10
UK PLC
Annual Report and Accounts 
FW Annual Report 10 Cover:Layout 2  16/12/10  14:53  Page 1  
 
 
 
  
 
CONTENTS 
 
 
 Page 
 
Financial and operational highlights 2 
  
Chairman’s statement 3 
 
Chief Executive’s review 4 
 
Board of Directors 7 
  
Directors’ report 8 
 
Statement of Directors’ responsibilities 13 
 
Independent auditors report 14 
 
Consolidated statement of comprehensive income 16 
 
Consolidated statement of financial position 17 
 
Company statement of financial position 18 
 
Consolidated statement of changes in equity  19 
 
Company statement of changes in equity 20 
 
Consolidated statement of cash flows  21 
 
Company statement of cash flows  22 
 
Notes to the financial statements 23 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  FRESHWATER UK PLC 
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FINANCIAL AND OPERATIONAL HIGHLIGHTS 
FOR THE YEAR ENDED 31 AUGUST 2010 
 
 
Financial and Operational Highlights 
 
Financial Highlights 
          2010   2009 
 
Turnover         £7.29m  £9.07m 
Revenue         £5.43m  £6.70m 
EBITDA (before goodwill impairment)     £0.49m  £0.61m 
Profit before income tax (and goodwill impairment)   £0.09m  £0.24m 
Net cash flow from operating activities (before tax and interest)  £0.64m  £0.69m 
Reduced net debt balance      £0.67m  £0.86m 
Reduced tax liabilities balance      £0.12m  £0.51m 
Reduced earn-out liabilities balance     £0.58m*  £0.70m  
(* despite making a further acquisition) 
 
Open Offer announced on 31 March 2010 successfully raised £0.60m (before £0.2m expenses and the costs 
and consideration relating to the acquisition of Profileplus UK Limited). 
 
The profit and EBITDA figures above are stated before adjusting for goodwill impairment of £0.76m to reflect 
the ongoing impact of the recession on some parts of the business.  
 
Operational Highlights 
 
• Provided services to 303 clients across the UK and Ireland 
• Retained position on National Grid plc’s supplier framework for another two years 
• Won marketing and event management contract for 2010 Wales, The True Taste Awards, and retained 
for 2011 
• Integrated Life Communications, a Belfast and Dublin based agency acquired in July 2009 
• Acquired Profileplus UK Limited, an Edinburgh-based agency specialising in leisure and lifestyle PR 
• Implemented further cost reductions, delivering annualised savings of more than £1.3m 
• Reduced employee count from 100 (93 FTE) on 1 September 2009 to 79 (76 FTE) on 31 August, 2010, 
including Profileplus UK Limited 
• Achieved annual revenue per full time employee of £68,445 (2009: £68,001)  
 
Post Balance Sheet events 
 
On 15 November 2010, an Extraordinary General Meeting voted to de-list the Company from the Alternative 
Investment Market (‘AIM’).  FRESHWATER UK PLC 
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CHAIRMAN’S STATEMENT  
FOR THE YEAR ENDED 31 AUGUST 2010 
3 
 
This annual report is published as Freshwater is beginning a new phase of its development as an unlisted 
Company once again and with a focus on profitable organic growth. 
 
An Extraordinary General Meeting (‘EGM’) on 15 November 2010 voted 9:1 to delist from the Alternative 
Investment Market (‘AIM’), accepting a Board recommendation that it was in the best interests of the Company 
and shareholders as a whole. 
 
The Board had concluded that: firstly, changed circumstances meant AIM was unlikely to be a vehicle for 
growth funding for a Company of our size in the foreseeable future; and, secondly, de-listing would release 
some immediate cost savings while also allowing Directors’ and managers’ to devote all their time to building 
shareholder value. 
 
While we are disappointed not to be able to pursue our original strategy, we believe the Company has a robust 
business model and considerable potential for development.  
 
Freshwater is the only national PR and marketing Group that combines a complete UK network with wide-
ranging sectoral and specialist expertise. We have teams in every nation and region and the capacity to meet 
multiple client communication needs in multiple locations, online or offline. 
 
Freshwater won awards in 2009-10 for our work for John Lewis, Basque Wines, Specsavers and Donate 
Wales. Our team involved in golf’s 2010 Ryder Cup was publicly described as ‘magnificent’ by the organisers. 
And our stakeholder communications support for National Grid plc was rewarded last April with selection for 
their supplier framework for another two years. 
 
While it has not been the easiest of periods in many of our markets, these results (for the period to 31 August 
2010) show we have managed to maintain profitability and generate cash to reduce liabilities substantially.  
 
Moreover, we have started the 2010-11 trading year encouragingly well and are trading profitably in line with 
the Board’s budget. 
 
As promised at the EGM, the Board will provide shareholders with regular updates through a quarterly 
newsletter, the maintenance of an investor section of the website and the publication of half year and full year 
results. We also look forward to seeing you at the Annual General Meeting on 27 January 2011. 
 
Finally, I would like to thank my fellow Directors’, the Company’s senior managers and all the staff for their 
hard work and professionalism. It has been a very tough year, but we can take pride in the fact that 
Freshwater is a profitable operation providing high quality services to hundreds of valued clients. 
 
 
 
 
 
 
 
 
Marie Louise Windeler 
Chairman   
16 December 2010  FRESHWATER UK PLC 
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CHIEF EXECUTIVE’S REVIEW  
FOR THE YEAR ENDED 31 AUGUST 2010 
4
 
Freshwater has completed its tenth year of trading with its record of consistently operating profitably intact and 
having substantially reduced its liabilities. 
 
Despite exceptionally tough economic conditions, the Group delivered an EBITDA of £0.49m (before making a 
goodwill impairment of £0.76m) on revenue of £5.43m.  
 
At the same time, the statement of financial position was markedly strengthened by a reduction in liabilities 
from bank borrowings, tax and deferred consideration from £2.06m to £1.37m.  
 
This was achieved by a combination of generating cash from trading and raising £0.4m for working capital 
from an Open Offer to shareholders in April (after expenses and the costs and consideration relating to the 
acquisition of Profileplus UK Limited in Edinburgh). 
 
Financial Review 
 
The maintenance of profitability and a reduction in liabilities were all the more remarkable in the context of the 
impact on Freshwater’s markets of the recession, political uncertainties and cuts in public spending.  
 
Overall, annual revenue of £5.43m was 19% below the £6.70m achieved in the previous year and additional 
cost savings of more than £1.3m were required to protect margins.  
 
Almost all parts of the business were affected to some degree by the adverse trading conditions. However, our 
stakeholder communications work for National Grid plc grew 35% and the Creative division had a strong 
second half, mainly as a result of winning a substantial contract to provide marketing and event management 
support for Wales, The True Taste Awards. 
 
Profitability increased in the second half as a whole as the benefits of cost savings came through. However, 
this was mainly because of a strong third quarter in which EBITDA reached 15%. The final quarter saw 
EBITDA drop to 8% because several NHS communication projects were put on hold due to an unexpected 
Government decision to reorganise healthcare. 
 
The Group has nevertheless started its 2010-11 trading year encouragingly well with the business trading 
profitably and revenue holding steady in the first quarter. Meanwhile, we have also secured confirmation of 
several major projects that will underpin the rest of the year. 
 
The Board’s primary objective is to achieve sufficient profitable growth in 2010-11 to largely eliminate the 
Group’s remaining bank and earn-out liabilities by the year end, thus creating a strong financial platform for 
further growth. Following the decision by shareholders to de-list from AIM, the management team is in a 
position to focus all its energy on this goal.  
 
Dividend 
 
No interim dividend was paid during the year, and the Board is recommending that there should also not be a 
final dividend in order to conserve cash to improve the Group’s financial position. We are, however, conscious 
of the importance of giving shareholders an ongoing return on their investment and will resume dividend 
payments at an appropriate level as soon as circumstances permit. 
 
Operational Review 
 
Freshwater’s competitive advantage derives from it being the only national PR and marketing Group that offers 
a complete UK-wide network of offices. 
 
The Group continues, despite the downsizing of the last two years, to have a presence in all the nations and 
regions of the UK and is able to provide major national clients with multiple services in multiple locations, 
online and offline. 
 
Clients for whom Freshwater provided a mix of services in more than one location in 2009-10 include John 
Lewis, E.On, National Grid, High Speed Rail, Kingspan, Basque Wines, Specsavers, Football Association of 
Wales and Ryder Cup Europe. 
  FRESHWATER UK PLC 
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CHIEF EXECUTIVE’S REVIEW  
FOR THE YEAR ENDED 31 AUGUST 2010 
5 
 
Significant new business successes since the interim results include: 
 
• Life Communications appointed to work on General Mills brands El Paso and Green Giant in 2010 and 
will be working across a wider portfolio in 2011, including Nature Valley and Betty Crocker. 
• Public Affairs won projects for Deutsche Bahn, First Transpennine Express, Leeds City Region 
Partnership, Forth Ports, RAC Foundation and Inchcape Shipping.  
• Technology team expanded its role for Morgan Crucible plc to cover Thermal Ceramics as well as 
Technical Ceramics. 
• Profileplus chosen to handle destination PR for Scotland’s Islands, appointed by distiller Morrison 
Bowmore and given a wider brief by the Drambuie Liqueur Company. 
• Glasgow office commissioned to handle projects for Bellway and Redrow for first time for two years 
• Mixed Creative and PR team produced 150-page document for a Football Association of Wales bid to 
host a major European event. 
• Cardiff appointed to provide consultancy and PR for the University of Wales. 
• Wales team’s Ryder Cup contract extended to April 2011 to cover legacy PR. 
• Consumer team won further contract with online and catalogue retailers, Bon Prix. 
• Creative commissioned on a variety of event, DVD, media buying and other marketing projects for 
clients such as Cardiff Harbour Authority, Linde, Castleoak, Harp International and Barry Waterfront 
(Persimmon, Taylor Wimpey, Barratt).  
• Selected for Welsh Assembly Government supplier matrix for creative and event services. 
 
In addition, Freshwater is handling a number of new projects for National Grid plc since being selected in April 
2010 for its supplier framework for another two years. The Group is currently undertaking work for National 
Grid covered by purchase orders with an unspent value of £0.68m, including initial stakeholder engagement 
for the North West Coast Connections. 
 
The Group provided services to a total of 303 clients during 2009-10. The largest client was National Grid plc 
with 14% (£0.76m) of revenue. The top 20 clients, including National Grid, accounted for 51% (£2.80m) of 
revenue. 
 
Client revenue from each sector in 2009-10 was as follows (prior year in brackets): 
 
Public sector      23% (22%) 
Consumer and retail    22% (18%) 
Transport      16% (20%) 
Utilities      14% (11%) 
Housing and property    8% (8%) 
Professional and business services  7% (9%) 
Industry and technology    5% (7%) 
Leisure and hospitality    4% (1%) 
Other       1% (4%)     
 
The public sector revenue share reflects the strong performance of Healthcare until the final quarter and 
Creative’s success in being appointed to handle the marketing and event management for the Wales, The 
True Taste Awards. While the latter is confirmed for 2011, work in the NHS remains unpredictable and the 
Group currently receives less than 15% of its revenue from the public sector. 
 
Consumer and retail revenue remains healthy because of a strong performance by Life Communications in 
Ireland and work in Britain for clients such as John Lewis, Bon Prix and Specsavers. 
 
Revenue from transport clients fell in the year, but this was mainly because they use our specialist Public 
Affairs service, which was affected by the General Election. We see transport as a growth area in 2010-11, 
with prospects for providing a wider range of services. 
 
Utilities is another growth area, not only because of the increasing requirements of National Grid but also 
because there are more major investment projects in the energy sector requiring stakeholder communications. 
 
Leisure and Hospitality has emerged as a significant sector because of the acquisition of Profileplus in 
Edinburgh, and we see potential for building on this.     
  FRESHWATER UK PLC 
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CHIEF EXECUTIVE’S REVIEW  
FOR THE YEAR ENDED 31 AUGUST 2010 
6 
 
   
Strategy 
 
Freshwater’s strategy of concentrating on profitable organic growth is summed up in an action plan we are 
calling ‘Focus on Fundamentals’. 
 
The main points of the first phase of the plan, most of which have been implemented, are: 
 
• Reducing the number of profit centres from 12 to 7 in 2010-11 
• Appointing Managing Directors’ responsible for profit centres and incentivised to deliver their budgets 
• Creating a new 10 strong operational management team consisting of Executive Directors’ and MDs 
• Focusing Group new business activity around growth specialisms such as stakeholder communications 
and digital media and growth sectors such as energy and transport 
• Producing new marketing collateral, including separate websites aimed at growth sectors 
• Further tightening discipline in relation to costs, debtors and cash flow 
• Introducing a common system of account management planning to maximise utilisation of staff time and 
increase revenue per head. 
• Appointing a Director responsible for best practice and innovation to enhance client service, 
development and retention.  
  
The strategy is still evolving, and we look forward to giving shareholders an update at the AGM in January. 
 
 
 
 
 
Steve Howell 
Chief Executive 
16 December 2010  FRESHWATER UK PLC 
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BOARD OF DIRECTORS 
 
7
Directors’ that served during the year 
 
Marie-Louise Windeler, Non-Executive Chairman: Marie-Louise Windeler is an experienced senior 
Executive and PR professional, with over 25 years’ experience in the PR industry. A former journalist with ITN 
and the Daily Express, Marie-Louise was CEO of one of the UK’s largest PR agencies, Hill and Knowlton UK, 
where she was responsible for its multi-million pound fee revenue and 275 staff. Marie-Louise is a Non-
Executive Director of Prime Focus London Plc and VMA Search. She is also a member of the prestigious 
Marketing Group of Great Britain Club. 
 
Steve Howell, Chief Executive: Steve Howell founded the agency in 1997 and has led the development of 
the Group throughout. His previous experience included a period at the BBC where he was a producer and 
reporter in radio and television. He had previously worked for national and regional newspapers and as a 
public relations officer in local government. He has been responsible for developing Freshwater’s growth 
strategy and delivering a series of successful acquisitions. He was a Governor of the University of Wales 
Newport from 2005 to 2007. He specialises in issues and reputation management and stakeholder 
communications. His client portfolio includes Ryder Cup Europe, the Football Association of Wales and the 
University of Wales. He is a South Wales Chamber of Commerce Board member. 
 
Edward Carter, Non-Executive Director: Edward Carter, a chartered accountant, was appointed to the 
Board as an Executive Director in March 2006 becoming a Non-Executive Director during 2009. He was for 
many years a partner at Ernst & Young, the global business advisers. He also played a key role in working on 
and with the Board’s of various companies as a consultant or Non-Executive director prior to being a joint 
founder of Quantum PR Plc, which was acquired by Freshwater in June 2005. He is an experienced PR 
consultant specialising in business-to-business, professional services and financial sectors. He is also a Non-
Executive director of two privately owned businesses – Grove Industries Limited and Owl Optical Limited. 
Edward resigned as a Board member on 31 August 2010. 
 
Haydn Evans, Finance Director: Haydn Evans was appointed to the Board in May 2003. He has 15 years 
experience in the telecommunications sector having worked for Mitel Networks Corporation and Nortel 
Networks Corporation in the UK and Paris. Immediately prior to joining Freshwater he was a finance leader 
within Canadian-based Nortel, heading a 20-strong business team in the UK, Switzerland and Toronto and 
reporting directly to the vice president of finance. He has been responsible for the due diligence on and the 
financial integration of the thirteen acquisitions undertaken by Freshwater since his appointment. 
 
