NAK.L Regulatory News (NAK)

22 Jun 2006 07:01

Highams Systems Services Group PLC22 June 2006 Date: 22 June 2006 Contacts: Ted Andrews, Group Managing Director Highams System Services Group plc Tel: 01883 341 144 www.highams.co.uk Tarquin Edwards / Chris Steele 07879 458 364 / 07979 604 687 Adventis Financial PR Tel: 020 7034 4758 Highams Systems Services Group plc ("Highams" or "the Group") PRELIMINARY RESULTS 'Return to operating profitability' Highams Systems Services Group plc, the AIM listed IT recruitment company, witha specialist focus on the provision of contractors into the banking, finance andinsurance sectors, is today pleased to announce preliminary results for the yearended 31st March 2006. HIGHLIGHTS •Performance for the period under review met market expectations •The Group is very pleased to report a return to operating profitability (pre-amortisation) •Turnover in the period has increased significantly by 33 per cent. to £18.0m (2005: £13.5m) following the first full year with RWP Recruitment Services Limited ("RWP") integrated into Highams •Revenues and EBITDA in the second half year exceeded those reported for the first half •Material cost savings have been achieved resulting from the integration of RWP and the effect of previously announced Board and management changes •Current trading is in line with expectations Alan Howarth, Chairman of Highams Systems Services Group plc, commented: "Our first full year with RWP Recruitment Services integrated into Highamsprogressed well with a marked increase in turnover, a reduction in the costbase, and with a return to operating profitability." "Whilst we face constant challenges, the fundamentals of both the Group and ofits markets remain sound and I look forward to the future with confidence." Chairman's Statement Introduction Our first full year with RWP Recruitment Services integrated into Highamsprogressed well with a marked increase in turnover, a reduction in the cost base(despite the increase in turnover), and with a return to operatingprofitability. The successful integration of RWP into the Group and the return to operatingprofitability are important steps in the implementation of a strategy that weconfidently believe will enhance our client base leading to further improvementin our operating performance. Financial Results I am pleased to report that the turnover of the Group rose by 33 per cent. to£18.0m (2005: £13.5m) and that the Group returned to an operating profit of£192,000 before goodwill amortisation (2005: loss of £207,000 before goodwillamortisation and exceptionals). Group loss before taxation was £13,000 (2005: loss of £511,000). The Group had net assets of £1.97m (2005: £1.99m) at the year-end. Final Dividend The Directors are not recommending the payment of a final dividend for the yearto 31 March 2006 (2005: nil). Trading Overview Trading in our specialist areas of insurance and finance has remained positive;the volume of new requirements received for contract and permanent IT personnelincreased from the first half of the year to the second half. We have seenimprovement in turnover and operating profit, both in the second half of theyear compared to the first half and in the second half of the year compared tothe equivalent period last year, despite continuing pressure on margins. Since the start of the financial year, the effect of previously announced boardand management changes, together with the consolidation of our premises and thefull integration of our sales teams, has enabled us to realise the twin goals ofa significantly enhanced sales capability and a substantial rationalisation ofthe Group's cost base. The enhancement to our sales capability is evidenced by the increase in turnoverand gross profit, whilst our administrative expenses (excluding goodwillamortisation and exceptional items) as a proportion of revenues have fallen to10.7% (2005: 14.2%). In my Interim Statement, I noted that we were experiencing particular demand forbusiness analysts and consultants, which is significant for several reasons. Notonly do these individuals introduce to the Group higher revenues and grossprofit, but they are frequently associated with projects which in themselvescreate other new business opportunities. I am pleased to say that this trend hascontinued, with a sizeable majority of requirements we receive now falling intothis category. Executives and Staff I have very much enjoyed my first year of working with the very experienced andloyal management and staff team at Highams. We have also been delighted to welcome a number of excellent new sales people tothe team in recent months, whom we expect to quickly make their mark andcontribute to the continued growth of our company. We expect to make further keyappointments, in sales and other strategic areas, in the coming months. Outlook I look forward to the Group's continued progress in the months ahead and see arange of new sales opportunities being driven by the increasing level of M&Aactivity within our client sectors recently, the provision of new web servicesacross those sectors and the introduction of legislative changes to existingcompliance and pension arrangements. Whilst we face constant challenges, the fundamentals of both the Group and ofits markets remain sound and I look forward to the future with confidence. Alan Howarth Chairman 22 June 2006 Group Managing Director's Report Overview It has been very encouraging this year to return to a position where ouroperations are running profitably. This has come about through a combination ofhigher sales volumes and a further reduction in costs (despite the