Form: 8-K/A

Current report filing

February 16, 2016

Exhibit 99.1

HG (Luxembourg) S.à r.l.

Annual Consolidated Financial Statements

For the year ended September 30, 2014

Contents

 

Report of independent auditors

     2   

Consolidated statement of comprehensive income

     3   

Consolidated statement of changes in equity

     4   

Consolidated statement of financial position

     5   

Consolidated statement of cash flows

     6   

Notes to the consolidated financial statements

     7 - 47   


LOGO  

KPMG LLP

1601 Market Street

Philadelphia, PA 19103-2499

Independent Auditors’ Report

The Board of Directors and Shareholders

HG (Luxembourg) S.a.r.l.:

We have audited the accompanying consolidated financial statements of HG (Luxembourg) S.a.r.l. and subsidiaries (the Group), which comprise the consolidated statements of financial position as of September 30, 2014 and 2013, and the related consolidated statement of comprehensive income, changes in equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of September 30, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

LOGO

Philadelphia, Pennsylvania

February 16, 2016

KPMG LLP is a Delaware limited liability partnership,

the U.S. member firm of KPMG International Cooperative

(“KPMG International”), a Swiss entity.


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

 

Consolidated statement of comprehensive income

for the year September 30, 2014

 

            2014     2013  
      Note      $‘000     $‘000  

Continuing operations

       

Group revenues

     18         532,945        510,746   

Cost of revenues

     23         (339,089     (339,739

 

 

Gross profit

        193,856        171,007   

General administrative expenses

     23         (174,045     (159,161

 

 

Profit from operations

        19,811        11,846   

Finance income

     24         702        531   

Finance costs

     24         (1,326     (1,989

 

 

Profit before taxation

        19,187        10,388   

Tax expense

     25         (11,197     (3,368

 

 

Profit for the year

        7,990        7,020   

 

 

Other comprehensive income:

       

Items that will not be reclassified to profit or loss:

       

Actuarial gain / (loss) relating to retirement benefit obligations

     15         (5,159     7,268   

Deferred tax attributable to actuarial gain / loss

     25         1,973        (2,817

Items that may be reclassified to profit or loss:

       

Exchange adjustments on foreign currency net investments

     2         844        (2,196

Other unrealized gains

     25         12        148   

 

 

Other comprehensive income / (loss) for the year, net of tax

        (2,330     2,403   

 

 

Total comprehensive income for the year

        5,660        9,423   

 

 

The statement of comprehensive income is required under International Accounting Standard No. 1, “Presentation of Financial Statements” (“IAS 1”). It is designed to show the extent to which shareholders’ funds have increased or decreased from all the gains and losses recognized throughout the year.

The notes are an integral part of these consolidated financial statements.

 

3


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

 

Consolidated statement of changes in equity

for the year September 30, 2014

 

      Note      Share capital
$‘000
     Cumulative
translation
reserve
$‘000
    Retained
earnings
$‘000
    Total
$‘000
 

Shareholders’ equity - 30 September 2012

        132         364        14,262        14,758   

Profit for the year

        —           —          7,020        7,020   

Exchange adjustments on foreign currency

     2         —           (2,196     —          (2,196

Actuarial gain relating to retirement benefit obligations

     15         —           —          7,268        7,268   

Movement on deferred tax attributable to actuarial movements

     25         —           —          (2,817     (2,817

Other unrealized gains

     25         —           —          148        148   

 

 

Total comprehensive income / (loss) for the period

        —           (2,196     11,619        9,423   

Loss on the redemption of equity certificates

        —           —          (1,344     (1,344

 

 

Shareholders’ equity - 30 September 2013

        132         (1,832     24,537        22,837   

Profit for the year

        —           —          7,990        7,990   

Exchange adjustments on foreign currency

     2         —           844        —          844   

Actuarial loss relating to retirement benefit obligation

     15         —           —          (5,159     (5,159

Movement on deferred tax attributable to actuarial movements

     25         —           —          1,973        1,973   

Other unrealized gains

     25         —           —          12        12   

 

 

Total comprehensive income for the period

        —           844        4,816        5,660   

Loss on the redemption of equity certificates

     10         —           —          (12,755     (12,755

 

 

Shareholders’ equity - 30 September 2014

        132         (988     16,598        15,742   

 

 

The notes are an integral part of these consolidated financial statements.

 

4


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

 

Consolidated statement of financial position

as of September 30, 2014

 

            2014     2013  
      Note      $‘000     $‘000  

Non-current assets:

       

Goodwill

     9         8,385        496   

Intangible assets

     9         13,951        2,665   

Property and equipment

     8         14,893        12,559   

Deferred tax assets

     25         33,777        32,554   

Other debtors

        4,715        3,744   

 

 

Total non-current assets

        75,721        52,018   

Current assets:

       

Cash and cash equivalents

     5, 6         48,774        59,395   

Trade and other receivables

     7         138,433        122,453   

Prepayments and other debtors

     2         9,720        10,379   

 

 

Total current assets

        196,927        192,227   

 

 

Total assets

        272,648        244,245   

Current liabilities

       

Finance leases

     11         241        356   

Trade and other payables

     12         40,310        37,446   

Accrued compensation

     13         58,393        52,351   

Deferred income

     2         73,224        64,384   

Due to related party - parent entity

     10         13,781        —     

Contingent consideration

     4         2,050        —     

Current tax liabilities

     25         1,657        6,629   

 

 

Total current liabilities

        189,656        161,166   

 

 

Net current assets

        7,271        31,061   

Non-current liabilities

       

Finance leases

     11         376        147   

Retirement benefit obligation

     15         27,126        21,947   

Non-current tax liabilities

     25         684        2,922   

Deferred tax liabilities

     25         3,325        575   

Accrued compensation

     2         12,517        11,162   

Due to related party - parent entity

     10         80        102   

Long term provision

     14         23,142        23,387   

 

 

Total non-current liabilities

        67,250        60,242   

 

 

Total liabilities

        256,906        221,408   

 

 

Net assets

        15,742        22,837   

 

 

Equity

       

Share capital

     16         132        132   

Cumulative translation reserve

     2         (988     (1,832

Retained earnings

        16,598        24,537   

 

 

Total equity shareholders’ funds

        15,742        22,837   

 

 

The notes are an integral part of these consolidated financial statements.

 

5


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

 

Consolidated statement of cash flows

for the year September 30, 2014

 

            2014     2013  
      Note      $‘000     $‘000  

Profit for the year

        7,990        7,020   

Adjustments for:

       

Tax expense

     25         11,197        3,368   

Finance costs

     24         1,326        1,989   

Finance income

     24         (702     (531

Depreciation of property and equipment

     8         5,369        5,224   

Amortization of intangible assets

     9         1,397        714   

Gain on disposal of property and equipment

     23         (297     (47

Increase / (decrease) in provisions

     14         (73     13,799   

 

 

Operating cash flows before movements in working capital

        26,207        31,536   

Increase in assets

        (22,656     (12,538

Increase / (decrease) in liabilities

        22,623        (3,275

 

 

Cash generated by operations

        26,174        15,723   

Income taxes paid

        (13,294     (9,172

 

 

Net cash inflow from operating activities

        12,880        6,551   

Cash flows from investing activities

       

Acquisition, net of cash acquired

        (12,985     —     

Interest received

     24         702        531   

Purchases of property and equipment

     8         (7,879     (5,440

Purchases of intangible assets

     9         (5,146     (1,648

Proceeds on the sale of tangible fixed assets

        358        312   

 

 

Net cash used in investment activities

        (24,950     (6,245

Cash flows from financing activities

       

Repayment of equity certificates to parent entity

     10         (13,101     (12,834

Increase in / (repayment of) borrowings with parent entity

     10         13,725        (226

Interest paid

     24         (382     (284

Payment of finance lease liability

     11         (461     (618

 

 

Net cash used in financing activities

        (219     (13,962

 

 

Net decrease in cash and cash equivalents

        (12,289     (13,656

Cash and cash equivalents at the beginning of the year

        59,395        74,317   

Effect of foreign exchange rate changes

        1,668        (1,266

 

 

Cash and cash equivalents at the end of the year

        48,774        59,395   

 

 

Purchases of property and equipment that are part of finance lease arrangements are non cash transactions. As such, property and equipment purchases of $633,000 (2013: $209,000) are excluded from the statement of cash flows.

The notes are an integral part of these consolidated financial statements.

 

6


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

1. Reporting entity

HG (Luxembourg) S.à r.l. (“HG Luxembourg”) is a limited liability company incorporated in Luxembourg. The address of the registered office is 412F, route d’Esch, L-1030, Luxembourg. The nature of HG Luxembourg’s operations and its principal activity are discussed in “Revenue Recognition.”

HG Luxembourg is a wholly owned subsidiary of HG (Bermuda) Limited, which is also the ultimate controlling party.

The 2014 annual consolidated financial statements have been approved by management and were authorized for issuance on February 16, 2015.

2. Significant accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements.

Basis of consolidation and presentation

The consolidated financial statements of HG Luxembourg have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The consolidated financial statements include HG Luxembourg and its subsidiaries (collectively, the “Group” or the “Company”) at September 30, 2014 and 2013 and for the years ended September 30, 2014 and 2013. The consolidated financial statements have been prepared using the U.S. Dollar as the presentational currency of the consolidated group. Unless stated, all figures are disclosed in US dollars. Management believes that this is appropriate on the basis that this is what is required by the principal stakeholders, specifically, the shareholder of the Company and the banks that provide the Company’s principal credit facilities. Moreover, the United States represents the largest single country market for the Company and is the jurisdiction in which the largest amount of taxes are paid. Figures disclosed in thousands of USD ($‘000) are rounded and may result in differences compared to the unrounded figures.

