Pentagram Design Limited

Pentagram Design Limited

Berlin

Jahresabschluss zum Geschäftsjahr vom 01.10.2010 bis zum 30.09.2011

CONTENTS

Company Information

Directors' Report

Statement of Directors' Responsibilities

Independent Auditors' Report

Profit and Loss Account

Balance Sheet

Cash Flow Statement

Notes to the Financial Statements

Company Information

DIRECTORS' REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2011

The directors present their report and the financial statements for the year ended 30 September 2011.

Statement of Directors' Responsibilities

The directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors of the company

The directors who held office during the year were as follows:

Principal activity

The company is an international firm providing design and consultancy services through our main office in London, and our European branch in Berlin, Germany.

Pentagram was named by (and for) the five designers who founded the original company 39 years ago.

Pentagram designs corporate identities and communications, packaging, editorial, environments, products, interiors and architecture. The arrival of Naresh Ramchandani this year broadened the spectrum of services offered to include advertising and communications.

The results are set out in the profit and loss account. The company has maintained its level of trading since the year end and the directors expect the company to do so in the future.

Business review

Fair review of the business

The year to 30th September 2011, has shown a decline in both turnover and profit. Through a challenging year, we have continued to work with existing clients improving relationships and winning new business through delivering great design. Our continued cost control programme helped improve reduce overheads.

This year Pentagram's work has been recognized by both national and international awards bodies, including D&AD and Design Week in the UK, the Type Director's Club and the Art Director's Club in the USA.

The re-design of the visual identity and interiors for Courts was revealed, as well as the identity for the Museum of Liverpool, the largest newly built museum in the UK for over a hundred years, which opened in summer 2011.

Notable clients won this year include the identity for the Royal Academy of Arts in Piccadilly, which will launch with the Summer Exhibition 2012 and a new identity for the World Chess Championships. Also launching in 2012 are new stores designed by William Russell for Alexander McQueen in Beijing, Kuwait, Korea and Thailand.

March 2012 will see the launch of Landmark the naming, visual identity and brand architecture project for four mixed-use retail/corporate sites in central Hong Kong. Pentagram's advertising partner Naresh Ramchandani has created the launch campaign for this project which will see hoardings, bus shelters, newspapers and magazines in central Hong Kong emblazoned with the identity.

Ongoing client relationships include AkzoNobel the largest global paints and coatings company, Cass Art, Laurence King, Clarks, the charity Witness, The Co-operative and the London Design Festival. Some of these relationships have now lasted for nearly twenty years. The fact that clients chose to retain their relationships with Pentagram is something of which we are justly proud.

Once more Pentagram's London office played host to a series of events including the Arts Foundation Awards, a Creative Review talk and numerous student groups who flock to Pentagram for a talk from one of the designers and a tour of the offices. The building was also used as a back-drop for a fashion shoot for Port Magazine.

Turnover

Revenue for the year was £6,142,783 (2010:£7,042,111), a decrease of 13 % year on year. A reduction in our customer base coupled with a fall in average spend per client of 10 % negatively impacted top line. This highlights a reduction in the size of marketing and design budgets available, resulting in lower value projects as the tough economic climate particularly in the USA continues.

Gross Profit

Gross profit for the year was £5,104,911 (2010: £5,699,042). Through continued relationships with existing clients we have driven efficiency savings in cost of sales, creating an underlying gross profit margin increase of 2 %.

Capital Expenditure

As part of our ongoing IT strategy and building refurbishment, total capital expenditure has increased by 15 %. This has enabled our teams to produce high quality deliverables efficiently and effectively.

The company's key financial and other performance indicators during the year were as follows:

Environmental policy

Pentagram is committed to environmental protection, as appropriate to our own environment and, to those created for our clients.

Internally, waste management and environment protection systems are employed in our offices with, for example, recycling procedures in place for all appropriate materials and environmentally sound adhesives and adhesive application systems used by all design teams.

With regard to projects, we attempt to be as environmentally responsible as possible in all design disciplines, for example using recycled/recyclable materials in graphic projects, non-endangered materials in architecture and interior design projects, etc.

