Last checked at 26 Jun 2009 07:30
26 June 2009 Garner Plc ("Garner" or the "Company") Final Results for the year to 31 December 2008 Highlights * Group turnover up 4.8% to £3.3m (2007: £3.1m) * Profit down 11.2% to £0.36m (2007: £0.40m) * Acquisition of Norman Broadbent * Balance sheet strengthened with net assets of £1.0m (2007: net liabilities £1.3m) * Net debt £0.3m (2007: £1.2m)
The Annual Report and Financial Statements for the year to 31 December 2008 will be sent to all shareholders today. Further copies will be available to the public from the company's registered office and also from the Company's web site.
Enquiries:Garner plc: Andrew Garner, Executive Tel: 020 7629 8822 Chairman Dowgate Capital James Caithie Tel: 020 7492 4777 Advisers Limited: Antony Legge St Helen's Capital Ruari McGirr Tel: 020 7628 5582 Plc: Mark Anwyl
Web site: www.garnerinternational.com
Chairman's Statement
For most PLC Chairmen, this is probably the most challenging Statement to write simply because although the requirement is to reflect on last year, in the meantime Garner plc (the "Company") has changed beyond recognition and the world has changed, too.
The last time we communicated was at the time of the admission document associated with the acquisition of the `Norman Broadbent' businesses. At the risk of repeating the rationale behind the deal, we saw this as an opportunity to increase our scale and, alongside the agreement reached with the Preference Shareholders, strengthen our balance sheet. We believe history will record the decision to have proved sound although since December of last year life has been challenging.
The results for 2008 are that we made a Group profit after tax of £357,000 (2007: £402,000) based on an increased turnover of £3,274,000 (2007: £ 3,122,000). Group earnings per share fell to 0.88p (2007: 1.06p). It should be stressed that two factors played their part in this result. Firstly, we saw three weeks of Norman Broadbent turnover in December following the acquisition. Secondly, the Company benefited from the interest due from a VAT repayment of £ 191,000.
Comparing like with like, turnover from continuing operations was down to £ 2,683,000 (2007: £3,122,000) with an operating profit of £99,000 (2007: £ 609,000). Although revenues from continuing operations were down 14% compared with 2007, there has been a continued drive by the team to expand our client base. The company engaged with 21 new clients during the year across a range of sectors including media, education and retail. In addition, the introduction of the Norman Broadbent companies to the Group provides an established client base of over 250 businesses across sectors such as energy, professional services, pharmaceuticals, NHS and leadership consultancy. These new relationships combined with our proven ability to create repeat business from valued clients will provide a solid foundation to maximise future revenues.
The Group is now reporting a much stronger balance sheet than in previous years, with net assets at year end of £1,044,000 (2007: net liabilities of £ 1,301,000). The primary drivers of this movement were the conversion of 1,043,566 Preference Shares, recognised as a liability in 2007, into new equity plus an equity placement of 24,354,335 Ordinary Shares to fund the acquisition of Norman Broadbent. Net debt at year end reduced to £334,000 (2007: £ 1,183,000) representing a net cash flow of £849,000, which includes £731,000 from the equity placement.
Turning to non-financial matters, clearly a large part of 2008 was spent contemplating, negotiating and managing the process of acquiring Norman Broadbent. Combining this with running our business in light of the overall deterioration in the economy was difficult but with strong management, a good consulting team, prudent cost control and insightful leadership we performed well. I would like to offer my thanks to all those involved.
When the transaction was confirmed at the Company's general meeting in December it was worth noting that the combined business more than doubled our consultant base and placed the Group as a considerable force amongst Executive Search firms in the UK. Additionally it gave us a strong position in Interim Management, Leadership and HR Consulting. In Spain, we own 20% of the Norman Broadbent business which operates out of Madrid and Barcelona. I attend their board meetings and am proud to confirm that they have a strong market position in Spain.
At the time of the acquisition the initial strategy was to trade under both the Garner International and Norman Broadbent brands. In January 2009 the decision was made to rebrand the combined Executive Search business as Norman Broadbent, integrating within this our extremely successful human resource consulting which trades as "Garner HR". This decision was reached in view of the significant global reach of the Norman Broadbent name combined with the commercial benefits of running a solo brand.
As part of the Interim Statement for 2008 I talked of building relationships with Rhodes, a leading executive search firm in the United States. In the final analysis we withdrew from that possibility as the Norman Broadbent presence in Canada also covers North America.
