’000

2008 £’000

Trade receivables

Other receivables

Accrued income

19,021

907

2,735

19,759

1,287

2,015

22,663 23,061

The average credit period taken is 56 days (2008: 53 days).

The Group holds no collateral against these receivables at the balance sheet date.

The following table provides analysis of trade and other receivables that were past due at 31 December,

but not impaired. The Group believes that the balances are ultimately recoverable based on a review

of past payment history and the current financial status of customers. There are no material bad debt

provisions at either 31 December 2009 or 31 December 2008.

2009 £’000

2008 £’000

Up to three months

Up to six months

5,072

266

5,204

740

5,338 5,944

There are no significant credit risks arising from financial assets that are neither past due nor impaired.

At 31 December 2009, £20.1m (2008: £21.6m) of receivables were denominated in sterling, £1.7m (2008:

£0.6m) in US dollars and £0.9m (2008: £0.9m) in euros.

The directors consider that the carrying amount of trade and other receivables to be equal to their fair

value.

Cash and cash equivalents of £3.1m (2008: £5.1m) comprise cash and short-term deposits held by the

Group. The carrying amount of these assets equals their fair value.

Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2009

67

28 FINANCIAL INSTRUMENTS continued

Bank loans and overdrafts

20092009 £’000

2008 £’000

Bank loans 13,350 13,750

All loans in both years are denominated in sterling.

The weighted average interest rates paid were:2009 2008

Bank overdrafts 2.8% 6.0%

Bank loans 3.1% 6.9%

The directors estimate that the fair value of the Group’s borrowings is not significantly different to the

carrying value.

In October 2007 the Group entered into a new £20.0m revolving credit facility with Royal Bank of Scotland

plc. This facility was revised in December 2008. Under the revised terms the facility is available until December

2010 and reduces to £17.0m on 1 January 2010. The interest rate payable is 2.25% above LIBOR.

Since the end of the year the Group has entered into a new debt facility with The Royal Bank of Scotland

plc. This new facility consists of a £10m term loan and a £7m revolving credit facility. The term loan is

repayable in full over the term to 31 March 2013. The revolving credit facility is available in full to 31 March

2013. Both the term loan and the revolving credit facility bear interest at a variable rate of 2.50% to 3.25%

over LIBOR.

In addition to the loan facilities the Group has a £2.0m working capital facility which is agreed until January

2010 and which bears interest at 2.25% above the Bank of England base rate. Since the year end the

Group has renewed this working capital facility which is agreed until 31 March 2011 and bears interest of

3.25% above the Bank of England base rate.

Obligations under finance leases

It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average

lease term is 3–4 years. For the year ended 31 December 2009, the average effective borrowing rate was

16% (2008: 15%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis

and no arrangements have been entered into for contingent rental payments. All lease obligations are

denominated in pounds sterling.

The fair value of the Group’s lease obligations equals their carrying amount.

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets. The

net book value of the secured assets is disclosed in note 11 to the consolidated financial statements.

68

28 FINANCIAL INSTRUMENTS continued

Consideration payable in respect of acquisitions

Acquisitions made by the Group typically involve an earn out agreement whereby the consideration

payable includes a deferred element that is contingent on future financial performance of the required

entity.

Conditions have substantially been met on £2.5m (2008: £8.0m) of earn out and other consideration which

is payable in 2010. Of this amount, £1.4m (2008: £3.3m) is payable in cash or loan notes with the remaining

£1.1m (2008: £4.7m) payable in shares. However, at the Group’s sole discretion, the proportion payable in

cash or loan notes can be increased.

Other financial liabilities

Trade and other payables are as follows:

2009 £’000

2008 £’000

Trade payables

Accruals

Other payables

10,124

6,516

353

11,818

6,236

775

16,993 18,829

At 31 December 2009, £15.8m (2008: £17.9m) of payables were denominated in sterling, £0.8m (2008:

£0.3m) in US dollars and £0.4m (2008: £0.6m) in euros.

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing

costs. The average credit period taken for trade purchases is 48 days (2008: 43 days).

The directors consider that the carrying amount of trade payables to be equal to their fair value.

Derivative financial instruments

In 2007 the Group entered into a nil cost cap and collar interest rate hedge which expires on 31 December

2010. Under this arrangement £10.0m, which reduced to £9.0m in 2009 and reduces to £7.0m in 2010, of

the Group’s borrowings is subject to a maximum LIBOR interest rate of 6.50% and a minimum of 5.01% pa.

The fair value attributed to this instrument at 31 December 2009 is a liability of £289,000 (2008: £444,000).

Fair value disclosures

The loss recognised in the income statement on available-for-sale financial assets is presented separately

on the income statement as impairment of available-for-sale investments.

The gain recognised in profit and loss on derivative financial liabilities is presented separately on the income

statement as fair value gain on derivative financial instruments.

The movement in fair value can be reconciled as follows:

Available-for-sale assets 2009 £’000

Derivative financial statements

2008 £’000

Total £’000

At 1 January 2009 227 (444) (217)

Total gains and losses recognised

in the income statement (207) 155 (52)

At 31 December 2009 20 (289) (269)

Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2009

69

Company Balance Sheet 31 December 2009

Notes

31 December 2009 £’000

31 December 2008 £’000

FIXED ASSETS

Tangible assets

Investments

1

2

24

79,407

30

89,262

79,431 89,292

CURRENT ASSETS

Debtors

Cash at bank and in hand

3 6,535

960

5,453

1,056

7,495 6,509

CREDITORS: Amounts falling due within one year 4 (27,552) (21,308)

NET CURRENT LIABILITIES (20,057) (14,799)

TOTAL ASSETS LESS CURRENT LIABILITIES

CREDITORS: Amounts falling due after more than

one year

PROVISIONS FOR LIABILITIES

5

6

59,374

–

(2,854)

74,493

(13,750)

(5,890)

NET ASSETS 56,520 54,853

CAPITAL AND RESERVES

Called up share capital

Share premium account

Capital redemption reserve

Merger reserve

Share-based payment reserve

Profit and loss account

10

12

12

12

12

12

5,876

34,945

50

10,496

73

5,080

4,456

31,745

50

10,496

73

8,033

EQUITY SHAREHOLDERS’ FUNDS 13 56,520 54,853

Approved and authorised for issue by the Board on 15 March 2010 and signed on its behalf by

Mark Scott Director

Mark Bentley Director

70

Accounting Policiesfor the year ended 31 December 2009

1 BASIS OF ACCOUNTING

The Company financial statements have been prepared under the historical cost convention and in

accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP). As permitted by

The Companies Act 2006, the company’s profit and loss account has not been presented.

