13th Jun 2006 07:01
Glen Group PLC13 June 2006 Glen Group plc Interim Results for the six months ended 31 March 2006 Glen Group plc, the Edinburgh based provider of integrated IT and communicationservices, today announces interim results for the period ended 31 March 2006. Key points • Strong performance from Eclectic, which in six weeks since acquisition delivers 60% of first half turnover • Eclectic making solid progress towards achieving the maximum earn out target of £400,000 of PBITA before 31st July 2006 • Glen Communications rationalises activities and, since the end of the half year, delivers first monthly operating profit since Glen Group moved to AIM • Expansion of services offering including launch of Glen Broadband Voice and appointment as Value Added Resellers for Sage Financial Software • Group well placed for further acquisitions and to expand services and geographical coverage • Early adoption of IFRS Eric Hagman CBE, Chairman of Glen Group, commented: "There is no doubt that the steps that we have taken in the first half have laidthe foundations on which we can expand the business. The Board, and executiveteam led by Graham J Duncan, look forward to the challenge." 13th June 2006 Enquiries: Glen Group plcGraham J Duncan, Chief Executive Officer Tel: 0845 119 2100 College Hill AssociatesAlex Walters Tel: 020 7457 2020 CHAIRMAN'S STATEMENT The financial statements for the half year period have been drawn up on thebasis of the recognition and measurement requirements of International FinancialReporting Standards ("IFRS"), further details of which are contained in theChief Executive's Review. We have made significant progress in the first half of the financial year. Theacquisition of Eclectic Holdings Limited ("Eclectic"), which concentrates its ITservices portfolio at the corporate market, was approved by shareholders inFebruary 2006. The results for the six months ended 31st March 2006 reflect justsix weeks performance from this acquisition, yet it contributed £588,856 ofturnover for the period which represents 60% of the entire first halfperformance. Following a rationalisation of the business of Glen Communications Limited("Glen Communications"), our SME focused IT and communications integrationbusiness, we are now starting to see real progress with turnover of £388,081 inthe first half more than double that of the equivalent period last year. DuringMarch we moved its operational base to Rotherham in South Yorkshire andreorganised its operations. This reorganisation involved exiting our pre-paidphone card business, which was no longer a core activity, and actioning a numberof other personnel changes designed to benefit the company going forward. Thenet costs of this exercise amounted to £49,867 and these costs are included inother operating charges. As a result of this initiative we were very pleased tosee that, since the end of the half year, based on our internal unauditedmanagement accounts, we have seen the first monthly operating profit from GlenCommunications since we admitted the shares of Glen Group plc ("Glen Group") toAIM in December 2004. This achievement is a direct result of the major costsaving changes that we made to the business at the end of the period, coupledwith increasing stability and productivity from the sales team, which has liftedmonthly turnover above £100,000 for the first time. As we announced on 31st March, Eclectic is making solid progress towardsachieving the maximum earn-out target of £400,000 of profits before interest,taxation and amortisation ("PBITA") set for the former shareholders for thetwelve month period ending 31st July 2006. Under IFRS your Board are required toassess the probability that the additional earn-out consideration will becomepayable. Having given this due consideration, we have felt it appropriate toprovide for the maximum sum payable, all of which would be in Glen Group equity.Although the Directors cannot yet be certain that the target will be achieved,largely because the summer months are, historically, less robust than the restof the year, we remain positive. Full details are contained in note 6 to thisinterim statement. Glen Group relies on the two operating companies, Eclectic and GlenCommunications, to deliver sufficient profit to fund its costs and ultimately todeliver an overall consolidated group profit. The costs of Glen Group for thehalf year amounted to £159,413. In the period 15th February 2006 to 31st March2006, Eclectic has contributed £75,077 of profits to support our group costs, anencouraging result for what is just a six week period. Overall, the consolidatedgroup loss for the half year was £380,391. Glen Communications continues to expand its core products and services. Sincethe end of the half year we have launched a broadband voice service, also knownas Voice over IP, aimed at the business market, which we have branded GlenBroadband Voice. This service uses a business grade broadband connection todeliver voice services which are rich in features and which do not require thecustomer to install their own switching equipment. This hosted service is anexample of the type of new services which utilise a broadband connection. Theprovision of these types of services over broadband both wired and wireless, isa core strategy of Glen Communications. I am also pleased to report that Glen