Interim Results

Matchtech Group PLC 17 March 2008 17 March 2008 Matchtech Group plc Interim results for the six months ended 31 January 2008 Matchtech Group plc ('Matchtech' or the 'Group'), one of the UK's leading specialist technical recruitment companies, is pleased to announce its interim results for the six months ended 31 January 2008. Financial Highlights • Revenue up 25% to £116.6m (2007 H1: £93.4m)* • Net fee income (Gross Profit) up 22% to £15.3m (2007 H1: £12.5m)* • Operating profit up 24% to £6.2m (2007 H1: £5.0m)* • Operating profit margin 5.3% (2007 H1: 5.4%)* • Adjusted Profit Before Tax (before non-recurring items) up 21% to £5.7m (2007 H1: £4.7m) • Reported Profit Before Tax (after non-recurring items) up 39% to £5.7m (2007 H1: £4.1m) • Cash flow from operating activities up 112% to £8.7m (2007 H1: £4.1m) • Adjusted Basic EPS (before non-recurring items) up 8% to 17.09p (2007 H1: 15.86p) • Reported Basic EPS (after non-recurring items) up 26% to 17.09p (2007 H1: 13.59p) • Interim dividend 5.0 pence per share (2007: 4.4 pence) up 14% *2007 results exclude the sales and profits from the US business sold on 31 August 2006 as well as the non-recurring costs of the IPO Operating Highlights • Strong organic growth across all sectors (Engineering, Built Environment and Support Services) • 33% increase in permanent placements, 31% increase in permanent fees • 10% increase in contractor numbers, 19% increase in contract NFI • 39% increase in sales headcount to 189 from 136 Commenting on the results, George Materna, Chairman of Matchtech said: 'We are very pleased with these results confirming that Matchtech has sustained good progress through organic growth across all three of the Group's sectors. 'The sectors that we serve continue to exhibit strong structural growth characteristics. Moreover we have a highly diversified and expanding customer base, which provides further opportunities for growth and adds an element of protection to our business. 'Candidates and Contractors remain in short supply, with wage inflation continuing in each of the sectors in which we operate. This demonstrates that the market continues to be candidate driven, allowing Matchtech to utilise its superior service delivery capabilities to gain market share. 'We believe that there are strong opportunities for continued growth, both from the significant investment made in our sales headcount at the start of the year, which we expect to show through in the second half, and from our existing business development pipeline. The Board remains confident in the outlook for the year and expects to be able to report sound progress in the second half.' IFRS This is the first set of financial statements that the Group is required to prepare in accordance with accordance with IAS 34 'Interim Financial Reporting' and the requirements of IFRS 1 'First-time Adoption of International Financial Reporting Standards' relevant to interim reports, because they are part of the period covered by the Group's first IFRS financial statements for the year ended 31 July 2008. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements for the year ended 31 July 2007 which have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under section 237 (2) and (3) of the Companies Act 1985. The transition to IFRS is explained in Note 2 to these interim financial statements. All comparatives have been re-stated in accordance with IFRS. For further information please contact: Matchtech Group plc 01489 898989 George Materna, Chairman Adrian Gunn, Group Managing Director Tony Dyer, Group Finance Director Hogarth Partnership 020 7357 9477 John Olsen / James Longfield / Fiona Noblet Background on Matchtech Matchtech specialises in the provision of contract and permanent staff in the Engineering, Built Environment and Support Services sectors across the UK. It was established in 1984 and has grown organically to become the UK's 2nd largest technical and engineering recruitment specialist and the UK's 21st largest recruitment company (Source: Recruitment International Top 100 Report - August 2007). Operating from a single site near Southampton, Matchtech provides predominantly professionally-qualified candidates to clients in a broad range of industries including oil and petrochemicals, pharmaceutical, marine, aerospace, automotive, water, electronics, civil engineering, building structures and transport infrastructure. MATCHTECH GROUP PLC Interim report for the period ended 31 January 2008 Chairman's statement Operating review The Group again saw good growth across all three of its sectors, Engineering, Built Environment and Support Services, during the first half of the financial year. 2008 H1 2007 H1 Change £m £m % Engineering sector Net Fee Income 7.8 6.4 22% Operating Profit 3.4 2.7 26% Built Environment sector Net Fee Income 4.2 3.3 27% Operating Profit 1.8 1.4 29% Support Services sector Net Fee Income 3.2 2.8 14% Operating Profit 0.9 0.8 13% The results have been achieved entirely through organic growth in the UK. Engineering, our largest sector, continues to deliver good growth. In particular demand was strong in Oil & Gas where the current level of oil price has led to increased capital investment. We have a strong established brand in the Engineering sector and the business pipeline looks favourable. Built Environment continues to see the strongest growth, with clients providing generally good visibility of projects for several years ahead. Public sector investment contributes as a major driver in this market. Clients seem a little more flexible on choice of candidate as skill shortages continue to tighten. Contract lengths are extending and contract rates are as high as they have ever been. Foundations continue to be laid in our newest sector Support Services, by investment in new staff to ensure the best possible platform for sustainable future growth. Cross selling opportunities, into other parts of the Group will, over time, convert into a strong revenue stream. The Group has maintained a healthy balance between contract and permanent placements coupled with a highly diversified client and sector base providing added protection to any market volatility. 