Interim Results
Staffline Recruitment Group plc
03 September 2007
Embargoed until 0700 Monday 3 September 2007
STAFFLINE RECRUITMENT GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007
A strong performance driven by organic growth
Staffline Recruitment Group plc, the leading provider of recruitment and
outsourced human resource services to UK industry, today announces its interim
results for the six months ended 30 June 2007.
Financial highlights:
• Revenue up 52% to £52.3m (2006: £34.4m); up 47% to £50.5m excluding OSP
• Operating profit up 33% to £1.6m (2006: £1.2m)
• Pre tax profit up 40% to £1.4m (2006: £1.0m)
• Basic earnings per share increased by 41% to 4.5p (2006: 3.2p)
• Interim dividend of 1.3p per share declared; representing an increase of
30% (2006: 1.0p)
Operational highlights:
• Acquisition of Onsite Partnership ('OSP') on 19 March 2007; integration
proceeding well
• Significant organic growth in OnSites to 75 locations - a net increase of
12 since 30 June 2006
• OSP added a further 12 locations giving a combined total of 87 OnSites
• A strong trading performance from the Industrial branch network
• Continued strong demand for Techsearch
• Substantially extended our geographical reach both organically and by
acquisition
• Gangmaster Licensed status providing further opportunities as focus on
compliance continues
Current trading:
• Trading during July and August has been in line with our expectations for
the year as a whole
• A further 10 OnSites are expected to be open by the end of September
Commenting on the results, Andy Hogarth, Managing Director, said:
'The Group has had an excellent start to 2007 and I am very pleased to be able
to report a strong trading performance across all of our businesses including
OSP, which we acquired in March.
'Whilst the market continues to be very competitive our order book remains
strong, reflecting the increasing demand for our service, so the Board's
expectations for the year as a whole remain unchanged.'
For further information, please contact: www.staffline.co.uk
---------------------
Staffline Recruitment Group plc 0115 950 0885
Andy Hogarth, Managing Director 07931 175775
Carole Harvey, Finance Director 07904 262132
Oriel Securities Limited
Natalie Fortescue 020 7710 7600
Smithfield
Katie Hunt/Will Henderson 020 7360 4900
A presentation for analysts will be held at 10.45 for 11.00am at
the offices of Smithfield, 10 Aldersgate Street, London EC1A 4HJ
Print resolution images are available for the media to view and download from
www.vismedia.co.uk
About Staffline
Staffline Recruitment Group plc's main business is as a specialist supplier of
'blue collar' temporary and contract staff to industry. It provides a fully
outsourced service, managing the temporary recruitment function of its clients
on their premises, at 87 OnSite locations nationwide and also has a network of
17 industrial branches. In addition, the Group has a smaller 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).
Chairman's Statement
Introduction
The Group achieved a strong performance in the period, almost entirely driven by
organic growth. For the six months ended 30 June 2007, Staffline's results are
well ahead of the same period in the previous year and slightly ahead of our
expectations. In addition, we announced on 19 March 2007 our first acquisition,
of Onsite Partnership ('OSP'), which specialises in logistics and distribution
labour outsourcing. OSP has traded in line with our expectations in the first
half albeit that it has had little effect on Group performance as its sales are
heavily biased towards the second half of the year, which includes the Christmas
period.
Staffline continues to specialise in the provision of blue collar unskilled and
semi skilled temporary workers to UK industry. Over 70% of our sales are
attributable to our OnSite managed services division which offers a fully
managed outsourced service to our clients. We have maintained our traditional
focus on the food processing and manufacturing sectors but we are seeing
increased demand from other sectors, most notably e-retailing and logistics. In
addition, we have substantially extended our geographical reach both organically
and through the OSP acquisition.
Financial Results
The Group has continued to benefit from strong demand for its services from
across all the sectors in which it operates, resulting in a 40% increase in
pre-tax profit for the six months ended 30 June 2007 to £1.4m (2006: £1.0m) and
a 41% rise in basic earnings per share to 4.5p (2006: 3.2p).
Dividends
The group continues to be committed to a progressive dividend policy and I am
pleased to be able to report a further increase in the interim dividend declared
by the board, a rise of 30% to 1.3p per share (2006: 1.0p). The interim dividend
is payable on 16 November 2007 to shareholders on the register on 19 October
2007.
