Annual Report and Accounts 2006 - Optos

Notes to the Consolidated Financial Statements
continued
No other features of options granted were incorporated into the measurement of fair value.
Other options and warrants falling outside the scope of IFRS2 comprise:
A warrant instrument dated 17 December 1999 which entitled TBCC Funding Trust II to subscribe for up to 114,476 ordinary shares at a price of £1.30 per share in the
event of a sale of the Company or its admission to a recognised stock exchange prior to 22 December 2006. This warrant was not exercised during the year and has
since lapsed.
Two option agreements dated 17 May 2002, under which Brewin Dolphin Securities Limited had options to subscribe for up to 10,500 ordinary shares at a price of £0.80 per
share in the event of a sale of the Company or its admission to a recognised stock exchange prior to 17 May 2009. These options were exercised during the year.
An option and warrant agreement dated 26 July 2002, under which Amadeus II ‘‘A’’, Amadeus II ‘‘B’’, Amadeus II ‘‘C’’, Amadeus II Affiliates LLP and Amadeus II ‘‘D’’ GmbH
& Co. KG had the right to subscribe for 557,797 ordinary shares at a price of £1.00 per share upon the earlier of 31 December 2007 and either a sale of the Company or its
admission to a recognised stock exchange. This option and warrant agreement was exercised during the year.
21 RELATED PARTY TRANSACTIONS
During the year to 30 September 2006, purchases totalling $92,472 (2005: $391,000) at normal market prices were made by Group companies from Crombie Anderson
Limited, of which the D C Anderson is a Director and controlling shareholder, of which $Nil was outstanding at 30 September 2006 (2005: $19,000). No guarantees have
been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
Compensation of key management personnel
2006 2005
$’000 $’000
Short-term employee benefits 2,471 1,828
Post-employment benefits 100 109
Share-based payments 1,301 614
Termination benefits 643 –
4,515 2,551
22 FINANCIAL INSTRUMENTS
The Group’s principal financial instruments comprise bank overdrafts, short-term debt, loans and cash.
The main purpose of these financial instruments is to manage the Group’s funding and liquidity requirements. The Group has other financial instruments, such as
trade receivables and trade payables, which arise directly from its operations. The principal financial risks to which the Group is exposed are those relating to foreign
currency, credit, liquidity and interest rate.
Foreign currency risk
The Group has invested in overseas operations and also buys and sells goods and services in currencies other than in the functional currency of its relevant operations.
As a result, the Group’s non-US dollar revenues, profits, assets, liabilities and cash flows can be affected by movements in exchange rates.
The Group monitors its foreign currency exposure and, when deemed necessary by the Board, seeks to minimise its transaction exposure by using forward foreign
currency contracts to eliminate exposures on any committed significant transactions. The Board has determined that it was not necessary to use forward foreign
currency contracts in 2006. It is Group policy not to engage in any speculative transaction of any kind.
Credit risk
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The Group’s
credit risk is primarily attributable to its trade receivables.
The Group is exposed to risk over a large number of customers and there is no significant concentration of risk. Creditworthiness checks are undertaken before
entering into contracts with new customers and credit limits are set as appropriate. The amounts presented in the balance sheet are net of allowance for doubtful
receivables. An allowance for impairment is made where there is an identifiable loss event which, based on previous experience, is evidence of a reduction in the
recoverability of cash flows.
Liquidity risk
The Group aims to mitigate its liquidity risk by managing its cash resources and improving its credit rating to facilitate effective fund-raising. The Group’s funding
objective is to maintain continuity of funding and flexibility through the use of finance leases. Excess cash is placed on short-term interest-bearing deposit accounts.
Interest rate risk
The majority of the Group’s borrowings are at fixed rates of interest. Excess cash is placed on short-term interest-bearing deposit accounts.
Interest rate risk is regularly monitored to ensure that the mix of variable and fixed rate borrowing is appropriate for the Group in the short to medium term. Based on
current levels of net debt, interest rate risk is not considered to be material. The associated cash flow risk, which can have a negative impact on the Group if interest
rates decrease as well as a positive impact if interest rates increase, is also not considered to be material.
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Optos plc Annual Report & Accounts 2006