5th Jun 2006 07:00
Glotel PLC05 June 2006 Embargoed until 07.00 5th June 2006 Glotel Plc Results for the year ended 31 March 2006 Highlights • Profit before tax on an IFRS basis increased 71% to £4.0m (2005: £2.4m) • Gross profit percentage increased from 18.7% to 19.9% (H2 2005/6 20.7%) • Operating cash inflow of £2.2m (2005: £3.0m outflow) • All divisions increased revenues, gross profit and operating profits • Proposed dividend of 1p per share (2005: nil) • Investment in the first quarter of the current year in new sales and recruiting teams Les Clark, Chairman, commented: "These are very good results and provide evidence of the continued developmentof the business. "Our international presence and our search for higher value opportunities haveenabled us to improve margins with the gross profit percentage to revenuesincreasing from 18.7% to 19.9%. "We are confident that our progress will be maintained in the current year." - ends - For further information, please contact: Glotel Plc Weber Shandwick Square MileLes Clark, Chairman Nick OborneAndy Baker, Chief Executive 020 7067 0700020 7484 3000www.glotel.com Embargoed until 07.00 5th June 2006 Glotel Plc Preliminary Results for the year ended 31 March 2006 Chairman's and Chief Executive's Statement The improving trading conditions reported last year and at the time of therelease of the interim results have continued and we are pleased to reportfurther progress in all areas. We have structured the business into threeoperating divisions covering Europe, the Middle East and Africa (EMEA), the USAand Asia Pacific, each with its own management team. All three divisions haveshown an improvement in revenues, gross profit and operating profit. Overseas revenues continue to represent approximately two-thirds of the totaland we operate from 22 offices worldwide with engineers and consultants workingin 30 countries. With demand increasing, high level skills are becomingincreasingly difficult to find and our global reach, combined with an excellentdelivery mechanism, positions us well to benefit from this tightening market. Results While revenues for the year increased by 12% to £134m (2005: £119m), grossprofit (net fee income) rose by 20% to £27m (2005: £22m). The growth in net feeincome exceeded the growth in revenues due to two low margin payroll basedaccounts being terminated during the year, one in Australia and the other in theUSA. This has also had the effect of improving our gross profit as a percentageof revenues from 18.7% in the prior year to 19.9% in the year ended 31 March2006. In the six months to 31 March 2006, gross profit as a percentage ofrevenues increased further to 20.7% (6 months to 30 September 2005: 19.2%). We achieved an operating profit of £4.4m, an 80% increase on the prior year'soperating profit of £2.5m. The impact of IFRS on the results for the year ended31 March 2006 and 31 March 2005 (which has been restated) was to reduce profitbefore tax by £0.2m in both years. Profit before tax on an IFRS basis was £4.0m(2005: £2.4m) an increase of 71%. The post tax result of £2.4m represents fully diluted earnings of 6.4p per sharecompared to £1.6m and 4.1p respectively in the previous financial year. Our net cash position at 31st March 2006 was £2.5m (2005: £0.2m) reflecting theconversion of strong profits into cash, including an improvement in cashcollections. Dividend With the sustained improvement in trading and a positive net cash position theboard has proposed a final dividend of 1p per share for the year ended 31 March2006. The dividend is subject to shareholder approval at the AGM on 12 September2006. If approved, the dividend will be paid by 13 October 2006. The associatedRecord date will be 15 September 2006 and the ex-dividend date shall be 13September 2006. Operational highlights The geographical mix of the business is broadly in line with last year with theUSA representing 42% of revenues (2005: 42%), EMEA 43% (2005: 46%) and AsiaPacific region 15% (2005:12%). However, due to the significantly higher marginsin the USA the geographical division of operating profit is very different withthe USA accounting for 63% (2005: 67%) of operating profit before centralactivities, EMEA 24% (2005: 20%), and Asia Pacific region 13% (2005: 14%) The current services provided by Glotel comprise contract staffing, whichrepresents approximately 85% of revenues, hybrid staffing solutions,approximately 14% of revenues and permanent placements 1%. Glotel's corebusiness remains in the telecommunications market which generates 63% (2005:63%) of our gross margin, with the public sector representing 13% (2005: 12%)while other corporate and outsourcing clients represent 24% of revenues (2005:25%) With demand buoyant and a scarcity of highly skilled contractors, we have set uptwo low cost recruiting centres in Bristol in the UK and Champaign, Illinois inthe USA in order to maintain the speed and quality of our delivery. Thesecentres will maintain the integrity of our internal database of consultants,update their availability and support our recruiters