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<strong>Cattles</strong> plc<br />

<strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Serving our customers in local communities


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Contents<br />

1 Financial Highlights<br />

1 Five Year Performance<br />

2 Profile of the Group<br />

4 Chairman’s Statement<br />

6 Chief Executive’s Review<br />

12 Report on Corporate Social<br />

Responsibility<br />

18 Directors <strong>and</strong> Secretary<br />

20 Report of the Directors<br />

25 Report of the Board on Corporate<br />

Governance<br />

31 Report of the Board on Directors’<br />

Remuneration<br />

42 Consolidated Profit <strong>and</strong> Loss<br />

Account<br />

43 Consolidated Balance Sheet<br />

44 Company Balance Sheet<br />

45 Consolidated Cash Flow Statement<br />

46 Notes to the Accounts<br />

70 Principal Operating Subsidiary<br />

Undertakings<br />

71 Independent Auditors’ Report<br />

72 Five Year Summary<br />

73 Notice of Meeting<br />

77 Explanation of Resolutions<br />

80 Shareholder Information<br />

81 Registered Office <strong>and</strong> Advisers


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 1<br />

Financial Highlights<br />

2004 2003<br />

Profit before tax £138.1m £119.5m<br />

Earnings per share 29.23p 25.38p<br />

Dividends per share 14.0p 12.1p<br />

Five Year Performance<br />

Profit before tax (£m) Earnings per share (pence) Dividends per share (pence) Net receivables (£m)<br />

150<br />

30<br />

15<br />

2000<br />

120<br />

25<br />

12<br />

1750<br />

1500<br />

90<br />

20<br />

9<br />

1250<br />

15<br />

1000<br />

60<br />

30<br />

10<br />

5<br />

6<br />

3<br />

750<br />

500<br />

250<br />

0<br />

2000 2001 2002 2003 2004<br />

0<br />

2000<br />

2001<br />

2002<br />

2003<br />

2004<br />

0<br />

2000<br />

2001<br />

2002<br />

2003<br />

2004<br />

0<br />

2000<br />

2001<br />

2002<br />

2003<br />

2004


2<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Profile of the Group<br />

Consumer Division<br />

The consumer division comprises<br />

Welcome Financial Services, Welcome<br />

Car Finance, Progressive Insurance<br />

Company, Dial4aloan, Shopacheck<br />

Financial Services <strong>and</strong> The Lewis Group.<br />

The division serves more than 650,000<br />

customers from 294 separately located<br />

business centres <strong>and</strong> 37 Local Collection<br />

Units (‘LCU’) throughout the UK.<br />

The division’s product range includes<br />

unsecured <strong>and</strong> secured personal loans<br />

<strong>and</strong> hire purchase credit facilities sold to<br />

consumer credit customers. Amounts<br />

advanced to our customers are typically<br />

small unsecured loans (£1,400), hire<br />

purchase for cars (£4,800), secured<br />

loans (£8,100) <strong>and</strong> short term home<br />

collected advances (£300). Loans are<br />

repayable over periods ranging from<br />

23 weeks to 3 years, or longer in the<br />

case of secured advances.<br />

A variety of repayment methods are<br />

available to our customers including<br />

monthly, fortnightly or weekly direct debits<br />

through the banking or post office systems<br />

<strong>and</strong> over the counter payments at one of<br />

our local business centres. In addition, a<br />

home collection service is provided for<br />

small value, short term advances.<br />

Our strategy of maintaining credit quality is<br />

underpinned by our policy of responsible<br />

lending <strong>and</strong> treating customers with<br />

appropriate sensitivity when they<br />

experience financial difficulties. The<br />

success of this strategy is demonstrated<br />

by the division’s achievement of<br />

continuing stability in its customers’<br />

arrears levels <strong>and</strong> its bad debt charge.<br />

All applications for direct repayment credit<br />

are initially screened centrally using our<br />

bespoke customer relationship<br />

management software. Applications<br />

which successfully pass this initial<br />

screening are then subject to a rigorous<br />

pre-lending process, including the<br />

verification of information provided by<br />

potential customers <strong>and</strong> an assessment<br />

of other commitments which the applicant<br />

may have, in order to confirm that the loan<br />

is both appropriate <strong>and</strong> affordable.<br />

A final underwriting decision is taken by<br />

a local branch manager or, in certain<br />

cases, by a senior underwriter at our<br />

central processing units in Nottingham<br />

<strong>and</strong> Hull. The presence of our branches<br />

in our customers’ local communities<br />

enables our staff to maintain a closer<br />

contact with them <strong>and</strong> to respond with<br />

underst<strong>and</strong>ing to changes in their short<br />

term financial circumstances.<br />

When customers experience a longer<br />

term adverse change in their financial<br />

position, account management is<br />

transferred from the local branch to a<br />

specialist LCU branch. The LCU is then<br />

able to establish a revised repayment<br />

schedule more suited to the customer’s<br />

current circumstances. The role played<br />

by LCUs is fundamental to maintaining<br />

our overall credit quality <strong>and</strong> arrears<br />

management.<br />

Welcome Car Finance provides direct<br />

distribution motor finance. Progressive<br />

Insurance Company manages the<br />

group’s insurance portfolio consisting<br />

principally of payment protection, health,<br />

life <strong>and</strong> mechanical breakdown<br />

insurance. Dial4aloan brokers consumer<br />

credit applications to both external<br />

lenders <strong>and</strong> other parts of the consumer<br />

division. The Lewis Group provides a full<br />

debt recovery service for external clients<br />

<strong>and</strong> the consumer division.<br />

Corporate Division<br />

The corporate division provides working<br />

capital finance to small <strong>and</strong> medium<br />

sized enterprises in the business<br />

community.<br />

<strong>Cattles</strong> Invoice Finance, based in<br />

Manchester, Leeds, Oxford, Glasgow<br />

<strong>and</strong> Maidstone provides invoice factoring<br />

<strong>and</strong> sales ledger management services.<br />

Prior to their disposal on 14 January<br />

2005, <strong>Cattles</strong> Commercial Finance <strong>and</strong><br />

<strong>Cattles</strong> Commercial Leasing, based in<br />

Hull, provided asset backed leasing, hire<br />

purchase <strong>and</strong> block discounting facilities.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 3<br />

‘Serving Local Communities in the UK’<br />

Geographical coverage<br />

of business centres


4<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Barrie Cottingham<br />

Chairman’s Statement<br />

I am pleased to <strong>report</strong> another year of<br />

excellent results for the group which<br />

have been achieved in challenging<br />

market conditions. Profit before tax <strong>and</strong><br />

goodwill amortisation of £141.2 million<br />

represents an increase of 15.1%<br />

compared to the £122.7 million <strong>report</strong>ed<br />

in 2003. On the same basis, earnings<br />

per share increased by 14.5% to 30.20p<br />

compared to 26.37p in 2003.<br />

After charging goodwill amortisation of<br />

£3.2 million, profit before tax increased<br />

by 15.5% to £138.1 million compared to<br />

£119.5 million last year, with basic<br />

earnings per share increasing by 15.2%<br />

to 29.23p.<br />

The Board is recommending an<br />

increased final dividend of 9.45p per<br />

share payable on 10 May 2005,<br />

compared to 8.15p paid last year. This,<br />

together with the interim dividend of<br />

4.55p per share, gives a total dividend<br />

for the year of 14.00p, representing an<br />

increase of 15.7% over the previous<br />

year.<br />

As an alternative to receiving the cash<br />

dividend, shareholders in the United<br />

Kingdom, excluding the Channel<br />

Isl<strong>and</strong>s, will again be offered the<br />

opportunity to have their dividends<br />

reinvested in the company’s shares<br />

through participation in our Dividend<br />

Reinvestment Plan.<br />

As we enter the third year of our five year<br />

plan, these results demonstrate the<br />

good progress which the group<br />

continues to make towards achieving<br />

the challenging targets we have set for<br />

ourselves. Importantly, profitable growth<br />

has continued to be achieved without<br />

compromising our underwriting criteria<br />

<strong>and</strong> credit quality.<br />

Regulation<br />

A Bill proposing legislation to replace the<br />

existing Consumer Credit Act was<br />

announced in the Queen's Speech in<br />

November 2004 <strong>and</strong> is currently<br />

progressing through Parliament.<br />

Secondary legislation on advertising<br />

was introduced on 31 October 2004<br />

<strong>and</strong> changes to form <strong>and</strong> content of<br />

agreement <strong>and</strong> pre-contractual<br />

information will become effective from<br />

31 May 2005. Primary legislative<br />

changes are unlikely to take effect<br />

before 2006.<br />

The European Credit Directive continues<br />

to pass slowly through the European<br />

parliamentary process <strong>and</strong> changes<br />

arising from the Directive are not<br />

expected to be effective before 2008.<br />

As had been anticipated, the Office of<br />

Fair Trading (‘OFT’) referred the UK<br />

Home Credit sector to the Competition<br />

Commission in December 2004. <strong>Cattles</strong><br />

provided full co-operation to the OFT<br />

<strong>and</strong> is continuing to do so with the<br />

Competition Commission investigation,<br />

which is expected to take at least<br />

12 months to complete. Loans for<br />

which the group offers a home<br />

collection service have been<br />

significantly reduced over the last few<br />

years <strong>and</strong> now account for around 11%<br />

(2003: 15%) of our consumer division’s<br />

total receivables.<br />

With effect from October 2004 <strong>and</strong><br />

January 2005, respectively, the group’s<br />

involvement in the sale <strong>and</strong> distribution<br />

of mortgages through Dial4aloan <strong>and</strong><br />

insurance products through other<br />

subsidiaries, became regulated by the<br />

Financial Services Authority (‘FSA’). Both<br />

applications for registration <strong>and</strong><br />

approval by the FSA were successfully


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 5<br />

submitted <strong>and</strong> obtained ahead of the<br />

prescribed dates, thereby ensuring<br />

the uninterrupted operation of our<br />

activities.<br />

As part of this process, a<br />

comprehensive review of all our relevant<br />

operating policies <strong>and</strong> procedures was<br />

undertaken during 2004 <strong>and</strong> our training<br />

programmes enhanced, where<br />

appropriate. To ensure that we continue<br />

to maintain our high st<strong>and</strong>ards of<br />

customer care <strong>and</strong> compliance, all<br />

relevant customer facing employees of<br />

the consumer division were required to<br />

complete additional training <strong>and</strong><br />

accreditation prior to the new regulatory<br />

environment coming into force.<br />

As a responsible lender, <strong>Cattles</strong> fully<br />

supports the positive actions being<br />

taken to strengthen existing legislation<br />

<strong>and</strong> regulation. We continue to<br />

contribute to the consultation process.<br />

The Board also supports the highest<br />

level of Corporate Governance <strong>and</strong> will<br />

continue to ‘comply or explain’, in line<br />

with best practice, taking into account<br />

the practical considerations <strong>and</strong> needs<br />

of the company.<br />

International Financial Reporting<br />

St<strong>and</strong>ards<br />

The group is required to adopt<br />

International Financial Reporting<br />

St<strong>and</strong>ards (‘IFRS’), with effect from<br />

1 January 2005. These new <strong>report</strong>ing<br />

st<strong>and</strong>ards represent a major change<br />

from UK Generally Accepted Accounting<br />

Principles (‘UK GAAP’), previously<br />

adopted by the group. To provide an<br />

initial indication, we have estimated the<br />

changes to profits <strong>and</strong> net assets <strong>and</strong><br />

these are set out in the Chief Executive’s<br />

Review.<br />

In accordance with the best practice<br />

guidelines issued by The Hundred<br />

Group of Finance Directors, we shall<br />

hold presentations during the second<br />

quarter of 2005. This will enable us to<br />

provide a thorough analysis of the<br />

changes resulting from IFRS, clearly <strong>and</strong><br />

separately from the announcement of<br />

our 2004 results under UK GAAP.<br />

The regulatory, compliance <strong>and</strong><br />

corporate governance developments<br />

discussed above, together with the<br />

additional dem<strong>and</strong>s from the<br />

introduction of IFRS, have been<br />

significant. Considerable senior<br />

management time <strong>and</strong> the commitment<br />

of substantial resources at all levels of<br />

the business have been required to be<br />

devoted to these projects. On behalf of<br />

the Board, I wish to express my thanks<br />

to all our employees for their dedication<br />

<strong>and</strong> the professional manner in which<br />

they have responded to these changes.<br />

Future<br />

We are pleased with the group’s<br />

performance during 2004 <strong>and</strong>, against a<br />

continuing competitive market, we look<br />

forward to making further progress in<br />

2005.<br />

Barrie Cottingham<br />

Chairman<br />

18 March 2005


6<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Seán P Mahon<br />

Chief Executive’s Review<br />

I am pleased with the performance of<br />

the group during 2004, resulting in an<br />

increase in profit before tax <strong>and</strong> goodwill<br />

amortisation of 15.1% to £141.2 million<br />

for the year. These excellent results<br />

reflect the benefits of our continuing<br />

focus on controlled growth, in an<br />

increasingly competitive <strong>and</strong> regulated<br />

UK consumer credit market. Lewis, our<br />

debt recovery specialists, <strong>and</strong> the<br />

corporate division have also improved<br />

their contributions in the year.<br />

Consumer Division<br />

Profits before tax of the consumer<br />

division have increased significantly by<br />

16.2% to £137.2 million, compared to<br />

£118.1 million <strong>report</strong>ed last year. This<br />

has been achieved through the<br />

on-going development of our<br />

distribution channels <strong>and</strong> increased<br />

volumes generated for the consumer<br />

division by Dial4aloan <strong>and</strong> Welcome<br />

Car Finance. Careful management of<br />

our existing receivables book, together<br />

with continuing investment in our<br />

bespoke credit profiling <strong>and</strong><br />

underwriting processes have also<br />

contributed.<br />

The consumer division’s total income<br />

rose by 21.9% during the year to<br />

£710.0 million (2003: £582.6 million).<br />

This was primarily due to an increase in<br />

net interest income of 15.5% to<br />

£429.4 million, reflecting continued<br />

volume growth in net receivables, <strong>and</strong><br />

an 18.2% increase in fees <strong>and</strong><br />

commissions to £176.1 million, which<br />

includes income from insurance<br />

products sold alongside consumer<br />

loans <strong>and</strong> revenues from early<br />

settlements. Other income, which<br />

mainly includes the sale of second h<strong>and</strong><br />

vehicles for a full year by Welcome Car<br />

Finance <strong>and</strong> collections by Lewis,<br />

amounted to £104.5 million<br />

(2003: £61.9 million).<br />

The group’s strategy remains focused<br />

on the profitable expansion of its<br />

consumer credit activities, underpinned<br />

by a policy of responsible lending <strong>and</strong><br />

maintaining stable credit quality. The<br />

consumer division remains committed<br />

to serving local communities through an<br />

extensive UK network of branches<br />

supported by central underwriting <strong>and</strong><br />

increasingly sophisticated customer<br />

profiling, based on our many years<br />

experience in the non-st<strong>and</strong>ard<br />

consumer finance market.<br />

I am, therefore, pleased to <strong>report</strong> that<br />

there has been no deterioration during<br />

the year in the credit quality of the<br />

consumer division. Customers’ arrears<br />

levels have remained stable at around<br />

11% of receivables <strong>and</strong> the bad debt<br />

charge for the year has improved to<br />

7.5% (2003: 7.7%) of net receivables.<br />

Consumer Credit<br />

As commented upon in the Chairman’s<br />

Statement, the sale of both primary<br />

mortgage <strong>and</strong> general insurance<br />

products are now regulated by the FSA.<br />

We were pleased to receive the required<br />

authorisations from the FSA prior to their<br />

respective impact dates. However, the<br />

cost <strong>and</strong> disruption to the consumer<br />

division’s business of preparing for <strong>and</strong><br />

complying with the new regulatory<br />

environment has been significant,<br />

including extensive additional training for<br />

all relevant members of the division’s<br />

customer facing staff.<br />

Small, unsecured personal loans,<br />

typically of around £1,400<br />

(2003: £1,200) continue to be advanced<br />

to around 70% of our customers. A<br />

further 16% of customers are provided<br />

with HP loans for the purchase of cars,<br />

where the typical advance of £4,800<br />

(2003: £4,000) has increased in line with<br />

the better quality cars being sold by


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 7<br />

Welcome Car Finance. The remainder of<br />

the customer base comprises st<strong>and</strong>ard<br />

secured loans with an average advance<br />

of £6,700 (2003: £6,000) <strong>and</strong> superior<br />

secured loans with an average advance<br />

of £12,200 (2003: £12,100), selectively<br />

available for longer st<strong>and</strong>ing customers,<br />

whose credit status has been repaired<br />

through their relationship with us, <strong>and</strong><br />

for new customers of appropriate<br />

credit quality.<br />

The consumer division has continued to<br />

make good progress during the year by<br />

increasing its direct repayment<br />

customer base by a net 46,000<br />

customers to 337,000 at 31 December<br />

2004, a growth of 16% in the year. Net<br />

direct repayment customers’ <strong>accounts</strong><br />

receivable increased during the year by<br />

£304 million, to £1.51 billion at<br />

31 December 2004, with average<br />

customer balances increasing by 12%<br />

to £4,418 (2003: £3,948).<br />

Although consumer indebtedness at a<br />

national level has continued to increase<br />

during 2004, we believe that this is<br />

primarily driven by products which we do<br />

not offer to our customers, such as remortgages<br />

<strong>and</strong> credit cards. The<br />

consumer division has experienced an<br />

increase of 9% in the early settlement of<br />

direct repayment loans during 2004, (up<br />

by 3,600 to 45,000 settlements for the<br />

year), as consumers continued to take<br />

advantage of a rise in the equity in their<br />

homes <strong>and</strong> greater choice in the credit<br />

market to consolidate their borrowings<br />

with other providers, at finer rates.<br />

Actions taken to mitigate the effect of this<br />

increase are beginning to show a net<br />

benefit in the earnings of the division.<br />

Dem<strong>and</strong> for our direct repayment<br />

products remains strong, with the<br />

number of new customer agreements<br />

written during 2004 increasing by 16% to<br />

133,000 for the year.<br />

The division continues to make significant<br />

investment in its customer origination,<br />

selection <strong>and</strong> relationship management<br />

systems, including the development<br />

during 2004 of new credit profiling<br />

scorecards. These developments have<br />

played an important part in the division's<br />

success in maintaining credit quality<br />

while at the same time helping to<br />

improve operational efficiencies. These<br />

enhanced underwriting procedures have<br />

enabled the division to target more<br />

precisely the customers it wishes to<br />

serve <strong>and</strong> to match the division's<br />

products <strong>and</strong> advances to the needs of<br />

our customers <strong>and</strong> their ability to meet<br />

their commitments.<br />

We have also commissioned external<br />

research to help determine the profile of<br />

customers likely to settle their loans<br />

early. This research, together with the<br />

experience being gained following the<br />

successful introduction of the new<br />

scorecards during the second half of<br />

2004, will play an increasingly important<br />

part in our strategy for customer<br />

retention <strong>and</strong> acquisition. It will also<br />

enable the division to continue to<br />

develop its product range without<br />

impacting upon credit quality.<br />

Welcome Car Finance, the group’s<br />

direct distribution motor finance<br />

operation, has achieved its primary<br />

objective of becoming the largest single<br />

provider of hire purchase customers for<br />

the consumer division <strong>and</strong> has<br />

increased its UK network to 13 sites,<br />

having opened 5 new branches during<br />

the year. No further openings are<br />

planned for 2005.<br />

The Finance & Leasing Association<br />

(‘FLA’) <strong>report</strong>ed an overall growth of only<br />

0.4% in the UK used car finance market<br />

during 2004, including a marked decline<br />

in sales of around 6% in the second half<br />

of that year. It is encouraging that, in this<br />

climate, Welcome Car Finance achieved<br />

sales of 10,000 quality used cars during


8<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Chief Executive’s Review continued<br />

2004, contributing to an increase of over<br />

8% in the consumer division’s total hire<br />

purchase sales for the year.<br />

Dial4aloan, our specialist consumer<br />

credit broker, remains focused on the<br />

secured loan market <strong>and</strong> continues to<br />

be one of the principal providers of new<br />

business to the consumer division.<br />

The FLA has <strong>report</strong>ed that secured<br />

lending in the UK grew by only 4.5% in<br />

2004, with a sharp decline in lending of<br />

11.4% being experienced in the final<br />

quarter, compared with growth in excess<br />

of 20% in each of the previous two years.<br />

In common with the general UK broker<br />

market, Dial4aloan has experienced a<br />

noticeable decline in the level of new<br />

business enquiries, particularly as brokers<br />

<strong>and</strong> consumers become accustomed to<br />

the changed style of advertising required<br />

by the new regulations.<br />

In a year of considerable regulatory<br />

change, it is therefore pleasing to <strong>report</strong><br />

that Dial4aloan originated over<br />

£40 million of new secured <strong>and</strong><br />

unsecured loans for the consumer<br />

division, an increase of 41% over the<br />

previous year. Successful referrals from<br />

Dial4aloan now represent 18% of all<br />

broker introduced secured loan business<br />

to the consumer division <strong>and</strong> this has<br />

contributed to an increase of 15% in the<br />

division’s total secured lending during<br />

the year.<br />

Shopacheck continues to offer a home<br />

collected product to customers who<br />

require small value, short term advances<br />

(typically £300). The number of home<br />

collected customers reduced by 73,000<br />

during the year to 337,000 at<br />

31 December 2004, as we continue to<br />

disengage from those sectors of this<br />

market which we regard as being<br />

uneconomic. Home collected<br />

receivables have accordingly been<br />

reduced in the year by £22 million to<br />

£196 million at 31 December 2004,<br />

<strong>and</strong> now represent around 11%<br />

(2003: 15%) of total consumer division<br />

receivables.<br />

We shall continue to review the on-going<br />

suitability <strong>and</strong> cost effectiveness of our<br />

branch network, particularly as short<br />

term property leases expire <strong>and</strong>, where<br />

appropriate, amalgamate smaller, less<br />

profitable branches with their nearest<br />

neighbours. At 31 December 2004, the<br />

consumer division operated from 294<br />

locations across the UK.<br />

Feedback on the quality of our products<br />

<strong>and</strong> services is important to us <strong>and</strong><br />

this continues to be obtained by<br />

independent consultants on a monthly<br />

basis each year. Their latest <strong>report</strong> in<br />

February 2005 shows a consistently<br />

high position with over 80% of our<br />

customers being satisfied with our<br />

services.<br />

Insurance<br />

Progressive Insurance, our reinsurance<br />

company, continues to perform<br />

successfully <strong>and</strong> managed funds at<br />

31 December 2004 stood at<br />

£75.0 million. These funds, which are<br />

invested in fixed interest bank deposits,<br />

are held, primarily, against potential<br />

future claims <strong>and</strong> cannot be applied to<br />

finance other parts of the group or repay<br />

group borrowings.<br />

Debt Recovery<br />

Lewis, the group’s debt recovery<br />

specialist, has had another successful<br />

year, increasing its profits by 19.0% to


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 9<br />

£4.4 million. Lewis provides a full debt<br />

recovery service for external clients which<br />

<strong>accounts</strong> for around 85% of their<br />

commission based debt collection<br />

activities, an increase from 75% in 2003.<br />

Third party commission income increased<br />

by 4% in the year to £6.5 million.<br />

The purchase of default debt portfolios<br />

continues to be an important part of<br />

Lewis’ operations <strong>and</strong> it has developed<br />

sophisticated pricing models <strong>and</strong><br />

processes to assess the economic<br />

value of such portfolios. This has<br />

enabled Lewis to remain selective in the<br />

portfolios it purchases, particularly<br />

when prices harden, as has been the<br />

case in the second half of 2004. The<br />

amount invested in the purchase of<br />

such portfolios in the year was<br />

£21 million, an increase of 55% on<br />

2003. These portfolios, which, at<br />

31 December 2004, amounted to<br />

receivables of £34.4 million, continue<br />

to perform ahead of our expectations.<br />

Corporate Division<br />

The corporate division has <strong>report</strong>ed<br />

another set of strong results with profits<br />

before tax of £7.8 million, representing<br />

an increase of 11.6% on the £7.0 million<br />

achieved last year. The division’s net<br />

customers’ <strong>accounts</strong> receivable at<br />

31 December 2004 amounted to<br />

£131.7 million, an increase of 2.0% in<br />

the year.<br />

Credit quality in the corporate division<br />

has continued to improve, with a further<br />

reduction in the bad debt ratio from<br />

1.2% to under 1% of net receivables<br />

being achieved for the year. The<br />

division’s return on average net<br />

receivables also continued to improve<br />

from 5.9% last year to 6.2% in 2004.<br />

<strong>Cattles</strong> Invoice Finance has again<br />

performed well, improving profits to<br />

£3.2 million from £2.8 million in 2003,<br />

whilst growing its client base by 10% in<br />

the year. This business now operates<br />

from five regional centres, with a new<br />

office being opened in Maidstone during<br />

the year to improve the division’s service<br />

to London <strong>and</strong> the South East. This will<br />

complement the division’s other regional<br />

centres located in Manchester, Oxford,<br />

Leeds <strong>and</strong> Glasgow.<br />

<strong>Cattles</strong> Commercial Finance, which is<br />

primarily involved in hire purchase <strong>and</strong><br />

leasing advances to the SME market,<br />

had another good year, increasing its<br />

profits before tax by 9.2% to<br />

£4.6 million. On 14 January 2005, we<br />

announced the sale of this non-core<br />

business for a total cash consideration<br />

of £70 million. These proceeds will be<br />

used to provide additional working<br />

capital for the group.<br />

Information Technology<br />

We continue to invest significantly in<br />

Project Phoenix, the development of our<br />

next generation of IT <strong>and</strong> customer<br />

relationship management systems.<br />

During the year, contracts were awarded<br />

to Siebel, Fiserv <strong>and</strong> IBM to supply all<br />

major computer software, hardware <strong>and</strong><br />

database management systems for<br />

Phoenix. I am pleased to <strong>report</strong> that this<br />

major project remains on schedule for<br />

implementation in 2006.<br />

Funding<br />

In July 2004, the group successfully<br />

completed a new five year syndicated<br />

bank facility of £500 million. This<br />

replaced maturing facilities of<br />

£353 million <strong>and</strong> provides the group with


10<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Chief Executive’s Review continued<br />

improved headroom to support our<br />

continuing development <strong>and</strong> growth.<br />

The current average maturity profile of<br />

the group’s funding lines st<strong>and</strong>s at a<br />

prudent five years.<br />

We were delighted with the strong<br />

support we received from our existing<br />

banking partners <strong>and</strong> the establishment<br />

of lending relationships with a number of<br />

additional banks for the first time. This<br />

support, together with the continuing<br />

positive development of <strong>Cattles</strong>’<br />

corporate profile, resulted in improved<br />

rates.<br />

The group’s long st<strong>and</strong>ing treasury<br />

strategy of limiting its exposure to<br />

volatility in interest rate movements,<br />

through appropriate financial hedging<br />

instruments, remains in place. At<br />

31 December 2004, around 90% of the<br />

group’s total borrowings were protected<br />

against future interest rate volatility, for an<br />

average period of approximately five <strong>and</strong><br />

a half years. This strategy, together with<br />

the improvements achieved in our<br />

funding profile during the last year, has<br />

provided the group with a stable funding<br />

platform <strong>and</strong> greater certainty <strong>and</strong><br />

control over future funding costs.<br />

Net group borrowings increased during<br />

the year by £225 million to £1.21 billion<br />

at 31 December 2004. In the same<br />

period, shareholders’ funds increased<br />

by £51 million to £437 million <strong>and</strong> net<br />

receivables increased by £292 million<br />

to £1.87 billion. At 31 December 2004,<br />

the group’s gearing ratio stood at a<br />

conservative level of 3.1 times<br />

shareholders’ funds, excluding<br />

capitalised goodwill, a modest<br />

increase on 2.9 times at the previous<br />

year end.<br />

International Financial Reporting<br />

St<strong>and</strong>ards<br />

As referred to in the Chairman’s<br />

Statement, the requirement to adopt<br />

IFRS took effect from 1 January 2005.<br />

A dedicated project team continues to<br />

work closely with our external auditors<br />

<strong>and</strong> other advisers to implement the<br />

accounting policies, systems <strong>and</strong> other<br />

<strong>report</strong>ing changes that will be required<br />

to ensure the group complies with IFRS.<br />

This has involved the investment of<br />

significant resources <strong>and</strong> we are<br />

working closely with our auditors to<br />

finalise the review of the <strong>report</strong>ed<br />

numbers under IFRS.<br />

Changes to the figures <strong>report</strong>ed under<br />

UK GAAP are due mainly to the timing of<br />

income recognition <strong>and</strong> loan loss<br />

provisioning required under IFRS. In the<br />

profit <strong>and</strong> loss account, a much greater<br />

element of income derived from fees<br />

<strong>and</strong> commissions, including insurance<br />

products sold alongside consumer<br />

loans, is carried forward under IFRS for<br />

release over the life of the loan.<br />

IFRS also stipulates prescriptive rules for<br />

determining impairment of loans <strong>and</strong><br />

requires loan loss provisions to be<br />

calculated based on expected future<br />

cash flows, discounted at our<br />

contractual interest rates over the<br />

estimated period of collection. This<br />

substantially increases the provision<br />

required under IFRS, compared with our<br />

current basis of provisioning under UK<br />

GAAP, which has served the group well<br />

over many years.<br />

A more detailed explanation of the<br />

group’s key accounting policies affected<br />

by IFRS is set out in the Report of the<br />

Directors on pages 22 <strong>and</strong> 23.<br />

Finalised numbers will be <strong>report</strong>ed<br />

during the second quarter of 2005 but at


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 11<br />

this stage we estimate that under IFRS<br />

profit before tax for the year ended<br />

31 December 2004 would have been<br />

approximately £100 million <strong>and</strong> that net<br />

assets at 31 December 2004 would<br />

have been approximately £320 million.<br />

Whilst the adoption of IFRS has a<br />

significant impact on historic <strong>report</strong>ed<br />

figures it is important to recognise that<br />

these changes do not impact on the<br />

group’s <strong>report</strong>ed cash flow. The Board<br />

expects that the change to IFRS will not<br />

affect materially the group’s return on<br />

net assets, future dividends or growth<br />

prospects.<br />

Prospects<br />

I am delighted with the progress made<br />

by the group this year <strong>and</strong> the<br />

successful completion of the second<br />

year of our five year plan. These<br />

excellent results reflect the tremendous<br />

efforts <strong>and</strong> total commitment displayed<br />

by our management <strong>and</strong> staff. I should<br />

very much like to offer my personal<br />

thanks to all our employees for their<br />

invaluable contribution.<br />

Through careful management of credit<br />

quality <strong>and</strong> by lending responsibly, we<br />

aim to continue to deliver on our<br />

strategy of controlled growth <strong>and</strong> stable<br />

returns in the UK consumer credit<br />

market. I am pleased to <strong>report</strong> that the<br />

group’s current trading is in line with our<br />

expectations <strong>and</strong> I believe there<br />

continue to be significant opportunities<br />

for further success in our chosen<br />

markets.<br />

Seán Mahon<br />

Chief Executive<br />

18 March 2005


12<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report on Corporate Social Responsibility<br />

