Glotel PLC
26 June 2007
26th June 2007
Glotel Plc
Results for the year
ended 31 March 2007
Glotel Plc announces its results for the year ended 31 March 2007 and a
recommended offer for the Company from Spring Group Plc.
Highlights
• Recommended Offer of 70p per share cash
• Group sales declined by 10% from £134.2m to £120.3m
• Profit before tax decreased to £2.1m (2006: £4.0m)
• Gross profit percentage of 19.1% compared to 19.9% in 2006
• Cash generated from operating activities of £3.4m (2006: 3.0m)
• Year end net cash balance of £3.3m (2006:£2.5m)
Recommended Offer
It has been announced today that the board of Spring Group PLC and the
Independent Directors of Glotel plc have reached agreement on the terms of a
recommended cash offer by Spring (Corporate) Limited for the entire issued and
to be issued share capital of Glotel plc. The Independent Directors of Glotel
plc consider the terms of the Offer to be fair and reasonable
and, accordingly, have decided to recommend that Glotel shareholders accept the
Offer. The Independent Directors (comprising Les Clark, Jonathan Brooks, Robin
Saxby and Glyn Hirsch) have irrevocably undertaken to accept or procure the
acceptance of the offer in respect of their entire beneficial shareholdings of
9,766,928 Glotel shares, which in aggregate represent approximately 25.1% per
cent. of the existing issued capital of Glotel plc. Andy Baker was not
involved in the decision to recommend the offer given his ongoing role with the
enlarged group following completion of the offer.
Spring has also received an irrevocable undertaking from Andy Baker to accept or
procure the acceptance of the offer in respect of his entire beneficial holding
of 9,336,064 Glotel shares representing 24% of Glotel's existing issued share
capital.
Further details regarding this Offer will be set out in an Offer Document which
will be posted to Shareholders as soon as possible.
- ends -
Glotel Plc Les Clark, Chairman 020 7484 3000
Weber Shandwick Financial Nick Oborne 020 7067 0700
Glotel Plc
Preliminary Results for the year ended 31 March 2007
Chairman's and Chief Executive's Statement
2006-7 was a challenging year for the group and our profitability was adversely
affected by a number of factors. The first of these was the weak US dollar,
which not only affected the contribution from our US business but also resulted
in significant exchange losses on dollar balances held to fund our London-based
international telecommunications business. Secondly, we saw a drop-off in
activity with our US telecommunications customers last winter and while this was
only temporary, it had a material impact on our profitability in the final three
months of 2006-7. Thirdly, we saw increased margin pressures in the UK, notably
in the public sector. This was partly as a result of the 'Catalist' tendering
process for the UK public sector which had the effect of dampening UK Public
Sector margins.
In spite of these set-backs, our strategy remains the same: we wish to further
develop our presence in the international telecommunications staffing market,
and significantly increase our presence in the USA which remains an extremely
profitable market. In EMEA and Australia we have taken steps to reduce the cost
base of both businesses and we expect both to make a positive contribution to
group results in the year to come.
Results
Group revenues for the year to 31st March 2007 were £120.3m (2006: £134.2m), a
reduction of 10%. The group gross profit margin percentage declined slightly to
19.1% (2006:19.9%)
Foreign exchange losses amounted to £0.4m due to the significant weakening of
the USA dollar against the pound. A major part of our international business as
well as our USA business is denominated in dollars.
Operating Profit for the year to 31st March 2007 was £2.2m (2006: £4.4m)
inclusive of IFRS share option expenses of £83k ( 2006: £152k).
The basic earnings per share for the period was 3.4p (2006: 6.5p). The Board is
not recommending the payment of a final dividend (2006:1.0p).
Our net cash balance at 31st March 2007 was £3.3m (2006: £2.5m).
Operational highlights
The current services provided by Glotel comprise contract staffing, hybrid
staffing (USA only) and permanent placements which represent approximately 6% of
Net Fee Income. In the USA our 'hybrid pricing' model which incorporates certain
levels of project management with contract staffing continued to be
well-received by our clients and to generate higher gross margins.
We opened an office in San Diego, California, bringing the total number of
offices to 21 and are able to serve clients in 30 separate countries. Providing
compliant solutions to the assignment of our engineers into the international
market is a major selling point and we maintain a dedicated team who research
and apply the appropriate solutions.
In 2006-7, the group extended its decentralised operating structure with
significant autonomy given to the three operating units in USA, EMEA (Europe,
Middle East and Africa) and the Asia Pacific region. All trading units have
dedicated resources to support our global telecommunication clients and we
maintain a small central unit for corporate purposes in London. We moved the
EMEA and Glotel head office from Leicester Square to Paddington in December
2006. The dilapidations and removal costs offset the reduction in rent and so
there was no financial benefit in the year. However the relocation will result
in cost savings of approximately £0.3 million per annum from the 2007-8 year.
EMEA
Sales in EMEA of £61m were 4.5% above last year but there was significant
pressure on our gross margin which dropped to £7.1m (2006: £8.6m). Margins in
the public sector saw a significant deterioration due to re-tendering and
competitive pressure.
During the year, our largest UK customer announced its intention to reduce the
number of suppliers of contract labour and appoint one master vendor. We were
unsuccessful in this process but there was no effect in the 2007 financial year
since the transition of staff did not take place. To date, the transition has
still not commenced.
The international telecommunications sector continues to be a great opportunity
for Glotel. We have made progress during the period with two major equipment
vendors that are embarking on some major international infrastructure projects.
USA
The USA remained our most profitable region in 2006-7, representing 39% of group
revenue (2006: 42%) and 86% (2006:63%) of our operating profit before central
charges. The operating profit for the USA of £3.2m (2006: £3.7m) was 14% lower.
£0.2m of this reduction can be explained by the weakness of the US dollar during
2006-7 compared to the previous year.
A significant proportion of our USA sales comes from two telecommunications
vendors and during the last week of December 2006 both of these clients
suspended their projects, resulting in some contractor layoffs. This action had
a significant impact on our expectations for the year and was reported at that
time. During February and March 2007 these projects were reinstated and
contractor numbers returned to previous levels.
Due to the mix of Hybrid 'solutions' projects and regular contact assignments
the gross profit percentage in the USA continues to improve and rose to 29.5%
for the year. (2006: 27.2%)
Results for the year were affected by a mediated settlement of a class action
against Glotel Inc. with respect to a dispute over overtime and meal break
payments for certain telecommunications contractors. The company strenuously
defended itself but decided to settle the action at a cost of £0.6m.