to streamline our deliverycapability. EMEA Revenues in the UK grew by 5% to £46m (2005: £44m) and, although marketconditions have improved, the market remains very competitive. With skillshortages beginning to emerge and contractor rates increasing, we expect thatthere may be some relaxation of the margin pressure in the future. Our publicsector business continued to grow and with the S-Cat structure being terminatedin November 2006 we are transferring our attention to local government and othercentral government buying platforms which we believe may offer goodopportunities. Permanent recruitment revenues in the UK amounted to £0.4m, a similar level tothe previous year. We are making steady progress in the rest of EMEA, supplying engineers totelecommunications infrastructure projects in several countries in EasternEurope, the Middle East, including Saudi Arabia, the Yemen, Kuwait and Pakistan,and Africa, including Nigeria and Morocco. Revenues from non-UK based clientswere £12m (2005: £11m). Our compliance team provides legal solutions toassigning contractors in these territories, which is a major selling point toour clients. Overall gross margins in the EMEA business were approximately 15% of revenue, asimilar level to the previous year. Operating profit increased 84% from £0.8m to £1.4m. USA The USA is the most profitable division within Glotel and enjoyed increasedgross margin percentage and operating profit on revenue growth from £50m to£56m. Operating profit grew by 43% from £2.6m to £3.7m, driven by thesignificant increase in gross margins from 23.6% to 27.2% of revenue. The USA business is divided into three units: telecommunications contractstaffing, IT contract staffing, and 'Hybrid solutions', where an element ofoverall project management is undertaken by Glotel in return for a higher grossmargin. Hybrid solutions are increasingly popular in the USA where there isdemand for the management of larger teams of temporary contractors working onspecific projects. Engineers are supplied on a time basis but there are deliverycriteria with solutions being tailored to the clients' requirement. All of theseunits have continued to improve their performance. Activity levels in the large telecommunications infrastructure projects continueat a high level and our major projects in 2005/6 all ran profitably. Wecurrently have 13 office locations from which we are continuing to supply highlyskilled consultants who are sourced locally, nationally or internationally.Overall, telecommunications customers accounted for approximately two-thirds oftotal sales in the USA. During the last year we terminated our contract with a large financial servicesclient where the gross margins had been reduced to levels at which we wereunable to make a satisfactory return. The loss of revenues was approximately £4mbut the impact on net fee income was minimal. To improve margins and support our client base we have invested in a permanentrecruitment team based out of our Philadelphia office. Early indications arepositive with fees of £0.5m generated in the year compared to £0.2m in theprevious year. We plan to build on this base into 2006/7. Asia Pacific The Asia Pacific region contributed £0.8m to the Group operating profit, up 46%on the £0.5m generated by the region in the prior year. Turnover in Australia was lower than last year, reflecting our refusal to acceptsignificantly lower margin on the re-tender of a major account, and itssubsequent transfer to a competitor. We have re-assigned our resources from thisaccount onto more profitable opportunities. The Asia Pacific region outside ofAustralia is expanding with the continuing development of the globaltelecommunications vendors who are winning projects in the region. Our Indiansubsidiary continues to develop with revenues of £1.9m (2005: £0.6m) and NewZealand revenues have grown to £0.8m (£0.2m). Gross margins in the Asia-Pacific region are similar to those in EMEA atapproximately 15% of revenue in both 2005/6 and the previous year. Employees Our headcount grew in 2005/6 from 197 to 227 employees and we currently have 240staff worldwide. Our continuing progress is based upon the loyalty and commitment of our staffand on behalf of the board we would like to thank them for their hard work anddedication. We have a number of new employees who started in the year and ourrecruitment continues. We would like to welcome all of these employees to Glotelto share and develop our culture. Outlook These are very good results and provide evidence of the continued development ofthe business. We are investing in new sales and recruiting teams in the firstquarter of the new financial year to ensure a payback by the year end and havealready recruited an additional 15 staff since 31 March. We are also expandingour permanent recruitment activity and now have teams in place in all threeregions to achieve this. Activity levels remain high and we consider ourdelivery capability to be one of the best in the industry. Our cash position ispositive, we have funds available for expansion and are