Staffline Regulatory News (STAF)

For Immediate release Monday, 27 February 2012

STAFFLINE GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011

Staffline Group plc ("Staffline" or "the Group"), a leading provider of recruitment, training and outsourced human resources services to industry, today announces its preliminary results for the year ended 31 December 2011.

Financial highlights:

·; Revenues up 40% to £288.3 million (2010: £206.2million)

·; Group operating profit (pre-amortisation) up 32% to £10.3 million (2010: £7.8million)

·; Profit before tax up 7% to £7.5 million (2010: £7.0million)

·; Basic earnings per share up 9% to 25.9p (2010: 23.7p)

·; Basic earnings per share before amortisation up 31% to 35.1p (2010: 26.7p)

·; Final dividend of 4.2p; total dividend of 7.1p (2010: 6.2p); increase of 15%

Operational highlights:

·; Continued growth of the OnSite platform

− Increased by 28 sites during the reporting period to 163 (2010: 135)

− Represents 85% of Group sales (2010: 89%) 

·; Five acquisitions completed and integrated successfully during 2011, with Taskforce acquired in September 2011

·; Branch network increased by 3 to 18 locations

·; Strong performance of EOS, acquired in May 2011, with additional contract wins:

− £93m Work Programme contract awarded for Birmingham, Solihull and the Black Country

− £53m of European Social Fund contracts awarded for the Midlands, Yorkshire and Humberside

·; Recent appointment of Diane Martyn (former CEO of Randstad Staffing in the UK) as Non-Executive Director

·; Onsite pipeline of 9 new openings in Q1 of 2012

·; Current trading in line with Board's expectations

Commenting on the results and prospects for 2012, Andy Hogarth, Chief Executive, said:

"2011 has been another successful year for Staffline supported by an extremely robust business model and complemented by a number of excellent bolt-on acquisitions. We look forward to the coming year with confidence in the ability of the business to continue growing despite the broader economic environment remaining challenging.

"Our Onsite platform continues to power the Group forward creating a number of exciting opportunities with both existing and potential customers. Our entry into Work Programme contracts, via the acquisition of EOS, is promising with good contract momentum enabling us to expand our service offering.

"The Board's confidence in the Group is indicated by the increased total dividend of 7.1p. We look forward to reporting another year of progress this year."

www.buchanan.uk.com

About Staffline

Staffline Group plc is a recruitment organisation specialising 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 giving its clients a significant commercial advantage. Operating from over 180 locations in the UK, Staffline supply up to 25,000 blue collar workers each day. Brands include Staffline Express, the High Street branch operation; OnSite, where we are based on clients' premises; Peter Rowley, a national training and consultancy organisation; EOS, a Welfare to Work supplier, and OS, a specialist volume recruitment call centre.

A presentation for analysts will be held at 9.30am on February 27 2012 at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN

Chairman's Statement

We continued to grow the Group significantly, measured by both revenue and profit, during the year despite a worsening economic backdrop and the sector remaining extremely competitive. Whilst this brought us many challenges at an operational level, we have continued to grow our Onsite platform, increasing sites by a further 28 this year to 163. This has also presented opportunities for a number of strategic bolt-on acquisitions, of which we completed 5 during the year, as well as the significant move in to the Welfare to Work arena with the acquisition of EOS, which gives us entry into another long term growth market.

We have ended our first year with our new Broker and Nomad, Liberum Capital, having successfully reshaped our shareholder list, with now only one institutional holder above 10% of the issued share capital and a dozen with holdings between 2% and 8%. We now have over 85% of the stock in free float and daily volumes during 2011 have averaged 85,518 shares per day or 0.4% of issued share capital.

We took the decision some months ago to strengthen the Board and it gives me great pleasure to welcome Diane Martyn as a non-executive Director. Diane has in excess of 20 years' experience in the staffing industry where she has held senior management roles, including Managing Director of Blue Arrow and Chief Executive Officer of Select Appointments plc. Her most recent role was as Chief Executive Officer of Randstad Staffing in the UK. Diane will greatly assist us in the future strategic development of the Group.

I remain confident of the Group's ability to continue to grow. It is likely that there will be further opportunities for both acquisitions and organic growth due to on-going changes in the industry and the ever greater need of our clients to increase their productivity whilst being provided reliable and efficient staffing solutions.

