Final Results

15 March 2012

WORK GROUP PLC

(the "Group")

Preliminary Results

Work Group plc (LSE - AIM: "WORK") announces preliminary results for the year ended 31 December 2011.

Headlines

·; Gross profit (net fee income) up 5% to £13.1m (2010: £12.5m)

·; Operating profit before exceptional items was £0.5m (2010: £0.3m)

·; Cash at year end down 25% to £1.3m (2010: £1.8m)

·; Strong balance sheet and zero bank debt

The operating profit after exceptional costs was £0.1m (2010: £0.2m loss). Exceptional costs principally relating to redundancies and office rationalisation were £0.5m (2010: £0.5m).

Financial highlights

^ References in the report to "net fee income" represent gross profit

* Adjusted diluted earning per share is stated before exceptional items (see note 8).

Further enquiries:

www.workgroup.plc.uk 

About Work Group plc

The Group offers a range of solutions that enable organisations to win "the war for talent". It focuses on providing services in talent acquisition and talent management that help employers to more effectively attract, engage, develop and retain key staff.

Work Group plc's approach is to help employers reduce their reliance on traditional third-party recruiters, such as head-hunters and recruitment firms, by helping them establish and maintain a direct relationship with prospective employees thereby reducing the cost of hiring. The Group also assists employers in reducing their staff attrition costs through better employee engagement and improved internal communications.

Chairman's Statement

Chairman's review

Our results for 2011 show the Group is moving in the right direction and demonstrates confidence in our range of services which help employers find, develop and engage talent.

A year of progress

As the Operating Review outlines in greater detail, 2011 was a year of progress throughout the Group: 

·; In Armstrong Craven, income increased, the business mix improved and there was a strong profit contribution. 

·; In the Work Communications segment:

§ In the UK Work Communications business, costs were rationalised, an office closed and a profit returned.

§ In our consultancy business, Optimal, income grew by 50%.

§ In the international offices (New York and Hong Kong), good client wins resulted in a 60% increase in income and their first profit contribution. 

The trends in each of the businesses showed an improving position throughout the year, although we continued to be impacted by high levels of uncertainty within our clients as different sectors adjusted to changing market conditions.

A stable client base

We have built a stable client base meaning that we are not over-reliant on any individual client or any single sector. In 2011, we doubled the number of clients from whom we earned more than £500,000 net fee income (NFI) while we retained the diverse nature of our client base: Finance & Banking remained our largest single sector (2011: 25%; 2010: 30%) followed by Business & Professional services (2011: 17%; 2010: 17%). The Public Sector has never been significant for us and accounted for less than 2% of income in 2011.

A great team

We try hard to create an environment where great people are able to develop their careers. That is not always easy, especially when we have to scale back in some areas, as we did in 2011. But retaining and hiring great talent is what we do day in day out for our clients and we try hard to practise that ourselves. More than ever we believe we have a stronger team with better skills, and I thank them for the energy and commitment they bring to achieving all the great work for our clients.

The right direction

In the course of 2011, the Board reviewed the strategic options for the Group, particularly given the continued challenges facing smaller AIM-listed companies. The Board as a whole concluded that the right direction was for the Group to remain committed to organic growth, while maintaining a strong and secure balance sheet.

The future

Our job is to help employers change the way they recruit and retain talent, and we continue to witness a greater demand for the wide range of services we have developed. As employers create more resourcing and talent functions they increasingly need to buy in expertise. That is good news for us as we sell the expertise they need.

The Group today is substantially different from that which came to the AIM market in 2006. Since then the business environment has changed beyond recognition, and today Work Group is better placed with better skills to exploit the reality of changing economic conditions.

Simon Howard

Chairman

14 March 2012

Operating review

With the continued backdrop of economic uncertainty, Work Group made further steady progress during 2011; returning to profit at the pre-adjusted operating level, maintaining a healthy cash position and remaining debt free. The operating profit before exceptional costs was £0.5m (2010: £0.3m). The operating profit after exceptional costs was £0.1m (2010: loss £0.2m). Net cash at 31 December 2011 was £1.3m (2010: £1.8m). 

Our main focus through 2011 was to continue to build on the success of Armstrong Craven whilst returning the UK Work Communications business to profitability and building out our international offering in a profitable and sustainable manner. (See note 2).

Group net fee income (NFI) increased 5% to £13.1m (2010: £12.5m) with both operating divisions recording year on year growth.

