6th Mar 2007 07:03
Work Group plc06 March 2007 6 March 2007 WORK GROUP PLC A leading HR consulting services provider Preliminary Results for the year ended 31 December 2006 Financial highlights • Net fee income (gross profit) up 49% to £13.6m (2005: £9.1m) • Operating profit before goodwill amortisation (EBITA) up 81% to £2.5m (2005: £1.4m) • Profit before tax and goodwill amortisation up 119% to £2.4m (2005: £1.1m) • Basic EPS up 26% to 6.7p (2005: 5.3p); diluted EPS up 36% to 5.9p (2005: 4.3p) • Strong balance sheet and cash flow • Maiden dividend of 0.4p per share proposed • £6.2m of net proceeds raised on AIM Admission in March 2006 Business highlights • Strong profit contribution from Armstrong Craven, acquired in October 2005 • Good operating profit increases in all three divisions • Continuing successful migration of client spend from advertising to fee-based services • Earnings enhancing acquisition of The Recruitment Communications Company in November 2006 • New office opening in US scheduled for Q2 2007 supported by existing client contracts Simon Howard, Executive Chairman of Work Group plc, commented: "2006 was a year of real progress for Work Group. We delivered on organic andacquisitive growth while at the same time strengthening management. We areoptimistic for our prospects in 2007 and the decision to declare a maidendividend is just one indication of our confidence in the performance of thecompany. Another is our commitment to open an office in New York in order to fullyexploit business wins as well as growing demand from US-based clients. We remaincommitted to our buy-and-build strategy, and are constantly in dialogue with arange of prospects. Our job is to help employers win the war for talent and we detect increasingdemand for our range of services. We have ambitious plans for 2007 and in thefirst two months of the year, overall trading has been in line with those plansand we remain confident of again delivering further profitable growth andreporting further progress in 2007 and beyond." www.workcomms.com Further enquiries: Work Group Tel: +44 (0)20 7492 0000Simon Howard, Executive ChairmanMichael Warren, Finance Director Fishburn Hedges Tel: +44 (0)20 7754 3056Michelle James Mob: +44 (0) 7958 451 446James Benjamin Mob: +44 (0)7747 113 930Andy Berry Mob: +44 (0) 7767 374 421 Altium Tel: +44 (0)20 7484 4040Garry LevinTim Richardson About Work Group Work Group offers a range of HR Consulting Services which enable employers towin the war for talent. It focuses on providing services in "talent acquisitionand talent development" which enable employers to more effectively recruit andretain key staff. Work Group's approach is to help employers reduce their traditional reliance onthird-party recruiters such as head-hunters and recruitment firms throughhelping them to establish and maintain a direct relationship between employerand prospective employee. It also helps employers reduce attrition costs throughbetter people development and retention of key talent. Work Group currently operates through three divisions; Executive Research,Employer Marketing and Recruitment Process Outsourcing and provides servicesfrom its seven offices in the UK. Chairman's Statement Overview Work Group delivered a strong performance in 2006 with excellent progress beingmade across all divisions. We continued to demonstrate our ability to grow our business substantially withnet fee income (gross profit) increasing by 49% to £13.6m (2005: £9.1m) andoperating profit before goodwill amortisation (EBITA) up 81% to £2.5m (2005:£1.4m). Similarly, operating profit increased 80% to £2.0m (2005: £1.1m). On apro forma basis (assuming the acquisition of Armstrong Craven on 1 January 2005and disregarding the results of The Recruitment Communications Company (RCC)acquired in November 2006) EBITA increased by 32% over 2005, emphasising theunderlying organic growth potential of the Group. During the year we maintained good growth across all three operating divisions, achieving increases in both profit and margins. 