For the year ended 31 December 2004<br />

<strong>Cattles</strong> provides a personal <strong>and</strong> flexible<br />

service to over 650,000 customers in<br />

local communities throughout the<br />

United Kingdom. We are committed to<br />

the principles of Corporate Social<br />

Responsibility (‘CSR’) <strong>and</strong> these are<br />

integral to our business <strong>and</strong> reflected in<br />

our Mission <strong>and</strong> Goals.<br />

As responsible lenders, we aim to create<br />

our products in line with the needs of our<br />

customers, whilst achieving open <strong>and</strong><br />

honest relationships with our<br />

stakeholders. We seek to create a<br />

motivating <strong>and</strong> supportive culture for our<br />

employees <strong>and</strong> take an active role in the<br />

communities in which we live <strong>and</strong> work,<br />

whilst minimising our impact on the<br />

environment.<br />

We reflect these principles through our<br />

CSR programme <strong>and</strong> a family of policies<br />

relating to our business activities, our<br />

workplace, our interactions with the<br />

community <strong>and</strong> environmental<br />

management.<br />

The <strong>Cattles</strong> Board recognises the<br />

benefits that a sound CSR programme<br />

can bring to the business <strong>and</strong> has<br />

appointed Mark Collins, Director of<br />

Treasury <strong>and</strong> Risk, with overall CSR<br />

responsibility. Through its twice-yearly<br />

risk management reviews the Board<br />

identifies <strong>and</strong> assesses significant risks<br />

to the business, including reputational<br />

<strong>and</strong> financial risks arising from CSR<br />

matters. Day to day CSR activities are<br />

co-ordinated by the <strong>Cattles</strong> CSR<br />

Committee, headed by Greg Stevens,<br />

Director of Corporate Affairs, <strong>and</strong><br />

supported by Jayne Johnson,<br />

CSR Manager.<br />

Throughout 2004, we have implemented<br />

a number of initiatives to address the key<br />

risks <strong>and</strong> opportunities for our business.<br />

We have continued to develop our<br />

partnerships with Credit Action <strong>and</strong><br />

DebtCred to support financial literacy<br />

programmes across the UK. Our<br />

community projects have been<br />

enhanced <strong>and</strong> this has assisted in<br />

strengthening our links with Business in<br />

the Community. We have also formalised<br />

our approach to environmental<br />

management <strong>and</strong> are actively targeting<br />

our key impact areas. Since its inception,<br />

<strong>Cattles</strong> has remained a member of<br />

FTSE4Good, <strong>and</strong> we continue to<br />

engage with its shareholders <strong>and</strong> key<br />

research agencies on CSR issues.<br />

During the year we have received a<br />

number of awards, including the<br />

presentation of the ‘HRH The Prince of<br />

Wales’ Ambassador Award for Yorkshire<br />

<strong>and</strong> Humber’ to our Chief Executive,<br />

Seán Mahon, for his leadership <strong>and</strong><br />

action in the area of CSR, <strong>and</strong><br />

particularly his work with Leeds Cares.<br />

The first of its kind, Leeds Cares has<br />

become a model for 25 other Cares’<br />

partnerships now established in cities<br />

<strong>and</strong> towns in the UK. In 2004 Seán<br />

stepped up to the role of chairman of the<br />

National Cares’ Leadership Team <strong>and</strong><br />

Yorkshire Cares, bringing to an end his<br />

five-year chairmanship of Leeds Cares.<br />

“I am extremely honoured to receive this<br />

award. Over the coming year I am<br />

looking forward to continuing to play a<br />

role in leading <strong>and</strong> publicising the cause<br />

of corporate responsibility, <strong>and</strong><br />

engaging more businesses to become<br />

committed to working closely with their<br />

local communities through<br />

Leeds Cares.”<br />

Seán Mahon, <strong>Cattles</strong> CEO<br />

Responsible Lending <strong>and</strong> Borrowing<br />

At <strong>Cattles</strong>, we are committed to<br />

responsible business practices <strong>and</strong> in<br />

particular to responsible lending <strong>and</strong><br />

borrowing. In recent years, increased<br />

credit card debt <strong>and</strong> mortgage<br />

borrowing have dominated growth in<br />

consumer credit. <strong>Cattles</strong>’ product range<br />

does not target these areas, it is focused<br />

on a few key markets, for which we have


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 13<br />

adopted appropriate, bespoke<br />

screening <strong>and</strong> lending criteria.<br />

Contributing to the work of our trade<br />

associations (FLA, CCA <strong>and</strong> CCTA) <strong>and</strong><br />

responding to governmental<br />

consultations means that we are<br />

instrumental in shaping future policy on<br />

responsible lending. We welcome<br />

government collaboration on the DTI’s<br />

2004 Tackling over-indebtedness action<br />

plan <strong>and</strong> support the work of the<br />

recently formed Financial Inclusion<br />

Task Force.<br />

We are proud of our approved FSA<br />

status <strong>and</strong> are committed to maintaining<br />

the st<strong>and</strong>ards required <strong>and</strong> expected of<br />

us by the FSA <strong>and</strong> the Code of Practice<br />

of our trade associations. To help in this<br />

aspect, we have developed our own<br />

operating procedures which outline<br />

minimum st<strong>and</strong>ards for customer<br />

service, employee behaviour,<br />

recruitment <strong>and</strong> sales <strong>and</strong> marketing<br />

practice. We also measure the ongoing<br />

effectiveness of our performance<br />

through independently obtained<br />

customer <strong>and</strong> employee feedback.<br />

<strong>Cattles</strong> believes in raising st<strong>and</strong>ards in<br />

financial education. We support new<br />

regulations for the provision of<br />

pre-contractual information <strong>and</strong> in doing<br />

so we will ensure that our customers<br />

receive the key information they need in<br />

order to make an informed choice. Last<br />

year we committed to providing financial<br />

support for Credit Action <strong>and</strong> DebtCred,<br />

two national money education charities<br />

working to improve financial literacy<br />

throughout the country. Our financial<br />

commitment in support of these two<br />

organisations continues <strong>and</strong> during<br />

2004 we have provided a further<br />

£75,000 <strong>and</strong> £30,000 respectively.<br />

We remain a Fair Share partner of the<br />

Consumer Credit Counselling Service<br />

(‘CCCS’) who provide free independent<br />

advice on debt management to<br />

consumers.<br />

Our relationship with Credit Action has<br />

strengthened throughout the year <strong>and</strong><br />

our commitment goes beyond financial<br />

support. Our collaborative relationship<br />

has brought Credit Action market<br />

growth <strong>and</strong> allowed them to extend their<br />

reach to those areas where it is needed<br />

most. Using <strong>and</strong> building upon the<br />

range of Money Management<br />

publications, they provide valuable<br />

information for target audiences. In<br />

particular this year, their focus has been<br />

on students, school leavers, single<br />

mothers <strong>and</strong> new recruits to the armed<br />

forces. They work tirelessly to raise<br />

awareness nationally of the issues<br />

surrounding sub-prime lending. They are<br />

active participants on government<br />

committees <strong>and</strong> during 2004 <strong>Cattles</strong><br />

has shared several platforms with<br />

Credit Action to encourage a greater<br />

underst<strong>and</strong>ing of our sector <strong>and</strong> the<br />

importance of improving financial<br />

literacy.<br />

DebtCred is the High Sheriffs’ financial<br />

literacy project, which offers support<br />

<strong>and</strong> teaching aids for schoolteachers.<br />

The Pfeg accredited student book <strong>and</strong><br />

teacher resource pack ‘Serious Money’<br />

<strong>and</strong> ‘Using Serious Money’ look at the<br />

skills of dealing with money in a modern<br />

society, aimed at young people about to<br />

leave school <strong>and</strong> who have a range of<br />

decisions to make about their future.<br />

The teacher’s resource pack contains<br />

lesson plans, activity sheets <strong>and</strong><br />

information about underst<strong>and</strong>ing the<br />

proper <strong>and</strong> responsible use of money<br />

<strong>and</strong> credit. DebtCred currently operate<br />

in nine counties <strong>and</strong> are actively<br />

pursuing opportunities to engage<br />

schools throughout the UK.<br />

Our People<br />

The dedication, skills <strong>and</strong><br />

professionalism of our employees are a<br />

considerable factor in the success of our<br />

business. It is important that we provide<br />

our employees with a positive <strong>and</strong>


14<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report on Corporate Social Responsibility continued<br />

supportive environment in which to<br />

develop their careers with us, <strong>and</strong> that<br />

we encourage <strong>and</strong> support them to<br />

reach their full potential with <strong>Cattles</strong>. We<br />

also seek to provide opportunities for<br />

our staff to develop their longer-term<br />

careers with the group.<br />

To facilitate this we have developed a<br />

comprehensive suite of policies,<br />

including those relating to equal<br />

opportunities, flexible working, health<br />

<strong>and</strong> safety, whistle-blowing <strong>and</strong><br />

grievance procedures. In addition, we<br />

have continued to develop our ‘Working<br />

Together’ concept, which clearly defines<br />

our corporate values <strong>and</strong> objectives for<br />

all our employees.<br />

<strong>Cattles</strong> currently employs 5,000 people,<br />

an increase of around 6% in the year.<br />

The gender of our staff is almost equally<br />

balanced between male <strong>and</strong> female<br />

employees, 91% of whom work on a<br />

full-time basis. During the year we have<br />

seen the number of female members of<br />

staff operating in senior management<br />

positions increase to 36 <strong>and</strong> we look<br />

forward to further progress in this area<br />

as we continue to encourage more of<br />

our employees to seek these roles.<br />

Once again, we have undertaken a<br />

survey of employee satisfaction. This<br />

year almost 80% of employees<br />

responded to the survey with the<br />

majority indicating high levels of<br />

satisfaction. To supplement this we have<br />

held a series of ‘Director Roadshows’,<br />

which enabled employees to put their<br />

questions about the business to<br />

directors <strong>and</strong> senior managers <strong>and</strong> to<br />

raise any issues or views they have.<br />

Using the ‘Aspire’ programme, we have<br />

continued to implement our approach to<br />

training <strong>and</strong> development <strong>and</strong> career<br />

progression. This provides <strong>Cattles</strong> with<br />

an ongoing comprehensive <strong>and</strong> robust<br />

process, ensuring that quality training<br />

<strong>and</strong> career development opportunities<br />

are available to all our employees.<br />

Throughout 2004 we have provided<br />

induction training to all new employees<br />

<strong>and</strong> in total have facilitated over 10,000<br />

training days across the group utilising<br />

our seven new regional training centres<br />

<strong>and</strong> branch offices. Comprehensive<br />

regulatory training has taken place with<br />

over 4,000 employees now being FSA<br />

accredited.<br />

We also strive to improve <strong>and</strong> further<br />

develop our operational training. For<br />

example, 326 of our branch <strong>and</strong> area<br />

managers from Welcome Financial<br />

Services participated in a four day<br />

St<strong>and</strong>ard Operation Procedures (SOPS)<br />

Accreditation training course to ensure<br />

their underst<strong>and</strong>ing of our working<br />

practices <strong>and</strong> external regulations. In<br />

addition to this every Customer Account<br />

Manager (CAM) has been required to<br />

attend a dynamic technical workshop<br />

specific to their role.<br />

We are proactive in adhering to current<br />

<strong>and</strong> future legislation <strong>and</strong> we continually<br />

focus on achieving consistently excellent<br />

levels of customer service.<br />

Ensuring the health <strong>and</strong> safety of our<br />

employees, contractors, customers <strong>and</strong><br />

the general public is of utmost importance<br />

to <strong>Cattles</strong> <strong>and</strong> our commitment is set<br />

out in our Health <strong>and</strong> Safety Policy. This<br />

year we have introduced the <strong>Cattles</strong><br />

health <strong>and</strong> safety intranet site, which is<br />

available to all employees <strong>and</strong> provides<br />

guidance <strong>and</strong> training on relevant<br />

issues, such as computer safety, fire<br />

safety <strong>and</strong> manual h<strong>and</strong>ling.<br />

With a fleet in excess of 1,700 vehicles,<br />

fleet risk management is of paramount<br />

importance. This management process<br />

has been developed in collaboration<br />

with the RAC <strong>and</strong> our fleet partner, ALD<br />

Automotive, <strong>and</strong> together we will<br />

address issues, such as risk<br />

assessment, driver training, accident


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 15<br />

investigation <strong>and</strong> the delivery of robust<br />

management information to maximise<br />

improvement in driver safety. We will<br />

extend our Health <strong>and</strong> Safety<br />

programme during 2005 to include a<br />

revised <strong>and</strong> more comprehensive<br />

approach to personal safety.<br />

Working with Local Communities<br />

<strong>Cattles</strong> is committed to working with<br />

<strong>and</strong> supporting the communities that it<br />

serves by addressing issues of social<br />

disadvantage, encouraging the<br />

improvement of financial literacy <strong>and</strong><br />

improving the welfare of young people.<br />

We are an active member of Business in<br />

the Community (‘BITC’) <strong>and</strong> continue to<br />

play a prominent role in BITC’s Cares<br />

programme. This initiative encourages<br />

businesses to develop partnerships with<br />

the local community <strong>and</strong> to enable<br />

employees to volunteer their expertise<br />

<strong>and</strong> skills to community projects <strong>and</strong><br />

initiatives.<br />

<strong>Cattles</strong> contributes to the community in<br />

three main ways: employee<br />

volunteering, provision of gifts in kind<br />

<strong>and</strong> through donations. In 2004, <strong>Cattles</strong><br />

donated £388,000 to community<br />

activities <strong>and</strong> initiatives. This comprised<br />

the value of our financial donations,<br />

volunteering activity <strong>and</strong> gifts in kind<br />

totalling £273,000 <strong>and</strong> other costs of<br />

community programmes, including<br />

management time totalling £115,000.<br />

During the year we have seen employee<br />

enthusiasm for volunteering grow. We<br />

have added to our membership of<br />

Leeds Cares by becoming Gold<br />

Supporters of Nottingham Cares during<br />

2004 with plans to join Hull Cares in<br />

2005. We have launched our employeedriven<br />

‘H<strong>and</strong>s Up’ initiative in key<br />

locations. We have also formalised a<br />

policy for volunteering <strong>and</strong> developed a<br />

more robust process to measure our<br />

community investment <strong>and</strong> impact.<br />

H<strong>and</strong>s Up will promote employee<br />

volunteering <strong>and</strong> encourage employees<br />

to develop their skills <strong>and</strong> experience,<br />

whilst building better links on behalf of<br />

the business.<br />

We are determined to grow our activity<br />

in the community in the years ahead <strong>and</strong><br />

build upon the 500 hours of community<br />

work our employees have undertaken<br />

this year through the Cares partnership.<br />

Some examples of volunteering include:<br />

Development of a strategic business<br />

plan for Action for Gipton Elderly (‘AGE’):<br />

Nigel Hinze, a member of our strategic<br />

project team, helped AGE to develop a<br />

five-year business plan <strong>and</strong> secure their<br />

financial stability. Since this project has<br />

ended Nigel has been invited to join the<br />

AGE Board of Trustees.<br />

E-skills4industry project: Staff from<br />

<strong>Cattles</strong> IT team offered their experience<br />

<strong>and</strong> expertise to students at Park Lane<br />

College in Leeds, including a successful<br />

work placement for two students which<br />

resulted in their full-time permanent<br />

recruitment.<br />

Fieldhead Junior <strong>and</strong> Infant School:<br />

<strong>Cattles</strong> has continued to develop its<br />

relationship with this school. Throughout<br />

the year volunteers have assisted with<br />

children’s literacy, provided <strong>and</strong> installed<br />

kit to create a new IT Suite, <strong>and</strong><br />

collaborated with the school by running<br />

a ‘Design a Christmas Card’<br />

competition. The winning designs were<br />

then adopted by <strong>Cattles</strong> as its corporate<br />

Christmas card <strong>and</strong> used extensively by<br />

group businesses.<br />

Other community activities include:<br />

<strong>Cattles</strong> 50:50 – A ‘give as you earn’<br />

scheme in which employee<br />

contributions are matched by company<br />

contributions. The scheme, which is<br />

incentivised, supports five charities<br />

chosen through an annual employee<br />

ballot. In 2004, this initiative alone<br />

donated more than £60,000 to charities.


16<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report on Corporate Social Responsibility continued<br />

CashMatch – An initiative that offers<br />

employees the opportunity to increase<br />

their fundraising for charitable <strong>and</strong><br />

community activities by obtaining an<br />

equal contribution from <strong>Cattles</strong>, subject<br />

to certain criteria being met. CashMatch<br />

supported personal employee<br />

contributions to the Tsunami Appeal,<br />

resulting in a donation of £50,000.<br />

Financial Literacy – <strong>Cattles</strong> has<br />

continued to provide long-term support<br />

to Credit Action <strong>and</strong> DebtCred to<br />

promote improvements in financial<br />

literacy.<br />

Outward Bound (Leeds Project) – <strong>Cattles</strong><br />

is a major supporter of this initiative,<br />

committing £13,000 pa for a three-year<br />

period. The project invites young people<br />

from schools in some of the most<br />

disadvantaged wards in Leeds to take<br />

part in a residential course designed to<br />

develop their confidence <strong>and</strong><br />

self-esteem.<br />

Managing our environmental<br />

impacts<br />

In 2004, we have strengthened our<br />

approach to environmental<br />

management <strong>and</strong> have recruited a CSR<br />

assistant from the operational side of our<br />

business to co-ordinate our activities<br />

<strong>and</strong> drive improvement in this area. An<br />

‘Environmental Team’ has also been<br />

established to review progress, develop<br />

objectives <strong>and</strong> targets, <strong>and</strong> facilitate<br />

performance improvement. This<br />

steering group also ensures that<br />

environmental activities are integrated<br />

with <strong>Cattles</strong>’ approach to CSR <strong>and</strong> other<br />

business initiatives.<br />

Once again we participated in the<br />

BiE Yorkshire <strong>and</strong> Humber Index of<br />

Environmental Engagement to assess<br />

our environmental impact. We achieved<br />

a score of 52% compared with the 55%<br />

score of last year. We are taking action<br />

to pursue improvement <strong>and</strong> move<br />

forward <strong>and</strong> will build on our ability to<br />

measure <strong>and</strong> monitor environmental<br />

data.<br />

For example during 2004 we have<br />

undertaken a baseline review to quantify<br />

our impacts <strong>and</strong> have developed a<br />

series of environmental indicators to<br />

monitor our performance. The sections<br />

below summarise our activities in our<br />

key impact areas.<br />

Energy Consumption<br />

We use energy <strong>and</strong> light to heat our<br />

buildings <strong>and</strong> to power our computers,<br />

<strong>and</strong> we have committed to maximise<br />

efficiencies in doing so. Working with our<br />

procurement team <strong>and</strong> our energy<br />

brokers we have carried out a supplier<br />

review <strong>and</strong> been able to identify ways to<br />

improve the provision of data, allowing<br />

us to measure <strong>and</strong> monitor our energy<br />

use. During the second half of 2004 we<br />

used 5.4 million KWh of energy,<br />

equating to 1.7 thous<strong>and</strong> tonnes of<br />

carbon dioxide emissions, which are<br />

known to contribute to climate change.<br />

We are committed to setting<br />

improvement targets in this area <strong>and</strong><br />

hope to <strong>report</strong> in greater detail next year.<br />

Transport<br />

The majority of business travel at <strong>Cattles</strong><br />

is undertaken by car <strong>and</strong> as such we<br />

have a substantial company fleet of<br />

1,789 vehicles. The fuel consumed by<br />

these vehicles has an impact on the<br />

environment as it is converted to carbon<br />

dioxide emissions.<br />

Increase/<br />

(decrease)<br />

2004 2003 %<br />

Fuel used<br />

(‘000 litres) 3,400 2,968 14.6<br />

CO 2 emissions (t) 8,830 7,681 15.0<br />

CO 2 emissions/<br />

turnover (£’m) 12.0 12.7 (5.5)<br />

As the business has grown over the past<br />

year then so has the amount of business<br />

travel undertaken. Consequently, the


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 17<br />

amount of fuel used <strong>and</strong> the associated<br />

emissions have also increased albeit at a<br />

slower rate than the growth of the<br />

business. Therefore we are delighted to<br />

<strong>report</strong> a 5.5% reduction in our CO 2<br />

emissions per unit of turnover.<br />

Waste Management<br />

Historically, we have used a large<br />

number of different waste management<br />

contractors to remove waste from our<br />

sites. This made the collection of<br />

meaningful data <strong>and</strong> the implementation<br />

of reduction programmes difficult. We<br />

recognise the importance of measuring<br />

<strong>and</strong> improving our performance in this<br />

area <strong>and</strong> as a consequence we have<br />

now rationalised our waste<br />

management arrangements <strong>and</strong> a single<br />

provider has been appointed. We are<br />

now able to collect waste management<br />

data which will enable us to set<br />

reasonable reduction targets for the<br />

future. We shall <strong>report</strong> on our progress in<br />

this area next year.<br />

Consumable Use<br />

As <strong>Cattles</strong> is essentially an office-based<br />

business, we use a substantial amount<br />

of paper each year. In 2004, we used<br />

over 90,000 reams, which equates to<br />

almost 19 reams used by each full time<br />

employee per year, as follows:<br />

Increase/<br />

(decrease)<br />

2004 2003 %<br />

Reams of paper<br />

used (‘000) 90.4 87.7 3.1<br />

Reams per FTE 18.6 18.8 (1.1)<br />

We are pleased to see a 1% reduction in<br />

this area <strong>and</strong> will continue to seek further<br />

savings in the future.<br />

Suppliers <strong>and</strong> Partners<br />

We acknowledge that our environmental<br />

impact extends further than just from<br />

our activities <strong>and</strong> that our suppliers have<br />

a role to play too. To encourage them to<br />

consider their environmental<br />

performance, we have incorporated<br />

environmental criteria into our supplier<br />

evaluation process on an equal basis to<br />

other factors, such as quality or cost.<br />

CSR Progress at <strong>Cattles</strong><br />

We have worked hard this year to<br />

exp<strong>and</strong> our CSR programme <strong>and</strong> have<br />

progressed several key initiatives across<br />

the business. I am particularly proud of<br />

our commitment to CSR, not least of<br />

which through the Aspire programme to<br />

train <strong>and</strong> develop our people <strong>and</strong> the<br />

work with Credit Action <strong>and</strong> DebtCred to<br />

address national financial education<br />

issues. We will continue to develop our<br />

initiatives over the coming year <strong>and</strong> look<br />

forward to <strong>report</strong>ing greater success<br />

in 2006.<br />

Seán Mahon<br />

Chief Executive<br />

18 March 2005


18<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Directors <strong>and</strong> Secretary


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 19<br />

4 5 7 6 9 8 3<br />

1 2<br />

1 Barrie Cottingham*, FCA, ATII.<br />

Chairman. Age 71. Appointed to the<br />

Board 1995. Appointed Chairman<br />

May 1999. Non-executive director of<br />

Vp plc <strong>and</strong> Dew Pitchmastic PLC.<br />

Formerly a senior partner of Coopers<br />

& Lybr<strong>and</strong>.<br />

2 Seán P Mahon*, FCA. Chief<br />

Executive. Age 58. Appointed to the<br />

Board 2000. Appointed Chief<br />

Executive May 2001. Chairman of<br />

National Cares <strong>and</strong> Yorkshire Cares.<br />

Previously a member of the UK board<br />

<strong>and</strong> chairman <strong>and</strong> senior partner of<br />

the northern region of<br />

PricewaterhouseCoopers.<br />

3 Mark W G Collins, FCA. Treasury &<br />

Risk Director. Age 51. Joined the<br />

company in 1996 <strong>and</strong> appointed to<br />

the Board 1998. CBI council member<br />

for Yorkshire <strong>and</strong> Humber. Prior to<br />

joining the company was finance<br />

director of Brooke Industrial<br />

(Holdings) plc.<br />

4 James J Corr, CA. Finance Director.<br />

Age 51. Joined the company <strong>and</strong><br />

appointed to the Board 2001. Prior to<br />

joining the company was finance<br />

director of Polypipe plc. Previously<br />

held senior finance positions in a<br />

variety of listed <strong>and</strong> private<br />

companies.<br />

5 Ian S Cummine, Chief Operating<br />

Officer – Consumer Division. Age 51.<br />

Joined the company in 1994 when<br />

Welcome Financial Services <strong>Limited</strong><br />

was acquired. Appointed to the<br />

Board 1998. Prior to the setting up of<br />

Welcome, of which he was a<br />

co-founder, held senior positions in<br />

the credit industry.<br />

6 Norman N Broadhurst**, FCA,<br />

FCT. Age 63. Appointed to the Board<br />

2001. Chairman of Chloride Group<br />

plc <strong>and</strong> Freightliner <strong>Limited</strong> <strong>and</strong> also<br />

a non-executive director of Old<br />

Mutual plc, Tomkins plc <strong>and</strong> United<br />

Utilities plc. Previously finance<br />

director of Railtrack Group plc.<br />

7 David A Haxby**, LLB, FCA. Age<br />

63. Appointed to the Board 1999.<br />

Senior independent non-executive<br />

director. Non-executive director of<br />

SIG plc. From 1991 until his<br />

retirement in 1995 he was the<br />

managing partner of the London<br />

office of Arthur Andersen.<br />

8 Frank Dee**, Age 54. Appointed to<br />

the Board 2004. Non-executive<br />

director of Leeds & Holbeck Building<br />

Society <strong>and</strong> Speedy Hire plc <strong>and</strong><br />

non-executive chairman of<br />

Chasemount <strong>Limited</strong> <strong>and</strong> The<br />

Original Factory Shop Group <strong>Limited</strong>.<br />

Previously held senior executive roles<br />

in a variety of companies in the retail<br />

sector.<br />

9 Rol<strong>and</strong> C W Todd, MA (Oxon),<br />

Solicitor. Company Secretary <strong>and</strong><br />

Legal Counsel. Age 43. Joined the<br />

company <strong>and</strong> appointed Company<br />

Secretary <strong>and</strong> Legal Counsel 2004.<br />

Prior to joining the company was a<br />

partner in the Leeds office of the law<br />

firm DLA.<br />

* Member of the Nomination<br />

Committee<br />

** Independent non-executive <strong>and</strong><br />

member of the Audit, Remuneration<br />

<strong>and</strong> Nomination Committees


20 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Directors<br />

For the year ended 31 December 2004<br />

The directors submit their annual <strong>report</strong> together with the audited financial statements of the company <strong>and</strong> the group for the year<br />

ended 31 December 2004.<br />

Principal Activities<br />

The principal activities of the group are described in the Profile of the Group on page 2 <strong>and</strong> are reviewed by the Chief Executive on<br />

pages 6 to 11. A list of principal operating subsidiary undertakings is set out on page 70.<br />

Results <strong>and</strong> Dividends<br />

The performance of the group <strong>and</strong> the group’s future prospects are reviewed in the Chairman’s Statement on pages 4 <strong>and</strong> 5<br />

<strong>and</strong> the Chief Executive’s Review on pages 6 to 11. Events since the year end are referred to in note 31 on page 69.<br />

Turnover for the year amounted to £734.8 million (2003: £605.4 million) <strong>and</strong> profit before taxation was £138.1 million<br />

(2003: £119.5 million) as set out in the Consolidated Profit <strong>and</strong> Loss Account on page 42. An analysis of turnover, profit before<br />

taxation <strong>and</strong> net assets, by segmental activity, is set out in note 4 on page 50. Details of the taxation charge for the year are set<br />

out in note 5 on page 51.<br />

A final dividend of 9.45p per share is proposed by the directors which, if approved at the annual general meeting, will be paid on<br />

10 May 2005 to shareholders on the register on 1 April 2005. The final dividend, together with the interim dividend of 4.55p paid in<br />

October 2004, makes a total for the year of 14.00p per share.<br />

Shareholders can again reinvest their cash dividend in shares through the Dividend Reinvestment Plan (‘the plan’). Shareholders<br />

who have not previously completed a m<strong>and</strong>ate <strong>and</strong> who require details of the plan should contact the Registrars at the address<br />

shown on page 81. New m<strong>and</strong>ates must be received by close of business on 18 April 2005 to be included in the plan for the final<br />

dividend. Further details are set out in Shareholder Information on page 80.<br />

The trustee of the <strong>Cattles</strong> Employee Benefit Trust has agreed to waive the right to receive dividends over <strong>and</strong> above 0.01p per<br />

share on all shares it holds for the purpose of the Restricted Share Scheme. It waived dividends of £180,000 (2003: £170,000) on<br />

these shares during the year ended 31 December 2004.<br />

Directors<br />

The Board comprises the non-executive Chairman, four executive directors <strong>and</strong> three independent non-executive directors, details<br />

of whom, together with brief biographical information, are set out on pages 18 <strong>and</strong> 19.<br />

The company’s Articles of Association require Mr F Dee, who was appointed as a director of the company on 30 June 2004 by the<br />

directors, to be re-appointed at the annual general meeting on 5 May 2005. Mr Dee does not have a service contract.<br />

The company’s Articles of Association also require that one third, or as nearly as possible but not less than one third, of the<br />

directors retire by rotation each year. Accordingly, the directors retiring by rotation <strong>and</strong>, being eligible, offering themselves for<br />

re-election at the annual general meeting on 5 May 2005 are Mr D A Haxby, non-executive director, who does not have a service<br />

contract <strong>and</strong> Mr S P Mahon <strong>and</strong> Mr I S Cummine, both of whom hold office as executive directors <strong>and</strong> have rolling service<br />

contracts requiring a period of 12 months notice from the company or six months from the director.<br />

Mr B Cottingham, non-executive Chairman, will have served as a director for 10 years on 11 May 2005. Provision A.7.2 of the<br />

revised Combined Code on Corporate Governance, which requires a non-executive director, who has served for more than nine<br />

years to be subject to annual re-election, does not apply to the Chairman who satisfied the test of independence on his<br />

appointment. Notwithst<strong>and</strong>ing this, Mr Cottingham <strong>and</strong> the Board have concluded that it would be good Corporate Governance<br />

practice in these circumstances for the Chairman to retire <strong>and</strong> offer himself for re-election each year. The Board has no hesitation in<br />

recommending to shareholders the re-election of Mr Cottingham as a director as they greatly value his wide business experience<br />

<strong>and</strong> his continuing contribution to the leadership <strong>and</strong> effectiveness of the Board.<br />

All directors are re-elected at intervals of not more than three years, in accordance with the provisions of the revised Combined<br />

Code on Corporate Governance appended to the Listing Rules of the Financial Services Authority. Details of the directors’<br />

remuneration, share incentives <strong>and</strong> options, <strong>and</strong> pension arrangements are set out in the Report of the Board on Directors’<br />

Remuneration on pages 31 to 41. No director has had a contract of significance, other than a service contract, with the company<br />

or any subsidiary undertaking during the year.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

21<br />

Directors’ Shareholdings<br />

The directors named on page 19 were in office for the whole of the financial year, except for Mr F Dee who was appointed on<br />

30 June 2004. The interests of the directors in the shares of the company, according to the register kept under section 325 of the<br />

Companies Act 1985, were as follows:<br />

Beneficial holdings<br />

17 March 2005 31 December 2004 31 December 2003<br />

B Cottingham 57,415 57,415 57,415<br />

S P Mahon 104,276 104,276 70,341<br />

M W G Collins 54,064 54,064 41,591<br />

J J Corr 25,254 25,254 2,987<br />

I S Cummine 81,392 81,392 77,564<br />

N N Broadhurst 1,000 1,000 1,000<br />

D A Haxby 8,317 8,317 8,317<br />

F Dee 10,000 10,000 –<br />

Total 341,718 341,718 259,215<br />

Non-beneficial holdings<br />

The only non-beneficial holding is by M W G Collins in his capacity as trustee of the <strong>Cattles</strong> Employee Share Scheme 1994. At<br />

31 December 2004 the number of shares held was 335,219 (2003: 683,676 shares). Between 31 December 2004 <strong>and</strong> 17 March<br />

2005 the trustees have made disposals of 356 shares on behalf of employees.<br />

Statement of Directors’ Responsibilities<br />

Company law requires the directors to prepare financial statements for each financial year which give a true <strong>and</strong> fair view of the<br />

state of affairs of the company <strong>and</strong> the group as at the end of the financial year <strong>and</strong> of the profit or loss of the group for that year.<br />

In preparing these financial statements, the directors confirm that suitable accounting policies have been consistently applied,<br />

except as set out in note 1(l) on page 48. The directors also confirm that reasonable <strong>and</strong> prudent judgements <strong>and</strong> estimates have<br />

been made in preparing the financial statements for the year ended 31 December 2004, that applicable accounting st<strong>and</strong>ards<br />

have been followed <strong>and</strong> that the financial statements have been prepared on the going concern basis.<br />

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the<br />

financial position of the company <strong>and</strong> the group <strong>and</strong> enable them to ensure that the financial statements comply with the<br />

Companies Act 1985. They are also responsible for safeguarding the assets of the company <strong>and</strong> the group <strong>and</strong> hence for taking<br />

reasonable steps for the prevention <strong>and</strong> detection of fraud <strong>and</strong> other irregularities.<br />

These financial statements will be published on the company’s website, in addition to the paper version posted to shareholders.<br />

The maintenance <strong>and</strong> integrity of the <strong>Cattles</strong> plc website is the responsibility of the directors. The work carried out by the auditors<br />

does not involve consideration of these matters.<br />

Legislation in the UK governing the preparation <strong>and</strong> dissemination of financial statements may differ from legislation in other<br />

jurisdictions.<br />

Funding <strong>and</strong> Financial Hedging Instruments<br />

In July 2004, the group successfully completed a new five year syndicated bank facility for £500 million. An additional six year<br />

£50 million bilateral facility was agreed in August 2004. The new funding replaced maturing facilities of £353 million <strong>and</strong> provides<br />

the group with improved headroom to support future development <strong>and</strong> growth.<br />

After repaying the maturing facilities, the group’s total available funding facilities have increased by £197 million to £1,577 million.<br />

Details of the group’s funding profile are set out in note 18(i) on page 61 <strong>and</strong> note 19 on pages 61 <strong>and</strong> 62.<br />

It is company policy to manage the risk of exposure to adverse interest rate <strong>and</strong> foreign currency fluctuations by the use of financial<br />

hedging instruments such as swaps. It is not the policy of the company to trade in such instruments. The level of protection<br />

contracted for at any particular time would not exceed the company’s exposure to actual or projected borrowings, except in the<br />

event of short term timing differences. A summary of hedging positions <strong>and</strong> the interest rate exposure of the underlying financial<br />

liabilities is set out in note 19 on pages 62 <strong>and</strong> 63.