It is not appropriate in these remarks to make predictions about the future and frankly, given the market, it would be foolish to do so. Suffice to say the global executive search business in the twenty five years of my acquaintance has seen nothing like these conditions before. Revenues were already falling in the second half of 2008 and trading conditions remain tough. Not surprisingly, cash management is at the very core of everything we are doing and in December we commenced a programme of cost efficiencies, strategic business planning and strong fiscal management that have established a robust integration strategy. We now have a streamlined and committed team who are fully engaged to meet the challenge ahead.
A C GarnerChairman25 June 2009
CONSOLIDATED INCOME STATEMENT
Note 31 December 31 December 2008 2007 Acquisition Continuous Total Total Operations £000 £000 £000 £000 REVENUE 2 591 2,683 3,274 3,122 COST OF OPERATIONS (447) (2,584) (3,031) (2,513) GROUP OPERATING PROFIT 144 99 243 609 Net finance income/(cost) 4 - 107 107 (115) PROFIT ON ORDINARY 3 144 206 350 494 ACTIVITIES BEFORE TAXATION Tax expense 6 (9) 16 7 (92) PROFIT FOR THE FINANCIAL 135 222 357 402 YEAR Earnings per share - Basic 7 0.88p 1.06p Earnings per share - Diluted 7 0.81p 1.01p
There are no recognised gains and losses other than as stated above. Accordingly, no Statement of Total Recognised Income & Expense is given.
As at 31 December 2008 Notes 2008 2007 £000 £000 £000 £000 Goodwill 8 7,049 959 Property, plant and 9 198 14equipment TOTAL NON-CURRENT ASSETS 7,247 973 Trade and other 11 2,013 812 receivables Cash and cash equivalents 643 56 TOTAL CURRENT ASSETS 2,656 868 TOTAL ASSETS 9,903 1,841 Current Liabilities Redeemable preference 13 - 1,213 shares Deferred consideration 18 1,060 - Trade and other payables 12 2,681 561 Bank overdraft and 18 556 850 interest bearing loans Current tax liability 87 195 TOTAL CURRENT LIABILITIES 4,384 2,819 Non-Current Liabilities Deferred consideration 18 4,154 - Interest bearing loans 18 321 323 TOTAL LIABILITIES 8,859 3,142 TOTAL ASSETS LESS TOTAL LIABILITIES 1,044 (1,301) Issued share capital 13 5,709 4,942 Share premium account 14 4,868 3,845 Retained earnings 14 (9,533) (10,088) TOTAL EQUITY 1,044 (1,301)
CONSOLIDATED CASH FLOW STATEMENT
2008 2007 £000 £000 Net cash from operating activities (i) 894 223 Cash flows from investing activities and servicing of finance Interest received/ 107 (115)(paid) Payments to acquire (3) (2)tangible assets Acquisition of subsidiary, inclusive of cash (ii) (566) -acquired Net cash used in (462) (117)investing activities Cash flows from financing activities Net cash inflow from 633 -equity placings Repayment of secured (94) (181)loans Advances from directors 88 (31) Payment of transaction (272) -costs (Decrease)/ Increase in (198) 185invoice discounting Net cash from financing 157 (27)activities Net increase in cash 589 79and cash equivalents Net cash and cash equivalents at 54 (25)beginning of period Net cash and cash equivalents at end of 643 54period Analysis of net funds Cash and cash equivalents 643 56 Bank overdraft - (2) 643 54 Borrowings due within one (556) (848)year Borrowings due after one (321) (323)year Directors loan account (100) (66) Net funds (334) (1,183) Note (i) Total Reconciliation of operating profit to Continuing 2008 2007net cash Acquisition Activities £000 £000 Operating profit 144 99 243 609 Depreciation of property, 5 5 10 4plant and equipment Amortisation of loan - - - 3arrangement fees Decrease/(Increase) in trade 513 (5) 508 (144)and other receivables Increase/(Decrease) in trade 221 11 232 (108)and other payables Taxation paid - (99) (99) (141) Net cash from operating 883 11 (i) 894 223activities Note (ii) Acquisition of subsidiary, inclusive of cash acquired Cash paid (200) - Cash acquired (366) - (ii) (566) -
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The principle accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to both years presented unless otherwise stated.
(a) Basis of preparation
The consolidated financial statements of Garner plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS as adopted by the EU), IFRIC interpretations and the Companies Act 1985 applicable to Companies reported under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note (d).
The accounts have been prepared on a going concern basis. TheGroupremains dependant on the continuing support of itsbankers who have confirmed their intention to extend the existing facilities through to 30 July 2010.
