Final Results

AIM: KLN

24 April 2015

The Kellan Group PLC

("Kellan", the "Company" or "Group")

Preliminary Results for the year ended 31 December 2014

The Company is pleased to announce its annual results for the year ended 31 December 2014. Kellan is a market leading recruitment business operating across a wide range of functional disciplines and industry sectors.

Headline figures

· H2 2014 Revenue of £12.3 million grew by 15.2% compared with H1 2014 (£10.7 million); while H2 Net fee income (NFI) of £4 million grew by 2.6% compared to H1 2014 (£3.9 million).

· Full Year NFI of £8 million grew by 4.3% compared with 2013 NFI of £7.66 million, while Full Year Adjusted EBITDA profit of £0.73 million compared to a loss of £0.35 million in 2013. The year-on-year adjusted EBITDA movement represents a positive swing of £1.08 million.

· Total net loss for 2014 of £0.06 million compared with a net loss of £1.7 million in 2013.

· Operating profit of £0.26 million in 2014 compared with an operating loss of (£1.26) million in 2013.

· Continued streamlining with administrative expenses reduced by 13.3% year-on-year from £8.9 million in 2013 to £7.7 million.

· Loss of 0.02p per basic and diluted share (2013: loss 0.66p).

ENQUIRIES:

Executive Chairman's Statement

As many of you will be aware, the recruitment industry has demonstrated significant recovery this year, with the Recruitment & Employment Confederation's (REC) 2013/14 Recruitment Industry Trends Survey finding that revenue is now higher than before the recession.

Kellan Group's performance in 2014 is evidence of the Group taking advantage of an improving market, albeit there is still some way to go. The Group is well positioned to continue to grow in its markets throughout 2015 and beyond.

Having over 25 years' experience as a Board Executive, I feel confident that I can successfully lead the Kellan Group and the overall improved performance of the Group regarding EBIT. The underlying performance of the business is encouraging and I am delighted to join the Group at such a time. I look forward to working with the Board and senior management team to improve the success of each of the stable brands within the business.

The Board thanks Tony Reeves and Quentin Spratt for their efforts and contributions to the Group. I welcome Mark Darby on the Board and wish him every success for the future.

My sincerest thanks go to all our customers, staff and all our loyal shareholders for their long standing support and resilience.

Richard Ward

Executive Chairman

23 April 2015

Strategic report

Business Model

A review of the business and a detailed explanation of performance and key performance indicators is set out below.

Business review

With the UK recruitment market providing good opportunities with some specialist sectors doing significantly better than others, the Group has proactively taken the opportunity to ensure it is in the strongest position possible. Business operations are focussed in our core markets being Hospitality & Leisure, Technology and Accounting & Finance. While we also operate in certain other niche areas which make up our portfolio, our aim is to continue to develop our core businesses in major city centres. The diverse brands within the Group derisk the overall impact of an inconsistent market, and we saw some strong performances within various parts of our business during 2014. The consolidation of offices into multi sector operations has benefited the business in effective management and control along with developing critical mass creating a much improved and vibrant business environment.

The appointment of a specialist in areas of digital and social marketing is expected to provide much improved brand awareness of both candidate and client attraction through the utilisation of SEO, social media and web-based technologies. Recognising the candidate shortage and significant increase in demand for experienced people in all sectors we are well placed to reach our target audience through key investments in this area.

Berkeley Scott's temp business continued to grow over 2014 with the London Temp Chef Business doing particularly well. Several new national accounts were won including Pizza Express, Wyevale Garden Centre Group and Spudulike. The Group was also able to take advantage of higher demand in the branded restaurant market, in addition to focusing on the candidate short market for chefs and the high demand in the London hotel sector.

As part of a restructuring exercise and in order to maximize both cost efficiency and client service in areas of strong demand for both temp and perm teams, critical mass was developed through the recruitment of new talent in London, Manchester, Leeds & Bristol.

Berkeley Scott's perm recruitment operation benefited from better use of technology available to facilitate quicker and more effective client and candidate interaction. Significant investment in new training facilities in London enabled quicker on-line registration and training for candidates which in turn significantly improved operational efficiency. 2014 Revenue grew from £13.9 million to £15.8 million, which represents a 13.2% increase, while NFI grew from £4.5 million to £4.9 million, which represents a 10.5% increase. This resulted in a significant improvement in controllable contribution, which increased from £1.9 million to £2.7 million, an increase of 39.6%.