Asia Pac
The termination of a high volume low margin account in Australia had an adverse
impact on the results for the year and the Asia Pacific business made only a
nominal profit for the year (2006:£0.8m). However we opened a number of new
accounts to broaden our client base. This success has established a new platform
for the business. In addition we were recently appointed as a specialist
supplier to a tier-one telecommunications client who is one of the largest users
of contract staff in Australia. Our permanent team in Australia remains
productive and represented 27% of net fee income for the region. We reduced the
Australian cost base in the final quarter and this has already had a favourable
impact on results in the current financial year.
Employees
Our headcount grew in 2006/7 from an average of 227 employees to 235 in March
2007. We are grateful for the loyalty and commitment of our staff during a
difficult year and on behalf of the board we would like to thank them for their
hard work and dedication. We have a number of new employees who started in the
year and our recruitment continues.
Outlook
The last financial year was disappointing but is now well behind us. We have
adjusted our cost base in the UK and Australia so that these businesses will be
better able to cope with the lower margin market conditions of these countries
and we remain committed to developing our US business which remains by far the
most profitable region for the group. We have had a good start to the year and
look forward to being part of a larger group which will give us much-needed
scale, especially in the UK.
Les Clark Andy Baker
Chairman Chief Executive
26th June 2007
- ends -
For further information, please contact:
Glotel Plc
Les Clark, Chairman 020 7484 3000
Andy Baker, Chief Executive www.glotel.com
Weber Shandwick Financial, Nick Oborne 020 7067 0700
Consolidated Income Statement
for the year ended 31 March 2007
Year ended Year ended
31 March 31 March
2007 2006
Note £'000 £'000
--------------------------------------------------------------------------------
Revenue 3 120,285 134,175
Cost of sales (97,299) (107,423)
--------------------------------------------------------------------------------
Gross profit 22,986 26,752
Operating expenses (20,752) (22,342)
--------------------------------------------------------------------------------
Operating profit 3 2,234 4,410
Finance income 4 64 12
Finance costs 4 (210) (402)
--------------------------------------------------------------------------------
Profit before tax 3,4 2,088 4,020
Taxation 6 (783) (1,575)
--------------------------------------------------------------------------------
Retained profit for the year 1,305 2,445
--------------------------------------------------------------------------------
Basic earnings per share 7 3.4p 6.5p
Diluted earnings per share 7 3.4p 6.4p
--------------------------------------------------------------------------------
The amount of loss after taxation and dividends for the financial year dealt
with in the accounts of Glotel Plc is £681,000 (2006:£578).
The results for the year and the prior year derive entirely from continuing
operations.
Balance Sheets
The Group The Company
31 March 31 March 31 March 31 March
Note 2007 2006 2007 2006
1 Restated
£'000 £'000 £'000 £'000
--------------------------------------------------------------------------------
ASSETS
Non-Current assets
Intangible assets 9 428 580 - -
Property, plant and 10 974 1,116 - -
equipment
Investments 11 - - 18,073 18,073
Deferred tax assets 498 297 - -
--------------------------------------------------------------------------------
1,900 1,993 18,073 18,073
Current assets
Trade and other 12 27,175 28,497 2,337 2,767
receivables
Cash and cash equivalents 4,896 4,162 360 335
--------------------------------------------------------------------------------
32,071 32,659 2,697 3,102
LIABILITIES
Current liabilities
Financial liabilities 14 (1,613) (1,681) - -
Current tax liabilities (1,094) (888) - -
Trade and other payables 13 (10,278) (10,781) (1,284) (1,023)
Provisions 15 - - - -
--------------------------------------------------------------------------------
(12,985) (13,350) (1,284) (1,023)
--------------------------------------------------------------------------------
Net current assets 19,086 19,309 1,413 2,079
--------------------------------------------------------------------------------
Net assets 20,986 21,302 19,486 20,152
--------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Called up share capital 17 1,943 1,940 1,943 1,940
Share premium account 16,248 16,235 16,248 16,235
Other reserves 100 100 - -
Profit and loss account 2,695 3,027 1,295 1,977
--------------------------------------------------------------------------------
Shareholders' equity 20,986 21,302 19,486 20,152
--------------------------------------------------------------------------------
Statements of Changes in Shareholders' Equity
The Group Share Share Other Profit and Total
Note capital premium reserves loss account equity
--------------------------------------------------------------------------------------------------
£'000 £'000 £'000 £'000 £'000
Balance at 1 1,912 15,969 100 (369) 17,612
April 2005
Currency
translation - - - 719 719
differences
Profit for the - - - 2,445 2,445
year
Employee share
option scheme:
New share capital 28 266 - - 294
issued under share
option schemes
Exercise of - - - 80 80
share
options released from
EST
Share option expense - - - 152 152
--------------------------------------------------------------------------------------------------
Balance at 31
March 2006 and
1 April 2006 1,940 16,235 100 3,027 21,302
Currency
translation
differences - - - (1,145) (1,145)
Profit for the
year - - - 1,305 1,305
Dividends 8 - - - (575) (575)
Employee share
option scheme:
New share capital 3 13 - - 16
issued under share
option schemes
Exercise of - - - - -
share options
released from
EST
Share option
expense - - - 83 83
------------------------------------------------------------------------------------------------
Balance at 31 March
2007 1,943 16,248 100 2,695 20,986
------------------------------------------------------------------------------------------------
The Company Share Share Other Profit and Total
Loss
------------------------------------------------------------------------------------------------
capital premium reserves account equity
£'000 £'000 £'000 £'000 £'000
Balance at 1 1,912 15,969 - 1,516 19,397
April 2005
(as previously
reported)
Reclassification - - - 380 380
(see note 1)
Balance at 1 1,912 15,969 - 1,896 19,777
April 2005
(restated)
Profit for the - - - 1 1
year
Employee share
option scheme:
New share 28 266 - - 294
capital
issued under
share
option schemes
Exercise of - - - 80 80
share
options released
from EST
------------------------------------------------------------------------------------------------
Balance at 31 March 1,940 16,235 - 1,977 20,152
2006 and 1 April 2006
(restated)
Loss for the year - - - (107) (107)
Dividends 8 - - (575) (575)
Employee share
option scheme:
New share 3 13 - - 16
capital
issued under
share
option schemes
Exercise of share - - - - -
options
released from
EST
------------------------------------------------------------------------------------------------
Balance at 31 1,943 16,248 - 1,295 19,486
March
2007
------------------------------------------------------------------------------------------------
Cash Flow Statements
The The
Group Company
31 March 31 March 31 March 31 March
Note 2007 2006 2007 2006
1 Restated
£'000 £'000 £'000 £'000
-------------------------------------------------------------------------------------
Cash flows from
operating
activities
Cash generated
from/(used in)
operations (i) 3,422 2,985 600 335
Interest 64 12 - 1
received
Interest paid (210) (402) - -
Tax paid (1,244) (380) - -
-------------------------------------------------------------------------------------
Net cash
generated
from operating 2,032 2,215 600 336
activities
Cash flows from
investing
activities
Purchase of
intangible (179) (329) - -
assets
Purchase of
property, (370) (983) - -
plant and
equipment
Proceeds from - - - -
sale of
intangibles
Proceeds from
sale of
property, plant - 1,032 - -
and
equipment
-------------------------------------------------------------------------------------
Net cash used in
investing (549) (280) - -
activities
Cash flows from
financing
activities
Net proceeds
from
exercise of
share
options - 80 - -
(Employee
Share Trust
shares
used)
Net proceeds
from
issue of
ordinary
share capital on 16 294 - -
exercise of
share
options
Dividend paid to
shareholders (575) - (575) -
-------------------------------------------------------------------------------------
Net cash (used
in)/
generated from (559) 374 (575) -
financing
activities
Exchange losses
on
cash
and
cash
equivalents (122) (66) - -
-------------------------------------------------------------------------------------
Increase in cash
and 802 2,243 25 336
cash equivalents
Cash and cash
equivalents at
beginning of 2,481 238 336 -
year
-------------------------------------------------------------------------------------
Cash and cash
equivalents at
end of 3,283 2,481 361 336
year
-------------------------------------------------------------------------------------
Note: as permitted by International Accounting Standard 7, 'Cash flow
statements', cash and cash equivalents as disclosed in the cash flow statement
incorporates cash in hand, deposits held at call with banks and other short-term
highly liquid investments with initial maturities of three months or less net of
overdrafts and advances drawn on invoice discounting facilities.
