Rising to the challenge. PA Consulting Group Limited Highlights of PA Consulting Group s financial statements 2009

Rising to the challenge PA Consulting Group Limited Highlights of PA Consulting Group s financial statements 2009

Report and Accounts 2009 Rising to the challenge This document is an extract from the Report and Accounts 2009. These financial highlights do not contain sufficient information to allow for a full understanding of the results of the group and state of affairs of the Company or the group. For further information, the full annual financial statements, the auditor s report on those financial statements and the directors report should be consulted. These financial highlights are not audited and do constitute statutory financial statements as defined by section 434 of the Companies Act 2006. The financial information included in these financial highlights has been extracted from the PA Consulting Group Limited financial statements for the year ended 31 December 2009. These financial statements were reported on by the auditors without qualification or an emphasis of matter reference and did not include a statement under section 498(2) or (3) of the Companies Act 2006. The PA Consulting Group Limited financial statements for the year ended 31 December 2009 will be delivered to the Registrar of Companies following the Company s Annual General Meeting. If you wish to request a printed copy of the full version, please visit: www.paconsulting.com/contact/annual-report-2009 1

Rising to the challenge Financial statements 3 Chief Financial Officer 5 Financial summary 6 Financial statements and supporting notes 2

Adrian Gardner, Chief Financial Officer Benefiting from our flexible and resilient business model In what was a particularly challenging year for the global economy, we achieved a good result in 2009 by continuing to win new work and by maintaining tight control over our costs. The flexibility and resilience of our business model meant that we were able to generate operating profits of 42.8 million. Our financial position remains strong and we ended the year with cash and short-term investments of 178.8 million and no debt. Turnover of 370.1 million (2008: 440.1 million) Total turnover for the year was 370.1 million (2008: 440.1 million). The geographical spread of Group turnover remains broadly similar to that of 2008, with a small increase in the share of Group turnover generated in the UK at 57.6% of total turnover (2008: 54.3%). Personnel and direct costs of 273.6 million (2008: 338.5 million) We maintain a tight control over all of our costs. In 2009, personnel and direct costs reduced by 19.2% compared to 2008. We have a substantial variable element to our compensation, so that any reduction in revenue is offset by a lower compensation cost. Bonuses are directly based on our consulting profitability and the total cost of bonus payments in 2009 was 41.3 million (2008: 67.2 million). To maintain our strong financial position, we removed personnel and other direct costs from the business without affecting our service to clients. Average consultant headcount in the year was 1,909 (2008: 2,021). Other administrative expenses of 52.9 million (2008: 56.4 million) We reduced administrative expenses (which include a substantial element of fixed costs) by 6.2% to 52.9 million (2008: 56.4 million). We achieved this through a number of measures, including a programme to reduce all aspects of our variable corporate overhead. Group operating profit of 42.8 million (2008: 44.2 million) Group operating profit was 42.8 million, a small reduction from the level in 2008. On a like-for-like basis, operating profit in 2009 reduced by approximately one-third. In 2008, the Group invested 8.3 million in the Ventures division, which was demerged part way through 2008 and so this cost did not recur this year. In both 2008 and 2009 there was an impact 3

from changes in the level of specific provisions, which, in 2009, provided a benefit to operating profit. Net interest receivable of 10.2 million (2008: 4.9 million) We held 178.8 million in cash and current asset investments at the year end (2008: 192.1 million). As a result of the reduction in UK bank base rates during the year, interest receivable on cash deposits declined to 5.3 million (2008: 10.3 million). Other interest receivable in 2009 was a non-cash item of 5.1 million arising from the release of a provision made in 2008 and recorded in that year as other interest payable. Taxation charge of 12.0 million (2008: 9.5 million) The tax charge represents a Group tax rate of 22% (2008: 16%). The tax rate is lower than the standard UK corporation tax rate for both 2009 and 2008, in part as a result of tax having been overprovided in prior years. The Group also has prior period tax losses in some geographies. Based on our assessment of the ability to use these losses against future profits, we have recognised deferred tax assets on these losses and other timing differences. Net assets of 176.8 million (2008: 179.2 million) Net assets reduced slightly during the year as the profit for the financial year of 43.4 million was substantially offset by the actuarial loss on the defined benefit pension arrangements (net of associated deferred tax) of 38.4 million. Our overall cash balances reduced slightly as a result of changes of working capital, substantially arising from the creditor for employee bonus payments being lower at the end of 2009 than 2008 and from net purchases of our shares by our employee benefit trusts. 4

Financial summary Key performance indicators 2007 2006 2005 Performance Turnover 000 370,157 440,104 407,940 398,303 349,010 Fee income 000 340,948 401,825 368,818 362,227 317,146 Fee income per consulting staff 000 179 199 170 168 170 Operating profit 000 42,838 44,227 27,968 31,536 23,104 Profit before tax 000 55,391 58,830 52,492 87,122 41,188 Liquidity Cash and current asset investments 000 178,812 192,143 251,512 258,736 166,043 Shareholder return Share price (pence) 783 688 727 638 500 Dividends to ordinary shareholders declared for the year (pence) 6.85 8.97 4.60 2.84 144.07 PA share prices (pence per unit) The latest PA share price, as calculated on a net asset value basis in accordance with the Company s Articles of Association, was confirmed to be 783 pence on 5 March 2010, an increase of 14% over the previous year. pence 1200 1033 1000 840 861 961 901 880 959 931 878 850 952 800 600 633 569 720 645 826 786 727 765 678 638 620 784 703 550 716 688 783 400 200 10 14 23 40 50 51 53 78 75 90 99 94 145 126 136 164 210 217 195 281 261 283 331 336 306 378 350 354 405 375 421 390 378 430 480 500 0 Nov-92 Apr-93 Nov-93 Apr-94 Nov-94 May-95 Nov-95 May-96 Nov-96 May-97 Nov-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Dec-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 5

Group profit and loss account for the year ended 31 December 2009 Note 000 000 Turnover Fee income 340,948 401,825 Project costs recharged 29,209 37,749 Continuing operations 370,157 439,574 Discontinued operations 2b - 530 Group turnover 2a, 2c 370,157 440,104 Personnel and direct costs (273,632) (338,535) Gross profit 96,525 101,569 Goodwill amortisation 5, 11, 22 (2,416) (2,559) Other administrative expenses (52,905) (56,419) Other operating income 4 1,634 1,636 Operating profit/(loss) 42,838 44,227 Continuing operations 42,838 52,575 Discontinued operations 2b - (8,348) Group operating profit 5, 22 42,838 44,227 Exceptional items 6-176 Net interest receivable and similar items 7 10,217 4,933 Other finance income 8 2,336 9,494 Profit on ordinary activities before taxation 55,391 58,830 Taxation 9a (11,977) (9,507) Profit for the financial year 21 43,414 49,323 The accompanying notes are an integral part of the financial statements. 6

Group statement of total recognised gains and losses for the year ended 31 December 2009 Note 000 000 Profit for the financial year 21 43,414 49,323 Actuarial loss recognised on defined benefit pension arrangements 21, 24b (53,342) (59,409) Adjustment to prior year valuation of defined benefit pension arrangement assets 21, 24b - (500) Movement on deferred tax relating to actuarial loss on pensions 9b, 21, 24b 14,923 16,755 Exchange difference on retranslation of net assets and results of overseas subsidiaries 21 (1,177) 10,432 Exchange difference on forward contracts hedged against overseas subsidiaries 21 2,207 (3,413) Total recognised gains relating to the year 6,025 13,188 Total gains recognised since last annual report 6,025 The accompanying notes are an integral part of the financial statements. 7