Summary
We are pleased to be able to report an encouraging set of interim results and
continued progress with growing the Group organically, supplemented by the
recent acquisition of OSP. Overall, the Board's expectations for the year as a
whole remain unchanged and we are confident of continued significant growth in
the future.
Derek Mapp
Chairman
3 September 2007
Managing Directors Review
The Group has had an excellent start to 2007 and I am very pleased to be able to
report a strong trading performance across all of our businesses including OSP,
which we acquired in March. In particular, our managed outsourcing division,
OnSite, has continued to achieve excellent organic growth. We have had further
success in expanding the business geographically, with a growing presence in
Southern England driven by our newly appointed Regional Director. In addition,
we now have a sales presence in Scotland which has already resulted in the
winning of an OnSite for a new client due to be opened this autumn.
Strategy
Staffline's strategy continues to be based primarily on organic growth through
expansion of the number of OnSite locations for both new and existing customers.
Despite the strong growth achieved to date, we currently estimate that Staffline
has approximately a 3% market share providing ample opportunity to grow
significantly in the next few years.
As indicated at the time of the Group's Admission to AIM in 2004, acquisitions
will only be selectively considered where opportunities are identified to
acquire complementary companies that improve our service offering, such as OSP,
and create shareholder value.
Financial Results
Turnover for the six months ended 30 June 2007, excluding OSP, was £50.5m, an
increase of 47% from £34.4m in the first half of 2006. Gross profit grew at a
slower rate as an expected result of our strategy to increase our OnSite
business which achieves lower gross margins. Overall profit before tax increased
by 40% to £1.4m (2006: £1.0m), giving a 41% rise in basic earnings per share to
4.5p (2006: 3.2p).
Debtor days have continued to improve in the period and have been reduced to 29
(2006: 30) further demonstrating our efficiency in this area. Our term loan has
increased overall by £1.5m reflecting the £2m loan used to acquire OSP offset by
a £0.5m scheduled repayment.
Operational Review
OnSite Division
Overall trading within the division has been good, driven by new business wins
both with new clients and existing clients.
As at 30 June 2007 the number of OnSite locations operated by Staffline,
excluding OSP operations, had increased to 75 representing a net increase of 12
since 30 June 2006. 12 OSP locations have been integrated into Staffline's
operations from 1 July 2007, giving a total of 87. The Group has a further 10
OnSites which are expected to be open by the end of September, which will result
in the Group having 97 OnSite locations.
We have been seeing increased demand from beyond our target sectors, most
notably from the e-tailing and logistics sectors, including winning a number of
OnSites with a leading logistics service provider. As a result we have developed
specific expertise to address these sectors' particular needs.
Industrial Branches
The Group's Industrial Branch division continues to develop, reflected in a good
trading performance across almost the entire network. During the period, it has
increased the client base it serves whilst also introducing new client
relationships through which to grow our OnSite business.
Techsearch
Our smaller Techsearch brand which represents less than 10% of Group turnover,
has enjoyed a satisfactory start to the year driven by continued demand for well
qualified candidates looking for permanent positions. The Group as a whole
benefits from Staffline's ability, through the Techsearch offering, to provide
its clients with candidates for a broader range of positions.
On Site Partnership ('OSP')
In March 2007, we completed the acquisition of OSP, which specialises in making
both permanent and temporary placements in the logistics and distribution
sectors. OSP complements our existing operations, providing us with additional
cross-selling opportunities and a greater geographical reach. The consideration
paid for the business was £2m in cash.
We have now completed the integration of the temporary placement side of the
business and have made some cost savings through the rationalisation of a number
of OSP locations close to where Staffline sites already existed and also by
reducing central administration costs. These locations will, from 1 July 2007,
trade under the Staffline name, a move which has been well received by those
clients affected. The existing permanent recruitment offering will continue to
be branded OSP.
Industry Background
Gangmaster Licensing Act 2004
Since the Act's introduction a total of 29 Gangmasters have had their licences
revoked with another 30 having been refused a licence. The continued focus on
regulation and compliance, combined with the lack of understanding of the
requirements of the Act amongst potential clients, is providing us with
opportunities to utilise our status as a fully licensed and compliant provider
and resulting in increased business flowing to us.