The RK Group saw a strategic integration of offices across the RK Accountancy business in 2014 to focus on core geographic accountancy and finance markets. Continuous investment in headcount growth in RK Finance has been made to increase market share over 2015. There has been good financial performance achieved by the Preston and Manchester teams over 2014 and the Leeds business was re-established. RK have recruited some first class talent to join the existing highly experienced team with the outlook and pipeline business being at its strongest for over 5 years.

Quantica Technology had a good end to 2014 with new staff bedding in well and providing consistent performance. The team was able to take advantage of demand from the Web Development market while making big strides in the growth of contract business in the UK, particularly from within the telecoms sector. While the perm market remains strong, the demand for contractors has seen a marked uplift over the second half of 2014.

The midlands operation needs to improve, whilst the London team saw a complete restructure with new experienced management being headhunted to lead the operation and significant headcount investment in the London Technology team. Presence also established in Leeds and Manchester; with some good prospects. We are now in an excellent position to capitalise on investments made to date and take advantage of this buoyant market. 2014 NFI of £1.2 million represents growth of 34.5% compared to 2013.

Financial Review

The Group's revenue for the year ended 31 December 2014 was £23 million representing a decrease of 1.8% (2013: £23.4 million). This produced Net Fee Income ("NFI") of £8 million for the year ended 31 December 2014, an increase of 4.3% (2013: £7.66 million). 2014 Full Year Adjusted EBITDA profit of £0.73 million compared to a loss of £0.35 million in 2013.

Summary Half-Yearly Sequential Movement 2013/2014

Good sequential NFI growth through 2013 and 2014 coupled with strong control of overheads has resulted in significant improvement in adjusted EBITDA from a loss of £515k in H1 2013 to a profit of £162k in H2 2013; profit of £344k in H1 2014 and earnings of £383k in H2 2014. Annualised productivity per fee earner also improved well from £91k in H1 2013 to £101k in H2 2013 to £108k in H1 2014 and £103k for H2 2014.

Administrative expenses have decreased to £7.7 million in the year ended 31 December 2014, from £8.9 million in 2013, which represents a reduction of 13.3% year-on-year.

Cashflow

Net cash inflow at an operating level was £0.91 million for the year ended 31 December 2014 (2013: outflow of £0.12 million). Investing activities comprised of capital expenditure of £237,000 (2013: £110,000). Net cash outflow from financing activities amounted to £305,000 (2013: inflow of £980,000) comprising movement on the invoice discounting facility balances and the servicing of loan interest. The net increase in cash and cash equivalents in the period was £374,000 (2013: £747,000).

Monitoring, risk and KPIs

Risk management is an important part of the management process throughout the Group. The composition of the Board is structured to give balance and expertise when considering governance, financial and operational recruitment issues. Meetings incorporate, amongst other agenda items, a review of monthly management accounts, operational and financial KPIs and major issues and risks facing the business.

The most important KPIs used in monitoring the business are as follows:

The principal risks faced by the Group in the current economic climate are considered to be financial, market and people related:

• Financial - The main financial risks arising from the Group's activities are liquidity risk and credit risk. These are monitored by the Board and are disclosed further in notes 1 and 16 of the financial statements.

Based on the Group's latest cash flow forecasts and current trading performance, it is not expected that any further funding will be required for the foreseeable future. The directors' consideration of the appropriateness of the going concern basis in preparing the financial statements is set out in note 1 to the financial statements.

• Market - the Group operates in a dynamic market place and constantly seeks to ensure the solutions it offers to customers are competitive. By operating in various diverse sectors, the Group is, to some degree, protected from a deteriorating market. The Group's predominance of permanent recruitment fees, generated mostly in the UK, represent a risk.

• People - In a people intensive business, the resignation of key individuals (both billing consultants and influential management) and the potential for them to exit the business taking clients, candidates and other employees to their new employers is a risk. Kellan mitigates this risk through a number of methods including the application of competitive pay structures and share plans to incentivise retention. In addition the Group's employment contracts contain restrictive covenants that reduce a leaver's ability to approach Kellan clients, candidates and employees for certain periods following the end of their employment with the Group.