John Underwood, Executive Director: John Underwood was appointed to the Board in June 2006. In the 
1980s, he was an award-winning TV reporter and presenter and worked for the BBC, ITV and Channel Four 
before becoming Director of Communications for the Labour Party. He founded Clear Communications in 1991 
and built it into one of the leading communication agencies in the healthcare sector.  
 
 
Directors’ appointed since the year end 
 
David Howell, Non-Executive Director: David Howell was appointed to the Board of the Company in 2004 
and served as Chairman until March 2007. David remained as a Non-Executive of the Company until his 
resignation on 8 June 2009.  Following the resignation of Edward Carter at the end of August 2010, David was 
re-appointed to the Board as a Non-Executive Director on 1 October 2010. He is the Executive Chairman of 
Profile Consultancy Limited, a specialist commercial property consultancy providing service charge, property 
management and building consultancy services to many of the UK’s FTSE 100 companies. He is also 
managing director of privately-owned Hillco Investments (UK) Limited, which holds a diverse portfolio of assets 
and investments. 
   
FRESHWATER UK PLC 
DIRECTORS’ REPORT 
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8 
 
The Directors’ present their report and the audited financial statements for the year ended 31
 
August 2010. 
 
Principal Activities  
 
Freshwater Group (‘the Group’ or ‘Freshwater’) comprises Freshwater UK Plc (the ‘Company’) and its 
subsidiary undertakings. The Group’s principal activity is the provision of public relations and marketing 
services. The Company operates as a service Company providing staff and administrative services to other 
Group members.  
 
Business Review  
 
A review of the Group’s business and the likely future developments therein is provided in the Chief 
Executive’s Review. Financial and other key performance indicators (‘KPI’) including revenue per full time 
employee have been used in the Chief Executive’s Review to facilitate the understanding of the development, 
performance and position of the Group’s business. The principal risks and uncertainties faced by the Group 
can be categorised as follows: 
 
Client loss 
 
Client relationships are key to the business but some turnover over time is normal and to be expected. During 
the financial year, Freshwater provided services to over 300 clients with only 4 accounting for more than 3% of 
revenue. A diverse and balanced client base mitigates the impact of any individual loss. 
 
Economic 
 
Our industry like others has not been immune to the prolonged economic downturn and at a macro level there 
is increased competition to satisfy reduced demand from a rapidly changing market place. We believe 
however that Freshwater is well placed to compete in these difficult times and is helped in this by its exposure 
to defensive sectors such as utilities, transport and energy coupled with a strong regional network. 
 
Staff loss 
 
As a people based business our staff play a critical role in our client offering, and the loss of key staff could be 
a risk to our client relationships. To offset this risk, we have developed a team based approach to client 
service, so that no one member of staff is the sole point of contact with any given client. The Group 
additionally seeks to pursue employment practices that attract, retain and develop the talent it needs for its 
ongoing success.   
 
Results and Dividends 
 
The Group’s results are on page 16. The Company did not pay an interim dividend in 2010 (2009: 0.75p), and 
are not proposing to pay a final ordinary dividend at the year end (2009:0.5p).  
 
Post Balance Sheet Events  
 
Bank agreement 
 
In November 2010, the Group agreed a new temporary overdraft facility and an amendment to the £1.2 million 
term loan it entered in February 2007. The Group’s borrowings have otherwise remained unchanged since 31 
August 2009. Further information on the new arrangements which have provided the Group with additional 
working capital is provided in notes 19 and 22 to the financial statements. 
 
 
 
 
 
 
 
 
   
FRESHWATER UK PLC 
DIRECTORS’ REPORT 
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9 
 
De-listing from AIM 
 
An Extraordinary General Meeting on 15 November 2010 voted 9:1 to de-list from the Alternative Investment 
Market, accepting a Board recommendation that it was in the best interests of the Company and shareholders 
as a whole. The listing was cancelled on 22 November 2010. 
 
The Board recognises that not all shareholders were able or willing to own shares in an unlisted public 
Company, and has made available a “matched bargain” facility for those who wish to register an interest to buy 
and sell shares in the Company.  
 
A Company share buy-back and cancellation scheme will also be established when the Company’s financial 
circumstances allow.  
 
Business combination outside the scope of IFRS 3 (revised) 
 
On 1 June 2009, Freshwater Midlands Limited transferred its trade and certain assets to Freshwater (UK 
Regions) Limited, a fellow wholly-owned subsidiary of the Company, to help the Group rationalise its legal 
structure and reduce its administrative overheads. Since then the trade has continued as a going concern 
within Freshwater (UK Regions) Limited but still ring-fenced within the Group’s internal management systems 
as its Midlands operation. 
 
On 1 September 2010, as part of a Group restructuring plan Freshwater (UK Regions) Limited transferred the 
ring-fenced Midlands trade within Freshwater (UK Regions) Limited to Freshwater Consumer Limited.  
 
Directors  
 
The following individuals served as Directors’’ of the Company during the year: 
 
  Appointed Resigned  Position at 31 August 2010  
S B Howell   25 August 2000 -  Chief Executive   
E G Carter  30 March 2006 31 August 2010  Non-Executive   
J H Evans  1 May 2003 -  Finance Director  
J M Underwood  1 June 2006 -  Executive   
M-L Windeler  23 November 2007 -  Non-Executive Chairman  
       
 
At the year end Edward Carter resigned as a Non-Executive Director. David Howell was appointed in his place 
on 1 October 2010. David had previously served on the Board from 2004 to 2009 as a Non-Executive Director. 
Ken J Tilley a former Non-Executive Director served as Company Secretary throughout the year. As permitted 
by the Companies Act 2006, Freshwater UK Plc has Directors’ and Officers’ Liability Insurance. 
 
Directors Interests 
 
The interests of those individuals who were Directors’ of the Company at the end of the financial year in the 
shares and debentures of the Company at the year end were: 
 
  No. of ordinary shares held at   % of ordinary share capital held  
     31 August 2009    31 August 2010  31 August 2009 31 August 2010 
S B Howell   1,263,780 1,596,535  8.18% 8.42% 
J H Evans  62,270 154,723  0.40% 0.82% 
J M Underwood  342,400 546,177  2.22% 2.88% 
M-L Windeler  - -  - - 
 
 
The above interests include the interests of the individuals’ immediate families. S B Howell’s and J H Evans’ 
interests include their interests in ordinary shares held by the Freshwater UK Pension Fund. S B Howell’s 
interest additionally includes his interest in ordinary shares held by Isca Mercatura Limited. J M Underwood’s 
interest includes his interest in ordinary shares held by the Underwood Pension Trust Mattioli Woods SIPP.  
 
   
FRESHWATER UK PLC 
DIRECTORS’ REPORT 
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10 
Since the year end David Howell has been appointed Non-Executive Director on 1 October 2010. David holds 
2,725,000 shares representing 14.37% of the share capital. The shares are held privately, through Hillco 
Investments UK Ltd, and via the HLM pension fund. 
 
Other than as above none of the Company’s Directors’ at the end of the financial year had an interest in the 
shares or debentures of Group members. The holdings of the Directors’ in the shares and debentures of 
Group members have remained unchanged since the year end. 
 
J H Evans is interested in options to subscribe for 44,000 ordinary shares in the Company as a result of 
entering share option contracts in previous financial years. None of the other Directors’ at the end of the 
financial year were interested in options over shares or debentures in Group members at the year end. All the 
options granted to J H Evans have been on similar terms to those advanced to other employees of the Group. 
Further information on the share option contracts entered into by the Group is provided in note 28 to the 
financial statements. J H Evans exercised no options during the financial year. This has remained the case 
since the year end. 
 
Substantial Shareholdings 
 
In addition to the Directors’ detailed above the following individuals and entities were interested in 3% or more 
of the Company’s ordinary share capital at 31 August 2010: 
 
 
 No. of ordinary shares held at 
31 August 2010 
 % of ordinary share capital 
held at 31 August 2010 
Finance Wales Investments   2,219,140  11.70% 
IBIS Media VCT 1 Plc   1,376,400  7.26% 
Herald Investment Management Ltd  806,000  4.25% 
D McCormick   631,485  3.33% 
M Howell  599,686  3.16% 
     
     
 
D Howell was appointed a director of Freshwater on 1 October 2010 and is related to S B Howell, a director of 
the Company. M Howell is not related to either D Howell or S B Howell. D McCormick is a senior employee of 
Freshwater and the MD of Life Communications, a Company acquired by Freshwater in July 2009. Since the 
year end IBIS Media VCT has increased their holdings to 2,207,385, 11.64% of the total. 
 
Creditor Payment Policy 
 
The Group agrees payment terms with its suppliers when it enters into binding purchase contracts. The Group 
seeks to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has 
provided the goods or services in accordance with the agreed terms and conditions. The Group seeks to treat 
all of its suppliers fairly. At the end of the financial year creditor days were at 64 for the Company and the 
Group (2009: 65). 
 
Political and Charitable Donations 
 
During the year the Group made charitable donations of £2,198 (2009: £1,000). The Political Parties, Elections 
and Referendums Act 2000 (the ‘Act’) requires disclosure of any donations to an EU political organisation 
(including a registered political party in the UK) or EU political expenditure in excess of £200. The terms 
‘donation’, ‘EU political organisation’ and ‘EU political expenditure’ are given broad definitions by the Act.  
Whilst the Group does not make donations to political parties or incur political expenditure within the normal 
meaning of those expressions, as part of its normal work on behalf of clients and as part of its own marketing, 
the Group can need to attend or sponsor events which are organised by political parties or other political 
organisations for which a charge is made.  
 
Financial Instruments 
 
A commentary on the financial instruments held by the Group and the Group’s exposure to credit, interest rate 
and liquidity risk is provided in note 16 to the financial statements. 
 
   
FRESHWATER UK PLC 
DIRECTORS’ REPORT 
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11
Corporate Governance 
 
The Company is not required to comply with the ‘Combined Code on Corporate Governance’ issued in June 
2008 by the Financial Reporting Council (‘the 2008 FRC Combined Code’) and does not report on how it has 
applied the principles therein or on the extent to which it has complied with the provisions therein throughout 
the year. The Company’s Directors’ are however committed to ensuring a high standard of corporate 
governance that reflects the 2008 FRC Combined Code in a manner proportionate to the Group’s size. An 
insight into the Company’s current corporate governance practice is provided below. 
 
Board of Directors 
 
The members of the Company’s Board of Directors (‘the Board’) are listed above. The Board includes both 
Executive and Non-Executive Directors’. The roles of Chairman and Chief Executive Officer are held by 
separate individuals. In the situation where Executive Directors’ take on Non-Executive roles the Board 
considers that this does not necessarily affect their independence. In determining whether there are any such 
issues the Board takes into account the previous experience / background of the individual concerned. The 
Board meets regularly and its responsibilities include formulating, reviewing and approving strategy, budgets, 
acquisitions, capital expenditure and senior personnel appointments.   
 
Audit Committee 
 
The responsibilities of the Audit Committee include monitoring the integrity of the Company’s and the Group’s 
financial statements, reviewing the external auditor’s independence, objectivity and effectiveness and making 
recommendations to the Board in relation to the appointment, reappointment and removal of the external 
auditor. The following individuals served as members of the Audit Committee during the year.  
 
 Appointed Resigned  
E G Carter 8 June 2009 31 August 2010 
M-L Windeler 1 October 2008 -  
   
   
Other individuals including other Directors’ of the Company and the Company’s auditors may attend meetings 
of the Audit Committee at its request.  E Carter was replaced by D Howell on the Audit Committee on 1 
October 2010. 
 
Remuneration Committee 
 
The responsibilities of the Remuneration Committee include reviewing the performance of the Company’s 
Executive Directors’ and setting the scale and structure of their remuneration and the basis of their service 
agreements and appointment with due regard to the interests of shareholders. The Remuneration Committee 
also determines the bonuses to be paid to Executive Directors’. The following Non-Executive Directors’ served 
as members of the Remuneration Committee during the year:  
 
 Appointed Resigned  
E G Carter  8 June 2009  31 August 2010 
M-L Windeler 8 June 2009 - 
 
Other individuals including other Directors’ of the Company and the Company’s auditors may attend meetings 
of the Remuneration Committee at its request. E Carter was replaced by D Howell on the Remuneration 
Committee on 1 October 2010. 
 
The remuneration of Non-Executive Directors’ is determined by the Executive Directors’ who consider it 
essential, notwithstanding the size of the Company, to recruit and retain individuals of the highest calibre. The 
Executive Directors’ believe it is in the interests of shareholders that Non-Executive Directors’ should be able 
to acquire shares and be provided with share options in addition to the fees they receive for their services.  
 
 
 
 
 
   
FRESHWATER UK PLC 
DIRECTORS’ REPORT 
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12
Attendance Record 
 
The number of Board meetings and committee meetings attended during the year by Board and committee 
members was: 
 
 
Board 
meetings 
Audit 
Committee 
Remuneration 
Committee 
 
S B Howell  8 (8) n/a n/a  
E G Carter           8 (8) 4 (4) - (-)  
J H Evans           8 (8) n/a n/a  
J M Underwood           8 (8) n/a n/a  
M-L Windeler           8 (8) 4 (4) - (-)  
     
 
Figures in brackets indicate the number of meetings during the year for which the individual was a Board or 
committee member.  
 
Going Concern 
 
The Directors’, at the time of approving the financial statements, have determined that there is a reasonable 
expectation that the Company and the Group have adequate resources to continue in operational existence for 
the foreseeable future.  
 
In reaching this conclusion the Directors’ noted that the Company and the Group had net current liabilities on 
31 August 2010 and considered the Company’s and the Group’s recent and forecast financial performance. 
The current economic environment is difficult. However, after taking into account a range of variances in the 
Company’s and Group’s forecast financial performance and the arrangements in place with the Company’s 
and the Group’s bankers described in notes 19 and 22 to the financial statements, the Directors’ consider that 
the Company and the Group has, and should continue to have, adequate working capital to meet its 
requirements for the foreseeable future. For this reason the Directors’ have adopted the going concern basis in 
preparing the financial statements. 
 
Auditors and Disclosure of Information to Auditors  
 
As far as the Directors’ are aware there is no relevant audit information of which the Company’s auditors are 
unaware and they have taken all the steps that they ought to have taken as Directors’ in order to make 
themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of 
that information. 
 
The auditors, PKF (UK) LLP, have indicated their willingness to continue in office, and a resolution that they be 
re-appointed will be proposed at the Annual General Meeting. 
 
This report was approved by the Board on 16 December 2010 and signed on its behalf by: 
 
 
 
 
J H Evans  
Finance Director  
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
13 
STATEMENT OF DIRECTORS’ RESPONSIBILITIES 
FOR THE YEAR ENDED 31 AUGUST 2010 
 
The Directors’ are responsible for preparing the Directors’ report and the financial statements in accordance 
with applicable law and regulations.  
 
Company law requires the Directors’ to prepare financial statements for each financial year. Under that law the 
Directors’ have elected to prepare the financial statements in accordance with International Financial 
Reporting Standards as adopted by the European Union. Under Company law the Directors’ must not approve 
the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the 
Company and the Group and of the profit or loss of the Group for that period. In preparing these financial 
statements the Directors’ are required to: 
 
• select suitable accounting policies and then apply them consistently; 
• make judgments and estimates that are reasonable and prudent; 
• state whether the financial statements have been prepared in accordance with IFRSs as adopted by the 
European Union; and 
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the 
Company and the Group will continue in business. 
 
The Directors’ are responsible for keeping adequate accounting records that are sufficient to show and explain 
the Company's transactions and disclose with reasonable accuracy at any time the financial position of the 
Company and the Group and enable them to ensure that the financial statements comply with the Companies 
Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for 
taking reasonable steps for the prevention and detection of fraud and other irregularities. 
 