Reconciliation of movements in shareholders funds for the year ended 31 December 2009 Group Note 000 000 Profit for the financial year 21 43,414 49,323 Ordinary dividend 20, 21 (2,095) (1,384) Special dividend 20 - (155) Demerger dividend 20 - (63,593) Profit for the financial year after dividend 41,319 (15,809) Actuarial loss recognised on defined benefit pension arrangements 21, 24b (53,342) (59,409) Adjustment to prior year valuation of defined benefit pension arrangement assets 24b - (500) Movement on deferred tax relating to actuarial loss on pensions 9b, 21, 24b 14,923 16,755 Exchange difference on retranslation of net assets and results of overseas subsidiaries 21 (1,177) 10,432 Exchange difference on forward contracts hedged against overseas subsidiaries 21 2,207 (3,413) Reserve credit for equity-settled share-based payments 21 2,031 1,532 New shares issued 19a, 21 4 27 Loss on options exercised 21 (3,702) (1,190) Net purchase of own shares by employee trusts 21 (4,595) (52,659) Net change in shareholders funds (2,332) (104,234) Shareholders funds at 1 January 179,161 283,395 Shareholders funds at 31 December 21 176,829 179,161 Company Note 000 000 Loss for the financial year 10, 21 (1,274) (212) Ordinary dividend 20, 21 (2,095) - Special dividend 20, 21 - (155) Loss for the financial year after dividend (3,369) (367) Reserve credit for equity-settled share-based payments 21 2,031 124 New shares issued 19a, 21 4 113,670 Transfer of liability component of the A shares to liabilities - (2,077) Loss on options exercised 21 (3,702) (1,190) Net purchase of own shares by employee trusts 21 (4,615) (50,703) Employee trust reserves - (16,288) Net change in shareholders funds (9,651) 43,169 Shareholders funds at 1 January 43,169 - Shareholders funds at 31 December 21 33,518 43,169 The accompanying notes are an integral part of the financial statements. 8

Group balance sheet as at 31 December 2009 Note 000 000 Fixed assets Intangible assets 11 22,972 25,388 Tangible assets 12 28,892 32,627 51,864 58,015 Current assets Debtors: amounts falling due within one year 14 91,741 95,087 Debtors: amounts falling due after more than one year 15 64,680 76,276 Current asset investments 16 82,628 141,797 Cash at bank and in hand 16 96,184 50,346 335,233 363,506 Creditors: amounts falling due within one year 17 (144,635) (150,949) Net current assets 190,598 212,557 Total assets less current liabilities 242,462 270,572 Creditors: amounts falling due after more than one year 18 (32,869) (65,894) Provisions for liabilities (7,411) (30,677) Net assets excluding pension assets/(liabilities) 202,182 174,001 Defined benefit pension arrangements with net assets 24b - 5,874 Defined benefit pension arrangements with net liabilities 24b (25,353) (714) Net assets 176,829 179,161 Capital and reserves Called-up share capital 19, 21 10,414 11,378 Other reserves 21 36,098 36,098 Profit and loss reserve 21 130,317 131,685 Shareholders funds 21 176,829 179,161 The financial statements were approved and authorised for issue by the Board of Directors on 5 March 2010. Jon Moynihan Director PA Consulting Group Limited Registered Number 6555894 The accompanying notes are an integral part of the financial statements. 9

Company balance sheet as at 31 December 2009 Fixed assets Note 000 000 Investments 13 115,724 113,720 Current assets Debtors: amounts falling due within one year 14 18,345 7,220 Debtors: amounts falling due after more than one year 15 36,803 40,738 Cash at bank and in hand 16 448 6,204 55,596 54,162 Creditors: amounts falling due within one year 17 (136,658) (123,223) Net current liabilities (81,062) (69,061) Total assets less current liabilities 34,662 44,659 Creditors: amounts falling due after more than one year 18 (1,144) (1,490) Net assets 33,518 43,169 Capital and reserves Called-up share capital 19, 21 10,414 11,378 Profit and loss reserve 21 23,104 31,791 Shareholders funds 21 33,518 43,169 The financial statements were approved and authorised for issue by the Board of Directors on 5 March 2010. Jon Moynihan Director PA Consulting Group Limited Registered Number 6555894 The accompanying notes are an integral part of the financial statements. 10

Group cash flow statement for the year ended 31 December 2009 Note 000 000 Net cash flow from operating activities 22 5,360 66,648 Returns on investments and servicing of finance Interest received 8,437 10,263 Interest paid (2,226) (495) Net cash flow from returns on investment and servicing of finance 6,211 9,768 Taxation (6,254) (16,071) Capital expenditure and financial investment Payments to acquire tangible fixed assets (5,223) (6,183) Receipts from the sale of tangible fixed assets 32 275 Net cash flow for capital expenditure and financial investment (5,191) (5,908) Disposals Proceeds on disposal of UbiNetics s underlying businesses 6a - 363 Proceeds on disposal of Epix fixed asset investment 6b - 560 Payments to Alphabet shareholders (206) (2,907) Net cash flow for disposals (206) (1,984) Equity dividends paid to shareholders Ordinary dividends paid 20a (2,095) (1,384) Special dividend paid 20a - (155) Cash demerged 20a - (62,208) Net cash flow for equity dividends paid to shareholders (2,095) (63,747) Net cash flow before management of liquid resources and financing (2,175) (11,294) Management of liquid resources Decrease/(increase) in current asset investments 23 59,169 (3,794) Financing Receipts from the issue of ordinary share capital 19a 4 27 Repayment of liability component of A share 20b, 23 (400) (300) Proceeds from/(payments) for forward contracts for net investment hedge 2,207 (3,413) Net payments to purchase own shares by employee benefit trusts (21,136) (63,832) Receipts from repayment of loans to staff 8,169 19,443 Net cash flow from financing (11,156) (48,075) Net cash flow 45,838 (63,163) The accompanying notes are an integral part of the financial statements. 11

Group reconciliation of net cash flow to movement in net funds for the year ended 31 December 2009 Note 000 000 Increase/(decrease) in cash 23 45,838 (63,163) Cash outflow from decrease in debt 23 400 300 Cash (inflow)/outflow from current asset investment 23 (59,169) 3,794 Movement in net funds resulting from cash flows 23 (12,931) (59,069) Effect of movements in exchange rates 23 254 (1,106) Other non-cash changes 23 781 (281) Movements in net funds (11,896) (60,456) Net funds at 1 January 23 185,562 246,018 Net funds at 31 December 23 173,666 185,562 Net funds includes 0.7 million (2008: 6.8 million) held by employee benefit trusts, which are not under the Group s control. The accompanying notes are an integral part of the financial statements. 12

Rising to the challenge Page Note 14 (1) Principal accounting policies 20 (2) Turnover and segmental analysis 21 (3) Employee information 22 (4) Other operating income 22 (5) Group operating profit: analysis of expenses by nature 23 (6) Exceptional items 24 (7) Net interest receivable and similar items 24 (8) Other finance income 25 (9) Tax 27 (10) Loss attributable to members of the parent company 27 (11) Intangible fixed assets 28 (12) Tangible fixed assets 29 (13) Fixed asset investments 29 (14) Debtors: amounts falling due within one year 30 (15) Debtors: amounts falling due after more than one year 30 (16) Cash and current asset investments 31 (17) Creditors: amounts falling due within one year 31 (18) Creditors: amounts falling due after more than one year 32 (19) Allotted and issued share capital 34 (20) Dividends and other appropriations 36 (21) Reserves 38 (22) Reconciliation of operating profit to net cash flow from operating activities 38 (23) Analysis of net funds 39 (24) Retirement benefits 43 (25) Related party transactions 13

1 Principal accounting policies The principal accounting policies used in preparing these financial statements are set out below. These policies have been consistently applied to all the years presented in dealing with items that are considered material in relation to the financial statements. The principal accounting policies are unchanged compared with the year ended 31 December 2008. In preparing financial statements, management develops estimates and judgements that affect the reported amount of assets and liabilities, revenues and costs and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. Basis of preparation The financial statements have been prepared in accordance with the Companies Act 2006 and applicable United Kingdom accounting standards. The true and fair override provisions of the Companies Act 2006 have been invoked, see Investment properties below. The financial statements have been prepared on the accruals and going concern bases of accounting and the historical cost convention, except for investment properties, share-based payments and pension assets and liabilities, which are measured at fair value. The financial statements are presented in pounds sterling and unless otherwise indicated, values are rounded to the nearest thousand pounds ( 000). Principles of consolidation The Group financial statements include the results, financial position and cash flows of PA Consulting Group Limited (the Company ) and all of its subsidiary undertakings (together, the Group ). Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control arises when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. Businesses acquired or disposed during the year are accounted for using acquisition method principles from, or up to, the date control passed. Intra-Group transactions and balances are eliminated on consolidation. All subsidiaries use uniform accounting policies for like transactions and other events and similar circumstances. As permitted by section 408 of the Companies Act 2006, no separate profit and loss account is presented for the Company. Employee benefit trusts The Group s trusts are separately administered discretionary trusts for the benefit of employees. The trusts are funded by loans from the Group, with their assets mainly comprising shares in the Company. The Group recognises the assets and liabilities of the trusts in its own accounts because although they are administered by independent trustees and their assets are held separately from those of the Group, in practice the Group s recommendations on how the assets are used for the benefit of employees is normally followed. The carrying value of the Company s shares held by the trusts is recorded as a deduction in arriving at shareholders funds until such time as the shares transfer to employees. Consideration received for the sale of such shares is also recognised in shareholders funds, with any difference between the proceeds from sale and the carrying value taken to the profit and loss reserve. No gain or loss is recognised on the purchase, sale or cancellation of equity shares. Foreign currencies a Functional and presentation currency The functional currency of each Group entity is the currency of the primary economic environment in which each entity operates. The consolidated financial statements are presented in sterling, which is the Company s functional and presentation currency. b Transactions and balances Foreign currency transactions are translated into the functional currency of each Group entity using the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated at rates ruling at the balance sheet date. Such exchange differences are included in the profit and loss account under other administrative expenses. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. 14

