Gamma Telecom Holdings Limited Consolidated financial statements For the year ended 31 December 2005 Company No. 4287779
Gamma Telecom Holdings Limited 2 Company information Company registration number 4287779 Registered office 8-10 New Fetter Lane LONDON EC4A 1RS Directors P L Banner P Corbishley T B K Khoo K E Kuok M Sofaer M J C Stone C R H Stone T J Whyte P W Chow R M Falconer G Sreeves Secretary G Sreeves Bankers HSBC Bank Plc PO Box 648 Poultry & Princes Street Branch 27-32 Poultry LONDON EC2P 2BX Solicitors Charles Russell 8-10 New Fetter Lane LONDON EC4A 1RS Auditors Grant Thornton UK LLP Chartered Accountants Registered Auditors 1 Westminster Way OXFORD OX2 0PZ
Gamma Telecom Holdings Limited 3 Index to the consolidated financial statements Chairman's statement 4 Report of the directors 5-8 Report of the independent auditor 9-10 Principal accounting policies 11-12 Profit and loss account 13 Group balance sheet 14 Company balance sheet 15 Group cash flow cash flow statement 16 Notes to the consolidated financial statements 17-31
Gamma Telecom Holdings Limited 4 Chairman's statement 2005 has been another successful year for Gamma and its subsidiaries ( the Group ). Consolidated turnover increased by 38.5% to 100.0m ( 72.2m in 2004), EBITDA increased to 5.4m ( 2.4m in 2004) and PBIT was 1,036k ( 445k in 2004). This exceptional performance is against the backdrop of a highly competitive sector, in which Gamma has continued to succeed by remaining intensely focussed on its core markets and the service it provides to its customers. Although the wholesale and retail telecommunications markets have generally seen prices decline, Gamma has successfully offset this by growing its volumes and reducing its cost of access by interconnecting to almost all of BT s digital local exchanges. During 2005, Gamma also acquired the customer bases of three small resellers that were seeking to exit the market. These customers have now been fully integrated into the Uniworld business and we are already seeing returns ahead of expectations. We continue to operate Gamma Telecom and Uniworld Communications as two distinct but complimentary businesses as we believe that this encourages management focus and provides clarity to the very different markets they serve. Gamma Telecom, which focuses on the reseller and wholesale sectors was successful in growing both its resale customers, particularly in the ISP market, and increasing the number of resellers with whom it deals on a longer term exclusive basis. At an infrastructure level the Company made an early investment in next generation IP based soft-switching equipment following a commercial agreement with Marconi (now Ericsson). This was successfully introduced into the network in August and has subsequently been the basis for supporting all traffic growth. During 2005 Gamma Telecom broadened its portfolio with a broadband product in March and the launch of the first phase of direct IP connectivity services at the back end of the year. Uniworld Communications, which provides services to the SME sector, continued to both grow its turnover and improve its margins, whilst strategically concentrating on developing a general platform for future expansion. 2006 will be a significant year for the Group as it adjusts to the changing competitive landscape. We are unconvinced by the claimed benefits of consolidation in the industry. We believe that focus, flexibility and new products are more important than simple scale, which although perhaps desirable five years ago, bring many downsides in such a fast moving market. The Group has already embarked on a plan to replace its legacy voice network and will move all its traffic onto the new IP-based infrastructure during 2006. Gamma intends to continue leading the industry changes in the years ahead. Michael Stone Chairman 30 March, 2006
Gamma Telecom Holdings Limited 5 Report of the directors The directors present their report and the consolidated financial statements of the group for the year ended 31 December 2005. Principal activities and business review The group is principally engaged in the provision of telephony services. There was a profit for the year after taxation amounting to 765,374 (2004: 219,082). Results and dividends The trading results for the year and the group's financial position at the end of the year are shown in the attached consolidated financial statements. The directors have not recommended a dividend. During the course of 2005, Uni World Communications Limited ("Uniworld") acquired the customer bases of three small re-sellers. In addition, on 21 December 2005 Uniworld purchased the Go Worldwide Communications Limited ("Go") business by acquiring the entire issued share capital of Go Worldwide Communications Limited. The Group continued its strong growth during 2005 in addition to the acquisitions. This was due to a number of major new contracts with Internet Service Providers and organic growth from the existing customer base. As a result the volume of traffic carried over the network has increased by 80% during the year and turnover has risen to 100,013,210 (2004: 72,215,659). Gamma has also completed a major cost saving programme during 2005 by investing in interconnects to more than 500 BT local exchanges. In combination with the growth in turnover this has generated improved performance in terms of Gross Profit of 23,806,127 (2004: 16,503,609), Gross Profit Percentage of 23.80% (2004: 22.85%), Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of 5,444,035 (2004: 2,406,634) and Earnings Before Taxation of 765,064 (2004: 219,082). The Net Cash Inflow from Operating Activities in the year was 4,833,498 (2004: 2,591,244). By the end of 2005 Gamma s annualised revenue run rate was over 120m per annum with 177 people employed in the group, 102 in Gamma and 75 in Uniworld (2004: 68 in Gamma and 53 in Uniworld). Gamma has now started on a programme to fully replace its legacy voice network and move all traffic onto the new IP-based infrastructure during 2006. This is reflected in a charge of 1,125,586 (2004: nil) due to the change in estimation of the useful life of network assets.
