Annual Report and Accounts 2006 - Optos

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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. 58 Optos plc Annual Report & Accounts 2006
Notes to the Consolidated Financial Statements continued Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments. Carrying Amount Fair Value Carrying Amount Fair Value 2006 2006 2005 2005 $’000 $’000 $’000 $’000 Financial assets Cash 36,152 36,152 2,163 2,163 Financial liabilities Bank overdraft – – (6,853) (6,853) Obligations under finance leases (81,160) (80,079) (76,083) (74,618) Fixed rate borrowing – – (8,814) (8,814) Floating rate borrowing (1,763) (2,204) The fair value of items has been calculated by discounting the expected future cash flows at prevailing interest rates, or in the case of convertible debt, by reference to the value of an ordinary share. The carrying amounts of all other financial instruments of the Group, ie short-term trade receivables and payables that are not included in the above table, is a reasonable approximation of fair value. The carrying amount recorded in the balance sheet of each financial asset represents the Group’s maximum exposure to credit risk. Interest rate risk profile of financial assets and liabilities The following tables set out the carrying amount, by maturity, of the Group’s financial instruments that are exposed to interest rate risk: Year ended 30 September 2006 Within 1-2 2-3 1 Year Years Years Total $’000 $’000 $’000 $’000 Fixed rate Obligations under finance leases (45,649) (26,843) (8,668) (81,160) Floating rate Cash 36,152 – – 36,152 Year ended 30 September 2005 Within 1-2 2-3 1 year years years Total $’000 $’000 $’000 ‘$000 Fixed rate Obligations under finance leases (1) (36,365) (31,790) (7,928) (76,083) Unsecured loan stock (3) – (8,814) (8,814) Floating rate Cash (2) 2,163 – – 2,163 Bank overdraft (3) (6,853) – – (6,853) Secured loan stock (3) – (1,763) – (1,763) (1) Includes $4,446,000, $626,000 and $356,000 denominated in $Canadian, Euro and GBPounds respectively. (2) Includes $316,000 and $325,000 denominated in $Canadian and Euro respectively. (3) Denominated in GBPounds. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. The other financial instruments of the Group that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. Optos plc Annual Report & Accounts 2006 59
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Highlights Year ended Year ended
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Annual Report and Accounts 2006 - Optos

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