6th Sep 2006 07:03
Staffline Recruitment Group plc06 September 2006 Embargoed until 0700 Wednesday, 6 September 2006 STAFFLINE RECRUITMENT GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 Continued strong trading and operational progress Staffline Recruitment Group plc, the leading provider of recruitment andoutsourced human resource services to UK industry, today announces its interimresults for the six months ended 30 June 2006. Financial highlights: • Revenue up 30% to £34.4m (2005: £26.4m)• Operating profit up 23% to £1.2m (2005: £1.0m)• Pre tax profit up 45% to £1.0m (2005: £0.7m)• Basic earnings per share increased by 39% to 3.2p (2005:2.3p)• Interim dividend of 1.0p per share declared; representing an increase of 43% (2005: 0.7p)• Net debt reduced by 30% to £5.8m (2005: £8.3m); interest cover increased to 5.7x (2005: 3.3x)• Cost of funding reduced by 80 basis points to 1.2% over base (2005: 2.0%) * All figures are stated in accordance with International Financial Reporting Standards (IFRS) Operational highlights: • Continued significant growth in OnSites to 63 locations; a net increase of 21 since 30 June 2005• A good performance from the Industrial branch network since completion of 2005 reorganisation• Average daily number of contractors increased by 40%• Average number of employees increased by 8% to 205 (2005:189)• Senior team expanded with the appointment of a new South of England Regional Director• Staffline became the first major labour supplier to be awarded a Gangmaster licence Commenting on the results, Andy Hogarth, Managing Director, said: "I am delighted with both the strong trading performance achieved and thesignificant operational progress made during the period. During July and Augustwe have continued to benefit from buoyant trading conditions, maintaining thetrend experienced in the first half. Levels of demand remain encouraging fromboth our existing and new clients. "We are continuing to focus on rapidly increasing our market share through bothcontinued organic growth and our recent senior management appointment. Thisplaces us in an excellent position to continue our growth in the latter part of2006 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 Smithfield 020 7360 4900Katie Hunt/Reg Hoare A presentation for analysts will be held at 10.15 for 10.30am at the offices of Smithfield, 10 Aldersgate Street, London EC1A 4HJ Print resolution images are available for the media to view and download from www.vismedia.co.uk 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 63 OnSite locations nationwide and also has a network of 16industrial branches. In addition, the Group has a smaller division calledTechsearch which specialises in temporary and permanent engineering, IT, HR andFMCG placements and operates from 4 branches. The Group, which is managed from ahead office in Nottingham, was founded in 1986 and was admitted to AIM inDecember 2004 (Ticker: STAF.L). Chairman's Statement Introduction I am pleased to report Staffline Recruitment Group's interim results, for thesix months ended 30 June 2006, which are well ahead of the same period last yearand in line with our expectations. Staffline continues to specialise in the supply of temporary unskilled andsemi-skilled workers to employers in UK manufacturing and distributionindustries. The majority are supplied through our fully outsourced 'OnSite'service managing the temporary recruitment function of our clients on theirpremises. Staffline has a strong focus on the food processing sector, whichaccounts for over 70% of Group turnover, and as such I am pleased to confirmthat it was the first major supplier to be awarded a licence from the GangmasterLicencing Authority. Financial Results The results for the period reflect a strong trading performance, drivenparticularly by organic growth within our OnSite and Industrial branchdivisions. As a result, pre-tax profit has increased by 45% to £1.0m (2005:£0.7m) and basic earnings per share have increased by 39% to 3.2p (2005: 2.3p). These financial results are reported in accordance with International FinancialReporting Standards (IFRS) which the Company adopted ahead of mandatoryrequirements, as outlined in our 2005 results. Dividends The Group continues to be committed to a progressive dividend policy and I ampleased to be able to confirm that the Board is declaring an interim dividend of1.0p per share. The interim dividend is payable on 17 November 2006 toshareholders on the register on 20 October 2006. This represents an increase of43% from last year's interim dividend of 0.7p and follows a final dividend inrespect of the year ended 31 December 2005 of 1.2p. Summary We are pleased with the strong progress the Group has made during the periodand, having successfully strengthened the Group's senior operational managementteam, service offering, client base and national penetration, we are confidentof continued significant growth in the future. Derek MappChairman6 September 2006 Managing Director's Review I am delighted with both the strong trading performance achieved and thesignificant operational progress made during the period. This performance reflects, in particular, the strength of our OnSite servicemodel through which we are a valuable outsourcing partner for our customers.These higher volume, OnSite relationships enable us to deliver a greater levelof service at a significantly lower average cost to our customer. Our continued success is enabling us to attract some of the best talentavailable in HR Industrial Resource Management and we aim to continue our growthby hiring more people as well as continuing to promote from within. We havehired an additional 16 people within the last twelve months and we have expandedour senior management team with the recruitment of an experienced new RegionalDirector based in the South of England. This is an area of the UK where we seegreat potential. In addition we are actively seeking to expand our capabilitiesin Scotland and are currently seeking to recruit staff to support thisexpansion. Strategy Our strategy continues to be based primarily on organic growth through expansionof the number of OnSite locations for both new and existing customers. Despiteour success in growing our business so far, we estimate that we have a share ofjust 2.0% to 2.5% of the UK HR Industrial Resource Management