RNS Number:4129P
Glen Group PLC
12 January 2007
Glen Group plc
Final Results for the year ended 30 September 2006
Glen Group plc, the Edinburgh based provider of integrated IT and communication
services, today announces final results for the year ended 30 September 2006.
Key points:
* Group size and activities significantly increased with acquisition of
Eclectic in February 2006 and Explore IT in September.
* Turnover increased from #538,397 to #3,698,245 with strong organic growth
from Glen Communications which almost doubled its turnover to #965,101.
* Strong performance from Eclectic results in payment of maximum deferred
consideration under the terms of the acquisition agreement.
* The Group continues to be well placed for further acquisitions and to
expand services and geographical coverage.
* Results reported under IFRS.
Eric Hagman CBE, Chairman of Glen Group, commented:
"Our strategy is to continue to build the group organically and by acquisition
so that we reach a size that attracts more interest in our shares, particularly
institutional interest, as our objective remains to build a substantial business
over time. Your Board is very focused on the need to deliver sustained
profitability for the group as a whole and increase shareholder value.
Your Board is placing emphasis on organic growth, but we will also look at
selected acquisitions when we believe it is appropriate to do so"
12 January 2007
Enquiries:
Glen Group plc
Graham J Duncan, Chief Executive Officer
0845 119 2100
Chairman's Statement
This has been a transforming year for Glen Group plc ("Glen Group"). In February
we completed the acquisition of Eclectic Holdings Limited ("Eclectic"), a niche
IT provider of business intelligence consultancy and training services to the
corporate market, based in Glasgow, Edinburgh and London. The maximum
consideration payable was #3m which included a deferred consideration of up to
#787,500, conditional on Eclectic generating PBITA, as defined in the
acquisition agreement, of at least #400,000 in the twelve months to 31st July
2006. I am pleased to announce today that the PBITA for that period was #414,842
and the former shareholders of Eclectic will now receive the maximum deferred
consideration, to be satisfied by the issue of 73,825,818 shares in Glen Group
at a price of 1.0667 p per share. Application will be made for these shares to
be admitted to trading on AIM and dealings are expected to commence on 17
January 2007.
In early September, we acquired Explore IT Limited ("Explore"), a small IT
services business based in Edinburgh for a consideration of #115,000, paid in
cash. Explore provides IT services and support to the SME market and this
acquisition has given us a stronger support business which we can now develop in
the UK. Explore has become a wholly owned subsidiary of Glen Communications
Limited ("Glen Communications"), our company which focuses on providing
integrated IT and communication services to the SME market.
In the year ended 30 September 2006, our turnover was #3,698,245 compared to
#538,397 the previous year. This significant increase is the result of both
organic growth and the effect of the Eclectic acquisition. Eclectic contributed
turnover of #2,733,144 and Glen Communications contributed a very creditable
#965,101, against #538,397 the previous year.
The operating loss for the year was #589,222, similar to the 2005 operating loss
of #561,204. The Group holding company costs for the year were #371,269 compared
to #223,381 for 2005, partly due to the additional costs of International
Financial Reporting Standards (IFRS) reporting on the AIM market, certain
reallocation of costs, and the fact that 2005 was a ten month reporting period.
Eclectic has however delivered a solid operating profit of #147,941 for the
period since acquisition, over what is historically the poorer half of the year.
Glen Communications has seen a dramatic reduction in its losses between the
first and second halves of our financial year, with first half losses of
#292,962 reduced to #72,932 in the second half as we increase our penetration of
the market.
Our strategy is to continue to build the group organically and by acquisition so
that we reach a size that attracts more interest in our shares, particularly
institutional interest, as our objective remains to build a substantial business
over time. Your Board is very focused on the need to deliver sustained
profitability for the group as a whole and increase shareholder value. Your
Board is placing emphasis on organic growth, but we will also look at selected
acquisitions when we believe it is appropriate to do so.
I would like to thank our Chief Executive, Graham J Duncan, and his team for
successfully building the business to a much more meaningful size this year,
compared to last, and we look forward to further expansion in the new financial
year.
Eric M Hagman CBE
Chairman
12 January 2007
Business Review
Strategy
We joined AIM in December 2004 as a very small business, with a turnover in the
full year prior to admission of approximately #374,000. Two years on, our
turnover has grown nearly ten fold to approximately #3.7m.
Our strategy is to grow the business organically and by acquisition and seek to
create shareholder value over time. Our business is firmly rooted in the
information technology and communications industries where we continue to see
interesting and exciting opportunities. These exist particularly in certain key
areas such as:
* business information delivery over mobile networks
* opportunities brought about by the introduction of IP technologies to
the world of voice traffic
* the business intelligence market where, fuelled by regulatory and
business requirements, businesses need to be able to disseminate
information intelligently throughout the organisation, knowing that it is
up to date, complete and meaningful to the end user.
All of these areas are high growth. Two years on, and with two acquisitions
completed, we have both the skill set and the structure that allow us to focus
on these markets, target our sales and support teams and deliver high added
value to our customers.
We continue to see strong growth in our various markets. We have chosen to
direct our market efforts through our two main operating companies:
* Eclectic, whose main focus is in business intelligence consulting to
corporate customers across a range of software platforms, and
* Glen Communications, which, in association with its new subsidiary
company Explore IT, provides IT and communications services, consulting and
support to SME customers, and seeks to be the sole provider of these
services to individual clients.
We also believe in being able to refine our strategy as the market moves and
changes, and seek other opportunities where we can see potential high growth.
Our vision is to build our businesses to a size where they can be important
market players in their chosen markets, with our focus on the creation of
shareholder value. To deliver on this vision requires us to continue to invest
in our organic growth and continue to seek out acquisitions that fit into our
business model and that add value for our shareholders.
Performance
The financial statements for the year have been drawn up on the basis of the
recognition and measurement requirements of International Financial Reporting
Standards ("IFRS"). Although AIM companies are not required to comply with IFRS
until 2007/2008, your Board has decided that we should adopt these at the
earliest possible opportunity. The main effect of the adoption has been to
unwind the merger accounting that we applied for the Company's acquisition of
Glen Communications in late 2004 and this has created goodwill on the
consolidated balance sheet. The other main change is to expense the cost of
share options. This has resulted in a charge of #19,213 to the 2006 results
(2005: #815).