Communications has recently been appointedvalue added resellers for Sage financial software products in the UK. Sagetargets the SME market, a core market for Glen Communications, and we lookforward to developing our services in this area. Eclectic continues to win contracts in its core business intelligence practice.This includes working as contractor on a number of public sector contracts whereEclectic is rapidly positioning itself as a niche provider of these types ofservices. The expanded group now employs 57 people, with 75% of them directly involved inselling and delivering services to our growing client base. As well asincreasing organic growth, we will be seeking acquisitions which can enhance ourproduct and services portfolio or can give us greater geographical coverage andwe remain active in this area. Our objective is to build a significant businessover time and create value for our shareholders as we progress down this road. There is no doubt that the steps that we have taken in the first half have laidthe foundations on which we can expand the business. The Board, and executiveteam led by Graham J Duncan, look forward to the challenge. Eric M Hagman CBECHAIRMAN13th June 2006 CHIEF EXECUTIVE'S REVIEW The financial statements for the half year period have been drawn up on thebasis of the recognition and measurement requirements of International FinancialReporting Standards ("IFRS"). Although AIM companies are not required to complywith IFRS until 2007/2008, your Board have decided that we should adopt these atthe earliest possible opportunity. The main effect of the adoption has been tounwind the merger accounting that we applied for the Glen Group plc ("GlenGroup") acquisition of Glen Communications Limited ("Glen Communications") inlate 2004 and this has created goodwill on the consolidated balance sheet. Theother main change, although not material to the half year, is to expense thecost of share options. Our accounting policies under IFRS are contained in thisinterim report. The first half has seen significant change to the business. As indicated in theChairman's statement, we have consolidated the results of Eclectic HoldingsLimited and its subsidiaries ("Eclectic") for the period from 15th February 2006to 31st March 2006 and since the period end, based on our internal unauditedmanagement accounts, we have seen the first operating profit from GlenCommunications since we admitted the shares of Glen Group to AIM in December2004. An analysis of the turnover across the last three six month periods is tabulatedbelow: 31st March 2006 30th September 2005 31st March 2005Turnover £ £ £ Glen Communications-Continuing 365,562 323,933 143,016-Discontinued (phone cards) 22,519 32,043 39,405Total 388,081 355,976 182,421 Eclectic from 15th February 588,856 - -2006 -------------------------------------------------------------------------------- Total Turnover 976,937 355,976 182,421-------------------------------------------------------------------------------- These results show steady progress, particularly as the first half of the yearis impacted by the Christmas and New Year holiday period. The 13% increase incontinuing turnover for the first half of 2005/2006 in Glen Communicationscompared to the final six months of last year has been delivered notwithstandingthe reorganisation that took place during that period. Since the period end wehave seen a further, more material, lift in the turnover of Glen Communications. Our gross margin for the half year was 42.25%. This continues to be robust,despite the changing mix of services. Our aim remains to add value to theproducts and services that we sell and support and continue to provide ourclients with a first class experience where they appreciate the value of theservices that we provide. This approach allows us to sell our services based onvalue and quality.Following the acquisition of Eclectic, we now have offices or facilities inGlasgow, Edinburgh, Rotherham and London and are more widely represented by thelocation of our sales teams. We can therefore provide our services over anexpanding area. Geographic coverage remains a key objective in the expansion ofthe business. Our cost structures continue to expand as the business expands. However, theefforts made in the first half to lower the operational costs of GlenCommunications have been successful and we have removed, in general terms andcomparing like with like, about £200,000 of costs from this business over a 12month period beginning 1st May 2006. Some of these cost savings will thereforecome through in the second half. The cost structures of the business over the last three half yearly periods canbe further analysed as follows: 31st March 2006 30th September2005 31st March 2005Other operating charges £ £ £ Glen Group 159,413 149,282 76,784*Glen Communications-Continuing 412,522 346,050 236,038-Reorganisation costs 49,867 - -Eclectic from 15th February 164,541 - -2006-------------------------------------------------------------------------------- Total operating charges 786,343 495,332 312,822-------------------------------------------------------------------------------- * 4 months CHIEF EXECUTIVE'S REVIEW (continued) Overall, the group has incurred an operating loss before interest of £373,623for the half year. An analysis of the operating loss before interest over