3rd Sep 2007 07:01
Staffline Recruitment Group plc03 September 2007 Embargoed until 0700 Monday 3 September 2007 STAFFLINE RECRUITMENT GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 A strong performance driven by organic growth 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 2007. Financial highlights: • Revenue up 52% to £52.3m (2006: £34.4m); up 47% to £50.5m excluding OSP • Operating profit up 33% to £1.6m (2006: £1.2m) • Pre tax profit up 40% to £1.4m (2006: £1.0m) • Basic earnings per share increased by 41% to 4.5p (2006: 3.2p) • Interim dividend of 1.3p per share declared; representing an increase of 30% (2006: 1.0p) Operational highlights: • Acquisition of Onsite Partnership ("OSP") on 19 March 2007; integration proceeding well • Significant organic growth in OnSites to 75 locations - a net increase of 12 since 30 June 2006 • OSP added a further 12 locations giving a combined total of 87 OnSites • A strong trading performance from the Industrial branch network • Continued strong demand for Techsearch • Substantially extended our geographical reach both organically and by acquisition • Gangmaster Licensed status providing further opportunities as focus on compliance continues Current trading: • Trading during July and August has been in line with our expectations for the year as a whole • A further 10 OnSites are expected to be open by the end of September Commenting on the results, Andy Hogarth, Managing Director, said: "The Group has had an excellent start to 2007 and I am very pleased to be ableto report a strong trading performance across all of our businesses includingOSP, which we acquired in March. "Whilst the market continues to be very competitive our order book remainsstrong, reflecting the increasing demand for our service, so the Board'sexpectations for the year as a whole remain unchanged." 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 Oriel Securities LimitedNatalie Fortescue 020 7710 7600SmithfieldKatie Hunt/Will Henderson 020 7360 4900 A presentation for analysts will be held at 10.45 for 11.00am 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 87 OnSite locations nationwide and also has a network of17 industrial 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 The Group achieved a strong performance in the period, almost entirely driven byorganic growth. For the six months ended 30 June 2007, Staffline's results arewell ahead of the same period in the previous year and slightly ahead of ourexpectations. In addition, we announced on 19 March 2007 our first acquisition,of Onsite Partnership ("OSP"), which specialises in logistics and distributionlabour outsourcing. OSP has traded in line with our expectations in the firsthalf albeit that it has had little effect on Group performance as its sales areheavily biased towards the second half of the year, which includes the Christmasperiod. Staffline continues to specialise in the provision of blue collar unskilled andsemi skilled temporary workers to UK industry. Over 70% of our sales areattributable to our OnSite managed services division which offers a fullymanaged outsourced service to our clients. We have maintained our traditionalfocus on the food processing and manufacturing sectors but we are seeingincreased demand from other sectors, most notably e-retailing and logistics. Inaddition, we have substantially extended our geographical reach both organicallyand through the OSP acquisition. Financial Results The Group has continued to benefit from strong demand for its services fromacross all the sectors in which it operates, resulting in a 40% increase inpre-tax profit for the six months ended 30 June 2007 to £1.4m (2006: £1.0m) anda 41% rise in basic earnings per share to 4.5p (2006: 3.2p). Dividends The group continues to be committed to a progressive dividend policy and I ampleased to be able to report a further increase in the interim dividend declaredby the board, a rise of 30% to 1.3p per share (2006: 1.0p). The interim dividendis payable on 16 November 2007 to shareholders on the register on 19 October2007. Summary We are pleased to be able to report an encouraging set of interim results andcontinued progress with growing the Group organically, supplemented by therecent acquisition of OSP. Overall, the Board's expectations for the year as awhole remain unchanged and we are confident of continued significant growth inthe future. Derek MappChairman3 September 2007 Managing Directors Review The Group has had an excellent start to 2007 and I am very pleased to be able toreport a strong trading performance across all of our businesses including OSP,which we acquired in March. In particular, our managed outsourcing division,OnSite, has continued to achieve excellent organic growth. We have had furthersuccess in expanding the business geographically, with a growing presence inSouthern England driven by our newly appointed Regional Director. In addition,we now have a sales presence in Scotland which has already resulted in thewinning of an OnSite for