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16 September 2010

Work Group plc

Results for the six months ended 30 June 2010

Work Group plc ("Work Group" or the "Company") announces its results for the six months ended 30 June 2010.

Headlines

Net fee income* up 4% to £6.0m (2009: £5.8m**)

Talent Management net fee income up 37% to £3.4m (2009: £2.5m*)

Group adjusted*** profit before taxation of £0.2m (2009: break-even)

UK business adjusted*** operating profit of £0.6m (2009: £0.3m)

Net cash at period end of £1.1m (2009: £1.5m)

Balance sheet remains strong with no debt

* References in the report to 'Net fee income' represent Gross Profit.

** Restated 2009 following Board assessment with regards to the treatment of costs of sale. See note 3.

*** Before exceptional costs

Commenting, Simon Howard, Executive Chairman said:

"We have witnessed positive trends across the Company. Most significantly, the Talent Management division recorded strong growth and profits, while each of the Communications' businesses made significant progress towards profitability.

We remain cautious about overall recruitment demand and do not expect that our markets will provide any significant growth momentum for the remainder of the current year. Despite this, our full year performance is likely to be somewhat better than current expectations."

www.workgroup.plc.uk 

Further enquiries:

Copies of the Interim Report will be sent to shareholders and are available on the Company's website www.workgroup.plc.uk

About Work Group

Work Group is a marketing services company which offers a range of solutions which enable employers to win the war for talent. It focuses on providing services in "talent acquisition and talent development" which enable employers to more effectively recruit and retain key staff.

Work Group's approach is to help employers reduce their traditional reliance on third-party recruiters such as head-hunters and recruitment firms through helping them establish and maintain a direct relationship between employer and prospective employee. It also helps employers reduce attrition costs through better employee engagement and retention of key talent.

Work Group currently operates through two divisions; Communications and Talent Management, providing services from its four locations in the UK and offices in New York and Hong Kong.

Chairman's review

During the first six months of 2010 (the "period") the Company witnessed positive trends in each of its operating units. Most significantly, the Talent Management division recorded strong growth and profits and we witnessed progress towards profitability in each of the Communications businesses.

The Talent Management division outperformed the Communications division in both profit and income, a trend that we see continuing. Armstrong Craven enjoyed a particularly strong six months, culminating with a record month in June 2010 and a continued healthy pipeline of new projects and clients. In Resourcing, a continued positive position was buoyed by a significant project in Manila. The Occupational Psychology team achieved a record half year income.

The Communications division's more project driven markets have remained particularly challenging. That having been said, a combination of team changes and client wins during the period have strengthened the London, New York and Hong Kong team's position. The Hale and Edinburgh offices made a small profit.

The relatively strong growth of our Talent Management division not only reflects a shift within the market but also represents an accelerating change in how we market and sell our services. This will be a theme built on by the new leadership of the Company as part of our business planning programme.

We remain cautious about overall recruitment demand and do not expect that our markets will provide any significant growth momentum for the remainder of the current year. Despite this, our full year performance is likely to be somewhat better than current expectations.

Simon Howard

Chairman

Operating review

During a period of economic uncertainty the Group achieved an adjusted profit before taxation of £0.2m and at the period end net cash was £1.1m.

Group net fee income increased 4% to £6.0m (2009: £5.8m). The Communications division was impacted by the recession as economic uncertainty resulted in clients cutting their budgets available to us. However, the Talent Management division has seen net fee income increase 37% year on year.

Income from Search & intelligence services (Armstrong Craven) and outsourcing & assessment services (reported in Talent Management) proved particularly strong with growth in net fee income of 44% and 34% respectively. Economic uncertainty continued to have a significant effect on advertising income which fell 32% during the period. Across the Group income from fee based services increased to 87% of total income (2009: 84%) and helped improve the gross margin further to 53.0% (2009: 47.3%).

The Company has continued to control its cost base tightly. Total costs in the period of £5.8m (excluding exceptional costs) are in line with 2009 (2009: £5.8m).

