Staffline Regulatory News (STAF)

2 Sep 2008 07:00



Under Embargo for 7am 2 September 2008

STAFFLINE RECRUITMENT GROUP PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

Staffline Recruitment Group plc, the leading provider of recruitment and outsourced human resource services to UK industry, today announces its interim results for the six months ended 30 June 2008.

Financial highlights:

§ Revenue up 5% to £54.9 (2007: £52.3m)§ Pre tax profit of £1.4m (2007: £1.4m)§ Diluted earnings per share of 4.3p (2007: 4.3p) § Interim dividend increased by 8% to 1.4p (2007: 1.3p)§ Cash generated from operations doubled from last year§ Net debt reduced by £2.6m to £5.8m at 30 June 2008 (30 June 2007: £8.4m); gearing reduced to 24% (2007: 39%)

Operational highlights:

OnSite pipeline:

Commenting on outlook, Andy Hogarth, Managing Director, said: 

"We have a forward order book which is at a record level for this point in the year, and the result for the first half was in line with last year and our expectations. Trading during July and August has, however, been marginally held back by subdued demand from some existing customers and this, combined with the shortfall in profit resulting from three client site closures and a client receivership, means that we would expect the Group's full year performance for 2008 to be marginally below that of last year."

"Notwithstanding these challenges, we believe that the current trading environment should play to the Group's strengths because the margin pressure being experienced by both our existing and target client base is acting as a catalyst for high levels of interest in the efficiencies and cost savings we are able to offer." 

A lunch presentation for analysts will be held at 12.15 for 12.30pm at 

the offices of Smithfield, 10 Aldersgate Street, London EC1A 4HJ

Print resolution images are available for the media to view and download from www.vismedia.co.uk

About Staffline

Staffline Recruitment Group plc's main business is as a specialist supplier of "blue collar" temporary and contract staff to industry. It provides a fully outsourced service, managing the temporary recruitment function of its clients on their premises, at 104 OnSite locations nationwide. It has a network of 17 branches. The Group has two smaller businesses branded as Techsearch, which specialises in temporary and permanent engineering, IT, HR and FMCG placements, and OSP, which provides permanent recruitment services principally to the distribution and logistics sector. The Group, which is managed from a head office in Nottingham, was founded in 1986 and was admitted to AIM in December 2004 (Ticker: STAF.L).

  Chairman's Statement

Introduction

The Group has continued to make significant progress during the period as the shift of our service offering beyond traditional recruitment towards an outsourcing model continued. Over 75% of our revenues are now derived from the provision, training and managing of labour on an outsourced basis for our client base, and we expect this trend to continue in the coming years as we develop this offering.

Financial Results

The results for the six months ended 30 June 2008 show a 5% increase in revenues with diluted earnings per share maintained at 4.3p. These results are in line with our expectations and suggest a greater second half weighting this year than in previous years as a result of our increased exposure to logistics and e-tailing and the timing of new OnSites becoming operational during the second half.

Our net debt has reduced considerably during the period, falling by £2.6m when compared to June 2007 and by £0.5m since December 2007. Our level of gearing stands at 24%, leaving us well placed in the current financial environment. 

Revenue growth during the period reflected a 15% increase in new business which more than offset a reduction with certain existing clients primarily due to their decisions to close three sites where we operated large OnSite operations. These closures, combined with a bad debt of £35,000 in relation to the receivership of Ethel Austin, will have a £0.5m impact on the Group's operating profit for the full financial year.

Dividends

In line with our progressive dividend policy and our confidence in the long term prospects of the Group, the Directors are declaring an 8% increase in the interim dividend to 1.4p (2007: 1.3p). The interim dividend will be payable on 21 November 2008 to all shareholders on the register on 24 October 2008. 

Summary Outlook

We continue to see strong growth in our revenues from winning and implementing new OnSites, albeit this success has recently been held back by a marginal weakening in demand from some of our existing clients. Notably, this subdued demand has come from our logistics and retail customers and, to a lesser extent, some more weather dependent food processing customers, whilst the majority of our core food production client base remains stable. The normal seasonal pattern of trading would prompt an increase in volumes as we enter the autumn and Christmas trading period. However, this recent reduction in volumes from some existing clients, combined with the shortfall in operating profit resulting from client site closures and a client receivership, means that we would expect our full year results for 2008 to be marginally below the previous year.