(b) Basis of consolidation
The consolidated income statement and balance sheet include the financial statements of the Company and its subsidiary undertakings made up to 31 December 2008. The results of subsidiaries acquired are included in the consolidated income statement from the date control passed. Intra-Group sales and profits are eliminated fully on consolidation.
On acquisition of a subsidiary, all of the subsidiary's assets and liabilities that exist at the date of acquisition are recorded at their fair values reflecting their condition at that date.
(c) Goodwill
Goodwill arising on acquisition of subsidiaries is included in the balance sheet of the consolidated accounts as an asset at cost less impairment.
For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently where there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
(d) Critical accounting judgements and estimates
Impairment of goodwill - determining whether the goodwill is impaired requires estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future profitability expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.
Share Options - the fair value of options granted during the year was determined using the trinomial valuation model. The significant inputs into the model were share price at grant date, expected price, expected option life and risk free rate.
1. ACCOUNTING POLICIES (continued)
(e) Property, plant and equipment
The cost of property, plant and equipment is their purchase cost, together with any incidental costs of acquisition.
Depreciation is calculated so as to write off the cost of the assets, less their estimated residual values, over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are:
Fixtures and Fittings - 25% - 33% per annum on cost Land & Buildings - Leasehold - over 5 years straight line (f) Foreign exchange
Transactions denominated in foreign currency are translated into the functional currency at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rates ruling at that date. These translation differences are dealt with in the income statement.
(g) Leases
Costs in respect of operating leases are charged on a straight-line basis over the lease term.
(h) Deferred taxation
UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.
Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current rates and laws. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different to those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no binding contract to dispose of those assets. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
(i) Investments
Fixed asset investments are stated at cost less provision for any impairment in value.
(j) Revenue Recognition
Revenue comprises the fair value of the sale of services, net of value-added tax, rebates and discounts. Revenue is recognised on the percentage completion basis, using pre-specified milestones to trigger invoices.
(k) Pensions
The Group operates a number of defined contribution funded pension schemes for the benefit of certain employees. The costs of the pension schemes are charged to the income statement as incurred.
(l) Share Option Schemes
For equity-settled share-based payment transactions the group, in accordance with IFRS2, measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The fair value of those equity instruments is measured at grant date, using the trinomial method. The expense is apportioned over the vesting period of the financial instrument and is based on the numbers which are expected to vest and the fair value of those financial instruments at the date of grant. If the equity instruments granted vest immediately, the expense is recognised in full.
2. SEGMENTAL ANALYSIS
The analysis by class of business of the Group's turnover, profit before taxation and net liabilities is set out below:
Turnover Profit before tax Net assets/( liabilities) Year Year Year Year Year Year ended ended ended ended ended ended 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2008 2007 2008 2007 2008 2007 £000 £000 £000 £000 £000 Class of business Executive search 3,274 3,122 373 677 1,044 (1,301) Corporate central (130) (68) costs Interest receivable/ 107 (115) (payable) 350 494 Turnover Profit/(loss) Net assets/ before tax (liabilities) Year Year Year Year Year Year ended ended ended ended ended ended 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2008 2007 2008 2007 2008 2007 £000 £000 £000 £000 £000 £000 Geographical analysis by destination United Kingdom 3,008 2,737 331 433 1,044 (1,301) Europe 193 280 14 44 - - Other 73 105 5 17 - - 3,274 3,122 350 494 1,044 (1,301)
Turnover by location is not materially different from turnover by destination.
3. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended Year ended 31 December 31 December 2008 2007 Profit on ordinary activities before £000 £000taxation is stated after charging: Depreciation and amounts written off property, plant and equipment: Owned assets 10 4 Operating lease rentals: Land and buildings 142 120 Auditors' remuneration: Audit work 38 15 Non-audit work 8 1
The Company audit fee in the year was £8,000 (2007: £4,000).
4. NET FINANCE INCOME/(COSTS)
Year ended Year ended 31 December 31 December 2008 2007 £000 £000 Interest payable on bank loans and overdrafts (84) (115) Interest receivable on VAT reclaim 191 - 107 (115) 5. STAFF COSTSThe average number of full time Year ended Year endedequivalent persons 31 December 31 December(including directors) employed by the Group during 2008 2007 the period was as follows: No. No. Sales and related services 13 11 Administration 8 5 21 16 £000 £000 Staff costs (for the above persons): Wages and salaries 1,731 1,480 Social security costs 184 164 Pension costs 30 26 1,945 1,670
The emoluments of the directors are disclosed as required by the Companies Act 1985 on page 9 in the Directors' Remuneration Report. The table of directors' emoluments has been audited and forms part of these financial statements. This also includes details of the highest paid director.