The Strategic report was approved by order of the Board on 23 April 2015

Rakesh Kirpalani Richard Ward

Group Finance Director Executive Chairman

23 April 2015

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2014

The above results relate to continuing operations.

There are no other items of comprehensive income for the year or for the comparative year.

The notes form part of these financial statements.

Consolidated statement of financial position

as at 31 December 2014

The notes form part of these financial statements.

Consolidated statement of changes in equity

for the year ended 31 December 2014

The notes form part of these financial statements.

Consolidated statement of cash flows

for the year ended 31 December 2014

The notes form part of these financial statements.

Notes to the financial statements

1 Accounting policies

Basis of preparation

This announcement and the financial information were approved by the Board on 23 April 2015. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2014 and 31 December 2013. Statutory accounts for the years ended 31 December 2014 and 31 December 2013 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2014 was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The audit report for the year ended 31 December 2013 included an emphasis of matter in respect of a material uncertainty in respect of the ability to refinance the convertible loan notes of £1.36 million repayable in February 2015 if not already converted at that point in time and that if expected trading levels are not achieved there may be a requirement for additional funding.

Statutory accounts for the year ended 31 December 2013 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2014 will be delivered to the Registrar in due course.

Going concern

Measurement convention

Basis of consolidation

Property, plant and equipment

• motor vehicles and computer equipment 25%

• office equipment 10% - 33%

• short leasehold premises over the duration of the lease

Goodwill

Externally acquired intangible assets

Cash and cash equivalents

Impairment

The carrying values of assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated. Where the asset does not generate cash flows which are independent from other assets, the recoverable amount of the cash-generating unit to which the asset belongs is estimated.

The recoverable amount of a non-financial asset is the higher of its fair value less costs to sell, and its value-in-use. Value-in-use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit calculated using a suitable discount factor.

An impairment loss is recognised in the statement of comprehensive income whenever the carrying amount of an asset or cash-generating unit exceeds its recoverable amount

Goodwill is tested for impairment annually or whenever there is an indication that the asset may be impaired. Any impairment recognised on goodwill is not reversed.

The impairment review is assessed by reference to value in use, using internal forecasts and estimated growth rates to forecast future cash flows, and a suitable discount rate based on the Group's weighted average cost of capital. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

Provisions

Employee benefits

Share-based payment transactions

Revenue and income recognition

Expenses

Operating lease payments

Taxation

Financial assets

Financial assets are classified into the following specified categories: "financial assets at fair value through profit or loss (FVTPL)", and "loans and receivables". The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The Group does not hold any "held-to-maturity" investments or "available-for-sale" financial assets. The Group's accounting policy for each category is as follows:

Financial assets at FVTPL

This category comprises only in-the-money interest rate derivatives (see financial liabilities section for out-of-the-money derivatives). They are carried in the balance sheet at fair value with changes in fair value recognised in the consolidated income statement in the finance income or expense line. The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Loans and receivables

Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. They are initially measured at fair value and subsequently at amortised cost less any provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. This provision represents the difference between the asset's carrying amount and the present value of estimated future cash flows. The amount of the provision is recognised in the income statement.

Cash and cash equivalents include cash in hand, deposits at call with banks and bank overdrafts. Bank overdrafts where there is no right of set-off are shown within borrowings in current liabilities on the balance sheet.

Financial liabilities and equity instruments

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements. Financial liabilities are classified as either "financial liabilities at fair value through profit or loss (FVTPL)" or "other financial liabilities".

When the company issues multiple instruments in a single transaction the proceeds are allocated to each separate instrument in accordance with their respective fair values. Where convertible debt is issued the company determines the allocation of the proceeds to the debt and equity components by first of all determining the fair value of debt and then subtracting the amount of the debt from the proceeds of the instrument as a whole to determine the equity component.

Where a restructuring of debt arises the terms are reviewed to consider whether there has been a substantial modification and if so that there is an extinguishment of the existing debt and the recognition of a new financial liability based on the amended terms.