A subsidiary is an entity that is controlled by another entity, known as the parent. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are consolidated from and up to the date of change of control. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. The consolidated financial statements are prepared under the historical cost convention, except for certain financial instruments which are measured at fair value. All significant intercompany transactions and balances between Group entities are eliminated in consolidation. The acquisition method of accounting has been adopted. The balances of the companies included in the consolidation were as of the reporting date of the Group financial statements on the basis of uniform accounting policies.

As HG Luxembourg does not have any operations, its obligations are funded by its subsidiaries. Due to the profitability and cash flows of the subsidiaries, management has a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, management continues to adopt the going concern basis in preparing the annual financial report.

 

7


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

2. Significant accounting policies (continued)

 

Standards and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

IAS 28 (Revised) Investments in Associates and Joint Ventures provides guidance on the requirements for the application of the equity method when accounting for investments in associates and joint ventures. It is effective for accounting periods beginning on or after January 1, 2014. This is not expected to have a significant impact on the Group.

IAS 32 (Amended) Financial Instruments: Presentation clarifies the requirements for offsetting financial assets and financial liabilities on the statement of financial position. It is effective for accounting periods beginning on or after January 1, 2014. This is not expected to have a significant impact on the Group.

IAS 36 (Amended) Impairment of Assets changes the disclosure requirements for the impairment of assets when the recoverable amount is determined based on fair value less costs of disposal. It is effective for accounting periods beginning on or after January 1, 2014. This is not expected to have a significant impact on the Group.

IAS 39 (Amended) Financial Instruments: Recognition and Measurement requires an entity to discontinue hedge accounting for a derivative that has been designated as a hedging instrument where the derivative is novated to a central counterparty. It is effective for accounting periods beginning on or after January 1, 2014. This is not expected to have a significant impact on the Group.

IFRS 10 Consolidated Financial Statements replaces all of the guidance on control and consolidation in IAS 27 Separate Financial Statements and changes the definition of control so that the same criteria to determine control are applied by all entities. It is effective for accounting periods beginning on or after January 1, 2013. This is not expected to have a significant impact on the Group.

IFRS 11 Joint Arrangements establishes the principles for financial reporting by entities involved in joint arrangements. It is effective for accounting periods beginning on or after January 1, 2013. This is not expected to have a significant impact on the Group.

IFRS 12 Disclosure of Interests in Other Entities requires entities to disclose information that helps the users of the financial statements to evaluate the nature, risk and financial effects associated with the entity’s interests in subsidiaries, associates and joint arrangements. It is effective for accounting periods beginning on or after January 1, 2013.This is not expected to have a significant impact on the Group.

IFRIC 21 Levies establishes the principles on recognizing liabilities from a government imposed levy. It is effective for accounting periods beginning on or after January 1, 2014. This is not expected to have a significant impact on the Group.

IFRS 15 Revenue from Contracts with Customers establishes the principles for reporting useful information arising from a contract with a customer. It is effective for accounting periods beginning on or after January 1, 2017. This is not expected to have a significant impact on the Group.

 

8


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

2. Significant accounting policies (continued)

 

Translation of foreign currencies

Companies

Transactions in foreign currencies are recorded at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rate ruling at the reporting date. All differences are taken to profit and loss.

Group

For the purposes of consolidation, the closing rate method is used. The statements of financial position of foreign subsidiaries are translated at the exchange rate ruling at the reporting date. The profit and loss accounts of foreign subsidiaries are translated at the average rates of exchange during the year. All differences are recognized directly in the cumulative translation reserve account, except in the case of hyperinflationary countries, where the differences are recorded in the consolidated statement of comprehensive income.

Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Cash and cash equivalents, trade and other receivables and other debtors are presented as financial assets. Trade and other payables and finance lease obligations are presented as financial liabilities.

All financial assets and liabilities may be designated, upon initial recognition, at fair value through profit or loss if they fulfill the requirements in IAS 39 (fair value option). This option has not been exercised to date.

Financial assets

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, receivables are measured at amortized cost less any impairment losses.

Fair value of financial assets and liabilities

Where the fair value of financial assets and liabilities is disclosed or stated, it is generally derived from the market or stock exchange value. In the absence of an active market, the fair value is determined according to recognized methods of financial modeling.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and demand deposits as well as financial assets that are readily convertible to cash and which are only subject to an insignificant risk of change in value.

The statement of cash flows has been prepared using the indirect method. The cash items presented in the statement of cash flows are comprised of cash and cash equivalents. Cash flows denominated in foreign currencies have been translated at average estimated exchange rates. Exchange differences affecting cash items are shown separately in the cash flow statement. Interest paid and received and income taxes paid are separately presented. Transactions not resulting in inflow or outflow of cash, including capital additions relating to finance leases, are not recognized in the statement of cash flows, but are separately disclosed as non-cash transactions.

 

9


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

2. Significant accounting policies (continued)

 

Trade receivables

Trade receivables are recognized based on the nature of the service provided and the terms of the contract. A provision for uncollectable trade receivables is established to the extent that recovery of receivables is uncertain. When a trade receivable is determined to be uncollectable it is written off, first against any provision available and then to the consolidated statement of comprehensive income. Subsequent recoveries of amounts previously provided for are credited to the consolidated statement of comprehensive income.

Prepayments

Prepayments consist of advances paid for rent, insurance, maintenance contracts and other expenses.

Property and equipment

Property and equipment include fixtures, fittings, office equipment, computer equipment and leasehold improvements, which are stated at cost less depreciation. These assets are depreciated using the straight-line method over the following useful economic lives:

 

Fixtures, fittings and office equipment

     3-8 years   

Computer equipment

     3-5 years   

Leasehold improvements are depreciated over the lesser of the lease term or the useful economic life of the asset. Upon disposal of tangible assets, the cost and accumulated depreciation and impairments are removed from the financial statements and the net amount, less any proceeds, is taken to the consolidated statement of comprehensive income.

Goodwill

Goodwill, representing the difference between the fair value of the purchase consideration for any business and the fair value of the identifiable net assets acquired, is recognized as a residual. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets and liabilities exceeds the cost of the business acquired, the excess is recognized as a gain on a bargain purchase after a reassessment of the appropriateness of all the assets acquired and the liabilities assumed. Goodwill is tested annually for impairment or when there is an indication of impairment at the cash generating unit level to which the goodwill pertains. An impairment loss recognized for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Intangible assets

Intangible assets (e.g. trade names, certain proprietary methods and other similar rights) acquired as part of a business combination are stated at their fair value at the date of acquisition, as determined by a valuation undertaken by an outside expert, and are amortized over their useful economic lives. Algorithms, customer relationships, and other intangible assets have stated economic lives that range from three to nine years. Trademarks and tradenames are currently assessed as having indefinite economic lives because there is presently no foreseeable limit to the period of time over which they are expected to contribute cash flows. Management establishes the useful economic lives with regard to the nature of the individual asset. Purchased computer software licenses are capitalized as intangible assets on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortized over their estimated useful lives, which do not exceed three years. Costs associated with developing software are capitalized as intangible assets when they are separable or arise from contractual or other legal rights. Costs associated with maintaining computer software programs are recognized as an expense as incurred.

Impairment of tangible and intangible assets

Assets that have an indefinite useful life are not amortized but are subject to impairment testing annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that have a finite life and are amortized are also tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds its recoverable amount.

 

10


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

2. Significant accounting policies (continued)

 

Trade payables

Trade payables are initially recognized at fair value and thereafter are measured at amortized cost.

Provisions

Provisions for restructuring costs and legal claims are recognized when: the Group has a present legal or constructive obligation as a result of past events; it is probable that a transfer of economic benefits will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognized for future operating losses.

Provisions are measured at the present value of the amount expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the obligation.

Short-term and long-term accrued compensation

Short-term accrued compensation liabilities are accounted for under International Accounting Standards No. 19, “Employee Benefits” (“IAS 19”) representing short-term employee benefits and are measured at the amount of benefits expected to be paid.

Long-term accrued compensation liabilities are accounted for under IAS 19 and recognized when: the Group has a present or constructive obligation to compensate employees as a result of voluntary or involuntary termination of employment. The liabilities are measured based on plan rules, which require consideration for salary, time spent with the Company and average turnover of employees. The increase in the liability due to the passage of time is recognized as interest expense.

Retirement benefits

Defined benefit plans

Liabilities for defined benefit plans are calculated using the projected unit credit method as required by IAS 19. The amounts charged to profit from operations are the current service costs and gains and losses on settlements and curtailments. Past service costs are recognized immediately in the profit and loss account if the benefits have vested. If the benefits have not vested immediately, the costs are recognized over the period in which the vesting occurs. The interest costs and expected return on assets are presented as finance costs. Actuarial gains and losses are recognized immediately in other comprehensive income and will never be reclassified into profit or loss.

Defined contribution plans

For defined contribution plans the amount charged to the profit and loss account in respect of pension costs and other post-retirement benefits is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either liabilities or prepayments in the statement of financial position.

Preferred equity certificates (PECs)

PECs are classified as financial liabilities and are accounted for at amortized cost. The holder of the PECs is entitled to receive a return on the PECs at a stated interest rate. Redemption of the PECs is at a fixed date at a redemption price equal to the sum of the par value for each outstanding PEC and the unpaid accrued interest, if any, on each outstanding PEC. Accrued interest is recognized in the statement of comprehensive income / loss, and shall be payable only if and to the extent declared by management that (i) the Company will not be insolvent after making such payment, (ii) such payment is made out of legally available funds, and (iii) that the funds used for the payment are not necessary to pay or provide reasonable reserves for the future payment of Company obligations.

