5th Dec 2006 07:03
Glotel PLC05 December 2006 Embargoed until 07.00 5th December 2006 Glotel Plc Results for the 6 month period ended 30 September 2006 Highlights • Profit before tax of £1.4 million vs. £1.7 million in H1 2005/6 (after exchange losses of £0.3 million on weaker US dollar vs. £49k profit in H1 2005/6) • Despite the weaker US dollar, USA operating profit increased to £1.9 million vs. £1.7 million in H1 2005/6 • USA gross margin increased to 30.4% from 25.7% in H1 2005/6 • EMEA business posts 6% increase in revenue but lower gross margin due to revenue mix Les Clark, Chairman, commented: "Our US business has continued to increase its contribution to the Group and ourunique hybrid pricing model has to date been well received by clients. The USAnow represents 62% of our net fee income and we have continued to invest inresources for this region throughout the period. "With the sustained contribution from our US business, and our internationaltelecommunications business being denominated in US dollars, the performance ofthe US dollar continues to be a key area of uncertainty for us. "As stated in our trading update in August, we expect the full year results tobe slightly lower than those for 2005/6." - ends - For further information, please contact: Glotel Plc Weber Shandwick Square MileLes Clark, Chairman Nick OborneAndy Baker, Chief Executive020 7067 0700 020 7484 3000www.glotel.com Chairman's and Chief Executive's Statement The results for the 6 months to 30 September 2006 are in line with the tradingupdate released in August. We have continued to be affected by the weaker USdollar, with an overall exchange loss of £0.3 million in the period. Withoutthese losses, our results would have been similar to the corresponding periodlast year. Our US business has continued to increase its contribution to theGroup and this has helped offset the decline in UK gross margins. Our AsiaPacific business has seen a significant drop in net fee income (gross profit),down from £1.6 million to £1.0 million in the 6 months to 30 September 2006.Approximately £0.3 million of this is related to the discontinuance of a large,low margin contract. The USA and international telecommunications markets are both central elementsof our expansion strategy. Our in-depth knowledge of the major vendors andoperators positions us well in these markets. Telecommunications infrastructureprojects in the USA remain a key target for new business and our unique hybridpricing model has to date been well received by clients. The USA now represents 62% of our net fee income and we have continued to investin resources for this region throughout the period. Financial Group revenue for the six months ended 30 September 2006 was £62.7m (H1 2005/6:£68.7m), a reduction of 9% on the six months to 30 September 2005 and a 4%reduction on the six months ended 31 March 2006. The group gross profit marginwas 20.2% (H1 2005/6: 19.2%). Foreign exchange losses amounted to £276k (H1 2005/6: £49k profit). In addition,the translation effect of converting the US and Asia Pacific profit and lossaccounts at less favourable rates than the prior year resulted in a further£110k of losses when compared to the prior year. Operating Profit was £1.5m (H1 2005/6: £1.9m). Share option expenses were £116k(H1 2005/6: £127k). The basic earnings per share for the period was 2.2p (H1 2005/6: 3.1p). TheBoard is recommending the payment of an interim dividend of 0.5p per share (H12005/6: nil). Our net cash balance at 30 September 2006 was £2.2m and for most of the firsthalf of the year our cash balances were higher than a year ago, resulting in alower net interest charge of £78k (H1 2005/6: £215k). Operational Glotel's product mix continues to evolve away from pure "time and materials"contracts, which represented 71% of net fee income in the first half of the yearcompared to 83% for the corresponding period last year. In the period, 24% ofnet fee income came from our hybrid staffing projects in the USA where anelement of project responsibility is assumed. In addition, permanent recruitmentaccounted for 5% of net fee income, an increase from 4% last year. Our corefocus is in the telecommunications area and approximately two thirds of our netfee income comes from clients in that sector. We now operate from 17 offices worldwide, having recently opened an office inSan Diego, California, and serve our clients in 30 separate countries. We haveclearly defined management structures in our three regions and have a developeddatabase of compliant solutions for all of the territories in which we operate. Europe, Middle East and Africa.