Financial liabilities at FVTPL

This category comprises only out-of-the-money interest rate derivatives. They are carried in the balance sheet at fair value with subsequent movements in fair value taken to the income statement in the finance income or expense line. Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.

Other financial liabilities

Trade and other payables are recognised on the trade date of the related transactions. Trade payables are not interest bearing and are stated at the amount payable which is fair value on initial recognition.

Interest bearing loans are recognised initially at fair value, net of direct issue costs incurred, and are subsequently carried at amortised cost using the effective interest method.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Adoption of new and revised standards

The new standards, interpretations and amendments, effective from 1 January 2014, have not had a material effect on the financial statements.

The amendments and interpretations to published standards that have an effective date on or after 1 January 2015 or later periods have not been adopted early by the Group and are not expected to materially affect the Group when they do come in to effect.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included below:

(a) Impairment of intangibles

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment and other assets where there has been an indication of impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Actual outcomes may vary particularly in light of the current volatility of the recruitment sector to changes in the wider macro-economic environment. More information including carrying values is included in note 10.

(b) Useful lives of intangible assets and property, plant and equipment

Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods. More details including carrying values are included in notes 9 and 10.

(c) Share-based payments

Employee services received are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options is estimated by using the Black Scholes valuation model on the date of grant based on certain assumptions. The charge also depends on estimates of the number of options that will ultimately vest based on the satisfaction of non-market and service vesting conditions. No options were granted in the current or the prior year.

(d) Determination of fair values of intangible assets acquired in business combinations

The fair value of brand names is based on the discounted estimated royalty payments that would have been avoided as a result of the brand name being used. The fair value of customer relations is based on the discounted

mean extended excess future cash flows from existing customers. These methods require the estimation of future cash flows, the choice of a suitable royalty and discount rates in order to calculate the fair values.

(e) Derivative instruments

The fair value of the Group's interest rate swap derivatives are determined using valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot always be substantiated by comparison with independent markets and, in many cases, may not be capable of being realised immediately.

(f) Onerous leases and dilapidations

Inherent uncertainties in estimates of rents that will be received in the future on vacant property when determining the onerous lease obligation and estimating the cost of returning the properties to their original state at the end of the lease.

(g) Convertible loan notes and warrants

The fair value of warrants is estimated by using the Black Scholes valuation model on the date of grant based on certain assumptions. In determining the fair value of the convertible option, estimates are made of the market rate of interest for similar company debt issues when discounting cash flows relating to the debt component.

(h) Permanent placement provision

A provision is made for the expected cost of meeting obligations where employees do not work for the specified contractual period.

2 Reconciliation of operating loss to Adjusted EBITDA and EBITA

3 Expenses and auditors' remuneration

Included in loss before tax is the following:

Auditors' remuneration:

Amounts payable to BDO LLP in respect of both audit and non-audit services are set out below:

4 Staff numbers and costs

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

The aggregate payroll costs of these persons were as follows:

Directors' and key management personnel remuneration:

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. During the period these were considered to be the directors of the Company.

There were 2 directors in defined contribution pension schemes during the period (2013: 2).

The total amount payable to the highest paid director in respect of emoluments was £164,791 (2013: £286,291). Company pension contributions of £12,336 (2013: £14,654) were made to a money purchase scheme on his behalf.

No options were exercised by directors during the current or prior periods.

5 Finance expense

6 Taxation

Reconciliation of effective tax rate

7 Loss per share

Basic and diluted loss per share

The calculation of basic loss per share for the year ended 31 December 2014 was based on the loss attributable to ordinary shareholders of £55,000 (2013: loss of £1,718,000) and a weighted average number of ordinary shares outstanding of 336,707,670 (2013: 268,439,113) calculated as follows:

There was no dilution in the current and prior period due to the loss in the period.

8 Operating segments

Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("Executive Chairman") in deciding how to allocate resources and in assessing performance.

The Group identifies its reportable operating segments by divisions, each of which is run by a divisional managing director. Each identifiable business division operates in a different market of recruitment, has its own brand, engages in business activities from which it may earn revenues and incur expenses, discrete financial information is readily available and its operating results are regularly reviewed by the Executive Chairman. Operating segment results are reviewed to controllable contribution level which is gross profit less employee costs and marketing costs directly controlled by the managing director of that division.