market. As such,there remains the opportunity for significant organic growth. Financial Results Turnover for the period rose by 30% to £34.4m (2005: £26.4m). The continuedsuccessful growth of our OnSite business, which achieves lower gross margins,albeit with lower overheads than our traditional branch based business, led to asmaller rate of increase in gross profit of 14.3% to £6.0m (2005: £5.3m). The strong growth in the share price during the period has led to an increasedcharge in respect of share based employee remuneration, depressing the operatingmargin very slightly. The benefits of the lower overheads associated with theOnSite model, combined with lower central overhead and finance costs as aproportion of turnover, are shown in the continued increase in net margins from2.6% to 2.9%. This resulted in profit before tax increasing by 45% to £1.0m(2005: £0.7m). This performance was delivered following an already strongperformance in the comparable period of the previous year when similar growth of40% in pre-tax profit, was achieved. These latest figures include a non-cash cost of £110,000 (2005: £30,000)relating to the staff share based remuneration scheme. Gross operating cash flow during the period was £1.4m but a net increase inworking capital of £0.7m meant that after loan and interest payments and capitalexpenditure, the net cash movement was positive by only £0.1m. This increase inworking capital was due to a steep increase in sales experienced in the finalsix weeks of the period. Our debtor days were reduced to 31 (34 at 30 June 2005)with reduced interest costs, which despite the significant increase in salesindicates the level of our efficiency in this area. We have renegotiated the length and pricing of our term funding with Bank ofScotland. The period of the term loan has been extended to 2013, reducing theminimum annual repayment to £0.5m from £1.0m. This reduction will give us moreflexibility in managing our working capital requirements as well as allowing usmore discretion in pursuing a progressive dividend policy. In addition, we havemoved our working capital funding requirements from an invoice discountingfacility to an overdraft. Both tranches of funding benefit from a lower interestrate, currently 1.2% over bank base rate (2005: 2.0%) with a ratchet whichadjusts the bank's margin, dependant upon the Group's future performance andwill potentially allow the margin charge to the Company to drop by a further0.2%. Operational Review OnSite Division The first six months of the year have been buoyant with no sign of the subduedusage we experienced in the comparable period of 2005 from some of ourmanufacturing clients. As previously announced a significant contract was wonwith a major producer of fast moving consumer goods (FMCG) in May 2006. Thiscontract is now being implemented, with Staffline currently providing alltemporary recruitment services to four of the client's production sites throughtwo new OnSites and two existing branches. Overall, we have won a large number of new sites, some with new clients and somewith existing clients. As a result, the current total number of OnSite locationsis 63, representing a net increase of 21 since 30 June 2005 and a net increaseof 10 since 31 December 2005. We are continuing to see strong demand for ourservices in the first few weeks of the second half of the year. Industrial Branches Following a re-organisation towards the end of last year, resulting in aconsiderably enhanced emphasis on winning new business, there has been anincrease in trading in almost all of our existing industrial branches. As partof the re-organisation, we have closed our industrial branch in Birkenhead andconsolidated its operations into our Skelmersdale branch. This has resulted inimproved levels of business in both areas, whilst we are also benefiting fromreduced operating costs. In addition, we are at the early stages of expanding our branch offering into anew and complementary sector focusing on recruiting drivers within two existingbranches following the completion of a pilot scheme. We have identified drivingas a niche area which is in demand from our customer base and which, given thelicensing requirements, uses Staffline's strength in information systems andidentification checking processes. The two pilots are showing early signs ofsuccess and we intend to continue to expand this offering to our customers. Techsearch Techsearch is our skilled placement brand, specialising in engineeringplacements, particularly in the FMCG sectors and it represents less than 10% ofGroup turnover. Following a strong first quarter, we experienced a weakening indemand from employers in some sectors coupled with a greater resistance toswitching employer from many candidates. This saw trading results weakenslightly in the second quarter although they have improved significantly inrecent weeks. The Group as a whole continues to benefit from Staffline'sability, through the Techsearch offering, to provide its clients with candidatesfor a broader range of positions. Industry Background Gangmaster Licensing Act 2004 ("the Act") The Licensing Authority confirmed that it intends to require all labour usersinvolved in the early stages of food processing to comply with the requirementsof the Act and to use only labour providers who are licensed from 1 December2006. To fail to do so will be a criminal offence. In May 2006, Staffline became the first of the major companies providing labourinto the food production sector to be awarded a licence under the Act. This headstart over many of our competitors has allowed us to win new clients who arekeen to ensure that they comply with the Act's requirements in advance of theDecember deadline. With many of our competitors still undergoing the lengthyaudit process, and some having not yet registered their intention to do so, wehope to capitalise further on this advantage in the coming months. The Home Office We are seeing further increases in the levels of activity in the checking of ourcontractors by the Home Office, particularly following the amount of adversepress publicity illegal immigrants have attracted. We have also seen a largeincrease in the number of contractors providing forged documentation whenattempting to register with us for work, the vast majority of whom wesuccessfully screen