6th Jun 2006 07:03
Penna Consulting PLC06 June 2006 PENNA CONSULTING PLC ANNOUNCES FULL YEAR RESULTS 6 June 2006 Penna Consulting Plc (PNA) the Human Capital Management Consultancy group todayannounces its unaudited preliminary results for the year ended 31 March 2006. Headlines • Business returned to profit • Turnover up 7% to £44.6m (2005: £41.8m) • Rapid disposal of redundant property leases saves £1.0m of future costs • Penna Recruitment Communications successfully established • Profit before tax £2.6m (2005: loss £6.4m) • Earnings per share 11.2p (2005: loss 30.7p) Commenting on the results, Stephen Rowlinson, Chairman said: "I am pleased to report that the Company has returned to profit, maintainingrevenues and improving margins whilst significantly reducing costs through theimplementation of a new operating structure". For further information please contact: Stephen Rowlinson, Chairman 0771 00 23699 Gary Browning, Chief Executive 020 7648 2448 David Firth, Finance Director 020 7648 2423 These unaudited preliminary results are the Group's first set of resultsprepared under the International Financial Reporting Standards (IFRS). Whilstthe application of IFRS has no significant impact on the reported results forthe Group, the results for the comparative period have been restated inaccordance with IFRS and have not been audited. Penna Consulting Plc Chairman's Review I am pleased to report on a satisfactory year, during which we returned thebusiness to profitability, whilst restructuring the operations significantly. Financial Review Turnover grew from £41.8m to £44.6m with underlying net revenues (i.e. revenuesnet of pass through costs) marginally increased by 2% from £32.1m to £32.8m.Net operating costs (i.e. operating costs net of pass through costs) reduced by11%, from £34.7m to £31.0m. We are pleased to report a profit of £2.6m. During the year we restructured the cost base of the business by reducing thenumber of fixed offices, closing 11 in total. I am pleased to report that the disposal programme for closed offices has progressed quicker than plan, with thelease of 8 offices now terminated, for which we have no future liability. Asresult we have been able to release £1.0m of excess property provisions. I am also pleased with the progress of our new Recruitment Communicationsbusiness, started during the year. The net costs of this new venture amounted to£0.8m and the reported profit before tax of £2.6m is after absorbing thesecosts. Turnover by service line 2006 2005 £'000 £'000Career Transition 19,362 18,866Resourcing 8,149 7,758Executive Interim 11,480 10,288Recruitment Communications 888 -Leadership Services 2,396 2,413HR Consulting 2,517 2,698Intercompany sales (190) (192)Total Turnover 44,602 41,831Total net revenues 32,748 32,078 Reorganisation of the Group into six profit centres is now complete. We havestreamlined and strengthened the management in each business unit to ensure thatfuture success is achieved. Career Transition operates in a highly competitive, price driven marketplace. Iam satisfied with our performance this year where we have protected coreclients, maintaining revenues at last year's levels and increasing margins. Ourstrategy of maintaining service levels, has this year seen a number of clientsreturn to Penna having experienced lower service level alternatives fromcompetitors. Turnover in Resourcing increased by 5% to £8.1m. The unit sources and placessenior and middle managerial professionals and also undertakes volume projectsfor clients requiring larger numbers of staff. Our Executive Interim business's turnover has grown by 12%, (21% in net revenueterms) in the year and continues to pursue a sector-focused strategy, placingsenior level executives on assignments across a broad range of functionaldisciplines. Our Recruitment Communications division supports clients in their strategy to attract new employees and we have to date secured four major long-term contractsand a number of short-term project assignments. I anticipate significant growthin this area of our business over the next two years. Our Leadership Services business incorporates Executive Coaching and LeadershipDevelopment. We are currently seeing significant market interest in theseservices. HR Consulting maintained its market share and has recently won several large,longer term assignments from blue chip clients looking for support on theirpeople issues throughout major change initiatives. We have disposed of our 30% interest in Knightsbridge Human Capital ManagementInc, our Canadian investment, for £3.0m, showing a profit of £0.3m on ouroriginal investment. £2.25m of the consideration was received by the year-end,and £0.75m was received in May 2006. We are looking forward to continuing growth in each of our businesses. Inparticular we expect significant development of our Recruitment Communicationsand Interim Management divisions and this will require further working capital. The Directors are currently considering the optimum way to finance theexpansion of these businesses and the Group as a whole as set out in Note 1. We have completed an important year of change and development. The operatingmanagement of the Company is to be congratulated on increasing underlying netrevenues by £0.7m at the same time as reducing