thelast three half yearly periods is as follows: 1st March 2006 30th September 2005 31st March 2005Operating loss £ £ £ Glen Group (159,413) (149,282) (76,784)*Glen Communications-Continuing (239,420) (191,164) (148,556)Eclectic from 15th February 75,077 - -2006 -------------------------------------------------------------------------------- Operating loss before (323,756) (340,446) (225,340)reorganisation costs-------------------------------------------------------------------------------- Glen Communications-Reorganisation costs (49,867) - --------------------------------------------------------------------------------- Operating loss before interest(373,623) (340,446) (225,340)-------------------------------------------------------------------------------- *4 months Adjusting for the reorganisation costs, the continuing operating loss beforeinterest for the six months to 31st March 2006 amounts to £323,756 whichcompares against a loss for the six months to 30th September 2005 of £340,446. The retained loss for the six months after interest is £380,391, compared to£226,453 for the equivalent period last year. During the first half we raised further capital to complete the acquisition ofEclectic, which constituted a reverse takeover under the AIM rules, and toprovide working capital for the group. Because of our size, the costs of theacquisition and placing which we concluded on 15th February were materialamounting to approximately £485,000 in fees and other costs. The costs of theacquisition itself, amounting to approximately £71,000, have been allocated togoodwill, with the balance deducted from the share premium account. At 31st March 2006, we had net funds of £114,458. The group has two bankingfacilities, one for Eclectic and one for Glen Communications which togetherprovide overdraft facilities of £370,000. Going forward we believe that the value added reseller business model is arobust one and our strategy of providing a wide range of IT and communicationsproducts and services to the SME market is the correct approach. In thecorporate space we continue to be niche focused which allows us to maximise ourconsulting income based on the expertise of our people. Graham J Duncan MA CACHIEF EXECUTIVE13th June 2006 CONSOLIDATED INCOME STATEMENT- UNAUDITED for the six months ended 31st March 2006 6 months to 6 months to 12 months to 31st March 31st March 30th September 2006 2005 2005 Note £ £ £-------------------------------------------------------------------------------- RevenueContinuing operations 388,081 182,421 538,397Acquisitions 588,856 - --------------------------------------------------------------------------------- 2 976,937 182,421 538,397Cost of sales (564,217) (94,939) (296,029)-------------------------------------------------------------------------------- Gross profit 412,720 87,482 242,368 Other operating charges (786,343) (312,822) (808,154)-------------------------------------------------------------------------------- Operating loss 3 373,623) (225,340) (565,786) Interest payable (9,319) (6,270) (16,109)Interest receivable 2,551 5,157 6,716-------------------------------------------------------------------------------- Finance costs (6,768) (1,113) (9,393)Loss before taxation (380,391) (226,453) (575,179) Taxation - - --------------------------------------------------------------------------------- Loss for the period (380,391) (226,453) (575,179)-------------------------------------------------------------------------------- Loss per share 4- basic (0.34)p (0.54)p (1.19)p- fully diluted (0.33)p (0.54)p (1.18)p There are no other gains and losses other than the loss for the period. CONSOLIDATED BALANCE SHEET- UNAUDITED at 31st March 2006 31st March 31st March 30th September 2006 2005 2005 Note £ £ £-------------------------------------------------------------------------------- AssetsNon-current assetsGoodwill 3,925,682 935,316 933,418Property, plant and equipment 103,408 36,704 50,317-------------------------------------------------------------------------------- Total non-current assets 4,029,090 972,020 983,735-------------------------------------------------------------------------------- Current assetsInventories 16,603 4,873 10,113Trade and other receivables 1,407,017 96,232 208,626Cash and cash equivalents 311,966 274,842 211,160--------------------------------------------------------------------------------Total current assets 1,735,586 375,947 429,899--------------------------------------------------------------------------------Total assets 5,764,676 1,347,967 1,413,634-------------------------------------------------------------------------------- LiabilitiesCurrent liabilitiesShort term borrowings 103,680 95,954 68,169Trade and other payables 939,632 89,690 126,583Accruals and deferred income 465,258 26,900 78,840Other creditors 143,097 1,849 73,217-------------------------------------------------------------------------------- Total current liabilities 1,651,667 214,393 346,809-------------------------------------------------------------------------------- Non-current liabilitiesLong-term borrowings 93,828 65,000 58,516-------------------------------------------------------------------------------- Total non-current liabilities 93,828 65,000 58,516-------------------------------------------------------------------------------- Total