out. However, with an increased level of sophistication inthe quality of forgeries we, and indeed the Home Office, are finding it harderto identify these. We have continued to pass regular audits by the Immigration and NationalityDirectorate. We believe that our three stage identification and verificationprocess remains one of the most stringent amongst labour providers, giving ourcustomers additional peace of mind and protecting them from any reputationalrisk. EU Accession State Workers We continue to see large numbers of workers arriving in the UK from EU accessionstates and calculate that currently 52% of our workforce is from thesecountries, compared to 28% in December 2005. There is no sign of any abatementin the flow of immigrant labour but we are now starting to see a shortage offurther candidates with certain skills, such as butchers. This has occurred dueto a combination of greater demand from our clients, as well as greateropportunity for these people to work in areas of continental Europe where payrates tend to be higher. We continue to recruit from some EU accession states,namely Poland, Czech Republic and Slovakia which serves to maximise theavailability of these higher skilled workers. We expect that the futureaccession of Romania and Bulgaria to the EU, due in January 2007, will partiallyalleviate these skills shortages, subject to the Government allowing the freeflow of these workers in to the UK. We are also expanding the number ofcountries in which we intend to recruit. Health and Safety We continue to recognise the importance of our role in ensuring we provide workfor our contractors with clients who uphold the very highest standards of Healthand Safety and have further developed our system of checks to ensure the safestpossible working environments. Employees Our average number of direct employees for the period rose to 205 from 189 at 30June 2005, an increase of 8% which compares favourably with the increase insales of 30%. The take up rate for the staff share option scheme (open to all employees)continues to be high with the first tranche of options becoming available forvesting on 8 December 2006. We remain confident that by making options availableto all members of staff we have encouraged better retention and ensured thatemployees feel a key part of the success of the Company. Current Trading and Prospects During July and August, we have continued to benefit from buoyant tradingconditions, maintaining the trend experienced in the first half of encouragingdemand levels from both our existing and new clients. We are continuing to focus on rapidly increasing our market share both throughcontinued organic growth and the recent senior management hire. This places usin an excellent position to continue our growth in the latter part of 2006 andthereafter. Andy HogarthManaging Director6 September 2006 Consolidated income statementFor the six months ended 30 June 2006 Note Period Period ended ended 30 June 30 June Year ended 2006 2005 31 December Unaudited Unaudited Audited £'000 £'000 £'000 Continuingoperations Sales revenue 34,384 26,364 61,479Cost of sales (28,356) (21,092) (49,665) -----------------------------------------------Gross profit 6,028 5,272 11,814Administrative expenses (4,812) (4,281) (8,759) ----------------------------------------------- Operating result 1,216 991 3,055 Finance costs 4 (212) (297) (573) ----------------------------------------------- Result for theperiod before taxation 1,004 694 2,482 Tax expense 6 (338) (208) (824) ----------------------------------------------- Net result for the period 666 486 1,658 =============================================== Earnings perordinary share 7 Basic 3.2p 2.3p 8.0p ===============================================Diluted 3.1p 2.3p 7.8p =============================================== Consolidated statement of changes in equityFor the six months ended 30 June 2006 Share based Profit Share payment Share and loss capital reserve premium account Total £'000 £'000 £'000 £'000 £'000 At 31 December 2004 2,082 5 14,257 124 16,468Net result for the period to 30 June 2005 - - - 486 486Employee share based compensation - 30 - - 30 -----------------------------------------------At 30 June 2005 2,082 35 14,257 610 16,984 Net result for the period to 31 December 2005 - - - 1,172 1,172Employee share based compensation - 33 - - 33Dividend paid - - - (146) (146) -----------------------------------------------At 31 December 2005 2,082 68 14,257 1,636 18,043 Net result for the period to 30 June 2006 - - - 666 666Employee share based compensation - 110 - - 110 -----------------------------------------------At 30 June 2006 2,082 178 14,257 2,302 18,819 ----------------------------------------------- Consolidated balance sheetAt 30 June 2006 At 30 June At 30 June December 2006 2005 2005 Unaudited Unaudited Audited Note £'000 £'000 £'000 AssetsNon currentGoodwill 8 22,326 22,326 22,326Property, plant and equipment 9 163 150 88 ----------------------------------------------- 22,489 22,476 22,414 ----------------------------------------------- CurrentTrade debtors and other receivables 10 9,645 7,481 8,663Cash and cash equivalents 1,389 500 552 ----------------------------------------------- 11,034 7,981 9,215 -----------------------------------------------Total assets 33,523 30,457 31,629 =============================================== Liabilities Non currentBank loans 12 (3,379) (3,579) (3,100) CurrentTrade and other payables 11 (9,721) (8,736) (8,720)Bank loans 12 (450) (950) (950)Current tax (1,154) (208) (816) ----------------------------------------------- (11,325) (9,894) (10,486) -----------------------------------------------Total liabilities (14,704) (13,473) (13,586) =============================================== EquityShare capital 14 (2,082) (2,082) (2,082)Share premium (14,257) (14,257) (14,257)Share based payment (178) (35) (68)reserveProfit and loss account (2,302) (610) (1,636) -----------------------------------------------Total equity (18,819) (16,984) (18,043) =============================================== Total equity and liabilities (33,523) (30,457) (31,629) =============================================== Consolidated cash flow statementFor the six months ended 30 June 2006 Note 6 months 6 months Year ended 31 ended 30 June ended 30 June December 2006 2005 2005 Unaudited Unaudited