EU Accession State Workers
The proportion of our workforce originating from the new accession states has
increased to 60%, from 52% last year. We are still experiencing some skills
shortages but have increased the reach of our recruitment drive to beyond the
major cities in Eastern Europe in order to fulfil client requirements.
Health and Safety
Health and safety continues to be a major focus of attention for us, and the
Group recognises the importance of its role in ensuring that contractors are
placed in safe working environments.
Employees
The average number of permanent Staffline employees has increased to 237 (2006:
205). The take up of the share option scheme, which is open to all employees,
has continued to be high and, of the first options issued at the time of the
Group's admission to AIM, some 300,000 have now been exercised by staff. We
believe that by making options available to all members of staff we encourage
better retention and ensure employees feel a key part of the success of the
Company.
Current Trading and Prospects
Group trading during July and August has been in line with our expectations for
the year as a whole, which reflects the Group's traditional seasonal trading
pattern and weighting towards the second half.
Great progress has been made in the first half towards achieving our year end
expectations. Whilst the market continues to be very competitive our order book
remains strong, reflecting the increasing demand for our service, so the Board's
expectations for the year as a whole remain unchanged.
Andy Hogarth
Managing Director
3 September 2007
Consolidated income statement
For the six months ended 30 June 2007
Period Period Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Note Unaudited Unaudited Audited
£'000 £'000 £'000
Sales revenue 52,324 34,384 84,111
Cost of sales (44,174) (28,356) (69,975)
-------- -------- --------
Gross profit 8,150 6,028 14,136
Administrative (6,518) (4,812) (10,383)
expenses -------- -------- --------
Profit from operations 1,632 1,216 3,753
Finance costs 5 (229) (212) (395)
-------- -------- --------
Profit for the period
before taxation 1,403 1,004 3,358
Tax expense 7 (469) (338) (1,014)
-------- -------- --------
Net profit for the
period 934 666 2,344
======== ======== ========
Earnings per ordinary
share 8
Basic 4.5p 3.2p 11.3p
======== ======== ========
Diluted 4.3p 3.1p 10.9p
======== ======== ========
Consolidated statement of changes in equity
For the six months ended 30 June 2007
Share
based Profit
Share payment Share and loss
capital reserve premium account Total
£'000 £'000 £'000 £'000 £'000
At 31 December 2005 2,082 68 14,257 1,636 18,043
Net result for the period to
30 June 2006 - - - 666 666
Employee share based compensation - 110 - - 110
At 30 June 2006 (unaudited) 2,082 178 14,257 2,302 18,819
Net result for the period to
31 December 2006 - - - 1,678 1,678
Employee share based compensation - (71) - - (71)
Dividend paid - - - (458) (458)
At 31 December 2006 (audited) 2,082 107 14,257 3,522 19,968
Net result for the period to
30 June 2007 - - - 934 934
Employee share based compensation - 31 - - 31
Employee share options exercised 30 - 211 - 241
At 30 June 2007 (unaudited) 2,112 138 14,468 4,456 21,174
Consolidated balance sheet
At 30 June 2007
At 31
At 30 June At 30 June December
2007 2006 2006
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Assets
Non current
Goodwill 9 24,397 22,326 22,326
Property, plant and equipment 10 838 163 204
-------- -------- --------
25,235 22,489 22,530
-------- -------- --------
Current
Trade and other receivables 11 15,204 9,645 13,189
Cash and cash equivalents 12 1,707 1,389 823
-------- -------- --------
16,911 11,034 14,012
-------- -------- --------
Total assets 42,146 33,523 36,542
======== ======== ========
Liabilities
Non current
Bank loans 14 (4,900) (3,379) (3,150)
Current
Trade and other payables 13 (10,577) (9,721) (9,139)
Bank overdrafts and loans 14 (5,022) (450) (3,807)
Current tax liabilities (473) (1,154) (478)
-------- -------- --------
(16,072) (11,325) (13,424)
-------- -------- --------
Total liabilities (20,972) (14,704) (16,574)
======== ======== ========
Equity
Share capital 16 (2,112) (2,082) (2,082)
Share premium (14,468) (14,257) (14,257)
Share based payment reserve (138) (178) (107)
Profit and loss account (4,456) (2,302) (3,522)
-------- -------- --------
Total equity (21,174) (18,819) (19,968)
======== ======== ========
Total equity and liabilities (42,146) (33,523) (36,542)
======== ======== ========
Consolidated cash flow statement
For the six months ended 30 June 2007
Year
6 months 6 months ended 31
ended 30 ended 30 December
June 2007 June 2006 2006
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Cash flows from operating activities
Profit before taxation 1,403 1,004 3,358
Adjustments for:
Depreciation of property, plant and
equipment 75 27 93
-------- -------- --------
1,478 1,031 3,451
Change in trade and other receivables (1,160) (982) (4,526)