Note to the
Cash Flow Statements
(i) Reconciliation of profit after tax to cash used in operations
The Group The Company
31 March 31 March 31 March 31 March
2007 2006 2007 2006
Restated
Note £'000 £'000 £'000 £'000
-------------------------------------------------------------------------
Profit/(loss) 1,305 2,445 (107) 1
for the year
Adjustments
for:
taxation 783 1,575 - -
depreciation 489 500
amortisation 266 136 - -
loss/(profit) 34 (14) - -
on sale
of fixed assets
interest income (64) (12) - (1)
interest expense 210 402 - -
share based 83 152 - -
payment expense
Changes in working
capital
trade and other 723 (1,899) 600 335
receivables
trade and other (407) (242) 107 -
payables provisions (58) - -
-------------------------------------------------------------------------
Cash generated
from operations 3,422 2,985 600 335
-------------------------------------------------------------------------
Notes to the Financial Information
1 General information
Glotel plc ('the Company') and its subsidiaries (together 'the Group') provide
staffing resource solutions to blue chip organisations around the world. The
Group's principal focus is on providing temporary IT staff to the
telecommunications, networking and technology markets. Additionally, the Group
is expanding its permanent staffing division in order to create a more
comprehensive suite of staff resource products and enhance its position as a
leading provider of IT professionals globally.
The Company is a public limited company incorporated in England and Wales. The
address of its registered office is Bridge House 63-65 North Wharf Road
Paddington London W2 1LA
The parent company balance sheet, cash flow statement and statement of changes
in shareholders' equity as at 31 March 2006 have been restated to reclassify
certain balances relating to the Employee Benefit Trust.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of this
consolidated financial information are set out below. These policies have been
consistently applied to all of the years presented. The group's accounting
policies apply to the parent company as well as to the group as a whole.
2.1 Basis of preparation
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 31 March 2006 and 2007.
The financial information has been extracted from the audited consolidated
financial statements for the year ended 31 March 2007. Those financial
statements, on which the auditors, PricewaterhouseCoopers LLP, have given an
unqualified opinion, will be delivered to the Registrar of Companies on 26 June
2007. The comparative figures relating to the year ended 31 March 2006 are taken
from the audited consolidated financial statements for that year, which have
already been filed with the Registrar of Companies
The financial information has been prepared in accordance with the EU-adopted
International Financial Reporting Standards (IFRS) and IFRIC interpretations and
with those parts of the Companies Act 1985 which are applicable to companies
reporting under IFRS.
The preparation of financial statements in conformity with IFRS requires the use
of certain critical accounting estimates. It also requires management to
exercise its judgment in the process of applying the Group's accounting
policies.
The following standards, amendments and interpretations to published standards
are mandatory for accounting periods beginning on or after 1 April 2006 but they
are not relevant to the group's operations:
IAS 21 (Amendment), Net investment in a foreign operation;
IAS 39 (Amendment), Cash flow hedge accounting of forecast intragroup
transactions;
IAS 39 (Amendment), The fair value option;
IAS 39 and IFRS 4 (Amendment), Financial guarantee contracts;
IFRS 6, Exploration for and evaluation of mineral resources;
IFRIC 4, Determining whether an arrangement contains a lease;
IFRIC 5, Rights to interests arising from decommissioning, restoration and
environmental rehabilitation funds; and
IFRIC 6, Liabilities arising from participating in a specific market - Waste
electrical and electronic equipment.
The following interpretations to existing standards have been published that are
mandatory for
the group's future accounting periods but which the group has not early adopted:
IFRS 7, Financial instruments: Disclosures (effective for annual periods
beginning on or after 1 January 2007). IFRS 7 introduces new disclosures
relating to financial instruments. The group will apply IFRS 7 from 1 April
2007, but it is not expected to have any impact on the classification and
valuation of the group's financial instruments.
IFRS 8, Operating segments (effective for annual periods beginning on or after 1
January 2009). IFRS 8 extends the scope of segmental reporting, but is not
expected to have any impact on the group's accounts.
IFRIC 8, Scope of IFRS 2 (effective from annual periods beginning on or after 1
May 2006). IFRIC 8 requires consideration of transactions involving the issuance
of equity instruments - where the identifiable consideration received is less
than the fair value of the equity instruments issued - to establish whether or
not they fall within the scope of IFRS 2. The group will apply IFRIC 8 from 1
April 2007, but it is not expected to have any impact on the group's accounts.
IFRIC 10, Interim Financial Reporting and Impairment (effective for annual
periods beginning on or after 1 November 2006). IFRIC 10 prohibits the
impairment losses recognised in an interim period on goodwill and investments in
equity instruments and in
financial assets carried at cost to be reversed at a subsequent balance sheet
date. The group will apply IFRIC 10 from 1 April 2007 but it is not expected to
have any impact on the group's accounts.
2.2 Consolidation
The Group financial statements consolidate the financial statements of Glotel
Plc and its subsidiaries. Inter-company transactions, balances and unrealised
gains or losses on transactions between group companies are eliminated.
