1. A financial healthcheck from annual accounts Rich Curran, KPMG 24 April 2015

2. Background and introduction Rich Curran Manager Advisory KPMG LLP Quayside House 110 Quayside Newcastle-upon-Tyne NE1 3DX Tel: +44 (0)191 401 3846 Mob: +44 (0)7798 581170 Fax: +44 (0)191 401 3750 Richard.Curran@kpmg.co.uk

3. 2 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Topics to cover Conducting a financial healthcheck from a set of accounts ■The purpose of annual accounts what is available at Companies House ■Strategic report ■Directors’ report ■Audits and audit opinions ■Profit & loss account/income statement ■Sensitivity analysis ■Balance sheet/statement of financial position ■Further ratio analysis and working capital cycles ■Notes to the accounts ■Wrap up and Q&A.

4. 3 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Purpose of the accounts and what is available The purpose of the annual accounts Report performance for the year to investors and stakeholders, including shareholders and lenders Who needs to produce accounts? All UK companies must produce accounts at the end of each year for shareholders, HMRC and Companies House. Abbreviated accounts: If the company is small then it is only required to produce abbreviated accounts (and does not require an audit unless compelled by 10% of shareholders): ■Turnover < £6.5 million. ■Assets < £3.26 million. ■Employees <50 on average. Overseas companies These will not be published on Companies House. Companies House ■Annual accounts ■Annual returns ■Is the company in a formal insolvency process? ■Who are the directors? Have they changed?

5. 4 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Strategic report A narrative overview of the company’s current and forecast performance… Strategy Performance review Future plans and opportunities Risks and mitigation Going concern Principal activities

6. 5 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Directors’ report List of directors for the year – and changes Results and dividends Charity/political donations Note on auditor disclosure and continuance Directors’ report

7. 6 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Audits and audit opinions What is an audit? Independent review of the accounts and opinion as to whether: ■They are a fair reflection of financial position; and ■They conform to accounting standards. Not to detect fraud, advise on investment etc. ) Unqualified/clean ■True and fair view ■Free from material misstatements ■Emphasis of matter? Qualified ■Disagreement on accounting/disclosures ■Emphasis of matter? Adverse ■Not to standards ■Not T&F ■Will not be accepted and must be re-done Disclaimer of opinion ■Couldn’t review all records Opinion And going concern issues…

8. 7 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Profit and loss accounts (P&Ls) Profit and loss account for NewCo Ltd for the periods ended 31 March 2015-2020 CYPY Sales/receipts/turnoverXX Cost of sales (X) Gross profitXX Operating expenses: Wages and salariesXX Administrative expenses: DepreciationXX AmortisationXX Net profit before finance chargesXX Interest payable (X) Interest receivableXX Net profit before tax (PBT)XX Tax(X) Profit after taxXX EBITDAXX ■Underlying profitability. Benchmarking and Maturity Trend analysis: what has changed from prior years? ■Gross margin = Gross profit/Sales. Is this an attractive market? ■Net margin = Net profit/Sales. Do they have a handle on costs? ■A loss in the some years might be palatable – but increases risk. ■Interest cover = Interest charge/Net Profit How easily can they afford finance?

9. 8 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Sensitivity analysis Sales up 10% Cost of sales up 5% Look at the effect on gross and net profit of changing some of the key numbers in the accounts.

10. 9 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Balance sheets Balance sheet for NewCo Ltd as at 23 March 2015 20152014 Fixed assets Fixtures and fittings X X IT infrastructure X X Plant and machinery X X Current assets Debtors due within one year X X Debtors due after more than one year X X Stock X X Cash at bank X X Current liabilities Creditors due within one year (X) Net current assets X X Total assets less current liabilities X X Long term liabilities Creditors due in over one year (X) Net assets X X Capital and reserves Called up share capital X X Profit and loss accountX X Shareholders funds (X) ■Leverage = debt/equity. ■A measure of risk. ■Net assets = shareholders funds – hopefully positive! ■The ‘acid test’: (Cash + short term debtors)/(short term liabilities)

11. 10 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Working capital cycle Working capital cycle = Debtor days + Stock days – Creditor days - TRENDS VAT & seasonality – countback, more accurate, and can be very different. Also requires more detail than account provide: ■Stock days = (stock/cost of sales)*365. How long does it take to turn stock into sales? ■Debtor days = (trade debtors/sales)*365. How long does it take to collect cash? ■Creditor days = (trade creditors/cost of sales)*365. How quickly does the company pay? NetGrossCalculationDays Debtors (from balance sheet)£24,575 March sales£14,228£17,073All 31 as £24,575 - £17,073 = £7,50231 February sales£5,895£7,074All 28 as £7,502 - £7,074 = £42828 January sales£6,444£7,733Apportion remaining amounts £428/£6,444*31 days2 Total61 days

12. 11 © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Notes to the accounts Set out the basis on which the statements are prepared, and make necessary disclosures: ■Accounting policies (Valuation basis of fixed assets/stock, amortisation, forex etc.) ■Director remuneration (appropriate?) ■Interest received and paid (is this killing profitability?) ■Tax and deferred tax ■Investments ■Fixed asset breakdown showing additions, disposals and deprecation (selling off? Large capex?) ■Stocks (old/obsolete?) ■Debtors and creditors – trade, connected, other, deferred (propped up by group?) ■Provisions, contingent liabilities and explanations (any legal cases, fines etc.) ■Pensions (any large deficits?) ■Connected party transactions ■Ultimate parent ■Subsequent events (anything material?)

13. Wrap up and Q&A Recap on main points: All companies must complete accounts – to different levels of detail and scrutiny; Accounts are designed to disclose the information that stakeholders and investors need relating to the previous 12 months and future trading. The Strategic report gives a narrative overview of performance and outlook – look at major contract changes, risks and opportunities, and going concern. The Directors’ report set out profit, dividend and director/auditor identity – look for changes. The Auditors’ opinion states whether the accounts give a true and fair view and are drawn up in accordance with the standards. The P&L shows profit for the year – Look at trends, margins and EBITDA The balance sheet shows assets and liabilities – look at working capital metrics, leverage and solvency The notes to the accounts contain various disclosures: look for provisions, connected party dealings, pension deficits Questions and discussion

14. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.