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As filed with the Securities and Exchange Commission on June 29, 1998.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-13119
CORDIANT COMMUNICATIONS GROUP PLC
(Exact name of Registrant as specified in its charter)
ENGLAND
(Jurisdiction of incorporation or organization)
121-141 WESTBOURNE TERRACE
LONDON W2 6JR, ENGLAND
(Address of principal executive offices)
Securities registered or to be registered Name of each exchange on
pursuant to Section 12(b) of the Act: which registered:
Ordinary shares of 50p each New York Stock
represented by American Exchange, Inc.
Depositary Shares
Securities registered or to be registered pursuant to
Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
Indicate the number of outstanding shares of each
of the issuer's classes of capital as of the close of the period covered
by the annual report: 221,926,993
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 ( ) Item 18 (X)
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<PAGE>
TABLE OF CONTENTS
Page
PART I.........................................................................4
Item 1. Description of Business........................................4
Item 2. Description of Property.......................................24
Item 3. Legal Proceedings.............................................25
Item 4. Control of Registrant.........................................25
Item 5. Nature of Trading Markets.....................................26
Item 6. Exchange Controls and Other Limitations
Affecting Security Holders...................................27
Item 7. Taxation......................................................27
Item 8. Selected Financial Data.......................................32
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations................35
Item 9A. Quantitative and Qualitative Disclosures
About Market Risk............................................50
Item 10. Directors and Executive Officers of Registrant................51
Item 11. Compensation of Directors and Officers........................57
Item 12. Options to Purchase Securities from
Registrant or Subsidiaries...................................61
Item 13. Interest of Management in Certain Transactions................79
PART II.......................................................................80
Item 14. Description of Securities to be Registered....................80
PART III......................................................................80
Item 15. Defaults Upon Senior Securities...............................80
Item 16. Changes in Securities and Changes in
Security for Registered Securities...........................80
PART IV.......................................................................80
Item 17. Financial Statements..........................................80
Item 18. Financial Statements..........................................81
Item 19. Financial Statements and Exhibits.............................81
<PAGE>
INTRODUCTION
Unless the context otherwise requires, the following definitions shall have
the following meanings in this document:
"Company" shall mean Cordiant Communications Group plc (previously called
Cordiant plc until December 14, 1997).
"Consolidated Financial Statements" shall mean audited consolidated
financial statements and notes thereto of the Company as of December 31, 1997
and 1996 and for each of the years in the three year period ended December 31,
1997 included elsewhere herein.
"Cordiant" shall mean Cordiant plc (now called Cordiant Communications
Group plc) and its subsidiaries in relation to the period prior to the Demerger.
"Cordiant Ordinary Shares" shall mean ordinary shares of 25p of Cordiant
prior to the Demerger.
"Demerger" shall mean the demerger on December 14, 1997 by Cordiant of
Saatchi & Saatchi Holdings Limited in accordance with the Demerger Agreement (as
defined herein).
"Disposed" operations refers to businesses demerged from Cordiant to form
the Saatchi & Saatchi Group, Zenith and other businesses disposed of.
"Group", "CCG" and "CCG Group" shall mean the Company and its subsidiaries
from the date of the Demerger.
"NRG" shall mean National Research Group, Inc. and its subsidiaries, NRG-UK
Ltd. and Movie View, Inc.
"Ongoing" operations refers to businesses that remain with the Group
following the Demerger and the disposal of other businesses and excludes Zenith.
"Ordinary Shares" shall mean ordinary shares of 50p of the Company.
"Saatchi & Saatchi" or "Saatchi & Saatchi Group" shall mean Saatchi &
Saatchi plc and its subsidiaries from the date of the Demerger.
"Saatchi Ordinary Shares" shall mean ordinary shares of 10p of Saatchi &
Saatchi plc.
"Unaudited Combined and Pro Forma Financial Information" shall refer to the
unaudited financial information contained in Annex A to this Report, which
information assesses the historic performance of CCG as if the post-Demerger
structure and financing arrangements had been in place from January 1, 1996.
"Zenith" shall mean Zenith Media Holdings Limited and, where the context
requires, its subsidiary undertakings from time to time.
The Company publishes its consolidated financial statements in pounds
sterling ("L"). References to "US dollars" or "$" are to United States dollars
and references to "pounds sterling", "L", "pence" or "p" are to UK currency. The
noon buying rate in the City of New York for cable transfers in foreign
currencies as announced by the Federal Reserve Bank of New York for customs
purposes (the "Noon Buying Rate") on December 31, 1997 was L1.00 to $1.64.
Unless otherwise specified, translations into US dollars contained herein are
made at the Noon Buying Rate on December 31, 1997. The Noon Buying Rate on June
1, 1998 was L1.00 to $1.64.
References in this document to the "Companies Act" are to the Companies Act
1985, as amended, of Great Britain and references to the "Articles" are to the
Company's Memorandum and Articles of Association.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This report contains certain "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These forward
looking statements include statements in the "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Industry Background"
section relating to trends in the advertising and marketing services industry,
particularly with respect to anticipated advertising expenditures in the world's
advertising markets. Actual advertising expenditures may differ materially from
the estimates contained therein depending on, among other things, regional,
national and international political and economic conditions, technological
changes, the availability of media and regulatory regimes in the world's
advertising markets. Additionally, this report contains a number of "forward
looking statements" relating to the Group's performance, particularly in
"Description of Business - Organization and Services" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Group's actual results could differ materially from those anticipated depending
on, among other things, gains to or losses from its client base, the amount of
revenue derived from clients, the Group's exposure to changes in the exchange
rates of major currencies against the pound sterling (because a substantial
portion of its revenues are derived and costs incurred outside of the United
Kingdom) and the overall level of economic activity in the Group's major markets
as discussed above. The Group's ability to reduce its fixed cost base in the
short term is limited and therefore its trading performance can be significantly
affected by variations in the level of its revenues.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The businesses that comprise the CCG Group are what remain of Cordiant
after the Demerger of the Saatchi & Saatchi Group in December 1997. Prior to the
Demerger, Cordiant was the holding company for a group of advertising and
creative marketing communication businesses, the two largest of which were the
advertising networks, Bates Worldwide ("Bates Worldwide") and Saatchi & Saatchi
("S&S").
The origins of Bates Worldwide date back to 1940 when Ted Bates &
Company was founded in New York by Theodore Bates and Rosser Reeves. It was
Rosser Reeves who first developed the concept of the Unique Selling Proposition
("U.S.P.(TM)") and this philosophy still drives the advertising strategies of
Bates Worldwide today. Ted Bates & Company grew rapidly in the 1960s and 1970s,
developing a worldwide network through acquisitions and organic growth. In 1964,
Ted Bates & Company acquired the largest advertising agency in Australia, the
George Patterson Advertising Agency. In 1985, the German agency Scholz & Friends
was acquired.
In 1986, Ted Bates Worldwide was acquired by Cordiant. Earlier that
year, Cordiant had acquired a US agency, Backer and Spielvogel and, in 1987, the
two agencies were merged to form Backer Spielvogel Bates Worldwide. The network
was later rebranded Bates Worldwide, although Scholz & Friends was preserved as
a separately branded advertising agency. The combined network formed a second
major component of Cordiant which, at that time, was also establishing another
substantial advertising network, S&S. Throughout their period of ownership by
Cordiant, the two networks operated independently.
During the mid 1980s, Cordiant also acquired a number of specialist
marketing communications businesses. In 1985, it acquired HP:ICM, a business
based in London providing creative and production services for conferences and
exhibitions. In 1987, The Facilities Group was formed through the amalgamation
of a group of companies providing specialist advertising production services in
design, print and television. Following the Demerger, CCG retained a 30 percent
shareholding in The Facilities Group with the remainder held by Saatchi &
Saatchi.
In 1988, Cordiant formed a single media buying operation in the UK
called Zenith Media Buying Services. This was created through the acquisition of
Ray Morgan & Partners which was merged with the media buying departments of
Cordiant's London advertising agencies. This was the first time a major agency
group had consolidated its media buying operations into a discrete unit. The
operation was renamed Zenith Media Worldwide in 1991 and in 1992 extended its
services to include media planning. Zenith had expanded its operations
internationally by opening offices in Europe in 1994 and in the US and Asia
Pacific in 1995. This expansion was achieved by combining and rebranding the
in-house media operations of S&S and Bates Worldwide. Following the Demerger,
CCG and Saatchi & Saatchi each retained a 50 percent shareholding in Zenith,
which is accounted for as a joint venture.
From the late 1980s to the end of 1995, Cordiant's history was
characterized by a period of financial and management instability which had an
adverse effect on Cordiant's businesses. During the late 1980s, poor trading
conditions in the advertising industry, coupled with the requirement to service
debt incurred to fund a number of acquisitions, contributed to a serious decline
in Cordiant's financial position. By 1990, Cordiant's accounts showed that
financial liabilities had reached almost L700 million. As a result, during the
early 1990s, Cordiant embarked on a series of refinancings and disposals,
culminating in a rights issue in November 1995. This series of actions
substantially eliminated Cordiant's net financial liabilities and restored its
financial stability.
In early 1995, the Chairman (Maurice Saatchi) and four other senior
executives left Cordiant. As a result, Mars withdrew its worldwide account from
Bates Worldwide, resulting in a loss of annual billings of approximately $350
million. S&S also lost several high profile clients which had accounted for
approximately 5 percent of S&S's 1994 revenue. To restore management stability
to Cordiant, Bob Seelert was appointed Chief Executive Officer and Charles Scott
was appointed Chairman in July 1995.
The rights issue in 1995 enabled Cordiant to be in a better position
to focus on revenue growth and margin improvement. As part of this process,
Cordiant decided in April 1997 to propose to Cordiant Shareholders the demerger
of Cordiant into two autonomous advertising and marketing communications groups.
As a result of the Demerger, the CCG Group is now comprised of the advertising
business of Bates Worldwide and Scholz & Friends, together with HP:ICM, a 30
percent shareholding in The Facilities Group and a 50 percent shareholding in
Zenith.
The Group's principal corporate offices are located at 121-141
Westbourne Terrace, London W2 6JR, England, telephone number
011-44-171-262-4343.
CORPORATE DEVELOPMENTS
THE DEMERGER
On April 21, 1997, the Board of Directors of Cordiant announced its
decision to recommend to its shareholders that they approve a spinoff or
demerger of Saatchi & Saatchi from Cordiant (the "Demerger") with the remaining
businesses renamed CCG. The Demerger was motivated by the desire to allow each
of CCG and Saatchi & Saatchi to stand on its own and to allow the advertising
agencies of the CCG Group and the Saatchi & Saatchi Group, namely Bates
Worldwide and S&S, to respond more quickly to client needs and opportunities.
The Demerger took effect on December 15, 1997 and, as from the effective date of
the Demerger (the "Effective Date"), CCG and Saatchi & Saatchi have operated as
separate public companies and neither CCG nor Saatchi & Saatchi beneficially
owns any shares of the other. As a result of the Demerger, CCG and Saatchi &
Saatchi each own a 50 percent shareholding in Zenith.
Prior to the Demerger, an internal reorganization of Cordiant was
effected whereby Cordiant transferred the various assets that comprised the
Saatchi & Saatchi Group (including a 50 percent shareholding in Zenith) to a
single holding company, Saatchi & Saatchi Holdings Limited ("Holdings"). After
(i) the Demerger was approved by Cordiant shareholders and (ii) all conditions
precedent to the Demerger had been satisfied or waived, the Demerger occurred in
three simultaneous steps. First, Cordiant made a stock dividend to holders of
Cordiant Ordinary Shares on the basis that the dividend would be satisfied by
the distribution of the Saatchi Ordinary Shares. Second, Saatchi & Saatchi
acquired the shares of Holdings from Cordiant. Third, Saatchi & Saatchi
satisfied the stock dividend (the "Dividend") by issuing its shares directly to
Cordiant shareholders.
THE CONSOLIDATION
Pursuant to the Demerger, shares of Saatchi & Saatchi were initially
issued on a one-for-one basis (i.e., each holder of Cordiant Ordinary Shares
received the same number of shares of Saatchi & Saatchi). Immediately following
the stock dividend, both the Company and Saatchi & Saatchi effected a share
consolidation or reverse stock-split (the "Consolidation"), so that following
the Demerger and Consolidation holders of Cordiant Ordinary Shares received one
Ordinary Share and one Saatchi Ordinary Share for every two Cordiant Ordinary
Shares held as at the record date for the Dividend. Holders of Cordiant American
Depositary Shares received three American Depositary Shares of the Company and
three American Depositary Shares of Saatchi & Saatchi (each representing 15
ordinary shares) for every ten American Depositary Shares of Cordiant held
pursuant to arrangements made between the Company, Saatchi & Saatchi and the
Depositary.
RELATIONSHIP BETWEEN CCG AND SAATCHI & SAATCHI FOLLOWING THE DEMERGER
As a result of the Demerger, the Company and Saatchi & Saatchi are
separate publicly traded companies and operate independently of each other.
Neither company has any interest in the shares of the other. However, the
Company and certain companies within the CCG Group entered into certain
agreements and arrangements with the Saatchi & Saatchi Group and Zenith in order
to enable the Demerger to be carried out, allocate responsibility for certain
obligations, provide for certain transitional arrangements and otherwise define
their relationship following the Demerger. The terms of these agreements and
arrangements are principally governed by the Demerger Agreement, dated September
30, 1997, between Cordiant, Saatchi & Saatchi, Holdings and Zenith (the
"Demerger Agreement"), and certain agreements required to be entered into
pursuant to the Demerger Agreement. The principal terms of these agreements and
arrangements are described below.
Property Guarantees
There are a number of guarantees by CCG companies of obligations of
certain companies in the Saatchi & Saatchi Group that were not released in
connection with the Demerger. CCG guaranteed the Saatchi & Saatchi Group's
obligations under a lease of premises at 375 Hudson Street, New York, for a term
expiring on January 31, 2013, at a current annual base rent of $17.9 million
subject to rent reviews in 2003 and every five years thereafter. The Saatchi &
Saatchi Group currently occupies approximately one half of the premises, the
balance being sublet to third parties at rates at or below the base rent payable
by Saatchi & Saatchi. CCG also guarantees the Saatchi & Saatchi Group's
obligations under a lease of premises at 21 Dukes Road, London, for a term
expiring on October 31, 2016 with a tenant's right to break on October 31, 2006.
The current annual base rent is L255,882, subject to rent reviews in 2001, 2006
and 2011. This property is not currently occupied by the Saatchi & Saatchi Group
and the entire premises have been sub-leased for L165,000 per annum until
October 15, 2006 but with a sub-tenant's right to break on November 1, 2001. In
addition, CCG has given a guarantee of the liability for deferred consideration
of FFR23 million plus interest payable in 1998 in respect of the acquisition of
the minority shareholdings in Saatchi & Saatchi Advertising S.A. (France) in
1996. In the Demerger Agreement, Saatchi & Saatchi agreed to give additional, or
in some cases substitute, guarantees and to indemnify CCG against any liability
in its preexisting guarantees.
Bank Guarantees
Saatchi & Saatchi gave a guarantee to the lenders under CCG's new
bank facility agreement (described below) against liability under a bank
guarantee of up to L5 million at December 31, 1997. The Company has agreed to
indemnify the Saatchi & Saatchi Group, to the extent that liability arises under
this guarantee in respect of obligations which are the primary responsibility of
the CCG Group.
Other
There are a number of existing guarantees by Saatchi & Saatchi Group
companies of obligations of certain companies in the CCG Group, including
guarantees in respect of certain leases of premises at Lansdowne House, Berkeley
Square, London W1. The main guarantees were not released in connection with the
Demerger. In the Demerger Agreement, the Company agreed to give additional, or
in some cases substitute guarantees and to indemnify Saatchi & Saatchi against
any liability in respect of its existing guarantees.
New Bank Facilities
In connection with the Demerger, the management of Cordiant allocated
the consolidated indebtedness of Cordiant between CCG, the Saatchi & Saatchi
Group, and Zenith. The amounts allocated took into account the ability of each
of the companies to generate cash flow with the intention of establishing an
appropriate capital structure for each company.
Under an Agreement dated September 30, 1997, among Cordiant, various
other members of the CCG Group, The Bank of New York and Midland Bank Plc as
Arrangers and certain banks and financial institutions (the "Banks"), the Banks
agreed to make available to certain members of the CCG Group a facility of up to
$133 million, which was subsequently reduced by approximately $11 million
following the sale of NRG (the "New Bank Facility"). This facility is comprised
of a limited bank guarantee facility of L5 million that was made available for
specified purposes in connection with Cordiant's reduction of capital and the
balance as a facility of up to $120 million which was used, in part, along with
facilities made available to Saatchi & Saatchi and Zenith, to repay amounts
drawn down by Cordiant under its facility agreement and is also available for
general corporate purposes of CCG (the "New Bank Facility Agreement"). Amounts
available under the New Bank Facility will be amortized over the life of the
facility.
The New Bank Facility Agreement requires the Group to comply with
certain financial and other covenants relating to gross interest cover, total
cash cover and maximum gross debt. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The New Bank Facility will be reduced in an amount equal to 75
percent of the net proceeds received (subject to a de minimis of $5 million per
annum) on, or following, a sale by CCG of any subsidiary (or a material part of
the business of any subsidiary). Interest is payable on each advance under the
New Bank Facility at a rate per annum based on the aggregate of LIBOR and a
margin of between 1.5 and 0.75 percent per annum, depending on the CCG Group's
ability to achieve certain financial ratios.
The New Bank Facility Agreement contains provisions whereby, on the
happening of certain specified events of default, the amounts made available
could be declared immediately due and payable. These events of default include
breach of the above covenants and cross default by certain companies in the CCG
Group in respect of indebtedness over a specified amount or any change of
control of the Company.
The New Bank Facility is secured by guarantees from certain members
of the CCG Group (or, where guarantees are not possible, share charges over such
companies) such that at all times the aggregate of the revenues of those
companies that have given guarantees (or whose shares have been charged) will
equal at least 60 percent of the CCG Group's consolidated revenues. Fixed and
floating charges over the assets of the Company and certain of its UK
subsidiaries and share pledges over the shares owned by members of the CCG Group
in various subsidiaries have also been given.
In addition to the New Bank Facility, Zenith entered into an
agreement (the "Zenith Facility Agreement") providing a L21.5 million secured
reducing multi-currency revolving credit facility (the "Zenith Facility") which
was used in part, along with the facilities being made available to CCG and
Saatchi & Saatchi to repay amounts drawn down by Cordiant under its facility
agreements and for general corporate purposes of Zenith. The Company and Saatchi
& Saatchi provided unlimited guarantees to the lenders in respect of the Zenith
Facility and agreed between themselves that any liability under such guarantees
is to be shared equally.
Amounts outstanding under the Zenith Facility, which is for a five
year term, are required to be repaid as follows: L1 million in 1998; L2 million
in each of 1999 and 2000 and L4 million in 2001. The Zenith Facility will be
reduced by an amount equal to 75 percent of the net proceeds received (subject
to a de minimis of $1.5 million per annum) on or following a sale by Zenith of
any subsidiary (or a material part of the business of any subsidiary).
Interest is payable on each advance under the Zenith Facility
Agreement at a rate per annum based on the aggregate of LIBOR and a margin of
between 1.5 and 0.75 percent per annum, depending on Zenith's ability to achieve
certain financial ratios.
The Zenith Facility Agreement requires Zenith to comply with various
financial covenants relating to gross interest cover, maximum gross debt and
gross capital expenditure.
The Zenith Facility Agreement contains provisions whereby on the
happening of certain specified events of default the amount made available could
be declared immediately due and payable. In addition to customary events of
default these events include defaults by certain companies in the Zenith group
in respect of indebtedness over specified limits and any change of control of
Zenith.
The Zenith Facility is secured by guarantees from certain members of
the Zenith group (or, where guarantees are not possible, share charges over such
companies) such that at all times the aggregate of the revenues of those
companies that have given guarantees (or whose shares have been charged) will
equal at least 60 percent of Zenith's consolidated revenues, fixed and floating
charges over the assets of Zenith and certain of its UK subsidiaries and share
pledges over the shares owed in certain of its non-UK subsidiaries.
OWNERSHIP AND OPERATION OF ZENITH MEDIA WORLDWIDE
Zenith Shareholders' Agreement
Pursuant to the Demerger Agreement, the Company, Saatchi & Saatchi,
Holdings and Zenith, with effect from the Effective Date, entered into a
shareholders' agreement (the "Zenith Shareholders' Agreement") in order to
regulate the relationship between the Company and Holdings as shareholders of
Zenith. Saatchi & Saatchi is a party to the Zenith Shareholders' Agreement in
order to guarantee the obligations of Holdings. The Zenith Shareholders'
Agreement provides that Zenith will be managed on a day to day basis by four
executive Directors agreed upon by the shareholders. Two non-executive Directors
will also be appointed by agreement between the shareholders. In addition, each
shareholder will have the right to appoint one further non-executive Director.
Pursuant to the Zenith Shareholders' Agreement, the following matters
require the consent of both shareholders before they can be undertaken by
Zenith: alterations to the capital structure of Zenith; the annual business plan
of Zenith; and the entering into of contracts by Zenith which are not in the
ordinary course of its business or not on arm's-length terms.
Seventy-five percent of the distributable profits of Zenith will be
distributed to shareholders and divided between them in part by reference to the
proportions in which Zenith receives revenue from clients of each shareholder.
The remainder will be retained by Zenith.
Following the Demerger, each of the Company and Saatchi & Saatchi
owns 50 percent of the outstanding shares of Zenith. The Zenith Shareholders'
Agreement prohibits the transfer of shares in Zenith except as described below.
Transfers to third parties are permitted either on the insolvency, or on a
change of control, of the other shareholder. Otherwise a shareholder is entitled
to sell all of its shares to a third party only if it has first offered to sell
its shares to the other shareholder at a specified price and the other
shareholder has declined that offer. In those circumstances, the sale to the
third party must be at a price being not less than that offered to the other
shareholder. Any third party to whom shares are transferred will be required to
agree to be bound by the terms of the Zenith Shareholders' Agreement as if it
was an original party to that agreement.
The Zenith Shareholders' Agreement also contains options whereby one
shareholder is entitled to acquire all the Zenith shares of the other
shareholder in the event that:
1. the other shareholder becomes insolvent;
2. the other shareholder is the subject of a change of control and
following which there is a material breach of any of the terms of the media
services agreement (described below) to which that shareholder is a party which
either is not capable of remedy or is not remedied within a certain period; or
3. the other shareholder terminates the media services agreement to
which it is a party.
The price payable (a) on exercise of the option described in (1)
above will be based on the market value of the Zenith shares and (b) on exercise
of the options described in (2) and (3) above will be based on the net asset
value of Zenith. Each shareholder also charged its shares in Zenith to secure
all obligations under the new bank facilities for such shareholder's group.
In the event that a dispute arises in relation to certain matters of
fundamental importance to the future of Zenith which cannot be resolved by
further negotiations between the shareholders then either shareholder will be
entitled to offer to acquire at any specified price all of the Zenith shares of
the other shareholder. The other shareholder will have the option either to
accept that offer and sell all of its Zenith shares at the specified price or to
purchase all of the Zenith shares of the other shareholder at the specified
price.
The Zenith Shareholders' Agreement also provides for the resolution
of potential conflicts between the clients of the shareholders and Zenith.
The Zenith Shareholders' Agreement will remain in force until (i)
either shareholder acquires all of the shares in Zenith held by the other, (ii)
an order is made or resolution is passed for the winding up of Zenith or (iii) a
third party acquires all of the shares of Zenith.
Prior to the Demerger, Zenith shared office space and facilities such
as computer, payroll and accounting systems, as well as insurance and pension
arrangements with members of the Cordiant Group. These arrangements were
formalized on an arm's length basis with the relevant members of CCG and the
Saatchi & Saatchi Group, where appropriate, prior to the Demerger.
Both CCG and Saatchi & Saatchi have guaranteed the new Zenith bank
facilities described above.
Zenith Media Services Agreements
Pursuant to the Demerger Agreement, at the time the Zenith
Shareholders' Agreement was entered into, each of the Company and Saatchi &
Saatchi entered into a media services agreement with Zenith. Under the terms of
these agreements the shareholders each appointed Zenith as the exclusive
supplier of media buying, media planning and certain related services for all of
the clients, subject to certain exceptions, of each shareholder. The media
services agreements also set out the duties of Zenith in respect of each country
in which Zenith operates.
Each of the media services agreements will terminate on December 31,
2000 or on any subsequent anniversary of that date provided either party has
given to the other not less than 12 months' written notice of such termination.
OWNERSHIP AND OPERATION OF THE FACILITIES GROUP
Pursuant to the Demerger Agreement, the Company, Saatchi & Saatchi,
Saatchi & Saatchi (Central Services) Limited ("SSCSL") and The Facilities Group
Limited ("The Facilities Group") entered into a shareholders' agreement ("The
Facilities Group Agreement") in order to regulate the relationship between the
Company and SSCSL as shareholders of The Facilities Group. Saatchi & Saatchi is
a party to that agreement in order to guarantee the obligations of SSCSL. With
effect from the Effective Date, the Company holds 30 percent of the outstanding
shares of The Facilities Group and Saatchi & Saatchi holds 70 percent. The
Facilities Group Agreement provides that the day to day management of The
Facilities Group will be undertaken by three executive Directors. The Company is
entitled to appoint one of three executives and Saatchi & Saatchi is entitled to
appoint the other two.
The distributable profits of The Facilities Group will be divided
between shareholders in the proportions in which The Facilities Group receives
revenue from clients of each shareholder. Revenue of The Facilities Group not
attributable to clients of either shareholder will be divided in proportion to
the shareholdings.
The Facilities Group Agreement prohibits the transfer of shares of
The Facilities Group except in the circumstances described in the agreement.
Transfers to third parties will be permitted either on the insolvency or on a
change of control of the other shareholder. Otherwise a shareholder will be
entitled to sell all of its shares to a third party only if it has first offered
to sell its shares to the other shareholder at a specified price and the other
shareholder has declined that offer. In those circumstances, the sale to the
third party must be at a price being not less than that offered to the other
shareholder. Any third party to whom shares are transferred will be required to
agree to the terms of The Facilities Group Agreement as if it were an original
party to that agreement.
The Facilities Group Agreement also contains options whereby one
shareholder is entitled to acquire all the shares in The Facilities Group of the
other shareholder in the event that:
1. the other shareholder becomes insolvent; or
2. the other shareholder suffers a change of control.
The price payable on exercise of these options will be based on the
market value of The Facilities Group shares.
The Facilities Group Agreement will remain in force until (i) either
shareholder acquires all of the shares in The Facilities Group held by the
other, (ii) an order is made or resolution is passed for the winding up of The
Facilities Group or (iii) a third party acquires all of the shares of The
Facilities Group.
EMPLOYEE BENEFITS PLANS
CCG employees are members of a number of pension schemes throughout
the world, principally in the UK and the US. CCG currently operates two
principal UK pension schemes: a defined benefits scheme (the Cordiant Group
Pension Scheme) and a defined contribution scheme (the Cordiant Group Money
Purchase Pension Plan). Since the Demerger, CCG employees have remained members
of these schemes.
Employees of the Saatchi & Saatchi Group have continued their
membership in both schemes during a transitional period, subject to Inland
Revenue approval. The Company and Saatchi & Saatchi have agreed that, at the end
of a transitional period, Saatchi & Saatchi's members within the two UK pension
schemes will be given the opportunity to transfer to new pension arrangements
being set up by Saatchi & Saatchi. A transfer payment determined by the trustee
of the two UK pension schemes, having taken actuarial advice, will be made to
the new Saatchi & Saatchi pension arrangements in respect of the accrued rights
under the relevant UK pension scheme of those members who request a transfer.
The same provisions apply to employees of Zenith who are members of CCG's UK
pension schemes.
The arrangements with respect to options under the CCG Share Schemes
are described in "Options to Purchase Securities From Registrant or
Subsidiaries."
OTHER PROVISIONS OF THE DEMERGER AGREEMENT
Operating Arrangements
The Demerger Agreement provides for the implementation of specific
arrangements in Eastern Europe and the Middle East where the two groups operate
local offices jointly and sets out the bases on which these arrangements will
continue. Each agency is owned and managed by S&S, but has been branded jointly
as "Bates Saatchi & Saatchi Advertising." Following the Demerger, Bates
Worldwide and S&S have shared operating profits or losses of the local offices
based on the level of revenue introduced by each network. Subsequent to the
year-end, Bates Worldwide gave notice of its intention to end the operating
arrangements in Poland and the Middle East.
In addition, members of both CCG and the Saatchi & Saatchi Group are
parties to existing joint venture arrangements with third parties in Russia and
Japan.
Shared Premises and Services
There are a number of locations in which offices leased by a member
of the CCG Group are occupied by, or shared with, a member of the Saatchi &
Saatchi Group, or vice versa. Pursuant to the Demerger Agreement, these
arrangements will continue, to the extent practicable, either indefinitely or at
least for a transitional period, generally on the same basis on which such
arrangements operated prior to the date of the agreement. The most significant
of these arrangements are a sublease by Saatchi & Saatchi to Zenith of 55,000
square feet at 375 Hudson Street in New York and a sublease by Saatchi & Saatchi
to CCG of 279,000 square feet at 405 Lexington Avenue in New York. In some cases
these arrangements are the subject of formal subleases or licenses; in other
cases the sharing arrangements remain informal. The Demerger Agreement also
contains certain transitional arrangements in respect of such matters as access
to information, the preparation of accounts and insurance.
Network Affiliates
There are over 40 affiliated agencies of S&S around the world in
which the Saatchi & Saatchi Group holds only a minority interest or no equity
interest. Prior to the Demerger, the relationship with these affiliates was in
most cases governed by a "network membership agreement" between the affiliate
and Cordiant, on behalf of S&S. Under these agreements, the affiliate is given
the sole license to use the "Saatchi & Saatchi" name in relation to advertising
services in a specified territory and receives certain services and referrals of
clients from S&S, in return for paying to Cordiant fees based on income earned
by the affiliate. In most cases, these agreements provided for termination by
either party on 3 months' notice.
Pursuant to the Demerger Agreement, CCG and the Saatchi & Saatchi
Group endeavored to obtain the agreement of the S&S affiliates to the novation
of their network membership agreements, so that Saatchi & Saatchi succeeded to
all of the rights and obligations of Cordiant under these agreements with effect
from completion of the Demerger. To the extent that such agreement was not
obtained prior to the Effective Date, CCG holds these agreements for the benefit
of the Saatchi & Saatchi Group pending novation or termination and the Saatchi &
Saatchi Group will be responsible for ensuring that all obligations of CCG
thereunder are performed. Similar arrangements exist in relation to agreements
with Zenith affiliates.
Disputes
The Demerger Agreement sets out agreed procedures to be followed by
the Company, Saatchi & Saatchi and Zenith in seeking to resolve any dispute that
may arise between any of them under or in connection with the Demerger
Agreement, other than disputes arising under the Zenith Shareholders' Agreement.
Demerger Costs
Pursuant to the Demerger Agreement, subject to certain limited
exceptions, all costs incurred by Cordiant, Saatchi & Saatchi, Zenith and their
respective subsidiaries in connection with the Demerger, including, but not
limited to, those relating to the pre-Demerger reconstruction, Cordiant's
reduction of capital, all of the new employee share schemes and the new banking
facilities, were paid by CCG. The applications for listing of Saatchi Ordinary
Shares and American Depositary Shares on the London and New York Stock Exchanges
were paid by Saatchi & Saatchi. The anticipated costs of the Demerger were taken
into account in determining the manner in which the overall debt of Cordiant was
divided between CCG, Saatchi & Saatchi and Zenith. Costs in excess of those
anticipated were recorded by CCG and 50 percent of them were charged back to
Saatchi & Saatchi.
Liabilities and Reciprocal Indemnities
The Demerger Agreement provides that following the Demerger, each of
the Company, Saatchi & Saatchi and Zenith will indemnify, or procure that its
relevant subsidiaries indemnify, the members of each other group, subject to
certain limitations, against certain actual and contingent liabilities
associated with the business of the indemnifying group. In addition, if there
are incurred any liabilities in relation to past disposals of subsidiaries not
operated as part of Bates Worldwide or S&S, certain liabilities in connection
with the Demerger process in excess of the amounts contemplated by the
arrangements for dividing the existing Cordiant bank borrowings between CCG,
Saatchi & Saatchi and Zenith, or certain other types of liabilities, these will
be shared equally by CCG and Saatchi & Saatchi. The general purpose of these
provisions is to ensure that legal effect is given to the principles upon which
it has been agreed that the assets and liabilities of Cordiant should be divided
between CCG, Saatchi & Saatchi and Zenith. They cover a range of matters, in
addition to the cross guarantees referred to above, including (without
limitation) UK, US and other tax liabilities and litigation involving members of
more than one group.
<PAGE>
ORGANIZATION AND SERVICES
The Group's operations consist of advertising and other creative
marketing services including direct marketing, media services, production
services, interactive media and market research. In 1997, the Group's largest
five clients accounted for 18.1 percent of ongoing revenues. The largest client
accounted for 5.9 percent of total ongoing revenues. No other single client
accounted for more than 5 percent of ongoing revenues. The Group's principal
activities subsequent to the Demerger are organized as follows:
ORGANIZATION ACTIVITIES
Advertising and integrated
marketing communications
Bates Worldwide Advertising, sales promotion,
- 141 Worldwide direct marketing, interactive
- XM media, healthcare advertising,
- Healthcom strategic brand consultancy and
- Decision Shop design services
Scholz & Friends Advertising, sales promotion,
direct marketing, interactive
media and design services
Specialist marketing
communications services
HP:ICM Conferences, exhibitions and
brand experience events
The Facilities Group1 Pre-production services in
design, print and television
Media services
Zenith Media Worldwide2 Media planning and buying
- --------------------
1 Owned 30 percent by the Company, 70 percent by Saatchi & Saatchi
2 Owned 50 percent by the Company, 50 percent by Saatchi & Saatchi
During 1997, advertising services accounted for 98 percent of CCG's
ongoing revenues and other marketing communications services accounted for 2
percent.
ADVERTISING AND INTEGRATED MARKETING COMMUNICATIONS
BATES WORLDWIDE
Bates Worldwide is an international advertising and integrated
marketing communications network. Headquartered in New York, the network is
characterized by a strong local presence with entrepreneurial leadership in a
number of countries, particularly in Europe and Asia Pacific. It currently has
more than 160 owned or affiliated offices, located in over 70 countries. In
1997, Bates Worldwide accounted for 88 percent of CCG's ongoing revenues.
Advertising services
The network is principally involved in the creation of advertising
and marketing programs for products, services, brands, companies and
organizations. These programs involve various media such as television,
magazines, newspapers, cinema, radio, outdoor, electronic and interactive media,
as well as techniques such as direct marketing, sales promotion and design. The
creation of advertising and marketing materials includes the writing, designing
and development of concepts. When the concepts have been approved by the client,
Bates Worldwide supervises the production of materials necessary to implement
that program. These include film, video, print and electronic materials, which
are produced externally.
Bates Worldwide performs a strategic planning function which involves
analysis of the particular product, service, brand, company or organization
against its competitors and the market. Bates Worldwide's creative approach is
driven by the discipline to determine each brand's Unique Selling Proposition.
This approach is based on the principle that the consumer tends to remember just
one thing from an advertisement - one strong claim or concept. Bates Worldwide's
U.S.P.(TM) approach seeks to identify a unique benefit or point of difference
from within the brand. U.S.P.(TM) means a motivating idea - a unique claim or
benefit - associated with a particular brand, which is to be registered in the
mind of the consumer. Especially long-running examples of Bates Worldwide's
U.S.P.(TM) advertising include Certs' "Two mints in one" in the US and Castrol's
"Liquid Engineering" in Europe. The Company believes that this approach sets
Bates Worldwide apart from other advertising networks. The approach is
process-driven, involves rigorous interrogation of a brand's strengths and is
designed to produce advertising which is cost-effective and competitive. Bates
Worldwide also encourages the use of in-house econometric techniques to monitor
the effectiveness of its advertising for clients.
The network utilizes a number of methodologies which it has developed
internally. These include: Global Scan(TM), a worldwide consumer attitude and
behavior study; Brand Wheel(TM), a method for identifying and ordering a brand's
functional and psychological benefits; and Brand Essence(TM), a research process
which identifies the fundamental values which a brand encapsulates in the mind
of the consumer as the basis for brand positioning,
Bates Worldwide also evaluates the choice of media to reach the
desired market most efficiently. The advertising and marketing program is
devised within the limits imposed by the client's advertising budget. In the
case of global and regional campaigns, Bates Worldwide plans and coordinates the
implementation of the program through its network of national agencies.
Bates Worldwide is involved in buying media space and time for its
clients. This is executed by Zenith, by Bates Worldwide's in-house team or
sourced from external suppliers.
Clients
Bates Worldwide has a broad client base. In 1997, B.A.T accounted for
just under 6 percent of CCG's ongoing revenues. No other single client accounted
for over 5 percent of CCG's ongoing revenues in 1997. Bates Worldwide's 10
largest clients accounted for 27 percent of CCG's ongoing revenues in 1997.
Bates Worldwide's client list includes many prestigious international
companies. In 1997, Bates Worldwide served over 30 clients in five or more
countries through its international network. In addition, a number of clients
have appointed Bates Worldwide to serve them on a worldwide basis, namely in
each of the Americas, Europe and Asia Pacific. During 1997, clients served
worldwide or in five or more countries accounted for approximately 30 percent of
Bates Worldwide's revenues. A representative selection of Bates Worldwide's
current multi-national and worldwide clients are set out in the table below.
SELECTED CLIENTS OF BATES WORLDWIDE
Clients served worldwide Clients served in five or more countries
B.A.T. 3M Europcar
EDS (Electronic Data Amnesty International Estee Lauder
Systems)
Energizer Ansett Australia Fort James
Hyundai Avis Goodman/Fielder
Warner-Lambert Brown-Forman Heineken
Wendy's International Caltex Hongkong Bank
Campbell Soup Company Microsoft
Center Parcs Nokia
Coca-Cola Company Pharmacia & Upjohn
CPC International Roche-Nicholas
Cussons SEAT
DHL UNICEF
Reputation and awards
For the last three years, Bates Worldwide has been among the top
three networks shortlisted for creative awards at the Cannes International
Advertising Festival. In 1997, it won two Gold and four Bronze Lions as well.
A number of individual Bates Worldwide agencies have strong
reputations for client service and creativity. Delvico Bates was the most
awarded agency in Spain for the fifth consecutive year in 1997, according to
Anuncios magazine. Bates Copenhagen was named Agency of the Year in Denmark for
the seventh time in ten years. Bates Europe won Marketing and Media Magazine's M
& M award for Best Corporate Campaign for its "Success Stories" advertising for
EDS. Bates USA won two prestigious Effies for JRAP/U.S. Coast Guard and Wendy's
International. Five Bates agencies - George Patterson Bates, Bates Hong Kong,
Bates USA Southwest, Delvico Bates and Campaign Palace - won Gold awards at the
London International Advertising Festival. XM (Expanded Media) Asia won a Gold
Award in Pacific Internet's Best of the Web competition for its work on the
Nokia Mobile Phones Asia Pacific website. In Australia, Campaign Palace was
named Television Agency of the Year at the Australian Television Awards in 1997.
Integrated marketing communications services
Bates Worldwide has been developing a number of its integrated
marketing communications services as separately branded operations. These
businesses have potential for high-margin revenue growth and the Company expects
them to enhance the network's ability to generate global client accounts. The
services provided are set out below.
141 Worldwide
141 Worldwide is a sales promotion network launched in 1997 as a
separately branded operation. 141 Worldwide specializes in merchandising, point
of sale and other promotions, permanent in-store displays, signage,
sponsorships, special events, direct marketing, trade mark diversification and
trade mark communication. 141 Worldwide was originally established in 17 Bates
Worldwide offices in 17 countries. 141 Worldwide now has 26 global offices
including London, New York, Paris and Sydney. The Company expects the rapid
development of offices to continue. 141 Worldwide's international network
operates to standard practices and a unified philosophy utilizing two operating
systems. 141 Management System is used by agency personnel to guide clients from
strategic development through to execution of creative work. 141 Creative
Project Flow is a methodology to help clients understand better the creative
process used at the agency. 141 Worldwide's major clients include 3M, B.A.T,
Coca-Cola Company, Grand Metropolitan, Warner-Lambert and Wendy's International.
XM
XM (Expanded Media) is Bates Worldwide's interactive media division.
XM's interactive expertise includes the creation of websites, the development of
banner advertising for the internet and the production of CD-Roms and
interactive display units. Clients served in this area include EDS, Nokia and
Perrier.
Healthcom
Healthcom is a specialist healthcare advertising and communications
agency established in the early 1990s. The operation is headquartered in London
and has offices in five countries. Healthcom markets healthcare products both to
the professional medical market and directly to consumers. Clients include
Carter-Wallace, Pharmacia & Upjohn and Warner-Lambert.
The Decision Shop
The Decision Shop is a specialist resource to assist clients in brand
positioning, strategic research, econometric modeling, analysis of consumer
panel data, evaluation of campaigns and media modeling. The Decision Shop's work
has included international repositioning projects for Electrolux and Smirnoff
and the launch of Nicorette and Zovirax for Warner-Lambert.
Bates Worldwide also operates BKS/Bates, a marketer and producer of
television programming to broadcast and cable networks in the US, and
Grapplegroup, a graphic design consultancy based in Johannesburg.
SCHOLZ & FRIENDS
Scholz & Friends, founded in 1981, is the largest multi-national
advertising network headquartered in Germany in terms of gross income based on
information published by Advertising Age. Scholz & Friends has a strong creative
reputation in its domestic market. After its acquisition in 1985, Scholz &
Friends operated as an independent unit within Bates Worldwide. In 1995 Scholz &
Friends moved to operating as an international network reporting independently
from Bates Worldwide to minimize the impact of clients' conflict policies. The
network has grown to 13 offices in 11 European countries. A London office was
opened at the end of 1997 and a Paris opening is planned for 1998. CCG currently
owns 90 percent of Scholz & Friends. During 1997, the network accounted for
approximately 10 percent of CCG's ongoing revenue.
In addition to advertising, Scholz & Friends provides clients with a
wide range of marketing services including sales promotion, public relations,
direct marketing, design and interactive media. The Berlin agency recently won
the "Best Campaign" award for its "Frankfurter Allgemeine Zeitung" work for the
second year running. Scholz & Friends' major clients include Deutsche Bank,
Deutsche Telekom, DHL, Henkel, Lufthansa, Mobil Europe and Tchibo. Major new
assignments have recently been won from Buena Vista, Center Parcs, Europcar and
Messe Frankfurt. The only significant loss in 1997 was Compaq.
SPECIALIST MARKETING COMMUNICATIONS SERVICES
HP:ICM
HP:ICM is a leading specialist communications agency providing
creative and production consultancy in the areas of live events, exhibitions,
film, video, multimedia and brand experience. The company's end products take
many forms, such as displays at visitor centers, exhibition stands, conferences,
internal corporate television networks, trans-continental roadshows, multi-media
training programs and corporate videos. For the past four years HP:ICM has been
named "Live Event Marketer of the Year" by Televisual Magazine. The agency is
based in London although approximately half of its revenues are generated
outside the UK. Some of HP:ICM's major assignments include work for British
Aerospace, The Department of Trade & Industry, General Motors, Halifax plc and
Marks & Spencer.
The Facilities Group
Based in central London, The Facilities Group provides a
comprehensive range of technical and creative services in the areas of design,
print, production, artwork, audio visual, multimedia and television production.
Its revenues derive from both CCG and Saatchi & Saatchi and a number of
independent accounts. New business wins from external clients during 1997
included Linklaters, Regus, St. George Plc, Morgan Stanley and Time Products.
The business operates from a single site and provides 24 hour
coverage. This helps to reduce production times and to add a high level of
security to clients' projects. The Facilities Group has expanded its specialist
services through the recent introduction of two new divisions: Red Kite, an
interactive media company, and Winkle Films, a film production company.
As a result of the Demerger, the Company has a 30 percent
shareholding in The Facilities Group with the remaining 70 percent held by
Saatchi & Saatchi.
MEDIA SERVICES
Zenith Media Worldwide
Zenith Media Worldwide is a specialist media services and planning
agency. It is headquartered in London and has offices or affiliated agencies in
17 European countries and five Asia Pacific countries and has seven offices in
North America. Zenith continues to expand with further offices planned in Europe
and two new offices in North America opening shortly.
Zenith's services include researching media markets, forecasting
media trends and levels of expenditure, developing media buying strategies,
planning, negotiating and executing the details of buying programs, monitoring
the media to verify the execution of the buying program, researching the
effectiveness of the program and paying media owners. Zenith's Advertising
Expenditure Forecasts, which are published twice yearly, are regarded as
authoritative by the advertising industry.
Zenith provides its services to clients of Bates Worldwide and S&S.
In addition, in 1997 slightly more than half of its revenues were generated from
Zenith's own client list. Zenith's major direct clients include BMW/Rover Group
UK, Bristol Myers-Squibb, British Telecom, Calvin Klein, Darden Restaurants,
Kingfisher, Kraft Jacobs Suchard, Mars and Renault.
Zenith has made significant investment in its people, information
technology systems and proprietary software. Zenith's proprietary software helps
to differentiate it from its competitors and to allow it to deliver competitive
advantage to its clients. Zenith's systems, branded Zenith Optimization of
Media, ZOOM(TM), fall into three areas:
Infrastructure. Standardized hardware and software platforms,
including desk-to-desk e-mail, are used across the Zenith network.
Communication. Zenith uses internet communications incorporating
password protected web-sites to share and disseminate information both
internally and with clients.
Proprietary media systems. A number of proprietary media systems have
been branded and launched since 1996 to process, manipulate and
analyze data efficiently. Examples of these systems are ZOOM Wizard,
which optimizes the allocation of a client's budget by TV station and
time of day; ZOOM Optimizer, which generates TV spot schedules to
maximize reach and frequency; ZOOM Merlin, a portfolio optimization
system which generates multiple campaign schedules simultaneously;
ZOOM Maps, which models campaign and brand awareness; ZOOM Adweight,
which helps determine targets for effective advertising frequency
levels; ZOOM Merc, which estimates combined media net reach; and ZOOM
Futures, which models estimated brand sales from media and marketing
campaigns.
As a result of the Demerger, CCG and Saatchi & Saatchi each have a 50
percent shareholding in Zenith, and both companies account for Zenith as a joint
venture. In addition, both CCG and Saatchi & Saatchi entered into an agreement
in which they agree to use Zenith as their exclusive media services supplier,
subject to certain exceptions, until at least December 31, 2000. Each media
services agreement will introduce revised commercial terms for the purchase of
media services from Zenith. See "Description of Business--Ownership and
Operation of Zenith Media Worldwide."
PERSONNEL
As of May 1, 1998, CCG employed approximately 4,700 people worldwide.
The success of CCG's advertising and media services businesses, like that of all
other advertising agencies, depends largely on the skill and creativity of their
personnel and their relationships with clients. CCG believes that its
relationship with its employees is good.
ACQUISITIONS & DISPOSALS
Acquisitions
During 1997, Cordiant made the following acquisitions: a 51% interest
in Grapple Group 141 (Pty) Ltd., a South African company; a further 25% interest
in X/M Harrow Pty Limited, an Australian company, raising its holding to 75%;
and Scholz & Friends GmbH acquired a further 33% interest in Scholz & Friends
Dresden GmbH, in Germany, increasing the Group's effective holding to 76.5%.
During 1996 the minority 47.4% of the share capital of Saatchi &
Saatchi Advertising SA in France was acquired. The acquisition was completed in
September 1996, but for accounting purposes the minority was treated as having
been acquired on January 1, 1996.
In May 1996, Cordiant acquired a further 10.7% interest in the share
capital of Scholz & Friends GmbH in Germany, increasing its holding to 90%.
During the second half of 1996, Cordiant made the following acquisitions: 51% in
each of two South African agencies, BLGK Advertising (Proprietary) Limited and
Saatchi & Saatchi Klerk & Barrett Holdings (Proprietary) Limited; the minority
interest in BSB Saatchi & Saatchi MC Limited in Poland; and a 50% stake in X/M
Harrow Pty Limited.
Disposals
In April 1995, Cordiant completed the sale of the business of the
Minneapolis offices of Campbell-Mithun-Esty ("CME"). Prior to and after the
sale, substantially all of the other operations of CME were either closed or
integrated into Bates Worldwide and S&S. Also in April 1995, Cordiant completed
the sale of the S&S agencies in Puerto Rico and Mexico. In September 1995, the
Kobs & Draft Worldwide network ("KDW") was sold to its management. Revenues from
these companies aggregated L63.3 million in 1994 and L29.3 million in 1995. In
1996 KDW was sold by its management to The Interpublic Group of Companies. This
transaction resulted in the receipt of contingent consideration by Cordiant, as
specified in the 1995 sale agreement between Cordiant and KDW Management. As a
result, Cordiant recognized further gains in 1996 and 1997. In December 1995,
Cordiant committed to an equity incentive scheme for Bates Australia (The
Communications Group Pty. Ltd.) involving the sale of 24.9% of that company to
an employee trust. In October 1997, Cordiant completed the sale of NRG. See Note
2 in the Notes to Consolidated Financial Statements.
GEOGRAPHIC COVERAGE
Bates Worldwide's operating philosophy is "Think Global, Act
Local(R)". This is achieved by utilizing the benefits of scale and consistency
of a worldwide network while at the same time exploiting local market nuance,
opportunity and expertise. Most of Bates Worldwide's local offices generate
substantial local revenue in their own right as well as serving international
clients. In 1997, approximately 67 percent of Bates Worldwide's revenues were
derived from local clients. CCG serves clients in all of the world's major
advertising markets.
GEOGRAPHIC ANALYSIS OF CCG ONGOING REVENUE IN 1997
Percentage Percentage of
of CCG worldwide
ongoing advertising
revenue expenditure(1)
(%) (%)
- ------------------------------------------------------------------------
UK 12.6 6.0
North America 22.0 37.4
Rest of Europe, Africa and the Middle East 34.1 24.1
Asia Pacific (ex Japan) 29.8 10.5
Other (Inc. Japan) 1.5 22.0
---- ----
Total 100.0 100.0
(1) Source: Zenith Media Worldwide, Advertising Expenditure Forecasts, December
1997
Although the percentage of CCG's revenue derived from North America
is lower than North America's percentage of global advertising expenditures, CCG
has a significant presence in this region. The Company's aim is to increase
revenue from North America to nearer that of the industry overall, with an
initial target of 30 percent.
CCG's strengths outside North America reflect the vitality of its
local offices. In 1997 Bates Dorland was the seventh largest advertising agency
in the UK and Scholz & Friends was the eleventh largest agency in Germany, in
terms of gross income, according to Advertising Age. In the Rest of Europe,
Africa and the Middle East, CCG derives a greater percentage of its revenues
than such regions contribute to total advertising expenditures. According to the
rankings published by Advertising Age, Bates Worldwide has been the largest
network in Norway and in the top two in Denmark for the last 20 years and
Delvico Bates has been one of the largest advertising agencies in Spain for 13
years.
In Asia Pacific (excluding Japan), Bates Worldwide had the largest
advertising network in 1997 based on information published by Advertising Age.
It has offices in the important markets of Hong Kong, China, Singapore,
Malaysia, and Australia. It is particularly strong in Australia where George
Patterson Bates, a 75.1 percent owned subsidiary of CCG, has been the largest
agency for 26 years according to Advertising Age. Nearly all national
advertising markets are dominated by the major worldwide advertising networks.
The Japanese market is the exception as it is dominated by domestic agencies
with limited international presence. In the rest of the world, which includes
Latin America, the network is primarily represented by businesses in which CCG
has minority equity holdings or an affiliate agreement. Accordingly, these
businesses are not included within CCG's revenue. While CCG has a high exposure
to Asia Pacific, based on revenues, of 31 percent, about 20 percent is in
Australasia (Australia and New Zealand) and only 4 percent in Southeast Asian
countries that have suffered economic instability in 1997.