Change in trade and other payables 441 271 2,877
-------- -------- --------
Cash generated from operations 759 320 1,802
Adjustment for debt issue costs 13 25 50
Employee equity settled share options 31 110 39
Taxes paid (475) - (1,352)
-------- -------- --------
Net cash inflow from operating activities 328 455 539
======== ======== ========
Cash flows from investing activities
Acquisition of subsidiary, net of cash
acquired (2,098) - -
Purchases of property, plant and equipment (19) (102) (209)
-------- -------- --------
Net cash used in investing activities (2,117) (102) (209)
======== ======== ========
Cash flows from financing activities
Increase/(decrease) of loans 1,523 (246) (375)
Movement in invoice discounting facility - 730 (2,458)
Proceeds from the issue of share capital 241 - -
Dividends paid - - (458)
-------- -------- --------
Net cash from/(used in) financing activities 1,764 484 (3,291)
Net (decrease)/increase in cash and cash
equivalents (25) 837 (2,961)
Cash and cash equivalents at beginning of
period 12 (2,409) 552 552
-------- -------- --------
Cash and cash equivalents at end of period 12 (2,434) 1,389 (2,409)
======== ======== ========
Notes to the interim report
For the six months ended 30 June 2007
1 general information
Staffline Recruitment Group plc, a Public Limited Company is incorporated and
domiciled in the United Kingdom.
The interim financial statements for the period ended 30 June 2007 (including
the comparatives for the year ended 31 December 2006 and the period ended 30
June 2006) were approved by the board of directors on 31 August 2007. Under the
Security Regulations Act of the EU, amendments to the financial statements are
not permitted after they have been approved.
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'.
The accounting policies and methods are the same as in the most recent annual
financial statements and 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.
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, fixtures and fittings and property 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
Freehold property 50 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.
All 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.
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 are
charged directly to equity are charged or credited directly to equity.
Pensions
Pensions to employees are provided through defined 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.
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
For the purposes of the cashflow statement, cash and cash equivalents include
cash at bank and in hand and short term highly liquid investments such as bank
deposits less advances from banks repayable within three months from the date of
advance.
Equity
An equity investment is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities.
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.
The share based payment reserve represents the value of shares provided under
share based payment arrangements.
The profit and loss account includes 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 overdraft facility 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
and acquisitions. They are recognised at proceeds received, net of direct issue
costs. Finance charges, including premiums payable on settlement or redemption
and direct issue costs, are charged to the income statement 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 and therefore
not recognised.
Estimation uncertainty
The key area of estimation uncertainty in the financial statements is the
impairment of goodwill. The annual impairment assessment in respect of goodwill
requires estimates of the value in use of cash generating units to which
goodwill has been allocated to be calculated. As a result, estimates of future
cashflows are required, together with an appropriate discount factor for the
purpose of determining the present value of those cashflows. The basis of review
of the carrying value of goodwill is as detailed in note 9. A key area of
judgment is the allocation of goodwill in respect of the acquisition of OSP,
which has been carried out on a provisional basis in these statements.
3 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
of Staffline Limited and Onsite Partnership Limited, 'OSP'. The activities of
the National Response Centre and the placement of permanent staff both
contribute less than 10% of Group total revenue. The sales are from the
rendering of services.
(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.
4 ACQUISITION OF SUBSIDIARY
On 19 March 2007, the Company acquired the entire issued share capital of Onsite
Partnership Limited, OSP offers temporary and permanent recruitment services to
clients in the UK.
The acquisition has been accounted for using the purchase method of accounting.
From the date of acquisition to 30 June 2007 the acquisition contributed revenue
for the period of £1,846,738 and a profit after tax for the period of £1,551 to
the Group.
