Interim Results

18th Sep 2008 07:00



Thursday 18 September, 2008

KELLAN GROUP PLC HALF YEAR INTERIM RESULTS 

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2008

GROUP MOVES INTO PROFITABILTY AND GROWTH

Kellan Group PLC (AIM: KLN.L), (formerly Berkeley Scott Group PLC - see notes) a leading IT, accountancy, hospitality, leisure and professional services recruitment group, announces its half year interim results for the group for the six month period ended 30 June 2008. 

Financial Highlights

Operational Highlights

Commenting on the results John Rose, CEO of Kellan Group, said:

"The past six months has been a period of considerable achievement for the Kellan Group. The Group has produced a strong set of results, achieving all the objectives we set twelve months ago. The company is now moving ahead into a new phase of its development. We have achieved strong growth in profitability and increased cash generation. Quantica, in particular, is growing ahead of its sector average. We have also delivered on our promise to bring about a dramatic turnaround in the Berkeley Scott business.

"This excellent set of results reflects the skill and determination of everyone involved in the Group. We intend to continue investing in the businesses and in our people who are vital in delivering profitability and growth. We will continue to place great emphasis on ensuring we are well structured for the longer term, both financially and operationally.

"We do expect slower year-on-year growth in the second half of the year, particularly in Berkeley Scott where we will, in future, be comparing to a period where the business had been turned around from its previous under-performance. Although we remain watchful over the current economic and market conditions, we are cautiously confident about the prospects for our Group and we will continue to seek out acquisition opportunities"

Enquiries:

Kellan Group PLC

Anthony Reeves, Co Chairman 01483 414141

John Rose, Chief Executive Officer

Will Coker, Chief Financial Officer

Daniel Stewart

Mike Stoddart, Equity Research 020 7776 6550

Simon Leathers, Corporate Finance

Brunswick Group LLP

James Hogan 020 7404 5959

Helen Barnes

  

Notes

Kellan Group became the name for Berkeley Scott Group in February 2008. The Group name was changed to incorporate all the companies and brands within the Group and to avoid confusion with Berkeley Scott which, for over 20 years, has been a strong brand synonymous with hospitality and leisure recruitment. Since September 2007, the enlarged group of companies includes Quantica and RK, both well known recruitment brands in technology, finance and professional services. The new group name has been proposed following a consultation with employees and testing among key stakeholders. Kellan is the Celtic word for powerful.

CEO Report

The six months we are reporting on have been a period of considerable achievement for the Kellan Group. We are showing strong progress and have moved solidly into profitability and growth and a new phase of development. I am pleased to report we have achieved all our objectives for the business and produced excellent results for the first half of 2008, despite a background of economic slowdown. The majority of our businesses have made great progress and delivered strong organic growth. We have invested, and will continue to invest heavily in them, in order to realise their longer term potential. We have delivered on our aim of growing the Kellan brands faster than the market and we will work hard to ensure that the short term economic environment does not slow down our longer term ability to build a successful, durable company that will be a significant force in recruitment in the coming years. 

We are not complacent about the economic outlook, we will continue to structure and invest for the future during the second half of the year, as well as continue to look for further potential value enhancing acquisitions.

We are reporting strong Group profitability, Adjusted EBITA for the half year is £2.04m (June 2007: Loss £0.4m) with a bottom line profit for the period of £1.3m (2007 Loss £1.2m). However because the Group changed its year end, and following the acquisition of Quantica Plc in September 2007, the financial comparisons reported in these results are previously unpublished and do not include pre-acquisition Quantica trading. The group's revenue for the six months was £25.4m, producing NFI of £13.08m. Like-for-like NFI grew (from the January-June 2007 period) by 20%, consisting of 13% from the Quantica and RK businesses and a significant 39% on a like-for-like basis from the re-structured Berkeley Scott business, as the new management's strategy continued to strongly re-build the company. 

Our balance sheet continued to strengthen; improved profitability and the collection of aged Quantica and RK trade debtors following the integration of our credit control functions allowed us to pay off our year end invoice discounting position of £1.02m and still generate net cash for the period of £1.2m. Gearing (face value of loans and borrowings as a percentage of total equity) improved further to 12.6% from a year end 18.4%. Whilst we maintain the original planned repayment schedules for loans taken out as part of the Quantica acquisition, surplus cash balances of £1.8m along with other unutilised facilities provide a healthy platform to fund planned investment and growth strategies by the Group in H2.