liabilities 1,745,495 279,393 405,325-------------------------------------------------------------------------------- Net assets 4,019,181 1,068,574 1,008,309-------------------------------------------------------------------------------- EquityShare capital 3,276,831 500,000 600,000Share premium account 879,473 771,180 957,541Shares to be issued 787,500 - -Other reserve 8,500 1,400 3,500Profit and loss reserve 5 (933,123) (204,006) (552,732)-------------------------------------------------------------------------------- Total equity 4,019,181 1,068,574 1,008,309-------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT- UNAUDITED for the six months ended 31st March 2006 6 months to 6 months to 12 months to 31st March 31st March 30th September 2006 2005 2005 £ £ £ £ £ £ Cash flows from operating activitiesOperating loss (373,623) (225,340) (565,786)Adjustments forDepreciation and amortisation 14,274 6,332 19,412Other non-cash items 5,000 1,400 3,500(Increase)/decrease in inventories (6,490) 3,363 (1,877)Increase in trade and other (1,198,391) (28,623) (145,767)receivables Increase in trade payables, accruals and other creditors 1,309,347 41,643 166,596 -------------------------------------------------------------------------------- Net cash outflow from operating (249,883) (201,225) (523,922)activities -------------------------------------------------------------------------------- Cash flows from investing activitiesPurchase of property, plant and (67,365) (31,507) (56,492)equipment Sale of property, plant and equipment - - 190Acquisition of subsidiary, net (2,204,764) - -of cash acquired -------------------------------------------------------------------------------- Net cash used in investing (2,272,129 ) (31,507) (56,302)activities -------------------------------------------------------------------------------- Cash flows from financing activitiesInterest paid (net) (6,768) (1,113) (9,393)Issue of shares 3,012,500 750,000 1,050,000Receipt of bank finance 50,000 - -Repayment of borrowing (9,688) (10,000) (16,486)Receipt from/(repayment of) shareholders loans (40,000) 7,270 7,270Receipt from former director's loan 25,000 - -Expenses paid in connection withshare issue (413,737) (228,820) (242,459)-------------------------------------------------------------------------------- Net cash used in financing activities 2,617,307 517,337 788,932-------------------------------------------------------------------------------- Net increase in cash 95,295 284,605 208,708Cash and bank overdrafts at beginning of period 162,991 (45,717) (45,717)-------------------------------------------------------------------------------- Cash and bank overdrafts at endof period 258,286 238,888 162,991-------------------------------------------------------------------------------- Cash and bank overdrafts compriseCash and cash equivalents 311,966 274,842 211,160Bank overdrafts (53,680) (35,954) (48,169)-------------------------------------------------------------------------------- 258,286 238,888 162,991-------------------------------------------------------------------------------- Analysis of changes in net funds At 30th September At 31st March 2005 Cash Flows 2006 £ £ £ Cash 211,160 100,806 311,966Bank overdraft (48,169) (5,511) (53,680)-------------------------------------------------------------------------------- 162,991 95,295 258,286-------------------------------------------------------------------------------- Debt (118,516) (25,312) (143,828)-------------------------------------------------------------------------------- Net funds 44,475 69,983 114,458-------------------------------------------------------------------------------- NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. Accounting Policies a) Basis of preparation The interim financial statements and all the comparative information isunaudited but has been reviewed by the auditors. These interim financial statements have been prepared in accordance with IAS 34'Interim Financial Reporting' and the requirements of IFRS 1 'First TimeAdoption of International Financial Reporting Standards' relevant to interimreports and were approved by the Directors on 13th June 2006. This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRSs in issue that are expected tobe effective at 30th September 2006, the Group's first annual reporting date atwhich the Board has chosen to adopt IFRS. Based on IFRS, the directors have madeassumptions about the accounting policies expected to be applied when the firstannual IFRS financial statements are prepared for the year ending 30th September2006. The financial statements have been prepared under the historical costconvention. The measurement bases and principal accounting policies of the groupare set out below. The policies have changed from the previous year when the financial statementswere prepared under applicable UK GAAP. The comparative information has beenrestated to reflect the changes arising from the adoption of IAS 34. The changesto accounting policies are explained in notes 7 and 8, together with thereconciliation of opening balances. The date of transition to IFRS was 30thSeptember 2004. The accounting policies that have been applied in the opening balance sheet havealso been applied throughout all periods presented in these interim financialstatements. b) Basis of consolidation The