3rd Mar 2008 07:01
Staffline Recruitment Group plc03 March 2008 Embargoed until 0700 Monday, 3 March 2008 STAFFLINE RECRUITMENT GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Third consecutive year of strong profit and dividend growth since admission to AIM Staffline Recruitment Group plc ("Staffline" or "the Group"), a leading providerof recruitment and outsourced human resource services to industry, todayannounces its preliminary results for the year ended 31 December 2007. Financial highlights:• Revenues up 43% to £119.9m (2006: £84.1m)• Operating profit up 29% to £4.9m (2006:£3.8m)• Profit before tax up 30% to £4.4m (2006:£3.4m)• Basic earnings per share up 26% to 14.2p (2006: 11.3p)• Total dividend up 41% to 3.8p (2006: 2.7p)• Net debt maintained at £6.3m (2006: £6.3m) after £2.0m acquisition costs• Net current assets rose by £1.4m to £2.0m• Gearing fell to 28% (2006: 31%)• Cost of funding reduced to 1% over base rate (2006: 1.2% over Base Rate). Operational highlights:• Continued significant growth in OnSites: - up by 30 during the reporting period from 71 to 101.• Onsite Partnership Limited ("OSP") has performed as expected following integration into the Group• Continuing expansion of client base• Staffline branded branch network had a successful year with all branches operating profitably at the year end• Techsearch had an improved performance Current trading and prospects:• Trading for the first eight weeks of 2008 has been ahead of the same period last year, in line with our expectations• 2008 will benefit further from recent OnSite branch openings, the successful integration of OSP and our strong exposure to the resilient food sector Commenting on the results, Andy Hogarth, Managing Director, said: "I am pleased to be able to report the third consecutive year of strong profitand dividend growth since our admission to AIM and that trading for the firsteight weeks of 2008 has been ahead of the same period last year, in line withour expectations "Whilst mindful of the potential slow down in the economy, we are confident thatthe successful growth of our OnSite contract base, together with our broadexposure to the food sector, will allow us to continue our rapid organicexpansion. Indeed, we anticipate that any prolonged downturn will provideadditional opportunities for us, as clients seek further operating efficiencies. "We are, therefore, confident that the Group will continue to make progress inthe current year and thereafter." For further information, please contact: www.staffline.co.uk --------------------- Staffline Recruitment Group plc 0115 950 0885Andy Hogarth, Managing Director 07931 175775Carole Harvey, Finance Director 07904 262132 AltiumPhil Adams / Paul Lines 0161 831 9133 SmithfieldKatie Hunt / Miranda Good / Rebecca Whitehead 020 7360 4900 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 fullyoutsourced service, managing the temporary recruitment function of its clientson their premises, at 101 OnSite locations nationwide and also has a network of17 industrial branches. The Group, which is managed from the head office inNottingham, was founded in 1986 and was admitted to AIM in December 2004(Ticker: STAF.L). Print resolution images are available for the media to view and download from www.vismedia.co.uk Introduction Staffline continues to specialise in the provision of skilled and semi skilledworkers to UK industry. We have deliberately focussed on the food processingsector, which represents 60% of our total turnover, as this sector is mostlikely to be resilient throughout the economic cycle and, due to the perishablenature of the products, production remains predominantly UK based. Our largestarea of activity is our OnSite outsourced operation, representing 73% of sales,through which we are contracted to recruit and manage temporary workers frombases within the clients' premises. The Year in Review We continued to experience increased demand for our services from both existingand new clients, with sales increasing by 43% during the year. The total numberof OnSite locations has increased to 101, up from 33 at the time of flotation 3years ago, of which 30 were added during the reporting period. Profits have alsocontinued to grow, by 30% in the year, to £4.4m before tax.In March 2007 we made our first acquisition, Onsite Partnership Ltd ("OSP"), foran initial consideration of £2m. This business has now been fully integratedinto the Group and has performed as expected.DividendsThe directors have recommended an increase in the final dividend to 2.5p (2006:1.7p), representing an increase of 47%. This increase reflects both ourincreased profitability as well as our commitment to implementing ourprogressive dividend policy. Subject to shareholder approval, the final dividendwill be paid on 4 July 2008 to shareholders on the register on 6 June 2008.Together with the interim dividend of 1.3p (2006: 1.0p), which was paid on 16November 2007, the total dividend for the year will increase by 41% to 3.8p(2006: 2.7p). Our Staff The Group's continued success is only possible due to the commitment