6. TAX EXPENSE
Taxation is based on the profit for Year ended Year ended the year 31 December 31 December 2008 2007 and comprises: £000 £000 United Kingdom corporation tax at 28% 24 105 (2007: 30%) based on profit for the year Under/(over) provision (31) (13) (7) 92 The differences between the current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profitbefore tax is as follows: Year ended Year ended 31 December 31 December 2008 2007 £000 £000 Profit on ordinary activities before 350 494 taxation Tax on profit on ordinary activities 98 148at standard UK corporation tax rate of 28% (2007: 30%) Effects of: Expenses not deductible 12 1 Adjustment in respect of prior year (31) - Small Companies Relief - (22) Utilisation of ACT brought forward (13) (23) Utilisation of losses brought forward (36) - Other adjustments (37) (12) Current tax (credit)/charge for the (7) 92 year
7. BASIC AND DILUTED EARNINGS PER ORDINARY SHARE
In accordance with IAS 33, earnings per ordinary share of 0.88p (2007: 1.06p) have been calculated by dividing the profit on ordinary activities after taxation and non-equity dividends of £357,000 (2007: £402,000) by 40,600,981 (2007: 37,968,937), being the weighted average number of ordinary shares in issue and ranking for dividend during the period. There were no preference shares at 31 December 2008 (2007: nil) available for conversion. The share options granted through the EMI scheme and the issued warrants have been used to calculate the diluted earnings per ordinary share of 0.81p (2007: 1.01p).
8. GOODWILLGroup Goodwill £000 Cost At 1 January 2008 959 Goodwill arising on acquisition (note 6,09020) At 31 December 2008 7,049 Net book value At 31 December 2008 7,049 At 31 December 2007 959
In line with International Financial Reporting Standards, goodwill has not been amortised from the transition date, but has instead been subject to an impairment review by the directors of the group.
As set out in accounting policy note 1, the directors test the goodwill for impairment annually. The recoverable amount of the Group's cash generating units is calculated on the present value of their respective expected future cash flows, applying a weighted average cost of capital in line with businesses in the same sector. Post tax future cash flows are derived from approved budgets for the 2009 financial year. Management believe the forecasts are reasonably achievable.
By applying these tests the directors have concluded that goodwill is not impaired.
9. PROPERTY, PLANT AND EQUIPMENT
Land and Fixtures Total buildings - and leasehold equipment £'000 £'000 £'000 Cost At 1 January 2008 17 82 99 Additions - 3 3 Acquisitions through business - 191 191combinations At 31 December 2008 17 276 293 Accumulated depreciation At 1 January 2008 7 78 85 Charge for the period 3 7 10 At 31 December 2008 10 85 95 Net book value At 31 December 2008 7 191 198 At 31 December 2007 10 4 14
The Group had no capital commitments as at 31 December 2008 (2007: £Nil).
The above assets are owned by Group companies; the Company has no fixed assets.
10. INVESTMENTSCompany Shares in Group undertakings £000 Cost At 1 January 2008 4,743 Acquisition of subsidiary 6,004 undertakings At 31 December 2008 10,747 Provision for impairment At 1 January and 31 December 3,518 2008 Net book value At 31 December 2008 7,229 At 31 December 2007 1,225
On 3rd December 2008, the Group acquired 100% of the shares in BNB Recruitment Consultancy Limited, Bancomm Limited and BNB Overseas Holdings Limited for a total consideration of £6,004,000. This consideration includes £590,000 legal, professional and advisory costs directly attributable to the acquisition.
Principal Group investments:
Country of Principal Description and incorporation activities proportion of or registration shares held by and operation the company Garner International England and Executive 100% ordinary Ltd Wales search shares BNB Recruitment England and Executive 100% ordinary Consultancy Ltd Wales search shares Bancomm Ltd England and Executive 100% ordinary Wales search shares BNB Overseas Holdings England and Executive 100% ordinary Ltd Wales search shares Substantial Share Holdings: NBS Norman Broadbent Spain Executive 20% ordinary SA* Search shares
* The 20% shareholding in this company is owned by BNB Overseas Holdings Ltd, a wholly owned subsidiary of Garner plc.