22 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Directors<br />

Share Capital<br />

During the year, the issued ordinary share capital of the company increased by 714,811 to 328,679,318. Details of the changes are<br />

shown in note 20 on pages 64 <strong>and</strong> 65.<br />

Disclosures concerning the purchase of own shares in relation to the Restricted Share Scheme are set out in the Report of the<br />

Board on Directors’ Remuneration on page 35 <strong>and</strong> in note 13 on page 59.<br />

Full details of the proposed authority of the directors to allot shares, the disapplication of the statutory pre-emption rights <strong>and</strong> the<br />

proposed authority for the company to make market purchases of its own shares are set out in the Explanation of Resolutions to<br />

be proposed at the annual general meeting on pages 77 to 79.<br />

Substantial Shareholdings<br />

As at 17 March 2005 the company had been notified of the following interests pursuant to sections 198-208 of the Companies Act<br />

1985 representing 3% or more of the issued share capital of the company:<br />

Barclays PLC 16.49%<br />

FMR Corp/Fidelity International <strong>Limited</strong> 6.97%<br />

Scottish Widows Investment Partnership <strong>Limited</strong> 4.88%<br />

Legal & General Group plc 3.91%<br />

Morley Fund Management <strong>Limited</strong>/Aviva plc 3.00%<br />

Articles of Association<br />

Resolutions 10 <strong>and</strong> 11 to be proposed at the annual general meeting increase the limit on non-executive directors’ fees <strong>and</strong><br />

amend the company’s articles of association. An explanation of these resolutions is set out in the Explanation of Resolutions on<br />

pages 78 <strong>and</strong> 79.<br />

International Financial Reporting St<strong>and</strong>ards<br />

The group is required to adopt International Financial Reporting St<strong>and</strong>ards (‘IFRS’), with effect from 1 January 2005. These new<br />

<strong>report</strong>ing st<strong>and</strong>ards represent a major change from UK Generally Accepted Accounting Principles (‘UK GAAP’), previously<br />

adopted by the group. The group’s 2005 interim <strong>and</strong> annual financial statements will be prepared in accordance with IFRS.<br />

A dedicated project team continues to work closely with our external auditors <strong>and</strong> other advisers to implement the accounting<br />

policies, systems <strong>and</strong> other <strong>report</strong>ing changes that will be required to ensure the group complies with IFRS.<br />

The project has identified the following key areas affected by IFRS:<br />

Income recognition – IAS39 ‘Financial Instruments: Recognition <strong>and</strong> measurement’<br />

Under UK GAAP, interest income is currently recognised on monthly interest-bearing products as it is charged to the customer <strong>and</strong><br />

on pre-compute products the interest income is largely spread over the term of the loan. Fee income <strong>and</strong> commissions on the sale<br />

of insurance products are recognised immediately, with appropriate provision for rebates due on early settlement. Commensurate<br />

with income recognition, a proportion of loan origination costs is spread over the life of the loan.<br />

Under IFRS, all interest income, fees <strong>and</strong> insurance commissions relating to the loan are spread over the life of the loan on an<br />

effective interest rate (‘EIR’) basis. Furthermore, only a narrow range of costs deemed to be direct <strong>and</strong> incremental are deferred<br />

under IFRS <strong>and</strong> these are also spread over the life of the loan on an EIR basis.<br />

The revenue earned from pre-compute <strong>accounts</strong> is fixed at the outset <strong>and</strong> no default interest is charged if the customer takes<br />

longer to repay. If a customer gets into serious repayment difficulty on an interest-bearing product, interest is suspended. IFRS<br />

however requires that interest continues to be recognised on an EIR basis. As this interest is not charged to, or collected from, the<br />

customer it is effectively written off immediately. The result under IFRS is a grossing up of both income <strong>and</strong> the loan loss<br />

provisioning charge.<br />

Loan loss provisioning – IAS39 ‘Financial Instruments: Recognition <strong>and</strong> measurement’<br />

Under UK GAAP, a long established formula based method of providing for bad debts is used. This formula has been re-examined<br />

on an annual basis to ensure its ongoing suitability.<br />

Under IFRS, there are prescriptive rules that require provisions to be calculated when there is evidence of impairment. IFRS<br />

requires provisions to be calculated based on expected future cash flows over the remaining life of the loan, which are then<br />

discounted at the original EIR. The difference between the discounted cash flows <strong>and</strong> the value of the loan in the balance sheet<br />

represents the loan loss provision.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

23<br />

Interest rate hedging – IAS39 ‘Financial Instruments: Recognition <strong>and</strong> measurement’<br />

Under UK GAAP, gains <strong>and</strong> losses on financial instruments used for hedging interest rate exposures <strong>and</strong> foreign currency<br />

exposures are only recognised when the related exposure that is being hedged is itself recognised. Unrecognised gains <strong>and</strong> losses<br />

on instruments used for hedging at 31 December 2004 are disclosed in note 19 on page 63.<br />

Under IFRS, all derivatives (e.g. interest rate <strong>and</strong> foreign currency swaps) are required to be recorded on the balance sheet at fair<br />

value, with movements in fair value booked to the profit <strong>and</strong> loss account unless the requirements for hedge accounting are met.<br />

These requirements have been met with effect from 1 January 2005 for all significant derivatives <strong>and</strong>, therefore, hedge accounting<br />

will be applied from that date. This means that in 2005, except for any small amounts of hedge ineffectiveness that may occur, the<br />

movements in fair value will be deferred in a hedging reserve within equity shareholders’ funds <strong>and</strong> released to profit in line with the<br />

underlying hedged item.<br />

As IAS39 was not finalised until late 2004, hedge accounting was not in place prior to this <strong>and</strong>, therefore, in the 2004 restated<br />

numbers, the fair value movements will be recognised in the profit <strong>and</strong> loss account.<br />

Pension accounting – IAS19 ‘Employee benefits’<br />

Under UK GAAP, the group currently <strong>accounts</strong> for defined benefit pension schemes in accordance with SSAP 24 ‘Accounting for<br />

pension costs’. The group also <strong>report</strong>s in note 8 on pages 53 to 55 the disclosures required in accordance with FRS 17<br />

‘Retirement benefits’, including the adjustment to the net assets <strong>report</strong>ed under SSAP 24 which would have been required if<br />

FRS 17 had been adopted in the financial statements.<br />

Under IFRS, first-time adoption of IAS19 will result in a deficit, broadly similar to that <strong>report</strong>ed under FRS 17, being brought onto<br />

the balance sheet. Thereafter, actuarial gains <strong>and</strong> losses will be recognised in full as they arise, outside profit or loss, in a statement<br />

of recognised income <strong>and</strong> expense (‘SORIE’).<br />

Employee share schemes – IFRS2 ‘Share-based payment’<br />

UK GAAP requires any excess of the intrinsic value (the share’s market value at the date of grant) over the option price to be<br />

charged to the profit <strong>and</strong> loss account over the relevant performance period. Sharesave schemes are excluded from this<br />

requirement.<br />

Under IFRS2, share incentive schemes, including sharesave schemes, are accounted for with reference to the fair value of the<br />

options. The charge to the profit <strong>and</strong> loss account is recognised over the relevant vesting period <strong>and</strong> is based on share options<br />

granted since 7 November 2002 to the extent that they had not vested by 1 January 2004.<br />

Goodwill – IFRS3 ‘Business combinations’<br />

Under UK GAAP, goodwill arising on the acquisition of subsidiary undertakings <strong>and</strong> trading assets is capitalised <strong>and</strong> subsequently<br />

amortised over its estimated useful life up to a maximum of 20 years, subject to impairment reviews when evidence of impairment<br />

exists.<br />

On transition to IFRS, IFRS1 ‘First-time adoption’ requires the group to review the carrying value of capitalised goodwill for<br />

potential impairment. IFRS3 does not permit the continued amortisation of capitalised goodwill, but instead requires it to be tested<br />

annually for impairment.<br />

In addition, IFRS3 has a strict definition of what qualifies as a business within the context of a business combination. Goodwill<br />

relating to previous acquisitions of debt portfolios without associated infrastructure does not meet this new definition <strong>and</strong> will<br />

hence be charged to equity on transition.<br />

Dividends – IAS10 ‘Events after the balance sheet date’<br />

Under UK GAAP, dividends are recognised in the balance sheet when proposed.<br />

IAS10 prohibits the recording of a balance sheet liability in relation to proposed distributions until the dividend has been approved.<br />

Donations<br />

Charitable donations during the year amounted to £262,727 (2003: £93,480) of which £125,028 (2003: £38,176) were made to<br />

organisations addressing the issues of social disadvantage in the communities we serve <strong>and</strong> £137,699 (2003: £55,304) were<br />

made to organisations seeking to improve the financial skills <strong>and</strong> general welfare of young people. There were no political<br />

donations in either year.


24 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Directors<br />

Employment Policy<br />

The group gives sympathetic consideration to applications for employment from disabled persons wherever practicable.<br />

Successful applicants <strong>and</strong> employees who become disabled are given appropriate assistance <strong>and</strong> training <strong>and</strong> have the same<br />

career <strong>and</strong> promotion prospects as other employees.<br />

Details of employee involvement are set out in the Report on Corporate Social Responsibility on pages 13 <strong>and</strong> 14.<br />

Supplier Payment Policy <strong>and</strong> Practice<br />

It is the company’s policy that payments to suppliers are made in accordance with those terms <strong>and</strong> conditions agreed between the<br />

company <strong>and</strong> its suppliers when a binding purchase contract is entered into, provided that all trading terms <strong>and</strong> conditions have<br />

been complied with. At the year end, the company had an average of 14 days (2003: 12 days) <strong>and</strong> the group an average of 20<br />

days (2003: 19 days) purchases outst<strong>and</strong>ing in trade creditors.<br />

Independent Auditors<br />

PricewaterhouseCoopers LLP have expressed their willingness to continue in office <strong>and</strong> resolutions proposing their re-appointment<br />

as auditors <strong>and</strong> authorising the directors to determine the auditors’ remuneration will be proposed at the annual general meeting.<br />

By order of the Board<br />

Rol<strong>and</strong> Todd<br />

Company Secretary<br />

18 March 2005


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

25<br />

Report of the Board on Corporate Governance<br />

For the year ended 31 December 2004<br />

The Board of <strong>Cattles</strong> plc aims to maintain the highest st<strong>and</strong>ards of corporate governance in the belief that such st<strong>and</strong>ards are<br />

essential to the process of delivering long term growth in profits <strong>and</strong> dividends. Throughout the year ended 31 December 2004,<br />

the company complied with the provisions of the revised Combined Code on Corporate Governance issued by the Financial<br />

Reporting Council in July 2003, except for Code provisions A.4.1, B.2.1 <strong>and</strong> C.3.1 in relation to the constitution of the Audit,<br />

Remuneration <strong>and</strong> Nomination Committees <strong>and</strong> Code provision A.3.2 in relation to the number of independent non-executive<br />

directors. An explanation for these departures is given under the section of this Report headed ‘Directors <strong>and</strong> Directors’<br />

Independence’.<br />

Board of Directors<br />

The company is managed through the Board of directors. The Board’s main roles are to provide entrepreneurial leadership of the<br />

company within a framework of prudent <strong>and</strong> effective controls which enables risk to be assessed <strong>and</strong> managed, to set the<br />

company’s strategic aims <strong>and</strong> to ensure that the necessary financial <strong>and</strong> human resources are in place for the company to meet its<br />

objectives <strong>and</strong> so increase shareholder value.<br />

Normally, there are seven regular Board meetings a year, with other meetings being held as required. All directors attended each of<br />

the seven regular meetings held during 2004 (except for F Dee who attended all four regular meetings following his appointment on<br />

30 June 2004). There are a number of matters specifically reserved for Board approval, which include approval of the group’s<br />

overall business strategy, planning <strong>and</strong> annual budgets, assessment of internal controls <strong>and</strong> risk management, senior<br />

management appointments, approval of major contracts <strong>and</strong> significant acquisitions, investment <strong>and</strong> capital expenditure decisions<br />

<strong>and</strong> corporate governance practices, as well as the group’s financing <strong>and</strong> dividend policies.<br />

At each regularly scheduled Board meeting, there is a full financial <strong>and</strong> business review <strong>and</strong> discussion, which includes the<br />

comparison of trading performance to date against the annual budget <strong>and</strong> any other financial plan which has been previously<br />

approved by the Board for that year. Each Board member receives a comprehensive Board pack prior to each meeting, which<br />

incorporates a formal agenda, separate <strong>report</strong>s from the Chief Executive <strong>and</strong> each of the executive directors on their specific areas<br />

of responsibility, together with supporting papers for items to be discussed at the meeting. Board papers are usually sent out one<br />

week before the meeting to give the directors sufficient time to prepare for a comprehensive review of the relevant issues at the<br />

meeting.<br />

The Board has delegated the following responsibilities to the executive directors: the development <strong>and</strong> recommendation of<br />

strategic plans for consideration by the Board that reflect the longer-term objectives <strong>and</strong> priorities established by the Board;<br />

implementation of the strategies <strong>and</strong> policies of the group as determined by the Board; monitoring of the operating <strong>and</strong> financial<br />

results against plans <strong>and</strong> budgets; monitoring the quality of the investment process against objectives; prioritising the allocation of<br />

capital, technical <strong>and</strong> human resources; <strong>and</strong> developing <strong>and</strong> implementing risk management systems.<br />

The Roles of the Chairman <strong>and</strong> Chief Executive<br />

The division of responsibilities between the Chairman of the Board, B Cottingham, <strong>and</strong> the Chief Executive, S P Mahon, is clearly<br />

defined in writing <strong>and</strong> has been approved by the Board.<br />

The Chairman leads the Board in the determination of its strategy <strong>and</strong> in the achievement of its objectives. The Chairman is<br />

responsible for organising the business of the Board, ensuring its effectiveness <strong>and</strong> setting its agenda. The Chairman has no<br />

involvement in the day to day business of the group.<br />

The Chief Executive has direct charge of the group on a day to day basis <strong>and</strong> is accountable to the Board for the financial <strong>and</strong><br />

operational performance of the group.<br />

Senior Independent Director<br />

The Board has appointed D A Haxby as Senior Independent Director. D A Haxby is available to meet shareholders on request <strong>and</strong><br />

to ensure that the Board is aware of shareholder concerns not resolved through the existing mechanisms for investor<br />

communication.<br />

Directors <strong>and</strong> Directors’ Independence<br />

The Board currently comprises the Chairman, four executive directors <strong>and</strong> three independent non-executive directors. The names<br />

of the directors together with their biographical details are set out on page 19. All the directors served throughout the period under<br />

review, except for F Dee who was appointed on 30 June 2004. The Board includes independent non-executive directors who<br />

constructively challenge <strong>and</strong> help develop proposals on strategy, <strong>and</strong> bring strong, independent judgement, knowledge, <strong>and</strong><br />

experience to the Board’s deliberations. The independent directors are of sufficient calibre <strong>and</strong> number that their views carry<br />

significant weight in the Board’s decision making.


26 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Corporate Governance<br />

Combined Code provision A.3.2 states that at least half the Board, excluding the Chairman, should comprise non-executive<br />

directors determined by the Board to be independent. Compliance with this provision, which applied to the company for the first<br />

time in respect of the year commencing on 1 January 2004, would have required the appointment of two additional independent<br />

non-executive directors. F Dee was appointed on 30 June 2004. The search for a suitable additional independent non-executive<br />

director is continuing <strong>and</strong> the Board expects to make a further appointment in 2005.<br />

Combined Code provision A.4.1 requires a majority of the Nomination Committee to be independent non-executive directors <strong>and</strong><br />

provisions B.2.1 <strong>and</strong> C.3.1 require the Remuneration <strong>and</strong> Audit Committees respectively to be comprised of at least three<br />

members, all of whom are independent non-executive directors. Before the appointment of F Dee on 30 June 2004 the company<br />

had only two independent non-executive directors <strong>and</strong> could not comply with the relevant provisions <strong>and</strong> so the Chairman,<br />

B Cottingham, continued as a member of all these Committees. On 30 June 2004 F Dee was appointed as a member of the Audit,<br />

Remuneration <strong>and</strong> Nomination Committees <strong>and</strong> B Cottingham ceased his membership of the Remuneration <strong>and</strong> Audit<br />

Committees. Therefore since that date the company has complied with Combined Code provisions A.4.1, B.2.1 <strong>and</strong> C.3.1.<br />

Independent professional advice is provided at the company’s expense, when the directors deem it necessary in order for them to<br />

carry out their responsibilities.<br />

Details of the Chairman’s professional commitments are included in the Chairman’s biography. The Chairman holds two other nonexecutive<br />

directorships but the Board is satisfied that these are not such as to interfere with the performance of his duties to the<br />

company which are based around a commitment of approximately 80 days per annum. The Chairman resigned from his position<br />

as the non-executive chairman of SIG plc during the year ended 31 December 2004.<br />

The Board considers all its other non-executive directors to be independent in character <strong>and</strong> judgement. No independent nonexecutive<br />

director:<br />

●<br />

●<br />

●<br />

●<br />

●<br />

●<br />

●<br />

has been an employee of the group within the last five years;<br />

has, or has had within the last three years, a material business relationship with the group;<br />

receives remuneration other than a director’s fee;<br />

has close family ties with any of the group’s advisers, directors or senior employees;<br />

holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;<br />

represents a significant shareholder; or<br />

has served on the Board for more than nine years.<br />

Professional Development<br />

On appointment, the directors take part in an induction programme when they receive information about the group, the role of the<br />

Board <strong>and</strong> the matters reserved for its decision, the terms of reference <strong>and</strong> membership of the principal Board committees,<br />

together with the powers delegated to those committees, the group’s corporate governance practices <strong>and</strong> procedures, <strong>and</strong> the<br />

latest financial information about the group. This is supplemented by visits to key locations <strong>and</strong> meetings with key senior<br />

executives. Throughout their period in office the directors are continually updated on the group’s business, the competitive, legal<br />

<strong>and</strong> regulatory environment in which it operates <strong>and</strong> other changes affecting the group <strong>and</strong> the financial services industry by<br />

written briefings <strong>and</strong> Board presentations by senior executives. Directors are also updated on changes to their legal <strong>and</strong> other<br />

duties <strong>and</strong> obligations as directors of a listed company.<br />

Performance Evaluation<br />

The Board has established a formal process led by the Chairman for the annual evaluation of the performance of the Board, its<br />

principal committees <strong>and</strong> the individual directors, with particular attention being paid to those who are due for re-appointment. The<br />

directors are made aware, on appointment, that their performance will be subject to an evaluation.<br />

The Chairman commissioned a questionnaire from an independent adviser to provide a framework for the evaluation process <strong>and</strong><br />

provide the Chairman with a means of making year to year comparisons. The questionnaire included specific references to the<br />

objectives of the Board <strong>and</strong> its Committees. Each director was asked by the independent adviser to complete the questionnaire.<br />

The adviser then collated the results from the completed questionnaires <strong>and</strong> presented the consolidated results to the Chairman.<br />

The evaluation results were discussed at Board level <strong>and</strong> appropriate actions agreed.<br />

The Chairman conducts the annual appraisals of the four executive directors in relation to their duties as directors of the company<br />

<strong>and</strong> the three non-executive directors. These appraisals are conducted in separate meetings between the Chairman <strong>and</strong> each<br />

director, at which the director’s contribution to Board proceedings is reviewed <strong>and</strong> the director’s views on his own performance<br />

<strong>and</strong> the operation of the Board are discussed. The Chairman <strong>report</strong>s to the Board on any issues requiring Board consideration.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

27<br />

Led by the Senior Independent Director, the non-executive directors meet annually, without the presence of the Chairman, to<br />

conduct a performance evaluation of the Chairman. The Senior Independent Director subsequently has a meeting with the<br />

Chairman on a similar basis as the Chairman’s meeting with each director.<br />

Individual written personal objectives in relation to their management roles are prepared at the beginning of the financial year by<br />

each executive director. After agreement with the Chief Executive, <strong>and</strong> in the case of the Chief Executive with the Chairman, these<br />

objectives are submitted to the Remuneration Committee for consideration <strong>and</strong> approval on behalf of the Board. The Chief<br />

Executive conducts an annual appraisal of the performance of the other executive directors which includes an assessment of their<br />

individual performance against their personal objectives set at the beginning of the accounting period <strong>and</strong> a formal interview. The<br />

same process is conducted by the Chairman in respect of the Chief Executive. The extent to which executive directors’ personal<br />

objectives have been achieved is determined during this review process, the results of which are submitted to, <strong>and</strong> taken into<br />

account by, the Remuneration Committee in finalising the executive directors’ bonuses for the year.<br />

Re-election<br />

Subject to the company’s Articles of Association, the Companies Acts <strong>and</strong> satisfactory performance evaluation, non-executive<br />

directors are appointed for an initial period of three years, but may be invited to serve one or two additional three year terms if the<br />

Nomination Committee believes this to be appropriate. The re-appointment of directors who have served for more than nine years<br />

is subject to annual review <strong>and</strong> re-election by the shareholders.<br />

The Company Secretary<br />

The Company Secretary is responsible for advising the Board through the Chairman on all governance matters. The directors have<br />

access to the advice <strong>and</strong> services of the Company Secretary. The company’s Articles of Association <strong>and</strong> the schedule of matters<br />

reserved to the Board for decision provide that the appointment <strong>and</strong> removal of the Company Secretary is a matter for the full Board.<br />

St<strong>and</strong>ing Committees of the Board<br />

The Board has established three st<strong>and</strong>ing Committees, each with formal terms of reference, being the Audit Committee, the<br />

Remuneration Committee <strong>and</strong> the Nomination Committee. The terms of reference are published on the company’s website <strong>and</strong><br />

are available on application to the Company Secretary at the company’s registered office.<br />

Audit Committee<br />

Since F Dee’s appointment on 30 June 2004 the Audit Committee has comprised the three independent non-executive directors<br />

under the chairmanship of N N Broadhurst, who is a Chartered Accountant (FCA) <strong>and</strong> a Fellow of the Institute of Corporate<br />

Treasurers <strong>and</strong> has significant relevant <strong>and</strong> up to date financial <strong>and</strong> accounting knowledge <strong>and</strong> experience. N N Broadhurst was<br />

the chairman <strong>and</strong> D A Haxby was a member of the Audit Committee throughout 2004, <strong>and</strong> B Cottingham was a member until<br />

30 June 2004. The Audit Committee’s terms of reference include monitoring the appropriateness of accounting policies, financial<br />

<strong>report</strong>ing <strong>and</strong> internal controls <strong>and</strong> keeping under review the scope, results <strong>and</strong> cost-effectiveness of the external <strong>and</strong> internal<br />

audits <strong>and</strong> the independence of the group’s external auditors.<br />

The Committee calls upon the external auditors, the internal auditors <strong>and</strong> risk assurance advisers <strong>and</strong> the executive directors to<br />

attend formal meetings as required. These meetings are held at least three times each year at which the matters referred to<br />

below under the heading ‘Accountability <strong>and</strong> Audit’ are considered. The external <strong>and</strong> internal auditors are given the opportunity<br />

to raise any matters or concerns they may have in the absence of executive directors at separate meetings with the Audit<br />

Committee. All members of the Audit Committee attended each of the three meetings held in 2004 while they were members of<br />

the Committee.<br />

Remuneration Committee<br />

The Remuneration Committee is responsible for determining the remuneration of the executive directors <strong>and</strong> the Chairman <strong>and</strong> for<br />

recommending <strong>and</strong> monitoring the level <strong>and</strong> structure of remuneration for specified senior managers below Board level. Since<br />

F Dee’s appointment on 30 June 2004 the Committee has comprised only the three independent non-executive directors, under<br />

the chairmanship of the Senior Independent Director, D A Haxby. D A Haxby was the chairman <strong>and</strong> N N Broadhurst was a<br />

member of the Remuneration Committee throughout 2004, <strong>and</strong> B Cottingham was a member until 30 June 2004. All members of<br />

the Remuneration Committee attended each of the five meetings of the Committee held in 2004 while they were members of the<br />

Committee, except for F Dee who attended one of the two meetings following his appointment on 30 June 2004.<br />

The Report of the Board on Directors’ Remuneration set out on pages 31 to 41 contains further information on the Remuneration<br />

Committee <strong>and</strong> the group’s remuneration policy for executive <strong>and</strong> non-executive directors.


