Interim Results

Glen Group PLC 13 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 communication services, 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 laid the foundations on which we can expand the business. The Board, and executive team led by Graham J Duncan, look forward to the challenge.' 13th June 2006 Enquiries: Glen Group plc Graham J Duncan, Chief Executive Officer Tel: 0845 119 2100 College Hill Associates Alex Walters Tel: 020 7457 2020 CHAIRMAN'S STATEMENT The financial statements for the half year period have been drawn up on the basis of the recognition and measurement requirements of International Financial Reporting Standards ('IFRS'), further details of which are contained in the Chief Executive's Review. We have made significant progress in the first half of the financial year. The acquisition of Eclectic Holdings Limited ('Eclectic'), which concentrates its IT services portfolio at the corporate market, was approved by shareholders in February 2006. The results for the six months ended 31st March 2006 reflect just six weeks performance from this acquisition, yet it contributed £588,856 of turnover for the period which represents 60% of the entire first half performance. Following a rationalisation of the business of Glen Communications Limited ('Glen Communications'), our SME focused IT and communications integration business, we are now starting to see real progress with turnover of £388,081 in the first half more than double that of the equivalent period last year. During March we moved its operational base to Rotherham in South Yorkshire and reorganised its operations. This reorganisation involved exiting our pre-paid phone card business, which was no longer a core activity, and actioning a number of other personnel changes designed to benefit the company going forward. The net costs of this exercise amounted to £49,867 and these costs are included in other operating charges. As a result of this initiative we were very pleased to see that, since the end of the half year, based on our internal unaudited management accounts, we have seen the first monthly operating profit from Glen Communications since we admitted the shares of Glen Group plc ('Glen Group') to AIM in December 2004. This achievement is a direct result of the major cost saving changes that we made to the business at the end of the period, coupled with increasing stability and productivity from the sales team, which has lifted monthly turnover above £100,000 for the first time. As we announced on 31st March, Eclectic is making solid progress towards achieving the maximum earn-out target of £400,000 of profits before interest, taxation and amortisation ('PBITA') set for the former shareholders for the twelve month period ending 31st July 2006. Under IFRS your Board are required to assess the probability that the additional earn-out consideration will become payable. Having given this due consideration, we have felt it appropriate to provide 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 rest of the year, we remain positive. Full details are contained in note 6 to this interim statement. Glen Group relies on the two operating companies, Eclectic and Glen Communications, to deliver sufficient profit to fund its costs and ultimately to deliver an overall consolidated group profit. The costs of Glen Group for the half year amounted to £159,413. In the period 15th February 2006 to 31st March 2006, Eclectic has contributed £75,077 of profits to support our group costs, an encouraging result for what is just a six week period. Overall, the consolidated group loss for the half year was £380,391. Glen Communications continues to expand its core products and services. Since the end of the half year we have launched a broadband voice service, also known as Voice over IP, aimed at the business market, which we have branded Glen Broadband Voice. This service uses a business grade broadband connection to deliver voice services which are rich in features and which do not require the customer to install their own switching equipment. This hosted service is an example of the type of new services which utilise a broadband connection. The provision of these types of services over broadband both wired and wireless, is a core strategy of Glen Communications. I am also pleased to report that Glen Communications has recently been appointed value added resellers for Sage financial software products in the UK. Sage targets the SME market, a core market for Glen Communications, and we look forward 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 where Eclectic is rapidly positioning itself as a niche provider of these types of services. The expanded group now employs 57 people, with 75% of them directly involved in selling and delivering services to our growing client base. As well as increasing organic growth, we will be seeking acquisitions which can enhance our product and services portfolio or can give us greater geographical coverage and we remain active in this area. Our objective is to build a significant business over 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 laid the foundations on which we can expand the business. The Board, and executive team led by Graham J Duncan, look forward to the challenge. Eric M Hagman CBE CHAIRMAN 13th June 2006 CHIEF EXECUTIVE'S REVIEW The financial statements for the half year period 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 have 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 Glen Group plc ('Glen Group') acquisition of Glen Communications Limited ('Glen Communications') in late 2004 and this has created goodwill on the consolidated balance sheet. The other main change, although not material to the half year, is to expense the cost of share options. Our accounting policies under IFRS are contained in this interim report. The first half has seen significant change to the business. As indicated in the Chairman's statement, we have consolidated the results of Eclectic Holdings Limited and its subsidiaries ('Eclectic') for the period from 15th February 2006 to 31st March 2006 and since the period end, based on our internal unaudited management accounts, we have seen the first operating profit from Glen Communications since we admitted the shares of Glen Group to AIM in December 2004. An analysis of the