Aeorema Comm. Regulatory News (AEO)

Cheerful Scout Plc / Index: AIM / Epic: CLS / Sector: Media

16 November 2010

Cheerful Scout Plc ('Cheerful' or 'the Company')

Final Results

Cheerful Scout Plc, the AIM-traded multi-media specialist, announces its results for the year ended 30 June 2010.

Overview

·; Successfully established a new corporate events division to broaden current corporate communications offering

·; Strengthened blue-chip client base and client sharing across divisions having recruited key team members from Twentyfirst Century Communications Limited

·; Increased turnover of £1.8 million (2009: £1.3 million) and healthy cash position of £632,200 (2009: £831,491)

·; Building reputation as innovative provider of corporate communications solutions particularly within the financial sector having won awards from IVCA and New York Festival

·; Integration of DVD subsidiary into On Screen division to streamline offering and facilitate digital delivery to corporate clients

Chairman's Statement

Cheerful has made encouraging progress over the period, with an increased turnover of £1.8 million and a small operating profit from trading, further to acquiring assets from Twentyfirst Century Communications Limited ('Twentyfirst') in January 2010. We continue to maintain close relationships with our clients and have established a new corporate Events division enabling us to broaden our offering to both new and existing clients. We have been successful in implementing our core strategy focused on delivering high quality and innovative brand and corporate communications through our On Screen and Events divisions, something which has been recognised over the year through the winning of industry awards.

Our Events and On Screen divisions have been working together very effectively since the beginning of 2010, enabling us to successfully extend the scope of the Company. The relationship between the two has been highly productive and we are now able to offer a well-rounded service which combines events and on-screen communications to project our clients' brand and corporate message. Importantly, our On Screen division has been able to benefit from the Events division's strong established relationships with a range of blue-chip clients. We have been able to co-ordinate a range of projects for clients that have included input from both divisions, such as a leading mobile telecom company and an oil and gas major.

The On Screen division has continued to gain recognition for its work as a dedicated provider of cutting edge communications solutions. We continue to build upon our reputation, particularly amongst the financial services sector. Cheerful was recognised for its ingenuity and quality at both the IVCA and New York Festival Awards, winning gold for an internal communications video designed and produced for a leading international investment bank.

Importantly, Cheerful has successfully maintained strong relationships with its existing clients. We continue to work closely with government organisations including the Central Office of Information ('COI') and the Directorate of Optometric Continuing Education and Training ('DOCET') as training programmes and internal communications continue to be of high importance to these bodies.

I am pleased to report that our increased activities over the past year have strengthened our financials. We remain cash positive with reserves of £632,200. Importantly, the addition of the Twentyfirst Events division revenue, together with our increased client base and cost sharing, has enabled us to improve our operating performance. Revenue has increased to £1,809,757 with pre tax profits of £1,144.

From July 2010, we have integrated the DVD side of our business into the On Screen division of the Company. This has enabled us to offer digital delivery to our corporate clients. We continue to streamline our On Screen offering to evolve our business in line with the fast-moving media industry. The Board is of the opinion that market conditions are stabilising and that our focus on two operating divisions, On Screen and Events, together with our recognised creativity and innovation and our strong client relationships, will position us for further growth. In addition, we continue to assess various opportunities to complement our existing business, accelerate growth, and improve our financial performance.

Finally, I would like to thank the team for their hard work and dedication to the Company and to shareholders for their continued support.

S Appleton

Chairman

15 November 2010

For further information contact:

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2010

There were no other comprehensive income items.

Statement of Financial Position

As at 30 June 2010

Statement of Changes in Equity

As at 30 June 2010

Following a board resolution on 3 November 2009, the Company transferred its special reserves of £1,747,416 to retained earnings following the expiry of the undertaking given to the High Court of Justice in 2006.

Statement of Cash Flows

For the year ended 30 June 2010

Notes to the Consolidated Financial Statements

For the year ended 30 June 2010

1. Accounting policies

Cheerful Scout plc is a public limited company incorporated in the United Kingdom. The Company is domiciled in the United Kingdom and its principal place of business is 25/27 Riding House Street, London, W1P 7PB. The Company's Ordinary Shares are traded on the Alternative Investment Market.

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

Going concern

The Group's business activities, together with the factors likely to affect its future development and performance are set out in the review of business contained in the Chairman's Statement. The Group's financial statements show details of its financial position including, in note 22, details of its financial instruments and exposure to risk.

After reviewing the Group's budget for the next financial year, other medium term plans and considering the risks outlined in note 22, the Directors, at the time of approving the financial statements, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and have therefore used the going concern basis in preparing the financial statements.