Business Review
An analysis of the turnover across the last three years is tabulated below:
30th September 2006 30th September 2005 30th September 2004
Turnover # # #
Glen
Communications
-Continuing 942,582 466,950 229,269
-Discontinued
(phone cards) 22,519 71,447 144,577
Total 965,101 538,397 373,846
Eclectic (from
15th February
2006) 2,733,144 - -
Total Turnover 3,698,245 538,397 373,846
-------------------------- -------------------------- --------------------------
These results show strong progress. Glen Communications exited the declining
pre-paid phone card business in February 2006 and, excluding the turnover from
phone cards, Glen Communications' continuing business has more than doubled its
turnover each year for the last two years.
Turnover from Eclectic, which we have consolidated from the date of acquisition
on 15 February 2006, contributed turnover of #2,733,144 in the period. The main
business of Eclectic is in the implementation of business intelligence solutions
to corporate clients. Eclectic also has a training division which contributed
33.8% of the turnover from Eclectic for the period.
Our consolidated gross margin for the full year was 36.0%. This continues to be
robust, despite the changing mix of services. Eclectic's gross margin was 33.6%
with Glen Communications at 43.0% (2005: 45.0%).
Our operating costs continue to increase as the business expands. The costs of
the business over the last three years can be analysed as follows:
30th September 2006 30th September 2005 30th September 2004
# # #
Other
operating
charges
Glen Group 371,269 223,381* -
Glen
Communications 780,463 580,191 333,993
Eclectic (from
15th February
2006) 769,839 - -
Total
operating
charges 1,921,571 803,572 333,993
-------------------------- ------------------------------ ---------------------------------
*10 months
Over the summer we have centralised, within Glen Group, certain group services
particularly financial management and accounting, which had previously been
undertaken by the individual operating companies.
Overall, the group has incurred an operating loss before interest of #589,222
for the full year. The operating loss in the first half of the year was
#372,674, with the second half at #216,548: a reduction of over 40% in the
second half. After net interest and taxation, the retained loss for the year was
#613,591 (2005: #570,597).
Business Review
An analysis of the operating losses over the last three years is as follows:
30th September 2006 30th September 2005 30th September 2004
Operating loss # # #
Glen Group (371,269) (223,381)* -
Glen
Communications (365,894) (337,823) (205,162)
Eclectic (from
15th February
2006) 147,941 - -
------------------ ------------------ ------------------
Total
operating loss (589,222) (561,204) (205,162)
------------------ ------------------ ------------------
*10 months
Financing
In October 2005, we raised #250,000 of additional working capital by the issue
of 10,000,000 new shares at 2.5p each. In February 2006, we raised #2,500,000
through the issue of 250,000,000 new shares at 1p each as further capital to
finance the acquisition of Eclectic and to provide working capital for the
group. The consideration for this transaction consisted of two elements: a first
consideration, payable in cash and shares at completion, and a second
consideration, payable in shares, based on an earn out formula. As indicated in
the Chairman's statement, the second consideration has been earned in full which
takes the cost of this acquisition to #3m, excluding acquisition costs. Because
of our size, the costs of the acquisition, placing and re-admission to AIM which
we concluded on 15 February 2006 were material amounting to approximately
#500,000 in fees and other costs. The costs of the acquisition itself, amounting
to approximately #71,242, have been allocated to goodwill, with the balance
deducted from the share premium account. The market value of the first and
second consideration shares issued and to be issued in respect of the
acquisition of Eclectic Holdings Limited differs from the value agreed with the
vendors. This difference of #417,221 has been credited to goodwill.
The consideration for the acquisition of Explore IT Limited in early September
2006 was #115,000 which was funded from internal resources and existing bank
facilities. We have allocated #100,000 of this to intangible assets and the
balance to goodwill. The costs of acquisition, including due diligence and legal
fees, amounted to a further #49,117, which has been added to the goodwill
arising on the acquisition.
At 30 September 2006, we had net borrowings of #665,213. This included net
overdrafts of #475,547. At the same date, our overdraft facilities (excluding
loans) totalled #620,000. Since the year end we have further increased our bank
facilities (excluding loans), which now stand at approximately #1,000,000.
Outlook and opportunities
The markets in which we operate are significant, dynamic and continue to grow.
These markets are fuelled by new technology, regulatory requirements and the
need for businesses to be competitive. The Board believe that these growing
markets create opportunity and we look forward to servicing these opportunities
and continuing to build the business.
I would like to thank my team for the very significant efforts that have been
made over the last year to change fundamentally the size and scope of the
business and establish a sound platform for future growth.
Graham J Duncan
Chief Executive Officer
12 January 2007
Glen Group plc
Report and financial statements
30 September 2006
Consolidated income statement for the year ended 30 September 2006
2006 2005
Note # #
Revenue
Continuing operations 4 942,582 466,950
Discontinued operations 22,519 71,447
Acquisitions 2,733,144 -
---------------- -----------------
3,698,245 538,397
---------------- ----------------
Cost of sales (2,365,896) (296,029)
Gross profit 1,332,349 242,368
Other operating charges 5 (1,921,571) (803,572)
---------------- ----------------
Operating loss (589,222) (561,204)
---------------- ----------------
Interest payable (23,620) (16,109)
Interest receivable 3,054 6,716
---------------- ----------------
Finance costs 7 (20,566) (9,393)
Loss before taxation (609,788) (570,597)
---------------- ----------------
Taxation 21 (3,803) -
---------------- ----------------
Loss for the year (613,591) (570,597)
---------------- ----------------
Loss per share 9
- basic and diluted (0.28)p (1.18) p
----------------------------------------- -------------------------------------
There are no other gains and losses other than the loss for the year
See accompanying notes to the financial statements.