Moreover, we try to think beyond the specific needs of our staff and our clients and attempt to enhance the environment of the broader community wherever possible.

Financial instruments

Objectives and policies

The company uses various financial instruments which include cash, trade debtors, trade creditors amd amounts due to group undertakings that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the company's operations. The existence of these financial instruments exposes the company to a number of financial risks, which are described in more detail below.

The main risks arising from the company's financial instruments are currency risk, interest rate risk, credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years.

Price risk, credit risk, liquidity risk and cash flow risk

Currency risk

The company is exposed to translation and transaction foreign exchange risk.

Approximately 1 % of the company's purchases are from mainland USA and are transacted in US dollars.

The company's financial liabilities in currencies other than sterling amount to £nil. Foreign exchange differences on retranslation of these liabilities are taken to the profit and loss account of the company.

Liquidity risk

The company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.

The company's policy throughout the year has been to achieve this objective through management's day to day involvement in business decisions rather than through setting maximum or minimum liquidity ratios.

Interest rate risk

The company finances its operations through retained profits and certain internal and external loans.

The interest rate exposure of the financial assets and liabilities of the company as at 30 September 2011 is shown in the financial statements. The balance sheet includes trade debtors and creditors which do not attract interest and are therefore subject to fair value interest rate risk.

Credit risk

The company's principal financial assets are cash and trade debtors. The credit risk associated with cash is limited as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises, therefore, from trade debtors.

In order to manage credit risk, management set limits for customers based on a combination of payment history and thrid party credit references. Credit limits are reviewed by the financial controller on a regular basis in conjunction with debt ageing and collection history.

Future developments

2012 marks the 40th anniversary of Pentagram's foundation, celebrations will include a regular feature on the website looking back at some of our past work as well as a large party in May when we hope to assemble as many of those who have played a key role in our history as possible.

The Directors remain pleased with the overall performance at the end of a challenging year and feel they are well positioned to maintain a strong base for momentous 2012.

Disclosure of information to the auditors

Each director has taken steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the company's auditors are aware of that information. The directors confirm that there is no relevant information that they know of and which they know the auditors are unaware of.

Reappointment of auditors

The auditors Morgan Hamilton Inghams Limited are deemed to be reappointed under section 487(2) of the Companies Act 2006.

Approved by the Board on 27.02.2012 and signed on its behalf by:

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF PENTAGRAM DESIGN LIMITED

We have audited the financial statements of Pentagram Design Limited for the year ended 30 September 2011, set out on pages 9 to 24. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of Directors' Responsibilities (set out on page 2), the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors' Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on the financial statements

In our opinion the financial statements:

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 2011

Turnover and operating profit derive wholly from continuing operations.

The company has no recognised gains or losses for the year other than the results above.

BALANCE SHEET AT 30 SEPTEMBER 2011

Approved by the Board on 27.02.2012 and signed on its behalf by:

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2011

Reconciliation of operating profit to net cash flow from operating activities

Cash flow statement

Reconciliation of net cash flow to movement in net debt

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2011

1 Accounting policies

Basis of preparation

The financial statements have been prepared under the historical cost convention and in accordance with United Kingdom applicable accounting standards.

Exemption from preparing group accounts

The company has taken advantage of the exemption provided by Section 402 of the Companies Act 2006 and has not prepared group accounts on the grounds that the inclusion of the subsidiary (which is dormant) is not material for the purposes of giving a true and fair view.

Turnover

Turnover represents invoiced sales in respect of fees for services rendered and direct costs recovered as agreed with each client, excluding VAT.

Revenue is recognised when a service has been completed in accordance with the terms of agreement with the client. Where the provision of a service remains incomplete at the end of a period, a proportion of the income pertaining to the level of the service performed is accrued and is part of the debtors balance.

Where clients have invoiced in advance for services to be delivered at a future date, the income is deferred and becomes part of the creditors balance.

Depreciation

Depreciation is provided on tangible fixed assets so as to write off the cost or valuation, less any estimated residual value, over their expected useful economic life as follows:

Fixed asset investments

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

Work in progress

Work in progress has been valued at the lower of cost and net realisable value. The valuation of costs comprises direct charges less any provision for anticipated non-recoverable costs.

