Vedior recognises provisions for legal or constructive obligations as of the balance sheet date based on a past event, if it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount of the provision is the best estimate of the consideration required to settle the present obligation taking into account the risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash flows estimated to settle the obligation, its carrying amount is the present value of those cash flows and are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market rates and, where appropriate, the risk specific to the liability.
Provisions for restructuring cost are recognised when the Group has approved a formal restructuring plan and the restructuring has either commenced or has been announced publicly.
5.16 Sales
The term ‘sales’ signifies revenue from services rendered. Sales are recognised at the fair value of the consideration received or receivable, less discounts and value added tax. Vedior distinguishes sales from temporary and contract assignments, permanent placement fees and other recruitment services (including managed services).
Sales from temporary and contract assignments
Sales from temporary and contract assignments are recognised when services are performed based on hours worked by the temporary worker.
Permanent placement fees
Permanent placement fees are recognised at the time the candidate commences employment or when the agreed upon services have been provided. If the individual fails to continue in employment for a period of time specified in the placement agreement, generally a 14 to 90 day period, the Company is generally not entitled to collect the entire placement fee. Sales from permanent placements are included in the income statement net of estimated refunds based on historic experience due to placed candidates not remaining in employment with clients for the period required to collect a full fee.
Managed services
Sales from the provision of managed services, where Vedior acts as a master vendor and is not primarily responsible for providing services to clients or has no credit risk relating to sales generated through sub-vendors, have been reported using the ‘net’ accounting method which only recognises the fee received.
5.17 Cost of sales
Cost of sales are the direct cost of services (temporary and contract personnel payroll, payroll taxes and related insurance) and are recognised in the same period as the related sales. Temporary and contract candidates are generally paid salary and benefits only for hours worked. A small proportion of contractors is also employed by the Company as permanent staff.
5.18 Operating expenses
The major components of operating expenses are payroll costs of managers, sales consultants and administrative staff, lease costs of offices, utility costs, advertising and promotion expenditures, telecommunication and other IT costs, depreciation and amortisation.
5.19 Employee benefits
Employee payroll expenses are both fixed and variable. The variable element consists of incentive compensation linked to performance including sales commission, profit sharing and bonus. The magnitude of certain variable payroll, communications, advertising and promotional expenses varies depending on the level of business activity. Other expenses, such as fixed payroll costs, office leases, utility costs and depreciation of property and equipment, do not depend directly on the level of sales activity.
Defined contribution plans
Obligations for contributions to pension plans that qualify as defined contribution plans, are recognised as an expense in the income statement as incurred.
Defined benefit plans
The Group’s obligation with respect to defined benefit plans is based on an estimate of the amount of future benefits that employees have earned through their services rendered in current and prior periods. The benefit is discounted to determine its present value. The fair value of plan assets is deducted to determine the net liability. The discount rate used to determine the present value of future benefits is the yield on AA credit rated Euro corporate bonds with a duration of 15 years. The obligation is calculated by a qualified actuary using the projected unit credit method.
Due to the fact that the defined benefit plan is closed and has no more active participants, actuarial gains and losses that arise in calculating the Group’s obligation are recognised immediately in the income statement.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these termination benefits. Vedior recognises termination benefits in full once termination of the employment is irrevocably agreed.
Other long-term employee obligations
These employee benefits include long-service leave or other long service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation. Liabilities for other long-term employee benefits are recognised at present value using an accounting method similar to that for deferred pension plans less the fair value of any plan assets. Actuarial gains or losses are recognised in the income statement in the period they occur.
Share-based payment transactions
The share based payment plans of Vedior are stock option plans, restricted share plans and Stock Purchase Plan, which allow Group employees to acquire deposit shares of the Company. The fair value of share based payment plans is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the benefit. The fair value of the options and shares granted is measured using a Black and Scholes model, taking into account the terms and conditions upon which the options and shares were granted. The amount recognised as an expense is adjusted to reflect the actual number of stock options and shares that vest except where forfeiture is only due to share prices being lower than the exercise price.
In addition Vedior grants Share Appreciation Rights (SARs) with the same characteristics of the stock option plan to certain employees. The fair value of the amount payable to the employees is recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over the period during which the employees become unconditionally entitled to payment. The fair value of the Share Appreciation Rights is measured based on a Black and Scholes model, taking into account the terms and conditions upon which the instruments were granted. The liability is re-measured at each balance sheet date and at settlement date.