2006 was the first full year contribution from Armstrong Craven, which we acquired in October 2005. Armstrong Craven is proving to be particularly successful, driven by its compelling direct search proposition. It provides employers with direct access to recruitment researchers and is a direct alternative to executive search - it has materially strengthened our "direct resourcing" offer. During 2006 we continued to actively move Work Group away from lower margin media-based income and enjoyed a 39% rise in fee based income to £3.2m (2005: £2.3m). We see this trend continuing. In March 2006 the company listed on AIM. From the net funds raised of £6.2m wewere able to repay the debt in the company and strengthen the balance sheet.This gives us greater flexibility to take advantage of acquisition opportunitiesand support our future growth and development. The acquisition of RCC in November 2006 added significant critical mass to ourregional operations and positions us well for growth in our regionalcommunications business during 2007 as we build a substantial hub operation inthe North West. Our market The war for talent continues to be a major focus and challenge for the majorityof employers. According to research from the CIPD, in 2005 (the latest availabledata) 82% of employers reported recruitment difficulties, while 69% experiencedretention problems. Labour turnover in the private sector also continued torise: in 2005 it was 22.9%, a level which is widely predicted to rise when 2006figures are published. Consequently, employers are beginning to realise thatcontinually channelling their recruitment budgets into traditional head-hunterand agency fees serves only to perpetuate the long-standing problem of the 'jobsmerry-go-round'. Strategy Increasingly, employers are realising that investing in the acquisition anddevelopment of talent is a top priority. Work Group creates bespoke andexclusive candidate streams and databases for employers. This delivers both costand quality benefits and enables employers to utilise more fully the benefits ofthe internet. Work Group aims to create growth and value through organic developments as wellas through strategic acquisitions. We remain actively engaged in identifyingpotential acquisitions, however, we will continue to be highly selective andwill only make acquisitions which will enhance both our service range forclients and earnings for shareholders. Positioning The Group has a wide range of services which we market under the banner "helpingemployers find and keep the people they need". We provide HR Consulting Servicesto our clients in, principally, the "talent acquisition and talent development"sphere, reflecting our role in helping employers face up to and overcome theever increasing challenges of attracting, developing and retaining talent. For reporting purposes, we have re-branded two of our three divisions to moreaccurately reflect their positioning. "Adcomms" has been renamed "EmployerMarketing", reflecting the reduced and reducing reliance on advertising and anincreasing focus on marketing and communication activities, many of which areweb-based. "Managed Resourcing" has been renamed "Recruitment ProcessOutsourcing (RPO)" as this is increasingly becoming the more widely acceptedgeneric term for these activities. "Executive Research" remains unchanged. These changes to terminology do not in any way reflect a change of direction butreflect a desire to describe more accurately the nature of our activities andemphasise the scope of the opportunities we continue to exploit. In summary, there are three streams of income or divisions referred to above. Wehave a management structure that is organised into four operating units(Executive Research, RPO, Work London and Work Regions) which essentially splitsEmployer Marketing between Work London and Work Regions. Our clients At the heart of our business are our clients and our people. Across the Group wework for a wide selection of blue chip employers with whom we are building longterm, deep relationships, whilst also continuing to win new clients. Our clientstell us that they do not want the traditional recruitment company approach, butprefer instead to work with a partner who will help solve their talentacquisition and retention challenges. Every one of our client service teams isfocused on sound account management which is built on an ethos of meeting andexceeding expectations - in short, we deliver. Across the Group in 2006,disregarding the impact of RCC, 82% of net fee income was delivered by existingclients. During 2006 we had some notable client wins including the employer marketingcontract for Network Rail, who will become a top five Group client in 2007, andwinning the three year global campus marketing contract for JPMorgan againstglobal competition. We also retained our second largest Group client, theEnvironment Agency, following a competitive review and were awarded a new fouryear contract. We have a wide spread of clients across all sectors and so are not over-relianton either any single client or any single industry. At the beginning of 2007 wehave invested in building our business development resources and each divisionnow has its own dedicated telemarketing and new business teams. Our people Ultimately any service business is only