Consolidated balance sheet as at 30 September 2006
2006 2005
Note # #
Assets
Non-current assets
Goodwill 10 3,562,740 935,315
Intangible assets 12 100,000 -
Property, plant and equipment 13 112,667 50,317
Total non-current assets 3,775,407 985,632
Current assets
Inventories 15 26,752 10,113
Trade and other receivables 16 1,571,471 208,626
Cash and cash equivalents 17 1,075 211,160
Total current assets 1,599,298 429,899
Total assets 5,374,705 1,415,531
Liabilities
Current liabilities
Short term borrowings 578,731 68,169
Trade and other payables 939,817 126,583
Accruals and deferred income 238,247 78,840
Other creditors 164,139 73,217
Total current liabilities 18 1,920,934 346,809
Non-current liabilities
Long-term borrowings 19 87,557 58,516
Total non-current liabilities 87,557 58,516
Total liabilities 2,008,491 405,325
Net assets 3,366,214 1,010,206
Equity
Share capital 20 3,276,831 600,000
Share premium account 20 860,817 957,541
Shares to be issued 20 787,500 -
Other reserve 20 20,028 815
Fair value adjustment 20 (417,221) -
Profit and loss reserve (1,161,741) (548,150)
Total equity 3,366,214 1,010,206
See accompanying notes to the financial statements.
Consolidated statement of changes in equity for the year to 30 September 2006
Share Share Shares Other Fair Retained Total
Capital premium to be reserve Value earnings
issued
At 1
October
2004 250,000 500,000 - - - 22,447 772,447
Recognised
directly in
equity
Share
Issue 350,000 350,000
Premium on
share issue 700,000 700,000
Expenses
incurred on
share issue (242,459) (242,459)
Share based
payments 815 815
-------- -------- ------- ------- ------- -------- --------
Net change
directly in
equity 350,000 457,541 - 815 - - 808,356
-------- -------- ------- ------- ------- -------- --------
Loss for
the year (570,597) (570,597)
-------- -------- ------- ------- ------- -------- --------
Total
movements 350,000 457,541 - 815 - (570,597) 237,759
-------- -------- ------- ------- ------- -------- --------
Equity at
30 September
2005 600,000 957,541 - 815 - (548,150) 1,010,206
-------- -------- ------- ------- ------- -------- --------
At 1
October
2005 600,000 957,541 - 815 - (548,150) 1,010,206
Recognised
directly in
equity
Share 2,676,831 (417,221) 2,259,610
Issue
Shares to
be
issued as 787,500 787,500
part of
acquisition
Premium on
share issue 335,669 335,669
Expenses
incurred on
share issue (432,393) (432,393)
Share based
payments 19,213 19,213
-------- -------- -------- ------- -------- -------- --------
Net change
directly in
equity 2,676,831 (96,724) 787,500 19,213 (417,221) - 2,969,599
Loss for
the year (613,591) (613,591)
-------- -------- -------- ------- -------- -------- --------
Total
movements 2,676,831 (96,724) 787,500 19,213 (417,221) (613,591) 2,356,008
-------- -------- -------- ------- -------- -------- --------
Equity at
30 September
2006 3,276,831 860,817 787,500 20,028 (417,221) (1,161,741) 3,366,214
-------- -------- -------- ------- -------- --------- --------
Consolidated cash flow statement for the year to 30 September 2006
2006 2005
# #
Cash flows from operating activities
Operating loss (589,222) (561,204)
Adjustments for
Depreciation and amortisation 49,596 17,515
Other non-cash items 19,213 815
(Increase)/decrease in inventories (16,639) (1,877)
Increase in trade and other receivables (1,362,845) (145,767)
Increase in trade payables, accruals and other
creditors 1,099,760 166,596
Net cash outflow from operating activities (800,137) (523,922)
Cash flows from investing activities
Purchase of property, plant and equipment (56,573) (56,492)
Sale of property, plant and equipment 414 190
Acquisition of subsidiary, net of cash acquired (2,412,933) -
Net cash used in investing activities (2,469,092) (56,302)
Cash flows from financing activities
Interest paid (net) (20,566) (9,393)
Issue of shares 3,012,500 1,050,000
Receipt of bank finance 84,215 -
Repayment of borrowing (32,612) (16,486)
Repayment of directors and shareholders loans (40,000) 7,270
Former subsidiary director's loan notes less repayments 50,000 -
Receipt from finance leases less repayments 9,547 -
Expenses paid in connection with share issues (432,393) (242,459)
Net cash used in financing activities 2,630,691 788,932
Net (decrease)/increase in cash (638,538) 208,708
Cash and bank overdrafts at beginning of period 162,991 (45,717)
Cash and bank overdrafts at end of period 475,547 162,991
Cash and bank overdrafts comprise
Cash and cash equivalents 1,075 211,160
Bank overdrafts (476,622) (48,169)
475,547 162,991
Analysis of changes in net funds
At 30th September At 30th September
2005 Cash Flows 2006
# # #
Cash 211,160 -210,085 1,075
Bank overdraft -48,169 -428,453 -476,622
162,991 -638,538 -475,547
Debt -118,516 -71,150 -189,666
Net funds 44,475 -709,688 -665,213
Notes to the financial statements
1. General Information
The consolidated financial statements of the group have been prepared in
accordance with International Financial Reporting Standards as adopted by the EU
and International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS). Glen Group plc has adopted IFRS for the first
time in its consolidated financial statements for the year ending 30 September
2006.
The transition to IFRS reporting has resulted in a number of changes in the
reported financial statements, notes thereto and accounting principles compared
to previous annual reports. Note 2 provides further details on the transition
from UK GAAP to IFRS.
Glen Group plc, a public limited company, is the group's ultimate parent
company. It is incorporated in England. The address of Glen Group plc's
registered office is 8-10 New Fetter Lane, London, EC4A 1RS. Its principal place
of business is Glen House, 6 Straiton View, Straiton Business Parc, Edinburgh,
EH20 9QZ.
The financial statements for the year ended 30 September 2006 (including the
comparatives for the year ended 30 September 2005), were approved by the board
of directors on 12 January 2007.
2. Transition to International Financial Reporting Standards
The transition from previous GAAP to IFRS has been made in accordance with IFRS
1, First-time Adoption of International Financial Reporting Standards.
The group's consolidated financial statements for 2006 and the comparatives
presented for 2005 comply with all presentation and disclosure requirements of
IFRS applicable for accounting periods commencing on or after 1 October 2004.