costs by £3.7m. This was thetarget they were set for the year and it has been achieved with greatprofessionalism. Stephen RowlinsonChairman6 June 2006 Penna Consulting PlcConsolidated income statementfor the year ended 31 March 2006 (unaudited) Year Year Ended Ended Notes 31 March 31 March 2006 2005 £'000 £'000Continuing operations Turnover 44,602 41,831 Operating costs (43,177) (44,484) Goodwill impairment - (508) Decrease/(increase) in surplusproperty provision 960 (2,925) Operating profit/(loss) 2,385 (6,086) Share of profit from associate 183 47Finance costs (288) (320) Profit on disposal of fixed assetinvestment 308 - Profit/(loss) before tax 2,588 (6,359) Tax 3 (442) 668 Profit/(loss) for the year 2,146 (5,691) Attributable to: Equity holders of the parent 2,146 (5,691) Earnings/(loss) per share: 4 - basic 11.2p (30.7)p - diluted 11.0p (30.7)p Penna Consulting PlcConsolidated balance sheetat 31 March 2006 (unaudited) Note 31 March 2006 31 March 2005 £'000 £'000 Non-current assets Tangibles - Property, plant and equipment 2,270 1,507 Other intangible assets - software 75 77 Goodwill 14,036 14,070 Investments 6 - 2,521 16,381 18,175 Current assets Trade debtors 11,173 10,513Other prepayments 2,432 1,518Corporation tax 35 904Cash and cash equivalents 7b 2,117 1,680 15,757 14,615 Total assets 32,138 32,790 Current liabilities Trade creditors 2,824 1,842Bank overdraft 4,386 2,400Loan notes 2,462 2,467 Obligations under finance leases 84 75Provision for liabilities and charges 210 671Other creditors and accruals 7,691 10,908 17,657 18,363 Non-current liabilities Obligations under finance leases 183 267Provision for liabilities and charges 263 1,024Other creditors and accruals 182 1,164 628 2,455 Total liabilities 18,285 20,818 Net assets 13,853 11,972 Capital and reserves Called up share capital 978 961Share premium account 11,899 11,701Merger reserve 10,170 10,170Employee Share Option Plan reserve (397) (397)Share option reserve 272 212Foreign currency translation reserve 42 40Retained loss (9,111) (10,715) Total equity 13,853 11,972 Penna Consulting PlcConsolidated statement of changes in equityat 31 March 2006 (unaudited) Called up Share Foreign share Share Merger ESOP option currency Retained Total capital premium reserve reserve reserve translation loss equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 2004 914 10,497 10,170 (397) 84 - (4,618) 16,650 Share issue 47 1,204 - - - - - 1,251 Currency translation differences - - - - - 40 (22) 18 Loss - - - - - - (5,691) (5,691) Share option charge - - - - 128 - - 128 Equity dividends - - - - - - (384) (384) At 31 March 2005 961 11,701 10,170 (397) 212 40 (10,715) 11,972 Impact of adoption of IAS 32 and IAS 39 on 1 April 2005 - - - - - - (542) (542) Share issue 17 198 - - - - - 215 Currency translation differences - - - - - 2 - 2 Profit - - - - - - 2,146 2,146 Share option charge - - - - 60 - - 60 At 31 March 2006 978 11,899 10,170 (397) 272 42 (9,111) 13,853 Penna Consulting PlcConsolidated group cash flow statementfor the year ended 31 March 2006 (unaudited) Year Year Ended Ended 31 March 31 March 2006 2005 Note £'000 £'000 Cash flows from operating activities Cash (used)/generated by operations 7a (2,479) 889Tax refunded/(paid) 428 (177)Interest paid - bank overdraft (241) (257) Net cash (used)/generated by operating activities (2,292) 455 Cash flows from investing activities Net purchase of property, plant and equipment (1,265) (680)Sale of tangible fixed assets - 290 Sale of investment 2,250 - Payment of deferred consideration - (300) Net cash generated by/(used) in investing 985 (690)activities Cash flows from financing activities Interest paid - finance leases (35) (51)Net proceeds from finance leases - 342Repayment of finance leases (75) -Repayment of loan notes (342) (3,004)Issue of ordinary share capital 210 1,221Repayment of loan - (2,500)Dividends paid - (384) Net cash used in financing activities (242) (4,376) Net decrease in cash and cash equivalents (1,549) (4,611) Cash and cash equivalents at start of period (720) 3,891 Cash and cash equivalents at end of period 7b (2,269) (720) Penna Consulting PlcNotes to the preliminary announcementfor the year ended 31 March 2006 (unaudited) 1. Basis of preparation The Directors are currently finalising arrangements with the Group's bankers to convert the current £4.25m overdraftfacility, which expires on 30 June 2006, into a term loan and a secured invoice discounting facility to establishappropriate medium term funding arrangements. The secured invoice discounting facility is expected to be linked to thegrowth of the Recruitment Communications and Interim Management businesses. The Directors are currently consideringthe optimum way to finance the Group and the expansion of the Recruitment Communications and Interim Managementbusinesses and expect to have concluded these arrangements by the time the annual accounts are signed. As part of their considerations of going concern, the Directors have prepared working capital projections for theperiod to 31 December 2007. Based on the conditions existing at the date of this preliminary announcement the Directorsrecognise that in the absence of finalised funding arrangements, the audit opinion in respect of the year ended 31March 2006 may contain an emphasis of matter paragraph in respect of a material uncertainty around the Company'sability to continue as a going concern. However the Directors are confident that the required funding will be obtained and that no material uncertainty willexist at the date the accounts are signed. 