COMPETITION
The advertising industry is highly competitive at both an
international and local level. CCG's principal competitors in the advertising
industry are the large multi-national agencies based in the US, the UK and
France as well as smaller agencies which operate in local markets. The principal
competitive factors include an agency's reputation, its creative strength and
quality of client service, its ability to perceive clients' needs accurately,
the commercial effectiveness of its ideas, its geographic coverage and
diversity, its understanding of advertising media and its media buying power. In
addition, an agency's ability to maintain its existing clients and develop new
relationships depends to a significant degree on factors such as the
interpersonal skills of the individuals managing client accounts. Normal
practice in the industry is for agency contracts to have a three month
termination period.
The Company believes that the Group is well positioned to compete in
the advertising industry. From a client perspective, Bates Worldwide's
reputation is enhanced by being the original U.S.P.(TM) agency. The Company also
believes that the combination of the Group's local presence and its worldwide
network provides it with one of the strongest operating formats to implement
advertising strategies on a worldwide basis. Furthermore, the process of clients
consolidating their business in the advertising market will continue to offer
opportunities for Bates Worldwide to win new business.
REGULATION
Governments, government agencies and industry self-regulatory bodies
in the various countries in which the Company operates continue to adopt
legislation and regulations which directly or indirectly affect the form,
content and scheduling of advertising and other communications services, or
otherwise affect the activities of such businesses and their clients. Certain of
the legislation and regulations relate to considerations such as truthfulness,
substantiation, interpretation of claims made and comparative advertising. In
addition, there is a tendency toward restrictions or prohibitions relating to
advertising for such products as pharmaceuticals, tobacco and alcohol.
ITEM 2. DESCRIPTION OF PROPERTY.
CCG leases all its premises. The principal properties leased by CCG
are as follows:
- ---------------------------------------------------------------------
Location Area Annual Base Next Rent Expiration
Sq. Ft. Rental- Review of Lease
Millions Date
- ---------------------------------------------------------------------
405 Lexington Avenue 249,000 $3.2 -- 1999
New York, New York(1)
121-141 Westbourne Terrace 62,500 L1.5 -- 2003
London, England
Lansdowne House 23,000 L1.2 Various 2013
Berkeley Square London,
England(2)
- ---------------------------------------------------------------------
(1) In addition, CCG has sublet 30,000 square feet on terms similar to, and
coterminous with, its obligations.
(2) Inaddition, CCG leases 103,000 square feet at an annual rental of L6.5
million which is sublet for mainly coterminous periods as CCG at an average
annualized rental of approximately L6.1 million during 1997. A further
49,000 square feet at an annual rental of L2.9 million is sublet on a
short-term basis at an average annualized rental of approximately L1.7
million during 1997.
In October 1997, CCG entered into a new lease at 498 Seventh Avenue,
New York, New York. CCG is due to begin occupancy from April 1999. The term of
the lease is approximately 15 years with options to extend if appropriate. The
agreement is for initially 204,000 square feet at an annual base rent of $6.0
million subject to rent reviews at five year intervals.
At December 31, 1997, CCG's owned and leased properties and fixtures
(including furniture and equipment) had a net book value of L22.8 million ($37.4
million).
CCG considers its offices and other facilities to be in good
condition. However, it has surplus office space based on the needs of its
current business. At December 31, 1997, L40.2 million ($65.9 million) had been
reserved by the Group for potential costs of surplus space, primarily in London
and New York City.
ITEM 3. LEGAL PROCEEDINGS.
CCG has no material pending legal proceedings.
ITEM 4. CONTROL OF REGISTRANT.
The Company is not owned or controlled by any government or by any
other corporation.
The following table lists, as of June 1, 1998, the total number of
Ordinary Shares owned by the Directors and officers of the Company as a group.
Identity of
Title of Class Person or Company Amount Owned Percent
Ordinary Shares Directors and 116,513 0.1%
officers of the
Company as a group
The Directors have also been notified of the following non-beneficial
holdings of ten percent or more of the issued Ordinary Share capital of the
Company as of June 1, 1998:
Identity of
Title of Class Person or Company Amount Owned Percent
Ordinary Shares Phildrew Nominees 57,136,865 25.7%
Ltd./PDFM Ltd.
Harris 29,082,578 13.1%
Associates, L.P.
Trimark 23,185,200 10.4%
Investment
Management, Inc.
<PAGE>
ITEM 5. NATURE OF TRADING MARKETS.
The Company's Ordinary Shares are quoted on the London Stock Exchange
Limited (the "London Stock Exchange"). The table below sets forth, for the
quarters indicated, the reported high and low middle market quotations for the
Ordinary Shares on the London Stock Exchange based on its Daily Official List.
Such quotations have been translated in each case into US dollars at the Noon
Buying Rate on each of the respective dates of such quotations.
<TABLE>
<CAPTION>
Pence Per Translated into
Ordinary Share US Dollars
High Low High Low
<S> <C> <C> <C> <C> <C>
1996 First Quarter............ 125.0 90.0 2.01 1.40
Second Quarter........... 138.0 111.0 2.09 1.72
Third Quarter............ 120.5 103.0 1.88 1.61
Fourth Quarter........... 114.0 90.5 1.78 1.41
1997 First Quarter............ 123.5 98.5 2.01 1.60
Second Quarter........... 135.5 120.0 2.22 1.97
Third Quarter............ 135.0 118.0 2.27 1.90
Fourth Quarter........... 134.5 100.0 2.20 1.67
1998 First Quarter............ 123.5 88.5 2.07 1.46
Second Quarter........... 135.5 115.5 2.26 1.93
(through June 1, 1998)
</TABLE>
The Ordinary Shares trade in the United States on the New York Stock
Exchange, Inc. in the form of American Depositary Shares ("ADSs") which are
evidenced by American Depositary Receipts ("ADRs"). Each ADS represents five
Ordinary Shares. The depositary for the ADSs is The Bank of New York (the
"Depositary"). The table below sets forth the high and low sales prices for the
ADSs as reported in the New York Stock Exchange-Composite Transactions. The
Company believes that, as of June 1, 1998, 15.8 percent of the outstanding
Ordinary Shares, which are represented by ADSs, were held in the United States
by 606 record holders and 0.2 percent of the Ordinary Shares were held in the
United States by approximately 47 record holders. CCG estimates that, as of June
1, 1998, an additional 14.7 percent of the Ordinary Shares are owned
beneficially by US persons giving an aggregate US holding of 30.7 percent.
<PAGE>
US dollars per
ADS
High Low
1996
First Quarter 5 7/8 4
Second Quarter 6 3/8 5
Third Quarter 5 5/8 4 5/8
Fourth Quarter 5 3/8 4 3/8
1997
First Quarter 6 4 5/8
Second Quarter 6 7/8 5 5/8
Third Quarter 6 11/16 5 1/2
Fourth Quarter 9 1/2 5 3/8
1998
First Quarter 10 11/16 7
Second Quarter 11 1/2 9 1/2
(through June 1, 1998)
The Company delisted from the Paris Bourse upon consummation of the
Demerger.
ITEM 6. EXCHANGE CONTROLS AND OTHER
LIMITATIONS AFFECTING SECURITY HOLDERS.
There are no limitations on the rights of nonresident or foreign
persons to hold or vote the Ordinary shares imposed by the laws of the United
Kingdom or by the Company's Articles other than those which are customary and
generally applicable to all shareholders. In particular, Article 151 of the
Company's Articles provides that a member who has no registered address within
the United Kingdom and has not notified the Company in writing of an address
within the United Kingdom for the service of notice, shall not be entitled to
receive notice from the Company.
ITEM 7. TAXATION.
The following is a summary of certain UK tax consequences generally
applicable to a beneficial owner of ADRs or Ordinary Shares in the Company who
is resident in the United States and not resident in the United Kingdom (a "US
Holder") for the purposes of the current double taxation convention on income
and capital gains between the United States and the United Kingdom (the
"Convention").
Subject to the following paragraph, this summary is based on current
tax law and practice as of the date of this filing and is subject to any changes
in US or UK tax law and practice (including changes in the Convention) occurring
after that date. As the following discussion is only a general summary of
certain UK and US federal income tax law consequences (not including
consequences under any other laws, including other federal, state, local or
foreign tax laws), it does not purport to address all potential tax consequences
for all types of investors and, consequently, its applicability will depend upon
the particular circumstances of individual investors. Certain holders
(including, but not limited to, insurance companies, tax-exempt organizations,
banks or dealers or traders in securities or currencies, persons that have a
"functional currency" other than the US dollar, persons that will hold Ordinary
Shares (or ADSs) as part of a position in a "straddle" or as part of a
"hedging," "conversion" or "integrated" transaction for US federal income tax
purposes and persons owning, directly or indirectly, five percent or more of the
voting shares of the Company) may be subject to special rules not discussed
below. Investors should, therefore, consult their own tax advisers about their
tax position in relation to the Company including the particular tax
consequences to them of owning and disposing of ADRs or Ordinary Shares.
The discussion of UK taxation of dividends and refunds of tax credits
is based on current UK tax law as potentially amended by the Finance (No. 2)
Bill 1998. The discussion assumes that the Finance (No. 2) Bill 1998 will be
enacted as originally drafted. The discussion of US federal taxation is based on
the Internal Revenue Code of 1986, as amended to the date hereof, existing and
proposed Treasury Regulations, administrative pronouncements and judicial
decisions, each of which as in effect and available as of the date hereof and
all of which are subject to change (possibly with retroactive effect) or
differing interpretations that could affect the tax consequences described
herein.
UNITED KINGDOM TAXATION OF DIVIDENDS AND REFUNDS OF TAX CREDITS
The Company
When paying a dividend in respect of the Ordinary Shares, the Company
is generally required to account to the UK Inland Revenue for a payment known as
advance corporation tax ("ACT"). The rate of ACT is 20/80ths of the cash
dividend paid to Shareholders, equivalent to 20 percent of the sum of the cash
dividend and the related ACT. The payment of the dividend generally gives rise
to a "tax credit" in the hands of certain shareholders. The rate of the tax
credit is currently 20 percent of the sum of the cash dividend and tax credit
(the "gross dividend"). However, the Finance (No. 2)
Bill 1998 proposes the abolition of ACT as from April 6, 1999.
The Company has the option to elect to pay a "foreign income
dividend" out of its non-UK source profits or those of its subsidiaries. To the
extent that the non-UK source profits have borne tax in a jurisdiction other
than the United Kingdom in respect of which double taxation relief is afforded
in the UK, the Company may be able to recover from the UK Inland Revenue the ACT
it bears on the foreign income dividend. A foreign income dividend does not
carry a tax credit.
The Company will be electing for the dividend due to be paid in July
1998 to be treated as a foreign income dividend.
The Company's ability to pay foreign income dividends will cease as
from April 6, 1999.
US Resident Shareholders
For purposes of the Convention and for the purposes of the United
States Internal Revenue Code of 1986, as amended (the "Code"), the holders of
the ADRs should be treated as the owners of the underlying Ordinary Shares
represented by the ADSs that are evidenced by such ADRs.
Tax Credits under the Convention
Under the Convention, certain US Holders who receive a dividend from
a UK company (other than a foreign income dividend) are entitled in certain
circumstances to claim from the Inland Revenue payment of the tax credit or part
of the tax credit (a "Tax Credit Refund") to which a UK resident individual
would be entitled, subject to a withholding tax. However, as from April 6, 1999,
as a result of a reduction in the rate of tax credit, the withholding tax will
eliminate or virtually eliminate the Tax Credit Refund.
As the Company will be electing for the dividend due to be paid in
July 1998 to be treated as a foreign income dividend, no Tax Credit Refund will
be due under the Convention in respect of that dividend.
As the Company does not currently propose to pay any other dividend
before April 6, 1999 and as, from that date, the withholding tax will eliminate
the Tax Credit Refund, the availability of Tax Credit Refunds under the
Convention is not discussed any further in this summary. US Holders should
consult their own tax advisers as to the availability or otherwise of Tax Credit
Refunds as from April 6, 1999.
UNITED KINGDOM TAXATION OF CAPITAL GAINS
Holders of ADRs or Ordinary Shares who are US citizens or residents
of the United States for US federal income tax purposes, and who are not
resident or ordinarily resident in the United Kingdom for UK income tax
purposes, will not normally be liable to UK taxation of capital gains realized
on the disposal or deemed disposal of their ADRs or Ordinary Shares, unless the
ADRs or Ordinary Shares are held in connection with a trade, profession or
vocation carried on in the United Kingdom through a branch or agency or, in
certain circumstances, their non-UK residence is only temporary. However, US
citizens and residents holding ADRs or Ordinary Shares may be liable for
taxation of such gains under the laws of the United States.
In the case of an individual US Holder, any such capital gain or loss
will be (i) mid-term capital gain or loss if the US Holder held the Ordinary
Shares (or ADSs held by or on behalf of the Depositary in the form of ADRs) for
more than one year but not more than 18 months and (ii) long term capital gain
or loss if the US Holder held the Ordinary Shares (or ADSs held by or on behalf
of the Depositary in the form of ADRs) for more than 18 months. Any net mid-term
capital gain recognized by an individual US Holder will be taxed at a maximum
marginal US Federal income tax rate that is less than the rate applicable to
ordinary income, while any net long term capital gain recognized by an
individual US Holder will be subject to a further reduced maximum marginal rate.
UNITED KINGDOM INHERITANCE AND GIFT TAX
UK Inheritance Tax ("IHT") is a tax charged, broadly, on the value of
an individual's estate at his death, upon certain transfers of value (e.g.,
gifts) made by individuals during their lifetime and on certain transfers of
value involving trusts and closely held companies. A transfer of value made
during an individual's lifetime may lead to an immediate liability to IHT (e.g.,
a transfer into a discretionary trust), or it may be potentially exempt (e.g.,
an outright gift to another individual), in which case it will only become
chargeable if the donor dies within 7 years. The transfer of value which is
deemed to occur on death is an immediately chargeable transfer of value. Special
rules apply to assets held in trusts, gifts out of which the donor reserves a
benefit and gifts to or from closely held companies, which are not discussed
herein.
Many chargeable transfers of value do not in fact result in a charge
to tax because IHT is charged at a "zero-rate" on transfers of value up to
L223,000 (for chargeable transfers made on or after April 6, 1998). In simple
terms, the value of all immediately chargeable transfers made within the seven
year period before the transfer under consideration are aggregated with the
value of that transfer in determining whether the limit of the L223,000
"zero-rate band" has been reached. For transfers of value which (in accordance
with the aggregation principle) go beyond the limit of the zero rate band, the
rates of tax are 20 percent on lifetime chargeable transfers and 40 percent on
transfers on, or within the period of three years before, death (with modified
rules applying to transfers within the period from seven to three years before
death).
IHT is chargeable upon the worldwide assets of individuals who are
domiciled or deemed to be domiciled in the United Kingdom, and upon the UK
situate assets of individuals domiciled elsewhere.
Accordingly, an individual who is domiciled in the United States and
is not deemed to be domiciled in the United Kingdom is only within the scope of
IHT to the extent of his UK situate assets. These will include Ordinary Shares
in the Company which are registered in the United Kingdom. It is understood to
be the Inland Revenue's normal practice to treat ADRs representing shares in UK
companies as assets situated in the United Kingdom for IHT purposes.
The rules outlined above will, in many cases, be modified by the
US-UK Convention on Inheritance and Gift Taxes. In general, an individual who is
domiciled in the US for the purposes of that convention and who is not a UK
national will not be subject to IHT in relation to Ordinary Shares in a UK
company or ADRs representing Ordinary Shares in a UK company on death or on a
lifetime gift, provided that any gift or estate tax due in the USA is paid and
that the Ordinary Shares or ADRs are not part of the business property of a
permanent establishment in the UK or part of the assets of a fixed UK base used
by the holder for the performance of services.
In the exceptional case where the Ordinary Shares or ADRs are subject
both to IHT and to US federal gift or estate tax, the gift tax convention
provides a credits system designed to avoid double taxation.
UNITED KINGDOM STAMP DUTY AND STAMP DUTY RESERVE TAX
Transfers of Ordinary Shares for a consideration
UK stamp duty is payable ad valorem on certain documents or
instruments conveying or transferring shares or securities (including Ordinary
Shares in the Company) on sale and UK stamp duty reserve tax ("SDRT") is imposed
on agreements for the transfer of certain shares and securities (including
Ordinary Shares in the Company) for a consideration in money or money's worth.
In the case of stamp duty, the charge is normally at the rate of L0.50 per L100
(or part of L100) of the amount or value of the consideration given for the
transfer and, in the case of SDRT, 0.5 percent of such amount or value. Stamp
duty and SDRT are generally payable by the purchaser but SDRT can in certain
circumstances be collected from persons other than the purchaser (e.g., certain
brokers and market makers). The charge to SDRT is normally incurred on the day
("the relevant day") on which the agreement is made or, if later, becomes
unconditional and it normally becomes payable on the seventh day of the month
following that in which it is incurred. However, if the SDRT is paid and at any
time on or within six years after the relevant day the agreement is completed by
a duly stamped transfer, a claim can be made within that six year period for
repayment of the SDRT and, to the extent that it has not been paid, the charge
will be canceled.
Consequently, transfers of, or agreements to transfer, Ordinary
Shares in the Company will normally be subject to ad valorem stamp duty or SDRT.
The electronic transfer system known as CREST permits shares to be
held in uncertificated form and to be transferred without a written instrument.
The absence of a written instrument of transfer results in such paperless
transfers generally being liable to SDRT rather than stamp duty. Special rules
apply to the collection of SDRT on paperless transfers settled within CREST.
Transfers of Ordinary Shares into ADS form
UK stamp duty or SDRT will normally be payable on any transfer of
Ordinary Shares to the Depositary or its nominee, or where the Depositary issues
an ADR in respect of Ordinary Shares hitherto held for another purpose by it or
its nominee. The charge is at the rate of L1.50 per L100 (or part of L100) or,
in the case of SDRT, 1.5 percent:
(i) in the case of a transfer of Ordinary Shares for consideration, of the
amount or value of the consideration for the transfer, and
(ii) in the case of a transfer of Ordinary Shares other than for consideration
and in the case of the issue of an ADR in respect of Ordinary Shares
hitherto held for another purpose, of the value of the Ordinary Shares.
Transfers of Ordinary Shares within the depositary arrangements
No UK stamp duty will be payable on an instrument transferring an ADR
or on a written agreement to transfer an ADR, provided that the instrument of
transfer or the agreement to transfer is executed and remains at all times
outside the UK. Where these conditions are not met, the transfer of, or
agreement to transfer, an ADR could, depending on the circumstances, give rise
to a charge to ad valorem stamp duty.
No SDRT will be payable in respect of an agreement to transfer an ADR
(whether made in or outside the UK).
Transfers of Ordinary Shares out of ADS form
Where no sale is involved, a transfer of Ordinary Shares by the
Depositary or its nominee to the holder of an ADR upon cancellation of the ADR
is not subject to any ad valorem stamp duty or SDRT, though it will generally be
subject to a fixed UK stamp duty of 50p per instrument of transfer. By contrast,
a transfer of, or agreement to transfer, Ordinary Shares underlying an ADR by
the Depositary or its nominee at the direction of the ADR seller directly to a
purchaser for a consideration may give rise to a liability to ad valorem stamp
duty or SDRT generally by reference to the amount of value of the consideration
for the transfer.
Gifts of Ordinary Shares
A transfer of Ordinary Shares for no consideration whatsoever is not
chargeable to ad valorem stamp duty or SDRT, nor would it normally give rise to
the fixed stamp duty of 50p per instrument of transfer.
ITEM 8. SELECTED FINANCIAL DATA.(1)
(1) The Consolidated Financial Statements of the Company are prepared in
accordance with UK Generally Accepted Accounting Principles ("UK GAAP")
which differ in certain significant respects from US Generally Accepted
Accounting Principles ("US GAAP"). Reconciliation to US GAAP is set forth
in Note 37 in the Notes to Consolidated Financial Statements. The per share
data have been translated into dollars per ADS where appropriate.
The selected financial data set forth below is derived from the
Consolidated Financial Statements of the Company and should be read in
conjunction with, and is qualified in its entirety by reference to, such
Consolidated Financial Statements, including the notes thereto. The Company's
Consolidated Financial Statements as of December 31, 1997 and 1996 and for each
of the years in the three year period ended December 31, 1997, which have been
audited by KPMG Audit Plc, are included elsewhere herein.
Significant changes were made to the Company's capital structure as a
result of the Demerger. See "Summary Unaudited Combined and Pro Forma Financial
Information" and "Unaudited Combined and Pro Forma Financial Information"
included elsewhere in this Report. The selected financial data set forth below
reflects the capital structure in place prior to the Demerger, which was
appropriate historically to Cordiant and the capital position, finance charges
and tax liabilities included in such data do not reflect the Group's capital
position, finance charges and tax liabilities in respect of any of the periods
covered had the Group effected the Demerger prior to such period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1997 1996 1995 1994 1993
US$(1) L L L L L
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:(2)
AMOUNTS IN ACCORDANCE WITH UK GAAP
Commission and fee income
Continuing operations $1,207.2 L736.1 L754.9 L761.1 L775.4 L806.0
Discontinued operations - - - - - 7.4
--------- --------- --------- --------- --------- -------
Total $1,207.2 L736.1 L754.9 L761.1 L775.4 L813.4
Profit (loss) before tax, and minority
interests(3) $56.7 L34.6 L41.8 L(22.6) L32.4 L19.2
Net profit (loss) $24.8 L15.1 L24.2 L(37.3) L13.9 L7.3
Net profit (loss) per Cordiant Ordinary
Share basic(4) $0.06 3.4p 5.5p (12.8)p 4.9p 2.9p
APPROXIMATE AMOUNTS IN ACCORDANCE WITH US GAAP
Profit (loss) from continuing operations $13.8 L8.4 L6.9 L(46.8) L(11.5) L(24.0)
Profit from discontinued operations - - - - - 2.4
------- ------- ------- ------- ------- ------
Net profit (loss) $13.8 L8.4 L6.9 L(46.8) L(11.5) L(21.6)
Net profit (loss) per Ordinary Share:(2)
Continuing operations $0.06 3.8p 3.1p (32.0)p (8.2)p (18.8)p
Discontinued operations - - - - - 1.8p
Net profit (loss) per Ordinary Share(2) $0.06 3.8p 3.1p (32.0)p (8.2)p (17.0)p
Net profit (loss) per ADS:(2)
Continuing operations $0.30 19.0p 15.5p (160.0)p (40.6)p (94.2)p
Discontinued operations - - - - - 9.4p
------- ------- ------- ------- ------- ------
Net profit (loss) per ADS(2) $0.30 19.0p 15.5p (160.0)p (40.6)p (84.8)p
Dividends including tax credit
Per Ordinary Share $0.04 3.0p 2.6p - - -
Per ADS $0.20 15.0p 13.0p - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
US$(1) L L L L L
(In millions)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH UK GAAP
Working capital asset (deficiency) 4.6 2.8 (59.8) (25.3) (32.4) (47.7)
Total assets 619.6 377.8 912.4 992.9 972.7 916.1
Long term liabilities, including minority 216.5 132.0 290.1 343.8 474.7 489.4
interests
Shareholder's deficiency (140.5) (85.7) (215.3) (224.9) (355.5) (383.3)
APPROXIMATE AMOUNTS IN ACCORDANCE WITH US
GAAP
Shareholder's funds (deficiency) 15.1 9.2 (0.4) (19.0) (99.4) (113.0)
</TABLE>
- -----------------
(1) These figures have been translated into US Dollars at the Noon Buying Rate
on December 31, 1997 (L1.00-$1.64).
(2) Per share and per ADS amounts have been adjusted to reflect the
Consolidation.
(3) The profit(loss) before taxes and minority interests reflects: (a)
exceptional costs of L2.2 million, L16.5 million, L20.3 million, Lnil and
L19.1 million that were incurred in 1997, 1996, 1995, 1994 and 1993,
respectively; (b) a profit on disposal of operations of L20.8 million and
L17.8 million in 1997 and 1996 respectively; (c) costs relating to the
fundamental reorganization of the Group as a result of the Demerger of
L33.0 million in 1997 (details of (b), (c) and (d) are set out in Note 2 in
the Notes to Consolidated Financial Statements); and (e) a loss on disposal
of operations of L34.3 million in 1995.
(4) Earnings per Cordiant Ordinary Share on a fully diluted basis have not been
disclosed as they are not materially different.
DIVIDENDS
Dividends recommended by the Company's Board in respect of a
particular fiscal year are paid in the following fiscal year if approved by the
Company's shareholders. The Company has paid and proposed the following
dividends on the Ordinary Shares in respect of the years indicated:
Year Dividend per Total Dividend Amount
Ordinary Share (L million)
(in pence)
1993 -- --
1994 -- --
1995 -- --
1996 2.0 4.4
1997(1) 1.2 2.7
- --------------------
(1) If approved by the Company's shareholders, such dividend will be paid in
July 1998 in the form of a foreign income dividend.
In 1997, the Demerger was carried out by a demerger dividend of
Saatchi Ordinary Shares. The transfer of net liabilities arising from the
Demerger amounted to L134.6 million. Under UK company law, the ability to pay a
dividend is dependent on whether the Company has distributable reserves. At
December 31, 1997 the Company had distributable reserves of L17.5 million.
The Directors make dividend determinations taking into account the
CCG Group's results of operations, investment requirements, cash flow after
repayment of debt and legal and contractual restrictions, if any. Consideration
is given to the declaration of foreign income dividends, if appropriate.
EXCHANGE RATES
Fluctuations in the exchange rate between the pound sterling and the
US dollar will affect the dollar equivalent of the pound sterling prices of the
Ordinary Shares on the London Stock Exchange and as a result, are likely to
affect the market price of the ADSs in the United States. Such fluctuations will
also affect the dollar amounts received by holders of ADSs on conversion by the
Depositary of cash dividends paid in pounds sterling on the Ordinary Shares
represented by the ADSs.
The following table sets forth, for the periods indicated, the
average, high, low and period end Noon Buying Rates for pounds sterling
expressed in US dollars per L1.
Average* High Low Period End
1993...................... 1.50 1.59 1.42 1.48
1994...................... 1.53 1.64 1.46 1.56
1995...................... 1.58 1.64 1.53 1.55
1996...................... 1.57 1.71 1.49 1.71
1997...................... 1.64 1.70 1.58 1.64
- --------------------
* The average of the exchange rates on the last day of each month during the
period.
The Noon Buying Rate for pounds sterling on June 1, 1998 was L1.00 = $1.64.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" concerning the results of operations and
the financial condition of CCG refers to the Consolidated Financial Statements
included in this Form 20-F which are prepared in accordance with UK GAAP. UK
GAAP differs in certain significant respects from US GAAP. The Consolidated
Financial Statements contain a reconciliation of net profit (loss) and
shareholders' deficiency to US GAAP. A discussion of the principal differences
is set out in Note 37 in the Notes to Consolidated Financial Statements.
CCG's ongoing revenue is generated from commissions and fees paid by
clients. In each of the last three years, between 40 and 55 percent of ongoing
revenue was commission based and varied with the level of media and production
expenditure. The remainder was derived from fees which were project or time
based, as agreed with the client. With certain clients, an additional element of
remuneration can be earned by meeting certain performance criteria set by the
client. Bates Worldwide and Scholz & Friends generally have ongoing
relationships with their clients which last a number of years. In contrast, the
majority of revenue from clients of HP:ICM is based on project specific
assignments, although there is often a relationship with the same client over
many years.
Revenue in any year is dependent primarily on the level of
expenditure by clients on existing assignments and to a lesser degree on
business gains and losses. When business is won or lost there is usually a delay
of some months before revenue is affected. This is primarily because it is usual
in the advertising industry for contracts to have a three month termination
clause. In the case of new commission based work the delay is longer as the
agency is not paid until the advertisement has appeared in the media.
The majority of CCG's net operating costs are staff related and over
the past three years equated to approximately 55 percent of revenue. When
revenue growth is slow or declining in any particular operating unit, CCG is
able over time to reduce headcount, although this can result in severance costs.
Conversely, staffing can be increased to handle sustained periods of increased
business activity. The remainder of net operating costs relate to leased
properties, depreciation and other administrative costs.
The profitability of new business varies depending on the terms of
remuneration negotiated and on the nature of the assignment. In particular,
profitability depends on whether revenue is generated by increased spending on
existing assignments, new or existing clients or product categories and on the
number of offices involved in the assignment.
CCG has offices or affiliated agencies in over 70 countries and its
revenues and costs are denominated in a number of currencies. Consequently,
exchange rate movements between pounds sterling and several other currencies
have an impact on the operating result. CCG's costs are generally denominated in
the same currency as the associated revenue, thereby mitigating the impact of
exchange rate movements on operating profit. At the net profit level, the impact
of exchange rate movements is also affected by the currency in which debt is
denominated and the countries in which CCG's tax charges arise.
In September 1995, KDW, a direct marketing business, was sold. In
October 1997, the sale of NRG, a film and entertainment research business, was
completed.
For the purpose of this section, references to "underlying"
performance refers to ongoing businesses and excludes the effect of exchange
rate movements. Additionally, references to "continuing" performance of the
demerged Saatchi & Saatchi businesses excludes disposed businesses.
As part of the Demerger, CCG entered into a new trading relationship
with Zenith, the commercial terms of which differ from the historical terms.
These new trading arrangements introduced revised commercial terms for the
purchase of media services from Zenith. Further details of the impact of this
revised relationship are set out in "Summary Unaudited Combined and Pro Forma
Financial Information" and "Unaudited Combined and Pro Forma Financial
Information" included elsewhere in this Report.
For the year ended December 31, 1998, following the introduction
under UK GAAP of Financial Reporting Standard 10 ("FRS 10") "Goodwill and
Intangible Assets", additional goodwill arising on acquisitions will be
capitalized and amortized over its useful economic life. The cost of
acquisitions in advertising and marketing communications normally includes a
significant proportion of goodwill. Therefore, FRS 10 may have an impact on the
future results of the Group if a material level of acquisition activity takes
place.
INDUSTRY BACKGROUND(2)
(2) Expenditure information in this section is based solely on estimates
published by Zenith Media Worldwide Ltd. (a wholly-owned subsidiary of
Zenith) in its Advertising Expenditure Forecasts (December 1997).
Zenith estimates that the outlook is for advertising expenditures in
major media (television, print, radio, cinema and outdoor) to remain stable
through 2000.
Zenith estimates growth will diminish from its 1995 peak of 8.0
percent to 6.1 percent in 2000. Zenith estimates that there was growth of 6.8
percent in 1997, and forecasts that this rate of growth will slow to 6.4 percent
in 1998 with the overall total underpinned by solid growth in the US and Europe.
Zenith estimates that North America, Europe and Asia Pacific accounted for 90
percent of worldwide advertising expenditures in major media in 1997.
In Asia Pacific, the bank and currency crisis in Southeast Asia in
mid-1997 is expected to adversely impact advertising expenditure in local
currencies in 1998, followed by a return to growth in 1999.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process information containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information. The Group has begun an evaluation and remediation
program with regard to Year 2000. The remediation process may result in
expenditures in a number of technology based areas as they pertain to millennium
compliance. To date, no major risks have been identified within CCG, but the
program is continued. The costs associated with Year 2000 compliance are not
expected to be material.
As the Group also relies on third party vendors and/or suppliers for
its applications, hardware and software the Group intends to communicate with
other companies with whom it does significant business to determine their Year
2000 readiness and the extent to which the Company is vulnerable to any third
party Year 2000 issues. However, there can be no guarantee that the systems of
other companies on which the Group's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Group's systems, would not have a material adverse effect
on the Group. Further, the Group cannot guarantee the accuracy of certificates
of compliance knowingly submitted to us from the aforementioned third party
vendors and/or suppliers. The unanticipated or unexpected compliance failure of
any third party system may precipitate the need for the Group to provide a "fix"
or "work around" to remediate any compliance issue, if the aforementioned
corrections are in the immediate best interest of the Group and/or any of its
clients.
LIQUIDITY AND CAPITAL RESOURCES
General
Prior to the Demerger, operations of CCG, were run separately from
the parts of Cordiant that were demerged or sold. However, CCG's ongoing
operations were neither capitalized nor financed as an independent group. The
ongoing business borrowings and cash resources were managed centrally. Cash
generated or required by Cordiant's businesses was either remitted to Cordiant
by way of dividend or intercompany loan, or advanced by Cordiant to subsidiaries
by way of equity contributions or intercompany loan at the direction of the
central treasury function. The ongoing businesses historical cash flows, in
respect of interest, taxes paid and financing are therefore not indicative of
the cash flows expected following the Demerger.
The Group's primary liquidity sources are cash flow generated from
operations, the issuance of equity and its banking facilities.
In connection with the Demerger, the consolidated indebtedness of
Cordiant was allocated between CCG, Saatchi & Saatchi and Zenith. This new
capital structure was put in place on December 14, 1997. The new structure
consists of senior debt and equity. The Group's senior debt consists of the New
Bank Facility of up to $120 million (and a bank guarantee facility now of $8
million) whose key terms are governed by the New Bank Facility Agreement. Of
this facility, $21 million is not immediately available but $13 million of the
total will be released following June 30, 1998 and the remaining $8 million
following September 30, 1998, if CCG has reached certain target ratios. The New
Bank Facility provides, among other things, committed revolving credit
facilities at a rate generally between 0.75 - 1.50 percent over LIBOR, depending
on results, with a final maturity in September 2002. The facility will reduce at
six monthly intervals starting in December 1998.
On December 31, 1997, CCG had drawings of $42 million, compared with
Cordiant drawings of $135 million against facilities of $218 million on December
31, 1996. The primary reason for the lower facilities was the Demerger.
Facilities are primarily denominated in the same currency as drawings.
The undrawn element of CCG's facilities is required in part for CCG's
cyclical working capital needs and in part to allow CCG to finance any
unforeseen contingency. Cyclical needs arise each month as a result of country
specific media payment cycles and from seasonal variations in advertising
activity during the year which affect CCG's cash position.
The Group has significant cash balances in its international
operations. These balances are required primarily to finance the working capital
cycles of the individual country operations and, in certain cases, to provide
the required level of working capital for media accreditation to allow the
agencies to buy media on behalf of their clients. Procedures to improve the use
of CCG's international cash balances are being developed. The Company is also
examining ways to improve the financial efficiency of the Group.
The table below sets out on both a consolidated and combined basis
certain cash flow items for the two years ended December 31, 1997. See "Summary
Unaudited Combined and Pro Forma Financial Information" and "Unaudited Combined
and Pro Forma Financial Information" included elsewhere in this Report.
<TABLE>
<CAPTION>
Consolidated Basis Combined Basis
Years ended December 31, Years ended December 31,
1997 1996 1997 1996
(L million) (L million)
<S> <C> <C> <C> <C>
Cash flow from operating activities 61.7 56.9 5.6 17.9
Net cash outflow arising from external Demerger costs (13.8) - (13.6) -
Cash outflow from returns on investment and service of (12.3) (10.1) (4.0) (0.7)
finance
Tax paid (15.1) (9.3) (9.8) (7.4)
Cash outflow from capital expenditure and financial (22.5) (24.8) (7.0) (10.3)
investment
Cash outflow from acquisitions and disposals (11.6) (13.7) (162.9) (2.9)
Equity dividend paid (4.4) - (4.4) -
------- ------- -------- -------
Cash (outflow)/inflow before financing (18.0) (1.0) (196.1) (3.4)
Net cash (outflow)/inflow from financing 17.1 (11.2) 275.7 (5.0)
------ ------ ------ -------
(Decrease)/increase in cash in the period (0.9) (12.2) 79.6 (8.4)
======= ====== ====== =======
</TABLE>
Cash Flows from Operating Activities
Cash generated from consolidated operating activities in 1997 and
1996 was L61.7 million and L56.9 million and primarily reflected an improved
level of operating profit in 1997 of L24.1 million offset by a deterioration in
cash flow from working capital of L2.3 million. In 1996 the improvement in
working capital of L16.3 million was partly due to the impact of exceptional
charges while there was only a L3.2 million improvement in operating profit.
Cash generated from ongoing operations was L5.6 million (1996: L17.9
million) and primarily reflected a deterioration in working capital of L22.6
million in 1997 due to costs associated with the Demerger and an underlying
outflow of working capital. In 1996 there was a deterioration in working capital
of L11.5 million due to payments made over the year end.
Payments in respect of unutilized property and other provisions
within the consolidated business, which have been provided for in prior years
were L19.2 million (1996: L16.9 million). There was an increased payment in 1997
because a premium was paid to terminate a lease early. The payments in respect
of ongoing businesses were L7.3 million (1996: L4.9 million). There was an
increased payment because the ongoing businesses became liable for certain US
property lease payments, previously paid by Saatchi & Saatchi, in anticipation
of the Demerger. These payments are expected to be L6.0 million in 1998 and L5.0
million in 1999. In total property provisions amounted to L40.2 million. The
payments in respect of unutilized property in general represent the difference
between the payments made by CCG relating to excess space and the income CCG
receives from subletting that space. The majority of the excess space arises
from the restructuring of the former Cordiant businesses in the early 1990s.
Net Cash Outflows Arising from External Demerger Costs
In 1997 there were external demerger costs of L13.8 million, of which
L13.6 million were paid by the ongoing businesses. These payments were made
primarily to external advisers of the Group. There were no payments in respect
of the Demerger in 1996.
Cash Outflows from Returns on Investments and Servicing of Finance
In 1997, consolidated cash outflows from net interest expense and
dividends to minorities were L12.3 million compared to L10.1 million in 1996.
The increase was largely due to higher bank fees paid under the 1995 facilities
agreement as a new facilities agreement was put in place after the first date
specified in that agreement.
In 1997, cash outflows from net interest expense and dividends to
minorities for the ongoing operations were L4.0 million compared to L0.7 million
in 1996. The increase was largely due to higher net interest expense due to
inter group transfers to/from Saatchi & Saatchi/Zenith.
Taxation
Consolidated net tax payments increased from L9.3 million in 1996 to
L15.1 million in 1997. In both 1997 and 1996, cash tax payments were lower than
the tax charges in the statement of operations because of several non-recurring
recoveries relating to prior years.
Net tax payments by the ongoing operations increased from L7.4
million in 1996 to L9.8 million in 1997. Provisions for tax exist in respect of
prior years. Payments of these amounts may increase cash tax payments in future
years to a greater amount than in the statement of operations.
Cash Flows from Investing Activities
In 1997, consolidated capital expenditure net of the proceeds from
fixed asset disposals decreased to L23.2 million from L24.0 million in 1996. For
the ongoing businesses it decreased to L10.1 million from L10.3 million in 1996.
On a consolidated basis, acquisitions of L8.7 million in 1997,
compared with L23.6 million in 1996 were considerably lower, as 1996 primarily
represented the acquisition of the outstanding minority interest in Saatchi &
Saatchi France. For the ongoing businesses acquisitions amounted to L0.8 million
in 1997 compared with L3.3 million in 1996.
On a consolidated basis, disposals of L40.5 million in 1997, compared
with L9.9 million in 1996, were considerably higher due to the disposal of NRG
and the sale of shares issued to Cordiant when its interest in KDW was sold in
1996. Disposals in 1996 related to the sale of Cordiant's interest in KDW. For
the ongoing businesses disposals amounted to L23.3 million, compared with L0.4
million of 1996, reflected the sale of NRG.
In the ongoing businesses there was a L185.4 million outflow in 1997
relating to the "fundamental reorganization-demerger". This was offset by loans
repaid by the demerged businesses of L257.5 million.
Equity Dividends Paid
In 1997 the consolidated and ongoing businesses paid an equity
dividend of L4.4 million. In 1996 there was no payment.
Cash Flows from Financing Activities
In 1997 consolidated loans drawn of L115.7 million and consolidated
loans repaid of L98.4 million represent the implementation of the new financing
arrangements put in place as part of the Demerger. In 1996 repayment of loans of
L11.0 million related to the scheduled debt reduction of L18.0 million.
RESULTS OF OPERATIONS(3)
(3) See Note 37 in the Notes to Consolidated Financial Statements for a summary
of differences between UK GAAP and US GAAP.
As CCG has offices or affiliated agencies in over 70 countries, its
revenues and costs are denominated in a number of currencies. Consequently,
exchange rate movements between pounds sterling and several other currencies,
the most important being the US dollar, have an impact on the results of the
Group. The Group's costs are generally denominated in the same currency as the
associated revenues, however, mitigating the impact of exchange rate movements
on operating profit.
In 1997 and 1996, revenues and trading profits on a geographic basis
have been presented to more closely reflect the management of the operations of
the Group during 1997. The comparable figures for 1995 have been adjusted to
conform to the 1997 and 1996 presentations.
FRS 9 "Associates and Joint Ventures" has been adopted. The revenue
and net operating expenses figures have been restated to reflect certain costs
charged by Zenith, previously included in net operating expenses, as a cost of
sales. These changes only affect "Summary Unaudited Combined and Pro Forma
Financial Information" and "Unaudited Combined and Pro Forma Financial
Information" included elsewhere in this Report.
All prior year earnings per share figures have been adjusted for the
rights issue completed in December 1995.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Revenue
Consolidated revenue decreased by 2 percent. On an underlying basis,
revenue increased by 7 percent.
For the ongoing businesses revenue decreased by 6 percent and, on an
underlying basis, increased by 4 percent. The UK growth of only 3 percent was
disappointing and reflected a number of account losses and a transition period
in the management of Bates Dorland which impacted the ability to pitch new
business. On an underlying basis, Asia Pacific increased by 15 percent,
Australasia (Australia and New Zealand) increased by 6 percent, China by 28
percent, and Japan by 86 percent. Malaysia and Thailand declined by a combined 9
percent. The revenue performances in China and Japan reflected new accounts won
and Malaysia and Thailand reflected the economic conditions in those markets.
Acquisitions contributed 4 percent. North America was down 9 percent on an
underlying basis due to the loss of Miller Brewing, which had been a loss making
account. Excluding Miller Brewing, North America increased by 7 percent
reflecting growth from existing clients. The Rest of Europe increased 3 percent.
Germany was up 7 percent, Italy up 29 percent, Spain up 1 percent, but
Scandinavia was down 2 percent. There was a 1 percent contribution to revenue
growth from acquisitions in this region.
While North America only accounts for 22 percent of CCG's revenue, it
is a crucial market and the recent improvement in the new business performance
is encouraging. With the economic recovery gaining pace in Continental Europe,
CCG's weighting of 34 percent will be of increasing benefit. While CCG has a
high exposure to Asia Pacific of 31 percent, about 20 percent is in Australasia
and only 4 percent in South East Asian countries that have suffered economic
instability.
The businesses demerged into Saatchi & Saatchi increased revenue by 1
percent to L378.2 million in 1997 from L375.3 million in 1996. Continuing
Saatchi & Saatchi revenue was up 1 percent to L376.7 million from L373.2 million
in 1996, and, on a constant exchange rate basis, revenues increased by 9
percent. This increase reflected both an improved level of business from
existing clients and a number of new business wins, most notably Delta Airlines
at the start of the year. On a constant exchange rate basis, growth in all the
regions was between 7 percent and 10 percent.
Trading Profit Before Exceptional Items
Consolidated trading profit before exceptional items increased by 20
percent. On an underlying basis, trading profit before exceptional items
increased by 40 percent.
For the ongoing businesses trading profit before exceptional items
increased by 14 percent and, on an underlying basis, increased by 33 percent.
The UK increased by 71 percent primarily due to a tighter control of costs. Asia
Pacific decreased by 26 percent to L3.5 million in 1997 from L4.7 million in
1996. On an underlying basis, Asia Pacific declined by 21 percent. Australasia
increased by 4 percent on an underlying basis, but the performance elsewhere in
Asia Pacific was disappointing due to the economic crisis. North America
increased by 58 percent to L6.3 million in 1997 from L4.0 million in 1996. On an
underlying basis, profits increased 70 percent despite the fall in revenue. This
reflected the departure of two major loss making accounts and tighter cost
management. The Rest of Europe decreased by 9 percent to L8.3 million in 1997
from L9.1 million in 1996. On an underlying basis, the Rest of Europe showed
growth of 24 percent, which outpaced the overall revenue growth and reflected
the control of costs. The pro forma trading profit before exceptional items for
1997, which takes into account the new trading agreement with Zenith, was L24.0
million. See "Summary Unaudited Combined and Pro Forma Financial Information"
and "Unaudited Combined and Pro Forma Financial Information" included elsewhere
in this Report.
Continuing Saatchi & Saatchi trading profit before exceptional items
increased by 28 percent to L29.7 million in 1997 from L23.3 million in 1996.
Continuing Saatchi & Saatchi trading profit before exceptional items was up 21
percent to L30.6 million from L25.3 million in 1996, and, on a constant exchange
rate basis, trading profit before exceptional items increased by 34 percent.
This increase reflected an improved level of business from existing clients and
a number of new business wins, most notably Delta Airlines at the start of the
year. On a constant exchange rate basis, the performance by region varied widely
with Asia Pacific moving into a loss of L1.0 million, the UK flat, North America
increasing by 38 percent and Europe increasing by 132 percent.
Trading Margins Before Exceptional Items
The consolidated trading margin before exceptional items in 1997 was
7.9 percent, an increase from 6.4 percent in 1996. For the ongoing businesses
trading margins before exceptional items increased by 1.4 percentage points, a
21 percent improvement from 6.6 percent in 1996 to 8.0 percent in 1997,
primarily due to improved cost management. The UK achieved margins of 16.7
percent in 1997 against 10 percent in 1996, reflecting the level of spending by
particular clients and the tight control of costs. Margins are expected to be
significantly lower in 1998 than in 1997. Margins in Asia Pacific declined to
3.6 percent in 1997 from 5.1 percent in 1996 with an uncertain outlook in 1998.
North America margins nearly doubled to 9.3 percent in 1997 from 5.1 percent in
1996 and are expected to improve further in 1998. The Rest of Europe margins
increased to 7.9 percent in 1997 from 7.5 percent in 1996. Overall the margin
improvement was as the Company expected, but the UK and North America were
better than expected and Asia Pacific was worse than expected.
The improvement in trading margins before exceptional items occurred
for ongoing operations despite an adverse impact of 0.3 percent due to new
trading arrangements with Zenith. A further adverse impact of 0.2 percent is
expected in 1998 due to such trading arrangements. On a pro forma basis that
reflects the new Zenith trading arrangements, trading margins were 7.8 percent
in 1997. See "Summary Unaudited Combined and Pro Forma Financial Information"
and "Unaudited Combined and Pro Forma Financial Information" included elsewhere
in this Report.
The businesses demerged into Saatchi & Saatchi increased trading
margins before exceptional items to 7.9 percent in 1997 from 6.2 percent in
1996. For the continuing Saatchi & Saatchi businesses trading margin increased
to 8.1 percent in 1997 from 6.8 percent in 1996.
Joint Ventures and Associates
On a consolidated basis there were no material joint ventures or
associates. The Demerger resulted in Zenith becoming a joint venture interest
between CCG and Saatchi & Saatchi and CCG having a 30 percent associate interest
in The Facilities Group, a subsidiary of Saatchi & Saatchi. The pro forma share
of operating profits from joint ventures and associates was L1.9 million in
1997. See "Summary Unaudited Combined and Pro Forma Financial Information" and
"Unaudited Combined and Pro Forma Financial Information" included elsewhere in
this Report.
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
Revenue
Consolidated revenue declined by 1 percent to L754.9 million in 1996
from L761.1 million in 1995 primarily due to the loss of several important
clients (particularly British Airways and Mars) in early 1995 that started to
impact revenue in the second half of 1995. On an underlying basis, revenue
increased by 3 percent.
For the ongoing businesses revenue increased by 3 percent to L329.5
million in 1996 compared to L320.6 million in 1995. On an underlying basis,
revenue increased by 4 percent. Revenue gains during 1996 more than offset the
loss of the Mars account in the first half of 1995, which started to impact
results from the second half of that year. Mars was Bates Worldwide's largest
client by gross billings in 1994, but revenue from the Mars account
approximately halved in 1995 and was eliminated in 1996.
In the UK, revenue from ongoing businesses decreased to L38.0 million
in 1996 compared with L39.3 million in 1995 with the lost revenue from the Mars
account being partially replaced.
In North America, revenue from ongoing businesses decreased to L77.8
million from L78.9 million in 1995, with revenue lost from the Mars account
being partially replaced.
The Rest of Europe, Africa and the Middle East was static at L120.7
million compared to L120.6 million in 1995. Increased revenues at Bates
Worldwide, particularly in Italy, France and Germany, were offset by a decrease
in Spain due to the departure of certain managers.
In Asia Pacific, revenue from ongoing businesses increased by 14
percent to L93.0 million from L81.8 million in 1995, due to strong growth from
both local and multinational clients. Bates Worldwide increased underlying
revenue significantly in Taiwan and China (including Hong Kong) and also in
Australia. Japan performed poorly, with a reduction in underlying revenue
largely due to the loss of the Mars business.
The revenue of the continuing Saatchi & Saatchi businesses decreased
by 5 percent to L375.3 million in 1996 from L396.0 million in 1995 primarily due
to the sale and closure of the Minneapolis offices of CME and of KDW. Revenue,
on a constant exchange rate basis, was flat in 1996 compared to 1995.
Trading Profit Before Exceptional Items
Consolidated trading profit before exceptional items decreased by 1
percent to L48.0 million in 1996 from L48.6 million in 1995 and, on an
underlying basis, increased by 2 percent. For the ongoing businesses trading
profit before exceptional items decreased by 1 percent to L21.6 million in 1996
from L21.7 million in 1995 and by 2 percent, on an underlying basis. The trading
results do not reflect the revised commercial terms with Zenith which CCG
entered into as part of the Demerger.
In the UK, trading profit from the ongoing businesses decreased by 26
percent to L3.8 million in 1996 from L5.1 million in 1995. The decrease
primarily reflected cost increases at Bates Dorland to develop the capabilities
that were central to the launch of its interactive capabilities. In addition,
HP:ICM had a stronger year in 1995 due to a car launch promotion.
In North America, trading profit from ongoing businesses decreased by
17 percent to L4.0 million in 1996 from L4.8 million in 1995. On an underlying
basis, trading profit decreased at a similar rate. The decrease was mainly due
to a management decision to maintain service levels for Miller Brewing despite a
reduction in revenue.
In the Rest of Europe, Africa and the Middle East, trading profit
from ongoing businesses increased by 38 percent to L9.1 million in 1996 from
L6.6 million in 1995. On an underlying basis, the increase was 44 percent. This
increase reflected the combination of revenue increases in Italy, France and
Germany, and the results of the management actions to reduce staff costs
following the loss of Mars in 1995.
In Asia Pacific, trading profit from ongoing businesses decreased by
10 percent to L4.7 million in 1996 from L5.2 million in 1995. On an underlying
basis, profits fell by 19 percent. This was principally due to a provision made
for losses in a quasi-subsidiary in Indonesia. Underlying increases were
experienced in Japan, due to management action to reduce costs following the
loss of Mars, and in Australia as a result of revenue increases. Reductions were
experienced in Singapore due to investment made to develop the business and New
Zealand which suffered client losses.
For the demerged Saatchi & Saatchi businesses, trading profit before
exceptional items decreased by 6 percent to L23.3 million in 1996 from L24.7
million in 1995. This was primarily due to the sale and closure of CME and KDW.
Trading profits before exceptional items for the continuing Saatchi & Saatchi
business increased by 14 percent to L25.3 million in 1996 from L22.3 million in
1995 and increased by a similar amount on a constant exchange rate basis.
Trading Margins Before Exceptional Items
Trading margin before exceptional items for the ongoing businesses
was 7.1 percent in 1996, compared to 7.2 percent in 1995. The trading margin
before exceptional items does not reflect the revised commercial terms with
Zenith which CCG has entered into as part of the Demerger.