The following reconciliations and explanatory notes thereto describe the effects
of the transition on the IFRS opening balance sheet as at 1 October 2004 and for
the financial year 2006. All explanations should be read in conjunction with the
IFRS accounting policies of Glen Group plc as disclosed in the Principal
Accounting Policies. Note 2a comments on the group's new balance sheet
structure. No adjustments to Glen Group plc's share and additional paid-in
capital were necessary in the opening IFRS balance sheet as at 1 October 2004
and the comparatives prepared for the year ended 30 September 2005.
The reconciliation of the group's equity reported under previous GAAP to its
equity under IFRS may be summarised as follows:
Reconciliation of equity under UK GAAP to equity under IFRS
2006 2005
# #
Shareholders equity under UK GAAP 2,865,199 91,970
Adjustment to goodwill relating to reversal of merger
accounting 916,339 916,339
Amortisation of goodwill reversed 1,897 1,897
Fair value adjustment (417,221) -
Shareholders equity under IFRS 3,366,214 1,010,206
The reconciliation of the group's loss reported under previous GAAP to its loss
under IFRS may be summarised as follows:
Reconciliation of loss under UK GAAP to loss under IFRS
2006 2005
# #
Loss attributable to shareholders under UK GAAP (596,275) (571,679)
Amortisation of goodwill 1,897 1,897
Share options expensed through income statement (19,213) (815)
Loss attributable to shareholders under IFRS (613,591) (570,597)
a) Merger Accounting
Following the adoption of IFRS, the company has unwound the merger accounting
treatment of the acquisition of Glen Communications Limited in November 2004.
This has created additional goodwill on the consolidated balance sheet of
#916,339.
b) Goodwill
Under IFRS Goodwill is not amortised. Instead Goodwill is tested for impairment
annually or more frequently if events or changes in circumstances indicate that
it might be impaired. Note 11 contains further information on the treatment of
Goodwill under IFRS. As required by IFRS 1, Goodwill recognised under previous
GAAP has been tested for impairment at the date of transition to IFRS. No
impairment loss was required to be recognised. In accordance with IFRS 1, this
amount has been considered the carrying amount of Goodwill in the opening IFRS
balance sheet.
For the year ended 30 September 2006, Goodwill is not amortised under IFRS. As a
result the amortisation of Goodwill under UK GAAP was reversed in the
reconciliation from UK GAAP to IFRS figures with a corresponding reduction of
expenses (see reconciliation as at 30 September 2005.)
3. Basis of Consolidation
3.1. Acquisition of Eclectic Holdings Limited
On 15 February 2006 the group acquired the entire share capital of Eclectic
Holdings Limited and its subsidiaries, a provider of business intelligence
consultancy and other IT services to the corporate market. The maximum purchase
consideration was #3,000,000 of which #2,212,500 was paid at completion and the
balance of up to #787,500 (the second consideration) payable when the group
issued its preliminary announcement for the year ending 30th September 2006. The
second consideration payment was dependent on Eclectic Holdings Limited's profit
before interest, taxation and amortisation ("PBITA") for the twelve month period
ending 31st July 2006 in accordance with the following formula:
PBITA of between #250,000 and #299,999, the second consideration is #196,875
PBITA of between #300,000 and #349,999, the second consideration is #393,750
PBITA of between #350,000 and #399,999, the second consideration is #590,625
PBITA of #400,000 and above, the second consideration is #787,500
The entire second consideration is payable in shares in Glen Group plc subject
to a maximum of 78,750,000 shares.
The PBITA, for the measurement period was #414,842. Accordingly the Directors
have accrued the full amount of the second consideration, totalling #787,500. In
accordance with the share price formula included in the acquisition agreement,
the Company will be issuing 73,825,818 shares at 1.0667p per share to satisfy
the additional consideration.
The book values of the net assets of Eclectic Holdings Limited and its
subsidiaries on acquisition were #1,089,270 and, having been adjusted for
goodwill, have been fair valued as follows:
Assets #
Non-current assets
Property, plant and equipment 40,211
Total non-current assets 40,211
Current assets
Inventories 4,495
Trade and other receivables 1,116,475
Cash and cash equivalents 28,626
Total current assets 1,149,596
Total assets 1,189,807
Liabilities
Current liabilities
Short term borrowings 144,028
Trade and other payables 534,415
Accruals and deferred income 370,335
Other creditors 50,000
Total current liabilities 1,098,778
Non-current liabilities
Long-term borrowings 25,000
Total non-current liabilities 25,000
Total liabilities 1,123,778
Net assets 66,029
Goodwill on acquisition has been calculated as follows:
#
Purchase price and acquisition expenses 3,071,242
Net assets acquired (66,029)
Cash received from Eclectic employee options (17,600)
--------------------------------------- -----------
2,987,613
--------------------------------------- -----------
Fair Value adjustment - first consideration (128,046)
Fair Value adjustment - second consideration (289,175)
--------------------------------------- -----------
Fair value adjustment (417,221)
--------------------------------------- -----------
--------------------------------------- -----------
Goodwill 2,570,392
--------------------------------------- -----------
Turnover and operating profit of the companies acquired for the post acquisition
period were #2,733,143 and #147,941 respectively. For the period 1 October 2005
to 30 September 2006 the turnover was #4,576,512 and the operating profit was
#347,839.
The directors are satisfied that there are no intangible assets that should be
recognised on the acquisition of Eclectic Holdings Ltd as the inherent value of
the company is represented by the skill and knowledge of the employees who
provide consultancy and training services.
3.2. Acquisition of Explore IT Limited
On 4 September 2006, Glen Communications Limited acquired 100% of the share
capital of Explore IT Limited, a company registered in England. The total cost
of the acquisition includes the components stated below. The purchase price of
#115,000 was settled in cash. The book values of the net assets of Explore IT
Limited on acquisition were #7,084 and have been fair valued at the same amount.