as good as its people and, as we are atthe forefront of helping employers win the war for talent, we are acutely awareof why it is important, and what it takes, to be a good employer ourselves. No employer can ever claim to be perfect, but we believe we have attracted andcontinue to retain some of the very best talent. We try to create an environmentwhere talent can thrive and will always strive to be a destination employer,thus continuing to attract and develop enthusiastic, committed and hardworkingpeople. At the end of 2006, the team numbered 234 people (2005: 189) working across allfunctions in our seven UK offices. We are investing in our client-facing andbusiness development teams and are also strengthening our support functionshelping to underpin the company's future growth. US office During the second quarter of 2007 the Group will be opening an office in NewYork. This development follows the appointment of Work Group to handle theglobal campus marketing activities for JPMorgan. More recently we have also wonUS based work for Chase, the retail banking arm of JPMorgan Chase. In addition,Armstrong Craven has an active client base in the US which we believe we cangrow significantly with a local presence. We expect this operation to make apositive bottom line contribution from 2008. Management As from 1st January 2007, Sue Craven, the founder and previous Managing Directorof Armstrong Craven, was promoted to the main Work Group board in the role ofGroup Managing Director. Sue is now responsible for the Work London and WorkResourcing businesses units and will oversee the establishment of the US office.Steve Halford, our other Group Managing Director, is responsible for ArmstrongCraven, the Work regional offices and RCC. Sue Craven remains a director ofArmstrong Craven and continues to provide guidance and advice to this business. Throughout each of the divisions we have exceptionally experienced managementteams, which we continue to strengthen. Towards the end of 2006 a number of keymanagers were promoted to join the boards and executive teams within eachdivision. Dividend As a result of the strong trading performance and sound cash position,demonstrated by these full year results, the Board are proposing a maiden finaldividend for the full year of 0.4p per share. Current trading and outlook In 2006 Work Group delivered ahead of expectations. We have ambitious plans for2007 and we look forward to continuing to deliver on our highly focused buy andbuild strategy. In the first two months of the year, overall trading has been inline with those plans and we remain confident of again delivering furtherprofitable growth and reporting further progress in 2007 and beyond. Simon Howard ChairmanWork Group plc Operating Review The Group made significant advances in gross profit, operating profit beforegoodwill amortisation (EBITA) and operating profit during the year. Group grossprofit grew 49% year on year to £13.6m (2005: £9.1m), EBITA grew 81% to £2.5m(2005: £1.4m) and operating profit grew 80% to £2.0m (2005: £1.1m). Each operating division grew its gross profit, EBITA and EBITA margin (EBITAdivided by gross profit) reflecting the continued benefits of both scale andcost management. EBITA margin improved at Group level to 18.1% (2005: 14.9%)despite increased costs associated with the Company's admission to AIM in March2006. Similarly, Group operating profit margin improved to 14.6% (2005: 12.1%). --------------------- ---------- ---------- ----------Divisional Financial Performance Unaudited Increase Audited 12 months to 31 2006 vs 2005 12 months to 31 December 2006 December 2005 £'000 £'000--------------------- ---------- ---------- ---------- Gross profit (Net fee income)--------------------- ---------- ---------- ---------- EmployerMarketing1 7,317 10% 6,627--------------------- ---------- ---------- ----------RecruitmentProcessOutsourcing 1,712 14% 1,507--------------------- ---------- ---------- ----------ExecutiveResearch 2 4,542 978--------------------- ---------- ---------- ---------- Group grossprofit 13,571 49% 9,112--------------------- ---------- ---------- ---------- Operating profit before goodwillamortisation (EBITA) --------------------- ---------- ---------- ---------- EmployerMarketing1 1,393 18% 1,179--------------------- ---------- ---------- ----------RecruitmentProcessOutsourcing 450 68% 268--------------------- ---------- ---------- ----------ExecutiveResearch2 874 137--------------------- ---------- ---------- ----------Corporate costs (263) (227)--------------------- ---------- ---------- ---------- Group EBITA 2,454 81% 1,357--------------------- ---------- ---------- ---------- Operating profit EmployerMarketing1 1,220 18% 1,030 RecruitmentProcessOutsourcing 414 76% 235 ExecutiveResearch2 616 66 Corporate costs (263) (227)--------------------- ---------- ---------- ---------- Groupoperatingprofit 1,987 80% 1,104--------------------- ---------- ---------- ---------- Notes: 1. Employer Marketing 2006 performance includes two months' contribution fromThe Recruitment Communications Company following its acquisition in November2006. 