Audited £'000 £'000 £'000Cash flows from operatingactivitiesOperating result 1,216 991 3,055Adjustments for:Depreciation ofproperty, plant andequipment 9 27 147 305 --------------------------------------------- 1,243 1,138 3,360Change in trade andother receivables 10 (982) 420 (762)Change in trade andother payables 11 271 (393) 726 ---------------------------------------------Cash generated fromoperations 532 1,165 3,324Interest paid (187) (272) (523)Employee equitysettled shareoptions 110 30 63Taxes paid - (282) (290)Net cash inflowfrom operatingactivities 455 641 2,574 ============================================= Cash flows from investingactivitiesPurchases ofproperty, plant andequipment 9 (102) (12) (108) ---------------------------------------------Net cash used ininvestingactivities (102) (12) (108) ============================================= Cash flows from financingactivitiesIncrease/(decrease)of loans 484 (500) (2,139)Dividends paid - - (146) ---------------------------------------------Net cash from/(usedin) financingactivities 484 (500) (2,285) Net increase incash and cashequivalents 837 129 181 Cash and cashequivalents atbeginning of period 552 371 371 --------------------------------------------- Cash and cashequivalents at endof period 1,389 500 552 ============================================= Notes to the interim reportFor the six months ended 30 June 2006 1 General information Staffline Recruitment Group plc, a Public Limited Company is incorporated anddomiciled in the United Kingdom. The interim financial statements for the period ended 30 June 2006 (includingthe comparatives for the year ended 31 December 2005 and 30 June 2005) wereapproved by the board of directors on 5 September 2006. Under the SecurityRegulations Act of the EU, amendments to the financial statements are notpermitted after they have been approved. 2 Accounting policies Basis of preparation The interim financial report has been prepared under the historical costconvention and in accordance with International Accounting Standard 34 InterimFinancial Reporting. Staffline Recruitment Group plc adopted IFRS for the first time in itsconsolidated financial statements for the year ended 31 December 2005. The accounting policies and methods are the same as in the most recent annualfinancial statements and are set out below. Consolidation and investments in subsidiaries Subsidiaries are all entities over which the Group has the power to control thefinancial and operating policies. The Group obtains and exercises controlthrough voting rights. The consolidated financial statements of the Groupincorporate the financial statements of the parent company as well as thoseentities controlled by the Group by full consolidation. In addition, acquired subsidiaries are subject to application of the purchasemethod. This involves the revaluation at fair value of all identifiable assetsand liabilities, including contingent liabilities of the subsidiary, at theacquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the subsidiary are included in theconsolidated balance sheet at their revalued amounts, which are also used as thebases for subsequent measurement in accordance with the Group accountingpolicies. Goodwill represents the excess of acquisition cost over the fair valueof the Group's share of the identifiable net assets of the acquired subsidiaryat the date of acquisition. Material intra-group balances and transactions, and any unrealised gains orlosses arising from intra-group transactions, are eliminated in preparing theconsolidated financial statements. Income recognition Income for temporary contractors is recognised on receipt of contractortimesheets, which are signed by the customer authorising invoices to be raised.Income from permanent placements is recognised when the candidates start work.Turnover represents sales to outside customers at invoiced amounts less valueadded tax. Goodwill Goodwill is tested annually for impairment and carried at cost less accumulatedimpairment losses. Impairment The Group's goodwill and property, plant and equipment are subject to impairmenttesting. For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). As a result, some assets are tested individually for impairment and someare tested at cash-generating unit level. Goodwill is allocated to thosecash-generating units that are expected to benefit from synergies of the relatedbusiness combination and represent the lowest level within the Group at whichmanagement controls the related cash flows. Individual intangible assets or cash-generating units that include goodwill withan indefinite useful life are tested for impairment at least annually. All otherindividual assets or cash-generating units are tested for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell and value in use, based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. Property, plant and equipment Computer equipment and fixtures and fittings are carried at acquisition costless subsequent depreciation and impairment losses. Depreciation is charged onthese assets on a straight line basis over the estimated useful economic life ofeach asset. The useful lives of property, plant and equipment can be summarised as follows: Computer equipment 3 yearsFixtures and fittings 3 years Leases In accordance with IAS 17 (revised 2003), the economic ownership of a leasedasset is transferred to the lessee if the lessee bears substantially all therisks and rewards related to the ownership of the leased asset. The relatedasset is recognised at the time of inception of the lease at the fair value ofthe leased asset or, if lower, the present value of the lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability, irrespective of whether some ofthese lease payments are payable up-front at the date of inception of the lease.Subsequent accounting for assets held under finance lease agreements, i.e.depreciation methods and useful lives, correspond to those applied to comparableacquired assets. The corresponding finance leasing liability is reduced by leasepayments less finance charges, which are expensed to finance costs. Financecharges represent a constant periodic rate of interest on the outstandingbalance of the finance lease liability. All other leases are treated as operating leases. Payments on operating leaseagreements are recognised