Interim Results

Staffline Recruitment Group plc 06 September 2005 Embargoed until 0700 Tuesday, 6 September 2005 STAFFLINE RECRUITMENT GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 'In line with expectations' Staffline Recruitment Group plc, the leading provider of recruitment and outsourced human resource services to industry, today announces its interim results for the six months to 30 June 2005. Financial highlights: â€¢ Successful flotation on AIM on 8 December 2004 â€¢ Turnover up 19% to Â£26.4m (2004: Â£22.1m) â€¢ Operating profit up 16% to Â£1.0m (2004: Â£0.9m) â€¢ Pre tax profit up 40% to Â£0.7m (2004: Â£0.5m) â€¢ Maiden interim dividend of 0.7p per share in line with stated progressive dividend policy â€¢ Earnings per share of 2.3p â€¢ Gross operating cash flow of Â£1.2m Operational highlights: â€¢ Significant growth in OnSites to 50 locations at 30 August 2005 (31 December 2004: 35) o 7 additional OnSites in the first half o 8 additional OnSites since the half year end â€¢ New Staffline industrial branch opened in Wolverhampton, West Midlands â€¢ Strong performance from the Techsearch division; sales up 19% and operating profit up 325% â€¢ Continued drive to secure Staffline's leadership in employment legislation compliance â€¢ Appointment of Carole Harvey as Finance Director and Company Secretary (see separate announcement for further details) Commenting on the results, Andy Hogarth, Managing Director, said: 'The Group has made strong progress during the first half of the year and we are pleased to be able to report interim results in line with our expectations. 'We are confident that the Group will continue to make good progress for the rest of the financial year, with contributions from the 15 new OnSite wins driving incremental growth in the second half and thereafter, and our expectations for the year remain unchanged.' For further information, please contact: www.staffline.co.uk Staffline Recruitment 0115 950 0885 Andy Hogarth, Managing Director Smithfield 020 7360 4900 Katie Hunt/Reg Hoare/Sarah Richardson Note to Editors: Staffline Recruitment Group plc's main business is as a specialist supplier of 'blue collar' temporary and contract staff to industry through a network of 17 branches and 50 OnSite locations nationwide. The Group also has a smaller but growing division called Techsearch which specialises in temporary and permanent engineering, IT, HR and FMCG placements and operates from 4 branches. The Group, which is managed from a head office in Nottingham, was founded in 1986 and was admitted to AIM in December 2004 (Ticker: STAF.L). Print resolution images are available for the media to view and download from www.vismedia.co.uk CHAIRMAN'S STATEMENT Introduction I am pleased to report Staffline Recruitment Group's interim results for the six months ended 30 June 2005. These represent the Group's first set of interims following its successful admission to AIM on 8 December 2004, which raised Â£6.7m net of expenses. Staffline specialises in the matching of un-skilled and semi-skilled temporary workers to suitable positions within the UK manufacturing industry, particularly the food processing sector. This is achieved by providing an outsourcing service which includes skills, eligibility and reference checking of applicants, health screening, training and ongoing supervision. Results Due to the fact that the Group acquired Staffline Recruitment Limited on flotation there are no comparative statutory Group interim results available. However for ease of comparison with the 2005 interim results, we have provided pro-forma results for Staffline Recruitment Limited for the period covering the six months to 30 June 2004. The results are prepared for the first time in accordance with International Financial Reporting Standards (IFRS) and in order to give the greatest level of clarity, we have prepared a full set of detailed notes which include reconciliation to the results on a UK GAAP basis. The results for the period are in line with expectations, with a pre tax profit of Â£0.7 million, and fully diluted earnings per share of 2.3p. Dividends As announced at the time of the flotation, the Board is committed to a progressive dividend policy and it gives me great pleasure to declare a maiden interim dividend of 0.7p per share, payable on 18 November 2005 to all shareholders on the register on 21 October 2005. In accordance with IFRS the dividend is not provided in the interim results as it was declared after 30 June 2005. Outlook We are pleased with the progress the Group has made since flotation and we are confident we have the strategy, management and business model in place for success. Furthermore, our focus on being a valuable outsourcing partner for our customers