------------------------------- The number of contractors on assignment has been maintained throughout theperiod and revenue has increased by 6.0%. During the period there was an adversechange in the mix of business with an increase in the number of mainlylow-margin contractors to a large telecommunications customer offsetting adecline in the number of some higher margin clients. Earlier this year the UK public sector completed a competitive tender processfor suppliers to provide services under a new master schedule called "Catalist".We were not appointed to this new list but have been informed that our currentbusiness with government agencies, under the old "S-Cat" umbrella, will continuefor another 7 years. Since Catalist only covers a third of our public sectorbusiness we are confident of maintaining our strong public sector marketposition. Given the extremely price-competitive nature of the Catalist tenderingprocess, gross margins earned across the UK public sector came under pressure inthe last six months and this continues. During the period, one of our largest UK customers completed a re-tenderingprocess in order to consolidate the number of suppliers and appoint a mastervendor. Due to the size and volume of the whole tender, Glotel did not achievemaster vendor status. The implications for Glotel of our continuing supply arestill under discussion, but it is considered unlikely that there will be amaterial impact in the current financial year. Any impact on the 2007/8financial year will depend on the outcome of any agreement with the mastervendor. The international telecommunications sector continues to be a great opportunityfor Glotel. We have made progress during the period with two major equipmentvendors that are embarking on some major international infrastructure projects. USA--- The USA has become our most profitable region and now represents 41% of grouprevenue and 62% of our net fee income. With the removal of one large, low margin account last year, revenue, whenstated in US dollars, declined by 7%. Despite this, gross profit increased by10% when compared at constant exchange rates due to the success of the hybridbusiness model, where tasks are measured alongside hours worked. This in turnled to an increase in gross profit margins from 25.7% to 30.4%. The operatingprofit in the USA rose by 16% compared to the same period last year. There has been some recent evidence of a number of start dates for newinfrastructure projects being put back until January but this has not had anysignificant effect on our results. AsiaPacific----------- The termination of a high volume low margin account in Australia has had anadverse impact on the results, explaining more than half of the 37% reduction ingross profit. During the period we opened a large number of new accounts tobroaden our client base but these have yet to bear significant fruit. We have astrong permanent recruitment team in Australia which is expected to make a moresignificant contribution to the region's results in the second half. Outlook The continued investment in our US business should generate an improvement intrading for the second half of the year. We have a large number of tendersoutstanding in the USA and EMEA, and have identified a number of newtelecommunications projects with existing clients that should come on streamfrom January 2007. With the sustained contribution from our US business, and our internationaltelecommunications business being denominated in US dollars, the performance ofthe US dollar continues to be a key area of uncertainty for us. As stated in our trading update in August, we expect the full year results to beslightly lower than those for 2005/6. Les Clark Andy BakerChairman Chief Executive Officer5th December 2006 Consolidated income statement (unaudited)For the 6 months ended 30 September 2006 Note 6 months ended 6 months ended Year ended 31 30 Sept 2006 30 Sept 2005 March 2006 £'000 £'000 £'000 Revenue 3 62,701 68,718 134,175Cost of sales (50,013) (55,540) (107,423) -------------------------------------------Gross profit 12,688 13,178 26,752 Operating expenses (11,237) (11,308) (22,342) -------------------------------------------Operating profit 3 1,451 1,870 4,410Interest receivable 38 5 12Interest payable (116) (220) (402) -------------------------------------------Profit before tax 1,373 1,655 4,020Taxation (549) (505) (1,575) -------------------------------------------Profit for the period 824 1,150 2,445 =========================================== Earnings per share (pence):Basic 4 2.2 3.1 6.5Diluted 4 2.1 3.0 6.4 ------------------------------------------- Dividend per share 0.5p - 1.0p ------------------------------------------- The results for the period and the prior year derive entirely from continuingoperations. Consolidated statement of changes in shareholders' equity (unaudited)For the 6 months ended 30 September 2006 Profit Share Share Other and loss Total capital premium reserves account equity £'000 £'000 £'000 £'000 £'000 Balance at 1 April 2005 1,912 15,969 100 (369) 17,612Profit for the period - - - 1,150 1,150Currency translation