 

11


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

2. Significant accounting policies (continued)

 

Convertible preferred equity certificates (CPECs)

CPECs are classified as financial liabilities, accounted for at par value, and are repayable upon demand. At the option of the holder and upon consent of management they can be convertible into a number of the Company’s ordinary shares determined by dividing the par value of such CPEC by the conversion price. In the event of redemption of CPECs above par value, the excess is charged directly to equity as dividends. Redemptions shall be payable only if and to the extent declared by management that (i) the Company will not be insolvent after making such payment, (ii) such payment is made out of legally available funds, and (iii) that the funds used for the payment are not necessary to pay or provide reasonable reserves for the future payment of Company obligations.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for services provided to third parties in the normal course of business. Revenue for services is recognized when the service has been provided and the right to consideration has been earned. When a service has been provided, but no billings made, the amount of the receivable is estimated and recognized as work in progress. The estimate is based on the nature of the services performed and the terms of the contract.

Management consulting services

Revenue is derived from the provision of management consulting services and represents the billing value of time spent on projects that is chargeable to clients. Revenue is accrued as work in progress as services are rendered. Prebilled revenue is deferred until such time as services are rendered.

Non-consulting revenues

Revenues derived from the provision of subscriber services are recognized monthly over the period of the subscription with a full month’s revenue recognized in the month when service starts. Revenues from the sale of reports are recognized at the time that the report is sold, unless the report is for later delivery, in which case recognition is deferred until delivery. Revenue is stated net of rechargeable expenses and sales or value added taxes.

Cost of revenues

Cost of revenues is comprised of direct labor, travel costs and report production costs.

General administrative expenses

General administrative expenses is comprised of infrastructure costs, the cost of management, corporate controlling, legal, accounting, consulting fees, marketing expenses and other overhead costs (including the amortization of intangible assets and depreciation of tangible assets).

Leases

Leases in which substantially all the risk and rewards of ownership are retained by the lessor and where the entity is the lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

The Group leases certain items of property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the commencement of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. In calculating the present value of the minimum lease payments, the discount rate used is the rate implicit in the lease agreement. Lease payments are apportioned between finance costs and the reduction of the outstanding lease liability. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term.

 

12


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

2. Significant accounting policies (continued)

 

Financial income and costs

Finance income comprises of interest income on cash and cash equivalents. Finance costs comprise of interest expense on borrowings (including facilities agreement), pension benefit obligations, and capital lease obligations.

Current and deferred income tax

The tax expense for the period comprises of current and deferred tax. Tax is recognized in profit or loss, except that a change attributable to an item of income or expense recognized as other comprehensive income is also recognized directly in other comprehensive income.

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income. As the majority of income taxes for the Group are paid in the United States, the reconciliation of the tax charge for the year in Note 25 is calculated using the applicable federal corporate income tax rate in the United States.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which such differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered in the foreseeable future.

Deferred tax is calculated at the tax rates which are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is credited to profit or loss, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is recorded in other comprehensive income.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they are related to income taxes levied by the same taxation authority and the Group intends to settle its current assets and liabilities on a net basis.

Dividend distribution

Dividend distribution to the Company’s shareholder is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s Board of Managers.

Related party

All legal entities that can be controlled, jointly controlled or significantly influenced are considered to be a related party. Also, entities which can control the Company are considered a related party. In addition, statutory directors and other key management and close relatives are regarded as related parties.

Significant transactions with related parties are disclosed in the notes.

Reclassifications

Certain comparative amounts have been reclassified to conform with the current year presentation.

 

13


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

3. Key sources of estimation uncertainty

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The preparation of the consolidated financial statements requires the development of estimates and judgments that affect the reported amounts of assets and liabilities, revenues and costs, and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. It is believed that the Group’s key sources of estimation uncertainty are those described below.

Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

Deferred tax assets

Deferred tax assets in respect of deductible temporary differences and tax loss carryforwards exceeding the deferred tax liabilities in respect of taxable temporary differences are recognized to the extent that it is probable that future taxable profit will be available to allow the deferred tax assets to be recovered.

Pension benefits

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of the pension obligations.

The discount rate assumption is used to determine the net cost (income) for pensions. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and have terms to maturity approximating the terms of the related pension liability.

Provisions

The Group is involved in litigation which requires judgment in terms of the provision being carried on the statement of financial position.

Work in Progress

Revenue and profit of fixed price contracts is recognized on a percentage-of-completion basis when the outcome of a contract can be estimated reliably. Management exercises judgment in determining whether a contract’s outcome can be estimated reliably. Management also makes estimates of the total cost of professional services, or in some instances total contract costs, which are used in determining the value of amounts recoverable on contracts. Estimates are continually revised based on changes in the facts relating to each contract.

 

14


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

4. Acquisition of business

On April 9, 2014 the Group acquired from Talent Q International, 100% of its online psychometric assessment, training and consulting business. The acquisition adds to the assessment services the Group offers clients as part of its people-related advisory services. It enables the Group to provide objective and actionable insights about applicants and employees at all levels in an organization.

In the six months from the acquisition date to September 30, 2014, Talent Q International contributed $3,163,000 of revenue and a loss of $1,256,000 to the Group’s results. Assuming that the acquisition took place on October 1, 2013, the amounts of consolidated revenue and loss included in the Group’s results, would have been approximately $537,253,000 and $6,303,000, respectively.

The major classes of assets acquired and liabilities assumed at the acquisition date are:

 

      $‘000  

Property and equipment

     50   

Intangible Assets

     8,222   

Trade and other receivables

     2,092   

Prepayments and other debtors

     548   

Cash and cash equivalents

     465   

Trade and other payables

     (1,742

Accrued compensation

     (660

Current tax liabilities

     (31

Deferred tax liabilities

     (1,895

 

 

Fair value of identifiable net assets

     7,049   

 

 

Trade and other receivables consist of contractual obligations of $2,325,000, of which $233,000 was expected to be uncollectible at the date of acquisition. A deferred tax benefit of $1,059,000 was recognized related to the valuation of the Group’s pre-acquisition deferred tax assets resulting from the recognition of deferred tax liabilities related to the amortizable intangible assets of Talent Q International.

The goodwill arising on acquisition is calculated as follows:

 

      $‘000  

Fair value of consideration transferred

     15,500   

Fair value of identifiable net assets

     7,049   

 

 

Goodwill

     8,451   

 

 

The consideration transferred consists of payments made in cash with some consideration remaining payable based on reaching a £7,200,000 revenue level at March 31, 2016, which appears to be likely at this point in time. Contingent consideration is recorded at a fair value of $2,050,000 in the contingent consideration line on the consolidated statement of financial position for which fair value remains unchanged as of September 30, 2014. The Group incurred acquisition related costs of $936,000. These costs include legal fees and due diligence costs and have been included in general administrative expenses.

The goodwill is attributable to the skills and technical talent of Talent Q International’s workforce, and the synergies expected to be achieved from integrating Talent Q into the Group’s business.

 

15


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

5. Financial instruments

The structure of financial instruments in the Group, the basis for their measurement in accordance with IAS 39 Financial Instruments and their reconciliation to the Group statement of financial position was as follows as of the reporting date:

Structure of financial assets and their measurement

 

IAS 39 amortized cost    2014
$‘000
     2013
$‘000
 

Trade and other receivables

     138,433         122,453   

Cash and cash equivalents

     48,774         59,395   

 

 
     187,207         181,848   

 

 

Structure of financial liabilities and their measurement

 

IAS 39 amortized cost    2014
$‘000
     2013
$‘000
 

Finance leases

     617         503   

Trade and other payables

     40,310         37,446   

Due to related party - parent entity

     13,861         102   

 

 
     54,788         38,051   

 

 

6. Financial risk management

Exposure to market risk

Market risk is the risk that changes in market conditions, such as foreign currency exchange rates and interest rates will affect the Group’s income or financial position. The most important foreign currencies for the Company and their relevant exchange rates to the US Dollar were as follows:

 

     2014      2013  
      Closing      Average      Closing      Average  

Sterling

     1.6213         1.6570         1.6185         1.5628   

Euro

     1.2632         1.3567         1.3526         1.3141   

Brazil Real

     0.4087         0.4381         0.4510         0.4772   

Canadian Dollar

     0.8932         0.9238         0.9703         0.9850   

Currency profile of financial assets at year end

 

      2014
$‘000
     2013
$‘000
 

US Dollar

     7,423         8,448   

Sterling

     1,741         1,161   

Euro

     5,985         12,570   

Brazil Real

     2,216         4,682   

Canadian Dollar

     3,188         5,455   

Other

     28,221         27,079   

 

 

Cash and cash equivalents

     48,774         59,395   

 

 

Cash restricted by lease commitments and performance bonds as of September 30, 2014 was $2,945,000 (2013: $2,794,000).

 

16


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

6. Financial risk management (continued)

Exposure to market risk (continued)

 

Currency profile of financial assets at year end (continued)

 

     

2014

$‘000

    

2013

$‘000

 

US Dollar

     35,308         32,216   

Sterling

     27,629         16,681   

Euro

     28,138         27,601   

Brazil Real

     9,404         9,420   

Canadian Dollar

     3,886         4,095   

Other

     34,068         32,440   

 

 

Trade and other receivables

     138,433         122,453   

 

 

Currency profile of financial liabilities at year end

 

     

2014

$‘000

    

2013

$‘000

 

US Dollar

     26,722         22,955   

Sterling

     13,583         7,516   

Euro

     21,677         20,873   

Brazil Real

     6,626         6,515   

Canadian Dollar

     2,477         2,870   

Other

     27,618         29,068   

 

 

Trade and other payables & accrued compensation

     98,703         89,797   

 

 

The Group’s trade payables are due within 1 year.