Basis of Preparation

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The following new standards, amendments to standards and interpretations, applied for the first time from 1 July 2009.

·; IAS 1 (Revised) 'Presentation of Financial Statements'. The revised standard has introduced terminology chances (including revised titles for the financial statements) and changes in the format and content of the financial statements.

·; IFRS 8 'Operating segments'. IFRS 8 replaces IAS 14 'Segment Reporting'. The Group concluded that its operating segments determined in accordance with IFRS 8 are the same as the business segments previously identified under IAS 14.

·; IFRS 2 (Amended) 'Share based payments'. The amendment to IFRS 2 clarifies the definition of vesting conditions and prescribes the treatment for an award that is cancelled. This amendment did not have an impact on the financial position or performance of the group.

Adopted IFRSs not yet applied

At the date of authorisation of this report, the following standards, which have not been applied in this report, were issued but not yet effective.

·; IFRS 1 (Amended) 'First time adoption of International Financial Reporting Standards', effective 1 January 2010.

·; IFRS 2 (Amended) 'Share-based payments', effective 1 January 2010.

·; IFRS 3 (Amended) 'Business Combinations', effective 1 July 2010.

·; IFRS 5 (Amended) 'Non-current assets held for sale and discontinued operations', effective 1 January 2010.

·; IFRS 9 'Financial Instruments', effective 1 January 2013.

·; IAS 7 (Revised) 'Statement of cash flows', effective 1 January 2010.

·; IAS 17 (Revised) 'Leases', effective 1 January 2010.

·; IAS 24 (Revised) 'Related Party Disclosures', effective 1 January 2011.

·; IAS 27 (Amended) 'Consolidated and separate financial statements', effective 1 July 2010.

·; IAS 32 (Amended) 'Financial instruments', effective 1 February 2010.

·; IAS 36 (Revised) 'Impairment of assets', effective 1 January 2010.

Management does not believe that the application of these standards, where applicable, will have an impact on the financial statements, except for the requirement of additional disclosures.

Basis of consolidation

The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 30 June 2010. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from their activities. Subsidiaries are fully consolidated from the date on which control is transferred until the date that such control ceases.

Intra-group transactions, balances and unrealised gains and losses on transactions between group companies are eliminated.

Revenue

Revenue represents amounts (excluding value added tax) derived from the provision of services to third party customers in the course of the Group's ordinary activities. Revenue is measured at the fair value of consideration received taking into account any trade discounts and volume rebates. Revenue for all business segments is recognised when the Group has earned the right to receive consideration for its services.

Intangible assets - goodwill

All business combinations are accounted for by applying the acquisition method. Goodwill acquired represents the excess of the fair value of the consideration and associated costs over the fair value of the identifiable net assets acquired.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. At the date of acquisition, the goodwill is allocated to cash generating units, usually at business segment level or statutory company level as the case may be, for the purpose of impairment testing and is tested at least annually for impairment. On subsequent disposal or termination of a business acquired, the profit or loss on termination is calculated after charging the carrying value of any related goodwill.

Intangible assets - development costs

Development expenditure is written off to the income statement in the year in which it is incurred, unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the period during which the Company is expected to benefit. Development costs of current projects is amortised over 4 years.

Property, plant and equipment

Property, plant and equipment is stated in the financial statements at cost less accumulated depreciation and any impairment value. Depreciation is provided to write off the cost less estimated residual value of property, plant and equipment over its expected useful life (which is reviewed at least at each financial year end), as follows: 

Any gain or loss arising on the derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year that the asset is derecognised.

Fully depreciated assets still in use are retained in the financial statements.

Impairment

The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets' recoverable amount is estimated. For goodwill and intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each annual balance sheet date and whenever there is an indication of impairment.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement in those expense categories consistent with the function of the impaired asset.

Operating leases

Rentals under operating leases are charged to the Income Statement on a straight line basis over the period of the lease.

Investments

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

Inventories

Inventories are stated at the lower of cost and net realisable value.

Trade and other receivables

Trade and other receivables are stated initially at fair value and subsequently measured at amortised cost less any provision for impairment.

Trade and other payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost.

Cash and cash equivalents

Cash comprises, for the purpose of the Cash Flow Statement, cash in hand and deposits payable on demand and bank overdrafts. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. Cash equivalents normally have a date of maturity of 3 months or less from the acquisition date.

Finance income

Financial income consists of interest receivable on funds invested. It is recognised in the Income Statement as it accrues.

Taxation

Income tax on the profit or loss for the periods presented comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using rates enacted or subsequently enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; the differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or subsequently enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised.

