Staffline Regulatory News (STAF)

1 Mar 2006 07:01

Staffline Recruitment Group plc01 March 2006 Embargoed until 0700 Wednesday, 1 March 2006 STAFFLINE RECRUITMENT GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Excellent progress, significantly ahead of last year and ahead of expectations Staffline Recruitment Group plc, the leading provider of recruitment andoutsourced human resource services to industry, today announces its preliminaryresults for the year ended 31 December 2005. Financial highlights*: • Revenue up 26% to £61.5m (2004**: £49.0m)• Operating result up 89% to £3.1m (2004**: £1.6m)• Pre tax result up 362% to £2.5m (2004**: £0.5m)• Basic earnings per share of 8.0p• Proposed final dividend of 1.2p; giving a total dividend for the year of 1.9p per share• Strong cash generation; gross cash inflow of £3.4m• Net debt reduced by 27% to £6.2m (2004**: £8.5m) * All figures are stated in accordance with International Financial ReportingStandards (IFRS) and 2004 figures have been restated (see notes to the accountsfor a full reconciliation of the transition from UK GAAP to IFRS for the periodsto 31 December 2004) ** All 2004 figures are provided on a pro-forma basis Operational highlights: • Significant growth in OnSites; 18 opened during the year• Continued strong performance from the Techsearch division• Carole Harvey appointed Finance Director in September 2005 Current trading and prospects: • 2006 to benefit from annualised effect of 6 OnSite wins at the end of 2005• Trading for first eight weeks of 2006 in line with expectations• A further 5 OnSites opened since the year end; totalling 58 as at 28 February 2006• Encouraging pipeline of OnSite prospects Commenting on the results, Andy Hogarth, Managing Director, said: "The Group has made excellent progress throughout the year and we are pleased tobe able to report a further set of strong results which are ahead ofexpectations and significantly ahead of the comparable period last year. "Our current pipeline of OnSite prospects is stronger than it has ever been,giving the Board confidence that the Group will continue to grow and deliver afurther year of progress in 2006." For further information, please contact: www.staffline.co.uk Staffline Recruitment 0115 950 0885Andy Hogarth, Managing DirectorCarole Harvey, Finance Director Smithfield 020 7360 4900Katie Hunt/Reg Hoare/Sarah Richardson Note to Editors:Staffline Recruitment Group plc's main business is as a specialist supplier of"blue collar" temporary and contract staff to industry through a network of 17branches and 58 OnSite locations nationwide. The Group also has a smaller butgrowing division called Techsearch which specialises in temporary and permanentengineering, IT, HR and FMCG placements and operates from 4 branches. The Group,which is managed from a head office in Nottingham, was founded in 1986 and wasadmitted to AIM in December 2004 (Ticker: STAF.L). Print resolution images are available for the media to view and download from www.vismedia.co.uk Chairman's Statement Introduction I am pleased to report Staffline Recruitment Group's preliminary results for theyear ended 31 December 2005, which are ahead of expectations and significantlyahead of the comparable period last year. Staffline specialises in the matching of un-skilled and semi-skilled temporaryworkers to suitable positions within the food production, manufacturing, andlogistics sectors, with 75% of Group revenues derived from the food productionsector which is less cyclical. This is achieved by providing an outsourcingservice which includes skills and reference checking applicants, healthscreening, training and ongoing supervision. Our Techsearch division places skilled applicants, both temporary and permanent,into the engineering, IT, HR, and fast moving consumer goods (FMCG) sectors; aservice which is complementary to many Staffline clients. The Year in Review The results for the year reflect a strong trading performance, consistingentirely of organic growth. The main driver of this growth continues to be ourOnSite division, which now represents 64% of Group turnover and has increasedthe number of OnSites it operates from 35 at the end of 2004 to 53 by 31December 2005. The Group was formed to acquire Staffline Recruitment Limited in December 2004and, therefore, there are no comparative statutory Group results for 2004available. However, results for the year ended 31 December 2004 are provided ona pro-forma basis. As outlined at the time of our interim results, we have adopted InternationalFinancial Reporting Standards (IFRS) early so that the 2005 results are reportedin accordance with IFRS, while