Consolidated trading margins before exceptional items were unchanged
at 6.4 percent. On a geographic basis, trading margins were as follows:
1996 1995
(%) (%)
UK........................................................ 10.9 11.1
North America............................................. 6.3 5.1
Rest of Europe, Africa and the Middle East................ 6.5 7.5
Asia Pacific.............................................. 2.9 3.3
Total..................................................... 6.4 6.4
On a geographic basis, trading margins from the ongoing businesses in
1995 and 1996 were as follows:
1996 1995
(%) (%)
UK........................................................ 9.6 13.0
North America............................................. 5.0 6.1
Rest of Europe, Africa and the Middle East................ 7.4 5.5
Asia Pacific.............................................. 5.0 6.4
Total..................................................... 6.4 6.8
EXCEPTIONAL OPERATING ITEMS AND DISPOSALS
On a consolidated basis, exceptional operating expenses in 1997 were
L2.2 million, in 1996 were L16.5 million, and in 1995 were L20.3 million. The
exceptional operating expense in 1997 of L2.2 million reflected a provision
against the goodwill relating to ongoing operations in Indonesia, which was
taken in view of the economic uncertainty in that country. In 1996 the
exceptional expenses of L16.5 million included L0.2 million related to the
closure of a U.S. pension plan in ongoing operations and L16.3 million which
related to the demerged Saatchi & Saatchi businesses. The L16.3 million
comprised L8.1 million for the closure of a U.S. pension plan and L8.2 million
for property provisions. In 1995 the exceptional expenses of L20.3 million
included L13.2 million related to severance and reorganization costs in the
ongoing businesses following the loss of the Mars account, L0.9 million
litigation and associated costs incurred by ongoing businesses relating to the
departure of a former Chairman and other senior executives and L6.2 million
which related to the demerged Saatchi & Saatchi businesses.
Consolidated profits on businesses disposed of were L20.8 million in
1997, L17.8 million in 1996 and a net loss of L30.3 million in 1995. In 1997 the
profit of L20.8 million included a profit of L16.5 million on the sale of NRG
and a L4.3 million profit on the sale of shares received as consideration when
Cordiant sold its interest in KDW. In 1996 the profit of L17.8 million related
primarily to the sale of Cordiant's interest in KDW. The balance reflected the
receipt of additional proceeds from disposals in prior periods. In 1995 the loss
of L30.3 million arose primarily from the sale and closure of CME and also
included a goodwill write-off connected with the implementation of an incentive
scheme for employees of Bates in Australia (The Communications Group Pty. Ltd.).
The transactions in 1995 were cash positive but incurred an accounting loss due
to the write-off of L50.2 million of goodwill through the profit and loss
account. This goodwill had already been eliminated against shareholders' funds.
The receipt of additional proceeds from disposals in prior periods offset the
losses in 1995.
In 1997 there were consolidated non-operating expenses of L33.0
million due to the fundamental reorganization of the business to implement the
Demerger. The amounts payable in relation to the Demerger including advisors'
fees, temporary staff and other costs amounted to L20.2 million. The
reorganization of the Cordiant head office and its combination with the head
offices of Bates Worldwide and S&S to form the two successor operations cost
L6.7 million. The Demerger also resulted in an inter-group property provision of
L6.1 million. This represented the difference between the rent payable by
Saatchi & Saatchi and the amount receivable from Zenith for space sublet to
them.
NET INTEREST EXPENSE AND SIMILAR ITEMS
Consolidated net interest expense and similar items amounted to L8.8
million in 1997, L7.5 million in 1996 and L20.6 million in 1995. In 1997 there
was a small increase due to a lower level of interest received and increased
bank fees offset by a foreign exchange gain. In 1996 the decrease over 1995
reflected the substantial reduction of Cordiant's average net debt following the
1995 rights issue and lower borrowing costs.
In 1997 as part of the Demerger process, new financing arrangements
were put in place to reflect CCG's status as a stand alone company and not as
part of Cordiant. Therefore the Company believes that the most appropriate
indicator of financing charges for CCG are the pro forma financial statements.
The pro forma net interest and similar charges amounted to L0.7
million in 1997. Despite an average net cash position CCG would have incurred a
charge because of its working capital cycle (both during each month, derived
from the media payment cycle in each country, and seasonally as periods of high
activity improve the cash position), the geographic distribution of its cash and
borrowings, bank fees and the share of interest of joint ventures and
associates. See "Summary Unaudited Combined and Pro Forma Financial Information"
and "Unaudited Combined and Pro Forma Financial Information" included elsewhere
in this Report.
TAXATION
Excluding disposals, exceptional items and demerger costs, Cordiant's
effective tax rate was 35.7 percent in 1997, 36.5 percent in 1996 and 43.9
percent in 1995. The reduction in the tax rate between 1995 and 1996 reflected
the change in the geographic mix of taxable profit and the reduction of interest
expense in the U.S. following the 1995 rights issue.
The Demerger has altered the tax position of CCG. Therefore, the
Company believes that the most appropriate indicator of the tax charge is the
pro forma information. Since over 85 percent of CCG's business is located
outside the UK, the UK is not the dominant tax regime for the Group. The pro
forma tax rate in 1997, excluding exceptional operating items, was 40.0 percent.
See "Summary Unaudited Combined and Pro Forma Financial Information" and
"Unaudited Combined and Pro Forma Financial Information" included elsewhere in
this Report.
EQUITY MINORITY INTERESTS
Consolidated equity minority interests were L2.0 million in 1997,
L2.8 million in 1996 and L2.8 million in 1995. Equity minority interests from
ongoing businesses were L1.8 million in 1997, L2.6 million in 1996 and L1.1
million in 1995. The decline in ongoing equity minority interests in 1997
reflected the impact of exchange rate movements and the poor trading of one unit
and the increase in 1996 reflected the new incentive scheme in Bates Australia.
RETURN ATTRIBUTABLE TO SHAREHOLDERS
There was a consolidated profit for the year of L15.1 million in
1997, L24.2 million in 1996 and a loss of L37.3 million in 1995, resulting in
earnings per share of 3.4p in 1997, 5.5p in 1996 and a loss per share of 12.8p
in 1995. Excluding exceptional items the earnings per share were 6.6p in 1997,
5.2p in 1996 and 5.2p in 1995. The earnings per share figures are unadjusted for
the Consolidation that took place as part of the Demerger.
The Demerger has established a new structure for the Group, resulted
in new trading arrangements with Zenith, put in place a new capital structure
and altered the tax position. Therefore the Company believes that pro forma
statements give a better indication of these results of CCG. The pro forma
profit for the year was L11.0 million in 1997, resulting in earnings per share
of 5.0p in 1997. Excluding all exceptional items the pro forma earnings per
share were 5.9p in 1997. See "Summary Unaudited Combined and Pro Forma Financial
Information" and "Unaudited Combined and Pro Forma Financial Information"
included elsewhere in this Report.
A foreign income dividend of 1.2p per share has been recommended in
respect of 1997. The comparable 1996 figure was a net dividend of 1.0p. Pro
forma earnings excluding exceptional items covered the dividend 4.9 times in
1997. Saatchi & Saatchi recommended a net dividend of 1.2p in respect of 1997
and the combined dividend from CCG and Saatchi & Saatchi amounts to a 20 percent
increase over the comparable dividend of 2.0p in respect of 1996. There was no
dividend payment in respect of 1995. In 1997 the Demerger was carried out by a
demerger dividend of shares in Saatchi & Saatchi. The transfer of net
liabilities arising from the Demerger amounted to L134.6 million.
SUMMARY UNAUDITED COMBINED AND PRO FORMA FINANCIAL INFORMATION
The Consolidated Statements of Operations included in the
Consolidated Financial Statements include the results of Saatchi & Saatchi and
Zenith until they were demerged on December 14, 1997 and treat them as disposed
operations. By (i) removing from such Consolidated Statements of Operations the
results of the demerged groups of companies, (ii) accounting for The Facilities
Group and Zenith as an associate and joint venture respectively and (iii)
reinstating inter-Group trading, it is possible to derive historical information
("Combined Results") as if the CCG businesses had been demerged with effect from
January 1, 1996. The Combined Results still reflect the former structure of
Cordiant and do not reflect the new financing and tax arrangements of CCG. To
assess the historic performance of CCG as if the post-Demerger structure and
financing arrangements had been in place for 1997, pro forma adjustments to the
Combined Results have been made to derive pro forma results. Set out below, for
selected information, is a reconciliation of the Consolidated Statements of
Operations included in the Consolidated Financial Statements to the Combined
Results and then to the pro forma results.
The pro forma adjustments have been made to reflect principally
changes to the structure of the CCG Group, new trading arrangements with Zenith,
new financing arrangements for CCG and Zenith and the costs of the Demerger.
Further changes are made to reflect the interest and tax implications.
Other than the Consolidated Statement of Operations data, this
information is unaudited and it does not necessarily reflect the results of
operations or financial position of CCG that would have been achieved as of the
dates indicated, nor is it necessarily indicative of the future results of
operations or future financial position of CCG. The combined and pro forma
information has been prepared on the basis of UK GAAP.
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED CONSOLIDATED DEMERGED COMBINED PRO FORMA PRO FORMA CCG
DECEMBER 31, 1997 CORDIANT OPERATIONS(1) ADJUSTMENTS(2) CCG ADJUSTMENTS(3) L m
Lm L m L m L m L m
<S> <C> <C> <C> <C> <C> <C>
Group turnover 4,206.2 (3,688.3) 1,108.1 1,626.0 (22.7) 1,603.3
-------- --------- ------- ------- -------- -------
Group revenue 736.1 (420.1) 0.1 316.1 (8.5) 307.6
--------- ---------- ----------- -------- ---------- ---------
Operating profit 55.6 (31.5) - 24.1 (2.3) 21.8
Share of profits less
losses of joint
ventures and
associated
undertakings - (0.9) 2.2 1.3 0.6 1.9
Non-operating
exceptional items (12.2) (763.9) 626.2 (149.9) 149.9 -
Dividends to Saatchi
& Saatchi - (10.4) - (10.4) 10.4 -
Interest receivable/
(payable) (8.8) 11.2 2.4 4.8 (5.5) (0.7)
----------- ---------- ----------- ---------- --------- ----------
(Loss)/profit before
taxation 34.6 (795.5) 630.8 (130.1) 153.1 23.0
Taxation (17.5) 9.4 (1.4) (9.5) (0.7) (10.2)
---------- ------------ ------------ ----------- ---------- ----------
(Loss)/ profit after
taxation 17.1 (786.1) 629.4 (139.6) 152.4 12.8
========== ========== ========= ========= ======= =========
</TABLE>
- --------------------
(1) The results of Saatchi & Saatchi and Zenith.
(2) Adjustments were made (i) to reinstate inter-Cordiant trading and (ii) to
account for the results of Zenith (a joint venture) and The Facilities Group
(an associate) on the equity method.
(3) Specific adjustment to the Combined Results were to:
(a) reduce trading profit to reflect the new trading terms for the
purchase of media services from Zenith, with an offsetting increase in the
share of profits from joint ventures;
(b) eliminate inter-Cordiant interest receivable from Saatchi &
Saatchi and Zenith and adjust external interest to reflect the revised
financing arrangements;
(c) eliminate the results of NRG, a business disposed of in 1997,
substituting notional interest on the proceeds received;
(d) eliminate exceptional non-operating Demerger expenses, profit on
disposal of NRG and dividends paid by subsidiaries to Saatchi & Saatchi;
and
(e) adjust the tax charge to reflect the above adjustments and the
current structure of the Group.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The Directors and Executive Officers of CCG are as follows:
Name Position Age
Michael Bungey* Director and Chief Executive Officer of 58
the Company and Chairman and Chief
Executive Officer, Bates Worldwide
Arthur D'Angelo* Finance Director of the Company 46
Jean de Yturbe* Director, Chairman, Bates Europe 51
Alex Hamill* Director, Chief Executive Officer, Bates 55
Asia Pacific
Peter M. Schoning* Director, Chairman and Chief Executive 52
Officer, Scholz & Friends
Bill Whitehead* Director, Chief Executive Officer, Bates 52
North America
Charles Scott Non-executive Chairman of the Company 49
Dudley Fishburn Non-executive Director 51
Professor Theodore Non-executive Director 73
Levitt
James Tyrrell Non-executive Director 57
Dr. Rolf Stomberg Non-executive Director 58
Tim Jackson** Company Secretary 39
Stuart Howard** Deputy Finance Director and Treasurer 36
David F. Ham Group Controller 32
Stanley Bendelac* Chief Operating Officer, Bates Europe 56
Les Stern* Worldwide Planning Director, Bates 50
Worldwide
John Fawcett* Chief Executive Officer, George 48
Patterson Bates
Ian Smith* President, International, Bates Worldwide 48
* Member of the Executive Committee
** Mr. Jackson will resign as Company Secretary effective June 26,
1998 and Stuart Howard will become Company Secretary on such date.
EXECUTIVE DIRECTORS
Michael Bungey, Chief Executive Officer of the Company and Chairman
and Chief Executive Officer, Bates Worldwide. In 1971, Michael Bungey set up his
own agency, Michael Bungey & Partners. This was merged with Dorland Advertising
in 1984. In 1988 he became Chairman and Chief Executive Officer of Bates Dorland
and Bates Europe. In 1993, he was appointed President and Chief Operating
Officer of Bates Worldwide, Chief Executive Officer in April 1994 and Chairman
in December 1994. He joined the Board of Cordiant in January 1995.
Arthur D'Angelo, Finance Director of the Company. Arthur D'Angelo
joined Saatchi & Saatchi Holdings USA in October 1987 as Tax Director and was
subsequently appointed President and Chief Executive Officer of Saatchi &
Saatchi Holdings (USA) Inc. He joined Bates USA as Executive Vice President and
Chief Financial Officer in April 1994 and later that year was named Chief
Financial Officer of Bates North America. In July 1995 he was named Chief
Financial Officer of Bates Worldwide.
Jean de Yturbe, Chairman, Bates Europe. Jean de Yturbe was President
of HDM Europe from 1985 to 1990 and Chief Executive Officer of Eurocom
Advertising Worldwide from 1990 to 1992. He joined Bates in July 1993 as Chief
Executive Officer of Bates France and was named Chairman of Bates Europe in
April 1995.
Alex Hamill, Chief Executive Officer, Bates Asia Pacific. Alex Hamill
joined the Ted Bates group in 1968. In 1978 he was appointed General Manager of
George Patterson in Australia. In 1984 he was appointed Managing Director of
George Patterson's Sydney office and in 1987 Managing Director of George
Patterson Australia. In 1991 he was appointed Chairman and Chief Executive
Officer of George Patterson Bates and Regional Director for Bates Worldwide in
Asia-Pacific.
Peter M. Schoning, Chairman and Chief Executive Officer, Scholz &
Friends. Prior to joining Scholz & Friends, Peter M Schoning worked in a variety
of advertising agencies in Munich, Paris and Hamburg, where he, most recently,
was a member of the Lintas management team. He joined Scholz & Friends in 1984
as Managing Director and was named Managing Partner in 1987. In 1993 he was
appointed Chief Executive Officer at the agency and since 1995 he has led the
agency as Chairman and Chief Executive Officer.
Bill Whitehead, Chief Executive Officer, Bates North America. Prior
to joining the Ted Bates group in 1971, Bill Whitehead worked for Foster
Advertising. In 1983 he joined Bates Canada and in 11 years with the agency held
a number of senior positions, most recently as Chairman and Chief Executive
Officer. In May 1994 he was named Executive Director of Worldwide Client
Services at Bates Worldwide and at the same time Regional Director of Latin
America for Bates Worldwide. In December 1994, he was appointed Chief Operating
Officer for Bates North America. In September 1995 he became President and Chief
Operating Officer of Bates USA. In July 1996 he became Chief Executive Officer
of Bates North America.
NON EXECUTIVE DIRECTORS
Charles Scott, Chairman of the Company. Charles Scott worked for Itel
Corporation before joining IMS International, Inc. in 1977 where he was Chief
Financial Officer from 1986 until joining Cordiant as Finance Director in
January 1990. He was promoted to Chief Operating Officer of Cordiant in July
1991 and its Chief Executive Officer in April 1993. In January 1995, he was
appointed Chief Executive Officer and Acting Chairman. In July 1995 he was
appointed executive Chairman and in December 1997 he became non-executive
Chairman. He is non-executive Chairman of Robert Walters plc and is a
non-executive director of adidas AG and of Joe's Developments Limited. He is
also non-executive Chairman of Saatchi & Saatchi plc. In addition, he has been a
director of Emcore Corporation since February 1998 and of TBI since May 1998.
Dudley Fishburn, Director. Dudley Fishburn has been a Member of
Parliament and Parliamentary Private Secretary at the Foreign Office and at the
Department of Trade and Industry. He is Associate Editor of The Economist,
Treasurer of the National Trust, Chairman of the Trustees of the Open
University, Chairman at HFC Bank plc and a Trustee of the Prison Reform Trust,
all of which are based in the UK. He is a non-executive director of Household
International, Inc. and Euclidian plc.
Professor Theodore Levitt, Director. Theodore Levitt is Edward W.
Carter Professor of Business Administration, Emeritus, at Harvard University
Graduate School and serves on the board of Sandford C. Bernstein Funds, Inc. in
the US. He is also the author of numerous articles and books on economics,
politics, management and marketing and was formerly Editor of the Harvard
Business Review.
James Tyrrell, Director. James Tyrrell joined the Board on May 1,
1998. He is a director of London International Group plc and was Group Finance
Director until November 1997. Previously he was Group Finance Director of Abbey
National Plc and Managing Director of HMV Shops Limited. He is Chairman of
Ferguson International PLC, a non-executive director of Mastercommunications Ltd
and is a Governor of Bradfield College.
Dr. Rolf Stomberg, Director. Rolf Stomberg joined the Board on May 1,
1998. From 1970 to 1997, when he retired from the Main Board, he worked for The
British Petroleum Company plc where he was Chief Executive Officer for B.P. Oil
International and a B.P. Group Managing Director. He serves on a number of UK
and continental boards and is a Visiting Professor at Imperial College
Management School, London and the Business School of Institut Francais de
Petrole in Paris.
EXECUTIVE OFFICERS
Tim Jackson, Company Secretary of the Company. Tim Jackson joined
Cordiant in 1986. He became Director of Investor Relations in 1989 and acted as
Company Secretary from January 1995 to May 1995. He is an Associate member of
the Association of Chartered Certified Accountants and became Company Secretary
of the Company on Demerger.
Ian Smith is President, International, Bates Worldwide and a member
of the Executive Committee. He joined the George Patterson Bates agency in 1989
and was named General Manager and New Business Director in 1990. In 1996, he was
appointed Managing Director of George Patterson Bates Australia.
Stuart Howard, Deputy Finance Director and Treasurer of the Company.
Stuart Howard joined the Company on May 1, 1998 from WPP where he was
International Treasurer. From 1992 he was Group Finance Director for Metrovideo
and from 1990 to 1992 Deputy Finance Director at McColls. Prior to that, he
spent two years as Regional Controller at WPP and four years with KPMG London.
David F. Ham joined Cordiant in May 1996 as Manager of Group
Reporting. Prior to that he was Group Accountant at Alfred McAlpine plc from
1994 and spent six years at Coopers & Lybrand. In 1997, he was appointed Group
Controller of the Company.
Stanley Bendelac, Chief Operating Officer, Bates Europe. In 1971,
Stanley Bendelac founded Delvico Bates, an operating unit within Grupo Bates. In
addition to his responsibilities on the Bates Worldwide Management Board, he is
currently Chairman and Chief Executive Officer of Grupo Bates S.A.
Les Stern, Worldwide Planning Director, Bates Worldwide. Les Stern
joined Bates Dorland in 1990 as Planning Director. Following secondment to Bates
New York he was made Worldwide Planning Director in 1994. Prior to joining Bates
Worldwide he was Planning Director at WCRS, having moved there after five years
as Group Account Director at Saatchi & Saatchi.
John Fawcett, Chief Executive Officer, George Patterson Bates. John
Fawcett began his advertising career with George Patterson Bates, and has worked
in various roles around the world for Leo Burnett and J. Walter Thompson. He
rejoined George Patterson Bates as a creative group head and became the
company's first National Creative Director in March 1989. He was appointed as
its Managing Director Australia in June 1992 and Chief Executive Officer in July
1996, and currently is Chairman of the Bates Worldwide Creative Board.
EFFECT OF DEMERGER
The Demerger resulted in a number of changes to the composition of
the Cordiant Board and the terms of employment or engagement of Directors:
(i) Charles Scott and Michael Bungey remain Directors of the Company
following the Demerger, but on different terms than prior to the
Demerger. See "Compensation of Directors and Officers."
(ii) Bob Seelert, Wendy Smyth and Kevin Roberts resigned as Directors of
Cordiant and took positions as executive directors of Saatchi &
Saatchi.
(iii) Five new executive Directors were appointed (Alex Hamill, Jean de
Yturbe, Peter M Schoning, Arthur D'Angelo and Bill Whitehead), all of
whom were previously senior executives of Cordiant. With the exception
of Alex Hamill, each Director entered into new service Agreements or
revised terms of employment with the Company or another company in the
Group. See "Compensation of Directors and Officers."
(iv) Dudley Fishburn and Professor Theodore Levitt remain non-executive
Directors of the Company, pursuant to new letters of appointment. Sir
Peter Walters resigned as a non-executive Director of Cordiant with
effect from the Effective Date and joined the board of Saatchi &
Saatchi in anticipation of the Demerger. Dr. Thomas Russell and The
Hon. Clive Gibson resigned as non-executive Directors of Cordiant. Two
new non-executive Directors, James Tyrrell and Dr. Rolf Stomberg,
joined the Board with effect from May 1, 1998.
RE-ELECTION OF DIRECTORS
The Articles of the Company provide that at the Annual General
Meeting in every year, one-third of the Directors for the time being, or if
their number is not three or a multiple of three then the number nearest to
one-third, shall retire from office, the Directors to retire in each year being
those who have been longest in office since their last election, but as between
persons who became Directors on the same day those to retire shall (unless they
otherwise agree among themselves) be determined by lot. A retiring Director
shall be eligible for re-election. Any Director not re-elected at the Annual
General Meeting shall retain office until the Meeting appoints another person in
this place, or if it does not appoint a replacement, until the end of the
Meeting.
CORPORATE GOVERNANCE
The Company complied throughout the year with the Code of Best
Practice included in the Cadbury report on the financial aspects of corporate
governance and continues to comply. In addition, the Company has complied with
the recommendations of the Greenbury Committee's report on Directors'
remuneration and the provisions of the Code of Best Practices in that report and
annexed to the London Stock Exchange's Listing Rules.
A separate Audit Committee and a Remuneration and Nominations
Committee exist, both of which are comprised of solely non-executive directors.
The main duties of the Audit Committee are to oversee the affairs of
the Group, to review the financial statements and preliminary and interim
results, to review the findings of the external auditors, to direct the internal
audit function and monitor the management accounting procedures, to investigate
any irregularities and to make recommendations to the Board concerning the
appointment and remuneration of external auditors. The Audit Committee, which
met twice during 1997, is comprised of Charles Scott (Chairman), Dudley
Fishburn, Dr. Rolf Stomberg, James Tyrrell and Prof. Theodore Levitt.
The main duties of the Remuneration and Nominations Committee are to
determine the remuneration, benefits and terms and conditions of employment of
the executive Directors and of the Company's most senior employees. It also
deals with nominations to the Board, for which the Chief Executive Officer also
joins the Committee The Committee members are Dudley Fishburn (Chairman),
Charles Scott, James Tyrrell, Dr. Rolf Stomberg and Professor Theodore Levitt.
The Committee, which met five times in 1997, makes recommendations to the Board
on the remuneration of the executive Directors and senior executives drawing on
independent external advice as necessary. In setting levels of remuneration and
performance targets for incentive plans, the Committee takes into account
prevailing market compensation practice and the current performance of the
Company.
In carrying out its duties, the Remuneration and Nominations
Committee carefully considers the provisions of the Greenbury Report on
Directors' remuneration and the provisions of the Codes of Best Practice annexed
to The London Stock Exchange's Listing Rules. It is the Company's policy to
establish a remuneration strategy which rewards performance and enhances
shareholder value by creating a greater community of interest between
shareholders and employees.
The Executive Committee consists of Michael Bungey, Chief Executive
Officer; Arthur D'Angelo, Finance Director; William Whitehead, Jean de Yturbe,
Alex Hamill and Peter M. Schoning, the Executive Directors; plus Stanley
Bendelac, John Fawcett, Ian Smith and Les Stern, senior executives within Bates
Worldwide.
The Executive Committee has as its purpose to deal with the
day-to-day and ongoing operational issues and to improve the communications and
co-ordination between the Company and the principal operating divisions of the
group. The Cordiant Executive Committee met on two occasions during 1997. In
addition, an extended form of the Committee met on a regular basis from March
1997 with regard to the Demerger.
DIRECTORS' INTERESTS
Beneficially Ordinary Share Equity
Owned Options Participation
Ordinary Shares Rights
A. D'Angelo 960 328,681 593,401
M. Bungey 55,990 647,020 890,110
D. Fishburn - - -
A. Hamill - 397,343 593,401
T. Levitt 18,796 - -
P. Schoning - 132,426 593,401
C. Scott* 39,214 787,583 -
R. Stomberg - - -
J. Levitt - - -
W. Whitehead 787 255,356 593,401
J. de Yturbe - 260,996 593,401
- --------------------
*Includes spouse's interests
<PAGE>
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
In 1997, the aggregate amount of compensation paid or accrued for all
Directors and executive officers as a group (26 persons) who served during the
year, was L4,313,416 ($7,074,002). Such compensation was mainly in the form of
salaries and fees and included L240,332 ($394,144) set aside for pension plans.
The table below reports remuneration by the Company for the year
ended December 31, 1997. The compensation for executive directors for 1997 was
approved by the remuneration committee of Cordiant. With respect to the senior
managers appointed to the Board in mid-December, the table reflects their
remuneration from appointment to December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
As Benefits Pension One-off Total
Salary Bonus Percentage in Kind(1) Costs(2) Payment Remuneration
L000 L000 of Salary L000 L000 L000 L000
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE DIRECTORS:
Michael Bungey (Chief
Executive Officer)(3)(4) 654 197 30% 107 58 - 1,016
Arthur D'Angelo(5) 8 3 38% - - - 11
Jean de Yturbe(5) 8 4 50% 1 1 - 14
Alex Hamill(5) 14 7 50% - - - 21
Peter M. Schoning(5) 11 8 72% - - - 19
William Whitehead(5) 11 5 45% 1 - - 17
CURRENT NON-EXECUTIVE
DIRECTORS:
Charles Scott (Chairman)(6) 300 153 51% 7 92 404 956
Dudley Fishburn 33 - - - - - 33
Professor Theodore Levitt 30 - - - - - 30
FORMER DIRECTORS:
The Hon. Clive Gibson(7) 28 - - - - - 28
Dr. Thomas Russell(7) 28 - - - - - 28
Robert Seelert(7) 487 237 49% 35 39 - 798
Wendy Smyth(3)(7) 158 56 35% 13 - - 227
Sir Peter Walters(7) 31 - - - - - 31
Edward Wax(8) 182 93 51% 6 7 - 288
Kevin Roberts(9)(10) 144 99 69% - - 158 401
</TABLE>
- --------------------
(1) Benefits in kind include such items as club memberships, company cars,
medical insurance, life insurance, relocation and travel allowances. Mr.
Bungey, who is a UK citizen and who has been relocated to the US, receives
a sum equivalent to school fees in the UK for his children and a travel
allowance for flights from the US to the UK for his wife and children each
year.
(2) The amounts for pension costs disclosed in the executive Directors'
remuneration are based on the cash cost to the employing company of
defined contribution schemes.
(3) Michael Bungey and Wendy Smyth were members of the Cordiant Group Pension
Scheme, a defined benefit scheme, during the year. In addition to amounts
disclosed above, the amount of the increase in pension during the year was
L4,303 in respect of M. Bungey and L2,344 in respect of W. Smyth. The
total annual accrued pension (including inflation) as at December 31, 1997
was L50,308 (M. Bungey) and L42,264 (W. Smyth). The accrued benefit is
that which would be paid annually on retirement based on service to the
end of the year. The transfer values (net of members' contributions) of
the relevant increase in accrued benefit are L47,460 and L16,525
respectively.
(4) Michael Bungey's salary includes an amount of L205,166 as part of a tax
equalisation scheme in respect of tax paid on his remuneration under US tax
law.
(5) Appointed December 15, 1997.
(6) Mr. Scott was executive Chairman of Cordiant in 1996 and 1997 and his
remuneration above reflects that role. On September 30, 1997, in
consideration for the termination of his former employment contract with
the Company, it was agreed that he was to receive a lump-sum payment based
on the termination clauses of that contract.
(7) Resigned December 15, 1997.
(8) Resigned May 20, 1997.
(9) Appointed May 21, 1997; resigned December 15, 1997.
(10) Kevin Roberts received a sign-on bonus of L158,000 on appointment as
Director and Chief Executive Officer of Saatchi & Saatchi Advertising
Worldwide.
Salaries for 1998 for Directors and senior executives were reviewed and
amended as part of the Demerger to take into account their revised roles. In the
future, they will be reviewed annually.
In addition to salary, all senior executives are eligible for an annual
performance-related bonus that is non-pensionable. For the year ended December
31, 1997 the annual bonus paid to each executive Director was a percentage of
salary based on, with respect to Mr. Scott, the attainment of budgeted revenue
and profitability of the Cordiant Group, with respect to Messrs. Bungey and
D'Angelo, a combination of the attainment of budgeted revenue and profitability
for the Bates Worldwide network and the Cordiant Group and for Messrs. Hamill,
de Yturbe, Schoning and Whitehead on the performance of the businesses that they
head. Bonuses in 1998 will be calculated with respect to Messrs. Bungey and
D'Angelo on the performance of CCG, with respect to Messrs. Hamill, Whitehead
and de Yturbe by reference to a combination of the performance of CCG and the
business that each Director heads, and with respect to Mr. Schoning on the
performance of Scholz & Friends. As a non-executive Director, Mr. Scott will not
be eligible for bonuses in the future.
For all executive Directors only base salary is pensionable; their pension
arrangements are as follows:
a) Mr. Bungey is a member of the Cordiant Group Pension Scheme. In
addition, CCG contributes 6% of his salary plus L15,000 per annum to
a small self-administered fund.
b) Mr. Hamill is a member of the George Patterson 1993 Holding Board
Superannuation Plan.
c) Mr. D'Angelo is entitled to an annual pension contribution of $7,500
and is a member of the Bates Advertising USA, Inc 401k plan.
d) Mr. Whitehead is a member of the Bates Advertising USA Inc. 401k
plan and is also entitled to a pension from the age of 60 from his
previous employer, Bates Canada Inc.
<PAGE>
SERVICE AGREEMENTS
The Directors' service agreements are described in the table below.
<TABLE>
<CAPTION>
MONTHS' PAYMENTS ON EXCEPTIONAL
EMPLOYING COMPANY DATE OF AGREEMENT NOTICE TERMINATION
<S> <C> <C> <C> <C>
EXECUTIVE DIRECTORS
A. D'Angelo Bates Advertising USA Sep 1997 12 24 months(1)
M. Bungey CCG Sep 1997 12 24 months(1)
A. Hamill The Communications Group Feb 1997 24 Consultancy fees until age 60(2)
P. M Schoning Scholz & Friends Jan 88-Jan 98 12-24(3) 24 months(1)
W. Whitehead Bates Advertising USA Sep 1997 12 18 months(1)
J. de Yturbe Bates France June 93-Sep 97 12 18 months(1)
NON-EXECUTIVE DIRECTORS TERM
C. Scott CCG Apr 1998 One or two years from demerger(4)
T. Levitt CCG Sep 1997 One year from Demerger
D. Fishburn CCG Sep 1997 Three years from Demerger
R. Stomberg CCG Mar 1998 Three years from May 1, 1998
J. Tyrrell CCG Apr 1998 Three years from May 1, 1998
</TABLE>
- --------------------
(1) On termination by the Company within two years of a change of control.
(2) Consultancy fees payable between the date of termination for any reason and
his 60th birthday.
(3) At least 12 months ending on a financial year end.
(4) Mr. Scott has parallel contracts as Chairman of both CCG and Saatchi &
Saatchi and will relinquish one directorship on December 31, 1998. The term
of his remaining directorship will be for a further year. If both
directorships terminate before December 31, 1998, he will be entitled to a
sum equivalent to the fees which would otherwise have been payable up to
the second anniversary of the Demerger, shared equally between the
companies. If termination occurs in the second year, he will be entitled to
an equivalent payment by his employing company.
The arrangements for termination of a senior executive's contract are
decided by the Remuneration and Nominations Committee after consultation with
the Group's Chief Executive Officer. In some cases the Remuneration and
Nominations Committee will recommend a clean break with the individual concerned
and a one-off payment will be made at the time of termination based on that
individual's contractual position. In other cases the Remuneration and
Nominations Committee will recommend that the contractual entitlement of the
individual be paid in installments following termination. Special arrangements
were negotiated in respect of the termination of Mr. Scott's contract following
the Demerger.
NON-EXECUTIVE DIRECTORS
The Board of Directors fixes the remuneration of non-executive
Directors for all the services normally expected of them as members of the Board
of Directors and its Committees. The remuneration cannot exceed, without the
approval of shareholders in General Meeting, a basic fee of L20,000 per annum
per Director, together with allowances of L600 per Director for each Board and
Committee meeting attended in person, L500 for each Board and Committee meeting
attended by telephone and L250 per quarter for acting as Chairman for any
Committee of the Board of Directors. The basis on which non-executive Directors
were paid in 1997 remained the same as applied in 1996 and is intended to remain
the same in 1998. The Board of Directors retains discretion to approve
additional payments for special services. The non-executive Directors do not
participate in any of the incentive or benefit schemes of the Group, with the
exception of Charles Scott, who retains an interest in options granted in
connection with his former executive contract. Mr. Scott had a contract with the
Company and Saatchi & Saatchi for his services to each group dated September 30,
1997. This contract has been replaced with effect from April 1, 1998 by an
agreement under which Kirkal Limited, a company controlled by Mr. Scott and his
wife, provides Mr. Scott's services to each group on substantially the same
terms.
New non-executive Director letters of appointment, which took effect
on the Effective Date, were entered into for both Dudley Fishburn and Professor
Theodore Levitt dated September 17, 1997 and September 16, 1997 respectively.
Dudley Fishburn is appointed for a term of three years, and Professor Theodore
Levitt for a term of one year, with effect from the Effective Date. They are to
be paid annual fees of L20,000 each plus certain sums for attendance at
meetings, in accordance with the provisions of the Articles of Association.
Dr. Rolf Stomberg and James Tyrrell were appointed non-executive
Directors for a period of three years commencing May 1, 1998 under appointment
letters dated March 31 and April 8, 1998, respectively.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
SHARE SCHEMES PRIOR TO THE DEMERGER AND DEMERGER SCHEMES
The Cordiant share schemes consisted of one savings related scheme
(described below) and three executive share option schemes, specifically the
Performance Share Option Scheme (the "Performance Scheme"), the Executive Share
Option Scheme (the "Executive No 1 Scheme") primarily for executives not
resident in the United Kingdom and the Executive Share Option Scheme No 2 (the
"Executive No 2 Scheme") and, together with the Executive No. 1 Scheme and
Performance Scheme, the "Share Schemes".
The Executive No 2 Scheme was approved by the Inland Revenue under
the terms of the Finance Act 1984 and was intended only for executives resident
in the United Kingdom. The Executive No 1 Scheme and the Executive No 2 Scheme
both expired in April 1994 although existing options subsisting at the date of
expiration remain exercisable in accordance with their terms. The Performance
Scheme was adopted at the Extraordinary General Meeting of Cordiant held on
March 16, 1995 and was approved by the Inland Revenue on May 1, 1995. It was
intended for executives resident throughout the world.
Options granted to participants in the Executive No 1 Scheme, the
Executive No 2 Scheme and the Performance Scheme (which includes super options)
were for Cordiant Ordinary Shares at a price equivalent to the London Stock
Exchange middle market quotation on the day preceding the date of grant of the
options.
The performance targets for options granted under the Performance
Scheme depend on whether the option is an ordinary option or a super option.
Ordinary options require the CCG Group's earnings per share to grow over three
years at 6 percent more than the growth in the UK Retail Price Index over the
same period. Super options require growth in the CCG Group's earnings per share
which over a five year period would place it in the top quartile of the FTSE 100
companies ranked by growth in earnings per share over the same period.
The performance targets for the Executive No 1 Scheme and the
Executive No 2 Scheme are identical to the ordinary performance targets for the
Performance Scheme.
No further options will be granted under these schemes following the
Demerger. Holders of executive options employed by the Company retained their
options under the Share Schemes following the Demerger. The Consolidation ratio
was determined with a view to preserving, as far as practicable, the value of
the options under the existing Share Schemes. Accordingly, following the
Consolidation, no adjustment was made to the number of shares subject to the
options or the exercise price payable.
Holders of executive options under the Share Schemes employed by
Saatchi & Saatchi were invited to cancel their options in return for the grant
of replacement options over Saatchi Ordinary Shares. Each replacement option was
for the same number of Saatchi Ordinary Shares and has the same exercise price,
exercise period and performance conditions as the relevant existing option. The
intention was that the replacement options be, as far as practicable, equivalent
to the existing options. For Charles Scott, employees who ceased to be employed
as a result of the Demerger and employees of Zenith and The Facilities Group who
held executive options under the Share Schemes, the same principles apply except
that their replacement options were split 50/50 between options over Ordinary
Shares and options over Saatchi Ordinary Shares.
Cordiant's savings related share option scheme ("Sharesave 1995") was
adopted at Cordiant's Extraordinary General Meeting held on March 16, 1995.
Inland Revenue approval for Sharesave 1995 was obtained on May 15, 1995.
Eligible employees in the UK were invited to save a fixed amount per month for a
period of five years and applied for an option at a predetermined exercise
price. The exercise price was fixed at the date of invitation at a price which
was not less than the higher of a share's nominal value or 80 percent of its
market value at the time. When the option is exercised, the accumulated savings
and interest/bonus are used to pay the exercise price.
Under Sharesave 1995, employees of CCG retained their original number
of options without adjustment for the Consolidation. Employees of Saatchi &
Saatchi who held such options also retained them but were granted a parallel
unapproved option over Saatchi Ordinary Shares which will be exercisable with
the accumulated savings and interest/bonus under Sharesave 1995. (Sharesave
1995, together with such parallel schemes being the "SAYE Schemes") Employees of
Zenith and The Facilities Group had their parallel options split 50/50 between
Ordinary Shares and Saatchi Ordinary Shares.
The replacement options described above were granted under schemes
(the "Demerger Schemes") which mirrored, as far as practicable, the terms of the
Share Schemes to which they related. None of the Demerger Schemes have been
approved by the Inland Revenue.
No options can be granted under a Demerger Scheme other than to
replace an option which an option holder under one of the Share Schemes has
agreed to cancel (or, in the case of the SAYE Schemes, to run in parallel with
an option under Sharesave 1995).
OWNERSHIP SCHEMES
Cordiant operated "ownership schemes" prior to the Demerger which
allocated "network shares" to key executives, the value of the network shares
increasing or decreasing in line with the network's performance against target.
These schemes have been replaced by the Equity Participation Plan and the
Performance Option Scheme. Accrued benefits up to the date of the Demerger were
frozen at 50 percent of the value at December 31, 1997 in respect of
participants in the Equity Participation Plan and the Performance Option Scheme
and will be paid to executives in future years in accordance with the terms of
the schemes.
Awards to Directors under the ownership schemes were valued as
follows:
Value at Dec.31, 1997 Value at Dec. 31, 1996
M. Bungey L113,978 L103,900
A. D'Angelo 66,387 62,340
J. de Yturbe 113,978 103,900
P.M. Schoning 113,978 103,900
W. Whitehead 68,387 62,340
No awards were made under the schemes during 1997. On acceptance of
the invitation to participate in the Equity Participation Plan, the Directors'
awards under the ownership schemes crystallized at 50 percent of the value at
December 31, 1997.
NEW CCG SHARE SCHEMES
(a) THE CORDIANT COMMUNICATIONS GROUP EQUITY PARTICIPATION PLAN (THE "EQUITY
PARTICIPATION PLAN")
The principal terms of the Equity Participation Plan are set out below.
(i) Administration
The Equity Participation Plan is operated in conjunction with the Cordiant
Communications Group Employee Benefit Trust (the "Trust") which was established
at the same time as the Equity Participation Plan.
The Trustee of the Trust, in exercising its discretion, takes into account
the recommendations of the Remuneration Committee.
Further details of the Trust are set out below.
(ii) Eligibility
Employees and executive Directors of the Company, who are required to
devote substantially all their working time to the business of any company in
CCG, are eligible to participate in the Equity Participation Plan.
(iii) Participation in the Equity Participation Plan
The Trustee will invite selected eligible employees and Directors to pay a
certain amount of money (not exceeding Ll50,000) to enable them to participate
in the Equity Participation Plan. The payment made by participants to the Trust,
which must be made within 120 days of the award being made, is non-refundable.
Normally, awards to participants will only be made within the period of 42
days following the announcement of the Company's results for any period or at
any time if the Trustee determines that exceptional circumstances (such as the
recruitment of a senior employee or executive director) so warrant.
The maximum number of Ordinary Shares which participants may become
entitled to acquire will be eight times the number that could have been bought
with the original investment at market value on the day preceding the date of
award. The exact number of Ordinary Shares which may be acquired will be
determined by the performance formula described below.
(iv) Performance Formula and number of shares vesting
With the exception of Directors of the Company, the number of
Ordinary Shares that a participant may acquire will be determined by measuring
the growth in earnings per share ("EPS") of CCG over a three year period ("EPS
Performance"). For the initial awards the base year for measuring EPS
Performance is the year ended December 31, 1997. The EPS figure used for that
year is 6.46p. EPS will be the fully diluted EPS calculated on the basis of
"headline earnings" using the Institute of Investment Management and Research
guidelines (although the Trustee will have the ability to adjust this figure if
the Trustee considers it appropriate to exclude exceptional items, such as the
costs of the Demerger and other significant non-recurring items).
If EPS Performance is less than the annual percentage growth in the
UK Retail Price Index plus 2 percent (the "Hurdle Rate") then the participant
will be entitled to acquire 10 Ordinary Shares:
If EPS Performance is equal to or greater than the Hurdle Rate then.
(a) where EPS Performance is 5 percent per annum, 12.5 percent of the
award vests, which is the same number of Ordinary Shares which the
participant could have bought with his original investment;
(b) where EPS Performance is 15 percent per annum, 40 percent of the
award vests, so the participant will be entitled to acquire 3.2 times
the number of Ordinary Shares which he could have bought with his
original investment; and
(c) where EPS Performance is 25 percent per annum, all of the award
vests, so the participant will be entitled to acquire eight times the
number of Ordinary Shares which he could have bought with his
original investment.
The percentage of the award that vests for EPS Performance between 5
percent per annum and 15 percent per annum and for EPS Performance between 15
percent per annum and 25 percent per annum increases on a straight line basis.
For participants who are Directors of the Company, only one half of
their awards will vest based on EPS Performance. The other half of their awards
will vest based on the total shareholder return ("TSR") of CCG over a three year
period ("TSR Performance") relative to the TSR of a group of major publicly
traded advertising groups (the "Comparator Group") over the same period.
Initially the Comparator Group consisted of the following 10 groups: CCG, GGT
Group, Grey Advertising, Havas Advertising, Omnicom Group, Publicis, Saatchi &
Saatchi, The Interpublic Group of Companies, True North Communications and WPP
Group.
The percentage of the award that vests will be determined by
reference to the ranking attained by CCG as follows:
PERCENTAGE
OF AWARD
THAT VESTS
RANKING (%)
1st or 2nd............................................... 100
3rd...................................................... 75
4th...................................................... 50
5th...................................................... 25
6th...................................................... 18.75
7th...................................................... 12.5
8th...................................................... 9.375
9th...................................................... 3.125
10th..................................................... nil
(v) Acquisition of Ordinary Shares
Once the performance formula has been applied and the number of
Ordinary Shares determined, a participant may acquire one half of the vested
number of Ordinary Shares. The remaining half may only be acquired after the
fourth anniversary of the date the award was made. Ordinary Shares cannot be
acquired after the seventh anniversary of the date of the award.
(vi) Takeover
In the event of a takeover of the Company prior to the announcement
of the CCG Group's results for its financial year ending in 2000 (the "2000
results"), a participant who received an award prior to the announcement of
CCG's results for its financial year ending in 1998 (the "1998 results") will be
entitled to acquire the number of Ordinary Shares determined in accordance with
the following provisions:
(a) if the takeover occurs after the date of the award but before the
announcement of the 1998 results, the participant may acquire one
third of the maximum possible number of Ordinary Shares;
(b) if the takeover occurs after the announcement of the 1998 results but
before the announcement of CCG's results for its financial year ending
in 1999 (the "1999 results"), the participant may acquire:
(i) one third of the maximum possible number of Ordinary Shares; plus
(ii) one third of the number of Ordinary Shares which would have vested if
the EPS Performance (and, if appropriate, TSR Performance) for CCG's
1998 financial year had been achieved over the full three years of the
performance measurement period; and
(c) if the takeover occurs after the announcement of the 1999 results but
before the announcement of the 2000 results, the participant may
acquire:
(i) one third of the maximum possible number of Ordinary Shares; plus
(ii) two thirds of the number of CCG Shares which would have vested if the
EPS Performance (and, if appropriate, TSR Performance) over CCG's two
financial years 1998 and 1999 had been achieved over the full three
years of the performance measurement period.
Equivalent provisions will apply for participants who receive an award
after the announcement of the 1998 results.
(vii) Cessation of employment
If a participant ceases to be employed by CCG or a subsidiary of CCG
before the award vests because of injury, disability, ill health, death,
redundancy, retirement, because the company which employs him or with which he
holds office leaves CCG or because the business to which his office or
employment relates is transferred outside CCG, or other circumstances at the
Trustee's discretion, the participant will be entitled to acquire a proportion
of the maximum number of Ordinary Shares which would ultimately have been
receivable. For the purpose of determining the proportion of the award that
vests, the cessation of employment will be treated as occurring on the next day
on which CCG announces its results for its financial year. The Performance
Formula will then be applied as if the EPS Performance (and, if appropriate, the
TSR Performance) had been achieved over the full three years of the performance
measurement period.
A participant who was granted an award prior to the announcement of
the 1998 results will be able immediately following such determination to
acquire:
(a) one third of the number of Ordinary Shares so determined, if
cessation occurs on or before the announcement of the 1998 results;
(b) two thirds of the number of Ordinary Shares so determined, if
cessation occurs after the announcement of the 1998 results but on or
before the announcement of the 1999 results; and
(c) all of the Ordinary Shares so determined, if cessation occurs after
the announcement of the 1999 results.
Equivalent provisions will apply for participants who receive an award
after the announcement of the 1998 results.
However, if a participant ceases employment for other reasons, he
will only be entitled to receive 10 Ordinary Shares, with the result that he
will effectively lose his initial investment.
(viii) Variation of share capital
The rights of participants following any rights issue or
capitalization issue or other variation of share capital will be adjusted in
such manner as the Trustee may determine subject to written confirmation from
CCG's auditors that such adjustment is in their opinion fair and reasonable.
(ix) Limits on the Equity Participation Plan
An aggregate of not more than 6 percent of the issued ordinary share
capital of CCG from time to time may be issued or become issuable pursuant to
the Equity Participation Plan.
(x) Amendments to the Scheme
The Board will have the power to administer, interpret and, with the
concurrence of the Trustee, amend the provisions of the Equity Participation
Plan. However, no amendment may be made to provisions relating to:
(a) the eligibility conditions;
(b) the limit rules;
(c) the calculation of a participant's entitlement under the Equity
Participation Plan;
(d) the terms of the awards or the Ordinary Shares received pursuant to
them; or
(e) the variation of share capital rule
to the advantage of participants without the prior approval of the shareholders
in general meeting (except for minor amendments to benefit the administration of
the Equity Participation Plan, to take account of a change in legislation or to
obtain or maintain favorable tax, exchange control or regulatory treatment for
participants or for CCG or for subsidiaries of CCG).
No amendment to the limits mentioned above may be made without prior
approval of the shareholders. No amendment may be made which adversely affects a
participant's rights under an award made prior to the date of such amendment
without the participant's consent.
(xi) Pension
The benefits received under the Equity Participation Plan are not
pensionable.
(xii) Termination
The Trustee will invite no further participation in the Equity
Participation Plan after December 15, 2000 and the Board may terminate it at any
time, but the rights of existing participants will not thereby be affected.
(B) THE CORDIANT COMMUNICATIONS GROUP PERFORMANCE SHARE OPTION SCHEME (THE
"PERFORMANCE OPTION SCHEME")
The principal terms of the Performance Option Scheme are set out
below.
(i) Administration
The Performance Option Scheme will normally be operated in
conjunction with the Trust. The Trustee will, in exercising its discretion, take
into account the recommendations of the Remuneration Committee.
However, the rules provide that the Performance Option Scheme may
also be operated by CCG, in which case references to the Trust and the Trustee
in this summary should be read as being references to CCG and the Remuneration
Committee as appropriate.
Further details of the Trust are set out below.
(ii) Eligibility
Employees and executive Directors of the Company who are required to
devote substantially all their working time to the business of any company in
CCG will be eligible to participate in the Performance Option Scheme. However,
participants in the Equity Participation Plan will not be eligible to be granted
options under the Performance Option Scheme.
Participants in the Performance Option Scheme will be selected at the
discretion of the Trustee.
(iii) Exercise price
The exercise price for an option will be determined by the Trustee
but may not be less than the higher of the nominal value of an Ordinary Share
(if the option is an option to subscribe for an Ordinary Shares) and its market
value. Market value will be taken to be the middle market quotation of an
Ordinary Share on the dealing day of the London Stock Exchange immediately
preceding the date of grant as derived from the Daily Official List of the
London Stock Exchange.
(iv) Grant of options
Normally, options may only be granted by the Trustee within the
period of 42 days following the announcement of CCG's results for any period and
at any time if the Trustee determines that exceptional circumstances (such as
the recruitment of a senior employee or executive Director) so warrant.
Options will lapse unless the option holder agrees within 120 days of
the grant of the option to sacrifice an aggregate amount of salary and/or bonus
(not exceeding L50,000) over a period not exceeding three years equal to one
eleventh of the aggregate exercise price of the Ordinary Shares under option.
The amount so sacrificed is not offset against the exercise price payable.
(v) Performance Formula and number of shares vesting
The number of Ordinary Shares to be acquired on exercise will be
determined by measuring EPS Performance, as for the Equity Participation Plan.
The EPS Performance and the Hurdle Rate for the Performance Option Scheme will
be the same as for the Equity Participation Plan.
If EPS Performance is less than the Hurdle Rate then the option
holder will not be entitled to acquire any Ordinary Shares and the option will
lapse.
If EPS Performance is equal to or greater than the Hurdle Rate then:
(a) where EPS Performance is 5 percent per annum, the option holder may
exercise his option in respect of 30 percent of the number of Ordinary
Shares under option;
(b) where EPS Performance is 15 percent per annum, the option holder may
exercise his option in respect of 65 percent of the number of
Ordinary Shares under option; and
(c) where EPS Performance is 25 percent per annum, the option holder may
exercise his option in full.
The percentage of Ordinary Shares over which the option holder may
exercise his option for EPS Performance between 5 percent per annum and 15
percent per annum and for EPS Performance between 15 percent per annum and 25
percent per annum increases on a straight line basis.
(vi) Exercise of options
Once the Performance Formula has been applied an option holder may
exercise his option over one half of the number of Ordinary Shares determined by
the Performance Formula. The remaining half may only be acquired after the
fourth anniversary of the date of grant.
Options may not be exercised in any event more than seven years after
the date of grant.
(vii) Takeover
In the event of a takeover of the Company prior to the announcement
of CCG's 2000 results, an option holder who was granted an option prior to the
announcement of CCG's 1998 results will be entitled to exercise his option in
accordance with the following provisions:
(a) if the takeover occurs after the date of the award but before the
announcement of the 1998 results, the option holder may exercise his
option in respect of one third of the number of Ordinary Shares under
option;
(b) if the takeover occurs after the announcement of the 1998 results but
before the announcement of the 1999 results, the option holder may
exercise his option in respect of:
(i) one third of the number of Ordinary Shares under option; plus
(ii) one third of the number of Ordinary Shares in respect of which
he could have exercised his option if the EPS Performance for
the CCG Group's 1998 financial year had been achieved over the
full three years of the performance measurement period; and
(c) if the takeover occurs after the announcement of the 1999 results but
before the announcement of the 2000 results, the option holder may
exercise his option in respect of:
(i) one third of the number of Ordinary Shares under option; plus
(ii) two thirds of the number of Ordinary Shares in respect of which
he could have exercised his option if the EPS Performance over
the CCG Group's two financial years 1998 and 1999 had been
achieved over the full three years of the performance
measurement period.