11. TRADE AND OTHER RECEIVABLES
Group Company 2008 2007 2008 2007 £000 £000 £000 £000 Trade and other receivables 1,651 747 - - Prepayments and accrued 362 65 200 2 income Other taxation and social - - 288 - security Due from group undertakings - - 208 - 2,013 812 696 2 12. TRADE AND OTHER PAYABLES Group Company 2008 2007 2008 2007 £000 £000 £000 £000 Trade payables 1,147 98 631 10 Due to group undertakings - - 542 485
Other taxation and social security 216 108 - -
Other payables 105 97 25 30 Directors loan account 100 66 66 66 Accruals 1,113 192 59 22 2,681 561 1,323 613 13. ISSUED SHARE CAPITAL 2008 2007 £000 £000 Authorised: 307,744,864 Ordinary shares of 1.0p each (2007: 3,078 2,938293,783,056) 23,342,400 Deferred A shares of 4.0p each (2007: 934 93423,342,400) 907,118,360 Deferred shares of 0.4p each (2007: 3,628 3,628907,118,360) 1,745,226 Deferred B shares of 42.0p each (2007: 733 -Nil) 1,745,226 Preference shares of 50p each (2007: - 8731,745,226) 8,373 8,373 Allotted and fully paid: 70,855,541 Ordinary shares of 1.0p each (2007: 709 38037,968,937) 23,342,400 Deferred A shares of 4.0p each (2007: 934 93423,342,400) 907,118,360 Deferred shares of 0.4p each (2007: 3,628 3,628907,118,360) 1,043,566 Deferred B shares of 42.0p each (2007: 438 -Nil) 5,709 4,942
On 7th November 2008, the company granted to St Helen's Capital an option to subscribe for 798,762 Ordinary Shares of 1.0p each at an exercise price of 5.625p each. The option may be exercised in whole but not in part, at any time up to 31 March 2011 (Note 22).
On 2nd December 2008, in consideration of services provided in connection with the Acquisition, Conversion and Placing, the company granted 850,000 warrants. The warrants entitle the holders to subscribe for Ordinary Shares at a price of 3.0p per Share, at any time prior to 31 December 2011.
Prior to 2nd December 2008 there were 1,043,566 5p preference shares of 50p each allotted and fully paid with a nominal value of £521,783. The value of these shares, along with their associated premium and accrued dividend was classified under Current Liabilities. Payment was only to be made when the Company had sufficient distributable reserves. On 2nd December 2008 the authorised share capital of the company was altered by Special Resolution, which created 13,961,808 Ordinary Shares of 1.0p each and 1,745,226 Deferred B Shares of 42.0p each. The Preference Shareholders were then issued with the new shares created in exchange for the Preference Shares, which were then cancelled.
Deferred Shares of 0.4p each
The Deferred Shares carry no right to dividends, distributions or to receive notice of or attend general meetings of the company. In the event of a winding up, the shares carry a right to repayment only after payment of capital paid up on Ordinary Shares plus a payment of £10,000 per Ordinary Share. The company retains the right to transfer or cancel the shares without payment to the holders thereof.
Deferred A Shares of 4p each
The Deferred A Shares carry no right to dividends or distributions or to receive notice of or attend general meetings of the company. In the event of a winding up, the shares carry a right to repayment only after the holders of Ordinary Shares have received a payment of £10 million per Ordinary Share. The company retains the right to cancel the shares without payment to the holders thereof. The rights attaching to the shares shall not be varied by the creation or issue of shares ranking parri passu with or in priority to the Deferred A Shares.
Deferred B Shares of 42p each
The Deferred B Shares carry no right to dividends or distributions or to receive notice of or attend general meetings of the company. In the event of a winding up, the shares carry the right to repayment only after the holders of Ordinary Shares have received a payment of £10 million per Ordinary Share. The company retains the right to cancel the shares without payment to the holders thereof. The rights attaching to the shares shall not be varied by the creation or issue of shares ranking parri passu with or in priority to the Deferred B Shares.