Work Communications NFI increased 3% to £8.7m (2010: 8.5m) which led to a return to operating profit before exceptional items of £0.2m (2010: £0.0m). The economic slowdown has continued to impact advertising income which now represents just 9% of Group income from 10% in 2010.

Our Optimal consultancy services proved to be a strong offering in these times of uncertainty, recording a 50% growth in NFI.

NFI from Armstrong Craven proved particularly strong with a 9% year on year increase to £4.4m. The intelligence assignment offerings grew strongly with a 19% increase to £1.5m (2010: £1.3m) of NFI and search assignments grew by 4%.

Cost reduction opportunities were pursued in the UK Work Communications business in the second half of the year, including the closure of the Scottish office and redundancies in the non-core delivery teams in London and Hale. This leaves the business with a far more flexible and appropriate cost base.

Particularly pleasing in 2011 was the performance of the overseas offices in Hong Kong and New York. The combined NFI increased 60% to £1.1m and delivered a small operating profit for the first time.

Headcount across the Group decreased by 9% to 156 FTE's at the year-end (2010: 171). This net reduction was a direct result of the redundancy programme undertaken in the second half to establish a more appropriate cost base for the UK Work Communications business. Redundancy and ex-gratia costs included in the exceptional items are £419,000 (2010: £108,000).

Property costs in the UK business were rationalised during 2011 with the closure of the non-core Scottish office in September 2011. One-off costs related to this totalled £19,000 and are included in exceptional costs.

Net cash at the year end was £1.3m (2010: £1.8m). An overdraft facility is arranged annually and a facility of £1.0m (2010: £2.0m) has been agreed with the bank until February 2013.

The balance sheet remains strong with zero bank debt.

Julian Maslen

Finance Director

14 March 2012

Consolidated income statement

For the year ended 31 December 2011

The results above are all in respect of continuing operations.

The notes are an integral part of these Consolidated Financial Statements.

Consolidated statement of comprehensive income

For the year ended 31 December 2011

Consolidated and parent company balance sheets

As at 31 December 2011

The notes are an integral part of these financial statements.

The financial statements were approved by the board of directors on 14 March 2012 and signed on its behalf by:

Simon Howard Julian Maslen

Chairman Finance Director

Consolidated and parent company statements of changes in equity

For the year ended 31 December 2011

The notes are an integral part of these financial statements.

The cost of the investment held by the employee benefit trust in Work Group plc is shown above as Shares held by EBT.

The foreign exchange reserve represents the revaluation of the net assets in the foreign subsidiaries.

With the sanction of an Order of the High Court effective from 28 November 2005 the ordinary shares of £1 each and the cumulative ordinary shares of £1 each were both reduced to 10p per share and the share premium was cancelled. This created a special reserve.

Company

The notes are an integral part of these financial statements.

Consolidated and parent company statements of cash flow

For the year ended 31 December 2011

The notes are an integral part of these financial statements.

Notes to the financial statements

For the year ended 31 December 2011

1. Summary of significant accounting policies

Work Group plc is a public limited company incorporated in England and Wales, domiciled in the United Kingdom and listed on the Alternative Investment Market (AIM). The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, International Financial Reporting Interpretation Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facilities. The current overdraft facility expires in February 2013 and the directors are confident that this will be renewed annually. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. The group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.

2 Segmental reporting

IFRS 8; "Operating Segments" requires operating segments to be identified on the basis of internal reports which are regularly reviewed by the chief operating decision-maker to allocate resources to the segments and to assess their performance. During the year under review the chief operating decision-maker, who is the Board, has identified two operating segments, Work Communications and Armstrong Craven. Work Communications combines the employer marketing service and recruitment process outsourcing services, Armstrong Craven represents the executive recruitment services. The Board assesses the performance of the operating segments based on net fee income, operating profit before exceptional items and adjusted EBITDA.

The Unallocated pool represents the central overheads that are not directly related to the operating trading activities of the segments.

Following the review by the Board the operating segment table below reflects the comparative information for the year ended 31 December 2010.

Geographical information

The Group manages its business segments in the UK, which is the home country of the parent.

The sales analysis in the table below is based on the location of the customer. All significant assets and capital expenditure are located in the UK.

3 Key management and employee information

The average monthly number of persons (including executive directors) employed by the Group during the year was:

Staff costs (including directors) were as follows:

Key management remuneration

Key management personnel are identified as the members of the 'Group operating board'. This Group comprises the directors and the leaders of the operating businesses.

4 Exceptional items

The exceptional costs of £486,000 (2010: £537,000) principally relate to redundancies, ex-gratia payments and office exit costs following office rationalisation.