and effortof our staff, who consistently provide exceptional levels of service to ourclients. On behalf of shareholders and the Board, I would like to thank ouremployees for their hard work, dedication and enthusiasm which have made 2007another successful year for the Group. In recognition of our growth we havecontinued to strengthen our management team by making a number of seniorregional appointments. We continue to incentivise all our permanent staffthrough the issue of share options which helps maintain low staff turnovercompared to others in our industry. Summary I am pleased to be able to report the third consecutive year of strong profitand dividend growth since our admission to AIM. The considerable expansion ofthe Group's client base during the year leaves it well placed to further developits national presence and continue to grow in 2008. Derek Mapp3 March 2008 Results Revenues for the year rose by 43%, to £119.9m (2006: £84.1m) driven by strongdemand for our services from both new and existing clients. The successfulgrowth of our OnSite business, which achieves lower gross margins on highervolumes, resulted in an expected slower rate of growth in gross profit acrossthe Group. In addition we made a material investment in IT systems during theyear which will improve operating efficiency in future periods. Operating profitincreased by 29% to £4.9m (2006: £3.8m). Following the acquisition of OSP in March 2007, and a number of bank base raterises, finance charges have increased by 24% to £0.5m (2006: £0.4m). However,our strong growth in operating profit has meant that we have continued toimprove interest cover, which has now reached a comfortable 9.9 times (2006: 9.5times). Profit before tax increased by 30% to £4.4m, (2006: £3.4m), and profit after taxincreased by 28% to £3.0m (2006: £2.3m), giving a 26% increase in basic earningsper share to 14.2p (2006: 11.3p). Post tax cash generation during the year has been extremely strong, reflectingour collaborative approach in partnership with our clients. In addition, cashflow benefited by £0.2m from the issue of new shares following their sale bymembers of the staff share option scheme and a further £0.2m from the sale andleaseback of our new purpose built Head Office in Nottingham.We borrowed an additional £2.0m from our bankers in order to finance the OSPacquisition but ended the year with no increase in our net debt, a substantialunderlying improvement. The Group balance sheet has also strengthened considerably during the year; netcurrent assets rose by £1.4m to £2.0m and gearing fell to 28% (2006: 31%).Reduced levels of debt have resulted in improved terms from our bankers. Wecurrently pay interest at 1% over base rate for all our borrowing (2006: 1.2%over base rate). The value of fixed assets rose considerably during the year, largelyattributable to the freehold of the OSP office transferred following theacquisition. This was independently valued at £0.6m in March 2007. We have alsocontinued to invest in our IT infrastructure during the year, upgrading ourdisaster recovery processes as well as making initial investment in new webbased systems which will reduce operating costs. Strategy Our strategy continues to be to grow the Group organically by expanding thenumber of OnSite locations and by the selective opening of high street branches.We estimate that we still have only a 3% to 4% market share in our chosenoperating sector. Ours is a fragmented market, which gives us continuedconfidence in organic growth opportunities. In addition, following thesuccessful acquisition and integration of OSP during 2007, we will continue toconsider selective acquisitions of complementary companies which would enable usto broaden our service offering. Operational Review OnSite The number of OnSite locations grew considerably, to 101 at the year endcompared to 71 a year earlier. This growth includes 12 OSP locations, which werefully integrated into Staffline's operations from 1 July 2007. As in previousyears, organic growth has been driven by existing clients taking on additionalOnSites as well as new client wins. Clients continue to be attracted to acombination of the benefits of outsourcing their temporary recruitment function,allowing them to focus on managing their core business, together with theoperating efficiencies that the appointment of Staffline delivers.We are seeing a gradual change in the mix of our business as consumer growth ininternet shopping drives the need for additional workers in the distributionmarket. Industrial branch network The Staffline branded branch network had a successful year, with all branchesoperating profitably at the year end, whilst continuing to initiaterelationships that can be grown into OnSites over time. Techsearch Techsearch had an improved performance, with increases in revenues frompermanent and temporary placements. OSP The OnSites operated by OSP have been fully integrated in to the Stafflinenetwork. The other services offered by OSP have continued to be marketed underthat brand. Growth in sales and operating profits was