The Directors’ are responsible for the maintenance and integrity of the corporate and financial information 
included on the Company's website. Legislation in the United Kingdom governing the preparation and 
dissemination of the financial statements and other information included in annual reports may differ from 
legislation in other jurisdictions. 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF FRESHWATER UK PLC 
14
 
 
We have audited the financial statements of Freshwater UK Plc for the year ended 31 August 2010 which 
comprise the consolidated and parent Company statements of financial position, the consolidated statement of 
comprehensive income, the consolidated and parent Company statements of cash flows, the consolidated and 
parent Company statements of changes in equity and the related notes. The financial reporting framework that 
has been applied in their preparation is applicable law and International Financial Reporting Standards 
(IFRSs) as adopted by the European Union and, as regards the parent Company financial statements, as 
applied in accordance with the provisions of the Companies Act 2006.   
 
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of 
the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's 
members those matters we are required to state to them in an auditors' report and for no other purpose. To the 
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company 
and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. 
 
Respective responsibilities of Directors’ and auditors 
 
As explained more fully in the statement of Directors’ responsibilities, the Directors’ are responsible for the 
preparation of the financial statements and for being satisfied that they give a true and fair view. Our 
responsibility is to audit the financial statements in accordance with applicable law and International Standards 
on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical 
Standards for Auditors. 
 
Scope of the audit 
 
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient 
to give reasonable assurance that the financial statements are free from material misstatement, whether 
caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to 
the Group’s and the parent Company’s circumstances and have been consistently applied and adequately 
disclosed; the reasonableness of significant accounting estimates made by the Directors’; and the overall 
presentation of the financial statements. 
 
Opinion on financial statements 
 
In our opinion; 
 
• the financial statements give a true and fair view of the state of the Group’s and the parent Company’s 
affairs as at 31 August 2010 and of the Group’s loss for the year then ended; 
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by 
the European Union; 
• the parent Company financial statements have been properly prepared in accordance with IFRSs as 
adopted by the European Union as applied in accordance with the provisions of the Companies Act 
2006; and 
• the financial statements have been prepared in accordance with the requirements of the Companies 
Act 2006. 
 
Opinion on other matter prescribed by the Companies Act 2006 
 
In our opinion the information given in the Directors’ report for the financial year for which the financial 
statements are prepared is consistent with the financial statements.  
 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF FRESHWATER UK PLC 
15 
 
Matters on which we are required to report by exception 
 
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to 
report to you if, in our opinion: 
 
• adequate accounting records have not been kept by the parent Company, or returns adequate for our 
audit have not been received from branches not visited by us; or 
• the parent Company financial statements are not in agreement with the accounting records and 
returns; or 
• certain disclosures of Directors’ remuneration specified by law are not made; or 
• we have not received all the information and explanations we require for our audit. 
 
 
 
 
 
 
PKF (UK) LLP 
Timothy Smith (Senior statutory auditor) 
for and on behalf of PKF (UK) LLP, Statutory auditors 
 
 
Cardiff: 
16 December 2010 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
FRESHWATER UK PLC 
16 
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 
FOR THE YEAR ENDED 31 AUGUST 2010 
 
 
  2010  2009 
 
Note £ 
 
£ 
  
TURNOVER  7,286,138 
 
9,068,203 
   
 
 
 
REVENUE  5,431,861 
 
6,698,141 
 
Exceptional administrative expenses 6 (758,595) 
 
- 
  
Other administrative expenses  5 (5,262,863) 
 
(6,370,224) 
OPERATING (LOSS) / PROFIT  (589,597) 
 
327,917 
 
Finance income 8 - 
 
8,106 
 
Finance costs 8 (78,597) 
 
(96,011) 
(LOSS) / PROFIT BEFORE INCOME TAX 5 (668,194) 
 
240,012 
  
Income tax expense 9 (9,401) 
 
(34,413) 
(LOSS) / PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE 
YEAR  (677,595) 
 
205,599 
   
 
 
 
Basic earnings per share 29 (4.07)p 
 
1.53p 
Diluted earnings per share 29 (4.07)p  1.46p 
 
The notes on pages 23 to 54 are an integral part of these financial statements. 
 
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present 
the parent statement of comprehensive income. The Company's loss for the financial year was £767,173 
(2009: £470,576 profit). 
 
 
 
   
FRESHWATER UK PLC 
COMPANY NUMBER: 4059741 (ENGLAND AND WALES) 
17
 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
AT 31 AUGUST 2010 
 
 
  2010 
  
          2009 
 
Note £ 
 
£ 
ASSETS     
Non-current assets     
Property, plant and equipment 11 738,713  944,287 
Intangible assets 12 10,000,178  10,412,277 
  10,738,891  11,356,564 
Current assets     
Trade and other receivables 17 1,934,119  2,295,979 
  1,934,119  2,295,979 
Total assets  12,673,010  13,652,543 
EQUITY     
Issued equity capital 25 1,896,104  1,544,246 
Share premium 26 7,415,515  7,123,837 
Other reserves 25 20,000  20,000 
Retained earnings  504,698  1,259,505 
  9,836,317  9,947,588 
LIABILITIES     
Non-current liabilities     
Deferred consideration 18 110,000  350,000 
Long term borrowings 22 103,869  431,973 
Deferred tax liabilities 24 43,116  64,517 
  256,985  846,490 
Current liabilities     
Bank overdraft 19 172,542  3,421 
Trade and other payables 20 1,360,228  1,554,624 
Deferred consideration 18 467,990  350,000 
Derivative financial instruments 21 103,816  87,000 
Short-term borrowings 22 398,592  420,324 
Current tax liabilities  76,540  443,096 
  2,579,708  2,858,465 
Total liabilities  2,836,693  3,704,955 
Total equity and liabilities  12,673,010  13,652,543 
 
 
The notes on pages 23 to 54 are an integral part of these financial statements. The financial statements were 
approved and authorised for issue by the Board and were signed on its behalf on 16 December 2010 by: 
 
 
 
 
 
 S B Howell     J H Evans  
 Chief Executive    Finance Director 
 
 
  FRESHWATER UK PLC 
 COMPANY NUMBER: 4059741 (ENGLAND AND WALES) 
18 
 
COMPANY STATEMENT OF FINANCIAL POSITION 
AT 31 AUGUST 2010 
 
 
  2010 
  
2009 
 
Note £ 
 
£ 
ASSETS     
Non-current assets     
Property, plant and equipment 11 738,713  605,855 
Intangible assets 12 4,855,816  4,679,151 
Investments in subsidiary undertakings 13 6,374,267  7,345,832 
  11,968,796  12,630,838 
Current assets     
Trade and other receivables 17 1,864,359  961,103 
  1,864,359  961,103 
Total assets  13,833,155  13,591,941 
EQUITY     
Issued equity capital 25 1,896,104  1,544,246 
Share premium 26 7,415,515  7,123,837 
Other reserves 25 20,000  20,000 
Sustained losses / Retained earnings  (355,807)  488,578 
  8,975,812  9,176,661 
LIABILITIES     
Non-current liabilities     
Deferred consideration 18 110,000  350,000 
Long term borrowings 22 103,869  431,973 
Deferred tax liabilities 24 43,116  48,537 
  256,985  830,510 
Current liabilities     
Bank overdraft 19 2,235,501  1,644,909 
Trade and other payables 20 1,394,459  1,092,657 
Deferred consideration 18 467,990  350,000 
Derivative financial instruments 21 103,816  87,000 
Short-term borrowings 22 398,592  410,204 
Current tax  -  - 
  4,600,358  3,584,770 
Total liabilities  4,857,343  4,415,280 
Total equity and liabilities  13,833,155  13,591,941 
 
 
The notes on pages 23 to 54 are an integral part of these financial statements. The financial statements were 
approved and authorised for issue by the Board and were signed on its behalf on 16 December 2010 by: 
 
 
 
 
 
 S B Howell     J H Evans  
 Chief Executive    Finance Director 
  FRESHWATER UK PLC 
19 
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY  
FOR THE YEAR ENDED 31 AUGUST 2010 
 
 
 Note 
 Ordinary 
shares 
 Share 
premium 
 Share 
option  
 Other 
reserves 
 Retained 
earnings 
 
   £  £  £  £  £ 
31 August 2008  1,256,901 6,305,883 20,000 615,000 1,353,837
  
Profit and total comprehensive 
income for the year   - - - - 205,599
  
Issue of ordinary shares  287,345 817,954 - - -
Movement in contingent consideration  - - - (615,000) -
Dividends 27 - - - - (299,931)
Transactions with owners  287,345 817,954 - (615,000) (299,931)
  
31 August 2009  1,544,246 7,123,837 20,000 - 1,259,505
  
Loss and total comprehensive 
income for the year   - - - - (677,595)
  
Issue of ordinary shares  351,858 291,678 - - -
Dividends 27 - - - - (77,212)
Transactions with owners  351,858 291,678 - - (77,212)
  
31 August 2010  1,896,104 7,415,515 20,000 - 504,698
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  FRESHWATER UK PLC 
20 
 
COMPANY STATEMENT OF CHANGES IN EQUITY  
FOR THE YEAR ENDED 31 AUGUST 2010 
 
 
 Note 
 Ordinary 
shares 
 Share 
premium 
 Share 
option  
 Other 
reserves 
 Retained 
earnings 
 
   £  £  £  £  £ 
31 August 2008  1,256,901 6,305,883 20,000 615,000 317,933
  
Profit and total comprehensive 
income for the year   - - - - 470,576
  
Issue of ordinary shares  287,345 817,954 - - -
Movement in contingent consideration  - - - (615,000) -
Dividends 27 - - - - (299,931)
Transactions with owners  287,345 817,954 - (615,000) (299,931)
  
31 August 2009  1,544,246 7,123,837 20,000 - 488,578
  
Loss and total comprehensive 
income for the year   - - - - (767,173)
  
Issue of ordinary shares  351,858 291,678 - - -
Dividends 27 - - - - (77,212)
Transactions with owners  351,858 291,678 - - (77,212)
  
31 August 2010  1,896,104 7,415,515 20,000 - (355,807) FRESHWATER UK PLC 
21
 
CONSOLIDATED STATEMENT OF CASH FLOWS 
FOR THE YEAR ENDED 31 AUGUST 2010 
 
 
  2010 
  
2009 
 
 £ 
 
£ 
Operating (loss) / profit  (589,597) 327,917
Depreciation of property, plant and equipment 11 230,129 219,338
Amortisation of other intangible assets  12 4,504 4,984
Impairment of goodwill 6 758,595 -
Unrealised loss on derivative financial instrument 21 16,816 56,951
Profit on disposal of fixed assets  - (3,714)
Change in trade and other receivables  395,730
 
60,774
Change in trade and other payables  (176,617) 26,157
  639,560 692,407
Interest received  - 8,106
Interest paid  (78,597) (96,011)
Income taxes paid   (418,102) (190,943)
Net cash flow from operating activities   142,861 413,559
   
 
 
Net cash flow arising from acquisitions  (415,648) 
 
(1,181,385) 
Purchase of property, plant and equipment  (21,915) 
 
(275,287) 
Disposal of property, plant and equipment   - 
 
13,159 
Net cash flow from investing activities  (437,563) 
 
(1,443,513) 
   
 
 
Proceeds from the issue of share capital  548,536 
 
440,218 
Proceeds from finance leases  - 
 
171,000 
Repayment of borrowings   (345,743) 
 
(362,387) 
Dividends paid 27 (77,212) 
 
(299,931) 
Net cash flow from financing activities  125,581 
 
(51,100) 
   
 
 
Decrease in cash and cash equivalents  (169,121) 
 
(1,081,054) 
Cash and cash equivalents at the start of the period 19 (3,421) 
 
1,077,633 
Cash and cash equivalents at the end of the period  19 (172,542) 
 
(3,421) 
  FRESHWATER UK PLC 
22
 
COMPANY STATEMENT OF CASH FLOWS 
FOR THE YEAR ENDED 31 AUGUST 2010 
 
 
  2010 
  
2009 
 
 £ 
 
£ 
Operating loss  (937,561) (90,199)
Depreciation of property, plant and equipment 11 222,231 104,139
Amortisation of other intangible assets  12 1,055 917
Impairment of goodwill 12 327,102 -
Impairment of investments 13 389,730
Unrealised loss on derivative financial instrument 21 16,816 56,951
Change in trade and other receivables  (76,391) (13,415)
Change in trade and other payables  56,428 131,887
  (590) 190,280
Interest received  - 8,106
Interest paid  (78,432) (84,215)
Income taxes paid   - (50,314)
Net cash flow from operating activities   (79,022) 63,857
   
 
 
Net cash flow arising from acquisitions  (508,639) 
 
(1,181,385) 
Purchase of property, plant and equipment  (24,555) 
 
(236,550) 
Disposal of property, plant and equipment   - 
 
25,545 
Dividends received from subsidiary undertakings 13 745,272 
 
729,680 
Net cash flow from investing activities  212,078 
 
(662,710) 
   
 
 
Proceeds from the issue of share capital  548,536 
 
440,218 
Proceeds from finance leases   - 
 
171,000 
Repayment of borrowings  (339,708) 
 
(339,515) 
Change in intra group funding 31 (855,264) 
 
(624,241) 
Dividends paid 27 (77,212) 
 
(299,931) 
Net cash flow from financing activities  (723,648) 
 
(652,469) 
   
 
 
Decrease in cash and cash equivalents  (590,592) 
 
(1,251,322) 
Cash and cash equivalents at the start of the period 19 (1,644,909) 
 
(393,587) 
Cash and cash equivalent at the end of the period  19 (2,235,501) 
 
(1,644,909) 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
23 
 
1. FRESHWATER GROUP  
 
Freshwater Group (‘the Group’) comprises Freshwater UK Plc (the ‘Company’) and its subsidiary 
undertakings. The Company is a limited liability Company incorporated and domiciled in the United 
Kingdom. As at the 31 August 2010, the Group’s ordinary shares were traded on the Alternative 
Investment Market up until delisting on 22
 
November 2010. The Company’s registered number is 
4059741 (England and Wales) and its registered office is Raglan House, Cardiff Gate Business Park, 
Cardiff, CF23 8BA. 
 
2. AUTHORISATION OF FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE   
 
The Group and parent Company financial statements of the Company for the year ended 31 August 
2010 (‘the financial statements’) were authorised for issue by the Company’s Board on 16 December 
2010 and signed on the Board’s behalf by S B Howell and J H Evans. The financial statements have 
been prepared in accordance with International Financial Reporting Standards (‘IFRS’) adopted by the 
European Union (‘EU’) and in accordance with applicable provisions of the Companies Act 2006. 
 
3. BASIS OF PREPARATION   
 
 The financial statements have been prepared in accordance with IFRSs and International Financial 
Reporting Interpretations Committee (‘IFRIC’) interpretations issued and effective for the year ended 31 
August 2010.  
  
 The Directors’, at the time of approving the financial statements, have determined that there is a 
 reasonable expectation that the Company and the Group have adequate resources to continue in 
 operational existence for the foreseeable future. In reaching this conclusion the Directors’ noted that the 
 Company and the Group had net current liabilities on 31 August 2010 and considered the Company’s 
 and the Group’s recent and forecast financial performance. The current economic environment is 
 difficult. However, after taking into account a range of variances in the Company’s and Group’s forecast 
 financial performance and the arrangements in place with the Company’s and the Group’s bankers 
 described in notes 19 and 22 to the financial statements, the Directors’ consider that the Company and 
 the Group has, and should continue to have, adequate working capital to meet its requirements for 
 the foreseeable future. For this reason, the Directors’ have adopted the going concern basis in 
preparing the financial statements. 
 
a)  Adoption of Standards effective in 2009-10 
 
The following standards have been applied by the Group from 1 September 2009: 
 
• IFRS 8 – Operating Segments 
• IAS 1 (Revised) – Presentation of Financial Statements 
• IAS 23 (Amendment) – Borrowing Costs 
• IFRS 3 (Revised) - Business Combinations  
• IFRS 2 (Amendment) – Share-based Payments 
• IAS 27 (Amendment) – Consolidated and Separate Financial Statements  
• IFRS 7 (Amendment) – Financial Instruments: Disclosure 
• IAS 38 (Amendment) - Intangible Assets  
 
 
IFRS 8 – The adoption of IFRS 8 has not impacted on the disclosures in the Group financial statements. 
More detail is given in note 4 (c). 
 