2.3 Critical Estimate and Judgements
To be able to prepare accounts according to generally accepted accounting
principles, management and the Board of directors must make estimates and
assumptions that affect the asset and liability items and revenue and expense
items recorded in the financial statements. These estimates are based on
historical experience and various other assumptions that management and the
Board believe are reasonable under the circumstances, the results of which form
the basis of making judgements about the carrying value of the assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. Areas
comprising critical judgement that may significantly impact earnings and
financial position are valuation of share based payments, income taxes, and
litigation and contingent liabilities, all of which are discussed in the
respective notes.
2.4 Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and returns that are different from those of segments operating
in other economic environments.
The returns earned by the Group are predominantly affected by the region in
which it operates and accordingly management considers that the primary
reporting segment is based on geographic location of the assets that generate
those returns. Management considers that the Group only operates in one business
segment, that of providing human capital resource solutions to clients.
2.5 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the 'functional currency'). The consolidated financial
statements are presented in Sterling, which is the Company's functional
currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rate prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
(c) Group companies
The results and financial position of all Group entities (none of which has the
currency of a hyperinflationary economy) that have a functional currency
different from the Group's presentation currency are translated into the
presentation currency as follows:
- assets and liabilities for each balance sheet presented are translated at the
closing rate at the date of that balance sheet;
- income and expenses for each income statement are translated at average
exchange rates; and
- all resulting exchange differences are recognised as a separate component of
shareholders' equity (currency translation adjustment).
Exchange differences arising from the translation of the net investment in
foreign entities are taken to shareholders' equity on consolidation. This
includes foreign exchange differences arising on the translation of loans that
management deems to be as permanent as equity. When a foreign operation is sold
or a loan deemed to be as permanent as equity is settled, such exchange
differences are recycled through the income statement.
2.6 Property, plant and equipment
All property, plant and equipment (PPE) is shown at historical cost less
subsequent depreciation and impairment. Cost includes expenditure that is
directly attributable to the acquisition of the items. Subsequent costs are
included in the asset's carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to the income statement
during the financial period in which they occur.
Depreciation on assets is calculated using the straight-line method to allocate
the cost of each asset to its residual value over its estimated useful life, as
follows:
Leasehold improvements 20% per annum
Motor vehicles 25% per annum
Computer equipment 33 1/3rd % to 50% per annum
Office equipment 20% per annum
Fixtures and fittings 20% per annum
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
An asset's carrying amount is written down immediately to its recoverable amount
if the asset's carrying amount is greater than its estimated recoverable amount
(Note 2.9).
2.7 Intangible assets
Acquired computer software licenses are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software. These costs are
amortised over their estimated useful lives (three to five years).
Costs associated with developing or maintaining computer software programmes are
recognised as an expense as incurred. Costs that are directly associated with
the production of identifiable and unique software products controlled by the
Group, and that are expected to generate economic benefits exceeding costs
beyond one year, are recognised as intangible assets. Direct costs include the
software development employee costs and an appropriate portion of relevant
overheads.
Computer software development costs recognised as assets are amortised over
their estimated useful lives (two to three years).
2.8 Investments
Investments are held as fixed assets and are stated at cost less amounts
provided for impairment.
2.9 Impairment of non-financial assets
Assets that are subject to amortisation or depreciation are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs to sell and
vale in use. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows
(cash-generating units). Non-financial assets that suffered an impairment are
reviewed for possible reversal of the impairment at each reporting date.
2.10 Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade 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. The amount of
the provision is the difference between the asset's carrying amount and the
present value of the estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognised in the income
statement.
2.11 Cash, cash equivalents and financial liabilities
Cash and cash equivalents includes cash in hand, deposits held at call with
banks and other short-term highly liquid investments with initial maturities of
three months or less. Financial liabilities include bank overdrafts and amounts
drawn on invoice discounting facilities. Financial liabilities are shown within
current liabilities on the balance sheet. For the purposes of the cash flow
statement, and as permitted by IAS 7, movements in bank overdrafts and advances
drawn on invoice discounting facilities are treated as movements in cash and
cash equivalents.
Cash, cash equivalents and financial liabilities are initially recognised at
fair value and subsequently measured at amortised cost. All such financial
assets and liabilities either carry a floating interest rate or are non-interest
bearing. Some of the subsidiary companies carry an element of cash and cash
equivalents in a currency other than their functional currency. Such balances
are translated at the period end exchange rate and any gains or losses arising
on retranslation are recognised in the income statement.
2.12 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings, including those drawn under invoice discounting
arrangements, are subsequently stated at amortised cost.
2.13 Provisions
Provisions for restructuring costs and legal claims are recognised when:
- the Group has a present legal or constructive obligation as a result
of past events;
- it is more likely than not that an outflow of resources will be
required to settle the obligation; and
- the amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties and employee
termination payments.
Provisions are measured at the present value of management's best estimate of
the expenditure required to settle the present obligation at the balance sheet
date.
Provisions for onerous contracts are recognised when the expected benefits to be
derived by the Group from a contract are lower than the unavoidable cost of
meeting its obligations under the contract.
2.14 Employee Benefits
(a) Pension obligations
The Group operates a defined contribution pension scheme whereby the Group pays
fixed contributions to privately administered insurance plans on a contractual
basis. The Group has no further financial obligations once the contributions
have been paid. The contributions are recognised as an employee benefit expense
when they are due.
(b) Termination benefits
Termination benefits are payable when employment is terminated before the normal
retirement date, or when an employee accepts voluntary redundancy in exchange
for these benefits. The Group recognises termination benefits when it is
demonstrably committed to either: terminating the employment of current
employees according to a detailed formal plan without possibility of withdrawal;
or providing termination benefits as a result of an offer made to encourage
voluntary redundancy.
(c) Share based plans
The Company Share Option Plan (SOP) allows employees to acquire shares in the
Company. The fair value of options granted under the SOP is recognised as an
employee expense with a corresponding increase in equity. The fair value is
measured at grant date and spread over the period during which the employees
become unconditionally entitled to the options. The fair value of the options
granted is measured using the Black-Scholes model, taking into account the terms
and conditions upon which the options were granted. The amount recognised as an
expense is adjusted, each period, to reflect the actual number of share options
that vest. The proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share premium when the
options are exercised.
2.15 Revenue recognition
Revenue comprises the fair value of the services provided, net of any domestic
revenue tax, after eliminating revenue within the Group.
Revenue relating to the Group's contract business is charged on a time and
materials basis, and is recognised as services are rendered as validated by
receipt of a client approved timesheet or equivalent.
Permanent placement fees are recognised at the time the individual starts
employment.
Revenue relating to the provision of project solutions to clients, whereby the
contracted revenue is fixed at the outset of the contract, is recognised in the
accounting period in which services are rendered, by reference to the stage of
completion of the specific transaction. Contracts are continually reviewed for
profitability and if it is probable that contract costs will exceed contract
revenue on any specific contract, the expected loss is recognised as an expense
immediately.
