6th Sep 2005 07:01
Staffline Recruitment Group plc06 September 2005 Embargoed until 0700 Tuesday, 6 September 2005 STAFFLINE RECRUITMENT GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 "In line with expectations" Staffline Recruitment Group plc, the leading provider of recruitment andoutsourced human resource services to industry, today announces its interimresults for the six months to 30 June 2005. Financial highlights: • Successful flotation on AIM on 8 December 2004 • Turnover up 19% to £26.4m (2004: £22.1m) • Operating profit up 16% to £1.0m (2004: £0.9m) • Pre tax profit up 40% to £0.7m (2004: £0.5m) • Maiden interim dividend of 0.7p per share in line with stated progressive dividend policy • Earnings per share of 2.3p • Gross operating cash flow of £1.2m Operational highlights: • Significant growth in OnSites to 50 locations at 30 August 2005 (31 December 2004: 35) o 7 additional OnSites in the first half o 8 additional OnSites since the half year end • New Staffline industrial branch opened in Wolverhampton, West Midlands • Strong performance from the Techsearch division; sales up 19% and operating profit up 325% • Continued drive to secure Staffline's leadership in employment legislation compliance • Appointment of Carole Harvey as Finance Director and Company Secretary (see separate announcement for further details) Commenting on the results, Andy Hogarth, Managing Director, said: "The Group has made strong progress during the first half of the year and we arepleased to be able to report interim results in line with our expectations. "We are confident that the Group will continue to make good progress for therest of the financial year, with contributions from the 15 new OnSite winsdriving incremental growth in the second half and thereafter, and ourexpectations for the year remain unchanged." For further information, please contact: www.staffline.co.uk Staffline Recruitment 0115 950 0885Andy Hogarth, Managing Director Smithfield 020 7360 4900Katie Hunt/Reg Hoare/Sarah Richardson Note to Editors:Staffline Recruitment Group plc's main business is as a specialist supplier of"blue collar" temporary and contract staff to industry through a network of 17branches and 50 OnSite locations nationwide. The Group also has a smaller butgrowing division called Techsearch which specialises in temporary and permanentengineering, IT, HR and FMCG placements and operates from 4 branches. The Group,which is managed from a head office in Nottingham, was founded in 1986 and wasadmitted to AIM in December 2004 (Ticker: STAF.L). Print resolution images are available for the media to view and download from www.vismedia.co.uk CHAIRMAN'S STATEMENT IntroductionI am pleased to report Staffline Recruitment Group's interim results for the sixmonths ended 30 June 2005. These represent the Group's first set of interimsfollowing its successful admission to AIM on 8 December 2004, which raised £6.7mnet of expenses. Staffline specialises in the matching of un-skilled and semi-skilled temporaryworkers to suitable positions within the UK manufacturing industry, particularlythe food processing sector. This is achieved by providing an outsourcing servicewhich includes skills, eligibility and reference checking of applicants, healthscreening, training and ongoing supervision. ResultsDue to the fact that the Group acquired Staffline Recruitment Limited onflotation there are no comparative statutory Group interim results available.However for ease of comparison with the 2005 interim results, we have providedpro-forma results for Staffline Recruitment Limited for the period covering thesix months to 30 June 2004. The results are prepared for the first time in accordance with InternationalFinancial Reporting Standards (IFRS) and in order to give the greatest level ofclarity, we have prepared a full set of detailed notes which includereconciliation to the results on a UK GAAP basis. The results for the period are in line with expectations, with a pre tax profitof £0.7 million, and fully diluted earnings per share of 2.3p. DividendsAs announced at the time of the flotation, the Board is committed to aprogressive dividend policy and it gives me great pleasure to declare a maideninterim dividend of 0.7p per share, payable on 18 November 2005 to allshareholders on the register on 21 October 2005. In accordance with IFRS thedividend is not provided in the interim results as it was declared after 30 June2005. OutlookWe are pleased with the progress the Group has made since flotation and we areconfident we have the strategy, management and business model in place forsuccess. Furthermore, our focus on being a valuable outsourcing partner for ourcustomers combined with our recent successes in winning new OnSites, positionsus well for continued strong progress in the future. Derek MappChairman6 September 2005 MANAGING DIRECTOR'S STATEMENT The Group has made strong