Equivalent provisions will apply for option holders who are granted
options after the announcement of the 1998 results.
(viii) Cessation of employment
If an option holder ceases to be employed by the Company or a
subsidiary of CCG before his option may be exercised because of injury,
disability, ill health, death, redundancy, retirement, because the company which
employs him or with which he holds office leaves CCG or because the business to
which his office or employment relates is transferred outside CCG, or other
circumstances at the Trustee's discretion, the option holder will be entitled to
exercise his option in respect of a proportion of the number of Ordinary Shares
under option. For the purpose of determining the number of Ordinary Shares in
respect of which the option holder may exercise his option, the cessation of
employment will be treated as occurring on the next day on which the CCG Group
announces its results for its financial year. The Performance Formula will then
be applied as if the EPS Performance had been achieved over the full three years
of the performance measurement period.
An option holder who was granted an option prior to the announcement
of the 1998 results will be able immediately following such determination to
exercise his option in respect of:
(a) one third of the number of Ordinary Shares so determined, if
cessation occurs on or before the announcement of the 1998 results;
(b) two thirds of the number of Ordinary Shares so determined, if
cessation occurs after the announcement of the 1998 results but on or
before the announcement of the 1999 results; and
(c) all of the Ordinary Shares so determined, if cessation occurs after
the announcement of the 1999 results.
Equivalent provisions will apply for option holders who are granted
options after the announcement of the 1998 results.
However, if a participant ceases employment for other reasons, his
option will lapse.
(ix) Variation of share capital
On a variation of the Company's share capital by way of
capitalisation or rights issue, sub-division, consolidation or a reduction, the
exercise price and the number of shares comprised in an option can be varied at
the discretion of the Trustee subject to certification from CCG's auditors that
in their opinion the variation is fair and reasonable.
(x) Limits on the Performance Option Scheme
An aggregate of not more than 3.5 percent of the issued ordinary
share capital of the Company from time to time may be issued or become issuable
pursuant to the Performance Option Scheme.
(xi) Amendments to the Performance Option Scheme
The Board of Directors has power to administer, interpret and, with
the approval of the Trustee, amend the Performance Option Scheme. No amendment
may be made to provisions relating to:
(a) the eligibility conditions;
(b) the limit rules;
(c) the variation of share capital rule;
(d) the rules governing the terms of the options or shares to be received
by option holders; or
(e) the rules governing the calculation of the option holder's
entitlements under the Performance Option Scheme
to the advantage of option holders without the prior approval of shareholders in
general meeting (except for minor amendments to benefit the administration of
the Performance Option Scheme or to take account of a change in legislation or
to obtain or maintain favorable tax, exchange control or regulatory treatment
for option holders, the Company or subsidiaries of CCG).
No amendment may be made which adversely affects an option holder's
rights under options granted to him prior to the date of such amendment without
his consent.
(xii) Pension
The benefits received under the Performance Option Scheme are not
pensionable.
(xiii) Termination
The Trustee will grant no further options under the Performance
Option Scheme after December 15, 2000 and the Board of Directors may terminate
it at any time, but the rights of existing option holders will not thereby be
affected.
(C) THE CORDIANT COMMUNICATIONS GROUP EMPLOYEE BENEFIT TRUST (THE "TRUST")
The Trust was established prior to the Effective Date. The principal
terms of the Trust are as set out below.
(i) The Trust is a discretionary employee benefit trust of which all
employees of CCG will be potential beneficiaries.
(ii) The trustee of the Trust (the "Trustee") is a corporate trustee.
Executive Directors of the Company will not be directors of, nor have
a direct or indirect interest in, the trustee company.
(iii) The main purpose of the Trust is to operate the Equity Participation
Plan and the Performance Option Scheme. Having considered
recommendations received from the Remuneration Committee, the Trustee
will make awards (which may or may not be in the form of options)
under which participants will be entitled to acquire Ordinary Shares.
Alternatively the Trustee may agree to deliver Ordinary Shares
following the exercise of awards made by CCG.
(iv) The Trustee may purchase Ordinary Shares in the market for the
purpose of awards made under the Equity Participation Plan and the
Performance Option Scheme. Alternatively, the Company may grant to
the Trustee one or more options to subscribe for Ordinary Shares. The
exercise price under such options will not be less than the middle
market quotation of Ordinary Shares as derived from the London Stock
Exchange Daily Official List for the dealing day preceding the date
of grant.
(v) The Trustee is not permitted to purchase Ordinary Shares in the
market without prior shareholder approval if such purchase would
result in the Trust holding (excluding any Ordinary Shares which the
Trustee subscribed for) more than 5 percent of the Company.
(vi) The Trustee will fund the acquisition of Ordinary Shares through one
or more of the following:
(a) by non-recourse loan or loans from CCG companies:
(b) by contributions from CCG companies; and
(c) by payments from the participants in the Equity Participation
Plan and the Performance Option Scheme.
(vii) The Trustee is required to waive its right to any dividends on
Ordinary Shares while they are held within the Trust.
(D) THE ZENITH EXECUTIVE INCENTIVE PLAN (THE "ZENITH INCENTIVE PLAN")
The Zenith Incentive Plan was established to enable participants to acquire
Ordinary Shares and Saatchi Ordinary Shares through the exercise of options
and/or in certain circumstances to be paid a cash bonus. The principal terms of
the Zenith Incentive Plan are set forth below:
The Zenith Incentive Plan is operated in conjunction with the Zenith Employee
Benefit Trust (the "Zenith Trust"), the Trustee of which (the "Trustee") will,
in exercising its discretion, take into account the recommendations of the
non-executive Directors of Zenith.
The Trustee can invite selected eligible employees and directors to invest a
certain amount of money (not exceeding L70,000) to enable them to participate in
the Zenith Incentive Plan. Awards will lapse unless such investment is, at the
discretion of the Trustee, either made by a payment to the Trustee within 120
days of the award being made or is made by the participant agreeing to sacrifice
that amount of salary and/or bonus over a period not exceeding three years. The
investment is non-refundable and is not offset against the exercise price
payable.
The non-refundable investment to be provided by participants who wish to
participate in the Zenith Incentive Plan shall be one sixteenth of a
participant's maximum entitlement under the Zenith Incentive Plan. An award
comprises:
(a) an option over the same proportion of the total number of
Ordinary Shares available for the Zenith Incentive Plan as the
participant's maximum entitlement bears to L3.6 million being the
aggregate maximum entitlement for all participants available under the
Zenith Incentive Plan (the "CCG Option");
(b) an option over the same number of Saatchi Ordinary Shares as the
number of Ordinary Shares under the participant's CCG Option (the "Saatchi
Option"); and
(c) a contingent cash award of up to a participant's maximum
entitlement.
The exercise price for the CCG Option and the Saatchi Option is the middle
market quotation of the underlying shares on the day preceding the date the
options are granted.
The exact number of shares which may be acquired and/or the cash award payable
will be determined by the performance formula described below.
A participant's maximum entitlement will be reduced proportionately if one month
after the end of the third year of the performance period the FTSE 100 Index is
lower than on the date the award was made. A participant's actual entitlement
will be determined by measuring the growth in operating profit (as defined in
the rules of the Zenith Incentive Plan) over a three year period, with the base
year being the year ending December 31, 1997 for the initial award ("Operating
Profit Performance") as follows:
(a) If Operating Profit Performance is less than 5 percent per annum,
the award lapses;
(b) If Operating Profit Performance is 5 percent per annum a
participant's entitlement will be determined as 12.5 percent of his maximum
entitlement;
(c) if Operating Profit Performance is 15 percent per annum a
participant's entitlement will be determined as 40 percent of his maximum
entitlement; and
(d) if Operating Profit Performance is equal to or exceeds 25 percent
per annum a participant's entitlement will be determined as 100 percent of
the maximum entitlement.
A participant's entitlement in respect of Operating Profit Performance between 5
percent per annum and 15 percent per annum and between 15 percent per annum and
25 percent per annum increases on a straight line basis.
Awards will be satisfied so far as possible by the CCG Options and Saatchi
Options becoming exercisable to the same extent. The balance, if any, of a
participant's entitlement will be satisfied by the payment of cash by the Zenith
Trust or any company in the Zenith group.
Once the Performance Formula have been applied, the extent of vesting of the CCG
Option and the Saatchi Option determined and the cash sum, if any, quantified, a
participant will be entitled to receive one half of his entitlement. The
remaining half can only be acquired after the fourth anniversary of the date the
award was made. The award will lapse on the seventh anniversary of the date of
grant.
The Trustee will be required to waive its rights to any dividend on
Ordinary Shares or Saatchi Ordinary Shares while they are held within the Trust.
<PAGE>
The following chart shows as of June 1, 1998 the total number of
Ordinary Shares subject to outstanding options, the purchase price of the
Ordinary Shares pursuant to the options and the expiration date of the options:
<TABLE>
<CAPTION>
SCHEME DATE OF GRANT NUMBER OF SHARES EXERCISE PRICE(1) EXERCISEABLE
<S> <C> <C> <C> <C>
Executive No.1 Scheme Jun 1991 879,903 134p Jun 1998
Sep 1991 19,209 134p Sep 1998
Apr 1992 513,323* 107p Apr 1999
Executive No. 1 Jun 1991 30,186 134p Jun 1998
Replacement Scheme Apr 1992 40,134* 107p Apr 1999
Executive No. 2 Scheme Jul 1988 1,997 2250p Jul 1998
Jun 1991 486,132 134p Jun 2001
Sep 1991 107,022 134p Sep 2001
Apr 1992 34,301 107p Apr 2002
Apr 1992 417,838* 107p Apr 2002
Executive No. 2 Jun 1991 378,235 134p Jun 2001
Replacement Scheme Apr 1992 78,895 107p Apr 2002
Apr 1992 21,610 107p Apr 2002
Sharesave 1995 Jun 1995 1,571,058 64p Jul 2000 to Dec 2000
Performance Option Scheme May 1995 612,618 73p May 1998 to May 2005
Aug 1995 612,616 95p Aug 1998 to Aug 2005
Apr 1996 542,500 130p Apr 1999 to Apr 2006
Apr 1996 630,000* 130p Apr 2001 to Apr 2003
Apr 1997 762,500 131p Apr 2000 to Apr 2007
Apr 1997 762,500* 131p Apr 2002 to Apr 2004
Replacement Performance May 1995 99,316 73p May 1998 to May 2009
Scheme May 1995 109,926* 73p May 2000 to Dec 2004
Aug 1995 99,318 95p Aug 1998 to Dec 2004
Apr 1996 122,500 130p Apr 1999 to Dec 2004
Apr 1996 272,500* 130p Apr 2001 to Dec 2004
Apr 1997 195,000 131p Apr 2000 to Dec 2004
Apr 1997 195,000* 131p Apr 2002 to Dec 2004
Performance Share Option Dec 1997 5,770,370 105p Dec 2000 to Dec 2004
Scheme (PSOS)(2) May 1998 1,585,426 123p May 2001 to May 2005
Equity Participation Plan Dec 1997 11,024,853 105p Dec 2000 to Dec 2004
(EPP)(3)
Zenith Executive Dec 1997 1,078,807 109p Dec 2000 to Dec 2004
Incentive Plan(4)
</TABLE>
(1) All exercise prices have been rounded down to the nearest pence.
(2) Grantees of Performance Share Options had a maximum of 150 days from
invitation to participate in the options to agree to a salary/bonus
sacrifice.
(3) Grantees of awards under the Equity Participation Plan had a
maximum of 150 days from invitation in which to make payment to the
Trustee.
(4) Grantees under the Zenith plan had a maximum of 120 days to
make payment or agree to a salary or bonus sacrifice.
* Denotes super options.
<PAGE>
Changes in the number of Ordinary Shares issuable under options
outstanding under the Share Schemes, the Demerger Schemes, the Equity
Participation Plan, the Performance Option Scheme, the Zenith Scheme and
Sharesave 1995 during the financial year are as follows:
Share Schemes SAYE scheme
Ordinary Shares Ordinary Shares
At beginning of the year............12,589,854 1,963,435
Options exercised...................(159,692) (13,211)
Options granted.....................26,037,467 196,117(1)
Option lapsed.......................(1,064,485) (325,562)
Options cancelled...................(9,357,905) -
----------- --------
At year end 28,045,239 1,624,662
========== =========
- ------------------------------------
(1) These are parallel options issued in connection with the Demerger and are
not reflected in the total options outstanding at the year end, as they
will be exercisable in lieu of, and not in addition to, the original
options.
As of June 1, 1998, the number of Ordinary Shares subject to options,
excluding phantom options, granted to the Directors and executive officers of
the Company was 9,681,784.
<PAGE>
The table below describes the various share options awarded to the
Directors of the Company as of June 1, 1998.
<TABLE>
<CAPTION>
EXECUTIVE DIRECTORS' SHARE OPTIONS
DATE OF EXERCISE NUMBER
SCHEME GRANT PRICE (p) SHARES TOTAL PRICE EXERCISE PERIOD
<S> <C> <C> <C> <C> <C>
C. SCOTT
Replacement Executive No. 2 06/18/1991 134 222,502 L298,153 To Jun 2001
Replacement Executive No. 2 06/18/1991 134 20,582 L27,580 To Jun 2001
Replacement Executive No. 2 04/10/1992 107 68,605 L73,407 To Apr 2002
Replacement Executive No. 2* 04/10/1992 107 10,290 L11,010 To Apr 2002
Executive No. 2 Scheme* 04/10/1992 107 34,302 L36,703 To Jun 1998
Replacement Performance* 05/03/1995 73 109,926 L80,246 May 2000-May
2002
Sharesave 06/01/1995 64 21,376 L13,681 To Jun 1998
Replacement Performance* 04/19/1996 130 150,000 L195,000 Apr 2001-Apr 2003
Replacement Performance 04/23/1997 131 75,000 L98,250 Apr 2002-Dec 2004
Replacement Performance* 04/23/1997 131 75,000 L98,250 Apr 2000-Dec 2004
JEAN DE YTURBE
Performance Option Scheme 05/03/1995 73 40,498 L29,564 To May 2005
Performance Option Scheme 08/11/1995 94 40,498 L38,068 Aug 1998-Aug 2005
Performance Option Scheme 04/19/1996 130 45,000 L58,500 Apr 1999-Apr 2006
Performance Option Scheme* 04/19/1996 130 45,000 L58,500 Apr 2001-Apr 2003
Performance Option Scheme 04/23/1997 131 45,000 L58,950 Apr 2000-Apr 2007
Performance Option Scheme* 04/23/1997 131 45,000 L58,950 Apr 2002-Apr 2007
W. WHITEHEAD
Executive No. 1 Scheme 06/18/1991 134 19,209 L25,740 To Jun 1998
Executive No. 1 Scheme* 04/10/1992 107 13,721 L14,681 To Apr 1999
Performance Option Scheme 05/03/1995 73 21,213 L15,485 To May 2005
Performance Option Scheme 08/11/1995 94 21,213 L19,940 Aug 1998-Aug 2005
Performance Option Scheme 04/19/1996 130 45,000 L58,500 Apr 1999-Apr 2006
Performance Option Scheme* 04/19/1996 130 45,000 L58,500 Apr 2001-Apr 2003
Performance Option Scheme 04/23/1997 131 45,000 L58,950 Apr 2000-Apr 2007
Performance Option Scheme* 04/23/1997 131 45,000 L58,950 Apr 2002-Apr 2007
P. SCHONING
Performance Option Scheme 05/03/1995 73 21,213 L15,485 To May 2005
Performance Option Scheme 08/11/1995 94 21,213 L19,940 Aug 1998-Aug 2005
Performance Option Scheme 04/19/1996 130 17,500 L22,750 Apr 1999-Apr 2006
Performance Option Scheme* 04/19/1996 130 17,500 L22,750 Apr 2001-Apr 2003
Performance Option Scheme 04/23/1997 131 27,500 L36,025 Apr 2000-Apr 2007
Performance Option Scheme* 04/23/1997 131 27,500 L36,025 Apr 2002-Apr 2007
</TABLE>
<PAGE>
<TABLE>
EXECUTIVE DIRECTORS' SHARE OPTIONS (CONTINUED)
DATE OF EXERCISE NUMBER
SCHEME GRANT PRICE (p) SHARES TOTAL PRICE EXERCISE PERIOD
<S> <C> <C> <C> <C> <C>
ALEX HAMILL
Executive No. 1 Scheme 06/18/1991 134 68,605 L92,931 To Jun 1998
Executive No. 1 Scheme* 04/10/1992 107 54,884 L58,726 To Apr 1999
Performance Option Scheme 05/03/1995 73 46,927 L34,257 To May 2005
Performance Option Scheme 08/11/1995 94 46,927 L44,111 Aug 1998-Aug 2005
Performance Option Scheme 04/19/1996 130 45,000 L58,500 Apr 1999-Apr 2006
Performance Option Scheme* 04/19/1996 130 45,000 L58,500 Apr 2001-Apr 2003
Performance Option Scheme 04/23/1997 131 45,000 L58,950 Apr 2000-Apr 2007
Performance Option Scheme* 04/23/1997 131 45,000 L58,950 Apr 2002-Apr 2007
A. D'ANGELO
Executive No. 1 Scheme 06/18/1991 134 61,745 L82,738 To Jun 1998
Executive No. 1 Scheme* 04/10/1992 107 50,082 L53,588 To Apr 1999
Performance Option Scheme 05/03/1995 73 33,427 L24,402 To May 2005
Performance Option Scheme 08/11/1995 94 33,427 L31,421 Aug 1998-Aug 2005
Performance Option Scheme 04/19/1996 130 37,500 L48,750 Apr 1999-Apr 2006
Performance Option Scheme* 04/19/1996 130 37,500 L48,750 Apr 2001-Apr 2003
Performance Option Scheme 04/23/1997 131 37,500 L49,125 Apr 2000-Apr 2007
Performance Option Scheme* 04/23/1997 131 37,500 L49,125 Apr 2002-Apr 2007
M. BUNGEY
Executive No. 2 Scheme 06/18/1991 134 137,211 L183,863 To Jun 2001
Executive No. 2 Scheme* 04/10/1992 107 74,814 L80,051 To Apr 2002
Performance Option Scheme 05/03/1995 73 67,498 L49,274 To May 2005
Performance Option Scheme 08/11/1995 94 67,497 L63,447 Aug 1998-Aug 2005
Performance Option Scheme* 04/19/1996 130 150,000 L195,000 Apr 2001-Apr 2003
Performance Option Scheme 04/23/1997 131 75,000 L98,250 Apr 2000-Apr 2007
Performance Option Scheme* 04/23/1997 131 75,000 L98,250 Apr 2002-Apr 2007
</TABLE>
- -----------------------
During 1997, Cordiant Ordinary Shares traded on the London Stock Exchange at a
high of 135p, a low of 98p and closed at 109p on December 31, 1997.
All exercise prices for the share option schemes have been rounded down to the
nearest pence.
The options marked * are super options.
No Directors exercised options under any of the share option schemes during the
year.
<PAGE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
Pursuant to a shareholder agreement with the Company, TCG Employee
Nominee Pty Limited, as Trustee of the TCG Employee Trust ("the Trust"), holds
24.9 percent of the issued Ordinary Share capital of The Communications Group
Pty Limited, the Company's principal Australian subsidiary ("TCG"). The Trust is
a unit trust set up for the benefit of employees of TCG and its subsidiaries.
Mr. Hamill is a director and shareholder of the Trustee and is personally
entitled to units representing approximately 11.6 percent of the outstanding
units in the Trust. Mr. John Fawcett holds 10.28 percent and Mr. Ian Smith holds
8.2 percent of the outstanding units. Westpac Banking Corporation ("Westpac")
has agreed to lend the Trustee up to A$5 million to finance loans to employees
to purchase units in the Trust and eventual repurchases of units by the Trust.
This loan is secured by a charge over the shares in TCG held by the Trust. The
Company has granted to Westpac a put option which provides that, if Westpac
acquires TCG shares as a result of enforcing the security, the Company will be
obliged to purchase such shares at a price equivalent to the unpaid amount of
the loan. The outstanding amount of the loan from Westpac to the Trustee was
A$1,500,000 as at January 1, 1997 and A$1,300,000 as at December 31, 1997. The
Company has also agreed with the Trustee that in the event that the Company
acquires TCG shares pursuant to the put option, then in certain circumstances
the Company will make payments to the Trustee by reference to the value of the
TCG shares in excess of the amount of the loan.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
Not Applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN
SECURITY FOR REGISTERED SECURITIES.
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS.
The Company has elected to provide financial statements for 1997 and
the related information pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS.
The Company's financial statements and the report thereon by its
Independent Auditor listed below and set forth on pages F-1 to F-54 herein are
hereby incorporated by reference into this Item 18.
(a) Independent Auditor's Report dated May 26, 1998.
(b) Consolidated balance sheets of the Company and subsidiaries as at
December 31, 1997 and 1996.
(c) Consolidated statements of operations, shareholders' deficiency and
other share capital, total recognized gains and losses and cash flows
of the Company and subsidiaries for the years ended December 31,
1997, 1996 and 1995.
(d) Notes to consolidated financial statements.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
(1) Consolidated balance sheets of the Company and subsidiaries as at
December 31, 1997 and 1996. (Page F-5)
(2) Consolidated statements of operations, shareholders' deficiency
and other share capital, total recognized gains and losses and
cash flows of the Company and subsidiaries for the years ended
December 31, 1997, 1996 and 1995. (Page F-2, F-3, F-4, F-6, F-7
and F-8)
(3) Notes to consolidated financial statements. (Pages F-9 to F-54)
(b) Exhibits
1.1 Consent of Independent Auditor.
2.1 Amended Articles of the Company.
3.1 Upon the request of the Securities and Exchange Commission, the
Company hereby agrees to provide the Commission with a list of
subsidiaries of Cordiant Communications Group plc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ David F. Ham
-------------------------------
NAME: David F. Ham
TITLE: Group Controller
Date: June 29, 1998
<PAGE>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders of Cordiant Communications Group plc:
We have audited the accompanying balance sheets of Cordiant Communications Group
plc and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' deficiency and other share
capital, total recognized gains and losses and cash flows for each of the years
in the three year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cordiant
Communications Group plc and subsidiaries at December 31, 1997, the financial
position of Cordiant plc and subsidiaries at December 31, 1996, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1997, in conformity with generally accepted accounting
principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for each of the years in the
three year period ended December 31, 1997 and shareholders' deficiency at
December 31, 1997 and 1996 to the extent summarized in note 37 to the
consolidated financial statements.
KPMG Audit Plc
London, England CHARTERED ACCOUNTANTS
May 26, 1998, except as REGISTERED AUDITOR
to Note 34, which is as
of June 18, 1998
<PAGE>
<TABLE>
<CAPTION>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 1997
--------------------------------------------------------
Ongoing Disposed
operations operations Total
Notes L million L million L million
<S> <C> <C> <C> <C>
Turnover 1,576.1 2,630.1 4,206.2
------- ------- -------
Commission and fee income 308.2 427.9 736.1
Operating and administration expenses 3 (276.2) (378.1) (654.3)
Depreciation (9.6) (16.6) (26.2)
------- ------- -------
Operating profit 22.4 33.2 55.6
Profit on disposal of businesses 2 16.5 4.3 20.8
Fundamental reorganization - demerger 6 (970.6) 937.6 (33.0)
------- ------- -------
Profit (loss) before interest and taxation (931.7) 975.1 43.4
Net interest payable and similar charges 8 3.5 (12.3) (8.8)
------- ------- -------
Profit (loss) before taxation (928.2) 962.8 34.6
Taxation 9 (8.1) (9.4) (17.5)
------- ------- -------
Profit (loss) after taxation (936.3) 953.4 17.1
Minority interests (1.8) (0.2) (2.0)
------- ------- -------
Net profit (loss) (938.1) 953.2 15.1
======= =======
Dividend proposed on equity shares (2.7)
Dividend on demerger 134.6
-------
Profit retained for year 147.0
=======
Net earnings per Cordiant Ordinary Share
(Basic) 10 3.4p
</TABLE>
To assist in the understanding of the Group the Company has classified the
results of Cordiant into ongoing and disposed operations.
There is no difference between the total reported results in the financial year
and that on an historical cost basis.
See accompanying notes to the consolidated financial statements.
<PAGE>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31, 1996
------------------------------------------------------------
Ongoing Disposed
operations operations Total
Notes L million L million L million
<S> <C> <C> <C> <C>
Turnover 1,568.7 2,555.0 4,123.7
------- ------- -------
Commission and fee income 329.5 425.4 754.9
Operating and administration expenses 3 (298.4) (399.2) (697.6)
Depreciation (9.7) (16.1) (25.8)
------- ------- -------
Operating profit 21.4 10.1 31.5
Profit on disposal of businesses 2 - 17.8 17.8
------- ------- -------
Profit before interest and taxation 21.4 27.9 49.3
Net interest payable and similar charges 8 5.8 (13.3) (7.5)
------- ------- -------
Profit before taxation 27.2 14.6 41.8
Taxation 9 (9.6) (5.2) (14.8)
------- ------- -------
Profit after taxation 17.6 9.4 27.0
Minority interests (2.6) (0.2) (2.8)
------- ------- -------
Net profit 15.0 9.2 24.2
======= =======
Dividend proposed on equity shares (4.4)
------
Profit retained for year 19.8
======
Net earnings per Cordiant Ordinary Share
(Basic) 10 5.5p
</TABLE>
To assist in the understanding of the Group the Company has classified the
results of Cordiant into ongoing and disposed operations.
There is no difference between the total reported results in the financial year
and that on an historical cost basis.
See accompanying notes to the consolidated financial statements.
<PAGE>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31, 1995
------------------------------------------------------
Ongoing Disposed
operations operations Total
Notes L million L million L million
<S> <C> <C> <C> <C>
Turnover 1,527.6 2,644.7 4,172.3
------- ------- -------
Commission and fee income 320.6 440.5 761.1
Operating and administration expenses 3 (302.7) (404.4) (707.1)
Depreciation (10.2) (15.5) (25.7)
------- ------- -------
Operating profit 7.7 20.6 28.3
Loss on disposal of businesses 2 (5.9) (28.4) (34.3)
Profit on disposal of discontinued
operations 5 0.5 3.5 4.0
------- ------- -------
Profit (loss) before interest and taxation 2.3 (4.3) (2.0)
Net interest payable and similar charges 8 3.4 (24.0) (20.6)
------- ------- -------
Profit (loss) before taxation 5.7 (28.3) (22.6)
Taxation 9 (4.3) (7.6) (11.9)
------- ------- -------
Profit (loss) after taxation 1.4 (35.9) (34.5)
Minority interests (1.1) (1.7) (2.8)
------- ------- -------
Net profit (loss) retained for year 0.3 (37.6) (37.3)
======= ========
Dividend proposed on equity shares -
-------
Profit (loss) retained for year (37.3)
========
Net earnings (loss) per Cordiant Ordinary
Share (Basic):
Continuing operations (14.2)p
Discontinued operations 1.4p
---------
Net 10 (12.8)p
=========
</TABLE>
To assist in the understanding of the Group the Company has classified the
results of Cordiant into ongoing and disposed operation.
There is no difference between the total reported results in the financial year
and that on an historical cost basis.
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
Notes L million L million
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term deposits 61.7 113.7
Short-Term Investments 11 0.2 12.1
Accounts and other receivables, prepayments and accrued
income 12/13 254.3 616.4
Billable production 13 18.1 35.6
------- -------
Total current assets 334.3 777.8
Long-Term Investments 14 3.5 6.9
Long-term receivables:
Accounts and other receivables, prepayments and accrued
income 12 15.5 11.3
Property and equipment 15 24.5 116.4
------- -------
Total assets 377.8 912.4
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Bank loans, overdrafts and other loans 16 8.4 52.8
Accounts payable, other liabilities and accrued expenses 17 301.5 739.7
Taxation and social security 22 21.6 45.1
------- -------
Total current liabilities 331.5 837.6
------- -------
Long-term liabilities:
Accounts payable, other liabilities and accrued expenses 17 1.6 11.5
Provision for joint venture deficit 18 14.3 -
Property, pension and other provisions 18 57.3 136.9
Long-term debt 19 28.4 88.9
Deferred taxation 21 0.5 1.1
Taxation 22 23.8 43.6
Minority interests 6.1 8.1
------- -------
Total long-term liabilities 132.0 290.1
------- -------
Total liabilities 463.5 1,127.7
------- -------
Shareholders' deficiency:
Share capital
Allotted, called up and fully paid:
221,926,993 Ordinary Shares of 50p each (1996:
443,682,881 Cordiant Ordinary Shares of 25p each) 23 111.0 110.9
Nil Deferred shares of 5p each (1996: 2,384,598,152) 23 - 119.2
Share premium - 137.3
Capital redemption reserve - 86.5
Special reserve 25.7 -
Goodwill reserves (113.2) (235.6)
Accumulated deficit (109.2) (433.6)
------- -------
Shareholders' deficiency (85.7) (215.3)
------- -------
Total liabilities and shareholders' deficiency 377.8 912.4
======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
AND OTHER SHARE CAPITAL
Years ended December 31, 1997, 1996, 1995
Accumu-
Premiums Capital lated Total
Share in Excess Redemption * Special Goodwill Earnings Shareholders'
Capital of Par Value Reserve Reserves Reserves (Deficit) Deficiency
L million L million L million L million L million L million L million
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
At January 1, 1995 174.3 65.5 86.5 - (257.1) (424.7) (355.5)
Loss for the year - - - - - (37.3) (37.3)
Shares issued net of expenses 55.7 71.5 - - - - 127.2
Merger reserve arising in year - - - - 0.9 - 0.9
Goodwill acquired and written off - - - - (12.2) - (12.2)
Elimination of goodwill reserves
on disposals - - - - 50.2 - 50.2
Translation adjustment - - - - - 1.8 1.8
----- ----- ---- -- ------ ------- -------
At December 31, 1995 230.0 137.0 86.5 - (218.2) (460.2) (224.9)
Profit for the year - - - - - 19.8 19.8
Shares issued net of expenses 0.1 0.3 - - - - 0.4
Goodwill acquired and written off - - - - (17.4) - (17.4)
Translation adjustment - - - - - 6.8 6.8
----- ----- ---- -- ------ ------- -------
At December 31, 1996 230.1 137.3 86.5 - (235.6) (433.6) (215.3)
Issues of Ordinary shares net of 0.1 - - - - - 0.1
expenses
Net goodwill arising in year - - - - (1.7) - (1.7)
Elimination of goodwill reserves
on demerger - - - - 124.1 (124.1) -
Profit retained for the year - - - - - 147.0 147.0
Translation adjustment - - - - - (15.8) (15.8)
*Reduction of capital (119.2) (137.3) (86.5) 25.7 - 317.3 -
----- ----- ---- ---- ------ ------- -------
At December 31, 1997 111.0 - - 25.7 (113.2) (109.2) (85.7)
===== ===== ==== ==== ======= ======= =======
</TABLE>
During 1995, Cordiant issued 1,344,107 Cordiant Ordinary Shares at 25p each to
finance the acquisition of all of the issued share capital of Laing Henry
Limited, a UK advertising agency. Cordiant recorded the issuance of shares at
the nominal value of the shares issued and established a merger reserve of L0.9
million for the excess of the market value of the shares issued over the nominal
value recorded. The merger reserve was utilized for the write-off of goodwill
arising from the acquisition.
As at December 31, 1997, the Accumulated Deficit included cumulative exchange
translation losses of L27.0 million (1996: L11.2 million).
* As part of the Demerger, Cordiant applied to the High Court of Justice in
England and Wales (the "Court") to approve a reduction of capital in the form of
the deferred shares, the share premium account and capital redemption reserve.
The Court's approval was granted, with effect from November 28, 1997, which
permitted the reduction of capital to be applied first to making up the deficit
resulting from the pre-demerger reconstruction and then to create distribution
reserves in an amount equal to the amount of the demerger dividend. The excess
capital was credited to a special reserve which is non-distributable other than
for the purpose of paying up shares in a bonus issue of fully paid shares.
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
Year ended
December 31,
----------------------------------------------------------
1997 1996 1995
---- ---- ----
L million L million L million
<S> <C> <C> <C>
Profit (loss) for the financial year 15.1 24.2 (37.3)
Translation adjustment (15.8) 6.8 1.8
------ ---- ------
Total (losses) gains recognized for the (0.7) 31.0 (35.5)
financial year ====== ==== ======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
Notes 1997 1996 1995
----- ---- ---- ----
L million L million L million
<S> <C> <C> <C> <C>
Ongoing operations 5.6 17.5 22.0
Disposed operations 56.1 39.4 (5.4)
---- ---- -----
Net cash inflow from operating activities 27 61.7 56.9 16.6
---- ---- -----
Net cash outflow arising from external Demerger costs (13.8) - -
---- ---- -----
Returns on investments and servicing of finance
interest received 5.3 7.3 7.8
Interest paid (including bank fees) (13.6) (15.2) (21.8)
Interest element of finance lease rental payments (0.1) (0.1) (0.1)
Dividends paid to minorities (1.9) (1.2) (2.3)
Bank fees (2.0) (0.9) (4.6)
---- ---- -----
Net cash outflow from returns on investments and
servicing of finance (12.3) (10.1) (21.0)
------ ------ ------
Taxation
UK corporation tax repaid - 0.1 2.0
Overseas tax paid (15.1) (9.4) (8.0)
------ ------ ------
Tax paid (15.1) (9.3) (6.0)
------ ------ ------
Capital expenditure and financial investment
Purchase of tangible fixed assets (25.8) (26.9) (26.6)
Sale of tangible fixed assets 2.6 2.9 5.5
Purchase of other fixed asset investments (0.5) (0.9) (0.1)
Sale of other fixed asset investments 1.2 0.1 0.2
------ ------ ------
Net cash outflow from capital expenditure and
financial investment (22.5) (24.8) (21.0)
------ ------ ------
Acquisitions and disposals
Purchase of subsidiary undertakings (9.3) (25.3) (7.3)
Cash acquired with subsidiaries 0.6 1.7 -
Sale of subsidiary undertakings 41.6 9.9 30.4
Cash in businesses sold (1.1) - (3.7)
Cash in businesses demerged (43.4) - -
------ ------ ------
Net cash outflow from acquisitions and disposals (11.6) (13.7) 19.4
------ ------ ------
Equity dividends paid (4.4) - -
------ ------ ------
Total net cash outflow before financing (18.0) (1.0) (12.0)
------ ------ ------
Financing activities
Issues of Ordinary Share capital 0.1 - 133.0
Costs of share issues - - (6.4)
Capital subscribed by minorities - 0.2 -
Net borrowings (loan repayments) 17.3 (11.0) (128.4)
Capital element of finance lease rental payments (0.3) (0.4) (0.4)
------ ------ ------
Net cash inflow (outflow) from financing 17.1 (11.2) (2.2)
------ ------ ------
Decrease in cash (0.9) (12.2) (14.2)
===== ====== ======
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
CORDIANT COMMUNICATIONS GROUP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
The Demerger of Saatchi & Saatchi from Cordiant which took effect from
December 15, 1997 has fundamentally changed the Group. Prior to the Demerger, an
internal reorganization of Cordiant was effected whereby Cordiant transferred
the various assets that comprised the Saatchi & Saatchi Group (including a 50
percent shareholding in Zenith) to a single holding company, Saatchi & Saatchi
Holdings Limited ("Holdings"). The Demerger occurred in three simultaneous
steps. First, Cordiant made a stock dividend to holders of Cordiant Ordinary
Shares on the basis that the dividend would be satisfied by the distribution of
the Saatchi Ordinary Shares. Second, Saatchi & Saatchi acquired the shares of
Holdings from Cordiant. Third, Saatchi & Saatchi satisfied the stock dividend
(the "Dividend") by issuing its shares directly to Cordiant shareholders.
Pursuant to the Demerger, shares of Saatchi & Saatchi were initially
issued on a one-for-one basis (i.e., each holder of Cordiant Ordinary Shares
received the same number of shares of Saatchi & Saatchi). Immediately following
the Dividend, both the Company and Saatchi & Saatchi effected a share
consolidation or reverse stock-split (the "Consolidation"), so that following
the Demerger and Consolidation holders of Cordiant Ordinary Shares received one
Ordinary Share and one Saatchi Ordinary Share for every two Cordiant Ordinary
Shares held as at the record date for the Dividend.
To assist in an understanding of CCG going forward, the Company has
classified, where appropriate, the consolidated financial statements and
associated notes between ongoing operations and disposed operations. As a result
of the Demerger, the Company and Saatchi & Saatchi are separate publicly traded
companies and operate independently of each other. However, the Company and
certain companies within CCG have entered into certain agreements and
arrangements with the Saatchi & Saatchi Group and Zenith to allocate
responsibility for certain obligations and to provide for transitional
arrangements. These agreements and arrangements relate primarily to: (i)
guarantees (for property and bank facilities, among others); (ii) the ownership
and operation of Zenith; (iii) the ownership and operation of The Facilities
Group; (iv) operating arrangements of joint offices; and (v) arrangements
regarding shared premises.
The consolidated financial statements have been prepared under the historical
cost accounting rules and in accordance with applicable UK accounting standards.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Group's management (as is the case
with the management of all companies) to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The following paragraphs describe the significant accounting policies used in
preparing the consolidated financial statements.
(a) Basis of Consolidation
The consolidated financial statements include the financial statements of
Cordiant Communications Group plc and all its subsidiaries. All material
intra-group transactions and balances have been eliminated on consolidation.
(b) Ongoing Operations
A business is classified as an ongoing operation if it remained with the Group
following the Demerger and the disposal of other businesses and excludes Zenith.
(c) Disposed Operations
Disposed operations refer to advertising related businesses demerged to form the
Saatchi & Saatchi Group, Zenith and other businesses disposed of.
(d) Discontinued Operations
A business is classified as a discontinued operation if it is clearly
distinguishable, has a material effect on the nature and focus of the reporting
entity's operations and represents a material reduction in its operating
activities resulting from its withdrawal from a particular class of business.
(e) Income Recognition
Commission and fee income is recognized generally when work is billed to clients
and excludes sales taxes and intra group transactions. Billings are usually
rendered upon presentation date for media advertising and upon the completion of
radio, television and print production.
(f) Long Term Property Provisions
Provision is made on an undiscounted basis for the future rental and related
costs of leasehold property (net of assumed sublease income) where the property
is vacant or currently not planned to be used for ongoing operations.
(g) Pension Costs
Retirement benefits for employees of most companies in the Group are provided by
either defined contribution or defined benefit schemes which are funded by
contributions from Group companies and employees. The Group's share of
contributions to defined contribution schemes is charged against profits of the
year for which they are payable and the cost of providing defined benefits is
charged against the profits, in accordance with the recommendations of
independent actuaries, in such a way as to provide for liabilities evenly over
the remaining working lives of the employees.
(h) Leases
Where 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. The asset is recorded in the balance sheet as a tangible fixed asset and
is depreciated over the shorter of its estimated useful life and the lease term.
Future installments under such leases, net of finance charges, are included in
creditors. Rentals payable are apportioned between the finance element, which is
charged to the statement of operations as interest, and the capital element
which reduces the outstanding obligation for future installments.
All other leases are operating leases and the rental charges are taken to the
statement of operations on a straight-line basis over the life of the lease.
(i) Goodwill
Goodwill in respect of acquisitions, including any additional goodwill estimated
to arise from contingent capital payments, is written off directly to reserves
in the year in which the transaction arises. A charge is recognized in the
Group's statement of operations in respect of any permanent diminution in the
value of acquisition goodwill. Goodwill written off directly to reserves and not
previously charged to the Group's statement of operations because of permanent
diminution in value, is included in determining the profit or loss on disposal.
(j) Property and Equipment
Property and equipment are stated at historical cost less accumulated
depreciation. Additions, improvements and major renewals are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred.
The cost of property and equipment less estimated residual value is written off
by equal annual installments over the expected estimated useful lives of the
assets as follows:
Owned and long-term leasehold properties 50 years
Short-term leasehold properties
with terms less than 50 years Period of lease
Furniture and equipment Between 4 and 10 years
Motor vehicles 4 years
(k) Joint Ventures and Associated Undertakings
The Group's share of the profits less losses of all significant joint ventures
and associated undertakings is included in the Group's statement of operations
on a gross equity and equity accounting basis respectively. The carrying value
of significant joint ventures and associated undertakings in the Group balance
sheet is calculated by reference to the Group's equity in the net assets of such
undertakings.
(l) Billable Production
Billable production is valued at the lower of cost or net realizable value and
comprises mainly outlays incurred on behalf of clients.
(m) Short-Term Investments
Short-term investments, including money market investments, are valued
individually at the lower of market value on date of receipt or net realizable
value at the balance sheet date. No credit is taken in the financial statements
for any increase in market value at the balance sheet date.
(n) Deferred Taxation
Deferred taxation is provided at the anticipated tax rates on timing differences
arising from the inclusion of items of income and expenditure in taxation
computations in periods different from those in which they are included in
financial statements to the extent that it is probable that a liability or asset
will crystallize in the foreseeable future.
No provision is made for deferred tax on unremitted overseas earnings unless the
Group expects them to be remitted.
(o) Foreign Currencies
Transactions in foreign currency are recorded at the rate of exchange at the
date of the transaction or, if hedged forward, at the rate of exchange under the
related forward currency contract.
Statements of operations of overseas subsidiaries are translated into sterling
at the average rates during the year with the year end adjustment to closing
rates being taken to reserves. Assets and liabilities in foreign currencies,
including those of overseas subsidiaries, are translated using the rates of
exchange ruling at the balance sheet date.
Gains or losses on translation of opening net assets are taken to reserves.
Exchange differences arising from the retranslation of long-term foreign
currency borrowings used to finance foreign currency investments are also taken
to reserves. All other exchange differences are taken to the statement of
operations.
The Group's principal trading currencies and the exchange rates used against L
sterling are as follows:
<TABLE>
<CAPTION>
Average Rate Closing Rates
Year ended December 31, December 31,
----------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996
US Dollar 1.64 1.56 1.58 1.65 1.71
French Franc 9.55 7.99 7.87 9.90 8.90
Deutschmark 2.84 2.35 2.26 2.96 2.64
Australian Dollar 2.21 2.00 2.13 2.52 2.15
Spanish Pesetas 240 198 197 251 223
Italian Lira 2,790 2,409 2,571 2,909 2,602
</TABLE>
<PAGE>
NOTE 2 - ACQUISITIONS, DISPOSALS AND CONTINGENT AND DEFERRED CAPITAL PAYMENTS*
* Where applicable in this Note, translations from US dollars are made at the
rates at which the transactions were concluded.
Acquisitions
In December 1996, Cordiant acquired a 50% interest in X/M Harrow Pty Limited, an
Australian company. The acquisition was completed in December 1996 for L0.5
million. In November 1997, Cordiant acquired a further 25% interest for a
deferred payment, based on adjusted revenue in the years to 2000, estimated at
cash consideration L0.3 million.
In July 1997, Cordiant acquired a 51% interest in the share capital of Grapple
Group 141 (Pty) Ltd., in South Africa, for cash consideration of L0.2 million.
In December 1997, Scholz & Friends GmbH acquired a further 33% interest in the
share capital of Scholz & Friends Dresden GmbH, in Germany, raising the Group's
effective holding to 76.5%. Estimated deferred consideration of L2.2 million
will be paid in 2000.
In December 1994, Cordiant agreed to acquire the remaining 38.3% of the share
capital of Grupo BSB S.A. and BSB Especialazades S.A., its two subsidiaries in
Spain which are part of the Bates Worldwide network. The acquisition was
completed in January 1995 for an initial payment of L1.9 million, with further
payments, based on profitability payable in the years to 1997, to a maximum of
L9.7 million. Under the acquisition agreement, L1.9 million was paid on
acquisition, L2.5 million in 1995, L1.3 million in 1996 and a final payment of
L5.0 million in 1997.
With effect from January 1996 Cordiant acquired an additional 47.4% of the share
capital of Saatchi & Saatchi Advertising SA in France. The acquisition was
completed in September 1996 for an initial consideration of L17.5 million and a
further payment of L2.9 million in 1997.
In May 1996, Cordiant acquired a further 10.7% interest in the share capital of
Scholz & Friends GmbH in Germany, raising its stake to 90%. Consideration of
L2.3 million was paid in cash.
During 1996 Cordiant issued a total of 392,482 Cordiant Ordinary Shares as final
consideration to the vendors of Adaptus International A/S, a Norwegian
subsidiary and Campaign Palace, Sydney, an Australian subsidiary.
During 1996 Cordiant acquired 51% interests in each of BLGK Advertising
(Proprietary) Limited and Saatchi & Saatchi Klerk & Barrett Holdings
(Proprietary) Limited, both companies based in South Africa. Cordiant also
acquired the minority interest of BSB Saatchi & Saatchi MC Limited in Poland.
The consideration paid in 1996 for all these acquisitions was L3.7 million in
cash with a further consideration of L0.4 million paid in cash in March 1997.
These acquisitions were accounted for under the purchase method of accounting.
Accordingly, the statements of operations reflect the results of operations for
new subsidiaries since the date of acquisition.
Disposals
The profit (loss) on disposal of businesses is discussed by year below:
(a) The profit on disposal of businesses in 1997
The profit on disposal of businesses in 1997 of L20.8 million arose from the
sale of NRG and the disposal of the Interpublic Group of Companies ("IPG")
shares received by Cordiant due to clauses in the sale agreement of KDW in 1995
(see (c) below).
In October 1997, Cordiant sold NRG for a gross cash consideration of $53.1
million (L32.4 million). The gross consideration included $13.1 million (L8.0
million) payable to certain of NRG's directors under terms of an agreement
entered into in 1995. Net assets disposed of were estimated at $7.5 million
(L4.6 million). After accounting for provisions totalling $5.4 million (L3.3
million) for additional tax, professional fees and determination of the disposed
balance sheet, the profit on sale was $27.1 million (L16.5 million).
(b) The profit on disposal of businesses in 1996
The profit on disposal of businesses in 1996 of L17.8 million arose from
additional consideration received regarding the sale of KDW (see (c) below) and
further consideration of L1.3 million for disposals in prior years.
(c) The loss on disposal of businesses in 1995
The loss on disposal in 1995 of L34.3 million arose from sale and closure of
CME, the sale of KDW and the partial disposal of Bates Australia (The
Communications Group Pty. Ltd.). The loss included the non-cash write-off of
L50.2 million of acquired goodwill. Details of the disposals are as follows:
(i) In April 1995, Cordiant disposed of the assets and liabilities,
business and undertakings of CME to IPG (51%) and CME's management
(49%). Consideration of $41.4 million (L26.7 million) was received in
cash. Net liabilities disposed were $3.1 million (L2.0 million).
(ii) In April 1995 Cordiant completed the sale of the Saatchi & Saatchi
Advertising Worldwide agencies in Puerto Rico and Mexico to Nazca S&S.
Consideration for the sale was a 30% holding in Nazca S&S group of
companies.
At an Extraordinary General Meeting of Cordiant on September 1, 1995,
shareholders approved the sale of KDW to its management. Consideration was $13.7
million (L8.8 million) in cash, $9.5 million (L6.1 million) in the form of a 10
per cent subordinated loan note of the purchaser, $4.0 million (L2.5 million) in
the form of redeemable preferred stock in the purchaser and warrants to
subscribe for shares of common stock in the purchaser representing approximately
25% of the purchaser's fully diluted equity share capital, exercisable at a
price of $250,000 (L161,000) in aggregate. The net assets of KDW at the date of
disposal were L5.5 million after settling intra-group balances.
In 1996 KDW was sold to IPG and, as a result, Cordiant exercised its right to
take up the warrants and recognized a further gain of L16.5 million. The
additional consideration received was $13.5 million (L8.7 million) in cash from
the repayment of a loan note and redeemable preferred stock, and $18.5 million
(L11.9 million) in shares of IPG.
In July 1997, all the IPG shares were disposed of for consideration of $28.0
million (L17.1 million) in cash resulting in a further gain on disposal of L4.3
million.
In December 1995 Cordiant committed to an equity incentive scheme for Bates
Australia (The Communications Group Pty. Ltd.) involving the sale of 24.9% of
that company to an employee trust.
Contingent and Deferred Capital Payments
The Group may make capital payments in future years as a result of contracts
entered into to acquire additional interests in subsidiaries and associated
companies. Such payments are contingent on the levels of profits achieved by
those companies and may be partially paid by the issue of shares at the Group's
option. In addition, the Group is committed to pay certain deferred
consideration payments. CCG estimates that, at the rates of exchange ruling at
December 31, 1997, the total payments (including interest) that may be made are
as follows:
<TABLE>
<CAPTION>
Contingent Deferred 1997 1996
Payments Payments Total Total
-------- -------- ----- -----
L million L million L million L million
<S> <C> <C> <C> <C>
Due within 1 year - 0.1 0.1 9.4
Due within years 2-5 3.6 - 3.6 5.2
--- --- --- ---
3.6 0.1 3.7 14.6
=== === === ====
</TABLE>
<PAGE>
NOTE 3 - OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses from continuing operations included the
following:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
L million L million L million
<S> <C> <C> <C>
Staff and associated costs (see note 7) 407.3 426.4 434.3
Hire of plant and machinery - operating leases
(see note 26) 2.9 3.1 3.2
Hire of other assets - leasehold property net of
sublease income (see note 26) 47.7 48.3 52.4
(Profit) loss on sale of tangible fixed assets (0.8) 0.2 (1.5)
Auditor's remuneration, including expenses 2.6 2.5 2.5
Auditor's remuneration, other than audit fees* 0.4 0.9 0.8
Other administrative expenses, including
exceptional items 194.2 216.2 215.4
----- ----- -----
654.3 697.6 707.1
===== ===== =====
</TABLE>
*In addition to non-audit fees paid to our auditor shown above, additional fees
of L6.8 million relating to work in respect of the Demerger are included in the
fundamental reorganization cost (see note 6). Work performed primarily included
due-diligence, work associated with the circular to shareholders relating to the
demerger and the listing particulars of Saatchi & Saatchi, and advice on the
fundamental reorganization of Cordiant.
Cordiant made charitable donations in the United Kingdom of L58,000, L34,000,
and L72,000 in the years ended December 31, 1997, 1996 and 1995, respectively.
<PAGE>
NOTE 4 - EXCEPTIONAL OPERATING ITEMS
Included in Operating and Administrative Expenses in Note 3 above are the
following exceptional items:
<TABLE>
<CAPTION>
Ongoing Disposed Total Ongoing Disposed Total Ongoing Disposed Total
operations operations 1997 operations operations 1996 operations operations 1995
Lm Lm Lm Lm Lm Lm Lm Lm Lm
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Termination of a
defined benefits
pension plan ....................... -- -- -- 0.2 8.1 8.3 -- -- --
Leasehold property
provisions ......................... -- -- -- -- 8.2 8.2 -- -- --
Goodwill written off ............... 2.2 -- 2.2 -- -- -- -- -- --
Severance and
reorganization costs ............... -- -- -- -- -- -- 13.2 3.8 17.0
Litigation and
associated costs ................... -- -- -- -- -- -- 0.9 2.4 3.3
--- --- --- --- ---- ---- --- --- ---
2.2 -- 2.2 0.2 16.3 16.5 14.1 6.2 20.3
=== === === ==== ==== ==== === ====
</TABLE>
The pension plan costs arose from a decision taken as part of Cordiant's
efficiency program to terminate the defined benefits plan in the USA. The scheme
was frozen at June 30, 1996 and terminated on December 31, 1996.
The leasehold property provision arose from the decision to vacate surplus
office space with an estimated future net rental shortfall of L8.2 million.
The goodwill written off relates to the Group's Indonesian subsidiary. The
decision was taken in view of the economic uncertainty in that country.
The litigation and associated costs in 1995 were related to the departure of the
former Chairman of Cordiant and other senior executives.
NOTE 5 - DISCONTINUED OPERATIONS
The profit on disposal of discontinued operations of L4.0 million for the year
ended December 31, 1995, arose from deferred payments received from consultancy
operations sold in prior years.
<PAGE>
NOTE 6 - FUNDAMENTAL REORGANIZATION - DEMERGER
In order to implement the Demerger, inter-group debt and subsidiaries had to be
eliminated. This was carried out by sale, assignment, waiver or other means.
