Staffline Regulatory News (STAF)

For Immediate Release 3 September 2012

Staffline Group PLC

Interim results for the six month period to 30 June 2012

Staffline, the national outsourcing organisation providing people and operational expertise to industry, today announces its interim results for the six months ended 30 June 2012.

Financial highlights

·; Revenues up 36% to £163.9 million (H1 2011: £120.9 million)

·; Gross margin of 9.3% (H1 2011: 11.8%)

·; Recruitment operating profit up 23%

·; Operating profit before amortisation of £3.8 million (H1 2011: £3.8 million)

·; Fully diluted EPS pre amortisation up 1% at 12.0p (H1 2011: 11.9p)

·; Interim dividend increased by 7% to 3.1p (H1 2011: 2.9p)

·; Net debt of £8.4m (H1 2011: net cash of £2.4m)

Operational highlights

• Continued expansion of the OnSite model underpinning market position

o Increased by 12 sites during the reporting period to 175

• Lower levels of demand from some existing customers offset by new client mandates

• Investment and strategic progress in Eos division which will start to bear fruit from 2013

• Continued focus on growth by acquisition

• Legislation continues to drive industry change and new business opportunities

• On track to meet market expectations for the full year

Andy Hogarth, Chief Executive of Staffline, said:

"The Group continues to trade in line with market expectations as we look to expand our OnSite model whilst targeting selective bolt-on acquisitions.

"2012, whilst proving to be more challenging than the previous year, is offering significant opportunities and signs of encouragement and we believe there will be greater emphasis placed by customers on service excellence and value, two of our strongest attributes. Our business remains strong and the confidence we place in our future performance supports our commitment to a progressive dividend policy."

Gabriella Clinkard

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About Staffline

Staffline Group plc is a recruitment organisation specializing in food processing, manufacturing, e-retail and logistics. Staffline provides and manages industrial workforces and uses training and business improvement techniques to ensure increased levels of efficiency to give their clients a significant commercial advantage. Staffline operate from over 190 locations in the UK and supplies in excess of 25,000 blue collar workers each day, peaking at over 30,000 in December. Brands include Staffline Express, the High Street branch operation, OnSite based on clients' premises, Elpis Training a national training and consultancy organisation, OSP a specialist volume recruitment call centre, and EOS a Welfare to Work Provider.

Chairman's statement

The Group has traded successfully during the first six months of 2012 despite the continuing weak economy.

We have increased the number of OnSites during the period and have seen sales continue to increase, up by 36% on the same period last year. As we anticipated, pre-tax profit for the half year has remained comparable to the prior period, comprising an increase in profits in the core recruitment business which was offset by losses following our continued investment in our Welfare to Work business, Eos. The trading performance of Eos remains slightly ahead of our internal estimates and we remain confident that it will make a positive impact on Group profitability in 2013. We remain committed to the success of Eos and this evolution of our business model to include Welfare to Work operations is already delivering cross over benefits for Staffline ahead of our initial estimates.

The board remain confident that the Group will meet current market expectations for the full year and are therefore declaring an interim dividend of 3.1p, an increase of 7% on 2011.

John Crabtree OBEChairman3 September 2012

Chief Executive's statement

Introduction

Sales in the first half of 2012 have been ahead of our initial expectations. Whilst the Group has been successful in winning good levels of new business with both new and existing customers, volumes with many existing OnSite customers are at lower levels compared with the prior year. The business mix since January 2012 has seen a number of customers requiring lower levels of staffing capacity, the sales volume effects of which the Group has been able to offset following an increased demand from a few major customers who are continuing to grow. The Group has also won a number of new OnSite mandates during the period, an increase of 12 to 175, and these combined with wins from the second half of 2011 have enabled us to continue to increase revenues, up by 36% to £164m (2011: £121m).