progress during the first half of the year and we arepleased to be able to report interim results in line with our expectations. Thisis despite a backdrop of subdued demand for temporary workers from certainmanufacturing sectors as a result of the current economic conditions impactingon their markets. StrategyOur strategy continues to be to deliver shareholder value by achieving sustainedgrowth in revenue, profit and cash flow. Our focus is on increasing both thenumber and scope of our OnSite client relationships, mainly but not exclusivelyin the food production sector, supported by our traditional branch network whichincubates many of these relationships. In addition, we will continue to grow oursmaller Techsearch division in line with increasing demand. The strengthened profile and customer confidence afforded by our flotation onAIM has already helped with the execution of this strategy. Financial ResultsAs mentioned in the Chairman's statement, in order to provide meaningfulcomparisons, comparative results for the six months to 30 June 2004 are providedon a pro forma basis. Turnover for the first half rose by 19% to £26.4 million (2004: £22.1 million).Operating profit increased by 16% to £991,000 (2004: £858,000). Pre tax profitrose by 40% to £694,000 (2004: £494,000). The adoption of IFRS has resulted in the Group taking a charge in the incomestatement for the cost of share options issued to staff members. The total costfor the period to 30 June 2005 in respect of these options was £30,000. Following our admission to AIM, the £6.7m net proceeds of the Placing were usedto strengthen the Group's balance sheet. As a result, net debt has fallen to£8.1m as at 30 June 2005, giving gearing of 47%, and we anticipate that thiswill be further reduced by the end of the current financial year. Gross operating cash flow during the period was £1,168,000 which, after takingaccount of interest payments of £272,000, tax payments of £282,000, capitalexpenditure of £12,000, £500,000 in repayments of bank term loan and adding backnet working capital movements of £27,000, resulted in an increase in the Group'scash reserves of £129,000. Operational Review OnSite DivisionNew OnSite wins continued to be the major growth driver for the business. TheOnSites which were added at the end of 2004 made a good contribution to thefirst half performance, and during the first half we increased the number ofOnSite locations by 7, bringing the total to 42 at the half year end compared to35 at the year end. Buoyant trading for the first three months of the year was partially offset bysubdued usage by certain existing customers in the manufacturing sector in thesecond quarter. As a provider of temporary workers, usage of our services isparticularly buoyant at times of short term increases in demand for ourcustomers' end products. In the latter three months, such favourable conditionswere absent due to the slowing economy. We are well placed to benefit from anyrevival in usage by these customers, whilst the new business we have gained inthe last year has compensated for this weakness, thus ensuring that ourperformance remains in line with expectations. Industrial BranchesThe majority of the industrial branches are performing well, with one new branchopened in the half year at Wolverhampton in the West Midlands, in response toincreased demand in this area. We closed a satellite branch in Stoke on Trent aslabour availability in the area, which had been a problem in 2004, improved andthe branch was, therefore, no longer necessary for us to fulfill local clientrequirements. Two of the new OnSite openings in the period were incubated by thebranch network. TechsearchTechsearch continued its strong performance with sales increasing by 19%.Operating profit increased by 325% reflecting the operational gearing in thebusiness as well as improved efficiencies resulting from a reduction in thenumber of branches from six to four, which took place in mid 2004. Industry Background and Compliance The Gangmasters (Licensing) Act 2004We very much welcome The Gangmasters (Licensing) Act 2004 ("the Act") whichreceived Royal Assent in July 2004. The Act establishes the GangmastersLicensing Authority ("GLA") to set up and operate the licensing scheme forlabour providers operating in the agricultural, shellfish gathering andassociated processing and packing sectors. Once the licensing arrangements arein place (anticipated in 2006) the Act will prohibit anyone without a licencefrom acting as a labour provider in these specified sectors. It will also makeit an offence for a labour user to use an unlicensed provider. We are working very closely with the GLA and have been able to help shape theirthinking on both implementation and enforcement. The Home OfficeThe Home Office have greatly increased their activity in searching for andpreventing the use of illegal workers. They have carried out