as an expense on a straight-line basis. Associatedcosts, such as maintenance and insurance, are expensed as incurred. The Groupdoes not act as a lessor. Taxation Current income tax assets and/or liabilities comprise those obligations to, orclaims from, fiscal authorities relating to the current or prior reportingperiod, that are unpaid at the balance sheet date. They are calculated accordingto the tax rates and tax laws applicable to the fiscal periods to which theyrelate, based on the taxable profit for the year. Deferred income taxes are calculated using the liability method on temporarydifferences. This involves the comparison of the carrying amounts of assets andliabilities in the consolidated financial statements with their respective taxbases. However, in accordance with the rules set out in IAS 12, no deferredtaxes are recognised in conjunction with goodwill. This applies also totemporary differences associated with shares in subsidiaries if reversal ofthese temporary differences can be controlled by the Group and it is probablethat reversal will not occur in the foreseeable future. In addition, tax lossesavailable to be carried forward as well as other income tax credits to the Groupare assessed for recognition as deferred tax assets. Deferred tax liabilities are always provided for in full. Deferred tax assetsare recognised to the extent that it is probable that they will be able to beoffset against future taxable income. Deferred tax assets and liabilities arecalculated, without discounting, at tax rates that are expected to apply totheir respective period of realisation, provided they are enacted orsubstantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognised as a componentof tax expense in the income statement. Only changes in deferred tax assets orliabilities that relate to a change in value of assets or liabilities that arecharged directly to equity are charged or credited directly to equity. Pensions Pensions to employees are provided through defined contributions to individualpersonal pension plans. A defined contribution plan is a pension plan underwhich the Group pays fixed contributions into an independent entity. The Grouphas no legal or constructive obligations to pay further contributions afterpayment of the fixed contribution. The contributions recognised in respect of personal pension plans are expensedas they fall due. Liabilities and assets may be recognised if underpayment orprepayment has occurred and are included in current liabilities or currentassets as they are normally of a short term nature. Financial assets The Group's financial assets include cash and trade receivables.All financial assets are recognised on their settlement date. All financialassets are initially recognised at fair value, plus transaction costs. Interest and other cash flows resulting from holding financial assets arerecognised in profit or loss when received, regardless of how the relatedcarrying amount of financial assets is measured. Trade receivables are provided against when objective evidence is received thatthe Group will not be able to collect all amounts due to it in accordance withthe original terms of the receivables. The amount of the write-down isdetermined as the difference between the assets's carrying amount and thepresent value of estimated future cash flows. Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand as well as short termhighly liquid investments such as money market instruments and bank deposits. Equity Share capital is determined using the nominal value of shares that have beenissued. The share premium account represents premiums received on the initial issuing ofthe share capital. Any transaction costs associated with the issuing of sharesare deducted from share premium, net of any related income tax benefits. Retained earnings include all current and prior period results as disclosed inthe income statement. Share based employee remuneration All share-based payment arrangements are recognised in the consolidatedfinancial statements. The Group operates equity-settled share-based remunerationplans for remuneration of its employees. All employee services received in exchange for the grant of any share-basedremuneration are measured at their fair values. These are indirectly determinedby reference to the fair value of the share options awarded. Their value isappraised at the grant date and excludes the impact of any non-market vestingconditions (for example, profitability and sales growth targets). All share-based remuneration is ultimately recognised as an expense in profit orloss with a corresponding credit to the share based payment reserve, net ofdeferred tax where applicable. If vesting periods or other vesting conditionsapply, the expense is allocated over the vesting period, based on the bestavailable estimate of the number of share options expected to vest. Non-marketvesting conditions are included in assumptions about the number of options thatare expected to become exercisable. Estimates are subsequently revised, if thereis any indication that the number of share options expected to vest differs fromprevious estimates. No adjustment is made to the expense recognised in priorperiods if fewer share options ultimately are exercised than originallyestimated. Upon exercise of share options, the proceeds received net of any directlyattributable transaction costs up to the nominal value of the shares issued areallocated to share capital with any excess being recorded as share premium. Financial liabilities The Group's financial liabilities include bank loans, an invoice discountingloan and trade and other payables. Financial liabilities are recognised when the Group becomes a party to thecontractual agreements of the instrument. All interest related charges arerecognised as an expense in "finance cost" in the income statement. Bank loans are raised for support of long term funding of the Group'soperations. They are recognised at proceeds received, net of direct issue costs.Finance charges, including premiums payable on settlement or redemption anddirect issue costs, are charged to profit or loss on an accruals basis using theeffective interest method and are added to the carrying amount of the instrumentto the extent that they are not settled in the period in which they arise.Trade payables are recognised initially