28 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Corporate Governance<br />

Nomination Committee<br />

The Nomination Committee comprises the Chairman, the three independent non-executive directors <strong>and</strong> the Chief Executive<br />

under the chairmanship of the Chairman of the Board, B Cottingham. F Dee was appointed as a member of the Committee on<br />

30 June 2004. The Nomination Committee’s terms of reference include preparing a description of the role <strong>and</strong> capabilities required<br />

for a new Board appointment in light of the balance of skills, knowledge <strong>and</strong> experience on the Board <strong>and</strong> the company’s<br />

requirements, identifying <strong>and</strong> nominating c<strong>and</strong>idates for appointment to the Board for the approval of the Board <strong>and</strong> reviewing the<br />

succession plans for the group’s Board <strong>and</strong> senior management.<br />

The Nomination Committee has access to recruitment consultants to ensure it receives objective <strong>and</strong> independent advice. During<br />

2004 the Nomination Committee met three times <strong>and</strong>, with the assistance of recruitment consultants, recommended to the Board<br />

the appointments of F Dee as a non-executive director <strong>and</strong> R C W Todd as Company Secretary. All members of the Nomination<br />

Committee attended each of the three meetings held in 2004 while they were members of the Committee. The Committee is<br />

currently undertaking a search, assisted by an external consultancy, for a suitable c<strong>and</strong>idate to be recommended to the Board for<br />

appointment as an additional independent non-executive director.<br />

Relations with Shareholders<br />

The Board maintains a close relationship with its major shareholders. The Chief Executive, Finance Director <strong>and</strong> Treasury & Risk<br />

Director maintain regular contact with major institutional shareholders, who are offered a personal meeting with the Chief Executive<br />

<strong>and</strong> other executive directors at least twice each year. The Chairman <strong>and</strong> Senior Independent Director attend the presentations to<br />

analysts of the company’s Interim <strong>and</strong> Final Results <strong>and</strong> all major shareholders are offered a personal meeting with the Chairman<br />

<strong>and</strong> Senior Independent Director, if they so require. Major shareholders are also given the opportunity to meet new non-executive<br />

directors on their appointment. Major shareholders are also offered the opportunity to provide non-attributed feedback to the<br />

Board through discussions with the group’s stockbrokers, HSBC Bank plc.<br />

As required by the revised Combined Code, the Chairman relays to the Board any issues raised with him by shareholders. This is<br />

supplemented by a <strong>report</strong> by the Chief Executive of shareholders’ views following the presentations of the Interim <strong>and</strong> Final<br />

Results. The directors also receive <strong>report</strong>s on the market’s views of the company both before <strong>and</strong> after the announcement of the<br />

Interim <strong>and</strong> Final Results <strong>and</strong> copies of analysts’ <strong>report</strong>s.<br />

The annual general meeting is seen as an opportunity to communicate with other shareholders <strong>and</strong> all directors are expected to<br />

attend. All shareholders have the opportunity to put questions at the annual general meeting. Information relating to this year’s<br />

annual general meeting can be found on pages 73 to 79.<br />

In addition to regular financial <strong>report</strong>ing, significant matters relating to the trading or development of the group are disseminated to<br />

the market by way of Stock Exchange announcements. The company’s website, www.cattles.co.uk, includes a section focusing<br />

specifically on investor relations. All company announcements are accessible on the website once made. In addition, the materials<br />

used in the presentations to analysts of the company’s Interim <strong>and</strong> Final Results <strong>and</strong> the webcasts of these presentations are<br />

accessible on the website after the presentations have been made.<br />

Accountability <strong>and</strong> Audit<br />

Financial Reporting<br />

The directors believe that the annual <strong>report</strong> presents a balanced <strong>and</strong> underst<strong>and</strong>able assessment of the group’s financial position<br />

<strong>and</strong> future prospects. The Chairman’s Statement <strong>and</strong> Chief Executive’s Review, which can be found on pages 4 to 11, together<br />

provide a detailed assessment of the group’s affairs. The directors’ responsibilities for the financial statements are described within<br />

the Report of the Directors on page 21. The company’s financial statements are reviewed by the Audit Committee prior to being<br />

submitted to the Board for approval.<br />

Internal Control <strong>and</strong> Risk Management<br />

The Board of directors has overall responsibility for the group’s internal control system, which embraces all risks faced by the<br />

group, including business, operational <strong>and</strong> compliance risks. The directors recognise, however, that there are inherent limitations in<br />

any system of internal control <strong>and</strong> as such the controls can provide only reasonable, <strong>and</strong> not absolute, assurance against material<br />

misstatement or loss.<br />

The group has continued to comply with the guidance provided by the Turnbull Committee in a document entitled ‘Internal Control:<br />

Guidance for Directors on the Combined Code’ (‘Turnbull guidance’), through an on-going process to identify <strong>and</strong> evaluate key<br />

areas of risk, both financial <strong>and</strong> non-financial, the group’s perceived tolerance or commercial appetite towards such risks <strong>and</strong> the<br />

policies <strong>and</strong> procedures which should be adopted in order to manage the likely exposure. This process, which has been in place<br />

throughout the year <strong>and</strong> up to the date of approval of this annual <strong>report</strong>, is regularly reviewed by the Board <strong>and</strong> accords with the<br />

Turnbull guidance.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

29<br />

The Audit Committee is responsible for reviewing the operation <strong>and</strong> effectiveness of the internal control system on at least a six<br />

monthly basis. Such reviews have been conducted during the financial year. The principal features of the group’s internal control<br />

system can be summarised as follows:<br />

●<br />

●<br />

●<br />

●<br />

●<br />

●<br />

●<br />

●<br />

●<br />

A clearly defined organisational structure with lines of responsibility <strong>and</strong> delegation of authority to divisional executive<br />

management supported by established policies <strong>and</strong> procedures.<br />

Primary responsibility of the Board to ensure that the major business risks facing the group are identified <strong>and</strong> that appropriate<br />

policies are developed for the management of those risks. The Board, however, recognises that the internal control system is<br />

designed to manage rather than eliminate the risk of failure to achieve business objectives. Risks are identified <strong>and</strong> evaluated<br />

by reference to impact <strong>and</strong> likelihood through a series of structured, high level interviews <strong>and</strong> facilitated risk management<br />

workshops.<br />

The engagement of a leading firm of professional advisers for the provision of a complete range of internal audit <strong>and</strong> risk<br />

assurance services, with a direct <strong>report</strong>ing link to the Audit Committee <strong>and</strong> the Risk Management Group. The work of the<br />

group’s external risk assurance provider focuses on the group’s most significant areas of risk <strong>and</strong>, by a formal process of six<br />

monthly risk monitoring <strong>and</strong> <strong>report</strong>ing, allows the Audit Committee <strong>and</strong> the Risk Management Group to assess whether key<br />

control objectives are achieved.<br />

A Risk Management Group, comprising the executive directors, the group’s external risk assurance providers <strong>and</strong> other key<br />

members of senior management, reviews key group risks together with the effectiveness of the group’s controls to manage<br />

<strong>and</strong> reduce the impact of these risks. The Risk Management Group meets twice yearly, <strong>report</strong>ing to the Audit Committee.<br />

Delegation of the responsibility for on-going maintenance of the system of internal control procedures to the executive<br />

management, specifically designated Risk Champions for all business areas <strong>and</strong> appropriate working parties. The system<br />

ensures that successive assurances are provided to ascending levels of management <strong>and</strong> changes in the risk profiles for all<br />

business areas are monitored <strong>and</strong> <strong>report</strong>ed on a monthly basis. The group is continuing to develop its risk management<br />

framework further to ensure that risk monitoring <strong>and</strong> <strong>report</strong>ing is embedded at all levels of management <strong>and</strong> throughout all<br />

areas of the group’s operations.<br />

Arrangements by which staff of the company may in confidence raise concerns about possible improprieties in matters of<br />

financial <strong>report</strong>ing or other matters, together with arrangements for the proportionate <strong>and</strong> independent investigation of such<br />

matters <strong>and</strong> for appropriate follow-up action <strong>and</strong> <strong>report</strong>ing to the Board.<br />

Operation of a comprehensive planning <strong>and</strong> financial <strong>report</strong>ing system, which covers income, expenditure, cash flows <strong>and</strong><br />

balance sheets. <strong>Annual</strong> budgets <strong>and</strong> medium term plans are approved by the Board <strong>and</strong> monitored against actual<br />

performance on a monthly basis to identify any significant deviation from approved plans. The annual budget is reviewed <strong>and</strong><br />

reforecast on a regular basis.<br />

Adoption of a schedule of matters specifically reserved for the approval of the Board ensuring that it maintains full <strong>and</strong> effective<br />

control over appropriate financial, strategic, organisational <strong>and</strong> compliance issues. As described on page 25, the Board has<br />

identified a number of key areas, which are subject to regular <strong>report</strong>ing to the Board.<br />

The Board also reviews the role of insurance in managing risks across the group.<br />

Independence of Auditors<br />

Both the Audit Committee <strong>and</strong> the external auditors, PricewaterhouseCoopers, have in place safeguards to avoid the auditors’<br />

objectivity <strong>and</strong> independence being compromised. The group’s policy with regard to services provided by its external auditors is as<br />

follows:<br />

Statutory audit services: The external auditors, who are appointed annually by the shareholders, undertake this work. The external<br />

auditors also provide regulatory services <strong>and</strong> formalities relating to shareholder <strong>and</strong> other circulars. The Audit Committee reviews<br />

the auditors’ performance on an on-going basis.<br />

Further assurance services: Further assurance services include work relating to the group’s transition to International Financial<br />

Reporting St<strong>and</strong>ards (‘IFRS’), due diligence <strong>and</strong> other non-regulatory <strong>report</strong>ing. The group’s normal policy is to appoint the<br />

external auditors to undertake this work because of their knowledge <strong>and</strong> experience of the business. However, the Board reviews<br />

their independence <strong>and</strong> expertise on every assignment. In particular, the group appointed the external auditors to advise on the<br />

transition to IFRS because, subject to their being re-appointed at the annual general meeting on 5 May 2005, they will be auditing<br />

the 2005 <strong>accounts</strong> which will be the first set of financial statements to be drawn up under IFRS. However, the group has also<br />

appointed other accounting advisers to advise on specific aspects of the transition to IFRS.


30 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Corporate Governance<br />

Tax compliance <strong>and</strong> tax advisory: Tax compliance involves dealing with the group’s corporation tax returns <strong>and</strong> this work is carried<br />

out by PricewaterhouseCoopers. Tax advisory services include tax planning <strong>and</strong> structuring advice for direct <strong>and</strong> indirect taxes.<br />

The group’s policy is for each individual assignment to be assessed separately <strong>and</strong> awarded depending on which professional<br />

services firm is considered best suited to perform the relevant work.<br />

Other non-audit services: The external auditors are not permitted to provide internal audit, risk management, litigation support,<br />

remuneration advice <strong>and</strong> information technology services. The provision of other non-audit services is awarded on a case-by-case<br />

basis, depending on which professional services firm is considered best suited to perform the work.<br />

These safeguards, which are monitored by the Audit Committee, are regularly reviewed <strong>and</strong> updated to ensure they remain<br />

appropriate. The appointment of the external auditors to provide non-audit services requires Board approval for any assignments<br />

with fees above a set financial limit.<br />

The external auditors <strong>report</strong> to the Audit Committee each year on the actions they have taken to comply with professional <strong>and</strong><br />

regulatory requirements <strong>and</strong> best practice designed to ensure their independence, including the rotation of key members of the<br />

external audit team. PricewaterhouseCoopers have formally confirmed their independence to the Board, in respect of the period<br />

covered by these financial statements.<br />

The disclosure of the non-audit fees paid to the external auditors during the year is included in note 2 to the financial statements,<br />

on page 50.<br />

Going Concern<br />

Under company law, the directors are required to consider whether it is appropriate to prepare financial statements on the basis<br />

that the company <strong>and</strong> the group are going concerns. As part of its normal business practices, the group prepares annual budgets<br />

<strong>and</strong> longer term financial <strong>and</strong> business plans. In reviewing this information, the directors are satisfied that the company <strong>and</strong> the<br />

group have adequate resources to continue in business for the foreseeable future. For this reason, the directors continue to adopt<br />

the going concern basis in preparing the group’s financial statements.<br />

By order of the Board<br />

Rol<strong>and</strong> Todd<br />

Company Secretary<br />

18 March 2005


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

31<br />

Report of the Board on Directors’ Remuneration<br />

For the year ended 31 December 2004<br />

Introduction<br />

This <strong>report</strong> has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002 (‘the Regulations’) <strong>and</strong><br />

also meets the relevant requirements of the Listing Rules of the Financial Services Authority.<br />

The <strong>report</strong> describes how the Board has applied the Principles of Good Governance relating to directors’ remuneration <strong>and</strong>, in<br />

accordance with the Regulations, a resolution to approve this <strong>report</strong> will be proposed at the annual general meeting of the<br />

company in May 2005.<br />

The Regulations require the auditors to <strong>report</strong> to the company’s members on the ‘auditable part’ of the directors’ remuneration<br />

<strong>report</strong> <strong>and</strong> to state whether in their opinion that part of the <strong>report</strong> has been properly prepared in accordance with the Companies<br />

Act 1985 (as amended by the Regulations). The <strong>report</strong> has therefore been divided into separate sections for audited <strong>and</strong> unaudited<br />

information.<br />

Unaudited Information<br />

Remuneration Committee<br />

Since F Dee’s appointment on 30 June 2004 the Remuneration Committee has comprised the three independent non-executive<br />

directors, D A Haxby, N N Broadhurst <strong>and</strong> F Dee. D A Haxby was chairman <strong>and</strong> N N Broadhurst was a member of the Committee<br />

throughout 2004 <strong>and</strong> B Cottingham was a member until 30 June 2004. None of the Committee members has any personal<br />

financial interest in the company other than as a shareholder, nor have they any day to day involvement in the running of the<br />

business or conflicts of interests arising from cross-directorships. The purpose of the Committee is to determine the remuneration<br />

of the executive directors <strong>and</strong> the Chairman <strong>and</strong> to recommend <strong>and</strong> monitor the level <strong>and</strong> structure of remuneration for specified<br />

senior managers below Board level.<br />

The Committee has appointed New Bridge Street Consultants LLP (‘NBSC’) as its remuneration consultants. NBSC has no other<br />

connection with the company. NBSC advises the Committee directly on matters within the Committee’s terms of reference on<br />

which the Committee chooses to consult NBSC. NBSC may also advise the company generally on aspects of executive <strong>and</strong><br />

employee remuneration, typically on the implementation <strong>and</strong> ongoing operation of executive remuneration schemes. NBSC<br />

advises a sub-committee of the Board from time to time on the remuneration of the non-executive directors, other than the<br />

Chairman.<br />

The Chairman, the Chief Executive <strong>and</strong> the Treasury & Risk Director are consulted by the Committee but are not permitted to<br />

participate in any discussions relating to their own remuneration.<br />

Remuneration Policy<br />

Executive remuneration packages are designed to attract, motivate <strong>and</strong> retain directors of the high calibre necessary to maintain<br />

the group’s strong growth <strong>and</strong> profit performance <strong>and</strong> to reward them for enhancing value to shareholders. The performance<br />

measurement of the executive directors <strong>and</strong> the determination of their annual remuneration packages are undertaken by the<br />

Committee.<br />

There are four main elements of the remuneration packages of executive directors:<br />

●<br />

●<br />

●<br />

●<br />

Basic salary <strong>and</strong> benefits;<br />

<strong>Annual</strong> bonus;<br />

Long-term incentives; <strong>and</strong><br />

Pension <strong>and</strong> life assurance arrangements.


32 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Directors’ Remuneration<br />

The company’s policy is that a substantial proportion of the remuneration of the executive directors should be performancerelated.<br />

As described below, each of the executive directors may participate in both an annual bonus scheme <strong>and</strong> long-term<br />

incentive arrangements.<br />

The Committee has recently undertaken an extensive review of the policy underpinning the structure of the remuneration packages<br />

of the executive directors for 2005. This has led to changes in the policy for setting basic salaries, alterations to the structure of the<br />

annual bonus scheme <strong>and</strong> the proposed adoption of a new Long-Term Incentive Plan to replace the Restricted Share Scheme<br />

which expired in 2004. These changes are described under the appropriate headings below.<br />

When determining remuneration levels for the executive directors, consideration is given to pay levels elsewhere in the group.<br />

Fees paid to the Chairman of the Board are determined by the Remuneration Committee in consultation with the Chief Executive.<br />

Fees paid to non-executive directors, other than the Chairman, are determined by a sub-committee of the Board comprising the<br />

Chairman of the Board, the Chief Executive <strong>and</strong> the Finance Director.<br />

Basic Salary <strong>and</strong> Benefits<br />

The basic salary for executive directors is determined by the Remuneration Committee, prior to the beginning of each year, taking<br />

into account the responsibilities <strong>and</strong> performance of the individual director <strong>and</strong> having regard to relevant market comparisons from<br />

independent sources based on objective research conducted by NBSC.<br />

The policy for 2004 was to provide basic salaries in the range of median to upper quartile, with the potential for upper quartile<br />

earnings when justified by corporate <strong>and</strong> individual performance. However, as a result of the recent review, the Committee became<br />

aware that all the executive directors’ basic salaries were in fact below median. In any event the policy for 2005 has now been<br />

amended to provide basic salaries at the median. The median has been determined by reference to basic salary levels in a group of<br />

approximately 50 companies which were drawn from all sectors <strong>and</strong> had a similar market capitalisation to that of the company but<br />

excluded any companies that operated remuneration arrangements which the Committee believed did not reflect typical practice.<br />

Following the Committee’s review in late 2004 based on the new median basic salary policy, the Board agreed the following<br />

changes to the annual salaries of the executive directors with effect from 1 January 2005:<br />

1 January 1 January<br />

2005 2004<br />

£’000 £’000<br />

S P Mahon 500 470<br />

M W G Collins 265 230<br />

J J Corr 265 230<br />

I S Cummine 325 305<br />

The higher percentage increases to the basic salaries of M W G Collins <strong>and</strong> J J Corr were necessary to bring their salaries nearer to<br />

the median level for similar roles in the comparator group of companies <strong>and</strong> to take account of their specific financial expertise<br />

which is critical to the group’s business. In making these recommendations to the Board, the Committee also took account of the<br />

outst<strong>and</strong>ing performance of the group over a number of years, including 2004.<br />

In addition to basic salary, the executive directors receive certain benefits in kind, being a car, fuel provision, private medical<br />

insurance <strong>and</strong> permanent health insurance.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

33<br />

<strong>Annual</strong> Bonus<br />

The targets which trigger annual cash bonuses are set by the Remuneration Committee. In 2004 these targets comprised the<br />

following three internal measures of performance: (i) the group’s actual earnings per share (‘EPS’) growth; (ii) funds utilisation<br />

efficiency as measured against budget; <strong>and</strong> (iii) the achievement of each director’s personal objectives. The maximum potential<br />

bonus payment to executive directors in respect of the year ended 31 December 2004 was restricted to 75% of their basic salary,<br />

with a maximum of 50% of basic salary being payable in respect of EPS growth, 15% in respect of funds utilisation efficiency <strong>and</strong><br />

10% in respect of the achievement of personal objectives.<br />

For 2005, to reflect the Committee’s new policy of setting basic salary levels by reference to the median (as opposed to<br />

between the median <strong>and</strong> upper quartile), <strong>and</strong> to make a greater proportion of the executive directors’ remuneration packages<br />

performance-linked, the maximum annual bonus opportunity has been increased to 100% of basic salary, with a maximum of 75%<br />

being payable in respect of EPS growth, 15% in respect of funds utilisation efficiency <strong>and</strong> 10% in respect of the achievement of<br />

personal objectives. For the maximum bonus to be payable, the executive directors must achieve targets that are even more<br />

dem<strong>and</strong>ing than those that have triggered the payment of maximum bonuses in the past.<br />

In addition, to further align the interests of the executive directors <strong>and</strong> shareholders, any bonus earned over 75% of basic salary will<br />

be deferred into shares which will not be received by the executive directors for a further three years. These deferred shares will<br />

count for the purposes of the ‘Matching Shares’ element of the new Long-Term Incentive Plan described below, but will not be<br />

subject to further performance conditions.<br />

Bonuses do not form part of pensionable earnings.<br />

Long-Term Incentives<br />

New Long-Term Incentive Plan (‘LTIP’)<br />

As part of the recent review of the structure of the executive directors’ remuneration, the Committee concluded that shareholder<br />

approval should be sought at the annual general meeting in May 2005 to adopt a new LTIP to replace the Restricted Share Scheme<br />

which expired in 2004.<br />

The Committee believes that the basic structure of the Restricted Share Scheme (i.e. the grant of conditional awards of free shares<br />

that are subject to EPS growth targets which also measure the company’s performance against other companies) is appropriate<br />

<strong>and</strong> provides a good link between management performance <strong>and</strong> reward.<br />

As a result, the proposed new LTIP reflects many of the principles of the Restricted Share Scheme. However, it has also been<br />

designed to:<br />

●<br />

●<br />

Encourage key executives to build <strong>and</strong> maintain a significant shareholding in the company; <strong>and</strong><br />

Bring the company’s long-term incentive arrangements more into line with market <strong>and</strong> best practice.<br />

This will be achieved by:<br />

●<br />

●<br />

●<br />

●<br />

Introducing a ‘Matching Shares’ element to the LTIP, thereby linking a substantial part of the potential rewards available under<br />

the LTIP to the investment by senior executives of part of their annual bonus in the company’s shares;<br />

Introducing a formal share ownership guideline for executive directors;<br />

Reducing, as compared to the current Restricted Share Scheme, the percentage of awards that vest for ‘threshold’<br />

performance; <strong>and</strong><br />

Requiring the satisfaction of more challenging (in light of the market’s expectations) EPS growth targets for full vesting of<br />

awards (as compared to the Restricted Share Scheme).


34 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Directors’ Remuneration<br />

Further details of the new LTIP are set out in the accompanying circular. In summary the new LTIP will have two elements, a<br />

conditional award of ‘Performance Shares’ <strong>and</strong> an award of ‘Matching Shares’ linked to the investment in <strong>Cattles</strong> shares of annual<br />

bonus of up to 37.5% of salary. The normal maximum award level under the Performance Shares element will be 100% of basic<br />

salary per annum. The maximum matching ratio under the Matching Shares element will be two Matching Shares for every<br />

invested share (on a gross basis).<br />

Awards will vest subject to the satisfaction of stretching EPS growth-based performance conditions over a fixed three year period<br />

from grant, with the targets for the first awards made under the LTIP being EPS growth of the Retail Price Index (RPI) + 20%<br />

(at which point 30% of an award vests) to RPI + 35% (at which point awards vest in full). However, final levels of vesting can be<br />

‘adjusted’ by reference to the company’s EPS growth compared to the average EPS growth of companies in the FTSE 250 Index<br />

(calculated by dividing the Index by the price/earnings ratio of the Index) over the same three year period.<br />

The Remuneration Committee considers that these performance conditions are appropriate as they encourage the company’s<br />

senior management team to deliver sustained exceptional EPS growth, with EPS being a widely used statistic in gauging the<br />

company’s performance <strong>and</strong> in valuing its shares. The Committee considered the use of a Total Shareholder Return (‘TSR’)-based<br />

performance condition, but did not believe that there was a sufficient number of directly comparable companies against which it<br />

would be appropriate to compare the company’s TSR performance. The Committee is satisfied that the sliding scale of real EPS<br />

growth targets of RPI + 20%-35% is appropriate <strong>and</strong> sufficiently challenging for the following reasons:<br />

●<br />

●<br />

●<br />

While the upper EPS growth hurdle of RPI + 35% is marginally lower, in absolute terms, than the upper EPS target required for<br />

full vesting under the current Restricted Share Scheme (as set out on page 35), the Committee is mindful of the need to reflect<br />

the fact that, as the company matures, its expected EPS growth will also mature. That said, it should be noted that it is the<br />

Committee’s policy to set the upper EPS growth target in excess of market expectations.<br />

Only 30% of new LTIP awards will vest for achieving the minimum threshold level of EPS growth of RPI + 20%. Pursuant to the<br />

last award made under the Restricted Share Scheme, 50% of that award vests for achieving the minimum threshold level of<br />

EPS growth.<br />

The EPS growth targets set for the new LTIP are significantly more challenging, in absolute terms, than the vast majority of<br />

EPS growth targets applied by other companies.<br />

The Remuneration Committee believes that share ownership by executive directors <strong>and</strong> senior executives strengthens the link<br />

between their personal interests <strong>and</strong> those of shareholders, <strong>and</strong> provides the opportunity for longer term motivation <strong>and</strong> retention.<br />

The company’s policy is that the executive directors are required to build up <strong>and</strong> retain a shareholding in the company, primarily<br />

from their long-term incentive arrangements, equivalent to their annual salary.<br />

Restricted Share Scheme<br />

This scheme, established in 1994, was structured to provide longer term incentives for the attainment of improved group<br />

performance over an extended period. The participants include the executive directors <strong>and</strong> some other key senior executives who<br />

are best placed to influence such performance. In relation to the awards made contingently under the scheme, each participant<br />

was notionally awarded shares up to one times basic annual salary each year.<br />

The number of long term incentive shares which a participant ultimately receives will depend upon performance over a period<br />

measured by real growth in EPS. EPS is calculated on the same basis as stated in the group’s financial statements, subject to the<br />

Committee making such adjustment as it sees fit to take account of any material short term effect arising from an acquisition or any<br />

exceptional item of profit or loss in the group’s financial statements in a particular year. Any such adjustment to EPS by the<br />

Committee would be made in consultation with the external auditors.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

35<br />

The shares will not vest absolutely in the participants until after the end of three years <strong>and</strong> then only if they are still in the group’s<br />

employment at that time. The rules cover the possibility of shares vesting at an earlier date in the event of death, or employment<br />

ceasing because of injury, disability or normal retirement. In the event of a change of control of the company, any shares already<br />

awarded as a result of the performance goals having been attained will vest in the participants. Any balance of the notional award<br />

for future accounting periods will not vest. The participants have no voting rights or entitlements to dividends in respect of the<br />

shares until they vest.<br />

EPS must grow by a minimum pre-determined amount, set by the Remuneration Committee at the time of the award, over a three<br />

year performance period before participants will become entitled to any shares. Target earnings growth is as follows:<br />

Three year<br />

Notionally awarded Earliest vesting date target earnings growth<br />

January 2002 April 2005 45%(i)<br />

January 2003 April 2006 45%(i)<br />

January 2004 April 2007 45%(i)<br />

(i) In excess of the increase in the RPI to the extent that it exceeds 5%.<br />

The provisional award of shares is established by comparing the actual earnings growth achieved by the company against the predetermined<br />

target set for the relevant period. The maximum award will be made where the target has been met or exceeded. If the<br />

earnings growth achieved by the company is less than the target, then the provisional award will be reduced on a straight line basis,<br />

such that where the earnings growth is less than 50% of the target in respect of awards made in 2002, <strong>and</strong> 66.67% of the target in<br />

respect of awards made in 2003 <strong>and</strong> 2004, no provisional award is made.<br />

When the provisional award has been calculated, the earnings growth achieved by the company is then compared with the<br />

average earnings growth achieved by the constituent companies included in the FTSE All Share Index <strong>and</strong> the Speciality <strong>and</strong> Other<br />

Financials Index. If the earnings growth achieved by the company is less than that achieved by the constituent companies of either<br />

index, the provisional award is reduced by 1% for every 4% by which the earnings growth of the company falls below that of the<br />

constituent companies in either index. The provisional award may be reduced by a maximum of 25% as a result of this comparison.<br />

Equally, if the earnings growth achieved by the company exceeds that achieved by the constituent companies of either index, then<br />

the provisional award is increased by 1% for every 4% by which the earnings growth of the company exceeds that of either index,<br />

subject to the original notional award not being exceeded.<br />

The Committee may vary or make such other adjustments to the performance conditions applying to awards which have already<br />

been granted to reflect changes in accounting st<strong>and</strong>ards provided that the varied conditions are fair <strong>and</strong> reasonable.<br />

The scheme operates in conjunction with an employee benefit trust (as will the new LTIP), the trustee of which is <strong>Cattles</strong> Trustee<br />

<strong>Limited</strong>, a wholly owned subsidiary of <strong>Cattles</strong> plc. The directors of the trustee company are the members of the Remuneration<br />

Committee, all of whom are independent non-executive directors of the parent company, <strong>and</strong> none of whom is a beneficiary under<br />

the scheme. On the grant of notional awards under the scheme, the Trust purchased sufficient shares in the market to satisfy such<br />

awards, hence there was no issue of new shares. On the vesting of awards under the scheme, the Trust transfers the appropriate<br />

number of shares to the participants. The Trust will at no time hold more than 5% of the issued share capital of <strong>Cattles</strong> plc.<br />

The scheme was funded by loans from the company to the Trust, which then acquired <strong>Cattles</strong> plc shares for the purpose of the<br />

scheme.<br />

It is intended that the same policy will be adopted in relation to the operation of the new LTIP.


36 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Directors’ Remuneration<br />

Sharesave Scheme<br />

This scheme was approved in 2003 <strong>and</strong> enables all employees, including executive directors, with more than two years’ service at<br />

the date of invitation, to enter into a SAYE savings plan. At the end of five years, participants can exercise an option to acquire<br />

shares in the company at a fixed price determined at the start of the savings contract in accordance with the scheme rules. The<br />

exercise of options under this scheme is not subject to any performance conditions, in accordance with Inl<strong>and</strong> Revenue rules.<br />

The timing of invitations under this scheme is determined by the Board acting upon the recommendation of the Committee.<br />

As at 31 December 2004 options to subscribe for 1,609,126 ordinary shares remained exercisable under the Sharesave Scheme.<br />

Share Incentive Plan<br />

The Share Incentive Plan was introduced in 2003. It is open to all eligible UK employees, including executive directors, <strong>and</strong> is an<br />

Inl<strong>and</strong> Revenue approved all employee share plan.<br />

Each year an amount is set aside as determined by the Board acting upon the recommendation of the Committee. The amounts<br />

attributable to eligible employees are determined by a formula linked to their salaries <strong>and</strong> the profit performance of the group. The<br />

maximum award to any one employee during a year is £3,000.<br />

Executive Share Option Schemes<br />

Grants of options to senior executives of the group have been made by the Committee under two schemes. These are the <strong>Cattles</strong><br />

Executive Share Option Scheme 1994, an Inl<strong>and</strong> Revenue approved scheme, approved by the shareholders in 1994, which has<br />

now expired, <strong>and</strong> the <strong>Cattles</strong> Executive Share Option Scheme 1996, approved by the shareholders in 1996. The 1996 scheme<br />

was introduced to enable grants of options to be made, where appropriate, in addition to those granted under Inl<strong>and</strong> Revenue<br />

approved schemes.<br />

The exercise of options under both schemes is dependent upon the achievement of EPS-based performance criteria.<br />

As at 31 December 2004 options to subscribe for 307,550 <strong>and</strong> 152,350 ordinary shares remained exercisable under the <strong>Cattles</strong><br />

Executive Share Option Scheme 1994 <strong>and</strong> the <strong>Cattles</strong> Executive Share Option Scheme 1996 respectively.<br />

Executive directors <strong>and</strong> senior executives have not participated in the Executive Share Option Schemes since being invited to<br />

participate in the Restricted Share Scheme referred to above. No executive director has options outst<strong>and</strong>ing or unexercised under<br />

either the 1994 or the 1996 schemes.<br />

Shareholder approval will also be sought at the annual general meeting in May 2005 for the establishment of the <strong>Cattles</strong> Executive<br />

Share Option Scheme 2005, to replace the <strong>Cattles</strong> Executive Share Option Scheme 1994, which has expired <strong>and</strong> the <strong>Cattles</strong><br />

Executive Share Option Scheme 1996, which will expire shortly. The maximum award level under the <strong>Cattles</strong> Executive Share<br />

Option Scheme 2005 will be 100% of salary, although it is likely that awards will be made at lower levels. Options will be subject to<br />

EPS growth targets over a single three year period. Further details of the <strong>Cattles</strong> Executive Share Option Scheme 2005 are set out<br />

in the accompanying circular. The executive directors <strong>and</strong> senior managers who participate in the new LTIP will not be granted<br />

options under the <strong>Cattles</strong> Executive Share Option Scheme 2005, save where exceptional circumstances exist (such as senior<br />

recruitment) which result in the Committee considering it appropriate to grant both options under the <strong>Cattles</strong> Executive Share<br />

Option Scheme 2005 <strong>and</strong> the LTIP.<br />

International Financial Reporting St<strong>and</strong>ards<br />

The Committee is mindful of the effect of the transition to International Financial Reporting St<strong>and</strong>ards (‘IFRS’) on the EPS-based<br />

performance conditions used in the annual bonus scheme, the LTIP, the Restricted Share Scheme <strong>and</strong> the Executive Share Option<br />

Schemes. The Committee will ask the company’s auditors to review the conversion of the EPS growth targets from UK GAAP to<br />

IFRS to ensure an accurate comparison.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

37<br />

Pension <strong>and</strong> Life Assurance Arrangements<br />

S P Mahon, J J Corr <strong>and</strong> I S Cummine have individual personal pension plans into which the company has contributed 20% of<br />

basic salary. M W G Collins is a member of the <strong>Cattles</strong> Staff Pension Fund <strong>and</strong> is subject to the statutory pension cap. He therefore<br />

receives payments representing 20% of the difference between his basic salary <strong>and</strong> that cap for contribution to additional pension<br />

schemes. No other payments to directors are pensionable.<br />

<strong>Cattles</strong> Staff Pension Fund is a funded, Inl<strong>and</strong> Revenue approved, final salary occupational pension scheme with a contribution<br />

rate of 5% of pensionable salary from the employee. Its main features, which apply to all members on the same terms, are:<br />

(i) pension is payable at normal pension age of 65 at 1/60th of final pensionable salary for each year of pensionable service up to<br />

a maximum of 40/60ths<br />

(ii) death in service life assurance cover is provided at four times pensionable salary<br />

(iii) pension is payable in the event of early retirement due to ill health <strong>and</strong> to spouse on death of member.<br />

The directors are provided with death in service life assurance cover of four times basic salary.<br />

The Committee is aware of the impending changes to pensions legislation <strong>and</strong> will keep under review the company’s pension<br />

provision in light of this <strong>and</strong> market practice generally.<br />

Performance Graph of Total Shareholder Return<br />

Five Years to 31 December 2004<br />

In the opinion of the directors, the FTSE 250 index is the most appropriate index against which the total shareholder return of<br />

<strong>Cattles</strong> plc should be measured because it is an index containing similar sized companies to <strong>Cattles</strong> plc.<br />

The graph shows the value of £100 invested in <strong>Cattles</strong> plc on 31 December 1999 compared with the value of £100 invested in the<br />

FTSE 250 index. The result is that <strong>Cattles</strong> plc has outperformed the FTSE 250 index, on that basis, over the following five years:<br />

160<br />

140<br />

Total Shareholder Return<br />

Re-based 31 December 1999<br />

120<br />

100<br />

80<br />

60<br />

40<br />

20<br />

0<br />

31 Dec 1999 31 Dec 2000 31 Dec 2001 31 Dec 2002 31 Dec 2003 31 Dec 2004<br />

<strong>Cattles</strong> FTSE 250


38 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Directors’ Remuneration<br />