Gamma Telecom Holdings Limited 6 Report of the directors A summary of key performance indicators follows: Revenue 100,013,210 72,215,659 Gross margin 23,806,127 16,503,609 Earnings before interest, taxation, depreciation and amortisation 5,444,035 2,406,634 Earnings before taxation 765,064 219,082 The directors and their interests in the shares of the parent company All the directors of the company served for the entire financial year except for Mr P W Chow who was appointed a director on 1 March 2005, Mr R M Falconer who was appointed on 30 September 2005, Mr G Sreeves who was appointed on 30 September 2005 and Mr G H Wong who resigned on 1 March 2005. The interests of directors of the company were as follows: Ordinary Shares of 1 each At At 1 January 2005 or 31 December 2005 date of appointment P L Banner 977,500 977,500 P Corbishley 687,500 937,500 T B K Khoo - K E Kuok - M Sofaer - M J C Stone 2,024,000 1,800,000 C R H Stone 400,000 300,000 G H Wong - T J Whyte - P W Chow - - R M Falconer 2,500 2,500 G Sreeves - - T B K Khoo, K E Kuok and P W Chow are board representation of Hoxton Assets Limited which held 10,358,625 ordinary shares in the company at 31 December 2005 (2004: 10,358,625). M Sofaer and T J Whyte represent Cranworth Enterprises Limited and Cosham Assets Limited who at 31 December 2005, held 4,790,093 ordinary shares (2004: 4,790,093) and 142,991 ordinary shares (2004: 142,991) respectively. M J C Stone and his spouse are also trustees over a further 591,827 ordinary shares (2004: 891,827) held in trusts in which they have no beneficial interest, and a further 214,177 (2004: 214,177) held in trusts in which they do have a beneficial interest.
Gamma Telecom Holdings Limited 7 Report of the directors Interests in options The company has two share option schemes by which executive directors and other senior executives are able to subscribe for ordinary shares in the company. The interests of the directors were as follows: At 1 January 2005 or date of appointment At 31 December 2005 Exercise price Granted during the year P L Banner 2.50 260,148-260,148 P Corbishley 2.50 249,503-249,503 R M Falconer 2.50 25,000-25,000 R M Falconer 3.00 75,000-75,000 R M Falconer 2.00 100,000-100,000 G Sreeves 2.50 25,000-25,000 G Sreeves 3.00 50,000-50,000 G Sreeves 2.00 75,000-75,000 The options are exercisable between 29 August 2003 and 4 May 2015. Financial risk management objectives and polices The group is exposed to a variety of financial risks which result from both its operating and investing activities. The board is responsible for coordinating the group's risk management and focuses on actively securing the group's short to medium term cash flows. Long term financial investments are managed to generate lasting returns. The group does not actively engage in the trading of financial assets and has no financial derivatives. The most significant financial risks to which the group is exposed to are described below: Credit risk The group's credit risk is primarily attributable to its trade debtors. The amounts presented in the balance sheet are net of any allowance for doubtful debtors, estimated by the directors. The group has no significant concentration of credit risk, with exposure spread over a large number of customers. The group has adopted a strict credit vetting policy based on track record payment history and externally available credit data. Cash flow risks The group seeks to manage risks to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Short term flexibility is achieved by the use of an invoice discounting facility, which provides 90% of eligible trade debtors up to a maximum of 15m. This is an ongoing agreement and is amended when either party wishes to change the terms and conditions.