IAS 1 – The revised standard has changed the way the Groups primary financial statements have been 
prepared. The revision required information to be aggregated on the basis of shared characteristics and 
introduced a ‘statement of comprehensive income’ to enable readers to analyse changes in an entity’s 
equity resulting from transactions with owners separately from ‘non-owner’ changes. The revisions 
included changes in the titles of the primary statements to reflect their function more clearly. The new 
titles have been adopted by the Group. There has been no material impact on the Group financial 
statements.   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
24
 
3. BASIS OF PREPARATION (CONTINUED) 
 
a)  Adoption of Standards effective in 2009-10 (continued) 
 
 IAS 23 – The amendment changes the previous version of the standard by removing the option to 
expense borrowing costs that relate to assets that take a substantial period of time to get ready for use 
or sale. Such borrowing costs are now required to be included in the cost of the fixed asset or inventory 
item to which they relate. The amendment has not had any material impact on the Group financial 
statements. 
 
IFRS 3 – The application of the revised standard has resulted in a material effect on the loss of the 
Group due to expensed acquisition costs.  See Note 4 (g) for more detail. 
 
IFRS 2 – The amendment clarified that vesting conditions are service conditions and performance 
conditions only, and that other features of a share-based payment are not vesting conditions. It also 
specified that all cancellations, whether by the entity or by other parties, should receive the same 
accounting treatment. The adoption of this amendment has not had any material impact on the Group 
financial statements. 
 
IAS 27 – The amendment introduced a requirement to account for all post-acquisition dividends as 
income in the parent’s own financial statements, irrespective of whether those dividends arose out of 
pre or post acquisition reserves. In accordance with the transitional provisions of the amendment this 
change has been prospectively applied to all dividends received from subsidiaries in the current year. 
There has been no material impact on the reported loss as there is a corresponding write down of the 
investment in the subsidiary. 
 
IFRS 7 – The amendment introduced a three-level hierarchy for fair value measurement disclosures and 
required entities to provide additional disclosures about the relative reliability of those fair value 
measurements. In addition the amendment clarified and enhanced liquidity risk disclosures to enable 
users to better evaluate the nature and extent of liquidity risk arising from financial instruments on how 
the entity managed that risk. The Group has provided these additional disclosures in the notes to the 
financial statements. 
 
IAS 38 – The amendments changed the probability criterion for separately acquired intangible assets 
and intangible assets acquired in a business combination. The presumption that the fair value of 
intangible assets acquired in a business combination can be reliably measured may no longer be 
rebutted. The amendment has not had any material impact on the Group financial statements. 
 
b) IFRS effective in 2009-10 but not relevant 
 
The following standards were mandatory for the Group for the current accounting period, but are not 
relevant to the operations of the Group: 
 
• IFRIC 17 Distributions of Non-Cash Assets to Owners  
• IFRIC 9 (Amendment) Reassessment of Embedded Derivatives  
• IFRIC 16 (Amendment) Hedges of a Net Investment in a Foreign Operation 
 
c) Standards and Interpretations issued but not yet applied 
 
Any standards and interpretations that have been issued but are not yet effective, and that are available 
for early application, have not been applied by the Group in these financial statements. Application of 
these standards and interpretations is not expected to have a material effect on the financial statements 
in the future. 
• IFRS 9 Financial Instruments 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
25 
 
4. SIGNIFICANT ACCOUNTING POLICIES 
  
The principal accounting policies applied in the preparation of the financial statements are set out 
below. These policies were consistently applied. The functional currency and presentational currency of 
the Group is Sterling. 
 
a)  Basis of consolidation 
 
 The Group financial statements consolidate the financial statements of the Company and the entities 
that it controls (its subsidiaries) drawn up to 31 August each year. Control comprises the power to 
govern the financial and operating policies of an entity so as to obtain benefit from its activities. The 
financial statements of subsidiaries are incorporated from the date of their acquisition, being the date on 
which control passed to the Group, and continue to be included until the date that such control ceases. 
The effects of intra-group transactions and intra-group balances are eliminated in full. 
 
b) Revenue and turnover 
 
 Revenue comprises professional fees and mark-ups. Professional fees and mark-ups are recognised in 
proportion to the extent to which the service to be provided under the related contract has been 
performed. Revenue is stated exclusive of value added tax. Turnover (billings) is revenue stated gross 
of marginal costs such as print costs and the purchase of advertising space that are incurred in 
providing a service and that in accordance with industry practice are marked up and passed on to 
clients. Amounts billed to clients in advance are carried in the statement of financial position as deferred 
income until the related service has been provided or the related cost incurred. Work carried out and 
costs incurred that are to be marked up and passed on to clients that have yet to be invoiced are 
included in accrued income.  
 
c) Operating segments 
 
The Group has adopted IFRS 8 Operating Segments during the year. IFRS 8 supersedes IAS 14 
Segmental Reporting being effective from accounting periods beginning on or after 1 January 2009. 
IFRS 8 requires that segmental information be disclosed on the basis of information reported to the chief 
operating decision maker. The Group considers that the role of chief operating decision maker is 
performed by the Group’s Board of Directors. IAS 14 required segmental information to be reported for 
business segments and geographical segments based on assets and operations that provide products 
and services subject to different risks and returns.  
 
 The adoption of IFRS 8 has not impacted on the disclosures in the Group financial statements. Although 
the Group has within it different entities located around the United Kingdom operating as wholly-owned 
subsidiaries, all their primary activities focus on the provision of public relations and marketing services. 
It is on this basis the Directors’ consider the Group to be one business segment assessable only by its 
performance as a whole and for the purpose of making decisions about its resources. 
 
d) Dividends 
 
 Dividends are recognised in the period in which they are considered to have become no longer at the 
discretion of the Company. Interim dividends are recognised in the period in which they are paid. Final 
dividends are recognised in the period in which they are appropriately authorised.  
 
e) Pension Costs 
 
The Group operates a defined contribution plan. A defined contribution plan is one where the Group 
pays fixed contributions into a separate entity. These contributions are expensed in the period in which 
they accrue.  
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
26 
 
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 
 
f) Property, plant and equipment 
 
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated 
impairment losses. The residual values of property, plant and equipment are reassessed annually and 
when there is an indication of a change in residual value. Freehold land is not depreciated. Property, 
plant and equipment is depreciated so as to write off cost less estimated residual value over its 
expected life on the following bases: 
 
• Leasehold land and buildings– 33% straight line 
• Plant and Machinery – 25% reducing balance  
• Motor Vehicles – 25% on cost 
• Fittings and equipment – 10% - 25% reducing balance  
 
g)  Business combinations within the scope of IFRS 3 (revised) – Business Combinations 
  
 In preparation of the financial statements for the year ended 31 August 2010, in accordance with IAS 1 
Presentation of Financial statements, it is relevant to gain an understanding of how IFRSs that relate to 
the current accounting year preparation, but have been revised since the prior year differ. It is therefore 
pertinent to understand the difference in applying IFRS 3 (revised) Business combinations as effective 
from accounting periods beginning from 1 July 2009, comparable with the original IFRS 3 Business 
combinations.  
 
 The main relevant differences in application relate to the previously allowable capitalisation of 
acquisition-related costs and the accepted measurement method of revaluing contingent consideration 
one year past an acquisition date. To the extent that the Group incurred acquisition-related costs during 
the current accounting year, they have been recognised as expenses in the statement of 
comprehensive income, whereas capitalisation would have been acceptable under the old standard. To 
the extent that contingent consideration has been revised since the prior year, revisions made have led 
to a movement in goodwill in the statement of financial position. 
 
Business combinations are accounted for in accordance with the purchase method. 
 
The cost of an acquisition is measured as the aggregate of the fair values, at the date of acquisition, of 
the assets given, the liabilities incurred and the equity interests issued in exchange for control of the 
acquiree. Acquisition-related costs such as accountancy and legal fees are not considered to form part 
of the cost of an acquisition and are recognised in the statement of comprehensive income as incurred. 
 
The acquiree’s identifiable assets and liabilities that meet the conditions for recognition are recognised 
at their fair value at the acquisition date albeit that exceptionally: 
 
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements 
are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee 
Benefits respectively;  
 
• liabilities or equity instruments related to the replacement of an acquiree’s share-based payment 
awards are measured in accordance with IFRS 2 Share-based Payment;  
 
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-
current Assets Held for Sale and Discontinued Operations are measured in accordance with that 
Standard. 
 
Goodwill is recognised equal to the excess of the aggregate of the cost of the acquisition, the amount of 
any non-controlling interest in the acquiree and, in the case of a business combination achieved in 
stages, the value of any previously held equity interest in the acquiree over the net of the identifiable 
assets acquired and liabilities assumed. In the event of a bargain purchase, the associated gain is 
recognised immediately in the statement of comprehensive income.  
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
27
   
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 
 
g)  Business combinations within the scope of IFRS 3 (revised) – Business Combinations 
(continued) 
 
If the initial accounting for a business combination is incomplete by the end of the reporting period in 
which it occurred, provisional amounts are reported for the items for which the accounting is incomplete. 
During the measurement period, the provisional amounts recognised at the acquisition date are 
adjusted retrospectively to reflect new information obtained about the facts and circumstances that 
existed at the acquisition date and which, if known, would have affected the measurement of the 
amounts recognised at that date. The measurement period is the period from the acquisition date to the 
date by which complete information has been received about the facts and circumstances at the 
acquisition date subject to a maximum of one year.  
 
h) Business combinations outside the scope of IFRS 3 (revised) – Business Combinations  
 
Certain business combinations fall outside the scope of IFRS 3 including combinations that involve 
entities or businesses under common control (e.g. Group restructurings). IFRS does not provide specific 
guidance on how to account for such combinations. In the absence of such guidance, the Group refers 
to IFRS 3 and other elements of generally accepted accounting practice and explicitly discloses the 
accounting treatment it has followed.  
 
i) Business combinations IFRS 3 (old standard) 
 
 Business combinations within the scope of IFRS 3 are accounted for under the purchase method. 
 
Goodwill comprises the excess of the cost of a business combination over the net fair value of the 
identifiable assets, liabilities and contingent liabilities acquired. The cost of a business combination is 
measured as the aggregate of the fair values at the date of acquisition of the assets given, the liabilities 
incurred or assumed and the equity instruments issued in exchange for control of an acquiree plus 
associated directly attributable costs. Goodwill is stated at cost less accumulated impairment losses. 
Where the cost of a business combination is less than the net fair value of the identifiable assets, 
liabilities and contingent liabilities acquired the associated gain is recognised in the income statement in 
the period of acquisition.  
 
The terms of a business combination may require for purchase consideration to be provided subsequent 
to the acquisition date. The value of such deferred consideration may additionally be dependent upon 
future events. In such circumstances, an estimate of the ultimate value of the deferred contingent 
consideration is recognised at the date of acquisition. Subsequent revisions are accounted for as a 
revision to the cost of the business combination and lead to a revision to the cost of goodwill associated 
with the combination. Such revisions are recognised prospectively in the accounting period that they are 
made if this after 12 months from the date of the business combination, otherwise they are recognised 
retrospectively. Deferred consideration is not discounted where the effect of such discounting is 
considered immaterial and is recognised as a liability or as a component of equity depending on its 
nature. 
 
j)   Goodwill  
 
Goodwill is otherwise stated at cost less accumulated impairment losses. Goodwill acquired in a 
business combination is allocated from the date of acquisition to the cash generating units that are 
expected to benefit from the synergies of the combination. In the event of the subsequent reorganisation 
of the cash generating units to which it has been allocated, goodwill is correspondingly reallocated. 
Cash generating units to which goodwill has been allocated are tested for impairment annually and 
whenever there is an indication that the unit may be impaired. An impairment review consists of 
comparing the carrying value of the cash generating unit including goodwill to its recoverable amount. 
The recoverable amount of a cash generating unit is the higher of its fair value less costs to sell and its 
value in use being an estimate of the present value of the future cash flows it is expected to generate.  
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
28 
 
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 
 
j)   Goodwill (continued) 
 
If the carrying amount exceeds the recoverable amount an impairment loss is recognised, firstly, by 
reducing the carrying amount of goodwill, and then by reducing the carrying value of the other assets of 
the cash generating unit on a pro rata basis. Impairment losses are recognised in the statement of 
comprehensive income. Impairments of goodwill are not subsequently reversed.  
 
k)  Other intangible assets  
 
Other intangible assets are as stated in accordance with IAS 38 Intangible Assets, at historical cost less 
accumulated amortisation and accumulated impairment losses. Where their useful lives are indefinite 
they are reviewed for impairment whenever changes in circumstances indicate their carrying value may 
not be recoverable. Where their useful lives are finite, they are amortised from the date they are 
available for use over their useful economic lives.  
 
Useful lives applicable are as follows: 
• Intellectual property – 20 years 
 
Amortisation is included in administrative expenses in the consolidated statement of comprehensive 
income.  
 
l)  Trade receivables 
 
Trade receivables are stated at the original invoice amount less allowances made for doubtful 
receivables. Provision is made where there is objective evidence that the Group will be unable to 
recover balances in full. Trade receivables are not discounted as the effect would not be material.  
  
m)  Derivative financial instruments  
  
The Group uses derivative financial instruments to reduce its exposure to interest rate movements. No 
derivatives are held for financial trading purposes. Derivative financial instruments are initially 
recognised at fair value at the contract date and continue to be stated at fair value at the statement of 
financial position date with gains and losses on revaluations being recognised immediately in the 
statement of comprehensive income. Derivatives are carried as assets where this fair value is positive 
and as liabilities where fair value is negative.  
 
n)  Cash and cash equivalents 
 
Cash and cash equivalents comprise cash on hand, demand deposits and short-term, highly liquid 
investments that are readily convertible to known amounts of cash and which are subject to an 
insignificant risk of change in value. The Group overdraft facility is an integral part of the Group’s cash 
management strategy and is considered to form part of cash and cash equivalents for the purposes of 
the statement of cash flows. 
 
o)  Trade payables 
 
 Trade payables are stated at cost. They are not discounted as the effect would not be material. 
 
p)  Borrowings 
 
Borrowings are initially recognised at fair value and are subsequently measured at amortised cost 
calculated in accordance with the effective interest method.  
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
29 
 
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 
 
q)  Leases  
 
Where the use of an asset is funded by leasing arrangements that give rights over the asset 
approximating to ownership, the asset is accounted for as if it has been purchased and recognised at 
the lower of fair value and the present value of the minimum lease payments. The capital element of the 
obligations, under the associated leasing arrangements, is shown as obligations under finance leases, 
and lease payments are apportioned between interest which is charged to the statement of 
comprehensive income and liability which reduces the outstanding obligation so as to give a constant 
rate of charge on the outstanding lease obligations. All other leases are considered operating leases 
and payments therefore are recognised as expenses in the statement of comprehensive income on a 
straight line basis over the lease term.   
 
r)  Deferred taxation 
 
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying 
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the 
computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences. 
Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available 
against which deductible temporary differences can be utilised. Exceptionally such assets and liabilities 
are not recognised if the temporary difference arises from the recognition of goodwill or the initial 
recognition (other than a business combination) of other assets and liabilities in a transaction that 
affects neither taxable profit nor accounting profit. The carrying amount of deferred income tax assets is 
reviewed at each statement of financial position date and reduced to the extent that it is no longer 
probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset 
to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply 
to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that 
have been enacted or substantively enacted at the statement of financial position date. 
    
s)  Share-based payments  
 
The cost of equity settled share option contracts is measured as the fair value of the associated options 
at the date of their grant. Fair value is calculated using the recognised Black–Scholes–Merton 
methodology. This cost is expensed on a straight line basis over the associated vesting period in a 
manner that reflects the expectation of the number of options that will eventually vest.  More particularly 
at each statement of financial position date before vesting the cumulative charge that should have been 
expensed in view of the extent to which the vesting period has expired and management’s then best 
estimate of the number of equity instruments that will ultimately vest is calculated. The movement in the 
cumulative expense since the previous statement of financial position date is then recognised as an 
expense in the statement of comprehensive income with a corresponding entry in equity.  
 
t)  Accounting estimates and judgements 
 
In applying the accounting polices detailed above, decisions sometimes have to be made as to the likely 
 outcome of future events. Those judgements and estimates made in preparing the financial statements 
 are based on historical experience and assumptions that the Directors’ believed were reasonable in the 
circumstances. 
 
