Final Results

Staffline Recruitment Group plc 01 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 and outsourced human resource services to industry, today announces its preliminary results for the year ended 31 December 2005. Financial highlights*: â€¢ Revenue up 26% to Â£61.5m (2004**: Â£49.0m) â€¢ Operating result up 89% to Â£3.1m (2004**: Â£1.6m) â€¢ Pre tax result up 362% to Â£2.5m (2004**: Â£0.5m) â€¢ Basic earnings per share of 8.0p â€¢ Proposed final dividend of 1.2p; giving a total dividend for the year of 1.9p per share â€¢ Strong cash generation; gross cash inflow of Â£3.4m â€¢ Net debt reduced by 27% to Â£6.2m (2004**: Â£8.5m) * All figures are stated in accordance with International Financial Reporting Standards (IFRS) and 2004 figures have been restated (see notes to the accounts for a full reconciliation of the transition from UK GAAP to IFRS for the periods to 31 December 2004) ** All 2004 figures are provided on a pro-forma basis Operational highlights: â€¢ Significant growth in OnSites; 18 opened during the year â€¢ Continued strong performance from the Techsearch division â€¢ Carole Harvey appointed Finance Director in September 2005 Current trading and prospects: â€¢ 2006 to benefit from annualised effect of 6 OnSite wins at the end of 2005 â€¢ Trading for first eight weeks of 2006 in line with expectations â€¢ A further 5 OnSites opened since the year end; totalling 58 as at 28 February 2006 â€¢ 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 to be able to report a further set of strong results which are ahead of expectations 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 a further year of progress in 2006.' For further information, please contact: www.staffline.co.uk Staffline Recruitment 0115 950 0885 Andy Hogarth, Managing Director Carole Harvey, Finance Director Smithfield 020 7360 4900 Katie 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 17 branches and 58 OnSite locations nationwide. The Group also has a smaller but growing division called Techsearch which specialises in temporary and permanent engineering, 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 was admitted 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 the year ended 31 December 2005, which are ahead of expectations and significantly ahead of the comparable period last year. Staffline specialises in the matching of un-skilled and semi-skilled temporary workers to suitable positions within the food production, manufacturing, and logistics sectors, with 75% of Group revenues derived from the food production sector which is less cyclical. This is achieved by providing an outsourcing service which includes skills and reference checking applicants, health screening, 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; a service which is complementary to many Staffline clients. The Year in Review The results for the year reflect a strong trading performance, consisting entirely of organic growth. The main driver of this growth continues to be our OnSite division, which now represents 64% of Group turnover and has increased the number of OnSites it operates from 35 at the end of 2004 to 53 by 31 December 2005. The Group was formed to acquire Staffline Recruitment Limited in December 2004 and, therefore, there are no comparative statutory Group results for 2004 available. However, results for the year ended 31 December 2004 are provided on a pro-forma basis. As outlined at the time of our interim results, we have adopted International Financial Reporting Standards (IFRS) early so that the 2005 results are reported in accordance with IFRS, while the 2004 results have been restated. A full reconciliation 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 30 June 2005 and paid on 18 November. I am pleased to announce that the Directors recommend 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 2006 to shareholders on the register on 2 June 2006. This will make the total payment for the year 1.9p per share. The Directors confirm their intention to pursue a progressive dividend policy. Our People In September 2005, Carole Harvey was recruited to the Board of Staffline as Finance Director and Company Secretary. Carole brings with her a wealth of financial, marketing and commercial acumen, as well as extensive experience of devising and implementing successful change strategies and represents an excellent addition to the Board. Andrew Walsh, who was appointed Finance Director at the time of the IPO, resumed his previous role as Financial Controller of the Group. All staff who have completed in excess of six months service with the Group have received share options and are incentivised in line with the future success of the Group. I would like to thank all staff for their continued commitment and performance throughout the year. Summary I am delighted with the progress of the Group during its first full year since admission to AIM. In line with our strategy, we have established strong relationships across a broad customer base, providing us with a robust platform from which to further expand the Group's service offering and develop our national presence. Derek Mapp Chairman 1 March 2006 Managing Director's Report The Group has made excellent progress throughout the year and we are pleased to be able to report a further set of strong results. Financial Results Revenue for the year rose by 26% to Â£61.5m in 2005 from Â£49.0m in 2004. Gross profit margins decreased by 2% to 19.2% a reflection of the Group's policy to grow the OnSite