excellent. Labour market During the year, we contracted 34,674 people, some of whom worked for us forjust a few days whilst others were with us all year. People chose to workthrough us for many reasons, often as a first step on the employment ladder inthe UK, as a route to obtaining full time work or to fund their studies. Othersenjoy the freedom such work affords them, leaving them free to undertake childor other care. 59% of our workers come from the new EU accession states and of these over 70%are under 35 years of age. We have had early indications that some of theinitial inflow of workers have decided to return home, which led to a slighttightening of labour supply in the last quarter of the year. Our core skill ofreliably recruiting workers for clients combined with our reputation amongstworkers as an ethical employer positions us well within this context. Industry Background We continue our commitment to high ethical standards, responsible policies andauditable processes which our clients can rely upon. During the year, we havealso had a particular focus on enhancing our Health and Safety controls anddeveloping our Environmental Policy. Health & Safety We take the provision of a safe working environment extremely seriously and haveinvested in ensuring that we have processes and systems which alert us to areasof concern before we place a contractor in a position. In an OnSite location,this is relatively simple as we are often responsible for carrying out inductionand other training, keeping accurate records and ensuring that a worker issuitably qualified for a role. Also, as we are located on the client's premises,we have direct access to the client and any concerns identified can be readilyaddressed. In order to exert similar controls for clients supplied through our branchnetwork, some of whom are small owner-operated businesses, we have introducedfurther checks to ensure a safe working environment for all. Where these checkshave highlighted safety concerns which we have been unable to resolvesatisfactorily, we have withdrawn our workers. One of the key areas of concernin the past has been where a worker has been supplied for a specific assignmentbut has been moved to another assignment for which they are not suitablytrained. The introduction of a series of regular checks will ensure this risk ismitigated. Environmental Policy Whilst, by the nature of our business, we have a lower impact on the environmentthan companies operating in other sectors, we recognise that it is necessary forus to do whatever is possible to minimise our carbon footprint. To this end, wehave been developing our environmental policy since 2004, when we stoppedproviding company cars and introduced a stringent policy of reimbursement forbusiness mileage. During that year, we also started to look at ways in which we could reduce thetransportation of workers by attracting people living in an area local to aclient rather than having to transport them to a client. We estimate that we nowtransport about 75% fewer workers than we did three years ago which alsoprovides economic benefits to the Group. More recently, we have introduced re-cycling schemes for our used officeproducts, mobile phones and computer equipment. We are also moving our headoffice to a purpose-built, energy-efficient location in Nottingham in March. Thenew building is already served by good public transport links; however thesewill be further improved over the next few years with the extension of theNottingham tram network, allowing almost all of our staff to travel to work bypublic transport. Gangmaster Licensing As previously reported, Staffline was the first major supplier to be granted aGangmaster licence under the Gangmaster Licensing Act 2006. Since the licensingscheme came into force, 46 suppliers have had their licences withdrawn. Weapplaud the efforts made by the Gangmaster Licensing Authority to stamp out pooroperating practices and welcome the positive impact it has had on our industry. Verification Systems We continue to have a large number of workers who attempt to register with uswithout possessing the correct identification documents. The investment made in2006 in IT systems has greatly helped us to ensure that such workers are notsupplied in error by us to a client. We continue to work very closely with thevarious Government departments and, in the many audits they have undertaken, wehave always been shown to be fully compliant with all legislation. Employees The number of people employed by the Group rose 15% during the year to 245 in2007 from 213 in 2006. Our employees continue to be the backbone of our Groupand we are committed to recognising their valuable contribution to deliveringconsistently exceptional client service and to growing the business. We have inplace a share option scheme and a comprehensive benefits package as well asperformance-related bonuses. Current Trading and Prospects Trading for the first eight weeks of 2008 has been ahead of the same period lastyear, in line with our expectations. Whilst mindful of the potential slow down