turnover across the last three six month periods is tabulated below: 31st March 2006 30th September 2005 31st March 2005 Turnover £ £ £ Glen Communications -Continuing 365,562 323,933 143,016 -Discontinued (phone cards) 22,519 32,043 39,405 Total 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 year is impacted by the Christmas and New Year holiday period. The 13% increase in continuing turnover for the first half of 2005/2006 in Glen Communications compared to the final six months of last year has been delivered notwithstanding the reorganisation that took place during that period. Since the period end we have 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 the products and services that we sell and support and continue to provide our clients with a first class experience where they appreciate the value of the services that we provide. This approach allows us to sell our services based on value and quality. Following the acquisition of Eclectic, we now have offices or facilities in Glasgow, Edinburgh, Rotherham and London and are more widely represented by the location of our sales teams. We can therefore provide our services over an expanding area. Geographic coverage remains a key objective in the expansion of the business. Our cost structures continue to expand as the business expands. However, the efforts made in the first half to lower the operational costs of Glen Communications have been successful and we have removed, in general terms and comparing like with like, about £200,000 of costs from this business over a 12 month period beginning 1st May 2006. Some of these cost savings will therefore come through in the second half. The cost structures of the business over the last three half yearly periods can be further analysed as follows: 31st March 2006 30th September2005 31st March 2005 Other 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 £373,623 for the half year. An analysis of the operating loss before interest over the last three half yearly periods is as follows: 1st March 2006 30th September 2005 31st March 2005 Operating 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 before interest for the six months to 31st March 2006 amounts to £323,756 which compares 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 of Eclectic, which constituted a reverse takeover under the AIM rules, and to provide working capital for the group. Because of our size, the costs of the acquisition and placing which we concluded on 15th February were material amounting to approximately £485,000 in fees and other costs. The costs of the acquisition itself, amounting to approximately £71,000, have been allocated to goodwill, with the balance deducted from the share premium account. At 31st March 2006, we had net funds of £114,458. The group has two banking facilities, one for Eclectic and one for Glen Communications which together provide overdraft facilities of £370,000. Going forward we believe that the value added reseller business model is a robust one and our strategy of providing a wide range of IT and communications products and services to the SME market is the correct approach. In the corporate space we continue to be niche focused which allows us to maximise our consulting income based on the expertise of our people. Graham J Duncan MA CA CHIEF EXECUTIVE 13th 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 £ £ £ -------------------------------------------------------------------------------- Revenue Continuing operations 388,081 182,421 538,397 Acquisitions 588,856 - - -------------------------------------------------------------------------------- 2 976,937 182,421 538,397 Cost 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 £ £ £ -------------------------------------------------------------------------------- Assets Non-current assets Goodwill 3,925,682 935,316 933,418 Property, plant and equipment 103,408 36,704 50,317 -------------------------------------------------------------------------------- Total non-current assets 4,029,090 972,020 983,735 -------------------------------------------------------------------------------- Current assets Inventories 16,603 4,873 10,113 Trade and other receivables 1,407,017 96,232 208,626 Cash 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 -------------------------------------------------------------------------------- Liabilities Current liabilities Short term borrowings 103,680 95,954 68,169 Trade and other payables 939,632 89,690 126,583 Accruals and deferred income 465,258 26,900 78,840 Other creditors 143,097 1,849 73,217 -------------------------------------------------------------------------------- Total current liabilities 1,651,667 214,393 346,809 -------------------------------------------------------------------------------- Non-current liabilities Long-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 -------------------------------------------------------------------------------- Equity Share capital 3,276,831 500,000 600,000 Share premium account 879,473 771,180 957,541 Shares to be issued 787,500 - - Other reserve 8,500 1,400 3,500 Profit 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 activities Operating loss (373,623) (225,340) (565,786) Adjustments for Depreciation and amortisation 14,274 6,332 19,412 Other 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 activities Purchase of property, plant and (67,365) (31,507) (56,492) equipment Sale of property, plant and equipment - - 190 Acquisition 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 activities Interest paid (net) (6,768) (1,113) (9,393) Issue of shares 3,012,500 750,000 1,050,000 Receipt of bank finance 50,000 - - Repayment of borrowing (9,688) (10,000) (16,486) Receipt from/(repayment of) shareholders loans (40,000) 7,270 7,270 Receipt from former director's loan 25,000 - - Expenses paid in connection with share issue (413,737) (228,820) (242,459) -------------------------------------------------------------------------------- Net cash used in financing activities 2,617,307 517,337 788,932 -------------------------------------------------------------------------------- Net increase in cash 95,295 284,605 208,708 Cash and bank overdrafts at beginning of period 162,991 (45,717) (45,717) -------------------------------------------------------------------------------- Cash and bank