significantlyenhanced turnover). All of Highams' revenue is derived from IT recruitment services, the vastmajority of which are provided to clients in the UK and some in Belgium and TheNetherlands. Most of our clients are in the insurance and finance sectors. Our veryexperienced sales team has acquired a deep knowledge of these sectors, whichhelps to differentiate Highams from more generalist agencies when seeking to winnew clients. We use this knowledge to help identify important business changesthat may affect our clients, and prepare recruitment solutions to help meettheir evolving needs. Trading Review Profit and loss account For the year as a whole, turnover improved by 33% to£18.0m (2005: £13.5m), gross profit improved by 23% to £2.1m (2005: £1.7m) andwe achieved an operating profit of £192,000 before goodwill amortisation (2005:loss of £207,000 before goodwill amortisation and exceptionals). Our contract recruitment service represents 88% of gross profit (2005: 85%) withour permanent recruitment service representing 12% (2005: 15%). The smallincrease in the contract recruitment percentage is a result primarily of RWP'sbusiness having been weighted predominantly towards contract recruitment. In 2004 when we acquired RWP, part of the consideration was in our shares whichwe valued at 12.48p being the agreed value with the owners of RWP. Aftersubsequent consideration and discussion with the Financial Reporting ReviewPanel, we have decided that it is more appropriate for the purposes of thefinancial statements to value these shares at 7.25p, which was the share pricewhen we acquired control of RWP. We have accordingly adjusted last year'sfinancial statements, the effect of which has been to reduce goodwill and mergerreserve by £207,000 with consequent adjustments to the goodwill amortisation. Cash flow The Group had positive operating cash flows of £458,000 (2005: £38,000outflow), though the impact of taxation and interest charges and a reduction inthe amount outstanding under the invoice discounting facility to £300,000 (2005:£778,000) resulted in an overall decrease in cash balances of £174,000. Group Prospects The Market Last year saw steady growth in the IT recruitment market and we anticipate thatthis will continue through the current year across the insurance and financesectors in which we specialise. Strategy The emphasis for the year ahead is on the delivery of improved results throughorganic growth and continued careful control of the cost-base. Whilst we expectsome organic growth to come from the continued steady upward trend in thefinancial services sector, we expect to benefit also from the addition of newsales staff to our very experienced team. We have enjoyed considerable success in winning a number of new clients in thepast year right across the range of our niche market sectors. This is fully inline with our strategy of driving organic growth through existing and newclients, whilst continuing to reduce any reliance upon the small number ofclients accounting for a disproportionately large element of turnover and grossprofit. We will additionally seek out niches in other vertical markets (as we havesuccessfully achieved in the Health Service market over the past two years). Our emphasis, whatever the sector, will continue to be on finding higher valuebusiness, primarily from small and medium sized organisations. We continue to remain alert for earnings enhancing acquisitions in our coreareas of expertise and believe that, as we demonstrated with RWP, the Group canderive appropriate and worthwhile benefits of scale from carefully selected andintegrated opportunities. Staff I would like to thank our loyal and long-serving team who perform such a vitalrole in maintaining the very important long-term relationships that we enjoywith many of our clients. I am pleased to say that we have additionallyrecruited a number of very capable individuals to our sales team over the pastfew months who have brought extra capacity and a fresh impetus to that team. Ted Andrews Group Managing Director 22 June 2006 Consolidated Profit & Loss Accountfor the year ended 31 March 2006 2006 2005 Restated Notes £'000 £'000Turnover 17,997 13,512Cost of sales (15,885) (11,799) ------- ------- Gross profit 2,112 1,713Administrative expenses- before exceptional costs and goodwill amortisation (1,920) (1,920)- exceptional items - (200)- goodwill amortisation (128) (79) ------- ------- (2,048) (2,199) ------- -------Operating profit/(loss) beforeexceptional items and goodwill amortisation 192 (207) ------- ------- 64 (486)Interest receivable 2 15Interest payable (79) (40) ------- ------- Loss on ordinary activities beforetaxation (13) (511)Tax on loss on ordinary activities (2) 9 ------- ------- Loss for the year 2 (15) (502) ======= ======= Loss per share - basic and diluted 1 (0.05) p (1.86)p Consolidated Statement of TotalRecognised Gains and Lossesfor the year ended 31 March 2006 2006 2005 Restated £'000 £'000Loss for the financial year (15) (502)(Loss)/profit on foreign currencytranslation (1) 1 ------- -------Total recognised gains and losses,relating to the year (16) (501) ------- -------Prior year adjustment 2 12 ------- -------Total recognised gains and losses sincelast annual report (4) ------- ------- Consolidated Balance Sheet31 March 2006 2006 2005 Restated Notes £'000 £'000Fixed assetsGoodwill 1,071 1,199Tangible assets 55 46 -------- --------- 1,126 1,245 -------- ---------Current assetsDebtors 3,170 2,909Cash at bank and in hand 73 247 -------- --------- 3,243 3,156 Creditors: amounts falling due within one year (2,395) (2,409) -------- ---------Net