the 2004 results have been restated. A fullreconciliation has been provided in the notes to the accounts. Dividends Our maiden interim dividend of 0.7p per share was declared for the period to 30June 2005 and paid on 18 November. I am pleased to announce that the Directorsrecommend the payment of a final dividend for the year of 1.2p per share which,subject to approval at the Annual General Meeting, will be paid on 4 July 2006to shareholders on the register on 2 June 2006. This will make the total paymentfor the year 1.9p per share. The Directors confirm their intention to pursue aprogressive dividend policy. Our People In September 2005, Carole Harvey was recruited to the Board of Staffline asFinance Director and Company Secretary. Carole brings with her a wealth offinancial, marketing and commercial acumen, as well as extensive experience ofdevising and implementing successful change strategies and represents anexcellent addition to the Board. Andrew Walsh, who was appointed FinanceDirector at the time of the IPO, resumed his previous role as FinancialController of the Group. All staff who have completed in excess of six months service with the Group havereceived share options and are incentivised in line with the future success ofthe Group. I would like to thank all staff for their continued commitment andperformance throughout the year. Summary I am delighted with the progress of the Group during its first full year sinceadmission to AIM. In line with our strategy, we have established strongrelationships across a broad customer base, providing us with a robust platformfrom which to further expand the Group's service offering and develop ournational presence. Derek MappChairman1 March 2006 Managing Director's Report The Group has made excellent progress throughout the year and we are pleased tobe able to report a further set of strong results. Financial Results Revenue for the year rose by 26% to £61.5m in 2005 from £49.0m in 2004. Grossprofit margins decreased by 2% to 19.2% a reflection of the Group's policy togrow the OnSite business which has a lower gross profit. However, the benefitsof the OnSite model, which achieves a higher net margin due to its loweroperating costs, as well as considerable emphasis on overhead cost control, arereflected at the operating result level which has increased by 89% during theyear to £3.1m from £1.6m in 2004. This represents a marked increase in theoperating result margin from 3.3% in 2004 to 5.0% in 2005. The financial restructuring at the time of the flotation together with areduction in net debt during the year has also had considerable benefits, withfinance costs reducing from £1.1m to £0.6m, leaving a result before tax up by362% to £2.5m from £0.5m. Earnings per share were 8.0p in 2005. The Group continued to generate strong cash flow, resulting in a 27% decrease innet debt to £6.2m as at 31 December 2005 from £8.5m as at 31 December 2004. The Group has decided to adopt International Financial Reporting Standards forthe year ended 31 December 2005, and therefore all comparatives for 2004 havebeen restated. A full reconciliation has been provided in the notes to theaccounts. Strategy At the time of the flotation we stated our strategy to be to continue theorganic growth of the Group by expanding our OnSite locations and the selectiveopening of more high street branches, and this remains our main focus. Operational Review Our presence on AIM has provided the Group with greater visibility andcredibility amongst its existing and potential customers, thereby supportingfurther growth during the year. We have been able to increase the number of OnSites from 35 on 31 December 2004to 53 on 31 December 2005 and have further increased this number to 58 by 28February 2006. This represents a mix of both additional OnSites for existingcustomers and OnSites for new customers. The new wins have predominantly been in the food production sector, increasingthe proportion of our revenue derived from this sector from 69% to 75%, in linewith our focus on this less cyclical industry. At the time of our interim results announcement in September 2005, we reportedthat economic conditions were impacting upon our clients in certainmanufacturing sectors during the first half of the year. Whilst we have not seena recovery of demand from these sectors during the second half of the year, thissegment represents only 11% of Group revenue and this softness has been morethan offset by growth in the food production sector. Furthermore, whilst we began the year with a network of OnSites predominantly inthe Midlands area, we have been successful in expanding our