Each division derives its revenues from supplying one or more of contingent permanent, contract, temporary and retained search recruitment services. The RK Search and RKHR divisions have been aggregated as they individually fall under the threshold for separate disclosure and have similar economic characteristics.

Transactions with the Group's largest customer do not account for more than 10% of the Group's revenues and the Group's revenues attributed to foreign countries are immaterial for the purpose of segmental reporting.

Assets and liabilities are reviewed at a Group level and are not reviewed by the Executive Chairman on a segmental basis.

The total of the reportable segments' Adjusted EBITDA for the year agrees to the reconciliation to Group operating loss (see note 2).

9 Property, plant and equipment

10 Intangible assets

Goodwill

The impairment review undertaken in 2014 resulted in a nil impairment charge (2013: £102,000). The key assumptions used in the impairment testing were the discount rates and cash flows.

A discount rate of 13.24% (2013: 15%) has been applied to the CGUs listed above. Discount rates are based on management's assessment of specific risks related to the CGUs, which approximates to the Group's pre-tax weighted average cost of capital. An increase in the discount rate of 1% would not result in an impairment.

Cash flows for 2014 to 2019 are based on the forecast figures of each CGU for 2014 to 2019 based on a conservative approach whilst considering the anticipated economic conditions, corporate strategy and the related risk, market intelligence/sentiment and specific knowledge of the individual CGUs. Growth has been restricted to 3% for cash flows extending beyond five years. An adjustment to reduce the forecast cash flows by 5% would not result in an impairment.

11 Deferred tax assets and liabilities

At 31 December 2014 the amount of deductible temporary differences, unused tax losses and unused tax credits are as follows:

There is also a temporary difference in respect of the fair value adjustments for intangible assets on previous acquisitions of £595,000 (2013: £786,000) for which a corresponding deferred tax liability has been recognised and offset against an equivalent deferred tax asset in respect of unused tax losses, resulting in a net position of £nil. In respect of the excess balances from the table above, a deferred tax asset has not been recognised as there is insufficient evidence that future taxable profits will be available against which the asset can be utilised.

12 Trade and other receivables

An analysis of the allowance against accounts receivable and details of trade receivables past due and not impaired is included in note 16.

13 Cash and cash equivalents

14 Interest-bearing loans and borrowings

The carrying value and face value of loans and borrowings are as follows:

Terms and debt repayment schedule

The invoice discounting facility balance utilised of £2,429,000 (2013: £2,509,954) is secured through deeds of composite guarantees and mortgage debentures on Group companies. The invoice discounting facility has an interest rate of 2.2% above Barclay's base rate.

In February 2015, the Company reached an agreement with all holders of the £1,361,000 Loan Notes (originally repayable in February 2015), to repay one loan note holder £15,000 and extend the redemption date for the remaining £1,346,000 Loan Notes by a period of two years which will now be redeemable on 14 February 2017. The interest payable by the Company to the Loan Notes holders will be 10 per cent., payable in cash bi-annually, for the year to 14 February 2016, rising to 12 per cent, payable in cash bi-annually, for the year to 14 February 2017.

The Loan Notes can also be converted at the option of the note holders into ordinary share capital at any point up to the date of maturity.

The £600,000 of convertible loan notes issued during 2013, remain repayable at par in September 2017 with interest payable at a rate of 4% per annum. These loan notes are redeemable at the option of the Company at par value at any point up to the date of maturity. They can also be converted at the option of the note holders into ordinary share capital at a fixed share price but only to the extent that existing loan note holders in the Company convert some or all of their loan notes and only to the extent that the conversion would not result in Mr PA Bell holding an increased percentage interest in the Company as it was immediately prior to any conversion by an existing loan note holder.

The equity element of the convertible loan notes has been separately classified within equity and issue costs allocated to the respective debt and equity components.

The other loan with a value of £1,260,000 is with the major shareholder Mr PA Bell and is repayable in September 2017. Interest is payable on this loan at a rate of 4% per annum.

The convertible loan notes and other loan are secured on the assets of the Group but subordinated to the bank under the terms of an inter-creditor deed.