Due to a combination of start-up costs on a number of contracts and anticipated losses from within our Welfare to Work division, the gross margin reduced by 2.5% and whilst operating profit within the recruitment sector rose by 23% profit before tax remained similar at £2.8m (2011: £2.9m). The board remain confident that Staffline will meet current market expectations for the full year and are therefore declaring an interim dividend of 3.1p, an increase of 7%.

Market Overview

Gangmaster Licensing Authority (GLA)

It is becoming clear that the long-term future of the GLA has been assured, despite the threat to it from the Government's Red Tape Challenge. We applaud this decision, despite the additional costs imposed on our and many other businesses operating in the sector. We are convinced that the GLA has done much to improve standards and drive many sub-standard operators out of the regulated sector. Marshall Evans, Operations Director, continues to be a member of the Board of Directors of the GLA as well as being a member of the REC Council and Chairman of the Employment Policy Committee. I also sit on the board of the Association of Labour Providers. These roles allow us to influence and understand future industry trends and Government policy.

PAYE and Travel and Subsistence Schemes

We have in the past lost a small number of clients to competitors operating travel and subsistence schemes. Unfortunately we have seen a significant increase in the number of our competitors operating such schemes to increase their profits, passing little or no additional gain to staff, the majority of whom are on minimum wage. The impact on our business is increasing as we lose customers who feel financially compelled to move to competitors who operate such schemes. We have been encouraged in our long term opposition to the unrestricted use of travel and subsistence schemes following a more robust response from Government agencies including the Gangmaster Licencing Authority and HMRC. We will continue to bring these malpractices to Government agencies' attention going forward.

Acquisitions

Although we have examined a number of acquisition targets over the last six months, we have seen fewer opportunities to acquire competitors than in previous years. In August we completed the purchase of certain assets of a small HGV driver supply company, DKM Driving, which extends our geographical footprint further into the East Midlands and meets our aim to increase our offering in the Driving sector. We are in continuing discussions with a number of parties operating in our core sector.

Welfare to Work

In our Welfare to Work division Eos currently holds a contract for the Work Programme in the Birmingham, Solihull and Black Country area and two European Social Fund ('ESF') contracts, in both the West Midlands and Yorkshire. All three contracts are based upon payment by results and so carry a greater risk if we are not successful than earlier contracts of this type. Because of the payment method we also have a higher investment before any returns are made. The Work Programme is one of the Coalition Government's flagship policies and has entered its second year. Our performance has so far been good and in line with our expectations the business made a loss in the first half of 2012. We remain confident that we will continue to improve our placement numbers and so make the returns we forecast at the time of acquisition.

At the time of writing the ESF contracts have been significantly less successful, due to much lower referral numbers than expected, both for ourselves and all other providers.

Health and Safety

The number of hours worked by our contractors was up by 33% in comparison to last year, and I am pleased to report a decrease in reported accidents for this period of 39%, therefore a significant reduction on last year. During the period we created a Safety Committee in order to reinforce our commitment to the health and wellbeing of our workers.

ISO 9001 and Investors in People (IIP)

Staffline have successfully undergone external audits which puts us well on track for continued accreditation, ensuring our systems and processes are fully compliant with the standards.

Environmental Policy

We strive to continue to reduce our environmental impact and, as an example, over 90% of our workforce are now benefitting from email payslips, greatly reducing the impact on the environment. Our aim is to achieve over 95% by the end of 2012; current figures show we are well on our way to achieving our goal.

Compliance

We take compliance with legislation and industry standards extremely seriously, offering a guarantee to all of our clients to ensure that all of our workers, whether or not covered by the legislation, are recruited and supplied to the standards required by the Gangmaster Licencing Act. This guarantee gives our clients the assurance that all UK ethical and legal standards are fully met and further enhances our continued strong track record. We operate a confidential whistle blowing hotline for our workers to report any concerns and conduct regular surveys to ensure we are achieving our own high standards.

Investing for Growth

In my last statement I reported that we were in the process of rolling out a new bespoke management information system, Infinity+, in order to improve our operating efficiency. 95% of the Group's locations are now live with Infinity+ and we are deriving a wide range of benefits from it. The new system will provide the platform for further development which will deliver greater efficiencies in our business processes.