group interim financial statements consolidate those of the company and allof its subsidiary undertakings drawn up to 31st March 2006. Subsidiaries areentities over which the group has the power to control the financial andoperating policies so as to obtain benefits from its activities. The groupobtains and exercises control through voting rights. Unrealised gains on transactions between the group and its subsidiaries areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Amounts reported inthe financial statements of subsidiaries have been adjusted where necessary toensure consistency with the accounting policies adopted by the group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchasemethod involves the recognition at fair value of all identifiable assets andliabilities, including contingent liabilities of the subsidiary, at theacquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the subsidiary are included in theconsolidated balance sheet at their fair values, which are also used as thebases for subsequent measurement in accordance with the group accountingpolicies. Goodwill is stated after separating out identifiable intangibleassets. Goodwill represents the excess of acquisition cost over the fair valueof the group's share of the identifiable net assets of the acquired subsidiaryat the date of acquisition. c) Goodwill Goodwill representing the excess of the cost of acquisition over the fair valueof the group's share of the identifiable net assets acquired is capitalised andreviewed annually for impairment. Goodwill is carried at cost less accumulatedimpairment losses. Negative goodwill is recognised immediately after acquisitionin the income statement. d) Revenue Revenue is the total amount receivable by the company in the ordinary course ofbusiness with outside customers for goods supplied as principal and for servicesprovided, excluding VAT and trade discounts. Turnover from mobile commissions isrecognised when the customers are connected to the relevant network. Turnoverfrom information technology services are billed to clients in accordance withagreed terms, in line with performance of the contract. e) Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. When exchange differences result from the translation of foreign currencyborrowings raised to acquire foreign assets they are taken to reserves andoffset NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) against the differences arising from the translation of those assets. All otherexchange differences are dealt with through the profit and loss account. f) Property, plant and equipment Property, plant and equipment, which include motor vehicles, are stated at cost,net of depreciation and any provision for impairment.g) Disposal of assets The gain or loss arising on the disposal of an asset is determined as thedifference between the disposal proceeds and the carrying amount of the assetand is recognised in the income statement. The gain or loss arising from thesale or revaluation of held for sale assets is included in "other income" or"other expense" in the income statement. Any revaluation surplus remaining inequity on disposal of the asset is transferred to the profit and loss reserve. h) Depreciation Depreciation is calculated so as to write off the cost of an asset, less itsestimated residual value, over the useful economic life of that asset asfollows: Plant and equipment - over 3 years Material residual value estimates are updated as required, but at leastannually, whether or not the asset is revalued. i) Impairment testing of goodwill, other intangible assets and property, plantand equipment For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). As a result, some assets are tested individually for impairment and someare tested at cash-generating unit level. Goodwill is allocated to thosecash-generating units that are expected to benefit from synergies of the relatedbusiness combination and represent the lowest level within the group at whichmanagement monitors the related cash flows. Goodwill, other individual assets or cash-generating units that includegoodwill, other intangible assets with an indefinite useful life, and thoseintangible assets not yet available for use are tested for impairment at leastannually. All other individual assets or cash-generating units are tested forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell, and value in use based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. j) Leased assetsIn accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of thecapital balance outstanding and is charged to the income statement over theperiod of the lease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight line basis over the leaseterm. Lease incentives are spread over the term of the lease. k) Inventories Inventories are stated at the lower of cost and net realisable value, aftermaking due allowance for obsolete and slow moving items and the cost iscalculated using the FIFO basis. l) Taxation Current tax is the tax currently payable based on taxable profit for the year. NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. Temporary differencesinclude those associated with shares in subsidiaries and joint ventures ifreversal of these temporary differences can be controlled by the group and it isprobable that reversal will not occur in the foreseeable