If the acquisition had occurred on 1 January 2007, Group revenue would have
increased by £3,751,593 and profit after tax would have increased by £10,993.
Note that the OSP business has a second half bias. These amounts have been
calculated using the Group's accounting policies. The provisional goodwill
arising on the acquisition during the year is attributable to the anticipated
future profitability of the acquisition. In addition, this acquisition brings
access to new service offerings for the Group.
Effect of acquisition
Acquiree's Fair value Acquisition
book values adjustments amount
Acquiree's net assets at the
acquisition date: £'000 £'000 £'000
Property plant and equipment 824 (134) 690
Trade and other receivables 855 - 855
Cash and cash equivalents 6 - 6
Trade and other payables (997) - (997)
Loans (521) - (521)
Deferred tax (8) 8 -
Net identifiable assets and liabilities 159 (126) 33
Goodwill on acquisition 2,071
Cash consideration paid including fees 2,104
The fair value adjustments above have arisen as a result of the recognition of
the market value of the Head Office property of Onsite Partnership Limited and
the adoption of the accounting policies of the Group. The provisional allocation
of the fair value adjustments is still under review.
The cash consideration paid was £2 million. Costs of acquisition were £104,000
in respect of advisors fees.
5 Finance costs
6 months ended 6 months ended Year ended
30 June 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
£'000 £'000 £'000
Interest
payable on
bank loans
and 229 212 395
overdraft ======== ======== =========
6 Directors and EMPLOYEES remuneration
Employee benefits expense
Expense recognised for employee benefits is analysed below:
6 months 6 months Year ended 31
ended 30 ended 30 December
June 2007 June 2006 2006
£'000 £'000 £'000
Wages and salaries 4,127 2,957 6,613
Social security costs 448 317 709
Other pension costs -
defined contribution plans 86 42 116
Share option charge 31 110 39
-------- -------- ---------
4,692 3,426 7,477
======== ======== =========
Number Number Number
The average number of persons
(including directors)
employed by the Group
during the period was: 237 205 213
======== ======== =========
Share-based employee remuneration
As at 30 June 2007 the Group operated a share based payment scheme for
employees.
The share option scheme is available to all full time members of staff, except
for two of the executive directors, Andy Hogarth and Marshall Evans, subject to
the rules of the scheme, the key points of which are as follows:
• only staff with in excess of six months service are eligible;
• the number of options granted are a factor of length of service and
current salary;
• options are exercisable between two and seven years of being granted;
• except in certain limited circumstances all options lapse if an employee
leaves the Group; and
• exercise of options is not subject to any specific performance criteria.
The share options for Carole Harvey have different conditions as detailed below:
C Harvey 1 January 2007 Granted Lapsed/exercised 30 June 2007 Exercise price
100,000 Nil Nil 100,000 105.5p
These share options have a performance condition such that the average share
price of the Company must achieve 158.25p for 20 consecutive days during the
measurement period. This condition has now been satisfied. The share options can
be exercised between three and seven years of being granted.
All share based employee remuneration will be settled in equity. The Group has
no legal or constructive obligation to repurchase or settle the options in cash.
Share options and weighted average exercise price are as follows for the
reporting periods presented:
30 June 2007 30 June 2006 31 December 2006
Number Weighted Number Weighted Number Weighted
average average average
exercise exercise exercise
price price price
(pence) (pence) (pence)
Outstanding
at start of
period 812,225 97 687,330 88 687,330 88
Granted 238,404 146 96,215 130 193,192 125
Lapsed (17,712) (113) (26,450) (85) (68,297) (85)
Exercised (299,988) (80) - - - -
-------- --------- --------- --------- --------- ---------
Outstanding
at end of
period 732,929 118 757,095 93 812,225 97
======== ========= ========= ========= ========= =========
The Group has the following outstanding share options and exercise prices:
30 June 2007 30 June 2006 31 December 2006
Number Weighted Weighted Number Weighted Weighted Number Weighted Weighted
average average average average average average
exercise contractual exercise contractual exercise contractual
price life price life price life
(pence) (months) (pence) (months) (pence) (months)
Date
exercisable
and option
life:
2006 (up to
2011) 97,824 80 - 396,742 80 5 374,709 80 -
2007 (up to
2012) 131,288 97 3 264,138 100 19 150,135 97 8
2008 (up to
2013) 265,413 118 14 96,215 130 23 287,381 118 20
2009 (up to
2014) 238,404 146 20 - - - - - -
======= ======= ======= ======= ======= ======= ====== ======= =======
Share options are exercisable between values of 80p and 174p.