2. Executive Research 2005 performance relates to three months' contributionfrom Armstrong Craven following its acquisition in October 2005. Employer Marketing Employer Marketing gross profit grew 10% and EBITA and operating profit bothgrew by 18% over 2005. Our employer marketing services are focused on talent acquisition - we developand deliver candidate attraction strategies and services for employers. Theseservices are increasingly fee based and include web marketing, website designand development, employer branding, employment research and internalcommunications. Advertising, both on and off line, still forms an important partof our service but has to compete with a growing range of candidate attractionservices and its share of our service offering is declining. Gross profit fromadvertising fell by 14% against last year but gross profit from fee basedservices grew 39%. This reflects our strategy of helping employers migrate theirspend from traditional advertising to exploit more effective channels to market.The success of this strategy has helped grow the divisional EBITA margin to19.0% against 17.8% in 2005. The full year on year increase in gross profit of 10% included two months'contribution from the acquisition of RCC. RCC strengthens our regional presencein the North West and offers the opportunity to build a regional hub operationservicing the out of London offices more effectively. Gross profit in the RCCfinancial statements for the nine months ending 31 December 2006 was £1.6mdelivering operating profit of £0.5m. Recruitment Process Outsourcing (RPO) Gross profit from RPO grew by 14% reflecting growing demand for both our managedresourcing and assessment and development services. EBITA grew by 68%, operatingprofit grew by 76% and EBITA margin advanced to 26.3% (2005: 17.8%). Twoparticularly pleasing trends were the increasing volumes of work from existingGroup clients and a high re-appointment rate on outsourced graduate recruitmentcontracts. Executive Research Armstrong Craven, the executive research business, made a strong profitcontribution in its first full year as part of Work Group. On a pro forma basis(assuming the acquisition of Armstrong Craven on 1st January 2005) gross profitincreased by 21%, EBITA increased by 44% and Operating profit increased by 126%,representing a sound endorsement of the acquisition. Increasingly employers arerecognising the benefits of direct executive search as well as our broadermarket intelligence services. The Board has amended the original Armstrong Craven acquisition agreement bycapping the amount payable for the period ended 31 December 2006 and extendingthe earn-out period by six months to 30 June 2007. Both the maximumconsideration payable under the agreement and the participants remain unchanged.The Board considers that the amended agreement provides further incentive toArmstrong Craven for enhanced performance in 2007 without increasing the overallliability to the Group or materially changing the agreement. Group Profit before and after tax is shown in the table below. The tax charge for theyear was £0.4m (2005: £0.1m). The effective tax rate of 16.8% on profit beforegoodwill amortisation is mainly due to tax relief on the exercise of shareoptions by employees. The rate has also benefited from the utilisation of taxlosses from previous years. Diluted earnings per share increased 36% to 5.9p(2005: 4.3p). --------------------- ---------- -------- ----------Group Financial Performance Unaudited Increase Audited 12 months to 12 months to 31 31 December December 2005 2006 £'000 £'000--------------------- ---------- -------- ---------- Profit before tax 1,910 129% 834 Profit after tax 1,510 101% 750 Diluted EPS (pence) 5.87 36% 4.32--------------------- ---------- -------- ---------- The Group's balance sheet strengthened significantly during the year. At 31December 2006 net assets were £10.2m (2005: £2.0m). A substantial part of thisincrease was the consequence of the company's IPO in March 2006 where netplacing proceeds of £6.2m were principally used to eliminate debt. The profitcontribution of £1.5m has also positively impacted net assets. Cash flow continued to be strong during 2006 and contributed significantly