1 Principal accounting policies (continued) c Consolidation For the purpose of presenting consolidated financial statements, the results and financial position of all the Group entities (none of which have the currency of a hyperinflationary economy) that have a functional currency other than sterling are translated into sterling as follows: assets and liabilities for each balance sheet are translated at the exchange rate at the balance sheet date income and expenses for each profit and loss account are translated at the exchange rate ruling at the time of each period the transaction occurred all resulting exchange differences are taken directly to the profit and loss reserve via the Statement of Total Recognised Gains and Losses. d Hedge of net investment in foreign operations Foreign currency differences arising on forward foreign currency contracts designated as a hedge of a net investment in a foreign operation are recognised directly in the profit and loss reserve via the Statement of Total Recognised Gains and Losses, to the extent the hedge is effective. To the extent the hedge is ineffective, such differences are recognised as other administrative expenses in the profit and loss account. Turnover from time and materials contracts is recognised as the services are provided on the basis of time worked at an hourly or daily rate and as direct expenses are incurred. Turnover from fixed-price, long-term contracts is recognised over the contract term based on the stage of completion of each assignment as at the balance sheet date compared to the total estimated services to be provided over the entire contract. Turnover in respect of contingent fee assignments (over and above any agreed minimum fee) is only recognised when the contingent event occurs and collectability of the fee is assured. No turnover is recognised if there are significant uncertainties regarding recovery of the consideration due or associated costs. An expected loss on a contract is recognised immediately in the profit and loss account. The gross amount invoiced to clients is separately disclosed within debtors as trade debtors. Unbilled turnover on individual client assignments is included as accrued income within debtors. Where billings exceed turnover on client assignments the excess is classified as payments on account within creditors. Employee benefits a Pension obligations The Group operates various defined benefit and defined contribution pension arrangements for its employees. Segment reporting The Group is organised on a global basis into two business segments, namely Consulting and Venture operations. A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. Turnover Turnover represents the fair value of the consideration received or receivable for consulting services on each client assignment provided during the year, including expenses and disbursements but excluding discounts, value added tax and other similar sales taxes. Expenses and disbursements include mileage, accommodation, materials and sub-contractor fees. For defined contribution pension arrangements, the amount charged to the profit and loss account represents the contributions payable in the period. Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the balance sheet. For defined benefit pension arrangements, the cost of providing benefits is calculated annually by independent actuaries using the projected unit credit method. The net defined benefit pension asset or liability in the balance sheet represents the total for each plan of the present value of the defined benefit obligation using a discount rate determined by market yields on high-quality corporate bonds less the fair value of plan assets at the balance sheet date. 15

1 Principal accounting policies (continued) Employee benefits (continued) The current service cost is recognised in the profit and loss account as an employee benefit expense within personnel and direct costs. The interest cost resulting from the increase in the present value of the defined benefit obligation over time and the expected return on plan assets is recognised as other finance income or expense in the profit and loss account. Actuarial gains and losses arising from experience adjustments or changes in actuarial assumptions are charged or credited directly to the profit and loss reserve via the Statement of Total Recognised Gains and Losses in the period in which they arise. b Share-based payments The Group provides benefits to its employees in the form of equity-settled and cash-settled share-based payment transactions, whereby employees render services in exchange for shares, rights over shares or the value of those shares in cash terms. For equity-settled share-based payments the fair value of the employee services rendered is determined by reference to the fair value of the shares awarded or options granted, excluding the impact of any non-market vesting conditions. All share options are valued using the Black-Scholes option-pricing model. This fair value is charged as an employee benefit expense within personnel and direct costs in the profit and loss account over the vesting period of the share-based payment arrangement, with the corresponding increase in shareholders funds. For cash-settled share-based payments the fair value of the employee services rendered is determined at each balance sheet date and the charge recognised through the profit and loss account over the vesting period of the share-based payment plan, with the corresponding increase in creditors. The value of the charge is adjusted in the profit and loss account over the remainder of the vesting period to reflect expected and actual levels of options vesting, with the corresponding adjustments made in creditors. The Group has elected to apply the share-based payment exemption. It applied FRS 20 Share-based payment from 1 January 2004 to those options that were issued after 7 November 2002 but that had not vested by 1 January 2005. Where the Company grants rights to its equity instruments to employees of a subsidiary, and the share-based payment is accounted for as equity-settled in the Group financial statements, the subsidiary records an expense for the share-based payment, with a corresponding increase in shareholders funds as a capital contribution from the Company. Consequently, in the Company financial statements, fixed asset investments in subsidiaries are increased by the aggregate amount of these contributions with a corresponding increase in shareholders funds for the same amount. c Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts redundancy in exchange for these benefits. The Group recognises termination benefits as an expense when it is demonstrably committed to terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal. d Bonus plans The Group recognises a liability and an expense for bonuses, based on a formula that takes into consideration the Group s profit before tax after certain adjustments. The Group recognises bonus liabilities and expenses where there is a past practice that has created a constructive obligation or there is a contractual obligation. Research and development expenditure Research and development expenditure is charged as other administrative expenses to the profit and loss account in the year in which it is incurred. Operating lease income and expense a Rental expense Operating lease rentals are charged as other administrative expenses to the profit and loss account in equal annual amounts over the lease term. Assets leased under operating leases are not recorded on the balance sheet because the lessor retains a significant portion of the risks and rewards of ownership. b Lease incentives The benefit of lease incentives such as rent-free periods or up-front cash payments are spread equally on a straight-line basis over the lease term or to the first break clause where applicable. 16

1 Principal accounting policies (continued) c Rental income Operating lease income consists of rentals from sub-tenant agreements and are recognised on a straight-line basis over the lease term and classified as other operating income in the profit and loss account. Exceptional items The items presented as exceptional in the profit and loss account are those that are material and non-recurring in nature and, in the judgement of management, merit separate disclosure in order to provide an understanding of the Group s underlying business performance. Items classified as exceptional may include significant profits or losses arising from the sale or restructuring of businesses or disposal of tangible fixed assets. In these cases, separate disclosure is provided in the profit and loss account after operating profit. Interest income and expense Interest income and expense is included in the profit or loss account on a time basis, using the effective interest method by reference to the principal outstanding. Tax The tax charge comprises current tax payable and deferred tax. a Current tax The current tax charge represents an estimate of the amounts payable to tax authorities in respect of the Group s taxable profits and is based on an interpretation of existing tax laws. Taxable profit differs from profit before tax as reported in the profit and loss account because it excludes certain items of income and expense that are taxable or deductible in other years or are never taxable or deductible. b Deferred tax Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date which will result in an obligation to pay more, or a right to pay less or to receive more, tax, with the following exceptions: deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries, associates and joint ventures only to the extent that, at the balance sheet date, dividends have been accrued as receivable. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Dividends Dividend distributions to the Company s shareholders are recognised as a liability in the period that the dividends are approved by the Company s shareholders. Distributions are deducted from the profit and loss reserve within shareholders funds. Intangible fixed assets Goodwill arising on an acquisition of a business is the difference between the fair value of the consideration paid and the fair value of the assets and liabilities acquired. It is capitalised and amortised on a straight-line basis through the profit and loss account over the directors estimate of its useful economic life up to a maximum of 20 years. The carrying value of goodwill is reviewed for impairment at the end of the first financial year following acquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. Tangible fixed assets Tangible fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment. Cost comprises purchase price after discounts and rebates plus all directly attributable costs of bringing the asset to working condition for its intended use. Finance costs are not capitalised and are recognised as an expense when incurred. Depreciation is calculated so as to write off the cost of tangible fixed assets, less their estimated residual values, on a straight-line basis over the expected useful economic lives of the assets concerned. Depreciation is charged on assets from the date in which they are brought into use. The principal annual rates used for this purpose are: 17