differences - - - 344 344New share capital issued under share option schemes 16 150 - - 166Exercise of share options released from Employee Share Trust - - - 38 38Share option expense - - - 127 127 -------------------------------------------------------------Balance at 30 September and 1 October 2005 1,928 16,119 100 1,290 19,437Profit for the period - - - 1,295 1,295Currency translation differences - - - 375 375New share capital issued under share option schemes 12 116 - - 128Exercise of share options released fromEmployee Share Trust - - - 42 42Share option expense - - - 25 25 -------------------------------------------------------------Balance at 31 March and 1 April 2006 1,940 16,235 100 3,027 21,302Profit for the period - - - 824 824Currency translation differences - - - (859) (859)New share capital issued under share option schemes 3 14 - - 17Share option expense 116 116Dividend - - - (384) (384) -------------------------------------------------------------Balance at 30 September 2006 1,943 16,249 100 2,724 21,016 ============================================================= Consolidated balance sheet (unaudited)As at 30 September 2006 30 September 30 September 31 March 2006 2005 2006 £'000 £'000 £'000ASSETSNon-current assetsIntangible assets 553 334 580Property, plant and equipment 960 873 1,116Deferred tax assets 267 538 297 ----------------------------------------------- 1,780 1,745 1,993 -----------------------------------------------Current assetsTrade and other receivables 28,233 30,240 28,497Cash and cash equivalents 4,683 2,863 4,162 ----------------------------------------------- 32,916 33,103 32,659 -----------------------------------------------LIABILITIESCurrent liabilitiesFinancial liabilities (2,481) (4,799) (1,681)Trade and other payables (10,808) (9,661) (10,781)Current tax liabilities (391) (941) (888)Provisions - (10) - ----------------------------------------------- (13,680) (15,411) (13,350) -----------------------------------------------Net current assets 19,236 17,692 19,309 -----------------------------------------------Net assets 21,016 19,437 21,302 =============================================== SHAREHOLDERS' EQUITYCalled up share capital 1,943 1,928 1,940Share premium account 16,249 16,119 16,235Other reserves 100 100 100Profit and loss account 2,724 1,290 3,027 -----------------------------------------------Shareholders' equity 21,016 19,437 21,302 =============================================== Consolidated cash flow statement (unaudited)For the 6 months ended 30 September 2006 Note 6 months ended 6 months ended Year ended 31 30 Sept 2006 30 Sept 2005 March 2006 £'000 £'000 £'000Cash flows from operating activitiesCash generated from/ (used in) operations 5 1,007 (2,665) 2,985Interest paid (116) (220) (402)Interest received 38 5 12Tax paid (1,003) (4) (380) --------------------------------------------Net cash (used in)/ generated from operating activities (74) (2,884) 2,215 Cash flows from investing activitiesPurchase of intangible assets (100) (57) (329)Purchase of plant, property and equipment (120) (400) (983)Proceeds from sale of property plant and equipment - 1,016 1,032 --------------------------------------------Net cash (used in)/ generated from investing activities (220) 559 (280) Cash flows from financing activitiesNet proceeds from exercise of share options (Employee Share Trust shares used) - 38 80Net proceeds from issue of ordinary share capital on exercise of share options 17 166 294 --------------------------------------------Net cash generated from financing activities 17 204 374Exchange losses on cash and cash equivalents (2) (53) (66) -------------------------------------------- Net (decrease)/increase in cash and cash equivalents (279) (2,174) 2,243Cash and cash equivalents at beginning of the period 2,481 238 238 --------------------------------------------Cash and cash equivalents at end of the period 2,202 (1,936) 2,481 ============================================ Notes to the unaudited interim consolidated financial statements 1 Basis of preparation This statement of Glotel Plc (the Company) and its subsidiaries' (together'Glotel' or 'the Group') interim results has been prepared in accordance withInternational Financial Reporting Standards (IFRSs) as adopted for use by theEuropean Union (EU). The financial information presented herein has beenprepared in accordance with the accounting policies expected to be used inpreparing the Glotel Annual Report and Accounts 2007, which do not differ fromthose used for the Glotel Annual Report and Accounts 2006. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the Company's accounting policies. IAS 34 'Interim Financial Reporting' has not been applied to thisinterim financial information. 