John Crabtree OBEChairman27 February 2012

Chief Executive's Report

Summary of 2011

With sales up by 40% and profit (before tax and amortisation) by 32% the Group has enjoyed another successful year. We have achieved this through a blend of strong organic growth combined with selective earnings enhancing acquisitions as well as a move in to additional complementary customer service offerings. At the same time cash generation has remained strong and we continue to manage working capital effectively. This has enabled the Board to propose an increased final dividend of 4.2p, (2010: 3.8p) making the full year dividend 7.1p, (2010: 6.2p) following payment of the interim dividend of 2.9p (2010: 2.4p).

Trading and Operational Review

Whilst 2011 proved less buoyant than 2010, Staffline has continued to achieve strong growth even though the latter half of 2011 saw a general slowdown in demand from existing customers. Demand for our Onsite offering continues to generate market interest with the overall trend to outsourcing remaining prevalent for many clients. As a result the Group has continued to win significant levels of new business which has more than compensated for the market slowdown. 

We have, for the first time in a number of years, increased the number of high street branches we operate from. During 2011 the Group acquired 3 new branches bringing the total number to 18 at the year end. All our branches made a positive contribution during the year. Our branch network differs from the OnSite model in that branches are normally based in secondary high street locations and each one services a diverse range of clients in its local area.

The number of OnSites also increased, from 135 in December 2010 to 163 in December 2011, which includes openings from a mixture of new and existing clients and some from acquisitions. Our Onsite model continues to be a driving factor in our success and we anticipate further growth across the UK.

We acquired Eos Works Ltd (Eos), a Welfare to Work service provider, in April 2011 and are delighted with the impact the business has had on the Group. Following the acquisition the Department for Work and Pensions (DWP) confirmed that EOS had won a £93m five year contract to provide the Work Programme (WP) in Birmingham, Solihull and the Black Country. In October, EOS was awarded two further contracts by the DWP, worth £53m over three years. Both these contracts are financed by the European Social Fund (ESF), with one operating in our existing WP area in the Midlands and the other based in Yorkshire and Humberside. We believe that contracts like these will continue to offer significant opportunities for us given the UK Government's commitment towards reducing welfare expenditure and getting the long-term unemployed back into the workplace. The WP contract has had a very busy start, with referrals approximately 20% ahead of our expectations. The ESF contracts have had no material impact on 2011 but we expect them to develop significantly in 2013. 

In October we reached an agreement with the DWP in regard to the early termination costs of the Flexible New Deal contract (the legacy contract which was superseded by the WP contract in June 2011), the receipts from which allowed us to in turn reach agreement on the claims from our sub-contractors and so allowed EOS to exit the old contract without incurring any additional costs. 

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 ours 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. Unfortunately there is considerable evidence that many of these Gangmasters have moved into both the Construction and Hospitality sectors, both of which are unregulated. 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 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 been encouraged in our long term opposition to travel and subsistence schemes by a more robust response from Government agencies. Whilst we did lose a small number of clients to competitors operating these schemes we also won business from customers who are realising the potential liabilities they face if they allow their supplier to use these schemes.

Acquisitions

We made one further acquisition, Taskforce Recruitment, after the interim results were announced in September 2011, making five in total for the year. 

Taskforce is a well run business based in Peterborough specialising in industrial recruitment with sales in excess of £20 million per annum. It is our intention to keep both the brand and the established branch network despite overlap with some of our existing branches. 

Health and Safety

With the continued expansion of the business, additional staff resources have been put in place which allows us to increase toolbox training/refresher courses to maintain awareness and understanding of the importance of health and safety.

Our clients play an important part in helping us achieve our long term "continuous improvement culture" by maintaining open channels of communication with us.

Regular audits continue to play an important function to ensure the health, safety and wellbeing of our workers are preserved. Our continued commitment to health and safety in the workplace is demonstrated with a further reduction in the Accident Frequency Rate (AFR) by 37.5%. In 2011 our contractors worked over 31million hours and suffered 60 reportable accidents compared to 2010 when 75 accidents happened and hours worked were 25% lower. We are determined to continue this improvement over the coming years. 

ISO 9001

Staffline's ISO 9001 status was first accredited in 2010 and as a result our internal systems are becoming more robust, having undertaken various audits relating to ISO 9001; we maintain full accreditation with no major non-conformances.