in good shape tocontinue our growth and success. We remain confident that our progress should be maintained in the current year. Les Clark Andy BakerChairman Chief Executive5th June 2006 - ends - For further information, please contact:Glotel Plc Weber Shandwick Square MileLes Clark, Chairman Nick OborneAndy Baker, Chief Executive 020 7067 0700020 7484 3000www.glotel.com GLOTEL PlcConsolidated income statement (unaudited)For the year ended 31 March 2006 Note Year ended 31 Year ended 31 March 2006 March 2005 £'000 £'000 Revenue 3 134,175 119,496Cost of sales (107,423) (97,167) ----------- -----------Gross profit 26,752 22,329 Operating expenses (22,342) (19,876) ----------- ----------- Operating profit 3 4,410 2,453Interest receivable 12 48Interest payable (402) (151) ----------- -----------Profit before tax 4,020 2,350Taxation (1,575) (765) ----------- -----------Retained profit for theyear 2,445 1,585 ----------- ----------- Earnings per share(pence):Basic 4 6.5 4.3Diluted 4 6.4 4.1 ----------- ----------- Proposed dividend pershare 1.0p - ----------- ----------- The results for the year and the prior year derive entirely from continuingoperations. GLOTEL PlcConsolidated statement of changes in Shareholders' equity (unaudited)For the year ended 31 March 2006 Share Share Other Profit and Total equity capital premium reserves loss account £'000 £'000 £'000 £'000 £'000 Balance at 1 April 2004 1,895 15,880 100 (2,097) 15,778Currency translationdifference - - - (137) (137)Profit for the year - - - 1,585 1,585Employee share option scheme: - new share capital issued under share option schemes 17 89 - - 106 - exercise of share options released from EST - - - 123 123Share option expense - - - 157 157 ---------- ----------- ----------- ---------- -----------Balance at 31 March 2005 and 1 April 2005 1,912 15,969 100 (369) 17,612Currency translationdifference - - - 719 719Profit for the year - - - 2,445 2,445Employee share option scheme: - new share capital issued under share option schemes 28 266 - - 294 - exercise of share options released from EST - - - 80 80Share option expense - - - 152 152 ---------- ----------- ----------- ---------- ----------- Balance at 31 March 2006 1,940 16,235 100 3,027 21,302 ---------- ----------- ----------- ---------- ----------- GLOTEL PlcConsolidated balance sheet (unaudited)As at 31 March 2006 31 March 31 March 2006 2005 £'000 £'000 ASSETSNon-current assetsIntangible assets 580 371Property, plant and equipment 1,116 624Deferred tax assets 297 380 ----------- ----------- 1,993 1,375 ----------- -----------Current assetsTrade and other receivables 28,497 26,422Cash and cash equivalents 4,162 3,961 ----------- ----------- 32,659 30,383 ----------- ----------- LIABILITIESCurrent liabilitiesFinancial liabilities (1,681) (3,723)Trade and other payables (10,781) (10,083)Current tax liabilities (888) (282)Provisions - (58) ----------- ----------- (13,350) (14,146) ----------- -----------Net current assets 19,309 16,237 ----------- -----------Net assets 21,302 17,612 ----------- ----------- SHAREHOLDERS' EQUITYCalled up share capital 1,940 1,912Share premium account 16,235 15,969Other reserves 100 100Profit and loss account 3,027 (369) ----------- -----------Shareholders' equity 21,302 17,612 ----------- ----------- GLOTEL PlcConsolidated cash flow statement (unaudited)For the year ended 31 March 2006 Note Year ended Year ended 31 March 31 March 2006 2005 £'000 £'000 Cash flows from operating activitiesCash generated from/(used in)operations 5 2,985 (2,884)Interest paid (402) (151)Interest received 12 48Tax paid (380) (27) ----------- -----------Net cash generated from/(used in)operating activities 2,215 (3,014) Cash flows from investing activitiesPurchase of intangible assets (329) (229)Purchase of plant, property andequipment (983) (1,537)Proceeds from sale of property plantand equipment 1,032 14 ----------- -----------Net cash used in investingactivities (280) (1,752) Cash flows from financing activitiesNet proceeds from exercise of shareoptions (Employee Share Trust sharesused) 80 123Net proceeds from issue of ordinaryshare capital on exercise of shareoptions 294 106 ----------- -----------Net cash generated from financingactivities 374 229Exchange (losses)/gains on cash andcash equivalents (66) 92 ----------- ----------- Net increase/(decrease) in cash andcash equivalents 2,243 (4,445)Cash and cash equivalents atbeginning of the year 238 4,683 ----------- -----------Cash and cash equivalents at end ofthe year 2,481 238 ----------- ----------- Notes to the unaudited preliminary consolidated financial statements 1 Summary of significant accounting policies 1.1 Basis of preparation This preliminary statement of Glotel Plc (the Company) and its subsidiaries(together 'Glotel' or 'the Group') has been prepared in accordance withInternational Financial Reporting Standards (IFRSs) as adopted for use by theEuropean Union. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the Company's accountingpolicies. The Group's consolidated financial statements were prepared in accordance withUnited Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 March2005. Reconciliations and descriptions of the effect of the transition from UKGAAP to IFRSs on the Group's balance sheets at 31 March 2004 and 31 March 2005and its net income and cash flows for the year ended 31 March 2005 are providedin Note 6. The policies set out below represent the Group's more important accountingpolicies and have been consistently applied to the information presented forboth years. 1.2 Consolidations The financial statements of the Group represent the consolidation of Glotel Plcand its subsidiary undertakings. Subsidiaries are all entities over which theGroup has the power to govern the financial and operating policies generallyaccompanying a shareholding of more than one half of the voting rights.Inter-company transactions, balances and unrealised gains or losses ontransactions between group companies are eliminated. 1.3 Foreign currency translation a) Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the 'functional currency'). The consolidated financialstatements are presented in Sterling, which is the Company's functionalcurrency. b) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rate prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated 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 thecurrency of a hyperinflationary economy) that have a functional currencydifferent from the Group's presentation currency are translated into thepresentation currency as follows: i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; 1.3 Foreign currency translation (continued) ii) income and expenses for each income statement are translated at average exchange rates; and iii) all resulting exchange differences are recognised as a separate component of equity (cumulative translation adjustment). Exchange differences arising from the translation of the net investment inforeign entities are taken to equity on consolidation. This includes foreignexchange differences arising on the translation of loans that management deemsto be as permanent as equity. When a foreign operation is sold or a loan deemedto be as permanent as equity is settled, such exchange differences are recycledthrough the income statement. 1.4 Property, plant and equipment All property, plant and equipment (PPE) is shown at cost less subsequentdepreciation and impairment. Cost includes expenditure that is directlyattributable to the acquisition of the items. Subsequent costs are included inthe asset's carrying amount or recognised as a separate asset, as appropriate,only when it is probable that future economic benefits associated with the itemwill flow to the Group and the cost of the item can be measured reliably. Allother repairs and maintenance are charged to the income statement during thefinancial period in which they occur. Depreciation on assets is calculated using the straight-line method to allocatethe cost of each asset to its residual value over its estimated useful life, asfollows: Leasehold improvements 20% per annumMotor vehicles 25% per annumComputer equipment 33 1/3rd % to 50% per annumOffice equipment 20% per annumFixtures and fittings 20% per annum The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. The Group assesses each year whether there is any indication that any property,plant and equipment is impaired. If such an indication exists then the asset'scarrying amount is written down immediately to its recoverable amount if theasset's carrying amount is greater than its estimated recoverable amount. 1.5 Intangible assets Acquired computer software licences are capitalised on the basis of the costsincurred to acquire and bring to use the specific software. These costs areamortised over the estimated useful lives of the software (two to three years). Costs that are directly associated with the production of identifiable andunique software products controlled by the Group, and that are expected togenerate economic benefits exceeding costs beyond one year, are recognised asintangible assets. Direct costs include the costs of software developmentemployees and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised overtheir estimated useful lives (two to three years). 1.6 Impairment of non-financial assets Assets that are subject to amortisation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which theasset's carrying amount exceeds its recoverable amount. The recoverable amountis the higher of an asset's fair value less costs to sell and value in use. Forthe purposes of assessing impairment, assets are grouped at the lowest levelsfor which there are separately identifiable cash flows (cash generating units).Non-financial assets that suffered an impairment are reviewed for possiblereversal of the impairment at each date. 1.7 Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost, less provision for impairment. A provision forimpairment of trade receivables is established when there is objective evidencethat the Group will not be able to collect all amounts due according to theoriginal terms of the receivables. The amount of the provision is the differencebetween the asset's carrying amount and the present value of the estimatedfuture cash flows, discounted at the effective interest rate. The amount of theprovision is recognised in the income statement. 