current assets 848 747 -------- ---------Net assets 1,974 1,992 -------- --------- Capital and reservesCalled up share capital 1,594 1,594Share premium 2 679 679Merger reserve 2 90 90Employee share benefit trust reserve 2 (61) (59)Profit and loss account 2 (328) (312) -------- ---------Shareholders' funds 2 1,974 1,992 -------- --------- Consolidated Cash Flow Statementfor the year ended 31 March 2006 2006 2005 Restated Notes £'000 £'000 Net cash inflow/(outflow) from operating activities 3 458 (38) Returns on investments and servicing of financeInterest received 2 15Interest paid (79) (40) -------- -------- (77) (25) -------- --------TaxationUK corporation tax (46) (64) Capital expenditure and financial investmentPurchase of tangible fixed assets (38) (8)Sale of tangible fixed assets 9 25 -------- -------- (29) 17 -------- --------Acquisitions and disposalsPurchase of subsidiary undertaking - (1,771)Net overdraft acquired with subsidiary undertaking - (102)Deferred consideration received - 300 -------- -------- - (1,573) -------- --------Equity dividends paid - - -------- -------- Cash inflow/(outflow) before financing in the year 306 (1,683) FinancingNet proceeds from issue of shares - 412Purchase of own shares by Employee Share Benefit Trust (2) -Invoice discounting facility (478) 778 -------- -------- (480) 1,190 -------- --------Decrease in cash in the year 4 (174) (493) -------- -------- 1. Loss per share Weighted Weighted Loss average average Profit/ number of Profit/(loss) Loss number of per share (loss) shares per share Restated shares Restated 2006 2006 2006 2005 2005 2005 £'000 '000 p £'000 '000 p Profit/(loss) for the financial year beforegoodwill amortisationand exceptional items 113 31,700 0.35 (223) 27,008 (0.83)Goodwill amortisation (128) - (0.40) (79) - (0.29)Exceptional items - - - (200) - (0.74) ------ -------- --------- -------- -------- --------Loss for thefinancial year (15) 31,700 (0.05) (502) 27,008 (1.86) ------ -------- --------- -------- -------- -------- Loss per share before goodwill amortisation and exceptional items is presented as thedirectors consider that this gives a useful indication of underlying performance.The exercise price of each share option is above market value and therefore the optionsare not dilutive under the terms of FRS22 but may become so in the future. 2. Reconciliation of movements in shareholders' funds Group Employee share Profit and Share capital Share premium Merger reserve benefit reserve loss account Total 2006 £'000 £'000 £'000 £'000 £'000 £'0001 April 2005,as originally stated 1,594 679 297 (59) (324) 2,187Prior yearadjustment - - (207) - 12 (195) ------- ------- ------- -------- ------- --------1 April 2005,as restated 1,594 679 90 (59) (312) 1,992Purchase ofown shares - - - (2) - (2)Loss for the year - - - - (15) (15)Foreign currencytranslation differences - - - - (1) (1) ------- ------- ------- -------- ------- --------Closing shareholders'funds 1,594 679 90 (61) (328) 1,974 ------- ------- ------- -------- ------- -------- The directors have reviewed the accounting policies adopted in respect of theacquisition of RWP Recruitment Services Limited in the year ended 31 March 2005and, in discussion with the Financial Reporting Review Panel, have concludedthat the fair value of the consideration paid should be restated to reflect themarket value of the ordinary shares issued to the vendors at the date theacquisition became unconditional. The effect of this change on the comparativefigures is that net assets have reduced by £195,000 and the loss for thefinancial year has reduced by £12,000. Had this change not been made, currentyear net assets would have been £174,000 higher and the loss for the year wouldhave been £21,000 greater. 3. Net cash flow from operating activities 2006 2005 Restated £'000 £'000 Operating profit/(loss) 64 (486)Depreciation of tangible fixed assets 17 49Goodwill amortisation 128 79(Increase)/decrease in debtors (261) 152Increase in creditors 508 167Profit on disposal of fixed assets 3 -Exchange difference (1) 1 ------- --------Net cash inflow/(outflow) from operating activities 458 (38) ------- -------- 4. Analysis and reconciliation of net funds Analysis of changes in net funds 1 April Cash 31 March 2005 flow 2006 £'000 £'000 £'000 Cash at bank and in hand 247 (174) 73Invoice discounting facility (778) 478 (300) -------- ------- --------Net funds (531) 304 (227) -------- ------- -------- Reconciliation of net cash flow to movement in net funds 2006 2005 £'000 £'000Cash outflow (174) (493)Decrease/(increase) in invoice discounting facility 478 (778) ------- -------- 304 (1,271)Net funds at 1 April 2005 (531) 740 ------- --------Net funds at 31 March 2006 (227) (531) ------- -------- 5. The financial information above does not constitute statutory accounts withinthe meaning of section 240 Companies Act 1985 as amended ("the Act"). Statutoryaccounts in respect of the year ended 31 March 2005, on which the auditorsreported without qualification and which contained no statement under section237(2) or(3) of the Act, have been delivered to the Registrar of Companies. 6. The auditors have not reported on the accounts for the year ended 31 March2006, nor have any such accounts been delivered to the Registrar of Companies. 7. Copies of the statutory accounts for the year ended 31 March 2006 will besent to all shareholders. Additional copies will be available from the CompanySecretary, Highams Systems Services Group plc, Quadrant House, 33/45 CroydonRoad, Caterham, Surrey CR3 6PB. This information is provided by RNS The company news service from the London Stock Exchange