a new client due to be opened this autumn. Strategy Staffline's strategy continues to be based primarily on organic growth throughexpansion of the number of OnSite locations for both new and existing customers.Despite the strong growth achieved to date, we currently estimate that Stafflinehas approximately a 3% market share providing ample opportunity to growsignificantly in the next few years. As indicated at the time of the Group's Admission to AIM in 2004, acquisitionswill only be selectively considered where opportunities are identified toacquire complementary companies that improve our service offering, such as OSP,and create shareholder value. Financial Results Turnover for the six months ended 30 June 2007, excluding OSP, was £50.5m, anincrease of 47% from £34.4m in the first half of 2006. Gross profit grew at aslower rate as an expected result of our strategy to increase our OnSitebusiness which achieves lower gross margins. Overall profit before tax increasedby 40% to £1.4m (2006: £1.0m), giving a 41% rise in basic earnings per share to4.5p (2006: 3.2p). Debtor days have continued to improve in the period and have been reduced to 29(2006: 30) further demonstrating our efficiency in this area. Our term loan hasincreased overall by £1.5m reflecting the £2m loan used to acquire OSP offset bya £0.5m scheduled repayment. Operational Review OnSite Division Overall trading within the division has been good, driven by new business winsboth with new clients and existing clients. As at 30 June 2007 the number of OnSite locations operated by Staffline,excluding OSP operations, had increased to 75 representing a net increase of 12since 30 June 2006. 12 OSP locations have been integrated into Staffline'soperations from 1 July 2007, giving a total of 87. The Group has a further 10OnSites which are expected to be open by the end of September, which will resultin the Group having 97 OnSite locations. We have been seeing increased demand from beyond our target sectors, mostnotably from the e-tailing and logistics sectors, including winning a number ofOnSites with a leading logistics service provider. As a result we have developedspecific expertise to address these sectors' particular needs. Industrial Branches The Group's Industrial Branch division continues to develop, reflected in a goodtrading performance across almost the entire network. During the period, it hasincreased the client base it serves whilst also introducing new clientrelationships through which to grow our OnSite business. Techsearch Our smaller Techsearch brand which represents less than 10% of Group turnover,has enjoyed a satisfactory start to the year driven by continued demand for wellqualified candidates looking for permanent positions. The Group as a wholebenefits from Staffline's ability, through the Techsearch offering, to provideits clients with candidates for a broader range of positions. On Site Partnership ("OSP") In March 2007, we completed the acquisition of OSP, which specialises in makingboth permanent and temporary placements in the logistics and distributionsectors. OSP complements our existing operations, providing us with additionalcross-selling opportunities and a greater geographical reach. The considerationpaid for the business was £2m in cash. We have now completed the integration of the temporary placement side of thebusiness and have made some cost savings through the rationalisation of a numberof OSP locations close to where Staffline sites already existed and also byreducing central administration costs. These locations will, from 1 July 2007,trade under the Staffline name, a move which has been well received by thoseclients affected. The existing permanent recruitment offering will continue tobe branded OSP. Industry Background Gangmaster Licensing Act 2004 Since the Act's introduction a total of 29 Gangmasters have had their licencesrevoked with another 30 having been refused a licence. The continued focus onregulation and compliance, combined with the lack of understanding of therequirements of the Act amongst potential clients, is providing us withopportunities to utilise our status as a fully licensed and compliant providerand resulting in increased business flowing to us. EU Accession State Workers The proportion of our workforce originating from the new accession states hasincreased to 60%, from 52% last year. We are still experiencing some skillsshortages but have increased the reach of our recruitment drive to beyond themajor cities in Eastern Europe in order to fulfil client requirements. Health and Safety Health and safety continues to be a major focus of attention for us, and theGroup recognises the importance of its role in ensuring that contractors areplaced in safe working environments. Employees The average number of permanent Staffline employees has increased to 237 (2006:205). The take up of the share option scheme, which is open to all employees,has continued to be high and, of the first options issued at the time of theGroup's admission to