in the UK economy, we are confidentthat the successful growth of our OnSite contract base, together with our strongexposure to the food sector will allow us to continue our rapid organicexpansion. Indeed, we anticipate that any prolonged downturn will provideadditional opportunities for us, as clients seek further operating efficiencies. We are, therefore, confident that the Group will continue to make progress inthe current year and thereafter. Andy Hogarth3 March 2008 Note 2007 2006 £'000 £'000 Continuing operations Revenue 119,866 84,111Cost of sales (101,676) (69,975) Gross profit 18,190 14,136 Administrative expenses (13,336) (10,383) Operating profit 4,854 3,753 Finance costs (489) (395) Profit before taxation 4,365 3,358 Tax expense 3 (1,363) (1,014) Net profit for the year 3,002 2,344 Total and continuing earnings per ordinary share 4Basic 14.2p 11.3pDiluted 13.7p 10.9p Share Profit based and Share payment Share loss capital reserve premium account Total £'000 £'000 £'000 £'000 £'000 At 1 January 2006 2,082 68 14,257 1,636 18,043Net profit for the year and total recognised income andexpenses for the year - - - 2,344 2,344Employee share based compensation - 39 - - 39Dividends paid - - - (458) (458) At 31 December 2006 2,082 107 14,257 3,522 19,968 Share options exercised 30 - 211 - 241Net profit for the year and total recognised income andexpenses for the year - - - 3,002 3,002Employee share based compensation - 61 - - 61Transfer on exercise of options - (62) - 62 -Dividends paid - - - (635) (635) At 31 December 2007 2,112 106 14,468 5,951 22,637 2007 2006 £'000 £'000 AssetsNon currentGoodwill 24,181 22,326Other intangible assets 116 -Property, plant and equipment 948 204 25,245 22,530 CurrentTrade and other receivables 16,638 13,189Cash and cash equivalents 829 823 17,467 14,012 Total assets 42,712 36,542 LiabilitiesCurrentTrade and other payables (12,244) (9,139)Borrowings (2,506) (3,807)Other current liabilities (17) -Current tax liabilities (699) (478) (15,466) (13,424) Non currentBorrowings (4,455) (3,150)Other non current liabilities (154) - Total liabilities (20,075) (16,574) EquityShare capital (2,112) (2,082)Share premium (14,468) (14,257)Share based payment reserve (106) (107)Profit and loss account (5,951) (3,522)Total equity (22,637) (19,968) Total equity and liabilities (42,712) (36,542) 2007 2006 £'000 £'000Cash flows from operating activities Profit before taxation 4,365 3,358Adjustments for:Interest paid 489 395Depreciation and amortisation of property, plant 306 93and equipment and intangible assetsOperating profit before changes in workingcapital and provisions 5,160 3,846 Change in trade and other receivables (2,594) (4,526)Change in trade and other payables 2,108 2,877Cash generated from operations 4,674 2,197 Adjustment for debt issue costs 10 50 Employee equity settled share options 61 39 Taxes paid (1,142) (1,352) Net cash inflow from operating activities 3,603 934 Cash flows from investing activities Purchases of property, plant and equipment (1,715) (209) Proceeds from sale of property 1,626 - Acquisition of subsidiary net of cash acquired (2,098) - Net cash used in investing activities (2,187) (209) Cash flows from financing activities New bank loans 2,000 - Repayment of bank and other loans (886) (375) Movement in invoice discounting facility - (2,458) Interest paid (489) (395) Dividends paid (635) (458) Proceeds from the issue of share capital 241 - Net cash from financing activities 231 (3,686) Net change in cash and cash equivalents 1,647 (2,961) Cash and cash equivalents at beginning of period (2,409) 552 Cash and cash equivalents at end of period (762) (2,409) 1. ACCOUNTING POLICIES Basis of preparation The consolidated financial statements of Staffline Recruitment Group plc and itssubsidiary undertakings ('the Group') have been prepared under the historicalcost convention and in accordance with International Financial ReportingStandards as adopted by the EU and the International Financial ReportingStandards as issued by the International Accounting Standards Board. The accounting policies of the Group are included in the 2007 financialstatements. Change in accounting policies The Group has adopted for the first time IFRS 7 Financial InstrumentsDisclosures in the 2007 financial statements. This standard has been appliedretrospectively. The 2006 comparatives contained in the financial statementstherefore may differ from those published in the financial statements for theyear ended 31 December 2006. All disclosures relating to financial instruments have been updated to reflectthe new requirements. In particular the following information is disclosed: • An aging of post due trade receivables• A sensitivity analysis to explain the company's market risk exposure in relation to interest rates is shown as at the balance sheet date In accordance with the amendment of IAS 1 'Presentation of Financial Statements'the Group now reports on its capital management objectives, policies andprocedures in each annual financial report. 