Pension costs

The Group does not operate a pension scheme for its employees. It does however, make contributions to the private pension arrangements of certain employees. These arrangements are of the money purchase type and the amount charged to the income statement represents the contributions payable by the Group for the period.

Financial instruments

The Group does not enter into derivative transactions and does not trade in financial instruments. Financial assets and liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provision of the instrument.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the income statement.

Share-based payments

The Group has applied the transitional provisions of IFRS 2 only to awards of equity instruments made after 7 November 2002 that had not vested by 1 July 2006.

The fair value of equity rights is estimated using the Binomial model at the date of grant to key employees and is dependent on factors such as the exercise price, expected volatility, option price and risk free interest rate. The fair value is then amortised through the Income Statement on a straight-line basis over the vesting period. Expected volatility is determined based on the historical share price volatility for the Company. Further information is given in note 20 to the financial statements.

Significant judgements and estimates

The preparation of the Group's financial statements in conforming with IFRS required management to make judgements, estimates and assumptions that effect the application of policies and reported amounts in the financial statements. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances. Information about such judgements and estimation is contained in the accounting policies and / or notes to the financial statements and the key areas are summarised below:

a) Depreciation rates are based on the estimated useful lives and residual value of the assets involved.

b) The impairment review of goodwill is based on the estimation of future cash flows and discount rates in order to calculate the present value of the cash flows.

c) The Group operates share incentive schemes as detailed in note 20. In order to calculate the annual charge in accordance with IFRS 2, management are required to make a number of assumptions and include, amongst others, volatility and expected life of options.

2. Revenue and segment information

Revenue and segmental profit has been disclosed by three operating segments of On Screen, DVD & Interactive and Events in the manner that the information is presented to the Board of Directors, being the Chief Operating Decision Makers, in accordance with IFRS 8.

The geographical analysis of turnover and assets by geographical location of customer is as follows:

3. Operating loss

4. Finance income

5. Other income

6. Taxation

The Group has estimated losses of £647,885 (2009: £691,027) available to carry forward against future trading profits.

7. Deferred taxation

A deferred tax asset has been recognised in respect of previously unrecognised trading losses. These are expected to be utilised given the return to profitability and future trading prospects. The deferred tax asset is expected to be realised after more than one year.

8. Loss attributable to members of the parent company

As permitted by section 408 of the Companies Act 2006, the parent Company's Statement of Comprehensive Income has not been included in these financial statements. The retained loss for the financial year of the holding company was £364,301 (2009: £592,042).

9. Earnings / (loss) per ordinary share

Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year. 

Diluted earnings per share are calculated by dividing the profit or loss attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would have been issued on the conversion of all dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used and dilutive earnings per share computations:

Employee share options do not have a dilutive effect on the weighted average number of shares in 2009 and 2010 as the exercise price of the share options is in excess of the average market price of the ordinary shares.

After the reporting period, the Company granted a total of 1,200,000 share options to a number of employees. The options were granted at a price of 8.75 pence each. The options vest after 3 years and can be exercised in the period commencing on the third anniversary of the date of grant through until the tenth anniversary of the date of grant.

10. Intangible fixed assets

Development costs

Development costs in relation to the Group's nVision Presenter product have been amortised over its expected useful life of four years. As this product is no longer in use, the development costs have been written off in full during the year.

Impairment

The impairment test for goodwill involved the determination of recoverable amounts based upon cash flow projections, the annual business plan and directors' long term estimates based on past experience and external estimates related to market growth. The key assumptions used are as follows: -

Discount rate 3.1 %

Year on year growth 3.0% (on projected figures for 2011)

Number of annual cash flows considered 5

There was no impairment in the year.

11. Property, plant and equipment

The gross carrying amount of fully depreciated property, plant and equipment still in use is as follows:

12. Non-current assets - Investments

Holdings of more than 20%

The Company holds more than 20% of the share capital of the following companies:

The principal activity of these undertakings for the last relevant financial year was as follows:

13. Trade and other receivables

Other receivables include £34,543 (2009: £34,543) for a rental deposit which is secured by a charge in favour of the landlords. All trade and other receivables are expected to be recovered within 12 months of the balance sheet date. The fair value of trade and other receivables is the same as the carrying values shown above.

14. Cash and cash equivalents

15. Trade and other payables

All trade and other payables are expected to be settled within 12 months of the balance sheet date. The fair value of trade and other payables is the same as the carrying values shown above.