Surpluses and losses arising from these transactions are shown below.
<TABLE>
<CAPTION>
Ongoing Disposed Total
operations operations 1997
Lmillion Lmillion Lmillion
-------- -------- --------
<S> <C> <C> <C>
Surplus/(loss) on inter-group debt 875.0 (1,011.8) (136.8)
Surplus/(loss) on transfer of subsidiaries 72.7 64.1 136.8
Amounts payable in relation to the demerger 16.3 3.9 20.2
Head office reorganization 6.6 0.1 6.7
Inter-group property provisions - 6.1 6.1
----- ------- -----
Fundamental reorganization - demerger 970.6 (937.6) 33.0
</TABLE>
Amounts payable in relation to the Demerger include external advisors' fees,
temporary staff and other costs.
As a result of the Demerger, the Cordiant head office has been reorganized and
combined with the head offices of Bates Worldwide and Saatchi & Saatchi.
Property provisions, which will have no cash impact, arose as a result of the
Demerger and represented the difference between rental payable by Saatchi &
Saatchi and the amounts receivable from Zenith for space sublet to them.
<PAGE>
NOTE 7 - EMPLOYEES
<TABLE>
<CAPTION>
Average number of employees of Cordiant by geographic area Year ended
December 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
UK 509 574 644
North America 914 1,096 1,111
Rest of Europe, Africa and Middle East 1,565 1,601 1,577
Asia Pacific 1,672 1,595 1,419
----- ----- -----
Ongoing operations 4,660 4,866 4,751
Disposed operations 5,938 5,343 5,819
----- ----- -----
10,598 10,209 10,570
------ ------ ------
<CAPTION>
Ongoing Disposed Total Ongoing Disposed Total Ongoing Disposed Total
operations operations 1997 operations operations 1996 operations operations 1995
Lm Lm Lm Lm Lm Lm Lm Lm Lm
-- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wages and salaries ...................... 156.1 204.5 360.6 162.4 204.9 367.3 163.0 217.3 380.3
Social security costs ................... 15.6 18.7 34.3 17.0 20.2 37.2 17.3 20.3 37.6
Pension costs - see note 25.............. 4.5 7.9 12.4 5.7 16.2 21.9* 6.9 9.5 16.4
--- --- ---- --- ---- ---- --- --- ----
176.2 231.1 407.3 185.1 241.3 426.4 187.2 247.1 434.3
----- ----- ----- ----- ----- ----- ----- ----- -----
* Included in the pension cost for 1996 of L21.9 million there was an
exceptional charge of L8.3 million to terminate the defined benefits pension
plan in the USA (see note 4).
</TABLE>
<PAGE>
NOTE 8 - NET INTEREST AND SIMILAR CHARGES
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
L million L million L million
<S> <C> <C> <C>
Interest payable and similar charges:
On bank loans, overdraft facilities and other loans
required to be repaid within five years 13.4 13.1 23.3
On capitalized leases and hire purchase 0.1 0.1 0.1
On other loans 0.4 0.4 0.4
Bank fees 1.9 1.1 0.7
Exceptional bank fees - - 3.9
---- --- ----
15.8 14.7 28.4
---- ---- ----
Interest receivable and similar items:
On cash and deposits (5.3) (6.5) (7.4)
Note interest (0.3) (0.7) (0.4)
Foreign exchange (1.4) - -
---- ---- ----
(7.0) (7.2) (7.8)
---- ---- ----
Net interest payable 8.8 7.5 20.6
=== === ====
</TABLE>
The exceptional bank fees in 1995 of L3.9 million arose from the renegotiation
of bank facilities in April 1995 which were superseded by the subsequent rights
issue and amended bank facility.
NOTE 9 - TAXES ON INCOME
Taxes on income were made up as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------------------------------
1997 1996 1995
---- ---- ----
L million L million L million
<S> <C> <C> <C>
UK corporation tax:
ACT written off - 1.1 -
Currently payable 0.7 1.1 0.3
Relief for overseas tax (0.5) (0.6) (0.4)
Deferred 0.2 (0.5) (0.8)
--- ---- ----
0.4 1.1 (0.9)
Overseas taxation:
Currently payable 17.9 13.1 14.3
Deferred (0.8) 0.6 (1.5)
---- --- ----
17.5 14.8 11.9
==== ==== ====
</TABLE>
The corporate tax effect of the operating and non-operating exceptional items
was a tax credit of Lnil, Lnil and L2.1 million in the years ended December 31,
1997, 1996 and 1995, respectively. The 1995 tax charge reflected the fact that
the loss on disposal of operations and the exceptional expenses were, in most
cases, either not recognized for tax purposes or added to existing losses.
<PAGE>
The above charges reconcile as follows with the standard UK corporation tax
rates:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
L million L million L million
<S> <C> <C> <C>
Tax charge in financial statements (17.5) (14.8) (11.9)
Tax charge (credit) on pre-tax profit
(loss) at 31.5% (1996 and 1995: 33%) 10.9 13.8 (7.5)
---- ---- ----
Difference (6.6) (1.0) (19.4)
==== ==== =====
Deferred tax credits not available 6.0 1.5 (6.7)
Permanent differences between
expenditures charged in arriving at
income and expenditures allowed for
tax purposes:
UK 2.1 0.8 (3.3)
US (0.5) 0.4 1.4
Rest of World 0.7 (1.1) 0.1
Disposal of minority interest - - (2.0)
Demerger (10.4) - -
Goodwill (0.7) - -
Unrelieved profit/(losses) 3.1 1.4 (6.6)
Difference between UK and
overseas standard tax rates (4.0) (2.3) (3.0)
Irrecoverable ACT - (1.1) -
Other items (2.9) (0.6) 0.7
---- ---- ---
Difference above (6.6) (1.0) (19.4)
==== ==== =====
The components of income (loss) before taxation are as follows:
<CAPTION>
Year Ended
December 31,
--------------------------------------------------------------
1997 1996 1995
---- ---- ----
L million L million L million
<S> <C> <C> <C>
Domestic (UK) (17.0)* 11.5 9.6
Foreign 51.6 30.3 (32.2)
---- ---- ------
34.6 41.8 (22.6)
==== ==== ======
</TABLE>
* The loss before taxation in the UK in 1997 incorporated L26.5 million of
the fundamental reorganization expense of L33.0 million (see note 6).
At December 31, 1997 the Group had L100 million of operating loss carryforwards
expiring between 1998 and 2011. Additionally, the Group had L18 million of
operating loss carryforwards which had no expiration date. It is possible that
all or part of the operating loss carryforwards expiring between 1998 and 2011
may be restricted or eliminated under any of several statutory/regulatory
provisions or judicially-created doctrines. Moreover, the operating loss
carryforwards are generally only available to offset future income of the Group
within the tax jurisdiction where the operating loss arose, and are not
transferable between jurisdictions.
NOTE 10 - EARNINGS (LOSS) PER CORDIANT ORDINARY SHARE
Basic earnings (loss) per Cordiant Ordinary Share has been calculated on
earnings of L15.1 million (1996: earnings L24.2 million, 1995: loss L37.3
million) based on 443,852,410 shares (1996: 443,615,772 shares; 1995:
292,441,558 shares) being the weighted average number of Cordiant Ordinary
Shares in issue during the periods. The number of Cordiant Ordinary Shares in
issue has not been adjusted to reflect the Consolidation following the Demerger.
The Company believes that as the earnings include the demerged businesses for
substantially the whole year, the number of Cordiant Ordinary Shares in issue
used to calculate earnings per Cordiant Ordinary Share should remain unaltered.
The number of Ordinary Shares in issue at December 31, 1997 was 221,926,993.
Share options outstanding under the employee share schemes are considered to be
common stock equivalents, and are included in the earnings per share calculation
only when they are dilutive.
Earnings per share on the nil distribution (earnings exclude any irrevocable
advance corporation tax (ACT) and any unrelieved overseas tax arising from the
payment or proposed payment of dividends) and fully diluted bases have not been
disclosed as they are not materially different.
NOTE 11 - SHORT-TERM INVESTMENTS
Short-term investments comprised overseas unlisted investments of L0.2 million.
In 1996 short-term investments comprised overseas listed investments of L12.1
million with an aggregate market value of L12.3 million.
NOTE 12 - ACCOUNTS AND OTHER RECEIVABLES, PREPAYMENTS AND ACCRUED INCOME
<TABLE>
<CAPTION>
1997 1996
---- ----
L million L million
<S> <C> <C>
Due within one year:
Trade receivables (net of allowances for doubtful debts) 219.0 534.7
Associated companies - 0.4
Amounts due from Saatchi & Saatchi 8.8 -
Amounts due from Zenith 0.4 -
Other receivables 7.7 22.7
Prepayments and accrued income 18.4 58.6
---- ----
254.3 616.4
===== =====
Due after one year:
Other receivables 14.8 9.0
Prepayments and accrued income 0.7 2.3
--- ---
15.5 11.3
==== ====
</TABLE>
Amounts due from Saatchi & Saatchi and Zenith as at December 31, 1997 reflect
trading balances only.
Reference should be made to Note 13 concerning the amounts of allowances for
doubtful debts for each of the years presented.
<PAGE>
NOTE 13 - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and at end of
of period expenses Deductions* period
Description
L million L million L million L million
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts (deducted
from accounts receivable) L18.0 L - L(10.7)** L7.3
----- --- ------- ----
Allowance for non-recoverable billable
production (deducted from billable
production) L4.6 L - L(1.4)** L3.2
----- --- ------- ----
Year ended December 31, 1996:
Allowance for doubtful accounts (deducted
from accounts receivable) L20.0 L - L(2.0) L18.0
----- --- ------- -----
Allowance for nonrecoverable billable
production (deducted from billable
production) L 3.5 L1.1 L - L 4.6
----- --- ------- -----
Year ended December 31, 1995:
Allowance for doubtful accounts (deducted
from accounts receivable) L20.8 L - L(0.8) L20.0
----- --- ------- -----
Allowance for nonrecoverable billable
production (deducted from billable
production) L 5.0 L - L(1.5) L 3.5
----- --- ------- -----
</TABLE>
* Substantially represents amounts utilized against specific nonrecoverable
billable production and bad debts arising during the periods.
** The deductions in 1997 include demerged allowances of L8.1 million for
doubtful accounts and L2.0 million for nonrecoverable billable production.
<PAGE>
NOTE 14 - LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
Associated Long term Works
undertakings investments of art Total
------------ ----------- ------ -----
L million L million L million L million
<S> <C> <C> <C> <C>
Cost:
At beginning of year 3.9 10.2 3.7 17.8
Translation adjustment (0.1) (0.1) - (0.2)
Transfer of investment in subsidiaries (0.4) - - (0.4)
Loans repaid (0.2) - - (0.2)
Additions - 0.1 - 0.1
Disposals - net demerger adjustments (0.7) (0.8) (3.6) (5.1)
- other (0.1) (5.8) (0.1) (6.0)
----- ----- ----- -----
At end of year 2.4 3.6 - 6.0
=== === === ===
Provisions:
At beginning of year 2.2 8.7 - 10.9
Disposals - net demerger adjustments (2.2) (0.4) - (2.6)
- other - (5.8) - (5.8)
----- ----- ----- -----
At end of year - 2.5 - 2.5
===== ==== ===== =====
Net book value:
At beginning of year 1.7 1.5 3.7 6.9
At end of year 2.4 1.1 - 3.5
</TABLE>
Long term investments include unlisted loan notes and redeemable preference
shares with a face value of approximately L2.4 million (1996: L8.2 million)
issued by the purchasers of companies disposed of by Cordiant which are due on
various dates commencing in 1998 and which are fully provided.
The Group's investment in Zenith, a joint venture, is represented by a net
deficit and is described as a provision (see Note 18).
<PAGE>
NOTE 15 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Leasehold Leasehold
Freehold property property Furniture and
property - long - short equipment Motor vehicles Total
-------- ------ ------- --------- -------------- -----
L million L million L million L million L million L million
<S> <C> <C> <C> <C> <C> <C>
Cost:
At beginning of year 11.1 1.6 90.5 154.1 10.2 267.5
Translation adjustment (1.2) - 0.9 (4.5) (0.3) (5.1)
Additions - 0.2 5.3 17.8 1.4 24.7
Companies acquired - 0.1 - 0.3 - 0.4
Disposals -demerger (9.8) (1.4) (75.9) (101.4) (4.0) (192.5)
- other (0.1) (0.2) (1.6) (7.6) (2.6) (12.1)
----- ----- ----- ---- --- ----
At end of year - 0.3 19.2 58.7 4.7 82.9
===== ===== ==== ==== === ====
Depreciation:
At beginning of year 2.8 0.5 34.3 106.9 6.6 151.1
Translation adjustment (0.3) - (0.1) (3.6) (0.3) (4.3)
Charge for the year 0.2 0.1 6.1 18.1 1.7 26.2
Disposals -demerger (2.7) (0.3) (24.9) (74.1) (2.8) (104.8)
- other - (0.1) (1.6) (5.9) (2.2) (9.8)
----- ----- ----- ---- --- ----
At end of year - 0.2 13.8 41.4 3.0 58.4
===== ===== ==== ==== === ====
Net book value:
At beginning of year 8.3 1.1 56.2 47.2 3.6 116.4
At end of year - 0.1 5.4 17.3 1.7 24.5
Net book value of assets
held under finance leases
included above:
At beginning of year - - - 0.3 0.1 0.4
At end of year - - - - 0.1 0.1
</TABLE>
Net book value of land and buildings at end of year was L5.5 million (1996:
L65.6 million).
Depreciation attributable to owned property and equipment was L25.9 million
(1996: L25.1 million; 1995:L25.0 million); and depreciation attributable to
assets held under finance leases was L0.3 million (1996: L0.7 million; 1995:L0.7
million).
At December 31, 1997 and 1996, the commitments in respect of capital expenditure
on properties, furniture and equipment were L0.5 million and L1.2 million,
respectively.
<PAGE>
NOTE 16 - BANK LOANS, OVERDRAFTS AND OTHER LOANS
Balance at end of Weighted average
period interest rate
------ -------------
Year ended December 31, 1997
----------------------------
L million %
Bank loans and overdrafts 7.8 4.8
Other loans 0.6 8.0
---
8.4 5.0
===
Year ended December 31, 1996
----------------------------
L million %
Bank loans and overdrafts 48.3 6.2
Other loans 4.5 8.6
----
52.8 6.4
====
Bank loans and overdrafts include Lnil million (December 31, 1996: L0.5 million)
in respect of the current portion of long-term debt.
An amount of L0.1 million (1996:L1.0 million) included in bank loans and
overdrafts is secured by liens over assets.
<PAGE>
NOTE 17 - ACCOUNTS PAYABLE, OTHER LIABILITIES AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------ -------------------
Due Within one Due After Due Within Due After
year one year one year one year
---- -------- -------- --------
L million L million L million L million
<S> <C> <C> <C> <C>
Accounts payable 194.2 - 512.7 -
Associated companies - - 0.7 -
Payments on account 28.9 - 69.9 -
Finance leases 0.1 0.1 0.3 0.2
Proposed dividends - equity shareholders 2.7 - 4.4 -
Amounts due to Saatchi & Saatchi 5.1 - - -
Amounts due to Zenith 11.3 - - -
Other payables 59.2 1.5 151.7 11.3
---- --- ----- ----
301.5 1.6 739.7 11.5
===== === ===== ====
</TABLE>
An amount of L4.0 million (December 31, 1996:L27.2 million) included in accounts
payable is secured by related trade receivables. Liabilities under finance
leases are secured on the assets leased.
NOTE 18 - PROPERTY, PENSION AND OTHER PROVISIONS
<TABLE>
<CAPTION>
Pensions and
similar
employment
Property obligations Other Total Joint Venture
--------- ----------- ----- ----- -------------
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
At beginning of year 105.7 29.6 1.6 136.9 -
Translation adjustment 3.9 0.6 (0.1) 4.4 -
Profit and loss account 6.1 3.7 0.9 10.7 -
Utilized (19.2) (1.8) (0.7) (21.7) -
Demerger (56.3) (15.5) (1.2) (73.0) (14.3)
----- ----- ---- ----- -----
At end of year 40.2 16.6 0.5 57.3 (14.3)
==== ==== === ==== =====
</TABLE>
Property provisions relate to future payments on vacant properties and assigned
leases, and are analyzed by year as follows:
1997 1996
---- ----
L million L million
Under one year 6.0 16.7
One to two years 5.0 12.6
Two to five years 9.6 24.6
Over five years 19.6 51.8
40.2 105.7
<PAGE>
Provisions for joint venture deficit:
The Group share of net liabilities of Zenith is as shown below.
1997
----
L million
Fixed assets 1.8
Current assets 49.8
----
Share of gross assets 51.6
----
Liabilities due within one year (64.3)
Liabilities due after one year (1.6)
-----
Share of gross liabilities (65.9)
------
Share of joint venture net liabilities (14.3)
======
The Group share of the results of Zenith post-Demerger are not material.
NOTE 19 - LONG-TERM DEBT
1997 1996
---- ----
L million L million
Loan stock - 6.2
Bank loans 25.2 79.1
Other loans 3.2 3.6
---- ----
28.4 88.9
==== ====
The loan stock was repaid during the year.
An amount of L25.2 million (1996:L79.1 million) of the Group's borrowings is
secured by guarantees from and charges over the assets of the Company and a
number of its subsidiaries.
At December 31, 1997, the Group had committed core banking facilities totalling
L53.6 million (1996:L127.2 million) of which L25.2 million (1996:L79.1 million)
were being utilized. An additional US$21.0 million (L12.7 million) will become
available during 1998 if the Group has reached certain target ratios. These
facilities will be reduced in accordance with the following schedule:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
US$m 5.0 6.0 15.0 20.0 the balance
Lm 3.0 3.6 9.1 12.1 the balance
</TABLE>
Interest is payable on each advance under the facilities at a rate per annum
based on the aggregate of LIBOR and a margin of between 0.75% and 1.5% per annum
depending upon the ability of the Group to improve certain financial ratios.
The facilities agreement contains certain covenants relating to the financial
performance of the Group. As of December 31, 1997 there had been no breaches of
covenants or other defaults under the agreement which have caused or are likely
to cause an early repayment of the debt to be enforced.
In addition, the Group has various uncommitted facilities.
NOTE 20 - GUARANTEES AND CONTINGENT LIABILITIES
L29.8 million (1996: L84.9 million) of the Group's borrowings are secured by
guarantees from and charges over the assets of the Group.
The Company has also guaranteed the operating lease commitments (all relating to
leasehold property) of certain subsidiary undertakings. The leases are for
various periods up to the year 2013 and the total obligations at December 31,
1997 amounted to L163.4 million (1996:L184.2 million) and in addition the
Company has given other guarantees in respect of liabilities of subsidiary
undertakings incurred in the normal course of business amounting to L26.0
million (1996:L0.3 million).
Cordiant gave a number of guarantees in respect of obligations of Saatchi &
Saatchi companies which remain in force. Saatchi & Saatchi has undertaken to
indemnify CCG for any liability under these guarantees. They include:
(a) Guarantees of operating lease commitments related to a leasehold property
in New York. The lease expires in the year 2013 and the total obligations
at December 31, 1997 were L202.5 million (1996: L209.6 million); and
(b) a guarantee of L2.4 million (1996: L5.5 million) relating to deferred
consideration payable for the acquisition of minority interests in a
subsidiary.
Following the Demerger, CCG has agreed to indemnify Saatchi & Saatchi against
liabilities incurred by the Saatchi & Saatchi Group under guarantees of bank
borrowings and other obligations where those liabilities are the responsibility
of CCG.
CCG and Saatchi & Saatchi have each guaranteed Zenith's bank facility of L21.5
million and have agreed between themselves to share equally any liability
arising therefrom. Borrowings drawn down under the Zenith facility at December
31, 1997 were L2.4 million. There is no comparative as Zenith was a subsidiary
of Cordiant and did not have its own bank facility.
Other guarantees given by the Group to third parties amounted to L5.9 million at
December 31, 1997 (1996: L6.3 million).
NOTE 21 - DEFERRED TAXATION
1997 1996
---- ----
L million L million
Provisions for UK deferred taxation - 1.5
Provisions for overseas deferred taxation 0.5 (0.4)
--- ---
0.5 1.1
=== ===
The Group has no material deferred tax liabilities unprovided in respect of
accelerated capital allowances.
Unremitted earnings of subsidiaries which have been or are intended to be
permanently reinvested to meet media accreditation and working capital
requirements, exclusive of amounts which if remitted in the near future would
result in little or no tax by operation of relevant statutes normally in effect,
aggregated L67 million (1996: L117 million).
Under US GAAP temporary differences at the appropriate tax rate at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Assets (Liabilities)
------------------------
1997 1996
---- ----
L million L million
<S> <C> <C>
Deferred Tax Assets
Accrued property rental expense 7.8 43.7
Accrued compensation 5.2 13.1
Capital loss carryforwards 12.1 18.3
Operating loss carryforwards* 48.2 188.9
Interest disallowed under Section 163(j) of the IRC - 28.6
Provision for notes receivable and other long term receivables - 1.8
Other 13.1 20.2
---- ----
Total deferred tax assets 86.4 314.6
Valuation allowance (85.8) (300.5)
---- -----
Net deferred tax asset 0.6 14.1
=== ====
<CAPTION>
Assets (Liabilities)
------------------------
1997 1996
L million L million
<S> <C> <C>
Deferred Tax Liabilities
Accelerated depreciation on tangible assets - (6.9)
Difference in basis of intangible assets (0.4) (3.5)
Other (0.7) (4.8)
----- ------
Total deferred tax liabilities (1.1) (15.2)
----- ------
Net deferred tax liability (0.5) (1.1)
===== =====
</TABLE>
* See Note 9 for a discussion of potential restrictions on operating loss
carryforwards.
There are no material differences between UK GAAP and US GAAP. A valuation
allowance is provided to reduce the deferred tax assets to a level which, based
on the weight of available evidence, will more likely than not be realized. The
net deferred asset reflects management's estimate of the amount which will be
realized based on this criteria.
The net change in the valuation allowance for deferred tax assets during 1997
amounted to a decrease of L214.7 million.
NOTE 22 - TAXATION
This largely represents corporation tax liabilities due to be paid in more than
one year from the date of the financial statements. Tax liabilities due to be
settled in less than one year are included under current liabilities.
NOTE 23 - SHARE CAPITAL
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1996
L million L million
<S> <C> <C>
Authorized share capital of the Company 150.5 269.7
===== =====
Allotted, called up and fully paid:
221,926,993 Ordinary Shares of 50p each
(1996: 443,682,881 Cordiant Ordinary Shares of 25p each) 111.0 110.9
Nil deferred shares of 5p each (1996: 2,384,598,152) - 119.2
----- -----
Called up share capital of the Company 111.0 230.1
===== =====
</TABLE>
The Deferred shares were cancelled as part of the reduction of capital on
November 28, 1997.
During the year Cordiant issued 171,105 Cordiant Ordinary Shares of 25p each
pursuant to receipt of notices to exercise options from employees of Cordiant.
On December 14, 1997, the Cordiant Ordinary Shares of 25p each were consolidated
on a one for two basis into Ordinary Shares of 50p each.
NOTE 24 - EMPLOYEE SHARE SCHEMES
Cordiant had three executive share option schemes and one savings-related share
option scheme prior to the Demerger. Of these schemes only one of the executive
share option schemes, the Performance Option Scheme operated during the year.
The schemes were comprised of the Executive Share Option Scheme (the "Number 1
Scheme") primarily for executives not resident in the United Kingdom; the
Executive Share Option Scheme (the "Number 2 Scheme"), which was approved by the
Inland Revenue under the terms of the Income and Corporation Taxes Act 1988
("ICTA") and was intended only for executives resident in the United Kingdom;
and the Performance Option Scheme, an Inland Revenue approved scheme intended
for executives resident throughout the world.
Options granted to participants in the Number 1 Scheme, the Number 2 Scheme and
the Performance Option Scheme (which includes Super Options) were over Cordiant
Ordinary Shares at a price equivalent to The London Stock Exchange middle market
quotation on the day preceding the date of the grant of the option.
The performance targets for options under the schemes are as follows:
For ordinary options under the Number 1 and Number 2 Scheme, there must have
been an increase in the Group's earnings per share over any three year period
following the grant of at least 2% more than the increase in the Retail Price
Index ("RPI") over the same period. For ordinary options under the Performance
Option Scheme, the increase must be at least 6% above RPI.
Super options under all three schemes cannot be exercised before the fifth
anniversary of the date of grant and then only if the growth in earnings per
share from the date of grant has been such as would place the Company in the top
quartile of the FTSE 100 companies ranked by reference to growth in earnings per
share.
Under the savings-related scheme, eligible employees in the United Kingdom were
invited to save a fixed amount per month for a period of five years and apply
for an option at a predetermined exercise price. The exercise price was fixed at
the date of invitation and may not be less than the higher of a share's nominal
value or 80% of its market value. Market value is the middle market price of a
share on The London Stock Exchange on the dealing day (or the average of such
prices on the three dealing days) before the invitation was made. When the
option is exercised, the accumulated savings and interest/bonus are used to pay
the exercise price.
All the above schemes expired in 1997 or earlier, though options granted under
the schemes are still outstanding. As part of the demerger process, Saatchi &
Saatchi employees holding Cordiant executive or savings-related options were
invited to take replacement executive or parallel savings-related options over
Saatchi Ordinary Shares. Similarly, employees of Zenith and The Facilities Group
have replacement and/or parallel options split 50-50 between Ordinary Shares and
Saatchi Ordinary Shares.
Two new share-based incentive schemes were introduced in connection with the
Demerger, the Equity Participation Plan ("The Plan") and Performance Share
Option Scheme.
In order to participate in The Plan, individuals have to pay a cash sum and the
benefits (if any) depend upon the performance of the Group. Participants will be
eligible to receive shares if Earnings Per Share ("EPS") growth is higher than
the annual increase in the UK Retail Price index plus 2% over a three year
period. If growth is below this hurdle rate participants will lose their
investment. Participants will receive shares based on a scale of EPS growth up
to a maximum of eight times the number of shares that they could have acquired
with their original investment. To achieve the maximum allocation would require
EPS growth of 25% per annum.
One half of shares vesting will normally be received by participants after three
years with the remainder issued one year later. If the Group is taken over
earlier, a proportion of the shares will vest, determined by the timing of the
takeover and the performance of the Group up to the previous year end.
Awards to participants who are Directors of the Company will vest as to one half
on the basis of EPS growth as described above. The other half will be determined
on total shareholder return compared with a group of major publicly quoted
advertising groups. In that case, the maximum number of shares will vest if CCG
is first or second of the comparator group. In December 1997, 59 employees and
Directors were invited to participate in The Plan. Cash payments are required
amounting in total to L1,589,000 which, if maximum performance targets were to
be met, would give rise to an issue of 12,104,000 shares.
The Performance Share Option Scheme has broadly similar aims to The Plan but
with lower potential benefits and risks. Options granted under the Performance
Share Option Scheme have an exercise price equal to market price at the time of
grant. Participants have been invited to join the Performance Share Option
Scheme for which they have to agree to a salary or bonus sacrifice of up to
L50,000 over the next three years. The sum payable will be one eleventh of the
exercise price of the options. This sacrifice will not be offset against the
exercise price payable.
Participants will be eligible to exercise their options dependent on the
performance of the Group over a three year period. If EPS growth is higher than
the UK Retail Price Index plus 2% participants may exercise a proportion of the
options based on a scale of EPS growth. Full exercise would require EPS growth
of 25% per annum.
One half of the eligible options may normally be exercisable after three years
with the remainder one year later. If the Group is taken over earlier, a
proportion of the options will become exercisable, determined by the timing of
the takeover and the performance of the Group up to the previous year end.
In December 1997, 73 employees were invited to participate in the Performance
Share Option Scheme. Options over 6,837,000 shares have been granted subject to
salary or bonus sacrifices amounting to L653,000.
The Company also approved an incentive scheme for senior executives of its joint
venture, Zenith. To participate, executives have to invest in the scheme by cash
payment or salary or bonus sacrifice. The scheme is set up on the basis that a
fixed monetary amount of benefit is determined which will be delivered by a
combination of options over shares and, if necessary, cash. A participant's
actual entitlement will be determined by measuring the growth in Zenith's
operating profit over a three year period. In December 1997, invitations were
made to participate in the scheme which, if accepted, would give rise to
1,079,000 options over Ordinary Shares being granted at a price of 109p.
<PAGE>
Changes in the number of Cordiant Ordinary Shares issuable under options
outstanding under the Company's executive share option schemes during the three
year period ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Year ended
Cordiant Ordinary Shares: December 31,
---------------------------------------------------------------
1997 1996 1995
(Number of Shares)
<S> <C> <C> <C>
At beginning of year 12,589,854 10,190,722 6,218,205
Rights issue adjustment - - 1,776,541
Options issued during year 26,037,467 3,645,000 3,115,893
Options exercised during year (159,692) (13,722) -
Options lapsed during year (1,064,485) (1,232,146) (919,917)
Options cancelled during year (9,357,905) - -
----------- ---------- ----------
At end of year 28,045,239* 12,589,854 10,190,722
========== ========== ==========
<FN>
* At end of 1997 total reflects Ordinary Shares.
</FN>
</TABLE>
Changes in the number of Cordiant Ordinary Shares issuable under options
outstanding under Sharesave 1995 during the three year period ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Year ended
Cordiant Ordinary Shares: December 31,
---------------------------------------------------------------
1997 1996 1995
(Number of Shares)
<S> <C> <C> <C>
At beginning of year 1,963,435 2,205,916 1,887
Rights issue adjustment - 539
Options issued during year 196,117** - 2,330,962
Options exercised during year (13,211) (9,093) -
Options lapsed during year (325,562) (233,388) (127,472)
--------- --------- ---------
At end of year 1,624,662* 1,963,435 2,205,916
========= ========= =========
<FN>
* At end of 1997 total reflects Ordinary Shares.
** These are parallel options issued in connection with the Demerger and are not
reflected in the total options outstanding at the year end, as they will be
exercisable in lieu of, and not in addition to, the original options.
</FN>
</TABLE>
<PAGE>
Options outstanding at December 31, 1997 under the Company's Share Option
Schemes are shown below:
<TABLE>
<CAPTION>
DATE OF NUMBER OF EXERCISE
SCHEME GRANT SHARES PRICE EXERCISABLE
<S> <C> <C> <C> <C>
Number 1 Scheme Jun 1991 879,903 134p Jun 1998
Sep 1991 19,209 134p Sep 1998
Apr 1992 513,323* 107p Apr 1999
- --------------------------------------------------------------------------------------------------------------
Replacement 1 Scheme Jun 1991 30,186 134p Jun 1998
Apr 1992 40,134* 107p Apr 1999
- --------------------------------------------------------------------------------------------------------------
Number 2 Scheme Jul 1988 1,997 2250p Jul 1998
Jun 1991 486,132 134p Jun 2001
Sep 1991 107,022 134p Sep 2001
Apr 1992 34,301 107p Apr 2002
Apr 1992 417,838* 107p Apr 2002
- --------------------------------------------------------------------------------------------------------------
Replacement 2 Scheme Jun 1991 378,235 134p Jun 2001
Apr 1992 78,895 107p Apr 2002
Apr 1992 21,610* 107p Apr 2002
- --------------------------------------------------------------------------------------------------------------
Sharesave Jun 1995 1,624,662 64p Jul 2000 to Dec 2000
- --------------------------------------------------------------------------------------------------------------
Performance Option Scheme May 1995 612,618 73p May 1998 to May 2005
Aug 1995 612,616 95p Aug 1998 to Aug 2005
Apr 1996 542,500 130p Apr 1999 to Apr 2006
Apr 1996 630,000* 130p Apr 2001 to Apr 2003
Apr 1997 762,500 131p Apr 2000 to Apr 2007
Apr 1997 762,500* 131p Apr 2002 to Apr 2004
- --------------------------------------------------------------------------------------------------------------
Replacement Performance Scheme May 1995 99,316 73p May 1998 to May 2004
May 1995 109,926* 73p May 2000 to Dec 2004
Aug 1995 99,318 95p Aug 1998 to Dec 2004
Apr 1996 122,500 130p Apr 1999 to Dec 2004
Apr 1996 272,500* 130p Apr 2001 to Dec 2004
Apr 1997 195,000 131p Apr 2000 to Dec 2004
Apr 1997 195,000* 131p Apr 2002 to Dec 2004
- --------------------------------------------------------------------------------------------------------------
Performance Share Option Scheme(1) Dec 1997 6,837,444 105p Dec 2000 to Dec 2004
- --------------------------------------------------------------------------------------------------------------
Equity Participation Plan(2) Dec 1997 12,103,909 105p Dec 2000 to Dec 2004
- --------------------------------------------------------------------------------------------------------------
Zenith Executive Incentive Plan(3) Dec 1997 1,078,807 109p Dec 2000 to Dec 2004
<FN>
The options marked * are super options.
Exercise prices have been rounded to the nearest pence.
(1) Grantees of Performance Share Options had a maximum of 150 days from
invitation to participate in the options to agree to a salary/bonus
sacrifice.
(2) Grantees of awards under the Equity Participation Plan had a maximum of 150
days from invitation in which to make payment to the Trustee.
(3) Grantees under the Zenith plan had a maximum of 120 days to make payment or
agree to a salary or bonus sacrifice.
</FN>
</TABLE>
NOTE 25 - POST RETIREMENT BENEFITS
In the United Kingdom, CCG operates one defined benefit scheme and a defined
contribution plan. The defined benefit scheme, The Cordiant Group Pension Scheme
("The Scheme"), was closed to new members in 1990 with new employees after that
date joining a defined contribution plan. Employees of Saatchi & Saatchi and
Zenith remain members of The Scheme under transitional arrangements. In the
United States, Cordiant operated one defined benefit plan and a number of
defined contribution plans. The US defined benefit plan was frozen at June 30,
1996 and terminated on December 31, 1996. A number of plans of various types are
operated in other countries, but none of these is material in size.
The majority of schemes are externally funded and the investments are held by
independent investment managers on behalf of the trustees. None of the schemes
holds investments in, or has made loans to, the Company or any of its
subsidiaries. The assets of the plans are held in various diverse investment
portfolios including equities and government and corporate bonds.
The major schemes, which cover the majority of scheme members, are defined
contribution schemes. The basis for determining contributions is a percentage of
salary.
The benefits accruing under the defined benefit plans are based primarily on
years of service and employees' compensation near retirement. The funding policy
for the plans is consistent with local requirements in the countries of
establishment. Obligations under the defined benefit plans are systematically
provided for by depositing funds with trustees or separate foundations, under
insurance policies, or by financial statement accruals.
CCG offers no post retirement benefits, other than pensions, to current
employees. Post retirement benefits for retired employees, under a scheme which
is no longer in operation, are not significant.
The total pension expense for both ongoing and disposed operations for all plans
(charged in arriving at operating income) was L12.4 million, L21.9* million and
L16.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Of these amounts, L1.4 million, L10.6 million* and L3.7 million
were attributable to defined benefit schemes in the years ended December 31,
1997, 1996 and 1995, respectively.
*Included an exceptional termination provision of L8.3 million.
<PAGE>
The net pension cost in respect of defined benefit plans in the United States,
computed in accordance with FAS 87, and the United Kingdom, computed in
accordance with SSAP 24, is composed of the following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1997* 1996 1995
L million L million L million
<S> <C> <C> <C>
Service cost - benefits earned during the period 0.7 1.5 2.6
Interest cost on projected benefit obligations 2.1 4.0 4.2
Less: Actual return on plan
assets (net of deferred losses) (4.1) (4.6) (6.7)
Net amortization and deferral 1.7 (0.2) 2.6
--- --- ---
Net pension cost 0.4 0.7 2.7
Additional income due to termination of plan - (1.5) -
--- --- ---
Net expense (income) 0.4 (0.8) 2.7
=== === ===
</TABLE>
There are no material differences between UK GAAP and US GAAP.
At December 31, 1997 and 1996, the funded status of these defined benefit
pension plans was as follows:
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
-----------------------------------
1997* 1996
L million L million
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations 25.4 43.8
---- ----
Accumulated benefit obligation 25.4 45.1
Effect of assumed increase in
compensation levels 4.2 3.8
---- ----
Projected benefit obligations 29.6 48.9
Plan assets at fair value 31.7 51.9
---- ----
Excess of plan assets
over projected benefit obligations 2.1 3.0
Unrecognized net loss 0.4 5.2
Unrecognized net transition (asset) (0.4) (0.9)
Prepaid pensions 2.1 7.3
=== ===
<FN>
* The 1997 costs and estimated funded status represent The Scheme only as the US
defined benefit plan was terminated on December 31, 1996.
</FN>
</TABLE>
The above tables are in accordance with FAS 87.
<PAGE>
Assumptions for these plans under FAS 87 were as follows:
UK Schemes US Schemes
------------- ------------
1997 1996 1997 1996
Return on investments 9.0% 9.0% N/A 6.0%
Salary increases 5.0% 6.0% N/A 5.5%
Discount rates 7.0% 8.0% N/A 8.0%
NOTE 26 - LEASES
The Group leases certain properties and equipment under operating leases.
Minimum payments for operating leases, before provisions for vacant property
(see Note 18), having initial or remaining non-cancellable terms in excess of
one year are as follows:
<TABLE>
<CAPTION>
Years Ending Sublease
December 31 Minimum Rental Net
Payments Income Payments
L million L million L million
<S> <C> <C> <C>
1998 27.5 8.1 19.4
1999 25.4 8.0 17.4
2000 22.7 8.2 14.5
2001 19.6 9.1 10.5
2002 18.2 9.0 9.2
Thereafter 120.0 104.2 15.8
----- ----- ----
Total minimum lease payments 233.4 146.6 86.8
===== ===== ====
</TABLE>
Total expense for all operating leases was:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------------------------
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Total operating lease expense 65.2 65.7 69.6
Sublease rental income (14.6) (14.3) (14.0)
---- ---- ----
Net operating lease expense 50.6 51.4 55.6
==== ==== ====
</TABLE>
<PAGE>
NOTE 27 - CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Reconciliation of Trading Profit to Net
Cash Flow from Operating Activities
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------------------------
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Trading profit 55.6 31.5 28.3
Depreciation 26.2 25.8 25.7
(Profit) loss on sale of tangible fixed assets (0.8) 0.2 (1.5)
(Increase) decrease in billable production (5.5) 3.5 (9.4)
(Increase) decrease in receivables (35.3) 0.2 (54.8)
Increase in creditors 38.5 12.6 38.6
Utilization of property and reorganization
provisions (19.2) (16.9) (10.3)
Exceptional non-cash item - goodwill write-off 2.2 - -
---- ---- ----
Net cash inflow from operating
activities 61.7 56.9 16.6
==== ==== ====
</TABLE>
<PAGE>
Analysis of changes in net debt
<TABLE>
<CAPTION>
Exchange &
At Jan 1 non cash At Dec 31
1997 Cash flows Demerger movements 1997
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand 113.7 (41.6) - (10.4) 61.7
Bank overdrafts (47.8) 40.7 - (0.6) (7.7)
---- ---- -- ---- ----
Cash 65.9 (0.9) - (11.0) 54.0
---- ---- -- ---- ----
External debt due within 1 year (5.0) 3.2 0.6 0.5 (0.7)
External debt due after 1 year (88.9) (20.5) 83.8 (2.8) (28.4)
Finance leases (0.5) 0.3 0.2 (0.2) (0.2)
---- ---- -- ---- ----
Financing (94.4) (17.0) 84.6 (2.5) (29.3)
---- ---- ---- ---- ----
Net (debt) funds (28.5) (17.9) 84.6 (13.5) 24.7
==== ==== ==== ==== ====
</TABLE>
On December 14, 1997, the net assets of Saatchi & Saatchi and Zenith were
demerged. On demerger, they had net debt of L41.2 million. Net cash amounting to
L43.4 million is shown as an outflow in the cash flow statement, external debt
of L84.6 million is included in the analysis of movement in net debt above.
<TABLE>
<CAPTION>
At Jan. 1, 1996 Cash flows Exchange At Dec. 31, 1996
L million L million L million L million
<S> <C> <C> <C> <C>
Cash at bank and in hand 134.5 (9.4) (11.4) 113.7
Overdrafts (48.2) (2.8) 3.2 (47.8)
---- ---- --- ----
Cash 86.3 (12.2) (8.2) 65.9
---- ---- --- ----
External debt due within 1 year (0.8) (4.8) 0.6 (5.0)
External debt due after 1 year (113.7) 15.8 9.0 (88.9)
Finance leases (0.5) 0.1 (0.1) (0.5)
---- ---- --- ----
Financing (115.0) 11.1 9.5 (94.4)
----- ---- --- ----
Net debt (28.7) (1.1) 1.3 (28.5)
---- ---- --- ----
</TABLE>
<TABLE>
<CAPTION>
At Jan 1, 1995 Cash flows Exchange At Dec 31, 1995
L million L million L million L million
<S> <C> <C> <C> <C>
Cash at bank and in hand 137.2 (6.6) 3.9 134.5
Overdrafts (40.2) (7.6) (0.4) (48.2)
---- ---- --- ----
Cash 97.0 (14.2) 3.5 86.3
External debt due within 1 year (10.5) 9.7 - (0.8)
External debt due after 1 year (232.3) 118.6 - (113.7)
Finance leases (1.0) 0.5 - (0.5)
----- ----- -- -----
Financing (243.8) 128.8 - (115.0)
----- ----- --- -----
Net debt (146.8) 114.6 3.5 (28.7)
===== ===== === ====
</TABLE>
<PAGE>
The effects of the acquisitions and disposals of subsidiaries and the Demerger
in 1997
Acquisitions Disposals
L million L million
Goodwill 3.9 -
Tangible fixed assets 0.5 (0.6)
Work in progress 0.1 -
Debtors (0.3) (7.3)
Investments (current) - (0.1)
Sale proceeds:
- cash (net) - 40.5
- investments (current) - (12.5)
--- ----
4.2 20.0
=== ====
Acquisitions Disposals
L million L million
Loans and finance leases 0.3 -
Creditors 3.2 (1.0)
Cost of acquisitions and
deferred payments
- cash (net) 8.7 -
- minorities (0.3) 0.2
- accruals (net) (7.7) -
Net profit on disposals - 20.8
--- ----
4.2 20.0
=== ====
There were no material acquisitions during the year and payments were mainly in
respect of costs accrued in previous years. The goodwill arising on acquisitions
includes L2.2 million written off in the year.
The Demerger dividend of L134.6 million represented the net liabilities of
Saatchi & Saatchi plc at the time of the Demerger. Proceeds of disposals include
L17.1 million in respect of the sale of current asset investments of L12.5
million which represents realization of shares received as consideration for a
prior year disposal.
Demerger
Saatchi
& Saatchi Zenith
L million L million
Tangible fixed assets 84.4 3.4
Fixed asset investments 4.0 0.1
Work in progress 20.0 -
Debtors 263.4 90.6
Current investments 0.2 -
Cash 57.5 9.1
----- -----
429.5 103.2
===== =====
Saatchi
& Saatchi Zenith
L million L million
Loans 82.0 2.4
Overdrafts 20.8 2.6
Other creditors and provisions 444.8 126.8
Minority interests 2.2 -
----- -----
549.8 131.8
Transfer to Saatchi & Saatchi 14.3 (14.3)
Demerger dividend (134.6) -
Provision for deficit - (14.3)
----- -----
429.5 103.2
===== =====
<PAGE>
NOTE 28 - OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
United North Rest of Asia
Kingdom America Europe Pacific Total
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Commission and fee income 115.4 268.7 203.3 148.7 736.1
Trading profit 14.0 29.2 12.1 2.5 57.8
Exceptional operating expense - - - 2.2 2.2
Operating profit 14.0 29.2 12.1 0.3 55.6
Total assets employed 41.2 83.2 92.4 161.0 377.8
Net liabilities (assets) before financial 73.1 20.1 (1.4) 12.5 104.3
items
Depreciation expense 6.0 11.0 4.8 4.4 26.2
Additions to properties, furniture, etc. 4.4 8.3 4.5 7.5 24.7
Year ended December 31, 1996:
Commission and fee income 113.4 269.1 218.1 154.3 754.9
Trading profit 12.4 17.0 14.2 4.4 48.0
Exceptional operating expense - 16.5 - - 16.5
Operating profit 12.4 0.5 14.2 4.4 31.5
Total assets employed 135.4 316.2 213.6 247.2 912.4
Net liabilities before financial items 72.6 82.7 22.6 0.8 178.7
Depreciation expense 6.3 9.8 5.3 4.4 25.8
Additions to properties, furniture, etc. 6.3 6.7 4.8 6.2 24.0
Year ended December 31, 1995:
Commission and fee income 111.7 278.8 232.2 138.4 761.1
Trading profit 12.4 14.2 17.5 4.5 48.6
Exceptional operating expense 2.4 12.6 3.1 2.2 20.3
Operating profit 10.0 1.6 14.4 2.3 28.3
Total assets employed 159.6 334.9 268.7 229.7 992.9
Net liabilities before financial items 83.7 64.3 12.4 17.8 178.2
Depreciation expense 6.2 9.8 5.5 4.2 25.7
Additions to properties, furniture, etc. 5.9 8.7 5.6 5.8 26.0
</TABLE>
<PAGE>
ONGOING GEOGRAPHIC ANALYSIS
To enable a fuller understanding of the trading performance additional
geographic analysis of ongoing operations is provided below:
<TABLE>
<CAPTION>
United North Rest of Asia
Kingdom America Europe Pacific Total
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Commission and fee income 39.0 67.7 105.0 96.5 308.2
Trading profit 6.5 6.3 8.3 3.5 24.6
Exceptional operating expense - - - 2.2 2.2
Operating profit 6.5 6.3 8.3 1.3 22.4
Depreciation expense 1.8 2.8 2.4 2.6 9.6
</TABLE>
<TABLE>
<CAPTION>
United North Rest of Asia
Kingdom America Europe Pacific Total
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Commission and fee income 38.0 77.8 120.7 93.0 329.5
Trading profit 3.8 4.0 9.1 4.7 21.6
Exceptional operating expense - 0.2 - - 0.2
Operating profit 3.8 3.8 9.1 4.7 21.4
Depreciation expense 1.9 2.8 2.6 2.4 9.7
</TABLE>
<TABLE>
<CAPTION>
United North Rest of Asia
Kingdom America Europe Pacific Total
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Commission and fee income 39.3 78.9 120.6 81.8 320.6
Trading profit 5.1 4.9 6.6 5.2 21.8
Exceptional operating expense 1.0 10.6 1.4 1.1 14.1
Operating profit (loss) 4.1 (5.7) 5.2 4.1 7.7
Depreciation expense 1.7 3.0 3.0 2.5 10.2
</TABLE>
The geographic analysis of revenue, trading profit and net liabilities has been
prepared on a basis that more closely reflects the management of the operations
of the Group.
The Directors consider that there is only one continuing business activity,
namely advertising and marketing services, and that it is more appropriate to
show a geographic analysis of revenue than turnover. Revenue by geographic
destination is not materially different from revenue by geographic origin.
The Group's customers are located throughout the world. During 1997, 1996 and
1995 no clients accounted for more than 10% of either Cordiant's revenue or
CCG's ongoing revenue.
<PAGE>
NOTE 29 - DIRECTORS' EMOLUMENTS
The total emoluments, pension costs and fees for the year ending December 31,
1997 were L3,918,318 (1996: L3,595,159) of which L150,800 were fees (1996:
L126,700).
The emoluments, excluding pension contributions, of the Chairman and highest
paid UK Director, were:
Year Ended December 31, 1997
Charles Scott (Chairman and highest paid UK Director) L864,115
Year ended December 31, 1996
Charles Scott (Chairman and highest paid UK Director): L492,529
NOTE 30 - DIRECTORS' INTERESTS
The interests of the Directors who were in office at the year end in the
Company's share capital appearing in the register maintained by the Company
pursuant to Section 325 of the Companies Act of 1985 were as set out below.
<TABLE>
<CAPTION>
Beneficially owned Ordinary Share options
Ordinary Shares and equity participation rights
--------------------------- -------------------------------
December 31, December 31,
--------------------------- -------------------------------
1997 1996(1) 1997 1996
<S> <C> <C> <C> <C>
Michael Bungey 55,990 28,490 1,537,130 497,020
Arthur D'Angelo 960 960* 922,082 328,681*
Jean de Yturbe nil nil* 854,397 260,996*
Alex Hamill nil nil* 990,744 397,343*
Peter Schoning nil nil* 725,827 132,426*
Bill Whitehead 787 788* 848,757 255,356*
Charles Scott 39,214** 39,215** 787,583** 1,219,489**
Dudley Fishburn nil nil nil nil
Theodore Levitt 18,796 18,796 nil nil
<FN>
* On appointment
** Includes spouse's interest.
(1) Adjusted for the one-for-two share consolidation.
</FN>
</TABLE>
The Directors' interests in the Company's share capital have not changed from
December 31, 1997 to June 1, 1998.
<PAGE>
NOTE 31 - RELATED PARTIES
During 1997 and 1996 transactions in the ordinary course of business with
associated companies were as follows:
1997 1996
Lm Lm
Media services 30.1 32.0
Production 7.8 5.0
37.9 37.0
The year end balances with associated companies are disclosed in Notes 12 and
17.
Contracts of significance which were entered into by the Group during the
financial year in which the directors of a subsidiary company had a material
interest, details of which are given in Note 2, were as follows:
In March 1997, Cordiant made a deferred payment of L0.4 million relating to the
acquisition in 1996 of the minority interest in BSB Saatchi & Saatchi MC Limited
in Poland.
In July 1997, Cordiant acquired a 51% interest in the share capital of Grapple
Group 141 (Pty) Ltd for consideration of R1.8 million (L0.2 million).
In November 1997, Cordiant acquired a further 25% minority interest in the share
capital of X/M Harrow Pty Ltd in Australia. Estimated cash payments of A$0.6
million (L0.3 million) will be made in 2000.
In December 1997, Cordiant acquired a further 33% interest in Scholz & Friends
Dresden GmbH, in Germany. Deferred consideration of L2.2 million is payable in
2000.
During 1997 Cordiant made deferred payments totalling FFR31.3 million (L2.9
million) relating to the acquisition in 1996 of the minority interest in Saatchi
& Saatchi Advertising SA in France.
During 1997 Cordiant made deferred payments totalling Pts1,206 million (L5.0
million) relating to the acquisition in 1994 of the minority interest in Grupo
Bates SA in Spain.
In October 1997, Cordiant sold NRG. NRG provided services to the film industry.
Consideration of L24.4 million was received which was after deducting a fee of
L8.0 million payable to certain of NRG's directors under the terms of an
agreement entered into in 1995.
Transitional arrangements have been agreed for the provision by each of CCG and
Saatchi & Saatchi to the other of certain services.
With effect from January 1, 1996, Cordiant acquired the 47.4% minority interest
in the share capital of Saatchi & Saatchi Advertising SA in France held by the
management.
In February 1996, Cordiant issued 327,960 Ordinary Shares at a price of L1.09
per share as further consideration to the vendors of Adaptus International A/S,
a Norwegian subsidiary.
In May 1996, Cordiant issued 64,522 Ordinary Shares at a price of L1.344 per
share as further consideration to the vendors of Campaign Palace, Sydney.
In May 1996, Cordiant acquired a further 10.7% minority interest in the share
capital of Scholz & Friends GmbH in Germany.
In October 1996, Cordiant acquired the 49% minority interest in the share
capital of BSB Saatchi & Saatchi MC Limited in Poland.
During 1996 Cordiant made deferred payments totalling L1.3 million relating to
the acquisition in 1994 of the minority interest in Grupo Bates SA Spain.
NOTE 32 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Short-Term Investments - Short-term investments comprise Lnil million (1996:
L12.1 million) of listed investments which had a market value at December 31,
1997 of Lnil million (1996: L12.3 million).
Long-Term Investments - Long-term investments included Lnil million (1996: L0.3
million) of listed investments which had a market value of Lnil million (1996:
L0.3 million). Long-term investments also included unlisted loan notes and
redeemable preference shares with a face value of approximately L2.4 million
(1996: L8.2 million) issued by the purchasers of companies disposed of by
Cordiant which are due on various dates. The Group has made full provision for
these financial instruments.