The Directors’ consider the key judgements and estimates made in preparing the financial statements to 
have been those relating to: 
 
• the recognition of revenue in relation to contracts which straddle the year end; 
• the valuation of deferred contingent consideration; and; 
• the valuation of goodwill and other intangible assets 
  
 These judgements and estimates are discussed in more detail both above and in the relevant notes to 
 the financial statements.    
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
30 
 
 5. LOSS BEFORE TAX 
 
Loss before tax is stated after charging the following: 
    2010  2009 
   
 £  £ 
  Depreciation of property, plant and equipment  230,129  219,338 
  Amortisation of other intangible assets  4,504  4,984 
  Amounts payable under operating leases  429,716  478,803 
  Unrealised loss on derivative contract    16,816  56,951 
  Employee costs   3,258,560  4,135,849 
  Goodwill impairment  758,595  - 
  Acquisition costs  19,947  - 
 
Within depreciation of property, plant and equipment is £69,315 (2009: £10,000) relating to assets held 
under finance leases. Amounts payable under operating leases primarily relate to leases entered into in 
order to occupy office premises.  
 
Acquisition costs expensed in the consolidated statement of comprehensive income directly relate to the 
Profileplus UK Limited business combination. There is no comparable figure in the prior year relating to 
prior year acquisitions due to the changed application of IFRS 3 Business combinations no longer 
allowing the capitalisation of such costs. See note 4g. 
 
6. EXCEPTIONAL ADMINISTRATIVE EXPENSES   
 
    2010  2009 
   
 £  £ 
  Goodwill impairment loss  758,595 -
 
 As a result of an impairment review conducted on the carrying value of goodwill as at 31 August 2010, 
as detailed in note 12 an expense has been recognised in the consolidated statement of comprehensive 
income. 
 
7. EMPLOYEE COSTS 
 
    2010  2009 
   
 £  £ 
  Wages and salaries  2,919,337 3,644,440
  Social security costs  303,399 387,158
  Other pension costs  35,824 104,251
    3,258,560 4,135,849
 
 The Company is the sole employer within the Group. Bonuses dependent upon the achievement of 
certain financial and non-financial targets are payable to qualifying employees following the end of a 
financial year. Included in wages and salaries are bonuses of £nil (2009: £nil). The Group’s holiday year 
runs from 1 January to 31 December and employees are entitled to accumulate holiday not taken within 
a leave cycle subject to a maximum of five days. This must be taken within 12 months of the end of the 
associated leave cycle. Unused accrued holiday benefits vest upon the termination of employment and 
provision is made to reflect this.  
 
 The Group offers qualifying employees the opportunity to enter into a Group personal pension contract 
that provides money purchase benefits, at the Directors’ discretion. More generally, at the request of a 
qualifying employee, the Group will contribute an amount equal to 3% of their basic salary to a personal 
pension arrangement of their choice.  
  
 During the year the employer’s pension contributions were suspended for all staff between February 
and August 2010 to reduce costs in difficult trading conditions.    
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
31 
 
7. EMPLOYEE COSTS (CONTINUED) 
 
 
The average number of employees during the year including Executive Directors’ was as follows: 
 
    2010  2009 
  Directors    5 4
  Administrative  10 11
  Public Relations and Marketing Services   70 89
    85 104
 
8. FINANCIAL INCOME AND EXPENSES 
 
    2010  2009 
   
 £  £ 
  Interest receivable on deposits  - 8,106
    
  Interest payable and charges on borrowings and overdrafts  59,005 81,011
  Finance lease and hire purchase contracts costs   19,592 15,000
    78,597 96,011
 
 
9. TAXATION 
 
    2010  2009 
   
 £  £ 
  Current taxation  
  UK corporation tax on profits for the year  30,668 85,610
  Adjustments relating to UK corporation tax on prior year profits  134 (72,995)
    
  Deferred taxation  
  Origination and reversal of temporary differences  (21,401) 21,798
    
  Income tax expense  9,401 34,413
    
  (Loss) / Profit before tax  (668,194) 240,012
    
  Effective tax rate   (1.41%) 14.33%
    
  
(Loss) / Profit before tax at the std rate of UK corporation tax of 28% 
(2009: 28%) 
 
(187,094) 67,203
    
  Adjustments relating to UK corporation tax on prior year profits   134 (72,995)
  Goodwill impairment  113,833 -
  Non deductible expenses  90,128 15,948
  Capital allowances below depreciation  20,287 9,675
  Marginal relief  (5,312) (1,594)
  Other timing differences  (1,174) (5,622)
  Movement on deferred tax balances   (21,401) 21,798
  Income tax expense  9,401 34,413
 
Effective tax rates of (1.41%) and 14.33% for the year ended 31 August 2010 and the year ended 31 
August 2009 reflect the resolution of a number of one-off issues relating to the taxation of the pre-
acquisition profits of acquisitions in the prior year and significant goodwill impairment in 2010.  
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
32 
 
 
10. AUDITORS’ REMUNERATION 
 
    2010  2009 
   
 £  £ 
  Fees payable by the Company to the Company’s auditors for the audit of  
  the Company’s annual accounts  9,500 9,500
  Fees payable by the Group to the Company’s auditors for other services:  
  Audit of the Company’s subsidiaries  54,500 63,660
  Tax Services  11,033 20,100
  Other services  4,800 3,850
    79,833 97,110
  
The Directors’ considered the auditors to be best placed to provide the non-audit services above. The 
Audit Committee reviews the nature of non-audit services to ensure independence is maintained.  
 
 
11. PROPERTY, PLANT AND EQUIPMENT 
  
 a) Group  
 
  
 
 Leasehold 
land and 
buildings 
 
Plant and 
machinery 
 
Motor 
vehicles  
 
Fittings and 
equipment 
 
Total  
  
 
 £  £  £  £  £ 
  Cost  
  31 August 2008 158,076 310,191 88,397 1,673,675 2,230,339
  Acquisitions - - - 58,780 58,780
  Additions - - - 275,287 275,287
  Disposals (504) -(31,725) - (32,229)
  31 August 2009 157,572 310,191 56,672 2,007,742 2,532,177
  Acquisitions  -- - 5,309 5,309
  Additions  - - - 21,587 21,587
  Disposals  - - - - -
  31 August 2010  157,572 310,191 56,672 2,034,638 2,559,073
   
   
  Depreciation  
  31 August 2008 90,845 286,342 51,458 928,952 1,357,597
  Acquisitions - - -33,235 33,235
  Disposals - -(22,280) - (22,280)
  Charge for the year 36,987 5,322 16,609 160,420 219,338
  31 August 2009  127,832 291,664 45,787 1,122,607 1,587,890
  Acquisitions  - - - 2,341 2,341
  Disposals  - - - - -
  Charge for the year   21,173 4,169 10,885 193,902 230,129
  31 August 2010  149,005 295,833 56,672 1,318,850 1,820,360
   
  Net book value 
  31 August 2010  8,567 14,358 - 715,788 738,713
  31 August 2009 29,740 18,527 10,885 885,135 944,287
  31 August 2008 67,231 23,849 36,939 744,723 872,742
   
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
33 
 
11. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 
 
The net book value of assets held under outstanding finance leases included above is: 
 
   2010  2009 
   
£  £ 
  Motor vehicles - 10,885
  Fittings and equipment 113,314 171,744
   113,314 182,629
  
A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of 
an asset. Title may or may not eventually be transferred. To the extent that assets held under 
outstanding finance leases relate to the £76,744 finance lease as described in note 22, on completion of 
the lease subject to using the Company’s option to purchase the assets, title will transfer to the 
Company. To the extent that assets held under outstanding finance leases relate to the £95,000 finance 
lease as described in note 22, title will not transfer to the Company until the subsequent completion of 
ten annual secondary period repayments. 
 
b) Company 
 
 
Leasehold 
land and 
buildings 
 
Plant and 
machinery 
 
Motor 
vehicles  
 
Fittings and 
equipment 
 
Total  
 
 £  £  £  £  £ 
Cost  
31 August 2008 - 39,349 - 606,373 645,722
Acquisitions - - -58,780 58,780
Additions - --237,029 237,029
Disposals - --(58,780) (58,780)
31 August 2009 - 39,349 - 843,402 882,751
Acquisitions -- - 5,309 5,309
Additions - --21,587 21,587
Subsidiary 
transfers in 
157,572         270,803 56,672 1,164,371 1,649,418
Disposals - --- -
31 August 2010 157,572 310,152 56,672 2,034,669 2,559,065
 
 
Depreciation  
31 August 2008 - 32,314 - 140,443 172,757
Acquisitions - - -33,235 33,235
Disposals - --(33,235) (33,235)
Charge for the 
year -1,571-102,568 104,139
31 August 2009  - 33,885 - 243,011 276,896
Acquisitions  -  - - 2,341 2,341
Subsidiary 
transfers in 
  127,832 257,740 51,519 881,793 1,318,884
Disposals - -- - -
Charge for the 
year  
 21,173  4,169 5,153 191,736 222,231
31 August 2010 149,005 295,794 56,672 1,318,881 1,820,352
 
Net book value 
31 August 2010  8,567 14,358 - 715,788 738,713
31 August 2009 - 5,464 - 600,391 605,855
31 August 2008 - 7,035 - 465,930 472,965  
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
34 
 
11. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 
 
Changes during the year 
 
To the extent that residual values of property, plant and equipment were previously presented in the 
financial statements of the Group’s wholly-owned subsidiaries as at 31 August 2009 all balances were 
transferred into the Company’s statement of financial position at book value. This increased the 
Company’s property, plant and equipment net book value by £330,534. The net book value of assets 
held under outstanding finance leases included above is: 
 
    2010  2009 
   
 £  £ 
  Fittings and equipment  113,314 171,744
 
 
12. INTANGIBLE FIXED ASSETS 
 
 a) Group  
 2010  2009 
 Goodwill   Other   Total   Goodwill   Other   Total  
 £££ ££ £
Cost 
Opening balance 10,424,615 81,712 10,506,327 8,948,338 81,712 9,030,050
Business combinations  351,000 - 351,000 1,475,001 - 1,475,001
Other -- - 1,276 - 1,276
Closing balance 10,775,615 81,712 10,857,327 10,424,615 81,712 10,506,327
 
Amortisation and impairment 
Opening balance 30,089 63,961 94,050 30,089 58,977 89,066
Impairment 758,595 - 758,595
Amortisation - 4,504 4,504 - 4,984 4,984
Closing balance 788,684 68,465 857,149 30,089 63,961 94,050
 
 
Carrying value at end of year  9,986,931 13,247 10,000,178 10,394,526 17,751 10,412,277
Carrying value at start of year 10,394,526 17,751 10,412,277 8,918,249 22,735 8,940,984
 
b) Company  
 2010  2009 
 Goodwill   Other   Total   Goodwill  Other  Total 
 £££ ££ £
Cost 
Opening balance 4,693,368 20,000 4,713,368 2,619,195 20,000 2,639,195
Business combinations  351,000 - 351,000 1,475,001 - 1,475,001
Group restructuring  153,822 - 153,822 599,172 - 599,172
Closing balance 5,198,190 20,000 5,218,190 4,693,368 20,000 4,713,368
 
Amortisation and impairment 
Opening balance 21,856 12,361 34,217 21,856 11,444 33,300
Impairment 327,102 - 327,102
Amortisation - 1,055 1,055 -917 917
Closing balance 348,958 13,416 362,374 21,856 12,361 34,217
 
 
Carrying value at end of year  4,849,232 6,584 4,855,816 4,671,512 7,639 4,679,151
Carrying value at start of year 4,671,512 7,639 4,679,151 2,597,339 8,556 2,605,895
     
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
35 
 
12. INTANGIBLE FIXED ASSETS (CONTINUED) 
 
There are no intangible assets classified as having an indefinite useful life in the Company or the Group 
other than goodwill. See below notes on measurement of goodwill.  
 
The other intangible assets represent Intellectual Property. None are individually material to the Group’s 
financial statements. The remaining amortisation periods of these assets are between one to thirteen 
years. No intangible assets are pledged as security for the Group’s liabilities. 
 
 Changes during the year 
 
Goodwill in the Group and Company statements of financial position increased by £380,000 during the 
year as a result of acquiring Profileplus UK Limited in March 2010. During the year, the Group and 
Company statements of financial position were also affected by a £29,000 reduction in goodwill 
resulting from the completion of the fair value measurement of acquisition costs provisionally capitalised 
in the prior year as accounted for in accordance with IFRS 3 Business Combinations (pre-revision). 
 
Goodwill in the Company’s statement of financial position also changed as a result of one of the 
Company’s subsidiaries, Freshwater Technology Limited, transferring its trade to another Group 
member. This transfer was done so as to help the Group reduce its administrative costs by centralising 
its operations in a smaller number of companies. The transfer constituted a business combination 
involving entities under common control. IFRS does not provide specific guidance on how such 
combinations should be accounted for. In accounting for the transfer, the carrying value in the 
Company’s statement of financial position of its investments in the subsidiaries was reduced by the 
goodwill carried in the Group’s consolidated statement of financial position in relation to this entity. 
Goodwill in the Company’s statement of financial position was increased by a corresponding amount. 
The accounting, which served to reflect the transfers of value between the Company’s subsidiaries, had 
no impact on goodwill recognised in the Group’s consolidated statement of financial position. 
 
Impairment testing of cash generating units to which goodwill has been allocated. 
 
The Group is considered to comprise a single cash generating unit and operating segment as defined in 
IFRS 8. In accordance with the Group’s accounting policy, the carrying value of this unit, including the 
goodwill in the Group’s consolidated statement of financial position, has been tested for impairment. 
This was done in a similar manner to prior years with the recoverable amount being taken as value in 
use calculated based on certain key assumptions. The key assumptions were: 
 
• Future time period – 10 years 
• The use of an EBITDA forecast, being a reasonable estimate for future cash flow 
• A positive growth rate of 2.5% 
• A discount factor of 7.5% 
 
Projected returns are calculated based on a detailed forecast for two years, and growth assumptions 
based on expected overall sector growth for up to 10 years (2009: 10 years). Expected future cash 
flows were based on the Group’s detailed budget for the financial year ending 31 August 2011 and the 
assumption that cash flows will grow steadily thereafter at 2.5% per annum (2009: 2.5%). The Directors’ 
are content that this growth is achievable, due to the relatively low base for the 2010-11 budget. In 
calculating value in use the present value was calculated using a pre-tax discount factor of 7.5% (2009: 
8%). In determining the assumptions used in this year’s impairment review management considered a 
range of factors including the Group’s historic performance, the Group’s cost of capital and the 
approach adopted by other organisations within the industry. The change in discount rate application is 
representative of a refined view taken based on lower costs of borrowing and the longer term outlook for 
interest rates. 
 