The fair value of options granted was determined using the Black-Scholes
valuation model. Significant inputs into the calculations were:
• exercise prices as detailed above
• 30% volatility based on expected share price
• a risk free interest rate of 4.75%.
• all options are assumed to vest after two years from the date of grant
of the options
• dividends in line with current levels
In total £31,000 of employee remuneration expense has been included in the
consolidated income statement to 30 June 2007 (31 December 2006: £39,000 and 30
June 2006 £110,000) which gave rise to the share based payment reserve. No
liabilities were recognised due to share based payment transactions.
7 Tax expense
A reconciliation of the tax expense applicable to the profit before tax using
the statutory rate to the tax expense at the effective tax rate and a
reconciliation of the statutory tax rates to the effective tax rates are as
follows:
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
£'000 % £'000 % £'000 %
Profit for the
period before
taxation 1,403 1,004 3,358
Tax rate 30% 30% 30%
======== ====== ======== ====== ========= =====
Expected tax
expense 421 30 301 30 1,007 30
Adjustment for
non-deductible
expenses
relating to
short term
timing
differences (3) (0.2) (18) (1.8) (24) (0.7)
Other
non-deductible
expenses 51 3.6 51 5.1 25 0.7
Adjustment in
respect of
prior periods - - 4 0.4 6 0.2
-------- ------ -------- ------ --------- -----
Actual tax
expense 469 33.4 338 33.7 1,014 30.2
======== ====== ======== ====== ========= =====
Comprising:
Current tax
expense 469 338 1,014
======== ====== ======== ====== ========= =====
There is no tax expense or credit in relation to the share based payment reserve
credited to equity.
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
6 months 6 months Year ended 6 months 6 months Year ended
ended 30 ended 30 31 December ended 30 ended 30 31 December
June 2007 June 2006 2006 June 2007 June 2006 2006
Unaudited Unaudited Audited Unaudited Unaudited Audited
Earnings
(£'000) 934 666 2,344 934 666 2,344
======== ======== ========= ======== ======== =========
Weighted
average
number of
shares 20,978,586 20,824,463 20,824,463 21,711,515 21,425,328 21,511,163
======== ======== ========= ======== ======== =========
Earnings
per share
(pence) 4.5p 3.2p 11.3p 4.3p 3.1p 10.9p
======== ======== ========= ======== ======== =========
The weighted average number of shares has increased by 732,929 (year ended 31
December 2006: 686,700 and period ended 30 June 2006: 600,865) shares to take
account of all dilutive potential ordinary shares that could be issued under the
share option scheme.
Staffline Recruitment Group plc paid a final dividend of £359,000 as proposed in
the annual report for the year ended 31 December 2006 on the 5 July 2007
(£250,000 for the year ended 31December 2005 on the 4 July 2006.) An interim
dividend of £275,000 (2006: £208,000) has been proposed but has not been accrued
within these financial statements. This represents a payment of 1.3 pence (2006:
1.0 pence) per share.
9 Goodwill
Goodwill
£'000
Gross carrying amount and net book value at 30 June 2006 and 31
December 2006 22,326
Acquisition of subsidiary (note 4) 2,071
Gross carrying amount and net book value at 30 June 2007 24,397
Goodwill above relates to the acquisition of the following cash generating
units:
Date of acquisition Original cost
£'000
Staffline Recruitment Limited 8 December 2004 22,326
Onsite Partnership Limited 19 March 2007 2,071
===========
Goodwill arising on consolidation which represents the excess of the fair value
of the consideration given over the fair value of the identifiable net assets
acquired is capitalised and is tested annually for impairment. The directors do
not consider that there were any material intangible assets that should be
separately recognised at the date of acquisition.