This can be analysed as follows:
Assets #
Non-current assets
Property, plant and equipment 5,179
Total non-current assets 5,179
Current assets
Trade and other receivables 69,952
Cash and cash equivalents 5,974
Total current assets 75,926
Total assets 81,105
Liabilities
Current liabilities
Short term borrowings 9,138
Trade and other payables 41,778
Accruals and deferred income 16,956
Other creditors 6,149
Total current liabilities 74,021
Total non-current liabilities -
Total liabilities 74,021
Net assets 7,084
Goodwill on acquisition has been calculated as follows:
#
Purchase price and acquisition expenses 164,117
Net assets acquired (7,084)
---------------------------------------- ---------
157,033
Transferred to intangibles (100,000)
---------------------------------------- ---------
Goodwill 57,033
---------------------------------------- ---------
Turnover and operating profit of the company acquired for the post acquisition
period were #44,219 and #10,539 respectively. For the period 1 October 2005 to
30 September 2006 the turnover was #506,676 and the operating loss was #22,325.
4. Segment Reporting
4.1.1 Analysis of revenue
2006 2005
# #
By business sector
Mobile services 631,003 321,154
Information technology 3,041,633 143,675
Phone cards - discontinued operations 22,519 71,447
Other communication services 3,090 2,121
Total revenue 3,698,245 538,397
By destination
United Kingdom 3,698,245 538,397
Total revenue 3,698,245 538,397
By origin
Glen Communications - continuing operations 942,582 466,950
Glen Communications - discontinued operations 22,519 71,447
Eclectic 2,733,144 -
Total revenue 3,698,245 538,397
4.1.2. Analysis of operating loss
2006 2005
# #
By business sector
Mobile services (368,510) (337,296)
Information technology (199,272) (147,441)
Phone cards - discontinued operations (10,920) (74,263)
Other communication services (10,520) (2,204)
Operating loss (589,222) (561,204)
By destination
United Kingdom (589,222) (561,204)
Operating loss (589,222) (561,204)
By origin
Glen Group (371,269) (223,381)
Glen Communications (365,894) (337,823)
Eclectic 147,941 -
Operating loss (589,222) (561,204)
4.2. Analysis of assets and liabilities
Holding SME communications Corporate IT
company and IT services services
By Business sector
Non-current assets
Investment in
subsidiaries 4,621,242 176,009 1,023,241
Property,
plant and
equipment 3,499 71,930 37,237
----------------------------- -------- -------- --------
Total
non-current
assets 4,624,741 247,939 1,060,478
----------------------------- -------- -------- --------
Current assets
Inventories - 11,175 15,577
Trade and
other
receivables 435,014 430,597 469,187
Cash and cash
equivalents - 1,075 -
----------------------------- -------- -------- --------
Total current
assets 435,014 442,847 1,484,764
----------------------------- -------- -------- --------
----------------------------- -------- -------- --------
Total assets 5,059,755 690,786 2,545,242
----------------------------- -------- -------- --------
Liabilities
Current liabilities
Short term
borrowings 12,996 82,424 475,600
Trade and
other payables 45,677 205,246 688,893
Accruals and
deferred
income 21,967 872,043 211,847
Other
creditors 21,648 18,594 23,520
----------------------------- -------- -------- --------
Total current
liabilities 102,288 1,178,308 1,399,860
----------------------------- -------- -------- --------
Total
non-current
liabilities 4,000 39,537 44,019
----------------------------- -------- -------- --------
Total
liabilities 106,288 1,217,845 1,443,879
----------------------------- -------- -------- --------
----------------------------- -------- -------- --------
Net assets 4,953,467 (527,059) 1,101,363
----------------------------- -------- -------- --------
5. Other operating income and charges
2006 2005
# #
-------------------------------- -------- --------
Administrative expenses 1,921,571 803,572
-------------------------------- -------- --------
6. Operating Loss
Operating loss is stated after charging: 2006 2005
# #
Depreciation of owned fixed assets 49,596 17,514
Other operating lease rentals:
- buildings 29,691 15,730
- office equipment - 1,032
Auditors' remuneration
- company 11,500 9,000
- group 45,541 8,500
Non-audit fees
- company - -
- group 2,500 675
In addition, remuneration paid to the auditors in respect of flotation and
re-listing totalling #72,076 (2005: #26,651) has been included within the share
premium account.
7. Finance income and finance costs
Finance cost includes all interest-related income and expenses. The following
amounts have been included in the income statement line for the reporting
periods presented:
2006 2005
# #
Interest income resulting from short term bank deposits 3,054 6,716
-------------------------------- -------- --------
Finance income 3,054 6,716
-------------------------------- -------- --------
Interest expense resulting from
- bank loans 8,025 14,137
- directors loans 500 -
- finance leasing liabilities 3,146 -
- loan notes 2,361 -
- bank overdrafts 9,588 1,972
-------------------------------- -------- --------
Finance costs 23,620 16,109
-------------------------------- -------- --------
8. Employee costs
8.1. Directors and employees
The average number of staff employed by the company during the financial year
amounted to:
2006 2005
No No
Number of management staff 6 5
Number of operational staff 40 12
-------------------------------- -------- --------
Total 46 17
-------------------------------- -------- --------
Employee numbers are stated including directors but excluding fees payable to E
M Hagman which are shown in Note 8.4.
8.2. Employee Remuneration
Expense recognised for employee benefits is analysed below:
2006 2005
# #
Wages and salaries 1,718,412 431,197
Share options costs 19,213 815
Social security costs 250,820 44,247
Pension - defined contribution plans 7,834 10,675
-------------------------------- -------- --------
Total 1,996,279 486,934
-------------------------------- -------- --------
8.3. Share-based remuneration
During the year the company set up an EMI share option scheme as part of the
remuneration of senior management. For the options to vest the senior management
are required to reach certain performance targets applicable to the year ended
30th September 2009. The performance targets have been set by the remuneration
committee of the Board. The maximum term of current arrangements under the EMI
scheme ends on 14 February 2016. Upon vesting, each option allows the holder to
purchase one ordinary share at the pre-agreed option price.
All share-based employee remuneration will be settled in equity. The group has
no legal or other obligation to repurchase or settle the options.