Gamma Telecom Holdings Limited 8 Report of the directors Directors' responsibilities The directors are responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. Company law in the United Kingdom requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the group at the end of the year and of the group's profit or loss for the year then ended. In preparing those financial statements, the directors are required to: - select suitable accounting policies and then apply them consistently - make judgements and estimates that are reasonable and prudent - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records, for safeguarding the assets of the group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditor Grant Thornton UK LLP offer themselves for reappointment as auditor in accordance with section 385 of the Companies Act 1985. ON BEHALF OF THE BOARD G Sreeves Director 30 March 2006
9 Report of the independent auditor to the members of Gamma Telecom Holdings Limited We have audited the financial statements of Gamma Telecom Holdings Limited for the year ended 31 December 2005 which comprise the principal accounting policies, group profit and loss account, group balance sheet, company balance sheet, group cash flow statement and notes 1 to 25. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the report of the directors and the financial statements in accordance with United Kingdom law and accounting standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the report of the directors is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions with the group is not disclosed. We read other information contained in the chairman's statement and the report of the directors and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of opinion We conducted our audit in accordance with International Standards on auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's circumstances, consistently applied and adequately disclosed.
10 Report of the independent auditor to the members of Gamma Telecom Holdings Limited (continued) We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of affairs of the company and of the group's affairs as at 31 December 2005 and of its profit for the year then ended; and the financial statements have been properly prepared in accordance with the Companies Act 1985. GRANT THORNTON UK LLP REGISTERED AUDITORS CHARTERED ACCOUNTANTS OXFORD 30 March 2006 The maintenance and integrity of the Gamma Telecom Holdings Limited website is the responsibility of the directors: the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
Gamma Telecom Holdings Limited 11 Principal accounting policies Basis of accounting The consolidated financial statements have been prepared in accordance with applicable accounting policies and under the historical cost convention. The principal accounting policies of the group have remained unchanged from the previous year and are set out below. Basis of consolidation The group financial statements consolidate those of the company and of its subsidiary undertakings drawn up to 31 December 2005. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting. Goodwill Positive purchased goodwill arising on acquisitions and goodwill arising on consolidation representing the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is capitalised and amortised on a straight line basis over its estimated useful economic life as follows: Goodwill on consolidation - 5% - 33% straight line Purchased goodwill - 33% straight line Turnover Turnover represents the amounts (excluding VAT) derived from the provisions of goods and services to customers during the year. Call revenue is recognised in the month in which calls are made. Revenue for fixed charges such as line rentals is recognised on a monthly basis as it is utilised. Intangible assets and amortisation Intangible assets are included at cost and amortised over their useful economic lives as follows: Intangible asset - 3 years from the date of the first acquisition 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: Network assets - 7% - 50% straight line Motor vehicles - 25% straight line Office equipment - 25% straight line Fixtures & fittings - 20% straight line Computer equipment - 25% - 50% straight line The group has amended its estimation technique regarding the useful economic life of specific network assets on the basis of the current changes being made in the technology used by the company. The overall effect for the current year is an increase in the depreciation charge for the year of 1,125,586. Stocks Stocks are stated at the lower of cost and net realisable value.
Gamma Telecom Holdings Limited 12 Operating lease agreements Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease. Pension costs The company operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the company. The annual contributions payable are charged to the profit and loss account. Deferred taxation Deferred tax is recognised on all timing differences where the transactions or events that give the company an obligation to pay more tax in the future, or right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured on an undiscounted basis using rates of tax that have been enacted or substantively enacted by balance sheet date.
Gamma Telecom Holdings Limited 13 Group profit and loss account Note Group turnover 1 100,013,210 72,215,659 Cost of sales (76,207,083) (55,712,050) --------------------------------------------------- --------------------------------------------------- Gross profit 23,806,127 16,503,609 Operating expenses 2 (9,304,740) (7,541,800) Selling and administrative expenses 2 (9,057,352) (6,555,175) Depreciation and amortisation 2 (3,282,073) (1,961,603) Charge for change in estimation of useful economic life of network assets 2 (1,125,586) - --------------------------------------------------- ---------------------------------------------- (22,769,751) (16,058,578) Operating profit 3 1,036,376 445,031 Interest receivable 47,935 69,914 Interest payable and similar charges 6 (319,247) (295,863) ------------------------------------ ------------------------------------ Profit on ordinary activities before taxation 765,064 219,082 Tax on profit on ordinary activities 7 310 ---------------------------------------- --------------------------------------------- Retained profit for the financial year 8 765,374 219,082 During the course of the year the group acquired Go Worldwide Communications Limited. The post acquisition trade attributable to this company is not material to the group results. The company has no recognised gains or losses other than the results for the year as set out above. The company has taken advantage of section 230 of the Companies Act 1985 not to publish its own Profit and Loss Account. The accompanying accounting policies and notes form part of these Consolidated financial statements.