2 TANGIBLE FIXED ASSETS

Tangible fixed assets are stated at historical cost. Depreciation is provided at rates calculated to write off the

cost, less estimated residual value, of each asset, over their estimated useful economic lives as follows:

Computer equipment 33% pa. straight line

Fixtures, fittings and office equipment 25% pa. straight line

3 INVESTMENTS

Fixed asset investments are stated at cost less provision for any impairment in value.

4 DEFERRED TAXATION

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the

balance sheet date where transactions or events that result in an obligation to pay more tax in the future

or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are

differences between the Company’s taxable profits and its results as stated in the financial statements that

arise from the inclusion of gains and losses in tax assessments in periods different from those in which they

are recognised in the financial statements.

Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be

recoverable against suitable taxable profits in the future.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing

differences are expected to reverse, based on tax rates and laws that have been enacted or substantially

enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

5 SHARE-BASED PAYMENTS

The Company has applied the requirements of FRS 20 Share-based Payment which requires the fair value

of share-based payments to be recognised as an expense. In accordance with the transitional provisions,

FRS 20 has been applied to such equity instruments that were granted after 7 November 2002 and which

had not vested by 1 January 2006.

This standard has been applied to various types of share-based payments as follows:

i. Share options

Certain employees receive remuneration in the form of share options. The fair value of the equity

instruments granted is measured on the date at which they are granted by using the Black-Scholes

model, and is expensed to the profit and loss account over the appropriate vesting period.

ii. Acquisition related employee remuneration expenses

Having regard to the basis for conclusions behind FRS 20 and in accordance with FRS 18

Accounting Policies, these payments are treated as remuneration within the profit and loss account

of subsidiary companies.

6 PROVISIONS

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of

a past event, it is probable that an outflow of resources will be required to settle this obligation and a reliable

estimate can be made of the amount of the obligation. Expected future cashflows to settle provisions are

discounted to present value.

7 RELATED PARTY TRANSACTIONS

In accordance with FRS 8 Related Party Disclosures, the company is exempt from disclosing transactions

with its subsidiaries as they are included in the consolidated financial statements.

71

1 TANGIBLE FIXED ASSETS

Computer equipment

£’000

Fixtures, fittings and office

equipment £’000

Total £’000

Cost

At 1 January 2009

Additions

35

–

36

7

71

7

At 31 December 2009 35 43 78

Depreciation

At 1 January 2009

Charged for the year

28

4

13

9

41

13

At 31 December 2009 32 22 54

Net book value

At 31 December 2009 3 21 24

At 31 December 2008 7 23 30

2 FIXED ASSET INVESTMENTS

Subsidiaries £’000

Other investments

£’000 Total

£’000

At 1 January 2009

Adjustment to fair value of deferred consideration

Impairment

Acquired in the year

89,050

(1,031)

(8,682)

50

212

–

(192)

–

89,262

(1,031)

(8,874)

50

At 31 December 2008 79,387 20 79,407

Subsidiaries:

The Company’s principal trading subsidiaries are listed in note 13 to the consolidated financial

statements.

Other investments:

The Company holds 163,936 shares (0.5%) in Pixel Interactive Media Limited, a company listed on the

AIM Market. This company is an Asia-Pacific based interactive media business. The market value of this

investment at 31 December 2009 was £20,000, at 12p per share.

Notes to the Company Financial Statements for the year ended 31 December 2009

72

3 DEBTORS

Notes 2009 £’000

2008 £’000

Amounts falling due within one year:

Amounts owed by subsidiary companies

Deferred tax asset

Prepayments and accrued income

Corporation tax

8

5,947

2

38

548

4,755

9

19

670

6,535 5,453

4 CREDITORS: Amounts falling due within one year

Notes 2009 £’000

2008 £’000

Bank overdraft (see below)

Trade creditors

Other taxation and social security costs

Accruals and deferred income

Amounts owed to Group companies

Loan notes (see below)

Bank loan (see below)

Consideration payable in respect of acquisitions

Other creditors

7

7,954

118

102

393

2,543

1,179

13,350

1,906

7

6,277

110

85

379

6,381

1,053

–

7,012

11

27,552 21,308

Bank overdraft

The bank overdraft is part of the Group wide working capital facility with Royal Bank of Scotland plc, which

holds a debenture over the assets of the Company and its subsidiaries. There is a cross-guarantee between

the Company and its subsidiaries. Since the year end the Group wide working capital facility has been

renewed until 31 March 2011.

Bank loan

At 31 December 2009 the Company had a revolving credit facility of £20.0m of which £6.65m was undrawn

at that date. The revolving credit facility reduced to £17.0m on 1 January 2010.

This revolving credit facility bore interest at 2.25% over LIBOR and is secured by a floating charge over all assets

of the Company. The average interest rate on the revolving credit facility in the year was 3.4% (2008: 6.4%).

Since the end of the year the Company has entered into a new debt facility with The Royal Bank of Scotland

plc. This new facility consists of a £10.0m term loan and a £7.0m revolving credit facility. The term loan is

repayable in full over the term to 31 March 2013. The revolving credit facility is available in full to 31 March

2013. Both the term loan and the revolving credit facility bear interest at a variable rate of 2.50% to 3.25%

over LIBOR.