The recoverable amount for Staffline Recruitment Limited and OSP Limited was
determined based on a combined value-in-use calculation, covering a detailed one
year conservative forecast, followed by an extrapolation of expected cash flow
over the next 9 years at a growth rate of 10%, which represents a conservative
long term average growth rate and a discount rate of 13%. The growth rate used
does not exceed the long term average growth rate for the market in which the
group operates. Management have used a forecast period of 10 years as they feel
this represents the minimum period that the business model they have developed
is sustainable.
Management's key assumptions for Staffline Recruitment Limited and OSP Limited
together forming Staffline Recruitment Group plc include assumptions that there
will be no significant changes in the business and that turnover growth will not
exceed historic growth levels. Management have considered internal and external
market data in setting their assumptions.
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 Property Computer Fixtures and Total
equipment fittings
£'000 £'000 £'000 £'000
Gross carrying amount
At 1 January 2007 - 1,479 146 1,625
Additions - 19 - 19
Acquisition of subsidiary 600 65 25 690
-------- --------- --------- ---------
At 30 June 2007 600 1,563 171 2,334
-------- --------- --------- ---------
Depreciation and impairment
At 1 January 2007 - 1,316 105 1,421
Provided in the period - 68 7 75
-------- --------- --------- ---------
At 30 June 2007 - 1,384 112 1,496
-------- --------- --------- ---------
Net book amount at 30 June 2007 600 179 59 838
======== ========= ========= =========
Net book amount at 31 December
2006 - 163 41 204
======== ========= ========= =========
Net book amount at 30 June 2006 - 119 44 163
======== ========= ========= =========
All assets stated above are secured against bank loans outstanding at the year
end.
11 TRADE AND OTHER RECEIVABLES
At 30 At 30 At 31
June June December
2007 2006 2006
£'000 £'000 £'000
Trade and other receivables, gross 15,217 9,654 13,204
Impairment of trade and other
receivables (13) (9) (15)
---------- ---------- ---------
Trade and other receivables, net 15,204 9,645 13,189
========== ========== =========
Trade and other receivables are usually due within 14 - 30 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
represent 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 CASH AND CASH EQUIVALENTS
At 30 At 30 At 31
June June December
2007 2006 2006
£'000 £'000 £'000
Cash and cash equivalents 1,707 1,389 823
Bank overdraft (see note 14) (4,141) - (3,232)
---------- ---------- ---------
Cash and cash equivalents per
cashflow (2,434) 1,389 (2,409)
statement ========== ========== =========
Cash and cash equivalents consist of cash on hand and balances with banks only.
At the period end £1,707,000 (year ended 31 December 2006: £823,000 and period
ended 30 June 2006: £1,389,000) of cash on hand and balances with banks were
held by the subsidiary undertaking, however this balance is available for use by
the Company.
13 trade and other payables
At 30 At 30 At 31
June June December
2007 2006 2006
£'000 £'000 £'000
Trade and other payables 10,577 6,533 9,139
Invoice discounting liability - 3,188 -
----------- --------- ---------
10,577 9,721 9,139
=========== ========= =========
The invoice discounting facility included above was secured on the trade debtors
of the Group and bore 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.
14 Borrowings
Bank loans are repayable as follows:
At 30 At 30 At 31
June June December
2007 2006 2006
£'000 £'000 £'000
In one year or less or on demand 5,035 500 3,857
In more than one year but not more
than two years 940 500 500
In more than two years but not more
than three years 940 500 500
In more than three years but not more
than four years 940 500 500
In more than four years but not more
than five years 1,046 500 500
In more than five years 1,173 1,500 1,250
--------- --------- ---------
10,074 4,000 7,107
Debt issue costs (152) (171) (150)
--------- --------- ---------
9,922 3,829 6,957
========= ========= =========
Split:
Current liabilities:
Bank loan 881 450 575
Overdraft 4,141 - 3,232
--------- --------- ---------
5,022 450 3,807
Non current liabilities:
Bank loan 4,900 3,379 3,150
--------- --------- ---------
9,922 3,829 6,957
========= ========= =========
Bank loans and overdrafts are secured by a debenture over all the assets of the
Group. The bank loan is repayable in quarterly instalments of £192,000 in
September and December 2007, £235,000 until December 2011, £288,000 until June
2013 and £20,000 until September 2014. Interest accrues on the loan at 1.1%
(1.2% at 31 December 2006 and 2% at 30 June 2006) above base rate. The bank
loans contain various covenants which, if breached, could lead to the loan
becoming payable on demand. The covenants have all been satisfied to date.