As a result of the impairment review, the Group’s carrying value of goodwill has been reduced in the 
statement of financial position to its recoverable amount through recognition of an impairment loss of 
£758,595. Consequentially, the impairment loss has been recognised in the statement of 
comprehensive income as an exceptional item. 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
36 
 
12. INTANGIBLE FIXED ASSETS (CONTINUED) 
 
The events and circumstances that led to the recognition of the impairment loss were the Group’s 
trading in a recession, political uncertainties and cuts in public spending. No other class of asset within 
the Group’s accounts was impaired other than goodwill. In the parent Company accounts, the 
impairment has been allocated against goodwill, investments and intercompany receivables. 
 
Accumulated consolidated goodwill impairment 
 
   
£ 
 
  Opening balance at 1 September 2008 -
  Impairment loss -
  Opening balance at 1 September 2009 -
  Impairment loss 758,595
  Closing balance at 31 August 2010 758,595
 
 
An analysis of the impairment loss allocation within the Group is provided below: 
 
   
 £      
  Freshwater Scotland Limited 30,053
  Freshwater Consumer Limited  11,710
  Freshwater UK Plc (‘the Company’) 327,102 
  Freshwater UK Plc (‘the Group’) 389,730
  Total impairment loss 758,595
 
Different assumptions could have resulted in adjustments to the impairment in the year. Using a growth 
factor of 1% rather than 2.5% would have resulted in a total impairment of £1,054,684, or using a 
discount factor of 8% would have resulted in an impairment of £1,057,078. 
 
13. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS 
 
    2010  2009 
   
 £  £ 
  Opening balance   7,345,832 8,019,378
  Business combinations (note 15c)  70,750 -
  Business combinations - Group restructuring (note 15b)    (150,655) (599,172)
  Dividends (see below)  (501,930) (74,374)
  Impairment  (389,730) -
  Closing balance  6,374,267 7,345,832
 
The Company considers a dividend paid by a subsidiary out of pre-acquisition reserves as a claw back 
of its original investment and does not recognise a gain, but instead correspondingly writes down the 
carrying value of its investment in that subsidiary. An analysis of the movement in the carrying values of 
subsidiary investments, corresponding to the dividends paid by wholly-owned subsidiaries, is provided 
below. 
 
    Group       
    2010       
   
 £      
  Freshwater Midlands Limited 229,323
  Freshwater Northern Limited  16,850
  Freshwater Technology Limited 185,007
  Profileplus UK Limited 70,750
   501,930  
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
37 
 
13. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS (CONTINUED) 
 
An analysis of dividends received from subsidiaries recognised as gains is provided below: 
 
 
    Group       
    2010       
   
 £      
  Freshwater Midlands Limited 43,400
  Freshwater Northern Limited  21,481
  Freshwater Technology Limited 2,707
  Freshwater Southern Limited 17,422
  Freshwater Wales Limited 58,332
  Freshwater Public Affairs Limited 100,000
   243,342
 
Impairment of £389,730 has been recognised in line with the impairment review carried out at Group 
level.  
 
 
14. SUBSIDIARY UNDERTAKINGS 
 
The Company owns 100% of the ordinary share capital and controls 100% of the voting rights in the 
following companies. The companies are registered in either England and Wales or Scotland and 
operate solely in the UK, apart from Freshwater Public Affairs Limited which maintains a small operation 
in Brussels, and Freshwater (UK Regions) Limited which operates in the UK and the Republic of Ireland.  
 
    
  Entity Acquired Principal activity 
  Freshwater Scotland Limited November 2004 Public Relations 
  Freshwater Healthcare Limited  May 2006 Public Relations 
  Merlin Marketing and Creative Limited July 2006 Public Relations and Marketing Services 
  Freshwater Consumer Limited  February 2007 Public Relations 
  Freshwater (UK Regions) Limited  November 2007 Public Relations 
  Waterfront Conference Company Limited December 2007 Conferences 
  Freshwater Public Affairs Limited December 2007  Public Relations 
  Profileplus UK Limited  March 2010  Dormant (see note 15) 
  Freshwater Restoration Limited July 2006 Dormant 
  (formerly Freshwater Wales Limited)   
 
  
 Since 31 August 2009, the following subsidiaries have been dissolved. Prior to dissolution, these 
entities had been dormant their trades having been transferred to other Group members to help the 
Group reduce its administrative costs by centralising its operations in a smaller number of companies. 
The transferred trades continue as going concerns within other subsidiaries.   
 
    
  Entity Acquired Dissolved 
  Freshwater Midlands Limited June 2005 September 2010 
  Freshwater London Limited   December 2005 November 2009  
  Freshwater Technology Limited March 2006 October 2010 (see note 15) 
  Freshwater Northern Limited April 2006 October 2010 
  Freshwater Southern Limited July 2006 October 2010 (see note 15) 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
38 
 
15. BUSINESS COMBINATIONS   
 
Information on business combinations effected in the current year and on those business combinations 
effected in prior years, which remained provisionally accounted for in the prior year financial statements, 
is provided below. The information is organised in chronological order. 
 
a) Life Communications 
 
On 1 July 2009, the Company acquired the business and certain of the fixed assets of a sole trader, 
 Life Communications. At the date of acquisition Life Communications was a Northern Ireland based 
public relations and marketing services agency. Life Communications provided expansion to the 
Group’s existing consumer division, as well as increasing the regional spread, providing services to both 
Northern Ireland and Eire clients. The acquisition was done in line with the Group’s objective of 
constructing a major regional specialist PR and marketing Group. 
 
To obtain control, initial consideration comprised a cash payment of £300,000 and the issue of 263,505 
10p ordinary shares. The contingent consideration provided for included the promise of a cash payment 
dependent on the agreed value of the fixed assets acquired at the completion date. It also included the 
promise of a cash payment dependent on the financial performance of the acquired business in the first 
year subsequent to completion, and the promise of a further cash payment dependent on the financial 
performance of the acquired business in the second year subsequent to completion. Up to 40% of the 
value of these cash payments at the option of the Company being able to be settled by it through the 
issue of 10p ordinary shares at the average quoted mid-market price of the Company’s shares in the 
last month of the respective earn out periods.  
 
 The goodwill that arose on the acquisition was representative of the future economic benefits that the 
Group expected to receive as a result of factors such as the brand, the employment contracts Life 
Communications was party to and the synergistic benefits the Group expects to see realised due to the 
acquisition. 
 
The goodwill of £1,146,000 associated with this business combination is deductible for tax purposes. 
 
 
   1 July 09  31 Aug 09  31 Aug 10 
   Provisional  Provisional  Final  
   Book Adj. Fair   Fair   Fair  
   
£ 
 
£ 
 
£ 
 
 
 
£ 
 
£ 
 
  Assets acquired 
  Fixed assets  25,545 - 25,545 25,545 25,545
  Net assets acquired  25,545 - 25,545 25,545 25,545
  Goodwill 1,175,000 1,175,000 1,146,000
   1,200,545 1,200,545 1,171,545
  Cost of business combination  
  Cash 300,000 300,000 300,000
  263,505 ordinary shares 100,000 100,000 100,000
  Contingent consideration 
  Fixed asset payment – cash  25,545 25,545 25,545
  Earn-out- cash paid (year 1) 350,000 350,000 280,000
  Earn-out- 368,034 ordinary shares (year 1) - - 70,000
  Earn-out- cash (year 2) – estimate 350,000 350,000 350,000
   725,545 725,545 725,545
  Direct costs – Initial estimate 75,000 75,000 75,000
  Final direct costs adjustment - - (29,000)
   1,200,545 1,200,545 1,171,545
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
39 
 
15. BUSINESS COMBINATIONS (CONTINUED) 
 
a) Life Communications (continued) 
 
The Company and vendor agreed that the fair value of each of the 263,505 10p ordinary shares issued 
upon completion should be considered 37.9p after due regard to the quoted mid-market price of the 
Company’s shares. The contingent fixed asset payment was agreed and paid in September 2009. The 
financial performance of the acquired business in the year subsequent to completion led to its vendor 
receiving a cash payment of £280,000 and being issued with 368,034 ordinary shares in August 2010. 
The estimate of the payment that will be made as result of the year two earn out arrangements is on the 
expectation that the acquired business goes through the top of its earn-out target. A reduced amount 
will be payable if this proves not to be the case.  
 
The acquired business contributed £510,737 to the Group’s revenue for the year ended 31 August 2010 
(2009: £152,841) as presented in the statement of comprehensive income. It is not possible to 
accurately separate the profit the acquired business contributed to the Group’s result in the year ended 
31 August 2010 as the Company has been fully integrated into the Group.   
 
b) Freshwater Southern Limited and Freshwater Technology Limited  
 
On 1 March 2010, Freshwater Southern Limited and Freshwater Technology Limited transferred their 
trades and certain assets to Freshwater Consumer Limited, a fellow wholly-owned subsidiary of the 
Company. The transferred trades continue as going concerns. The transfers were done to help the 
Group reduce its administrative costs by centralising its operations in a smaller number of companies. 
Each constituted a business combination involving businesses under common control. IFRS 3 does not 
provide specific guidance on how such combinations should be accounted for. In the absence of such 
guidance assets were transferred at book value and trades for nil value. In recognition of the transfers, 
the carrying value of the Company’s investment in Freshwater Technology Limited was reduced by 
£150,655 (being the carrying value of goodwill in the Group’s consolidated statement of financial 
position in relation to Freshwater Technology Limited) and goodwill in the Company’s statement of 
financial position increased by a corresponding amount.  
 
c) Profileplus UK Limited 
  
On 30 March 2010, the Company acquired control of Profileplus UK Limited. At the date of acquisition 
Profileplus UK Limited was a Scotland based public relations and marketing services agency. 
Profileplus UK Limited provided expansion to the Group’s existing Scotland division, as well as 
increasing the regional spread, providing services to a greater range of clients in Scotland including the 
leisure and lifestyle sectors. The acquisition was done in line with the Group’s objective of constructing 
a major regional specialist PR and marketing Group. 
 
Control was obtained by acquiring its ordinary share capital in exchange for a cash payment of 
£135,000, the issue of 126,390 10p ordinary shares and certain contingent consideration. The 
contingent consideration provided included the promise of an additional cash payment dependent on 
what subsequently was agreed as Profileplus UK Limited's net assets at the completion date. It also 
included the promise of a cash payment dependent on the financial performance of the acquired 
business in the first year subsequent to completion and the promise of a further cash payment 
dependent on the financial performance of the acquired business in the second year subsequent to 
completion. Up to 50% of the value of these cash payments may, at the option of the Company, be 
settled by the issue of 10p ordinary shares at the average quoted mid-market price of the Company's 
shares in the last month of the respective earn out periods.  
 
The goodwill that arose on the acquisition was representative of the future economic benefits that the 
Group expected to receive as a result of factors such as the brand, the employment contracts 
Profileplus UK Limited was party to and the synergistic benefits the Group expects to see realised due 
to the acquisition.  
 
The goodwill associated with this business combination is not deductible for tax purposes. 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
40 
 
15. BUSINESS COMBINATIONS (CONTINUED) 
 
c) Profileplus UK Limited (continued) 
 
   30 March 10  31 Aug 10   
   Provisional  Provisional   
   Book Adj. Fair   Fair    
   
£ 
 
£ 
 
£ 
 
 
 
£ 
 
 
  Assets acquired 
  Fixed assets 2,968 2,968 2,968 
  Debtors 24,029 24,029 24,029 
  Cash and cash equivalents 89,824 89,824 89,824 
  Creditors  (46,071) (46,071) (46,071) 
  Net assets acquired  70,750 70,750 70,750
  Goodwill 380,000 380,000
   450,750 450,750
  Cost of business combination  
  Cash 135,000 135,000
  126,390 ordinary shares 25,000 25,000 
  Contingent consideration  
  Net asset value – Cash  70,750 70,750
  Earn-out – Cash (year 1) – Estimate 110,000 110,000
  Earn-out – Cash (year 2) – Estimate 110,000 110,000
   450,750 450,750
  
The Company and vendor agreed that the fair value of each of the 126,390 10p ordinary shares issued 
upon completion should be considered 19.78p after due regard to the quoted mid-market price of the 
Company's shares. The estimates of the payments that will be made as a result of the earn out 
arrangements are on the expectation that the acquired business will go through the top of its earn-out 
targets. Reduced amounts will be payable if this proves not to be the case. 
                   
The acquired business contributed £136,446 to the Group’s revenue for the year ended 31 August 2010 
as presented in the statement of comprehensive income. It is not possible to accurately separate the 
profit the acquired business contributed to the Group’s result in the year ended 31 August 2010 as the 
Company has been fully integrated into the Group.   
 
The Group incurred £19,947 acquisition-related costs in the year, recognised as expenses in the 
statement of comprehensive income. 
 
The net asset value of £70,750 as at 31 August 2010 has not been settled in full. In accordance with the 
share purchase agreement the Company has retained £5,798 of the fair value of trade receivables until 
the debts are subsequently settled.  
 
On 1 April 2010, Profileplus UK Limited transferred its trade and certain assets to Freshwater Scotland 
Limited, a fellow wholly-owned subsidiary of the Company. The transferred trade continues as a going 
concern. The transfer was done to help the Group reduce its administrative costs by centralising its 
operations in a smaller number of companies. The transfer constituted a business combination involving 
businesses under common control. IFRS does not provide specific guidance on how such combinations 
should be accounted for. In the absence of such guidance, the assets were transferred at book value 
and the trade for nil value. In recognition of the transfer, the carrying value of the Company’s investment 
in Profileplus UK Limited was reduced by £380,000 (being the carrying value of goodwill in the Group’s 
consolidated statement of financial position in relation to Profileplus UK Limited) and goodwill in the  
Company’s statement of financial position increased by a corresponding amount. 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
41
 
16. FINANCIAL ASSETS AND LIABILITIES 
 
The tables below analyse the carrying value of financial assets and financial liabilities in the Group and 
Company statements of financial position. Further information on the classes that make up each 
category is  provided in  the notes indicated. The carrying value of each category is considered a 
reasonable  approximation of its fair value. Other than borrowings all amounts are due within one year. 
A maturity analysis of the Group’s and Company’s borrowings is provided in note 22.  
 
 a) Group 
 
    2010  2009 
   Note 
£  £ 
    
  Trade receivables 17 1,207,322 1,639,798
  Other receivables 17 - 12,722
  Loans and receivables  1,207,322 1,652,520
    
  Financial assets   1,207,322 1,652,520
    
  Bank overdraft 19 172,542 3,421
  Trade payables 20 642,788 752,886
  Other payables and accruals  20 316,005 414,465
  Borrowings  22 502,461 852,297
  Financial liabilities at amortised cost   1,633,796 2,023,069
    
  Derivative financial instrument 21 103,816 87,000
  Financial liabilities at fair value through profit or loss  103,816 87,000
    
  Financial liabilities   1,737,612 2,110,069
 
 
 
 b) Company  
 
    2010  2009 
   Note 
£  £ 
  Amounts owed by Group undertakings  31 1,733,513 909,815
  Loans and receivables  1,733,513 909,815
    
  Financial assets   1,733,513 909,815
    
  Bank overdraft 19 2,235,501 1,644,909
  Trade payables 20 144,213 197,808
  Other payables and accrued expenses 20 142,568 167,683
  Amounts owed to Group undertakings  31 953,604 654,609
  Borrowings 22 502,461 842,177
  Financial liabilities at amortised cost   3,978,347 3,507,186
    
  Derivative financial instrument 21 103,816 87,000
  Financial liabilities at fair value through profit or loss  103,816 87,000
    
  Financial liabilities   4,082,163 3,594,186
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
42
 
16. FINANCIAL ASSETS AND LIABILITIES (CONTINUED) 
 
During the year ended 31 August 2010 the Group and the Company faced credit risk, interest rate risk 
and liquidity risk as a result of their financial assets and liabilities. Neither faced significant currency risk 
being the risk that the fair value or future cash flows of a financial instrument will fluctuate because of 
changes in foreign exchange rates. There were no significant changes in the risks, the objectives, 
processes and policies for managing the risks or the methods used to measure the risks during the year 
ended 31 August 2010. 
 