AIM, some 300,000 have now been exercised by staff. Webelieve that by making options available to all members of staff we encouragebetter retention and ensure employees feel a key part of the success of theCompany. Current Trading and Prospects Group trading during July and August has been in line with our expectations forthe year as a whole, which reflects the Group's traditional seasonal tradingpattern and weighting towards the second half. Great progress has been made in the first half towards achieving our year endexpectations. Whilst the market continues to be very competitive our order bookremains strong, reflecting the increasing demand for our service, so the Board'sexpectations for the year as a whole remain unchanged. Andy HogarthManaging Director3 September 2007 Consolidated income statementFor the six months ended 30 June 2007 Period Period Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Note Unaudited Unaudited Audited £'000 £'000 £'000 Sales revenue 52,324 34,384 84,111Cost of sales (44,174) (28,356) (69,975) -------- -------- --------Gross profit 8,150 6,028 14,136Administrative (6,518) (4,812) (10,383)expenses -------- -------- -------- Profit from operations 1,632 1,216 3,753 Finance costs 5 (229) (212) (395) -------- -------- -------- Profit for the periodbefore taxation 1,403 1,004 3,358 Tax expense 7 (469) (338) (1,014) -------- -------- -------- Net profit for theperiod 934 666 2,344 ======== ======== ======== Earnings per ordinaryshare 8Basic 4.5p 3.2p 11.3p ======== ======== ========Diluted 4.3p 3.1p 10.9p ======== ======== ======== Consolidated statement of changes in equityFor the six months ended 30 June 2007 Share based Profit Share payment Share and loss capital reserve premium account Total £'000 £'000 £'000 £'000 £'000 At 31 December 2005 2,082 68 14,257 1,636 18,043 Net result for the period to 30 June 2006 - - - 666 666 Employee share based compensation - 110 - - 110 At 30 June 2006 (unaudited) 2,082 178 14,257 2,302 18,819 Net result for the period to 31 December 2006 - - - 1,678 1,678 Employee share based compensation - (71) - - (71) Dividend paid - - - (458) (458) At 31 December 2006 (audited) 2,082 107 14,257 3,522 19,968 Net result for the period to 30 June 2007 - - - 934 934 Employee share based compensation - 31 - - 31 Employee share options exercised 30 - 211 - 241 At 30 June 2007 (unaudited) 2,112 138 14,468 4,456 21,174 Consolidated balance sheetAt 30 June 2007 At 31 At 30 June At 30 June December 2007 2006 2006 Unaudited Unaudited Audited Note £'000 £'000 £'000 AssetsNon currentGoodwill 9 24,397 22,326 22,326Property, plant and equipment 10 838 163 204 -------- -------- -------- 25,235 22,489 22,530 -------- -------- -------- CurrentTrade and other receivables 11 15,204 9,645 13,189Cash and cash equivalents 12 1,707 1,389 823 -------- -------- -------- 16,911 11,034 14,012 -------- -------- --------Total assets 42,146 33,523 36,542 ======== ======== ======== Liabilities Non currentBank loans 14 (4,900) (3,379) (3,150) CurrentTrade and other payables 13 (10,577) (9,721) (9,139)Bank overdrafts and loans 14 (5,022) (450) (3,807)Current tax liabilities (473) (1,154) (478) -------- -------- -------- (16,072) (11,325) (13,424) -------- -------- --------Total liabilities (20,972) (14,704) (16,574) ======== ======== ======== EquityShare capital 16 (2,112) (2,082) (2,082)Share premium (14,468) (14,257) (14,257)Share based payment reserve (138) (178) (107)Profit and loss account (4,456) (2,302) (3,522) -------- -------- --------Total equity (21,174) (18,819) (19,968) ======== ======== ======== Total equity and liabilities (42,146) (33,523) (36,542) ======== ======== ======== Consolidated cash flow statementFor the six months ended 30 June 2007 Year 6 months 6 months ended 31 ended 30 ended 30 December June 2007 June 2006 2006 Unaudited Unaudited Audited Note £'000 £'000 £'000Cash flows from operating activitiesProfit before taxation 1,403 1,004 3,358Adjustments for:Depreciation of property, plant andequipment 75 27 93 -------- -------- -------- 1,478 1,031 3,451Change in trade and other receivables (1,160) (982) (4,526)Change in trade and other payables 441 271 2,877 -------- -------- --------Cash generated from operations 759 320 1,802 Adjustment for debt issue costs 13 25 50Employee equity settled share options 31 110 39Taxes paid (475) - (1,352) -------- -------- --------Net cash inflow from operating activities 328 455 539 ======== ======== ======== Cash flows from investing activitiesAcquisition of subsidiary, net of cashacquired (2,098) - -Purchases of property, plant and equipment (19) (102) (209) -------- -------- --------Net cash used in investing activities (2,117) (102) (209) ======== ======== ======== Cash flows from financing activitiesIncrease/(decrease) of loans 1,523 (246) (375)Movement in invoice discounting facility - 730 (2,458)Proceeds from the issue of share capital 241 - -Dividends paid - - (458) -------- -------- --------Net cash from/(used in) financing activities 1,764 484 (3,291) Net (decrease)/increase in cash and cashequivalents (25) 837 (2,961) Cash and cash equivalents at beginning ofperiod 12 (2,409) 552 552 -------- -------- --------Cash and cash equivalents at end of period 12 (2,434) 1,389 (2,409) ======== ======== ======== Notes to the interim reportFor the six months ended 30 June 2007 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 2007 (includingthe comparatives for the year ended 31 December 2006 and the period ended 30June 2006) were approved by the board of directors on 31 August 2007. Under theSecurity Regulations Act of the EU, amendments to the financial statements arenot permitted 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". 