Service Contracts<br />

It is the company’s policy that executive directors’ service contracts should be rolling contracts requiring a notice period of one<br />

year to be given by the company <strong>and</strong> six months to be given by each director. Each of the executive directors entered into service<br />

contracts, including these terms, on the date of their appointment to the Board. In order to reflect changes in other terms agreed<br />

since the original service contracts were entered into <strong>and</strong> to incorporate changes in employment legislation, the executive directors<br />

entered into new service contracts on 5 March 2003. The company has the right to terminate a director’s employment by paying to<br />

the director the remuneration which he would have been entitled to receive from the company in respect of the relevant period of<br />

notice. If a director ceases to be employed, for any reason, by the company before the end of the financial year, any bonus<br />

payment will be at the sole discretion of the Remuneration Committee. It is the Committee’s policy that, when determining the<br />

amount of any compensation paid to a departing director, the Committee will take into account the director’s obligation to mitigate<br />

his loss, to the extent it is possible to do so under the terms of the relevant contract.<br />

Non-executive Directors<br />

Non-executive directors are appointed for an initial period of three years, although either the company or the director may<br />

terminate the appointment by giving six months’ written notice. They are subject to re-election at an annual general meeting at<br />

least every three years in common with all directors. They do not have service contracts <strong>and</strong> may not participate in any bonus<br />

scheme, share scheme, pension scheme, car scheme or healthcare scheme operated by the company. The dates of their letters of<br />

appointment are: B Cottingham 30 June 1999; D A Haxby 22 June 1999; N N Broadhurst 23 March 2001; <strong>and</strong> F Dee 30 June<br />

2004. In 2004 the basic non-executive director’s fee (calculated by reference to practice adopted in the market generally <strong>and</strong><br />

taking account of the time commitment <strong>and</strong> the responsibilities of the non-executive directors) was £38,000, with D A Haxby<br />

receiving an extra £10,000 fee for his services as Senior Independent Director <strong>and</strong> chairman of the Remuneration Committee <strong>and</strong><br />

N N Broadhurst receiving an extra £10,000 fee for his services as chairman of the Audit Committee. Reasonable expenses that<br />

they may incur in the furtherance of their duties are repaid by the company.<br />

Audited Information<br />

Aggregate Directors’ Remuneration<br />

The following table sets out the basic salary, annual bonus <strong>and</strong> benefits in kind for each of the executive directors <strong>and</strong> the fees of the<br />

non-executive directors in respect of the year ended 31 December 2004 together with comparative figures for the preceding year.<br />

Basic Benefits <strong>Annual</strong><br />

salary Fees in kind bonus Total<br />

2004 2003<br />

£’000 £’000 £’000 £’000 £’000 £’000<br />

Executive Directors<br />

S P Mahon 470 – 27 306 803 736<br />

M W G Collins 230 – 21 150 401 365<br />

J J Corr 230 – 24 150 404 374<br />

I S Cummine 305 – 27 198 530 486<br />

Non-executive Directors<br />

B Cottingham – 125 – – 125 125<br />

N N Broadhurst – 48 – – 48 38<br />

D A Haxby – 48 – – 48 38<br />

F Dee (appointed 30 June 2004) – 19 – – 19 –<br />

Total 1,235 240 99 804 2,378 2,162<br />

The bonuses paid reflected a bonus of 65% out of a maximum of 75% of basic salary.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

39<br />

Directors’ Long-Term Incentives<br />

Restricted Share Scheme<br />

Participation in this scheme is as follows:<br />

Executive Directors<br />

Share Amount<br />

No. of shares Share Potential price charged<br />

notionally price Total value interest in at date of against<br />

held at Notionally at vesting at vesting shares at notional profit in Notional<br />

1 January awarded Vested in date date 31 December award the year award Earliest<br />

2004 in the year the year (p) £’000 2004 (p) £’000 date vesting date<br />

S P Mahon 120,000 – 120,000 339.5 407 – 250.00 – 01.01.01 06.04.04<br />

121,107 – – – – 121,107 289.00 117 01.01.02 06.04.05<br />

145,580 – – – – 145,580 288.50 140 01.01.03 06.04.06<br />

– 140,613 – – – 140,613 334.25 157 01.01.04 06.04.07<br />

M W G Collins 39,977 – 39,977 339.5 136 – 250.00 – 01.01.01 06.04.04<br />

57,093 – – – – 57,093 289.00 55 01.01.02 06.04.05<br />

71,057 – – – – 71,057 288.50 68 01.01.03 06.04.06<br />

– 68,810 – – – 68,810 334.25 77 01.01.04 06.04.07<br />

J J Corr 35,523 – 35,523 339.5 121 – 281.50 – 06.04.01 06.04.04<br />

60,553 – – – – 60,553 289.00 58 01.01.02 06.04.05<br />

72,790 – – – – 72,790 288.50 70 01.01.03 06.04.06<br />

– 68,810 – – – 68,810 334.25 77 01.01.04 06.04.07<br />

I S Cummine 52,769 – 52,769 339.5 179 – 250.00 – 01.01.01 06.04.04<br />

76,124 – – – – 76,124 289.00 73 01.01.02 06.04.05<br />

95,320 – – – – 95,320 288.50 92 01.01.03 06.04.06<br />

– 91,249 – – – 91,249 334.25 102 01.01.04 06.04.07<br />

Total – directors 947,893 369,482 248,269 843 1,069,106 1,086<br />

Other executives 62,621 – 62,621 339.5 213 – 250.00 – 01.01.01 06.04.04<br />

58,347 – – – – 58,347 289.00 56 01.01.02 06.04.05<br />

84,417 – – – – 84,417 288.50 81 01.01.03 06.04.06<br />

– 77,195 – – – 77,195 338.00 87 01.04.04 06.04.07<br />

Total 1,153,278 446,677 310,890 1,056 1,289,065 1,310<br />

In respect of those shares notionally awarded during 2001, the performance criteria were attained <strong>and</strong> accordingly the shares<br />

vested in the directors <strong>and</strong> executives in April 2004. In respect of those shares notionally awarded on 1 January 2002, the<br />

performance criteria have been attained <strong>and</strong> the shares will vest in the directors in April 2005.<br />

The performance criteria attaching to the Restricted Share Scheme are set out in the fourth to seventh paragraphs of the<br />

‘Restricted Share Scheme’ section of this <strong>report</strong> on page 35.<br />

As at 1 January 2004 the employee benefit trust owned 1,269,056 shares. On 5 January 2004 the employee benefit trust acquired<br />

253,704 shares at prices ranging from 337p to 341.5p <strong>and</strong> on 6 April 2004 the employee benefit trust acquired 77,195 shares at a<br />

price of 341.5p. On 6 April 2004 the employee benefit trust transferred 310,890 shares on the vesting of awards under the<br />

scheme. As at 31 December 2004 the employee benefit trust owned 1,289,065 shares.


40 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Report of the Board on Directors’ Remuneration<br />

Sharesave Scheme<br />

Ordinary shares under option granted to executive directors under the Sharesave Scheme (‘SAYE’) are as follows:<br />

Exercised Market price Realised gain Date<br />

1 January during 31 December Exercise price at exercise on exercise from which Expiry<br />

2004 the year 2004 (p) date (p) £’000 exercisable date<br />

Executive Directors<br />

S P Mahon 5,549 – 5,549 285.6 – – 01.12.08 01.06.09<br />

M W G Collins 6,510 6,510 – 259.2 371.5 7 – –<br />

J J Corr 5,549 – 5,549 285.6 – – 01.12.08 01.06.09<br />

I S Cummine 2,867 – 2,867 200.9 – – 01.12.06 01.06.07<br />

I S Cummine 3,418 – 3,418 285.6 – – 01.12.08 01.06.09<br />

Total 23,893 6,510 17,383<br />

No options have been granted or have lapsed during the year. The mid-market price of the company’s shares at 31 December<br />

2004 was 367p <strong>and</strong> the range during the year was 282.75p to 386.75p.<br />

Share Incentive Plan<br />

Allocations under the Share Incentive Plan represent the market value of shares at the date of appropriation to the trustees on<br />

behalf of the directors, relating to the allocation from profits of the previous year.<br />

2004 2003<br />

£’000 £’000<br />

Executive Directors<br />

S P Mahon 3 3<br />

M W G Collins 3 3<br />

J J Corr 3 3<br />

I S Cummine 3 3<br />

Total 12 12<br />

Directors’ Pension Entitlements<br />

Company contributions during the year were as follows:<br />

2004 2003<br />

£’000 £’000<br />

S P Mahon 94 84<br />

M W G Collins 26 22<br />

J J Corr 46 42<br />

I S Cummine 61 55


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

41<br />

Set out below are the Listing Rules <strong>and</strong> Companies Act disclosures providing details of the <strong>Cattles</strong> Staff Pension Fund benefits to<br />

which executive directors are entitled at 31 December 2004.<br />

Additional<br />

Additional accrued<br />

accrued benefits Transfer value Transfer value Increase in<br />

benefits earned in the at 31 at 31 transfer value<br />

earned in the year (net of Accrued December December Increase in less director’s<br />

year (i) inflation) (i) entitlement 2004 2003 transfer value contribution<br />

£’000 £’000 £’000 £’000 £’000 £’000 £’000<br />

Executive Director<br />

M W G Collins 2 2 14 97 79 18 13<br />

(i)<br />

Under the Listing Rules disclosure requirements, additional accrued benefits earned in the year exclude inflation. Under the<br />

Companies Act disclosure requirements, inflation is included.<br />

The accrued pension entitlement shown in respect of M W G Collins is the amount that would be paid each year to the director in<br />

the form of a pension on retirement at age 65 in the event of him having left service at the end of the year. The accrued entitlement<br />

includes, where relevant, entitlements earned as an employee, prior to becoming a director, as well as those earned for qualifying<br />

services after becoming a director. The increase in the accrued entitlement is the difference between the accrued benefit at the<br />

year end <strong>and</strong> that at the previous year end. Transfer values have been calculated on the basis of actuarial advice in accordance<br />

with Actuarial Guidance Note GN11.<br />

The transfer values of the accrued entitlement in respect of qualifying services represent the value of assets that the pension<br />

scheme would need to transfer to another pension provider on transferring the scheme’s liability in respect of the directors’ pension<br />

benefits that they earned in respect of qualifying services. They do not represent sums payable to individual directors <strong>and</strong>,<br />

therefore, cannot be added meaningfully to annual remuneration.<br />

The increase in the transfer value less directors’ contributions is the increase in the transfer value of the accrued benefits in respect<br />

of qualifying services during the year after deducting the directors’ personal contributions to the scheme.<br />

Approval<br />

This <strong>report</strong> was approved by the Board on 18 March 2005 <strong>and</strong> signed on its behalf by:<br />

David Haxby<br />

Chairman of the Remuneration Committee<br />

18 March 2005


42 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Consolidated Profit <strong>and</strong> Loss Account<br />

For the year ended 31 December 2004<br />

2004 2003<br />

Notes £’000 £’000<br />

Turnover 4 734,784 605,439<br />

Cost of sales (384,938) (302,681)<br />

Gross profit 349,846 302,758<br />

Administrative expenses (211,789) (183,240)<br />

Profit before taxation <strong>and</strong> goodwill amortisation 141,227 122,729<br />

Goodwill amortisation (3,170) (3,211)<br />

Profit before taxation 2, 4 138,057 119,518<br />

Taxation 5 (42,544) (36,603)<br />

Profit after taxation 3 95,513 82,915<br />

Dividends 6 (45,815) (39,514)<br />

Retained profit for the year 23 49,698 43,401<br />

Earnings per share – basic 9 29.23p 25.38p<br />

– diluted 9 29.18p 25.33p<br />

Adjusted earnings per share, before goodwill amortisation<br />

– basic 9 30.20p 26.37p<br />

– diluted 9 30.15p 26.31p<br />

The results shown in the profit <strong>and</strong> loss account above derive wholly from continuing operations. The sale of <strong>Cattles</strong> Commercial<br />

Finance <strong>Limited</strong> <strong>and</strong> its subsidiary, <strong>Cattles</strong> Commercial Leasing <strong>Limited</strong>, on 14 January 2005 does not represent a material reduction in<br />

the group’s turnover or have a material effect on the nature <strong>and</strong> focus of the group’s operations, therefore the results of these<br />

businesses are included above within continuing operations.<br />

The only recognised gains <strong>and</strong> losses for the year are those dealt with in the profit <strong>and</strong> loss account above. There is no material<br />

difference between the profit before taxation <strong>and</strong> the retained profit for the year as shown above <strong>and</strong> their historical cost equivalents.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

43<br />

Consolidated Balance Sheet<br />

As at 31 December 2004<br />

2004 2003<br />

as restated<br />

(see note 1(l))<br />

Notes £’000 £’000<br />

Fixed assets<br />

Intangible assets 10 47,820 52,617<br />

Tangible assets 11 42,172 38,511<br />

89,992 91,128<br />

Current assets<br />

Customers’ <strong>accounts</strong> receivable:<br />

Amounts falling due after more than one year 1,142,503 882,194<br />

Amounts falling due within one year 728,282 696,608<br />

14 1,870,785 1,578,802<br />

Less: deferred revenue (201,393) (226,406)<br />

1,669,392 1,352,396<br />

Stocks 15 2,500 3,399<br />

Debtors 16 32,803 28,284<br />

Investments 17 74,986 61,192<br />

Cash at bank <strong>and</strong> in h<strong>and</strong> 13,872 41,538<br />

1,793,553 1,486,809<br />

Creditors – amounts falling due within one year 18 (231,625) (389,901)<br />

Net current assets 1,561,928 1,096,908<br />

Total assets less current liabilities 1,651,920 1,188,036<br />

Creditors – amounts falling due after more than one year 18 (1,211,148) (799,479)<br />

440,772 388,557<br />

Provisions for liabilities <strong>and</strong> charges 5 (3,497) (2,604)<br />

Net assets 4 437,275 385,953<br />

Capital <strong>and</strong> reserves<br />

Called up equity share capital 20 32,868 32,796<br />

Share premium account 21 141,614 139,850<br />

Revaluation reserve 22 196 242<br />

Profit <strong>and</strong> loss account 23 262,597 213,065<br />

Equity shareholders’ funds 24 437,275 385,953<br />

Approved by the Board on 18 March 2005 <strong>and</strong> signed on its behalf by:<br />

Seán Mahon<br />

Chief Executive<br />

James Corr<br />

Finance Director


44 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Company Balance Sheet<br />

As at 31 December 2004<br />

2004 2003<br />

as restated<br />

(see note 1(l))<br />

Notes £’000 £’000<br />

Fixed assets<br />

Tangible assets 11 625 1,035<br />

Investments in subsidiary undertakings 12 174,789 176,416<br />

175,414 177,451<br />

Current assets<br />

Debtors 16 1,607,099 1,265,990<br />

Cash at bank <strong>and</strong> in h<strong>and</strong> 3,684 31,902<br />

1,610,783 1,297,892<br />

Creditors – amounts falling due within one year 18 (232,529) (366,263)<br />

Net current assets 1,378,254 931,629<br />

Total assets less current liabilities 1,553,668 1,109,080<br />

Creditors – amounts falling due after more than one year 18 (1,204,357) (797,415)<br />

349,311 311,665<br />

Provisions for liabilities <strong>and</strong> charges 5 (789) (5,795)<br />

Net assets 348,522 305,870<br />

Capital <strong>and</strong> reserves<br />

Called up equity share capital 20 32,868 32,796<br />

Share premium account 21 141,614 139,850<br />

Other reserves 22 39,066 39,066<br />

Profit <strong>and</strong> loss account 23 134,974 94,158<br />

Equity shareholders’ funds 348,522 305,870<br />

Approved by the Board on 18 March 2005 <strong>and</strong> signed on its behalf by:<br />

Seán Mahon<br />

Chief Executive<br />

James Corr<br />

Finance Director


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

45<br />

Consolidated Cash Flow Statement<br />

For the year ended 31 December 2004<br />

2004 2003<br />

as restated<br />

(see note 1(l))<br />

Notes £’000 £’000<br />

Net cash outflow from operating activities 26 (134,513) (77,203)<br />

Taxation (22,507) (20,710)<br />

Capital expenditure <strong>and</strong> financial investment 28 (8,840) (12,059)<br />

Acquisitions 28 (18) (1,500)<br />

Equity dividends paid (41,481) (35,754)<br />

Cash outflow before use of liquid resources <strong>and</strong> financing (207,359) (147,226)<br />

Management of liquid resources 28 (13,794) (27,771)<br />

Financing 28 2,630 322,442<br />

(Decrease)/increase in cash in the period (218,523) 147,445<br />

Reconciliation of net cash flow to movement in net debt<br />

(Decrease)/increase in cash in the period (218,523) 147,445<br />

Cash outflow from increase in liquid resources 13,794 27,771<br />

Cash inflow from movement in debt <strong>and</strong> lease financing (1,006) (321,810)<br />

Movement in net debt in the period resulting from cash flows (205,735) (146,594)<br />

Loan notes issued on acquisition of subsidiaries (500) –<br />

New obligations under hire purchase contracts (4,293) (2,669)<br />

Accrual for finance cost of debt (322) (180)<br />

Net debt at 1 January 2004 (920,684) (771,241)<br />

Net debt at 31 December 2004 27 (1,131,534) (920,684)


46 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

For the year ended 31 December 2004<br />

1 Accounting policies<br />

The financial statements have been prepared in accordance with the Companies Act 1985 <strong>and</strong> applicable accounting<br />

st<strong>and</strong>ards in the United Kingdom. A summary of the principal accounting policies, which have been applied consistently,<br />

except for the adoption of the recently introduced UITF 38 ‘Accounting for ESOP Trusts’ <strong>and</strong> the revision to UITF 17<br />

‘Employee share schemes’ referred to in paragraph (l), is set out below:<br />

(a)<br />

(b)<br />

(c)<br />

(d)<br />

Accounting convention<br />

The financial statements are prepared under the historical cost convention as modified by the revaluation of certain freehold<br />

<strong>and</strong> long leasehold properties.<br />

In accordance with paragraph 3(3) of Schedule 4 of the Companies Act 1985, the directors have adapted the arrangement of<br />

certain headings in the consolidated profit <strong>and</strong> loss account <strong>and</strong> the consolidated balance sheet to reflect more appropriately<br />

the nature of the group’s activities. In particular, cost of sales includes net interest payable on bank <strong>and</strong> other borrowings <strong>and</strong><br />

customers’ <strong>accounts</strong> receivable are disclosed separately on the face of the consolidated balance sheet.<br />

Basis of consolidation<br />

The consolidated profit <strong>and</strong> loss account <strong>and</strong> balance sheet include the financial statements of the company <strong>and</strong> all of its<br />

subsidiary undertakings made up to the end of the financial year. The results of subsidiary undertakings acquired or disposed<br />

of during the year are included in the consolidated profit <strong>and</strong> loss account from the date of their acquisition or up to the date<br />

of their disposal. Inter-company sales <strong>and</strong> profits are eliminated on consolidation.<br />

Goodwill<br />

Goodwill represents the difference between the fair value of a business or company acquired, as represented by the<br />

consideration paid, <strong>and</strong> the fair value of the net assets acquired. Goodwill arising on the acquisition of subsidiary<br />

undertakings <strong>and</strong> trading assets is capitalised at cost <strong>and</strong> subsequently amortised on a straight line basis over its estimated<br />

useful life up to a maximum of 20 years. This reflects the period over which the directors estimate that the value of the<br />

underlying businesses acquired is expected to exceed the value of the underlying assets.<br />

Goodwill arising on acquisitions is reviewed for impairment, in accordance with FRS 10 ‘Goodwill <strong>and</strong> intangible assets’ <strong>and</strong><br />

FRS 11 ‘Impairment of fixed assets <strong>and</strong> goodwill’, at the end of the first full year after acquisition <strong>and</strong> in other years if events or<br />

changes in circumstances indicate that the carrying value may not be recoverable. Any impairment assessed is charged to<br />

the profit <strong>and</strong> loss account.<br />

Under the transitional arrangements of FRS 10, up to 31 December 1997 goodwill arising on acquisitions was brought in at<br />

cost <strong>and</strong> offset firstly against negative goodwill arising during the year on similar acquisitions, secondly against available<br />

reserves <strong>and</strong> thereafter against retained profits brought forward. Goodwill written off to reserves prior to 1 January 1998 has<br />

not been reinstated. On the subsequent disposal of any business to which previously written off goodwill attaches, the<br />

related amount is charged or credited in the profit <strong>and</strong> loss account as appropriate.<br />

Cumulative goodwill relating to acquisitions made prior to 1998, excluding subsequent disposals, written off against reserves<br />

since 1 January 1989 amounted to £53 million. The directors do not consider it practicable to extract information in respect<br />

of earlier periods.<br />

Deferred consideration in respect of acquisitions is discounted using an appropriate discount rate, in accordance with FRS 7<br />

‘Fair values in acquisition accounting’.<br />

Turnover<br />

Turnover, which is exclusive of value added tax <strong>and</strong> transactions financed within the group, comprises:<br />

Instalment credit agreements<br />

Goods <strong>and</strong> services<br />

Debt collection<br />

Reinsurance<br />

Brokerage<br />

Leasing<br />

Factoring<br />

Interest receivable, acceptance <strong>and</strong> similar fees, <strong>and</strong> early settlement fees<br />

Gross amounts of goods or services supplied<br />

Fees <strong>and</strong> commission income on external debt recovered <strong>and</strong> gross amounts<br />

collected on purchased debt<br />

Underwriting premiums earned<br />

Commission income on loan applications referred to lenders <strong>and</strong> on the sale of<br />

insurance products to borrowers<br />

Rental income, interest receivable <strong>and</strong> arrangement fees<br />

Fees <strong>and</strong> financing charges on debts factored


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

47<br />

1 Accounting policies continued<br />

(e)<br />

(f)<br />

(g)<br />

Revenue recognition<br />

(i)<br />

Instalment credit agreements<br />

Interest receivable on secured <strong>and</strong> unsecured interest-bearing personal loan agreements is recognised on the accruals<br />

basis. In the case of hire purchase agreements, interest receivable is computed at the inception of the loan, added to the<br />

customer’s balance <strong>and</strong> released to profit on the ‘sum of the digits’ basis over the lesser of the contracted <strong>and</strong> effective<br />

term of the agreement.<br />

In respect of home collected credit, an initial amount of the interest receivable is credited to the profit <strong>and</strong> loss account,<br />

mainly to cover the costs associated with the setting up of the transaction. The remaining amount of interest receivable is<br />

carried forward in customers’ <strong>accounts</strong> receivable as deferred revenue. This is calculated to adequately cover future<br />

collection <strong>and</strong> financing costs <strong>and</strong> to allow for an appropriate contribution to profits in subsequent accounting periods.<br />

Deferred revenue is released to profit on a straight line basis in proportion to the reduction in the collectible amount.<br />

Acceptance fees <strong>and</strong> similar fees charged to borrowers at the inception of the loan are credited to the profit <strong>and</strong> loss<br />

account when charged. Appropriate provision is made for the rebate of such fees, net of any related settlement fees on<br />

early redemption of the loan, where required under the terms of the loan agreement. Fees charged to borrowers on the<br />

early settlement of the loans are credited to the profit <strong>and</strong> loss account as charged.<br />

(ii) Debt collection<br />

Fees <strong>and</strong> commissions charged to third parties on the collection of debts are credited to the profit <strong>and</strong> loss account as<br />

charged. Amounts collected in respect of purchased debt receivables are credited to the profit <strong>and</strong> loss account as<br />

received.<br />

(iii) Reinsurance<br />

Reinsurance premiums receivable are accounted for net of cancellations, are allocated to each class of cover provided<br />

under the insurance agreement <strong>and</strong> are earned over the risk period of each class in an appropriate earnings pattern.<br />

Reinsurance claims payable are accounted for on a notified basis, together with a provision for claims incurred but not<br />

<strong>report</strong>ed.<br />

(iv) Brokerage<br />

Commission in respect of the introduction of loans to third party lenders is credited to the profit <strong>and</strong> loss account<br />

as earned. Commissions earned on the sale of single premium insurance products to borrowers are credited to the profit<br />

<strong>and</strong> loss account on inception of the policy. Appropriate provision is made for the rebate of such commissions arising on<br />

the early termination or cancellation of the related insurance policy where required by the terms of the insurance contract.<br />

(v) Leasing<br />

Assets owned <strong>and</strong> leased out to customers under operating lease agreements are recorded as fixed assets. Rental<br />

income is recognised on a straight line basis over the period of the lease.<br />

The amounts due from lessees under finance leases <strong>and</strong> hire purchase contracts are recorded as customers’ <strong>accounts</strong><br />

receivable at the amount of the net investment in the lease. The total gross interest receivable is allocated to accounting<br />

periods to give a constant periodic rate of return before tax on the net investment in each period.<br />

Arrangement fees charged to customers are credited to the profit <strong>and</strong> loss account on inception of the lease.<br />

Customers’ <strong>accounts</strong> receivable<br />

Customers’ <strong>accounts</strong> receivable consist of amounts outst<strong>and</strong>ing under instalment credit agreements, finance leases <strong>and</strong><br />

factoring agreements including repayments not yet due at the year end, less appropriate provision for bad <strong>and</strong> doubtful debts<br />

based upon the individual assessment of <strong>accounts</strong> <strong>and</strong> formulae related to past experience.<br />

The historic propensity for ultimate credit loss is based on the number of months since a full payment, or equivalent, has been<br />

received from a direct repayment customer <strong>and</strong>, in the case of a home collected customer’s loan, is based on the level of<br />

payments received during the latest thirteen week period of the loan.<br />

Default debt<br />

Default debt purchased is included at cost <strong>and</strong> is normally amortised over a period not exceeding six years at a rate based on<br />

the expected recoverability period of the debt.


48 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

1 Accounting policies continued<br />

(h)<br />

(i)<br />

(j)<br />

(k)<br />

(l)<br />

Pensions<br />

The group operates a defined benefit pension scheme, the assets of which are held in a separate trustee administered fund.<br />

The expected cost of pensions is charged to the profit <strong>and</strong> loss account so as to spread the cost of pensions over the<br />

expected service lives of employees in the scheme. Variations from the regular costs are spread over the average expected<br />

remaining working lives of current members in the scheme. The pension cost is assessed in accordance with the advice of<br />

qualified actuaries. The transitional disclosure requirements under FRS 17 ‘Retirement benefits’ have been adopted in these<br />

financial statements <strong>and</strong> are explained more fully in note 8. The scheme was closed to new entrants from 1998.<br />

The group also operates several defined contribution schemes. The pension cost in respect of these schemes is the<br />

contributions payable. Payments made to personal pension plans are charged to the profit <strong>and</strong> loss account as they become<br />

payable. The group provides no other post-retirement benefits to its employees or directors.<br />

Deferred tax<br />

Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or<br />

a right to pay less tax, at a future date, at rates expected to apply when they crystallise, based on current tax rates <strong>and</strong> law.<br />

Timing differences arise from the inclusion of items of income <strong>and</strong> expenditure in taxation computations in different periods<br />

from those in which they are included in the financial statements.<br />

Deferred tax assets are recognised only to the extent that it is regarded as more likely than not that they will be recovered.<br />

Deferred tax assets <strong>and</strong> liabilities are not discounted.<br />

Stocks<br />

Stocks comprise motor vehicles held for resale <strong>and</strong> are valued at the lower of cost <strong>and</strong> net realisable value.<br />

Investments in subsidiary undertakings<br />

Investments in subsidiary undertakings are included at cost, unless, in the opinion of the directors, a permanent diminution in<br />

value has occurred, in which case the deficiency is provided for <strong>and</strong> charged in the company’s profit <strong>and</strong> loss account.<br />

Investments – own shares held<br />

UITF 38 ‘Accounting for ESOP Trusts’ <strong>and</strong> UITF 17 ‘Employee share schemes’ (revised 2003) have been adopted for the first<br />

time in 2004. As a result of adopting UITF 38, shares in <strong>Cattles</strong> plc held by the Employee Benefit Trust have been reclassified<br />

from fixed asset investments to the profit <strong>and</strong> loss reserve within equity shareholders’ funds. This change has been<br />

accounted for as a prior year adjustment <strong>and</strong> previously <strong>report</strong>ed figures have been restated accordingly. As a result, equity<br />

shareholders’ funds at 31 December 2004 have decreased by £3.7 million (31 December 2003: £3.7 million) <strong>and</strong><br />

consideration in respect of the purchase <strong>and</strong> sale of own shares has been reclassified in the cash flow statement as financing<br />

cash flows. The prior year adjustment has had no impact on the profit <strong>and</strong> loss account in the current or previous year.<br />

There has been no impact to the group’s financial statements as a result of the revision to UITF 17 because the charge to the<br />

profit <strong>and</strong> loss account on the granting of applicable share awards is already based on the fair value of the shares at the date<br />

of grant. The fair value of the shares is estimated to be the market value of the shares at that time.<br />

(m) Tangible fixed assets <strong>and</strong> depreciation<br />

The cost of fixed assets is their purchase cost together with any incidental costs of acquisition. Depreciation is calculated so<br />

as to write off the cost of tangible fixed assets on a straight line basis by reference to the estimated useful economic life <strong>and</strong><br />

residual value of the assets concerned, at the following principal rates:<br />

Freehold buildings<br />

Long leasehold buildings<br />

Short leasehold expenditure<br />

Fixtures <strong>and</strong> equipment<br />

Computer equipment <strong>and</strong> software licenses<br />

Motor vehicles<br />

Assets held for rental<br />

2% per annum<br />

2% per annum<br />

5% to 20% per annum<br />

10% to 20% per annum<br />

20% to 33 1 ⁄3% per annum<br />

20% per annum<br />

20% per annum<br />

Assets held for rental comprise audio-visual electrical appliances, such as televisions, DVD <strong>and</strong> VCR players, which are hired<br />

by customers under a rental agreement.<br />

Depreciation is not provided on freehold <strong>and</strong> long leasehold l<strong>and</strong>.<br />

As permitted under the transitional arrangements of FRS 15 ‘Tangible fixed assets’, the group has chosen to retain the book<br />

values of l<strong>and</strong> <strong>and</strong> buildings which were previously revalued, <strong>and</strong> not to revalue the assets in the future.<br />

Fixed assets are reviewed for impairment, in accordance with FRS 11 ‘Impairment of fixed assets <strong>and</strong> goodwill’. If events or<br />

changes in circumstances indicate that the carrying value may not be recoverable, any impairment in value is charged to the<br />

revaluation reserve or the profit <strong>and</strong> loss account, as appropriate.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

49<br />

1 Accounting policies continued<br />

(n)<br />

(o)<br />

(p)<br />

(q)<br />

Leasing<br />

Assets held under finance leases <strong>and</strong> hire purchase contracts are capitalised at their fair value on the inception of the<br />

agreement <strong>and</strong> depreciated over the shorter of the period of the agreement <strong>and</strong> the estimated useful economic lives of the<br />

assets. The finance charges are allocated over the period of the agreement in proportion to the capital amount outst<strong>and</strong>ing<br />

<strong>and</strong> are charged to the profit <strong>and</strong> loss account.<br />