2008 H1 2007 H1 Change Permanent placements Number of permanent placements 1,356 1,022 + 33% Permanent fees £5.1m £3.9m + 31% Average permanent fees per placement £3,753 £3,855 - 3% Contractors Number of working contractors 4,541 4,122 + 10% Contract Net Fee Income £10.2m £8.6m + 19% Net Fee Income Contract 67% 69% Permanent 33% 31% People Our performance reflects the strength and stability of our management team and the quality of our staff. Expansion is being led by experienced and home grown Matchtech managers and directors. The Matchtech team has shown great unity of purpose, amplified by our strong internal communication and technology systems that enable the flow of strategic information throughout the company. Sales staff numbers increased by 39% over the year to 189 (January 2007: 136, July 2007: 170). We added 9 Support staff in the first half bringing the total to 90 (January 2007: 75, July 2007: 81), partly reflecting the increased levels of compliance required from regulators and clients. I would like to thank all our staff on behalf of our shareholders for their consistent contribution. Financial Overview The Group delivered good results across all three of its sectors. Revenue increased 25% to £116.6m (2007 H1: £93.4m, excluding £0.2m Revenue discontinued business), with Net Fee Income up 22% to £15.3m (2007 H1: £12.5m). Underlying operating profit (excluding non-recurring items) was £6.2m, an increase of 24% (2007 H1: £5.0m). This reflected a slight decrease in operating margin to 5.3% (2007 H1: 5.4%). The non-recurring items in 2007 were £0.5m. 2008: £Nil. Reported profit before tax was up 39% at £5.7m (2007 H1: £4.1m) and underlying profit before tax (excluding profits from the US business sold in August 2006 as well as non-recurring items) was up 21% to £5.7m (2007 H1: £4.7m). Effective Rate of Tax The effective rate of tax for the period is 30.5% (2007 H1: 24.9% pre non-recurring items). Under IFRS 12 deferred tax is recognised to take into account the fact that gains made on qualifying share options exercised during the period attract tax relief. The effective tax rate will be impacted by the actual timing of exercise of the options and the magnitude of the tax benefit obtained. Earnings per share Notwithstanding the higher Effective Tax Rate, the Group continued to produce good growth in earnings per share. Basic earnings per share increased by 26% to 17.09p (2007 H1: 13.59p), with adjusted earnings per share (excluding non-recurring items) increasing by 8% to 17.09p (2007 H1: 15.86p). Fully diluted earnings per share increased by 30% to 16.53p (2007 H1: 12.75p), with adjusted fully diluted earnings per share (excluding non-recurring items) increasing by 9% to 16.53p (2007 H1: 15.23p). Cash flow Cash inflows from operating activities in the period were £8.7m (2007 H1: £4.1m) representing cash conversion of 140% (2007 H1: 93%) Capital expenditure was £0.7m (2007 H1: £0.5m). Net debt at 31 January 2008 was £5.4m (31 January 2007: £11.5m, 31 July 2007: £9.8m). Dividend Reflecting the performance of our business in the first half, the Board has declared an interim dividend of 5.0 pence per share, an increase of 14% (2007: H1 4.4p). The interim dividend will be paid on 24 June 2008 to those shareholders on the register at close of business on 6 June 2008. Risk The Group considers strategic, financial and operational risks and identifies actions to mitigate those risks. Key risks and their mitigation are disclosed in the 2007 Annual Report and no significant new risks have been identified in the period. Growth strategy Our unique single site model continues to provide a stable, low cost platform for growth. The growth strategy is being implemented by an experienced management team and is based around a balanced contract/perm mix in our target recruitment markets. We aim to further segment and subdivide our markets and to deepen our niche specialisations over time. Outlook General business sentiment in our markets has remained positive to date, and the sectors that we serve continue to exhibit strong structural growth characteristics. Moreover we have a highly diversified and expanding customer base, which provides further opportunities for growth and adds protection to our business. Candidates and Contractors remain in short supply, with wage inflation continuing in each of the sectors in which we operate. This demonstrates that the market continues to be candidate driven, allowing Matchtech to utilise its superior service delivery capabilities to gain market share. We believe that there are strong opportunities for continued growth, both from the significant investment made in our sales headcount at the start of the year through our graduate program, which is expected to show through in the second half, and from our existing business development pipeline. The Board remains confident in its outlook for the year and expects to be able to report sound progress in the second half. George Materna Chairman 17 March 2008 MATCHTECH GROUP PLC CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31ST JANUARY 2008 CONDENSED CONSOLIDATED INCOME STATEMENT For the period ended 31 January 