1.8 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks and other short-term highly liquid investments with initial maturities ofthree months or less. Bank overdrafts and advances drawn on invoice discountingfacilities are shown within financial liabilities on the balance sheet. For thepurposes of the cash flow statement, and as permitted by IAS 7, bank overdraftsand advances drawn on invoice discounting facilities are included within cashand cash equivalents. 1.9 Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings, including those drawn under invoice discountingarrangements, are subsequently stated at amortised cost. 1.10 Employee benefits a) Pension obligations The Group operates a defined contribution pension scheme whereby the Group paysfixed contributions to privately administered insurance plans on a contractualbasis. The Group has no further financial obligations once the contributionshave been paid. The contributions are recognised as an employee benefit expensewhen they are due. b) Termination benefits Termination benefits are payable when employment is terminated before the normalretirement date, or when an employee accepts voluntary redundancy in exchangefor these benefits. The Group recognises termination benefits when it isdemonstrably committed to either: terminating the employment of currentemployees according to a detailed formal plan without possibility of withdrawal;or providing termination benefits as a result of an offer made to encouragevoluntary redundancy. c) Share based plans The Company Share Option Plan (CSOP) allows employees to acquire shares in theCompany. The fair value of options granted under the CSOP is recognised as anemployee expense with a corresponding increase in equity. The fair value ismeasured at grant date and spread over the period during which the employeesbecome unconditionally entitled to the options. The fair value of the optionsgranted is measured using the Black-Scholes model, taking into account the termsand 1.10 Employee benefits (continued) conditions upon which the options were granted. The amount recognised as anexpense is adjusted, each period, to reflect the actual number of share optionsthat vest. The proceeds received net of any directly attributable transactioncosts are credited to share capital (nominal value) and share premium when theoptions are exercised. 1.11 Provisions Provisions for restructuring costs and legal claims are recognised when: theGroup 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 tosettle the obligation; and the amount has been reliably estimated. Restructuringprovisions comprise lease termination penalties and employee terminationpayments. Provisions are measured at the present value of management's best estimate ofthe expenditure required to settle the present obligation at the balance sheetdate. Provisions for onerous contracts are recognised when the expected benefits to bederived by the Group from a contract are lower than the unavoidable cost ofmeeting its obligations under the contract. 1.12 Revenue recognition Revenue comprises the fair value of the services provided, net of value addedtax, after eliminating revenues within the Group. Revenue relating to the Group's contract business is charged on a time andmaterials basis, and is recognised as services are rendered as validated byreceipt of a client approved timesheet or equivalent. Permanent placement fees are recognised at the time the individual startsemployment. Revenue relating to the provision of project solutions to clients, whereby thecontracted revenue is fixed at the outset of the contract, is recognised in theaccounting period in which services are rendered, by reference to the stage ofcompletion of the specific transaction. Contracts are continually reviewed forprofitability and if it is probable that contract costs will exceed contractrevenue on any specific contract, the expected loss is recognised as an expenseimmediately. 1.13 Leases Leases where the lessor retains substantially all the risks and rewards ofownership are classified as operating leases. Payments made under operatingleases (net of any incentives received from the lessor) are charged to theincome statement on a straight-line basis over the period of the lease. 1.14 Taxation Current tax, including UK corporation tax and foreign tax, is provided atamounts expected to be paid (or recovered) using the tax rates and laws thathave been enacted or substantially enacted at the balance sheet date. Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. Deferred tax is notaccounted for if it arises from the initial recognition of an asset or liabilityin a transaction, other than a business combination, that at the time of thetransaction affects 1.14 Taxation (continued) neither accounting nor taxable profit or loss. Deferred tax is determined usingtax rates and laws that have been enacted or substantially enacted by thebalance sheet date and are expected to apply when the related deferred tax assetis realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. Deferred tax is provided on temporary differences arising on investments insubsidiaries except where the timing of the reversal of the temporary differenceis controlled by the Group and it is probable that the temporary difference willnot reverse in the foreseeable future. 2 Financial information The financial information on pages 6 to 21 was formally approved by the Board ofDirectors on 2 June 2006. The financial information set out in this documentdoes not constitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985. Comparative figures for the year ended 31 March 2005included in this report are based on those published in the Group's annualreport for that year, as restated for IFRS. Statutory accounts prepared under UKGAAP for the year ended 31 March 2005 for Glotel Plc, on which the auditors gavean unqualified report and did not include a statement under Sections 237(2) or237 (3) of the Companies Act 1985, have been filed with the Registrar ofCompanies. 3 Segmental information A geographical segment is engaged in providing products or services within aparticular economic environment that is subject to risks and returns that aredifferent from those of segments operating in other economic environments. Abusiness segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. The returns earned by the Group are predominantly affected by the region inwhich it operates and accordingly management considers that the primaryreporting segment is based on the geographic location of the assets thatgenerate those returns. Management considers that the Group only operates in onebusiness segment, that of providing human resource solutions to clients. Year ended Year ended 31 March 31 March 2006 2005 £'000 £'000RevenuesGlotel EMEA 58,368 55,137Glotel North America 55,952 50,318Glotel Asia-Pac 19,855 14,041 ----------- ----------- 134,175 119,496 ----------- ----------- Operating profitGlotel EMEA 1,407 765Glotel North America 3,707 2,586Glotel Asia-Pac 775 530 ----------- ----------- 5,889 3,881Central activities (1,479) (1,428) ----------- -----------Operating profit 4,410 2,453Interest receivable 12 48Interest payable (402) (151) ----------- -----------Profit before tax 4,020 2,350Taxation (1,575) (765) ----------- -----------Retained profit for the year 2,445 1,585 ----------- ----------- 4 Earnings per share 4.1 Basic Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the period. Year ended Year ended 31 March 31 March 2006 2005Profit attributable to equity holders (£'000) 2,445 1,585 ----------- -----------Weighted average number of ordinary shares 37,860,244 37,161,677 ----------- -----------Basic earnings per share (pence) 6.5p 4.3p ----------- ----------- 4.2 Diluted Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. The Company has only one category of dilutivepotential ordinary shares, that being share options. Year ended Year ended 31 March 31 March 2006 2005Profit attributable to equity holders (£'000) 2,445 1,585 ----------- -----------Weighted average number of ordinary shares 37,860,244 37,161,677Adjustment for share options 517,056 1,584,586 ----------- -----------Diluted weighted average number of ordinary shares 38,377,300 38,746,263 ----------- -----------Diluted earnings per share (pence) 6.4p 4.1p ----------- ----------- 5 Cash generated from/(used in) operations Year ended Year ended 31 March 31 March 2006 2005 £'000 £'000 Profit for the year 2,445 1,585Adjustments for:- taxation 1,575 765- depreciation 500 438- amortisation 136 47- profit on sale of fixed assets (14) -- interest income (12) (48)- interest expense 402 151- share-based payment expense 152 157Changes in working capital:- trade and other receivables (1,899) (6,185)- trade and other payables (242) 451- provisions (58) (245) ----------- -----------Cash generated from/(used in) operations 2,985 (2,884) ----------- ----------- 6 Transition to IFRS 6.1 Application of IFRS 1 The Group reported its previous Group financial statements for the year ended 31March 2005 under UK GAAP. The analysis below shows a reconciliation of netassets, profit and cashflows as reported under UK GAAP as at 31 March 2005 tothe revised net assets, profit and cash flows under IFRS as reported in thesefinancial statements. In addition there are reconciliations of net assets underUK GAAP to IFRS at the transition date for the Group, being 1 April 2004. 6.2 Reconciliation between IFRS and UK GAAP The following reconciliations provide a quantification of the effect of thetransition to IFRS. The following four reconciliations provide details of theimpact of transition on: - retained profit for the year ended 31 March 2005 - equity at 1 April 2004 - equity at 31 March 2005 - cash flows for the year ended 31 March 2005. 