Credit risk  
 
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party 
by failing to discharge an obligation. The Group faces credit risk as a result of offering credit terms to its 
customers and holding cash and cash equivalents with financial institutions. The Company faces credit 
risk as a result of advancing funds to other Group members and as a result of holding cash and cash 
equivalents with financial institutions. The Group seeks to mitigate the risk that arises from offering 
credit terms by performing credit checks before terms are advanced and thereafter actively monitoring 
amounts receivable and denying additional credit when appropriate. Funds advanced by the Company 
to other Group members are repayable on demand. The Company looks to mitigate the risk that arises 
from advancing such funds by monitoring Group members’ financial position and performance on an 
ongoing basis and denying additional credit where appropriate. The risk that arises as a result of holding 
cash and cash equivalents with financial institutions is mitigated by both the Group and the Company 
holding the majority of such amounts with the same recognised UK high street bank that provides the 
Group’s overdraft facility and that provided the Company’s floating rate borrowings. Both the Group’s 
and the Company’s maximum exposure to credit risk is equal to the value of loans and receivables. 
 
 Interest rate risk  
 
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate 
because of changes in market interest rates. The Group and the Company primarily face interest rate 
risk as a result of the Company’s floating rate borrowings, a derivative contract entered into by the 
Company and through holding cash and cash equivalents with financial institutions. See notes 19, 21 
and 22. 
  
 Liquidity risk 
 
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with 
financial liabilities. The Group’s financial liabilities include its borrowings and trade and other payables. 
See notes 20 and 22. Within the Group the responsibility for monitoring liquidity risk and for ensuring 
that Group members are adequately funded has been centralised and lies with the ultimate parent 
undertaking, Freshwater UK Plc, which leads all capital raising activities. Contractual maturity analysis 
for financial liabilities is shown in notes 20, 21 and 22. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
43 
 
17. TRADE AND OTHER RECEIVABLES 
 
    Group   Company 
    2010  2009  2010   2009 
   
 £ 
 
 £ 
 
 £ 
 
 £ 
 
  Gross trade receivables 1,215,033 1,667,763 - -
  Provision for impairment  (7,711) (27,965) - -
  Unimpaired trade receivables 1,207,322 1,639,798 - -
   
  Accrued income  458,435 436,374 3,000 3,327
  Prepayments  229,705 207,085 96,825 47,961
  Other receivables 38,657 12,722 31,021 -
   726,797 656,181 130,846 51,288
   
  Gross amounts owed by Group undertakings - - 1,775,276 909,815
  Provision for impairment - - (41,763) -
  
Unimpaired amounts owed by Group 
undertakings 
-- 1,733,513 909,815
  1,934,119 2,295,979 1,864,359 961,103
       
           
Impairment of £41,763 has been recognised in line with the impairment review carried out at Group 
level (discussed further in note 12). This impairment reduces the level of the amounts owed by 
Freshwater Scotland Limited by £30,053 and Freshwater Technology Limited (now Freshwater 
Consumer Limited) by £11,710. These companies were created to acquire the trade and assets of 
Reekie Limited and Black and White Communications Limited respectively. As such the parent 
Company provided an intercompany loan to enable the acquisitions. The goodwill for both of these 
subsidiaries is held within the respective subsidiary Company. The value of the goodwill has reduced as 
a result of the impairment review and this has been reflected by a reduction in the intercompany 
receivable due to Freshwater Plc from the two subsidiaries. 
 
None of the balances bear interest. An aged analysis of unimpaired trade receivables is provided below. 
An amount is considered past due if the counterparty has failed to make payment when contractually 
due. All other receivables are due within one year.  
 
       Past due but not impaired 
   
 
Total 
 
Not past 
due or 
impaired  < 30 days  
30-60 
days  
60-90 
days  > 90 days  
   
 £  £ 
 
 £ 
 
 £ 
 
 £ 
 
 £ 
 
  31 August 2010  1,207,322 610,156 275,436 232,139 21,675 67,916
     
  31 August 2009 1,639,798 785,560 558,035 194,360 87,338 14,505
 
 
An analysis of the movement in the provision for impairment is provided below.  
 
    Group  Group      
    2010  2009     
   
 £  £     
  Opening balance 27,965 30,755
  Acquisitions - 27,743
  Provision for impairment  - -
  Trade receivables written off  (20,254) (30,533)
  Closing balance  7,711 27,965
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
44
 
 
18. DEFERRED CONSIDERATION  
 
    Group   Company 
    2010  2009  2010  2009 
   
 £ 
 
 £ 
 
 £ 
 
 £ 
 
     
  Payable    
  Due in 1 year 467,990 350,000 467,990 350,000
  Due in more than 1 year but less than 2 years 110,000 350,000 110,000 350,000
   577,990 700,000 577,990 700,000
 
Deferred consideration payable of £577,990 at 31 August 2010 is the Group’s best estimate of the value 
it will have to pay as a result of the second year earn-out arrangements associated with the Company’s 
purchase of the business and assets of Life Communications and the first year and second year 
arrangements associated with the Company’s purchase of Profileplus UK Limited. See note 15. The 
Group has no other outstanding earn-out related obligations. 
 
A summary of deferred consideration by business combination is provided below.  
 
 
    Group  Group      
    2010  2009     
   
 £  £     
  Life Communications 350,000 700,000
  Profileplus UK Ltd  227,990 -
    577,990 700,000
 
 
19. CASH AND CASH EQUIVALENTS 
 
    Group   Company 
    2010  2009  2010  2009 
   
 £  £  £ 
 
 £ 
 
  Current account balances (172,542) (3,421) (2,235,501) (1,644,909)
  (172,542) (3,421) (2,235,501) (1,644,909)
 
  
Each Group member’s primary current account is with the same recognised UK high street bank. On 31 
August 2010, a Group overdraft facility was in place under which the aggregate of the balances on 
these accounts could be overdrawn by up to £400,000 subject to the aggregate of individual overdrawn 
balances not exceeding £2.3 million. Interest was payable at 4% above the counterparty bank’s base 
rate on any aggregate overdraft. Interest was receivable at 0% on any aggregate debtor balance. Any 
aggregate overdraft is secured by unlimited intercompany composite guarantees (under which Group 
members are jointly and severally liable for amounts outstanding) and various debentures by Group 
members in favour of the counterparty bank.  
 
 Bank covenant 
 
 Pre-defined cumulative EBITDA covenants were breached in May, June, July and August 2010, as 
defined in the supplemental agreement to the Group facility agreement. The breaches were anticipated 
and occurred due to a fall off in income in the Healthcare sector in these months. The bank waived the 
covenants in respect of these breaches and on 22 November 2010 a new Group overdraft facility was 
put in place. 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
45 
 
19. CASH AND CASH EQUIVALENTS (CONTINUED) 
 
New overdraft facility 
 
 In November 2010 a new Group overdraft facility was agreed allowing the aggregate of the balances on 
Group members’ primary current accounts to go overdrawn by up to a net limit of £550,000, but still 
subject to the aggregate of individual overdrawn balances not exceeding a £2.3 million gross limit. 
Interest is payable at 4% over the base rate to the extent that the aggregate of the balances on Group 
members’ primary current accounts total an amount up to the net limit. Interest is payable at 8% over 
the base rate to the extent that the aggregate of the balances on Group members’ primary current 
accounts exceed the net limit. The base rate on the date of the agreement 10
 
November 2010 was 0.5% 
per annum. A risk fee of £3,000, per month is payable in each month the Group does not meet its 
agreed EBITDA target. 
 
 The agreement will be due for review on 28 February 2011 at which time it is expected that the overdraft 
facility will reduce back down to £400,000. 
 
20. TRADE AND OTHER PAYABLES 
 
    Group  Company 
    2010  2009  2010  2009 
   
 £  £ 
 
 £ 
 
 £ 
 
  Trade payables 642,788 752,886 144,213 197,808
  Other taxes and social security  309,360 270,421 154,074 72,557
  Other payables and accrued expenses 316,005 414,465 142,568 167,683
  Deferred income  92,075 116,852 - -
  Amounts owed to Group undertakings - - 953,604 654,609
  1,360,228 1,554,624 1,394,459 1,092,657
 
None of the balances bear interest. An aged analysis of unimpaired trade payables is provided below. 
An amount is considered past due if the Group has failed to make payment when contractually due. All 
other payables are due within one year.  
 
a) Group 
 
   
 
Total 
 Due or 
due in 
less than 
1 month  
Due 
between 
1 to 3 
months  
Due 
between 
3 months 
to 1 year  
   
 £  £ 
 
 £ 
 
 £ 
 
 
  31 August 2010  642,788 130,334 417,690 94,764 
    
  31 August 2009 752,886 240,075 440,195 72,616
 
 
b) Company 
 
   
 
Total 
 Due or 
due in 
less than 
1 month  
Due 
between 
1 to 3 
months  
Due 
between 
3 months 
to 1 year  
   
 £  £ 
 
 £ 
 
 £ 
 
 
  31 August 2010  144,213 38,141 57,887 48,185 
    
  31 August 2009 197,808 52,256 144,148 1,404
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
46 
 
21. DERIVATIVE FINANCIAL INSTRUMENTS  
 
The Company currently has one derivative financial instrument, a free standing ten year sterling 
denominated amortising base rate swap to mitigate the Group’s exposure to interest rate risk as a result 
of the Company’s floating rate borrowings. This contract was entered into in March 2007. This base rate 
swap has been fair valued based on data supplied directly by the counterparty, and is effectively the 
market surrender value of the policy. Under the swap which had an initial nominal value of £900,000 the 
Company pays interest at a fixed rate of 5.6% in exchange for the counterparty bank's (floating) base 
rate. It does not qualify for hedge accounting and associated gains or losses are recognised in the 
Group’s consolidated statement of comprehensive income under administrative expenses. 
 
The following table provides an analysis of this financial instrument measured subsequent to initial 
recognition at fair value, Grouped into Levels 1 to 3 based on the degree to which the fair value is 
observable. 
 
• Level 1 fair value measurements are those derived from quoted prices in active markets for 
identical assets or liabilities. 
• Level 2 fair value measurements are those derived from inputs other than quoted prices included 
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or 
indirectly (i.e. derived from prices). 
• Level 3 fair value measurements are those derived from valuation techniques that include inputs 
for the asset or liability that are not based on observable market data (unobservable inputs). 
 
 
  Total derivative financial liabilities 
 
Total 
 
 Level 1  Level 2  Level 3 
   
 £  £ 
 
 £ 
 
 £ 
 
  Base rate swap  103,816 103,816 - -
 
 
The profile by maturity of the base rate swap as at 31 August 2010 and 31 August 2009 is as follows. 
 
Maturity profile of derivative financial liabilities 
  
 
 
Base rate swap 
 
 
  
   
 Within 1 
year 
 2 – 5 
Years 
 5 – 10 
years 
 Over 10 
years 
   
 £  £ 
 
 £ 
 
 £ 
 
  As at 31 August 2010 103,816 - - -
  As at 31 August 2009 87,000 - - -
 
  
The derivative financial liability has been shown as a current liability as it is not possible to accurately 
estimate how the derivative will unwind. Losses in the period are presented in the statement of 
consolidated income as follows (see note 5). The losses are unrealised. 
 
   
 2010 
£ 
 2009 
£ 
  
 
Base rate swap 
 
16,816 56,951
    16,816 56,951
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
47
 
22. BORROWINGS 
 
  31 August 2010 
 
Current  
> 1 but 
< 2 yrs  
> 2 but 
< 5 yrs  > 5 yrs  
Non 
current  Total 
   £ £ £ £ £ £
  Fixed rate      
  £76,744 finance lease 22,395 11,858 - - 11,858 34,253
  £95,000 finance lease  38,000 21,597 - - 21,597 59,597
  Various finance leases  - - - - - -
   60,395 33,455 - - 33,455 93,850
        
  Floating rate       
  £1.2 million term loan 304,248 - - - - 304,248
  £180,000 term loan 33,949 37,467 32,947 -70,414 104,363
   338,197 37,467 32,947 - 70,414 408,611
        
  Company  398,592 70,922 32,947 - 103,869 502,461
  Other Group members - - - - - -
   398,592 70,922 32,947 - 103,869 502,461
 
 
 
  31 August 2009 
 
Current  
> 1 but 
< 2 yrs  
> 2 but 
< 5 yrs  > 5 yrs  
Non 
current  Total 
   £ £ £ £ £ £
  Fixed rate   
  £76,744 finance lease 42,486 20,465 13,793 - 34,258 76,744
  £95,000 finance lease  35,751 38,709 20,540 - 59,249 95,000
  Various finance leases  10,120 - - - - 10,120
   88,35759,17434,333-93,507 181,864
    
  Floating rate   
  £1.2 million term loan 304,252 228,189 - - 228,189 532,441
  £180,000 term loan 27,715 36,249 74,028 - 110,277 137,992
   331,967264,43874,028-338,466 670,433
   
  Company  410,204 323,612 108,361 - 431,973 842,177
  Other Group members 10,120 - - - - 10,120
   420,324323,612108,361-431,973852,297
 
 
The above amounts exclude interest. The Group’s borrowings on 31 August 2010 and 31 August 2009 
with the exception of ‘Various finance leases’ lay entirely within the Company. Carrying value is 
considered a fair approximation of fair value.  
 
The Group’s borrowings on 31 August 2010 with the exception of ‘Various finance leases’ were with a 
single counterparty bank and secured by unlimited intercompany composite guarantees (under which 
Group members are jointly and severally liable for amounts outstanding) and various debentures by 
Group members in favour of the counterparty bank. The amounts outstanding under the finance leases 
entered into during the year ended 31 August 2009 are additionally secured against certain of the 
Group’s fixed assets. The interest rates and repayment terms associated with the Group’s borrowings 
on 31 August 2010 were: 
 
  Fixed rate  Interest rate    Repayment terms 
  £76,000 finance lease  8%  Level monthly payments of capital and interest over 2.5 years 
  £95,000 finance lease   10%  Level monthly payments of capital and interest over 2.5 years 
  
 
 
      
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
48 
 
22. BORROWINGS (CONTINUED) 
 
 Floating rate  Interest rate  Repayment terms 
  
£1.2 million term loan 
£180,000 term loan 
 Base + 2.25% 
Base + 2% 
 Monthly capital payments over 4 years 
Level monthly payments of capital and interest over 5 years 
       
 In November 2010, the Group agreed a further amendment to the £1.2 million term loan it entered in 
February 2007. At the date of the amendment £228,184 remained outstanding. The loans covenants 
were agreed to be removed and the loan thereafter to be repayable on demand. Monthly instalments 
continued to be settled at £25,353 per month due to complete in August 2011. The base rate on the 
date of the agreement 15
 
November 2010 was 0.5% per annum. 
 
