16th Nov 2005 07:01
Glotel PLC16 November 2005 Embargoed until 07.00 16th November 2005 Glotel Plc Interim Results for the six months to 30 September 2005 Highlights • Trading conditions and markets continue to improve • Sales £68.7m, an increase of 18% on H1 2004 • PBT £1.7m, an increase of 61% on H1 2004 (Pre IFRS £1.8m + 53%) • Net fee income £13.2m, an increase of 28% • Gross margin increased to 19.2 % from 17.8% • Successful strategy of investing in overseas operations • Sales contribution from overseas increased to 68% (2004: 61%) Les Clark, Chairman, commented: "Glotel's strength lies in its global reach: overseas sales rose 31% in thefirst 6 months of the financial year, with sales in the AsiaPacific regiondoubling." "Our UK business will continue to benefit from its established base in thepublic sector, while in the USA we have a strong position in the wirelessinfrastructure market and in the AsiaPacific region we have many opportunitiesin the developing telecommunications market". "We expect a further improvement in trading in the second half." - 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 16th November 2005 Glotel Plc Interim Results for the six months to 30 September 2005 Chairman's Statement Trading conditions continue to improve with sales for the period increasing by18% on the half-year to 30th September 2004. The successful strategy ofinvesting in our overseas operations continues and overseas sales have nowreached an all time high of 68% (2004: 61%) of total sales. Profit before tax for the period was £1.7m (2004: £1.0m), an increase of 61% onthe half-year to 30th September 2004, reflecting the volume increase in salesand a higher gross margin percentage. Glotel provides technology consultants at all levels and the focus andspecialisation within telecommunications and networking continues to be asuccessful formula. Our strength lies in our global reach: overseas sales rose31% in the first 6 months of the financial year, with sales in the AsiaPacificregion doubling. The expansion of fixed and wireless networks, coupled with the increase ofcorporate IT spending creates a global opportunity for Glotel. Financial Sales for the half-year were £68.7m (2004: £58.1m), an 18% increase on thehalf-year to 30th September 2004 and a 12% increase on the half-year ended 31stMarch 2005. These results are the first to be produced under International FinancialReporting Standards (IFRS). The impact of this on the results for the half yearsended 30th September 2005 and 30th September 2004 (which have been restated) hasbeen to reduce profit before tax by £137k and £143k, respectively. Operatingprofit pre IFRS adjustments was £2.0m (2004: £1.2m). The basic earnings per share for the period was 3.1p (2004:1.8p). The Board isnot recommending the payment of an interim dividend (2004:nil). Working capital requirements have increased in line with improved sales and ournet borrowing at 30th September 2005 was £1.9m (2004: £1.7m cash). We matchcurrency transactions with the client and the consultant to mitigate foreignexchange risk and maintain lines of credit in all of the major currencies. Thetotal credit available to the group to fund increased sales is £16m, which webelieve is sufficient to support current growth plans. Operational The balance between business sectors has changed since September 2004.Telecommunications clients account for 63% (2004: 54%) of gross margin,corporate commercial clients 18% (2004: 25%), public sector 13% (2004: 13%) andoutsourcing clients 6% (2004: 8%). The telecommunications market is improvingand we are re-establishing ourselves with clients who are releasing theircapital spend. As our global presence has expanded we have reorganised our management team andreporting structure into our three main business areas, EMEA, USA andAsiaPacific. Europe, Middle East and Africa The majority of sales in EMEA are derived from the UK but we are makingsignificant progress in countries outside of the UK where sales have increasedby 14%. UK sales have shown a 6% increase on the second half of last yearcompared to a decline of 2% on the same period last year. The operating profitfor EMEA as a whole has increased by 23% but we continue to experience pressureon gross margins. The public sector business in the UK continues to grow and nowrepresents 40% of the EMEA margin. USA Sales continue to improve and are 18% ahead of the same period last year. Wetook the decision to discontinue some of our very low margin business, which hasimpacted sales but has resulted in an increased