2 Financial information The financial information on pages 4 to 9 was formally approved by the Board ofDirectors on 5 December 2006. The financial information set out in this documentdoes not constitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985. Comparative figures for the year ended 31 March 2006included in this report are based on those published in the Group's annualreport for that year. Statutory accounts prepared under IFRS for the year ended31 March 2006 for Glotel Plc, on which the auditors gave an unqualified reportand did not include a statement under Sections 237(2) or 237(3) of the Companiesact 1985, have been filed with the Registrar of Companies. The financialinformation in respect of the periods ended 30 September 2006 and 30 September2005 is unaudited but has been reviewed by the Company's auditors. Their reportin respect of the period ended 30 September 2006 is attached on pages 10 and 11. 3 Segmental information 6 months ended 6 months ended Year ended 31 30 Sept 2006 30 Sept 2005 March 2006 £'000 £'000 £'000RevenuesGlotel EMEA 30,437 28,725 58,368Glotel North America 25,797 28,575 55,952Glotel Asia-Pac 6,467 11,418 19,855 -------------------------------------------------------- 62,701 68,718 134,175 --------------------------------------------------------Operating profitGlotel EMEA 174 415 1,407Glotel North America 1,920 1,662 3,707Glotel Asia-Pac (37) 544 775 -------------------------------------------------------- 2,057 2,621 5,889Central activities (606) (751) (1,479) --------------------------------------------------------Operating profit 1,451 1,870 4,410Interest receivable 38 5 12Interest payable (116) (220) (402) --------------------------------------------------------Profit before tax 1,373 1,655 4,020Taxation (549) (505) (1,575) --------------------------------------------------------Profit for the period 824 1,150 2,445 -------------------------------------------------------- 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 ended 6 months ended Year ended 31 30 Sept 2006 30 Sept 2005 March 2006 £'000 £'000 £'000Profit attributable to equity holders (£'000) 824 1,150 2,445 ---------------------------------------------------------Weighted average number of ordinary shares 38,313,405 37,314,046 37,860,244 ---------------------------------------------------------Basic earnings per share (pence) 2.2p 3.1p 6.5p --------------------------------------------------------- 4.2 DilutedDiluted 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 ended 6 months ended Year ended 31 30 Sept 2006 30 Sept 2005 March 2006 £'000 £'000 £'000Profit attributable to equity holders (£'000) 824 1,150 2,445 ---------------------------------------------------------Weighted average number of ordinary shares 38,313,405 37,314,046 37,860,244Adjustment for share options 182,070 750,760 517,056 ---------------------------------------------------------Diluted weighted average number of ordinary shares 38,495,475 38,064,806 38,377,300 ---------------------------------------------------------Diluted earnings per share (pence) 2.1p 3.0p 6.4p --------------------------------------------------------- 5 Cash generated from/(used in) operations 6 months ended 6 months ended Year ended 31 30 Sept 2006 30 Sept 2005 March 2006 £'000 £'000 £'000 Profit for the period 824 1,150 2,445Adjustments for:- taxation 549 505 1,575- depreciation 221 223 500- amortisation 102 36 136- profit on sale of fixed assets - - (14)- interest income (38) (5) (12)- interest expense 116 220 402- share-based payment expense 116 127 152Changes in working capital:- trade and other receivables (893) (4,809) (1,899)- trade and other payables 10 (65) (242)- provisions - (47) (58) --------------------------------------------Cash generated from/(used in)operations 1,007 (2,665) 2,985 ============================================ 6 Dividends per share The dividend proposed in March 2006 was £384,000 (1p per share). This dividendwas approved at the Annual General Meeting on 12 September 2006 and was paid on13 October 2006. An interim dividend in respect of the current financial year of0.5p per share was declared by the directors at their meeting on 5 December2006. These financial statements do not reflect this dividend payable.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 2006 which comprises the consolidated balancesheet as at 30 September 2006 and the related consolidated statements of income,cash flows and changes in shareholders' equity for the six months then ended andrelated notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies 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 Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. 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 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon5 December 2006 Notes: (a) The maintenance and integrity of the Glotel plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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