geographicalfootprint during the year with greater penetration across the North and South ofEngland as well as Scotland and Wales, giving us much greater national coverage. The growth in our OnSite proposition reflects the increased demand for ourservice, which offers many advantages for our clients in terms of operationalefficiency and workforce management. During the year, we maintained the number of high street branches we have inaggregate but made changes to the network to take advantage of local demand andlabour conditions. In the first half, we opened a service branch inWolverhampton in response to increased demand in this area, which is performingwell. We also closed a recruitment centre in Stoke as labour availabilitygreatly improved, thus removing the need for a branch in order to fulfil localcustomer demand for labour. Techsearch, our skilled brand, had a very good year and the number ofconsultants employed has been increased. We intend to continue to expand thisdivision, although it still accounts for less than 10% of Group revenue. Industry Background Staffline aims to continue to be at the forefront of the industry by maintainingthe very highest standards of ethics. Many of the issues facing us remain thesame as last year, whilst further developments have continued the focus onemployment practices. Gangmaster Licensing The Gangmaster (Licensing) Act 2004 established the Gangmasters LicensingAuthority ("GLA") to set up and operate the licensing scheme for labourproviders operating in the agricultural, shellfish gathering and associatedprocessing and packing sectors. The precise scope of the changes likely to bebrought about by the Act still remains unclear but we have worked closely withthe GLA to help shape the outcome and we welcome the initiation of theAuthority. The current intention is that the GLA will start issuing licences on the 6 April2006, with the offence of operating without a licence coming in to operation on1 October 2006. It will also become an offence for a labour user to use anunlicenced provider. We believe we already qualify for an immediate licence following our successfulTemporary Labour Working Group (TLWG) audit and as the proposed licence fees inthe first year have been substantially reduced, registration will have anegligible impact on the Group's finances in 2006. The Home Office The Home Office has greatly increased its activity in searching for andpreventing the use of illegal workers. It has carried out a large number ofaudits in both our and our clients' premises. We have passed those auditssuccessfully on each occasion. EU Accession State Workers The numbers of workers arriving in the UK has continued to increase steadily andwe estimate that 28% of our workers are citizens of one of the new EU accessionstates. This has been of benefit to our business as, whilst demand has decreasedfrom a small proportion of clients who have chosen to employ such workersdirectly, overall demand has increased as our clients are attracted to theflexibility of this temporary workforce. We have now started to recruit skilled workers in Poland in particular for rolesin the Food Processing sectors. Verification Systems Large numbers of illegal workers continue to attempt to register with us, as isthe case across the temporary unskilled worker industry. To maintain our highstandards in ensuring the legality of our workers, we have increased investmentin IT to ensure we remain fully compliant with the law, whilst alsostrengthening our relationships with the various government agencies in order toremain fully conversant with the latest examples of forged documentation. During the year, we invested in the roll-out of a document scanning systemacross our operations which attaches scanned copies of a contractor's proof ofeligibility to work to their computerised record. This investment has furtherimproved the quality of documentation held, ensuring a full, easily accessedaudit trail for every contractor building upon our unique three stage process ofverification and securing our leadership in compliance with legislationsurrounding the prevention of illegal working. Health & Safety We fully recognise our responsibility to ensure we only allow our workers towork in as safe a working environment as possible and so have a system of checksto ensure our clients comply with Health and Safety legislation. Employees Our number of employees grew from an average of 181 during 2004 to an average of188 during 2005, an increase of 4% against an increase in revenue of 26%. Atotal of 26 employees were promoted during the year. We have a strong staffretention record, with staff turnover having