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. 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, fixtures and fittings and property are carried atacquisition cost less subsequent depreciation and impairment losses.Depreciation is charged on these assets on a straight line basis over theestimated useful economic life of each asset. The useful lives of property, plant and equipment can be summarised as follows: Computer equipment 3 yearsFixtures and fittings 3 yearsFreehold property 50 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. All 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 asset's carrying amount and the presentvalue of estimated future cash flows. Cash and cash equivalents For the purposes of the cashflow statement, cash and cash equivalents includecash at bank and in hand and short term highly liquid investments such as bankdeposits less advances from banks repayable within three months from the date ofadvance. Equity An equity investment is any contract that evidences a residual interest in theassets of an entity after deducting all of its liabilities. 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. The share based payment reserve represents the value of shares provided undershare based payment arrangements. The profit and loss account includes all current and prior period results asdisclosed in the 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 overdraft facility andtrade 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's operationsand acquisitions. They are recognised at proceeds received, net of direct issuecosts. Finance charges, including premiums payable on settlement or redemptionand direct issue costs, are charged to the income statement on an accruals basisusing the effective interest method and are added to the carrying amount of theinstrument to the extent that they are not settled in the period in which theyarise. 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. Estimation uncertainty The key area of estimation uncertainty in the financial statements is theimpairment of goodwill. The annual impairment assessment in respect of goodwillrequires estimates of the value in use of cash generating units to whichgoodwill has been allocated to be calculated. As a result, estimates of futurecashflows are required, together with an appropriate discount factor for thepurpose of determining the present value of those cashflows. The basis of reviewof the carrying value of goodwill is as detailed in note 9. A key area ofjudgment is the allocation of goodwill in respect of the acquisition of OSP,which has been carried out on a provisional basis in these statements. 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 customersof Staffline Limited and Onsite Partnership Limited, 'OSP'. The activities ofthe National Response Centre and the placement of permanent staff bothcontribute less than 10% of Group total revenue. The sales are from therendering 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 ACQUISITION OF SUBSIDIARY On 19 March 2007, the Company acquired the entire issued share capital of OnsitePartnership Limited, OSP offers temporary and permanent recruitment services toclients in the UK. The acquisition has been accounted for using the purchase method of accounting.From the date of acquisition to 30 June 2007 the acquisition contributed revenuefor the period of £1,846,738 and a profit after tax for the period of £1,551 tothe Group. If the acquisition had occurred on 1 January 2007, Group revenue would haveincreased by £3,751,593 and profit after tax would have increased by £10,993.Note that the OSP business has a second half bias. These amounts have beencalculated using the Group's accounting policies. The provisional goodwillarising on the acquisition during the year is attributable to the anticipatedfuture profitability of the acquisition. In addition, this acquisition bringsaccess to new service offerings for the Group. Effect of acquisition Acquiree's Fair value Acquisition book values adjustments amountAcquiree's net assets at the acquisition date: £'000 £'000 £'000 Property plant and equipment 824 (134) 690 Trade and other receivables 855 - 855 Cash and cash equivalents 6 - 6 Trade and other payables (997) - (997) Loans (521) - (521) Deferred tax (8) 8 - Net identifiable assets and liabilities 159 (126) 