The amounts drawn down on the revolving credit facility of £13.35m have been included as repayable

within one year as the revolving credit facility in place on 31 December 2009 was due to expire on 31

December 2010. Under the terms of the new debt facility entered into since the year end £2.0m will

become payable in 2010.

Notes to the Company Financial Statements (continued) for the year ended 31 December 2009

73

4 CREDITORS: Amounts falling due within one year continued

Loan notes

Loan notes have been issued as part of the consideration for certain acquisitions. Secured loan notes are

secured on cash deposits and by way of guarantee. Cash deposits provided as security are included within

cash at bank and in hand and amount to £1,179,000. Loan notes bear interest at the following rates:

2009 £’000

2008 £’000

Secured

LIBOR less 2%

LIBOR

808

371

956

97

1,179 1,053

5 CREDITORS: Amounts falling due after more than one year 2009 £’000

2008 £’000

Bank loans – 13,750

6 PROVISIONS FOR LIABILITIES

Notes2009 £’000

2008 £’000

Contingent consideration for acquisitions 7 2,854 5,890

7 DEFERRED CONSIDERATION FOR ACQUISITIONS£’000

At 1 January 2009

Settled in the year

Adjustment to provision for additions in prior years

Notional finance costs on future deferred consideration payments

12,902

(7,095)

(1,151)

104

At 31 December 2009 4,760

Due in one year or less:

Consideration for acquisitions

Due after more than one year but not more than five years:

Contingent consideration for acquisitions

1,906

2,854

At 31 December 2009 4,760

Analysis of consideration payable for acquisitions is as follows:2009 £’000

2008 £’000

Cash liabilities

Shares to be issued

1,054

852

2,796

4,216

1,906 7,012

74

7 DEFERRED CONSIDERATION FOR ACQUISITIONS continued

Analysis of the contingent consideration in the Company financial

statements is as follows:

2009 £’000

2008 £’000

Earn out related cash liabilities

Shares to be issued

985

1,869

2,194

3,696

2,854 5,890

Earn out payments are to be in cash and shares, in the analysis above the minimum percentage of cash

has been assumed. However, at the Company’s sole discretion, this percentage can be increased.

Acquisitions made by the Company typically involve an earn out agreement whereby the consideration

payable includes a deferred element that is contingent on the future financial performance of the

acquired entity.

Earn out payments are to be in cash (or loan notes) and shares; in the analysis above the minimum

percentage of cash (or loan notes) has been assumed. However, at the Company’s sole discretion, this

percentage can be increased.

Conditions have substantially been met on £1.9m of earn out and other consideration which is payable

in 2010.

The provision for contingent consideration for acquisitions represents the directors’ best estimate of the

amount expected to be payable in cash or loan notes and shares to be issued. The provision is discounted

to present value at the company’s borrowing rate.

As a result of a review of contingent consideration at the year end, the directors’ best estimate of contingent

consideration payable in respect of acquisitions prior to 1 January 2008 has decreased the provision for

consideration payable by £1.2m.

If the remaining earn out conditions are met, £2.0m will be payable in 2011 and the remaining £0.8m is

payable in 2012 or later.

8 DEFERRED TAXATION2009 £’000

2008 £’000

Deferred tax assets:

Other timing differences 2 9

The movement in the year of £7,000 is included in the tax charge in the profit and loss account.

Notes to the Company Financial Statements (continued) for the year ended 31 December 2009

75

9 FINANCIAL INSTRUMENTS

The Company’s financial instruments principally comprise borrowings and various items such as trade

debtors and creditors that arise directly from operations. The main purpose of these financial instruments is

to raise money for the Group’s operations.

All of the material activities of the Company take place in the United Kingdom and consequently there is

minimal exchange risk. As at 31 December 2009 the Company had no material foreign currency exposures.

It is the company’s policy not to enter into any foreign currency contracts.

The main risk arising from the Company’s financial instruments is interest rate risk and liquidity risk.

The directors monitor cash flow of the Company to ensure that there is sufficient liquidity to meet foreseeable

needs. The operations of the Company generate cash and the planned growth of activities are cash

generative. In addition the Company operates a working capital facility of £2.0m and, a loan facility of

up to £20.0m of which £13.35m (2008: £13.75m) has been drawn down at 31 December 2009. These

facilities are reviewed on a rolling basis and both facilities are secured by an unlimited inter company

composite guarantee.

Since the year end the Company has entered in to a new debt facility which is disclosed in note 16 to the

consolidated financial statements, and renewed its working capital facility until 31 March 2011.

The Company has taken advantage of the exemption in respect of the disclosure of short-term debtors

and creditors.

The fair value of the Company’s financial assets and liabilities is not considered to be materially different

from their book values.

The Company has no financial liabilities other than its bank overdraft, bank loans and loan notes that do

not fall under the exemption for short-term creditors.

Financial liabilitiesFloating rate

financial liabilities

£’000

Fixed rate financial liabilities

£’000Total

£’000

At 31 December 2009 22,483 – 22,483

At 31 December 2008 21,080 – 21,080

Floating rate liabilities at 31 December 2009 comprised the bank overdraft, bank loan and loan notes. All

interest is based on the RBS base rate or LIBOR.

76

9 FINANCIAL INSTRUMENTS continued

Maturity analysis

The maturity profile of the Company’s financial liabilities is as follows:

Bank loans and overdrafts

2009 £’000

Bank loans and overdrafts

2008 £’000

Loan notes 2009 £’000

Loan notes 2008 £’000

Total 2009 £’000

Total 2008 £’000

Repayable Within one year or on demand In more than one year but not more than five years

21,304

–

6,277

13,750

1,179

–

1,053

–

22,483

–

7,330

13,750

21,304 20,027 1,179 1,053 22,483 21,080

10 SHARE CAPITAL2009 £’000

2008 £’000

Authorised:

84,600,000 ordinary shares of 10p each 8,460 6,500

Allotted, issued and fully paid:

58,761,897 ordinary shares of 10p each

5,876

4,456

The company has one class of ordinary shares which carry no right to fixed income.