5 Operating profit/(loss)

6 Finance income and costs

7 Taxation

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date, the standard rate of corporation tax in the UK for the year was 20.25% (2010: 28%), having qualified for the small profits tax rate. The differences are explained below:

8 Earnings/(losses) per share

As there were basic losses per share in 2010 the effect of share options is anti-dilutive, consequently diluted losses per share equates to the basic losses per share.

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year excluding treasury shares and shares held by the EBT which are treated as treasury shares.

For diluted earnings per share, the weighted average number of shares is adjusted to reflect the impact of all dilutive potential ordinary shares.

No further shares have been issued since 31 December 2011.

Earnings reconciliation

Adjusted earnings per share exclude the cost of exceptional items less tax at 20.25% (2010: 28%).

9 Dividends

10 Intangible assets

Goodwill has arisen in the past on the acquisitions of The Resourceful Group Limited, Park Human Resources Limited, Armstrong Craven Limited and Recruitment Communications Company Limited.

During the year the acquired goodwill was tested for impairment in accordance with IAS 36 and no impairment was considered necessary.

The carrying value of goodwill at Group level is attributed to The Resourceful Group Limited and Park Human Resources Limited (£3,123,000), Recruitment Communications Company Limited (£3,953,000) and Armstrong Craven Limited (£5,121,000). The Resourceful Group Limited, Park Human Resources and Recruitment Communications Company Limited's goodwill is allocated to the Work Communications cash generating unit, whilst the goodwill of Armstrong Craven Limited is allocated against the Armstrong Craven segment. The recoverable amount of goodwill is calculated based on value in use, using discounted cash flows. Management have projected the cash flows for the years 2012, 2013 and 2014. The key assumptions for the value in use calculations for the year 2015 onwards are future projections based on a long term growth rate of 2.5%. 

Management does not currently foresee any change in the key assumptions it has employed when determining the value in use calculations, which would cause the carrying amount to exceed the recoverable amount for each cash-generating unit.

The rate used to discount the forecast cash flows is 11.2% (2010: 10.2%), being the Group's weighted average cost of capital.

Goodwill at Company level represents the activities previously undertaken by The Resourceful Group Limited and Park Human Resources Limited (£4,308,000), Recruitment Communications Company Limited (£3,400,000) and Armstrong Craven Limited (£3,703,000).

11 Property, plant and equipment

Group

Company

12 Investments in subsidiaries

Company

The additions during the year to investments, amounting to £86,000 (2010: £764,000), represent an increase to loans to the two foreign subsidiaries, Work Group Inc and Work Group Limited, intended for working capital purposes. These loans are long term in nature with no intention of repayment. Consequently they are treated as an investment and any foreign exchange gains or losses are booked to foreign exchange reserves in the consolidated balance sheet.

All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held directly by the Parent Company does not differ from the proportion of ordinary shares held.

13 Deferred tax asset

The following table represents the ageing analysis of the deferred tax asset.

The following are the major deferred tax assets recognised by the Group and Company and movements thereon during the year:

Deferred income tax assets are recognised for tax loss purposes to the extent that the realisation of the related tax benefit through future taxable profits is probable.

During the year the Group recognised deferred income tax assets of £23,000 (2010: £nil) relating to trading losses of the Hong Kong subsidiary. The Group did not recognise potential deferred income tax assets totalling £115,000 (2010: £138,000) related to the trading losses of the Hong Kong subsidiary.

The Group did not recognise deferred income tax assets totalling £192,000 (2010: £185,000) related to the trading losses of the US subsidiary.

The total deferred income tax asset not recognised in respect of trading losses of the foreign subsidiaries is £307,000 (2010: £323,000).

Both the US and Hong Kong subsidiaries are early stage businesses and the Board is taking a more cautious and longer term view of the timing of future profits.

14 Inventories

All inventories are carried at fair value less costs to sell.

15 Trade and other receivables

The amount owing from Group undertakings relate to the loan made by the Company to the EBT. No interest is applied to this balance.

Movements on the Group provision for impairment of trade receivables are as follows:

16 Financial instruments

The Group's financial instruments comprise cash and other items such as trade and other receivables and trade and other payables that arise directly from its operations. Further detail is set out below. The main purpose of holding cash is to finance the Group's future investments and operations. It is (and has been throughout the years presented) the Group's policy that no trading in financial instruments shall be undertaken.

The fair value of financial assets and liabilities is not materially different to their book value.

The Group manages its capital to ensure entities in the Group will be able to continue as a going concern.