2.16 Leases
Leases where the lessor retains substantially all the risks and rewards of
ownership are classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the lease.
2.17 Taxation
Current tax, including UK corporation tax and foreign tax, is provided at
amounts expected to be paid (or recovered) using the tax rates and laws that
have been enacted or substantially enacted at the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is not
accounted for if it arises from the initial recognition of an asset or liability
in a transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred tax
is determined using tax rates and laws that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
Deferred tax is provided on temporary differences arising on investments in
subsidiaries except where the timing of the reversal of the temporary difference
is controlled by the Group and it is probable that the temporary difference will
not reverse in the foreseeable future.
3 Segmental information
The returns earned by the Group are predominantly affected by the region in
which it operates and accordingly management considers that the primary
reporting segment is based on the geographic location of the assets that
generate those returns. Management considers that the Group only operates in one
business segment, that of providing human resource solutions to clients. The
geographical split of the results of the Group is as follows:
Revenue Segment result
Year ended Year ended Year ended Year ended
31 March 2007 31 March 2006 31 March 2007 31 March 2006
£'000 £'000 £'000 £'000
--------------------------------------------------------------------------------
EMEA 60,991 58,368 468 1,407
North-America 46,380 55,952 3,179 3,707
Asia-Pacific 12,914 19,855 59 775
--------------------------------------------------------------------------------
120,285 134,175 3,706 5,889
Central
activities (1,472) (1,479)
--------------------------------------------------------------------------------
Operating
profit 2,234 4,410
Interest
receivable 64 12
Interest
payable (210) (402)
--------------------------------------------------------------------------------
Profit before
tax 2,088 4,020
Taxation (783) (1,565)
--------------------------------------------------------------------------------
Retained
profit for the
year 1,305 2,445
--------------------------------------------------------------------------------
The revenue figures above represent revenue to third parties by geographical
origin and destination.
The geographical split of depreciation, amortisation, impairment of trade
receivables, capital expenditure and the net assets/(liabilities) of the Group
are as follows:
Depreciation Amortisation Impairment of Capital
trade expenditure
receivables
-----------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended
31 March 2007 31 March 2006 31 March 2007 31 March 2006 31 March 2007 31 March 2006 31 March 2007 31 March 2006
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
EMEA 157 164 181 126 36 55 327 310
North-America 265 272 67 - (159) 117 207 898
Asia-Pacific 67 64 18 10 12 11 78 105
-----------------------------------------------------------------------------------------------------------------------
489 500 266 136 (111) 183 612 1,313
-----------------------------------------------------------------------------------------------------------------------
Capital expenditure represents gross additions to intangible assets as well as
property, plant and equipment. Intangible assets includes computer software
solely.
The geographical split of gross assets and liabilities of the Group, stated net
of inter-company balances, is as follows:
Gross Assets Gross
liabilities
Year ended Year ended Year ended Year ended
31 March 2007 31 March 2006 31 March 2007 31 March 2006
£'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
EMEA 17,424 17,509 (7,966) (8,346)
North-America 13,588 13,976 (3,707) (3,834)
Asia-Pacific 2,959 3,167 (1,312) (1,170)
-------------------------------------------------------------------------------
33,971 34,652 (12,985) (13,350)
-------------------------------------------------------------------------------
The figures for gross assets shown above represent the sum of non-current assets
of £1,900k and current assets of £32,071k : (2006: £1,993k and £32,659
respectively)
4 Profit before taxation
The profit before taxation is stated after:
Year ended Year ended
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
Depreciation costs on owned assets 489 500
Amortisation of intangible assets 266 136
(Write back)/impairment of trade receivables (111) 183
Mediated settlement of US legal action 635 -
Release of provisions made but not required (159) -
Foreign Exchange Losses (Gains) 426 (108)
Operating lease rental costs:
Plant and machinery 296 178
Properties and other 1,195 1,190
-------------------------------------------------------------------------------
1,491 1,368
-------------------------------------------------------------------------------
Auditors' remuneration
Audit services
- fees payable to the Company's auditor for
the audit of the parent company and
consolidated accounts 90 98
- fees payable to the Company's auditor for
the audit of subsidiaries pursuant to
legislation 88 75
Non-audit services
- Other services 28 22
- Taxation services 67 72
-------------------------------------------------------------------------------
Total auditors remuneration 273 267
-------------------------------------------------------------------------------
Net finance costs
Bank overdrafts (5) (8)
Other loans (205) (394)
-------------------------------------------------------------------------------
Finance costs (210) (402)
Finance income 64 12
-------------------------------------------------------------------------------
Net finance costs (146) (390)
-------------------------------------------------------------------------------
5a) Staff costs and numbers (including
Directors)
Year ended Year ended
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
Wages and salaries 11,104 12,523
Social security costs 1,036 1,283
Other pension costs 129 149
Share option expense 83 152
-------------------------------------------------------------------------------
12,352 14,107
-------------------------------------------------------------------------------
The average number of staff during the year was:
Year ended Year ended
31 March 2007 31 March 2006
-------------------------------------------------------------------------------
EMEA (including central activities) 81 82
North America 127 116
Asia-Pacific 27 29
-------------------------------------------------------------------------------
235 227
-------------------------------------------------------------------------------
All employees are engaged in the operation, management or administration of the
Group.
5b) Directors emoluments and key management
remuneration
Year ended Year ended
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
Emoluments including benefits in kind and
pension contributions:
Salaries and short-term employee benefits 587 779
Share based payments (5) 5
-------------------------------------------------------------------------------
582 784
-------------------------------------------------------------------------------
The Board considers that key management consists solely of the Board itself.
Pension contributions payable by the Group in respect of the highest paid
Director amounted to £nil during the year ended 31 March 2007 (2006: £nil).
The aggregate value of pension contributions payable by the Group in respect of
the Directors who were members of the Glotel Personal Pension Plan, or
equivalent scheme, was £nil (2006: £5,000). As at 31 March 2007, retirement
benefits were accruing under this Plan in respect of no Directors (2006: no
Directors).
Further details of Directors' remuneration are shown in the Remuneration Report
on pages 10 to 12.