Gamma Telecom Holdings Limited 14 Group balance sheet Note Fixed assets Intangible assets - goodwill 9 11,276,180 9,870,051 Intangible assets - other 9 464,596 1,101,085 Tangible assets 10 11,055,202 7,741,115 --------------------------------------------------- ---------------------------------------------- 22,795,978 18,712,251 --------------------------------------------------- ---------------------------------------------- Current assets Stocks 12 30,678 30,678 Debtors 13 19,751,294 13,286,399 Cash at bank and in hand 9,873,391 5,770,193 --------------------------------------------------- --------------------------------------------------- 29,655,363 19,087,270 Creditors: amounts falling due within one year 14 (32,461,827) (18,400,381) --------------------------------------------------- --------------------------------------------------- Net current (liabilities)/assets (2,806,464) 686,889 --------------------------------------------------- --------------------------------------------------- Total assets less current liabilities 19,989,514 19,399,140 Creditors: amounts falling due after more than one year 15 - (175,000) --------------------------------------------------- --------------------------------------------------- 19,989,514 19,224,140 Capital and reserves Called-up equity share capital 17 225,409 225,409 Share premium account 18 26,397,094 26,397,094 Profit and loss account 18 (6,632,989) (7,398,363) --------------------------------------------------- --------------------------------------------------- Equity shareholders' funds 19 19,989,514 19,224,140 These Consolidated financial statements were approved by the directors on 30 March 2006 and are signed on their behalf by: R M Falconer Director G Sreeves Director The accompanying accounting policies and notes form part of these Consolidated financial statements.
Gamma Telecom Holdings Limited 15 Company balance sheet Note Fixed assets Tangible assets 10 10,432,220 7,195,800 Investments 11 10,759,369 10,759,369 --------------------------------------------------- ---------------------------------------------- 21,191,589 17,955,169 --------------------------------------------------- ---------------------------------------------- Current assets Stocks 12 30,678 30,678 Debtors 13 4,534,803 6,071,670 Cash at bank and in hand 916,455 1,376,159 --------------------------------------------------- --------------------------------------------------- 5,481,936 7,478,507 Creditors: amounts falling due within one year 14 (14,550,737) (9,776,147) --------------------------------------------------- --------------------------------------------------- Net current (liabilities) (9,068,801) (2,297,640) --------------------------------------------------- --------------------------------------------------- Total assets less current liabilities 12,122,788 15,657,259 --------------------------------------------------- --------------------------------------------------- 12,122,788 15,657,529 Capital and reserves Called-up equity share capital 17 225,409 225,409 Share premium account 18 26,397,094 26,397,094 Profit and loss account 18 (14,499,715) (10,964,974) --------------------------------------------------- --------------------------------------------------- Equity shareholders' funds 12,122,788 15,657,529 These Consolidated financial statements were approved by the directors on 30 March 2006 and are signed on their behalf by: R M Falconer Director G Sreeves Director The accompanying accounting policies and notes form part of these Consolidated financial statements.
Gamma Telecom Holdings Limited 16 Group cash flow statement Note Net cash inflow from operating activities 20 4,907,966 2,591,244 Returns on investments and servicing of finance 20 (271,312) (225,949) Taxation 20 - (93,525) Capital expenditure and financial investment 20 (6,364,985) (3,801,600) Acquisitions and disposals 20 (1,946,881) (8,765,471) --------------------------------------------------- --------------------------------------------------- Cash outflow before financing (3,675,212) (10,295,301) Financing 20 7,778,410 10,541,151 ---------------------------------------------- --------------------------------------------------- Increase in cash 20 4,103,198 245,850 The accompanying accounting policies and notes form part of these Consolidated financial statements.