Rentals payable under operating leases are charged to the profit <strong>and</strong> loss account over the period of the lease on a straight<br />

line basis.<br />

Borrowings<br />

Interest payable on bank borrowings, debenture loans <strong>and</strong> other borrowings is charged to the profit <strong>and</strong> loss account as it is<br />

incurred. Accrued finance charges <strong>and</strong> issue costs in relation to debenture loans, <strong>and</strong> facility fees in relation to bank<br />

borrowings, are charged to the profit <strong>and</strong> loss account over the term of the loan <strong>and</strong> facility respectively.<br />

Hedging<br />

(i)<br />

Interest rate hedging<br />

The group manages the risk of the exposure of floating rate borrowings to adverse interest rate fluctuations by the use of<br />

financial hedging instruments, primarily swaps. Amounts payable or receivable in respect of these hedging instruments<br />

are recognised as adjustments to the interest expense over the period of the contracts.<br />

The cost of any premium paid for the purchase of other financial hedging instruments, such as interest rate caps or<br />

collars, is amortised on a straight line basis over the life of the contract <strong>and</strong> reflected in the profit <strong>and</strong> loss account in the<br />

total charge for interest on borrowings.<br />

(ii) Foreign currencies<br />

All foreign currency denominated borrowings are immediately swapped into Sterling at the commencement of the facility<br />

agreement. Consequently, the group is not exposed to currency rate fluctuations. These borrowings are translated at the<br />

hedged rate.<br />

Current asset investments<br />

During 2004 the reinsurance company changed its current asset investment policy from a managed fund of mainly fixed<br />

interest securities <strong>and</strong> bonds to wholly fixed interest bank deposits. Prior to the change, the managed fund investments were<br />

stated at market value, in accordance with the Association of British Insurers Statement of Recommended Practice on<br />

accounting for insurance business, with unrealised gains <strong>and</strong> losses arising from changes in the market value of such<br />

securities <strong>and</strong> bonds being credited or charged to the profit <strong>and</strong> loss account.<br />

2 Profit before taxation<br />

2004 2003<br />

The profit before taxation for the year is stated after charging/(crediting): £’000 £’000<br />

Interest on borrowings included in cost of sales<br />

– bank borrowings <strong>and</strong> overdrafts 32,358 35,424<br />

– debenture loans <strong>and</strong> other borrowings 42,479 20,305<br />

Depreciation – on tangible fixed assets held under finance leases <strong>and</strong><br />

hire purchase contracts 2,233 2,291<br />

– on owned tangible fixed assets 7,759 8,734<br />

Amortisation of goodwill 3,170 3,211<br />

(Profit)/loss on disposal of tangible fixed assets (763) 755<br />

Finance lease charges 584 444<br />

Operating lease rentals – l<strong>and</strong> <strong>and</strong> buildings 6,009 6,021<br />

– motor vehicles 5,157 3,686<br />

– other plant <strong>and</strong> machinery 118 127<br />

Pensions to former directors 4 11<br />

Allocations to employee share incentive schemes 3,274 3,024


50 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

2 Profit before taxation continued<br />

Services provided by the group’s external auditors <strong>and</strong> network firms<br />

During the year the group obtained the following services from the external 2004 2003<br />

auditors, all of which were provided in the United Kingdom: £’000 £’000<br />

Audit services<br />

– Statutory audit (Company – 2004: £35,600; 2003: £31,000) 336 296<br />

– Audit-related regulatory <strong>report</strong>ing – 12<br />

Further assurance services 238 84<br />

Tax services<br />

– Compliance services 154 154<br />

– Other advisory services 740 620<br />

Other services 19 136<br />

1,487 1,302<br />

In addition to the above services, the group’s external auditors acted as auditor to the <strong>Cattles</strong> Staff Pension Fund <strong>Limited</strong><br />

pension scheme. The appointment of auditors to the group’s pension scheme, <strong>and</strong> the fees paid in respect of such, are<br />

agreed by the trustees of the scheme, acting independently from the management of the group.<br />

In appointing the external auditors to carry out non-audit related services, <strong>and</strong> in setting their fees for such work, the directors<br />

have due regard to the group’s policy in respect of non-audit related services as set out in the Report of the Board on<br />

Corporate Governance on pages 29 <strong>and</strong> 30 <strong>and</strong> the benefits, financial <strong>and</strong> non-financial, expected to be obtained. In the<br />

opinion of the directors, these services should benefit the group in the future.<br />

Further assurance services comprise work in relation to the transition to International Financial Reporting St<strong>and</strong>ards <strong>and</strong><br />

Financial Services Authority authorisation. Other services relate to work on share schemes.<br />

3 Holding company profit <strong>and</strong> loss account<br />

The consolidated profit includes £86.8 million (2003: £9.4 million), which has been dealt with in the financial statements of the<br />

company. The company has taken advantage of section 230 of the Companies Act 1985 <strong>and</strong> has not included its own profit<br />

<strong>and</strong> loss account in these financial statements.<br />

4 Segmental analysis<br />

2004 2003<br />

Profit<br />

Profit<br />

before Net before Net<br />

Turnover taxation assets Turnover taxation assets<br />

as restated<br />

(see note 1(l))<br />

£’000 £’000 £’000 £’000 £’000 £’000<br />

Consumer Division 710,003 137,246 282,839 582,554 118,085 262,506<br />

Corporate Division 24,781 7,794 23,574 22,885 6,987 19,425<br />

Central Support Services – (6,983) 130,862 – (5,554) 104,022<br />

Group 734,784 138,057 437,275 605,439 119,518 385,953<br />

The Consumer <strong>and</strong> Corporate Divisions comprise the businesses as detailed in the Profile of the Group on page 2.<br />

The company <strong>and</strong> its subsidiary undertakings operate wholly in the United Kingdom.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

51<br />

5 Taxation<br />

2004 2003<br />

The charge for taxation based on the profit for the year is as follows: £’000 £’000<br />

Current tax:<br />

UK corporation tax at 30% (2003: 30%) 37,812 33,232<br />

Adjustments in respect of previous years 3,839 (52)<br />

41,651 33,180<br />

Deferred tax:<br />

Origination <strong>and</strong> reversal of timing differences 3,963 3,063<br />

Adjustments in respect of previous years (3,070) 360<br />

42,544 36,603<br />

The st<strong>and</strong>ard rate of tax for the year, based on the UK st<strong>and</strong>ard rate of corporation tax, is 30% (2003: 30%). The current tax<br />

charge for the year is more than (2003: less than) the tax on profit on ordinary activities at the st<strong>and</strong>ard rate for the reasons<br />

set out in the following reconciliation:<br />

2004 2003<br />

£’000 £’000<br />

Profit on ordinary activities before tax 138,057 119,518<br />

Tax on profit on ordinary activities at st<strong>and</strong>ard rate 41,417 35,855<br />

Factors affecting charge for the year:<br />

Accounting depreciation in excess of capital allowances 212 700<br />

Expenses not deductible for tax purposes (including goodwill amortisation) 521 819<br />

Isle of Man tax charged at lower rate than UK st<strong>and</strong>ard rate (164) (703)<br />

QUEST deduction – (10)<br />

Movement on short term timing differences (4,174) (3,429)<br />

Adjustments to tax charge in respect of previous years 3,839 (52)<br />

Current tax charge for the year 41,651 33,180<br />

Provided<br />

Unprovided<br />

The amounts of deferred tax provided <strong>and</strong> 2004 2003 2004 2003<br />

unprovided in the <strong>accounts</strong> are as follows: £’000 £’000 £’000 £’000<br />

Group<br />

Capital allowances (2,741) (2,311) – (132)<br />

Revaluation surplus <strong>and</strong> rollover relief – – 80 80<br />

Other timing differences 6,238 4,915 – (4)<br />

3,497 2,604 80 (56)<br />

Company<br />

Capital allowances (14) – – –<br />

Other timing differences 803 5,795 – –<br />

789 5,795 – –


52 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

5 Taxation continued<br />

Group<br />

Company<br />

The movement in the deferred tax liability during the year was as follows: £’000 £’000<br />

As at 1 January 2004 2,604 5,795<br />

Profit <strong>and</strong> loss account charge/(credit) 893 (5,006)<br />

As at 31 December 2004 3,497 789<br />

6 Dividends<br />

2004 2003 2004 2003<br />

pence pence £’000 £’000<br />

Interim 4.55 3.95 14,873 12,906<br />

Proposed final 9.45 8.15 30,942 26,608<br />

14.00 12.10 45,815 39,514<br />

Dividends of £180,000 (2003: £170,000) have been waived by the trustee of the Employee Benefit Trust in respect of those<br />

shares held under the Restricted Share Scheme.<br />

7 Employees’ <strong>and</strong> directors’ costs<br />

2004 2003<br />

£’000 £’000<br />

Wages <strong>and</strong> salaries 105,735 92,513<br />

Social security costs 10,288 8,728<br />

<strong>Cattles</strong> defined benefit pension scheme costs (note 8) 3,247 1,743<br />

Other defined contribution pension scheme costs (note 8) 1,256 761<br />

Allocations to share incentive schemes 3,274 3,024<br />

Total employment costs 123,800 106,769<br />

Aggregate gains made by the directors on the exercise of share options were £7,000 (2003: £nil). The total value of shares<br />

vested in the directors during the year under the Restricted Share Scheme was £843,000 (2003: £314,000), which includes<br />

the first vestings of awards for two executive directors, S P Mahon <strong>and</strong> J J Corr, who joined the company in 2000 <strong>and</strong> 2001<br />

respectively.<br />

A detailed analysis of all directors’ emoluments, including salaries, benefits in kind, performance related bonuses, share<br />

options, long term incentives <strong>and</strong> pension arrangements, is provided in the section entitled Audited Information of the Report<br />

of the Board on Directors’ Remuneration on pages 38 to 41 <strong>and</strong> forms part of these financial statements.<br />

The average monthly number of persons employed by the group during the year 2004 2003<br />

was as follows: Number Number<br />

Consumer Division 4,781 4,512<br />

Corporate Division 145 135<br />

Central Support Services 51 48<br />

Total 4,977 4,695


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

53<br />

8 Pension costs<br />

SSAP 24 ‘Accounting for pension costs’<br />

The group operates a funded defined benefit pension scheme for employees, which is contracted out of the state scheme.<br />

The assets of the scheme are held separately in a trustee administered fund. Contributions to the scheme are assessed in<br />

accordance with the advice of an independent qualified actuary using the projected unit method. This scheme was closed to<br />

new entrants from 1998.<br />

Actuarial valuations are normally carried out triennially, the most recent valuation being as at 31 March 2004. At that date the<br />

market value of the assets of the scheme was £34.6 million (excluding assets relating to members’ additional voluntary<br />

contributions), representing 67% of the market-related value of the benefits that had accrued to members, after allowing for<br />

expected future increases in earnings.<br />

The assumptions, relative to price inflation, which have the most significant effect on the results of the actuarial valuation, are<br />

those relating to the rate of return on assets <strong>and</strong> the rate of increase in earnings. For the actuarial valuation, it was assumed<br />

that the return on assets would exceed price inflation by 3.7% per annum <strong>and</strong> salary increases would exceed price inflation by<br />

2.0% per annum. However, to measure the pension cost in accordance with SSAP 24, the following actuarial assumptions<br />

have been used: a rate of return on assets of 3.95% above inflation <strong>and</strong> a rate of increase in earnings of 1.5% above inflation.<br />

The funding shortfall disclosed is being spread over 10 years, representing the average expected future working lives of<br />

scheme members, using the ‘straight line’ method. The cumulative excess of the group’s contributions over pension cost at<br />

31 December 2004 amounted to £0.2 million (2003: £0.1 million). An amount of £0.1 million has therefore been credited to the<br />

profit <strong>and</strong> loss account in the current year in respect of this movement <strong>and</strong> is included within the group charge for pension<br />

costs for this scheme for the year of £3.2 million (2003: £1.7 million).<br />

Throughout the year, the group has paid contributions to the pension scheme of 2.6 times member contributions, together<br />

with supplementary contributions of £2.2 million based on the shortfall determined by the actuarial valuation at 31 March<br />

2004. From April 2005 the company will make contributions to the pension scheme of 3.4 times member contributions, in<br />

addition to the supplementary shortfall contributions of £2.2 million per annum. Members have contributed at the rate of either<br />

3% or 5% of pensionable salaries, depending on their membership status, throughout the accounting period.<br />

The group also operates defined contribution personal pension schemes for new employees <strong>and</strong> existing employees who are<br />

not members of the defined benefit pension scheme. The pension cost in respect of these schemes is the contributions<br />

payable of £1.3 million (2003: £0.8 million).<br />

FRS 17 ‘Retirement benefits’<br />

As noted above, the group operates a defined benefit pension scheme for certain staff. The scheme is funded <strong>and</strong> is<br />

contracted out of the state second tier of pension provision. The scheme was closed to new entrants from 1998. Under the<br />

projected unit method, the current service cost will increase as a percentage of pensionable salaries as members approach<br />

retirement. However, as the contributing membership reduces, pensionable payroll is expected to reduce over the longer term,<br />

<strong>and</strong> this is likely to more than offset the rising contribution rate.<br />

The last formal valuation of the scheme was performed as at 31 March 2004 by a professionally qualified actuary. In addition,<br />

<strong>and</strong> in accordance with FRS 17 ‘Retirement benefits’, a funding review of the scheme was carried out by the independent<br />

qualified actuary as at 31 December 2004.<br />

The following information, in respect of the defined benefit scheme, is provided for disclosure purposes only, as required by<br />

FRS 17.<br />

At 31 December At 31 December At 31 December<br />

The financial assumptions used to calculate the scheme’s liabilities 2004 2003 2002<br />

under FRS 17 are as follows: % p.a. % p.a. % p.a.<br />

Inflation 2.8 2.8 2.3<br />

Rate of increase in pensionable salaries 4.3 4.8 4.3<br />

Rate of increase for pensions in payment earned from 6 April 1997* 2.8 2.8 2.3<br />

Rate of increase for pensions in payment earned prior to 6 April 1997* 2.6 2.6 2.1<br />

Rate of increase for deferred pensions* 2.8 2.8 2.3<br />

Discount rate 5.3 5.4 5.6<br />

* Excluding increases to Guaranteed Minimum Pensions


54 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

8 Pension costs continued<br />

Long term Long term Long term<br />

rate of return rate of return rate of return<br />

Fair value at expected at Fair value at expected at Fair value at expected at<br />

The assets of the scheme <strong>and</strong> the<br />

31 December 31 December 31 December 31 December 31 December 31 December<br />

2004 2004 2003 2003 2002 2002<br />

expected rate of return were: £’000 % p.a. £’000 % p.a. £’000 % p.a.<br />

Equities 26,942 8.30 23,274 8.40 22,093 8.60<br />

Fixed-interest bonds 11,250 4.80 9,893 4.80 4,083 4.50<br />

Cash 361 4.75 618 3.75 1,877 4.00<br />

Total market value of assets 38,553 7.25 33,785 7.30 28,053 7.70<br />

Present value of scheme liabilities (67,290) (59,621) (50,332)<br />

Deficit in the scheme (28,737) (25,836) (22,279)<br />

Related deferred tax asset 8,621 7,751 6,684<br />

Net pension liability (20,116) (18,085) (15,595)<br />

2004 2003<br />

Analysis of the movement in the deficit in the scheme during the year: £’000 £’000<br />

Opening deficit in the scheme (25,836) (22,279)<br />

Current service cost (1,791) (1,417)<br />

Past service cost (126) –<br />

Contributions 3,352 2,638<br />

Finance charge (719) (612)<br />

Actuarial loss recognised in the statement of total recognised gains <strong>and</strong> losses (3,617) (4,166)<br />

Closing deficit in the scheme (28,737) (25,836)<br />

Analysis of amount included as other finance charge:<br />

Expected return on pension scheme assets 2,481 2,198<br />

Interest on pension scheme liabilities (3,200) (2,810)<br />

Net charge (719) (612)<br />

Analysis of amount recognised in the statement of total recognised<br />

gains <strong>and</strong> losses:<br />

Difference between actual <strong>and</strong> expected return on scheme assets 1,516 2,548<br />

Experience losses arising on the scheme liabilities (752) (153)<br />

Changes in the assumptions underlying the present value of the scheme liabilities (4,381) (6,561)<br />

Actuarial loss recognised in the statement of total recognised gains <strong>and</strong> losses (3,617) (4,166)<br />

Analysis of amount charged to profit before taxation in respect of<br />

defined benefit schemes:<br />

Current service cost (1,791) (1,417)<br />

Past service cost (126) –<br />

Total operating charge (i) (1,917) (1,417)<br />

(i) The notional total operating charge under FRS 17 of £1.9 million (2003: £1.4 million) compares with the actual charge made<br />

in the Consolidated Profit <strong>and</strong> Loss Account under SSAP 24 of £3.2 million (2003: £1.7 million).


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

55<br />

8 Pension costs continued<br />

History of experience gains <strong>and</strong> losses 2004 2003 2002<br />

Difference between the actual <strong>and</strong> expected return on scheme assets:<br />

Amount (£’000) (1,516) 2,548 (8,614)<br />

Percentage of scheme assets at year end 3.9% 7.5% 30.7%<br />

Experience losses on scheme liabilities:<br />

Amount (£’000) (752) (153) (1,737)<br />

Percentage of present value of scheme liabilities at year end 1.1% 0.3% 3.5%<br />

Total amount recognised in statement of recognised gains <strong>and</strong> losses:<br />

Amount (£’000) (3,617) (4,166) (11,303)<br />

Percentage of present value of scheme liabilities at year end 5.4% 7.0% 22.5%<br />

If the above amounts had been recognised in the<br />

financial statements, the group’s net assets <strong>and</strong><br />

profit <strong>and</strong> loss reserve would have been as follows:<br />

2004 2003<br />

as restated<br />

(see note 1(l))<br />

£’000 £’000 £’000 £’000<br />

Net assets<br />

Net assets excluding net pension liability 437,275 385,953<br />

Net pension liability (20,116) (18,085)<br />

Amount already prepaid (note 16) (215) (110)<br />

(20,331) (18,195)<br />

Net assets including net pension liability less existing<br />

pension prepayment 416,944 367,758<br />

Profit <strong>and</strong> loss reserve<br />

Profit <strong>and</strong> loss reserve excluding net pension liability 262,597 213,065<br />

Net pension liability (20,116) (18,085)<br />

Amount already prepaid (note 16) (215) (110)<br />

(20,331) (18,195)<br />

Profit <strong>and</strong> loss reserve including net pension liability<br />

less existing pension prepayment 242,266 194,870<br />

Several group companies, including the holding company, participate in the <strong>Cattles</strong> Staff Pension Fund which is a multiemployer<br />

defined benefit scheme. It is not possible to identify the share of the underlying assets <strong>and</strong> liabilities in the Fund<br />

relating to individual participating employer companies. As such, in accordance with FRS 17, the company will account for its<br />

liability to the Fund as if it were a defined contribution scheme. Thus no disclosure of the balance sheet position will be made<br />

<strong>and</strong> the charge to profit <strong>and</strong> loss under FRS 17 will represent the actual contributions paid by the company. The rates of<br />

contribution are as shown above <strong>and</strong> are the same for all participating employers.


56 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

9 Earnings per share<br />

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average<br />

number of ordinary shares in issue during the year, excluding ‘own shares held’ (note 13) which are treated, for this purpose,<br />

as being cancelled.<br />

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of<br />

all dilutive potential ordinary shares.<br />

Adjusted basic <strong>and</strong> diluted earnings per share have been calculated after adding back goodwill amortisation of £3.2 million<br />

(2003: £3.2 million), to provide additional analysis of the underlying performance of the group.<br />

Reconciliations of the earnings <strong>and</strong> weighted average number of shares used in the calculations are set out below.<br />

2004 2003<br />

Weighted<br />

Weighted<br />

average number Earnings average number Earnings<br />

Earnings of shares per share Earnings of shares per share<br />

£’000 ’000 pence £’000 ’000 pence<br />

Shares in issue during the year 328,145 327,841<br />

Shares held by the QUEST (1,348) (1,205)<br />

Basic EPS 95,513 326,797 29.23 82,915 326,636 25.38<br />

Effect of dilutive securities – Options – 550 (0.05) – 655 (0.05)<br />

Diluted EPS 95,513 327,347 29.18 82,915 327,291 25.33<br />

Adjusted EPS<br />

Basic EPS 95,513 326,797 29.23 82,915 326,636 25.38<br />

Goodwill amortisation 3,170 – 0.97 3,211 – 0.99<br />

Adjusted basic EPS before<br />

goodwill amortisation 98,683 326,797 30.20 86,126 326,636 26.37<br />

Effect of dilutive securities – Options – 550 (0.05) – 655 (0.06)<br />

Adjusted diluted EPS before<br />

goodwill amortisation 98,683 327,347 30.15 86,126 327,291 26.31<br />

10 Intangible fixed assets<br />

Goodwill<br />

Group £’000<br />

Cost<br />

At 1 January 2004 61,038<br />

Additions 18<br />

Adjustment (note 12) (1,645)<br />

At 31 December 2004 59,411<br />

Amortisation<br />

At 1 January 2004 8,421<br />

Charge for the year 3,170<br />

At 31 December 2004 11,591<br />

Net book amount at 31 December 2004 47,820<br />

Net book amount at 31 December 2003 52,617<br />

The adjustment relates to a reduction in the amount of deferred consideration payable in respect of the Hathgap acquisition<br />

(through which Welcome Car Finance was established) made in the prior year. As the net assets acquired were not significant,<br />

no further fair value adjustments have been made.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

57<br />

11 Tangible fixed assets<br />

Freehold Leasehold l<strong>and</strong> Fixtures,<br />

l<strong>and</strong> <strong>and</strong> <strong>and</strong> buildings equipment <strong>and</strong> Assets held<br />

Total buildings Long Short motor vehicles for rental<br />

Group £’000 £’000 £’000 £’000 £’000 £’000<br />

Cost or valuation<br />

At 1 January 2004 82,707 15,137 188 8,033 54,803 4,546<br />

Additions 18,240 1,991 – 1,685 14,438 126<br />

Disposals (12,095) (1,797) – (701) (7,561) (2,036)<br />

At 31 December 2004 88,852 15,331 188 9,017 61,680 2,636<br />

Accumulated depreciation<br />

At 1 January 2004 44,196 375 12 4,606 36,950 2,253<br />

Charge for the year 9,992 161 3 1,150 8,076 602<br />

Disposals (7,508) (66) – (551) (5,692) (1,199)<br />

At 31 December 2004 46,680 470 15 5,205 39,334 1,656<br />

Net book amount at<br />

31 December 2004 42,172 14,861 173 3,812 22,346 980<br />

Net book amount at<br />

31 December 2003 38,511 14,762 176 3,427 17,853 2,293<br />

Company<br />

Cost<br />

At 1 January 2004 1,991 360 – 241 1,390 –<br />

Additions 253 – – – 253 –<br />

Group transfers 59 – – – 59 –<br />

Disposals (749) (360) – – (389) –<br />

At 31 December 2004 1,554 – – 241 1,313 –<br />

Accumulated depreciation<br />

At 1 January 2004 956 23 – 241 692 –<br />

Charge for the year 171 2 – – 169 –<br />

Group transfers 3 – – – 3 –<br />

Disposals (201) (25) – – (176) –<br />

At 31 December 2004 929 – – 241 688 –<br />

Net book amount at<br />

31 December 2004 625 – – – 625 –<br />

Net book amount at<br />

31 December 2003 1,035 337 – – 698 –<br />

The net book value of fixtures, equipment <strong>and</strong> motor vehicles includes an amount of £6.2 million (2003: £5.4 million) for the<br />

group <strong>and</strong> £0.4 million (2003: £0.3 million) for the company in respect of assets held under finance leases <strong>and</strong> hire purchase<br />

contracts.


58 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

11 Tangible fixed assets continued<br />

Freehold l<strong>and</strong><br />

Long leasehold l<strong>and</strong><br />

The historical cost <strong>and</strong> <strong>and</strong> buildings <strong>and</strong> buildings<br />

related depreciation of 2004 2003 2004 2003<br />

revalued assets is as follows: £’000 £’000 £’000 £’000<br />

Historical cost 2,775 3,269 45 45<br />

Accumulated depreciation based on historical cost (194) (184) (3) (3)<br />

Historical cost net book amount 2,581 3,085 42 42<br />

Tangible fixed assets include valuations as follows:<br />

1995<br />

Valuation<br />

Group £’000<br />

Freehold l<strong>and</strong> <strong>and</strong> buildings 2,824<br />

Long leasehold l<strong>and</strong> <strong>and</strong> buildings 188<br />

Freehold <strong>and</strong> long leasehold properties with 50 or more years unexpired were valued independently by G L Hearn & Partners,<br />

Chartered Surveyors, on the basis of ‘existing use value’, except those premises surplus to requirements which were valued<br />

on the basis of ‘open market value’, in accordance with the Appraisal & Valuation Manual of the Royal Institution of<br />

Chartered Surveyors.<br />

As permitted under the transitional arrangements of FRS 15 ‘Tangible fixed assets’, the group has chosen to retain the book<br />

values of l<strong>and</strong> <strong>and</strong> buildings which were previously revalued, <strong>and</strong> not to revalue these assets in the future.<br />

12 Investments in subsidiary undertakings<br />

Company £’000<br />

Cost<br />

At 1 January 2004 187,212<br />

Additions 18<br />

Adjustment (note 10) (1,645)<br />

At 31 December 2004 185,585<br />

Provision for diminution in value<br />

At 1 January 2004 <strong>and</strong> 31 December 2004 (10,796)<br />

Net book amount at 31 December 2004 174,789<br />

Net book amount at 31 December 2003 176,416<br />

All principal subsidiaries are wholly owned by <strong>Cattles</strong> plc. The principal operating subsidiary undertakings are listed on page 70.<br />

13 Investments – own shares held<br />

Cost<br />

Group <strong>and</strong> Company £’000<br />

At 1 January 2004 as <strong>report</strong>ed 3,698<br />

Reclassification arising from prior year adjustment (notes 1(l) <strong>and</strong> 23) (3,698)<br />

At 1 January 2004 as restated <strong>and</strong> 31 December 2004 –


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

59<br />

13 Investments – own shares held continued<br />

Shares held in Trust Nominal value<br />

Number £’000<br />

At 1 January 2004 1,269,056 127<br />

Shares purchased 330,899 33<br />

Awarded by the Trust (310,890) (31)<br />

At 31 December 2004 1,289,065 129<br />

As at 31 December 2004 the market value of the shares held in the Trust was £4.7 million (2003: £4.2 million). All costs<br />

relating to the scheme are dealt with in the profit <strong>and</strong> loss account as they accrue <strong>and</strong> the Trust has waived the right to<br />

receive dividends of over <strong>and</strong> above 0.01p per share on all shares held.<br />

Shares purchased during the year represent 0.1% of the company’s called-up equity share capital as at 31 December 2004.<br />

14 Customers’ <strong>accounts</strong> receivable<br />

Customers’ <strong>accounts</strong> receivable, after deducting provisions for bad <strong>and</strong><br />

doubtful debts, analysed by division, are as follows:<br />

2004 2003<br />

Group £’000 £’000<br />

Consumer Credit Division 1,704,740 1,423,421<br />

Lewis – default debt 34,365 26,281<br />

Corporate Division 131,680 129,100<br />

1,870,785 1,578,802<br />

Gross customers’ <strong>accounts</strong> receivable, analysed by product, are as follows:<br />

Hire purchase contracts 628,661 603,574<br />

Other instalment credit agreements 1,307,559 1,021,216<br />

Default debt 34,365 26,281<br />

Finance leases 30,144 29,591<br />

Factoring 59,386 58,940<br />

2,060,115 1,739,602<br />

Provision for bad <strong>and</strong> doubtful debts (189,330) (160,800)<br />

Customers’ <strong>accounts</strong> receivable includes amounts receivable under finance leases <strong>and</strong> hire purchase contracts.<br />

1,870,785 1,578,802<br />

2004 2003<br />

Net investment in finance leases <strong>and</strong> hire purchase contracts comprises: £’000 £’000<br />

Total amounts receivable 658,805 633,165<br />

Less: interest allocated to future periods (161,997) (157,177)<br />

Rentals receivable during the year under finance leases <strong>and</strong> hire purchase contracts amounted to £201.0 million<br />

(2003: £197.4 million).<br />

496,808 475,988<br />

The cost of assets acquired during the year for the purpose of letting under finance leases or hire purchase contracts was<br />

£253.3 million (2003: £225.7 million).<br />

The charge for bad <strong>and</strong> doubtful debts in the profit <strong>and</strong> loss account, 2004 2003<br />

analysed by division, is as follows: £’000 £’000<br />

Consumer Credit Division 128,067 109,045<br />

Corporate Division 186 1,520<br />

128,253 110,565


60 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

15 Stocks<br />

2004 2003<br />

Group £’000 £’000<br />

Motor vehicles for resale 2,500 2,987<br />

Retail goods – 412<br />

2,500 3,399<br />

16 Debtors<br />

Group<br />

Company<br />

2004 2003 2004 2003<br />

£’000 £’000 £’000 £’000<br />

Trade debtors 8,988 10,655 – –<br />

Amounts owed by group undertakings – – 1,599,874 1,260,272<br />

Other debtors 300 265 268 54<br />

Prepayments <strong>and</strong> accrued income (i) (ii) 23,515 17,364 6,957 5,664<br />

(i) Includes a SSAP 24 pension costs prepayment of £0.2 million (2003: £0.1 million) – note 8.<br />

32,803 28,284 1,607,099 1,265,990<br />

(ii) Includes prepayments of £4.2 million (2003: £3.1 million) which are due after more than one year.<br />

17 Current asset investments<br />

2004 2003<br />

Group £’000 £’000<br />

Debt <strong>and</strong> other fixed income securities – 48,911<br />

Fixed interest bank deposits <strong>and</strong> other money market instruments 74,986 12,281<br />

74,986 61,192<br />

At 31 December 2004, the managed fund investments held by Progressive Insurance Company <strong>Limited</strong> amounted to<br />

£75.0 million (2003: £61.2 million). The Regulators <strong>and</strong> the Trust Deed of this company require £44.5 million<br />

(2003: £36.1 million) of these investments to be retained within the company. These monies, which are invested in bank<br />

deposits <strong>and</strong> held for potential future claims payments, cannot be applied to finance other parts of the group or to repay<br />

group borrowings.<br />

18 Creditors<br />

Group<br />

Company<br />

2004 2003 2004 2003<br />

£’000 £’000 £’000 £’000<br />

Amounts falling due within one year:<br />

Bank borrowings (note 19) 5,643 224,786 5,640 224,720<br />

Debenture loans <strong>and</strong> other borrowings<br />

(notes 18(i) <strong>and</strong> 19) 2,644 – 2,000 –<br />

Obligations under finance leases <strong>and</strong><br />

hire purchase contracts (note 19) 3,296 3,436 172 122<br />

Trade creditors 25,825 30,059 237 309<br />

Amounts owed to group undertakings – – 156,821 102,030<br />

Corporation tax 50,798 31,654 – –<br />

Other taxes <strong>and</strong> social security 5,125 4,935 265 204<br />

Employee benefit trust 1,049 923 1,049 923<br />

Other creditors 8,624 4,819 2,494 2,644<br />

Accruals 97,679 62,683 32,909 8,705<br />

Dividends payable 30,942 26,606 30,942 26,606<br />

231,625 389,901 232,529 366,263


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

61<br />

18 Creditors continued<br />

Group<br />

Company<br />

2004 2003 2004 2003<br />

£’000 £’000 £’000 £’000<br />

Amounts falling due after more than one year:<br />

Bank borrowings (note 19) 584,000 174,000 584,000 174,000<br />

Debenture loans <strong>and</strong> other borrowings<br />

(notes 18(i) <strong>and</strong> 19) 622,404 618,967 617,790 618,967<br />

Obligations under finance leases <strong>and</strong><br />

hire purchase contracts (note 19) 2,405 2,225 228 195<br />

Other taxes <strong>and</strong> social security 199 159 199 159<br />

Employee benefit trust 1,523 1,263 1,523 1,263<br />

Deferred purchase consideration 594 2,803 594 2,803<br />

Accruals 23 62 23 28<br />

1,211,148 799,479 1,204,357 797,415<br />

Other than as disclosed in the maturity profile of financial liabilities within note 19, amounts falling due after more than one year<br />

have maturity dates of less than five years.<br />

(i) Debenture loans <strong>and</strong> other borrowings comprise:<br />

(a) A fixed rate 8.625% Eurosterling Bond which has a par value of £125 million but was issued at a 1.14% discount,<br />

realising net proceeds of £123.6 million. The total cost for accrued finance charges of £1.4 million is being charged<br />

to the profit <strong>and</strong> loss account over the eight year term of the Bond. The Bond is shown in the balance sheet at the<br />

discounted issue value plus accrued finance charges as at 31 December 2004. The Bond is redeemable at par in<br />

December 2007.<br />

(b) A fixed rate 6.875% Sterling Bond which has a par value of £350 million but was issued at a 0.227% discount,<br />

realising proceeds of £347.6 million, net of issue costs. The total cost for accrued finance charges of £0.8 million <strong>and</strong><br />

issue costs of £1.6 million is being charged to the profit <strong>and</strong> loss account over the ten year term of the Bond. The<br />

Bond is shown in the balance sheet at the net issue value plus accrued finance charges <strong>and</strong> issue costs as at<br />

31 December 2004. The Bond is redeemable at par in January 2014.<br />

(c) A US Private Placing which raised $40 million 7.15% unsecured notes redeemable at par in December 2008,<br />

$70 million 7.53% unsecured notes redeemable at par in December 2011, £30 million 7.64% unsecured notes<br />

redeemable at par in December 2011 <strong>and</strong> £40 million 7.80% unsecured notes redeemable at par in December 2016.<br />

(d)<br />

(e)<br />

£2.0 million 4% unsecured loan notes of which £0.5 million are redeemable at par on 1 June 2005 <strong>and</strong> £1.5 million<br />

are redeemable at par on 16 October 2005.<br />

A fixed rate 6.39% £5.5 million loan repayable in quarterly instalments by September 2011. The capital outst<strong>and</strong>ing<br />

at 31 December 2004 amounts to £5.3 million.<br />

19 Financial instruments<br />

The group’s borrowings are denominated in Sterling, Euros <strong>and</strong> US dollars. The group’s policies regarding the use of financial<br />

instruments to manage <strong>and</strong> reduce the impact of interest rate <strong>and</strong> foreign currency movements are set out in the Report of<br />

the Directors on page 21 <strong>and</strong> the accounting policies note on page 49.<br />

The committed bank facilities available to the group at 31 December 2004 were:<br />

Total<br />

Undrawn<br />

facility<br />

facility<br />

Type Maturity period Established £’000 £’000<br />

Overdraft Renewable annually 13,250 7,607<br />

Syndicate July 2006 2001 100,000 45,000<br />

Syndicate July 2006 2003 154,000 –<br />

Syndicate July 2008 2003 139,000 80,000<br />

Syndicate July 2009 2004 500,000 209,000<br />

Bilateral May 2010 2004 50,000 25,000<br />

956,250 366,607<br />

Utilisation from each syndicated facility is by money market renewable term loans or acceptances which are rolled over in one<br />

year or less.