future. In addition,tax losses available to be carried forward as well as other income tax creditsto the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred taxassets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity in which case the related deferred tax isalso charged or credited directly to equity. m) Financial assets Financial assets, other than hedging instruments, are divided into the followingcategories: loans and receivables; financial assets at fair value through theprofit or loss; available-for-sale financial assets; and held-to-maturityinvestments. Financial assets are assigned to the different categories bymanagement on initial recognition, depending on the purpose for which theinvestments were acquired. The designation of financial assets is re-evaluatedat every reporting date at which a choice of classification or accountingtreatment is available. All financial assets are recognised when the group becomes a party to thecontractual provisions of the instrument. All financial assets are initiallyrecognised at fair value, plus transaction costs, unless they are classified asat fair value through profit or loss. Financial assets classified as at fairvalue through profit or loss are initially recognised at fair value. Derecognition of financial assets occurs when the rights to receive cash flowsfrom the investments expire or are transferred and substantially all of therisks and rewards of ownership have been transferred. An assessment forimpairment is undertaken at least at each balance sheet date. Interest and other cash flows resulting from holding financial assets arerecognised in the income statement when receivable, regardless of how therelated carrying amount of financial assets is measured. Financial assets at fair value through profit or loss include financial assetsthat are either classified as held for trading or are designated by the entityas at fair value through profit or loss upon initial recognition. Subsequent toinitial recognition, the financial assets included in this category are measuredat fair value with changes in fair value recognised in the income statement.Financial assets originally designated as financial assets at fair value throughprofit or loss may not subsequently be re-classified. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe group provides money, goods or services directly to a debtor with nointention of trading the receivables. Loans and receivables are subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. Any change in their value through impairment or reversal ofimpairment is recognised in the income statement. Provision against trade receivables is made when objective evidence is receivedthat the group will not be able to collect all amounts due to it in accordancewith the original terms of those receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. n) Cash and cash equivalents Cash and cash equivalents comprise cash, and cash available at less than 24hours notice at no penalty. o) Financial liabilities Financial liabilities are obligations to pay cash or other financial instrumentsand are recognised when the group becomes a party to the contractual provisionsof the instrument. All interest-related charges are recognised as an expense in"finance cost" in the income statement. Bank loans are raised for support oflong term funding of the group's operations. They are recognised at proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption, and direct issue costs are charged to the incomestatement on an accruals basis using the effective interest method and are addedto the carrying amount of the instrument to the extent that they are not settledin the period in which they arise. NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) Dividend distributions payable to equity shareholders are included in "othershort term financial liabilities" when the dividends are approved in generalmeeting prior to the balance sheet date. p) Equity Equity comprises the following: "Share capital" represents the nominal value of equity shares."Share premium" represents the excess over nominal value of the fair value ofconsideration received for equity shares, net of expenses of the share issue."Shares to be issued" represents the maximum value of shares to be issued inrespect of the earn out consideration payment due to the former shareholders ofEclectic Holdings Limited"Other reserve" represents equity-settled share-based employee remunerationuntil such share options are exercised."Profit and loss reserve" represents retained profits and accumulated losses. q) Employee benefits • Defined Contribution Pension Scheme The pension costs charged against operating profits are the contributionspayable to the scheme in respect of the accounting period. • Share-Based Payment All material share-based payment arrangements are recognised in the financialstatements.All goods and services received in exchange for the grant of any share-basedremuneration are measured at their fair values. Fair values of employee servicesare indirectly determined by reference to the fair value of the share optionsawarded. Their value is appraised at the grant date and excludes the impact ofnon-market vesting conditions (for example, profitability and sales growthtargets). All share-based remuneration is ultimately recognised as an expense in theincome