at their nominal value and subsequentlymeasured at amortised cost less settlement payments. Dividend distributions to shareholders are included in 'other short termfinancial liabilities' when the dividends are approved by the shareholders'meeting. Other provisions, contingent liabilities and contingent assets Other provisions are recognised when present obligations will probably lead toan outflow of economic resources from the Group and they can be estimatedreliably. Timing or amount of the outflow may still be uncertain. A presentobligation arises from the presence of a legal or constructive commitment thathas resulted from past events, for example, legal disputes or onerous contracts.Provisions are measured at the estimated expenditure required to settle thepresent obligation, based on the most reliable evidence available at the balancesheet date, including the risks and uncertainties associated with the presentobligation. Any reimbursement expected to be received in the course ofsettlement of the present obligation is recognised, if virtually certain as aseparate asset, not exceeding the amount of the related provision. Where thereare a number of similar obligations, the likelihood that an outflow will berequired in settlement is determined by considering the class of obligations asa whole. In addition, long term provisions are discounted to their presentvalues, where time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflectthe current best estimate. In those cases where the possible outflow of economic resource as a result ofpresent obligations is considered improbable or remote, or the amount to beprovided for cannot be measured reliably, no liability is recognised in theconsolidated balance sheet. Probable inflows of economic benefits to the Group that do not yet meet therecognition criteria of an asset are considered contingent assets and thereforenot recognised. 3 Segmental reporting (a) By business segment (primary segment):As defined under International Accounting Standard 14 (IAS14), the only materialbusiness segment the Group has is that of providing temporary staff to customersas the placement of permanent staff to customers contributes less than 10% ofGroup total revenue. The sales are 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. 4 Finance costs 6 months 6 months Year ended ended 30 June ended 30 June 31 December 2006 2005 2005 £'000 £'000 £'000Interestpayable onbank loansand overdraft 212 297 573 ----------------------------------------------------------- 212 297 573 =========================================================== 5 Employees remuneration Employee benefits expenseExpense recognised for employee benefits is analysed below: 6 months 6 months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 Wages and salaries 2,957 2,616 5,361Social security costs 317 279 570Other pension costs -defined contribution plans 42 31 62 ----------------------------------------------- 3,316 2,926 5,993 =============================================== Number Number Number The average number of persons(including directors)employed by the Groupduring the period was: 205 189 188 =============================================== Share-based employee remuneration As at 30 June 2006 the Group operated a share based payment scheme for employeeremuneration. The share option scheme is available to all full time members of staff, exceptfor two of the executive directors, Andy Hogarth and Marshall Evans, subject tothe rules of the scheme, the key points of which are as follows: • only staff with in excess of six months service are eligible; • the number of options granted are a factor of length of service and current salary; • options are exercisable between two and seven years of being granted; • except in certain limited circumstances all options lapse if an employee leaves the Group; and • exercise of options is not subject to any specific performance criteria. The share options for Carole Harvey have different conditions as detailed below. Directors' share options 1 January 2006 Granted Lapsed/exercised 30 June 2006 Exercise price------------------------------------------------------------------------------------C Harvey 100,000 Nil Nil 100,000 105.5p These share options have a performance condition such that the average shareprice of the Company must achieve 158.25p for 20 consecutive days during themeasurement period. The condition can be satisfied any time during the periodfrom the date of grant (6 October 2005) up to 21 Days after announcement of theresults for the year ended 31 December 2008, with a long stop date of 1 May2009. The share options can be exercised between three and seven years of beinggranted. All share based employee remuneration will be settled in equity. The Group hasno legal or constructive obligation to repurchase or settle the options in cash.Share options and weighted average exercise price are as follows for thereporting periods presented: 30 June 2006 30 June 2005 31 December 2005 Number Weighted Number Weighted Number Weighted average average average exercise exercise exercise price price price (pence) (pence) (pence) Outstandingat start of period 687,330 88 499,205 80 499,205 80Granted 96,215 130 104,184 107.5 310,331 100Lapsed (26,450) (85) (47,637) 80 (122,206) (86) -------------------------------------------------------------------Outstandingat end of period 757,095 93 555,752 85 687,330 88 =================================================================== The Group has the following outstanding share options and exercise prices: 30 June 2006 30 June 2005 31 December 2005 Number Weighted Weighted Number Weighted Weighted Number Weighted Weighted average average average average average average exercise contractual exercise contractual exercise contractual price life price life price life (pence) (months) (pence) (months) (pence) (months) Exercisedate: 2006 (upto 2011) 396,742 80 5 451,568 80 17 513,822 85 12 2007 (upto 2012) 264,138 100 19 104,184 107.5 23 173,508 97 22 2008 (upto 2013) 96,215 130 23 - - - - - - No options were exercisable at 30 June 2006, 31 December 2005 or 30 June 2005.Share options are exercisable between values of 80p and 156.25p. The fair value of options granted was determined using the Black-Scholesvaluation model. Significant inputs into the calculations were: • weighted average share price of 127.5 pence• exercise prices as detailed above• 10% volatility based on expected share price• a risk free interest rate of 4.5%.