combined with our recent successes in winning new OnSites, positions us well for continued strong progress in the future. Derek Mapp Chairman 6 September 2005 MANAGING DIRECTOR'S STATEMENT The Group has made strong progress during the first half of the year and we are pleased to be able to report interim results in line with our expectations. This is despite a backdrop of subdued demand for temporary workers from certain manufacturing sectors as a result of the current economic conditions impacting on their markets. Strategy Our strategy continues to be to deliver shareholder value by achieving sustained growth in revenue, profit and cash flow. Our focus is on increasing both the number and scope of our OnSite client relationships, mainly but not exclusively in the food production sector, supported by our traditional branch network which incubates many of these relationships. In addition, we will continue to grow our smaller Techsearch division in line with increasing demand. The strengthened profile and customer confidence afforded by our flotation on AIM has already helped with the execution of this strategy. Financial Results As mentioned in the Chairman's statement, in order to provide meaningful comparisons, comparative results for the six months to 30 June 2004 are provided on a pro forma basis. Turnover for the first half rose by 19% to Â£26.4 million (2004: Â£22.1 million). Operating profit increased by 16% to Â£991,000 (2004: Â£858,000). Pre tax profit rose by 40% to Â£694,000 (2004: Â£494,000). The adoption of IFRS has resulted in the Group taking a charge in the income statement for the cost of share options issued to staff members. The total cost for the period to 30 June 2005 in respect of these options was Â£30,000. Following our admission to AIM, the Â£6.7m net proceeds of the Placing were used to strengthen the Group's balance sheet. As a result, net debt has fallen to Â£8.1m as at 30 June 2005, giving gearing of 47%, and we anticipate that this will be further reduced by the end of the current financial year. Gross operating cash flow during the period was Â£1,168,000 which, after taking account of interest payments of Â£272,000, tax payments of Â£282,000, capital expenditure of Â£12,000, Â£500,000 in repayments of bank term loan and adding back net working capital movements of Â£27,000, resulted in an increase in the Group's cash reserves of Â£129,000. Operational Review OnSite Division New OnSite wins continued to be the major growth driver for the business. The OnSites which were added at the end of 2004 made a good contribution to the first half performance, and during the first half we increased the number of OnSite locations by 7, bringing the total to 42 at the half year end compared to 35 at the year end. Buoyant trading for the first three months of the year was partially offset by subdued usage by certain existing customers in the manufacturing sector in the second quarter. As a provider of temporary workers, usage of our services is particularly buoyant at times of short term increases in demand for our customers' end products. In the latter three months, such favourable conditions were absent due to the slowing economy. We are well placed to benefit from any revival in usage by these customers, whilst the new business we have gained in the last year has compensated for this weakness, thus ensuring that our performance remains in line with expectations. Industrial Branches The majority of the industrial branches are performing well, with one new branch opened in the half year at Wolverhampton in the West Midlands, in response to increased demand in this area. We closed a satellite branch in Stoke on Trent as labour availability in the area, which had been a problem in 2004, improved and the branch was, therefore, no longer necessary for us to fulfill local client requirements. Two of the new OnSite openings in the period were incubated by the branch network. Techsearch Techsearch continued its strong performance with sales increasing by 19%. Operating profit increased by 325% reflecting the operational gearing in the business as well as improved efficiencies resulting from a reduction in the number of branches from six to four, which took place in mid 2004. Industry Background and Compliance The Gangmasters (Licensing) Act 2004 We very much welcome The Gangmasters (Licensing) Act 2004 ('the Act') which received Royal Assent in July 2004. The Act establishes the Gangmasters Licensing Authority ('GLA') to set up and operate the licensing scheme for labour providers operating in the agricultural, shellfish gathering and associated processing and packing sectors. Once the licensing arrangements are in place (anticipated in 2006) the Act will prohibit anyone without