business which has a lower gross profit. However, the benefits of the OnSite model, which achieves a higher net margin due to its lower operating costs, as well as considerable emphasis on overhead cost control, are reflected at the operating result level which has increased by 89% during the year to Â£3.1m from Â£1.6m in 2004. This represents a marked increase in the operating result margin from 3.3% in 2004 to 5.0% in 2005. The financial restructuring at the time of the flotation together with a reduction in net debt during the year has also had considerable benefits, with finance costs reducing from Â£1.1m to Â£0.6m, leaving a result before tax up by 362% to Â£2.5m from Â£0.5m. Earnings per share were 8.0p in 2005. The Group continued to generate strong cash flow, resulting in a 27% decrease in net debt to Â£6.2m as at 31 December 2005 from Â£8.5m as at 31 December 2004. The Group has decided to adopt International Financial Reporting Standards for the year ended 31 December 2005, and therefore all comparatives for 2004 have been restated. A full reconciliation has been provided in the notes to the accounts. Strategy At the time of the flotation we stated our strategy to be to continue the organic growth of the Group by expanding our OnSite locations and the selective opening of more high street branches, and this remains our main focus. Operational Review Our presence on AIM has provided the Group with greater visibility and credibility amongst its existing and potential customers, thereby supporting further growth during the year. We have been able to increase the number of OnSites from 35 on 31 December 2004 to 53 on 31 December 2005 and have further increased this number to 58 by 28 February 2006. This represents a mix of both additional OnSites for existing customers and OnSites for new customers. The new wins have predominantly been in the food production sector, increasing the proportion of our revenue derived from this sector from 69% to 75%, in line with our focus on this less cyclical industry. At the time of our interim results announcement in September 2005, we reported that economic conditions were impacting upon our clients in certain manufacturing sectors during the first half of the year. Whilst we have not seen a recovery of demand from these sectors during the second half of the year, this segment represents only 11% of Group revenue and this softness has been more than offset by growth in the food production sector. Furthermore, whilst we began the year with a network of OnSites predominantly in the Midlands area, we have been successful in expanding our geographical footprint during the year with greater penetration across the North and South of England as well as Scotland and Wales, giving us much greater national coverage. The growth in our OnSite proposition reflects the increased demand for our service, which offers many advantages for our clients in terms of operational efficiency and workforce management. During the year, we maintained the number of high street branches we have in aggregate but made changes to the network to take advantage of local demand and labour conditions. In the first half, we opened a service branch in Wolverhampton in response to increased demand in this area, which is performing well. We also closed a recruitment centre in Stoke as labour availability greatly improved, thus removing the need for a branch in order to fulfil local customer demand for labour. Techsearch, our skilled brand, had a very good year and the number of consultants employed has been increased. We intend to continue to expand this division, 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 maintaining the very highest standards of ethics. Many of the issues facing us remain the same as last year, whilst further developments have continued the focus on employment practices. Gangmaster Licensing The Gangmaster (Licensing) Act 2004 established the Gangmasters Licensing Authority ('GLA') to set up and operate the licensing scheme for labour providers operating in the agricultural, shellfish gathering and associated processing and packing sectors. The precise scope of the changes likely to be brought about by the Act still remains unclear but we have worked closely with the GLA to help shape the outcome and we welcome the initiation of the Authority. The current intention is that the GLA will start issuing licences on the 6 April 2006, with the offence of operating without a licence coming in to operation on 1 October 2006. It will also become an offence for a labour user to use an unlicenced provider. We believe we already qualify for an immediate licence following our successful Temporary Labour Working Group (TLWG) audit and as the proposed licence fees in the first year have been substantially reduced, registration will have a negligible impact on the Group's finances in 2006. The Home Office The Home Office has greatly increased its activity in searching for and preventing the use of illegal workers. It has carried out a large number of audits in both our and our clients' premises. We have passed those audits successfully on each occasion. EU Accession State Workers The numbers of workers arriving in the UK has continued to increase steadily and we estimate that 28% of our workers are citizens of one of the new EU accession states. This has been of benefit to our business as, whilst demand has decreased from a small proportion of clients who have chosen to employ such workers directly, overall demand has increased as our