 In January 2010 and subsequently on 10 March 2010 the Group agreed amendments to the £1.2 million 
term loan it entered in February 2007. At the date of both of the amendments, £380,307 remained 
outstanding. In January 2010 the balance outstanding changed to being repayable in monthly 
instalments of £25,353 starting in January 2011. On 10 March 2010 the balance outstanding changed to 
being repayable in monthly instalments of £25,353 starting in June 2010. 
 
In December 2009, the Group agreed an amendment to the £1.2 million term loan it entered in February 
2007. At the date of the amendment £380,307 remained outstanding. This is now repayable in monthly 
instalments of £25,353 starting January 2011. The Group’s borrowings have otherwise remained 
unchanged since 31 August 2009.  
 
In March 2007, the Company entered a free standing ten year sterling denominated amortising base 
rate swap to mitigate the Group’s exposure to interest rate risk as a result of its floating rate borrowings. 
Since entering the swap the Group has been exposed to interest rate risk through its floating rate 
borrowings to the extent that they have exceeded the swap’s amortised nominal value. See note 21. 
 
 
     2010  2009  2008   
   
  £ 
 
 £  £   
  Floating rate borrowings   408,611 670,433 1,010,683  
  Amortised nominal value of swap at year end    (789,198) (823,873) (863,425)  
     (380,587) (153,440) 147,258  
 
During 2010 and 2009 the Company was fully hedged. Consequently, taking into account the effect of 
the base rate swap, had interest rates differed during the last two financial years the Group’s reported 
(loss) / profit would remain unchanged. 
  
 
23. OPERATING & FINANCE LEASE COMMITMENTS  
 
 Operating leases 
 
 The minimum lease payments under non-cancellable operating leases were as follows: 
  
    Group   Company 
    2010  2009  2010  2009 
   
 £ 
 
 £ 
 
 £ 
 
 £ 
 
  Payable < 1 year 329,541 324,514 131,706 131,706
  Payable > 1 year < 5 years 395,707 681,262 208,535 340,241
  Later than 5 years - - - -
   725,248 1,005,776 340,241 471,947
  
The disclosed values relate to operating leases entered into in order to occupy office premises.  
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
49 
 
23. OPERATING & FINANCE LEASE COMMITMENTS (CONTINUED) 
 
 Finance leases 
 
All finance lease contracts are in the name of the Company, and therefore are the same for the Group. 
 
Further detail on how the leasing liabilities correspond with the Group’s total borrowings is contained in 
note 22. 
 
A reconciliation of the total minimum lease payments at the end of the reporting period, and their 
present value at the end of the reporting period is shown below. 
 
 Gross finance lease liabilities – minimum lease payments: 
         
              Group & Company  
    2010  2009  
   
 £  £  
  Payable < 1 year 60,395 78,237
  Payable > 1 year < 5 years 33,455 59,174
  Later than 5 years - 34,333
   93,850 171,744
  
 
 The present value of minimum lease payments: 
 
    Group & Company   
    2010  2009  
   
 £  £  
  Payable < 1 year 60,395 78,237
  Payable > 1 year < 5 years 31,121 55,046
  Later than 5 years - 29,709
   91,516 162,992
  
 All remaining finance leases are non-cancellable leases as defined by IAS 17 that are cancellable only: 
 
• Upon the occurrence of some remote contingency; 
• With the permission of the lessor; 
• If the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or 
• Upon payment by the lessee of such an additional amount that, at inception of the lease, 
continuation of the lease is reasonably certain. 
 
 Present values have been discounted at a pre-tax rate of 7.5%.  
 
 
24. DEFERRED TAXATION 
 
    Group  Company 
    2010  2009  2010   2009  
   
 £  £  £ 
 
 £ 
 
  Opening balance 64,517 42,719 48,537 30,925
  Charge (credit) for the year  (21,401) 21,798 (5,421) 17,612
  Closing balance 43,116 64,517 43,116 48,537
 
The provision for deferred taxation relates primarily to capital allowances.  
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
50 
 
25. SHARE CAPITAL AND RESERVES 
 
   Authorised 
Allotted, called up and 
fully paid 
   Ordinary Ordinary 
   
No 
 
Par No 
 
Par 
  31 August 2008  20,000,000 10p 12,569,014 10p 
  Authorised / issued  - 2,873,444 
  31 August 2009  20,000,000 10p 15,442,458 10p 
  Authorised / issued  - 3,518,581 
  31 August 2010  20,000,000 10p 18,961,039 10p 
 
 
The 20,000,000 authorised shares include 275,600 shares reserved for issue under share options as at 
31 August 2010 (2009: 229,400). 
 
Changes since 31 August 2009 
 
In March 2010, 126,390 shares were issued to the vendor of Profileplus UK Limited at a deemed issue 
price of 19.78p each. 
 
In April 2010, the Company raised additional funding through means of an open offer, issuing 3,024,157 
ordinary shares at 20.00p each to multiple investors. 
 
In August 2010, 368,034 shares were issued to the vendor of Life Communications at a deemed issue 
price of 19.02p. 
 
Other reserves 
 
Other reserves of £20,000 (2009: £20,000) are in relation to a share option reserve. 
 
 
26. SHARE PREMIUM  
 
 During the year £56,295 of costs directly attributable to the issue of ordinary shares in the Company 
were capitalised within the share premium account (2009: £29,628).    
 
27. DIVIDENDS 
 
   
 £ 
 
  Paid during the year ended 31 August 2009: 
  Final 2007/08 ordinary dividend at 1.5p per qualifying share 195,882
  Interim 2008/09 ordinary dividend at 0.75p per qualifying share 104,049
   299,931
 
   
 £ 
 
  Paid during the year ended 31 August 2010: 
  Final 2008/09 ordinary dividend at 0.5p per qualifying share 77,212
   77,212
 
The Directors’ have proposed no final ordinary dividend for 2010 (2009: 0.5p). 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
51 
 
28. SHARE OPTIONS  
 
 The Company entered into share option contracts with employees of the Group under the umbrella of 
an Enterprise Management Incentive Scheme in February 2005, January 2006, July 2006, July 2007, 
June 2008 and July 2010. The contracts provide employees with the option to acquire ordinary shares 
in the Company at a fixed exercise price. An employee’s ability to exercise this option is not subject to 
any vesting criteria other than the passage of time and his or her continued employment by the Group. 
Exceptionally the occurrence of certain defined control events may cause the options under the 
contracts to fully vest immediately. All the contracts have a ten year term and lapse inter alia upon an 
employee either giving or receiving notice of the termination of his or her employment with the Group. 
Any obligations arising under the contracts are to be settled by the Company through the issue of new 
shares at the relevant exercise price.   
 
 The Company determines the fair value of the share option contracts it enters on the grant date, adjusts 
this to reflect its expectation of the options that will ultimately vest and then expenses the calculated 
balance on a straight line basis through its statement of comprehensive income over the expected 
vesting period with a corresponding credit to its share option reserve. Subsequent changes to the 
expectation of the number of options that will ultimately vest are dealt with prospectively such that the 
cumulative amount charged to the statement of comprehensive income is consistent with latest 
expectations. Subsequent changes in what is considered to have been the fair value of options at the 
grant date do not impact the amount charged to the statement of comprehensive income. 
 
The Company determines the fair value of the share option contracts it enters using the recognised 
Black-Scholes-Merton methodology. 
 
There is no share based payment charge in either the current or the prior year as the market value of 
the Company’s shares is significantly lower than the exercise price of recent option contracts. 
The fair value of shares options in issue as at 31 August 2010 is disclosed in the statement of financial 
position as other reserves. 
 
29. EARNINGS PER SHARE 
 
 Basic earnings per share 
    2010  2009 
   
 £ / no.  £ / no. 
  
(Loss) total comprehensive income attributable to ordinary 
shareholders 
 
(677,595) 205,599
  Weighted average number of ordinary shares  16,639,248 13,411,534
    
  Basic earnings per share   (4.07)p 1.53p
 
Diluted earnings per share 
    2010  2009 
   
 £ / no.  £ / no. 
  
Total comprehensive income attributable to ordinary shareholders 
(diluted) 
 
- 205,599
     
  Weighted average number of ordinary shares  - 13,411,534
  Adjustment - Share options  - -
  Adjustment – Business combinations - Contingent share consideration  - 657,713
  Weighted average number of ordinary shares (diluted)   - 14,069,247
    
  * Diluted earnings per share   - 1.46p
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
52 
 
29. EARNINGS PER SHARE (CONTINUED) 
 
Diluted earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the 
weighted average number of ordinary shares outstanding after adjusting these amounts for the effects 
of dilutive potential ordinary shares. Contingent share consideration is taken into account from the 
earlier of the beginning of the period and the date of the related business combination to the extent that 
the relevant conditions have been met by the statement of financial position date and the consideration 
is dilutive. In calculating diluted earnings per share for the year ended 31 August 2010 and the year 
ended 31 August 2009 the share option contracts entered into by the Company in February 2005, 
January 2006, July 2006, July 2007, June 2008 and July 2010 were considered antidilutive due to the 
exercise price being greater than the Company’s recent share price.  
 
* As the result for the year ended 31 August 2010 is a loss, any conversion of the remaining contingent 
share consideration would have an anti-dilutive effect on earnings per share. Consequently earnings per 
share and diluted earnings per share are the same and the calculation has not been included. 
 
30.  CAPITAL MANAGEMENT 
 
 Capital is defined as equity plus borrowings.  The Group’s capital structure is driven by the parent 
Company which drives all assessment of risk and leads in all capital raising activity. The Group is not 
subject to any externally imposed capital requirements. In managing its capital structure the Group’s 
objective is to safeguard the Group's ability to continue as a going concern, managing cash flows so 
that it can continue to provide returns for shareholders.  
 
 Changes in economic conditions impact on the risk assessment the Group takes in conjunction with its 
primary objectives. In order to maintain or adjust the capital structure the Group may adjust the amount 
of dividends paid to shareholders, issue new shares or sell assets to reduce debt. 
 
 The Group refers to a variety of ratios when considering its capital structure including the gearing ratio 
defined as borrowings divided by total capital and interest cover defined as operating profit divided by 
net interest expense. The table below identifies these ratios at the end of the current and prior financial 
year. It should be noted that these ratios are dynamic and that in the case of the Group which is growing 
and whose capital structure is constantly evolving are best considered over a period of time as opposed 
to at a given point in time.   
 
 
    2010  2009 
   
 £  £ 
  Borrowings   502,461 852,297
  Equity   9,836,317 9,947,588
  Capital   10,338,778 10,799,885
     
  Gearing ratio  4.9% 7.9% 
     
  Interest cover   (7.5) 3.7
 
 
 
 
 
 
 
 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
53 
 
31. RELATED PARTY DISCLOSURES 
 
 a) Group 
 
 Key management personnel 
 
The Group's key management personnel are those persons having the authority and responsibility for 
planning, directing and controlling the significant elements of the Group's activities. Details of the 
compensation that became payable during the year to the Group's key management personnel are 
provided below: 
 
 
   
 Directors’ of the 
Company 
 
Other 
    2010  2009  2010  2009 
   
 £  £ 
 
 £ 
 
 £ 
 
  Wages and salaries 317,350 447,832 737,117 587,659
  Social security costs  30,760 43,542 78,956 68,681
  Other pension costs  5,942 17,751 11,789 69,812
   354,052 509,125 827,862 726,152
 
 b) Company 
 
 Key management personnel 
 
Details of the compensation that became payable during the year to the Company’s Directors’ are 
disclosed above. The highest paid Director received compensation (including pension contributions) of 
£105,395 (2009: £105,047). During the year contributions became payable by the Group in relation to 
the money purchase pension of 3 Directors’ (2009: 4). The contributions that became payable by the 
Group in relation to the highest paid Director amounted to £2,145 (2009: £5,189). 
 
Transactions with other Group members  
 
Since 1 September 2006, the Company has functioned as a service Company providing labour and 
administrative services to other Group members. The Company is the Group’s sole employer. During 
the year ended 31 August 2010 the Company charged other Group members £3,217,466 (2009: 
£4,099,365) for the provision of labour and £966,267 (2009: £914,846) for the provision of 
administrative services. The Company additionally settled other Group members’ VAT liabilities and 
received dividends in aggregate of £745,272 from other Group members (2009: £729,680). These 
amounts were settled in full by the year end. To the extent that dividends received by the Company 
have comprised distributions of pre-acquisition profits the Company has not recognised a gain but has 
instead correspondingly written down the value of its investments. See note 13. 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
   
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
54 
 
31. RELATED PARTY DISCLOSURES (CONTINUED) 
  
  The table below shows the amounts outstanding at the year end between the Company and other 
Group members. The movement on prior year balances is the result of cash transfers to/from the 
Company from/to other Group members.  All amounts are unsecured and payable on demand, to be 
settled in cash. The Company as parent of the Group guarantees that any subsidiaries with negative net 
assets will honour the associated debts. 
 
 
 
 
  
   
 Amounts owed by 
Group undertakings 
 Amounts owed to Group 
undertakings 
    2010  2009  2010  2009 
   
 £  £ 
 
 £ 
 
 £ 
 
  Freshwater Scotland Limited 591,790 547,479 - -
  Freshwater Midlands Limited - - - 4,472
  Freshwater Technology Limited - 75,832 - -
  Freshwater Northern Limited - - - -
  Freshwater Healthcare Limited - - 481,998 40,475
  
Merlin Marketing and Creative Limited 
(formerly Freshwater Creative Limited) 
484,861 133,765 - -
  Freshwater Southern Limited - 77,880 - -
  Freshwater Wales Limited - - - 211
  Freshwater Consumer Limited 12,268 - - 156,610
  
Freshwater (UK Regions) Limited 
(formerly Lynx Public Relations Limited) 
385,980 73,756 - -
  Waterfront Conference Company Limited 121,902 780 - -
  Freshwater Public Affairs Limited 136,712 323 - -
  Merlin Marketing and PR Limited  - - 471,606 452,841
   1,733,513 909,815 953,604 654,609
     
FRESHWATER UK PLC 
This draft produced on 20/11/2006   18:22 
NOTES TO THE FINANCIAL STATEMENTS  
FOR THE YEAR ENDED 31 AUGUST 2010  
55 
 
 
 
COMPANY INFORMATION 
 
 
Directors M-L Windeler (Non-executive Chairman) 
 S B Howell (Chief Executive) 
 J H Evans  (Finance Director) 
 J M Underwood (Executive Director) 
 D Howell (Non-executive Director) 
  
Secretary K J Tilley 
  
Company number 4059741 (England and Wales) 
  
Registered office Raglan House 
 Cardiff Gate Business Park 
 Cardiff 
 CF23 8RB 
  
Auditors PKF (UK) LLP 
 18 Park Place 
 Cardiff 
 CF10 3PD 
  
Bankers Royal Bank of Scotland 
 South Wales Commercial Office 
 3rd Floor 
 One Kingsway 
 Cardiff 
 CF10 3AQ 
  
Nominated advisor and broker Charles Stanley Securities 
 25 Luke Street 
 London 
 EC2A 4AR 
  
Registrars Capita Registrars Plc 
 Northern House 
 Woodsome Park 
 Fenay Bridge 
 Huddersfield 
 HD8 0GA 
  
Solicitors Martineau 
 1 Colmore Square 
 Birmingham 
 B4 6AA 
  
 
 
  10
UK PLC
Annual Report and Accounts 
FW Annual Report 10 Cover:Layout 2  16/12/10  14:53  Page 1