33 Goodwill on acquisition 2,071 Cash consideration paid including fees 2,104 The fair value adjustments above have arisen as a result of the recognition ofthe market value of the Head Office property of Onsite Partnership Limited andthe adoption of the accounting policies of the Group. The provisional allocationof the fair value adjustments is still under review. The cash consideration paid was £2 million. Costs of acquisition were £104,000in respect of advisors fees. 5 Finance costs 6 months ended 6 months ended Year ended 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Audited £'000 £'000 £'000Interestpayable onbank loansand 229 212 395overdraft ======== ======== ========= 6 Directors and EMPLOYEES remuneration Employee benefits expense Expense recognised for employee benefits is analysed below: 6 months 6 months Year ended 31 ended 30 ended 30 December June 2007 June 2006 2006 £'000 £'000 £'000 Wages and salaries 4,127 2,957 6,613Social security costs 448 317 709Other pension costs -defined contribution plans 86 42 116Share option charge 31 110 39 -------- -------- --------- 4,692 3,426 7,477 ======== ======== ========= Number Number Number The average number of persons(including directors)employed by the Groupduring the period was: 237 205 213 ======== ======== ========= Share-based employee remuneration As at 30 June 2007 the Group operated a share based payment scheme foremployees. 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: C Harvey 1 January 2007 Granted Lapsed/exercised 30 June 2007 Exercise price 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. This condition has now been satisfied. The share options canbe exercised between three and seven years of being granted. 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 2007 30 June 2006 31 December 2006 Number Weighted Number Weighted Number Weighted average average average exercise exercise exercise price price price (pence) (pence) (pence) Outstandingat start of period 812,225 97 687,330 88 687,330 88Granted 238,404 146 96,215 130 193,192 125Lapsed (17,712) (113) (26,450) (85) (68,297) (85)Exercised (299,988) (80) - - - - -------- --------- --------- --------- --------- ---------Outstandingat end of period 732,929 118 757,095 93 812,225 97 ======== ========= ========= ========= ========= ========= The Group has the following outstanding share options and exercise prices: 30 June 2007 30 June 2006 31 December 2006 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)Date exercisableand optionlife:2006 (up to2011) 97,824 80 - 396,742 80 5 374,709 80 -2007 (up to2012) 131,288 97 3 264,138 100 19 150,135 97 82008 (up to2013) 265,413 118 14 96,215 130 23 287,381 118 202009 (up to2014) 238,404 146 20 - - - - - - ======= ======= ======= ======= ======= ======= ====== ======= ======= Share options are exercisable between values of 80p and 174p. The fair value of options granted was determined using the Black-Scholesvaluation model. Significant inputs into the calculations were: • exercise prices as detailed above • 30% volatility based on expected share price • a risk free interest rate of 4.75%. • all options are assumed to vest after two years from the date of grant of the options • dividends in line with current levels In total £31,000 of employee remuneration expense has been included in theconsolidated income statement to 30 June 2007 (31 December 2006: £39,000 and 30June 2006 £110,000) which gave rise to the share based payment reserve. Noliabilities were recognised due to share based payment transactions. 7 Tax expense A reconciliation of the tax expense applicable to the profit before tax usingthe statutory rate to the tax expense at the effective tax rate and areconciliation of the statutory tax rates to the effective tax rates are asfollows: 6 months 6 months Year ended ended 30 June ended 30 June 31 December 2007 2006 2006 £'000 % £'000 % £'000 % Profit for theperiod beforetaxation 1,403 1,004 3,358 Tax rate 30% 30% 30% ======== ====== ======== ====== ========= ===== Expected taxexpense 421 30 301 30 1,007 30 Adjustment fornon-deductibleexpensesrelating toshort termtimingdifferences (3) (0.2) (18) (1.8) (24) (0.7)Othernon-deductibleexpenses 51 3.6 51 5.1 25 0.7Adjustment inrespect ofprior periods - - 4 0.4 6 0.2 -------- ------ -------- ------ --------- -----Actual taxexpense 469 33.4 338 33.7 1,014 30.2 ======== ====== ======== ====== ========= ===== Comprising:Current taxexpense 469 338 1,014 ======== ====== ======== ====== ========= ===== There is no tax expense or credit in relation to the share based payment reservecredited to equity. 