 

     

2014

$‘000

    

2013

$‘000

 

Euro

     80         102   

 

 

Due to related party - parent entity

     80         102   

 

 
      2014
$‘000
     2013
$‘000
 

US Dollar

     13,781         —     

 

 

Due to related party - parent entity

     13,781         —     

 

 

 

17


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

6. Financial risk management (continued)

Exposure to market risk (continued)

 

Sensitivity analysis

A 10% strengthening of the US Dollar against the following currencies at September 30, 2014 would have increased / (decreased) equity and profit or loss by the amounts shown below. The analysis assumes that all of the other variables remain constant. The analysis is performed on the same basis for 2013.

 

      Equity
$‘000
     Profit or loss
$‘000
 

2014

     

Sterling

     1,408         66   

Euro

     (3,127      (128

Brazil Real

     171         112   

Canadian Dollar

     365         40   

2013

     

Sterling

     1,276         1   

Euro

     (3,045      (1,075

Brazil Real

     197         312   

Canadian Dollar

     355         83   

Exposure to credit risk

Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations. This arises principally from the Group’s trade and other receivables balances. The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:

 

      2014
$‘000
     2013
$‘000
 

United States

     22,685         21,034   

Europe

     72,303         57,817   

Asia / Pacific / Africa

     24,683         24,535   

Latin America

     14,876         14,972   

Canada

     3,886         4,095   

 

 
     138,433         122,453   

 

 

The Group’s most significant client accounts for less than 1% of the trade receivables carrying amount at September 30, 2014 (2013: less than 1%). The aging of trade receivables at the reporting date was:

 

      2014
$‘000
     2013
$‘000
 

0 - 30 days

     73,531         59,039   

31 - 60 days

     17,585         16,632   

> 60 days

     16,630         16,166   

 

 
     107,746         91,837   

 

 

 

18


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

6. Financial risk management (continued)

 

Exposure to liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty delivering cash or another financial asset to meet the obligations associated with its financial liabilities. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its obligations when due without incurring losses or risking damage to the Group’s reputation. The Group does not have material external borrowings and all cash balances are maintained in highly liquid accounts. Therefore, the exposure related to liquidity or interest risks is not believed to be significant. The following are the contractual maturities of financial liabilities, including estimated interest payments as of September 30, 2014:

 

            Contractual cash flows  
      Carrying
amount
$‘000
     1 year or less
$‘000
     2-5 years
$‘000
    

More than 5
years

$‘000

     Total  

Finance leases

     617         355         456         —           811   

Trade and other payables

     40,310         40,310         —           —           40,310   

Contingent consideration

     2,050         —           2,050         —           2,050   

Due to related party - parent entity

     13,861         13,781         —           80         13,861   

 

 
     56,838         54,446         2,506         80         57,032   

 

 

The following are the contractual maturities of financial liabilities, including estimated interest payments as of September 30, 2013:

 

            Contractual cash flows  
      Carrying
amount
$‘000
     1 year or less
$‘000
     2-5 years
$‘000
    

More than 5
years

$‘000

     Total  

Finance leases

     503         415         165         —           580   

Trade and other payables

     37,446         37,446         —           —           37,446   

Due to related party - parent entity

     102         —           —           102         102   

 

 
     38,051         37,861         165         102         38,128   

 

 

Capital management

HG Luxembourg prudently manages its capital position. The capital structure of the Company consists of debt, which includes PECs (paid in full during 2013) and CPECs as disclosed in Note 10 and equity as disclosed in Note 16. Only when cash dividends are received from subsidiary undertakings are payments made in respect of amounts due related to the PECs and the CPECs, after taking account of expenses incurred by the Company. Capital levels and dividend amounts are monitored by the Board of Managers.

 

19


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

7. Trade and other receivables

 

      Note      2014
$‘000
     2013
$‘000
 

Trade receivables - gross

        113,776         97,178   

Allowance for doubtful accounts

        (6,030      (5,341

 

 

Trade receivables - net

        107,746         91,837   

Work in progress

        27,416         24,777   

Due from related party

     28         —           500   

Current tax receivable

     25         3,271         5,339   

 

 
        138,433         122,453   

 

 

Debtor days at September 30, 2014 were 39 days (2013: 38 days).

Trade receivables are categorized as follows:

 

      2014
$‘000
     2013
$‘000
 

Neither past due nor impaired

     93,767         84,873   

Past due - not impaired

     13,979         6,964   

Impaired

     6,030         5,341   

 

 
     113,776         97,178   

 

 

Movements on the Group’s valuation allowance for the impairment of trade receivables are as follows:

 

      2014
$‘000
     2013
$‘000
 

Valuation allowance for receivables impairment - October 1

     5,341         4,681   

Utilized

     (676      (609

Charged (net of amounts collected)

     1,505         1,265   

Foreign exchange movement

     (140      4   

 

 

Valuation allowance for receivables impairment - September 30

     6,030         5,341   

 

 

 

20


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

8. Property and equipment

 

      Computer
equipment
$‘000
     Leasehold
improvements
$‘000
     Other
equipment
$‘000
     Total
$‘000
 

Cost:

           

At September 30, 2012

     20,255         9,497         24,206         53,958   

Effect of movement in exchange rates

     (307      (310      (407      (1,024

Additions

     1,749         2,332         1,411         5,492   

Disposals

     (1,809      (110      (1,084      (3,003

 

 

At September 30, 2013

     19,888         11,409         24,126         55,423   

Effect of movement in exchange rates

     (774      (531      (920      (2,225

Additions

     2,539         2,560         3,112         8,211   

Additions due to acquisition of business

     43         —           7         50   

Disposals

     (1,534      (1,138      (1,521      (4,193

 

 

At September 30, 2014

     20,162         12,300         24,804         57,266   

Depreciation:

           

At September 30, 2012

     16,220         6,120         18,588         40,928   

Effect of movement in exchange rates

     (236      (90      (211      (537

Depreciation for the year

     2,257         1,115         1,852         5,224   

Disposals

     (1,800      (103      (848      (2,751

 

 

At September 30, 2013

     16,441         7,042         19,381         42,864   

Effect of movement in exchange rates

     (657      (361      (708      (1,726

Depreciation for the year

     2,218         1,335         1,816         5,369   

Disposals

     (1,685      (1,112      (1,337      (4,134

 

 

At September 30, 2014

     16,317         6,904         19,152         42,373   

Carrying amount

           

At September 30, 2014

     3,845         5,396         5,652         14,893   

 

 

At September 30, 2013

     3,447         4,367         4,745         12,559   

 

 

At September 30, 2012

     4,035         3,377         5,618         13,030   

 

 

 

21


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

9. Intangible assets and goodwill

 

      Software
$‘000
    Trademarks
and
tradenames
$‘000
    Algorithms
$‘000
    Other assets
$‘000
    Goodwill
$‘000
    Total
$‘000
 

Cost:

            

At September 30, 2012

     13,527        2,490        —          —          19,213        35,230   

Effect of movement in exchange rates

     15        —          —          —          (153     (138

Additions

     1,647        —          —          —          —          1,647   

Disposals

     (74     —          —          —          —          (74

 

 

At September 30, 2013

     15,115        2,490        —          —          19,060        36,665   

Effect of movement in exchange rates

     (105     (309     (236     (98     (633     (1,381

Additions

     5,134        —          —          —          —          5,134   

Additions due to acquisition of business

     —          3,947        3,015        1,260        8,451        16,673   

Disposals

     (80     —          —          —          —          (80

 

 

At September 30, 2014

     20,064        6,128        2,779        1,162        26,878        57,011   

Amortization:

            

At September 30, 2012

     11,722        2,490        —          —          18,614        32,826   

Effect of movement in exchange rates

     11        —          —          —          (50     (39

Amortization for the year

     714        —          —          —          —          714   

Disposals

     3        —          —          —          —          3   

 

 

At September 30, 2013

     12,450        2,490        —          —          18,564        33,504   

Effect of movement in exchange rates

     (85     —          (20     (7     (71     (183

Amortization for the year

     1,004        —          298        95        —          1,397   

Disposals

     (43     —          —          —          —          (43

 

 

At September 30, 2014

     13,326        2,490        278        88        18,493        34,675   

 

 

Average remaining amortization period

     2.26        N/A        4.50        7.39        N/A        —     

 

 

Carrying amount

            

At September 30, 2014

     6,738        3,638        2,501        1,074        8,385        22,336   

 

 

At September 30, 2013

     2,665        —          —          —          496        3,161   

 

 

At September 30, 2012

     1,805        —          —          —          599        2,404   

 

 

The valuation techniques used for measuring the fair value of the intangible assets acquired as part of the Talent Q International acquisition consisted of a “with and without” analysis for the restrictive covenants; “relief from royalty” analyses for both the trademarks/tradenames and the algorithms; and “multi-period excess earnings” analysis for customer relationships. All goodwill amounts are not deductible for tax purposes.