1 Principal accounting policies (continued) Tangible fixed assets (continued) Asset category Computer equipment Motor vehicles Office furniture, equipment and machinery Freehold property Leasehold property Annual depreciation rate 20 50% on cost 15 25% on cost 10 33% on cost 2 10% on cost Equal instalments over the remaining period of lease unless the economic life of the asset is determined to be less than that of the lease Fixed asset investments In the Company s balance sheet, investment in subsidiaries are stated at cost less provision for impairment in value. Current asset investments Investments held as current assets are stated at the lower of cost and net realisable value. Current asset investments include shortterm deposits and other liquid investments where there is a notice period for withdrawal of more than 24 hours to avoid a penalty. Movements in such investments are included under management of liquid resources in the Group s cash flow statement. Cash Cash includes cash in hand, deposits held with banks, other shortterm deposits and other liquid investments accessible within 24 hours without penalty. The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate that carrying values may not be recoverable. Investment properties A portion of the Group s freehold properties are held for long-term investment. Provisions for liabilities The Group recognises a provision for restructuring costs and legal claims when it has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors best estimate of the expenditure required to settle the obligation at the balance sheet date. Investment properties are revalued annually at open market value in accordance with SSAP 19 Accounting for Investment Properties. All surpluses and deficits arising on valuation are taken directly to the revaluation reserve, except for an impairment or reversal of an impairment in the value of an investment property below original cost, which is charged or credited to the profit and loss account for the year. No depreciation is charged in respect of freehold investment properties. Provision is made for onerous property lease commitments, after allowance for anticipated sub-let rental income, and to restore premises to their original condition upon vacating them where such an obligation exists under the lease. Although the Companies Act would normally require the systematic annual depreciation of properties, the directors believe that the policy of not providing depreciation is necessary in order for the financial statements to give a true and fair view, since the current value of investment properties and change to the current value are of prime importance rather than a calculation of systematic annual depreciation. Depreciation is only one of the many factors reflected in the annual valuation, and the amount which might otherwise have been included cannot be separately identified or quantified. 18

1 Principal accounting policies (continued) Share capital Issued share capital is classified as equity instruments or financial liabilities according to the substance of the contractual arrangement entered into. a 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 Company are recorded at the proceeds received net of direct issue costs with the nominal value of the instrument credited to share capital and the excess to the share premium account. In accordance with FRS 25 Financial Instruments: Presentation, the Company s A shares are considered to be compound financial instruments comprising equity and liability components. The equity component is classified as share capital within shareholders funds, and the liability component is presented separately within creditors. All other classes of shares of the Company are considered to be equity instruments and are classified as share capital because they do not contain contractual obligations to deliver cash or other financial assets, or to exchange financial assets or liabilities with another party under conditions that are potentially unfavourable, or deliver a variable number of the Company s own equity instruments or a fixed amount of cash or other financial assets for a fixed number of the Company s own equity instruments. b Financial liabilities The liability component of the A shares arises because their rights oblige the Company to pay fixed dividends. The initial fair value of the liability component is determined using a market rate for an equivalent liability without a conversion feature. The remainder of the proceeds on issue of shares is allocated to the equity component and included as share capital in shareholders funds, net of transaction costs. The financing charge arising on the liability component is charged as interest in the profit and loss account. 19

2 Turnover and segmental analysis a Business segments The Group is organised on a global basis into two business segments: Consulting and Venture operations. An analysis of turnover and profit before tax by segment is given below: Consulting operations Venture operations Total Note 000 000 000 000 000 000 Turnover 2b, 2c 364,330 431,213 5,827 8,891 370,157 440,104 Profit/(loss) on ordinary activities before taxation 2b 56,504 67,177 (1,113) (8,347) 55,391 58,830 b Continuing and discontinued operations Following the demerger of the Ventures business in June 2008, ProcServe is the only continuing Venture operation. The discontinued ventures that were demerged to Ipex Holdings Limited included Aditon, Aegate, Auto-txt and PlaqueTec. A more detailed analysis of loss before tax from continuing and discontinued Venture operations for the year ended 31 December 2008 is given below: Continuing Discontinued Total Profit and loss account for the year ended 31 December 2008 Note 000 000 000 Turnover 2a 8,361 530 8,891 Personnel and direct costs (3,629) (4,584) (8,213) Gross profit/(loss) 4,732 (4,054) 678 Goodwill amortisation (316) (139) (455) Other administrative expenses (4,767) (4,155) (8,922) Operating loss (351) (8,348) (8,699) Exceptional items 6-176 176 Net interest receivable and similar items 148 28 176 Loss on ordinary activities before taxation 2a (203) (8,144) (8,347) c Geographical analysis The Group manages its business segments on a global basis. The following table provides an analysis of Group turnover by geographical market, based on the billing location of the client: Note 000 000 UK 213,085 238,655 Americas 52,670 66,757 Scandinavia 51,836 64,440 Europe (excluding UK and Scandinavia) 37,998 48,928 Asia Pacific 14,568 21,324 2a 370,157 440,104 An analysis of profit before tax and net assets by geographic region is not provided because, in the directors opinion, there is no suitable basis of allocating profit before tax, assets and related liabilities to geographical segments because the Group s resources are utilised flexibly over all geographical segments. 20

3 Employee information a Employee numbers The average monthly number of people, including executive directors, employed by the Group during the year was: Number Number Consultants 1,909 2,021 Support 637 688 Total average number of employees 2,546 2,709 b Employee remuneration The aggregate remuneration of these persons was: Note 000 000 Wages and salaries (146,787) (170,032) Staff bonuses (41,305) (67,232) Social security costs (15,077) (11,890) Contributions to defined contribution pension arrangements 24a (11,462) (14,913) Current service cost for defined benefit pension arrangements 24b (130) (118) Equity-settled share-based payments (2,031) (1,532) Cash-settled share-based payments (21) (14) Other payroll costs (13,298) (15,490) Total aggregrate employee benefits (230,111) (281,221) 21

4 Other operating income 000 000 Rental income from property sub-leases 1,634 1,636 5 Group operating profit: analysis of expenses by nature Operating profit is stated after (charging)/crediting: Note 000 000 Goodwill amortisation 11, 22 (2,416) (2,559) Depreciation of owned tangible fixed assets 12, 22 (7,392) (6,369) (Loss)/profit on disposal of fixed assets 22 (263) 7 Operating lease rental charges land and buildings (10,217) (10,490) Operating lease rental charges plant and machinery (819) (934) Net foreign currency (losses)/gains (3,263) 997 Research and development expenditure discontinued venture operations - (1,795) Auditors remuneration (447) (810) Auditors remuneration 000 000 Fees payable to the Group s auditor for the audit of the Company and Group financial statements (380) (547) Fees payable to the Group s auditor for other services: Tax services (28) (131) Other services pursuant to legislation (2) (33) Services relating to litigation (11) (28) All other services (26) (71) (67) (263) (447) (810) Included in audit of the financial statements is 124,000 (2008: 159,000) relating to the Company. Included in other services is 25,000 (2008: 30,000) relating to the Company. The auditor of PA Consulting Group Limited is Ernst & Young LLP. 22

6 Exceptional items Note 000 000 Profit on disposal of UbiNetics s underlying businesses 6a - 218 Loss on disposal of Epix fixed asset investment 6b - (42) Total exceptional items - 176 a Profit on disposal of UbiNetics s underlying businesses During 2008, further amounts were received in respect of the disposal of UbiNetics s businesses in 2005. 000 000 Cash proceeds - 363 Amounts attributable to Alphabet shareholders and Venture bonuses - (145) - 218 b Loss on disposal of Epix fixed asset investment During 2008, the Group disposed of its remaining fixed asset shareholding in Epix Pharmaceuticals, Inc. 000 000 Cash proceeds - 560 Carrying value disposed - (878) Amounts attributable to Alphabet shareholders and Venture bonuses - 276 - (42) 23