14. SHARE PREMIUM ACCOUNT AND RESERVES
Share Retained Total Premium Earnings Account £000 £000 £000 Group At 1 January 2008 3,845 (10,088) (6,243) Issue of ordinary shares and conversion of 1,029 - 1,029preference shares
Costs relating to issue and conversion of shares (241) - (241)
Add-back accrued dividend on preference shares - 156 156
VAT reclaimed on historic share placement costs 235 - 235
Share based payment expense - 42 42 Profit for the period - 357 357 At 31 December 2008 4,868 (9,533) (4,665) Share Retained Total Premium Earnings Account £000 £000 £000 Company At 1 January 2008 3,845 (10,138) (6,293) Issue of ordinary shares and conversion of 1,029 - 1,029preference shares
Costs relating to issue and conversion of shares (241) - (241)
Add-back accrued dividend on preference shares - 156 156
VAT reclaimed on historic share placement costs 235 - 235
Share based payment expense - 42 42 Profit for the period - 179 179 At 31 December 2008 4,868 (9,761) (4,893)
15. RECONCILIATION OF MOVEMENTS IN TOTAL EQUITY
2008 2007 £000 £000 Profit for the financial period 357 402 357 402 Issue of share capital 767 - Premium on issue of ordinary shares and 1,029 -conversion of preference shares Costs relating to issue and conversion of shares (241) - Add back accrued dividend on preference shares 156 - VAT reclaimed on historic share placement costs 235 - Share based payment expense 42 - Net addition to shareholders' funds 2,345 402 Opening shareholders' (deficit) (1,301) (1,703) Closing shareholders' surplus/ 1,044 (1,301)(deficit) 16. COMMITMENTSOperating leases
At 31 December 2008, the Group had annual commitments under non-cancellable operating leases which expire as follows:
Land and buildings 2008 2007 £000 £000 In less than one year 179 - Between 2 and 5 years 120 - In more than five years - 120 299 120 17. PENSION COSTS
The Group operated several defined contribution pension schemes for the business. The assets of the schemes were held separately from those of the Group in independently administered funds. The pension cost represents contributions payable by the Group to the funds and amounts to £30,000 (2007: £ 26,000). All costs were fully paid at the year end.
18. FINANCIAL INSTRUMENTS
Derivatives and other financial instruments
The Group's financial instruments comprise borrowings, some cash and liquid resources and various items such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The Group has not entered into any derivative transactions in the year. The Group does not trade in financial instruments.
The Group has taken advantage of the exemptions available under International Accounting Standard 22 not to provide numerical disclosures in relation to short-term receivables and payables.
The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.
Interest rate risk
The Group finances operations through bank borrowings and finance leases. At the year-end all of the Group's bank borrowings were at floating rates of interest. It is the Group's policy to have all borrowings at a floating rate of interest and this policy is reviewed periodically to ensure it is appropriate.
Liquidity risk
The Group's policy is to retain a balance between short-term flexibility, achieved through overdraft facilities, and longer term planning through longer-term instalment debt. At the year-end, 43% of bank borrowings were overdrafts.
The maturity profile of the Group's financial liabilities is provided on the following page.
Currency risk
The Group's policy is not to hedge transactions, and to buy and sell currency at spot rate where applicable. Each company has assets and liabilities in its native currency only.
Financial assets:
£643,000 (2007: £56,000) of cash at bank and in hand is held in the Group, all denominated in Sterling. All financial assets attract interest at floating rates, and are based on national bank offering rates.
Financial liabilities
MATURITY PROFILE OF FINANCIAL LIABILITIES
Group Company Analysis of loan repayments 2008 2007 2008 2007 £000 £000 £000 £000 Current Liabilities In one year or less or on demand:
Bank overdrafts and interest bearing 556 850 334 429 loans
Deferred Consideration (note 20) 1,060 - 1,060 -
Redeemable Preference Shares (note - 1,213 - 1,213 14) Directors' loan accounts 100 66 66 66 1,716 2,129 1,460 1,708 Non-Current Liabilities In more than one year but not more than two years: Interest bearing loans 183 183 183 183
Deferred Consideration (note 20) 1,060 - 1,060 -
In more than two years but not more than five years: Interest bearing loans 138 140 138 140
Deferred Consideration (note 20) 3,094 - 3,094 -
4,475 323 4,475 323 6,191 2,452 5,935 2,031
Bank loans and overdrafts are secured by a fixed and floating charge over the assets of the Group and by keyman and other insurance policies in respect of A C Garner and S O'Brien, by a deed of postponement from A C Garner in respect of all loans made to the Group and by separate all moneys guarantees of restricted amounts from A C Garner. The following debentures are also in place as security for the bank loans:
* Unlimited debenture dated 3rd November 2000 from Garner International * Omnibus guarantee and set off agreement dated 6th November 2000 between the bank, Garner plc and Garner International.
INTEREST RATE PROFILE
The interest rate profile of the Group's financial liabilities was:
2008 2007 £000 £000 Floating rate financial liabilities 877 1,173 Fixed rate financial liabilities - - Non interest bearing financial liabilities - non - 1,213equity shares - deferred consideration 5,214 - - directors' loan account 100 66 6,191 2,452
Floating rate liabilities represent bank borrowings and overdrafts that bear rates of interest at between 2.0% and 3.5% above the base rate.