Details of shares issued in the year are given in note 22 to the consolidated financial statements.

11 SHARE-BASED PAYMENTS

Details of share option awards and key inputs into the Black Scholes model to calculate the fair value of

options are given in note 23 to the consolidated financial statements.

For the year ended 31 December 2009, the Company recognised a credit of £nil in the profit and loss

account (2008: £272,000) in relation to equity settled share-based payment transactions.

Notes to the Company Financial Statements (continued) for the year ended 31 December 2009

77

12 RESERVES

Share premium account

£’000

Capital redemption

reserve £’000

Merger reserve

£’000

Share-based

payment reserve

£’000

Profit and loss

account £’000

Total £’000

Company1 January 2009Profit for the yearDividends paid Purchase of own sharesPremium on allotment of shares during the year

31,745–––

3,200

50––– –

10,496 ––– –

73––– –

8,033(2,169)

(732)(52)

–

50,397(2,169)

(732)(52)

3,200

31 December 2009 34,945 50 10,496 73 5,080 50,644

13 EQUITY SHAREHOLDERS’ FUNDS2009 £’000

2008£’000

(Loss)/profit for the year

New share capital subscribed

Premium on shares issued in the year (net of expenses)

Dividends paid

Credit for share-based incentive schemes

Share-based payments in subsidiaries

Purchase of own shares

(2,169)

1,420

3,200

(732)

–

–

(52)

7,153

572

5,969

(556)

(272)

(178)

(71)

Net addition to equity shareholders’ funds

Opening equity shareholders’ funds

1,667

54,853

12,617

42,236

Closing equity shareholders’ funds 56,520 54,853

78

Notice of Annual General Meeting

Notice is hereby given that the Sixth Annual General

Meeting of the Company will be held at 11-13

Charterhouse Buildings, London EC1M 7AP on

Monday 17 May 2010 at 12.30pm, for the transaction

of the following business:

ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and

Financial Statements for the year ended 31

December 2009, together with the auditors’

report thereon.

2. To declare a final dividend of 0.80p per ordinary

share for the year ended 31 December 2009.

3. To receive and approve the Directors’

Remuneration Report for the year ended 31

December 2009.

4. To re-elect Mark Scott as a Director, who resigns

in accordance with the Company’s Articles of

Association.

5. To re-elect Chris Outram as a Director, who

resigns in accordance with the Company’s

Articles of Association.

6. To re-appoint Baker Tilly UK Audit LLP as auditor

of the Company to hold office until the next

General Meeting at which accounts are

laid and to authorise the Directors to fix their

remuneration.

SPECIAL BUSINESS

To consider and, if thought fit, pass the following

resolutions of which resolutions 7 and 8 are

ordinary resolutions and resolutions 8, 9 and 10

are special resolutions.

7. That, in substitution for existing authorities to

the extent unutilised, the directors be and are

hereby generally and unconditionally authorised

pursuant to section 551 of the Companies Act

2006 (“the Act”) to exercise all powers of the

Company to allot, grant options over, offer or

otherwise deal with or dispose of any relevant

securities (as defined in the Act) up to an

aggregate nominal amount of £2,583,780.30

to such persons, at such times and on such

terms and conditions as the directors determine

during the period expiring (unless previously

renewed, varied or revoked by the Company in

General Meeting) on whichever is the earlier of

the conclusion of the Annual General Meeting

of the Company held in 2011 and the date

falling 15 months after the date of passing of this

resolution, but the Company may make an offer

or agreement before the expiry of this authority

which would or might require relevant securities

to be allotted after expiry of this authority and

the directors may allot relevant securities in

pursuance of that offer or agreement.

8. That, subject to the passing of resolution 7 set

out in the notice convening this meeting, the

directors be empowered pursuant to section

570 of the Act, to allot equity securities (within

the meaning of the Act) of the Company for

cash pursuant to the general authority conferred

on them by resolution 7 as if section 561(1) of

the Act did not apply to any such allotment

provided that this power shall be limited to:

(a) the allotment of equity securities in

connection with an offer of equity securities

(whether by way of a rights issue, open offer

or otherwise), open for acceptance for a

period fixed by the directors, to holders

of ordinary shares on the register on any

fixed record date in proportion (as nearly

as practicable) to their holdings of ordinary

shares, subject to such exclusions or other

such arrangements as the directors may

deem necessary or expedient in relation to

fractional entitlements or legal or practical

problems arising under the laws of, or the

requirements of, any regulatory body or

any stock exchange in, any territory; and

(b) the allotment (otherwise than pursuant to

paragraph (a) above) of equity securities

up to an aggregate nominal amount of

£587,621.97,

and the power hereby conferred shall operate

in substitution for and to the exclusion of any

previous power given to the directors pursuant

79

to section 570 of the Act and shall expire on

whichever is the earlier of the conclusion of

the Annual General Meeting of the Company

held in 2011 and the date falling 15 months

after the date of the passing of this resolution,

unless such power is renewed or extended prior

to such expiry, except that the Company may

before the expiry of any power conferred by this

resolution make an offer or agreement which

would or might require equity securities to be

allotted after such expiry and the directors may

allot equity securities in pursuance of such offer

or agreement as if the power conferred hereby

had not expired.

This power applies in relation to a sale of shares

which is an allotment of equity securities by

virtue of Section 560(2) of the Act as if in the first

paragraph of this resolution the words “pursuant

to the general authority conferred on them by

resolution 8” were omitted.

9. That the Company be and is hereby granted

general and unconditional authority pursuant

to section 701 of the Act to make market

purchases (as defined in section 693 of the Act)

of any of its own ordinary shares of 10p each on

such terms and in such manner as the board

of directors of the Company may from time to

time determine provided that:

(a) the maximum number of shares authorised

to be purchased is 2,938,110 ordinary

shares of 10p each, being 5% of the shares

in issue as at 3 March 2010;

(b) the maximum price which may be paid for

a share is an amount equal to not more

than 105% of the average of the middle

market quotations for the shares taken from

the London Stock Exchange Daily Official

List for the five business days before the day

on which the purchase is made;

(c) the minimum price which may be paid for

a share is 10p exclusive of any attributable

expenses payable by the Company; and

(d) the authority conferred by this resolution

shall expire on the conclusion of the Annual

General Meeting of the Company held in

2011 and the date falling 15 months after

the date of the passing of this resolution,

unless such authority is renewed or

extended prior to such expiry, whichever is

the earlier, except that the Company may,

before such expiry, enter into a contract for

the purchase of its own shares which may

be completed by or executed wholly or

partly after the expiration of this authority.