7 Net interest receivable and similar items 000 000 Interest receivable on cash and current asset investments 5,343 10,263 Other interest receivable 5,081 - Total interest receivable and similar income 10,424 10,263 Bank interest payable (13) (23) Finance charge on the liability component of the A shares (71) (88) Other interest payable (123) (5,219) Total interest payable and similar charges (207) (5,330) Net interest receivable and similar items 10,217 4,933 8 Other finance income Note 000 000 Expected return on defined benefit pension arrangement assets 24b 27,724 34,859 Interest on defined benefit pension arrangement liabilities 24b (25,388) (25,365) Total other finance income 2,336 9,494 24

9 Tax a Tax on profit on ordinary activities Note 000 000 Current tax United Kingdom UK corporation tax at 28% (2008: 28.5%) (8,027) (15,254) UK tax overprovided in previous years 3,279 12,203 UK corporation tax (4,748) (3,051) Foreign tax Corporation taxes (52) (7,084) Foreign tax overprovided in previous years 1,790 470 Foreign tax 1,738 (6,614) Total current tax 9c (3,010) (9,665) Deferred tax Origination and reversal of timing differences (5,587) (3,514) Effect of decreased tax rate on opening liability - (424) Deferred tax adjustment relating to previous years (3,380) 4,096 Total deferred tax (8,967) 158 Total tax charge on profit on ordinary activities (11,977) (9,507) b Tax included in Group statement of total recognised gains and losses Note 000 000 Deferred tax Movement on deferred tax relating to actuarial loss on defined benefit pension arrangements 24b 14,923 16,755 Total tax credit 14,923 16,755 25

9 Tax (continued) c Factors affecting current tax charge The tax charge is lower (2008: lower) than the standard effective rate of corporation tax in the UK for the year ended 31 December 2009 of 28% (2008: apportioned rate of 28.5%). The differences are explained below: Note 000 000 Profit on ordinary activities before taxation 55,391 58,830 Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 28% (15,509) (16,767) (2008: apportioned rate 28.5%) Effects of: Expenses not deductible for tax purposes (including goodwill amortisation) (1,847) (3,411) Losses arising in year not relievable against current tax (348) (4,621) Tax overprovided in previous years 5,069 12,203 Other short-term timing differences 2,825 (2,345) Pension cost relief in excess of pension cost charge 2,761 5,860 Non-taxable or deductible foreign exchange and interest 2,400 (1,577) Use of tax losses which are relievable against current tax 791 1,127 Research and development tax credits 567 800 Differential on overseas tax rates 281 (1,405) Foreign tax overprovided in previous years Non-taxable disposal of UbiNetics - 470-1 Total current tax charge for the year 9a (3,010) (9,665) During the previous year the UK corporation tax rate reduced from 30% to 28% effective from 1 April 2008. The effective rate of 28.5% for 2008 was calculated based on these rates, apportioned over the year. During the previous year the Group agreed the amount of UK tax due in respect of its overseas holding and investment companies. As a result of this agreement, prior years provisions totalling 11.9 million were released to the profit and loss account in 2008, 7.8 million within current tax and 4.1 million within deferred tax. d Factors that may affect future tax charges Based on current capital investment plans, the Group expects to continue to be able to claim capital allowances in excess of depreciation in future years at a similar level to the current year. The Group has tax losses of 7.4 million (2008: 8.6 million) that are available indefinitely for offset against future taxable profits of those companies in which the tax losses arose. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group, and they have arisen in subsidiaries in which future taxable profits are uncertain. No deferred tax has been recognised on the unremitted earnings of overseas subsidiaries, because the earnings are continually reinvested by the Group and no tax is expected to be payable on them in the foreseeable future. 26

10 Loss attributable to members of the parent company The directors have taken advantage of the exemption available under section 408 of the Companies Act 2006 and not presented a profit and loss account for the Company alone. The Company s loss for the financial year was 1,274,473 (2008: 212,346). 11 Intangible fixed assets Group Goodwill Note 000 Cost At 1 January 2009 and 31 December 2009 43,241 Accumulated amortisation At 1 January 2009 (17,853) Charge for the year 5, 22 (2,416) At 31 December 2009 (20,269) Net book amount At 31 December 2009 22,972 At 1 January 2009 25,388 Goodwill is being amortised as follows: goodwill arising on the acquisition of Hagler Bailly in 2000 is being amortised evenly over the directors estimate of its useful economic life of 20 years goodwill arising on the acquisition of Impaq Business Solutions in 2007 is being amortised evenly over the directors estimate of its useful economic life of three years. Company The Company has no intangible fixed assets. 27

12 Tangible fixed assets Group Office Short furniture, Freehold leasehold equipment Investment land and and and Computer Motor properties buildings property machinery equipment vehicles Total 000 000 000 000 000 000 000 Cost or valuation At 1 January 2009-22,508 24,503 13,673 12,231 12 72,927 Effect of movements in exchange rates - - (833) (371) (277) - (1,481) Additions at cost - 129 1,819 1,360 1,028-4,336 Disposals - - (2,682) (1,070) (1,289) - (5,041) Transfers between asset categories 6,562 (6,562) - - - - - Conversion to valuation (3,434) - - - - - (3,434) At 31 December 2009 3,128 16,075 22,807 13,592 11,693 12 67,307 Accumulated depreciation At 1 January 2009 - (8,908) (12,365) (8,880) (10,146) (1) (40,300) Effect of movements in exchange rates - - 674 160 263-1,097 Charge for the year - (2,036) (2,336) (1,560) (1,455) (5) (7,392) Disposals - - 2,442 1,070 1,234-4,746 Transfers between asset categories (3,434) 3,434 - - - - - Conversion to valuation 3,434 - - - - - 3,434 At 31 December 2009 - (7,510) (11,585) (9,210) (10,104) (6) (38,415) Net book amount or value At 31 December 2009 3,128 8,565 11,222 4,382 1,589 6 28,892 At 1 January 2009-13,600 12,138 4,793 2,085 11 32,627 Investment properties relates to the portion of the Group s freehold building in Melbourn in the United Kingdom, which is held to earn rental income rather than for the Group s operating activities. The investment property was valued on an open market basis as at 31 December 2009 by external qualified professional valuers, Bidwells, Chartered Surveyors. The valuation was carried out in accordance with the Royal Institution of Chartered Surveyors Valuation Standards (6th edition March 2009). If the investment property was stated on the historic cost basis, the net book amount as at 31 December 2009 would have been as follows: 000 Cost 6,562 Accumulated depreciation (3,434) Net book amount 3,128 Company The Company has no tangible fixed assets. 28

13 Fixed asset investments Company Investments in subsidiaries 000 Cost and net book amount At 1 January 2009 113,720 Capital contribution relating to share-based payments 2,004 At 31 December 2009 115,724 The capital contributions relating to share-based payments arise because the Company has granted share options to the employees of various subsidiaries. 14 Debtors: amounts falling due within one year Group Company Note 000 000 000 000 Trade debtors 34,992 39,474 - - Amounts owed by group undertakings - - 375 1,199 Other debtors 2,611 5,467 17 167 Loans to staff 17,773 5,854 17,286 5,854 Escrow deposit 14a 3,656 4,762 - - Prepayments 6,273 6,655 667 - Taxation 4,008 644 - - Accrued income 22,428 32,231 - - 91,741 95,087 18,345 7,220 a Escrow deposit The escrow deposit relates to funds set aside for the future redemption of the guaranteed redeemable preference shares issued by PA International Limited, a wholly owned subsidiary (see note 17). 29

15 Debtors: amounts falling due after more than one year Group Company Note 000 000 000 000 Deferred tax 9 27,877 35,538 - - Loans to staff 36,803 40,738 36,803 40,738 64,680 76,276 36,803 40,738 16 Cash and current asset investments Group Company Note 000 000 000 000 Current asset investments 23 82,628 141,797 - - Cash at bank and in hand 23 96,184 50,346 448 6,204 178,812 192,143 448 6,204 Current asset investments include short-term deposits and other liquid investments where there is a notice period for withdrawal of more than 24 hours to avoid a penalty. Movements in such investments are included under management of liquid resources in the Group s cash flow statement. The Group has an undrawn committed overdraft facility of 2.0 million at 31 December 2009 (2008: 5.0 million). This is an annual rolling facility due for review in July 2010. Cash and current asset investments include 0.7 million (2008: 6.8 million) held by employee benefit trusts which are not under the Group s control. 30