statement with a corresponding credit to "other reserve". If vesting periods or other non-market vesting conditions apply, the expense isallocated over the vesting period, based on the best available estimate of thenumber of share options expected to vest. Estimates are subsequently revised ifthere is any indication that the number of share options expected to vestdiffers from previous estimates. Any cumulative adjustment prior to vesting isrecognised in the current period. No adjustment is made to any expenserecognised in prior periods if share options ultimately exercised are differentto that estimated on vesting. Upon exercise of share options the proceeds received net of attributabletransaction costs are credited to share capital. NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) 2. Analysis of revenue 6 months to 6 months to 12 months to 31st March 31st March 30th September 2006 2005 2005 £ £ £-------------------------------------------------------------------------------- By business sectorMobile services 244,372 79,086 321,154Information technology 709,146 63,930 143,675Phone cards 22,519 39,405 71,447Other communication services 900 0 2,121-------------------------------------------------------------------------------- Total revenue 976,937 182,421 538,397-------------------------------------------------------------------------------- By destinationUnited Kingdom 976,937 182,421 538,397-------------------------------------------------------------------------------- Total revenue 976,937 182,421 538,397-------------------------------------------------------------------------------- By originGlen Communications 388,081 182,421 538,397Eclectic 588,856 - --------------------------------------------------------------------------------- Total revenue 976,937 182,421 538,397-------------------------------------------------------------------------------- The interim results for 2006 include the initial contribution from Eclecticacquired on 15th February 2006. 3. Analysis of operating loss 6 months to 6 months to 12 months to 31st March 31st March 30th September 2006 2005 2005 £ £ £-------------------------------------------------------------------------------- By business sectorMobile services (284,095) (98,486) (338,904)Information technology (62,780) (78,480) (150,050)Phone cards (25,719) (48,374) (74,617)Other communication services (1,029) 0 (2,215)-------------------------------------------------------------------------------- Operating loss (373,623) (225,340) (565,786)-------------------------------------------------------------------------------- By destinationUnited Kingdom (373,623) (225,340) (565,786)-------------------------------------------------------------------------------- Operating loss (373,623) (225,340) (565,786)-------------------------------------------------------------------------------- By originGlen Group (159,413) (76,784) (226,066)Glen Communications (289,287)* (148,556) (339,720)Eclectic 75,077 - --------------------------------------------------------------------------------- Operating loss (373,623) (225,340) (565,786)--------------------------------------------------------------------------------* includes reorganisation costs of £49,867 NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) 4. Loss per share 6 months to 6 months to 12 months to 31st March 1st March 30th September 2006 2005 2005 Pence Pence Pence-------------------------------------------------------------------------------- Loss per shareBasic (0.34) (0.54) (1.19)Fully diluted (0.33) (0.54) (1.18)-------------------------------------------------------------------------------- The loss per share has been calculated by dividing the loss attributable toshareholders by the weighted average number of shares in issue during theperiod. The numbers used in calculating basic and fully diluted loss per shareare reconciled below. 6 months to 6 months to 12 months to 31st March 31st March 30th September 2006 2005 2005 £ £ £-------------------------------------------------------------------------------- Loss for the period attributable to shareholders:-------------------------------------------------------------------------------- Losses basic and fully diluted (380,391) (226,453) (575,179)-------------------------------------------------------------------------------- Weighted average number of shares in issueBasic 111,280,513 41,666,667 48,333,333Adjustment for shareoptions 4,833,334 444,444 555,556-------------------------------------------------------------------------------- Fully diluted 116,113,847 42,111,111 48,888,889-------------------------------------------------------------------------------- 5. Profit and loss reserve 6 months to 6 months to 12 months to 31st March 31st March 30th September 2006 2005 2005 £ £ £ Opening reserve / (deficit) (552,732) 22,447 22,447Loss for the period (380,391) (226,453) (575,179)-------------------------------------------------------------------------------- Closing reserve / (deficit) (933,123) (204,006) (552,732)-------------------------------------------------------------------------------- 6. Acquisition On 15th February 2006 the group acquired the entire share capital of EclecticHoldings Limited and its subsidiaries, a provider of business intelligenceconsultancy and other IT services to the corporate market. The maximum