Note that the use of an overdraft facility was established with effect from July
2006. At June 2007 there was £1707,000 cash available for offset against this
overdraft (December 2006 £823,000). Previously an invoice discounting facility
provided 85% of eligible debtors up to a maximum of £6,000,000 and was disclosed
in 'Trade and other payables' (see note 13).
The net increase in Bank loans is £1,523,000. The purchase of Onsite Partnership
limited was financed by a loan of £2,000,000, however, during the period
repayments totalling £462,000 were made plus £15,000 in respect of new debt
issue costs.
On the basis of discounting the future loan repayments at a rate of 5% the
theoretical fair value of the bank loan is £4,984,000 at 30 June 2007 (31
December 2006 £3,205,000 and 30 June 2006 £3,249,000). Fair values of the bank
loans have been determined by calculating the present values at the balance
sheet date of the future cashflows, 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.
15 deferred tax assets and liabilities
A deferred tax asset of £138,000 arose from temporary differences on computer
equipment, fixtures and fittings at 30 June 2007. It is Group policy to not
recognise these deferred tax assets in the financial statements. At 31 December
2006 the unrecognised deferred tax asset was £168,000.
16 SHARE CAPITAL
At 30 At 30 At 31
June June December
2007 2006 2006
£'000 £'000 £'000
Authorised
30,000,000 ordinary 10p shares 3,000 3,000 3,000
Allotted, issued and fully paid
21,124,451 ordinary 10p shares 2,112
20,824,463 ordinary 10p shares 2,082 2,082
Ordinary 10p shares
At 30 June 2007 At 30 June 2006 At 31 December 2006
Shares issued and
fully paid at the
beginning of the
year 20,824,463 20,824,463 20,824,463
Issued during the
period 299,988 - -
----------- -------------- -------------
Shares issued and
fully paid 21,124,451 20,824,463 20,824,463
Shares authorised
but unissued 8,875,549 9,175,537 9,175,537
----------- -------------- -------------
Total equity shares
authorised at 31
December 30,000,000 30,000,000 30,000,000
----------- -------------- -------------
All ordinary shares have the same rights and there are no restrictions on the
distribution of dividends or repayment of capital.
During the period 299,988 shares were issued in respect of the exercise of
employee share options.
17 related party transactions
The only related parties are the Group's directors as described below.
Transactions with Group directors
The Group directors' personal remuneration includes the following expenses:
6 months ended 30 6 months ended 30 Year ended 31
June 2007 June 2006 December 2006
£'000 £'000 £'000
Short-term employee
benefits:
Salary and bonus 354 205 454
Social security costs 42 23 51
Share based employee
remuneration 5 - 13
Post employment
benefits relating to
defined contribution
pension schemes 17 14 34
-------- --------- ---------
418 242 552
======== ========= =========
None of the amounts above were outstanding at the year-end
18 operating leases
The Group's minimum operating lease payments for the full remaining lives of the
leases are as follows:
30 June 30 June 31 December
2007 2006 2006
Land and Land and Land and
buildings buildings buildings
£'000 £'000 £'000
In one year or less 38 288 278
Between one and five 396 481 348
years
In five years or more 83 53 36
--------- ---------- ----------
517 822 662
========= ========== ==========
Lease payments recognised as an expense during the six months ended 30 June 2007
amount to £159,000 (period ended 31 December 2006 : £335,000 and 30 June 2006 :
£206,000).
Operating lease agreements do not contain any contingent rent clauses. None of
the operating lease agreements contains renewal or purchase options or
escalation clauses or any restrictions regarding dividends, future leasing or
additional debt.
19 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.
Staffline Recruitment Group plc does not actively engage in the trading of
financial assets for speculative purposes. The most significant financial risks
to which the Group is exposed 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 policy of careful monitoring with customers who lack an
appropriate credit history.
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 was achieved by the use of an overdraft
facility with effect from July 2006. (Previously an invoice discounting facility
provided 85% of eligible debtors up to a maximum of £6,000,000).
All financial liabilities of the Group are subject to floating interest rates.
Interest rate risk is managed through the negotiation of appropriate funding
arrangements combined with active management of working capital in order to
minimise overall interest charges.
--------------------------
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