fallen from 50% in 2003 and 30% in2004 to 26% in 2005, significantly below the industry average which is generallyrecognised to be approximately 50%. Our employees work constantly to increase customer satisfaction, as demonstratedby the response to our surveys which consistently show very high levels ofcustomers regularly confirming that they are completely or very happy with theservice they receive. I continue to be enormously impressed at the hard work and dedication tocustomer service that our staff show and I thank them for all their enthusiasm.They make Staffline a great place to work. Current Trading and Prospects In the first eight weeks of 2006, trading is ahead of the same period last year,and in line with our expectations. We opened six new OnSites in the last few months of 2005, the full annualisedeffect of which will benefit the current year, and the five new OnSites whichhave opened in January and February 2006 will further underpin prospects for theyear ahead. In addition, our current pipeline of OnSite prospects is stronger than it hasever been, giving the Board confidence that the Group will continue to grow anddeliver a further year of progress in 2006. Andy HogarthManaging Director1 March 2006 Summarised consolidated income statement Audited Pro forma 25 October Year ended year ended to Note 31 December 31 December 31 December 2005 2004 2004 £'000 £'000 £'000Continuing operations Sales revenue 61,479 48,952 4,927Cost of sales (49,665) (38,579) (3,966) -------- ------- -------Gross profit 11,814 10,373 961 Administrative expenses (8,759) (8,758) (746) -------- ------- -------Operating result 3,055 1,615 215 Finance costs (573) (1,078) (112) -------- ------- -------Result for the period beforetaxation 2,482 537 103 Tax (expense)/income 4 (824) (261) 21 -------- ------- -------Net result for the period 1,658 276 124 ======== ======= =======Earnings per ordinary shareBasic 5 8.0p 9.4p ======== =======Diluted 7.8p 9.4p -------- ------- Summarised consolidated statement of changes in equity Share Profit based and Share payment Share loss capital reserve premium account Total £'000 £'000 £'000 £'000 £'000 At 25 October 2004 - - - - -On acquisition ofStaffline Recruitment Limited 1,000 - 7,004 - 8,004Issue of new shares 1,082 - 7,573 - 8,655Cost of issue of newshares - - (320) - (320)Net result for the period - - - 124 124Employee share basedcompensation - 5 - - 5 ------ ------ ------- ------- -------At 31 December 2004 2,082 5 14,257 124 16,468 Net result for the year - - - 1,658 1,658Employee share basedcompensation - 63 - - 63Dividends paid - - - (146) (146) ------ ------ ------- ------- -------At 31 December 2005 2,082 68 14,257 1,636 18,043 ====== ====== ======= ======= ======= Summarised consolidated balance sheet at 31 December 2005 At 31 At 31 December December 2005 2004 £'000 £'000 AssetsNon currentGoodwill 22,326 22,326Property, plant and equipment 88 285 -------- ------- 22,414 22,611 -------- -------CurrentTrade debtors and other receivables 8,663 7,901Cash and cash equivalents 552 371 -------- ------- 9,215 8,272 -------- -------Total assets 31,629 30,883 ======== =======LiabilitiesNon currentBank loans (3,100) (4,050) CurrentTrade and other payables (8,720) (9,133)Bank loans (950) (950)Current tax liabilities (816) (282) -------- ------- (10,486) (10,365) -------- -------Total liabilities (13,586) (14,415) ======== =======EquityShare capital (2,082) (2,082)Share premium (14,257) (14,257)Share based payment reserve (68) (5)Profit and loss account (1,636) (124) -------- -------Total equity (18,043) (16,468) ======== =======Total equity and liabilities (31,629) (30,883) ======== ======= Summarised consolidated cash flow statement Audited Pro-forma Year year Period ended 31 ended 31 ended 31 December December December 2005 2004 2004 £'000 £'000 £'000Cash flows from operating activitiesOperating result 3,055 1,615 215Adjustments for:Loss on disposal of fixed assets - 281 -Depreciation of property, plant andequipment 305 422 33 ------- ------- ------- 3,360 2,318 248 Change in trade and other receivables (762) (2,053) 424Change in trade and other payables 726 5,686 739 ------- ------- -------Cash generated from operations 3,324 5,951 1,411 Interest paid (523) (918) (35)Employee equity settled share options 63 5 5Taxes paid (290) - - ------- ------- -------Net cash inflow from operating activities 2,574 5,038 1,381 ======= ======= =======Cash flows from investing activitiesAcquisition of subsidiary undertakingnet of cash acquired - - (3,885)Purchases of property, plant and equipment (108) (50) - ------- ------- -------Net cash used in investing activities (108) (50) (3,885) ======= ======= =======Cash flows from financing activitiesProceeds from the issue of shares - - 8,655Repayment of bank loans (1,000) (900) (4,728)Repayment of loan notes - (4,375) -Movement in invoice discounting facility (1,139) 207 (732)Payment of finance lease liabilities - (195) -Share issue costs - - (320)Dividends paid (146) - - ------- ------- -------Net cash from financing activities (2,285) (5,263) 2,875 ======= ======= =======Net increase in cash and cash equivalents 181 (275) 371 Cash and cash equivalents at beginning ofperiod 371 - - ------- ------- -------Cash and cash equivalents at end of period 552 (275) 371 ======= ======= ======= Notes to the preliminary announcement 1 Basis of preparation The consolidated financial statements of Staffline Recruitment Group plc and itssubsidiary ('the Group') have been prepared under the historical cost conventionand in accordance with International Financial Reporting Standards as adopted bythe EU and the International Financial Reporting Standards as issued by theInternational Accounting Standards Board. The transition to InternationalFinancial Reporting Standards has been made in accordance with InternationalFinancial Reporting Standard 1 "First-time adoption of International FinancialReporting Standards". Separate financial statements of Staffline RecruitmentGroup plc ('the Company') have been prepared under the historical costconvention and in accordance with applicable accounting standards under UK GAAP. The accounting policies of the Group are included in the 2005 financialstatements. The transition to International financial reporting standards ('IFRS') reportinghas resulted in a number of changes in the reported financial statements, notesthereto and accounting principals compared to the previous annual report. Note 2provides further details on the transition from UK GAAP to IFRS. 2 Transition to international financial reporting standards The transition from previous UK GAAP to IFRS has been made in accordance withIFRS 1, "First-time Adoption of International Financial Reporting Standards".The Group's financial statements for the year ended 31 December 2005 and thecomparatives presented for the period ended 31 December 2004 comply with allpresentation, recognition and measurement requirements of IFRS applicable foraccounting periods commencing on or after 1 January 2005. The following reconciliations and explanatory notes thereto describe the effectsof the transition for the financial year 2004. All explanations should be readin conjunction with the IFRS accounting policies of Staffline Recruitment Groupplc. Since Staffline Recruitment Group plc was incorporated on 25 October 2004 thatis the transition date to IFRS. As that was the date of incorporation of theCompany no reconciliation of equity is required at that date. Statutory profit and loss account for the period ended 31 December 2004 andbalance sheet at 31 December 2004 The re-measurement of balance sheet items as at 31 December 2004 may besummarised as follows: Reconciliation as at 31 December 2004 UK GAAP Effect of transition IFRS £'000 £'000 £'000 Goodwill 22,256 70 22,326 ======= ====== =======Profit and loss account 59 65 124Share options to be issued - 5 5 ------- ------ -------Total adjustment to equity 59 70 129 ======= ====== ======= The reconciliation of the Group's equity reported under previous GAAP to itsequity under IFRS as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 £'000 Retained earnings - UK GAAP 59Reversal of goodwill amortisation 70Employee share based compensation (5) -------Retained earnings - IFRS 124 =======Share based payment reserve - UK GAAP -Employee share based compensation 5 -------Share based payment reserve - IFRS 5 ======= -------Total adjustment to equity 70 ======= Profit and loss reported under UK GAAP for the period ended 31 December 2004 isreconciled to IFRS as follows: Reconciliation for the period 25 October to UK Effect of 31 December 2004 GAAP transition IFRS £'000 £'000 £'000 Sales revenue 4,927 - 4,927Cost of sales (3,966) - (3,966) ------- ------ ------Gross profit 961 - 961Administrative expenses (741) (5) (746) ------- ------ ------Operating result 220 (5) 215Amortisation of goodwill (70) 70 -Finance costs (112) - (112) ------- ------ ------Result for the period before taxation 38 65 103Tax income 21 - 21 ------- ------ ------Net result for the period 59 65 124 ======= ====== ====== The Group has modified its former balance sheet and income statement structureon transition to IFRS. The main changes may be summarised as follows: • to eliminate the amortisation of goodwill• to provide for the estimated