Half Yearly Report

28 September 2012

Kellan Group plc

("Kellan" or "the Group")

Half yearly results for the six months ended 30 June 2012

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, supply chain & procurement, contract management, retail, manufacturing, catering, hospitality & leisure and human resources sectors.

Financial summary

·; Adjusted EBITDA maintained with a loss of £0.1 million (six months ended June 2011: loss £0.1 million).

·; Increased savings made by streamlining administrative expenses (exclusive of impairment), resulting in a 17.1% reduction against the comparable period in the prior year and a further 10.7% reduction against second half of 2011.

·; Basic loss per share reduced to 0.60p (six months ended June 2011: loss 0.67p).

·; Cash outflow from financing activities of £0.7 million (six month ended June 2011: inflow £0.6 million).

·; In September 2012, £1.40 million raised through a new share issue plus a £1.26 loan million facility put in place for the purpose of repaying senior bank debt at more favourable interest rates and to fund the growth in the number of fee earners with the aim of executing the board's growth strategy.

·; £0.65 million of loan notes converted to equity in September 2012 to reduce financing costs and improve leverage ratio for the Group.

Operational summary

·; New revenue streams launched within core brands - 'niche within niche'

o Finance in Hospitality

o Hotel senior appointments

o Technology in Utilities

·; New markets with excellent prospects entered:

o Human Resources launched in January and performing ahead of expectations

o New brand launched in commercial & industrial sector in H2

·; Significant new customer wins and key major accounts retained

·; Apprentice development programme launched to identify and nurture new talent

·; Group-wide training and development programme initiated

·; Brand and website refreshment programme accelerated

·; On-going investment in the business infrastructure to provide best-in-class tools to all areas of the Group

·; Continued restructuring and consolidation of property portfolio delivered cost saving synergies throughout the Group

Enquiries:

Kellan Group Plc

Ross Eades, Chief Executive Officer 0207 268 6200

Rakesh Kirpalani, Group Finance Director

Merchant Securities Limited

David Worlidge 0207 628 2200

Virginia Bull

Chief Executive Officer's Statement

The recruitment market continued to mirror the protracted and frustrating stagnancy of the overall UK economy during H1 2012. Opportunities for growth have been few and far between and the Group has worked hard to maximise these wherever they have arisen and I was particularly encouraged by a number of major new customer wins and by our retention of key clients.

During H1 2012, our relocation and consolidation of premises programme continued, contributing to significant savings on administrative costs of 17.1% on H1 2011. Staff costs remained under rigorous control although we are confident that we have the talent pool of leaders and sales staff with the capability to deliver growth from gaining market share even in the current economic environment. The drive is always towards growing NFI. The adjusted EBITDA of £121,000 (loss) (H1 2011: £89,000 loss) reflected the difficult trading environment.

The Group has been considerably strengthened by the launch in January 2012, and the promising performance to date, of Robinson Keane HR Professionals by two of the HR industry's top recruiters. This is a resilient part of the professional recruitment market and naturally has tangential benefits to all the other brands in the Group.

We have also identified a number of promising 'niche within niche' opportunities in all our brands and have launched a new and promising operation in the commercial and industrial sector.

Since I joined the Group three years ago, unhelpful trading conditions, pressure to service increasingly onerous bank debt and a cumbersome portfolio of premises have severely hampered our ability to invest in growth. Despite this, our people have worked with tireless enthusiasm to build and maintain our brands' positions in key markets and over the past year I am pleased that we have been able to build a talented pool of proven performers ready to take advantage of any market and growth opportunities that might arise.

I am delighted that the Group's growth strategy has been given new and exciting momentum by the recent successful completion of lengthy negotiations around a funding package that will relieve us of the pressure to service onerous bank debt and provide us with resources to invest in infrastructure and actions for positive growth. Drawn from existing investors, the package consists of £1.40 million raised subsequent to the year end through the issue of shares and a £1.26 million draw-down facility with a five year term to repay bank senior debt at favourable interest rates. Additionally, £0.65 million loan notes have been converted to equity to reduce financing costs and improve the leverage ratio of the Group.

As a result we look forward to the remainder of H2 2012 and 2013 with optimism and momentum. Plans for the new funds are ready to be executed and we are excited by the opportunity we now have to unleash the undoubted potential of the Group.

My thanks go to all Kellan Group staff for their focus and diligence during these challenging times and to our investors for their enthusiasm and very tangible support for our plans.

Ross Eades

Chief Executive Officer

Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2012

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 2012

Consolidated Statement of changes in equity

for the 6 months ended 30 June 2012

Consolidated Statement of Cash Flows

for the 6 months ended 30 June 2012

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 2012. The comparative half year interim results are for the six months ended 30 June 2011. The comparative period end's results are for the twelve months ended 31 December 2011.

Financial information

The financial information for the six months ended 30 June 2012 and the six months ended 30 June 2011 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 2011 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 auditors report on those accounts was not qualified and did not contain statements under Chapter 3 of Part 16 of the Companies Act 2006.

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 2011 which are also the policies that are expected to be applicable at 31 December 2012.

The accounts for the 12 month period ended 31 December 2011 highlighted that due to the continuing downturn in the UK recruitment market, the Group reset the financial covenants contained in its borrowing agreement with its lender and remained within agreed levels.

In September 2012, the Group raised funding of £2.66 million before costs through a combination of new equity and a new debt facility. Investors are committed to subscribing for shares of £1.40m. The subscription funds are held by the company for the sole benefit of the company. The equity injection will be used for investment in fee earners and projects to stimulate growth.

A further facility has been signed with Paul Bell for £1.26m and this facility will become available for drawdown as amounts become due under the Barclays term loan facility. This facility effectively underwrites the bank's term loan although there are limitations should the Barclay's term loan become immediately repayable, as in this event the facility can still only be drawn in line with the agreed repayment schedule under the Barclay's facility. The directors have considered the prospect of an immediate payment being required in this situation and although they acknowledge it as an uncertainty, they consider it to be remote.

As part of the fundraising, £0.65 million loan notes were also converted to equity to reduce financing costs and improve the leverage ratio of the Group.

The Group breached covenants on the Barclay's term loan and ID facility at 31 March 2012 and 30 June 2012, however Barclays have granted a waiver of the breaches at 31 March 2012 and 30 June 2012 and a covenant test waiver for 30 September 2012. As at 25 September the Group has an aggregate principal amount of £1.26 million remaining outstanding under the facility. Due to the financial restructuring the covenants require rebasing. This has yet to be completed but Barclays have provided written assurances to the directors that they will agree and reset the covenants before the next test date and that these covenants will include an appropriate level of tolerance.

Based on the Group's latest cash flow forecasts which cover the period to 31 December 2013 and current trading performance, together with the financial restructuring and undertaking by Barclays to rebase the covenants, the directors do not consider there to be any reasonable prospect that any further funding will be required for the foreseeable future and they consider that the group will be able to operate within the level of its current facility.

Having considered the above, the Directors are of the opinion that there is a reasonable expectation that the Group will be able to meet its liabilities as they fall due for the foreseeable future and that there are no material uncertainties that would cast significant doubt over the group's ability to continue as a going concern.

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 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 2012 of £7,997,000 includes an amount of £6,929,000 relating to goodwill acquired through business combinations. Impairment of this balance has been assessed as at 30 June 2012 and no adjustment was considered necessary. The Directors believe the assumptions used in testing impairment at 31 December 2011 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.