6.3 Summary reconciliation of retained profit Note 12 months to 31 March 2005 £'000 Retained profit under UK GAAP 1,805 Share schemes (a) (157)Holiday pay accrual (b) (64)Taxation (c) 1 -----------Retained profit under IFRS 1,585 ----------- 6.4 Reconciliation of total equity at 1 April 2004 Note UK GAAP Effect of IFRS transition to IFRS £'000 £'000 £'000 ASSETSNon-current assetsIntangible assets - 189 189Property, plant and equipment 743 (189) 554Deferred tax assets (c), (d) - 728 728 ----------- ----------- ----------- 743 728 1,471 ----------- ----------- -----------Current assetsTrade and other receivables (d) 20,607 (712) 19,895Cash and cash equivalents 4,683 - 4,683 ----------- ----------- ----------- 25,290 (712) 24,578 ----------- ----------- ----------- LIABILITIESCurrent liabilitiesTrade and other payables (b) (9,857) (111) (9,968)Provisions - (245) (245) ----------- ----------- ----------- (9,857) (356) (10,213) ----------- ----------- -----------Net current assets 15,433 (1,068) 14,365 ----------- ----------- ----------- Non-current liabilitiesProvisions (303) 245 (58) ----------- ----------- ----------- (303) 245 (58) ----------- ----------- -----------Net assets 15,873 (95) 15,778 ----------- ----------- ----------- SHAREHOLDERS' EQUITYCalled up share capital 1,895 - 1,895Share premium account 15,880 - 15,880Other reserves 100 - 100Profit and loss account (b), (c) (2,002) (95) (2,097) ----------- ----------- -----------Shareholders' equity 15,873 (95) 15,778 ----------- ----------- ----------- 6.5 Reconciliation of total equity at 31 March 2005 Note UK GAAP Effect of IFRS transition to IFRS £'000 £'000 £'000 ASSETSNon-current assetsIntangible assets - 371 371Property, plant and equipment 995 (371) 624Deferred tax assets (c), (d) - 380 380 ----------- ----------- ----------- 995 380 1,375 ----------- ----------- -----------Current assetsTrade and other receivables (d) 26,785 (363) 26,422Cash and cash equivalents 3,961 - 3,961 ----------- ----------- ----------- 30,746 (363) 30,383 ----------- ----------- ----------- LIABILITIESCurrent liabilitiesFinancial liabilities (3,723) - (3,723)Trade and other payables (b) (10,190) (175) (10,365)Provisions - (58) (58) ----------- ----------- ----------- (13,913) (233) (14,146) ----------- ----------- -----------Net current assets 16,833 (596) 16,237 ----------- ----------- ----------- Non-current liabilitiesProvisions (58) 58 - ----------- ----------- ----------- (58) 58 - ----------- ----------- -----------Net assets 17,770 (158) 17,612 ----------- ----------- ----------- SHAREHOLDERS' EQUITYCalled up share capital 1,912 - 1,912Share premium account 15,969 - 15,969Other reserves 100 - 100Profit and loss account (b), (c) (211) (158) (369) ----------- ----------- -----------Shareholders' equity 17,770 (158) 17,612 ----------- ----------- ----------- 6.6 Reconciliation of cash flows for the year ended 31 March 2005 Note UK GAAP Effect of IFRS transition to IFRS £'000 £'000 £'000 Cash flows from operating activitiesCash used in operations (2,884) - (2,884)Interest paid (151) - (151)Interest received 48 - 48Tax paid (27) - (27) ----------- ----------- -----------Net cash used in operating activities (3,014) - (3,014) Cash flows from investing activitiesPurchase of fixed assets (1,766) - (1,766)Proceeds from sale of fixed assets 14 - 14 ----------- ----------- -----------Net cash used in investing activities (1,752) - (1,752) Cash flows from financing activitiesNet proceeds from exercise of share options (Employee Share Trust shares used) 123 - 123Net proceeds from issue of ordinary share capital onexercise of share options 106 - 106Net drawdown of invoice discountingfacilities (e) 3,679 (3,679) - ----------- ----------- -----------Net cash generated from financing activities 3,908 (3,679) 229 Exchange gain on cash and cash equivalents 50 42 92 ----------- ----------- ----------- Net decrease in cash and cash equivalents (808) (3,637) (4,445) Cash and cash equivalents at beginning of the year 4,683 - 4,683 ----------- ----------- -----------Cash and cash equivalents at end of the year 3,875 (3,637) 238 ----------- ----------- ----------- 6.7 Notes to the UK GAAP to IFRS reconciliations of total equity, net profit and cash flows The Group has applied certain of the optional exemptions from full retrospectiveapplication of IFRS. Glotel has elected to set the previously accumulatedforeign translation differences to zero at 1 April 2004 and has also elected toapply the share-based payment exemption whereby IFRS 2 has only been applied tooptions that were issued after 7 November 2002 but had not vested by 1 April2005. Further to clarification of the impact of adoption of IAS 32 'Financialinstruments: Disclosure and presentation' and IAS 39 'Financial instruments:Recognition and measurement', the Group has elected to adopt these standardsfrom 1 April 2004, the transition date to IFRS application. This is in contrastto the disclosure made in the Groups interim results for the six month periodended 30 September 2005, where it was disclosed that the Group would only beadopting these standards prospectively from 1 April 2005. This change inadoption date has