2008 Note 6 months 6 months 12 months to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited CONTINUING OPERATIONS £'000 £'000 £'000 Revenue 3 116,562 93,438 202,779 Cost of Sales (101,290) (80,933) (175,902) --------- -------- -------- GROSS PROFIT 3 15,272 12,505 26,877 Cost of Admission to AIM 0 (572) (572) Other administrative expenses (9,119) (7,427) (15,623) --------- -------- -------- Total administrative expenses (9,119) (7,999) (16,195) --------- -------- -------- OPERATING PROFIT 3 6,153 4,506 10,682 Finance income 18 13 20 Finance cost (500) (390) (831) --------- -------- -------- PROFIT BEFORE TAX 5,671 4,129 9,871 Income tax expense 4 (1,729) (1,169) (2,356) --------- -------- -------- PROFIT FROM CONTINUING OPERATIONS 3,942 2,960 7,515 DISCONTINUED OPERATIONS Profit from discontinued operations 5 0 67 67 --------- -------- -------- PROFIT FOR THE PERIOD 3,942 3,027 7,582 ========= ======== ======== EARNINGS PER ORDINARY SHARE 6 months 6 months 12 months to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited Continuing operations pence pence Pence - Basic 7 17.09 13.29 33.44 - Diluted 7 16.53 12.75 32.64 Total operations - Basic 7 17.09 13.59 33.74 - Diluted 7 16.53 13.04 32.93 CONDENSED CONSOLIDATED BALANCE SHEET Note 31/01/08 31/01/07 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 ASSETS Non-current assets Property, plant and equipment 2,014 1,590 1,699 Intangible assets 186 113 133 Deferred tax assets 502 879 529 --------- -------- -------- 2,702 2,582 2,361 Current Assets Trade and other receivables 29,039 25,672 31,984 Cash and cash equivalents 91 353 836 --------- -------- -------- 29,130 26,025 32,820 --------- -------- -------- TOTAL ASSETS 31,832 28,607 35,181 ========= ======== ======== LIABILITIES Current liabilities Trade and other payables (11,677) (8,881) (12,617) Current tax liability (1,773) (904) (1,068) Bank loans and overdrafts - short term borrowings (2,556) (7,292) (6,924) - current portion of long term borrowings (1,666) (1,666) (1,666) --------- -------- -------- (17,672) (18,743) (22,275) Non-current liabilities Long term borrowings (1,251) (2,917) (2,083) --------- -------- -------- TOTAL LIABILITIES (18,923) (21,660) (24,358) ========= ======== ======== NET ASSETS 12,909 6,947 10,823 ========= ======== ======== EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Called-up equity share capital 231 225 230 Share premium account 2,892 2,367 2,829 Other reserves 859 685 610 Retained earnings 8,927 3,670 7,154 --------- -------- -------- TOTAL EQUITY 12,909 6,947 10,823 ========= ======== ======== CONDENSED CONSOLIDATED CASH FLOW STATEMENT Note 6 months 6 months 12 months to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 CASH FLOWS FROM OPERATING ACTIVITIES Profit after taxation 3,942 3,027 7,582 Adjustments for: -Depreciation 306 226 499 -Profit on disposal of discontinued 5 0 (59) (59) operation -Foreign exchange gain on 0 (3) (3) disposal of discontinued operation -Profit on disposal of property, (3) 0 0 plant and equipment -Interest income (18) (13) (20) -Interest expense 500 390 831 -Taxation expense recognised in 1,729 1,172 2,359 profit and loss -Increase)/decrease in trade and 2,950 (1,240) (7,516) other receivables -Increase in trade and other (939) 473 4,118 payables -Share based payment charge 250 125 321 --------- -------- -------- Cash generated from operations 8,717 4,098 8,112 Interest paid (500) (390) (831) Income taxes paid (1,024) (1,256) (2,205) --------- -------- -------- NET CASH FROM OPERATING ACTIVITES 7,193 2,452 5,076 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of Matchtech Inc 0 105 105 Purchase of plant and equipment (708) (532) (960) Proceeds from sale of plant 37 0 28 Interest received 18 13 20 --------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (653) (414) (807) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of share capital 64 361 829 Proceeds from long-term borrowings (5,096) 1,918 699 Dividends paid (2,148) (4,414) (5,428) --------- -------- -------- NET CASH USED IN FINANCING ACTIVITIES (7,180) (2,135) (3,900) NET INCREASE IN CASH AND CASH EQUIVALENTS (640) (97) 369 --------- -------- -------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 659 290 290 --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 19 193 659 ========= ======== ======== CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Foreign Share Share Other Share Retained Total Currency Capital Premium reserve based Earnings £'000 translation reserve £'000 £'000 £'000 payment £'000 £'000 reserve £'000 Balance at 1 0 221 2,009 229 338 4,884 7,681 August 2006 -------- ------- -------- ------- -------- -------- ------ Currency translation 3 0 0 0 0 0 3 differences -------- ------- -------- ------- -------- -------- ------ Net income recognised 3 0 0 0 0 0 3 directly in equity -------- ------- -------- ------- -------- -------- ------ Profit for the (3) 0 0 0 0 3,027 3,024 period ======== ======= ======== ======= ======== ======== ====== Total recognised income 0 0 0 0 0 3,027 3,027 and expense for the ======== ======= ======== ======= ======== ======== ====== period Dividends 0 0 0 0 0 (4,414) (4,414) IAS 12 adjustment 0 0 0 0 0 168 168 to deferred tax asset EBT reserve movement 0 0 0 (5) 0 5 0 Share based payment 0 0 0 0 123 0 123 reserve movement New share capital 0 4 358 0 0 0 362 -------- ------- -------- ------- -------- -------- ------ 0 4 358 (5) 123 (4,241) (3,761) -------- ------- -------- ------- -------- -------- ------ Balance at 31 0 225 2,367 224 461 3,670 6,947 January ======== ======= ======== ======= ======== ======== ====== 2007 Balance at 1 0 221 2,009 229 338 4,884 7,681 August 2006 -------- ------- -------- ------- -------- -------- ------ Currency translation 3 0 0 0 0 0 3 differences -------- ------- -------- ------- -------- -------- ------ Net income recognised 3 0 0 0 0 0 3 directly in equity -------- ------- -------- ------- -------- -------- ------ Profit for the (3) 0 0 0 0 7,582 7,579 year ======== ======= ======== ======= ======== ======== ====== Total recognised income 0 0 0 0 0 7,582 7,582 and expense for the ======== ======= ======== ======= ======== ======== ====== year Dividends 0 0 0 0 0 (5,428) (5,428) IAS 12 adjustment 0 0 0 0 0 111 111 to deferred tax asset EBT reserve movement 0 0 0 (5) 0 5 0 Share based payment 0 0 0 0 48 0 48 reserve movement New share capital 0 9 820 0 0 0 829 -------- ------- -------- ------- -------- -------- ------ 0 9 820 (5) 0 (5,312) (4,440) -------- ------- -------- ------- -------- -------- ------ Balance at 31 0 230 2,829 224 386 7,154 10,823 July 2007 ======== ======= ======== ======= ======== ======== ====== Balance at 1 0 230 2,829 224 386 7,154 10,823 August 2007 -------- ------- -------- ------- -------- -------- ------ Profit for the 0 0 0 0 0 3,942 3,942 period ======== ======= ======== ======= ======== ======== ====== Total recognised income 0 0 0 0 0 3,942 3,942 and expense for the ======== ======= ======== ======= ======== ======== ====== year Dividends 0 0 0 0 0 (2,149) (2,149) Share based payment 0 0 0 0 249 (20) 229 reserve movement New share capital 0 1 63 0 0 0 64 -------- ------- -------- ------- -------- -------- ------ 0 1 63 0 249 (2,169) (1,856) -------- ------- -------- ------- -------- -------- ------ Balance 31 January 0 231 2,892 224 635 8,927 12,909 2008 ======== ======= ======== ======= ======== ======== ====== Notes Forming part of the financial statements 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES i The business of the Group Matchtech Group plc is a human capital resources business dealing with contract and permanent recruitment in the Private and Public sector. The Group is organised in three sectors, Engineering, Built Environment and Support Services, with niche activities within each sector. ii Basis of preparation of interim financial information These interim condensed consolidated financial statements are for the six months ended 31 January 2008. They have been prepared in accordance with IAS 34 'Interim Financial Reporting' and the requirements of IFRS 1 'First-time Adoption of International Financial Reporting Standards' relevant to interim reports, because they are part of the period covered by the Group's first IFRS financial statements for the year ended 31 July 2008. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements for the year ended 31 July 2007 which have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under section 237 (2) and (3) of the Companies Act 1985. These condensed consolidated interim financial statements (the interim financial statements) have been prepared in accordance with the accounting policies set out below which are based on the recognition and measurement principles of IFRS in issue as adopted by the European Union (EU) and are effective at 31 July 2008 or are expected to be adopted and effective at 31 July 2008, our first annual reporting date at which we are required to use IFRS accounting standards as adopted by the EU. Matchtech Group plc's consolidated financial statements were prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) until 31 July 2007. The date of transition to IFRS was 1 August 2006. The comparative figures in respect of 2006 have been restated to reflect changes in accounting policies as a result of adoption of IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in the reconciliation schedules, presented and explained in note 2. These financial statements have been prepared under the historical cost convention. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed interim financial statements. A summary of the principal accounting policies of the group are set out below. IFRS 1 permits companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. These interim financial statements have been prepared on the basis of taking the following exemptions: - business combinations prior to 1 August 2006, the Group's date of transition to IFRS, have not been restated to comply with IFRS 3 'Business Combinations'. - cumulative translation differences on foreign operations are deemed to be nil at 1 August 2006. Any gains and losses recognised in the consolidated income statement on subsequent disposal of foreign operations will exclude translation differences arising prior to the transition date. - the Group has not applied IFRS 2, share based payments to share options awards granted prior to 7 November 2002, nor to those granted subsequent to that date but which had vested by 1 August 2006, the date of transition. iii Basis of consolidation The group financial statements consolidate those of the company and all of its subsidiary undertakings drawn up to the balance sheet date. Subsidiaries are entities over which the group has power to control the financial and operating policies so as to obtain benefits from its activities. The group obtains and exercises control through voting rights. Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with group accounting policies. iv Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the group for services provided, excluding VAT and trade discounts. Revenue on temporary placements is recognised upon receipt of a client approved timesheet or equivalent. Revenue from permanent placements, which is based on a percentage of the candidate's remuneration package, is recognised when candidates commence employment. v Property, plant and equipment Property, plant and equipment is stated at cost or valuation, net of depreciation and any provision for impairment. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Motor Vehicles 25.00% Reducing balance Computer equipment 25.00% Straight line Equipment 12.50% Straight line Residual value estimates are updated as required, but at least annually, whether or not the asset is revalued. vi Intangible assets Separately acquired software licences are included at cost and amortised on a straight-line basis over the useful economic life of that asset at 20%-33%. Provision is made against the carrying value of intangible assets where an impairment in value is deemed to have occurred. Amortisation is recognised in the income statement under administrative expenses. vii Disposal of assets The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. viii Operating lease agreements Rentals applicable to operating are charged against profits on a straight line basis over the lease term. Lease incentives are spread over the term of the lease. ix Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity. x Pension costs The company operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the company. The annual contributions payable are charged to the income statement as they accrue. xi Share based payment All share-based remuneration is ultimately recognised as an expense in the income statement with a corresponding credit to 'share-based payment reserve'. All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. Fair values of employee services are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options, proceeds received net of attributable transaction costs are credited to share capital and share premium. xii Exceptional items Non-recurring items which are sufficiently material are presented separately within their relevant consolidated income statement category. This helps to provide a better understanding of the group's financial performance. xiii Business combinations completed prior to date of transition to IFRS The group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to 1 August 2006. Accordingly the classification of the combination (merger) remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Deferred tax is adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions. xiv Discontinued operations A discontinued operation is a cash-generating unit, or a group of cash-generating units, that either has been disposed of, or is classified as held for sale, and: - represents a separate line of business or geographic area of operations - is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or - is a subsidiary acquired exclusively with a view to resale. The disclosures for discontinued operations in the prior period relate to all operations that have been discontinued by the balance sheets date for the latest period presented. xv Financial assets All financial assets are recognised when the group becomes a party to the contractual provisions of the instrument. Financial assets are recognised at fair value plus transaction costs. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement. Provision against trade receivables is made when there is objective evidence that the group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows. A financial asset is derecognised only where the contractual rights to cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the group transfers substantially all the risks and rewards of ownership of the asset, or if the group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. xvi Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the group becomes a party to the contractual provisions of the instrument and comprise trade and other payables and bank loans. Financial liabilities are recorded initially at fair value, net of direct issue costs and are subsequently measured at amortised cost using the effective interest rate method. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. xvii Cash and cash equivalents Cash and cash equivalents comprise cash on hand, on demand deposits and bank overdrafts. xviii Dividends Dividend distributions payable to equity shareholders are included in 'other short term financial liabilities' when the dividends are approved in general meeting prior to the balance sheet date. xix Equity Equity comprises the following: - 'Share capital' represents the nominal value of equity shares. - 'Share premium' represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. - 'Share based payment reserve' represents equity-settled share-based employee remuneration until such share options are exercised. - 'Other reserve' represents the equity balance arising on the merger of Matchtech Engineering and Matchmaker Personnel. - 'Profit and loss reserve' represents retained profits. xx Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the profit or loss in the period in which they arise. Exchange differences on non-monetary items are recognised in equity to the extent that they relate to a gain or loss on that non-monetary item taken to equity, otherwise such gains and losses are recognised in the income statement. The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at the actual rate. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are taken directly to the 'Foreign currency reserve' in equity. On disposal of a foreign operation the cumulative translation differences (including, if applicable, gains and losses on related hedges) are transferred to the income statement as part of the gain or loss on disposal. As permitted by IFRS 1, the balance on the cumulative translation adjustment on retranslation of subsidiaries' net assets has been set to zero at the date of transition to IFRS. xxi Employee benefit trust The assets and liabilities of the Employee Benefit Trust (EBT) have been included in the group accounts. Any assets held by the EBT cease to be recognised on the group balance sheet when the assets vest unconditionally in identified beneficiaries. The costs of purchasing own shares held by the EBT are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the group income statement. 2 TRANSITIONAL ARRANGEMENTS These are the Group's first condensed consolidated interim financial statements for part of the period covered by the first annual consolidated financial statements prepared in accordance with IFRS. An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position, financial performance and cash flows is set out below. Reconciliation of equity at 1 August 2006 UK GAAP IAS 12 IAS 17 IAS 19 IFRS £'000 Income Leases Employee as Taxes £'000 Benefits restated £'000 £'000 £'000 EQUITY Called-up equity share 221 0 0 0 221 capital Share premium account 2,009 0 0 0 2,009 Other reserves 567 0 0 0 567 Retained earnings 4,454 566 (64) (72) 4,884 ---------- --------- -------- --------- -------- TOTAL EQUITY 7,251 566 (64) (72) 7,681 ========== ========= ======== ========= ======== Reconciliation of consolidated balance sheet and equity at 31 January 2007 UK GAAP IAS 1 IAS 12 IAS 17 IAS 19 IFRS £'000 Presentation Income Leases Employee as of financial Taxes £'000 Benefits restated statements £'000 £'000 £'000 £'000 NON-CURRENT ASSETS Intangible 113 0 0 0 0 113 assets Property, plant and 1,590 0 0 0 0 1,590 equipment Deferred tax 0 879 0 0 0 879 assets CURRENT ASSETS Trade and other receivables 25,819 (879) 732 0 0 25,672 Cash and cash equivalents 353 0 0 0 0 353 CURRENT LIABILITIES Trade and other payables (8,793) 0 0 (57) (31) (8,881) Tax liability (904) 0 0 0 0 (904) Bank loans and overdrafts (8,958) 0 0 0 0 (8,958) NON-CURRENT LIABILITIES Bank loan (2,917) 0 0 0 0 (2,917) -------- ----------- -------- -------- -------- -------- NET ASSETS 6,303 0 732 (57) (31) 6,947 ======== ========== ======== ======== ======== ======== EQUITY Called-up equity share capital 225 0 0 0 0 225 Share premium account 2,367 0 0 0 0 2,367 Other reserves 685 0 0 0 0 685 Retained earnings 3,026 0 732 (57) (31) 3,670 -------- ----------- -------- -------- -------- -------- TOTAL EQUITY 6,303 0 732 (57) (31) 6,947 ======== ========== ======== ======== ======== ======== Reconciliation of consolidated balance sheet and equity at 31 July 2007 UK GAAP IAS 1 IAS 12 IAS 17 IAS 19 IFRS £'000 Presentation Income Leases Employee as of financial Taxes £'000 Benefits restated statements £'000 £'000 £'000 £'000 NON-CURRENT ASSETS Intangible 133 0 0 0 0 133 assets Property, plant and 1,699 0 0 0 0 1,699 equipment Deferred tax 0 529 0 0 0 529 assets CURRENT ASSETS Trade and other 32,108 (529) 405 0 0 31,984 receivables Cash and cash equivalents 836 0 0 0 0 836 CURRENT LIABILITIES Trade and other (12,474) 0 0 (67) (76) (12,617) payables Tax liability (1,068) 0 0 0 0 (1,068) Bank loans and overdrafts (8,590) 0 0 0 0 (8,590) NON-CURRENT LIABILITIES Bank loan (2,083) 0 0 0 0 (2,083) --------- --------- -------- -------- -------- -------- NET ASSETS 10,561 0 405 (67) (76) 10,823 ========= ========= ======== ======== ======== ======== EQUITY Called-up equity share 230 0 0 0 0 230 capital Share premium 2,829 0 0 0 0 2,829 account Other reserves 610 0 0 0 0 610 Retained 6,892 0 405 (67) (76) 7,154 earnings --------- --------- -------- -------- -------- -------- TOTAL EQUITY 10,561 0 405 (67) (76) 10,823 ========= ========= ======== ======== ======== ======== Reconciliation of consolidated income statement for the period ended 31 January 2007 UK GAAP IAS 1 IAS 17 IAS 19 IAS 21 IFRS £'000 Presentation Leases Employee Foreign as restated of financial £'000 Benefits Exchange £'000 statements £'000 Rates £'000 £'000 Revenue 93,573 (135) 0 0 0 93,438 Cost of sales (81,050) 117 0 0 0 (80,933) -------- --------- -------- --------- --------- --------- Gross profit 12,523 (18) 0 0 0 12,505 Administration Costs (7,485) 10 7 41 0 (7,427) Cost of admission to AIM (572) 0 0 0 0 (572) Profit on sale of 59 (59) 0 0 0 0 discontinued operation Finance Income 13 0 0 0 0 13 Finance Cost (390) 0 0 0 0 (390) -------- --------- -------- --------- --------- --------- Profit before tax 4,148 (67) 7 41 0 4,129 -------- --------- -------- --------- --------- --------- Taxation (1,172) 3 0 0 (1,169) -------- --------- -------- --------- --------- --------- Profit for the period 2,976 (64) 7 41 0 2,960 -------- --------- -------- --------- --------- --------- -------- --------- -------- --------- --------- --------- Profit from discontinued 0 64 0 0 3 67 operations ======== ========= ======== ========= ========= ========= Profit for the period 2,976 0 7 41 3 3,027 from total operations ======== ========= ======== ========= ========= ========= Reconciliation of consolidated income statement for year ended 31 July 2007 UK GAAP IAS 1 IAS 17 IAS 19 IAS 21 IFRS £'000 Presentation of Leases Employee Foreign as financial Benefits Exchange Rates statements £'000 £'000 £'000 £'000 restated £'000 Revenue 202,914 (135) 0 0 0 202,779 Cost of sales (176,019) 117 0 0 0 (175,902) -------- --------- -------- --------- --------- --------- Gross profit 26,895 (18) 0 0 0 26,877 Administration Costs (15,627) 10 (2) (4) 0 (15,623) Cost of admission to AIM (572) 0 0 0 0 (572) Profit on sale of discontinued operation 59 (59) 0 0 0 0 Finance Income 19 0 0 0 0 19 Finance Cost (830) 0 0 0 0 (830) -------- --------- -------- --------- --------- --------- Profit before tax 9,944 (67) (2) (4) 0 9,871 -------- --------- -------- --------- --------- --------- Taxation (2,359) 3 0 0 0 (2,356) -------- --------- -------- --------- --------- --------- Profit for the period 7,585 (64) (2) (4) 0 7,515 -------- --------- -------- --------- --------- --------- -------- --------- -------- --------- --------- --------- Profit from discontinued 0 64 0 0 3 67 operations -------- --------- -------- --------- --------- --------- Profit for the period from total operations 7,585 0 (2) (4) 3 7,582 ======== ========= ======== ========= ========= ========= Notes to the reconciliations IAS 1 Presentation of financial statements Under UK GAAP, the deferred tax asset was classified as a current asset. Under IFRS the deferred tax asset is classified as a non-current asset. Under UK GAAP, the income statement provided full disclosure of each line item relating to discontinued operations. Under IFRS, only the profit from the discontinued operation is disclosed on the income statement. IAS 12 Income Taxes Under FRS 19, deferred tax was recognised only on timing differences; in contrast IAS 12 'Income Taxes' requires the recognition of deferred tax on all temporary differences which specifically impacts the recognition of deferred tax in relation to share based payments. Under FRS 19, the deferred tax asset on the cost of options recognised was restricted to the amount calculated by applying the prevailing corporation tax rate to the total cost in the year calculated under FRS20. Under IFRS the deferred tax asset recognised is the cost of options outstanding based on the fair value at the period end date multiplied by the prevailing rate of corporation tax. The deferred tax asset has been adjusted in line with IFRS requirements. IAS 17 Leases Under UK GAAP, the rent-free period lease incentive was spread over the period from the start of the lease to the first break clause. Under IFRS, the lease incentive is spread over the full lease term. IAS 19 Employee benefits Under UK GAAP, the company chose not to accrue for outstanding staff holiday pay at the balance sheet date. IFRS requires that the accrual be calculated at each balance sheet date. IAS 21 The Effects of Changes in Foreign Exchange Rates On the disposal of Matchtech Inc the cumulative translation differences are transferred to the income statement as part of the gain or loss on disposal. Under UK GAAP the difference was shown as a movement in reserves. Cash Flow statement Application of IFRS has resulted in reclassification of certain items in the cash flow statement as follows: Profit after taxation has been adjusted as per the reconciliation above. (Operating profit was used in the Interim and Annual Reports for 2007 in the reconciliation to net cash inflow from operating activities) Movements in trade and other receivables and trade and other payables have been adjusted to account for the IFRS adjustments to the provisions on the balance sheet as shown in the reconciliations of consolidated balance sheets and income statements above. These relate to the reclassification of the deferred tax asset between trade and other receivables and non current assets and the adjustments to the rent free period and staff holiday reserves. 3 SEGMENTAL INFORMATION The revenue and profit before tax are attributable to the one principal activity of the company. (i) Segmental A segmental analysis of revenue is given 6 months 6 months 12 months below: to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 Engineering 67,276 59,990 129,299 Built Environment 31,463 18,629 40,046 Support Services 17,823 14,819 33,434 -------- -------- -------- Continuing operations 116,562 93,438 202,779 Discontinued Operations 0 135 135 -------- -------- -------- Total 116,562 93,573 202,914 ======== ======== ======== A segmental analysis of gross profit is given below: Engineering 7,803 6,394 14,833 Built Environment 4,226 3,274 6,000 Support Services 3,243 2,837 6,044 -------- -------- -------- Continuing operations 15,272 12,505 26,877 Discontinued Operations 0 18 18 -------- -------- -------- Total 15,272 12,523 26,895 ======== ======== ======== A segmental analysis of operating profit is given below: Engineering 3,468 2,563 5,896 Built Environment 1,820 1,118 2,384 Support Services 865 825 2,402 -------- -------- -------- Continuing operations 6,153 4,506 10,682 Discontinued Operations 0 8 8 -------- -------- -------- Total 6,153 4,514 10,690 ======== ======== ======== (iI) Seasonality With the first half of the financial year including holiday seasons in August and at Christmas when recruitment activity is quieter than normal, the second half of the year generally produces stronger results. Revenue in the 6 months to 31 January 2007 excluding discontinued operations represented 46% of the annual total. 4 INCOME TAX EXPENSE Analysis of charge in the year 6 months 6 months 12 months to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 Total income tax expense 1,729 1,169 2,356 The total tax charge is lower than the standard rate of corporation tax. The differences are detailed below: Profit before tax 5,671 4,129 9,871 Corporation Tax at current rate of 30% 1,701 1,239 2,961 Deferred tax on timing differences 7 (38) (16) Expenses not deductible for tax purposes 88 50 114 Exceptional items not deductible for tax purposes 0 172 172 Difference between depreciation and capital allowances for the period 10 8 3 Under provision for previous years 0 0 1 Tax loss on EBT loss/profit 0 3 4 Tax relief on cost of options exercised in year (77) (251) (902) Tax effect of IFRS transitional arrangements 0 (14) 19 -------- -------- -------- Total UK tax charge 1,729 1,169 2,356 5 DISCONTINUED OPERATIONS On 