62 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

19 Financial instruments continued<br />

In accordance with FRS 13 ‘Derivatives <strong>and</strong> other financial instruments: disclosures’, short term debtors <strong>and</strong> creditors falling<br />

due within one year which would otherwise meet the definition of a financial asset or liability have been omitted from all<br />

disclosures, except for bank overdraft, bank borrowings, debenture loans <strong>and</strong> other borrowings <strong>and</strong> interest rate caps <strong>and</strong><br />

collars which mature in less than one year.<br />

Maturity profile of financial liabilities<br />

The earliest maturity of primary financial liabilities held or issued to finance the group’s operations together with their interest<br />

rate profile is set out in the tables <strong>and</strong> accompanying notes below:<br />

2004 2003<br />

Bank<br />

Bank<br />

borrowings,<br />

borrowings,<br />

debentures Other debentures Other<br />

<strong>and</strong> other financial <strong>and</strong> other financial<br />

borrowings liabilities Total borrowings liabilities Total<br />

£’000 £’000 £’000 £’000 £’000 £’000<br />

Within one year 8,287 3,296 11,583 224,786 3,436 228,222<br />

Over one year <strong>and</strong> up to two years 209,687 1,687 211,374 1,500 1,446 2,946<br />

Over two years <strong>and</strong> up to three years 125,218 593 125,811 154,000 653 154,653<br />

Over three years <strong>and</strong> up to four years 87,252 125 87,377 124,311 126 124,437<br />

Over four years <strong>and</strong> up to five years 291,830 – 291,830 47,473 – 47,473<br />

Over five years 492,417 – 492,417 465,683 – 465,683<br />

1,214,691 5,701 1,220,392 1,017,753 5,661 1,023,414<br />

The total borrowings <strong>and</strong> debentures shown in the above table are analysed in note 18 at £8.3 million (2003: £224.8 million)<br />

falling due within one year <strong>and</strong> £1.2 billion (2003: £793.0 million) falling due after more than one year. ‘Other financial liabilities’,<br />

shown above, are obligations under finance leases <strong>and</strong> hire purchase contracts of £5.7 million (2003: £5.7 million).<br />

Foreign currency risk<br />

All foreign currency denominated borrowings are immediately swapped into Sterling at the commencement of the facility<br />

agreement <strong>and</strong>, hence, the group is not exposed to currency rate fluctuations.<br />

Interest rate profile of financial liabilities<br />

The following profile is after taking into account the effect of interest rate swaps, discussed in more detail below:<br />

2004 2003<br />

£’000 £’000<br />

Floating rate bank borrowings 214,642 38,786<br />

Fixed rate bank borrowings, debentures <strong>and</strong> other borrowings 1,000,049 978,967<br />

Fixed rate hire purchase contracts 5,701 5,661<br />

Total 1,220,392 1,023,414<br />

Weighted average fixed interest rate 6.66% 6.65%<br />

Weighted average period for which rate is fixed 5.6 years 6.9 years<br />

Interest on floating rate bank borrowings is based on a fixed margin over floating rate LIBOR, as pre-determined by each<br />

facility agreement.<br />

At 31 December 2004 the notional principal amount of all financial hedging instruments held to manage the interest rate profile<br />

was £485 million comprising £375 million of swaps <strong>and</strong> £110 million of caps <strong>and</strong> collars.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

63<br />

19 Financial instruments continued<br />

Interest rate hedging<br />

At 31 December 2004, the group held interest rate swaps covering floating rate borrowings of £375 million, effectively fixing<br />

the associated cost of interest at rates between 4.01% <strong>and</strong> 6.60%. In addition, the group held caps <strong>and</strong> collars covering a<br />

further £110 million in total, tranches of which are allowed to float at rates between floors of 4.25% <strong>and</strong> 6.50% <strong>and</strong> caps of<br />

between 5.75% <strong>and</strong> 6.50%.<br />

Hedging arrangements contracted for at 31 December 2004 <strong>and</strong> effective at the commencement of each financial year <strong>and</strong><br />

their effective base rate equivalent in the event that actual bank base rates are 4, 5, or 6% are set out below:<br />

Notional principal<br />

amount<br />

Effective rate at bank base rates of:<br />

As at 1 January £’000 4% 5% 6%<br />

2005 485,000 5.3 5.4 5.6<br />

2006 352,000 5.1 5.2 5.3<br />

2007 232,000 5.1 5.1 5.1<br />

2008 105,000 4.7 4.7 4.7<br />

2009 70,000 4.9 4.9 4.9<br />

The bank base rate at 31 December 2004 was 4.75%.<br />

Gains <strong>and</strong> losses on financial instruments used for hedging interest rate <strong>and</strong> foreign currency exposures are only recognised<br />

when the related exposure that is being hedged is itself recognised. Unrecognised gains <strong>and</strong> losses on instruments used for<br />

hedging, <strong>and</strong> the movements thereon, are as follows:<br />

Total net<br />

Gains (Losses) gains/(losses)<br />

£’000 £’000 £’000<br />

Unrecognised gains <strong>and</strong> losses at 1 January 2004 3,829 (7,922) (4,093)<br />

Gains <strong>and</strong> losses arising in previous years that were<br />

recognised in the year 63 (3,946) (3,883)<br />

Gains <strong>and</strong> losses arising before 1 January 2004 that were not<br />

recognised in the year 3,766 (3,976) (210)<br />

Gains <strong>and</strong> losses arising in the year that were not<br />

recognised in the year (2,912) 149 (2,763)<br />

Gains <strong>and</strong> losses arising before 1 January 2004 <strong>and</strong> during 2004<br />

that were not recognised in the year 854 (3,827) (2,973)<br />

Transfer of loss position at 31 December 2004 24 (24) –<br />

Unrecognised gains <strong>and</strong> losses on hedges at 31 December 2004 878 (3,851) (2,973)<br />

Gains <strong>and</strong> losses expected to be recognised in the next financial year 330 (2,104) (1,774)<br />

Gains <strong>and</strong> losses expected to be recognised after the next financial year 548 (1,747) (1,199)


64 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

19 Financial instruments continued<br />

Fair values<br />

The table set out below details the book <strong>and</strong> fair values for some of the group’s financial instruments. This analysis excludes<br />

those financial assets which are not listed or publicly traded, <strong>and</strong> for which no liquid <strong>and</strong> active market exists. It, therefore,<br />

excludes customers’ <strong>accounts</strong> receivable.<br />

2004 2003<br />

The estimated fair value of financial assets <strong>and</strong> Book value Fair value Book value Fair value<br />

financial liabilities at 31 December 2004 was: £’000 £’000 £’000 £’000<br />

Hedging contracts:<br />

Interest rate caps 354 113 721 386<br />

Interest rate collars 20 (121) 55 (735)<br />

Interest rate swaps – (2,965) – (3,744)<br />

Cash (net of overdraft) 8,229 8,229 33,052 33,052<br />

Current asset investments (note 17) 74,986 74,986 61,192 61,192<br />

Bank borrowings (note 18) (584,000) (583,866) (390,300) (390,979)<br />

Debenture loans <strong>and</strong> other borrowings (note 18) (625,048) (626,882) (618,967) (622,318)<br />

Deferred consideration due after more than one year (594) (594) (2,803) (2,803)<br />

The fair values of cash at bank, bank overdrafts <strong>and</strong> current asset investments approximate to book value due to their<br />

relatively short maturity.<br />

The book value of deferred consideration is discounted, in accordance with FRS 7 ‘Fair values in acquisition accounting’, <strong>and</strong><br />

therefore equates to fair value.<br />

The fair values of longer term bank borrowings, debenture loans <strong>and</strong> other borrowings <strong>and</strong> related financial hedging<br />

instruments are estimated by discounting the associated future cash flows to net present values using appropriate market<br />

rates prevailing at 31 December 2004.<br />

20 Equity share capital<br />

Number £’000<br />

Authorised Ordinary shares of 10p each 500,000,000 50,000<br />

Allotted, called up <strong>and</strong> fully paid Ordinary shares of 10p each<br />

At 1 January 2004 327,964,507 32,796<br />

Exercise of options 714,811 72<br />

At 31 December 2004 328,679,318 32,868


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

65<br />

20 Equity share capital continued<br />

Outst<strong>and</strong>ing options under the <strong>Cattles</strong> Executive Share Option Scheme (1994) (‘ESOS 94’), the <strong>Cattles</strong> Executive Share<br />

Option Scheme (1996) (‘ESOS 96’) <strong>and</strong> the <strong>Cattles</strong> Employee Sharesave Scheme (‘SS’) at 31 December 2004 were<br />

as follows:<br />

Option Date At Exercised Lapsed At Exercise Date from which Expiry<br />

scheme granted 01.01.04 in year in year 31.12.04 price exercisable date<br />

ESOS 94 01.05.96 22,000 – – 22,000 130.65p 01.05.99 01.05.06<br />

ESOS 94 05.09.97 34,800 – – 34,800 171.50p 05.09.00 05.09.07<br />

ESOS 94 12.10.98 27,400 25,400 – 2,000 241.35p 12.10.01 12.10.08<br />

ESOS 94 31.03.99 164,000 12,000 24,000 128,000 363.95p 31.03.02 31.03.09<br />

ESOS 94 05.10.99 49,000 16,000 9,000 24,000 326.40p 05.10.02 05.10.09<br />

ESOS 94 10.04.00 48,000 16,000 10,000 22,000 220.10p 10.04.03 10.04.10<br />

ESOS 94 02.10.00 26,000 1 22,000 – 4,000 245.70p 02.10.03 02.10.10<br />

ESOS 94 11.04.01 151,600 110,200 13,400 28,000 281.90p 11.04.04 11.04.11<br />

ESOS 94 01.10.01 117,100 76,600 14,000 26,500 221.60p 01.10.04 01.10.11<br />

ESOS 94 17.04.02 16,000 – 4,000 12,000 331.90p 17.04.05 17.04.12<br />

ESOS 94 01.10.02 4,250 – – 4,250 325.70p 01.10.05 01.10.12<br />

660,150 278,200 74,400 307,550<br />

ESOS 96 08.09.97 11,600 – – 11,600 171.25p 08.09.00 08.09.07<br />

ESOS 96 13.10.98 15,200 7,600 – 7,600 241.75p 13.10.01 13.10.08<br />

ESOS 96 01.04.99 126,000 – 18,000 108,000 361.35p 01.04.02 01.04.09<br />

ESOS 96 06.10.99 1,000 – 1,000 – 326.60p 06.10.02 06.10.09<br />

ESOS 96 11.04.00 2,500 2,500 – – 226.60p 11.04.03 11.04.10<br />

ESOS 96 12.04.01 8,400 2,400 600 5,400 283.20p 12.04.04 12.04.11<br />

ESOS 96 04.10.01 16,900 4,900 12,000 – 224.00p 04.10.04 04.10.11<br />

ESOS 96 02.10.02 19,750 – – 19,750 324.50p 02.10.05 02.10.12<br />

201,350 17,400 31,600 152,350<br />

SS 06.10.99 444,291 382,583 22,589 39,119 259.20p 01.12.04 01.06.05<br />

SS 04.10.01 1,115,806 35,941 145,362 934,503 200.90p 01.12.06 01.06.07<br />

SS 01.10.03 742,149 687 105,958 635,504 285.60p 01.12.08 01.06.09<br />

2,302,246 419,211 273,909 1,609,126<br />

Total 3,163,746 714,811 379,909 2,069,026<br />

Details of the directors’ interests in share options <strong>and</strong> the issued shares of the company are shown in the Report of the Board<br />

on Directors’ Remuneration on pages 39 <strong>and</strong> 40 <strong>and</strong> the Report of the Directors on page 21, respectively.<br />

1<br />

The number of options originally granted <strong>and</strong>, therefore, the brought forward figure was understated by 4,000 in last year’s<br />

financial statements.


66 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

21 Share premium account<br />

Group <strong>and</strong><br />

Company<br />

£’000<br />

At 1 January 2004 139,850<br />

Premium on shares issued in respect of option schemes 1,764<br />

At 31 December 2004 141,614<br />

22 Other reserves<br />

Group<br />

Company<br />

£’000 £’000<br />

Capital reduction reserve<br />

At 1 January 2004 <strong>and</strong> 31 December 2004 – 8,840<br />

Merger reserve<br />

At 1 January 2004 <strong>and</strong> 31 December 2004 – 4,226<br />

Special reserve<br />

At 1 January 2004 <strong>and</strong> 31 December 2004 – 26,000<br />

Revaluation reserve<br />

At 1 January 2004 242 –<br />

Eliminated in respect of disposals (46) –<br />

At 31 December 2004 196 –<br />

Total at 31 December 2004 196 39,066<br />

23 Profit <strong>and</strong> loss account<br />

Group<br />

Company<br />

£’000 £’000<br />

At 1 January 2004 as <strong>report</strong>ed 216,763 97,856<br />

Prior year adjustment – own shares held (notes 1(l) <strong>and</strong> 13) (3,698) (3,698)<br />

At 1 January 2004 as restated 213,065 94,158<br />

Elimination of previous revaluation surpluses on property disposals (note 22) 46 –<br />

Purchase of own shares – held by Employee Benefit Trust (212) (212)<br />

Profit after taxation for the year (note 3) 95,513 86,843<br />

Dividends (45,815) (45,815)<br />

At 31 December 2004 262,597 134,974<br />

24 Reconciliation of movements in equity shareholders’ funds<br />

2004 2003<br />

£’000 £’000<br />

Profit after taxation for the year 95,513 82,915<br />

Dividends (45,815) (39,514)<br />

Purchase/(disposal) of own shares – held by Employee Benefit Trust (212) 42<br />

Contribution to the QUEST – (32)<br />

Increase in share capital <strong>and</strong> share premium account 1,836 622<br />

51,322 44,033<br />

Equity shareholders’ funds at 1 January 2004 as <strong>report</strong>ed 389,651 345,660<br />

Prior year adjustment – own shares held (notes 1(l) <strong>and</strong> 13) (3,698) (3,740)<br />

Equity shareholders’ funds at 1 January 2004 as restated 385,953 341,920<br />

Equity shareholders’ funds at 31 December 2004 437,275 385,953


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

67<br />

25 Analysis of cash flow for acquisitions of businesses<br />

<strong>and</strong> subsidiary undertakings<br />

2004 2003<br />

£’000 £’000<br />

Fair value – (3,851)<br />

Goodwill (note 10) 18 5,165<br />

Consideration including costs of acquisition 18 1,314<br />

Deferred consideration – (1,064)<br />

Cash consideration per cash flow statement (note 28) 18 250<br />

26 Reconciliation of profit before taxation to operating cash flows<br />

2004 2003<br />

£’000 £’000<br />

Profit before taxation 138,057 119,518<br />

Depreciation charges 9,992 11,025<br />

Amortisation of goodwill 3,170 3,211<br />

(Profit)/loss on disposal of tangible fixed assets (763) 755<br />

Increase in customers’ <strong>accounts</strong> receivable (316,996) (211,690)<br />

Decrease/(increase) in stocks 899 (1,873)<br />

Increase in debtors (4,519) (3,776)<br />

Increase in creditors 35,647 5,627<br />

Net cash outflow from operating activities (134,513) (77,203)<br />

27 Analysis of net debt<br />

1 January Non-cash 31 December<br />

2004 Cash flow changes 2004<br />

£’000 £’000 £’000 £’000<br />

Cash at bank <strong>and</strong> in h<strong>and</strong> 41,538 (27,666) – 13,872<br />

Overdrafts (8,486) 2,843 – (5,643)<br />

33,052 (24,823) – 8,229<br />

Investments realisable within one year 61,192 13,794 – 74,986<br />

Bank borrowings due after more than one year (174,000) (410,000) – (584,000)<br />

Bank borrowings due within one year (216,300) 216,300 – –<br />

Debentures <strong>and</strong> other loan capital due after<br />

more than one year (618,967) (4,615) 1,178 (622,404)<br />

Debentures <strong>and</strong> other loan capital due within<br />

one year – (644) (2,000) (2,644)<br />

Obligations under finance leases <strong>and</strong> hire purchase<br />

contracts due after more than one year (2,225) – (180) (2,405)<br />

Obligations under finance leases <strong>and</strong> hire purchase<br />

contracts due within one year (3,436) 4,253 (4,113) (3,296)<br />

(953,736) (180,912) (5,115) (1,139,763)<br />

Total (920,684) (205,735) (5,115) (1,131,534)<br />

Non-cash changes comprise new hire purchase contracts, the issue of loan notes, accrued finance charges on Bonds <strong>and</strong><br />

the transfer of debentures <strong>and</strong> other loan capital <strong>and</strong> obligations under finance leases <strong>and</strong> hire purchase contracts from due<br />

after more than one year to within one year.


68 <strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notes to the Accounts<br />

28 Analysis of cash flows for headings<br />

in the cash flow statement<br />

2004 2003<br />

£’000 £’000<br />

Capital expenditure <strong>and</strong> financial investment:<br />

Purchase of tangible fixed assets (13,948) (16,058)<br />

Sale of tangible fixed assets 5,108 3,999<br />

Net cash outflow for capital expenditure <strong>and</strong><br />

financial investment (8,840) (12,059)<br />

Acquisitions:<br />

Purchase of businesses <strong>and</strong> subsidiary undertakings (note 25) (18) (250)<br />

Deferred consideration – (1,250)<br />

Net cash outflow for acquisitions (18) (1,500)<br />

Management of liquid resources:<br />

Purchase of current asset investments (13,794) (27,771)<br />

Net cash outflow for management of<br />

liquid resources (13,794) (27,771)<br />

Financing:<br />

Issue of ordinary share capital 1,836 605<br />

Expenses of share capital issues – (15)<br />

Net (purchase)/sale of own shares (212) 42<br />

Issue of bonds, debentures <strong>and</strong> other loan capital 5,500 347,602<br />

Debentures <strong>and</strong> other loan capital repayments (241) (20,998)<br />

Capital element of hire purchase contract rental payments (4,253) (4,794)<br />

Net cash inflow from financing 2,630 322,442<br />

29 Operating lease obligations<br />

At 31 December 2004 the group had the<br />

2004 2003<br />

following commitments for the year ending<br />

L<strong>and</strong> <strong>and</strong><br />

L<strong>and</strong> <strong>and</strong><br />

31 December 2005 in respect of non-cancellable buildings Other buildings Other<br />

operating leases which expire: £’000 £’000 £’000 £’000<br />

Within one year 297 1,058 599 172<br />

In two to five years 1,857 4,076 1,265 1,981<br />

After five years 2,719 – 2,881 –<br />

4,873 5,134 4,745 2,153<br />

30 Capital commitments<br />

The group had capital expenditure authorised <strong>and</strong> contracted but not provided for of £734,000 at 31 December 2004<br />

(2003: £nil). The company had no capital expenditure authorised <strong>and</strong> contracted but not provided for at 31 December 2004<br />

(2003: £nil).


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

69<br />

31 Post balance sheet event<br />

On 14 January 2005 the group sold the entire share capital of <strong>Cattles</strong> Commercial Finance <strong>Limited</strong> <strong>and</strong> its subsidiary, <strong>Cattles</strong><br />

Commercial Leasing <strong>Limited</strong>, for total cash consideration of £70 million, of which £54 million related to the settlement of the<br />

companies’ intra-group indebtedness. The consideration of £16 million for the share capital of <strong>Cattles</strong> Commercial Finance<br />

<strong>Limited</strong> includes up to £2.4 million which is dependent on the performance of the business over the next two years. The net<br />

assets of the two companies at completion were £13.7 million.<br />

32 Contingent liabilities<br />

The company remains as guarantor of a proportion of the leases of properties held <strong>and</strong> utilised by Homestyle Group plc<br />

(formerly Rosebys PLC) entered into when that company was a wholly owned subsidiary undertaking. The maximum liability<br />

under these guarantees amounts to £0.9 million (2003: £1.1 million).<br />

33 Related party transactions<br />

The company has taken advantage of the exemption available under FRS 8 ‘Related party transactions’ from disclosing<br />

transactions between the company <strong>and</strong> other group undertakings as all such transactions have been eliminated fully on<br />

consolidation in these financial statements.


70<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Principal Operating Subsidiary Undertakings<br />

Subsidiary Undertaking<br />

Principal Activity<br />

Consumer Division<br />

Progressive Financial Services Ltd, trading as:<br />

Welcome Financial Services<br />

Welcome Car Finance<br />

Shopacheck Financial Services<br />

Teleplan Rentals<br />

Dial4aloan Ltd<br />

Progressive Insurance Company Ltd<br />

The Lewis Group Ltd<br />

Monthly instalment personal loans <strong>and</strong> hire purchase credit<br />

Direct distribution motor finance<br />

Weekly home collected credit<br />

Television <strong>and</strong> DVD/VCR rental<br />

Consumer credit brokerage<br />

Reinsurance<br />

Debt collection <strong>and</strong> investigation services<br />

Corporate Division<br />

<strong>Cattles</strong> Invoice Finance Ltd<br />

<strong>Cattles</strong> Invoice Finance (Oxford) Ltd<br />

<strong>Cattles</strong> Commercial Finance Ltd*<br />

<strong>Cattles</strong> Commercial Leasing Ltd*<br />

Invoice factoring<br />

Invoice factoring<br />

Hire purchase credit<br />

Equipment leasing<br />

* Disposed of on 14 January 2005<br />

All the above companies are wholly owned. They operate in the United Kingdom <strong>and</strong> are registered in Engl<strong>and</strong> with the exception<br />

of The Lewis Group <strong>Limited</strong> which is registered in Scotl<strong>and</strong> <strong>and</strong> Progressive Insurance Company <strong>Limited</strong> which is incorporated in<br />

the Isle of Man. Companies which are dormant or whose operations are insignificant have been excluded.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 71<br />

Independent Auditors’ Report<br />

To the Members of <strong>Cattles</strong> plc<br />

We have audited the financial statements which comprise the Consolidated Profit <strong>and</strong> Loss Account, the Consolidated <strong>and</strong><br />

Company Balance Sheets, the Consolidated Cash Flow Statement <strong>and</strong> the related notes. We have also audited the disclosures<br />

required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the Report of the Board on Directors’ Remuneration<br />

(‘the auditable part’).<br />

Respective responsibilities of directors <strong>and</strong> auditors<br />

The directors’ responsibilities for preparing the annual <strong>report</strong> <strong>and</strong> the financial statements in accordance with applicable United<br />

Kingdom law <strong>and</strong> accounting st<strong>and</strong>ards are set out in the statement of directors’ responsibilities. The directors are also responsible<br />

for preparing the Report of the Board on Directors’ Remuneration.<br />

Our responsibility is to audit the financial statements <strong>and</strong> the auditable part of the Report of the Board on Directors’ Remuneration<br />

in accordance with relevant legal <strong>and</strong> regulatory requirements <strong>and</strong> United Kingdom Auditing St<strong>and</strong>ards issued by the Auditing<br />

Practices Board. This <strong>report</strong>, including the opinion, has been prepared for <strong>and</strong> only for the company’s members as a body in<br />

accordance with section 235 of the Companies Act 1985 <strong>and</strong> for no other purpose. We do not, in giving this opinion, accept or<br />

assume responsibility for any other purpose or to any other person to whom this <strong>report</strong> is shown or into whose h<strong>and</strong>s it may come<br />

save where expressly agreed by our prior consent in writing.<br />

We <strong>report</strong> to you our opinion as to whether the financial statements give a true <strong>and</strong> fair view <strong>and</strong> whether the financial statements<br />

<strong>and</strong> the auditable part of the Report of the Board on Directors’ Remuneration have been properly prepared in accordance with the<br />

Companies Act 1985. We also <strong>report</strong> to you if, in our opinion, the directors’ <strong>report</strong> is not consistent with the financial statements, if<br />

the company has not kept proper accounting records, if we have not received all the information <strong>and</strong> explanations we require for<br />

our audit, or if information specified by law regarding directors’ remuneration <strong>and</strong> transactions is not disclosed.<br />

We read the other information contained in the annual <strong>report</strong> <strong>and</strong> consider the implications for our <strong>report</strong> if we become aware of<br />

any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the<br />

Chairman’s Statement, the Chief Executive’s Review, the Report of the Board on Corporate Social Responsibility, the Report of the<br />

Directors, the Report of the Board on Corporate Governance <strong>and</strong> the unaudited part of the Report of the Board on Directors’<br />

Remuneration.<br />

We review whether the Corporate Governance statement reflects the company’s compliance with the nine provisions of the 2003<br />

FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, <strong>and</strong> we <strong>report</strong> if it does not.<br />

We are not required to consider whether the Board’s statements on internal control cover all risks <strong>and</strong> controls, or form an opinion<br />

on the effectiveness of the company’s or group’s corporate governance procedures or its risk <strong>and</strong> control procedures.<br />

Basis of audit opinion<br />

We conducted our audit in accordance with auditing st<strong>and</strong>ards issued by the Auditing Practices Board. An audit includes<br />

examination, on a test basis, of evidence relevant to the amounts <strong>and</strong> disclosures in the financial statements <strong>and</strong> the auditable part<br />

of the Report of the Board on Directors’ Remuneration. It also includes an assessment of the significant estimates <strong>and</strong> judgements<br />

made by the directors in the preparation of the financial statements, <strong>and</strong> of whether the accounting policies are appropriate to the<br />

company’s circumstances, consistently applied <strong>and</strong> adequately disclosed.<br />

We planned <strong>and</strong> performed our audit so as to obtain all the information <strong>and</strong> explanations which we considered necessary in order<br />

to provide us with sufficient evidence to give reasonable assurance that the financial statements <strong>and</strong> the auditable part of the<br />

Report of the Board on Directors’ Remuneration are free from material misstatement, whether caused by fraud or other irregularity<br />

or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial<br />

statements.<br />

Opinion<br />

In our opinion:<br />

●<br />

●<br />

●<br />

the financial statements give a true <strong>and</strong> fair view of the state of affairs of the company <strong>and</strong> the group at 31 December<br />

2004 <strong>and</strong> of the profit <strong>and</strong> cash flows of the group for the year then ended;<br />

the financial statements have been properly prepared in accordance with the Companies Act 1985; <strong>and</strong><br />

those parts of the Report of the Board on Directors’ Remuneration required by Part 3 of Schedule 7A to the<br />

Companies Act 1985 have been properly prepared in accordance with the Companies Act 1985.<br />

PricewaterhouseCoopers LLP<br />

Chartered Accountants <strong>and</strong> Registered Auditors<br />

Leeds<br />

18 March 2005


72<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Five Year Summary<br />

2004 2003 2002 2001 2000<br />

£’000 £’000 £’000 £’000 £’000<br />

Trading results<br />

Turnover 734,784 605,439 499,192 421,972 327,067 †<br />

Profit before goodwill amortisation 141,227 122,729 95,693 77,468 65,123<br />

Goodwill amortisation (3,170) (3,211) (2,084) (1,640) (842)<br />

Profit before taxation 138,057 119,518 93,609 75,828 64,281<br />

Taxation (42,544) (36,603) (26,957) (22,091) (19,109)<br />

Profit after taxation 95,513 82,915 66,652 53,737 45,172<br />

Dividends (45,815) (39,514) (32,993) (27,552) (22,536)<br />

Retained profit 49,698 43,401 33,659 26,185 22,636<br />

Net assets employed<br />

Intangible fixed assets 47,820 52,617 50,663 34,183 34,399<br />

Tangible fixed assets 42,172 38,511 35,563 42,395 43,003<br />

Current assets 1,793,553 1,486,809 1,212,167 968,866 685,772<br />

1,883,545 1,577,937 1,298,393 1,045,444 763,174<br />

Current liabilities (231,625) (389,901) (334,059) (204,299) (210,206)<br />

Total assets less current liabilities 1,651,920 1,188,036 964,334 841,145 552,968<br />

