Half Yearly Report

AIM: KLN

5 September 2014

The Kellan Group PLC

("Kellan", the "Company" or "Group")

Half yearly results for the six months ended 30 June 2014

The Company is pleased to announce its half yearly results for the six months ended 30 June 2014. Kellan is a market leading recruitment business operating across a wide range of functional disciplines and industry sectors. 

The Group aims to develop, through acquisition and organic growth, a portfolio of premium brands within the currently fragmented recruitment sector in the UK. Currently, through its three recruitment brands, Berkeley Scott, Quantica and RK, the Group has the capability and resource to recruit professionals into finance & accounting, information technology, engineering, contract management, retail, manufacturing, catering, hospitality & leisure and human resources sectors

Financial summary

· In the six months ended 30 June 2014, the Group achieved year on year net fee income ("NFI") growth of 6% with £3.9 million compared with £3.7 million in H1 2013

· Operating profit for H1 2014 of £0.1 million compared with a loss of £1.0 million in H1 2013

· Increased savings made by streamlining administrative expenses (exclusive of impairment), resulting in an 18.6% reduction against the comparable period in the prior year and an 8.2% reduction against second half of 2013

· Adjusted EBITDA profit of £0.3 million (six months ended June 2013: loss of £0.5 million) - see note 2

· Cash inflow from operating activities of £1.1 million (six months ended June 2013: £0.3 million)

Operational summary

· Ongoing investment in I.T systems and processes to improve efficiency and increase performance

· 19% year on year improvement in NFI per fee earner

· Strategic closure/consolidation of five branches into two new offices

RK

· Improved performance across H1 with 8.2% uplift in NFI compared with H2 2013

Berkeley Scott

· H1 2014 NFI of £2.2million compared with £2.1million in H1 2013

· Significant market engagement with a number of large PSL wins as well as new business from previously dormant accounts

Quantica

· Quantica Technology saw new strategic appointments in two new business operations managers to drive the London business forward

· Headcount also rose in the already established Birmingham and Elland offices with key new hires whilst also monopolising other areas of growth

· Significant client win in Search and Selection; KP Snacks

· Business well positioned for further growth in H2 2014

ENQUIRIES:

Executive Chairman's Statement

2014 was predicted to be a year of opportunity for the UK recruitment industry. Each brand within the Kellan Group has taken full advantage of this in H1, by engaging and retaining new clients, developing candidate relationships and appointing new, experienced managers to drive the businesses forward and ensure maximum efficiency and profitability. I am pleased to report year on year NFI growth of 6% for H1 2014 with £3.9 million in H1 2014 compared with £3.7 million in H1 2013.

The restructure of our property portfolio with the strategic closure/consolidation of five offices during 2014 and investment in new premises has also enabled a realigned focus on core growing markets in key locations.

As a result of the above, and a continued focus on cost control, administrative expenses reduced by 18.6% compared to H1 last year, the group achieved an operating profit of £0.1 million in H1 2014 compared with a loss of £1.0 million during H1 2013. Adjusted EBITDA has improved from a loss of £0.5 million in H1 2013 to a profit of £0.3 million in H1 2014.

This is a significant achievement for the Group and evidence of the commitment of a dedicated and committed workforce, with NFI per fee earner increasing by 19% compared to H1 last year and 7% compared to H2 2013.

We are determined to build on the success achieved during the first half of 2014, with continual investment in our people and our I.T. infrastructure in order to ensure that we are best equipped to take advantage of the opportunities expected to arise from the improving recruitment industry and UK economy as a whole.

I am delighted with the H1 results and look forward to the future accomplishments of each of the brands within the Group.

My thanks go to all the Kellan Group staff for their dedication and commitment and also to our investors for their continued support and belief in our business.

Tony Reeves

Executive Chairman

Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2014

The above results relate to continuing operations.

There are no adjustments between the loss for the period and the total comprehensive expense for the period or the comparative periods.

Consolidated Statement of Financial Position

as at 30 June 2014

Consolidated Statement of changes in equity

for the 6 months ended 30 June 2014

Consolidated Statement of Cash Flows

for the 6 months ended 30 June 2014

Notes

(forming part of the financial statements)

1 Accounting policies

Accounting periods

The accounting reference date of the Group is 31 December. The current half year interim results are for the six months ended 30 June 2014. The comparative half year interim results are for the six months ended 30 June 2013. The comparative year's results are for the twelve months ended 31 December 2013.

Financial information

The financial information for the six months ended 30 June 2014 and the six months ended 30 June 2013 are unaudited and un-reviewed and do not constitute the Group's statutory financial statements for those periods. The comparative financial information for the full year ended 31 December 2013 has, however, been derived from the audited statutory financial statements for that period. A copy of those statutory accounts for that period has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified and did not contain statements under Chapter 3 of Part 16 of the Companies Act 2006, but did include an emphasis of matter in respect of the ability to refinance the convertible loan notes of £1.36 million repayable in February 2015 and that if expected trading levels are not achieved there may be a requirement for additional funding. These conditions indicated the existence of material uncertainties which may have cast doubt about the Group's ability to continue as a going concern.

Basis of preparation

The half year interim financial statements have been prepared on a going concern basis using the recognition and measurement principles of IFRS as endorsed for use in the European Union. The accounting policies used in the preparation of these condensed financial statements are set out in the statutory financial statements for the period ended 31 December 2013 which are also the policies that are expected to be applicable at 31 December 2014.

Based on the Group's post year end trading expectations and associated cash flow forecasts as at 31 December 2013, the Directors considered the cash requirements of the Company and concluded the Group would be able to operate within its existing facilities for the twelve months ending 31 December 2014. 

The Directors are confident that the Group will be able to meet its liabilities as they fall due for the foreseeable future. It is on this basis that the Directors consider it appropriate to prepare the Group's financial statements on a going concern basis.

2 Reconciliation of operating profit/(loss) to adjusted EBITA and adjusted EBITDA

3 Earnings per share

Basic earnings per share

The calculation of basic earnings per share is as follows:

4 Trade and other receivables

5 Trade and other payables

6 Intangible Assets

The intangible assets balance at 30 June 2014 of £6,440,000 includes an amount of £5,750,000 relating to goodwill acquired through business combinations. Impairment of this balance has been assessed as at 30 June 2014 and no adjustment was considered necessary. The Directors believe the assumptions used in testing impairment at 31 December 2013 are still valid and have not materially changed. These assumptions will continue to be reassessed on a six monthly basis.

7. Availability of the Interim Report

Copies of the report will be available from the Company's office and also from the Company's website www.kellangroup.co.uk.