Gamma Telecom Holdings Limited 17 Notes to the consolidated financial statements 1 Turnover The turnover and profit before tax are attributable to the one principal activity of the group. An analysis of turnover is given below: United Kingdom 100,013,210 72,215,659 2 Other operating income and charges Operating expenses 9,304,740 7,541,800 Selling and administrative expenses 9,057,352 6,555,175 Depreciation and amortisation 3,282,073 1,961,603 Charge for change in estimation of useful economic life of network assets 1,125,586 - -------------------------------------------------- --------------------------------------------------- 22,769,751 16,058,578 3 Operating profit Operating profit is stated after charging/(crediting): Amortisation: Goodwill 720,272 433,151 Other intangible fixed assets 636,489 369,743 Depreciation of owned fixed assets 3,050,898 1,158,709 Auditors' remuneration: Audit services 56,250 47,500 Non-audit services 3,250 3,100 Operating lease costs: Land and buildings 840,678 621,547 Plant and equipment 54,480 40,767
Gamma Telecom Holdings Limited 18 4 Particulars of employees and directors The average number of staff employed by the group during the financial year amounted to: No No Operational 67 57 Selling, general and administration 91 64 ------------------------------------ ------------------------------------ 158 121 The aggregate payroll costs of the above were: Wages and salaries 5,969,741 4,152,208 Social security costs 649,622 515,344 Other pension costs 120,495 119,883 ---------------------------------------------- ---------------------------------------------- 6,739,858 4,787,435 5 Directors Remuneration in respect of directors was as follows: Payments to third parties for directors services - 298,000 Emoluments of highest paid director: Total emoluments - 150,000 No remuneration has been paid to the directors of the Company in the year ended 31 December 2005 as the directors have been remunerated through the subsidiary companies. 6 Interest payable and similar charges Interest payable on bank borrowing - 19,146 Interest payable on shareholder loans - 97,201 Other interest payable 319,247 179,516 ------------------------------------ ------------------------------------ 319,247 295,863
Gamma Telecom Holdings Limited 19 7 Taxation on ordinary activities (a) Taxation Current tax: UK Corporation tax based on the results for the year at 30% (2004: 30%) - --------------------- ---------------------- Total current tax Deferred tax: - Origination and reversal of timing differences 310 ------------------------------------ ------------------------------- Tax on profit/(loss) on ordinary activities 310 (b) Factors affecting current tax charge Profit on ordinary activities before taxation 765,064 219,082 Profit on ordinary activities multiplied by standard rate of corporation tax in the UK 229,519 65,725 Expenses not deductible for tax purposes 201,946 174,497 Depreciation for period in excess of capital allowances 904,783 287,782 Other timing differences (23,167) Utilisation of tax losses (1,606,793) (773,666) Unrelieved tax losses 293,712 245,662 ------------------------------------ ------------------------------------ Total current tax - The group has tax losses, subject to Her Majesty's Revenue and Customs approval, of approximately 1,600,000 (2004: 6,100,000) available for offset against future operating profits. The group has not recognised any deferred tax asset in respect of these losses or accelerated capital allowances due to there being insufficient certainty regarding its recovery. 8 Profit attributable to members of the parent company The parent company has taken advantage of section 230 of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The parent company's loss for the year was 3,534,741 (2004: 3,304,979).
Gamma Telecom Holdings Limited 20 9 Intangible fixed assets The group Other Goodwill on Purchased intangible consolidation goodwill assets Total Cost At 1 January 2005 10,303,202-1,485,510 11,788,712 Additions 508,249 1,618,152-2,126,401 --------------------------------------------------- --------------------------------------------------- ---------------------------------------------- --------------------------------------------------- At 31 December 2005 10,811,451 1,618,152 1,485,510 13,915,113 Amortisation At 1 January 2005 433,151-384,425 817,576 Charge for the year 519,041 201,231 636,489 1,356,761 ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ At 31 December 2005 952,192 201,231 1,020,914 2,174,517 Net book value At 31 December 2005 9,859,259 1,416,921 464,596 11,740,776 At 31 December 2004 9,870,051-1,101,085 10,971,136 The goodwill on consolidation relates to the acquisition of Go Worldwide Communications Limited, Uni World Communications Limited and Andrew Charles Associates (Communication) Limited and represents the excess of the consideration over the fair value of the assets acquired. The purchased goodwill represents the cost of acquiring the customer bases of three smaller re-sellers. The other intangible asset relates to payments made to acquire the right to deliver telecom services to a particular group of customers.