clients are attracted to the flexibility of this temporary workforce. We have now started to recruit skilled workers in Poland in particular for roles in the Food Processing sectors. Verification Systems Large numbers of illegal workers continue to attempt to register with us, as is the case across the temporary unskilled worker industry. To maintain our high standards in ensuring the legality of our workers, we have increased investment in IT to ensure we remain fully compliant with the law, whilst also strengthening our relationships with the various government agencies in order to remain fully conversant with the latest examples of forged documentation. During the year, we invested in the roll-out of a document scanning system across our operations which attaches scanned copies of a contractor's proof of eligibility to work to their computerised record. This investment has further improved the quality of documentation held, ensuring a full, easily accessed audit trail for every contractor building upon our unique three stage process of verification and securing our leadership in compliance with legislation surrounding the prevention of illegal working. Health & Safety We fully recognise our responsibility to ensure we only allow our workers to work in as safe a working environment as possible and so have a system of checks to 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 of 188 during 2005, an increase of 4% against an increase in revenue of 26%. A total of 26 employees were promoted during the year. We have a strong staff retention record, with staff turnover having fallen from 50% in 2003 and 30% in 2004 to 26% in 2005, significantly below the industry average which is generally recognised to be approximately 50%. Our employees work constantly to increase customer satisfaction, as demonstrated by the response to our surveys which consistently show very high levels of customers regularly confirming that they are completely or very happy with the service they receive. I continue to be enormously impressed at the hard work and dedication to customer 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 annualised effect of which will benefit the current year, and the five new OnSites which have opened in January and February 2006 will further underpin prospects for the year ahead. In addition, 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 a further year of progress in 2006. Andy Hogarth Managing Director 1 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 Â£'000 Â£'000 Â£'000 Continuing operations Sales revenue 61,479 48,952 4,927 Cost 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 before taxation 2,482 537 103 Tax (expense)/income 4 (824) (261) 21 -------- ------- ------- Net result for the period 1,658 276 124 ======== ======= ======= Earnings per ordinary share Basic 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 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 25 October 2004 - - - - - On acquisition of Staffline Recruitment Limited 1,000 - 7,004 - 8,004 Issue of new shares 1,082 - 7,573 - 8,655 Cost of issue of new shares - - (320) - (320) Net result for the period - - - 124 124 Employee share based compensation - 5 - - 5 ------ ------ ------- ------- ------- At 31 December 2004 2,082 5 14,257 124 16,468 Net result for the year - - - 1,658 1,658 Employee share based compensation - 63 - - 63 Dividends 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 Â£'000 Â£'000 Assets Non current Goodwill 22,326 22,326 Property, plant and equipment 88 285 -------- ------- 22,414 22,611 -------- ------- Current Trade debtors and other receivables 8,663 7,901 Cash and cash equivalents 552 371 -------- ------- 9,215 8,272 -------- ------- Total assets 31,629 30,883 ======== ======= Liabilities Non current Bank loans (3,100) (4,050) Current Trade 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) ======== ======= Equity Share 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 Â£'000 Â£'000 Â£'000 Cash flows from operating activities Operating result 3,055 1,615 215 Adjustments for: Loss on disposal of fixed assets - 281 - Depreciation of property, plant and equipment 305 422 33 ------- ------- ------- 3,360 2,318 248 Change in trade and other receivables (762) (2,053) 424 Change 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 5 Taxes paid (290) - - ------- ------- ------- Net cash inflow from operating activities 2,574 5,038 1,381 ======= ======= ======= Cash flows from investing activities Acquisition of subsidiary undertaking net 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 activities Proceeds from the issue of shares - - 8,655 Repayment 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 of period 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 its subsidiary ('the Group') have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards as adopted by the EU and the International Financial Reporting Standards as issued by the International Accounting Standards Board. The transition to International Financial Reporting Standards has been made in accordance with International Financial Reporting Standard 1 'First-time adoption of International Financial Reporting Standards'. Separate financial statements of Staffline Recruitment Group plc ('the Company') have been prepared under the historical cost convention and in accordance with applicable accounting standards under UK GAAP. The accounting policies of the Group are included in the 2005 financial statements. The transition to International