Berkeley Scott

Berkeley Scott is a turnaround success story. The company has rightfully regained its position as a pre-eminent hospitality and leisure recruitment brand. The measures taken in 2007 to re-focus and re-energise Berkeley Scott, and to return it to profitability have continued to pay dividends. The 'higher margin, higher value' strategy introduced has seen huge improvement in the key metrics. Average permanent fee has increased from £2,900 (January - June 2007) to £4,150 (January - June 2008) and from 13.7% to 16.2% as a percentage of salary. This has enabled consultant productivity to rise by 18%, whilst consultants' costs have reduced from 63% of NFI to 50%. These two factors have contributed greatly to the increased profitability of Berkeley Scott. Furthermore, the London permanent recruitment market, key to our longer term growth, saw a 59% year on year NFI improvement. Although conditions in the hospitality and leisure sector have more recently been weakening, we will seek to invest in new and existing talent to enable Berkeley Scott to move up to the next level of performance and be in prime position as and when the environment improves.

RK Accountancy

The company has produced a solid and pleasing performance with 14% NFI growth and the continued building of a platform for the future. The growth in the business is reflected in the opening of its first new office for five years with a new Warrington branch in June and we plan for at least one more office to be opened in 2008 (expected to be Sheffield) and two further locations in the first half of 2009. A new operating system (Bond Adapt) was implemented towards the end of the half year which will assist with the growth plans for the business. Consultant headcount is planned to be 70 by year end, having commenced 2008 with 52. As we have previously stated, we believe there is enormous roll-out potential for RK Accountancy and we remain excited about its future potential, including the important and lucrative London market.

RK Search/Robinson Keane

Our niche search businesses enjoyed strong growth (17% increase in NFI) whilst establishing two new sub-brands in RK Catalyst and RK Connect. We continue to drive the strategy within niche, focussed areas of the search market and fully expect continued strong growth going forward.

A challenging climate for our IT business, yet despite this the business still managed to achieve NFI growth of 12% on prior year. We are working hard to increase our client base and on hiring new talent into the business. We are confident in the long-term growth potential of the business under its hugely experienced leadership team.

Quantica Search & Selection

During H1 we focussed on the expansion of our specialist manufacturing business on two fronts, namely geographic expansion replicating and complementing our existing business, and also functional expansion in the sector to maximise revenues from existing client relationships. We have been particularly successful at hiring experienced recruiters from some of our competitors, which has resulted in fresh accounts opening up. This has allowed our Manchester office, a start-up at the end of 2007, to grow to 10 people, with further expansion planned.

During the period we closed Quantica Solutions, a small utilities recruitment business, as a result of underperformance and our desire to focus on the premium markets within Quantica Search & Selection.

In our Retail business, we refined our offering, cutting out lower margin contingent based UK work operating in tough market conditions, to focus on specialist higher level international work, where margins are higher and markets are more stable. 

These investments allowed the business to grow its NFI by 13%.

  

We are beginning to enjoy the synergies envisaged at the time of the Quantica plc acquisition and continue to identify cost savings, whilst consolidating the support areas and building the appropriate central functions to support our planned growth. During H1 we consolidated five Leeds properties into two and three Manchester offices into two. Divisional support areas have been replaced with group expertise, and appointments made into Group Training, Marketing, HR, and Finance positions. Our 31 December 2007 Annual Report highlighted synergy savings implemented and identified at that time of £1.1m. We are continuing to identify areas for cost saving, efficiencies and consolidation, and, as we previously announced, still expect annualised synergies to total £1.3m by 2009. A significant component of the additional savings will be subject to the crystallisation of our plans to centralise our head office into London, and we expect to do this by the beginning of 2009. Although no costs have yet been incurred, we still expect a one-off cost of £250k in order to achieve our plan.

Kellan Group has now moved into a new phase of profitability and growth and we are focussed on developing the business efficiently, and on delivering shareholder value. We are pleased that these results reflect further significant progress in our stated operational, strategic and financial aims. The first half of the year produced an excellent performance for the group with some outstanding divisional performances; the huge turnaround in Berkeley Scott has continued and the growth of the Quantica and RK businesses has been significantly above market average. Whilst conditions in some of our markets are deteriorating and our visibility remains short in the current economic environment, we remain cautiously confident about the potential for our group. We intend to continue investing in the future and are committed to our strategy over the remainder of the current financial year.