10. That:

(a) all the provisions of the Company’s

Memorandum of Association (which, by

virtue of Section 28 of the Act, are treated

as provisions of the Company’s Articles

of Association with effect from 1 October

2009) be deleted; and

(b) the Articles of Association produced to the

meeting and signed by the Chairman for

the purpose of identification be approved

and adopted as the new Articles of

Association of the Company in substitution

for, and to the exclusion of the existing

Articles of Association, with effect from the

conclusion of the Annual General Meeting.

The principal changes introduced to the Articles of

Association are set out in Appendix 1.

By order of the Board

Mark Bentley

Company Secretary

16 April 2010

Registered Office

11-13 Charterhouse Buildings

London

EC1M 7AP

80

NOTES TO THE NOTICE OF ANNUAL

GENERAL MEETING

1. As a member of the Company, you are entitled

to appoint a proxy to exercise all or any of your

rights to attend, speak and vote at the Annual

General Meeting and you should have received

a proxy form with this notice of meeting. You can

only appoint a proxy using the procedures set out

in these notes and the notes to the proxy form.

2. A proxy does not need to be a member of the

Company but must attend the Annual General

Meeting to represent you. Details of how to

appoint the Chairman of the Annual General

Meeting or another person as your proxy using

the proxy form are set out in the notes to the

proxy form. If you wish your proxy to speak on

your behalf at the Annual General Meeting you

will need to appoint your own choice of proxy

(not the Chairman) and give your instructions

directly to him/her.

3. You may appoint more than one proxy

provided each proxy is appointed to exercise

rights attached to different shares. You may not

appoint more than one proxy to exercise rights

attached to any one share.

4. As permitted by Regulation 41 of the

Uncertificated Securities Regulations 2001,

Shareholders who hold their shares in

uncertificated form must be entered on the

Company’s share register by 12.30 p.m. on

15 May 2010 in order to be entitled to attend

and vote at the Annual General Meeting. Such

Shareholders may only cast votes in respect of

shares held at such time. Changes to entries on

the register of members after such time on such

date will be disregarded in determining the

rights of any person to attend and vote at the

Annual General Meeting.

5. To be effective, a proxy form must be duly

completed, executed and returned, together

with the power of attorney or other authority,

if any, under which it is signed, or a notarially

certified copy or a copy certified in accordance

with the Powers of Attorney Act 1971 of such

power of attorney or authority, so as to reach the

Company’s registrars, Computershare Investor

Services PLC, PO Box 82, The Pavilions, Bridgwater

Road, Bristol BS99 6ZY by 12.30 p.m. on 15 May

2010, being 48 hours prior to the time fixed for

the meeting or, in the case of an adjournment,

as at 48 hours prior to the time of the adjourned

meeting.

6. In the case of joint holders, where more than

one of the joint holders purports to appoint a

proxy, only the appointment submitted by the

most senior holder will be accepted. Seniority is

determined by the order in which the names of

the joint holders appear in the Company’s register

of members in respect of the joint holding (the

first-named being the most senior).

7. If multiple corporate representatives are

appointed, in order to facilitate voting by

corporate representatives at the Annual General

Meeting, arrangements will be put in place at the

Annual General Meeting so that:

(i) if a corporate member has appointed the

Chairman of the Annual General Meeting as

its corporate representative with instructions to

vote on a poll in accordance with the directions

of all the other corporate representatives

for that member at the Annual General

Meeting, then, on a poll, those corporate

representatives will give voting directions to

the Chairman and the Chairman will vote (or

withhold a vote) as corporate representative

in accordance with those directions; and

(ii) if more than one corporate representative

for the same corporate member attends the

Annual General Meeting but the corporate

member has not appointed the Chairman of

the Annual General Meeting as its corporate

representative, a designated corporate

representative will be nominated, from those

corporate representatives who attend, who

will vote on a poll and the other corporate

representatives will give voting directions to

that designated corporate representative.

Notice of Annual General Meeting (continued)

81

8. The following documents will be available at

the registered office of the Company on any

weekday (except Saturday) during normal

business hours from the date of this notice until

the date of the Annual General Meeting:

– a copy of the service agreements for the

Executive Directors;

– a copy of the letters of appointment for the

Non-Executive Directors;

– the Memorandum and Articles of Association

of the Company;

– a draft of the proposed new Articles of

Association of the Company (showing

changes from the existing Articles of

Association of the Company); and

– the register of interests of the directors (and

their families) in the share capital of the

Company.

These documents will also be available for

inspection during the Annual General Meeting and

for at least 15 minutes before it begins.

EXPLANATION OF SPECIAL BUSINESS AT THE ANNUAL

GENERAL MEETING

Explanation of Resolution 7

(Authority to allot securities)

Resolution 7, which will be proposed as an ordinary

resolution, would give the directors authority to

allot shares up to a maximum nominal amount

of £2,583,780.30 being 44% of the Company’s

issued share capital as at 3 March 2010. The existing

authority would be revoked and this new authority

would expire on the date of the 2011 Annual

General Meeting or 17 August 2011, whichever is

the earlier.