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. 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

To help us achieve the highest compliance standards we are in the process of rolling out a new bespoke management information system, Infinity+, which will improve our operating efficiency. Approximately 33% of the Group's locations are already live with Infinity+ and we are deriving a wide range of benefits from it. The new system will provide the platform for further development that will deliver greater efficiencies in our business processes. During the year we also installed new central payroll software which gives us the ability to more than double the number of people we pay each week.

Investors in People (IIP)

Staffline celebrated during 2010 being recognised by IIP with a 10 year service award. By 2013 we aim to become amongst the elite companies in the UK, striving to a higher standard with the IIP by maintaining our high development culture within our business.

Environmental Policy

Staffline has implemented its Environmental Management System in 2011 to help reduce its environmental foot print in everything that it does, including promoting car sharing, promoting telephone conferencing and emails replacing post.

Agency Workers Regulations

The regulations were only 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. 

People

As we continue to grow, we have seen an increase to 361 employees in our recruitment businesses and Head Office this year, giving an average sales per employee of £763,000 compared to £708,000 in 2010. In addition a further 171 people are employed by EOS, bringing the Group's total workforce to 532.

Over the year, we have placed much emphasis on training and development as we recognise the key to our success is our people. During the year from our operational staff: 17 people have undertaken our six month Real Account Manager course, 28 people have passed REC Certificate in Recruitment Practice, 12 passed the external Business Writing Course and 12 passed the Delight the Customer course.

In addition, within our support services staff, 5 people passed their NVQ L3 in payroll, 2 have passed CIMA finance qualifications and 4 have passed qualifications in IT, HR and Credit Control, while 16 attended customer service training. We congratulate them all on their achievements.

The Prince's Trust

During the year our employees decided to adopt The Prince's Trust as the Group's nominated charity and we have held a number of events in order to raise funds for the Trust. We were particularly attracted to the work they do in helping the young and disadvantaged get a good start in life, with the accent on achieving work outcomes. 

Current Trading

We have made a good start to 2012 and are confident of a level of growth in sales, albeit slower than in 2011, that will ensure trading will continue in line with market expectations.

The majority of our clients appreciate the reassurance of the quality we offer as a financially stable, ethical and fully compliant public limited company. Our new business pipeline continues to grow as corporates continue to search for best in class staffing solutions both from a regulatory and business perspective.

Finally I would like to welcome Diane Martyn who has joined the Group as Non-Executive Director and once again thank all our employees for their dedication in ensuring we always offer the best and most innovative service to our clients.

Andy Hogarth

Chief Executive

27 February 2012

Finance Director's Report

Financial Highlights

The total revenues for the year increased by 40% to £288.3million (2010: £206.2million) reflecting the impact of strong demand for our services from existing customers, new business wins in 2010 and 2011 and also the impact of the acquisitions made during last year and this year. The successful growth of our OnSite business has continued. The change in business mix has resulted in a reduction in gross margin to 10.8% (2010: 11.2%). However, profit from operations before amortisation has increased by 32% to £10.3million (2010: £7.8m), and the net operating margin, before amortisation of intangibles, has reduced slightly to 3.6% from 3.8% in 2010. The charge for amortisation has increased by £1.9million to £2.6million due to the acquisitions during the year.

The investment in acquisitions, offset by continued tight management of our debtor book and strong cash flow generation, has led to finance charges being maintained at £0.1million (2010: £0.1million) and this has meant that we have continued to improve interest cover, which has now reached 60 times (2010: 56 times). The interest rates on our overdraft facility remain unchanged during the year, at 2.0% (2010: 2.0%) over bank base rate, while the rate for term borrowings remained at 1.0% (2010: 1.0%) over bank base rate and the new Revolving Credit Facility at 2.2% over LIBOR.

Profit before tax for the year increased to £7.5million (2010: £7.0million) and profit after tax increased to £5.6million (2010: £5.0million).

Earnings per Share

The basic earnings per share increased by 9% to 25.9p (2010: 23.7p) and the diluted earnings per share increased by 11% to 25.0p (2010: 22.6p). However the basic earnings per share before amortisation increased much more strongly, by 31%, to 35.1p (2010: 26.7p).