overdrafts at end of period 258,286 238,888 162,991 -------------------------------------------------------------------------------- Cash and bank overdrafts comprise Cash and cash equivalents 311,966 274,842 211,160 Bank 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 211,160 100,806 311,966 Bank 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 is unaudited 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 Time Adoption of International Financial Reporting Standards' relevant to interim reports and were approved by the Directors on 13th June 2006. This interim financial information has been prepared on the basis of the recognition and measurement requirements of IFRSs in issue that are expected to be effective at 30th September 2006, the Group's first annual reporting date at which the Board has chosen to adopt IFRS. Based on IFRS, the directors have made assumptions about the accounting policies expected to be applied when the first annual IFRS financial statements are prepared for the year ending 30th September 2006. The financial statements have been prepared under the historical cost convention. The measurement bases and principal accounting policies of the group are set out below. The policies have changed from the previous year when the financial statements were prepared under applicable UK GAAP. The comparative information has been restated to reflect the changes arising from the adoption of IAS 34. The changes to accounting policies are explained in notes 7 and 8, together with the reconciliation of opening balances. The date of transition to IFRS was 30th September 2004. The accounting policies that have been applied in the opening balance sheet have also been applied throughout all periods presented in these interim financial statements. b) Basis of consolidation The group interim financial statements consolidate those of the company and all of its subsidiary undertakings drawn up to 31st March 2006. Subsidiaries are entities over which the group has the power to control the financial and operating policies so as to obtain benefits from its activities. The group obtains and exercises control through voting rights. Unrealised gains on transactions between the group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. c) Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the group's share of the identifiable net assets acquired is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognised immediately after acquisition in the income statement. d) Revenue Revenue is the total amount receivable by the company in the ordinary course of business with outside customers for goods supplied as principal and for services provided, excluding VAT and trade discounts. Turnover from mobile commissions is recognised when the customers are connected to the relevant network. Turnover from information technology services are billed to clients in accordance with agreed terms, in line with performance of the contract. e) Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. When exchange differences result from the translation of foreign currency borrowings raised to acquire foreign assets they are taken to reserves and offset NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) against the differences arising from the translation of those assets. All other exchange 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 the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. The gain or loss arising from the sale or revaluation of held for sale assets is included in 'other income' or 'other expense' in the income statement. Any revaluation surplus remaining in equity 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 its estimated residual value, over the useful economic life of that asset as follows: Plant and equipment - over 3 years Material residual value estimates are updated as required, but at least annually, whether or not the asset is revalued. i) Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. j) Leased assets In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. k) Inventories Inventories are stated at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items and the cost is calculated 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 temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Temporary differences include those associated with shares in subsidiaries and joint ventures if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity. m) Financial assets Financial assets, other than hedging instruments, are divided into the following categories: loans and receivables; financial assets at fair value through the profit or loss; available-for-sale financial assets; and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available. All financial assets are recognised when the group becomes a party to the contractual provisions of the instrument. All financial assets are initially recognised at fair value, plus transaction costs, unless they are classified as at fair value through profit or loss. Financial assets classified as at fair value through profit or loss are initially recognised at fair value. Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date. Interest and other cash flows resulting from holding financial assets are recognised in the income statement when receivable, regardless of how the related carrying amount of financial assets is measured. Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or are designated by the entity as at fair value through profit or loss upon initial recognition. Subsequent to initial recognition, the financial assets included in this category are measured at fair value with changes in fair value recognised in the income statement. Financial assets originally designated as financial assets at fair value through profit or loss may not subsequently be re-classified. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement. Provision against trade receivables is made when objective evidence is received that the group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows. n) Cash and cash equivalents Cash and cash equivalents comprise cash, and cash available at less than 24 hours notice at no penalty. o) Financial liabilities Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the group becomes a party to the contractual provisions of the instrument. All interest-related charges are recognised as an expense in 'finance cost' in the income statement. Bank loans are raised for support of long term funding of the group's operations. They are recognised at proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) Dividend distributions payable to equity shareholders are included in 'other short term financial liabilities' when the dividends are approved in general meeting 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 of consideration received for equity shares, net of expenses of the share issue. 'Shares to be issued' represents the maximum value of shares to be issued in respect of the earn out consideration payment due to the former shareholders of Eclectic Holdings Limited 'Other reserve' represents equity-settled share-based employee remuneration until 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 contributions payable to the scheme in respect of the accounting period. • Share-Based Payment All material share-based payment arrangements are recognised in the financial statements. All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. Fair values of employee services are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). All share-based remuneration is ultimately recognised as an expense in the income statement with a corresponding credit to 'other reserve'. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction 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 sector Mobile services 244,372 79,086 321,154 Information technology 709,146 63,930 143,675 Phone cards 22,519 39,405 71,447 Other communication services 900 0 2,121 -------------------------------------------------------------------------------- Total revenue 976,937 182,421 538,397 -------------------------------------------------------------------------------- By destination United Kingdom 976,937 182,421 538,397 -------------------------------------------------------------------------------- Total revenue 976,937 182,421 538,397 -------------------------------------------------------------------------------- By origin Glen Communications 388,081 182,421 538,397 Eclectic 588,856 - - -------------------------------------------------------------------------------- Total revenue 976,937 182,421 538,397 -------------------------------------------------------------------------------- The interim results for 2006 include the initial contribution from Eclectic acquired 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 sector Mobile 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 destination United Kingdom (373,623) (225,340) (565,786) -------------------------------------------------------------------------------- Operating loss (373,623) (225,340) (565,786) -------------------------------------------------------------------------------- By origin Glen 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 share Basic (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 to shareholders by the weighted average number of shares in issue during the period. The numbers used in calculating basic and fully diluted loss per share are 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 issue Basic 111,280,513 41,666,667 48,333,333 Adjustment for share options 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 22,447 Loss 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 Eclectic Holdings Limited and its subsidiaries, a provider of business intelligence consultancy and other IT services to the corporate market. The maximum purchase consideration is £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 issues its preliminary announcement for the year ending 30th September 2006. The second consideration payment is dependent on Eclectic'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 Directors have felt it appropriate to accrue the full amount of the second consideration, totalling £787,500, in the half year ended 31st March 2006. NOTES TO THE INTERIM FINANCIAL STATEMENTS (continued) The book values of the net assets of Eclectic Holdings Limited and its subsidiaries on acquisition were £1,089,270 and have been fair valued at the same amount. This can be analysed as follows: Assets £ Non-current assets Goodwill 1,023,241 Property, plant and equipment 40,211 -------------------------------------------------------------------------------- Total non-current assets 1,063,452 -------------------------------------------------------------------------------- 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 2,213,048 -------------------------------------------------------------------------------- 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 1,089,270 -------------------------------------------------------------------------------- Turnover and operating profit of the companies acquired for the post acquisition period were £588,856 and £75,077 respectively. Due to confidentiality clauses contained in the sale and purchase agreement between Glen Group plc and the vendors of Eclectic Holdings Limited, the results for the period 1st October 2005 to 31st March 2006 have not been disclosed. 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. 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 relating to 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 shareholders under UK GAAP (225,053) (571,679) (205,049) Share options expensed through income statement (1,400) (3,500) - -------------------------------------------------------------------------------- Loss attributable to shareholders under IFRS (226,453) (575,179) (205,049) -------------------------------------------------------------------------------- 9. Dividend In view of the deficit on reserves the directors cannot recommend a dividend and the loss for the period has therefore been transferred to reserves. 10. Statutory accounts These financial statements do not constitute statutory accounts. Although the information has been reviewed by the auditors, it is unaudited. The comparative figures for the year ended 30th September 2005 which are now presented under IFRS are not the statutory accounts for that year. The statutory accounts for the year ended 30th September 2005 were prepared under UK GAAP, contained an unqualified audit report and are filed with the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange

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