Explanation of Resolution 8

(Disapplication of pre-emption rights)

Resolution 8, which will be proposed as a special

resolution, would renew the power of the directors

to allot shares for cash as though the rights of pre-

emption conferred by section 561(1) of the Act

did not apply:

(a) in respect of the whole of the authorised

but unissued share capital in connection

with an offer to existing shareholders in

proportion to their existing holdings save

that the directors are allowed to offer

shares to existing shareholders otherwise

than strictly in proportion to their holdings

where, for example, overseas regulations

make it difficult to offer shares pro rata

to existing overseas shareholders or when

dealing with fractions of shares, and

(b) up to a nominal amount of £587,621.97,

being 10%, of the issued share capital of

the Company as at 3 March 2010 (to give

the directors some flexibility in financing

business opportunities as they arise).

This power would expire on the date of the 2011

Annual General Meeting or 17 August 2011,

whichever is the earlier.

Explanation of Resolution 9

(Authority to purchase own shares)

In certain circumstances it may be advantageous

for the Company to purchase its own shares.

Resolution 9, which will be proposed as a special

resolution, seeks authority from shareholders to

do so, such authority to expire on the date of

the 2011 Annual General Meeting or 17 August

2011, whichever is the earlier. The directors intend

to exercise this power only if and when, in the

light of market conditions prevailing at the time,

they believe that the effect of such purchases

will be to increase earnings per share and is in

the best interests of shareholders generally. Other

investment opportunities, appropriate gearing

levels and the overall position of the Company

will be taken into account before deciding upon

this course of action. Any shares purchased in this

way will be cancelled and the number of shares

in issue will be accordingly reduced.

This resolution specifies the maximum number of

shares which may be acquired (being 2,938,110

ordinary shares, which is 5% of the Company’s

issued share capital as at 3 March 2010 of

58,762,197 ordinary shares) and the maximum and

minimum prices at which they may be bought.

82

Explanation of Resolution 10

(Changes to Memorandum of Association and

Adoption of new Articles of Association)

Resolution 10, which will be proposed as a special

resolution, would (a) remove those provisions of

the memorandum of association of the Company

which, by virtue of the Companies Act 2006, are

to be treated as forming part of the Company’s

Articles of Association with effect from 1 October

2009 and (b) adopt new articles of association

of the Company (the “New Articles”) primarily

to bring them into line with the provisions of the

Companies Act 2006 that were introduced on 1

October 2009.

An explanatory note of the principal changes

to the Company’s current articles of association

(the “Current Articles”) is set out in Appendix 1.

Other changes, which are of a minor, technical

or clarifying nature and also some more minor

changes which merely reflect changes made by

the Companies Act 2006 have not been noted

in Appendix 1. The new Articles showing all the

changes to the current Articles are available for

inspection.

APPENDIX I

EXPLANATORY NOTE OF PRINCIPAL CHANGES TO

THE COMPANY’S ARTICLES OF ASSOCIATION

1. The Company’s objects

The provisions regulating the operations of the

Company are currently set out in the Company’s

memorandum and Articles of Association. The

Company’s memorandum contains, among

other things, the objects clause which sets out

the scope of the activities which the Company

is authorised to undertake. This is drafted to give

a wide scope.

The Companies Act 2006 significantly reduces

the constitutional significance of a company’s

memorandum. The Companies Act 2006

provides that a memorandum will record only

the names of subscribers and the number of

shares each subscriber has agreed to take in

the company. Under the Companies Act 2006

the objects clause and all other provisions

which are currently contained in a company’s

memorandum, for existing companies at 1

October 2009, will be deemed to be contained

in a company’s Articles of Association but the

company can remove these provisions by

special resolution.

Further the Companies Act 2006 states that

unless a company’s articles provide otherwise,

a company’s objects are unrestricted. This

abolishes the need for companies to have

objects clauses. For this reason the Company is

proposing to remove its objects clause together

with all other provisions of its memorandum

which, by virtue of the Companies Act 2006,

are to be treated as forming part of the

Company’s Articles of Association from 1

October 2009. Resolution 10(a) confirms the

removal of these provisions for the Company.

As the effect of this resolution will be to remove

the statement currently in the Company’s

memorandum of association regarding limited

liability, the New Articles also contain an express

statement regarding the limited liability of the

shareholders.

2. Articles which duplicate statutory provisions

Provisions in the Current Articles which replicate

provisions contained in the Companies Act 2006

are in the main to be removed in the New Articles.

This is in line with the approach advocated by the

UK Government that statutory provisions should

not be duplicated in a company’s constitution.

3. Change of name

Currently, a company can only change its name

by special resolution. Under the Companies

Act 2006 a company will be able to change its

name by other means provided for by its articles.

To take advantage of this provision, the New

Articles enable the directors to pass a resolution

to change the Company’s name.

4. Authorised share capital and unissued shares

The Companies Act 2006 abolishes the

requirement for a company to have an

authorised share capital and the New Articles

Notice of Annual General Meeting (continued)

83

reflect this. Directors will still be limited as to the

number of shares they can at any time allot

because allotment authority continues to be

required under the Companies Act 2006, save in

respect of employee share schemes.

5. Redeemable shares

At present if a company wishes to issue

redeemable shares, it must include in its

articles the terms and manner of redemption.

The Companies Act 2006 enables directors to

determine such matters instead provided they

are so authorised by the articles. The New Articles

contain such an authorisation. The Company

has no plans to issue redeemable shares but if

it did so the directors would need shareholders’

authority to issue new shares in the usual way.

6. Suspension of registration of share transfers

The Current Articles permit the directors to

suspend the registration of transfers. Under the

Companies Act 2006 share transfers must be

registered as soon as practicable. The power in

the Current Articles to suspend the registration

of transfers is inconsistent with this requirement.

Accordingly, this power has been removed in the

New Articles.

7. Authority to purchase own shares,

consolidate and sub-divide shares, and

reduce share capital

Under the law previously in force a company

required specific enabling provisions in its articles

to purchase its own shares, to consolidate or

sub-divide its shares and to reduce its share

capital or other undistributable reserves as

well as shareholder authority to undertake the

relevant action. The Current Articles include these

enabling provisions. Under the Companies Act

2006 a company will only require shareholder

authority to do any of these things and it will

no longer be necessary for articles to contain

enabling provisions. Accordingly the relevant

enabling provisions have been removed in the

New Articles.