The intangible assets acquired as part of the Talent Q International acquisition are categorized as follows:

 

      $‘000  

Restrictive covenants

     232   

Trademarks / tradenames

     3,947   

Algorithms

     3,015   

Customer relationships

     1,028   

 

 
     8,222   

 

 

 

22


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

10. Debt

Borrowings

The capital structure of the Group is reviewed regularly to ensure that it remains suitable to the business and its planned development. In 2012, the Company entered into a credit facility with PNC Bank, N.A. and JP Morgan Chase Bank, N.A. and their affiliates (the Credit Facility). This Credit Facility, available until May 21, 2017, allows for multiple drawings to be made by various Group entities in various currencies.

The maximum amount available under the Credit Facility is the lower of $50,000,000 (2013: $50,000,000) or an amount equal to 225% of EBITDA (2013: 225% of EBITDA). At its election, the Company allocated $5,000,000 (2013: $5,000,000) each to overnight borrowing facilities in the United Kingdom and the United States. These can be drawn upon by a number of Group entities in a number of currencies.

The interest rate charged on amounts borrowed under the Credit Facility is based on the inter-bank rate (“LIBOR”) and a margin, which varied from 0.75% to 1.75% (2013: 0.75% to 1.75%), depending on the prevailing ratio of debt to EBITDA. The Credit Facility also included a commitment fee related to the unused portion of the facilities. This fee is calculated on a quarterly basis and varied from 0.15% to 0.30% (2013: 0.15% to 0.30%) of the unused facilities, depending on the ratio of debt to EBITDA.

For the year ended September 30, 2014 the Company paid interest of $251,000 (2013: $94,000), of which $65,000 (2013: $94,000) was in respect of commitment fees. The outstanding balance as of September 30, 2014 was $nil (2013: $nil).

As of September 30, 2014, the principal financial covenant was a fixed charge coverage ratio whereby trailing annual EBIDTAR must exceed 1.1 (2013: 1.1) times the cash payment in respect of income taxes, interest, and lease rentals.

As of September 30, 2014 and September 30, 2013, the Company has been in compliance with the terms of the credit facility.

The Group has an outstanding guarantee of €15,253,000 ($19,268,000) related to certain ongoing litigation.

Current liabilities - due to related party - parent entity

In 2014, the Company entered into a credit facility with HG (Bermuda) Limited. This facility, available until May 21, 2017, includes advances extended to or for the benefit of the Company from time to time. The aggregate principal amount of unpaid cash advances shall not, at any time exceed $15,000,000. The outstanding balance shall be due and payable on demand.

This facility renews automatically for one year periods upon expiration, unless HG (Bermuda) Limited notifies the Company of its intent to terminate the revolving credit. The interest rate charged on amounts borrowed under the credit facilities will be current one month LIBOR rate, plus 0.75%. The Company pays interest annually.

For the year ended September 30, 2014, the Company accrued interest of $56,000 (2013: $nil). The outstanding balance as of September 30, 2014, was $13,781,000 (2013: $nil).

 

23


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

10. Debt (continued)

 

Non current liabilities - due to related party - parent entity

Loan payable to parent entity (Revolver)

In 2011, the Company entered into a credit facility with HG (Bermuda) Limited. This facility, available until September 30, 2022, includes advances extended to or for the benefit of the Company from time to time. The aggregate principal amount of unpaid cash advances shall not, at any time exceed $500,000. The outstanding balance shall be due and payable on demand.

This facility renews automatically for one year periods upon expiration, unless HG (Bermuda) Limited notifies the Company of its intent to terminate the revolving credit. The interest rate charged on amounts borrowed under the credit facilities will be current one month LIBOR rate, plus 2% during the first month, and for each succeeding month thereafter. The Company pays interest annually.

Preferred equity certificates (PECs)

Effective January 11, 2008, HG Luxembourg issued 468,966.6 PECs with a par value of €25 to HG (Bermuda) Limited. The price of the PECs (€11,724,165) was paid through the assignment of claim for the payment of the outstanding principal amount of a loan note on January 11, 2008. The PECs bear interest at the annual rate of 12% and were originally due for repayment no later than January 11, 2037. Interest was accrued annually. Principal and interest payable were able to be repaid at any time at the election of HG Luxembourg.

As of September 30, 2014 and 2013, the PEC’s and related interest payable were fully repaid. During 2013 the Company repaid PECs in the amount of $10,604,950 (€8,155,771) and interest payable in the amount of $833,288 (€640,843).

Convertible preferred equity certificates (CPECs)

Effective January 11, 2008, share premium of €123,381 ($182,332) was converted to 4,935.24 CPECs. CPECs are non-interest bearing and can be settled as follows:

 

  •   At maturity with all CPECs outstanding on January 11, 2037 to be redeemed at their par value of €25.

 

  •   Optional redemption is permitted at any time at the election of HG Luxembourg at a call price equal to the greater of par value or market value (determined by a manager of HG Luxembourg in good faith).

During the year ended September 30, 2014, 606.388 (2013: 63.368) CPECs were redeemed for a loss of $12,755,231 (2013: $1,344,000) reflected as a capital distribution on the consolidated statements of changes in equity. As of September 30, 2014, there were 2,295.478 CPECs outstanding (2013: 2,901.866).

 

      PEC (Principal)     PEC (Interest)     CPEC     Current
Revolver
     Non-Current
Revolver
    Total
$‘000
 

At September 30, 2012

     10,488        66        104        —           224        10,882   

Interest expense

     —          772        —          —           3        775   

Repayment / redemption

     (10,605     (833     (2     —           (227     (11,667

Foreign exchange movement

     117        (5     —          —           —          112   

 

 

At September 30, 2013

     —          —          102        —           —          102   

Advance / redemption

     —          —          (22     13,781         —          13,759   

 

 

At September 30, 2014

     —          —          80        13,781         —          13,861   

 

 

 

24


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

11. Obligations under finance leases

Present value of minimum finance lease payments as of September 30, 2014

 

      Future
minimum lease
payments
$‘000
     Interest
$‘000
     Present value
of minimum
lease payments
$‘000
 

Amounts payable:

        

Within one year

     355         114         241   

Between one and five years

     456         80         376   

 

 
     811         194         617   

 

 

Present value of minimum finance lease payments as of September 30, 2013

 

      Future
minimum lease
payments
$‘000
     Interest
$‘000
     Present value
of minimum
lease payments
$‘000
 

Amounts payable:

        

Within one year

     415         59         356   

Between one and five years

     165         18         147   

 

 
     580         77         503   

 

 

The balance of amounts payable after 5 years is $nil.

Carrying amount of assets held under finance leases:

 

      2014
$‘000
     2013
$‘000
 

Automobiles and other equipment

     278         457   

 

 
     278         457   

 

 

 

25


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

12. Trade and other payables

 

      2014
$‘000
     2013
$‘000
 

Trade payables

     10,025         9,121   

Other taxes and social security

     18,145         15,068   

Other accrued expenses

     11,242         12,470   

Other payables

     898         787   

 

 
     40,310         37,446   

 

 

Trade payables consist of amounts outstanding for trade and ongoing costs. The average credit period taken for trade purchases is 27 days (2013: 27 days).

13. Accrued compensation

 

      Note      2014
$‘000
     2013
$‘000
 

Accrued compensation and leave

        12,843         11,444   

Accrued bonuses

        33,348         31,853   

Accrued SIP

     20         12,202         9,054   

 

 
        58,393         52,351   

 

 

Accrued compensation and accrued bonuses are measured on a non-discounted basis and expensed in the period in which the service was rendered. Amounts paid under the employee bonus plans are determined by Management.

 

26


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

14. Long term provisions

 

      $‘000  

At September 30, 2012

     9,497   

Utilized

     (527

Charged

     14,331   

Released

     68   

Foreign exchange movement

     18   

 

 

At September 30, 2013

     23,387   

Utilized

     (261

Charged

     1,617   

Released

     (287

Foreign exchange movement

     (1,314

 

 

At September 30, 2014

     23,142   

 

 

Provisions relate to certain litigation matters, property lease obligations and obligations in respect of former and current employees of the Group, including related tax obligations.

The Company is involved in certain litigation arising in the normal course of business, including employment matters identified below. Provision has been made on a case by case basis in respect of the cost of defending cases and, where appropriate, management’s best estimate of the cost of settling the claims, net of insurance recoveries. The Company establishes these provisions based on all available information including any negotiations or rulings as well as the advice of legal counsel, and other information and events pertaining to a particular case. Certain litigation matters have been ongoing for a number of years and the time scale on which such matters may be concluded is uncertain. While it is not possible to predict with certainty the outcome of these matters, Management is of the opinion that the litigation will not have a material impact on the Group’s operations.

A claim brought by a former employee was heard in the Regional Court, Frankfurt am Main, Germany. The former employee contended that his employment was wrongfully terminated and has brought various actions for breach of contract in the aggregate amount, including interest, of approximately $19,000,000 (2013: $20,000,000). The Company filed counterclaims alleging violation of the employee’s legal duties to the Company. On September 19, 2012, the Regional Court found for the Company on all counts and dismissed all of the former employee’s claims against the Company. The Court also found for the Company on their counterclaims and ordered the former employee to pay damages to the Group and to its parent entity. The former employee appealed the decision of the Regional Court. On February 19, 2014, the Higher Regional Court announced its decision on the appeal, resulting in the Company being liable for approximately $18,709,000 in damages, including interest, which has been accrued as a provision as of September 30, 2014. During 2014, HGIH B.V appealed the decision of the Appellate Court to the Supreme Court.

 

27


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations

The Company has multiple pension and savings plans covering certain of its employees worldwide. Costs associated with these plans are recorded in accordance with the plan and IAS 19.

Defined Contribution Pension Plans

The Company provides defined contribution retirement and savings plans to eligible employees throughout the world. The assets of the plans are held separately from those of the sponsors in separately administered funds. The total cost charged to income in respect to defined contribution plans was $11,735,000 (2013: $11,613,000).