All of the financial instruments are held in the UK in Sterling.
FAIR VALUES OF FINANCIAL LIABILITIES
Set out below is a comparison by category of book values and fair values of the Group's financial liabilities which are all denominated in sterling:
2008 2007 Book Fair Book Fair value £ value £ value £ value £ 000 000 000 000 Bank overdraft - - 2 2 Bank loan 877 877 1,171 1,171 Directors' loan 100 100 66 66 Deferred consideration 5,214 5,214 - - 6,191 6,191 1,239 1,239 Non-equity share redemption - - 1,213 1,213value 6,191 6,191 2,452 2,452
The fair value of cash at bank and in hand is not materially different from its book value.
19. ACQUISITIONS OF SUBSIDIARIES
On 3rd December 2008, the Group acquired 100% of the shares in BNB Recruitment Consultancy Limited, Bancomm Limited and BNB Overseas Holdings Limited for a total consideration of £6,004,000, including professional and advisory costs. The principal activity of all three companies is that of executive search.
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the acquisition date and the major classes of consideration transferred. The values of assets and liabilities have been determined at acquisition date using fair values:
BNB Bancomm BNB TOTAL Recruitment Overseas Consultancy Holdings £000 £000 £000 £000 Property, plant & equipment 189 2 - 191 Trade & other receivables 1,544 104 63 1,711 Cash & cash equivalents (615) 249 - (366) Trade & other payables (1,322) (300) - (1,622) Net identifiable assets & (204) 55 63 (86)liabilities Goodwill on acquisition (note 6,0908) 6,004 Consideration: Cash on acquisition date 200 Deferred cash consideration 5,214(note 18) Professional & advisory costs 590re: acquisition 6,004
The principle reasons for the acquisition were to increase the client base within the UK and to extend the Group's presence abroad. The Norman Broadbent brand is widely recognised and it has a strong executive search practice in a number of sectors, which does not compete with existing business. The acquired companies have operations in the UK, USA, Canada and Dubai in addition to holding an interest in an associate business in Spain. The company agreed an aggregate purchase price of £5,414,000 for 100% of issued share capital, based on net assets of the three BNB subsidiaries at 30th September 2008. The acquisition was completed on 3rd December 2008.
Consideration:
The company has agreed to pay an aggregate purchase price before professional and advisory costs of £5,414,000 to acquire the three subsidiaries. This consideration is payable as follows:
- £200,000 was paid in cash on acquisition date
- Payments equivalent to royalty income receivable by BNB Overseas Holdings Limited during the year, net of tax is paid directly to the vendor.
- Quarterly payments over a period of up to 60 months from 30th September 2008, based on a proportion of actual revenues as against projected revenues of the Enlarged Group.
In the event that the total amounts paid by the company to the vendor during the 30 month period from 30th September 2008 is less than £2,800,000 then the company must pay the full amount of the shortfall at that time. If the total amount paid during the period of 60 months from 30th September 2008 is less than £5,414,000 then the company must pay the shortfall at that time.
If any shortfall payment due in respect of the period of 30 months from 30th September 2008 is not paid in accordance with the Acquisition Agreement then the vendor will have the right to acquire all intellectual property rights relating to the Norman Broadbent name and brand for £1.
Professional & advisory costs:
The group incurred costs directly attributable to the acquisition of £590,000 which have been included within goodwill. These costs included fees payable to professional advisors and also an allocation of staff costs and administrative expenditure that the directors believe is a true reflection of the work carried out to complete the acquisition.
IFRS 3 Considerations:
IFRS 3 requires that any separately identifiable intangibles, the cost of which can be accurately measured, should be disclosed independently from residual goodwill on acquisition. The residual goodwill represents the future economic benefits arising from other assets acquired in the business combination that are not individually identified and separately recognised.
To determine the gross consideration payable for the Norman Broadbent subsidiaries, the directors assessed the future profit/cash generating potential of the group. The key assets to drive this were deemed to be:
- a globally recognised and respected search brand; - a team of consultants with knowledge, experience and strong client relationships across a diverse range of markets; - a well established and efficient administrative and support infrastructure.
The directors believe that it is not possible to separate and accurately measure the above assets independently as they are all linked and contribute wholly to the cash generating ability of the group. As such the balance has been recognised as residual goodwill on the balance sheet.
20. RELATED PARTY TRANSACTIONS
In previous years A C Garner has made various loans to the Group to assist in working capital requirements. At 31 December 2008 the balances on these loans were £100,000 (2007: £66,000). These loans are non-interest bearing and at the Balance Sheet date none of these loans had any agreed repayment terms.