17 Creditors: amounts falling due within one year Group Company Note 000 000 000 000 Liability component of the A shares 23 (346) (329) (346) (329) Guaranteed redeemable preference shares 23 (3,656) (4,762) - - Payments on account (13,962) (19,014) - - Trade creditors (1,750) (4,919) - (265) Amounts owed to Group undertakings - - (135,589) (121,962) Corporation tax (14,601) (15,725) - - Other taxes and social security payable (12,566) (16,619) - - Other creditors (25,811) (26,500) (473) (90) Cash-settled share-based payments liability (250) (634) (250) (577) Amounts payable to alphabet shareholders 17a (65) (1,141) - - Bonuses 18a (71,628) (61,306) - - (144,635) (150,949) (136,658) (123,223) a Amounts payable to Alphabet shareholders PA International Limited, a wholly owned subsidiary, has issued a class of shares ( alphabet shares ) that are held indirectly by certain former PA Holdings Limited shareholders in proportion to their shareholding at the time of investment in certain PA ventures. These alphabet shares entitle the holders to a proportion of any gain arising on the disposal for cash of certain of the Group s venture subsidiary undertakings. Until such an event arises, alphabet shares have no voting or income rights. On a qualifying disposal, the shareholders are able to redeem their alphabet shares at a price based on the gain on disposal. The total number of alphabet shares in issue at 31 December 2009 was 165 million (2008: 178 million) with a par value of 10,211 (2008: 17,764). 18 Creditors: amounts falling due after more than one year Group Company Note 000 000 000 000 Liability component of the A shares 23 (1,144) (1,490) (1,144) (1,490) Other creditors (401) (326) - - Bonuses 18a (31,324) (64,078) - - (32,869) (65,894) (1,144) (1,490) a Bonuses The total bonuses payable at 31 December 2009 are shown below. Bonuses due in more than one year relate to the deferral of bonus awards for certain employees between three to five years after they have been awarded. Group Company Bonuses payable Note 000 000 000 000 Due in less than one year 17 (71,628) (61,306) - - Due in more than one year 18 (31,324) (64,078) - - (102,952) (125,384) - - 31

19 Allotted and issued share capital Group and Company Allotted, called up and fully paid Note Number Number Ordinary shares of 10p each 19a 24,915,627 34,556,800 2,491,563 3,455,680 Golden share of 1 1 1 1 1 Preference shares of 10p each 25,000,000 25,000,000 2,500,000 2,500,000 A shares of 10p each equity component 19b 24,999,997 24,999,997 422,020 422,020 B shares of 10p each 24,999,997 24,999,997 2,500,000 2,500,000 C shares of 10p each 24,999,996 24,999,996 2,500,000 2,500,000 124,915,618 134,556,791 10,413,584 11,377,701 a Changes in share capital i Allotment of ordinary share capital On 1 April 2009, 10,000 ordinary shares of 10p each were allotted to satisfy share option exercises. The aggregate nominal value of these shares was 1,000 and cash consideration received was 4,300. ii Reduction in capital On 23 June 2009, the Company cancelled 9,651,173 ordinary shares of 10p each thereby reducing the nominal value of the issued share capital by 965,117 and cancelled the share premium account thereby reducing the share premium account by 3,300. iii Movements in ordinary shares The movements in ordinary share capital and the share premium account during the year are analysed below: Ordinary Ordinary Share shares shares premium Note Number At 1 January 2009 34,556,800 3,455,680 - Allotted in respect of share option exercises 19a 10,000 1,000 3,300 Reduction in capital 19a (9,651,173) (965,117) (3,300) At 31 December 2009 24,915,627 2,491,563 - b Equity component of the A shares In accordance with FRS 25 Financial Instruments: Presentation, the Company s A shares are considered to be compound financial instruments comprising equity and liability components. The equity component is included as share capital within capital and reserves, and the liability component is included within creditors. 32

19 Allotted and issued share capital (continued) c Class rights Share class Voting rights Dividend rights Ordinary share Golden share Preference share A share B share C Share Full voting rights, subject to the rights of the Golden share and the A shares. The right to receive notice of and to attend any general meeting, but no right to speak or vote except where a resolution to wind up the Company is proposed. Until 8 December 2017 or, if earlier, a sale or listing, the right to consent (or withhold consent) to certain capital transactions. The right to receive notice of any general meeting but no right to attend, speak or vote. The right to receive notice of any general meeting but no right to attend, speak or vote except where a resolution to wind up the Company is proposed. The right to consent (or withhold consent) to certain capital transactions. The right to receive notice of any general meeting but no right to attend, speak or vote. The right to receive notice of any general meeting but no right to attend, speak or vote. The right to all dividends (after payment of the A share dividend), subject to a profit-related cap on total dividends payable in any financial year until 2017. None None The right (as a class) to a fixed, cumulative annual dividend of 400,000 each year up to and including 1 July 2013. None None d Priority on a return of capital or sale Priority Share class Amount 1 Golden share Repayment of the 1 capital paid up at par. 2 A share In the event of sale, a special dividend calculated as a percentage of sales proceeds as below: Date to Percentage of proceeds % 30 June 2010 0.8 30 June 2011 0.6 30 June 2012 0.4 01 July 2013 0.2 After 1 July 2013, a fixed payment of 10,000 as a class. 3 B share A fixed payment of 20,000 as a class. 4 C share and Preference share A fixed payment of 10,000 to each class. In the event that there is a shortfall, the proceeds available for distribution shall be divided equally between each class. 5 Ordinary shares The balance of proceeds available after payment of amounts due to other classes of share. 33

20 Dividends and other appropriations Group Note 000 000 Equity dividends declared and paid during the year Ordinary dividend 20a, 21 (2,095) (1,384) Special dividend 20a - (155) Demerger dividend 20a - (63,593) (2,095) (65,132) Proposed for approval by shareholders at the AGM Ordinary dividend (1,559) (2,095) a Equity dividends i Ordinary dividend A final ordinary dividend of 2,094,715 for 2008 was paid during the year. If approved by shareholders at the Annual General Meeting on 11 June 2010, the proposed final ordinary dividend of 6.85 pence per share for 2009 will be paid on 18 June 2010 to those shareholders on the register as at 31 December 2009. The total dividend of 1,558,707 will be accounted for as an appropriation of retained earnings in the year ended 31 December 2010. The employee trusts have waived their rights to dividends payable on the 2,160,778 (2008: 11,204,351) shares they own. ii US special dividend paid to ordinary shareholders A special dividend of $4.50 per share totalling 155,394 was paid in 2008 to holders of the Y Ordinary Share. US shareholders who held less than 1,750 shares in PA Holdings Limited at the time of demerger were given Y Ordinary Shares instead of receiving shares in Ipex Holdings Limited. The Y Ordinary Shares were converted into ordinary shares of 10p each on 24 June 2008. 34

20 Dividends and other appropriations (continued) iii Demerger dividend The demerger dividend represented the net assets of the demerged Ventures business transferred to Ipex Holdings Limited on 24 June 2008. 000 Goodwill 2,633 Tangible fixed assets 396 Total fixed assets 3,029 Trade debtors 454 Other debtors 773 Cash 62,208 Trade creditors (240) Other creditors (2,631) Net current assets 60,564 Net assets demerged 63,593 b Other dividends A share dividend The dividend paid to the holders of the A shares totalling 400,000 (2008: 300,000) is accounted for as a reduction in the liability component of the A share (see notes 17,18 and 23). 35