8. Vacation of office by directors

The Current Articles specify the circumstances

in which a director must vacate office. The

New Articles update these provisions to reflect

the approach taken on mental and physical

incapacity in the model articles for public

companies produced by the Department for

Business, Enterprise and Regulatory Reform

9. Distribution of assets otherwise than cash

The Current Articles contain provisions dealing

with the distribution of assets in kind in the

event of the Company going into liquidation.

These provisions have been removed in the

New Articles on the grounds that a provision

about the powers of liquidators is a matter for

insolvency law rather than the articles and that

the Insolvency Act 1986 confers powers on the

liquidator which would enable it to do what is

envisaged by the Current Articles.

10. Use of seals

A company used to have authority in its articles

to have an official seal for use abroad. After 1

October 2009 such authority will no longer be

required. Accordingly the relevant authorisation

has been removed in the New Articles.

The New Articles provide an alternative option

for execution of documents (other than share

certificates). Under the New Articles, when the

seal is affixed to a document it may be signed

by one authorised person in the presence of

a witness, whereas previously the requirement

was for signature by either a director and the

secretary or two directors or such other person

or persons as the directors may approve.

11. General

Generally the opportunity has been taken to

bring clearer language into the New Articles

and in some areas to conform the language

of the New Articles with that used in the model

articles for public companies produced by

the Department for Business, Enterprise and

Regulatory Reform.

84

Directors

Allan Rich –

Non-Executive Chairman

Allan Rich has spent all his

working life in the advertising

business. He co-founded

Davidson Pearce Berry and

Spottiswood which became

one of the most successful agencies in the UK during

the late 60’s and early 70’s. In 1975 he founded

the first independent media planning and buying

company in the UK which he called The Media

Business. In 1995 he took the company to the

London Stock Market and in 1998 sold his group to

Grey Advertising New York in order to create a truly

global media organisation, MediaCom. Over the

following 4 years MediaCom became the largest

media company in the UK and number 5 in the

world. Allan is a member of the Audit Committee.

Mark Scott –

Chief Executive

From 1994 to 1998 Mark

Scott was a senior executive

at WPP Group plc, latterly

being appointed Operations

Director for the Group with

responsibility for the Group’s European and Asian

acquisition programme. Post WPP he became

Executive Vice President of Lighthouse Global

Network LLC where he helped acquire and

consolidate more than 15 marketing services

companies. From 2000 to 2002 he was appointed

a senior executive of Lake Capital Management,

a private equity firm, where he was responsible for

a range of investments in marketing service firms.

He has been a member of the Boards of a number

of public companies in the sector including

Watermark Group plc, Chime Communications

Group plc, Chemistry Communications Group plc

and Fitch plc. He obtained his MBA from Harvard

Business School and a first class honours degree in

English Literature from Oxford University.

Mark Bentley –

Group Finance Director

Mark Bentley joined Cello

Group as Group Finance

Director in May 2005. He is

also Company Secretary.

Mark previously worked

for Citigate Dewe Rogerson which he joined in

2000 as Financial Controller and spent the next

five years in various senior finance roles within

Incepta Group plc, including Finance Director of

Citigate Dewe Rogerson from February 2001. Whilst

maintaining the Finance Director role, he took on

wider operational responsibilities when he was

appointed Chief Operating Officer in November

2003. From June 2002 he also had the parallel role

of Finance Director of the Citigate SMARTS regional

network of offices. Prior to Citigate he was Financial

Projects Manager at Hodder Headline plc. Mark

qualified as a chartered accountant with Coopers

& Lybrand in 1996.

Paul Hamilton –

Non-Executive Director and

Senior Independent Director

Paul Hamilton was Senior

Independent Director of

Wellington Underwriting plc

until 31 December 2006. Prior

to this Paul worked in both corporate finance at

UBS Warburg where he was a Managing Director,

and in corporate broking at Rowe & Pitman where

he was a Partner. In recent years Paul has also

been Chairman of the FSA Listing Rules Committee

and a member of the FSA Listing Authority

Advisory Committee and London Stock Exchange

Primary Markets Committee. Paul chairs both the

Nomination and Remuneration Committee and is

a member of the Audit Committee.

85

will David – Independent

Non-Executive Director

Will David was Non-Executive

Chairman of Polaron plc until

March 2007 and Chairman

of its Audit and Remuneration

Committees, and of Orca

Interactive Limited until it was taken over in May

2008. He is currently Non-Executive Chairman of

Advanced Power Components plc. He has more

than 20 years’ experience working in corporate

advisory and broking roles for small and mid

cap companies. Will has also worked at Investec

Henderson Crosthwaite, PricewaterhouseCoopers,

Hoare Govett & Co and The London Stock

Exchange. During his professional career Will has

worked on over twenty flotations for clients across

a range of sectors. His experience also includes

acquisitions and disposals, public takeovers and

secondary fundraisings and provision of advice

on corporate governance matters. Will chairs the

Audit Committee and is a member of both the

Nomination and Remuneration Committees.

Chris Outram – Independent

Non-Executive Director

Chris Outram has

accumulated more than 30

years experience helping

companies develop and

refine their growth strategies,

the last 20 years of which he gained with OC&C

Strategy Consultants, a firm which he founded in

1987 and which now operates out of 13 offices

worldwide. Chris has also served on the boards

of AIM and main listed companies as well as a US

listed company. As such he brings a broad range

of experience to Cello encompassing Corporate/

Business Unit Strategy, Operational performance

improvement and M&A as well as organisational

advice. He has worked across multiple sectors many

of which were international in nature, particularly

transatlantic. Chris read two undergraduate

degrees and has an MBA from INSEAD. Chris is a

member of the Remuneration Committee.

