Headline and statutory results
In this Annual Report where headline results are shown they are prepared to provide an indication of the Group's underlying business performance.
Key Performance Indicators (KPIs)
The Group manages its internal operational performance using a number of KPIs. The most important of these are
as follows:
Notes
1. A reconciliation of these headline numbers to the reported numbers can be viewed here, or on pages 14 and 15 of the full report.
The headline numbers adjust for the following:
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Business in the process of being discontinued - During 2012 all the Bell Pottinger branded businesses were either sold or were in the process of being exited. Chime has been exiting the geopolitical business within Bell Pottinger since late 2011, although there remains one contract which ends in April 2013. The work has been sub-contracted to third parties and Chime is not expected to make any profit or loss on this contract in the period to completion. Under accounting standards this line of business does not meet the definition of discontinued at 31 December 2012 due to Chime's legal obligation in the completion of the contract. Given the substantial exit of this business, we have shown the impact in this annual report as if this business was discontinued so as to provide helpful information about our on-going business. |
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The impact of the change in accounting policy in respect of earn-out payments as explained in note 2. |
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Charges to the income statement in respect of amortisation of intangible assets, impairment of goodwill and costs relating to acquisition and restructuring. |
Operating profit, profit before tax and earnings per share
Headline operating profit1 increased by 64% to £25.7 million (2011: £15.6 million) and headline profit before tax1 increased by 70% to £25.3 million (2011: £14.9 million). Headline diluted earnings per share1 increased from 12.8p in 2011 to 21.2p in 2012, an increase of 66%. Reported operating profit decreased by 74% to £4.9 million (2011: £18.7 million) and reported profit before tax decreased by 86% to £2.5 million (2011: £17.8 million). Reported earnings per share decreased to (1.6p) from 15.9p
in 2011.
The Board consider it important to set out for shareholders in more detail the background to the change in accounting that has resulted in a deemed remuneration charge of £11.3 million in the 2012 income statement and a £3.0 million adjustment to the prior year income statement.
Notes
1. A reconciliation of these headline numbers to the reported numbers can be viewed here, or on pages 14 and 15 of the full report.
The headline numbers adjust for the following:
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Business in the process of being discontinued - During 2012 all the Bell Pottinger branded businesses were either sold or were in the process of being exited. Chime has been exiting the geopolitical business within Bell Pottinger since late 2011, although there remains one contract which ends in April 2013. The work has been sub-contracted to third parties and Chime is not expected to make any profit or loss on this contract in the period to completion. Under accounting standards this line of business does not meet the definition of discontinued at 31 December 2012 due to Chime's legal obligation in the completion of the contract. Given the substantial exit of this business, we have shown the impact in this annual report as if this business was discontinued so as to provide helpful information about our on-going business. |
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The impact of the change in accounting policy in respect of earn-out payments as explained in note 2. |
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Charges to the income statement in respect of amortisation of intangible assets, impairment of goodwill and costs relating to acquisition and restructuring. |
Operating profit, profit before tax and earnings per share (continued)
The Group has acquired a number of businesses from founding shareholders who were also key managers of the businesses acquired. These businesses were acquired under sale agreements where a proportion of the consideration is paid on completion and a proportion is paid over time based on the performance of the acquired business, but is only payable if the sellers continue in employment, i.e. continue to drive the business forward in the Company's interest and to protect the value of the asset the Company has acquired. This form of agreement is used to protect the Company from the risks of paying all the consideration at the date of acquisition.
Over the period of the Sale Agreements these seller managers receive both salary and bonus as well as the deferred consideration for the business acquired. The position previously taken by management and supported by the Board has been that judgement should be used to determine what part of these combined payments are compensation and what parts are capital in nature. This was done by reference to paying market salaries and bonuses and clearly defining in the agreements the capital sums negotiated by reference to market conditions at the time of acquisition.
Operating profit, profit before tax and earnings per share (continued)
The position taken by the IFRS IC is that the presence of a clause requiring continued employment in order to receive the deferred consideration agreed under the share sale agreement, by its very existence, means all payments must be deemed remuneration for the service provided over the period of the continued employment.
Income from clients (%)
Although your Board does not believe that this approach reflects the substance of the agreements, in order to comply fully with IFRS as clarified by the IFRS IC, your Board has made the adjustments required to be consistent with the position taken by the IFRS IC.
Average fee per client (£'000)
Cash flow and banking arrangements
Net cash at 31 December 2012 was £4.2 million compared to £3.3 million at 31 December 2011. The Group continued to generate cash in 2012 with cash from operating activities of £12.0 million (2011: £12.9 million).
A new four year borrowing facility has been agreed with RBS for £47 million. This runs until September 2016, with an interest rate of between 1.75% and 2.25%, depending on use of the facility compared to EBITDA.
Deferred consideration and deemed remuneration
The estimated earn-outs (which include consideration treated as deemed remuneration) payable in 2013 total £19.9 million and are payable £11.7 million in cash and £8.2 million in shares.
Capital expenditure and investment
Total capital expenditure for 2012 was £3.1 million (2011: £5.0 million). The main category of investment is fixtures and fittings (£2.7 million).
Procurement
The Group operates a central procurement function which uses the power of the Group to ensure that all businesses buy materials and services as cost effectively as possible.
Pensions
All the Group's employees are entitled to contribute to the Group's pension scheme or to personal pension schemes. These are defined contribution schemes.
Taxation
The effective tax rate for 2012 was 27.6% compared to 28.8% for 2011.
The effective tax rate excludes amortisation of intangibles, impairment of goodwill, write down of investments, costs of acquisitions, deemed remuneration and discounting of deferred consideration, none of which are tax deductible.
The rate is expected to reduce in future years particularly as the Group pays the majority of its tax in the UK where the rate of corporation tax continues to fall.
Dividends
The Board proposes a final dividend of 5.14p per share (2011: 4.50p per share). This will be payable on 14 June 2013 to shareholders on the register at 24 May 2013. The ex-dividend date is 22 May 2013.
Total dividend for the year was 7.24p compared to 6.58p in 2012. An increase of 10%. This represents a dividend cover of three times.
Finance costs
Finance costs net of interest receivable were £0.6 million. In addition there was a charge of £0.6 million in relation to the finance cost of deferred consideration and deemed remuneration.
Treasury policy
The Group's treasury policy is detailed in note 38 to the financial statements.
Capital structure
The Group is financed primarily through equity but has available credit facilities as detailed above.
