Final Results

RNS Number : 1789O

Staffline Recruitment Group plc

03 March 2009

 



Embargoed until 0700                                                                                                     Tuesday, 3 March 2009

STAFFLINE RECRUITMENT GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

Staffline Recruitment Group plc ('Staffline' or 'the Group'), a leading provider of recruitment and outsourced HR services to industry, today announces its preliminary results for the year ended 31 December 2008.

Key financials:

§         Revenues of £120.8m (2007: £119.9m)

§         Operating profit of £3.7m (2007: £4.9m)

§         Profit before tax of £3.4m (2007: £4.4m)

§         Basic earnings per share of 11.1p (2007: 14.2p)

§         Final dividend of 1.5p; total dividend of 2.9p (2007: 3.8p)

§         Net debt reduced to £6.0m (2007: £6.3m)

§         Gearing fell to 24% (2007: 28%)

§         Interest costs reduced by 24% to £0.4m (2007: £0.5m); covered 10 times

§         Net current assets rose by £0.9m to £2.9m

Operational summary:

§         Continued growth in OnSites:

–         up by 11 during the reporting period to 112

–         represents 79% of group sales (2007: 73%)

–         food processing sector continues to demonstrate relative resilience

§         Annualised cost savings of £0.9m achieved; £0.3m realised in the reporting year

–         rationalisation of the branch network

–         headcount reduced by 12% over the year

–         reduction in central costs

§         Average sales per employee increased to £560,000 (2007: £490,000)

§         Board changes implemented as part of succession planning

Current trading:                                    

§         Trading in the first eight weeks of 2009 are in line with management’s expectations

§         A net increase of 2 new OnSites expected in the first quarter

§         Current financial year will benefit fully from new OnSites opened during the second half of 2008

Commenting on the results, Andy Hogarth, Chairman and Chief Executive, said: 

'We are continuing to see strong demand for new OnSites, particularly in the food processing sector and, whilst we expect the recession to provide a tough economic backdrop in the markets where we operate, we remain confident that our model will allow us to operate profitably and to grow our market share.'

'We are in a strong financial position, with our term loan not maturing until 2013, and we expect to continue to generate cash. The operational savings implemented during 2008 will allow us to underpin profitability in 2009.'

'We, therefore, face the challenges of 2009 with both enthusiasm and confidence.' 

For further information, please contact:	www.staffline.co.uk
Staffline Recruitment Group plc	0115 950 0885
Andy Hogarth, Chairman and Chief Executive	07931 175775
Tim Jackson, Finance Director	07720 458626
Altium
Phil Adams / Paul Lines	0161 831 9133
Smithfield
Katie Hunt / Rebecca Whitehead	020 7360 4900

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 112 OnSite locations nationwide as well as a network of 15 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).

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Chairman's and Chief Executive's statement

For the year ended 31 December 2008 

Introduction

The Group continues to specialise in the provision and management of semi-skilled and unskilled workers to UK industry, including manufacturing, logistics and distribution and in particular food processing. We started to specialise in food processing in 2002 as we felt it would be more resilient in the event of a downturn in economic activity. This has proved to be the case, as I outline below. The largest area of activity is our OnSite offering, where we are contracted by our clients to recruit, train and manage temporary workers on the customer's own premises.  OnSite now represents 79% of group sales, up from 73% a year ago.

The Year in Review

The total number of OnSite locations has increased to 112, representing a net increase of 11 during the year from both existing and new clients. Whilst this represents a further increase in our market share, some client site closures and volume reductions, most noticeably in the automotive and manufacturing sectors, limited the sales increase to less than 1% for the year. Due to a reduction in volume at many existing locations, profit before tax has fallen by 23% in the year to £3.4m (2007: £4.4m). During the second half of the year, we introduced annualised cost savings of £0.9m, of which the year ended 31 December 2008 benefitted from £0.3m. The Operational Review below outlines how these cost savings were generated and the Finance Director's statement provides further details of the financial results.

Board Changes

On 15 December 2008 we announced the appointment of Tim Jackson as Finance Director, replacing Carole Harvey who had decided in the summer to pursue her other interests. In addition, on 2 February 2009, we announced a number of other changes as a result of succession planning for Derek Mapp who wished to step down from his role as Chairman to spend more time on his other business interests, including his role as Chairman of the British Amateur Boxing Association ahead of the London 2012 Olympics. Following the succession planning process it was agreed that I would take the role of Chairman and Chief Executive and John Crabtree, who was previously a non-executive Director, would take the role of Senior Independent non-executive Director.