We would like to thank our management and staff, as well as business associates and investors for their continued confidence in the Kellan Group and for helping us to move forwards ahead of expectations, particularly in such difficult markets. We will continue to move forwards and grow the business profitably and achieve new successes.

  Consolidated Income Statement

for the 6 months ended 30 June 2008

 

 

Basic Profit / (loss) per share in pence	4	1.5	(5.8)	(5.4)
Diluted Profit / (loss) per share in pence	4	1.3	(5.8)	(5.4)

 

The above results relate to continuing operations.

  Consolidated Balance Sheet

at 30 June 2008

 

		Unaudited	Unaudited	Audited
		30 June 2008	30 June 2007	31 Dec 2007
	Note	£000	£000	£000
Non-current assets
Property, plant and equipment		872	692	833
Intangible assets		29,180	2,518	29,407
		30,052	3,210	30,240
Current assets
Trade and other receivables	5	9,432	3,300	10,572
Other financial assets		2	-	-
Cash and cash equivalents		1,803	3	692
		11,237	3,303	11,264
Total assets		41,289	6,513	41,504
Current liabilities
Bank overdraft		-	-	73
Other loans and borrowings		840	1,351	1,692
Trade and other payables	6	5,823	2,011	6,186
Corporation tax payable		753	-	378
Other financial liabilities		-	-	37
Provisions		22	-	45
		7,438	3,362	8,411
Non-current liabilities
Other loans and borrowings		2,630	142	3,141
Provisions		178	-	200
Deferred tax liabilities		1,174	-	1,237
		3,982	142	4,578
Total liabilities		11,420	3,504	12,989
Net assets		29,869	3,009	28,515
Equity attributable to equity holders of the parent
Share capital		1,742	456	1,742
Share premium		13,728	5,549	13,740
Merger reserve		16,081	-	16,081
Capital redemption reserve		2	2	2
Retained earnings		(1,684)	(2,998)	(3,050)
Total equity		29,869	3,009	28,515

 

  Consolidated Statement of Changes in Equity

for the 6 months ended 30 June 2008

 

 

		Share capital	Share premium	Merger reserve	Capital redemption reserve	Retained earnings	Total equity
		£000	£000	£000	£000	£000	£000
Balance at 1 January 2008		1,742	13,740	16,081	2	(3,050)	28,515
Profit / (Loss) for the period		-	-	-	-	1,281	1,281
Share Issue Costs		-	(12)	-	-	-	(12)
		1,742	13,728	16,081	2	(1,769)	29,784
Total recognised income and expense for the period
Share based payment charge		-	-	-	-	85	85
Balance at 30 June 2008		1,742	13,728	16,081	2	(1,684)	29,869

 

  Consolidated Cash Flow Statement

for the 6 months ended 30 June 2008

 

		Unaudited	Unaudited	Audited
		6 months ended 30 June 2008	6 months ended 30 June 2007	15 months ended 31 Dec 2007
		£000	£000	£000
Cash flows from operating activities
Profit / (Loss) for the period		1,281	(1,194)	(1,762)
Adjustments for:
Depreciation and amortisation		437	144	522
Financial income		(45)	(2)	(56)
Financial expense		182	77	538
Loss on sale of property, plant and equipment		9	58	63
Equity settled share-based payment expenses		85	69	301
Taxation		311	-	(32)
		2,260	(848)	(426)
(Increase)/decrease in trade and other receivables		1,140	313	(256)
(Decrease)/increase in trade and other payables		(363)	(781)	(2,681)
Increase/(decrease) in provisions		(45)	-	245
		2,992	(1,316)	(3,118)
Tax (paid)/receivable		1	-	(336)
Net cash (outflow) / inflow from operating activities		2,993	(1,316)	(3,454)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		-	5	5
Interest received		45	2	56
Acquisition of subsidiary, net of cash acquired		-	-	(7,592)
Acquisition of property, plant and equipment		(258)	(112)	(261)
Net cash from investing activities		(213)	(105)	(7,792)
Cash flows from financing activities
Proceeds from the issue of share capital, net of issue costs		(12)	2,263	10,956
Proceeds from new loan		-	-	4,200
Repayment of invoice discounting balances		(978)	(496)	(1,512)
Interest paid and loan costs		(182)	(77)	(847)
Repayment of borrowings		(423)	(50)	(316)
Payment of the capital element of finance lease liabilities		(1)	(16)	(26)
Payment of the interest element of finance lease liabilities		-	(1)	(1)
Net cash from financing activities		(1,596)	1,623	12,454
Net increase / (decrease) in cash and cash equivalents		1,184	202	1,208
Cash and cash equivalents at the beginning of the period		619	(199)	(589)
Cash and cash equivalents at the end of the period		1,803	3	619