2. Accounting policies The unaudited preliminary consolidated financial statements are for the year ended 31 March 2006. They have beenprepared under the historical cost convention using accounting polices that are consistent with current InternationalFinancial Reporting Standards (IFRS). IFRS 1, "First-time Adoption of International Financial Reporting Standards",applies to these financial statements for the first time. The financial statements are unaudited. The Group's consolidated financial statements were prepared in accordance with the United Kingdom Generally AcceptedAccounting Principles (UK GAAP) until 31 March 2005. In preparing the 2006 financial statements, the directors haveadopted IFRS and have restated comparative information accordingly. The adjustments to the Group's equity and itsincome are shown in Note 8. The Group has taken advantage of the exemption available under IFRS 1 where cumulative translation differences for allforeign operations are deemed to be zero at 1 April 2004, the date of transition. The Group has also elected to applyIFRS 2, "Share-based Payment" to all relevant share based payment transactions granted after 7 November 2002 that hadnot fully vested at 1 January 2005. Under IFRS 1, the Group has also taken advantage of the exemption to not apply IFRS3 to business combinations occurring before the date of transition and to not restate comparative information for IAS32 and IAS 39. Penna Consulting PlcNotes to the preliminary announcement (continued)for the year ended 31 March 2006 (unaudited) The principal differences in the Group's accounting policies between IFRS and UK GAAP as they impact the Group for theyear ended 31 March 2006 are as follows: • IAS 1 "Presentation of Financial statements" and IAS 7 "Cash Flow Statements" have affected the overall presentation and certain disclosures; • IFRS 2 "Share-based Payment" requires that the fair value of employee options at grant date be expensed and recognised over the vesting period; • IAS 10 "Events After the Balance Sheet Date" has the effect of prohibiting the recognition of the final dividend until shareholder approval has been received. Previously a liability was recognised at the year end; • IAS 19 "Employee Benefits" has the effect of recognising a liability for unused accumulated employee holiday entitlement at the balance sheet date. Previously no accrual was made; • IFRS 3 "Business Combinations", IAS 36 "Impairment of Assets" and IAS 38 "Intangible Assets" have resulted in a change in the accounting policy for goodwill. In accordance with the provisions of IFRS 3, the Group ceased amortisation of goodwill from 1 April 2004. From 1 April 2004 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment; and • IAS 32 Financial Instruments: "Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" has led to an increase in financial liabilities on the balance sheet. The adjustments to the Group's equity and income as previously reported are set out in Note 8. 3. Taxation Taxation has been provided for at 30% (2005:30%), for the UK and appropriate rates for overseas earnings. 4. Earnings/(loss) per share The calculation of basic and diluted earnings per share are based on the following amounts: Year ended Year ended 31 March 31 March 2006 2005EarningsProfit/(loss) from continuing operations (£'000) 2,146 (5,691)Profit/(loss) for the year (£'000) 2,146 (5,691) Number of shares Weighted average number of 19,198,919 18,517,363 SharesDilution effect of share option 346,464 361,752 SchemesDiluted weighted average number 19,545,383 18,879,115 Of Shares Earnings/(loss) per share: Basic 11.2p (30.7)p Diluted 11.0p (30.7)p Penna Consulting PlcNotes to the preliminary announcement (continued)for the year ended 31 March 2006 (unaudited) 5. Dividends No dividend was proposed (2005: nil) for the year ended 31 March 2006. 6. Investments The Group's investment represented a 30% holding in the ordinary share capital of Knightsbridge Human Capital Inc. During the year, the Group's investment in the associate was disposed of for a consideration of £3.0m on 5 January2006. Penna Consulting PlcNotes to the preliminary announcement (continued)for the year ended 31 March 2006 (unaudited) Year Year Ended Ended7a. Reconciliation of operating profit/(loss) to cash 31 March 2006 31 March 2005(used)/generated by operating activities £'000 £'000 Operating profit/(loss) 2,385 (6,086)Adjustments for:Depreciation 504 779Loss on disposal of fixed assets - 399 Goodwill impairment - 508 Share option expense 60 128 Changes in working capital:Increase in trade and other receivables (826) (1,171)(Decrease)/increase in trade and other payables (3,642) 3,407Property provision (reversed)/charged (960) 2,925 Cash (used)/generated by operations (2,479) 889 At 31 March 2006 At 31 March £'000 2005 7b. Cash and cash equivalents £'000Cash and cash equivalents are made up as follows:Bank overdraft (4,386) (2,400)Cash on restricted deposit 2,117 1,680 Cash and cash equivalents (2,269) (720) 8. IFRS restatement