Dividends

The Directors propose a final dividend of 4.2p per share against 3.8p per share last year. This gives a total dividend for the year of 7.1p per share which is 15% ahead of the 6.2p per share paid in respect of 2010.

Subject to shareholder approval at the AGM, the final dividend will be paid on 4 July 2012 to shareholders on the register on 1 June 2012.

Acquisitions

During the year we completed five acquisitions for a total consideration of £9.2million, although they had net cash balances of £8.9m due mainly to the timing of creditor payments. This amount is comprised of £6.2million cash paid at completion, and further potential consideration of £3.0million which is dependent on future profitability. The acquisitions will add around £44million to turnover in a full year, and have resulted in the recognition in the Group balance sheet of additions to goodwill of £2.4million and additions to intangible assets of £6.7million. The intangible assets will be amortised over a period ranging from 1 to 5 years. The acquisitions have been funded from existing bank facilities together with a Revolving Credit Facility of £5million.

Balance Sheet

The Group balance sheet has strengthened during the year, with net current assets rising by £1.2million to £5.1million (2010: £3.9million) and a broadly unchanged ratio of current assets to current liabilities of 1.11 (2010: 1.14). It is also pleasing to report that despite the significant growth in the business and investment in acquisitions the gearing has only increased to 15% (2010: 7%). The Group continues to be focused on cash generation and ensuring a robust balance sheet to support the growth of the business.

Financing

The Group's current bank facilities include a term loan of £1.8million, repayable in quarterly instalments up to 2013, a revolving credit facility of up to £5m and an overdraft of up to £15.0million. At 31 December 2011 the Group was in a net cash position (excluding the revolving credit facility and term loans). The overdraft facility is renewable annually and is due to be renewed in March 2012. Substantive discussions have already been held with the bank and there is no reason to believe that they will not offer similar facilities for the period to March 2013 at a broadly similar cost of funding as currently in place. The Board believes that these facilities, once finalised, will ensure that the Group has sufficient headroom to manage the current operations as well as supporting the continued growth of the business.

Post tax cash generation during the year has been strong and the relentless focus on debtor management has succeeded in limiting our working capital increase to £1.7million despite the 40% increase in sales. The growth and investment in the business are reflected in a £2.6million increase in net debt to £4.9million (2010: £2.3million). The investment included £7.7million in acquisitions during the year covering EOS, Taskforce Recruitment Limited and 3 other businesses, and a further £1.1million investment in our systems development and Welfare to Work facilities.

Tim JacksonFinance Director27 February 2012

Consolidated summarised statement of comprehensive income

For the year ended 31 December 2011

Consolidated summarised statement of changes in equity

For the year ended 31 December 2011

Consolidated summarised statement of changes in equity (continued)

For the year ended 31 December 2011

Consolidated summarised statement of financial position

As at 31 December 2011

Consolidated summarised statement of cash flows

For the year ended 31 December 2011

\* The cash generated from operations has been reduced by £7,141,000 as a result of creditors acquired through acquisitions but paid after acquisition.

1. Accounting policies

The principal accounting policies adopted by the Group, which have been applied consistently, are set out in the statutory financial statements for the year ended 31 December 2011.

Basis of preparation

The consolidated financial statements of Staffline Group plc and its subsidiaries ('the Group') have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and IFRS as issued by the International Accounting Standards Board (IASB). 

2. 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:

There was only one operating segment for the whole of the year ended 31 December 2010. The Group purchased Eos Works Group Limited (EOS), a welfare to work provider, on 21 April 2011 thus creating two segments during the year ended 31 December 2011. 

During 2011, one customer in the recruitment services segment contributed greater than 10% of that segment's revenues being £35,208,915 (12.2% of total revenues) (2010: one customer greater than 10%). The welfare to work segment revenues relate solely to one customer (government contracts).

The Group's revenues from external customers and its non-current assets all arise in the United Kingdom.

3. Tax expense

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.

4. Business combinations

The Company made a number of acquisitions during the year. An adjustment was required to the book values of the assets and liabilities of the businesses acquired in order to present the net assets at fair values in accordance with group accounting policies. The purchases were accounted for as acquisitions.

Goodwill is primarily related to growth expectations, expected future profitability, the skill and expertise of the acquired workforce, and expected cost synergies. The goodwill that arose from these business combinations is not expected to be deductible for tax purposes.