purchaseconsideration is £3,000,000 of which £2,212,500 was paid at completion and thebalance of up to £787,500 (the second consideration) payable when the groupissues its preliminary announcement for the year ending 30th September 2006. Thesecond consideration payment is dependent on Eclectic's profit before interest,taxation and amortisation ("PBITA") for the twelve month period ending 31st July2006 in accordance with the following formula: PBITA of between £250,000 and £299,999, the second consideration is £196,875PBITA of between £300,000 and £349,999, the second consideration is £393,750PBITA of between £350,000 and £399,999, the second consideration is £590,625PBITA of £400,000 and above, the second consideration is £787,500 The entire second consideration is payable in shares in Glen Group plc subjectto a maximum of 78,750,000 shares. The Directors have felt it appropriate toaccrue the full amount of the second consideration, totalling £787,500, in thehalf year ended 31st March 2006. NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) The book values of the net assets of Eclectic Holdings Limited and itssubsidiaries on acquisition were £1,089,270 and have been fair valued at thesame amount. This can be analysed as follows: Assets £Non-current assetsGoodwill 1,023,241Property, plant and equipment 40,211-------------------------------------------------------------------------------- Total non-current assets 1,063,452-------------------------------------------------------------------------------- Current assetsInventories 4,495Trade and other receivables 1,116,475Cash and cash equivalents 28,626--------------------------------------------------------------------------------Totalcurrent assets 1,149,596--------------------------------------------------------------------------------Totalassets 2,213,048-------------------------------------------------------------------------------- LiabilitiesCurrent liabilitiesShort term borrowings 144,028Trade and other payables 534,415Accruals and deferred income 370,335Other creditors 50,000-------------------------------------------------------------------------------- Total current liabilities 1,098,778-------------------------------------------------------------------------------- Non-current liabilitiesLong-term borrowings 25,000-------------------------------------------------------------------------------- Total non-current liabilities 25,000-------------------------------------------------------------------------------- Total liabilities 1,123,778-------------------------------------------------------------------------------- Net assets 1,089,270-------------------------------------------------------------------------------- Turnover and operating profit of the companies acquired for the post acquisitionperiod were £588,856 and £75,077 respectively. Due to confidentiality clausescontained in the sale and purchase agreement between Glen Group plc and thevendors of Eclectic Holdings Limited, the results for the period 1st October2005 to 31st March 2006 have not been disclosed. The directors are satisfied that there are no intangible assets that should berecognised on the acquisition of Eclectic Holdings Ltd as the inherent value ofthe company is represented by the skill and knowledge of the employees whoprovide consultancy and training services. 7. Reconciliation of equity under UK GAAP to equity under IFRS 6 months to 12 months to 12 Months to 31st March 30th September 30th September 2005 2005 2004 £ £ £-------------------------------------------------------------------------------- Shareholders equity under UK GAAP 152,235 91,970 (143,892)Adjustment to goodwill relatingto reversal of merger accounting 916,339 916,339 --------------------------------------------------------------------------------- Shareholders equity under IFRS 1,068,574 1,008,309 (143,892)-------------------------------------------------------------------------------- NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) 8. Reconciliation of loss under UK GAAP to loss under IFRS 6 months to 12 months to 12 months to 31st March 30th September 30th September 2005 2005 2004 £ £ £-------------------------------------------------------------------------------- Loss attributable to shareholdersunder UK GAAP (225,053) (571,679) (205,049)Share options expensed throughincome statement (1,400) (3,500) --------------------------------------------------------------------------------- Loss attributable to shareholdersunder IFRS (226,453) (575,179) (205,049)-------------------------------------------------------------------------------- 9. Dividend In view of the deficit on reserves the directors cannot recommend a dividend andthe loss for the period has therefore been transferred to reserves. 10. Statutory accounts These financial statements do not constitute statutory accounts. Although theinformation has been reviewed by the auditors, it is unaudited. The comparativefigures for the year ended 30th September 2005 which are now presented underIFRS are not the statutory accounts for that year. The statutory accounts forthe year ended 30th September 2005 were prepared under UK GAAP, contained anunqualified audit report and are filed with the Registrar of Companies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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