6 Taxation
Year ended Year ended
31 March 2007 31 March 2006
Analysis of charge in year £'000 £'000
-------------------------------------------------------------------------------
Current tax charge 1,024 1,430
Adjustment in respect of prior years (40) 62
Deferred tax (201) 83
Taxation 783 1,575
-------------------------------------------------------------------------------
A reconciliation of the tax charge applicable to the Group's profit before tax
at the UK statutory rate of 30% (2005: 30%) with the tax charge at the Group's
effective tax rate is set out below:
Year ended Year ended
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
Profit before tax 2,088 4,020
Standard rate of Corporation tax in UK 30% 30%
-------------------------------------------------------------------------------
Profit before tax at UK statutory rate 626 1,206
Higher tax rates on overseas earnings 163 240
Expenses not deductible 48 79
(Over)/under provisions in respect of prior
years (40) 62
Tax losses used not previously recognised (52) (248)
Foreign exchange 24 19
Irrecoverable withholding tax on overseas
income 98 201
Other (84) -
Tax losses not recognised - 16
-------------------------------------------------------------------------------
Tax charge on profit for the year 783 1,575
-------------------------------------------------------------------------------
The movement on the deferred tax account is as shown below:
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
At 1 April 297 380
Income statement credit/(charge) 225 (64)
Exchange differences (24) (19)
At 31 March 498 297
-------------------------------------------------------------------------------
The above deferred tax assets relate to accelerated capital allowances and
certain provisions made by the Group.
Factors that may affect future tax charges
The Group has recognised deferred tax assets where there are forecast taxable
profits from which the future reversal of the underlying timing differences can
be deducted.
The only unrecognised deferred tax assets are in respect of tax losses and
amount to £126,000 (31 March 2006: £85,000). Should future profits be higher
than those currently forecast in certain countries, future tax charges will be
reduced as a result of tax losses for which a deferred tax asset is not
currently recognised.
7 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year, excluding those hold in the employee share trust
(note 18), which are treated as cancelled.
The weighted average number of shares used in the calculation of the basic and
diluted earnings per share is set out below:
Year ended Year ended Year ended Year ended
31 March 2007 31 March 2007 31 March 2006 31 March 2006
Average no Earnings per Average no Earnings per
of shares share pence of shares share price
-------------------------------------------------------------------------------
Basic earnings
per share 38,337,777 3.4 37,860,244 6.5
-------------------------------------------------------------------------------
Diluted
earnings per
share 38,421,804 3.4 38,377,300 6.4
-------------------------------------------------------------------------------
The calculation of basic and diluted earnings per share has been based on a
profit for the financial year of £1,305,000 (2006: £2,445,000).
The difference between the weighted average number of shares included in the
basic earnings per share calculation and that used in the diluted earnings per
share calculations represents the dilutive impact of the Group's share option
and incentive plans (note18):
Year ended Year ended
31 March 2007 31 March 2006
-------------------------------------------------------------------------------
Average number of shares included in basic
earnings per share calculations 38,337,777 37,860,244
Average number of dilutive share options 84,027 517,056
-------------------------------------------------------------------------------
Average number of shares included in diluted
earnings per share calculations 38,421,804 38,377,300
-------------------------------------------------------------------------------
8 Dividends
Group and Company:
An interim dividend of 0.5 pence per share was paid to shareholders in November
2006.
The directors are not proposing a final dividend in respect of the financial
year ended 31 March 2007. (2006: 1 pence per share)
9 Intangible assets - the Group
All of the Group's intangible assets are in the form of computer software
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
Cost
At 1 April 1,982 1,619
Additions 179 329
Disposals (241) -
Exchange difference (70) 34
-------------------------------------------------------------------------------
At 31 March 1,850 1,982
-------------------------------------------------------------------------------
Accumulated amortisation
At 1 April 1,402 1,248
Charge for the year 266 136
Disposals (215) -
Exchange difference (31) 18
-------------------------------------------------------------------------------
At 31 March 1,422 1,402
-------------------------------------------------------------------------------
Net book value
At 31 March 428 580
-------------------------------------------------------------------------------
10 Property, plant and equipment - the Group
Computer
Motor and office Fixtures and Leasehold
vehicles equipment fittings improvements Total
£'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Cost
At 1 April 2006 130 3,303 999 1,029 5,461
Additions - 181 37 215 433
Disposals - (945) (363) (581) (1,889)
Exchange (13) (167) (67) (54) (301)
difference
-------------------------------------------------------------------------------
At 31 March 2007 117 2,372 606 609 3,704
-------------------------------------------------------------------------------
Accumulated
depreciation
At 1 April 2006 130 2,753 800 662 4,345
Charge for the - 300 56 133 489
year
Disposals - (944) (358) (581) (1,883)
Exchange (13) (141) (49) (18) (221)
difference
-------------------------------------------------------------------------------
At 31 March 2007 117 1,968 449 196 2,730
-------------------------------------------------------------------------------
Net book value
At 31 March 2007 - 404 157 413 974
-------------------------------------------------------------------------------
At 31 March 2006 - 550 199 367 1,116
-------------------------------------------------------------------------------
Computer
Motor and office Fixtures and Leasehold
vehicles equipment fittings improvements Total
£'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Cost
At 1 April 2005 183 2,974 809 727 4,693
Additions - 365 188 431 984
Disposals (65) (143) (31) (136) (375)
Exchange 12 107 33 7 159
difference
At 31 March 2006 130 3,303 999 1,029 5,461
-------------------------------------------------------------------------------
Accumulated
depreciation
At 1 April 2005 172 2,544 738 615 4,069
Charge for the 5 259 62 174 500
year
Disposals (59) (143) (31) (135) (368)
Exchange 12 93 31 8 144
difference
-------------------------------------------------------------------------------
At 31 March 2006 130 2,753 800 662 4,345
-------------------------------------------------------------------------------
Net book value
At 31 March 2006 - 550 199 367 1,116
-------------------------------------------------------------------------------
At 31 March 2005 11 430 71 112 624
-------------------------------------------------------------------------------
11 Fixed asset investments - the Company
The Company
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
Cost and net book value
Subsidiary undertakings 18,073 18,073
-------------------------------------------------------------------------------
Total 18,073 18,073
-------------------------------------------------------------------------------
The Company has investments in the following subsidiary undertakings and other
investments:
Name of Country of Principal activity Type of Proportion of
company incorporation shares shares held by
the Group
-------------------------------------------------------------------------------
Glotel
International
Ltd England Providing IT and £1 Ord 100%
telecommunications shares
consultants
Glotel, Inc USA Providing IT and US $1 Ord 100%
telecommunications shares
consultants
Glotel Managed
Services Ltd England Providing IT and £1 Ord 100%
telecommunications shares
consultants
Glotel Pty Ltd Australia Providing IT and Aus $1 Ord 100%
telecommunications shares
consultants
Glotel (New
Zealand) Ltd New Zealand Providing IT and NZ $1 Ord 100%
telecommunications shares
consultants
Glotel India Providing IT and Indian 100%
Technology telecommunications rupee
Solutions Ltd consultants 10 Ord shares
Glotel BV The Providing IT and €454 Ord 100%
Netherlands telecommunications shares
consultants
Glotel GmbH Germany Providing IT and €0.51 Ord 100%
telecommunications shares
consultants
Glotel SRL Argentina Providing IT and 10 AR $ 100%
telecommunications Ord
consultants shares
Glotel
Holdings Plc* England Intermediate holding £1 Ord 100%
company shares
Contract England Dormant £1 Ord 100%
Accountants PLC shares
Global England Dormant £1 Ord 100%
Telecommunications shares
Resource Ltd
Glotel IT England Dormant £1 Ord 100%
Ltd shares
Glotel England Financing company £1 Ord 100%
Investments shares
Limited
Comms & PC England Dormant £1 Ord 100%
People Ltd shares
Comms & PC England Dormant £1 Ord 100%
People shares
(Europe) Ltd
Comms People England Dormant £1 Ord 100%
Ltd shares
Comms People, USA Dormant US $1 Ord 100%
Inc shares
Comms People Singapore Dormant Sing $1 100%
(Singapore) Ord
PTE Ltd shares
Glotel IT Singapore Dormant Sing $1 100%
(Singapore) Ord
PTE Ltd shares
-------------------------------------------------------------------------------
* The shares in this subsidiary undertaking are owned directly by the Company.