a licence from acting as a labour provider in these specified sectors. It will also make it an offence for a labour user to use an unlicensed provider. We are working very closely with the GLA and have been able to help shape their thinking on both implementation and enforcement. The Home Office The Home Office have greatly increased their activity in searching for and preventing the use of illegal workers. They have carried out a large number of audits in both ours and our clients' premises. We have passed with 100% success on every occasion. Temporary Labour Working Group (TLWG) This is a consortium of major retailers, growers, suppliers, labour providers and trade unions which was set up with Government support with the aim of establishing a set of minimum standards for labour providers. During the period we became members of the TLWG and were one of the earliest to pass the full audit. Verification Systems We have continued to invest heavily in our IT systems during the period introducing document scanning at each of our locations to further improve the quality of documentation held and to ensure that our unique three stage process of verification secures our leadership in compliance with legislation surrounding the prevention of illegal working. Board and Employees In March 2005 we announced the appointment of John Crabtree as a Non-Executive Director and today we announce the appointment to the Board of Carole Harvey as Group Finance Director and Company Secretary. This appointment follows Andrew Walsh agreeing to step down from both these roles and resuming his position as Group Financial Controller, the position he held prior to the flotation. Following these appointments, we have a full, strong and well-balanced Board with which to continue to develop the business within the framework of our stated strategy. Since our admission to AIM, we have benefited from the contribution of the employee share option scheme to a further reduction in staff turnover which stood at 22% on an annualised basis for the first six months, compared to 39% for the full year in 2004. Current Trading and Prospects We are pleased to be able to announce further OnSite contract wins since 30 June 2005, including a number of major customers in the food processing industry. We have converted a further 8 sites in the past 2 months, a total of 15 new sites for the year, bringing the total number of OnSite locations at 30 August to 50. We continue to see momentum in our pipeline of OnSite prospects, providing encouragement for 2006. We are confident that the Group will continue to make good progress for the rest of the financial year, with contributions from the 15 new OnSite wins driving incremental growth in the second half and thereafter, and our expectations for the year remain unchanged. Andy Hogarth Managing Director 6th September 2005 Consolidated income statement Six months ended 30 June 2005 Pro forma Note Period 6 months 25 October ended ended to 31 30 June 30 June December 2005 2004 2004 Unaudited Unaudited Audited Â£'000 Â£'000 Â£'000 Continuing operations Sales revenue 26,364 22,137 4,927 Cost of sales (21,092) (17,307) (3,966) Gross profit 5,272 4,830 961 Administrative expenses (4,281) (3,972) (746) Operating result 991 858 215 Finance costs 5 (297) (364) (112) Result for the period before taxation 694 494 103 Tax(expense)/income 7 (208) - 21 Net result for the period 486 494 124 Earnings per ordinary share 8 Basic 2.3p 9.4p Diluted 2.3p 9.4p Consolidated statement of changes in equity Six months ended 30 June 2005 Share Profit based and Share Payment Share Loss capital reserve premium account Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 25 October 2004 - - - - - On acquisition of Staffline Recruitment 1,000 - 7,004 - 8,004 Limited Issue of new shares 1,082 - 7,573 - 8,655 Cost of issue of new shares - - (320) - (320) Net result for the period - - - 124 124 Employee share based compensation - 5 - - 5 At 31 December 2004 2,082 5 14,257 124 16,468 Net result for the period - - - 486 486 Employee share based compensation - 30 - - 30 At 30 June 2005 2,082 35 14,257 610 16,984 Consolidated balance sheet At 30 June 2005 At 31 At 30 June December 2005 2004 Unaudited Audited Note Â£'000 Â£'000 Assets Non current Goodwill 9 22,326 22,326 Property, plant and equipment 10 150 285 22,476 22,611 Current Trade debtors and other receivables 11 7,481 7,901 Cash and cash equivalents 500 371 7,981 8,272 Total assets 30,457 30,883 Liabilities Current Trade and other payables 12 (8,736) (9,133) Bank loans 13 (950) (950) Current tax liabilities (208) (282) (9,894) (10,365) Non current Bank loans 13 (3,579) (4,050) Total liabilities (13,473) (14,415) Equity Share capital 15 (2,082) (2,082) Share premium (14,257) (14,257) Share based payment reserve (35) (5) Profit and loss account (610) (124) Total equity (16,984) (16,468) Total equity and liabilities (30,457) (30,883) Consolidated cash flow statement For the six months ended 30 June 2005 Period ended 6 months 31 ended 30 December June 2005 2004 Unaudited Audited Â£'000 Â£'000 Operating activities Operating result 991 215 Interest paid (272) (35) Employee equity settled share options 30 5 Depreciation of property, plant and equipment 147 33 Change in trade and other receivables 420 424 Change in trade and other payables (393) 739 Taxes paid (282) - Net cash inflow from operating activities 641 1,381 Investing activities Purchases of property, plant and equipment (12) - Acquisition of subsidiary undertaking - (3,709) Overdraft acquired on acquisition - (176) Net cash used in investing activities (12) (3,885) Financing activities Issue of shares - 8,655 Repayment of loans (500) (5,460) Share issue costs - (320) Net cash (used in)/from financing activities (500) 2,875 Net increase in cash and cash equivalents 129 371 Cash and cash equivalents at beginning of period 371 - Cash and cash equivalents at end of period 500 371 Notes to the interim results Six months ended 30 June 2005 1. GENERAL INFORMATION The information for the period ended 31 December 2004 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified. As the acquisition of Staffline Recruitment Limited was completed on 26 October 2004, for illustrative purposes only a consolidated pro forma income statement for the six months ended 30 June 2004 has been provided in this interim report. This pro forma information comprises the results of Staffline Recruitment Limited only. 2. ACCOUNTING POLICIES Basis of preparation The interim financial report has been prepared under the historical cost convention and in accordance with International Accounting Standard 34 Interim Financial Reporting and the requirements of International Financial Reporting Standard 1 First Time Adoption of International Reporting Standards relevant to interim reports. Staffline Recruitment Group plc will adopt IFRS for the first time in its consolidated financial statements for the year ending 31 December 2005. The transition to IFRS reporting has resulted in a number of changes in the reported financial statements, notes thereto and accounting principals compared to the previous annual report. Note 3 provides further details on the transition from UK GAAP to IFRS. The principal accounting policies of the Group are set out below. Consolidation and investments in subsidiaries Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through voting rights. The consolidated financial statements of the Group incorporate the financial statements of the parent company as well as those entities controlled by the Group by full consolidation. In addition, acquired subsidiaries are subject to application of the purchase method. This involves the revaluation 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 revalued amounts, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Material intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Income recognition Income for temporary contractors is recognised on receipt of contractor timesheets, which are signed by the customer authorising invoices to be raised. Income from permanent placements is recognised when the candidates start work. Turnover represents sales to outside customers at invoiced amounts less value added tax. Goodwill Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment The Group's goodwill and property, plant and equipment are subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows. Individual intangible assets or cash-generating units that include goodwill with an indefinite useful life are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Property, plant and equipment Computer equipment and fixtures and fittings are carried at acquisition cost less subsequent depreciation and impairment losses. Depreciation is charged on these assets on a straight line basis over the estimated useful economic life of each asset. The useful lives of property, plant and equipment can be summarised as follows: Computer equipment 3 years Fixtures and fittings 3 years Leases In accordance with IAS 17 (revised 2003), the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease. Subsequent accounting for assets held under finance lease agreements, ie depreciation methods and useful lives, correspond to those applied to comparable acquired assets. The corresponding finance leasing liability is reduced by lease payments less finance charges, which are expensed to finance costs. Finance charges represent a constant periodic rate of interest on the outstanding balance of the finance lease liability. All other leases are treated as operating leases. Payments on operating lease agreements are recognised as an expense on a straight-line basis. Associated costs, such as maintenance and insurance, are expensed as incurred. The Group does not act as a lessor. Taxation Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement. Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised in conjunction with goodwill. This applies also to temporary differences associated with shares in subsidiaries if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, 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. Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity. Pensions Pensions to employees are provided through contributions to individual personal pension plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after payment of the fixed contribution. The contributions recognised in respect of personal pension plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short term nature. Financial assets The Group's financial assets include cash and trade receivables. All financial assets are recognised on their settlement date. All financial assets are initially recognised at fair value, plus transaction costs. Non-compounding interest and other cash flows resulting from holding financial assets are recognised in profit or loss when received, regardless of how the related carrying amount of financial assets is measured. Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the 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. Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as money market instruments and bank deposits. Money market instruments are financial assets carried at fair value through profit or loss. Equity Share capital is determined using the nominal value of shares that have been issued. The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Retained earnings include all current and prior period results as disclosed in the income statement. Share based employee remuneration All share-based payment arrangements are recognised in the consolidated financial statements. The Group operates equity-settled share-based remuneration plans for remuneration of its employees. All employee services received in exchange for the grant of any share-based remuneration are measured at their fair values. These 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 any non-market vesting conditions (for example, profitability and sales growth targets). All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to the share based payment reserve, net of deferred tax where applicable. If vesting periods or other 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. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised, if there is any indication that the number of share options expected to vest differs from previous estimates. No adjustment is made to the expense recognised in prior periods if fewer share options ultimately are exercised than originally estimated. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as share premium. Financial liabilities The Group's financial liabilities include bank loans, an invoice discounting loan and trade and other payables. Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges are recognised as an expense in 'finance cost' in the income statement. Bank loans are raised for support of long term funding of the Group's operations. They are recognised as proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables are recognised initially at their nominal value and subsequently measured at amortised cost less settlement payments. Dividend distributions to shareholders are included in 'other short term financial liabilities' when the dividends are approved by the shareholders' meeting. Other provisions, contingent liabilities and contingent assets Other provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, legal disputes or onerous contracts. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognised, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long term provisions are discounted to their present values, where time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognised in the consolidated balance sheet. Probable inflows of economic benefits to the Group that do not yet meet the recognition criteria of an asset are considered contingent assets. 3. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS The transition from previous UK GAAP to IFRS has been made in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards. The Group's financial statements for the six months ended 30 June 2005 and the comparatives presented for the period ended 31 December 2004 comply with all presentation recognition and measurement requirements of IFRS applicable for accounting periods commencing on or after 1 January 2005. The following reconciliations and explanatory notes thereto describe the effects of the transition for the financial year 2004. All explanations should be read in conjunction with the IFRS accounting policies of Staffline Recruitment Group plc. Since Staffline Recruitment Group plc was incorporated on 25 October 2004 that is the transition date to IFRS. As that was the date of incorporation of the company no reconciliation of equity is required at that date. The re-measurement of balance sheet items as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 Effect of UK GAAP transition IFRS Â£'000 Â£'000 Â£'000 Goodwill 22,256 70 22,326 Profit and loss account 129 (5) 124 Share options to be issued - 5 5 Total adjustment to assets and equity 22,385 70 22,455 The reconciliation of the Group's equity reported under previous GAAP to its equity under IFRS as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 Â£'000 Retained earnings - UK GAAP 59 Reversal of goodwill amortisation 70 Employee share based compensation (5) Retained earnings - IFRS 124 Share options to be issued - UK GAAP - Employee share based compensation 5 Share options to be issued - IFRS 5 Total adjustment to equity 70 Profit and loss reported under UK GAAP for the period ended 31 December 2004 is reconciled to IFRS as follows: Reconciliation for the period 25 October to Effect of 31 December 2004 UK GAAP transition IFRS Â£'000 Â£'000 Â£'000 Sales revenue 4,927 - 4,927 Cost of sales (3,966) - (3,966) Gross profit 961 - 961 Administrative expenses (741) (5) (746) Operating result 220 (5) 215 Amortisation of goodwill (70) 70 - Finance costs (112) - (112) Result for the period before taxation 38 65 103 Tax income 21 - 21 Net result for the period 59 65 124 The Group has modified its former balance sheet and income statement structure on transition to IFRS. The main changes may be summarised as follows: â€¢ to eliminate the amortisation of goodwill â€¢ to provide for the estimated fair value of the share based employee remuneration. 4. SEGMENTAL REPORTING (a) By business segment (primary segment): As defined under International Accounting Standard 14 (IAS14), the only material business segment the Group has is that of providing temporary staff to customers as the placement of permanent staff to customers contributes less than 10% of Group total revenue. (b) By geographical segment (secondary segment): Under the definitions contained in IAS 14, the only material geographic segment that the Group operates in is the United Kingdom. 5. FINANCE COSTS Period 6 months ended ended 30 31 June December 2005 2004 Â£'000 Â£'000 Interest payable on bank loans and overdraft 297 110 Interest payable on loan notes - 2 297 112 6. EMPLOYEES REMUNERATION Employee benefits expense Expense recognised for employee benefits is analysed below: Period 6 months ended ended 31 30 June December 2005 2004 Â£'000 Â£'000 Wages and salaries 2,616 503 Social security costs 279 46 Other pension costs - defined contribution plans 31 4 2,926 553 Number Number The average number of persons (including directors) employed by the Group during the period was: 189 181 Share-based employee remuneration As at 30 June 2005 the Group operated a share based payment scheme for employee remuneration. The share option scheme is available to all full time members of staff, except for two of the executive directors, Mr A Hogarth and Mr M Evans, subject to the rules of the scheme, the key points of which are as follows: â€¢ only staff with in excess of six months service are eligible; â€¢ the number of options granted are a factor of length of service and current salary; â€¢ options are exercisable between two and seven years of being granted; â€¢ except in certain limited circumstances all options lapse if an employee leaves the Group; and â€¢ exercise of options is not subject to any specific performance criteria. All share based employee remuneration will be settled in equity. The Group has no legal or constructive obligation to repurchase or settle the options. Share options and weighted average exercise price are as follows for the reporting periods presented: 30 June 2005 31 December 2004 Weighted average Weighted average exercise price exercise price Number (pence) Number (pence) Outstanding at start of period 499,205 80 - - Granted 104,184 107.5 499,205 80 Lapsed (47,637) 80 - - Outstanding at end of period 555,752 85.2 499,205 80 The Group has the following outstanding share options and exercise prices: 30 June 2005 31 December 2004 Weighted Weighted Weighted Weighted average average average average exercise contractual exercise contractual price life price life Number (pence) (months) Number (pence) (months) Exercise date: 2006 451,568 80 17 499,205 80 23 2007 104,184 107.5 23 - - - The fair value of options granted was determined using the Black-Scholes valuation model. Significant inputs into the calculations were: â€¢ weighted average share price of 107.5 pence â€¢ exercise prices as detailed above â€¢ 10% volatility based on expected share price â€¢ a risk free interest rate of 5%. In total Â£30,000 of employee remuneration expense has been included in the consolidated income statement for 30 June 2005 (31 December 2004 : Â£5,000) which gave rise to share based payment reserve. No liabilities were recognised due to share based payment transactions. 