Defined Benefit Pension Plans

In the United States, the Company operates a defined benefit pension plan for certain of its employees. The assets of this plan are held separately from the assets of the sponsors in self-administered funds. An actuarial valuation was performed as of September 30, 2014 by a qualified independent actuary, United Retirement Plan Consultants. The plan is funded consistent with local statutory requirements. On September 30, 2009, the plan was frozen.

In Japan, the Company operates a defined benefit pension plan for certain of its employees and directors. An actuarial valuation was performed as of September 30, 2014 by a qualified independent actuary, IIC Partners Co., Ltd. The plan is unfunded.

Other Post-Employment Benefits Plan

In the United States, the Company has benefit plans which offer medical and life insurance coverage to eligible employees and which continue to provide coverage after retirement. An actuarial valuation was performed as of September 30, 2014 by a qualified actuary who is an employee of Hay Group, Inc.

Supplemental Executive Retirement Plans

In the United States, the Company operates a benefit plan which provides supplemental pension benefits. Supplemental defined benefit obligations are unfunded. An actuarial valuation was performed as of September 30, 2014 by a qualified independent actuary, United Retirement Plan Consultants.

Other Plans

Certain subsidiaries maintain pension plans that are not significant to the consolidated financial statements. The plans are being funded as necessary.

 

28


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

The liabilities included in the Group’s statement of financial position in relation to retirement benefit obligations are as follows:

 

      2014
$‘000
     2013
$‘000
 

US defined benefit pension plan

     (4,508      (1,752

US other post-employment benefits plan

     (13,049      (11,404

US defined benefit supplemental executive retirement plan

     (5,237      (4,594

Japan post-retirement benefit plan

     (2,934      (2,988

Other post-retirement benefit plans

     (1,505      (1,318

 

 
     (27,233      (22,056

 

 

The disclosures required by IAS 19 have been provided for the US defined benefit plan, US other post-retirement benefits plan, US defined benefit supplemental executive retirement plan and the Hay Group Japan Limited retirement plan. The balance of the US supplemental executive retirement plan includes a balance of $107,000 (2013: 109,000) that has been classified as a current obligation and is presented within trade and other payables.

Additional disclosures

The principal assumptions used by the qualified actuaries for IAS 19 purposes were:

 

      2014
% p.a.
     2013
% p.a.
 

All US plans

     

Discount rate

     4.50         5.00   

Ultimate healthcare inflation

     5.00         5.00   

Japan post-retirement benefit plan

     

Rate of increase in salaries (Director)

     1.00         1.00   

Rate of increase in salaries (Employee)

     1.00         1.00   

Discount rate (Director)

     0.60         1.00   

Discount rate (Employee)

     0.60         0.90   
Male life expectancy at 65 in years    2014      2013  

US defined benefit pension plan

     21.60         19.25   

US other post-employment benefits plan

     21.60         18.60   

US defined benefit supplemental executive retirement plan

     21.60         19.20   
Female life expectancy at 65 in years    2014      2013  

US defined benefit pension plan

     23.80         21.10   

US other post-employment benefits plan

     23.80         20.40   

US defined benefit supplemental executive retirement plan

     23.80         21.00   

 

29


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

The fair value of the assets in the US defined benefit pension plan, the present value of the liabilities in the aforementioned plans and the expected rates of return at each reporting date were:

 

      %      2014
$‘000
     %      2013
$‘000
 

US defined benefit pension plan

           

Equities

     8.3         17,730         8.3         16,809   

Bonds

     3.9         7,513         3.8         7,891   

Cash

        1,121            1,028   

 

 

Total fair value of assets

     6.4         26,364         6.4         25,728   

Present value of plan liabilities

        (30,872         (27,480

 

 

Deficit in plan

        (4,508         (1,752

US defined benefit supplemental executive retirement plan

           

Total fair value of assets

        —              —     

Present value of plan liabilities

        (5,237         (4,594

 

 

Deficit in plan

        (5,237         (4,594

US other post-employment benefits plan

           

Total fair value of assets

        —              —     

Present value of plan liabilities

        (13,049         (11,404

 

 

Deficit in plan

        (13,049         (11,404

Japan post-retirement benefit plan

           

Total fair value of assets

        —              —     

Present value of plan liabilities

        (2,934         (2,988

 

 

Deficit in plan

        (2,934         (2,988

Other post-retirement benefit plans

           

Total fair value of assets

        —              —     

Present value of plan liabilities

        (1,505         (1,318

 

 

Deficit in plan

        (1,505         (1,318

Total fair value of assets

        26,364            25,728   

Present value of plan liabilities

        (53,597         (47,784

 

 

Deficit in plans

        (27,233         (22,056

 

 

 

30


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

Present value of benefit obligations

 

      2014
$‘000
     2013
$‘000
 

Funded obligations

     26,364         25,728   

Unfunded obligations

     27,233         22,056   

 

 

Total obligations

     53,597         47,784   

 

 

Analysis of amount charged to profit and loss

 

      2014
$‘000
     2013
$‘000
 

Current service costs

     

US other post-employment benefits plan

     236         276   

Japan post-retirement benefit plan

     401         462   

 

 

Amount charged to operating profit

     637         738   

 

 
      2014
$‘000
     2013
$‘000
 

Expected return on pension plan assets

     

US defined benefit pension plan

     (1,599      (1,337

Interest on pension plan liabilities

     

US defined benefit pension plan

     1,337         1,215   

US other post-employment benefits plan

     552         492   

US defined benefit supplemental executive retirement plan

     227         213   

Japan post-retirement benefit plan

     25         7   

Other post-retirement benefit plans

     14         26   

 

 
     2,155         1,953   

 

 

Amount charged to net finance costs

     556         616   

 

 

 

31


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

Actuarial gains and losses recognized in other comprehensive income

 

      2014
$‘000
     2013
$‘000
 

US defined benefit pension plan

     

Actual return less expected return on pension plan assets

     419         1,736   

Experience losses arising on pension plan liabilities

     (369      (392

Changes in assumptions underlying the present value of pension plan liabilities

     (3,069      3,228   

 

 
     (3,019      4,572   

US other post-employment benefits plan

     

Experience gains / (losses) arising on pension plan liabilities

     (357      801   

Changes in assumptions underlying the present value of pension plan liabilities

     (943      720   

 

 
     (1,300      1,521   

US defined benefit supplemental executive retirement plan

     

Experience gains / (losses) arising on pension plan liabilities

     (66      485   

Changes in assumptions underlying the present value of pension plan liabilities

     (462      418   

 

 
     (528      903   

Japan post-retirement benefit plan

     

Experience gains / (losses) arising on pension plan liabilities

     (93      177   

Changes in assumptions underlying the present value of pension plan liabilities

     (82      80   

 

 
     (175      257   

Other post retirement benefits plans

     (137      15   

 

 

Total actuarial gains / (losses) recognized in other comprehensive income

     (5,159      7,268   

 

 

The cumulative actuarial loss recognized in the statement of comprehensive income was $8,290,000 as of September 30, 2014 (2013: loss $3,131,000).

Deferred taxes attributable to actuarial loss were ($1,973,000) (2013: loss ($2,817,000)).

 

32


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

Analysis of movement in deficit during the year

 

     2014      2013  
      $‘000      $‘000  

US defined benefit pension plan

     

Deficit in plan at the beginning of the year

     (1,752      (7,654

Contributions

     —           1,208   

Net finance charge

     263         122   

Actuarial gain / (loss)

     (3,019      4,572   

 

 

Deficit in plan at the end of the year

     (4,508      (1,752

 

 

US other post-employment benefits plan

     

Deficit in plan at the beginning of the year

     (11,404      (12,701

Current service cost

     (236      (276

Benefit payments

     443         544   

Net finance charge

     (552      (492

Actuarial gain / (loss)

     (1,300      1,521   

 

 

Deficit in plan at the end of the year

     (13,049      (11,404

 

 

US defined benefit supplemental executive retirement plan

     

Deficit in plan at the beginning of the year

     (4,594      (5,397

Net finance charge

     (227      (213

Benefit payments

     112         113   

Actuarial gain / (loss)

     (528      903   

 

 

Deficit in plan at the end of the year

     (5,237      (4,594

 

 

Japan post-retirement benefit plan

     

Deficit in plan at the beginning of the year

     (2,988      (3,797

Current service cost

     (401      (462

Net finance charge

     (25      (7

Benefit payments

     315         209   

Actuarial gain / (loss)

     (175      257   

Foreign exchange movement

     340         812   

 

 

Deficit in plan at the end of the year

     (2,934      (2,988

 

 

 

33


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

Reconciliation of the fair value of plan assets

 

     2014      2013  
      $‘000      $‘000  

US defined benefit pension plan

     

Fair value of plan assets at the beginning of the year

     25,728         22,713   

Contributions by the employer

     —           1,208   

Benefit payments

     (1,382      (1,266

Expected return on plan assets

     1,599         1,337   

Actuarial gain

     419         1,736   

 

 

Fair value of plan assets at the end of the year

     26,364         25,728   

 

 

The expected return on plan assets was based on the assumption of a long-term trend of 8.3 percent for equities and 3.8 percent for bonds.