tothe increase in net cash to £0.9m at the year end, after an outflow of £1.7massociated with the RCC acquisition and £0.4m repayment of loan notes. Thecompany has an agreed facility with Barclays Bank of £3.0m to facilitateacquisition activity. From 1 January 2007 the Group is required to prepare its financial statements inaccordance with IFRS. Consequently the first reported results under IFRS will beour interim statement later this year. We have conducted a review of the likelyimpact of IFRS on the business and our interim statement will include an IFRS toUK GAAP comparison for the year ended 31 December 2006. The Board is recommending a dividend for the full year of 0.4p per share, whichwill absorb £102,000 of shareholders' funds. It will be payable on 18 June 2007to shareholders on the register as at 18 May 2007. Michael Warren Group Finance Director Work Group plcConsolidated profit and loss accountfor the year ended 31 December 2006 Notes Unaudited Audited Year Year ended ended 31 December 31 December 2006 2005 (Restated - see note 1) £'000 £'000Turnover- continuing operations 32,635 31,308- acquisitions 512 - ---------- ---------Turnover 33,147 31,308Cost of sales (19,576) (22,196) ---------- ---------Gross profit 13,571 9,112Administrative expenses (11,584) (8,008) ---------- ---------Operating profit beforegoodwill amortisation 2,454 1,357Goodwill amortisation (467) (253) ---------- ---------Operating profit- continuing operations 1,975 1,104- acquisitions 12 - ---------- ---------Operating profit 1,987 1,104Interest receivable andsimilar income 53 7 Interest payable and similarcharges (130) (277) ---------- ---------Profit on ordinary activitiesbefore taxation 1,910 834 Taxation on profit on ordinaryactivities 2 (400) (84) ---------- ---------Profit for the financial year 1,510 750 ---------- ---------Earnings per share (pence) 3 6.67 5.29 ---------- ---------Diluted earnings per share(pence) 3 5.87 4.32 ---------- --------- There is no difference between the profits on ordinary activities beforetaxation and the retained profit for the years stated above and their historicalcost equivalents. The group had no gains or losses in the year other than those included in theprofits above, therefore no separate statement of total recognised gains andlosses has been presented. Consolidated balance sheet as at 31 December 2006 Notes Unaudited Audited 31 December 31 December 2006 2005 £'000 £'000Fixed assetsIntangible 10,984 8,643Tangible 856 855 ---------- --------- 11,840 9,498Current assetsStock and work in progress 95 33Debtors 6,112 4,753Cash at bank 1,274 60 ---------- --------- 7,481 4,846Creditors: amounts falling due withinone year (7,918) (7,749) ---------- ---------Net current liabilities (437) (2,903) ---------- ---------Total assets less current liabilities 11,403 6,595Creditors: amounts falling due aftermore than one year (1,250) (4,489)Provisions for liabilities andcharges - (113) ---------- ---------Net assets 10,153 1,993 ---------- ---------Capital and reservesCalled up share capital 510 296Special reserve 2,826 2,826Share premium account 6,433 -Profit and loss account 384 (1,129) ---------- ---------Shareholders' funds 4 10,153 1,993 ---------- --------- Consolidated cash flow statementfor the year ended 31 December 2006 Notes Unaudited Audited Year ended Year ended 31 December 31 December 2006 2005 £'000 £'000Net cash inflow from operatingactivities 5 2,118 2,337 Returns on investments and servicing offinanceInterest paid (168) (175)Interest received 54 5 ----------- ----------Net cash outflow from returns oninvestment and servicing of finance (114) (170) Corporation tax paid (65) - Capital expenditurePurchase of tangible fixed assets (254) (176) ----------- ----------Net cash outflow from capitalexpenditure (254) (176) Acquisitions and disposalsPurchase of subsidiary undertaking (1,925) (2,754)Cash acquired on purchase ofsubsidiary 706 (203)Acquisition expenses (123) (279)Deferred consideration paid (400) - ----------- ----------Net cash outflow for acquisitions (1,742) (3,236) ----------- ----------Net cash outflow before financing (57) (1,245) FinancingIssue of Share Capital (net ofexpenses) 6,147 -Net (repayment)/receipt of bank loan (2,680) 2,578Expenses of loan issue - (25)Loan Notes Repaid (386) -Preference Shares redeemed (500) -Finance lease payments (24) (5)Invoice discounting advances repaid - (1,459)Loan Stock repaid (1,500) - ----------- ----------Net cash inflow from financing 1,057 1,089 ----------- ----------Increase/(decrease) in cash in the year 1,000 (156) ----------- ---------- Notes to the financial information 1 Basis of preparation The financial information in the