gross margin percentage. The "Solutions" projects are proceeding satisfactorily and have also contributed tothe increase in gross margin. Operating profit in the USA for the 6-month period was £1.7m, which represents a45% increase on the same period last year. AsiaPacific Sales in this region have doubled to £11.4m (2004: £5.7m) mainly due to a largecontract win in Melbourne. Progress has continued with sales 37% higher whencompared to the second half of last year. Our Australian operation has begun to expand into other countries within theregion following the establishment of our new subsidiaries in New Zealand andIndia last year. Sales in this region (other than in Australia) amounted to£1.7m (H2 2004/5: £0.8m). Board Changes Alan Saffer, Group Finance Director, has resigned from the Board and is leavingthe Group to pursue other opportunities. Non Executive Director Jonathan Brooks, formerly Chief Financial Officer of ARMHoldings plc between 1995 and 2002, will assume the role of Group FinanceDirector on an interim basis, with immediate effect. Jonathan's extensiveinternational experience in technology companies will enable him to make asignificant contribution to Glotel's development. The board would like to thank Alan for the contribution that he has made toGlotel during his five years with the group and to welcome Jonathan to his newrole. Outlook The business has strengthened and we now have major platforms for growth in allof our markets. Our UK business will continue to benefit from its establishedbase in the public sector, while in the USA we have a strong position in thewireless infrastructure market and in the AsiaPacific region we have manyopportunities in the developing telecommunications market. Activity levels arehigh and we are in line with the targets we have set for the business. We expecta further improvement to trading in the second half. Once again we would like to thank our staff for their hard work and to extend awarm welcome to our new employees. Les ClarkChairman16th November 2005 - 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 PlcInterim consolidated income statement (unaudited)For the six months ended 30 September 2005 6 months to 30 6 months to 30 12 months to September 2005 September 2004* 31 March 2005* £'000 £'000 £'000 Note Revenue 3 68,718 58,141 119,496Cost of sales (55,540) (47,820) (97,167) -----------------------------------------------------Gross profit 13,178 10,321 22,329 Administrative expenses (11,308) (9,263) (19,876) -----------------------------------------------------Operating profit 3 1,870 1,058 2,453Finance costs - net (215) (31) (103) -----------------------------------------------------Profit before tax 1,655 1,027 2,350Taxation (505) (346) (765) -----------------------------------------------------Profit for the period 1,150 681 1,585 ----------------------------------------------------- Earnings per share (pence):Basic 4 3.1 1.8 4.3Diluted 4 3.0 1.7 4.1 ----------------------------------------------------- Interim consolidated statement of recognised income and expense (unaudited) 6 months to 30 6 months to 30 12 months to September 2005 September 2004* 31 March 2005* £'000 £'000 £'000 Profit for the period 1,150 681 1,585Net foreign exchange translation gains/(losses) 344 70 (137) -----------------------------------------------------Total recognised income and expense for the period 1,494 751 1,448 -----------------------------------------------------* As restated for International Financial Reporting Standards' accounting policies.See notes 1 and 6. GLOTEL PlcInterim consolidated balance sheet (unaudited)For the six months ended 30 September 2005 30 September 30 September 31 March 2005 2004* 2005* £'000 £'000 £'000 ASSETSNon-current assetsFixed assets 1,207 684 995Deferred tax assets 236 259 248 ------------------------------------------ 1,443 943 1,243 ------------------------------------------Current assetsTrade and other receivables 30,240 23,909 26,422Deferred tax assets 302 455 132Cash and cash equivalents 2,863 3,270 3,961 ------------------------------------------ 33,405 27,634 30,515 ------------------------------------------LIABILITIESCurrent liabilitiesBank overdrafts (635) - (86)Other borrowings (4,164) (1,608) (3,637)Trade and other payables (8,919) (8,706) (9,151)Current tax liabilities (1,683) (1,327) (1,214)Provisions (10) (187) (58) ------------------------------------------ (15,411) (11,828) (14,146) ------------------------------------------Net current assets 17,994 15,806 16,369 ------------------------------------------Net