12 Trade and other receivables
The Group The Company
31 March 2007 31 March 2006 31 March 2007 31 March 2006
Restated
£'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Trade
receivables 16,467 19,088 - -
Less:
provisions for
impairment of
receivables (470) (699) - -
-------------------------------------------------------------------------------
Trade
receivables -
net 15,997 18,389 - -
Amounts owed
by Group
undertakings - - 2,329 2,767
Other debtors 1,424 1,651 - -
Prepayments
and accrued
income 9,754 8,457 8 -
-------------------------------------------------------------------------------
27,175 28,497 2,337 2,767
-------------------------------------------------------------------------------
There is no concentration of credit risk with respect to trade receivables, as
the Group has a large number of customers, internationally dispersed. Due to
this, management believes there is no further credit risk provision required in
excess of normal provision for doubtful receivables.
The carrying value of trade and other receivables also represents their fair
value.
13 Trade and other payables
The Group The Company
31 March 2007 31 March 2006 31 March 2007 31 March 2006
Restated
£'000 £'000 £'000 £'000
-----------------------------------------------------------------------------------
Trade payables 656 698 (107) (29)
Amounts owed
to Group
undertakings - - (1,177) (994)
Other payables 178 652 - -
Taxation and
social
security 926 1,472 - -
Accruals and
deferred
income 8,518 7,959 -
-----------------------------------------------------------------------------------
10,278 10,781 (1,284) (1,023)
-----------------------------------------------------------------------------------
14 Financial liabilities
The The Company
Group
31 March 2007 31 March 2006 31 March 2007 31 March 2006
£'000 £'000 £'000 £'000
------------------------------------------------------------------------------------
Bank
overdrafts 1,156 1,488 - -
Invoice
discounting
advances 457 193 - -
------------------------------------------------------------------------------------
1,613 1,681 - -
------------------------------------------------------------------------------------
Amounts advanced to the Group under invoice discounting arrangements are secured
by charges over book debts totaling £572,000 (2005: £235,000). The Group may
borrow up to a maximum of between 80% and 85% of trade debts approved by the
finance providers under the invoice discounting arrangements. Interest is
payable on advances at a rate of 1.5% and 1.25% above the local base rate in the
UK and Australia respectively and 1.5% above the bank's prime rate in the USA.
Under such arrangements the Group bears all the risks associated with collecting
the related trade debtors.
15 Provisions - The Group
31 March 2007 31 March 2006
£'000 £'000
-------------------------------------------------------------------------------
At 1 April - 58
Utilised in year - (58)
-------------------------------------------------------------------------------
- -
-------------------------------------------------------------------------------
All provisions related to the ongoing costs of properties which were surplus to
the Group's requirements.
16 Operating lease commitments
The Group has committed to making the following future minimum operating lease
payments:
Land and Other
Buildings
31 March 2007 31 March 2006 31 March 2007 31 March 2006
£'000 £'000 £'000 £'000
-------------------------------------------------------------------------------
Leases which
expire
Within one
year 76 1,395 23 124
Between one
and five years 3,076 2,721 80 46
-------------------------------------------------------------------------------
3,152 4,116 103 170
-------------------------------------------------------------------------------
The Company has no operating lease commitments.
17 Share capital
31 March 31 March 31 March 31 March
2007 2007 2006 2006
Number £'000 Number £'000
-------------------------------------------------------------------------------
Authorised
Ordinary
shares of 5p
each 50,000,000 2,500 50,000,000 2,500
Allotted, issued and fully
paid
Ordinary
shares of 5p
each 38,856,398 1,943 38,800,148 1,940
-------------------------------------------------------------------------------
18 Share option and incentive plans
The Glotel Company Share Option Plan ('SOP') was established in March 1999. The
Glotel Company Savings Related Scheme ('SRS') was established in May 1999.
Options outstanding at 31 March 2007 under the Glotel Plc share option plans
were as follows:
Options granted Number of Option price Earliest date
options in pence exercisable
'000 from
---------------------------------------------------------------------------------------
SOP 1999-2005 2,506 37-427 20 April 2000
SRS 2001 Nil 30 1 September
2006
---------------------------------------------------------------------------------------
SOP Number of SOP Weighted SRS Number SRS Weighted
options ave. exercise of options ave. exercise
'000 price (pence) of '000 price (pence)
---------------------------------------------------------------------------------------
Options 2,506 91 56 30
outstanding
at
1 April 2006
Granted - - - -
Exercised - - (56) 30
Lapsed/
cancelled (650) 91 - -
---------------------------------------------------------------------------------------
Options 1,856 91 - -
outstanding
at
31 March 2007
Weighted 7 - - -
average
remaining
life
of options
outstanding
at
31 March 2007
(years)
Options 763 - - -
exercisable
at
31 March 2007
-----------------------------------------------------------------------------------------
The weighted average price of Glotel plc shares during the year ended 31 March
2007 was 68 pence (2006: 89 pence). The weighted average remaining life of
options outstanding under the SOP as at 31 March 2007 was 7 years (2006: 8
years).
Options are normally exercisable between the third and tenth anniversary of the
date of the grant, although options may be exercised earlier in certain
circumstances. Options granted under the SOP, except those granted at 76p, are
subject to performance criteria based upon growth in earnings per share.
Exercise of an option is subject to continued employment.
The Group has borne an expense under IFRS 2 'Share-based payments' in relation
to all share options granted after 7 November 2002, that have not vested by 1
January 2005. Options were valued using the Black-Scholes option-pricing model.