We can also confirm that the appointment of Shaun Brittain to the Board, which was announced on 2 February 2009, has become effective today. Shaun has been with Staffline since 2000 and has played a major role in the development and delivery of the OnSite model, a growing contributor to both the strength of our business model and Group operating profits.  

Dividends

Given the lower level of profitability of the Group, the Board is recommending a final dividend of 1.5p, giving a total for the year of 2.9p (2007: 3.8p). This represents dividend cover of 3.75 post tax earnings, which maintains the same level of cover as last year and it is the Board's aim to retain cover at this level in the future.

Subject to shareholder approval, the final dividend will be paid on 8 July 2009 to shareholders on the register as at 5 June 2009.

Strategy

The Group's strategy remains largely unchanged despite, and indeed because of, the effects of the current recession. The need for our services from our target client group has never been greater as consumers demand ever greater value for money; our services enable our clients to operate more efficiently and maintain their competitiveness. We, therefore, intend to continue to grow the number of OnSites whilst also developing complementary services.

Proposed Name Change and Rebranding

It is our intention to refresh our corporate image and, at the Annual General Meeting, seek shareholder approval to change the name of the company to Staffline Group plc. This change reflects the move in the last few years away from being a traditional recruitment business towards being an outsourced business services provider. These changes to our branding are not expected to incur material costs. 

Operational Review

OnSite

The number of OnSite locations continued to grow, to 112 at the year end compared to 101 a year earlier. As in previous years, organic growth has been driven by existing clients taking on additional OnSites as well as new client wins. Clients continue to be attracted to a combination of the benefits of outsourcing their temporary recruitment function, allowing them to focus on managing their core business, together with the operating efficiencies that the appointment of Staffline delivers. 

Our core area of food processing, which represents over 60% of Group sales, has remained relatively resilient, and the majority of new sites won in the year have been in this sector. However, demand from many individual sites has been reduced, most notably from existing customers in the automotive and manufacturing sectors.  

Staffline Branch Network

We merged a number of branches during the year, finishing with 15 locations. Although these branches continue to act as incubators for new OnSite business, the recession has made it harder for them to be successful stand-alone profit centres so some of these are now purely recruitment centres and are resourced accordingly. 

Techsearch

Of all our brands Techsearch has been most impacted by the economic downturn and we took the decision in the summer to merge all operations into one 'super branch' in Leeds, thereby substantially reducing its cost base and allowing us to maintain the profitability of the brand at last year's level, despite a reduction in permanent placements. Fees from the provision of permanent placements now represent well under 1% of group sales.

OSP

On Site Partnership, the company we acquired in 2006, successfully trialled new services to new clients during the year and we are expecting to extend these relationships during 2009. 

Industry Appointments

During the year Marshall Evans, our Operations Director, was elected a Corporate Director of the Recruitment and Employment Confederation (REC). Following this he was appointed to the Board of the Gangmaster Licensing Authority. I am also an Executive Committee member of the Association of Labour Providers (ALP). Through these combined roles, we can be confident that Staffline is at the forefront of implementing and shaping changes in best practice in our industry. 

The Labour Market

During the year, we found work for a total of 36,926 people, some of whom worked for us for just a few days whilst others were with us all year. People choose to work through us for many reasons, often as a first step on the employment ladder in the UK, as a route to obtaining full time work or to fund their studies. Others enjoy the freedom such work affords them, leaving them free to undertake child or other care.

63% (2007: 58%) of our workers come from the new EU accession states. We had early indications in October 2007 that some of the initial inflow of workers decided to return home, which led to a slight tightening of labour supply in the last quarter of 2007. During 2008, with Sterling falling against the Euro, the UK became a less attractive place to work but in recent months a slowing of economic activity in both Eastern and Central Europe has ensured that we have been able to continue to recruit sufficient labour. We have also lately seen an increase in the numbers of indigenous workers seeking temporary employment.  

Health & Safety

We take the provision of a safe working environment for all our contractors and staff extremely seriously and have invested in ensuring that we have processes and systems which alert us to areas of concern before we place a contractor in a position. In an OnSite location this is relatively simple as we are often responsible for carrying out induction and other training, keeping accurate records and ensuring that a worker is suitably qualified for a role. Also, since we are located on the client's premises, we have direct access to the client and any concerns identified can be readily addressed.