a large number ofaudits in both ours and our clients' premises. We have passed with 100% successon every occasion. Temporary Labour Working Group (TLWG)This is a consortium of major retailers, growers, suppliers, labour providersand trade unions which was set up with Government support with the aim ofestablishing a set of minimum standards for labour providers. During the periodwe became members of the TLWG and were one of the earliest to pass the fullaudit. Verification SystemsWe have continued to invest heavily in our IT systems during the periodintroducing document scanning at each of our locations to further improve thequality of documentation held and to ensure that our unique three stage processof verification secures our leadership in compliance with legislationsurrounding the prevention of illegal working. Board and EmployeesIn March 2005 we announced the appointment of John Crabtree as a Non-ExecutiveDirector and today we announce the appointment to the Board of Carole Harvey asGroup Finance Director and Company Secretary. This appointment follows AndrewWalsh agreeing to step down from both these roles and resuming his position asGroup Financial Controller, the position he held prior to the flotation.Following these appointments, we have a full, strong and well-balanced Boardwith which to continue to develop the business within the framework of ourstated strategy. Since our admission to AIM, we have benefited from the contribution of theemployee share option scheme to a further reduction in staff turnover whichstood at 22% on an annualised basis for the first six months, compared to 39%for the full year in 2004. Current Trading and ProspectsWe are pleased to be able to announce further OnSite contract wins since 30 June2005, including a number of major customers in the food processing industry. Wehave converted a further 8 sites in the past 2 months, a total of 15 new sitesfor the year, bringing the total number of OnSite locations at 30 August to 50.We continue to see momentum in our pipeline of OnSite prospects, providingencouragement for 2006. We are confident that the Group will continue to make good progress for the restof the financial year, with contributions from the 15 new OnSite wins drivingincremental growth in the second half and thereafter, and our expectations forthe year remain unchanged. Andy HogarthManaging Director6th September 2005 Consolidated income statementSix months ended 30 June 2005 Pro forma Note Period 6 months 25 October ended ended to 31 30 June 30 June December 2005 2004 2004 Unaudited Unaudited Audited £'000 £'000 £'000 Continuing operations Sales revenue 26,364 22,137 4,927Cost of sales (21,092) (17,307) (3,966)Gross profit 5,272 4,830 961Administrative expenses (4,281) (3,972) (746) Operating result 991 858 215 Finance costs 5 (297) (364) (112) Result for theperiod before taxation 694 494 103 Tax(expense)/income 7 (208) - 21 Net result forthe period 486 494 124 Earnings perordinary share 8Basic 2.3p 9.4pDiluted 2.3p 9.4p Consolidated statement of changes in equitySix months ended 30 June 2005 Share Profit based and Share Payment Share Loss capital reserve premium account Total £'000 £'000 £'000 £'000 £'000 At 25 October 2004 - - - - -On acquisition of Staffline Recruitment 1,000 - 7,004 - 8,004LimitedIssue of new shares 1,082 - 7,573 - 8,655Cost of issueof new shares - - (320) - (320)Net result forthe period - - - 124 124Employee sharebased compensation - 5 - - 5At 31 December 2004 2,082 5 14,257 124 16,468 Net result forthe period - - - 486 486 Employee sharebased compensation - 30 - - 30 At 30 June 2005 2,082 35 14,257 610 16,984 Consolidated balance sheetAt 30 June 2005 At 31 At 30 June December 2005 2004 Unaudited Audited Note £'000 £'000 AssetsNon currentGoodwill 9 22,326 22,326Property, plant and equipment 10 150 285 22,476 22,611 CurrentTrade debtors andother receivables 11 7,481 7,901Cash and cash equivalents 500 371 7,981 8,272 Total assets 30,457 30,883 LiabilitiesCurrentTrade and other payables 12 (8,736) (9,133)Bank loans 13 (950) (950)Current tax liabilities (208) (282) (9,894) (10,365) Non currentBank loans 13 (3,579) (4,050) Total liabilities (13,473) (14,415) EquityShare capital 15 (2,082) (2,082)Share premium (14,257) (14,257)Share based payment reserve (35) (5)Profit and loss account (610) (124) Total equity (16,984) (16,468) Total equity and liabilities (30,457) (30,883) Consolidated cash flow statementFor the six months ended 30 June 2005 Period ended 6 months 31 ended 30 December June 2005 2004 Unaudited Audited £'000 £'000Operating activitiesOperating result 991 215Interest paid (272) (35)Employee equity settled share options 30 5Depreciation of property, plant and equipment 147 33Change in trade and other receivables 420 424Change in trade and other payables (393) 739Taxes paid (282) - Net cash inflow from operating activities 641 1,381 Investing activitiesPurchases