fair value of the share based employee remuneration. Audited pro-forma profit and loss account for the year ended 31 December 2004 The audited pro-forma profit and loss reported under UK GAAP for the year ended31 December 2004 is reconciled to IFRS as follows: Reconciliation for the year to 31 UK GAAP Effect of December 2004 transition IFRS £'000 £'000 £'000 Sales revenue 48,952 - 48,952Cost of sales (38,579) - (38,579) ------- ------ -------Gross profit 10,373 - 10,373Administrative expenses (8,753) (5) (8,758) ------- ------ -------Operating result 1,620 (5) 1,615Amortisation of goodwill (676) 676 -Finance costs (1,078) - (1,078) ------- ------ -------Result for the period before taxation (134) 671 537Tax expense (261) - (261) ------- ------ -------Net result for the period (395) 671 276 ======= ====== ======= The changes may be summarised as follows: • to eliminate the amortisation of goodwill• to provide for the estimated fair value of the share based employee remuneration 3 Segmental reporting (a) By business segment (primary segment): As defined under International Accounting Standard 14 (IAS14), the only materialbusiness segment the Group has is that of providing temporary staff to customersas the placement of permanent staff to customers contributes less than 10% ofGroup total revenue. The sales revenue is from the rendering of services. (b) By geographical segment (secondary segment): Under the definitions contained in IAS 14, the only material geographic segmentthat the Group operates in is the United Kingdom. 4 Tax expense The relationship between the expected tax expense at 30% and the tax expenseactually recognised in the income statement can be reconciled as follows: Audited Pro-forma Year year Period ended 31 ended 31 ended 31 December December December 2005 2004 2004 £'000 £'000 £'000 Result for the period before tax 2,482 542 103 Tax rate 30% 30% 30% ====== ====== ======Expected tax expense 744 163 31 Adjustment for non-deductible expensesrelating to short term timing differences 48 142 (55)Other non-deductible expenses 24 (23) 3Adjustments in respect of prior periods 8 - - ------ ------ ------Actual tax expense/(income) 824 282 (21) ====== ====== ======Tax expense comprises:Current tax expense 824 282 -Deferred tax income, resulting fromthe origination and reversal of temporarydifferences - (21) (21) ------ ------ ------ 824 261 (21) ====== ====== ======There is no tax expense or credit in relation to the share based payment reservecredited to equity 5 Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the period. The calculation of the diluted earnings pershare is based on the basic earnings per share adjusted to allow for alldilutive potential ordinary shares. Details of the earnings and weighted average number of shares used in thecalculations are set out below: Basic Diluted Year ended Period Year Period 31 ended 31 ended 31 ended 31 December December December December 2005 2004 2005 2004 Earnings (£'000) 1,658 124 1,658 124 =========== ========= ========== =========Weighted average number ofshares 20,824,463 1,312,226 21,311,781 1,318,517 =========== ========= ========== =========Earnings per share (pence) 8.0p 9.4p 7.8p 9.4p =========== ========= ========== ========= The weighted average number of shares has been increased by 462,318 (periodended 31 December 2004: 6,291) shares to take account of all dilutive potentialordinary shares that could be issued under the share option scheme. The earnings per share for the period ended 31 December 2004 relates to a 23 daytrading period only and, therefore, gives a distorted picture of an annualisedearnings per share. During the year, Staffline Recruitment Group plc paid interim dividends of£146,000 (2004: £nil) to its equity shareholders. This represents a payment of0.7p (2004: nil) per share. A final dividend of £250,000 has been proposed(2004: nil) but has not been accrued within these financial statements. Thisrepresents a payment of 1.2p (2004: nil) per share. 6 Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The summarised consolidated profit and loss account, the summarised consolidatedstatement of changes in equity, the summarised consolidated balance sheet at 31December 2005 and the summarised consolidated cash flow statement and associatednotes for the year then ended have been extracted from the Group's 2005statutory financial statements upon which the auditors opinion is unqualifiedand does not include any statement under Section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the registrar ofcompanies. This information is provided by RNS The company news service from the London Stock Exchange