8686

COMPANY SECRETARY Mark Bentley

REGISTERED OFFICE 11-13 Charterhouse Buildings London EC1M 7AP

INDEPENDENT AUDITORS Baker Tilly UK Audit LLP Chartered Accountants 2 Bloomsbury Street London WC1B 3ST

NOMINATED ADVISER & BROKER Altium Capital Limited30 St. James’s SquareLondonSW1Y 4AL

SOLICITORS Marriott Harrison Staple Court 11 Staple Inn Buildings London WC1V 7QH

PRINCIPAL BANKERS Royal Bank of Scotland plc 280 Bishopsgate London EC2M 4RB

REGISTRARS Computershare Investor Services plc PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH

Advisers

8787

HEAD OFFICE11-13 Charterhouse Buildings London EC1M 7AP tel: +44 (0)20 7812 8460 www.cellogroup.co.uk Contact: Mark Scott

CELLO RESEARCH AND CONSULTING

Insight Research Group 11-13 Charterhouse Buildings London EC1M 7AP tel: +44 (0)20 7608 9300 www.insightrg.com Contact: Jane Shirley, Nicola Cowland

Insight Research Group USA 1465 Irving Street Rahway NJ 07065 tel: +1 732 587 2900 www.insightrg.com Contact: Avanti Ananthram

RS Consulting Group (London)Priory House 8 Battersea Park Road London SW8 4BH tel: +44 (0)20 7627 7700 www.rsconsulting.com Contact: Phil Stubington

Leapfrog13 High Street Windsor Berkshire SL4 1LD tel: +44 (0)175 327 1400 www.leapfrogresearch.co.uk Contact: Judy Taylor

Leapfrog in America19 West 24th Street 10th Floor New York NY 10011 tel: +1 212 488 6300 www.leapfroginamerica.com Contact: Mark Rodgers

Rosenblatt155 Regents Park Road London NW1 8BB tel: +44 (0)20 7483 0583 www.rosenblatt.co.uk Contact: Alex Maule

SMT Consulting Wendover House 24 London End Beaconsfield, Buckinghamshire HP9 2JH tel: +44 (0)1494 731750 www.smtconsulting.co.uk Contact: John Spear

The Value EngineersWendover House 24 London End Beaconsfield, Buckinghamshire HP9 2JH tel: +44 (0)1494 680999 www.thevalueengineers.com Contact: Owen Williams

TMIThe Holos, Gorcott Hill, Beoley, Redditch B98 9ET tel: +44 (0)845 330 8312 www.tmi.co.uk Contact: Gillian James

The MSI Consultancy Weaver’s Yard, West Street Farnham, Surrey GU9 7DN tel: +44 (0)1252 717099 www.msi.co.uk Contact: Stephen Highley

CELLO mruk research City Wall House 32 Eastwood Ave Glasgow G41 3NS tel: +44 (0)141 533 3350 www.mruk.co.uk Contact: Jim Law

2CV Research34 Rose Street London WC2E 9EB tel: +44 (0)20 7655 9900 www.2CV.co.uk Contact: Vincent Nolan

Group Directory

88

TANGIBLE GROUP116 Dundas Street Edinburgh EH3 5EE tel: +44 (0)131 556 8002 www.tangiblegroup.co.uk Contact: Andy Carolan, John Rowley

tangible37 The Shore Edinburgh EH6 6QU tel: +44 (0)131 526 3069 www.tangible.uk.com Contact: Melanie Morris

tangible:responseSt James’s House St James Square Cheltenham GL50 3PR tel: +44 (0)1242 258700 www.tangible.uk.com Contact: Paul Handley

tangible:financial7 Midford Place London W1T 5PG tel: +44 (0)20 7881 3200 www.tangible.uk.com Contact: Avril Ellis

tangible:dataSt James’s House St James Square Cheltenham GL50 3PR tel: +44 (0)1242 258700 www.tangibledata.co.uk Contact: Nigel Magson

Farm 7 Midford Place London W1T 5PG tel: +44 (0)20 7874 6550 www.farmcom.co.uk Contact: Owen Lee

Leith 37 The Shore Edinburgh EH6 6QU tel: +44 (0)131 561 8600 www.leith.co.uk Contact: Richard Marsham

Blonde 116 Dundas Street Edinburgh EH3 5EE tel: +44 (0)131 474 9525 www.blondedigital.com Contact: Pete Burns

OomphThe Old Museum Tetbury Road Cirencester GL7 1UP tel: +44 (0)1285 883790 www.oomphagency.com Contact: Stephen Priestnall

BrightsourceSt James’s House St James Square Cheltenham GL50 3PR tel: +44 (0)1242 534200 www.brightsource.co.uk Contact: Peter Frings

Magnetic116 Dundas Street Edinburgh EH3 5EE tel: +44 (0)131 555 7510 www.magnetic-advertising.com Contact: Guy Hundleby

Group Directory (continued)

Page

Financial Highlights 1

Positioning and Strategy 2-3

Chairman’s Statement 4-9

Cello Research and Consulting 10-11

Tangible Group 12-13

Directors’ Report 14-17

Corporate Governance 18-19

Report of the Remuneration Committee 20-22

Independent Auditors’ Report 23

Consolidated Income Statement 24-25

Consolidated Statement of Comprehensive Income 25

Consolidated Balance Sheet 26

Consolidated Cash Flow Statement 27

Consolidated Statement of Changes in Equity 28

Consolidated Financial Statements – Accounting Policies 29-34

Notes to the Consolidated Financial Statements 35-68

Company Balance Sheet 69

Company Financial Statements – Accounting Policies 70

Notes to the Company Financial Statements 71-77

Notice of Annual General Meeting 78-83

Directors 84-85

Advisers 86

Group Directory 87-88

Contents

The Cello Annual Report 2009 is made from Naturalis Recycled Smooth paper, sourced from 50% FSC-certified recycled, 20% FSC virgin pulp and 30% mill broke. It is manufactured in Scotland.

Cello

Gro

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lc Annual Rep

ort 2009

Annual ReportYear Ended 31 December 2009

Cello Group plc11-13 Charterhouse BuildingsLondon EC1M 7APtel: +44 (0)20 7812 8460www.cellogroup.co.uk

Company Registration No. 05120150