Final Results

11 December 2015

WORK GROUP PLC

(the "Company" or the "Group")

Final Results for the year ended 31 December 2014

Work Group plc (LSE - AIM: "WORK") announces its final results for the year ended 31 December 2014.

Continuing operations:

· Gross profit (net fee income) down 28% to £4.3m (2013: £6.0m*)

*Continuing operations only

· Group revenue down 27% to £7.6m (2013: £10.4m)

· Operating loss before exceptional items was £1.2m (2013: £1m loss) and

· Net cash at year end of £0.1m (2013: £1.3m).

The operating loss after exceptional costs was £3.4m (2013: £1.3m loss). 

Financial headlines - continuing operations

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

* Stated for continuing operations and excluding exceptional.

Chairman's review

Overview

Following the sale of Armstrong Craven in 2013, we entered 2014 with optimism and with a plan to restructure the business for the future. Management changes were implemented and the UK business was hived down from the parent company to a new wholly owned subsidiary, Work Group Resources Limited, so that the UK trading activities stood apart from the parent company.

A new accounting and management information system was implemented to coincide with the hive down in August. Unfortunately, this project had been seriously delayed due to the failure of a subcontractor, resulting in additional costs.

In the UK some significant pitches and projects which had been won in the first six months did not materialise as billed activity in the second half. In addition to this, normally reliable revenue from graduate interviewing operations in our resourcing division declined considerably, as clients witnessed a significant fall in graduate applications, resulting in a 40% decline in revenue from this activity.

However, our overseas operations in Hong Kong and New York continued to make progress, registering respectively 8% and 40% increases in NFI (net fee income).

It was a combination of all these factors which saw overall revenue decline 27% to £7.6m for the Work Business Units (2013: £10.4m), while gross profit declined in the same proportion down 28% to £4.3m (2013: £6m). 

Financial results

With the backdrop outlined above, an operating loss of £1.2m was recorded before exceptional charges, (2013: £1.0m loss). The Company remained long term debt free and Group net cash at 31 December 2014 was £0.1m (2013: £1.3m). 

Overhead cuts were implemented in the second half of the year, including board remuneration; however the speed of change in the UK business made it impossible to align costs and revenues. The Company continues to carry excess property liabilities and other corporate costs which have proved difficult to cut. Headcount across the Group decreased by 23% to 82 at the year-end (2013: 106).

Following the year-end and in the light of no major improvement in trading activity in the UK, a decision was taken to impair certain assets leading to exceptional costs totalling £2.3m (2013: £0.3m). These impairment charges include goodwill impairment together with the significant subcontract costs incurred implementing the delayed Microsoft Dynamics-based accounting and management information system, as noted above.

The operating loss for the Group after exceptional costs and tax was £3.6m (2013: £1.3m loss).

Board Changes

In December 2014, Steve Bodger resigned as a non-executive Director. Steve has served on the Board for nine years since our admission to the AIM market and I would thank him for his support and wise counsel during that time.

The Future

In the absence of a substantial improvement in the UK business environment and in recognition that our business had become sub-scale, the Board decided to seek a buyer for our business operations. 

This process has been underway for nearly six months and consequently, in the United Kingdom in particular, we have found it difficult to win new business pitches which has placed further pressure on Group finances.

I am pleased to report that today, we have exchanged contracts for the sale of our UK business and two foreign subsidiaries to a third party. Subject to completion of these contracts and approval by our shareholders, anticipated before the end of December 2015, the Directors propose that the Company should become an investing company under the AIM market rules. Further information about this transaction may be found in a separate circular being sent to shareholders.

I would take the opportunity to thank all our staff for their dedication and perseverance in difficult times. 

Simon Howard

Executive Chairman

10 December 2015

Consolidated income statement

For the year ended 31 December 2014

Consolidated statement of comprehensive income

Consolidated and parent company statements of financial position

For the year ended 31 December 2014

Consolidated and parent company statements of changes in equity

For the year ended 31 December 2014

Group

Company

Consolidated and parent company statements of cash flow

For the year ended 31 December 2014

Notes to the financial statements

For the year ended 31 December 2014

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.

Going concern

The publication of these accounts has been delayed pending the outcome of the strategic review announced to shareholders on 16 June 2015. Subsequently, on 7 August, the Directors announced an intention to seek a buyer for the Group's businesses.

On the 10 December 2015, the Group exchanged contracts for the sale of the Company's two overseas subsidiaries and of the business of its UK subsidiary to a third party.

These contracts are conditional, (inter alia), upon the approval of the Company's shareholders in a General Meeting to be held on the 29 December 2015.

Subject to receipt of this approval and the fulfilment, or waiver, of other conditions, the contracts are due to complete no later than the end of December 2015.

These accounts have been prepared on the basis that such completion takes place. The Directors believe that, given this assumption, the Group will have sufficient working capital for the foreseeable needs and, that, accordingly, the going concern basis is appropriate in preparing the consolidated accounts.