• all options are assumed to vest after two years from the date of grant of the options In total £110,000 of employee remuneration expense has been included in theconsolidated income statement to 30 June 2006 (31 December 2005: £63,000 and 30June 2005: £30,000) which gave rise to the share based payment reserve. Noliabilities were recognised due to share based payment transactions. 6 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: 6 months 6 months Year ended ended 30 June ended 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 Result for the period before tax 1,004 694 2,482 Tax rate 30% 30% 30% ================================================== Expected tax expense 301 208 744 Adjustment for non-deductibleexpenses relating to short term timing differences (18) - 48Other non-deductibleexpenses 51 - 24Adjustment in respect of prior periods 4 - 8 --------------------------------------------------Actual tax expense 338 208 824 ================================================== Comprising:Current tax expense 338 208 824 338 208 824 ================================================== There is no tax expense or credit in relation to the share based payment reservecredited to equity. 7 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 period. 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 6 months 6 months Year ended 6 months 6 months Year ended ended 30 ended 30 31 December ended 30 ended 30 31 December June 2006 June 2005 2005 June 2006 June 2005 2005 Earnings(£'000) 666 486 1,658 666 486 1,658 ============================================================================ Weightedaveragenumber of shares 20,824,463 20,824,463 20,824,463 21,425,328 20,939,980 21,311,781 ============================================================================Earningsper share (pence) 3.2p 2.3p 8.0p 3.1p 2.3p 7.8p ============================================================================ The weighted average number of shares has increased by 600,865 (year ended 31December 2005: 462,318 and period ended 30 June 2005: 115,517) shares to takeaccount of all dilutive potential ordinary shares that could be issued under theshare option scheme. Staffline Recruitment Group plc paid a final dividend of £250,000 as proposed inthe annual report for the year ended 31 December 2005 on the 4 July 2006. Aninterim dividend of £208,000 has been proposed (2005: £146,000) but has not beenaccrued within these financial statements. This represents a payment of 1.0pence (2005: 0.7 pence) per share. 8 Goodwill Goodwill £'000 Gross carrying amount and net book value at 30 June 2005, 31 December2005 and 30 June 2006 22,326 ======== Goodwill above relates to the following cash generating units: Date of acquisition Original cost £'000 Staffline Recruitment Limited 8 December 2004 22,326 ========== Goodwill arising on consolidation represents the excess of the fair value of theconsideration given over the fair value of the identifiable net assets acquiredis capitalised and is tested annually for impairment. The directors do notconsider that there were any material intangible assets that should beseparately recognised at the date of acquisition. The recoverable amount for Staffline Recruitment Limited was determined based ona value-in-use calculation, covering a detailed three year forecast, followed byan extrapolation of expected cash flow at a growth rate of 5%, which representsa conservative long term average growth rate and a discount rate of 7%. Management's key assumptions for Staffline Recruitment Limited includeassumptions that there will be no significant changes in the business and thatturnover growth will not exceed historic growth levels. Management haveconsidered internal and external market data in setting their assumptions. Apart from the considerations described in determining the value-in-use of thecash generating unit above, the Group management is not currently aware of anyother probable changes that would necessitate changes in its key estimates. 9 Property, plant and equipment Group Computer Fixtures and equipment fittings Total £'000 £'000 £'000Gross carrying amountAt 1 January 2006 1,321 95 1,416Additions 53 49 102At 30 June 2006 1,374 144 1,518 ============================================= Depreciation and impairmentAt 1 January 2006 1,233 95 1,328Provided in the period 22 5 27At 30 June 2006 1,255 100 1,355 ============================================= Net book amount at 30June 2006 119 44 163 ============================================= Net book amount at 31December 2005 88 - 88 ============================================= Net book amount at 30June 2005 150 - 150 ============================================= All assets stated above are secured against bank loans outstanding at the yearend. 10 Trade and other receivables At 30 At 30 At June June 31 December 2006 2005 2005 £'000 £'000 £'000 Trade and other receivables, gross Impairment of trade and other 9,654 7,490 8,672receivables (9) (9) (9)Trade and other receivables, net 9,645 7,481 8,663 ============================================== Trade and other receivables are usually due within 14 - 30 days and do not bearany effective interest rate. All trade receivables are subject to credit riskexposure. However, the Group does not identify specific concentrations of creditrisk with regards to trade and other receivables as the amounts recognisedrepresent a large number of receivables from various customers. The fair value of these short term financial assets is not individuallydetermined as the carrying amount is a reasonable approximation of fair value. 11 Trade and other payables At 30 At 30 At 31 June June December 2006 2005 2005 £'000 £'000 £'000 Trade and other payables 6,533 4,663 6,262Invoice discounting liability 3,188 4,073 2,458 9,721 8,736 8,720 ============================================== The invoice discounting facility included above is secured on the trade debtorsof the Group and bears interest at commercial rates. The fair value of trade and other payables has not been disclosed as, due totheir short duration, management considers the carrying amounts recognised inthe balance sheet to be a reasonable approximation of their fair value. 