assets 19,437 16,749 17,612 ------------------------------------------EQUITYCapital and reserves attributable to the Company's equity holdersShare capital 1,928 1,908 1,912Share premium 16,119 15,948 15,969Other reserves 100 100 100Retained earnings 1,290 (1,207) (369) ------------------------------------------Total equity 19,437 16,749 17,612 ------------------------------------------ * As restated for International Financial Reporting Standards' accounting policies.See notes 1 and 6. GLOTEL PlcInterim consolidated cash flow statement (unaudited)For the six months ended 30 September 2005 6 months to 30 6 months to 30 12 months to September 2005 September 2004* 31 March 2005* Note £'000 £'000 £'000 Cash flows from operating activities Cash used in operations 5 (2,665) (2,967) (2,884)Interest paid (220) (51) (151)Interest received 5 20 48Tax paid (4) (6) (27) -----------------------------------------------------Net cash used in operating activities (2,884) (3,004) (3,014) Cash flows from investing activitiesPurchase of fixed assets (457) (177) (1,766)Proceeds from sale of fixed assets 1,016 29 14 -----------------------------------------------------Net cash generated from/(used) in investing activities 559 (148) (1,752) Cash flows from financing activitiesNet proceeds from exercise of share options (Employee Share Trust shares used) 38 51 123Net proceeds from issue of ordinaryshare capital on exercise of share options 166 81 106Net drawdown of invoice discounting facilities 460 1,608 3,679Net increase in bank overdrafts 545 - 85 -----------------------------------------------------Net cash generated from financing activities 1,209 1,740 3,993Exchange gains/(losses) on cash and cash equivalents 18 (1) 51 -----------------------------------------------------Net decrease in cash and cashequivalents (1,098) (1,413) (722)Cash and cash equivalents at beginningof period 3,961 4,683 4,683 -----------------------------------------------------Cash and cash equivalents at end ofperiod 2,863 3,270 3,961 ----------------------------------------------------- * As restated for International Financial Reporting Standards' accounting policies.See notes 1 and 6. Notes to the unaudited interim consolidated financial statements 1. Summary of significant accounting policies 1.1 Basis of preparation These interim consolidated financial statements of Glotel Plc (the Company) andits subsidiaries (together 'Glotel' or 'the Group') have been prepared inaccordance with the historic cost convention and the accounting policies thatthe Directors intend to use in the Company's next annual financial statements.The next annual financial statements, for the year ending 31 March 2006, will bethe first that the Group prepares in accordance with International FinancialReporting Standards (IFRSs) endorsed by the European Union. The IFRSs andInternational Financial Reporting Interpretations Committee's interpretationsthat will be applicable at 31 March 2006, including those that will beapplicable on an optional basis, are not known with certainty at the time ofpreparing these interim consolidated financial statements. International Accounting Standard 34 'Interim Financial Reporting' has not beenapplied in the preparation of these interim financial statements. The Group's consolidated financial statements were prepared in accordance withUnited Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 March2005. The policies set out below represent the Group's more important accountingpolicies and have been consistently applied to all of the periods presented.Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRSs on the Group's balance sheets at 31 March 2004, 30 September 2004 and 31March 2005 and its net income and cash flows for the period ended 30 September2004 and the year ended 31 March 2005 are provided in Note 6. The Group has adopted the amendment that the International Accounting StandardsBoard has proposed in respect of International Accounting Standard 21 'Theeffects of changes to foreign exchange rates' (IAS 21) which is expected tobecome effective before the end of the financial year. IAS 21 requires exchangedifferences arising on a monetary item that forms part of the parent company'snet investment in a foreign operation to be recognised in equity. Theapplication of the requirement is restricted to monetary items denominated inthe currency of the parent or the foreign operation and to funding transacteddirectly between the parent and the foreign operation. The proposed amendmentclarifies that exchange differences arising on a monetary item that forms partof a reporting entity's net investment in a foreign operation should berecognised in equity irrespective of the currency of the monetary item and ofwhether it is the parent of a fellow subsidiary that enters into thetransaction. 