Net borrowings (excluding foreign exchange contracts) - The book value of cash,
short term deposits and short term borrowings approximate to their fair values
because of the short term maturity of these instruments. The fair value of long
term borrowings approximates to their carrying value at December 31, 1997 with
the exception of Convertible Unsecured Loan Stock 2015 which had a par value of
Lnil million at December 31, 1997 (1996: L6.2 million) and a market value of
Lnil million at December 31, 1997 (1996: L3.9 million).
Foreign exchange forward contracts - Foreign exchange forward contracts are used
to hedge existing and identified future foreign currency commitments. At
December 31, 1997 the Group had L18.3 million (1996: L27.9 million) of forward
contracts outstanding, the fair value of which was not materially different from
the contracted amount. Financial instruments are only used to hedge underlying
commercial exposures. Realized or unrealized gains and losses on forward
contracts, which hedge firm third party commitments, are recognized in income in
the same period as the underlying transaction. The Group does not speculate in
derivative financial instruments.
The counterparties to the Group's financial instruments are major international
financial institutions. It is Group practice to monitor the financial standing
of these counterparties on an on-going basis. The Group does not anticipate any
material adverse effect on its financial position resulting from its involvement
in the agreements, nor does it anticipate non-performance by any of its
counterparties.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 33 - PRINCIPAL SUBSIDIARIES
Except where otherwise indicated, the Company indirectly owned 100% of each
class of the issued shares of the subsidiary undertakings listed below. All
these subsidiary undertakings are advertising and marketing services companies.
The country of operation and registration of the principal subsidiary
undertakings were as follows:
England Bates Dorland Ltd.
The Facilities Group Ltd.
(30% Ordinary)
Zenith Media Holdings Ltd.
(50% Ordinary)
Australia The Communications Group Pty. Ltd.
(75.1% Ordinary)
Denmark Bates Gruppen AS
Germany Scholz & Friends GmbH
(90% Ordinary)
Norway Bates Gruppen AS
Spain Grupo Bates SA
US Bates Advertising USA, Inc.
In the opinion of the Company, these undertakings principally affect the results
and assets of the Group. In addition to the companies shown above, the Group
also holds investments in other subsidiaries and associated undertakings. A full
list of subsidiaries, joint ventures and associated undertakings will be filed
with the Registrar of Companies.
The results of the Group were principally affected by the above companies
together with the Saatchi & Saatchi Group which was demerged from the Group on
December 14, 1997.
As provided for in the Zenith shareholders' agreement 75% of the distributable
profits of Zenith will be distributed to shareholders and divided between them
in part by reference to the proportions in which Zenith receives revenue from
clients of each shareholder. The remainder will be retained in Zenith.
NOTE 34 - SUBSEQUENT EVENTS
On June 18, 1998, Miller Brewing Company ("Miller"), a former client of Bates
Worldwide, commenced an action in the United States District Court for the
Eastern District of Wisconsin against Bates Advertising USA, Inc. and Zenith
Media Services, Inc. (the "Defendants"). The suit seeks damages in an
unspecified amount, attorneys' costs and seeks equitable relief, as necessary,
to cause the Defendants to fulfill their alleged obligations to Miller. The
Company believes that the Defendants have meritorious defenses to the
allegations and intends to pursue them vigorously. At this stage it is
impossible to estimate the ultimate outcome of this litigation.
NOTE 35 - NATURE OF BUSINESS
The Group is a multi-national advertising and marketing services business.
Ninety-eight percent of the Group's ongoing revenue is generated by its two
advertising networks. An analysis of revenue and assets by geographic region is
set out in Note 28 to the consolidated financial statements.
NOTE 36 - COMPANIES ACT 1985
The Consolidated Financial Statements do not constitute "statutory accounts"
within the meaning of the Companies Act 1985 of England and Wales for any of the
three years ended December 31, 1997. Statutory accounts for 1995 and 1996 have
been filed with the United Kingdom's Registrar of Companies; the statutory
accounts for 1997 will be filed following the Company's Annual General Meeting.
The auditor has reported on these accounts. Their reports were unqualified and
did not contain statements under Section 237(2) or (3) of that Act.
NOTE 37 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with UK
generally accepted accounting principles (UK GAAP) which differ in certain
significant respects from US generally accepted accounting principles (US GAAP).
A description of the significant differences between UK GAAP and US GAAP that
are applicable to the Group is set out below:
(A) DIVIDENDS
Under UK GAAP, ordinary dividends proposed are provided for in the year in
respect of which they are recommended by the Board of Directors for approval by
the shareholders. Under US GAAP, such dividends are not provided for until
declared by the Board of Directors.
(B) GOODWILL AND US PURCHASE ACCOUNTING
Under US GAAP, goodwill and identifiable intangible assets acquired are
capitalized and amortized against income; intangible assets being amortized over
their economic lives which range from three to 20 years and the remaining
goodwill are amortized over 40 years. For US GAAP purposes, management review on
an annual basis the carrying value of goodwill and identifiable intangibles for
impairment by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Under UK
GAAP, purchased goodwill arising after ascribing fair values to all tangible
assets and liabilities acquired is written off against reserves.
On disposal of a subsidiary, under UK GAAP the gain or loss on disposal is
calculated after taking account of goodwill previously written off to reserves.
Under US GAAP the gain or loss on disposal is calculated after taking account of
any related unamortized goodwill and intangible assets. A GAAP difference arises
from amortization charged under US GAAP for which no equivalent charge has been
recognized under UK GAAP. For the year ended December 31, 1998, the Group will
be required under UK GAAP to capitalize and amortize additional purchased
goodwill.
(C) PROPERTY LEASES
Under US GAAP, total rental payments, inclusive of increases in rental charges
specified in the lease, are recognized on a straight line basis over the term of
the lease. These increases are recognized when payable under UK GAAP.
(D) LONG-TERM PROPERTY PROVISIONS
Under US GAAP, provisions for properties which are vacant and surplus to
requirements or let at a loss are provided on a discounted basis after allowing
for estimated subrental income, and amortization of the discount is charged to
interest expense.
Under UK GAAP, provision is made on an undiscounted basis for the future rent
expense and related cost of leasehold property (net of estimated sublease
income) where the property is vacant or currently not planned to be used for
ongoing operations.
(E) PENSION
The Statement of Financial Accounting Standards ("SFAS") No. 88, Employers'
Accounting for Settlements and Curtailment of Defined Benefit Plans and for
Termination Benefits specifies the accounting treatment under US GAAP for
circumstances in which there has been an irrevocable transaction that relieves
the employer of primary responsibility for a pension benefit obligation and
eliminates significant risks related to the obligation and the assets used to
effect the settlement. As a result of the curtailment and termination of the US
scheme during 1996, the related termination liability was accrued in full under
UK GAAP and the additional US GAAP accrual was reversed. Additionally, under US
GAAP, CCG has previously recognized an additional minimum pension liability for
the US underfunded plan, representing the excess of accumulated benefit
obligations over the plan's assets. As a result of the curtailment and
termination of the plan during 1996, Cordiant recorded the full termination
liability under UK GAAP and the additional US GAAP accrual was reversed.
(F) DEFERRED TAXATION
UK GAAP requires that no provision for deferred taxation should be recorded if
there is reasonable evidence that such taxation will not be payable in the
foreseeable future. US GAAP requires full provision of deferred taxation
liabilities and permits deferred tax assets to be recognized if their
realization is considered to be more likely than not. There are no deferred
taxation differences presented in the reconciliation below because CCG has net
deferred tax assets and considers that it is more likely than not that they will
not be recovered.
(G) COMPENSATION COSTS
Under UK GAAP the Company does not recognize any compensation for performance
based share options. Under US GAAP compensation expense is recorded over the
vesting period for the excess of the market price of underlying shares over the
exercise price.
(H) EMPLOYEE SHARE SCHEMES
The Company has adopted SFAS 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for share option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS 123 had been applied. The
Directors have elected to continue to apply the provisions of APB Opinion No. 25
and provide pro forma disclosure provisions of SFAS 123. Accordingly,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. Under SFAS 123 the
calculation of the option value is made using an acceptable pricing model to
include certain expected parameters. If the compensation cost of the options had
been determined based on the fair value at the grant dates for 1997 and 1996
consistent with the method prescribed by SFAS No. 123, Cordiant's US GAAP net
profit/(loss) and earnings/(loss) per share would have been adjusted to the
revised amounts indicated below:
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net profit in Lmillion - as reported L8.4 L6.9 L(46.8)
- revised L7.9 L6.5 L(47.0)
EARNINGS PER SHARE WHICH REFLECT CONSOLIDATION
Earnings per share in pence - as reported 3.8p 3.1p (32.0)p
- as revised 3.5p 2.9p (32.0)p
</TABLE>
The pro forma diluted earnings per share is the same as the revised earnings per
share figure presented above. The revised amounts were determined based on
employee share scheme awards in 1997, 1996 and 1995 only. Compensation cost is
recognized over the expected life of the option (i.e. between 3 1/2 and 6 1/2
years). The revised amounts for compensation cost may not be indicative of the
effects on net earnings and earnings per share for future years. Under SFAS No.
123, the weighted average fair value of each option grant is estimated to be
33.3p and 57.1p for options granted during the year ended December 31, 1997 and
year ended December 31, 1996, respectively. The fair values have been estimated
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997 and 1996 respectively; dividend yield of nil
and nil per cent, expected volatility of 22% throughout, risk-free interest
rates of 7.2% and 8.2% and expected lives of between 3 1/2 and 6 1/2 years.
(I) CASH FLOWS
The Consolidated Statement of Cash Flows is prepared in accordance with
Financial Reporting Standard No. 1 (revised) `Cash Flow Statements' ("FRS 1").
Its objectives and principles are similar to those set out in SFAS 95. The
principal difference between the standards relates to classification. Under FRS
1, the Group presents its cash flows for: (a) operating activities; (b)
exceptional non-operating items; (c) returns on investments and servicing of
finance; (d) taxation: (e) capital expenditure and financial investment; (f)
acquisition and disposals; (g) equity dividend paid; and (h) financing. SFAS 95
requires only three categories of cash flow activity: (a) operating; (b)
investing; and (c) financing. Cash flows from exceptional non-operating items,
returns on investments and servicing of finance, and taxation shown under FRS 1
would be included as operating activities under SFAS 95. The payment of
dividends would be included as a financing activity under SFAS 95. Changes in
bank overdrafts are included within cash equivalents under FRS 1 and would be
considered a financing activity under SFAS 95. Had bank overdrafts been shown as
a financing activity in the Consolidated Statement of Cash Flows the overdrafts
repaid (drawn) would have been L40.7 million, L(2.8) million and L(7.6) million
in the years ended December 31, 1997, 1996 and 1995 respectively. The repayment
of L40.7 million in 1997 includes overdrafts of L23.4 million that were
demerged.
(J) PROSPECTIVE ACCOUNTING CHANGES
(i) SFAS 130, Reporting Comprehensive Income, was issued in June 1997 and is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required.
This statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. It requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. The Company is currently reviewing the likely impact on the
classification of items included in shareholders' deficiency.
(ii) SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997 and is effective for fiscal years beginning
after December 15, 1997. In the initial year of application comparative
information for earlier years is to be restated.
This statement requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and measuring
their performance. It also requires entity-wide disclosures about the products
and services an entity provides, the material countries in which it holds assets
and reports revenues and its major customers. The Company is currently reviewing
the likely impact on the level of disclosure currently provided in its combined
financial statements.
<PAGE>
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------------------------
EFFECTS ON NET EARNINGS OF DIFFERENCES BETWEEN US AND UK GAAP 1997 1996 1995
Lm Lm Lm
------------ ------------ -----------
<S> <C> <C> <C> <C>
Profit for the year in conformity with UK GAAP 15.1 24.2 (37.3)
US GAAP ADJUSTMENTS:
Amortization of goodwill and other intangibles (b) (9.5) (9.5) (9.2)
Release of accumulated goodwill amortization of companies
disposed (b) - - 6.2
Straight lining of property leases (c) (1.0) (2.4) (2.4)
Decrease in long-term property provisions (d) 11.0 0.3 2.7
Amortization of discount on property provisions (d) (6.9) (7.5) (7.0)
Pension (e) - 1.8 0.2
Compensation costs (g) (0.3) - -
--- --- ----
NET PROFIT APPLICABLE TO ORDINARY SHAREHOLDERS IN CONFORMITY
WITH US GAAP 8.4 6.9 (46.8)
=== === ====
Net profit per Ordinary Share - basic 3.8p 3.1p (32.0)p
Average number of Ordinary Shares (in millions)(1) 221.9 221.8 146.2
Net profit per Ordinary Share - diluted 3.8p 3.1p (32.0)p
Average number of Ordinary Shares - diluted (in millions)(1) 224.1 222.7 146.2
===== ===== =====
<FN>
(1) Average number of Ordinary Shares has been adjusted to reflect the
Consolidation.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------
CUMULATIVE EFFECT ON SHAREHOLDERS' FUNDS (DEFICIENCY) OF 1997 1996
DIFFERENCES BETWEEN US AND UK GAAP Lm Lm
<S> <C> <C> <C>
Equity shareholders' deficiency in conformity with UK GAAP
(85.7) (215.3)
US GAAP ADJUSTMENTS:
Dividends (a) 2.7 4.4
Goodwill and US purchase accounting in respect of acquisitions
(b) 76.9 198.2
Straight lining of property leases (c) - (21.9)
Discount on property provisions (d) 15.3 34.2
---- ----
EQUITY SHAREHOLDERS' FUNDS (DEFICIENCY) IN CONFORMITY WITH US
GAAP 9.2 (0.4)
=== ===
</TABLE>
<PAGE>
ANNEX A
UNAUDITED COMBINED AND PRO FORMA FINANCIAL INFORMATION
<PAGE>
INTRODUCTION
The following information is provided to assist in judging the
performance of CCG. Other than consolidated balance sheet information as of
December 31, 1997, this information is unaudited and it does not necessarily
reflect the results of operations or financial position of CCG that would have
been achieved as of the dates indicated, nor is it necessarily indicative of the
future results of operations or future financial position of CCG.
<PAGE>
<TABLE>
CORDIANT COMMUNICATIONS GROUP AND SUBSIDIARIES
(COMBINED AND PRO FORMA)
UNAUDITED COMBINED AND PRO FORMA STATEMENT OF OPERATIONS(1)
<CAPTION>
Combined Basis Pro Forma Basis
1997 1996 1997
Lm Lm Lm Notes
------------------ ------------------ ------------------------ -----------------
<S> <C> <C> <C> <C>
Turnover
Group and share of joint 2,351.1 2,301.3 1,965.9
venture
Less: share of joint venture (725.1) (704.1) (362.6)
------- ------- -------
Group Turnover 1,626.0 1,597.2 1,603.3
Cost of sales (1,309.9) (1,257.7) (1,295.7)
Revenue
- ---------------------------------------------------------------------------------------------------------------
Ongoing businesses and
share of joint venture 329.1 349.8 319.1
Disposed businesses 7.9 10.0 -
Less: Share of joint venture (20.9) (20.3) (11.5)
- ---------------------------------------------------------------------------------------------------------------
Group revenue 316.1 339.5 307.6
Net operating expenses (292.0) (315.2) (285.8)
- ---------------------------------------------------------------------------------------------------------------
Trading profit before
exceptional operating
items
Ongoing businesses 24.6 21.6 24.0
Disposed businesses 1.7 2.9 -
Exceptional operating expenses -
ongoing businesses (2.2) (0.2) (2.2)
- ---------------------------------------------------------------------------------------------------------------
Operating profit 24.1 24.3 21.8
Share of operating profits
Joint venture 0.9 0.1 1.5
Associated companies 0.4 0.2 0.4
Non-operating exceptional items
Profit on disposal of businesses 16.5 - -
Fundamental reorganization
- demerger (166.4) - -
----- ---- ----
(Loss)/profit before (124.5) 24.6 23.7
interest and taxation
<PAGE>
(Loss)/profit before (124.5) 24.6 23.7
interest and taxation
Net dividends paid to
Saatchi & Saatchi
companies prior to demerger (10.4) (7.8) -
Net interest
receivable/(payable) and
similar charges
Group 3.6 5.7 (0.6)
Joint venture 1.2 1.1 (0.1)
----- ---- ---
(Loss)/profit before taxation (130.1) 23.6 23.0
Taxation (9.5) (10.4) (10.2)
----- ---- ----
(Loss)/profit after taxation (139.6) 13.2 12.8
Minority interests (1.8) (2.6) (1.8)
----- ---- ----
Net (loss)/profit (141.4) 10.6 11.0
----
Dividends proposed on equity
shares (2.7) (4.4)
----- ---
Retained (loss)/profit (144.1) 6.2
===== ===
(Loss)/earnings per Ordinary Shares (63.7)p 4.8p 5.0p C
Adjusted weighted average
number of Ordinary Shares in
issue (millions)(2) 221.9 221.8 221.9
<FN>
(1) The basis of preparation of combined and pro forma information is set out
in note A. The 1996 combined revenue and net operating expenses have been
restated from the figures presented in the circular to shareholders dated
September 30, 1997, to reclassify certain costs charged by Zenith,
previously included in net operating expenses, as a cost of sales.
(2) Adjusted for the one for two share consolidation (see Note 23 of the
Consolidated Financial Statements).
</FN>
</TABLE>
<PAGE>
NOTES TO UNAUDITED COMBINED AND PRO FORMA STATEMENT OF OPERATIONS
NOTE A - BASIS OF PREPARATION
The combined statement of operations has been prepared as if the businesses that
have been demerged had been demerged throughout the two periods presented. Pro
forma information is presented as if certain new financing and trading
arrangements had also been in place for the same period. Because of the nature
of pro forma information, it cannot give a true picture of the Group's results
and is given for illustrative purposes only. Specific adjustments made in
preparing the pro forma information were to:
(i) reduce trading profit to reflect the new trading terms for the purchase of
media services from Zenith, with an offsetting increase in the share of
profits from joint ventures;
(ii) eliminate inter-Cordiant interest receivable from Saatchi & Saatchi and
Zenith and adjust external interest to reflect the revised financing
arrangements;
(iii)eliminate the results of NRG, a business disposed of in 1997, substituting
notional interest on the proceeds received;
(iv) eliminate exceptional non-operating demerger expenses, profit on disposal
of NRG and dividends paid by subsidiaries to Saatchi & Saatchi; and
(v) adjust the tax charge to reflect the adjustments and the current structure
of the Group.
<PAGE>
NOTE B - PRO FORMA ADJUSTMENTS
Selected information setting out the adjustments is given below.
<TABLE>
<CAPTION>
Exceptional
Revised non-operating
Combined Zenith Refinancing NRG items and
Unadjusted trading and tax adjustment dividends Pro forma
Lm Lm Lm Lm Lm Lm
------------- -------------- ---------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Group turnover 1,626.0 - - (22.7) - 1,603.3
------- --- -- ---- -- -------
Group revenue 316.1 (0.6) - (7.9) - 307.6
----- --- -- --- -- -----
Operating profit 24.1 (0.6) - (1.7) - 21.8
Share of profits less
losses of joint venture
and associated
undertakings 1.3 0.6 - - - 1.9
Non-operating exceptional
items (149.9) - - (16.5) 166.4 -
Dividends to Saatchi &
Saatchi (10.4) - - - 10.4 -
Interest receivable/(payable) 4.8 (1.2) (5.9) 1.6 - (0.7)
----- --- --- ---- -- ---
(Loss)/profit before
taxation (130.1) (1.2) (5.9) (16.6) 176.8 23.0
Taxation (9.5) - (1.4) 0.7 - (10.2)
----- --- --- ---- ----- ----
(Loss)/profit after
taxation (139.6) (1.2) (7.3) (15.9) 176.8 12.8
===== === === ==== ===== ====
</TABLE>
NOTE C - EARNINGS PER ORDINARY SHARE(3)
(3) Basic, undiluted.
The earnings per Ordinary Share are based on the weighted average number of
Ordinary Shares in issue during the year ended December 31, 1997, after taking
account of the one for two share consolidation, of 221.9 million (1996: 221.8
million).
<PAGE>
CONSOLIDATED AND UNAUDITED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
Notes Consolidated* Combined
Audited unaudited
1997 1996
Lm Lm
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term deposits 61.7 60.0
Short-Term Investments
Shares - unlisted 0.2 -
Accounts and other receivables, prepayments and accrued E 254.3 602.4
income
Billable production 18.1 14.9
----- -----
Total current assets 334.3 677.3
Investments F 3.5 65.0
Long-term receivables:
Accounts and other receivables, prepayments and accrued E 15.5 0.7
income
Property and equipment 24.5 25.3
----- -----
Total assets 377.8 768.3
===== =====
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Bank loans, overdrafts and other loans G 8.4 79.3
Accounts payable, other liabilities and accrued expenses H 301.5 491.5
Taxation and social security 21.6 24.0
----- -----
Total current liabilities 331.5 594.8
----- -----
Long-term liabilities:
Accounts payable, other liabilities and accrued expenses H 1.6 1.0
Provision for joint venture deficit I 14.3 1.3
Property, pension and other provisions J 57.3 62.2
Long-term debt K 28.4 9.8
Deferred taxation 0.5 1.1
Taxation 23.8 24.8
Minority interests 6.1 7.5
----- -----
Total long-term liabilities 132.0 107.7
----- -----
Total liabilities 463.5 702.5
----- -----
Shareholders' (deficiency) funds
Share capital
Allotted, called up and fully paid:
221,926,993 Ordinary Shares of 50p each (1996:
443,682,881 Cordiant Ordinary Shares of 25p each) L 111.0 110.9
Nil Deferred shares of 5p each (1996: 2,384,598,152) L - 119.2
Share premium L - 137.3
Capital redemption reserve L - 86.5
Special reserve L 25.7 -
Goodwill reserves L (113.2) (111.3)
Accumulated deficit L (109.2) (276.8)
----- -----
Shareholders' (deficiency) funds (85.7) 65.8
----- ----
Total liabilities and shareholders' deficiency 377.8 768.3
===== =====
<FN>
* Following the completion of the Demerger the consolidated balance sheet
fully reflects the adjustments made in the preparation of the combined
balance sheet.
</FN>
</TABLE>
See accompanying notes to the consolidated and unaudited combined financial
information.
<PAGE>
NOTE D - BASIS OF PREPARATION
The combined balance sheet for 1996 includes:
(i) the assets and liabilities of CCG.
(ii) the investment in and net amounts due from Saatchi & Saatchi at their
estimated net realizable value, under the demerger arrangements.
(iii)Group share of the assets and liabilities of Zenith, equity accounted as a
50% joint venture.
(iv) Group share of the assets and liabilities of The Facilities Group, equity
accounted as a 30% associate.
NOTE E - ACCOUNTS AND OTHER RECEIVABLES, PREPAYMENTS AND ACCRUED INCOME
1997 1996
Lm Lm
-- --
Due within one year:
Trade receivables (net of allowances for
doubtful debts) 219.0 255.5
Associated companies - 0.4
Amounts due from Saatchi & Saatchi 8.8 315.6
Amounts due from Zenith 0.4 5.3
Other receivables 7.7 10.9
Prepayments and accrued income 18.4 14.7
----- -----
254.3 602.4
----- -----
Due after one year:
Other receivables including prepayments
and accrued income 15.5 0.7
---- ---
Amounts due from Saatchi & Saatchi and Zenith as at December 31, 1997 reflect
trading balances only.
<PAGE>
<TABLE>
Investments in Associated Long term Works of
Saatchi & Saatchi undertakings investments art Total
Lm Lm Lm Lm Lm
-- -- -- -- --
Cost:
<S> <C> <C> <C> <C> <C>
At beginning of year 78.5 2.8 1.1 3.7 86.1
Translation adjustment - (0.2) - - (0.2)
Share of profit for year - 0.4 - - 0.4
Loans repaid - (0.2) - - (0.2)
Transfer to investment in subsidiaries - (0.4) - - (0.4)
Disposals (78.5) - - (3.7) (82.2)
----- --- --- ---- -----
At end of year - 2.4 1.1 - 3.5
----- --- --- ---- -----
Provisions:
At beginning of year 21.1 - - - 21.1
Disposals (21.1) - - - (21.1)
----- --- --- ---- -----
At end of year - - - - -
----- --- --- ---- -----
Net book value:
At beginning of year 57.4 2.8 1.1 3.7 65.0
At end of year - 2.4 1.1 - 3.5
</TABLE>
The principal subsidiaries, joint ventures and associates are listed in Note 14
of the Consolidated Financial Statements.
<PAGE>
NOTE G - BANK LOANS, OVERDRAFTS AND OTHER LOANS
1997 1996
---- ----
Lmillion Lmillion
Bank loans and overdrafts 7.8 78.7
Other loans 0.6 0.6
--- ---
8.4 79.3
=== ====
An amount of L0.1 million (1996: L0.2 million) included in bank loans and
overdrafts is secured by charges over assets.
NOTE H - ACCOUNTS PAYABLE, OTHER LIABILITIES AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------ --------------------------
Due Within one Due After Due Within Due After
year one year one year one year
---- -------- -------- --------
L million L million L million L million
<S> <C> <C> <C> <C>
Accounts payable 194.2 - 214.6 -
Associated companies - - 0.7 -
Finance leases 0.1 0.1 0.1 -
Proposed dividends - equity shareholders 2.7 - 4.4 -
Amounts due to Saatchi & Saatchi 5.1 - 177.2 -
Amounts due to Zenith 11.3 - 17.0 -
Other payables including payments on account 88.1 1.5 77.5 1.0
---- --- ---- ---
301.5 1.6 491.5 1.0
===== === ===== ===
</TABLE>
An amount of L4.0 million (December 31, 1996: L2.8 million) included in accounts
payable is secured by related trade receivables. Liabilities under finance
leases are secured on the assets leased.
The amounts due to Saatchi & Saatchi and Zenith at December 31, 1997 represent
trading balances only.
NOTE I - PROVISION FOR JOINT VENTURE DEFICIT
1997 1996
---- ----
Lmillion Lmillion
Share of total assets 51.6 65.7
Share of total liabilities (65.9) (67.0)
------ ------
(14.3) (1.3)
====== ======
<PAGE>
NOTE J - PROPERTY, PENSION AND OTHER PROVISIONS
<TABLE>
<CAPTION>
Pensions and
similar
employment
Property obligations Other Total
-------- ----------- ----- -----
L million L million L million L million
<S> <C> <C> <C> <C>
At beginning of year 44.9 16.4 0.9 62.2
Translation adjustment 2.6 0.5 (0.3) 2.8
Profit and loss account - 0.7 (0.1) 0.6
Utilized (7.3) (1.0) - (8.3)
---- ---- --- ----
At end of year 40.2 16.6 0.5 57.3
==== ==== === ====
</TABLE>
Property provisions relate to future payments on vacant properties and assigned
leases, and are analyzed by year as follows:
1997 1996
---- ----
L million L million
Under one year 6.0 6.5
One to two years 5.0 4.9
Two to five years 9.6 12.9
Over five years 19.6 20.6
---- ----
40.2 44.9
==== ====
NOTE K - LONG-TERM DEBT
1997 1996
---- ----
Lmillion Lmillion
Loan stock - 6.2
Bank loans 25.2 -
Other loans 3.2 3.6
--- ---
28.4 9.8
==== ===
The loan stock was repaid during the year.
An amount of L25.2 million (1996: L79.1 million) of the Group's borrowings is
secured by guarantees from and charges over the assets of the Company and a
number of its subsidiaries.
At December 31, 1997 the Group had committed core banking facilities totalling
L53.6 million of which L25.2 million were being utilized.
<PAGE>
NOTE L - RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' (DEFICIENCY) FUNDS
<TABLE>
<CAPTION>
Capital
redemption Profit Total Total
Share Deferred Share reserve Special Goodwill and loss 31 Dec 31 Dec
capital shares premium L m reserve reserve account 1997 1996
L m L m L m L m L m L m L m L m L m
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At beginning of year 110.9 119.2 137.3 86.5 -- (111.3) (276.8) 65.8 70.0
Issues of Ordinary shares
net of expenses 0.1 -- -- -- -- -- -- 0.1 0.4
Net goodwill arising in year -- -- -- -- -- (1.9) -- (1.9) (3.7)
Profit retained for the year -- -- -- -- -- -- (144.1) (144.1) 6.2
Translation adjustment -- -- -- -- -- -- (5.6) (5.6) (7.1)
Reduction of capital -- (119.2) (137.3) (86.5) 25.7 -- 317.3 -- --
----- ------ ------ ----- ---- ------ ----- ----- ----
At end of year 111.0 -- -- -- 25.7 (113.2) (109.2) (85.7) 65.8
===== ====== ====== ===== ==== ====== ====== ===== ====
</TABLE>
<PAGE>
<TABLE>
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
<CAPTION>
1997 1996
Notes Lm Lm
----- -- --
<S> <C> <C> <C>
Net cash inflow from operating activities M 5.6 17.9
---- ----
Net cash outflow arising from external demerger costs (13.6) -
---- ----
Returns on investments and servicing of finance
Interest received 2.4 3.6
Interest paid (4.5) (3.2)
Interest element of finance lease rental payments (0.1) -
Dividends paid to minorities (1.8) (1.1)
---- ----
Net cash outflow from returns on investments and servicing of finance (4.0) (0.7)
---- ----
Taxation
Overseas tax paid (9.8) (7.4)
---- ----
Capital expenditure and financial investment
Purchase of tangible fixed assets (11.8) (11.9)
Sale of tangible fixed assets 1.7 1.6
Purchase of other fixed asset investments (0.4) (0.9)
Sale of other fixed asset investments 3.5 0.9
--- ---
Net cash outflow from capital expenditure and financial investment (7.0) (10.3)
---- -----
Acquisitions and disposals
Purchase of subsidiary undertakings (1.4) (4.5)
Cash acquired with subsidiaries 0.6 1.2
Sale of subsidiary undertakings 24.4 0.4
Cash in businesses sold (1.1) -
Fundamental reorganization - demerger (185.4) -
------ ----
Net cash outflow from acquisitions and disposals (162.9) (2.9)
------ ----
Equity dividends paid (4.4) -
---- ----
Total net cash outflow before financing (196.1) (3.4)
------ ----
Financing
Issue of Ordinary share capital 0.1 -
Capital subscribed by minorities - 0.2
External loans drawn 116.7 5.7(1)
External loans repaid (98.5) -
Loans repaid by/(to) Saatchi & Saatchi/Zenith 257.5 (10.8)
Capital element of finance lease rental payments (0.1) (0.1)
---- ----
Net cash inflow/(outflow) from financing 275.7 (5.0)
----- ----
Increase/(decrease) in cash 79.6 (8.4)
==== ====
(1) For 1996 the external loans drawn represents the net of external loans
drawn and repaid. The information is not available to provide separate
analysis as the funding of Cordiant was managed on a group rather than
combined basis.
</TABLE>
<PAGE>
NOTES TO UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
NOTE M - RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
1997 1996
L m L m
--- ---
Operating profit 24.1 24.3
Depreciation 9.9 10.0
Gain on sale of tangible fixed assets (0.7) -
(Increase)/decrease in work in progress (5.2) 0.2
(Increase)/decrease in debtors (29.6) 2.8
Increase/(decrease) in creditors 12.2 (14.5)
Utilization of property provisions (7.3) (4.9)
Exceptional non-cash expense 2.2 -
--- ----
Net cash flow from operating activities 5.6 17.9
--- ----
<PAGE>
RECONCILIATION OF UNAUDITED COMBINED AND CONSOLIDATED RESULTS
Historical information presented in this Annex is made up of the combined
businesses of CCG as constituted during the year (pro forma information
illustrates this information as if the Demerger had already taken place).
Consolidated information presented on pages F-2 to F-54 includes the results,
assets and liabilities of Saatchi & Saatchi and Zenith until they were demerged
on December 14, 1997. Set out below, for selected information, is a
reconciliation of the combined and consolidated results.
<TABLE>
<CAPTION>
1997 Combined Saatchi &
CCG Saatchi Zenith Adjustments(1) Consolidated
Lm Lm Lm Lm Lm
--------------- -------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Turnover
Group and share of joint
venture 2,351.1 2,469.6 1,709.6 (2,203.3) 4,327.0
Less: share of joint
venture (725.1) (490.9) - 1,216.0 -
------ ------ ------- ------- -------
Group turnover 1,626.0 1,978.7 1,709.6 (987.3) 4,327.0
Cost of sales (1,309.9) (1,600.5) (1,667.7) 987.2 (3,590.9)
Revenue
- ------------------------------------------------------------------------------------------------------------
Ongoing businesses
and share of joint
venture 329.1 397.7 41.9 (42.0) 726.7
Disposed businesses 7.9 1.5 - - 9.4
Less: share of
joint venture (20.9) (21.0) - 41.9 -
- ------------------------------------------------------------------------------------------------------------
Group revenue 316.1 378.2 41.9 (0.1) 736.1
Net operating expenses (292.0) (348.5) (40.1) 0.1 (680.5)
- ------------------------------------------------------------------------------------------------------------
Trading profit from
continuing operations
(before exceptional
operating expenses)
Ongoing businesses 24.6 30.6 1.8 - 57.0
Disposed businesses 1.7 (0.9) - - 0.8
Exceptional operating
expenses (2.2) - - - (2.2)
- ------------------------------------------------------------------------------------------------------------
Operating profit 24.1 29.7 1.8 - 55.6
<PAGE>
RECONCILIATION OF UNAUDITED COMBINED AND CONSOLIDATED RESULTS (Continued)
<CAPTION>
1997 Combined Saatchi &
CCG Saatchi Zenith Adjustments(1) Consolidated
Lm Lm Lm Lm Lm
--------------- -------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Operating profit 24.1 29.7 1.8 - 55.6
Share of profits less
loss of joint
venture and
associated companies 1.3 0.9 - (2.2) -
Non-operating exceptional
items
Profit on disposal
of businesses 16.5 4.3 - - 20.8
Fundamental
reorganization-demerger
(166.4) 764.5 (4.9) (626.2) (33.0)
------ ----- ---- ------ -----
(Loss)/profit before
interest and taxation (124.5) 799.4 (3.1) (628.4) 43.4
Net dividends paid to
Saatchi & Saatchi
companies prior to
demerger (10.4) 10.4 - - -
Net interest
receivable/payable
and similar charges 4.8 (13.4) 2.2 (2.4) (8.8)
--- ----- --- ---- ----
(Loss)/profit before
taxation (130.1) 796.4 (0.9) (630.8) 34.6
Taxation (9.5) (8.2) (1.2) 1.4 (17.5)
------ ----- ---- ------ -----
(Loss)/profit after
taxation (139.6) 788.2 (2.1) (629.4) 17.1
Minority interests (1.8) (0.6) - 0.4 (2.0)
------ ----- ---- ------ -----
Net (loss)/profit (141.4) 787.6 (2.1) (629.0) 15.1
====== ===== ==== ====== ====
(1) Adjustments were made to eliminate
i) inter-Cordiant trading
ii) the equity accounting by CCG and Saatchi & Saatchi of their 50% holdings in Zenith, and
iii) for the 30% share of The Facilities Group treated as an associate by CCG with a corresponding minority
interest in Saatchi & Saatchi.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
1.1 Consent of Independent Auditor.
2.1 Amended Articles of the Company.
3.1 Upon the request of the Securities and Exchange Commission, the
Company hereby agrees to provide the Commission with a list of
subsidiaries of Cordiant Communications Group plc.
EXHIBIT 1.1
CONSENT OF THE INDEPENDENT AUDITOR
To the Board of Directors of
Cordiant Communications Group plc
We consent to the incorporation by reference in the Registration Statements No.
33-11622 and No. 33-41650, on Form S-8 of Cordiant plc filed with the Securities
and Exchange Commission on January 29, 1987 and July 15, 1991, respectively, and
of our report dated May 26, 1998, 1997 and 1996, and the related consolidated
statements of operations, shareholders' deficiency and other share capital,
total recognised gains and losses and cash flows for each of the years in the
three year period ended December 31, 1997, which report appears in the December
31, 1997 annual report on Form 20-F of Cordiant Communications Group plc.
/s/ KPMG Audit Plc
------------------------------
KPMG Audit Plc
London, England CHARTERED ACCOUNTANTS
June 26, 1998 REGISTERED AUDITOR
EXHIBIT 2.1
AMENDED MEMORANDUM AND ARTICLES OF ASSOCIATION
THE COMPANIES ACTS 1948 TO 1989
--------------------------------
PUBLIC COMPANY LIMITED BY SHARES
--------------------------------
MEMORANDUM OF ASSOCIATION
(As modified by Resolution of the
Directors passed 19th January 1982
and pursuant to a Special Resolution
passed on 23 October 1997)
- and -
NEW
ARTICLES OF ASSOCIATION
(Adopted by Special Resolution passed on
23 October 1997 and taking effect on 15 December 1997)
- of-
CORDIANT COMMUNICATIONS GROUP plc
Incorporated the 11th day of July, 1977
No.1320869
<PAGE>
COMPANY NO: 1320869
THE COMPANIES ACT 1985 AND 1989
PUBLIC COMPANY LIMITED BY SHARES
SPECIAL RESOLUTIONS OF
CORDIANT PLC ("THE COMPANY")
At an Annual General Meeting of the Company duly convened and held at the
Royal Institute of British Architects, 66 Portland Place, London, W1 on 20 May
1997, the following resolutions were passed as Special Resolutions:-
RESOLUTIONS:
THAT:
1. in accordance with Section 95(l) of the Companies Act 1985, the Directors
be and are hereby given power to allot equity securities pursuant to the
authority conferred by paragraph 1.1 of Resolution 1 passed at the
Extraordinary General Meeting of the Company held on 18 June 1996 as if
sub-section (1) of Section 89 of the Companies Act 1985 did not apply to
any such allotment, provided that:
a) the power hereby conferred shall be limited to the allotment of equity
securities in connection with or pursuant to an offer by way of rights
to the holders of Ordinary Shares and other persons entitled to
participate therein, in proportion (as nearly as may be) to such
holders' holdings of such shares (or, as appropriate, to the numbers
of such shares which such other persons are for those purposes deemed
to hold) subject only to such exclusions or other arrangements as the
Directors may feel necessary or expedient to deal with fractional
entitlements or legal or practical problems under the laws of, or the
requirements of any recognised regulatory body in, any territory; and
b) the power granted by this Resolution shall expire on the date of the
next Annual General Meeting of the Company after the passing of this
Resolution or on 19 August 1998 if earlier, save that the said power
shall allow and enable the Directors to make an offer or agreement
before the expiry of that power 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 said power had not expired. Words and expressions defined in or
for the purposes of Part IV of the Companies Act 1985 shall bear the
same meaning in this Resolution.
2. in accordance with Section 95(l) of the Companies Act 1985 and in addition
to any power conferred by the passing of Resolution No 1 set out in the
Notice of this meeting, the Directors be and are hereby given power to
allot equity securities pursuant to the authority conferred by paragraph
1.1 of Resolution 1 passed at the Extraordinary General Meeting of the
Company held on 18 June 1996 as if subsection (1) of Section 89 of the
Companies Act 1985 did not apply to any such allotment, provided that:
a) the power hereby conferred shall be limited to the allotment of equity
securities up to an aggregate nominal amount of L5,500,000; and
b) the power granted by this Resolution No 2 shall expire on the date of
the next Annual General Meeting of the Company after the passing of
this Resolution or on 19 August 1998 if earlier, save that the said
power shall allow and enable the Directors to make an offer or
agreement before the expiry of that power 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 said power had not expired. Words and expressions defined in or
for the purposes of Part IV of the Companies Act 1985 shall bear the
same meaning in this Resolution.
____________________________
Chairman
<PAGE>
THE COMPANIES ACT 1985
--------------------------------
PUBLIC COMPANY LIMITED BY SHARES
--------------------------------
RESOLUTION
-of-
CORDIANT PLC
At an Extraordinary General Meeting of the Company held at The London Studios,
Upper Ground, London SE1 on 18 June 1996, the resolution attached hereto (inter
alia) was duly passed as a Special Resolution.
1.1 in accordance with Section 80 of the Companies Act 1985, and by way of
renewal, consolidation and variation of the authorities granted to the Directors
by virtue of paragraph (1) of the Special Resolution passed at the Extraordinary
General Meeting of the Company held on 13 June 1995 and paragraph (2) of the
Ordinary Resolution passed at the Extraordinary General Meeting of the Company
held on 20 November 1995, the Directors be and are hereby generally and
unconditionally authorised to allot relevant securities up to an aggregate
nominal amount of L39,597,683.75 provided that this authority shall (unless
previously revoked, varied or renewed) expire on 17 June 2001, save that the
Directors may before such expiry make an offer or agreement which would or might
require relevant securities to be allotted after such expiry and the Directors
may allot relevant securities in pursuance of such offer or agreement as if the
authority conferred hereby had not expired;
1.2 in accordance with Section 95(1) of the Companies Act 1985, the
Directors be and are hereby given power to allot equity securities
pursuant to the authority conferred by paragraph 1.1 of this Resolution
as if sub-section (1) of Section 89 of the Companies Act 1985 did not
apply to any such allotment, provided that:
1.2.1. the power hereby conferred shall be limited:
1.2.1.1. to the allotment of equity securities in connection with or
pursuant to any offer by way of rights to the holders of
Ordinary Shares and other persons entitled to participate
therein, in proportion (as nearly as may be) to such holders'
holdings of such shares (or, as appropriate, to the numbers of
such shares which such other persons are for those purposes
deemed to hold) subject only to such exclusions or other
arrangements as the Directors may feel necessary or expedient
to deal with fractional entitlements or legal or practical
problems under the laws of, or the requirements of any
recognised regulatory body in, any territory; and
1.2.1.2. to the allotment (other than pursuant to sub-paragraph 1.2.1.1
of this proviso) of equity securities up to an aggregate
nominal amount of L5,500,000;
1.2.2. the power granted by this paragraph 1.2 shall expire on the date of the
next Annual General Meeting of the Company after the passing of this
Resolution or on 17 September 1997 if earlier, save that the said power
shall allow and enable the Directors to make an offer or agreement
before the expiry of that power 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 said
power had not expired;
1.3 words and expressions defined in or for the purposes of Part IV of the
Companies Act 1985 shall bear the same meaning herein.
<PAGE>
THE COMPANIES ACTS 1948 to 1989
--------------------------------
PUBLIC COMPANY LIMITED BY SHARES
--------------------------------
MEMORANDUM OF ASSOCIATION
(As modified by Resolution of the
Directors passed 19th January 1982
and pursuant to a Special Resolution
passed on 23 October 1997)
-of-
CORDIANT COMMUNICATIONS GROUP plc
*1 The name of the Company is "ANTHOLIN NO.SIX LIMITED".
2 The Company is to be a public company.
3 The registered office of the Company will be situate in England.
4 The Company is established for the following objects:-
(1) To carry on the business of a holding company and to acquire by
purchase exchange subscription or otherwise and to hold the whole
or any part of the shares, stock, debenture stock, loan stock,
bonds, obligations, securities, property, rights, privileges or
other interests of or in any company, corporation, firm or
undertaking carrying on business of any kind whatsoever in any
part of the world and to enter into, assist or participate in
financial, commercial, mercantile, industrial and other
transactions, undertakings and businesses of every description
and to carry on, develop and extend the same or sell, dispose of
or otherwise turn the same to account, and to manage, conduct,
supervise, control, and co-ordinate the activities, businesses,
operations or affairs of any company, corporation or firm in
which the Company is for the time being interested and to
co-ordinate the policy and administration of any companies of
which the Company is a member or which are in any manner
controlled by or connected or associated with the Company.
* On 26 September 1977, the name of the Company was changed to SAATCHI &
SAATCHI COMPANY LIMITED
On February 1982, the name of the Company was changed to SAATCHI & SAATCHI
COMPANY PLC
On 16 March 1995, the name of the Company was changed to CORDIANT plc
On 15 December 1997, the name of the Company was changed to CORDIANT
COMMUNICATIONS GROUP plc
(2) To carry on the business or businesses of advertising
consultants, agents and contractors, general illustrators,
publicity, press and literary agents, marketing, market research
and merchandising consultants, public relations consultants,
designers and photographers, printers, publishers, engravers,
book and print sellers, book binders, art journalists,
proprietors of newspapers, magazines and periodicals of any and
every kind, newsagents, journalists, stationers and to carry on
the business or businesses of manufacturers, distributors of and
dealers in engravings, prints, pictures, drawings, films,
cartoons and written, engraved, painted, printed productions and
reproductions of any and every kind; to carry on all or any of
the businesses of producers, promoters, makers, distributors,
exhibitors, agents and contractors of and for television, radio,
film, cinematographic, theatrical and musical productions of any
and every kind; to buy, sell, hire, manufacture, repair, let on
hire, alter, improve, treat and deal in all apparatus, machines,
materials and articles of all kinds which are capable of being
used for the purposes of the above mentioned businesses or any of
them or likely to be used by the customers of any such business.
(3) To purchase, hold, take on lease or in exchange, or otherwise
acquire and deal in, sell, exchange, let on lease and otherwise
dispose of any real and personal property of whatever nature and
to undertake, carry on, transact and execute all kinds of
financial, commercial, trading, trust and agency business
operations and all or any of the businesses of general merchants,
importers, exporters, manufacturers and dealers, both wholesale
and retail of and in any article of commerce whatsoever.
(4) To carry on any business, whether subsidiary or not, which may
appear to the Company likely to be carried on conveniently or
advantageously in conjunction with any of the businesses
aforesaid or which is likely to be profitable to the Company or
calculated directly or indirectly to enhance the value of any of
the property, rights or assets of the Company.
(5) To construct, erect, maintain, alter, repair, replace or remove
any building, works, offices, erections, structures, plant,
machinery or equipment as may seem desirable for any of the
businesses or in the interests of the Company.
(6) To apply for or otherwise acquire any patents, patent rights,
trade marks, names, copyrights, licences, privileges or secret
processes for or in any way relating to all or any of the objects
of the Company and to grant licences for the use of the same.
(7) To purchase, take on lease or in exchange, hire or otherwise
acquire, develop, hold and manage for any estate or interest any
real or personal property and any rights or privileges which the
Company may think necessary, suitable or convenient for the
purposes of or in connection with its business or any branch or
department thereof.
(8) To purchase or otherwise acquire and undertake all or any part of
the business, property, assets, liabilities and transactions of
any person or company carrying on any business which the Company
is authorised to carry on or which can be carried on in
conjunction therewith or which are capable of being conducted
directly or indirectly for the benefit of the Company.
(9) To pay for any property, assets or rights acquired by the Company
either in cash or by the issue of fully or partly paid shares of
the Company with or without any preferred or special rights or
privileges or by the issue of debentures, bonds or other
securities with or without special rights or privileges or partly
in one mode and partly in another and generally on such terms as
the Company may determine.
(10) To work, improve, manage, develop, lease, let on hire, grant
licences, easements and other rights in or over and to mortgage,
charge, pledge, turn to account or otherwise deal with all or any
part of the property, rights or assets of the Company and to
develop the resources of any property for the time being
belonging to the Company in such manner as the Company may think
fit.
(11) To sell, dispose of or otherwise deal with the property,
business, undertaking or assets of the Company or any part
thereof for such consideration as the Company may think fit and
in particular for shares, debentures or securities of any other
company, and to take or hold mortgages, liens or charges to
secure the payment of the purchase price or any unpaid balance of
the purchase price of any part of the property of the Company of
whatsoever kind sold by the Company.
(12) To enter into partnership or amalgamate with any person or
company for the purpose of carrying on any business or
transaction within the objects of the Company and to enter into
such arrangement for co-operation, sharing profits, losses,
mutual assistance or other working arrangements, as may seem
desirable.
(13) To enter into any arrangements with any Government or Authority,
supreme, municipal, local or otherwise that may seem conducive to
the objects of the Company or any of them, and to apply for,
promote and obtain any statute, order, regulation, contract,
decree, right, privilege, concession, licence or authorisation of
any Government or Authority or department thereof for enabling
the Company to carry any of its objects into effect or for
extending any of the powers of the Company or for effecting any
modification of the constitution of the Company or for any other
purpose which may seem expedient and to carry out, exercise and
comply with the same.
(14) To borrow or raise money in such amounts and manner and upon such
terms as the Company shall think fit and when thought desirable
to execute and issue security of such kind, subject to such
conditions for such amount, and payable in such place and manner
and to such person or company as the Company shall think fit.
(15) To mortgage and charge the undertaking and all or any of the real
or personal property and assets present or future and all or any
of the uncalled capital for the time being of the Company, and to
issue as primary or collateral or other security at par or at a
premium or a discount and for such consideration and with and
subject to such rights, powers, privileges and conditions as may
be thought fit, debentures, debenture stock, mortgages, charges
or other securities, either permanent or redeemable or repayable
and collaterally or further to secure any securities of the
Company by a Trust Deed or other assurance.
(16) To give credit to or to become surety, or guarantor for any
person or company, and to give all descriptions of guarantees and
indemnities and either with or without the Company receiving any
consideration to guarantee or otherwise secure (with or without a
mortgage or charge on all or any part of the undertaking,
property and assets, present and future, and the uncalled capital
of the Company), the performance of the obligations and the
payment of the capital or principal of and dividends or interest
on any stock, shares, debentures, debenture stock, notes, bonds
or other securities of any person, authority (whether supreme,
local, municipal or otherwise) or company, including (without
prejudice to the generality of the foregoing) any company which
is for the time being the Company's holding company as defined by
Section 154 of the Companies Act 1948 or any statutory
modification or re-enactment thereof or another subsidiary as
defined by the said section of the Company's holding company or a
subsidiary of the Company or otherwise associated with the
Company in business.
(17) To invest and deal with the moneys of the Company not immediately
required for the purpose of its business in or upon such
investments or securities and in such manner and upon such terms
as may from time to time be determined.
(18) To advance, deposit or lend money, securities and property to or
with such persons or companies and on such terms with or without
security upon such property, rights and assets as may seem
expedient, and to undertake the provision of hire purchase and
credit sale finance and to act as factors.
(19) To make, draw, accept, endorse, discount and negotiate, issue or
execute bills of exchange, promissory notes, bills of lading,
warrants and other negotiable, transferable or mercantile
instrument.
(20) To pay commissions to and remunerate any person or company for
services rendered in placing or assisting to place any of the
shares in the capital of the Company or any debentures or other
security of the Company or in or about the formation or promotion
of the Company or the conduct of its business, whether by cash
payment or by the allotment of shares or securities of the
Company, credited as paid up in full or in part or otherwise as
may seem expedient.
(21) To make donations to such persons or companies and in such cases
and either of cash or other assets as the Company may think
directly or indirectly conducive to any of its objects or
otherwise expedient.
(22) To adopt such means for making known any services provided by the
Company and keeping the same before the public as may be deemed
expedient and in particular to employ advertising and public
relations techniques of all kinds.
(23) To vest any real or personal property, rights or interest
acquired by or belonging to the Company in any person or company
on behalf or for the benefit of the Company with or without any
declared trust in favour of the Company.
(24) To distribute amongst the members in specie any property of the
Company or any proceeds of sale, disposal or realisation of any
property of the Company but so that no distribution amounting to
a reduction of capital be made except with the sanction (if any)
for the time being required by law.
(25) To establish or promote any company for the purpose of acquiring
all or any of the assets and liabilities of the Company or for
any other purpose which may seem directly or indirectly
calculated to benefit the Company or furthering any of the
objects of the Company.
(26) To insure the life of any person who may, in the opinion of the
Company, be of value to the Company as having or holding for the
Company interest, goodwill, influence or other assets, and to pay
the premiums on such insurance.
(27) To support or subscribe to any charitable or public object and
any institution, society or club which may be for the benefit of
the Company or its Directors, officers or employees or the
directors, officers or employees of its predecessors in business
or any subsidiary, allied or associated company, or which may be
connected with any town or place where the Company carried on
business, and to give pensions, gratuities or charitable aid to
any Director or former Director, officer or former officer and
employee or former employee of the Company or its predecessors in
business or any subsidiary, allied or associated company, or to
the wives, children or other relatives or dependents of such
persons, and to make payments towards insurance and to form and
contribute to provident and benefit funds for the benefit of any
Directors, officers or employees of the Company, its predecessors
in business or any subsidiary, allied or associated company, and
to subsidise or assist any association of employers or employees
or any trade association, and to promote, enter into and carry
into effect any scheme for the sharing of profits with employees.