12 Bank loans Bank loans are repayable as follows: At 30 At 30 At 31 June June December 2006 2005 2005 £'000 £'000 £'000 In one year or less 500 1,000 1,000In more than one year but not more thantwo years 500 1,000 1,000In more than two years but not morethan three years 500 1,000 1,000In more than three years but not morethan four years 500 1,000 1,000In more than four years but not morethan five years 500 750 250In more than five years 1,500 - - ========================================= 4,000 4,750 4,250Debt issue costs (171) (221) (200) ========================================= 3,829 4,529 4,050Split:Current liabilities - bank loans (450) (950) (950)Non current liabilities - bank loans 3,379 3,579 3,100 ============================================== Bank loans are secured by a debenture over all the assets of the Group. The bank loan is repayable in equal quarterly instalments of £125,000 (£250,000at 31 December 2005 and 30 June 2005). Interest accrues on the loan at 1.2% (2%at 31 December 2005 and 30 June 2005) above base rate. The bank loans containvarious covenants which, if breached, could lead to the loan becoming payable ondemand. The covenants have all been satisfied to date. On the basis of discounting the future loan repayments at a rate of 5% thetheoretical fair value of the bank loan is £3,249,000 at 30 June 2006 (31December 2005 £3,875,000 and 30 June 2005 £3,853,000). Fair values of the bankloans have been determined by calculating the present values at the balancesheet date of the future cashflows, using fixed effective market interest ratesavailable to the Group. No fair value charges have been included in the incomestatement for the period as financial liabilities are carried at amortised costin the balance sheet. 13 Deferred tax assets and liabilities There are no material deferred tax assets or liabilities arising from temporarydifferences at 30 June 2006, 31 December 2005 or 30 June 2005. 14 Share capital At 30 At 30 At 31 June June December 2006 2005 2005 £'000 £'000 £'000Authorised30,000,000 ordinary 10p shares 3,000 3,000 3,00050,000 redeemable £1 shares 50 50 50 3,050 3,050 3,050 =============================================Allotted, issued and fully paid20,824,463 ordinary 10p shares 2,082 2,082 2,082 ============================================= Ordinary 10p shares Redeemable £1 shares At 30 June At At 30 June At 30 At 31 At 30 2006 31 December 2005 June December June 2005 2006 2005 2005 Sharesissuedand fullypaid at the beginningof the year 20,824,463 20,824,463 20,824,463 - - - Issued during the year - - - - - - ---------------------------------------------------------------------Sharesissued and fullypaid 20,824,463 20,824,463 20,824,463 - - - Sharesauthorisedbut unissued 9,175,537 9,175,537 9,175,537 - - - ---------------------------------------------------------------------Totalequitysharesauthorised at 31 December 30,000,000 30,000,000 30,000,000 - - - ---------------------------------------------------------------------- All ordinary shares have the same rights and there are no restrictions on thedistribution of dividends or repayment of capital. 15 Related party transactions The only related parties are the Group's directors and others as describedbelow. Transactions with Group directors The Group directors' personal remuneration includes the following expenses: 6 months ended 30 6 months ended 30 Year ended 31 June 2006 June 2005 December 2005 £'000 £'000 £'000 Short-term employeebenefits:Salaries 205 167 352Socialsecurity costs 23 18 43Post employmentbenefitsrelating todefinedcontributionpensionschemes 14 12 20 ========================================================= 242 197 415 ========================================================= 16 Operating leases The Group's minimum operating lease payments for the full remaining lives of theleases are as follows: 30 June 2006 30 June 2005 31 December 2005 Land and buildings Land and buildings Land and buildings £'000 £'000 £'000 In one year orless 288 41 288Between one andfive years 481 209 576In five yearsor more 53 52 76 822 302 940 ================================================================ Lease payments recognised as an expense during the six months ended 30 June 2006amount to £206,000 (period ended 31 December 2005 : £322,000 and 30 June 2005 :£200,000). Operating lease agreements do not contain any contingent rent clauses. None ofthe operating lease agreements contains renewal or purchase options orescalation clauses or any restrictions regarding dividends, future leasing oradditional debt. 17 Risk management objectives and policies The Group is exposed to a variety of financial risks which result from both itsoperating and investing activities. The Group's risk management is coordinatedat its headquarters, in close co-operation with the board of directors, andfocuses on actively securing the Group's short to medium term cash flows byminimising the exposure to financial markets. Staffline Recruitment Group plc does not actively engage in the trading offinancial assets for speculative purposes nor does it write options. The mostsignificant financial risks to which the Group is exposed are described below: Credit risk Generally, the maximum credit risk exposure of financial assets is the carryingamount of the financial assets as shown on the face of the balance sheet (or inthe detailed analysis provided in the notes to the financial statements). Creditrisk, therefore, is only disclosed in circumstances where the maximum potentialloss differs significantly from the financial asset's carrying amount. The Group's trade and other receivables are actively monitored to avoidsignificant concentrations of credit risk. The Group has adopted a policy of careful monitoring with customers who lack anappropriate credit history. Cash flow and fair value interest rate risks The Group seeks to manage financial risks to ensure sufficient liquidity isavailable to meet foreseeable needs and to invest cash assets safely andprofitably. Short term flexibility was achieved by the use of an invoicediscounting facility, which provided 85% of eligible debtors up to a maximum of£6,000,000. This facility has been replaced by an overdraft facility with effectfrom July 2006. All financial liabilities of the Group are subject to floating interest rates. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Staffline