Actual return on plan assets

 

     2014      2013  
      $‘000      $‘000  

Actual gain on plan assets

     2,018         3,073   

 

 

 

34


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

Reconciliation of the present value of plan liabilities

 

     2014      2013  
      $‘000      $‘000  

US defined benefit pension plan

     

Value of plan liabilities at the beginning of the year

     27,480         30,367   

Interest cost

     1,336         1,215   

Benefit payments

     (1,382      (1,266

Actuarial (gain) / loss

     3,438         (2,836

 

 

Value of plan liabilities at the end of the year

     30,872         27,480   

 

 

US other post-employment benefits plan

     

Value of plan liabilities at the beginning of the year

     11,404         12,701   

Current service cost

     236         276   

Interest cost

     552         492   

Benefit payments

     (443      (544

Actuarial (gain) / loss

     1,300         (1,521

 

 

Value of plan liabilities at the end of the year

     13,049         11,404   

 

 

US defined benefit supplemental executive retirement plan

     

Value of plan liabilities at the beginning of the year

     4,594         5,397   

Interest cost

     227         213   

Benefit payments

     (112      (113

Actuarial (gain) / loss

     528         (903

 

 

Value of plan liabilities at the end of the year

     5,237         4,594   

 

 

Japan post-retirement benefit plan

     

Value of plan liabilities at the beginning of the year

     2,988         3,797   

Current service cost

     401         462   

Interest cost

     25         7   

Benefit payments

     (315      (209

Actuarial (gain) / loss

     175         (257

Foreign exchange movement

     (340      (812

 

 

Value of plan liabilities at the end of the year

     2,934         2,988   

 

 

 

35


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

History of experience gains and losses

 

     2014     2013     2012     2011     2010  
      $‘000     $‘000     $‘000     $‘000     $‘000  

US defined benefit pension plan

          

Fair value of plan assets at the end of the year

     26,364        25,728        22,713        18,346        17,935   

Value of plan liabilities at the end of the year

     (30,872     (27,480     (30,367     (27,151     (24,930

Deficit in plan at the end of the year

     (4,508     (1,752     (7,654     (8,805     (6,995

Difference between the expected return and actual return on plan assets

     419        1,736        1,797        (850     497   

Percentage of plan assets

     (1.6 %)      6.8     7.9     (4.6 %)      2.8

Experience gains / (losses) on plan liabilities

     (369     (392     (319     (240     340   

Percentage of plan liabilities

     1.2     (1.4     (1.1 %)      (0.9 %)      1.4

Total actuarial gain / (loss)

     (3,019     4,572        (1,135     (2,663     67   

Percentage of present value of plan liabilities

     9.8     16.6     (3.7 %)      (9.8 %)      0.3

US other post-employment benefits plan

          

Value of plan liabilities at the end of the year

     (13,049     (11,404     (12,701     (11,454     (10,839

Experience gains / (losses) on plan liabilities

     (357     801        285        427        433   

Percentage of plan liabilities

     (2.7 %)      7.0     2.2     3.7     4.0

Total actuarial gain / (loss)

     (1,300     1,521        (962     (126     171   

Percentage of present value of plan liabilities

     (10.0 %)      13.3     (7.6 %)      (1.1 %)      1.6

US defined benefit supplemental executive retirement plan

          

Value of plan liabilities at the end of the year

     (5,237     (4,594     (5,397     (4,795     (4,110

Experience gains / (losses) on plan liabilities

     (66     485        3        48        (12

Percentage of plan liabilities

     (1.3 %)      10.6     0.1     1.0     (0.3 %) 

Total actuarial gain / (loss)

     (528     903        (486     (519     128   

Percentage of present value of plan liabilities

     10.1     19.7     (9.0 %)      (10.8 %)      3.1

Japan post-retirement benefit plan

          

Value of plan liabilities at the end of the year

     (2,934     (2,988     (3,797     (3,299  

Experience gains / (losses) on plan liabilities

     (93     177        (47     (56  

Percentage of plan liabilities

     (3.2 %)      5.9     (1.3 %)      (1.7 %)   

Total actuarial gain / (loss)

     (175     257        (132     (83  

Percentage of present value of plan liabilities

     6.0     8.6     (3.5 %)      (2.4 %)   

 

36


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

15. Retirement benefit obligations (continued)

 

Sensitivity analysis of plan liabilities

 

     2014      2013  
      $‘000      $‘000  

US defined benefit pension plan

     

1% increase in discount rate

     

Effect on accumulated benefit obligation

     (2,944      (2,738

1% decrease in discount rate

     

Effect on accumulated benefit obligation

     3,528         3,286   

US other post-employment benefits plan

     

1% increase in discount rate

     

Effect on accumulated benefit obligation

     (998      (1,020

1% decrease in discount rate

     

Effect on accumulated benefit obligation

     1,052         1,207   

1% increase in ultimate healthcare cost trend rate

     

Effect on accumulated benefit obligation

     53         32   

1% decrease in ultimate healthcare cost trend rate

     

Effect on accumulated benefit obligation

     (71      (37

Contributions

 

      2014
$‘000
     2013
$‘000
 

Total contributions made during the year

     —           1,208   

 

 

The Group does not expect to make regular ongoing contributions in 2015.

 

37


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

16. Share capital

Effective December 9, 2004, HG (Bermuda) Limited transferred 100% of its interest in its wholly owned subsidiary, Hay Group Partners Holding (Partners BV) to HG Luxembourg in exchange for 100% of the issued shares of HG Luxembourg and an interest bearing unsecured note. Specifically, 57 shares of Partners BV were transferred to HG Luxembourg in exchange for an additional 76,540 shares of HG Luxembourg with a deemed value of €3,827,835 ($5,097,911) and 343 shares of Partners BV were transferred to HG Luxembourg in exchange for a loan note in the amount of €23,034,165. The loan note bore interest at the annual rate of Euribor plus 3% and was due for repayment no later than December 9, 2034. Interest was compounded monthly and due annually. The outstanding balance was paid in full on January 11, 2008.

Effective January 11, 2008, in order to absorb the cumulative losses of HG Luxembourg, the number of shares of HG Luxembourg were reduced to 4,000 (€25 par value) by cancelling 73,040 shares. The remaining losses of HG Luxembourg were absorbed by reducing share premium. The USD equivalent of the reduction of share capital and share premium was $5,213,369. Share premium of €123,381 ($182,332) was converted to 4,935.24 CPECs. The remaining balance of share premium ($282,557) was transferred to retained earnings.

 

      Shares
authorized
     Shares issued
and outstanding
     Called up
share
capital
$‘000
 

Share capital (€25 par value)

     4,000         4,000         132   

17. Dividends

During the year ended September 30, 2014, the Company received a dividend in the amount of €10,000,000 (2013: €10,000,000) from Hay Group Partners Holding B.V. The US dollar equivalent in the Company financial statements was $13,101,000 (2013: $13,060,000).

18. Revenue

The Group recognizes revenue in the following categories:

 

     2014      2013  
      $‘000      $‘000  

Consulting services

     358,431         375,795   

Non-consulting revenue

     174,514         134,951   

 

 
     532,945         510,746   

 

 

 

38


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

19. Employees

The average number of employees during the year was as follows:

 

      2014      2013  

Consultants

     1,447         1,364   

Productized services

     861         785   

Administrative support staff

     696         729   

 

 
     3,004         2,878   

 

 

Employees’ costs during the year amounted to:

 

          2014      2013  
      Note    $‘000      $‘000  

Wages and salaries

        294,511         278,410   

Social security costs

        31,179         31,421   

Pension costs

   15      12,372         12,351   

Other employee related costs

        16,753         13,345   

 

 
        354,815         335,527   

 

 

20. Senior incentive plan

Amounts paid annually under the Senior Incentive Plan are determined by Management and are based on Group profit before taxes, interest payable, amortization and provisions for amounts due under this plan.

The amount earned is allocated to individuals, based upon performance, in various currencies. As such, the amount accrued at the reporting date, and included within accrued compensation (Note 13), and the amount ultimately paid in settlement of these liabilities may be different to the amount charged.

Profit from operations before senior incentive plan:

 

     2014      2013  
      $‘000      $‘000  

Profit from operations

     19,811         11,846   

Senior incentive plan

     12,624         10,949   

 

 
     32,435         22,795   

 

 

 

39


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

21. Auditor remuneration

Fees billed to the Company and its subsidiaries by KPMG Luxembourg S.à r.l., Luxembourg, and other member firms of the KPMG network during the year are as follows:

 

     2014      2013  
      $‘000      $‘000  

Financial statement audit services

     1,297         1,205   

Other audit services

     175         433   

Tax services

     724         357   

Other non-audit services

     20         12   

 

 
     2,216         2,007   

 

 

Such fees are presented under general administrative expenses in the statement of comprehensive income.

22. Restructuring

During the year ended September 30, 2014, costs of $nil were incurred in respect of a restructuring undertaken by the Company (2013: $5,874,000). The restructuring undertaken in 2013 involved severance costs and was mostly paid during 2013.