15 Trade and other payables

Trade payables are non-interest bearing and are normally settled within 45 day terms.

16 Financial instruments

Financial risk management

The Group is exposed through its operations to the following financial risks:

• liquidity risk;

• interest rate risk;

• credit risk; and

• foreign currency risk.

Liquidity risk

Liquidity risk is managed centrally on a Group basis. The Group's policy in respect of liquidity risk is to maintain a mixture of long term and short term debt finance, including an invoice discounting facility, to ensure the Group has sufficient funds for operations for the foreseeable future. Budgets and forecasts are agreed and set by the Board in advance to enable the Group's cash requirements to be anticipated.

Interest rate risk

Debt is maintained at bank variable rates which inherently bring interest rate risk and the Group makes use of interest rate collar swaps to achieve the desired interest rate profile. Convertible loan notes and related party loans are maintained at the fair value of interest rates on issue. The Group maintains detailed cash flow forecasts enabling it to factor incremental changes in interest rates into its risk profile and liquidity and react accordingly.

Credit risk

The Group's principal financial assets are bank balances and cash and trade and other receivables. The Group's credit risk is primarily attributable to its trade receivables.

The Group's policy in respect of trade receivables credit risk requires appropriate credit checks on potential customers before sales are made, the appropriate limiting of credit to each customer and the close monitoring of KPI trending such as days' sales outstanding and debtor ageing. The Group records impairment losses on its trade receivables separately from the gross receivable and calculates the allowance based on evidence of its likely recovery. At the balance sheet date there were no significant concentrations of credit risk.

The Group's credit risk on liquid funds is limited due to the Group's policy of monitoring counter party exposures and only transacting with high credit-quality financial institutions.

Foreign currency risk

The Group's foreign currency denominated activity is not significant and the impact of foreign exchange movements on reported profits, net assets and gearing are not significant. The day-to-day transactions of overseas branches are carried out in local currency and Group exposure to currency risk at a transactional level is minimal.

The Group does not enter into speculative treasury arrangements and there are no significant balances or exposures denominated in foreign currencies.

Capital risk management

The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern whilst optimising the debt and equity balance.

In managing its capital, the Group's primary objective is to ensure its ability to provide a return for its equity shareholders through capital growth. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, the Group considers not only its short-term position but also its long-term operational and strategic objectives. The Group's gearing profile, being the carrying amount of loans and borrowings of £5,413,000 (2013: £5,467,000) as a percentage of total equity £3,206,000 (2013: £3,126,000) decreased to 169% from 175% during the year.

Trade receivables impairment

Movement on trade receivables impairment provision:

The trade receivables past due and not impaired at the balance sheet date amounted to £1,755,000 (2013: £1,687,000) and comprised £1,391,000 (2013: £1,282,000) overdue by up to 30 days, £253,000 (2013: £255,388) overdue by 30-60 days and £111,000 (2013: £180,000) overdue by more than 60 days.

The directors consider that all these receivables are fully recoverable.

Categories of financial instruments

Financial assets

The financial assets of the Group comprised:

Financial liabilities

The financial liabilities of the Group comprised:

The invoice discounting balance amounted to £2,429,000 (2013: £2,510,000) and is secured by cross guarantees and mortgage debentures on certain Group companies. £1,222,000 of the convertible loan notes are unsecured (2013: £1,208,000), and the remaining £550,000 of convertible loan notes (2013: £540,000) are secured on the assets of the Group but subordinated to the £1,247,000 (2013: £1,209,000) other loan from Mr PA Bell which in turn is subordinated to the invoice discounting facility and overdraft under the terms of an inter-creditor deed.

The directors consider that the carrying amounts of financial assets and liabilities recorded at amortised cost in the financial statements approximate their fair values. The fair value of the items classified as loans and borrowings is classified as Level 3 in the fair value hierarchy: The fair value for disclosure purposes has been determined using discounted cash flow pricing models. Significant inputs include the discount rate used to reflect the associated credit risk.

Effective interest rates - Group

In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they mature.

The above table is based on the balances at the balance sheet date. The effect of future interest cash flows and sensitivities applied thereon can be determined from the above effective interest rates.