Headcount across the Group has increased by 3% to 171 at the period end (2009: 166). Within the overall number there has been a net reduction in the headcount supporting the Communications business through a combination of natural attrition, voluntary measures and redundancy, and an increased headcount in the Talent Management business to support the increased levels of Income. Redundancy costs of £0.34m are included in exceptional costs (2009: £0.28m).

At the start of the period we believed that we had witnessed sufficient progress across the Company to enable us to reverse the pay cut which had been in place since April 2009. Since then, there has been a phased re-introduction of salary reviews.

Property costs have been rationalised through the closure of the Birmingham office in March. One-off costs totalling £20k are included in exceptional costs associated with this exit.

In the US, from a small base, net fee income in the period was more than double that of the second half of 2009. Hong Kong has generated incremental Group income. The losses from the overseas businesses totalled £0.4m (2009: £0.3m). Investment by necessity has been modest. Before overseas losses, the UK business achieved an operating profit before exceptional items of £0.6m (2008: £0.3m).

During the period a loan of £0.1m was made to the employee benefit trust which purchased shares in the Company to be used in the future for employee incentives. With net cash at the period end of £1.1m and no debt, the balance sheet remains strong. 

Julian Maslen

Finance Director

Consolidated income statement

for the 6 month period ended 30 June 2010

 The results above are all in respect of continuing operations.

Consolidated statement of comprehensive income for the 6 month period ended 30 June 2010

Consolidated balance sheet

as at 30 June 2010

Consolidated statement of changes

in Shareholders' equity as at 30 June 2010

Consolidated cash flow statement

for the 6 month period ended 30 June 2010

Notes to the interim financial information

1 Financial information and presentation

The Company is a limited liability company incorporated and domiciled in the United Kingdom. The address of its registered office is Saffron House, 6-10 Kirby Street, London, EC1N 8EQ.

The Company has its primary listing on the AIM Market of the London Stock Exchange.

This condensed consolidated Interim Report does not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2009 were approved by the Board of Directors on 15 March 2010 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. 

2 Principal accounting policies

Basis of preparation

This condensed consolidated financial information is for the half-year ended 30 June 2010 and has been prepared in accordance with AIM Rules and with IAS 34 "Interim financial reports" and with the accounting policies set out in the Group's 2009 annual report as amended for new standards effective during the period where relevant. These accounting policies are based on the EU-adopted IFRS and IFRIC interpretations that are applicable at the balance sheet date. IFRS and IFRIC interpretations that will be applicable at 31 December 2010, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing this interim financial information. It is therefore possible that further changes to the accounting policies and the comparative financial information may be required before their publication in the 2010 annual report and financial statements.

New and Amended standards adopted by the Group

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.

IFRS 3 (revised), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The Group does not have any joint ventures.

The revised standard continues to apply to the acquisition method to business combinations, with some significant changes compared with IFRS 3. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs are expensed. The Group did not make any acquisition in half year ended 30 June 2010.

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2010, but are not currently relevant for the Group.

IFRC 17, 'Distributions of non-cash assets to owners', effective for annual periods beginning on or after 1 July 2009.

IFRIC 18, 'Transfers of assets from customers', effective for transfers of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers.

Additional exemptions for first-time adopters' (Amendment to IFRS 1) was issued in July 2009. The amendments are required to be applied for annual periods beginning on or after 1 January 2010.

Improvements to International Financial Reporting Standards 2009 were issued in April 2009. The effective dates vary standard by standard but most are effective 1 January 2010.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2010 and have not been early adopted:

IFRS 9, 'Financial instruments', issued in December 2009. This addresses the classification and measurement of financial assets and may affect the Group's accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. For example, fair value gains and losses on available-for sale debt investments will have to be recognised directly in the profit or loss. Early application is permitted. The Group is assessing IFRS 9's full impact.

Revised IAS 24, 'Related party disclosures, issued in November 2009. It supersedes IAS 24, 'Related party disclosures, issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011.