(28) To procure the Company to be registered or recognised in any
country or place outside England.
(29) To do all or any of the above things in any part of the world and
either as principals, agents, contractors, trustees or otherwise
or by or through trustees, agents, sub-contractors or otherwise
and either alone or in conjunction with others.
(30) To do all such acts or things as are incidental or conducive to
the attainment of the above objects or any of them.
It is hereby declared that the word "company" in this clause
except where used in reference to this Company, should be deemed
to include any partnership or other body of persons, whether
incorporated or not incorporated, and whether domiciled in the
United Kingdom or elsewhere, and whether now existing or
hereafter to be formed, and it is also hereby declared that each
of the objects hereinbefore mentioned shall wherever and in so
far as the context and subject admit be regarded as an
independent object and in nowise shall be limited or restricted
by reference to or inference from any other object, or the name
of the Company, and none of the sub-clauses shall be deemed
merely subsidiary or auxiliary to the objects mentioned in the
first sub-clause.
5 The liability of the members is limited.
*6 The capital of the Company is L7 divided into shares of L1
each.
* By Ordinary Resolution passed 2nd September 1977, each of the existing
Ordinary Shares of L1 each in the capital of the Company was subdivided
into 10 Ordinary Shares of 10p each.
By Ordinary Resolution passed 7th December 1977, the capital of the Company
was increased to L350,000 by the creation of an additional 3,499,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 28th September 1978, the capital of the
company was increased to L500,000 by the creation of an additional
1,500,000 Ordinary Shares of 10p each.
By Ordinary Resolution passed 29th June 1979, the capital of the Company
was increased to L750,000 by the creation of an additional 2,500,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 18th March 1981, the capital of the Company
was increased to L1,000,000 by the creation of an additional 2,500,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 27th May 1982, the capital of the Company was
increased to Ll,800,000 by the creation of an additional 8,000,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 5th April 1983, the capital of the Company
was increased to L3,000,000 by the creation of an additional 12,000,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 10th December 1984, the capital of the
Company was increased to L5,000,000 by the creation of an additional
20,000,000 Ordinary Shares of 10p each.
By Special Resolution passed 26th April 1985, the capital of the Company
was increased to L133,350,000 by the creation of an additional 33,500,000
Ordinary Shares of 10p each and 125,000,000 6.3 per cent Convertible
Cumulative Redeemable Preference Shares of L1 each.
By Ordinary Resolution passed 29th April, 1986 the capital of the Company
was increased to L141,000,000 by the creation of an additional 76,500,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 3rd March, 1987 the capital of the Company
was increased to L146,900,000 by the creation of an additional 59,000,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 9th March, 1988 the capital of the Company
was increased to L148,400,000 by the creation of an additional 15,000,000
Ordinary Shares of 10p each.
By Ordinary Resolution passed 21st March, 1989 the capital of the Company
was increased to L152,900,000 by the creation of an additional 45,000,000
Ordinary Shares of 10p each.
By a Special Resolution passed 27th March, 1991, the capital of the Company
was increased to L319,572,500 by the creation of an additional
1,666,725,000 Ordinary Shares of 10p each and the following further changes
to the capital of the Company were effected:
- 25,556,558 authorised but unissued 6.3 per cent. Convertible
Cumulative Redeemable Preference Shares of L1 each in the capital of
the Company ("Preference Shares") were cancelled;
- the 99,443,442 issued Preference Shares were consolidated, subdivided
and reclassified to create 129,276,150 Ordinary Shares of 10p each and
865,158,270 Deferred Shares of 10p each, which Deferred Shares were
thereupon redeemed and cancelled.
By Special Resolution passed 10th June, 1992 the Ordinary Share capital of
the Company was consolidated and sub-divided into 353,080,829.6 Ordinary
Shares of 25p each and 2,384,598,152 Deferred Shares of 5p each and the
capital of the Company was increased by 10p to L207,500,115.10 in order
to make up one additional Ordinary Share of 25p in the capital of the
Company.
By Ordinary Resolution passed 20 November 1995, the capital of the Company
was increased to L269,729,907.60 by the creation of an additional
248,919,170 Ordinary Shares of 25p each.
By virtue of a Special Resolution passed 23 October 1997 and with the
sanction of an order of the High Court of Justice dated 26 November 1997 and
registered on 27 November 1997 the capital of the Company was reduced from
L269,729,907.60 divided into 602,000,000 Ordinary Shares of 25p each and
2,384,598,152 Deferred Shares of 5p each to L150,500,000 divided into
602,000,000 Ordinary Shares of 25p each.
Pursuant to a Special Resolution passed 23 October 1997 the Ordinary Share
capital of the Company was consolidated, with effect from 15 December 1997,
into 301,000,000 Ordinary Shares of 50p each.
7 WE, the several persons whose names, addresses and descriptions
are subscribed, are desirous of being formed into a Company in
pursuance of this Memorandum of Association and we respectively
agree to take the number of shares in the Capital of the Company
set opposite our respective names.
<PAGE>
THE COMPANIES ACT 1985
--------------------------------
PUBLIC COMPANY LIMITED BY SHARES
--------------------------------
ARTICLES OF ASSOCIATION
-of-
CORDIANT COMMUNICATIONS GROUP plc
(Adopted by Special Resolution passed on
23 October 1997 and taking effect on 15 December 1997)
<PAGE>
CONTENTS
Articles Headings
1 - 2 Preliminary
3 - 8 Share Capital
9 - 11 Share Certificates
12 Joint Holders of Shares
13 - 18 Calls on Shares
19 - 28 Forfeiture of Shares and Lien
29 - 46 Transfer and Transmission of Shares
47 - 50 Alteration of Share Capital
51 - 52 Modification of Rights
53 - 55 General Meetings
56 - 61 Notice of General Meetings
62 - 70 Proceedings at General Meetings
71 - 82 Votes of Members
83 - 89 Directors
90 - 96 Powers and Duties of Directors
97 - 98 Borrowing Powers and Debentures
99 - 102 Directors' Interests
103 Disqualification of Directors
104 - 109 Election and Appointment of Directors
110 - 111 Alternate Directors
112 Local and Other Directors
113 - 121 Proceedings of Directors
122 - 124 Executive Directors
125 President
126 - 128 Secretary
129 Authentication of Documents
130 Minutes
131 The Seal
132 - 141 Dividends
142 Reserve Fund
143 - 145 Capitalisation of Reserves
146 - 149 Accounts
150 - 152 Audit
153 - 156 Notices
157 Suspended or Curtailed Postal Services
158 Provision for Employees
159 Indemnity
160 - 161 Winding Up
<PAGE>
PRELIMINARY
Exclusion of Table A
1 Neither the regulations contained in Table A in the First Schedule to
the Companies Act 1948 nor those contained in the Schedule to the
Companies (Tables A to F) Regulations 1985 shall apply to the Company.
Interpretation Article
2 In these Articles, if not inconsistent with the context, the following
words in the first column of the table next hereinafter contained shall
have the following meanings.
Words Meanings
"Act" The Companies Act 1985.
"Articles" These Articles of Association, as
altered from time to time.
"business day" A day on which the London Stock
Exchange is open for the transaction
of business.
"Directors" The Directors of the Company acting
by Resolution duly passed at a
Meeting of the Directors or otherwise
as permitted by these Articles.
"the London Stock "Exchange" The London Stock Exchange Limited.
"Month" Calendar month.
"Office" The registered office of the Company.
"Recognised Person" a recognised clearing house or a
nominee of a recognised clearing
house or of a recognised investment
exchange who is designated as
mentioned in Section 185(4) of the
Act.
"Register" The register of members of the
Company.
"the Regulations" The Uncertificated Securities
Regulations 1995 (SI 1995 No.
95/3272) including any modification
thereof or any regulations in
substitution therefor made under
Section 207 of the Companies Act 1989
and for the time being in force.
"relevant system" A computer based system, and
procedures, enabling title to shares
to be evidenced and transferred
without a written instrument as
defined in the Regulations.
"Seal" The Common Seal of the Company and,
as appropriate, any official seal
kept by the Company by virtue of
Section 40 of the Act.
"Secretary" The Secretary of the Company
appointed by the Directors pursuant
to Article 126.
"share" A share in the capital of the Company
whether held in certificated or
uncertificated form.
"Statutes" The Act, every statutory modification
or re-enactment thereof for the time
being in force and every other Act or
statutory instrument for the time
being in force concerning limited
companies and affecting the Company
(including, without limitation, Part
V of the Criminal Justice Act 1993
and the Companies Consolidation
(Consequential Provisions) Act 1985).
"Subsidiary" A subsidiary within the meaning
contained in Section 736 of the Act.
"United Kingdom" Great Britain and Northern Ireland.
"in writing" Written or produced by any substitute
for writing or partly one and partly
another.
"Year" Calendar year.
The expression "Secretary" shall include any person appointed by the
Directors to perform any of the duties of the Secretary and, where two
or more persons are appointed to act as Joint Secretaries, shall include
any one of those persons.
References to an uncertificated share or to a share (or to a holding of
shares) being in, or held in, uncertificated form are references to that
share being an uncertificated unit of a security (within the meaning of
the Regulations) which is for the time being recorded in the Register as
being held in uncertificated form.
References to a certificated share or to a share (or to a holding of
shares) being in, or held in, certificated form are references to that
share be a certificated unit of a security (within the meaning of the
Regulations).
References to a dematerialised instruction shall mean an instruction
sent or received by means of a relevant system and such an instruction
shall be considered to be properly authenticated if it complies with the
specifications referred to in paragraph 5(b) of Schedule 1 to the
Regulations.
Words importing the masculine gender shall include the feminine gender
and vice versa.
Words importing the singular number shall include the plural number and
vice versa.
References to any statute or statutory provision or statutory instrument
shall be construed as relating to any statutory modification or
re-enactment thereof for the time being in force.
Words or expressions which are not defined in these Articles but which
are defined in the Statutes shall, if not inconsistent with the subject
or context, bear the same meaning in these Articles.
SHARE CAPITAL
Capital
3 The share capital of the Company at the date of adoption of these
Articles is L150,500,000 divided into 301,000,000 Ordinary Shares of
50p each ("Ordinary Shares").
Rights attached to new shares
4 Without prejudice to any special rights, privileges or restrictions
previously conferred on the holders of any existing shares or class of
shares (which special rights or privileges or restrictions shall not be
affected, modified, rescinded or dealt with except in accordance with
Article 51), any shares in the Company may be issued with or have
attached thereto such preferred, deferred or other special rights or
privileges or such restrictions, whether in regard to dividend, return
of capital, voting or otherwise, as the Company may from time to time by
Ordinary Resolution determine.
5.1 Subject to the provisions of the Statutes and to any rights conferred on
the holders of any other shares, any shares may be issued on terms that
they are or are liable to be redeemed at the option of the Company or
the shareholder on such terms and in such manner as these Articles or
the rights attaching to those shares may from time to time provide.
5.2 Subject to the provisions of the Statutes, the Company may purchase its
own shares (including any redeemable shares).
5.3 The Company may not purchase its own shares if at the time of such
purchase there are outstanding any convertible shares of the Company
unless such purchase has been sanctioned by an Extraordinary Resolution
passed at a separate class meeting of the holders of the convertible
shares or is otherwise permitted under the terms of issue of such
shares.
5.4 Purchases by the Company of its own redeemable shares shall, where such
shares are listed by the London Stock Exchange, be limited to a maximum
price which, in the case of purchases by private treaty or by tender,
will not exceed the average of the middle market quotations taken from
the Official List of the London Stock Exchange for the ten business days
before the purchase is made or, in the case of a purchase through the
market, at the market price, provided that it is not more than five per
cent. above such average. If such purchases are by tender, tenders shall
be made available to all holders of such shares alike.
5.5 Notwithstanding anything to the contrary contained in these Articles,
but subject to any rights specifically attached to any class of shares
from time to time, the rights attached to any class of shares shall be
deemed not to be varied or abrogated by anything done by the Company
pursuant to this Article 5.
Control of Directors over shares
6 Subject to the provisions of these Articles and of the Statutes, any
unissued shares shall be under the control of the Directors, who may
allot and dispose of or grant options over the same to such persons, on
such terms and in such manner as they think fit.
Underwriting commission and brokerages
7 The Company (or the Directors on behalf of the Company) may exercise the
powers of paying commissions conferred by the Statutes. The Company (or
the Directors on behalf of the Company) may also on any issue of shares
pay such brokerage as may be lawful.
Trusts not recognised
8 Save as required by statute, the Company shall be entitled to treat the
person whose name appears upon the Register in respect of any share as
the absolute owner of that share, and shall not (save as aforesaid) be
under any obligation to recognise any trust or equity or equitable claim
to or partial interest in such share, whether or not it shall have
express or other notice thereof.
SHARE CERTIFICATES
Certificates
9.1 Every member whose name is entered on the Register as the holder of any
certificated share(s) (except a Recognised Person in respect of whom the
Company is not by law required to complete and have ready for delivery a
certificate) shall be entitled without payment to one certificate for
all the shares registered in his name or, in the case of shares of more
than one class being registered in his name, to a separate certificate
for each class of such shares so registered. Every certificate shall
specify the number and class of shares in respect of which it is issued
and the distinctive numbers, if any, of such shares and the amounts paid
up thereon respectively.
9.2 Every certificate shall be delivered to a holder of certificated shares
within two months after the allotment or, as the case may be, the
lodging with the Company of the transfer of the shares comprised
therein. A certificate shall be delivered in accordance with, and in the
time period permitted by, the Regulations to any uncertificated holder
of shares following the change of those shares to certificated form.
9.3 Every certificate for shares, debenture stock or other form of security
(other than letters of allotment or scrip certificates) shall be issued
under the Seal or in such other manner as the Directors having regard to
the terms of issue and the requirements of the London Stock Exchange may
by resolution authorise (including bearing an imprint or representation
of the Seal) and (subject as hereinafter provided) shall bear the
autographic signatures of one or more of the Directors and the
Secretary, provided that the Directors may by resolution determine that
such signatures or any of them may be affixed thereto by some mechanical
or electronic means or may be printed thereon or that the certificate
need not be signed by any person.
9.4 Where some only of the shares comprised in a share certificate are
transferred, the old certificate shall be cancelled and a new
certificate for the balance of the shares issued in lieu without charge.
Additional certificates
10 Subject as provided in Article 11, if any member shall require
additional certificates he shall pay for each additional certificate
such reasonable out of pocket expenses as the Directors shall determine.
Renewal of certificates
11 If any certificate is defaced, worn out, lost, or destroyed, a new
certificate must be issued without charge (other than exceptional out of
pocket expenses) and the person requiring the new certificate shall
surrender the defaced or worn-out certificate, or give such evidence of
the loss or destruction of the certificate and such indemnity to the
Company as the Directors shall determine.
JOINT HOLDERS OF SHARES
Joint Holders
12 Where two or more persons are registered as the holders of any share
they shall be deemed to hold the same as joint tenants with benefit of
survivorship, subject to the following:-
12.11 The Company shall not be bound to register more than four persons as the
holders of any share.
12.2 The joint holders of any share shall be liable, severally as well as
jointly, in respect of all payments which are to be made in respect of
such share.
12.3 On the death of any one of such joint holders the survivor or survivors
shall be the only person or persons recognised by the Company as having
any title to such share, but the estate of a deceased joint holder shall
not be released from any liability in respect of any share which had
been jointly held by him.
12.4 Any one of such joint holders may give effectual receipts for any
dividend, bonus or return of capital payable to such joint holders.
12.5 Only the person whose name stands first in the Register as one of the
joint holders of any share shall be entitled to delivery of the
certificate relating to such share (if that share is held in
certificated form), or to receive notices from the Company, and any
notice given to such person shall be deemed notice to all the joint
holders.
12.6 Any one of the joint holders of any share for the time being conferring
a right to vote may vote either personally or by proxy at any meeting in
respect of such share as if he were the sole holder, provided that if
more than one of such joint holders be present at any meeting, either
personally or by proxy, the person whose name stands first in the
Register as one of such holders, and no other, shall be entitled to vote
in respect of the share.
CALLS ON SHARES
Calls, how made
13 The Directors may from time to time make calls upon the members in
respect of all moneys unpaid on their shares (whether on account of the
nominal amount of the shares or by way of premium) and not by the
conditions of allotment thereof made payable at any fixed time; provided
that (except as otherwise provided by the conditions of allotment) no
call shall exceed one-fourth of the nominal amount of the share, or be
made payable within one month after the date when the last instalment of
the last preceding call shall have been made payable; and each member
shall, subject to receiving fourteen days' notice at least, specifying
the time and place for payment, pay the amount called on his shares to
the persons and at the times and places appointed by the Directors.
When call deemed to be made
14 A call shall be deemed to have been made at the time when the resolution
of the Directors authorising such call was passed and may be payable by
instalments or postponed or revoked either wholly or in part as the
Directors may determine. Differences in amounts paid on shares
Differences in amounts paid on shares
15 The Directors may make arrangements on the issue of shares for a
difference between the holders of such shares in the amount of calls to
be paid and in the time of payment of such calls.
Interest on calls in arrear
16 If a call payable in respect of any share or any instalment of a call is
not paid before or on the day appointed for payment thereof, the holder
for the time being of such share shall be liable to pay interest on the
same at such rate, not exceeding 20 per cent. per annum, as the
Directors determine from the day appointed for the payment of such call
or instalment to the time of actual payment, but the Directors may, if
they think fit, waive the payment of such interest or any part thereof.
No dividend or other payment or distribution in respect of any such
share shall be paid or distributed, and no other rights which would
otherwise normally be exercisable in accordance with these Articles may
be exercised by a holder of any such share, so long as any such sum or
any interest or expenses payable in accordance with this Article in
relation thereto remains due.
Instalments to be treated as calls
17 If by the conditions of allotment of any shares, or otherwise, any
amount is made payable at any fixed time, whether on account of the
nominal amount of the shares or by way of premium, every such amount
shall be payable as if it were a call duly made by the Directors, of
which due notice had been given; and all the provisions hereof with
respect to the payment of calls and interest thereon, or to the
forfeiture of shares for non-payment of calls, shall apply to every such
amount and the shares in respect of which it is payable.
Payment in advance of calls
18 The Directors may, if they think fit, receive from any member willing to
advance the same all or any part of the moneys uncalled and unpaid upon
any shares held by him; and upon all or any of the moneys so paid in
advance the Directors may (until the same would, but for such advance,
become presently payable) pay interest at such rate (not exceeding,
without the sanction of the Company in General Meeting, 6 per cent. per
annum) as may be agreed upon between the member paying the moneys in
advance and the Directors. Any such payment in advance shall not entitle
the member concerned to participate in respect of the amount of such
payment in any dividend declared or paid on such shares.
FORFEITURE OF SHARES AND LIEN
Notice requiring payment of call or instalment
19 If any member fails to pay any call or instalment of a call on the day
appointed for payment thereof, the Directors may, at any time thereafter
during such time as any part of the call or instalment remains unpaid,
serve a notice on him requiring him to pay so much of the call or
instalment as is unpaid, together with interest accrued and any expenses
incurred by reason of such non-payment.
What the notice is to state
20 The notice shall name a further day (not being earlier than the
expiration of fourteen days from the date of the notice) on or before
which such call or instalment and all interest accrued and expenses
incurred by reason of such non-payment are to be paid, and it shall also
name the place where payment is to be made. The notice shall also state
that in the event of non-payment at or before the time and at the place
appointed the shares in respect of which such call or instalment is
payable will be liable to forfeiture.
Forfeiture if notice not complied with
21 If the requirements of any such notice are not complied with, any shares
in respect of which such notice has been given may, at any time
thereafter before the payment required by the notice has been made, be
forfeited by a resolution of the Directors to that effect, and any such
forfeiture shall extend to all dividends declared in respect of the
shares so forfeited but not actually paid before such forfeiture. The
Directors may accept surrender of any share liable to be forfeited
hereunder.
Forfeited shares the property of the Company
22 When any share has been forfeited, notice of the forfeiture shall be
served upon the person who was before forfeiture the holder of the
share; but no forfeiture shall be in any manner invalidated by any
omission or neglect to give such notice. Subject to the provisions of
the Statutes, any share so forfeited shall be deemed to be the property
of the Company, no voting rights shall be exercised in respect thereof
and the Directors may cancel the same or within three years of such
forfeiture sell, reallot or otherwise dispose of the same in such manner
as they, think fit either to the person who was before the forfeiture
the holder thereof, or to any other person, and either with or without
any past or accruing dividends, and, in the case of reallotment, with or
without any money paid thereon by the former holder being credited as
paid up thereon. Any share not disposed of in accordance with the
foregoing within a period of three years from the date of its forfeiture
shall thereupon be cancelled in accordance with the provisions of the
Statutes.
Liability to pay calls after forfeiture
23 Any person whose shares have been forfeited shall cease to be a member
in respect of the forfeited shares, but shall, notwithstanding, remain
liable to pay to the Company all moneys which at the date of the
forfeiture were presently payable by him to the Company in respect of
the shares, together with interest thereon at such rate, not exceeding
20 per cent. per annum or such lower rate as the Directors shall
appoint, down to the date of payment, but his liability shall cease if
and when the Company receives payment in full of all such moneys in
respect of the shares, together with interest as aforesaid. The
Directors may, if they think fit, waive the payment of such interest or
any part thereof.
Statutory declaration of forfeiture
24 A statutory declaration in writing that the declarant is a Director of
the Company or the Secretary and that a share has been duly forfeited or
sold to satisfy a lien of the Company on a date stated in the
declaration shall be conclusive evidence of the facts stated as against
all persons claiming to be entitled to the share, and such declaration
and the receipt of the Company for the consideration (if any) given for
the share on the sale, re-allotment or disposal thereof, and the
appropriate share certificate, shall constitute a good title to the
share, and the person to whom the share is sold, re-allotted or disposed
of shall be registered as the holder thereof, and his title to the share
shall not be affected by any irregularity or invalidity in the
proceedings in reference to the forfeiture, re-allotment, sale or
disposal of such share. The Directors may authorise some person to
transfer a forfeited share to any other person as aforesaid. The remedy
(if any) of any former holder of any such share, and of any person
claiming under or through him, shall be against the Company and in
damages only.
Lien on partly paid shares
25 The Company shall have a first and paramount lien upon all the shares,
other than fully paid-up shares, registered in the name of each member
(whether solely or jointly with other persons) for any amount payable in
respect of such shares, whether presently payable or not, and such lien
shall apply to all dividends from time to time declared or other moneys
payable in respect of such shares. Unless otherwise agreed, the
registration of a transfer of a share shall operate as a waiver of the
Company's lien, if any, on such share.
Sale for lien
26 For the purpose of enforcing such lien the Directors may, subject (in
the case of uncertificated shares) to the provisions of the Regulations
sell the shares subject thereto, in such manner as they think fit, but
no such sale shall be made until all or any part of the sum outstanding
on the shares shall have become payable and until notice in writing
stating, and demanding payment of, the sum payable and giving notice of
the intention to sell in default of such payment shall have been served
on such member and default shall have been made by him in the payment of
the sum payable for fourteen days after such notice.
Proceeds of sale
27 The net proceeds of any such sale, after payment of the costs thereof,
shall be applied in or towards satisfaction of such part of the amount
in respect of which the lien exists as is presently payable. The
residue, if any, shall (upon surrender to the Company for cancellation
of the certificate for any certificated shares sold and subject to a
like lien for sums not presently payable as existed upon the shares
before the sale) be paid to the member or as he shall in writing direct
or the person (if any) entitled by transmission to the shares
immediately before the sale.
Title
28 An entry in the Directors' minute book of the forfeiture of any shares,
or that any shares have been sold to satisfy a lien of the Company,
shall be sufficient evidence, as against all persons claiming to be
entitled to such shares, that the said shares were properly forfeited or
sold; and such entry, the receipt of the Company for the price of such
shares, and the appropriate share certificate, shall constitute a good
title to such shares, and the name of the purchaser or other person
entitled shall be entered in the Register as a Member, and he shall be
entitled, if such shares are in certificated form, to a certificate of
title to the shares and shall not be bound to see to the application of
the purchase money, nor shall his title to the shares be affected by any
irregularity or invalidity in the proceedings in reference to the
forfeiture or sale. For giving effect to any such sale, the Directors
may, subject (in the case of uncertificated shares) to the provisions of
the Regulations, authorise some person to transfer any such shares sold
to the purchaser thereof. The remedy (if any) of the former holder of
such shares, and of any person claiming under or through him, shall be
against the Company and in damages only.
TRANSFER AND TRANSMISSION OF SHARES
Form of instrument of transfer of certificated shares etc.
29 All transfers of certificated shares shall be in writing in the usual
common form or in any other form permitted by the Stock Transfer Act
1963 or approved by the Directors. The instrument of transfer shall be
signed by or on behalf of the transferor and, if the certificated
shares transferred are not fully paid, by or on behalf of the
transferee. The transferor shall be deemed to remain the holder of
such certificated shares until the name of the transferee is entered
in the Register in respect thereof.
Transfers of uncertificated shares
30 Subject to the provisions of these Articles, a Member may transfer all
or any of his uncertificated shares in any manner which is permitted by
the Statutes and is from time to time approved by the Directors and the
Company shall register such transfer in accordance with the Statutes.
The transferor shall be deemed to remain the holder of such
uncertificated shares until the name of the transferee is entered on the
register in respect thereof.
Renunciation of Allotments
31 The Directors may at any time after the allotment of any share but
before any person has been entered in the Register as the holder thereof
recognise a renunciation thereof by the allottee in favour of some other
person and may accord to any allottee of a share a right to effect such
renunciation upon and subject to such terms and conditions as the
Directors may think fit.
Power to refuse registration of transfers
32 Subject (in the case of uncertificated shares) to the provisions of the
Regulations and the facilities and requirements of the relevant system
concerned, the Directors may, in their absolute discretion and without
assigning any reason therefor, refuse to register any transfer of shares
of any class (not being fully paid shares), and may also decline to
register any transfer of certificated shares of any class on which the
Company has a lien, provided that, where any such shares are admitted to
the Official List of the London Stock Exchange, the Directors may impose
only such restrictions on transfer as are permitted by the London Stock
Exchange.
33 The Directors may also refuse to recognise any instrument of transfer of
a certificated share, unless the instrument of transfer, duly stamped,
is deposited at the Office or such other place as the Directors may
appoint, accompanied by the certificate for the certificated shares to
which it relates if it has been issued, and such other evidence as the
Directors may reasonably require to show the right of the transferor to
make the transfer.
34 The Directors may, in their absolute discretion and without assigning
any reason therefor, refuse to register any transfer of an
uncertificated share where permitted by the Statutes.
35 The Directors may also refuse to register any transfer of shares unless
it is in respect of only one class of shares.
36 The maximum number of persons who may be registered as joint holders of
a share is four.
Notice of refusal of transfer
37 If the Directors refuse to register a transfer they shall send to the
transferee notice of the refusal:-
37.1 the case of a certificated share, within two months after the date on
which the transfer was lodged with the Company; or
37.2 in the case of an uncertificated share, within two months of the date on
which a properly authenticated dematerialised instruction attributable
to the operator of the relevant system was received by the Company in
respect of such transfer.
Register may be closed
38 Subject to compliance with the Statutes, the Register may be closed at
such times and for such periods as the Directors in their absolute
discretion may from time to time determine, provided that:-
38.1 the Register shall not be closed for more than thirty days in any year;
and
38.2 where shares have been permitted to be transferred by means of a
relevant system, the consent of the operator of that system has been
obtained.
No fee for registration
39 No fee shall be charged in respect of the registration of any transfer,
probate, letters of administration, certificate of marriage or death,
power of attorney or other document relating to or affecting the title
to any shares.
Transfer instruments to be retained by the Company
40.1 All instruments of transfer which shall be registered shall, subject to
Article 40.2, be retained by the Company, but any instrument of transfer
which the Directors may refuse to register shall (except in any case of
fraud) be returned to the persons depositing the same.
40.2 The Company shall be entitled to destroy the following documents at the
following times:-
40.2.1 registered instruments of transfer or dematerialised instructions
transferring shares and any other documents which were the basis for
making an entry on the Register: at any time after the expiration of six
years from the date of registration thereof;
40.2.2 allotment letters: at any time after the expiration of six years from
the date of issue thereof;
40.2.3 dividend mandates, powers of attorney, grants of probate and letters of
administration: at any time after the account to which the relevant
mandate, power of attorney, grant of probate or letters of
administration related has been closed;
40.2.4 notifications of change of address: at any time after the expiration of
two years from the date of recording thereof; and
40.2.5 cancelled share certificates: at any time after the expiration of one
year from the date of the cancellation thereof.
40.3 It shall conclusively be presumed in favour of the Company:-
40.3.1 that every entry in the Register purporting to be made on the basis of
any such documents so destroyed was duly and properly made; and
40.3.2 that every such document so destroyed was valid and effective and had
been duly and properly registered, cancelled, or recorded, as the case
may be, in the books or records of the Company.
40.4 The provisions aforesaid shall apply to the destruction of a document in
good faith and without notice of any claim (regardless of the parties
thereto) to which the document might be relevant.
40.5 Nothing herein contained shall be construed as imposing upon the Company
any liability in respect of the destruction of any such document earlier
than as aforesaid or in any other circumstances, which would not attach
to the Company in the absence of this Article.
40.6 References in this Article to the destruction of any document include
the disposal thereof in any manner.
Persons recognised on death of a member
41 On the death of any member (not being one of two or more joint holders
of a share) the legal personal representatives of such deceased member
shall be the only persons recognised by the Company as having any title
to the share or shares registered in his name.
Transmission
42 Any person becoming entitled to a share or shares by reason of the death
or bankruptcy of a member may, upon such evidence being produced as may
from time to time be required by the Directors, elect either to be
registered as a member in respect of such share or shares, or to make
such transfer of the share or shares as the deceased or bankrupt person
could have made. If the person so becoming entitled shall elect to be
registered himself he shall give to the Company a notice in writing
signed by him to that effect. The Directors shall in either case have
the same right to refuse or suspend registration as they would have had
if the death or bankruptcy of the member had not occurred and the notice
of election or transfer were a transfer executed by that member.
Limitation of rights before registration
43 Any person becoming entitled to a share by reason of the death or
bankruptcy of a member shall be entitled to the same dividends and other
advantages to which he would be entitled if he were the registered
holder of the share, except that he shall not, unless and until he is
registered as a member in respect of the share or unless the Directors
otherwise determine, be entitled in respect of it to receive notice of,
or to exercise any right conferred by membership in relation to,
meetings of the Company: Provided always that the Directors may at any
time give notice requiring any such person to elect either to be
registered himself or to transfer such share to some other person, and
if such notice is not complied with within ninety days after service the
Directors may thereafter withhold payment of all dividends and other
moneys payable in respect of such share until the requirements of the
notice have been complied with.
Untraced members
44.1 Subject to the provisions of the Statutes, the Company shall be entitled
to sell at the best price reasonably obtainable any share or stock of a
member or any share or stock to which a person is entitled by
transmission if and provided that:-
44.1.1 for a period of twelve years no cheque or warrant sent by the Company
through the post in a pre-paid letter addressed to the member or to the
person entitled by transmission to the share or stock at his address on
the Register or other the last known address given by the member or the
person entitled by transmission to which cheques and warrants are to be
sent has been cashed and no communication has been received by the
Company from the member or the person entitled by transmission provided
that in any such period of twelve years the Company has paid at least
three dividends in respect of the shares in question whether interim or
final and no such dividend has been claimed; and
44.1.2 the Company has at any time following the expiration of the said period
of twelve years by advertisement in a national daily newspaper and a
local newspaper circulating in the area in which the last known address
of the member or the person entitled to the shares by transmission at
which service of notices might be effected in accordance with these
Articles is located given notice of its intention to sell such share;
and
44.1.3 the Company has not during the further period of three months after the
date of the advertisement and prior to the exercise of the power of sale
received any communication from the member or person entitled by
transmission; and
44.1.4 the Company has given notice in writing of its intention to sell such
shares or stock in each case to the Quotations Department of the London
Stock Exchange.
44.2 To give effect to any such sale, the Directors may authorise some person
to transfer such share and such transfer shall be as effective as if it
had been executed by the registered holder of, or person entitled by the
transmission to, such share. The Company shall account to the member or
other person entitled to such share or stock for the net proceeds of
such sale by carrying all moneys in respect thereof to a separate
account which shall be a permanent debt of the Company and the Company
shall be deemed to be a debtor and not a trustee in respect thereof for
such Member or other person. Moneys carried to such separate account may
either be employed in the business of the Company or invested in such
investments (other than shares of the Company or its holding company (if
any)) as the Directors may from time to time think fit. The Company
shall not be required to pay interest on the said moneys or to account
for any amounts earned thereon.
Uncertificated shares - general provisions
45 Subject to the Regulations and the facilities and requirements of the
relevant system concerned, the Directors shall have power to make such
arrangements as they may (in their absolute discretion) think fit in
order for any class of share to be a participating security and subject
thereto the Company may issue shares of that class in uncertificated
form and permit such shares to be transferred by means of a relevant
system to the fullest extent available from time to time. No provision
of these Articles shall apply or have effect to the extent that it is
inconsistent with:-
45.1 the holding of shares in uncertificated form;
45.2 the transfer of title to shares by means of a relevant system; and
45.3 the Regulations.
46 Without prejudice to the generality of Article 45, notwithstanding any
provision of these Articles and subject always to the Regulations, where
any class of share is a participating security:-
46.1 the register relating to such class shall be maintained at all times in
the United Kingdom;
46.2 shares of such class held by the same holder or joint holder in
certificated form and in uncertificated form shall be treated as
separate holdings, unless the Directors otherwise determine;
46.3 shares of such class may be changed from certificated to uncertificated
form, and from uncertificated to certificated form, in accordance with
the Regulations;
46.4 the Company shall comply with Regulation 21 of the Regulations in
relation to the rectification of, and changes to, the Register relating
to such class;
46.5 the provisions of these Articles with respect to meetings, including the
holders, of such class shall have effect subject to the provisions of
Regulation 34 of the Regulations; and
46.6 the Directors may, by notice in writing to the holder of any
uncertificated shares of such class, require that holder to change the
form of such shares to certificated form within such period as may be
specified in the notice.
ALTERATION OF SHARE CAPITAL
Capital, how increased
47 The Company may from time to time by Ordinary Resolution increase its
capital by the creation of new shares, such increase to be of such
aggregate amount and to be divided into shares of such respective
amounts as the resolution shall prescribe.
New capital to be considered part of original unless otherwise provided
48 Any capital raised by the creation of new shares shall, unless otherwise
provided by the conditions of issue, be considered as part of the
original capital, and shall be subject to the same provisions with
reference to the payment of calls and the forfeiture of shares on
non-payment of calls, transfer and transmission of shares, lien or
otherwise, as if it had been part of the original capital.
Alteration of capital
49.1 The Company may by Ordinary Resolution:-
49.1.1 consolidate all or any of its share capital into shares of larger amount
than its existing shares;
49.1.2 cancel any shares which at the date of the passing of the resolution
have not been taken or agreed to be taken by any person and diminish the
amount of its capital by the amount of the shares so cancelled;
49.1.3 sub-divide its shares or any of them into shares of smaller amount than
is fixed by the Memorandum of Association (subject, nevertheless, to the
provisions of the Statutes), and so that the resolution whereby any
share is sub-divided may determine that as between the holders of the
shares resulting from such sub-division, one or more of the shares may
have any such preferred or other special rights over or may have such
deferred rights or be subject to any such restrictions as compared with
the others as the Company has power to attach to unissued or new shares.
49.2 The Company may by Special Resolution reduce its share capital, any
capital redemption reserve and any share premium account in any manner
authorised by law.
Fraction of shares
50 Anything done in pursuance of Article 49 shall be done in the manner
therein provided and subject to any conditions imposed by the Statutes
so far as they shall be applicable and, so far as they shall not be
applicable, in accordance with the terms of the resolution authorising
the same and be otherwise in such manner as the Directors deem most
expedient, with power for the Directors on any consolidation of shares
to deal with fractions of shares in any manner they think fit. In
particular, whenever on any consolidation members shall be entitled to
any fractions of shares the Directors may sell all or any of such
fractions and shall distribute the net proceeds thereof amongst the
members entitled to such fractions in due proportions. In giving effect
to any such sales, the Directors may authorise some person to transfer
the shares sold to the purchaser thereof and the purchaser shall be
registered as the holder of the shares comprised in any such transfer
and he shall not be bound to see to the application of the purchase
money nor shall his title to the shares be affected by any irregularity
or invalidity in the proceedings relating to the transfer.
MODIFICATION OF RIGHTS
Rights of various classes may be altered
51.1 If at any time the capital is divided into different classes of shares,
the rights attached to any class or any of such rights (unless otherwise
provided by the terms of issue of the shares of that class) may, subject
to the provisions of Section 127 of the Act, whether or not the Company
is being wound up, be modified, abrogated or varied with the consent in
writing of the holders of three fourths of the issued shares of that
class, or with the sanction of an Extraordinary Resolution passed at a
separate general meeting of the holders of the shares of the class, but
not otherwise.
51.2 To every such separate general meeting the provisions of these Articles
relating to General Meetings shall, mutatis mutandis, apply, but so
that: -
51.2.1 at every such separate general meeting the quorum shall be two persons
at least holding or representing by proxy one third of the issued shares
of the class. Provided that if at any adjourned meeting of the holders
of any class a quorum as defined is not present those holders who are
present in person or by proxy shall form a quorum;
51.2.2 any holder of shares of the class in question present in person or by
proxy may demand a poll; and
51.2.3 the holders of the shares of the class in question shall, on a poll,
have one vote in respect of every share of the class held by them
respectively.
51.3 This Article shall apply to the modification, variation or abrogation of
the special rights attached to some only of the shares of any class as
if each group of shares of the class differently treated formed a
separate class the special rights whereof are to be modified, varied or
abrogated.
51.4 For the avoidance of doubt, the provisions of these Articles relating to
General Meetings shall apply, with necessary modifications, to any
separate meeting of the holders of shares of a class held otherwise than
in connection with the variation or abrogation or modification of the
rights attached to shares of that class.
Creation or issue of further shares of special class
52 The rights attached to any class of shares shall not (unless otherwise
provided by the terms of issue of the shares of that class or by the
terms upon which such shares are for the time being held) be deemed to
be modified or varied by the creation or issue of further shares ranking
in some or all respects pari passu therewith but in no respect in
priority thereto.
GENERAL MEETINGS
Annual General Meetings
53 The Company shall in each year hold a General Meeting as its Annual
General Meeting in addition to any other meetings in that year, and not
more than fifteen months shall elapse between the date of one Annual
General Meeting and that of the next. The Annual General Meeting shall
be held at such time and place as the Directors shall appoint. All
General Meetings other than Annual General Meetings shall be called
"Extraordinary General Meetings".
Extraordinary General Meetings
54.1 The Directors may whenever they think fit, convene an Extraordinary
General Meeting and shall do so upon a requisition made in accordance
with Section 368 of the Act.
54.2 If at any time there shall not be present in England and capable of
acting sufficient Directors to form a quorum, the Directors in England
capable of acting, or if there shall be no such Directors then any two
members, may convene an Extraordinary General Meeting in the same manner
as nearly as possible as that in which General Meetings may be convened
by the Directors, and the Company at such meeting shall have power to
elect Directors.
Business at meeting called by requisition
55 In the case of an Extraordinary General Meeting called in pursuance of a
requisition, unless such meeting shall have been called by the
Directors, no business other than that stated in the requisition as the
objects of the meeting shall be transacted.
NOTICE OF GENERAL MEETINGS
Notice of meeting
56 An Annual General Meeting and an Extraordinary General Meeting at which
it is proposed to pass a Special Resolution or (save as provided by the
Statutes) a resolution of which special notice has been given to the
Company shall be called by twenty-one days' notice in writing at the
least, and any other Extraordinary General Meeting shall be called by
fourteen days' notice in writing at the least. The notice shall be
exclusive of the day on which it is served or deemed to be served and
also of the day for which it is given.
Recipients of Notices
57 Notice of every Annual General Meeting and Extraordinary General Meeting
of the Company shall be given to:-
57.1 all Members other than any who, under the provisions of these Articles
or the terms of issue of the shares they hold, are not entitled to
receive such notices from the Company;
57.2 the auditors of the Company for the time being; and
57.3 each Director.
Contents of notice
58 The notice shall specify the place, the day and the time of meeting,
and, in case of special business, the general nature of the business.
The notice shall be given in manner hereinafter mentioned or in such
other manner (if any) as may be prescribed by the Company General
Meeting to such persons as are under these Articles entitled to receive
such notices from the Company. Every notice calling an Annual General
Meeting shall specify the meeting as such.
Meeting convened by short notice
59 A meeting of the Company shall, notwithstanding that it is called by
shorter notice than specified above, be deemed to have been duly called
with regard to length of notice if it is so agreed:-
59.1 in the case of a meeting called as the Annual General Meeting, by all
the members entitled to attend and vote thereat; and
59.2 in the case of any other meeting, by a majority in number of the Members
having the right to attend and vote at the meeting, being a majority
together holding not less than 95 per cent. in nominal value of the
shares giving that right.
Statement as to proxies in notice
60 In every notice calling a meeting of the Company or of any class of
members of the Company there shall appear with reasonable prominence a
statement that a member entitled to attend and vote is entitled to
appoint a proxy to attend and vote instead of him, and that a proxy need
not be a member.
Omission to give notice
61 The accidental omission to give notice to any person entitled under
these Articles to receive notice of a General Meeting, or the
non-receipt by any such person of such notice, shall not invalidate the
proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
Business of meeting
62 The ordinary business of an Annual General Meeting shall be to receive
and consider the accounts and balance sheets, the reports of the
Directors and Auditors, and any other documents required by law to be
attached or annexed to the balance sheets, to elect Directors in place
of those retiring, to elect Auditors where no special notice of such
election is required by the Statute and fix their remuneration, or
determine the method by which it may be fixed, to declare dividends and
to confer, vary or renew any authority under Section 80 of the Act or
any power pursuant to Section 95 of the Act. All other business
transacted at an Annual General Meeting, with all business transacted at
an Extraordinary General Meeting, shall be deemed special.
Quorum
63 No business shall be transacted at any General Meeting unless a quorum
of members is present, and such quorum shall consist of not less than
two members present in person or by proxy and entitled to vote.
Adjournment for want of quorum
64 If, within fifteen minutes from the time appointed for a General
Meeting, a quorum is not present, the meeting, if convened by or on the
requisition of members, shall be dissolved. In any other case it shall
stand adjourned to such day and to such time and place (not being less
than seven nor more than thirty days thereafter) as the Chairman may
determine. In default of such determination it shall be adjourned to the
same day in the next week or, if that day is not a business day, the
next following business day at the same time and place; if at such
adjourned meeting a quorum is not present within half an hour from the
time appointed for the meeting, the meeting shall be dissolved.
Chairman
65 The Chairman (if any) of the Board of Directors shall preside as
Chairman at every General Meeting of the Company. If there is no such
Chairman, or if at any meeting he is not present within fifteen minutes
after the time appointed for holding the meeting, or is unwilling to act
as Chairman, the Directors present shall choose one of their number to
act as Chairman or if no Director is present and willing to take the
chair the members present shall choose one of their number to be
Chairman.
Adjournment
66.1 The Chairman may, with the consent of any General Meeting at which a
quorum is present (and shall if so directed by the meeting), adjourn the
meeting from time to time and from place to place; but no business shall
be transacted at any adjourned meeting other than the business which
might lawfully have been transacted at the meeting from which the
adjournment took place.
66.2 The Chairman may at any time adjourn any meeting (whether or not it has
commenced or a quorum is present) either sine die or to such other time
and place as the Board or the Chairman of the meeting may decide, if it
appears to him that:-
66.2.1 the number of persons wishing to attend cannot be conveniently
accommodated in the place appointed for the meeting; or
66.2.2 the unruly conduct of persons attending the meeting prevents or is
likely to prevent the orderly continuation of the business of the
meeting; or
66.2.3 an adjournment is otherwise necessary so that the business of the
meeting may be properly conducted.
66.3 When a meeting is adjourned for thirty days or more or sine die, seven
days' notice of the adjourned meeting shall be given in the like manner
as in the case of an original meeting. Save as aforesaid, it shall not
be necessary to give any notice of an adjourned meeting or of the
business to be transacted thereat.
Voting
67.1 At any General Meeting every question shall be decided by a show of
hands unless a poll is (on or before the declaration of the result of
the show of hands) directed by the Chairman or demanded by:-
67.1.1 at least three members present in person or by proxy and entitled to
vote; or
67.1.2 one or more members representing not less than one-tenth of the total
voting rights of all the Members having the right to vote at the
meeting; or
67.1.3 one or more members holding shares in the Company conferring a right to
vote at the meeting, being shares on which an aggregate sum has been
paid up equal to not less than one-tenth of the total sum paid up on all
the shares conferring that right.
The demand for a poll may be withdrawn.
67.2 A declaration by the Chairman that a resolution has been carried or not
carried, or carried or not carried by a particular majority, and an
entry to that effect in the minute book of the Company, shall be
conclusive evidence of the facts, without proof of the number or
proportion of the votes recorded in favour of or against such
resolution.
Poll
68 If a poll is duly directed or demanded it may be taken immediately or
(subject to the provisions of Article 70) at such other time (but not
more than thirty days after such direction or demand) and in such manner
as the Chairman may appoint, and the result of such poll shall be deemed
to be the resolution of the meeting at which the poll was directed or
demanded. No notice need be given of a poll not taken immediately.
Casting Vote
69 In the case of an equality of votes at any General Meeting, whether upon
a show of hands or on a poll, the Chairman shall be entitled to a second
or casting vote.
When poll taken without adjournment
70 A poll demanded upon the election of a Chairman or upon a question of
adjournment shall be taken forthwith. Any business other than that upon
which a poll has been demanded may be proceeded with pending the taking
of the poll.
VOTES OF MEMBERS
Votes
71 Subject to any special terms as to voting upon which any shares may for
the time being be held, upon a show of hands every member present in
person shall have one vote, and upon a poll every member present in
person or by proxy shall have one vote for every share held by him.
By committee or curator
72 A member incapable by reason of mental disorder or otherwise of managing
and administering his property and affairs may vote whether on a show of
hands or on a poll by his receiver or other person appointed by any
Court of competent jurisdiction to act on his behalf and any such person
may on a poll vote by proxy provided that such evidence as the Directors
may require of the authority of the person claiming to vote shall have
been deposited at the Office, or at such other place as is specified in
accordance with these Articles for the deposit of instruments of proxy,
not less than forty-eight hours before the time of holding the meeting
or adjourned meeting at which such person claims to vote.
Persons whose calls are unpaid not entitled to vote
73 No member shall be entitled to vote at any General Meeting unless all
calls or other sums presently payable by him in respect of the shares
held by him in the Company have been paid.
Disenfranchisement of members
74.1 For the purposes of this Article, unless the context otherwise
requires:-
74.1.1 "disclosure notice" means a notice issued by or on behalf of the Company
requiring disclosure of interests in specified shares pursuant to
Section 212 of the Act;
74.1.2 "restrictions" means one or more, as the case may be, of the
restrictions referred to in paragraph 74.3 of this Article;
74.1.3 "specified shares" means all or, as the case may be, some of the shares
specified in a disclosure notice;
74.1.4 a person other than the member holding a share shall be treated as
appearing to be interested in the share if the member has informed the
Company that the person is, or may be, so interested, or if the Board
(after taking account of any information obtained from the member or,
pursuant to a disclosure notice, from any other person) knows or has
reasonable cause to believe that the person is, or may be, so
interested; and
74.1.5 "interested" shall be construed as it is for the purpose of Section 212
of the Act.
74.2 Notwithstanding anything in these Articles to the contrary, if:-
74.2.1 a disclosure notice has been served on a member or any other person
appearing to be interested in the specified shares; and
74.2.2 the Company has not received (in accordance with the terms of such
disclosure notice) the information required therein in respect of the
relevant specified shares not later than fourteen days (subject as
provided in Article 74.7 below) after the service of such disclosure
notice
then the Directors may (subject to Article 74.3 below) determine that
the member in respect of the relevant specified shares shall, upon the
issue of a restriction notice (as referred to below), be subject
to the restrictions referred to in such restriction notice (and upon the
issue of such restriction notice such member shall be so subject).
A "restriction notice" shall be a notice issued by the Company stating,
or substantially to the effect, that (until such time as the Directors
determine otherwise pursuant to Article 74.4) the specified shares
referred to therein shall be subject to one or more of the restrictions
stated therein.
74.3 The restrictions which the Directors may determine shall apply to
specified shares pursuant to this Article shall be one or more, as
determined by the Directors, of the following (save that, (i) where the
holder of specified shares is the holder of less than 0.25 per cent. (in
nominal value) of the shares of the same class as the specified shares
in issue at the time of service of the disclosure notice in respect of
such specified shares, only the restriction referred to in Article
74.3.1 below may be determined by the Directors to apply) and (ii) the
restrictions referred to in Article 74.3.2 shall not apply to sales of
specified shares to a bona fide unconnected third party (such as a sale
of specified shares on a recognised stock exchange as defined in the
Financial Services Act 1986 or on any stock exchange on which the
Company's shares are normally dealt or pursuant to an acceptance of a
take-over offer for the Company (as defined in Section 428 (1) of the
Act)):-
74.3.1 that the member registered in respect of such specified shares shall not
be entitled, in respect of those specified shares, to be present or to
vote either personally or by representative or by proxy or otherwise at
any general meeting or at any separate general meeting of the holders of
any class of shares or upon any poll;
74.3.2 that no transfer of such specified shares (other than a transfer to a
bona fide unconnected third party) by the member registered as a
certificated holder in respect of such specified shares shall be
effective or shall be recognised by the Company; and
74.3.3 that no dividend shall be paid to the member registered in respect of
such specified shares in respect of those specified shares and that in
circumstances where an offer of the right to elect to receive shares or
other securities instead of cash in respect of any dividend is or has
been made, any election made thereunder by such member in respect of
such specified shares shall not be effective.
74.4 The Directors may determine that one or more of the restrictions imposed
on specified shares shall cease to apply (whereupon they shall cease so
to apply) at any time, and all the restrictions imposed on the specified
shares shall in any event cease to apply on the expiry of two business
days after:-
74.4.1 the Company receives (in accordance with the terms of the relevant
disclosure notice) the information required therein in respect of such
specified shares; or
74.4.2 the Company receives any other executed instrument of transfer in
respect of such specified shares held in certificated form or a properly
authenticated dematerialised instruction in respect of the transfer of
such specified shares held in uncertificated form which would otherwise
be given effect to and the Directors have not determined, within ten
days after such receipt, not to give effect thereto on the grounds that
it has reasonable cause to believe that the change in the registered
holder of such specified shares would not be as a result of an arm's
length sale resulting in a material change in the beneficial interests
in such specified shares.
74.5 Where dividends are not paid as a result of restrictions having been
imposed on specified shares, such dividends shall accrue and shall be
payable (without interest) upon the relevant restriction ceasing to
apply.
74.6 Where the Directors make a determination under Article 74.3 above they
shall notify the purported transferee as soon as practicable thereof and
any person may make representations in writing to the Directors
concerning any such determination. The Directors shall not be liable to
any person as a result of having imposed restrictions or having failed
to determine that such restrictions shall cease to apply if the
Directors acted in good faith.
74.7 Where the holder of the specified shares is the holder of less than 0.25
per cent. (in nominal value) of the shares of the same class as the
specified shares in issue at the time of service of the disclosure
notice in respect of such specified shares, the period of fourteen days
referred to in Article 74.2.2 above shall be deemed to be replaced by a
period of twenty-eight days.
74.8 Shares issued in right of specified shares in respect of which a member
is for the time being subject to restrictions under this Article shall
on issue become subject to the same restrictions whilst held by that
member as the specified shares in right of which they are issued. For
this purpose, shares which the Company procures to be offered to
shareholders pro rata (or pro rata ignoring fractional entitlements and
shares not offered to certain members by reason of legal or practical
problems associated with offering shares outside the United Kingdom)
shall be treated as shares issued in right of specified shares.
74.9 The Directors shall at all times have the right, at their discretion, to
suspend, in whole or in part, any restriction notice given pursuant to
this Article either permanently or for any given period and to pay to a
trustee any dividend payable in respect of any specified shares or in
respect of any shares issued in right of specified shares which are
referred to in such restriction notice. Notice of suspension, specifying
the sanctions suspended and the period of suspension shall be given to
the relevant holder in writing within seven days after any decision to
implement such a suspension.