Through our branch network, in order to exert similar controls for our clients, some of whom are small owner-operated businesses, we have introduced further checks to ensure a safe working environment for all. Where these checks have highlighted safety concerns which we have been unable to resolve satisfactorily, we have withdrawn our workers. One of the key areas of concern in the past has been where a worker has been supplied for a specific assignment but has been moved to another assignment for which they are not suitably trained. The introduction of a series of regular checks is ensuring this risk is mitigated.

We have recorded a reportable accident frequency rate for the whole year of 0.8%, which compares to the industry average of 6.1%. This means that one of our contractors is 87% less likely to have an accident leading to more than 3 days absence from work than average. Whilst we are pleased with this result we acknowledge that we must continue to strive to improve since the only acceptable statistic is to have no accidents.  

Environmental Policy

Whilst, by the nature of our business, we have a lower impact on the environment than companies operating in other sectors, we recognise that it is necessary for us to do whatever is possible to minimise our carbon footprint.  To this end, we have been developing our environmental policy since 2004, when we stopped providing company cars and introduced a stringent policy of reimbursement for business mileage.

During that year, we also started to look at ways in which we could reduce the transportation of workers by attracting people living in an area local to a client rather than having to transport them. We estimate that we now transport about 4% of our workers, compared to 10% four years ago.  

More recently, we have introduced re-cycling schemes for our used office products, mobile phones and computer equipment. We have also moved our head office to a purpose-built, energy-efficient location in Nottingham during the year. The new building is served by good public transport links; however these will be further improved over the next few years with the extension of the Nottingham tram network, allowing almost all of our staff to travel to work by public transport.

Gangmaster Licensing

As previously reported, Staffline was the first major supplier to be granted a Gangmaster licence under the Gangmaster Licensing Act 2006. Since the licensing scheme came into force, 85 suppliers have had their licences withdrawn, out of a total number of 1,200 holders. We applaud the continuing efforts made by the GLA to stamp out any poor operating practices and welcome the positive impact it has had on our industry.

Verification Systems

We continue to have a large number of potentially illegal workers who attempt to register with us without possessing the correct identification documents. The investment made in 2006/7 in IT systems has greatly helped us to ensure that such workers are not supplied in error by us to a client. We continue to work very closely with the various Government departments and, in the many audits they have undertaken, we have always been shown to be fully compliant with all legislation. 

Employees

The number of people employed by the Group reduced by 12% during the year to 217 in December 2008, from 245 in 2007. This increased the average sales per employee from £490,000 in 2007 to £560,000 in 2008. This increased efficiency is a key metric and demonstrates how our employees continue to be the backbone of our Group. We remain committed to recognising their valuable contribution to delivering consistently exceptional client service and thereby growing our business.  

We continue to place great value in the training of our staff and, as well as many internal training courses, we have recently introduced the REC Certificate in Recruitment Practice scheme.

Current Trading and Prospects

Trading in the first eight weeks of 2009 has been in line with management's expectations and we are continuing to see strong demand for new OnSites, particularly in the food processing sector. The current financial year will gain the full benefit of the new OnSites opened during the second half of 2008, offset by the loss of a significant client with 4 OnSites at the end of the first quarter of 2009, and will benefit from an overall expected net increase of 2 OnSites in the first quarter.  

Overall, we continue to be encouraged by the levels of interest in our products and services from new clients and, whilst we expect the recession to provide a tough economic backdrop in the markets where we operate, we remain confident that our model will allow us to operate profitably and to grow our market share.

We are in a strong financial position, with our term loan not maturing until 2013, and we expect to continue to generate cash. The operational savings implemented during 2008 will allow us to underpin profitability in 2009. We, therefore, face the challenges of 2009 with both enthusiasm and confidence. 

Andy Hogarth
Chairman and Chief Executive
3 March 2009

Finance Director's statement

For the year ended 31 December 2008 

Financial Highlights

Revenues for the year rose by 1% to £120.8m (2007: £119.9m). The successful growth of our OnSite business, which achieves lower gross margins on higher volumes, continued. 