financial reporting standards ('IFRS') reporting has resulted in a number of changes in the reported financial statements, notes thereto and accounting principals compared to the previous annual report. Note 2 provides 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 with IFRS 1, 'First-time Adoption of International Financial Reporting Standards'. The Group's financial statements for the year ended 31 December 2005 and the comparatives presented for the period ended 31 December 2004 comply with all presentation, recognition and measurement requirements of IFRS applicable for accounting periods commencing on or after 1 January 2005. The following reconciliations and explanatory notes thereto describe the effects of the transition for the financial year 2004. All explanations should be read in conjunction with the IFRS accounting policies of Staffline Recruitment Group plc. Since Staffline Recruitment Group plc was incorporated on 25 October 2004 that is the transition date to IFRS. As that was the date of incorporation of the Company no reconciliation of equity is required at that date. Statutory profit and loss account for the period ended 31 December 2004 and balance sheet at 31 December 2004 The re-measurement of balance sheet items as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 UK GAAP Effect of transition IFRS Â£'000 Â£'000 Â£'000 Goodwill 22,256 70 22,326 ======= ====== ======= Profit and loss account 59 65 124 Share 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 its equity under IFRS as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 Â£'000 Retained earnings - UK GAAP 59 Reversal of goodwill amortisation 70 Employee 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 is reconciled to IFRS as follows: Reconciliation for the period 25 October to UK Effect of 31 December 2004 GAAP transition IFRS Â£'000 Â£'000 Â£'000 Sales revenue 4,927 - 4,927 Cost of sales (3,966) - (3,966) ------- ------ ------ Gross profit 961 - 961 Administrative expenses (741) (5) (746) ------- ------ ------ Operating result 220 (5) 215 Amortisation of goodwill (70) 70 - Finance costs (112) - (112) ------- ------ ------ Result for the period before taxation 38 65 103 Tax income 21 - 21 ------- ------ ------ Net result for the period 59 65 124 ======= ====== ====== The Group has modified its former balance sheet and income statement structure on transition to IFRS. The main changes may be summarised as follows: â€¢ to eliminate the amortisation of goodwill â€¢ 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 ended 31 December 2004 is reconciled to IFRS as follows: Reconciliation for the year to 31 UK GAAP Effect of December 2004 transition IFRS Â£'000 Â£'000 Â£'000 Sales revenue 48,952 - 48,952 Cost of sales (38,579) - (38,579) ------- ------ ------- Gross profit 10,373 - 10,373 Administrative expenses (8,753) (5) (8,758) ------- ------ ------- Operating result 1,620 (5) 1,615 Amortisation of goodwill (676) 676 - Finance costs (1,078) - (1,078) ------- ------ ------- Result for the period before taxation (134) 671 537 Tax expense (261) - (261) ------- ------ ------- Net result for the period (395) 671 276 ======= ====== ======= The changes may be summarised as follows: â€¢ to eliminate the amortisation of goodwill â€¢ 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 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. 4 Tax expense The relationship between the expected tax expense at 30% and the tax expense actually 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 Â£'000 Â£'000 Â£'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 expenses relating to short term timing differences 48 142 (55) Other non-deductible expenses 24 (23) 3 Adjustments 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 from the origination and reversal of temporary differences - (21) (21) ------ ------ ------ 824 261 (21) ====== ====== ====== There is no tax expense or credit in relation to the share based payment reserve credited to equity 5 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: Basic Diluted Year ended Period Year Period 31 ended 31 ended 31 ended 31 December December December December 2005 2004 2005 2004 Earnings (Â£'000) 1,658 124 1,658 124 =========== ========= ========== ========= Weighted average number of shares 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 (period ended 31 December 2004: 6,291) shares to take account of all dilutive potential ordinary 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 day trading period only and, therefore, gives a distorted picture of an annualised earnings per share. During the year, Staffline Recruitment Group plc paid interim dividends of Â£146,000 (2004: Â£nil) to its equity shareholders. This represents a payment of 0.7p (2004: nil) per share. A final dividend of Â£250,000 has been proposed (2004: nil) but has not been accrued within these financial statements. This represents 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 not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The summarised consolidated profit and loss account, the summarised consolidated statement of changes in equity, the summarised consolidated balance sheet at 31 December 2005 and the summarised consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2005 statutory financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the registrar of companies. This information is provided by RNS The company news service from the London Stock Exchange

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