74.10 The provisions of this Article are without prejudice to, and shall not
affect, the right of the Company to apply any of the provisions referred
to in Part VI of the Act.
Objection to the qualification of a vote
75 If any objection shall be raised as to the qualification of any voter or
it is alleged that any votes have been counted which should not have
been counted or that any votes are not counted which ought to have been
counted, the objection or allegation shall not vitiate the decision on
any resolution unless it is raised at the meeting or adjourned meeting
at which the vote objected to is given or tendered or at which the
alleged error occurs. Any objection or allegation made in due time shall
be referred to the Chairman of the meeting, whose decision shall be
final and conclusive.
Voting by proxy
76 Upon a poll votes may be given either personally or by proxy. A proxy
shall not be entitled to vote except on a poll.
How signed
77 The instrument appointing a proxy shall be in the usual common form or
such other form as may be approved by the Directors from time to time
(provided that it shall be so worded as to enable the proxy to vote
either for or against the resolutions to be proposed at the meeting at
which the proxy is to be used) and shall be in writing under the hand of
the appointor, or of his attorney duly authorised in writing, or if such
appointor is a corporation either under its common seal or under the
hand of an attorney or duly authorised officer of the corporation. A
member may appoint two or more persons as proxies in the alternative,
but if he shall do so only one of such proxies may attend as such and
vote instead of such member on any one occasion.
Any person may act as proxy
78 Any person may be appointed to act as proxy. A proxy need not be a
member of the Company.
Deposit of proxy
79 The instrument appointing a proxy, and the power of attorney or other
authority (if any) under which it is signed, or a notarially certified
copy of such power or authority, shall be deposited at the Office (or
such other place in the United Kingdom as may be specified for that
purpose in or by way of note to the notice convening the meeting) not
less than forty-eight hours before the time fixed for holding the
meeting or adjourned meeting at which the person named in such
instrument is authorised to vote, or, in the case of a poll taken more
than forty-eight hours after it was demanded, not less than twenty-four
hours before the time appointed for the taking of the poll or, in the
case of a poll not taken forthwith but taken within forty-eight hours
after it was demanded, at the meeting at which such poll was demanded
with any Director or the Secretary, and in default the instrument of
proxy shall not be treated as valid: Provided that an instrument of
proxy relating to more than one meeting (including any adjournment
thereof) having once been so delivered for the purposes of any meeting
shall not require again to be delivered for the purposes of any
subsequent meeting to which it relates.
A proxy may demand a poll
80 The instrument appointing a proxy shall be deemed to confer authority to
demand or join in demanding a poll but shall not confer any further
right to speak at the meeting except with the permission of the
Chairman.
When vote by proxy valid, though authority revoked
81 A vote given or act done in accordance with the terms of an instrument
of proxy shall be valid notwithstanding the previous death or insanity
of the appointor, or revocation of the proxy, or of the authority under
which the proxy was executed, or the transfer of the share in respect of
which the proxy is given, unless notice in writing of such death,
insanity, revocation or transfer as aforesaid shall have been received
by the Company at the Office (or such other place in the United Kingdom
as may be specified for depositing the instrument of proxy in or by way
of any note to the notice convening the meeting) at least one hour
before the commencement of the meeting or adjourned meeting or poll at
which the vote was given or the act was done.
Votes by corporations
82 Any corporation which is a member may, by resolution of its directors or
other governing body, authorise such person as it thinks fit to act as
its representative at any meeting of the Company, or at any meeting of
any class of members, and the person so authorised shall be entitled to
exercise the same powers on behalf, of the corporation which he
represents as that corporation could exercise if it were an individual
member attending the meeting in person.
DIRECTORS
Numbers of Directors
83 Unless and until the Company in General Meeting shall otherwise
determine, the number of Directors shall be not less than three nor more
than fourteen.
Director's retiring age excluded
84 A Director shall be capable of being appointed or re-elected a Director
notwithstanding that he shall have attained the age of seventy nor shall
a Director be required to retire by reason of his having attained that
or any other age, and Section 293 of the Act shall not apply.
Director's share qualification
85 A Director shall not require a share qualification. A Director shall be
entitled to receive notice of and attend and speak at all General
Meetings of the Company and at all separate general meetings of the
holders of any class of shares in the capital of the Company.
Remuneration of Directors
86 The remuneration of the Directors for acting as Directors (including
acting as members of any committee of the Directors) shall from time to time be
determined by the Company in General Meeting, save that the Company may pay to
Directors not being employees of the Company or any of its subsidiaries such
fees as may be determined by the Directors, in an amount not exceeding a basic
fee of L20,000 per Director per annum, together with allowances of up to L600
per Director for each meeting of the Directors or any committee thereof attended
in person, L500 per Director for each such meeting attended by telephone and
L250 per calendar quarter for acting as Chairman of any committee of the
Directors, in each case exclusive of value added tax, if any (or such other
amount(s) as may from time to time be fixed by the Company in general meeting).
Repayment of expenses
87 The Company may repay to any Director all such reasonable expenses as he
may incur in attending and returning from meetings of the Directors, or
of any committee of the Directors, or General Meetings, or otherwise in
or about the business of the Company.
Payment for duties outside scope of ordinary duties
88 Any Director who is appointed to any executive office or otherwise
performs services which in the opinion of the Directors are outside the
scope of the ordinary duties of a Director may be paid in addition to
any Directors' fees to which he may be entitled under Article 86 such
remuneration by way of salary, percentage of profits or otherwise as the
Directors may determine.
Register of Directors' holdings of shares or debentures by Directors
89 The Company shall in accordance with the provisions of the Statutes duly
keep at the Office a register showing, as respects each Director, the
number description and amount of any shares in or debentures of the
Company and of other bodies corporate in which he is interested. Such
register shall be open to inspection between the hours of 10 a.m. and 12
noon on weekdays other than national holidays and shall also be produced
at the commencement of each Annual General Meeting and shall remain open
and accessible during the continuance of the meeting to any person
attending the meeting.
POWERS AND DUTIES OF DIRECTORS
Powers
90 The business of the Company shall be managed by the Directors who may
exercise all such powers of the Company as are not required to be
exercised by the Company in General Meeting, subject, to the provisions
of these Articles and of the Statutes, and to such regulations as may be
prescribed by the Company in General Meeting; but no regulation made by
the Company in General Meeting shall invalidate any prior act of the
Directors which would have been valid if such regulation had not been
made. The general powers conferred upon the Directors by this Article
shall not be deemed to be abridged or restricted by any specific power
conferred upon the Directors by any other Article.
Pensions, etc.
91 Without prejudice to the generality of the last preceding Article, the
Directors may give or award pensions, annuities, gratuities and
superannuation or other allowances or benefits to any persons who are or
have at any time been employed by or in the service of the Company
(including Directors who have held any executive office under the
Company) and to the husbands, wives, widows, widowers, children and
other relatives and dependents of any such persons, and may set up,
establish, join with other companies (being Subsidiaries or companies
with which it is associated in business), support and maintain pension,
superannuation or other funds or schemes (whether contributory or
non-contributory) for the benefit of such persons or any of them or any
class of them. Any Director shall be entitled to receive and retain for
his own benefit any such pension, annuity, gratuity, allowance or other
benefit. Any such pension, funds or schemes may, as the Directors
consider desirable, be granted to an employee either before and in
anticipation of or upon or at any time after his actual retirement.
Subsidiaries
92 The Directors may arrange that any branch of the business carried on by
the Company or any other business in which the Company may be interested
shall be carried on as or through one or more Subsidiaries and they may,
on behalf of the Company, make such arrangements as they think advisable
for taking the profits or bearing the losses of any branch or business
so carried on or for financing, assisting or subsidising any such
Subsidiary or guaranteeing its contracts, obligations or liabilities,
and they may appoint, remove and re-appoint any persons (whether members
of their own body or not) to act as Directors, Managing Directors or
Managers of any such Subsidiary or any other company in which the
Company may be interested and may determine the remuneration (whether by
way of salary, commission on profits or otherwise) of any persons so
appointed, and any Directors of the Company may retain any remuneration
so payable to them.
Attorneys
93 The Directors may from time to time and at any time by power of attorney
executed under the Seal or otherwise by the Company as its Deed appoint any
company, firm or person or body of persons, whether nominated directly or
indirectly by the Directors to be the attorney or attorneys of the Company for
such purposes and with such powers, authorities and discretions (not exceeding
those vested in or exercisable by the Directors under these Articles) and for
such period and subject to such conditions as they may think fit, and any such
powers of attorney may contain such provisions for the protection and
convenience of persons dealing with any such attorney as the Directors may
decide and may also authorise any such attorney to delegate all or any of the
powers, authorities and discretions vested in him.
Seal for use abroad
94 The Company may exercise the powers conferred by Section 39 of the Act
with regard to having an official seal for use abroad, and such powers
shall be vested in the Directors.
Overseas Branch Register
95 The Company may exercise the powers conferred upon the Company by
Section 362 of the Act with regard to the keeping of an Overseas Branch
Register, and the Directors may (subject to the provisions of that
Section) make and vary such regulations as they may think fit respecting
the keeping of any such register.
Authorisation of signatures and acceptances
96 All cheques, promissory notes, drafts, bills of exchange and other
negotiable or transferable instruments, and all receipts for moneys paid
to the Company, shall be signed, drawn, accepted, endorsed, or otherwise
executed, as the case may be, in such manner as the Directors shall from
time to time determine.
BORROWING POWERS AND DEBENTURES
97.1 The Directors may exercise all the powers of the Company to borrow money
and to mortgage or charge all or any part of its undertaking, property
and uncalled capital and to issue debentures and other securities
whether outright or as principal or collateral security for any debt,
liability or obligation of the Company or of any third party. The
Directors shall restrict the borrowings of the Company and exercise all
voting and other rights or powers of control exercisable by the Company
in relation to its Subsidiaries (if any) so as to procure (as regards
Subsidiaries so far as by such exercise they can procure) that the
aggregate principal amount for the time being remaining undischarged of
all moneys borrowed by the Company and its Subsidiaries (exclusive of
intra-group borrowings) shall not at any time without the previous
sanction of an Ordinary Resolution of the Company exceed four times the
aggregate of:-
97.1.1 the amount paid up or credited as paid up on the share capital of the
Company; and
97.1.2 the amount standing to the credit of the consolidated capital and
revenue reserves of the Company and its subsidiary companies (including
any share premium account and capital redemption reserve but excluding
any reserves for taxation and after deducting any amount standing to the
debit for the time being on profit and loss account).
all as shown by the latest audited consolidated balance sheet of the
Company and its subsidiary companies but after:-
(i) making such adjustments as may be appropriate in respect of any
variation of paid-up capital effected or any distribution made or
any shares transferred (other than a transfer between the Company
and/or any of its Subsidiaries) since the date of such balance
sheet and so that for this purpose capital allotted shall be
treated as issued and any capital already called up or payable at
any fixed future date should be treated as being paid up; and
(ii) adding the cost of goodwill which arose on consolidation of
businesses or assets acquired by the Company or any Subsidiary and
which are held by the Company or any Subsidiary as at the date of
such consolidated balance sheet, less amortisation as if such
goodwill had been carried on the balance sheet as an asset and
amortised over 40 years on a straight line basis, such amount to be
certified by the Company's Auditors.
For this purpose the expression "moneys borrowed" shall be deemed
to include all amounts outstanding by way of loan capital
notwithstanding that the same may have been or may be issued in
whole or in part for a consideration other than cash.
97.2 No such sanction shall be required to the borrowing of any sum of money
intended to be applied in the repayment (with or without premium) of any
moneys then already borrowed and outstanding and so applied within 60
days of the borrowing thereof notwithstanding that the same may result
in such limit being exceeded. Notwithstanding the provisions of this
Article, no person dealing with the Company shall be concerned to see or
enquire whether this limit is observed, and no debt incurred or security
given in excess of such limit shall be invalid or ineffectual unless the
lender or the recipient of the security had at the time when the debt
was incurred or security given express notice that the limit hereby
imposed had been or would thereby be exceeded.
97.3 A certificate by the Auditors for the time being of the Company as to
the aggregate amount of moneys borrowed which may at any one time in
accordance with Article 97.1 above be owing by the Company and its
Subsidiaries without such sanction as is provided for in that paragraph.
or as to the actual amount of moneys borrowed at any time shall be
conclusive and shall be binding upon the Company, its members and all
persons dealing with the Company.
Bonds, debentures, etc., to be subject to control of Directors
98 Subject to the provisions of the Statutes, any debentures or other
securities issued or to be issued by the Company shall be under the
control of the Directors, who may issue them upon such terms and
conditions and in such manner and for such consideration as they shall
consider to be for the benefit of the Company.
DIRECTORS' INTERESTS
Power to hold other office
99 Subject to the provisions of these Articles and the Statutes:-
99.1 a Director may hold subject to Section 319 of the Act any office or
place of profit under the Company in conjunction with the office of
Director for such period, and on such terms as to remuneration and
otherwise, as the Directors may determine, and a Director or any firm in
which he is interested may act in a professional capacity for the
Company and he or such firm shall be entitled to remuneration for
professional services as if he were not a Director: Provided that no
Director or any such firm may act as Auditor to the Company;
99.2 a Director may enter into or be interested in contracts or arrangements
with the Company (whether with regard to any such office or place of
profit or any such acting in a professional capacity or as vendor,
purchaser or otherwise howsoever) and may have or be interested in
dealings of any nature whatsoever with the Company and shall not be
disqualified from office thereby. No such contract, arrangement or
dealing shall (subject to the provisions of the Statutes) be liable to
be avoided, nor (subject as aforesaid) shall any Director so
contracting, dealing or being so interested be liable to account to the
Company for any profit arising out of any such contract, arrangement or
dealing to which he is a party or in which he is interested by reason of
his being a Director of the Company, or the fiduciary relationship
thereby established.
Declaration of interest
100.1 A Director who to his knowledge is in any way, whether directly or
indirectly, interested in any contract or arrangement or proposed
contract or arrangement shall declare the nature of his interest at a
meeting of the Directors in accordance with the provisions of this
Article.
When declaration to be made
100.2 In the case of a proposed contract such declaration shall be made at the
meeting of Directors at which the question of entering into the contract
is first taken into consideration, or, if the Director concerned was not
(or did not know that he was) at the date of that meeting interested in
the proposed contract, at the next meeting of the Directors held after
he became so interested, or knew he had become so interested. Where the
Director concerned becomes interested (or knows he is interested) in a
contract after it is made, such declaration shall be made at the first
meeting of Directors held after the Director becomes so interested, or
knows that he is so interested.
General notice
100.3 A general notice given to the Directors by a Director (if it is given at
a meeting of Directors, or such Director takes reasonable steps to
secure that it is brought up and read at the next meeting of Directors
after it is given) to the effect that he is a member of a specified
company or firm and is to be regarded as interested in any contract
which may, after the date of the notice, be made with that company or
firm, shall for the purpose of this Article be deemed to be a sufficient
declaration of interest in relation to any contract so made. For the
purposes hereof a transaction or arrangement of the kind described in
Section 330 of the Act made for a Director or a person connected with
such Director (within the meaning of Section 346 of the Act) shall if it
would not otherwise be so treated (and whether or not prohibited by that
Section) be treated as a transaction or arrangement in which that
Director is interested.
Interests of Directors in other companies
101 A Director may be or continue or may become a director or other officer
or servant of, or otherwise interested in, any other company promoted by
the Company or in which the Company may be in any way interested and
shall not (in the absence of agreement to the contrary) be liable to
account to the Company for any emoluments or other benefits received or
receivable by him as director, or officer or servant of, or from his
interest in, such other company.
Exercise of voting rights conferred by shares of other companies
102 Subject to Article 115, the Directors may exercise or procure the
exercise of the voting rights attached to shares in any other company in
which the Company is or becomes in any way interested, and may exercise
any voting rights to which they are entitled as directors of any such
other company in such manner as they shall in their absolute discretion
think fit, save that no Director shall be entitled to vote (or be
counted in a quorum) in respect of any resolution appointing himself as
a director, officer or servant of such other company.
DISQUALIFICATION OF DIRECTORS
Disqualification
103 The office of a Director shall be vacated if the Director:-
103.1 becomes bankrupt or insolvent or compounds with his creditors generally
or shall apply to the Court for an interim order under Section 253 of
the Insolvency Act 1986 in connection with voluntary arrangements under
that Act;
103.2 he is, or may be, suffering from mental disorder and either:-
103.2.1 he is admitted to hospital in pursuance of an application for admission
for treatment under the Mental Health Act 1983 or, in Scotland, an
application for admission under the Mental Health (Scotland) Act 1984;
or
103.2.2 an order is made by a court having jurisdiction (whether in the United
Kingdom or elsewhere) in matters concerning mental disorder for his
detention or for the appointment of a receiver, curator bonis or other
person to exercise powers with respect to his property or affairs;
103.3 becomes prohibited from being a director of a company by reason of any
order made under the Statutes;
103.4 is convicted of an indictable offence (not being an offence which, in
the opinion of the Directors, does not affect his character or position
as a Director of the Company);
103.5 is absent from meetings of the Directors for a period of six months
without leave expressed by a resolution of the Directors and the
Directors resolve that his office be vacated;
103.6 (not being an executive Director whose contract of employment precludes
resignation) he resigns his office by notice in writing left at the
Office;
103.7 is removed from office under Section 303 of the Act or as provided in
Article 108;
103.8 is requested in writing by all of the other Directors to resign his
office.
But any act done in good faith by a Director whose office is so vacated
shall be valid unless, prior to the doing of such act, written notice
shall have been served upon the Company or an entry shall have been made
in the Directors' minute book stating that such Director has ceased to
be a Director of the Company.
ELECTION AND APPOINTMENT OF DIRECTORS
Directors to retire by rotation
104 At the Annual General Meeting in every year, one third of the Directors
for the time being, or if their number is not three or a multiple of
three then the number nearest to one-third, shall retire from office,
the Directors to retire in each year being those who have been longest
in office since their last election, but as between persons who became
Directors on the same day those to retire shall (unless they otherwise
agree among themselves) be determined by lot. A retiring Director shall
be eligible for re-election. Any Director not re-elected at the Annual
General Meeting shall retain office until the Meeting appoints another
person in his place, or if it does not appoint a replacement, until the
end of the Meeting.
Filling vacancies
105 At the Annual General Meeting, the Company may elect a person to any and
each retiring Director's office and appoint persons to any other offices
which may then be vacant. The Company may also at any Extraordinary
General Meeting on notice duly given, fill any vacancies in the office
of Director, or appoint additional Directors, provided that the maximum
number fixed as hereinbefore mentioned shall not be exceeded.
Notice of intention to propose a Director
106 No person other than a Director retiring at the meeting or who is
recommended by the Directors for election shall be eligible for election
to the office of Director at any General Meeting unless, not less than
seven nor more than twenty-one days before the day appointed for the
meeting, there shall have been left at the Office notice in writing,
signed by a member duly qualified to attend and vote at such meeting, of
his intention to propose such person for election, and also notice in
writing signed by that person of his willingness to be elected.
Power to fill casual vacancy
107 The Directors shall have power at any time and from time to time to
appoint any other person to be a Director of the Company, either to fill
a casual vacancy or as an addition to the Board of Directors, but so
that the total number of Directors shall not at any time exceed the
maximum. Any Director so appointed shall hold office only until the next
following Annual General Meeting, when he shall retire, but shall be
eligible for re-election. Any Director who retires under this Article
shall not be taken into account in determining the number of Directors
who are to retire by rotation at such meeting.
Removal of a Director by the Company in General Meeting
108 The Company may in accordance with and subject to the provisions of the
Statutes by Ordinary Resolution of which special notice has been given
in accordance with Section 379 of the Act, remove any Director
(including a managing or other executive Director) before the expiration
of his period of office (notwithstanding anything in these Articles or
in any agreement between the Company and such Director but without
prejudice to any claim for damages in respect of the breach of any such
agreement), and may by Ordinary Resolution appoint another person in his
stead.
109 Any Director so appointed shall hold office only until the next
following Annual General Meeting, when he shall retire, but shall be
eligible for re-election.
ALTERNATE DIRECTORS
Directors may appoint an alternate Director
110 Any Director may at any time appoint a person approved by the Directors
to be an alternate Director of the Company and may at any time remove any
alternate Director appointed by him from office. An alternate Director so
appointed shall not be entitled to receive any remuneration from the Company nor
be required to hold any qualification, nor be counted in reckoning the minimum
number of Directors allowed or required by these Articles, but shall otherwise
be subject to the provisions of these Articles with regard to Directors. An
alternate Director shall (subject to his giving to the Company an address within
the United Kingdom at which notices may be served upon him) be entitled to
receive notices of all meetings of the Directors and to attend and vote as a
Director at any such meetings at which the Director appointing him is not
personally present, and generally to perform all the functions of such appointor
as a Director. An alternate Director shall ipso facto cease to be an alternate
Director if his appointor ceases for any reason to be a Director, provided that
if any Director retires pursuant to Article 105 but is re-elected by the meeting
at which such retirement took effect, any appointment made by him pursuant to
this Article which was in force immediately prior to his retirement shall
continue to operate after his re-election as if he had not so retired. The
appointment of an alternate Director shall automatically determine on the
happening of any event which if he were a Director would cause him to vacate
such office. All appointments and removals of alternate Directors shall be
effected by writing under the hand of the Director making or revoking such
appointment left at the Office.
Responsibility of alternate Director
111 Every alternate Director shall be an officer of the Company, and shall
alone be responsible to the Company for his own acts and defaults, and
he shall not be deemed to be the agent of or for the Director appointing
him.
LOCAL AND OTHER DIRECTORS
Power to appoint local Directors
112 The Directors may from time to time pursuant to this Article appoint
any other persons to any post with such descriptive title including that of
Director (whether as local, associate, executive, group, divisional,
departmental, deputy, assistant, advisory director or otherwise) as the
Directors may determine and may define, limit, vary and restrict the powers,
authorities and discretions of persons so appointed and may fix and determine
their remuneration and duties, and subject to any contract between him and the
Company may remove from such post any person so appointed. A person so appointed
shall not be a Director of the Company for any of the purposes of these Articles
or of the Act.
PROCEEDINGS OF DIRECTORS
Meetings and quorum
113.1 The Directors may meet together for the despatch of business, adjourn
and otherwise regulate their meetings as they think fit, and determine
the quorum necessary for the transaction of business. Until otherwise
determined, two Directors shall constitute a quorum.
113.2 Any Director may participate in a meeting of the Directors by means of
conference telephone or similar communications equipment whereby all the
Directors participating in the meeting can hear each other and the
Directors participating in this manner shall be deemed to be present in
person at such meeting and shall accordingly be counted in the quorum
and entitled to vote. Subject to the Statutes, all business transacted
in such manner by the board of Directors or a committee of the board of
Directors shall for the purposes of these Articles, be deemed to be
validly and effectively transacted at a meeting of the board of
Directors or a committee of the Board notwithstanding that fewer than
two Directors or alternate Directors are physically present at the same
place. Such a meeting shall be deemed to take place where the largest
group of those participating is assembled or, if there is no such group,
where the chairman of the meeting then is.
Voting
114 Questions arising at any meeting shall be decided by a majority of
votes. In case of an equality of votes the Chairman shall have a second
or casting vote. A meeting of the Directors at which a quorum is present
shall be competent to exercise all powers and discretions for the time
being exercisable by the Directors.
Restrictions on voting
115.1 Save as provided in the following paragraphs of this Article, a Director
shall not vote in respect of any contract or arrangement or any other
proposal whatsoever in which he (together with any person connected with
him within the meaning of Section 346 of the Act) has any material
interest otherwise than by virtue of his interests in shares or
debentures or other securities of, or otherwise in or through, the
Company. A Director shall not be counted in the quorum at a meeting in
relation to any resolution on which he is debarred from voting.
115.2 A Director shall (in the absence of some other material interest than is
indicated below) be entitled to vote (and be counted in the quorum) in
respect of any resolution concerning any of the following matters,
namely:-
115.2.1 the giving of any security, guarantee or indemnity in respect of money
lent or obligations incurred by him or any other person at the request
of or for the benefit of the Company or any of its Subsidiaries;
115.2.2 any proposal concerning an offer of shares or debentures or other
securities of or by the Company or any of its Subsidiaries for
subscription or purchase in which offer he (or any person so connected
with him) is entitled to participate as a holder of securities or is or
is to be interested as a participant in the underwriting or
sub-underwriting;
115.2.3 any proposal concerning any other company in which he is interested,
directly or indirectly and whether as an officer or shareholder or
otherwise howsoever, provided that he is not the holder of or
beneficially interested in 1 per cent. or more of any class of the
equity share capital of such company (or of any third company through
which his interest is derived) or of the voting rights available to
members of the relevant company (any such interest being deemed for the
purpose of this Article to be a material interest in all circumstances);
115.2.4 any proposal concerning the adoption, modification or operation of any
arrangement for the benefit of employees of the Company or any of its
Subsidiaries (including a superannuation fund or retirement benefits
scheme under which he may benefit or an employees' share scheme under
which he may benefit) and which does not confer on any Director any
privilege or advantage not generally accorded to the employees to whom
such arrangement relates;
115.2.5 any proposal concerning the purchase or maintenance of any insurance
policy under which he may benefit.
115.3 Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more
Directors to offices or employments with the Company such proposals may
be divided and considered in relation to each Director separately and in
such cases each of the Directors concerned (if not debarred from voting
under the proviso to Article 115.2.3) shall be entitled to vote (and be
counted in the quorum) in respect of each resolution except that
concerning his own appointment.
115.4 If any question shall arise at any meeting as to the materiality of a
Director's interest or as to the entitlement of any Director to vote and
such question is not resolved by his voluntarily agreeing to abstain
from voting, such question shall be referred to the Chairman of the
meeting and his ruling in relation to any other Director shall be final
and conclusive except in a case where the nature or extent of the
interests of the Director concerned have not been fairly disclosed.
Summoning Meetings
116 A Director may, and the Secretary on the requisition of a Director
shall, at any time summon a meeting of the Directors. Notice of a
meeting of Directors need not be given to a Director who is not in the
United Kingdom. Notice of a Board Meeting shall be deemed to be duly
given to a Director if it is given to him personally or by word of mouth
or sent in writing to him at his last known address or any other address
given by him to the Company for this purpose. A Director absent or
intending to be absent from the United Kingdom may request the Directors
that notice of Board Meetings shall during his absence be sent in
writing to him at his last known address or any other address given by
him to the Company for this purpose, whether or not out of the United
Kingdom.
Directors may act notwithstanding vacancy
117 The continuing Directors may act notwithstanding any vacancy in their
body, but if and so long as the number of Directors is reduced below the
number fixed by or pursuant to these Articles as the necessary quorum of
Directors, the continuing Directors may act for the purpose of
increasing the number of Directors to that number, or of summoning a
General Meeting of the Company, but for no other purpose.
Chairman
118 The Directors may elect a Chairman and a Deputy Chairman of their
meetings, and determine the period for which each is to hold office; but
if no such Chairman be elected, or if at any meeting the Chairman is not
present within five minutes after the time appointed for holding the
same, the Directors present shall choose one of their number to be
Chairman of such meeting.
Memorandum signed by all the Directors
119 A memorandum in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of Directors and annexed or
attached to the Directors' minute book shall be as effective for all
purposes as a resolution of the Directors passed at a meeting duly
convened, held and constituted. Any such memorandum may consist of
several documents in like form, each signed by one or more of such
Directors. Such a resolution need not be signed by an alternate Director
if it is signed by the Director who appointed him, and need not be
signed by the appointing Director if signed by his alternate.
Delegation to committees
120 The Directors may delegate any of their powers to committees, consisting
of such one or more of their body as they think fit. Such committees may
also include members who are not Directors provided that the presence of
at least one Director shall be required for a quorum at any meeting of
any such committee and no resolution of any such committee shall be
effective unless approved by a majority of the Directors present. Any
committee so formed shall, in the exercise of the powers so delegated
and in its conduct of its meetings, conform to any regulations that may
be imposed on it by the Directors. The resolutions herein contained for
the meetings and proceedings of Directors shall, so far as not altered
by any regulations made by the Directors, apply also to the meetings and
proceedings of any committee.
Acts valid although defective appointment
121 All acts done by any meeting of the Directors or of a committee of
Directors, or by any persons acting as Directors, shall notwithstanding
that it is afterwards discovered that there was some defect in the
appointment of any such Directors or persons acting as aforesaid, or
that they or any of them were disqualified, be as valid as if every such
person had been duly appointed and was qualified to be a Director.
EXECUTIVE DIRECTORS
Power to appoint Executive Directors
122 The Directors may from time to time appoint one or more of their number
to an executive office including the offices of Chairman, Vice-Chairman,
Managing Director, Joint Managing Director, Assistant Managing Director
or manager or any other salaried office for such period and on such
terms as they think fit. Without prejudice to any claim a Director may
have for damages for breach of any contract of service between him and
the Company the appointment of any Director hereunder shall be subject
to determination ipso facto if he ceases from any cause to be a
Director, or (subject to the terms of any contract between him and the
Company) if the Directors resolve that his term of office as an
executive Director be determined.
Remuneration of Executive Directors
123 A Director holding office pursuant to Article 122 shall receive such
remuneration (whether by way of salary, commission or participation in
profits, or partly in one way and partly in another) as the Directors
may determine and such remuneration shall, unless otherwise agreed, be
additional to such remuneration (if any) as is from time to time payable
to him as a Director and such Director shall be a Director for the
purposes of and subject to the provisions of Section 319 of the Act.
Powers may be delegated
124 The Directors may entrust to and confer upon a Director holding such
executive office as aforesaid any of the powers exercisable by them as
Directors upon such terms and conditions and with such restrictions as
they think fit, and either collaterally with or to the exclusion of
their own powers, and may from time to time revoke, withdraw, alter or
vary all or any of such powers.
PRESIDENT
125 The Directors may, from time to time, appoint any person who, in their
opinion, has rendered outstanding services to the Company to be
President of the Company. The President shall not, by virtue of his
office, be deemed to be a Director but nevertheless, by invitation of
the Directors, he may attend meetings of the Directors for the purpose
of giving advice and the Directors may remunerate the President in
respect of advice and assistance from time to time.
SECRETARY
Secretary
126 The Directors shall appoint, and may remove at their discretion, a
Secretary, and shall fix his remuneration and terms and conditions of
employment. Anything required or authorised to be done by or to the Secretary by
the Statutes or these Articles may, if the office is vacant or there is for any
other reason no Secretary capable of acting or willing or available to act, be
done by or to any assistant or deputy Secretary, or, if there is none, by or to
any officer of the Company authorised in that behalf by the Directors.
Disqualification
127 No person shall be Secretary who is either:-
127.1 the sole Director of the Company; or
127.2 a corporation the sole director of which is the sole Director of the
Company; or
127.3 the sole director of a corporation which is the sole Director of the
Company.
Restriction on powers of Director who holds office as Secretary
128 A provision of the Statutes or these Articles requiring or authorising a
thing to be done by or to a Director and the Secretary shall not be
satisfied by its being done by or to the same person acting both as
Director and as, or in place of, the Secretary.
AUTHENTICATION OF DOCUMENTS
129.1 Any Director or the Secretary or any person appointed by the Directors
for the purpose shall have power to authenticate any documents affecting
the constitution of the Company and any resolutions passed by the
Company or the Directors and any books, records, documents and accounts
relating to the business of the Company, and to certify copies thereof
or extracts therefrom as true copies or extracts; and where any books,
records, documents or accounts are elsewhere than at the Office, the
manager or other officer of the Company having the custody thereof shall
be deemed to be a person appointed by the Directors as aforesaid.
129.2 A document purporting to be a copy of a resolution of the Directors or
an extract from the minutes of a meeting of the Directors which is
certified as such shall be conclusive evidence in favour of all persons
dealing with the Company that such resolution has been duly passed or,
as the case may be, that such extract is a true and accurate record of a
duly constituted meeting of the Directors.
MINUTES
Minutes to be made
130 The Directors shall cause minutes to be made in books provided for the
purpose:-
130.1 of all appointments of officers made by the Directors;
130.2 of the names of the Directors present at each meeting of the Directors
and of any committee of the Directors; and
130.3 of all resolutions and proceedings at all meetings of the Company and
the holders of any class of shares in the Company and of Directors and
of committees of Directors.
THE SEAL
Seal and sealing
131.1 The Directors shall provide for the safe custody of the Seal. The
Seal shall not be affixed to any instrument except by the express authority of a
resolution of the Directors or of a committee of the Directors and in the
presence of at least one Director, and of the Secretary or of such other person
as the Directors or such committee of the Directors may appoint for the purpose,
and that Director and Secretary or other person as aforesaid, shall sign every
instrument to which the Seal is so affixed in their presence: Provided that the
Directors may determine that any certificates for stock and shares of the
Company and (subject to the terms or conditions of issue thereof) debenture
stock or other forms of security may at the discretion of the Directors be
issued with such signatures or any of them affixed thereto by some mechanical
means or without any such signature or countersignature if the system of
controlling the affixing of the Seal thereto and (where appropriate) the
mechanical signature or signatures thereon is approved by the Auditors, Transfer
Agents or Bankers of the Company.
131.2 Any instrument expressed to be executed by the Company and signed by two
Directors or one Director and the Secretary by the authority of the
Directors or of a committee authorised by the Directors shall (to the
extent permitted by the Statutes) have effect as if executed under the
Seal.
DIVIDENDS
Dividends how payable
132 Subject to the rights of the holders of any shares entitled to any
priority, preference or special privileges and the terms of issue of any
shares, all dividends shall be declared and paid to the members in
proportion to the amounts paid up or credited as paid up on the shares
held by them respectively. No amount paid on a share in advance of calls
shall be treated for the purposes of this Article as paid on the share.
All dividends shall, subject as aforesaid, be apportioned and paid
proportionately to the amounts paid up or credited as paid up on the
shares during any portion or portions of the period in respect of which
the dividend is paid: but if any share is issued on terms providing that
it shall rank for dividend from a particular date or pari passu as
regards dividends with a share already issued it shall rank accordingly.
Directors to recommend Company to declare dividend
133 The Directors shall lay before the Company in General Meeting a
recommendation as to the amount (if any) which they consider should be
paid by war of dividend, and the Company shall declare the dividend to
be paid, but such dividend shall not exceed the amount recommended by
the Directors.
Dividends only out of profits
134 No dividend or interim dividend shall be paid otherwise than out of
profits available for distribution in accordance with the provisions of
the Statues.
Interim dividends
135 The Directors may from time to time pay to the members, or any class of
members, such interim dividends as appear to the Directors to be
justified by the profits of the Company. If at any time the capital of
the Company is divided into different classes of shares the Directors
may pay such interim dividends in respect of those shares in the capital
of the Company which confer on the holders thereof deferred or
non-preferred rights as well as in respect of those shares which confer
on the holders thereof preferential or special rights with regard to
dividends and provided that the Directors act bona fide they shall not
incur any responsibility to the holders of any shares for any damage
that they may suffer by reason of the payment of an interim dividend on
any shares. The Directors may also pay half yearly or at other suitable
intervals to be settled by them any dividend which may be payable at a
fixed rate if they are of opinion that the profits justify the payment.
Lien
136.1 The Directors may retain any dividend or other moneys payable on or in
respect of a share on which the Company has a lien and may apply the
same in or towards satisfaction of the debts, liabilities or engagements
in respect of which the lien exists.
136.2 The Directors may retain the dividends payable upon shares in respect of
which any person is under the provisions as to the transmission of
shares contained in these Articles entitled to become a member, or which
any person is under those provisions entitled to transfer, until such
person shall become a member in respect of such shares or shall transfer
the same.
Method of Payment of Dividends
137.1 Any dividend or other moneys payable in respect of a share may be paid
by cheque or warrant or similar financial instrument sent by ordinary
post to the registered address of the person entitled or, if two or more
persons are the holders of the share or are jointly entitled to it by
reason of the death or bankruptcy of the holder, to the registered
address of that one of those persons who is first named in the Register
or to such person and to such address as the person or persons entitled
may in writing direct. Every cheque or warrant or similar financial
instrument shall be made payable to, or to the order of, the person or
persons entitled or to such other person as the person or persons
entitled may in writing direct.
137.2 Any such dividend or other money may also be paid by any other method
(including by direct debit or bank transfer to the bank account of the
person otherwise entitled to receive payment by cheque or warrant or
similar financial instrument pursuant to this Article 137 or by other
form of electronic media (including in respect of uncertificated shares
by means of a relevant system)) which the Directors consider
appropriate. Payment by such electronic media shall be made to the bank
account details of which have been provided to the Company in writing by
the person entitled to receive the same, save in respect of payments
through a relevant system which shall be made in such manner as is
consistent with the facilities and requirements of the relevant system
concerned, including by the sending of an instruction to the operator of
the relevant system concerned to credit the cash memorandum account of
the person entitled to receive payment. Any joint holder or other person
jointly entitled to a share as aforesaid may give receipts for any
dividend or other money payable in respect of the share.
137.3 The Company may cease to send any cheque or warrant or similar financial
instrument (or to use any other method of payment) for any dividend
payable in respect of a share if, in respect of at least two consecutive
dividends payable on that share, the cheque or warrant or similar
financial instrument has been returned undelivered or remains uncashed
(or that other method of payment has failed) but, subject to the
provisions of these Articles, shall recommence sending cheques or
warrants or similar financial instruments (or using another method of
payment) for dividends payable on that share if the person or persons
entitled so request.
137.4 Payment by such cheque or warrant or similar financial instrument or the
collection of funds from, or transfer of funds by, any bank or other
person so authorised on behalf of the Company in accordance with such
direct debit or bank transfer or by means of such other form of
electronic media (including the making of a payment in accordance with
the facilities and requirements of the relevant system concerned) shall
be an absolute discharge to the Company.
Dividends not to bear interest
138 No dividend or other moneys payable on or in respect of a share shall
bear interest as against the Company.
Distribution of assets in kind
139 The Directors may, with the sanction of the Company in General Meeting,
distribute in kind among the members by way of dividend any of the
assets of the Company, and in particular any shares or securities of
other companies to which the Company is entitled: Provided always that
no distribution shall be made which would amount to a reduction of
capital except in the manner required by law.
Purchase of assets from a past date
140 Subject to the provisions of the Statutes, where any asset, business or
property is bought by the Company as from a past date at a price fixed
wholly by reference to the value of such asset, business or property at
the past date and without any addition or reduction in respect of
subsequent transactions upon the terms that the Company shall as from
that date take the profits and bear the losses thereof, the actual
profit or loss as the case may be so accruing to the Company may, at the
discretion of the Directors be credited or debited wholly or in part to
revenue account and in that case the amount so credited or debited
shall, for the purpose of ascertaining the fund available for dividend,
be treated as a profit or loss arising from the business of the Company
and available for dividend accordingly.
Unclaimed dividends
141 Payment by the Directors of any unclaimed dividend or other moneys
payable on or in respect of a share into a separate account shall not
constitute the Company a trustee in respect thereof and any dividend
unclaimed after a period of twelve years from the date such dividend
became due for payment shall be forfeited and shall revert to the
Company.
RESERVE FUND
Reserve Fund
142 Before recommending a dividend the Directors may set aside any part of
the net profits of the Company to a reserve fund, and may apply the same
either by employing it in the business of the Company or by investing it
in such manner as they think fit, and the income arising from such
reserve fund shall be treated as part of the gross profits of the
Company. Such reserve fund may, subject to the Statutes, be applied for
the purpose of maintaining the property of the Company, replacing
wasting assets, meeting contingencies, forming an insurance fund,
equalising dividends, paying special dividends or bonuses, or for any
other purpose for which the profits of the Company may lawfully be used,
and until the same shall be so applied it shall be deemed to remain
undivided profit. The Directors may also carry forward to the accounts
of the succeeding year or years any profit or balance of profits which
they shall not think fit to divide or to place to reserve.
CAPITALISATION OF RESERVES
Capitalisation of Reserves
143 Subject to the provisions of the Statutes, the Company in General
Meeting may upon the recommendation of the Directors resolve that it is
desirable to capitalise any part of the amount for the time being
standing to the credit of any of the Company's reserve funds or reserve
accounts (including any undistributable reserves) or to the credit of
the profit and loss account (not being required for the payment of or
provision for any fixed preferential dividend), and accordingly that
such sum be applied on behalf of the members who would have been
entitled thereto if distributed by way of dividend and in the same
proportion either in or towards paying up any amounts for the time being
unpaid on any shares held by such members respectively or paying up in
full unissued shares or debentures of the Company to be allotted and
issued credited as fully paid up to and among such members in the
proportion aforesaid or partly in the one way and partly in the other,
and the Directors shall give effect to such resolution: Provided that a
share premium account and a capital redemption reserve may, for the
purposes of this Article, only be applied in the paying up of unissued
shares to be allotted to members as fully paid shares.
Appropriations by Directors
144 Whenever such a resolution shall have been passed the Directors shall
make all appropriations and applications of the amount resolved to be
capitalised, and all allotments and issues of fully paid shares or
debentures, if any, and generally shall do all acts and things required
to give effect thereto with full power to the Directors to make such
provision by the issue of fractional certificates or by payment in cash
or otherwise as they see fit for the case of shares or debentures which
would otherwise be issued in fractions, and also to authorise any person
to enter on behalf of all the members entitled thereto into an agreement
with the Company providing for the allotment to them respectively,
credited as fully paid up, of any further shares or debentures to which
they may be entitled upon such capitalisation, or (as the case may
require) for the payment up by the Company on their behalf by the
application thereto of their respective proportions of the amount
resolved to be capitalised, of the amounts or any part of the amounts
remaining unpaid on their existing shares, and any agreement made under
such authority shall be effective and binding on all such members.
Scrip Dividends
145 Subject to approval by the Company in General Meeting and subject as
hereinafter provided, the Directors may at their discretion resolve (at
the same time as they resolve to recommend or to pay any dividend on any
shares in the capital of the Company) that the members will have the
option to elect to receive in lieu of such dividend (or part thereof) an
allotment of additional Ordinary Shares credited as fully paid provided
that:-
145.1 an adequate number of unissued Ordinary Shares is available for this
purpose.
145.2 the approval by the Company in General Meeting may only be given in
respect of a specified dividend or of any dividends declared or to be
declared or paid in respect of a specified financial year;
145.3 the number of Ordinary Shares to be allotted in lieu of any amount of
dividend as aforesaid shall be determined by the Directors so that the
value of such shares shall equal (as nearly as possible without
exceeding) such amount and for this purpose the value of an Ordinary
Share shall be deemed to be the average of the middle market quotations
of such shares as shown in the Official List of the London Stock
Exchange (adjusted as below) on the ex-dividend date and on the next
four business days and each such middle market quotation as is not
"ex-dividend" shall be adjusted by deducting therefrom the cash amount
of such dividend per share;
145.4 the Directors, after determining the maximum number of Ordinary Shares
to be allotted as aforesaid shall give notice in writing to the members
of the option to elect accorded to them and shall send with such notice
forms of election which specify the procedure to be followed and the
place at which and the latest date and time by which duly completed
forms of election must be lodged in order to be effective;
145.5 following the receipt of a notice or notices of election pursuant to
Article 145.4, the Directors shall allot to the holders of those shares
in respect of which the share election has been or is duly exercised in
lieu of the dividend (or that part of the dividend in respect of which
the right of election has been accorded) such number of additional
Ordinary Shares determined as aforesaid and for such purpose the
Directors shall appropriate and capitalise out of any reserve or fund
(including any share premium account or capital redemption reserve or
profit and loss account) as they shall determine an amount equal to the
aggregate nominal amount of the additional Ordinary Shares so to be
allotted and apply the same in paying up in full the appropriate number
of unissued Ordinary Shares for allotment and distribution to and
amongst those members who have given notices of election as aforesaid,
such additional Ordinary Shares to rank pari passu in all respects with
the fully paid Ordinary Shares then in issue save only as regards
participation in the relevant dividend;
145.6 the Directors may do all acts and things considered necessary or
expedient to give effect to any such capitalisation, with full power to
the Directors to make such provisions as they think fit for the case of
shares becoming distributable in fractions (including provisions
whereby, in whole or in part, fractional entitlements are disregarded or
the benefit of fractional entitlements accrues to the Company rather
than to the members concerned). The Directors may authorise any person
to enter, on behalf of all the members interested, into an agreement
with the Company providing for such capitalisation and matters
incidental thereto and any agreement made under such authority shall be
effective and binding on all concerned;
145.7 the Directors may on any occasion determine that rights of election
shall not be made available to any members with registered addresses in
any territory where in the absence of a registration statement or other
special formalities the circulation of an offer of rights of election
would or might be unlawful and in such event the provisions aforesaid
shall be construed subject to such determination;
145.8 unless the board otherwise determines, or unless the Regulations and/or
the rules of the relevant system concerned otherwise require, the new
Ordinary Share or Shares which a member has elected to receive instead
of cash in respect of the whole (or some part) of the specified dividend
declared in respect of his elected Ordinary Shares shall be in
uncertificated form (in respect of the member's elected Ordinary Shares
which were in uncertificated form on the date of the member's election)
and in certificated form (in respect of the member's elected Ordinary
Shares which were in certificated form on the date of the member's
election);
145.9 the board may also from time to time establish or vary a procedure for
election mandates, which, for the avoidance of doubt, may include an
election by means of CREST, under which a holder of Ordinary Shares may
elect in respect of future rights of election offered to that holder
under this Article until the election mandate is revoked in accordance
with the procedure.
ACCOUNTS
Accounts to be kept
146 The Directors shall cause proper books of account (being such books of
account as are necessary to give a true and fair view of the state of
the Company's affairs and to explain its transactions and otherwise
complying with the Statutes) to be kept with respect to:
146.1 all sums of money received and expended by the Company, and the matters
in respect of which such receipts and expenditure take place;
146.2 all sales and purchases of goods by the Company; and
146.3 the assets and liabilities of the Company.
Limitation of right to inspect
147 The books of account shall be kept at the Office, or (subject to the
provisions of Section 222 of the Act) at such other place or places as
the Directors may determine, and shall always be open to the inspection
of the Directors. The Directors may from time to time determine whether
and to what extent and at what times and places, and on what conditions,
the books and accounts of the Company, or any of them, shall be open to
the inspection of the members (not being Directors), and the members
shall have only such rights of inspection as are given to them by the
Statutes or ordered by a Court of competent jurisdiction or by such
resolution as aforesaid.
Production of accounts
148 The Directors shall from time to time in accordance with the provisions
of the Statutes cause to be prepared and to be laid before the Company
in General Meeting such profit and loss accounts, balance sheets, group
accounts (if any) and reports as are referred to in the Statutes.
Copies
149 A copy of every balance sheet, Directors' report and profit and loss
account, including every document required by law to be annexed thereto,
which is to be laid before the Company in General Meeting, together with
a copy of the Auditors' report, shall, not less than twenty-one clear
days before the date of the meeting, be sent to every member (whether he
is or is not entitled to receive notices of General Meetings of the
Company), every holder of debentures of the Company (whether he is or is
not so entitled), and all other persons so entitled. Provided always
that if and to the extent permitted by the Statutes the Company need not
despatch copies of these documents to members, but may instead send to
them (or certain of them) summaries of such financial statements or
other documents. In addition this Article shall not require a copy of
such documents to be sent to any person to whom, by virtue of Section
238(2) of the Act, the Company is not required to send the same. There
shall also be sent to each recognised investment exchange on which the
shares of the Company are dealt in or listed the number of copies of the
aforesaid documents required by such exchange.
AUDIT
Auditors to be appointed
150 Auditors shall be appointed and their duties regulated in the manner
provided by the provisions of the Statutes.
All acts to be valid
151 Subject to the provisions of the Statutes, all acts done by any person
acting as an Auditor shall, as regards all persons dealing in good faith
with the Company, be valid, notwithstanding that there was some defect
in his appointment or that he was at the time of his appointment not
qualified for appointment.
Power to attend certain General Meetings
152 The Auditor shall be entitled to attend any General Meeting and to
receive all notices of and other communications relating to any General
Meeting which any member is entitled to receive, and to be heard at any
General Meeting on any part of the business of the meeting which
concerns him as Auditor.
NOTICES
Notice, how served
153 A notice may be served by the Company upon any member either personally
or by sending it through the post in a prepaid letter addressed to such
member at his registered address. Any notice may be given to a member by
reference to the register of members as it stands at any time within ten
days before notice is given, and no change in the register after that
time shall invalidate the notice.
Members out of United Kingdom
154 No member shall be entitled to have a notice served on him at any
address not within the United Kingdom but any member whose registered
address is not within the United Kingdom may by notice in writing
require the Company to register an address within the United Kingdom
which, for the purpose of the service of notices, shall be deemed to be
his registered address. A member who has no registered address within
the United Kingdom and has not given notice as aforesaid shall not be
entitled to receive any notices from the Company.
Time of service of notice
155 Any notice sent by first class post shall be deemed to have been served
on the day after the same shall have been posted and if sent by second
class post on the second day thereafter; and in proving such service it
shall be sufficient to prove that the envelope containing the notice was
properly addressed, stamped and posted.
Notice to be given in case of death or bankruptcy of a member
156 A notice may be given by the Company to the person entitled to a share
in consequence of the death or bankruptcy of a member by sending it
through the post in a prepaid letter addressed to him by name, or by the
title of representative of the deceased, or trustee of the bankrupt, or
by any like description, at the address, if any, within the United
Kingdom supplied for the purpose by the person claiming to be so
entitled, or (until such an address has been so supplied) by giving the
notice in any manner in which the same might have been given if the
death or bankruptcy had not occurred.
SUSPENDED OR CURTAILED POSTAL SERVICES
157 If at any time by reason of the suspension or curtailment of postal
services within the United Kingdom the Company is unable effectively to
convene a General Meeting by notices sent through the post, a General
Meeting may be convened by notice advertised on the same date in at
least two leading daily newspapers, at least one of which shall be a
national daily newspaper, with appropriate circulation and such notice
shall be deemed to have duly served on all members entitled thereto at
noon on the day when the advertisement appears. In any such case the
Company shall send confirmatory copies of the notice by post if at least
seven days prior to the meeting the posting of notices to addresses
throughout the United Kingdom again becomes practicable.
PROVISION FOR EMPLOYEES
158 The power conferred upon the Company by Section 719 of the Act to make
provision for the benefit of persons employed or formerly employed by
the Company or any of its Subsidiaries in connection with the cessation
or the transfer to any person of the whole or part of the undertaking of
the Company or any Subsidiary shall only be exercised by the Company
with the prior sanction of a Special Resolution. If at any time the
capital of the Company is divided into different classes of shares, the
exercise of such power as aforesaid shall be deemed to be a variation of
the rights attached to each class of shares and shall accordingly
require either:-
158.1 the prior consent in writing of the holders of three fourths of the
issued shares; or
158.2 the prior sanction of an Extraordinary Resolution passed at a separate
General Meeting of the holders of the shares, of each class in
accordance with the provisions of these Articles.
INDEMNITY
159 Subject to the provisions of the Statutes, every President, Director,
Auditor, Secretary or other officer of the Company shall be entitled to
be indemnified by the Company against all costs, charges, losses,
expenses and liabilities incurred by him in the execution and discharge
of his duties or in relation thereto. The Directors may purchase and
maintain insurance for the benefit of any Director or other officer or
auditor to the extent permitted by the Statutes.
WINDING UP
Distribution of assets in winding up
160 If the Company shall be wound up the assets remaining after payment of
the debts and liabilities of the Company and the costs of the
liquidation shall be applied, first, in repaying to the members the
amounts paid up on the shares held by them, respectively, and the
balance (if any) shall be distributed among the members in proportion to
the number of shares held by them respectively: Provided always that the
provisions hereof shall be subject to the rights of the holders of
shares (if any) issued upon special conditions.
Assets may be distributed in specie
161 In a winding up any part of the assets of the Company, including any
shares in or securities of other companies, may, with the sanction of
an Extraordinary Resolution of the Company, be divided among the
members of the Company in specie, or may, with the like sanction, be
vested in trustees for the benefit of such members, and the liquidation
of the Company may be closed and the Company dissolved but so that no
member shall be compelled to accept any shares whereon there is any
liability.