of property, plant and equipment (12) -Acquisition of subsidiary undertaking - (3,709)Overdraft acquired on acquisition - (176) Net cash used in investing activities (12) (3,885) Financing activitiesIssue of shares - 8,655Repayment of loans (500) (5,460)Share issue costs - (320)Net cash (used in)/from financing activities (500) 2,875 Net increase in cash and cash equivalents 129 371 Cash and cash equivalents at beginning of period 371 - Cash and cash equivalents at end of period 500 371 Notes to the interim results Six months ended 30 June 2005 1. GENERAL INFORMATION The information for the period ended 31 December 2004 does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was unqualified. As the acquisition of Staffline Recruitment Limited was completed on 26 October2004, for illustrative purposes only a consolidated pro forma income statementfor the six months ended 30 June 2004 has been provided in this interim report.This pro forma information comprises the results of Staffline RecruitmentLimited only. 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 and the requirements of International Financial ReportingStandard 1 First Time Adoption of International Reporting Standards relevant tointerim reports. Staffline Recruitment Group plc will adopt IFRS for the first time in itsconsolidated financial statements for the year ending 31 December 2005. Thetransition to IFRS reporting has resulted in a number of changes in the reportedfinancial statements, notes thereto and accounting principals compared to theprevious annual report. Note 3 provides further details on the transition fromUK GAAP to IFRS. The principal accounting policies of the Group 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, iedepreciation 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. All changes to current taxassets or liabilities are recognised as a component of tax expense in the incomestatement. 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 ischarged directly to equity are charged or credited directly to equity. Pensions Pensions to employees are provided through contributions to individual personalpension plans. A defined contribution plan is a pension plan under which theGroup pays fixed contributions into an independent entity. The Group has nolegal or constructive obligations to pay further contributions after payment ofthe 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. Non-compounding interest and other cash flows resulting from holding financialassets are recognised in profit or loss when received, regardless of how therelated carrying 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 asset's carrying amount and the presentvalue 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.Money market instruments are financial assets carried at fair value throughprofit or loss. 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 as 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. 3. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS The transition from previous UK GAAP to IFRS has been made in accordance withIFRS 1, First-time Adoption of International Financial Reporting Standards. TheGroup's financial statements for the six months ended 30 June 2005 and thecomparatives presented for the period ended 31 December 2004 comply with allpresentation recognition and measurement requirements of IFRS applicable foraccounting periods commencing on or after 1 January 2005. The following reconciliations and explanatory notes thereto describe the effectsof the transition for the financial year 2004. All explanations should be readin conjunction with the IFRS accounting policies of Staffline Recruitment Groupplc. Since Staffline Recruitment Group plc was incorporated on 25 October 2004 thatis the transition date to IFRS. As that was the date of incorporation of thecompany no reconciliation of equity is required at that date. The re-measurement of balance sheet items as at 31 December 2004 may besummarised as follows: Reconciliation as at 31 December 2004 Effect of UK GAAP transition IFRS £'000 £'000 £'000 Goodwill 22,256 70 22,326Profit and loss account 129 (5) 124Share options to be issued - 5 5 Total adjustment to assets and equity 22,385 70 22,455 The reconciliation of the Group's equity reported under previous GAAP to itsequity under IFRS as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 £'000 Retained earnings - UK GAAP 59Reversal of goodwill amortisation 70Employee share based compensation (5) Retained earnings - IFRS 124 Share options to be issued - UK GAAP -Employee share based compensation 5Share options to be issued - IFRS 5 Total adjustment to equity 70 Profit and loss reported under UK GAAP for the period ended 31 December 2004 isreconciled to IFRS as follows: Reconciliation for the period 25 October to Effect of 31 December 2004 UK GAAP transition IFRS £'000 £'000 £'000 Sales revenue 4,927 - 4,927Cost of sales (3,966) - (3,966) Gross profit 961 - 961Administrative expenses (741) (5) (746) Operating result 220 (5) 215Amortisation of goodwill (70) 70 -Finance costs (112) - (112) Result for the period before taxation 38 65 103Tax income 21 - 21 Net result for the period 59 65 124 The Group has modified its former balance sheet and income statement structureon transition to IFRS. The main changes may be summarised as follows: • to eliminate the amortisation of goodwill• to provide for the estimated fair value of the share based employee remuneration. 