had no impact on the financial results or position of theGroup at any time from 1 April 2004 to 31 March 2006. Introduction The Group's transition date to IFRS is 1 April 2004. All adjustments on firsttime adoption were recorded in shareholders' equity on the date of transition.IFRS 1 'First-time adoption of International Financial Reporting Standards' setsout the transition rules which must be applied when IFRS is adopted for thefirst time. The standard sets out certain mandatory exemptions to retrospective 6.7 Notes to the UK GAAP to IFRS reconciliations of total equity, net profit and cash flows (continued) application and certain optional exemptions. The most significant optionalexemptions available that have been taken by the Group are as follows: IAS 21 'The effects of changes in foreign exchange rates' - cumulativetranslation differences within reserves are required under IAS 21 to be recycledfrom equity to the Income Statement on disposal of a foreign operation. In orderto eliminate the need to retrospectively apply this requirement, the Group hastaken the exemption pursuant to IFRS 1 to set cumulative translation differencesto zero at the date of transition. IFRS 2 'Share-based payments' - The Group adopted the exemption in IFRS 1 whichallows a first time adopter to apply IFRS 2 only to share options granted after7 November 2002, that have not vested by 1 April 2005. The following notes describe the principal adjustments recorded on transition toIFRS as illustrated in the above reconciliations: a. Employee Share schemes Under UK GAAP, a charge in respect of awards made under the Group's employeeshare schemes was recorded only when an award had intrinsic value on the date ofgrant (ie the market value of the Company's shares on the date of grant exceededthe exercise price of the award). The Group had not recorded charges (in respectof options granted after 7 November 2002) as the exercise price of the optionswas set at the prevailing market price on the grant date. IFRS 2 "Share-based payment" requires that an expense be recognised in theincome statement based on the fair value of an award on the date of grant. Theexpense is spread over the period for which services are received fromemployees. The expense is recorded in the income statement with thecorresponding credit being recorded in equity. The fair value of share optionsawarded by the Group has been measured using the Black-Scholes option-pricingmodel. b. Holiday pay accrual Under IAS 19 'Employee Benefits', an accrual has been made for the full monetaryvalue of holiday to which staff and temporary workers are entitled but, at thebalance sheet date, had not taken. The Group's holiday year runs from 1 Januaryto 31 December and in the event that a member of staff has not utilised theirfull holiday entitlement by 31 December up to 3 days may be carried forward tothe following year. The Group recorded no such accrual under UK GAAP. c. Taxation Under IAS 12 'Income taxes', deferred tax is recognised on the basis oftemporary differences between the carrying value of assets and liabilities inthe Balance Sheet and their tax bases. Deferred tax has been recognised on theIFRS adjustments to the extent that they result in a temporary difference. UnderUK tax law, a tax deduction in connection with an employee share scheme isavailable at the date of exercise, measured on the basis of the option'sintrinsic value at that date. Consequently, a deferred tax asset has beenrecognised at each Balance Sheet date based upon the intrinsic values of theoptions that remained outstanding as at that date. Previously, under UK GAAP,the Group incurred no charge in respect of employee share options granted after7 November 2002 and correspondingly no deferred tax asset or liability arose. d. Deferred tax assets Under UK GAAP, deferred tax assets were disclosed within other debtors. Inaccordance with IAS 1 'Presentation of financial statements', such assets arenow shown on the face of the Balance Sheets. e. Presentation of cash flow statements The principal differences between cash flow statements presented under UK GAAPand those prepared in accordance with IFRS are as follows: (i) Under UK GAAP, net cash flow from operating activities was determined beforeconsidering cash flows from (a) returns on investments and servicing of finance,and (b) taxes paid. Under IFRS, these two sections of the cash flow statement donot exist and the related cash flows are categorised as operating, investing orfinancing activities as appropriate. (ii) Under UK GAAP, the Group stated cash net of overdrafts but gross ofadvances drawn on the invoice discounting arrangements in the cash flowstatement. Under IFRS, the Group has included overdrafts and advances drawn onthe invoice discounting arrangements within cash and cash equivalents. Notehowever, that overdrafts and advances drawn on the invoice discountingfacilities are included within financial liabilities on the balance sheet. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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