Gamma Telecom Holdings Limited 21 10 Tangible fixed assets Group Network Computer Office Motor Fixtures assets equipment equipment vehicles and fittings Total Cost At 1 January 2005 7,653,983 1,885,231 88,167 9,000 161,824 9,798,205 Additions 5,556,408 641,910 6,932 31,500 102,637 6,339,387 Assets under construction 42,400 - - - - 42,400 Disposals (16,250) - - (6,000) - (22,250) ---------------------------------------------- ---------------------------------------------- ------------------------------------ ------------------------------------ ------------------------------------ ---------------------------------------------- At 31 December 2005 13,236,541 2,527,141 95,099 34,500 264,461 16,157,742 Depreciation At 1 January 2005 1,214,913 768,903 34,163 6,000 33,111 2,057,090 Charge for the year 2,424,117 559,883 23,102 6,500 37,296 3,050,898 On disposals (948) - - (4,500) - (5,448) ---------------------------------------------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ---------------------------------------------- At 31 December 2005 3,638,082 1,328,786 57,265 8,000 70,407 5,102,540 Net book value At 31 December 2005 9,598,459 1,198,355 37,834 26,500 194,054 11,055,202 At 31 December 2004 6,439,070 1,116,328 54,004 3,000 128,713 7,741,115
Gamma Telecom Holdings Limited 22 10 Tangible fixed assets (continued) Company Network Computer Fixtures & Motor Office assets equipment fittings vehicles equipment Total Cost At 1 January 2005 7,653,983 1,005,359 107,359 9,000 39,556 8,815,257 Additions 5,556,408 306,374 70,066 31,500-5,964,348 Assets under construction 42,400 - - - - 42,400 Disposals (16,250) - - (6,000) - (22,250) ---------------------------------------------- ---------------------------------------------- ------------------------------------ ------------------------------------ ------------------------------------ ---------------------------------------------- At 31 December 2005 13,236,541 1,311,733 177,425 34,500 39,556 14,799,755 Depreciation At 1 January 2005 1,214,911 368,663 12,449 6,000 17,434 1,619,457 Charge for the year 2,424,117 288,751 24,269 6,500 9,889 2,753,526 On disposals (948) - - (4,500) - (5,448) ---------------------------------------------- ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ---------------------------------------------- At 31 December 2005 3,638,080 657,414 36,718 8,000 27,323 4,367,535 Net book value At 31 December 2005 9,598,461 654,319 140,707 26,500 12,233 10,432,220 At 31 December 2004 6,439,072 636,696 94,910 3,000 22,122 7,195,800 11 Investments The company Shares in group undertakings Cost At 1 January 2005 and 31 December 2005 10,759,369 Net book value At 31 December 2005 and 31 December 2004 10,759,369
Gamma Telecom Holdings Limited 23 11 Investments (continued) At 31 December 2005 the company held 100% of the share capital of the following subsidiaries, all incorporated in the United Kingdom: Class of share capital Proportion held by the parent company Nature of business Gamma Telecoms Limited Ordinary 100% Telephony services Gamma Metronet Limited Ordinary 100% Supply and installation of telecoms access Uni World Communications Limited Ordinary 100% Retail telephony services Gamma Value Limited Ordinary 100% Dormant During the course of the year, Andrew Charles Associates (Communications) Limited and Gamma Telecommunications Limited were struck off. At 31 December 2005, Uniworld held 100% of the share capital of the following subsidiary, incorporated in the United Kingdom: Class of share capital Proportion held by the parent company Nature of business Go Worldwide Communications Limited Ordinary 100% Retail telephony services 12 Stocks The group and the company Network spares 30,678 30,678
Gamma Telecom Holdings Limited 24 13 Debtors The group The company Trade debtors 14,510,444 9,697,297 56,846 51,772 Amounts owed by group undertakings - 2,964,020 5,372,767 Other debtors 2,221,287 689,320 412,327 88,491 Tax recoverable - 74,468 - Prepayments and accrued income 3,019,563 2,825,314 1,101,610 558,640 --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- 19,751,294 13,286,399 4,534,803 6,071,670 Included in the above company figures are 2,964,020 (2004: 5,372,767) of debtors falling due after more than one year. 14 Creditors: amounts falling due within one year The group The company Trade creditors 10,324,433 6,794,972 7,616,415 5,025,972 Corporation tax 51,807 - Taxation and social security 238,201 449,158 182,930 380,099 Invoice discounting facility 12,739,548 4,961,138 - Other creditors 931,750 1,240,503 385 31,158 Accruals and deferred income 8,176,088 4,954,610 6,751,007 4,338,918 --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- 32,461,827 18,400,381 14,550,737 9,776,147 The invoice discounting facility is secured over the book debts of the group excluding Uni World Communications Limited and is repayable in full with a three month notice period by either party.