  Notwithstanding these challenges, we believe that the current trading environment should play to the Group's strengths because the margin pressure being experienced by both our existing and target client base is acting as a catalyst for high levels of interest in the efficiencies and cost savings we are able to offer.

Derek Mapp

Chairman

2 September 2008 

  Managing Director's Review

The Group has made a solid start in the first six months of the year in line with our expectations for a greater second half weighting this year, which will reflect our strong pipeline of new OnSites due to commence trading in the second half.

Strategy

Our strategy has remained consistent since the flotation of the business in 2004; we are looking to grow the company, mainly organically, both with new and existing clients by widening the range of activities we offer in respect of the provision, training and management of labour.

Operational Review

Our OnSite division, which now represents over 75% of Group sales, has continued to demonstrate the strength of its business model, with the number of locations operated by Staffline having grown to 104 at 30 June 2008, representing a net increase of 17 since 30 June 2007. The majority of the new OnSites taken on during the first six months commenced trading in May and June, the full benefit of which we will see in the second half. We currently have a pipeline of a further 10 new OnSite locations which we expect to open by the end of the year and to make a significant contribution to profitability in 2009. 

We have continued to expand successfully outside our traditionally strong geographic area of the North and the Midlands, opening a further site in Scotland and two sites in the South of England during the period.

The branch network performance is improving following the recruitment of a divisional director to take sole responsibility for the whole network, including Techsearch. We have also invested a considerable amount in the sales team and have started to see a return on this investment.

The performance of OSP, the business we acquired in March last year, has been good. The sections amalgamated within the OnSite division have performed well and we are exploring our ability to expand the core offering of the National Response Centre to include overseas recruitment of candidates.

Financial Results

Turnover for the first six months of the year increased by 5% from £52.3m to £54.9m. This was driven primarily by an increase in new business which more than offset the reduction resulting from the decision of three clients to close sites where we had sizeable OnSite operations. In the period, we also incurred costs associated with the amortisation of intangibles, investment costs relating to new products and services and a small net increase in share based payments. Despite these, reported profits before tax were broadly maintained at £1.4m. Profit after tax was maintained at £0.9m, giving diluted earnings per share of 4.3p (2007: 4.3p) and basic earnings per share of 4.4p (2007: 4.5p).

  Cash generation has remained strong, despite one significant bad debt in the period incurred when Ethel Austin went into receivership and the closure of three OnSites. Our policy of restricting our level of exposure successfully limited the bad debt to 28 days trading. Cash generated from operations was virtually double that of last year, enabling us to reduce net debt by £2.6m to £5.8m (30 June 2007: £8.4m) and by £0.5m from £6.3m at 31 December 2007. Debtor days currently remain steady, despite the effects of the credit crunch on some of our clients, reflecting our continued focus on this area.

Industry Background

The UK market for the provision of temporary labour, which accounts for 99% of Group sales, has consistently grown year on year for over 25 years.

We have recently noticed a distinct hardening of the labour market, as some Eastern European workers either return home or move to mainland Europe, a response to the fall in the value of Sterling and the improving wage rates available in other European countries, in particular the A8 Group of accession states. Our relative scale and profile amongst the labour pool positions us well and we are taking significant steps in order to be prepared for any continuing changes resulting from this trend.

During the period, Marshall Evans was elected to the executive of the Recruitment and Employment Confederation (REC) and I was re-elected to the executive of the Association of Labour Providers (ALP). By being at the heart of our trade associations we are able to lobby Government and other organisations and to ensure that industry-leading standards and ethics are implemented and upheld throughout the Group. 

Gangmaster Licensing Act

The Gangmaster Licensing Authority (GLA) has had considerable success this year in closing down a number of disreputable labour providers and, whilst they have much still to do, we are confident that they are well placed to continue to do so. Their efforts seem to be persuading a number of smaller and less organised players in the market to shut down or move in to other sectors of the economy, such as construction, hospitality and care, which is raising the standards in our chosen market place, much to our benefit.