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 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 2007 June 2006 2006 June 2007 June 2006 2006 Unaudited Unaudited Audited Unaudited Unaudited AuditedEarnings(£'000) 934 666 2,344 934 666 2,344 ======== ======== ========= ======== ======== ========= Weightedaveragenumber of shares 20,978,586 20,824,463 20,824,463 21,711,515 21,425,328 21,511,163 ======== ======== ========= ======== ======== =========Earningsper share (pence) 4.5p 3.2p 11.3p 4.3p 3.1p 10.9p ======== ======== ========= ======== ======== ========= The weighted average number of shares has increased by 732,929 (year ended 31December 2006: 686,700 and period ended 30 June 2006: 600,865) 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 £359,000 as proposed inthe annual report for the year ended 31 December 2006 on the 5 July 2007(£250,000 for the year ended 31December 2005 on the 4 July 2006.) An interimdividend of £275,000 (2006: £208,000) has been proposed but has not been accruedwithin these financial statements. This represents a payment of 1.3 pence (2006:1.0 pence) per share. 9 Goodwill Goodwill £'000 Gross carrying amount and net book value at 30 June 2006 and 31December 2006 22,326Acquisition of subsidiary (note 4) 2,071Gross carrying amount and net book value at 30 June 2007 24,397 Goodwill above relates to the acquisition of the following cash generatingunits: Date of acquisition Original cost £'000 Staffline Recruitment Limited 8 December 2004 22,326Onsite Partnership Limited 19 March 2007 2,071 =========== Goodwill arising on consolidation which represents the excess of the fair valueof the consideration given over the fair value of the identifiable net assetsacquired is capitalised and is tested annually for impairment. The directors donot consider that there were any material intangible assets that should beseparately recognised at the date of acquisition. The recoverable amount for Staffline Recruitment Limited and OSP Limited wasdetermined based on a combined value-in-use calculation, covering a detailed oneyear conservative forecast, followed by an extrapolation of expected cash flowover the next 9 years at a growth rate of 10%, which represents a conservativelong term average growth rate and a discount rate of 13%. The growth rate useddoes not exceed the long term average growth rate for the market in which thegroup operates. Management have used a forecast period of 10 years as they feelthis represents the minimum period that the business model they have developedis sustainable. Management's key assumptions for Staffline Recruitment Limited and OSP Limitedtogether forming Staffline Recruitment Group plc include assumptions that therewill be no significant changes in the business and that turnover growth will notexceed historic growth levels. Management have considered internal and externalmarket 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. 10 PROPERTY, PLANT AND EQUIPMENT Group Property Computer Fixtures and Total equipment fittings £'000 £'000 £'000 £'000Gross carrying amountAt 1 January 2007 - 1,479 146 1,625Additions - 19 - 19Acquisition of subsidiary 600 65 25 690 -------- --------- --------- ---------At 30 June 2007 600 1,563 171 2,334 -------- --------- --------- --------- Depreciation and impairmentAt 1 January 2007 - 1,316 105 1,421Provided in the period - 68 7 75 -------- --------- --------- ---------At 30 June 2007 - 1,384 112 1,496 -------- --------- --------- --------- Net book amount at 30 June 2007 600 179 59 838 ======== ========= ========= ========= Net book amount at 31 December2006 - 163 41 204 ======== ========= ========= ========= Net book amount at 30 June 2006 - 119 44 163 ======== ========= ========= ========= All assets stated above are secured against bank loans outstanding at the yearend. 11 TRADE AND OTHER RECEIVABLES At 30 At 30 At 31 June June December 2007 2006 2006 £'000 £'000 £'000 Trade and other receivables, gross 15,217 9,654 13,204Impairment of trade and otherreceivables (13) (9) (15) ---------- ---------- ---------Trade and other receivables, net 15,204 9,645 13,189 ========== ========== ========= 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. 12 CASH AND CASH EQUIVALENTS At 30 At 30 At 31 June June December 2007 2006 2006 £'000 £'000 £'000 Cash and cash equivalents 1,707 1,389 823Bank overdraft (see note 14) (4,141) - (3,232) ---------- ---------- ---------Cash and cash equivalents percashflow (2,434) 1,389 (2,409)statement ========== ========== ========= Cash and cash equivalents consist of cash on hand and balances with banks only.At the period end £1,707,000 (year ended 31 December 2006: £823,000 and periodended 30 June 2006: £1,389,000) of cash on hand and balances with banks wereheld by the subsidiary undertaking, however this balance is available for use bythe Company. 13 trade and other payables At 30 At 30 At 31 June June December 2007 2006 2006 £'000 £'000 £'000 Trade and other payables 10,577 6,533 9,139Invoice discounting liability - 3,188 - ----------- --------- --------- 10,577 9,721 9,139 =========== ========= ========= The invoice discounting facility included above was secured on the trade debtorsof the Group and bore 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. 