21 Reserves Group Share Share Other Profit and capital premium reserves loss reserve Total Note 000 000 000 000 000 Profit for the financial year - - - 43,414 43,414 Ordinary dividend 20 - - - (2,095) (2,095) Actuarial loss on defined benefit pension arrangements 24b - - - (53,342) (53,342) Movement on deferred tax relating to actuarial loss 9b, 24b - - - 14,923 14,923 on pensions Exchange difference on retranslation of net assets and results - - - (1,177) (1,177) of overseas subsidiaries Exchange difference on forward contracts hedged against - - - 2,207 2,207 overseas subsidiaries Reserve credit for equity-settled share-based payments - - - 2,031 2,031 Ordinary shares issued 19 1 3 - - 4 Loss on options - - - (3,702) (3,702) Net purchase of own shares by employee trusts - - - (4,595) (4,595) Reduction in capital 19 (965) (3) - 968 - Net change in shareholders funds (964) - - (1,368) (2,332) Shareholders funds at 1 January 2009 11,378-36,098 131,685 179,161 Shareholders funds at 31 December 2009 10,414-36,098 130,317 176,829 Included in the profit and loss reserve are the following amounts: Cumulative Own goodwill Share- shares written off based held to reserves payments elimination Note 000 000 000 At 1 January 2009 (18,238) 3,531 (61,623) Reserve credit for equity-settled share-based payments - 2,031 - Net movement in value of own shares held elimination - - 46,152 At 31 December 2009 (18,238) 5,562 (15,471) Cumulative goodwill written off to reserves relates to acquisitions prior to 1998. The goodwill written off directly to reserves is taken into account when determining the profit or loss on sale or closure if the related subsidiary or business is subsequently disposed of. Own shares held by employee trusts The PA 2004 ESOP and the Employee Benefit Trust (the Trusts ) held 2,160,778 ordinary shares (2008: 11,204,351 shares) in the Company at their market value at 31 December 2009 of 15,471,170 or 7.16 per share (2008: 61,623,931 or 5.50 per share). The nominal value of the own shares held was 216,078 (2008: 1,120,435). The purpose of the Trusts is to facilitate and encourage the ownership of shares by employees by holding shares for subsequent sale or grant. As required by UITF 38 Accounting for ESOP Trusts, own shares held are treated as a deduction from shareholders funds. 36

21 Reserves (continued) Company Share Share Profit and capital premium loss reserve Total Note 000 000 000 000 Loss for the financial year 10 - - (1,274) (1,274) Ordinary dividend 20 - - (2,095) (2,095) Reserve credit for equity-settled share-based payments - - 2,031 2,031 Ordinary shares issued 19 1 3-4 Loss on options - - (3,702) (3,702) Net purchase of own shares by employee trusts - - (4,615) (4,615) Reduction in capital 19 (965) (3) 968 - Net change in shareholders funds (964) - (8,687) (9,651) Shareholders funds at 1 January 2009 11,378-31,791 43,169 Shareholders funds at 31 December 2009 10,414-23,104 33,518 Included in the profit and loss reserve are the following amounts: Own Share- shares based held payments elimination Note 000 000 At 1 January 2009 124 (61,608) Reserve credit for equity-settled share-based payments 2,031 - Net movement in value of own shares held elimination - 46,137 At 31 December 2009 2,155 (15,471) Own shares held by employee trust The PA 2004 ESOP held 2,160,778 ordinary shares (2008: 11,201,488 shares) in the Company at their market value at 31 December 2009 of 15,471,170 or 7.16 per share (2008: 61,608,184 or 5.50 per share). The nominal value of the own shares held was 216,078 (2008: 1,120,149). The purpose of the PA 2004 ESOP is to facilitate and encourage the ownership of shares by employees by holding shares for subsequent sale or grant. As required by UITF 38 Accounting for ESOP Trusts, own shares held are treated as a deduction from shareholders funds. 37

22 Reconciliation of operating profit to net cash flow from operating activities Note 000 000 Group operating profit 42,838 44,227 Goodwill amortisation 5, 11 2,416 2,559 Depreciation of tangible fixed assets 5, 12 7,392 6,369 Loss/(profit) on disposal of tangible fixed assets 5 263 (7) Decrease/(increase) in debtors 15,598 (4,046) (Decrease)/increase in creditors and provisions (60,047) 21,352 Net foreign exchange loss 3,263 4,907 Difference between pension charge and cash contributions (8,488) (10,500) Share-based payment charge 2,125 1,787 Net cash flow from operating activities 5,360 66,648 23 Analysis of net funds Other At 31 At 1 January Cash Exchange non-cash December 2009 flow movements movements 2009 Note 000 000 000 000 000 Current asset investments 16 141,797 (59,169) - - 82,628 Cash at bank and in hand 16 50,346 45,838 - - 96,184 192,143 (13,331) - - 178,812 Liability component of the A shares due after 1 year 18 (1,490) - - 346 (1,144) Liability component of the A shares due within 1 year 17 (329) 400 - (417) (346) Guaranteed redeemable preference shares due 17 (4,762) - 254 852 (3,656) on demand (6,581) 400 254 781 (5,146) Net funds 185,562 (12,931) 254 781 173,666 Non-cash changes relating to the liability component of the A shares are due to the financing charge accounted for as interest and transfers between maturity categories. Non-cash changes relating to the guaranteed redeemable preference shares are because the redemptions in the year were satisfied by drawing down on the escrow deposit, which is accounted for in debtors. 38

24 Retirement benefits Group The Group operates a number of pension arrangements throughout the world, the forms and benefits of which vary with conditions and practices in the countries concerned. The largest arrangements are self-administered and their assets are held independently of the Group s finances in either separate trustee-administered funds or insurance-based schemes. The principal arrangement is in the United Kingdom and comprises both defined benefit and defined contribution sections. a Defined contribution pension arrangements The total pension costs for the Group relating to employer contributions to defined contribution pension arrangements was 11.5 million (2008: 14.9 million). At 31 December 2009, there were outstanding unpaid contributions of 0.8 million (2008: 0.7 million) and prepaid contributions of 0.1 million (2008: nil). b i Defined benefit pension arrangements Analysis of defined benefit pension arrangement net assets and liabilities included in the Group balance sheet UK Norway Netherlands Total As at 31 December 2009 Note 000 000 000 000 Defined benefit pension arrangements with net liabilities Defined benefit pension arrangements with gross liabilities (33,796) (363) (1,018) (35,177) Deferred tax 9,463 101 260 9,824 Total net pension liability included in the Group balance sheet (24,333) (262) (758) (25,353) UK Norway Netherlands Total As at 31 December 2008 Note 000 000 000 000 Defined benefit pension arrangements with net assets Defined benefit pension arrangements with gross assets 7,900 259-8,159 Deferred tax (2,212) (73) - (2,285) 5,688 186-5,874 Defined benefit pension arrangements with net liabilities Defined benefit pension arrangements with gross liabilities - - (958) (958) Deferred tax - - 244 244 - - (714) (714) Total net pension asset/(liability) included in the Group balance sheet 5,688 186 (714) 5,160 39

24 Retirement benefits (continued) ii Analysis of amounts recognised in the Group profit and loss account UK Norway Netherlands Total Year ended 31 December 2009 Note 000 000 000 000 Current service cost 3 - (5) (125) (130) Recognised in arriving at operating profit 3 - (5) (125) (130) Expected return on defined benefit pension arrangement assets 8 27,500 142 82 27,724 Interest on defined benefit pension arrangement liabilities 8 (25,100) (114) (174) (25,388) Other finance income 8 2,400 28 (92) 2,336 Total recognised in the Group profit and loss account 2,400 23 (217) 2,206 UK Norway Netherlands Total Year ended 31 December 2008 Note 000 000 000 000 Current service cost 3 - (13) (105) (118) Recognised in arriving at operating profit 3 - (13) (105) (118) Expected return on defined benefit pension arrangement assets 8 34,600 137 122 34,859 Interest on defined benefit pension arrangement liabilities 8 (25,100) (114) (151) (25,365) Other finance income 8 9,500 23 (29) 9,494 Total recognised in the Group profit and loss account 9,500 10 (134) 9,376 iii Analysis of amount recognised in the Group statement of total recognised gains and losses UK Norway Netherlands Total Year ended 31 December 2009 Note 000 000 000 000 Actual return less expected return on pension arrangement assets 28,200 (294) (173) 27,733 Experience gains and losses arising on pension arrangement liabilities 13,800 (443) (78) 13,279 Changes in assumptions underlying the present value of the (94,100) - (254) (94,354) arrangement liabilities Actuarial loss recognised on defined benefit pension arrangements (52,100) (737) (505) (53,342) Deferred taxation 9b 14,588 206 129 14,923 Total recognised in the Group statement of total recognised gains and losses (37,512) (531) (376) (38,419) UK Norway Netherlands Total Year ended 31 December 2008 Note 000 000 000 000 Actual return less expected return on pension arrangement assets (105,000) (121) (880) (106,001) Experience gains and losses arising on pension arrangement liabilities (2,400) (7) 90 (2,317) Changes in assumptions underlying the present value of the 48,900-9 48,909 arrangement liabilities Actuarial loss recognised on defined benefit pension arrangements (58,500) (128) (781) (59,409) Adjustment to prior year valuation (500) - - (500) Deferred taxation 9b 16,520 36 199 16,755 Total recognised in the Group statement of total recognised gains and losses (42,480) (92) (582) (43,154) 40