preliminary announcement does not constitutethe Group's audited accounts for the years ended 31 December 2005 and 2006. The financial information in respect of 2006 is unaudited. Statutory accountsfor the year ended 31 December 2005, on which the auditors gave an unqualifiedreport pursuant to section 235 of the Companies Act 1985, have been filed withthe Registrar of Companies. The financial information has been prepared under the historical cost conventionand in accordance with applicable Accounting Standards in the United Kingdom andthe Companies Act 1985. The accounting policies are the same as those set out inthe financial statements for the year ended 31 December 2005 with the exceptionof share based payments to employees. FRS 20 "Share based payment" applies for accounting periods beginning on orafter 1 January 2006 and has been adopted in the financial statements. Theimpact of the adoption of this standard on the results for the year is a debitto the profit and loss account of £2,689. The adoption of the standardrepresents a change in accounting policy and the comparative figures have beenrestated accordingly. There is no impact on brought forward reserves. The Annual General meeting of Work Group plc will be held at Saffron House, 6-10Kirby Street, London EC1N 8EQ on 13 June 2007 at 12.00pm. 2 Taxation on profit on ordinary activities Unaudited Audited Year ended Year ended 31 December 31 December 2006 2005 £'000 £'000United Kingdom corporation tax at 30% (30%)Current 316 14Deferred 84 70 ----------- ---------- 400 84 ----------- ---------- 3 Earnings per share Unaudited Audited ----------- --------- 2006 2005 ----------- --------- £'000 £'000 ----------- --------- Profit for basic earnings per share 1,510 750Goodwill amortisation 467 253 ----------- ---------Profit before goodwill amortisation forAdjusted earnings per share 1,977 1,003 ----------- --------- No. '000 No. '000 ---------- ----------Weighted average number of shares 22,638 14,166Dilutive effect of share plans 3,102 3,209 ----------- ---------Diluted weighted average number of shares 25,740 17,375 ----------- --------- pence pence ----------- ---------Basic earnings per share 6.67 5.29Diluted earnings per share 5.87 4.32 Adjusted basic earnings per share 8.73 7.08Adjusted diluted earnings per share 7.68 5.77 ----------- --------- Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the period. On 2 February 2006, the existing 10p ordinary shares were subdivided into 2pordinary shares. The weighted average number of shares for the year ended 31December 2005 and year ended 31 December 2006 has been adjusted for this changein the nominal value of the share capital and the conversion of cumulativepreferred ordinary shares into 2p ordinary shares. The weighted average number of shares for 2006 also includes the impact of the8,695,652 new ordinary shares issued on flotation on AIM. For diluted earnings per share, the weighted average number of shares isadjusted to reflect the impact of all dilutive potential ordinary shares. Adjusted basic and diluted earnings per share are calculated as above, but useprofit before goodwill amortisation as the measure of earnings. 4 Reconciliation of movements in shareholders' funds Unaudited Audited 31 December 31 December 2006 2005 (restated) Group Group £'000 £'000 Opening shareholders' funds 1,993 835Issue of new share capital 6,147 170Share premium on acquisition ofArmstrong Craven Limited - 230Share premium on acquisition ofRecruitment Communications CompanyLimited 500 -Share based payment 3 8Profit for the financial year 1,510 750 ----------- ---------Closing shareholders' funds 10,153 1,993 ----------- --------- 5 Reconciliation of operating profit to net cash inflow from operatingactivities Unaudited Audited Year ended Year ended 31 December 2006 31 December 2005 £'000 £'000 Operating profit 1,987 1,104Depreciation 316 194Loss on disposal of fixed assets 5 -Amortisation of goodwill 467 253Share based payment 3 8(Increase)/decrease in stock andwork in progress (62) 28(Increase)/decrease in debtors (861) 1,002Increase/(decrease) in creditors 376 (87)Decrease in provisions (113) (165) ----------- ---------Net cash inflow from operatingactivities 2,118 2,337 ----------- --------- 6 Dividend The proposed full year dividend for 2006 is 0.4p per share (2005: Nil), whichwill absorb £102,000 of shareholders' funds. This dividend has not been providedin the financial statements, in accordance with FRS 21. It will be paid, subjectto shareholder approval, on 18 June 2007 to shareholders on the register as at18 May 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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