As market conditions tightened in the second half, we took action to review overhead costs and implement cost savings. This resulted in four loss making branches being merged into other existing branches and a significant reduction in the overall headcount. Overall administrative costs were reduced by £0.3m against last year to £13.0m. Operating profit for the reporting year was £3.7m (2007: £4.9m). 

The operating profit is stated after share option expenses of £62k (2007: £61k) relating to the accounting charge under IFRS 2-Share based payment.

Continued tight management of our debtor book and a number of bank base rate reductions have reduced finance charges by 24% to £0.4m (2007: £0.5m). This has meant that we have continued to improve interest cover, which has now reached 10.1 times (2007: 9.9 times). We currently pay interest at 1.0% over base rate for all our borrowings (2007: 1.0%).

Profit before tax for the reporting year was £3.4m (2007: £4.4m). Following the reduction in the rate of corporation tax, the tax expense fell to £1.0m (2007: £1.4m) and profit after tax was £2.3m (2007: £3.0m). 

Earnings per Share

The basic earnings per share of 11.1p compare to 14.2p last year. The diluted earnings per share were 10.7p compared to 13.7p in 2007.

Net Assets

The Group balance sheet has strengthened considerably during the year, with net current assets rising by £0.9m to £2.9m (2007: £2.0m). It is also pleasing to report a fall in gearing to 24% (2007: 28%). The Group continues to be focussed on cash generation and ensuring a robust balance sheet. The gross value of fixed assets rose during the year following the move to our new Head Office and continued investment in our IT infrastructure.

Financing

The Group has the financing facilities in place to support the future growth of the business. The current facilities include a term loan of £4.4m repayable in quarterly instalments up to 2013 and an overdraft of up to £5.0m. At 31 December 2008, £3.5m of the overdraft was undrawn. The overdraft facility is renewable annually and is due to be renewed in March 2009. Substantive discussions have already been held with the bank which has resulted in an offer of similar facilities for the period to March 2010, albeit at an increased cost of funding in line with the current banking market. The board believes that these facilities will ensure that the Group has sufficient headroom to manage the current operations as well as providing further headroom to support the continued growth of the business. The average daily overdraft balance during the year was £285,000, leaving on average an unused facility of £4.7m.

Post tax cash generation during the year has been strong, reflecting our collaborative approach in partnership with our clients, although we experienced slower debtor payment in the last quarter. During the first eight weeks of 2009 we have been able to reverse this. During the year we invested £0.2m in our systems and new offices. We ended the year with a slight reduction in net debt to £6.0m (2007: £6.3m).

Tim Jackson
Finance Director
3 March 2009

Consolidated summarised income statement

For the year ended 31 December 2008 

	Note		2008	2007
			£'000	£'000
Continuing operations
Revenue			120,784	119,866
Cost of sales			(104,046)	(101,676)
Gross profit			16,738	18,190
Administrative expenses			(12,992)	(13,336)
Operating profit			3,746	4,854
Finance costs			(370)	(489)
Profit before taxation			3,376	4,365
Tax expense	3		(1,031)	(1,363)
Net profit for the year			2,345	3,002
Total and continuing earnings per ordinary share	4
Basic			11.1p	14.2p
Diluted			10.7p	13.7p

Consolidated summarised statement of changes in equity 

At the year ended 31 December 2008
________________________________________________________________________________________

	Share  capital	Share based payment reserve	Share premium	Profit and loss account	Total
	£'000	£'000	£'000	£'000	£'000
At 1 January 2007	2,082	107	14,257	3,522	19,968
Share options exercised	30	-	211	-	241
Net profit for the year and total recognised income and expenses for the year	-	-	-	3,002	3,002
Employee share based compensation	-	61	-	-	61
Transfer on exercise of options	-	(62)	-	62	-
Dividends paid	-	-	-	(635)	(635)
At 31 December 2007	2,112	106	14,468	5,951	22,637
Share options exercised	11	-	57	-	68
Net profit for the year and total recognised income and expenses for the year	-	-	-	2,345	2,345
Employee share based compensation	-	62	-	-	62
Transfer on exercise of options	-	(19)	-	19	-
Dividends paid	-	-	-	(826)	826
At 31 December 2008	2,123	149	14,525	7,489	24,286

Consolidated summarised balance sheet

At the year ended 31 December 2008
________________________________________________________________________________________