Gamma Telecom Holdings Limited 25 15 Creditors: amounts falling due after more than one year The group The company Other creditors - 175,000-16 Commitments under operating leases At 31 December 2005 the group had annual commitments under non-cancellable operating leases as set out below. Land and buildings Other Land and Buildings Other In one year or less 75,562 3,871 28,450 1,564 Between one and five years 579,425 26,300 458,236 45,744 In five years or more 206,243-288,011 ------------------------------------- ------------------------------------- -------------------------------------- --------------------------------------- 861,230 30,171 774,697 47,308
Gamma Telecom Holdings Limited 26 17 Share capital Authorised share capital: 27,500,000 Ordinary shares of 1p each 275,000 275,000 Allotted, called up and fully paid: No No Ordinary shares of 1p each 22,540,910 225,409 22,540,910 225,409 Total share options in issue in the year were as follows: Options over 18,000 shares at 3.25 per share were granted on 17 December 2002 and are exercisable between the date of grant and 16 December 2012. Further options over 25,000 shares at 3.25 were granted on 17 December 2002 and vest equally over 3 years on condition that the employees remain with the company for the three year period. During 2003, options over 517,351 shares at 2.50 were granted on 29 August 2003. These options vested immediately and are exercisable between the date of grant and 28 August 2013. Options over 75,000 shares at 2.50 were granted on 9 December 2003. These options vest equally over 3 years on condition that the employees remain with the company for the three year period. They are exercisable between 30 April 2004 and 8 December 2013. Options over 100,000 shares at 3.00 per share were granted on 23 December 2004 which vested immediately. These are exercisable between the date of grant and 22 December 2014. On 23 December 2004 options over 50,000 shares at 3.00 were granted and vest equally over 3 years on condition that the employees remain with the company for the three year period. These options are exercisable between the date of grant and 22 December 2014. On 23 December 2004 options over 125,000 shares at 3.00 were granted and vest equally over 3 years on condition that the employees remain with the company for the three year period. These options are exercisable between the 31 December 2005 and 22 December 2014. On 5 May 2005 options over 175,000 shares at 2.00 were granted and vest equally over 3 years on condition that the employees remain with the company for the three year period. These options are exercisable between the 31 December 2005 and 4 May 2015. On 6 September 2005 options over 75,000 shares at 2.50 were granted and vest equally over 3 years on condition that the employees remain with the company for the three year period. These options are exercisable between the date of grant and 5 September 2015. On 6 September 2005 options over a further 18,000 shares at 2.50 were granted which vested immediately. These options are exercisable between the date of grant and 5 September 2015. On 30 September 2005 options over 50,000 shares at 2.50 were granted and vest equally over 3 years on condition that the employees remain with the company for the three year period. These options are exercisable between the date of grant and 29 September 2015. During the course of the year, options over 18,000 shares were cancelled.