Agency Workers Regulations

The regulations were introduced in October 2011 and it is still too early to assess the full long-term impact to the industry. Many of the initial stories in the press of clients deciding to no longer use agency labour appear not to be borne out and we have seen little, if any, reduction in business due to the regulations. Indeed we have actually won new business as both existing and new clients turned to us due to our knowledge and detailed planning to help support their human resource strategies to accord with the Agency Workers Regulations. However, the industry is still awaiting the first decisions from Employment Tribunals as to the actual interpretation of some aspects of this legislation.

Current Trading

The second half of 2012 continues to present us and our clients with both challenges and opportunities. The general recruitment sector in the UK remains an extremely competitive environment but we continue to see a number of exciting new business opportunities. The board therefore remains confident that the Group will meet current market expectations for the full year.

Andy Hogarth

Chief Executive

3 September 2012

Finance Director's statement

Sales revenues have grown by 36% to £163.9m (H1 2011: £120.9m) reflecting the impact of strong demand from some existing customers, new business wins in 2011 and 2012 and also the impact of acquisitions in 2011.

Sales revenues in the recruitment sector increased by 34% to £158.4m (H1: 2011 £118.2m). Gross margin in recruitment services has decreased to 9.0% (H1 2011: 10.8%) due to the change in the business mix and new customer wins. However the operating profit before intangibles increased by £0.8m to £4.2m (H1: 2011 £3.4m).

In Welfare to Work the development phase of the Work Programme contract led to an operating loss before amortisation of £0.4m (H1 2011: profit £0.4m) which was better than the expected performance of the contract. The performance last year related to the final months of the Flexible New Deal contract prior to its termination by the incoming Coalition Government.

Group profit before tax fell slightly to £2.8m (H1 2011: £2.9m). Group post tax profit was unchanged at £2.1m (H1 2011: £2.1m).

Basic earnings per share have decreased by 2% to 9.5p (H1 2011: 9.7p).The diluted earnings per share remained unchanged at 9.2p (H1 2011: 9.2p) and the diluted earnings per share before amortisation were 12.0p (H1 2011: 11.9p).

The Group's balance sheet has strengthened considerably during the first half with net current assets rising by £6.7m to £7.3m (H1 2011: £0.6m). The significant growth in trade receivables is as a result of the growth in sales from acquisitions and new customer wins, with the debtor days remaining steady at December 2011 levels. The goodwill and other intangible assets are in line with December 2011 less the amortisation charge for the period.

The Group had net debt of £8.4m (H1 2011: net cash of £2.4m). The position last year included £8.2m of cash acquired with Eos Works Limited. The net debt includes the revolving credit facility, shown in non-current borrowings, of £5.1m (H1 2011: nil) which is repayable before July 2014.

The Group generated £4.2m cash from operations before working capital movements in the first half (H1 2011: £3.9m). Of this £5.4m was used in working capital and £0.9m was paid in deferred consideration (H1 2011: £2.0m was used in working capital to fund the growth and £3.4m was invested in acquisitions). In addition corporation tax accounted for £1.2m (H1 2011: £1.2m) and capital expenditure £0.1m (H1 2011: £0.2m).

The Group has financing facilities in place to support the future growth of the business. The current facilities include a term loan of £1.1m, repayable in quarterly instalments up to June 2013, revolving credit facilities for up to 3 years of up to £7.5m, and an overdraft facility of £12.5m, rising to £15m at quarter ends. The overdraft facility was renewed in March 2012 for a period of 12 months.

The average number of employees has increased by 138 to 535 compared to the same period in 2011 due primarily to the acquisition of Eos Works Limited.

We are continuing to invest significant sums in both internal and external training courses for our staff and always promote from within wherever possible. A further 15 members of staff passed their Certificate in Recruitment Practice during the period.

