Foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial information is presented in Euro, which is Vedior’s functional and presentation currency.
In preparing the financial statements of individual entities, transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Euro at the foreign exchange rate ruling at that date. Non-monetary items that are measured in terms of historical cost in foreign currency are not retranslated. Foreign exchange differences arising on translation are recognised in the income statement except for exchange differences on transactions entered into in order to hedge certain foreign currency risks (see hedging). Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur are recognised in equity and recognised in profit and loss on disposal of the investment.
For the purpose of presenting consolidated financial statements, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Euro at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Euro at rates approximating to the foreign exchange rates ruling at the dates of the transaction, being the monthly average exchange rate. The resulting translation adjustments are recorded as exchange differences within equity.
Property and equipment Property and equipment is measured at cost, less accumulated depreciation and any impairment losses. Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items.
Leases under the terms of which the Group assumed substantially all risks and rewards of ownership are classified as finance leases.
Depreciation is calculated by the straight-line method on the basis of the expected useful life, except for land which is not depreciated. The following annual depreciation rates are used:
| Business buildings |
3 -5% |
| Fixtures, fittings and furniture |
10-33% |
| Computer hardware |
20-33% |
| Other property and equipment |
15-33% |
Intangible assets For intangible assets acquired in a business combination see ‘Business combinations’. Self developed and acquired software, not being an integral part of the related computer hardware is classified as an intangible asset. Costs of development, including direct costs and directly attributable overhead costs incurred are capitalised. Provisions are made for impairment if the recoverable amount falls below the book value.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful life of the software which is 3-7 years.
Investments in associates An associate is an entity that is not a subsidiairy over which Vedior has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not (joint) control over those policies. Associates are accounted for using the equity method.
Goodwill also arises from the acquisition of associates and represents any excess of the cost of acquisition over the share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition. The goodwill arising on associates is included in the carrying amount and is assessed for impairment as part of the investment.
Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. These assets are carried at amortised cost. Non-interest bearing loans and receivables are carried at amortised cost, which represents the net present value determined using the effective interest method.
Deferred taxes Deferred tax assets and liabilities arising from taxable or deductible temporary differences between the value of assets and liabilities for financial reporting purposes and for tax purposes are stated at nominal value and are calculated on the basis of corporate income tax rates ruling at the balance sheet date. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which these assets can be utilised. Deferred tax assets and liabilities with the same terms and relating to the same fiscal entities are set off against each other.
Trade and other receivables Receivables are initially recognised at fair value, and subsequently measured at amortised cost less provision for impairment.
Cash and cash equivalents Cash and cash equivalents comprise cash on hand and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
When Vedior purchases its own equity share capital, the consideration paid is deducted from equity. Where such shares are subsequently sold or reissued, any consideration received is included in equity attributable to the Company’s equity holders.
Preference share capital is classified as equity if it is non-redeemable and any dividends are discretionary, or is redeemable but only at the Company’s option. Dividends on preference share capital classified as equity are recognised as distributions within equity.
Dividends are recognised as a liability in the period in which they are approved by the Annual General Meeting of shareholders.
Interest-bearing borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the fair value and the settlement or redemption of borrowings is recognised over the term of the borrowings.
Borrowings are classified as current liabilities unless Vedior has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Employee benefits Defined contribution plans Obligations for contributions to pension plans are recognised as an expense in the income statement as incurred.
Defined benefit plans The Group’s obligation in respect of defined benefit plans is based on an estimate of the amount of future benefits that employees have earned through their services rendered in current and prior periods. The benefit is discounted to determine its present value. The fair value of plan assets is deducted to determine the net liability.
The discount rate used to determine the present value of future benefits is the iBoxx 10 year + AA Annual Yield All Stock Corporate Index.
The obligation is calculated by a qualified actuary using the projected unit credit method.
Actuarial gains and losses that arise in calculating the Group’s obligation, to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of the plan assets are recognised in the income statement over the expected average remaining working lives of the employees participating in the plan.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. Vedior recognises these benefits in full once termination of the employment is irrevocably agreed.
Other long-term employee obligations
These employee benefits include long-service leave or other long service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation. Liabilities for other long-term employee benefits are recognised at present value using an accounting method similar to that for deferred pension plans less the fair value of any plan assets. Actuarial gains or losses are recognised in the income statement in the period they occur.
Share-based payment transactions
The share based payment plans of Vedior are Stock option plans, Restricted share plans and the Stock Purchase Plan allowing Group employees to acquire Bearer Depository Receipts (‘BDR’s’) of the Company. The fair value of share based payment plans is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the benefit. The fair value of the options granted is measured using a Black and Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of stock options that vest except where forfeiture is only due to share prices being lower than the exercise price. In addition Vedior grants Share Appreciation Rights with similar characteristics as the stock option plan to certain employees.
Provisions
Vedior recognises provisions for legal or constructive obligations as of the balance sheet date based on a past event, if it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount of the provision is the best estimate of the consideration required to settle the present obligation taking into account the risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash flows estimated to settle the obligation, its carrying amount is the present value of those cash flows and are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market rates and, where appropriate, the risk specific to the liability.
Provisions for restructuring cost are recognised when the Group has approved a formal restructuring plan and the restructuring has either commenced or has been announced publicly.
Sales The term ‘sales’ signifies revenue from services rendered. Sales are recognised at the fair value of the consideration received or receivable, less discounts and value added tax.
Sales from temporary and contract assignments are recognised when services are performed based on hours worked by the temporary worker. Permanent placement fees are recognised at the time the candidate commences employment. If the individual fails to continue in employment for a period of time specified in the placement agreement, generally a 14 to 90 day period, the Company is not entitled to collect the entire placement fee. Sales from permanent placements are included in the income statement net of estimated refunds based on historic experience due to placed candidates not remaining in employment with clients for the period required to collect a full fee.
Sales from the provision of managed services, where Vedior acts as a master vendor and is not primarily responsible for providing services to clients or has no credit risk relating to sales generated through sub-vendors, have been reported using the ‘net’ accounting method which only recognises the fee received on sales generated through sub-vendors.
Expenses Cost of sales
Cost of sales are the direct cost of services (temporary and contract personnel payroll, payroll taxes and related insurance) and are recognised in the same period as the related sales. Temporary and contract candidates are generally paid salary and benefits only for hours worked. A small proportion of contractors are also employed by the Company as permanent staff.
Operating expenses The major components of operating expenses are payroll costs of managers, sales consultants and administrative staff, lease costs of offices, utility costs, advertising and promotion expenditures, telecommunication and other IT costs, depreciation and amortisation.
Employee payroll expenses are both fixed and variable. The variable element consists of incentive compensation linked to performance including sales commission, profit sharing and bonus. The magnitude of certain variable payroll, communications, advertising and promotional expenses varies depending on the level of business activity. Other expenses, such as fixed payroll costs, office leases, utility costs and depreciation of property and equipment, do not depend directly on the level of sales activity.
Operating lease payments Payments made under operating lease are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.
Finance costs Finance costs comprise interest payable on borrowings, including the amortisation of the difference between the initial fair value and the settlement or redemption of loans and borrowings.
Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax represents the expected tax payable on the income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided for temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets and liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Measurement of deferred tax assets and liabilities is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities and by applying the tax rates enacted or substantially enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Provision is made for non refundable withholding taxes applicable in the event of a distribution of retained profits by foreign investments, to the extent that such distributions are expected to occur.