7. TAX (EXPENSE)/INCOME The relationship between the expected tax expense at 30% and the tax expense actually recognised in the income statement can be reconciled as follows: Period 6 months ended ended 30 31 June December 2005 2004 Â£'000 Â£'000 Result for the period before tax 694 108 Tax rate 30% 30% Expected tax expense 208 32 Adjustment for non-deductible expenses relating - (55) to short term timing differences Other non-deductible expenses - 2 Actual tax expense/(income) 208 (21) Comprising: Current tax expense 208 - Deferred tax income, resulting from the - (21) origination and reversal of temporary differences 208 (21) 8. EARNINGS PER SHARE The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for all dilutive potential ordinary shares. Details of the earnings and weighted average number of shares used in the calculations are set out below: Basic Diluted Period Period 6 months ended 6 months ended ended 31 ended 31 30 June December 30 June December 2005 2004 2005 2004 Earnings (Â£'000) 486 124 486 124 Weighted average number of 20,824,463 1,312,226 20,939,980 1,318,517 shares Earnings per share (pence) 2.3p 9.4p 2.3p 9.4p The earnings per share for the period ended 31 December 2004 relates to a 23 day trading period only and, therefore, gives a distorted picture of an annualised earnings per share. 9. GOODWILL Goodwill Â£'000 Gross carrying amount At 1 January 2005 22,326 Additions in the period - At 30 June 2005 22,326 Accumulated impairment losses At 1 January 2005 - Impairment loss recognised - At 30 June 2005 - Net book amount at 30 June 2005 22,326 Goodwill above relates to the following cash generating units: Date of Original acquisition cost Â£'000 Staffline Recruitment Limited 8 December 2004 22,326 The recoverable amounts for Staffline Recruitment Limited was determined based on a value-in-use calculation, covering a detailed three year forecast, followed by an extrapolation of expected cash flow at a growth rate of 5%. The growth rate reflects the long term average growth rate for that cash generating unit. Management's key assumptions for Staffline Recruitment Limited include assumptions that there will be no significant changes in the business and that turnover growth will not exceed historic growth levels. Apart from the considerations described in determining the value-in-use of the cash generating unit above, the Group management is not currently aware of any other probable changes that would necessitate changes in its key estimates. 10. PROPERTY, PLANT AND EQUIPMENT Group Fixtures Computer and equipment fittings Total Â£'000 Â£'000 Â£'000 Gross carrying amount At 1 January 2005 1,213 95 1,308 Additions 12 - 12 At 30 June 2005 1,225 95 1,320 Depreciation and impairment At 1 January 2005 928 95 1,023 Provided in the year 147 - 147 At 30 June 2005 1,075 95 1,170 Net book amount at 30 June 2005 150 - 150 Net book amount at 31 December 2004 285 - 285 11. TRADE AND OTHER RECEIVABLES At 30 At 31 June December 2005 2004 Â£'000 Â£'000 Trade and other receivables, gross 7,490 7,905 Impairment of trade and other receivables (9) (4) Trade and other receivables, net 7,481 7,901 Trade and other receivables are usually due within 30 - 60 days and do not bear any effective interest rate. All trade receivables are subject to credit risk exposure. However, the Group does not identify specific concentrations of credit risk with regards to trade and other receivables as the amounts recognised resemble a large number of receivables from various customers. The fair value of these short term financial assets is not individually determined as the carrying amount is a reasonable approximation of fair value. 12. TRADE AND OTHER PAYABLES At 30 At 31 June December 2005 2004 Â£'000 Â£'000 Trade and other payables 4,663 5,536 Invoice discounting liability 4,073 3,597 8,736 9,133 The invoice discounting facility included above is secured on the trade debtors of the Group and bears interest at commercial rates. The fair value of trade and other payables has not been disclosed as, due to their short duration, management considers the carrying amounts recognised in the balance sheet to be a reasonable approximation of their fair value. 