Deferred tax

Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes, which have arisen but not reversed by the balance sheet date, except as required by FRS19.

Deferred tax is measured at the rates that are expected to apply in the periods when the timing differences are expected to reverse, based on the tax rates and law enacted at the balance sheet date.

Foreign currency

Transactions in foreign currencies are recorded at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the closing rates at the balance sheet date. All exchange differences are included in the profit and loss account.

Hire purchase and leasing

Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term.

Financial instruments

Financial instruments are classified and accounted for, according to the substance of the contractual arrangement, as financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities. Where shares are issued, any component that creates a financial liability of the company is presented as a liability in the balance sheet. The corresponding dividends relating to the liability component are charged as interest expense in the profit and loss account.

Pensions

The company operates a retirement benefit scheme which is independently administered. Payments made to the scheme and charged in the profit and loss account in the financial statements comprised current contributions.

2 Turnover

Turnover all derives in respect of the company's principal activity.

An analysis of turnover by geographical location is given in the Directors' Report on page 4 accompanying these financial statements.

3 Operating profit

Operating profit is stated after charging:

4 Particulars of employees

The average number of persons employed by the company (including directors) during the year, analysed by category was as follows:

The aggregate payroll costs were as follows:

5 Directors' remuneration

The directors' remuneration for the year was as follows:

During the year the number of directors who were receiving benefits and share incentives was as follows:

In respect of the highest paid director:

6 Interest payable and similar charges

7 Taxation

Tax on profit on ordinary activities

Factors affecting current tax charge for the year

Tax on profit on ordinary activities for the year is higher than (2010 - lower than) the standard rate of corporation tax in the UK of 27 % (2010 - 28 %).

The differences are reconciled below:

8 Tangible fixed assets

9 Investments held as fixed assets

Shares in group undertakings and participating interests

Details of undertakings

Details of the investments in which the company holds 20 % or more of the nominal value of any class of share capital are as follows:

10 Stocks

11 Debtors

12 Creditors: Amounts falling due within one year

The company's bank holds a debenture on the assets of the company as security for any indebtedness to them.

13 Provisions

Analysis of deferred tax

14 Share capital

Allotted, called UD and fully paid shares

15 Reserves

16 Reconciliation of movement in shareholders' funds

17 Pension schemes

Defined contribution pension scheme

The company operates a retirement benefit scheme. The pension cost charge for the year represents contributions payable by the company to the scheme and amounted to £nil (2010 - £870,000).

Contributions totalling £nil (2010 - £nil) were payable to the scheme at the end of the year and are included in creditors.

18 Commitments

Operating lease commitments

As at 30 September 2011 the company had annual commitments under non-cancellable operating leases as follows:

Operating leases which expire:

19 Analysis of net debt

20 Related party transactions

Directors' advances and credits

The directors make installments to clear their current accounts on a regular basis. The loans outstanding are interest-free with no fixed date of repayment.

Other related party transactions

During the year the company made the following related party transactions: the directors

The company leases its UK business premises from joint owners who include some directors. The total rent paid during the year amounted to £390,000 (2010: £390,000). These directors have also provided a guarantee over the company's overdraft facility by way of a charge over the business premises in favour of Barclays Bank pic.

Six of the company's directors have also provided a personal cross-guarantee in respect of the company's borrowings of £400,000 from an unconnected third party, which is included in the financial statements as other loans due within one year. At the balance sheet date the amount due to the directors was £nil (2010 - £nil).

The company has taken advantage of the exemption in FRS8 "Related Party Disclosures" from disclosing transactions with other members of the group.

21 Control

The company is controlled by Pentagram Design AG, a company incorporated in Switzerland. This company is the controlling and ultimate controlling related party by virtue of its controlling shareholdings in Pentagram Design Limited.

The largest and smallest group of undertakings for which group accounts have been drawn up is that headed by Pentagram Design AG, incorporated in Switzerland. Copies of the group accounts can be obtained at the registered office of Pentagram Design AG, Untermuli 7, Postfach 4440. CH-6304 Zug, Switzerland.