Gamma Telecom Holdings Limited 27 18 Reserves Group Share premium Profit and loss account account At 1 January 2005 26,397,094 (7,398,363) Retained profit for the year 765,374 --------------------------------------------------- ---------------------------------------------- At 31 December 2005 26,397,094 (6,632,989) Company Share premium Profit and loss account account At 1 January 2005 26,397,094 (10,964,974) Loss transferred from reserves (3,534,741) --------------------------------------------------- ---------------------------------------------- At 31 December 2005 26,397,094 (14,499,715) 19 Reconciliation of shareholders' funds and movements on reserves The group Profit for the financial year 765,374 219,082 New equity share capital subscribed - 30,909 Premium on new share capital subscribed - 8,469,094 ---------------------------------------------- ------------------------------------ Net addition to shareholders' equity funds 765,374 8,719,085 Opening shareholders' equity funds 19,224,140 10,505,055 --------------------------------------------------- --------------------------------------------------- Closing shareholders' equity funds 19,989,514 19,224,140
Gamma Telecom Holdings Limited 28 20 Notes to the statement of cash flows Reconciliation of operating profit to net cash inflow from operating activities Operating profit 1,036,376 445,031 Depreciation and amortisation 4,407,659 1,961,604 (Increases)/decrease in stocks - 63,000 Increase in debtors (6,359,355) (2,402,074) Increase in creditors 5,823,286 2,523,683 ------------------------------------------------- --------------------------------------------------- Net cash inflow from operating activities 4,907,966 2,591,244 Returns on investments and servicing of finance Interest received 47,935 69,914 Interest paid (319,247) (295,863) ------------------------------------ ------------------------------------ Net cash outflow from returns on investments and servicing of finance (271,312) (225,949) Taxation Taxation - (93,525) Capital expenditure and financial investment Payments to acquire intangible fixed assets - (1,121,290) Payments to acquire tangible fixed assets (6,381,787) (2,685,069) Receipts from sale of fixed assets 16,802 4,759 --------------------------------------------------- ---------------------------------------------- Net cash outflow for capital expenditure and financial investment (6,364,985) (3,801,600) Acquisitions and disposals Purchase of subsidiary (447,925) (10,411,771) Payments to acquire customer lists (1,618,152) - Net cash from purchase of business 119,196 1,646,300 --------------------------------------------------- ---------------------------------------------- Net cash outflow from acquisition of subsidiary (1,946,881) (8,765,471)
Gamma Telecom Holdings Limited 29 20 Notes to the statement of cash flows (continued) Financing Issue of equity share capital - 8,500,003 Invoice discounting facility advanced in the year 7,778,410 4,961,138 Repayment of long-term loans - (2,919,990) --------------------------------------------------- --------------------------------------------------- Net cash inflow from financing 7,778,410 10,541,151 Reconciliation of net cash flow to movement in net funds Increase in cash in the period 4,103,198 245,850 Cash (inflow) from increase in debt (7,778,410) (2,041,148) --------------------------------------------------- --------------------------------------------------- Change in net funds from cash flows (3,675,212) (1,795,298) Net funds at 1 January 2005 809,055 2,604,353 ---------------------------------------------- ---------------------------------------------- Net (debt)/ funds at 31 December 2005 (2,866,157) 809,055 Analysis of changes in net funds At Net At 1 Jan 2005 Cash flows 31 Dec 2005 Net cash: Cash in hand and at bank 5,770,193 4,103,198 9,873,391 Debt: Loans due within one year (4,961,138) (7,778,410) (12,739,548) --------------------------------------------------- --------------------------------------------------- ---------------------------------------------- Net funds/(debt) 809,055 (3,675,212) (2,866,157)
Gamma Telecom Holdings Limited 30 21 Acquisitions On 21 December 2005 the group acquired 100 ordinary shares of 1 each in the name of Go Worldwide Communications Limited ("Go"), being 100% of its nominal share capital for a consideration of 447,925 satisfied in full by cash. This acquisition was made by Uni World Communications Limited ("Uniworld") a 100% subsidiary of Gamma Telecom Holdings Limited. Goodwill arising on the acquisition of Go Worldwide Communications Limited has been capitalised. The purchase has been accounted for by the acquisition method of accounting. The trade attributable to this company between the date of acquisition and the 31 December 2005 is not material to the group's results and has therefore been excluded. The assets and liabilities of Go Worldwide Communications acquired were as follows: Total Book value and fair value Current assets: Debtors 105,540 Bank and cash 119,196 Creditors (142,446) --------------------------------------------------- Net current assets 82,290 --------------------------------------------------- Consideration 590,539 --------------------------------------------------- Purchased goodwill capitalised 508,249 Satisfied by: Cash 447,925 Deferred consideration 142,614 --------------------------------------------- 590,539 Analysis of net outflow of cash in respect of the purchase of the subsidiary undertakings: Cash at bank and in hand acquired 119,196 Cash consideration (447,925) --------------------------------------------------- (328,729) 2005
Gamma Telecom Holdings Limited 31 22 Contingent liabilities The group and the company had no contingent liabilities at 31 December 2005 or at 31 December 2004. 23 Capital commitments The group and the company had capital commitments of 1,932,000 at 31 December 2005 (2004: nil). 24 Pension costs Defined contribution scheme The group operates a defined contribution pension scheme for the benefit of its employees. The assets of the scheme are administered by trustees in a fund independent from those of the group. The pension costs charged in the period amounted to 120,495 (2004: 119,883). 25 Post balance sheet events On 17 February 2006 the group acquired 100% of the issued share capital of Blue Spot Technologies Limited for consideration of 393,638. This acquisition was made by the subsidiary company Uni World Communications Limited.