Creditors – due after one year (1,211,148) (799,479) (622,414) (615,998) (394,257)<br />

440,772 388,557 341,920 225,147 158,711<br />

Provisions for liabilities <strong>and</strong> charges (3,497) (2,604) – (80) (2,925)<br />

Net assets 437,275 385,953* 341,920* 225,067* 155,786*<br />

Capital <strong>and</strong> reserves<br />

Called up equity share capital 32,868 32,796 32,766 29,893 28,259<br />

Share premium account 141,614 139,850 139,258 57,403 14,126<br />

Revaluation reserve 196 242 251 286 286<br />

Profit <strong>and</strong> loss account 262,597 213,065* 169,645* 137,485* 113,115*<br />

Equity shareholders’ funds 437,275 385,953 341,920 225,067 155,786<br />

Earnings per share<br />

– basic 29.23p 25.38p 21.95p 18.23p 16.09p<br />

– diluted 29.18p 25.33p 21.90p 18.17p 16.06p<br />

Adjusted earnings per share,<br />

before goodwill amortisation<br />

– basic 30.20p 26.37p 22.64p 18.79p 16.39p<br />

– diluted 30.15p 26.31p 22.58p 18.73p 16.36p<br />

Dividends per share 14.0p 12.1p 10.4p 9.0p 8.0p<br />

†<br />

revised turnover definition adopted in 2001<br />

* restated in accordance with UITF 38 ‘Accounting for ESOP Trusts’ adopted in 2004


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 73<br />

Notice of Meeting<br />

Notice is given that the fiftieth annual general meeting of <strong>Cattles</strong> plc will be held at the Oulton Hall Hotel, Rothwell Lane, Oulton,<br />

Leeds, LS26 8HN on 5 May 2005 at 12.00 noon for the following purposes:<br />

Ordinary Business<br />

1 To receive the directors’ <strong>report</strong>, audited financial statements <strong>and</strong> auditors’ <strong>report</strong> in respect of<br />

the year ended 31 December 2004. (Resolution 1)<br />

2 To declare the proposed final dividend. (Resolution 2)<br />

3 To elect directors.<br />

The following director, having been appointed by the directors since the last annual general<br />

meeting, will be proposed for re-appointment:<br />

F Dee<br />

The following directors, retiring by rotation, will be proposed for re-election:<br />

D A Haxby<br />

S P Mahon<br />

I S Cummine<br />

The following director, having served as a director for more than nine years, retires <strong>and</strong> will be<br />

proposed for re-election:<br />

B Cottingham<br />

(Resolution 3(a))<br />

(Resolution 3(b))<br />

(Resolution 3(c))<br />

(Resolution 3(d))<br />

(Resolution 3(e))<br />

4 To re-appoint PricewaterhouseCoopers LLP as auditors to the company in accordance with<br />

section 385 of the Companies Act 1985. (Resolution 4)<br />

5 To authorise the Board of directors to determine the auditors’ remuneration. (Resolution 5)<br />

6 To approve the remuneration <strong>report</strong> of the directors prepared in accordance with the<br />

Directors’ Remuneration Report Regulations 2002 <strong>and</strong> dated 18 March 2005. (Resolution 6)<br />

Special Business<br />

To consider <strong>and</strong>, if thought fit, pass the following resolutions. Resolutions 7, 10, 12 <strong>and</strong> 13 will be proposed as ORDINARY<br />

RESOLUTIONS. Resolutions 8, 9 <strong>and</strong> 11 will be proposed as SPECIAL RESOLUTIONS:<br />

7 That:<br />

(a)<br />

(b)<br />

(c)<br />

(d)<br />

the directors of the company be authorised generally <strong>and</strong> unconditionally to exercise all powers<br />

of the company to allot, grant options over, offer or otherwise deal with or dispose of relevant<br />

securities (within the meaning of section 80 of the Companies Act 1985) up to an aggregate<br />

nominal amount of £10,957,286;<br />

the authority conferred by this resolution shall expire at the conclusion of the next annual<br />

general meeting of the company following the date of this resolution (or, if sooner, 15 months<br />

from the date of this resolution) or such later date as the company may by ordinary resolution<br />

from time to time prescribe but may be previously revoked, varied or renewed by ordinary<br />

resolution;<br />

the authority conferred by this resolution shall enable the company to make any offer or<br />

agreement before the expiry of such authority that would or might require relevant securities to<br />

be allotted after such authority expires <strong>and</strong> the directors of the company may allot relevant<br />

securities in pursuance of any such offer or agreement up to the maximum amount permitted<br />

by this resolution as if the authority conferred by this resolution had not expired; <strong>and</strong><br />

the authority conferred by resolution 6 passed at the annual general meeting of the company<br />

held on 7 May 2004 is revoked but without prejudice to any allotment, offer or agreement made<br />

or entered into prior to the passing of this resolution. (Resolution 7)


74<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notice of Meeting<br />

8 That:<br />

(a)<br />

(b)<br />

(c)<br />

(d)<br />

the directors of the company be empowered, pursuant to section 95 of the Companies Act<br />

1985 (‘the Act’), to allot equity securities as defined in section 94 of the Act pursuant to the<br />

authority conferred by resolution 7 above as if section 89(1) of the Act did not apply to any such<br />

allotment, provided that this power shall be limited to:<br />

(i)<br />

(ii)<br />

the allotment of equity securities in connection with a rights issue in favour of ordinary<br />

shareholders <strong>and</strong> holders of any other shares or securities of the company that by their<br />

terms are entitled to participate in such rights issue where the equity securities respectively<br />

attributable to the interests of all ordinary shareholders <strong>and</strong> such holders are proportionate<br />

(as nearly as may be) to the respective numbers of ordinary shares held by them or into<br />

which their shares or securities are to be deemed converted in calculating the extent of<br />

their participation but subject to such exclusions as the directors of the company may<br />

deem fit to deal with fractional entitlements or problems arising in respect of any overseas<br />

territory; <strong>and</strong><br />

the allotment wholly for cash (otherwise than pursuant to sub-paragraph (i) above) of equity<br />

securities up to an aggregate nominal amount of £1,643,592;<br />

the power conferred by this resolution shall expire at the conclusion of the next annual general<br />

meeting of the company following the date of this resolution (or, if sooner, 15 months from the<br />

date of this resolution) or such later date as the company may by special resolution from time to<br />

time prescribe but may be previously revoked, varied or renewed by special resolution;<br />

the power conferred by this resolution shall enable the company to make any offer or<br />

agreement before the expiry of such power that would or might require equity securities to be<br />

allotted after such power expires <strong>and</strong> the directors of the company may allot equity securities in<br />

pursuance of any such offer or agreement up to the maximum amount permitted by this<br />

resolution as if the power conferred by this resolution had not expired; <strong>and</strong><br />

the power conferred by resolution 7 passed at the annual general meeting of the company held<br />

on 7 May 2004 is revoked but without prejudice to any allotment, offer or agreement made or<br />

entered into prior to the passing of this resolution.<br />

This power applies in relation to a sale of shares which is an allotment of equity securities by<br />

virtue of section 94 (3A) of the Act as if in the first paragraph of this resolution the words<br />

‘pursuant to the authority conferred by resolution 7 above’ were omitted. (Resolution 8)<br />

9 That the company be generally <strong>and</strong> unconditionally authorised for the purposes of section 166 of<br />

the Companies Act 1985 (‘the Act’) to make one or more market purchases (within the meaning<br />

of section 163(3) of the Act) on the London Stock Exchange of ordinary shares of 10p each in<br />

the capital of the company provided that:<br />

(a) the maximum aggregate number of ordinary shares authorised to be purchased is 32,871,858<br />

(representing 10 per cent of the company’s issued ordinary share capital);<br />

(b)<br />

(c)<br />

(d)<br />

(e)<br />

the minimum price which may be paid for such shares is 10p per share;<br />

the maximum price which may be paid for an ordinary share shall not be more than 5 per cent<br />

above the average of the middle market quotations for an ordinary share as derived from the<br />

London Stock Exchange Daily Official List for the five business days immediately preceding the<br />

date on which the ordinary share is purchased;<br />

unless previously renewed, varied or revoked, the authority conferred shall expire at the<br />

conclusion of the next annual general meeting of the company following the date of this<br />

resolution or, if sooner, 15 months from the date of passing this resolution; <strong>and</strong><br />

the company may make a contract or contracts to purchase ordinary shares under the authority<br />

conferred prior to the expiry of such authority which will or may be executed wholly or partly<br />

after the expiry of such authority <strong>and</strong> may make a purchase of ordinary shares in pursuance of<br />

any such contract or contracts. (Resolution 9)


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 75<br />

10 That the maximum aggregate remuneration which the company is authorised to pay to the directors<br />

of the company for their services as such pursuant to article 87 of the company’s articles of<br />

association (excluding amounts payable under other provisions of the articles of association) be<br />

increased from £250,000 to £500,000. (Resolution 10˘)<br />

11 That the articles of association of the company be amended so as to conform to the revised<br />

articles of association produced to the meeting <strong>and</strong> initialled by the Chairman for the purposes of<br />

identification. (Resolution 11)<br />

12 That the <strong>Cattles</strong> Long-Term Incentive Plan 2005 (the ‘LTIP’), the principal terms of which are<br />

summarised in the circular accompanying the notice convening the meeting <strong>and</strong> the rules of which<br />

are produced to the meeting <strong>and</strong> signed by the Chairman for the purposes of identification,<br />

is approved <strong>and</strong> the directors are authorised to:<br />

(a)<br />

(b)<br />

make such modification to the LTIP as they may consider appropriate to take account of the<br />

requirements of the UK Listing Authority <strong>and</strong> best practice <strong>and</strong> to adopt the LTIP as so modified<br />

<strong>and</strong> to do all such acts <strong>and</strong> things as they may consider appropriate to implement the LTIP; <strong>and</strong><br />

establish further plans for the benefit of employees outside of the UK, based on the LTIP but<br />

modified to take account of local tax, exchange control or securities laws in overseas territories,<br />

provided that any shares made available under such plans are treated as counting against the<br />

limits on individual <strong>and</strong> overall participation contained in the LTIP. (Resolution 12)<br />

13 That the <strong>Cattles</strong> Executive Share Option Scheme 2005 (the ‘ESOS’), the principal terms of which are<br />

summarised in the circular accompanying the notice convening the meeting <strong>and</strong> the rules of which<br />

are produced to the meeting <strong>and</strong> signed by the Chairman for the purposes of identification,<br />

is approved <strong>and</strong> the directors are authorised to:<br />

(a)<br />

(b)<br />

make such modifications to the ESOS as they may consider appropriate to take account of the<br />

requirements of the UK Listing Authority, best practice <strong>and</strong> as may be necessary to obtain the<br />

approval of the Inl<strong>and</strong> Revenue <strong>and</strong> to adopt the ESOS as so modified <strong>and</strong> to do all such acts<br />

<strong>and</strong> things as they may consider appropriate to implement the ESOS; <strong>and</strong><br />

establish further schemes for the benefit of employees outside of the UK, based on the ESOS,<br />

but modified to take account of local tax, exchange control or securities laws in overseas<br />

territories, provided that any shares made available under such schemes are treated as<br />

counting against the limits on individual <strong>and</strong> overall participation contained in the ESOS. (Resolution 13)<br />

By order of the Board<br />

Rol<strong>and</strong> Todd<br />

Company Secretary<br />

Kingston House<br />

Centre 27 Business Park<br />

Woodhead Road<br />

Birstall<br />

Batley<br />

WF17 9TD<br />

5 April 2005


76<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Notice of Meeting<br />

NOTES:<br />

(i)<br />

(ii)<br />

(iii)<br />

A member of the company entitled to attend <strong>and</strong> vote may appoint one or more proxies to attend <strong>and</strong>, on a poll, vote instead of him. A proxy<br />

need not be a member of the company.<br />

A Form of Proxy is enclosed with this notice for use in connection with the business set out above. In the event of you being unable to attend<br />

the meeting, you are requested to complete <strong>and</strong> return the Form of Proxy so as to reach the company’s registrar not later than 12.00 noon on<br />

Tuesday 3 May 2005.<br />

Alternatively, if you would like to submit your Form of Proxy electronically by the internet, go to www.computershare.com <strong>and</strong> follow the link to<br />

‘Investors’ then ‘Proxy Voting’ <strong>and</strong> select <strong>Cattles</strong> plc.<br />

CREST members who wish to appoint a proxy or proxies through the CREST Electronic Proxy Appointment Service may do so for the annual<br />

general meeting <strong>and</strong> any adjournment(s) of it by using the procedures described in the CREST Manual. CREST personal members or other<br />

CREST sponsored members, <strong>and</strong> those CREST members who have appointed a voting service provider(s), should refer to their CREST<br />

sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.<br />

In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy<br />

Instruction’) must be properly authenticated in accordance with the specifications of CRESTCo <strong>Limited</strong> (‘CRESTCo’) <strong>and</strong> must contain the<br />

information required for such instructions, as described in the CREST Manual. The message, regardless of whether it relates to the<br />

appointment of a proxy or to an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted<br />

so as to be received by the company’s agent (ID 3RA50) by 12.00 noon on Tuesday 3 May 2005. For this purpose, the time of receipt will be<br />

taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the company’s<br />

agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.<br />

CREST members <strong>and</strong>, where applicable, their CREST sponsors or voting service provider(s) should note that CRESTCo does not make<br />

available special procedures in CREST for any particular messages. Normal system timings <strong>and</strong> limitations will therefore apply in relation to the<br />

input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST<br />

personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service<br />

provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular<br />

time. In this connection, CREST members <strong>and</strong>, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular,<br />

to those sections of the CREST Manual concerning practical limitations of the CREST system <strong>and</strong> timings.<br />

The company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities<br />

Regulations 2001.<br />

Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the company gives notice that only those shareholders entered on<br />

the register of members of the company at close of business on 3 May 2005 will be entitled to attend or vote at the meeting in respect of the<br />

number of shares registered in their name at that time. Changes to entries on the register after close of business on 3 May 2005 will be<br />

disregarded in determining the rights of any person to attend or vote at the meeting.<br />

(iv) The existing articles of association together with a copy of the proposed amended articles of association of the company, the register of<br />

directors’ interests in shares in the company or its subsidiaries <strong>and</strong> copies of the directors’ service contracts will be available for inspection at<br />

the registered office of the company during business hours only on any weekday (excluding Saturdays, Sundays <strong>and</strong> English public holidays)<br />

from the date of this notice until the close of the annual general meeting <strong>and</strong> at the place of the meeting from 11.45 am on 5 May 2005 until<br />

the conclusion of the meeting.<br />

(v) A copy of the draft rules of the <strong>Cattles</strong> Long-Term Incentive Plan 2005 <strong>and</strong> the <strong>Cattles</strong> Executive Share Option Scheme 2005 will be available<br />

for inspection at the offices of New Bridge Street Consultants LLP, 20 Little Britain, London EC1A 7DH, during normal business hours on any<br />

weekday (excluding Saturdays, Sundays <strong>and</strong> English public holidays) from the date of this notice up to <strong>and</strong> including the date of the annual<br />

general meeting <strong>and</strong> at the place of the meeting from 11.45am on 5 May 2005 until the conclusion of the meeting.<br />

(vi) The proposed dividend, if approved, will be paid on 10 May 2005.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 77<br />

Explanation of Resolutions<br />

Resolution 1<br />

The directors must present to shareholders the Report of the Directors, the financial statements of the company <strong>and</strong> the<br />

auditors’ <strong>report</strong> for the year ended 31 December 2004.<br />

Resolution 2<br />

A final dividend of 9.45p per share is proposed <strong>and</strong>, if approved, will be paid on 10 May 2005 to shareholders on the register<br />

on 1 April 2005.<br />

Resolutions 3(a)(b)(c)(d)(e)<br />

Mr F Dee, having been appointed as a director by the directors since the 2004 annual general meeting, is required to be<br />

re-appointed at this annual general meeting. Mr Dee’s experience of the retail sector has added a new dimension to Board<br />

proceedings <strong>and</strong> the directors recommend shareholders to re-appoint him as a director.<br />

At each annual general meeting one third of the directors or, if their number is not a multiple of three, then the number nearest<br />

to but not less than one third, are required to retire from office. Directors due to retire by rotation are those who have been<br />

longest in office since they were last elected <strong>and</strong> so that as between persons who were last elected on the same day those<br />

due to retire shall (unless they otherwise agree among themselves) be determined by lot. Mr D A Haxby, Mr S P Mahon <strong>and</strong><br />

Mr I S Cummine retire by rotation <strong>and</strong> are offering themselves for re-election. In relation to the re-election of Mr D A Haxby, the<br />

Chairman confirms, in accordance with provision A.7.2 of the revised Combined Code on Corporate Governance, that,<br />

following a formal performance evaluation, his performance continues to be effective <strong>and</strong> to demonstrate his commitment to<br />

the role, including the commitment of his time for Board <strong>and</strong> Committee meetings <strong>and</strong> his other duties.<br />

Mr B Cottingham, non-executive Chairman, will have served as a director for 10 years on 11 May 2005. Provision A.7.2 of the<br />

Combined Code on Corporate Governance, which requires a non-executive director, who has served for more than nine years<br />

to be subject to annual re-election, does not apply to the Chairman who satisfied the test of independence on his appointment.<br />

Notwithst<strong>and</strong>ing this, Mr Cottingham <strong>and</strong> the Board have concluded that it would be good corporate governance practice in<br />

these circumstances for the Chairman to retire <strong>and</strong> offer himself for re-election each year. The Board has no hesitation in<br />

recommending to shareholders the re-election of Mr Cottingham as a director as they greatly value his wide business<br />

experience <strong>and</strong> his continuing contribution to the leadership <strong>and</strong> effectiveness of the Board.<br />

Resolution 4<br />

The auditors of the company must be re-appointed at each meeting at which <strong>accounts</strong> are presented. Resolution 4 proposes<br />

the re-appointment of PricewaterhouseCoopers LLP.<br />

Resolution 5<br />

This gives the directors authority to agree the remuneration to be paid to the auditors.<br />

Resolution 6<br />

Under the Directors’ Remuneration Report Regulations 2002, the directors of the company are obliged to present to<br />

shareholders a <strong>report</strong> on directors’ remuneration for the financial year ended 31 December 2004. The remuneration <strong>report</strong> is<br />

set out on pages 31 to 41 of this document.<br />

Resolution 7<br />

This resolution grants the directors authority to allot relevant securities up to an aggregate nominal amount of £10,957,286<br />

being one third of the company’s issued share capital as at 18 March 2005. It is not the directors’ current intention to allot<br />

relevant securities pursuant to this resolution. This authority replaces the existing authority to allot relevant securities but does<br />

not affect the ability to allot shares under the company’s employee share schemes. This authority will expire at the conclusion<br />

of the 2006 annual general meeting or 15 months after the passing of the resolution, if earlier.<br />

Resolution 8<br />

This is a special resolution whereby the directors seek power to allot shares for cash otherwise than in accordance with the<br />

pre-emption rights set out in section 89(1) of the Companies Act 1985 in connection with a rights issue of up to the number of<br />

shares which the directors are authorised to allot pursuant to resolution 7 or otherwise up to a maximum nominal amount of<br />

£1,643,592, being 5 per cent of the company’s issued share capital as at 18 March 2005. This power will expire at the<br />

conclusion of the 2006 annual general meeting or 15 months after the passing of the resolution, if earlier.


78<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Explanation of Resolutions<br />

Resolution 9<br />

This is a special resolution authorising the company to make market purchases of up to 32,871,858 of its ordinary shares,<br />

being 10 per cent of its issued share capital as at 18 March 2005. The maximum price payable for a share shall not be more<br />

than 5 per cent above the average of the middle market quotations of such shares for the five business days before such<br />

purchases. The minimum price payable for a share will be 10p. The authority will expire at the conclusion of the 2006 annual<br />

general meeting or 15 months after the passing of the resolution, if earlier.<br />

The directors have no present intention of making market purchases of ordinary shares pursuant to this authority. The directors<br />

would only purchase ordinary shares pursuant to this authority if to do so would result in an increase in earnings per share <strong>and</strong><br />

be in the best interests of shareholders generally.<br />

As at 18 March 2005 there were outst<strong>and</strong>ing options to subscribe for 2,029,760 ordinary shares, which represented 0.62 per cent<br />

of the issued share capital of the company as at that date <strong>and</strong> would represent 0.69 per cent of the issued share capital of the<br />

company if the authority to make market purchases of ordinary shares conferred by resolution 9 was used in full.<br />

Normally, any share purchased under this authority will be cancelled. However, the Companies (Acquisition of Own Shares)<br />

(Treasury Shares) Regulations 2003 allow companies to hold shares in treasury, as an alternative to cancelling them, following a<br />

purchase of own shares by the company in accordance with the Companies Act 1985. Shares held in treasury may<br />

subsequently be cancelled, sold for cash or used to satisfy share options <strong>and</strong> share awards under an employee share scheme.<br />

If any shares held in treasury are used to satisfy options <strong>and</strong> awards under an employee share scheme, any such options <strong>and</strong><br />

awards will be granted or made in accordance with relevant institutional shareholder guidelines.<br />

Once held in treasury, the company is not entitled to exercise any rights, including the right to attend <strong>and</strong> vote at meetings in<br />

respect of the shares. Further, no dividend or other distribution of the company’s assets may be made to the company in<br />

respect of the treasury shares.<br />

Resolution 10<br />

This resolution increases the limit on the aggregate fees payable to the non-executive directors in any one year from<br />

£250,000 to £500,000. The increase is necessary to reflect the appointment of an additional non-executive director in 2004,<br />

the proposed appointment of a further non-executive director in 2005 in accordance with the requirements of the revised<br />

Combined Code on Corporate Governance <strong>and</strong> the growth in time commitment <strong>and</strong> responsibilities for non-executive<br />

directors. The last increase was in 1999.<br />

Resolution 11<br />

Since the company’s present articles of association were adopted on 14 May 1992 there have been a number of legislative <strong>and</strong><br />

regulatory changes.<br />

The Companies Act 1985 (Electronic Communications) Order 2000, brought forward under section 8 of the Electronic<br />

Communications Act 2000, came into force on 22 December 2000. The Order allows companies (with individual shareholder’s<br />

consent) to communicate with shareholders electronically. The Order enables companies to issue annual <strong>report</strong>s <strong>and</strong> <strong>accounts</strong>,<br />

notices of general meetings, summary financial statements, <strong>and</strong> other Companies Act 1985 documents <strong>and</strong> to receive<br />

appointments of proxy electronically. The Listing Rules of the United Kingdom Listing Authority have since been amended to<br />

reflect the change introduced by the Order.<br />

The Uncertificated Securities Regulations 1995 (now replaced by the Uncertificated Securities Regulations 2001) introduced a<br />

paperless method of transferring shares through the use of the CREST system. The system transfers uncertificated shares<br />

instead of paper-based certificated shares.<br />

The Board has decided, subject to shareholder approval, to amend the articles to update the articles in line with, amongst<br />

other things, the provisions of this Order <strong>and</strong> these Regulations.<br />

Further changes are proposed to bring the articles into line with the current Listing Rules <strong>and</strong> current companies legislation<br />

applicable to the company, the principal of which are described below. The opportunity has also been taken to clear the<br />

articles of redundant language, to simplify the numbering, to make a number of other minor or administrative changes <strong>and</strong><br />

otherwise bring the articles of association in line with current practice.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004 79<br />

The number identifying each article corresponds to the numbering in the proposed new articles of association.<br />

Article 15 (Disclosure of interests) – This article gives the company the right to request a member or any person appearing to<br />

be interested to disclose any interest they may have in shares in the company. In accordance with the Listing Rules, this article<br />

allows the Board to impose sanctions on a member where disclosure notice has been served on that member <strong>and</strong> that<br />

member fails to disclose the required information within 14 days of the request. Sanctions can only be imposed if, in the<br />

disclosure notice, the Board warned the member of the risks of sanctions upon non-disclosure. Sanctions include loss of the<br />

right to attend <strong>and</strong> vote at any general meeting <strong>and</strong>, if the member holds 0.25 per cent or more of the issued share capital of<br />

the company, loss of dividends or other moneys <strong>and</strong> non-registration of the transfer of any shares. Sanctions cease to apply no<br />

later than seven days following the earlier of the Board being satisfied that the information requested has been produced or<br />

disposal of the shares.<br />

Article 25.1.6 (Business not to be deemed special at an AGM) – This new article includes an additional matter which will be<br />

deemed ordinary business at an annual general meeting, namely the approval of the remuneration <strong>report</strong> of the directors<br />

prepared in accordance with the Directors’ Remuneration Report Regulations 2002. Ordinary business can be transacted at an<br />

annual general meeting whether or not it is referred to in the notice of meeting (although it will continue to be the company’s<br />

practice to specify all ordinary business at least in outline).<br />

Article 25.10-13 (Proceedings at general meetings) – These new provisions grant additional powers to the Chairman to ensure<br />

the orderly <strong>and</strong> efficient conduct of meetings <strong>and</strong>, in particular, provide that no amendment to resolutions may be considered<br />

or voted upon unless notice in writing of the terms of the proposed amendment has been lodged at least 48 hours prior to the<br />

meeting, at the registered office of the company.<br />

Article 30 (Remuneration of directors) – This article contains a maximum limit on non-executive directors’ remuneration for their<br />

services as officers of the company (including amounts payable under any other provision in the articles). It is proposed that the<br />

limit is subject to increase in line with any percentage increase in the retail prices index.<br />

Resolution 12<br />

This resolution seeks approval of the <strong>Cattles</strong> Long-Term Incentive Plan 2005, details of which are set out in the accompanying<br />

circular.<br />

Resolution 13<br />

This resolution seeks approval of the <strong>Cattles</strong> Executive Share Option Scheme 2005, details of which are set out in the<br />

accompanying circular.


80<br />

<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

Shareholder Information<br />

Final Dividend Payment Details<br />

A list of the key dates leading to the payment of this dividend is set out below:<br />

Shares quoted ex-dividend 30 March 2005<br />

Record date 1 April 2005<br />

Last date for receipt of Dividend Reinvestment Plan<br />

M<strong>and</strong>ates (to be included for the final dividend) 18 April 2005<br />

Payment of final dividend 9.45p (net) 10 May 2005<br />

Dividend Reinvestment Plan<br />

The Dividend Reinvestment Plan (‘the plan’) allows shareholders to reinvest their cash dividend in shares bought on the<br />

London Stock Exchange through a specially arranged sharedealing service.<br />

The plan is run <strong>and</strong> administered by our Registrars, Computershare Investor Services PLC. For legal reasons, the plan is<br />

available only to shareholders resident in the UK (excluding the Channel Isl<strong>and</strong>s), be they individuals or corporate shareholders.<br />

If you have not previously completed a m<strong>and</strong>ate <strong>and</strong> require details of the plan, you should contact the Registrars whose<br />

address <strong>and</strong> telephone number is set out below.<br />

New m<strong>and</strong>ates must be received by close of business on 18 April 2005 to be included in the plan for the final dividend.<br />

If you choose to join the plan, your cash dividend will be used to buy <strong>Cattles</strong> plc ordinary shares. You will be charged a dealing<br />

commission of 0.5% of the value of shares purchased. You will be required to pay stamp duty reserve tax at the prevailing rate<br />

(currently 0.5%).<br />

Dividend M<strong>and</strong>ate<br />

Using the BACS system, shareholders may choose to have dividends paid electronically into their bank or building society. This<br />

process ensures that the amount of the dividend is passed directly into their account, as cleared funds, on the date the<br />

payment is due.<br />

Confirmation of these details will be contained in a dividend tax voucher which is posted to shareholders’ registered addresses<br />

at the time of payment. This voucher should be kept for future reference.<br />

Electronic Communications<br />

Shareholders can now elect to receive communications (<strong>Annual</strong> Reports, Interim Reports <strong>and</strong> other company communications)<br />

electronically, provided they have internet access <strong>and</strong> a valid email address. To obtain more information, <strong>and</strong> to register for this<br />

service, shareholders should log on to www.cattles.co.uk. To register, shareholders will need their shareholder reference<br />

number, which is set out on their share certificate or dividend tax voucher. If you have any questions about this service, please<br />

call the shareholder helpline number: 0870 889 3108.<br />

Shareholders’ Services <strong>and</strong> Helpline<br />

Shareholders who change address, want to have their dividends paid direct into their bank account, have a query on their<br />

shares, or who otherwise require information about their holding should contact the Customer Information Unit at<br />

Computershare Investor Services PLC, Registrars, on the shareholder information telephone line: 0870 702 0003. Alternatively,<br />

they should write to the Registrars at PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7MH, indicating that they are a<br />

<strong>Cattles</strong> plc shareholder.<br />

Computershare Investor Services PLC have introduced a facility whereby shareholders in <strong>Cattles</strong> plc are able to access their<br />

shareholdings over the internet subject to passing an identity check. You can access this service on their website at:<br />

www.computershare.com.


<strong>Cattles</strong> plc <strong>Annual</strong> Report <strong>and</strong> Financial Statements 2004<br />

81<br />

Registered Office <strong>and</strong> Advisers<br />

Registered Office<br />

Kingston House<br />

Centre 27 Business Park<br />

Woodhead Road<br />

Birstall<br />

Batley<br />

WF17 9TD<br />

Registered in Engl<strong>and</strong><br />

Number 543610<br />

Independent Auditors<br />

PricewaterhouseCoopers LLP<br />

Benson House<br />

33 Wellington Street<br />

Leeds<br />

LS1 4JP<br />

Internal Auditors <strong>and</strong><br />

Risk Assurance Advisers<br />

KPMG LLP<br />

1 The Embankment<br />

Neville Street<br />

Leeds<br />

LS1 4DW<br />

Principal Bankers<br />

The Royal Bank of Scotl<strong>and</strong> plc<br />

HSBC Bank plc<br />

Barclays Bank PLC<br />

Lloyds TSB Bank plc<br />

Stockbrokers<br />

HSBC Bank plc<br />

8 Canada Square<br />

London<br />

E14 5HQ<br />

Investment Bankers<br />

Citigroup Global Markets Ltd.<br />

Citigroup Centre<br />

33 Canada Square<br />

Canary Wharf<br />

London<br />

E14 5LB<br />

Financial Public Relations<br />

Financial Dynamics Ltd.<br />

Holborn Gate<br />

26 Southampton Buildings<br />

London<br />

WC2A 1PB<br />

Registrars<br />

Computershare Investor Services PLC<br />

PO Box 82<br />

The Pavilions<br />

Bridgwater Road<br />

Bristol<br />

BS99 7NH<br />

Solicitors<br />

Walker Morris<br />

Kings Court<br />

12 King Street<br />

Leeds<br />

LS1 2HL


<strong>Cattles</strong> plc, Kingston House,<br />

Centre 27 Business Park,<br />

Woodhead Road, Birstall,<br />

Batley WF17 9TD<br />

Tel: 01924 444466<br />

Fax: 01924 442255<br />

Web: www.cattles.co.uk<br />

Registered Number 543610

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