16. Share capital

On 14 July 2009, the Company purchased 500,000 of its own Ordinary 12.5p shares for cancellation. The price paid per share amounted to 5p and the total consideration paid was £25,000. On 26 March 2010, the Company purchased 200,000 of its own Ordinary 12.5p shares for cancellation. The price paid per share amounted to 9p and the total consideration paid was £18,000. Total transaction costs amounted to £225.

On 2 December 2009, the Company issued 100,000 Ordinary 12.5p shares at par value.

See note 20 for details of share options outstanding.

17. Financial commitments

Total future minimum lease payments under non-cancellable operating lease rentals are payable as follows:

18. Directors' emoluments

The remuneration of Directors of the Company is set out below.

Fees for N J Newman are charged by Harris & Trotter LLP, a firm in which he is a member. See note 21.

No directors had interests in share based incentive schemes.

19. Employee information

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

The aggregate payroll costs of these employees charged in the Statement of Comprehensive Income was as follows:

20. Share based payments

The Company has set up an EMI Share option scheme for key employees. The maximum term of current arrangements under the EMI scheme ends on 27 October 2014. Upon vesting, each option allows the holder to purchase one ordinary share at the pre agreed option price.

Details of the number of share options and the weighted average exercise price outstanding during the year are as follows:

The exercise price of options outstanding at the year-end ranged between £0.1875 and £0.625 (2009: £0.1875 and £0.625) and their weighted average contractual life was 4 years (2009: 4 years).

The Group issues equity-settled share-based payments to employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value as determined at the grant date of equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest.

Fair value is measured by using the Binomial model. The expected life used in the model has been adjusted based on management's best estimate for the effect of non-transferability, exercise restrictions and behavioural considerations. The fair value of the options is calculated using the Binomial model making the following assumptions:

No expense has been recognised in the Consolidated Statement of Comprehensive Income for share based payments in respect of employee share options as, in the opinion of the directors, the amounts are considered immaterial. 

After the reporting period, the Company granted a total of 1,200,000 share options to a number of employees. The options were granted at a price of 8.75 pence each. The options vest after 3 years and can be exercised in the period commencing on the third anniversary of the date of grant through until the tenth anniversary of the date of grant.

21. Related party transactions

The Group has a related party relationship with its subsidiaries and its directors. 

Details of transactions between the Company and its subsidiaries are as follows:

Cheerful Scout Plc is a guarantor for a lease entered into by Cheerful Scout Productions Limited, its subsidiary undertaking.

During the year, the Company's investment in its subsidiary, Cheerful Scout Productions Limited, was impaired by £400,000 (2009: £300,000).

Harris and Trotter LLP is a firm in which N J Newman is a member. The amounts charged to the Group for professional services and the balance outstanding at the reporting date is as follows:

The compensation of key management (including directors) of the Group is as follows:

At the reporting date, the following amounts are due to directors:

22. Financial instruments

The Group is exposed to risks that arise from its use of financial instruments. There have been no significant changes in the Group's exposure to financial instrument risk, its objectives, policies and processes for managing those from previous periods. The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash and cash equivalents and trade and other payables.

Credit risk

Credit risk arises principally from the Group's trade receivables. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk at 30 June 2010 was £361,760 (2009: £100,895). Trade receivables are managed by policies concerning the credit offered to customers and the regular monitoring of amounts outstanding for both time and credit limits. At the year end, the credit quality of trade receivables is considered to be satisfactory.

Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to meet its liabilities when they fall due. The Group monitors cash flow on a regular basis. At the year end, the Group has sufficient liquid resources to meets its obligations of £386,226 (2009: £300,378).

Market risk

Market risk arises from the Group's use of interest bearing financial instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate. At the year end, the cash and cash equivalents of the Group was £632,200 (2009: £831,491). The Group ensures that its cash deposits earn interest at a reasonable rate.

Fair value of financial assets

The Group's book value of the financial assets equates to their fair values.

23. Pension costs defined contribution

The Group makes pre-defined contributions to employees' personal pension plans. Contributions payable by the Group for the year were £52,672 (2009: £172).

24. Control

The Company is controlled by P Litten.

25. Events after the reporting date

After the reporting period, the Company granted a total of 1,200,000 share options to a number of employees. The options were granted at a price of 8.75 pence each. The options vest after 3 years and can be exercised in the period commencing on the third anniversary of the date of grant through until the tenth anniversary of the date of grant.

26. Notice of AGM

The Annual General Meeting of Cheerful Scout Plc will be held at 25-27 Riding House Street, London W1W 7DU on 13 December 2010 at 10.30 a.m. A formal notice of AGM along with the Annual Report and Accounts will be sent to shareholders.