13. BANK LOANS Bank loans are repayable as follows: At 30 At 31 June December 2005 2004 Â£'000 Â£'000 Within one year 1,000 1,000 After one and within two years 1,000 1,000 After two and within five years 2,750 3,000 After more than five years - 250 4,750 5,250 Debt issue costs (221) (250) 4,529 5,000 Less: current liabilities (950) (950) Non current liabilities 3,579 4,050 Bank loans are secured by a debenture over all the assets of the Group. The bank loan is repayable in equal quarterly instalments of Â£250,000. Interest accrues on the loan at 2% above base rate. The fair value of the bank loan is Â£3,853,000 at 30 June 2005 (31 December 2004 Â£4,214,000). Fair values of the bank loans have been determined by calculating the present values at the balance sheet date of the future cash flows, using fixed effective market interest rates available to the Group. No fair value charges have been included in the income statement for the period as financial liabilities are carried at amortised cost in the balance sheet. 14. DEFERRED TAX ASSETS AND LIABILITIES There are no deferred taxes arising from temporary differences at 30 June 2005 or 31 December 2004. 15. SHARE CAPITAL At 30 At 31 June December 2005 2004 Â£'000 Â£'000 Authorised 30,000,000 ordinary 10p shares 3,000 3,000 50,000 redeemable Â£1 shares 50 50 3,050 3,050 Allotted, issued and fully paid 20,824,463 ordinary 10p shares 2,082 2,082 16. RELATED PARTY TRANSACTIONS The only related parties are the Groups' directors and others as described below. Transactions with Group directors The Group directors' personal remuneration includes the following expenses: Period 6 months ended 31 ended 30 December June 2005 2004 Â£'000 Â£'000 Short-term employee benefits: Salaries 167 26 Social security costs 18 3 Past employment benefits relating to defined contribution schemes 12 - Share based payments - - 197 29 Other transactions The Group provides pension benefits for some of its employees under a defined contribution pension plan. In the six months ended 30 June 2005 the Group contributed Â£31,000 (period ended 31 December 2004: Â£4,000) to this plan. At 30 June 2005 there were contributions due by the Group of Â£1,000 (31 December 2004: Â£nil). 17. OPERATING LEASES The Group's minimum operating lease payments are as follows: Period 6 months ended 31 ended 30 December June 2005 2004 Land and buildings Land and buildings Â£'000 Â£'000 In one year or less 41 11 Between one and five years 209 225 In five years or more 52 52 302 288 Lease payments recognised as an expense during the six months ended 30 June 2005 amount to Â£200,000 (period ended 31 December 2004 : Â£24,000). Operating lease agreements do not contain any contingent rent clauses. None of the operating lease agreements contain renewal or purchase options or escalation clauses or any restrictions regarding dividends, future leasing or additional debt. 18. RISK MANAGEMENT OBJECTIVES AND POLICIES The Group is exposed to a variety of financial risks which result from both its operating and investing activities. The Group's risk management is coordinated at its headquarters, in close co-operation with the board of directors, and focuses on actively securing the Group's short to medium term cash flows by minimising the exposure to financial markets. Long term financial investments are managed to generate lasting returns. Staffline Recruitment Group plc does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed to are described below: Credit risk Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the balance sheet (or in the detailed analysis provided in the notes to the financial statements). Credit risk, therefore, is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset's carrying amount. The Group's trade and other receivables are actively monitored to avoid significant concentrations of credit risk. The Group has adopted a no-business policy with customers lacking an appropriate credit history where credit records are available. Cash flow and fair value interest rate risks The Group seeks to manage financial risks to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Short term flexibility is achieved by the use of an invoice discounting facility, which provides 85% of eligible debtors up to a maximum of Â£6,000,000. This facility is due for review in March 2006. All financial liabilities of the Group are subject to floating interest rates. This information is provided by RNS The company news service from the London Stock Exchange

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Staffline Group (STAF)

Tuesday, 14th May 2024

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