No performance conditions were included in the fair value calculations. The fair
value per option granted and the assumptions used in the calculation were as
follows:
Grant date 23 July 2004 19 January 2005 18 August 2005 19 December 2005
Share price at
grant date
(pence) 123 103 100 84
Exercise price
(pence) 123 103 100 84
Expected
volatility 50% 46% 46% 45%
Life of option
(years) 5 5 5 5
Dividend yield nil nil nil nil
expected on
underlying shares
Risk free
interest rate
over life of
option 5.00% 5.00% 4.63% 4.55%
Value of
option (pence) 61 48 46 38
-----------------------------------------------------------------------------------
Volatility has been estimated by taking the historical volatility of the
company's share price since March 2002. Vesting estimates take into account the
company's staff retention rate. The expected life is the average expected period
to exercise. The risk free rate of return is the yield on zero-coupon UK
government bonds of a term consistent with the assumed option life.
An Employee Share Trust ('EST') was established in the year to 31 March 2000 to
acquire Glotel shares to satisfy future requirements of employee share plans.
The EST is funded by loans and gifts from the Group. The EST has waived its
rights to dividends. During the year to 31 March 2007, the EST released no
shares (2006: 335,500 shares) to meet exercises of share options. At 31 March
2007, the EST held 495,042 shares (2006: 495,042 shares), which had a market
value of £294k (2006: £425k).
19 Pensions
The Glotel Personal Pension Plan is a defined contribution plan and is open to
all UK employees who have completed three months' service. The Group contributes
the equivalent of 5% of an employee's pensionable salary into his/her personal
pension plan, provided that he/she contributes at least the same amount. The
pension cost, which represents the contributions payable by the Group under the
Glotel Personal Pension Plan, amounted to £59,000 for the year ended 31 March
2007 (2006: £76,000). Included in creditors due within one year is £7,000 (2006:
£10,000) in respect of contributions due to such pension plans.
The Company's US subsidiary (Glotel, Inc) has a defined contribution Savings and
Investment Plan. This plan covers substantially all the Group's US employees who
meet minimum age and service requirements, and allows participants to defer a
portion of their annual compensation on a pre-tax basis. Company contributions
to the plan may be made at the discretion of Glotel, Inc. The Group made no
contributions to the plan during the two years ended 31 March 2007.
The Company's Australian subsidiary (Glotel Pty Limited) must remit an
employers' contribution towards all employees state pension plan under a
superannuation scheme. The pension cost borne by the Group under this scheme
totaled £70,000 (2006: £73,000).
The Group does not have any defined benefit pension arrangements.
20 Financial instruments
The Group's financial instruments comprise cash, bank overdrafts, advances drawn
on invoice discounting facilities, provisions for liabilities and charges and
various items such as trade debtors, and trade creditors that arise directly
from its operations. It is, and has been throughout the period under review, the
Group's policy that no trading in derivative financial instruments shall be
undertaken.
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk and foreign currency risk.
Interest rate risk
The Group finances its operations through a mixture of retained profits and,
when required, bank overdrafts and invoice discounting facilities. It is the
Group's practice to utilise floating rate facilities. The interest rate
exposures arising are not hedged. The Group invests surplus cash as floating
rate interest earning deposits with UK, US, Australian and European banks.
Liquidity
The Group's policy is to ensure that it has adequate financial resources to
enable it to finance its day-to-day operations, based on cash flow projections.
The Group's working capital requirements are generally short term in nature. As
a result the Group utilises short term overdraft and discounting facilities
rather than longer term financing.
Foreign currency risk
The Group has significant overseas subsidiaries, the largest of which is Glotel,
Inc. which operates in the USA. The revenues and expenses of this subsidiary are
denominated in US dollars. The Group does not hedge its net investment in
overseas subsidiaries. The Group's businesses generally raise invoices and incur
expenses in their local currencies. As a result the Group's businesses do not
have any significant currency exposures to third parties.
Borrowing facilities
The Group had maximum floating rate invoice discounting facilities available at
31 March 2007 of £14.0 million (2006: £15.2 million). Based on the debtor book
at 31 March 2007 the maximum potential drawdown under these facilities was
£7,166,000 (2006: £9,954,000). These facilities are on a rolling 12 month notice
period. The Group also has an overdraft facility of £3,000,000 of which
£3,000,000 (2006: £1,681,000) was undrawn at 31 March 2007.
Fair values of financial instruments
As at 31 March 2007 and 31 March 2006, there were no material differences
between the fair values and the book values of the Group's financial assets and
liabilities.
Interest rate risk profile of financial instruments
The following table sets out the carrying amount of the Group's financial
instruments that are exposed to interest rate risk at 31 March 2007 and 31 March
2006. Note that all financial instruments have a maturity of less than one year.
31 March 2007 31 March 2006
Effective Carrying amount Effective Carrying amount
interest rate% Total interest rate% Total
£'000 £'000
--------------------------------------------------------------------------------
Floating rate: 3.5% 4,896 3.6% 4,162
Cash and cash
equivalents 7.0% (1,156) 6.3% (1,488)
Bank
overdrafts 9.3% (457) 6.9% (193)
Advances drawn
on invoice
discounting
facilities 3,283 2,481
--------------------------------------------------------------------------------
The above floating rate financial assets and liabilities represent cash
deposited on over-night banking facilities earning interest based on bank
overnight, weekly deposit and REPO rates, and bank overdrafts and invoice
discounting advances on which interest is charged based on LIBOR and local base
interest rates adjusted by variable margins.
Currency exposures
Exposures that give rise to net currency gains and losses in the profit and loss
account are shown below. These comprise monetary assets and liabilities of the
Group that are not denominated in the functional currency of the operating unit
involved.
Net foreign currency monetary assets Net foreign currency monetary assets
Year Year Year Year Year Year Year Year Year Year
ended ended ended ended ended ended ended ended ended ended
31 31 31 31 31 31 31 31 31 31
March March March March March March March March March March
2007 2007 2007 2007 2007 2006 2006 2006 2006 2006
Sterling US Euro Other Total Sterling US Euro Other Total
Dollar Dollar
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
-------------------------------------------------------------------------------------------
Functional
currency
of
Group
operation:
Sterling - 694 699 - 1,393 - 1,846 880 10 2,736
Other 1 320 - - 321 - 44 - - 44
-------------------------------------------------------------------------------------------
Total 1 1,014 699 - 1,714 - 1,890 880 10 2,780
-------------------------------------------------------------------------------------------
21 Related Party Transactions
The Company carried out no inter company trading during the year (2006: nil).
The amounts owed to the Company by Group undertakings reduced during the year
due to payment of monies owed to Glotel Plc.
This information is provided by RNS
The company news service from the London Stock Exchange