4. SEGMENTAL REPORTING (a) By business segment (primary segment): As defined under International Accounting Standard 14 (IAS14), the only material business segment the Group has is that of providing temporary staff to customers as the placement of permanent staff to customers contributes less than 10% of Group total revenue. (b) By geographical segment (secondary segment): Under the definitions contained in IAS 14, the only material geographic segment that the Group operates in is the United Kingdom. 5. FINANCE COSTS Period 6 months ended ended 30 31 June December 2005 2004 £'000 £'000 Interest payable on bank loans and overdraft 297 110Interest payable on loan notes - 2 297 112 6. EMPLOYEES REMUNERATION Employee benefits expense Expense recognised for employee benefits is analysed below: Period 6 months ended ended 31 30 June December 2005 2004 £'000 £'000 Wages and salaries 2,616 503Social security costs 279 46Other pension costs - defined contribution plans 31 4 2,926 553 Number NumberThe average number of persons (includingdirectors) employed by the Groupduring the period was: 189 181 Share-based employee remuneration As at 30 June 2005 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, Mr A Hogarth and Mr M Evans, subject to therules 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. All share based employee remuneration will be settled in equity. The Group hasno legal or constructive obligation to repurchase or settle the options. Share options and weighted average exercise price are as follows for thereporting periods presented: 30 June 2005 31 December 2004 Weighted average Weighted average exercise price exercise price Number (pence) Number (pence) Outstanding at start of period 499,205 80 - -Granted 104,184 107.5 499,205 80Lapsed (47,637) 80 - -Outstanding at end of period 555,752 85.2 499,205 80 The Group has the following outstanding share options and exercise prices: 30 June 2005 31 December 2004 Weighted Weighted Weighted Weighted average average average average exercise contractual exercise contractual price life price life Number (pence) (months) Number (pence) (months) Exercise date:2006 451,568 80 17 499,205 80 232007 104,184 107.5 23 - - - The fair value of options granted was determined using the Black-Scholesvaluation model. Significant inputs into the calculations were: • weighted average share price of 107.5 pence• exercise prices as detailed above• 10% volatility based on expected share price• a risk free interest rate of 5%. In total £30,000 of employee remuneration expense has been included in theconsolidated income statement for 30 June 2005 (31 December 2004 : £5,000) whichgave rise to share based payment reserve. No liabilities were recognised due toshare based payment transactions. 7. TAX (EXPENSE)/INCOME The relationship between the expected tax expense at 30% and the tax expenseactually recognised in the income statement can be reconciled as follows: Period 6 months ended ended 30 31 June December 2005 2004 £'000 £'000 Result for the period before tax 694 108 Tax rate 30% 30% Expected tax expense 208 32 Adjustment for non-deductible expenses relating - (55)to short term timing differencesOther non-deductible expenses - 2Actual tax expense/(income) 208 (21) Comprising:Current tax expense 208 -Deferred tax income, resulting from the - (21)origination and reversal of temporary differences 208 (21) 8. 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 Period Period 6 months ended 6 months ended ended 31 ended 31 30 June December 30 June December 2005 2004 2005 2004 Earnings (£'000) 486 124 486 124 Weighted average number of 20,824,463 1,312,226 20,939,980 1,318,517shares Earnings per share (pence) 2.3p 9.4p 2.3p 9.4p The earnings per share for the period ended 31 December 2004 relates to a 23 daytrading period only and, therefore, gives a distorted picture of an annualisedearnings per share. 9. GOODWILL Goodwill £'000Gross carrying amountAt 1 January 2005 22,326Additions in the period -At 30 June 2005 22,326 Accumulated impairment lossesAt 1 January 2005 -Impairment loss recognised -At 30 June 2005 - Net book amount at 30 June 2005 22,326 Goodwill above relates to the following cash generating units: Date of Original acquisition cost £'000 Staffline Recruitment Limited 8 December 2004 22,326 The recoverable amounts for Staffline Recruitment Limited was determined basedon a value-in-use calculation, covering a detailed three year forecast, followedby an extrapolation of expected cash flow at a growth rate of 5%. The growthrate reflects the long term average growth rate for that cash generating unit. 