In addition, A C Garner has guaranteed £200,000 of bank loans and overdraft.
In relation to the acquisition of BNB Recruitment Consultancy Limited, Bancomm Limited and BNB Recruitment Overseas Holdings Limited in December 2008, A C Garner has personally guaranteed the payment of up to £500,000 of the consideration due to the vendor in respect of the purchase price. The guarantee reduces on a pound-for-pound basis as purchase consideration received by the vendor exceeds £1,000,000.
21. ENTERPRISE MANAGEMENT INCENTIVE SHARE OPTION SCHEME
The measurement requirements of IFRS2 have been implemented in respect of share-options that were granted after 7 November 2002. The expense recognised for share based payments made during the year is shown in the following table;
Total expenses arising from equity settled share-based 2008 2007 transactions:
£000 £000 Garner plc Executive Share Option Scheme 24 - St Helens Options 18 -
The share-based payment plans are described below:
Garner plc Executive Share Option Scheme
In accordance with the Executive Share Option Scheme, approved share options over Ordinary Shares of 1.0p each are granted to eligible employees who devote at least 25 hours per week, or if less at least 75% of their working time to the performance of duties or employment with the company.
The exercise price of the options is equal to the market price of the shares at the date of grant. The options may be exercised on the first, second and third anniversary of the date of the grant in equal amounts.
If the option holder ceases employment for any reason, the option may not be exercised, unless the Board permits. The approved options will be forfeited where they remain unexercised, at the end of their respective contractual lives of eight, nine or ten years.
There have been no cancellations or modifications to this plan since 19 December 2007 when the options were granted.
St Helens Options
On 7th November 2008, the company granted to St Helen's Capital an option to subscribe for 798,762 Ordinary Shares of 1.0p each at an exercise price of 5.625p each, the market price of the shares at the date of grant. The option may be exercised in whole but not in part, at any time up to 31 March 2011.The fair value of share options granted is estimated at the date of grant using a trinomial pricing model, taking into account all the terms and conditions upon which the options were granted.
The total number of options outstanding and exercisable under share arrangements as at 31st December 2008 was as follows:
Options Outstanding Options Exercisable Number of Weighted Weighted Number shares avg. avg. exercisable remaining exercise life (yrs) price (p) Executive Share Option Scheme 1,758,437 9.0 5.625 1,758,437 St Helens Options 798,762 2.3 5.625 798,762
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Executive Share Option St Helens Options Scheme 2008: Weighted Number of Weighted Number of avg. options avg. options exercise exercise price (p) price (p) Balance at 1st January 2008 5.625 1,758,437 - - Granted - - 5.625 798,762 Exercised - - - - Lapsed - - - -
Balance at 31st December 2008 5.625 1,758,437 5.625 798,762
Warrants:
In consideration of services provided in connection with the acquisition of the Norman Broadbent companies, the Company granted 850,000 warrants to Dowgate on the basis of 1 warrant for 1 Ordinary Share. Total warrants existing at 31st December 2008 over 1p Ordinary Shares in the Company are summarized below.
Warrants 2008: Weighted Number of avg. warrants exercise price (p) Balance at 1st January 2008 - - Granted 3.00p 850,000 Exercised - - Lapsed - -
Balance at 31st December 2008 3.00p 850,000
Inputs to the trinomial Valuation Model
The fair value of share options and warrants granted is estimated at the time of grant using a trinomial pricing model, taking into account all the terms and conditions upon which the derivatives were granted.
The following table lists the inputs to the trinomial model in 2008 & 2007:
2008 2007 Expected dividend yield 0% 0% Expected volatility 85% 70% Contractual life of the 3 years 8-10 yearsderivative Weighted avg. risk free 3.99% 4.73%interest rate Weighted avg. fair value 5.625% 5.625%
The expected volatility was estimated by reference to the historical volatility of the company's share price.
The risk free rate of return is estimated as the yield on zero coupon UK government bonds of a term consistent with the contractual life of the options granted.
22. FINANCIAL INFORMATION
The financial information in this announcement does not comprise statutory accounts for the purpose of Section 240 of the Companies Act 1985 and have been extracted from the company's consolidated accounts for the period to 31 December 2008. The statutory accounts for the company for the year ended 31 December 2008 will be filed following the Company's annual general meeting. The auditors' reports on the accounts are unqualified and did not include a statement under Section 237 (2) or (3) of the Companies Act 1985.
Whilst the information included in this announcement has been prepared in accordance with the recognition and measurement criteria of IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs.
vendor