1.2 Consolidation 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. 1.3 Foreign currency translation a) Functional and presentation currencyItems 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 functional andpresentation currency. b) Transactions and balancesForeign 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.Foreign exchange gains and losses resulting from the settlement of foreigncurrency transactions and from translation at the year-end exchange rate ofmonetary assets and liabilities denominated in foreign currencies are recognisedin the income statement. c) Group companiesThe 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;ii) income and expenses for each income statement are translated at average exchange rates; andiii) 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%Motor vehicles 25%Computer equipment 33 1/3rd % to 50%Office equipment 20%Fixtures and fittings 20% 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 will probablygenerate 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 Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables. The amount ofthe provision is the difference between the asset's carrying amount and thepresent value of the estimated future cash flows, discounted at the effectiveinterest rate. The amount of the provision is recognised in the incomestatement. 1.7 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short-term highly liquid investments with initial maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. For the purposes of thecash flow statement, movements in bank overdrafts are treated as financingactivities. 1.8 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. 1.9 Employee benefits a) Pension obligationsThe 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 benefitsTermination 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 plansThe 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 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. 1.10 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. 1.11 Revenue Recognition Revenue comprises the fair value of the services provided, net of value addedtax, after eliminating sales 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. 1.12 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. 1.13 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 neither accounting nor taxable profit or loss. Deferred taxis determined using tax rates and laws that have been enacted or substantiallyenacted by the balance sheet date and are expected to apply when the relateddeferred tax asset is 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 5 to 25 was formally approved by the Board ofDirectors on 16 November 2005. The financial information set out in thisdocument does not constitute statutory accounts within the meaning of Section240 of the Companies Act 1985. Comparative figures for the year ended 31 March2005 included 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. The financial information in respect of the periods ended 30September 2005 and 30 September 2004 is unaudited but has been reviewed by theCompany's auditors. Their report in respect of the period ended 30 September2005 is attached on pages 26 and 27. 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. 6 months to 30 6 months to 30 12 months to September 2005 September 2004* 31 March 2005* £'000 £'000 £'000 SalesGlotel EMEA 28,725 28,319 55,137Glotel North America 28,575 24,143 50,318Glotel Asia-Pac 11,418 5,679 14,041 ---------------------------------------------------- 68,718 58,141 119,496 ----------------------------------------------------Operating profitGlotel EMEA 415 337 765Glotel North America 1,662 1,145 2,586Glotel Asia-Pac 544 253 530 ---------------------------------------------------- 2,621 1,735 3,881Central activities (751) (677) (1,428) ----------------------------------------------------Operating profit 1,870 1,058 2,453Finance costs - net (215) (31) (103) ----------------------------------------------------Profit before tax 1,655 1,027 2,350Taxation (505) (346) (765) ----------------------------------------------------Profit for the period 1,150 681 1,585 * As restated for International Financial Reporting Standards' accounting policies.See notes 1 and 6. 