The Group monitors and manages the financial risk relating to its operations on a regular basis. These risks include market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Group engages in regular review of policies and practices to bring these risks down to a minimum.

The Group manages liquidity risk by maintaining adequate reserves as well as the use of an overdraft facility if needed. Monthly cash flow and working capital projections are derived to ensure sufficient funds are available to meet obligations and capital expenditure requirements as they fall due.

Interest rate risk is managed by minimising external debt and periodically reviewing the competitiveness of debt facilities.

The Group's exposure to exchange rate movements has been favourable during 2011. The Group continually reviews its exposure to exchange rate movements and has put in place methods to reduce the exchange rate risk wherever it sees such methods as beneficial.

The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the credit risk.

Trade receivables consist of a large number of customers spread across diverse industries. Ongoing credit evaluation is performed on the financial condition of trade receivables.

Financial assets

These equate to the fair value for the financial assets.

The Group's financial assets comprise trade and other receivables and cash and cash equivalents. Interest is received on cash deposits on a Group pooling basis at variable rates based on the relevant base rate. In 2011 this interest rate ranged from 0% - 0.5% (2010: 0% - 1.5%).

As of 31 December 2011, Group trade receivables of £1,433,000 (2010: £1,961,000) and Company trade receivables of £1,313,000 (2010: £1,904,000) were not yet due.

The remaining Group trade receivables of £1,632,000 (2010: £1,630,000) and Company trade receivables of £1,402,000 (2010: £1,359,000) were past due but not considered impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

A provision for the trade receivables is established when there is some doubt that the Group will not be able to collect all amounts due.

At 31 December 2011, trade receivables denominated in foreign currencies accounted for 23% of Group trade receivables (2010: 15%) and 13% of Company trade receivables (2010: 7%). No interest was accrued for trade and other receivables.

Financial liabilities

The Group's financial liabilities consist of trade and other payable. A detailed description of these financial liabilities is given below:

These equate to the fair value for the financial liabilities.

Undrawn facilities were as follows:

During 2011 the overdraft facility was utilised minimally resulting in £500 interest payable (2010:£nil).

In February 2012 the directors negotiated a reduction of the overdraft facility to £1m this due for review on the 28 February 2013.

17 Trade and other payables

The amounts owed to Group undertakings relate to the hive up of RCCHR (£1,178,000) in 2007 and the hive up of Armstrong Craven Limited (£1,908,000) in 2009. No interest is applied on these balances which are repayable on demand.

18 Ordinary share capital

During the year the Company purchased 673,335 of its own ordinary shares for a total consideration of £108,000. As a result of this purchase the total number of ordinary shares held in treasury is 673,335 and the number of remaining ordinary shares in issue is 27,949,138. The total number of voting rights in the Company is 27,949,138.

No new shares were issued during the year.

19 Share based payments

Group and Company

On 11 March 2011 1,000,000 share options granted to the directors on 21 September 2010 following the restructure of the management team were exercised at a nil exercise price. Further details of directors' share options are included in the Directors' remuneration report. 

At 31 December 2011 41 employees held share options (2010: 64). Options were valued using the Black-Scholes option-pricing model.

20 Reconciliation of operating loss to cash used in operations

21 Cash and cash equivalents

22 Related party transactions

The Company conducts numerous transactions each year with its subsidiaries: Work Group Inc, Work Group Limited.

For the year ended 31 December 2011, total sales of £nil (2010: £nil) were made to Work Group Inc and Work Group Limited. Recharges relating to operating activities amounted to £59,000 (2010: £463,000) were made to Work Group Inc, £27,000 to Work Group Limited (2010: £301,000) and a loan of £7,000 (2010: £53,000) was made to the EBT. In total, £2,330,000 (£2010: £2,369,000) was owing to Work Group plc at 31 December 2011.

On 11 March 1,000,000 shares held by the EBT were transferred to directors on the exercise of the options granted on 21 September 2010 at a cost of 13.25p per share, resulting in a repayment of the loan from the Company of £133,000.

23 Post balance sheet events

There are no post balance sheet events.

24 Company income statement

The Company has taken advantage of the exemption in Section 408 of the Companies Act 2006 from publishing a separate income statement and statement of comprehensive income. A loss of £1,000 (2010: profit of £171,000) before dividends has been reported for the current year.

25. Copies of report and accounts

Copies of the Report and Accounts will be posted to shareholders shortly and will be available from the Company's website (www.workgroup.plc.uk) in due course. A further announcement will be made when they are available.