We are extremely keen to improve employment opportunities for the younger members of society and remain sponsors and strong supporters of the activities of the Prince's Trust charity. Our staff have, through their own efforts, raised considerable sums of money in a series of regular fund raising activities.

Tim Jackson

Finance Director

3 September 2012

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

Consolidated statement of changes in equity

Consolidated statement of financial position

Consolidated statement of cash flows

Notes to the financial statements

1 Basis of preparation

Staffline Group plc, a Public Limited Company, is incorporated and domiciled in the United Kingdom.

The interim financial statements for the six month period ended 30 June 2012 (including the comparatives for the six month period ended 30 June 2011 and the year ended 31 December 2011) were approved by the board of directors on 3 September 2012. Under the Security Regulations Act of the EU, amendments to the financial statements are not permitted after they have been approved.

It should be noted that accounting estimates and assumptions are used in the preparation of the interim financial information. Although these estimates are based on management's best knowledge and judgement of current events, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the interim financial information are set out in note 3 to the interim financial information.

The interim financial information contained within this report does not constitute statutory accounts as defined in the Companies Act 2006. The full accounts for the year ended 31 December 2011 received an unqualified report from the auditors and did not contain a statement under Section 498 of the Companies Act 2006.

2 Accounting policies

The principal accounting policies and methods of computation adopted to prepare the interim financial information are consistent with those detailed in the 2011 financial statements.

3 Critical accounting estimates and judgments

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the accounting year are as follows:

Impairment of goodwillThe bi-annual impairment assessment in respect of goodwill requires estimates of the value-in-use of cash generating units to which goodwill has been allocated to be calculated. As a result, estimates of future cash flows are required, together with an appropriate discount factor for the purpose of determining the present value of those cash flows. 

Deferred considerationAs part of the acquisition process a forecast is prepared which projects the financial performance of the business over the expected earn out period. These forecasts are reviewed and updated based on actual performance. Part of the cost of the acquisition is dependent on the trading performance of the acquired business following the transaction. The deferred contingent consideration is based on these estimates of the future performance of the acquired business.

The directors do not consider they have had to make any critical judgments in applying the accounting policies which have been adopted.

4 Segmental reporting

Management currently identifies two operating segments: the provision of recruitment and outsourced human resource services to industry and the provision of welfare to work services. These operating segments are monitored by the group's board and strategic decisions made on the basis of segment operating results.

Segment information for the reporting period is as follows:

During the 6 month period to 30 June 2012, one customer in the recruitment services segment contributed greater than 10% of that segment's revenues being £18.4m (12% of total revenues) (2011: one customer greater than 10%). The welfare to work segment revenues relate solely to one customer (Department for Work and Pensions). The Group's revenues from external customers and its non-current assets arose substantially in the United Kingdom.

5 Tax

The relationship between the expected tax expense and the tax expense actually recognised in the statement of comprehensive income can be reconciled as follows:

There is no tax expense or credit in relation to the share based payment reserve credited to equity.

6 Earnings per share

The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year, after deducting any own shares (JSOP). The calculation of the diluted earnings per share is based on the basic earnings per share adjusted to allow for all dilutive potential ordinary shares.

Details of the earnings and weighted average number of shares used in the calculations are set out below:

The weighted average number of shares has been increased by 760,584 (period ended 30 June 2011: 1,015,842 and 31 December 2011: 776,169) shares to take account of all dilutive potential ordinary shares that could be issued under the share option scheme and all shares issued during the year excluding own shares.

7 Dividends

Staffline Group plc paid a final dividend of £908,027, as proposed in the annual report for the year ended 31 December 2011, on 4 July 2012. An interim dividend of £669,952 (2011: £623,853) has been declared but has not been accrued within these interim financial statements. This represents a payment of 3.1 pence (2011: 2.9 pence) per share and will be paid on 9 November 2012 to holders on the register on 5 October 2012. The ex-dividend date is 3 October 2012.

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