4 Earnings per share 4.1 BasicBasic 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. 6 months to 30 6 months to 30 12 months to September 2005 September 2004* 31 March 2005* Profit attributable to equity holders (£'000) 1,150 681 1,585 -----------------------------------------------------Weighted average number of ordinary shares 37,314,046 36,997,095 37,161,677 -----------------------------------------------------Basic earnings per share (pence) 3.1p 1.8p 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. 6 months to 30 6 months to 30 12 months to September 2005 September 2004* 31 March 2005* Profit attributable to equity holders (£'000) 1,150 681 1,585 -----------------------------------------------------Weighted average number of ordinary shares 37,314,046 36,997,095 37,161,677Adjustment for share options 750,760 1,970,747 1,584,586 -----------------------------------------------------Diluted weighted average number of ordinary shares 38,064,806 38,967,842 38,746,263 -----------------------------------------------------Diluted earnings per share (pence) 3.0p 1.7p 4.1p -----------------------------------------------------* As restated for International Financial Reporting Standards' accounting policies.See notes 1 and 6. 5 Cash used in operations 6 months to 30 6 months to 30 12 months to September 2005 September 2004* 31 March 2005* £'000 £'000 £'000 Profit for the period 1,150 681 1,585Adjustments for:- taxation 505 346 765- depreciation 259 229 485- profit on sale of fixed assets - (21) -- interest income (5) (20) (48)- interest expense 220 51 151- share-based payment expense 127 88 157Changes in working capital:- trade and other receivables (4,809) (4,106) (6,185)- trade and other payables (65) (94) 451- provisions (47) (121) (245) --------------------------------------------------Cash used in operations (2,665) (2,967) (2,884) -------------------------------------------------- * As restated for International Financial Reporting Standards' accounting policies.See notes 1 and 6. 6 Transition to IFRS 6.1 Application of IFRS 1 The Group's financial statements for the year ended 31 March 2006 will be thefirst annual financial statements that comply with IFRS. These interim financialstatements have been prepared as described in Note 1.1. The Group has appliedIFRS 1 in preparing these consolidated interim financial statements. Glotel's transition date is 1 April 2004. The Group prepared its opening IFRSbalance sheet at that date. The reporting date of these interim consolidatedfinancial statements is 30 September 2005. The Group's IFRS adoption date is 1April 2005. In preparing these interim consolidated financial statements, the Group hasapplied certain of the optional exemptions from full retrospective applicationof IFRS. Glotel has elected to set the previously accumulated foreigntranslation differences to zero at 1 April 2004 and has also elected to applythe 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 January2005. Further, the Group has elected to adopt IAS 32 'Financial instruments:Disclosure and presentation' and IAS 39 'Financial instruments: Recognition andmeasurement" prospectively from 1 April 2005. 6.2 Reconciliations between IFRS and UK GAAP The following reconciliations provide a quantification of the effect of thetransition to IFRS. The following eight reconciliations provide details of theimpact of transition on: - retained profit for the six month period to 30 September 2004 and the year ended 31 March 2005 - equity at 1 April 2004 - equity at 30 September 2004 - equity at 31 March 2005 - net profit for the six month period to 30 September 2004 - net profit for the year ended 31 March 2005 - cash flows for the six month period to 30 September 2004 - cash flows for the year ended 31 March 2005. 6.2.1 Summary reconciliation of retained profit 6 months to 30 12 months to September 2004 31 March 2005 Note £'000 £'000 Retained profit under UK GAAP 819 1,805 Share schemes (a) (88) (157)Holiday pay accrual (b) (55) (64)Taxation (c) 5 1 ------------------------------------Retained profit under IFRS 681 1,585 ------------------------------------ 6.2.2 Reconciliation of total equity at 1 April 2004 Effect of transition to UK GAAP IFRS IFRS Note £'000 £'000 £'000 ASSETSNon-current assetsFixed assets 743 - 743Deferred tax assets (c),(d) - 261 261 ------------------------------------------- 743 261 1,004Current assetsTrade and other receivables (d) 20,607 (712) 19,895Deferred tax assets (d) - 467 467Cash and cash equivalents 4,683 - 4,683 ------------------------------------------- 25,290 (245) 25,045 -------------------------------------------LIABILITIESCurrent liabilitiesTrade and other payables (b) (8,645) (111) (8,756)Current tax liabilities (1,212) - (1,212)Provisions - (245) (245) ------------------------------------------- (9,857) (356) (10,213) -------------------------------------------Net current assets 15,433 (601) 14,832 -------------------------------------------Non-current liabilitiesProvisions (303) 245 (58) ------------------------------------------- (303) 245 (58) -------------------------------------------Net assets 15,873 (95) 15,778 -------------------------------------------EQUITYCapital and reserves attributable to the Company's equity holdersShare capital 1,895 - 1,895Share premium 15,880 - 15,880Other reserves 100 - 100Retained earnings (b),(c) (2,002) (95) (2,097) -------------------------------------------Total equity 15,873 (95) 15,778 ------------------------------------------- 6.2.3 Reconciliation of total equity at 30 September 2004 Effect of transition to UK GAAP IFRS IFRS Note £'000 £'000 £'000 ASSETSNon-current assetsFixed assets 684 - 684Deferred tax assets (c),(d) - 259 259 ------------------------------------------- 684 259 943 -------------------------------------------Current assetsTrade and other receivables (d) 24,602 (693) 23,909Deferred tax assets (d) - 455 455Cash and cash equivalents 3,270 - 3,270 ------------------------------------------- 27,872 (238) 27,634 -------------------------------------------LIABILITIESCurrent liabilitiesOther borrowings (1,608) - (1,608)Trade and other payables (b) (8,540) (166) (8,706)Current tax liabilities (1,327) - (1,327)Provisions - (187) (187) ------------------------------------------- (11,475) (353) (11,828) -------------------------------------------Net current assets 16,397 (591) 15,806 -------------------------------------------Non-current liabilitiesProvisions (187) 187 - ------------------------------------------- (187) 187 - -------------------------------------------Net assets 16,894 (145) 16,749 -------------------------------------------EQUITYCapital and reserves attributable to the Company's equity holdersShare capital 1,908 - 1,908Share premium 15,948 - 15,948Other reserves 100 - 100Retained earnings (1,062) (145) (1,207) -------------------------------------------Total equity (b),(c) 16,894 (145) 16,749 ------------------------------------------- 6.2.4 Reconciliation of total equity at 31 March 2005 Effect of transition to UK GAAP IFRS IFRS Note £'000 £'000 £'000 ASSETSNon-current assetsFixed assets 995 - 995Deferred tax assets (c),(d) - 248 248 ------------------------------------------- 995 248 1,243 -------------------------------------------Current assetsTrade and other receivables (d) 26,785 (363) 26,422Deferred tax assets (d) - 132 132Cash and cash equivalents 3,961 - 3,961 ------------------------------------------- 30,746 (231) 30,515 -------------------------------------------LIABILITIESCurrent liabilitiesBank overdrafts (86) - (86)Other borrowings (3,637) - (3,637)Trade and other payables (b) (8,976) (175) (9,151)Current tax liabilities (1,214) - (1,214)Provisions - (58) (58) ------------------------------------------- (13,913) (233) (14,146) -------------------------------------------Net current assets 16,833 (464) 16,369 -------------------------------------------Non-current liabilitiesProvisions (58) 58 - ------------------------------------------- (58) 58 - -------------------------------------------Net assets 17,770 (158) 17,612 -------------------------------------------EQUITYCapital and reserves attributable to the Company's equity holdersShare capital 1,912 - 1,912Share premium 15,969 - 15,969Other reserves 100 - 100Retained earnings (211) (158) (369) -------------------------------------------Total equity (b),(c) 17,770 (158) 17,612 ------------------------------------------- 6.2.5 Reconciliation of net profit for the six month period to 30 September 2004 Effect of transition to UK GAAP IFRS IFRS Note £'000 £'000 £'000 Revenue 58,141 - 58,141Cost of sales (47,820) - (47,820) ------------------------------------------Gross profit 10,321 - 10,321 Administrative expenses (a),(b) (9,120) (143) (9,263) ------------------------------------------Operating profit 1,201 (143) 1,058Finance costs - net (31) - (31) ------------------------------------------Profit before tax 1,170 (143) 1,027Taxation (c) (351) 5 (346) ------------------------------------------Profit for the period 819 (138) 681 ------------------------------------------ 6.2.6 Reconciliation of net profit