17 Employee benefits

Defined contribution plans

The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current period was £82,000 (2013: £75,000). £9,000 of pension contributions remained outstanding at the period end (2013: £10,000).

Share-based payments

Approved and unapproved share schemes

The Group has 2 share option schemes with options remaining unexercised at 31 December 2014:

2004 Approved EMI Scheme - 11,150,000 options remain unexercised at 31 December 2014

The ability of a company to utilise EMI options is governed by conditions, including those of size, that are prescribed by the HMRC. A reduction in headcount and net assets since 2009 has resulted in the Group becoming eligible to grant new EMI options during the year.

2008 Unapproved All Employee Scheme -1,026,667 options remain unexercised at 31 December 2014

Options granted to management under this scheme have vesting criteria including length of service, minimum trading performance levels and conditions related to the share price of the Group. There were no exercisable options in this scheme at the year end. All options granted have a contract life of 4 years.

The number and weighted average exercise prices of share options - are as follows:

The exercise price of options outstanding at the end of the period ranged between £0.02 and £0.03 (2013: £0.02 and £0.03) and their weighted residual contractual life was 6 years (2013:7 years). There were no options exercised during the current or prior period. The weighted average fair value of each option granted during the period was nil as no options were granted (2013: £nil).

The fair value of employee share options is measured using the Black Scholes model. No options were granted in 2014.

In 2014, the expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options). The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The total charge recognised for the period arising from share-based payments was £78,000 (2013: income £150,000).

18 Provisions

Onerous contracts and dilapidations predominantly relate to the costs payable on properties which have been vacated and incremental costs that will be incurred on exiting existing properties where a commitment to do so exists at the balance sheet date.

19 Capital

Share capital

The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company The deferred shares do not carry any dividend and voting rights and have limited rights in a winding up of the company.

In February 2014, the Company issued 1,626,757 ordinary shares of 0.01p each in settlement of interest of £32,535 on loan notes in issue. On 14 August 2014, 1,600,234 ordinary shares of 0.01p each were issued in settlement of interest of £32,005 on loan notes in issue.

20 Reserves

Share premium

The share premium account represents the excess of the proceeds from the issue of shares over the nominal value of shares issued less related issue costs.

Convertible debt reserve

The convertible reserve represents the equity component of the convertible loan note.

Warrant reserve

On 5 February 2010, 1,000,000 warrants were issued to the convertible loan note holders, with the right to subscribe for ordinary shares until 5 February 2015 at the lower of 6.5p per share or the price of any new issue, but not less than 2.0p per share. There are no other outstanding warrants at 31 December 2014. The warrant reserve reflects the fair value of the warrants issued with the convertible loan note and was measured using the Black Scholes model. These warrants were not exercised by 5 February 2015 and have now lapsed.

20 Reserves continued

Capital redemption reserve

The capital redemption reserve relates to the cancellation of the Company's own shares.

21 Operating leases

The total future minimum lease payments of non-cancellable operating lease rentals are payable as follows:

During the period £551,000 was recognised as an expense in the income statement in respect of operating leases (2013: £577,000), excluding amounts charged in respect of onerous contracts.

22 Related party transactions

On 27 September 2013, a loan facility of £1,260,000 was provided to the Company by Mr PA Bell, a major shareholder. As at 31 December 2014, an amount of £1,260,000 had been drawn down. There was interest of £37,000 paid for the year ended 31 December 2014 and a further £30,000 had been accrued which was paid in January 2015.

The ultimate controlling party of the Company is Mr PA Bell.

23 Post balance sheet events

In February 2015, the Company reached an agreement with all holders of the £1,361,000 Loan Notes (originally repayable in February 2015), to repay one loan note holder £15,000 and to extend the redemption date of the remaining Loan Notes by a period of two years which will now be redeemable on 14 February 2017. The Loan Notes currently have a redemption premium of 10 per cent which has been removed to allow for early repayment by the Company without incurring a penalty during the period to 14 February 2017.

24. Annual general meeting

The Annual General Meeting of the Company will be held at the Company's offices at 4th Floor, 27 Mortimer Street, London W1T 3BL on 21 May 2015 at 2.00 p.m.

Copies of the annual report will be available from the Company's offices and also from the Company's website www.kellangroup.co.uk.