14 Borrowings Bank loans are repayable as follows: At 30 At 30 At 31 June June December 2007 2006 2006 £'000 £'000 £'000 In one year or less or on demand 5,035 500 3,857In more than one year but not morethan two years 940 500 500In more than two years but not morethan three years 940 500 500In more than three years but not morethan four years 940 500 500In more than four years but not morethan five years 1,046 500 500In more than five years 1,173 1,500 1,250 --------- --------- --------- 10,074 4,000 7,107Debt issue costs (152) (171) (150) --------- --------- --------- 9,922 3,829 6,957 ========= ========= =========Split:Current liabilities:Bank loan 881 450 575Overdraft 4,141 - 3,232 --------- --------- --------- 5,022 450 3,807Non current liabilities:Bank loan 4,900 3,379 3,150 --------- --------- --------- 9,922 3,829 6,957 ========= ========= ========= Bank loans and overdrafts are secured by a debenture over all the assets of theGroup. The bank loan is repayable in quarterly instalments of £192,000 inSeptember and December 2007, £235,000 until December 2011, £288,000 until June2013 and £20,000 until September 2014. Interest accrues on the loan at 1.1%(1.2% at 31 December 2006 and 2% at 30 June 2006) above base rate. The bankloans contain various covenants which, if breached, could lead to the loanbecoming payable on demand. The covenants have all been satisfied to date. Note that the use of an overdraft facility was established with effect from July2006. At June 2007 there was £1707,000 cash available for offset against thisoverdraft (December 2006 £823,000). Previously an invoice discounting facilityprovided 85% of eligible debtors up to a maximum of £6,000,000 and was disclosedin 'Trade and other payables' (see note 13). The net increase in Bank loans is £1,523,000. The purchase of Onsite Partnershiplimited was financed by a loan of £2,000,000, however, during the periodrepayments totalling £462,000 were made plus £15,000 in respect of new debtissue costs. On the basis of discounting the future loan repayments at a rate of 5% thetheoretical fair value of the bank loan is £4,984,000 at 30 June 2007 (31December 2006 £3,205,000 and 30 June 2006 £3,249,000). 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. 15 deferred tax assets and liabilities A deferred tax asset of £138,000 arose from temporary differences on computerequipment, fixtures and fittings at 30 June 2007. It is Group policy to notrecognise these deferred tax assets in the financial statements. At 31 December2006 the unrecognised deferred tax asset was £168,000. 16 SHARE CAPITAL At 30 At 30 At 31 June June December 2007 2006 2006 £'000 £'000 £'000Authorised30,000,000 ordinary 10p shares 3,000 3,000 3,000 Allotted, issued and fully paid21,124,451 ordinary 10p shares 2,11220,824,463 ordinary 10p shares 2,082 2,082 Ordinary 10p shares At 30 June 2007 At 30 June 2006 At 31 December 2006Shares issued andfully paid at thebeginning of theyear 20,824,463 20,824,463 20,824,463Issued during theperiod 299,988 - - ----------- -------------- -------------Shares issued andfully paid 21,124,451 20,824,463 20,824,463 Shares authorisedbut unissued 8,875,549 9,175,537 9,175,537 ----------- -------------- -------------Total equity sharesauthorised at 31December 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. During the period 299,988 shares were issued in respect of the exercise ofemployee share options. 17 related party transactions The only related parties are the Group's directors as described below. 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 2007 June 2006 December 2006 £'000 £'000 £'000 Short-term employeebenefits:Salary and bonus 354 205 454Social security costs 42 23 51Share based employeeremuneration 5 - 13Post employmentbenefits relating todefined contributionpension schemes 17 14 34 -------- --------- --------- 418 242 552 ======== ========= ========= None of the amounts above were outstanding at the year-end 18 operating leases The Group's minimum operating lease payments for the full remaining lives of theleases are as follows: 30 June 30 June 31 December 2007 2006 2006 Land and Land and Land and buildings buildings buildings £'000 £'000 £'000 In one year or less 38 288 278Between one and five 396 481 348yearsIn five years or more 83 53 36 --------- ---------- ---------- 517 822 662 ========= ========== ========== Lease payments recognised as an expense during the six months ended 30 June 2007amount to £159,000 (period ended 31 December 2006 : £335,000 and 30 June 2006 :£206,000). 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. 19 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. The most significant financial risksto 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 overdraftfacility with effect from July 2006. (Previously an invoice discounting facilityprovided 85% of eligible debtors up to a maximum of £6,000,000). All financial liabilities of the Group are subject to floating interest rates.Interest rate risk is managed through the negotiation of appropriate fundingarrangements combined with active management of working capital in order tominimise overall interest charges. -------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Staffline