2. SEGMENTAL REPORTING (a) By business segment (primary segment):As defined under IAS 14, the only material business segment the Group has isthat of providing temporary staff to customers as the placement of permanentstaff to customers contributes less than 10% of Group total revenue. The salesrevenue is from the rendering of services.(b) By geographical segment (secondary segment):Under the definitions contained in IAS 14, the only material geographic segmentthat the Group operates in is the United Kingdom. 3. TAX EXPENSE The relationship between the expected tax expense at 30% and the tax expenseactually recognised in the income statement can be reconciled as follows: 2007 2006 £'000 % £'000 % Result for the year before tax 4,365 3,358 Tax rate 30% 30% Expected tax expense 1,309 30.0 1,007 30.0 Adjustment for non-deductible expenses relatingto short term temporary differences (14) (0.3) (24) (0.7)Other non-deductible expenses 68 1.5 25 0.7Adjustments in respect of prior periods - - 6 0.2 Actual tax expense 1,363 31.2 1,014 30.2 Tax expense comprises:Current tax expense 1,363 1,014 There is no tax expense or credit in relation to the share based payment reservecredited to equity. 4. EARNINGS PER SHARE The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the year. The calculation of the diluted earnings pershare is based on the basic earnings per share adjusted to allow for alldilutive potential ordinary shares.Details of the earnings and weighted average number of shares used in thecalculations are set out below: Basic Diluted 2007 2006 2007 2006 Earnings (£'000) 3,002 2,344 3,002 2,344 Weighted average number ofshares 21,084,103 20,824,463 21,951,815 21,511,163 Earnings per share (pence) 14.2p 11.3p 13.7p 10.9p The weighted average number of shares has been increased by 867,712 (2006:686,700) shares to take account of all dilutive potential ordinary shares thatcould be issued under the share option scheme. Dividends During the year, Staffline Recruitment Group plc paid interim dividends of £275,453 (2006: £208,245) to its equity shareholders. This represents a paymentof 1.3p (2006: 1.0p) per share. A final dividend of £ 530,000 has been proposed(2006: £359,116) but has not been accrued within these financial statements.This represents a payment of 2.5p (2006: 1.7p) per share. The final dividend for2006 was declared and paid in 2007. 5. ACQUISITION OF SUBSIDIARY On 16 March 2007, Staffline Recruitment Group plc acquired the entire issuedshare capital of Onsite Partnership Limited (OSP). OSP offers temporary andpermanent 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 31 December 2007 the acquisition contributedrevenue of £6,135,000 and a profit after tax for the period of £74,000 to theGroup. Due to the difficulties in now obtaining data prior to the acquisition ofOSP a proforma profit or loss for the combined entity for the complete 2007reporting period cannot be determined reliably.The goodwill arising on the acquisition during the year is attributable to theanticipated future profitability of OSP. In addition, this acquisition bringsaccess to new service offerings for the Group. Effect of acquisition Acquiree's book Fair value Acquisition values adjustments amountAcquiree's net assets at the acquisition date: £'000 £'000 £'000 Other intangible assets - customer contracts - 216 216Property, plant and equipment 824 (134) 690Trade and other receivables 855 - 855Cash and cash equivalents 6 - 6Trade and other payables (997) - (997)Loans (521) - (521)Deferred tax (8) 8 - Net identifiable assetsand liabilities 159 90 249 Goodwill on acquisition 1,855 Cash consideration paidincluding fees 2,104 The fair value adjustments above have arisen as a result of the recognition ofthe value of customer contracts, the market value of the Head Office property ofOSP and the adoption of the accounting policies of the Group. A significant partof the acquisition costs can be attributed to the potential market opportunitypresented by the National Response Centre, and the potential synergiesachievable in the future between Staffline Recruitment Group plc and OSP. At theacquisition however, no intangible asset qualified for recognition in thisrespect. These circumstances contributed to the amount recognised as goodwill.The cash consideration paid was £2 million. Costs of acquisition were £104,000in respect of advisors fees. All goodwill arising on the business combinationhad been allocated to the same single cash-generating unit that existed at thedate of acquisition. 6. PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The summarised consolidated profit and loss account, the summarised consolidatedstatement of changes in equity, the summarised consolidated balance sheet andthe summarised consolidated cash flow statement and associated notes have beenextracted from the Group's 2007 statutory financial statements upon which theauditors opinion is unqualified and does not include any statement under Section237 of the Companies Act 1985. Those financial statements have not yet been delivered to the registrar ofcompanies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Staffline