		2008	2007
		£'000	£'000
Assets
Non current
Goodwill		24,181	24,181
Other intangible assets		25	116
Property, plant and equipment		891	948
		25,097	25,245
Current
Trade and other receivables		15,805	16,638
Cash and cash equivalents		892	829
		16,697	17,467
Total assets		41,794	42,712
Liabilities
Current
Trade and other payables		(10,162)	(12,244)
Borrowings		(3,251)	(2,506)
Other current liabilities		(17)	(17)
Current tax liabilities		(371)	(699)
		(13,801)	(15,466)
Non current
Borrowings		(3,570)	(4,455)
Other non current liabilities		(137)	(154)
Total liabilities		(17,508)	(20,075)
Equity
Share capital		(2,123)	(2,112)
Share premium		(14,525)	(14,468)
Share based payment reserve		(149)	(106)
Profit and loss account		(7,489)	(5,951)
Total equity		(24,286)	(22,637)
Total equity and liabilities		(41,794)	(42,712)

Consolidated summarised cash flow statement

For the year ended 31 December 2008 

			2008	2007
			£'000	£'000
Cash flows from operating activities
Profit before taxation			3,376	4,365
Adjustments for:
Interest paid			370	489
Depreciation and amortisation of property, plant and equipment and intangible assets			362	306
Operating profit before changes in working capital and provisions			4,108	5,160
Change in trade and other receivables			833	(2,594)
Change in trade and other payables			(2,099)	2,108
Cash generated from operations			2,842	5,160
Adjustment for debt issue costs			-	10
Employee equity settled share options			62	61
Taxes paid			(1,359)	(1,142)
Net cash inflow from operating activities			1,545	3,603
Cash flows from investing activities
Purchases of property, plant and equipment			(214)	(1,715)
Proceeds from sale of property			-	1,626
Acquisition of subsidiary net of cash acquired			-	(2,098)
Net cash used in investing activities			(214)	(2,187)
Cash flows from financing activities
New bank loans			-	2,000
Repayment of bank and other loans			(930)	(886)
Interest paid			(344)	(489)
Dividends paid			(826)	(635)
Proceeds from the issue of share capital			68	241
Net cash from financing activities			(2,032)	231
Net change in cash and cash equivalents			(701)	1,647
Cash and cash equivalents at beginning of period			(762)	(2,409)
Cash and cash equivalents at end of period			(1,463)	(762)

Notes to the preliminary announcement

For the year ended 31 December 2008
_________________________________________________________________________________________

accounting policies

Basis of preparation

The consolidated financial statements of Staffline Recruitment Group plc and its subsidiary undertakings ('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 accounting policies of the Group are included in the 2008 financial statements.

2. 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.

Notes on the Preliminary announcement

For the year ended 31 December 2008
_________________________________________________________________________________________

3. tax expense

The relationship between the expected tax expense at 28.5% and the tax expense actually recognised in the income statement can be reconciled as follows:

	2008		2007
	£'000	%	£'000	%
Result for the year before tax	3,376		4,365
Tax rate	28.5%		30%
Expected tax expense	962	28.5	1,309	30.0
Adjustment for non-deductible expenses relating to short term temporary differences	27	0.8	(14)	(0.3)
Other non-deductible expenses	42	1.2	68	1.5
Actual tax expense	1,031	30.5	1,363	31.2
Tax expense comprises:
Current tax expense	1,031		1,363

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

Notes to the preliminary announcement

For the year ended 31 December 2008
_________________________________________________________________________________________

4. 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. 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
	2008	2007	2008	2007
Earnings (£'000)	2,345	3,002	2,345	3,002
Weighted average number of shares	21,189,551	21,084,103	21,865,339	21,951,815
Earnings per share (pence)	11.1p	14.2p	10.7p	13.7p

The weighted average number of shares has been increased by 675,788 (2007: 867,712) shares to take account of all dilutive potential ordinary shares that could be issued under the share option scheme.

5. Dividends

During the year, Staffline Recruitment Group plc paid interim dividends of £295,251 (2007: £275,453) to its equity shareholders. This represents a payment of 1.4p (2006: 1.3p) per share. A final dividend of £318,436 has been proposed (2007: £530,000) but has not been accrued within these financial statements. This represents a payment of 1.4p (2006: 2.5p) per share. The final dividend for 2007 was declared and paid in 2008.

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 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 2008 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.

 

END

 

 

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