31st August 2006 Matchtech Group UK Ltd sold the shares of Matchtech Inc for consideration of £105,000, giving a profit on disposal of £59,000. The profit from Matchtech Inc has been included under discontinued operations in the condensed consolidated income statement. The income statement of Matchtech Inc is set out below. DISCONTINUED OPERATIONS 6 months 6 months 12 months to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 Revenue 0 135 135 Cost of Sales 0 (117) (117) ----------- ---------- --------- GROSS PROFIT 0 18 18 Administrative expenses 0 (10) (10) ----------- ---------- --------- OPERATING PROFIT 0 8 8 Finance income 0 0 0 Finance cost 0 0 0 ----------- ---------- --------- PROFIT BEFORE TAX 0 8 8 Income tax expense 0 (3) (3) Foreign exchange gain 0 3 3 ----------- ---------- --------- PROFIT FROM DISCONTINUED OPERATIONS 0 8 8 =========== ========== ========= 6 DIVIDENDS Dividends on shares classed as equity 6 months 6 months 12 months to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 Paid during the period Equity dividends on ordinary shares 2,148 4,414 4,124 7 EARNINGS PER SHARE Earnings per share has been calculated by dividing the consolidated profit after taxation attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. Diluted earnings per share has been calculated, on the same basis as above, except that the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares (arising from the Group's share option schemes) into ordinary shares has been added to the denominator. There are no changes to the profit (numerator) as a result of the dilutive calculation. The earnings per share information has been calculated as follows: Earnings Per Share 6 months 6 months 12 months to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 Profits Profit from continuing operations 3,942 2,960 7,515 Profit from discontinued operations 0 67 67 -------- -------- -------- Profit for the period 3,942 3,027 7,582 Number of shares 000's 000's 000's Weighted average number of ordinary shares in issue 23,070 22,277 22,470 Effect of dilutive potential ordinary shares under option 777 939 556 -------- -------- -------- 23,847 23,216 23,026 Earnings per share pence pence pence Earnings per share from continuing operations - Basic 17.09 13.29 33.44 - Diluted 16.53 12.75 32.64 Earnings per share from discontinued operations - Basic 0.00 0.30 0.30 - Diluted 0.00 0.29 0.29 Earnings per share from total operations - Basic 17.09 13.59 33.74 - Diluted 16.53 13.04 32.93 Earnings Per Share for the purpose of a performance measure for the LTIPs is calculated excluding the non-recurring items of the sales and profits of the US business sold on 31st August 2006 as well as the non-recurring costs of the flotation as calculated below. 6 months 6 months 12 months Adjusted Earnings Per Share to 31/01/08 to 31/01/07 to 31/07/07 Unaudited Unaudited Unaudited £'000 £'000 £'000 Profits Profit for the period 3,942 3,027 7,582 -------- -------- -------- Costs of Admission to AIM 0 572 572 Profit after tax from discontinued operations 0 (5) (5) Profit on sale of discontinued operations 0 (59) (59) -------- -------- -------- Profit on ordinary activities after taxation but before non-recurring items 3,942 3,535 8,090 Number of shares 000's 000's 000's Weighted average number of ordinary shares in issue 23,070 22,277 22,470 Effect of dilutive potential ordinary shares under option 777 939 556 -------- -------- -------- 23,847 23,216 23,026 Earnings per share pence pence Pence Earnings per share from total operations - Basic 17.09 15.86 36.00 - Diluted 16.53 15.23 35.13 8 SHARE CAPITAL 31/01/08 31/01/07 31/07/07 £'000 £'000 £'000 Authorised share capital 40,000,000 Ordinary shares of £0.01 each 400 400 400 Allotted, called up and fully paid Ordinary shares of £0.01 each 231 225 230 The company issued the following shares Ordinary Share Consideration in the periods: shares of premium Received £0.01 issued received £ £'000 pence per share 6 months to 31/01/07 27/10/2006 348,254 69.0 243,778 27/11/2006 31,955 365.5 117,115 27/11/2006 31,955 nil 320 22/12/2006 767 nil 8 30/01/2006 736 nil 7 6 months to 31/07/07 26/02/2006 658 nil 7 30/03/2007 668 nil 7 27/04/2007 573 nil 6 25/05/2007 485 nil 5 01/06/2007 539,140 85.6 466,705 11/06/2007 947 87.6 839 25/06/2007 1,447 nil 14 6 months to 31/01/08 30/08/2007 436 nil 4 28/09/2007 447 nil 4 26/10/2007 454 nil 5 05/11/2007 70,872 89.0 63,781 30/11/2007 17,131 nil 171 INDEPENDENT REVIEW REPORT TO MATCHTECH GROUP PLC We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2008 which comprise the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and notes 1 to 8. We have read the other information contained in the interim report which comprises only the Chairman's Statement and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusion we have formed. Directors' Responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report. As disclosed in note 2, the next annual financial statements of the group will be prepared in accordance with International Financial Reporting Standards as adopted by the European Union. This interim report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' and the requirements of IFRS 1 'First-time Adoption of International Financial Reporting Standards' relevant to interim reports. The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Review Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union. GRANT THORNTON UK LLP Chartered Accountants & Registered Auditors No. 1 Dorset Street Southampton SO15 2DP March 2008 This information is provided by RNS The company news service from the London Stock Exchange

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