Health and Safety

The provision of a safe environment for our staff and contractors continues to be a key focus for the business. Our performance is actively monitored and tracked against Health and Safety Executive benchmarks using reportable accident rates as one of the key measures of business performance.

Our staff take a proactive role in managing health and safety matters with clients; firstly in checking that the appropriate controls such as risk assessments are in place; secondly in ensuring that health and safety is an integral part of induction and 'on the job' training; and thirdly in ensuring that all accidents are reported, that investigations take place and that process improvements are introduced to mitigate risk.

Employees

The average number of employees has risen by 4 to 249 during the period. I would like to take this opportunity to thank all of our employees for their contribution to the Group's continued progress.

  Current Trading and Order Book

In the current economic environment, our client base is becoming ever more cost conscious which, due to our model of low overheads and efficient working methods, is helping us to win more new business.

We expect to have opened at least a further 10 OnSites by the end of September, the full benefit of which will be felt in 2009. In addition we are experiencing good levels of interest in new products and services from both new and existing clients, which we anticipate will give us the foundation for growth of additional revenue streams in the mid to long term.

In summary, whilst we have a forward order book which is at a record level for this point in the year, and the result for the first half is in line with last year, trading during July and August has been marginally held back by subdued demand from some existing customers. We expect the result of this to be a full year performance for 2008 which is marginally below that of last year. 

Andy Hogarth

Managing Director

2 September 2008

Consolidated income statement

For the six months ended 30 June 2008

  Consolidated statement of changes in equity

For the six months ended 30 June 2008

Consolidated balance sheet 

At 30 June 2008

Consolidated cash flow statement

For the six months ended 30 June 2008

 Notes to the interim report 

For the six months ended 30 June 2008

1 BASIS OF PREPARATION

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

The interim financial statements for the period ended 30 June 2008 (including the comparatives for the year ended 31 December 2007 and the period ended 30 June 2007) were approved by the board of directors on 1 September 2008. 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 preparation of the interim financial information. Although these estimates are based on management's best knowledge and judgement of current events and action, 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 within the meaning of Section 240 of the Companies Act 1985. The full accounts for the year ended 31 December 2007 received an unqualified report from the auditors and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985.

2 ACCOUNTING POLICIES

The interim financial report has been prepared under the historical cost convention and in accordance with International Accounting Standard 34 'Interim Financial Reporting'.

The principal accounting policies and methods of computation adopted to prepare the interim financial information are consistent with those detailed in the 2007 financial statements published by the Company on 3 March 2008.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Critical accounting estimates and assumptions

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 next accounting year are as follows:

Impairment of goodwill The 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 cashflows are required, together with an appropriate discount factor for the purpose of determining the present value of those cashflows.

Critical judgments in applying the Group's accounting policies

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

(a) By business segment (primary segment):

As defined under IAS 14, the only material business segment the Group has is that of providing temporary staff to customers as the placement of permanent staff to customers contributes less than 10% of Group 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 segment that the Group operates in is the United Kingdom.

5 TAX EXPENSE

The relationship between the expected tax expense at 28% or 30% and the tax expense actually recognised in the income statement 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 the 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 period. 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 increased by 842,149 (year ended 31 December 2007: 867,712 and period ended 30 June 2007: 732,929) shares to take account of all dilutive potential ordinary shares that could be issued under the share option scheme.

Dividends

Staffline Recruitment Group plc paid a final dividend of £530,727 as proposed in the annual report for the year ended 31 December 2007 on 4 July 2008 (six months ended 30 June 2007: no dividends were paid in period, year ended 31 December 2007: total dividends of £634,659 paid). An interim dividend of £297,000 (2007: £275,000) has been proposed but has not been accrued within these financial statements. This represents a payment of 1.4 pence (2007:1.3 pence) per share. 

7 SHARE CAPITAL

.

All ordinary shares have the same rights and there are no restrictions on the distribution of dividends or repayment of capital.

During the period 104,630 shares were issued in respect of the exercise of employee share options.

The shares issued but not fully paid, will become fully paid on the completion of their sale to a third party.