 

40


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

23. Profit before taxation

Profit before taxation is stated after charging the following:

 

     2014      2013  
      $‘000      $‘000  

Cost of Revenues

     

Depreciation of tangible fixed assets

     418         533   

Staff costs

     298,860         280,531   

Temporary help

     11,538         11,356   

Operating lease rentals

     3,700         3,767   

Other

     24,573         43,552   

 

 
     339,089         339,739   

 

 

General administrative expenses

     

Foreign exchange losses

     5,061         2,007   

Operating lease rentals

     26,889         29,694   

Depreciation of tangible fixed assets

     4,951         4,691   

Amortization of intangible assets

     1,397         714   

Gain on the disposal of property and equipment

     (297      (47

Staff costs

     55,955         54,996   

Temporary help

     3,829         2,458   

Non-recoverable employee expenses

     25,128         21,509   

Other

     51,132         43,139   

 

 
     174,045         159,161   

 

 

24a. Finance income

 

          2014      2013  
      Note    $‘000      $‘000  

Interest and similar income

        702         531   

 

 
        702         531   

 

 

24b. Finance costs

 

            2014      2013  
      Note      $‘000      $‘000  

Interest on facility agreement

     10         251         94   

Other interest and similar charges

        519         507   

Interest on preferred equity certificates

        —           772   

Finance charge on employee benefit obligations

     15         556         616   

 

 
        1,326         1,989   

 

 

 

41


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

25. Taxes

Tax assets and liabilities

 

     2014      2013  
      $‘000      $‘000  

Current tax

     

Current tax receivable

     3,271         5,339   

Current tax liability

     (1,657      (6,629

Non-current tax

     

Deferred tax asset

     33,777         32,554   

Tax liabilities

     (684      (2,922

Deferred tax liability

     (3,325      (575

Taxation charge

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:

 

     2014     2013  
      $‘000     $‘000  

Based on the profit before tax for the year:

    

Income taxes at 35% (2013: 35%)

     6,715        3,934   

Permanent differences

     2,273        (193

Adjustment for prior year tax charges

     1,388        (3,416

Overseas withholding taxes

     816        671   

State and other local taxes

     739        988   

Effect of local rate differences

     1,710        219   

Profits not taxed due to carryforward tax losses

     (803     (593

Losses generating no current tax benefit

     168        2,098   

Other

     (1,809     (340

 

 
     11,197        3,368   

 

 
     2014     2013  
      $‘000     $‘000  

Profit before tax for the year:

     19,187        10,388   

Effective tax rate

     58.4     32.4

 

42


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

25. Taxes (continued)

Taxation charge (continued)

 

The tax charge is split between current and deferred as follows:

 

     2014      2013  
      $‘000      $‘000  

Current tax

     10,737         13,881   

Deferred tax

     460         (10,513

 

 
     11,197         3,368   

 

 

Factors that are likely to impact the tax rate of the Company in the future include the extent to which it is able to utilize tax losses in various countries.

Deferred taxes

Full provision is made for the effect of timing differences between the recognition of gains and losses in the financial statements and their recognition for current taxation. Deferred tax assets are recognized to the extent that Management regards their recovery as “more likely than not.” This determination included an assessment of future taxable profits.

The Company recognized deferred tax assets on corporate income tax loss carryforwards of $2,298,000 as of September 30, 2014 (2013: $1,945,000). Loss carryforwards of $2,131,000 (2013: $1,799,000) can be used indefinitely; the remaining expire in 2018. Previously unrecognized corporate income tax loss carryforwards of $nil (2013: $nil) were considered to meet recognition criteria. No deferred tax assets were recognized for corporate income tax loss carryforwards of $13,879,000 (2013: $15,941,000).

Net deferred tax assets / (liabilities) are provided as follows:

 

     2014      2013  
      $‘000      $‘000  

Post-retirement healthcare benefits

     5,382         4,668   

Pension and other post-employment benefits

     7,907         6,257   

Deferred revenue

     2,038         1,965   

Accrued compensation

     4,010         4,203   

Tax losses

     2,292         1,945   

Intangible assets

     (909      —     

Other net deferred tax assets

     10,689         13,516   

Other net deferred tax liabilities

     (957      (575

 

 
     30,452         31,979   

 

 

 

43


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

25. Taxes (continued)

Deferred taxes (continued)

 

The net movement in the net deferred tax asset is as follows:

 

     2014      2013  
      $‘000      $‘000  

Beginning net deferred tax asset balance

     31,979         26,083   

Current year tax charge

     (460      10,513   

Deferred tax on intangible assets

     (1,895      —     

Deferred tax on actuarial gains / losses

     1,973         (2,817

Reduction of deferred tax asset due to tax rate change

     12         148   

Foreign exchange losses

     (1,157      (1,948

 

 

Ending net deferred tax asset balance

     30,452         31,979   

 

 

Tax Contingencies

In the normal course of business, the Company finds itself from time to time under examination by the taxing authorities of the countries in which it operates. While it is not possible to predict with certainty the outcome of these matters, Management is of the opinion that these examinations will not materially affect the Company’s financial position or operations.

26. Contingent liabilities

The Company is involved in certain litigation arising in the normal course of business. Certain litigation matters have been ongoing for a number of years and the time scale on which such matters may be concluded is uncertain. While it is not possible to predict with certainty the outcome of these matters, Management is of the opinion that the litigation will not have a material impact on the Company’s financial position or operations.

 

44


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

27. Commitments

The Group leases office space, computer equipment and office equipment with varying lease terms. Total minimum lease payments under non-cancelable operating leases are:

 

     2014      2013  
      $‘000      $‘000  

Operating leases which expire:

     

Within one year

     7,209         6,447   

Between two and five years

     28,125         36,529   

Over five years

     16,988         17,698   

 

 

At September 30

     52,322         60,674   

 

 

Minimum lease payments in 2015 under non-cancelable operating leases are:

 

     2014      2013  
      $‘000      $‘000  

Operating leases which expire:

     

Within one year

     7,209         6,447   

Between two and five years

     21,434         19,404   

Over five years

     2,767         2,890   

 

 

At September 30

     31,410         28,741   

 

 

28. Related-party transactions

The total of amounts payable to HG (Bermuda) Ltd as of September 30, 2014 is $13,861,000 (2013: $102,000). Interest expense recognized during the year ended September 30, 2014 on balances due to HG (Bermuda) Ltd. was $60,000 (2013: $775,000).

Total remuneration paid to key management personnel (being the Board of Managers) consisted of the following:

 

     2014      2013  
      $‘000      $‘000  

Short-term employee benefits

     3,768         3,634   

Post-employment benefits

     107         177   

Other long-term benefits

     1         30   

As of September 30, 2014, there was a $nil (2013: $500,000) loan receivable due from a related party of the Company.

 

45


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

29. Investments

The Hay Group includes 100% of the ordinary capital of the following subsidiary undertakings, except where a smaller proportion is indicated. All subsidiaries are primarily engaged in management consulting except where otherwise indicated. The country of operations and registration of the subsidiaries are as follows:

 

     Key     

 

Argentina       Hay Argentina S.A.
Australia       Hay Group Pty Ltd.
Belgium       Hay Group N.V./S.A.
Brazil       Hay do Brasil Consultores Ltda.
Canada       Hay Group Ltd.
Chile    *    Hay Group Ltd.
China       Hay Group Asia Ltd.
China       Hay Group Ltd.
China       Hay Group Co. Ltd.
Colombia       Hay Management Consultants Colombia Ltda.
Costa Rica    *    Hay Group, S.R.L.
Curacao    F    Hay Financial Corporation N.V.
Czech Republic    *    Hay Group O.S.
Finland       Hay Group, Oy
France    *    Hay Group S.A.
France    H    Hay France S.A.
Germany       Hay Group GmbH
Greece       Hay Group S.A.
Hungary       Hay Group Management Consultants Ltd.
India       Hay Consultants India Private Ltd.
Indonesia       PT Hay Group
Ireland       Hay Group (Ireland) Ltd.
Ireland       Hay Management Consultants Ireland Ltd.
Israel       Hay Group Ltd.
Italy       Hay Group S.r.l.
Japan       Hay Group (Japan), Ltd.
Lithuania       Hay Group UAB
Malaysia       Hay Group Sdn.Bhd. (98.35%)
Mexico       Hay Group, S.A. de C.V.
The Netherlands    H    Hay Group Investment Holding B.V.
The Netherlands       Hay Group B.V.
The Netherlands    H    Hay Management International B.V.
The Netherlands     H    Hay Group Partners Holding B.V.

 

46


HG (Luxembourg) S.à r.l.

2014 Annual Consolidated Financial Statements

 

 

Notes to the consolidated financial statements

for the year September 30, 2014

 

29. Investments (continued)

 

     Key     

 

New Zealand       Hay Group Ltd.
Norway       Hay Group AS
Peru       Hay Group S.A.C.
Poland       Hay Group Sp.z.o.o.
Portugal       Hay Consulting Group, S.A.
Romania       Hay Group Management Consultants SRL
Qatar       Hay Group, LLC.
Russia    *    Hay Group OOO
Saudi Arabia       Hay Group Saudi Arabia Limited
Singapore       Hay Group Pte Ltd.
Slovak Republic       Hay Group s.r.o.
South Africa       Hay Group South Africa (Pty) Ltd.
South Korea       Hay Group Ltd.
Spain       Hay Group S.A.
Sweden       Hay Group AB
Thailand    *    Hay Group Ltd.
Turkey    *    Hay Group Danismanlik LS
Ukraine       Hay Group TOV
United Arab Emirates    *    Hay Group
United Kingdom    *    The Hay Group Management Ltd.
United Kingdom    H    Hay Group UK Holdings Ltd.
United Kingdom    H*    Hay Group Intermediary Ltd.
United Kingdom       Hay Pension Consultants Ltd.
United Kingdom       Talent Q International
United States of America    *    Hay Group, Inc.
United States of America    H    Hay Group Holdings, Inc.
United States of America    M*    Hay Group Management, Inc.
United States of America    H*    Hay Group International, Inc.
United States of America    *    Hay/Huggins Plan Services, Inc.
Venezuela       Hay Group Venezuela S.A.
Vietnam       Hay Group Consulting Limited
Key      

 

*   Held by a subsidiary undertaking       M Group management company
F   Finance company       H Intermediate holding company only

30. Subsequent events

There are no subsequent events that require adjustment or disclosure in the financial statements.

 

47