and prior period adjustments In preparing the 2006 financial statements, the directors have adopted IFRS forthe first time and have restated comparative information accordingly. Thetransition to IFRS is accounted for in accordance with IFRS 1, "First-timeAdoption of International Financial Reporting Standards" with 1 April 2004 asthe date of transition. The changes in accounting policies are described belowtogether with reconciliations of the restated shareholders' equity and profit tothat previously reported. The transition to IFRS resulted in the following changes in accounting policies: • Cumulative translation differences are deemed to be zero at the date of transition, per IFRS 1. Penna Consulting PlcNotes to the preliminary announcement (continued)for the year ended 31 March 2006 (unaudited) 8. IFRS restatement and prior period adjustments (continued) • Share option costs were previously based on the intrinsic value of the option at the date of grant. These costs are now accounted for in accordance with IFRS 2 "Share-based Payments". In accordance with the transitional provisions, IFRS 2 has been applied to grants after 7 November 2002, which had not vested by 1 January 2005. The value of share-based payments is measured at the date of grant. The value determined is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. The value of the options is measured using the Black-Scholes model. • Dividends to shareholders authorised after the balance sheet date are not recognised as a liability at the balance sheet date. • Unused accumulated employee holiday entitlements at the balance sheet date are now recognised as a liability. • In accordance with IFRS 1, the goodwill that arose prior to 1 April 2004 was amortised until that date. From 1 April 2004 the goodwill was no longer amortised on an annual basis, but rather subjected to an impairment test on that date and all subsequent reporting periods. Accordingly, the goodwill that was reported as amortised in the year ended 31 March 2005 under UK GAAP has therefore been reversed. At 31 March 2006 the Group has reassessed the useful lives of its intangible assets in accordance with the provisions of IAS 38. No adjustment resulted from this reassessment. • Capitalised computer software previously included within tangible fixed assets has now been reclassified as intangible fixed assets. Under IAS 38, only computer software integral to the hardware operating system should be included as plant and equipment. All other computer software should be recorded as an intangible asset. • Derecognition of financial liabilities - In accordance with IAS 39, a financial liability of the Group is only released to the income statement when the underlying legal obligation is extinguished. Penna Consulting PlcNotes to the preliminary announcement (continued)for the year ended 31 March 2006 (unaudited) Reconciliations of equity Called up Share Foreign share Share Merger ESOP option currency Retained Total capital premium reserve reserve reserve translation loss equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000At 1 April 2004Under UK GAAP 914 10,497 10,170 (397) - - (4,918) 16,266Share option charge - - - - 84 - (84) -Dividend not recognised as a - - - - - - 384 384liability until paidAt 1 April 2004 (under IFRS) 914 10,497 10,170 (397) 84 - (4,618) 16,650 Called up Share Foreign share Share Merger ESOP option currency Retained Total capital premium reserve reserve reserve translation loss equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000At 31 March 2005Under UK GAAP 961 11,701 10,170 (397) - - (11,412) 11,023Share option charge - - - - 212 - (212) -Goodwill amortisation written - - - - - - 1,125 1,125backCurrency translation - - - - - 40 (40) -Employee benefit accrual - - - - - - (176) (176) At 31 March 2005 (under IFRS) 961 11,701 10,170 (397) 212 40 (10,715) 11,972 Reconciliation of previously stated loss under UK GAAP Year ended 31 March 2005 £'000Loss after tax under UK GAAP (6,531)Currency translation 19Goodwill amortisation written back 1,125 Accrual for holiday pay (176)Shares option charges (128)Loss for the period after tax under IFRS (5,691) Penna Consulting PlcNotes to the preliminary announcement (continued)for the year ended 31 March 2006 (unaudited) 9. Nature of the financial information The Board of Directors approved the Preliminary Results on 6 June 2006. The financial information set out in this document does not constitute statutory accounts within the meaning of Section240 of the Companies Act 1985. The financial information in respect of the year to 31 March 2006 is unaudited.Statutory accounts for the year ended 31 March 2005, prepared under UK GAAP, on which the auditor's report wasunqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985, have been delivered to theRegistrar of Companies. Copies can be obtained from our Registered Office at 3rd Floor, St Mary's Court, 20 St Mary atHill, London EC3R 8EE. The financial information included in this preliminary announcement has been computed in accordance with InternationalFinancial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply withIFRSs. The Company expects to publish full financial statements that comply with IFRSs in July 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PNA.L