 Notes

(forming part of the financial statements)

 

1 Accounting policies

Accounting periods

The accounting reference date of the Group is 31 December. The current interim results are for the six months ended 30 June 2008. The comparative interim results are for the six months ended 30 June 2007 and are previously unpublished due to the change in accounting reference date. The comparative period end's results are for the fifteen months ended 31 December 2007.

Financial information

The interim financial information for the six months ended 30 June 2008 does not constitute statutory accounts as defined by Section 240 of the Companies Act 1985. The financial information for the periods ended 30 June 2008 and 30 June 2007 are unaudited and unreviewed. The comparative figures for the fifteen months ended 31 December 2007 are not the full statutory accounts for the period. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under s237(2) or(3) of the Companies Act 1985.

Basis of Preparation

The interim financial statements have been prepared 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 2007 which are also the policies that are expected to be applicable at 31 December 2008.

2 Taxation

 

Recognised in the income statement

	6 month period ended 30 Jun 2008	6 month period ended 30 Jun 2007	15 month period ended 31 Dec 2007
	£000	£000	£000
Current tax expense
Current period	374	-	-
Deferred tax expense
Origination and reversal of temporary differences	(63)	-	(32)
	________	________	________
Tax charge / (credit)	311	-	(32)
	________	________	________

The current period tax charge has been based on the estimated tax rate for the full year to 31 December 2008.

 

3 Reconciliation of Operating Profit / (Loss) to Adjusted EBITA and Adjusted EBITDA

	6 month period ended 30 Jun 2008	6 month period ended 30 Jun 2007	15 month period ended 31 Dec 2007
	£000	£000	£000
Operating Profit / (loss) as per accounts	1,729	(1,119)	(1,312)
Add back
Amortisation of intangible assets	227	-	113
Share based payments charge	85	69	301
Non-recurring costs (i)	-	659	891
	________	________	________
Adjusted EBITA	2,041	(391)	(7)
Depreciation of assets	210	144	409
	________	________	________
Adjusted EBITDA (ii)	2,251	(247)	402
	________	________	________

(i) Non-recurring items for the period to 30 June 2008 were £Nil. The 15 month period to 31 December 2007 non-recurring costs of £891,000 related to costs of £245,000 incurred in respect of onerous leases and £646,000 incurred in respect of the restructuring of the Group. Non-recurring costs for the 6 month period to 30 June 2007 of £659,000 related to restructuring costs.

(ii) In calculating its Adjusted EBITA and Adjusted EBITDA the Group adds back share based payments charges and non-recurring costs. 

4 Earnings per share

 

Basic earnings per share

The calculation of basic earnings per share is as follows:

Weighted average number of shares

	Jun 2008	Jun 2007	Dec 2007
Issued ordinary shares brought forward	87,086,336	8,518,615	8,518,615
Effect of share options exercised	-	-	5
Effect of warrants exercised	-	-	124,750
Effect of shares issued	-	11,917,916	23,968,638
Weighted average number of shares at end of period	87,086,336	20,436,531	32,612,008
Dilutive effect of potential shares	7,980,916	-	-
Diluted weighted average number of shares at end of period	95,067,252	20,436,531	32,612,008
Profit / (loss) for the period	1,281,000	(1,194,000)	(1,762,000)
Basic Profit / (loss) per share in pence	1.5	(5.8)	(5.4)
Diluted Profit / (loss) per share in pence	1.3	(5.8)	(5.4)

 

5 Trade and other receivables

 

	30 Jun 2008	30 Jun 2007	31 Dec 2007
	£000	£000	£000
Trade receivables	7,150	2,439	8,187
Other receivables	783	63	267
Prepayments and accrued income	1,499	798	2,118
	9,432	3,300	10,572

 

6 Trade and other payables

 

	30 Jun 2008	30 Jun 2007	31 Dec 2007
	£000	£000	£000
Trade payables	737	289	777
Social security and other taxes	2,082	655	1,715
Other creditors	346	171	1,261
Accruals and deferred income	2,658	896	2,433
	5,823	2,011	6,186

 

ENDIR SFMFWWSASEIU

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