Share options and the exercise price are as follows for the reporting periods
presented:
2006 2005
Weighted average Weighted average
exercise price exercise price
Number # Number #
Outstanding
at 1 October 666,667 0.03 - -
Granted 25,000,000 0.01 666,667 0.03
-------- ----------- ---------- -----------
Outstanding
at 30
September 25,666,667 0.01052 666,667 0.03
--------- ----------- ---------- -----------
As at 30 September 2006, Glen Group plc has granted the following outstanding
share options:
2006 2005
Weighted Weighted Weighted Weighted
average average average average
exercise remaining exercise remaining
price contractual price contractual
life life
Number # Months Number # Months
Earliest
exercise
date:
2005 666,667 0.03 98 666,667 0.03 110
2009 25,000,000 0.01 112 - - -
------------ -------- ------- -------- -------- ------- --------
25,666,667 666,667
The fair values of options granted during 2006 were determined using the
Black-Scholes valuation model. Significant inputs into the calculation include a
weighted average share price of 1.78p and exercise prices as illustrated above.
Furthermore, the calculation takes into account no future dividends and a
volatility rate of 50% based on expected share price. Risk-free interest rate
was determined at 4.13%. It is assumed that options granted under the EMI scheme
have an average remaining life of 66 months.
The underlying expected volatility was determined by reference to historical
volatility of quoted comparable companies as well as giving consideration to the
volatility of Glen Group plc itself.
In total #19,213 of employee remuneration expense has been included in the
consolidated income statement for 2006 (2005: #815).
8.4 Directors
Fees Salaries Pensions Benefits Totals
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
# # # # # # # # # #
Non-Executive
E M Hagman 20,000 18,334 - - - - 978 815 20,978 19,149
P J Ford - - 15,000 14,167 - - - - 15,000 14,167
Executive
G J Duncan - - 96,000 90,000 11,250 9,375 11,164 2,936 118,414 102,311
--------------------------------------------------------------------------------------------------------
20,000 18,334 111,000 104,167 11,250 9,375 12,142 3,751 154,392 135,627*
--------------------------------------------------------------------------------------------------------
*2005 was a ten month period.
Benefits includes the costs of share options issued to the directors as follows:
Name of Director 2006 2005
E M Hagman 978 815
G J Duncan 7,294 -
8,272 815
9. Loss per share
2006 2005
# #
Loss attributable to ordinary shareholders 613,591 570,597
No No
Weighted average number of ordinary shares in issue 219,481,795 48,333,333
Loss per share (pence) 0.28 1.18
Both the basic and diluted earnings per share have been calculated using the net
loss attributable to the shareholders of Glen Group plc as the numerator.
The weighted average number of outstanding shares used for basic earnings per
share amounted to 219,481,795 shares. (2005: 48,333,333)
10 Goodwill
The main changes in the carrying amounts of goodwill result from the acquisition
of Eclectic Group Limited and Explore IT Limited. The net carrying amount of
goodwill can be analysed as follows:
2006 2005
# #
Gross carrying amount 3,562,740 935,315
Accumulated impairment losses - -
-------------------------------- -------- --------
Carrying amount at 30 September 3,562,740 935,315
-------------------------------- -------- --------
The carrying amount at 1 October 2005 related to Glen Communications Limited.
Changes in the net carrying amount can be analysed as:
2006 2005
# #
Carrying amount at 1 October 935,315 -
Additions:
Glen Communications Limited - 935,315
Eclectic Group Limited 2,570,392 -
Explore IT Limited 57,033 -
Impairment loss recognised - -
-------------------------------- -------- --------
Carrying amount at 30 September 3,562,740 935,315
-------------------------------- -------- --------
11 Impairment of goodwill
Goodwill has been allocated for impairment testing purposes to three cash
generating units, all in the UK. The carrying amount of goodwill allocated to
Eclectic Group Limited and Glen Communications Limited is significant in
comparison with the total carrying amount of goodwill. The recoverable amounts
are based on certain similar key assumptions.
Eclectic Group Limited
The recoverable amount of Eclectic goodwill has been determined based on a value
in use calculation. That calculation uses cash flow projections based on
financial budgets and estimates approved by management covering a 10 year period
and a discount rate of 20%. Cash flows beyond 5 years have been extrapolated
using a steady 2.5% growth rate. This growth rate does not exceed the long-term
average growth rate for the market in which Eclectic operates. Management
believes that any change in the key assumptions on which Eclectic's recoverable
amount is based would not cause Eclectic's carrying amount to exceed its
recoverable amount.
Glen Communications Limited and Explore IT Limited
The recoverable amount of Glen Communications and Explore IT goodwill has been
determined based on a value in use calculation. That calculation uses cash flow
projections based on financial budgets and estimates approved by management
covering a 10 year period and a discount rate of 30%. Cash flows beyond 5 years
have been extrapolated using a steady 2.5% growth rate. This growth rate does
not exceed the long-term average growth rate for the markets in which Glen
Communications and Explore IT operate. Management believes that any change in
the key assumptions on which Glen's and Explore IT's
*
recoverable amounts are based would not cause Glen's or Explore IT's carrying
amounts to exceed their recoverable amounts.