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. 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. 10. PROPERTY, PLANT AND EQUIPMENT Group Fixtures Computer and equipment fittings Total £'000 £'000 £'000Gross carrying amountAt 1 January 2005 1,213 95 1,308Additions 12 - 12At 30 June 2005 1,225 95 1,320 Depreciation and impairmentAt 1 January 2005 928 95 1,023Provided in the year 147 - 147At 30 June 2005 1,075 95 1,170 Net book amount at 30June 2005 150 - 150 Net book amount at 31December 2004 285 - 285 11. TRADE AND OTHER RECEIVABLES At 30 At 31 June December 2005 2004 £'000 £'000 Trade and other receivables, gross 7,490 7,905Impairment of trade and other receivables (9) (4)Trade and other receivables, net 7,481 7,901 Trade and other receivables are usually due within 30 - 60 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 recognisedresemble 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. 12. TRADE AND OTHER PAYABLES At 30 At 31 June December 2005 2004 £'000 £'000 Trade and other payables 4,663 5,536Invoice discounting liability 4,073 3,597 8,736 9,133 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. 13. BANK LOANS Bank loans are repayable as follows: At 30 At 31 June December 2005 2004 £'000 £'000 Within one year 1,000 1,000After one and within two years 1,000 1,000After two and within five years 2,750 3,000After more than five years - 250 4,750 5,250Debt issue costs (221) (250) 4,529 5,000 Less: current liabilities (950) (950)Non current liabilities 3,579 4,050 Bank loans are secured by a debenture over all the assets of the Group. The bank loan is repayable in equal quarterly instalments of £250,000. Interestaccrues on the loan at 2% above base rate. The fair value of the bank loan is £3,853,000 at 30 June 2005 (31 December 2004£4,214,000). Fair values of the bank loans have been determined by calculatingthe present values at the balance sheet date of the future cash flows, usingfixed effective market interest rates available to the Group. No fair valuecharges have been included in the income statement for the period as financialliabilities are carried at amortised cost in the balance sheet. 14. DEFERRED TAX ASSETS AND LIABILITIES There are no deferred taxes arising from temporary differences at 30 June 2005or 31 December 2004. 15. SHARE CAPITAL At 30 At 31 June December 2005 2004 £'000 £'000Authorised30,000,000 ordinary 10p shares 3,000 3,00050,000 redeemable £1 shares 50 50 3,050 3,050 Allotted, issued and fully paid20,824,463 ordinary 10p shares 2,082 2,082 16. RELATED PARTY TRANSACTIONS The only related parties are the Groups' directors and others as describedbelow. Transactions with Group directors The Group directors' personal remuneration includes the following expenses: Period 6 months ended 31 ended 30 December June 2005 2004 £'000 £'000 Short-term employee benefits:Salaries 167 26Social security costs 18 3Past employment benefits relating todefined contribution schemes 12 -Share based payments - - 197 29 Other transactions The Group provides pension benefits for some of its employees under a definedcontribution pension plan. In the six months ended 30 June 2005 the Group contributed £31,000 (period ended31 December 2004: £4,000) to this plan. At 30 June 2005 there were contributionsdue by the Group of £1,000 (31 December 2004: £nil). 17. OPERATING LEASES The Group's minimum operating lease payments are as follows: Period 6 months ended 31 ended 30 December June 2005 2004 Land and buildings Land and buildings £'000 £'000 In one year or less 41 11Between one and five years 209 225In five years or more 52 52 302 288 Lease payments recognised as an expense during the six months ended 30 June 2005amount to £200,000 (period ended 31 December 2004 : £24,000). Operating lease agreements do not contain any contingent rent clauses. None ofthe operating lease agreements contain renewal or purchase options or escalationclauses or any restrictions regarding dividends, future leasing or additionaldebt. 18. 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. Long term financial investmentsare managed to generate lasting returns. 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 to are describedbelow: 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 no-business policy with customers lacking an appropriatecredit history where credit records are available. 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 is achieved by the use of an invoicediscounting facility, which provides 85% of eligible debtors up to a maximum of£6,000,000. This facility is due for review in March 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