Should these approvals not be received or other conditions to completion not be fulfilled, then the going concern basis of preparation may not be appropriate. These conditions indicate the existence of material uncertainties which may cast doubt over the group's and the company's ability to continue as a going concern.

Adoption of new and revised International Financial Reporting Standards

In the current year, the Group has adopted all of the new revised standards and interpretations issued by the International Accounting Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the accounting periods beginning on 1 January 2014 unless the impact is not material.

The following amendments have been reviewed:

Basis of consolidation

The Group financial statements comprise a consolidation of the financial statements of the holding Company and all of its subsidiary undertakings. The results of subsidiary undertakings acquired are included in the consolidated income statement and consolidated balance sheet using the acquisition method of accounting from the effective date that control is obtained.

The consolidation parameters have not changed with the new IFRS 10 standard implemented in 2013. Work Group plc controls and consequently consolidates all its subsidiaries as it is composed, and has the rights, to variable returns from its involvement with the entities and has the ability to affect those returns through its power over the entity. The group is considered to have power over its subsidiaries as it owns 100% of their voting shares and its Board has ability to direct the relevant activities.

2 Geographical and Segmental reporting

In 2013, the group had more than one business segment and segmental analysis was provided. Since the disposal of Armstrong Craven in 2013, the business now only has one segment and therefore no analysis is provided.

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.

*2013 revenue, including the discontinued Armstrong Craven one which revenue was £2,132,000.

3 Exceptional items

The exceptional costs of £2,261,000 (2013: 2,528,000) relate to goodwill impairment, exceptional system costs and the release of specific accrual relating to potential litigation.

4 Operating loss

5 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 21.49% (2013: 20%), having qualified for the small profits tax rate. The differences are explained below:

* relates to continuing operations only

6 Losses per share

As there were basic losses per share in 2014, then effect of share options is anti-dilutive, consequently diluted losses per share equates to the basic losses per share.

Adjusted loss per share is as follows:

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 2014.

Losses reconciliation

Adjusted earnings per share exclude the cost of exceptional items less tax at 21.49% (2013: 20%). No tax was due in relation to 2014. As a consequence, no tax was reversed in the calculation for 2014.

*Excludes non-tax deductible items related to impairment losses.

7 Intangible assets

During the year, the Group has recognised an impairment loss for the remaining amount of goodwill of £2,144,000 (2013: 2,200,000). Following a strategic review at the group and company level, the directors have considered the carrying value of the goodwill and concluded that an impairment is appropriate given the outcome of the strategic review, the continuing tough market conditions and the future plans.  

The goodwill at Group level, before impairment, is attributed to The Resourceful Group Limited, Park Human Resources Limited and Recruitment Communications Company Limited (£2,144,000).

Other intangible assets in Group relate to software licences of the ERP system.

During the year, the Company recognised a goodwill impairment loss of £966,000 (2013: £292,000), impairing the carrying value of goodwill at Company level. This goodwill was attributed to The Resourceful Group Limited, Park Human Resources Limited and Recruitment Communications Company Limited (£966,000). Following a strategic review at the group and company level, the directors have considered the carrying value of the goodwill and concluded that an impairment is appropriate given the outcome of the strategic review, the continuing tough market conditions and the future plans.

Other intangible assets that relate to software licences have been transferred to Work Group Resources Limited at the time of the hive down of operations from Work Group plc.

8 Investments in subsidiaries

Below is the list of Parent Company's investments in subsidiaries:

The movements in the year to investments, amounting to a decrease of £3.5m (2013: decrease of £1.5m) are explained as follows:The value of investments in foreign subsidiaries at the end of 2013 amounted to £3,489,000. This amount was depreciated at the end of 2014.

The investment into Work Group Resources Limited results from the hive down of the UK business to Work Group Resources Limited. Work Group Plc owns 100% of Work Group Resources Limited. The value of the investments is the net value of equity transferred.

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.

9 Trade and other receivables

The amount owing from group undertakings relates to the loan made by the Company to the EBT. No interest is applied to this balance (note 23).

There are no movements on the Group provision for impairment of trade receivables in 2014.

10 Trade and other payables

The amounts owed to Group undertakings relate mainly to:

- The hive up of the Recruitment Communication Company Limited (1,178,000) in 2007. No interest is applied on these balances which are repayable on demand.

- Cash transfers from the subsidiaries Work Group Limited and Work Group Inc.

11 Ordinary share capital

No new shares were issued during the year.

12 Post balance sheet events

Attention is drawn to note 1 Going concern above. The contracts for the sale of the Company's two overseas subsidiaries and the business of its UK subsidiary to a third party were exchanged, subject to completion by the end of 2015.

13 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 £5,121,000 (2013: profit of £419,000) before dividends has been reported for the current year.

14 Availability 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.