24 Retirement benefits (continued) c UK defined benefit pension section The UK defined benefit pension section has been closed to new entrants with effect from 1 January 1998 and new employees are invited to join the defined contribution section or a stakeholder arrangement. From 1 April 2007, all active members of the defined benefit section became members of the defined contribution section. From 1 April 2007 to 31 March 2011 (or date of leaving if earlier) all active members with accrued benefits receive a salary link through to 31 March 2011, and enhanced statutory revaluation rates thereafter plus an additional 1.5%. From 1 April 2007, the Group has agreed to pay 8% of contributory pay in respect of defined contribution members plus an additional 0.5% of contributory pay for administrative expenses. The Group is required under the trust deed to make contributions necessary to keep the scheme fully funded. In addition, the Group made payments of 8,004,000 in 2009 (2008: 10,500,000) in accordance with the agreed Schedule of Contributions. The agreed payment for the year ending 31 December 2010 is 8,508,000. Contributions to the defined benefit section of the PA Pension Scheme are based on advice from independent actuaries using actuarial methods, the objective of which is to provide adequate funds to meet pension obligations as they fall due. A full actuarial valuation was carried out at 31 March 2008 and showed a deficit of 92 million on a minimum funding level basis. i Principal assumptions The most recent actuarial funding valuation has been updated by Watson Wyatt Limited in order to assess the liabilities of the defined benefit section at 31 December 2009 for the purposes of FRS 17 Retirement Benefits. Section assets are stated at their market value at 31 December 2009. The principal assumptions used in this valuation by the actuaries were: % % Rate of increase in pensionable salaries 5.10 4.50 Rate of increase in pensions in payment and deferred pensions 3.60 3.00 Discount rate applied to section liabilities 5.70 6.40 Rate of inflation 3.60 3.00 The post-retirement mortality assumptions used were as follows: years years Longevity at 60 for current pensioners Men 27.0 26.9 Women 29.8 29.6 Longevity at 60 for future pensioners Men 28.7 28.0 Women 31.4 30.7 The expected long-term rates of return on section assets used were as follows: % % Equities 8.20 8.20 Bonds 5.60 5.60 Infrastructure assets 6.90 6.90 Cash 4.30 4.30 41

24 Retirement benefits (continued) ii Section assets and liabilities Note 000 000 Equities 212,500 181,500 Bonds 221,200 201,900 Infrastructure assets 18,700 21,600 Cash 2,704 4,700 Total fair value of assets 455,104 409,700 Present value of section liabilities (488,900) (401,800) (Deficit)/surplus in the section 24b (33,796) 7,900 Related deferred tax asset/(liability) 24b 9,463 (2,212) Net pension (deficit)/asset 24b (24,333) 5,688 The section assets are valued at bid market value for quoted securities, plus cash balances held in the trustee s bank account. Infrastructure assets relate to specific sectors, including roads, bridges, and tunnels; airports, ports and rail; water supply and waste water treatment; gas transportation, storage and distribution; power generation and electric transmission; and utility services for residential, commercial and industrial customers. The pension section has not invested in any of the Group s own financial instruments nor in properties or other assets used by the Group. The major categories of section assets as a percentage of the total section assets are as follows: % % Equities 46.70 44.30 Bonds 48.60 49.30 Infrastructure assets 4.10 5.30 Cash 0.60 1.10 100.00 100.00 iii Reconciliation of fair value of defined benefit section assets Note 000 000 At 1 January 409,700 490,600 Expected return on defined benefit pension section assets 24b 27,500 34,600 Actual return less expected return on defined benefit pension section assets 24b 28,200 (105,000) Prior year adjustment on defined benefit section assets valuation 24b - (500) Contributions paid by the employer 8,004 10,500 Benefits paid (18,300) (20,500) At 31 December 455,104 409,700 The actual return on section assets was 55.7 million (2008: 70.4 million loss). 42

24 Retirement benefits (continued) iv Reconciliation of present value of defined benefit section liabilities At 1 January Note 000 000 (401,800) (443,700) Interest on pension section liabilities 24b (25,100) (25,100) Experience adjustments on section liabilities 24b 13,800 (2,400) Changes in assumptions underlying the present value of section liabilities (94,100) 48,900 Benefits paid 18,300 20,500 At 31 December (488,900) (401,800) v History of experience gains and losses 2007 2006 2005 000 000 000 000 000 Fair value of section assets 455,104 409,700 490,600 479,200 445,000 Present value of section liabilities (488,900) (401,800) (443,700) (445,700) (454,400) (Deficit)/surplus in the section (33,796) 7,900 46,900 33,500 (9,400) Experience adjustments on section assets 28,200 (105,000) 13,300 (6,400) (57,200) Experience adjustments on section liabilities 13,800 (2,400) 4,800 - (7,700) Changes in assumptions underlying the present value of section liabilities (94,100) 48,900 (12,000) (19,600) 42,300 Total recognised in statement of total recognised gains and losses (52,100) (58,500) 6,100 (26,000) (22,600) The cumulative amount of actuarial gains and losses recognised since 1 January 2002 in the Statement of Total Recognised Gains and Losses is a net loss of 28.1 million (2008: 24.0 million net gain). The Company has no employees (the members of the Group s defined benefit pension arrangements are or were employed by subsidiaries of PA Consulting Group Limited) and, consequently, no defined benefit arrangement disclosures are given for the Company. d Overseas defined benefit arrangements The Group has two defined benefit arrangements with a total net deficit at 31 December 2009 of 1.0 million (2008: net deficit of 0.5 million). The full disclosures required by FRS 17 Retirement Benefits are not provided because, in the directors opinion, these arrangements are immaterial to the net assets of the Group. 25 Related party transactions The Group and the Company have respectively taken advantage of the exemptions available under FRS 8 Related party disclosures from disclosing intra-group transactions and balances, which have been eliminated on consolidation or transactions and balances with wholly owned subsidiaries. 43

PA offices worldwide Oslo San Francisco Los Angeles Madison Boston New York Denver Princeton Washington, DC Utrecht UK: Dublin London Cambridge Belfast Birmingham Edinburgh Manchester Stockholm Copenhagen Frankfurt Munich Doha New Delhi Abu Dhabi Beijing Bangalore Buenos Aires Wellington At PA Consulting Group, we transform the performance of organisations We put together teams from many disciplines and backgrounds to tackle the most complex problems facing our clients, working with leaders and their staff to turn around organisations in the private and public sectors. Clients call on us when they want: an innovative solution: counter-intuitive thinking and groundbreaking solutions a highly responsive approach: we listen, and then we act decisively and quickly delivery of hard results: we get the job done, often trouble-shooting where previous initiatives have failed. We are an independent, employee-owned firm of talented individuals, operating from offices across the world, in Europe, North America, Middle East, Latin America, Asia and Oceania. We have won numerous awards for delivering complex and highly innovative assignments, run one of the most successful venture programmes in our industry, have technology development capability that few firms can match, deep expertise across key industries and government, and a unique breadth of skills from strategy to IT to HR to applied technology. defence energy financial services government and public services international development life sciences and healthcare manufacturing postal services retail telecommunications transportation strategic management innovation and technology IT operational improvement human resources complex programme delivery Delivering business transformation Corporate headquarters 123 Buckingham Palace Road London SW1W 9SR United Kingdom Tel: +44 20 7730 9000 Fax: +44 20 7333 5050 E-mail: info@paconsulting.com www.paconsulting.com This document has been prepared by PA. The contents of this document do not constitute any form of commitment or recommendation on the part of PA and speak as at the date of their preparation. PA Knowledge Limited 2010. All rights reserved. No part of this documentation may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise without the written permission of PA Consulting Group. 00525-3