Amounts relating to the acquisitions are detailed below:

4.1 Acquisition of EOS Works Group Limited

On 21 April 2011 the Company acquired Fourstar Group Limited (Fourstar) from the Dutch company Lern Holding B.V, a company registered in the Netherlands and assumed control through owning 100% of the voting rights. Fourstar was an incumbent provider of the Flexible New Deal Programme and has secured a Work Programme contract for the West Midlands. Fourstar is paid for finding work for those claiming Job Seeker's Allowance and Incapacity Benefit and keeping them in work. Staffline is well placed to utilise its database of jobs to place people back into work. The acquisition will also bring a strong relationship with the Department for Work and Pensions and provide access to potential new work streams. The WP contract alone is expected to generate circa £90m of revenue over the next five years. On 20 June 2011 Fourstar changed its name to EOS Works Group Limited (EOS).

The amounts in respect of the above are:

Acquisition costs recognised as expenses in the year amounted to £50,000.

Consideration transferred

The acquisition of EOS was settled in cash amounting to £3,000,000. The purchase agreement included an additional consideration of £300,000 payable only if EOS meets the target levels agreed by both parties. The fair value of the contingent consideration liability initially recognised also reflects management's estimate as at the date of acquisition.

Identifiable net assets

The fair value of trade and other receivables acquired as part of the business combination amounted to £2,056,000, with a gross contractual amount of £2,056,000. As of the acquisition date, the Group's best estimate of the contractual cash flow not expected to be collected amounted to £nil.

EOS contribution to the Group results

EOS generated post acquisition revenues of £9,672,000 and an operating profit before amortisation of goodwill of £1,544,000. If the acquisition had been made on 1 January 2011 revenues of £14,328,000 and an operating profit before amortisation of goodwill of £3,975,000 would have been included.

4.2 Other acquisitions 

The following acquisitions were also made during the year to enhance the Group's recruitment services segment:

·; On 4 January 2011 a group undertaking acquired the trade and assets of Kelburn Industrial Limited based in Newcastle;

·; On 14 March 2011 a group undertaking acquired Ethos Recruitment Limited, based in Daventry and assumed control by acquiring 100% of the voting rights;

·; On 22 July 2011 certain trade and assets of Arnashade Recruitment Limited were acquired from the receivers by a group undertaking; and

·; On 12 September 2011 a group undertaking acquired Taskforce Recruitment Limited based in Peterborough and assumed control by acquiring 100% of the voting rights.

These acquisitions were individually immaterial to the Group and have therefore been disclosed in aggregate. The aggregate amounts in respect of the above are detailed below:

Acquisition costs recognised as expenses in the year amounted to £57,000.

Consideration transferred

The acquisitions were settled in cash amounting to £3,200,000. The purchase agreements included an additional consideration of £2,688,000 payable only if the profits met the target level agreed by both parties. The additional consideration will be paid in accordance with the specific agreements for each acquisition. The fair value of the contingent consideration liability initially recognised also reflects management's estimate as at 31 December 2011. Identifiable net assets

The fair value of trade and other receivables acquired as part of the business combination amounted to £4,336,000, which equated to the gross contractual amount.

Contribution to the Group results

The above acquisitions contributed post acquisition revenues of £11,863,000 and profits totalling £420,000. If the acquisitions had been made on 1 January 2011 revenues of £30,079,000 and an operating profit before amortisation of goodwill of £1,003,000 would have been included.

5. 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 776,169 (2010: 1,114,819) 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.

6. Dividends

During the year, Staffline Group plc paid interim dividends of £623,853 (2010: £508,808) to its equity shareholders. This represents a payment of 2.9p (2010: 2.4p) per share. A final dividend of £959,486 has been proposed (2010: £812,612) but has not been accrued within these financial statements. This represents a payment of 4.2p (2010: 3.8p) per share. The final dividend for 2010 was declared and paid in 2011.

7. Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.

The consolidated summarised income statement, the consolidated summarised statement of changes in equity, the consolidated summarised balance sheet and the consolidated summarised cash flow statement and associated notes have been extracted from the Group's 2011 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 498 of the Companies Act 2006.

Those financial statements have not yet been delivered to the registrar of companies.