12. Intangible assets
The following intangible asset arose on the acquisition of Explore IT Limited:
2006 2005
# #
-------------------------------- -------- --------
Maintenance contracts 100,000 -
-------------------------------- -------- --------
Maintenance contracts of #100,000 (2005: #nil) relate to maintenance contracts
obtained as part of the acquisition of Explore IT Limited on 4 September 2006,
see also note 3. The group's policy is to amortise the maintenance contracts
over the expected life of the contracts. Due to the date of acquisition, there
has been no amortisation charge in the current year
13. Property, plant and equipment
IT Fixtures and Plant, Total
fittings, and machinery, and
leasehold motor vehicles
Equipment improvements
# # # #
Gross carrying
amount 16,984 2,752 2,254 21,990
Accumulated
depreciation
and impairment 8,887 1,070 504 10,461
-------------------- --------- --------- --------- ---------
Carrying
amount at 1
October 2004 8,097 1,682 1,750 11,529
-------------------- --------- --------- --------- ---------
Gross carrying
amount 62,952 11,726 3,614 78,292
Accumulated
depreciation
and impairment 23,415 3,085 1,475 27,975
-------------------- --------- --------- --------- ---------
Carrying
amount at 30
September 2005 39,537 8,641 2,139 50,317
-------------------- --------- --------- --------- ---------
Gross carrying
amount 312,662 61,520 6,538 380,720
Accumulated
depreciation
and impairment 216,895 48,987 2,171 268,053
-------------------- --------- --------- --------- ---------
Carrying
amount at 30
September 2006 95,767 12,532 4,367 112,667
-------------------- --------- --------- --------- ---------
The carrying amounts of property, plant and equipment for the periods presented
in the consolidated financial statements as at 30 September 2006 are reconciled
as follows:
IT Fixtures and Plant, Total
equipment fittings, and machinery, and
leasehold motor
improvements vehicles
Cost # # # #
At 1 October
2005 62,952 11,726 3,614 78,292
Additions 51,290 870 4,413 56,573
Additions by
acquisition 198,420 48,924 - 247,344
Disposals - - (1,489) (1,489)
--------------------- --------- ---------- --------- ---------
At 30
September 2006 312,662 61,520 6,538 380,720
--------------------- --------- ---------- --------- ---------
Depreciation
At 1 October
2005 23,415 3,085 1,475 27,975
Charge for
year 39,664 8,161 1,771 49,596
Acquisition 153,816 37,741 - 191,557
Disposals - - (1,075) (1,075)
--------------------- --------- ---------- --------- ---------
At 30
September 2006 216,895 48,987 2,171 268,053
--------------------- --------- ---------- --------- ---------
--------------------- --------- ---------- --------- ---------
NBV at 30
September 2006 95,767 12,533 4,367 112,667
--------------------- --------- ---------- --------- ---------
--------------------- --------- ---------- --------- ---------
NBV at 1
October 2005 39,537 8,641 2,139 50,317
--------------------- --------- ---------- --------- ---------
All depreciation and impairment charges are included in "depreciation,
amortisation and impairment of non-financial assets" in the income statement.
14. Leases
14.1. Finance leases
Glen Group plc currently has finance leases which relate to the group's computer
equipment. The net carrying amount of the assets held under the leases is
#4,149. The assets are included under IT equipment.
Future minimum lease payments as at 30 September 2006:
Within 1 year 1 to 5 years More than 5 years Total
# # # #
---------------- --------- --------- --------- ---------
Lease payments 7,709 1,838 - 9,547
---------------- --------- --------- --------- ---------
There were no future minimum lease payments as at 30 September 2005.
14.2. Operating leases
The group's minimum operating lease payments are as follows:
Within 1 year 1 to 5 years More than 5 years Total
# # # #
---------------- --------- --------- --------- ---------
As at 30 September
2006 107,321 162,842 - 270,163
---------------- --------- --------- --------- ---------
As at 30 September
2005 58,273 109,022 - 167,295
---------------- --------- --------- --------- ---------
Lease payments recognised as an expense during the period amount to #172,655
(2005: #45,256). No sublease income is expected as all assets held under lease
agreements are used exclusively by the group.
The rental contract for the office rented since 2000 at 121 West Regent Street,
Glasgow, has non-cancellable terms of 4 years 4 months. The rental contract for
the office rented since 2003 at 1st floor, 113 West Regent Street, Glasgow, has
non-cancellable terms of 1 year 4 months. The rental contract for the office
rented since 2004 at ground floor, 113 West Regent Street, Glasgow, has
non-cancellable terms of 1 year 4 months.
Operating leases do not contain any contingent rent clauses. None of the
operating lease agreements contain renewal of purchase options or escalation
clauses or any restrictions regarding dividends further leasing or additional
debt.
15. Inventories
2006 2005
# #
Consumables 26,752 10,113
-------------------------------- -------- --------
Inventories 26,752 10,113
-------------------------------- -------- --------
16. Trade and other receivables
2006 2005
# #
Trade receivables, gross 1,281,684 51,615
Other debtors 1,186 2,090
Prepayments and accrued income 288,601 154,921
-------------------------------- -------- --------
Trade and other receivables 1,571,471 208,626
-------------------------------- -------- --------
Trade receivables are usually due within 30-45 days and do not bear an effective
interest rate. All trade receivables are subject to credit risk exposure.
However, Glen Group does not identify specific concentrations of credit risk
with regards to trade and other receivables, as the amounts recognised resemble
a large number of receivables from various customers.
17. Cash and cash equivalents
Cash and cash equivalents include the following components:
2006 2005
# #
-------------------------------- -------- --------
Cash at bank and in hand 1,075 211,160
-------------------------------- -------- --------
18. Trade and other payables
2006 2005
# #
Bank overdrafts 476,622 48,169
Bank loans - current element 44,400 20,000
Loan notes 50,000 -
Finance leasing liability - current element 7,709 -
-------------------------------- -------- --------
Short term borrowings 578,131 68,169
Trade payables 939,817 126,583
Accruals and deferred income 238,247 78,840
Corporation tax payable 3,803 -
Other taxation and social security 156,410 42,217
Other creditors 3,926 3,000
Directors' loans - 28,000
-------------------------------- -------- --------
Trade and other payables 1,920,934 346,809
-------------------------------- -------- --------
Note 14.1 contains further information on the finance lease liability. The
overdrafts are secured by bonds and floating charges over the assets of the
subsidiary companies with cross guarantees from Glen Group plc. The loan note is
payable to a former director of Eclectic Group Limited. It is subject to
interest at 2% above the Bank of Scotland base rate and is repayable in six
6-monthly instalments, with the final payment payable by 31 July 2007.
The fair values of the trade and other payables has not been disclosed as due to
their short duration, management considers the carrying amounts recognised in
the balance sheet to be a reasonable approximation of their fair value.
19. Long term financial liabilities
2006 2005
# #
Bank loans 85,719 58,516
Finance leasing liability - long term element 1,838 -
-------------------------------- -------- --------
Long term financial liabilities 87,557 58,516
-------------------------------- -------- --------
The bank loans at 30 September 2006 include a loan taken out by Eclectic Group
Limited of #42,182 (2005: Nil) at an effective interest rate of 2% over base
rate. This loan matures on 30 September 2009 and requires monthly payments. The
bank loans at 30 September 2006 also include a loan taken out by Glen
Communications Limited of #39,537 (2005: 58,516) at an effective interest rate
of 2.75% over base rate. This loan matures on 30 September 2008 and requires
monthly payments.