Early application in whole or in part, is permitted.

Classification of rights issue, (Amendment to IAS 32), issued in October 2009. For rights issues offered for a fixed amount in foreign currency, current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that such rights are issued pro rata to all the entity's existing shareholders in the same class for a fixed amount in which exercise price is denominated. The amendment should be applied the annual periods beginning on or after 1 February 2010. Early application is permitted.

Prepayment of a minimum funding requirement, (Amendment to IFRIC 14), issued in November 2009. The amendments correct an unintended consequence of IFRIC 14, to 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem. The amendments are effective for annual periods beginning 1 January 2011. Early application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented.

IFRIC 19, 'Extinguishing financial liabilities with equity instruments'. This clarifies the requirement of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after 1 July 2010. Early adoption is permitted.

Improvements to International Financial Reporting Standards 2010 were issued in May 2010. The effective dates vary standard by standard but most are effective 1 January 2011.

Exceptional items

Exceptional items are those income or costs recognised as one-off or non-recurring in nature, and substantive in size. The separate reporting of exceptional items helps provide a better indication of the Group's underlying business performance.

Seasonality of operations

Due to the seasonal nature of the recruitment segment, higher revenues and operating profits are usually expected in the second half of the year than in the first six months.

3 Segmental analysis

IFRS 8 "Operating Segments" requires operating segments to be identified on the basis of internal reports which are regularly reviewed by the chief operating decision-maker to allocate resources to the segments and to assess their performance. The chief operating decision-maker has been identified as the Board. The Board considers that there are two operating segments, Communications and Talent Management. Communications represents the employer marketing services offered by the business. Talent Management combines search and intelligence and recruitment process outsourcing. The Board assesses the performance of the operating segments based on net fee income, operating profit before exceptional items and adjusted EBITDA.

Following the review by the chief operating decision makers, the "Board", the Board resolved that henceforth all costs identified as overhead costs will be treated as overhead. This has been the consistent policy for the overwhelming majority of group activity. However in the Resourcing and Occupational Psychology units, within the Talent Management segment, certain costs have previously been treated as costs of sale. These are now recognised as overhead and the effects of this adjustment are reflected in the table below.

\* This review was performed during the period and will be corrected in the 2010 Report and Accounts

4 Exceptional items

The exceptional costs of £380,000 (2009: £559,000) principally relate to redundancies made during the period and office move costs.

5 Taxation

The deferred tax asset for the six month period ended 30 June 2010 is based on the estimated expected effective tax rate of 28% for the year ending 31 December 2010 (2009 actual rate: 28%). No deferred tax asset has been recognised for the trading losses of the foreign subsidiaries.

6 Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

For diluted earnings per share, the weighted average number of shares is adjusted to reflect the impact of all dilutive potential ordinary shares.

Adjusted earnings/(losses) per share excludes the cost of exceptional items less tax at 28% (2009: 28%).

*Excludes tax adjustment related to exceptional items for the US subsidiary.

7 Goodwill

8 Property, plant and equipment

9 Called up share capital

There were no shares issued or share options exercised during the period.

10 Reconciliation of operating (loss)/profit to net cash inflow from operations

Statement of directors' responsibilities

The directors confirm that this interim report has been prepared in accordance with IAS 34 as adopted by the European Union.

The directors are also responsible for the maintenance and integrity of the Company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors of Work Group plc are listed in the Work Group plc Annual Report for 31 December 2010. A list of current directors is maintained on the Work Group plc website: www.workgroup.plc.uk.

Principal risks and uncertainties

The Board consider the principal risks and uncertainties relating to the Group for the next six months to be the same as detailed in our last Annual Report and Accounts to 31 December 2009. Full details of the risks and uncertainties are detailed in the Directors' report section of those accounts. The principal risks to the business are:

Economic uncertainty

Loss of clients

Loss of key employees

Financial risk

By order of the Board

Simon Howard Rose Colledge

Chairman Chief Executive

16 September 2010 16 September 2010