for the year ended 31 March 2005 Effect of transition to UK GAAP IFRS IFRS Note £'000 £'000 £'000 Revenue 119,496 - 119,496Cost of sales (97,167) - (97,167) ------------------------------------------Gross profit 22,329 - 22,329Administrative expenses (a),(b) (19,655) (221) (19,876)Operating profit 2,674 (221) 2,453Finance costs - net (103) - (103) ------------------------------------------Profit before tax 2,571 (221) 2,350Taxation (c) (766) 1 (765) ------------------------------------------Profit for the period 1,805 (220) 1,585 ------------------------------------------ 6.2.7 Reconciliation of cash flows for the six month period to 30 September 2004 Effect of transition to UK GAAP IFRS IFRS Note £'000 £'000 £'000 Cash flows from operating activities Cash used in operations (2,967) - (2,967)Interest paid (51) - (51)Interest received 20 - 20Tax paid (6) - (6) ------------------------------------------Net cash used in operating activities (3,004) - (3,004) Cash flows from investing activitiesPurchase of fixed assets (177) - (177)Proceeds from sale of fixed assets 29 - 29 ------------------------------------------Net cash used in investing activities (148) - (148) Cash flows from financing activitiesNet proceeds from exercise of share options (Employee Share Trust shares used) 51 - 51Net proceeds from issue of ordinary share capital on exercise of share options 81 - 81Net drawdown of invoice discounting facilities and overdrafts (e) - 1,608 1,608 ------------------------------------------Net cash generated from financing activities 132 1,608 1,740Exchange loss on cash and cash equivalents (1) - (1) ------------------------------------------ Net decrease in cash and cash equivalents (3,021) 1,608 (1,413)Cash and cash equivalents at beginning of period 4,683 - 4,683 ------------------------------------------Cash and cash equivalents at end of period 1,662 1,608 3,270 ------------------------------------------ 6.2.8 Reconciliation of cash flows for the year ended 31 March 2005 Effect of transition to UK GAAP IFRS IFRS Note £'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 on exercise of share options 106 - 106Net drawdown of invoice discounting facilities 3,679 - 3,679Net increase in bank overdrafts (e) - 85 85 ------------------------------------------Net cash generated from financing activities 3,908 85 3,993Exchange gain on cash and cash equivalents 50 1 51 ------------------------------------------ Net decrease in cash and cash equivalents (808) 86 (722)Cash and cash equivalents at beginning of period 4,683 - 4,683 ------------------------------------------Cash and cash equivalents at end of period 3,875 86 3,961 ------------------------------------------ 6.2.9 Notes to the UK GAAP to IFRS reconciliations of total equity, net profit and cash flows 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 retrospectiveapplication 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 January 2005. The following notes describe the principal adjustments recorded on transition toIFRS as illustrated in the above reconciliations: a. Employee Share schemesUnder 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 accrualUnder 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. TaxationUnder 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 assetsUnder 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 statementsThe 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 in the cash flowstatement. Under IFRS, the Group has treated overdrafts as borrowings. As aresult, overdrafts have been reclassified from cash and cash equivalents toborrowings. Independent review report to Glotel Plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2005 which comprises interim consolidatedbalance sheet as at 30 September 2005 and the related interim consolidatedincome statement, cash flow statement and statement of recognised income andexpense for the six months then ended. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in Note 1, the next annual financial statements of the group willbe prepared in accordance with accounting standards adopted for use in theEuropean Union. This interim report has been prepared in accordance with thebasis set out in Note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in Note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 31 March 2006 are not known with certainty atthe time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon16 November 2005 Notes: (a) The maintenance and integrity of the Glotel Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
GLO.L