The finance lease liability has an effective interest rate of 12%, which is
equal to the rate implicit in the leases. Lease payments are made on a monthly
basis. The leasing arrangements mature on 31 May 2008. Long-term financial
liabilities have been fair valued at the same amount.
20. Equity
20.1. Share Capital
The share capital of Glen Group plc consists of ordinary shares with a par value
of #0.01. All shares are equally eligible to receive dividends and the repayment
of capital, and represent one vote at the shareholders' meeting of Glen Group
plc.
2006 2005
# #
Shares issued and fully paid
- beginning of the year 600,000 250,000
- issued during the year 2,676,831 350,000
-------------------------------- -------- --------
Shares issued and fully paid 3,276,831 600,000
-------------------------------- -------- --------
Shares authorised for share based payments 2,723,169 200,000
-------------------------------- -------- --------
-------------------------------- -------- --------
Total equity shares authorised at 30 September 2006 6,000,000 800,000
-------------------------------- -------- --------
20.2. Share Premium
2006 2005
# #
Balance brought forward 957,541 500,000
Premium on shares issued 335,669 700,000
Share issue expenses (432,393) (242,459)
-------------------------------- -------- --------
Balance carried forward 860,817 957,541
-------------------------------- -------- --------
20.3. Shares to be issued
As per note 3.1, an additional issue of shares (the second consideration shares)
was required as part of the acquisition of Eclectic Holdings Limited, providing
the profit before interest, tax and amortisation exceeded the amount detailed in
note 3.1. As the actual profit for Eclectic Holdings of #414,842 exceeded the
required #400,000, the shares to be issued are:
2006 2005
# #
-------------------------------- ---------- --------
Shares to be issued per note 3.1 (73,825,818 at a price of
1.0667p) 787,500 -
-------------------------------- ---------- --------
20.4. Other reserve
The other reserve represents shares reserved for share-based remuneration for
the period.
20.5. Fair Value Adjustment
The market value of the first and second consideration shares issued and to be
issued in respect of the acquisition of Eclectic Holdings Limited differs from
the value agreed with the vendors. The difference in value has been credited to
Goodwill, as follows:
2006 2005
# #
First Consideration shares 128,046 -
Second Consideration shares 289,175 -
-------------------------------- -------- --------
Fair Value adjustment 417,221 -
-------------------------------- -------- --------
21. Income tax expenses
The tax charge represents:
2006 2005
# #
UK corporation tax on profits of the period 5,131 -
-------------------------------- -------- --------
Total current tax 5,131 -
-------------------------------- -------- --------
Deferred tax: origination and reversal of timing differences (1,328) -
-------------------------------- -------- --------
Tax charge 3,803 -
-------------------------------- -------- --------
The relationship between the expected tax expense based on the effective tax
rate of Glen Group plc at 19% (2005: 19%) and the tax expense actually
recognised in the income statement can be reconciled as follows:
2006 2005
# #
Result for the year before tax (609,788) (570,597)
Tax rate 19% 19%
Expected tax expenses (115,860) (108,413)
Adjustment for non-deductible expenses 3,026 1,438
Capital allowances in excess of depreciation 7,049 (1,963)
Losses surrendered by way of group relief 29,759 0
Tax losses carried forward 81,157 108,938
-------------------------------- -------- --------
Actual tax expense net 5,131 -
-------------------------------- -------- --------
22. Related party transactions
Loans from directors were repaid in full during the year. At 30 September 2005
directors' loans were represented by amounts due to P Ford totaling #20,000 and
G J Duncan totaling #8,000. The loans bore interest at 2.75 per cent above the
base rate of Bank of Scotland and were repaid on 1 December 2005. Also at 30
September 2005, there was a loan of #12,000 due to a related party, Duncan
Ventures Limited, a company controlled by Graham J Duncan. This loan bore
interest at
2.75 per cent above the base rate of Bank of Scotland and was repaid on 1
December 2005.
No further related party transactions were recorded during the year to 30
September 2006.
23. Contingent liabilities
There were no contingent liabilities at 30 September 2006 or 30 September 2005.
24. Capital commitments
There were no capital commitments at 30 September 2006 or 30 September 2005.
25. Risk Management
The group finances its activities through equity and bank borrowings. No
speculative treasury transactions are undertaken and during the last two years
no derivative contracts were entered into. Financial assets and liabilities
include those assets and liabilities of a financial nature, namely cash,
investments and borrowings.
25.1 Liquidity risk
The group seeks to manage financial risk by ensuring sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably.
The group policy throughout the year has been to ensure continuity of funding by
a combination of equity funding and available bank facilities.
25.2 Interest rate risk
The interest rate on the group's cash at bank is determined by reference to the
bank rate. The interest rates on Glen Communication's financial liabilities are
at 2.75 per cent above the base rate of Bank of Scotland. The interest rates on
Eclectic and Explore IT's financial liabilities are at 2 per cent above the base
rate of the Royal Bank of Scotland.
At 30 September 2006, the group had total committed overdraft facilities of
#620,000 (2005: #50,000). Since the year end, a new facility of #1,000,000 has
been committed. This is on a rolling basis, with a 6-month notice period
servable only by the group. The group has two loans, the first is a #100,000
five year loan facility repayable in 60 monthly instalments of capital and
interest, with the final payment falling due in 2008. The second loan is a
#110,000 five year loan facility repayable in 60 monthly instalments of capital
and interest with the final payment falling due in 2009. Loan notes are due to a
former director of Eclectic Group Limited, payable in six 6-monthly instalments
of capital and interest, with the final instalment due on 31 July 2007.
26, Report and accounts
The report and accounts of the group for the year ended 30 September 2006 will
be sent to shareholders at the beginning of February 2007 and will be available
for collection, free of charge, from the offices of Glen Group plc, 6 Straiton
View, Straiton Business Parc, Edinburgh. EH20 9QZ.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KGGMMLMNGNZM
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